1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1995 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES - --- EXCHANGE ACT OF 1934 FOR TRANSITION PERIOD FROM TO ---------- ---------- COMMISSION FILE NUMBER 1-6802 LIBERTE INVESTORS (Exact name of Registrant as specified in its Charter) CREATED UNDER DECLARATION OF TRUST 75-1328153 PURSUANT TO THE LAWS OF (I.R.S. Employer THE COMMONWEALTH OF MASSACHUSETTS Identification No.) (State or other jurisdiction of incorporation or organization) 600 N. PEARL ST., SUITE 420 75201 DALLAS, TEXAS (Zip Code) (Address of principal executive offices) Registrant's telephone number, including area code (214) 720-8950 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ------ ------ APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. YES X * NO ------ ------ * The registrant's confirmed plan of reorganization under Chapter 11 of the Bankruptcy code did not provide for the distribution of securities. APPLICABLE ONLY TO CORPORATE ISSUERS: The number of shares outstanding of each of the issuer's class of securities as of February 9, 1996: Shares of Beneficial Interest, no par value - 12,153,658 shares. 2 FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1995 LIBERTE INVESTORS INDEX Page ---- PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS (UNAUDITED) Consolidated Balance Sheet - December 31, 1995 and June 30, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3 Consolidated Statement of Operations - Quarter and Six Months Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Consolidated Statement of Cash Flows - Six Months Ended December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5 Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 PART II - OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 INDEX TO EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 2 3 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEET LIBERTE INVESTORS AND SUBSIDIARY December 31, June 30, 1995 1995 (Unaudited) (See Note) --------------- -------------- Assets Notes Receivable: RPI $ 5,168,585 $ 5,406,132 Mortgage loans 1,297,512 401,240 Foreclosed real estate: Nonearning - NOTE B 3,775,084 15,385,214 -------------- ------------- 10,241,181 21,192,586 Less: Allowance for possible losses 92,005 10,498,922 -------------- ------------- 10,149,176 10,693,664 Unrestricted cash and cash equivalents 21,691,397 20,576,517 Restricted cash and cash equivalents 58,928 59,245 Accrued interest and other receivables 154,099 103,888 Other assets 545,761 602,664 -------------- ------------- $ 32,599,361 $ 32,035,978 ============== ============= - ------------------------------------------------------------------------------------------------------------ Liabilities and Shareholders' Equity Liabilities Accrued and other liabilities $ 442,753 $ 416,164 Shareholders' Equity Shares of Beneficial Interest, no par value, unlimited authorization: 12,423,208 issued and 12,153,658 outstanding, net of 269,550 shares held in Treasury, at December 31, 1995 and June 30, 1995 32,156,608 31,619,814 -------------- ------------- $ 32,599,361 $ 32,035,978 ============== ============= NOTE: The balance sheet at June 30, 1995, has been derived from the audited financial statements at that date. See notes to consolidated financial statements. 3 4 CONSOLIDATED STATEMENT OF OPERATIONS (Unaudited) LIBERTE INVESTORS AND SUBSIDIARY Quarter Ended Six Months Ended December 31, December 31, ------------------------------ ------------------------------- 1995 1994 1995 1994 ------------ ------------- ------------ -------------- Income Notes receivable interest $ 130,420 $ 156,119 $ 250,840 $ 400,447 Investment interest 307,001 168,163 611,483 283,343 Gain on disposition of real estate 439,161 -- 446,001 -- Consulting and other 212,205 500,000 280,335 601,210 ------------ ------------- ------------ -------------- 1,088,787 824,282 1,588,659 1,285,000 ------------ ------------- ------------ -------------- Expenses Provision for possible losses -- 1,682,000 -- 2,192,000 Salaries and related costs 146,003 190,653 246,102 373,444 General and administrative 100,651 85,691 195,796 177,567 Legal, audit and advisory 198,820 20,000 454,778 41,754 Foreclosed real estate 28,830 88,354 90,064 186,364 Management fees -- 58,340 -- 128,961 Trustees' fees and expenses 38,100 8,100 55,200 21,900 ------------ ------------- ------------ -------------- 512,404 2,133,138 1,041,940 3,121,990 ------------ ------------- ------------ -------------- Net income (loss) $ 576,383 $ (1,308,856) $ 546,719 $ (1,836,990) ============ ============= ============ ============== Net income (loss) per Share of Beneficial Interest $.05 $(.11) $.04 $(.15) Weighted average number of Shares of Beneficial Interest 12,153,658 12,423,208 12,153,658 12,423,208 Cash dividends declared per share -- -- -- -- See notes to consolidated financial statements. 4 5 CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) LIBERTE INVESTORS AND SUBSIDIARY Six Months Ended December 31, ---------------------------------- 1995 1994 -------------- ------------- Operating activities: Net income (loss) $ 546,719 $ (1,836,990) Noncash expenses and revenues included in net loss: Provision for possible losses -- 2,192,000 Net change in other receivables, assets and liabilities (127) (109,422) Income from impaired loans (273,110) -- Gains from disposition of foreclosed real estate (446,001) -- -------------- ------------- Net cash provided by operating activities (172,519) 245,588 -------------- ------------- Investing activities: Collections on mortgage loans 401,937 550,995 Collections on RPI note receivable 237,547 356,321 Advances on mortgage loans -- (141,969) Expenditures on foreclosed real estate -- (109,309) Proceeds from the disposition of foreclosed real estate 647,598 9,909,804 Net sales of restricted cash investments 317 56,555 -------------- ------------- Net cash provided by investing activities 1,287,399 10,622,397 -------------- ------------- Net increase in unrestricted cash and cash equivalents 1,114,880 10,867,985 Unrestricted cash and cash equivalents at beginning of period 20,576,517 9,157,640 -------------- ------------- Unrestricted cash and cash equivalents at end of period $ 21,691,397 $ 20,025,625 ============== ============= Schedule of noncash investing activities: Transfer of mortgage loans to foreclosed real estate $ -- $ 4,792,781 Charge-offs to allowance for possible losses, net - NOTE B $ 10,406,917 $ 2,031,261 Sales of foreclosed real estate financed by mortgage loans $ 1,076,800 $ 138,400 See notes to consolidated financial statements. 5 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) LIBERTE INVESTORS AND SUBSIDIARY DECEMBER 31, 1995 NOTE A - BASIS OF PRESENTATION The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the quarter ended and six months ended December 31, 1995, are not necessarily indicative of the results that may be expected for the fiscal year ending June 30, 1996. For further information, refer to the financial statements and footnotes included in the Annual Report on Form 10-K of Liberte Investors for the fiscal year ended June 30, 1995, as amended. The accompanying financial statements include the accounts of Liberte Investors and Liberte Corp., a wholly-owned subsidiary which is currently inactive. All intercompany balances and transactions have been eliminated. As used herein, the "Trust" refers to Liberte Investors and its subsidiary. NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Adoption of Authoritative Statements: Effective July 1, 1995, the Trust adopted Statement of Financial Accounting Standards ("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." SFAS No. 114 requires that the impaired value of a loan be based on either (i) the present value of expected future cash flows discounted at the loan's effective interest rate, or (ii) the fair value of the collateral if the repayment of the loan is expected to be provided solely by the collateral. The adoption of the new statement did not have a material effect on the Trust's financial condition, results of operations, or cash flows. At December 31, 1995, the Trust had one impaired loan with a carrying value of $212,579 and nine impaired loans, from prior foreclosure related deficiency judgments, with no carrying value. There is no allowance allocated to these assets. Income from impaired loans is recorded on a cash basis, and during the quarter ended December 31, 1995, totaled $204,980. During the quarter ended December 31, 1995, the average month-end recorded investment in impaired loans was $212,579. Effective July 1, 1995, the Trust adopted SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of." The statement requires that assets held for disposal be carried at the lower of their carrying amount or fair value less cost to sell. The adoption of the new statement did not have a material effect on the Trust's financial condition, results of operations, or cash flows, as foreclosed real estate was previously carried at fair value less estimated cost to sell. The balance sheet effect of adopting SFAS No. 121 was the netting of allocated reserves against the related foreclosed real estate. Restatement of previously issued financial statements to comply with SFAS No. 121 is neither permitted nor required. At December 31, 1995, the Trust held assets to be disposed of consisting of foreclosed real estate in the form of land and developed single-family lots. The December 31, 1995, carrying amount of these assets was $3,775,084. The single family lots are being sold on a quarterly basis and are expected to be completely liquidated by the end of fiscal 1997. The carrying amount of these lots was $919,709 at December 31, 1995. 6 7 The balance of the Trust's foreclosed real estate consists of 14 parcels of land totaling approximately 608 acres in San Antonio, Texas. Certain parcels are under contract for sale and the balance are being marketed for sale at prices comparable to similar assets in the San Antonio area. The Trust expects to liquidate these parcels on a quarterly basis over the next two fiscal years. Reclassifications: Certain amounts in previously issued financial statements have been reclassified to conform to the December 31, 1995, presentation. NOTE C - COMMITMENTS AND CONTINGENCIES At December 31, 1995, the Trust had commitments for indemnification of development bond issuers and other guarantees totaling $109,045. Cash and cash equivalents at December 31, 1995, included restricted cash of $58,928 for unpaid claims related to the Trust's previous bankruptcy. At June 30, 1995, restricted cash included $59,245 for such claims. 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 D - SHARE 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, or would become, a holder of 5% or more of the Shares, and prohibits any transfer of Shares if, as a result of the transfer, any Person would become a holder of 5% or more of the Shares or increase a 5% or more ownership position, in each case 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 reasonably requested by the Trust with respect to the proposed transferee's direct or indirect ownership interests in Shares. 7 8 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. NOTE E - SUBSEQUENT EVENT On January 16, 1996, the Trust entered into a Stock Purchase Agreement (the "Stock Purchase Agreement") with Hunter's Glen/Ford, Ltd., a Texas limited partnership ("Hunter's Glen"), pursuant to which the Trust agreed to sell 7,137,863 newly issued shares to Hunter's Glen for $20,342,910 ($2.85 per share). Under certain circumstances, Hunter's Glen will purchase an additional 964,576 newly issued shares at $2.85 per share for an additional $2,749,041. After the sale, Hunter's Glen would own 37% or 40% of the outstanding shares. The partners of Hunter's Glen are Gerald J. Ford and certain family interests. Hunter's Glen has made a down-payment of $2,000,000, to be held in escrow pending the closing. The Trust has received a written opinion from Bear Stearns & Co. Inc. that the proposed sale is fair, from a financial point of view, to the Trust's public shareholders. Prior to the sale of the shares pursuant to the Stock Purchase Agreement, the Trust will reorganize into a Delaware corporation that will succeed to all of the Trust's assets and liabilities. The offering of shares of the common stock of this Delaware corporation in connection with the reorganization of the Trust will be made only by means of a prospectus transmitted to the Trust's shareholders. Upon such reorganization, shareholders of the Trust will automatically become shareholders of the Delaware corporation on a share for share basis. Consummation of the transactions contemplated by the Stock Purchase Agreement is subject to a number of conditions, including the reorganization of the Trust into the Delaware corporation. Accordingly, Hunter's Glen would actually purchase shares of common stock from the Delaware corporation, rather than shares of beneficial interest from the Trust. In addition, the reorganization of the Trust and the sale of the shares are subject to the approval of the Trust's shareholders. At the closing, Mr. Ford will become the Chief Executive Officer of the Delaware corporation. The corporation's board of directors will consist of five directors, the Trust's three trustees, Mr. Ford, and another designee of Hunter's Glen. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS Operations resulted in net income of $576,000 for the quarter ended December 31, 1995, compared to a net loss of $1,309,000 for the same period in fiscal 1995. Operations for the six months ended December 31, 1995, resulted in net income of $547,000 compared to a net loss of $1,837,000 for the same period in fiscal 1995. The substantial change in operating results for both the quarter and six months were due to various factors discussed below, the largest factor being no provision for possible losses was taken in the quarter or six months ended December 31, 1995, as compared to $1,682,000 and $2,192,000 for the quarter and six months ended December 31, 1994, respectively. 8 9 Notes receivable interest income decreased to $130,000 in the second quarter of fiscal 1996 from $156,000 in the second quarter of fiscal 1995. The decrease was the result of a lower average outstanding balance of earning notes, partially offset by an increase in yield. Average earning notes decreased to $5.9 million with a yield of 8.45% in the second quarter of fiscal 1996 from $7.4 million with a yield of 7.84% in the second quarter of fiscal 1995. Notes receivable interest income decreased to $251,000 for the first six months of fiscal 1996 from $400,000 for the first six months of fiscal 1995. The decrease was the result of a lower average outstanding balance of earning notes, partially offset by an increase in yield. Average earning notes decreased to $5.6 million with a yield of 8.48% for the first six months of fiscal 1996 from $9.6 million with a yield of 8.08% for the first six months of fiscal 1995. The reduction in average earning notes is primarily a result of the foreclosure of a $4.8 million note receivable (the underlying collateral has since been disposed of for cash), and repayments of indebtedness by borrowers, partially offset by the addition of an earning note from the sale of real estate. Average nonearning notes for the second quarter of fiscal 1996 totaled $213,000 compared to $103,000 for the same period in fiscal 1995. Assuming the yield on these notes would have been the same as the yield on earning notes had they been on earning status, interest income would have been $4,500 higher in the second quarter of fiscal 1996 and $2,000 higher in the second quarter of fiscal 1995. Average nonearning notes for the first six months of fiscal 1996 totaled $249,000 compared to $185,000 for the same period in fiscal 1995. Assuming the yield on these notes would have been the same as the yield on earning notes had they been on earning status, interest income would have been $10,500 higher in the first six months of fiscal 1996 and $7,500 higher in the first six months of fiscal 1995. Investment interest income increased to $307,000 in the second quarter of fiscal 1996 from $168,000 in the second quarter of fiscal 1995. This is primarily due to an increase in the daily average balance of unrestricted cash and cash equivalents to $21.3 million for the second quarter of fiscal 1996, from $13.1 million for the second quarter of fiscal 1995. The increase in unrestricted cash and cash equivalents is primarily a result of the sale of foreclosed real estate and collections on notes receivable. Investment interest income increased to $611,000 for the first six months of fiscal 1996 from $283,000 for the first six months of fiscal 1995. This is primarily due to an increase in the daily average balance of unrestricted cash and cash equivalents to $21.0 million for the first six months of fiscal 1996, from $11.8 million for the first six months of fiscal 1995. The increase in unrestricted cash and cash equivalents is primarily a result of the sale of foreclosed real estate and collections on notes receivable. The gain on dispositions of real estate represents proceeds received from the sale of foreclosed real estate in excess of its carrying value. The gain in the second quarter of fiscal 1996 is primarily due to the sale of single family lots located in Murrieta, California. The Trust initially reduced the carrying value of this California asset during the third quarter of fiscal 1995 after failing to close on a sales contract, the sale price of which was negatively affected by the increasing impact of fees levied by the municipality and agencies of the State of California. The Trust received an offer to purchase these single family lots during the second quarter of fiscal 1996 and was able to negotiate a sales price in excess of its carrying value. The Trust accepted a cash down payment and a note receivable (carrying a market rate of interest) from the buyer of the lots. Consulting and other income decreased in both the quarter ended and six months ended December 31, 1995, as compared to the quarter ended and six months ended December 31, 1994. For the quarter ended and six months ended December 31, 1995, consulting and other income consists primarily of cash collections on impaired loans, which had no carrying value, and dividends on the Trust's 9 10 investment in RPI Preferred Stock. For the quarter and six months ended December 31, 1994, consulting and other income consists primarily of consulting fees paid by Resurgence Properties, Inc. ("RPI"), and the early buyout of the consulting agreement between the Trust and RPI. One new loan was produced during the quarter ended and six months ended December 31, 1995, to facilitate the sale of foreclosed real estate. The Trust committed to fund one new loan totaling $686,000 during the six months ended December 31, 1994, of which $166,000 had been advanced as of December 31, 1994. No provision for possible losses was made in the quarter ended or six months ended December 31, 1995, compared to a provision of $1.7 million in the quarter ended, and $2.2 million for the six months ended, December 31, 1994. The allowance for possible losses was $92,000 at December 31, 1995, compared to $10.5 million at June 30, 1995, and $11.9 million at December 31, 1994. The substantial reduction in the allowance is a result of applying such allowance to the carrying value of foreclosed real estate upon the adoption of SFAS No. 121. The Trust believes the allowance for possible losses is adequate at December 31, 1995. See NOTE B - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. The following is a summary of transactions affecting the Trust's allowance for possible losses for the six months ended December 31, 1995. Six Months Ended December 31, 1995 ---------------------------------------------------- Mortgage Foreclosed Loans Real Estate Total ------------- -------------- ------------- Balance at July 1, 1995 $ 129,901 $ 10,369,021 $ 10,498,922 Reclassifications - SFAS No. 121 -- (10,331,733) (10,331,733) Amounts charged off, net of recoveries (23,496) (37,288) (60,784) ------------- -------------- ------------- Balance at September 30, 1995 106,405 -- 106,405 Provision for possible losses -- -- -- Amounts charged off, net of recoveries (14,400) -- (14,400) ------------- -------------- ------------- Balance at December 31, 1995 $ 92,005 $ -- $ 92,005 ============= ============== ============= Salaries and related costs were reduced for the quarter ended and six months ended December 31, 1995, as compared to the same periods in the prior year, primarily as a result of a reduced compensation package for the Chief Executive Officer affecting the last half of fiscal 1995 and the six months ended December 31, 1995. General and administrative costs increased slightly for the quarter ended and six months ended December 31, 1995, as compared to the same periods in the prior year. This increase is primarily due to the fact that the Trust became a self managed entity as of February 28, 1995, and therefore has general and administrative expenses that, in the same period of fiscal 1995, were the responsibility of the manager of the Trust. The increase in general and administrative costs is offset by the elimination of management fees paid during fiscal 1995. Legal, audit, and advisory expenses increased for the quarter ended and six months ended December 31, 1995, as compared to the same periods in the prior year, mainly due to activities related to potential acquisition candidates. 10 11 Foreclosed real estate expenses decreased for both the quarter ended and six months ended December 31, 1995, as compared to the same periods in the prior year. This was due to a reduction in the size of the real estate portfolio, including the elimination of operating real estate properties during fiscal 1995. Management fees were eliminated in the first quarter of fiscal 1996 due to the termination of the Management Agreement with Lomas Management in February 1995. The Trust is currently self managed. Trustee fees and expenses increased for the quarter ended and six months ended December 31, 1995, as compared to the same periods in the prior year. This is primarily due to a higher than normal number of Trustee meetings regarding potential acquisition candidates and other strategic opportunities. LIQUIDITY AND CAPITAL RESOURCES The Trust is currently debt free. Its principal funding requirements are operating expenses, including legal, audit, and advisory expenses expected to be incurred in connection with evaluating potential acquisition candidates and other strategic opportunities. The Trust's primary sources of funding operating expenses are collections on notes receivable, proceeds from the sale of foreclosed real estate, and investment interest. As described in the subsequent event note to the financial statements, the Trust has entered into an agreement to sell shares to Hunter's Glen constituting either 37% or 40% of the Trust's fully diluted shares immediately after the sale. The proceeds from this sale will be either $20.3 million or $23.1 million. This additional cash should permit the Trust to consider a greater number of acquisition candidates. In addition, Hunter's Glen is an affiliate of Mr. Gerald J. Ford, who the Trust anticipates will become the Chief Executive Officer of the Trust following the closing and the Trust's reorganization into a Delaware corporation. Mr. Ford has considerable experience in the acquisition of various companies, specifically in the financial services industry. Mr. Ford's involvement with the Trust could therefore facilitate the Trust's acquisition of another company. See NOTE E - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. MATERIAL CHANGES IN FINANCIAL CONDITION The adoption of certain authoritative accounting statements during the first quarter of fiscal 1996 resulted in a netting of substantially all of the Trust's allowance for possible losses on its foreclosed real estate against the previously reported gross carrying value. See NOTE B - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. SHARE 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, or would become, a holder of 5% or more of the Shares, and prohibits any transfer of Shares if, as a result of the transfer, any Person would become a holder of 5% or more of the Shares or increase a 5% or more ownership position, in each case 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. SEE NOTE D - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 11 12 PART II. OTHER INFORMATION ITEM 2. CHANGES IN SECURITIES The Sixth Amendment to the Declaration of Trust, dated November 22, 1995, amends the share transfer restrictions. The amendment modified certain definitions used in the share transfer restrictions to update and to more accurately reflect the federal income tax regulations that govern the limitations on the use of tax attributes which the share transfer restrictions are designed to avoid. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: 3.1 Declaration of Trust, restated to give effect to the First, Second, Third, Fourth, Fifth, and Sixth Amendments to the Declaration of Trust. 27.1 Financial Data Schedules (submitted to the SEC for its information). (b) Reports on Form 8-K: None. 12 13 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized. LIBERTE INVESTORS Date: February 13, 1996 By: /s/ TED ENLOE ----------------------- ------------------------------------------ Ted Enloe President and Chief Executive Officer Date: February 13, 1996 By: /s/ BRADLEY S. BUTTERMORE ----------------------- ------------------------------------------ Bradley S. Buttermore Principal Accounting and Financial Officer 13 14 LIBERTE INVESTORS INDEX TO EXHIBITS Exhibit No. - ----------- 3.1 Declaration of Trust, restated to give effect to the First, Second, Third, Fourth, Fifth, and Sixth Amendments to the Declaration of Trust. 27.1 Financial Data Schedules (submitted to the SEC for its information). 14