-----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, Cc165p99xhoxzsu6BKMYywKCMm62xTW1kOe+TQKjETn+5TSTCAY6US+hkSb2RYbA ciXh10jn8w0zccZy63xK0w== 0000950134-95-002391.txt : 19951002 0000950134-95-002391.hdr.sgml : 19951002 ACCESSION NUMBER: 0000950134-95-002391 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19950630 FILED AS OF DATE: 19950928 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: LIBERTE INVESTORS/ CENTRAL INDEX KEY: 0000060153 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 751328153 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 001-06802 FILM NUMBER: 95577120 BUSINESS ADDRESS: STREET 1: 1420 VICEROY DR CITY: DALLAS STATE: TX ZIP: 75235 BUSINESS PHONE: 2148795800 MAIL ADDRESS: STREET 1: 1600 VICEROY DR CITY: DALLAS STATE: TX ZIP: 75235 10-K405 1 FORM 10-K PERIOD END JUNE 30, 1995 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended JUNE 30, 1995 [Fee Required] OR / / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [No Fee Required] For the transition period from __________to__________ COMMISSION FILE NUMBER 1-6802 LIBERTE INVESTORS (Exact name of Registrant as specified in its charter) Created Under a Declaration of Trust Pursuant to the Laws of The Commonwealth of Massachusetts 75-1328153 (State or other jurisdiction of (I.R.S. Employer Identification No.) incorporation or organization) 600 N. Pearl St., Suite 420, LB 168 Dallas, Texas 75201 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: 214/720-8950 Securities registered pursuant to Section 12(b) of the Act: Title of each Class Name of each Exchange Shares of Beneficial Interest, on which registered Without Par Value New York Stock Exchange 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. /X/ AT SEPTEMBER 15, 1995, THE AGGREGATE MARKET VALUE OF THE REGISTRANT'S SHARES OF BENEFICIAL INTEREST HELD BY NON-AFFILIATES WAS $21,515,323. APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by SQection 12, 13 or 15 (d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X * NO ----- ----- * The registrant's confirmed plan of reorganization did not provide for a distribution of securities; however, all required documents and reports have been timely filed by the registrant after confirmation of the plan. THE NUMBER OF SHARES OF BENEFICIAL INTEREST OUTSTANDING AS OF SEPTEMBER 15, 1995, WAS 12,153,658 SHARES, NET OF 269,550 SHARES HELD IN TREASURY. -- DOCUMENTS INCORPORATED BY REFERENCE -- The proxy statement for the upcoming 1995 Annual Meeting is incorporated into Part III of this Form 10-K by reference. 2 LIBERTE INVESTORS FORM 10-K FOR THE FISCAL YEAR ENDED JUNE 30, 1995 Table of Contents
Page ---- PART I ITEM 1 BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 ITEM 2 PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ITEM 3 LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 PART II ITEM 5 MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ITEM 6 SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . 8 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . . . . . . . . 14 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 PART III ITEM 10 TRUSTEES AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . . . . . . . . . . . . . . . . * ITEM 11 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . * ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . . . . . . . . . . . . . . . * PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
* Incorporated by reference to the Trust's Proxy Statement for its upcoming 1995 Annual Meeting. 3 PART I ITEM 1. BUSINESS OVERVIEW Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary association of the type commonly termed as a Massachusetts business trust organized under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated June 26, 1969, as amended. The principal business activity of LBI is investing in notes receivable, primarily first mortgage construction notes and first mortgage acquisition and development notes. Secondarily, LBI invests in other secured or guaranteed notes related directly or indirectly to real estate. Over the past seven fiscal years, however, the Trust has progressively curtailed its lending activities in an effort to repay its indebtedness and reduce the size of its note receivable and real estate portfolio. The curtailment of lending activities began in June 1989 when the Trust's outstanding commercial paper was downgraded by the rating agencies to below investment grade. As a result, the Trust ceased originating investments secured by commercial income producing real estate and limited new investment originations to notes secured by single-family houses and lots. In May 1990 LBI restructured its unsecured senior indebtedness to pledge a portion of its note receivables and foreclosed real estate and require amortization of the indebtedness. In May 1991 LBI again restructured its senior indebtedness by pledging all of its assets, extending the term, and amending the amortization schedule. As a result of these efforts, LBI's senior indebtedness, including outstanding commercial paper, was reduced from $692.6 million at June 30, 1989, to $87.7 million at June 30, 1993. On April 1, 1993, LBI's remaining senior indebtedness was due and payable, and on June 1, 1993, $100 million of subordinated indebtedness matured. At this time, LBI reached agreement with a committee representing the holders of subordinated notes for a restructure of LBI's indebtedness in a voluntary "pre-negotiated" bankruptcy procedure. Accordingly, on October 25, 1993, the Trust filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. On November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure statement and related plan of reorganization. An order was entered by the Bankruptcy Court confirming a modified plan of reorganization for the Trust on January 24, 1994. On April 7, 1994, the Trust emerged from bankruptcy. Pursuant to the plan of reorganization, certain assets and liabilities, including the remaining senior indebtedness, were transferred to Resurgence Properties Inc. ("RPI"), and RPI's common stock was distributed to the holders of the Trust's outstanding subordinated indebtedness in full satisfaction of such holders' claims against the Trust. The plan of reorganization approved by LBI's creditors, shareholders and the Bankruptcy Court contemplated that LBI would engage in the business of investing in notes receivable secured by mortgages on real estate. After emerging from Chapter 11, the Board of Trustees decided to delay making investments in longer maturities of notes receivable until such time as LBI reduced its investment in illiquid foreclosed real estate. Accordingly, LBI concentrated its efforts on improving the operating performance of its foreclosed real estate and arranging sales contracts thereon. By December 31, 1994, LBI had reduced its investment in foreclosed real estate (net of reserves) to $7.5 million from $15.1 million at June 30, 1994. Management developed, and the Board of Trustees approved, a revised business plan to resume investments in construction and development notes receivable secured by single-family houses and lots, 1 4 subject to LBI obtaining a commitment for senior secured financing, in order for LBI to utilize leverage to increase its projected profitability. Accordingly, in January 1995 LBI made application with a commercial bank for a senior line of credit in the amount of $60 million. The Trust obtained a commitment for such financing on March 2, 1995. An unsolicited proposal, pursuant to which the parties making the proposal would tender to purchase up to 45% of the Trust's outstanding shares of beneficial interest with the intention of having the Trust purchase operating companies and distressed undervalued assets, was received on March 1, 1995. The proposal required that a majority of the Board of Trustees be elected by the offeror and that the chief executive officer be replaced. The Trust appointed a Special Committee composed of its outside Trustees, Messrs. Bishop and Rose, to explore the alternatives for the Trust. The Special Committee appointed special legal counsel and retained Bear Stearns & Co. as its financial advisor. The Trust has received numerous proposals from parties interested in acquiring shares of LBI, for cash and/or other property, either from LBI's shareholders or from newly issued shares from LBI. The Trust has also received proposals to merge or otherwise combine operating companies into or with LBI. Each of the proposals was reviewed by the Special Committee and its advisors. In May 1995 the Special Committee determined that the Trust would not proceed at such time with the managaement business plan previously approved by the Board of Trustees. As a result of this action by the Special Committee, in June 1995 the employment arrangement with Mr. Enloe was modified to reduce his annual compensation and require that he devote only a portion of his time to the business affairs of the Trust, thereby allowing Mr. Enloe to pursue other business opportunities. Further, since management's proposal for leveraged single-family construction and development lending was no longer being considered by the Trust, the Special Committee was discontinued and henceforth all proposals for the Trust's future operations would be considered by the full Board of Trustees and its legal counsel and financial advisor. At the present time, LBI and its advisors are continuing to investigate and evaluate the active proposals and to solicit other proposals for investments in or business combinations with LBI. LBI has established no time schedule for accomplishing any transaction, nor can there be any assurance that such a transaction can be consummated. During this period, the Board of Trustees has authorized management to extend the maturities of a portion of its notes receivable portfolio through new note receivable originations, but LBI will not utilize any leverage in its investment activities. PORTFOLIO REVIEW At June 30, 1995, the Trust's portfolio of funded investments of notes receivable and foreclosed real estate (excluding cash and cash equivalents) totaled $21.2 million in principal amount ($10.7 million net of reserves). There were no amounts to be advanced under any notes receivable at June 30, 1995, and at that date, all foreclosed real estate was classified as nonearning. At June 30, 1995, the Trust's portfolio of notes receivable aggregated $5.8 million, carried interest rates ranging from 8.5% to 10.5% on the outstanding balances, and had a weighted average yield on earning notes of 8.25% during the fiscal year. Notes classified as nonearning are notes on which the accrual of interest has been discontinued. At June 30, 1995, the Trust had no notes which were more than 90 days past due in interest but on which the Trust was continuing to accrue interest. 2 5 At June 30, 1995, the Trust's nonearning assets aggregated $15.8 million ($5.3 million net of reserves) and consisted of: (i) $392,066 ($262,165 net of reserves) of notes with respect to which the Trust had ceased to accrue interest; and (ii) $15.4 million ($5.0 million net of reserves) of investments in foreclosed real estate. The following table reflects the Trust's nonearning assets net of reserves by type of property and geographic location at June 30, 1995: NOTE C - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Texas California Total ----------- ----------- ----------- Single-family residences $ - $ 262,165 $ 262,165 Single family lots 194,677 1,989,000 2,183,677 Land 2,832,516 - 2,832,516 ----------- ----------- ----------- $ 3,027,193 $ 2,251,165 $ 5,278,358 =========== =========== ===========
The Trust maintains an allowance for possible losses ("Reserves") on its investments in foreclosed real estate and notes receivable. At June 30, 1995, the allowance for possible losses maintained by the Trust totaled $10.5 million. During fiscal 1995, provisions totaling $3.2 million and charge-offs, net of recoveries, of $4.4 million were recorded in the allowance for possible losses. The Trust is dependent on the liquidation of the properties for the recovery of its investments in foreclosed real estate. All gains and losses realized on liquidation are credited or charged, as the case may be, to the allowance for possible losses on foreclosed real estate. See NOTE D - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. TERMINATION OF MANAGEMENT AGREEMENT The Trust was managed by Lomas Management, Inc. ("LMI") since its inception in 1969 until February 28, 1995. LMI is a wholly owned subsidiary of Lomas Financial Corp. ("LFC"), the original sponsor of the Trust. Mr. Enloe was hired by the Trust as its full-time president and chief executive officer and the Trust's first direct employee in 1992. Under the management agreement in effect prior to July 1, 1992, whenever the Trust invested in any first mortgage construction or acquisition and development note recommended by LMI, LFC was required to participate, directly or through one or more of its subsidiaries. Subsequent management agreements made no provision for this required participation arrangement. On February 28, 1995, the Trust continued its movement toward self administration by terminating its management agreement with LMI and assuming all remaining operating and accounting responsibilities. Any remaining property management requirements on assets owned with LFC are provided for in the asset disposition agreement described below. Effective February 28, 1995, the Trust entered into an "Asset Disposition Agreement" with ST Lending, Inc. ("STL"), a wholly owned subsidiary of LFC, whereby the Trust and STL exchanged their respective ownership positions in a group of assets. No gain or loss was recognized as a result of this transaction. Therefore, at June 30, 1995, the Trust owned 100% of its foreclosed real estate and note receivable portfolio with the exception of one real estate asset that remains 80% owned by the Trust (the Trust's portion equals $1,164,000, net of reserves), and approximately 50% of a mortgage note receivable originated to construct houses in California (the Trust's portion equals $262,165, net of reserves). The Trust had no further funding obligation under this note at June 30, 1995, and expects to receive 3 6 repayments out of the sale proceeds from the completed houses in sufficient amounts to retire this note during the next fiscal year. A group of approximately 14 receivables, which have no carrying value and relate primarily to deficiency judgments obtained during foreclosures or remedial collection activities, remain 80% owned by the Trust and 20% owned by STL. The Asset Disposition Agreement stipulates that the Trust will pay STL 10% of its gross proceeds received, in addition to STL's 20% ownership, from this pool of loans in return for STL's asset administration. On or about March 1, 1996, STL will transfer its 20% ownership in this pool of assets to the Trust. Under the management agreement in effect prior to February 28, 1995 (the "Management Agreement"), LMI was entitled to basic compensation at an annual rate of 1% of the daily average book value of the Trust's Invested Assets (as defined in the Management Agreement) plus $81,000 per year for accounting services. During the fiscal year ended June 30, 1995, LMI received compensation of $157,907. Additionally, STL received compensation of $10,898 which represents 10% of the Trust's gross proceeds received on the portion of its portfolio described above. The foregoing descriptions of the Management Agreement and the Asset Disposition Agreement do not purport to be complete but are summaries of the material provisions thereof. COMPETITION The Trust competes with commercial banks, savings and loan associations, mortgage bankers, and other financial institutions that lend money to builders and developers. Many of these institutions have greater capital, larger staffs and other resources that are not necessarily available to the Trust. LBI expects to focus on smaller loans and customers where LBI's service may be considered an advantage. In its ongoing efforts to liquidate its real estate investments, the Trust competes with commercial banks, savings and loan associations, mortgage bankers, the Resolution Trust Corporation, and other financial institutions that are seeking to sell their own portfolios of foreclosed real estate. The primary factors affecting competition are the value of the foreclosed real estate, the price at which the seller is willing to sell the asset, and the seller's ability and willingness to provide or arrange financing for the prospective buyer. CERTAIN CUSTOMERS Revenue from RPI provided greater than 10% of total revenue for the fiscal year ended June 30, 1995, and consisted of: (i) interest on a note receivable collateralized by a pool of first mortgage loans and by Deeds of Trust on various real estate assets, (ii) the receipt of $500,000 as a settlement for early termination of a consulting arrangement originally expected to end on March 31, 1996, and (iii) dividend income on the RPI preferred stock held by LBI. FEDERAL INCOME TAX/REIT STATUS The Trust filed its June 30, 1994, Form 10-K and September 30, 1994, Form 10-Q as a real estate investment trust (a "REIT") as defined in the Internal Revenue Code. Disclosures were made in those filings that there was some uncertainty as to whether the Trust qualified as a REIT for its fiscal years ended June 30, 1992, 1993, and 1994. In connection with the preparation of its fiscal 1994 tax return, the Trust concluded that it no longer qualified as a REIT effective the beginning of fiscal 1994 4 7 (July 1, 1993). Accordingly the Trust is subject to federal income tax on its taxable income. With the change in status to a taxable entity, the Trust adopted Statement of Financial Accounting Standards No. 109 "Accounting for Income Taxes" (SFAS 109). Since there was no financial impact on the year ended June 30, 1994, and the quarter ended September 30, 1994, neither an amended Form 10-K nor Form 10-Q, respectively, have been filed to reflect the adoption of SFAS 109. See NOTE H - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. Also see "Transfer Restrictions" in Part II, Item 5. EMPLOYEES On June 30, 1995, the Trust had two full-time and four part-time employees. ITEM 2. PROPERTIES The Trust's operations are conducted primarily in Dallas, Texas. At June 30, 1995, the Trust's headquarters were located on properties owned by LFC. As of August 31, 1995, the Trust relocated in Dallas and leases its office space from an unrelated third party. The lease term is less than one year. See also the discussion of the Trust's foreclosed real estate under the heading "Portfolio Review" in ITEM 1. BUSINESS. ITEM 3. LEGAL PROCEEDINGS The Trust is involved in routine litigation incidental to its business which, in the opinion of management, will not result in a material adverse impact on the Trust's financial condition, results of operation, or cash flows. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS Not applicable. 5 8 PART II MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS The New York Stock Exchange trading symbol for Liberte Investors' Shares of Beneficial Interest is LBI. The approximate number of record holders of the Trust's Shares of Beneficial Interest at September 15, 1995, was 2,319. Depository companies held approximately 9,447,000 shares for an unknown number of beneficial owners on that date. During the last two fiscal years, the Trust has not paid any dividends and does not intend to pay dividends during fiscal 1996. The high and low per share prices during each quarter of the last two fiscal years have been:
1995 1994 ------------- ------------- ------------- QUARTER ENDED HIGH LOW HIGH LOW ------------- ----- ----- ----- ----- September 30 2 1-5/8 1-5/8 1 December 31 1-7/8 1-1/2 1-7/8 5/8 March 31 2 1-5/8 2-1/2 1-1/2 June 30 2-1/4 1-1/2 2-1/8 1-3/8
TRANSFER RESTRICTIONS In order to avoid limitations on the use of the Trust's tax attributes, the Declaration of Trust as amended, generally prohibits the transfer of Shares to any Person who is a holder of 5% or more of the Shares or to any Person who would become a holder of 5% or more of the Shares after giving effect to the transfer, directly or by attribution. "Person" for this purpose is defined broadly to mean any individual, corporation, estate, debtor, association, company, partnership, joint venture or similar organization. If a transfer violates this prohibition, either (i) the Shares that were purported to be transferred in excess of the 5% limit will be deemed to remain the property of the initial transferor, or (ii) upon election by the Trust, such Shares shall be transferred to an agent designated by the Trust, who will sell them in an arm's-length transaction, the proceeds of such sale to be allocated to the purported transferee up to (x) the amount paid by such transferee for such Shares and (y) where the purported transfer was by gift inheritance or any similar transfer, the fair market value of such Shares at the time of the purported transfer. If the purported transferee has resold the Shares to an unrelated party in an arm's length transaction, the purported transferee will be deemed to have sold the Shares as an agent for the initial transferor, and will be required to transfer the proceeds of such sale to the agent designated by the Trust, except to the extent that the agent grants written permission to the purported transferee to retain a portion of the proceeds up to the amount that would have been payable to such transferee had the Shares been sold by the agent rather than by the purported transferee. The Declaration of Trust further provides that the Trust may require, as a condition to the registration of the transfer of any Shares, that the proposed transferee furnish to the Trust all information 6 9 reasonably requested by the Trust with respect to the proposed transferee's direct or indirect ownership interests in Shares. The Board of Trustees of the Trust will have the power to approve transfers that would otherwise be prohibited under the foregoing provisions. New certificates evidencing ownership of Shares bear a conspicuous legend referencing the transfer restrictions and are held by the Trust's transfer agent for replacement of old certificates when submitted for transfer. ITEM 6. SELECTED FINANCIAL DATA (in thousands, except per share amounts) On October 25, 1993, the Trust filed for protection under Chapter 11 of the United States Bankruptcy Code, and on April 7, 1994, the Trust emerged from bankruptcy. Results for 1995 are not comparable to previous years because of the bankruptcy. See NOTE E - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
YEAR ENDED JUNE 30 ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- Revenues $ 2,172 $ 10,019 $ 15,115 $ 19,763 $ 42,193 Interest expense - 7,673 16,295 20,515 36,537 Provision for possible losses 3,192 3,175 15,150 32,000 62,100 Loss before reorganization items and extraordinary item (2,868) (11,147) (34,672) (43,141) (66,346) Loss per share before reorganization items and extraordinary item (0.23) (0.91) (2.94) (3.68) (5.67) Cash dividends declared per share - - - - -
AT JUNE 30 ----------------------------------------------------------------------- 1995 1994 1993 1992 1991 ----------- ----------- ----------- ----------- ----------- Total assets $ 32,036 $ 36,316 $ 261,575 $ 337,527 $ 451,053 Shareholders' equity 31,620 34,914 63,591 98,333 141,309 Debt - - 187,725 234,057 303,223
7 10 ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS On October 25, 1993, the Trust filed for protection under Chapter 11 of the United States Bankruptcy Code, and on April 7, 1994, the Trust emerged from bankruptcy. Results for 1995 are not comparable to 1994 and 1993 because of the bankruptcy. See NOTE E - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 1995 Compared to 1994. The Trust's net loss was $2.9 million in fiscal 1995 compared to a $29.3 million loss in fiscal 1994. Contributing to the smaller loss were the following factors that occurred in connection with the Trust's emergence from bankruptcy: (i) an increase in consulting fee income from RPI; (ii) the elimination of interest expense; (iii) the elimination of reorganization items; (iv) the elimination of debt restructure costs; (v) reductions in legal fees and foreclosed real estate expenses related to the smaller size of the loan and foreclosed real estate portfolios; and (vi) a substantial reduction in the Trust's cost of directors and officers insurance. These factors were partially offset by a decrease in note receivable interest and a decrease in foreclosed real estate income. Income on notes receivable decreased from $5.7 million in fiscal 1994 to $.7 million in fiscal 1995. The $5.0 million decrease was the result of a significant decrease in average earning notes which was partially offset by an increase in yield. Average earning notes declined from $74 million with a yield of 7.77% in fiscal 1994 to $8 million with a yield of 8.25% in fiscal 1995. Nonearning notes averaged $276,000 for fiscal 1995 compared to $19.7 million for fiscal 1994. Assuming that the yield on these notes would have been the same as the yield on earning notes had they been on earning status, income on notes receivable would have been $23,000 higher than reported in fiscal 1995 and $1.5 million higher in fiscal 1994. The Trust's efforts to reduce nonearning assets continues. At June 30, 1995, the Trust's portfolio of funded investments of notes receivable and foreclosed real estate (excluding cash and cash equivalents) totaled $21.2 million in principal amount, compared to $37.3 million at June 30, 1994. Funded earning investments decreased from $11.9 million at the end of fiscal 1994 to $5.4 million at the end of fiscal 1995. There were no amounts to be advanced under any notes receivable at June 30, 1995, and at that date, all foreclosed real estate was classified as nonearning. At June 30, 1995, the Trust's portfolio of notes receivable aggregated $5.8 million compared to $12.1 million at June 30, 1994. The interest rates on the notes at June 30, 1995, ranged from 8.5% to 10.5% on the outstanding balances. The weighted average yield on the Trust's earning notes was 8.25% and 7.77% during the fiscal years ended June 30, 1995, and June 30, 1994, respectively. Notes classified as nonearning are notes on which the accrual of interest has been discontinued. At June 30, 1995, and 1994, the Trust had no notes which were more than 90 days past due in interest but on which the Trust was continuing to accrue interest. At June 30, 1995, the Trust's nonearning assets aggregated $15.8 million, which consisted of: (i) $392,066 (or 1.2% of total assets) of notes with respect to which the Trust had ceased to accrue interest; and (ii) $15.4 million (or 48.0% of total assets) of investments in foreclosed real estate. At June 30, 1994, the Trust's nonearning assets aggregated $25.5 million, which consisted of: (i) $272,308 (or 0.8% of total assets) of notes with respect to which the Trust had ceased to accrue interest and (ii) $25.2 million (or 69.4% of total assets) of investments in foreclosed real estate. 8 11 In addition to notes made to facilitate the sale of foreclosed real estate, one new note was produced during fiscal 1995. Income on foreclosed real estate was eliminated in fiscal 1995 as a result of the sale or transfer of all remaining operating real estate during the fourth quarter of fiscal 1994. Income from temporary investments increased $683,000 to $892,000 in fiscal 1995 principally as a result of the Trust's increase in cash and cash equivalents to $20.6 million at June 30, 1995, from $9.8 million at June 30, 1994. The increase is principally a result of the collection of notes receivable and the sale of foreclosed real estate. Consulting fee and other revenue began in the fourth quarter of fiscal 1994 in connection with an agreement with RPI. The consulting agreement called for the Trust to receive $87,500 of consulting fee income per quarter until March 31, 1996. The Trust agreed to discontinue the consulting arrangement in exchange for a payment of $500,000 in lieu of the $525,000 that would have been received ratably over the next six calendar quarters. The Trust's indebtedness and corresponding interest expense was eliminated upon emergence from bankruptcy on April 7, 1994. The provision for possible losses was $3.2 million in fiscal 1995 and fiscal 1994. The allowance for possible losses was $10.5 million at June 30, 1995, compared to $11.7 million at June 30, 1994. While the Trust believes the allowance for possible losses is adequate at June 30, 1995, management will periodically review its portfolio using then-current information to make the estimates and assumptions that are used to determine the adequacy of the allowance for note losses and the valuation of the real estate acquired in connection with foreclosures or in satisfaction of notes. A $1.1 million and $1.2 million reversal to the allowance for possible losses on notes receivable occurred in fiscal 1995 and fiscal 1994, respectively, as a result of the substantial reduction in the Trust's portfolio of notes receivable. The Trust's reduction in notes receivable involved a substantial payoff of a large note during the second quarter of fiscal 1995 and the transfer of the majority of notes receivable to RPI in connection with the emergence from bankruptcy in fiscal 1994. These reversals partially offset the provision for losses on the Trust's portfolio of foreclosed real estate. The provision for possible losses on foreclosed real estate was $4.3 million in fiscal 1995 compared to $4.4 million in fiscal 1994. The allowance for possible losses on foreclosed real estate was $10.4 million at June 30, 1995, compared to $10.1 million at June 30, 1994. The $4.3 million provision for possible losses on foreclosed real estate in fiscal 1995 results from increases in the estimates of losses on disposition of foreclosed real estate, which are based primarily on updated property valuations which reflect recent real estate sales. A large portion of the Trust's remaining foreclosed real estate is in the form of land which is inherently illiquid and/or in geographic locations where real estate markets for this type of property remain depressed. Salaries and related expenses decreased $1.1 million to $619,000 in fiscal 1995 compared to $1.7 million in fiscal 1994. Severance pay expenses primarily related to Mr. Enloe's employment contract were $99,000 in fiscal 1995 compared to $519,000 in fiscal 1994. Bonus and stock compensation expenses included a reversal (credit) of $60,000 in fiscal 1995 compared to an expense of $704,000 in fiscal 1994. 9 12 General and administrative expenses decreased $740,000 to $402,000 in fiscal 1995. The principal expense reduction in 1995 resulted from reduced premium for the trustees and officers insurance coverages. The premium decreased in fiscal 1995 as a result of the substantial decrease in the Trust's assets and the reduction of the number of trustees and officers following the emergence from bankruptcy on April 7, 1994. Legal, audit and advisory fees, foreclosed real estate expenses, and management fee expenses all have a significant correlation to the size of the Trust's investment portfolio and as a result, these expenses were substantially reduced following the transfer of approximately 85% of the Trust's assets to RPI in connection with the emergence from bankruptcy. Trustee fees and expenses were reduced to $61,000 in fiscal 1995 from $249,000 in fiscal 1994 principally as a result of reducing the number of trustees from nine to three upon emergence from bankruptcy. The Trustees also agreed to reduce their fee compensation by 50% to $10,800 per year (not including meeting fees). The following expenses incurred in fiscal 1994 were related to restructuring efforts which culminated the bankruptcy filing; (i) debt restructuring of $2.1 million; (ii) reorganization items of $5.2 million; and (iii) an extraordinary item of $12.9 million. No such expenses were incurred in fiscal 1995. See NOTE E - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 1994 Compared to 1993. The Trust's net loss was $29.3 million in fiscal 1994 compared to a $34.7 million loss in fiscal 1993. Contributing to the smaller loss were the following factors: (i) a decrease in the provision for possible losses; (ii) a decrease in interest expense; (iii) an increase in foreclosed real estate income and (iv) a decrease in debt restructure costs. These factors were partially offset by a decrease in note receivable interest, an increase in reorganization expense items and extraordinary losses due to the bankruptcy filing and transfer of assets and liabilities to RPI in connection with the Plan of Reorganization. Income on notes receivable decreased from $11.3 million in fiscal 1993 to $5.7 million in fiscal 1994. Of the $5.6 million decrease, substantially all was the result of a decrease in average earning notes. Average earning notes declined from $146 million with a yield of 7.71% in fiscal 1993 to $74 million with a yield of 7.77% in fiscal 1994. Average nonearning notes for fiscal 1994 totaled $19.7 million compared to $21.3 million for fiscal 1993. Assuming that the yield on these notes would have been the same as the yield on earning notes had they been on earning status, income on notes receivable would have been $1.5 million higher than reported in fiscal 1994 and $1.6 million higher in fiscal 1993. There was no new note production in fiscal 1994 or fiscal 1993 other than notes made to facilitate the sale of foreclosed real estate. Income on foreclosed real estate increased from $3.6 million in fiscal 1993 to $4.0 million in fiscal 1994 primarily because several projects changed from nonearning to earning status during the third quarter of fiscal 1993. Foreclosed real estate is classified as earning if the net cash flow on the individual property is projected to exceed the Trust's average cost of funds during the succeeding twelve months. See NOTE A - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 10 13 Interest expense decreased from $16.3 million in fiscal 1993 to $7.7 million in fiscal 1994. Of the $8.6 million decrease, $5.5 million was the result of a decrease in average debt outstanding and $3.1 million was the result of a decrease in the average cost of debt. Average debt outstanding declined from $213.6 million with an average cost of 7.63% in fiscal 1993 to $140.8 million with an average cost of 5.45% in fiscal 1994. The average cost of debt decreased in fiscal 1994 as a result of the Trust ceasing to accrue interest on the Subordinated Notes on October 25, 1993. This was partially offset by the expiration of an interest rate swap, which had resulted in a reduction of interest expense, and the increase in the rate on the Trust's senior debt to the default rate of prime or the corporate base rate plus 200 basis points for the period beginning May 16, 1993, until the Trust filed its Chapter 11 petition on October 25, 1993. Average cost of debt for these purposes includes bank fees and other rate adjustments such as the net effect of the interest rate swap. This swap produced a reduction of interest costs of $1,253,000 in fiscal 1993. The provision for possible losses was $3.2 million in fiscal 1994 compared to $15.2 million in fiscal 1993. The allowance for possible losses was $11.7 million at June 30, 1994, compared to $53.9 million at June 30, 1993. The provision for possible losses on notes receivable was a reversal of $1.2 million in fiscal 1994 compared to $1.3 million in fiscal 1993. The allowance for possible losses on notes receivable was $1.6 million at June 30, 1994, compared to $17.7 million at June 30, 1993. The decrease in the provision and allowance for possible losses on notes receivable in fiscal 1994 compared to fiscal 1993 includes the impact of a smaller note receivable portfolio during fiscal 1994 and smaller net charge-offs in fiscal 1994 compared to fiscal 1993. The provision for possible losses on foreclosed real estate was $4.4 million in fiscal 1994 compared to $13.9 million in fiscal 1993. The allowance for possible losses on foreclosed real estate was $10.1 million at June 30, 1994, compared to $36.2 million at June 30, 1993. At June 30, 1994, foreclosed real estate totaled $25.2 million compared to $164.4 million at June 30, 1993. Any loss incurred upon foreclosure of collateral underlying a note is charged to the allowance for possible losses on notes receivable. The $13.9 million provision for possible losses on foreclosed real estate in fiscal 1993 results primarily from a provision of approximately $2.4 million related to the adoption of Statement of Position 92-3 as discussed below and increases in the estimates of losses on disposition of foreclosed real estate, which are based primarily on updated property valuations which reflect real estate sales, the inability of the Trust to meet previous marketing plans for disposal of foreclosed real estate, and the unavailability of real estate financing for potential buyers. Salary and related expenses increased $970,000 to $1.7 million in fiscal 1994 from $756,000 in fiscal 1993. Salary increases were immaterial while compensation expense related to bonuses and stock option grants increased $448,000. The Trust also established a liability for the expected termination of Mr. Enloe's employment agreement in the amount of $481,000. General and administrative expenses decreased $347,000 to $1.1 million in fiscal 1994 compared to $1.5 million in fiscal 1993. The decrease was related to reduction in: (i) shareholders related expenses of $144,000; (ii) travel and lodging expenses of $118,000; (iii) corporate insurance premiums of $30,000; and (iv) other miscellaneous expenses of $55,000. 11 14 Management fees totaled $1.8 million in fiscal 1994, compared to $2.9 million in fiscal 1993. The decrease is a result of the decrease in the Trust's portfolio of invested assets. The decrease in legal and audit and advisory expenses from fiscal 1993 to fiscal 1994 was primarily a result of a decrease in legal fees related to the Trust's troubled assets and its senior credit agreements. Operating expenses included debt restructure costs of $7.4 million in fiscal 1993 and $2.1 million in fiscal 1994. The fees incurred in fiscal 1993 were related to a possible restructuring with financing to have been provided by a third party, a possible exchange of the subordinated notes for equity in the Trust, and an agreement whereby the subordinated noteholders would exchange their debt for equity in a new company that was expected to hold most of the Trust's assets. Debt restructure costs in fiscal 1994 were incurred from July through October 25, 1993, when the Trust filed a voluntary petition for reorganization under Chapter 11. Reorganization items netting $5.2 million in fiscal 1994 include amounts incurred while the Trust was in Chapter 11 for legal and financial advisors and consulting fees for the Trust and certain representatives of the Trust's subordinated noteholders, senior debt holders and shareholders. The extraordinary item totaling $12.9 million represents the difference between $212.1 million of assets and $199.2 million in liabilities that were transferred by the Trust to RPI upon its emergence from Chapter 11. See NOTE E - - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. In fiscal 1993 the Trust adopted The American Institute of Certified Public Accountants' Statement of Position 92-3, "Accounting for Foreclosed Assets" ("SOP 92-3"). SOP 92-3 requires foreclosed assets held for the sale to be carried at the lower of (a) fair value less estimated costs to sell or (b) cost. Fair value was determined by discounting expected cash flows using a risk-adjusted interest rate. Prior to adopting SOP 92-3, the Trust carried its foreclosed assets held for sale at the lower of (a) net realizable value or (b) cost. Net realizable value was determined using the Trust's cost-of-funds rate. The adoption of this statement had an adverse effect on the Trust's balance sheet and statement of operations of $2.4 million during fiscal 1993 because the Trust's cost-of-funds rate was less than the risk-adjusted discount rate required to be used under SOP 92-3. LIQUIDITY AND CAPITAL RESOURCES Prior to its emergence from Chapter 11, the Trust faced substantial liquidity problems due to reduced cash flows from operating and investing activities, the required substitution of bank financing for commercial paper financing, and its inability to borrow additional funds under its bank credit facilities. Following its emergence from Chapter 11, the Trust no longer has liquidity problems and has concentrated its efforts on liquidating its real estate investments for cash and notes. The Trust's principal funding requirements are now operating expenses including legal, audit, and advisory expenses in connection with potential acquisition candidates. The Trust anticipates that its primary sources of funding these disbursements will be its collections on notes receivable, proceeds from the sale of foreclosed property, and income on cash investments. 12 15 Operating activities for fiscal 1995 used $0.5 million of cash compared to $33.3 million in fiscal 1994 and $14.6 million in fiscal 1993. The table below reflects cash flow from operating activities (in millions):
YEAR ENDED JUNE 30 ------------------------------------ 1995 1994 1993 -------- -------- -------- Total income $ 2.2 $ 10.0 $ 15.1 Interest expense - (7.7) (16.3) -------- -------- -------- Net interest margin 2.2 2.3 (1.2) Operating expenses (1.8) (10.3) (18.3) Net change in other receivables, assets and liabilities (0.9) (7.2) 4.9 Reorganization items - (5.2) - Extraordinary items - (12.9) - -------- -------- -------- Net cash used by operating activities $ (0.5) $ (33.3) $ (14.6) ======== ======== ========
Net cash provided by investing activities for fiscal 1995 was $12.4 million compared to $44.6 million in fiscal 1994 and $52.3 million in fiscal 1993. The table below reflects the impact of the contraction of the Trust's note receivable portfolio on cash flow from investing activities (in millions):
YEAR ENDED JUNE 30 ------------------------------------ 1995 1994 1993 -------- -------- -------- Collections on mortgage loans $ 1.4 $ 28.8 $ 36.3 Collections on RPI note receivable 0.6 - - Advances on mortgage loans (0.3) (0.3) (1.8) Sales of foreclosed real estate 10.3 13.4 23.4 Net sales (purchases) of restricted cash investments 0.6 4.7 (3.2) Expenditures on foreclosed real estate (0.2) (2.0) (2.4) -------- -------- -------- Net cash used by investing activities $ 12.4 $ 44.6 $ 52.3 ======== ======== ========
The Trust is a debt-free organization with a significant proportion of its assets consisting of highly liquid investments and is currently exploring acquisition opportunities in addition to growth in its notes-receivable portfolio. 13 16 ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See ITEM 14 for a listing of the consolidated financial statements filed with this report. The response to this item is submitted in a separate section of this report. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable. 14 17 PART III Pursuant to General Instruction G(3) to Form 10-K, the information required by Items 10, 11, 12, and 13 is incorporated by reference to the Trust's Proxy Statement for its upcoming 1995 Annual Meeting. 15 18 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Documents filed as part of this report. (1) The following consolidated financial statements are included in this Item 14:
Pages ----- Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . . . 22 Consolidated Balance Sheet at June 30, 1995 and 1994 . . . . . . . . . . . . . . . . . 23 Consolidated Statement of Operations for Years Ended June 30, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Consolidated Statement of Shareholders' Equity for Years Ended June 30, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Consolidated Statement of Cash Flows for Years Ended June 30, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . 27 (2) The following consolidated financial statement schedule is included in this Item 14: Schedule IV - Mortgage Loans on Real Estate . . . . . . . . . . . . . . . . . . . . . 37
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted, or the information required is included in the financial statements, including the notes thereto. 16 19 (3) EXHIBITS: Exhibit Number ------- (2.1)(9) The Registrant's First Amended Plan of Reorganization dated December 14, 1993. (2.2)(9) The Registrant's Modification to the First Amended Plan of Reorganization dated January 9, 1994. (3.1)(1) Declaration of Trust of the Registrant dated June 26, 1969, as amended by the First and Second Amendments thereto. (3.2)(2) Third Amendment to the Declaration of Trust of the Registrant. (3.3)(3) Fourth Amendment to the Declaration of Trust of the Registrant. (3.4)(10) Fifth Amendment to the Declaration of Trust of the Registrant. (3.5)(4) By-laws of the Registrant. (10.1)(2) Management Agreement among the Registrant, Lomas Management, Inc., and Lomas Financial Corporation, dated as of July 1, 1992. (10.2)(5) Participation Agreement between the Registrant and Lomas Financial Corporation (formerly, Lomas & Nettleton Financial Corporation) dated as of July 28, 1970. (10.3)(6) Employment Agreement dated January 31, 1993, between the Registrant and Robert Ted Enloe III. (10.4)(6) Stock Option Agreement dated January 31, 1993, between the Registrant and Robert Ted Enloe III. (10.5)(7) Stock Option Agreement dated May 7, 1993, between the Registrant and Robert Ted Enloe III. (10.6)(7) Retirement Plan for Trustees of the Registrant dated October 11, 1988. (10.7)(8) Promissory note dated October 22, 1993, between the Registrant and Robert Ted Enloe III. (10.8)(8) Stock Pledge and Security Agreement dated October 22, 1993, between the Registrant and Robert Ted Enloe III. (10.9) Asset Disposition Agreement dated February 28, 1995, between the Registrant and ST Lending, Inc. 17 20 (3) EXHIBITS: Continued Exhibit Number ------- (10.10) The Registrant's 1995 Equity Incentive Plan. (10.11) Stock Option Agreement dated February 15, 1995, between the Registrant and Robert Ted Enloe III. (10.12) Stock Option Agreement dated February 15, 1995, between the Registrant and Bradley S. Buttermore. (27) Financial Data Schedules. (b) Reports on Form 8-K. No reports on Form 8-K were filed during the last quarter of the period covered by this annual report. - -------------------------------------------------------------------------------- Footnotes (1) Incorporated by reference to the Registrant's Registration Statement on Form S-3 dated April 4, 1986 (No. 33-4577). (2) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended June 30, 1992. (3) Incorporated by reference to the Registrant's Form 8-K dated January 7, 1993. (4) Incorporated by reference to the Registrant's Registration Statement on Form S-11 dated June 30, 1969 (No. 2-33821). (5) Incorporated by reference to the Registrant's Registration Statement on Form S-2 dated March 1, 1985 (No. 2-95695). (6) Incorporated by reference to the Registrant's Form 10-Q dated March 31, 1993. (7) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended June 30, 1993. (8) Incorporated by reference to the Registrant's Form 10-Q dated December 31, 1993. (9) Incorporated by reference to the Registrant's Form 8-K dated February 9, 1994. (10) Incorporated by reference to the Registrant's Form 10-K for the fiscal year ended June 30, 1994. - -------------------------------------------------------------------------------- 18 21 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Trust has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. LIBERTE INVESTORS Registrant DATE: September 26, 1995 By /s/BRADLEY S. BUTTERMORE ------------------------ Bradley S. Buttermore Senior Vice President, Treasurer, and Secretary 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. /s/ TED ENLOE Trustee and September 26, 1995 ---------------------------------- Principal Executive Officer (Ted Enloe) /s/ BRADLEY S. BUTTERMORE Principal Financial and September 26, 1995 ---------------------------------- Accounting Officer (Bradley S. Buttermore) /s/ GENE H. BISHOP Trustee September 26, 1995 ---------------------------------- (Gene H. Bishop) /s/ EDWARD W. ROSE III Trustee September 26, 1995 ---------------------------------- (Edward W. Rose III)
19 22 ANNUAL REPORT ON FORM 10-K ITEM 8 AND ITEM 14(a)(1) AND (2), 14(c) and 14(d) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULE CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA CONSOLIDATED FINANCIAL STATEMENT SCHEDULE AND EXHIBITS YEAR ENDED JUNE 30, 1995 LIBERTE INVESTORS AND SUBSIDIARY DALLAS, TEXAS 20 23 LIBERTE INVESTORS AND SUBSIDIARY INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND CONSOLIDATED FINANCIAL STATEMENT SCHEDULES (ITEM 14(a)(1) and (2))
Page ---- Report of Ernst & Young LLP, Independent Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Consolidated Balance Sheet at June 30, 1995, and 1994 . . . . . . . . . . . . . . . . . . . . . . . . 23 Consolidated Statement of Operations For Years Ended June 30, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Consolidated Statement of Shareholders' Equity for Years Ended June 30, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Consolidated Statement of Cash Flows for Years Ended June 30, 1995, 1994, and 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Consolidated Financial Statement Schedule: IV Mortgage Loans on Real Estate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
All other schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under the related instructions or are inapplicable and therefore have been omitted, or the information required is included in the financial statements, including the notes thereto. 21 24 REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS Shareholders and Trustees Liberte Investors We have audited the accompanying consolidated balance sheet of Liberte Investors and subsidiary as of June 30, 1995 and 1994, and the related consolidated statements of operations, shareholders' equity, and cash flows for each of the three years in the period ended June 30, 1995. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedules are the responsibility of the Trust's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Liberte Investors and subsidiary at June 30, 1995 and 1994, and the consolidated results of their operations and their cash flows for each of the three years in the period ended June 30, 1995, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein. ERNST & YOUNG LLP Dallas, Texas July 28, 1995 22 25 LIBERTE INVESTORS AND SUBSIDIARY CONSOLIDATED BALANCE SHEET
June 30 ---------------------------- 1995 1994 ----------- ----------- Assets Notes receivable - Note B RPI $ 5,406,132 $ 6,000,000 Mortgage loans 401,240 6,130,956 Foreclosed real estate - Note C Nonearning 15,385,214 25,207,002 ----------- ----------- 21,192,586 37,337,958 Less: Allowance for possible losses - Note D 10,498,922 11,709,395 ----------- ----------- 10,693,664 25,628,563 Unrestricted cash and cash equivalents 20,576,517 9,157,640 Restricted cash and cash equivalents - Note F 59,245 623,300 Accrued interest and other receivables 103,888 324,555 Other assets 602,664 581,919 ----------- ----------- $32,035,978 $36,315,977 =========== =========== - ------------------------------------------------------------------------------ Liabilities and Shareholders' Equity Liabilities Accrued interest and other liabilities $ 416,164 $ 1,402,032 Shareholders' Equity - Note K Preferred Stock, 10 million shares authorized, none are outstanding Shares of Beneficial Interest, no par value, unlimited authorization: 12,423,208 issued and 12,153,658 outstanding, net of 269,550 held in Treasury, at June 30, 1995; 12,423,208 issued and outstanding at June 30, 1994 31,619,814 34,913,945 ----------- ----------- Commitments and Contingencies - Note F $32,035,978 $36,315,977 =========== ===========
See notes to consolidated financial statements. 23 26 LIBERTE INVESTORS AND SUBSIDIARY CONSOLIDATED STATEMENT OF OPERATIONS
Year Ended June 30 ---------------------------------------------- 1995 1994 1993 ----------- ------------ ------------ Income Notes receivable interest $ 657,511 $ 5,740,167 $ 11,259,126 Temporary investment interest 892,008 208,849 271,424 Foreclosed real estate - 3,952,256 3,550,828 Consulting fees and other 622,555 117,767 33,800 ----------- ------------ ------------ 2,172,074 10,019,039 15,115,178 ----------- ------------ ------------ Expenses Interest - 7,672,694 16,295,318 Provision for possible losses - Note D 3,192,000 3,175,000 15,150,000 Salaries and related costs 619,433 1,726,012 755,637 General and administrative 402,185 1,142,437 1,488,975 Legal, audit and advisory 321,469 737,619 2,111,667 Foreclosed real estate 274,546 2,505,716 3,277,262 Management fees - Note G 168,805 1,824,044 2,928,258 Trustees' fees and expenses 61,215 249,180 342,697 Debt restructure - 2,132,902 7,437,048 ----------- ------------ ------------ 5,039,653 21,165,604 49,786,862 ----------- ------------ ------------ Loss before reorganization items and extraordinary item (2,867,759) (11,146,565) (34,671,684) Reorganization items: Professional fees - (5,499,463) - Interest earned on accumulated cash resulting from Chapter 11 proceedings - 304,913 - ----------- ------------ ------------ - (5,194,550) - Extraordinary item: Loss on extinguishment of debt - Note E - (12,936,395) - ----------- ------------ ------------ Net Loss $(2,867,579) $(29,277,510) $(34,671,684) =========== ============ ============ Loss per Share of Beneficial Interest Loss before reorganization items and extraordinary item $ (0.23) $ (0.91) $ (2.94) Reorganization items - (0.43) - Extraordinary item - (1.06) - ----------- ------------ ------------ Net loss $ (0.23) $ (2.40) $ (2.94) =========== ============ ============ Weighted average number of Shares of Beneficial Interest 12,322,773 12,221,975 11,788,750 =========== ============ ============
See notes to consolidated financial statements. 24 27 LIBERTE INVESTORS AND SUBSIDIARY CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
Shares of Beneficial Interest ------------------------- Number Amount ---------- ------------ Balance at July 1, 1992 11,804,208 $ 98,333,030 Rescind 240,000 shares Shares of Beneficial Interest (240,000) (330,000) Unearned compensation 240,000 302,500 Cancelled 31,000 shares (31,000) (42,625) Net loss - (34,671,684) ---------- ------------ Balance at June 30, 1993 11,773,208 63,591,221 Shares issued under stock options 650,000 975,000 Executive loan to purchase stock options - (374,766) Net loss - (29,277,510) ---------- ------------ Balance at June 30, 1994 12,423,208 34,913,945 Deferred interest on executive loan - (22,227) Purchase of 269,550 shares of treasury stock (269,550) (404,325) Net loss - (2,867,579) ---------- ------------ Balance at June 30, 1995 12,153,658 $ 31,619,814 ========== ============
See notes to consolidated financial statements. 25 28 LIBERTE INVESTORS AND SUBSIDIARY CONSOLIDATED STATEMENT OF CASH FLOWS
Year Ended June 30 ------------------------------------------------ 1995 1994 1993 -------------- ------------- --------------- Operating activities: Loss before reorganization items and extraordinary item $ (2,867,579) $ (11,146,565) $ (34,671,684) Noncash expenses and revenues included in net loss: Provision for possible losses 3,192,000 3,175,000 15,150,000 Net change in other receivables, assets and liabilities (879,229) (20,151,576) 4,880,355 -------------- ------------- --------------- Net cash used by operating activities before reorganization items (554,808) (28,123,141) (14,641,329) Net cash used by reorganization items -- (5,191,102) -- -------------- ------------- --------------- Net cash used by operating activities (554,808) (33,314,243) (14,641,329) -------------- ------------- --------------- Investing activities: Collections on notes receivable 1,997,003 28,828,704 36,293,250 Advances on notes receivable (308,299) (314,387) (1,760,983) Expenditures on foreclosed real estate (127,350) (2,016,948) (2,414,009) Sales and basis reductions of foreclosed real estate 10,252,601 13,398,005 23,394,426 Net sales (purchases) of restricted cash investments 564,055 4,745,018 (3,184,703) -------------- ------------- --------------- Net cash provided by investing activities 12,378,010 44,640,392 52,327,981 -------------- ------------- --------------- Financing activities: Purchase of treasury stock (404,325) -- -- Decrease in notes payable -- (4,597,411) (46,331,285) -------------- ------------- --------------- Net cash used by financing activities (404,325) (4,597,411) (46,331,285) -------------- ------------- --------------- Net increase (decrease) in unrestricted cash and cash equivalents 11,418,877 6,728,738 (8,644,633) Unrestricted cash and cash equivalents at beginning of year 9,157,640 2,428,902 11,073,535 -------------- ------------- --------------- Unrestricted cash and cash equivalents at end of year $ 20,576,517 $ 9,157,640 $ 2,428,902 ============== ============= =============== Schedule of noncash investing and financing activities: Transfer of notes receivable to foreclosed real estate $ 4,792,782 $ 18,252,995 $ 13,499,472 Charge-offs to allowance for possible losses, net $ 4,402,473 $ 19,234,742 $ 20,252,734 Sales of foreclosed real estate financed by notes receivable $ 138,400 $ 3,888,112 $ 14,679,561 Interest paid $ -- $ 4,754,000 $ 11,045,000
See notes to consolidated financial statements. 26 29 LIBERTE INVESTORS AND SUBSIDIARY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS June 30, 1995 NOTE A - SIGNIFICANT ACCOUNTING POLICIES Liberte Investors ("LBI" or the "Trust") is an unincorporated voluntary association of the type commonly termed as a Massachusetts business trust organized under the laws of the Commonwealth of Massachusetts pursuant to a Declaration of Trust dated June 26, 1969, as amended. The principal business activity of LBI is investing in notes receivable, primarily first mortgage construction notes and first mortgage acquisition and development notes. Secondarily, LBI invests in other secured or guaranteed notes related directly or indirectly to real estate. Over the past seven fiscal years, however, the Trust has progressively curtailed its lending activities in an effort to repay its indebtedness and reduce the size of its note receivable and real estate portfolio. The curtailment of lending activities began in June 1989 when the Trust's outstanding commercial paper was downgraded by the rating agencies to below investment grade. As a result, the Trust ceased originating investments secured by commercial income producing real estate and limited new investment originations to notes secured by single-family houses and lots. In May 1990 LBI restructured its unsecured senior indebtedness to pledge a portion of its note receivables and foreclosed real estate and require amortization of the indebtedness. In May 1991 LBI again restructured its senior indebtedness by pledging all of its assets, extending the term, and amending the amortization schedule. As a result of these efforts, LBI's senior indebtedness, including outstanding commercial paper, was reduced from $692.6 million at June 30, 1989, to $87.7 million at June 30, 1993. On April 1, 1993, LBI's remaining senior indebtedness was due and payable, and on June 1, 1993, $100 million of subordinated indebtedness matured. At this time, LBI reached agreement with a committee representing the holders of subordinated notes for a restructure of LBI's indebtedness in a voluntary "pre-negotiated" bankruptcy procedure. Accordingly, on October 25, 1993, the Trust filed a voluntary petition for reorganization under Chapter 11 of the United States Bankruptcy Code. On November 2, 1993, the Trust filed with the Bankruptcy Court a disclosure statement and related plan of reorganization. An order was entered by the Bankruptcy Court confirming a modified plan of reorganization for the Trust on January 24, 1994. On April 7, 1994, the Trust emerged from bankruptcy. Pursuant to the plan of reorganization, certain assets and liabilities, including the remaining senior indebtedness, were transferred to Resurgence Properties Inc. ("RPI"), and RPI's common stock was distributed to the holders of the Trust's outstanding subordinated indebtedness in full satisfaction of such holders' claims against the Trust. The consolidated financial statements include the accounts of the Trust and its subsidiary. Significant intercompany balances and transactions have been eliminated. Recognition of Income - Interest is taken into income as it accrues. The Trust discontinues the accrual of interest income when circumstances exist which cause the collection of such interest to be doubtful. Determination to discontinue accruing interest is made after a review by the Trust's management of all relevant facts including delinquency of principal and/or interest, and credit of the borrower. 27 30 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Allowance for Possible Losses - The Trust provides for possible losses on notes receivable and foreclosed real estate based on an evaluation of each note and each property acquired through foreclosure (or deed in lieu of foreclosure). Consideration is given to the collectibility of the note and to the estimated value of the collateral underlying a note or of properties held. The Trust also maintains unallocated reserves on its portfolio of notes receivable. Foreclosed Real Estate - Foreclosed real estate is recorded at the lower of cost or fair value less estimated costs to sell determined at, and subsequent to, foreclosure. Any loss attributable to the excess of cost over fair value at the time of foreclosure is charged to the allowance for losses on notes receivable. Gains (losses) realized on liquidation are credited (charged) to the allowance for losses on foreclosed real estate. Foreclosed real estate is classified as earning if the net cash flow on the individual property is projected to exceed the Trust's average cost of funds during the succeeding twelve months. The properties on which the cash flow is not projected to exceed the Trust's average cost of funds during the succeeding twelve months are classified as nonearning. In-Substance Foreclosures - Properties collateralizing notes receivable that have been substantively repossessed or are being managed under the control of the Trust are recorded as foreclosed real estate. A note is considered to be an in-substance foreclosure if the following criteria are met: (1) the debtor has little or no equity in the collateral, considering the current fair value of the collateral; (2) proceeds for repayment of the note can be expected to come only from the operation or sale of the collateral; and (3) the debtor has either formally or effectively abandoned control of the collateral to the creditor or retained control of the collateral but, because of the current financial condition of the debtor, the economic prospects for the debtor and/or the collateral in the foreseeable future, it is doubtful that the debtor will be able to rebuild equity in the collateral or otherwise repay the note in the foreseeable future. Sales of Foreclosed Assets Financed by Notes Receivable - The Trust may finance a portion of the sale of foreclosed real estate for qualified borrowers. A cash downpayment of 20% is normally required, and the financing terms generally do not exceed five years, with many financings being for less than five years. The notes are made at market rates of interest either floating over a base rate of interest or a fixed rate generally tied to similar maturity treasury notes. Adoption of Authoritative Statements - In May 1993 the Financial Accounting Standards Board issued Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Note." SFAS No. 114 was subsequently amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 114 requires impairment of a note be measured based on the present value of expected future cash flows discounted at the note's effective interest rate. The Trust is required to adopt this standard for the fiscal year beginning July 1, 1995. In March 1995 the Financial Accounting Standards Board issued SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." SFAS No. 121 requires that assets held for disposal be valued at the lower of carrying amount or fair value less costs to sell. The Trust is required to adopt this standard for the fiscal year beginning July 1, 1996. 28 31 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The Trust has determined that the adoption of SFAS No's. 114, 118, and 121 will not have a material effect on its financial position or results of operation. Loss Per Share of Beneficial Interest - Loss per Share of Beneficial Interest is based on the weighted average number of shares outstanding during the year. Cash and Cash Equivalents - Cash and cash equivalents include highly liquid investments with original maturities of three months or less. Reclassifications - Certain amounts in prior years' financial statements have been reclassified to conform to the current year's presentation. NOTE B - NOTES RECEIVABLE The following is a summary of notes receivable activity for the years ended June 30, 1995, and 1994:
1995 1994 ------------- -------------- Balance at beginning of year $ 12,130,956 $ 137,569,142 Advances and capitalized items on notes receivable 341,714 340,323 Sales and collection of foreclosed real estate financed by notes receivable 138,400 3,888,112 Collections of principal (1,997,003) (28,828,704) Foreclosures (4,792,782) (18,252,995) Write-off of principal (13,913) (8,673,449) Transfer of assets upon emergence from Chapter 11 - (73,911,473) ------------- -------------- Balance at end of year $ 5,807,372 $ 12,130,956 ============= ==============
29 32 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE C - FORECLOSED REAL ESTATE The following is a summary of the Trust's activity in foreclosed real estate for the years ended June 30, 1995, and 1994: 1995 1994 ------------ ------------ Balance at beginning of year $ 25,207,002 $ 164,416,526 Foreclosures 4,840,782 18,252,995 Expenditures 127,350 2,016,948 ------------ ------------- Total additions 4,968,132 20,269,943 Cost of real estate sold (14,789,920) (28,437,212) Transfer of assets upon emergence from Chapter 11 - (131,042,255) ------------ ------------- Balance at end of year $ 15,385,214 $ 25,207,002 ============ ============= 30 33 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued The following table sets forth the Trust's portion of foreclosed real estate by type of property and geographic location:
June 30 ----------------------------------- 1995 1994 ----------- ------------ Type of Property: Single-family $ - $ 1,726,091 Single-family lots 6,732,532 7,303,970 Condo lots/land - 4,768,677 Land 8,652,682 6,809,219 Completed properties: Industrial - 4,522,155 Other - 76,890 ----------- ----------- $15,385,214 $25,207,002 =========== =========== Geographic location: Texas $ 9,356,477 $11,149,820 California 6,028,737 5,725,691 Tennessee - 4,522,156 Rhode Island - 1,889,066 Massachusetts - 1,760,472 Other - 159,797 ----------- ----------- $15,385,214 $25,207,002 =========== ===========
The Trust has substantively repossessed or obtained control of the management of certain properties collateralizing $2,084,394 and $6,245,694 of notes receivable at June 30, 1995, and 1994, respectively. As a result, these notes have been accounted for as foreclosed real estate. 31 34 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE D - ALLOWANCE FOR POSSIBLE LOSSES A summary of transactions affecting the Trust's allowance for possible losses for the three-year period ended June 30, 1995, is as follows:
Notes Foreclosed Receivable Real Estate Total ----------- ------------ ------------ Balance at July 1, 1992 $23,275,974 $ 35,765,577 $ 59,041,551 Provision for possible losses 1,263,731 13,886,269 15,150,000 Amounts charged off, net of recoveries (6,811,338 (13,441,396) (20,252,734) ----------- ------------ ------------ Balance at June 30, 1993 17,728,367 36,210,450 53,938,817 Provision for possible losses (1,208,000) 4,383,000 3,175,000 Amounts charged off, net of recoveries (8,457,842) (10,776,900) (19,234,742) Allowance related to assets transferred upon emergence from Chapter 11 (6,499,604) (19,670,076) (26,169,680) ----------- ------------ ------------ Balance at June 30, 1994 1,562,921 10,146,474 11,709,395 Provision for possible losses (1,148,960) 4,340,960 3,192,000 Amounts charged off, net of recoveries (284,060) (4,118,413) (4,402,473) ----------- ------------ ------------ Balance at June 30, 1995 $ 129,901 $ 10,369,021 $ 10,498,922 =========== ============ ============
NOTE E - EMERGENCE FROM BANKRUPTCY Upon the Trust's emergence from bankruptcy on April 7, 1994, certain assets and liabilities were transferred to the holders of the subordinated notes in full satisfaction of such notes. The net assets transferred exceeded the debt satisfied resulting in a loss on extinguishment of debt, which has been reported as an extraordinary item. As part of this process, net notes receivable of $73.4 million, the related accrued interest receivable of $.6 million, and net foreclosed real estate of $111.3 million were transferred to RPI. The Trust paid claims and closing costs, made debt payments and transferred cash to RPI totaling $28.0 million. The Trust received a $6.0 million note receivable from RPI and $.3 million of preferred stock in RPI. The Trust transferred additional assets totaling $.3 million and liabilities for escrow deposits totaling $1.6 million to RPI and adjusted its accrued liabilities by $.2 million. 32 35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued In accordance with the terms of the Plan of Reorganization, the Trust was relieved of its liability on the $83.1 million of senior debt, the $100.0 million of subordinated debt and the related $9.5 million of accrued interest on the subordinated debt. The recording of the above transactions resulted in an extraordinary loss on extinguishment of debt of approximately $12.9 million. Fresh-start reporting, in which the emerging entities' assets and liabilities would have been adjusted to their fair value, was considered but deemed inappropriate since the reorganization value of the Trust's assets immediately before the confirmation of the Plan was not less than the total of all post-petition liabilities and allowed claims. Also, there was no change in control of the Trust's ownership. NOTE F - COMMITMENTS AND CONTINGENCIES At June 30, 1995, the Trust had commitments for indemnification of development bond issuers and other guarantees totaling $885,445. Cash and cash equivalents at June 30, 1995, included restrictive cash of $59,245 for claims due to bankruptcy. At June 30, 1994, restrictive cash investments included $71,073 for claims due to bankruptcy, $480,500 to secure a letter of credit, and $71,727 of borrowers' escrow deposits. The Trust is involved in routine litigation incidental to its business, which, in the opinion of management, will not result in a material adverse impact on the Trust's financial condition, results of operations, or cash flows. NOTE G - TERMINATION OF MANAGEMENT AGREEMENT The Trust was managed by Lomas Management, Inc. ("LMI") since its inception in 1969 until February 28, 1995. LMI is a wholly owned subsidiary of Lomas Financial Corp. ("LFC"), the original sponsor of the Trust. Mr. Enloe was hired by the Trust as its full-time president and chief executive officer and the Trust's first direct employee in 1992. Under the management agreement in effect prior to July 1, 1992, whenever the Trust invested in any first mortgage construction or acquisition and development note recommended by LMI, LFC was required to participate, directly or through one or more of its subsidiaries. Subsequent management agreements made no provision for this required participation arrangement. On February 28, 1995, the Trust continued its movement toward self administration by terminating its management agreement with LMI and assuming all remaining operating and accounting responsibilities. Any remaining property management requirements on assets owned with LFC are provided for in the asset disposition agreement described below. Effective February 28, 1995, the Trust entered into an "Asset Disposition Agreement" with ST Lending, Inc. ("STL"), a wholly owned subsidiary of LFC, whereby the Trust and STL exchanged their respective ownership positions in a group of assets. No gain or loss was recognized as a result of this transaction. Therefore, at June 30, 1995, the Trust owned 100% of its foreclosed real estate and note receivable portfolio with the exception of one real estate asset that remains 80% owned by the Trust (the Trust's portion equals $1,164,000, net of reserves), and approximately 50% of a mortgage note receivable originated to construct houses in California (the Trust's portion equals $262,165, net of reserves). The 33 36 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued Trust had no further funding obligation under this note at June 30, 1995, and expects to receive repayments out of the sale proceeds from the completed houses in sufficient amounts to retire this note during the next fiscal year. A group of approximately 14 receivables, which have no carrying value and relate primarily to deficiency judgments obtained during foreclosures or remedial collection activities, remain 80% owned by the Trust and 20% owned by STL. The Asset Disposition Agreement stipulates that the Trust will pay STL 10% of its gross proceeds received, in addition to STL's 20% ownership, from this pool of loans in return for STL's asset administration. On or about March 1, 1996, STL will transfer its 20% ownership in this pool of assets to the Trust. Under the management agreement in effect prior to February 28, 1995 (the "Management Agreement"), LMI was entitled to basic compensation at an annual rate of 1% of the daily average book value of the Trust's Invested Assets (as defined in the Management Agreement) plus $81,000 per year for accounting services. During the fiscal year ended June 30, 1995, LMI received compensation of $157,907. Additionally, STL received compensation of $10,898 which represents 10% of the Trust's gross proceeds received on the portion of its portfolio described above. NOTE H - FEDERAL INCOME TAXES The Trust filed its June 30, 1994, Form 10-K and September 30, 1994, Form 10-Q as a real estate investment trust (a "REIT") as defined in the Internal Revenue Code. Disclosures were made in those filings that there was some uncertainty as to whether the Trust qualified as a REIT for its fiscal years ended June 30, 1992, 1993, and 1994. In connection with the preparation of its fiscal 1994 tax return, the Trust concluded that it no longer qualified as a REIT effective the beginning of fiscal 1994 (July 1, 1993). Accordingly the Trust is subject to federal income tax on its taxable income. The Trust incurred taxable losses in fiscal 1995 and 1994; therefore, no provision for income taxes is necessary in the financial statements for those periods. With the change in status to a taxable entity, the Trust adopted SFAS No. 109 "Accounting for Income Taxes." Since there was no financial impact on the year ended June 30, 1994, and the quarter ended September 30, 1994, neither an amended Form 10-K nor Form 10-Q, respectively, have been filed to reflect the adoption of SFAS 109. At June 30, 1995, the Trust had, for federal tax purposes, net operating loss carryforwards estimated to be in excess of $225 million which expire at various times between the years 2005 and 2010. Significant components of the Trust's deferred tax assets at June 30, 1995, consisted of net operating loss carryforwards ($76.5 million), financial statement loss reserves ($3.2 million), and other items ($3.9 million), all of which were completely offset by a valuation allowance. (The Trust has no material deferred tax liabilities.) The Trust had no income tax expense for the fiscal years ended June 30, 1995, and 1994. The difference between the statutory federal income tax rate of 34% and the Trust's zero percent effective rate is due to the tax benefits related to net operating losses which are fully reserved because of the uncertainty that the Trust will realize the tax benefits related to those losses. 34 37 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE I - FAIR VALUE OF FINANCIAL INSTRUMENTS SFAS No. 107 "Disclosures about Fair Value of Financial Statements" requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate that value. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. SFAS No. 107 excludes certain financial instruments and all nonfinancial instruments from its disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Trust. The fair value of cash and cash equivalents approximates their carrying value because of the liquidity and short-term maturities of these instruments. The fair value of notes receivable - mortgage loans is estimated by discounting cash flows at interest rates currently being offered for notes with similar terms to borrowers of similar credit quality. The fair value of the note receivable - RPI approximates its carrying value because it bears interest at a LIBOR-based floating rate. The estimated fair values of the Trust's financial instruments at June 30, 1995, are as follows (in thousands):
Carrying Fair Amount Value ------ ----- Financial Assets: Cash and cash equivalents $20,636 $20,636 Note receivable-RPI 5,406 5,406 Notes receivable - mortgage loans (net of allowance for possible losses) 271 271
NOTE J - CERTAIN CUSTOMERS Revenue from RPI provided greater than 10% of total revenue for the fiscal year ended June 30, 1995, and consisted of: (i) interest on a note receivable collateralized by a pool of first mortgage loans and by Deeds of Trust on various real estate assets, (ii) the receipt of $500,000 as a settlement for early termination of a consulting arrangement originally expected to end on March 31, 1996, and (iii) dividend income on the RPI preferred stock held by LBI. 35 38 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - Continued NOTE K - SHAREHOLDERS' EQUITY Included in Shareholders' Equity is a deduction for a promissory note in favor of the Trust from Robert Ted Enloe III in the amount of $365,625 plus deferred interest thereon. The note has a term of 5 1/2 years and bears interest at 5% compounded semi-annually, which is payable at maturity. The note is secured by a pledge of 650,000 Shares of Beneficial Interest of the Trust. On February 13, 1995, the Board of Trustees adopted the 1995 Equity Incentive Plan (the "Plan") which provides for up to 1,500,000 shares to be issued and used for employee incentive purposes. As of February 15, 1995, options to purchase a total of 646,000 shares of the Trust's shares of beneficial interest were granted to two executive officers of the Trust ("Incentive Stock Option Agreements"). The exercise price of these stock options is $1.625 per share which approximated market value at the time of grant. These stock options expire on February 15, 2005, pursuant to vesting schedules indicated in the related Incentive Stock Option Agreements. The effective date of the Plan is February 15, 1995, contingent upon approval by the shareholders of the Trust by February 13, 1996. On February 15, 1995, the Trust repurchased 269,550 Shares of Beneficial Interest from LFC (a former affiliate) at a price which approximated market value on that date. 36 39 SCHEDULE IV - MORTGAGE LOANS ON REAL ESTATE LIBERTE INVESTORS AND SUBSIDIARY JUNE 30, 1995
- ----------------------------------------------------------------------------------------------------------------------------- COL. A COL. B COL. C COL. D COL. E COL. F COL. G COL. H - ----------------------------------------------------------------------------------------------------------------------------- Principal Amount of Loans Subject To Final Periodic Face Carrying Delinquent Interest Maturity Payment Prior Amount of Amount of Principal or Description Rate Date Terms Liens Mortgages Mortgages Interest - ----------------------------------------------------------------------------------------------------------------------------- RPI Note receivable LIBOR + 2% 1998 Quarterly $5,406,132 $5,406,132 $ - Construction loan: Single-family 41st Street Prime + 1.5% 1995 Payable upon sale 340,364 340,364 340,364 of completed property. Other (17 loans) 0-10.5% 1995-1998 60,876 4,604 ------------------------ $5,807,372 $344,968 ========================
37 40 NOTES TO SCHEDULE IV June 30, 1995 (1) For income tax purposes the cost of notes is the carrying amount as shown on the schedule. Allowance for possible losses of $129,901 is allocated to notes receivable at June 30, 1995. Basis for the allocated amount is explained under "Accounting Policies - Allowance for Possible Losses." (2) Reconciliation of "Mortgage Loans on Real Estate" (in thousands):
YEAR ENDED JUNE 30 ----------------------------------- 1995 1994 1993 ------- -------- -------- Balance at beginning of year $12,131 $137,569 $178,672 Additions during year: New mortgage loans and advances on existing loans and other 480 4,228 16,598 ------- -------- -------- 12,611 141,797 195,270 Deductions during year: Collections of principal 1,997 28,829 36,293 Foreclosures 4,793 18,253 13,499 Write-off of principal 14 8,673 7,909 Transfer of assets upon emergence from Chapter 11 - 73,911 - ------- -------- -------- Balance at end of year $ 5,807 $ 12,131 $137,569 ======= ======== ========
38 41 LIBERTE INVESTORS INDEX TO EXHIBITS Exhibit No. - ----------- (10.9) Asset Disposition Agreement dated February 28, 1995, between the Registrant and ST Lending, Inc. (10.10) The Registrant's 1995 Equity Incentive Plan. (10.11) Stock Option Agreement dated February 15, 1995, between the Registrant and Robert Ted Enloe III. (10.12) Stock Option Agreement dated February 15, 1995, between the Registrant and Bradley S. Buttermore. (27) Financial Data Schedules. 39 EX-10.9 2 ASSET DISPOSITION AGREEMENT 1 EXHIBIT 10.9 ASSET DISPOSITION AGREEMENT THIS Asset Disposition Agreement dated as of the 28th day of February, 1995 (the "Agreement"), is made by and among Liberte Investors, a Massachusetts business trust ("Liberte"), ST Lending, Inc., a Delaware corporation ("STL"), and Lomas Management, Inc., a Nevada corporation ("LMI"). R E C I T A L S WHEREAS, Liberte and STL are the holders of certain participation interests in the assets listed on the attached Schedule A pursuant to a certain (i) Participation Agreement dated as of July 28, 1970, between Lomas Financial Corporation ("LFC") and Liberte ("LFC's right, title, and interest therein having been assigned to STL), and (ii) Proceeds Agreement dated as of May 1, 1990, by and among LFC, Liberte, LMI, Lomas Mortgage USA, Inc., L&N Consultants, Inc., and Naples Canta Mar, Ltd. (both agreements as each of them may have been amended or modified being collectively referred to in this agreement as the "Participation Agreement"); and WHEREAS, LMI is the manager of the assets listed on the attached Schedule A pursuant to that certain Management Agreement dated as of July 1, 1992, by and among LMI, LFC, and Liberte (the "Management Agreement"); and WHEREAS, STL and Liberte have reached certain agreements with respect to the assets listed on the attached Schedule A (the "Participated Assets"), and Liberte and LMI have reached certain agreements with respect to the Management Agreement; and WHEREAS, the parties desire to describe and implement such agreements through this Agreement; NOW, THEREFORE, in consideration of the mutual agreements hereinafter set forth and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows. 1. Exchange Assets. 1.1 Transfer of Participation Interests. Effective February 28, 1995 (the "Effective Date") Liberte will transfer to STL its participation interests in the Participated Assets described on the attached Schedule B (the "STL Exchange Assets") pursuant to a Master Assignment dated as of the Effective Date between Liberte and STL substantially in the form attached to this Agreement as Exhibit B-1 (the "Liberte Master Assignment"); and STL will transfer to Liberte on the Effective Date its participation interests in the assets -1- 2 described on the attached Schedule C (the "Liberte Exchange Assets") pursuant to a Master Assignment dated as of the Effective Date between STL and Liberte substantially in the form attached hereto as Exhibit C-1 (the "STL Master Assignment"). On the "Effective Date" Liberte will deliver to STL the fully executed Liberte Master Assignment along with originals of the participation certificates evidencing Liberte's participation interest in the STL Exchange Assets; and STL will deliver to Liberte the fully executed STL Master Assignment along with original participation certificates evidencing STL's participation interest in the Liberte Exchange Assets. 1.2 Transfer of Title. STL will authorize LMI to cause the title nominees that hold legal title to the STL Exchange Assets and the Liberte Exchange Assets, being L & N Consultants ("LNCI") and Lomas Mortgage USA, Inc. ("Lomas Mortgage"), to execute and deliver to STL and to Liberte, as appropriate, on the Effective Date, the various deeds, assignments, and other documents (the "Exchange Asset Transfer Documents") necessary to convey to Liberte and STL all of their respective rights, title, and interests in and to the STL Exchange Assets and the Liberte Exchange Assets. The Exchange Asset Transfer Documents will consist of deeds and assignments as appropriate to each Exchange Asset, in substantially the forms attached hereto as Exhibit B-2 with respect to the STL Exchange Assets and Exhibit C-2 with respect to the Liberte Exchange Assets. Except for the representations and warranties contained in this Agreement and in the Exchange Asset Transfer Documents, the transfers to be made pursuant to this Agreement shall be without representation or warranty of any kind. 1.3 Liabilities. With respect to liabilities associated with or related to the Exchange Assets, from and after the Effective Date STL will be solely responsible for any and all liabilities, whether accrued before or after the Effective Date, in respect of the STL Exchange Assets, and Liberte will be solely responsible for any and all liabilities, whether accrued before or after the Effective Date, in respect of the Liberte Exchange Assets. For purposes of this Agreement, "liabilities associated with, related to, and in respect of" the Exchange Assets shall mean all liabilities associated with the Exchange Assets, including, without limitation, all liabilities associated with the ownership and management of the Exchange Assets (the "Property Related Liabilities") and shall exclude only those liabilities incurred by or on behalf of Liberte, STL, LMI, or the title nominees that hold legal title to the Exchange Assets (or their respective affiliates) that do not arise on account of the Exchange Assets themselves and are therefore not Property Related Liabilities. The foregoing provisions -2- 3 shall in no event limit, modify, discharge, or waive any liabilities or obligations that the parties may have under or in respect of (i) the representations and warranties set forth in this Agreement, (ii) the Liberte Master Assignment, (iii) the STL Master Assignment; (iv) the Exchange Asset Transfer Documents, or (v) the Management Agreement. 1.4 Closing Date. The closing of the transactions described in this section (the "Closing") shall take place on the Effective Date. 1.5 Exchange Asset Management; Closing Adjustments and Costs. During the period prior to the Effective Date, there will be no change in the current management of the Exchange Assets including, without limitation, current efforts to liquidate the Exchange Assets. All items of income, revenues, and expenses actually received or paid in respect of the Exchange Assets prior to the Effective Date shall be apportioned and allocated between Liberte and STL in accordance with their respective prorata participation interests as provided pursuant to the Participation Agreement. LMI agrees that, pursuant to the Management Agreement, all such items of income, revenue, and expense have been or will be properly allocated in accordance with the provisions of this paragraph, and all parties further agree to promptly correct any errors in respect of the foregoing allocations after the Effective Date by an appropriate payment from the party in whose favor such error existed to the other party. Prior to the Closing, LMI will produce, and the parties will approve, schedules showing accrued and unpaid taxes and outstanding payables with respect to the management of the Exchange Assets, including, without limitation, site work, expenses related to obtaining and maintaining entitlements, legal expenses, and other expenses related to the management and liquidation of the Exchange Assets. All such expenses will be prorated as of the Effective Date. Closing costs arising as a direct result of the transfer of the Exchange Assets, including, without limitation, costs associated with obtaining title commitments and reports, escrow and recording fees, transfer taxes, and other costs associated with the delivery of transfer and other documents, will also be prorated between STL and Liberte in accordance with their respective participation interests pursuant to the Participation Agreement. The parties will each be responsible for their respective legal expenses and the cost of any policies of title insurance that any party, in its sole discretion, chooses to obtain. 1.6 Property Adjustment. Because the net asset value of the STL Exchange Assets is less than the net asset value of STL's current participation interest in the Exchange Assets by the sum of $59,294.96, Liberte will make a cash payment to STL -3- 4 on the Effective Date in that amount plus the amount of Liberte's share of property tax prorations. STL hereby acknowledges receipt of such payment. Should any of the Exchange Assets be sold or otherwise disposed of prior to the Effective Date, Liberte and STL will mutually agree upon a satisfactory property adjustment. 2. Non-Exchange Assets. 2.1 Schedule D Assets. With respect to the Participated Assets listed on the attached Schedule D (the "Schedule D Assets"), Liberte and STL agree that, although the Schedule D Assets may have future value, it is too speculative to determine as of the Effective Date. Accordingly, the parties hereby agree that the Schedule D Assets will not be exchanged and LMI will continue to manage the Schedule D Assets as described in Section 4 hereof except that LMI's compensation for such management will be as described in this paragraph, until December 31, 1995 (the "Settlement Date"). LMI's management will focus upon generating cash flow from such assets, whether by liquidation or otherwise, and LMI will obtain the consent of STL and Liberte prior to entering into any agreements or making any material expenditures with respect to the Schedule D Assets. LMI will distribute monies generated from the Schedule D Assets as follows: (i) payment of all expenses associated with the relevant transaction to the extent not previously paid; (ii) payment of ten percent of the total of such funds, calculated on a gross basis, to LMI in full compensation for its efforts; and (iii) payment of the balance of such funds 80% to Liberte and 20% to STL. Effective as of the Settlement Date, STL will transfer to Liberte its remaining interest in the Schedule D Assets, without recourse or warranty and on an "As Is" basis, with no proration of Property Related Liabilities, for no additional consideration. 2.2 Schedule E Assets. With respect to the Participated Assets listed on the attached Schedule E (the "Schedule E Assets"), Liberte and STL have agreed that, for various reasons, the Schedule E Assets should not be exchanged. Accordingly, the Schedule E Assets will remain as Participated Assets pursuant to the Participation Agreement and will be managed pursuant to Section 4 hereof until the Settlement Date. Effective as of the Settlement Date, STL will transfer its interest in any remaining Schedule E Assets to Liberte, without recourse or warranty and on an "As Is" basis, with no proration of Property Related Liabilities, for no additional consideration. 2.3 Remainder Assets. With respect to Asset Nos. 4471 and 541708 (the "Remainder Assets"), STL and Liberte will each retain its current participation interest and each of these -4- 5 assets will continue to be Participated Assets pursuant to the Participation Agreement. The Remainder Assets will be managed pursuant to Section 4 hereof until they are fully liquidated. 3. Representations and Warranties. 3.1 Each party to this agreement makes the following representations and warranties. (a) such party is duly organized, validly existing, and in good standing under the laws of state in which it is organized; (b) the execution and delivery by such party of this Agreement and all other documents and instruments executed and delivered by such party in connection with this Agreement, and such party's consummation of the transactions described in this Agreement have been duly authorized and do not conflict with such party's charter or bylaws or, with respect to Liberte, declaration of trust, any applicable law, or any contractual restriction that is binding on or affects such party; (c) all authorizations, consents, approvals, or other actions by, or notices or communications to, any persons necessary for, or otherwise in connection with, the consummation by such party of the transactions described in this Agreement, if any, has been obtained; and (d) this Agreement is the legal, valid, and binding obligation of such party, enforceable in accordance with its terms. 3.2 STL Representation and Warranty. STL hereby represents and warrants to Liberte that, with respect to the Liberte Exchange Assets, from and after the Closing, neither STL, nor, except with respect to Property Related Liabilities, any third party claiming through STL, will have any further rights, title, claims, or interests, whether legal, beneficial, or otherwise, including, without limitation, any participation interest. 3.3 Liberte Representation and Warranty. Liberte hereby represents and warrants to STL that, with respect to the STL Exchange Assets, from and after the Closing, neither Liberte, nor, except with respect to Property Related Liabilities, any third party claiming through Liberte, will have any further rights, title, claims, or interests, whether legal, beneficial, or otherwise, including, without limitation, any participation interest. -5- 6 4. Post Closing Asset Management Issues. 4.1 Participated Asset Management. The parties anticipate that the Management Agreement will terminate on or before the expiration of its current term by mutual agreement of the parties to the Management Agreement. Accordingly, the parties to this Agreement hereby agree that, with respect to the assets that will continue to be Participated Assets after the Closing, LMI will manage such assets for the benefit of STL and Liberte, using reasonable efforts to preserve and generate cash flow from such assets. LMI will receive no management fee except as specifically provided in Section 2.1 of this Agreement with respect to the Schedule D Assets only. LMI's management of the Remainder Assets will continue until such assets are fully liquidated, which the parties expect will occur prior to the Settlement Date. LMI's management of all other Participated Assets will continue until the earlier of their liquidation or the Settlement Date. The parties agree to cooperate with and assist each other in a manner reasonably required to accomplish the intent and purpose of this Agreement. Liberte and STL will continue to share revenues and expenses associated with the Participated Assets according to their participation interest in such assets, pursuant to the Participation Agreement. 4.2 Contingent Liabilities; Third Party Agreements; Escrows and Deposits. With respect to any currently existing contingent liabilities, third party agreements, asset related escrows and deposits, and any other benefits, liabilities, and obligations that affect any of the parties to this Agreement or the various nominee titleholders of the Participated Assets and that derive from the Participated Assets or the relationships established on account of the Participated Assets, the parties to this Agreement will cooperate and do all things reasonably necessary to fairly and equitably resolve or otherwise apportion and secure each currently existing agreement, obligation, or benefit. To the extent that such matters affect or arise on account of the Exchange Assets, the parties will make reasonable efforts to complete such resolution prior to the Closing. All such matters relating to the remaining Participated Assets will be resolved as soon as reasonably possible, but in no event later than the Settlement Date. 5. Miscellaneous. 5.1 Notices. All notices and other communications necessary or desirable pursuant to this Agreement shall be in writing and shall be effective on the date deposited in the United States Mail by registered or certified mail, postage prepaid, return receipt requested, or delivered by recognized overnight courier, personally delivered, or sent by facsimile -6- 7 transmission, to the parties at their respective addresses as shown on the signature page of this Agreement. Notices or communications sent otherwise will be effective upon receipt. The parties may change their addresses for notices in accordance with this paragraph. 5.2 All representations, warranties, rights, and obligations contained in this Agreement shall survive the Closing. 5.3 This Agreement and the documents referred to in this Agreement constitute the full and complete agreement of the parties hereto with respect to the subject matter of this Agreement and supersede any and all prior agreements with respect to such matters. 5.4 This Agreement may be amended or modified only by a written instrument executed by all parties. This Agreement will be governed by the laws of the state of Texas without giving affect to the principles of conflicts of laws. 5.5 This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns. 5.6 No failure or delay of any party in the exercise of any right given to such party under this Agreement shall be deemed to be a waiver thereof. No waiver by any party of any condition under this Agreement for its benefit shall constitute a waiver of any other or further right, nor shall any single or partial exercise of any right preclude any other or further exercise thereof or of any other rights. The waiver of any breach of this Agreement shall not be deemed to be a waiver of any other or subsequent breach of this Agreement. No extensions of time for the performance of any obligation shall be deemed or construed as an extension of time for the performance of any other obligation. 5.7 Upon the written request of any party (the "Requesting Party"), from time to time, the other party or parties shall do, execute, acknowledge, and deliver, at the sole cost and expense of the Requesting Party, such further acts, deeds, conveyances, assignments, notices of assignment or transfer and assurances as the Requesting Party may reasonably require in order to better assure, convey, grant, assign, transfer, and confirm upon the Requesting Party the rights now or hereafter intended to be granted under this Agreement or any other instrument executed in connection with this Agreement. 5.8 This Agreement may be executed in one or more counterparts, each of which when so executed and delivered -7- 8 shall be deemed an original, but all of which taken together shall constitute one and the same instrument. 5.9 Each of the exhibits and schedules referred to in this Agreement and attached to this Agreement is hereby incorporated into this Agreement by this reference, with the same force and effect as if set forth at length in the body of this Agreement. 5.10 If any party brings any action or suit against any other party by reason of any breach of this Agreement on the part of such other party, then, in such event the prevailing party shall be entitled to have and recover from such other party all costs and expenses of the action or suit, including, without limitation, reasonable attorneys' fees, and court costs and expenses resulting therefrom. IN WITNESS WHEREOF, this Agreement has been duly executed by the parties hereto as of the day and year first above written. Address Liberte Investors, a Massachusetts business trust By: /s/ TED ENLOE - ----------------------------------- -------------------------------- Name: Ted Enloe - ----------------------------------- ------------------------------ Title: President - ----------------------------------- ----------------------------- Address ST Lending, Inc. a Delaware corporation By: /s/ CAREY B. WICKLAND - ----------------------------------- -------------------------------- Name: Carey B. Wickland - ----------------------------------- ------------------------------ Title: President - ----------------------------------- ----------------------------- Address Lomas Management, Inc. a Nevada corporation By: /s/ CAREY B. WICKLAND - ----------------------------------- -------------------------------- Name: Carey B. Wickland - ----------------------------------- ------------------------------ Title: President - ----------------------------------- ----------------------------- -8- 9 Schedule A Asset Disposition Agreement Participated Assets I. Exchange Assets
Asset Asset No. Type Asset Name --------- ---- ---------- 3211 R Greystone Housing 3382 R Swln, Inc. 3385 R Pavlakos/McNair Dev Co 3592 R Marsh Lane Self Storage, Inc. 3674 R Swln, Inc. 3701 R Dunning Partnership 4189 R Ventura Properties, Inc. 4439 R Village Park Homes-Venture 4553 L Blume Eastlake Ltd Partnership 540101 R Bel Tiara Ventures II
II. Non Exchange Assets (Schedule D)
Asset Asset No. Type Asset Name --------- ----- ---------- 3647 L Ronald Holmes 4137 L Kenwood Homes Inc./Bill Walte 4169 L Israel Fogiel 4391 L Timbercrest Companies Inc. 4545 L Michael A. Howland & Lorraine K. 4571 L Robert K. Utley III 4583 L Gene Eidelman/Yuri Eidelman/ 4587 L Ed H. Street Jr. 4604 L Hicks Road Associates L.P. 4609 L Van Holm Brian Eidelman Yuri & G 4624 L Alden Brian 4681 L James R. Stuhmer 4637 L Eddy Brunstein & Israel Fogiel & 3437 R Ike Harris 4630 L Lexington Square-Receivable
III. Non Exchange Assets (Schedule E)
Asset Asset No. Type Asset Name --------- ----- ---------- 3934 R Porten Sullivan 4401 L Johnny L. Swaim 4402 L Victor R. Means Jr. 4601 R New Worth Jv. (LNCI) 4632 R Lawler (LNCI) 4644 L Highland Plaza Tax Penalty 4645 L Highland Plaza Tax & Cam Tenant
10 Schedule A Asset Disposition Agreement Participated Assets IV. Non Exchange Assets (Remainder Assets)
Asset Asset No. Type Asset Name --------- ---- ---------- 4471 R Cal-Oaks Investors-89 Lp 541708 L 41st Street East Development Co.
11 Schedule B Asset Disposition Agreement STL Exchange Assets
Asset Asset No. Type Asset Name --------- ---- ---------- 3211 R Greystone Housing 3395 R Pavlakoa/McNair Dev Co 3592 R Marsh Lane Self Storage, Inc. 3701 R Dunning Partnership 4553 L Blume Eastlake Ltd Partnership 540101 R Bel Tiara Ventures II
12 EXHIBIT B-1 MASTER ASSIGNMENT LIBERTE INVESTORS, a Massachusetts business trust ("Assignor"), for and in consideration of TEN DOLLARS ($10.00) and other good and valuable consideration paid to Assignor by ST LENDING, INC., a Delaware corporation ("Assignee"), the receipt and sufficiency of which are hereby acknowledged, hereby CONVEYS, GRANTS, TRANSFERS and ASSIGNS unto Assignee, without recourse or warranty except as otherwise provided herein, all of the following assets (the "STL Assets"): Section 1. (a) The undivided participation interests of Assignor under the Participation Agreement (as hereinafter defined), including, without limitation, any and all participation certificates evidencing such interests (the "Participation Certificates"), in and to the unpaid amounts of principal and interest of the mortgage loans identified on the attached Schedule I (the "Participated Mortgage Loans"), (b) any other rights or interests of Assignor in and to the Participated Mortgage Loans or Participation Certificates or payments thereunder, and (c) any other rights of Assignor in and to the promissory notes evidencing such Participated Mortgage Loans (the "Participated Notes"), and in and to any and all mortgages, assignments of leases, guaranties, letters of credit, pledged accounts, surety bonds or arrangements and all other agreements, documents, instruments or deposits evidencing, insuring or securing the Participated Mortgage Loans or the Participation Certificates. Section 2. To the extent not conveyed pursuant to Section 1 above, (a) all of the undivided participation interests of Assignor (the "Participated Owned Property Interests") in and to all proceeds from the parcels of real property identified on the attached Schedule II, as evidenced by the Proceeds Agreement (as defined below) or otherwise, (b) any other rights or interests of Assignor in and to the Participated Owned Property Interests, including, without limitation, the participation certificates evidencing such interest, and (c) any other rights or interests of Assignor in and to all other agreements, documents, instruments or deposits evidencing, insuring or otherwise relating to the Participated Owned Property Interests. Section 3. The interest of Assignor in and to any and all participation, servicing, nominee, proceeds or similar agreements related to the Participated Mortgage Loans and the Participated Owned Property Interests, including, without limitation, the Participation Agreement dated July 28, 1970 (the "Participation Agreement") between Lomas Financial Corporation ("LFC") and Assignor (formerly known as Lomas & Nettleton Mortgage Investors) and the Proceeds Agreement dated August 1, 1990 among LFC, Assignor (formerly known as Lomas & Nettleton Mortgage Investors) and certain affiliates of LFC (the "Proceeds Agreement"). -1- 13 REPRESENTATIONS AND WARRANTIES OF ASSIGNOR Assignor represents and warrants to Assignee and its successors and assigns that: (i) Assignor is a business trust duly organized, validly existing and in good standing under the laws of the State of Massachusetts; (ii) Assignor has full power and authority to execute and deliver this Master Assignment, and this Master Assignment has been duly authorized, executed and delivered by Assignor and is valid, binding and enforceable against Assignor in accordance with its terms; (iii) Neither the execution nor the delivery of this Master Assignment by Assignor will (a) conflict with Assignor's Declaration of Trust, (b) violate, conflict with, or result in any breach of any terms or provisions of, or constitute a default under, any material contract, agreement or instrument to which Assignor or its affiliates is a party or by which Assignor or its affiliates or any of their properties are bound or (c) violate, conflict with or breach any provision of any applicable law, rule or regulation; (iv) Assignor (a) is the sole legal and beneficial owner of the assets conveyed hereby and (b) has good title thereto, free and clear of any and all liens, encumbrances, participation interests, charges, claims or equity interests of any nature, except as disclosed in writing to Assignee contemporaneously herewith. GOVERNING LAW THIS MASTER ASSIGNMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS, AND FOR ALL PURPOSES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF SAID STATE, EXCEPT AS MAY OTHERWISE BE REQUIRED BY MANDATORY PROVISIONS OF LAW. EXECUTED as of February 28, 1995. ASSIGNOR: LIBERTE INVESTORS, a Massachusetts business trust By: /s/ TED ENLOE -------------------------------- Name: Ted Enloe ------------------------------ Title: President ----------------------------- -2- 14 MASTER ASSIGNMENT BETWEEN LIBERTE INVESTORS (ASSIGNOR) AND ST LENDING, INC. (ASSIGNEE) SCHEDULE I PARTICIPATED MORTGAGE LOANS
STL ASSET NO. CURRENT BORROWER NAME - ------------- --------------------- 4553 Blume Eastlake Ltd Partnership
-3- 15 MASTER ASSIGNMENT BETWEEN LIBERTE INVESTORS (ASSIGNOR) AND ST LENDING, INC. (ASSIGNEE) SCHEDULE II PARTICIPATED OWNED PROPERTY INTERESTS
STL ASSET NO. CURRENT ASSET NAME ------------- ------------------ 3211 Greystone Housing 3395 Pavlakos/Mcnair Dev Co 3592 Marsh Lane Self Storage, Inc. 3701 Dunning Partnership ** 540101 Bel Tiara Ventures II
** Denotes property reported as foreclosure in substance -4- 16 EXHIBIT B-2 Loan No. 4553/WA ASSIGNMENT OF NOTE AND MORTGAGE STATE OF TEXAS ) ) KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS ) LOMAS MORTGAGE USA, INC., a Connecticut corporation ("Assignor"), for Ten Dollars ($10.00) and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged by Assignor, hereby assigns unto ST LENDING, INC., a Delaware corporation, ("Assignee"), all of its right title and interest in and to the certain Promissory Note dated January 6, 1989, in the original principal sum of $9,600,000.00 (the "Loan"), executed on behalf of BLUME EASTLAKE LIMITED PARTNERSHIP ("Borrower"), and payable to the order of Assignor together with all of its right, title and interest in and to that certain Washington Deed of Trust (with Security Agreement and Assignment of Rents and Leases) dated January 6, 1989 (the "Mortgage") and recorded on January 13, 1989 in the County of King and the State of Washington, as Instrument No. 8901131266, as such Mortgage may have been modified or amended from time to time, covering certain real property located in the County of King and the State of Washington, being more particularly described on Exhibit A attached hereto, including any and all extensions, renewals, and modifications thereof, together with all of the right, title and interest of Assignor in and to (i) the instruments described on the attached Schedule I, and (ii) any and all other documents evidencing, securing or pertaining to the Loan, and all ancillary documents, including, without limitation, all rights under any applicable mortgagee or loan policy of title insurance issued for the benefit of Assignor, relating or pertaining to the Loan. This Assignment of Note and Mortgage is made without recourse and without any representation or warranty, either express or implied. TO HAVE AND TO HOLD the same unto Assignee, its successors and assigns forever. Assignor hereby further covenants and agrees that Assignor will, at any time and from time to time, upon written request therefor and at Assignee's sole expense, execute and deliver to Assignee such other documents and assurances as Assignee may reasonably request in order to effect the purposes of this Assignment of Note and Mortgage and carry out the provisions hereof. 1 17 Loan No. 4553/WA IN WITNESS WHEREOF, Assignor has duly executed this Assignment effective as of the ___ day of February, 1995. LOMAS MORTGAGE USA, INC., a Connecticut corporation By: -------------------------------- Name: ------------------------------ Title: ----------------------------- STATE OF TEXAS ) ) COUNTY OF DALLAS ) On February __, 1995, before me, a Notary Public in and for the State of Texas, personally appeared ________________, personally known to me (or proved to me on the basis of satisfactory evidence) to be the person whose name is subscribed to the within instrument and acknowledged to me that _he executed the same in h__ authorized capacity, and that by h__ signature on the instrument the person, or the entity upon behalf of which the person acted, executed the instrument. WITNESS my hand and official seal. ----------------------------------- Notary Public in and for the State of Texas Printed Name: ---------------------- My Commission Expires: ------------- 2 18 EXHIBIT B-2 WHEN RECORDED, RETURN TO: Audrey Crafton Lomas Financial Group Office of the General Counsel Post Office Box 655644 Dallas, Texas 75265-5644 DOCUMENT PREPARED BY: Barbara F. Nye Lomas Financial Group Office of the General Counsel Post Office Box 655644 Dallas, Texas 75265-5644 - -------------------------------------------------------------------------------- (Space above line for Recorder's Use Only) No. 3674/TX SPECIAL WARRANTY DEED THE STATE OF TEXAS ) ) KNOW ALL MEN BY THESE PRESENTS: COUNTY OF DALLAS ) LOMAS MORTGAGE USA, INC., a Connecticut ("Grantor"), whose mailing address is 1420 Viceroy, P.O. Box 650096, Dallas, Texas 75265, for and in consideration of (i) the sum of Ten Dollars ($10.00) and other good and valuable consideration paid by LIBERTE INVESTORS, a Massachusetts business trust ("Grantee"), whose mailing address is __________________________________ ________________________________________________, the receipt and sufficiency of which consideration are hereby acknowledged, has GRANTED, BARGAINED, SOLD, and CONVEYED and by these presents does hereby GRANT, BARGAIN, SELL and CONVEY unto Grantee all of that certain real property located in Bexar County, Texas, and being more particularly described in Exhibit A attached hereto and made a part hereof for all purposes, together with all improvements thereon and all and singular the rights, benefits, privileges, easements, tenements, hereditaments, and appurtenances thereon or in anywise appertaining thereto (said real property, together with such improvements and such rights, benefits, privileges, easements, tenements, hereditaments and appurtenances are hereinafter collectively referred to as the "Property"). This Special Warranty Deed is made and accepted expressly subject to those exceptions set forth in Exhibit B attached hereto and made a part hereof for all purposes, and to all Property Related Liabilities as such term is defined in that certain Asset Disposition Agreement dated as of February 28, 1995, by and among Liberte Investors, Lomas Management, Inc., and ST Lending, Inc. (the "Permitted Exceptions"). 1 19 No. 3674/TX TO HAVE AND TO HOLD the Property, subject to the Permitted Exceptions as aforesaid, unto Grantee, its successors and assigns, forever, and Grantor does hereby bind itself, its successors and assigns, to WARRANT AND FOREVER DEFEND all and singular the Property, unto Grantee, its successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof by, through, or under Grantor, but not otherwise. Except as specifically stated herein Grantor hereby specifically disclaims any warranty, guaranty, or representation, oral or written, past, present or future, of, as to, or concerning (i) the nature and condition of the Property, including but not by way of limitation, the water, soil, geology and the suitability thereof, and of the Property, for any and all activities and uses which Grantee may elect to conduct thereon or any improvements Grantee may elect to construct thereon, income to be derived therefrom or expenses to be incurred with respect thereto, or any obligations or any other matter or thing relating to or affecting the same; (ii) the manner of construction and condition and state of repair or lack of repair of any improvements located thereon; (iii) the nature and extent of any easement, right-of-way, lease, possession, lien, encumbrance, license, reservation, condition or otherwise; and (iv) the compliance of the Property, or the operation of the Property with any laws, rules, ordinances, or regulations of any government or other body. IN CONNECTION WITH THE CONVEYANCE OF THE PROPERTY AS PROVIDED FOR HEREIN, GRANTOR HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATIONS, WARRANTIES OR COVENANTS OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THE QUALITY OR CONDITION OF THE PROPERTY, THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH GRANTEE MAY CONDUCT THEREON, COMPLIANCE BY THE PROPERTY WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND SPECIFICALLY, GRANTOR DOES NOT MAKE ANY REPRESENTATIONS REGARDING HAZARDOUS WASTE, AS DEFINED BY THE LAWS OF THE STATE OF TEXAS AND THE REGULATIONS ADOPTED THEREUNDER OR THE U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, OR THE DISPOSAL OF ANY HAZARDOUS WASTE OR OTHER HAZARDOUS OR TOXIC SUBSTANCES IN OR ON THE PROPERTY. The conveyance of the Property as provided for herein is made on an "AS IS" and "WITH ALL FAULTS" basis. Grantee, by its acceptance hereof, does hereby assume and agree to pay any and all ad valorem taxes and special assessments pertaining to the Property for calendar year of Closing and subsequent years, there having been a proper proration of ad valorem taxes for the current calendar year between Grantor and Grantee. 2 20 No. 3674/TX IN WITNESS WHEREOF, this Special Warranty Deed has been executed and delivered to be effective for all purposes as of the 28th day of February, 1995. GRANTOR: LOMAS MORTGAGE USA, INC., a Connecticut corporation By: -------------------------------- Name: ------------------------------ Title: ----------------------------- THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on ________, 1995, by ________________________________, ________________________ of LOMAS MORTGAGE USA, INC., a Connecticut corporation, on behalf of said corporation. ----------------------------------- Notary Public, State of Texas Printed Name: ---------------------- My Commission Expires: ------------- 3 21 Schedule C Asset Disposition Agreement Liberte Exchange Assets
Asset Asset No. Type Asset Name --------- ---- ---------- 3382 R Swln, Inc. 3674 R Swln, Inc. 4189 R Ventura Properties, Inc. 4439 R Village Park Homes-Venture II
22 EXHIBIT C-1 MASTER ASSIGNMENT ST LENDING, INC., a Delaware corporation ("Assignor"), for and in consideration of TEN DOLLARS ($10.00) and other good and valuable consideration paid to Assignor by LIBERTE INVESTORS, a Massachusetts business trust ("Assignee"), the receipt and sufficiency of which are hereby acknowledged, hereby CONVEYS, GRANTS, TRANSFERS and ASSIGNS unto Assignee, without recourse or warranty except as otherwise provided herein, all of the following assets (the "STL Assets"): Section 1. (a) The undivided participation interests of Assignor under the Participation Agreement (as hereinafter defined), including, without limitation, any and all participation certificates evidencing such interests (the "Participation Certificates"), in and to the unpaid amounts of principal and interest of the mortgage loans identified on the attached Schedule I (the "Participated Mortgage Loans"), (b) any other rights or interests of Assignor in and to the Participated Mortgage Loans or Participation Certificates or payments thereunder, and (c) any other rights of Assignor in and to the promissory notes evidencing such Participated Mortgage Loans (the "Participated Notes"), and in and to any and all mortgages, assignments of leases, guaranties, letters of credit, pledged accounts, surety bonds or arrangements and all other agreements, documents, instruments or deposits evidencing, insuring or securing the Participated Mortgage Loans or the Participation Certificates. Section 2. To the extent not conveyed pursuant to Section 1 above, (a) all of the undivided participation interests of Assignor (the "Participated Owned Property Interests") in and to all proceeds from the parcels of real property identified on the attached Schedule II, as evidenced by the Proceeds Agreement (as defined below) or otherwise, (b) any other rights or interests of Assignor in and to the Participated Owned Property Interests, including, without limitation, the participation certificates evidencing such interest, and (c) any other rights or interests of Assignor in and to all other agreements, documents, instruments or deposits evidencing, insuring or otherwise relating to the Participated Owned Property Interests. Section 3. The interest of Assignor in and to any and all participation, servicing, nominee, proceeds or similar agreements related to the Participated Mortgage Loans and the Participated Owned Property Interests, including, without limitation, the Participation Agreement dated July 28, 1970 (the "Participation Agreement") between Lomas Financial Corporation ("LFC") and Assignor (formerly known as Lomas & Nettleton Mortgage Investors) and the Proceeds Agreement dated August 1, 1990 among LFC, Assignor (formerly known as Lomas & Nettleton Mortgage Investors) and certain affiliates of LFC (the "Proceeds Agreement"). -1- 23 REPRESENTATIONS AND WARRANTIES OF ASSIGNOR Assignor represents and warrants to Assignee and its successors and assigns that: (i) Assignor is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) Assignor has full power and authority to execute and deliver this Master Assignment, and this Master Assignment has been duly authorized, executed and delivered by Assignor and is valid, binding and enforceable against Assignor in accordance with its terms; (iii) Neither the execution nor the delivery of this Master Assignment by Assignor will (a) conflict with Assignor's Declaration of Trust, (b) violate, conflict with, or result in any breach of any terms or provisions of, or constitute a default under, any material contract, agreement or instrument to which Assignor or its affiliates is a party or by which Assignor or its affiliates or any of their properties are bound or (c) violate, conflict with or breach any provision of any applicable law, rule or regulation; (iv) Assignor (a) is the sole legal and beneficial owner of the assets conveyed hereby and (b) has good title thereto, free and clear of any and all liens, encumbrances, participation interests, charges, claims or equity interests of any nature, except as disclosed in writing to Assignee contemporaneously herewith. GOVERNING LAW THIS MASTER ASSIGNMENT SHALL BE DEEMED TO BE A CONTRACT UNDER THE INTERNAL LAWS OF THE STATE OF TEXAS, WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS OF LAWS, AND FOR ALL PURPOSES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF SAID STATE, EXCEPT AS MAY OTHERWISE BE REQUIRED BY MANDATORY PROVISIONS OF LAW. EXECUTED as of February 28, 1995. ASSIGNOR: ST LENDING, INC., a Delaware corporation By: /s/ CANEY B. WICKLAND -------------------------------- Name: Caney B. Wickland ------------------------------ Title: President ----------------------------- -2- 24 MASTER ASSIGNMENT BETWEEN ST LENDING, INC. (ASSIGNOR) AND LIBERTE INVESTORS (ASSIGNEE) SCHEDULE I PARTICIPATED MORTGAGE LOANS None -4- 25 MASTER ASSIGNMENT BETWEEN ST LENDING, INC. (ASSIGNOR) AND LIBERTE INVESTORS (ASSIGNEE) SCHEDULE II PARTICIPATED OWNED PROPERTY INTERESTS
ASSET NO. CURRENT ASSET NAME --------- ------------------ 3383 Swln, Inc. 3674 Swln, Inc. 4184 Ventura Properties, Inc. 4439 Village Parks Homes-Venture II
-5- 26 EXHIBIT C-2 WHEN RECORDED, MAIL TO: Audrey Crafton Lomas Financial Group Office of the General Counsel Post Office Box 655644 Dallas, Texas 75265-5644 DOCUMENT PREPARED BY: Barbara F. Nye Lomas Financial Group Office of the General Counsel Post Office Box 655644 Dallas, Texas 75265-5644 - -------------------------------------------------------------------------------- (Space above this line for Recorder's Use) No. 3395/FL SPECIAL WARRANTY DEED LOMAS MORTGAGE USA, INC. (formerly, The Lomas & Nettleton Company, also known as, Lomas & Nettleton Company), a Connecticut corporation ("Grantor"), whose mailing address is 1420 Viceroy, P.O. Box 650096, Dallas, Texas 75265, for and in consideration of the sum of Ten Dollars ($10.00) and other good and valuable consideration paid by ST LENDING, INC., a Delaware corporation ("Grantee"), whose mailing address is 1420 Viceroy, P.O. Box 650096, Dallas, Texas 75265, the receipt and sufficiency of which consideration are hereby acknowledged, has GRANTED, BARGAINED, SOLD, and CONVEYED and by these presents does hereby GRANT, BARGAIN, SELL and CONVEY unto Grantee all of that certain real property located in Brevard County, Florida, and being more particularly described in Exhibit A attached hereto and made a part hereof for all purposes, together with all improvements thereon and all and singular the rights, benefits, privileges, easements, tenements, hereditaments, and appurtenances thereon or in anywise appertaining thereto (said real property, together with such improvements and such rights, benefits, privileges, easements, tenements, hereditaments and appurtenances are hereinafter collectively referred to as the "Property"). This Special Warranty Deed is made and accepted expressly subject to those exceptions set forth in Exhibit B attached hereto and made a part hereof for all purposes, and to all Property Related Liabilities as such term is defined in that certain Asset Disposition Agreement dated as of February 28, 1995, by and among Liberte Investors, Lomas Management, Inc., and ST Lending, Inc. (the "Permitted Exceptions"). 27 No. 3395/FL TO HAVE AND TO HOLD the Property, subject to the Permitted Exceptions as aforesaid, unto Grantee, its successors and assigns, forever, and Grantor does hereby bind itself, its successors and assigns, to WARRANT AND FOREVER DEFEND all and singular the Property, unto Grantee, its successors and assigns, against every person whomsoever lawfully claiming or to claim the same, or any part thereof by, through, or under Grantor, but not otherwise. Except as specifically stated herein Grantor hereby specifically disclaims any warranty, guaranty, or representation, oral or written, past, present or future, of, as to, or concerning (i) the nature and condition of the Property, including but not by way of limitation, the water, soil, geology and the suitability thereof, and of the Property, for any and all activities and uses which Grantee may elect to conduct thereon or any improvements Grantee may elect to construct thereon, income to be derived therefrom or expenses to be incurred with respect thereto, or any obligations or any other matter or thing relating to or affecting the same; (ii) the manner of construction and condition and state of repair or lack of repair of any improvements located thereon; (iii) the nature and extent of any easement, right-of-way, lease, possession, lien, encumbrance, license, reservation, condition or otherwise; and (iv) the compliance of the Property, or the operation of the Property with any laws, rules, ordinances, or regulations of any government or other body. IN CONNECTION WITH THE CONVEYANCE OF THE PROPERTY AS PROVIDED FOR HEREIN, GRANTOR HAS NOT MADE AND DOES NOT MAKE ANY REPRESENTATIONS, WARRANTIES OR COVENANTS OF ANY KIND OR CHARACTER WHATSOEVER, WHETHER EXPRESS OR IMPLIED, WITH RESPECT TO THE QUALITY OR CONDITION OF THE PROPERTY, THE SUITABILITY OF THE PROPERTY FOR ANY AND ALL ACTIVITIES AND USES WHICH GRANTEE MAY CONDUCT THEREON, COMPLIANCE BY THE PROPERTY WITH ANY LAWS, RULES, ORDINANCES OR REGULATIONS OF ANY APPLICABLE GOVERNMENTAL AUTHORITY OR HABITABILITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND SPECIFICALLY, GRANTOR DOES NOT MAKE ANY REPRESENTATIONS REGARDING HAZARDOUS WASTE, AS DEFINED BY THE LAWS OF THE STATE OF FLORIDA AND THE REGULATIONS ADOPTED THEREUNDER OR THE U.S. ENVIRONMENTAL PROTECTION AGENCY REGULATIONS AT 40 C.F.R., PART 261, OR THE DISPOSAL OF ANY HAZARDOUS WASTE OR OTHER HAZARDOUS OR TOXIC SUBSTANCES IN OR ON THE PROPERTY. The conveyance of the Property as provided for herein is made on an "AS IS" and "WITH ALL FAULTS" basis. Grantee, by its acceptance hereof, does hereby assume and agree to pay any and all ad valorem taxes and special assessments pertaining to the Property for calendar year of Closing and subsequent years, there having been a proper proration of ad valorem taxes for the current calendar year between Grantor and Grantee. 2 28 No. 3395/FL IN WITNESS WHEREOF, this Special Warranty Deed has been executed and delivered to be effective for all purposes as of the 28th day of February, 1995. GRANTOR: LOMAS MORTGAGE USA, INC., (formerly, The Lomas & Nettleton Company, Signed, sealed, and also known as, Lomas & Nettleton Company), a delivered in the Connecticut corporation presence of: By: - ------------------------------ -------------------------------- Name: - ------------------------------ ------------------------------ Print Name of Witness Title: ----------------------------- - ------------------------------ - ------------------------------ Print Name of Witness THE STATE OF TEXAS ) ) COUNTY OF DALLAS ) This instrument was acknowledged before me on ________, 1995, by ________________, ________________ of LOMAS MORTGAGE USA, INC. (formerly, The Lomas & Nettleton Company, also known as, Lomas & Nettleton Company), a Connecticut corporation, on behalf of said corporation. He is personally known to me or has produced ________ as identification and did not take an oath. ----------------------------------- Notary Public, State of Texas Printed Name: ---------------------- My Commission Expires: ------------- 3 29 Schedule D Asset Disposition Agreement Non Exchange Assets
Asset Asset No. Type Asset Name --------- ---- ---------- 3647 L Ronald Holmes 4137 L Kenwood Homes Inc./Bill Walte 4169 L Israel Fogiel 4391 L Timbercrest Companies Inc. 4545 L Michael A. Howland & Lorraine K. 4571 L Robert K. Utley III 4583 L Gene Eidelman/Yuri Eidelman/ 4587 L Ed H. Street Jr. 4604 L Hicks Road Associates L.P. 4609 L Van Holm Brian Eidelman Yuri & G 4624 L Alden Brian 4681 L James R. Stuhmer 4637 L Eddy Brunstein & Israel Fogiel & 3437 R Ike Harris 4630 L Lexington Square-Receivable
30 Schedule E Asset Disposition Agreement Non Exchange Assets
Asset Asset No. Type Asset Name - --------- ---- ---------- 3934 R Porten Sullivan 4401 L Johnny L. Swaim 4402 L Victor R. Means Jr. 4601 R New Worth Jv. (LNCI) 4632 R Lawler (LNCI) 4644 L Highland Plaza Tax Penalty 4645 L Highland Plaza Tax & Cam Tenant
EX-10.10 3 REGISTRANTS 1995 EQUITY INCENTIVE PLAN 1 EXHIBIT 10.10 LIBERTE INVESTORS 1995 EQUITY INCENTIVE PLAN ARTICLE I NAME AND PURPOSE 1.1 Name. The name of this Plan is the "Liberte Investors 1995 Equity Incentive Plan." 1.2 Purpose. The purpose of the Plan is to enhance the profitability and value of the Company for the benefit of its shareholders by providing equity ownership opportunities and performance based incentives to better align the interests of Trustees, officers and key employees with those of shareholders. The Plan is also designed to enhance the profitability and value of the Company for the benefit of its shareholders by providing equity and cash awards to attract, retain and motivate Trustees, officers and other key employees who make important contributions to the success of the Company. ARTICLE II DEFINITIONS OF TERMS AND RULES OF CONSTRUCTION 2.1 General Definitions. The following words and phrases, when used in the Plan, unless otherwise specifically defined or unless the context clearly otherwise requires, shall have the following respective meanings: (a) Affiliate. A Parent, or Subsidiary of the Company or any other entity designated by the Committee in which the Company owns at least a 50% interest (including, but not limited to, partnerships and joint ventures). (b) Agreement. The document which evidences the grant of any Benefit under the Plan and which sets forth the Benefit and the terms, conditions and provisions of, and restrictions relating to, such Benefit. (c) Benefit. Any benefit granted to a Participant under the Plan. (d) Board. The Board of Trustees of the Company. (e) Change of Control. (i) The acquisition at any time by a "person" or "group" (as that term is used in Sections 13(d) and 14(d)(2) of the Exchange Act) (excluding, for this purpose, the Company or any Subsidiary or any employee benefit plan of the Company or any Subsidiary) of beneficial ownership (as defined in Rule 13d-3 under the Exchange Act) directly or indirectly, of securities representing 25% or more of the combined voting power in the election of trustees of the then-outstanding securities of the Company or any successor of the Company; (ii) the termination of service as trustees, for any reason other than death, disability or retirement from the Board during any period of two consecutive years or less, of individuals who at the beginning of such period constituted a majority of the Board, unless the election of or nomination for election of each new trustee during such period was approved by a vote of at least a majority of the trustees still in office who were trustees at the beginning of the period; (iii) approval by the shareholders of the Company of any merger or consolidation or statutory share exchange as a result of which the Shares of Beneficial Interest shall be changed, converted or exchanged (other -1- 2 than a merger or share exchange with a wholly-owned Subsidiary of the Company) or liquidation of the Company or any sale or disposition of 50% or more of the assets or earning power of the Company; or (iv) approval by the shareholders of the Company of any merger or consolidation or statutory share exchange to which the Company is a party as a result of which the persons who were shareholders of the Company immediately prior to the effective date of the merger or consolidation or statutory share exchange shall have beneficial ownership of less than 50% of the combined voting power in the election of directors or trustees of the surviving entity following the effective date of such merger or consolidation or statutory share exchange; provided, however, that no Change in Control shall be deemed to have occurred if, prior to such time as a Change in Control would otherwise be deemed to have occurred, the Board deems otherwise. A "Change in Control" shall not include any reduction in ownership of an Affiliate so long as the entity continues to meet the definition of an Affiliate as contained in this Section 2.1. (f) Code. The Internal Revenue Code of 1986, as amended. Any reference to the Code includes the regulations promulgated pursuant to the Code. (g) Company. Liberte Investors, a Massachusetts business trust. (h) Committee. The Company's Compensation Committee, initially consisting of Gene H. Bishop and Edward W. Rose III, or its successor. (i) Effective Date. The date that the Plan is approved by the Board, provided that it is also approved by the shareholders of the Company within one year after approval by the Board. Any grants of Benefits prior to the approval by the shareholders of the Company shall be contingent on such subsequent approval, and shall be retroactively null and void if such approval is not obtained. (j) Employee. Any employee, director, general partner, trustee (of a business trust), officer, consultant or advisor of the Employer, provided that bona fide services are rendered by such consultants and advisors and such services rendered by consultants and advisors are not in connection with the offer or sale of securities in a capital-raising transaction. (k) Employer. The Company and all Affiliates. (l) Exchange Act. The Securities Exchange Act of 1934, as amended. (m) Fair Market Value. The closing price of a Share on the New York Stock Exchange on a given date, or, in the absence of sales on a given date, the closing price on the New York Stock Exchange on the last day on which a sale occurred prior to such date. (n) Fiscal Year. The fiscal year of the Company ending each June 30. (o) ISO. An Incentive Stock Option as defined in Section 422 of the Code. -2- 3 (p) NQSO. Non-Qualified Stock Option, which is an Option that does not meet the statutory requirements of an ISO. (q) Option. An option to purchase Shares granted under the Plan. (r) Other Share Based Award. An award under ARTICLE XVII that is valued in whole or in part by reference to, or is otherwise based on, Shares. (s) Parent. Any corporation (other than the Company or a Subsidiary) in an unbroken chain of corporations ending with the Company, if, at the time of the grant of an Option or other Benefit, each of the corporations (other than the Company or a Subsidiary) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (t) Participant. An Employee who is granted a Benefit under the Plan. Benefits may be granted only to Employees. (u) Performance Share. A Share awarded to a Participant under ARTICLE XVI of the Plan. (v) Plan. The Liberte Investors 1995 Equity Incentive Plan, as amended, modified or supplemented from time to time. (w) Restricted Shares. Shares issued under ARTICLE XV of the Plan. (x) Rule 16b-3. Rule 16b-3 promulgated by the SEC under the Exchange Act or any successor rule in effect from time to time. (y) SEC. The Securities and Exchange Commission. (z) Share. A Share of Beneficial Interest in the Company. (aa) Share of Beneficial Interest. The Company's Shares of Beneficial Interest, no par value, or any other interest into which such shares may be reconstituted. (bb) SAR. A Stock Appreciation Right, which is the right to receive an amount equal to the appreciation, if any, in the Fair Market Value of a Share from the date of the grant of the right to the date of its payment. (cc) Subsidiary. Any corporation, other than the Company, in an unbroken chain of corporations beginning with the Company if, at the time of grant of an Option or other Benefit, each of the corporations, other than the last corporation in the unbroken chain, owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. (dd) Trustee. A Trustee of the Company or, if reconstituted as, or if the successor to the Company is, a corporation, a director of the Company or such successor. -3- 4 2.2 Other Definitions. In addition to the above definitions, certain words and phrases used in the Plan and any Agreement may be defined in other portions of the Plan or in such Agreement. 2.3 Conflicts in Plan. In the case of any conflict in the terms of the Plan, or between the Plan and an Agreement, relating to a Benefit, the provisions in the ARTICLE of the Plan which specifically grants such Benefit shall control those in a different ARTICLE or in such Agreement. ARTICLE III SHARES OF BENEFICIAL INTEREST 3.1 Number of Shares. The number of Shares which may be issued or sold or for which Options, SARs, Performance Shares or Other Share Based Awards may be granted under the Plan shall be 1,500,000. Such Shares may be authorized but unissued Shares, reacquired Shares, Shares acquired on the open market specifically for distribution under this Plan, or any combination thereof. 3.2 Reusage. If an Option or SAR expires or is terminated, surrendered or canceled without having been fully exercised, if Restricted Shares or Performance Shares are forfeited, or if any other grant ultimately results in any Shares not being issued, the unused Shares covered by any such Benefit shall again be available for grant under the Plan to any Participant. 3.3 Adjustments. If there is any change in the Shares of Beneficial Interest of the Company by reason of any stock split, stock dividend, spinoff, split-up, spin-out, recapitalization, merger, consolidation, reorganization, combination or exchange of shares, or any other similar transaction, the number of shares available for grant under the Plan or subject to or granted pursuant to a Benefit and the price thereof, as applicable, shall be appropriately adjusted by the Committee. ARTICLE IV ELIGIBILITY 4.1 Determination By Committee. The Participants and the Benefits they receive under the Plan shall be determined by the Committee in its sole discretion. In making its determinations, the Committee shall consider past, present and expected future contributions of Participants and potential Participants to the Employer. Members of the Committee and any other persons whose participation in the Plan (i) would cause disqualification of this or any other benefit plan intended to be qualified under Rule 16b-3 or (ii) would result in the Company being unable to take advantage of Code Section 162(m) are ineligible to participate in the Plan. No person shall have any right to participate in the Plan. Any person selected by the Committee for participation during any one period will not by virtue of such participation have the right to be selected as a Participant for any other period. No Participant shall be granted Benefits under the Plan with respect to more than 1,500,000 Shares in any calendar year (subject to adjustment as provided in Section 3.3 hereof). ARTICLE V ADMINISTRATION 5.1 Committee. The Plan shall be administered by the Committee. The Committee shall consist of two or more members of the Board who are "disinterested persons" as defined in Rule 16b-3 and are "outside directors" as defined in Code -4- 5 Section 162(m) and the regulations thereunder. The Committee shall initially consist of Mr. Gene H. Bishop and Mr. Edward W. Rose III. 5.2 Authority. Subject to the terms of the Plan, the Committee shall have sole discretionary authority to: (a) determine the individuals to whom Benefits are granted, the type and amounts of Benefits to be granted and the date of issuance and duration of all such grants; (b) determine the terms, conditions and provisions of, and restrictions relating to, each Benefit granted; (c) interpret and construe the Plan and all Agreements; (d) prescribe, amend and rescind rules and regulations relating to the Plan; (e) determine the content and form of all Agreements; (f) determine all questions relating to Benefits under the Plan; (g) maintain accounts, records and ledgers relating to Benefits; (h) maintain records concerning its decisions and proceedings; and (i) do and perform all acts which it may deem necessary or appropriate for the administration of the Plan and carry out the purposes of the Plan. 5.3 Decisions of Committee. All decisions made by the Committee pursuant to the provisions hereof shall be final and binding on all persons. ARTICLE VI AMENDMENT OF PLAN 6.1 Power of Committee. Subject to Article VIII hereof, the Committee shall have the sole right and power to amend the Plan at any time and from time to time; provided, however, that the Committee may not amend the Plan, without approval of the shareholders of the Company, in a manner which would: (a) cause Options which are intended to qualify as ISOs to fail to qualify; (b) cause the Plan to fail to meet the requirements of Rule 16b-3; (c) violate any applicable rule, regulation, or procedure of any national securities exchange or securities association upon which any securities of the Company are listed (or any listing agreement with any such securities exchange or securities association); or (d) violate applicable law. -5- 6 ARTICLE VII TERM AND TERMINATION OF PLAN 7.1 Term. The Plan shall commence as of the Effective Date. No Benefit shall be granted pursuant to the Plan on or after the tenth anniversary date of the Effective Date, but Benefits granted prior to such tenth anniversary may extend beyond that date to the date(s) specified in the Agreement(s) covering such Benefits. 7.2 Termination. Subject to ARTICLE VIII, the Plan may be terminated at any time by the Committee. ARTICLE VIII MODIFICATION OR TERMINATION OF BENEFITS 8.1 General. Except as may be provided in an Agreement, any Benefit granted may be converted, modified, forfeited or canceled, prospectively or retroactively, in whole or in part, by the Committee in its sole discretion, but no such action may impair the rights of any Participant without his or her consent. Except as may be provided in an Agreement, the Committee may, in its sole discretion, in whole or in part, waive any restrictions or conditions applicable to, or accelerate the vesting of, any Benefit. ARTICLE IX CHANGE OF CONTROL 9.1 Right of Committee. The occurrence of a Change of Control shall not limit the Committee's authority to take any action, in its sole discretion, permitted hereunder. The Committee, in its sole discretion, may specify in any Agreement the effect a Change of Control will have on such Agreement. ARTICLE IX AGREEMENTS AND CERTAIN BENEFITS 10.1 Grant Evidenced by Agreement. The granting of any Benefit shall be subject to, and conditioned upon, the recipient's execution of an Agreement, which shall describe the specific Benefit granted and the terms and conditions of such Benefit. Except as otherwise provided in an Agreement, all capitalized terms used in an Agreement shall have the same meaning as in the Plan, and any Agreement shall be subject to all of the terms of the Plan. 10.2 Provisions of Agreement. Each Agreement shall contain such provisions as the Committee shall determine in its sole discretion to be necessary, desirable and appropriate for the Benefit granted which may include, but not necessarily be limited to, the following: description of the type of Benefit; the Benefit's duration; its transferability; if an Option, the exercise price, the exercise period and the person or persons who may exercise the Option; the effect upon such Benefit of the Participant's death, disability, change of duties or termination of employment; the Benefit's conditions; when, if, and how any Benefit may be forfeited, converted into another Benefit, modified, exchanged for another Benefit, or replaced; and the restrictions on any Shares purchased or granted under the Plan. -6- 7 ARTICLE XI TANDEM AWARDS 11.1 Tandem Awards. Benefits may be granted by the Committee in its sole discretion individually or in tandem, provided, however, that no Benefit except SARs may be granted in tandem with an ISO. ARTICLE XII PAYMENT, DIVIDENDS, DEFERRAL AND WITHHOLDING 12.1 Payment. Upon the exercise of an Option or in the case of any other Benefit that requires a payment by a Participant to the Company, the amount due the Company is to be paid: (a) in cash; (b) by the surrender of all or part of a Benefit (including the Benefit being exercised); (c) by the tender to the Company of Shares owned by the Participant and registered in his or her name having a Fair Market Value equal to the amount due to the Company; (d) in other property, rights and credits, deemed acceptable by the Committee including the Participant's promissory note; or (e) by any combination of the payment methods specified in (a) through (d) above. Notwithstanding the foregoing, any method of payment other than in cash may be used only with the consent of the Committee or if and to the extent so provided in an Agreement. 12.2 Dividend Equivalents. Grants of Benefits may include dividend or dividend equivalent payments or dividend credit rights, to the extent so provided in an Agreement. 12.3 Optional Deferral. The right to receive any Benefit under the Plan may, at the request of the Participant made before any Benefit is otherwise due or payable, be deferred for such period and upon such terms as the Committee shall determine, which may include crediting of interest on deferrals of cash and crediting of dividends on deferrals denominated in Shares. 12.4 Code Sections 162(m) and 280G. The Committee, in its sole discretion, may require that one or more Agreements contain provisions which provide that, in the event Sections 162(m) or 280G of the Code, or any successor provision relating to employee remuneration, would operate to disallow a deduction by the Company for all or part of any Benefit under the Plan, a Participant's receipt of the portion of such Benefit that would not be deductible by the Company shall be either (a) deferred until the next succeeding year or years in which the Participant's remuneration does not exceed the limit set forth in such provision of the Code, or (b) if necessary, canceled, forfeited, restricted, or limited. -7- 8 12.5 Withholding. The Company may, at the time any distribution is made under the Plan, whether in cash or in Shares, or at the time any Option is exercised, withhold from such distribution or Shares issuable upon the exercise of an Option, any amount necessary to satisfy federal, state and local withholding requirements with respect to such distribution or exercise of such Option. Such withholding may be satisfied, at the Committee's option, either by cash, transfer of previously owned Shares or other property acceptable to the Committee, or the Company's withholding of Shares. ARTICLE XIII OPTIONS 13.1 Types of Options. It is intended that both ISOs and NQSOs may be granted by the Committee under the Plan. 13.2 Option Price. The purchase price for Shares under any ISO shall be no less than the Fair Market Value of the Shares at the time the Option is granted. For the purposes of this provision, Fair Market Value shall be determined without regard to any restriction, other than a restriction which by its terms will never lapse. 13.3 Other Requirements for ISOs. ISOs may be issued only to bona fide employees of the Employer, and the terms of each Option which is intended to qualify as an ISO shall meet all requirements of Section 422 of the Code or any successor statute in effect from time to time. 13.4 NQSOs. The terms of each NQSO shall provide that such Option will not be treated as an ISO. 13.5 Determination by Committee. Except as otherwise provided in Section 13.2 through Section 13.4, the terms of all Options shall be determined by the Committee. ARTICLE XIV SARS 14.1 Grant and Payment. The Committee may grant SARs. Upon electing to receive payment of an SAR, a Participant shall receive payment in cash, in Shares, or in any combination of cash and Shares, as the Committee shall determine. 14.2 Grant of Tandem Award. If SARs are granted in tandem with an Option, the exercise of the Option shall cause a proportional reduction in SARs standing to a Participant's credit which were granted in tandem with the Option, and the payment of SARs shall cause a proportional reduction of the Shares under such Option. If SARs are granted in tandem with an ISO, the SARs shall have such terms and conditions as shall be required for the ISO to qualify as an ISO. ARTICLE XV RESTRICTED SHARES 15.1 Description. The Committee may grant Benefits in Shares as Restricted Shares with such terms and conditions as may be determined in the sole discretion of the Committee. Restricted Shares shall be issued and delivered at the time of the grant or as otherwise determined by the Committee, but shall be subject to forfeiture until provided otherwise in the applicable Agreement or the Plan. Each certificate -8- 9 representing Restricted Shares shall bear a legend referring to the Plan and the risk of forfeiture of the Restricted Shares and stating that such Restricted Shares are nontransferable until all restrictions have been satisfied and the legend has been removed. At the discretion of the Committee, the grantee may or may not be entitled to full voting and dividend rights with respect to all Restricted Shares from the date of grant. The Committee may (but is not obligated to) require that any dividends on such shares shall be automatically deferred and reinvested in additional Restricted Shares subject to the same restrictions as the underlying Benefit. 15.2 Cost of Restricted Shares. Grants of Restricted Shares shall be made at such cost as the Committee shall determine and may be issued for no monetary consideration, subject to applicable state law. 15.3 Nontransferability. Restricted Shares shall not be transferable until after the removal of the legend with respect to such Shares. ARTICLE XVI PERFORMANCE SHARES 16.1 Description. Performance Shares represent the right of a Participant to receive Shares at a future date in accordance with the terms and conditions of a grant. The terms and conditions shall be determined by the Committee, in its sole discretion, but generally are expected to be based substantially upon the attainment of targeted financial performance objectives. 16.2 Grant. The Committee may grant an award of Performance Shares at such times, in such amounts and under such terms and conditions as it deems appropriate. ARTICLE XVII OTHER SHARE BASED AWARDS AND OTHER BENEFITS 17.1 Other Share Based Awards. The Committee shall have the right to grant Other Share Based Awards which may include, without limitation, the grant of Shares based on certain conditions, the payment of cash based on the market performance of the Shares (such as phantom share awards), and the grant of securities convertible into Shares. 17.2 Other Benefits. The Committee shall have the right to provide other types of Benefits under the Plan in addition to those specifically listed, if the Committee believes that such Benefits would further the purposes for which the Plan has been established. ARTICLE XVIII MISCELLANEOUS PROVISIONS 18.1 Termination of Employment. If the employment of a Participant by the Employer terminates for any reason, all unexercised, deferred, and unpaid Benefits may be exercisable or paid only in accordance with rules established by the Committee or pursuant to an Agreement. These rules may provide, as the Committee in its sole discretion may deem appropriate, for the expiration, forfeiture, or continuation of the Benefit, or for the acceleration of the vesting thereunder, except as may be provided in an Agreement, of all or part of the Benefits. -9- 10 18.2 Unfunded Status of the Plan. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. 18.3 Designation of Beneficiary. A Participant may file with the Committee a written designation of a beneficiary or beneficiaries (subject to such limitations as to the classes and number of beneficiaries and contingent beneficiaries as the Committee may from time to time prescribe) to exercise, in the event of the death of the Participant, to the extent otherwise available under an Agreement, an Option, or to receive, in such event, any Benefits. The Committee reserves the right to review and approve beneficiary designations. A Participant may from time to time revoke or change any such designation of beneficiary and any designation of beneficiary under the Plan shall be controlling over any other disposition, testamentary or otherwise; provided, however, that if the Committee shall be in doubt as to the right of any such beneficiary to exercise any Option or to receive any Benefit, the Committee may determine to recognize only an exercise by the legal representative of the recipient, in which case the Company, the Committee and the members thereof shall not be under any further liability to anyone in connection therewith. 18.4 Nontransferability. For Participants subject to Section 16 of the Exchange Act, and for all other Participants, unless otherwise determined for such other Participants by the Committee or as specified in an Agreement, (i) no Benefit granted under this Plan may be transferred or assigned by the Participant to whom it is granted other than by beneficiary designation, will, pursuant to the laws of descent and distribution, or pursuant to a qualified domestic relations order (as defined in the Employee Retirement Income Security Act or the Code), and (ii) a Benefit granted under this Plan may be exercised, during the Participant's lifetime, only by the Participant or Participant's guardian or legal representative; except that, no ISO may be transferred or assigned pursuant to a qualified domestic relations order or exercised, during the Participant's lifetime, by the Participant's guardian or legal representative, unless such exercise is permitted by the Internal Revenue Service pursuant to the Code or otherwise without such ISO losing its status as an ISO. In the event that the provisions of Rule 16b-3 are amended to allow transfer of a Benefit to a trust or limited partnership established by a Participant for estate planning purposes, a Benefit other than an ISO granted under this Plan may be transferred to such trust or limited partnership, but, for Participants subject to Section 16 of the Exchange Act (unless otherwise so provided in an Agreement), only to the extent and on the terms and conditions of Rule 16b-3 as so amended. 18.5 Rule 16b-3. With respect to Participants subject to Section 16 of the Exchange Act, transactions under this Plan are intended to comply with all applicable provisions of Rule 16b-3 or its successors under the Exchange Act. To the extent any provision of the Plan or action by the Plan administrators fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee. 18.6 References. The underscored references contained in the Plan and in any Agreement are included only for convenience, and they shall not be construed as a part of the Plan or Agreement or in any respect affecting or modifying its provisions. Unless otherwise indicated, Article and Section references herein are references to Articles and Sections of this Plan. 18.7 Number and Gender. The masculine, feminine and neuter, wherever used in the Plan or in any Agreement, shall refer to either the masculine, feminine or -10- 11 neuter; and, unless the context otherwise requires, the singular shall include the plural and the plural the singular. 18.8 GOVERNING LAW. THIS PLAN AND EACH AGREEMENT SHALL BE CONSTRUED, INTERPRETED AND ADMINISTERED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS, WITHOUT GIVING EFFECT TO PRINCIPLES RELATING TO CONFLICT OF LAWS. 18.9 Purchase for Investment. The Committee may require each person purchasing or receiving Shares pursuant to a Benefit to represent to and agree with the Company in writing that such person is acquiring the Shares for investment and without a view to distribution or resale. The certificates for such Shares may include any legend which the Committee deems appropriate to reflect any restrictions on transfer. All certificates for Shares delivered under the Plan shall be subject to such stock-transfer orders and other restrictions as the Committee may deem advisable under all applicable laws, rules and regulations, and the Committee may cause a legend or legends to be put on any such certificates to make appropriate references to such restrictions. 18.10 No Employment Contract. Neither the adoption of the Plan nor any Benefit granted hereunder shall confer upon any Employee any right to continued employment or engagement nor shall the Plan or any Benefit interfere in any way with the right of the Employer to terminate the employment or engagement of any of its Employees at any time. 18.11 No Effect on Other Benefits. The receipt of Benefits under the Plan shall have no effect on any benefits to which a Participant may be entitled from the Employer, under another plan or otherwise, or preclude a Participant from receiving any such benefits. -11- EX-10.11 4 STOCK OPTION AGRMNT-REGISTRANT & ROBERT ENLOE III 1 EXHIBIT 10.11 LIBERTE INVESTORS INCENTIVE STOCK OPTION AGREEMENT (1995 Equity Incentive Plan) This Stock Option Agreement ("Agreement") is made and entered into as of the Date of Grant indicated below by and between Liberte Investors, a Massachusetts business trust (the "Company"), and the person named below ("Participant"). WHEREAS, Participant is a full-time employee of the Company and/or one or more of its subsidiaries; and WHEREAS, pursuant to the Company's 1995 Equity Incentive Plan (the "Plan"; capitalized terms not defined herein shall have the meanings ascribed to them in the Plan), the Compensation Committee of the Board of Trustees of the Company (the "Committee") has approved the grant to Participant of options to purchase shares of beneficial interest, no par value, of the Company (the "Shares"), on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the Company and Participant hereby agree as follows: 1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby grants to Participant, and Participant hereby accepts, as of the Date of Grant, options to purchase the number of Shares indicated below (the "Options") at the Exercise Price per Share indicated below. Subject to certain anti-dilution adjustments, each Option entitles Participant to purchase one Share. The Options shall expire at 5:00 o'clock p.m. (local time at the Company's principal executive office) on the Expiration Date indicated below (unless earlier terminated pursuant to Section 2 hereof), and shall be subject to all of the terms and conditions set forth in this Agreement. Subject to Section 16 hereof, on June 30, 1995, and on each succeeding January 1, Participant may exercise the Options to purchase that number of Shares indicated on the Vesting Schedule set forth below. PARTICIPANT: ROBERT TED ENLOE III DATE OF GRANT: FEBRUARY 15, 1995 NUMBER OF SHARES PURCHASABLE: 400,000 EXERCISE PRICE PER SHARE: $1.625 EXPIRATION DATE: FEBRUARY 15, 2005 VESTING SCHEDULE: Date Number of Shares Vested ---- ----------------------- June 30, 1995 61,500 January 1, 1996 123,000 January 1, 1997 184,500
-1- 2 January 1, 1998 246,000 January 1, 1999 307,500 January 1, 2000 369,000 January 1, 2001 400,000
The Options are intended to qualify as incentive stock options ("Incentive Stock Options" or "ISOs") under Section 422 of the Internal Revenue Code of 1986, as amended ("Code"). In connection therewith, the Company hereby represents that (a) the Date of Grant is not more than 10 years after the date the Plan was adopted by the Board of Trustees of the Company, or the date the Plan was approved by the shareholders of the Company, whichever is earlier; (b) Participant is a full-time employee of the Company or one of its subsidiaries ("Employee"); (c) the Expiration Date is not more than 10 years after the Date of Grant, and (d) the Exercise Price per share is not less than the Fair Market Value per share on the Date of Grant. Participant hereby represents that, on the Date of Grant, Participant does not own (after application of the family and other attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporations. Moreover, the Options shall not be transferable by Participant otherwise than by will or the laws of descent and distribution, and shall be exercisable, during Participant's lifetime, only by Participant. Finally, to the extent that the aggregate Fair Market Value (determined as of the date such Options are granted) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by Participant during any calendar year (under the Plan and all other stock option plans of the Company and its Parents and Subsidiaries) exceeds $100,000, then such excess over $100,000 shall not be considered as subject to Incentive Stock Options, but rather shall automatically be considered as subject to non-qualified options. Under this rule, the Company takes into account Shares subject to Incentive Stock Options that are purchasable for the first time in the calendar year, in the order in which such Incentive Stock Options were granted. 2. ACCELERATION AND TERMINATION OF OPTION. (a) Termination of Employment or Other Status. The following rules shall apply when Participant ceases to be an Employee (such event shall be referred to herein as the "Termination" of such Participant or such Participant being "Terminated") and only to the extent that the Options have not terminated earlier due to their Expiration Date. (i) Death. If Participant is Terminated by reason of his or her death (or if he or she dies within one year after ceasing to be an Employee because of his or her "Permanent Disability," or within three months after ceasing to be an Employee for other reasons), then the portion of the Options that has not vested on or prior to the date of such Termination shall continue to vest in accordance with the Vesting Schedule set forth in Section 1 hereof, and the Options may only be exercised by the executor or -2- 3 administrator of Participant's estate or any person or persons who shall have acquired the ISOs directly from Participant by bequest or inheritance. (ii) Permanent Disability. If Participant is Terminated by reason of his or her "Permanent Disability," then the Options that have not vested on or prior to the date of such Termination shall immediately vest in full, except that if the aggregate Fair Market Value of the Shares for which Options are exercisable for the first time in the calendar year in which such Termination occurs would exceed $100,000, the Options shall vest only to the extent that such Fair market Value does not exceed $100,000. The remainder of such unvested Options, if any, shall vest in full on the first day of the calendar year immediately following the calendar year in which such Termination occurs. All Options held by Participant may be exercised in accordance with this Agreement, until one year after such Termination, at which time the remaining Options shall terminate. "Permanent Disability" shall be deemed to have occurred if: (A) as a result of Participant's incapacity due to physical or mental illness, Participant shall have been continuously absent from his or her duties for at least six (6) consecutive months, and (B) the Company shall have given Participant written notice of the termination of the Participant's employment or other Status on account of Participant's incapacity, and (C) thirty (30) days shall have elapsed after the giving of such notice, and (D) the Participant shall not have resumed his or her duties on a full time basis prior to the expiration of such thirty (30) day period. (iii) Other Reasons. Except as provided below, if Participant is Terminated by the Company for any reason other than death or Permanent Disability, or if the Participant's Termination was voluntary due to normal retirement or after his normal retirement age (as determined by the Committee), then (A) the portion of the Options that has not vested on or prior to the date of such Termination shall vest immediately and in full on such date, and (B) the Options shall terminate upon the earlier of the Expiration Date or the completion of three (3) months after the date of such Termination. However, if the Termination was at the election of the Participant, other than for normal retirement in accordance with the preceding sentence, or was for "cause," as defined below, the accelerated vesting shall not occur and the Options shall terminate immediately upon such Termination. For purposes hereof, "cause" shall mean Termination of the Participant's employment or other status by the Company (or, if applicable, a Subsidiary thereof) because of: (A) Participant's conviction for or plea of nolo contendere to any felony or crime -3- 4 involving moral turpitude, (B) Participant's commission of an act of personal dishonesty or breach of fiduciary duty involving personal profit in connection with Participant's employment or other Status by the Company, (C) Participant's commission of an act involving intentional misconduct on the part of Participant in the conduct of his or her duties, (D) Participant's willful failure to execute lawful policies of the Company, (E) chronic alcoholism or any other form of addiction to drugs on the part of Participant, or (F) a material breach by Participant of any material provision of any employment agreement or other agreement with the Company to which he or she may be a party. (b) Other Events Causing Acceleration of Options. The Committee, in its sole discretion, may accelerate the exercisability of the Options at any time and for any reason. In addition, the Options shall fully vest upon a Change of Control, the remaining unvested Options shall immediately vest in full, unless the Fair Market Value of the Shares underlying the Options so vested pursuant to this Section 2(b), less any applicable excise tax pursuant to Code Section 4999, does not exceed the Fair Market Value of the Shares underlying the number of Options that could vest upon a Change in Control without subjecting Participant to such an excise tax, in which case the Options shall vest only to the extent that such vesting would not cause the Participant to become subject to an excise tax pursuant to Code Section 4999. To the extent any such Options do not vest upon a Change of Control pursuant to the preceding sentence, and such Options are not otherwise terminated, such Options shall continue to vest in accordance with the Vesting Schedule set forth in Section 1 hereof. (c) Other Events Causing Termination of Options. Notwithstanding anything to the contrary in this Agreement, the Options shall terminate upon the consummation of any of the following events or upon such later date as shall be determined by the Committee: (i) the dissolution or liquidation of the Company; or (ii) a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide for the continuance or substitution of such Options. 3. ADJUSTMENTS. If the outstanding securities of the class then subject to the Options are reclassified, changed into or exchanged for a different number or kind of securities, or cash, property, and/or securities are distributed in respect of such outstanding securities, in any such case as a result of a reorganization, merger, consolidation, or similar transaction (other than a regular cash dividend), or in the event that substantially all of the property and assets of the Company are sold, then, unless such event shall cause the Options to terminate pursuant to Section 2(c) hereof, the Committee shall make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Options; provided, however, that any such adjustments in the Options shall be made without changing the aggregate Exercise Price of the then unexercised portion of the Options. 4. EXERCISE. The Options shall be exercisable during Participant's lifetime only by Participant, and after Participant's death only by the person or entity entitled to do so under Participant's last will and testament or applicable intestate law. The Options may only be exercised by the delivery to the Company of a written notice of such exercise, which notice shall specify the number of Shares to be purchased and the aggregate Exercise Price for such shares, together with payment in full of such aggregate Exercise Price in cash or by check payable to the Company; provided, -4- 5 however, that, with the prior approval of the Committee, payment of such aggregate Exercise Price may instead be made, in whole or in part: (a) by the delivery to the Company of a promissory note in a form and amount satisfactory to the Committee, provided that the principal amount of such note shall not exceed the excess of such aggregate Exercise Price over the aggregate par value of the purchased Shares; or (b) by the delivery to the Company of a certificate or certificates representing Shares, duly endorsed or accompanied by a duly executed stock powers, which delivery effectively transfers to the Company good and valid title to such Shares, free and clear of any pledge, commitment, lien, claim or other encumbrance (such Shares to be valued on the basis of the aggregate fair market value thereof on the date of such exercise), provided that the Company is not then prohibited by any contractual obligation or legal restriction from purchasing or acquiring such Shares. 5. PAYMENT OF WITHHOLDING TAXES. (a) If the Company is obligated to withhold an amount on account of any federal, state, or local tax, including, but not limited to, any income tax, F.I.C.A. tax, disability insurance tax, or other employment tax, imposed for any reason, including, without limitation, upon the exercise of the Options or subsequent disposition of the underlying shares of beneficial interest, then the Participant, upon the occurrence of the taxable event and providing the Participant is still an Employee, shall pay the applicable withholding liability (the "Withholding Liability") to the Company in cash or by check payable to the Company; provided, however, that, in the discretion of the Committee, Participant may, pursuant to an irrevocable election of Participant (a "Withholding Election") made on or prior to the date of the occurrence of such taxable event, instead pay all or any part of the Withholding Liability by the delivery to the Company of a share certificate or certificates representing Shares, duly endorsed or accompanied by a duly executed stock power, which delivery effectively transfers to the Company good and valid title to such shares, free and clear of any pledge, commitment, lien, claim, or other encumbrance (such shares to be valued on the basis of the aggregate Fair Market Value thereof on the date of such exercise), provided that the Company is not then prohibited by any contractual obligation or legal restriction from purchasing or acquiring such Shares. (b) The Committee, in its sole discretion, may (1) impose such additional conditions under Sections 4 and 5 as may be required to comply with Rule 16b-3 promulgated under the Exchange Act, and (2) waive any of the restrictions in Sections 4 and 5 in the event that either (A) the transaction would not result in liability under Section 16(b) of the Exchange Act, or (B) the Participant consents to liability thereunder and consents to disgorge any profits relating thereto to the Company. (c) The Committee shall have sole discretion to approve or disapprove any Withholding Election and may adopt such rules and regulations as are consistent with and necessary to implement the foregoing. The Committee may permit Participant to make a Withholding Election to pay withholding taxes in excess of the minimum amount required by law, provided that the amount of withholding taxes so paid does not exceed the estimated total federal, state, and local tax liability of Participant attributable to such exercise. -5- 6 6. STOCK EXCHANGE REQUIREMENTS. Notwithstanding anything to the contrary in this Agreement, no Shares purchased upon exercise of the Option, and no certificate representing all or any part of such shares, shall be issued or delivered if (a) such shares have not been admitted to listing upon official notice of issuance on each stock exchange or the National Association of Securities Dealers Automated Quotation System upon which the Shares are then listed, or (b) in the opinion of counsel to the Company, such issuance or delivery would cause the Company to be in violation of or to incur liability under any federal, state or other securities law, or any requirement of any listing agreement to which the Company is a party, or any other requirement of law or of any administrative or regulatory body having jurisdiction over the Company. 7. STATE OF RESIDENCE. Participant represents to the Company that Participant is a bona fide resident of the State of Texas (the "State"). Notwithstanding anything to the contrary herein, this Agreement shall not become effective until the making of all applicable securities filings under the laws of the State and the effectiveness thereof. Participant shall promptly notify the Company in writing if the Participant becomes a bona fide resident of any jurisdiction other than the State. 8. NONTRANSFERABILITY. Neither the Options nor any interest therein may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner other than by will or the laws of descent and distribution. 9. SALE RESTRICTIONS. Except as otherwise permitted under Section 16 of the Exchange Act (including any Rules promulgated thereunder), no Participant, if he or she is subject to liability under Section 16 of the Exchange Act, may sell any Option Share issued hereunder until the expiration of the six (6) month period commencing on the Date of Grant, unless the same would either not result in liability under said Section 16 or the Participant consents to such liability and consents to disgorge any profits relating thereto to the Company. 10. PLAN. The Options are granted pursuant to the Plan, as in effect on the Date of Grant, and is subject to all the terms and conditions of the Plan, as the same may be amended from time to time; provided, however, that (a) no such amendment shall deprive any Participant of any Options theretofore granted (or rights thereunder) under the Plan without the consent of such Participant; and (b) without the approval of a majority of the shareholders of the Company, the Board may not amend the Plan to make any other change requiring shareholder approval under (i) any applicable rule, regulation, or procedure of any national securities exchange or securities association upon which any securities of the Company are listed (or any listing agreement with any such securities exchange or securities association), (ii) Rule 16b-3 promulgated under the Exchange Act, or (iii) other applicable law. The interpretation and construction by the Committee of the Plan, this Agreement, the Options granted hereunder, and such rules and regulations as may be adopted by the Committee for the purpose of administering the Plan, shall be final and binding upon Participant. Until the Options shall expire, terminate, or be exercised in full, the Company shall, upon written request therefor, send a copy of the Plan, in its then-current form, to Participant or any other person or entity then entitled to exercise the Options. 11. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote, receive dividends, or be deemed for any purpose the holder of any Shares until the -6- 7 Options shall have been duly exercised in accordance with the provisions of this Agreement. 12. STATUS. No provision of this Agreement or of the Options granted hereunder shall (a) confer upon Participant any right to continue in his or her Status with the Company or any of its subsidiaries, (b) affect the right of the Company and each of its subsidiaries to Terminate the Status of Participant, with or without cause, or (c) confer upon Participant any right to participate in any employee benefit plan or other program of the Company or any of its subsidiaries other than the Plan. Participant hereby acknowledges and agrees that the Company and each of its subsidiaries may terminate the employment of Participant at any time and for any reason, or for no reason, unless Participant and the Company or such subsidiary are parties to a written employment agreement that expressly provides otherwise. 13. NOTICES. Any notice to be given to the Company shall be personally delivered to or addressed to the Secretary of the Company, at its principal office, and any notice to be given to the Participant shall be addressed to him or her at the address given beneath his or her signature hereto, or at such other address as the Participant may hereafter designate in writing to the Company. Any notice to the Company is deemed given when received by the Company. Any notice to the Participant is deemed given when enclosed in a properly sealed envelope addressed as aforesaid, and deposited, postage prepaid, in a post office or branch post office regularly maintained by the United States. 14. SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the Company and Participant, Participant's beneficiaries, heirs, executors, and administrators, and the Company's successors and assigns. 15. GOVERNING LAW. THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN THIS AGREEMENT AND THE OPTIONS GRANTED HEREUNDER, EXCEPT TO THE EXTENT THAT THE FEDERAL LAW OF THE UNITED STATES OF AMERICA PREEMPTS SUCH LAW, IN WHICH CASE SUCH FEDERAL LAW SHALL APPLY. 16. AGREEMENT CONTINGENT ON SHAREHOLDER APPROVAL. Notwithstanding the Vesting Schedule set forth in Section 1 hereof, the Options granted hereunder are granted contingent on the shareholders of the Company approving the Plan within one year from Board approval of the Plan. No Options shall vest until the Plan is duly approved by the shareholders of the Company, and in the event the shareholders do not approve the Plan within one year from such Board approval, this Agreement (and all Options granted hereunder) shall be null and void. Upon such shareholder approval, the Vesting Schedule in Section 1 shall become effective, except that if Options would have previously vested thereunder but for lack of shareholder approval, the vesting date of such Options shall be the date of such shareholder approval. [SIGNATURES ON NEXT PAGE] -7- 8 IN WITNESS WHEREOF, the Company and Participant have duly executed and delivered this Agreement effective as of the Date of Grant. LIBERTE INVESTORS By: /s/ Bradley S. Buttermore ---------------------------------------- Name: Bradley S. Buttermore Title: Senior Vice President, Treasurer and Secretary /s/ Robert Ted Enloe III ------------------------------------------- Robert Ted Enloe III ------------------------------------------- Social Security Number Address: 8823 Briarwood Lane Dallas, TX 75209 -8- EX-10.12 5 STOCK OPTION AGREEMENT W/BRADLEY S. BUTTERMORE 1 EXHIBIT 10.12 LIBERTE INVESTORS INCENTIVE STOCK OPTION AGREEMENT (1995 EQUITY INCENTIVE PLAN) This Stock Option Agreement ("Agreement") is made and entered into as of the Date of Grant indicated below by and between Liberte Investors, a Massachusetts business trust (the "Company"), and the person named below ("Participant"). WHEREAS, Participant is a full-time employee of the Company and/or one or more of its subsidiaries; and WHEREAS, pursuant to the Company's 1995 Equity Incentive Plan (the "Plan"; capitalized terms not defined herein shall have the meanings ascribed to them in the Plan), the Compensation Committee of the Board of Trustees of the Company (the "Committee") has approved the grant to Participant of options to purchase shares of beneficial interest, no par value, of the Company (the "Shares"), on the terms and conditions set forth herein; NOW, THEREFORE, in consideration of the foregoing recitals and the covenants set forth herein, the Company and Participant hereby agree as follows: 1. GRANT OF OPTION; CERTAIN TERMS AND CONDITIONS. The Company hereby grants to Participant, and Participant hereby accepts, as of the Date of Grant, options to purchase the number of Shares indicated below (the "Options") at the Exercise Price per Share indicated below. Subject to certain anti-dilution adjustments, each Option entitles Participant to purchase one Share. The Options shall expire at 5:00 o'clock p.m. (local time at the Company's principal executive office) on the Expiration Date indicated below (unless earlier terminated pursuant to Section 2 hereof), and shall be subject to all of the terms and conditions set forth in this Agreement. Subject to Section 16 hereof, beginning on January 1, 1996, and on each anniversary thereof, Participant may exercise the Options to purchase that number of Shares (rounded to the nearest whole Share) equal to the total number of Shares multiplied by the Annual Vesting Rate indicated below. PARTICIPANT: BRADLEY S. BUTTERMORE DATE OF GRANT: FEBRUARY 15, 1995 NUMBER OF SHARES PURCHASABLE: 246,000 EXERCISE PRICE PER SHARE: $1.625 EXPIRATION DATE: FEBRUARY 15, 2005 ANNUAL VESTING RATE: 25% The Options are intended to qualify as incentive stock options ("Incentive Stock Options" or "ISOs") under Section 422 of the Internal Revenue Code of 1986, as amended ("Code"). In connection therewith, the Company hereby represents that (a) the Date of Grant is not more than 10 years after the date the Plan was adopted by the Board, or the date the Plan was approved by the shareholders of the -1- 2 Company, whichever is earlier; (b) Participant is a full-time employee of the Company or one of its subsidiaries ("Employee"); (c) the Expiration Date is not more than 10 years after the Date of Grant, and (d) the Exercise Price per share is not less than the Fair Market Value per share on the Date of Grant. Participant hereby represents that, on the Date of Grant, Participant does not own (after application of the family and other attribution rules of Section 424(d) of the Code) more than 10% of the total combined voting power of all classes of stock of the Company or of its parent or subsidiary corporations. Moreover, the Options shall not be transferable by Participant otherwise than by will or the laws of descent and distribution, and shall be exercisable, during Participant's lifetime, only by Participant. Finally, to the extent that the aggregate Fair Market Value (determined as of the date such Options are granted) of the Shares with respect to which Incentive Stock Options are exercisable for the first time by Participant during any calendar year (under the Plan and all other stock option plans of the Company and its Parents and Subsidiaries) exceeds $100,000, then such excess over $100,000 shall not be considered as subject to Incentive Stock Options, but rather shall automatically be considered as subject to non-qualified options. Under this rule, the Company takes into account Shares subject to Incentive Stock Options that are purchasable for the first time in the calendar year, in the order in which such Incentive Stock Options were granted. 2. ACCELERATION AND TERMINATION OF OPTION. (a) Termination of Employment or Other Status. The following rules shall apply when Participant ceases to be an Employee (such event shall be referred to herein as the "Termination" of such Participant or such Participant being "Terminated") and only to the extent that the Options have not terminated earlier due to their Expiration Date. (i) Death. If Participant is Terminated by reason of his or her death (or if he or she dies within one year after ceasing to be an Employee because of his or her "Permanent Disability," or within three months after ceasing to be an Employee for other reasons), then the portion of the Options that has not vested on or prior to the date of such Termination shall continue to vest in accordance with the Annual Vesting Rate in Section 1 hereof, and the Options may only be exercised by the executor or administrator of Participant's estate or any person or persons who shall have acquired the ISOs directly from Participant by bequest or inheritance. (ii) Permanent Disability. If Participant is Terminated by reason of his or her "Permanent Disability," then the Options that have not vested on or prior to the date of such Termination shall immediately vest in full, except that if the aggregate Fair Market Value of the Shares for which Options are exercisable for the first time in the calendar year in which such Termination occurs would exceed $100,000, the Options shall vest only to the extent that such Fair Market Value does not exceed $100,000. The remainder of such unvested Options, if any, shall vest in full on -2- 3 the first day of the calendar year after the calendar year in which such Termination occurs. All Options held by the Participant may be exercised in accordance with this Agreement, until one year from the date of such Termination, at which time the remaining Options shall terminate. "Permanent Disability" shall be deemed to have occurred if: (A) as a result of Participant's incapacity due to physical or mental illness, Participant shall have been continuously absent from his or her duties for at least six (6) consecutive months, and (B) the Company shall have given Participant written notice of the termination of the Participant's employment or other Status on account of Participant's incapacity, and (C) thirty (30) days shall have elapsed after the giving of such notice, and (D) the Participant shall not have resumed his or her duties on a full time basis prior to the expiration of such thirty (30) day period. (iii) Other Reasons. Except as provided below, if Participant is Terminated by the Company for any reason other than death or Permanent Disability, or if Participant's Termination was voluntary due to normal retirement on or after his normal retirement age (as determined by the Committee), then (A) the portion of the Options that has not vested on or prior to the date of such Termination shall vest immediately and in full on such date, and (B) the Options shall terminate upon the earlier of the Expiration Date or the completion of three (3) months after the date of such Termination. However, if the Termination was at the election of the Participant, other than for normal retirement in accordance with the preceding sentence, or was for "cause," as defined below, the accelerated vesting shall not occur and the Options shall terminate immediately upon such Termination. For purposes hereof, "cause" shall mean Termination of the Participant's employment or other status by the Company (or, if applicable, a Subsidiary thereof) because of: (A) Participant's conviction for or plea of nolo contendere to any felony or crime involving moral turpitude, (B) Participant's commission of an act of personal dishonesty or breach of fiduciary duty involving personal profit in connection with Participant's employment or other Status by the Company, (C) Participant's commission of an act involving intentional misconduct on the part of Participant in the conduct of his or her duties, (D) Participant's willful failure to execute lawful policies of the Company, (E) chronic alcoholism or any other form of addiction to drugs on the part of Participant, or (F) a material breach by Participant of any material provision of any employment agreement or other agreement with the Company to which he or she may be a party. -3- 4 (b) Other Events Causing Acceleration of Options. The Committee, in its sole discretion, may accelerate the exercisability of the Options at any time and for any reason. In addition, upon a Change of Control, the remaining unvested Options shall immediately vest in full, unless the Fair Market Value of the Shares underlying the Options so vested pursuant to this Section 2(b), less any applicable excise tax pursuant to Code Section 4999, does not exceed the Fair Market Value of the Shares underlying the number of Options that could vest upon a Change in Control without subjecting Participant to such an excise tax, in which case the Options shall vest only to the extent that such vesting would not cause the Participant to become subject to an excise tax pursuant to Code Section 4999. To the extent any such Options do not vest upon a Change of Control pursuant to the preceding sentence, and such Options are not otherwise terminated, such Options shall continue to vest in accordance with the Annual Vesting Rate set forth in Section 1 hereof. (c) Other Events Causing Termination of Options. Notwithstanding anything to the contrary in this Agreement, the Options shall terminate upon the consummation of any of the following events or upon such later date as shall be determined by the Committee: (i) the dissolution or liquidation of the Company; or (ii) a sale of substantially all of the property and assets of the Company, unless the terms of such sale shall provide for the continuance or substitution of such Options. 3. ADJUSTMENTS. If the outstanding securities of the class then subject to the Options are reclassified, changed into or exchanged for a different number or kind of securities, or cash, property, and/or securities are distributed in respect of such outstanding securities, in any such case as a result of a reorganization, merger, consolidation, or similar transaction (other than a regular cash dividend), or in the event that substantially all of the property and assets of the Company are sold, then, unless such event shall cause the Options to terminate pursuant to Section 2(c) hereof, the Committee shall make appropriate and proportionate adjustments in the number and type of shares or other securities or cash or other property that may thereafter be acquired upon the exercise of the Options; provided, however, that any such adjustments in the Options shall be made without changing the aggregate Exercise Price of the then unexercised portion of the Options. 4. EXERCISE. The Options shall be exercisable during Participant's lifetime only by Participant, and after Participant's death only by the person or entity entitled to do so under Participant's last will and testament or applicable intestate law. The Options may only be exercised by the delivery to the Company of a written notice of such exercise, which notice shall specify the number of Shares to be purchased and the aggregate Exercise Price for such shares, together with payment in full of such aggregate Exercise Price in cash or by check payable to the Company; provided, however, that, with the prior approval of the Committee, payment of such aggregate Exercise Price may instead be made, in whole or in part: (a) by the delivery to the Company of a promissory note in a form and amount satisfactory to the Committee, provided that the principal amount of such note shall not exceed the excess of such aggregate Exercise Price over the aggregate par value of the purchased Shares; or (b) by the delivery to the Company of a certificate or certificates representing Shares, duly endorsed or accompanied by a duly executed stock powers, which delivery effectively transfers to the Company good and valid title to such Shares, -4- 5 free and clear of any pledge, commitment, lien, claim or other encumbrance (such Shares to be valued on the basis of the aggregate fair market value thereof on the date of such exercise), provided that the Company is not then prohibited by any contractual obligation or legal restriction from purchasing or acquiring such Shares. 5. PAYMENT OF WITHHOLDING TAXES. (a) If the Company is obligated to withhold an amount on account of any federal, state, or local tax, including, but not limited to, any income tax, F.I.C.A. tax, disability insurance tax, or other employment tax, imposed for any reason, including, without limitation, upon the exercise of the Options or subsequent disposition of the underlying shares of beneficial interest, then the Participant, upon the occurrence of the taxable event and providing the Participant is still an Employee, shall pay the applicable withholding liability (the "Withholding Liability") to the Company in cash or by check payable to the Company; provided, however, that, in the discretion of the Committee, Participant may, pursuant to an irrevocable election of Participant (a "Withholding Election") made on or prior to the date of the occurrence of such taxable event, instead pay all or any part of the Withholding Liability by the delivery to the Company of a share certificate or certificates representing Shares, duly endorsed or accompanied by a duly executed stock power, which delivery effectively transfers to the Company good and valid title to such shares, free and clear of any pledge, commitment, lien, claim, or other encumbrance (such shares to be valued on the basis of the aggregate Fair Market Value thereof on the date of such exercise), provided that the Company is not then prohibited by any contractual obligation or legal restriction from purchasing or acquiring such Shares. (b) The Committee, in its sole discretion, may (1) impose such additional conditions under Sections 4 and 5 as may be required to comply with Rule 16b-3 promulgated under the Exchange Act, and (2) waive any of the restrictions in Sections 4 and 5 in the event that either (A) the transaction would not result in liability under Section 16(b) of the Exchange Act, or (B) the Participant consents to liability thereunder and consents to disgorge any profits relating thereto to the Company. (c) The Committee shall have sole discretion to approve or disapprove any Withholding Election and may adopt such rules and regulations as are consistent with and necessary to implement the foregoing. The Committee may permit Participant to make a Withholding Election to pay withholding taxes in excess of the minimum amount required by law, provided that the amount of withholding taxes so paid does not exceed the estimated total federal, state, and local tax liability of Participant attributable to such exercise. 6. STOCK EXCHANGE REQUIREMENTS. Notwithstanding anything to the contrary in this Agreement, no Shares purchased upon exercise of the Option, and no certificate representing all or any part of such shares, shall be issued or delivered if (a) such shares have not been admitted to listing upon official notice of issuance on each stock exchange or the National Association of Securities Dealers Automated Quotation System upon which the Shares are then listed, or (b) in the opinion of counsel to the Company, such issuance or delivery would cause the Company to be in violation of or to incur liability under any federal, state or other securities law, or any requirement of any listing agreement to which the Company is a party, or any other requirement of law or of any administrative or regulatory body having jurisdiction over the Company. -5- 6 7. STATE OF RESIDENCE. Participant represents to the Company that Participant is a bona fide resident of the State of Texas (the "State"). Notwithstanding anything to the contrary herein, this Agreement shall not become effective until the making of all applicable securities filings under the laws of the State and the effectiveness thereof. Participant shall promptly notify the Company in writing if the Participant becomes a bona fide resident of any jurisdiction other than the State. 8. NONTRANSFERABILITY. Neither the Options nor any interest therein may be sold, assigned, conveyed, gifted, pledged, hypothecated or otherwise transferred in any manner other than by will or the laws of descent and distribution. 9. SALE RESTRICTIONS. Except as otherwise permitted under Section 16 of the Exchange Act (including any Rules promulgated thereunder), no Participant, if he or she is subject to liability under Section 16 of the Exchange Act, may sell any Option Share issued hereunder until the expiration of the six (6) month period commencing on the Date of Grant, unless the same would either not result in liability under said Section 16 or the Participant consents to such liability and consents to disgorge any profits relating thereto to the Company. 10. PLAN. The Options are granted pursuant to the Plan, as in effect on the Date of Grant, and is subject to all the terms and conditions of the Plan, as the same may be amended from time to time; provided, however, that (a) no such amendment shall deprive any Participant of any Options theretofore granted (or rights thereunder) under the Plan without the consent of such Participant; and (b) without the approval of a majority of the shareholders of the Company, the Board may not amend the Plan to make any other change requiring shareholder approval under (i) any applicable rule, regulation, or procedure of any national securities exchange or securities association upon which any securities of the Company are listed (or any listing agreement with any such securities exchange or securities association), (ii) Rule 16b-3 promulgated under the Exchange Act, or (iii) other applicable law. The interpretation and construction by the Committee of the Plan, this Agreement, the Options granted hereunder, and such rules and regulations as may be adopted by the Committee for the purpose of administering the Plan, shall be final and binding upon Participant. Until the Options shall expire, terminate, or be exercised in full, the Company shall, upon written request therefor, send a copy of the Plan, in its then-current form, to Participant or any other person or entity then entitled to exercise the Options. 11. STOCKHOLDER RIGHTS. No person or entity shall be entitled to vote, receive dividends, or be deemed for any purpose the holder of any Shares until the Options shall have been duly exercised in accordance with the provisions of this Agreement. 12. STATUS. No provision of this Agreement or of the Options granted hereunder shall (a) confer upon Participant any right to continue in his or her Status with the Company or any of its subsidiaries, (b) affect the right of the Company and each of its subsidiaries to Terminate the Status of Participant, with or without cause, or (c) confer upon Participant any right to participate in any employee benefit plan or other program of the Company or any of its subsidiaries other than the Plan. Participant hereby acknowledges and agrees that the Company and each of its subsidiaries may terminate the employment of Participant at any time and for any -6- 7 reason, or for no reason, unless Participant and the Company or such subsidiary are parties to a written employment agreement that expressly provides otherwise. 13. NOTICES. Any notice to be given to the Company shall be personally delivered to or addressed to the Secretary of the Company, at its principal office, and any notice to be given to the Participant shall be addressed to him or her at the address given beneath his or her signature hereto, or at such other address as the Participant may hereafter designate in writing to the Company. Any notice to the Company is deemed given when received by the Company. Any notice to the Participant is deemed given when enclosed in a properly sealed envelope addressed as aforesaid, and deposited, postage prepaid, in a post office or branch post office regularly maintained by the United States. 14. SUCCESSOR AND ASSIGNS. This Agreement shall inure to the benefit of and be binding upon the Company and Participant, Participant's beneficiaries, heirs, executors, and administrators, and the Company's successors and assigns. 15. GOVERNING LAW. THE LAWS OF THE COMMONWEALTH OF MASSACHUSETTS SHALL GOVERN THIS AGREEMENT AND THE OPTIONS GRANTED HEREUNDER, EXCEPT TO THE EXTENT THAT THE FEDERAL LAW OF THE UNITED STATES OF AMERICA PREEMPTS SUCH LAW, IN WHICH CASE SUCH FEDERAL LAW SHALL APPLY. 16. AGREEMENT CONTINGENT ON SHAREHOLDER APPROVAL. Notwithstanding the Annual Vesting Rate set forth in Section 1 hereof, the Options granted hereunder are granted contingent on the shareholders of the Company approving the Plan within one year from Board approval of the Plan. No Options shall vest until the Plan is duly approved by the shareholders of the Company, and in the event the shareholders do not approve the Plan within one year from such Board approval, this Agreement (and all Options granted hereunder) shall be null and void. Upon receiving such shareholder approval, the Annual Vesting Rate in Section 1 shall become effective, except that if Options would have previously vested thereunder but for lack of shareholder approval, the vesting date of such Options shall be the date of such shareholder approval. [SIGNATURES ON NEXT PAGE] -7- 8 IN WITNESS WHEREOF, the Company and Participant have duly executed and delivered this Agreement effective as of the Date of Grant. LIBERTE INVESTORS By: /s/ R. Ted Enloe III --------------------------------------------- Name: R. Ted Enloe III Title: President and Chief Executive Officer /s/ Bradley S. Buttermore ------------------------------------------------ Bradley S. Buttermore ------------------------------------------------ Social Security Number Address: 322 Harbor Landing Rockwall, TX 75087 -8- EX-27 6 FINANCIAL DATA SCHEDULE
5 YEAR JUN-30-1995 JUL-01-1994 JUN-30-1995 20,635,762 0 6,513,924 10,498,922 15,385,214 20,862,254 0 0 32,035,978 416,164 0 0 0 0 31,619,814 32,035,978 0 2,172,074 0 0 1,847,653 3,192,000 0 (2,867,579) 0 (2,867,579) 0 0 0 (2,867,579) (.23) 0
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