Back to GetFilings.com
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 [FEE REQUIRED]
For the fiscal year ended December 31, 1995, OR
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission File No. 1-8356
------
DVL, INC.
- - --------------------------------------------------------------------------------
- - -
Exact name of Registrant as specified in its charter)
Delaware 13-2892858
- - ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 River Road, Bogota, New Jersey 07603
- - --------------------------------------------------------------------------------
- - -
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 487-1300
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -----------------------------------------
Common Stock, $.01 par value National Association of Securities Dealers
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best
of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part IV of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by
non-affiliates as of March 27, 1996 was $3,229,501.
The number of shares outstanding of Common Stock of the Registrant as of March
27, 1996 was 13,510,850.
Part III, Items 10, 11, 12 and 13 are incorporated by reference to the Proxy
Statement for DVL, Inc's. 1995 Annual Meeting of Stockholders.
PART I
ITEM 1. BUSINESS
A. BUSINESS
DVL, Inc. ("DVL"), is a Delaware corporation established in 1978. DVL's
common
stock is traded on the National Association of Securities Dealers, Inc.'s over
the
counter bulletin board ("NASD") under the symbol "DVLN". DVL stock traded on
the New
York Stock Exchange ("NYSE") through August 3, 1995 but was delisted due to DVL
not
meeting NYSE listing criteria. The principal address of DVL is 24 River Road,
P.O.
Box 408, Bogota, New Jersey 07603; telephone number: (201) 487-1300. DVL is a
commercial finance company which manages numerous properties and partnerships,
from
many of which DVL holds commercial mortgage loans.
DVL primarily invested in mortgage loans to affiliates secured principally
by
income-producing commercial, office and industrial properties. In addition, DVL
invested in loans to limited partners and affiliates secured by interests in
affiliated partnerships in which Kenbee Management, Inc. ("Kenbee"), a Delaware
corporation, and DVL's former manager, was a general partner. See "Mortgage
Loans
and Loans Secured by Limited Partner Interests". Pursuant to the Limited
Partner
Settlement, defined below, DVL succeeded to Kenbee's position as general
partner in
those partnerships.
Effective January 1, 1994 DVL revoked its election to be taxed as a real
estate
investment trust ("REIT") and elected to be treated as a "Sub-chapter C"
corporation
for tax purposes. Management's intent in making this change was to enable DVL
to
pursue new business activities which would generate income which is either not
qualified as REIT income or which would otherwise have been taxable at a rate
of 100%.
From 1992 through 1994, DVL pursued two new potential businesses. The
first was
the acquisition and development of Sunbelt retirement/resort properties for the
purpose of reselling tracts or individual developed lots at a profit. The
second
entailed the acquisition of installment sales contracts in the automotive
service
business to selected dealers and auto mechanics.
Through early 1994 DVL or its wholly owned subsidiary RH Interests, Inc.
("RH")
acquired a total of five development properties for resale. Although DVL was
able
to make a profit on the first two acquisitions, due to lack of additional cash
resources, DVL was unable to develop and market its remaining three
acquisitions and
has transferred these properties to DVL's lenders in full satisfaction of DVL's
obligations to such lenders.
DVL incurred similar cash flow problems in connection with the development
of
the business of acquiring installment sales contracts in the automotive service
business. After DVL was successful in establishing and operating the business
through
a wholly owned subsidiary, First Mechanics Finance Company ("FMF"), DVL was
unable
to fund the continued expansion of FMF and was forced to sell the company in
December
1994. DVL had invested or loaned approximately $1,181,000 to FMF, net of $58,000
received through March 30, 1995 from the sale of FMF, (including $353,000 of
allocated
overhead) for start-up costs and to fund loan acquisitions. DVL was paid
$12,000 in
cash at closing from the sale and received a promissory note for $275,000
payable over
15 months, bearing interest at 8% per annum and a subordinated debenture in the
amount
of $550,000 due in three years and bearing interest based upon the sales volume
of
FMF. The note, which had a balance of approximately $119,000 at December 31,
1995,
has been extended to January, 1997. DVL has received $160,000 from the sale of
FMF
subsequent to March 30, 1995, which has been recorded as income. In December
1995,
DVL agreed to issue 250,000 shares of DVL common stock in January 1996 to the
prior
president of FMF in consideration of an assignment of loans to FMF of
approximately
$112,000 and his release of all potential claims against DVL. The value of
such stock
($31,000) has been offset against the income received from FMF. DVL has fully
reserved such remaining obligations since their collectibility is uncertain at
this
time. If and when DVL collects on the remainder of its note and subordinated
debenture it will recognize income as received.
2
Because of DVL's lack of cash resources, DVL has eliminated its new
business
operations and all related overhead expenses. DVL is focused on managing,
administering and servicing existing real estate properties and affiliated
partnerships. In many instances, such properties are collateral for DVL's
mortgage
loan portfolio. DVL is the general partner of approximately 100 affiliated
limited
partnerships from which it receives management and other fees. In addition,
through
Professional Service Corporation ("PSC"), a wholly owned subsidiary, DVL is
engaged
in the management of certain properties located in New Jersey pursuant to its
master
lease interests. DVL is managing these partnerships and properties as a result
of
various limited partner litigation settlements.
DVL has implemented significant measures to reduce its current operating
expenses
and is currently pursuing additional overhead reductions. However, to enable
DVL to
continue to meet its short term operating needs, DVL must augment its cash flow
with
additional cash provided by proceeds from the sale or refinancing of assets
and/or
equity borrowings. In this regard, DVL has retained an investment banker to
assist
DVL in obtaining such refinancings or borrowings as well as to develop a long
term
business strategy. See "Recent Developments".
B. RECENT DEVELOPMENTS
During 1995, substantial progress continued to be made in settling various
litigation and completing settlements with creditors. However, certain cases
are
still being litigated or are pending final disposition. See "Legal and
Administrative
Proceedings".
In December 1995, DVL completed its obligations under a 1993 settlement of
its
class action litigation. The settlement, which was approved by the court in
1993,
provided that DVL would issue the plaintiffs (1) 900,000 shares of DVL common
stock
at a minimum price of $1.50 per share (or notes to cover any deficiency in the
event
that aggregate market value was less than $1,340,000); (2) $9 million face
value of
notes due in ten years, with interest at 10% payable in kind for five years,
callable
after the third year and payable on the tenth year in cash or with DVL common
stock
equal to 110% of the face value of the notes (valued in 1993 at $3,690,000 by an
independent investment banker) and (3) $1.4 million plus interest at 3% from
August
16, 1993 and expenses, payable in cash or common stock. In December 1995, DVL
issued
the 900,000 shares of common stock and as a result of the deficiency in its
market
value, issued additional notes with the same terms, in the face amount of
$1,386,351
(valued at $330,000 by DVL). In payment of the $1.4 million plus interest and
expenses, DVL issued 4,017,582 shares of common stock in December 1995.
In the aggregate, DVL issued notes with a face value of $10,386,851.
Commencing
January 1994, interest on the initial $9 million of notes was imputed based
upon DVL's
carrying costs of such notes resulting in an effective interest rate of
approximately
19%. Beginning October 1, 1995, interest on all of the notes is being imputed
based
upon an effective interest rate of approximately 16.325%. The settlement
resulted
in a loss of $6.4 million which was fully provided for in 1992 (Note 11).
A settlement with limited partner investor plaintiffs in IN RE KENBEE
LIMITED
PARTNERSHIPS LITIGATION was approved by the court in November 1992 pursuant to
which
a substantial portion of DVL's mortgages were restructured and operational
control
of the partnerships was transferred to DVL with substantial decisions subject to
review by an oversight committee of independent limited partner representatives
and
in most instances, limited partner approval (the "Limited Partner Settlement").
In prior years, DVL completed settlements with all but two of its major
creditors. During the first quarter of 1995, DVL reached an agreement with one
of
its two remaining unsettled creditors and such settlement closed in the second
quarter of 1995. Pursuant to the settlement DVL will make cash payments over
time at a negotiated discount and there was an exchange of certain collateral.
As a result of this settlement, DVL recognized a gain of $1,809,000 in the
first quarter of 1995.
In December 1995, DVL reached a settlement with its final unsettled
creditor and recognized gain on the settlement of indebtedness of approximately
$6.1 million. Such indebtedness had been undercollateralized and the settlement
with the creditor eliminated such undercollateralization. The restructured
3
indebtedness required a $400,000 payment at closing and requires five quarterly
payments totaling $600,000 commencing June 30, 1996. If all such remaining
payments are made, DVL will recognize additional gains of approximately $7.4
million.
In March 1996, pursuant to a previously arranged discount agreement, DVL
paid one of its creditors $690,000 in full satisfaction of a loan which had the
effect of releasing back to DVL certain limited partner investor notes and
units and a collateral assignment of all of its interest in PSC's master lease
position. In connection with this transaction, DVL recognized an extraordinary
gain on the settlement of indebtedness of $442,000 in the first quarter of
1996. See "Business Activities - Partnership and Property Management".
In many of DVL's previously completed settlements, DVL has restructured
loans with mandatory repayment requirements. Although DVL has received
extensions on its mandatory repayment requirements where necessary, if DVL does
not meet such mandatory repayment requirements or receive additional extensions
on previously restructured debt, it will be in default of these loans and is
at risk of losing all of DVL's equity in the related collateral. In addition,
DVL has negotiated certain discounts from existing creditors, if DVL is able
to fully pay its obligations to such creditors prior to specified dates.
On March 28, 1996, DVL and NPM Capital LLC ("NPM") entered into a Loan
Agreement (the "Loan Agreement") pursuant to which NPM agreed to lend DVL funds
which will be used to satisfy the remaining balance at closing of four existing
loans to various creditors and to make principal installment payments on DVL's
obligation to another creditor (the "Loan"). These five loans had an aggregate
balance at December 31, 1995 of $15,266,000. Three of these loans, which
mature by June 30, 1996 had aggregate outstanding balances at December 31, 1995
of $3,484,000. DVL will prepay two of the five loans in order to avail itself
of its negotiated discounts of approximately $3,716,000. The Loan will be
payable over six years with interest at the rate of 10.25% per year. Based
upon the current balances due to such creditors, the expected discounts
(approximately $3,716,000) to be received and the outcome of certain
refinancings in progress, DVL expects the amount of the Loan to be
approximately $5 million to $6.5 million. In consideration for NPM's loan,
which will enable DVL to avail itself of all such discounts, and for providing
DVL with the extended payment schedule, the principal amount of the Loan will
be increased by $3,150,000. The principal amount of the Loan will be further
increased by NPM's costs incurred in connection with this transaction in excess
of $175,000.
In connection with the transactions contemplated by the Loan Agreement,
DVL and NPO Management LLC ("NPO"), an affiliate of NPM, have entered into an
Asset Servicing Agreement, subject to shareholder ratification, pursuant to
which NPO will provide DVL with administrative and advisory services relating
to the assets of DVL and its affiliated partnerships. In consideration for
such services, DVL will pay NPO $600,000 per year (with cost of living
increases beginning in 1998) over the seven (7) year term of the agreement,
subject to early termination under certain circumstances. DVL anticipates that
by outsourcing such services it will be able to reduce its existing overhead,
thereby offsetting the costs of such services.
In connection with the Loan, affiliates of NPM have agreed, upon
consummation of the Loan, to acquire 1,000,000 shares (the "Shares") of DVL
common stock for $200,000 representing approximately 7% of the current
outstanding common stock of DVL. In addition, DVL has agreed, upon
consummation of the Loan, to issue to affiliates of NPM an amount of warrants
(the "Warrants") which when added to the 1,000,000 shares to be acquired will
equal 49% of the outstanding shares of DVL common stock plus the Warrants to
be issued. The Warrants will be exercisable at a price of $.16 per share.
Consummation of the transactions contemplated by the Loan Agreement,
including the Loan and the issuance of the Shares and the Warrants are subject
to certain conditions, including shareholder approval. If approved, DVL
anticipates closing these transactions during the third quarter of fiscal 1996.
4
DVL continues to experience liquidity problems. If DVL is unable to
achieve a short term solution to its liquidity problems, and, continue to meet
its mandatory repayment requirements or obtains further extensions, then it may
not be able to continue as a going concern and may be forced to file for
protection from creditors under Chapter 11 of the United States Bankruptcy
Code.
DVL's ability to continue as a going concern is dependent upon (1) the
sale or refinancing of certain assets to improve its cash position to meet
operating expenses and make mandatory repayment requirements to its creditors;
(2) the settlement of its remaining litigation; (3) the realization of the
estimated value of the assets collateralizing its loan portfolio over an
extended period of time rather than the value of the assets on a liquidation
basis; and (4) the return to profitable operations.
C. BUSINESS ACTIVITIES.
1. MORTGAGE LOANS AND LOANS SECURED BY LIMITED PARTNER
INTERESTS
At December 31, 1995, DVL had investments in long-term mortgage loans to
affiliated partnerships and an unaffiliated entity (see "Commercial Loans -
Other") totaling $41,371,000 which are principally pledged to secure
indebtedness of the Company. Certain of the mortgage loans due from affiliated
partnerships, aggregating $25,375,000 at December 31, 1995, were transferred
from Kenbee and R&M Mortgage Company ("R&M") to DVL in replacement of DVL's
loans
to Kenbee and R&M collateralized by such partnership mortgages as part of the
Limited
Partner Settlement. This transfer significantly reduced the non-performing
portion
of DVL's loan portfolio, as one of the primary goals of the restructuring was
to assure that the partnerships' restructured mortgages would be serviced on
a current basis from the annual base rents paid by the tenant. However, this
reclassification will not result in significant income or cash flow on the
majority of such mortgages, as the mortgage debt service is currently used to
pay liens senior to DVL's before cash flow from such mortgages is available to
DVL. The balance of DVL's long-term mortgage loans to affiliated partnerships
were previously funded by DVL and bear interest at effective rates of up to 15%
per annum. At December 31, 1995, $5,640,000 of DVL's mortgage loans were
non-performing. DVL has established a loan loss reserve of approximately
$9,929,000 in connection with its mortgage loan portfolio.
The affiliated partnerships' properties provide the ultimate security for
DVL's loans and are leased, typically on a long-term basis, to unaffiliated
national tenants chosen for their financial stability and growth record. For
virtually all properties, the leases are current and the mortgages are being
paid on a timely basis.
In addition DVL holds loans due from individual limited partners secured
by limited partnership interests, including those obtained from Kenbee as part
of the Limited Partner Settlement, aggregating $3,921,000 of which all were
non-performing at December 31, 1995. Consequently, DVL has established a loan
loss reserve of approximately $2,296,000 in connection with these loans.
Del-Val Capital Corp. ("DVCC") was organized in May 1989 as a wholly-owned
subsidiary of DVL to acquire, make and service loans due from unaffiliated
borrowers secured primarily by portfolios of consumer receivables arising from
sales of interests in vacation ownership (timeshare) condominiums, improved
homesites and membership campgrounds. DVL continued to liquidate DVCC's loan
portfolio during 1994 and in May 1994, DVCC sold one loan at its carrying value
and pledged another loan as collateral for a DVL loan. DVCC's remaining
assets, net of an additional reserve of $175,000 taken in 1994, were absorbed
by DVL, which treated these transactions as the final disposal of DVCC.
2. INVESTMENTS IN AFFILIATED PARTNERSHIPS.
DVL acquired interests in affiliated partnerships pursuant to the terms
of various settlement agreements. These interests were originally valued at
an average of approximately 33% of the original investment, which reflected
management's estimate of the investment's net realizable value. At December
5
31, 1995, DVL had varying investments in numerous partnerships with a net
carrying value of $3,310,000. Based on potential liquidations of such units
to assist in meeting DVL's continuing operating needs, DVL has estimated a loan
loss reserve of approximately $583,000 in connection with these investments and
after receipt of distributions on these investments, the net realizable value
is approximately 24% of the original investment.
3. PARTNERSHIP AND PROPERTY MANAGEMENT.
As part of the Limited Partner Settlement, DVL became general partner of
approximately 100 affiliated partnerships for which DVL receives management and
other fees.
As part of a settlement agreement with one of DVL's creditors, PSC
acquired master lease positions for two industrial properties located in New
Jersey.
D. LINE OF BUSINESS
DVL has continuously been deemed to be in one line of business, commercial
finance, for the past five years.
E. INVESTMENTS
DVL's investments, the majority of which arose out of transactions with
affiliates, consist of commercial and other mortgage loans, loans and notes
secured by limited partnership interests, investments in affiliated
partnerships and commercial real estate. DVL also owns 100% of the Common
Stock of DVCC, PSC and RH. See "Financial Statements and Supplementary Data".
A more detailed description of DVL's business follows. Certain
information in the description is incorporated herein by reference to the Notes
to the Consolidated Financial Statements of DVL (the "Notes") included in
Item 8 hereof.
F. LOAN PORTFOLIO
DVL's mortgage loan portfolio consists primarily of long term wrap around
and other mortgage loans due from affiliated partnerships secured by
income-producing commercial, office and industrial properties. In addition, DVL
maintains a portfolio of loans to limited partners secured by their interests
in affiliated partnerships. DVL does not anticipate making any further loans
to affiliated partnerships or limited partners.
Virtually all of DVL's mortgage loans receivable arose out of transactions
arranged by Kenbee in which affiliated partnerships purchased commercial,
office and industrial properties typically leased on a long-term basis to
unaffiliated, creditworthy tenants. Each of DVL's mortgage loans is
collateralized by a lien, primarily subordinate to senior liens in favor of an
unaffiliated party, on real estate owned by the affiliated partnership. DVL's
loan portfolio is comprised of long-term wrap around and other mortgage loans
due from affiliated partnerships; interim second mortgage loans due from
affiliated partnerships; a loan due from an unaffiliated party; and loans due
from limited partners collateralized by their interests in affiliated
partnerships.
The following table sets forth the number of loans outstanding, aggregate
loan balances, including accrued interest, and the allowances for loan losses,
of the above investments at December 31, 1995. See Tables 1 through 4 of
Appendix "A" to this Form 10-K for detailed information as to each such loan.
Following the table is a brief description of each type of loan.
6
Number
Aggregate Allowance
of
Loan for Loan
Type of Loan Loans
Amount Losses
------------ ------
- - -------- ---------
(dollars in thousands)
Long-term mortgages due from affiliated
partnerships previously funded by DVL,
$27,611
net of underlying liens totaling $10,862,000
14,411
Less unearned interest (1)
- - -------
Net long-term mortgages due from affiliated
partnerships previously funded by DVL 25
13,200 $ 2,578
Long-term mortgages due from affiliated partnerships
acquired pursuant to the Limited Partner Settlement,
net of underlying liens totaling $33,438,000 37
25,375 6,575
Interim second mortgages due from
affiliated partnerships 3
1,515 776
Mortgage loan due from an unaffiliated entity 1
1,281 -
---
- - ------- -------
Total loans collateralized by mortgages 66
41,371 9,929
---
- - ------- -------
Loans collateralized by limited partnership
interests 178
3,921 2,296
---
- - ------- -------
Total loans 244
$45,292 $12,225
===
======= =======
[FN]
- - ------------
(1) Unearned interest represents the unamortized balance of discounts
on previously funded loans.
[/FN]
DVL's loans to affiliated partnerships are secured by mortgages on
properties leased to various tenants. For a list of these tenants see Tables
1 through 3. The number of properties leased by any one company from
affiliated partnerships in which DVL holds a mortgage loan ranges from one to
four except for Wal-Mart, which is the tenant of 41 properties. In January
1995, the Grand Union Company, tenant of four properties, filed for protection
from creditors under Chapter 11 of the U.S. Bankruptcy Code. All of the leases
were deemed to be affirmed in accordance with the terms of the Grand Union
Company's plan of reorganization, which was confirmed by the United States
Bankruptcy Court on May 31, 1995.
Generally, the tenants executed "triple-net" leases under which they are
responsible for the payment of all taxes, insurance and other property costs.
In certain instances, the partnership is required to maintain the roof and
structure of the premises. In addition to base rent, most leases also require
the tenant to pay additional rent equal to a percentage of gross receipts from
the tenant's operation of a property above a specified amount ("Percentage
Rent"). In virtually all cases where the partnership is entitled to receive
Percentage Rent, a portion of such rent is required to be paid as additional
interest or additional debt service on the long-term mortgage due from the
partnership.
G. COLLATERALIZED LOANS
1. LONG-TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS.
DVL's long-term wrap around and other mortgage loans due from affiliated
partnerships consist of (1) loans purchased primarily from Kenbee under prior
commitments made by DVL to affiliated partnerships on which DVL yields up to
15% per annum or (2) loans to affiliated partnerships acquired pursuant to the
Limited Partner Settlement, the principal amount of which equals DVL's net
investment in the related loan previously due from Kenbee or R & M, less
specific write-downs on certain of these loans based on the anticipated cash
flow to be generated by each loan. Interest on these loans, if any, will be
imputed based on their anticipated cash flow.
7
All but one of DVL's long term mortgages due from affiliated partnerships
is self-amortizing, while one loan requires a balloon payment at maturity in
the year 2020 of 672,000. Such loan is being serviced by partnership receipts.
DVL's wrap around mortgages are all collateralized by second or third
mortgages on commercial and industrial properties located in various states and
mature through June 2031. DVL is obligated to make principal and interest
payments on the underlying first mortgage loan to the extent proceeds are
received from the borrower and, in certain instances, has the right to
refinance or pay off the first mortgage loan. Currently, the partnerships
or the tenants are making the underlying mortgage payments directly to their
respective lenders and DVL is crediting such payments to its wrap around
mortgage loans. To the extent that the underlying mortgage payment is less
than the wrap around mortgage payment, the partnership is obligated to pay DVL
the difference.
2. INTERIM SECOND MORTGAGES DUE FROM PARTNERSHIPS.
An interim second mortgage loan to an affiliated partnership generally was
equal to the difference between the partnership's purchase price for its
property and the amount of a first mortgage provided by an unaffiliated lender.
Although the remaining loans bear interest at variable rates up to prime plus
4-1/4% per annum, DVL does not anticipate realizing any income from these
loans. Two of such loans are to partnerships which were not part of the
Limited Partner Settlement and continue to be non-performing at December 31,
1995.
3. COMMERCIAL LOAN - OTHER
DVL's mortgage loan from an unaffiliated entity resulted from the
satisfaction of its mortgage loan due from an affiliated partnership. In 1994,
DVL received a $1,450,000 mortgage note from the Grand Union Company in partial
satisfaction of one of its partnership mortgage loans. The note bears interest
at 9% per annum and requires monthly payments of $18,000, with a balloon
payment of $1,161,000 due in December 1996. The Grand Union Company is current
on this note and DVL expects that this loan is fully collectible as the store
was purchased by The Grand Union Company with the intention of it being
expanded. (See "Loan Portfolio")
4. LOANS COLLATERALIZED BY LIMITED PARTNERSHIP INTERESTS.
DVL made loans directly to limited partners to finance up to 80% of their
partnership investments. As a result of the Limited Partner Settlement, DVL
received additional limited partner loans from Kenbee in replacement of loans
due from Kenbee collateralized by such limited partner loans. All of such
loans due from limited partners ("Partners Notes") matured at various dates
through December 1995 and bear interest at fixed rates of 15% to 16% and at
variable rates of up to 2 1/2% over prime. Certain of the variable rate loans
are payable at fixed interest rates, with interest accruing at variable rates
subject to minimum and maximum levels, payable upon the maturity of the loan.
DVL also made loans to Kenbee collateralized by limited partnership
investments. As a result of the acquisition of the limited partnership
interests collateralizing these loans, the amounts due, net of the value of the
interests acquired, were written off during 1993 and 1992. See Note 6 and Note
7 to the Consolidated Financial Statements.
H. REFINANCING RIGHTS
DVL has the right to refinance certain of the presently outstanding
mortgage loans underlying its wrap around mortgage loans due from affiliated
partnerships, subject to any prepayment penalties, provided that the debt
service and principal amount of a refinanced loan are no greater than that of
the existing wrap around loan. DVL also has the right to arrange senior
financing secured by properties on which it holds first or second mortgage
loans by subordinating its mortgage loan subject to the same such limitations.
8
In 1994, DVL refinanced a portion of its mortgage portfolio which
generated cash proceeds of approximately $5.9 million, which was used to
satisfy existing indebtedness. In 1996, DVL refinanced 16 mortgages and has
commitments to refinance three additional mortgages which have or will generate
approximately $6 million which has been or is expected to be used to satisfy
existing indebtedness. The amounts obtained or to be obtained from these
refinancings were primarily based on the value of the base rents during the
period of the base lease term subsequent to the payoff of the existing first
mortgages. As a result of DVL's prior and current refinancings, DVL's asset
base available for future refinancings has diminished.
I. REAL ESTATE
DVL owns five real estate properties: two parcels of land in Bogota, New
Jersey and three parcels of land in Kearny, New Jersey. Two parcels in Kearny,
New Jersey are leased under long-term leases to affiliated partnerships which
purchased the buildings and improvements thereon. The following describes
DVL's properties more fully. All of such properties are believed to be
suitable for the uses indicated.
Two of the Kearny properties include 8.2 acres of land underlying
approximately 134,800 square feet of manufacturing, warehousing and commercial
buildings leased to (a) Toch Associates (2.6 acres) for an annual rent of
$7,000 until 2074; and (b) Kearny Associates (5.6 acres) for an annual rent of
$30,000 until 2079. Currently, Kearny Associates is in default on the land
lease held by DVL. DVL currently maintains a reserved of $208,000 on this
land.
DVL has settled with the first mortgage holder and the limited partners
on the two Bogota properties and the third Kearny property. As part of this
settlement DVL's economic interests in these properties were assigned to the
related partnerships by DVL.
J. EMPLOYEES
On March 27, 1996, DVL had eighteen (18) employees.
K. FOREIGN ACTIVITY
DVL or its subsidiaries have not engaged in any business activity outside
of the United States.
ITEM 2. PROPERTIES
A description of the properties owned by DVL, appearing under the caption
"Real Estate" in Item lI hereof, is incorporated herein by reference.
ITEM 3. LEGAL AND ADMINISTRATIVE PROCEEDINGS
Substantial progress has been made in resolving various litigation brought
against DVL, its Board members and certain current and former officers and
affiliates by shareholders, banks and others. The following is a summary of
the status of all material outstanding cases, as well as cases settled in 1995
and 1996.
In 1995, DVL complied with all of its obligations under the court approved
settlement in the consolidated shareholder class action entitled IN RE: DEL-VAL
FINANCIAL CORP. SECURITIES LITIGATION, MASTER FILE NO. MDL 872 ("IN RE
DEL-VAL") by issuing 4,917,582 shares of stock and $10,386,851 face value notes
in
December 1995 to settling shareholder class members and their legal counsel.
The $10,386,851 face value notes are due in ten years, bear interest at 10% per
annum, are payable in kind for five years, are callable after the third year
and are payable in cash or common stock at DVL's option. (See "Recent
Developments")
A suit entitled DONALD LEVY, ET AL. V. ROGER D. STERN, ET AL. ("LEVY"),
originally filed in New Castle County, Delaware on February 13, 1991, on behalf
of certain individual shareholders alleged breaches of fiduciary duty of care
9
and candor. The defendants recently prevailed on a motion for summary judgment
in this case and Plaintiffs have filed a motion for reconsideration with the
court. Plaintiffs in IN RE DEL-VAL have permitted the Plaintiffs in LEVY to
participate in their settlement with certain third party defendants in IN RE
DEL-VAL.
Also in 1995, DVL complied with the terms of the court approved settlement
agreement dated September 12, 1994 in two consolidated shareholder derivative
actions entitled DEL-VAL FINANCIAL CORP. DERIVATIVELY BY HILDA WEIGART V. ROGER
D. STERN, ET AL. ("WEIGART"), and DEL-VAL FINANCIAL CORP. DERIVATIVELY BY
MIRIAM FEINBERG V. ROGER D. STERN, ET AL. ("FEINBERG'), filed in the Superior
Court of New Jersey - Division - Bergen County on October 31, 1990 and December
3, 1990, respectively. In this settlement, DVL agreed to reimburse up to
$150,000 of costs incurred by Plaintiff's counsel and Plaintiff's have the
right to pursue DVL's claim against Federal Insurance Company ("Federal")
discussed below. All third party actions in connection with WEIGART and
FEINBERG have been dismissed.
DVL and certain former officers were named as defendants in an action
brought by a former employee of Kenbee entitled MICHAEL A. BECKER V. KENBEE
MANAGEMENT, INC. ET AL. ("BECKER"), and filed in the Superior Court of New
Jersey, Bergen County Law Division on September 22, 1993. In BECKER, plaintiff
alleged violations of the New Jersey Law Against Discrimination by Reason of
Religious Discrimination, of oral contract not to terminate plaintiff, of an
implied promise not to terminate employee for reasons violative of public
policy, and for intentional infliction of emotional distress, intentional
interference with contractual relations and slander and slander PER SE. A
settlement in this matter was completed in March 1996.
Federal Insurance Company ("Federal"), which carried DVL's directors and
officers insurance policy, declined to cover DVL for any legal costs or
liability. DVL commenced an action against its insurance broker and Federal
entitled DEL-VAL FINANCIAL CORPORATION, ET AL. V. FEDERAL INSURANCE COMPANY ET
AL. ("FEDERAL INSURANCE") on September 23, 1991 in the Supreme Court of the
State of New York, County of New York in which DVL alleged negligence against
its broker and sought declaratory and injunctive relief against Federal. The
New York Court in this matter has held that the Settling Defendants' insurance
excluded coverage of these matters. DVL has filed a notice of appeal of that
decision.
DVL was named in an action entitled VANGUARD CAPITAL V. KENBEE MANAGEMENT,
INC. ET AL. ("VANGUARD") which was filed on March 21, 1994 in the Superior
Court of the State of California, for the County of Riverside, Palm Springs
Branch, Civil Case No. 74197 in which plaintiff sought contractual indemnity,
equitable indemnity and declaratory relief on certain matters filed against
Vanguard Capital, Inc. in the Superior Court, State of California. This action
is based on complaints by an investor with a $350,000 investment in an
affiliated limited partnership alleging that the investor's broker sold to her
unsuitable investments. DVL has defended the case and Plaintiff has
voluntarily dismissed the action without prejudice. On March 22, 1996, the
petitioner in the underlying matter against VANGUARD filed in the Superior
Court of Los Angeles as case no. B5036316, a motion to vacate the NASD
Arbitration award made in July 1995 in VANGUARD and has named DVL as a
respondent in that Petition.
DVL is named as a defendant in a class action entitled PHILLIP AND CHERYL
WEISS V. WINNER'S CIRCLE OF CHICAGO, INC. ET AL. which was filed in the United
States District Court for the Northern District of Illinois on April 14, 1995
in which Plaintiffs allege that DVL, as a holder of certain consumer credit
contracts issued by Del-Val Capital Corp., a subsidiary of DVL, is subject to
claims and defenses against the consumer credit contracts and that DVL aided
and abetted violations of the Illinois Consumer Fraud Act. DVL believes this
case has no merit and continues to defend vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
10
PART II
ITEM 5. MARKET FOR DVL'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
DVL has been listed for trading on the NASD, since August 1995 under the
symbol DVLN. Prior to that, DVL was traded on the NYSE. As of March 27, 1995,
DVL stock was trading at $.25. The following table sets forth, for the
calendar periods indicated, the high and low sales prices of the Common Stock
as reported by the NASD and the NYSE:
1995 High Low
- - ---- ---- ---
First Quarter . . . . . . . . . . . . $ 1/2 $ 1/4
Second Quarter . . . . . . . . . . . 1/8 1/4
Third Quarter . . . . . . . . . . . . 13/16 1/16
Fourth Quarter . . . . . . . . . . . 5/16 1/32
1994 High Low
- - ---- ---- ---
First Quarter . . . . . . . . . . . . $1 3/8 $ 7/8
Second Quarter . . . . . . . . . . . 1 1/8 7/8
Third Quarter . . . . . . . . . . . . 7/8 1/2
Fourth Quarter . . . . . . . . . . . 1/2 3/8
[FN]
At March 27, 1996, there were 4,838 holders of record of Common Stock of
DVL. DVL made monthly dividends to shareholders continuously from May 1973 to
October 1990. No dividends have been paid since October 1990. At this time,
due to DVL's continued liquidity problems, DVL does not anticipate paying any
dividends in the foreseeable future.
[/FN]
11
ITEM 6. SELECTED FINANCIAL DATA
The following summary sets forth DVL's consolidated financial data at
December 31, 1991, 1992, 1993,
1994 and 1995. The data set forth below should be read in conjunction with
other financial information of
DVL, including its consolidated financial statements and accountant's report
thereon included elsewhere
herein and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Consolidated Income Statement Data
(In
thousands except for per share data)
Year Ended December 31
1991 1992
1993 1994 1995
---- ----
---- ---- ----
Revenues
Affiliates $ 4,329 $ 4,002
$ 2,652 $ 3,450 $ 2,868
Other 583 350
414 334 369
-------- --------
-------- -------- --------
Total $ 4,912 $ 4,352
$ 3,066 $ 3,784 $ 3,237
======== ========
======== ======== ========
Loss from continuing operations (A) $(13,487) $(22,635)
$ (6,163) $(12,887) $ (5,780)
Loss from discontinued operations (332) (403)
(367) (223) -
-------- --------
-------- -------- --------
Loss before extraordinary gain (13,819) (23,038)
(6,530) (13,110) (5,780)
Extraordinary gain on the settlement of - 16,482
7,991 1,935 7,900
indebtedness -------- --------
-------- -------- --------
Net Income (loss) $(13,819) $ (6,556)
$ 1,461 $(11,175) $ 2,120
======== ========
======== ======== ========
Earnings (loss) per share (B)
Primary
Loss from continuing operations $ (1.95) $ (3.27)
$ (.83) $ (1.54) $ (.58)
Loss from discontinued operations (.05) (.06)
(.05) (.03) -
-------- --------
-------- -------- --------
Income (loss) before extraordinary gain (2.00) (3.33)
(.88) (1.57) (.58)
Extraordinary gain on the settlement of - 2.38
1.08 .23 .79
indebtedness -------- --------
-------- -------- --------
Net Income (loss) $ (2.00) $ (.95)
$ .20 $ (1.34) $ .21
======== ========
======== ======== ========
Fully Diluted
Loss from continuing operations $ (1.95) $ (3.27)
$ (.38) $ (1.54) $ (.58)
Loss from discontinued operations (.05) (.06)
(.02) (.03) -
-------- --------
-------- -------- --------
12
Loss before extraordinary gain (2.00) (3.33)
(.40) (1.57) (.58)
Extraordinary gain on the settlement of - 2.38
.50 .23 .79
indebtedness -------- --------
--------- ------- --------
Net Income (loss) $ (2.00) $ (.95)
$ .10 $ (1.34) $ .21
======== ========
========= ======= ========
13
Consolidated Balance Sheet Data
(In thousands)
As At December 31,
1991 1992
1993 1994 1995
---- ----
---- ---- ----
Total assets $132,171 $ 97,938
$72,048 $54,085 $41,499
======== ========
======= ======= =======
Long-term debt (C) $ 43,450 $ 48,094
$37,270 $32,018 $32,290
======== ========
======= ======= =======
Short-term debt (C) $ 41,269 $ 23,486
$12,564 $ 9,657 $ 1,060
======== ========
======= ======= =======
Shareholders' equity (capital
deficiency) $ 9,447 $ 2,931
$ 5,660 $(5,131) $(1,330)
======== ========
======= ======= =======
[FN]
14
NOTES TO SELECTED FINANCIAL DATA
(A) In 1976, DVL sold real estate located in Kearny, New Jersey
(exclusive of land) to Toch, an affiliated partnership in which
Kenbee remains as the nominal general partner pursuant to an
agreement with the limited partners of the partnership. The
gain on this sale of $565,000 is being accounted for under the
installment method. DVL recognized $7,000, $8,000, $6,000, $0
and $0 respectively, of the gain on this sale during the five
years ended December 31, 1995. See note 9 of notes to the
Consolidated Financial Statements of DVL.
In 1977, DVL sold real estate located in Rockingham, North
Carolina and Phoenix, Arizona to Kenbee and its subsidiary.
In 1992 this gain on sale was fully recognized.
In 1978, DVL sold real estate located in Bogota, New Jersey
(exclusive of land and machinery) to Kenbee and its subsidiary.
The gain on the sale of $1,130,000 is being accounted for under
the installment method. DVL recognized a gain of $8,000,
$8,000, $9,000 and $9,000 respectively for the four years
ended December 31, 1994. Due to the cancellation of such
indebtedness in 1995 in connection with a creditor settlement,
the remaining balance of $1,075,000 was recognized in 1995.
See note 9 of notes to the Consolidated Financial Statements
of DVL.
(B) See note 1i of notes to the Consolidated Financial Statements
of DVL.
(C) See note 8 to the notes to the Consolidated Financial
Statements of DVL.
[/FN]
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
DVL continues to experience liquidity problems principally as a result of
the reduced cash flow received on the restructured and non-performing portions
of its loan portfolio. Although the Limited Partner Settlement substantially
reduced the non-performing portion of DVL's loan portfolio, this
reclassification has not, nor is it expected to result in significant income
or cash flow on the majority of the restructured mortgages, as the mortgage
debt service is used to pay liens senior to DVL's.
To enable DVL to meet its short-term operating needs, DVL must continue
to augment its cash flow with the proceeds from the sale or refinancing of
assets and equity borrowings. See "Recent Developments" and "Refinancing
Rights". There is a risk that DVL may not be able to raise the necessary funds
with which to continue operations. If DVL is unable to raise the necessary
funds to continue operating, it may be forced to file for protection from
creditors in accordance with Chapter 11 of the United States Bankruptcy Code.
DVL's ability to continue as a going concern is dependent upon (1) the
sale or refinancing of certain assets to improve its cash position to meet
operating expenses and make mandatory repayment requirements to its creditors;
(2) the settlement of its remaining litigation; (3) the realization of the
estimated value of the assets collateralizing its loan portfolio over an
extended period of time rather than the value of the assets on a liquidation
basis; and (4) the return to profitable operations. If DVL is unsuccessful in
achieving a short term solution to its liquidity problems, and continue to meet
its mandatory repayment requirements or obtain further extensions and return
to profitable operations, then it may not be able to continue as a going
concern.
RESULTS OF OPERATIONS
DVL realized net income of $2,120,000 in 1995, as compared to a net loss
of $11,175,000 in 1994, a change of $13,295,000. The income in 1995 was
primarily a result of extraordinary gains realized upon creditor settlements
offset by additional loss provisions for potential asset liquidations to
improve its cash position in order to meet operating expenses and make
mandatory repayment requirements. The net loss in 1994 was primarily a result
of substantial additional loss provisions for potential forced asset
liquidations and the loss incurred on the investment in FMF. The effects of
these items and the other factors contributing to DVL's operating results are
as follows:
Interest income on mortgage loans due from affiliates decreased by
$934,000 in 1995 and by $221,000 in 1994. The decrease in 1995 primarily
resulted from the reduction in the amount of such loans to affiliated
partnerships due to the satisfaction of certain loans upon the sale of
partnership properties, the transfer of certain loans pursuant to creditor
settlements effective in late 1994 and an increase in the non-performing
portion of DVL's mortgage portfolio. The decrease in 1994 was primarily a
result of the reduction in the amount of such loans to affiliated partnerships
due to the transfer of certain loans pursuant to creditor settlements in 1993
and from the satisfaction of certain loans upon the sale of partnership
properties.
Management fees from partnerships decreased by $30,000 in 1995 and
increased by $396,000 in 1994. The decrease in 1995 is a result of the
liquidation of certain partnerships during 1995 partially offset by an increase
in the management fee on the remaining partnerships. The increase in 1994 is
a result of DVL assuming management of its affiliated partnerships for all of
1994 after the termination of its management agreement with RH effective
January 1, 1994.
Transaction and other fees from partnerships aggregating $881,000 in 1995
and $542,000 in 1994 represent the fees received upon the sale or refinancing
of certain partnership properties. The increase in 1995 was the result of an
increase in the number of properties sold.
16
Rent income from affiliated partnerships increased by $5,000 in 1995 and
decreased by $59,000 in 1994. The increase in 1995 is attributable to DVL
receiving past due rent on one of its land leases offset by a decrease
resulting from the other land lease being in default for a portion of 1995.
The 1994 decrease is a result of DVL's transfer of its economic interest in
three of its properties to affiliated partnerships in connection with the
settlement of litigation and the restructuring of one of DVL's debts in 1993
in addition to one of the remaining land leases being in default.
Other income from affiliates represents the receipt of distributions and
proceeds upon liquidation on fully reserved limited partnership investments.
Interest income on loans to limited partners decreased by $107,000 in 1995
and decreased by $85,000 in 1994 primarily a result of a decrease in the
average outstanding balance of the performing portion of this portfolio. At
December 31, 1995, all of these such loans were non-performing and therefore
DVL does not anticipate any yield on these loans in the future.
Other income in 1995 represents collections on the note obtained by DVL
from the sale of FMF from March 31, 1995 through March 31, 1996 offset by the
value associated with the shares of DVL stock to be issued to the prior
president of FMF in 1996. These shares were valued at $31,000.
General and administrative expenses increased by $107,000 in 1995 and
decreased by $659,000 in 1994. The increase in 1995 was primarily a result of
a $30,000 accrual required for the value of performance units granted to and
exercised by certain officers in 1995, as compared to the reduction of $385,000
of such expense in 1994 and $353,000 of overhead allocated to FMF in 1994 as
compared to no overhead allocated in 1995. These items were principally offset
by a $662,000 decrease in payroll and operating costs incurred in 1995 due to
the elimination of DVL's new business ventures and additional reductions in
personnel made in late 1994 and early 1995. General and administrative
expenses in 1995 included $114,000 of non-cash compensation paid with DVL
common stock to various officers and directors.
The provision for losses aggregated $2,222,000 in 1995, $7,814,000 in 1994
and $995,000 in 1993. The provision in 1995 and 1994 was primarily a result
of potential losses to be incurred upon the liquidation of assets to meet
mandatory repayment obligations on certain indebtedness beginning in 1994 and
to fund DVL's operating cash flow deficiency. Furthermore, DVL provided for
losses based upon updated information on certain properties.
Legal and professional fees increased by $189,000 in 1995 and decreased
by $36,000 in 1994. These fees continued to be significant during 1995
primarily as a result of significant activity on remaining litigation, legal
work required in connection with the culmination of the shareholder class
action litigation and $80,000 of non-cash consideration paid to an investment
advisor retained to assist DVL in raising debt or equity financings. Such fees
are expected to decrease in the future since DVL has now settled the majority
of its litigation.
Interest expense to affiliates and others decreased by $248,000 in 1995
and by $256,000 in 1994 primarily as a result of a decrease in indebtedness and
decreases in interest rates on certain restructured indebtedness, which was
principally offset by $879,000 and $744,000, respectively, of imputed interest
on the notes issued in connection with the Shareholder Settlement and by an
increase in the prime rate. The decrease in indebtedness is primarily the
result of DVL reaching an agreement with its final unsettled creditors in 1995
and 1994, as well as significant payments to creditors resulting from the
principal payments made from collections on the collateral pledged to secure
indebtedness. Such collections were principally obtained from the satisfaction
of certain loans upon the sale of partnership properties. Management
anticipates that such interest expense on its existing indebtedness will
decline in the future as a result of the completed settlements and
restructuring agreements with DVL's creditors. However, this decline may be
more than offset by the interest, including imputed interest, on the $10.3
million of notes issued in connection with the Shareholder Settlement.
17
Settlements and other litigation losses aggregating $35,000 in 1995,
$973,000 in 1994 and $582,000 in 1993 represent both actual losses and
management's estimate of potential losses to be realized in connection with
claims originating from Kenbee's indebtedness to certain creditors and for
certain other litigation matters.
The net loss of $1,181,000 on the investment in FMF in 1994 represents
DVL's investment to fund FMF's initial operations, before any potential
recoupment from additional cash received from the sale of FMF. The loss
included $353,000 of overhead allocated to FMF by DVL.
DVL's discontinued operations resulted in a net loss of $223,000 in 1994.
The loss in 1994 resulted primarily from a provision for losses on one of
DVL's real estate projects, and additional losses anticipated on the sale of
the remaining real estate or DVCC loans.
DVL has reached settlements with the majority of its shareholders,
virtually all of the limited partners and all of its creditors. As a result,
management anticipates, (a) a steady flow of income in partnership management
and other fees, (b) a decrease in interest income on mortgage loans transferred
to satisfy indebtedness or liquidated for repayment of indebtedness or cash
flow purposes, (c) a decrease in interest expense as indebtedness is satisfied
by transferring assets to certain creditors and as a result of restructured
indebtedness with reduced interests rates, (d) an increase in interest expense
on the notes issued in connection with the Shareholder Settlement, (e)
potential gains on the settlement of DVL's indebtedness as DVL meets discounted
payment requirements, and (f) a reduction in the costs incurred to defend
against litigation.
LIQUIDITY AND CAPITAL RESOURCES
DVL continues to experience liquidity problems and its cash flow provided
by operations is not sufficient to meet its operating needs. DVL is attempting
to augment its cash flow with the proceeds from the sale or refinancing of
assets and equity financings. See "Recent Developments". There is a risk that
DVL may not be able to raise the necessary funds with which to continue
operations.
DVL's revocation of its election to be taxed as a REIT effective January
1, 1994 eliminated the requirement that DVL distribute at least 95% of its
taxable income and will allow DVL to enter into new business ventures that were
not permitted or were subject to taxation at a rate of 100% for a REIT. DVL
does not anticipate making distributions to its shareholders in the foreseeable
future. DVL currently has net operating loss carryforwards of approximately
$65,000,000 which it may use as a "C" Corporation to offset future taxable
income, if any, and subject to certain limitations, from federal income taxes.
DVL has the right to refinance a number of mortgage loans underlying its
wrap around mortgages due from affiliated partnerships and arrange senior
financing secured by properties on which it holds first or second mortgage
loans by subordinating its mortgage position. In 1994, DVL refinanced a
portion of its mortgage portfolio which generated cash proceeds of
approximately $5.9 million, which was used to satisfy existing indebtedness.
In 1996, DVL refinanced 16 mortgages and has commitments to refinance three
additional mortgages which have or will generate approximately $6 million which
has been or is expected to be used to satisfy existing indebtedness. The
amounts obtained from these refinancings were primarily based on the value of
the base rents during the period of the base lease term subsequent to the
payoff of the existing first mortgages. As a result of DVL's prior and current
refinancings, DVL's asset base available for future refinancings has
diminished.
During 1994, DVL reduced the portion of its indebtedness which was in
default for non-payment of scheduled interest and/or principal by approximately
$3.6 million. This reduction resulted from the restructuring of the principal
balance, payment terms and interest rate with one creditor. The restructuring
agreement was signed in the first quarter of 1995 and closed in the second
quarter of 1995. Such restructuring resulted in a gain on the settlement of
indebtedness of $1.81 million in the first quarter of 1995.
18
In December 1995, DVL reached a settlement with its final unsettled
creditor and recognized a gain on the settlement of indebtedness of $6.1
million. Such indebtedness had been undercollateralized and the settlement
eliminated such undercollateralization. The restructured indebtedness required
a $400,000 payment at closing and requires five quarterly payments totaling
$600,000 commencing June 30, 1996. If such remaining payments are made, DVL
will recognize additional gains of approximately $7.4 million.
IMPACT OF INFLATION AND CHANGES IN INTEREST RATES
DVL's mortgage loan portfolio due from affiliated partnerships is
primarily at fixed rates. Although management has restructured certain of its
indebtedness to fixed rates, DVL's indebtedness continues to be primarily at
variable rates. Therefore, currently, decreases in interest rates are
generally expected to have a positive effect on DVL's earnings while increases
in interest rates are generally expected to have a negative effect on DVL's
earnings. The proposed transaction with NPO will convert virtually all of
DVL's variable rate debt to a fixed rate. See "Recent Developments". Other
than as manifested in interest rates, inflation has not had a significant
effect on DVL's net income for the past five years.
OTHER MATTERS
As a temporary step designed to allow DVL to pursue the acquisition of
residential real estate for resale without subjecting any profits from such
resales to the 100% tax rate for REITS, DVL made four loans to RH in 1993 in
connection with RH's acquisition of real estate for resale. The loans
aggregated $213,000 of which $161,000 was repaid during 1993. The remaining
loan was eliminated through DVL's acquisition of RH effective January 1, 1994.
At December 31, 1995, DVL had net operating loss carryforwards for income
tax purposes of approximately $65,000,000 available to offset future taxable
income, if any, expiring through 2010.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report thereon of Richard A.
Eisner & Company, LLP, are set forth on pages F-1 through F-9, which follow.
The financial statements are listed in Item 14(a)(1) hereof.
The remainder of the financial information required by this report is set
forth on pages F-10 through F-29 hereof. Such information is listed in Item
14(a) hereof.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
There have been no disagreements on any matter of accounting principles
or practices or financial statement disclosure between DVL and its independent
auditors within the twenty-four months prior to the date of DVL's most recent
financial statements.
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF DVL
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1995 Annual Meeting of
Stockholders which DVL intends to file with the Commission not later than 120
days after the end of the fiscal year covered by this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1995 Annual Meeting of
Stockholders which DVL intends to file with the Commission not later than 120
days after the end of the fiscal year covered by this Form 10-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1995 Annual Meeting of
Stockholders which DVL intends to file with the Commission not later than 120
days after the end of the fiscal year covered by this Form 10-K.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1995 Annual Meeting of
Stockholders which DVL intends to file with the Commission not later than 120
days after the end of the fiscal year covered by this Form 10-K.
20
PART IV
ITEM L. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
(1) The Financial Statements required by Item 8 of this
report are listed below:
Item 8
Page No.
--------
Report of Independent Auditors F- 1
Consolidated Balance Sheets -
December 31, 1995 and 1994 F- 2
Consolidated Statements of Operations
for each of the years in the three year period
ended December 31, 1995 F- 4
Consolidated Statements of Shareholders'
Equity (Capital Deficiency) for each of the
years in the three year period ended
December 31, 1995 F- 6
Consolidated Statements of Cash Flows
for each of the years in the three year period
ended December 31, 1995 F- 7
Notes to Consolidated Financial Statements F-10
(2) The Financial Statement Schedules required
by Item 8 of this report are listed below:
None
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
(3) INDEX OF EXHIBITS
The following is a list of the Exhibits filed as a part of this report
(those marked * are filed herewith):
21
3. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) Copy of DVL's Certificate of Incorporation. (Incorporated by
reference to Exhibit 6(d) to DVL's Form S-L. Registration
Statement No. 2-58847 dated April 28, l977.)
(b) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation. (Incorporated by reference to Exhibit 6(e) to
Amendment No. 1 to DVL's Form S-L. Registration Statement No.
2-58847 dated August 25, l977.)
(c) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated August 3, 1982. (Incorporated by reference
to Exhibit 3(c) to DVL's Form 10-K for the fiscal year ended
December 31, 1982.)
(d) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated May 27, 1983. (Incorporated by reference
to Exhibit 3(d) to DVL's Form 10-K for the fiscal year ended
December 31, 1983.)
(e) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated July 24, 1987. (Incorporated by reference
to Exhibit 3(e) to DVL's Form 10-K for the fiscal year ended
December 31, 1987).
(f) Copy of DVL's By-Laws, as in full force and effect at all times
since March 28, l977. (Incorporated by reference to Exhibit
3(c) to DVL's Form 10-K for the fiscal year ended December 31,
1980.)
(g) Copy of DVL's First Amendment to By-Laws dated as of January
1, 1994.
(h) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated December 17, 1993.
4. INSTRUMENTS DEFINING THE RIGHTS OF SECURITY HOLDERS.
There are no instruments defining the rights of holders of equity
securities required to be filed hereunder. Instruments defining the rights of
holders of long-term debt of DVL are summarized in Note 8 to DVL's consolidated
financial statements included in Item 8 hereof. None of such instruments
authorizes amounts to be borrowed by DVL in excess of 10% of the total assets
of DVL. DVL agrees to provide copies of such debt instruments to the
Commission upon request.
9. VOTING TRUST AGREEMENT.
Not applicable
10. MATERIAL CONTRACTS.
10.1 Copy of Agreement between Martin Scheinberg and DVL dated
January 17, 1991. (Incorporated by reference to Exhibit 10 (a)
(11) to DVL's Form 10-K for the fiscal year ended December 31,
1990.)
10.2 Copy of Employment Agreement between DVL and Ben S. Read, Jr.,
dated November 1, 1990. (Incorporated by reference to Exhibit
10 (a) (12) to DVL's Form 10-K for the fiscal year ended
December 31, 1990.)
10.3 Copy of Employment Agreement between DVL and Alan E. Casnoff
dated January 1, 1991. (Incorporated by reference to Exhibit
10 (a) (13) to DVL's Form 10-K for the fiscal year ended
December 31, 1990.)
22
10.4 Copy of DVL Performance Unit Plan. (Incorporated by reference
to Exhibit 10 (a) (14) to DVL's Form 10-K for the fiscal year
ended December 31, 1990.)
10.5 Copy of Resignation and Indemnification Agreement dated May 3,
1991 between Roger D. Stern, Kenbee and DVL. (Incorporated by
reference to Exhibit 10 (a) (15) to DVL's Form 10-K for the
fiscal year ended December 31, 1990.)
10.6 Copy of Employment Agreement between DVL and Joel Zbar dated
October 1, 1991. (Incorporated by reference to Exhibit 10 (a)
(16) to DVL's Form 10-K for the fiscal year ended December 31,
1991.)
10.7 Copy of Voting Trust Agreement between R&M Holding Company and
Alan Casnoff dated May 15, 1991. (Incorporated by reference
to Exhibit 10 (a) (18) to DVL's Form 10-K for the fiscal year
ended December 31, 1991.)
10.8 Copy of Voting Trust Extension by Roger D. Stern dated December
10, 1991. (Incorporated by reference to Exhibit 10 (a) (19)
to DVL's Form 10-K for the fiscal year ended December 31,
1991.)
10.9 Copy of Voting Trust Extension Agreement between R&M Holding
Company and Alan Casnoff dated April 7, 1992. (Incorporated
by reference to Exhibit 10 (a) (20) to DVL's Form 10-K for the
fiscal year ended December 31, 1991.)
10.10 Form of Second Deed to Secure Debt between an affiliated
partnership and DVL. (Incorporated by reference to Exhibit
10(b)(1) to DVL's Form 10-K for the fiscal year ended December
31, 1983.)
10.11 Form of Note of an affiliated partnership to DVL.
(Incorporated by reference to Exhibit 10(b)(2) to DVL's Form
10-K for the fiscal year ended December 31, 1983.)
10.12 Form of Note of a subsidiary of Kenbee to DVL. (Incorporated
by reference to Exhibit 10(b)(3) to DVL's Form 10-K for the
fiscal year ended December 31, 1983.)
10.13 Assumption Agreement between DVL and North Lake Corporation
dated as of November 22, 1983. (Incorporated by reference to
Exhibit (b)(8) to DVL's Form 10-K for the fiscal year ended
December 31, 1983.)
10.14 Loan and Security Agreement between DVL and Kenbee dated
September 10, 1984. (Incorporated by reference to Exhibit
10(b)(11) to DVL's Form 10-K for the fiscal year ended December
31, 1984.)
10.15 Letter Agreement between DVL and Kenbee dated as of December
31, 1984. (Incorporated by reference to Exhibit 10(b)(16) to
DVL's Form 10-K for the fiscal year ended December 31, 1984.)
10.16 Loan and Security Agreement between DVL and Kenbee dated as of
December 31, 1984. (Incorporated by reference to Exhibit
10(b)(17) to DVL's Form 10-K for the fiscal year ended
December 31, 1984.)
10.17 Letter Agreement between DVL and Kenbee dated January 30, 1985.
(Incorporated by reference to Exhibit 10(b)(14) to DVL's Form
10-K for the fiscal year ended December 31, 1984.)
10.18 Supplemental Letter Agreement between DVL and Kenbee dated
March 12, 1985. (Incorporated by reference to Exhibit
10(b)(15) to DVL's Form 10-K for the fiscal year ended December
31, 1984.)
23
10.19 Letter Agreement between DVL and Kenbee dated as of December
31, 1984. (Incorporated by reference to Exhibit 10(b)(12) to
DVL's Form 10-K for the fiscal year ended December 31, 1984.)
10.20 Letter Agreement between DVL, LW Industries, Inc. and Kenbee
dated as of March 12, 1985. (Incorporated by reference to
Exhibit 10(b)(13) to DVL's Form 10-K for the fiscal year ended
December 31, 1984.)
10.21 Note of DVL to LW Industries, Inc. Defined Benefit Pension Plan
dated as of December 31, 1987. (Incorporated by reference to
Exhibit 10(b)(30) to DVL's Form 10-K for the fiscal year ended
December 31, 1987.)
10.22 Letter Agreement between DVL and Kenbee dated November 30,
1987. (Incorporated by reference to Exhibit 10(b)(30) to DVL's
Form 10-K for the fiscal year ended December 31, 1987.)
10.23 Form of Mortgage and Security Agreement between DVL and an
affiliated partnership. (Incorporated by reference to Exhibit
10(b)(33) to DVL's Form 10-K for the fiscal year ended December
31, 1988.)
10.24 Letter Agreement between P & A Associates and Kenbee dated
April 19, 1989. (Incorporated by reference to Exhibit 10(b)(5)
of DVL's Form S-2 Registration Statement No. 33-29184, dated
June 7, 1989.)
10.25 Copy of Stipulation of Settlement of IN RE KENBEE LIMITED
PARTNERSHIP LITIGATION dated August 12, 1992.
10.26 Copy of forms of DVL's Convertible Subordinated 12% Promissory
Note, Purchase Agreement, First Amendment to Purchase
Agreement, Second Amendment to Purchase Agreement and Warrant
to Purchase Common Stock of DVL.
10.27 Copy of forms of DVL's Convertible Subordinated 10% Promissory
Note, Purchase Agreement and Warrant to Purchase Common Stock
of DVL.
10.28 Copy of Stipulation of Partial Settlement and Order in IN RE
DEL-VAL FINANCIAL CORPORATION SECURITIES LITIGATION Master
File #MDL872.
10.29 Copy of Employment Agreement between DVL and Robert W.
LoSchiavo dated January 1, 1994.
10.30 Copy of Employment Agreement between DVL and Robert W.
LoSchiavo dated January 1, 1995.
*10.31 Copy of Employment Agreement between DVL and Robert W.
LoSchiavo dated January 1, 1996. Filed in paper form
pursuant to Rule 202 of Regulation S-T.
*10.32 Copy of Conditional Compromise Agreement between DVL and
the Federal Deposit Insurance Corporation as Receiver for
American Savings Bank dated March 26, 1996. Filed in paper
form pursuant to Rule 202 of Regulation S-T.
*10.33 Amended and Restated Loan Agreement between DVL and NPM
Capital LLC, dated March 27, 1996. Filed in paper form
pursuant to Rule 202 of Regulation S-T.
*10.34 Asset Servicing Agreement between DVL, PSC, Kenbee Realty
and NPO Management LLC dated March 27, 1996.
*10.35 Copy of Third Voting Trust Extension between R&M Holding
Company and Alan Casnoff dated March 7, 1996.
24
11. STATEMENT RE COMPUTATION OF PER SHARE EARNINGS.
12. STATEMENTS RE COMPUTATION OF RATIOS.
Not applicable since there are no ratios of earnings to fixed
charges in DVL's Form l0-K.
13. LETTER RE CHANGE IN ACCOUNTING PRINCIPLES.
There has been no change in accounting principles or practices
followed by DVL, or any change in the method of applying such
accounting principles or practices, which affect the financial
statements of DVL included in Item 8 hereof.
14. PREVIOUSLY UNFILED DOCUMENTS.
None
15. SUBSIDIARIES OF DVL.
(Incorporated by reference to Exhibit 15 to DVL Form 10-K for
the fiscal year ended December 31, 1989.) Three additional
subsidiaries, DV/MHC, PSC and RH were formed prior to the date
of this Form 10-K and all are wholly owned by DVL.
16. Published report regarding matters submitted to vote OF
SECURITY HOLDERS.
Not applicable.
17. CONSENTS OF EXPERTS AND COUNSEL.
Not applicable.
18. POWER OF ATTORNEY.
Not applicable.
19. ADDITIONAL EXHIBITS.
There are no additional exhibits.
20. INFORMATION FROM REPORTS FURNISHED TO STATE INSURANCE
REGULATORY AUTHORITIES.
Not applicable.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
December 31, 1995.
25
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the '34 Act, DVL
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DVL, INC.
Date: March 28, 1996 By: Alan Casnoff
_____________________
Alan E. Casnoff
President and Chief
Executive Officer
Pursuant to the requirements of the '34 Act, this report has been signed
below by the following persons on behalf of DVL and in the capacities and on
the dates indicated.
Signature Title Date
- - --------- ----- ----
Alan Casnoff
______________________
Alan E. Casnoff President, Chief March 28, 1996
Executive Officer
(Principal Executive
Officer) and Director
Frederick E. Smithline
______________________
Frederick E. Smithline Director March 28, 1996
Herbert L. Golden
______________________
Herbert L. Golden Director March 28, 1996
Myron Rosenberg
______________________
Myron Rosenberg Director March 28, 1996
Joel Zbar
______________________
Joel Zbar Treasurer (Principal March 28, 1996
Financial and Accounting
Officer)
26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the '34 Act, DVL
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
DVL, INC.
Date: March 28, 1996 By:/s/
___________________________
Alan E. Casnoff
President and Chief
Executive Officer
Pursuant to the requirements of the '34 Act, this report has been signed
below by the following persons on behalf of DVL and in the capacities and on
the dates indicated.
Signature Title Date
- - --------- ----- ----
/s/
______________________
Alan E. Casnoff President, Chief March 28, 1996
Executive Officer
(Principal Executive
Officer) and Director
/s/
______________________
Frederick E. Smithline Director March 28, 1996
/s/
______________________
Herbert L. Golden Director March 28, 1996
/s/
______________________
Myron Rosenberg Director March 28, 1996
/s/
______________________
Joel Zbar Treasurer (Principal March 28, 1996
Financial and Accounting
Officer)
27
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Consolidated Financial Statements of DVL, Inc.
and Subsidiaries and Report of Independent Auditors
Page
----
Report of Independent Auditors F- 1
Consolidated Balance Sheets-December 31, 1995 and 1994 F- 2
Consolidated Statements of Operations for each of the
years in the three year period ended December 31, 1995 F- 4
Consolidated Statements of Shareholders' Equity/Capital
Deficiency for each of the years in the three year
period ended December 31, 1995 F- 6
Consolidated Statements of Cash Flows for each of the
years in the three year period ended December 31, 1995 F- 7
Notes to Consolidated Financial Statements F-10
RICHARD A. EISNER & COMPANY, LLP
575 Madison Avenue
New York, NY 10022-2597
- - ------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
DVL, Inc.
Bogota, New Jersey
We have audited the accompanying consolidated balance sheets of DVL, Inc.
and subsidiaries as at December 31, 1995 and December 31, 1994, and the related
consolidated statements of operations, shareholders' equity/ capital
deficiency, and cash flows for each of the years in the three year period ended
December 31, 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of DVL, Inc. and
subsidiaries as at December 31, 1995 and December 31, 1994, and the
consolidated results of their operations and their cash flows for each of the
years in the three-year period ended December 31, 1995 in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 2, the Company
has suffered significant losses from operations in each of the last three years
and is continuing to have liquidity problems. These factors raise substantial
doubt about the Company's ability to continue as a going concern. Management's
plans in regard to these matters are described in Note 2. The financial
statements do not include any adjustments that might result from the outcome
of this uncertainty.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 22, 1996
F-1
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
----------------------
1995 1994
ASSETS ---------- ----------
------
Loans receivable, including amounts maturing after one
year - principally pledged (Notes 1,2,5,6,8,11 and 13)
Affiliates:
Wrap around and other mortgages due from affiliated
partnerships (net of underlying liens of $44,300
and $52,840, respectively) $ 54,501 $ 68,851
Unearned interest (14,411) (18,028)
-------- --------
Net mortgage loans receivable from affiliated
partnerships (including $5,640 and $5,261 of
non-performing loans, respectively) 40,090 50,823
Others:
Other mortgage loan 1,281 1,383
Loans collateralized by limited partnership interests
due from limited partners (including $3,921 and
$4,540 of non-performing loans, respectively) 3,921 4,606
-------- --------
Total loans receivable 45,292 56,812
Allowance for loan losses (Note 6) 12,225 12,762
-------- --------
Net loans receivable 33,067 44,050
Cash (including restricted cash of $602 and $1,022
respectively) 1,042 1,350
Due from affiliated partnerships (net of an allowance
for loss of $1,727 and $2,444, respectively) (Note 2) 114 200
Investments (Notes 1,5,7 and 13)
Real estate at cost - pledged (net of an allowance for
loss of $208) 289 289
Real estate lease interests 2,300 2,557
Affiliated limited partnerships (net of an allowance for
loss of $583 and $750, respectively) 3,310 3,803
Other investments (net of an allowance for loss of $400) 697 723
Other assets (Note 1) 680 1,113
-------- --------
Total assets $ 41,499 $ 54,085
======== ========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-2
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
December 31,
----------------------
1995 1994
--------- ---------
LIABILITIES AND SHAREHOLDERS' CAPITAL DEFICIENCY
- - ------------------------------------------------
Liabilities:
Debt in default for non-payment including accrued
interest - partially collateralized (Notes 2 and 8) $ - $13,804
Short-term debt (Note 8) 1,060 215
Long-term debt (Notes 2,7,8,11, and 13) 32,290 32,018
Notes payable - litigation settlement (Notes 2 and 11) 5,642 4,434
Convertible subordinated debentures (Notes 10,12, and 13) 458 448
Accrued liability for litigation settlement (Notes 2
and 11) - 1,810
Accrued liability for indebtedness of Kenbee
Management, Inc. and affiliates (Notes 6,11 and 13) 353 708
Accounts payable and accrued liabilities
(Notes 6,11 and 13) 2,705 4,383
-------- --------
Total liabilities 42,508 57,820
-------- --------
Deferred credits (Notes 1 and 9) 321 1,396
-------- --------
Commitments and contingent liabilities (Notes 2 and 11)
Shareholders' capital deficiency (Notes 1,2,10,11,12 and 13):
Common stock, $.01 and $1 par value respectively,
authorized - 40,000,000 and 16,000,000 shares
respectively, issued and to be issued 13,260,850
and 8,513,200, respectively 133 8,513
Additional paid-in capital 94,135 84,074
Deficit (95,598)
(97,718)
-------- --------
Total shareholders' capital deficiency (1,330)
(5,131)
-------- --------
Total liabilities and shareholders'
capital deficiency $ 41,499 $ 54,085
======== ========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-3
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
Year Ended December 31,
------------------------------
1995 1994* 1993*
-------- -------- --------
Income from affiliates (Notes 1,2,4,5 and 7):
Interest on mortgage loans $ 1,287 $ 2,221 $ 2,442
Partnership management fees 484 514 118
Transaction and other fees from
partnerships 881 542 -
Rent income 30 25 84
Other income 52 25 3
Income from others (Notes 1,2 and 5):
Interest on mortgage loans 134 123 5
Interest on loans to limited partners
collateralized by limited partnership
interests 210 317 402
Other interest 30 17 12
Other income 129 - -
-------- -------- --------
3,237 3,784 3,066
-------- -------- --------
Operating expenses:
Provision for losses (Notes 1,2,5,6,
7 and 11) 2,222 7,814 995
General and administrative 2,234 2,127 2,786
Legal and professional fees 810 621 657
Depreciation of real estate assets
(Notes 1 and 7) - - 4
Interest expense - (Notes 1,2 and 8)
Affiliates - 251 220
Others 3,716 3,713 4,000
Loss on investment in First Mechanics
Finance Company (Note 6) - 1,181 -
Claim settlement and other litigation
losses (Notes 6 and 11) 35 973 582
-------- -------- --------
9,017 16,680 9,244
-------- -------- --------
Loss before gain on sales of real estate (5,780) (12,896) ( 6,178)
Gain on sales of real estate to affiliates
(Notes 1 and 9) - 9 15
-------- -------- --------
Loss from continuing operations (5,780) (12,887) ( 6,163)
Loss from discontinued operations (Note 3) - (223) (367)
-------- -------- --------
Loss before extraordinary gain (5,780) (13,110) ( 6,530)
Extraordinary gain on the settlements
of indebtedness (Notes 2 and 8) 7,900 1,935 7,991
-------- -------- --------
Net income (loss) $ 2,120 $(11,175) $ 1,461
======== ======== ========
[FN]
* Reclassified for comparative purposes
See accompanying accountants' report and notes to consolidated financial
statements.
F-4
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)
Year Ended December 31,
---------------------------------
1995 1994 1993
--------- --------- ---------
Earnings (loss) per share (Note 1):
Primary:
Loss from continuing operations $ (.58) $ (1.54) $ (.83)
Loss from discontinued operations - (.03) (.05)
--------- --------- ---------
Loss before extraordinary gain (.58) (1.57) (.88)
Extraordinary gain on the settlements
of indebtedness .79 .23 1.08
--------- --------- ---------
Net income (loss) $ .21 $ (1.34) $ .20
========= ========= =========
Fully diluted:
Loss from continuing operations $ (.58) $ (1.54) $ (.76)
Loss from discontinued operations - (.03) (.04)
--------- --------- ---------
Loss before extraordinary gain (.58) (1.57) (.80)
Extraordinary gain on the settlements
of indebtedness .79 .23 .99
--------- --------- ---------
Net income (loss) $ .21 $ (1.34) $ .19
========= ========= =========
Weighted average shares outstanding:
Primary 9,980,565 8,336,640 7,403,407
========= ========= =========
Fully diluted 9,980,565 8,336,640 8,039,428
========= ========= =========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-5
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/CAPITAL DEFICIENCY
(NOTES 1, 2, 10, 11, 12 AND 13)
(in thousands except share data)
Common stock Additional
--------------------- paid-in
Shares Amount capital Deficit
Total
----------- -------- ---------- ---------
- - --------
Balance-January 1, 1993 6,911,571 $6,912 $84,023 $(88,004)
$2,931
Issuance of warrants in
connection with the sale
of subordinated debentures 7
7
Issuance of common stock in
payment of accounts payable 41,472 41 39
80
Issuance of common stock in
connection with a creditor
settlement 250,000 250 31
281
Common stock to be issued in
connection with shareholder
class action litigation 900,000 900
900
Net income 1,461
1,461
---------- ------ ------- --------
- - -------
Balance-December 31, 1993 8,103,043 8,103 84,100 (86,543)
5,660
Issuance of common stock in
payment of accounts payable 90,157 90 (8)
82
Issuance of warrants in
connection with a creditor
agreement 2
2
Issuance of common stock in
connection with a settlement
of a contingent liability 320,000 320 (20)
300
Net loss (11,175)
(11,175)
---------- ------ ------- --------
- - -------
Balance-December 31, 1994 8,513,200 8,513 84,074 (97,718)
(5,131)
Issuance of common stock in
payment of accounts payable 5,068 5 2
7
Issuance of common stock to
directors, employees and
consultants 725,000 725 (531)
194
Recapitalization of $1 par
common stock for $.01 par
common stock - (9,150) 9,150 -
- - -
Issuance of common stock in
connection with settlement
of shareholder litigation 4,017,582 40 1,440
1,480
Net income - - - 2,120
2,120
---------- ------ ------- --------
- - -------
Balance-December 31, 1995 13,260,850 $ 133 $94,135 $(95,598)
$(1,330)
========== ====== ======= ========
=======
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-6
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------
1995 1994* 1993*
-------- -------- --------
Cash flows from operating activities:
Net loss from continuing operations $ (5,780) $(12,887) $ (6,163)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Provision for losses 2,222 7,814 995
Accrued interest added to indebtedness 1,711 541 749
Claim settlement losses added to accrued
expenses 35 973 582
Depreciation of real estate assets - - 4
Amortization of deferred charges 84 126 216
Net (increase) decrease in other assets 335 (197) (281)
Amortization of unearned interest on loans
receivable (58) (419) (472)
Net increase (decrease) in payables (191) 21 1,453
Consideration paid in common stock 194 - -
Imputed interest on notes and debentures 888 754 10
Amortization of deferred credits - (9) (15)
Net cash provided by (used in) discontinued
operations - 13 (396)
-------- -------- --------
Net cash used in operating activities (560) (3,270) (3,318)
-------- -------- --------
Cash flows from investing activities:
Fundings of loans receivable to affiliates - - (112)
Collections on loans receivable (net of
payments on underlying loans)
Affiliates 5,104 7,146 2,530
Others 393 1,838 3,419
Net cash provided by real estate acquired
for resale - - 76
Net reductions in real estate lease interests 257 66 110
Net collections on amounts due from affiliated
partnerships 94 66 -
Acquisition of affiliated limited partnership
interests - (108) -
Distributions received on affiliated limited
partnership interests and other investments 562 238 121
Net cash provided by discontinued activities - 530 8,434
-------- -------- --------
Net cash provided by investing activities 6,410 9,776 14,578
-------- -------- --------
(continued)
[FN]
* Reclassified for comparative purposes
See accompanying accountants' report and notes to consolidated financial
statements.
F-7
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
Cash flows from financing activities:
Proceeds from new borrowings $ 1,060 $ 1,150 $ 1,110
Proceeds from the issuance of subordinated
debentures - - 21
Net decrease in amounts receivable from
Kenbee Management, Inc. - - 275
Repayment of indebtedness (6,986) (6,467) (7,383)
Payments on guaranteed indebtedness (232) (380) (367)
Net cash used for debt repayments on
discontinued activities of Del-Val
Capital Corp. - - (4,524)
-------- -------- --------
Net cash used in financing activities (6,158) (5,697) (10,868)
-------- -------- --------
Net increase (decrease) in cash (308) 809 392
Cash, beginning of year 1,350 541 149
-------- -------- --------
Cash, end of year $ 1,042 $ 1,350 $ 541
======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest,
excluding amounts paid on underlying
loans $ 1,151 $ 1,578 $ 2,612
======== ======== ========
(continued)
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-8
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
---------------------------
1995 1994 1993
------- ------- -------
Supplemental disclosure of non-cash
investing and financing activities:
Net loans and other assets transferred to
settle indebtedness and satisfy loan
guarantees $ 3,115 $ 1,448 $10,046
======= ======= =======
Deferred credit recognized in connection
with creditor settlements $ 1,075 $ - $ -
======= ======= =======
Net reduction in indebtedness pursuant
to creditor settlements $ 6,825 $ 1,935 $ 7,991
======= ======= =======
Subordinated debentures issued pursuant
to settlements $ - $ - $ 51
======= ======= =======
Reduction in accrued liabilities upon
issuance of Common Stock $ 1,487 $ 382 $ 1,260
======= ======= =======
Net effect of sale of real estate acquired
for resale $ - $ - $ 381
======= ======= =======
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
[/FN]
F-9
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Principal Affiliates
a. THE COMPANY AND PRINCIPAL AFFILIATES: DVL, Inc. ("DVL") a Delaware
corporation whose common stock is traded on the National Association of
Securities Dealers, Inc.'s over the counter bulletin board under the symbol
"DVLN" is headquartered in Bogota, New Jersey. DVL stock was traded on the
New York Stock Exchange ("NYSE") through August 3, 1995 but was delisted
due to DVL not meeting NYSE listing criteria. DVL is a commercial finance
company which manages numerous properties and partnerships, from many of
which DVL holds commercial mortgage loans. DVL's investments consist
primarily of commercial mortgage loans due from affiliated partnerships,
loans due from limited partners collateralized by their interests in
affiliated partnerships, limited partnership investments in affiliated
partnerships and other real estate interests. DVL's wholly owned
subsidiaries are Del-Val Capital Corp. ("DVCC"), Professional Service
Corporation ("PSC") and RH Interests, Inc. ("RH"). DVCC was organized in
1989 to acquire, make and service full recourse loans due from unaffiliated
borrowers collateralized by consumer receivables. PSC was organized in
1991 and holds certain master lease positions acquired by DVL through a
creditor settlement (Notes 7 and 13). DVL acquired RH from Kenbee
Management, Inc. ("Kenbee"), DVL's former manager, on January 1, 1994 (Note
4). RH held interests in several real estate development projects. The
accounts of DVCC, RH (reflected as discontinued operations - see Note 3)
and PSC have been consolidated in these financial statements. All material
intercompany transactions and accounts are eliminated in consolidation.
In 1994, DVL organized the First Mechanics Finance Company ("FMF") as
a wholly-owned subsidiary to develop a specialized tool loan purchasing and
servicing business. Due to the lack of cash resources and as part of DVL's
decision to refocus on its existing commercial finance business, DVL sold
FMF in 1994 in an effort to recoup some of its initial investment (Note 6).
FMF was sold principally for a note and subordinated debenture which are
fully reserved. The results of FMF's operations were not consolidated in
these financial statements as FMF was reflected as a temporary investment.
Kenbee was DVL's largest debtor and served as DVL's manager through
October, 1990. DVL's management assumed operational control of Kenbee
during 1991 and all of Kenbee's remaining unencumbered assets were
transferred to DVL in 1992. DVL replaced Kenbee as the general partner of
certain limited partnerships, which are treated as affiliates in these
financial statements. DVL has operational control over the limited
partnerships, however, significant transactions are subject to limited
partner approval.
b. EFFECT OF NEW PRONOUNCEMENTS
LONG LIVED ASSETS: DVL adopted Financial Accounting Standards (FASB)
No. 121 - "Accounting for the impairment of long-lived assets to be
disposed of." This Statement requires that long-lived assets and certain
identifiable intangibles to be held by an entity be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable from future cash flows. The
adoption of FASB No. 121 in 1995 had no impact on DVL's financial
statements.
ACCOUNTING BY CREDITORS FOR IMPAIRMENT OF A LOAN: DVL adopted FASB No.
114 as amended by FASB No. 118 which requires that impaired loans be
measured based on the present value of expected future cash flows
discounted at the loans effective interest rate or at the fair value of the
collateral if the loan is collateral dependent. The adoption of FASB No.
114 as amended by FASB No. 118 in 1995 had no impact on DVL's financial
statements.
F-10
c. USE OF ESTIMATES: The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
d. ALLOWANCE FOR LOSSES: Specific loss reserves are provided as required
based on management's evaluation of the underlying collateral on each loan
or investment (Note 6).
e. DEPRECIATION: Depreciation is provided by charges to operations on
either a straight-line basis or accelerated basis at rates which will
allocate the cost of the assets over their estimated useful lives.
f. DEFERRED CHARGES: Deferred charges applicable to debt financing are
amortized over the term of the related debt.
g. INCOME RECOGNITION: Interest income is not recognized on the
non-performing portion of DVL's loan portfolio. A loan is considered
non-performing when scheduled interest or principal payments are not received
on a timely basis and, in the opinion of management, the collection of such
payments in the future appears doubtful. Interest income on DVL's
restructured mortgage loan portfolio is recognized using an imputed
interest rate based upon the anticipated future cash flow and yield to
maturity (Note 5). Gains on sales of real estate to affiliates are
recognized in income generally under the installment method, whereby the
gain on the portion of the sales price which is not received in cash is
deferred at the time of sale and recognized proportionately as cash is
subsequently collected. Any cash received on the collection of the note
or debenture obtained from the sale of FMF, subsequent to March 30, 1995,
will be recognized into income when received.
h. FEDERAL INCOME TAXES: DVCC, PSC and RH will be included in DVL's
consolidated federal income tax return for 1995. DVL revoked its election
to be taxed as a real estate investment trust ("REIT") under Sections 856-860
of the Internal Revenue Code ("Code"), effective January 1, 1994. As
a REIT, DVL was required to distribute to its shareholders at least 95% of
its federal taxable income, and assuming compliance with certain other
requirements, income so distributed would not be taxable to DVL.
The revocation of DVL's REIT status was approved by its shareholders
in order to permit DVL to earn income in ways which are not permitted or
which are subject to taxation at a rate of 100% for a REIT under the Code.
In this manner, DVL believes that it will be best able to utilize its
significant net operating loss carryforwards generated during the last six
years to offset taxable income, if any, subject to certain limitations, in
the future.
The company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 ("FAS 109"), which
requires the Company to recognize deferred tax assets and liabilities for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, FAS 109 requires the recognition
of future tax benefits such as net operating loss carryforwards, to the
extent that realization of such benefits is more likely than not.
At December 31, 1995, DVL had net operating loss carryforwards for
income tax purposes of approximately $65 million available to offset future
taxable income, if any, expiring through 2010. Temporary differences arise
from differences between financial reporting and income tax reporting
relating primarily to provision for loan and other losses and the issuance
of the notes payable pursuant to the shareholder litigation settlement,
which are currently not deductible for income tax purposes. DVL's deferred
tax asset of approximately $36 million, which is comprised of the tax
benefit of net operating loss carryforwards of approximately $26 million
and temporary differences represented primarily by non-deductible loan
reserves and the issuance of the notes payable pursuant to the shareholder
F-11
litigation settlement of approximately $10 million, is fully reserved for
due to the uncertainty of realizing taxable income in the future (Notes 2,
11, 12 and 13). The reduction in the valuation reserve for deferred tax
assets was approximately $1 million for the year ended December 31, 1995.
DVL does not believe that, to date, the proposed transaction with the new
lender (Note 13), the issuance of stock, stock options and warrants
pursuant to settlements with various lenders and with the shareholders, nor
the issuance of convertible debentures, will have an adverse affect upon
its ability to utilize its tax loss carryforward.
i. PER SHARE DATA: Primary earnings per share amounts are based upon the
weighted average number of common shares and equivalents issued and to be
issued. The dilutive effect of outstanding options and warrants is
computed using the treasury stock method.
Fully diluted earnings per share amounts are based upon the increased
number of shares that would be outstanding assuming the conversion of
existing and contingent debentures and the exercise of contingent warrants.
Net income has been adjusted for the interest expense on convertible
debentures.
2. Basis of Presentation and Financial Condition
The accompanying financial statements were prepared on a going concern
basis, which assumes that the realization of assets and repayment of
liabilities will be in the normal course of business.
During 1995, DVL continued to experience liquidity problems primarily
as a result of the limited cash flow generated by its restructured mortgage
portfolio, as the mortgage debt service is used to pay senior liens before
cash flow on such mortgages is available to DVL. DVL's cash flow provided
by current operations is insufficient to meet its cash requirements, and
DVL is currently liquidating and refinancing its assets in order to meet
its operating cash flow deficiency and to satisfy indebtedness, including
mandatory repayments required under its restructured indebtedness. There
can be no assurance that the cash flow generated by DVL's potential asset
liquidations or refinancings will be sufficient to meet any future
operating cash flow deficiencies or mandatory debt repayments. DVL has
entered into a loan agreement with a new lender that, which if consummated,
would considerably extend DVL's mandatory debt repayments (Note 13). In
December 1995, DVL reached an agreement with its final unsettled creditor
(Note 8). The settlement resulted in an extraordinary gain on the
settlement of indebtedness of $6 million in 1995 and will result in
additional gains of approximately $7.4 million if DVL meets its future
payment requirements.
In December 1995, DVL completed its obligations under a 1993
settlement of its class action litigation. The settlement, which was
approved by the court in 1993, provided that DVL would issue the plaintiffs
(1) 900,000 shares of DVL common stock at a minimum price of $1.50 per
share (or notes to cover any deficiency in the event that aggregate market
value was less than $1,340,000); (2) $9 million face value of notes due in
ten years, with interest at 10% payable in kind for five years, callable
after the third year and payable on the tenth year in cash or with DVL
common stock equal to 110% of the face value of the notes (valued in 1993
at $3,690,000 by an independent investment banker) and (3) $1.4 million
plus interest at 3% from August 16, 1993 and expenses, payable in cash or
common stock. In December 1995, DVL issued the 900,000 shares of common
stock and as a result of the deficiency in its market value, issued
additional notes with the same terms, in the face amount of $1,386,351
(valued at $330,000 by DVL). In payment of the $1.4 million plus interest
and expenses, DVL issued 4,017,582 shares of common stock in December 1995.
If the 900,000 shares were issued effective January 1, 1993, primary
earnings per share for 1993 would have been $.18.
F-12
In the aggregate, DVL issued notes with a face value of $10,386,851.
Commencing January 1994, interest on the initial $9 million of notes was
imputed based upon DVL's carrying costs of such notes resulting in an
effective interest rate of approximately 19%. Beginning October 1, 1995,
interest on all of the notes is being imputed based upon an effective
interest rate of approximately 16.325%. The settlement resulted in a loss
of $6.4 million which was fully provided for in 1992 (Note 11).
In November 1992, DVL, Kenbee and the limited partners of certain
affiliated partnerships reached a settlement in the limited partnership
class action litigation ("Limited Partner Settlement") and, concurrently
with this settlement, DVL reached settlements with a number of its
creditors providing for the restructuring of a substantial portion of DVL's
defaulted indebtedness and loan guarantees. The Limited Partner Settlement
and the related settlements with DVL's creditors, resulted in a) the
reaffirmation and the restructuring of the terms of certain of DVL's
mortgage loans receivable from affiliated partnerships and similar such
partnership mortgages collateralizing DVL's loans due from affiliates,
including reductions in payment amounts and interest rates, as well as
discounts on the payoff of such loans prior to maturity, b) the replacement
of DVL's loans to affiliates collateralized by partnership mortgage loans
with the restructured mortgage loans due directly from the partnerships,
c) the cancellation of certain of DVL's interim mortgage loans receivable
due from affiliated partnerships and a related reduction to DVL's
indebtedness through the transfer of substitute assets to certain
creditors, d) a restructuring of the payment terms on DVL's indebtedness
to other creditors, e) the elimination of DVL's and Kenbee's contingent
liabilities to certain partnerships, f) the elimination of certain
obligations between Kenbee or DVL and the partnerships, g) the ratification
of the validity and enforceability of loans to limited partners
collateralized by limited partnership interests, h) the transfer to DVL of
the management of the affiliated partnerships as the general partner (Note
4) and i) the establishment of an independent oversight committee to
monitor the management of the affiliated partnerships. In addition, the
Limited Partner Settlement established a settlement fund into which DVL is
required to deposit a portion of its cash flow received from affiliated
partnership mortgages and other loans receivable from affiliated
partnerships, as well as a contribution of 5% of DVL's net income subject
to certain adjustments in the years 2001 to 2012 (Note 11). Although the
Limited Partner Settlement resulted in the reclassification of a
substantial portion of DVL's mortgage loan portfolio from non-performing
to performing, this reclassification has not resulted, nor is it expected
to result in significant income or cash flow on the majority of the
restructured mortgages until liens senior to DVL's are fully repaid, as the
mortgage debt service is currently used to pay liens senior to DVL's.
DVL's ability to continue as a going concern is dependent upon (1) the
sale or refinancing of certain assets to improve its cash position in order
to meet operating expenses and make mandatory repayment requirements to its
creditors, (2) the settlement of remaining litigation, (3) the realization
of the estimated value of its loan portfolio over an extended period of
time rather than the value of the assets on a liquidation basis, and (4)
the return to profitable operations (Notes 11 and 13). If DVL is
unsuccessful in achieving a short-term solution to its liquidity problems,
and continue to meet its mandatory repayment or obtain further extensions
and return to profitable operations, the Company may not be able to
continue as a going concern and may be forced to file for protection from
creditors under Chapter 11 of the United States Bankruptcy Code. The
financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
3. Discontinued Operations
During 1993 and 1994, DVL began to pursue a new business venture
involving the acquisition, development and resale of residential real
estate. The sales and development of DVL's real estate projects progressed
more slowly than DVL originally anticipated and DVL did not have the
financial resources to make further investments in its projects.
Therefore, in 1994 DVL agreed to transfer its interests in its three
remaining projects to the creditors who financed DVL's purchases of such
F-13
projects in satisfaction of the related non-recourse debts. These
activities are reflected as a discontinued operation in these financial
statements and there were no net assets as of December 31, 1994.
Furthermore, DVL continued to liquidate DVCC's loan portfolio during
1994 and, therefore, DVCC was also accounted for as a discontinued
operation in these financial statements. In May 1994, DVCC sold one loan
at its carrying value and pledged another loan as collateral for a DVL loan
(Note 8). DVCC's remaining assets, net of an additional reserve of
$175,000 taken in 1994, were absorbed by DVL, which treated these
transactions as the final disposal of DVCC.
Certain financial information for the year ended December 31, 1994 for
discontinued operations is as follows:
1994
-------
(in thousands)
Assets
Residential development properties (net of
allowance for losses) $ 2,793
Non-recourse indebtedness (2,855)
Cash 20
Other assets 59
Other liabilities (17)
-------
$ -
=======
Net Revenues $ 10
=======
4. Certain Related Party Transactions
TRANSACTIONS WITH RH: In April 1993, DVL entered into management
agreements with RH for each of the affiliated partnerships in which DVL
is now the general partner, pursuant to which RH provided certain
administrative and managerial services for the partnerships. RH and
Kenbee agreed to pay to DVL 95% of any net income from such activities in
repayment of prior existing indebtedness of Kenbee to DVL. In addition,
DVL sold its real estate held for resale to RH at DVL's carrying value in
the property and financed RH's entire purchase price. RH fully repaid this
loan out of the net proceeds from property sales, and RH and Kenbee agreed
to pay DVL 95% of any net income from further property sales in repayment
of prior existing indebtedness of Kenbee to DVL. These were temporary
actions taken to permit DVL to develop these new business opportunities
while not being disqualified as a REIT or subject to a 100% tax rate on
income generated by such property sales. There can be no assurance that
these steps have successfully preserved DVL's REIT status and not subjected
it to the 100% tax rate for 1993. DVL revoked its election to be taxed as
a REIT effective January 1, 1994, and, concurrently, DVL canceled the
management agreements with RH and acquired Kenbee's interest in RH.
5. Loans Receivable
Virtually all of DVL's loans receivable arose out of transactions
previously arranged by Kenbee in which affiliated partnerships purchased
commercial, office and industrial properties typically leased on a long-term
basis to unaffiliated, creditworthy tenants. Each mortgage loan is
collateralized by a lien, primarily subordinate to senior liens, on real
estate owned by an affiliated partnership. DVL's loan portfolio is
comprised of long-term wrap around and other mortgage loans due from
affiliated partnerships; interim second mortgage loans due from affiliated
partnerships; a loan due from an unaffiliated party; and loans due from limited
partners collateralized by their interests in affiliated partnerships
("Partners'
Notes") and are principally pledged to collateralize DVL's indebtedness (Note
8).
DVL's mortgage portfolio includes 41 loans with a net investment of $27,562,000
which are due from affiliated partnerships that own properties leased to
Wal-Mart
Stores, Inc.
F-14
As a result of the Limited Partner Settlement and other settlements, the
validity of all of DVL's mortgage portfolio was reaffirmed and virtually all of
DVL's loans to Kenbee collateralized by loans due from affiliated partnerships
were replaced by the restructured mortgage loans due directly from the
partnerships. In many cases, the restructuring of the partnership mortgages
called for a reduction in payment terms and interest rates, in order to assure
that the partnerships' restructured mortgages are serviced on a current basis
from the base rents generated by the properties, and, in all cases, mandatory
discounts on the payoffs of the loans prior to maturity. The Limited Partner
Settlement also ratified the validity and enforceability of the Partners' Notes
and resulted in the replacement of certain loans due from Kenbee collateralized
by Partners' Notes with the loans receivable directly from the limited partners
(Note 2).
In 1994, DVL refinanced a portion of its partnership mortgage portfolio
which generated cash proceeds of approximately $5.9 million, of which
approximately $4.6 million was used to satisfy existing indebtedness and
approximately $1 million was placed in escrow in connection with proposed
settlements with DVL's remaining unsettled creditors. Virtually all of such
funds were used for settlements and extensions with various creditors (Note 8).
In 1996, DVL refinanced 16 mortgages and has commitments to refinance three
additional mortgages which have or will generate approximately $6 million which
has been or is expected to be used to satisfy existing indebtedness (Note 13).
The amounts obtained or to be obtained from these refinancings were primarily
based on the value of the base rents during the period of the base lease term
subsequent to the payoff of the existing first mortgages. As a result of DVL's
prior and current asset liquidations and refinancings, DVL's asset base
available
for future liquidations and refinancings has diminished considerably (Note
5(c)).
The Limited Partner Settlement, as well as the settlements with other
limited partnerships, resulted in the modification of terms of certain
performing
mortgage loans receivable from affiliated partnerships which bore interest at
effective rates of up to 15% per annum, aggregating $3,124,000 at December 31,
1995 and mature through 2027. The effect of the modification on these mortgages
on DVL's interest income for 1995 was not material.
In addition, the terms of the loans to Kenbee collateralized by similar
loans were restructured and modified. These loans, at the time of the
restructuring, bore interest at 3% over DVL's average interest rate for
short-term borrowings and matured through 1995. The restructured and modified
loans
due directly from the partnerships bear interest at stated rates of up to 15.5%
and mature through 2031. As of December 31, 1995, the modified loans due
directly from the partnerships aggregated $25,375,000 net of underlying
mortgages
of $33,438,000. Management currently does not anticipate realizing a material
amount of interest income over the remaining terms of these modified loans. Had
these loans not been in default and had the terms not been modified, interest
income relating to these notes would have been approximately $5,000,000 in each
of 1995, 1994 and 1993.
Pursuant to certain settlement agreements, DVL replaced certain mortgage
loans and loans collateralized by limited partnership interests due from
affiliates with similar loans due from unaffiliated parties in 1992 (Note 5
(f)).
F-15
DVL's mortgage and other loans due from affiliated partnerships, an
unaffiliated entity and limited partners are as follows:
1995
1994
- - ------------------------------------ --------------------------------------
Accrued
Accrued
Interest
Allowance Interest Allowance
Number Included For
Loan Number Included For Loan
(dollar amounts in thousands) of Loan In Loan
Losses of Loan In Loan Losses
Mortgage Loans Due From Affiliated Partnerships Loans Balance Balance
(Note 6) Loans Balance Balance (Note 6)
- - ----------------------------------------------- ----- ------- --------
- - -------- ----- ------- -------- --------
Long term wrap around mortgage loans (net of
Long term wrap around mortgage loans (net of
underlying loans) ranging from $56 to
$5,304 in 1995 and from $15 to $5,279 in
1994, maturing at various dates through
August 2027 (a) 15 $16,920 $ 139 $
2,359 20 $ 19,496 $ 55 $ 2,689
Other long term mortgage loans ranging from
$201 to $2,500 in 1995 and from $221 to
$2,522 in 1994, maturing at various dates
through December 2029 (b) 10 10,691 7
219 16 17,920 7 119
Long term wrap around and other mortgage
loans (net of underlying loans) acquired
from Kenbee pursuant to the Limited
Partner Settlement ranging from $2 to
$1,844 in 1995 and from $2 to $1,970
in 1994, maturing at various dates through
June 2031 (c) 37 25,375 -
6,575 40 29,786 - 6,810
Interim second mortgage loans ranging from
$56 to $1,108 in 1995 and from $85 to
$1,201 in 1994, maturing at various dates
through December 2000 (d) 3 1,515 -
776 3 1,649 - 728
Other Mortgage Loan
- - --------------------
Mortgage loan due from an unaffiliated entity
maturing in December 1996 (e) 1 1,281 10
- 1 1,383 10 -
--- -------- -----
- - ------- --- -------- ------ -------
Total Mortgage Loans 66 55,782 156
9,929 80 70,234 72 10,346
Loans Collateralized By Limited Partnership Interests
- - -----------------------------------------------------
Loans ranging from $2 to $336 in 1995 and
from $1 to $317 in 1994, maturing at
various dates through December 1995 (f) 178 3,921 520
2,296 213 4,606 523 2,416
--- -------- -----
- - ------- --- -------- ------ -------
Total Loans Receivable 244 59,703 $ 676
$12,225 293 74,840 $ 595 $12,762
Less unearned interest on partnership mortgage === =====
======= === ====== =======
loans 14,411
18,028
--------
--------
Total Loans Receivable Per Balance Sheet $ 45,292
$ 56,812
========
========
F-16
(a) DVL previously funded certain wrap around mortgages due from
affiliated
partnerships, whereby the original principal of the wrap equalled the
outstanding
balance of an underlying first mortgage loan plus the amount of funds advanced
by DVL to the partnership. These loans mature through August 2027, bear
interest
at effective rates of up to 15% per annum and are collateralized primarily by
second mortgages on commercial and industrial properties located in various
states. DVL is responsible to make principal and interest payments on the first
mortgage loan to the extent received from the borrower and, in certain
instances,
has the right to refinance or pay off the first mortgage loan and succeed to its
seniority. Currently, the partnerships or the tenants are making the underlying
mortgage payments directly and DVL is applying such payments to its wrap around
mortgage loans. To the extent that the underlying mortgage payment is less than
the wrap around mortgage payment, the partnership is obligated to pay DVL the
balance. These wrap around loans are reflected net of underlying mortgage loans
of $10,862,000 in 1995 and $13,933,000 in 1994, which bear interest at rates
ranging from 7.5% to 13.125%, are payable to unaffiliated lenders in monthly
installments ranging from $2,000 to $21,000, mature on various dates through
August 2011 and are collateralized by liens senior to DVL's liens. See Note 8
for the five year maturities of such underlying loans. These wrap around loans
include three non-performing loans with a net investment aggregating $3,062,000
at December 31, 1995 and four non-performing loans with a net investment
aggregating $2,578,000 at December 31, 1994.
(b) DVL's other long-term mortgage loans to affiliated partnerships mature
through December 2029, bear interest at effective rates of up to 15% per annum
and are collateralized by first mortgages on commercial and industrial
properties
located in various states. Two of such loans aggregating $1,320,000 in 1995 and
$1,340,000 in 1994 arose from DVL's sales of real estate prior to 1980 to Kenbee
and affiliated partnerships in which Kenbee is a general partner. DVL realized
gains on such sales of $2,280,000 (see Note 1(g) for DVL's income recognition
policy). These loans include one non-performing loan with a net investment
aggregating $1,119,000 at December 31, 1995 and December 31, 1994. Four of such
loans with a net investment aggregating $3,720,000 at December 31, 1995 are
collateralized by properties leased to the Grand Union Company ("Grand Union"),
which filed for protection from creditors under Chapter 11 of the United States
Bankruptcy Code on January 25, 1995. However, as of May 31, 1995, the United
States Bankruptcy Court confirmed an amended plan of reorganization of Grand
Union and the leases were reaffirmed.
(c) DVL acquired long-term wrap around and other mortgage loans to
affiliated partnerships pursuant to the Limited Partner Settlement. The
principal balance of such loans when acquired in 1992 equalled DVL's net
investment in the related loan previously due from Kenbee less specific
write-downs of $18,223,000 on certain of these loans based upon the anticipated
cash
flow to be generated by each loan (Note 6). Although these loans have stated
interest rates of up to 15.5%, interest, if any, will be imputed based upon the
anticipated cash flow to be generated by each loan. The loans are
collateralized
by first, second and third mortgages on commercial and industrial properties
located in various states and mature through June 2031. DVL subordinated its
second mortgage position on sixteen of these loans as part of a refinancing in
1994. The wrap around loans are reflected net of senior liens of $33,438,000 in
1995 and $38,907,000 in 1994, which bear interest at rates ranging from 7.5% to
14%, are payable to unaffiliated lenders on a zero coupon basis and in monthly
installments ranging from $2,000 to $26,000, mature on various dates
through January 2012 and are collateralized by liens senior to DVL's liens.
The payment of the underlying first mortgages is also being made by the
partnerships or tenants as discussed in (a) above. See Note 8 for the five year
maturities of such underlying loans.
(d) An interim second mortgage loan to an affiliated partnership generally
was equal to the difference between the partnership's purchase price for its
property and the amount of a first mortgage provided by an unaffiliated lender.
Although the remaining loans bear interest at variable rates of up to prime plus
4-1/4% per annum, DVL does not anticipate realizing any income from these
loans.
Two of such loans aggregating $1,459,000, are to partnerships which were not
part
of the Limited Partner Settlement. These loans are due on demand, are expected
to be repaid primarily from the future sales of the related properties and
continue to be non-performing at December 31, 1995.
F-17
(e) DVL's mortgage loan due from an unaffiliated entity resulted from the
satisfaction of its mortgage loans due from affiliated partnerships. In 1994,
DVL received a $1,450,000 loan from Grand Union in partial satisfaction of one
of its partnership mortgage loans. This loan bears interest at 9% per annum and
requires monthly payments of $18,000, with a balloon payment of $1,161,000 due
in December 1996.
(f) DVL made loans directly to limited partners to finance up to 80% of
their partnership investments. As a result of the Limited Partner Settlement,
DVL received loans due from limited partners in 1992 in replacement of loans due
from Kenbee collateralized by such Partners' Notes. All such partner loans
mature at various dates through December 1995 and bear interest at fixed rates
of 15% to 16% and at a variable rates up to 2 1/2% over prime. Certain of the
variable rate loans are payable at fixed interest rates, subject to additional
interest charges payable upon the maturity of the loan, based on variable
interest rates, which are further subject to minimum and maximum levels. All of
these loans were non-performing at December 31, 1995 and loans aggregating
$4,540,000 were non-performing at December 31, 1994.
DVL's commercial mortgage loans, exclusive of its wrap around mortgages,
are
collateralized by ten first mortgages aggregating $10,840,000 and five second
mortgages aggregating $3,097,000 at December 31, 1995 and by sixteen first
mortgages aggregating $18,120,000 and five second mortgages aggregating
$3,284,000 at December 31, 1994. The commercial mortgage loans have prior first
or second mortgage liens, principally on a nonrecourse basis, of approximately
$10,000,000 and $15,000,000 at December 31, 1995 and 1994, respectively. The
principal maturities of DVL's commercial mortgage loan portfolio, excluding wrap
around mortgages, in each of the next five years are $3,058,000 in 1996,
$224,000 in 1997, $240,000 in 1998, $248,000 in 1999 and $317,000 in 2000. All
such commercial mortgage loans and the wrap around mortgages are collateralized
by liens on commercial and industrial properties located in various states.
DVL's commercial mortgage loans and loans collateralized by limited partnership
interests have principally the same cost basis for federal income tax and
financial reporting purposes, except for certain of the loans acquired from
Kenbee pursuant to the Limited Partner Settlement whose basis for federal income
tax purposes is greater than for financial reporting purposes by approximately
$400,000. Such difference is a result of write offs for income tax purposes
greater than for financial statement purposes in 1992 which have been more than
offset by (a) interest income being reported for tax purposes using an effective
interest rate which is not recognized for financial statement purposes and (b)
a reduction in the carrying value based upon cash received for financial
reporting purposes, only.
Activity on all collateralized loans is as follows:
1995 1994 1993
-------- -------- --------
(in thousands)
Balance, beginning of year $ 74,840 $ 88,257 $127,781
Commercial financing loans-affiliates - - 112
Collections on loans to affiliates (5,104) (7,146) (2,530)
Collections on loans to others (393) (1,838) (3,419)
Loans transferred to satisfy indebtedness
and guarantees (3,110) (1,506) (9,623)
Unearned interest offset against loans
upon loan restructurings - (157) (2,150)
Loans reduced in connection with
acquisition of the assets collateralizing
such loans (50) (160) (5,363)
Unearned interest offset against loans
satisfied, sold and written off (3,559) (1,822) (4,801)
Loans written-off and written down (2,885) (692) (11,759)
Other (36) (96) 9
-------- -------- --------
Balance, end of year $ 59,703 $ 74,840 $ 88,257
======== ======== ========
F-18
Unearned interest activity is as follows:
1995 1994 1993
-------- -------- --------
(in thousands)
Balance, beginning of year $ 18,028 $ 20,426 $ 28,619
Amortization to income (58) (419) (472)
Decrease in connection with the
satisfaction or write-off of loans (3,559) (1,822) (4,801)
Decrease in connection with loans
transferred to satisfy indebtedness
and guarantees - - (770)
Decrease in connection with restructuring
of mortgage loans - (157) (2,150)
-------- -------- --------
Balance, end of year $ 14,411 $ 18,028 $ 20,426
======== ======== ========
6. Allowance for Losses and Other Reserves
DVL's allowance for loan losses is based upon the value of the collateral
underlying each loan in its portfolio. Management's evaluation of such
collateral previously resulted in substantial loan write-offs and a substantial
allowance for loan losses. The current evaluation considered the magnitude of
DVL's non-performing loan portfolio, updated internally generated appraisals of
certain properties, updated information on certain properties and DVL's
anticipated liquidation of loans to meet 1996 and future mandatory repayment
obligations on certain indebtedness, as well as its operating cash flow
deficiency (Notes 8 and 13).
The allowance for losses on DVL's mortgage loan portfolio was calculated by
first comparing the appraised value of the property collateralizing a mortgage
loan, net of liens senior to DVL's liens, to DVL's net investment in the
mortgage
loan. For those mortgages which were modified, further losses were provided for
by then comparing DVL's net investment in the mortgage loan, less any allowance
necessary based upon the appraised value of the property, to the anticipated
cash
flow to be generated by the terms of the mortgage or the amount anticipated to
be received through the liquidation of the mortgage. The partnership properties
were valued based upon the cash flow generated by base rents and anticipated
percentage rents or base rent escalations to be received by the partnership.
The
value of partnership properties which are not subject to percentage rents was
based upon historical appraisals. Management believes that, generally, the
values of such properties have not changed as the tenants, lease terms and
timely
payment of rent have not changed. When any such changes have occurred,
management revalued the property as it reasonably believed appropriate. The
value of the partnership properties which are subject to percentage rents was
based upon internally generated appraisals. Such appraisals valued the future
percentage rents utilizing assumed sales growth percentages of up to 6%
annually,
based upon each individual store's recent sales history through January 31,
1993.
Such appraisals were updated if there were any significant changes in the status
of the existing tenancy. Certain other properties were valued based upon
management's estimate of the current market value for each specific property
using similar procedures. In addition, management provided for a reserve on
certain of its mortgages and partnership investments (Note 7) for anticipated
losses to be realized as certain of such assets are liquidated to meet DVL's
mandatory repayment obligations (Notes 8 and 13) and its operating cash flow
deficiency.
Based upon the ratification of the enforceability and validity of DVL's
portfolio of Partners' Notes by the Limited Partner Settlement and the payment
experience on such notes, management re-evaluated each note in its portfolio for
specific loss reserves. Those notes deemed uncollectible were provided for
assuming an estimated residual value of the related partnership investment of
25%
of the original investment, which reflects management's estimate of the
investment's net realizable value.
F-19
Allowance for loan loss activity is as follows:
1995 1994
-------- --------
(in thousands)
Balance, beginning of year $12,762 $ 7,034
Net provision for loan losses 2,348 6,420
Loans written-off and written-down (2,885) (692)
-------- --------
Balance, end of year $ 12,225 $ 12,762
======== ========
During 1993, DVL received full repayment of its unsecured loan due from
Kenbee, as a result of RH's operating activities. This repayment reduced DVL's
provision for losses by $275,000 in 1993, as this loan was fully reserved for at
December 31, 1992.
In addition, DVL reduced its provision for losses on guaranteed and other
indebtedness of Kenbee by $628,000 in 1993. This reduction resulted primarily
from the settlement of one guaranteed debt, which was partially offset by
management's re-evaluation of DVL's potential liability for remaining guaranteed
indebtedness, the potential liability under a put agreement relating to
previously guaranteed indebtedness and by DVL's assumption of a Kenbee legal fee
obligation in order to preserve DVL's ability to use the services of this Kenbee
creditor in the future. At December 31, 1995, DVL maintained a reserve of
$353,000 for its estimated losses as guarantor and for other indebtedness of
Kenbee (Note 11).
Management provided for losses of $35,000, $973,000 and $582,000 in 1995,
1994 and 1993, respectively, in connection with certain litigation and the
settlements of claims against it and Kenbee originating from Kenbee's
indebtedness to certain creditors. Under previously completed settlement
agreements, DVL transferred certain mortgages with a carrying value aggregating
$3,007,000 in 1992 and 1991 to the claimants in full satisfaction of the claims
against DVL and Kenbee. DVL had guaranteed that such claimants (the "Lender
Group") will receive a minimum cash flow from the transferred mortgages of
$110,000 per year through 1996 and provided the Lender Group with a contingent
note for the reduction in the present value of the transferred mortgages
resulting from changes in the terms of such mortgages in connection with the
settlement of the limited partner suits. DVL transferred a mortgage to the
Lender Group in full settlement of all cash flow requirements and the contingent
note. The mortgage had a carrying value of $523,000, which amount had been
fully
provided for at December 31, 1994.
DVL sold FMF in December 1994 for $837,000 of which $825,000 was financed
by DVL with a secured promissory note and subordinated debenture. DVL incurred
a $1,181,000 (including $353,000 of overhead allocated by DVL to FMF) loss on
its
temporary investment in FMF which represents the start-up and operating costs
funded by DVL, less the cash received through March 30, 1995 from the sale of
FMF. The loss provision included a full reserve for the remaining payments due
under the note and debenture as their collectibility is uncertain and DVL has
placed no value on the note or debenture. DVL has received $160,000 from the
sale of FMF from March 31, 1995 through March 31, 1996 which has been recorded
as income. In December 1995, DVL agreed to issue 250,000 shares of common stock
in January 1996 to the prior president of FMF in consideration of an assignment
of loans to FMF of approximately $112,000 and his release of all potential
claims
against DVL. The value of such stock ($31,000) has been offset against the
income
received from FMF. If and when DVL receives additional payments on the note and
debenture, it will be recognized into income as received (Note 13).
In addition, management provided for a loss of $261,000 in 1993 for certain
of its investments in and receivables due from affiliated partnerships based
upon
updated information on the properties relating to these assets (Note 7).
F-20
7. Investments
Real Estate
- - -----------
At December 31, 1995, DVL's remaining real estate, which is principally
pledged to collateralize indebtedness (Note 8), is leased to two affiliated
partnerships under long-term leases at aggregate annual rents of approximately
$37,000. At December 31, 1995, one of such leases is in default and DVL has
provided for a loss of $208,000 based upon the current value of the property.
During 1993, DVL reached an agreement with one of its creditors under which DVL
assigned its interest in three of its land leases and the related building
improvements to affiliated partnerships (Note 8). The carrying value of the
transferred real estate assets aggregated $1,274,000. As part of the agreement,
PSC acquired the master lease positions for these properties, which were pledged
to the creditor as additional collateral (Note 13). Information for DVL's
remaining properties is as follows:
Land
------------------------
Kearny, Kearny,
New Jersey New Jersey
---------- ----------
(in thousands)
Initial cost to the company and gross
amount at which the land is carried
at close of the period (b): $ 417 $ 80
========== ==========
Date acquired 1992 1971
Encumbrances (a) N/A
[FN]
(a) Pledged to collateralize indebtedness to a financial institution (Note
8).
(b) The total carrying value and the aggregate cost for federal income tax
purposes at the beginning and end of each of the three years ended
December 31, 1995 are as shown above.
[/FN]
The original costs basis of the properties transferred to creditors in 1993
was
$1,398,000. A reconciliation of the accumulated depreciation for the year ended
December 31, 1993 relating to the properties transferred is as follows:
1993
----
(in thousands)
Balance, beginning of year $120
Depreciation charged to
operations 4
Decrease upon asset transfer (124)
----
Balance, end of year $ -
====
Affiliated Limited Partnerships
- - -------------------------------
DVL acquired various interests in affiliated partnerships pursuant to the
terms of certain settlement agreements. Management originally valued all of
these investments at 33% of the original investment amount, the expected
recovery
for such investments, except for interests acquired in one partnership with an
original investment aggregating $2,450,000 which are assigned to one of DVL's
creditors and were valued at 40% of their original investment amount based upon
the anticipated proceeds through the future sale of the partnership's property
as DVL controls more than 50% of the partnership. In 1994, management provided
F-21
for a general reserve on these investments to bring the net carrying value down
to 25% of the original investment amount, exclusive of the $2,450,000 discussed
above, due to potential anticipated losses upon liquidation of these
investments
to meet DVL's mandatory repayment requirements and operating cash flow
deficiency. (Notes 5,6 and 8). As distributions are received or the investments
are disposed of, the carrying value is reduced. No income will be recognized
until the anticipated cash flow exceeds the carrying value.
The activity on DVL's investments in affiliated partnerships is as follows:
1995 1994
------ ------
(in thousands)
Balance, beginning of year $3,803 $4,497
Various interests acquired from defaulted
Partner Notes 50 160
Various interests acquired from limited
partners pursuant to settlements - 108
Distributions received (536) (212)
Write-offs and reserves (7) (750)
------ ------
Balance, end of year $3,310 $3,803
====== ======
At December 31, 1995, approximately $2.2 million of DVL's investments in
affiliated partnerships are pledged to collateralize indebtedness (Note 13).
Other Investments
- - -----------------
As part of the restructuring of three of DVL's loans to Kenbee in a
settlement with the representatives of the related partnerships which opted out
of the Limited Partner Settlement, DVL acquired majority limited partnership
interests in three new partnerships in 1993, whose sole assets are the
restructured partnership mortgage loans on the properties leased to Wal-Mart
Stores, Inc. These investments were valued based upon the anticipated cash flow
to be generated by the restructured mortgage loans (Notes 5(c) and 6).
Management has reserved a total of $400,000 as of December 31, 1995 primarily
resulting from a decrease in the value of the underlying collateral of one of
the
three partnership mortgage loans. As distributions are received or the
investments are disposed of, the carrying value is reduced. No income will be
recognized until the anticipated cash flow exceeds the carrying value.
F-22
8. Short-Term Debt, Long-Term Debt and Loans Payable Underlying Wrap Around
Mortgages
DVL's short-term and long-term debt is comprised of the following loans
payable to unaffiliated lenders:
1995 1994
------- -------
(in thousands)
Loans in default for non-payment including accrued
interest collateralized by:
Limited partnership interests: bearing interest
at 2% over prime restructured in 1996 (a) $ - $13,804
------- -------
Short-term debt:
Indebtedness bearing interest at 2% over prime
collateralized by partnership management fees,
satisfied in April 1995 - 215
8% over prime rate loan collateralized by
commercial mortgages, maturing in June 1996 1,060 -
------- -------
1,060 215
Restructured and other long-terms loans: ------- -------
Restructured indebtedness bearing interest
at variable rates of 1/2% to 1% over prime,
subject to minimum and maximum rates,
collateralized by commercial mortgages and
real estate, maturing through January 1999 (c) 11,319 12,801
Restructured indebtedness bearing interest at
varying fixed rates of up to 7% for one loan
(Note 13) and variable rates based upon prime
for the other loan, collateralized by Partners'
Notes, commercial mortgages and real estate
interests, maturing through May 1999 (c) 2,999 3,785
Non-interest bearing restructured indebtedness,
collateralized by commercial mortgages and
limited partnership interests, maturing in
January 1998 2,733 2,821
9% to 13 3/4% fixed rate mortgages maturing
through June 1999 4,716 9,075
12% loan principally collateralized by a loan
secured by consumer receivables, satisfied
in 1995 - 257
5% over prime rate loan collateralized by
commercial mortgages, maturing in September
1997 232 244
Loan collateralized by investments in limited
partnerships currently bearing interest at 10%,
maturing in May 1998 268 285
Indebtedness restructured in 1995 collateralized
by commercial mortgages maturing in 2001 (b) 1,623 2,750
Non interest bearing restructured indebtedness
payable in quarterly installments through
June 1997 (a) 8,400 -
------- -------
32,290 32,018
------- -------
Total debt $33,350 $46,037
======= =======
F-23
(a) In December 1995, DVL reached a settlement with its final unsettled
creditor and recognized a gain on the settlement of indebtedness of
approximately
$6.1 million. Such debt had been undercollateralized and the settlement
eliminated such undercollateralization. The restructured indebtedness required
a $400,000 payment at closing and requires five quarterly payments totaling
$600,000. If all such payments are made, DVL will recognize additional gains of
approximately $7.4 million.
(b) During 1995, DVL reduced the portion of its indebtedness which was in
default for non-payment of scheduled interest and/or principal by approximately
$3.6 million. This reduction resulted from the restructuring of the principal
balance, payment terms and interest rate with one creditor. The restructuring
agreement was signed in the first quarter of 1995 and closed in the second
quarter of 1995. Such restructuring resulted in a gain on the settlement of
indebtedness of approximately $1.81 million in the first quarter of 1995 (Note
9).
(c) DVL obtained extensions to May 31 and June 30, 1996, from two creditors
to whom DVL failed to meet various mandatory repayment requirements since
December 31, 1994 (Note 13).
During 1994 and 1993, DVL's settlement and restructuring agreements with
certain creditors resulted in extraordinary gains on the restructuring of
indebtedness of $1,935,000 and $7,991,000, respectively.
The aggregate amount of restructured and other long-term debt and loans
payable underlying wrap around mortgages (Note 5) maturing during the next five
years is as follows:
Loans Payable
Long-term Underlying Wrap
Debt Around Mortgages
--------- ----------------
(in thousands)
1996 $ 6,004 $ 2,163
1997 11,515 (1) 2,144
1998 5,933 4,295
1999 1,154 2,581
2000 7,462 2,866
Thereafter 222 30,251
------- -------
$32,290 $44,300
======= =======
[FN]
(1) Includes $7.4 million which will be forgiven
if DVL meets its payment requirements on its
restructured indebtedness. See note (a) above.
[/FN]
DVL's weighted average short-term borrowing rate for the years ended
December 31, 1995, 1994 and 1993 were 9.7%, 8.4% and 8.4%, respectively.
9. Deferred Credits
DVL's deferred credits at December 31, 1995 and 1994 are comprised of
deferred gains on the sales of real estate to affiliates. Under the terms of a
settlement agreement with one of DVL's creditors (Note 7), certain of these
mortgage loans were canceled upon the restructuring of DVL's indebtedness with
a different creditor which was completed in the second quarter of 1995 (Notes 8
and 13). As a result of this restructuring, a substantial portion of the
deferred gain on sales of real estate was realized in 1995.
F-24
Activity on deferred credits is as follows:
1995 1994 1993
------ ------ ------
(in thousands)
Balance, beginning of year $1,396 $1,405 $1,420
Amortization to income - (9) (15)
Deferred gain on sale recognized upon
cancellation of mortgage loans 1,075 - -
------ ------ ------
Balance, end of year $ 321 $1,396 $1,405
====== ====== ======
10. Convertible Subordinated Debentures
During 1993, DVL completed a $421,000 private placement of units consisting
of one convertible subordinated promissory note and two common stock purchase
warrants. The notes bear interest at 12% per annum, mature on April 30, 1997
and are convertible, including accrued interest, into shares of common stock at
a price of $1.00 per share at any time prior to maturity. In addition, DVL
issued $51,000 of similar such units primarily in connection with the settlement
of claims of certain limited partners, which included DVL's acquisition of
certain limited partnership interests (Note 7). The convertible notes included
in these units bear interest at 10% per annum and mature on September 30, 1997
(Note 12). As of March 1996, $272,000 of these notes have been modified (Note
13). In addition, the holder of $130,000 of these notes has agreed to redeem
his
notes for 200,000 shares of DVL common stock subject to the closing of a loan
with the new lender (Note 13).
11. Commitments, Contingent Liabilities and Legal Proceedings
Commitments and Contingent Liabilities
- - --------------------------------------
As part of DVL's settlement and restructuring agreements, DVL made the
following commitments and guarantees: DVL guaranteed that a creditor will
receive minimum annual cash flow from 1994 through 2002 totaling $87,000 on a
mortgage loan transferred to the creditor; DVL has agreed to pay two creditors
additional amounts of up to 80% of the proceeds generated by the collateral
pledged to these creditors if any such collateral exists after the restructured
loans have been fully satisfied; and DVL has agreed to purchase in 1997 the
mortgage loans which were transferred to a creditor during 1992 in satisfaction
of DVL's guarantee obligations to such creditor, if the creditor has not
received
a stated yield based upon the value of the mortgages transferred and has not
previously liquidated the mortgages. DVL agreed to transfer a mortgage with a
net carrying value of $220,000 to terminate its agreement to purchase mortgages
from such creditor in 1997. Management had previously accrued $300,000 for its
obligation to purchase the mortgages in 1997. Management does not anticipate
any
additional losses on such guarantees or commitments at this time.
Pursuant to the terms of the Limited Partner Settlement, a fund has been
established into which DVL is required to deposit 20% of the cash flow received
on its mortgage loans from affiliated partnerships net of repayment to existing
creditors, 50% of DVL's receipts from certain loans to and general partnership
investments in affiliated partnerships and a contribution of 5% of DVL's net
income subject to certain adjustments in the years 2001 through 2012. DVL has
not provided for losses on such contingencies except where they can be estimated
(Note 2).
In April 1994, DVL completed a settlement with a creditor to whom DVL was
obligated as a guarantor of an affiliate's indebtedness of approximately $5
million. Pursuant to the settlement, DVL issued 320,000 shares of common stock
with a future guaranteed value of $1.50 per share, and paid $275,000 in full
satisfaction of the original guarantee. The creditor had the right to put the
shares back to DVL and DVL was required to pay the creditor the guaranteed value
in installments over twelve months, including a $90,000 payment due in July
1995.
This agreement was modified twice to provide for lower payments through April
1996 at which point the remaining balance of approximately $327,000 will be due
(Note 13). DVL has provided for a reserve of $353,000 at December 31, 1995,
based upon the amount due to such creditor, including projected interest
payments, less DVL's valuation of the remaining 272,000 shares held by the
creditor.
F-25
DVL has employment contracts with two of its executive officers expiring on
October 31, 1996 and December 31, 1996 under which DVL is required to pay annual
salaries aggregating $400,000, as well as other benefits and expense
reimbursements. The contracts can be terminated without cause by the Board of
Directors, subject to certain termination compensation arrangements. DVL's
president is also entitled to certain termination compensation arrangements.
DVL
is also obligated under a consulting agreement with its former president to pay
$110,000 per annum through October 31, 1996. In addition, certain current and
former officers received grants of performance units, as defined in a
performance
unit plan adopted by DVL. The performance unit plan provides for the Board of
Directors to grant performance units to employees who, in the opinion of the
Board of Directors, are in a position to make substantial contributions to the
management, growth and success of DVL's business. Performance units are payable
on notice of exercise by the grantee in cash generally in an amount equal to the
difference between the average of the stock's closing price for the last twenty
trading days and the Fair Market Value ("FMV"), as defined. Through December
31,
1995, the Board of Directors granted a total of 1,023,750 performance units to
its executive and other officers with FMV's of such units ranging from $.29 to
$.75. During 1993 and 1994, 101,864 performance units were exercised for
$64,000. During 1995, certain officers were issued 68,750 performance units and
exercised such units for $31,000 and certain former officers surrendered 130,000
performance units in conjunction with their resignations from the company. At
December 31, 1995, the 723,131 remaining performance units were fully vested and
based upon the stock price at December 31, 1995 were valued at $0. In March
1996, a former officer has surrendered 50,000 of his performance units in
connection with DVL's settlement of certain litigation. In March 1996, the
current and former officers holding the remaining 673,131 of performance units
agreed to surrender such performance units in consideration for an equal number
of options granted pursuant to a non-qualified stock option plan approved by
DVL's Board of Directors (Note 13).
DVL is contingently liable as guarantor under a loan facility obtained by
FMF. The balance at December 31, 1995 was approximately $100,000 and DVL
believes that the underlying collateral will be sufficient to fully pay off the
loan.
Legal and Administrative Proceedings
- - ------------------------------------
Substantial progress has been made in resolving various litigation brought
against DVL, its Board members and certain current and former officers and
affiliates by shareholders, banks and others. The following is a summary of the
status of all material outstanding cases, as well as cases settled in 1995 and
1996.
In 1995, DVL complied with all of its obligations under the court approved
settlement in the consolidated shareholder class action entitled IN RE: DEL-VAL
FINANCIAL CORP. SECURITIES LITIGATION, MASTER FILE NO. MDL 872 ("IN RE DEL-VAL")
by issuing 4,917,582 shares of stock and $10,386,851 face value notes in
December
1995 to settling shareholder class members and their legal counsel. The
$10,386,851 face value notes are due in ten years, bear interest at 10% per
annum, are payable in kind for five years, are callable after the third year and
are payable in cash or common stock at DVL's option.
A suit entitled DONALD LEVY, ET AL. V. ROGER D. STERN, ET AL. ("LEVY"),
originally filed in New Castle County, Delaware on February 13, 1991, on behalf
of certain individual shareholders alleged breaches of fiduciary duty of care
and
candor. The defendants recently prevailed on a motion for summary judgment in
this case and Plaintiffs have filed a motion for reconsideration with the
court.
Plaintiffs in IN RE DEL-VAL have permitted the Plaintiffs in LEVY to participate
in their settlement with certain third party defendants in IN RE DEL-VAL.
Also in 1995, DVL complied with the terms of the court approved settlement
agreement dated September 12, 1994 in two consolidated shareholder derivative
actions entitled DEL-VAL FINANCIAL CORP. DERIVATIVELY BY HILDA WEIGART V. ROGER
D. STERN, ET AL. ("WEIGART"), and DEL-VAL FINANCIAL CORP. DERIVATIVELY BY MIRIAM
FEINBERG V. ROGER D. STERN, ET AL. ("FEINBERG'), filed in the Superior Court of
New Jersey - Division - Bergen County on October 31, 1990 and December 3, 1990,
respectively. In this settlement, DVL agreed to reimburse up to $150,000 of
F-26
costs incurred by Plaintiff's counsel and Plaintiff's have the right to pursue
DVL's claim against Federal Insurance Company ("Federal") discussed below. All
third party actions in connection with WEIGART and FEINBERG have been dismissed.
DVL and certain former officers were named as defendants in an action
brought by a former employee of Kenbee entitled MICHAEL A. BECKER V. KENBEE
MANAGEMENT, INC. ET AL. ("BECKER"), and filed in the Superior Court of New
Jersey, Bergen County Law Division on September 22, 1993. In BECKER, plaintiff
alleged violations of the New Jersey Law Against Discrimination by Reason of
Religious Discrimination, of oral contract not to terminate plaintiff, of an
implied promise not to terminate employee for reasons violative of public
policy,
and for intentional infliction of emotional distress, intentional interference
with contractual relations and slander and slander PER SE. A settlement in this
matter was completed in March 1996.
Federal Insurance Company ("Federal"), which carried DVL's directors and
officers insurance policy, declined to cover DVL for any legal costs or
liability. DVL commenced an action against its insurance broker and Federal
entitled DEL-VAL FINANCIAL CORPORATION, ET AL. V. FEDERAL INSURANCE COMPANY ET
AL. ("FEDERAL INSURANCE") on September 23, 1991 in the Supreme Court of the
State
of New York, County of New York in which DVL alleged negligence against its
broker and sought declaratory and injunctive relief against Federal. The New
York Court in this matter has held that the Settling Defendants' insurance
excluded coverage of these matters. DVL has filed a notice of appeal of that
decision.
DVL was named in an action entitled VANGUARD CAPITAL V. KENBEE MANAGEMENT,
INC. ET AL. ("VANGUARD") which was filed on March 21, 1994 in the Superior Court
of the State of California, for the County of Riverside, Palm Springs Branch,
Civil Case No. 74197 in which plaintiff sought contractual indemnity, equitable
indemnity and declaratory relief on certain matters filed against Vanguard
Capital, Inc. in the Superior Court, State of California. This action is based
on complaints by an investor with a $350,000 investment in an affiliated limited
partnership alleging that the investor's broker sold to her unsuitable
investments. DVL has defended the case and Plaintiff has voluntarily dismissed
the action without prejudice. On March 22, 1996, the petitioner in the
underlying matter against VANGUARD filed in the Superior Court of Los Angeles as
case no. B5036316, a motion to vacate the NASD Arbitration award made in July
1995 in VANGUARD and has named DVL as a respondent in that Petition.
DVL is named as a defendant in a class action entitled PHILLIP AND SHERYL
WEISS V. WINNER'S CIRCLE OF CHICAGO, INC. ET AL. which was filed in the United
States District Court for the Northern District of Illinois on April 14, 1995 in
which Plaintiffs allege that DVL, as a holder of certain consumer credit
contracts issued by Del-Val Capital Corp., a subsidiary of DVL, is subject to
claims and defenses against the consumer credit contracts and that DVL aided and
abetted violations of the Illinois Consumer Fraud Act. DVL believes this case
has no merit and continues to defend vigorously.
12. Shareholders' Equity/Capital Deficiency
As a result of the shareholder class action settlement, DVL issued
4,917,582
shares of common stock in December 1995 (Notes 2 and 11), of which 900,000 of
such shares were reflected as "to be issued" at December 31, 1994 in these
financial statements.
DVL issued warrants to purchase 944,000 shares of common stock in
connection
with the issuance of $472,000 of 12% and 10% convertible subordinated debentures
(Note 10). The company recorded a debt discount and allocated $47,000 of the
proceeds to the value of the detachable stock warrants. The accumulated
amortization of the debt discount aggregated $33,000 at December 31, 1995. The
warrants entitle the holder to purchase the company's common stock at an
exercise
price of $1.00 at any time through their expiration in 1997. In addition, there
was $189,000 of accrued interest on the debentures outstanding at December 31,
1995. At December 31, 1995, approximately 1,605,000 shares of the company's
common stock were reserved for the conversion of subordinated debentures and
exercise of warrants (Notes 11 and 13).
F-27
13. Subsequent Events
In March 1996, pursuant to a previously arranged discount agreement, DVL
paid one of its creditors $690,000 in full satisfaction of a loan which had the
effect of releasing back to DVL certain limited partner investor notes and units
and a collateral assignment of all of its interest in PSC's master lease
position
(Notes 7 and 8). In connection with this transaction, DVL recognized an
extraordinary gain on the settlement of indebtedness of $442,000 in the first
quarter of 1996.
In an effort to reduce the amount of outstanding warrants or the timing of
when certain warrants can be exercised, DVL made the following arrangement with
its existing debenture and warrant holders:
(a) In March 1996, $272,000 of the $472,000 of the 12% and 10% convertible
subordinated debenture holders agreed to waive the payment of interest in cash
on the debentures, to eliminate the convertibility feature of the existing
debentures and to surrender their existing warrants. In consideration of the
above, each debenture holder will receive shares of DVL stock equal to the
number
of shares purchasable by the warrants plus interest to be accrued through the
maturity of the debenture. The principal balance of these modified debentures
will be repaid in April 1997 (Note 10).
(b) In March 1996, an individual holding 50,000 warrants agreed to redeem
the warrants for 25,000 shares of DVL's common stock.
(c) In March 1996, a previous creditor of DVL who was holding 620,000
warrants exercisable at $1 per share, as well as holding contingent debentures
and other Put agreements with DVL, has agreed to accept 800,000 warrants with an
exercise price of $.50 per share exercisable between 1997 and 2000 in exchange
for all of its existing warrants, debentures and rights in connection DVL.
In March 1996, the current and former officers holding the performance
units
agreed to surrender such performance units in consideration for an equal number
of options granted pursuant to a non-qualified stock option plan approved by
DVL's Board of Directors (Note 11).
DVL has issued 250,000 shares of common stock to the previous president of
FMF in consideration of an obligation from FMF held by him of approximately
$112,000, as well as a release of all claims of DVL (Note 6).
In March 1996, DVL was able to make prepayments to a creditor from the
proceeds of a refinancing of first mortgages (Note 5) of approximately
$2,652,000. Pursuant to a previously negotiated discount agreement, the amount
due to such creditor was reduced by an additional $604,000 which, will be
recognized as an extraordinary gain on the settlement of indebtedness in the
first quarter of 1996.
On March 28, 1996, DVL and NPM Capital LLC ("NPM") entered into a Loan
Agreement (the "Loan Agreement") pursuant to which NPM agreed to lend DVL funds
which will be used to satisfy the remaining balance at closing of four existing
loans to various creditors and to make principal installment payments on DVL's
obligation to another creditor (the "Loan"). These five loans had an aggregate
balance at December 31, 1995 of $15,266,000. Three of these loans, which had
aggregate outstanding balances at December 31, 1995 of $3,484,000 mature by June
30, 1996. DVL will prepay two of the five loans in order to avail itself of its
negotiated discounts of approximately $3,716,000. The Loan will be payable over
six years with interest at the rate of 10.25% per year. Based upon the current
balances due to such creditors, the expected discounts (approximately
$3,716,000)
to be received and the outcome of certain refinancings in progress, DVL expects
the amount of the Loan to be approximately $5 million to $6.5 million. In
consideration for NPM's loan, which will enable DVL to avail itself of all such
discounts, and for providing DVL with the extended payment schedule, the
principal amount of the Loan will be increased by $3,150,000. The principal
amount of the Loan will be further increased by NPM's costs incurred in
connection with this transaction in excess of $175,000 (Notes 2,6,8,10,11 and
12).
In connection with the transactions contemplated by the Loan Agreement, DVL
and NPO Management LLC ("NPO"), an affiliate of NPM, have entered into an Asset
Servicing Agreement, subject to shareholder ratification, pursuant to which NPO
F-28
will provide DVL with administrative and advisory services relating to the
assets
of DVL and its affiliated partnerships. In consideration for such services, DVL
will pay NPO $600,000 per year (with cost of living increases beginning in 1998)
over the seven (7) year term of the agreement, subject to early termination
under
certain circumstances. DVL anticipates that by outsourcing such services it
will
be able to reduce its existing overhead, thereby offsetting the costs of such
services.
In connection with the Loan, affiliates of NPM have agreed, upon consummation
of the Loan, to acquire 1,000,000 shares (the "Shares") of DVL common stock for
$200,000 representing approximately 7% of the current outstanding common stock
of DVL. In addition, DVL has agreed, upon consummation of the Loan, to issue to
affiliates of NPM an amount of warrants (the "Warrants") which when added to the
1,000,000 shares to be acquired will equal 49% of the outstanding shares of DVL
common stock plus the Warrants to be issued. The Warrants will be exercisable
at a price of $.16 per share.
Consummation of the transactions contemplated by the Loan Agreement,
including
the Loan and the issuance of the Shares and the Warrants are subject to certain
conditions, including shareholder approval. If approved, DVL anticipates
closing
these transactions during the third quarter of fiscal 1996.
F-29
DVL, INC. -- TABLE 1
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
(1) (8)
DECEMBER 31, 1995 (In Thousands)
Under-
Location of lying
Security
Affiliated Property Mortgage Loan Unearned Net
Monthly [mortgage(s)
Partnership Securing Loan Balance Bal. Interest Invest. Yield
Amort. Maturity upon] Tenant(s)
- - --------------------------------------------------------------------------------
- - ---------------------------------------------------
Alma Alma, AR $ 2,177 $ 794 $ 843 $ 540 15%
$12 March Land and Wal-Mart
Associates (5)
2027 a commercial Stores, Inc.
building (2)
Boulevard Cheektowaga, NY 2,936 1,357 1,523 56 15%
Varying March Land and SCOA Industries,
Associates
2012 a commercial Inc. - Hills
building (2) Department Store
Brent Brent, AL 1,612 517 721 374 15%
$9 February Land and Wal-Mart
Associates(5)
2027 a commercial Stores, Inc.
building (2)
Broadalbin Mayfield, NY 925 0 466 459 15%
$6 January Land and a Grand Union
Associates
2022 supermarket Stores, Inc.
Checotah Checotah, OK 1,709 584 699 426 15%
$9 February Land and Wal-Mart
Associates (5)
2027 a commercial Stores, Inc.
building (2)
Elizabeth City Elizabeth City, NC 615 0 277 338 15%
$4 January Land and a Malone & Hyde, Inc.
Associates
2022 supermarket
Fairbury Fairbury, NE 1,933 699 810 424 15%
$10 August Land and Wal-Mart
Associates (5)
2027 a commercial Stores, Inc.
building (2)
Fort Edward Fort Edward, NY 1,462 0 78 1,384 12%
$14 May Land and a Grand Union
Associates
2029 supermarket Stores, Inc.
Hoosick Falls Hoosick Falls, NY 1,507 0 756 751 15%
$10 August Land and a Grand Union
Associates
2021 supermarket Stores, Inc.
Kearny Kearny, NJ 5,304 2,202 1,913 1,189 (3)
Varying March A shopping Various
Associates
2020 center (2) unaffiliated
companies
Milford Milford, PA 2,500 0 1,374 1,126 15%
$14 December Land and a Grand Union
Associates
2029 supermarket Stores, Inc.
Orange Park Jacksonville, FL 1,518 712 599 207 12%
$9 with January Land and Toys "R" Us,
Associates
a final 2020 a commercial Inc.
pmt. of building (2)
$672
Ossipee Ossipee, NH 1,142 0 565 577 15%
Varying February Land and Ames Department
Associates
2022 a commercial Stores, Inc.
building
Port Isabel Port Isabel, TX 2,337 745 1,027 565 15%
$12 February Land and Wal-Mart
Associates (5)
2027 a commercial Stores, Inc.
building (2)
Progress Buffalo, NY 924 456 68 400 (4)
$8 March Land, a Scrivner-Buffalo
Associates
2017 supermarket Division
and an
Windsor, CT 513 310 28 175 (4)
$5 June industrial Cutler-Hammer
2022 building (2) Mystic Trucking
DVL, INC. -- TABLE 1
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
(1) (8)
DECEMBER 31, 1995 (In Thousands)
Under-
Location of lying
Security
Affiliated Property Mortgage Loan Unearned Net
Monthly [mortgage(s)
Partnership Securing Loan Balance Bal. Interest Invest. Yield
Amort. Maturity upon] Tenant(s)
- - --------------------------------------------------------------------------------
- - ---------------------------------------------------
Rockingham Rockingham, NC $ 201 $ 0 $ 0 $ 201 8%
$3 February Land and Kenbee -
Associates
2003 a warehouse subleased
building to Sara Lee
Rockingham II Rockingham, NC 284 0 94 190 12%
$2 March Land and an Kenbee -
Associates
2011 industrial subleased
building to Sara Lee
Salisbury Salisbury, MD 936 0 425 511 15%
$7 February Land and a Eastern Shore
Associates
2022 supermarket Markets, Inc.
Stigler Stigler, OK 1,721 756 745 220 15%
$9 April Land and a Wal-Mart
Associates (5) (7)
2027 commercial Stores, Inc.
building (2)
Tilton Tilton, NH 2,021 550 674 797 (4)
$13 September Land and a Various
Associates
2020 shopping unaffiliated
center (2) companies
Toch Kearny, NJ 1,119 0 0 1,119 (3)
$10 December An industrial Various
Associates
2009 building unaffiliated
companies
Trio Brooklyn, NY 1,383 40 267 1,076 (3)
$14 September Land and an TEK Wire and
Associates
2007 industrial Cable
building (2)
Watseka Watseka, IL 1,364 926 345 93 12%
Varying December Land and a K Mart
Associates
2015 commercial Corporation (6)
building (2)
WHS Idaho Falls, ID 330 214 114 2 12%
$2 December Land and a Unisource
Associates
2014 warehouse Corporation
building (2)
-------------------------------------
$38,473 $10,862 $14,411 $13,200
[FN]
- - ------------------------------------
(1) See "Collateralized Loans (1)"
(2) These loans are wrap around loans.
(3) These loans are non-performing and DVL does not anticipate
any yield in the future.
(4) These loans are expected to be liquidated in the future and DVL
does not anticipate any yield on these loans.
(5) These loans were restructured as part of the Limited Partner Settlement.
The settlement may have the effect of reducing DVL's yield in the future,
which
reduced yield is dependent on the actual additional debt service received
on these
mortgages in the future.
(6) Building is currently vacant, however tenant is obligated under the terms
of the
lease to continue to pay rent.
(7) Underlying loan balance includes second mortgage from 1994 refinancing.
(8) DVL's net investment in these mortgages was $19,388 at December 31, 1994
and $13,200
at December 31, 1995. The decrease resulted from the sale of mortgages
amounting
to $705, collections on mortgages of $4,321, the transfer or mortgages to
satisfy
indebtedness of $2,449 offset by interest income of $1,287.
DVL, INC. -- TABLE 2
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
(1) (6)
DECEMBER 31, 1995 (In Thousands)
Location Partnership Underlying
Net Amount DVL's
of Property Mortgage Loan of
Collateral Loan
Affiliated Partnership Securing Loan Balance Balances
Pledged Balance Maturity Tenant
- - --------------------------------------------------------------------------------
- - ----------------------------------------------------------------
Aledo Associates LP Aledo, IL (2) (5) $ 2,312 $ 1,201 $
1,111 $ 273 November 2018 Wal-Mart Stores, Inc.
Alexandria Associates LP Alexandria, VA (3) 1,440 340
1,100 572 January 2023 Pitney-Bowes, Inc.
Ava Associates Ava, MO (2) 2,813 705
2,108 501 October 2028 Wal-Mart Stores, Inc.
Brownsville Associates LP Brownsville, TX (2) 4,870 1,958
2,912 1,747 February 2024 Wal-Mart Stores, Inc.
Caldwell Associates Caldwell, TX (2) 2,030 673
1,357 552 May 2019 Wal-Mart Stores, Inc.
Camilla Associates LP Camilla, GA (2) 2,039 681
1,358 658 December 2019 Wal-Mart Stores, Inc.
Canton Associates Canton, GA (2)(5) 4,133 1,335
2,798 1,604 November 2029 Wal-Mart Stores, Inc.
Carthage Associates Carthage, TN (2) 1,896 624
1,272 557 March 2021 Wal-Mart Stores, Inc.
Cherokee Associates Woodstock, GA (2) 3,417 1,115
2,302 1,289 July 2023 Wal-Mart Stores, Inc.
Clanton Associates LP Clanton, AL (2) 1,976 819
1,157 955 June 2020 Wal-Mart Stores, Inc.
subleased - Fantasy
Land Flea Market
Clinton Associates Clinton, IL (2)(5) 3,368 1,045
2,323 1,104 June 2029 Wal-Mart Stores, Inc.
Columbus Associates Columbus, TX (2)(5) 3,785 1,205
2,580 946 December 2029 Wal-Mart Stores, Inc.
Covington Associates Covington, GA (2)(5) 4,354 1,564
2,790 614 January 2030 Wal-Mart Stores, Inc.(4)
Cynthiana Associates Cynthiana, KY (2) 2,262 735
1,527 845 July 2021 Wal-Mart Stores, Inc.
Douglas Associates Douglas, GA (2)(5) 2,504 1,170
1,334 1,203 December 2023 Wal-Mart Stores, Inc.
operating as - Buds
Douglasville Associates Douglasville, GA (2)(5) 5,365 1,768
3,597 1,844 June 2031 Wal-Mart Stores, Inc.
Elmira Associates Elmira, NY (2) 725
725 211 November 2021 Fays Drug Company, Inc.
Maryland Heights, MO (3) 905 210
695 441 May 2024 Pitney-Bowes, Inc.
Enderle Associates LP Hondo, TX (2) 2,324 938
1,386 789 May 2024 Wal-Mart Stores, Inc.
Floresville Associates Floresville, TX (2)(5) 2,745 865
1,880 943 February 2029 Wal-Mart Stores, Inc.
Gatesville Associates Gatesville, TX (2) 3,520 850
2,670 657 December 2028 Wal-Mart Stores, Inc.
Iowa Park Associates LP Iowa Park, TX (2) 2,007 821
1,186 447 March 2021 Wal-Mart Stores, Inc.
Jamestown Road Associates Columbia, KY (2) 2,029 667
1,362 680 April 2023 Wal-Mart Stores, Inc.
Lawrenceburg Associates Lawrenceburg, KY (2) 2,904 634
2,270 594 December 2029 Wal-Mart Stores, Inc.
Macon Associates LP Macon, MO (2)(5) 2,518 1,288
1,230 339 March 2018 Wal-Mart Stores, Inc.
Madisonville Associates Madisonville, TX (2) 1,994 654
1,340 578 August 2021 Wal-Mart Stores, Inc.
Marlow Associates Marlow, OK (2)(5) 2,466 793
1,673 215 December 2029 Wal-Mart Stores, Inc.
Marshall Associates LP Marshall, IL (2)(5) 1,951 1,073
878 233 November 2018 Wal-Mart Stores, Inc.
Mount Pleasant Associates LP Mount Pleasant, IA (2)(5)2,832 1,432
1,400 340 November 2019 Wal-Mart Stores, Inc.
Mustang Associates Mustang, OK (2) 2,924 652
2,272 664 June 2029 Wal-Mart Stores, Inc.
Robstown Associates LP Robstown, TX (2) 2,244 930
1,314 252 October 2020 Wal-Mart Stores, Inc.(4)
Sonya Associates LP Boonville, MO (2) 1,939 649
1,290 685 June 2018 Wal-Mart Stores, Inc.
Southfield Associates Southfield, MI (3) 3,019 827
2,192 302 July 2026 Pitney-Bowes, Inc.
Van Buren Associates LP Clinton, AR (2) 1,612 531
1,081 597 April 2020 Wal-Mart Stores, Inc.
Wambold Associates LP Cuba, MO (2)(5) 1,392 896
496 318 December 2019 Wal-Mart Stores, Inc.
Waynesboro Associates LP Waynesboro, MS (2)(5) 2,140 1,123
1,017 2 January 2019 Wal-Mart Stores, Inc.(4)
Winder Associates Winder, GA (2) 2,158 667
1,491 824 March 2021 Wal-Mart Stores, Inc.
------- -------
- - ------- -------
$94,912 $33,438
$61,474 $25,375
[FN]
- - ------------------------------------------------------
(1) These loans were acquired pursuant to the Limited Partner Settlement from
Kenbee or R & M. DVL's loan balance equals
it's net investment in the related loan due previously from Kenbee or R &
M, less specific write-downs on certain loans
based upon the anticipated cash flow to be generated by each loan.
(2) The loans due from these partnerships are secured by mortgages upon land
and commercial buildings.
(3) The loans due from these partnerships are secured by mortgages upon land
and office buildings.
(4) Building is currently vacant, however, tenant is obligated under the terms
of the lease to continue to pay rent.
(5) Underlying loan balances includes second mortgages from 1994 refinancing.
(6) DVL's total loan balances of these mortgages were $29,786 at December 31,
1994 and $25,375 at December 31, 1995.
The decrease resulted from the sale of mortgages amounting to $2,007,
collections on mortgages of $1,881 and
the transfer or mortgages to satisfy indebtedness of $523.
================================================================================
==================================================================
DVL, INC. -- TABLE 3
INTERIM SECOND MORTGAGES DUE FROM AFFILIATED
PARTNERSHIPS (1) (6)
DECEMBER 31, 1995
Location of Property Mortgage
Affiliated Partnership Securing Loan Balance Yield
Maturity Tenant
- - --------------------------------------------------------------------------------
- - ---------------------------------------------
Attalla Associates (3) Attalla, AL $1,108 (4)
Due On Demand Wal-Mart Stores, Inc.(2)
Parkland Associates LP (3) Overland Park, KS 351 (4)
Due On Demand The Fleming Companies (2)
Rolla Associates LP (5) Rolla, MO 56 None
December 2000 Wal-Mart Stores, Inc.(2)
- subleased to J. C.
Penney and Heilig Meyer
------
$1,515
[FN]
- - -------------------------------------------------
(1) See "Collateralized Loans (2)".
(2) Each loan is secured by a second mortgage upon land and a commercial
building owned by the partnership.
(3) These partnerships were not part of the Limited Partner Settlement.
(4) These loans are non-performing and DVL does not anticipate any yield in
the future.
(5) This loan was reinstated pursuant to the Limited Partner Settlement
whereby the net cash flow
from the property would be divided equally between DVL and the limited
partners. At such time as
DVL's creditor, who is holding a collateral assignment of this loan, among
other DVL mortgage loans,
is paid in full, this interim mortgage will be released for the benefit of
the partnership.
(6) DVL's total mortgage balances were $1,649 at December 31, 1994 and $1,515
at December 31, 1995.
The decrease resulted from collections on mortgage of $134.
================================================================================
=============================================
DVL, INC. -- TABLE 4
OTHER MORTGAGES LOANS (1)
DECEMBER 31, 1995 (In Thousands)
Location
of Property Mortgage Monthly
Owner of the Property Securing Loan Balance Yield
Amortization Maturity Security
- - --------------------------------------------------------------------------------
- - ---------------------------------------------
Due From an Unaffiliated Entity
- - -------------------------------
The Grand Union Company Manchester, VT $1,281 9.00% Monthly
payment December 1996 Mortgage on property
of $18
with a
final
payment
of $1,161
[FN]
- - ------------------------------------
(1) See "Collateralized Loans (3)".
(2) DVL's mortgage balance was $1,383 at December 31, 1994 and $1,281 at
December 31, 1995. The decrease resulted from
collections on the mortgage of $221 offset by interest income of $119.
================================================================================
=============================================