Filed On 3/30/04 11:22am ET ˇ SEC File 0-32859 ˇ Accession Number 950005-4-315
As Of Filer Filing As/For/On Docs:Pgs Issuer Agent
3/30/04 Bfa Liquidation Trust 10-K 12/31/03 3:39 Pacific Fin..Printing/FA
Document/Exhibit Description Pages Size
1: 10-K Annual Report 36 211K
2: EX-31 Certifications of Jessup and Roberts 2 15K
3: EX-32 Certification of Jessup and Roberts 1 7K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark one)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number: 000-32859
BFA LIQUIDATION TRUST
(Exact name of registrant as specified in its charter)
Arizona 86-1018485
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3300 N. Central Ave., Suite 900, Phoenix, Arizona 85012
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (602) 279-3587
Former Address: 1313 E. Osborn Rd, Suite 250, Phoenix, AZ 85014
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 whether the registrant is an accelerated filer (as
described in Rule 12b-2 of the Act [ ] Yes [X] No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date: As of March 29, 2004,
448,610,056 units of Class A Beneficial Interests and 137,246,636 units of Class
B Beneficial Interests were outstanding.
BFA Liquidation Trust
Form 10-K
Table of Contents
PART I
Item 1. Business. 1
Item 2. Properties. 2
Item 3. Legal Proceedings. 2
Item 4. Submission of Matters to a Vote of Security Holders. 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 6
Item 6. Selected Financial Data. 6
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operation. 7
Item 7A. Qualitative and Quantitative Disclosures about Market Risk. 11
Item 8. Financial Statements and Supplementary Data. 12
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure. 27
Item 9A. Controls and Procedures. 27
PART III
Item 10. Directors and Executive Officers of the Registrant. 28
Item 11. Executive Compensation. 29
Item 12. Security Ownership of Certain Beneficial Owners and
Management and Related Stockholder Matters. 30
Item 13. Certain Relationships and Related Transactions. 32
Item 14. Principal Accounting Fees and Services. 32
PART IV
Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K. 32
PART I
Item 1. Business.
The BFA Liquidation Trust (the "TRUST") was formed pursuant to the "First
Amended Joint Liquidating Plan of Reorganization of the Debtors Under Chapter 11
of the Bankruptcy Code" proposed by the Baptist Foundation of Arizona ("BFA")
and related subsidiaries and affiliates (collectively, the "DEBTORS"), Official
Collateralized Investors' Committee and Official Joint Committee of Unsecured
Creditors, relating to Case No. 99-13275 ECF GBN (the "PLAN"), which was
confirmed by the Bankruptcy Court for the District of Arizona (the "BANKRUPTCY
COURT"), by an order entered on December 22, 2000 (the "CONFIRMATION ORDER") and
effective on January 22, 2001 (the "EFFECTIVE DATE").
The primary purpose of the Trust is to (i) oversee and direct the liquidation of
the assets that were transferred to the Trust pursuant to the Plan (the "TRUST
ASSETS") for the benefit of the beneficiaries of the Trust (the "BENEFICIARIES")
in accordance with Treasury Regulation Section 301.7701-4(d), (ii) prosecute all
litigation claims for the benefit of the Trust, and (iii) distribute any
proceeds of the litigation claims and the Trust Assets received by the Trust to
the Beneficiaries. The Trust is not operated with the objective of continuing or
engaging in the conduct of a trade or business, except to the extent reasonably
necessary to preserve or enhance the value of the Trust Assets, and consistent
with the liquidating purpose of the Trust.
Pursuant to the Plan, a liquidating trustee (the "LIQUIDATING TRUSTEE") and a
liquidating trust board (the "LIQUIDATING TRUST BOARD") have been appointed to
oversee the liquidation of the Trust Assets. Currently, the Liquidating Trustee
and the Liquidating Trust Board are overseeing the liquidation of the Trust
Assets ensuring that such liquidation is conducted in a cost-effective manner
and in a reasonable time, with due regard for the risk that undue haste may
minimize the liquidation proceeds of a particular Trust Asset. In addition, the
Liquidating Trustee and the Liquidating Trust Board are using best efforts to
make timely distributions and to minimize the duration of the Trust. In
overseeing the selling of the Trust Assets, the Liquidating Trustee and the
Liquidating Trust Board are using best efforts to maximize the amount of the
proceeds derived there from. The liquidation of the Trust Assets may be
accomplished either through the prosecution, compromise and settlement,
abandonment or dismissal of any or all claims, rights or causes of action, or
otherwise subject to the terms of the Plan.
The Trust is set to terminate on the later of: (i) the date of entry by the
Bankruptcy Court of the final decree which fully and finally closes the Chapter
11 cases (the "FINAL DECREE"); or (ii) the date upon which all of the Trust
Assets have been distributed to the Beneficiaries and there are no remaining
assets expected to be received in the Trust Assets, provided, however, that the
Trust will terminate no later than the fifth (5th) anniversary of the Effective
Date. On or prior to such termination date, the Bankruptcy Court, upon motion by
a party in interest, may extend the term of the Trust upon a finding by the
Bankruptcy Court that the extension is necessary for the liquidating purposes of
the Trust. Extensions may be obtained so long as each extension is approved by
the Bankruptcy Court six (6) months prior to the expiration of the original term
and each extended term.
After the termination of the Trust and for the purpose of liquidating and
winding up the affairs of the Trust, the Liquidating Trustee will continue to
act in such capacity until its duties have been fully performed. Upon
distribution of the entire Trust Assets and entry of the Final Decree and unless
ordered otherwise by the Bankruptcy Court as part of the Final Decree, the
Liquidating Trustee will retain for a period of two (2) years the books,
records, Beneficiary lists, securities register, and certificates and other
documents and files which will have been delivered to or created by the
Liquidating Trustee. Subject to the final decree, at the Liquidating Trustee's
discretion, all of such records and documents may, but need not, be destroyed at
any time after two (2) years from the completion and winding up of the affairs
of the Trust. Except as otherwise specifically provided in the Trust Agreement
dated January 22, 2001 (the "TRUST AGREEMENT"), upon the discharge of all
liabilities of the Trust, final distribution of the entire Trust Assets and
entry of the Final Decree, the Liquidating Trustee will have no further duties
or obligations relating to the Trust.
-1-
Availability of SEC Reports
The Trust' s website address is www.bfalt.org. The Trust makes available free of
charge through its internet website or mail, its annual report on Form 10-K,
quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to
these reports filed or furnished pursuant to Section 13(a) or 15 (d) of the
Securities Exchange Act of 1934, as amended as soon as reasonably practicable
after the Trust electronically files such material with or furnishes it to the
SEC. Materials posted on the Trust' s website are not incorporated by reference
into this annual report on Form 10-K.
Item 2. Properties.
The Trust does not have any material physical properties, except for such
properties that are held for sale.
Item 3. Legal Proceedings.
Arthur Andersen
On January 23, 2003, the Trust distributed approximately $174.7 million
which represented the remaining proceeds of the $217 million settlement with
BFA's former auditor Arthur Andersen, LLP ("AA"), net of legal fees of
approximately $32.9 million and litigation expenses incurred for prosecuting the
litigation of approximately $4.0 million, to the Beneficiaries in conjunction
with a plan of allocation approved by the Superior Court for the State of
Arizona, Maricopa County (the "SUPERIOR COURT"). This distribution marked the
culmination of a year in which the settlement with AA fell apart in the wake of
AA's indictment by the United States Department of Justice, only to be restored
after commencing trial of the action.
The terms of the settlement provided for the bulk of the funds to
remain in escrow and not be distributed to investors until a variety of events
had occurred, including: (i) approval of the settlement by the Bankruptcy Court
and the Superior Court; (ii) approval of a plan of allocation of the settlement
proceeds among investors by the Superior Court; and (iii) resolution of any
appeals taken from orders entered by the courts approving the settlement or plan
of allocation. The Bankruptcy Court and the Superior Court approved the
settlement in July and September 2002, respectively, over the objections of
various parties. Certain of these parties appealed the approval of the
settlement, which delayed the distribution of the funds for several months. In
late December 2002, the last of these appeals was resolved, allowing the Trust
to distribute the funds to investors on January 23, 2003 pursuant to the plan of
allocation approved by the Superior Court.
Jennings Strouss & Salmon PLC
On December 27, 2002, the Trust distributed approximately $18.0 million
which represented the net proceeds of the $21 million settlement with BFA's
former counsel Jennings Strouss & Salmon PLC ("JSS"), net of attorneys fees and
litigation expenses, to investors in conjunction with the same court-approved
plan of allocation governing the AA settlement proceeds. The Trust was able to
obtain this settlement without commencing formal litigation against JSS, which
not only would have resulted in significant expense, but also may have delayed
the trial in the AA action.
Former Directors, Accountants and Affiliated Parties
The Trust has spent substantial time investigating potential claims
against third parties and analyzing insurance policies that could provide
insurance coverage for claims by the Trust against potentially responsible third
parties. As a result of these investigations, which included reviewing thousands
of documents and interviewing dozens of individuals involved in the demise of
the Debtors, the Trust identified multiple parties against whom it possessed
viable claims arising from the Debtors' fraud. As a result, the Trust filed
various adversary proceedings against these potentially responsible parties,
including the following:
- L. Dwain Hoover and Affiliates: On February 15, 2000, BFA
filed an adversary
-2-
proceeding in the Bankruptcy Court against L. Dwain Hoover, a
former BFA director, and the related parties that he owns or
controls (collectively, "HOOVER"). The case alleged, inter
alia, that Hoover had entered into a series of transactions
wherein he and/or his companies borrowed money from companies
managed by BFA and then lent that money to another company, at
higher rates of interest. As a result, Hoover earned large
profits while having little if any risk, at the expense of BFA
and its managed companies. On November 7, 2001 the Trust
brought a second adversary proceeding against L. Dwain Hoover
and several other parties alleging that by breaching their
fiduciary duties as directors, officers or professionals hired
by BFA or its affiliated companies, the defendants had
assisted BFA's senior management in disguising the true
financial condition of BFA.
- Harold Friend and Affiliates: In 2000, BFA filed a lawsuit
against Harold Friend and two companies co-owned by Mr. Friend
and BFA-related companies seeking a full accounting of his
financial records and business dealings with BFA and its
former senior management team. Mr. Friend was reported to be a
benefactor of BFA through much of the time that the fraud
occurred, and engaged in various transactions with BFA. The
Trust alleged that, in reality, Mr. Friend and his affiliated
entities facilitated the fraud through these transactions,
which benefited Mr. Friend to the detriment of BFA.
- Edgar Alan Kuhn: Mr. Kuhn served as the nominal head of
E.V.I.G., Inc. ("EVIG"), a purportedly unrelated entity with
which BFA engaged in numerous real estate transactions. The
Trust alleged that, in reality, EVIG was controlled by BFA,
and was used for the purpose of allowing BFA to record profits
from the sale of non-performing properties at prices
significantly above their true market value. The Trust further
alleged that BFA funded these sales through a series of
"swirl" transactions, through which BFA funneled money to
EVIG, which EVIG then used to purchase the non-performing
assets from BFA at inflated prices, thereby perpetuating the
fraud.
- Jalma Hunsinger and Affiliates: Mr. Hunsinger served as the
nominal head of A.L.O., Inc. ("ALO"), another purportedly
unrelated entity with which BFA engaged in numerous real
estate transactions. Similar to the EVIG matter, the Trust
alleged that ALO was actually controlled by BFA, and was used
for the purpose of hiding losses incurred from non-performing
assets through bogus sale transactions. As in the case of
EVIG, BFA funded these bogus sales through a series of swirl
transactions which perpetuated the fraud.
- Arizona Southern Baptist Convention: BFA was a member
organization of the Arizona Southern Baptist Convention
("ASBC"), and a representative of the ASBC served as an ex
officio member of the BFA Board throughout the period of the
fraud. The Trust alleged that the ASBC breached its fiduciary
duties to BFA by failing to take a more active role in
detecting and halting the fraud.
- Nelson Lambson and Henry & Horne: BFA engaged these two (2)
accounting firms to perform audits ensuring that BFA complied
with relevant IRS regulations to serve as a non-bank passive
custodian of Individual Retirement Accounts. The Trust alleged
that these firms committed malpractice in failing to discover
that BFA had not complied with these requirements.
An agreement to (i) settle both adversary proceedings against Hoover,
and (ii) resolve the claims against Harold Friend and affiliates, Edgar Allen
Kuhn, Jalma Hunsinger and affiliates, ASBC, and Nelson Lambson and Henry &
Horne, was reached in December 2002 for an aggregate settlement of $16.5 million
in cash and real property. In addition, each of the settling parties agreed to
waive all claims totaling $37.0 million filed against BFA with the Bankruptcy
Court. Also as part of the settlement, Mr. Hoover agreed to drop an appeal he
had filed with respect to the Bankruptcy Court's approval of the AA settlement
clearing
-3-
the way for distribution of these funds on January 23, 2003. The cash portions
of these settlements were distributed during 2003.
Crotts and Grabinski
During late 2001, the Trust commenced two (2) separate adversary
proceedings in the Bankruptcy Court against William Crotts and Thomas Grabinski,
the Chief Executive Officer and General Counsel, respectively, of BFA during the
period that the fraud occurred. The Trust alleges that Messrs. Crotts and
Grabinski were the primary architects of the fraud, thereby breaching their
fiduciary duties to BFA and its investors. The Trust has successfully defeated
motions by Crotts and Grabinski to dismiss the action, and since that time has
engaged in extensive discovery with these parties. During this discovery process
the Trust and class action were able to reach a settlement with the defendant's
and Debtors' insurance carrier, National Union, in the gross amount of $3.75
million. The settlement calls for the Trust to dismiss its cases against Messrs.
Crotts and Grabinski. The settlement consists of gross proceeds of $3.75 million
less legal fees and expenses of approximately $550,000 for a net amount of
approximately $3.2 million. Both the Superior Court and Bankruptcy Court
approved the settlement on October 17, 2003 and October 21, 2003, respectively.
The National Union Settlement became final and the funds were distributed on
December 19, 2003.
Cook Charitable Trust Claim and Related Matters
This claim arises out of the Sovereign Sherwood Crossing LLC venture in
which Cook Charitable Trust and Sovereign Realty Advisors ("SRA") were
shareholders. In 1999, BFA exercised its power as trustee of the Cook Charitable
Trust ("CCT") to arrange for CCT to contribute $6.3 million in capital and
substitute for a BFA subsidiary as a shareholder in the entity purchasing the
Sherwood Crossing apartment complex. CCT alleges that, among other things, BFA
breached its fiduciary duties to CCT by investing virtually the entire corpus of
the trust in Sovereign Sherwood Crossing and by permitting SRA to receive a
substantial equity stake in the entity without contributing any capital. CCT
brought an arbitration proceeding against SRA, in which the Trust produced
documents and witnesses. That case was settled in September 2002 with CCT buying
out SRA's interest for $4 million, exclusive of approximately $1.1 million in
prior distributions to SRA. CCT sought to recoup its payments to SRA in its
claim against BFA. The Trust has settled this claim and as of June 30, 2003 no
liability remains outstanding.
Phoebus Communications
With respect to loans that BFA made to Gail Arnall (William Crotts'
sister) and her company, Phoebus Communications, the Trust brought suit on
delinquent promissory notes made by Phoebus Communications and Ms. Arnall.
Judgment was obtained against Phoebus Communications, Ms. Arnall and her
ex-husband in an amount of approximately $175,000 (the full amount of the debt
plus all attorneys' fees and pre- and post-judgment interest). In 2002 the
defendants filed a motion to set aside the default judgment on grounds that they
had inadequate notice. That motion was denied on January 9, 2003. Enforcement
proceedings were initiated in 2002 in Maryland, where Phoebus is located, and
the court denied a motion to dismiss or stay those proceedings on January 10,
2003. In March, 2003 the Trust approved a settlement of $ 140,000 in
satisfaction of the judgment and according to the terms of the settlement
received payment.
Chaparral Pines
In 2002 a complaint alleging four (4) separate causes of action was
filed in the Superior Court against BFA's former limited liability company
member, Chaparral Pines, LLC, in the development of the Chaparral Pines
property. The complaints center around the mismanagement of the property by the
defendant. Chaparral Pines filed a Motion to dismiss the complaint. After
briefings and argument, the Superior Court has allowed the Trust to proceed on
three of the four counts in the complaint. Discovery has commenced. Because of
the substantial nature of the Chaparral Pines project, the defendants' were
working to accumulate all the construction-related documents. During that time
the Trust was able to reach a settlement agreement with Chaparral Pines LLC
consisting of the Trust receiving $300,000 in cash and
-4-
real estate valued at approximately $420,000 net of selling costs. The
settlement agreement must now be signed by both parties and approved by the
Superior Court to become final. The Trust has recorded this asset in its fair
value of expected cash flows from settlements net of various discounts at
December 31, 2003.
William Blair
In an effort to avoid repaying $4 million dollars in debt to the Trust,
Mr. William Blair has engaged in a number of legal maneuvers. In 2001, the Trust
filed a Notice of Trustee's Sale on the collateral securing repayment on one of
the Notes (the "DESERT DIAMOND NOTE"). The Trust separately filed a lawsuit and
obtained a judgment against Mr. Blair individually as a co-maker under the
Desert Diamond Note. That debt has been reduced to judgment in an amount of $1.4
million dollars, plus interest at 19% until paid in full. With regard to Mr.
Blair's second obligation (the "CAMPBELL NOTE") the Superior Court entered
judgment on March 19, 2003 against both Mr. Blair and his trust in the amount of
$1,418,329.82 with interest at the rate of 18% from August 13, 2001, until paid.
The Trust has authorized the initiation of a new lawsuit to recover a
substantial number of real property transfers made by Mr. Blair to mostly third
party related entities on the eve of the Superior Court judgments. These claims
will be pursued under Arizona state law theories of fraudulent transfer. The
Trust now has successfully litigated and received judgments on the two (2)
Superior Court actions and defended the Trust's claims against the actions of
Mr. Blair in connection with the Desert Diamond bankruptcy. This bankruptcy
included a proposed cram down plan and an adversary lawsuit to modify the
underlying contract. The assets of the bankruptcy estate have been liquidated
and the proceeds from the sale of the assets have been distributed to the Trust.
With regard to the remaining action against Fidelity Title (the "TITLE COMPANY")
the Title Company hired by Mr. Blair to transfer title to portions of the
Trust's collateral to third parties without lien releases, the Bankruptcy Court
recently granted the Title Company's Motion for Reconsideration and reversed its
prior ruling. The effect is that the Bankruptcy Court has upheld an alleged
contract modification disallowed by a different judge in an earlier litigation.
If the Bankruptcy Court's ruling stands as issued, the Trust would be required
to release its liens on the remaining real property collateral for a release
price of $12,500/lot (a total of $275,000 for the remaining lots). The Title
Company also has on file a Motion for Award of Fees seeking an award of
approximately $138,000 in fees and costs incurred. The Bankruptcy Court awarded
the Title Company an amount of $44,000 for fees and costs. The Trust is
appealing both rulings made by the Bankruptcy Court relating to the Title
Company matters.
W.H.H.C
The Trust holds a note receivable in an outstanding amount of approximately $2
million dollars from W.H.H.C. Through this note the Trust has begun foreclosing
on approximately 70 acres of real property located in Maricopa County, Arizona
as a partial payment on the outstanding note. A lawsuit has been filed in the
Superior Court to foreclose on the mortgage and obtain a judgment against the
real property. Two (2) of the defendants have made a claim in the form of an
affirmative defense, that the Trust has filed a wrongful claim against the real
property. Three (3) of the defendants have now filed answers. The remaining four
(4) defendants claim no interest in the real property. The estimated value of
the 70 acres of real property has been included in the notes receivable portion
of the accompanying consolidated financial statements.
Glen Crotts
On November 12, 2003 the Trust filed an adversary proceeding against Glen and
Nannie Lou Crotts and the Glen E. Crotts Revocable Trust ("CROTTS"). Glen and
Nannie Lou Crotts are the parents of past BFA president William Crotts and Glen
Crotts served as president of BFA prior to William Crotts. The complaint sets
forth four claims against the Crotts. The first two claims seek to recover
monies owed in excess of $750,000 on two promissory notes to the Trust now in
default. The third claim asserts that the Crotts assisted BFA senior management
in creating misleading financial statements in 1994 and 1995 through
participation in real estate transactions. The fourth and final claim is to
recover $296,000 withdrawn from the investment accounts held at BFA during the
one-year period prior to BFA filing for bankrupcty protection as a preference
amount. The Crotts have denied the assertions in all the claims and
-5-
have filed counterclaims against the Trust for withholding distributions on
$537,219 of their investments in BFA and $18,000 from another partnership. The
Crotts and the Trust have agreed to mediation, which is scheduled to start on
May 3, 2004. No amount has been recorded in the accompanying consolidated
financials statements related to these claims and counterclaims.
Disputed Proofs of Claims
A number of creditors filed proofs of claims in the Debtors' bankruptcy
proceedings. As of December 31, 2003 all of these claims have been resolved and
either paid in full (if any amount was due) or fully reserved for (if disputed).
Item 4. Submission of Matters to a Vote of Security Holders.
The Trust has no outstanding voting securities and, thus, no matters were
submitted to a vote of security holders during the year ended December 31, 2003.
PART II
Item 5. Market For Registrant's Common Equity and Related Stockholder Matters.
Class 3A and 3B beneficial interests are not listed or traded on a public
exchange.
The following is a schedule of cash distributions NET OF DISPUTED ACCOUNT
RESERVES made to holders of Class 3A and 3B Trust beneficial interest holders
and other classes for the years ending December 31, 2003 and December 31 ,2002:
ˇ Enlarge/Download Table
January 1, 2003 to January 1, 2002 to
December 31, 2003 December 31, 2002
--------------------- ---------------------
Class 3A and 3B holders - Trust Asset proceeds $75,750,000 $20,950,000
Class 3A and 3B holders - Trust's share of litigation proceeds (*) 93,470,000 12,250,000
All Other Class holders 6,330,000 4,350,000
--------------------- ---------------------
Total Distributions $175,550,000 $37,550,000
===================== =====================
Note (*) - During 2003 the Trust distributed approximately $186.9 million in
litigation proceeds. On December 27, 2002 the Trust distributed approximately
$24.5 million in litigation proceeds. Per the court approved plan of allocation,
50% of these proceeds were allocated to the Trust and the remaining 50 % was
distributed to the class action members. The amount detailed in this schedule
reflects only the Trust's 50% share of these proceeds for 2003 and 2002.
Item 6. Selected Financial Data.
The selected historical financial data presented below for the year ended
December 31, 2003, for the year ended December 31, 2002 and for the period from
January 22, 2001 to December 31, 2001 are derived from our consolidated
financial statements. The selected financial data should be read in conjunction
with Item 7. "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the consolidated financial statements and related
notes included in Item 8.
-6-
ˇ Enlarge/Download Table
January 1, January 1, January 22,
2003 to 2002 to 2001 to
December 31, December 31, December 31,
2003 2002 2001
---------------- --------------- ---------------
Net Assets in liquidation, beginning $ 194,833,341 $ 128,980,963 $ 171,414,559
Interest on notes receivable 3,324,670 6,230,184 7,409,609
Interest on notes payable (120,579) (564,192) (1,057,361)
Changes in fair value of other trust assets and liabilities (2,023,541) 92,189,547 (1,705,848)
Changes in fair value of estimated costs to complete liquidation (1,032,616) 675,351 --
Distributions to holders of Class 3A and 3B beneficial interests (163,315,462) (32,678,512) (47,079,996)
------------- ------------- -------------
Net assets in liquidation, ending $ 31,665,813 $ 194,833,341 $ 128,980,963
============= ============= =============
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Certain statements under the headings "Management's Discussion and Analysis of
Financial Condition and Results of Operation," "Business," and elsewhere in this
report constitute "forward-looking statements" within the meaning of the rules
and regulations promulgated by the Securities and Exchange Commission.
This report contains a number of forward-looking statements, which reflect the
Trust's current views with respect to future events and financial performance.
Such forward-looking statements are based on management's beliefs and
assumptions regarding information that is currently available, and are made
pursuant to the "safe harbor" provisions of the federal securities laws. These
forward-looking statements are subject to certain risks and uncertainties. The
Trust's actual performance and results could differ materially from those
expressed in the forward-looking statements due to risks and uncertainties that
could materially impact the Trust in an adverse fashion and are only predictions
of future results, and there can be no assurance that the Trust's actual results
will not materially differ from those anticipated in these forward-looking
statements. In this report, the words "anticipates", "believes", "expects",
"intends", "plans", "may", "future", and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
the forward-looking statements contained herein, which speak only as of the date
hereof. The Trust has no obligation to publicly update or revise any of the
forward-looking statements to reflect events or circumstances that may arise
after the date hereof.
FOR THE YEAR ENDED DECEMBER 31, 2003 COMPARED TO
THE YEAR ENDED DECEMBER 31, 2002
The estimated fair value of the Trust's net assets in liquidation decreased
approximately $163.2 million for the year ended December 31, 2003 as compared to
an approximately $65.9 million increase for the year ended December 31, 2002.
Factors which contributed to the net decrease of the net asset value of the
Trust's net assets for the year ended December 31, 2003 include (i) interest
income from notes receivables which increased net assets by approximately $3.3
million, (ii) interest expense for notes payable which decreased net assets by
approximately $121,000, (iii) a decrease in the value of certain other trust
assets which decreased net assets by approximately $2.0 million, (iv) increase
in estimated costs to liquidate which decreased net assets by approximately $1.0
million and (v) distributions to holders of Class 3A and 3B beneficial interests
which decreased net assets by approximately $163.3 million. Factors which
contributed to the net increase of the net asset value of the Trust's net assets
for the year ended December 31, 2002 include (i) interest income from notes
receivables which increased net assets by approximately $6.2 million, (ii)
interest expense for notes payable which decreased net assets by approximately
$564,000, (iii) appreciation in value of certain other trust assets including
litigation proceeds and related settlement liability which increased net assets
by approximately $92.2 million, (iv) a decrease in estimated costs to liquidate
which increased net assets by approximately $675,000 and (v) distributions to
holders of Class 3A and 3B beneficial interests which decreased net assets by
approximately $32.7 million.
Interest income from notes receivable decreased in 2003 as compared to 2002
because of principal payments received. Interest expense on notes payable
decreased from 2003 as compared 2002 because of
-7-
principal payments made by the Trust during 2003. The changes in fair value of
other trust assets in 2003 as compared to 2002 changed because of the changes in
the fair market value of assets and certain related liabilities. The primary
change in the fair value of other trust assets in 2002 was related to the
settlement liability account, which was reduced in 2002 because of the approval
by the courts of an allocation agreement whereby the Trust recognized only 50%
of the litigation proceeds, as compared to prior periods where the settlement
liability was recorded at 100% due to the substantial uncertainty as to the
approval of the allocation process. The changes in the estimated costs to
complete liquidation in 2003 were the result of a revised budget for the final
years of the Trust.
In 2003, the Trust distributed approximately $163.3 million to holders of Class
3A or 3B beneficial interests. This distribution was made principally from
collections on Trust Assets and the distribution of the Trust's share of
litigation proceeds. The Trust distributed an additional approximately $93.5
million of litigation proceeds during 2003 (which represented the class action's
share of such litigation proceeds) to holders of Class 3A or 3B beneficial
interests. The Class 3A and 3B beneficial interest were valued at approximately
$31.7 million at December 31, 2003.
In 2002, the Trust distributed approximately $32.7 million to holders of Class
3A or 3B beneficial interests. This distribution was made principally from
collections on Trust Assets and the distribution of the Trust's share of
litigation proceeds. The Trust distributed an additional approximately $12.25
million of litigation proceeds during 2002 (which represented the class action's
share of such litigation proceeds) to holders of Class 3A or 3B beneficial
interests. The Class 3A and 3B beneficial interest were valued at approximately
$194.8 million at December 31, 2002.
FOR THE YEAR ENDED DECEMBER 31, 2002 COMPARED TO
THE PERIOD FROM JANUARY 22, 2001 (INCEPTION) TO DECEMBER 31, 2001
The estimated fair value of the Trust's net assets in liquidation increased
approximately $65.9 million in the year ended December 31, 2002 as compared to
approximately $42.4 million decrease for the period of January 22, 2001
(inception) to December 31, 2001. Factors which contributed to the net increase
of the net asset value of the Trust's net assets for the year ended December 31,
2002 include (i) interest income from notes receivables which increased net
assets by approximately $6.2 million, (ii) interest expense for notes payable
which decreased net assets by approximately $564,000, (iii) an appreciation in
the value of certain other trust assets including litigation proceeds and
related settlement liability which increased net assets by approximately $92.2
million and (iv) distributions to holders of Class 3A and 3B beneficial
interests which decreased net assets by approximately $32.7 million. Factors
which contributed to the net decrease of the net asset value of the Trust's net
assets for the period from January 22, 2001 to December 31, 2001 include (i)
interest income from notes receivable which increased net assets by
approximately $7.4 million, (ii) interest expense for notes payable which
decreased net assets by approximately $1 million, (iii) an appreciation in the
value of certain other trust assets which increased net asset by approximately
$1.7 million, (iv) a decrease in estimated costs to liquidate which increased
net assets by approximately $675,000 and (v) distributions to holders of Class
3A and 3B beneficial interests which decreased net assets by approximately $47.1
million.
Interest income from notes receivable decreased in 2002 as compared to 2001
because of principal payments received. Interest expense on notes payable
decreased from 2002 as compared 2001 because of principal payments made by the
Trust during 2002. The changes in fair value of other trust assets increased in
2002 as compared to 2001 because of changes in the fair market value of assets
and certain related liabilities. The primary change in the fair value of other
trust assets was related to the settlement liability account, which was reduced
in 2002 because of the approval by the courts of an allocation agreement whereby
the Trust recognized only 50% of the litigation proceeds, as compared to prior
periods where the settlement liability was recorded at 100% due to the
substantial uncertainty as to the approval of the allocation process. The
changes in the estimated costs to complete liquidation in 2002 were the result
of a revised budget for the final years of the Trust.
-8-
In 2002, the Trust distributed approximately $32.7 million to holders of Class
3A or 3B beneficial interests. This distribution was made principally from
collections on Trust Assets and the distribution of the Trust's share of
litigation proceeds. The Trust distributed an additional approximately $12.25
million of litigation proceeds during 2002 (which represented the class action's
share of such litigation proceeds) to holders of Class 3A or 3B beneficial
interests. The Class 3A and 3B beneficial interest were valued at approximately
$194.8 million at December 31, 2002.
For the period from January 22, 2001 (inception) to December 31, 2001, the Trust
distributed approximately $47.1 million to holders of Class 3A or 3B beneficial
interests. This distribution was made principally from collections on Trust
Assets in 2001 and January 22, 2001 cash balances. The Class 3A and 3B
beneficial interests were valued at approximately $129.0 million at December 31,
2001.
Non-cash trust assets at December 31, 2003 and December 31, 2002 were comprised
of the following:
NON-CASH ASSETS IN LIQUIDATION AT ESTIMATED FAIR VALUE
ˇ Enlarge/Download Table
December 31, December 31,
2003 2002
---------------- -----------------
Receivables, net $4,190,921 $59,434,985
Other trust assets, net 27,746,115 46,149,276
Fair value of expected cash flows from settlements 420,750 6,594,000
---------------- -----------------
TOTAL ASSETS $32,357,786 $112,178,261
================ =================
The fair value of the Trust Assets is reassessed at least quarterly and
adjustments to estimated fair values are reflected in the period in which they
become known. For each asset, estimates of income, expenses and net cash flow on
a quarterly basis through the expected final disposition date are prepared. The
individual asset cash flow estimates are developed based upon factors, which
include appraisals by independent appraisers, physical inspection of the asset
or the collateral underlying the related loans, local market conditions,
contractual payments and discussions with the relevant borrower. At December 31,
2003 and December 31, 2002, the projected monthly cash flows were discounted at
various rates, as appropriate, to reflect the Trust Assets at estimated fair
market value.
The Trust's consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America and in accordance with the liquidating basis of accounting. During
preparation of these consolidated financial statements, the Trust is required to
make estimates and assumptions that affect the reported amounts of assets at
estimated fair value, liquidation liabilities, resolution of disputed claims,
estimates of liquidating costs to be incurred, resolution of current and
potential litigation and the fair value of and related disclosure of contingent
assets and liabilities. On an on-going basis the Trust evaluates and updates its
estimates and assumptions. The Trust bases its estimates and assumptions on
historical experience and on various other assumptions that the Trust believes
are reasonable under the circumstances. The results for the basis for making
judgments about the fair values of assets and liquidation liabilities are not
readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions.
The Trust believes the following critical accounting policies affect
the Trust's more significant estimates and assumptions used in the preparation
of our consolidated financial statements, which have been prepared in accordance
with the liquidation basis of accounting:
o Receivables are recorded at fair value, which represents our discounted
expected future cash flows calculated based on the following factors:
receivable payment history, financial performance of debtor, and
underlying collateral of the Trust.
-9-
o Other assets consist of real estate partnerships, interests in
operating companies and other assets and are recorded at fair value,
which represents discounted expected future cash flows, based on
estimates and assumptions regarding timing of sales, timing of
payments, projected cash flows and appropriate discount factors.
o Payables, accrued liabilities and notes payable are recorded based on
expected cash outflows which require estimates and assumptions relating
to the timing of the payments and discount factors.
o Estimated costs to complete liquidation and litigation represent the
estimated costs of operating the Trust to its expected termination on
January 21, 2006, discounted using a 4.00% present value factor at
December 31, 2003 and a 4.25% present value factor at December 31,
2002.
o The costs include personnel, facilities, Liquidating Trustee
and Liquidating Trust Board compensation, professional fees
and litigation costs, and are estimated based on assumptions
regarding the number of employees, use of outside
professionals, and timing of cash flows.
o Contingent Assets, Litigation Settlements and related liabilities are
recorded at the Trust's estimated future cash flows which require a
significant amount of estimates and assumptions regarding
collectibility, probable outcomes, timing of cash flows and various
other factors.
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and replaces
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)." SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized when the liability is incurred and should be initially measured at
fair value. Under EITF Issue No. 94-3, a liability for such costs is recognized
as of the date of an entity's commitment to an exit plan. The provisions of SFAS
No. 146 are effective for exit or disposal activities that we initiated after
December 31, 2002. Our adoption of SFAS No. 146 did not have a material effect
on our consolidated statement of net assets in liquidation or statement of
changes in net assets.
In November 2002, the FASB issued Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN No. 45 requires certain guarantees to
be recorded at fair value and also requires a guarantor to make certain
disclosures regarding guarantees. FIN No. 45's initial recognition and initial
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. Our adoption of this Interpretation
did not have a material impact on our consolidated financial statements or
disclosures.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure." This statement amends SFAS No. 123,
""Accounting for Stock-Based Compensation I An Amendment of SFAS No. 123."
Although SFAS 148 does not require use of the fair value method of accounting
for stock-based employee compensation, it does provide alternative methods of
transition. It also amends the disclosure provisions of SFAS 123 and APB Opinion
No. 28, "Interim Financial Reporting," to require disclosure in the summary of
significant accounting policies or the effects of an entity's accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. SFAS 148's
amendment of the transition and annual disclosure requirements is effective for
fiscal years ending after December 15, 2002. The amendment of disclosure
requirements of APB Opinion No. 28 is effective for interim periods beginning
after December 15, 2002. Our adoption of this pronouncement did not have a
material impact on our consolidated financial statements or disclosures.
-10-
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB 51." FIN No. 46 provides guidance on the
identification of entities of which control is achieved through means other than
voting rights (""variable interest entities" or "VIEs") and how to determine
when and which business enterprise should consolidate the VIE (the "primary
beneficiary"). In addition, FIN No. 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. The transitional disclosure requirements of FIN
No. 46 are required in all financial statements initially issued after January
31, 2003, if certain conditions are met. Our adoption of this Interpretation did
not have a material impact on our consolidated financial statements or
disclosures.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies the accounting guidance on derivative instruments (including certain
derivative instruments embedded in other contracts) and hedging activities that
fall within the scope of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 is effective prospectively for contracts
entered into or modified after June 30, 2003, with certain exceptions, and for
hedging relationships designated after June 30, 2003. Our adoption of SFAS No.
149 did not have a material impact on our consolidated financial statements or
disclosures.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
changes the accounting and disclosure requirements for certain financial
instruments that, under previous guidance, could be classified as equity. The
guidance in SFAS No. 150 is generally effective for all financial instruments
entered into or modified after May 31, 2003 and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have a material impact on our consolidated
financial statements or disclosures.
The following table sets forth, as of December 31, 2003, the aggregate amounts
of our contractual obligations and commitments with definitive payment terms
that will require cash outlays in the future.
ˇ Enlarge/Download Table
Payments Due by Period
Total Less than 1 Year 2-3 Years 4-5 Years After 5 Years
----- ---------------- --------- --------- -------------
Operating Leases $41,064 $41,064 $ - $ -
-------------------------------------------------------------------
Total Contractual Commitments $41,064 $41,064 $ - $ -
===================================================================
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
The Trusts principal exposure to risk relates to interest rate risk, credit risk
and market risk associated with the types of assets being sold. An adverse
change in interest rates would not have a material adverse impact on the Trust's
operations or net assets. Adverse changes in credit or market risk could have a
material adverse affect of the Trust's operations and net assets. The Trust has
attempted to minimize this risk by discounting the Trust Assets based on the
asset's exposure to credit or market risk and historical experiences of the
asset.
[Remainder of Page Intentionally Left Blank]
-11-
Item 8. Financial Statements and Supplementary Data.
Report of Independent Auditors
To the Liquidating Trustee, Board of Directors
And holders of the beneficial interests of the
BFA Liquidation Trust:
We have audited the accompanying consolidated statements of net assets in
liquidation of BFA Liquidation Trust and its subsidiaries as of December 31,
2003 and 2002, and the related consolidated statements of changes in net assets
in liquidation for each of the years ended December 31, 2003 and 2002, and for
the period from January 22, 2001 (inception) to December 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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.
As described in Note 1, these financial statements have been prepared on the
liquidation basis of accounting.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the net assets in liquidation of BFA
Liquidation Trust and its subsidiaries at December 31, 2003 and December 31,
2002, and the statements of changes in net assets in liquidation for each of the
years ended December 31, 2003 and 2002 and for the period January 22, 2001
(inception) to December 31, 2001 in conformity with accounting principles
generally accepted in the United States of America applied on the basis
described in the preceding paragraph.
As described in Note 1, these financial statements have been prepared on the
liquidation basis of accounting, which requires management to make significant
assumptions and estimates regarding the fair value of assets, the resolution of
disputed claims, the estimate of liquidating costs to be incurred, and the
resolution and valuation of current and potential litigation. Because of the
inherent uncertainty related to these estimates and assumptions, there will
likely be differences between these estimates and the actual results and those
differences may be material.
PricewaterhouseCoopers, LLP
Phoenix, Arizona
March 29, 2004
-12-
BFA LIQUIDATION TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
ˇ Enlarge/Download Table
December 31, 2003 December 31, 2002
----------------- -----------------
ASSETS IN LIQUIDATION AT ESTIMATED FAIR VALUE
Cash and cash equivalents (note 2) $ 4,032,941 $ 2,254,806
Receivables, net (note 3) 4,190,921 59,434,985
Other trust assets, net (note 4) 27,746,115 46,149,276
Restricted cash and cash equivalents (note 5) 630,884 6,631,801
Fair value of expected cash flows from settlements (note 6) 723,937 188,478,673
----------- ------------
TOTAL ASSETS 37,324,798 302,949,541
----------- ------------
LIABILITIES IN LIQUIDATION
Accounts Payable and accrued liabilities (note 7) 1,037,939 3,071,617
Notes payable (note 8) -- 4,126,217
Estimated costs to complete liquidation (note 9) 4,271,302 6,679,030
Settlement liability (note 10) 349,744 94,239,336
----------- ------------
TOTAL LIABILITIES 5,658,985 108,116,200
----------- ------------
Commitments and contingencies (note 13)
NET ASSETS IN LIQUIDATION $31,665,813 $194,833,341
=========== ============
CLAIMS AGAINST NET ASSETS IN LIQUIDATION CONSIST OF THE FOLLOWING:
Class "3A" Certificate, 448,610,056 units outstanding, $.06 per
unit at December 31, 2003 and $.36 per unit at December 31, 2002 $26,949,857 $162,294,947
Class "3B" Certificate, 137,246,636 units outstanding, $.03 per
unit at December 31, 2003 and $.24 per unit at December 31, 2002 4,715,956 32,538,394
----------- ------------
TOTAL NET ASSETS $31,665,813 $194,833,341
=========== ============
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-13-
BFA LIQUIDATION TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
ˇ Enlarge/Download Table
JANUARY 22,
JANUARY 1, JANUARY 1, 2001
2003 - 2002 - (INCEPTION) -
DECEMBER 31, DECEMBER 31, DECEMBER 31,
2003 2002 2001
------------- ------------- -------------
Net assets in liquidation, January 1, 2003, January 1,
2002 and January 22, 2001, respectively $ 194,833,341 $ 128,980,963 $ 171,414,559
Interest on notes receivable (note 3) 3,324,670 6,230,184 7,409,609
Interest on notes payable (note 8) (120,579) (564,192) (1,057,361)
Changes in fair value of other trust assets and
liabilities (notes 10 & 11) (2,023,541) 92,189,547 (1,705,848)
Changes in fair value of estimated costs to complete
liquidation (note 9) (1,032,616) 675,351 --
Distributions to holders of Class 3A and 3B beneficial
interests (note 12) (163,315,462) (32,678,512) (47,079,996)
------------- ------------- -------------
Net assets in liquidation, December 31, 2003, December
31, 2002 and December 31, 2001, respectively $ 31,665,813 $ 194,833,341 $ 128,980,963
============= ============= =============
The accompanying notes are an integral part of these Consolidated Financial
Statements.
-14-
BFA LIQUIDATION TRUST AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The BFA Liquidation Trust (the "TRUST") was formed pursuant to the "First
Amended Joint Liquidating Plan of Reorganization of the Debtors Under Chapter 11
of the Bankruptcy Code" proposed by the Baptist Foundation of Arizona ("BFA")
and related subsidiaries and affiliates (the "DEBTORS"), Official Collateralized
Investors' Committee and Official Joint Committee of Unsecured Creditors,
relating to Case No. 99-13275 ECF GBN (the "PLAN"), which was confirmed by the
Bankruptcy Court for the District of Arizona ("BANKRUPTCY COURT"), by an order
entered on December 22, 2000 and became effective on January 22, 2001
("EFFECTIVE DATE").
The primary purpose of the Trust is to (i) oversee and direct the liquidation of
the assets that were transferred to the Trust pursuant to the Plan (the "TRUST
ASSETS") for the benefit of the Trust's beneficiaries; (ii) prosecute all claims
and causes of action that the Trust may have against any person or entity (the
"LITIGATION CLAIMS") for the benefit of the Trust's beneficiaries; and (iii)
distribute any proceeds of the Litigation Claims and the Trust Assets received
by the Trust to the Trust's beneficiaries.
The Trust is not operated with the objective of continuing or engaging in the
conduct of a trade or business, except to the extent reasonably necessary to
preserve or enhance the liquidation value of the Trust Assets, consistent with
the primary purpose of the Trust. To facilitate the orderly administration of
the Trust and to maximize the value of the Trust Assets, the Trust owns one
subsidiary, New Asset Subsidiary, LLC ("NAS"). The assets will be grouped in a
consistent and coherent manner and held, pending sale, by NAS. The Trust and NAS
are charged with the responsibility of appraising the assets, listing them for
sale in an orderly manner, and distributing the proceeds from the sale to its
beneficiaries on a regular basis. The Trust is expected to terminate after five
(5) years on January 22, 2006 unless the Bankruptcy Court determines that an
extension of the Trust is necessary for the purposes of the Trust.
The Plan provides for the appointment of a liquidating trustee (the "LIQUIDATING
TRUSTEE") and a liquidating trust board ("LIQUIDATION TRUST BOARD") to oversee
the liquidation of the Trust Assets and to ensure that such liquidation is
conducted in a cost-effective manner and in a reasonable time. In addition, the
Liquidating Trustee and Liquidating Trust Board are directing the prosecution of
the Litigation Claims in an attempt to maximize the Trust's recoveries from such
claims. The Liquidating Trustee and the Liquidating Trust Board are making
ongoing efforts to dispose of the Trust Assets, to make timely distributions and
to minimize the duration of the Trust.
The Trust has a wholly-owned subsidiary to assist in liquidating the assets,
NAS, an Arizona limited liability company. NAS was formed on the Effective Date,
and the Trust is the sole member of that company. The Trust is able to direct
NAS to take any actions that the Liquidating Trustee believes will maximize the
value of the assets held by NAS. The Trust transferred substantially all of its
assets to NAS, which NAS is currently marketing for sale. NAS is not permitted
to sell any assets or take any other action unless so directed by the Trust.
Collectively, the Trust and NAS are referred to as the "Trust".
BASIS OF PRESENTATION
The accompanying consolidated financial statements as of December 31, 2003 and
December 31, 2002 include the accounts of the Trust and NAS. All intercompany
transactions and accounts are eliminated in consolidation. The Trust's
investments in certain wholly-owned entities are included in these financial
statements at their estimated fair value since the Trust expects to liquidate
the investments by selling the entire individual businesses as going concerns.
-15-
These audited consolidated financial statements have been prepared based on the
liquidation basis of accounting, accordingly assets and liabilities have been
recorded at estimated fair values. In accordance with the liquidation basis of
accounting, the financial statements reflect the estimated costs of liquidating
the assets and distributing the proceeds to holders of beneficial interests.
The Trust's management has made certain estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
Under the liquidation basis of accounting, assets and liabilities have been
recorded at their estimated fair values. Given that there is inherent
uncertainty in the valuation process, the amounts actually realized or settled
could be materially different from those reflected in the accompanying
consolidated financial statements.
CASH EQUIVALENTS AND RESTRICTED CASH AND CASH EQUIVALENTS
The Trust considers all highly liquid investments with original maturities of
three months or less to be cash equivalents. The Trust maintains balances in
various operating and money market accounts in excess of federally insured
limits. At December 31, 2003 and December 31, 2002, substantially all cash
balances were in excess of federally insured limits. In accordance with the
terms of the Liquidating Trust Agreement, all cash balances are invested in
"Eligible Institutions" and into "Eligible Investments" as defined by the Trust
agreement. Restricted cash and cash equivalents represent reserves for disputed
claims as required under the Plan and other pledged assets per prior written
agreements.
TRUST ASSETS
The assets of the Trust are carried at estimated fair market values determined
by discounting, at appropriate risk adjusted discount rates, the Trust's current
best estimate of cash flows expected to be realized from the collection,
liquidation and disposition of assets held by the Trust. Such assets consist
principally of notes receivable, income producing real estate and interests in
real estate, interests in partnerships and operating companies and miscellaneous
other assets, receivables and assets from litigation and/or settlements. The
estimates of the future cash flows and discount rates from which the asset
values of the Trust were derived are updated quarterly and are made under the
direction of the management of the Trust based upon information available and
believed to be reliable. These estimates reflect significant judgments regarding
assumptions, discount rates, timing of cash flows, market risk and allowable
disputed claims. Because of the inherent uncertainty regarding the valuation of
these assets there will likely be differences between actual results and the
estimated fair values reflected in the accompanying consolidated financial
statements and the differences may be material.
In addition to the assets described above, the Trust also holds the Litigation
Claims, which consist of claims against the former directors and officers of BFA
and judgments and deficiencies related to loans made to former borrowers of the
Debtors. Because of the significant uncertainties associated with estimating the
probability and timing of cash flows related to these claims, there can be no
assurance that the Trust will realize any value of such Litigation Claims.
However, if realized these Litigation Claims could be material to the Trust.
The fair value of Trust Assets is reassessed at least quarterly and adjustments
to estimated fair values are reflected in the period in which they become known.
For each asset, estimates of income, expenses and net cash flow on a quarterly
basis through the expected final disposition date are prepared. The individual
asset cash flow estimates are developed based upon factors which include
appraisals by independent appraisers, physical inspection of the asset or the
collateral underlying the related loans, local market conditions, contractual
payments and discussions with the relevant borrower.
-16-
CONTINGENT LIABILITIES
Management does not believe that there will be any future material cash outflows
as a result of any claims against the Trust, thus no amount is included in these
accompanying consolidated financial statements (Note 13).
OTHER LIQUIDATION LIABILITIES
Accounts payable and accrued liabilities are reflected at their estimated
settlement amounts which in the opinion of the Trust approximate their fair
value.
Notes payable are reported in the accompanying consolidated financial statements
at their stated amounts. In the opinion of the Trust these amounts approximate
their estimated fair value since the respective interest rates approximate the
market rates of interest for similar instruments.
ESTIMATED COSTS TO COMPLETE LIQUIDATION AND LITIGATION
The estimated costs to complete liquidation represent the estimated cash costs
of operating the Trust through its expected termination on January 21, 2006,
discounted using a present value factor of 4.00% at December 31, 2003 and 4.25%
at December 31, 2002. These costs, which include personnel, facilities,
Liquidating Trustee and Liquidating Trust Board compensation, professional fees,
litigation costs and other related costs, are estimated based on various
assumptions regarding the number of employees, the use of outside professionals
(including attorneys and accountants) and other costs. Litigation costs contain
assumptions based on what management expects the likely course of actions will
be regarding litigating and or settling certain contingencies (Note 6 and 9).
Given that there is inherent uncertainty in the estimation process, actual
results could be materially different.
INCOME TAXES
For federal income tax purposes, the distribution/transfer of the Debtor's
assets to the Trust on the Effective Date is treated as a distribution of these
assets directly to the Beneficiaries. Each Beneficiary is deemed as owning a
proportionate share of the Trust Assets and has a tax basis in such assets equal
to such holder's share of the fair market value of such assets at the Effective
Date. For tax purposes, any item of income or loss is allocated among the
holders. Therefore, no provision has been made for income taxes in the
accompanying consolidated financial statements.
USE OF ESTIMATES
Management of the Trust has made certain estimates and assumptions relating to
the reporting of assets and liabilities and the disclosure of contingent assets
and liabilities to prepare these consolidated financial statements in conformity
with accounting principles generally accepted in the United States of America.
Under the liquidation basis of accounting, assets and liabilities have been
recorded at their estimated fair values. Given that there is inherent
uncertainty in the valuation process, the amounts actually realized or settled
could be materially different from those reflected in the accompanying
consolidated financial statements.
RECLASSIFICATION
Certain amounts in the 2001 financial statements have been reclassified to
conform to the 2002 presentation. These reclassifications have no impact on the
previously reported net assets in liquidation.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities." SFAS No. 146 addresses financial accounting
and reporting for costs associated with exit or disposal activities and replaces
Emerging Issues Task Force (EITF) Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs
-17-
Incurred in a Restructuring)." SFAS No. 146 requires that a liability for a cost
associated with an exit or disposal activity be recognized when the liability is
incurred and should be initially measured at fair value. Under EITF Issue No.
94-3, a liability for such costs is recognized as of the date of an entity's
commitment to an exit plan. The provisions of SFAS No. 146 are effective for
exit or disposal activities that we initiated after December 31, 2002. Our
adoption of SFAS No. 146 did not have a material effect on our consolidated
statement of net assets in liquidation or statement of changes in net assets.
In November 2002, the FASB issued Interpretation (FIN) No. 45, "Guarantor's
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others." FIN No. 45 requires certain guarantees to
be recorded at fair value and also requires a guarantor to make certain
disclosures regarding guarantees. FIN No. 45's initial recognition and initial
measurement provisions are applicable on a prospective basis to guarantees
issued or modified after December 31, 2002. Our adoption of this Interpretation
did not have a material impact on our consolidated financial statements or
disclosures.
In December 2002, the FASB issued SFAS No. 148, "Accounting for Stock-Based
Compensation Transition and Disclosure." This statement amends SFAS No. 123,
"Accounting for Stock-Based Compensation I An Amendment of SFAS No. 123."
Although SFAS 148 does not require use of the fair value method of accounting
for stock-based employee compensation, it does provide alternative methods of
transition. It also amends the disclosure provisions of SFAS 123 and APB Opinion
No. 28, "Interim Financial Reporting," to require disclosure in the summary of
significant accounting policies or the effects of an entity's accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. SFAS 148's
amendment of the transition and annual disclosure requirements is effective for
fiscal years ending after December 15, 2002. The amendment of disclosure
requirements of APB Opinion No. 28 is effective for interim periods beginning
after December 15, 2002. Our adoption of this pronouncement did not have a
material impact on our consolidated financial statements or disclosures.
In January 2003, the FASB issued FIN No. 46, "Consolidation of Variable Interest
Entities, an Interpretation of ARB 51." FIN No. 46 provides guidance on the
identification of entities of which control is achieved through means other than
voting rights ("variable interest entities" or "VIEs") and how to determine when
and which business enterprise should consolidate the VIE (the "primary
beneficiary"). In addition, FIN No. 46 requires that both the primary
beneficiary and all other enterprises with a significant variable interest in a
VIE make additional disclosures. The transitional disclosure requirements of FIN
No. 46 are required in all financial statements initially issued after January
31, 2003, if certain conditions are met. Our adoption of this Interpretation is
not expected to have a material impact on our consolidated financial statements
or disclosures.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies the accounting guidance on derivative instruments (including certain
derivative instruments embedded in other contracts) and hedging activities that
fall within the scope of SFAS No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS No. 149 is effective prospectively for contracts
entered into or modified after June 30, 2003, with certain exceptions, and for
hedging relationships designated after June 30, 2003. Our adoption of SFAS No.
149 did not have a material impact on our consolidated financial statements or
disclosures.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of both Liabilities and Equity." SFAS No. 150
changes the accounting and disclosure requirements for certain financial
instruments that, under previous guidance, could be classified as equity. The
guidance in SFAS No. 150 is generally effective for all financial instruments
entered into or modified after May 31, 2003 and is otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The
adoption of SFAS No. 150 did not have a material impact on our consolidated
financial statements or disclosures.
-18-
2. CASH AND CASH EQUIVALENTS
The Trust maintains balances in various operating and money market accounts in
excess of federally insured limits. Cash and cash equivalents were $4,032,941 at
December 31, 2003 and $2,254,806 at December 31, 2002.
3. RECEIVABLES, NET
At December 31, 2003, net receivables consisted primarily of an approximately
$820,000 note from W.H.H.C., an approximately $1.3 million note from Clearly
Waikoloa, approximately $1.4 million from various note receivables related to
land contracts, and approximately $680,000 of various other mortgage notes
receivable and commercial receivables most of which are collateralized by real
estate. At December 31, 2002 receivables consisted primarily of a note
receivable from Shea Homes, Inc. ("SHEA") of $53.0 million. At December 31,
2002, the note receivable from Shea was collateralized by a master planned
community, and the remaining other receivables relate to land contracts,
mortgage notes receivable and various other commercial receivables. During July
2003 the Shea note receivable was paid in full.
The following is a summary of gross cash flows and related valuation allowances
at:
ˇ Enlarge/Download Table
December 31, 2003 December 31, 2002
----------------- -----------------
Total gross future cash flows from notes receivable $ 42,870,365 $ 138,853,065
Collectibility discount (38,391,751) (69,241,041)
Present value discount (8-9%) (287,693) (10,177,039)
------------ -------------
Net receivables $ 4,190,921 $ 59,434,985
============ =============
Some of the debtors are in default on their contractual obligations to the
Trust. At this time management does not expect to receive future cash flows
related to receivables in default and thus no amount is included in the above
stated receivable amount. The Trust is aggressively pursuing collection of these
debts by various means including, but not limited to, foreclosure and
litigation, and recoveries from these actions, if any, could be material.
4. OTHER TRUST ASSETS, NET
The other trust assets are carried at estimated fair values which are the result
of discounting, at appropriate discount rates, the currently estimated cash
flows projected to be realized from the collection, liquidation and disposition.
These valuations include appraisals by independent appraisers of the liquidation
value of some assets. These values do not represent the full future cash flow
values expected from the sale or operations of these assets due to the
discounting of respective cash flows. Such assets consist principally of income
producing real estate and interests in real estate, interests in partnerships
and operating companies, and miscellaneous other assets transferred to the Trust
upon the consummation of the Plan.
Other trust assets consist of the following:
ˇ Download Table
December 31, 2003 December 31, 2002
----------------- -----------------
Real estate assets and partnerships, net $ 24,932,982 $ 51,151,619
Investments in other operating companies, net 5,212,277 5,007,029
Other assets, net 295,842 696,956
------------ ------------
Future value of other trust assets 30,441,101 56,855,604
Present value discount (various rates) (2,694,986) (10,706,328)
------------ ------------
Other trust assets value $ 27,746,115 $ 46,149,276
============ ============
Real estate assets and partnership interests consist of the following at
December 31, 2003
-19-
o NEWLAND TFC LLC, a series of four distinct residential communities in
California in which the Trust has invested along with Newland and with
CalPERS in the Cal Land Partnership. In each of the communities, the
Cal Land Partnership is selling lots to builders.
o BLOOMINGTON BUILDINGS, two industrial grade buildings located in
Bloomington, Indiana, which are part of the Bloomington Industrial
Center. Building 3 offers 450,000 sq. ft., and Building 4 offers
630,000 sq. ft. for a total of approximately 1,080,000 sq. ft. of
industrial lease space.
o VARIOUS OTHER REAL ESTATE ASSETS including approximately 8,000 acres of
raw land, commercial buildings and commercial land and ground leases.
Investments in other non-public operating companies consist of ownership in a
venture capital company.
Other assets consist principally of prepaid expenses and property, plant and
equipment.
Real estate assets and partnership interests consist of the following at
December 31, 2002:
o NEWLAND TFC LLC, a series of four distinct residential communities in
California in which the Trust has invested along with Newland and with
CalPERS in the Cal Land Partnership. In each of the communities, the
Cal Land Partnership is selling lots to builders.
o STILLWATERS, a 2,200-acre resort community, situated on Lake Martin in
Dadeville, Alabama. It offers 36 holes of golf, a golf clubhouse with a
restaurant for casual dining, a marina, hiking trails and a lakeside
conference center with a restaurant for an upscale casual dining
experience. StillWaters offers golf course lots with upscale homes,
executive cottages, cabins, condominiums and undeveloped commercial and
residential real estate.
o BLOOMINGTON BUILDINGS, two industrial grade buildings located in
Bloomington, Indiana, which are part of the Bloomington Industrial
Center. Building 3 offers 450,000 sq. ft., and Building 4 offers
630,000 sq. ft. for a total of approximately 1,080,000 sq. ft. of
industrial lease space.
o VARIOUS OTHER REAL ESTATE ASSETS including approximately 13,000 acres
of raw land, commercial buildings and commercial land and ground
leases.
Investments in other non-public operating companies consist of ownership in a
venture capital company.
Other assets consist principally of prepaid expenses and property, plant and
equipment.
5. RESTRICTED CASH AND CASH EQUIVALENTS
Restricted cash and cash equivalents of $630,884 at December 31, 2003 and
$6,631,801 at December 31, 2002 consisted of reserves for disputed claims, and
pledged assets. At December 31, 2003 restricted cash consists entirely of
reserves for possible distributions for disputed obligations arising from proof
of claim issues not currently recorded as liabilities on the Trust balance
sheet. At December 31, 2002 reserves for disputed claims totaling approximately
$4.5 million consist of cash reserves for possible distributions for disputed
obligations arising from proof of claim issues not currently recorded as
liabilities on the Trust balance sheet. A majority of these disputed claims were
subsequently settled and the reserves were distributed to investors during 2003.
Pledged assets totaling approximately $2.15 million are cash equivalents held as
collateral for non-Trust debt obligations as follows:
1) Approximately $800,000 at December 31, 2002 in a mutual fund
investment held as collateral for a non-Trust related
institution's debt entered into before the Debtor's bankruptcy
filing.
-20-
2) Approximately $350,000 at December 31, 2002 in certificates of
the deposit pledged as collateral for letters of credit on
behalf of one of the operating companies wholly owned by the
Trust.
3) Approximately $1,000,000 at December 31, 2002 in escrow to be
held until the satisfaction of all conditions met on the sale
of an operating company in 2002.
6. FAIR VALUE OF EXPECTED CASH FLOWS FROM SETTLEMENTS
Settlement proceeds at December 31, 2003 primarily consist of the net expected
proceeds from the settlement with Chaparral Pines LLC. The Chaparral Pines LLC
settlement consists of $300,000 cash and real estate valued at approximately
$420,000 net of selling costs. The Chaparral Pines settlement agreement must now
be signed by both parties and approved by the Superior Court to become final.
Also during 2003 the Trust settled with National Union Fire Insurance Company of
Pittsburgh, PA ("NATIONAL UNION") in regards to insurance claims of the Debtors
against former officers and directors. The National Union settlement consists of
gross proceeds of $3.75 million less legal fees and expenses of approximately
$550,000 for a net amount of approximately $3.2 million. Both the Superior Court
for the State of Arizona, Maricopa County (the "SUPERIOR COURT") and Bankruptcy
Court approved the settlement on October 17 and 21, 2003, respectively. The
National Union Settlement became final and the net proceeds along with
approximately $1.7 million in litigation proceeds that was derived from the sale
of assets received as part of the litigation settlements with Jalma W. and
Carole Hunsinger and their affiliates was distributed on December 19, 2003.
Settlement proceeds at December 31, 2002 primarily consist of net proceeds from
Arthur Andersen ("AA"). The AA settlement consists of gross proceeds of $217
million less legal fees of approximately $32.9 million and litigation expenses
incurred for prosecuting the litigation of approximately $4.0 million for a net
amount of approximately $180.1 million. Both the Superior Court and Bankruptcy
Court approved the settlement on September 13, 2002. Interest of approximately
$1.1 million was earned on the cash balances held by the Trust for the AA
settlement at December 31, 2002 and is reflected in these financial statements.
On December 27, 2002, the Trust distributed $6.5 million of the AA settlement to
the Class 3A and 3B beneficial interest holders of the Trust and class action
members in accordance with the court approved plan of allocation. At December
31, 2002, approximately $174.7 million representing both the Trust and class
action share of the AA settlement proceeds remained to be distributed. In
addition to the AA settlement, the Trust and class action were able to reach
settlements with Henry & Horne, P.L.C., Nelson Lambson & Co., P.L.C., E. A. and
Rebecca Kuhn, Jalma W. and Carole Hunsinger and their affiliates, The Arizona
Southern Baptist Convention and affiliated entities, Harold D. and Stephanie B.
Friend their affiliated entities and L. Dwain Hoover, Beva J. Hoover, D. Hoover
& Associates and the D. Hoover & Associates Investments, Inc. Retirement Trust.
These settlements aggregately total approximately $15.3 million less discounts
and consist of cash and other real property. Litigation expenses related to
these settlements total approximately $1.6 million for a net amount of
approximately $13.7 million. The court approved plan of allocation states that
the Trust is allocated 50% of the proceeds and that the class action is
allocated the remaining 50% of the proceeds. On January 23, 2003, the remaining
AA settlement funds of $174.7 million were distributed to the Class 3A and 3B
beneficial interest holders and class action members in accordance with the
court approved plan of allocation. On March 24, 2003 the cash proceeds received
from the other litigation settlements of $7.1 million were distributed to the
Class 3A and 3B beneficial interest holders and class action members in
accordance with the court approved plan of allocation. The remaining non-cash
assets of $6.6 million received as part of these additional settlements has been
reclassified to the appropriate asset classification and are being sold in
accordance with the liquidation plan. As of December 31, 2003 approximately
$700,000 of litigation assets remains to be sold. Any funds received from the
sale of litigation assets has been separated from operating cash and will be
distributed per the court approved plan of allocation.
7. ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities total $1,037,939 at December 31, 2003,
all of which relates to accrued expenses for the operation of the Trust.
-21-
Accounts payable and accrued liabilities of $3,071,617 consist of the following
at December 31, 2002:
o Accrued expenses consist of approximately $1.2 million of
expenses accrued for trade vendors, outside professionals,
including litigation attorneys and experts.
o Obligations to Class 5 and 6 creditors of approximately $1.9
million representing undisputed general unsecured claims.
8. NOTES PAYABLE
At December 31, 2003 the Trust had no outstanding notes payable. The final note
payable was paid in full during July 2003.
The following is a summary of notes payable to third parties at December 31,
2002:
Notes payable of approximately $3.3 million, including interest of approximately
$98,000, to a creditor collateralized by the Shea Homes note receivable, with
payment terms of annual principal and interest payments, with an interest rate
of 6.75%. Due on June 26, 2005.
Notes payable of approximately $815,000, including interest of approximately
$28,000, to various creditors collateralized by real estate, with payment terms
including monthly interest only payments and monthly principal and interest
payments, with interest rates ranging from 7% to 12%. Due at various dates
ranging from June 1, 2002 to October 31, 2008.
Notes payable of approximately $20,000, including interest of approximately
$200, to various creditors collateralized by various notes receivable, with
monthly principal and interest payments and interest rates ranging from 7.5% to
8.75%. Due at various dates ranging from March 1, 2007 to July 25, 2007.
At December 31, 2002, aggregate debt maturities including interest were as
follows:
2003 $1,425,715
2004 1,223,206
2005 1,297,153
2006 6,577
2007 15,424
Thereafter 644,241
---------------
4,612,316
Less present value discount (6.75%-12%) (486,099)
---------------
Notes payable $4,126,217
===============
9. ESTIMATED COSTS TO COMPLETE LIQUIDATION AND LITIGATION
The estimated costs to complete liquidation and litigation of $4,271,302 at
December 31, 2003 and $6,679,030 at December 31, 2002 represent the estimated
costs of operating the Trust through its expected termination on January 21,
2006, discounted using a present value factor of 4.00% at December 31, 2003 and
4.25% at December 31, 2002. These costs, which include personnel, facilities,
Liquidating Trustee and Liquidating Trust Board compensation, professional fees
and litigation costs, are estimated based on various assumptions regarding the
number of employees, the use of outside professionals (including attorneys and
accountants) and other matters. Litigation costs contain assumptions based on
what management expects the likely course of actions will be regarding
litigating and or settling certain contingencies. Given that there is inherent
uncertainty in the estimation process, actual results could be materially
different.
-22-
10. SETTLEMENT LIABILITY
The settlement liability at December 31, 2003 represents the class action's 50%
portion of the remaining settlement assets from Jalma W. and Carole Hunsinger
and their affiliates and Harold D. and Stephanie B. Friend and their affiliates.
The settlement liability relates to assets reported in other trust assets of
approximately $250,000 and receivables of approximately $450,000. In January
2003 the courts approved an allocation process for the January 2003 settlements
whereby the Trust and the class action each are allocated 50% of the settlement
proceeds. All of the class action investors are beneficial holders of the Trust,
however not all beneficial holders of the Trust are class action investors. From
all Litigation Claims, the Trust will distribute its allocated share of the
proceeds to the beneficial holders on a pro rata basis in accordance with the
Plan. The class action proceeds will be distributed to its investors based on a
formula as agreed by its members. The Trust has recorded a settlement liability
for the settlement proceeds, net of legal fees, equal to the amount allocated to
the class action. The liability will remain until the proceeds are distributed
to the class action investors by the Trust.
The settlement liability at December 31, 2002 represents the class action's 50%
portion of the joint settlement reached with AA for $217 million. The AA
settlement of $217 million, less of legal fees of approximately $32.9 million
and litigation expenses incurred for prosecuting the litigation of approximately
$4 million. In addition, the Trust and the class action have reached settlements
with various other responsible parties in the amount of approximately $13.7
million net. These settlements also include releases of claims against the Trust
of approximately $37.0 million. These settlements were approved by the courts in
January, 2003 and the available cash was distributed to class action
participants through out 2003.
11. CHANGES IN OTHER TRUST ASSETS
During the year ended December 31, 2003, the valuation of certain other trust
assets were adjusted based on current and pending sales offers, new information
received by management and actual operating results. These adjustments
aggregately total an approximate $2.0 million decrease in other trust assets.
Included in actual operating results are sales of approximately $15.5 million
for the sale of the Stillwaters Resort, Chandler Commerce Center, First Mortgage
Building, Park at Juniper Ridge, property in Casa Grande, property at Ironwood
and Southern and various other lots and parcels from ASC San Antonio and
Westside Property.
During the year ended December 31, 2002, the valuation of certain other trust
assets were adjusted based on current and pending sales offers, new information
received by management and actual operating results. These adjustments
aggregately total an approximate $92.2 million increase in other trust assets
which primarily related to the settlements with AA (see note 6). Included in
actual operating results are sales of approximately $9.8 million for the sale of
various lots and parcels from Coyote Lakes, Rancho Vistoso, Show Low Country
Club and Westside Property, Bloomington Indiana vacant land, Coyote Lakes Joint
Venture property, Bonds Alarms stock and the sale of the Document Technologies
assets.
During the period from January 22, 2001 (inception) to December 31, 2001, the
valuation of certain other trust assets were adjusted based on current and
pending sales offers, new information received by management and actual
operating results. These adjustments aggregately total an approximate $1.7
million decrease in other trust assets. Included in actual operating results are
sales of approximately $104.8 million for the sale of Foundation Administrative
stock to Shea Homes, sale of New Century stock, real estate development known as
Kilohana Waikoloa, Saddle Mountain RV Park and various lots and parcels from
Rancho Vistoso, Park at Juniper Ridge, ASC San Antonio and Westside Property,
and in addition various commercial lots at Sunrise Business Park, Chandler
Commerce Center, Santa Fe Trail Ranch, Tres Realty Building and various church
lots.
12. DISTRIBUTIONS
Under the terms of the Plan, the Trust makes quarterly distributions to
Beneficiaries after providing for certain reserves and expenses.
-23-
DISTRIBUTIONS TO TRUST BENEFICIARIES. Each holder of Class 3A or Class 3B claims
("INVESTORS") received an uncertificated, beneficial interest in the Trust,
which entitles the Investor to receive cash distributions from the Trust based
upon the orderly liquidation of all of the Trust assets and the recoveries, if
any, from litigation against potentially responsible third parties. All
Investors will share, on a pro rata basis, the first $80,000,000 in proceeds
from the liquidation of the Trust assets after payment to other creditors with a
greater payment priority. All proceeds from the liquidation of the Trust assets
in excess of $80,000,000 up to and including $160,000,000, will be distributed
on a pro rata basis between 3B investors and 3A investors; however, the 3A
investors will receive a collateralized investor premium of $13,200,000. All
proceeds from the liquidation of the Trust assets in excess of $160,000,000 will
be distributed on a pro rata basis between 3A investors and 3B investors.
Recoveries, if any, from the litigation against potentially responsible parties
will be distributed to all Investors on a pro rata basis. The Class 3A and Class
3B net asset value on the balance sheet has been calculated based on the above
distribution requirements. Cash distributions to Class 3A and Class 3B
beneficial interests amounted to approximately $163.3 million, including the
Trust's 50% share of litigation distributions, for the year ended December 31,
2003.
Cash distributions are reported net of any distributions that were voided or
returned to the Trust.
SOURCES OF DISTRIBUTIONS. Distributions to the creditors and Beneficiaries of
the Trust will come from the sale of the Trust Assets. However, some
distributions may come from "AVOIDANCE ACTIONS." Avoidance Actions are lawsuits
filed by the Trust against specific creditors who received money that the Court
determines is part of the Trust's estate. The Court will order these creditors
to return that money to the Trust for distribution to all creditors.
Essentially, the goal is to ensure that all creditors receive fair and equitable
treatment and that specific creditors were not treated more favorably than
others prior to or during the Trust's Chapter 11 cases. The Trust is unable to
estimate the proceeds from avoidance actions, if any, that will be received in
respect of the Avoidance Actions because the Avoidance Actions have not been
prosecuted by the Trust or resolved by the Court.
In addition to the Avoidance Actions, Investors may or already have also
received proceeds from the significant "LITIGATION CLAIMS" that the Trust has
against certain third parties potentially responsible for the failure of BFA,
including potential claims against BFA's former accounting and law firms. Under
the Plan, BFA and it `s affiliates were dissolved and no longer exist. The
Litigation Claims of the BFA against potentially responsible third parties have
been assigned to, and are being prosecuted by, the Trust. Under the Plan, each
Investor received an uncertificated beneficial interest in the Trust, entitling
Investors to share in any recoveries resulting from such litigation. The
recoveries from any litigation (net of any expenses incurred in prosecuting the
Litigation Claims) will be disbursed directly to Investors, and the funds cannot
be co-mingled with other funds from the orderly liquidation of assets by the
Trust. In addition, those Investors that hold IRAs or who are beneficiaries of
trusts will receive an additional uncertificated, beneficial interest in the
Trust, entitling them to receive litigation recoveries relating to breaches of
fiduciary obligations associated with these accounts and trusts. The litigation
by the Trust is under the control of the Liquidating Trustee and subject to
supervision by the Liquidating Trust Board.
DISTRIBUTION TO OTHER CREDITORS. Class 6 is the "Convenience Class" and consists
of the general unsecured Creditor's claims that are in an amount of $5,000 or
less, or any claim greater than $5,000 that is voluntarily reduced by the holder
of such claim to $5,000. Class 5 contains all other general unsecured creditors.
Most of these general unsecured creditors conducted business with subsidiaries
of BFA.
Under the Plan, the general unsecured creditors in Class 5 received an
uncertificated, beneficial interest in the Trust, entitling them to their pro
rata share of 10% of the net proceeds from such liquidation and 10% of the net
proceeds from the Avoidance Actions until they are paid their respective allowed
amount. If the Class 5 claims are not paid in full in accordance with the Plan
by the end of the two-year period commencing January 22, 2001, the holders of
the Class 5 claims will be entitled to 100% of the liquidation proceeds from the
sale of the Trust Assets until such holders are paid in full in accordance with
the Plan. As of December 31, 2003 all Class 5 and 6 claims have either been paid
in full or fully reserved for.
-24-
13. COMMITMENTS AND CONTINGENCIES
Contingent Liabilities
The Trust is involved in various legal proceedings. A number of creditors filed
proofs of claims in the Debtors' bankruptcy proceedings. As of December 31, 2003
all of these claims have been resolved and either paid in full (if any amount
was due) or fully reserved for (if disputed).
Contingent Assets
During late 2001, the Trust commenced two (2) separate adversary proceedings in
the Bankruptcy Court against William Crotts and Thomas Grabinski, the Chief
Executive Officer and General Counsel, respectively, of BFA during the period
that the fraud occurred. The Trust alleges that Messrs. Crotts and Grabinski
were the primary architects of the fraud, thereby breaching their fiduciary
duties to BFA and its investors. The Trust has successfully defeated motions by
Crotts and Grabinski to dismiss the action, and since that time has engaged in
extensive discovery with these parties. During this discovery process the Trust
and class action were able to reach a settlement with the defendant's and
Debtors' insurance carrier, National Union, in the gross amount of $3.75
million. The settlement calls for the Trust to dismiss its cases against Messrs.
Crotts and Grabinski. The settlement consists of gross proceeds of $3.75 million
less legal fees and expenses of approximately $550,000 for a net amount of
approximately $3.2 million. Both the Superior Court and Bankruptcy Court
approved the settlement on October 17, 2003 and October 21, 2003, respectively
(See note 4). The National Union Settlement became final and the funds were
distributed in December 2003.
In 2002 a complaint alleging four (4) separate causes of action was filed in the
Superior Court against BFA's former limited liability company member, Chaparral
Pines, LLC, in the development of the Chaparral Pines property. The complaints
center around the mismanagement of the property by the defendant. Chaparral
Pines filed a Motion to dismiss the complaint. After briefings and argument, the
Superior Court has allowed the Trust to proceed on three of the four counts in
the complaint. Discovery has commenced. Because of the substantial nature of the
Chaparral Pines project, the defendants' were working to accumulate all the
construction-related documents. During that time the Trust was able to reach a
settlement agreement with Chaparral Pines LLC consisting of the Trust receiving
$300,000 in cash and real estate valued at approximately $420,000 net of selling
costs. The settlement agreement must now be signed by both parties and approved
by the Superior Court to become final. The Trust has recorded this asset in its
fair value of expected cash flows from settlements net of various discounts at
December 31, 2003.
In an effort to avoid repaying $4 million dollars in debt to the Trust, Mr.
William Blair has engaged in a number of legal maneuvers. In 2001, the Trust
filed a Notice of Trustee's Sale on the collateral securing repayment on one of
the Notes (the "DESERT DIAMOND NOTE"). The Trust separately filed a lawsuit and
obtained a judgment against Mr. Blair individually as a co-maker under the
Desert Diamond Note. That debt has been reduced to judgment in an amount of $1.4
million dollars, plus interest at 19% until paid in full. With regard to Mr.
Blair's second obligation (the "CAMPBELL NOTE") the Superior Court entered
judgment on March 19, 2003 against both Mr. Blair and his trust in the amount of
$1,418,329.82 with interest at the rate of 18% from August 13, 2001, until paid.
The Trust has authorized the initiation of a new lawsuit to recover a
substantial number of real property transfers made by Mr. Blair to mostly third
party related entities on the eve of the Superior Court judgments. These claims
will be pursued under Arizona state law theories of fraudulent transfer. The
Trust now has successfully litigated and received judgments on the two (2)
Superior Court actions and defended the Trust's claims against the actions of
Mr. Blair in connection with the Desert Diamond bankruptcy. This bankruptcy
included a proposed cram down plan and an adversary lawsuit to modify the
underlying contract. The assets of the bankruptcy estate have been liquidated
and the proceeds from the sale of the assets distributed to the Trust. With
regard to the remaining action against Fidelity Title (the "TITLE COMPANY") the
Title Company hired by Mr. Blair to transfer title to portions of the Trust's
collateral to third parties without lien releases, the Bankruptcy Court recently
granted the Title Company's Motion for Reconsideration and reversed its prior
ruling. The effect is
-25-
that the Bankruptcy Court has upheld an alleged contract modification disallowed
by a different judge in an earlier litigation. If the Bankruptcy Court's ruling
stands as issued, the Trust would be required to release its liens on the
remaining real property collateral for a release price of $12,500/lot (a total
of $275,000 for the remaining lots). The Title Company also has on file a Motion
for Award of Fees seeking an award of approximately $138,000 in fees and costs
incurred. The Bankruptcy Court awarded the Title Company an amount of $44,000
for fees and costs. The Trust is appealing both rulings made by the Bankruptcy
Court relating to the Title Company matters.
The Trust holds a note receivable in an outstanding amount of approximately $2
million dollars from W.H.H.C. Through this note the Trust has begun foreclosing
on approximately 70 acres of real property located in Maricopa County, Arizona
as a partial payment on the outstanding note. A lawsuit has been filed in the
Superior Court to foreclose on the mortgage and obtain a judgment against the
real property. Two (2) of the defendants have made a claim in the form of an
affirmative defense, that the Trust has filed a wrongful claim against the real
property. Three (3) of the defendants have now filed answers. The remaining four
(4) defendants claim no interest in the real property. The estimated value of
the 70 acres of real property has been included in the notes receivable portion
of the accompanying consolidated financial statements.
On November 12, 2003 the Trust filed an adversary proceeding against Glen and
Nannie Lou Crotts and the Glen E. Crotts Revocable Trust ("CROTTS"). Glen and
Nannie Lou Crotts are the parents of past BFA president William Crotts and Glen
Crotts served as president of BFA prior to William Crotts. The complaint sets
forth four claims against the Crotts. The first two claims seek to recover
monies owed in excess of $750,000 on two promissory notes to the Trust now in
default. The third claim asserts that the Crotts assisted BFA senior management
in creating misleading financial statements in 1994 and 1995 through
participation in real estate transactions. The fourth and final claim is to
recover $296,000 withdrawn from the investment accounts held at BFA during the
one-year period prior to BFA filing for bankrupcty protection as a preference
amount. The Crotts have denied the assertions in all the claims and have filed
counterclaims against the Trust for withholding distributions on $537,219 of
their investments in BFA and $18,000 from another partnership. The Crotts and
the Trust have agreed to mediation, which is scheduled to start on May 3, 2004.
No amount has been recorded in the accompanying consolidated financials
statements related to these claims and counterclaims.
Because of the significant uncertainty associated with the valuation of these
contingent assets, it is likely that the amounts ultimately realized could
differ from the amounts that are actually reflected in the accompanying
consolidated financial statements and the differences could be material.
14. LEASES
The Trust entered into certain lease obligations to carry out the purpose of the
Trust as discussed in Note 1. These operating lease obligations for office space
and office equipment call for approximate payments of $3,400 monthly for 2003
and 2004. It may be necessary for the Trust to renew or commit to future lease
obligations to continue to carry out the activities of the Trust until the Trust
is terminated. Rent expense for 2003, 2002 and 2001 was $91,600, $221,000 and
$219,100, respectively. The estimated rental payments are included in estimated
costs to complete liquidation and litigation.
15. CASH RECEIPTS AND DISBURSEMENTS
For the year ended December 31, 2003, December 31, 2002 and the period from
January 22, 2001 to December 31, 2001, the Trust received net cash proceeds from
sales of assets, note receivable collections and operations of approximately
$264.4, $47.8 million and $50.7 million respectively, consisting of the
following:
-26-
ˇ Enlarge/Download Table
January 1, 2003 January 1, 2002 January 22, 2001
to December 31, to December 31, to December 31,
2003 2002 2001
------------------- -------------------- --------------------
Principal and interest received from notes receivable $ 55,729,327 $18,647,857 $ 7,397,856
Cash flows from other trust assets 208,623,346 29,151,787 43,351,517
------------ ----------- -----------
Total $264,352,673 $47,799,644 $50,749,373
============ =========== ===========
Conversely, for the same respective periods, the Trust paid out to various
creditors approximately $262.6, $46.6 million and $60.7 million, respectively,
as follows:
ˇ Enlarge/Download Table
January 1, 2003 to January 1, 2002 to January 22, 2001 to
December 31, 2003 December 31, 2002 December 31, 2001
----------------------- --------------------- ----------------------
Trust operations $ (3,337,531) $ (5,050,748) $ (7,402,222)
Payable to Class 5 creditors (2,308,738) (5,946,085) (4,046,931)
Principal and interest payments on
collateralized notes payable (4,126,217) (2,897,091) (3,537,454)
Distributions to Class 3A & 3B (252,802,053) (32,678,512) (45,735,268)
------------- ------------ ------------
Total $(262,574,539) $(46,572,436) $(60,721,875)
============= ============ ============
Distributions to Class 3A and 3B include the class action 50% portion of
litigation proceeds and are net of returned distributions and reserves.
16. SUBSEQUENT EVENTS
On March 15, 2004 the Bankruptcy Court approved the sale of Building 4 in the
Bloomington Industrial Center.
17. QUARTERLY FINANCIAL DATA (UNAUDITED):
Summarized unaudited quarterly financial data for fiscal 2003 and 2002 is as
follows:
BFA LIQUIDATION TRUST AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS IN LIQUIDATION
ˇ Enlarge/Download Table
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2003 2003 2003 2003
---------------- ---------------- ---------------- ------------------
Net assets in liquidation, beginning $ 194,833,341 $ 100,959,333 $ 85,393,358 $ 51,090,733
Interest on notes receivable (note 3) 1,507,478 1,224,995 345,056 247,141
Interest on notes payable (note 8) (58,584) (63,374) (12,215) 13,594
Changes in fair value of other trust assets
and liabilities (notes 10 & 11) (1,754,223) (4,470,239) 4,528,147 (327,226)
Changes in fair value of estimated costs to
complete liquidation (note 9) -- -- (1,139,534) 106,918
Distributions to holders of Class 3A and 3B
beneficial interests (note 12) (93,568,679) (12,257,357) (38,024,079) (19,465,347)
------------- ------------- ------------- -------------
Net assets in liquidation, ending $ 100,959,333 $ 85,393,358 $ 51,090,733 $ 31,665,813
============= ============= ============= =============
-27-
ˇ Enlarge/Download Table
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
2002 2002 2002 2002
---------------- ---------------- ---------------- ------------------
Net assets in liquidation, beginning $ 128,980,963 $ 129,808,985 $ 127,895,794 $ 120,595,537
Interest on notes receivable (note 3) 1,673,203 1,650,221 1,597,445 1,309,315
Interest on notes payable (note 8) (205,962) (179,978) (113,311) (64,941)
Changes in fair value of other trust assets
and liabilities (notes 10 & 11) (639,219) 2,736,793 1,051,265 89,040,708
Changes in fair value of estimated costs to
complete liquidation (note 9) -- (504,959) (829,951) 2,010,261
Distributions to holders of Class 3A and 3B
beneficial interests (note 12) -- (5,615,268) (9,005,705) (18,057,539)
------------- ------------- ------------- -------------
Net assets in liquidation, ending $ 129,808,985 $ 127,895,794 $ 120,595,537 $ 194,833,341
============= ============= ============= =============
Certain accounts for the quarter ended September 30, 2002 have been
reclassified. The approximate reclassifications are as follows: a $30,000
increase in the Interest on notes payable, a $95,000 decrease in the Change in
fair value of other trust assets and liabilities, and a $65,000 increase in the
Changes in fair value of estimated cost to complete liquidation. These
reclassifications have no impact on the previously reported net assets in
liquidation.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure.
None
Item 9A. Controls and Procedures.
Based on their evaluation, as of the end of the period covered by this Form
10-K, the Trust's Liquidating Trustee (the Trust's principal executive officer)
and Assistant to the Liquidating Trustee (the Trust's principal financial
officer) have concluded that they have reasonable assurance of the effectiveness
of the Trust's disclosure controls and procedures (as defined in Rule 13a-15(e)
under the Securities Exchange Act of 1934).
In connection with this evaluation, the Liquidating Trustee and the Assistant to
the Liquidating Trustee identified no change in internal control over financial
reporting that occurred during the Trust's fiscal year ended December 31, 2003,
and that has materially affected, or is reasonably likely to materially affect,
the Trust's internal control over financial reporting.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The decision-making authority for the Trust resides in the Liquidating
Trustee and the Liquidating Trust Board pursuant to the Trust Agreement. The
Liquidating Trustee is primarily responsible for the Trust's day-to-day
operations, and the Liquidating Trust Board supervises the Liquidating Trustee
and has the ability to approve or disapprove certain of the Liquidating
Trustee's material decisions. The Liquidating Trustee and the members of the
Liquidating Trust Board were appointed in accordance with the Confirmation
Order, and each of them will serve in their related capacity until such person's
death, resignation or removal in accordance with the terms of the Trust
Agreement.
The Trust's Audit Committee is made up of three (3) members of the
Liquidating Trust Board, Mr. Mark Winkleman, Mr. Steve Culp and Mr. John Prince.
Mr. John Prince serves as the financial expert on the Audit Committee and is
independent as defined in the Exchange Act. The Trust has not adopted a code of
ethics due to the small staff size of the Trust, the direct reporting of the
Trust staff to the Liquidating Trustee and Liquidating Trust Board and highly
regulated and reviewed environment in which the Trust's operates.
-28-
The following table sets forth information regarding the Liquidating
Trustee and the Liquidating Trust Board. A summary of the background and
experience of each of these individuals is set forth after the table.
Name Age Position
Clifton R. Jessup, Jr. 49 Liquidating Trustee
Paul D. Carlson 68 Liquidating Trust Board Member
Stephen L. Culp 38 Liquidating Trust Board Member
John V. Prince 49 Liquidating Trust Board Member
Shirley C. Weast 64 Liquidating Trust Board Member
Mark E. Winkleman 45 Liquidating Trust Board Member
Clifton R. Jessup, Jr. was approved as the Liquidating Trustee pursuant
to the Confirmation Order. Mr. Jessup is a partner and the head of the
Bankruptcy & Insolvency Group at the Dallas office of Patton Boggs LLP, which he
joined in 1997. Prior to joining Patton Boggs LLP, Mr. Jessup was the Chairman
of Dixon and Jessup, Ltd., LLP and the Managing Partner of the Dallas office of
that firm from 1990 until 1997. Mr. Jessup received his Bachelor of Arts from
Oakwood College in 1976 and his Juris Doctor from University of Michigan School
of Law in 1978. Mr. Jessup's experience includes the representation of secured
creditors, unsecured creditors, committees, equity holders, debtors and trustees
in federal bankruptcy cases in over 37 states. Mr. Jessup was appointed as the
Examiner in the Megafoods Stores bankruptcy case in Phoenix, Arizona in 1996.
When the Plan of Liquidation was confirmed in 1998, Mr. Jessup was appointed as
the Estate Representative of the Megafoods Liquidation Estate, a position that
he held until the case was closed in 2001.
Paul D. Carlson served as the Chairman of the Official Collateralized
Investors' Committee. From 1980 until his retirement in 1993, Mr. Carlson was a
Senior Development Engineer with Hughes Aircraft Company, where he was
responsible for the procurement of components and their functional integrity in
a major missile system.
Stephen L. Culp served as the Co-Chairman of the Official Joint
Committee of Unsecured Creditors. Mr. Culp has been employed since 1999 as the
Director of Property Development and Legal Counsel at Saddleback Valley
Community Church in Lake Forest, California, one of the largest churches in the
United States. From 1992 to 1999, Mr. Culp worked at the Orange County law firm
of Callahan, McCune & Willis, specializing in litigation.
John V. Prince is in private management consulting and currently serves
as a member of the Board of Directors of Arizona MultiBank, an Arizona community
development corporation. Prior to entering private management consulting, Mr.
Prince was Senior Vice President and Chief Financial Officer of Employee
Solutions, Inc., which filed a voluntary petition for relief under Chapter 7 of
the Bankruptcy Code on February 26, 2001. Prior to 1997 Mr. Prince held several
positions with First Interstate Bancorp, Inc. Most notably, he was the Vice
President and Manager of Bank SEC and Regulatory Reporting from 1994 until 1996.
From 1990 until 1994, Mr. Prince was a Vice President at First Interstate Bank
of Texas, where he was involved with the purchase of failed banks and savings
and loans in cooperation with the Resolution Trust Corporation. From 1986 until
1990, Mr. Prince was Vice President and Controller for First Interstate Bank of
Oklahoma where he was involved in the purchase and liquidation of the assets of
failed banks in cooperation with the Federal Deposit Insurance Corporation. Mr.
Prince is a Certified
-29-
Public Accountant who is certified in Arkansas and Oklahoma. Mr. Prince
graduated with a Bachelor of Arts in Accounting from the Ouachita Baptist
University.
Shirley C. Weast served as a member of the Official Collateralized
Investors' Committee and retired in 1990 after having operated the Shirley C.
Weast Agency for 30 years in the State of New York. Ms. Weast is a licensed
insurance and real estate broker in the State of New York.
Mark E. Winkleman has been recently appointed the State Land
Commissioner for the State of Arizona. As well he is the founder of MGS Realty
Partners LLC, which acquires and sells commercial properties. Prior to founding
MGS Realty Partners LLC in 2000, Mr. Winkleman was in charge of acquisitions for
Pacific Realty Advisors, where he directed the acquisition and disposition of
many commercial properties from 1997 until 1999. From 1991 to 1997, Mr.
Winkleman was the Senior Vice President of Grossman Company Properties, a real
estate investment company in Phoenix, Arizona, where he was actively involved in
the acquisition, development, financing and disposition of projects such as the
Arizona Biltmore Hotel, Biltmore Fashion Park, National Bank Tower, Christown
Mall, the Arizona Mills and several other significant real estate projects. Mr.
Winkleman was not an Investor or a creditor in the Debtors' Chapter 11 cases,
and he had no prior connection with the Debtors or the Non-Debtor Affiliates.
Item 11. Executive Compensation.
Compensation of the Liquidating Trustee
On December 19, 2000 the Bankruptcy Court approved the Trust's entry
into the compensation agreement by and among the transferors and Clifton R.
Jessup, Jr. (the "TRUSTEE COMPENSATION AGREEMENT"). The following description of
the Trustee Compensation Agreement is only a summary and is qualified by
reference to the Trustee Compensation Agreement, a copy of which was filed as
Exhibit 10.1 to the Trust's Form 10 filed May 1, 2002.
The compensation of the Liquidating Trustee is comprised of three (3)
components: hourly compensation, expense reimbursement and a performance bonus.
The Liquidating Trustee's hourly compensation is an hourly rate of $295.00,
which is subject to periodic upward adjustment by the Liquidating Trust Board.
The Liquidating Trustee will not be compensated for his travel time to and from
Phoenix, Arizona unless he is actually working on matters pertaining to the
Trust during that travel time.
All reasonable out of pocket expenses incurred by the Liquidating
Trustee for airfare between Dallas, Texas and Phoenix, Arizona (the "TRAVEL
EXPENSES"), are reimbursable as an expense of the Trust. All reasonable out of
pocket expenses incurred by the Liquidating Trustee and relating to the
Liquidating Trustee's performance of his duties hereunder and under the Trust
Agreement and which are not Travel Expenses, are also reimbursable as an expense
of the Trust.
The performance bonus to be paid to the Liquidating Trustee is based on
the net recoveries paid to certain creditors and is as follows:
-------------------------------------------------------------------------
Net Recoveries Performance Bonus (expressed as a
percentage of Net Recoveries)
-------------------------------------------------------------------------
$0 - $125,000,000 None
-------------------------------------------------------------------------
$125,000,000.01 - $250,000,000 .25%
-------------------------------------------------------------------------
$250,000,000.01 - $500,000,000 .50%
-------------------------------------------------------------------------
$500,000,000.01 and above .75%
-------------------------------------------------------------------------
"Net Recoveries" means the aggregate of all distributions by the Trust to the
Holders of claims in Class 3A, Class 3B and Class 5 from the liquidation of the
Trust Assets and the prosecution and/or settlement of the Litigation Claims. The
aggregate amount of all hourly compensation paid to the Liquidating Trustee by
the Trust and the Travel Expenses reimbursed by the Trust will be deducted from
the performance bonus payable to the Liquidating Trustee.
-30-
Compensation of the Liquidating Trust Board
On December 19, 2000 the Bankruptcy Court approved the form of the
compensation agreement to be entered into by the Trust and the members of the
Liquidating Trust Board (the "BOARD COMPENSATION AGREEMENT"). The following
description of the Board Compensation Agreement is only a summary and is
qualified by reference to the Board Compensation Agreement and Amendment to the
Board Compensation Agreement, the form of which is filed as Exhibit 10.2 and
10.3 to the Trust's Form 10 filed May 1, 2001.
Each member of the Liquidating Trust Board receives $1,000 for each
calendar month during which the board member serves as a member of the
Liquidating Trust Board and $2,000 for each meeting of the Liquidating Trust
Board, which the board member attends (either in person or by telephone
conference). In addition, the Independent Board Member, Mark Winkleman, receives
$1,250 for each calendar month during which he serves as the Chairman of the
Audit Committee and the Valuation Committee.
On December 28, 2001 the Bankruptcy Court entered its Order permitting
the Trust to pay fees to each member of the Liquidating Trust Board for the
period from November 1, 2000 to January 22, 2001 in recognition of services
provided by the Board prior to January 22, 2001. In addition to the compensation
described above, each Liquidating Trust Board member is also entitled to
reimbursement of all reasonable out-of-pocket expenses, including travel
expenses.
Item 12. Security Ownership of Certain Beneficial Owners and Management and
Related Stockholder Matters.
a) Since the Trust has no outstanding "voting securities" within the
meaning of the Exchange Act and the regulations thereunder, the
disclosure requirements of this annual report pertaining to 5% holders
of voting securities are not applicable. Notwithstanding the foregoing,
no person or group is the beneficial owner of more than 5% of interests
in the Trust.
b) The following table sets forth certain information with respect to the
beneficial ownership of interests in the Trust, as of the date of this
annual report, by the Liquidating Trustee and the members of the
Liquidating Trust Board. There is only one class of interests in the
Trust.
Name of Beneficial Owner Percent of Class
Clifton R. Jessup, Jr. 0.00%
Stephen L. Culp 0.00%
Mark E. Winkleman 0.00%
John V. Prince 0.01%
Paul D. Carlson 0.05%
Shirley C. Weast 0.13%
c) Because the Trust does not have any "voting securities" within the
meaning of the Exchange Act and the regulations thereunder, changes in
ownership of voting securities will not result in a change of control
of the Trust. Pursuant to the terms of the Trust Agreement, the
Liquidating Trustee and the Liquidating Trust Board have sole
management and executive authority over the Trust. The Liquidating
Trustee and the initial members of the Liquidating Trust Board were
initially selected by the Restructuring Committee, the Official
Collateralized Investors' Committee
-31-
and the Official Joint Committee of Unsecured Creditors, and the
Bankruptcy Court approved such selections in connection with the
Confirmation Order. The Liquidating Trustee and the members of the
Liquidating Trust Board will serve for the duration of the Trust.
However, in the event of any member's earlier death, resignation or
removal, such member will be replaced pursuant to the terms of the
Trust Agreement.
The Trust has no knowledge of any arrangements that may result in a
change of control of the Trust.
Item 13. Certain Relationships and Related Transactions.
Pursuant to the authority under the Plan, the Trust retained Patton Boggs, the
law firm that employs Clifton R. Jessup, Jr., the Liquidating Trustee, to handle
various litigation, investigation and transactional matters. Fees charged by
Patton Boggs for the services performed for the year ended December 31, 2003
approximate $243,000 and do not include fees and expenses for the services
provided by Mr. Jessup as Liquidating Trustee.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed for the last two (2) fiscal years ending December 31,
2003 and December 31, 2002 was $103,770 and $229,335, respectively, for
professional services rendered by the principal accountant,
PricewaterhouseCoopers, LLP, for the audit of the Trust's annual financial
statements and review of financial statements included in the Trust's 10Q.
Audit-Related Fees
The aggregate fees billed for the last two (2) fiscal years was $0 for assurance
and related services rendered by the principal accountant,
PricewaterhouseCoopers, LLP, that are reasonably related to the performance of
the audit or review of the Trust's financial statements and are not already
reported under Audit Fees.
Tax Fees
The aggregate fees billed for the last two (2) fiscal years was $0 for
professional services rendered by the principal accountant,
PricewaterhouseCoopers, LLP, tax compliance, tax advice and tax planning.
All Other Fees
The aggregate fees billed for the last two (2) fiscal year was $0 for products
and services provided by the principal accountant, PricewaterhouseCoopers, LLP,
other than as reported under Audit Fees.
The Audit Committee approves the engagement letter for the service of the
principal accountant prior to work commencing. The Audit Committee has approved
100% of the Audit Fees charged by the principal accountant and all audit and
review work was performed by the principal accountants employees.
Item 15. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) 1. Financial Statements
The consolidated financial statements of the Trust are
incorporated by reference to Item 8. "Financial Statements and
Supplementary Data" of this report.
2. Financial Statement Schedules
Financial statement schedules have been omitted because the
information is either not required, not applicable, or is
included with Item 8. "Financial Statements and Supplementary
Data" of this report.
-32-
3. Exhibits
The following exhibits are filed with this Form 10K:
Exhibit 2.1* First Amended Joint Liquidating Plan of
Reorganization of the Debtors Under Chapter
11 of the Bankruptcy Code
Exhibit 2.2* Order Confirming First Amended Joint
Liquidating Plan of Reorganization
Exhibit 3.1* Liquidating Trust Agreement, dated as of
January 22, 2001
Exhibit 10.1* Trustee Compensation Agreement, dated as of
January 22, 2001
Exhibit 10.2* Form of Board Compensation Agreement
Exhibit 10.3* Form of Amendment to Board Compensation
Agreement
Exhibit 21.1* Articles of Organization of New Asset
Subsidiary, LLC, dated as of January 22,
2001
Exhibit 21.2* Operating Agreement of New Asset Subsidiary,
LLC, dated as of January 22, 2001
Exhibit 31 Certification
Exhibit 32 Certification pursuant to 18 U.S.C. Section
1350
*Previously filed with Form 10 on May 1, 2002.
(b) Reports on Form 8-K.
No report on Form 8-K was filed by the registrant with the
Commission during the quarterly period ended December 31,
2003.
(c) Exhibits required by Item 601 of Regulation S-K
None.
(d) Financial statement schedules as required by Regulation S-X
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
BFA LIQUIDATION TRUST
By: /s/ Clifton R. Jessup, Jr.
--------------------------
Name: Clifton R. Jessup, Jr., Liquidating Trustee
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.
By: /s/ Clifton R. Jessup, Jr.
--------------------------
Clifton R. Jessup, Jr., Liquidating Trustee
Date: March 29, 2004
By: /s/ Mark A. Roberts
--------------------------
Mark A. Roberts, Assistant to the Liquidating Trustee
Date: March 29, 2004
-33-
By: /s/ Erik R. Anspach
--------------------------
Erik R. Anspach, Controller
Date: March 29, 2004
By: /s/ Paul D. Carlson
--------------------------
Paul D. Carlson, Liquidating Trust Board
Date: March 29, 2004
By: /s/ Stephen L. Culp
--------------------------
Stephen L. Culp, Liquidating Trust Board
Date: March 29, 2004
By: /s/ John V. Prince
--------------------------
John V. Prince, Liquidating Trust Board
Date: March 29, 2004
By: /s/ Shirley C. Weast
--------------------------
Shirley C. Weast, Liquidating Trust Board
Date: March 29, 2004
By: /s/ Mark E. Winkleman
--------------------------
Mark E. Winkleman, Liquidating Trust Board
Date: March 29, 2004
-34-
Dates Referenced Herein and Documents Incorporated By Reference
Filing Submission - Alternative Formats (Word / Rich Text, HTML, Plain Text, SGML, XML, et al.)
Copyright © 2009 Fran Finnegan & Company. All Rights Reserved.
About – Privacy – Redactions – Help —
Sat, 21 Nov 09:03:47.10 GMT 
