SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
RESURGENCE PROPERTIES INC.
(Name of Registrant As Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies: N/A
2) Aggregate number of securities to which transaction applies: N/A
3) Per unit price or other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined):
$62,592,000.00 (based upon March 31, 1997 shareholders' equity)
4) Proposed maximum aggregate value of transaction: N/A
5) Total fee paid: $12,519.00
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
RESURGENCE PROPERTIES INC.
411 West Putnam Avenue
Greenwich, Connecticut 06830
July __, 1997
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of
Stockholders of Resurgence Properties Inc., a Maryland corporation (the
"Company"), to be held at the offices of Wexford Management LLC, 411 West Putnam
Avenue, Greenwich, Connecticut, on _____ __, 1997, at 10:00 a.m., or at any
adjournment or postponement thereof (the "Meeting").
The Notice of Meeting and Proxy Statement on the following
pages cover the formal business of the Meeting, which includes proposals (i) to
elect directors, (ii) to adopt a Plan of Complete Liquidation and Dissolution of
the Company, and (iii) to ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the current fiscal year.
The Board of Directors recommends that stockholders vote in
favor of each proposal. We strongly encourage all stockholders to participate by
voting their shares by proxy whether or not they plan to attend the Meeting.
Please sign, date and mail the enclosed proxy card as soon as possible. If you
do attend the Meeting, you may still vote in person.
For your information, enclosed herewith and incorporated
herein by reference, is a copy of the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 1996 and the Company's Quarterly Report on
Form 10-Q for the period ended June 30, 1997. We look forward to seeing you at
the Meeting.
Sincerely,
Charles E. Davidson
Chairman of the Board
<PAGE>
RESURGENCE PROPERTIES INC.
411 West Putnam Avenue
Greenwich, Connecticut 06830
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held _____ __, 1997
To the Stockholders of RESURGENCE PROPERTIES INC.:
The Annual Meeting of Stockholders of Resurgence Properties
Inc., a Maryland corporation (the "Company"), will be held at the offices of
Wexford Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut, on
______, _____ __, 1997, at 10:00 a.m., or at any adjournment or postponement
thereof (the "Meeting"), for the following purposes:
1. To elect directors to serve until the next election of
directors and until their successors are elected and
qualified;
2. To consider and act upon a proposal to approve and adopt
the Plan of Complete Liquidation and Dissolution of the
Company attached as Exhibit A to the Proxy Statement;
3. To ratify the appointment of Deloitte & Touche LLP as the
Company's independent auditors for the current fiscal year;
and
4. To transact such other business as may properly be brought
before the Meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on ______
__, 1997 will be entitled to vote at the Meeting.
Whether or not you plan to attend the Meeting, please
complete, date and sign the enclosed proxy card and return it promptly to the
Company in the return envelope enclosed for your use. You may revoke your proxy
at any time before it is voted by delivering to the Secretary of the Company a
written notice of revocation bearing a later date than the proxy, by duly
executing a subsequent proxy relating to the same shares, or by attending and
voting at the Meeting.
You are cordially invited to attend.
By order of the Board of Directors
/s/Jay L. Maymudes
------------------
Jay L. Maymudes
Secretary
_____ __, 1997
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY IN THE ENCLOSED,
SELF-ADDRESSED ENVELOPE WHICH REQUIRES NO POSTAGE
IF MAILED IN THE UNITED STATES.
<PAGE>
RESURGENCE PROPERTIES INC.
411 West Putnam Avenue
Greenwich, Connecticut 06830
PROXY STATEMENT
SOLICITATION OF PROXIES
The accompanying proxy is solicited by the Board of Directors
of Resurgence Properties Inc., a Maryland corporation (the "Company"), for use
at the Annual Meeting of Stockholders to be held at the offices of Wexford
Management LLC, 411 West Putnam Avenue, Greenwich, Connecticut, on ______, _____
__, 1997, at 10:00 a.m., or at any adjournment or postponement thereof (the
"Meeting").
A stockholder who executes a proxy may revoke it at any time
before it is voted. Proxies may be revoked by (i) delivering to the Secretary of
the Company, at or before the Meeting, a written notice of revocation bearing a
later date than the proxy, (ii) duly executing a subsequent proxy relating to
the same shares and delivering it to the Secretary of the Company at or before
the Meeting, or (iii) attending the Meeting and voting in person (although
attendance at the Meeting will not in and of itself constitute revocation of a
proxy). If a proxy is properly signed and not revoked, the shares represented by
the proxy will be voted in accordance with the instructions of the stockholder.
If no specific instructions are given, all the shares represented by the proxy
will be voted for the election of the nominees for director as set forth in this
Proxy Statement (Proposal 1), for the adoption of the Plan of Complete
Liquidation and Dissolution of the Company (the "Plan") attached hereto as
Exhibit A (Proposal 2), and for ratification of the appointment of Deloitte &
Touche LLP as the Company's independent auditors for the current fiscal year
(Proposal 3). The discretionary authority granted by the execution of a proxy
does not include the discretionary authority to adjourn or postpone the Meeting
for the purpose of soliciting additional votes.
The cost of soliciting proxies will be borne by the Company.
In addition to solicitation by mail, directors, officers and employees of the
Company may solicit proxies by telephone or otherwise. The Company will
reimburse brokers or other persons holding stock in their names or in the names
of their nominees for their charges and expenses in forwarding proxies and proxy
material to the beneficial owners of such stock. It is anticipated that the
mailing of this Proxy Statement will commence on or about _____ __, 1997.
<PAGE>
VOTING SECURITIES
The Company had outstanding 10,000,000 shares of common stock
("Common Stock") at the close of business on _____ __, 1997, which are the only
securities of the Company entitled to be voted at the Meeting. Each share of
Common Stock is entitled to one vote on each matter as may properly be brought
before the Meeting. Only stockholders of record at the close of business on
______ __, 1997 will be entitled to receive notice of and to vote at the
Meeting.
The presence in person or by proxy of stockholders entitled to
cast a majority of all the votes entitled to be cast at the Meeting constitutes
a quorum. The affirmative vote of a plurality of all of the votes cast at a
meeting at which a quorum is present is necessary for the election of a
director. For purposes of the election of directors, abstentions and broker
non-votes (i.e., where a broker indicates on the proxy that it does not have
discretionary authority as to certain shares to vote on a particular matter)
will not be counted as votes cast and will have no effect on the result of the
vote. The affirmative vote of holders of a majority of all of the outstanding
Common Stock of the Company is necessary for adoption of Proposal 2 (adoption of
the Plan). For purposes of the vote on Proposal 2, abstentions and broker
non-votes will be counted as votes cast and will have the same effect as a vote
against Proposal 2. The affirmative vote of a majority of all of the votes cast
at a meeting at which a quorum is present is necessary for adoption of Proposal
3 (election of independent auditors). For purposes of the vote on Proposal 3,
abstentions and broker non-votes will not be counted as votes cast and will have
no effect on the result of the vote.
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<PAGE>
PROPOSAL 1
ELECTION OF DIRECTORS
The Board of Directors proposes for election at the Meeting
the six persons listed below to serve (subject to the Company's By-Laws) as
directors of the Company until the next annual meeting of stockholders and until
the qualification of their successors. The persons named in the enclosed proxy
will vote for the election of the six nominees named below unless authority to
vote is withheld. If any such nominee should be unwilling or unable to serve as
a director of the Company (which is not anticipated) the persons named in the
accompanying proxy will vote the proxy for a substitute, or substitutes, in
their discretion. 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.
The names, ages and positions of the nominees for director of
the Company are set forth below.
<TABLE>
<CAPTION>
Name Age Positions
- ---- --- ---------
<S> <C> <C>
Charles E. Davidson 43 Chairman of the Board and Director
Joseph M. Jacobs 44 Chief Executive Officer, President, Treasurer
and Director
Karen M. Ryugo1 37 Director
Vance C. Miller1 63 Director
Lawrence Howard, M.D.1 43 Director
Jeffrey A. Altman 30 Director
</TABLE>
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 Directors of Presidio
Capital Corp. ("Presidio," successor company to 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.
- --------
1 Member of Compensation Committee
-3-
<PAGE>
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 Management LLC ("Wexford"), the asset manager and portfolio
manager of the Company (previously Concurrency Management Corp.
("Concurrency")).
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 18, 1996,
Mr. Jacobs was the President and sole stockholder of Concurrency, which until
that date was the asset and portfolio manager of the Company. Mr. Jacobs is
presently 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 ("Bear Stearns 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 was a Senior Vice President of Wexford
from January 1, 1995 through May 2, 1997. Ms. Ryugo 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, 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 Pilgrim 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. Dr. Howard is a founder of Presstek, Inc., a
public company which has developed proprietary non-photographic digital imaging
technology for the printing and graphic arts industries. and has been a director
since November 1987. Dr. Howard was Vice Chairman of Presstek from November 1992
to February 1996, Chief Executive Officer and Treasurer from June 1988 to June
1993, President from June 1988 to November 1992 and Vice President from October
1987 to June 1988. From March 1997 to the present, Dr. Howard has been a general
partner of Hudson Ventures, L.P., a limited partnership that has prepared an
application to qualify as a small business investment company. From July 1995 to
March 1997, Dr. Howard was President of Howard Capital Partners, Inc., an
investment and merchant banking firm. From July 1994 to July 1995, Dr. Howard
was Senior Managing Director of Whale Securities Co., L.P., an NASD registered
broker-dealer. From October 1992 through June 1994, Dr. Howard was President and
Chief Executive Officer of LH Resources, Inc., a management and financial
consulting firm.
-4-
<PAGE>
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 Franklin Mutual Advisors, Inc.,
formerly Heine Securities Corporation, a registered investment adviser.
The Board of Directors unanimously recommends a vote "FOR"
election of the nominees listed above as directors.
BOARD OF DIRECTORS AND COMMITTEE OF THE BOARD
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 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
Ryugo, Dr. Lawrence Howard and Vance C. Miller are the members of the
Compensation Committee. During 1996, the Compensation Committee did not meet and
did not take any informal actions.
Meetings Held and Action Taken
During 1996, the Board of Directors held two meetings and
acted twelve times by informal action. Charles E. Davidson, Joseph M. Jacobs,
Karen M. Ryugo and Vance C. Miller participated in both meetings and Dr.
Lawrence Howard and Jeffrey A. Altman participated in one meeting each.
Compensation of Directors
Each non-officer director of the Company (i.e., all of the
directors other than Joseph M. Jacobs), 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 Interlocks and Insider Participation
The Compensation Committee of the Company's Board of Directors
has been comprised of Lawrence Howard, MD, Vance C. Miller and Karen M. Ryugo.
Until January 1995, Ms. Ryugo was a non-compensated Vice President and Secretary
of the Company. In January 1995, Ms. Ryugo became a Vice President of Wexford
and from January 1996 through May 2,
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<PAGE>
1997 was a Senior Vice President of Wexford. In addition, although Joseph M.
Jacobs is not a member of such Compensation Committee, as the President and
controlling person of Wexford, he had discretionary authority with respect to
the grant of Management Options (as defined herein) 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. In the
event that the stockholders of the Company adopt the Plan (see Proposal 2) and
the Management Options are exchanged for Management Distributions (as defined
herein), Mr. Jacobs would be entitled to 100% of such Management Distributions
to the extent not granted to others. See "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.
-6-
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information known to the Company
with respect to beneficial ownership of the Common Stock as of May 15, 1997
(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, L.L.C............................ 567,700(2) 5.7%
Farallon Capital Partners, L.P................................ 1,140,700(2) 11.4
Farallon Capital Institutional Partners , L. P................ 1,291,700(2) 12.9
Farallon Capital Institutional Partners II, L.P............... 776,600(2) 7.8
Farallon Capital Institutional Partners III, L.P.............. 25,000(2) *
Tinicum Partners, L.P......................................... 213,400(2) 2.1
Thomas F. Steyer.............................................. 4,015,100(2) 40.2
Fleur E. Fairman.............................................. 3,447,400(2) 34.5
David I. Cohen................................................ 4,015,100(2) 40.2
Meridee A. Moore.............................................. 4,015,100(2) 40.2
Joseph F. Downes.............................................. 4,015,100(2) 40.2
Jason M. Fish................................................. 4,015,100(2) 40.2
William F. Mellin............................................. 4,015,100(2) 40.2
Stephen L. Millham............................................ 4,015,100(2) 40.2
Andrew B. Fremder............................................. 4,015,100(2) 40.2
Enrique H. Boilini............................................ 4,015,100(2) 40.2
Total Shares in the Preceding Group...................... 4,015,100(2) 40.2
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership (1)
Number of Percentage
Name of Beneficial Owner Shares Outstanding
------------------------ ------ -----------
<S> <C> <C>
Franklin Mutual Advisors, Inc............................. 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 6.9
Wexford Overseas Partners I, L.P.......................... 308,500 3.1
Charles E. Davidson (4)................................... 1,218,500(5) 12.2
Total Shares in the Preceding Group.................. 1,218,500 12.2
Davidson Kempner Partners................................. 374,600(6) 3.7
Davidson Kempner Endowment Partners....................... 284,700(6) 2.8
MHD Management Co......................................... 659,300(6) 6.6
Davidson Kempner Institutional Partners, L.P.............. 409,400(6) 4.1
Davidson Kempner Advisers, Inc............................ 409,400(6) 4.1
Davidson Kempner International, Ltd....................... 61,400(6) *
Davidson Kempner International Advisors LLC............... 61,400(6) *
M.H. Davidson & Co........................................ 20,800(6) *
Thomas L. Kempner Foundation Inc.......................... 900(6) *
Thomas L. Kempner, Jr..................................... 1,153,200(6)(7) 11.5
Marvin H. Davidson........................................ 1,150,900(6) 11.5
Stephen M. Dowicz......................................... 1,150,900(6) 11.5
Scott E. Davidson......................................... 1,150,900(6) 11.5
Michael J. Leffell........................................ 1,150,900(6) 11.5
Total Shares in the Preceding Group.................. 1,153,200(6) 11.5
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership (1)
Number of Percentage
Name of Beneficial Owner Shares Outstanding
------------------------ ------ -----------
<S> <C> <C>
Joseph M. Jacobs(4)(8)........................................ 1,075,775(9) 10.8%
Robert Holtz(4)(8) ........................................... 57,555(10) 5.8%
Jay L. Maymudes(4)(8)......................................... 13,738(11) *
Karen M. Ryugo(4)............................................. 1,000(12) *
Vance C. Miller(4)............................................ -- --
Dr. Lawrence Howard, M.D.(4).................................. -- --
Jeffrey A. Altman(4).......................................... -- --
Directors and Officers, as a group (8 persons)................ 2,366,568 23.7
- ---------------------
</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
("Rule 13d-3") under the Securities Exchange Act of 1934, as amended
(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 member of Farallon Partners, L.L.C. ("FPLLC"), the
general partner of each of Farallon Capital Partners, L.P., Farallon
Capital Institutional Partners, L.P., Farallon Capital Institutional
Partners II, L.P., Farallon Capital Institutional Partners III, L.P.
and Tinicum Partners, L.P. (collectively, the "Farallon Partnerships"),
Thomas F. Steyer, Fleur E. Fairman, David I. Cohen, Meridee A. Moore,
Joseph F. Downes, Jason M. Fish, William F. Mellin, Stephen L. Millham,
Andrew B. Fremder and Enrique H. Boilini may each be deemed to own
beneficially for purposes of Rule 13d-3 under the Exchange Act the
1,140,700, 1,291,700, 776,600, 25,000 and 213,400 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, L.L.C. ("FCMLLC") and
various managed accounts, FCMLLC 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 567,700 shares held in such
accounts. As the managing members of FCMLLC each of Mr. Steyer, Mr.
Cohen, Ms. Moore, Mr. Downes, Mr. Fish, Mr. Mellin, Mr. Millham, Mr.
Fremder and Mr. Boilini may be deemed the beneficial owner of the
567,700 shares held in such accounts managed by FCMLLC, which shares
are included in the listed ownership. FCMLLC and
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<PAGE>
FPLLC and each managing member thereof disclaims any beneficial
ownership of such shares. The foregoing is based upon information
furnished to the Company by the Farallon Partnerships.
(3) Franklin Mutual Advisors, Inc. ("FMAI") is an investment adviser
registered under the Investment Advisers Act of 1940. One or more of
FMAI'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, FMAI has sole investment
discretion and voting authority with respect to such securities. FMAI
is a wholly-owned subsidiary of Franklin Resources, Inc. ("FRI"), a
publicly held financial services corporation. Neither FMAI nor FRI has
any interest in dividends or proceeds from the sale of such securities
and each disclaims beneficial ownership of all the securities owned by
FMAI's advisory clients. The foregoing is based upon information
furnished to the Company by FMAI.
(4) See "Proposal 1 -- Election of Directors" 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. The foregoing is based upon information
furnished to the Company by the Wexford Partnerships.
(6) Pursuant to separate services agreements, M.H. Davidson & Co., Inc.
("M.H. Davidson") has investment and voting discretion with respect to
the 20,800 shares of Common Stock held by M.H. Davidson & Co., the
374,600 shares of Common Stock held by Davidson Kempner Partners, the
284,700 shares of Common Stock held by Davidson Kempner Endowment
Partners, the 409,400 shares of Common Stock held by Davidson Kempner
Institutional Partners, L.P. and the 61,400 shares of Common Stock held
by Davidson Kempner International, Ltd. (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 1,150,900 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.
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<PAGE>
(7) 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.
(8) 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, all 55,555 Management Options have vested as of, or
will vest within 60 days after, May 15, 1997, (b) Management Options to
purchase 15,000 shares of Common Stock to Jay L. Maymudes, an officer
of Wexford, of which 11,238 Management Options have vested as of, or
will vest within 60 days after, May 15, 1997, and (c) Management
Options to purchase an aggregate of 32,500 shares of Common Stock to
certain employees of Wexford, of which 14,781 Management Options have
vested as of, or will vest within 60 days after, May 15, 1997. 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. 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.
(9) Includes 1,025,775 shares of Common Stock issuable upon exercise of
vested Management Options (500,000 shares underlying vested Jacobs
Options and 100% of the shares underlying exercisable options not
granted to Wexford's officers and/or employees less shares underlying
vested Jacobs 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.
(10) Includes 55,555 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.
(11) Includes 11,238 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.
-11-
<PAGE>
(12) Represents shares of Common Stock subject to an irrevocable proxy held
by Charles E. Davidson.
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 Franklin Mutual
Advisors, Inc. is 51 J.F.K. Parkway, Short Hills, New Jersey 07078; 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.
CERTAIN RELATIONSHIPS AND RELATED-PARTY TRANSACTIONS
Wexford Management Agreement
General. Pursuant to a management agreement, dated as of May 4, 1994,
as was amended on March 8, 1995 and as of May 4, 1997 (the "Wexford Management
Agreement"), between the Company and Wexford, Wexford serves as portfolio
manager and asset manager of the Company. Wexford became the Company's asset
manager on September 12, 1994 (the "Notice Date"). Joseph M. Jacobs, the
President, Chief Executive Officer, Treasurer and a director of the Company is
the President and the controlling 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 and a
Senior Vice President of Wexford. Charles E. Davidson, the Chairman of the Board
and a director of the Company, is a member of Wexford. Wexford provides
management and other services to third parties that are not related to the
Company.
Services. As portfolio manager, Wexford's responsibilities have related
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, President
and 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 either directly or
indirectly 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
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<PAGE>
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.
Termination. The original term of the Wexford Management Agreement was
scheduled to expire on May 4, 1997, however, pursuant to Amendment No. 2 to the
Wexford Management Agreement, the Company and Wexford agreed to extend the
expiration date of the Wexford Management Agreement to the earlier of (i)
December 31, 1997, (ii) the effective date of the Articles of Dissolution filed
by the Company with the Maryland State Department of Assessments and Taxation,
and (iii) such later date as extended in writing by the Company and Wexford.
Pursuant to Amendment No. 2 to the Wexford Management Agreement, the Wexford
Management Agreement may be terminated by the Company, at any time, with or
without cause, and without any penalty, by either (i) the affirmative vote of
the majority of the members of the Board of Directors, or (ii) the affirmative
vote or written consent of a majority of the holders of the Common Stock of the
Company. The Wexford Management Agreement may be terminated by Wexford at its
option upon 60 days' prior written notice to the Company.
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 into by 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 Amendment No. 2 to the
Wexford Management Agreement, if the stockholders of the Company approve
Proposal 2, the March 8, 1995 amendment would be null and will no longer be
applicable. See "-- Greenwich, Connecticut Office Space."
Indemnification. 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 Wexford 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.
Fees. Pursuant to the Wexford Management Agreement, the management fee
(the "Wexford Management Fee") payable to Wexford was $170,750 per month,
payable in arrears on
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<PAGE>
the first calendar day of the next succeeding calendar month. For the year ended
December 31, 1995, the aggregate Management Fee was $2,049,000. For the year
ended December 31, 1996, Wexford agreed to reduce the Wexford Management Fee to
$1,916,000.
Pursuant to Amendment No. 2 to the Wexford Management Agreement, the
Company and Wexford agreed that the Wexford Management Fee, for the period from
January 1, 1997 through the earlier of the termination of the Wexford Management
Agreement and December 31, 1997, would be (i) $570,500 for the period from
January 1, 1997 through May 4, 1997, (ii) $246,000 for the period from May 5,
1997 through June 30, 1997, (iii) $223,750 for the period from July 1, 1997
through September 30, 1997, and (iv) $111,875 for the period from October 1,
1997 through December 31, 1997, for a total of $1,152,125, subject to upward or
downward adjustment, upon the expiration or termination of the Wexford
Management Agreement, to Actual Expenses (as defined in the Wexford Management
Agreement). The Wexford Management fee is payable in arrears on the first day of
each calendar month.
Management Options. On May 4, 1994, the Company agreed to grant 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 Management Options
carried 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 were 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. Upon expiration of the Management Options, any ungranted
Management Options , terminated Management Options, or Management Options
granted to another person but not vested prior to their expiration, would be
deemed to have been granted to Mr. Jacobs. 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. 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. 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. Upon adoption of the Plan (see Proposal 2), all of the
Management Options described above will be fully vested. 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. None of such employees are employees of Wexford as of March 15, 1997.
14,781 of their Management Options were vested as of the date of their
termination and the remaining 17,719 unvested Management Options were forfeited,
and as a
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<PAGE>
consequence, Mr. Jacobs is entitled to such Management Options unless they are
granted to another individual.
The following table sets forth information relating to the Management
Options:
<TABLE>
<CAPTION>
As of As of As of
May 15, December 31, December 31,
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total shares under options ........... 1,111,111 1,111,111 1,111,111
Total shares under granted options ... 585,336 585,336 603,055
Total shares under exercisable options 580,950 435,859 289,955
Total shares under forfeited options . 17,719 17,719 --
Total shares under exercised options . -- -- --
Total shares under expired options ... -- -- --
Per share exercise price ............. $ 8.50 $ 8.50 $ 8.50
</TABLE>
Pursuant to Amendment No. 2 to the Wexford Management Agreement, in the
event that the stockholders of the Company adopt the Plan (See Proposal 2)
holders of Management Options would have the opportunity to exchange such
Management Options for a fully-vested right to receive a pro rata portion of a
cash fee (the "Management Distributions") to be paid by the Company. Wexford has
obtained binding commitments from each holder of Management Options to accept
such pro rata portion of the Management Distributions in exchange for their
Management Options upon adoption of the Plan by the stockholders of the Company.
As a result, in the event that the Plan is adopted, all outstanding Management
Options will be canceled and the holders thereof will instead be entitled to
receive a pro rata portion of the Management Distributions.
Amendment No. 2 to the Wexford Management Agreement provides
that Management Distributions in an amount equal to ten percent of all
distributions made to the stockholders of the Company in excess of $8.50 per
share (inclusive of the $2.50 per share dividend paid on April 14, 1997) will be
paid to Wexford concurrently with the periodic payment of the related
distributions to the Company's stockholders. The purpose of the Management
Distributions are to provide an incentive compensation opportunity to Wexford
employees who are providing services to the Company, on terms which are desired
to provide substantially equivalent benefits to those originally intended to be
provided by the Management Options. The Board of Directors of the Company
believed that the value of the Management Options would be significantly
impaired as a consequence of the adoption of the Plan. Such impairment which can
not be quantified, would result from the effective reduction in the term of the
Management Options from the stated 10 years to the period from the grant of such
Management Options until completion of the Company's liquidation (a period of
approximately four years) and the uncertainty as to the trading price of the
Common Stock given the anticipated liquidation of the Company. The Board of
Directors determined that the Company, in adopting the Plan, should not deprive
such employees of the benefits intended to be conferred by the Management
Options. Payment of the Management Distributions by the Company will reduce the
amount
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<PAGE>
available for distribution to stockholders of the Company by ten percent of all
distributions made by the Company in excess of $85,000,000.
Because, as of May 15, 1997, 86.4% of the Management Options were
attributable to Mr. Jacobs, unless granted to others, 86.4% of the Management
Distributions would be payable to Mr. Jacobs. Although payment of the Management
Distributions is made directly to Wexford, the aggregate of all such amounts are
then transferred to the individual employees (or past employees) of Wexford
entitled to receive payments of such Management Distributions. Under no
circumstances is Wexford entitled to retain any portion of the Management
Distributions. Neither the Management Options nor the Management Distributions
affect the obligation of the Company to pay, or the amount of, the Wexford
Management Fee. Based on the Condensed Unaudited Pro Forma Statement of Net
Assets in Liquidation the Company believes that the ultimate amount of
Management Distributions be approximately $427,000 of which approximately
$369,000 would be attributable to Mr. Jacobs. The right to receive Management
Distributions is contingent on the termination of the related Management
Options. Because the Management Options will terminate upon the effectiveness of
the Management Distributions, the Management Options lose their value upon the
adoption of the Plan.
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. Pursuant to Amendment No. 2 to the Wexford Management
Agreement, if the stockholders of the Company approve the adoption of the Plan
(see Proposal 2), the provisions of this paragraph will no longer be applicable.
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 "--Wexford Management Agreement," the
Company makes no direct payment in respect of these premises.
Transactions with Director
During 1996, the Company paid $163,200 to an entity controlled by Vance
Miller, a member of the Board of Directors for real estate brokerage services in
connection with the sale of one of the Company's properties. The Company
believes that the payments made by the Company to such entity were made on the
same terms as if such payments had been made to an entity unaffiliated with the
Company.
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<PAGE>
EXECUTIVE COMPENSATION
No long-term compensation was awarded to, earned by or paid by the
Company to the Chief Executive Officer or any other officer of the Company for
services rendered to the Company during the fiscal year ended December 31, 1996.
The Company has no employment agreements and maintains no employee benefit
plans. Mr. Jacobs has not received any compensation for service rendered to the
Company in any capacity either (i) from the Company, or (ii) from any third
party by means of any transaction between the Company and a third party where a
primary purpose of the transaction was to furnish compensation to Mr. Jacobs.
Mr. Jacobs was not granted any Management Options during the year ended
December 31, 1996. However, Management Options underlying 17,719 shares were
forfeited to Wexford by certain employees of Wexford during the year ended
December 31, 1996 as a result of their termination.
The following table reflects that none of the Management Options were
exercised by the Chief Executive Officer during the fiscal year ended December
31, 1996 and lists the number and value of the unexercised Management Options
held by the Chief Executive Officer at December 31, 1996 and May 15, 1997:
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Shares Number of Securities Value of Unexercised
Acquired on Value Underlying Unexercised in-the-Money Options at
Exercise Realized Options at FY-End (#) FY-End ($) Exercisable
At Name (#) ($) Exercisable/Unexercisable /Unexercisable
- -- ---- --------------- ----------- ------------------------- --------------
<S> <C> <C> <C> <C> <C>
12/31/96 Joseph M. Jacobs -- -- 769,331/256,444(1) $0
5/15/97 Joseph M. Jacobs -- -- 1,025,775/--(2) $0
</TABLE>
- ---------------------
(1) The Wexford Management Agreement provides that of the total
1,111,111 Management Options available for grant, no more than 75% were
exercisable on or before May 4, 1997. 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 (375,000) to 75%
of the Management Options that were not granted as of December 31, 1996
(394,331). The number of securities underlying unexercisable options was
determined by subtracting the number of securities underlying exercisable
options (769,331) 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 prior fiscal year (1,025,775).
(2) Under the Wexford Management Agreement, all of the 1,111,111
Management Options available for grant were fully exercisable on May 4, 1997.
Accordingly, the number of securities underlying exercisable options was
determined by adding the portion of the Jacobs Options that vested by May 15,
1997 (500,000) to 100% of the Management Options that were not granted as of
December 31, 1996 (1,025,775), less the vested Jacobs Options (500,000). The
number of shares of Common Stock underlying unexercisable options was determined
by subtracting the number of shares of Common Stock underlying exercisable
options (1,025,775) 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 May 15, 1997 (zero).
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<PAGE>
Consideration of the Wexford Management Agreement
The Compensation Committee of the Board of Directors is composed
entirely of non-management or outside directors and currently consists of Karen
M. Ryugo, Lawrence Howard, M.D. and Vance C. Miller. The Company has no
employees and does not compensate its executive officers and, accordingly, the
Compensation Committee has never considered executive compensation. The
Compensation Committee approved the Wexford Management Agreement pursuant to
which executive officers of the Company, who are also officers and/or employees
of Wexford, received Management Options in their capacity as officers and/or
employees of Wexford. Amendment No. 2 to the Wexford Management Agreement was
approved by the Board of Directors (with Messrs. Davidson and Jacobs abstaining)
in connection with the Board of Directors' approval of Proposal 2. See "Certain
Relationships and Related-Party Transactions -- Wexford Management Agreement."
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires that directors, certain
officers of the Company and 10% stockholders file reports of ownership and
changes in ownership with the Securities and Exchange Commission ("SEC") as to
the Company's securities beneficially owned by them. Such persons are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file.
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
until April 6, 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.
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<PAGE>
PROPOSAL 2
ADOPTION OF THE PLAN OF COMPLETE LIQUIDATION
AND DISSOLUTION OF THE COMPANY
The Board of Directors is proposing a Plan of Complete Liquidation and
Dissolution of the Company (the "Plan") for approval by the stockholders at the
Meeting. The Plan was approved by the Board of Directors, subject to stockholder
approval, on April 24, 1997. If the Plan were to be approved by the
stockholders, following payment or provision for payment of the Company's claims
and obligations, the stockholders of the Company would receive distributions in
the amount of the aggregate net proceeds from the sale of the assets of the
Company less amounts required to pay the Company's obligations and expenses, in
accordance with the provisions of the Plan. None of the Company's assets have
been, nor will any of the Company's assets be, sold to affiliates of the Company
or Wexford. The Company has not obtained, and does not anticipate obtaining,
apapraisals of its properties and has adopted no other means of assuring that it
will receive fair value of its assets (other than precluding purchases by
affiliates of the Company and Wexford and attempting to broadly market such
properties). No other independent determination has been made as to the fairness
of the amounts to be distributed to stockholders. Upon completion of the
distribution of its net assets to the stockholders, the Company will be
dissolved, wound up and its existence as a corporation terminated.
Following its review of the current properties and operations of the
Company and of the current concentration of stockholders of the Company, the
Board of Directors determined that the most efficient way for the Company to
enable its stockholders to obtain the greatest value for their interests in the
Company would be through the liquidation of the Company. The Board of Directors
based its conclusion in part, on the fact that a large percentage of the
outstanding Common Stock of the Company (approximately 88%) is held beneficially
by only 4 groups of investors (see "Security Ownership of Certain Beneficial
Owners and Management"). As a result, there is sporadic trading and virtually no
market liquidity for the Common Stock of the Company. The Board of Directors
concluded that, in order to provide liquidity to the Company's stockholders, the
Company should liquidate and dissolve. The Board of Directors further concluded
that adoption of the Plan would be the most efficient way to maximize the value
to be received by stockholders in respect of the Company's stock. The Board of
Directors of the Company did not engage in any discussion on the specific
aspects of the Company's financial condition that fostered the belief of the
Board of Directors that the Plan would maximize stockholders value. Other than
as described herein, the Board of Directors of the Company did not discuss or
analyze any aspects of the Company's results of operations, liquidity or capital
resources in determining that the Plan should maximize stockholder value. The
Board of Directors considered the possibility of continuing to operate the
Company on an ongoing basis. However, due to the Company's historical results of
operations (and in particular the accumulated losses realized by the Company
since its inception through December 31, 1996 of over 17 million) and its
assessment of the future prospects for the Company's existing real estate
assets, the Board of Directors decided to adopt the Plan. In reaching such
decision, the Board of Directors considered specifically the following factors
concerning its operating results and current properties: the Company's
cumulative losses since its inception, and Wexford's view that the optimal
return to stockholders would be achieved by disposition of the Company's
properties rather than operating them and thereby continuing to incur
significant overhead expenses, which in 1996 were approximately $2.5 million.
The Board of Directors did not engage in any further analysis or negotiation.
The Board of Directors unanimously recommends that stockholders vote in favor of
the proposal to adopt the Plan.
The following is a summary of all material terms of the Plan. The full
text of the Plan is set forth as Exhibit A hereto, and stockholders are urged to
read the Plan in its entirety. The following summary of the Plan is qualified in
its entirety by reference to the complete text of the Plan.
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<PAGE>
Description of the Plan
Provision for Liabilities; Liquidating Distributions; Stockholders'
Continuing Liability
The Plan provides for the complete liquidation and dissolution of the
Company in accordance with the provisions of the Maryland General Corporation
Law (the "MGCL"). Prior to making any distribution to its stockholders, the
Company shall pay, or as determined by the Board of Directors, make reasonable
provision to pay, all claims and obligations of the Company, including all
contingent, conditional or unmatured claims known to the Company, and shall make
such provision, as determined by the Board of Directors, as will be reasonably
likely to be sufficient to provide compensation for claims that have not been
made known to the Company or that have not arisen, but that, based on facts
known to the Company, are likely to arise or to become known to the Company
prior to the expiration of applicable statutes of limitation.
Following the payment or the provision for the payment of the Company's
claims and obligations, the Plan provides for the pro rata distribution to its
stockholders all of its remaining property and assets. The Plan provides that if
and to the extent deemed necessary or appropriate by the Board of Directors, the
Company may establish and set aside a reasonable amount (the "Contingency
Reserve") to satisfy claims against the Company and expenses incurred in
connection with the collection and defense of the Company's property and assets
and the liquidation and dissolution provided for in the Plan. The Contingency
Reserve may consist of cash or property. Following the payment, satisfaction or
other resolution of such claims and expenses, the Plan provides that any amounts
remaining in the Contingency Reserve shall be distributed pro rata to the
stockholders of record on the date the stock transfer books of the Company are
closed.
The Plan provides that prior to the date the Articles of Dissolution
(the "Articles") are accepted for filing by the State Department of Assessments
and Taxation of the State of Maryland and the Company is dissolved, the Company
shall make distributions to the stockholders in cash or in kind (allocated pro
rata in the discretion of the Board of Directors) as expeditiously as is
practicable consistent with prudence and reasonable business judgment, in such
manner, and at such time, as the Board of Directors in its sole discretion may
determine in accordance with the provisions of the MGCL. On April 14, 1997, the
Company paid a $2.50 per share special dividend paid in respect of its Common
Stock, which dividend was declared on March 18, 1997. This dividend was declared
and paid out of the net proceeds of the sale of certain assets of the Company
sold in the ordinary course of the Company's business. If the Plan is adopted,
the aggregate amount of such dividend shall be included in the computation of
Management Distributions to be paid. See "Certain Relationships and
Related-Party Transactions--Wexford Management Agreement." Other than the
estimated value of the assets of the Company as indicated on the Company's
Condensed Unaudited Pro Forma Statement of Net Assets in Liquidation, the
Company has not made any determination as to the anticipated proceeds to be
received upon sale of such assets, and the Company has not obtained any
appraisals of the Company's assets.
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<PAGE>
The Plan also provides that following the date on which the Articles
are accepted for filing by the State Department of Assessments and Taxation of
the State of Maryland and the Company is dissolved, any assets remaining
available for distribution to the stockholders shall be distributed (the
"Dissolution Distribution") in accordance with the provisions of the MGCL.
As of March 31, 1997, the Company's Balance Sheet reflected total
liabilities of $6.4 million, exclusive of the obligation to pay the $25.0
million of dividends on April 14, 1997, consisting of $5.1 million of mortgage
notes payable, $0.6 million of real estate taxes and $0.7 million of other
liabilities. The Company is involved in certain legal proceedings which arose in
the ordinary course of the Company's business. Although the ultimate disposition
of such legal proceedings is not determinable, management does not believe that
such claims or proceedings, individually or in the aggregate, will be material.
At present, the Company believes that in addition to the costs and expenses
associated with facilitating the Plan, it will be necessary to set aside cash in
a Contingency Reserve in the amount of approximately $1.5 million to cover
potential claims and contingencies. The Company is currently the defendant in a
pending litigation in which a claim has been made against the Company for
$330,000. The Company believes that the claim against the Company is without
merit. The Company is not aware of any other claims, obligations or payments
other than those incurred by the Company in the ordinary course of business.
As discussed above, the Plan contemplates that the Dissolution Distribution will
be made to stockholders only to the extent the Company has assets remaining in
excess of the Contingency Reserve established to cover the obligations and
liabilities of the Company. However, pursuant to the provisions of the MGCL, in
the event that the Company makes distributions to stockholders of the Company
and subsequently does not have sufficient assets to satisfy its debts and
obligations, members of the Board of Directors of the Company may be held
personally liable for the amount of any distribution which caused the Company to
become insolvent, but only to the extent that such member or members of the
Board of Directors voted in favor of such distribution and provided that such
member or members of the Board of Directors failed to satisfy the duty of care
required under the MGCL. Additionally, such member or members of the Board of
Directors held liable would be entitled to contribution from each other member
of the Board of Directors who could be held liable and from each stockholder of
the Company for the amount of such distribution such stockholder accepted
knowing that such distribution would cause the Company to be insolvent. Based on
the foregoing, the Board of Directors has determined that a $1.5 million
Contingency Reserve would be a reasonable and prudent reserve to address unknown
and unforseen events, liabilities and contingencies. By providing a conservative
reserve amount, the Company believes that it reduces the liklihood of the
consequences described in this paragraph resulting from the distribution of the
Company's assets without providing for the Company's liabilities.
Surrender of Stock Certificates
The Plan provides that distributions to the Company's stockholders
shall be in complete redemption and cancellation of all of the outstanding
Common Stock. As a condition to the receipt of the Dissolution Distribution
under the Plan, the Board of Directors may require
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stockholders to surrender their certificates evidencing Common Stock to the
Company or its agent for cancellation. If a stockholder's certificate for shares
of Common Stock has been lost, stolen or destroyed, as a condition to the
receipt of any distribution, such stockholder may be required to furnish to the
Company satisfactory evidence of the loss, theft or destruction thereof,
together with a surety bond or other security or indemnity reasonably
satisfactory to the Company.
Once the Board of Directors determines the date on which stockholders
should surrender their certificates, the Company will cause a notice and
transmittal form to be sent to stockholders, which will advise the stockholders
of the procedures to be followed for the surrender of certificates representing
shares of Common Stock. Stockholders should not submit their stock certificates
to the Company or its transfer agent before receiving instructions to do so.
Liquidating Trust
If advisable for any reason to complete the liquidation and
distribution of the Company's assets to its stockholders, the Plan provides that
the Board of Directors may at any time transfer to a liquidating trust (the
"Trust") the remaining assets of the Company. The Trust thereupon shall succeed
to all of the then remaining assets of the Company, including the Contingency
Reserve, and any remaining liabilities and obligations of the Company. The Board
of Directors and management may determine to transfer assets to a liquidating
trust in circumstances were the nature of an asset is not susceptible to
distribution (for example, interests in intangibles), or in circumstances where
they believe that such a transfer would be in the best interests of the
stockholders of the Company. The sole purpose of the Trust shall be to prosecute
and defend suits by or against the Company, to settle and close the business of
the Company, to dispose of and convey the assets of the Company, to satisfy the
remaining liabilities and obligations of the Company and to distribute the
remaining assets of the Company to its stockholders. The Plan authorizes the
Board of Directors to appoint one or more trustees of the Trust and to cause the
Company to enter into a liquidating trust agreement with such trustee or
trustees on such terms and conditions as the Board of Directors determines.
Adoption of the Plan by the stockholders also will constitute the approval by
the stockholders of any appointment of the trustees and of the liquidating trust
agreement. Trustees of any liquidating trust may consisst of current members of
the Board of Directors of the Company and/or executive officers of the Company,
although no determination has been made to date.
The Company has no present plan to use a liquidating trust, but the
Board of Directors believes the flexibility provided by the Plan with respect to
the liquidating trust to be advisable.
Procedures for Dissolution
At such time as the Board of Directors has determined that all
necessary requirements for dissolution have been satisfied under Maryland law,
the appropriate officers of the Company shall execute and cause to be filed in
the State Department of Assessments and Taxation of the State of Maryland, and
elsewhere as may be required or deemed appropriate, such documents as may be
required to effectuate the dissolution of the Company. From and after the date
such
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<PAGE>
documents are accepted by the State Department of Assessments and Taxation of
the State of Maryland, the Company will be deemed to be completely dissolved,
but will continue to exist under Maryland law for the purposes of paying,
satisfying and discharging any existing debts or obligations, collecting and
distributing its assets, and doing all other acts required to liquidate and wind
up the Company's business affairs. The members of the Board of Directors in
office at the time the Articles are accepted for filing by the State Department
of Assessments and Taxation of the State of Maryland shall be deemed to be
trustees of the assets of the Company for the purposes of liquidation and shall
have all powers provided to them by Section 3-410 of the MGCL. As soon as
practicable after the date on which the Plan is adopted by the stockholders, but
in no event later than 20 days prior to the filing of Articles the Company shall
mail notice in accordance with the MGCL to all its creditors and employees that
this Plan has been approved by the Board of Directors and the stockholders.
Management of the Company Following Adoption of the Plan
It is anticipated that the directors elected pursuant to Proposal 1 and
the current officers of the Company will continue to serve in such capacities
following the adoption of the Plan. After the Articles are filed, the Company
does not intend to hold any further annual meetings of stockholders. Directors
and officers in office when the Plan is adopted will continue in office until a
successor is duly elected and qualified or until their resignation or removal.
Following the adoption of the Plan by the stockholders, the Company
shall not engage in any business activities except for the purpose of preserving
the value of its assets, prosecuting and defending suits by or against the
Company, adjusting and winding up its business and affairs and distributing its
assets in accordance with the Plan. The Board of Directors and, if authorized by
the Board of Directors, the officers of the Company, will have the authority to
do or authorize any and all acts and things provided for in the Plan and any and
all further acts and things they may consider necessary or desirable to carry
out the purposes of the Plan.
Following the adoption of the Plan, the Company may continue to pay to
the Company's directors and agents, or any of them, compensation for services
rendered in connection with the implementation of the Plan. Additionally, the
Company may continue to pay Wexford compensation for services rendered in
accordance with Amendment No. 2 to the Wexford Management Agreement, which
agreement can be terminated in accordance with its terms. See "Certain
Relationships and Related-Party Transactions-Wexford Management Agreement."
Adoption of the Plan by the stockholders of the Company shall constitute the
approval of the stockholders of the payment of any such compensation. Following
the adoption of the Plan, the Company shall continue to indemnify its officers,
directors, employees and agents in accordance with its Articles of
Incorporation, By-Laws and any contractual arrangements as therein or elsewhere
provided, and such indemnification shall apply to acts or omissions of such
persons in connection with the implementation of the Plan and the winding up of
the affairs of the Company. The Company's obligation to indemnify such persons
may be satisfied out of assets transferred to the Trust, if any. The Plan
authorizes the Board of Directors and the trustees of any Trust are authorized
to obtain and maintain insurance as may be necessary to cover the Company's
indemnification obligations.
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<PAGE>
Record Date; Effect on Trading of the Common Stock
Pursuant to the Plan, the Company shall close its stock transfer books
and discontinue recording transfers of Common Stock at the close of business on
the record date fixed by the Board of Directors for the Dissolution Distribution
(the "Record Date"). Following such Record Date, the Plan provides that
certificates representing Common Stock shall not be assignable or transferable
on the books of the Company except by will, intestate succession or operation of
law. The proportionate interests of all of the stockholders of the Company shall
be fixed on the basis of their respective stockholdings at the close of business
on the Record Date, and, after the Record Date, any liquidating distributions
made by the Company shall be made solely to the stockholders of record at the
close of business on the Record Date except as may be necessary to reflect
subsequent transfers recorded on the books of the Company as a result of any
assignments by will, intestate succession or operation of law. The Common Stock
currently is traded on the NASDAQ/SmallCap Market. The Company currently intends
to continue to have the Common Stock listed for trading on the NASDAQ/SmallCap
Market until such Record Date.
Stockholder Rejection of the Plan
If the stockholders reject the Plan at the Meeting, the Board of
Directors will explore other alternatives available to the Company. Such
alternatives will include the continued management of the Company's assets and
the exploration of new business opportunities for the Company and may include
the resubmission of a plan of complete liquidation and dissolution to the
Company's stockholders. The Board of Directors currently is not aware of any
alternative business opportunities for the Company.
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<PAGE>
No Appraisal Rights
Under Maryland law, stockholders of the Company are not entitled to
appraisal rights or similar dissenters' rights for shares of Common Stock in
connection with the transactions contemplated by the Plan.
Advantages and Disadvantages of Adopting the Plan
The adoption of the Plan will facilitate the sale of the Company's
properties without potentially requiring the approval of the Company's
stockholders with respect to individual sales of properties as may be required
in accordance with Maryland law. In addition, by adopting the Plan and
liquidating and dissolving under Maryland law, creditors of the Company and
those with potential claims against the Company will be on notice that the
Company is to be liquidated which should facilitate the identification of
unknown creditors and claimants. Finally, to the extent that the Company's
stockholders approve the Plan, the potential detriments to stockholders of the
Company of adopting the Plan are believed by the Company to be as follows:
1. Potential buyers of the Company's assets will be aware of the
imminence of liquidation and could reduce their proposed purchase price of such
assets as a consequence.
2. If the Company elects the option of assigning its assets and
liabilities to a liquidating trust, such trust may not have the same reporting
requirements of the Company, interests in the liquidating trust will not be
transferable and the trustees thereof will not be subject to annual election.
3. Once the Record Date is set, the Common Stock will cease to be
traded on and will no longer be listed on the NASDAQ/SmallCap Market.
The Board of Directors of the Company did not specifically engage in a
discussion weighing the advantages against the disadvantages in connection with
the adoption of the Plan.
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<PAGE>
CONDENSED UNAUDITED PRO FORMA
STATEMENT OF NET ASSETS IN LIQUIDATION
The following Condensed Unaudited Pro Forma Statement of Net Assets in
Liquidation assumes that the Plan had been approved by the Company's
Stockholders, and, accordingly, that the Company has adopted the liquidation
basis of accounting as of June 30, 1997. Under the liquidation basis of
accounting, assets are stated at their estimated net realizable values and
liabilities are stated at their anticipated settlement amounts.
The valuation of assets and liabilities necessarily requires many estimates and
assumptions by management and there are substantial uncertainties in carrying
out the provisions of the Plan. The actual value of any liquidating
distributions will depend upon a variety of factors including, but not limited
to, the actual proceeds from the sale of any of the Company's assets, the
ultimate settlement amounts of the Company's liabilities and obligations, actual
costs incurred in connection with carrying out the Plan, including management
fees and administrative costs during the liquidation period, and the actual
timing of the distributions.
The valuations presented in the accompanying Condensed Unaudited Pro Forma
Statement of Net Assets in Liquidation represent estimates, prepared by
management based on present facts and circumstances, of the estimated net
realizable values of assets and estimated costs associated with carrying out the
provisions of the Plan, based on the assumptions set forth in the accompanying
notes. The actual values and costs are expected to differ from the amounts shown
herein and could be higher or lower than the amounts recorded. Accordingly, it
is not possible to predict the aggregate net values ultimately distributable to
stockholders and no assurance can be given that the amount to be received in
liquidation will equal or exceed the net assets in liquidation per outstanding
share presented herein.
If the Company had adopted the liquidation basis of accounting as of January 1,
1996, the historical statements of operations for the periods ended June 30,
1997 and December 31, 1996 would have been replaced by statements of changes in
net assets in liquidation. If estimated liquidation valuations remained
unchanged, there would be no change in the Company's net assets in liquidation
during those periods.
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<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF NET ASSETS IN LIQUIDATION
JUNE 3o, 1997
(Dollars in thousands, except share and per share amounts)
ASSETS HISTORICAL
(going concern PRO FORMA PRO FORMA
basis) ADJUSTMENTS (liquidation basis)
------------- ------------- --------------
<S> <C> <C> <C>
OPERATING REAL ESTATE PROPERTIES $ 34,765 $ 1,546 (a) $ 36,311
MORTGAGE LOANS ON REAL ESTATE (non-earning) --- 99 (a) 99
CASH AND CASH EQUIVALENTS 12,551 (1,500) (b) 11,051
RESTRICTED CASH - CONTINGENCY 1,500 (b) 1,500
ACCOUNTS RECEIVABLE (net of allowance for doubtful
accounts of $111) 724 (352) (c) 372
ASSETS HELD FOR SALE 21,215 1,100 (a) 22,315
OTHER ASSETS 503 (503) (d) ---
------------- ------------- --------------
TOTAL ASSETS $ 69,758 71,648
============= ============= --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Mortgage notes payable $ 5,005 --- 5,005
Real estate taxes 658 --- 658
Other liabilities 571 --- 571
Estimated management distributions --- 427 (e) 427
Estimated accrued liquidation costs, management
fees and administrative expenses --- 847 (f) 847
------------- ------------- --------------
Total Liabilities 6,234 7,508
------------- ------------- --------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK 300 --- 300
------------- ------------- --------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED PRO FORMA CONDENSED STATEMENT OF NET ASSETS IN LIQUIDATION
JUNE 30, 1997
(Dollars in thousands, except share and per share amounts)(continued)
ASSETS HISTORICAL
(going concern PRO FORMA PRO FORMA
basis) ADJUSTMENTS (liquidation basis)
------------- ------------- --------------
<S> <C> <C> <C>
SHAREHOLDERS' EQUITY
Common stock, par value $.01; 50,000000 shares
authorized; 10,000,000 shares issued and 100 (100) (g) ---
outstanding
Paid-in-capital 76,045 (76,045) (g) ---
Accumulative deficit (12,921) 12,921 (g) ---
------------- ------------- --------------
Total shareholders' equity 63,224 ---
------------- ------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY
$ 69,758
NET ASSETS IN LIQUIDATION $ 63,840
==============
NUMBER OF COMMON SHARES OUTSTANDING 10,000,000 --- 10,000,000
============= ============= --------------
NET BOOK VALUE PER OUTSTANDING SHARE $ 6.32
=============
NET ASSETS IN LIQUIDATION PER OUTSTANDING SHARE $ 6.39
==============
</TABLE>
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<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED PRO FORMA CONDENSED STATEMENT OF NET ASSETS IN LIQUIDATION
(Dollars in thousands, except share and per share amounts)
1. PRO FORMA ADJUSTMENTS
a) To record real estate assets at their estimated net realizable values
in liquidation. No independent appraisals have been obtained on these
assets. The estimated net realizable values have been determined based
on actual sales subsequent to the balance sheet date, signed contracts,
contract negotiations, internal analysis, inquiries or offers from
prospective purchasers, inquiries of market professionals and expected
operating results through the anticipated disposal date.
b) The Company believes that in addition to the costs and expenses
associated with facilitating the plan, it will be necessary to set
aside cash in a Contingency Reserve in the amount of approximately
$1,500,000. No liability has been accrued for such contingencies.
Following the payment, satisfaction or other resolution of such
contingencies, the Plan provides that any amounts remaining in the
Contingency Reserve shall be distributed to the Company's stockholders.
c) To record accounts receivable at their estimated net realizable value
and eliminate the intangible asset recorded for step rentals to which
management has ascribed no net realizable value.
d) To record other assets at their estimated net realizable value. Other
Assets consist primarily of capitalized leasing commissions, deferred
financing fees and other intangible assets. Management has ascribed no
net realizable value to such assets.
e) To record the estimated Management Distributions payable to Wexford,
assuming the stockholders approve the Plan and the existing Management
Options are exchanged for Management Distributions. See Certain
Relationships and Related-Party Transactions - Wexford Management
Agreement in this proxy statement for further information. The
Management Distributions are payable in an amount equal to ten percent
of all distributions made to the stockholders of the Company in excess
of $8.50 per share (inclusive of the $2.50 per share dividend paid on
April 14, 1997).
f) To record an accrual for estimated total costs of liquidation and the
estimated management fees and administrative expenses that will be
incurred by the Company through the projected date of liquidation
(December 31, 1997).
g) To reclassify Shareholders' Equity and the pro forma effect thereto
from the adoption of the Plan to Net Assets in Liquidation.
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<PAGE>
Federal Income Tax Consequences
General
The following discussion is a general summary of the federal
income tax consequences that will result from the liquidation of the Company and
the distribution of its assets to its stockholders. This summary does not
discuss all aspects of federal income taxation that may be relevant to a
particular stockholder or to certain types of persons subject to special
treatment under federal income tax laws (for example, life insurance companies,
tax-exempt organizations or financial institutions) and does not discuss any
aspects of state, local or foreign tax laws. Distributions pursuant to the Plan
may occur at various times and in more than one tax year. No assurances can be
given that the tax treatment described herein will continue to apply unchanged
at the time of such distributions.
THIS SUMMARY IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX
PLANNING, PARTICULARLY BECAUSE CERTAIN OF THE TAX CONSEQUENCES OF THE PLAN MAY
NOT BE THE SAME FOR ALL STOCKHOLDERS. STOCKHOLDERS ARE URGED TO CONSULT THEIR
PERSONAL TAX ADVISORS WITH SPECIFIC REFERENCE TO THEIR OWN TAX SITUATIONS.
Consequences to the Company
The Company will continue to be subject to income tax on its
taxable income, including gains on sales of its assets, until it completes the
distribution of all of its assets to stockholders. Upon any distribution by the
Company of property to its stockholders, the Company generally will recognize
gain or loss as if such property were sold to the stockholders at its fair
market value.
Consequences to Stockholders
Subject to the discussion set forth below regarding multiple
liquidating distributions, upon receipt of a liquidating distribution from the
Company, each stockholder will recognize gain or loss equal to the difference
between (i) the sum of the amount of cash and the fair market value (at the time
of distribution) of any property distributed to the stockholder, and (ii) the
stockholder's tax basis in his or her shares in the Company. A stockholder's tax
basis in his or her shares depends on various factors, including the
stockholder's cost and method of acquisition of such shares, and the amount and
nature of any distributions the stockholder previously has received from the
Company with respect to such shares. Gain or loss recognized by a stockholder
will be capital gain or loss provided the shares are held as capital assets. A
stockholder's capital gain or loss on receiving liquidating distributions will
be long-term if the holding period for such shares is more than one year, and
short-term if the holding period is one year or less.
A stockholder's gain or loss will be computed on a "per share"
basis, so that each stockholder must allocate liquidating distributions from the
Company equally to each share of the stock of the Company which he or she owns
and compare such allocated portion of the
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<PAGE>
liquidating distributions with his or her tax basis in such share, to calculate
the gain or loss for such share. If the Company makes multiple liquidating
distributions, each stockholder must first recover his or her basis in the
shares owned by the stockholder against the value of the distributions which he
or she receives before recognizing any gain and losses cannot be recognized
until the receipt of the final distribution. Thus, if the Company pays multiple
liquidating distributions, each stockholder will recognize gain on a particular
distribution only to the extent that the aggregate value of such distribution,
and all prior liquidating distributions he or she received with respect to a
share, exceeds the tax basis in that share, and will recognize a loss with
respect to a share only when he or she has received the final liquidating
distribution, and then only if the aggregate value of the liquidating
distributions from the Company with respect to the share is less than the tax
basis in the share.
If the Company makes a liquidating distribution of property to
a stockholder, the stockholder's tax basis in the property will be its fair
market value at the time of distribution, and the holding period for the
property will begin at the time of distribution.
Liquidating Trust
If the Company transfers its assets to a liquidating trust,
the Company will use its best efforts to structure the transfer and the trust in
such a manner that the following consequences will result. However, the Company
does not intend to seek a ruling regarding the tax treatment of a liquidating
trust, if one is established. The stockholders will be treated for tax purposes
as having received their pro rata share of such assets in a taxable transaction
when the transfer occurs. The amount of the taxable distribution to the
stockholders on the transfer of the Company's assets to the liquidating trust
will be reduced by the amount of the Company's known liabilities which the
liquidating trust assumes or to which such transferred assets are subject. The
liquidating trust itself generally will not be subject to tax, and, after the
formation of the liquidating trust, each stockholder will take into account for
federal income tax purposes his or her allocable portion of any income, gain,
deduction or loss which the liquidating trust recognizes. Distributions of
assets by the liquidating trust to the stockholders will not be taxable to them.
Each stockholder should be aware that he or she may be liable for tax as a
result of the transfer of assets by the Company to the liquidating trust and the
ongoing operations of the liquidating trust, even if the liquidating trust has
not made any actual distributions to stockholders with which to pay such tax.
The Company currently does not intend to transfer its assets to a liquidating
trust.
State and Local Income Tax
Stockholders also may be subject to state and local taxes.
Stockholders should consult their tax advisors regarding the state and local tax
consequences of the Plan.
Taxation of Non-U.S. Stockholders
The following is a summary of the U.S. federal income taxation
of stockholders that are not U.S. Persons and that are not otherwise subject to
U.S. federal income taxation on a net basis ("non-U.S. stockholders"). Non-U.S.
stockholders that own no more than 5% of the stock of the Company, and that
owned no more than 5% of the
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<PAGE>
stock of the Company since the formation of the Company, will not have any U.S.
federal income tax liability with respect to liquidating distributions made by
the Company.
A liquidating distribution made by the Company to a non-U.S.
stockholder that owns more than 5% of the stock of the Company, or that owned
more than 5% of the stock of the Company at any time during the lookback period,
will not be subject to U.S. federal income tax unless the Company still owns any
"U.S. real property interests" at the time of such distribution. If that is the
case, the non-U.S. stockholder will be subject to U.S. federal income tax on any
gain recognized by such stockholder on such distribution, which shall be equal
to the excess of the aggregate of such distribution and all prior liquidating
distributions over the tax basis in the shares with respect to which the
distribution is made, calculated as described above under "Consequences to
Stockholders." In any event, the distribution will be subject to 10% withholding
unless a withholding certificate authorizing reduced withholding is issued by
the Internal Revenue Service with respect thereto. Any stockholder subject to
withholding can file a U.S. tax return in order to obtain a refund of amounts
withheld in excess of such person's actual U.S. tax liability with respect to
the distributions made pursuant to the Plan. Certain stockholders that do not
actually own more than 5% of the stock of the Company may be considered to do so
for these purposes under various attribution rules.
The term "U.S. Person" means, with respect to individuals, any
U.S. citizen (and certain former U.S. citizens) or "resident alien" within the
meaning of U.S. income tax laws as in effect from time to time. With respect to
persons other than individuals, the term "U.S. Person" means (i) a corporation
or partnership created or organized in the United States or under the law of the
United States or any state, (ii) a trust where (a) a U.S. court is able to
exercise primary jurisdiction over the trust and (b) one or more U.S.
fiduciaries have the authority to control all substantial decisions of the trust
and (iii) an estate which is subject to U.S.
tax on its worldwide income from all sources.
Non-U.S. stockholders are urged to consult their own tax
advisers concerning the application of the rules described herein to their
specific situations and with respect to the non-U.S. tax consequences of the
Plan.
The Board of Directors unanimously recommends that
stockholders vote "FOR" Proposal 2.
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<PAGE>
PROPOSAL 3
RATIFICATION OF THE APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors of the Company has appointed Deloitte &
Touche LLP, independent auditors, to audit the consolidated financial statements
of the Company for the fiscal year ending December 31, 1997, subject to
ratification by the stockholders. If the stockholders do not approve the
selection of Deloitte & Touche LLP, the selection of another independent auditor
will be considered by the Board of Directors.
Representatives of Deloitte & Touche LLP are expected to be
present at the Meeting and will be afforded the opportunity to make a statement
if they desire to do so, and such representatives are expected to be available
to respond to appropriate questions.
The Board of Directors unanimously recommends that
stockholders vote "FOR" Proposal 3.
SELECTED FINANCIAL DATA AND FINANCIAL STATEMENTS
Selected financial data and the Financial Statements of the
Company, audited by the Company's certified public accountants, are included in
the Annual Report of the Company on Form 10-K for the year ended December 31,
1996 and in the Company's Quarterly Report on Form 10-Q for the period ended
June 30, 1997, a copy of each of which is enclosed herewith and incorporated
herein by reference.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
For a discussion of the Company's financial condition and
results of operations, see "Management's Discussion and Analysis of Financial
Condition and Results of Operations" in the Annual Report of the Company on Form
10-K for the year ended December 31, 1996 and in the Company's Quarterly Report
on Form 10-Q for the period ended June 30, 1997, a copy of each of which is
enclosed herewith and incorporated herein by reference.
INDEPENDENT PUBLIC ACCOUNTANTS
The Company's financial statements for the fiscal year ended
December 31, 1996 were audited by Deloitte & Touche LLP. A representative of
Deloitte & Touche LLP will be present at the Meeting. This representative will
have an opportunity to make a statement and will be available to respond to
questions by stockholders.
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<PAGE>
OTHER BUSINESS
Management knows of no business to be brought before the
Meeting other than Proposals 1, 2 and 3 set forth in the Notice of Annual
Meeting. If any other proposals come before the Meeting, it is intended that the
shares represented by proxies shall be voted in accordance with the judgment of
the person or persons exercising that authority conferred by the proxies.
SUBMISSION OF STOCKHOLDER PROPOSALS
Proposals of stockholders to be presented at the annual
meeting to be held in 1998 must be received for inclusion in the Company's proxy
statement and form of proxy by December 31, 1997.
By order of the Board of Directors
/s/Jay L. Maymudes
------------------
Jay L. Maymudes
Secretary
_____ __, 1997
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<PAGE>
EXHIBIT A
PLAN OF COMPLETE LIQUIDATION AND DISSOLUTION
OF RESURGENCE PROPERTIES INC.
WHEREAS, the Board of Directors (the "Board") of Resurgence Properties
Inc. (the "Company"), a Maryland corporation, has approved and determined that
this Plan of Complete Liquidation and Dissolution of the Company (this "Plan")
is advisable and in the best interests of the stockholders of the Company; and
WHEREAS, the Board has directed that this Plan be submitted to the
holders of the outstanding shares of the Company's common stock, par value $.01
per share (the "Common Stock"), for their approval or rejection at the annual
meeting of stockholders in accordance with the requirements of the Maryland
General Corporation Law (the "MGCL") and the Company's Articles of Incorporation
and has authorized the filing with the Securities and Exchange Commission (the
"Commission") and distribution of a proxy statement (the "Proxy Statement") in
connection with the solicitation of proxies for such meeting; and
WHEREAS, upon approval of this Plan by its stockholders, the Company
shall voluntarily dissolve and completely liquidate in accordance with the MGCL
and the Internal Revenue Code of 1986, as amended (the "Code"), upon the terms
and conditions set forth below;
NOW, THEREFORE, the Board hereby adopts and sets forth this Plan of
Complete Liquidation and Dissolution of Resurgence Properties Inc., as follows:
1. Effective Date of Plan.
The effective date of this Plan (the "Effective Date") shall
be the date on which this Plan is approved by the affirmative vote of the
holders of a majority of the outstanding shares of common stock of the Company
entitled to vote thereon, in accordance with the MGCL.
2. Cessation of Business Activities.
After the Effective Date, the Company shall not engage in any
business activities except for the purpose of preserving the value of its
assets, prosecuting and defending suits by or against the Company, adjusting and
winding up its business and affairs and distributing its assets in accordance
with this Plan. The directors now in office and, at their pleasure, the officers
of the Company now in office, shall continue in office solely for these purposes
and as otherwise provided in this Plan.
3. Liquidation of Assets.
The Company shall sell, exchange or otherwise dispose of all
of its property and assets to the extent, for such consideration (which may
consist in whole or in part of money or other property) and upon such terms and
conditions as the Board deems expedient and in the best interests of the Company
and its stockholders. As part of the liquidation of its property and assets, the
Company shall collect, or make provision for the collection of, all accounts
receivable, debts and claims owing to the Company.
<PAGE>
4. Payment of Debts.
Prior to making any distribution to its stockholders, the
Company shall pay, or as determined by the Board, make reasonable provision to
pay, all claims and obligations of the Company, including all contingent,
conditional or unmatured claims known to the Company, and shall make such
provision, as determined by the Board, as will be reasonably likely to be
sufficient to provide compensation for claims that have not been made known to
the Company or that have not arisen, but that, based on facts known to the
Company, are likely to arise or to become known to the Company prior to the
expiration of applicable statutes of limitation.
5. Distributions.
Following the payment or the provision for the payment of the
Company's claims and obligations as provided in Section 4, the Company shall
distribute pro rata to its stockholders all of its remaining property and
assets. If and to the extent deemed necessary or appropriate by the Board, the
Company may establish and set aside a reasonable amount (the "Contingency
Reserve") to satisfy claims against the Company and expenses incurred in
connection with the collection and defense of the Company's property and assets
and the liquidation and dissolution provided for in this Plan. The Contingency
Reserve may consist of cash or property. Following the payment, satisfaction or
other resolution of such claims and expenses, any amounts remaining in the
Contingency Reserve shall be distributed to the stockholders.
Prior to the date the Articles of Dissolution are accepted by
the State Department of Assessments and Taxation of the State of Maryland and
the Company is dissolved, as provided for in Section 7 below, the Company shall
make distributions to the stockholders in cash or in kind (allocated pro rata in
the discretion of the Board) as expeditiously as is practicable consistent with
prudence and reasonable business judgment, in such manner, and at such time, as
the Board in its sole discretion may determine in accordance with the provisions
of the MGCL.
Following the date on which the date the Articles of
Dissolution are accepted by the State Department of Assessments and Taxation of
the State of Maryland and the Company is dissolved, as provided for in Section 7
below, any assets remaining available for distribution to stockholders shall be
distributed (the "Dissolution Distribution") only in accordance with the
provisions of the MGCL.
6. Notice of Liquidation.
As soon as practicable after the Effective Date, but in no
event later than 20 days prior to the filing of Articles of Dissolution as
provided in paragraph 7 below, the Company shall mail notice in accordance with
the MGCL to all its creditors and employees that this Plan has been approved by
the Board and the stockholders.
7. Articles of Dissolution.
At such time as the Board has determined that all necessary
requirements for dissolution have been satisfied under Maryland law, the
appropriate officers of the Company shall execute and cause to be filed in the
State Department of Assessments and Taxation of the State of Maryland, and
elsewhere as may be required or deemed appropriate, such documents as may be
<PAGE>
required to effectuate the dissolution of the Company. From and after the date
such documents are accepted by the State Department of Assessments and Taxation
of the State of Maryland, the Company will be deemed to be completely dissolved,
but will continue to exist under Maryland law for the purposes of paying,
satisfying and discharging any existing debts or obligations, collecting and
distributing its assets, and doing all other acts required to liquidate and wind
up the Company's business affairs. The members of the Board in office at the
time the Articles of Dissolution (the "Articles") are accepted for filing by the
State Department of Assessments and Taxation of the State of Maryland shall be
deemed to be trustees of the assets of the Company for the purposes of
liquidation and shall have all powers provided to them under the MGCL.
8. Powers of Board and Officers.
The Board and the officers of the Company are authorized to
approve such changes to the terms of any of the transactions referred to herein,
to interpret any of the provisions of this Plan, and to make, execute and
deliver such other agreements, conveyances, assignments, transfers, certificates
and other documents and take such other action as the Board and the officers of
the Company deem necessary or desirable in order to carry out the provisions of
this Plan and effect the complete liquidation and dissolution of the Company in
accordance with the Code and the MGCL and any rules and regulations of the
Commission or any state securities commission, including, without limitation,
any instruments of dissolution, Articles of Amendment, Articles Supplementary,
or other documents, and withdrawing any qualification to conduct business in any
state in which the Company is so qualified, as well as the preparation and
filing of any tax returns.
9. Cancellation of Common Stock.
The distributions to the Company's stockholders pursuant to
Section 5 hereof shall be in complete redemption and cancellation of all of the
outstanding Common Stock. As a condition to the receipt of the Dissolution
Distribution under the Plan, the Board may require stockholders to surrender
their certificates evidencing Common Stock to the Company or its agent for
cancellation. If a stockholder's certificate for shares of Common Stock has been
lost, stolen or destroyed, as a condition to the receipt of any distribution,
such stockholder may be required to furnish to the Company satisfactory evidence
of the loss, theft or destruction thereof, together with a surety bond or other
security or indemnity reasonably satisfactory to the Company.
10. Record Date and Restrictions on Transfer of Shares.
The Company shall close its stock transfer books and
discontinue recording transfers of Common Stock at the close of business on the
record date fixed by the Board for the Dissolution Distribution (the "Record
Date"), and thereafter certificates representing Common Stock shall not be
assignable or transferable on the books of the Company except by will, intestate
succession or operation of law. The proportionate interests of all of the
stockholders of the Company shall be fixed on the basis of their respective
stockholdings at the close of business on the Record Date, and, after the Record
Date, any distributions made by the Company shall be made solely to the
stockholders of record at the close of business on the Record Date except as may
be necessary to reflect subsequent transfers recorded on the books of the
Company as a result of any assignments by will, intestate succession or
operation of law.
<PAGE>
11. Liquidating Trust.
If advisable for any reason to complete the liquidation and
distribution of the Company's assets to its stockholders, the Board may at any
time transfer to a liquidating trust (the "Trust") the remaining assets of the
Company. The Trust thereupon shall succeed to all of the then remaining assets
of the Company, including the Contingency Reserve, and any remaining liabilities
and obligations of the Company. The sole purpose of the Trust shall be to
prosecute and defend suits by or against the Company, to settle and close the
business of the Company, to dispose of and convey the assets of the Company, to
satisfy the remaining liabilities and obligations of the Company and to
distribute the remaining assets of the Company to its stockholders. The Board
may appoint one or more individuals or corporate persons to act as trustee or
trustees of the Trust and to cause the Company to enter into a liquidating trust
agreement with such trustee or trustees on such terms and conditions as the
Board determines. Adoption of the Plan by the stockholders also will constitute
the approval by the stockholders of any appointment of the trustees and of the
liquidating trust agreement.
12. Compensation.
The Company may pay to the Company's directors and agents, or
any of them, compensation for services rendered in connection with the
implementation of the Plan. Adoption of the Plan by the stockholders of the
Company shall constitute the approval of the stockholders of the payment of any
such compensation. The Company may continue to pay to Wexford Management LLC
("Wexford") compensation for services rendered in accordance with Amendment No.
2 to the Management Agreement among the Company, Resurgence Properties Texas,
L.P., and Wexford, which Management Agreement can be terminated in accordance
with its terms.
13. Indemnification.
The Company shall continue to indemnify its officers,
directors, employees and agents in accordance with its Articles of
Incorporation, By-Laws and any contractual arrangements as therein or elsewhere
provided, and such indemnification shall apply to acts or omissions of such
persons in connection with the implementation of the Plan and the winding up of
the affairs of the Company. The Company's obligation to indemnify such persons
may be satisfied out of assets transferred to the Trust, if any. The Board and
the trustees of any Trust are authorized to obtain and maintain insurance as may
be necessary to cover the Company's indemnification obligations.
14. Costs.
The Company is authorized, empowered and directed to pay all
legal, accounting, printing and other fees and expenses of persons rendering
services to the Company in connection with the preparation, adoption and
implementation of the Plan, including, without limitation, any such fees and
expenses incurred in connection with the preparation of a proxy statement for
the special meeting of stockholders to be held for the purpose of voting upon
the approval of the Plan.
<PAGE>
EXHIBIT B
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 1997
<PAGE>
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, 1996
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, 1997 was $19,213,925.
As of March 15, 1997, 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 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".
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
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. See "-- Predecessor Bankruptcy".
- --------
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>
Assets Under Management
As a result of Liberte's Plan of Reorganization, after giving effect to
subsequent dispositions and acquisitions through December 31, 1996, the Company
has a direct ownership interest in 24 assets, representing approximately
$86,922,000 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, 1996:
<TABLE>
<CAPTION>
Allocated by Asset Category
---------------------------
Assets NIV %
- ------ --- -----
<S> <C> <C>
Operating Real Estate Properties .............. $37,505,000 43.2%
Earning Loans ................................. -- 0.0
Non-Earning Loans(3)........................... 30,000 0.0
Assets Held for Sale .......................... 49,387,000 56.8
----------- -----
Total ......................................... $86,922,000 100.0%
=========== =====
</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
contract to be sold.
As of December 31, 1996 and 1995, no single borrower accounted for more
than 10% of the Company's total revenues.
- --------
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>
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, 1996:
<TABLE>
<CAPTION>
Allocated by Location
----------------------
State NIV %
- ----- --- -
<S> <C> <C>
Florida ............................... $35,911,000 41.3%
Illinois .............................. 11,003,000 12.7
District of Columbia .................. 10,430,000 12.0
Georgia ............................... 8,202,000 9.4
Arizona ............................... 7,906,000 9.1
New Mexico ............................ 3,657,000 4.2
New Jersey ............................ 3,256,000 3.8
Texas ................................. 3,243,000 3.7
California ............................ 2,717,000 3.1
Virginia .............................. 597,000 .7
----------- -----
Total ................................. $86,922,000 100.0%
=========== =====
</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".
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 Management Agreement was given by
the Company to LMI. Joseph M. Jacobs, the President, Chief Executive Officer and
a director of the Company, is the President and a member of Wexford. Charles E.
Davidson, the Chairman 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, a Vice
President, Secretary and Chief Financial Officer of the Company, is the Chief
Financial Officer and a Senior Vice President of Wexford. Karen M. Ryugo, a
Director of the Company, 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.
<PAGE>
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 Company is currently
negotiating the terms of an extension to the Wexford Management Agreement with
Wexford. The terms have not as yet been agreed upon.
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 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.
<PAGE>
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. For the year ended December 31, 1996, Wexford agreed to reduce
the Wexford Management Fee to $1,916,000. For the year ended December 31, 1995,
Wexford was paid a Wexford Management Fee of $2,049,000.
The Company or Wexford, by notice delivered by February 1, 1996 and
1997, was entitled to initiate a proposed revision to the Wexford Management
Fee, which revision would have been effective on the first or second anniversary
of the Wexford Management Agreement, as the case may be. If the Company and
Wexford had been unable to reach an agreement as to a revised Wexford Management
Fee by the February 15 following such notice, either party could have initiated
arbitration by notice to the other party. In determining the Wexford Management
Fee, the arbitrator would 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, 1996 or 1997.
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.
<PAGE>
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.
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, May 4, 1995 and May 4, 1996. The remaining 25% of the Jacobs Options (to
purchase up to an additional 125,000 shares) will vest and become exercisable on
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.
<PAGE>
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 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 vest and become exercisable on May 4, 1997. Through
December 31, 1996, 37,024 Holtz Options have become vested and are exercisable.
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.
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 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 vest and become exercisable on July 1, 1998.
Through December 31, 1996, 9,054 Maymudes Options have become vested and are
exercisable. 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.
<PAGE>
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. None of such employees are employees of
Wexford as of March 15, 1997. 14,781 of their Management Options were vested as
of the date of their termination and the remaining 17,719 unvested Management
Options were forfeited to Wexford.
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.
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).
<PAGE>
The following table sets forth information relating to the Management
Options:
<TABLE>
<CAPTION>
As of December 31, 1996 As of December 31, 1995
----------------------- -----------------------
<S> <C> <C>
Total shares under options 1,111,111 1,111,111
Total shares under granted options 585,336 603,055
Total shares under exercisable options 435,859 289,955
Total shares under forfeited options 17,719 --
Total shares under exercised options -- --
Total shares under expired options -- --
Per share exercise price $8.50 $8.50
</TABLE>
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.
<PAGE>
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"). Fleet National Bank of Massachusetts, formerly 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").
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;
<PAGE>
(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")(4);
(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;(5)
(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");(6) 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.
- --------
4 On January 30, 1997, the Company repaid the outstanding indebtedness under
the Credit Agreement in full.
5 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".
6 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>
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, 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".
Item 2. PROPERTIES.
Operating Real Estate
The Company owned six properties as of December 31, 1996 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
five states and total approximately 638,000 square feet of net rentable area, of
which five are retail properties (521,000 square feet) and one is an office
property (117,000 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.
<PAGE>
The following is a description of the Operating Real Estate Properties
as of December 31, 1996:
<TABLE>
<CAPTION>
NAME AND LOCATION GENERAL DESCRIPTION
- ----------------- -------------------
<S> <C>
Retail Properties:
Greenway Village Square 60,233 square foot strip shopping center
Phoenix, Arizona 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 98% leased.
Home Center Village 110,734 square foot strip shopping center
Atlanta, Georgia 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 100% leased.
Riverwood Plaza 83,003 square foot strip shopping center
Orange, Florida constructed Port in 1984 and 1990 and
situated on 14.77 acres of land. The
property is anchored by Winn Dixie and
Walgreens. The property was 93% leased.
Winn Dixie has executed a lease modification
which expanded their store from 30,625
square feet to 47,725 square feet and
extended the remaining term for 20 years.
Southern Plaza 89,134 square foot strip shopping center
Rio Rancho, New Mexico built in 1986 and situated on 9.9 acres of
land. The property is anchored by Walgreens
and True Value Hardware. The property was
42% 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 shopping center
Stuart, Florida 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>
<CAPTION>
NAME AND LOCATION GENERAL DESCRIPTION
- ----------------- -------------------
<S> <C>
Office Properties:
Cross Creek Business Center Three story, 116,895 square foot office
Deerfield, Illinois building constructed in 1987 and situated on
7.45 acres of land. The property was 100%
leased.
</TABLE>
Assets Held for Sale
As of December 31, 1996, the Company owned land, undeveloped
properties, properties in various stages of development, certain operating
properties under contract for sale and a mortgage loan with an aggregate net
asset value of $49,387,000. 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.
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 3 103 acres CA, IL,TX
Single-Family Lots 3 163 lots CA, TX
Completed Properties:
Multi-family 1 200 units FL
Shopping Center/Retail 4 488,338 sq. ft. AZ, VA, TX, FL
Office 1 113,807 sq. ft. DC
Industrial/Warehouse 3 116,498 sq. ft. CA, FL, NJ
Mortgage Loan 1 Non-earning CA
</TABLE>
<PAGE>
The following is a description of the Assets Held for Sale as of
December 31, 1996:
<TABLE>
<CAPTION>
NAME AND LOCATION GENERAL DESCRIPTION
- ----------------- -------------------
<S> <C>
ABCO Plaza 120,864 square foot strip shopping center
Phoenix, Arizona constructed in 1988 and situated on 15.36
acres of land. The property is anchored by
ABCO Market and Osco Drugs. The property was
91% leased. The property was sold in March
1997.
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 92% leased. The property
was sold in January 1997.
Chico Land 87 acres of land zoned for residential use.
Chico, California
Cortez Plaza 289,612 square foot power shopping center
Bradenton, Florida 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
97% leased.
Executive Airport Business Center Single story, 72,573 square foot industrial
Fort Lauderdale, Florida building constructed in 1986 and situated on
6.09 acres of land leased from the City of
Fort Lauderdale. The property was 95%
leased. The property is currently under
contract for sale.
Hanover Park Five acres of land zoned for commercial use.
Hanover Park, Illinois
Lawrenceville Industrial Campus 225,000 square foot, seven building,
Lawrenceville, NJ industrial complex, situated on 108 acres of
land.
Lancaster Lots #1 16 single family lots.
Lancaster, California
P & V Enterprises Land 59 single family lots.
Palmdale, California
Ramser Development Company 43,925 square foot warehouse. The property
San Diego, California was 100% leased. The property is currently
under contract for sale.
<PAGE>
<CAPTION>
NAME AND LOCATION GENERAL DESCRIPTION
- ----------------- -------------------
<S> <C>
Riverbend Shopping Center 51,848 square foot strip shopping center,
Pennington Gap, Virginia constructed in 1987 and situated on 8.637
acres of land. The property is anchored by
Piggly Wiggly and Rite Aid.
The property was 69% leased. The property
was sold in March 1997.
River Plantation 88 single family lots. The property was sold
Conroe, Texas in January 1997.
San Antonio Land #4 11 acres of land zoned for multi-family use.
Antonio, Texas The San property was sold in February 1997.
Southridge Plaza 26,014 square foot strip shopping center
Denton, Texas constructed in 1988 and situated on 3.53
acres of land. The property was 89% leased.
The property is currently under contract for
sale.
University Service Center First mortgage loan secured by a 93,603
Redlands, California square foot warehouse. The mortgage was sold
in March 1997.
1025 Vermont Avenue A twelve story, 113,807 square foot office
Washington, DC 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 94% leased. The
property was sold in March 1997.
</TABLE>
Substantially all of the Company's assets were subject to a security
interest granted to the Secured Lenders in connection with the Company's
obligations under the Credit Agreement. The entire amount of Senior Debt
outstanding was repaid on January 30, 1997 and the security interests were
released. 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. The Cross
Creek Business Center property is subject to a mortgage with an outstanding
balance of $5,294,000 at December 31, 1996. See Note H of the Notes to
Consolidated Financial Statements contained in Item 8 hereof.
<PAGE>
Significant Properties
Cortez Plaza, Cross Creek Business Center and 1025 Vermont Avenue each
represent in excess of 10% of the historical cost of real estate as of December
31, 1996 and represented 10% or more (but not greater than 15%) of the total
gross revenue for the year ended December 31, 1996. Cortez Plaza and 1025
Vermont Avenue each represented 10% or more (but not greater than 15%) of the
total gross revenue for the year ended December 31, 1995. 1025 Vermont Avenue
was sold in March 1997 for net proceeds of $12,501,000. Consequently,
information with respect thereto is not presented below. Cortez Plaza was under
contract for sale as of March 15, 1997.
<TABLE>
<CAPTION>
Cross Creek
Percentage leased as of: Cortez Plaza Business Center
- ------------------------ ------------ ---------------
<S> <C> <C>
December 31, 1992 90% 98%
December 31, 1993 92% 94%
December 31, 1994 95% 100%
December 31, 1995 98% 98%
December 31, 1996 97% 100%
<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>
1992 $5.57 $15.08
1993 $6.37 $16.30
1994 $7.34 $16.58
1995 $9.23 $17.26
1996 $9.74 $17.44
</TABLE>
- --------
6 After give backs and concessions.
<PAGE>
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 1996 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
Cross Creek Business Center
Expiration Date 1996 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 Callahan 71,572 12/31/02 $18.58 (8) N/A
(a legal publishing
company)
</TABLE>
- --------
7 Represents the base rent payable under the lease terms, excluding any
escalations, consumer price index increase or other miscellaneous charges.
8 Tenant has an 18 month cancellation clause, which may be exercised at any
time.
<PAGE>
Scheduled lease expirations during the next ten years at the three properties
are as follows:
<TABLE>
<CAPTION>
Cortez Plaza
Percent of 1996
1996 Annualized
Annualized Minimum Rent
Lease Number of 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>
1997 4 8,402 $ 91,587 3.35%
1998 3 7,167 73,958 2.71
1999 9 34,261 410,025 15.01
2000 3 3,094 45,435 1.66
2001 2 6,500 75,609 2.77
2002 1 1,792 21,504 0.79
2005 1 8,768 70,144 2.57
2006 2 5,100 78,000 2.86
-- ------ --------- ------
Total 25 75,084 $ 866,262 31.72%
== ====== ========= ======
<CAPTION>
Cross Creek Business Center
<S> <C> <C> <C> <C>
1997 9 21,516 $ 311,629 14.95%
1999 3 11,977 239,325 11.48
2002 2 83,402 1,533,880 73.57
-- ------- ---------- ------
Total 14 116,895 $2,084,834 100.00%
== ======= ========== ======
</TABLE>
<PAGE>
Components of historical cost of each of these 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, 1996 $ 18,325,000 $ 13,104,000
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 $ 283,000 $ 239,000
</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.
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.
None.
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 1, 1996, 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.
<TABLE>
<CAPTION>
Fiscal Year 1996 High Low
---------------- ---- ---
<S> <C> <C>
Fourth Quarter .................... $8.875 $8.125
Third Quarter ...................... $8.875 $8.375
Second Quarter ................... $8.875 $8.250
First Quarter ........................ $8.500 $8.250
</TABLE>
As of March 20, 1997, there were 41 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 41. The Company has not paid any dividends
with respect to its Common Stock through December 31, 1996. The Credit
Agreement, which the Company was a party to through January 30, 1997, contained
certain restrictions on the Company's ability to pay dividends. On January 30,
1997, the amount outstanding under the Credit Agreement was repaid and the
Credit Agreement was cancelled. 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.
<PAGE>
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,
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
years ended December 31, 1995 and 1996 and the selected consolidated balance
sheet data as of April 7, 1994, December 31, 1994, 1995 and 1996 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 and December 31, 1994 balance
sheet data, have been included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
THE COMPANY LIBERTE
---------------------------------------- -----------------------------------------
Period from Nine Months
Year April 7, 1994 Ended
Ended December 31, through March 31, Year Ended June 30,
1996 1995 December 31, 1994 1994 1993 1992
-------- ---------- ----------------- ---------- ---------- -------
(in thousands, except per share amounts) (in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenue $ 25,054 $ 23,857 $ 14,995 $ 9,519 $ 15,115 $19,763
Interest expense 3,204 6,438 4,546 7,600 16,295 20,515
Write-downs for impairment
of value and loan losses 6,591 9,005 8,460 3,175 15,150 32,000
Extraordinary gain 159 839 - - - -
Reorganization costs, net - - - (5,211) - -
Net income (loss) 1,727 (7,156) (12,239) (15,694) (34,672) (43,141)
Net income (loss)
per common share .17 (.72) (1.22) (1.29) (2.94) (3.68)
Cash dividends declared
per common share - - - - - -
<CAPTION>
BALANCE SHEET DATA:
December 31, June 30,
---------------------------------- April 7, March 31, ---------------------
1996 1995 1994 1994 1994 1993 1992
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Total assets ............................ $ 93,286 $155,863 $183,247 $194,704 $248,354 $261,575 $337,527
Debt .................................... 7,784 66,032 85,316 87,836 183,127 187,725 234,057
Redeemable preferred stock .............. 300 300 300 300 -- -- --
Shareholders' equity .................... 83,400 81,701 88,885 101,145 48,506 63,591 98,333
</TABLE>
<PAGE>
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 years ended December 31, 1996 and 1995. The discussion
and analysis of the historical results of Liberte for the years ended June 30,
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.
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, 1996,
approximately 43.2% 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 has disposed of a significant 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.
<PAGE>
Year Ended December 31, 1996 Compared to the Year Ended December 31, 1995
The Company experienced net income of $1,727,000 for the year ended
December 31, 1996 compared to a net loss of $7,156,000 for 1995, primarily as a
result of greater total revenues and lower total expenses, partially offset by a
decline in the extraordinary gain resulting from purchases of interests in its
Senior Debt for the year ended December 31, 1996 compared to 1995.
Total revenues increased $1,197,000 for the year ended December 31,
1996, primarily due to an increase of $2,248,000 in mortage loan interest income
as a result of the repayment of the Jersey Property Corp. pool of mortgages, an
increase in the net gain from asset dispositions of $1,283,000 as a result of
the sale of certain assets at net sales prices greater than their carrying
value, an increase in other income of $931,000 primarily as a result of a
settlement received in September 1996 from a lawsuit the Company instituted
against a former tenant for default of their lease obligations and an increase
in investment income of $106,000, partially offset by a decrease in revenues
from its operating real estate properties of $3,371,000. This decrease in
revenues is primarily due to the sale during 1996 of seven operating properties
(Barrington Hills, Copper Creek Apartments, Cimmaron Plaza, Harbor Bay Business
Park, Olympia Corners Shopping Center, Pike Plaza and Shoppes at Cloverplace).
Investment income for the year ended December 31, 1996 increased to
$784,000 from $678,000 for the year ended December 31, 1995 primarily due to a
greater amount of cash available for investment during the year ended December
31, 1996.
Total expenses decreased $8,366,000 for the year ended December 31,
1996 compared to the prior year, primarily as a result of the decrease in
expenses associated with the seven operating properties that were sold in 1996,
lower interest expense on the Senior Debt as a result of principal paydowns and
debt purchases made during 1996, a reduction in expenses of non-income producing
assets resulting from the sale of many of such assets during 1996, a decrease in
general and administrative expenses and a decrease in write-downs for impairment
of value.
General and administrative expenses decreased $426,000 for the year
ended December 31, 1996 from the prior year, primarily due to a decrease in
legal and consulting fees.
The extraordinary gain of $159,000 in the current period is a result of
the Company's purchase of $8,075,000 face amount of Senior Debt for
approximately $7,916,000 (net of closing costs) during 1996.
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.
<PAGE>
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 for the year ended December 31, 1995
was 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) during 1995.
Write-downs for Impairment
The Company monitors the value of its assets to ascertain that the net
carrying value of its assets are not in excess of fair value based on current
information available to the Company. Accordingly, for the year ended December
31, 1996, the Company recorded write-downs of $6,591,000 relating to assets held
for sale. 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,
1996 and 1995.
<PAGE>
Upon consummation of 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
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 years
ended December 31, 1996 and 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 signed contracts, 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 years ended December 31, 1996 and 1995 and for 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
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 in 1995 or 1996.
<PAGE>
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 in 1995 or 1996.
Mortgage Loans
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 in 1995. No write-down was
recorded in 1996.
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 for the period ended
December 31, 1994. This mortgage loan was settled in full in June 1995 for net
proceeds of $411,000.
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 for the period ended 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.
<PAGE>
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 losses of $453,000 was
recorded in 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 in the fourth quarter of 1995 to reduce the net carrying
value to $375,000. In February 1996, the $250,000 payment was received and in
April 1996, the $125,000 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 losses of $174,000 was recorded in the fourth
quarter of 1995 to reduce the net carrying value to $30,000. No write-down was
recorded in 1996. In February 1997, the mortgage was settled in full for net
proceeds of $300,000.
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 losses of $603,000 was recorded in the
fourth quarter of 1995 to reduce the net carrying value to $540,000. No
write-down was recorded in 1996. The mortgage was settled in full in July 1996
for net proceeds of $702,000.
<PAGE>
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:
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 was 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. The net carrying
value of the property was $5,640,000 as of December 31, 1995. In March 1996, the
Company entered into a contract for sale of the property for $5,350,000. Due to
a subsequent decline in the standard of living in the neighborhood, increases in
the number of available garden apartment units in the marketplace and the
inability to reverse the decline in the occupancy at the property, it was
necessary to negotiate an amendment to the contract reducing the sale price to
$4,400,000, including estimated closing costs. Accordingly, the property was
reclassified on the consolidated balance sheet from an operating property to an
asset held for sale as of March 31, 1996 and a write-down of $1,197,000 was
recorded in the first quarter of 1996. Subsequently, the amended contract fell
through and the Company entered into a new contract during the third quarter of
1996 with a different purchaser for $3,800,000, net of closing costs.
Accordingly, a write-down of $620,000 was recorded in the third quarter of 1996
to further reduce the net carrying value to $3,800,000. The property was sold in
January 1997 for net proceeds of $3,849,000.
Copper Creek, located in Fort Worth, Texas, was 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 for the period ended 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 in the fourth quarter of 1995
to further reduce the net carrying value to $3,700,000. No write-down was
recorded in 1996. The property was sold in April 1996 for net proceeds of
$3,717,000.
Cortez Plaza, located in Bradenton, Florida, is a 289,612 square foot
power shopping center that was constructed in 1966 and renovated in 1988 and is
situated on 26.2 acres of land. During the fourth quarter of 1996, the Company
entered into a contract to sell the property for $17,100,000 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 December 31,
1996 and a write-down of $1,540,000 was recorded in the fourth quarter of 1996
to reduce the net carrying value to $17,100,000.
<PAGE>
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 was
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 in 1995. During the fourth quarter of 1996, the Company
entered into a contract to sell the property for $2,900,000 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 December 31,
1996 and a write-down of $851,000 was recorded in the fourth quarter of 1996 to
reduce the net carrying value to $2,900,000.
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 in 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 in 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 sold in February 1996 for $771,000, net of
closing costs.
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 was 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 in 1995. During the fourth quarter of 1996, the Company entered into a
contract to sell the property for $600,000, 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 December 31, 1996 and
a write-down of $749,000 was recorded in the fourth quarter of 1996 to reduce
the net carrying value to $600,000. The property was sold in March 1997 for net
proceeds of $622,000.
<PAGE>
Shoppes at Cloverplace, located in Palm Harbor, Florida, was 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 was 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 in 1995. During March of 1996, the
Company entered into a contract to sell the property for $2,500,000, 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 March
31, 1996 and a write-down of $297,000 was recorded in the first quarter of 1996.
The property was sold in June 1996 for net proceeds of $2,547,000.
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 in 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 net carrying value of the
property was $3,065,000 as of December 31, 1995. During the first quarter of
1996, the Company entered into a contract to sell the property for $2,850,000,
including closing costs. Accordingly, a write-down of $215,000 was recorded in
the first quarter of 1996. During the fourth quarter of 1996, the Company
entered into an amendment to reduce the contract price to $2,650,000, including
closing costs. Accordingly, an additional write-down of $233,000 was recorded in
the fourth quarter of 1996 to reduce the net carrying value to $2,650,000.
The Fort Smith Quarry, a first mortgage loan with an original principal
balance of $7,450,000 and bearing interest at 9% per annum, was to mature in
January 2002. The net asset value was $7,353,000 as of April 7, 1994. The loan
was 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, the Company entered into a contract to
sell the mortgage for $6,197,000, net of closing costs. 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. No
write-down was recorded in 1996. The mortgage was sold in January 1996 for net
proceeds of $6,191,000.
<PAGE>
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 had been negotiating a
restructuring of the loan with the borrower. Under the terms of the proposed
restructure agreement, the borrower was to pay $34,000 of accrued interest and
legal fees, the mortgage was to accrue interest at 12% per annum, the borrower
was to pay 100% of the net cash flow of the underlying property toward interest
and the loan maturity was to be extended to September 30, 1996. The mortgage
loan is secured by a 92,000 square foot warehouse located in San Bernardino,
California. The net carrying value of the mortgage was $2,412,000 at December
31, 1994. 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 was estimated
at approximately $25 per square foot. Consequently, a write-down for possible
loan losses of $95,000 was recorded for the period ended 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 in the fourth quarter of 1995 in order to reduce the net
carrying value to $1,800,000. During the fourth quarter of 1996, the Company
entered into a contract to sell the mortgage for $1,650,000. Accordingly, it was
reclassified on the consolidated balance sheet from a non-earning mortgage to an
asset held for sale as of December 31, 1996 and a write-down of $150,000 was
recorded. In March 1997 the mortgage was sold for net proceeds of $1,660,000.
Lake Elsinore, located in Lake Elsinore, California, consisted 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 approximated the fair value of
the property, the Company did not pay the prior accrued real estate tax
liability or the current taxes on such property. The Company's negotiations with
various prospective buyers focused on selling the property subject to the
existing real estate tax liability plus cash. Local taxing authorities 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). During
1996, real estate taxes were accrued up to an amount equal to the net carrying
value of the property. No write-down was recorded in 1995 or 1996. During 1996,
the local tax authorities, foreclosed upon the majority of the parcels of vacant
land and in November 1996 the remaining lots were sold for net proceeds of
$482,000.
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. No write-down was
recorded during 1996.
<PAGE>
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 in 1995 or 1996. In
March 1996, the remaining three single family homes were sold for net proceeds
of $236,000.
Fort Worth 1, located in Fort Worth, Texas, consisted 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 in the fourth quarter of 1995
to reduce the net carrying value to $370,000. The property was sold in May 1996
for net proceeds of $389,000.
Fort Worth Land II, located in North Richland Hills, Texas, consisted
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 $90,000 as of December 31, 1994. As a result, a
write-down of $53,000 was recorded for the period ended 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 in the fourth quarter of 1995 and
the property was sold in January 1996 for net proceeds of $30,000. No write-down
was recorded in 1996.
Hanover Park, formerly classified as an earning mortgage as of December
31, 1994, was foreclosed upon in 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. No write-down was recorded in 1996.
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.
<PAGE>
Crimson Ridge Tract 2, located in Everman, Texas, consisted 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 $2.6 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 in the fourth
quarter of 1995. No write-down was recorded in 1996. The property was sold in
March 1996 for net proceeds of $82,000.
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 $2.1 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 recorded in the fourth quarter of
1995. No write-down was recorded in 1996.
Kirkwood/Huntington Glen Land, located in Houston, Texas, consisted 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 sold in March 1996 for net
proceeds of $113,000. No write-down was recorded in 1996.
Park East Condominiums, located in Pinnellas Park, Florida consisted of
nine condominium units and 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, in the fourth quarter of 1995. As a result, a
write-down of $65,000 was recorded in the fourth quarter of 1995 and the asset
was sold in January 1996 for net proceeds of $210,000. No write-down was
recorded in 1996.
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 was
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 in 1995 or 1996. In the first quarter of 1997, the
Company entered into a contract to sell this property for $1,300,000, net of
closing costs.
<PAGE>
University Park Lots 1 and 2, located in Lancaster, California,
consisted 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 $30.5 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 in 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 in the fourth quarter of 1995. No write-down was recorded in 1996. The
property was sold in April 1996 for net proceeds of $181,000.
Valley Creek Estates, located in Mesquite, Texas, consisted 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
$430,000 as of December 31, 1994. As a result, a write-down of $65,000 was
recorded for the period ended 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 in the fourth quarter of 1995. The property was sold in
May 1996 for net proceeds of $260,000. No write-down was recorded in 1996.
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 $25.5 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 in the second
quarter of 1995. Subsequently, in the third quarter of 1995, an additional
write-down of $54,000 was recorded. During 1996, the Company entered into an
option contract with a prospective buyer, for a total sales price of $400,000,
including estimated closing costs. Accordingly, a write-down of $120,000 was
recorded in 1996 to reduce the net carrying value to $400,000.
River Plantation, located in Conroe, Texas, consists of 88 single
family lots zoned for single family homes. During the fourth quarter of 1996,
the Company entered into a contract to sell the property for $494,000.
Accordingly, a write-down of $372,000 was recorded in the fourth quarter of 1996
and the property was sold in January 1997 for net proceeds of $494,000.
San Antonio Land #4, located in San Antonio, Texas, consists of eleven
acres of land zoned for multi-family use. During the fourth quarter of 1996, the
Company entered into a contract to sell the property for $150,000. Accordingly,
a write-down of $247,000 was recorded in the fourth quarter of 1996 and the
property was sold in February 1997 for net proceeds of $164,000.
Inflation is not expected to have a material impact on the Company's
results of operations or financial position.
<PAGE>
Capital Expenditures
Capital expenditures for the years ended December 31, 1996 and 1995 and
the period April 7, 1994 through December 31, 1994, were $1,731,000, $1,885,000
and $868,000, respectively. For the year ended December 31, 1996, approximately
$1,057,000 related to tenant improvements, $329,000 related to structural
repairs at 1025 Vermont Avenue and the balance of the expenditures was for
normal property improvements. 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 1997, 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, 1996, cash and cash equivalents
decreased by $4,440,000. Net cash of $8,996,000 was generated from operating
activities, $44,689,000 in net cash was generated from investing activities and
$58,125,000 in net cash was used for financing activities. Cash generated from
investing activities consisted primarily of net proceeds from sales of assets of
$35,753,000 and net collections on mortgage loans of $14,723,000, partially
offset by acquisitions of operating properties of $4,056,000 and improvements to
operating properties of $1,731,000. Net cash used for financing activities
consisted primarily of net Senior Debt repayments of $47,332,000, purchases of
interests in the Senior Debt of $7,925,000, mortgage loan repayments of
$2,840,000 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. As of December
31, 1996, the aggregate principal amount of indebtedness outstanding under the
Credit Agreement (the "Senior Debt") was approximately $2,490,000, which is net
of the approximately $1,171,000 outstanding principal amount which the Company
acquired through December 31, 1996. On January 30, 1997, the Company repaid the
outstanding indebtedness under the Credit Agreement. The source of the funds
used to make this payment was available cash generated from rents, interest
received on mortgage loans, proceeds from the sales of assets and principal
repayments on its mortgage loans. The Company has no agreements in place for the
extension of 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).
<PAGE>
The Credit Agreement contained covenants which required 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 contained certain covenants
which, among other things, subject to certain exceptions, limited or restricted
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.
On March 18, 1997, the Company announced a special dividend of $2.50
per Common Share to shareholders of record as of March 28, 1997, to be paid on
April 14, 1997, for a total dividend on all Common Stock of $25,000,000. The
source for the special dividend was generated primarily from proceeds realized
from the sale of assets.
Recent Developments
As of March 15, 1997 Cortez Plaza was under a contract for sale which
was subject to a number of closing conditions. On March 24, 1997, the buyer
terminated the contract pursuant to its right under such contract. The Company
is continuing to pursue a sale of Cortez Plaza.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Independent Auditor's Report....................................................
Consolidated Balance Sheets as of December 31, 1996 and December 31, 1995.......
Consolidated Statements of Operations for the years ended December 31, 1996 and
1995 and the period April 7, 1994
(commencement of operations) through December 31, 1994..........................
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1996 and 1995 and the period April 7, 1994
(commencement of operations) through December 31, 1994..........................
Consolidated Statements of Cash Flows for the years ended December 31, 1996 and
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, 1996 and December 31, 1995,
and the related consolidated statements of operations, shareholders' equity and
cash flows for the years ended December 31, 1996 and 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, 1996 and December 31, 1995, and the
results of their operations and their cash flows for the years ended December
31, 1996 and 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 24, 1997
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
1996 1995
--------- ---------
<S> <C> <C>
ASSETS
OPERATING REAL ESTATE PROPERTIES:
Land .................................................................................... $ 7,841 $ 20,539
Buildings and improvements .............................................................. 32,557 78,868
--------- ---------
40,398 99,407
Accumulated depreciation and amortization ............................................... (2,893) (4,337)
--------- ---------
Operating real estate properties, net ............................................... 37,505 95,070
MORTGAGE LOANS ON REAL ESTATE:
Earning ................................................................................. -- 15,052
Non-earning ............................................................................. 3,228 7,162
--------- ---------
3,228 22,214
Allowance for possible losses ........................................................... (3,198) (5,295)
Mortgage loans on real estate, net ...................................................... 30 16,919
CASH AND CASH EQUIVALENTS .................................................................... 4,378 8,818
ACCOUNTS RECEIVABLE (net of allowance for doubtful accounts of $244 and $196) ................ 1,054 1,802
ASSETS HELD FOR SALE ......................................................................... 49,387 31,707
OTHER ASSETS ................................................................................. 932 1,547
TOTAL ASSETS ................................................................................. $ 93,286 $ 155,863
========= =========
<PAGE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
December 31,
1996 1995
--------- ---------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Senior debt ............................................................................. $ 2,490 $ 57,898
Mortgage notes payable .................................................................. 5,294 8,134
Real estate taxes ....................................................................... 482 5,476
Other liabilities ....................................................................... 1,320 2,354
--------- ---------
Total liabilities ................................................................... 9,586 73,862
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 ..................................................................... (17,745) (19,444)
--------- ---------
Total shareholders' equity .......................................................... 83,400 81,701
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY ................................................... $ 93,286 $ 155,863
========= =========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
- ------------------------------------------------------------------------------------------------------------------------------
For the period
April 7, 1994
(commencement
of operations)
through
For the years ended December 31, December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Minimum rents ......................................... $ 14,421 $ 16,890 $ 9,668
Recoveries from tenants ............................... 2,678 3,580 2,079
Mortgage loan interest ................................ 4,444 2,196 2,021
Investment income ..................................... 784 678 1,032
Net gain from asset dispositions ...................... 1,367 84 89
Other ................................................. 1,360 429 106
-------- -------- --------
Total revenues .................................... 25,054 23,857 14,995
-------- -------- --------
EXPENSES:
Property operations ................................... 6,946 8,146 5,796
Interest expense ...................................... 3,204 6,438 4,546
Non-income producing assets ........................... 1,101 1,864 2,011
Management fees ....................................... 1,916 2,049 1,904
General and administrative ............................ 602 1,028 2,516
Depreciation and amortization ......................... 3,126 3,322 2,001
Write-downs for impairment of value ................... 6,591 9,005 8,460
-------- -------- --------
Total expenses .................................... 23,486 31,852 27,234
-------- -------- --------
INCOME (LOSS) BEFORE INCOME
TAXES AND EXTRAORDINARY GAIN .......................... 1,568 (7,995) (12,239)
Income Taxes .......................................... -- -- --
-------- -------- --------
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN .................... 1,568 (7,995) (12,239)
Extraordinary Gain .................................... 159 839 --
-------- -------- --------
NET INCOME (LOSS) .......................................... $ 1,727 $ (7,156) $(12,239)
======== ======== ========
INCOME (LOSS) PER COMMON SHARE
(10,000,000 shares outstanding):
INCOME (LOSS) BEFORE EXTRAORDINARY GAIN .................... $ 0.16 $ (0.80) $ (1.22)
EXTRAORDINARY GAIN ......................................... 0.01 0.08 --
-------- -------- --------
NET INCOME (LOSS) .......................................... $ 0.17 $ (0.72) $ (1.22)
======== ======== ========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
For the Years Ended December 31, 1996 and 1995 and the Period April 7, 1994
(commencement of operations) through December 31, 1994 (Dollars in thousands,
except share amounts)
- -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK PAID - IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ---------- ---------- ---------- ----------
<S> <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
Preferred stock dividends .............. -- -- -- (28) (28)
Net income ............................. -- -- -- 1,727 1,727
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1996 ............. 10,000,000 $ 100 $ 101,045 $ (17,745) $ 83,400
========== ========== ========== ========== ==========
</TABLE>
See notes to consolidated financial statements
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
For the period
April 7, 1994
(commencement
of operations)
through
For the years ended December 31, December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ................................................. $ 1,727 $ (7,156) $(12,239)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities:
Depreciation and amortization:
Operating real estate properties .............................. 2,617 3,182 1,985
Other assets .................................................. 509 140 16
Net gain from asset dispositions ................................ (1,367) (84) (89)
Extraordinary gain .............................................. (159) (839) --
Write-downs for impairment of value ............................. 6,591 9,005 8,460
Straight line adjustment for stepped rentals .................... (47) 158 366
Net changes in assets and liabilities ........................... (875) (2,959) 1,846
-------- -------- --------
Net cash provided by operating activities ................... 8,996 1,447 345
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of assets ................................. 35,753 7,636 22,675
Net collections on mortgage loans ................................. 14,723 2,748 21,365
Improvements to operating properties .............................. (1,731) (1,885) (868)
Acquisitions of operating properties .............................. (4,056) (9,532) (11,550)
Acquisitions of mortgage loans .................................... -- -- (22,252)
-------- -------- --------
Net cash provided by (used for) investing activities ........ 44,689 (1,033) 9,370
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Senior debt repayments, net ....................................... (47,332) (5,725) (4,860)
Mortgage loan repayments .......................................... (2,840) (206) --
Borrowing from a mortgage note payable ............................ -- -- 2,340
Preferred stock dividends ......................................... (28) (28) (13)
Purchases of interest in senior debt .............................. (7,925) (12,514) --
-------- -------- --------
Net cash used for financing activities ...................... (58,125) (18,473) (2,533)
-------- -------- --------
<PAGE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
- ----------------------------------------------------------------------------------------------------------------------------
For the period
April 7, 1994
(commencement
of operations)
through
For the years ended December 31, December 31,
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS ................. (4,440) (18,059) 7,182
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..................... 8,818 26,877 19,695
-------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........................... $ 4,378 $ 8,818 $ 26,877
======== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................................ $ 3,387 $ 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 (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 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.
<PAGE>
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., Asten
Associates Corp. and Jersey Property Corp. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Certain amounts as of December 31, 1994 and 1995 have been reclassified
to conform to the December 31, 1996 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, net of
closing costs. 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, net of closing costs. 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.
Operating properties and mortgage loans under contract for sale are
classified as assets held for sale.
<PAGE>
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 - The Company accounts for income taxes in accordance with
the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 requires an asset
and liability approach which requires the recognition of deferred tax
liabilities and deferred tax assets for the expected future tax
consequences of temporary differences between the carrying amounts and
the tax bases of assets and liabilities. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount
expected to be realized. Income tax expense is the tax payable for the
period and the change during the period in deferred tax assets and
liabilities.
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 Income (Loss) Per Common Share - Net income (loss) per common share
has been computed by adjusting net income (loss) for dividends on
redeemable preferred stock, to arrive at earnings (loss) attributable
to the common stockholders 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 income (loss) per
common share for the years ended December 31, 1996 and 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.
<PAGE>
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 adopted this standard for the
fiscal year beginning January 1, 1996 and it did not have a material
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, 1996 and 1995.
As of December 31, 1996 and 1995, 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.
<PAGE>
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,
1996 1995
Number Amount Number Amount
------- ------- ------- -------
<S> <C> <C> <C> <C>
Retail ..................... 5 $26,652 10 $62,466
Office ..................... 1 10,853 3 23,199
Multi-Family ............... -- -- 1 5,640
Industrial/Warehouse ....... -- -- 1 3,765
------- ------- ------- -------
6 $37,505 15 $95,070
======= ======= ======= =======
</TABLE>
During 1995, the Company acquired one office building (1025 Vermont
Avenue) for $9,532 in cash and sold one office building (Merrimack
Executive Center) for $1,331, resulting in a gain of $26.
During 1996, the Company sold seven operating properties (Barrington
Hills, Breighton- Copper Creek, Cimarron Plaza, Harbor Bay, Olympia
Corners, Pike Plaza and Shoppes at Cloverplace), for net cash proceeds
of $26,473, including closing costs, resulting in a gain of $1,059.
As of March 15, 1997, the Company had entered into contracts to sell
six operating properties (Abco Plaza, Bayshore Club Apartments, Cortez
Plaza, Executive Airport, Riverbend and 1025 Vermont Avenue).
Accordingly, these properties were reclassified on the consolidated
balance sheet from operating properties to assets held for sale as of
December 31, 1996. On March 24, 1997, the buyer terminated the contract
pursuant to its right under such contract. The Company is continuing to
pursue a sale of Cortez Plaza.
Minimum future rentals on noncancelable operating leases for the
Company's real estate properties as of December 31, 1996 are as
follows:
1997 $ 6,616
1998 4,026
1999 2,842
2000 2,364
2001 2,167
Thereafter 15,354
--------
$ 33,369
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.
<PAGE>
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, December 31,
1996 1995
Earning Non-earning Earning Non-earning
------- ----------- ------- -----------
<S> <C> <C> <C> <C>
First mortgage loans:
Acquisition and development ...... $ -- $ 30 $ -- $ 1,080
Completed properties ............. -- -- 15,052 3,408
------- ------- ------- -------
-- 30 15,052 4,488
Second mortgage loans .............. -- -- -- 2,674
------- ------- ------- -------
$ -- $ 30 $15,052 $ 7,162
======= ======= ======= =======
</TABLE>
During 1995, the Company realized net proceeds of $2,748 from the
payoff of seven mortgage loans and the pay down of two mortgage loans,
resulting in a gain of $339.
During 1996, the Company realized net proceeds of $20,914 plus
contingent interest of $4,049 from the sale of one mortgage loan and
the repayment of nine mortgage loans, resulting in a gain of $154.
There was no past due interest receivable on the Company's earning
mortgage loans at December 31, 1996 or 1995, respectively. Included in
earning mortgage loans at December 31, 1995 is $1,403 of loans which
have been subjected to either formal or informal modifications of rates
and maturity dates due to financial difficulties of the borrowers. All
earning mortgage loans at December 31, 1995 bear interest at fixed
rates and had a weighted average yield of 8.36%.
<PAGE>
F. ASSETS HELD FOR SALE
The following sets forth the Company's assets held for sale by
category:
<TABLE>
<CAPTION>
December 31,
1996 1995
---------------------------- --------------------------
No. of No. of
Properties Amount Properties Amount
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Land ...................... 3 $ 300 10 $ 1,786
Single-family lots ........ 3 915 7 6,150
Completed properties:
Office ............... 1 10,430 -- --
Multi-family ......... 1 3,808 2 7,295
Shopping center/retail 4 25,576 3 8,665
Single-family ........ -- -- 3 413
Industrial ........... 3 6,708 1 997
Condominiums ......... -- -- 1 204
Mortgage loan ............. 1 1,650 1 6,197
------- ------- ------- -------
16 $49,387 28 $31,707
======= ======= ======= =======
</TABLE>
During 1995, the Company sold various land assets for net proceeds of
$6,065, including closing costs, resulting in a loss of $244.
During 1996, the Company acquired a tax lien on a seven building
industrial complex located in Lawrenceville, New Jersey, for $3,256
(including closing costs). In October 1996, the Company obtained title
to the property. During 1996, the Company sold various land assets for
net proceeds of $3,089, including closing costs, resulting in a gain of
$153.
During the period January 1, 1997 through March 15, 1997, the Company
realized net proceeds of approximately $26.1 million from the sale of
certain assets and repayment of the related mortgage loans, such assets
had a carrying value of approximately $22.8 million at December 31,
1996. In addition, as of March 15, 1997, the Company has seven assets
under contract (five operating properties and two land assets) for sale
to various purchasers, which is expected to result in aggregate net
proceeds of approximately $28.1 million. The net carrying value of
these assets at December 31, 1996 was approximately $26.9 million. One
of the assets under contract, the Cortez Plaza shopping center,
represents in excess of 10% of the Company's (i) total gross revenue
for the year ended December 31, 1996 and (ii) net carrying value of
real estate assets at December 31, 1996. All of the assets under
contract are subject to customary closing conditions. On March 24,
1997, the buyer terminated the contract pursuant to its right under
such contract. The Company is continuing to pursue a sale of Cortez
Plaza.
<PAGE>
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 Fleet National
Bank of Massachusetts, formerly 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 "Senior Debt") which
included $6,000 payable to Liberte. At the option of the Company, the
Senior Debt bore 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 had the ability to select
interest rates for various components of the Senior Debt for various
periods of time. At December 31, 1996, the interest rate was 8.25%.
Interest payments were due based upon the period of time opted, but
generally could be extended beyond three months.
The Senior Debt was 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 could prepay without penalty or premium any portion of the
outstanding balance.
Substantially all of the Company's assets were collateral for the
Senior debt. The Agreement provided for certain covenants relating to
asset and collateral coverage, debt ratios and net worth levels.
Additionally, the agreement limited or restricted 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 1996, the Company purchased participating interests in the
Senior Debt in the principal amount of $8,075 for $7,916, and during
1995 the Company purchased participating interests in the Senior Debt
in the principal amount of $13,353 for $12,514. No such purchases
occurred during 1994. The difference between the purchase price and the
principal amount acquired, net of closing costs, was recorded as an
extraordinary gain.
In January 1997, the Company repaid the entire outstanding balance of
its Senior debt, including accrued interest, obtained lien releases on
all of its collateralized assets and terminated the Agreement.
<PAGE>
H. MORTGAGE NOTES PAYABLE
Mortgage notes payable are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------ ------
<S> <C> <C>
Nonrecourse, first mortgage note maturing on July 31,
2000 and collateralized by Barrington Hills(1) ............. $ -- $2,302
Nonrecourse, first mortgage note maturing on September 1,
1997 and collateralized by Cross Creek Business Center(2) .. 5,294 5,832
------ ------
$5,294 $8,134
====== ======
<FN>
- --------
1 In January 1996, the Company sold Barrington Hills and repaid the mortgage
in full.
2 Interest, fixed at 9.75% per annum, and principal based on an eight year
amortization, payable monthly, with a balloon payment due at maturity on
September 1, 1997. All principal payments due as of December 31, 1996 are
to be paid in 1997.
</FN>
</TABLE>
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.
<PAGE>
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. The Company is currently negotiating the
terms of an extension to the Wexford Management Agreement with Wexford.
The terms have not as yet been agreed upon.
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. For the year ended December 31, 1996, Wexford
agreed to reduce the Wexford Management Fee to $1,916. For the year
ended December 31, 1995, Wexford was paid a Wexford Management Fee of
$2,049. 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.
<PAGE>
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 at December 31, 1996, 1995 and 1994:
<TABLE>
<CAPTION>
Total Total Total Total Total
Total shares shares shares shares shares
shares under under under under under Per Share
under granted exercisable forfeited exercised expired exercise
options options options options options options price
--------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1994 1,111,111 555,555 134,256 -- -- -- $8.50
December 31, 1995 1,111,111 603,055 289,955 -- -- -- $8.50
December 31, 1996 1,111,111 585,336 435,859 17,719 -- -- $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.
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("SFAS 123"), which was effective for the
Company beginning January 1, 1996. SFAS 123 requires expanded
disclosures of stock based compensation arrangements with employees and
encourages (but does not require) compensation cost to be measured
based on the fair value of the equity instrument awarded. Companies are
permitted, however, to continue to apply APB Opinion No. 25, which
recognizes compensation cost based on the intrinsic value of the equity
instrument awarded. The Company will continue to apply APB Opinion No.
25 to its stock based compensation awards to employees and will
disclose the required pro forma effect on the net income and earnings
per share. As of December 31, 1996, there was no effect on net income
or earnings per share arising from stock based compensation.
<PAGE>
K. INCOME TAX
The Company files a consolidated federal income tax return including
all its subsidiaries. At December 31, 1996, the Company had estimated
net operating loss carryforwards ("NOLs") for U.S. income tax purposes
of approximately $15.3 million, which expire in the years 2009 through
2011.
Following is a summary of the deferred tax asset as of December 31,
1996 and 1995:
<TABLE>
<CAPTION>
December 31,
1996 1995
-------- --------
<S> <C> <C>
Deferred tax asset:
Excess of tax over book basis of net assets ..... $ 9,877 $ 10,483
Less: Valuation allowance ....................... (9,877) (10,483)
-------- --------
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 in
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, classified as assets held for sale at December 31, 1996.
Future minimum annual lease payments at December 31, 1996 are as
follows:
1997 $ 177
1998 177
1999 177
2000 177
2001 177
Thereafter 5,324
-----
$6,209
======
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.
<PAGE>
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
The Company monitors the value of its assets to ascertain that the net
carrying value of its assets are not in excess of fair value based on
current information available to the Company. 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, 1996 and 1995.
Write-downs for impairment of value and loan losses charged to
operations are as follows:
<TABLE>
<CAPTION>
For the period April 7, 1994
For the years (commencement of operations)
ended December 31, through December 31,
1996 1995 1994
------------- ------------ -----------------------------
<S> <C> <C> <C>
Operating real estate properties $ -- $ -- $ 2,351
Mortgage loans on real estate -- 3,021 2,227
Assets held for sale 6,591 5,984 3,882
-------------- ------------ -----------
$ 6,591 $ 9,005 $ 8,460
============= ============ ===========
</TABLE>
<PAGE>
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
years ended December 31, 1996 and 1995 and for 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 years ended December 31, 1996 and 1995 and
for the period April 7, 1994 through December 31, 1994 follows (this
discussion excludes changes in net carrying values resulting from
capital improvements, sales, pay downs or depreciation):
Operating Properties
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 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 in 1995 or 1996.
<PAGE>
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
occupancy 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 in 1995 or 1996.
Mortgage Loans
Centerpointe, a second mortgage loan with an original principal balance
of $2,996 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 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 in 1995. No write-down was recorded in 1996.
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 for the period ended December 31, 1994. This mortgage loan was
settled in full in June 1995 for net proceeds of $411.
Lievan J. VanReit, a first mortgage loan with an original principal
balance of $750 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. Preliminary negotiations with the
borrower to repay the loan in full for approximately $350 were held.
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 for the period ended 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.
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 losses of $453 was recorded in the quarter
ended September 30, 1995 in order to reduce the net carrying value to
$500.
<PAGE>
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 losses of $125 was
recorded in the fourth quarter of 1995 to reduce the net carrying value
to $375. In February 1996, the $250 payment was received and in April
1996, the $125 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
losses of $174 was recorded in the fourth quarter of 1995 to reduce the
net carrying value to $30. No write-down was recorded in 1996. In
February 1997, the mortgage was settled in full for net proceeds of
$300.
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 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 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 losses of $603 was recorded in the fourth quarter of 1995
to reduce the net carrying value to $540. No write-down was recorded in
1996. The mortgage was settled in full in July 1996 for net proceeds of
$702.
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:
<PAGE>
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 was
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. The
net carrying value of the property was $5,640 as of December 31, 1995.
In March 1996, the Company entered into a contract for sale of the
property for $5,350. Due to a subsequent decline in the standard of
living in the neighborhood, increases in the number of available garden
apartment units in the marketplace and the inability to reverse the
decline in the occupancy at the property, it was necessary to negotiate
an amendment to the contract reducing the sale price to $4,400,
including estimated closing costs. Accordingly, the property was
reclassified on the consolidated balance sheet from an operating
property to an asset held for sale as of March 31, 1996 and a
write-down of $1,197 was recorded in the first quarter of 1996.
Subsequently, the amended contract fell through and the Company entered
into a new contract during the third quarter of 1996 with a different
purchaser for $3,800, net of closing costs. Accordingly, a write-down
of $620 was recorded in the third quarter of 1996 to further reduce the
net carrying value to $3,800. The property was sold in January 1997 for
net proceeds of $3,849.
Copper Creek, located in Fort Worth, Texas, was 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 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 for the period ended 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 in the fourth quarter of
1995 to further reduce the net carrying value to $3,700. No write-down
was recorded in 1996. The property was sold in April 1996 for net
proceeds of $3,717.
<PAGE>
Cortez Plaza, located in Bradenton, Florida, is a 289,612 square foot
power shopping center that was constructed in 1966 and renovated in
1988 and is situated on 26.2 acres of land. During the fourth quarter
of 1996, the Company entered into a contract to sell the property for
$17,100 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 December 31, 1996 and a
write-down of $1,540 was recorded in the fourth quarter of 1996 to
reduce the net carrying value to $17,100.
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 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 was 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 in 1995. During the fourth quarter of 1996, the Company
entered into a contract to sell the property for $2,900 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 December 31, 1996 and a write-down of $851 was recorded
in the fourth quarter of 1996 to reduce the net carrying value to
$2,900.
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 in 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. As a result, an additional write-down
for impairment of $118 was recorded in 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 sold in February 1996 for $771,
net of closing costs.
<PAGE>
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 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 was 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 in 1995. During the fourth quarter of 1996, the Company
entered into a contract to sell the property for $600, 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 December 31, 1996 and a write-down of $749 was recorded
in the fourth quarter of 1996 to reduce the net carrying value to $600.
The property was sold in March 1997 for net proceeds of $622.
Shoppes at Cloverplace, located in Palm Harbor, Florida, was 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 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 was
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 in 1995. During March of 1996, the Company
entered into a contract to sell the property for $2,500, 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 March 31, 1996 and a write-down of $297 was recorded in
the first quarter of 1996. The property was sold in June 1996 for net
proceeds of $2,547.
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 in
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 net carrying value of the property was
$3,065 as of December 31, 1995. During the first quarter of 1996, the
Company entered into a contract to sell the property for $2,850,
including closing costs. Accordingly, a write-down of $215 was recorded
in the first quarter of 1996. During the fourth quarter of 1996, the
Company entered into an amendment to reduce the contract price to
$2,650, including closing costs. Accordingly, an additional write-down
of $233 was recorded in the fourth quarter of 1996 to reduce the net
carrying value to $2,650.
<PAGE>
The Fort Smith Quarry, a first mortgage loan with an original principal
balance of $7,450 and bearing interest at 9% per annum, was to mature
in January 2002. The net asset value was $7,353 as of April 7, 1994.
The loan was 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, the Company entered into a contract to sell the
mortgage for $6,197, net of closing costs. 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. No write-down was recorded in 1996. The mortgage was sold in
January 1996 for net proceeds of $6,191.
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 had been
negotiating a restructuring of the loan with the borrower. Under the
terms of the proposed restructure agreement, the borrower was to pay
$34 of accrued interest and legal fees, the mortgage was to accrue
interest at 12% per annum, the borrower was to pay 100% of the net cash
flow of the underlying property toward interest and the loan maturity
was to be extended to September 30, 1996. The mortgage loan is secured
by a 92,000 square foot warehouse located in San Bernardino,
California. The net carrying value of the mortgage was $2,412 at
December 31, 1994. 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 as of December 31, 1994. The fair value of the underlying
property and of comparable properties was estimated at approximately
$25 per square foot. Consequently, a write-down for possible loan
losses of $95 was recorded for the period ended 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 was recorded in the fourth
quarter of 1995 in order to reduce the net carrying value to $1,800.
During the fourth quarter of 1996, the Company entered into a contract
to sell the mortgage for $1,650. Accordingly, it was reclassified on
the consolidated balance sheet from a non-earning mortgage to an asset
held for sale as of December 31, 1996 and a write-down of $150 was
recorded. In March 1997 the mortgage was sold for net proceeds of
$1,660.
<PAGE>
Lake Elsinore, located in Lake Elsinore, California, consisted 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 approximated the fair value of the property, the Company did
not pay the prior accrued real estate tax liability or the current
taxes on such property. The Company's negotiations with various
prospective buyers focused on selling the property subject to the
existing real estate tax liability plus cash. Local taxing authorities
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. 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). During 1996, real estate taxes were accrued up to an amount
equal to the net carrying value of the property. No write-down was
recorded in 1995 or 1996. During 1996, the local tax authorities,
foreclosed upon the majority of the parcels of vacant land and in
November 1996 the remaining lots were sold for net proceeds of $482.
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.
No write-down was recorded during 1996.
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 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 in 1995 or 1996. In March 1996, the remaining
three single family homes were sold for net proceeds of $236.
<PAGE>
Fort Worth 1, located in Fort Worth, Texas, consisted 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 in the fourth quarter of
1995 to reduce the net carrying value to $370. The property was sold in
May 1996 for net proceeds of $389.
Fort Worth Land II, located in North Richland Hills, Texas, consisted
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 for the period
ended December 31, 1994. Management entered into a contract to sell the
property for approximately $30, net of estimated closing costs, in the
fourth quarter of 1995. As a result, a write-down of $59 was recorded
in the fourth quarter of 1995 and the property was sold in January 1996
for net proceeds of $30. No write-down was recorded in 1996.
Hanover Park, formerly classified as an earning mortgage as of December
31, 1994, was foreclosed upon in 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.
No write-down was recorded in 1996.
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.
Crimson Ridge Tract 2, located in Everman, Texas, consisted 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
property 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 in the fourth quarter of 1995. No write-down was recorded in
1996. The property was sold in March 1996 for net proceeds of $82.
<PAGE>
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 in the fourth quarter of 1995. No write-down was recorded in
1996.
Kirkwood/Huntington Glen Land, located in Houston, Texas, consisted 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
sold in March 1996 for net proceeds of $113. No write-down was recorded
in 1996.
Park East Condominiums, located in Pinnellas Park, Florida consisted of
nine condominium units and 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, in the fourth
quarter of 1995. As a result, a write-down of $65 was recorded in the
fourth quarter of 1995 and the asset was sold in January 1996 for net
proceeds of $210. No write-down was recorded in 1996.
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 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 as of December
31, 1994. The fair value of this and comparable buildings was
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 in 1995 or 1996. In the first quarter
of 1997, the Company entered into a contract to sell this property for
$1,300, net of closing costs.
<PAGE>
University Park Lots 1 and 2, located in Lancaster, California,
consisted 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 in 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. As a result an additional write-down of
$254 was recorded in the fourth quarter of 1995. No write-down was
recorded in 1996. The property was sold in April 1996 for net proceeds
of $181.
Valley Creek Estates, located in Mesquite, Texas, consisted 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 for the period ended 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 in the fourth
quarter of 1995. The property was sold in May 1996 for net proceeds of
$260. No write-down was recorded in 1996.
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 in the second quarter of 1995. Subsequently, in the third
quarter of 1995, an additional write-down of $54 was recorded. During
1996, the Company entered into an option contract with a prospective
buyer, for a total sales price of $400, including estimated closing
costs. Accordingly, a write-down of $120 was recorded in 1996 to reduce
the net carrying value to $400.
River Plantation, located in Conroe, Texas, consists of 88 single
family lots zoned for single family homes. During the fourth quarter of
1996, the Company entered into a contract to sell the property for
$494. Accordingly, a write-down of $372 was recorded in the fourth
quarter of 1996 and the property was sold in January 1997 for net
proceeds of $494.
San Antonio Land #4, located in San Antonio, Texas, consists of eleven
acres of land zoned for multi-family use. During the fourth quarter of
1996, the Company entered into a contract to sell the property for
$150. Accordingly, a write-down of $247 was recorded in the fourth
quarter of 1996 and the property was sold in February 1997 for net
proceeds of $164.
<PAGE>
N. SUBSEQUENT EVENT
On March 18, 1997, the Company announced a special dividend of $2.50
per Common Share to shareholders of record as of March 28, 1997, to be
paid on April 14, 1997, for a total dividend on all Common Stock of
$25,000. The source for the special dividend was generated primarily
from proceeds realized from the sale of assets.
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, 1997. 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 43 Chairman of the Board and Director
Joseph M. Jacobs 44 Chief Executive Officer, President,
Treasurer and Director
Karen M. Ryugo(1) 37 Director
Vance C. Miller(1) 63 Director
Lawrence Howard, M.D.(1) 43 Director
Jeffrey A. Altman 30 Director
Robert Holtz 29 Vice President and Assistant Secretary
Jay L. Maymudes 36 Vice President, Chief Financial Officer
and Secretary
<FN>
- --------
1 Member of Compensation Committee
</FN>
</TABLE>
<PAGE>
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 18, 1996, 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. Dr. Howard is a founder of Presstek, Inc. (a public
company) and has been a director since November 1987. Dr. Howard was Vice
Chairman of Presstek from November 1992 to February 1996, Chief Executive
Officer and Treasurer from June 1988 to June 1993, President from June 1988 to
November 1992 and Vice President from October 1987 to June 1988. From March 1997
to the present, Dr. Howard has been a general partner of Hudson Ventures, L.P.,
a limited partnership that has prepared an application to qualify as a small
business investment company. From July 1995 to March 1997, Dr. Howard was
President of Howard Capital Partners, Inc., an investment and merchant banking
firm. From July 1994 to July 1995, Dr. Howard was Senior Managing Director of
Whale Securities Co. L.P., an NASD registered broker-dealer. From October 1992
through June 1994, Dr. Howard was President and Chief Executive Officer of LH
Resources, Inc., a management and financial consulting firm.
<PAGE>
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 Franklin Mutual Advisors, Inc., formerly 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 18, 1996, 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 18, 1996, 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.
<PAGE>
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, 1996 and 1995:
<TABLE>
<CAPTION>
Summary Compensation Table(1)
Long Term Compensation
Awards
-----------------------
Securities Underlying
Name and Principal Position Year Options (#) (2)
- --------------------------- ---- ----------------------
<S> <C> <C>
Joseph M. Jacobs 1994 1,055,556
President and Chief
Executive Officer 1995 --
1996 17,719
<FN>
- --------
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, 1996, 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 29,781 Management Options that were subsequently granted to certain
officers and employees of Wexford during the fiscal year ending December
31, 1995 and 525,775 Management Options that remain available for future
grants to Wexford's officers and/or employees at the discretion of Mr.
Jacobs as of December 31, 1996. See "Business -- Wexford Management
Agreement".
</FN>
</TABLE>
<PAGE>
Mr. Jacobs was not granted any Management Options during the year
ended December 31, 1996. However, Management Options underlying 17,719 shares
were forfeited to Wexford by certain employees of Wexford during the year ended
December 31, 1996 as a result of their termination. Another executive of the
Company was granted 15,000 Management Options during 1995 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, 1996 and lists the number and value of the unexercised Management
Options held by the Chief Executive Officer at December 31, 1996:
<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
Exercise Realized Options at FY-End (#) at FY-End ($)
Year Name (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ---- ------------ -------- ------------------------- -------------------------
<S> <C> <C> <C> <C> <C>
1996 Joseph M. Jacobs -- -- 769,331/256,444(1) $0
<FN>
- --------
1 The Wexford Management Agreement provides that of the total 1,111,111
Management Options available for grant, no more than 75% may be exercisable
on or before the third anniversary of the Wexford Management Agreement (May
4, 1997). 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 (375,000) to 75% of the
Management Options that were not granted as of December 31, 1996 (394,331).
The number of securities underlying unexercisable options was determined by
subtracting the number of securities underlying exercisable options
(769,331) 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 (1,025,775).
</FN>
</TABLE>
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.
<PAGE>
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 1996, the Board of Directors held two meetings and acted twelve
times by informal action. The Compensation Committee did not meet during 1996.
Charles E. Davidson, Joseph M. Jacobs, Karen M. Ryugo and Vance C. Miller
participated in both meetings and Dr. Lawrence Howard and Jeffrey A. Altman
participated in one meeting each.
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 1, 1997
(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, L.L.C. 567,700 (2) 5.7%
Farallon Capital Partners, L.P. 1,140,700 (2) 11.4
Farallon Capital Institutional Partners, L.P. 1,291,700 (2) 12.9
Farallon Capital Institutional Partners II, L.P. 776,600 (2) 7.8
Farallon Capital Institutional Partners III, L.P. 25,000 (2) 0.3
Tinicum Partners, L.P. 213,400 (2) 2.3
Thomas F. Steyer 4,015,100 (2) 40.2
Fleur E. Fairman 3,447,400 (2) 34.5
David I. Cohen 4,015,100 (2) 40.2
Meridee A. Moore 4,015,100 (2) 40.2
Joseph F. Downes 4,015,100 (2) 40.2
Jason M. Fish 4,015,100 (2) 40.2
William F. Mellin 4,015,100 (2) 40.2
Stephen L. Millham 4,015,100 (2) 40.2
Andrew B. Fremder 4,015,100 (2) 40.2
Enrique H. Boilini 4,015,100 (2) 40.2
Total Shares in the Preceding Group 4,015,100 (2) 40.2
Franklin Mutual Advisors, Inc. 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
<PAGE>
<CAPTION>
Beneficial Ownership (1)
Number of Percentage
Name of Beneficial Owner Shares Outstanding
- ------------------------ ------ -----------
<S> <C> <C>
Davidson Kempner Partners 374,600 (6) 3.7
Davidson Kempner Endowment Partners 284,700 (6) 2.8
MHD Management Co. 659,300 (6) 6.6
Davidson Kempner Institutional Partners, L.P. 315,000 (6) 3.2
Davidson Kempner Advisers, Inc. 315,000 (6) 3.2
Davidson Kempner International, Ltd. 61,400 (6) *
Davidson Kempner International Advisors LLC 61,400 (6) *
M.H. Davidson & Co. 20,800 (6) *
Thomas L. Kempner Foundation Inc. 900 (6) *
Davidson Kempner International Advisors, L.L.C. 700 (6) *
Davidson Kempner International Ltd. 700 (6) *
Thomas L. Kempner, Jr. 1,058,800 (6) (7) 10.6
Marvin H. Davidson 1,056,500 (6) 10.6
Stephen M. Dowicz 1,056,500 (6) 10.6
Scott E. Davidson 1,056,500 (6) 10.6
Michael J. Leffell 1,056,500 (6) 10.6
Total Shares in the Preceding Group 1,058,800 (6) 10.6
Joseph M. Jacobs (4) (9) 1,058,056 (9) 10.6
Robert Holtz (4) (9) 57,555 (10) *
Jay L. Maymudes (4) (9) 13,114 (11) *
Karen M. Ryugo (4) 1,000 (12) *
Vance C. Miller (4) -- --
Dr. Lawrence Howard, M.D. (4) -- --
Jeffrey A. Altman (4) -- --
Directors and Officers, as a group (8 persons) 2,348,225 23.5%
<FN>
- ----------------
* 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.
<PAGE>
(2) As the managing member of Farallon Partners, L.L.C. ("FPLLC"), the general
partner of each of Farallon Capital Partners, L.P., Farallon Capital
Institutional Partners, L.P., Farallon Capital Institutional Partners II,
L.P., Farallon Capital Institutional Partners III, L.P. and Tinicum
Partners, L.P. (collectively, the "Farallon Partnerships"), Thomas F.
Steyer, Fleur E. Fairman, David I. Cohen, Meridee A. Moore, Joseph F.
Downes, Jason M. Fish, William F. Mellin, Stephen L. Millham, Andrew B.
Fremder and Enrique H. Boilini may each be deemed to own beneficially for
purposes of Rule 13d-3 under the Exchange Act the 1,140,700, 1,291,700,
776,600, 25,000 and 213,400 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, L.L.C. ("FCMLLC") and various managed accounts, FCMLLC 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 567,700
shares held in such accounts. As the managing members of FCMLLC each of Mr.
Steyer, Mr. Cohen, Ms. Moore, Mr. Downes, Mr. Fish, Mr. Mellin, Mr.
Millham, Mr. Fremder and Mr. Boilini may be deemed the beneficial owner of
the 567,700 shares held in such accounts managed by FCMLLC, which shares
are included in the listed ownership. FCMLLC and FPLLC and each managing
member thereof disclaims any beneficial ownership of such shares. The
foregoing is based upon information furnished to the Company by the
Farallon Partnerships.
(3) Franklin Mutual Advisors, Inc. ("FMAI") is an investment adviser registered
under the Investment Advisers Act of 1940. One or more of FMAI'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, FMAI has sole investment discretion and voting authority with
respect to such securities. FMAI is a wholly-owned subsidiary of Franklin
Resources, Inc. ("FRI"), a publicly held financial services corporation.
Neither FMAI nor FRI has any interest in dividends or proceeds from the
sale of such securities and each disclaims beneficial ownership of all the
securities owned by FMAI's advisory clients. The foregoing is based upon
information furnished to the Company by FMAI.
(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.
<PAGE>
(6) Pursuant to separate services agreements, M.H. Davidson & Co., Inc. ("M.H.
Davidson") has investment and voting discretion with respect to the 20,800
shares of Common Stock held by M.H. Davidson & Co., the 374,600 shares of
Common Stock held by Davidson Kempner Partners, the 284,700 shares of
Common Stock held by Davidson Kempner Endowment Partners, the 315,000
shares of Common Stock held by Davidson Kempner Institutional Partners,
L.P. and the 61,400 shares of Common Stock held by Davidson Kempner
International, Ltd. (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
1,056,500 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.
(7) 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.
(8) 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, all 55,555 Management Options have
vested as of, or will vest within 60 days after, March 15, 1997, (b)
Management Options to purchase 15,000 shares of Common Stock to Jay L.
Maymudes, an officer of Wexford, of which 10,614 Management Options have
vested as of, or will vest within 60 days after, March 15, 1997, and (c)
Management Options to purchase an aggregate of 32,500 shares of Common
Stock to certain employees of Wexford, of which 22,997 Management Options
have vested as of, or will vest within 60 days after, March 15, 1997. 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".
<PAGE>
(9) Includes 1,008,056 shares of Common Stock issuable upon exercise of vested
Management Options (375,000 shares underlying vested Jacobs Options and 75%
of the shares underlying exercisable options not granted to Wexford's
officers and/or employees). 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".
(10) Includes 55,555 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".
(11) Includes 10,614 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".
(12) 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".
</FN>
</TABLE>
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 Franklin Mutual
Advisors, Inc. is 51 J.F.K. Parkway, Short Hills, New Jersey 07078; 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.
<PAGE>
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 and a Senior Vice President 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 agreed to reduce the
Wexford Management Fee to $1,916,000 for the year ended December 31, 1996.
Wexford was paid a Wexford Management Fee of $2,049,000 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.
Transactions with Director
During 1996, the Company paid $163,200 to a company controlled by Vance Miller,
a member of the Board of Directors, in connection with serving as real estate
broker on the sale of one property.
<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.
<TABLE>
<CAPTION>
Pages in this
Annual Report
Independent Auditor's Report on Form 10-K
---------------------------- -------------
<S> <C>
II - Valuation and Qualifying Accounts for the
year ended December 31, 1996 S-1
III - Real Estate and Accumulated Depreciation at
December 31, 1996 S-2
IV - Mortgage Loans on Real Estate at December 31, 1996 S-4
</TABLE>
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 84 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 28, 1997
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 28th day of March, 1997.
<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,
------------------------------- Treasurer and Director (Principal Executive
Joseph M. Jacobs 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
------------------------------- and Secretary (Principal Financial and
Jay L. Maymudes Accounting Officer)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the year ended December 31, 1996
(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 $ 196 48
================= =================
Deductions from Operating Real Estate Properties
Write-down for impairment of value $ 1,581 -- Reclass to assets held for sale
================= =================
Deductions from Mortgage Loans on Real Estate
Allowance for possible losses $ 5,296 -- (1)
================= =================
Deductions from Assets Held For Sale
Write-down for impairment of value $ 17,507 6,591 Sale of assets
================= =================
<CAPTION>
(1) Deductions consist of the following:
<S> <C>
Payoff of Mortgage Loans $ (1,485)
Reclassifications to Assets Held For Sale Category (613)
-----------
$ (2,098)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
For the year ended December 31, 1996
(Dollars in thousands)
- ---------------------------------------------------------------------------------------------
Balance at
end of
Description Deductions year
----------- ----------------- -----------------
<S> <C> <C>
Deductions from Accounts Receivable
Allowance for doubtful accounts -- $ 244
================= =================
Deductions from Operating Real Estate Properties
Write-down for impairment of value (977) $ 604
================= =================
Deductions from Mortgage Loans on Real Estate
Allowance for possible losses (2,098) $ 3,198
================= =================
Deductions from Assets Held For Sale
Write-down for impairment of value (12,614) $ 11,484
================= =================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------------------
Costs Reductions
Capitalized Recorded
Subsequent to Subsequent to
Initial Cost (B) Acquistion Acquisition (G)
------------------------- ------------- ----------------
Buildings
Encumbrances and
Description (A) Land Improvements Improvements Write-downs
----------- ------------ ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
RETAIL:
Greenway Village Square Phoenix AZ $ --- $ 456 $ 2,106 $ 126 $ ---
Home Center Village Atlanta GA --- 2,861 5,826 57 ---
Riverwood Plaza I and II Port Orange FL --- 994 3,808 471 (497)
Southern Plaza Rio Rancho NM --- 859 2,963 103 ---
Stuart Square Stuart FL --- 1,585 6,315 508 ---
----------- ------------ ---------- ----------- -----------
--- 6,755 21,018 1,265 (497)
----------- ------------ ---------- ----------- -----------
OFFICE:
Cross Creek Business CentDeerfield IL 5,294 1,200 10,688 76 (107)
----------- ------------ ---------- ----------- -----------
$ 5,294 $ 7,955 $ 31,706 $ 1,341 $ (604)
=========== ============ ========== =========== ===========
<PAGE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1996
(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)
---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
RETAIL:
Greenway Village Square Phoenix AZ $ 456 $ 2,232 $ 2,688 $ 209 1991
Home Center Village Atlanta GA 2,861 5,883 8,744 542 1993
Riverwood Plaza I and II Port Orange FL 891 3,885 4,776 379 1992
Southern Plaza Rio Rancho NM 859 3,066 3,925 269 1991
Stuart Square Stuart FL 1,585 6,823 8,408 490 1994
---------- ---------- --------- ----------
6,652 21,889 28,541 1,889
---------- ---------- --------- ----------
OFFICE:
Cross Creek Business CentDeerfield IL 1,189 10,668 11,857 1,004 1990
---------- ---------- --------- ----------
$ 7,841 $ 32,557 $ 40,398 $ 2,893
========== ========== ========= ==========
</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 $2,490 as of December 31, 1996, net of Senior
Debt purchases. Such Senior Debt was repaid in its entirety in January
1997.
B. The initial cost for all properties, except Stuart Square, 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 $40,188 as of
December 31, 1996.
D. The date acquired represents the year acquired by Liberte for all
properties, except for Stuart Square.
E. The following is a reconciliation of real estate and accumulated
depreciation:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
-------- ------------
<S> <C> <C>
Balance, January 1, 1996 ............................. $ 99,407 $ 4,337
Additions during period:
Other acquisitions .............................. 800 --
Improvements .................................... 1,731 --
Charged to operations ........................... -- 2,617
-------- --------
101,938 6,954
Deductions during period:
Cost of assets sold ............................. -- --
Write-downs for Impairment ...................... -- --
Reclassifications to Assets Held for Sale ....... 61,540 4,061
-------- --------
Balance, December 31, 1996 ........................... $ 40,398 $ 2,893
======== ========
</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.
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE
DECEMBER 31, 1996
(Dollars in thousands)
- --------------------------------------------------------------------------------------------------------------------------
Number Final
of Interest Maturity
Description Loans Rate Date Periodic Payment Terms
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
Acquisition and development 1 9.75% 1991-1993 Principal due at maturity, interest
payable monthly.
SECOND MORTGAGE LOANS
Centerpointe J.V. 1 7.50% 1992 Principal due at maturity, interest
---- payable monthly.
Newport Beach, CA
Total mortgage loan portfolio 2
====
<CAPTION>
Principal
Amount of
Carrying Loans Subject
Face Amount of to Delinquent
Prior Amount of Mortgages Principal or
Description Liens Mortgages (A) (B) (C) Interest
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FIRST MORTGAGE LOANS
Acquisition and development $ --- $ 554 $ 30 $ 554
SECOND MORTGAGE LOANS
Centerpointe J.V. 1,255 2,674 0 2,674
-------- -------- ------ --------
Newport Beach, CA
Total mortgage loan portfolio $ 1,255 $ 3,228 $ 30 $ 3,228
========= ======== ====== =========
</TABLE>
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
SCHEDULE IV
NOTES TO MORTGAGE LOANS ON REAL ESTATE
(Dollars in thousands)
- --------------------------------------------------------------------------------
A. The aggregate cost for federal income tax purposes is $237 as of December
31, 1996.
B. The following is a reconciliation of the carrying amount of mortgage loans:
<TABLE>
<S> <C> <C>
Balance, January 1, 1996 $ 16,919
Deductions during period:
Collections of principal 14,564
Reclassifications to assets held for sale 2,325
------
16,889
-----------
Balance, December 31, 1996 $ 30
===========
</TABLE>
<PAGE>
APPENDIX I
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:
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
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 registration statement on Form 10. *
3.2 By-Laws of the Registrant. Incorporated herein by reference to
Exhibit 3.2 to registrant's registration statement on Form 10. *
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. *
* Incorporated by reference.
<PAGE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
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 registrationstatement 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 Idemnification Agreement for officers and directors of the
Registrant. Incorporated herein by reference to Exhibit 10.9 to
Registrant's Registration Statement on Form 10. *
* Incorporated by reference.
<PAGE>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
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
</TABLE>
<PAGE>
EXHIBIT C
QUARTERLY REPORT ON FORM 10-Q
FOR THE PERIOD ENDED JUNE 30, 1997
<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 AND EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
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.)
c/o Wexford Management LLC
411 West Putnam Avenue, Greenwich, CT 06830
(Address of principal executive offices)
(203) 862-7000
(Registrant's telephone number, including area code)
None
(Former name, former address and former fiscal year,
if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
As of August 1, 1997, there were 10,000,000 shares of Common Stock, $0.01 par
value, outstanding.
<PAGE>
RESURGENCE PROPERTIES INC.
FORM 10-Q
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996
Unaudited Consolidated Statements of Operations for the
Three Months Ended June 30, 1997 and 1996 and for the Six
Months ended June 30, 1997 and 1996
Unaudited Consolidated Statement of Shareholders'
Equity for the Six Months Ended June 30, 1997
Unaudited Consolidated Statements of Cash Flows for the
Six Months Ended June 30, 1997 and 1996
Notes to Unaudited Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
OPERATING REAL ESTATE PROPERTIES:
Land ............................................... $ 7,385 $ 7,841
Buildings and improvements ......................... 30,636 32,557
--------- ---------
38,021 40,398
Accumulated depreciation and amortization .......... (3,256) (2,893)
--------- ---------
Operating real estate properties, net .......... 34,765 37,505
MORTGAGE LOANS ON REAL ESTATE:
Nonearning ......................................... -- 3,228
Allowance for possible losses ...................... -- (3,198)
--------- ---------
Mortgage loans on real estate, net ................. -- 30
CASH AND CASH EQUIVALENTS ............................... 12,551 4,378
ACCOUNTS RECEIVABLE (net of allowance
for doubtful accounts of $111 and $244) ............ 724 1,054
ASSETS HELD FOR SALE .................................... 21,215 49,387
OTHER ASSETS ............................................ 503 932
--------- ---------
TOTAL ASSETS ............................................ $ 69,758 $ 93,286
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Senior debt ........................................ $ -- $ 2,490
Mortgage notes payable ............................. 5,005 5,294
Real estate taxes .................................. 658 482
Other liabilities .................................. 571 1,320
--------- ---------
Total liabilities .............................. 6,234 9,586
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK .............................. 300 300
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except share and per share amounts)
June 30, December 31,
1997 1996
--------- ---------
<S> <C> <C>
SHAREHOLDERS' EQUITY:
Common stock, par value $.01; 50,000,000 shares
Authorized; 10,000,000 shares issued and outstanding 100 100
Paid in capital .................................... 76,045 101,045
Accumulated deficit ................................ (12,921) (17,745)
--------- ---------
Total shareholders' equity .................... 63,224 83,400
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .............. $ 69,758 $ 93,286
========= =========
See notes to unaudited consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
REVENUES:
Minimum rents ......................... $ 1,846 $ 3,625 $ 4,548 $ 7,614
Recoveries from tenants ............... 240 606 819 1,452
Mortgage loan interest ................ -- 4,109 -- 4,554
Investment income ..................... 157 216 280 311
Net gain (loss) from asset dispositions 251 (12) 3,547 963
Other ................................. 156 82 236 168
------- ------- ------- -------
Total revenues .................... 2,650 8,626 9,430 15,062
------- ------- ------- -------
EXPENSES:
Property operations ................... 983 1,621 2,378 3,525
Interest expense ...................... 124 1,007 233 2,119
Non-income producing assets ........... 35 299 98 681
Management fees ....................... 369 513 817 1,025
General and administrative ............ 165 160 332 346
Depreciation and amortization ......... 335 776 734 1,553
Write-down for impairment of value .... -- -- -- 1,709
------- ------- ------- -------
Total expenses .................... 2,011 4,376 4,592 10,958
------- ------- ------- -------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except share and per share amounts)
(continued)
For the three months For the six months
ended June 30, ended June 30,
-------------------- ------------------
1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
INCOME BEFORE INCOME TAXES AND
EXTRAORDINARY GAIN .................... 639 4,250 4,838 4,104
Income Taxes .......................... -- -- -- --
------- ------- ------- -------
INCOME BEFORE EXTRAORDINARY
GAIN .................................. 639 4,250 4,838 4,104
Extraordinary Gain .................... -- 46 -- 160
------- ------- ------- -------
NET INCOME ................................. $ 639 $ 4,296 $ 4,838 $ 4,264
======= ======= ======= =======
INCOME PER COMMON SHARE (10,000,000 shares
outstanding):
INCOME BEFORE EXTRAORDINARY GAIN ........... $ 0.06 $ 0.43 $ 0.48 $ 0.41
EXTRAORDINARY GAIN ......................... -- -- -- 0.02
------- ------- ------- -------
NET INCOME ................................. $ 0.06 $ 0.43 $ 0.48 $ 0.43
======= ======= ======= =======
See notes to unaudited consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
For the Six Months Ended June 30, 1997
(Dollars in thousands, except share amounts)
COMMON STOCK PAID IN ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 10,000,000 $ 100 $ 101,045 $ (17,745) $ 83,400
Common stock dividends ... -- -- (25,000) -- (25,000)
Preferred stock dividends -- -- -- (14) (14)
Net income ............... -- -- -- 4,838 4,838
---------- ---------- ---------- ---------- ----------
Balance, June 30, 1997 ... 10,000,000 $ 100 $ 76,045 $ (12,921) $ 63,224
========== ========== ========== ========== ==========
See notes to unaudited consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
For the Six Months
ended June 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income ................................................ $ 4,838 $ 4,264
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization:
Operating real estate properties ................. 607 1,392
Other assets ..................................... 127 161
Net gain from asset dispositions .......................... (3,547) (963)
Extraordinary gain ........................................ -- (160)
Write-down for impairment of value ........................ -- 1,709
Straight-line adjustment for stepped rentals .............. 109 26
Net changes in operating assets and liabilities ........... (448) (919)
-------- --------
Net cash provided by operating activities ............ 1,686 5,510
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net proceeds from sales of assets .................... 34,555 24,511
Net collections on mortgage loans .................... 299 14,050
Improvements to operating properties ................. (574) (1,199)
Acquisitions ......................................... -- (800)
-------- --------
Net cash provided by investing activities ........ 34,280 36,562
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Common stock dividends ............................... (25,000) --
Senior debt repayments, net .......................... (2,490) (11,420)
Mortgage loan repayments ............................. (289) (2,565)
Preferred stock dividends ............................ (14) (14)
Purchase of interest in senior debt .................. -- (7,912)
-------- --------
Net cash used for financing activities ........... (27,793) (21,911)
-------- --------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands) (continued)
For the Six Months
ended June 30,
----------------------
1997 1996
-------- --------
<S> <C> <C>
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 8,173 20,161
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD .......... 4,378 8,818
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ................ $ 12,551 $ 28,979
======== ========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest ............................... $ 233 $ 2,167
======== ========
See notes to unaudited consolidated financial statements
</TABLE>
<PAGE>
RESURGENCE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share amounts)
A. ORGANIZATION AND ACCOUNTING POLICIES
Resurgence Properties Inc. and its subsidiaries (the "Company") are
engaged in diversified real estate activities. The Company was
incorporated on March 25, 1994 and began its operations on April 7,
1994, when the Company succeeded to most of the assets of Liberte
Investors ("Liberte") upon consummation of Liberte's bankruptcy plan
("The Plan of Reorganization"). The Company is managed and administered
by Wexford Management LLC ("Wexford").
The accompanying financial statements, notes and discussions should be
read in conjunction with the consolidated financial statements, related
notes and discussions contained in the Company's annual report on Form
10-K for the year ended December 31, 1996.
The interim financial information contained herein is unaudited;
however, in the opinion of management, all adjustments (consisting only
of normal recurring adjustments, other than write-downs for impairment
of value) necessary for the fair presentation of such financial
information have been included.
The December 31, 1996 year-end balance sheet data presented herein was
derived from audited financial statements, but does not include all
disclosures required by generally accepted accounting principles.
Long-lived assets are not reclassified to assets held for sale until a
valid, binding sales contract is executed. No such reclassifications
were made for the three months ended June 30, 1997.
The results for the interim period are not necessarily indicative of
the results to be expected for the year ending December 31, 1997.
The Company has approximately $15.3 million of net operating loss
carry-forwards ("NOL") available for U.S. income tax purposes expiring
in years through 2011. The Company has provided a valuation allowance
to offset the full amount of the net deferred tax assets arising from
book and tax differences including those from the NOL's.
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" in February, 1997.
This pronouncement establishes standards for computing and presenting
earnings per share, and is effective for the Company's 1997 year-end
financial statements. The Company's management has determined that this
standard will have no impact on the Company's computation or
presentation of net income per common share.
B. ASSETS HELD FOR SALE
For the quarter ended June 30, 1997, the Company sold Ramser-Newton
Avenue, Executive Airport, Southridge Plaza, Greenway Village and
various land assets for net proceeds of approximately $1,400, $2,945,
$2,332, $2,295 and $162, respectively. These sales resulted in a net
gain of approximately $251, after deducting closing costs. The Company
expects that the sales contracts on substantially all of the remaining
assets held for sale will close by December 31, 1997.
<PAGE>
C. PLAN OF LIQUIDATION
On April 29, 1997, the Board of Directors approved a plan of complete
liquidation and dissolution of the Company (the "Plan") for submission
to shareholders for their approval at the annual shareholders meeting
which is expected to be held during the third quarter of 1997. The
effective date of the Plan will be upon the affirmative vote of a
majority of the Company's shareholders. Among the key features of the
Plan are: (1) the cessation of all business activities, other than
those in furtherance of the Plan; (2) the sale or disposition of all of
the Company's assets; (3) the satisfaction of all outstanding
liabilities; (4) the payment of liquidating distributions to
shareholders in complete redemption of the Common Stock; and (5) the
authorization of the filing of Articles of Dissolution.
D. MANAGEMENT AGREEMENT
The Board of Directors and Wexford have agreed to an extension of the
management agreement with Wexford, which was due to expire on May 4,
1997, under a reduced fee arrangement through December 31, 1997 (the
"Extended Management Agreement") and to replace all of the Management
Options issued to Wexford with a compensation package designed to
provide the same economic benefits as the Management Options. The
replacement of the Management Options is contingent upon shareholder
approval of the Plan. The Extended Management Agreement provides for a
fee payable to Wexford of $1,152,125 for the year ending December 31,
1997 subject to adjustment based on actual expenses.
<PAGE>
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 quarter ended June 30, 1997.
Plan of Liquidation
On April 29, 1997, the Board of Directors approved a plan of complete
liquidation and dissolution of the Company (the "Plan") for submission to its
shareholders for their approval at the annual shareholders meeting expected to
be held during the third quarter of 1997. The effective date of the Plan will be
upon the affirmative vote of a majority of the Company's shareholders. Among the
key features of the Plan are: (1) the cessation of all business activities,
other than those in furtherance of the Plan; (2) the sale or disposition of all
of the Company's assets; (3) the satisfaction of all outstanding liabilities;
(4) the payment of liquidating distributions to shareholders in complete
redemption of the Common Stock; and (5) the authorization of the filing of
Articles of Dissolution.
Results of Operations - General
The Company has disposed of a significant portion of its portfolio
acquired under the plan of reorganization of Liberte Investors. 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, the timing of the liquidation of the Company 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.
Six Months Ended June 30, 1997 Compared To Six Months Ended June 30, 1996 and
Three Months Ended June 30, 1997 Compared To Three Months Ended June 30, 1996
For the six months ended June 30, 1997, revenues related to the
operations of the Company's operating properties decreased to $5,367,000 from
$9,066,000 for the same period in the prior year, primarily as a result of the
disposition of ten operating properties (two during the period from July 1996
through December 1996, four during the first quarter of 1997 and four during the
second quarter of 1997). For the same period, property operating expenses
correspondingly decreased to $2,378,000 from $3,525,000 in the prior year,
primarily as a result of the disposition of the ten properties. Depreciation and
amortization for the six months ended June 30, 1997 and 1996 amounted to
$734,000 and $1,553,000, respectively. The decrease in depreciation and
amortization is a result of the disposition of the ten operating properties as
mentioned above.
For the three months ended June 30, 1997, revenues related to the
operations of the Company's operating properties decreased to $2,086,000 from
$4,231,000 for the same period in the prior year, primarily as a result of the
disposition of the ten operating properties as noted above. For the same period,
property operating expenses correspondingly decreased to $983,000 from
$1,621,000 in the prior year, primarily as a result of the disposition of the
ten properties. Depreciation and amortization for the three months ended June
30, 1997 and 1996 amounted to $335,000 and $776,000, respectively. The decrease
in depreciation and amortization is a result of the disposition of the ten
operating properties as mentioned above.
<PAGE>
Mortgage loan interest decreased to zero for the six and three months
ended June 30, 1997 from $4,554,000 and $4,109,000 for the same periods in the
prior year, primarily as a result of the sale and/or repayment of all of the
mortgage loans. The results for the six and three months ended June 30, 1996
include approximately $3,864,000 of additional interest income from the payoff
of a pool of mortgage loans.
Investment income decreased to $280,000 and $157,000 for the six and
three months ended June 30, 1997 from $311,000 and $216,000 for the same periods
in the prior year, primarily due to a higher amount of cash available for
investment for the six and three months ended June 30, 1996.
Interest expense decreased to $233,000 and $124,000 for the six and
three months ended June 30, 1997 from $2,119,000 and $1,007,000 for the same
periods in the prior year, primarily due to the repayment of the entire
outstanding balance of the Senior Debt in January 1997.
Expenses related to non-income producing assets decreased to $98,000
and $35,000 for the six and three months ended June 30, 1997 from $681,000 and
$299,000 for the same periods in the prior year, primarily as a result of asset
sales.
General and administrative expenses, which primarily consist of
insurance, consulting, legal and accounting fees, remained relatively constant
for the six and three months ended June 30, 1997 as compared to the same periods
in the prior year.
In connection with the Company's purchases of interests in the Senior
Debt during the three months ended June 30, 1996, the Company recorded an
extraordinary gain of $46,000.
Capital Expenditures
Capital expenditures for the six months ended June 30, 1997 were
$574,000, of which approximately $300,000 related to tenant improvements. The
balance of the expenditures were for normal property improvements. The source of
funds for such capital expenditures was from cash generated from rents and
proceeds from the sale of assets.
Liquidity and Capital Resources
For the six months ended June 30, 1997, cash and cash equivalents
increased by $8,173,000. $1,686,000 was provided by operating activities,
$34,280,000 was provided by investing activities and $27,793,000 was used for
financing activities. Cash provided by investing activities consisted primarily
of net proceeds from asset sales of $34,555,000 and net collections on mortgage
loans of $299,000, partially offset by improvements to the operating properties
of $574,000. Cash used for financing activities consisted primarily of dividend
payments of $25,014,000, net Senior Debt repayments of $2,490,000 and mortgage
repayments of $289,000.
On April 14, 1997 the Company paid a special dividend of $2.50 per
Common Share ($25,000,000) to shareholders of record as of March 28, 1997. The
source of funds for such dividend was from cash generated from rents and
proceeds from the sale of assets.
<PAGE>
During the six months ended June 30, 1997, the Company sold eight
operating properties and various land assets for net proceeds of approximately
$34,555,000. These sales resulted in a net gain of approximately $3,279,000,
after deducting closing costs.
As of August 1, 1997, the Company has four assets under contract for
sale to various purchasers, which are expected to result in net proceeds of
approximately $23 million in the aggregate. All of the assets under contract are
subject to customary closing conditions and substantially all are expected to
close within the next three months.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K:
(a) Exhibits: None
(b) Reports on Form 8-K: the Company filed a report
on Form 8-K dated April 30, 1997.
<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 thereunto duly authorized.
Resurgence Properties Inc.
Date: August 13, 1997 By: /s/ Joseph M. Jacobs
---------------------
Joseph M. Jacobs
Chief Executive Officer and President
(Duly Authorized Officer)
Date: August 13, 1997 By: /s/ Jay L. Maymudes
--------------------
Jay L. Maymudes
Chief Financial Officer, Vice President
and Secretary (Principal Financial and
Accounting Officer and Duly Authorized
Officer)
<PAGE>
[FRONT SIDE OF PROXY CARD]
RESURGENCE PROPERTIES INC.
ANNUAL MEETING OF STOCKHOLDERS -- ________ __, 1997
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned hereby appoints ___________ and ______________, with
full power of substitution and resubstitution, as attorney(s) and the proxy(ies)
of the undersigned, to vote all shares the undersigned may be entitled to vote,
with all powers the undersigned would possess if personally present at the
Annual Meeting of Stockholders of Resurgence Properties Inc. (the "Company"), to
be held on _______, ________ __, 1997, and at any adjournments or postponements
thereof on the following matters, as instructed below, and, in their discretion,
on such other matters as may properly come before the meeting, including any
motion to adjourn or postpone the meeting, all as more fully described in the
Proxy Statement of the Company dated ________ __. 1997.
The Board of Directors recommends a vote "FOR" Proposals 1, 2, and 3.
1. ELECTION OF DIRECTORS
[ ] FOR all nominees listed below
(except as indicated to the contrary below)
[ ] WITHHOLD AUTHORITY to vote for all nominees
Charles E. Davidson, Joseph M. Jacobs, Karen M. Ryugo, Vance C. Miller,
Lawrence Howard, M.D. and Jeffrey A. Altman.
Instruction: If you wish to withhold authority and preclude the proxy from
voting for any individual nominee, write the name in the space provided
below:
(Continued and to be signed on the other side.)
<PAGE>
2. APPROVAL AND ADOPTION OF THE PLAN OF COMPLETE LIQUIDATION AND
DISSOLUTION OF RESURGENCE PROPERTIES INC.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. RATIFICATION OF APPOINTMENT OF DELOITTE & TOUCHE LLP AS INDEPENDENT
AUDITORS FOR CURRENT FISCAL YEAR:
[ ] FOR [ ] AGAINST [ ] ABSTAIN
This proxy when properly executed will be voted in the manner directed
herein by the undersigned stockholder. Unless otherwise specified, this proxy
will be voted "FOR" the election of the named nominees as directors, "FOR" the
approval and adoption of the Plan of Complete Liquidation and Dissolution and
"FOR" the ratification of appointment of Deloitte & Touche LLP as independent
auditors. This proxy revokes all prior proxies given by the undersigned. The
discretionary authority granted by the execution of this proxy does not include
the discretionary authority to adjourn or postpone the meeting for the purpose
of soliciting additional votes.
Please sign below exactly as your name appears on this Proxy Card. If
shares are registered in more than one name, all such persons should sign. A
corporation should sign in its full corporate name by a duly authorized officer,
stating full title. Trustees, guardians, executors and administrators should
sign in their official capacity, giving their full title as such. A partnership
should sign in its partnership name by a duly authorized person.
This Proxy Card votes all shares held in all capacities.
Dated ............................, 1997
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(Signature)
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(Signature if held jointly)
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Title or authority (if applicable)
PLEASE SIGN, DATE AND MAIL THIS PROXY PROMPTLY
