-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, Mb+XXctudW0K5Rnl5PipuqgTLSUPx/ZQyi0Qy3IQT9HffCB8mkeeTK3fsJY99Ahy RdhI0ClFaejw1rTo+KJMFg== 0000950134-97-007087.txt : 19970930 0000950134-97-007087.hdr.sgml : 19970930 ACCESSION NUMBER: 0000950134-97-007087 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 9 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970929 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: SIENA HOLDINGS INC CENTRAL INDEX KEY: 0000060150 STANDARD INDUSTRIAL CLASSIFICATION: MORTGAGE BANKERS & LOAN CORRESPONDENTS [6162] IRS NUMBER: 751043392 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-06868 FILM NUMBER: 97687543 BUSINESS ADDRESS: STREET 1: 1600 VICEROY DR 8TH FLOOR CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 2148794000 MAIL ADDRESS: STREET 1: 1600 VICEROY DR STREET 2: 8TH FLOOR CITY: DALLAS STATE: TX ZIP: 75235 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS FINANCIAL CORP DATE OF NAME CHANGE: 19920703 FORMER COMPANY: FORMER CONFORMED NAME: LOMAS & NETTLETON FINANCIAL CORP DATE OF NAME CHANGE: 19881030 10-K 1 FORM 10-K FOR FISCAL YEAR ENDING JUNE 30, 1997 1 =============================================================================== FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED JUNE 30, 1997 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________ to _______________ COMMISSION FILE NUMBER 1-6868 SIENA HOLDINGS, INC. (Formerly Lomas Financial Corporation) (Exact Name of Registrant as Specified in its Charter) DELAWARE 75-1043392 (State or Other Jurisdiction of (I.R.S. Employer Incorporation or Organization) Identification No.) 717 NORTH HARWOOD, DALLAS, TEXAS 75201 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (214) 665-6301 Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- COMMON STOCK, PAR VALUE $.10 PER SHARE NOT APPLICABLE PREFERRED STOCK, PAR VALUE $1.00 PER SHARE Securities registered pursuant to Section 12(g) of the Act: None. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] At September 15, 1997, the aggregate market value of the registrant's common stock held by non-affiliates: N/A APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES [X] NO [ ] On October 10, 1995, the Registrant and Certain of its subsidiaries filed bankruptcy proceedings under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. (APPLICABLE ONLY TO CORPORATE REGISTRANTS) The number of shares outstanding of the registrant's Common Stock, par value $.10 per share, as of September 15, 1997: Common Stock -- 0 shares. =============================================================================== 2 SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997 TABLE OF CONTENTS
PAGE ---- PART I Item 1. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3 Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . . . . . . . . . . . . . . . . 9 PART II Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS . . . . . . . . . 10 Item 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA . . . . . . . . . . . . . . . . . . 10 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . 12 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . 16 Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . 56 PART III Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . 57 Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . 58 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . 59 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K . . . . . . . . . . . . 60
-2- 3 SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1997 PART I ITEM 1. BUSINESS Siena Holdings, Inc. ("SHI"), formerly Lomas Financial Corporation ("LFC") was incorporated in Delaware in 1960, and its principal executive offices are located at 717 North Harwood in Dallas, Texas. Unless the context otherwise requires, the "Company," as used herein, refers to SHI, formerly LFC, and its subsidiaries. Prior to October 1, 1996, the Company's wholly-owned, principal subsidiary was Lomas Mortgage USA, Inc. ("LMUSA"), now known as Nomas Corp. ("Nomas"). As a result of the Chapter 11 proceedings discussed below, the Company's interest in LMUSA was extinguished. Subsequent to reorganization, the Company is primarily engaged in two businesses through wholly-owned subsidiaries: assisted care facility management through Siena Housing Management, Corp. and real estate development through LLG Lands, Inc. REORGANIZATION On October 10, 1995, LFC, two subsidiaries of LFC and LMUSA (collectively the "Debtor Corporations") filed separate voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. The petitioning subsidiaries were Lomas Information Systems, Inc. ("LIS") and Lomas Administrative Services, Inc., ("LAS"). The Chapter 11 cases were jointly administered until October 1, 1996. The Debtor Corporations managed their businesses in the ordinary course as debtors-in-possession subject to the control and supervision of the Federal Bankruptcy Court for the District of Delaware (the "Bankruptcy Court"). On October 23, 1995, a single creditors' committee (the "Joint Creditors' Committee") was appointed by the U.S. Trustee for the District of Delaware (the "U.S. Trustee") to represent creditors of all the Debtor Corporations. On March 15, 1996, the U.S. Trustee revoked the appointment of the Joint Creditors' Committee and appointed statutory committees of unsecured creditors of LFC (the "LFC Creditors' Committee") and of LMUSA (the "LMUSA Creditors' Committee"). The Debtor Corporations filed two separate proposed plans of reorganization with the Bankruptcy Court. LFC, LIS and LAS (the "Joint Debtors") filed their proposed joint plan of reorganization on April 8, 1996, and subsequently filed their first amended joint plan of reorganization on May 13, 1996, and their second amended joint plan of reorganization on July 3, 1996. An order confirming the second amended joint plan of reorganization filed on October 4, 1996, and a stipulation and order among the Joint Debtors and the LFC Creditors' Committee regarding technical modifications to plan of reorganization and confirmation order filed on January 27, 1997 together with the second amended joint plan of reorganization filed on July 3, 1996, are collectively referred to herein as the "Joint Plan". LMUSA filed its own proposed plan of reorganization on April 8, 1996, and subsequently filed its own proposed first amended plan of reorganization on May 13, 1996, and its second amended joint plan of reorganization on July 3, 1996, (the "LMUSA Plan" and together with the Joint Plan, the "Plans"). In addition, on July 3, 1996, the Joint Debtors filed with the Bankruptcy Court a proposed form of disclosure statement relating to the Joint Plan (the "Joint Disclosure Statement"), and LMUSA filed with the Bankruptcy Court a substantially similar proposed form of disclosure statement (with the same Exhibits as the Joint Disclosure Statement) relating to the LMUSA Plan (the "LMUSA Disclosure Statement" and together with the Joint Disclosure Statement, the "Disclosure Statements"). -3- 4 The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996, and LMUSA was discharged from the bankruptcy case, and changed its name to Nomas Corp. As a result of the LMUSA Plan, the Company no longer retains an interest in LMUSA. On January 23, 1997, the LFC Creditors' Committee and the LMUSA Creditors' Committee signed an agreement in respect of intercompany claims (the "Intercompany Agreement"), attached hereto as Exhibit 10.5. The Intercompany Agreement was approved by the Bankruptcy Court on February 21, 1997. As a result of the settlement, the following assets were transferred to the Company on the effective date of March 7, 1997: cash ($6.754 million), investments ($3.373 million), and real estate owned ($2.143 million). In addition, the following assets or liabilities were eliminated as a result of the release of all other claims between LFC and LMUSA: receivables ($0.323 million), accounts payable and accrued expenses ($7.613 million) and liabilities subject to chapter 11 proceedings ($0.238 million). The Company transferred $3 million in cash to partially fund a litigation trust to pursue third-party claims pursuant to the LFC/LMUSA joint litigation trust agreement among LFC and its subsidiaries and LMUSA/Nomas Corp. dated March 6, 1997, (the "Litigation Trust"), attached hereto as Exhibit 10.4. Subject to certain exceptions in the Intercompany Agreement, the LFC Creditors' Trust (as defined therein) and the creditors' trust established pursuant to the LMUSA Plan will receive sixty and forty percent, respectively, of net proceeds from litigation. The net effect of the settlement, including the payment to the Litigation Trust, was recorded as an increase in retained earnings of $16.798 million. The Joint Plan was confirmed on October 4, 1996, by the Bankruptcy Court. The Joint Plan's effectiveness was conditioned on the satisfaction, or waiver by the LFC Creditors' Committee, of certain conditions. After settlement of the intercompany claims as discussed in the preceding paragraph, the LFC Creditors' Committee waived all other conditions and the Joint Plan became effective March 7, 1997 and the Company emerged with a new name, Siena Holdings, Inc. See Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 attached hereto as the Joint Plan. See "Item 3. Legal Proceedings" and "Item 8. Financial Statements and Supplementary Data" for more information on the claims. Reference is made to "III. Background and General Information -- E. The Chapter 11 Filings" in the Joint Disclosure Statement, a copy of which is filed as an exhibit to the Company's annual Form 10-K for the year ended June 30, 1996. The principal provisions of the Plans are summarized in the Joint Disclosure Statement. That summary is qualified in its entirety by reference to the Plans, which are attached as Exhibits I and II to the Joint Disclosure Statement. -4- 5 FRESH-START REPORTING In accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", the Company was required to adopt fresh-start accounting as of March 31, 1997, after all material conditions required by the Plan were satisfied. The delay in the adoption of fresh-start accounting was due to uncertainties surrounding the resolution of claims and intercompany disputes between the LMUSA Creditors' Committee and the LFC Creditors' Committee. The Company was required to adopt fresh-start reporting because the holders of the existing voting shares immediately prior to filing and confirmation of the Plan received less than 50% of the voting shares of the emerging entity and its reorganization value was less than the total of its post-petition liabilities and allowed claims. In accordance with fresh-start accounting, the gain on discharge of debt resulting from the bankruptcy proceedings was reflected on the predecessor Company's financial statements for the period ended March 31, 1997. In addition, the accumulated deficit of the predecessor Company at March 31, 1997, was eliminated, and, at April 1, 1997, the reorganized Company's financial statements reflected no beginning retained earnings or deficit. Since April 1, 1997, the Company's financial statements have been prepared as if it is a new reporting entity and a vertical black line has been placed to separate pre-reorganization operating results (the "Predecessor Company") from post-reorganization operating results (the "Reorganized Company") since they are not prepared on a comparable basis. Under fresh-start accounting, all assets and liabilities are restated to reflect their reorganization value, which approximates fair value at the date of reorganization. The Company's management and representatives of the creditors' committee concluded that, based on the fact that the Company has historically incurred losses from operations and has projected minimal future operating profits, the reorganization value of the Company (the fair value of the Company before considering liabilities) was equivalent to the fair value of the Company's tangible assets and that no other intrinsic value existed. As a result, all assets and liabilities have been stated at their fair value. CREDITORS' TRUST The Joint Plan established a Creditors' Trust for which the Company serves as trustee. The Creditors' Trust holds the nonreorganized assets of the Company in trust pending their disposition and/or distribution to creditors in accordance with the terms of the Joint Plan. The Creditors' Trust is organized for the sole purpose of liquidating the non-reorganized assets and will terminate on October 4, 2001, unless an extension is approved by the Bankruptcy Court. The assets and liabilities of the Creditors' Trust are not reflected in the accompanying Consolidated Balance Sheet as the Company is not the beneficiary of the Trust. Accordingly, revenues and expenses related to the Creditors' Trust assets and liabilities since April 1, 1997, are not reflected in the accompanying Statement of Consolidated Operations. The allocation of costs between the Creditors' Trust and the Company is based on management's estimate of each entity's proportional share of costs. Gains and losses from the Creditors' Trust are solely for the creditors' and the Company has no risk of loss on the assets or liabilities. The amounts ultimately distributed to the creditors are solely dependent on the amounts realized from the collection of the trust assets and settlement of trust liabilities. FINANCIAL INFORMATION AND NARRATIVE DESCRIPTION OF INDUSTRY SEGMENTS Financial information regarding revenues, operating profit and total assets of the Company are included in "Item 8. Financial Statements and Supplementary Data" within this report. THE MORTGAGE BANKING SEGMENT The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996, and LMUSA emerged with a new name, Nomas Corp. As a result of LMUSA's reorganization plan, the Company distributed its interest in LMUSA to LMUSA's creditors as of October 1, 1996. This distribution decreased the Company's assets and liabilities by $293.3 million and $419.4 million, respectively, and stockholders' equity was increased by $126.1 million. The operations of LMUSA are included in the Statement of Consolidated Operations and the Statement of Consolidated Cash Flows through the date of distribution of LMUSA. -5- 6 On August 16, 1996, the former Lomas headquarters and all other campus buildings were sold through the Bankruptcy Court process for $23.5 million. Pursuant to a stipulation and order among Travelers Insurance Company ("Travelers"), the Debtors', and the LMUSA Creditors' Committee, Travelers received approximately $11.43 million of the proceeds. The net cash received was deposited into a joint account for the Company and LMUSA. In conjunction with the intercompany claims settlement process in March, 1997, the Company received $1.3 million and LMUSA was granted the remainder plus interest from the joint account. Additionally, substantially all of the furniture and equipment of the Company and LMUSA was sold by a liquidator during July and August 1996. On October 2, 1995, LMUSA closed the sale to First Nationwide Mortgage Corporation ("First Nationwide") of its GNMA servicing portfolio, its investment in Lomas Mortgage Partnership and its loan production business including its mortgage loans held for sale and the payment of the related warehouse lines of credit. On January 31, 1996, LMUSA closed the sale to First Nationwide of its remaining mortgage servicing portfolio and certain other assets pursuant to Section 363 of the Bankruptcy Code. See "Item 8. Financial Statements and Supplementary Data - Disposal or Sale of Assets." ASSISTED CARE BUSINESS The assisted care business subsidiary, Siena Housing Management Corp. ("SHM"), is a wholly-owned subsidiary of the Company, and conducts business in Houston, Texas pursuant to a management agreement. SHM manages and maintains an assisted care facility in Houston, Texas under a management agreement into which it entered on June 27, 1977, with Treemont, Inc. ("Treemont"). SHM is entitled to receive a fee under the agreement which, subject to a required annual priority distribution of project net income to Treemont and certain adjustments and expenditures specified by the agreement, is equal to 3% of the facility's gross receipts and 25% of the facility's net income. Treemont has elected to make significant capital improvements for fire protection during fiscal years 1998 and 1999 to be funded from operations. These expenditures will decrease the management fee to be received by SHM during that time as compared to prior years. SHM may terminate the agreement on six months' written notice; however, the termination date must fall on an anniversary of the date on which the parties entered into the agreement. Treemont can only terminate the agreement for cause or if Treemont fails to receive its required annual priority distribution for two consecutive years. SHM has the right to extend the term of the agreement from year to year in one-year increments until June 30, 2028. Unless the agreement is terminated or its term is extended as described above, the agreement will terminate on June 30, 2003. The Treemont management agreement is not shown as an asset on the balance sheet of the Reorganized Company because there can be no assurance that the contract will continue in effect for an extended period and the uncertainties inherent in the projected earnings of the facilities. INVESTMENT IN REAL ESTATE The Company's investment in real estate is owned by LLG Lands, Inc. ("LLG"), a wholly-owned subsidiary of the Company. The only property currently held was transferred back to LLG by LMUSA as a result of the intercompany settlement process. See "Item 1. Business - Reorganization". The real property consists of 179.4 acres (approximately 147.2 acres net of right-of-way and flood plain) of unimproved land in Allen, Texas (the "Allen property"). The southern boundary of the Allen property is the recently constructed Exchange Parkway, which provides access to the property from Central Expressway on the west and from Highway 5 on the east. The Allen property includes five tracts of land: one tract of approximately 36.5 net acres zoned multi-family, two tracts of approximately 85.5 net acres zoned single-family and two tracts of approximately 25.2 net acres zoned commercial. The City of Allen is constructing a city park off of Exchange Parkway near the multi-family tract. Management of the Company intends to develop the property over an estimated period of three to five years. For fresh-start reporting, the land was valued by an independent third party using a discounted cash flow method of future projected proceeds. -6- 7 OTHER OPERATIONS OF THE COMPANY Information Systems. In December 1994, LFC's wholly-owned information systems subsidiary, Lomas Information Systems, Inc. ("LIS"), sold substantially all of its assets to Residential Information Services, Limited Partnership ("RIS"). Insurance Agency Services. The insurance agency services' subsidiaries were wholly-owned subsidiaries of LMUSA and thus included in the distribution to LMUSA's creditors' as of October 1, 1996. The insurance agency services unit provided brokerage services for a variety of insurance products related to LMUSA's business. The products included temporary hazard insurance, permanent fire, casualty and extended homeowner coverages and mortgage life insurance, accidental death, disability and hospital indemnity coverages. Field Services. The field services operations were provided by a wholly-owned subsidiary of LMUSA, Lomas Field Services, Inc. ("LFS"), and also was part of the distribution to LMUSA's creditors' as of October 1, 1996. LFS monitored the condition of properties, assured property preservation and interviewed delinquent mortgagors through its field services subsidiary. In August 1995, LFS sold certain fixed assets of the field services operations at approximate net book value to First American Real Estate Services and discontinued the business. Image Processing. Intellifile, Inc. ("Intellifile"), a wholly-owned subsidiary of LFC, provided image processing services to LMUSA and other unrelated parties. In August 1995, the Company sold Intellifile to a third party and recorded a net gain on the sale of $1.1 million. Short Term Lending. The Company's short term lending operations were conducted through a wholly-owned subsidiary of LMUSA, ST Lending, Inc. ("STL"). The interest in STL was extinguished on October 1, 1996, when LMUSA was distributed to the LMUSA creditors. Short term lending operations included activities of short term construction, acquisition and development lending. For more information, see "Item 8. Financial Statements and Supplementary Data." EMPLOYEES At June 30, 1997, the Company had no full-time employees and approximately 5 part-time consultants. None of the Company's employees were represented by any union. ITEM 2. PROPERTIES Effective July 1, 1996, the Company's principal executive offices are located in leased facilities at 717 North Harwood, Dallas, Texas. The original lease for six months expired on June 30, 1997, and the Company is now under a month-to-month lease with a 30-day cancellation notice. Prior to that, the Company's principal offices were located in buildings owned by the Company that were subject to a first mortgage note executed in favor of an insurance company. These buildings were sold on August 16, 1996, see "Item 8. Financial Statements and Supplementary Data." -7- 8 ITEM 3. LEGAL PROCEEDINGS On October 10, 1995, LFC, two subsidiaries of LFC and LMUSA filed separate voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. On April 8, 1996, the Debtor Corporations filed with the Bankruptcy Court two separate proposed plans of reorganization. On July 3, 1996, the Debtor Corporations subsequently filed with the Bankruptcy Court two separate proposed amended plans of reorganization. The Joint Debtors filed the Joint Plan, and LMUSA filed the LMUSA Plan. The LMUSA Creditors' Committee was a co-proponent of the LMUSA Plan. The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996, and LMUSA was discharged from the bankruptcy case, and changed its name to Nomas Corp. As a result of the LMUSA Plan, the Company no longer retains an interest in LMUSA. On January 23, 1997, the LFC Creditors' Committee and the LMUSA Creditors' Committee signed the Intercompany Agreement. The Intercompany Agreement was approved by the Bankruptcy Court on February 21, 1997. As a result of the settlement, the following assets were transferred to the Company on the effective date of March 7, 1997: cash ($6.754 million), investments ($3.373 million), and real estate ($2.143 million). In addition, the following assets or liabilities were eliminated as a result of the release of all other claims between LFC and LMUSA: receivables ($0.323 million), accounts payable and accrued expenses ($7.613 million) and liabilities subject to chapter 11 proceedings ($0.238 million). The Company transferred $3 million in cash to partially fund the Litigation Trust to pursue third- party claims. Subject to certain exceptions in the Intercompany Agreement, the LFC Creditors' Trust and the creditors' trust established pursuant to the LMUSA Plan will receive sixty and forty percent, respectively, of net proceeds from litigation. The net effect of the settlement, including the payment to the Litigation Trust, was recorded as an increase in the Company's retained earnings of $16.798 million. The Joint Plan was confirmed on October 4, 1996, by the Bankruptcy Court. The Joint Plan's effectiveness was conditioned on the satisfaction, or waiver by the LFC Creditors' Committee, of certain conditions. After settlement of the intercompany claims as discussed in the preceding paragraph, the LFC Creditors' Committee waived all other conditions and the Joint Plan became effective March 7, 1997, and the Company emerged with a new name, Siena Holdings, Inc. See Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 attached hereto as the Joint Plan. The Company had a Management Security Plan ("MSP") for certain of its employees. According to the MSP, key employees of the Company who participated in the MSP were to be paid, in the event of retirement or death, a portion of the employee's salary which such employee chose as the basis for computation of retirement or death benefits. The Company ceased new enrollments in 1985. The LFC Creditors' Committee has argued that the funds contributed to the MSP are held in a trust (the "MSP Trust") subject to the claims of creditors in the event of insolvency. Because of the bankruptcy filings by the Company and LMUSA, no contributions, payments or actuarial evaluation have been made to the MSP since the petition date. On June 11, 1996, the Bankruptcy Court authorized the LFC Creditors' Committee to commence and prosecute an action against the trustee seeking the return of funds held in such MSP Trust. The LFC Creditors' Committee contends that the funds in the trust constitute property of the Company's estate. However, the trustee, Bankers Trust, has asserted that the trustee is obligated to hold the assets for the sole benefit of the MSP participants. In addition, during the course of litigation, the Unofficial Committee of MSP Beneficiaries filed a motion to intervene in the adversary proceeding which the Bankruptcy Court granted, and filed an action against Bankers Trust to turn over to the MSP beneficiaries the assets held in the MSP Trust. On April 29, 1997, pursuant to a Stipulation and Order Regarding Reserve for MSP Claimants, the Bankruptcy Court authorized the Company to maintain a single distribution reserve in the amount of $6.3 million in order to satisfy any obligations to the MSP Claimants under the Joint Plan. On March 31, 1997, the balance in the MSP Trust was $7.9 million. Pursuant to the above stipulation while implementing fresh-start reporting, the Company assumed $6.3 million of the MSP Trust balance to be held in reserve for MSP claimants. At fresh-start reporting on March 31, 1997, the remainder of the MSP Trust, $1.6 million, net of a reserve of $0.4 million for MSP related legal fees -8- 9 and expenses, was distributed to the Creditors' Trust. The preliminary MSP disputed claims total $8.8 million. The ultimate amount to be distributed to the MSP claimants may differ from the above, pending the outcome of all bankruptcy and legal proceedings. The LFC Committee also commenced an adversary proceeding to recover the funds in the rabbi trust for the Company's Excess Benefit Plan (the "EBP Trust") on September 20, 1996, having obtained the Bankruptcy Court's approval for such action on September 9, 1996. Bankers Trust, the trustee of the EBP Trust, agreed that the Company is entitled to the funds held in the EBP Trust. On March 31, 1997, the EBP Trust was distributed to the Creditors' Trust under fresh-start accounting. In June 1997, funds totaling $0.6 million were received by the Company and subsequently transferred to the Creditors' Trust. The remaining funds were received in July 1997. On August 28, 1996, the Bankruptcy Court authorized the LFC Committee to commence an action against Residential Information Services Limited Partnership ("RIS") and certain of its affiliates and related companies. In a complaint dated September 30, 1996, the LFC Committee commenced such an action. On January 10, 1997, the LFC Committee filed an amended complaint. The amended complaint contains, inter alia, claims for breach of contract, fraud, tortious interference with contract, turnover and quantum meruit against RIS and the other defendants in connection with RIS' acquisition of substantially all of the assets of Lomas Information Systems, Inc. in December 1994. The amended complaint seeks substantial damages from the defendants together with interest, costs and attorneys' fees and punitive damages. This case was settled and proceeds of $5.4 million were received by the Company in June 1997, and subsequently transferred, net of $234,000 for certain administrative claims, to the Creditors' Trust. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None. -9- 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS During fiscal 1996, the Predecessor Company's common stock was delisted by the New York Stock Exchange. The Joint Plan became effective March 7, 1997, and the Company adopted fresh-start reporting and canceled the Predecessor Company's common stock on March 31, 1997. Pursuant to the Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of the new common stock were reserved for issuance as of March 31, 1997. As of June 30, 1997, the 4,000,000 shares of common stock were held in reserve and will be issued on the initial distribution date (see "Stockholders' Equity (Deficit)" footnote). The initial distribution date is expected to be in the second quarter of fiscal 1998. For balance sheet presentation of shares and earnings (loss) per share, the 4,000,000 shares are considered issued. ITEM 6. SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA See "Item 8. Financial Statements and Supplementary Data" and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations". In accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, the Company adopted fresh-start accounting as of March 31, 1997. See "Item 8. Financial Statements and Supplementary Data--Fresh-Start Reporting" footnote to the Consolidated Financial Statements or "Item 1. Business - Fresh-Start Reporting". In accordance with fresh-start accounting, a vertical black line has been placed to separate the operating results of the Predecessor Company from those of the Reorganized Company, since they are not prepared on a comparable basis. -10- 11 SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) SELECTED CONSOLIDATED FINANCIAL AND OPERATING DATA
Reorganized Company Predecessor Company ---------------------------------------------------------------------------------- Nine Month Three Month Years Ended June 30 Period Ended Period Ended -------------------------------------------------- June 30, 1997 March 31, 1997 1996 1995 1994 1993 ------------ ------------ -------- -------- -------- -------- (in dollars and in thousands, except per share data) STATEMENT OF OPERATIONS DATA: Revenues from operations ..................... 184 3,235 103,347 222,222 281,618 293,354 Income (loss) from operations before reorganization items ....................... (86) (5,464) (229,410) (127,282) (126,002) 29,557 Reorganization items---net ................... -- (7,447) (21,181) -- -- -- Income (loss) before loss from discontinued operations .................... (86) (12,911) (250,591) (127,282) (126,002) 29,557 Loss from discontinued operations: Loss from disposal ......................... -- -- -- (24,409) (25,000) -- Loss from operations ....................... -- -- -- (2,000) (31,664) (17,263) Loss before extraordinary item ............... (86) (12,911) (250,591) (153,691) (182,666) 12,294 Extraordinary gain on discharge of debt ...... -- 135,966 -- -- -- -- Net income (loss) .......................... (86) 123,055 (250,591) (153,691) (182,666) 12,294 Earnings (loss) per share: Income (loss) before loss from discontinued operations ................. (.02) * ** ** ** ** ** Loss before extraordinary item ........... (.02) * ** ** ** ** ** Net income (loss) ........................ (.02) * ** ** ** ** ** Average number of shares ................. 4,000 * ** ** ** ** **
* Per share amounts for Reorganized Company based on shares reserved for issuance to creditors. ** Per share amounts are not meaningful due to reorganization.
As of June 30 As of June 30, ------------------------------------------------ 1997 1996 1995 1994 1993 ------------- ------- --------- --------- --------- (in dollars and in thousands) BALANCE SHEET DATA: Assets ............................................. 7,051 329,932 1,157,001 1,148,257 1,454,511 Cash ............................................... 1,941 197,800 21,510 10,178 34,945 Investment in real estate .......................... 4,800 -- -- -- -- Purchased future mortgage servicing income rights .................................... -- -- 346,958 382,009 436,487 First mortgage loans held for sale ................. -- -- 345,039 257,534 368,266 Term and senior convertible notes .................. -- -- 518,688 523,229 532,198 Liabilities subject to Chapter 11 proceedings ..................................... -- 552,863 -- -- -- Stockholders' equity (deficit) ..................... 6,061 (262,464) (11,878) 141,435 324,079 Escrow, agency and fiduciary funds ................. -- -- 641,519 603,163 1,082,591
Note: Certain amounts in fiscal 1996, 1995, 1994, and 1993 have been reclassified to comply with the 1997 presentation format. -11- 12 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW In accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7, Financial Reporting by Entities in Reorganization Under the Bankruptcy Code, the Company adopted fresh-start accounting as of March 31, 1997. See "Item 8. Financial Statements and Supplementary Data - Accounting Policies" footnote. In accordance with fresh-start accounting, the gain on discharge of debt resulting from the bankruptcy proceedings was reflected on the predecessor Company's financial statements for the period ended March 31, 1997. In addition, the accumulated deficit of the predecessor Company at March 31, 1997, was eliminated, and, at April 1, 1997, the reorganized Company's financial statements reflected no beginning retained earnings or deficit. Since April 1, 1997, the Company's financial statements have been prepared as if it is a new reporting entity and a vertical black line has been placed to separate the operating results of the Predecessor Company from those of the Reorganized Company since they are not prepared on a comparable basis. On October 1, 1996, the Company distributed its interest in LMUSA to LMUSA's creditors pursuant to LMUSA's reorganization plan. Effective March 7, 1997, the Company settled its intercompany disputes with LMUSA resulting in the transfer of assets and writeoff of receivables and payables with a net increase in retained earnings of $16.8 million. The Company recorded a loss of $86,000 for the period ended June 30, 1997, and a gain of $123.1 million for the period ended March 31, 1997, and losses of $250.6 million and $153.7 million for the fiscal years ended June 30, 1996, and 1995, respectively. The operating results of the Company during the three month period ended June 30, 1997 and the nine month period ended March 31, 1997, and the two fiscal years ended June 30, 1996, and 1995, were as follows (in thousands):
Reorganized Company Predecessor Company ------------ --------------------------------------- Three Month Nine Month Years Ended June 30 Period Ended Period Ended ------------------------ June 30, 1997 March 31, 1997 1996 1995 ---------- ---------- ---------- Operating income (loss): Mortgage banking ..................................... $ -- $ (1,186) $ (34,430) $ (76,621) Assisted care management ............................. 87 376 355 530 Other ................................................ 15 416 (233) (21,659) ---------- ---------- ---------- ---------- 102 (394) (34,308) (97,750) Expenses: General and administrative ........................... (188) (1,352) (2,675) (6,587) Provision for losses ................................. -- -- (273) (162) Provision for restructuring .......................... -- -- -- (9,000) Corporate interest ................................... -- -- (3,463) (13,783) Loss on sale or disposal of assets ................... -- (3,718) (188,691) -- ---------- ---------- ---------- ---------- Loss from operations before reorganization items ....... (86) (5,464) (229,410) (127,282) Reorganization items---net ............................. -- (7,447) (21,181) -- ---------- ---------- ---------- ---------- Loss before loss from discontinued operations .......... (86) (12,911) (250,591) (127,282) Loss from discontinued operations: Loss from disposal ................................... -- -- -- (24,409) Loss from operations ................................. -- -- -- (2,000) ---------- ---------- ---------- ---------- Loss before extraordinary item ......................... (86) (12,911) (250,591) (153,691) Extraordinary gain on discharge of debt ................ -- 135,966 -- -- ---------- ---------- ---------- ---------- Net income (loss) ................................. $ (86) $ 123,055 $ (250,591) $ (153,691) ========== ========== ========== ==========
-12- 13 RESTRUCTURING AND REDUCTION IN FORCE On October 10, 1995, the Bankruptcy Court authorized a compensation plan which included two components. First, a retention and performance bonus to be paid to all remaining LMUSA employees based on a percentage of base salary. The retention plan provided for lump sum payments ranging from one-half to one full month of annual base salary for most participants and 50% to 75% annual base salary for certain employees identified as "key" to the sale of the assets to First Nationwide and the restructuring process. Second, severance payments were paid to all remaining LMUSA employees. The severance plan provided for lump sum cash payments ranging from two months to eighteen months of annual base pay depending upon job classification. Approximately 1,000 employees were terminated during fiscal 1996. The Company recorded an approximate $16.5 million expense during fiscal 1996, for the severance and retention plans which has been recognized in loss from disposal or sale on the Statement of Consolidated Operations. In January 1995, the Company announced a restructuring and reduction-in-force plan (the "1995 Plan"). Under the plan, the Company reduced its staff by approximately 200 employees. The plan was completed by June 30, 1995. In connection with the 1995 Plan, the Company vacated one of its office buildings which was disposed of subsequent to fiscal year 1996. The Company recorded charges of $6.0 million for the staff reduction and $3.0 million for the reduction in the carrying value of the vacated building, reported as a provision for restructuring of $9.0 million on the Company's Statement of Consolidated Operations for the fiscal year ended June 30, 1995. Of the total $6.0 million of staff reduction provision, $2.3 million was the pension plan curtailment loss (noncash charge) related to the enhanced pension benefits for involuntary retirees. The Company paid termination benefits of $3.7 million in cash generated from its operations. RESULTS OF OPERATIONS--PERIODS ENDED JUNE 30, 1997 COMPARED WITH YEAR ENDED JUNE 30, 1996 Due to the adoption of fresh-start accounting on March 31, 1997, the results of operations for the year ended June 30, 1997, are not comparable with the year ended June 30, 1996. See "Item 8. Financial Statements and Supplementary Data - Accounting Policies" footnote. Mortgage Banking. Prior to the distribution of LMUSA to the LMUSA Creditors' Committee on October 1, 1996, the operations of LMUSA's mortgage banking division recorded an operating loss of $1.2 million, including $0 provision for losses. This is compared to an operating loss of $34.4 million, including a provision for losses of $29.9 million, for the fiscal year ended June 30, 1996. LMUSA recorded an additional loss on sale or disposal of assets of $3.7 million prior to October 1, 1996, related to the sale of substantially all its assets to First Nationwide during fiscal 1996. The loss on sale or disposal of assets recorded for the year ended June 30, 1996 was $188.7 million. After October 1, 1996, the operations of LMUSA were reported completely separate by Nomas Corp. Assisted Care Management. The assisted care management operations recorded a gain of $87,000 and $376,000 for the periods ended June 30, 1997, and March 31, 1997, respectively. This is compared to a gain of $355,000 in fiscal 1996. The increased profitability of Housing Management operations as compared to the same period in fiscal 1996, is primarily attributable to the termination of a non-profitable management contract in October 1996. The assisted care management operations was included in other operations in previous filings but has been reclassified as the assisted care management is a significant business unit prospectively. Other Operations. Other operations reported net operating income of $15,000 and $416,000 for the periods ended June 30, 1997, and March 31, 1997, respectively, as compared to a net operating loss of $233,000 for the year ended June 30, 1996. The loss for 1996 includes losses from STL operations and LIS operations. For the period ended March 31, 1997, the net operating income of $416,000 is primarily interest and investment income earned on various investments. Substantially all the investments were included in the transfer of assets to the Creditors' Trust on March 31, 1997, thus the Company saw a significant decrease in the net operating income for other operations for the period ended June 30, 1997. Expenses and Other. As a result of the bankruptcy filings on October 10, 1995, by LFC, LMUSA and two other insignificant subsidiaries, the Company reported net reorganization items of $7.4 million and $21.2 million for the period ended March 31, 1997, and the year ended June 30, 1996, respectively. The reorganization items consisted primarily of professional and other fees of $7.0 million and $14.2 million reduced by a credit for interest earned on -13- 14 cash accumulated of $3.0 million and $8.7 million for the period ended March 31, 1997 and the year ended June 30, 1996, respectively. Upon filing bankruptcy on October 10, 1995, the Company ceased accruing corporate interest, thus there was no corporate interest expense for the period ended March 31, 1997. For the period ended March 31, 1997, the Company recorded an adjustment to prepetition liabilities for allowed or disputed claims of $3.5 million which is included in Reorganization Items-Net on the Company's Statement of Consolidated Operations. An extraordinary gain on discharge of debt of $136.0 million was recorded for the period ended March 31, 1997, based on the estimated distribution to creditors pursuant to the Plan of Reorganization. For fiscal 1996, there were charges for the write-off of deferred interest swap debits of $9.1 million and unamortized debt issuance cost of $6.6 million. After the adoption of fresh-start reporting on March 31, 1997, any professional fees related to the reorganization or interest earned on the cash held by the Creditors' Trust will be charged or credited to the income of the Creditors' Trust. The interest earned on the cash held by the Reorganized Company for the period ended June 30, 1997, is reported as operating income for the appropriate operating division. General and administrative expenses decreased from $2.7 million for the year ended June 30, 1996, to $1.3 million for the period ended March 31, 1997, and $188,000 for the period ended June 30, 1997, as a result of the significant decrease in the number of employees or consultants and related occupancy and office expenses. See "Item 8. Financial Statements and Supplementary Data". RESULTS OF OPERATIONS--YEAR ENDED JUNE 30, 1996 COMPARED WITH YEAR ENDED JUNE 30, 1995 Mortgage Banking. The mortgage banking division during fiscal 1996, recorded an operating loss of $34.4 million as compared to an operating loss of $76.6 million in fiscal 1995, as reclassified. The results of fiscal 1996, as compared to fiscal 1995 are not comparable in that the Company sold substantially all of its assets to First Nationwide in two transactions, the first as of October 2, 1996, and the second effective January 31, 1997. In conjunction with the sale to First Nationwide, LMUSA recorded a loss on sale or disposal of $188.7 million fiscal 1996. Additionally, LMUSA recorded provisions for losses of $29.9 million and $66.3 million for the fiscal years ended June 30, 1996 and 1995, respectively. Assisted Care Management. The assisted care management division recorded operating income of $355,000 in fiscal 1996, as compared to $530,000 in fiscal 1995. Both were included in other operations in previous filings but have been reclassified as the assisted care management is a significant business unit prospectively. In fiscal 1995, the assisted care management division reported higher operating income than in fiscal 1996, because it earned $105,000 in investment income in fiscal 1995, compared to $0 in fiscal 1996, and personnel expenses were $224,000 in fiscal 1996, and only $159,000 in fiscal 1995. Other Operations. The other operations during fiscal 1996 reported an operating loss of $233,000 as compared to an operating loss of $21.7 million in fiscal 1995, as reclassified. The information systems subsidiary, LIS, reported a loss of $3.1 million during fiscal 1996. This loss was offset by $1.1 million net gain on the sale of the image processing subsidiary, Intellifile and a $1.2 million distribution received upon reorganization from common stock held in a real estate company. In fiscal 1995, the Company recorded provisions for losses for short term lending and other real estate operations of $22.7 million and Intellifile recorded a loss of $3.6 million. Other income included a gain of $2.8 million received in fiscal 1995, from the settlement of certain contractual provisions related to the Company's sale of ELLCO Leasing Corporation in fiscal 1991. In fiscal 1995, LIS was carried as discontinued operations. Expenses and Other. As a result of the bankruptcy filings on October 10, 1995, by LFC, LMUSA and two subsidiaries of LFC, the Company reported net reorganization items of $21.2 million in fiscal 1996, compared to $0 for fiscal 1995. Corporate interest decreased from $13.7 million for fiscal 1995 to $3.5 million for fiscal 1996, as the Company stopped accruing and paying corporate interest upon filing bankruptcy on October 10, 1996. General and administrative expenses decreased from $6.6 million for the year ended June 30, 1995, to $2.7 million for the year ended June 30, 1996, as a result of the significant decrease in the number of employees or consultants and related occupancy and office expenses. -14- 15 The Company recorded charges of $6.0 million for the staff reduction and $3.0 million for the reduction in the carrying value of the vacated building, reported as a provision for restructuring of $9.0 million on the Company's Statement of Consolidated Operations for the fiscal year ended June 30, 1995. Of the total $6.0 million of staff reduction provision, $2.3 million was the pension plan curtailment loss (noncash charge) related to the enhanced pension benefits for involuntary retirees. In fiscal 1995, the Company reported a loss from discontinued operations of $26.4 million related to the disposal of its information systems business. See "Item 8. Financial Statements and Supplementary Data". OTHER OPERATIONS OF THE COMPANY Outlined below are other operations of the Company which were carried as discontinued operations in filings prior to June 30, 1996. Short Term Lending. The Company's short term lending operations included ST Lending ("STL"), a wholly-owned subsidiary of LMUSA, and Lomas Management ("LMI") which managed the assets of STL and certain other real estate operations. The net assets of STL were included in the assets distributed to the creditors of LMUSA on October 1, 1996. The Company had been liquidating its portfolio of construction, acquisition and development loans, and foreclosed real estate. The Company provided reserves of $22.7 million for the fiscal year ended June 30, 1995, to cover the expected loss on the liquidation of properties and the future operating losses of these companies. Losses from STL and other real estate operations charged to reserves were $2.2 million and $19.7 million, for the years ended June 30, 1996, and 1995, respectively. Information Systems. In December 1994, the Company completed the sale of substantially all of the assets of its information systems subsidiary ("LIS") to RIS. As consideration for the sale, the Company received $2.5 million in cash; an $8.0 million note due five years after closing and accruing interest at a rate per annum of 8 percent payable at maturity (adjusted based on the future financial performance of RIS); and a contingent interest equal to 35 percent of RIS's adjusted gross revenues in excess of $55 million per year generated during the seven years ending December 31, 2001. However, in March 1995, the parent of RIS announced its intention to sell its mortgage banking business which included RIS. In June 1995, RIS decided not to convert its mortgage servicing portfolio to the LIS servicing system. As a result, the Company recorded a provision of $24.4 million in June 1995, to write off the Company's carrying value of the contingent interest. During fiscal 1995, the Company recorded a loss from disposal of $24.4 million. The Company also had loss from discontinued operations of $2.0 million for the year ended June 30, 1995. In June 1996, the Company provided reserves of $3.1 million which reduced the net basis in the note to $4.0 million. The note receivable was included in the net assets transferred to the Creditors' Trust and recorded at its estimated fair value of $5.4 million. Cash proceeds of $5.4 million were received in June 1997. See "Item 8. Financial Statements and Supplementary Data" for more information. LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1997, the only liabilities of the Company were accounts payable and accrued expenses which will be paid from current operating cash available as of June 30, 1997. -15- 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT The Stockholders and Board of Directors Siena Holdings, Inc.: We have audited the accompanying consolidated balance sheets of Siena Holdings, Inc. and subsidiaries, formerly Lomas Financial Corporation and subsidiaries, (the "Company") as of June 30, 1997, and 1996, and the related statements of consolidated operations, stockholders' equity (deficit) and cash flows for the three month period ended June 30, 1997, the nine month period ended March 31, 1997, and each of the years in the two year period ended June 30, 1996. In connection with our audits of the consolidated financial statements, we have also audited the financial statement schedules, Schedule I-- Condensed Financial Information of the Registrant as of June 30, 1997, and 1996, and for the three month period ended June 30, 1997, the nine month period ended March 31, 1997, and each of the years in the two year period ended June 30, 1996, and Schedule III -- Real Estate and Accumulated Depreciation as of June 30, 1997, and for the three month period ended June 30, 1997. These consolidated financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to report on these consolidated financial statements and financial statement schedules based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our report. The accompanying consolidated financial statements and related financial statement schedule for the nine month period ended March 31, 1997, and each of the two years in the two year period ended June 30, 1996, were prepared assuming that the Company would continue as a going concern. The Company and its wholly owned subsidiary, Lomas Mortgage USA, filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code on October 10, 1995, however, the reorganization plans had not been confirmed by the Bankruptcy Court. Claims which were contingent at the commencement of Chapter 11 proceedings are generally allowable against debtor corporations. These claims, including, those which arise in connection with rejection of unfavorable executory contracts and leases were not determinable. As a result of the reorganization proceedings, the Company was subject to selling assets or otherwise realize assets and liquidate or settle liabilities for amounts other than those reflected in the consolidated financial statements or related notes. These factors raised substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements and related financial statement schedule for the nine month period ended March 31, 1997, and each of the two years in the two year period ended June 30, 1996 do not include any adjustments that resulted from the outcome of these uncertainties. Because of the significance of the uncertainties discussed in the preceding paragraph, we are unable to express, and we do not express, an opinion on the accompanying consolidated financial statements and related financial statement schedule for the nine month period ended March 31, 1997, and each of the two years in the two year period ended June 30, 1996. In our opinion, the consolidated balance sheet of Siena Holdings, Inc. and subsidiaries as of June 30, 1997, and the related statements of consolidated operations, stockholders' equity (deficit), and cash flows for the three month period then ended, present fairly, in all material respects, the financial position of Siena Holdings, Inc. and subsidiaries as of June 30, 1997, and the results of their operations and their cash flows for the three month period then ended in conformity with generally accepted accounting principles. Also, in our opinion the related June 30, 1997, financial statement schedules, when considered in relation to the basic, June 30, 1997, consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth therein. -16- 17 As discussed in the notes to the consolidated financial statements, effective March 31, 1997, the Company emerged from bankruptcy and applied fresh start accounting. As a result, the consolidated balance sheet as of June 30, 1997, and the related statements of consolidated operations and cash flows for the three month period ended June 30, 1997, are presented on a different basis than that for the periods before fresh start, and therefore, are not comparable. KPMG Peat Marwick LLP Dallas, Texas September 19, 1997 -17- 18 CONSOLIDATED BALANCE SHEET SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) (IN THOUSANDS)
Reorganized Predecessor Company Company ------------- ------------- June 30, 1997 June 30, 1996 ------------- ------------- ASSETS Cash and cash equivalents .............................................. $ 1,941 $ 197,800 Investments ............................................................ -- 28,394 Investment in real estate .............................................. 4,800 -- Receivables ............................................................ 242 85,467 Fixed assets---net ..................................................... -- 25,833 Foreclosed real estate---net ........................................... -- 14,580 ------------ ------------ 5,042 154,274 Less allowance for losses .............................................. -- (24,821) ------------ ------------ 5,042 129,453 Prepaid expenses and other assets ...................................... 68 2,679 ------------ ------------ $ 7,051 $ 329,932 ============ ============ LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable and accrued expenses ................................ $ 990 $ 39,533 Liabilities subject to Chapter 11 proceedings ........................ -- 552,863 ------------ ------------ 990 592,396 ------------ ------------ Stockholders' equity (deficit): Common stock--($.10 par value, 15,000 shares authorized, 4,000 shares issued and outstanding and $1 par value, 100,000 shares authorized, 20,149 shares issued and outstanding, respectively) ................................................... 400 20,149 Preferred stock --($1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding and 0 shares authorized, issued and outstanding, respectively) ...................................... -- -- Other paid-in capital ................................................ 5,747 309,763 Accumulated deficit .................................................. (86) (592,376) ------------ ------------ 6,061 (262,464) ------------ ------------ $ 7,051 $ 329,932 ============ ============
See notes to consolidated financial statements -18- 19 STATEMENT OF CONSOLIDATED OPERATIONS SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) (IN THOUSANDS)
Reorganized Company Predecessor Company ------------ -------------------------------------------- Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, ---------------------------- 1997 1997 1996 1995 ------------ ------------ ------------ ------------ Revenues: Commissions and fees ............................... $ 156 $ 1,555 $ 16,040 $ 32,246 Mortgage servicing ................................. -- -- 59,938 134,349 Interest ........................................... 27 956 7,933 27,439 Investment ......................................... -- 16 13,191 19,870 Gain on sales ...................................... -- 253 214 1,512 Other .............................................. 1 455 6,031 6,806 ------------ ------------ ------------ ------------ 184 3,235 103,347 222,222 ------------ ------------ ------------ ------------ Expenses: Interest ........................................... -- -- 24,563 80,951 Personnel .......................................... 20 1,602 38,555 60,630 Depreciation and amortization ...................... -- 106 17,358 66,998 Other operating .................................... 250 3,273 32,476 46,252 Provision for losses ............................... -- -- 31,114 85,673 Provision for restructuring ........................ -- -- -- 9,000 Loss on sale or disposal of assets ................. -- 3,718 188,691 -- ------------ ------------ ------------ ------------ 270 8,699 332,757 349,504 ------------ ------------ ------------ ------------ Loss from operations before reorganization items ..... (86) (5,464) (229,410) (127,282) Reorganization items-- net ........................... -- (7,447) (21,181) -- ------------ ------------ ------------ ------------ Loss before loss from discontinued operations ........ (86) (12,911) (250,591) (127,282) Loss from discontinued operations: Loss from disposal ................................. -- -- -- (24,409) Loss from operations ............................... -- -- -- (2,000) ------------ ------------ ------------ ------------ Loss before extraordinary item ....................... (86) (12,911) (250,591) (153,691) Extraordinary gain on discharge of debt .............. -- 135,966 -- -- ------------ ------------ ------------ ------------ Net income (loss) ................................ $ (86) $ 123,055 $ (250,591) $ (153,691) ============ ============ ============ ============ Earnings (loss) per share: Loss before loss from discontinued operations ..... $ (0.02)* ** ** ** Loss before extraordinary item .................... $ (0.02)* ** ** ** Net income (loss) ................................. $ (0.02)* ** ** ** Average number of shares ............................. 4,000* ** ** **
* Per share amounts for Reorganized Company based on 4 million shares reserved for issuance to creditors. ** Per share amounts are not meaningful due to reorganization. See notes to consolidated financial statements. -19- 20 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT) SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) NINE MONTH PERIOD ENDED MARCH 31, 1997 THREE MONTH PERIOD ENDED JUNE 30, 1997 AND YEARS ENDED JUNE 30, 1995 AND 1996 (IN THOUSANDS)
Common Other Shares Common Paid-in Accumulated Outstanding Stock Capital Deficit Total ----------- ---------- ---------- ---------- ---------- Balance at June 30, 1994 ........................... 20,100 $ 20,100 $ 309,429 $ (188,094) $ 141,435 Net loss ........................................... -- -- -- (153,691) (153,691) Issuance of stock under stock plans ................ 46 46 148 -- 194 Unfiled claims under Chapter 11 proceedings ........ -- -- 184 -- 184 ------ ---------- ---------- ---------- ---------- Balance at June 30, 1995 ....................... 20,146 20,146 309,761 (341,785) (11,878) Net loss ........................................... -- -- -- (250,591) (250,591) Issuance of stock under stock plans ................ 3 3 2 -- 5 ------ ---------- ---------- ---------- ---------- Balance at June 30, 1996 ....................... 20,149 20,149 309,763 (592,376) (262,464) Net income for period ended March 31, 1997 ......... -- -- -- 123,055 123,055 Distribution of LMUSA to LMUSA creditors ........... -- -- -- 126,101 126,101 Settlement of intercompany claims with LMUSA ....... -- -- -- 16,798 16,798 Effect of reorganization and fresh-start accounting: Cancellation of Predecessor equity (20,149) (20,149) (306,273) 326,422 -- Issuance of new shares pursuant to the Plan of Reorganization ................................ 4,000 400 (400) -- -- Fresh-start accounting valuation adjustments ................................... -- -- 2,657 -- 2,657 ------ ---------- ---------- ---------- ---------- Balance at March 31, 1997 ...................... 4,000 400 5,747 -- 6,147 Net loss for period ended June 30, 1997 ............ -- -- -- (86) (86) ------ ---------- ---------- ---------- ---------- Balance at June 30, 1997 ....................... 4,000 $ 400 $ 5,747 $ (86) $ 6,061 ====== ========== ========== ========== ==========
See notes to consolidated financial statements. -20- 21 STATEMENT OF CONSOLIDATED CASH FLOWS SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) (IN THOUSANDS)
Reorganized Company Predecessor Company -------- -------------------------------------------- Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, ---------------------------- 1997 1997 1996 1995 -------- ------------ ------------ ------------ Operating activities: Net income (loss) .............................................. $ (86) $ 123,055 $ (250,591) $ (153,691) Adjustments to reconcile net income (loss) to cash provided (used) by operations before working capital changes: Extraordinary gain on discharge of debt ...................... -- (135,966) -- -- Loss from sale or disposal of assets ......................... -- 3,718 188,691 -- Loss from disposal of discontinued operations ................ -- -- -- 24,409 Loss from operations of discontinued operations .............. -- -- -- 2,000 Depreciation and amortization ................................ -- 106 17,358 66,998 Provision for losses ......................................... -- -- 31,114 85,673 Provisions for restructuring ................................. -- -- -- 9,000 Loss on sales of mortgage servicing rights ................... -- -- -- 775 Reorganization items: Claims in excess of recorded prepetition liabilities .... -- 3,454 -- -- Write off of unamortized debt issuance cost ............. -- -- 6,571 -- Write off of net deferred debits on interest rate swap .. -- -- 9,115 -- -------- ------------ ------------ ------------ Cash provided (used) by operations before working capital changes ...................................... (86) (5,633) 2,258 35,164 Net change in first mortgage loans held or sale ................ -- -- 345,278 (84,677) Net change in sundry receivables, payables and other assets .... 27 (1,601) (29,859) (41,731) Net cash used by discontinued operations ....................... -- -- -- (7,445) -------- ------------ ------------ ------------ Net cash provided (used) by operating activities ........ (59) (7,234) 317,677 (98,689) -------- ------------ ------------ ------------ Investing activities: Purchases of investments ....................................... -- (12,383) (31,417) (186,847) Maturities / sales of investments .............................. -- -- 283,012 24,885 Net collections of mortgage notes receivable ................... -- -- 2,214 35,015 Purchases of loans from pools .................................. -- -- (4,283) (6,941) Net sales of foreclosed real estate ............................ -- 276 13,993 80,812 Net sales of fixed assets ...................................... -- 25,374 3,708 899 Net purchases of future mortgage servicing income rights ....... -- -- (2,264) (21,525) Proceeds from LMUSA assets sold to First Nationwide ........... -- 6,160 185,750 -- Proceeds from settlement of intercompany dispute with LMUSA ......................................................... -- 6,754 -- -- Transfer to Litigation Trust pursuant to intercompany agreement .................................................. -- (3,000) -- -- LMUSA cash balance at date of distribution .................... -- (191,557) -- -- Transfer of cash to LFC Creditors' Trust for payment of claims and other liabilities pursuant to reorganization plan .................................................... -- (8,558) -- -- Other .......................................................... -- -- -- 210 -------- ------------ ------------ ------------ Net cash provided (used) by investing activities ....... -- (176,934) 450,713 (73,492) -------- ------------ ------------ ------------
-21- 22 STATEMENT OF CONSOLIDATED CASH FLOWS (CONTINUED) SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) (IN THOUSANDS)
Reorganized Company Predecessor Company ----------- --------------------------------------- Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, ------------------------ 1997 1997 1996 1995 ------------ ------------ ---------- ---------- Financing activities: Net borrowings (repayments) of notes payable ............... $ -- $ -- $ (591,089) $ 250,041 Term debt repayments ....................................... -- (11,632) (1,011) (66,528) ---------- ---------- ---------- ---------- Net cash provided (used) by financing activities .... -- (11,632) (592,100) 183,513 ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ......... (59) (195,800) 176,290 11,332 Cash and cash equivalents at beginning of period ............. 2,000 197,800 21,510 10,178 ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period ................... $ 1,941 $ 2,000 $ 197,800 $ 21,510 ========== ========== ========== ========== Cash payments for: Interest ................................................... $ -- $ -- $ 12,727 $ 83,317 Federal income tax ......................................... -- -- -- --
See notes to consolidated financial statements. -22- 23 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) SIGNIFICANT ACCOUNTING POLICIES Principles of Consolidation and Basis of Presentation. The consolidated financial statements include the accounts of Siena Holdings, Corp. ("SHI"), formerly Lomas Financial Corporation ("LFC"), and its subsidiaries (collectively, the "Company"). SHI's wholly-owned, principal subsidiaries are Siena Housing Management Corp. and LLG Lands, Inc.. Prior to October 1, 1996, SHI's wholly-owned, principal subsidiary was Lomas Mortgage USA, Inc. ("LMUSA"), now known as Nomas Corp.. As a result of the confirmation of LMUSA's Chapter 11 reorganization plan (see "Reorganization" footnote), the Company's interest in LMUSA was extinguished effective October 1, 1996. LFC's plan of reorganization was confirmed on October 4, 1996, but not effective until March 1997. In accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", the Company adopted fresh-start accounting as of March 31, 1997, after all material conditions required by the Plan were satisfied (see "Fresh-Start Reporting" footnote). Accordingly, a vertical black line has been placed to separate the operating results of the Predecessor Company (prior to April 1, 1997) from the operating results of the Reorganized Company (April 1, 1997 through June 30, 1997), since they are not prepared on a comparable basis. Significant intercompany balances and transactions have been eliminated. Cash and Cash Equivalents. Cash and cash equivalents include cash on hand and investments with original maturities of three months or less. Cash balances having restrictions as to withdrawals and usage are recorded in the balance sheet as investments (see "Investments" footnote). First Mortgage Loans Held for Sale. First mortgage loans held for sale are carried at the lower of cost or market determined on a net aggregate basis. Adjustments to market are made by charges or credits to income. Gains and Losses on Sale of Mortgage Loans. Gains or losses on sales of mortgage loans are recognized based upon the difference between the selling price and the carrying value of the related mortgage loans sold. Deferred origination fees and expenses, net of commitment fees paid in connection with the sale of the loans, are recognized at the time of sale in the gain or loss determination. Investments. Investments are comprised primarily of commercial paper and bank certificates of deposit with maturities of less than 31 days and restricted escrow deposits, marketable securities, treasury notes, and certificates of deposit that are held to maturity. Investment in Real Estate. Land is carried at the fresh-start reporting value as of March 31, 1997. In subsequent years, any decline in value will be recorded in the Statement of Consolidated Operations. Foreclosed Real Estate. Foreclosed real estate is carried at the lower of cost or fair value minus estimated selling costs. Allowance for Losses. Possible losses are provided for based on management's evaluation of each situation, including the determination of collectibility and net realizable value of the asset or underlying collateral. Fixed Assets. Fixed assets include land, buildings, furniture and fixtures and other equipment and are carried at amortized cost. Fixed assets that are anticipated to be disposed of are carried at estimated fair value net of estimated selling costs. Depreciation is computed on the straight line method over the estimated useful lives of the related assets. -23- 24 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Purchased Future Mortgage Servicing Income Rights. Purchased future mortgage servicing income rights ("PMSR's") represent the portion of the purchase price of mortgage servicing portfolios acquired from others allocated to future net servicing income to be derived from servicing such mortgages. The Company periodically monitors its servicing portfolio to determine if adjustments should be made to its amortization schedules or carrying values of its PMSR'S due to changes in interest rates, current prepayment rates, expected future prepayment rates and certain other factors. The amortization and impairment analyses are performed for individual mortgage tranches with similar economic characteristics on an undiscounted basis and adjusted as required. The Company amortizes the capitalized PMSR'S in proportion to, and over the period of, the estimated net servicing income. The expected life of the estimated net servicing income is based on the expected prepayment rates of the underlying mortgages within the tranches. Since April 1993, the Company had been using a simulation methodology to estimate the future prepayments of the Company's servicing portfolio. Effective July 1, 1994, the Company changed its estimates of prepayment speeds from this simulation methodology to using published Constant Prepayment Rates ("CPRs"). This change in estimate did not have a material effect on the consolidated financial statements of the Company. Sales of Servicing Rights. The Company recognizes gain or loss on the sales of servicing rights when all risks and rewards have irrevocably passed to the purchasers and there are no unresolved contingencies. Mortgage Servicing. Fees received for servicing mortgage loans owned by investors are generally based on a stipulated percentage of the outstanding monthly principal balance of such loans and are payable only out of interest collected from mortgagors. Servicing fees, late charges and miscellaneous other fees collected from mortgagors and others are recognized as income when collected. Servicing costs are charged to expense as incurred. In addition, the Company performs mortgage servicing on a subcontract basis for other parties who own the servicing rights. Subservicing fees are usually agreed to be paid on a per-loan basis calculated as an annual dollar amount paid monthly. Reverse Repurchase Agreements. The Company, through LMUSA, entered into reverse repurchase agreements with financially responsible parties. Mortgage assets purchased under agreements to resell are carried at the amounts of the original purchase price which is calculated at a percentage of the market price. The reverse repurchase agreements generally mature within 60 days and are covered 100 percent by binding purchase commitments. The counterparty is obligated to repurchase the underlying mortgage assets at the Company's costs plus interest differential. The Company finances the reverse repurchase agreements through a third party based on a percentage of the repurchase commitments. Reverse Interest Rate Swap Agreements. The Company, through LMUSA, entered into interest rate swap agreements as a means of managing its exposure to changes in interest rates. Interest rate swaps that reduce the exposure of the Company, as a whole, to changes in interest rates are designated as hedges of the Company's fixed rate debt and treated as hedges of the debt. Swap agreements that do not reduce the Company's exposure to changes in interest rates are not considered to be hedges. The interest differential to be paid or received on swap agreements that are treated as hedges is accrued over the life of the agreements as an adjustment to the interest expense of the related debt. Gains or losses on early termination of interest rate swap agreements designated as hedges are recognized over the remaining term of the swap agreement. Interest rate swaps that are not considered hedges, and losses where the fixed rate debt associated with the swap is reduced below the notional amount of the swap, are marked to market with the unrealized gain or loss, together with the accrued interest differential, treated as a gain or loss and included in the accompanying Statement of Consolidated Operations. As a result of the Chapter 11 filing, the swap agreements were terminated and the deferred debits were written off during fiscal 1996. -24- 25 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Federal Income Taxes. Income taxes have been provided in accordance with Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("SFAS 109"). Under SFAS 109, the deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax basis of assets and liabilities and operating loss and tax credit carry forwards and enacted tax rates that will be in effect for the years in which the differences are expected to reverse. Escrow, Agency and Fiduciary Funds. The Company maintains certain cash balances on behalf of its servicing customers and investors as part of its servicing operations. These funds are held in trust in segregated, generally noninterest bearing, bank accounts and are excluded from the corporate assets and liabilities of the Company. Earnings (Loss) Per Share. Loss per share for the period ended June 30, 1997, was determined using the weighted average shares reserved for issuance as March 31, 1997. Earnings (loss) per share information for the Predecessor is not presented because the Predecessor was closely held and the revision of the Company's capital structure pursuant to the Plan of Reorganization makes such information not meaningful. Reclassifications. Certain reclassifications have been made to prior years' financial statements to conform to the 1997, presentation. REORGANIZATION On October 10, 1995, Lomas Financial Corporation ("LFC"), two subsidiaries of LFC and Lomas Mortgage USA ("LMUSA") (collectively the "Debtor Corporations") filed separate voluntary petitions for reorganization under Chapter 11 of the Federal Bankruptcy Code in the District of Delaware. The petitioning subsidiaries were Lomas Information Systems, Inc. ("LIS") and Lomas Administrative Services, Inc. ("LAS"). The Chapter 11 cases were jointly administered until October 1, 1996. The Debtor Corporations managed their businesses in the ordinary course as debtors-in-possession subject to the control and supervision of the Federal Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") from October 10, 1995, through October 4, 1996. On October 23, 1995, a single creditors' committee (the "Joint Creditors' Committee") was appointed by the U.S. Trustee for the District of Delaware (the "U.S. Trustee") to represent creditors of all the Debtor Corporations. On March 15, 1996, the U.S. Trustee revoked the appointment of the Joint Creditors' Committee and appointed statutory committees of unsecured creditors of LFC (the "LFC Creditors' Committee") and of LMUSA (the "LMUSA Creditors' Committee"). The Debtor Corporations filed two separate proposed plans of reorganization with the Bankruptcy Court. LFC, LIS and LAS (the "Joint Debtors") filed their proposed joint plan of reorganization on April 8, 1996, and subsequently filed their first amended joint plan of reorganization on May 13, 1996, and their second amended joint plan of reorganization on July 3, 1996. An order confirming the second amended joint plan of reorganization filed on October 4, 1996, and a stipulation and order among the Joint Debtors and the LFC Creditors' Committee regarding technical modifications to plan of reorganization and confirmation order filed on January 27, 1997, together with the second amended joint plan of reorganization filed on July 3, 1996, are collectively referred to herein as the "Joint Plan". LMUSA filed its own proposed plan of reorganization on April 8, 1996, and subsequently filed its own proposed first amended plan of reorganization on May 13, 1996, and its second amended joint plan of reorganization on July 3, 1996, (the "LMUSA Plan" and together with the Joint Plan, the "Plans"). In addition, on July 3, 1996, the Joint Debtors filed with the Bankruptcy Court a proposed form of disclosure statement relating to the Joint Plan (the "Joint Disclosure Statement"), and LMUSA filed with the Bankruptcy Court a substantially similar proposed form of disclosure statement (with the same Exhibits as the Joint Disclosure Statement) relating to the LMUSA Plan (the "LMUSA Disclosure Statement" and together with the Joint Disclosure Statement, the "Disclosure Statements"). The LMUSA Plan was confirmed by the Bankruptcy Court on October 1, 1996, and LMUSA was discharged from the bankruptcy case, and changed its name to Nomas Corp. As a result of LMUSA's reorganization plan, LFC distributed its interest in LMUSA to LMUSA's creditors as of October 1, 1996. This distribution decreased the -25- 26 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Company's assets and liabilities by $293.3 million and $419.4 million, respectively, and stockholders' equity was increased by $126.1 million. The operations of LMUSA are included in the Statement of Consolidated Operations and the Statement of Consolidated Cash Flows through the date of distribution of LMUSA. The Joint Plan was confirmed on October 4, 1996, by the Bankruptcy Court. The Joint Plan's effectiveness was conditioned on the satisfaction, or waiver by the LFC Creditors' Committee, of certain conditions. On January 23, 1997, the LFC Creditors' Committee and the LMUSA Creditors' Committee signed an agreement in respect of intercompany claims (the "Intercompany Agreement"). The Intercompany Agreement was approved by the Bankruptcy Court on February 21, 1997. As a result of the settlement, certain assets were transferred to the Company on the effective date of March 7, 1997. The LFC Creditors' Committee waived all other conditions and the Joint Plan became effective March 7, 1997, and the Company emerged with a new name, Siena Holdings, Inc. See Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 which are filed as exhibits to the Company's annual Form 10-K for the year ended June 30, 1997. The following is a listing of the classes of creditors under the Joint Plan: o Administrative Claims Claims against debtor for any actual and necessary expenses of debtor, operating business of debtor, or expenses incurred or assumed by the debtor during and after reorganization. These claims must be paid in full in cash and can be paid in the ordinary course of business as such claim matures prior to the distribution date for other claims. o Priority Tax and Non-tax Claims Claims against debtor deemed a priority by the Bankruptcy Court. These claims must be paid in full in cash and can be paid in the ordinary course of business as such Claim matures prior to the distribution date for other claims. o Class 1 - Secured Claims There are no secured claims in LFC, LAS or LIS. o Class 2 - Unsecured Directors and Officers ("D&O") Claims Under the Joint Plan, there is no distribution with respect to D&O claims. The holder will have recourse through insurance policies maintained by LFC, subject to the policies' coverage of claims. o Class 3 - General Unsecured Claims All unsecured claims relating to LFC except those relating to convenience, intercompany, and Management Security Plan ("MSP"). Pursuant to a Bankruptcy Court stipulation and order, a single distribution reserve of $6.3 million of the MSP Trust funds has been maintained in order to satisfy any obligations to the MSP claimants under the Joint Plan, pending final adjudication of the MSP Claimants' claim rights, if any, against the Joint Debtors (see the "Management Security Plan" footnote). o Class 4 - Convenience Unsecured Claims Unsecured claim not to exceed an amount greater than $500 or the holder has agreed in writing to reduce this claim to such amount and to release any further or additional claim against the debtor. -26- 27 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) o Class 5 - Intercompany Claims On January 23, 1997, the LFC Creditors' Committee and the LMUSA Creditors' Committee the Intercompany Agreement. The Intercompany Agreement was approved by the Bankruptcy Court on February 21, 1997. As a result of the settlement, the following assets were transferred to the Company on the effective date of March 7, 1997: cash ($6.754 million), investments ($3.373 million), and real estate ($2.143 million). In addition, the following assets or liabilities were eliminated as a result of the release of all other claims between LFC and LMUSA: receivables ($0.323 million), accounts payable and accrued expenses ($7.613 million) and liabilities subject to chapter 11 proceedings ($0.238 million). The Company transferred $3 million in cash to partially fund a litigation trust to pursue third-party claims pursuant to the LFC/LMUSA Joint Litigation Trust Agreement dated March 6, 1997, (the "Litigation Trust"). Subject to certain exceptions in the Intercompany Agreement, the LFC Creditors' Trust (as defined therein) and the creditors' trust established pursuant to the LMUSA Plan will receive sixty and forty percent, respectively, of net proceeds from litigation. The net effect of the settlement, including the payment to the Litigation Trust, was recorded as an increase in retained earnings (deficit) of $16.798 million. Under the terms of the Joint Plan, the amount of allowed and disputed priority, convenience and unsecured claims totaled $155.8 million. This exceeded the amount of prepetition liabilities recorded on the Company's financial statements by $3.5 million, which was a charge to Reorganization Items - Net on the Company's Statement of Consolidated Operations for the period ended March 31, 1997. Of the increase in the prepetition liabilities, $3.0 million related to Management Security Plan claims (see the "Management Security Plan" footnote). The following is a summary of the estimated claims, excluding administrative, (in thousands): Priority LIS claims - allowed ......... $ 234 Convenience claims - allowed ........... 1 Unsecured Class 3 claims - Bondholders - allowed ............. 145,433 Other claims - allowed ............ 1,366 MSP claims - disputed .................. 8,803 ------------ $ 155,837 ============
Pursuant to the Joint Plan, the Class 3 unsecured creditors will receive a combination of cash and new common stock as settlement of their allowed claim. After settlement of administrative expenses and priority claims, approximately $11 million will be available for distribution to this group of unsecured creditors on the initial distribution date. In addition, as assets in the Creditors' Trust (see "Creditors' Trust" footnote) are liquidated, additional distributions will be made to the Class 3 unsecured creditors. Pursuant to the Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of the new common stock were reserved for issuance and will be issued on the initial distribution date (see "Stockholders' Equity (Deficit)" footnote). The initial distribution date is expected to be in the second quarter of fiscal 1998. The estimated distribution is calculated based on fair values applied to the assets transferred to the Creditors' Trust upon adoption of fresh-start reporting and known liabilities. The amounts ultimately distributed to the creditors are solely dependent on the amounts realized from the collection of assets and the settlement of liabilities for both the Creditors' Trust and the Company. The extraordinary gain on discharge of debt recorded in the Company's Statement of Consolidated Operations for the period ended March 31, 1997, is $136.0 million. FRESH-START REPORTING In accordance with the American Institute of Certified Public Accountants' Statement of Position 90-7, "Financial Reporting by Entities in Reorganization Under the Bankruptcy Code", the Company was required to adopt fresh-start accounting as of March 31, 1997, after all material conditions required by the Plan were satisfied. The delay in the -27- 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) adoption of fresh-start accounting was due to uncertainties surrounding the resolution of claims and intercompany disputes between the LMUSA Creditors' Committee and the LFC Creditors' Committee. The Company was required to adopt fresh-start reporting because the holders of the existing voting shares immediately prior to filing and confirmation of the Plan received less than 50% of the voting shares of the emerging entity and its reorganization value was less than the total of its post-petition liabilities and allowed claims. In accordance with fresh-start accounting, the gain on discharge of debt resulting from the bankruptcy proceedings was reflected on the predecessor Company's financial statements for the period ended March 31, 1997. In addition, the accumulated deficit of the predecessor Company at March 31, 1997, was eliminated, and, at April 1, 1997, the reorganized Company's financial statements reflected no beginning retained earnings or deficit. Since April 1, 1997, the Company's financial statements have been prepared as if it is a new reporting entity and a vertical black line has been placed to separate pre-reorganization operating results from post-reorganization operating results since they are not prepared on a comparable basis. Under fresh-start accounting, all assets and liabilities are restated to reflect their reorganization value, which approximates fair value at the date of reorganization. The Company's management and representatives of the creditors' committee concluded that, based on the fact that the Company has historically incurred losses from operations and has projected minimal future operating profits, the reorganization value of the Company (the fair value of the Company before considering liabilities) was equivalent to the fair value of the Company's tangible assets and that no other intrinsic value existed. As a result, all assets and liabilities have been stated at their fair value. -28- 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The effect of the plan of reorganization on the Company's Consolidated Balance Sheet as of March 31, 1997, is as follows (in dollars in thousands):
Pre- Adjustments Fresh-Start reorganization to Record Accounting Reorganized Balance Sheet Plan of Valuation Balance Sheet March 31, 1997 Reorganization Adjustments April 1, 1997 -------------- -------------- ----------- ------------- * ASSETS Cash and cash equivalents .................... $ 10,559 $ (8,559) $ -- $ 2,000 Investments .................................. 13,338 (13,338) -- -- Receivables - net ............................ 4,186 (4,038) -- 148 Investment in real estate .................... 2,143 -- 2,657 4,800 ---------- ---------- ---------- ---------- 19,667 (17,376) 2,657 4,948 Allowance for losses ......................... (3,828) 3,828 -- -- ---------- ---------- ---------- ---------- 15,839 (13,548) 2,657 4,948 Prepaid expenses and other assets ............ 336 (218) -- 118 ---------- ---------- ---------- ---------- $ 26,734 $ (22,325) $ 2,657 $ 7,066 ========== ========== ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY(DEFICIT) Liabilities: Accounts payable and accrued expenses ........ $ 3,373 $ (2,454) $ -- $ 919 Liabilities subject to Chapter 11 proceedings ................................ 155,837 (155,837) -- -- ---------- ---------- ---------- ---------- 159,210 (158,291) -- 919 ---------- ---------- ---------- ---------- Stockholders' Equity (Deficit): Common stock ................................. 20,149 -- (19,749) 400 Preferred stock .............................. -- -- -- -- Other paid-in capital ........................ 309,763 -- (304,016) 5,747 Accumulated Deficit .......................... (462,388) 135,966 326,422 -- ---------- ---------- ---------- ---------- (132,476) 135,966 2,657 6,147 ---------- ---------- ---------- ---------- $ 26,734 $ (22,325) $ 2,657 $ 7,066 ========== ========== ========== ==========
* The adjustments to record the plan of reorganization includes the transfer of assets and liabilities to the Creditors' Trust (see "Creditors' Trust" footnote). -29- 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following entries record the provisions of the Plan and the adoption of fresh-start reporting (in dollars, in thousands):
Debit Credit ------- ------- (1)Record the distribution pursuant to the Plan including the transfer of nonreorganization assets and liabilities to the Creditors' Trust . Liabilities subject to Chapter 11 proceedings 155,837 Accounts payable and accrued expenses 2,454 Allowance of losses 3,828 Cash and cash equivalents 8,559 Investments 13,338 Receivables 4,038 Prepaid expenses 218 Extraordinary gain on discharge of debt 135,966 ------- ------- 162,119 162,119 (2)Record fresh-start valuation adjustments to assets and liabilities. Investment in real estate 2,657 Other paid-in capital 2,657 ------- ------- 2,657 2,657 (3)Record cancellation of Predecessor equity and the issuance of new shares pursuant to the Plan. Common stock - old 20,149 Additional paid-in capital 306,673 Retained earnings 326,422 Common stock - new 400 ------- ------- 326,822 326,822
REORGANIZATION ITEMS--NET The Bankruptcy Code requires the separate classification of revenues and expenses that are a direct result of the Chapter 11 filing. As such, these items have been segregated on the Statement of Consolidated Operations and include the following (in thousands):
June 30, 1997 June 30, 1996 ------------- -------------- Interest earned on cash accumulated ..................... $ (3,049) $ (8,691) Write off of unamortized debt issuance cost ............. -- 6,571 Write off of deferred interest swap debits .............. -- 9,115 Professional fees ....................................... 6,911 13,605 Adjustment to liabilities for allowed or disputed claims: MSP claims ........................................ 3,048 -- Other ............................................. 406 -- Other ................................................... 131 581 ---------- ---------- $ 7,447 $ 21,181 ========== ==========
-30- 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) CREDITORS' TRUST The Joint Plan established a creditors' trust (the "Creditors' Trust") which the Company serves as trustee. The Creditors' Trust holds the nonreorganized assets of the Company in trust pending their disposition and/or distribution to creditors in accordance with the terms of the Joint Plan. The Creditors' Trust is organized for the sole purpose of liquidating the non-reorganized assets and will terminate on October 4, 2001, unless an extension is approved by the Bankruptcy Court. The assets and liabilities of the Creditors' Trust are not reflected in the accompanying Consolidated Balance Sheet as the Company is not the beneficiary of the Trust. Accordingly, revenues and expenses related to the Creditors' Trust assets and liabilities since April 1, 1997, are not reflected in the accompanying Statement of Consolidated Operations. The allocation of costs between the Creditors' Trust and the Company is based on management's estimate of each entity's proportional share of costs. Gains and losses from the Creditors' Trust are solely for the creditors' and the Company has no risk of loss on the assets or liabilities. The amounts ultimately distributed to the creditors are solely dependent on the amounts realized from the collection of the trust assets and settlement of trust liabilities. The following is a summary of the nonreorganized assets and liabilities held in the Creditors' Trust as of June 30, 1997, carried at the estimated fair value (in thousands) (unaudited): Cash available for payment of unsecured claims ................................................. $ 11,247 Cash available for payment of LIS priority claims .............................................. 234 Cash held in reserve pending settlement of MSP claims and legal expenses ....................... 6,708 ---------- 18,189 ---------- Net assets available for future distribution to Class 3 creditors': Cash held for payment of administrative expenses and other trust ......................... 2,818 Investments: Subordinated promissory note, face $15 million, due November 22,2000 ................ 2,222 Two limited partnerships which fund institutional mortgage loans .................... 2,186 Investment in the MSP Trust (see "Management Security Plan" footnote) ............... 1,278 Equity interest in a real estate company ............................................ 1,200 Other ............................................................................... 45 ---------- Total investments ............................................................. 6,931 ---------- Receivables .............................................................................. 75 Prepaid expenses and other assets ........................................................ 109 Accounts payable and accrued expenses .................................................... (1,908) ---------- Net assets available for future distribution to Class 3 creditors' ........... 8,025 ---------- $ 26,214 ==========
-31- 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INVESTMENTS Investments consisted of the following (in thousands):
June 30, 1997 June 30, 1996 ------------- ------------- Restricted investments ................. $ -- $ 21,184 Other investments ...................... -- 3,837 Fixed maturity securities .............. -- 3,373 ---------- ---------- $ -- $ 28,394 ========== ==========
Restricted investments at June 30, 1996, included $8.2 million of cash and marketable securities purchased to fund certain benefit plans ($7.6 million related to the Management Security Plan--see "Management Security Plan" footnote). Also at June 30, 1996, cash and certificates of deposit of $13.0 million were either held on behalf of others or pledged to provide surety for various performance and indemnifications. Included in the $13 million was an $11.2 million escrow account established pursuant to a Bankruptcy Court order for the dispute between LMUSA and Residential Information Services, Inc. ("RIS"), a data processing services provider, regarding a penalty for the deconversion of LMUSA's servicing portfolio. This RIS escrow account was distributed to LMUSA on October 1, 1996. Substantially all other investments were transferred to the Creditors' Trust at March 31, 1997. Commercial paper and bank certificates of deposit are funded with proceeds from, and are pledged as collateral for, investment lines of credit. The commercial paper and bank certificates of deposit have fixed rates of interest and generally mature within 31 days, at which time the investment lines of credit are paid down. Revenue from the net interest spread on these transactions totaled approximately $9.2 million and $15.8 million for the years ended June 30, 1996, and 1995, respectively. INVESTMENT IN REAL ESTATE The Company's investment in real estate is owned by LLG Lands, Inc. ("LLG"), a wholly-owned subsidiary of the Company. The only property currently owned was transferred back to LLG by LMUSA as a result of the intercompany settlement process. The real property consists of 179.4 acres (approximately 147.2 acres net of right-of-way and flood plain) of unimproved land in Allen, Texas (the "Allen property"). The southern boundary of the Allen property is the recently constructed Exchange Parkway, which provides access to the property from Central Expressway on the west and from Highway 5 on the east. The Allen property includes five tracts of land: one tract of approximately 36.5 net acres zoned multi-family, two tracts of approximately 85.5 net acres zoned single-family and two tracts of approximately 25.2 net acres zoned commercial. The City of Allen recently completed the construction of a city park off of Exchange Parkway near the multi-family tract. Management of the Company intends to develop the property over an estimated period of three to five years. For fresh-start reporting, the land was valued by an independent third party using a discounted cash flow method of future projected proceeds. -32- 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) RECEIVABLES Receivables consisted of the following (in thousands):
June 30, 1997 June 30, 1996 ------------- ------------- Management fees receivable - assisted care facility ............. $ 240 $ 377 Receivable from First Nationwide Mortgage Corp .................. -- 74,849 Note receivable from RIS for sale of information system assets - net of allowance for losses of $0 and $4,000, respectively ................................................. -- 4,000 Other mortgage notes receivable ................................. -- 2,011 Insurance agency commissions and premiums ....................... -- 1,416 Mortgage notes receivable of STL - net of allowance for losses of $0 and $429, respectively .......................... -- 1,185 Other receivables ............................................... -- 550 Accrued interest ................................................ 2 551 Receivables for servicing related advances and settlements ...... -- 528 ---------- ---------- $ 242 $ 85,467 ========== ==========
The Company, through its wholly-owned subsidiary Siena Housing Management Corp. ("SHM"), manages and maintains an assisted care facility in Houston, Texas under a management agreement into which it entered on June 27, 1977, with Treemont, Inc. ("Treemont"). SHM is entitled to receive a fee under the agreement which, subject to a required annual priority distribution of project net income to Treemont and certain adjustments and expenditures specified by the agreement, is equal to 3% of the facility's gross receipts and 25% of the facility's net income. Treemont has elected to make significant capital improvements for fire protection over fiscal years 1998, and 1999, to be funded from operations. These expenditures will decrease the management fee received by SHM during that time as compared to the prior years. SHM may terminate the agreement on six months' written notice; however, the termination date must fall on an anniversary of the date on which the parties entered into the agreement. Treemont can only terminate the agreement for cause or if Treemont fails to receive its required annual priority distribution for two consecutive years. SHM has the right to extend the term of the agreement from year to year in one-year increments until June 30, 2028. Unless the agreement is terminated or its term is extended as described above, the agreement will terminate on June 30, 2003. The Treemont management agreement is not shown as an asset on the balance sheet of the Reorganized Company because there can be no assurance that the contract will continue in effect for an extended period and the uncertainties inherent in the projected earnings of the facilities. As discussed in the "Disposal or Sale of Assets" footnote, the Company sold substantially all of its mortgage servicing portfolio and other related assets to First Nationwide during fiscal year 1996. Proceeds of $6.2 million were received by LMUSA in the first quarter of fiscal 1997. On October 1, 1996, the remaining balance of the following receivables were distributed to LMUSA: receivable from First Nationwide, other mortgage notes receivable, insurance agency commissions and premiums, mortgage notes receivable of STL, receivables for servicing related advances and settlements and substantially all of the accrued interest and other receivables. As partial consideration from RIS for the sale of substantially all of the assets of the Company's information systems subsidiary, a note in the amount of $8 million was received. The Company provided additional reserves in fiscal 1996 and reduced the net basis in the note to $4.0 million. At March 31, 1997, the note was valued at $5.4 million and included in the net assets distributed to the Creditors' Trust. In June 1997, the Creditors' Trust received proceeds of $5.4 million. -33- 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FIXED ASSETS During fiscal 1996, the Company recorded provisions totaling $17.5 million for the write-down of the carrying value of its office buildings and fixed assets, including $12.6 million for the write-down of the land and office buildings which were held for sale at June 30, 1996. During fiscal 1995 the Company recorded provisions totaling $34.6 million for the write-down of the carrying value of certain of its office buildings and fixed assets. Included in the $34.6 million provision, $3.0 million was related to an office building which was vacated and sold in connection with the Company's restructuring plan, and therefore, was included in provisions for restructuring. Fixed assets consisted of the following (in thousands):
June 30, 1997 June 30, 1996 ------------- ------------- Land and buildings held for sale ....................... $ -- $ 29,822 Furniture, equipment and leasehold improvements ........ -- 13,622 -- 43,444 Accumulated depreciation ............................... -- (17,611) ---------- ---------- $ -- $ 25,833 ========== ==========
On August 16, 1996, the former Lomas headquarters and all other campus buildings were sold through the Bankruptcy Court process for $23.5 million. Pursuant to a stipulation and order among Travelers Insurance Company ("Travelers"), the Debtors', and the LMUSA Creditors' Committee, Travelers received $11.43 million of the proceeds. The net cash received was deposited into a joint account for the Company and LMUSA. In conjunction with the intercompany claims settlement process in March 1997, the Company received $1.3 million and LMUSA was granted the remainder plus accrued interest from the joint account. Additionally, substantially all the furniture and equipment of the Company and LMUSA was sold by a liquidator during July and August 1996. ALLOWANCE FOR LOSSES Activity in the allowance account was as follows (in thousands):
Period Ended Period Ended Year Ended June 30 June 30, March 31, ------------------------ 1997 1997 1996 1995 ---------- ---------- ---------- ---------- Beginning balance ...................... $ -- $ 24,821 $ 32,394 $ 10,225 Provision for losses ................... -- -- 31,114 85,673 Charge-offs or write downs ............. -- (483) (48,884) (70,213) Recoveries ............................. -- -- 9,290 9,103 Distribution of LMUSA to LMUSA creditors ........................ -- (20,510) -- -- Fresh-start valuation adjustment ....... -- (3,828) -- -- Other changes - net .................... -- -- 907 (2,394) ---------- ---------- ---------- ---------- $ -- $ -- $ 24,821 $ 32,394 ========== ========== ========== ==========
-34- 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The allowance for losses was allocated as follows (in thousands):
June 30, 1997 June 30, 1996 ------------- ------------- Indemnification claims for the sale of servicing portfolio and other assets to First Nationwide ....... $ -- $ 20,510 Other .................................................. -- 4,311 ---------- ----------- $ -- $ 24,821 ========== ==========
PROVISIONS FOR LOSSES Provisions for losses, excluding restructuring charges and provisions for discontinued operations, consisted of the following (in millions):
Period Ended Period Ended Year Ended June 30 June 30, March 31, 1997 1997 1996 1995 ---------- ---------- ---------- ---------- Reduction in the carrying value of Company-owned land and buildings ........... $ -- $ -- $ 12.6 $ 27.1 Provision for loss on swaps ...................... -- -- 6.6 7.4 Provision for mortgage servicing related receivables, foreclosed real estate and other assets ............................... -- -- 5.2 22.0 Reduction in the carrying values of furniture and equipment ........................ -- -- 4.9 4.5 Provision for the RIS note receivable ............ -- -- 3.1 -- Mortgage banking commitments and contingencies .................................. -- -- -- 6.6 Provision for STL foreclosed real estate and mortgage notes receivable .................. -- -- -- 12.0 Provision for other real estate operations ....... -- -- -- 4.1 Other ............................................ -- -- (1.3) -- -- -- -- 2.0 ---------- ---------- ---------- ---------- $ -- $ -- $ 31.1 $ 85.7 ========== ========== ========== ==========
PURCHASED FUTURE MORTGAGE SERVICING INCOME RIGHTS The purchased future mortgage servicing rights recorded by the Company were written off during fiscal year 1996, due to the sale of the underlying servicing rights primarily to First Nationwide. The write off is primarily reflected through the loss on disposal or sale on the Statement of Consolidated Operations. During the year ended June 30, 1995, the Company established a provision of $5.4 million related to impairment in the carrying value of PMSR'S. At June 30, 1995, the Company serviced 540,325 loans and the aggregate unpaid principal balance of the Company's servicing portfolio was $33.1 billion. -35- 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Changes in PMSR'S were as follows (in thousands):
Period Ended Period Ended Year Ended June 30 June 30, March 31, ------------------------ 1997 1997 1996 1995 ---------- ---------- ---------- ---------- Beginning balance ...................... $ -- $ -- $ 346,958 $ 382,009 Additions .............................. -- -- 13,711 60,405 Sales and write-offs ................... -- -- (346,543) (36,554) Amortization ........................... -- -- (14,126) (53,502) Impairment write-off ................... -- -- -- (5,400) ---------- ---------- ---------- ---------- Ending balance ......................... $ -- $ -- $ -- $ 346,958 ========== ========== ========== ==========
PREPAID EXPENSES AND OTHER ASSETS Prepaid expenses and other assets consisted of the following (in thousands):
June 30, 1997 June 30, 1996 ------------- ------------- Prepaid expenses, primarily insurance ............ $ 68 $ 2,257 Other assets ..................................... -- 422 ---------- ---------- $ 68 $ 2,679 ========== ==========
DEBT Prior to the adoption of fresh-start reporting and recording the discharge of debt on March 31, 1997, all prepetition liabilities were segregated on the Consolidated Balance Sheet as Liabilities Subject to Chapter 11 Proceedings as a result of the bankruptcy filing on October 10, 1995, (see "Fresh-Start Reporting" footnote) The outstanding balances of debt were as follows (in thousands):
June 30, 1997 June 30, 1996 ------------- ------------- Liabilities subject to Chapter 11 proceedings.... $ -- $ 552,863
The Company ceased accruing and paying corporate interest upon filing for bankruptcy on October 10, 1995, thus the average annual interest rates for the periods ended June 30, 1997, and March 31, 1997, and the year ended June 30, 1996, were not applicable The balance of Liabilities subject to Chapter 11 proceedings at June 30, 1996, consisted of the following (in thousands): Term debt of LMUSA: o Notes due in 1997 ........................ $ 150,000 o Notes due in 2002 ........................ 190,000 o Mortgage note due in 1996 ................ 37,759 ---------- 377,759 Convertible notes of LFC due in 2003 ......... 139,918 Accrued interest on term notes ............... 23,785 Other payables ............................... 11,401 ---------- $ 552,863 ==========
At reorganization on March 31, 1997, the balance of Liabilities subject to Chapter 11 proceedings was eliminated and a gain on discharge of debt was recorded as an Extraordinary item on the Company's Statement of -36- 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DEBT (CONTINUED) Consolidated Operations (see "Fresh-Start Reporting" and "Reorganization" footnotes). Upon filing bankruptcy, the Company ceased accruing interest on the notes. The above accrued amount represents the unpaid interest on the LFC and LMUSA notes through October 9, 1995. The prepetition liabilities of LMUSA were eliminated from the Company's balance sheet on October 1, 1996, when the Company's interest in LMUSA was extinguished. On October 1, 1992, the Company, through LMUSA, issued $340 million principal amount of unsecured notes. The notes were issued in two tranches: $150 million of 9.75% notes due 1997, and $190 million of 10.25% notes due 2002. The blended interest cost on these notes is 10.03%. The net proceeds of this offering were used to retire $330 million of increasing rate term notes due 1999 which LMUSA issued pursuant to LFC's 1992 plan of reorganization. LMUSA announced on October 2, 1995, that it did not make the approximately $17 million of scheduled interest payments on its 9.75% term notes payable due October 1, 1997, and its 10.25% term notes payable due October 1, 2001. In conjunction with the Chapter 11 filing, the debt was converted to an unsecured claim subject to compromise through LMUSA's bankruptcy distribution process. The senior convertible notes due 2003 bear interest at 9% and are convertible into approximately 8,000,000 shares of LFC's common stock at a conversion price of $17.50 per share. The notes may be redeemed in whole or in part at the option of the Company on or after October 31, 1994, at prices ranging from 107.2% decreasing to 100% on or after October 31, 2001. Beginning in 1997, the Company would have been required to provide sinking fund payments of $10 million principal each year until 2002. Dividends have been restricted to 50% of LFC's accumulated consolidated net income, as defined in the indenture, since January 1, 1992. However, due to the Chapter 11 filing, the notes were converted to an unsecured claim subject to compromise through the bankruptcy distribution process. The mortgage note payable to Travelers Insurance Company ("Travelers") was payable in monthly installments with a final lump-sum payment due March 1, 1996. The note was secured by three of the former Lomas owned facilities. In connection with the Chapter 11 filing, the former headquarter buildings were sold at public auction in accordance with a Bankruptcy Court order between Travelers, the Debtors and the LMUSA Creditors' Committee. The buildings collateralizing the note, along with others, were sold on July 16, 1996, for $23.5 million. Traveler's received $11.43 million cash in respect of its secured claim and the remaining balance was converted to an unsecured claim subject to compromise in LMUSA's bankruptcy distribution process. FEDERAL INCOME TAXES In prior years the Company filed a consolidated federal income tax return as the common parent of a group of corporations which included LFC and its subsidiaries as well as LMUSA and its subsidiaries. The LMUSA Plan of Reorganization was confirmed by the United States Bankruptcy Court on October 1, 1996, and it immediately emerged with a new name, Nomas Corp. (see "Reorganization" footnote). As a result of the LMUSA Plan, the Company ceased to own any common stock of LMUSA and its subsidiaries as of October 1, 1996. Accordingly, SHI and its subsidiaries thereafter no longer file a consolidated federal income tax return with Nomas and its subsidiaries. SHI and its subsidiaries will instead continue to file their own consolidated federal income tax return for the period ended June 30, 1997. Various tax attributes, including net operating loss carryforwards, will be allocated between the SHI consolidated group and the Nomas consolidated group pursuant to Internal Revenue Service consolidated return regulations and based upon the balances calculated as of the date that LMUSA and its subsidiaries were deconsolidated from the Company's consolidated group. All companies included in a consolidated federal income tax return remain jointly and severally liable for any tax assessments based on such consolidated returns. Fresh-start reporting requires SHI and its subsidiaries to report federal income tax expense when in a taxable position before utilization of any pre-reorganization net operating loss carryforwards and recognition of any pre- reorganization deductible temporary differences. Benefits realized in the consolidated income tax return from utilization of pre-reorganization net operating loss carryforwards and recognition of pre-reorganization deductible temporary differences existing at the date of confirmation of the Plan are reported as direct additions to paid-in capital under fresh-start reporting. -37- 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) SHI and its subsidiaries had no gross deferred tax liabilities and approximately $92 million in gross deferred tax assets as of June 30, 1997, subject to an offsetting valuation allowance of approximately $92 million. Essentially all of this valuation allowance is considered to be attributable to pre-reorganization tax attributes. Accordingly, future utilization of these tax attributes on a consolidated basis will result in adjustments to paid-in capital. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which these temporary differences become deductible. Management considers the reversal of any deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. Management does not believe that it is more likely than not that the Company will realize the benefit of these deferred tax assets. Any such tax benefits subsequently recognized related to the valuation allowance for deferred tax assets as of June 30, 1997, will be allocated to paid-in capital. SHI and its subsidiaries had allocable consolidated tax net operating loss carryforwards at June 30, 1997, totaling approximately $257 million. These net operating loss carryforwards expire in the years 2003 through 2011. Approximately $63 million of these net operating losses arose prior to the previous 1991, reorganization of the LFC group and will therefore remain subject to the annual limitations of Internal Revenue Code ("IRC")Section 382. Approximately $194 million of the net operating losses arose subsequent to the 1991 reorganization and are considered to come under the "bankruptcy exception" of Section 382(1)(5) and are therefore not subject to the annual limitations provided by Section 382(a). The net operating loss carryforwards are reflected net of the interest expense deductions for the three preceding years attributable to indebtedness canceled as a result of the Company's bankruptcy, pursuant to IRC Section 382(1)(5)(B). The net operating loss carryforwards have also been reduced by the cancellation of indebtedness as required by IRC Section 108(b)(2)(A). The amount and nature of the cancellation of indebtedness is based upon the best estimates available to management and is subject to adjustment upon resolution of the various claims against the Company. To the extent such claims are resolved in the Company's favor, the amount of cancellation of indebtedness may be decreased, resulting in an increase to the net operating loss carryforwards. All of the net operating loss carryforwards are subject to applicable provisions of the IRC and will expire if SHI undergoes another change in ownership, within the meaning of Section 382, within the two year period following the most recent ownership change resulting from the Plan of Reorganization. -38- 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The difference between actual tax expense (benefit) on continuing operations and the amount computed by applying the statutory rate to income (loss) from continuing operations consisted of the following components (in thousands):
Three Month Nine Month Years Ended June 30 Period Ended Period Ended ------------------------ June 30, March 31, 1997 1997 1996 1995 ---- ---- ---- ---- Tax expense (benefit) at statutory rate ...... $ (30) $ 43,069 $ (87,707) $(44,549) Book/tax difference in loss reserves attributable to sale of assets ............ -- 2,253 -- -- Book/tax difference in amortization of purchased future mortgage servicing income and goodwill ........................ -- -- -- (424) Change in beginning-of-the-year balance of valuation allowance for deferred tax assets allocated to income taxes ........... 30 (45,322)* 105,216 52,871 Discontinued operations ...................... -- -- -- (9,243) Other ........................................ -- -- (17,509) 1,345 ------- -------- --------- -------- Actual tax expense ...................... $ -- $ -- $ -- $ -- ======= ======== ========= ========
* The balance of the valuation allowance for deferred tax assets for the period ended March 31, 1997, has been reduced by an additional $221,104 to reflect the reduction in net deferred tax assets attributable to the distribution of LMUSA pursuant to the Plan of Reorganization. The progression of the valuation allowance is as follows: Valuation allowance at June 30, 1996 ...................... $(358,104) Reduction attributable to the distribution of LMUSA ........ 221,104 Change in valuation allowance for the period ending March 31, 1997 ........................................... 45,322 --------- Valuation allowance at March 31, 1997 ...................... $ (91,678) =========
-39- 40 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) FEDERAL INCOME TAXES (CONTINUED) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 1997, and 1996, are presented below (in thousands):
Three Month Nine Month Years Ended June 30 Period Ended Period Ended ------------------------ June 30, March 31, 1997 1997 1996 1995 -------- -------- --------- --------- Deferred tax assets: Post-reorganization net operating loss carryover ..... $ 30 $ -- $ 234,946 $ 105,925 Pre-reorganization net operating loss carryover ...... 89,950 89,950 110,950 110,950 Loss reserves ........................................ 1,728 1,728 31,165 33,562 Deferred income on terminated swap agreements ....... -- -- -- 1,578 Purchased servicing write-down ...................... -- -- -- 23,359 Employee benefits .................................... -- -- 2,814 3,029 Partnership income .................................. -- -- 315 1,061 Uniform capitalization expense ...................... -- -- 2,730 3,141 Miscellaneous assets ................................ -- -- 145 135 -------- -------- --------- --------- Total gross deferred tax assets ................... 91,708 91,678 383,065 282,740 Less valuation allowance ............................. (91,708) (91,678)* (358,104) (252,888) -------- -------- --------- --------- Net deferred tax assets ........................ -- -- 24,961 29,852 -------- -------- --------- --------- Deferred tax liabilities: Software development costs .......................... -- -- -- -- Pension overfunding ................................. -- -- 4,800 4,806 Accelerated depreciation ............................. -- -- 18,524 17,878 Partnership loss ..................................... -- -- 627 670 Excess mortgage servicing fees ...................... -- -- -- 1,926 Miscellaneous liabilities ............................ -- -- 1,010 4,572 -------- -------- --------- --------- Total gross deferred tax liabilities .............. -- -- 24,961 29,852 -------- -------- --------- --------- Net deferred tax liability ..................... $ -- $ -- $ -- $ -- -------- -------- --------- ---------
* See footnote detailing the progression of the valuation allowance at the end of the previous table. STOCKHOLDERS' EQUITY (DEFICIT) As of June 30, 1997, the Company had 15,000,000 shares of $.10 par value common stock (the "Reorganized Common Stock") authorized. Pursuant to the Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of common stock will be issued on the initial distribution date. The initial distribution date is expected to be in the second quarter of fiscal 1998. For balance sheet presentation and earnings (loss) per share, the 4,000,000 shares are considered issued. The Reorganized Common Stock has no preemptive or other subscription rights and there are no conversion rights, redemption or sinking fund provisions with respect to such shares. The Company, as of June 30, 1997, had 1,000,000 shares of $1.00 par value preferred stock (the "Reorganized Preferred Stock") authorized, with 0 shares issued and outstanding. As of June 30, 1996, the Predecessor Company, LFC, had 100,000,000 shares of $1 par value common stock (the "Predecessor Common Stock") authorized and 20,149,000 shares issued and outstanding. The Predecessor Common Stock had no preemptive or other subscription rights and there were no conversion rights, redemption or -40- 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) sinking fund provisions with respect to such shares. All of the Predecessor Common Stock, warrants and stock options were canceled at reorganization on March 31, 1997. STOCK PLANS The Reorganized Company has no stock plans as of June 30, 1997. The Predecessor Company had two stock incentive plans, the Directors Plan and the 1993 Program, at June 30, 1996. Both were canceled at reorganization. Directors Plan. Directors of the Company who were not employees participated in the Directors Plan. On November 2, 1994, each participating director was granted 500 units under the Directors Plan and an additional 500 units were granted to each participating director at the 1995 and 1994 Annual Stockholders Meeting. Each unit represented the right of the holder thereof to be paid one share of Common Stock at the earlier of (i) the date such holder terminates service as a director of the Company and (ii) the tenth anniversary of the date of the award. The number of shares of Common Stock that could be granted under the Directors Plan was 100,000, and at June 30, 1996, there were 9,000 units outstanding. 1993 Program. The 1993 Program provided for the grant of any or all of the following types of awards: (1) stock options, including incentive stock options and non-qualified stock options; (2) stock appreciation rights, either in tandem with stock options or freestanding; (3) restricted stock awards; (4) performance shares; (5) performance units; (6) dividend equivalents; and (7) other stock-based awards to key personnel and executives based on each such individual's present and potential contribution to the success of the Company. The 1993 Program authorized the issuance of Common Stock (or with respect to which awards may be granted) up to a maximum of 1,800,000 shares; provided that, no more than 300,000 shares could be granted in any one fiscal year. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS Reverse Interest Rate Swaps. The Company, through its subsidiary LMUSA, entered into reverse interest rate swap agreements from July 1992, through October 1995. Under the terms of the swap agreements, the Company received an annual fixed rate of interest and paid a floating rate of interest based on the 30-day average A1/P1 commercial paper rate. In June 1995, LMUSA terminated $160 million notional amount of the swaps. LMUSA paid $5.0 million cash and recorded a loss of approximately $2.2 million. During the fiscal year 1996, the remaining $640 million notional amount of outstanding interest rate swaps was terminated. LMUSA paid $24.8 million cash and recorded a loss of approximately $6.6 million. As a result of the Chapter 11 filing, the net deferred debits of $9.1 million were written off in October 1995. During fiscal 1996, and 1995, the Company incurred net interest expense of $1.4 million and $2.5 million, respectively, from the swaps. FAIR VALUE OF FINANCIAL INSTRUMENTS Statement of Financial Accounting Standards ("SFAS") 107 requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for those that it is practicable to estimate fair value. Fair value estimates are made as of a specific point in time based on the characteristics of the financial instruments and the relevant market information. Where available, quoted market prices are used, and in other cases, fair values are based on estimates using present value or other valuation techniques. These techniques involve uncertainties and are significantly affected by the assumptions used and the judgments made regarding risk characteristics of various financial instruments, discount rates, estimates of future cash flows, future expected loss experience and other factors. Changes in assumptions could significantly affect these estimates and the resulting fair values. The derived fair value estimates cannot be substantiated by comparison to independent markets and could not be realized in an immediate sale of the instruments. Under SFAS 107 fair value estimates are based on existing financial instruments without attempting to estimate the value of anticipated future business and the value of assets and liabilities that are not considered financial instruments. The aggregate fair value amounts presented do not represent the underlying market value of the Company. -41- 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Described below are the methods and assumptions used by the Company in estimating fair values. Cash and Cash Equivalents. The carrying amounts reported in the consolidated balance sheet approximate the fair values as maturities are less than three months. Investments. Commercial paper and bank certificates of deposit generally mature within 31 days; therefore, the carrying amounts reported in the consolidated balance sheet are the approximate fair value. Restricted cash balances approximate the fair value. Fair value on fixed-maturity debt securities are based on quoted market prices. First Nationwide Receivable. The receivables carrying amount approximates fair value as it earns a market rate of interest. Notes Receivable. Notes receivables' fair value is estimated by discounting cash flows at interest rates currently being offered for loans with similar terms to borrowers of similar credit quality. Liabilities Subject to Chapter 11 Proceedings. These represent liabilities incurred and unpaid by the Company as of October 10, 1995. As the payment of the liabilities is subject to compromise through the Bankruptcy Court's distribution process, the ultimate settlement amount of these items could not be determined as of fiscal year end June 30, 1996. As such, these amounts were excluded from the following table. The estimated fair values of the Company's on-balance sheet and off-balance sheet financial instruments are as follows (in thousands):
June 30, 1997 June 30, 1996 ------------------------- ------------------------ Carrying Carrying Amount Fair Value Amount Fair Value ---------- ---------- ---------- ---------- Financial Assets: Cash and cash equivalents ............. $ 1941 $ 1,941 $ 197,800 $ 197,800 Investments ........................... $ -- $ -- $ 28,394 $ 28,394 Notes receivable ...................... $ -- $ -- $ 7,196 $ 6,147 First Nationwide receivable ........... $ -- $ -- $ 74,849 $ 74,849
LEASES The Company's continuing operations incurred rental expense for the periods ended June 30, 1997, and March 31, 1997, and for the years ended June 30, 1996, and 1995, and had future minimum rental commitments at June 30, 1997, for noncancellable leases as follows (in thousands):
Office Space Equipment Total ------- --------- ------- Expense for the periods ended: June 30, 1997 ......................... $ 2 $ -- $ 2 March 31, 1997 ........................ $ 124 $ 13 $ 137 Expense for the years ended: 1996 .................................. $ 523 $ 772 $ 925 1995 .................................. $1,038 $1,512 $2,550 Commitments for the years ending June 30: 1998 .................................. $ -- $ -- $ -- Thereafter ............................ -- -- -- ------ ------ ------ Total minimum lease payments .......... $ -- $ -- $ -- ====== ====== ======
-42- 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) REDUCTION IN FORCE AND RESTRUCTURING To offset declines in production-related revenues, to reduce its servicing-related cost and to streamline its operations, the Company adopted a reduction-in-force and restructuring plan in January 1995, plan (the "1995 Plan"). The 1995 Plan reduced the staff by approximately 200 employees. The Company recorded a charge of $6.0 million in fiscal year 1995, of which approximately $2.3 million was the pension plan curtailment loss (noncash charge) related to the enhanced pension benefits for involuntary retirees. In addition, the Company recorded a $3.0 million provision in fiscal year 1995, for the reduction in the carrying value of one of its office buildings which was vacated in connection with the 1995 Plan and was sold subsequent to fiscal year 1996. The combined $9.0 provision for restructuring was reported on the Company's Statement of Consolidated Operations for the fiscal year ended June 30, 1995. On October 10, 1995, the Bankruptcy Court authorized a compensation plan which included two essential components. First, a retention and performance bonus to be paid to all remaining LMUSA employees based on a percentage of base salary. The retention plan provided for lump sum payments ranging from one-half to one full month of annual base salary for most participants and 50 to 75% of annual base salary for certain employees identified as "key" to the sale of assets to First Nationwide and the restructuring process. Second, severance payments were paid to all LMUSA employees. The severance plan provided for lump sum cash payments ranging from two months to eighteen months of annual base salary depending upon job classification. The Company recorded an approximate $16.5 million provision during fiscal year 1996, for severance related expenses which is recognized through the loss from disposal or sale on the Statement of Consolidated Operations. During fiscal year 1996, approximately 1,000 employees were terminated. Approximately 10 employees were terminated during the first quarter of fiscal year 1997, and the remaining employees were employees of LMUSA or one of its subsidiaries. As of June 30, 1997, the Company has no employees and approximately 5 part-time consultants. PENSION PLANS Defined Benefit Plan. The Company's pension plan, the Lomas Financial Group Pension Plan ("the Plan"), was sponsored by LMUSA. The Plan was a noncontributory plan which covered substantially all employees of the Company. Benefits were based on the employee's years of service and compensation. Pension plan assets consisted principally of listed stocks and bonds and United States government securities. The Company made contributions to the Plan which equaled or exceeded the minimum amounts required by the Employee Retirement Income Security Act of 1974. The Company terminated approximately 1,000 employees in fiscal 1996 and the remainder were terminated in fiscal 1997. The Company was in the process of terminating the Plan and either purchasing annuities or making lump sum payments to all participants at the time LMUSA was distributed to the LMUSA creditors on October 1, 1996. The Company, through LMUSA, expensed the prepaid pension in connection with the termination of the employees. The expense is reflected through the loss on disposal or sale of assets on the Company's Statement of Consolidated Operations for the year ended June 30, 1996. In the course of reviewing the funding status of the Plan, it was determined to be over funded. Under current law, upon termination of the Plan, the excess assets would revert to LMUSA, subject to taxes of approximately 50%. Management determined that it would be possible to utilize the excess assets to improve employee benefits by providing an additional benefit (enhancement) to employees. Accordingly, on October 6, 1995, LMUSA amended the Pension Plan to provide additional retirement benefits for eligible employees. On January 30, 1996, the IRS issued a favorable determination letter with respect to such an amendment to the Plan. The right to any excess assets was included in the distribution of LMUSA to LMUSA creditors on October 1, 1996. -43- 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) (Expense) credits to expense related to the defined benefit plan included the following components (in thousands):
Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, 1997 1997 1996 1995 -------- -------- ------- ------- Actual return on plan assets ............ $ -- $ -- $(3,948) $ 867 Net amortization and deferrals .......... -- -- 571 2,900 Service costs--benefits earned .......... -- -- 998 (1,538) Interest on projected benefit obligations -- -- 1,240 (1,880) Curtailment ............................. -- -- -- -- -------- -------- ------- ------- Net (expense) credit recognized ......... $ -- $ -- $(1,139) $ 349 ======== ======== ======= =======
The funded status of the Company's defined benefit plan after giving effect to accruals and contributions was as follows (in thousands):
June 30, 1997 June 30, 1996 ------------- ------------- Plan assets at market value ......................................... $ -- $ 13,579 Actuarial present value of projected benefit obligations ........... -- (12,467) -------- -------- Excess plan assets ................................................ -- 1,112 Unrecognized prior service cost ..................................... -- (1,112) -------- -------- Prepaid pension expense recorded in the financial statements ........ $ -- $ -- ======== ======== Actuarial present value of accumulated benefit obligations .......... $ -- $ 12,467 Actuarial present value of vested benefit obligations ............... $ -- $ 12,467
The assumptions used in the accounting were: discount/settlement rates of 6.8% and 8.0% , rates of increase in compensation levels of 7.9% and 7.9%, and expected long term rate of return on assets of 9.0% and 9.0%, for fiscal years ended June 30, 1996, and 1995, respectively. Defined Contribution Plan. The Company established a 401(k) savings plan effective April 1, 1994. Substantially all employees of the Company were eligible to participate in the plan. Eligible employees were entitled to contribute up to 12% of salary, and the Company matched up to 35% of an employee's contributions up to 6% of salary. The total amount of contributions made by the Company during fiscal 1996, and 1995, were $213,000 and $254,000, respectively. The plan was terminated by the Company effective June 30, 1996. MANAGEMENT SECURITY PLAN The Company had a Management Security Plan ("MSP") for certain of its employees. According to the MSP, key employees of the Company who participated in the MSP are to be paid, in the event of retirement or death, a portion of the employee's salary which such employee chose as the basis for computation of retirement or death benefits. The Company ceased new enrollments in 1985. The LFC Creditors' Committee has argued that the funds contributed to the MSP are held in a trust (the "MSP Trust") subject to the claims of creditors in the event of insolvency. Because of the bankruptcy filings by the Company and LMUSA, no contributions, payments or actuarial evaluation have been made to the MSP since the petition date. On June 11, 1996, the Bankruptcy Court authorized the LFC Creditors' Committee to commence and prosecute an action against the trustee seeking the return of funds held in such MSP Trust. The LFC Creditors' Committee contends that the funds in the trust constitute property of the Company's estate. However, the trustee, Bankers Trust, has asserted that the trustee is obligated to hold the assets -44- 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) for the sole benefit of the MSP participants. In addition, during the course of litigation, the Unofficial Committee of MSP Beneficiaries filed a motion to intervene in the adversary proceeding which the Bankruptcy Court granted, and filed an action against Bankers Trust to turn over to the MSP beneficiaries the assets held in the MSP Trust. On April 29, 1997, pursuant to a Stipulation and Order Regarding Reserve for MSP Claimants, the Bankruptcy Court authorized the Company to maintain a single distribution reserve in the amount of $6.3 million in order to satisfy any obligations to the MSP Claimants under the Joint Plan. On March 31, 1997, the balance in the MSP Trust was $7.9 million. Pursuant to the above stipulation while implementing fresh-start reporting, the Company assumed $6.3 million of the MSP Trust balance to be held in reserve for MSP claimants. At fresh-start reporting on March 31, 1997, the remainder of the MSP Trust, $1.6 million, net of a reserve of $0.4 million for MSP related legal fees and expenses, was distributed to the Creditors' Trust. The preliminary MSP disputed claims total $8.8 million. The ultimate amount to be distributed to the MSP claimants may differ from the above, pending the outcome of all bankruptcy and legal proceedings. The assets of the MSP Trust, which consist solely of cash, were included in investments on the Consolidated Balance Sheet of the Predecessor Company and totaled $7.6 million at June 30, 1996. Income and expenses of the MSP Trust were included in the Company's Statement of Consolidated Operations for the period ended March 31, 1997, and the years ended June 30, 1996, and 1995. After distribution to the Creditors' Trust on March 31, 1997, income and expenses of the MSP Trust are credited or charged to the Creditors' Trust for the period ended June 30, 1997. DISPOSAL OR SALE OF ASSETS Mortgage Banking. On October 2, 1995, LMUSA closed the sale to First Nationwide Mortgage Corporation ("First Nationwide") of its GNMA servicing portfolio (approximately $7.9 billion in unpaid principal balance of mortgage loans), its investment in LMUSA Partnership and its loan production business including its mortgage loans held for sale and the payment of the related warehouse lines of credit (the "GNMA Sale"). On January 31, 1996, LMUSA closed the sale to First Nationwide of its remaining mortgage servicing portfolio (approximately $12 billion in unpaid principal balance of mortgage loans) and certain other assets pursuant to Section 363 of the Bankruptcy Code (the "Section 363 Sale"). The above transactions resulted in a loss on sale or disposal of assets in the Company's Statement of Consolidated Operations of $3.7 million for the period ended March 31, 1997 and $188.7 million for the year ended June 30, 1996. These transactions are subject to additional adjustments which are solely the responsibility of Nomas Corp. as a result of the distribution on October 1, 1996. DISCONTINUED OPERATIONS Information Systems. In December 1994, the Company completed the sale of substantially all of the assets of its information systems subsidiary ("LIS") to RIS. As consideration for the sale, the Company received $2.5 million in cash; an $8.0 million note due five years after closing and accruing interest at a rate per annum of 8 percent payable at maturity (adjusted based on the future financial performance of RIS, and a contingent interest equal to 35 percent of the RIS's adjusted gross revenues in excess of $55 million per year generated during the seven years ending December 31, 2001. In March 1995, the parent of RIS announced its intention to sell its mortgage banking business which included the RIS. In June 1995, RIS decided not to convert its mortgage servicing portfolio to the LIS servicing system. As a result, the Company recorded a loss from disposal of discontinued operations of $24.4 million in June 1995, to write off the Company's carrying value of the such asset. The Company also had a loss from discontinued operations of $2.0 million for the year ended June 30, 1995. In June 1996, the Company provided reserves of $3.1 million which reduced the net basis in the note to $4.0 million. At fresh-start reporting on March 31, 1997, the note was valued at $5.4 million and included in the net assets distributed to the Creditors' Trust. In June 1997, the Creditors' Trust received proceeds of $5.4 million. -45- 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) Loss from discontinued operations as reported in the Company's Statement of Consolidated Operations was as follows (in thousands):
Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, 1997 1997 1996 1995 -------- -------- -------- -------- Loss from discontinued operations: Loss from disposal ................. $ -- $ -- $ -- $(24,409) Loss from operations: Loss from operations--LIS .......... -- -- -- (11,839) Provisions for future operating losses--LIS ...................... -- -- -- (2,000) -------- -------- -------- -------- -- -- -- (13,839) Less charges to reserves ........... -- -- -- 11,839 -------- -------- -------- -------- Loss from operations ............ -- -- -- (2,000) -------- -------- -------- -------- Loss from discontinued operations .... $ -- $ -- $ -- $(26,409) ======== ======== ======== ========
TRANSACTIONS WITH AFFILIATES The Company, through LMUSA, was a partner and manager of LMUSA Partnership (the "Partnership") until October 2, 1995, when the Company sold, among other assets, its investment in the Partnership to First Nationwide (see "Disposal or Sale of Assets" footnote). The Partnership was engaged primarily in acquiring mortgage servicing and servicing single-family mortgages. The Company subserviced all mortgages in the Partnership's mortgage servicing portfolio for its usual subservicing fees. During fiscal 1995, the Company acquired from the Partnership approximately $787.3 million in unpaid principal balance of mortgage servicing rights for approximately $13.0 million of cash. This transaction resulted in a gain of $4.9 million for the Partnership. This mortgage servicing portfolio was originally sold to the Partnership by the Company in fiscal 1994 at a loss of $1.3 million. During the years ended June 30, 1996, and 1995, the Company received subservicing fees of approximately $1.7 million and $4.5 million from the Partnership, respectively. The Company, through a wholly-owned subsidiary, was a manager of Liberte Investors ("Liberte"), a real estate investment trust. In October 1993, Liberte filed for a pre-packaged bankruptcy and emerged from the bankruptcy proceedings in April 1994. A substantial portion of Liberte's real estate portfolio was spun off to its creditors and the management agreement was terminated in April 1995. For the year ended June 30, 1995, the Company received management fees of $0.2 million under the management agreement. LEGAL PROCEEDINGS The Company had a Management Security Plan ("MSP") for certain of its employees. According to the MSP, key employees of the Company who participated in the MSP are to be paid, in the event of retirement or death, a portion of the employee's salary which such employee chose as the basis for computation of retirement or death benefits. The Company ceased new enrollments in 1985. The LFC Creditors' Committee has argued that the funds contributed to the MSP are held in a trust (the "MSP Trust") subject to the claims of creditors in the event of insolvency. Because of the bankruptcy filings by the Company and LMUSA, no contributions, payments or actuarial evaluation have been made to the MSP since the petition date. On June 11, 1996, the Bankruptcy Court authorized the LFC Creditors' Committee to commence and prosecute an action against the trustee seeking the return of funds -46- 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) DISPOSAL OR SALE OF ASSETS (CONTINUED) held in such MSP Trust. The LFC Creditors' Committee contends that the funds in the trust constitute property of the Company's estate. However, the trustee, Bankers Trust, has asserted that the trustee is obligated to hold the assets for the sole benefit of the MSP participants. In addition, during the course of litigation, the Unofficial Committee of MSP Beneficiaries filed a motion to intervene in the adversary proceeding which the Bankruptcy Court granted, and filed an action against Bankers Trust to turn over to the MSP beneficiaries the assets held in the MSP Trust. On April 29, 1997, pursuant to a Stipulation and Order Regarding Reserve for MSP Claimants, the Bankruptcy Court authorized the Company to maintain a single distribution reserve in the amount of $6.3 million in order to satisfy any obligations to the MSP Claimants under the Joint Plan. On March 31, 1997, the balance in the MSP Trust was $7.9 million. Pursuant to the above stipulation while implementing fresh-start reporting, the Company assumed $6.3 million of the MSP Trust balance to be held in reserve for MSP claimants. At fresh-start reporting on March 31, 1997, the remainder of the MSP Trust, $1.6 million, net of a reserve of $0.4 million for MSP related legal fees and expenses, was distributed to the Creditors' Trust. The preliminary MSP disputed claims total $8.8 million. The ultimate amount to be distributed to the MSP claimants may differ from the above, pending the outcome of all bankruptcy and legal proceedings. The LFC Committee also commenced an adversary proceeding to recover the funds in the rabbi trust for the Company's Excess Benefit Plan (the "EBP Trust") on September 20, 1996, having obtained the Bankruptcy Court's approval for such action on September 9, 1996. Bankers Trust, the trustee of the EBP Trust, agreed that the Company is entitled to the funds held in the EBP Trust, and accordingly, funds totaling $0.6 million were received by the Company in June 1997, and subsequently transferred to the Creditors' Trust. The remaining funds were received in July 1997. On August 28, 1996, the Bankruptcy Court authorized the LFC Committee to commence an action against Residential Information Services Limited Partnership ("RIS") and certain of its affiliates and related companies. In a complaint dated September 30, 1996, the LFC Committee commenced such an action. On January 10, 1997, the LFC Committee filed an amended complaint. The amended complaint contains, inter alia, claims for breach of contract, fraud, tortious interference with contract, turnover and quantum meruit against RIS and the other defendants in connection with RIS' acquisition of substantially all of the assets of Lomas Information Systems, Inc. in December 1994. The amended complaint seeks substantial damages from the defendants together with interest, costs and attorneys' fees and punitive damages. This case was settled and proceeds of $5.4 million were received in June 1997, by the Company and subsequently transferred, net of $234,000 for certain administrative claims, to the Creditors' Trust. -47- 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) QUARTERLY RESULTS (UNAUDITED) The following is a summary of the unaudited quarterly results of operations for the periods ended March 31, 1997, and June 30, 1997, (in thousands of dollars, except per share amounts):
Reorganized Predecessor Company Company Nine Month Period Ended March 31, 1997 ----------- ---------------------------------------------------------- Three Month First Second Third Reorganization Period Ended Quarter Quarter Quarter Adjustments June 30 ------- ------- ------- -------------- -------- Revenues ................................ 2,538 338 359 -- 184 Loss from operations before reorganization items .................. (5,044) (89) (49) (282) (86) Reorganization items---net .............. (1,940) (929) (674) (3,904) -- Loss before extraordinary item .......... (6,984) (1,018) (723) (4,186) (86) Extraordinary gain on discharge of debt . -- -- -- 135,966 -- Net income (loss) ....................... (6,984) (1,018) (723) 131,780 (86) Income (loss) per common share: Loss before extraordinary item .......... ** ** ** ** (.02)* Net income (loss) ....................... ** ** ** ** (.02)*
* Per share amounts for Reorganized Company based on shares reserved for issuance to creditors. ** Per share amounts not meaningful due to reorganization. The first quarter of fiscal 1997, included the results of operations for LMUSA prior to the disbursement of LMUSA to LMUSA creditors on October 1, 1996. LMUSA recorded a loss on sale or disposal of assets of $3.7 million in the first quarter related to the sale of assets to First Nationwide (see "Disposal or Sale of Assets" footnote). The Company continued to incur reorganization expenses in all periods presented for the Predecessor Company. For the first, second and third quarters, the reorganization expenses consisted primarily of professional fees net of interest earned on cash accumulated. Subsequent to the third quarter, the Company adopted fresh-start accounting and recorded certain adjustments pursuant to the Plan of Reorganization (see the "Reorganization" and "Fresh-Start Reporting" footnotes). These adjustments included reorganization expense of $3.9 million, primarily related to the increase of prepetition liabilities to the amount of allowed or disputed claims outstanding, and an extraordinary gain on the discharge of debt of $136.0 million. -48- 49 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) The following is a summary of the unaudited quarterly results of operations for the year ended June 30, 1996, (in thousands of dollars, except per share amounts):
Year Ended June 30, 1996 ------------------------------------------------------------ Predecessor Company ------------------------------------------------------------ First Second Third Fourth Quarter Quarter Quarter Quarter ------------------------------------------------------------ Revenues ................................ 55,429 29,512 14,166 4,240 Loss from operations before reorganization items .................. (194,230) (13,940) (2,153) (19,087) Reorganization items---net .............. -- (16,373) (1,675) (3,133) Net loss .............................. (194,230) (30,313) (3,828) (22,220) Loss per common share: Net loss ................................ ** ** ** **
** Per share amounts not meaningful due to reorganization. In the first quarter of fiscal 1996, the Company recorded a loss on the sale of assets to First Nationwide of $162.2 million. The Company incurred additional losses during the second, third and fourth quarters of fiscal 1996, of $18.4 million, $2.3 million and $5.9 million, respectively, as the result of the prepayment of the mortgage servicing portfolio and other adjustments. See "Disposal or Sale of Assets" footnote. After the Chapter 11 filings (see "Chapter 11 Proceedings" footnote), the Company recorded reorganization expenses (net of interest earned in cash accumulated) of $16.3 million, $1.7 million and $3.1 million during the second, third and fourth quarters of fiscal 1996. See "Reorganization Items--Net" footnote. -49- 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED) INDUSTRY SEGMENT DATA OF OPERATIONS The following summarizes the Company's industry segment data of operations as of June 30, 1997, and 1996, and for the periods ended June 30, 1997, and March 31, 1997, and the years ended June 30, 1996, and 1995, (in thousands):
Reorganized Company Predecessor Company ------------ --------------------------------------------------- Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, ---------------------------- 1997 1997 1996 1995 ------------ ------------ --------- --------- Revenues: Mortgage banking .................................. $ -- $ 2,242 $ 98,038 $ 209,245 Assisted care management .......................... 168 523 672 738 Other ............................................. 16 470 6,027 17,067 ------- --------- --------- --------- 184 3,235 104,737 227,050 Intersegment revenues eliminated in consolidation ... -- -- (1,390) (4,828) ------- --------- --------- --------- Total revenues per Statement of Consolidated Operations ................................. $ 184 $ 3,235 $ 103,347 $ 222,222 ======= ========= ========= ========= Operating income (loss): Mortgage banking .................................. $ -- $ (1,186) $ (34,430) $ (82,821) Assisted care management .......................... 87 376 355 530 Other ............................................. 15 416 (233) (21,659) ------- --------- --------- --------- 102 (394) (34,308) (103,950) Expenses: General and administrative ........................ (188) (1,352) (2,675) (6,587) Provision for losses .............................. -- -- (273) (162) Provision for restructuring ....................... -- -- -- (2,800) Corporate interest ................................ -- -- (3,463) (13,783) Loss on sale or disposal of assets ................ -- (3,718) (188,691) -- ------- --------- --------- --------- Loss from operations before reorganization ....... (86) (5,464) (229,410) (127,282) items Reorganization items---net .......................... -- (7,447) (21,181) -- ------- --------- --------- --------- Loss before loss from discontinued operations ... (86) (12,911) (250,591) (127,282) Loss from discontinued operations: Loss from disposal ................................ -- -- -- (24,409) Loss from operations .............................. -- -- -- (2,000) ------- --------- --------- --------- Loss before extraordinary item ...................... (86) (12,911) (250,591) (153,691) Extraordinary gain on discharge of debt ............. -- 135,966 -- -- ------- --------- --------- --------- Net income (loss) ............................... $ (86) $ 123,055 $(250,591) $(153,691) ======= ========= ========= =========
-50- 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
June 30, 1997 June 30, 1996 ------------- ------------- Identifiable Assets: Mortgage banking ..................................... $ -- $ 292,903 Assisted care facility management .................... 1,165 810 Other ................................................ 5,886 36,219 ---------- ---------- Total assets per Consolidated Balance Sheet ........ $ 7,051 $ 329,932 ========== ==========
Reorganized Company Predecessor Company ------------ ----------------------------------------- Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, ------------------------- 1997 1997 1996 1995 ------------ ------------- ----------- ------------- Depreciation and amortization expense: Mortgage banking ..................................... $ -- $ 106 $ 17,057 $ 65,426 Assisted care facility management ................... -- -- -- -- Other ................................................ -- -- 301 1,572 ---------- ---------- ---------- ---------- $ -- $ 106 $ 17,358 $ 66,998 ========== ========== ========== ========== Net Charges to Allowance for Losses: Mortgage banking ..................................... $ -- $ -- $ 47,199 $ 53,420 Assisted care facility management .................... -- -- -- -- Other ................................................ -- 483 1,685 16,793 ---------- ---------- ---------- ---------- $ -- $ 483 $ 48,884 $ 70,213 ========== ========== ========== ========== Capital expenditures: Mortgage banking ..................................... $ -- $ -- $ 149 $ 511 Assisted care facility management ................... -- -- -- -- Other ................................................ -- -- -- 1,179 ---------- ---------- ---------- ---------- $ -- $ -- $ 149 $ 1,690 ========== ========== ========== ==========
Intersegment charges to LMUSA operations are as follows (in thousands):
Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, 1997 1997 1996 1995 -------- -------- -------- -------- Intellifile for image processing ............. $ -- $ -- $ 2,413 $ 1,020 LIS for data processing and telecommunications -- -- -- 12,811 LAS for various administrative services ...... -- -- -- 7,542 LAS for office space ........................ -- -- -- 2,833 LFC for management fees ...................... -- -- -- 1,500 LFC for interest income ...................... -- -- -- (697) -------- -------- -------- -------- $ -- $ -- $ 2,413 $ 25,009 ======== ======== ======== ========
After LIS assets were sold in fiscal 1995, (see "Disposal or Sale of Assets" footnote) data processing and telecommunication charges were no longer provided by a related entity Additionally, LAS was dissolved effective July 1, 1996, and Intellifile was sold as of August 31, 1996. -51- 52 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) CONDENSED BALANCE SHEET (IN THOUSANDS)
Reorganized Predecessor Company Company ------------- ------------- June 30, 1997 June 30, 1996 ------------- ------------- ASSETS Cash and cash equivalents ................................................. $ 240 $ 4,594 Investments (including $6,678 and $2,134, respectively, investments in subsidiaries eliminated in consolidation) ...................... 6,678 16,770 Receivables (including $0 and $7,076, respectively, due from subsidiaries eliminated in consolidation) ........................... 1 2,196 Less allowance for losses ................................................. -- (4,718) ---------- ---------- 6,679 14,248 Prepaid expenses and other assets ......................................... 68 1,824 ---------- ---------- $ 6,987 $ 20,666 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Liabilities: Accounts payable and accrued expenses (including $4,000 and $4,089, respectively, due to subsidiaries eliminated in consolidation) ......... $ 926 $ 5,669 Investment in subsidiaries (eliminated in consolidation) ............... -- 123,080 Liabilities subject to Chapter 11 proceedings (including $0 and $862, respectively, due to subsidiaries eliminated in consolidation) ...... -- 154,381 ---------- ---------- 926 283,130 ---------- ---------- Stockholders' equity (deficit): Common stock--($.10 par value, 15,000 shares authorized, 4,000 shares issued and outstanding and $1 par value, 100,000 shares authorized, 20,149 shares issued and outstanding at June 30, 1997 and 1996, respectively) .......................................................... -- 20,149 Preferred stock --( $1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding at June 30, 1997) ........................... -- -- Other paid-in capital ................................................... 6,147 309,763 Accumulated Deficit .................................................... (86) (592,376) ---------- ---------- 6,061 (262,464) ---------- ---------- $ 6,987 $ 20,666 ========== ==========
See notes to consolidated financial statements. -52- 53 SCHEDULE I----CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED) SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS)
Reorganized Company Predecessor Company ------------ ------------------------------------------- Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, --------------------------- 1997 1997 1996 1995 ------------ ---------- ---------- ----------- Revenues: Investment (excluding dividends from subsidiaries) ............................... $ 6 $ -- $ 1,434 $ 802 Other ............................................... 1 299 1,554 2,931 ---------- ---------- ---------- ---------- 7 299 2,988 3,733 ---------- ---------- ---------- ---------- Expenses: Interest ............................................ -- -- 3,463 13,888 General and administrative .......................... 188 1,352 2,674 6,587 Provision for losses ................................ -- -- 273 36,593 ---------- ---------- ---------- ---------- 188 1,352 6,410 57,068 ---------- ---------- ---------- ---------- Loss from operations before reorganization items and equity in income (loss) of subsidiaries (181) (1,053) (3,422) (53,335) Equity in income (loss) of subsidiaries ............ 95 (4,818) (243,730) (73,947) Reorganization items-- net ......................... -- (7,040) (3,439) -- ---------- ---------- ---------- ---------- Loss before loss from discontinued operations ......... (86) (12,911) (250,591) (127,282) Loss from discontinued operations .................. -- -- -- (26,409) ---------- Loss before extraordinary item ........................ (86) (12,911) (250,591) (153,691) Extraordinary gain on discharge of debt ............ -- 135,966 -- -- ---------- ---------- ---------- ---------- Net income (loss) ................................. $ (86) $ 123,055 $ (250,591) $ (153,691) ========== ========== ========== ========== Dividends paid by subsidiaries ........................ $ -- $ -- $ -- $ 891 ========== ========== ========== ==========
-53- 54 SCHEDULE I---CONDENSED FINANCIAL INFORMATION OF REGISTRANT---(CONTINUED) SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS)
Reorganized Company Predecessor Company ------------ ------------------------------------------ Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, -------------------------- 1997 1997 1996 1995 ---------- ---------- ---------- ---------- Operating activities: Net income (loss) .............................................. $ (86) $ 123,055 $ (250,591) $ (153,691) Adjustments to reconcile net income (loss) to cash provided (used) by operations before working capital changes: Loss from discontinued operations ..................... -- -- -- 26,409 Extraordinary gain on discharge of debt ............... -- (135,966) -- -- Depreciation and amortization .............................. -- -- 140 202 Provisions for losses and restructuring .................... -- -- 273 36,593 Equity (income) loss of subsidiaries .................. (95) 4,818 243,730 73,947 Reorganization items: Claims in excess of recorded prepetition liabilities .... -- 3,454 -- -- ---------- ---------- ---------- ---------- Cash used by operations before working capital changes ...................................... (181) (4,639) (6,448) (16,540) Net change in sundry receivables, payables and other assets ...... 91 5,179 6,182 (8,425) ---------- ---------- ---------- ---------- Net cash provided (used) by operating activities ........ (90) 540 (266) (24,965) ---------- ---------- ---------- ---------- Investing activities: Net maturities/sales (purchases) of investments ................ -- -- 3,715 12,407 Proceeds from settlement of intercompany dispute with LMUSA ....................................................... -- 6,754 -- -- Transfer to Litigation Trust pursuant to intercompany agreement ................................................ -- (3,000) -- -- Transfer to LFC Creditors' Trust for payment of claims and other liabilities pursuant to reorganization plan ...... -- (8,558) -- -- Other ........................................................ -- -- -- -- ---------- ---------- ---------- ---------- Net cash provided (used) by investing activities ........ -- (4,804) 3,715 12,407 ---------- ---------- ---------- ---------- Financing activities: Change in receivables from subsidiaries ........................ -- -- 585 23,290 Net funding of subsidiaries operations ......................... -- -- -- (8,935) ---------- ---------- ---------- ---------- Net cash provided by financing activities ............... -- -- 585 14,355 ---------- ---------- ---------- ---------- Net increase (decrease) in cash and cash equivalents ............. (90) (4,264) 4,034 1,797 Cash and cash equivalents at beginning of period ................. 330 4,594 560 (1,237) ---------- ---------- ---------- ---------- Cash and cash equivalents at end of period ....................... $ 240 $ 330 $ 4,594 $ 560 ========== ========== ========== ==========
-54- 55 SCHEDULE III---REAL ESTATE AND ACCUMULATED DEPRECIATION SIENA HOLDINGS, INC AND SUBSIDIARIES JUNE 30, 1997 (IN THOUSANDS)
Initial cost to Company Cost capitalized to acquisition ------------------------- ------------------------------- Buildings and Description Encumbrances Land improvements Improvements Carrying costs ----------- ------------ --------- ------------- -------------- --------------- 189.3 acres of unimproved land in Allen, Texas (the "Allen property")............. -- $ 2,143 $ -- $ -- $ -- Gross amount at which carried at close of June 30, 1997 (*) -------------------------------- Buildings and Accumulated Date of Date Description Land improvements Total depreciation construction acquired ----------- ------- ------------- ------ ------------ ------------ ---------- 189.3 acres of unimproved land in Allen, Texas (the "Allen property").............$ 4,800 $ -- $ 4,800 -- N/A 3/5/97
The changes in the investment in real estate is as follows (in thousands): Balance at March 31, 1997 Additions during the period: Additions through foreclosure $ -- Other acquisitions (**) 2,143 Improvements, etc -- Other : Fresh-start valuation adjustment 2,657 ------- $ 4,800 Deductions during the period: Cost of real estate sold -- Other -- ------- Balance at June 30, 1997 $ 4,800 =======
* The aggregate cost for Federal income tax purposes of the Allen property at June 30, 1997, is $6.59 million. ** The Allen property was acquired from STL, a wholly-owned subsidiary of LMUSA, as a result of the intercompany settlement agreement in March 1997. At the adoption of fresh-start accounting on March 31, 1997, the land was valued by an independent third party using a discounted cash flow method of future projected proceeds, resulting in an increase in the basis of $2.26 million. -55- 56 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. -56- 57 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY DIRECTORS OF THE REGISTRANT Pursuant to the Joint Plan, the LFC Creditors' Committee appointed a new Board of Directors for the Reorganized Company, Siena Holdings, Inc., effective with the confirmation of the Joint Plan on October 4, 1997. The five members of the Board of Directors include: JOHN P. KNEAFSEY -- Chairman and Chief Executive Officer of the Company, since October 1996; President, Pathfinder Advisory Services, Inc., since 1997; Senior Vice President - Investments, Prudential Securities, Inc., from 1980 to 1997. Age 50. ERIC M. BODOW -- Senior Vice President, Sagner/Marks, Inc., since 1992; Vice President, First National Bank of Chicago, from 1985 to 1992. Age 52. JAMES D. KEMP -- President, The Trust Company, N.A., since May 1997; President Chief Executive Officer, Kemp Consulting from 1993 to 1997; President, Ameritrust Texas, N.A., from 1980 to 1993. Age 50. MATTHEW S. METCALFE -- Chairman and President, Airland Corporation; Director Emeritus, Amsouth Bancorporation; Member, State of Alabama Oil and Gas Board; Chairman, Mobile Airport Authority. Age 66. FRANK B. RYAN -- Professor of Mathematics at Rice University (currently on leave); Director, Danielson Holding Corporation; Director, Texas Micro, Inc.; Director, America West Airlines, Inc. Age 61. For information as to former directors of the Predecessor Company, reference is made to the Joint Disclosure Statement a copy of which was filed as an exhibit to the Company's annual Form 10-K for the year ended June 30, 1996. EXECUTIVE OFFICERS OF THE REGISTRANT The following two officers were designated by the LFC Creditors' Committee at confirmation of the Joint Plan on October 4, 1996: JOHN KNEAFSEY -- Chief Executive Officer of the Company. See information under "Directors of the Registrant" above. W JOSEPH DRYER -- President and Chief Accounting Officer of the Company since October 4, 1996; prior thereto, Senior Vice President from January 1995; also, President and Director of Russian River Energy Co. from 1992 to 1994; and President and Director of Geothermal Resources International, Inc. since 1994; prior thereto, an officer since 1984. Age 42. For information as to former officers of the Predecessor Company, reference is made to the Joint Disclosure Statement a copy of which was filed as an exhibit to the Company's annual Form 10-K for the year ended June 30, 1996. -57- 58 ITEM 11 EXECUTIVE COMPENSATION SUMMARY COMPENSATION TABLE The Summary Compensation Table shows certain compensation information for services rendered in all capacities during the three month period ended June 30, 1997, and the nine month period ended March 31, 1997, for the two executive officers of the Company as of June 30, 1997. For compensation information as to officers of the Predecessor Company in prior fiscal years, reference is made to the Joint Disclosure Statement a copy of which was filed as an exhibit to the Company's annual Form 10-K for the year ended June 30, 1996.
Compensation Period ($) ------------------ ------------ John Kneafsey (1)............................. Three months ended 6,000 Chairman and Chief Executive Officer June 30, 1997 Nine months ended 12,000 March 31, 1997 W Joseph Dryer (2)............................ Three months ended 33,000 President and Chief Accounting Officer June 30, 1997 Nine months ended 170,106 March 31, 1997
- ----------- (1) Compensation information for Mr. Kneafsey relates to the period beginning October 4, 1996, when he became Chairman and Chief Executive Officer of SHI. (2) Compensation information for Mr. Dryer includes the period from July 1, 1996, to October 4, 1996, in which Mr. Dryer served in another capacity as Senior Vice President of the Predecessor Company, and received compensation from the Company and LMUSA. COMPENSATION OF DIRECTORS Directors receive annual compensation at the rate of $5,000 and fees of $1,000 for each Board of Directors' meeting attended. All of the Predecessor Company's stock plans or other retirement benefits for the directors' were canceled during the year pursuant to the confirmation of the Joint Plan. EMPLOYMENT AND OTHER COMPENSATORY AGREEMENTS There are presently no employment or other compensatory agreements in place for either John Kneafsey or W Joseph Dryer. The total compensation for each officer is a fixed amount as follows: $2,000 per month for John Kneafsey and $11,000 per month for W. Joseph Dryer. A compensation review is being performed by an independent third party. The Company does not presently provide any benefit programs. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS Pursuant to the confirmation of the Joint Plan, the Predecessor Company's common stock was canceled during fiscal 1997. According to the Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of new common stock of Siena Holdings, Inc. were held in reserve for issuance to the Class 3 unsecured creditors on the initial distribution date. As of June 30, 1997, the estimated Class 3 claims totaled $146.8 million. The composition of the Class 3 unsecured creditors includes claims relating to the holders of LFC senior convertible notes due 2003 (the "Bondholders") of $145.4 million and other unsecured claims of $1.4 million. As of September 23, 1997, the identities of all the Bondholders are not yet known, therefore, the management of the Company is not aware of any person or group within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, who would be a beneficial owner of more than 5 percent of SHI's outstanding Common Stock, when issued (see "Item 8. Financial Statements and Supplementary Data -58- 59 Stockholders' Equity (Deficit)"). Until all claims are resolved, the amount of shares and percent of ownership by any one person or group is uncertain. The Company expects that there will be beneficial owners of shares once the identities of the Bondholders are known in conjunction with the issuance of the securities. The initial distribution date and issuance of the shares of common stock is expected to occur in the second quarter of fiscal 1998. SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS As discussed under "Security Ownership of Certain Beneficial Owners", 4,000,000 shares of the new common stock will be distributed to the Class 3 unsecured creditors at the initial distribution date. Until all claims are resolved, the amount of shares and percent of ownership by any one director or executive officer is uncertain. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. None. -59- 60 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents filed as part of this report: (i) The following consolidated financial statements are included in Item 8.
Pages ----- Consolidated Balance Sheet--June 30, 1997 and 1996 ............................................. 18 Statement of Consolidated Operations--Three Month Period Ended June 30, 1997 and Nine Month Period ended March 31, 1997 and Years Ended June 30, 1996 and 1995 ........................... 19 Statement of Consolidated Stockholders' Equity (Deficit)--Three Month Period Ended June 30, 1997 and Nine Month Period ended March 31, 1997 and Years Ended June 30, 1996 and 1995 ............ 20 Statement of Consolidated Cash Flows--Three Month Period Ended June 30, 1997 and Nine Month Period ended March 31, 1997 and Years Ended June 30, 1996 and 1995 ........................... 21 Notes to Consolidated Financial Statements ..................................................... 23 (ii) The following financial statement schedule is included in Item 8: Schedule I--Condensed Financial Information of Registrant ...................................... 52 Schedule III--Real Estate and Accumulated Depreciation ......................................... 55
All other schedules are omitted as the required information is inapplicable or the information is presented in the Consolidated Financial Statements or related notes. Financial statements (and summarized financial information) of unconsolidated subsidiaries and 50-Percent-or-Less-Owned Persons accounted for by the equity method are not presented because they do not, individually or in aggregate, constitute a significant subsidiary. (b) Exhibits: Exhibit Number (10.1) Second Amended Joint Chapter 11 Plan of Lomas Financial Corporation, Lomas Information Systems, Inc and Lomas Administrative Services, Inc dated as of July 3, 1996. (10.2) Stipulation and Order Among Lomas Financial Corporation, Lomas Information Systems, Inc and Lomas Administrative Services, Inc and Statutory Creditors' Committee of Lomas Financial Corporation Regarding Technical Modifications to Plan of Reorganization and Confirmation Order, dated as of January 27, 1997. (10.3) Order Confirming Second Amended Joint Chapter 11 Plan of Lomas Financial Corporation, Lomas Information Systems, Inc. and Lomas Administrative Services, Inc Dated July 3, 1996, dated as of October 4, 1996. (10.4) LFC/LMUSA Joint Litigation Trust Agreement among LFC and its subsidiaries and LMUSA / Nomas Corp., and Neil B Glassman, Esq.and Trustees and Martin Pollner, Esq Trustee, dated March 6, 1997. (10.5) Agreement Between LMU Statutory Creditors' Committee and LFC Statutory Creditors' Committee in Respect of Intercompany Claims. (11) Computation of Earnings (Loss) Per Share. (21) List of subsidiaries of Registrant. (27) Financial Data Schedules (submitted to the Securities and Exchange Commission for its information). (c) Reports on Form 8-K: None. -60- 61 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. SIENA HOLDINGS, INC. Registrant Date: September 26, 1997 /S/ W Joseph Dryer --------------------------------------- W Joseph Dryer Principal Accounting Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Date: September 26, 1997 /S/ W Joseph Dryer --------------------------------------- W Joseph Dryer President 62 Pursuant to the requirements of the Securities Exchange Act of 1934 and in response to General Instruction D to Form 10-K, this report has been signed below on behalf of the registrant by the following directors on the dates indicated. Date: September 26, 1997 By /S/ JOHN KNEAFSEY ------------------------------ (John Kneafsey, Chairman) Date: September 26, 1997 By /S/ ERIC M BODOW ------------------------------ (Eric M Bodow) Date: September 26, 1997 By /S/ JAMES D KEMP ------------------------------ (James D Kemp) Date: September 26, 1997 By /S/ MATTHEW S METCALFE ------------------------------ (Matthew S Metcalfe) Date: September 26, 1997 By /S/ FRANK RYAN ------------------------------ (Frank Ryan) 63 EXHIBIT INDEX Exhibit Number Description (10.1) Second Amended Joint Chapter 11 Plan of Lomas Financial Corporation, Lomas Information Systems, Inc and Lomas Administrative Services, Inc dated as of July 3, 1996. (10.2) Stipulation and Order Among Lomas Financial Corporation, Lomas Information Systems, Inc and Lomas Administrative Services, Inc and Statutory Creditors' Committee of Lomas Financial Corporation Regarding Technical Modifications to Plan of Reorganization and Confirmation Order, dated as of January 27, 1997. (10.3) Order Confirming Second Amended Joint Chapter 11 Plan of Lomas Financial Corporation, Lomas Information Systems, Inc. and Lomas Administrative Services, Inc Dated July 3, 1996, dated as of October 4, 1996. (10.4) LFC/LMUSA Joint Litigation Trust Agreement among LFC and its subsidiaries and LMUSA / Nomas Corp., and Neil B Glassman, Esq.and Trustees and Martin Pollner, Esq Trustee, dated March 6, 1997. (10.5) Agreement Between LMU Statutory Creditors' Committee and LFC Statutory Creditors' Committee in Respect of Intercompany Claims. (11) Computation of Earnings (Loss) Per Share. (21) List of subsidiaries of Registrant. (27) Financial Data Schedules (submitted to the Securities and Exchange Commission for its information). EX-10.1 2 2ND AMENDED JOINT CHAPTER 11 PLAN DATED 7/3/96 1 EXHIBIT 10.1 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 ) LOMAS FINANCIAL CORPORATION, ) Case Nos. 95-1235, 1237 and LOMAS INFORMATION SYSTEMS, INC. ) 1238 (PJW) and LOMAS ADMINISTRATIVE ) SERVICES, INC., ) Jointly Administered Debtors. ) SECOND AMENDED JOINT CHAPTER 11 PLAN OF LOMAS FINANCIAL CORPORATION, LOMAS INFORMATION SYSTEMS, INC. AND LOMAS ADMINISTRATIVE SERVICES,INC. ---------------------------------- YOUNG, CONAWAY, STARGATT & TAYLOR James L. Patton, Jr. (No. 2202) Robert S. Brady (No. 2847) Brendan Linehan Shannon (No. 3136) 11th Floor, Rodney Square North P.O. Box 391 Wilmington, Delaware 19899-0391 (302) 571-6600 - and - DAVIS POLK & WARDWELL Robert J. Levine Laureen F. Bedell Richard C. Potok 450 Lexington Avenue New York, New York 10017 (212) 450-4000 Co-Counsel to Debtors and Debtors-in-Possession 2 TABLE OF CONTENTS ARTICLE 1 DEFINITIONS 1.1 Rules of Interpretation ............................................ 1 1.2 Definitions ........................................................ 1 ARTICLE 2 TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS; CLASSIFICATION AND TREATMENT OF PRIORITY NON-TAX CLAIMS 2.1 Administrative Claims .............................................. 9 2.2 Priority Tax Claims ................................................ 10 2.3 Priority Non-Tax Claims ............................................ 10 ARTICLE 3 CLASSIFICATION OF OTHER CLAIMS AND INTERESTS 3.1 General Rules of Classification .................................... 11 3.2 LFC Class 1 Claims ................................................. 11 3.3 LFC Class 2 Claims ................................................. 11 3.4 LFC Class 3 Claims ................................................. 11 3.5 LFC Class 4 Claims ................................................. 11 3.6 LFC Class 5 Claims ................................................. 11 3.7 LFC Class 6 Interests .............................................. 11 3.8 LIS Class 1 Claims ................................................. 11 3.9 LIS Class 2 Claims ................................................. 11 3.10 LIS Class 3 Claims ................................................. 11 3.11 LIS Class 4 Claims ................................................. 12 3.12 LIS Class 5 Interests .............................................. 12 3.13 LAS Class 1 Claims ................................................. 12 3.14 LAS Class 2 Claims ................................................. 12 3.15 LAS Class 3 Claims ................................................. 12
3 3.16 LAS Class 4 Claims ................................................. 12 3.17 LAS Class 5 Interests .............................................. 12 ARTICLE 4 TREATMENT OF CLAIMS AND INTERESTS 4.1 LFC Class 1 (Secured Claims) ....................................... 12 4.2 LFC Class 2 (D & O Claims) ......................................... 12 4.3 LFC Class 3 (Unsecured Claims) ..................................... 12 4.4 LFC Class 4 (Convenience Unsecured Claims).......................... 13 4.5 LFC Class 5 (Intercompany Claims) .................................. 13 4.6 LFC Class 6 (LFC Interests) ........................................ 13 4.7 LIS Class 1 (Secured Claims) ....................................... 13 4.8 LIS Class 2 (D & O Claims) ......................................... 13 4.9 LIS Class 3 (Unsecured Claims) ..................................... 13 4.10 LIS Class 4 (Intercompany Claims) .................................. 13 4.11 LIS Class 5 (LIS Interests) ........................................ 13 4.12 LAS Class 1 (Secured Claims) ....................................... 13 4.13 LAS Class 2 (D & O Claims) ......................................... 13 4.14 LAS Class 3 (Unsecured Claims)...................................... 14 4.15 LAS Class 4 (Intercompany Claims) .................................. 14 4.16 LAS Class 5 (LAS Interests) ........................................ 14 ARTICLE 5 IMPAIRMENT OF CLAIMS AND INTERESTS; VOTING 5.1 Classes Entitled to Vote ........................................... 14 5.2 Classes Not Entitled to Vote ....................................... 14 ARTICLE 6 CONDITIONS PRECEDENT TO CONFIRMATION AND EFFECTIVE DATE 6.1 Conditions to Confirmation ......................................... 15 6.2 Waiver of Conditions .............................................. 15 6.3 Conditions to First Distribution ................................... 15
ii 4 ARTICLE 7 MEANS OF IMPLEMENTING THE PLAN 7.1 Change of Names .................................................... 16 7.2 Amended and Restated Certificates of Incorporation ................. 16 7.3 Corporate Action ................................................... 16 7.4 Effectiveness of Securities, Instruments and Agreements ............ 17 7.5 Distributions Pursuant to the Plan ................................. 17 7.6 Distribution of Fractional Shares of New LFC Common Stock .......... 18 7.7 Transfer By the Debtors of Certain Property to the Intercompany Claims Reserve ..................................................... 18 7.8 Actions by the Intercompany Claims Agent ........................... 19 7.9 Management of the Reorganized Debtors .............................. 19 7.10 Liquidation of Non-Reorganization Assets ........................... 20 7.11 Cash Distributions ................................................. 20 7.12 Resolution of Disputed Claims ...................................... 20 7.13 LFC Litigation Trust ............................................... 20 7.14 Setoff ............................................................. 21 7.15 Surrender and Cancellation of Public Debt Securities ............... 21 7.16 Certain Assets to be Held in Trust ................................. 21 7.17 Allocation of Consideration Between Interest and Principal ......... 23 7.18 NOL Reattribution Election ......................................... 23 ARTICLE 8 TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES 8.1 Rejection of Executory Contacts and Unexpired Leases ............... 23 8.2 Claims Under Rejected Contracts and Leases ......................... 23 ARTICLE 9 EFFECTS OF PLAN CONFIRMATION 9.1 Discharge and Injunction ........................................... 24 9.2 Revesting .......................................................... 24 9.3 Contributions to LFC Litigation Trust and Intercompany Claims Reserve ............................................................ 25 9.4 Cancellation and Release of Existing Securities, Agreements and Liens .............................................................. 25 9.5 Retiree Medical Benefits ........................................... 25
iii 5 9.6 Retention of Jurisdiction .......................................... 25 9.7 Failure of Bankruptcy Court to Exercise Jurisdiction ............... 26 9.8 Statutory Committee ................................................ 26 ARTICLE 10 MISCELLANEOUS PROVISIONS 10.1 Payment of Statutory Fees .......................................... 26 10.2 Procedure for Determining Certain Claims ........................... 26 10.3 Cramdown ........................................................... 27 10.4 Modification of The Plan ........................................... 27 10.5 Withdrawal of Plan ................................................. 27 10.6 Substantial Effective of Plan ...................................... 27 10.7 Reservation of Rights .............................................. 27 10.8 Section 1145 Exemption ............................................. 28 10.9 Unclaimed Property ................................................. 28 10.10 Section 1146 Exemption ............................................. 28 10.11 Record Date for Distribution ....................................... 28 10.12 Notices and Distributions .......................................... 28 10.13 Saturday, Sunday or Legal Holiday .................................. 29 10.14 Time ............................................................... 29 10.15 Severability of Provisions ......................................... 29 10.16 Binding Effect ..................................................... 29 10.17 Governing Law ...................................................... 29 10.18 Interpretation of Plan and Related Documents ....................... 29 10.19 Filing of Additional Documents ..................................... 29 10.20 Further Assurances ................................................. 30 10.21 Withholding and Reporting Requirements ............................. 31 Exhibit A-1 Restated Certificate of Incorporation and Bylaws of Reorganized LFC Exhibit A-2 Amendment to Certificate of Incorporation of Reorganized LIS Exhibit B Form of LFC Litigation Trust Agreement
iv 6 JOINT CHAPTER 11 PLAN Lomas Financial Corporation, Lomas Information Systems, Inc. and Lomas Administrative Services, Inc. hereby propose the following joint Chapter 11 Plan pursuant to Chapter 11 of the Bankruptcy Code. ARTICLE I DEFINITIONS 1.1 Rules of Interpretation. As used herein, the following terms have the respective meanings specified below, and such meanings shall be equally applicable to both the singular and plural, and masculine and feminine, forms of the terms defined. The words "herein," "hereof," "hereto," "hereunder" and other words of similar import refer to this Plan as a whole and not to any particular section, subsection or clause contained herein. Captions and headings to articles, sections, schedules and exhibits are inserted for convenience of reference only and are not intended to be part of or to affect the interpretation of this Plan. The rules of construction set forth in section 102 of the Bankruptcy Code shall apply. 1.2 Definitions. Any term used herein that is not defined herein but is defined in the Bankruptcy Code shall have the meaning ascribed to such term in the Bankruptcy Code. In addition to such other terms as are defined in other sections of this Plan, the following terms (which appear herein as capitalized terms) have the following meanings as used in this Plan: "ADMINISTRATIVE CLAIM" means, with respect to a Debtor, a Claim against such Debtor to the extent that it is of the kind described in section 503(b) of the Bankruptcy Code and is entitled to priority under section 507(a)(1) of the Bankruptcy Code, including, without limitation, (a) any actual and necessary expenses of preserving such Debtor's Estate, (b) any actual and necessary expenses of operating the business of such Debtor, (c) any actual indebtedness or obligations incurred or assumed by such Debtor as debtor-in-possession during the pendency of its Reorganization Case in connection with the conduct of its business, (d) any actual expenses of such Debtor necessary or appropriate to facilitate or effectuate this Plan, (e) any amount required to be paid by such Debtor under section 365(b)(1) of the Bankruptcy Code in connection with the assumption of executory contracts or unexpired leases, (f) all allowances of compensation or reimbursement of expenses to the extent allowed by the Bankruptcy Court under sections 330(a), 331 or 503(b)(2), (3), (4) or (5) of the Bankruptcy Code and (g) any Reclamation Claims. To the extent that any item described in clauses (a) - (f) of the 7 preceding sentence are allocable in part to more than one Debtor and/or to LMUSA, only the LFC Allocation or the LIS Allocation, as the case may be, shall be an Administrative Claim against LFC or LIS. "ALLOWED" means: (a) with respect to an Administrative Claim of the kind described in section 503(b)(2), (3), (4) or (5) of the Bankruptcy Code, an Administrative Claim that has been allowed by a Final Order, to the extent so allowed; (b) with respect to any other Administrative Claim, an Administrative Claim with respect to which a request for payment has been timely filed pursuant to SECTION 10.2 or with respect to which no such filing is necessary, and to which no objection has been timely filed; (c) with respect to a Disputed Claim, a Claim that has been allowed by a Final Order, to the extent so allowed; or (d) with respect to any other Claim, a Claim with respect to which a proof of claim has been timely filed by the Bar Date and to which no objection has been timely filed, or if no proof of claim was so filed, which was or hereafter is listed on the Schedules as liquidated in amount and not disputed or contingent. "AMENDED AND RESTATED CERTIFICATE OF INCORPORATION" means, with respect to LFC and LIS, the certificate of incorporation of Reorganized LFC or Reorganized LIS as amended or amended and restated, substantially in the forms attached hereto as EXHIBIT A-1 or A-2, as the case may be, provided that the LFC Creditors' Committee shall have the right to change Article Eleventh thereof up to the third Business Day prior to the commencement of the Confirmation Hearing. "BALLOT" means the ballot and/or master ballot, as is appropriate in the circumstances, distributed to a holder of an LFC Class 1, 2, 3 or 4 Claim, an LIS Class 1, 2 or 3 Claim or an LAS Class 1, 2 or 3 Claim for the purpose of, among other things, voting on this Plan. "BANKRUPTCY CODE" means the United States Bankruptcy Code, 11 U.S.C. Sections 101 et seq., as amended by the Bankruptcy Reform Act of 1994, and as amended from time to time, to the extent applicable to the Reorganization Cases. "BANKRUPTCY COURT" means the United States Bankruptcy Court for the District of Delaware or such other court as may hereafter exercise original jurisdiction over the Reorganization Cases or any proceeding therein. "BANKRUPTCY RULES" means the Bankruptcy Rules promulgated under 28 U.S.C. Section 2075 and the local rules and standing orders of the Bankruptcy Court, as amended from time to time, to the extent applicable to the Reorganization Cases. "BAR DATE" means the dates by which the Bankruptcy Court has ordered that proof of certain Claims must be filed. "BUSINESS DAY" means any day other than a Saturday, Sunday or federal holiday. 2 8 "CLAIM" means, with respect to a Debtor, a "claim" as defined in section 101(5) of the Bankruptcy Code against such Debtor, property of such Debtor or property of the Estate, arising before the Confirmation Date. "CLASS" means a category or group of Claims or Interests classified together in a class as designated pursuant to ARTICLE 3 of this Plan. "CONFIRMATION" means entry of the Confirmation Order. "CONFIRMATION DATE" means the date on which the Confirmation Order is entered on the docket by the Clerk of the Bankruptcy Court. "CONFIRMATION HEARING" means the hearing with respect to this Plan required by section 1128(a) of the Bankruptcy Code. "CONFIRMATION ORDER" means the order of the Bankruptcy Court, in form and substance reasonably satisfactory to the Debtors, confirming this Plan pursuant to section 1129 of the Bankruptcy Code. "CONVENIENCE UNSECURED CLAIM" means any Unsecured Claim (other than any Unsecured Claim under or evidenced by the LFC Senior Convertible Notes) against LFC in an amount not greater than $500 or as to which the holder has agreed in writing to reduce such Claim to such amount and to release and to waive any further or additional claim against LFC or the Estate of LFC. "D & 0 CLAIM" means a pre-petition claim of a present or former officer, director or employee of one of the Debtors or LMUSA, or any of their respective subsidiaries, against a Debtor in respect of indemnification and/or contribution for defense costs or liabilities pursuant to the certificate of incorporation or by-laws of such Debtor, an employment agreement with such Debtor, or applicable law, in each case relating to actual or alleged conduct or events occurring prior to the Petition Date. "DEBTOR" means LFC, LIS or LAS, as debtor and debtor-in-possession in a Reorganization Case. "DISCLOSURE STATEMENT" means the Disclosure Statement pertaining to this Plan in the form approved for distribution by the Bankruptcy Court, together with any exhibits, schedules, appendices or documents attached thereto or otherwise incorporated by reference therein, as the same may be amended, modified, restated or supplemented from time to time. "DISPUTED CLAIM" means a Claim (a) that a Debtor or a Reorganized Debtor has scheduled as unliquidated disputed, contingent or subject to offset and which has not been allowed by a Final Order or (b) as to which an objection or motion to estimate for 3 9 purposes of allowance in a Reorganization Case has been filed, but has not been withdrawn or resolved by a Final Order. "DISTRIBUTION DATE" means, with respect to an Allowed Claim, the later of (a) the Effective Date and (b) the date on which such Claim becomes an Allowed Claim and all other conditions to the initial distribution with respect to such Claim shall have been satisfied. "EFFECTIVE DATE" means the Confirmation Date unless by written notice to the Debtors and the Bankruptcy Court prior to the conclusion of the Confirmation Hearing, the LFC Creditors' Committee in respect of a Debtor has elected to require that the "Effective Date" shall be deferred until the occurrence of events specified in the notice. "ESTATE" means, with respect to a Debtor, the estate of such Debtor, created in a Reorganization Case pursuant to section 541 of the Bankruptcy Code. "FINAL ORDER" means an order or judgment of the Bankruptcy Court or any other court exercising jurisdiction over the subject matter and the parties, that has not been reversed, stayed, modified, amended or vacated and as to which (a) no appeal, petition for certiorari, or request for reargument or other review or rehearing has been requested or is pending, (b) any right to appeal, petition for certiorari or seek reargument, other review or rehearing has been fully and effectively waived in writing or (c) if an appeal, reargument, writ of certiorari, review or rehearing thereof has been sought, the order or judgment has been affirmed by the highest court to which the order was appealed or from which the reargument, review or rehearing was sought, or by which the petition for writ of certiorari has been denied, and, in each of the above cases, the time to take any further appeal or to seek certiorari or further reargument, review or rehearing has expired. "GOVERNMENTAL AUTHORITY" means any nation or government, any state or political subdivision thereof, any federal or state court or any other agency or authority exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government. "INTERCOMPANY CLAIM" means a Claim by any Debtor, LMUSA or any of their respective subsidiaries against any Debtor or LMUSA, including without limitation a Claim that any transfer to or for the benefit of, or other transaction with or for the benefit of, such second Debtor or LMUSA was void or should be avoided pursuant to section 544, 547, 548 or 549 of the Bankruptcy Code and/or offset pursuant to section 553 of the Bankruptcy Code. "INTERCOMPANY CLAIMS AGENT" means the trustee or escrow agent under the Intercompany Claims Agreement, if any, appointed by the LFC Creditors' Committee and the LMUSA Creditors' Committee in accordance with section 1123(b)(3)(B) of the 4 10 Bankruptcy Code by order of the Bankruptcy Court as the Person responsible for (a) ensuring the allocation and distribution of the assets in the Intercompany Claims Reserve to the appropriate party or parties and (b) such other duties as may be specified in the Intercompany Claims Agreement or by the Bankruptcy Court, and such Person's successors in such capacity. "INTERCOMPANY CLAIMS AGREEMENT" means a trust or escrow agreement among LFC, LMUSA, the LFC Creditors' Committee, the LMUSA Creditors' Committee and the Intercompany Claims Agent agreed upon among the parties thereto and approved by the Bankruptcy Court. "INTERCOMPANY CLAIMS RESERVE" means a trust or escrow arrangement that may be established pursuant to SECTION 6.3. "INTEREST" means, (a) with respect to LFC, any right arising from the ownership, beneficial or otherwise, of Old LFC Common Stock and any outstanding rights to acquire Old LFC Common Stock, including, without limitation, options and warrants and rights to receive or acquire options or warrants, stock appreciation or similar rights the value of which is determined by reference to the value of Old LFC Common Stock and all Claims arising from rescission of a purchase or sale of such stock or right to acquire such stock or for damages arising from such purchase or sale, (b) with respect to LIS, any right arising from the ownership, beneficial or otherwise, of LIS Common Stock and (c) with respect to LAS, any right arising from the ownership, beneficial or otherwise, of the equity of LAS. "KPMG" means KPMG Peat Marwick LLP. "LAS" means Lomas Administrative Services, Inc., a Nevada corporation that was in dissolution proceedings at the Petition Date and was a wholly-owned subsidiary of LFC and a Debtor in a Reorganization Case. "LFC" means Lomas Financial Corporation, a Delaware corporation and a Debtor in a Reorganization Case. "LFC ALLOCATION" means, with respect to claims of the type described in clauses (a) - (f) of the definition of "Administrative Claim" that are attributable only in part to LFC, such percentage of those administrative claims as is recommended by KPMG, if LFC and LMUSA or their respective creditors' committees do not agree with KPMG's recommendation, as determined by agreement, or, failing such agreement, by the Bankruptcy Court. "LFC CREDITORS' COMMITTEE" means the statutory creditors' committee of LFC, consisting of representatives of holders of debt obligations of LFC, which was appointed by the United States Trustee for the District of Delaware on March 15, 1996. 5 11 "LFC DISTRIBUTABLE CASH" means (a) on the Effective Date, all cash of LFC, after giving effect to (i) a payment, if any, or other transfer, if any, by LFC into the Intercompany Claims Reserve, if any, (ii) appropriate reserves for Administrative Claims, Priority Claims, Second Claims and Convenience Unsecured Claims, (iii) the amount placed in the LFC Litigation Trust pursuant to SECTION 7.13 and (iv) a reserve for working capital equal to an amount specified by the LFC Creditors' Committee or, if after the Effective Date, Reorganized LFC, in writing to the Bankruptcy Court before the date of the initial distribution pursuant to SECTION 7.5(a) and (b) after the Effective Date, subject to completion of the funding of all reserves specified in clause (a)(i), (a)(ii) and (a)(iv) above and the making of the payment specified in clause (a)(iii) above, all subsequently received net cash proceeds from the disposition of, or net income on, NonReorganization Assets of LFC or Reorganized LFC, and all cash subsequently distributed to Reorganized LFC from the Intercompany Claims Reserve or the LFC Litigation Trust. "LFC INDENTURE" means the indenture dated as of November 1, 1991 between LFC and Texas Commerce Bank National Association, pursuant to which the LFC Senior Convertible Notes were issued. "LFC INDENTURE TRUSTEE" means the trustee under the LFC Indenture. "LFC LITIGATION TRUST" means the trust established pursuant to SECTION 7.13. "LFC LITIGATION TRUSTEE" means the Person designated by the LFC Creditors' Committee on or before the Confirmation Date to act as trustee of the LFC Litigation Trust. "LFC LITIGATION TRUST AGREEMENT" means a trust agreement substantially in the form of EXHIBIT B. "LFC SENIOR CONVERTIBLE NOTES" means LFC's $140 million 9% Senior Convertible Notes due October 1, 2003. "LHMC" means Lomas Housing Management Corp., a Texas corporation and a wholly-owned subsidiary of LFC. "LIS" means Lomas Information Systems, Inc., a Nevada corporation and a wholly-owned subsidiary of LFC and a Debtor in a Reorganization Case. "LIS ALLOCATION" means, with respect to claims of the type described in clauses (a) - (f) of the definition of "Administrative Claim" that are attributable only in part to LIS, such percentage of those administrative claims as is recommended by KPMG, if LIS, LFC and LMUSA or the LFC Creditors' Committee and the LMUSA Creditors' Committees do not agree with KPMG's recommendation, as determined by agreement, or, failing such agreement, by the Bankruptcy Court. 6 12 "LLG LANDS" means LLG Lands, Inc., an Arkansas corporation and a wholly owned subsidiary of LFC. "LMUSA" means Lomas Mortgage USA, Inc., a Connecticut corporation and a wholly-owned subsidiary of LFC and a debtor in a reorganization case under Chapter 11 of the Bankruptcy Code. "LMUSA Creditors' Committee" means the official committee of unsecured creditors of LMUSA, consisting of representatives of holders of debt obligations of LMUSA, which was appointed by the United States Trustee for the District of Delaware on March 15, 1996. "MONTHLY DISTRIBUTION DATE" means the 15th of each month, starting with the first such date that is at least thirty (30) days after the Effective Date. "MSP" means the Management Security Plan Lomas & Nettleton Financial Corporation and Subsidiary and Affiliated Companies as Restated Effective June 1, 1992, as amended, including the related trust, dated April 2, 1993, as amended. "NEW LFC COMMON STOCK" means the common stock, par value $0.10 per share, of Reorganized LFC, which class of common stock shall have the rights, powers and preferences set forth in the Amended and Restated Certificate of Incorporation. "NON-REORGANIZATION ASSETS" means all tangible and intangible assets of the Estate other than such Reorganized Debtor's Reorganization Assets. "OLD COMMON STOCK" means Old LFC Common Stock and Old LIS Common Stock. "OLD LFC COMMON STOCK" means the shares of common stock, par value $1.00 per share, of LFC outstanding on the Petition Date. "OLD LIS COMMON STOCK" means the shares of common stock, par value $1.00 per share, of LIS outstanding on the Petition Date. "PENSION PLAN" means the Lomas Financial Group Pension Plan as restated effective January 1, 1991, as amended. "PERSON" means any individual, corporation, partnership, association, trust or any other entity or organization of any kind or character, including a Governmental Authority. "PETITION DATE" means the date on which the petitions for relief commencing the Reorganization Cases were filed, namely October 10, 1995. 7 13 "PLAN" means this Chapter 11 Plan, and any exhibits and schedules attached hereto (that are hereby incorporated by reference), in each case as the same may be amended, modified or supplemented from time to time in accordance with the provisions set forth herein, the Bankruptcy Code and the Bankruptcy Rules. This Chapter 11 Plan will be referred to herein as "the Plan" or "this Plan". "PRIORITY CLAIM" means a Priority Tax Claim or a Priority Non-Tax claim. "PRIORITY NON-TAX CLAIM" means any Claim to the extent entitled to priority in payment under section 507(a)(3),(4),(5) or (6) of the Bankruptcy Code. "PRIORITY TAX CLAIM" means any Claim to the extent entitled to priority in payment under section 507(a)(8) of the Bankruptcy Code. "PROFESSIONALS" means those persons retained at the expense of the Estates of the Debtors in the Reorganization Cases pursuant to an order of the Bankruptcy Court in accordance with sections 327, 328 or 1103 of the Bankruptcy Code. "PRO RATA" means bearing the same proportion that the amount of an Allowed Claim in a particular Class bears to the total aggregate amount of Allowed Claims in such Class. "PUBLIC DEBT SECURITIES" means the LFC Senior Convertible Notes. "RECORD DATE" means, for purposes of voting, the date on which the Bankruptcy Court approves the Disclosure Statement, and for purposes of distribution, the Confirmation Date. "RECLAMATION CLAIM" means, with respect to a Debtor, a Claim against such Debtor that is entitled to priority status under sections 546(c) and 507(a)(1) of the Bankruptcy Code on the basis of a seller's statutory or common law right to reclaim goods sold to such Debtor in the ordinary course of such seller's business. "RELATED DOCUMENT" means each instrument, agreement and document to be issued or executed in connection with this Plan. "REORGANIZATION ASSETS" means direct or indirect right, title and interest of LFC in and to (a) the stock and assets of STL and LLG Lands, and any other real estate assets that are determined by the LFC Creditors' Committee (before the Effective Date) or the Reorganized Board of LFC (on or after the Effective Date) to be appropriate to hold for longer term development and/or sale, (b) the stock and assets of LHMC, (c) the working capital reserve retained by any Reorganized Debtor on the Effective Date and (d) the income derived from, and proceeds of any disposition of, the foregoing. 8 14 "REORGANIZATION CASE" means, with respect to a Debtor, the case under chapter 11 of the Bankruptcy Code commenced by such Debtor. "REORGANIZED BOARD" means the board of directors of Reorganized LFC or Reorganized LIS on and after the Effective Date. "REORGANIZED DEBTOR" means Reorganized LFC or Reorganized LIS. "REORGANIZED LFC" means LFC on and after the Effective Date. "REORGANIZED LIS" means LIS on and after the Effective Date. "SCHEDULES" means the Debtors' Schedules of Assets and Liabilities, that have been filed with the Clerk of the Bankruptcy Court pursuant to Bankruptcy Rule 1007 as the same may be amended from time to time. "SECURED CLAIM" means a Claim that constitutes a secured claim under section 506(a) or 1111(b) of the Bankruptcy Code. "STL" means ST Lending, Inc., a Delaware corporation and a wholly-owned subsidiary of LMUSA. "UNSECURED CLAIM" means a Claim that is not a Secured Claim, an Administrative Claim, a Priority Claim, an Intercompany Claim or a D & O Claim. "VOTING DEADLINE" means the date by which the Ballots for acceptance or rejection of this Plan must be received by the tabulating agent to be counted. ARTICLE 2 TREATMENT OF ADMINISTRATIVE CLAIMS AND PRIORITY TAX CLAIMS; CLASSIFICATION AND TREATMENT OF PRIORITY NON-TAX CLAIMS 2.1 Administrative Claims. Each Allowed Administrative Claim shall be paid in full in cash (a) at the option of the relevant Debtor (before the Effective Date) or the relevant Reorganized Debtor (on or after the Effective Date) (i) in the ordinary course of business as such Claim matures or (ii) on the Distribution Date for such Claim unless the holder thereof agrees or has agreed to less favorable treatment of such Claim (including, without limitation, any treatment that may be provided for in any documentation, statute or regulation governing such Claim) or (b) on such other date as the Bankruptcy Court may order. Notwithstanding the foregoing, the relevant Debtor's or relevant Reorganized 9 15 Debtor's failure to object to any Administrative Claim in the Reorganization Case or payment of such Claim shall be without prejudice to the relevant Reorganized Debtor's right to contest, request disgorgement of or otherwise defend against such Claim in any forum. 2.2 Priority Tax Claims. Each Allowed Priority Tax Claim shall be paid in full in cash on the Distribution Date for such Claim, unless the holder thereof agrees to less favorable treatment of such Claim (including, without limitation, any treatment that may be provided for in any documentation, statute or regulation governing such Claim); provided, however, that the relevant Debtor may elect to have any Allowed Priority Tax Claim paid in deferred cash payments over a period not to exceed six (6) years after the date of assessment of such Priority Tax Claim, of a value, as of the Effective Date, equal to the amount of such Allowed Priority Tax Claim, which option shall be exercised by written notice given to the holder of a Priority Tax Claim delivered on or before the Distribution Date specifying a payment schedule, a rate of interest, and the date by which an objection to such treatment must be filed and served. The relevant Reorganized Debtor shall have the right to prepay any Allowed Priority Tax Claim, in whole or in part at any time without penalty. For the purposes of this SECTION 2.2, the relevant Debtor and relevant Reorganized Debtor for the payment of Allowed Priority Tax Claims against LAS shall be LFC and Reorganized LFC. 2.3 Priority Non-Tax Claims. (a) Classification. LFC Class A, LIS Class A and LAS Class A shall consist, respectively, of all Priority Non-Tax Claims against LFC, LIS and LAS. (b) Treatment. LFC Class A Claims, LIS Class A claims and LAS Class A Claims are not impaired. Each Allowed Priority Non-Tax Claim shall be paid in full in cash on the Distribution Date for such Claim or, at the option of the relevant Reorganized Debtor, in the ordinary course of business as such Claim matures, unless such holder agrees to less favorable treatment of such Claim (including, without limitation, any treatment that may be provided for in any documentation, statute or regulation governing such Claim). For the purposes of this SECTION 2.3(b), the relevant Reorganized Debtor for the payment of Allowed Priority Non-Tax Claims against LAS shall be LFC and Reorganized LFC. 10 16 ARTICLE 3 CLASSIFICATION OF OTHER CLAIMS AND INTERESTS 3.1 General Rules of Classification. Unless otherwise provided in this Plan, a Claim or Interest that is properly included in more than one Class is in a Class to the extent that it qualifies within the description of such Class and is in a different Class to the extent that it qualifies within the description of such different Class, but the same portion of a Claim or Interest may not be in more than one Class. 3.2 LFC Class 1 Claims. LFC Class 1 shall consist of all Secured Claims against LFC. If and to the extent that, for purposes of technical compliance with the Bankruptcy Code, any member of this Class is entitled to be included in a separate Class, such member automatically shall be deemed to be a member of a separate Class to be identified by the number of this Class and next unused alphabetical letter, starting with the letter "A." 3.3 LFC Class 2 Claims. LFC Class 2 shall consist of all D & 0 Claims against LFC. 3.4 LFC Class 3 Claim. LFC Class 3 shall consist of all Unsecured Claims against LFC and, in addition, all Convenience Unsecured Claims against LFC if they have been reclassified pursuant to SECTION 5.1. 3.5 LFC Class 4 Claims. LFC Class 4 shall consist of all Convenience Unsecured Claims against LFC. 3.6 LFC Class 5 Claims. LFC Class 5 shall consist of all Intercompany Claims against LFC. 3.7 LFC Class 6 Interests. LFC Class 6 shall consist of all Interests in LFC. 3.8 LIS Class 1 Claims. LIS Class 1 shall consist of all Secured Claims against LIS. If and to the extent that, for purposes of technical compliance with the Bankruptcy Code, any member of this Class is entitled to be included in a separate class, such member automatically shall be deemed to be a member of a separate class to be identified by the number of this class and next unused alphabetical letter, starting with the letter "A. " 3.9 LIS Class 2 Claims. LIS Class 2 shall consist of all D & 0 Claims against LIS. 3.10 LIS Class 3 Claims. LIS Class 3 shall consist of all Unsecured Claims against LIS. 11 17 3.11 LIS Class 4 Claims. LIS Class 4 shall consist of all Intercompany Claims against LIS. 3.12 LIS Class 5 Interests. LIS Class 5 shall consist of all Interests in LIS. 3.13, LAS Class I Claims. LAS Class 1 shall consist of all Secured Claims against LAS. If and to the extent that, for purposes of technical compliance with the Bankruptcy Code, any member of this Class is entitled to be included in a separate class, such member automatically shall be deemed to be a member of a separate class to be identified by the number of this class and next unused alphabetical letter, starting with the letter "A." 3.14 LAS Class 2 Claims. LAS Class 2 shall consist of all Claims against LAS. 3.15 LAS Class 3 Claims. LAS Class 3 shall consist of all Unsecured Claims against LAS. 3.16 LAS Class 4 Claims. LAS Class 4 shall consist of all Intercompany Claims against LAS. 3.17 LAS Class 5 Interests. LAS Class 5 shall consist of all Interests of the holders of Old LAS Common Stock. ARTICLE 4 TREATMENT OF CLAIMS AND INTERESTS 4.1 LFC Class I (Secured Claims). LFC Class I Claims are impaired. Each holder of an Allowed LFC Class I Claim shall receive one of the following: (a) the property of LFC in which such holder has a valid, perfected security interest, (b) a promissory note executed by Reorganized LFC providing for deferred cash payments satisfying the requirements of section 1129(b)(2)(A)(i)(II) of the Bankruptcy Code secured by a lien on assets of Reorganized LFC satisfying the requirements of section 1129(b)(2)(A)(i)(I) of the Bankruptcy Code or (c) cash in an amount equal to such Allowed LFC Class 1 Claim. 4.2 LFC Class 2 (D & 0 Claims). LFC Class 2 Claims are impaired. Holders of Allowed LFC Class 2 Claims shall receive no distribution from LFC in respect of such Claims but rather shall have recourse to the insurance policies maintained by LFC and/or LMUSA to the extent such policies cover their claims. 4.3 LFC Class 3 (Unsecured Claims). LFC Class 3 Claims are impaired. Each holder of an Allowed LFC Class 3 Claim shall be entitled to receive such holder's 12 18 Pro Rata share of (a) 1,000,000 shares of New LFC Common Stock and (b) LFC Distributable Cash. 4.4 LFC Class 4 (Convenience Unsecured Claims). LFC Class 4 Claims are impaired. Each holder of an Allowed LFC Class 4 Claim shall receive twenty-five percent (25%) of the Allowed amount of such Claim in cash on the Distribution Date for such Claim. 4.5 LFC Class 5 (Intercompany Claims). LFC Class 5 Claims are impaired. Distributions in respect of the Allowed amounts of such Claims will be made in accordance with the provisions of SECTION 6.3. 4.6 LFC Class 6 (LFC Interests). LFC Class 6 Interests are not impaired. On the Effective Date, all LFC Interests will be cancelled and no distributions under this Plan will be made in respect thereof. 4.7 LIS Class 1 (Secured Claims). LIS Class 1 Claims are impaired. Each holder of an Allowed LIS Class I Claim shall receive the property of LIS in which such holder has a valid, perfected security interest. 4.8 LIS Class 2 (D & 0 Claims). LIS Class 2 Claims are impaired. Holders of Allowed LIS Class 2 Claims shall receive no distribution from LIS in respect of such Claims but rather shall have recourse to the insurance policies maintained by LMUSA and/or LFC for their benefit. 4.9 LIS Class 3 (Unsecured Claims). LIS Class 3 Claims are impaired. Each holder of an Allowed LIS Class 3 Claim shall be entitled to receive such holder's Pro Rata share of cash in the amount of the excess of funds available in LIS after distributions pursuant to ARTICLE 2 AND SECTION 4.7. 4.10 LIS Class 4-(intercompany Claims). LIS Class 4 Claims are impaired. Distributions in respect of the Allowed amounts of such Claims will be made in accordance with the provisions of SECTION 6.3. 4.11 LIS Class 5 (LIS Interests). LIS Class 5 Interests are impaired. The holders for such Interests will retain their Interests, but their legal rights will be affected by adoption of LIS' Amended and Restated Certificate of Incorporation. 4.12 LAS Class 1 (Secured Claims). LAS Class 1 Claims are impaired. Each holder of an Allowed LAS Class I Claim shall receive the property of LAS in which such holder has a valid, perfected security interest. 4.13 LAS Class 2 (D & 0 Claims). LAS Class 2 Claims are impaired. Holders of Allowed LAS Class 2 Claims shall receive no distribution from LAS in 13 19 respect of such Claims but rather shall have recourse to the insurance policies maintained by LMUSA and/or LFC for their benefit. 4.14 LAS Class 3 (Unsecured Claims). LAS Class 3 Claims are impaired. Each holder of an Allowed LAS Class 3 Claim shall be entitled to receive such holder's Pro Rata share of cash in the amount of the excess of funds available in LAS after distributions pursuant to ARTICLE 2 AND SECTION 4.12. 4.15 LAS Class 4 (Intercompany Claims). LAS Class 4 Claims are impaired. Distributions in respect of the Allowed amounts of such claims will be made in accordance with the provisions of SECTION 6.3. 4.16 LAS Class 5 (LAS Interests). LAS Class 5 Interests are unimpaired. LAS was in liquidation under state law before the Petition Date, and will be liquidated for the benefit of its creditors, with any assets remaining after the distributions pursuant to SECTIONS 4.12, 4.14 AND 4.15 being transferred to the holders of LAS Class 5 Interests as a liquidating distribution. ARTICLE 5 IMPAIRMENT OF CLAIMS AND INTERESTS; VOTING 5.1 Classes Entitled to Vote. Holders of record of Allowed Claims as of the Record Date for voting in LFC Classes 1, 2, 3 and 4, LIS Classes 1, 2 and 3 and LAS Classes 1, 2 and 3 are impaired hereunder and are entitled to vote to accept or reject this Plan. By voting to accept this Plan, a holder of a Claim expressly waives any right it or its successors or assigns may have to change or withdraw its acceptance after the Voting Deadline unless the Bankruptcy Court determines that (a) the disclosure received by such holder was not adequate as required by section 1126(b) of the Bankruptcy Code or (b) this Plan has been modified in a manner that materially and adversely changes the treatment of the holder's Claim or Interest. If the majority of holders of LFC Class 4 Claims vote against the Plan, then the LFC Class 4 Claims will be reclassified as LFC Class 3 Claims. 5.2 Classes Not Entitled to Vote. (a) LFC Class 5 Claims, LIS Class 4 Claims and LAS Class 4 Claims, are all Intercompany Claims held by the Debtors arid/or their subsidiaries (including LMUSA and its subsidiaries), all of which have approved this Plan, consequently, their votes on this Plan will not be solicited. (b) Holders of LFC Class 6 Interests are impaired, will receive no distributions hereunder and are deemed to reject this Plan pursuant to section 1126(g) of the Bankruptcy Code; consequently, their votes on this Plan have not been and will not be solicited. 14 20 (c) LFC is the only holder of LIS Class 5 Interests and LAS Class 5 Interests. LFC has proposed and has approved this Plan; consequently, its vote on this Plan will not be solicited. ARTICLE 6 CONDITIONS PRECEDENT TO CONFIRMATION AND EFFECTIVE DATE 6.1 Conditions to Confirmation. There shall be conditions precedent to Confirmation of this Plan that: (a) the Bankruptcy Court shall have entered an order or orders approving all relevant agreements, trustees, agents and mediators and authorizing LFC, the Intercompany Claims Agent, if any, and the LFC Litigation Trustee to make the transfers of property contemplated to be made by such parties pursuant to this Plan; (b) the LFC Creditors' Committee shall have (i) furnished the names of the individuals who will serve as the members of the Reorganized Board and as the principal executive officers of Reorganized LFC, and (ii) new names for Reorganized LFC and its subsidiaries as required by SECTION 7.1; (c) the trustee of the MSP shall have turned over or been ordered to turn over to LFC the assets held in the MSP; and (d) any no-action letters from the Securities and Exchange Commission, rulings from the Internal Revenue Service or other government approvals or interpretations required in connection with the transaction contemplated by this Plan shall have been obtained. 6.2 Waiver of Conditions. Any. and all conditions precedent to confirmation may be waived by the LFC Creditors' Committee, other than the conditions set forth in SECTIONS 6.1(a) AND 6.1(b). 6.3 Conditions to First Distribution. There shall be conditions precedent to the first distribution to holders of LFC Class 3 Claims, LIS Class 3 Claims or LAS Class 3 Claims that: (a) the LFC Creditors' Committee and the LMUSA Creditors' Committee shall have agreed to (i) a settlement of the Intercompany Claims or (ii) the creation of an Intercompany Claims Reserve to be funded by one or more Debtors and/or LMUSA transferring assets agreed on by such parties pending the resolution of the Intercompany Claims through litigation, mediation or settlement; or 15 21 (b) the Bankruptcy Court shall have entered an order, either (i) determining the Allowed amounts and types of the Intercompany Claims against the Debtors or (ii) estimating the Allowed amounts and types of such Intercompany Claims or the maximum Allowed amounts thereof for the purpose of (A) creating an Intercompany Claims Reserve serving the purpose described in SECTION 6.3(a)(ii) above or (B) establishing distribution holdbacks, as the Bankruptcy Court shall direct. For purposes of distribution holdbacks, to the extent that any Intercompany Claim may be Allowed as an unsecured pre-petition Claim, the holder shall receive distributions of comparable value to those received in respect of LFC Class 3 Claims, LIS Class 3 Claims or LAS-Class 3 Claims, as the case may be; to the extent it may be Allowed as an Administrative Claim or Priority Non-Tax Claim, the holder shall receive distributions of, or of a value equal to, the Allowed amount thereof. ARTICLE 7 MEANS OF IMPLEMENTING THE PLAN 7.1 Change of Names. On and after the Effective Date, the names of the Debtors shall be changed to names provided by the LFC Creditors' Committee on or before the Confirmation Date, with no further act or action under applicable law, regulation, order or rule. Each Debtor and each subsidiary of a Debtor (other than LMUSA and its subsidiaries, the names of which will be changed, if necessary, pursuant to LMUSA's plan of reorganization) that has the word "Lomas" or "L & N" in its name shall change its name to remove any reference to the word "Lomas" or L & N" in it on the Effective Date. 7.2 Amended and Restated Certificates of Incorporation. Each of the Reorganized Debtors shall be deemed to have adopted its Amended and Restated Certificate of Incorporation on the Effective Date and shall promptly thereafter cause the same to be filed with the appropriate authority in its respective jurisdiction of incorporation. After the Effective Date, each of the Reorganized Debtors may amend its certificate of incorporation or articles of incorporation (as the case may be) and may amend its by-laws, in accordance with its applicable certificate of incorporation or articles of incorporation, by-laws and state law. 7.3 Corporate Action. On the Effective Date, all actions contemplated hereby shall be authorized and approved in all respects (subject to the provisions of this Plan). All matters provided for herein involving the corporate structure of the Debtors or the Reorganized Debtors in connection with this Plan shall be deemed to have occurred and 16 22 shall be in effect, without any requirement of further action by the equity security holders or directors of the Debtors or the Reorganized Debtors. On or as soon as practicable after the Effective Date, the appropriate officers of each Reorganized Debtor and members of the Reorganized Board of such Reorganized Debtor are authorized to issue, execute and deliver the agreements, documents, securities and instruments contemplated hereby in the name and on behalf of such Reorganized Debtor. 7.4 Effectiveness of Securities, Instruments and Agreements. On the Effective Date, all securities, instruments, documents and agreements authorized, issued or entered into pursuant to this Plan, including, without limitation, the New LFC Common Stock, the LFC Litigation Trust and the Intercompany Claims Agreement, if any, shall become effective, legally binding and enforceable on the parties thereto in accordance with their respective terms and conditions without the requirement of any further action by the equity security holders or directors of the Debtors or the Reorganized Debtors, and shall be deemed to become effective simultaneously. 7.5 Distributions Pursuant to the Plan. (a) Initial Distributions. On or as soon as practicable after the Effective Date, the Reorganized Debtors, subject to the conditions set forth in SECTION 6.3, shall make all the distributions required by ARTICLE 4; provided that only for purposes of distributions in respect of LFC Class 3 Claims, LIS Class 3 Claims and LAS Class 3 Claims, it shall be presumed that all Disputed Claims will be Allowed at their face amount, with the result that a portion of the assets and, in the case of LFC Class 3 Claims, New LFC Common Stock, available for distribution will be held until the Allowed amounts of all Disputed Claims are determined. (b) Issuance of New LFC Common Stock. On or as soon as practicable after the Effective Date, Reorganized LFC shall issue shares of New LFC Common Stock, that shall be distributed to the holders of LFC Class 3 Claims entitled thereto in accordance with this SECTION 7.5. (c) Subsequent Distributions on LFC Class 3 Claims. All LFC Distributable Cash and New LFC Common Stock that is not distributed by Reorganized LFC on or promptly after the Effective Date shall be held by Reorganized LFC pending distribution pursuant to the provisions of this SECTION 7.5(c). Promptly after any Disputed Claim in LFC Class 3 becomes an Allowed Claim, Reorganized LFC shall cause to be distributed to the holder of such Allowed Claim the LFC Distributable Cash and New LFC Common Stock that such holder would have been entitled to receive under the Plan if such Claim had been Allowed on the Effective Date in the amount in which it has become Allowed. On each Monthly Distribution Date on which there is at least $500,000 of Distributable Cash available to distribute, Reorganized LFC shall make additional distributions of LFC Distributable Cash and New LFC Common Stock to holders of Claims that were Allowed on the Effective Date or subsequently have become Allowed on or before the last day of the calendar month immediately preceding such Monthly Distribution Date, in amounts necessary to cause such holders to have received 23 aggregate distributions of LFC Distributable Cash and New LFC Common Stock in respect of such Allowed Claims equal to the distributions thereof that such holders would have received in respect of such Allowed Claims on or promptly after the Effective Date if (i) such Allowed Claims had been Allowed on the Effective Date in the amounts in which they are Allowed on the last day of such calendar month and (ii) Claims or portions thereof that have become disallowed (A) after the Effective Date and (B) before the last day of such calendar month, had been disallowed on the Effective Date. (d) Subsequent Distributions on LIS Class 3 Claims and LAS Class 3 Claims. The provisions of SECTION 7.5(c) above with respect to the distribution of LFC Distributable Cash to holders of LFC Class 3 Claims shall apply, mutatis mutandis, with respect to the distribution to holders of LFC Class 3 Claims and LAS Class 3 Claims of cash of LFC and LAS available for distribution to holders of such Claims. 7.6 Distribution of Fractional Shares of New LFC Common Stock. The distribution of shares of New LFC Common Stock as provided in SECTION 4.3, may mathematically entitle the holder of an Allowed LFC Class 3 Claim to a fractional share of New LFC Common Stock. Notwithstanding the foregoing, Reorganized LFC shall not distribute any fractional shares of New LFC Common Stock; rather all such fractional shares of New LFC Common Stock shall be aggregated into a whole number of shares of New LFC Common Stock, which whole shares shall be allocated and distributed by Reorganized LFC as follows: (a) Reorganized LFC shall rank from largest to smallest the fractional interests in shares of New LFC Common Stock held by holders of Allowed LFC Class 3 Claims. In the case of ties (fractions having the same size), Reorganized LFC shall decide such tie by the size of Allowed Claims (the higher ranking going to the holder of the larger Allowed Claim). In the event the tie cannot be broken in such manner, Reorganized LFC shall decide such tie by lot. (b) Reorganized LFC shall allocate one whole share of New LFC Common Stock to the holder of the Allowed LFC Class 3 Claim having the largest fractional interest in a share of New LFC Common Stock or New LFC Common Stock and any additional whole shares to the holders of Allowed LFC Class 3 Claims (one per holder) having the next largest fractional interest in a share of New LFC Common Stock or New LFC Common Stock, as the case may be, until all such whole shares have been allocated. (c) Those shares of New LFC Common Stock allocated in accordance with SECTION 7.6(b) above shall be distributed by Reorganized LFC to the parties to whom they have been allocated. 7.7 Transfer By the Debtors of Certain Property to the Intercompany Claims Reserve. If the LFC Creditors' Committee and the LMUSA Creditors' Committee 18 24 determine that the Intercompany Claims Reserve should be established pending the resolution of the Intercompany Claims or the Bankruptcy Court makes the determination referred to in SECTION 6.1(b), then on the Effective Date: (a) such Intercompany Claims Reserve shall be established to be operated in accordance with the Intercompany Claims Agreement; and (b) each Debtor and LMUSA shall transfer or cause to be transferred to the Intercompany Claims Reserve the assets agreed upon by the parties or ordered by the Bankruptcy Court. 7.8 Actions by the Intercompany Claims Agent. The Intercompany Claims Agent shall hold the assets transferred to the Intercompany Claims Reserve pursuant to the Intercompany Claims Agreement until the resolution of any of the Intercompany Claims. Until any such resolution, the funds in the Intercompany Claims Reserve shall be invested in high-grade short-term investments, as shall be more fully set forth in the Intercompany Claims Agreement. Upon such resolution, the Intercompany Claims Agent shall distribute the relevant assets to LMUSA or the Reorganized Debtor or Debtors entitled thereto. 7.9 Management of the Reorganized Debtors. (a) From and after October 5, 1996 until the Effective Date, the board of directors of each of Reorganized LFC and Reorganized LIS shall consist of a single director designated by the LFC Creditors' Committee and disclosed to the Bankruptcy Court at or prior to the Confirmation Hearing, as successor to the then current Debtor's board of directors. The Chief Executive Officer of Reorganized LFC for such period shall be an individual designated by the LFC Creditors' Committee and disclosed to the Bankruptcy Court at or prior to the Confirmation Hearing. Arrangements regarding compensation of such officer and director shall be agreed upon between such director and officer and the LFC Creditors' Committee. Such director and officer shall be deemed elected as of October 5, 1996 pursuant to the Confirmation Order. Those officers and directors not continuing in office shall be deemed removed therefrom as of October 5, 1996 pursuant to the Confirmation Order. This provision is subject to Reorganized LFC obtaining appropriate officers' and directors' insurance and does not take effect until such insurance is effective and, in that event, the date of the deemed election and removal referred to above shall be the effective date of the insurance. (b) on and after the Effective Date, governance of each of Reorganized LFC and Reorganized LIS shall be directed by the Reorganized LFC Board as successor to the then current Debtor's board of directors. The initial officers and directors of Reorganized LFC shall consist of those individuals designated by the LFC Creditors' Committee and disclosed to the Bankruptcy Court at or prior to the Confirmation Hearing. All such directors and officers shall be deemed elected as of the Effective Date 19 25 pursuant to the Confirmation Order. Those officers and directors not continuing in office shall be deemed removed therefrom as of the Effective Date pursuant to the Confirmation Order. 7.10 Liquidation of Non-Reorganization Assets. Each Reorganized Debtor, as trustee, will liquidate the Non-Reorganization Assets as promptly as possible consistent with the maximization of the value of such assets. 7.11 Cash Distributions. All payments of cash to be made hereunder shall be made by the relevant Reorganized Debtor or its designee, the LFC Litigation Trustee or the Intercompany Claims Agent. Any payment of cash may be made either by check or by wire transfer, at the option of the Reorganized Debtor, the LFC Litigation Trustee or the Intercompany Claims Agent, as the case may be, and all payments. in excess of $250,000 to holders of Allowed Claims who timely provide wire instructions shall be by wire transfer. Notwithstanding the foregoing, distributions on account of Claims of holders of LFC Senior Convertible Notes shall be paid to the LFC Indenture Trustee, which will be responsible for making distributions to such holders. The LFC Indenture Trustee shall retain its lien and priorities for its fees and expenses as set forth in the LFC Indenture. 7.12 Resolution of Disputed Claims. Each Reorganized Debtor will resolve any and all Disputed Claims against such Reorganized Debtor, and LFC shall be responsible for resolving any Disputed Claims against LAS. 7.13 LFC Litigation Trust. (a)(i) Effective as of the Effective Date, the Debtors shall be deemed to have transferred and assigned to a litigation trust (the "LFC Litigation Trust") governed by the LFC Litigation Trust Agreement any and all claims, rights, or causes of action that constitute property of the Estates or of the Debtors, whether arising under the Bankruptcy Code or under nonbankruptcy law, (including all books, records, privileges and defenses relating thereto) including, without limitation, all rights of setoff and rights under section 502(d) of the Bankruptcy Code and all avoiding power actions under sections 544, 545, 547, 548, 549, 550 and 553 of the Bankruptcy Code or under applicable nonbankruptcy law as applied through section 544(b) of the Bankruptcy Code, other than Intercompany Claims, and (ii) on or as soon as practicable after the Effective Date, Reorganized LFC shall transfer to the LFC Litigation Trust $4 million or such other amount as the LFC Creditors' Committee shall specify in writing to the Debtors and the Bankruptcy Court at least three (3) Business Days prior to the commencement of the Confirmation Hearing to fund the administration of the LFC Litigation Trust. Notwithstanding the foregoing, the Debtors shall retain their rights of setoff and their rights under Section 502(d) of the Bankruptcy Code to the extent, and only to the extent, necessary to defend against a Claim by any person against whom claims, rights or causes of action are assigned to the LFC Litigation Trust pursuant to the preceding sentence. 20 26 (b) The LFC Litigation Trustee will be responsible for pursuing, as appropriate in accordance with the best interests of the Reorganized Debtors, the third party claims and causes of action assigned to the LFC Litigation Trust through litigation or, if appropriate, settlement and distributing any net proceeds of such litigation of settlement to Reorganized LFC. Reorganized LFC will be responsible for distribution of any such net proceeds to the holders of Allowed LFC Class 3 Claims, Allowed LFC Class 3 Claims or Allowed LAS Class 3 Claims in accordance with Section 7.5 of the Plan. (c) The LFC Litigation Trust shall be deemed not to be the same entity as any of the Debtors or a successor to any of the Debtors, but only the assignee of the assets transferred to the LFC Litigation Trust. 7.14 Setoff. Except as otherwise provided in this Plan, each Reorganized Debtor may, but shall not be required to, set off against any Claim and the distributions to be made by it pursuant hereto in respect of such Claim, any claims of any nature whatsoever that such Debtor may have against the holder of such Claim, but neither the failure to do so nor the allowance of any Claim hereunder shall constitute a waiver or release of any claim such Debtor may have against such holder. 7.15 Surrender and Cancellation of Public Debt Securities. (a) No distribution shall be made to or on behalf of a holder of Public Debt Securities under this Plan unless and until such holder shall surrender such Public Debt Securities to the LFC Indenture Trustee for cancellation pursuant to written instructions to such holders from Reorganized LFC. Any holder of a Public Debt Security that has been lost, stolen, mutilated or destroyed shall, in lieu of surrendering such Public Debt Security, deliver to the LFC Indenture Trustee (i) evidence satisfactory to such Indenture Trustee of the loss, theft, mutilation or destruction of such Public Debt Security and (ii) such security or indemnity as may reasonably be required by the LFC Indenture Trustee and Reorganized LFC to hold both the LFC Indenture Trustee and Reorganized LFC harmless with respect thereto. (b) Any holder of a Public Debt Security that has not satisfied the requirement of Section 7.15(a) within two (2) years after the Effective Date shall receive no distribution on account of its LFC Class 3 Claim and shall be forever barred from asserting any Claim thereon. As soon as practicable after the second anniversary of the Effective Date, the LFC Indenture Trustee shall pay any distribution to which such holder would have been entitled to the holders of the relevant Public Debt Security who did satisfy the requirements of Section 7.15(a) within two (2) years after the Effective Date, in proportion to the amount of the Public Debt Securities surrendered by such holders. 7.16 Certain Assets to be Held in Trust. (a) Each Reorganized Debtor shall hold its Non-Reorganization Assets in trust (in the case of Reorganized LFC, the "LFC Creditors' Trust"; in the case of Reorganized LFC, the "LFC Creditors' Trust") pending their dispositions and/or distribution to creditors in accordance with the terms hereof or 21 27 their use to satisfy the initial funding requirements described in paragraph (b) of the definition of "LFC Distributable Cash" in SECTION 1.2 above and shall not commingle such assets with its Reorganization Assets. For federal tax purposes, the Non-Reorganization Assets shall be deemed to have been transferred on the Effective Date to the creditors entitled to cash distributions pursuant to SECTION 4.3, and immediately retransferred to the appropriate Reorganized Debtor as trustee. Such creditors shall be treated as grantors of the trust and deemed owners of the trust assets. (b) The LFC Creditors' Trust shall be organized for the sole purpose of liquidating the Non-Reorganization Assets of Reorganized LFC with no objective to continue or engage in the conduct of a trade or business. (c) Reorganized LFC, as trustee of the LFC Creditors' Trust, shall file federal income tax and information returns as required by Treasury Regulations Section 1.671-4(a). (d) The Non-Reorganization Assets of Reorganized LFC shall be valued consistently by (i) Reorganized LFC as trustee of the LFC Creditors' Trust and (ii) the creditors entitled to cash distributions from the LFC Creditors' Trust pursuant to SECTION 4.3, and those valuations shall be used by such creditors and by Reorganized LFC for purposes of filing any federal income tax and information returns. (e) The LFC Creditors' Trust will terminate on the fifth anniversary of the Effective Date; provided, however, that the date on which the LFC Creditors' Trust terminates may be postponed for a finite period of time, so long as the Bankruptcy Court enters an order approving such extension within six months of the beginning of the extended term of the LFC Creditors' Trust. (f) The investment powers of Reorganized LFC as trustee of the LFC Creditors' Trust, other than those necessary to maintain the value of Reorganized LFC's Non-Reorganization Assets and the liquidating purpose of the LFC Creditors' Trust, are limited to powers to invest in demand deposits, short-term time deposits and other short-term cash-equivalent investments consistent with the status of the LFC Creditors' Trust for federal tax purposes as a liquidating trust. (g) SECTIONS 7.16(b)-(f) shall apply, mutatis mutandis, with respect to Reorganized LIS and the Reorganized LIS Creditors' Trust. (h) Notwithstanding the foregoing, the LFC Creditors' Committee may elect in writing to the Debtors and the Bankruptcy Court at least three Business Days prior to the commencement of the Confirmation Hearing that Reorganized LFC's Non-Reorganization Assets are not to be held in trust and that the provisions of this SECTION 7.16 are not to apply. 22 28 7.17 Allocation of Consideration Between Interest and Principal. Consideration received by the holder of an Allowed Claim in exchange for such Claim shall be allocated first to the principal amount of such Claim and then, to the extent that such consideration (a) exceeds the principal amount of such Claim but (b) does not exceed the sum of the principal amount of such Claim and accrued but unpaid interest on such Claim, shall be allocated to such accrued but unpaid interest. Any excess of the consideration received by the holder of an Allowed Claim in exchange for such Claim over the sum of the principal amount of such Claim and the accrued but unpaid interest on such Claim shall be allocated to principal. 7.18 NOL Reattribution Election. LFC shall not make an election pursuant to Treasury Regulations Section 1.1502-20(g) to reattribute to itself any net operating loss carryover or net capital loss carryover attributable to (a) LMUSA or (b) any subsidiary of LMUSA. ARTICLE 8 TREATMENT OF EXECUTORY CONTRACTS AND UNEXPIRED LEASES 8.1 Rejection of Executory Contacts and Unexpired Leases. Each Joint Debtor hereby rejects pursuant to section 365 of the Bankruptcy Code any and all of its executory contracts and unexpired leases except those that shall, prior to the date of the Confirmation Order, have been assumed or be the subject of pending motions by such Joint Debtor to assume pursuant to section 365 of the Bankruptcy Code. 8.2 Claims Under Rejected Contracts and Leases. Any Claim for damages arising by reason of the rejection of any executory contract or unexpired lease by operation of SECTION 8.1 may constitute a Claim if, but only if, a proof of claim therefor shall be (or shall have been) timely filed with the Clerk of the Court or such other party as the Court may direct (or shall have previously directed) not later than thirty (30) days after the Confirmation Date. Distributions in respect of an Allowed Claim arising from the rejection of an executory contract or unexpired lease shall be made in such manner and at such time as is provided in ARTICLE 4 and SECTIONS 7.5 and 7.6. Any Claim filed under this Article shall be treated as an Unsecured Claim in LFC Class 3, LIS Class 3 or LAS Class 3, as appropriate. 23 29 ARTICLE 9 EFFECTS OF PLAN CONFIRMATION 9.1 Discharge and Injunction. (a) The rights afforded herein and the treatment of all Claims and Interests herein shall be in exchange for and in complete satisfaction, discharge and release of all Claims and Interests of any nature whatsoever, against the Estates. Except as otherwise expressly provided herein, the Confirmation of this Plan shall, provided that the Effective Date shall have occurred, discharge all Claims and terminate all Interests to the fullest extent authorized or provided for by the Bankruptcy Code, including, without limitation, to the extent authorized or provided for by sections 524 and 1141 thereof. Therefore, on and after the Effective Date, except to the extent of the distributions to be made, and other treatment provided, under this Plan, all holders of Claims and Interests shall be precluded from asserting against any of the Debtors, the Reorganized Debtors, any of their successors, and any of their respective assets or properties, any Claims or Interests based on any act or omission, transaction or other activity of any kind or nature that occurred prior to the Effective Date, and the Confirmation Order shall permanently enjoin said holders of Claims and Interests, their successors and assigns, from enforcing or seeking to enforce any such Claims or Interests against any of the Debtors, the Reorganized Debtors, any of their successors, or any of their respective assets or properties. (b) Notwithstanding the foregoing, if the Confirmation Order shall be reversed or vacated, (i) all Claims and Interests against any Debtor or any of its assets or properties shall be reinstated, (ii) the rights afforded herein and the treatment of Claims and Interests herein shall be nullified, (iii) the preclusion and injunction described in SECTION 9.1(a) shall be of no force or effect, (iv) the vesting in each Reorganized Debtor of its Estate, as contemplated by SECTION 9.2, will not occur or will be nullified and (v) all other actions taken or deemed taken by the Reorganized Debtors pursuant to ARTICLE 7 or this ARTICLE 9 shall, to the greatest extent possible, be reversed. (c) Channeling Order. Any and all postpetition claims relating to the administration of the chapter 11 case against any and all of the Debtor and its directors, officers, employees, and Professionals, or the LFC Creditors' Committee and its members and Professionals, may be brought only in the Bankruptcy Court. 9.2 Revesting. On the Effective Date, except as otherwise expressly provided in this Plan or the Confirmation Order, each Reorganized Debtor will be vested with all of the property of the Estate free and clear of all Claims, liens, encumbrances, charges, Interests and other interests of any kind or nature of claimants, equity security holders or any other entities arising on or before the Effective Date, and each Reorganized Debtor may operate its business free of any restrictions imposed by the Bankruptcy Code or by the Bankruptcy Court. 24 30 9.3 Contributions to LFC Litigation Trust and Intercompany Claims Reserve. On and after the Effective Date, all property transferred to the LFC Litigation Trust or the Intercompany Claims Reserve, if any, under this Plan shall be free and clear of all Claims, liens, encumbrances, charges, Interests and other interests of any kind or nature of claimants and equity security holders, the Debtors, the Reorganized Debtors, their Estates and any other entities, except the rights with respect thereto created pursuant to, provided for or recognized in this Plan, the LFC Litigation Trust Agreement, the Intercompany Claims Agreement or the Confirmation Order. 9.4 Cancellation and Release of Existing Securities, Agreements and Liens. On the Effective Date, all evidences of Claims or Interests against a Debtor that are impaired under this Plan, including, without limitation, any Old Common Stock or Public Debt Securities of such Debtor (and any liens, securities, instruments, documents or agreements created or entered into in connection therewith), and any other liens, securities, instruments, documents and agreements, in each case, shall be deemed released, cancelled and terminated, and the obligations of such Debtor relating to or arising under, in respect of or in connection with such liens, securities, instruments, documents or agreements shall be cancelled, extinguished and discharged; provided, however, that notes and other evidence of such Claims shall, effective on the Effective Date, represent the right, enforceable against the Reorganized Debtor, to participate in distributions provided for by the Plan. Except as expressly required by the Plan, the Debtors shall not be permitted to make any payment in respect of a Claim that is discharged by the Plan. 9.5 Retiree Medical Benefits. On and after the Effective Date, Reorganized LFC shall continue to provide all retiree benefits (as defined in section 1114 of the Bankruptcy Code) at the level established pursuant to section 1114 (e)(1)(B) or (g) of the Bankruptcy Code. 9.6 Retention of Jurisdiction. (a) Prior to the Effective Date, notwithstanding entry of the Confirmation Order, the Bankruptcy Court shall exercise all jurisdiction as if Confirmation had not occurred, and the Confirmation Order shall so provide. Unless otherwise provided, all injunctions or stays provided for in the Reorganization Cases pursuant to section 105 or section 362 of the Bankruptcy Code or otherwise and in effect on the Confirmation Date shall remain in full force and effect at least until the Effective Date. (b) On and after the Effective Date, the Bankruptcy Court will retain exclusive jurisdiction over the Reorganization Cases for the following purposes: (i) to determine requests for payment of Claims entitled to priority under section 507(a)(1) of the Bankruptcy Code and applications for allowance of compensation and reimbursement of expenses of the Professionals and any other fees and expenses authorized to be paid or reimbursed under the Bankruptcy Code or this Plan, (ii) to determine all controversies, suits and disputes regarding interpretation and implementation hereof, (iii) to enter orders 25 31 in aid of execution of this Plan, including as authorized by section 1142 of the Bankruptcy Code, (iv) to consider any modifications of this Plan, to cure any defect or omission herein, and to reconcile any inconsistency in any order of the Bankruptcy Court or between any such order and this Plan, (v) to determine applications, adversary proceedings and contested matters pending on the Effective Date or commenced after the Effective Date as contemplated herein, (vi) to allow, disallow, estimate, liquidate or determine any Claim, and to enter or enforce any order requiring the filing of any such Claim before a particular date, (vii) to determine pending applications for the rejection of executory contracts or unexpired leases, or for the assumption or assignment of executory contracts or unexpired leases, and to hear and determine, and if need be to liquidate, any and all Claims arising from rejection, assumption or assignment of any executory contract or unexpired lease, (viii) to determine any actions or controversies described in SECTION 7.13, (ix) to ensure that distributions to holders of Claims are accomplished as provided herein, in the LFC Litigation Trust and in the Intercompany Claims Agreement, if any, (x) to determine such other matters as may be set forth in the Confirmation Order or as may arise in connection with this Plan or the Confirmation Order, (xi) to determine all claims under SECTION 9.1(c) hereof and (xii) to enter a final decree closing the Reorganization Cases. 9.7 Failure of Bankruptcy Court to Exercise Jurisdiction . If the Bankruptcy Court abstains from exercising or declines to exercise jurisdiction, or is otherwise without jurisdiction over any matter arising under, arising in or related to the Reorganization Cases, including the matters set forth in SECTION 9.6, this ARTICLE 9 shall not prohibit or limit the exercise of jurisdiction by any other tribunal having competent jurisdiction with respect to such matter. 9.8 Statutory Committee. The appointment of the LFC Creditors' Committee shall terminate on the Effective Date; provided, however , that the LFC Creditors' Committee shall survive to the extent, if any, required to prosecute or defend against any matters pending on the Effective Date that are not able to be prosecuted or defended by the Reorganized Debtor. ARTICLE 10 MISCELLANEOUS PROVISIONS 10.1 Payment of Statutory Fees. All fees payable pursuant to 28 U.S.C. Section 1930 shall be paid on or before the Effective Date. 10.2 Procedure for Determining Certain Claims. (a) Bar Date for Administrative Claims. All applications for compensation of Professionals and all other requests for payment of Administrative Claims incurred prior to the Effective Date shall be filed as ordered by the Bankruptcy Court, but in no event later than forty-five (45) 26 32 days after the Effective Date. Any such claim that is not filed within this time deadline shall be forever barred. (b) Disputed Claims. Except with respect to those Claims the holders of which have and preserve the right to liquidation of such Claims before a court other than the Bankruptcy Court pursuant to 28 U.S.C. Section 157(b)(5), all Disputed Claims shall be liquidated and determined, and allowed or disallowed, by the Bankruptcy Court. The Bankruptcy Court may, on or prior to the Confirmation Date or on such date or dates thereafter as the Bankruptcy Court may set, fix or liquidate the amount of any contingent or unliquidated Claim, pursuant to section 502(c) of the Bankruptcy Code, in which event the amount so set, fixed or liquidated shall be deemed to be the amount of such contingent or unliquidated Claim pursuant to section 502(c) of the Bankruptcy Code for purposes of voting and distribution hereunder. Each Debtor (before the Effective Date) and each successor Reorganized Debtor (on or after the Effective Date) may file objections to Claims. 10.3 Cramdown. The Debtors reserve the right to request that the Bankruptcy Court confirm this Plan under section 1129(b) of the Bankruptcy Code. 10.4 Modification of The Plan. The Debtors reserve the right, in accordance with and subject to section 1127 of the Bankruptcy Code, to amend or modify this Plan pursuant to section 1127(a), (c) and (d) of the Bankruptcy Code prior to the entry of the Confirmation Order. In accordance with Bankruptcy Rule 3019, any modification that does not materially and adversely change the treatment of any Claim, the holder of which as of the Voting Deadline voted to accept this Plan, may be approved by the Bankruptcy Court at the Confirmation Hearing without the necessity of resoliciting votes. After Confirmation, the Debtors may seek to amend or modify this Plan in accordance with subsections 1127(b), (c) and (d) of the Bankruptcy Code. 10.5 Withdrawal of Plan. The Debtors reserve the right, at any time prior to entry of the Confirmation Order, to revoke and withdraw this Plan. If the Debtors revoke or withdraw this Plan under this SECTION 10.5, or if entry of the Confirmation Order does not occur, then this Plan shall be deemed null and void. In that event, nothing contained herein shall be deemed to constitute a waiver or release of any claims by or against any Debtor or any other entity, or to prejudice in any manner the rights of any Debtor or any other entity in any further proceedings involving such Debtor or any other entity. 10.6 Substantial Effective of Plan. This Plan shall be deemed to be substantially consummated when the first distribution to holders of LFC Class 3 Claims is made. 10.7 Reservation of Rights. Except as expressly set forth herein, this Plan shall have no force and effect unless the Bankruptcy Court enters the Confirmation Order. None of the filing of this Plan, any statement or provision contained herein, or the taking 27 33 of any action by any Debtor with respect to this Plan shall be or shall be deemed to be an admission or waiver of any rights of any Debtor with respect to holders of Claims against such Debtor prior to the Effective Date. 10.8 Section 1145 Exemption. Any securities issued pursuant hereto will be issued pursuant to the exemption from securities registration set forth in section 1145 of the Bankruptcy Code. 10.9 Unclaimed Property. Except as specified in SECTION 7.15(b), if any property distributable to holders of LFC Class 1, 3 and 4 Claims, it remains unclaimed for a period of two (2) years after it has been delivered (or delivery has been attempted) or has otherwise been made available, such unclaimed property shall be forfeited by such holder, and the unclaimed property and the right to receive it shall revert to and vest in the Reorganized Debtor free and clear of the interest of the holder of the Claim. Mailing by regular mail, postage prepaid, to the address specified in SECTION 10.12 shall constitute delivery for purposes of this SECTION 10.9. 10.10 Section 1146 Exemption. Pursuant to section 1146(c) of the Bankruptcy Code, the issuance, transfer or exchange of any security hereunder, or the making or delivery of an instrument of transfer hereunder may not be taxed under any law imposing a stamp tax or similar tax. 10.11 Record Date for Distribution. As of the close of business on the Record Date for distribution, the transfer ledgers for the Public Debt Securities shall be closed, there shall be no registration of or other changes in the holders of any of the Public Debt Securities on the books of the Debtor (or any trustee, transfer agent or registrar), and none of the LFC, Reorganized LFC, LMUSA, Reorganized LMUSA, the LFC Indenture Trustee, the LMUSA Indenture Trustee and any other trustee, transfer agent or registrar shall have any obligation to recognize any transfer of Public Debt Securities occurring thereafter (but shall instead be entitled to recognize and deal with, for all purposes hereunder, except as otherwise provided herein, only those holders reflected on its books as of the close of business on the Record Date for distribution). 10.12 Notices and Distributions. On and after the Effective Date, all notices, requests and distributions with respect to this Plan to a holder of a Claim or an Interest shall be in writing and sent to (a) the last known address of such entity set forth in a proof of Claim or request for payment of Administrative Claim filed by or on behalf of such entity in a Reorganization Case or to the last known address of such entity's attorney of record in such Reorganization Case or (b) if there is no such evidence of a last known address, to the last known address of such entity according to the books and records of the relevant Debtor. Any entity may designate in writing another address for the purposes of this SECTION 10.12 by written notice to the relevant Debtor (before the Effective Date) or the relevant Reorganized Debtor (on or after the Effective Date), which designation will be effective upon receipt. 28 34 10.13 Saturday, Sunday or Legal Holiday. If any payment or act hereunder is required to be made or performed on a date that is not a Business Day, then the making of such payment or the performance of such act may be completed on the next succeeding Business Day, but shall be deemed to have been completed as of the required date. 10.14 Time. Unless otherwise specified herein, in computing a period of time prescribed or allowed hereby, the day of the act or event from which the designated period begins to run shall not be included. The last day of the period so computed shall be included, unless it is not a Business Day, in which event the period runs until the end of the next succeeding day that is a Business Day. 10.15 Severability of Provisions. If prior to Confirmation any term or provision hereof that does not prescribe the treatment of Claims or the conditions to the Effective Date is held by the Bankruptcy Court to be invalid, void, or unenforceable, the Bankruptcy Court shall have the power to alter and interpret such term or provision to make it valid or enforceable to the maximum extent practicable, consistent with the original purpose of the term or provision held to be invalid, void or unenforceable. Notwithstanding any such holding, alteration or interpretation, the remainder of the terms and provisions hereof will remain in full force and effect and will in no way be affected, impaired or invalidated by such holding, alteration or interpretation. The Confirmation Order shall constitute a judicial determination and shall provide that each term and provision hereof, as it may have been altered or interpreted in accordance with the foregoing, is valid and enforceable in accordance with its terms. 10.16 Binding Effect. This Plan shall be binding on and inure to the benefit of each of the Reorganized Debtors, and all holders of Claims or Interests (whether or not they have accepted this Plan) and their respective personal representatives, successors and assigns. 10.17 Governing Law. Unless a rule of law or procedure is supplied by federal law, the laws of the State of Delaware shall govern the construction and implementation hereof and any agreements, documents and instruments executed in connection herewith. 10.18 Interpretation of Plan and Related Documents. This Plan and each Related Document shall be construed, to the maximum extent possible, to give effect to every provision contained herein and therein and to avoid any inconsistency between the provisions hereof and thereof. 10.19 Filing of Additional Documents. On or before the Effective Date, each Debtor may file with the Bankruptcy Court such agreements and other documents as may be necessary or appropriate to effectuate and further evidence the terms and conditions of this Plan. 29 35 10.20 Further Assurances. The Debtors, the Reorganized Debtors, all holders of Claims or Interests receiving distributions hereunder and all other parties in interest shall, from time to time, prepare, execute and deliver any agreements or documents and take any other actions as may be necessary or advisable to effectuate the provisions and intent of this Plan and the Related Documents. [END OF PAGE] 30 36 10.21 Withholding and Reporting Requirements. In connection herewith and all distributions hereunder, the Reorganized Debtors, the LFC Litigation Trustee and the Intercompany Claims Agent (in each case with respect to the income, if any, earned with respect to property held by it and distributions made by it) shall comply with all withholding and reporting requirements imposed by any federal, state, local or foreign taxing authority and all distributions hereunder shall be subject to any such withholding and reporting requirements. Entities entitled to receive distributions hereunder shall, as a condition to receiving such distributions, provide such information and take such steps as the Reorganized Debtors, the LFC Litigation Trustee or the Intercompany Claims Agent (as the case may be) may reasonably require to ensure compliance with such withholding and reporting requirements, and to enable the Reorganized Debtors, the LFC Litigation Trustee or the Intercompany Claims Agent to obtain the certifications and information as may be necessary or appropriate to satisfy the provisions of any tax law. Date: July 3, 1996 LOMAS FINANCIAL CORPORATION By: ------------------------------- Name: Title: LOMAS INFORMATION SYSTEMS, INC. By: ------------------------------- Name: Title: LOMAS ADMINISTRATIVE SERVICES, INC. By: ------------------------------- Name: Title: 31 EX-10.2 3 STIPULATION & ORDER RE: TECHNICAL MOD. - 1/27/97 1 EXHIBIT 10.2 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE - -------------------------------------X In re: Chapter 11 Case No. 95-1235 (PJW) LOMAS FINANCIAL CORPORATION, LOMAS MORTGAGE USA, INC., LOMAS INFORMATION SYSTEMS, INC. and Jointly Administered LOMAS ADMINISTRATIVE SERVICES, INC. Debtors. - -------------------------------------X STIPULATION AND ORDER AMONG LOMAS FINANCIAL CORPORATION, LOMAS INFORMATION SYSTEMS, INC. AND LOMAS ADMINISTRATIVE SERVICES, INC. AND STATUTORY CREDITORS' COMMITTEE OF LOMAS FINANCIAL CORPORATION REGARDING TECHNICAL MODIFICATIONS TO PLAN OF REORGANIZATION AND CONFIRMATION ORDER ------------------------------------------------- WHEREAS, on October 10, 1995, Lomas Financial Corporation ("LFC"), Lomas Information Systems, Inc. ("LIS"), Lomas Administrative Services, Inc. ("LAS," and collectively, the "Joint Debtors") and Lomas Mortgage USA, Inc. ("LMU", and together with the Joint Debtors, the "Debtors") filed voluntary petitions for relief under chapter 11 of title 11, United States Bankruptcy Code (the "Bankruptcy Code") with the United States Bankruptcy Court for the District of Delaware (the "Court"), and since the petition date remained in possession of their properties as debtors in possession pursuant to Sections 1107 and 1108 of the Bankruptcy Code; 2 WHEREAS, on March 15, 1996, the U.S. Trustee appointed a committee to represent the unsecured creditors of LFC (the "LFC Committee"); WHEREAS, on October 4, 1996 the Court entered an Order Confirming Second Amended Joint Chapter 11 Plan of LFC, LIS and LAS ("Confirmation Order") with respect to the Joint Debtors' Second Amended Joint Chapter 11 Plan (the "LFC Plan" or "Joint Plan"); WHEREAS, Article 4.3 of the Joint Plan, describing the treatment of LFC Class 3 (Unsecured Claims), states that 1,000,000 shares of New LFC Common Stock will be distributed pro rata to the Class 3 Creditors; WHEREAS, Article 7.1 of the Joint Plan states that the names of the Joint Debtors and their subsidiaries would be changed, as specified by the LFC Committee, to remove the word "Lomas" and the initials "L & N"; WHEREAS, pursuant to Article 7.1 of the Joint Plan, the LFC Committee provided such names to the Debtors and the Debtors informed the Court of these name changes in the proposed Confirmation Order; WHEREAS, Section 7.5(c) of the Joint Plan provides for monthly distributions to creditors if $1,000,000 is available in Distributable Cash (as defined in the Joint Plan); WHEREAS, Paragraph 18 of the Confirmation Order requires that a hearing on claim objections be brought within 220 days of the date of the Confirmation Order; -2- 3 WHEREAS, the Joint Plan defines "Record Date" to mean, for purposes of distribution, "the Confirmation Date;" WHEREAS, the Joint Plan provides for the creation of the LFC Litigation Trust, and a proposed LFC Litigation Trust Agreement was included as an exhibit to the Joint Plan; WHEREAS, the plan of reorganization (the "LMU Plan"), confirmed by this Court with respect to LMU provides for the creation of a LMU Litigation Trust; WHEREAS, the LMU Plan has become effective; WHEREAS, Paragraph 21 of the Confirmation Order expressly provides for the potential merger of the LFC Litigation Trust and the LMU Litigation Trust; WHEREAS, the LFC Committee, the Joint Debtors, and LMU, as reorganized, have agreed that the merger of the LFC Litigation Trust and the LMU Litigation Trust is in the best interests of the estates; WHEREAS, there are certain technical modifications to the Confirmation Order and the Joint Plan, as alluded to above, that are necessary so that the Joint Plan may be substantially consummated; WHEREAS, the Joint Debtors, as proponents to the Joint Plan, may modify the Joint Plan between confirmation and consummation of the Joint Plan pursuant to Section 1127(b) of the Bankruptcy Code; WHEREAS, the Joint Plan has not been substantially consummated; -3- 4 NOW, THEREFORE. it is hereby stipulated and agreed by and between the Joint Debtors and the LFC Committee as follows: 1. Article 4.3 of the Joint Plan pertaining to "LFC Class 3 (Unsecured Claims)" shall be modified to allow for a pro rata distribution to Class 3 Creditors of 4,000,000, not 1,000,000, shares of New LFC Common Stock. This change should also be reflected in Exhibit A-1 of the Disclosure Statement - -- "LFC Charter/Bylaws" at paragraph SIXTH, so that "333,333 shares" becomes "1,333,332 shares" and "666,667 shares" becomes "2,666,668 shares." The relevant section in ARTICLE SIXTH, as modified, shall read: Until such time as 1,333,332 SHARES of Common Stock have been distributed in accordance with the Chapter 11 Plan referred to in ARTICLE FIFTH, the Board of Directors shall have the responsibility for taking all actions....Thereafter, until at least 2,666,668 SHARES of Common Stock... 2. The Confirmation Order should be amended to correct and include the following LFC subsidiaries' name changes required pursuant to Section 7.1 of the Joint Plan: Lomas Information Services, Inc. should be Lomas Information Systems, Inc.; Lomas Housing Management, Inc. should be Lomas Housing Management Corp.; and Lomas Properties, Inc. should be added to the list of subsidiaries. -4- 5 These corrections and additions provide an accurate record of LFC subsidiaries' names. All new Siena Holdings, Inc. subsidiaries' names will remain consistent with the LFC subsidiaries' names except that "Lomas" should be replaced with "Siena." 3. Paragraph 18 of the Confirmation Order should be modified to clarify that an initial hearing on any claim objection must be brought within 220 days of the Confirmation Order, so that it is clear that continued hearings may take place beyond such time. Paragraph 18 of the Confirmation Order, in relevant part, as modified, should read as follows: ..., and shall bring on such objections or applications for initial hearing within two hundred and twenty (220) days... 4. Section 1.2 of the Joint Plan should be modified by amending the definition of "Record Date." The revised definition would read as follows: "Record Date" means, for purposes of voting, the date on which the Bankruptcy Court approves the Disclosure Statement, and for purposes of distribution, the Confirmation Date, provided, however, that the Record Date for purposes of distributions on account of the Public Debt Securities shall be the Effective Date. 5. Article 7.5(c) of the Joint Plan pertaining to "Subsequent Distributions on LFC Class 3 Claims" shall be modified to allow for quarterly, not monthly distributions. This change shall be reflected in the Article 1 "Definitions" so that "Monthly Distribution Date" becomes "Quarterly Distribution Date." Further, a distribution may only take place if $1,500,000 in Distributable Cash (as defined in the Joint Plan) is available. The relevant sentence in Section 7.5(c), as modified, shall read: -5- 6 ....On each QUARTERLY Distribution Date on which there is at least $1,500,000 of Distributable Cash available to distribute, reorganized LFC shall make additional distributions of LFC Distributable Cash and New LFC Common Stock to holders of Claims that were Allowed on the Effective Date or subsequently have become Allowed on or before the last day of the calendar month immediately preceding such QUARTERLY Distribution Date, in amounts to cause such holders to have received... 6. Relevant provisions of the Joint Plan pertaining to the LFC Litigation Trust shall be modified, to the extent necessary, to reflect that there will be a merger of the LFC Litigation Trust with the LMU Litigation Trust. Further, relevant provisions of the Joint Plan shall be modified to clarify the parties intent that the resulting combined litigation trust will be a grantor trust for federal tax purposes. The LFC Litigation Trust Agreement shall be deleted as an Exhibit to the Joint Plan and replaced with a new trust agreement for the combined litigation trust. The new trust agreement will generally reflect the following (as modifications to the deleted LFC Litigation Trust Agreement): (i) proceeds from the claims held by the litigation trust shall be paid 60-40 to the creditor trusts created by the Joint Plan and the LMU Plan, respectively; (ii) expenses of the litigation trust shall be borne 60% by the LFC estate and 40% by the LMU estate (the litigation trust will initially be funded with $3 million form the LLC estate and $2 million form the LMU estate); (iii) control of the litigation trust shall be equal and shall be managed by a single trustee; -6- 7 (iv) the Litigation Trust shall be a grantor Trust for Federal Income Tax purposes 7. The Joint Plan is amended to clarify that the fees and expenses of the LFC Indenture Trustee in the approximate amount of $56,000 will be paid by the Joint Debtors on the Effective Date. Texas Commerce Bank, as Indenture Trustee for the Senior Convertible Notes, shall make the initial distributions to the holders of the Senior Convertible Notes. 8. The Joint Plan is amended to provide that certain assets received pursuant to the Settlement Agreement, including, but not limited to, the Conseco Note may be transferred directly to the LFC Creditors' Trust and that the operating expenses of the LFC Creditors' Trust will be self-funded. Any expenses incurred by Reorganized LFC in liquidating the assets of the LFC Creditors' Trust will be subject to reimbursement by the LFC Creditors' Trust. Furthermore, Reorganized LFC, the initial trustee of the LFC Creditors' Trust shall have the right to appoint a successor trustee. The LFC Creditors' Trust may borrow additional funds from Reorganized LFC on a fully collateralized basis at an appropriate rate of interest to the extent authorized by the board of directors of Reorganized LFC. 9. The Plan will be amended to provide that Bankers Trust as the indenture trustee ("Bankers Trust") (under that certain indenture dated October 1, 1992 (the "Indenture") between LMU and Bankers Trust, pursuant to which LMU issued its 9 3/4% Senior Notes due October 1, 1997 and its 10 1/4 Senior Notes due October 1, 2002) will be released from -7- 8 any and all claims whatsoever. whether existing now or arising in the future, relating to or arising from the Bankers Trust claim against LFC alleging, inter alia, that LFC breached its duty to its subsidiary, Lomas Mortgage USA ("LFC Claim") or Bankers Trust's withdrawal thereof, or the Stipulation, or Banker's Trust actions contemplated therein, belonging to or running in favor of LMU, LFC, and all other parties in interest in these cases and their respective heirs, successors, trustee, executors, agents, administrators and assigns, and all parties in interest in these cases and all other persons have notice thereof, will be permanently enjoined from asserting any and all claims whatsoever, whether existing now or arising in the future, relating to or arising from the LFC Claim, or Bankers Trust's withdrawal thereof, or the Stipulation, or Bankers Trusts' actions contemplated therein, belonging to or running in favor of all parties in interest in the above captioned cases, and their respective heirs, successors, trustees, executors, agents, administrators and assigns (the "Release and Injunction"). Dated: January 29, 1997 Wilmington, Delaware -8- 9 LOMAS FINANCIAL CORPORATION, WILLIAMS, HERSHMAN & WISLER, P.A. LOMAS INFORMATION SYSTEMS, INC., LOMAS ADMINISTRATIVE SERVICES, INC. By: [ILLEGIBLE] By: /s/ JEFFREY C. WISLER -------------------------- ------------------------------------- Jeffrey C. Wisler, (No. 2795) One Commerce Plaza, Suite 600 P.O. Box 511 Wilmington, Delaware 19801 (302) 575-0873 -and- ANDREWS & KURTH L.L.P. Peter S. Goodman (PSG 3939) 425 Lexington Avenue New York, New York 10017 (212) 850-2800 Debtors and Debtors-in-Possession Co-Counsel to the Official Committee of Unsecured Creditors of Lomas Financial Corporation So Ordered: Dated: January __, 1997 Wilmington, Delaware - ------------------------------ Peter J. Walsh United States Bankruptcy Judge -9- EX-10.3 4 ORDER CONFIRMING SECOND AMENDED JOINT CHAPTER 11 1 EXHIBIT 10.3 IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE In re: ) Chapter 11 ) LOMAS FINANCIAL CORPORATION, ) Case No. 96-1235 (PJW) LOMAS INFORMATION SYSTEMS, INC., ) Case No. 96-1237 (PJW) and LOMAS ADMINISTRATIVE SERVICES, ) Case No. 96-1238 (PJW) ) Debtors. ) Jointly Administered ORDER CONFIRMING SECOND AMENDED JOINT CHAPTER 11 PLAN OF LOMAS FINANCIAL CORPORATION, LOMAS INFORMATION SYSTEMS, INC. AND LOMAS ADMINISTRATIVE SERVICES, INC. DATED JULY 3.1996 The above-mentioned debtors and debtors-in-possession, Lomas Financial Corporation ("LFC") Lomas Information Systems, Inc. ("LIS") and Lomas Administrative Services, Inc. ("LAS," together with LFC and LIS, the "Debtors"), having filed the Second Amended Joint Chapter 11 Plan of LFC, LIS and LAS (the "Plan")(1) in accordance with Section 1121 of the United States Code, as amended (the "Bankruptcy Code"), on July 3.1996; the Debtors having filed their First Amended Disclosure Statement for the Plan on July 3, 1996 (the "Disclosure Statement"); hearings to consider the adequacy of the Disclosure Statement having been held on June 26, July 2 and July 3, 1996; the United States Bankruptcy Court for the District of Delaware (the "Bankruptcy Court") having approved the Disclosure Statement by order entered on July 5, 1996 (the "Disclosure Statement Order"); the - ------------------ (1)All capitalized terms used herein, and not otherwise defined shall have the respective meanings assigned to them in the Plan. 2 Disclosure Statement Order having established procedures for the solicitation and the tabulation of votes on the Plan, having set deadlines for objecting to the Plan and having set August 28, 1996, at 9:30 a.m., Wilmington, Delaware, as the date and the time for commencement of the hearing pursuant to Section 1129 of the Bankruptcy Code to consider confirmation of the Plan (the "Confirmation Hearing"); the Bankruptcy Court having approved the amendment of the procedures established by the Disclosure Statement Order to permit holders of Claims to change their votes prior to the Voting Deadline by order entered on August 16, 1996; the solicitation of acceptances from holders of Claims entitled to vote on the Plan having been made within the time and in the manner required by the Disclosure Statement Order; the ballots on acceptance or rejection of the Plan having been received and tabulated by Logan & Company, as ballot agent; affidavits of service reflecting that service has occurred in accordance with the procedures established by the Disclosure Statement Order having been filed; the Confirmation Hearing having been held on October 4, 1996; and, after due deliberation, the Bankruptcy Court makes the following findings of fact and conclusions of law:(2) - ------------------ (2) This Order constitutes the Bankruptcy Court's findings of fact and conclusions of law under Fed. R. Civ. P. 52. as made applicable by Rules 7052 sad 9014 of the Federal Rules of Bankruptcy Procedure. Any finding of fact shall constitute a finding of fact even if it is stated as a conclusion of law and any conclusion of law shall constitute a conclusion of law even if it is stated as finding of fact when necessary and appropriate. 2 3 FINDINGS OF FACT AND CONCLUSIONS OF LAW: 1. The Bankruptcy Court may exercise subject matter jurisdiction over confirmation of the Plan pursuant to 28 U.S.C. Sections 157(a) and 1334(b). This is a core proceeding pursuant to 28 U.S.C. Section 157(b)(2)(L). The Debtors were and are qualified to be debtors under Section 109 of the Bankruptcy Code. Venue of these proceedings in this district is proper pursuant to 28 U.S.C. Section 1408 and 28 U.S.C. Section 1409. 2. Due, sufficient and adequate notice of the Plan and the Confirmation Hearing, together with the deadlines for voting on, and filing objections to, the Plan has been given to all known holders of Claims in accordance with the procedures established by the Disclosure Statement Order. 3. The solicitation by the Debtors of votes on the acceptance or the rejection of the Plan was made in accordance with Sections 1125 and 1126 of the Bankruptcy Code, Rules 3017 and 3018 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), the procedures established by the Disclosure Statement Order and all other applicable provisions of the Bankruptcy Code. 4. The procedures by which the ballots (a) were distributed to holders of Claims against the Debtors and (b) were tabulated, were fair, properly conducted and in accordance with the Bankruptcy Code and the Bankruptcy Rules. 5. As evidenced by the Declaration by Kathleen M. Logan, President of Logan & Company, Inc., dated September 17, 1996, which certifies the method and the results of the ballot tabulation, at least two-thirds in amount and more 3 4 than one-half in number of the holders of Allowed Claims in each of LFC Classes 1, 2, 3 and 4, LIS Classes 1, 2 and 3 and LAS Classes 1, 2 and 3 who timely and properly submitted ballots accepted the Plan. 6. The holders of the LFC Class 5 Claims, LIS Class 4 Claims and LAS Class 4 Claims, all of which holders are (a) Debtors, (b) Lomas Mortgage USA, Inc. ("LMUSA," another debtor and debtor-in-possession and a subsidiary of LFC). (c) subsidiaries of the Debtors or (d) subsidiaries of LMUSA, have agreed to accept the treatment provided in the Plan and are deemed to have accepted the Plan. 7. LFC, as the only holder of LIS Class 5 Interests, is deemed to have accepted the Plan because LFC proposed and approved the Plan. 8. Other than the holders of LFC Class 6 Interests, which are to receive no distribution under the Plan and are deemed to have rejected the Plan pursuant to Section 1126(g) of the Bankruptcy Code, each impaired Class of Claims and Interests has, therefore, voted to accept or has been deemed to have accepted the Plan in accordance with Sections 1124 and 1126 of the Bankruptcy Code. 9. Administrative Claims, Priority Tax Claims, LFC Class A Claims, LIS Class A Claims, LAS Class A Claims and LAS Claim 5 Interests are not impaired under the Plan and, therefore, are deemed to have accepted the Plan pursuant to Section 1126(f) of the Bankruptcy Code. 10. The modifications to the Plan proposed by the Debtors at or prior to the Confirmation Hearing have been reviewed and consented to by the counsel to the Statutory Committee of Unsecured Creditors of LFC (the "LFC 4 5 Creditors' Committe"). Such modifications do not materially adversely affect the treatment of any holder of any Claim against, or any Interest in, the Debtors. Therefore, in accordance with Section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019, the Plan is deemed to have been accepted by all holders who have previously accepted the Plan. 11. The Plan complies with all of the requirements of Section 1123 of the Bankruptcy Code. 12. The Plan complies with all of the requirements of Section 1129(a) of the Bankruptcy Code with the exception of Section 1129(a)(8). 13. The Plan satisfies the provisions of Section 1129(b) of the Bankruptcy Code because the Plan does not discriminate unfairly, and is fair and equitable with respect to LFC Class 6 Interests, the only Class that is impaired under, and has not accepted, the Plan, because, among other things, LFC Class 6 is the most junior class under the Plan and, therefore, no holder of an interest junior to the LFC Class 6 Interests will receive or retain any property under the Plan on account of such junior interest. 14. The record established at the Confirmation Hearing establishes that all conditions precedent to the confirmation of the Plan (a) have been satisfied, (b) have been waived pursuant to the Plan or (c) are concurrently satisfied by the entry of this Order. 15. The appointment of each of the following individuals identified by the LFC Creditors' Committee pursuant to the Plan to serve as the members of the 5 6 Reorganized Board and as the principal executive officers of Reorganized LFC is hereby approved as being in the best interests of the Debtors and their creditors, equity security holders, employees, and other parties in interest: John Kneafsey Chief Executive Officer and Sole Director from October 5, 1996 until the Effective Date of the Plan; thereafter Chairman of the Board of Directors and Chief Executive Officer W. Joseph Dryer President Eric M. Bodow Director from and after the Effective Date James D. Kemp Director from and after the Effective Date Matthew S. Metcalfe Director from and after the Effective Date Frank Ryan Director from and after the Effective Date The compensation of any officer/insider (namely, W. Joseph Dryer) has been fully disclosed. 16. The provision by the LFC Creditors' Committee of the following new names for Reorganized LFC and its subsidiaries pursuant to the Plan is hereby approved: 6 7 OLD NAME NEW NAME Lomas Financial Corporation Siena Holdings, Inc. Lomas Information Systems, Inc. Siena Information Services, Inc. Lomas Administrative Services. Inc. Siena Administrative Services, Inc. Lomas Marketing Services, Inc. Siena Marketing Services, Inc. Lomas Housing Management, Inc. Siena Housing Management, Inc. Lomas Management, Inc. Siena Management, Inc. Lomas Investment Properties, Inc. Siena Investment Properties, Inc. 17. The Debtors will have, immediately upon the effectiveness of the Plan, sufficient cash to make all payments required to be made on the Effective Date pursuant to the terms of the Plan. 18. Pursuant to Section 6.2 of the Plan, the LFC Creditors' Committee has waived the condition precedent to Confirmation set forth in Section 6.1(c) of the Plan. 19. Pursuant to the election of the LFC Creditors' Committee as contemplated by the definition of "Effective Date" in the Plan, the Effective Date shall not occur until the following conditions have been satisfied or have been waived by the LFC Creditors' Committee: (a) Reorganized LFC has enough cash to provide at least $3.0 million of working capital, (b) Reorganized LFC has enough cash to transfer $2.5 million to fund the administration of the LFC Litigation Trust, (c) the LFC Litigation Trustee accepts the trust and the terms of the LFC Litigation Trust Agreement, (d) the trustee of MSP shall have turned over or been ordered to turn over to LFC, for the benefit of its creditors, the assets held in the MSP, (e) 7 8 arrangements are in place, satisfactory to the LFC Creditors' Committee, regarding access to all LFC, LAS, LIS and LMUSA documents and for the provision by Reorganized LMUSA employees of support services reasonably required by Reorganized LFC and (f) appropriate directors and officers insurance is in place. RELIEF Finding that the Plan is confirmable based on the foregoing Findings of Fact and Conclusions of Law, the Bankruptcy Court ORDERS THAT: 1. The Plan is hereby modified to the limited extent set forth on Exhibit A to this Order. 2. Plan, as modified to the limited extent set forth on Exhibit A to this Order, is hereby confirmed in accordance with Section 1129 of the Bankruptcy Code. 3. Each and every objection to confirmation of the Plan, to the extent not resolved pursuant to the modification of the Plan as set forth on Exhibit A or withdrawn, is hereby overruled for the reasons set forth on the record of the Confirmation Hearing. 4. On the Effective Date, except as otherwise expressly provided in the Plan or this Order, each Reorganized Debtor shall be vested with all property of its predecessor's Estate free and clear of all Claims, liens, encumbrances, charges, Interests and other interests of any kind or nature of claimants, equity security holders or any other entities arising on or before the Effective Date, and, except as otherwise 8 9 expressly set forth herein or in the Plan, each Reorganized Debtor may operate its business free of any restrictions imposed by the Bankruptcy Code. 5. Pursuant to 11 U. S. C. Section 1146(c), the issuance, transfer or exchange of a security under the Plan or the making or delivery of an instrument of transfer under the Plan (including all transfers made under any Intercompany Claims settlement or any transfer among the Joint Debtors) shall not be taxed under any state or local law imposing a stamp tax or similar tax. 6. The Reorganized Debtors shall continue to provide all retiree benefits (as defined in Section 1114 of the Bankruptcy Code) at the level established pursuant to Section 1114(e)(1)(B) or (g) of the Bankruptcy Code, for the duration of the period LFC has obligated itself to provide such benefits, subject to any right to amend, modify or terminate such benefits, under the applicable plan or applicable non-bankruptcy law. 7. The rights afforded in the Plan and the treatment of all Claims and Interests therein shall be in exchange for and in complete satisfaction, discharge and release of all Claims and Interests of any nature whatsoever, against the Estates. Except as otherwise expressly provided herein or in the Plan, this Order, provided that the Effective Date shall have occurred, discharges all Claims and terminates all Interests to the fullest extent authorized or provided for by the Bankruptcy Code, including, without limitation, to the extent authorized or provided for by Sections 524 and 1141 thereof. Therefore, on and after the Effective Date, all holders of Claims and Interests shall be precluded from asserting against any of the Debtors, the 9 10 Reorganized Debtors, any of their successors, and any of their respective assets or properties, any Claims or Interests based on any act or omission, transaction or other activity of any kind or nature that occurred prior to the Effective Date, and each holder of a Claim or Interest and all of the holder's successors and assigns are hereby permanently enjoined, from enforcing or seeking to enforce any such Claims or Interests against any of the Debtors, the Reorganized Debtors, any of their successors, or any of their respective assets or properties; provided, however, all obligations under the Plan may be enforced. 8. The provisions of this Order and the Plan shall bind all holders of Claims against, and Interests in, the Debtors, whether or not such holder has accepted the Plan. 9. As set forth herein and in the Stipulation and Agreed Order, among Great American Reserve Company ("Great American"), "LMUSA, LFC, the LMUSA Creditors' Committee and the LFC Creditors' Committee, which was entered by the Court on September 20, 1996, neither this Order nor the Plan shall or shall be deemed to discharge, enjoin, impair, eliminate, prejudice, enhance, affect, restrict or limit Great American's asserted rights of offset, setoff, recoupment, and the other rights, claims and defenses asserted in Great American's proof of secured claim. 10. Within five (5) business days of the date of the entry of this Order, the Debtors shall mail to all record holders of Claims against, or Interests in, any of the Debtors as of July 3, 1996 a copy of the Notice of Entry of Confirmation 10 11 Order in substantially the form attached hereto as Exhibit B, in full and final satisfaction of the Debtors' obligations pursuant to Bankruptcy Rules 2002(f)(7) and 3020(c), and no further notice of any kind shall be necessary. 11. Due, proper, timely and sufficient notice of the Confirmation Hearing and the opportunity to object to confirmation of the Plan has been given to the Debtors' creditors, equity security holders and other parties in interest in accordance with the Bankruptcy Code, the Bankruptcy Rules and the local rules of the Bankruptcy Court. 12. All actions contemplated in the Plan are authorized and approved, subject to the provisions of the Plan. All matters provided for in the Plan involving the corporate structure of the Debtors or the Reorganized Debtors in connection with the Plan shall be deemed to have occurred and be in effect on and as of the Effective Date, without any requirement of further action by the equity security holders or directors of the Debtors or the Reorganized Debtors. On or as soon as practicable after the Effective Date, the appropriate officers of each Reorganized Debtor and members of the Reorganized Board of such Reorganized Debtor are authorized to issue, execute and deliver the agreements, documents, securities and instruments contemplated by the Plan in the name and on behalf of such Reorganized Debtor. 11 12 13. On the Effective Date, all securities, instruments, documents and agreements authorized, issued or entered into pursuant to the Plan, including, without limitation, the New LFC Common Stock and the LFC Litigation Trust shall be effective, legally binding and enforceable on the parties thereto in accordance with their respective terms and conditions without the requirement of any further action by the equity security holders or directors of the Debtors or the Reorganized Debtors, and shall be deemed to have become effective simultaneously. 14. All trustees and agents provided for under the Plan and the above mentioned securities, instruments, documents and agreements are hereby approved. 15. On and after the Effective Date, all assets of each Reorganized Debtor may be used to operate such Reorganized Debtor's business. Any distributions in respect of prepetition Claims are enjoined except as provided for under the Plan. 16. Any unexpired lease or executory contract of any of the Debtors which as of the date hereof has not been assumed or been the subject of a pending motion to assume, is hereby deemed rejected pursuant to Section 365 of the Bankruptcy Code. 17. Any Claim for damages arising by reason of the rejection of any executory or unexpired lease under the Plan may constitute a claim if, but only if, a proof of claim therefor shall be (or shall have been) timely filed with the Clerk of the Court or such other party as this Court may direct (or shall have 12 13 previously directed) no later than sixty (60) days after the service of written notice of such rejection. 18. Except as otherwise provided in this Order, the Debtors may file within one hundred and eighty (180) days from the date of this Order any and all objections to the allowance of any Claim not heretofore objected to, and shall bring\on such objections or applications for hearing within two hundred and twenty (220) days from the date of this Order, without prejudice to the right of the Debtors to seek an extension of such deadline. 19. Effective as of the Effective Date, the Debtors are deemed to have transferred and assigned to the LFC Litigation Trust governed by the LFC Litigation Trust Agreement any and all claims, rights, or causes of action that constitute property of the Estates or of the Debtors, whether arising under the Bankruptcy Code or under nonbankruptcy law (including all books, records, privileges and defenses relating thereto), including, without limitation, all rights of setoff and rights under Section 502(d) of the Bankruptcy Code and all avoiding power actions under the Bankruptcy Code, including without limitation Sections 544, 545, 547, 548, 549, 550 and 553 thereof, or under applicable nonbankruptcy law as applied through Section 544(b) of the Bankruptcy Code, other than Intercompany Claims and other than any asset or interest owned or held by any of the Debtors as reflected in its Confirmation Date balance sheet and otherwise reflected in LFC's financial statements and accompanying notes, such as claims under notes, debentures, nursing home contracts, other contracts, excess benefit plan assets, MSP/rabbi trust 13 14 fund assets, stock or other securities or partnership interests. The LFC Litigation Trust shall be deemed not to be the same entity as any of the Debtors or a successor to any of the Debtors, but only the assignee of the assets transferred to the LFC Litigation Trust. 20. Any and all postpetition claims relating to the administration of the Chapter 11 case against any and all of the Debtors and its directors, officers, employees, and Professionals, or the LFC Creditors' Committee and its members and Professionals, may be brought only in the Bankruptcy Court. 21. To effectuate a settlement of the Intercompany Claims that may be approved by the Bankruptcy Court, the LFC Litigation Trust shall have the right and power, but not any duty, to enter into an agreement with the LMUSA Litigation Trust to combine and to coordinate the prosecution of claims, or to merge with the LMUSA Litigation Trust in a manner that carries out the settlement of the Intercompany Claims without further notice or order. If such settlement occurs before the Effective Date, the LFC Litigation Trust Agreement may be amended to effectuate the foregoing. 22. On the Effective Date, Reorganized LFC shall transfer to the LFC Litigation Trust $2.5 million to fund the administration of the LFC Litigation Trust, unless different arrangements have been entered into pursuant to paragraph 21 before the Effective Date. Without further notice or order, the LFC Litigation Trust may transfer some or all of (a) the $2.5 million described above and (b) the $1.5 million to be transferred to the LFC Litigation Trust after a working capital reserve at the 14 15 level required by the Plan has been initially funded, to any trust created pursuant to paragraph 21 of this Order, if consistent with the settlement of the intercompany Claims. 23. Each Debtor and Reorganized Debtor and each of their respective subsidiaries (collectively, the "LFC Companies") shall furnish copies of or access to all records and documents in its possession and/or control owned jointly with LFC or owned individually by LMUSA, Reorganized LMUSA or any of LMUSA's subsidiaries (collectively, the "LMUSA Companies") to LMUSA, Reorganized LMUSA or their authorized agents. Each of the LMUSA Companies shall furnish copies of, or access to, all records and documents in its possession and/or control owned jointly with LMUSA or owned individually by the LFC Companies to LFC, Reorganized LFC or their authorized agents. In addition, subject to defenses available under the Federal Rules of Civil Procedure, each of the LFC Companies shall provide to the LMUSA Companies, and each of the LMUSA Companies shall provide to the LFC Companies or, in either case, to their authorized agents, discovery of all past records of each in their possession and/or control that are relevant to negotiation, resolution, mediation or litigation of the Intercompany Claims. Each of the LFC Companies and the LMUSA Companies shall cause its officers, employees, accountants and (subject to any applicable attorney-client privilege) attorneys to cooperate with respect to the foregoing. This Court shall retain jurisdiction over issues relating to the foregoing matters up through and including the resolution of Intercompany Claims. 15 16 24. Reorganized LFC shall hold its Non-Reorganization Assets in LFC Creditors' Trust pursuant to and in compliance with the provisions of Section 7.16 of the Plan pending their disposition and/or distribution to creditors in accordance with the terms of the Plan. For federal tax purposes, the Non-Reorganization Assets shall be deemed to have been transferred on the Effective Date to the creditors entitled to cash distributions pursuant to Section 4.3 of the Plan and immediately retransferred to Reorganized LFC as trustee. Such creditors are to be treated as grantors of the trust and are deemed to be the owners of the trust assets. Creditors and stockholders of Reorganized LFC, who become such after the Effective Date (other than holders of Claims with respect to those Claims as provided for herein and in the Plan), shall have no rights to, or interests in, such trust assets under any circumstances, including, without limitation, the subsequent liquidation or reorganization of Reorganized LFC, both prior to and following the bankruptcy of Reorganized LFC. 25. Effective as of the Effective Date, all evidences of Claims or Interests against a Debtor that are impaired under the Plan, including, without limitation, any Old Common Stock or Public Debt Securities of such Debtor (and any liens, securities, instruments, documents or agreements created or entered into in connection therewith), and any other liens, securities, instruments, documents and agreements, in each case, are deemed released, cancelled and terminated, and the obligations of such Debtor relating to or arising under, in respect of or in connection with such liens, securities, instruments, documents or agreements shall be cancelled, 16 17 extinguished and discharged; provided, however, that valid notes and other valid evidence of such Claims represent the right, enforceable against the relevant Reorganized Debtor, to participate in distributions provided for by the Plan. The Debtors shall notify the appropriate transfer agent or agents of the distribution to be made to holders of record of LFC Senior Convertible Notes on the record date and request such transfer agent or agents to maintain such records. Except as expressly required by the Plan, the Debtors are not permitted to, and shall not, make any payment in respect of a Claim that is discharged by the Plan. 26. From and after the Effective Date, the Bankruptcy Court shall retain exclusive jurisdiction over the Reorganization Cases, the LFC Creditors' Trust, Reorganized LFC, Reorganized LIS and LAS for the following purposes: (a) to determine requests for payment of Claims entitled to priority under Section 507(a)(1) of the Bankruptcy Code and applications for allowance of compensation and reimbursement of expenses of the Professionals and any other fees and expenses authorized to be paid or reimbursed under the Bankruptcy Code or the Plan. (b) to determine all controversies, suits and disputes regarding interpretation and implementation of the Plan, (c) to enter orders in aid of execution of the Plan, including as authorized by Section 1142 of the Bankruptcy Code, (d) to consider any modifications of the Plan to cure any defect or omission in the Plan, and to reconcile any inconsistency in any order of the Bankruptcy Court or between any such order and the Plan, (e) to determine applications, adversary proceedings and contested matters pending on the Effective Date or commenced after the Effective Date as 17 18 contemplated in the Plan, (f) to allow, disallow, estimate, liquidate or determine any Claim, and to enter or enforce any order requiring the filing of any such Claim before a particular date, (g) to authorize examinations pursuant to Rule 2004 of the Bankruptcy Rules and to continue such orders entered by this Court during the Reorganization Cases, (h) to determine pending applications for the rejection of executory contracts or unexpired leases, or for the assumption or assignment of executory contracts or unexpired leases, and to hear and determine, and if need be to liquidate, any and all Claims arising from rejection, assumption or assignment of any executory contract or unexpired lease, (i) to determine any actions or controversies described in Section 7.13 of the Plan, (j) to ensure that distributions to holders of Claims are accomplished as provided in the Plan, in the LFC Litigation Trust and in the Intercompany Claims Agreement, if any, (k) to hear and determine any disputes or issues involving the administration of the LFC Litigation Trust, including but not limited to any disputes or issues between Reorganized LFC and the LFC Litigation Trustee, (l) to oversee the continuation of the escrow created pursuant to Section 8 of the Stipulation and Order Pursuant to Sections 363(b). 502, 506(a) and 506(c) of the Bankruptcy Code and Rules 2002, 4001(d), 3012 and 6004 of the Federal Rules of Bankruptcy Procedure Concerning Establishment of Auction Procedures, Allocation of Auction Proceeds, Fixing, Allowance and Treatment of Travelers' Secured and Unsecured Claims, Waiver and Release of Claims against Travelers and Other Matters, ordered and approved on May 31, 1996, which concerned the proceeds of the sale of the Campus Properties as defined therein; which escrows shall continue 18 19 until the funds are distributed in accordance with the terms of the respective stipulations, (m) to determine such other matters as are set forth herein or as may arise in connection with the Plan or this Order, (n) to determine all claims under Section 9.1 (c) of the Plan and (o) to determine any and all disputes between and among any and all of LFC, Reorganized LFC, the LFC Creditors' Committee and the Post Confirmation Committee (as defined below) with respect to the Intercompany Claims, (p) to determine all actions against any and all officers of the Court, including Professionals retained pursuant to Court order, for any and all acts or omissions in connection with the Chapter 11 cases and (q) to enter a final decree closing the Reorganization Cases. The Bankruptcy Court shall also retain jurisdiction over all actions and proceedings commenced by the LFC Litigation Trustee to the extent appropriate under applicable bankruptcy law. 27. If the Bankruptcy Court abstains from exercising or declines to exercise jurisdiction, or is otherwise without jurisdiction over any matter arising under, arising in or related to the Reorganization Cases, including the matters set forth in the preceding paragraph, this Order shall not prohibit or limit the exercise of jurisdiction by any other tribunal having competent jurisdiction with respect to such matter. 28. The appointment of the LFC Creditors' Committee shall terminate on the Effective Date; provided, however, that the LFC Creditors' Committee shall survive post confirmation ("Post Confirmation Committee") to negotiate, resolve, mediate or litigate Intercompany Claims on behalf of the Debtors 19 20 and Reorganized Debtors, and advising the Reorganized Board of LFC with respect thereto. 29. The Effective Date of the Joint Chapter 11 Plan shall not occur until the conditions described in paragraph 19 of the Findings of Fact and Conclusions of Law above have been satisfied or have been waived by the LFC Creditors' Committee. 30. Substantial consummation of the Plan shall not have occurred until the Intercompany Claims shall have been provided for pursuant to Section 6.3 of the Plan and the first distribution is made to holders of LFC Class 3 Claims. 31. Any Person seeking an allowance of final compensation or reimbursement of expenses for professional services rendered in relation to this Chapter 11 Case, pursuant to Sections 327, 328, 330, 331, 502(b) or 1103 of the Bankruptcy Code, shall file with the Bankruptcy Court an application for allowance of final compensation for services rendered and reimbursement of related expenses and serve the same on (a) counsel of record for the Debtors, James L. Patton, Esq., Young, Conaway, Stargatt & Taylor, 11th Floor, Rodney Square North, P.O. Box 391, Wilmington, Delaware 19801-0391 and Robert J. Levine, Esq., Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017; (b) counsel of record for the LMUSA Creditors' Committee. Neil B. Glassman, Esq., Bayard Handeleman & Murdoch, P.A., 902 Market Street, 13th Floor, P.O. Box 25130, Wilmington, Delaware 19899 and Martin J. Bienenstock, Esq., Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, (c) counsel of record 20 21 to the LFC Creditors' Committee, Hugh M. Ray, Esq., Andrews & Kurth LLP, 600 Travis Street, 4200 Texas Commerce Tower, Houston, Texas 77002, Peter S. Goodman, Esq., Andrews & Kurth, L.L.P., 425 Lexington Avenue, New York, New York 10017, and Jeffrey C. Wisler, Esq., Williams, Hershman & Wisler, P.A., Suite 600, One Commerce Center, Twelfth and Orange Streets, P.O. Box 511, Wilmington, Delaware 19899-0611, and (d) John McLaughlin, Esq., Office of the United States Trustee for the District of Delaware, 601 Walnut Street, Curtis Center, Suite 905-W, Philadelphia, Pennsylvania 19106, by 4:30 p.m. Eastern Daylight Time on November 15, 1996. Any such claim that is not flied within this time deadline shall be forever barred. 32. Reorganized LFC shall not sell or otherwise dispose of any specific asset as to which the LMUSA Creditors' Committee asserts ownership in a writing delivered to the LFC Creditors' Committee's attorneys on or before October 10, 1996, or that was otherwise previously specifically identified by the Debtors in the Disclosure Statement as a disputed asset (in which case written notice need not be given) without providing at least five (5) business days prior written telecopy notice to the LMUSA Creditors' Committee. 21 22 33. The failure to reference any particular provision of the Plan in this Order shall have no effect on the binding effect, enforceability or legality of such provisions and such provisions shall have the same binding effect, enforceability or legality as every other provision of the Plan. DATED this 4th day of October, 1996 at 11:10 a.m. /s/ PETER J. WALSH --------------------------- PETER J. WALSH UNITED STATES BANKRUPTCY JUDGE 22 23 EXHIBIT A
- ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATIONS TO SECOND AMENDED JOINT CHAPTER 11 PLAN - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- The definition of "LFC DISTRIBUTABLE CASH" is amended to read in o to provide for the fact that on the Effective Date full as follows: insufficient funds may be available to Reorganized LFC to fund the various reserves (because the "'LFC DISTRIBUTABLE CASH' means (a) on the Effective proceeds of the rabbi trust may not have been Date, all cash of LFC, after giving effect to (i) a payment, if received if the LFC Creditors' Committee waives any, or other transfer, if any, by LFC into the Intercompany the related conditions to effectiveness) and to Claims Reserve, if any, (ii) appropriate reserves for allow the LFC Creditors' Committee or Reorganized Administrative Claims, Priority Claims, Secured Claims and LFC to determine the amount of the working capital Convenience Unsecured Claims, (iii) the amount placed in the LFC reserve until initial distributions are made in Litigation Trust pursuant to SECTION 7.13 and (iv) a reserve for respect of several unsecured claims working capital equal to an amount specified by the LFC Creditors' Committee or, after the Effective Date, Reorganized LFC, in writing to the Bankruptcy Court before the date of the initial distribution pursuant to SECTION 7.5(a) and (b) after the Effective Date, subject to completion of the funding of all reserves specified in clause (a)(i), (a)(ii) and (a)(iv) above and the making of the payment specified in clause (a)(iii) above, all subsequently received net cash proceeds from the disposition of, or net income on, Non-Reorganization Assets of LFC or Reorganized LFC, and all cash subsequently distributed to Reorganized LFC from the Intercompany Claims Reserve or the LFC Litigation Trust." - ----------------------------------------------------------------------------------------------------------------------------------- Section 4.14 is amended by replacing the word "2" on line 2 with o to correct a typographical error the word "3" - ----------------------------------------------------------------------------------------------------------------------------------- Section 7.5(b) is amended by replacing the last word "7.5(b)" o to correct a typographical error with the word "7.5" - -----------------------------------------------------------------------------------------------------------------------------------
24 - ----------------------------------------------------------------------------------------------------------------------------------- Section 7.9 is amended by inserting "(b)" before the existing text and adding a o to provide for a change in governance of new paragraph (a) reading as follows: LFC soon after Confirmation pending the satisfaction of the conditions to the "(a) From and after October 5, 1996 until the Effective Date, the board of Effective Date directors of each of Reorganized LFC and Reorganized LIS shall consist of a single director designated by the LFC Creditors' Committee and disclosed to the Bankruptcy Court at or prior to the Confirmation Hearing, as successor to the then current Debtor's board of directors. The Chief Executive Officer of Reorganized LFC for such period shall be an individual designated by the LFC Creditors' Committee and disclosed to the Bankruptcy Court at or prior to the Confirmation Hearing. Arrangements regarding compensation of such officer and director shall be agreed upon between such director and officer and the LFC Creditors' Committee. Such director and officer shall be deemed elected as of October 5, 1996 pursuant to the Confirmation Order. Those officers and directors not continuing in office shall be deemed removed therefrom as of October 5, 1996 pursuant to the Confirmation Order. This provision is subject to Reorganized LFC obtaining appropriate officers' and directors' insurance and does not take effect until such insurance is effective and, in that event, the date of the deemed election and removal referred to above shall be the effective date of the insurance." - ----------------------------------------------------------------------------------------------------------------------------------- Section 7.13 is amended (i) by inserting at the end of the first paragraph the o to clarify that the transfer of third party following sentence: claims to the LFC Litigation Trust does not affect the Reorganized Debtors' rights of "Notwithstanding the foregoing, the Debtors shall retain their rights of setoff offset against such third parties or their and their rights under Section 502(d) of the Bankruptcy Code to the extent, and rights to disallow such third parties' only to the extent, necessary to defend against a Claim by any person against claims pursuant to Section 502(d) of the whom claims, rights or causes of action are assigned to the LFC Litigation Bankruptcy Code until such third parties Trust pursuant to the preceding sentence." pay amounts for which they are liable to the Debtors in the case of (i), to reflect (ii) by replacing the number "2" on line 11 with the number "4", LFC Creditors' Committee election in the case of (ii), to clarify that the creditors (iii) by deleting the words "for distribution to holders of LFC Class 3 Claims of LIS and LAS may be beneficiaries of the in accordance with SECTION 4.3 AND 7.5" at the end of the paragraph and Trust under the Plan in the case of (iii) inserting "Reorganized LFC will be responsible for distribution of any such Net and to correct a typographical error in Proceeds to the holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3 the case of (iv) Claims or Allowed LAS Class 3 Claims in accordance with SECTION 7.5 of the Plan." and (iv) by replacing in subsection (c) the word "LIS" with the word "LFC" - -----------------------------------------------------------------------------------------------------------------------------------
25 - ----------------------------------------------------------------------------------------------------------------------------------- Section 7.16 is amended to inserting after the word o to facilitate the funding of reserves as described "hereof" on line 4 the following: above in the modification to "LFC Distributable Cash" "or their use to satisfy the initial funding requirements described in paragraph (b) of the definition of "LFC Distributable Cash" in Section 1.2 above" - ----------------------------------------------------------------------------------------------------------------------------------- Section 9.5 is amended by replacing the word o to correct a typographical error "1114(c)(1)(B)" with "1114(e)(1)(B)" - -----------------------------------------------------------------------------------------------------------------------------------
26
MODIFICATIONS TO EXHIBIT A-1 TO JOINT CHAPTER 11 PLAN (RESTATED CERTIFICATE OF INCORPORATION) - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- The Heading and the Preamble are amended by replacing the o to reflect information supplied by LFC Creditors' words "[NAME OF REORGANIZED LFC]" with the words "SIENA Committee pursuant to Section 6.1 (b) of the Plan HOLDINGS, INC." - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph 2 on line 1 and Paragraph 4 on line 4 are amended o to reflect information supplied by LFC Creditors' by replacing the words "[Name of Reorganized LFC]" with the Committee pursuant to Section 6.1 (b) of the Plan words "Siena Holdings, Inc." - ----------------------------------------------------------------------------------------------------------------------------------- The Fourth Article of Paragraph 4 is amended by replacing o to change number of shares of Common Stock the the number "4,000,000" with the number "16,000,000" and by corporation may issue pursuant to request of LFC replacing the number "3,000,000" with the number Creditors' Committee "15,000,000" - ----------------------------------------------------------------------------------------------------------------------------------- The first paragraph of the Fifth Article of Paragraph 4 is o to change the minimum number of directors required for amended by replacing the words "five (5)" with the words the Board of Directors pursuant to request of LFC "three (3)" Creditors' Committee - ----------------------------------------------------------------------------------------------------------------------------------- The second paragraph of the Fifth Article of Paragraph 4 is o to reflect language requested by LFC Creditors' amended to read in full as follows: Committee "At any time after the first anniversary of the effective date of the Corporation's Chapter 11 Plan and prior to the earlier to occur of (i) the third anniversary of the effective date of the Corporation's Chapter 11 Plan and (ii) the first stockholder's meeting of the Corporation, if the Corporation has not identified one or more individuals or entities who are willing to invest in the Corporation cash or assets that have a value of at least 35% of the then current value of the assets of the Corporation in exchange for authorized but previously unissued shares of Common Stock of the Corporation in an amount not to exceed 49% of the total number of shares of Common Stock of the Corporation outstanding (after taking such new issuance into account), the Board of Directors may, in accordance with Section 303 of Delaware Law but without the necessity of any vote by the stockholders, adopt a plan of liquidation for the Corporation, and take the appropriate steps to effectuate such plan of liquidation in accordance with applicable law." - -----------------------------------------------------------------------------------------------------------------------------------
27 - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (b) of the Fifth Article of Paragraph 4 is amended o to add names and addresses of directors provided by LFC to insert at the end thereof the following: Creditors' Committee pursuant to Section 6.1 (b) of the Plan John Kneafsey 25 Sutton Place South New York, New York 10022 Eric Bodow Sagner/Marks, Inc. 43 New England Drive Lake Hiawatha, New Jersey 07034 Matthew S. Metcalfe Airland Corporation 56 St. Francis Street P.O. Box 2903 Mobile, Alabama 36652-2903 James D. Kemp Kemp Consulting Suite 3006 10641 Steppington Drive Dallas, Texas 75230 Frank Ryan 20 Sunset Boulevard Houston, Texas 77005 - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (d) of the Fifth Article of Paragraph 4 is amended o to correct a typographical error by replacing the word "SIXTH" on the final line with the word "FIFTH" - ----------------------------------------------------------------------------------------------------------------------------------- The Sixth Article of Paragraph 4 is amended (i) by replacing o to correct errors in the percentages of shares required the number "1,200,000" on line 1 with the number "333,333"; to be distributed for normal corporate governance to (ii) by replacing the number "2,400,000" on line 5 with the resume number "666,667"; and (iii) by deleting the words "the General Corporation Law of the State of Delaware" - ----------------------------------------------------------------------------------------------------------------------------------- The second paragraph of the Seventh Article of Paragraph 4 o to reflect insertion requested by LFC Creditors' is amended to replace "[_______]" on line 1 with "333,333" Committee - -----------------------------------------------------------------------------------------------------------------------------------
28 - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (1) of the Tenth Article of Paragraph 4 is o to reflect language requested by LFC Creditors' amended to read in full as follows: Committee "TENTH: (1) To the extent permitted by law, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director." - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (2)(a) of the Tenth Article of Paragraph is o to correct a typographical error amended by replacing the word "thee" on line 5 with the word "the" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (2)(b) of the Tenth Article of Paragraph 4 is o to correct a typographical error amended by replacing the word "board"; on line 1 with the word "Board" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (3) of the Tenth Article of Paragraph 4 is o to be gender neutral amended by replacing the word "his" on line 6 with the words "such person's" and by replacing the word "him" on line 7 with the words "such person" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (4) of the Tenth Article of Paragraph 4 is o to correct a typographical error amended by replacing the words "or any" with the words "of any" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (5) of the Tenth Article of Paragraph 4 is o to correct a typographical error amended by replacing the word "ByLaws" on line 2 with the word "bylaws" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (a)(i) of the Eleventh Article of Paragraph 4 o to fill in a blank is amended by replacing the words "[the effective date]" with the words "the effective date of the Corporation's Chapter 11 Plan" - -----------------------------------------------------------------------------------------------------------------------------------
29 - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (a)(iii) of the Eleventh Article of Paragraph o to correct a typographical error in the case of 4 is amended (i) by replacing the word "shareholders" (i) and to insert language requested by the LFC on line 8 with the word "stockholders" and (ii) by Creditors' Committee to permit certain inserting after the words "the proposed Transfer is to" transactions by significant stockholders in the on the last line of page six the word "(x)" and by case of (ii) inserting after the words "which are owned by the Transferor" on line 2 of page seven the following: "or (y) a Person with an Ownership Interest Percentage as of the effective date of the Corporation's Chapter 11 Plan (such Person's "Effective Date Ownership Percentage") of at least 4.5 percent, provided that (I) the Ownership Interest Percentage of such Person immediately after such Transfer will be no more than 10 percentage points greater than such Person's Effective Date Ownership Percentage, (II) the total of the Ownership Interest Percentages immediately after such Transfer of all Persons having an Effective Date Ownership Percentage of at least 4.5 percent will not be more than 20 percentage points greater than the total of such Person's Effective Date Ownership Percentages, and provided further, that the Board of Directors will riot be required to approve such a Transfer if the Board determines that there is a Person who has not received any Stock pursuant to Sections 4.3 and 7.5 of the Chapter 11 Plan and who plans to acquire Stock, directly or indirectly, such that its Ownership Interest Percentage eventually will be more than 30 percent" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (b) of the Eleventh Article of Paragraph 4 is o to correct a typographical error amended by replacing the word "shareholder" on line 8 with the word "stockholder" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (g) of the Eleventh Article of Paragraph 4 is o to correct a typographical error amended by replacing the word "Transfer" on line 5 with the word "transfer" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph (i) of the Eleventh Article of Paragraph 4 is o to correct a typographical error amended by deleting the word "or" on line 2 - ----------------------------------------------------------------------------------------------------------------------------------- The certification paragraph is amended by replacing the o to reflect information supplied by LFC Creditors' words "[Name of Reorganized LFC]" with the words "Siena Committee pursuant to Section 6.1(b) of the Plan Holdings, Inc." - ----------------------------------------------------------------------------------------------------------------------------------- The signature line is amended by replacing the words o to reflect information supplied by LFC Creditors' "[LOMAS FINANCIAL CORPORATION]" with the words "SIENA Committee pursuant to Section 6.1(b) of the Plan HOLDINGS, INC." - -----------------------------------------------------------------------------------------------------------------------------------
30
MODIFICATIONS TO EXHIBIT A-1 TO JOINT CHAPTER 11 PLAN (BYLAWS OF REORGANIZED LFC) - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- The Heading is amended by replacing the words "[NAME OF o to reflect information supplied by LFC Creditors' REORGANIZED LFC]" with the words "SIENA HOLDINGS, INC." Committee pursuant to Section 6.1(b) of the Plan - ----------------------------------------------------------------------------------------------------------------------------------- Article II, Section 1 is amended by replacing the words o to reflect amendment requested by LFC Creditors' "in Dallas, on such date" with the words "at such Committee place, either within or outside the State of Delaware," - ----------------------------------------------------------------------------------------------------------------------------------- Article II. Section 2 is amended to read in full as o to postpone the date on which an annual follows: stockholders' meeting must be held pursuant to the request of the LFC Creditors' Committee "Section 2. Annual Meetings. Annual meetings of stockholders, commencing with the year 1998 or the first year following distribution of Common Stock pursuant to the Corporation's Chapter 11 Plan, whichever is later, shall be held to elect the Board of Directors and transact such other business as may properly be brought before the meeting." - ----------------------------------------------------------------------------------------------------------------------------------- Article III, Section 2 is amended by replacing the o to change the number of directors required for the words "seven (7)" with the words "three (3)" and by Board of Directors in order to conform to replacing the words "seventeen (17)" with the words Certificate of Incorporation "eleven (11)" - -----------------------------------------------------------------------------------------------------------------------------------
31 MODIFICATIONS TO EXHIBIT A-2 TO JOINT CHAPTER 11 PLAN (CERTIFICATE OF AMENDMENT OF REORGANIZED LIS) - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- The Certificate of Amendment is amended by inserting a o to reflect that the order of the Bankruptcy Court new Paragraph 1 which reads in full as follows: deems the resolutions passed "1. This Certificate of Amendment to Articles of Incorporation was duly adopted by the Corporation's Board of Directors pursuant to the Joint Chapter 11 Plan (the "Chapter 11 Plan") filed by Lomas Information Systems, Inc. and certain affiliated debtors in proceedings under Chapter 11 of the United States Bankruptcy Code, 11 U.S.C. Section 101 et seq., and confirmed by the United States Bankruptcy Court for the District of Delaware. The resolution to amend the Articles of Incorporation of the Corporation as set forth below was adopted by the Board of Directors of the Corporation in accordance with Section 78.622 of Title 7 of the Nevada Revised Statutes." - ----------------------------------------------------------------------------------------------------------------------------------- Old Paragraph 1 is amended by replacing the first o to make conforming change sentence with the following: "2. The Articles of Incorporation are hereby amended as follows:" - ----------------------------------------------------------------------------------------------------------------------------------- The first resolution is amended by replacing the words o to reflect information supplied by LFC Creditors' "[Name of Reorganized LIS]" with the words "Siena Committee pursuant to Section 6.1(b) of the Plan Information Services, Inc." - ----------------------------------------------------------------------------------------------------------------------------------- The certification paragraph is amended by replacing the o to reflect that John Kneafsey, as sole director, words "its [vice president] and its (assistant will sign the Certificate of Amendment secretary] with the words "John Kneafsey, the sole Director," - ----------------------------------------------------------------------------------------------------------------------------------- The signature line is amended by replacing the o to reflect that John Kneafsey, as sole director, following: will sign the Certificate of Amendment "[Name]/[Vice President] By ----------------------------- [Name]/[Assistant Secretary]" with the words "John Kneafsey Sole Director" - -----------------------------------------------------------------------------------------------------------------------------------
32 - ----------------------------------------------------------------------------------------------------------------------------------- The Notary section is amended by replacing the words o to reflect that the Certificate of Amendment may "TEXAS" and "DALLAS" with "___________________" not be signed in Dallas, Texas - -----------------------------------------------------------------------------------------------------------------------------------
33 MODIFICATIONS TO EXHIBIT B TO JOINT CHAPTER 11 PLAN (LFC LITIGATION TRUST AGREEMENT) - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- The cover page is amended by replacing the following: o to make LIS, LAS and Reorganized LIS parties to the Agreement in order to conform to the Plan "LFC, Reorganized LFC and _________, Trustee" with the following: "Lomas Financial Corporation, Lomas Information Systems, Inc., Lomas Administrative Services, Inc., Siena Holdings, Inc., Siena Information Services, Inc. and Henry L. Goodman, Esq., Trustee" - ----------------------------------------------------------------------------------------------------------------------------------- The Preamble is amended by replacing the words o to make LIS, LAS and Reorganized LIS parties to "Debtor-in-possession ("LFC"), Reorganized Lomas the Agreement in order to better conform to the Financial Corporation, a Delaware corporation Plan ("Reorganized LFC") and __________" with the words "a Debtor and a Debtor-in-possession ("LFC"), Lomas Information Systems, Inc., a Nevada corporation and a Debtor and a Debtor-in-possession ("LIS"), Lomas Administrative Services, Inc., a Nevada corporation and a Debtor and a Debtor-in-possession ("LAS"), Siena Holdings, Inc., a Delaware corporation ("Reorganized LFC"), Siena Information Services, Inc., a Nevada corporation ("Reorganized LIS"), and. Henry L. Goodman, Esq." - -----------------------------------------------------------------------------------------------------------------------------------
34 - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph A of the Recitals is amended (i) by replacing o to reflect that all Debtors are participants in the word "LMUSA" with the words "Lomas Mortgage USA, the Plan Inc. ("LMUSA")" and (ii) by replacing the words "Debtor, Case No. 95-1235" with the words "Lomas Information Systems, Inc. and Lomas Administrative Services, Inc., Debtors, Case Nos. 95-1235, 1237 and 1238" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph B of the Recitals is amended (i) by inserting o attach Exhibit A to the Agreement in the case of after the words "The Plan' the words ", as modified by (i) and to add a defined term in the case of (ii) certain modifications approved by the Bankruptcy Court and attached hereto as Exhibit A" and (ii) by inserting after the words "dated with the words "(the "Order")" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph C of the Recitals is amended to read in its o conform to same change in the Plan and to reflect entirely as follows: election of LFC Creditors' Committee to change the amount of Expense Fund "C. The Plan provides that effective on the Effective Date, each of LFC, LIS and LAS shall be deemed to have transferred and assigned to the Trust governed by this Agreement any and all claims, rights, or causes of action that constitute property of any of the Estates or of the Debtors, whether arising under the Bankruptcy Code or under nonbankruptcy law, (including all books, records, privileges and defenses relating thereto) including, without limitation, all rights of setoff and rights under Section 502(d) of the Bankruptcy Code and all avoiding power actions, including, without limitation, under sections 544, 545, 547, 548, 549, 550 and 553 of the Bankruptcy Code or under applicable nonbankruptcy law as applied through section 544(b) of the Bankruptcy Code, other than Intercompany Claims and other than any asset or interest owned or held by any of the Debtors as reflected in its Confirmation Date balance sheet and otherwise reflected in LFC's financial statements and accompanying notes, such as notes, debentures, nursing home contracts, other contracts, excess benefit plan assets, MSP/rabbi trust fund assets, stocks or other securities or partnership interests. Notwithstanding the foregoing, the Plan further provides, the Debtors shall retain their rights of setoff and their rights under Section 502(d) of the Bankruptcy Code to the extent necessary to defend against a Claim by any person against whom claims, rights or causes of action are assigned to the LFC Litigation Trust pursuant to the preceding sentence. In addition, the Plan provides that on or as soon as practicable after the Effective Date, Reorganized LFC shall transfer to the Trust $2 million or such other amount as the LFC Creditors' Committee shall have specified in writing to LFC and the Bankruptcy Court at least three (3) Business Days prior to the commencement of the Confirmation Hearing to fund the administration of the Trust. On August 23, 1996, the LFC Creditors' Committee specified $4,000,000 as such other amount." - -----------------------------------------------------------------------------------------------------------------------------------
35 - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph D of the Recitals is amended (i) by replacing o reflect the fact that the Trustee must act in the (a) the words "LFC, the third party" on line 2 with the best interest of each of the Debtors with respect words "each of the Debtors, the" and (b) the word "of to any assigned claims and causes of action in the on line 4 with the word "or" and (ii) by deleting the case of (i)(a), to correct a typographical error words "for distribution to holders of Allowed LFC Class in the case of (i)(b) and to reflect the fact that 3 Claims under the Plan" at the end of the paragraph the creditors of LIS or LAS may be beneficiaries and inserting "The Plan further provides that of the Trust in accordance with the Plan in the Reorganized LFC the Trustees shall distribute the Net case of (ii) Proceeds of all Recoveries to the Administrative Beneficiary and, thereby, the Trustee will be discharged from any further distribution responsibility. The Administrative Beneficiary will be responsible for distribution of any such Net Proceeds to the holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3 Claims or Allowed LAS Class 3 Claims in accordance with SECTION 7.5 of the Plan." - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph E of the Recitals is amended by replacing the o reflect the fact that the Trustee will not be word "LFC" both times it appears in this paragraph with deemed to be or to be a successor to any of the the words "any of the Debtors" Debtors - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph F of the Recitals is amended by deleting the o correct a typographical error "," after the word "powers" - ----------------------------------------------------------------------------------------------------------------------------------- Paragraph H of the Recitals is amended by deleting the o correct a typographical error "," after the word "terms" - -----------------------------------------------------------------------------------------------------------------------------------
36 - ------------------------------------------------------------------------------------------------------------------------------------ Section 1.2 is amended: o to provide definition related to change to Section 5.2(c) requested by LFC Creditors' Committee in (i) by adding the following definitions, (a) the case of (i), to reflect request of LFC "'ADMINISTRATIVE BENEFICIARY' means Reorganized LFC who will Creditors' Committee in the cases of (ii), (iv) receive and distribute all Net Proceeds to Reorganized LFC, and (v), to reflect the fact that each of the Reorganized LIS and LAS, as the case may be, for the benefit Debtors will assign assets to the Trust in the of the creditors of the appropriate Debtor pursuant to the case of (iii)(a) and to conform to same change in terms of this Agreement and of the Plan.", (b) the Plan in the case of (iii)(b) "'BENEFICIARIES' means Reorganized LFC, Reorganized LIS and LAS as trustees for the benefit of certain the creditors of the Debtors, as defined more fully pursuant to the terms of this Agreement and of the Plan.", (c) "'Net Proceeds' means all cash in the Expense Fund and all Recoveries from other Initial Trust Assets after deducting therefrom the litigation and administrative costs and expenses, including but not limited to tax and accounting costs." and (d) "'Recoveries' means all monies received in satisfaction of judgments obtained in favor of the Trustee or by settlement of any and all rights, claims or causes of action defined as Initial Trust Assets." (ii) by replacing in the definition of "EXPENSE FUND" the words "2 million" with the number "4,000,000" (iii) by replacing in the definition of "INITIAL TRUST ASSETS" (a) the words "the Estate" with the words "each of the Estates" and the word "LFC" with the words "the Debtors" both on line 2, (b) the words "Intercompany Claims" at the end of the definition of Initial Trust Assets with the following: "(i) Intercompany Claims, (ii) any asset or interest owned or held by any of the Debtors as reflected in its Confirmation Date balance sheet and otherwise reflected in LFC's financial statements and accompanying notes, such as notes, debentures, nursing home contracts, other contracts, excess benefit plan assets, MSP/rabbi trust fund assets, stocks or other securities or partnership interests and (iii) the Debtors' rights of setoff and rights under Section 502(d) of the Bankruptcy Code to the extent necessary to defend against a Claim by any person against whom claims, rights or causes of action are assigned to the LFC Litigation Trust." and (c) by inserting after the word "actions" on line 5 the words ", including, without limitation," and (iv) by moving the definition of "TRUSTEE" to the end of the Section - ------------------------------------------------------------------------------------------------------------------------------------
37 - ------------------------------------------------------------------------------------------------------------------------------------ Section 2.1 is amended to read in full as follows: o to account for the fact only $2,500,000 of the Expense Fund will be funded on the Effective Date "Section 2.1 Declaration of Trust. Pursuant to the Plan, on the Effective Date, each of the Debtors transferred the Initial Trust Assets (other than $1,500,000 of the Expense Fund) to the Trustee, in trust, according to the terms of this Agreement for the benefit of Reorganized LFC as trustee for the benefit of certain of the creditors of the Debtors pursuant to the terms of this Agreement and of the Plan. The remaining $1,500,000 of the Expense Fund will be transferred by Reorganized LFC to the Trustee, in trust as aforesaid, when such funds become available after a working capital reserve at the level required by the Plan has been initially funded. Without further notice or order, the LFC Litigation Trust may transfer some or all of the Expense Fund to any trust created pursuant to paragraph 21 of the Order, if consistent with the settlement of the Intercompany Claims." - ------------------------------------------------------------------------------------------------------------------------------------ Section 2.2 is amended by replacing the words "its o to reflect the fact that the creditors of LIS and LAS creditors" on line 2 with the words "the creditors of the may be beneficiaries of the Trust under the Plan Debtors" - ------------------------------------------------------------------------------------------------------------------------------------ Section 2.3 is amended by replacing the words "its o to reflect the fact that the creditors of LIS and LAS creditors" on line 4 with the words "the creditors of the may be beneficiaries of the Trust under the Plan Debtors" - ------------------------------------------------------------------------------------------------------------------------------------ Section 2.5 is amended by inserting, after the words o to reflect the fact that the creditors of LIS and LAS "expenses and liabilities." on line 5 the sentence "The may be beneficiaries of the Trust under the Plan Plan further provides that Reorganized LFC will be responsible for distribution of any such Net Proceeds to the holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3 Claims or Allowed LAS Class 3 Claims in accordance with Section 7.5 of the Plan." - ------------------------------------------------------------------------------------------------------------------------------------ Section 2.7 is amended (i) by replacing the word "LFC" on o to reflect the fact that LIS and LAS my be execute, line 1 with the words "The Debtors" and (ii) by deleting acknowledge and deliver further instruments in the the "," after the word "acknowledge" on line 3 case of (i) and to correct a typographical error in the case of (ii) - ------------------------------------------------------------------------------------------------------------------------------------ Section 3.1 is amended by replacing the number "4.3" on line o to correct section references 4 with the number "4.4" - ------------------------------------------------------------------------------------------------------------------------------------
38 - ------------------------------------------------------------------------------------------------------------------------------------ Section 3.2 is amended (i) by inserting at the end of the o to include the new provision in the title of the title the words "Accounting. (a)" and (ii) by inserting a Section in the case of (i) and to reflect request of new paragraph: the Trustee that he be able to apply to Court for approval of an accounting of the Trust "(b) On the termination of the Trust, the Trustee has the authority to apply to the Bankruptcy Court for any and all orders approving his accounting for any of his actions as Trustee and discharging him from any and all liability for acting as Trustee under this Trust." - ------------------------------------------------------------------------------------------------------------------------------------ Section 4.1 is amended (i) by inserting a "," after the word o to correct a typographical error in the cases of (i) "including" and the word "limitation" on line 3, (ii) by and (ii) and to reflect request of the LFC deleting the "," after the word "taxes" on line 10 and (iii) Creditors' Committee in the case of (iii) by replacing the words "2 million" with the number "4,000,000" - ------------------------------------------------------------------------------------------------------------------------------------ Section 4.3(b) is amended by replacing the number "4.8" on o to correct section reference line 9 with the number "4.7" - ------------------------------------------------------------------------------------------------------------------------------------ Section 4.4 is amended by deleting the "," after the word o to correct a typographical error "liabilities" on line 1 - ------------------------------------------------------------------------------------------------------------------------------------ Section 4.5 is amended (i) by inserting after the words "As o to reflect request of LFC Creditors' Committee in soon as practicable" on line 1 the words "but not later than the case of (i) and to correct a typographical error 120 days" and (ii) by inserting after the words "within in the case of (ii) fifteen (15)" on line 13 with the word "days" - ------------------------------------------------------------------------------------------------------------------------------------ Section 5.1 is amended by replacing the number "100,000,000" o to reflect request of LFC Creditors' Committee to on line 11 with the number "500,000,000", (ii) by replacing stipulate a larger bank in which to hold investments the word "(c)" on line 14 with the word "(a)" and by in the case of (i) and to restart lettering in the replacing the word "(d)" on line 15 with the word "(b)" and case of (ii) and to correct a typographical error in (iii) by replacing the word "any" on the penultimate line the case of (iii) and the word "such" on the last line with the word "the" - ------------------------------------------------------------------------------------------------------------------------------------
39 - ------------------------------------------------------------------------------------------------------------------------------------ Section 5.2 is amended (i) by inserting a new paragraph (c) o to clarify that the Trustee is not required to as follows: allocate expenses among the Debtors, in the case of (i), to reflect request of LFC Creditors' Committee "(c) To expend the funds of the Trust, as the Trustee in to clarify that Trustee may retain counsel for his discretion may deem necessary or appropriate, to prosecute Reorganized Debtors and/or LFC Creditors' Committee the claims of LFC, LIS and LAS without being subject to any in the case of (ii), to reflect request of LFC limitation with respect to each Debtor or being required to Creditors' Committee in the case of (iii), to correct budget or to allocate the funds between the claims of the a typographical error in the cases of (iv) and (vi) three Debtors;" and to add foreign laws in the cases of (v) and (vii)) (ii) by inserting in old subsection (c) after the word "LFC" on line 4 a "," and after the words "other persons" on line 5 the following parenthetical: "(which counsel, accountants, experts, advisors or other persons may serve in the future, serve at present or have served in the past in such capacity or a similar capacity for Reorganized LFC, Reorganized LIS, LAS or the LFC Creditors' Committee)", (iii) by inserting in old subsection (d) after the word "name" on line 2 with the words "as Trustee for the Trust" (iv) by inserting in old subsection (e) a "," after the word "discretion" (v) by replacing in old subsection (f) the words "federal and state" on line 2 with the words "federal, state and foreign" and (vi) by deleting in old subsection (h) the "," after the words "permitted" on line 1 and "agreement" on line 2 (vii) by replacing in old subsection (i) the words "federal, state and local' on line 1, on line 2 and on line 3 with the words "federal, state, local or foreign" - ------------------------------------------------------------------------------------------------------------------------------------ Section 6.1 is amended (i) by replacing the words on lines o to reflect request of LFC Creditors' Committee that 4-6: Trustee be relieved of liability for negligence, which will facilitate the Trustee's purchase of the "No provision hereof shall be construed to relieve the liability insurance described in Section 6.4 Trustee from liability for his own grossly negligent action, his own negligent failure to act or his own" with the following: "The Trustee shall not be liable under this Agreement other than for his proven" and (ii) by deleting subsections (a)-(d) - ------------------------------------------------------------------------------------------------------------------------------------ Section 6.4 is amended by replacing the words o to reflect request of LFC Creditors' Committee "without negligence or willful misconduct" on line 4 and adding the words "other than as a result of proven willful misconduct" - ------------------------------------------------------------------------------------------------------------------------------------
40 - ------------------------------------------------------------------------------------------------------------------------- Section 7.1 is amended by replacing the first sentence o to finalize language as to how Trustee's with the following: compensation will be determined In lieu of commissions or other compensation fixed by law for trustees, the Trustee shall receive as compensation for services as Trustee hereunder, an amount not to exceed 25% on the first $5,000 or less, 10% on any amount in excess of $5,000 but not in excess of $50,000, 5% on any amount in excess of $50,000 but not in excess of $1,000,000, 3% of monies in excess of $1,000,000 but not in excess of $10,000,000, and reasonable compensation not to exceed 2% of monies in excess of $10,000,000, of all monies disbursed or turned over in the case by the Trustee to the LFC Creditors' Trust. - ------------------------------------------------------------------------------------------------------------------------- Section 8.2 is amended to add at the end thereof the o to reflect request of LFC Creditors' Committee following sentence: "The Trustee shall be entitled to compensation in accordance with Section 7.1 in respect of amounts received by Trustee on all claims for which actions or proceedings have been instituted prior to Trustee's termination." - ------------------------------------------------------------------------------------------------------------------------- Section 8.3 is amended by deleting the word o to reflect request of LFC Creditors' Committee "immediately" on line 3 and inserting after the words "shall be appointed" the words "as soon as possible" - ------------------------------------------------------------------------------------------------------------------------- Section 8.4 is amended by deleting the "," after the o to correct a typographical error word "trusts" on line 5 and the word "transfer" on the penultimate line - ------------------------------------------------------------------------------------------------------------------------- Section 9.1 is amended by inserting after the words o to clarify that amendments must be in writing "make and execute" on line 1 the word "written" - ------------------------------------------------------------------------------------------------------------------------- Section 10.2 is amended (i) by replacing the heading o to clarify the content of the section in the case "Intention of Parties to Establish Trust" with the of (i) and to correct a typographical error in the heading "No Partnership, etc" and (ii) by deleting the case of (ii) "," after the word "partnership" - ------------------------------------------------------------------------------------------------------------------------- Section 10.4 is amended (i) by replacing the words "the o to add all parties to the provision consenting to Trustee, LFC and Reorganized LFC" on lines 2-3 with jurisdiction in the case of (i) and to allow the the words "each of the Trustee, Debtors, Reorganized Bankruptcy Court to retain jurisdiction in the LFC and Reorganized LIS" and (ii) by replacing the last case of (ii) sentence with the following: "The parties agree and consent that the Bankruptcy Court shall retain jurisdiction to enforce this Agreement in order to effectuate the provisions of the Plan and to resolve any disputes that may arise among the parties, or which may arise in connection with the administration of the Trust." - -------------------------------------------------------------------------------------------------------------------------
41 - ------------------------------------------------------------------------------------------------------------------------- Section 10.6(b) is amended (i) by deleting the "," o to correct a typographical error in the case of after the word "certified" on line 5 and (ii) by (i) and to provide for an address for notices to replacing the words "[insert address]" with the words the Trustee in the case of (ii) "Zalkin, Rodin & Goodman, L.L.P., 750 Third Avenue, New York, NY 10017" - ------------------------------------------------------------------------------------------------------------------------- Section 10.8 is amended by replacing it in its entirety o to reflect the fact the Bankruptcy Court will with the following: retain jurisdiction over disputes involving the Trust and to allow the Trustee to judicially "10.8 Jurisdiction. The Trustee may, in his settle the final account sole discretion, apply to the Bankruptcy Court for instructions in connection with any issue which may arise in the administration of this Trust, for an order approving the settlement or compromise of any claim asserted by, or judgment in favor of, the Trust or to judicially settle the final account of Trustee upon his death or resignation or upon the termination of this Trust." - -------------------------------------------------------------------------------------------------------------------------
42 The signature lines are amended by replacing the following: o to add parties to the signature pages "REORGANIZED LOMAS FINANCIAL CORPORATION By: ------------------------------------- Name: Title: By: ------------------------------------- As Trustee" with the following: LOMAS INFORMATION SYSTEMS, INC. By: ---------------------------- Name: Title: LOMAS ADMINISTRATIVE SERVICES, INC. By: ---------------------------- Name: Title: SIENA HOLDINGS, INC. By: ---------------------------- Name: Title: SIENA INFORMATION SERVICES, INC. By: ---------------------------- Name: Title: By: ---------------------------- Henry L. Goodman, Esq. Trustee"
20 43 EXHIBIT A MODIFICATIONS TO SECOND AMENDED J0INT CHAPTER 11 PLAN
- ------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ------------------------------------------------------------------------------------------------------------------------- The definition of "LFC DISTRIBUTABLE CASH" is amended o to provide for the fact that on the Effective Date to read in full as follows: insufficient funds may be available to Reorganized LFC to fund the various reserves (because the "LFC DISTRIBUTABLE CASH' means (a) on the Effective proceeds of the rabbi trust may not have been Date, all cash of LFC, after giving effect to (i) a received if the LFC Creditors' Committee waives payment, if any, or other transfer, if any, by LFC into the related conditions to effectiveness) and to the Intercompany Claims Reserve, if any, (ii) allow the LFC Creditors' Committee or Reorganized appropriate reserves for Administrative Claims, LFC to determine the amount of the working capital Priority Claims, Secured Claims and Convenience reserve until initial distributions are made in Unsecured Claims, (iii) the amount placed in the LFC respect of general unsecured claims Litigation Trust pursuant to SECTION 7.13 and (iv) a reserve for working capital equal to an amount specified by the LFC Creditors' Committee or, after the Effective Date, Reorganized LFC, in writing to the Bankruptcy Court before the date of the initial distribution pursuant to SECTION 7.5(a) and (b) after the Effective Date, subject to completion of the funding of all reserves specified in clause (a)(i), (a)(ii) and (a)(iv) above and the making of the payment specified in clause (a)(iii) above, all subsequently received net cash proceeds from the disposition of, or net income on, Non-Reorganization Assets of LFC or Reorganized LFC, and all cash subsequently distributed to Reorganized LFC from the Intercompany Claims Reserve or the LFC Litigation Trust.' - ------------------------------------------------------------------------------------------------------------------------- Section 4.14 is amended by replacing the word "2" on line 2 with the word "3" o to correct a typographical error - ------------------------------------------------------------------------------------------------------------------------- Section 7.5(b) is amended by replacing the last word "7.5(b)" with the word "7.5" o to correct a typographical error - ------------------------------------------------------------------------------------------------------------------------- Sections 4.10 and 4.15 are amended by changing the references to "Section 6.2" to "Section 6.3" o to correct typographical errors - -------------------------------------------------------------------------------------------------------------------------
44 - ------------------------------------------------------------------------------------------------------------------------- Section 7.9 is amended by inserting "(b)" before the o to provide for a change in governance of LFC soon existing text and adding a new paragraph (a) reading after Confirmation pending the satisfaction of the as follows: conditions to the Effective Date "(a) From and after October 5, 1996 until the Effective Date, the board of directors of each of Reorganized LFC and Reorganized LIS shall consist of a single director designated by the LFC Creditors' Committee and disclosed to the Bankruptcy Court at or prior to the Confirmation Hearing, as successor to the then current Debtor's board of directors. The Chief Executive Officer of Reorganized LFC for such period shall be an individual designated by the LFC Creditors' Committee and disclosed to the Bankruptcy Court at or prior to the Confirmation Hearing. Arrangements regarding compensation of such officer and director shall be agreed upon between such director and officer and the LFC Creditors' Committee. Such director and officer shall be deemed elected as of October 5, 1996 pursuant to the Confirmation Order. Those officers and directors not continuing in office shall be deemed removed therefrom as of October 5, 1996 pursuant to the Confirmation Order. This provision is subject to Reorganized LFC obtaining appropriate officers' and directors' insurance and does not take effect until such insurance is effective and, in that event, the date of the deemed election and removal referred to above shall be the effective date of the insurance." - ------------------------------------------------------------------------------------------------------------------------- Section 7.13 is amended (i) by inserting at the end of o to clarify that the transfer of third party claims the first paragraph the following sentence: to the LFC Litigation Trust does not affect the Reorganized Debtors' rights of offset against such "Notwithstanding the foregoing, the Debtors shall third parties or their rights to disallow such retain their rights of setoff and their rights under third parties' claims pursuant to Section 502(d) Section 502(d) of the Bankruptcy Code to the extent, of the Bankruptcy Code until such third parties and only to the extent, necessary to defend against a pay amounts for which they are liable to the Claim by any person against whom claims, rights or Debtors in the case of (i), to reflect LFC causes of action are assigned to the LFC Litigation Creditors' Committee election in the case of Trust pursuant to the preceding sentence." (ii), to clarify that the creditors of LIS and LAS may be beneficiaries of the Trust under the Plan (ii) by replacing the number "2" on line 11 with the in the case of (iii) and to correct a number "4", typographical error in the case of (iv) (iii) by deleting the words "for distribution to holders of LFC Class 3 Claims in accordance with SECTION 4.3 AND 7.5" at the end of the paragraph and inserting "Reorganized LFC will be responsible for distribution of any such Net Proceeds to the holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3 Claims or Allowed LAS Class 3 Claims in accordance with SECTION 7.5 of the Plan." and (iv) by replacing in subsection (c) the word "LIS" with the word "LFC" - -------------------------------------------------------------------------------------------------------------------------
45 - ------------------------------------------------------------------------------------------------------------------------- Section 7.16 is amended to inserting after the word o to facilitate the funding of reserves as described "hereof on line 4 the following: above in the modification to "LFC Distributable Cash" "or their use to satisfy the initial funding requirements described in paragraph (b) of the definition of "LFC Distributable Cash" in SECTION 1.2 above" - ------------------------------------------------------------------------------------------------------------------------- Section 9.5 is amended by replacing the word o to correct a typographical error "1114(c)(1)(B)" with 1114(e)(1)(B)" - -------------------------------------------------------------------------------------------------------------------------
46 SUBSTANTIVE MODIFICATIONS TO EXHIBIT A-1 TO JOINT CHAPTER 11 PLAN (RESTATED CERTIFICATE OF INCORPORATION)
- ------------------------------------------------------------------------------------------------------------------------ MODIFICATION REASONS FOR MODIFICATION - ------------------------------------------------------------------------------------------------------------------------ The Fourth Article of Paragraph 4 is amended by o to change number of shares of Common Stock the replacing the number "4,000,000" with the number corporation may issue pursuant to request of LFC "16,000,000" and by replacing the number "3,000,000" Creditors' Committee with the number "15,000,000" - ------------------------------------------------------------------------------------------------------------------------ The first paragraph of the Fifth Article of Paragraph 4 o to change the minimum number of directors required is amended by replacing the words "five (5)" with the for the Board of Directors pursuant to request of words "three (3)" LFC Creditors' Committee - ------------------------------------------------------------------------------------------------------------------------ The second paragraph of the Fifth Article of Paragraph o to reflect language requested by LFC Creditors' 4 is amended to read in full as follows: Committee "At any time after the first anniversary of the effective date of the Corporation's Chapter 11 Plan and prior to the earlier to occur of (i) the third anniversary of the effective date of the Corporation's Chapter 11 Plan and (ii) the first stockholder's meeting of the Corporation, if the Corporation has not identified one or more individuals or entities who are willing to invest in the Corporation cash or assets that have a value of at least (35% of the then current value of the assets of the Corporation in exchange for authorized but previously unissued shares of Common Stock of the Corporation in an amount not to exceed 49% of the total number of shares of Common Stock of the Corporation outstanding (after taking such new issuance into account), the Board of Directors may, in accordance with Section 303 of Delaware Law but without the necessity of any vote by the stockholders, adopt a plan of liquidation for the Corporation, and take the appropriate steps to effectuate such plan of liquidation in accordance with applicable law." - ------------------------------------------------------------------------------------------------------------------------ The Sixth Article of Paragraph 4 is amended (i) by o to correct errors in the percentages of shares replacing the number "1,200,000" on line 1 with the required to be distributed for normal corporate number "333,333"; (ii) by replacing the number governance to resume "2,400,000" on line 5 with the number "666,667"; and (iii) by deleting the words "the General Corporation Law of the State of Delaware" - ------------------------------------------------------------------------------------------------------------------------ The second paragraph of the Seventh Article of o to reflect insertion requested by LFC Creditors' Paragraph 4 is amended to replace "[ ]" on line 1 with Committee "333,333" - ------------------------------------------------------------------------------------------------------------------------
47
- ------------------------------------------------------------------------------------------------------------------------ MODIFICATION REASONS FOR MODIFICATION - ------------------------------------------------------------------------------------------------------------------------ Paragraph (1) of the Tenth Article of Paragraph 4 is o to reflect language requested by LFC Creditors' amended to read in full as follows: Committee "TENTH: (1) To the extent permitted by law, no director of the Corporation shall be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director." - ------------------------------------------------------------------------------------------------------------------------ Paragraph (a)(iii) of the Eleventh Article of Paragraph o to correct a typographical error in the case of 4 is amended (i) by replacing the word "shareholders" (i) and to insert language requested by the LFC on line 8 with the word "stockholders" and (ii) by Creditors' Committee to permit certain inserting after the words "the proposed Transfer is to" transactions by significant stockholders in the on the last line of page six the word "(x)" and by case of (ii) inserting after the words "which are owned by the Transferor" on line 2 of page seven the following: "or (y) a Person with an Ownership Interest Percentage as of the effective date of the Corporation's Chapter 11 Plan (such Person's "Effective Date Ownership Percentage") of at least 4.5 percent, provided that (I) the Ownership Interest Percentage of such Person immediately after such Transfer will be no more than 10 percentage points greater than such Person's Effective Date Ownership Percentage, (II) the total of the Ownership Interest Percentages immediately after such Transfer of all Persons having an Effective Date Ownership Percentage of at least 4.5 percent will not be more than 20 percentage points greater than the total of such Person's Effective Date Ownership Percentages, and provided further, that the Board of Directors will not be required to approve such a Transfer if the Board determines that there is a Person who has not received any Stock pursuant to Sections 4.3 and 7.5 of the Chapter 11 Plan and who plans to acquire Stock, directly or indirectly, such that its Ownership Interest Percentage eventually will be more than 30 percent" - ------------------------------------------------------------------------------------------------------------------------
48
SUBSTANTIVE MODIFICATIONS TO EXHIBIT A-1 TO JOINT CHAPTER 11 PLAN (BYLAWS OF REORGANIZED LFC) - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- Article 11, Section 2 is amended to read in full as o to postpone the date on which an annual follows: stockholders' meeting must be held pursuant to the request of the LFC Creditors' Committee "Section 2. Annual Meetings. Annual meetings of stockholders, commencing with the year 1998 or the first year following distribution of Common Stock pursuant to the Corporation's Chapter 11 Plan, whichever is later, shall be held to elect the Board of Directors and transact such other business as may properly be brought before the meeting." - ----------------------------------------------------------------------------------------------------------------------------------- Article III, Section 2 is amended by replacing the o to change the number of directors required for the words "seven (7)" with the words "three (3)" and by Board of Directors in order to conform to replacing the words "seventeen (17)" with the words Certificate of Incorporation "eleven (11)" - -----------------------------------------------------------------------------------------------------------------------------------
6 49
SUBSTANTIVE MODIFICATIONS TO EXHIBIT B TO JOINT CHAPTER 11 PLAN (LFC LITIGATION TRUST AGREEMENT) - ----------------------------------------------------------------------------------------------------------------------------------- MODIFICATION REASONS FOR MODIFICATION - ----------------------------------------------------------------------------------------------------------------------------------- The Preamble is amended by replacing the words o to make LIS, LAS and Reorganized LIS parties to "Debtor-in-possession ("LFC"), Reorganized Lomas the Agreement in order to better conform to the Financial Corporation, a Delaware corporation Plan ("Reorganized LFC") and ______" with the words "a Debtor and a Debtor-in-possession ("LFC"), Lomas Information o numerous minor changes will made to accommodate Systems, Inc., a Nevada corporation and a Debtor and a this concept Debtor-in-possession ("LIS"), Lomas Administrative Services, Inc., a Nevada corporation and a Debtor and a Debtor-in-possession ("LAS"), Siena Holdings, Inc., a Delaware corporation ("Reorganized LFC"), Siena Information Services, Inc., a Nevada corporation ("Reorganized LIS"), and Henry L. Goodman, Esq." Paragraph C of the Recitals is amended to read in its entirety as follows: - ----------------------------------------------------------------------------------------------------------------------------------- "C. The Plan provides that effective on the Effective o to conform to same change in the Plan and to Date, each of LFC, LIS and LAS shall be deemed to have reflect election of LFC Creditors' Committee to transferred and assigned to the Trust governed by this change the amount of Expense Fund Agreement any and all claims, rights, or causes of action that constitute property of any of the Estates or of the Debtors, whether arising under the Bankruptcy Code or under nonbankruptcy law, (including all books, records, privileges and defenses relating thereto) including, without limitation, all rights of setoff and rights under Section 502(d) of the Bankruptcy Code and all avoiding power actions, including, without limitation, under sections 544, 545, 547, 548, 549, 550 and 553 of the Bankruptcy Code or under applicable nonbankruptcy law as applied through section 544(b) of the Bankruptcy Code, other than Intercompany Claims and other than any asset or interest owned or held by any of the Debtors as reflected in its Confirmation Date balance sheet and otherwise reflected in LFC's financial statements and accompanying notes, such as notes, debentures, nursing home contracts, other contracts, excess benefit plan assets, MSP/rabbi trust fund assets, stocks or other securities or partnership interests. Notwithstanding the foregoing, the Plan further provides, the Debtors shall retain their rights of setoff of their rights under Section 502(d) of the Bankruptcy Code to the extent necessary to defend against a Claim by any person against whom claims, rights or causes of action are assigned to the LFC Litigation Trust pursuant to the preceding sentence. In addition, the Plan provides that on or as soon as practicable after the Effective Date, Reorganized LFC shall transfer to the Trust $2 million or such other amount as the LFC Creditors' Committee shall have specified in writing to LFC and the Bankruptcy Court at least three (3) Business Days prior to the commencement of the Confirmation Hearing to fund the administration of the Trust. On August 23, 1996, the LFC Creditors' Committee specified $4,000,000 as such other amount."
7 50 - ----------------------------------------------------------------------------------------------------------------------------------- Section 1.2 is amended: o to provide definition related to change to Section 5.2(c) requested by LFC Creditors' Committee in "(i) by adding the following definitions, (a) the case of (i), to reflect request of LFC 'ADMINISTRATIVE BENEFICIARY' means Reorganized LFC who Creditors' Committee in the cases of (ii), (iv) and will receive and distribute all Net Proceeds to (v), to reflect the fact that each of the Debtors Reorganized LFC, Reorganized LIS and LAS, as the case will assign assets to the Trust in the case of may be, for the benefit of the creditors of the (iii)(a) and to conform to same change in the Plan appropriate Debtor pursuant to the terms of this in the case of (iii)(b) Agreement and of the Plan." and (b) "'BENEFICIARIES' means Reorganized LFC, Reorganized LIS and LAS as trustees for the benefit of certain the creditors of the Debtors, as defined more fully pursuant to the terms of this Agreement and of the Plan." (ii) by replacing in the definition of "EXPENSE FUND" the words "2 million" with the number "4,000,000" (iii) by replacing in the definition of "INITIAL TRUST ASSETS" (a) the words "the Estate" with the words "each of the Estates" and the word "LFC" with the words "the Debtors" both on line 2, (b) the words "Intercompany Claim" at the end of the definition of Initial Trust Assets with the following: "(i) Intercompany Claims, (ii) any asset or interest owned or held by any of the Debtors as reflected in its Confirmation Date balance sheet and otherwise reflected in LFC's financial statements and accompanying notes, such as notes, debentures, nursing home contracts, other contracts, excess benefit plan assets, MSP/rabbi trust fund assets, stocks or other securities or partnership interests and (iii) the Debtors' rights of setoff and rights under Section 502(d) of the Bankruptcy Code to the extent necessary to defend against a Claim by any person against whom claims, rights or causes of action are assigned to the LFC Litigation Trust." (c) by inserting after the word "actions" on line 5 the words ", including, without limitation," and (iv) by moving the definition of "TRUSTEE" to the end of the Section - -----------------------------------------------------------------------------------------------------------------------------------
8 51 - ----------------------------------------------------------------------------------------------------------------------------------- Section 2.1 is amended to read in full as follows: o to account for the fact only $2,500,000 of the Expense Fund will be funded on the Effective Date "Section 2.1 Declaration of Trust. Pursuant to the Plan, on the Effective Date, each of the Debtors transferred the Initial Trust Assets (other than $1,500,000 of the Expense Fund) to the Trustee, in trust, according to the terms of this Agreement for the benefit of Reorganized LFC as trustee for the benefit of certain of the creditors of the Debtors Pursuant to the terms of this Agreement and of the Plan. The remaining $1,500,000 of the Expense Fund will be transferred by Reorganized LFC to the Trustee, in trust as aforesaid, when such funds available after a working capital reserve at the level required by the Plan has been initially funded. Without further notice or order, the LFC Litigation Trust may transfer some or all of the Expense Fund to any trust created pursuant to paragraph 21 of the Order, if consistent with the settlement of the Intercompany Claims." - ----------------------------------------------------------------------------------------------------------------------------------- Section 4.1 is amended (i) by inserting a "," after the o to correct a typographical error in the cases of word "including" and the word "limitation" on line 3, (i) and (ii) and to reflect request of the LFC (ii) by deleting the "," after the word "taxes" on line Creditors' Committee in the case of (iii) 10 and (iii) by replacing the words "2 million" with the number "4,000,000" - ----------------------------------------------------------------------------------------------------------------------------------- Section 5.2 is amended (i) by inserting in subsection o to reflect request of LFC Creditors' Committee to (c) after the word "LFC" on line 4 a "," and after the clarify that Trustee may retain counsel for words "other persons" on line 5 the following Reorganized Debtors and/or LFC Creditors' parenthetical: Committee in the case of (i), to reflect request of LFC Creditors' Committee in the case of (ii), "(which counsel, accountants, experts, advisors or to correct a typographical error in the cases of other persons may serve in the future, serve at present (iii) and (v) and to add foreign laws in the cases or have served in the past in such capacity or a of (iv) and (vi)) similar capacity for Reorganized LFC, Reorganized LIS, LAS or the LFC Creditors' Committee)", (ii) by inserting in subsection (d) after the word "name" on line 2 with the words ", as Trustee for the Trust" (iii) by inserting in subsection (e) a "," after the word "discretion" (iv) by replacing in subsection (f) the words "federal and state" on line 2 with the words "federal, state and foreign" and (v) by deleting in subsection (h) the "," after the words "permitted" on line 1 and "agreement" on line 2 (vi) by replacing in subsection (i) the words "federal, state and local" on line 1, on line 2 and on line 3 with the words "federal, state, local or foreign" - -----------------------------------------------------------------------------------------------------------------------------------
9 52 - ----------------------------------------------------------------------------------------------------------------------------------- Section 6.1 is amended (i) by replacing the words on o to reflect request of LFC Creditors' Committee lines 4-6: that Trustee be relieved of liability for negligence, which will facilitate the Trustee's "No provision hereof shall be construed to relieve the purchase of the liability insurance described in Trustee from liability for his own grossly negligent Section 6.4 action, his own negligent failure to act or his own" with the following: "The Trustee shall not be liable under this Agreement other than for his proven" and (ii) by deleting subsections (a)-(d) - ----------------------------------------------------------------------------------------------------------------------------------- Section 6.4 is amended by replacing the words "without o to reflect request of LFC Creditors' Committee negligence or willful misconduct" on line 4 and adding the words "other than as a result of proven willful misconduct" - ----------------------------------------------------------------------------------------------------------------------------------- Section 7.1 is amended by replacing the first sentence o to finalize language as to how Trustee's with the following: compensation will be determined In lieu of commissions or other compensation fixed by law for trustees, the Trustee shall receive as compensation for services as Trustee hereunder, an amount not to exceed 25% on the first $5,000 or less, 10% on any amount in excess of $5,000 but not in excess of $50,000, 5% on any amount in excess of $50,000 but not in excess of $1,000,000, 3% of monies in excess of $1,000,000 but not in excess of $10,000,000, and reasonable compensation not to exceed 2% of monies in excess of $10,000,000, of all monies disbursed or turned over in the case by the Trustee to the LFC Creditors' Trust. - ----------------------------------------------------------------------------------------------------------------------------------- Section 8.2 is amended to add at the end thereof the o to reflect request of LFC Creditors' Committee following sentence: "The Trustee shall be entitled to compensation in accordance with Section 7.1 in respect of amounts received by Trustee on all claims for which actions or proceedings have been instituted prior to Trustee's termination." - -----------------------------------------------------------------------------------------------------------------------------------
10 53 EXHIBIT B IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE - -------------------------------------- IN RE: ) CHAPTER 11 LOMAS FINANCIAL CORPORATION, ) LOMAS INFORMATION SYSTEMS, INC. CASE NOS. 95-1235, 95-1237 AND LOMAS ADMINISTRATIVE ) AND 95-1238 (PJW) SERVICES, INC., ) DEBTORS. (JOINTLY ADMINISTERED) ) - -------------------------------------- NOTICE OF ENTRY OF CONFIRMATION ORDER PLEASE TAKE NOTICE that in the Chapter 11 bankruptcy case of Lomas Financial Corporation, Lomas Information Systems, Inc. and Lomas Administrative Services, Inc. (collectively the "Debtors"), an order (the "Confirmation Order") confirming the Debtors' Second Amended Chapter 11 Plan dated July 3, 1996 (as modified by the Modifications to Debtors' Second Amended Chapter 11 Plan attached to the Confirmation Order as Exhibit A thereto) (the "Plan"), was signed by the Honorable Peter J. Walsh, United States Bankruptcy Judge, on the 4th day of October, 1996 (the "Confirmation Date"), and was duly entered thereafter on the docket for this case in the Office of the Clerk of the United States Court for the District of Delaware (the "Bankruptcy Court"). PLEASE TAKE FURTHER NOTICE that the Confirmation Order is available for inspection in the office of the Clerk of the Bankruptcy Court at the United States Bankruptcy Court, 6th Floor, Marine Midland Plaza, 824 Market Street, Wilmington, Delaware 19801. PLEASE TAKE FURTHER NOTICE that any unexpired lease or executory contract of any of the Debtors which as of the Confirmation Date has not been assumed or been the subject of a pending motion to assume, is deemed rejected pursuant to Section 365 of the Bankruptcy Code. All parties asserting a claim arising out of such rejection must file their claim with the Clerk of the United States Bankruptcy Court at the above address on or before December 16, 1996 or such claim shall be forever barred. PLEASE TAKE FURTHER NOTICE that any person seeking an allowance of final compensation or reimbursement of expenses for professional services rendered in relation to this Chapter 11 Case, pursuant to Sections 327, 328, 330, 331, 502(b) or 1103 of the Bankruptcy Code, shall file with the Bankruptcy Court an application for allowance of final compensation for services rendered and reimbursement of related expenses and serve the same on (a) counsel of record for the Debtors, James L. Patton, Esq., young, Conaway, Stargatt & Taylor, 11th Floor, Rodney Square North, P. O. Box 391, Wilmington, Delaware 19801-0391 and Robert J. Levine, Esq., Davis Polk & Wardwell, 450 Lexington Avenue, New York, New York 10017; (b) counsel of record for the EXHIBIT B--NOTICE 54 Statutory Creditors' Committee of Lomas Mortgage USA, Inc., Neil B. Glassman, Esq. Bayard Handelman & Murdoch, P.A., 902 Market Street, 13th Floor, P.O. Box 25130, Wilmington, Delaware 19899 and Martin J. Bienenstock, Esq., Weil, Gotshal & Manges LLP, 767 Fifth Avenue, New York, New York 10153, (c) counsel of record to the Statutory Creditors' Committee of Lomas Financial Corporation, Hugh M. Ray, Esq., Andrews & Kurth LLP, 600 Travis Street, 4200 Texas Commerce Tower, Houston, Texas 77002, Peter S. Goodman, Esq., Andrews & Kurth, L.L.P., 425 Lexington Avenue, New York, New York 10017, and Jeffrey C. Wisler, Esq., Williams, Hershman & Wisler, P.A., Suite 600, One Commerce Center, Twelfth and Orange Streets, P.O. Box 511, Wilmington, Delaware 19899-0611, and (d) John McLaughlin, Esq., Office of the United States Trustee for the District of Delaware, 601 Walnut Street, Curtis Center, Suite 905-W, Philadelphia, Pennsylvania 19106, by 4:30 p.m. Eastern Daylight Time no later than forty (40) days after being served with notice that the Effective Date of the Debtors' Chapter 11 Plan has occurred, which notice shall be served within five (5) days after the occurrence of such Effective Date. Any such claim that is not filed within this time deadline shall be forever barred. Dated: Wilmington, Delaware October 4, 1996 YOUNG, CONAWAY, STARGATT & TAYLOR ------------------------------------ James L. Patton, Jr. (No. 2202) Robert S. Brady (No. 2847) Brendan Linehan Shannon (No. 3136) 11th Floor, Rodney Square North P.O. Box 391 Wilmington, Delaware 19899-0391 (302) 571-6600 -and- DAVIS POLK & WARDWELL Robert J. Levine Laureen F. Bedell Richard C. Potok 450 Lexington Avenue New York, New York 10017 (212) 450-4000 Co-Counsel to Debtors and Debtors-in-Possession 2 EX-10.4 5 LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 1 EXHIBIT 10.4 LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT dated as of March 6, 1997 among Lomas Financial Corporation, Lomas Information Systems, Inc., Lomas Administrative Services, Inc., Siena Holdings, Inc., Siena Information Services, Inc. and Lomas Mortgage USA, Inc. Nomas Corp. and Neil B. Glassman, Esq. and Martin J. Bienenstock, Esq. Trustees and Martin R. Pollner, Esq. Trustee LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 2 TABLE OF CONTENTS
ARTICLE 1 DEFINITIONS 1.1 Rules of Interpretation ............................................ 3 1.2 Definitions ........................................................ 3 ARTICLE 2 NATURE OF TRANSFER 2.1 Declaration of Trust ............................................... 5 2.2 No Additional Beneficiaries ........................................ 6 2.3 Property In Trust .................................................. 6 2.4 Creation of Expense Fund ........................................... 6 2.5 Purpose of Trust ................................................... 6 2.6 Income Tax Status .................................................. 6 2.7 No Reversion to the LFC Administrative Beneficiary and Reorganized LMUSA ........................................... 7 2.8 Instruments of Further Assurance; Information ...................... 7 ARTICLE 3 DURATION AND TERMINATION OF TRUST 3.1 Duration ........................................................... 7 3.2 Continuance of Trust for Winding Up; Accounting .................... 7 ARTICLE 4 ADMINISTRATION OF TRUST ESTATE 4.1 Expense Reserve .................................................... 8 4.2 Increase of Expense Reserve Using Trust Assets ..................... 8 4.3 Interim Distributions .............................................. 9 4.4 Final Distribution ................................................. 10 4.5 Reports to LFC Administrative Beneficiary and Reorganized LMUSA................................................. 10 4.6 Income Tax Information.............................................. 10 4.7 Withholding of Taxes and Other Charges.............................. 11 4.8 Other Reports....................................................... 11
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ARTICLE 5 POWERS OF AND LIMITATIONS ON THE TRUSTEE 5.1 Limitations on Trustee................................................11 5.2 Specific Powers and Responsibilities of Trustee.......................12 5.3 Discretionary Submission of Questions to LFC Administrative Beneficiary and/or Reorganized LMUSA on Behalf of Creditors Trust .................................14 5.4 Additional Powers of Trustee .........................................14 5.5 Limitations on Powers of Trustee to Deal with Trust in Non-Fiduciary Capacity ....................................15 ARTICLE 6 CONCERNING THE TRUSTEE 6.1 Generally ............................................................15 6.2 Transferee Liabilities ...............................................15 6.3 Reliance by Trustee ..................................................15 6.4 Indemnification of Trustee ...........................................16 6.5 No Implied Duties ....................................................16 6.6 Trustee's Lien .......................................................16 6.7 No Personal Liability ................................................16 6.8 Valuation of Trust Assets ............................................16 ARTICLE 7 COMPENSATION OF TRUSTEE 7.1 Amount of Compensation ...............................................17 7.2 Dates of Payment .....................................................17 ARTICLE 8 TRUSTEE AND SUCCESSOR TRUSTEES 8.1 Number of Trustees ...................................................17 8.2 Resignation and Removal ..............................................17 8.3 Appointment of Successor Trustee .....................................18 8.4 Acceptance of Appointment by Successor Trustee .......................18 8.5 Bonds ................................................................18
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ARTICLE 9 POWERS AND RESPONSIBILITIES OF THE BENEFICIARIES' COMMITTEE 9.1 ......................................................................18 9.2 ......................................................................18 9.3 ......................................................................19 9.4 ......................................................................19 9.5 ......................................................................19 9.6 ......................................................................19 ARTICLE 10 AMENDMENTS 10.1 Amendments ...........................................................19 ARTICLE 11 MISCELLANEOUS PROVISIONS 11.1 Filing Documents......................................................20 11.2 No Partnership, etc. .................................................20 11.3 Requirement of Undertaking............................................20 11.4 Laws as to Construction ..............................................20 11.5 Severability .........................................................20 11.6 Notices ..............................................................21 11.7 Counterparts .........................................................21 11.8 Jurisdiction .........................................................21 Exhibit A ...................................................................A-1 Exhibit B ...................................................................B-1 Exhibit C ...................................................................C-1 Exhibit D ...................................................................D-1 Exhibit E ...................................................................E-1 Exhibit F .................................................................. F-1
-iii- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 5 LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT THIS AGREEMENT AND DECLARATION OF TRUST (the "Agreement") is made as of the 6th day of March, 1997, by and among Lomas Financial Corporation. Inc., a Delaware corporation and a Debtor and a Debtor-in-possession ("LFC"), Lomas Information Systems. Inc., a Nevada corporation and a Debtor and a Debtor-in-possession ("LIS"), Lomas Administrative Services, Inc., a Nevada corporation and a Debtor and a Debtor-in-possession ("LAS"), Siena Holdings, Inc., a Delaware corporation ("Reorganized LFC"), Siena Information Services, Inc., a Nevada corporation ("Reorganized LIS"), and Lomas Mortgage USA, Inc., a Connecticut corporation and a Debtor and a Debtor-in-possession ("LMUSA"), Nomas Corp., a Connecticut corporation ("Reorganized LMUSA") Neil B. Glassman, Esq. and Martin J. Bienenstock, Esq., as Trustees for the LMUSA Litigation Trust, and Martin R. Pollner, Esq., as the Trustee hereunder (as defined below). RECITALS A. LFC, and its subsidiaries LMUSA, LIS and LAS (the "Debtors"), filed voluntary petitions under Chapter 11 of the United States Bankruptcy Code on or about October 10, 1995. The Joint Chapter 11 Plan for LFC, LIS and LAS, dated April 8, 1996, (the "LFC Plan"), a copy of which is attached hereto as Exhibit A, was filed with the Bankruptcy Court in the proceeding captioned In re Lomas Financial Corporation, Lomas Information Systems, Inc. and Lomas Administrative Services, Inc., Debtors, Case Nos. 95-1235, 1237 and 1238 (PJW). The LMUSA Chapter 11 Plan, dated April 8, 1996, (the "LMUSA Plan"), a copy of which is attached hereto as Exhibit B, was filed with the Bankruptcy Court in the proceeding captioned In re Lomas Mortgage USA, Inc., Debtor, Case No. 95-1236 (PJW). (The LFC Plan and the LMUSA Plan are collectively the "Plans".) B. The LFC Plan, as modified by certain modifications approved by the Bankruptcy Court and attached hereto as Exhibit C, was confirmed by order of the Bankruptcy Court dated October 4, 1996 (the "LFC Order"). The LMUSA Plan, as modified by certain modifications approved by the Bankruptcy Court and attached hereto as Exhibit D, was confirmed by order of the Bankruptcy Court dated October 1, 1996 (the "LMUSA Order"). Pursuant to the LMUSA Plan, the LMUSA Litigation Trust (the "Original LMUSA Litigation Trust") was established. Neil B. Glassman, Esq. and Martin J. Bienenstock, Esq. were named trustees of the Original LMUSA Litigation Trust. Pursuant to the LMUSA Litigation Trust LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 6 Agreement dated as of October 1, 1996, a copy of which is attached as Exhibit E, certain assets of LMUSA were deemed transferred to the Original LMUSA Litigation Trust. Pursuant to paragraph 21 of the LMUSA Order, the assets of the Original LMUSA Litigation Trust are deemed transferred to the LFC/LMUSA Trust. The LFC Plan also provided for a litigation trust to be created solely for certain assets of LFC, LIS, and LAS; however, pursuant to paragraph 21 of the LFC Order, those assets will instead be transferred directly to the LFC/LMUSA Trust. C. On February 21,1997, the Bankruptcy Court approved the Agreement Between LMU Statutory Creditors' Committee and LFC Statutory Creditors' Committee in Respect of Intercompany Claims (the "Intercreditor Agreement"), a copy of which is attached as Exhibit F. Pursuant to and subject to the express terms of the Intercreditor Agreement, the Plans, the LFC Order, and the LMUSA Order, this LFC/LMUSA Trust (the "Trust" or the "LFC/LMUSA Trust") is hereby established. D. Pursuant to the terms of the Intercreditor Agreement, the LFC Order, and the LMUSA Order, each of LFC, LIS, LAS, LMUSA, and the Original LUMSA Litigation Trust shall be deemed to have transferred and assigned to the LFC/LMUSA Trust, the assets specified in paragraph 19 of the LFC Order and paragraph 20 of the LMUSA Order, namely all claims, rights, or causes of action that constitute or constituted property of any of the Estates or of the Debtors, whether arising under the Bankruptcy Code or under nonbankruptcy law (including all books, records, privileges and defenses relating thereto), including, without limitation, all rights of setoff and rights under Section 502(d) of the Bankruptcy Code and all avoiding power actions, including, without limitation, under Sections 544, 545, 547, 548, 549, 550 and 553 of the Bankruptcy Code or under applicable nonbankruptcy law as applied through Section 544(b) of the Bankruptcy Code, other than Intercompany Claims and other than any asset or interest owned or held by any of the Debtors as reflected in its Confirmation Date balance sheet and otherwise reflected in LFC's financial statements and accompanying notes, such as notes, debentures, nursing home contracts, other contracts, excess benefit plan assets, MSP/rabbi trust fund assets, stocks or other securities or partnership interests. Notwithstanding the foregoing, as the Plans further provide, the Debtors shall retain their rights of setoff and their rights under Section 502(d) of the Bankruptcy Code to the extent necessary to defend against a Claim by any person against whom claims, rights or causes of action are assigned to the LFC/LMUSA Trust pursuant to the preceding sentence. The Original LMUSA Litigation Trust has not been funded. In addition, the Intercreditor Agreement, the LFC Order, and the LMUSA Order provide that the LFC Administrative Beneficiary and the Reorganized LMUSA (or the Original LMUSA Litigation Trust) shall transfer to the LFC/LMUSA Trust such amount as the respective Creditors' Committees shall have specified in the Intercreditor Agreement, namely $3,000,000 and $2,000,000, as an initial Expense Reserve. E. The Intercreditor Agreement and the LFC Order and LMUSA Order provide that the Trustee will be responsible for pursuing, as appropriate, the claims and causes of action assigned to the Trust through litigation or, if appropriate, settlement and distribution of, pursuant to SECTION 4.3 -2- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 7 and 4.4, any Net Proceeds of such litigation or settlement to (i) Reorganized LMUSA for distribution to holders of Allowed LMUSA Class 3 Claims or (ii) to the LFC Administrative Beneficiary for eventual distribution to the holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3 Claims or Allowed LAS Class 3 Claims in accordance with SECTION 7.5 of the LFC Plan. The Plans further provide that the Trustee will be discharged from any further distribution responsibility after distribution to the LFC Administrative Beneficiary or Reorganized LMUSA, who will be responsible for further distribution of any such Net Proceeds. The LFC Administrative Beneficiary will be discharged from any further distribution responsibility after distribution to Reorganized LFC, Reorganized LIS, and Reorganized LAS. F. The Trust shall be deemed not to be any of the Debtors or a successor to any of the Debtors, but only the assignee of the assets transferred to the Trust. G. It is desired that the mechanism for payment of funds constituting proceeds of the Trust Assets be specified and that the Trustee's rights, powers and duties with respect to the Trust created hereby be established. H. The Trustee shall be authorized to do and perform such acts, to execute and deliver such bills of sale, instruments of transfer and other documents and to engage the services of such agents, attorneys, accountants, appraisers, consultants and other persons as he may deem necessary or advisable in order to carry out the purposes of the Trust created hereby. I. In order to implement the Plans and Intercreditor Agreement, and in consideration of the promises and the mutual covenants, terms and conditions contained herein, the parties hereto agree as follows: ARTICLE 1 DEFINITIONS 1.1 Rules of Interpretation. As used herein, the following terms have the respective meanings specified below and such meanings shall be equally applicable to both the singular and plural, and masculine and feminine, forms of the terms defined. In the event that the Trust is administered by a female Trustee or a corporate Trustee, the use of masculine prepositions and pronouns herein shall be read as if written in the feminine or neuter forms, as the case may be. The words "herein," "hereof," "hereto," "hereunder" and other words of similar import refer to this Agreement as a whole and not to any particular section, subsection or clause contained herein. Captions and headings to articles, sections, schedules and exhibits are inserted for convenience of reference only and are not intended to be part of or to affect the interpretation of this Agreement. The rules of construction set forth in Section 102 of the Bankruptcy Code shall apply. 1.2 Definitions. All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them (a) in the Plans (so long as that definition is the same in each Plan) -3- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 8 or (b) if not defined the same in both Plans, in the Bankruptcy Code. In addition to such other terms as are defined in other sections of this Agreement, the following terms (which appear herein as capitalized terms) shall have the following meanings: "AGREEMENT" means this instrument as originally executed together with all exhibits hereto, or as this instrument may from time to time be amended pursuant to the terms hereof. "AFFILIATED PERSON" shall have the same meaning as set forth in the Investment Company Act. "BENEFICIARIES" means Reorganized LFC, Reorganized LIS and LAS and Reorganized LMUSA as trustees for the benefit of certain creditors of the Debtors, as defined more fully pursuant to the terms of this Agreement and the Plans. "BENEFICIARIES' COMMITTEE" shall have the same meaning set forth in Sections 9.1 through 9.6 of the Agreement. "EXPENSE FUND" means the $3,000,000 delivered by LFC and the $2,000,000 delivered by LMUSA or the Original LMUSA Litigation Trust to the LFC/LMUSA Trust pursuant to the terms of the Intercreditor Agreement and SECTIONS 2.1 and 2.4 of the Agreement. "EXPENSE RESERVE" means the reserve created pursuant to the Intercreditor Agreement and SECTION 4.1 of this Agreement consisting of the Expense Fund and any additional contributions as described in SECTION 4.2 of this Agreement. "INITIAL TRUST ASSETS" means the assets specified in paragraph 19 of the LFC Order and paragraph 20 of the LMUSA Order, namely all claims, rights, or causes of action that constitute property of any of the Estates or of the Debtors, whether arising under the Bankruptcy Code or under nonbankruptcy law, (including all books, records, privileges and defenses relating thereto) including, without limitation, all rights of setoff and rights under Section 502(d) of the Bankruptcy Code and all avoiding power actions, including, without limitation, under Sections 544, 545, 547, 548, 549, 550 and 553 of the Bankruptcy Code or under applicable nonbankruptcy law as applied through Section 544(b) of the Bankruptcy Code, other than Intercompany Claims and other than any asset or interest owned or held by any of the Debtors as reflected in its Confirmation Date balance sheet and otherwise reflected in LFC's financial statements and accompanying notes, such as notes, debentures, nursing home contracts, other contracts, excess benefit plan assets, MSP/rabbi trust fund assets, stocks or other securities or partnership interests. Notwithstanding the foregoing, the Plan further provides, the Debtors shall retain their rights of setoff and their rights under Section 502(d) of the Bankruptcy Code to the extent necessary to defend against a Claim by any person against whom claims, rights or causes of action are assigned to the LFC Litigation Trust pursuant to the preceding sentence. In addition, the Intercreditor Agreement, the LFC Order, and the LMUSA Order provide that the LFC Administrative Beneficiary and the Reorganized LMUSA (or the Original LMUSA Litigation Trust) shall transfer to the LFC/LMUSA Trust such amount as the respective Creditors' Committees shall have specified in the Intercreditor Agreement, namely $3,000,000 and $2,000,000. -4- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 9 "INVESTMENT COMPANY ACT" means the Investment Company Act of 1940, as amended. "LFC ADMINISTRATIVE BENEFICIARY" means Reorganized LFC who will receive and distribute all Net Proceeds it receives from the Trustee to Reorganized LFC, Reorganized LIS and LAS, as the case may be, for the benefit of the creditors of the appropriate Debtor pursuant to the terms of this Agreement and of the LFC Plan. "NET PROCEEDS" means all cash in the Expense Fund and all Recoveries from other Initial Trust Assets after deducting therefrom the litigation and administrative costs and expenses, including but not limited to tax and accounting costs, pursuant to SECTION 4.1. "PLAN" has the meaning ascribed to such term in Recital B. "PRO RATA" means 60% to the LFC Administrative Beneficiary and 40% to the Reorganized LMUSA for the benefit of the creditors of the Debtors. "RECOVERIES" means all monies received in satisfaction of judgments obtained in favor of the Trustee or by settlement of any and all rights, claims or causes of action defined as Initial Trust Assets. "TAX CODE" means the Internal Revenue Code of 1986, as amended. "TRUST" OR "LFC/LMUSA TRUST" means the trust created by this Agreement. "TRUST ASSETS" means all property held from time to time by the Trustee hereunder, including (a) the Initial Trust Assets and (b) any assets, proceeds or income received or earned from (i) the resolution of the rights, claims or causes of action comprising the Initial Trust Assets and (ii) from the investment, sale, exchange or other disposition of any of the Initial Trust Assets or any other assets or proceeds received or earned through the resolutions of such rights, claims or causes of action. "TRUSTEE" means Martin R. Pollner, Esq., the original trustee for this LFC/LMUSA Trust and any successor thereto. ARTICLE 2 NATURE OF TRANSFER 2.1 Declaration of Trust. Pursuant to the Plans, the Intercreditor Agreement, and paragraph 21 of the LFC Order and the LMUSA Order, on the Effective Date, each of the Debtors transferred the Initial Trust Assets to the Trustee, in trust, according to the terms of this Agreement for the benefit of the LFC Administrative Beneficiary and Reorganized LMUSA, who in turn are trustees for the benefit of certain of the creditors of the Debtors pursuant to the terms of this -5- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 10 Agreement and of the Plans. Upon the transfer of the Trust Assets, the Debtor shall retain no interest in such assets. This Trust is irrevocable. The transfers shall be treated for federal income tax purposes, as transfers of the assets to the LFC Administrative Beneficiary and the Reorganized LMUSA, on behalf of the creditors of the Debtor, Pro Rata, and deemed transfers by them to the Trust. 2.2 No Additional Beneficiaries. The Trust shall be solely for the benefit of the LFC Administrative Beneficiary and Reorganized LMUSA as trustees for the benefit of certain of the creditors of the Debtors as set forth in the Plans. 2.3 Property In Trust. The Trustee shall hold the legal title to all property at any time constituting a part of the Trust Assets and hereby declares that he shall hold such property in trust to be administered and disposed of pursuant to the terms of this Agreement for the benefit of the LFC Administrative Beneficiary and Reorganized LMUSA as trustee for the benefit of certain of the creditors of the Debtors pursuant to the terms of the Plan. The Trustee is further authorized to make disbursements and payments from the Trust in accordance with the provisions hereof. 2.4 Creation of Expense Fund. The transfer of the Expense Fund to the Trustee, in trust, is subject to the terms of this SECTION 2.4. The Expense Fund is to be used solely to cover the expenses of the Trust as set forth in SECTION 4.1. Neither the LFC Administrative Beneficiary, Reorganized LMUSA, nor any of their subsidiaries, affiliates, agents, or assigns shall have any obligation to pay any of the expenses of the Trust, other than the obligation to transfer the Expense Fund to the Trust. The LFC Administrative Beneficiary and Reorganized LMUSA, as trustee, shall be entitled to receive, upon termination and winding up of the Trust pursuant to ARTICLE 3, any amounts remaining in the Expense Fund as set forth in SECTION 4.4. 2.5 Purpose of Trust. The sole purpose of this Trust is to liquidate the Trust Assets in a manner calculated to conserve and protect the value of the Trust Assets and to liquidate and distribute such assets to the LFC Administrative Beneficiary and Reorganized LMUSA, as trustee, in as prompt and orderly a fashion as possible after the payment of, or provision for, expenses and liabilities. The Plan further provides that the LFC Administrative Beneficiary will be responsible for distribution of any such Net Proceeds to the holders of Allowed LFC Class 3 Claims, Allowed LIS Class 3 Claims or Allowed LAS Class 3 Claims in accordance with SECTION 7.5 of the LFC Plan. The Trustee shall report the Trust for Federal income tax purposes as a pass-through grantor trust or as may be otherwise required or permitted under applicable law. Pursuant to this express purpose, and subject to the provisions of ARTICLE 5, the Trustee is hereby authorized and directed to take all reasonable and necessary action to hold, conserve, and protect the Trust Assets and to collect on, sell, or otherwise liquidate or dispose of the Trust Assets, and to distribute the Net Proceeds of such disposition in as prompt, efficient and orderly a fashion as possible in accordance with the provisions of ARTICLE 4. 2.6 Income Tax Status. Consistent with Revenue Procedure 94-45, 1994-28 I.R.B.124, the Trust shall be treated as a liquidating trust pursuant to Treasury Regulation Section 301.7701-4(d) and as a grantor trust pursuant to Sections 671-677 of the Internal Revenue Code -6- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 11 owned and established by the Debtor to satisfy the claims of its creditors. Any items of income, deduction and credit loss of the Trust shall be allocated, for federal income tax purposes, to the LFC Administrative Beneficiary and Reorganized LMUSA. Pro Rata, on behalf of the creditors of the Debtors, provided, however, that items of income (or deduction) attributable to sources the distributions from which (or the expenses of which) are solely to the LFC Administrative Beneficiary should be allocated solely to the LFC Administrative Beneficiary on behalf of the appropriate LFC creditors. The income of the Trust will be treated as subject to tax on a current basis to such beneficiaries. 2.7 No Reversion to the LFC Administrative Beneficiary and Reorganized LMUSA. In no event shall any part of the Trust Assets revert to or be distributed to the LFC Administrative Beneficiary or Reorganized LMUSA except in their capacities as trustees for the benefit of certain creditors pursuant to the Plans. 2.8 Instruments of Further Assurance: Information. The Debtors and such persons as shall have the right and power after the Effective Date, upon reasonable request of the Trustee, shall execute, acknowledge and deliver such further instruments and do such further acts as may be necessary or proper to effectively carry out the purposes of this Agreement, to transfer any property intended to be conveyed hereby, and to vest in the Trustee, his successors and assigns, the estate, powers, instruments or funds in trust hereunder. ARTICLE 3 DURATION AND TERMINATION OF TRUST 3.1 Duration. The existence of this Trust shall terminate five years from the date hereof, unless an earlier termination is required by the applicable laws of the State of Delaware, or by the action of the LFC Administrative Beneficiary and Reorganized LMUSA as provided in ARTICLE 8 or unless earlier terminated by the distribution of all of the Trust Assets as provided in SECTION 4.4. Notwithstanding the foregoing, in the event the Trustee shall have been unable after reasonable efforts to settle or litigate to a conclusion all causes of action included in the Trust Assets within the first four years of the initial five-year term of the Trust Agreement, the Trustee shall have the right to ask the court to extend the term of the Trust for successive one-year renewal terms until all such causes of action have been settled or litigated to a conclusion in fulfillment of the purposes of the Trust. Pursuant to Revenue Procedure 94-45, 1994-28 I.R.B. 124, each such extension must be approved by the Court within six months of the extended term. 3.2 Continuance of Trust for Winding Up: Accounting. (a) After the termination of the Trust and for the purpose of liquidating and winding up its affairs, the Trustee shall continue to act as such until all duties have been fully performed. Upon distribution of all of the Trust Assets, the Trustee shall hold the books, records and files delivered to or created by the Trustee for a period of four years. At the Trustee's discretion, all of such records and documents may be destroyed at any time after four years from the distribution of all of the Trust Assets. Except as otherwise specifically -7- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 12 provided herein, upon the distribution of all of the Trust Assets, the Trustee shall have no further duties or obligations hereunder except to account as provided in SECTIONS 4.5 and 4.6. In the event that the Trustees have qualified the Trust as a Delaware business trust in accordance with SECTION 10.1, upon the completion of winding up and after termination of the Trust, the Trustees shall file a certificate of cancellation in accordance with 12 Del. C. Section 3810(D). (b) On the termination of the Trust, the Trustee has the authority to apply to the Bankruptcy Court for any and all orders approving his accounting for any of his actions as Trustee and discharging him from any and all liability for acting as Trustee under this Trust. ARTICLE 4 ADMINISTRATION OF TRUST ESTATE 4.1 Expense Reserve. On the Effective Date, the Trustee shall establish the Expense Reserve for the payment of all expenses, debts, charges, liabilities and obligations with respect to the Trust, including, without limitation, (a) all costs and expenses, including those of professionals retained by the Trustee, incurred in connection with any litigation, (b) Trustee's fees, (c) all costs and expenses incurred in connection with indemnifying the Trustee pursuant to SECTION 6.4, (d) all fees and expenses, including those of professionals and other agents and employees retained by the Trustee, incurred in connection with the performance of the Trustee's duties and obligations including, without limitation, fees incurred in connection with holding, collecting on, liquidating or otherwise disposing of the Trust Assets, secretarial and office expenses, all applicable taxes and all expenses of distribution and (e) all fees and expenses, including those of professionals and other agents and employees retained by the Trustee, incurred in connection with the winding up of the Trust pursuant to ARTICLE 3. The amount of the Expense Reserve shall initially be the $5,000,000 Expense Fund received by the Trustee pursuant to the terms of SECTIONS 2.1 and 2.4 less $ 1,000,000 which shall be held in reserve pursuant to the terms of SECTION 4.2 (the "Supplemental Reserve"). Thereafter, the Expense Reserve shall be funded out of the proceeds of the Trust Assets as provided in SECTION 4.2 and the Supplemental Reserve to the extent necessary and available. Upon the collection of net proceeds from Recoveries in an amount equal to $1 million in the aggregate, the Supplemental Reserve shall be distributed to the Beneficiaries, as provided in Section 4.3; provided, however, that the Trustee shall not be entitled to a percentage commission under Section 7.1 hereof upon the release of the Supplemental Reserve. Any remaining balance in the Expense Reserve, after the payment of all expenses, debts, charges, liabilities and obligations intended to be paid therefrom, shall be distributed to the LFC Administrative Beneficiary or Reorganized LMUSA, as trustees, as provided in SECTIONS 4.3 and 4.4. Any monies deposited in the Expense Reserve shall be invested in interest-bearing deposits or investments that satisfy the requirements of SECTION 5.1 and the interest earned thereon shall be credited to the Expense Reserve. 4.2 Increase of Expense Reserve Using Trust Assets. To the extent the Trustee in his discretion determines that the amount of funds in the Expense Reserve is at any time or may become insufficient, the Trustee, in his discretion and judgment, may from time to time make additional -8- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 13 contributions to the Expense Reserve out of the Trust Assets or Supplemental Reserve, for such reasonable amount or amounts as the Trustee in his discretion and judgment may determine to be necessary or advisable to meet unliquidated or contingent liabilities of the Trust. In no event shall the Trustee be required to use his personal funds or assets for such purposes. 4.3 Interim Distributions. (a)(i) Pursuant to Paragraph 13(i) of the Intercreditor Agreement, sixty percent (60%) of the Net Proceeds of all Recoveries shall be transferred to the LFC Administrative Beneficiary, and 40% of the Net Proceeds of all Recoveries shall be paid to Reorganized LMUSA, regardless of whether LFC, LIS, LAS or LMU owned the claims; provided, however, that 100% of the proceeds of claims for any nonfeasance or misfeasance in the creation of, or the administration or potential utilization of the proceeds of, the Rabbi Trusts shall belong solely to LFC. If a recovery from a third party results in the third party having an allowed claim against either LFC or LMU or their subsidiaries, the 60:40 allocation set forth above shall be determined after subtracting the amount LFC or LMU or their respective subsidiaries must distribute in respect of the allowed claim and paying the amount of such distribution to the entity that must make the distribution. (ii) Pursuant to Paragraph 13.1 of the Intercreditor Agreement, 100% of the costs of pursuing claims for nonfeasance or misfeasance in the creation of, or the administration or potential utilization of the Rabbi Trust shall be borne solely by LFC Creditor Trust. (b) All payments to be made by the Trustee to the LFC Administrative Beneficiary or Reorganized LMUSA shall be made only from the assets, income and proceeds of the Trust and only to the extent that the Trustee shall have received sufficient assets, income or proceeds of the Trust Assets to make such payments in accordance with the terms of this SECTION 4.3. The LFC Administrative Beneficiary and Reorganized LMUSA shall look solely to the assets, income and proceeds of the Trust for any distributions as herein provided. (c) As often as, in the discretion and judgment of the Trustee, there shall be an amount of monies in the Trust sufficient to render feasible a distribution of cash or other property to the LFC Administrative Beneficiary and Reorganized LMUSA, but (subject to there being a sufficient amount available pursuant to the terms of this subsection) no less often than annually, the Trustee shall distribute and pay, or cause to be distributed and paid, to the LFC Administrative Beneficiary and Reorganized LMUSA, such aggregate amount of cash or other non-cash property designated by the Trustee in his discretion for distribution to the LFC Administrative Beneficiary and Reorganized LMUSA, if any, as shall then be held in the Trust, excluding reasonable amounts of cash held in the reserve funds pursuant to SECTION 4.1 OR 4.2 or held for withholding of taxes or other charges pursuant to SECTION 4.7 or otherwise needed to pay the expenses, debts, charges, liabilities and obligations of the Trust. The distributions shall be in accordance with Paragraph 13(i) of the Intercreditor Agreement. In accordance with Revenue Procedure 94-45, 1994-28 I.R.B.124, the Trustee is required to distribute all current income (including the proceeds of any asset sale) to the beneficiaries at least annually, except that the Trustee may retain an amount of net proceeds or net -9- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 14 income reasonably necessary to maintain the value of its assets or to meet claims and contingent liabilities (including disputed claims). 4.4 Final Distribution. If the Trustee determines that all claims, debts, liabilities and obligations of the Trust, whether contingent or noncontingent, disputed or undisputed, liquidated or unliquidated have been paid or discharged, and that all the Trust Assets have been converted to cash or non-cash property designated by the Trustee in his discretion for distribution to the LFC Administrative Beneficiary and Reorganized LMUSA, or if the existence of the Trust shall terminate pursuant to SECTION 3.1 OR 3.2, the Trustee shall, as expeditiously as is consistent with the conservation and protection of the Trust, and notwithstanding the distribution provisions of SECTION 4.3, distribute the Trust Assets to the LFC Administrative Beneficiary and Reorganized LMUSA subject to maintaining a reserve for expenses incurred in winding up the Trust pursuant to SECTIONS 4.1 AND 4.2. The distributions shall be in accordance with Paragraph 13(i) of the Intercreditor Agreement. 4.5 Reports to LFC Administrative Beneficiary and Reorganized LMUSA. As soon as practicable but not later than 120 days after the end of each fiscal year of the Trust and after termination of the Trust, the Trustee shall submit a written report and account to the LFC Administrative Beneficiary, Reorganized LMUSA and the Beneficiaries' Committee showing (a) the assets and liabilities of the Trust at the end of each fiscal quarter or upon termination of the Trust and the receipts and disbursements of the Trustee for such fiscal year or period, certified by independent public accountants, (b) any changes in the Trust Assets which have not previously been reported, (c) any action taken by the Trustee in the performance of his duties under this Agreement which he has not previously reported and which in his opinion materially affects the Trust and (d) if applicable, the amount of compensation paid to the Trustee for the prior year pursuant to SECTION 7.1. The Trustee may submit similar reports for such interim periods during the fiscal year as he in his discretion deems advisable. In addition, the Trustee shall provide a report describing the occurrence of any material events concerning the Trust, the Trustee or the Trust Assets. The fiscal year of the Trust shall end on the last day of December of each year unless the Trustee deems it advisable to establish some other date as the date on which the fiscal year of the Trust shall end; provided that establishment of such other date is permissible under the Tax Code. 4.6 Income Tax Information. (a) The Trustee shall, at the time and in the manner prescribed by the Tax Code and Revenue Procedure 94/45, 1994-28 I.R.B.124, file such tax returns and reports as may be required by applicable law and specifically must file the tax returns of this Trust as a grantor-trust according to Treasury Regulation 1.671-4(a), and shall promptly furnish copies of such returns and reports as filed to the Administrative Beneficiary, Reorganized LMUSA and the Beneficiaries' Committee. (b) As soon as practicable after the close of each fiscal year, the Trustee shall mail to the LFC Administrative Beneficiary, Reorganized LMUSA and the Beneficiaries' Committee a statement showing the dates and amounts of all distributions made by the Trustee and such other information as is reasonably available to the Trustee which may be helpful to the LFC -10- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 15 Administrative Beneficiary and Reorganized LMUSA for the proper reporting of income with respect to assets held by it as trustee for the benefit of certain creditors pursuant to the Plan. The Trustee may retain professionals to perform his duties under this SECTION 4.6, and may rely upon the performance of such professionals with respect to such duties. 4.7 Withholding of Taxes and Other Charges. The Trustee may withhold from any amounts distributable at any time to the LFC Administrative Beneficiary and Reorganized LMUSA such sum or sums as may be sufficient to pay any tax or taxes or other charge or charges which have been or may be imposed on the LFC Administrative Beneficiary and Reorganized LMUSA under the income tax laws of the United States or of any state or political subdivision or entity by reason of any distribution provided for in SECTIONS 4.3 and 4.4, whenever such withholding is required by any law, regulation, rule, ruling, directive or other governmental requirement, and the Trustee, in the exercise of his discretion and judgment, may enter into agreements with taxing or other authorities for the payment of such amounts as may be withheld in accordance with the provisions of this SECTION 4.7. Notwithstanding the foregoing but without prejudice to the Trustee's rights hereunder, the LFC Administrative Beneficiary and Reorganized LMUSA shall have the right with respect to the United States or any state or political subdivision or entity to contest the imposition of any tax or other charge by reason of any distribution hereunder. 4.8 Other Reports. The Trustee shall prepare and file audited year-end and unaudited interim financial reports as may be required by regulatory authorities (if any), applicable laws, rules or regulations or as the Trustee in his discretion deems advisable during the fiscal year. ARTICLE 5 POWERS OF AND LIMITATIONS ON THE TRUSTEE 5.1 Limitations on Trustee. The Trustee shall carry out the purposes of the Trust and the directions contained herein, and shall not at any time, on behalf of the Trust or the LFC Administrative Beneficiary and Reorganized LMUSA, enter into or engage in any business or any development of real property, and no part of the Trust Assets or the proceeds, revenue or income therefrom shall be used or disposed of by the Trustee in furtherance of any business or development of real property. This limitation shall apply irrespective of whether the conduct of any such business activities is deemed by the Trustee to be necessary or proper for the conservation and protection of the Trust. The Trustee shall invest any of the funds held in the Trust including, without limitation, any reserve or escrow funds established pursuant to the terms of this Agreement, only in demand and time deposits such as short-term certificates of deposit of federally insured banking institutions having in excess of $500,000,000 in capital and surplus that will ensure that this Trust remains a pass-through grantor trust under Revenue Procedure 94-45, 1994-28 I.R.B.124. Once such funds are so invested, the Trustee shall not sell or otherwise liquidate the investment until such time as such funds are (a) needed to pay expenses incurred pursuant to this Agreement, or (b) to be distributed pursuant to SECTIONS 4.3 AND 4.4; provided, however, that the Trustee may liquidate such -11- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 16 investments if the Trustee determines in his discretion that liquidation is necessary to protect the Trust from loss on the amounts invested. The Trustee shall be restricted to the holding and collection of the Trust Assets and the payment and distribution thereof for the purposes set forth herein and to the conservation and protection of the Trust and to the administration thereof in accordance with the provisions of this Agreement. The Trustee shall keep all Trust Assets segregated from and shall not commingle any Trust Assets with any assets of any other entity, including any of the Trustee's own assets. The Trustee may not hold stock in or be an officer or director of the LFC Administrative Beneficiary or Reorganized LMUSA. The Trustee shall not be an Affiliated Person, of any of LFC, LMUSA or any of their subsidiaries, except to the extent the Trustee is deemed to be an Affiliated Person solely by virtue of the Trustee's status as Trustee. 5.2 Specific Powers and Responsibilities of Trustee. Subject to the provisions of SECTION 5.1, The Trustee shall have the following specific powers and responsibilities in addition to any powers and responsibilities conferred upon him by any other section or provision of this Agreement: provided, however, that enumeration of the following powers and responsibilities shall not be considered in any way to limit or control the power of the Trustee to act as specifically authorized by any other section or provision of this Agreement and to act in such a manner as the Trustee in his discretion may deem necessary or appropriate to conserve and protect the Trust Assets or to confer on the LFC Administrative Beneficiary or Reorganized LMUSA the benefits intended to be conferred upon it by this Agreement: (a) To collect and receive any and all money and other property of whatsoever kind or nature due to or owing or belonging to the Trust, including accepting securities or other property in settlement of claims of the Trust or any of the Trust Assets, and to give full discharge and acquittance therefor; (b) To retain and set aside such funds out of the Trust as the Trustee in his discretion shall deem necessary or expedient to pay or provide for the payment of (i) unpaid claims, liabilities, debts or obligations of the Trust and (ii) any and all expenses of administering the Trust. (c) To expend the funds of the Trust, as the Trustee in his discretion may deem necessary or appropriate, to prosecute the claims of LFC, LIS, LAS, and LMUSA without being subject to any limitation with respect to each Debtor or being required to budget or to allocate the funds between the claims of the four Debtors; (d) To do and perform any acts or things necessary or appropriate for the conservation and protection of the Trust Assets, including acts or things necessary or appropriate to maintain assets held by the Trustee pending sale or other disposition thereof or distribution thereof to the LFC Administrative Beneficiary and Reorganized LMUSA; (e) To cause any investments of Trust Assets to be registered and held in his name, as Trustee for the Trust, or in the name of a nominee without increase or decrease of liability with respect thereto; -12- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 17 (f) To institute, join or defend actions or declaratory judgments and to take such other action, including settlement of any such action on any terms deemed reasonable by the Trustee in his discretion, to investigate with respect to and enforce any instruments, contracts, agreements or causes of action relating to or forming a part of the Trust, including but not limited to the right to apply to the Bankruptcy Court for authority to conduct examinations and require the production of documents pursuant to Rule 2004 of the Bankruptcy Code; (g) In connection with the sale or other disposition or distribution of any securities held by the Trustee, to comply with the applicable federal, state and foreign securities laws, and to enter into agreements relating to sale or other distribution thereof; (h) In the event any of the property which is or may become a part of the Trust Assets is situated in any state or other jurisdiction in which the Trustee is not qualified to act as Trustee, to nominate and appoint an individual or corporate trustee qualified to act in such state or other jurisdiction in connection with the property situated in the state or other jurisdiction as a trustee of such property and require from such trustee such security as may be designated by the Trustee. The trustee so appointed shall have all the rights, powers, privileges and duties of the Trustee hereunder and shall be subject to the conditions and limitations of this Trust, except as modified or limited by the Trustee herein and except where the same may be modified by the laws of such state or other jurisdiction (in which case, the laws of the state or other jurisdiction in which such trustee is acting shall prevail to the extent necessary). Such trustee shall be answerable to the Trustee herein appointed for all monies, assets and other property which may be received by it in connection with the administration of such property, and shall be compensated as the Trustee shall determine. The Trustee hereunder may remove such trustee, with or without cause, and appoint a successor trustee at any time by the execution by the Trustee of a written instrument declaring such trustee removed from office and specifying the effective date and time of removal; (i) To perform any act authorized, permitted or required under any instrument, contract, agreement or cause of action relating to or forming a part of the Trust, whether in the nature of an approval, consent, demand or notice thereunder or otherwise, unless such act would require the consent of the LFC Administrative Beneficiary or Reorganized LMUSA in accordance with the express provisions of this Agreement; (j) To file or cause to be filed all required federal, state, local and foreign tax filings, make any tax elections available to the Trust under federal, state, local or foreign law, and prepare applications for rulings or other administrative determinations from federal, state, local and foreign tax authorities as may be reasonably necessary to determine the tax liabilities of the Trust or its Beneficiaries; (k) In connection with his duties hereunder, to employ such agents, nunc pro tunc to October 31, 1996, including counsel, accountants, experts, advisors or other persons (which counsel, accountants, experts, advisors or other persons may serve in the future, serve at present, or have served in the past in such capacity or a similar capacity for the Beneficiaries or the LFC or LMUSA Creditors' Committees), and to confer upon them such authority as the Trustee in his discretion may -13- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 18 deem appropriate, and to pay reasonable compensation therefor upon submission of invoices; provided, however, that the Trustee may not retain as counsel of record in any litigation he may commence the law firm of which the Trustee is a member, partner, or otherwise associated; further provided, however, that the Trustee may retain such firm of which he is a member, partner or otherwise associated to perform such other legal services concerning the administration of the trust and advice concerning the investigation and coordination of the various potential claims and litigations, as the Trustee may in his discretion deem appropriate; and (l) To waive any attorney-client privilege that existed or exists as between the Debtors and their counsel respecting claims held by the Trust so as to cause such counsel to disclose all information to the Trustee. 5.3 Discretionary Submission of Questions to LFC Administrative Beneficiary and/or Reorganized LMUSA on Behalf of Creditors Trust. The Trustee, in his sole discretion and judgment, may, but shall not be required to, submit to the Beneficiaries' Committee at any time, and from time to time, any question or questions regarding which the Trustee may desire to have explicit approval of the Beneficiaries' Committee for the taking of any specific action proposed to be taken by the Trustee with respect to the Trust, or the administration and distribution of the Trust Assets. Any Trustee shall be protected in acting in good faith in reliance upon such instructions and shall have no liability for acting in accordance therewith. If the Trustee, in his sole discretion and judgment, determines that the investigation or prosecution of any particular claim or cause of action might involve him or the law firm of which he is a member, partner or otherwise associated to have a conflict of interest or a violation of the Code of Professional Responsibility, the Trustee may recuse himself from further involvement in such claim or cause of action other than to submit to the Beneficiaries' Committee any relevant information in his possession. It shall then be the responsibility of the Beneficiaries' Committee to appoint one or more substitute trustees ("Substitute Trustee") under SECTION 5.2(A) to take such actions as they may deem appropriate with respect to such claim or cause of action, including retention of professionals and any other duties that would otherwise be exercised by the Trustee hereunder; provided, however, that the Trustee shall have the right to recommend a Substitute Trustee to the Beneficiaries' Committee. The compensation for any such Substitute Trustee(s) shall be equivalent to the percentage of net proceeds distributed to creditors that would otherwise be paid to the Trustee under SECTION 7.1 for such recovery. The Substitute Trustee shall be required to execute an agreement with the Trustee evidencing his appointment hereunder and agreeing to be bound hereby. In the event that the Beneficiaries' Committee fails to respond or direct a Trustee within the time reasonably designated by the Trustee, the Trustee may take such action as it deems appropriate or may take no action, in either case without liability for such action or failure to act. All costs and expenses incurred by the Trustee in the exercise of any right, power or authority conferred by this SECTION 5.3 shall be costs and expenses of the Trust. With respect to any Substitute Trustee, the Trustee shall have the right to approve a budget for such Substitute Trustee. 5.4 Additional Powers of Trustee. Subject to the express limitations contained herein, the Trustee shall have, and may exercise with respect to the Trust Assets, or any part thereof, and to the administration and distribution of the Trust Assets, all powers now or hereafter conferred on -14- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 19 trustees by the laws of the State of Delaware. The powers conferred by this SECTION 5.4 in no way limit any power conferred on the Trustee by any other section hereof but shall be in addition thereto; provided, however, that the powers conferred by this SECTION 5.4 are conferred and may be exercised only and solely within the limitations and for the limited purposes imposed and expressed in ARTICLE 2 and in SECTION 5.1. Moreover, the powers of the Trustee are hereby expressly limited to those necessary to maintain the value of and liquidate the Trust assets. 5.5 Limitations on Powers of Trustee to Deal with Trust in Non-Fiduciary Capacity. The Trustee may not sell property to or borrow property from the Trust. The Trustee may not acquire property from the Trust unless such acquisition is approved in advance by (a) the Bankruptcy Court or (b) the Securities and Exchange Commission pursuant to Section 17(b) of the Investment Company Act. ARTICLE 6 CONCERNING THE TRUSTEE 6.1 Generally. The Trustee accepts and undertakes to discharge the Trust upon the terms and conditions hereof. The Trustee shall exercise those rights and powers vested by this Agreement, and use the same degree of care and skill in his exercise as a prudent person would exercise or use under the circumstances in the conduct of his own affairs. Notwithstanding anything to the contrary stated or implied in this Agreement, the Trustee shall not be liable under this Agreement other than for his proven willful misconduct. 6.2 Transferee Liabilities. If any liability shall be asserted against the Trust or the Trustee as the transferee of the Trust Assets, on account of any claimed liability of or through the Debtors or the LFC Administrative Beneficiary or Reorganized LMUSA, the Trustee may use such part of the Trust Assets as may be necessary in contesting any such claimed liability and in payment, compromise, settlement and discharge thereof on terms reasonably satisfactory to the Trustee in his discretion. In no event shall the Trustee be required to use his personal funds or assets for such purposes. In the event that the Trust does not have sufficient Trust Assets available for such purpose at the time such liability is asserted, the Trustee shall be entitled (but not required) to take appropriate action and advance any costs or expense, subject to reimbursement from Trust Assets when available. 6.3 Reliance by Trustee. Except as otherwise provided in SECTION 6.1: (a) The Trustee may rely and shall be protected in acting upon any resolution, certificate, statement, instrument, opinion, report, notice, request, consent, order or other paper or document believed by him to be genuine and to have been signed or presented by the proper party or parties. -15- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 20 (b) The Trustee may consult with legal counsel or other professionals to be selected by him, and the Trustee shall not be liable for any action taken or suffered by him in accordance with the advice of such professionals. 6.4 Indemnification of Trustee. The Trustee shall be indemnified by and receive reimbursement from the Trust against and from any and all loss, liability or damage, including payment of attorneys' fees and other costs of defending himself, which he may incur or sustain, other than as a result of proven willful misconduct, in the exercise and performance of any of the powers and duties hereunder. The Trustee may purchase with assets of the Trust, such insurance as he feels, in the exercise of his discretion, adequately insures that he shall be indemnified against any such loss, liability or damage pursuant to this SECTION 6.4. Expenses (including attorneys' fees) and other costs of the Trustee's defense shall be paid by the Trust in advance of the final disposition of any claims against the Trustee upon receipt of an undertaking by or on behalf of the Trustee to repay such amounts if it shall be ultimately determined that he is not entitled to be indemnified by the Trust as authorized in this SECTION 6.4. The terms of this SECTION 6.4 shall continue to apply to any former Trustee. 6.5 No Implied Duties. The Trustee shall not manage, control, use, sell, dispose, collect or otherwise deal with the Trust or otherwise take any action hereunder except as expressly provided herein, and no implied duties or obligations shall be read into this Trust Agreement against the Trustee. The Trustee nevertheless agrees that he will promptly take such action as may be necessary to duly discharge any liens or encumbrances on any part of the Trust Assets which result from claims against the Trustee not related to (a) the ownership or administration of the Trust Asset, (b) any other transaction pursuant to this Trust Agreement or (c) any document included in the Trust Assets. 6.6 Trustee's Lien. The Trustee shall have a lien on the Trust Assets and the proceeds thereof for the amount of any unpaid fees and expenses, and any liability, loss or expense that may be incurred by him in connection with the performance of his duties hereunder, including the expense of defending any action or proceeding instituted against him, with respect to which he is entitled to indemnification pursuant to SECTION 6.4. 6.7 No Personal Liability. Persons dealing with the Trust must look solely to the Trust or trust property for the enforcement of any claims against the Trust or to satisfy any liability incurred by the Trustee to such persons in carrying out the terms of this Trust, and neither the Trustee nor the LFC Administrative Beneficiary, Reorganized LMUSA nor the Beneficiaries' Committee shall have any personal liability or individual obligation to satisfy any such liability. 6.8 Valuation of Trust Assets. As soon as possible after the date of this Agreement but in no event later than ninety (90) days thereafter, the Trustee shall obtain a complete valuation of the Trust Assets transferred to the Trust, and such valuation shall be used consistently by the Trustee, the Debtor and the Beneficiaries for all federal income tax purposes. Thereafter, the Trustee must obtain consistent valuations of the assets, pursuant to Revenue Procedure 94-45, 1994-28 I.R.B.124. -16- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 21 ARTICLE 7 COMPENSATION OF TRUSTEE 7.1 Amount of Compensation. The Trustee shall receive as compensation for services as Trustee hereunder, paid from the Trust Assets, an amount equal to 2.5% of the aggregate distribution to creditors during the entire term of this Agreement up to $30 million in recoveries and 3% on the aggregate distribution to creditors in excess of $30 million (the "Trustee's Commissions"). The aggregate recoveries shall be determined on a cumulative basis. The Trustee shall have a right to draw from the Trust Assets as an advance against the Trustee's Commissions a salary in the amount of $10,000 per month for the first year after the date of this agreement and $7,000 per month for the second year. Such advances should be credited against any Trustee's Commissions, but in the event that the Trustee's Commissions are less than the amount of advances he has received, the Trustee shall not be required to reimburse the Trust for any such amounts. The amount of such compensation shall be included in the annual report to be sent the Beneficiaries' Committee, LFC Administrative Beneficiary and Reorganized LMUSA pursuant to SECTION 4.5. 7.2 Dates of Payment. The advances payable to the Trustee pursuant to the provisions of SECTION 7.1 shall be paid monthly in arrears, commencing with the month of January, 1997. ARTICLE 8 TRUSTEE AND SUCCESSOR TRUSTEES 8.1 Number of Trustees. Subject to the provisions of SECTION 8.3 relating to the period pending the appointment of a successor Trustee, there shall always be one and only one Trustee of this Trust. If any corporate Trustee shall ever change its name, or shall reorganize or reincorporate, or shall merge with or into or consolidate with any other bank or trust company, such corporate Trustee shall be deemed to be a continuing entity and shall continue to act as a Trustee hereunder with the same liabilities, duties, powers, titles, discretion and privileges as are herein specified for a Trustee. 8.2 Resignation and Removal. The Trustee may resign and be discharged from the Trust hereby created by giving written notice thereof to the LFC Administrative Beneficiary, Reorganized LMUSA and the Beneficiaries' Committee as their addresses appear in the records of the Trust. Such resignation shall become effective on the day specified in such notice or upon the appointment of such Trustee's successor and such successor's acceptance of such appointment, whichever is earlier. Any Trustee may be removed by agreement of the Beneficiaries' Committee at any time with cause, or at any time after the end of the third full fiscal year following the date of this Agreement, without cause. The Trustee shall be entitled to compensation in accordance with SECTION 7.1 in respect of amounts received by Trustee on all claims for which actions or proceedings have been instituted prior to Trustee's termination. -17- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 22 8.3 Appointment of Successor Trustee. Should the Trustee at any time resign or be removed, or die or become incapable of action, or be adjudged a bankrupt or insolvent, a vacancy shall be deemed to exist and a successor Trustee shall be appointed as soon as possible by the Beneficiaries' Committee (with each having equal say); provided that such appointment shall be subject to the approval of the Bankruptcy Court; provided, further, that no stockholder, officer or director of the Beneficiaries' Committee shall be appointed as a successor Trustee; and provided, further, that the Trust shall have the right to nominate the successor Trustee. In the event that an election has been made to treat the Trust as a Delaware business trust, if the Trust ceases to have at least one Trustee who, in the case of a natural person, is a Delaware resident or, in all other cases, has its principal place of business in Delaware, appropriate action shall be taken to file a certificate of cancellation. 8.4 Acceptance of Appointment by Successor Trustee. Any successor Trustee appointed hereunder shall execute an instrument accepting such appointment hereunder and shall deliver one counterpart thereof, to the retiring Trustee (in the case of a resignation). Thereupon such successor Trustee shall, without any further act, become vested with all the estates, properties, rights, powers, trusts and duties of his predecessor in the Trust with like effect as if originally named herein; but any retiring Trustee shall nevertheless, when requested in writing by the successor Trustee, execute and deliver an instrument or instruments conveying and transferring to such successor Trustee upon the trust herein expressed, all the estates, properties, rights, powers and trusts of such retiring Trustee, and shall duly assign, transfer and deliver to such successor Trustee all property and money held by him hereunder. 8.5 Bonds. Unless a bond is required by law, no bond shall be required of the original or any successor Trustee hereunder. If a bond is required by law, no surety or security with respect to such bond shall be required unless required by law. ARTICLE 9 POWERS AND RESPONSIBILITIES OF THE BENEFICIARIES' COMMITTEE 9.1 Any action to be taken or any question arising for a decision by the Beneficiaries' Committee, except as otherwise expressly provided in this Agreement, shall from time to time be determined by the vote of the majority of the members then in office or by a writing signed by all members. The Beneficiaries' Committee may provide for the authentication of evidence of any action taken by them. Any member may vote in person or by proxy given to any other member. 9.2 The members of the Beneficiaries' Committee shall serve without compensation. The members of the Beneficiaries' Committee shall consist of one holder of the LFC Senior Convertible Notes as defined in the LFC Plan and one holder of LMUSA Senior Notes as defined in the LMUSA Plan; provided, however, that no person serving as a member of the Beneficiaries' Committee shall be an Affiliated Person of Reorganized LFC; Reorganized LIS; Reorganized LAS or Reorganized LMUSA. Each member of the Beneficiaries' Committee shall have an equal vote with respect to -18- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 23 all matters concerning the Trust. The members of the Beneficiaries' Committee shall consist of [Robert Masterson) and [Paul Leff]. Each member of the Beneficiaries' Committee may appoint one or more persons to act as their agent in order to carry out their obligations under this Agreement; provided however, that such person shall not be an Affiliated Person. The Beneficiaries' Committee hereby appoints Weil, Gotshal & Manges and Andrews & Kurth L.L.P. as their agent and attorneys in fact with respect to the appointment of a trustee pursuant to SECTIONS 5.3 AND 8.3. 9.3 The members of the Beneficiaries' Committee are expressly authorized to incur and pay those reasonable charges and expenses that they may deem necessary and proper for administering this Agreement. The Trustee agrees to reimburse and indemnify the members of the Beneficiaries' Committee to the extent of the Trust Assets for all claims, expenses, and liabilities incurred by them in connection with the discharge of their duties under this Agreement. 9.4 No member of the Beneficiaries' Committee shall be liable for acts or defaults of any other member or for acts or defaults of any agent of any other member. The member shall be free from liability in acting upon any paper, document, or signature believed by them to be genuine and to have been signed by the proper party. The members of the Beneficiaries' Committee shall not be liable for any error or judgment nor any act done or omitted, nor for any mistake of fact or law, faith, nor generally shall the member have any accountability pursuant to this Agreement, except that each member shall be liable for his or her own willful default or gross negligence. The members may be advised by legal counsel, and any action under this Agreement taken or suffered in good faith by them in accordance with opinion of counsel shall be conclusive on the parties to this Agreement, and the members shall be fully protected and be subject to no liability in respect to any action taken or suffered under this Agreement. 9.5 The Beneficiaries' Committee may adopt Bylaws and any other form of rules to govern the internal affairs of the Beneficiaries' Committee. 9.6 Any member of the Beneficiaries' Committee may at any time resign by giving to the Beneficiaries' Committee a written resignation to take effect thirty (30) days thereafter or upon the prior acceptance thereof. In the event of the death, disability or resignation of a Committee member, a successor member shall be appointed by the resigning member of the Committee. ARTICLE 10 AMENDMENTS 10.1 Amendments. The LFC Administrative Beneficiary and Reorganized LMUSA may make and execute written amendments to this Trust Agreement; provided, however, that in no event shall the Trust Agreement be amended so as to (a) change the purpose of the Trust as set forth in ARTICLE 2 or (b) allow investments of funds included in the Trust Assets except as permitted in SECTIONS 5.1 and 5.2. After consultation with the Trust Committees, the Trustee may propose to the Court a modification, supplementation or amendment of this Agreement. Such modification, -19- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 24 supplement, or amendment shall be in writing and filed with the Court. Notice of such filing shall be served on all Beneficiaries. No modification, supplementation or amendment of this Agreement shall be effective except upon a final nonappealable order of the Court which is not subject to stay. Article 11 MISCELLANEOUS PROVISIONS 11.1 Filing Documents. This Agreement shall be filed or recorded in the office of the Secretary of State of the State of Delaware, or in such other office or offices as the Trustee may determine to be necessary or desirable. A copy of this Agreement and all amendments thereto shall be filed in the office of the Trustee and shall be available at all times for inspection during regular business hours upon reasonable notice by the LFC Administrative Beneficiary and Reorganized LMUSA. The Trustee shall file or record any amendment hereto in the same place or places where the original Agreement has been filed or recorded. The Trustee shall file or record any instrument which relates to any change in the office of Trustee in the same place or places where the original Agreement has been filed or recorded. 11.2 No Partnership, etc. This Agreement is not intended to create and shall not be interpreted as creating an association, partnership or joint venture of any kind. 11.3 Requirement of Undertaking. The Trustee may request any court to require, and any court may in its discretion require, in any suit for the enforcement of any right or remedy hereunder, or in any suit against the Trustee for any action taken or omitted by him as Trustee, the filing by any party litigant in such suit of an undertaking to pay the costs of such suit, and such court may in its discretion assess reasonable costs, including reasonable attorneys' fees, against any party litigant in such suit, having due regard to the merits and good faith of the claims or defenses made by such party litigant; provided, that the provisions of this SECTION 10.3 shall not apply to any suit by the Trustee. 11.4 Laws as to Construction. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, and each of the Trustee, Debtors, the LFC Administrative Beneficiary, Reorganized LIS, and Reorganized LMUSA (by their acceptance of any distributions made pursuant to this Agreement) consent and agree that this Agreement shall be governed by and construed in accordance with such laws. The parties agree and consent that the Bankruptcy Court shall retain jurisdiction to enforce this Agreement in order to effectuate the provisions of the Plan and to resolve any dispute that may arise among the parties or which may arise in connection with the administration of the Trust. 11.5 Severability. In the event any provision of this Agreement or its application to any person or circumstances shall be finally determined by a court of proper jurisdiction to be invalid or unenforceable to any extent, the remainder of this Agreement, or the application of such provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not -20- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 25 be affected thereby, and each provision of this Agreement shall be valid and enforced to the fullest extent permitted by law. 11.6 Notices. (a) Any notice or other communication by the Trustee to the LFC Administrative Beneficiary and Reorganized LMUSA shall be deemed to have been sufficiently given, for all purposes, if given by being deposited, postage prepaid. in a post office or letter box addressed to the LFC Administrative Beneficiary and Reorganized LMUSA at its address as shown in the records of the Trust. (b) Any notice or other communication by the Trustee to the Reorganized LMUSA shall be deemed to have been sufficiently given, for all purposes, if given by being deposited, postage prepaid, in a post office or letter box addressed to the Reorganized LMUSA at its address as shown in the records of the Trust. (c) All notices, requests, consents or other communications to the Trustee required or permitted under this Agreement shall be in writing (including facsimile or other similar telecommunication media) and shall be (as elected by the person giving such notice) hand delivered by messenger or courier service, telecommunicated or mailed by registered, certified or overnight mail (postage prepaid), return receipt requested, to Martin R. Pollner, Esq., c/o Loeb & Loeb, 345 Park Avenue, New York, New York 10154, or to such other address as the Trustee or any successor Trustee may designate by notice to the Beneficiaries' Committee, LFC Administrative Beneficiary and Reorganized LMUSA complying with the terms of SECTION 10.6(A). Each such notice shall be deemed delivered (i) on the date delivered if by personal delivery, (ii) on the date telecommunicated with confirmed answer back if telecommunicated or (iii) on the date upon which the return receipt is signed or delivery is refused, as the case may be, if mailed. 11.7 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but such counterparts shall together constitute one and the same instrument. 11.8 Jurisdiction. The Trustee, the Beneficiaries' Committee, Reorganized LMUSA or the LFC Administrative Beneficiary may, in his sole discretion, apply to the Bankruptcy Court for instructions in connection with any issue which may arise in the administration of this Trust, for an order approving the settlement or compromise of any claim asserted by, or judgment in favor of, the Trust, for an order sealing or otherwise maintaining confidentially with respect to any report relating -21- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 26 to the Trust's assets or litigation strategy, or to judicially settle the final account of Trustee upon his death or resignation or upon the termination of this Trust. IN WITNESS WHEREOF, the parties hereto have executed this Trust Agreement or caused this Trust Agreement to be duly executed as of the day and year first written. LOMAS FINANCIAL CORPORATION By: -------------------------------- Name: Title: LOMAS INFORMATION SYSTEMS, INC. By: -------------------------------- Name: Title: LOMAS ADMINISTRATIVE SERVICES, INC. By: -------------------------------- Name: Title: SIENA HOLDINGS, INC. By: -------------------------------- Name: Title: SIENA INFORMATION SERVICES, INC. By: -------------------------------- Name: Title: -22- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 27 LOMAS MORTGAGE USA, INC. By: -------------------------------- Name: Title: NOMAS CORP. By: -------------------------------- Name: Title: ----------------------------------- Neil B. Glassman, Esq. Trustee ----------------------------------- Martin J. Bienenstock, Esq. Trustee ----------------------------------- Martin R. Pollner, Esq. Trustee (under LFC/LMUSA Trust) -23- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT 28 LIST OF EXHIBITS Exhibit A LFC Chapter 11 Plan (See Exhibit I to the Disclosure Statement) Exhibit B LMUSA Chapter 11 Plan Exhibit C LFC Order Exhibit D LMUSA Order Exhibit E LMUSA Litigation Trust Agreement dated as of October 1, 1996 Exhibit F Agreement Between LMU Statutory Creditors' Committee and LFC Statutory Creditors' Committee in Respect of Intercompany Claims -24- LFC/LMUSA JOINT LITIGATION TRUST AGREEMENT EX-10.5 6 AGREEMENT 1 EXHIBIT 10.5 UNITED STATES BANKRUPTCY COURT DISTRICT OF DELAWARE In re: ) Jointly Administered LOMAS FINANCIAL CORPORATION, ) LOMAS MORTGAGE USA, INC., ) Chapter 11 Case No.: LOMAS INFORMATION SYSTEMS, INC., ) 95-1235 (PJW) and LOMAS ADMINISTRATIVE ) SERVICES, INC., ) ) Debtors ) AGREEMENT BETWEEN LMU STATUTORY CREDITORS' COMMITTEE AND LFC STATUTORY CREDITORS' COMMITTEE IN RESPECT OF INTERCOMPANY CLAIMS Recitals. 1. The statutory creditors' committee (the "LFC Committee") for Lomas Financial Corporation, Lomas Information Systems, Inc., and Lomas Administrative Services, Inc., chapter 11 debtors in possession (collectively, and as reorganized, "LFC"), and the statutory creditors' committee (the "LMU Committee") for Lomas Mortgage U.S.A., Inc., chapter 11 debtor in possession (and as reorganized, "LMU"), were each authorized by order dated September , 1996 to prosecute and to defend against claims of the respective estates of LFC and LMU and their direct and indirect subsidiaries. 2. The respective LFC and LMU chapter 11 plans were confirmed on October 4, 1996 and October 1, 1996 respectively. But, the pendency of the intercompany EXHIBIT A 1 2 claims would delay substantially the ability of each estate to distribute to its creditors substantial portions of its cash under its chapter 11 plan. Additionally, the prosecution of the intercompany claims would entail substantial time and expense for each estate. 3. Pursuant to the Bankruptcy Court's order dated September , 1996, the LFC Committee and the LMU Committee have engaged in nonbinding mediation under the auspices of Professor James J. White (the "Mediator"). 4. Bankers Trust Company is the indenture trustee on behalf of the holders of the 9 3/4% senior notes due October 1, 1997 in the principal amount of $150,000,000 (the "1997 Notes") and the 10 1/4% senior notes due October 1, 2002, in the principal amount of $190,000,000 (the "2002 Notes", and collectively with the 1997 Notes, the "Notes") issued under the indenture dated October 1, 1992 (the "Indenture") between Lomas Mortgage USA, Inc. and Bankers Trust Company. As indenture trustee, Bankers Trust Company serves on the LMU Committee. The LFC Committee included in the mediation, in addition to the claims of LMU against LFC, the claim of Bankers Trust Company, as indenture trustee ("Bankers Trust"), against LFC (the "Trustee's LFC Claim"). 5. Based on the Mediator's participation and the LFC Committee's and the LMU Committee's respective due diligence, including the taking of over 20 Bankruptcy Rule 2004 examinations, the review of reports on intercompany transactions prepared by Price Waterhouse LLP at a cost in excess of $1.5 million, and the analyses of the two statutory committees' respective legal and financial experts, the LFC Committee and the LMU Committee settled the intercompany claims on the terms and conditions 2 3 herein. The parties weighed the probability of success and collection of their various claims against the cost and delay of litigation in arriving at this settlement. Agreement: In consideration of the mutual covenants below, the parties hereto agree as follows: 1. Closing. All transfers and transactions herein shall take place at a mutually acceptable time and place on or before the tenth business day after entry of a final order by the Bankruptcy Court approving this agreement, which order is not stayed, or such earlier date after entry of such order which is mutually agreed to by the parties (the "Closing Date"); provided, however that the effective date of the LFC chapter 11 plan shall not occur until the Closing Date shall have occurred, and provided further that the immediately preceding clause shall not apply if the Closing Date shall not have occurred on or before March 1, 1997. LMU shall not prosecute its administrative claims against LFC unless the Closing Date fails to occur. All transfers shall be of all the transferor's right, title, and interest, and shall be as is, where is and without any representations and warranties. 2. Releases. LFC and all its direct and indirect subsidiaries other than LMU and its direct and indirect subsidiaries, on the one hand, and LMU and all its direct and indirect subsidiaries, on the other hand, shall release each other from all claims whatsoever arising from facts, acts, or omissions existing on or before August 31, 1996. 3. LMU Cash Payment. LMU shall pay to LFC $3,000,000. 3 4 4. Trailer Park. LFC shall retain from the sale of the vacant land at 8503 Harry Hines, Dallas, Texas, the proceeds (of approximately $469,139) held by LFC, Lomas Investment Properties, Inc., or any of their affiliates (other than LMU) including actual interest earned thereon. 5. Campus Properties. LFC and LMU and/or their appropriate subsidiaries shall transfer to LFC $1.3 million cash proceeds from the sale of the Campus cash proceeds Properties and $161,500 cash proceeds from the sale of furniture, fixtures, and equipment related thereto, and shall transfer to LMU the balance of the proceeds from the Campus Properties and the furniture, fixtures and equipment. 6. Prepetition Proceeds from Tycher Allen Property. LMU shall pay or shall cause ST Lending, Inc. ("STL") to pay to LFC the actual net sale proceeds STL received from the prepetition Tycher Allen property sale (approximately $1.233 million) plus the actual amount STL collected (approximately $776,000 of principal plus $20,000 interest) from the Tycher Allen note receivable in the face amount of approximately $800,000. 7. Tycher Allen Proceeds at LLG. LFC shall retain all the proceeds of sales of Tycher Allen properties owned or held by LLG Lands, Inc. (approximately $3,107,862), including interest actually earned thereon. 8. Tycher Allen Real Property. LMU shall cause STL or the appropriate affiliate to convey to LFC all STL's right, title, and interest in and to that certain real property referred to in these chapter 11 cases as the Tycher Allen Property. 4 5 9. Conseco Tranche B Note. LMU shall cause that certain Conseco Tranche B Note in the face amount of $15,000,000, dated November 27, 1990 (the "Conseco Note") to be assigned to LFC. If JNL Acquisition Corporation ("JNL"), an affiliate of Conseco Capital Partners, L.P., or any of its successors dispute the assignment of the Conseco Note to LFC, LFC may enforce the Conseco Note on behalf of and in the name of LMU and LFC shall be entitled, at its sole expense, to all rights, benefits, and remedies under the Conseco Note and the proceeds therefrom. LFC hereby indemnifies LMU for all costs, expenses, judgments, and settlements LMU incurs as a result of claims related solely to the Conseco Note asserted against LMU by the entities from whom payment of the Conseco Note is sought; provided, however, that the amount of such indemnity shall not exceed the amount requested on the Conseco Note. 10. Rabbi Trusts. Subject to the next sentence, LMU shall transfer to LFC any and all record and beneficial ownership it has in the assets held by Bankers Trust of the Southwest as rabbi trust arising from the Management Security Plan and the Excess Benefits Plan (the "Rabbi Trusts"). At LFC's written request, LMU shall assist LFC in the litigation, by attempting to intervene or otherwise. LFC shall reimburse promptly LMU for all expenses, after receipt of standard documentation relating thereto, including professional fees, that LFC requests LMU to incur by requesting LMU's assistance. If any request for reimbursement is not paid by LFC within ten days after LMU has delivered its requests therefor with standard documentation, LMU shall not be required to continue rendering any assistance under this section without payment in 5 6 advance for such assistance. If LMU is adjudged to hold any interests in the Rabbi Trusts, LMU shall transfer such interests to LFC promptly after such adjudication is final and no longer subject to appeal or certiorari proceeding. 11. LFC Executory Contracts. In the event that damage claims are filed against LFC for those executory contracts set forth in the footnote below(1), (the "Executory Contract Claims"), the following provisions shall govern with respect to such contracts: LFC shall contest such claims to the extent it determines necessary: i. To the extent Executory Contract Claims are allowed against LFC, the respective attorneys for LFC and LMU shall use their best efforts to determine whether any portion of the required payment should be properly made by LMU. ii. If the attorneys do not agree then the Mediator shall make a final, binding determination based on the same standards a court of competent jurisdiction would apply. (1) LFC: AT&T Bryan Tower Lexis Nexis Sewell Village Sewell Village LAS: Business Interfors Danka Business Danka Industries Danka/Toshiba Xerox LIS: AT&T AT&T GE Capital MFS MFS NTFC Capital Corp. RIS SWBT TELCO Research
With respect to all of the foregoing, both LFC and LMU believe such claims can no longer be timely asserted and, in any event, object to the extent, validity, and priority of such claims when and if asserted against the LFC and LMU estates. 6 7 iii. If a determination is made that LMU has a reimbursement obligation to LFC for up to the amount LFC actually distributed to one or more claimants on behalf of the Executory Contracts, then LMU shall make the reimbursement to Lomas Financial Corporation promptly following the Mediator's decision. iv. Nothing herein shall restrict LFC or LMU from opposing any claims by third parties on any grounds whatsoever. 12. Administrative Claims. i. Allocation. All expenses of LFC and LMU arising from and after July 1, 1996 through and including the effective date of the LFC Plan of Reorganization, shall be paid by LFC and LMU (or reimbursed from one estate to the other) based on the allocations determined by KPMG Peat Marwick, except that the parties shall direct KPMG Peat Marwick, Davis, Polk & Wardwell LLP, and Young, Conaway, Stargatt & Taylor to allocate their own fees based on for which particular debtor services are rendered, and Price Waterhouse LLP shall be paid 50% by LFC and 50% by LMU. LFC, LMU, the LFC Committee, and the LMU Committee shall have no rights to challenge such allocations; provided, however, that the parties retain all rights to challenge the allowance of the aggregate amounts of such fees. ii. July - August 1996. LMU shall pay all fees allocated to LFC as provided above which accrued during July and August 1996 up to a maximum of $321,000. LFC shall pay all other professional fees allocated to LFC pursuant to the foregoing paragraph for the months of July and August 1996 and shall reimburse LMU 7 8 for all such fees allocated to LFC that LMU has paid or subsequently pays for such period in excess of $321,000. iii. Post-August 1996. For all periods after August 31, 1996 through and including the effective date of the LFC Plan of Reorganization, LFC and LMU shall each pay all its own expenses and its expense allocations as computed pursuant to section 12i above. To the extent, if any, that either LFC or LMU shall have paid a portion of the other's expenses accrued on or after September 1, 1996, the party for whom the payments were made shall promptly reimburse the other party for such payments. iv. Post LFC Chapter 11 Plan Effective Date. LFC and LMU shall each pay all their own expenses after the effective date of the LFC Plan of Reorganization. 13. Claims Against Third Parties. i. Proceeds. Upon final disposition of the claims, the net proceeds of all claims against third parties, designated as such in paragraph 19 of the LFC confirmation order and in paragraph 20 of the LMU confirmation order, shall be transferred to the creditor trusts pursuant to the LFC and LMU respective chapter 11 plans in a ratio of 60% to the LFC creditor trust and 40% to the LMU creditor trust, regardless of whether LFC or LMU owns the claims; provided, however, that 100% of the proceeds of claims for any nonfeasance or misfeasance in the creation of, or the administration or potential utilization of the proceeds of the Rabbi Trusts shall belong solely to LFC. If a recovery from a third party results in the third party having an allowed claim against either LFC or LMU or their subsidiaries, the 60:40 allocation set 8 9 forth above shall be determined after subtracting the amount LFC or LMU or their respective subsidiaries must distribute in respect of the allowed claim and paying the amount of such distribution to the entity that must make the distribution. ii. Expenses. LFC shall pay 60% of all expenses to prosecute or settle such claims and LMU shall pay 40% of such expenses. At the Closing Date, LFC and LMU or the respective litigation trusts created under their respective chapter 11 plans shall transfer $3.0 million and $2.0 million, respectively, to the litigation trust. Of that amount, $1 million shall be held in escrow by the Litigation Trustee pursuant to a trust or escrow agreement approved by LFC and LMU. All costs and expenses of pursuing claims for nonfeasance or misfeasance in the creation of or the administration or potential utilization of the proceeds of the Rabbi Trust shall be borne solely by the LFC creditor trust out of funds it supplies in addition to the $3.0 million. iii. Control. The LFC Committee and the LMU Committee shall implement the a 50:50 sharing of control of the prosecution of all claims by (a) agreeing on one trustee of the single litigation trust to be created by LFC and LMU and (b) providing in the agreement appointing the trustee that the trustee shall grant equal weight to the respective input from LFC beneficiaries and LMU beneficiaries in respect of which claims to pursue, how much to spend, strategies, tactics, settlements, and other decisions, notwithstanding the 60:40 distribution of proceeds. iv. Plan Amendments. The respective chapter 11 plans of LFC and LMU shall be deemed amended to provide for the creation of the foregoing litigation trust in place of the trust(s) currently provided for in such plans. To the extent necessary or 9 10 desirable, LFC and LMU shall create separate litigation trusts to hold their separate claims, with a single trustee serving as trustee for both trusts subject to the foregoing rules of expense, control and distribution. 14. Asset Ownership. i. Except for those assets whose legal and beneficial ownership is expressly provided to be transferred under this agreement, the intercompany account between LMU and LFC which is released by this agreement, and LFC's investment in LMU which was extinguished pursuant to the LMU chapter 11 plan, (1) LFC and its respective direct and indirect subsidiaries (other than LMU and LMU's direct and indirect subsidiaries) (the "LFC Group") shall retain, free and clear of all claims by LMU and LMU's direct and indirect subsidiaries (the "LMU Group") all of the LFC Group's assets included in the list attached hereto as schedule 1, the assets reflected in the consolidating balance sheets and supporting "Detailed Adjusted Balance Sheet" dated as of October 31, 1996 prepared from the books and records of the consolidated enterprise (the "Asset Listing," annexed hereto as schedule 2) and the proceeds thereof and LFC's creditors shall be the beneficiaries of all assets transferred to the creditor trust pursuant to LFC's joint chapter 11 plan, regardless of 10 11 whether such assets were owned or held by such entity at October 31, 1996; and (2) the LMU Group shall retain, free and clear of all claims by the LFC Group, all of the LMU Group's assets reflected on schedule 3 (i.e., the consolidated balance sheet and the "Detailed Adjusted Balance Sheet"), LMU's overfunded pension plan, net operating loss carryforwards, and insurance funds, proceeds, and policies (which are not listed on schedule 3) and the proceeds thereof and LMU's creditors shall be the beneficiaries of all assets transferred to the creditor trust pursuant to LMU's chapter 11 plan, regardless of whether such assets were owned or held by such entity at October 31, 1996. ii. To the extent LFC or LMU locates assets not included on the attachments hereto, nothing herein shall preclude them from marshaling such assets for their estates. LFC and LMU shall undertake in good faith to settle all disputes over which party is entitled to such assets. 15. Conditions Precedent. This agreement shall not be binding until: i. Entry of a final order by the Bankruptcy Court that is no longer subject to review or certiorari proceedings, unless waived by the LFC Committee at its sole discretion, dismissing the Trustee's LFC Claim (subject to reinstatement if the approval of this agreement is 11 12 overturned and also the closing under paragraph 1 above has not occurred) and releasing Bankers Trust from any liability in connection with the dismissal of the Trustee's LFC Claim, on notice to all holders of the Notes; and ii. The Bankruptcy Court approves this agreement after notice and a hearing. 16. Termination of Transaction Restrictions. Upon Bankruptcy Court approval of this agreement, LFC, LMU, and all their respective subsidiaries shall be entitled to transfer any and all of their assets without prior notice to the other entities as currently required in the orders confirming chapter 11 plans for such entities. 17. Further Assurances. Each party shall sign such documents and do such acts, including without limitation, the execution, delivery, and filing as the case may be of all additional instruments and other documents, necessary or desirable to carry out this agreement. 18. Whole Agreement. This agreement is the entire agreement between the parties in respect of its subject matter. All other written and oral statements and agreements with respect of the subject matter hereof are merged herein, 19. Amendments. This agreement may only be amended in writings signed by the party to be charged and approved by the Bankruptcy Court. 20. Limitations. Except as expressly provided herein, no party waives or releases any rights or claims whatsoever. No statement made or act taken by any 12 13 party in respect of this agreement may be used by any party if this agreement is not approved by the Bankruptcy Court. 21. No Third Party Beneficiaries. This agreement is solely for the benefit of LFC and LMU (and their respective successors and assigns) on whose behalf the parties hereto have entered into this agreement as authorized by the Bankruptcy Court's order dated August ___, 1996, and is not for the benefit of any other entities or persons. No other entity and no other person shall have any rights under this agreement. 22. Governing Law, This agreement shall be governed by the laws of the State of New York and the United States Bankruptcy Code. 23. Disputes. All disputes relating to this agreement shall be resolved by the Bankruptcy Court without a jury. Dated: New York, New York January, 1997 LMU STATUTORY CREDITORS' LFC STATUTORY CREDITORS' COMMITTEE, On Behalf of LMU COMMITTEE, On Behalf of LFC By: /s/ [ILLEGIBLE] By: /s/ [ILLEGIBLE] -------------------------------- --------------------------------- Chairman Chairman SO ORDERED AND APPROVED on January ___, 1997 United States Bankruptcy Judge Wilmington, Delaware 13 14 Schedule 1 a. All cash at LFC Corporate and Post-Reorganization LFC Subsidiaries including: i. Lomas Information Systems ii. Lomas Housing Mgmt. (Treemont) iii. Lomas Mgmt. iv. Lomas Properties v. LLG Lands b. All Cash and Other Assets Expressly Transferred to LFC or Deemed Property of LFC pursuant to the settlement agreement. c. All Non-Cash Assets Held at LFC and its Post-Reorganization Subsidiaries, including: i. Investments: (1) Vista Securities (2) Investco I (3) Investco II (4) Triad Ventures ii. Other Assets: (1) RIS Note (2) Assisted Care Business (3) Management fees receivable from Treemont (4) Rabbi Trust (5) Dataplex prepaid services contract (6) Unsold furniture, fixtures, and artwork, etc. (7) Prepaid expenses (insurance, fees, taxes, etc.) (8) Insurance funds and insurance proceeds and policies (9) Net proceeds of pension fund surplus of up to $36,000 due LFC iii. Accrued Investment Income iv. LFC NOL's v. Capstead Option Litigation 15 SCHEDULE 2 LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES (EXCLUDING NOMAS CORP. AND SUBSIDIARIES) DETAILED ADJUSTED BALANCE SHEET AS OF OCTOBER 31, 1996 (in thousands) ASSETS Cash and cash equivalents 9,144 Investments Triad Ventures 2 Invesco Institutional Mortgage Funds 1,470 Excess Benefits - Rabbi Trust 646 MSP short term investments 7,708 Investment in LMU (126,101) (116,275) Receivalbles Note receivable - RIS (net or reserves of $4,000) 4,000 Note receivable - Dataplex 17 Management fees from Treemont 363 Fixed asset sale proceeds - LMU 323 Accrued investment income - INVESCO 52 4,755 Unallocated allowance for losses (3,089) Allowance for discontinued operations (future operating loss) (739) Prepaid expenses and other assets Prepaid insurance 550 Prepaid retainer fees 13 Prepaid airpassess - Dryer 18 Prepaid franchise taxes 3 584 (105,620)
16 SCHEDULE 3 NOMAS CORP. AND SUBSIDIARIES (INCLUDING INSURANCE SERVICES AND ST LENDING) DETAILED ADJUSTED BALANCE SHEET AS OF OCTOBER 31, 1996 (in thousands) ASSETS Cash and cash equivalents 203,846 Investments Residual investment in CMO trust 1,599 Funds held in escrow per court order for building sale 11,501 Funds held in escrow per court order for furniture sales 977 Funds held in escrow per court order for RIS 11,602 Conseco franche B 3,373 Cash - to be released after serving transferred 283 Insurance premiums held in trust 1,128 30,463 Receivables First Nationwide - sales proceeds 40,132 First Nationwide - transfer fees Phase I sale 3,809 First Nationwide - transfer fees Phase II sale 6,430 Miscellaneous receivalbes from FNMC - Excells recording fees 369 Note receivable - STL loans - net of reserves $429 1,185 Note receivable - Landel Plaza 2,008 Receivable - LLG Tycher Allen property 3,108 Receivable - Quality sale 491 Receivable - Disputed charges Strauss 51 Accrued interest - short term investments 36 Receivable from Lomas Properties (Trailer Park) 469 Receivable from LFC (fixed asset proceeds) 52 Receivable from LFC Rabbi Trust (Excess benefit payments) 160 Receivable from LFC (professional fees) 2,300 Receivable from LFC (officer's salaries) 368 Other miscellaneous receivables 4 Insurance - Agency premiums receivable 288 Insurance - Sub agents receivable (LRA) 244 Insurance - Direct bill commissions receivable 153 Insurance - North American 123 Insurance - Returned premium (American Bankers) (8) Interco receivables (LFC) 1,395 63,167 Real estate owned (STL) - net of reserves $7,866 15,073 Allowance for losses - First Nationwide receivables (20,510) Allowance for losses - Landel Plaza note receivable (511)
EX-11 7 COMPUTATION OF EARNINGS PER SHARE 1 EXHIBIT 11 SIENA HOLDINGS, INC AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE (IN THOUSANDS, EXCEPT PER SHARE DATA)
Reorganized Company Predecessor Company ---------- ------------------------------------ Three Month Nine Month Period Ended Period Ended Years Ended June 30 June 30, March 31, ----------------------- 1997 1997 1996 1995 ---------- ---------- ---------- ---------- PRIMARY EARNINGS (LOSS) PER SHARE: Average common shares outstanding ............. 4,000 ** ** ** Average common stock equivalents under non- employee Directors Long Term Incentive Plan.. -- ** ** ** ---------- ---------- ---------- ---------- Total Shares ....................... 4,000 ** ** ** ========== ========== ========== ========== Loss before loss from discontinued operations .................................... $ (86) $ (12,911) $ (250,591) $ (127,282) Loss from discontinued operations ............. -- -- -- (26,409) Extraordinary gain on discharge of debt ....... -- 135,966 -- -- ---------- ---------- ---------- ---------- Net income (loss) ...................... $ (86) $ 123,055 $ (250,591) $ (153,691) ========== ========== ========== ========== Primary earnings (loss) per share: Loss before loss from discontinued operations .................................... $ (.02)* ** ** ** Loss from discontinued operations ............. -- ** ** ** Extraordinary gain on discharge of debt ....... -- ** ** ** ---------- ---------- ---------- ---------- Net loss ........................... $ (.02)* ** ** ** ========== ========== ========== ==========
* Per share amounts for Reorganized Company based on shares reserved for issuance to creditors. ** Per share amounts are not meaningful due to reorganization.. FULLY DILUTED EARNINGS (LOSS) PER SHARE: Average common shares outstanding .............. 4,000 ** ** ** Average common stock equivalents under non- employee Directors Long Term Incentive Plan .. -- ** ** ** ---------- ---------- ---------- ---------- Total Shares .............................. 4,000 ** ** ** ========== ========== ========== ========== Loss before loss from discontinued operations .. $ (86) $ (12,911) $ (250,591) $ (127,282) Loss from discontinued operations .............. -- -- -- (26,409) Extraordinary gain on discharge of debt ........ -- 135,966 -- -- ---------- ---------- ---------- ---------- Net income (loss) ......................... $ (86) $ 123,055 $ (250,591) $ (153,691) ========== ========== ========== ========== Fully diluted earnings (loss) per share: Loss before loss from discontinued operations .. $ (.02)* ** ** ** Loss from discontinued operations .............. -- ** ** ** Extraordinary gain on discharge of debt ........ -- ** ** ** ---------- ---------- ---------- ---------- Net income (loss) ......................... $ (.02)* ** ** ** ========== ========== ========== ==========
* Per share amounts for Reorganized Company based on shares reserved for issuance to creditors. ** Per share amounts are not meaningful due to reorganization.. EX-21 8 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SIENA HOLDINGS, INC AND SUBSIDIARIES CORPORATE STRUCTURE JUNE 30, 1997 The consolidated structure of the Company is set forth in the following table which identifies each corporate entity's subsidiaries and shows the state of incorporation in which each of SHI and its subsidiaries are incorporated. Except as otherwise specified, each entity is headquartered at 717 North Harwood in Dallas.
State of Corporation Incorporation - ----------- ------------- Siena Holdings, Inc (formerly Lomas Financial Corporation) (1) .......................... Delaware Siena Information Systems, Inc (formerly Lomas Information Systems) .................. Nevada Siena Management, Inc (formerly Lomas Management, Inc.) .............................. Nevada Siena Properties, Inc (formerly Lomas Properties, Inc.) .............................. Texas Louisiana National Land Corporation (5) .......................................... Louisiana Siena Investment Properties, Inc (formerly Lomas Investment Properties, Inc.) .... Nevada Naples Bay View, Inc (5) ......................................................... Florida Financial Insurance Ltd.(3) (5) ...................................................... Bermuda Siena Housing Management Corp (formerly Lomas Housing Management Corp.) .............. Texas Roosevelt Office Center, Inc.(4) (5) ................................................. New York Vistamar, Inc ........................................................................ Puerto Rico LLG Lands, Inc ....................................................................... Arkansas
Notes to Table of Corporate Structure: (1) Unless otherwise stated, each affiliated entity is a corporation and is 100 percent owned by the indicated parent company. (2) 100 percent of common stock owned by LFC but only 50 percent of the voting stock Preferred stock owned by third parties including 50 percent of the voting stock. (3) Located at Dorchester House, P O Box HM2020, Church Street, Hamilton 5, Bermuda. (4) Located at 67 Wall Street, Suite 2411, New York, New York 10005. (5) Dissolution pending. EX-27 9 FINANCIAL DATA SCHEDULE
5 0000060150 DRYER 1,000 YEAR JUN-30-1997 APR-01-1997 JUN-30-1997 1,941 0 242 0 0 0 0 0 7,051 0 0 0 0 400 5,747 7,051 0 184 0 0 270 0 0 (86) 0 (86) 0 0 0 (86) (0.02) (0.02)
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