-----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, JKqBLumPUe45fFD6P4eK77UoagoAtYn3qGo0Gq7DQPELd3VySLq5ntoBbBp/diiC V+dgS88Ai2RF/jS8Hv0eSA== 0000950134-99-008507.txt : 19991227 0000950134-99-008507.hdr.sgml : 19991227 ACCESSION NUMBER: 0000950134-99-008507 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990928 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: 99718291 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 END JUNE 30, 1999 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, 1999 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.) 5068 WEST PLANO PARKWAY, SUITE 300, PLANO TEXAS 75093 (Address of Principal Executive Offices) (Zip Code) Registrant's telephone number, including area code: (972) 381-4255 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 10, 1999 the aggregate market value of the registrant's common stock held by non-affiliates: $4,754,000 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 10, 1999: Common Stock -- 6,000,000 shares. ================================================================================ 2 SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1999 TABLE OF CONTENTS
PAGE ---- PART I Item 1. BUSINESS ........................................................ 3 Item 2. PROPERTIES ...................................................... 8 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 ................................. 11 Item 6. SELECTED CONSOLIDATED FINANCIAL DATA ............................ 11 Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS .......................... 14 Item 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK EXPOSURES OF FINANCIAL INSTRUMENTS ........................... 19 Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ..................... 20 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 ...................................................... 61 Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS .................. 62 PART IV Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K ........................................................ 63
-2- 3 SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1999 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 5068 West Plano Parkway, Suite 300 in Plano, Texas. Unless the context otherwise requires, the "Company," as used herein, refers to SHI, formerly LFC, and its subsidiaries. The Company is primarily engaged in two businesses through its wholly-owned subsidiaries: assisted care facility management through Siena Housing Management Corp. and real estate development through LLG Lands, Inc. 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 confirmation of LMUSA's Chapter 11 reorganization plan (see "Item 1. Business -- Reorganization"), 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. 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 Debtor Corporations filed two separate plans of reorganization with the Bankruptcy Court. An order confirming the second amended joint plan of reorganization filed on October 4, 1996, for LFC, LIS and LAS (the "Joint Debtors") and a stipulation and order among the Joint Debtors and the appointed statutory committee of unsecured creditors of LFC (the "LFC Creditors' Committee") regarding technical modifications to the 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". 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"). As a result of LMUSA's Chapter 11 reorganization plan, LFC distributed its interest in LMUSA to LMUSA's creditors as of October 1, 1996. 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 appointed statutory committee of the unsecured creditors of LMUSA (the "LMUSA Creditors' Committee") signed an agreement in respect of intercompany claims (the "Intercompany Agreement"), filed as an exhibit to the Company's annual report on Form 10-K for the year ended June 30, 1997. The Intercompany Agreement was approved by the Bankruptcy Court on February 21, 1997, resulting in the transfer of assets and writeoff of receivables and payables with a net increase in retained earnings of $16.8 million on the effective date of March 7, 1997. Additionally, 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, dated March 6, 1997 (the "LFC/LMUSA Litigation Trust"), filed as an exhibit to the Company's annual report on Form 10-K for the year ended June 30, 1997. Subject to certain exceptions in the Intercompany Agreement, the LFC -3- 4 Creditors' Trust (as defined herein) and the creditors' trust established pursuant to the LMUSA Plan will receive sixty and forty percent, respectively, of net proceeds from litigation. There can be no assurance that the LFC/LMUSA Litigation Trust will produce any proceeds which will benefit the Creditors Trust and former creditors. 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. Reference is made to the Joint Plan, consisting of Exhibit 10.1, Exhibit 10.2 and Exhibit 10.3 which are filed as exhibits to the Company's annual report on Form 10-K for the year ended June 30, 1997. Pursuant to the Joint Plan, the Class 3 general unsecured creditors will receive a combination of cash and new common stock as settlement of their allowed claim. On November 12, 1997, the initial distribution date (the "Initial Distribution Date"), $12.5 million was disbursed to the distribution agent for the Class 3 unsecured creditors. On May 11, 1998, a second distribution in the amount of $6.2 million was disbursed to the distribution agent for benefit of the Class 3 unsecured creditors. A third cash distribution was made to the distribution agent on April 21, 1999, in the amount of $4.3 million, for a total distribution through June 30, 1999, of approximately $23 million. In addition, as assets in the Creditors' Trust are liquidated and/or the contingent obligations are favorably resolved, additional distributions will be made to the Class 3 unsecured creditors. See "Item 8. Financial Statements and Supplementary Data - Reorganization and Creditors' Trust" for more information. Also, on the Initial Distribution Date pursuant to the Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of the new common stock were issued by the stock transfer agent. For balance sheet presentation and earnings (loss) per share, the 4,000,000 shares were considered issued as of April 1, 1997. The process by the stock distribution agent has resulted in 3,986,720 shares of common stock actually distributed to former creditors through March 7, 1999. As of that date, there were 13,280 shares of common stock issued but not delivered related to bonds not exchanged for stock by the March 7, 1999 deadline and 164,599 shares of common stock held for disputed claims that have been resolved. The Company expects the stock distribution agent to redistribute by December 31, 1999, the total of 177,879 shares to all allowed creditors that have received prior stock distributions. Recognizing the need of the Company for additional working capital, the Chairman of the Company offered to make a cash investment for a certain number of shares of the Company's common stock. This offer was considered and accepted by the Company's Board of Directors at its regularly scheduled quarterly meeting held in Wilmington, Delaware on September 23, 1998. The Chairman did not participate in the vote of the Board accepting this offer. On November 5, 1998, the Company received $2.102 million, net of stock offering expenses in the amount of $98,000, in exchange for 2 million shares of the Company's common stock. This transaction increased the number of outstanding shares of common stock to 6 million. THE 6,000,000 SHARES OF THE NEW COMMON STOCK ARE RESTRICTED IF THE EFFECT OF A TRANSFER WOULD RESULT IN AN OWNERSHIP INCREASE TO 4.5 PERCENT OR ABOVE OF THE TOTAL OUTSTANDING SHARES OR FROM 4.5 PERCENT TO A GREATER PERCENTAGE OF THE TOTAL OUTSTANDING SHARES, WITHOUT PRIOR APPROVAL BY THE BOARD OF DIRECTORS AS DESCRIBED IN THE RESTATED CERTIFICATE OF INCORPORATION. SEE EXHIBITS TO THE COMPANY'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED JUNE 30, 1997. The amounts ultimately distributed to the former creditors will be solely dependent on the success of the Company, the amounts realized from the collection of assets and the settlement of liabilities for both the Creditors' Trust and the LFC/LMUSA Litigation Trust. THE LFC CREDITORS TRUST AND ANY PROCEEDS FROM THE LFC/LMUSA LITIGATION TRUST ARE SOLELY FOR THE BENEFIT OF THE FORMER CREDITORS OF THE JOINT DEBTORS. STOCKHOLDERS WILL NOT BENEFIT FROM THESE TRUSTS UNLESS THEY HELD CLASS 3 - GENERAL UNSECURED CLAIMS AS DEFINED IN THE JOINT PLAN. -4- 5 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 report on Form 10-K for the year ended June 30, 1996. The principal provisions of the Joint Plan are summarized in the Joint Disclosure Statement. That summary is qualified in its entirety by reference to the Joint Plan, which is attached as Exhibits I and II to the Joint Disclosure Statement. 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 were restated to reflect their reorganization value, which approximated 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 had historically incurred losses from operations and had 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 were stated at their fair value at the date of reorganization. CREDITORS' TRUST The Joint Plan established a creditors' trust (the "Creditors' Trust") for which the Company serves as trustee. The Creditors' Trust holds the non-reorganized 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 former creditors' benefit and the Company has no risk of loss on the assets or liabilities. The amounts ultimately distributed to the former creditors will be solely dependent on the success of the Company, the amounts realized from the collection of assets, and settlement of liabilities for both the Creditors' Trust and the LFC/LMUSA Litigation Trust. See "Item 8. Financial Statements and Supplementary Data - Creditor' Trust" for more information. Stockholders who are not former creditors of the Joint Debtors are not beneficiaries of the Creditors' Trust. -5- 6 THE LFC CREDITORS TRUST AND ANY PROCEEDS FROM THE LFC/LMUSA LITIGATION TRUST ARE SOLELY FOR THE BENEFIT OF THE FORMER CREDITORS OF THE JOINT DEBTORS. STOCKHOLDERS WILL NOT BENEFIT FROM THESE TRUSTS UNLESS THEY HELD CLASS 3 - GENERAL UNSECURED CLAIMS AS DEFINED IN THE JOINT PLAN. See "Item 3. Legal Proceedings" and "Item 8. Financial Statements and Supplementary Data" for more information on the claims. 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. ASSISTED CARE FACILITY MANAGEMENT The assisted care facility management 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. In fiscal year 1998, Treemont elected to make significant capital improvements for fire protection that were funded by operations. These expenditures decreased the quarterly management fee received by SHM beginning with the second quarter of fiscal year 1998 through the first quarter of fiscal year 1999. Upon completion of the fire protection capital improvements, Treemont reduced the accrual to actual cost incurred resulting in a favorable adjustment to the management fee received by SHM for the quarter ended December 31, 1998. Also, on December 31, 1997, Treemont discontinued the reimbursement of pension benefits paid to the employees of SHM. This reduction in Treemont's pension plan expense increases the facility's net income thereby increasing the Company's management fee. This reduced the effect of the capital expenditures on SHM's revenue during fiscal year 1998. The compensation expense and all operating expenses for SHM's employees, who provide services at the assisted care facility, are funded directly by the assisted care facility owner and thus not reflected in the Consolidated Statement of Operations, except indirectly through the management fee income received by SHM based in part on the facility's net income. The exception is the compensation for the operations manager of the facility, including commission, bonus, and pension benefits (through December 31, 1997), which is funded directly by SHM and included in personnel expense on the Company's Consolidated Statement of Operations. 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. In the fourth quarter of fiscal year 1998, the owners of Treemont contacted the Company's management and requested a legal review of the management agreement as they believed certain parts of the contract were illegal. The Company's position is that the agreement is substantially secured at this time by the Treemont property in Houston. The owners of Treemont have requested the Company consider possible changes to the contract. Management does not believe the changes, if any, will have a negative impact on the Company. -6- 7 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 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 four tracts of land: one tract of approximately 36.5 net acres zoned multi-family, one tract of approximately 85.5 net acres zoned light industrial (formerly 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. The Company attempted to increase the values of the property through the re-zoning and relocation of zoning in certain tracts. The Company was notified in fiscal year 1999 that its re-zoning application was approved, relocating its multi-family tract to a more accessible location and changing the single family zoning to light industrial. The Company reviewed the real estate interests held and has continued to market the property zoned for multi-family use, approximately 36.5 acres, and has begun to market the light industrial tract. A concept site plan and related marketing materials are being developed for the light industrial property. Management of the Company intends to continue to market and/or develop the property over an estimated period not to exceed five years. During fiscal year 1999, the Company has held negotiations with third parties for the sale of certain parcels of the Allen property. The Company has not entered into a contract with any of the third parties, however, based on these negotiations, management believes that the Company would be able to sell the Allen property for a value in excess of the carrying amount. MORTGAGE BANKING 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. 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. 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." -7- 8 EMPLOYEES At June 30, 1999, the Company had two executive officers under contract and one full-time employee. One of the Company's subsidiaries, SHM, had 141 full-time and 14 part-time employees who provide services at an assisted care facility in Houston, Texas. The compensation expense and all operating expenses for SHM's employees are funded directly by the assisted care facility owner and are not reflected in the Consolidated Statement of Operations, except indirectly through the management fee income received by SHM based in part on the facility's net income. The exception is the compensation for the operations manager of the facility, including commission, bonus and pension benefits (through December 31, 1997), which is funded directly by SHM and included in personnel expense on the Company's Consolidated Statement of Operations. See "Item 1. Business - Assisted Care Facility Management". ITEM 2. PROPERTIES The Company's principal executive offices are located in leased facilities at 5068 West Plano Parkway, Suite 300 in Plano, Texas. The original lease for six months expired on August 15, 1998, after which the Company is operating under a month-to-month lease with a 30-day cancellation notice. ITEM 3. LEGAL PROCEEDINGS On September 25, 1998, the Company was advised that it was named as a Counter-Defendant in the counterclaim filed by the defendants of the LFC/LMUSA Litigation Trusts lawsuit against certain former officers and directors of Lomas Financial Corporation and subsidiaries. The counterclaim seeks joint and several liability. The Company has responded to the counterclaim denying liability and preserving the Company's rights and defenses. Separately the Company initiated litigation in the Delaware Bankruptcy Court to obtain a declaration of rights and an order to turn over records. A successful outcome in the Delaware court should resolve the counterclaim. In December 1997, the Company received a letter from the attorney of the insurance company that carried the former directors and officers insurance coverage, stating that there is a $1.0 million per claim retention which must be completely exhausted before the insurance company is implicated. Management at this time believes that the Company is not responsible for this retention amount as a result of the Joint Plan. The LFC Creditors Trust and any proceeds from the LFC/LMUSA Litigation Trust are solely for the benefit of the former creditors of the Joint Debtors. Stockholders will not benefit from these trusts unless they held Class 3 - general unsecured claims as defined in the Joint Plan. The assisted care facility management subsidiary, 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. In the fourth quarter of fiscal year 1998, the owners of Treemont contacted the Company's management and requested a legal review of the management agreement as they believed certain parts of the contract were illegal. The Company's position is that the agreement is substantially secured at this time by the Treemont property in Houston. The owners of Treemont have requested the Company consider possible changes to the contract. Management does not believe the changes, if any, will have a negative impact on the Company. The Predecessor Company had a Management Security Plan ("MSP") for certain of its employees. The LFC Creditors' Committee argued that the funds contributed to the MSP were held in a trust (the "MSP Trust") subject to the claims of creditors in the event of insolvency. The LFC Creditors' Committee contended that the funds in the trust were property of the Company's estate. However, the trustee, Bankers Trust, asserted that the trustee was 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 July 1, 1998, a federal district court approved a settlement of the MSP Trust whereby the Creditors' Trust and the MSP beneficiaries would equally share the assets remaining in the MSP Trust after -8- 9 payment of certain legal expenses and MSP trust fees, in the amount of $0.4 million. Accordingly, on July 10, 1998, the Creditors' Trust received $4.085 million pursuant to the final settlement. The preliminary MSP disputed claims totaled $8.8 million. These proceeds are solely for the benefit of the former creditors of the Joint Plan. The LFC Committee also commenced an adversary proceeding to recover the funds in the rabbi trust for the Predecessor 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 was 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 for the sole benefit of former creditors of the Joint Plan. 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, tortuous 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. These proceeds are solely for the benefit of the former creditors of the Joint Plan. THE LFC CREDITORS TRUST AND ANY PROCEEDS FROM THE LFC/LMUSA LITIGATION TRUST ARE SOLELY FOR THE BENEFIT OF THE FORMER CREDITORS OF THE JOINT DEBTORS. STOCKHOLDERS WILL NOT BENEFIT FROM THESE TRUSTS UNLESS THEY HELD CLASS 3 - GENERAL UNSECURED CLAIMS AS DEFINED IN THE JOINT PLAN. See "Item 8. Financial Statements and Supplementary Data" for more information on the claims. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS The Company held its Annual Meeting of Stockholders on December 16, 1998 in Wilmington, Delaware for the following purposes: 1. To elect five directors (John P. Kneafsey, Eric M. Bodow, James D. Kemp, Matthew S. Metcalfe, and Frank B. Ryan) to serve until the next annual meeting and until their successors are elected and qualified.
VOTING --------------------------------------------------------------------------------------------- Number of Shares Number of Shares Number of Shares Number of Broker For Against Abstained Non-Votes ---------------------- ---------------------- --------------------- ---------------------- 5,294,345 15,802 0 0
2. To approve certain changes in compensation for the Board of Directors.
VOTING --------------------------------------------------------------------------------------------- Number of Shares Number of Shares Number of Shares Number of Broker For Against Abstained Non-Votes ---------------------- ---------------------- --------------------- ---------------------- 5,112,184 197,394 569 0
-9- 10 3. To approve creation of a non-qualified stock option plan for the Board of Directors.
VOTING --------------------------------------------------------------------------------------------- Number of Shares Number of Shares Number of Shares Number of Broker For Against Abstained Non-Votes ---------------------- ---------------------- --------------------- ---------------------- 4,683,735 623,120 3,292 0
4. To ratify the appointment of KPMG LLP as independent public accountants for the Company for the fiscal year ended June 30, 1999.
VOTING --------------------------------------------------------------------------------------------- Number of Shares Number of Shares Number of Shares Number of Broker For Against Abstained Non-Votes ---------------------- ---------------------- --------------------- ---------------------- 4,883,757 423,343 3,047 0
-10- 11 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS As of June 30, 1999 and 1998, the Company had 15,000,000 shares of $.10 par value common stock (the "Reorganized Common Stock") authorized, with 6,000,000 and 4,000,000 shares issued and outstanding, respectively. Pursuant to the Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of common stock were reserved for issuance on April 1, 1997 and ultimately issued by the stock transfer agent on November 12, 1997. For balance sheet presentation and earnings (loss) per share, the 4,000,000 shares were considered issued as of April 1, 1997. The process by the stock distribution agent resulted in 3,986,720 shares of common stock actually distributed to former creditors through March 7, 1999. As of that date, there were 13,280 shares of common stock issued but not delivered related to bonds not exchanged for stock by the March 7, 1999 deadline and 164,599 shares of common stock held for disputed claims that have been resolved. The Company expects the stock distribution agent to redistribute the total of 177,879 shares to all allowed creditors that have received prior stock distributions. On November 5, 1998, the Company received $2.2 million in exchange for 2 million shares of the Company's common stock. Stock offering expenses of $98,000 were offset against the proceeds for a net increase to additional paid-in capital of $2.102 million. This transaction increased the number of outstanding shares of common stock to 6 million. See "Item 8. Financial Statements and Supplementary Data--Stockholders' Equity" footnote. 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. SHI's common stock, with a trading symbol of SIEN, is traded in the over the counter market. During the last two fiscal years, the high and low prices and dividends declared on common stock per share have been (in dollars):
1999 1998 Dividends Declared ------------------------ ---------------------- ------------------------- High Low High Low 1999 1998 ------------ ----------- ----------- ---------- ------------- ----------- First Quarter . . . . . . . . . . . . 1-35/64 1-19/64 * * -- -- Second Quarter . . . . . . . . . . . 1-3/8 3/4 3 1-7/64 -- -- Third Quarter . . . . . . . . . . . . 1-7/16 7/8 2-39/64 1-1/4 -- -- Fourth Quarter . . . . . . . . . . . 1-1/4 1 1-51/64 1-1/4 -- --
* Not meaningful due to reorganization. Reorganized SHI's common stock commenced trading on December 11, 1997. The Company, as of June 30, 1999 and 1998, had 1,000,000 shares of $1.00 par value preferred stock (the "Reorganized Preferred Stock") authorized, with 0 shares issued and outstanding. ITEM 6. SELECTED CONSOLIDATED FINANCIAL 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. -11- 12 SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) SELECTED CONSOLIDATED FINANCIAL DATA
Reorganized Company Predecessor Company ------------------------------------- ------------------------------------- Three Month Nine Month Year Ended Year Ended Period Ended Period Ended Year Ended Year Ended June 30, June 30, June 30, March 31, June 30, June 30, 1999 1998 1997 1997 1998 1998 ----------- ------------ ------------ ------------- ---------- ------------ (in dollars and in thousands, except per share data) STATEMENT OF OPERATIONS DATA: Revenues from operations ......................... 1,002 1,410 226 3,235 103,347 222,222 Income (loss) from operations before reorganization items and federal income tax ... 52 72 (86) (5,464) (229,410) (127,282) Reorganization items--net ........................ -- -- -- (7,447) (21,181) -- Income (loss) from operations before federal income tax expense ............................ 52 72 (86) (12,911) (250,591) (127,282) Federal income tax expense ....................... (18) (25) -- -- -- -- Income (loss) from operations before discontinued operations ....................... 34 47 (86) (12,911) (250,591) (127,282) Loss from discontinued operations: Loss from disposal ............................ -- -- -- -- -- (24,409) Loss from operations .......................... -- -- -- -- -- (2,000) Income (loss) before extraordinary item .......... 34 47 (86) (12,911) (250,591) (153,691) Extraordinary gain on discharge of debt .......... -- -- -- 135,966 -- -- Net income (loss) ................................ 34 47 (86) 123,055 (250,591) (153,691) Basic earnings (loss) per share: Income (loss) from operations before loss from discontinued operations ....... 0.01 * 0.01 * (0.02) * ** ** ** Income (loss) before extraordinary item .... 0.01 * 0.01 * (0.02) * ** ** ** Net income (loss) .......................... 0.01 * 0.01 * (0.02) * ** ** ** Average number of shares ................... 5,304 * 4,000 * 4,000 * ** ** ** Diluted earnings (loss) per share: Income (loss) from operations before loss from discontinued operations ........ 0.01 * 0.01 * (0.02) * ** ** ** Income (loss) before extraordinary item ...... 0.01 * 0.01 * (0.02) * ** ** ** Net income (loss) ............................ 0.01 * 0.01 * (0.02) * ** ** ** Average number of shares ..................... 5,333 * 4,044 * 4,000 * ** ** **
(TABLE CONTINUED ON FOLLOWING PAGE) * Per share amounts for Reorganized Company based on shares issued or reserved for issuance to creditors. ** Per share amounts are not meaningful due to reorganization. -12- 13 SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) SELECTED CONSOLIDATED FINANCIAL DATA (CONTINUED)
As of June 30 As of June 30 --------------------------- ---------- -------------------------- 1999 1998 1997 1996 1995 ------------ ------------- ---------- ------------ ------------- (in dollars and in thousands) Balance Sheet Data: Assets .............................................. 10,420 7,448 7,051 329,932 1,157,001 Cash ................................................ 4,111 2,475 1,941 197,800 21,510 Investment in real estate ........................... 4,879 4,800 4,800 -- -- Purchased future mortgage servicing income rights ... -- -- -- -- 346,958 First mortgage loans held for sale .................. -- -- -- -- 345,039 Term and senior convertible notes ................... -- -- -- -- 518,688 Liabilities subject to Chapter 11 proceedings ....... -- -- -- 552,863 -- Stockholders' equity (deficit) ...................... 9,489 6,143 6,061 (262,464) (11,878) Escrow, agency and fiduciary funds .................. -- -- -- -- 641,519
Note: Certain amounts in fiscal 1998, 1997, 1996, and 1995 have been reclassified to conform with the 1999 presentation format. -13- 14 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Statements contained herein that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including but not limited to statements regarding the Company's expectations, hopes, beliefs, intentions or strategies regarding the future. Actual results could differ materially from those projected in any forward-looking statements as a result of a number of factors, including those detailed in this Management's Discussion and Analysis of Financial Condition and Results of Operations, as well as those set forth elsewhere herein. The forward-looking statements are made as of the date of these financial statements and the Company undertakes no obligation to update or revise the forward-looking statements, or to update the reasons why actual results could differ materially from those projected in the forward-looking statements. 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. See "Item 1. Business - Reorganization". Certain reclassifications have been made to prior years' financial statements to conform to the current year presentation. -14- 15 The operating results of the Company during the year ended June 30, 1999, the year ended June 30, 1998, the three month period ended June 30, 1997, and the nine month period ended March 31, 1997, were as follows (in thousands):
Predecessor Reorganized Company Company ------------------------------------------------ --------------- Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ------------- ------------- --------------- --------------- Operating income (loss): Assisted care management ................. $ 329 $ 272 $ 87 $ 376 Real estate .............................. (15) (29) 5 97 Mortgage banking ......................... -- -- -- (1,186) Other .................................... 502 962 52 319 -------- -------- -------- -------- 816 1,205 144 (394) -------- -------- -------- -------- Expenses: General and administrative ............... (764) (1,133) (230) (1,352) Loss on sale or disposal of assets ....... -- -- -- (3,718) -------- -------- -------- -------- (764) (1,133) (230) (5,070) -------- -------- -------- -------- Income (loss) from operations before ........ 52 72 (86) (5,464) reorganization items and federal income tax Reorganization items--net ................... -- -- -- (7,447) -------- -------- -------- -------- Income (loss) before federal income tax ..... 52 72 (86) (12,911) Federal income tax expense .................. (18) (25) -- -- -------- -------- -------- -------- Income (loss) before extraordinary item ..... 34 47 (86) (12,911) Extraordinary gain on discharge of debt ..... -- -- -- 135,966 -------- -------- -------- -------- Net income (loss) .................... $ 34 $ 47 $ (86) $123,055 ======== ======== ======== ========
RESULTS OF OPERATIONS--YEAR ENDED JUNE 30, 1999 COMPARED WITH YEAR ENDED JUNE 30, 1998 Assisted Care Management. The increase in operating income of the assisted care management operations from $272,000 for the year ended June 30, 1998, to $329,000 for the year ended June 30, 1999, is primarily attributable to the increase in the management fee received by SHM. 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. See "Item 1. Business" for more information on the management agreement. In fiscal year 1998, Treemont elected to make significant capital improvements for fire protection that were funded by operations. These expenditures decreased the quarterly management fee received by SHM beginning with the second quarter of fiscal year 1998 through the first quarter of fiscal year 1999. Upon completion of the fire protection capital improvements, Treemont reduced the accrual to actual cost incurred. As SHM receives a fee based on Treemont's net income, the elimination of this accrual resulted in a non-recurring increase to SHM's management fee income in the amount of $61,000 and a related increase in personnel expense of $15,000, for the year ended June 30, 1999. In the fourth quarter of fiscal year 1998, the owners of Treemont contacted the Company's management and requested a legal review of the management agreement as they believed certain parts of the contract were illegal. The Company's position is that the agreement is substantially secured at this time by the Treemont property in Houston. The owners of Treemont have requested that the Company consider possible changes to the contract. Management does not believe the changes, if any, will have a negative impact on the Company. -15- 16 Real Estate. The Company's investment in real estate is owned by LLG Lands, Inc. ("LLG"), a wholly-owned subsidiary of the Company. The Company holds approximately 147.2 net acres of undeveloped land in Allen, Texas. Of this total, approximately 37 net acres are zoned for multi-family use, the remaining net acreage is zoned for light industrial (formerly single family) and commercial use. The Company attempted to increase the values of the property through the re-zoning and relocation of zoning in certain tracts. The Company was notified in fiscal year 1999 that its re-zoning application was approved. By this application, the Company relocated its multi-family tract to a more accessible location and changed the single family zoning to light industrial. The Company reviewed the real estate interests held and has continued to market the property zoned for multi-family use and has begun to market the light industrial property. A concept site plan and related marketing materials have been developed for the light industrial property. During fiscal year 1999, the Company has held negotiations with third parties for the sale of certain parcels of the Allen property. The Company has not entered into a contract with any of the third parties, however, based on these negotiations, management believes that the Company would be able to sell the Allen property for a value in excess of the carrying amount. LLG reported an operating loss of $15,000 for the year ended June 30, 1999, which is slightly less than the $29,000 loss for the year ended June 30, 1998. Improvement costs of $79,000 related to developing the property were capitalized during fiscal year 1999 in accordance with the Company's capitalization policy. This is in contrast to $37,000 of costs that were expensed during fiscal year 1998. These types of marketing and developing costs will continue, some of which may be capitalized. The decrease in expenses in fiscal 1999 was slightly offset by a decrease in interest income as a result of a decision by management to maintain a smaller cash balance at the subsidiary company. Other Operations. The Company reported other operating income of $502,000 for the year ended June 30, 1999, as compared to $962,000 for the year ended June 30, 1998, including reimbursements from to the Creditors' Trust of $339,000 and $796,000 for fiscal year 1999 and 1998, respectively. The Creditors' Trust expense reimbursements included $98,000 and $492,000 of success bonuses paid to the Company pursuant to additional compensation plans for the directors and officers (see "Stock and Compensation Plans") for fiscal year 1999 and 1998, respectively, offset by a corresponding expense in both years as discussed below. The remainder of the trust expense reimbursement from the Creditors' Trust for both years consisted of an overhead allocation based upon management's estimate of resources used by the Creditors' Trust. The allocation of overhead to the Creditors' Trust is expected to continue to decrease in fiscal year 2000. The remaining income consisted primarily of interest income of $155,000 and $52,000 for the year ended June 30, 1999 and 1998, respectively. The increase is due to a decision by management to maintain a larger cash balance at the parent company and the increase in cash as a result of the issuance of additional common stock on November 5, 1999. Recognizing the need of the Company for additional working capital, the Chairman of the Company offered to make a cash investment for a certain number of shares of the Company's common stock. This offer was considered and accepted by the Company's Board of Directors at its regularly scheduled quarterly meeting held in Wilmington, Delaware on September 23, 1998. The Chairman did not participate in the vote of the Board accepting this offer. On November 5, 1998, the Company received $2.2 million in exchange for 2 million shares of the Company's common stock. Stock offering expenses of $98,000 were offset against the gross proceeds for a net increase to additional paid-in capital of $2.102 million. This transaction increased the number of outstanding shares of common stock to 6 million. SHI and its subsidiaries had no gross deferred tax liabilities and approximately $95 million and $95 million in gross deferred tax assets as of June 30, 1999 and 1998, respectively, subject to an offsetting valuation allowance of approximately $94 million and $95 million, respectively. Essentially all of this valuation allowance is considered to be attributable to pre-reorganization tax attributes. Due to the change in zoning received on certain tracts and improved market conditions, management believes that the Company would be able to sell the Allen property for a value in excess of the tax basis. As a result, during the year ended June 30, 1999, the Company has decreased the valuation allowance by $1.175 million and additional paid-in capital was increased by $1.175 million to reflect potential utilization of a portion of the consolidated net operating loss carryforward. Any tax benefits recognized related to the valuation allowance for pre-reorganization deferred tax assets as of June 30, 1999 will be allocated to additional paid-in capital. -16- 17 Expenses and Other. General and administrative expenses were $764,000 and $1,133,000 for the year ended June 30, 1999 and 1998, respectively. The decrease is primarily attributable to the increased personnel expense of $492,000 in the prior fiscal year for success bonuses for the officers as discussed below. Additionally, fiscal year 1999 included the following significant variances: (1) directors' additional compensation expense of $98,000 approved by the shareholders in the second quarter of fiscal 1999; (2) an increase in the monthly retainer as a result of the officers' new retention agreements effective December 1, 1997, for an increase of $48,000 for the year ended June 30, 1999; and (3) additional directors fees of $25,000 as compared to the prior year because the fiscal 1998 annual fee was paid and expensed in the fourth quarter of fiscal 1997. Officers' Compensation. Separate retention agreements (the "Retention Agreements") were approved by the Board of Directors effective December 1, 1997, for the Company's two executive officers, John P. Kneafsey - Chief Executive Officer and W. Joseph Dryer - President. The Retention Agreements were filed as an exhibit to the Company's quarterly Form 10-Q for the period ended December 31, 1997. The Retention Agreements, with a five year term, provide for the payment of: (1) a monthly retainer, (2) severance upon early termination of the contract by the Company, and (3) a success bonus based upon certain performance criteria of the Company and its subsidiaries and the Company's results as trustee of the Creditors' Trust. See "Item 8. Financial Statements and Supplementary Data - Stock and Compensation Plans" and "Item 11. Executive Compensation" for more information. In accordance with the Retention Agreements, the Board of Directors approved a bonus payable to the executive officers of the Company based on cash received by the Creditors' Trust in excess of the book value upon liquidation of a subordinated promissory note held in the Creditors' Trust. The Company received $590,000 in May 1998 for the bonus pool from the proceeds received by the Creditors' Trust. The Board of Directors approved an aggregate bonus amount of $492,000 for the executive officers. Based on the same bonus criteria but subject to shareholder approval, $98,000 remained payable to the directors as of June 30, 1998. See "Item 8. Financial Statements and Supplementary Data - Current and Long Term Liabilities" for more information. The Retention Agreements also awarded stock options to Mr. Kneafsey and Mr. Dryer pursuant to the SHI Non-qualified Stock Option Agreements, included as exhibits to the Company's quarterly report on Form 10-Q for the quarter ended December 31, 1997. The plan according to the SHI Non-qualified Stock Option Agreements (the "SHI Stock Option Plan") granted the officers options to purchase an aggregate of 434,750 shares of the Company's common stock, with an effective date of December 1, 1997 (the "Date of Grant"). The options granted under the Directors' Stock Option Plan have an exercise price of $0.92 per common share and vest at a rate of twenty percent per year for five years on the anniversary of the Date of Grant. The fair market value of the common stock on the Date of Grant was $1.109. Upon the event of any change-in-control of the Company (as defined) the stock options shall be 100% vested. The stock options resulted in compensation expense of $17,000 and $10,000, with a corresponding increase in additional paid-in capital, for the years ended June 30, 1999 and 1998, respectively. Directors' Compensation. At the annual meeting on December 16, 1998, the shareholders of SHI (the "Shareholders") approved additional compensation with a retroactive effective date of December 1, 1997, for the non-officer members of the Board of Directors (the "Directors' Additional Compensation Plan"), as described in the SHI Proxy Statement dated November 9, 1998. The Directors' Additional Compensation Plan, with a five year term, provides for a success bonus for each non-officer director based on the same performance criteria as the success bonuses for the officers. The approval of the Directors' Additional Compensation Plan authorized success bonuses in the amount of $98,000 to be paid to the non-officer directors, as a result of transactions that occurred in fiscal year 1998. The expense is included in other operating expenses on the Company's Statement of Consolidated Operations for the year ended June 30, 1999. One director was paid in December 1998, after approval by the Shareholders. Two of the three other non-officer directors elected to defer a portion or all of the payment pursuant to the SHI Deferred Compensation Plan (the "Deferred Compensation Plan"), approved by the Board of Directors on and effective as of December 16, 1998. The SHI Deferred Compensation Plan Document is included as Exhibit 10.1 to this annual report on Form 10-K for the year ended June 30, 1999. The Deferred Compensation Plan allows the members of the Board of Directors to defer annual director fees, meeting fees, and success bonus payments for a given calendar year. Interest earned on the cash will be accrued and paid to the director. A deferred compensation balance of $52,000, including accrued interest, is included in accounts payable and accrued expenses on the Company's Consolidated Balance Sheet as of June 30, 1999. -17- 18 The Non-qualified Stock Option Agreements for the Board of Directors (the "Directors' Stock Option Plan"), included as exhibits to the Company's quarterly report on Form 10-Q for the period ended March 31, 1999, were also approved by the Shareholders on December 16, 1998 (the "Date of Shareholder Approval"). The Directors' Stock Option Plan granted each of the five directors' the option to purchase 40,000 shares of the Company's common stock, with an effective date of December 1, 1997 (the "Date of Grant"). The options granted under the Directors' Stock Option Plan have an exercise price of $0.92 per common share and vest at a rate of twenty percent per year for five years on the anniversary of the Date of Grant. The fair market value of the common stock on the Date of Shareholder Approval was $0.84375. Upon the event of any change-in-control of the Company (as defined) the stock options shall be 100% vested. See "Item 11. Executive Compensation" for more information on the compensation and stock options of the directors and officers. Due to the Company's lack of dependence on computer software, the Company does not expect the cost of addressing the Year 2000 issue to have a material impact on the Company's future operating results. RESULTS OF OPERATIONS--YEAR ENDED JUNE 30, 1998 COMPARED WITH PERIODS ENDED JUNE 30, 1997 Due to the adoption of fresh-start accounting on March 31, 1997, the results of operations for the year ended June 30, 1998, are not comparable with the periods ended June 30, 1997. See "Item 8. Financial Statements and Supplementary Data - Accounting Policies" footnote. Assisted Care Management. The decrease in the profitability of the assisted care management operations from a combined annual operating income of $463,000, for the three month period ended June 30, 1997 and the nine month period ended March 31, 1997, to $272,000 for the year ended June 30, 1998 was primarily attributable to the decreased management fee received by SHM. This decrease was primarily attributable to the capital improvements made for fire protection that were funded from operations beginning with the second quarter of fiscal year 1998. Also, on December 31, 1997, Treemont discontinued the reimbursement of pension benefits paid to the employees of SHM. This reduction in Treemont's pension plan expense increased the facility's net income thereby increasing the Company's management fee. This reduced the effect of the capital expenditures on SHM's revenue during fiscal year 1998. Real Estate. LLG reported an operating loss of $29,000 for the year ended June 30, 1998, as compared to a combined annual operating income of $102,000, for the three month period ended June 30, 1997, and the nine month period ended March 31, 1997. The decrease was primarily attributable to consulting and other expenses related to the re-zoning project. Additionally, the LLG subsidiary reported decreased interest income for the year ended June 30, 1998 as compared to prior periods due to a decision by management to maintain a smaller cash balance at the subsidiary company. Mortgage Banking. There were no Mortgage Banking operations for the year ended June 30, 1998, due to the distribution of LMUSA to LMUSA creditors on October 1, 1996. Other Operations. The Company reported other operating income of $962,000, $52,000 and $319,000 for the year ended June 30, 1998, the three months ended June 30, 1997 and the nine months ended March 31, 1997, respectively. Other operating income included expenses reimbursed by the Creditors' Trust of $796,000 and $42,000 for the year ended June 30, 1998 and the three month period ended June 30, 1997, respectively, including $492,000 of success bonuses as defined below. The remainder of the reimbursement from the Creditors' Trust consisted of an overhead allocation from the Company, based upon management's estimate of resources used by the Creditors' Trust. Other operating income for the nine months ended March 31, 1997 did not include such an allocation as the Creditors' Trust was not created until reorganization. Several non-recurring items were part of other operating income for the year ended June 30, 1998, including $43,000 proceeds from a non-related bankruptcy claim, $39,000 tax refund from a prior year and $20,000 gain on the sale of Vistamar, Inc., a real estate subsidiary incorporated in Puerto Rico that was carried in the Company's financial records with a basis of zero. Other operating income for the quarter and nine months ended March 31, 1997 included -18- 19 investment and dividend income related to assets that were transferred to the Creditors' Trust as of April 1, 1997, and therefore are not comparable to subsequent periods. Expenses and Other. General and administrative expenses of $1,133,000 for the year ended June 30, 1998, consisted primarily of: (1) $728,000 of personnel expenses, including success bonuses of $494,000; (2) corporate insurance of $133,000; (3) accounting, public reporting and other stockholder expenses of $86,000: and (4) other general operating expenses. These expenses are not comparable to the periods ended June 30, 1997. See "Item 8. Financial Statements and Supplementary Data". LIQUIDITY AND CAPITAL RESOURCES As of June 30, 1999, the only liabilities of the Company were accounts payable and other accrued expenses which will be paid from current operating cash available as of June 30, 1999. In December 1997, the Company received a letter from the attorney of the insurance company that carried the former directors and officers insurance coverage, stating that there is a $1.0 million per claim retention which must be completely exhausted before the insurance company is implicated. Management at this time believes that the Company is not responsible for this retention amount as a result of the Joint Plan. On September 25, 1998 the Company was advised that it was named as a Counter-Defendant in the counterclaim filed by the defendants of the LFC/LMUSA's Litigation Trust's lawsuit against certain former officers and directors of Lomas Financial Corp and subsidiaries. The counterclaim seeks joint and several liability. The Company has responded to the counterclaim denying liability and preserving the Company's rights and defenses. Separately, the Company initiated litigation in the Delaware Bankruptcy Court to obtain a declaration of rights and an order to turn over records. A successful outcome in the Delaware court should resolve the counterclaim. Recognizing the need of the Company for additional working capital, the Chairman of the Company offered to make a cash investment for a certain number of shares of the Company's common stock. This offer was considered and accepted by the Company's Board of Directors at its regularly scheduled quarterly meeting held in Wilmington, Delaware on September 23, 1998. The Chairman did not participate in the vote of the Board accepting this offer. On November 5, 1998, the Company received $2.102 million, net of stock offering expenses of $98,000, in exchange for 2 million shares of the Company's common stock. This transaction increased the number of outstanding shares of common stock to 6 million. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK EXPOSURES OF FINANCIAL INSTRUMENTS None. -19- 20 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders 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, 1999 and 1998, and the related statements of consolidated operations, stockholders' equity (deficit), and cash flows for the years ended June 30, 1999 and 1998, the three month period ended June 30, 1997, and the nine month period ended March 31, 1997. 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, 1999 and 1998 and for the years ended June 30, 1999 and 1998, the three month period ended June 30, 1997, and the nine month period ended March 31, 1997 and Schedule III -- Real Estate and Accumulated Depreciation as of June 30, 1999 and 1998. 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 opinion. The accompanying consolidated financial statements and related financial statement schedule for the nine month period ended March 31, 1997, 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. The reorganization plans had not been confirmed by the Bankruptcy Court. Claims which are 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 could have sold 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, 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 financial statement schedule for the nine month period ended March 31, 1997. In our opinion, the consolidated balance sheets of Siena Holdings, Inc. and subsidiaries as of June 30, 1999 and 1998, and the related statements of consolidated operations, stockholders' equity (deficit), and cash flows for the years ended June 30, 1999 and 1998, and the three month period ended June 30, 1997, present fairly, in all material respects, the financial position of Siena Holdings, Inc. and subsidiaries, as of June 30, 1999 and 1998, and the results of their operations and their cash flows for the years ended June 30, 1999 and 1998, and the three month period ended June 30, 1997, in conformity with generally accepted accounting principles. Also, in our opinion the related 1999, 1998, and 1997 financial statement schedules when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects, the information set forth therein. -20- 21 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 sheets as of June 30, 1999 and 1998, and the related statements of consolidated operations and cash flows for the years ended June 30, 1999 and 1998, and 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 LLP Dallas, Texas September 21, 1999 -21- 22 CONSOLIDATED BALANCE SHEET SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) (IN THOUSANDS, EXCEPT PAR VALUE)
Reorganized Company ---------------------------------- June 30, 1999 June 30, 1998 --------------- --------------- ASSETS Current Assets: Cash and cash equivalents ........................................... $ 4,111 $ 2,475 Receivables ......................................................... 138 119 Prepaid expenses .................................................... 117 54 ------- ------- 4,366 2,648 ------- ------- Long Term Investments: Investment in real estate ........................................... 4,879 4,800 Deferred tax assets--net ............................................ 1,175 -- ------- ------- 6,054 4,800 ------- ------- Total Assets ................................................... $10,420 $ 7,448 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses ......................... $ 230 $ 594 Long Term Liabilities: Accrued medical insurance premiums .................................. 649 711 Deferred compensation and fees ...................................... 52 -- ------- ------- 701 711 ------- ------- 931 1,305 ------- ------- Stockholders' equity: Preferred stock--($1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding) ......................................... -- -- Common stock-- ($.10 par value, 15,000 shares authorized, 6,000 shares issued and outstanding and 4,000 shares issued and outstanding, respectively) ...................................... 600 400 Additional paid-in capital .......................................... 8,894 5,782 Accumulated deficit ................................................. (5) (39) ------- ------- 9,489 6,143 ------- ------- Total Liabilities and Stockholders' Equity ..................... $10,420 $ 7,448 ======= =======
See notes to consolidated financial statements. -22- 23 STATEMENT OF CONSOLIDATED OPERATIONS SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Predecessor Reorganized Company Company ----------------------------------------------- -------------- Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ------------ ------------ ------------ ------------ Revenues: Commissions and fees ............................. $ 478 $ 394 $ 156 $ 1,555 Interest ......................................... 174 101 27 956 Trust expense reimbursement ...................... 339 796 42 -- Investment ....................................... -- -- -- 16 Gain on sales .................................... -- 20 -- 253 Other ............................................ 11 99 1 455 -------- -------- -------- -------- 1,002 1,410 226 3,235 -------- -------- -------- -------- Expenses: Personnel ........................................ 434 846 101 1,728 Other operating .................................. 516 492 211 3,147 Depreciation and amortization .................... -- -- -- 106 Loss on sale or disposal of assets ............... -- -- -- 3,718 -------- -------- -------- -------- 950 1,338 312 8,699 -------- -------- -------- -------- Income (loss) from operations before reorganization items and federal income tax ...... 52 72 (86) (5,464) Reorganization items--net ............................ -- -- -- (7,447) -------- -------- -------- -------- Income (loss) from operations before federal income tax ....................................... 52 72 (86) (12,911) Federal income tax expense ........................... (18) (25) -- -- -------- -------- -------- -------- Income (loss) before extraordinary item .............. 34 47 (86) (12,911) Extraordinary gain on discharge of debt .............. -- -- -- 135,966 -------- -------- -------- -------- Net income (loss) .................................... $ 34 $ 47 $ (86) $123,055 ======== ======== ======== ======== Basic earnings (loss) per share: Net income (loss) ................................ $ 0.01 * $ 0.01 * $ (0.02) * ** Average number of shares ......................... 5,304 4,000 * 4,000 * ** Diluted earnings (loss) per share: Net income (loss) ................................ $ 0.01 * $ 0.01 * $ (0.02) * ** Average number of shares ......................... 5,333 * 4,044 * 4,000 * **
* Per share amounts for Reorganized Company based on shares issued or reserved for issuance to creditors. ** Per share amounts are not meaningful due to reorganization. See notes to consolidated financial statements. -23- 24 STATEMENT OF CONSOLIDATED STOCKHOLDERS' EQUITY (DEFICIT) SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) YEAR ENDED JUNE 30, 1999 YEAR ENDED JUNE 30, 1998 THREE MONTH PERIOD ENDED JUNE 30, 1997 AND NINE MONTH PERIOD ENDED MARCH 31, 1997 (IN THOUSANDS)
Common Additional Shares Common Paid-in Accumulated Outstanding Stock Capital Deficit Total ----------- ---------- ------------ ------------- --------- Balance at June 30, 1996 ............................ $ 20,149 $ 20,149 $ 309,763 $(592,376) $(262,464) Net income for nine months 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 three months ended June 30, 1997 ....... -- -- -- (86) (86) --------- --------- --------- --------- --------- Balance at June 30, 1997 ...................... 4,000 400 5,747 (86) 6,061 Net income for year ended June 30, 1998 ............. -- -- -- 47 47 Utilization of tax benefits of pre-reorganization net operating loss carryforwards and deductible temporary differences .......................... -- -- 25 -- 25 Issuance of stock options ........................... -- -- 10 -- 10 --------- --------- --------- --------- --------- Balance at June 30, 1998 ...................... 4,000 400 5,782 (39) 6,143 Net income for the year ended June 30, 1999 ......... -- -- -- 34 34 Utilization of tax benefits of pre-reorganization net operating loss carryforwards and deductible temporary differences .......................... -- -- 18 -- 18 Decrease in valuation allowance attributable to pre- reorganization net operating loss carryforwards ..... -- -- 1,175 -- 1,175 Issuance of common stock--net ....................... 2,000 200 1,902 -- 2,102 Issuance of stock options ........................... -- -- 17 -- 17 --------- --------- --------- --------- --------- Balance at June 30, 1999 ...................... $ 6,000 $ 600 $ 8,894 $ (5) $ 9,489 ========= ========= ========= ========= =========
See notes to consolidated financial statements. -24- 25 STATEMENT OF CONSOLIDATED CASH FLOWS SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) (IN THOUSANDS)
Predecessor Reorganized Company Company ----------------------------------------------- -------------- Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ------------ ------------ ------------ ------------ Operating activities: Net income (loss) ............................................. $ 34 $ 47 $ (86) $ 123,055 Adjustments to reconcile net income (loss) to cash provided (used) by operations: Federal income tax expense charged to additional paid-in capital due to the utilization of pre-reorganization tax attributes ............................................... 18 25 -- -- Compensation expense for stock options ...................... 17 10 -- -- Gain on sale ................................................ -- (20) -- -- Extraordinary gain on discharge of debt ..................... -- -- -- (135,966) Loss from disposal or sale of assets ........................ -- -- -- 3,718 Depreciation and amortization ............................... -- -- -- 106 Reorganization items: Claims in excess of recorded prepetition liabilities ..... -- -- -- 3,454 (Increase) decrease in current accounts receivable and prepaid expenses ......................................... (82) 137 (44) -- Increase (decrease) in current accounts payable and accrued expenses ................................................. (364) 378 88 -- Decrease in long term accrued medical insurance premiums ... (62) (63) (17) -- Increase in long term deferred compensation and fees ....... 52 -- -- -- Net change in pre-reorganization sundry receivables, payables and other assets ................................ -- -- -- (1,601) --------- --------- --------- --------- Net cash provided (used) by operating activities ....... (387) 514 (59) (7,234) --------- --------- --------- --------- Investing activities: Increase in investment in real estate ......................... (79) -- -- -- Purchases of investments ...................................... -- -- -- (12,383) Maturities / sales of investments ............................. -- 20 -- -- Net sales of foreclosed real estate ........................... -- -- -- 276 Net sales of fixed assets .................................... -- -- -- 25,374 Proceeds from LMUSA assets sold to First Nationwide ........... -- -- -- 6,160 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) --------- --------- --------- --------- Net cash provided (used) by investing activities ....... (79) 20 -- (176,934) --------- --------- --------- ---------
-25- 26 STATEMENT OF CONSOLIDATED CASH FLOWS (CONTINUED) SIENA HOLDINGS, INC. AND SUBSIDIARIES (FORMERLY LOMAS FINANCIAL CORPORATION AND SUBSIDIARIES) (IN THOUSANDS)
Predecessor Reorganized Company Company ----------------------------------------------- -------------- Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ------------ ------------ ------------ ------------ Financing activities: Issuance of common stock-net .................................. $ 2,102 $ -- $ -- $ -- Term debt repayments .......................................... -- -- -- (11,632) --------- --------- --------- --------- Net cash provided (used) by financing activities .... 2,102 -- -- (11,632) --------- --------- --------- --------- Net increase (decrease) in cash and cash equivalents ............ 1,636 534 (59) (195,800) Cash and cash equivalents at beginning of period ................ 2,475 1,941 2,000 197,800 --------- --------- --------- --------- Cash and cash equivalents at end of period ...................... $ 4,111 $ 2,475 $ 1,941 $ 2,000 ========= ========= ========= ========= Cash payments for: Interest ...................................................... -- -- -- -- Federal income tax ............................................ -- -- -- -- Non-cash transactions: Issuance of stock options ..................................... $ 17 $ 10 -- --
See notes to consolidated financial statements. -26- 27 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.("Nomas"). 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). 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 post-reorganization operating results (the "Reorganized Company") from pre-reorganization operating results (the "Predecessor Company") since they are not prepared on a comparable basis. Under fresh-start accounting, all assets and liabilities were restated to reflect their reorganization value, which approximated fair value at the date of reorganization. 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. First Mortgage Loans Held for Sale. First mortgage loans held for sale were carried at the lower of cost or market determined on a net aggregate basis by the Predecessor Company. Adjustments to market were made by charges or credits to income. Gains and Losses on Sale of Mortgage Loans. Gains or losses on sales of mortgage loans were recognized by the Predecessor Company 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, were recognized at the time of sale in the gain or loss determination. Investment in Real Estate. Real estate is carried at the fresh-start reporting value as of March 31, 1997, adjusted for improvements capitalized in accordance with the Company's capitalization policy. The Company continually monitors the value of the real estate based on estimates of future cash flows. Any amounts deemed to be impaired are charged, in the period in which such impairment was determined. For the years ended June 30, 1999 and 1998, and the three month period ended June 30, 1997, there were no charges to earnings for impairment of the real estate. Fixed Assets. Fixed assets included land, buildings, furniture and fixtures and other equipment and were carried at amortized cost by the Predecessor Company. Fixed assets that were anticipated to be disposed of were carried at estimated fair value net of estimated selling costs. Depreciation was computed on the straight line method over the estimated useful lives of the related assets. Purchased Future Mortgage Servicing Income Rights. Purchased future mortgage servicing income rights ("PMSR's") represented the portion of the purchase price of mortgage servicing portfolios acquired from others by the Predecessor Company and allocated to future net servicing income to be derived from servicing such mortgages. -27- 28 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The Predecessor Company periodically monitored 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 were performed for individual mortgage tranches with similar economic characteristics on an undiscounted basis and adjusted as required. The Predecessor Company amortized 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 was based on the expected prepayment rates of the underlying mortgages within the tranches. Sales of Servicing Rights. The Predecessor Company recognized gain or loss on the sales of servicing rights when all risks and rewards were irrevocably passed to the purchasers and there were no unresolved contingencies. Mortgage Servicing. Fees received by the Predecessor Company for servicing mortgage loans owned by investors were generally based on a stipulated percentage of the outstanding monthly principal balance of such loans and were payable only out of interest collected from mortgagors. Servicing fees, late charges and miscellaneous other fees collected from mortgagors and others were recognized as income when collected. Servicing costs were charged to expense as incurred. In addition, the Predecessor Company performed mortgage servicing on a subcontract basis for other parties who owned the servicing rights. Subservicing fees were usually agreed to be paid on a per-loan basis calculated as an annual dollar amount paid monthly. Reverse Interest Rate Swap Agreements. The Predecessor 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 reduced the exposure of the Company, as a whole, to changes in interest rates were designated as hedges of the Company's fixed rate debt and treated as hedges of the debt. Swap agreements that did not reduce the Company's exposure to changes in interest rates were not considered to be hedges. The interest differential to be paid or received on swap agreements that were treated as hedges was 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 were recognized over the remaining term of the swap agreement. Interest rate swaps that were not considered hedges, and losses where the fixed rate debt associated with the swap was reduced below the notional amount of the swap, were 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. Assisted Care Facility Management Fee. 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. The compensation expense and primarily all operating expenses of SHM's employees who provide services at the assisted care facility are funded directly by the assisted care facility owner and are not reflected in the Consolidated Statement of Operations, except indirectly through the management fee income received by SHM based in part on the facility's net income. The exception is the compensation for the operations manager of the facility which is funded directly by SHM and included in personnel expense on the Company's Consolidated Statement of Operations. 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. -28- 29 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) Federal Income Taxes. Income taxes have been provided in accordance with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes". Under SFAS No. 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. Under fresh-start reporting, benefits realized from the utilization of pre-reorganization net operating loss carryforwards and recognition of pre-reorganization deductible temporary differences existing at the date of confirmation of the Joint Plan are reported as direct additions to additional paid-in capital. Escrow, Agency and Fiduciary Funds. The Predecessor Company maintained certain cash balances on behalf of its servicing customers and investors as part of its servicing operations. These funds were held in trust in segregated, generally non-interest bearing, bank accounts and were excluded from the corporate assets and liabilities of the Predecessor Company. Earnings (Loss) Per Share. During the fiscal year ended June 30, 1998, the Company adopted SFAS No. 128, "Earnings Per Share," which replaces the presentation of primary earnings per share ("EPS") with a presentation of basic EPS and requires dual presentation of basic and diluted EPS. SFAS No. 128 is effective for both interim and annual financial statements issued after December 15, 1997. The Company retroactively applied SFAS No. 128 to the three month period ended June 30, 1997. Earnings per share information for the Predecessor Company is not presented because the revision of the Company's capital structure pursuant to the Plan of Reorganization makes such information not meaningful. Adoption of SFAS No. 128 did not have a material impact on the earnings (loss) per share. Earnings per share for the year ended June 30, 1999, the year ended June 30, 1998 and the three month period ended June 30, 1997 were determined using the weighted average shares issued or reserved for issuance as of June 30, 1999, 1998 and 1997, respectively. On November 5, 1998, the Company received $2.102 million, net of stock offering expenses of $98,000, in exchange for 2 million shares of the Company's common stock. This transaction increased the number of outstanding shares of common stock to 6 million. Effective December 1, 1997, the Company granted stock options under the Stock Option Plan and the Directors' Stock Option Plan. The effects of outstanding options are included in the calculation of diluted earnings per common share to the extent that they are dilutive to earnings. The options issued to the Board of Directors were not included in the calculation of diluted earnings per common share until the second quarter of fiscal year 1999 as they were not approved by the Shareholders until December 16, 1998 with a retroactive effective date of December 1, 1997. -29- 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following is a reconciliation of net income applicable to common stock as well as common stock used to compute basic and diluted earnings (loss) per share for the periods presented:
Predecessor Reorganized Company Company ------------------------------------------ ------------ Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ---------- ---------- ------------ ------------ RECONCILIATION OF NET INCOME (LOSS) APPLICABLE TO COMMON STOCK: Basic net income (loss) applicable to common stock: Income (loss) applicable to common stockholders before extraordinary item ....................... $ 34 $ 47 $ (86) $ (12,911) Extraordinary gain on discharge of debt ............ -- -- -- 135,966 ------ ------ ------- --------- Net income (loss) applicable to common stockholders .................................... $ 34 $ 47 $ (86) $ 123,055 ====== ====== ======= ========= Diluted net income (loss) applicable to common stock: Income (loss) applicable to common stockholders before extraordinary item ....................... $ 34 $ 47 $ (86) $ (12,911) Income effect of assumed conversions ............... -- -- -- -- ------ ------ ------- --------- Income (loss) applicable to common stockholders + assumed conversions............................ 34 47 (86) (12,911) Extraordinary gain on discharge of debt ............ -- -- -- 135,966 ------ ------ ------- --------- Net income (loss) applicable to common stockholders + assumed conversions .............. $ 34 $ 47 $ (86) $ 123,055 ====== ====== ======= ========= RECONCILIATION OF WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: Basic shares of common stock: Weighted average common shares outstanding ......... 5,304* 4,000* 4,000* ** Diluted shares of common stock: Weighted average common shares outstanding ......... 5,304* 4,000* 4,000* ** Plus: Dilutive potential common shares SHI Non-qualified Stock Option Plans ...... 29* 44* --* ** ------ ------ ------- --------- Adjusted weighted average shares outstanding ....... 5,333* 4,044* 4,000* ** ====== ====== ======= =========
* Based on shares issued or reserved for issuance to creditors. ** Number of shares not meaningful due to reorganization. Stock-Based Compensation. The Company has adopted the disclosure requirements of SFAS No. 123, "Accounting for Stock-Based Compensation". This statement provides a choice for the accounting of employee stock compensation plans. A company may elect to use a fair-value methodology, under which compensation cost is -30- 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) measured and recognized in the Statement of Consolidated Operations, or continue to account for these plans under Accounting Principles Bulletin ("APB") No. 25, "Accounting for Stock Issued to Employees," and related interpretations. The Company has elected to continue to account for these plans under APB No. 25. The "Stock and Compensation Plans" footnote contains a summary of the pro forma effects to reported net income (loss) applicable to common stock and earnings (loss) per share for the years ended June 30, 1999 and 1998, and the three months ended June 30, 1997, as if the Company had elected to account for employee stock compensation plans utilizing the fair value methodology prescribed by SFAS No. 123. Use of Estimates. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Reclassifications. Certain reclassifications have been made to prior years' and prior quarters' financial statements to conform to the 1999 presentation. 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 Debtor Corporations filed two separate plans of reorganization with the Bankruptcy Court. An order confirming the second amended joint plan of reorganization filed on October 4, 1996, for LFC, LIS and LAS (the "Joint Debtors") and a stipulation and order among the Joint Debtors and the appointed statutory committee of unsecured creditors of LFC (the "LFC Creditors' Committee") regarding technical modifications to the 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". 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"). As a result of LMUSA's Chapter 11 reorganization plan, LFC 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. 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 appointed statutory committee of the unsecured creditors of LMUSA (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, resulting in the transfer of assets and writeoff of receivables and payables with a net increase in retained earnings of $16.8 million on the effective date of March 7, 1997. Additionally, 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, dated March 6, 1997 (the "LFC/LMUSA Litigation Trust"). Subject to certain exceptions in the Intercompany Agreement, the LFC Creditors' Trust (as defined herein) and the creditors' trust established pursuant to the LMUSA Plan will receive sixty and forty percent, respectively, of net proceeds from litigation. There can be no assurance that the LFC/LMUSA Litigation Trust will produce any proceeds which will benefit the Creditors Trust and former creditors. -31- 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. 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, $3.0 million related to Management Security Plan claims (see the "Management Security Plan" footnote). The following is a summary of the claims, excluding administrative, as of the initial distribution date (in thousands): Priority LIS claims - allowed .......$ 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 general unsecured creditors will receive a combination of cash and new common stock as settlement of their allowed claim. On November 12, 1997, the initial distribution date (the "Initial Distribution Date"), $12.5 million was disbursed to the distribution agent for the Class 3 unsecured creditors. On May 11, 1998, a second distribution in the amount of $6.2 million was disbursed to the distribution agent for benefit of the Class 3 unsecured creditors. A third cash distribution was made to the distribution agent on April 21, 1999, in the amount of $4.3 million, for a total distribution through June 30, 1999, of approximately $23 million. In addition, as assets in the Creditors' Trust are liquidated and/or the contingent obligations are favorably resolved, additional distributions will be made to the Class 3 unsecured creditors. Also, on the Initial Distribution Date pursuant to the Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of the new common stock were issued by the stock transfer agent. For balance sheet presentation and earnings (loss) per share, the 4,000,000 shares were considered issued as of April 1, 1997. The process by the stock distribution agent has resulted in 3,986,720 shares of common stock actually distributed to former creditors through March 7, 1999. As of that date, there were 13,280 shares of common stock issued but not delivered related to bonds not exchanged for stock by the March 7, 1999 deadline and 164,599 shares of common stock held for disputed claims that have been resolved. The Company expects the stock distribution agent to redistribute by December 31, 1999, the total of 177,879 shares to all allowed creditors that have received prior stock distributions. The amounts ultimately distributed to the former creditors will be solely dependent on the success of the Company, the amounts realized from the collection of assets and the settlement of liabilities for both the Creditors' Trust and the LFC/LMUSA Litigation Trust. The LFC Creditors Trust and any proceeds from the LFC/LMUSA Litigation Trust are solely for the benefit of the former creditors of the Joint Debtors. Stockholders will not benefit from these trusts unless they held Class 3 - general unsecured claims as defined in the Joint Plan. On November 5, 1998, the Company received $2.102 million, net of stock offering expenses of $98,000, in exchange for 2 million shares of the Company's common stock, as approved by the Company's Board of Directors on September 23, 1998. This transaction increased the number of outstanding shares of common stock to 6 million. See "Stockholders' Equity" footnote. The 6 million shares of the new common stock are restricted if the effect of a transfer would result in an ownership increase to 4.5 percent or above of the total outstanding shares or from 4.5 -32- 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) percent to a greater percentage of the total outstanding shares, without prior approval by the board of directors as described in the restated certificate of incorporation. 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 (the "Reorganized Company") results since they are not prepared on a comparable basis. Under fresh-start accounting, all assets and liabilities were restated to reflect their reorganization value, which approximated 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 were stated at their fair value. 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 for the nine month period ended March 31, 1997, and include the following expenses: $6.9 million of professional fees, $3.0 million adjustment to liabilities for MSP claims, $0.4 million adjustment to liabilities for other allowed or disputed claims, and other expense of $0.1 million. These expenses were offset by $3.0 million of interest earned on cash accumulated for a net reorganization items of $7.4 million. CREDITORS' TRUST The Joint Plan established a creditors' trust (the "Creditors' Trust") in which the Company serves as trustee. The Creditors' Trust holds the non-reorganized 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 former creditors' benefit and the Company has no risk of loss on the assets or liabilities. The amounts ultimately distributed to the former creditors will be solely dependent on the success of the Company, the amounts realized from the collection of assets and the settlement of liabilities for both the Creditors' Trust and the LFC/LMUSA Litigation Trust. Stockholders who are not former creditors of the Joint Debtors are not beneficiaries -33- 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of the Creditors' Trust. There can be no assurance that the LFC/LMUSA Litigation Trust will produce any proceeds which will benefit the Creditors' Trust and the former creditors. The Company charged to the Creditors' Trust expenses of $339,000, $796,000 and $42,000 for the year ended June 30, 1999, the year ended June 30, 1998, and the three month period ended June 30, 1997, respectively, reported as trust expense reimbursement on the Company's Statement of Consolidated Operations. The trust expense reimbursement included $98,000 and $492,000 of success bonuses paid to the Company pursuant to compensation plans for the directors and officers (see "Stock and Compensation Plans") for fiscal year 1999 and 1998, respectively. The remainder of the trust expense reimbursement from the Creditors' Trust consisted of an overhead allocation based upon management's estimate of resources used by the Creditors' Trust. The LFC Creditors' Trust and any proceeds from the LFC/LMUSA Litigation Trust are solely for the benefit of the former creditors of the Joint Debtors. Stockholders will not benefit from these trusts unless they held Class 3 - general unsecured claims as defined in the Joint Plan. See "Reorganization" footnote. INVESTMENT IN REAL ESTATE The Company's investment in real estate in the amount of $4.9 million and $4.8 million as of June 30, 1999 and June 30, 1998, respectively, is owned by LLG Lands, Inc. ("LLG"), a wholly-owned subsidiary of the Company. The property currently owned was transferred back to LLG by LMUSA as a result of the intercompany settlement process in March 1997. For fresh-start reporting, the land was valued by an independent third party using a discounted cash flow method of future projected proceeds. 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 four tracts of land: one tract of approximately 36.5 net acres zoned multi-family, one tract of approximately 85.5 net acres zoned light industrial (formerly 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. The Company attempted to increase the values of the property through the re-zoning and relocation of zoning in certain tracts. The Company was notified in fiscal year 1999 that its re-zoning application has been approved, relocating its multi-family tract to a more accessible location and changing the single family zoning to light industrial. The Company has reviewed the real estate interests held and has continued to market the property zoned for multi-family use, approximately 36.5 net acres, and has begun to market the light industrial property. A concept site plan and related marketing materials have been developed for the light industrial property. Management of the Company intends to market and/or develop the property over an estimated period not to exceed five years. During fiscal year 1999, the Company has held negotiations with third parties for the sale of certain parcels of the Allen property. The Company has not entered into a contract with any of the third parties, however, based on these negotiations, management believes that the Company would be able to sell the Allen property for a value in excess of the carrying amount. RECEIVABLES 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. The receivable for the assisted care facility management fee was $138,000 and $119,000 as of June 30, 1999 and 1998, respectively, included on the Company's Consolidated Balance Sheet. In fiscal year 1998, Treemont elected to make significant capital improvements for fire protection that were funded by operations. These expenditures decreased the quarterly management fee received by SHM beginning with -34- 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) the second quarter of fiscal year 1998 through the first quarter of fiscal year 1999. Upon completion of the fire protection capital improvements, Treemont reduced the accrual to actual cost incurred. As SHM receives a fee based on Treemont's net income, the elimination of this accrual resulted in a non-recurring increase to SHM's management fee income in the amount of $61,000 and a related increase in personnel expense of $15,000, for the year ended June 30, 1999. 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. In the fourth quarter of fiscal year 1998, the owners of Treemont contacted the Company's management and requested a legal review of the contract as they believed certain parts of the contract were illegal. The Company's position is that the agreement is substantially secured at this time by the Treemont property in Houston. The owners of Treemont have requested the Company consider possible changes to the contract. Management does not believe the changes, if any, will have a negative impact on the Company. 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. ALLOWANCE FOR LOSSES Activity in the allowance account was as follows (in thousands):
Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ---------- ---------- ------------ ------------ $ -- $ -- $ -- $ 24,821 Charge-offs or write downs .................. -- -- -- (483) Distribution of LMUSA to LMUSA creditors .... -- -- -- (20,510) Fresh-start valuation adjustment ............ -- -- -- (3,828) ------- ------ ------- -------- $ -- $ -- $ -- $ -- ======= ====== ======= ========
CURRENT AND LONG TERM LIABILITIES Accounts payable and accrued expenses consisted of the following (in thousands):
June 30, 1999 June 30, 1998 ---------------- ---------------- Accounts payable - Trade .................................... $ 1 $ 29 Accounts payable - Directors or Officers .................... 69 295 Accrued medical insurance premiums - current portion ........ 62 63 Accrued compensation - Other ................................ 27 33 Deferred revenue - Bonus for Directors ...................... -- 98 Other accounts payable and accrued expenses ................. 71 76 ---------------- ---------------- $ 230 $ 594 ================ ================
At reorganization, the Company agreed to assume the pre-petition liability to provide certain employees of a former subsidiary with medical insurance. As of June 30, 1999, the Company was providing payments to 21 retirees to be used toward the payment of insurance. The total amount of the liability was estimated using a life expectancy age -35- 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) of 90, an annual health care cost increase rate of approximately 5% and a discount rate of approximately 6%. As of June 30, 1999 and 1998, the current portion of the accrual for medical insurance premiums is $62,000 and $63,000, respectively, and the long term liability amount is $649,000 and $711,000, respectively. Pursuant to certain retention agreements, in fiscal year 1998 the SHI Board of Directors approved a bonus payable to the executive officers of the Company based on cash received by the Creditors' Trust in excess of the book value upon liquidation of a subordinated promissory note held in the Creditors' Trust. The Company received $590,000 in May 1998 for the bonus pool from the proceeds received by the Creditors' Trust. The Board of Directors approved an aggregate bonus amount of $492,000 for the executive officers. One payment was made in May 1998 and the second payment of $295,000, included in accounts payable and accrued expenses on the Company's Consolidated Balance Sheet as of June 30, 1998, was made in February 1999. Based on the same bonus criteria, $98,000 of the revenue from the Creditors' Trust was deferred as of June 30, 1998 for the directors' bonus, pending shareholder approval. On December 16, 1998, the shareholders of SHI (the "Shareholders") approved an additional compensation plan for the non-officer directors of SHI (the "Directors' Additional Compensation Plan") with a retroactive effective date of December 1, 1997. The approval of the Directors' Additional Compensation Plan authorized success bonuses in the amount of $98,000 to be paid to the non-officer directors, as a result of transactions that occurred in fiscal year 1998. The expense is included in other operating expenses on the Company's Statement of Consolidated Operations for the year ended June 30, 1999. One director was paid in December 1998, after approval by the Shareholders. Two of the three other non-officer directors elected to defer a portion or all of the payment pursuant to the SHI Deferred Compensation Plan (the "Deferred Compensation Plan"), approved by the Board of Directors on and effective as of December 16, 1998. The bonus payments not deferred plus other directors' fees and miscellaneous expenses total $69,000 and are included in accounts payable and accrued expenses as of June 30, 1999. The Deferred Compensation Plan allows the members of the Board of Directors to defer annual director fees, meeting fees, and success bonus payments for a given calendar year. Interest earned on the cash will be accrued and paid to the director. A deferred compensation balance of $52,000, including accrued interest, is included in long term liabilities on the Company's Consolidated Balance Sheet as of June 30, 1999. See "Stock and Compensation Plans" footnote. CONTINGENT LIABILITIES In March 1997, in connection with the settlement of the intercompany claims, the Company transferred $3 million in cash to partially fund a litigation trust to pursue third-party claims pursuant to the LFC/LMUSA Litigation Trust Agreement. 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 LFC Creditors' Trust and any proceeds from the LFC/LMUSA Litigation Trust are solely for the benefit of the former creditors of the Joint Debtors. Stockholders will not benefit from these trusts unless they held Class 3 - general unsecured claims as defined in the Joint Plan. See "Reorganization" footnote. In December 1997, the Company received a letter from the attorney of the insurance company that carried the former directors and officers insurance coverage, stating that there is a $1.0 million per claim retention which must be completely exhausted before the insurance company is implicated. Management at this time believes that the Company is not responsible for this retention amount as a result of the Joint Plan. FEDERAL INCOME TAXES The Company in prior years 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 -36- 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) thereafter no longer file a consolidated federal income tax return with Nomas and its subsidiaries. SHI and its subsidiaries will instead continue to file its own consolidated federal income tax return for the periods ended June 30, 1999, 1998 and 1997. Various tax attributes, including net operating loss carryforwards, have been 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 increases to additional paid-in capital under fresh-start reporting. SHI and its subsidiaries reported a tax benefit of $18,000 and $25,000 as an increase to additional paid-in capital for fiscal year ended June 30, 1999 and 1998, respectively, resulting from utilization of a portion of the Company's pre-reorganization net operating loss carryforwards and deductible temporary differences. SHI and its subsidiaries had no gross deferred tax liabilities and approximately $95 million and $95 million in gross deferred tax assets as of June 30, 1999 and 1998, respectively, subject to an offsetting valuation allowance of approximately $94 million and $95 million, respectively. Essentially all of this valuation allowance is considered to be attributable to pre-reorganization tax attributes. Accordingly, future utilization of these pre-reorganization tax attributes on a consolidated basis will result in adjustments to additional paid-in capital. Due to the change in zoning received on certain tracts and improved market conditions, management believes that the Company would be able to sell the Allen property for a value in excess of the tax basis. As a result, during the year ended June 30, 1999, the Company has decreased the valuation allowance by $1.175 million and additional paid-in capital was increased by $1.175 million to reflect potential utilization of a portion of the consolidated net operating loss carryforward. In addition, an adjustment of $1.5 million was made for the year ended June 30, 1999 to decrease the balance of the deferred tax assets, and an adjustment of $3.7 million was made for the year ended June 30, 1998 to increase the balance of the deferred tax assets, with equal adjustments to the offsetting valuation allowance, to reflect the absorption of a portion of the net operating loss carryforward against cancellation of indebtedness income and an increase in the net operating loss carryforward attributable to the allocation of additional loss carryforwards resulting from the deconsolidation of the former LFC group during the fiscal year ended June 30, 1997. 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 believes that it is more likely than not that the Company will realize the benefit of these deferred tax assets, net of the existing valuation allowance as of June 30, 1999. Any tax benefits recognized related to the valuation allowance for pre-reorganization deferred tax assets as of June 30, 1999 will be allocated to additional paid-in capital. SHI and its subsidiaries had allocable consolidated tax net operating loss carryforwards at June 30, 1999 totaling approximately $271 million. These net operating loss carryforwards expire in the years 2003 through 2019. Approximately $139 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. At June 30, 1999, SHI and its subsidiaries had a cumulative unused Section 382 limitation of approximately $120 million, which represents the portion of the $139 million of pre-1991 net operating loss carryforwards which may be utilized currently by SHI and its subsidiaries under the restrictions of Section 382. The remaining net operating losses of approximately $132 million 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). -37- 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) All of the net operating loss carryforwards are subject to applicable provisions of the IRC, and approximately $132 million of the total of $271 million of net operating loss carryforwards will be limited to zero 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. The remaining $139 million of net operating loss will continue to be subject to the annual limitation of IRC 382, and could be further limited upon any subsequent ownership change. (REMAINDER OF PAGE INTENTIONALLY LEFT BLANK) -38- 39 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The difference between actual tax expense (benefit) and the amount computed by applying the statutory rate to income (loss) from operations before federal income tax consisted of the following components (in thousands):
Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ---------- ---------- ------------ ------------- Tax expense (benefit) at statutory rate .......... $ 18 $ 25 $(30) $43,069 Book/tax difference in loss reserves attributable to sale of assets ................ -- 1,102 -- 2,253 Change in beginning-of-the-year balance of valuation allowance for deferred tax assets allocated to income taxes ..................... -- -- -- (45,322) * Adjustment to net operating loss carryforward to reflect actual allocation of consolidated net operating loss to SHI and absorption against cancellation of indebtedness income ........................... 1,486 (3,699) -- -- Net operating loss for fiscal year ended June 30, 1999 and June 30, 1998 (attributable to realization of pre-reorganization deductible temporary differences, resulting in an increase in the pre-reorganization net operating loss carryover) .................................... (1,471) (1,077) -- -- Change in valuation allowance for deferred tax assets for current year activity and for adjustment to net operating loss carryforward ................................. 12 3,674 30 -- Other ............................................ (27) -- -- -- ------- ------- ---- ------- Actual tax expense ............. $ 18 $ 25 $ -- $ -- ======= ======= ==== =======
* 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) The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at June 30, 1999 and 1998 are presented below (in thousands):
Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ---------- ---------- ------------ -------------- Deferred tax assets: Post-reorganization net operating loss carryover $ 30 $ 30 $ 30 $ -- Pre-reorganization net operating loss carryover 94,711 94,726 89,950 89,950 Loss reserves .................................. 626 626 1,728 1,728 Deferred compensation .......................... 18 -- -- -- Non-qualified stock option expense ............. 9 -- -- -- -------- -------- -------- -------- Total gross deferred tax assets ............. 95,394 95,382 91,708 91,678 Less valuation allowance ....................... (94,219) (95,382) (91,708) (91,678) -------- -------- -------- -------- Net deferred tax assets .................. $ 1,175 $ -- $ -- $ -- ======== ======== ======== ======== Deferred tax liabilities: Net deferred tax liabilities ............. $ -- $ -- $ -- $ -- ======== ======== ======== ========
* See footnote detailing the progression of the valuation allowance at the end of the previous table. STOCKHOLDERS' EQUITY As of June 30, 1999 and 1998, the Company had 15,000,000 shares of $.10 par value common stock (the "Reorganized Common Stock") authorized, with 6,000,000 and 4,000,000 shares issued and outstanding, respectively. On November 12, 1997, pursuant to the Joint Plan and a decision by the LFC Creditors' Committee, 4,000,000 shares of the new common stock were issued by the stock transfer agent. For balance sheet presentation and earnings (loss) per share, the 4,000,000 shares were considered issued as of April 1, 1997. The process by the stock distribution agent has resulted in 3,986,720 shares of common stock actually distributed to former creditors through March 7, 1999. As of that date, there were 13,280 shares of common stock issued but not delivered related to bonds not exchanged for stock by the March 7, 1999 deadline and 164,599 shares of common stock held for disputed claims that have been resolved. The Company expects the stock distribution agent to redistribute by December 31, 1999, the total of 177,879 shares to all allowed creditors that have received prior stock distributions. 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. Recognizing the need of the Company for additional working capital, the Chairman of the Company offered to make a cash investment for a certain number of shares of the Company's common stock. This offer was considered and accepted by the Company's Board of Directors at its regularly scheduled quarterly meeting held in Wilmington, Delaware on September 23, 1998. The Chairman did not participate in the vote of the Board accepting this offer. On November 5, 1998, the Company received $2.102 million, net of stock offering expenses of $98,000, in exchange for 2 million shares of the Company's common stock. This transaction increased the number of outstanding shares of common stock to 6 million. The Company, as of June 30, 1999 and 1998, had 1,000,000 shares of $1.00 par value preferred stock (the "Reorganized Preferred Stock") authorized, with 0 shares issued and outstanding. During the year ended June 30, 1999, the valuation allowance for deferred tax assets was decreased by $1.175 million, resulting in an increase to additional paid-in capital. Any tax benefits recognized related to the valuation allowance for pre-reorganization deferred tax assets as of June 30, 1999, will be allocated to additional paid-in capital. -40- 41 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) SHI and its subsidiaries reported a tax benefit of $18,000 and $25,000 as an increase to additional paid-in capital for fiscal years ended June 30, 1999 and 1998, respectively, resulting from the utilization of a portion of the Company's pre-reorganization net operating loss carryforwards and deductible temporary differences. Future utilization of these pre-reorganization tax attributes on a consolidated basis will result in adjustments to additional paid-in capital. See "Federal Income Taxes" footnote. STOCK AND COMPENSATION PLANS Officer's Compensation Plan. Separate retention agreements (the "Retention Agreements") were approved by the Board of Directors effective December 1, 1997, for the Company's two executive officers, John P. Kneafsey - Chief Executive Officer and W. Joseph Dryer - President. The Retention Agreements, with a five year term, provide for the payment of: (1) a monthly retainer, (2) severance upon early termination of the contract by the Company, and (3) a success bonus based upon certain performance criteria of the Company and its subsidiaries and the Company's results as trustee of the Creditors' Trust. In accordance with the success bonus defined above, the Board of Directors approved a bonus payable to the executive officers of the Company in fiscal year 1998 based on cash received by the Creditors' Trust in excess of the book value upon liquidation of a subordinated promissory note held in the Creditors' Trust. The Company received $590,000 in May 1998 for the bonus pool from the proceeds received by the Creditors' Trust. The Board of Directors approved an aggregate bonus amount of $492,000 for the executive officers. One payment of $197,000 was made in May 1998 and the remaining officer was paid $295,000 in February 1999. See "Current and Long Term Liabilities" footnote. Officer's Stock Option Plan. The Retention Agreements also awarded stock options to Mr. Kneafsey and Mr. Dryer pursuant to the SHI Non-qualified Stock Option Agreements. The plan according to the SHI Non-qualified Stock Option Agreements (the "Stock Option Plan") granted the officers options to purchase an aggregate of 434,750 shares of the Company's common stock, with an effective date of December 1, 1997 (the "Date of Grant"). The options granted under the Stock Option Plan have an exercise price of $0.92 per common share and vest at a rate of twenty percent per year for five years on the anniversary of the Date of Grant. The fair market value of the common stock on the Date of Grant was $1.109. Upon the event of any change-in-control of the Company (as defined) the stock options shall be 100% vested. The stock options resulted in compensation expense of $17,000 and $10,000, with a corresponding increase in additional paid-in capital, for the year ended June 30, 1999 and 1998, respectively. Additional stock options or other forms of long-term incentive compensation arrangements may from time to time be granted by the Board of Directors. Director's Compensation Plan. At the annual meeting on December 16, 1998, the shareholders of SHI (the "Shareholders") approved additional compensation with a retroactive effective date of December 1, 1997, for the non-officer members of the Board of Directors (the "Directors' Additional Compensation Plan"). The Directors' Additional Compensation Plan, with a five year term, provides for a success bonus for each non-officer director based upon certain performance criteria of the Company and its subsidiaries and the Company's results as trustee of the Creditors' Trust. The approval of the Directors' Additional Compensation Plan authorized success bonuses in the amount of $98,000 to be paid to the non-officer directors, as a result of transactions that occurred in fiscal year 1998. The expense is included in other operating expenses on the Company's Statement of Consolidated Operations for the year ended June 30, 1999. One director was paid in December 1998, after approval by the Shareholders. Two of the three other non-officer directors elected to defer a portion or all of the payment pursuant to the SHI Deferred Compensation Plan (the "Deferred Compensation Plan"), approved by the Board of Directors on and effective as of December 16, 1998. The Deferred Compensation Plan allows the members of the Board of Directors to defer annual director fees, meeting fees, and success bonus payments for a given calendar year. Interest earned on the cash will be accrued and paid to the director. A deferred compensation balance of $52,000, including accrued interest, is included in long term liabilities on the Company's Consolidated Balance Sheet as of June 30, 1999. -41- 42 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISKS--(CONTINUED) Director's Stock Option Plan. The Non-qualified Stock Option Agreements for the Board of Directors (the "Directors' Stock Option Plan") were also approved by the Shareholders on December 16, 1998 (the "Date of Shareholder Approval"). The Directors' Stock Option Plan granted each of the five directors' the option to purchase 40,000 shares of the Company's common stock, with an effective date of December 1, 1997 (the "Date of Grant"). The options granted under the Directors' Stock Option Plan have an exercise price of $0.92 per common share and vest at a rate of twenty percent per year for five years on the anniversary of the Date of Grant. The fair market value of the common stock on the Date of Shareholder Approval was $0.84375. Upon the event of any change-in-control of the Company (as defined) the stock options shall be 100% vested. The following table summarizes data relating to stock options activity for the years ended June 30, 1999 and 1998, the three month period ended June 30, 1997 and the nine month period ended March 31, 1997:
Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ---------- ---------- ------------ ------------ Number of shares subject to option: Outstanding at beginning of period 434,750 -- -- -- Granted .......................... 200,000 434,750 -- -- Expired / canceled ............... -- -- -- -- Exercised ........................ -- -- -- -- ------- ------- -------- -------- Outstanding at end of period 634,750 434,750 -- -- ======= ======= ======== ======== Exercisable at end of period .............. 126,950 -- -- -- ======= ======= ======== ========
All stock options granted in the years ended June 30, 1999 and 1998 have an exercise price of $0.92 per common share. As allowed under the provisions of SFAS No. 123, the Company applies APB Opinion 25 and related Interpretations in accounting for its stock option plans and, accordingly, does not recognize compensation cost based on fair value as a component of net income applicable to common stock. The fair value of each option granted pursuant to the officers' Stock Option Plan was estimated as of the grant date, using the Black-Scholes multiple options approach prescribed by SFAS No. 123, with the following assumptions: expected volatility of 58.58%, risk free interest rate of 6.35%, and an expected life of 10 years. The fair value of each option granted pursuant to the Directors' Stock Option Plan was estimated as of the date of shareholder approval, also using the Black-Scholes multiple options approach prescribed by SFAS No. 123, with the following assumptions: expected volatility of 138.53%, risk free interest rate of 4.58%, and an expected life of 9 years. If the Company had elected to recognize compensation cost based on the fair value of the options as of the grant date, the Company's net income (loss) applicable to common stock as well as earnings (loss) per share would have been reduced (increased) by the pro forma amounts (net of income tax effect) indicated in the following table: (TABLE ON THE FOLLOWING PAGE) -42- 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Predecessor Reorganized Company Company -------------------------------------- ------------ Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ---------- ---------- ------------ ------------ RECONCILIATION OF NET INCOME (LOSS) APPLICABLE TO COMMON STOCK: Basic net income (loss) applicable to common stockholders: Income (loss) applicable to common stockholders before extraordinary item (As reported).................. $ 34 $ 47 $ (86) $ (12,911) Extraordinary gain on discharge of debt...................... -- -- -- 135,966 -------- ------- ------- --------- Net income (loss) applicable to common stockholders (As reported)........................ 34 47 (86) 123,055 Pro forma compensation expense--net of tax effect............ (92) (22) -- -- -------- ------- ------- --------- Net income (loss) applicable to common stockholders (Pro forma).......................... $ (58) $ 25 $ (86) $ 123,055 ======== ======= ======= ========= Diluted net income (loss) applicable to common stock: Income (loss) applicable to common stockholders before extraordinary item (As reported).................. $ 34 $ 47 $ (86) $ (12,911) Income effect of assumed conversions......................... -- -- -- -- Extraordinary gain on discharge of debt...................... -- -- -- 135,966 -------- ------- ------- --------- Net income (loss) applicable to common stockholders (As reported)........................ 34 47 (86) 123,055 Pro forma compensation expense--net of tax effect............ (92) (22) -- -- -------- ------- ------- --------- Net income (loss) applicable to common stockholders (Pro forma).......................... $ (58) $ 25 $ (86) $ 123,055 ======== ======= ======= ========= EARNINGS (LOSS) PER SHARE ("EPS") INFORMATION: Basic net income applicable to common stockholders: Income (loss) applicable to common stockholders before extraordinary item (As reported).................. $ 0.01* $ 0.01* $ (0.02)* ** Extraordinary gain on discharge of debt...................... -- -- -- ** -------- ------- ------- --------- Net income (loss) applicable to common stockholders (As reported)........................ 0.01* 0.01* (0.02)* ** Pro forma compensation expense--net of tax effect............ (0.02)* -- -- ** -------- ------- ------- --------- Net income (loss) applicable to common stockholders (Pro forma).......................... $ (0.01)* $ 0.01* $ (0.02)* ** ======== ======= ======= ========= Common shares used in computing basic EPS:...................... 5,304* 4,000* 4,000* ** ======== ======= ======= ========= Diluted net income applicable to common stockholders: Income (loss) applicable to common stockholders before extraordinary item (As reported).................. $ 0.01* $ 0.01* $ (0.02)* ** Income effect of assumed conversions......................... -- -- -- ** Extraordinary gain on discharge of debt...................... -- -- -- ** -------- ------- ------- --------- Net income (loss) applicable to common stockholders (As reported)........................ 0.01* 0.01* (0.02)* ** Pro forma compensation expense--net of tax effect............ (0.02)* -- -- ** -------- ------- ------- --------- Net income (loss) applicable to common stockholders (Pro forma) ......................... $ (0.01)* $ 0.01 $ (0.02)* ** ======== ======= ======= ========= Common shares used in computing diluted EPS:.................... 5,333* 4,044* 4,000* ** ======== ======= ======= =========
* Average share and per share amounts for Reorganized Company based on shares issued or reserved for issuance to creditors. -43- 44 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 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 No. 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. 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 and maturities are less than three months. The estimated fair values of the Company's financial instruments are as follows (in thousands):
June 30, 1999 June 30, 1998 ---------------------- ---------------------- Carrying Carrying Amount Fair Value Amount Fair Value -------- ---------- -------- ---------- Financial Assets: Cash and cash equivalents ..... $ 4,111 $ 4,111 $ 2,475 $ 2,475
LEASES The Company incurred rental expense for the years ended June 30, 1999 and 1998, the three month period ended June 30, 1997, and the nine month period ended March 31, 1997, and had future minimum rental commitments at June 30, 1999 for noncancellable leases, as follows (in thousands):
Office Space Equipment Total -------- --------- -------- Expense for the year ended: June 30, 1999 ........................................ $ 10 $ -- $ 10 June 30, 1998 ........................................ $ 12 $ -- $ 12 Expense for the three month period ended June 30, 1997... $ 2 $ -- $ 2 Expense for the nine month period ended March 31, 1997... $ 124 $ 13 $ 137 Commitments for the years ending June 30: 2000 .................................................. $ -- $ -- $ -- Thereafter ............................................ -- -- -- -------- -------- -------- Total minimum lease payments .......................... $ -- $ -- $ -- ======== ======== ========
The Company also incurred expense of $19,000 and $14,000 for the years ended June 30, 1999 and 1998, respectively, for the reimbursement of office space and Associated Expenses in Maryland utilized by the Chairman and Chief Executive Officer of the Company, and is included in other operating expenses on the Company's Statement of Consolidated Operations. The Company is not a party to the lease. -44- 45 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) PENSION PLANS Defined Benefit Plan. The Predecessor Company's pension plan, the Lomas Financial Group Pension Plan ("the Plan"), was sponsored by LMUSA. 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. 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%. The right to any excess assets was included in the distribution of LMUSA to LMUSA creditors on October 1, 1996. MANAGEMENT SECURITY PLAN The Predecessor Company had a Management Security Plan ("MSP") for certain of its employees. The LFC Creditors' Committee argued that the funds contributed to the MSP were held in a trust (the "MSP Trust") subject to the claims of creditors in the event of insolvency. The LFC Creditors' Committee contended that the funds in the trust were property of the Company's estate. However, the trustee, Bankers Trust, asserted that the trustee was 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 July 1, 1998, a federal district court approved a settlement of the MSP Trust whereby the Creditors' Trust and the MSP beneficiaries would equally share the assets remaining in the MSP Trust after payment of certain legal expenses and MSP trust fees, in the amount of $0.4 million. Accordingly, on July 10, 1998, the Creditors' Trust received $4.085 million pursuant to the final settlement. The preliminary MSP disputed claims totaled $8.8 million. These proceeds are solely for the benefit of the former creditors of the Joint Plan. The LFC Creditors' Trust and any proceeds from the LFC/LMUSA Litigation Trust are solely for the benefit of the former creditors of the Joint Debtors. Stockholders will not benefit from these trusts unless they held Class 3 - general unsecured claims as defined in the Joint Plan. Income and expenses of the MSP Trust were included in the Company's Statement of Consolidated Operations for the nine month period ended March 31, 1997. After distribution to the Creditors' Trust on March 31, 1997, income and expenses of the MSP Trust were credited or charged to the Creditors' Trust for the year ended June 30, 1998 and the three month 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 nine month period ended March 31, 1997. These transactions were subject to additional adjustments which are solely the responsibility of Nomas Corp. as a result of the distribution on October 1, 1996. Fixed Assets. 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 -45- 46 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) 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. LEGAL PROCEEDINGS On September 25, 1998 the Company was advised that it was named as a Counter-Defendant in the counterclaim filed by the defendants of the LFC/LMUSA Litigation Trust's lawsuit against certain former officers and directors of Lomas Financial Corporation and subsidiaries. The counterclaim seeks joint and several liability. The Company has responded to the counterclaim denying liability and preserving the Company's rights and defenses. Separately the Company initiated litigation in the Delaware Bankruptcy Court to obtain a declaration of rights and an order to turn over records. A successful outcome in the Delaware court should resolve the counterclaim. In December 1997, the Company received a letter from the attorney of the insurance company that carried the former directors and officers insurance coverage, stating that there is a $1.0 million per claim retention which must be completely exhausted before the insurance company is implicated. Management at this time believes that the Company is not responsible for this retention amount as a result of the Joint Plan. In March 1997, in connection with the settlement of the intercompany claims, the Company transferred $3 million in cash to partially fund a litigation trust to pursue third-party claims pursuant to the LFC/LMUSA Litigation Trust Agreement. See "Reorganization" footnote. 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. There can be no assurance that the LFC/LMUSA Litigation Trust will produce any proceeds which will benefit the Creditors Trust' and former creditors. The LFC Committee 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 for the benefit of former creditors of the Joint Debtors. 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, tortuous 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. The LFC Creditors' Trust and any proceeds from the LFC/LMUSA Litigation Trust are solely for the benefit of the former creditors of the Joint Debtors. Stockholders will not benefit from these trusts unless they held Class 3 - general unsecured claims as defined in the Joint Plan. The assisted care facility management subsidiary, 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. In the fourth quarter of fiscal year 1998, the owners of Treemont contacted the Company's management and requested a legal review of the management agreement as they believed certain parts of the contract were illegal. The Company's position is that the agreement is substantially secured at this time by the Treemont property in Houston. The owners of Treemont have requested the Company consider possible changes to the contract. Management does -46- 47 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) not believe the changes, if any, will have a negative impact on the Company. See the "Receivables" footnote for more information on the management agreement. QUARTERLY RESULTS (UNAUDITED) The Company has restated its unaudited quarterly consolidated financial statements for the quarters ended September 30, 1998, December 31, 1998, and March 31, 1999. The restatements resulted from: (1) a change to charge certain stock offering expenses against the gross proceeds of the offering in the first and second quarters; (2) the recognition of income from proceeds received from the Creditors' Trust and a corresponding recognition of directors' additional compensation expense as a result of the approval by the shareholders of the Directors' Additional Compensation Plan in the second quarter; and, (3) the reversal of stock option expense in the second and third quarters for stock options granted to the directors' due to a change in the measurement date. The net effect of the restatements are as follows (in thousands):
As Restatement reported effect Restated -------- ----------- -------- For the quarter ended September 30, 1998: Income (loss) before federal income tax .......... $ (54) $ 90 $ 36 Federal income tax expense ....................... -- (13) (13) Net income (loss) ................................ (54) 77 23 For the quarter ended December 31, 1998: Revenues ......................................... 248 98 346 Income (loss) before federal income tax .......... 32 16 48 Federal income tax expense ....................... -- (17) (17) Net income (loss) ................................ 32 (1) 31 For the quarter ended March 31, 1999: Income (loss) before federal income tax .......... 2 2 4 Federal income tax expense ....................... -- (1) (1) Net income (loss) ................................ 2 1 3
-47- 48 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following is a summary of the unaudited quarterly results of operations, as restated, for the year ended June 30, 1999 (in dollars, except per share amounts):
Year Ended June 30, 1999 ----------------------------------------------------- Reorganized Company ----------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- Revenues .................................... $ 259 $ 346 $ 206 $ 191 Income (loss) before federal income tax ..... 36 48 4 (36) Federal income tax benefit (expense) ........ (13) (17) (1) 13 Net income (loss) ................ 23 31 3 (23) Basic earnings (loss) per common share: Net income (loss) ...................... 0.00* 0.01* 0.00* 0.00* Diluted earnings (loss) per common share: Net income (loss) ...................... 0.00* 0.01* 0.00* 0.00*
* Per share amounts for Reorganized Company based on shares issued or reserved for issuance to creditors. Revenues were significantly higher in the second quarter primarily due to the recognition of revenue from the Creditors' Trust that was deferred as of June 30, 1998, pending shareholder approval of certain bonuses for non-officer directors. Based on shareholder approval in December 1998, trust expense reimbursement revenue of $98,000 was recognized and an offsetting expense of $98,000 is included in other operating expense on the Company's Consolidated Statement of Operations for the director's additional compensation. See the "Current and Long Term Liabilities" and "Stock and Compensation Plans" footnotes for further information. Management fees received by the Company's assisted care management subsidiary, SHM, were $131,000, $148,000, $116,000 and $83,000 for the first through fourth quarters, respectively. The second quarter included a non-recurring increase in revenue of $61,000 as a result of an adjustment to the management fee received by SHM. The management fee received involves a calculation based on the gross receipts and net income of the assisted care facility in Houston, Texas. The billings were low in the fourth quarter, but management of the Company expects it to normalize in the first quarter of fiscal year 2000. For more information on the management fee and the adjustment, refer to the "Receivables" footnote. Consulting, accounting, and public reporting expenses combined were $5,000, $12,000, $30,000 and $83,000 for each quarter, respectively. The third and fourth quarters were higher as a result of the tax, audit and financial accounting services for the calendar year tax return and the fiscal year end audit, including an accrual for the annual report and SEC filing services. These expenses were slightly offset by franchise tax and directors' fees expense that were higher in the first two quarters as compared to the final two quarters of the fiscal year. -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, 1998 (in dollars, except per share amounts):
Year Ended June 30, 1998 ----------------------------------------------------- Reorganized Company ----------------------------------------------------- First Second Third Fourth Quarter Quarter Quarter Quarter -------- -------- -------- -------- Revenues .................................... $ 241 $ 224 $ 187 $ 758 Income (loss) before federal income tax ..... 69 17 (15) 1 Federal income tax benefit (expense) ........ (24) (6) 5 -- Net income (loss) ................ 45 11 (10) 1 Basic earnings (loss) per common share: Net income (loss) ...................... 0.01* 0.00* 0.00* 0.00* Diluted earnings (loss) per common share: Net income (loss) ...................... 0.01* 0.00* 0.00* 0.00*
* Per share amounts for Reorganized Company based on shares issued or reserved for issuance to creditors. Certain reclassifications have been made to prior quarters' financial statements to conform to the current presentation. Some of the reimbursements from the Creditors' Trust received in the first and second quarters were previously netted against expenses but are now shown as trust expense reimbursement revenue. Management fees from the Company's assisted care management subsidiary were significantly lower in the second and third quarters, $61,000 and $56,000, respectively, than in the first and fourth quarters, $151,000 and $126,000, respectively, as a result of the election by Treemont to make significant capital improvements for fire protection that were funded by operations. See "Accounts Receivable" footnote. The Creditors' Trust reimbursed the Company for certain expenses incurred during the year, including an overhead allocation that fluctuated from quarter to quarter based upon management's estimate of resources used by the Creditors' Trust. The overhead allocation by quarter was $20,000, $138,000, $105,000 and $41,000, for the first, second, third and fourth quarters, respectively, which included an adjustment in the second quarter. The Creditors' Trust also reimbursed the Company $492,000 for success bonuses paid to the officers in the fourth quarter. See "Stock and Compensation Plans" footnote. Personnel expenses increased in December 1997 as a result of an increase in executive officer compensation pursuant to new employment agreements. All other consulting expense was significantly lower in the first quarter as much of the work related to the prior fiscal year was charged to an accrual during the first quarter. The fourth quarter included an additional accrual for fiscal year end accounting and tax consulting work to be performed in fiscal 1999. The Company's real estate subsidiary, LLG, reported an operating loss of $37,000 for the fourth quarter as compared to a combined operating income for the first three quarters of $8,000. The expense in the fourth quarter is primarily attributable to consulting and other expenses related to the re-zoning project currently underway. -49- 50 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) INDUSTRY SEGMENT DATA OF OPERATIONS The Company has adopted SFAS No. 131, "Disclosures about Segments of an Enterprise and Related Information", which requires that companies disclose segment data on a basis that is used internally by management for evaluating segment performance and allocating resources to segments. The Company has two reportable segments: (1) assisted care management, which receives a fee for managing and maintaining an assisted care facility in Houston, Texas, and (2) real estate investment and development. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. See the "Significant Accounting Policies" footnote for more information. The Company's management evaluates performance of each segment based on profit and loss from operations excluding allocation of corporate overhead expenses and interest income. Segment data for the year ended June 30, 1998 and the three month period ended June 30, 1997 have been restated to conform to the fiscal year 1999 presentation. Due to the Company's reorganization, the segment data for the nine month period ended March 31, 1997, is not meaningful and therefore not presented. The following table summarizes the Company's identifiable assets by segment as of June 30, 1999 and 1998 (in thousands):
Reorganized Company -------------------------------- June 30, 1999 June 30, 1998 ------------- ------------- Identifiable assets: Assisted care facility management (including receivable from parent company eliminated in consolidation)................... $ 717 $ 394 Real estate ...................................................... 4,882 4,885 ------------- ------------- 5,599 5,279 ------------- ------------- Reconciling items: Corporate cash, receivables and prepaid expenses (including ... 4,231 2,169 receivable from subsidiary eliminated in consolidation) Deferred tax assets--net ...................................... 1,175 -- Elimination of intercompany receivables ....................... (585) -- ------------- ------------- Total assets per Consolidated Balance Sheet ........................... $ 10,420 $ 7,448 ============= =============
(CONTINUED ON FOLLOWING PAGE) -50- 51 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED) The following table summarizes the Company's segment data of operations for the years ended June 30, 1999 and 1998, and the three month period ended June 30, 1997 (in thousands):
Reorganized Company --------------------------------------- Year Year Three Month Ended Ended Period Ended June 30, June 30, June 30, 1999 1998 1997 -------- -------- ------------ Revenues: Assisted care management .......................... $ 498 $ 423 $ 168 Real estate ....................................... -- 22 5 -------- -------- ---------- 498 445 173 -------- -------- ---------- Reconciling items: Corporate interest income ...................... 155 59 6 Trust expense reimbursement .................... 339 796 42 Other corporate revenue ........................ 10 110 5 -------- -------- ---------- 504 965 53 -------- -------- ---------- Total revenues per Statement of Consolidated Operations ........................................ $ 1,002 $ 1,410 $ 226 ======== ======== ========== Operating income (loss): Assisted care management .......................... $ 329 $ 272 $ 87 Real estate ....................................... (15) (29) 5 -------- -------- ---------- 314 243 92 -------- -------- ---------- Reconciling items: Corporate interest income ...................... 155 52 6 Trust expense reimbursement .................... 339 796 42 Unallocated corporate expenses ................. (763) (1,133) (230) Other .......................................... 7 114 4 -------- -------- ---------- (262) (171) (178) -------- -------- ---------- Income (loss) from operations before reorganization items and federal income tax per Statement of Consolidated Operations........... $ 52 $ 72 $ (86) ======== ======== ==========
-51- 52 SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) CONDENSED BALANCE SHEET (IN THOUSANDS)
Reorganized Company -------------------------------- June 30, 1999 June 30, 1998 ------------- ------------- ASSETS Current Assets: Cash and cash equivalents ........................................ $ 4,104 $ 2,096 Receivables (including $10 and $0, respectively, receivables from subsidiaries eliminated in consolidation) ................ 10 -- Prepaid expenses ................................................. 117 54 ------------- ------------- 4,231 2,150 ------------- ------------- Long Term Assets: Investments (including $5,557 and $5,246, respectively, investments in subsidiaries eliminated in consolidation) ..... 5,557 5,246 Deferred tax assets--net ........................................ 1,175 -- ------------- ------------- 6,732 5,246 ------------- ------------- Total Assets ............................................. $ 10,963 $ 7,396 ============= ============= LIABILITIES AND STOCKHOLDERS' EQUITY Current Liabilities: Accounts payable and accrued expenses (including $575 and $0, respectively, payables to subsidiaries eliminated in consolidation) ............................................... $ 773 $ 542 Long Term Liabilities: Accrued medical insurance premiums .............................. 649 711 Deferred compensation and fees .................................. 52 -- ------------- ------------- 701 711 ------------- ------------- 1,474 1,253 ------------- ------------- Stockholders' equity: Preferred stock--($1.00 par value, 1,000 shares authorized, 0 shares issued and outstanding) ............................. -- -- Common stock--($.10 par value, 15,000 shares authorized, 6,000 shares issued and outstanding and 4,000 shares issued and outstanding, respectively) ............................... 600 400 Additional paid-in capital ...................................... 8,894 5,782 Accumulated deficit ............................................. (5) (39) ------------- ------------- 9,489 6,143 ------------- ------------- Total Liabilities and Stockholders' Equity ............... $ 10,963 $ 7,396 ============= =============
-52- 53 SCHEDULE I----CONDENSED FINANCIAL INFORMATION OF REGISTRANT--(CONTINUED) SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) CONDENSED STATEMENT OF OPERATIONS (IN THOUSANDS, EXCEPT PAR VALUES)
Predecessor Reorganized Company Company -------------------------------------------- ------------ Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ---------- ---------- ------------ ------------ Revenues: Interest ....................................... $ 155 $ 52 $ 6 $ -- Trust expense reimbursement .................... 339 796 42 -- Gain on sales .................................. -- 20 -- -- Other .......................................... 11 90 1 299 ---------- ---------- ------------ ------------ 505 958 49 299 ---------- ---------- ------------ ------------ Expenses: Personnel ...................................... 288 727 53 291 Other operating ................................ 476 406 177 1,061 ---------- ---------- ------------ ------------ 764 1,133 230 1,352 ---------- ---------- ------------ ------------ Loss from operations before reorganization items and equity in income (loss) of subsidiaries ........ (259) (175) (181) (1,053) Equity in income (loss) of subsidiaries ........ 311 247 95 (4,818) Reorganization items--net ...................... -- -- -- (7,040) ---------- ---------- ------------ ------------ Income (loss) before federal income tax ............ 52 72 (86) (12,911) Federal income tax expense ......................... (18) (25) -- -- ---------- ---------- ------------ ------------ Income (loss) before extraordinary item ............ 34 47 (86) (12,911) Extraordinary gain on discharge of debt ............ -- -- -- 135,966 ---------- ---------- ------------ ------------ Net income (loss) ............................. $ 34 $ 47 $ (86) $ 123,055 ========== ========== ============ ============
-53- 54 SCHEDULE I---CONDENSED FINANCIAL INFORMATION OF REGISTRANT---(CONTINUED) SIENA HOLDINGS, INC. (FORMERLY LOMAS FINANCIAL CORPORATION) CONDENSED STATEMENT OF CASH FLOWS (IN THOUSANDS)
Predecessor Reorganized Company Company -------------------------------------------- ------------ Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1999 1998 1997 1997 ---------- ---------- ------------ ------------ Operating activities: Net income (loss) ........................................... $ 34 $ 47 $ (86) $ 123,055 Adjustments to reconcile net income (loss) to cash provided (used) by operations: Federal income tax utilization of pre-reorganization tax attributes ...................... 18 25 -- -- Compensation expense for stock options .................... 17 10 -- -- Gain on sales ............................................. -- (20) -- -- Extraordinary gain on discharge of debt ................... -- -- -- (135,966) Equity in (income) loss of subsidiaries ................... (311) (247) (95) 4,818 Reorganization items: Claims in excess of recorded prepetition liabilities .......................................... -- -- -- 3,454 (Increase) decrease in current assets and prepaid expenses ............................................... (63) 15 50 -- Increase (decrease) in current accounts payable and accrued expenses ....................................... (344) 390 58 -- Decrease in long term accrued medical insurance premiums ............................................... (62) (63) (17) -- Increase in long term deferred compensation and fees ...... 52 -- -- -- Net change in pre-reorganization sundry receivables, payables and other assets ................. -- -- -- 5,179 ---------- ---------- ------------ ------------ Net cash provided (used) by operating activities ... (659) 157 (90) 540 ---------- ---------- ------------ ------------ Investing activities: Net maturities/sales (purchases) of investments ............. -- 20 -- -- Return of capital from investments in subsidiaries .......... -- 1,679 -- -- 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) ---------- ---------- ------------ ------------ Net cash provided (used) by investing activities ... -- 1,699 -- (4,804) ---------- ---------- ------------ ------------ Financing activities: Issuance of common stock--net ............................... 2,102 -- -- -- Net increase in (receivables from) payables to subsidiaries ............................................. 565 -- -- -- ---------- ---------- ------------ ------------ Net cash provided by financing activities .......... 2,667 -- -- -- ---------- ---------- ------------ ------------ Net increase (decrease) in cash and cash equivalents ............ 2,008 1,856 (90) (4,264) Cash and cash equivalents at beginning of period ................ 2,096 240 330 4,594 ---------- ---------- ------------ ------------ Cash and cash equivalents at end of period ...................... $ 4,104 $ 2,096 $ 240 $ 330 ========== ========== ============ ============ Non-cash transactions: Issuance of stock options ................................... $ 17 $ 10 -- --
-54- 55 SCHEDULE III---REAL ESTATE AND ACCUMULATED DEPRECIATION SIENA HOLDINGS, INC. AND SUBSIDIARIES June 30, 1999 (in thousands)
Initial cost to Company Cost capitalized to acquisition ------------------------ ------------------------------- Buildings and Carrying Description Encumbrances Land improvements Improvements costs - ----------------------- ------------ --------- ------------- ------------ -------- 189.3 gross acres of unimproved land in Allen, Texas (the "Allen property").... -- $ 4,800 * $ -- $ 79 $ -- Gross amount at which carried at close of June 30, 1999 (**) ----------------------------------------- Buildings and Accumulated Date of Description Land improvements Total depreciation construction Date acquired - ----------------------- ------- ------------- ------- ------------ ------------ ------------- 189.3 gross acres of unimproved land in Allen, Texas (the "Allen property").... $ 4,879 $ -- $ 4,879 -- N/A 3/5/97
The changes in the investment in real estate is as follows (in thousands):
Year Ended June 30 ----------------------------- 1999 1998 ------------ ------------ $ 4,800 $ 4,800 Additions during the period: Additions through foreclosure ................ -- -- Other acquisitions ........................... -- -- Improvements, etc ............................ 79 -- Other ........................................ -- -- ------------ ------------ 79 -- ------------ ------------ Deductions during the period: Cost of real estate sold ..................... -- -- Other ........................................ -- -- ------------ ------------ -- -- ------------ ------------ $ 4,879 $ 4,800 ============ ============
* The fair market value of the property on the date the Company adopted fresh-start accounting (see "Item 8. Financial Statements and Supplementary Data--Fresh-Start Reporting" footnote). ** The aggregate cost for Federal income tax purposes of the Allen property at June 30, 1999 and June 30, 1998 is $6.67 million and $6.59 million, respectively. -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 REGISTRANT DIRECTORS OF THE REGISTRANT 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 52. ERIC M. BODOW -- Senior Vice President, Sagner/Marks, Inc., since 1992; Vice President, First National Bank of Chicago, from 1985 to 1992. Age 54. JAMES D. KEMP -- Principal, Antaean Solutions, LLC, since 1997; President and Chief Executive Officer, The Trust Company, N.A., from 1996 to 1997; President and Chief Executive Officer, Kemp Consulting, from 1992 to 1997; President, Ameritrust Texas, N.A., from 1980 to 1992. Age 52. 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 68. 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 63. 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 report on 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 P. 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 44. 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 report on Form 10-K for the year ended June 30, 1996. -57- 58 ITEM 11. EXECUTIVE COMPENSATION COMPENSATION OF EXECUTIVE OFFICERS The following table sets forth all compensation paid by the Company for the year ended June 30, 1999, the year ended June 30, 1998, the three month period ended June 30, 1997 and the nine month period ended March 31, 1997, for services rendered in all capacities to the two executive officers of the Company during fiscal year 1999.
Base Other Cash Total Cash Officer Period Compensation Compensation Compensation - -------------------------- -------------------------------- ------------ ------------ ------------ John P. Kneafsey........ Year Ended June 30, 1999 $ 128,000 $ 298,000(1) $ 426,000 Chairman and Chief Year Ended June 30, 1998 $ 84,667 $ 6,200(2) $ 90,867 Executive Officer Three Months Ended June 30, 1997 $ 6,000 -- $ 6,000 Nine Months Ended March 31, 1997 $ 12,000 -- $ 12,000 W. Joseph Dryer......... Year Ended June 30, 1999 $ 144,000 -- $ 144,000 President Year Ended June 30, 1998 $ 139,000 $ 197,467(3) $ 336,467 Three Months Ended June 30, 1997 $ 33,000 -- $ 33,000 Nine Months Ended March 31, 1997 $ 170,106 -- $ 170,106
- ---------------- (1) Includes a bonus in the amount of $295,000 earned in May 1998, in accordance with Mr. Kneafsey's retention agreement discussed below. Mr. Kneafsey elected not to receive the payment until February 1999, thus it was carried in accounts payable and accrued expenses in the Consolidated Balance Sheet as of June 30, 1998. Director fees received in fiscal year 1999 in the amount of $3,000 are also included. An additional $7,000 in director fees were earned but deferred in accordance with the SHI Deferred Compensation Plan. See "Item 11. Executive Compensation - Compensation of Directors". (2) Includes $5,000 in director fees and a $1,200 bonus paid in accordance with Mr. Kneafsey's retention agreement discussed below. (3) Includes bonuses in the amount of $196,667 and $800 paid in accordance with Mr. Dryer's retention agreement discussed below. EMPLOYMENT AND OTHER COMPENSATORY AGREEMENTS Effective December 1, 1997, the Board of Directors approved two separate retention agreements for John P. Kneafsey and W. Joseph Dryer (the "Retention Agreements"), filed as exhibits to the Company's quarterly Form 10-Q for the period ended December 31, 1997, which are summarized as follows: John P. Kneafsey. Mr. Kneafsey has a retention agreement with SHI expiring December 1, 2002, retaining the officer as the Chief Executive Officer of SHI. Mr. Kneafsey's base annual retainer beginning December 1, 1997 is $128,000, with such adjustments thereto as may be determined by the Board of Directors in its sole discretion. The agreement also provides for success incentive bonuses for the sale or liquidation of assets based on a percentage of the deal value established by the Board of Directors or the appreciated value above the fair market value of the asset, which as a result of the fresh start adjustments is the same as book value as of March 31, 1997. Mr. Kneafsey shall be paid 6% of the gross appreciation value above book value or 6% of the deal value, upon the close of such transaction. Such bonus provision shall be applied to the Company and its subsidiaries and the Company's results as trustee of the Creditors' Trust. Mr. Kneafsey shall also receive non-qualified stock options as defined in separate agreements. The Board of Directors shall have the option to extend the agreement for successive 6 month periods, upon proper notice of not less than 60 days to the officer, under terms and retention payments to be mutually agreed to by the Company and Mr. Kneafsey. In the event of termination without cause or other breach of the agreement by SHI, Mr. Kneafsey will be entitled to receive a lump-sum termination payment equal to the retention payment (excluding bonuses) that Mr. Kneafsey would have received for the next 12 months following termination, adjusted up to take into consideration taxes that would have to be paid on the termination payment. -58- 59 W. Joseph Dryer. Mr. Dryer has a retention agreement with SHI expiring December 1, 2002, retaining the officer as President of SHI. Mr. Dryer's base annual retainer beginning December 1, 1997 is $144,000, with such adjustments thereto as may be determined by the Board of Directors in its sole discretion. The agreement also provides for success incentive bonuses for the sale or liquidation of assets based on a percentage of the deal value established by the Board of Directors or the appreciated value above the fair market value of the asset, which as a result of the fresh start adjustments is the same as book value as of March 31, 1997. Mr. Dryer shall be paid 4% of the gross appreciation value above book value or 4% of the deal value, upon the close of such transaction. Such bonus provision shall be applied to the Company and its subsidiaries and the Company's results as trustee of the Creditors' Trust. Mr. Dryer shall also receive non-qualified stock options as defined in separate agreements. The Board of Directors shall have the option to extend the agreement for successive 6 month periods, upon proper notice of not less than 60 days to the officer, under terms and retention payments to be mutually agreed to by the Company and Mr. Dryer. In the event of termination without cause or other breach of the agreement by SHI, Mr. Dryer will be entitled to receive a lump-sum termination payment equal to the retention payment (excluding bonuses) that Mr. Dryer would have received for the next 12 months following termination, adjusted up to take into consideration taxes that would have to be paid on the termination payment. Pursuant to the retention agreements defined above for Mr. Kneafsey and Mr. Dryer, two transactions were closed in fiscal year 1998 that resulted in success incentive bonuses, as follows: o On January 14, 1998, the Creditors' Trust received $8.1 million pursuant to the negotiated final settlement of a subordinated promissory note. The Company as trustee began negotiations early in 1997. The Bankruptcy Court approved a settlement on December 29, 1997. The settlement provided the Creditors' Trust with a gain of $5.9 million. This gain was recognized for income tax purposes in April 1997 upon the transfer of the promissory note from the Company to the Creditors' Trust. The Company received $590,000 in May 1998 for the bonus pool from the proceeds received by the Creditors' Trust based on the cash received by the Creditors' Trust in excess of book value. The Board of Directors approved an aggregate bonus amount of $492,000 for the executive officers. Mr. Dryer was paid a success bonus on the transaction in the amount of $197,000 in May 1998. Mr. Kneafsey's success bonus in the amount of $295,000 was included in accounts payable and accrued expenses on the Company's Consolidated Balance Sheet as of June 30, 1998, and paid in February 1999. The remaining $98,000 of the revenue received from the Creditors' Trust was deferred as of June 30, 1998, pending shareholder approval of the directors' compensation plan discussed below. o The Company sold its investment in Vistamar, Inc., a former real estate subsidiary incorporated in Puerto Rico, for $20,000 in April 1998. Upon receipt of the proceeds, Mr. Kneafsey and Mr. Dryer received $1,200 and $800, respectively, in accordance with their retention agreements. STOCK OPTION PLAN The Retention Agreements also awarded stock options to Mr. Kneafsey and Mr. Dryer pursuant to the SHI Non-qualified Stock Option Agreements, included as exhibits to the Company's quarterly report on Form 10-Q for the quarter ended December 31, 1997. The plan according to the SHI Non-qualified Stock Option Agreements (the "Stock Option Plan") granted Mr. Kneafsey and Mr. Dryer options to purchase 271,250 and 163,000 shares, respectively, of the Company's common stock, with an effective date of December 1, 1997 (the "Date of Grant"). The options granted under the Stock Option Plan have an exercise price of $0.92 per common share and vest at a rate of twenty percent per year for five years on the anniversary of the Date of Grant. The fair market value of the common stock on the Date of Grant was $1.109. Upon the event of any change-in-control (as defined) of the Company, the stock options shall be 100% vested. The stock options resulted in compensation expense of $17,000 and $10,000, with a corresponding increase in additional paid-in capital, for the years ended June 30, 1999 and 1998, respectively. Additional stock options or other forms of long-term incentive compensation arrangements may from time to time be granted by the Board of Directors. All of the Predecessor Company's stock plans or other retirement benefits for the officers were canceled during the nine months ended March 31, 1997, pursuant to the confirmation of the Joint Plan. -59- 60 COMPENSATION OF DIRECTORS Directors of the Company receive annual compensation at the rate of $5,000 and fees of $1,000 for each directors' meeting attended. Additional compensation of the Board of Directors is summarized as follows: (1) Directors' Additional Compensation Plan. At the annual meeting on December 16, 1998, the shareholders of SHI (the "Shareholders") approved additional compensation with a retroactive effective date of December 1, 1997, for the non-officer members of the Board of Directors (the "Directors' Additional Compensation Plan"), as described in the SHI Proxy Statement dated November 5, 1998. The Directors' Additional Compensation Plan provides for a success incentive bonus contingent on the sale or liquidation of certain assets, which will pay a percentage of the deal value established by the Board of Directors or the appreciated value above the fair market value of the asset, which as a result of the fresh start adjustments is the same as book value as of March 31, 1997. In aggregate, the non-officer directors shall be paid a total of 2% of the gross appreciation value above book value or 2% of the deal value, upon the close of any such transaction. Such bonus provision shall be applied to the Company and its subsidiaries and the Company's results as trustee of the Creditors' Trust. During the year ended June 30, 1998, two transactions were closed that, upon shareholder approval of the Directors' Additional Compensation Plan, authorized success bonus payments to the non-officer directors, as follows: o As discussed above, the Company received proceeds in May 1998 from the Creditors' Trust based on the cash received by the Creditors' Trust in excess of the book value upon the liquidation of a subordinated promissory note held in the Creditors' Trust. Pending shareholder approval, $98,000 of the revenue received from the Creditors' Trust was deferred and carried in accounts payable and accrued expenses as of June 30, 1998. Upon approval by the Shareholders, one director was paid in December 1998. Two of the three other non-officer directors elected to defer a portion or all of the payment pursuant to the SHI Deferred Compensation Plan defined below. The bonus payments not deferred or paid as of June 30, 1999, are included in accounts payable and accrued expenses on the Company's Consolidated Balance Sheet. o The Company sold its investment in Vistamar, Inc., a former real estate subsidiary incorporated in Puerto Rico, for $20,000 in April 1998. Upon approval by the Shareholders, each non-officer director received $100. As discussed above, certain of the non-officer directors elected to defer payments due to them pursuant to the SHI Deferred Compensation Plan (the "Deferred Compensation Plan"), approved by the Board of Directors on and effective as of December 16, 1998. The SHI Deferred Compensation Plan Document is included as Exhibit 10.1 to this annual report on Form 10-K for the year ended June 30, 1999. The Deferred Compensation Plan allows the member of the Board of Directors to defer annual director fees, meeting fees, and success bonus payments for a given calendar year. Interest earned on the cash will be accrued and paid to the director. A deferred compensation balance of $52,000, plus accrued interest, is included in accounts payable and accrued expenses on the Company's Consolidated Balance Sheet as of June 30, 1999. (1) Non-qualified Stock Option Agreements. The Non-qualified Stock Option Agreements for the Board of Directors (the "Directors' Stock Option Plan") were approved by the shareholders of SHI (the "Shareholders") on December 16, 1998 (the "Date of Shareholder Approval"), and were included as exhibits to the quarterly report on Form 10-Q for the period ended March 31, 1999. The Directors' Stock Option Plan granted each of the five directors' the option to purchase 40,000 shares of the Company's common stock, with an effective date of December 1, 1997 (the "Date of Grant"). The options granted under the Directors' Stock Option Plan have an exercise price of $0.92 per common share and vest at a rate of twenty percent per year for five years on the anniversary of the Date of Grant. The fair market value of the common stock on the Date of Shareholder Approval was $0.84375. Upon the event of any change-in-control of the Company (as defined) the stock options shall be 100% vested. -60- 61 All of the Predecessor Company's stock plans or other retirement benefits for the directors were canceled during the nine months ended March 31, 1997, pursuant to the confirmation of the Joint Plan. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS The following table sets forth, as of September 10, 1999, the number of shares and percentages of SHI Common Stock owned beneficially by persons or groups, within the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended, known to the Company to be the beneficial owners of more than 5 percent of the SHI Common Stock outstanding (see "Item 8. Financial Statements and Supplementary Data -- Stockholders' Equity").
Amount and Nature of Beneficial Percent of Title of Class Name of Beneficial Owner Ownership Class - ----------------------- ---------------------------------------------- ------------ ---------- SHI Common Stock John P. Kneafsey (1).......................... 2,504,753(1) c/o Pathfinder Advisory Services 41.7% 9515 Deereco Road, Suite 903 Timonium, Maryland 21093 Credit Suisse First Boston Corporation (2).... 910,509(2) 15.2%(2) 11 Madison Avenue New York, New York 10010
- ------------ (1) Based on information set forth in the Schedule 13G filing dated August 26, 1998, by John P. Kneafsey, who is Chairman and Chief Executive Officer of SHI. According to the filing, John P. Kneafsey beneficially owns the securities reported herein. The amount and percent of class of securities owned was adjusted by Mr. Kneafsey to reflect securities owned as of September 10, 1999, including the November 5, 1998 transaction whereby Mr. Kneafsey paid the Company $2.2 million in exchange for 2 million shares of the Company's common stock. This offer was considered and accepted by the Company's Board of Directors at its regularly scheduled meeting held in Wilmington, Delaware on September 23, 1998. The Chairman did not participate in the vote of the Board accepting this offer. This transaction increased the number of outstanding shares of common stock to 6 million. (2) Based on information set forth in the Schedule 13G filing dated February 23, 1998, by Credit Suisse First Boston, a registered bank in Zurich, Switzerland, acting solely on behalf of the Credit Suisse First Boston business unit. According to the filing, Credit Suisse First Boston Corporation directly beneficially owns the securities reported herein. The percent of class was adjusted due to the increase in the number of outstanding shares of common stock to 6 million, as discussed above. 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 as of March 31, 1997 and ultimately issued on November 12, 1997 by the stock transfer agent for distribution to the Class 3 unsecured creditors, pending finalization of all paperwork. As of November 12, 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 June 30, 1999, the identities of all the Bondholders are not yet known, therefore, management of the Company is not aware of all persons or groups 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, except for those listed above. The process by the stock distribution agent has resulted in 3,986,720 shares of common stock actually distributed to former creditors through March 7, 1999. As of that date, there were 13,280 shares of common stock issued but not delivered related to bonds not exchanged for stock by the -61- 62 March 7, 1999 deadline and 164,599 shares of common stock held for disputed claims that have been resolved. The Company expects the stock distribution agent to redistribute by December 31, 1999, the total of 177,879 to all allowed creditors that have received prior stock distributions. SECURITY OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS The stock ownership by directors and executive officers of SHI as of September 10, 1999, is as follows:
Amount and Nature of Beneficial Percent of Title of Class Name of Beneficial Owner Ownership Class - -------------- ------------------------------- ---------- ---------- SHI Common Stock John P. Kneafsey............... 2,504,753 41.7% W. Joseph Dryer................ 33,000 0.6% Eric M. Bodow.................. -- -- James D. Kemp.................. -- -- Matthew S. Metcalfe............ 5,129 0.1% Frank B. Ryan.................. -- --
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. Recognizing the need of the Company for additional working capital, the Chairman of the Company offered to make a cash investment for a certain number of shares of the Company's common stock. This offer was considered and accepted by the Company's Board of Directors at its regularly scheduled quarterly meeting held in Wilmington, Delaware on September 23, 1998. The Chairman did not participate in the vote of the Board accepting this offer. On November 5,1998, Mr. Kneafsey paid the Company $2.2 million in exchange for 2 million shares of the Company's common stock. This transaction increased the number of outstanding shares of common stock to 6 million. -62- 63 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, 1999 and 1998........................................... 22 Statement of Consolidated Operations--Years Ended June 30, 1999 and 1998, Three Month Period Ended June 30, 1997, and Nine Month Period Ended March 31, 1997.............. 23 Statement of Consolidated Stockholders' Equity (Deficit)--Years Ended June 30, 1999 and 1998, Three Month Period Ended June 30, 1997, and Nine Month Period Ended March 31, 1997............................................................................ 24 Statement of Consolidated Cash Flows--Years Ended June 30, 1999 and 1998, Three Month Period Ended June 30, 1997, and Nine Month Period Ended March 31, 1997.............. 25 Notes to Consolidated Financial Statements................................................... 27
(ii) The following financial statement schedules are 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) Siena Holdings, Inc. Deferred Compensation Plan effective as of December 16, 1998. (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. -63- 64 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 27, 1999 /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 27, 1999 /s/ W. JOSEPH DRYER ---------------------------- W. Joseph Dryer President 65 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 27, 1999 By /s/ JOHN P. KNEAFSEY -------------------------------- (John P. Kneafsey, Chairman) Date: September 27, 1999 By /s/ ERIC M. BODOW -------------------------------- (Eric M. Bodow) Date: September 27, 1999 By /s/ JAMES D. KEMP -------------------------------- (James D. Kemp) Date: September 27, 1999 By /s/ MATTHEW S. METCALFE -------------------------------- (Matthew S. Metcalfe) Date: September 27, 1999 By /s/ FRANK RYAN -------------------------------- (Frank Ryan) 66 EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION ------- ----------- 10 Siena Holdings, Inc. Deferred Compensation Plan effective as of December 16, 1998. 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 2 DEFERRED COMPENSATION PLAN - DECEMBER 16, 1998 1 EXHIBIT 10 SIENA HOLDINGS, INC. DEFERRED COMPENSATION PLAN EFFECTIVE DATE: DECEMBER 16,1998 2 SIENA HOLDINGS, INC. DEFERRED COMPENSATION PLAN TABLE OF CONTENTS
SECTION: I. Name and Purpose .................................................... 1 II. Effective Date ...................................................... 1 III. Definitions ......................................................... 1 IV. Eligibility ......................................................... 2 V. Administration of the Plan .......................................... 2 VI. Election to Participate ............................................. 2 VII. Plan Accounts ....................................................... 3 VIII. Method of Distribution of Deferred Compensation ..................... 3 IX. Offset for Obligations to Employer .................................. 4 X. Change in Distribution Date ......................................... 4 XI. Benefit Plans ....................................................... 5 XII. Rights of a Participant ............................................. 6 XIII. Amendment and Termination ........................................... 6 XIV. Determination of Benefits ........................................... 6 XV. Notices ............................................................. 7 XVI. General Provisions .................................................. 8 XVII. Unfunded Status of Plan ............................................. 8 XVIII. Rights to Benefits .................................................. 9
-i- 3 SIENA HOLDINGS, INC. DEFERRED COMPENSATION PLAN I. NAME AND PURPOSE The name of the plan is the Siena Holdings, Inc. Deferred Compensation Plan (the "Plan"). Its purpose is to provide members of the Board of Directors (the "Directors") of Siena Holdings, Inc. with the opportunity to defer receipt of their compensation to a future date. Siena Holdings, Inc. ("Siena") has adopted this program in recognition of the valuable service of the Directors and the desire to provide them with additional flexibility in their personal financial planning. II. EFFECTIVE DATE The Plan shall be effective as of December 16, 1998. III. DEFINITIONS (a) ACCOUNT means the balance credited to a Participant's or Beneficiary's Plan account, including contribution credits and interest income credited thereto. A Participant's or Beneficiary's Account shall be determined as of the date of reference. (b) ANNUAL RETAINER means the amount of compensation received by the Participant that is designated as a retainer. (c) BENEFICIARY means any person or persons so designated in accordance with the provisions of SECTION X. (d) COMMITTEE MEETING FEE means the amount of compensation received by the Participant that is designated as a committee meeting fee. (e) DIRECTOR means a member of the Board of Directors of Siena Holdings, Inc. (f) EMPLOYER means Siena Holdings, Inc. and its successors and assigns unless otherwise herein provided, or any other corporation or business organization which, with the consent of Siena Holdings, Inc., or its successors or assigns, assumes the Employer's obligations hereunder. (g) PLAN YEAR means the twelve (12) month period ending on the December 31 of each year during which the Plan is in effect, provided that the first Plan Year shall commence on December 16, 1998 and end on December 31, 1998. (h) SUCCESS BONUS means the amount of compensation received by the Participant that is designated as a bonus. Page 1 4 IV. ELIGIBILITY Any Director shall be eligible to participate in the Plan upon appointment and approval by the Board of Directors of the Employer. Any Director who elects to participate in the Plan is hereinafter referred to as a "Participant." V. ADMINISTRATION OF THE PLAN The Plan will be administered by the Board of Directors of the Employer (the "Board of Directors") or its designee. The Board of Directors will have the exclusive right to interpret the provisions of the Plan. However, no Participant may participate in any decision that would specifically affect his or her own deferral account. VI. ELECTION TO PARTICIPATE (a) ANNUAL RETAINER DEFERRALS - An eligible Director may irrevocably elect, prior to the beginning of each Plan Year, but no later than the December 30th preceding the beginning of the Plan Year, to participate in the Plan and defer receipt of all or part of the Annual Retainer (as defined in SECTION III) earned during the Plan Year that would otherwise have been payable to him or her, to a distribution date defined in SECTION VIII. A new Participant may make an election with respect to future cash compensation, including Annual Retainers earned in the first year of eligibility, within 30 days after becoming eligible. (b) COMMITTEE MEETING FEE DEFERRALS - An eligible Director may irrevocably elect, prior to the beginning of each Plan Year, but no later than the December 30th preceding the beginning of the Plan Year, to participate in the Plan and defer receipt of all or part of the Committee Meeting Fee (as defined in SECTION III) payable with respect to services performed during such Plan Year that would otherwise have been payable to him or her, to a distribution date defined in SECTION VIII. A new Participant may make an election with respect to future cash compensation, including Committee Meeting Fees earned in the first year of eligibility, within 30 days after becoming eligible. (c) SUCCESS BONUS DEFERRALS - An eligible Director may irrevocably elect, prior to the beginning of each Plan Year, but no later than the December 30th preceding the beginning of the Plan Year, to participate in the Plan and defer receipt of all or part of the Success Bonus (as defined in SECTION III) payable with respect to services performed during such Plan Year that would otherwise have been payable to him or her, to a distribution date defined in SECTION VIII. A new Participant may make an election with respect to future cash compensation, Page 2 5 including Success Bonuses earned in the first year of eligibility, within 30 days after becoming eligible. (d) "NOTICE OF ELECTION" FORM. The election to participate in the Plan will be made on a written form called a "Notice of Election." The "Notice of Election" form must be signed by the Participant and delivered to the Board of Directors or its designee. This election will continue in effect for future years in which the Participant is eligible to participate until the Participant revises or revokes his election by submitting a revised "Notice of Election" form. The revised "Notice of Election" form must be received by the Board of Directors or its designee prior to December 30 preceding the Plan Year in which earnings are to be deferred. Any revocation will be applicable only to compensation the Participant may earn for services performed in the next Plan Year. (e) Nothing in this SECTION VI prevents a Participant from filing an election not to participate for a Plan Year and thereafter filing another election to participate in the Plan for any subsequent Plan Year. VII. PLAN ACCOUNTS There shall be established and maintained by the Employer a separate Plan Account in the name of each Participant for which the Participant has elected to defer his Annual Retainers, Committee Meeting Fees, and Success Bonuses (collectively known as the "Compensation Deferrals"). The Plan Account shall at all times be one hundred percent (100%) vested in the Participant, and to which shall be credited or debited: (a) amounts equal to the Participant's Compensation Deferrals, and (b) amounts equal to the interest income, based upon the interest rate achieved in the Employer's designated interest-bearing bank attributable or allocable to the Participant's Plan Account. The interest income attributable and allocable to a Participant's Plan Account shall be credited with reasonable promptness after the Employer's designated interest bearing bank account is credited with interest income. VIII. METHOD OF DISTRIBUTION OF DEFERRED COMPENSATION (a) TIMING OF DISTRIBUTION. Distribution of a Participant's Plan Account balance for each Plan Year will be made on the date selected by the Participant on the executed Notice of Election form for that Plan Year. If a Participant does not revise his Notice of Election form for subsequent Plan Years, the date elected on the most current Notice of Election form that is on file with the Board of Directors shall govern. (b) FORM OF DISTRIBUTION. Distribution of a Participant's Plan Account balance for each Plan Year will be made in cash in one lump sum payment. Page 3 6 (c) WITHHOLDING OF TAXES. Any tax required by any governmental authority to be withheld shall be deducted from each distribution under the Plan. IX. OFFSET FOR OBLIGATIONS TO EMPLOYER If, at such time as the Participant becomes entitled to benefit payments hereunder, the Participant has any debt, obligation, or other liability representing an amount owing to the Employer or an affiliate of the Employer, and if such debt, obligation, or other liability is due and owing at the time benefit payments are payable hereunder, the Employer may offset the amount owing it or an affiliate against the amount of benefits otherwise distributable hereunder. X. CHANGE IN DISTRIBUTION DATE (a) CHANGE IN DISTRIBUTION DATE. If a Participant wishes to modify the distribution date for a particular Plan Year determined under SECTION VIII, he or she must submit a revised "Notice of Election" form for such change. The revised "Notice of Election" form must be submitted to the Board of Directors or its designee at least one (1) year prior to the previously selected distribution date. (b) DEATH OF PARTICIPANT. In the event of the death of a Participant before full payment of the Participant's account balance has been made, the Employer shall pay the remaining balance of such Participant's Plan Account in one lump sum to the individual designated as Primary Beneficiary on the latest executed "Notice of Designation of Beneficiary" form on file. The lump sum payment shall be made within a reasonable time period, but not later than 180 days after the date of death of the Participant. If the Primary Beneficiary designated on the latest executed "Notice of Designation of Beneficiary" form is no longer living, the Employer shall pay the remaining balance of such Participant's Plan Account in one lump sum to the individual designated as Secondary Beneficiary on the latest executed "Notice of Designation of Beneficiary" form on file. If the Secondary Beneficiary designated on the latest executed "Notice of Designation of Beneficiary" form is no longer living, the Employer shall pay the remaining balance of such Participant's Plan Account in one lump sum to the Participant's estate. If a Participant wishes to change the beneficiary he or she has previously designated, he or she may do so at any time by submitting a "Notice of Designation of Beneficiary" form to the Board of Directors or its designee. (c) PERMANENT DISABILITY OF PARTICIPANT. In the event of a Participant's "permanent disability" (as determined in the following paragraph) before full payment of a Participant's Account balance has been made, the Employer upon direction from the Board of Directors (in its sole discretion) shall be permitted to pay the remaining Account balance in one lump sum. Such payouts shall be made to the Participant or his legal representative pursuant to paragraph (c) of SECTION XVI. Page 4 7 The Participant will be considered permanently disabled for the purposes of this Plan if, based on medical evidence, the Board of Directors (in its sole discretion) determines that the Participant (1) is totally disabled, mentally or physically; (2) will remain so for the rest of his or her life; and (3) is therefore unable to continue his or her services to the Employer. (d) UNFORESEEABLE EMERGENCY OF PARTICIPANT. In the event of a Participant's "unforeseeable emergency" (as determined in the following paragraph), the Participant may submit a written petition to the Board of Directors for an early withdrawal from his or her remaining Account balance. The Board of Directors has sole discretion in the determination of the merits of petitioner's "unforeseeable emergency" petition. Any early withdrawal approved by the Board of Directors is limited to the amount necessary to meet the emergency. An unforeseeable emergency is a severe financial hardship to the Participant resulting from (1) a sudden and unexpected illness or accident of the Participant or of a dependent (as defined in section 152(a) of the Internal Revenue Code of 1986, as amended (the "Code")) of the Participant; (2) loss of the Participant's property due to casualty; or (3) other similar extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the Participant. The necessity of additional funds to send a Participant's child to college or to purchase a home are not considered to be unforeseeable emergencies. (e) EARLY LUMP SUM DISTRIBUTION. A Participant may receive his entire benefit payable under the Plan upon submission of a written request to the Board of Directors at any time prior to any of the events stated in this SECTION X. The benefit payable will be reduced by an amount equal to 10% of the Participant's Plan Account balance. Such distribution will constitute a complete distribution of the Participant's Plan Account balance. XI. BENEFIT PLANS The amount of each Participant's Annual Retainer, Committee Meeting Fee, and/or Success Bonus which he elects to defer under the Plan shall not be deemed to be compensation for the purpose of calculating the amount of Participant benefits or contributions under a pension plan or retirement plan (qualified under section 401(a) of the Code), the amount of life insurance payable under any life insurance plan established or maintained by the Employer, or the amount of any disability benefit payments payable under any disability plan established or maintained by the Employer, except to the extent specifically provided in any such plan. Page 5 8 XII. RIGHTS OF A PARTICIPANT Establishment of the Plan shall not be construed as giving any Participant the right to be retained in the Employer's service or employment, or the right to receive any benefits not specifically provided by the Plan. Income deferred under this Plan will not be segregated from the general funds of the Employer and no Participant will have any claim on any specific assets of the Employer. To the extent that any Participant acquires a right to receive benefits under this Plan, his or her right will be no greater than the right of any unsecured general creditor of the Employer and is not assignable or transferable except to his or her estate as defined in SECTION X. XIII. AMENDMENT AND TERMINATION (a) The Plan may be amended from time to time by resolution of the Board of Directors to comply with changes in the law, both federal and of the state having jurisdiction over the Employer. The amendment of any one or more provisions of the Plan shall not affect the remaining provisions of the Plan. No amendment shall reduce any benefits accrued by any Participant prior to the amendment. (b) The Board of Directors has the right to terminate the Plan at any time. Any amounts accumulated in Plan Accounts prior to the Plan's termination will continue to be subject to the provisions of the Plan until distributed under the terms of the Plan. XIV. DETERMINATION OF BENEFITS (a) FILING A CLAIM - A person who believes that he is being denied a benefit to which he is entitled under the Plan (hereinafter referred to as a "Claimant") may file a written request for such benefit with the Employer, setting forth his claim. The request must be addressed to the President of the Employer at its then principal place of business. (b) CLAIM DECISION - Upon receipt of a claim, the Employer shall advise the Claimant that a reply will be forthcoming within ninety (90) days and shall, in fact, deliver such reply within such period. The Employer may, however, extend the reply period for an additional ninety (90) days for reasonable cause. If the claim is denied in whole or in part, the Employer shall adopt a written opinion, using language calculated to be understood by the Claimant, setting forth: 1. The specific reason or reasons for such denial; 2. The specific reference to pertinent provisions of the Plan upon which such denial is based; Page 6 9 3. A description of any additional material or information necessary for the Claimant to perfect his claim and an explanation as to why such material or information is necessary; 4. Appropriate information as to the steps to be taken if the Claimant wishes to submit the claim for review; and 5. The time limits for requesting a review. (c) REQUEST FOR REVIEW - Within sixty (60) days after the receipt of the written opinion described above by the Claimant, the Claimant may request in writing that the Board of Directors review the determination of the Employer. Such request must be addressed to the Board of Directors at the Employer's principal place of business. The Claimant filing the request for review may not participate as a member of the Board of Directors in a decision affecting his own claim. The Claimant or his duly authorized representative may, but need not, review the pertinent documents and submit additional issues and comments in writing for consideration by the Board of Directors. If the Claimant does not request a review of the Employer's determination by the Board of Directors within such sixty (60) day period, he shall be barred and estopped from challenging the Employer's determination. (d) REVIEW OF DECISION - Within sixty (60) days after the receipt of a request for review by the Board of Directors, the Board will review the Employer's claim decision. After considering all materials presented by the Claimant, the Board of Directors will render a written opinion, written in a manner calculated to be understood by the Claimant, setting forth the specific reasons for the decision and containing specific references to the pertinent provisions of the Plan on which the decision is based. If special circumstances require that the sixty (60) day time period be extended, the Board of Directors will so notify the Claimant and will render the decision as soon as possible, but no later than one hundred twenty (120) days after receipt of the request for review. XV. NOTICES Notices and elections under this Plan must be in writing. A notice or election is deemed delivered if it is delivered personally or mailed by registered or certified mail to the person at his or her last known business address. A notice or election is deemed received by the Employer when it is received by the Board of Directors. Page 7 10 XVI. GENERAL PROVISIONS (a) Controlling Law. Except to the extent superseded by federal law, the laws of the State of Texas shall be controlling in all matters relating to the Plan, including construction and performance thereof. (b) Captions. The captions of sections and paragraphs of this Plan are for the convenience of reference only and shall not control or affect the meaning or construction of any of its provisions. (c) Facility of Payment. Any amounts payable hereunder to any Participant who is under legal disability or who, in the judgment of the Board of Directors, is unable to properly manage his or her financial affairs may be paid to the legal representative of such Participant or may be applied for the benefit of such Participant in any manner in which the Board of Directors may select, and any such payment shall be deemed to be payment for such Participant's account and shall be a complete discharge of all liability of the Employer with respect to the amount so paid. (d) Withholding of Payroll Taxes. To the extent required by the laws in effect at the time compensation or deferred compensation payments are made, the Employer shall withhold from such compensation, or from deferred compensation payments made hereunder, any taxes required to be withheld for federal, state, or local government purposes. (e) Administrative Expenses. All expenses of administering the Plan shall be borne by the Employer. No part thereof shall be charged against any Participant's account or any amounts distributable hereunder. (f) Any provision of this Plan prohibited by the law of any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition without invalidating the remaining provisions hereof. (g) Except as otherwise expressly provided herein, no member of the Board of Directors of the Employer and no officer, employee, or agent of the Employer, shall have any liability to any person, firm, or corporation based on or arising out of the Plan, except in the case of gross negligence or fraud. XVII. UNFUNDED STATUS OF PLAN It is the intention of the parties that the arrangements herein described be unfunded for tax purposes and for purposes of Title I of ERISA. Plan Participants have the status of general unsecured creditors of the Employer. The Plan constitutes a mere promise by the Employer to make payments in the future. Page 8 11 XVIII. RIGHTS TO BENEFITS A Participant's rights to benefit payments under the Plan are not subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, attachment, or garnishment by creditors of the Participant or the Participants Beneficiaries. IN WITNESS WHEREOF, the Employer has caused this Plan to be executed. SIENA HOLDINGS, INC. By: /s/ [ILLEGIBLE] ------------------------------------- Title: PRESIDENT ---------------------------------- Page 9 12 NOTICE OF ELECTION FOR THE SIENA HOLDINGS, INC. DEFERRED COMPENSATION PLAN NOTICE: THIS NOTICE OF ELECTION MUST BE COMPLETED AND RETURNED TO THE BOARD OF DIRECTORS OR ITS DESIGNEE PRIOR TO THE DECEMBER 30TH PRECEDING THE PLAN YEAR IN WHICH IT IS TO BE EFFECTIVE. THE INITIAL NOTICE OF ELECTION MUST BE COMPLETED AND RETURNED TO THE BOARD OF DIRECTORS OR ITS DESIGNEE WITHIN 30 DAYS OF BECOMING ELIGIBLE TO PARTICIPATE IN THE PLAN. THIS NOTICE OF ELECTION WILL BE EFFECTIVE UNTIL REVISED OR REVOKED BY THE PARTICIPANT BY EXECUTING A SUBSEQUENT NOTICE OF ELECTION. NOTWITHSTANDING THE ABOVE, A NOTICE OF ELECTION CHANGING THE DATE OF DISTRIBUTION OF BENEFITS UNDER THE PLAN MUST BE COMPLETED AND RETURNED AT LEAST ONE (1) YEAR PRIOR TO THE PREVIOUSLY SCHEDULED DATE OF DISTRIBUTION. 1. Name of Participant: --------------------------------------------------------- 2. Plan Year for which election is to begin being effective: -------------------- 3. Amount of Compensation to be deferred: o ANNUAL RETAINER o Percentage of Retainer to be deferred: % ---------------- --------------------------------------------------------------------------- o COMMITTEE MEETING FEE o Percentage of Committee Meeting Fee to be deferred % ---------------- --------------------------------------------------------------------------- o SUCCESS BONUS o Percentage of Success Bonus to be deferred % ---------------- --------------------------------------------------------------------------- 4. Date that deferred amounts are to be distributed: The undersigned individual does hereby elect to defer compensation earned after the date hereof, to the extent indicated above, pursuant to the Siena Holdings, Inc. Deferred Compensation Plan. The undersigned acknowledges that this election is irrevocable with respect to compensation earned in the Plan Year described in number 2 above, but may be revoked with respect to compensation earned in future years by written notice. Further, the undersigned acknowledges that this election shall remain in effect for future Plan Years unless otherwise changed by the undersigned. Dated this ____ day of ___________________, 19___ Participant: --------------------------------------- Attest: By: --------------------------------------- Title: --------------------------------------- Company: --------------------------------------- 13 NOTICE OF DESIGNATION OF BENEFICIARY FOR THE SIENA HOLDINGS, INC. DEFERRED COMPENSATION PLAN This beneficiary designation is an (check one): Initial designation ----- Change of designation ----- Designation of PRIMARY BENEFICIARY: Name, Address, Social Security Number - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Designation of SECONDARY BENEFICIARY: Name, Address, Social Security Number - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- I understand that this beneficiary designation form will remain in effect until a subsequent "Notice of Designation of Beneficiary" form is received by Siena Holdings, Inc. Participant's Signature ------------------------------------- Date ---------------------- EX-11 3 COMPUTATION OF EARNINGS (LOSS) PER SHARE 1 EXHIBIT 11 SIENA HOLDINGS, INC. AND SUBSIDIARIES COMPUTATION OF EARNINGS (LOSS) PER SHARE (in thousands, except per share data)
Predecessor Reorganized Company Company ------------------------------------ ----------- Three Month Nine Month Year Ended Year Ended Period Ended Period Ended June 30, June 30, June 30, March 31, 1998 1998 1997 1997 ---------- ---------- ------------ ------------ BASIC EARNINGS (LOSS) PER SHARE COMPUTATION: Income (loss) before extraordinary item - applicable to common stockholders ............................. $ 34 $ 47 $ (86) $(12,911) Extraordinary gain on discharge of debt ................ -- -- -- 135,966 -------- -------- -------- -------- Net income (loss) applicable to common stockholders .... $ 34 $ 47 $ (86) $123,055 ======== ======== ======== ======== Weighted average common shares outstanding ............. 5,304* 4,000* 4,000* ** BASIC EARNINGS (LOSS) PER SHARE: Income (loss) before extraordinary item - applicable to common stockholders ............................. $ 0.01* $ 0.01* $ (0.02)* ** Extraordinary gain on discharge of debt ................ -- -- -- ** -------- -------- -------- -------- Net income (loss) applicable to common stockholders .... $ 0.01* $ 0.01* $ (0.02)* ** ======== ======== ======== ======== DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION: Income (loss) applicable to common stockholders ........ $ 34 $ 47 $ (86) $(12,911) Income effect of assumed conversions ................... -- -- -- -- Extraordinary gain on discharge of debt ................ -- -- -- 135,966 -------- -------- -------- -------- Net income (loss) applicable to common stockholders + assumed conversions .............................. $ 34 $ 47 $ (86) $123,055 ======== ======== ======== ======== Weighted average common shares outstanding ............. 5,304* 4,000* 4,000* ** Plus: Dilutive potential common shares ................. SHI Non-qualified Stock Option Plans ........... 29* 44* --* ** -------- -------- -------- -------- Adjusted weighted average shares outstanding ........... 5,333* 4,044* 4,000* ** ======== ======== ======== ======== DILUTED EARNINGS (LOSS) PER SHARE: Income (loss) before extraordinary item ................ $ 0.01* $ 0.01* $ (0.02)* ** Income effect of assumed conversions ................... -- -- -- ** Extraordinary gain on discharge of debt ................ -- -- -- ** -------- -------- -------- -------- Net income (loss) applicable to common stockholders + assumed conversions .............................. $ 0.01* $ 0.01* $ (0.02)* ** ======== ======== ======== ========
* Average share and per share amounts for Reorganized Company based on shares issued or reserved for issuance to creditors. ** Average share and per share amounts are not meaningful due to reorganization. EX-21 4 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SIENA HOLDINGS, INC. AND SUBSIDIARIES CORPORATE STRUCTURE June 30, 1999 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 5068 West Plano Parkway, Suite 300, in Plano, Texas.
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 (4).................................................... Louisiana Siena Investment Properties, Inc. (formerly Lomas Investment Properties, Inc.)............. Nevada Naples Bay View, Inc. (4).................................................................. Florida Financial Insurance Ltd.(2) (4)................................................................ Bermuda Siena Housing Management Corp. (formerly Lomas Housing Management Corp.)....................... Texas Roosevelt Office Center, Inc.(3) (4)........................................................... New York 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) Located at Dorchester House, P. O. Box HM2020, Church Street, Hamilton 5, Bermuda. (3) Located at 67 Wall Street, Suite 2411, New York, New York 10005. (4) Dissolution pending.
EX-27 5 FINANCIAL DATA SCHEDULE
5 1,000 YEAR JUN-30-1999 JUL-01-1998 JUN-30-1999 4,111 0 138 0 0 4,366 0 0 10,420 230 0 0 0 600 8,889 10,420 0 1,002 0 0 950 0 0 52 18 34 0 0 0 34 0.01 0.01
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