Back to GetFilings.com
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(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 February 28, 1997
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 ______.
0-17793(Commission File Number)
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
(Exact name of registrant as specified in its governing instruments)
Delaware 13-3481443
(State or other jurisdiction of (I.R.S. Employer Identification No.)
organization)
Wilder Richman Historic Corporation
599 W. Putnam Avenue
Greenwich, Connecticut 06830
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (203) 869-0900
--------------------
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of each Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
- - ------------------------------------------------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 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 a definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. X
The aggregate sales price of the units of limited partnership interest held by
non-affiliates of the Registrant is $19,280,000. There is currently no public
market for the units of limited partnership interest and, accordingly, such
figure does not represent the market value for the units.
Documents incorporated by reference:
The Prospectus of the Registrant, dated May 13, 1988 and filed pursuant to Rule
424(b)(iii) under the Securities Act of 1933, is incorporated by reference into
Parts I, II, and III of this Annual Report on Form 10-K.
PART I
Item 1.Business
General Development of Business
Registrant (also referred to as the "Partnership") is a limited partnership
which was formed under the Delaware Revised Uniform Limited Partnership Act on
October 15, 1987. The general partner of the Partnership is Wilder Richman
Historic Corporation, a Delaware corporation (the "General Partner" or "WRHC").
Registrant was organized to acquire all of the limited partnership
interests in Dixon Mill Associates I (Phase One), Limited Partnership, Dixon
Mill Associates II (Phase Two), Limited Partnership, and Dixon Mill Associates
III (Phase Three), Limited Partnership, each of which is a New Jersey limited
partnership (individually "Dixon Mill I," "Dixon Mill II" and "Dixon Mill III,"
respectively, and collectively the "Operating Partnerships"). Each Operating
Partnership owns one phase ("Phase") of an aggregate 433-unit residential
apartment complex (the "Complex") located in Jersey City, New Jersey, that
consists of buildings designated as certified historic structures by the U.S.
Department of the Interior. The Operating Partnerships have constructed,
substantially rehabilitated and are operating the Complex. The rehabilitation of
the Complex qualified for a rehabilitation tax credit in 1988, 1989 and 1990.
The general partner of the Operating Partnerships is Dixon Venture Corp. (the
"Operating General Partner"), which is not an affiliate of the Partnership or
WRHC.
Pursuant to the Partnership's prospectus dated May 13, 1988, (the
"Prospectus"), the Partnership offered $19,280,000 of units of limited
partnership interest in the Partnership (the "Units") at an offering price of
$24,100 per Unit. The Units were registered under the Securities Act of 1933
pursuant to a Registration Statement on Form S-11 (Registration No. 33-19646).
The Prospectus is incorporated herein by reference.
The closing of the offering of Units (the "Offering") occurred on July 15,
1988. At such closing, 800 Units were sold, representing $19,280,000 in gross
proceeds. After payment of $674,800 of organization and offering expenses,
$674,800 in an origination fee and $1,349,600 of selling commissions, the net
proceeds available for investment were $16,580,800. Of such net proceeds,
$16,388,000 was allocated to the investment in the Operating Partnerships, which
included investments in guaranteed investments contracts. The remainder of
$192,800 was designated as working capital to be used for operating expenses of
the Partnership.
Financial Information About Industry Segments
Registrant is engaged solely in the business of owning a limited
partnership interest in each of the Operating Partnerships. A presentation of
information regarding industry segments is not applicable and would not be
material to an understanding of the Partnership's business taken as a whole. See
Item 8 below for a summary of Registrant's operations.
Working Capital Reserves
As of February 28, 1997, Registrant had working capital reserves of
approximately $630,000 inclusive of funds previously restricted for the purpose
of providing operating deficit loans to the Operating Partnerships (in order to
avoid default under their mortgages pursuant to their modified mortgage
documents) which were substantially invested in interest-bearing deposits. See
Item 7 - "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
Competition
Information regarding competition, general risks, tax risks and partnership
risks is set forth under the heading "RISK FACTORS" at pp. 37 - 57 of the
Prospectus.
Compliance with Environmental Protection Provisions
In connection with the environmental cleanup responsibilities pertaining to
the Complex, the Operating General Partner submitted a declaration to the State
of New Jersey Department of Environmental Protection ("NJDEP") stating that
there remains no
2
hazardous substances and wastes on the site. In August, 1989, the Operating
General Partner received notification from NJDEP that the environmental testing
was complete and the Complex was in compliance with NJDEP requirements. All
costs incurred in connection with the review conducted by NJDEP were borne by
The Dixon Venture, an affiliate of the Operating General Partner. Information
regarding such environmental matters is set forth under the heading "DESCRIPTION
OF THE COMPLEX Environmental Matters" at pp. 87 - 92 of the Prospectus, which is
incorporated herein by reference.
Employees of Registrant
Registrant employs no personnel and incurs no payroll costs. An affiliate
of the General Partner employs individuals who perform accounting, secretarial,
transfer and other services on behalf of Registrant as are necessary in the
ordinary course of business.
Such individuals also perform similar services for other affiliates of the
General Partner.
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous
Revenue Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus
Budget Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus
Budget Reconciliation Act of 1993 and Uruguay Round Agreements Act
(collectively the "Tax Acts")
Registrant is organized as a limited partnership and is a pass through tax
entity which does not, itself, pay Federal income tax. However, the partners of
Registrant who are subject to Federal income tax may be affected by the Tax
Acts. Registrant will consider the effect of certain aspects of the Tax Acts on
the partners when making decisions regarding its investment. Registrant does not
anticipate that the Tax Acts will currently have a material adverse impact on
Registrant's business operations, capital resources and plans or liquidity.
Item 2.Properties
The Complex consists of approximately 34 historic mill buildings built
between 1847 and 1932, all of which are certified historic structures that have
been converted and substantially rehabilitated into a 433 unit luxury apartment
complex that has received financing exempt from Federal income taxation under
Internal Revenue Code Section 103(b)(4)(A). As a consequence of this tax exempt
financing, the Operating Partnerships are required to rent at least 15% of the
dwelling units ("D.U.'s") in the Complex to individuals or families of low or
moderate income as determined under such Code Section, currently based on their
income not exceeding 80% of the median income for the area as determined by the
United States Department of Housing and Urban Development ("HUD"). These income
limits are subject to increases pursuant to HUD guidelines. In the Complex, 68
studio and efficiency D.U.'s and 17 one-bedroom D.U.'s are set aside for rental
to low or moderate income persons. There are no rent ceilings on those D.U.'s
set aside for low or moderate income persons. Because such tax exempt financing
consists of bonds sold in 1985, the 80% of median income limit is not required
to be adjusted based on family size as would be required under the Tax Reform
Act of 1986.
The Complex is located on a 4-acre site in Jersey City, New Jersey. In
addition, one new five-story building, approximately 20 feet by 50 feet, was
built on the site. The Complex is located in the Dixon Crucible Redevelopment
Area, an area so designated pursuant to a redevelopment plan adopted in
September, 1983 by ordinance of the City of Jersey City. The actual development
entails three Phases with each Phase owned by a separate New Jersey limited
partnership, respectively Dixon Mill I, Dixon Mill II and Dixon Mill III. Phase
I consists of seven industrial buildings which have been rehabilitated to
provide 134 D.U.'s, 55 underground and 77 surface parking spaces and
approximately 1,550 square feet of commercial space. Phase II consists of 11
industrial buildings which have been rehabilitated to provide 191 D.U.'s and 62
underground and 124 surface parking spaces. Phase III consists of four
industrial buildings which have been rehabilitated to provide 108 D.U.'s, 35
underground and 73 surface parking spaces and approximately 2,230 square feet of
commercial space.
The Complex features gardens, elevated walkways and brick paved walkways.
The Complex also has its own electronic security system and a free shuttle
service to the Grove Street PATH station is being provided. In addition, the
residents of the Complex have access to a private fitness facility. The
Complex's commercial space is designated for retail stores and/or professional
offices.
3
As of December 31, 1996 and 1995, the occupancy and rental rates were as
follows:
December 31, 1996 December 31, 1995
Occupancy Rate 99% 98%
Monthly Rental Rates:
Studio $ 512 - $ 895 $ 500 - $ 850
One-Bedroom $ 525 - $1,437 $ 525 - $ 1,400
Two-Bedroom $ 600 - $1,595 $ 600 - $ 1,500
Three-Bedroom $1,489 - $2,095 $ 1,400 - $ 1,950
The rental rates reflect significant ranges because the apartments vary as to
size and floor plans (i.e., square footage, duplex, triplex, penthouse) and due
to the low-moderate tenant income restrictions for 15% to 20% of the D.U.'s
resulting from the tax-exempt financing described above.
Item 3.Legal Proceedings
As of February 28, 1997, there were no material pending legal proceedings to
which Registrant or any of its affiliates was a party or to which any of their
property was subject except for the following:
A complaint, through the Equal Employment Opportunity Commission, has been
filed by a former employee of the Operating Partnerships claiming sexual
harassment. The Operating General Partner cannot measure the potential
liability, if any, at this time.
The Operating Partnerships have been named as a third-party defendant in a
lawsuit between The Dixon Venture, the party who sold the Complex to the
Operating Partnerships, and the former owner, Joseph Dixon Crucible Company, for
indemnification for cost clean-up under the Comprehensive Environmental Response
Compensation and Liability Act of 1980. The Operating General Partner believes
that the Operating Partnerships have no liability or no liability that is not
adequately covered by an indemnification from The Dixon Venture.
Item 4.Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the limited partners of
Registrant during the fourth quarter of the fiscal year covered by this report.
4
PART II
Item 5.Market for Registrant's Common Equity and Related Unit Matters
a) Market
There is no developed public market for the purchase and sale of Units and
Registrant does not anticipate that such a market will develop.
b) Holders
As of February 28, 1997, there were approximately 766 record holders of Units
holding an aggregate of 800 Units in the Partnership.
c) Distributions
The Agreement of Limited Partnership of the Registrant provides that cash
available for distribution, if any, be distributed annually to the partners in
specified proportions. As a result of the mortgage modification on June 11,
1992, certain cash flow restrictions have been placed on the Operating
Partnerships. See Item 7 - "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and Notes 3 and 5 to the Dixon Mills
Financial Statements included herein.
Item 6. Selected Financial Data
Year End
February February February February February
28,1997 29, 1996 28, 1995 28, 1994 28, 1993
Total revenues
(Interest income $ 50,994 $43,259 $ 30,858 $33,142 $41,658
Equity in loss of
investment in
Operating
Partnerships $(799,980) $(745,393)* $(873,701) $(1,372,573) $(2,202,328)
Net loss $(779,882) $(736,763) $(875,499) $(1,380,924) $(2,305,745)
Net loss per unit
of limited
partnership
interest $ (965) $ (912) $ (1,083) $ (1,709) $ (2,853)
At year end:
Total assets $3,105,881 $3,870,763 $4,592,526 $5,453,025 $6,823,949
* This amount is net of an extraordinary gain of $366,499 resulting from the
forgiveness of debt of the Operating Partnerships reflected in Registrant's
financial statements.
Item 7.Management's Discussion and Analysis of Financial Condition and Results
of Operations
Liquidity and Capital Resources
The operating results of the Complex for 1996 were favorable compared to
1995. On June 11, 1992, the mortgages of the Operating Partnerships were
modified pursuant to agreements among Federal National Mortgage Association
("FNMA" or the "Lender"), Chase Manhattan Bank, N.A. ("Chase") and the Operating
General Partner. The Partnership obtained the consent of the limited partners to
utilize the proceeds from the final distribution from the guaranteed investment
contracts to assist in modifying the mortgages. As a result of the mortgage
modification, the interest rate under the mortgages decreased from approximately
9.6% to approximately 6.74%, thereby improving the financial viability of the
Complex. Recently, there has been new construction of luxury multi-family
housing in the vicinity of the Complex. Such housing includes asking rents that
are comparable and substantially higher than rents currently charged by the
Complex. It has not been determined whether such new housing will have a
positive or negative impact on the Complex or its cash flow in the future.
5
In connection with the mortgage modification, Chase and the Partnership
each advanced $277,500 to the Operating Partnerships to pay for certain costs of
the mortgage modification. In addition, in the event of future operating
deficits, Chase and the Partnership each provided a letter of credit and cash of
approximately $622,500 (the "Operating Deficit Escrows"), for the purpose of
providing FNMA the ability to make pro-rata draws for debt service payments and
other operating expenses to the extent cash flow of the Operating Partnerships
was insufficient to make the required payments under the modified mortgages. The
release of the Operating Deficit Escrow was based upon the later of (i) the date
on which the Operating Partnerships satisfy the Lender as to the 110% debt
service coverage ratio requirements on the mortgages or (ii) January 1, 1996 (to
coincide with the expiration of Federal income tax recapture of the
rehabilitation credits). During April, 1995, the Operating General Partner
submitted to the Lender the operating statement of the Complex for 1994,
reflecting that the 1994 operations satisfied the 110% debt service coverage
ratio requirement. Such submission was reviewed by the Lender and was approved
in June, 1995 and the letters of credit were released by the Lender in January,
1996.
Chase and the Partnership each provided advances of $317,713 as of December
31, 1995, with aggregate interest of approximately $126,000 accrued thereon by
the Operating Partnerships. However, the Operating General Partner entered into
an agreement with Chase on July 5, 1995 whereby Chase agreed to release the
Operating Partnerships from substantially all of the outstanding liabilities
owed to Chase in connection with outstanding advances and accrued interest
thereon (discussed above) in return for the release of its outstanding letter of
credit in January, 1996. Accordingly, the Operating Partnerships recorded a
forgiveness of the outstanding debt and accrued interest as of December 31, 1995
in the aggregate of $370,201 and reflected such forgiveness as an extraordinary
gain in the statement of operations for the year then ended. As of February 28,
1997, the Partnership has accrued interest receivable of $98,436 in connection
with the advances provided.
Because of the outstanding advances, the Operating Partnerships are subject
to restrictions concerning cash flow distributions. Cash flow, if any, generated
subsequent to 1995 may be retained by the Operating Partnerships or may be
distributed at the discretion of management. If distributed, such cash flow
distributions must follow the priority of (i) accrued interest owing to the
Partnership, (ii) principal owing to the Partnership and (iii) thereafter,
pursuant to the terms of the limited partnership agreements of the Operating
Partnerships. To the extent there are proceeds from a future sale or refinancing
of the Complex, the Partnership will receive 100% of any such proceeds available
for distribution until the 7% cumulative preferred distribution has been
achieved. Through December 1996, the cumulative preferred distribution is
approximately $8,086,000. Although recent rental market conditions have been
strong, management has been building up its cash balance (approximately $563,000
as of December 31, 1996) to protect against potential adverse changes in market
conditions and unanticipated expenses. Accordingly, the Partnership does not
anticipate making significant cash flow distributions in the near future and
cannot determine the extent of cash flow distributions over the long term. As of
December 31, 1996, the Operating Partnerships' balance in the replacement
reserves account, which is controlled by the Lender to be used for certain
repairs or capital improvements, was approximately $518,000.
As of December 31, 1996, the Operating Partnerships' liquidity is improved
compared to December 31, 1995, with cash and cash equivalents having increased
by approximately $482,000 and the replacement reserve having increased by
approximately $200,000. Although accounts payable and accrued expenses decreased
by approximately $17,000, amounts due to related parties, which balance is
$1,660,566 as of December 31, 1996, increased by approximately $179,000 due to
the accrual of management fees and investor service fees.
Cash and cash equivalents of the Partnership as of February 28, 1997
includes approximately $582,000 which was released from the Operating Deficit
Escrow. Pursuant to the Partnership Agreement, the released Operating Deficit
Escrow of the Partnership may be held or utilized for other Partnership purposes
in the discretion of the General Partner. Presently, the General Partner intends
for the Partnership to hold such funds. During the year ended February 28, 1997,
the Partnership's investment in Operating Partnerships decreased by $799,980 as
a result of the equity in loss of investment in Operating Partnerships.
The annual investor service fees are payable from the operating results of
the Operating Partnerships and from reserves. As of February 28, 1997, due to
affiliates includes $125,000 of accrued investor service fees, which includes
the Partnership's expense for the last five fiscal periods and $50,000 otherwise
payable from the final distribution of the guaranteed investment contracts in
January, 1992.
Results of Operations
The Partnership's operating results are dependent upon the operating
results of the Operating Partnerships and are significantly impacted by the
policies of the Operating Partnerships. Registrant accounts for its investment
in Operating Partnerships in accordance with the equity method of accounting.
Under the equity method of accounting, the investment is carried at cost and is
adjusted for
6
Registrant's share of the Operating Partnerships' results of operations and by
any cash distributions received. Equity in loss of each investment in Operating
Partnership allocated to Registrant is recognized to the extent of Registrant's
investment balance in each Operating Partnership. Any equity in loss in excess
of Registrant's investment balance in an Operating Partnership is allocated to
other partners' capital in each such Operating Partnership. As a result, the
equity in loss of investment in Operating Partnerships is expected to decrease
as Registrant's investment balances in the respective Operating Partnerships
become zero.
Cumulative losses and cash distributions in excess of investment in
Operating Partnerships may result from a variety of circumstances, including the
Operating Partnerships' accounting policies, debt structure and operating
deficits, among other things. Accordingly, cumulative losses and cash
distributions in excess of the investment are not necessarily indicative of
adverse operating results of the Operating Partnerships.
Year Ended February 28, 1997
During the year ended February 28, 1997, the Partnership earned interest of
approximately $51,000 including $21,000 of accrued interest on advances provided
to the Operating Partnerships discussed above. During the year ended February
28, 1997, interest earnings increased compared to the previous fiscal period due
to the average increase of short-term interest rates. The Partnership's
operating expenses (which include accrued investor service fees of $15,000) were
comparable to the year ended February 29, 1996. The operating expenses of the
Partnership are not expected to vary significantly in the near future.
Registrant's equity in loss in Operating Partnerships does not include a 99%
allocation of the loss reported by the Operating Partnerships due to the
nonrecognition of losses in excess of Registrant's investment in Dixon Mills I
of approximately $47,000, in accordance with the equity method of accounting.
The Operating Partnerships reported a net loss from operations for the year
ended December 31, 1996 in the amount of approximately $855,000, inclusive of
depreciation and amortization of approximately $1,363,000. However, the
Operating Partnerships generated cash flow after required debt service payments
and required replacement reserve deposits of approximately $285,000 during 1996,
which considers principal amortization under the mortgages (approximately
$223,000) and net deposits to required escrows (approximately $200,000), and
excludes accrued fees to affiliates of the Operating General Partner and the
General Partner (approximately $179,000) and accrued interest to the Partnership
(approximately $21,000). Occupancy remained high throughout 1996, resulting in
an improvement in operating results compared to 1995.
The Operating Partnerships did not utilize any replacement reserves during
1996. Although the results of operations have been stable, management continues
to examine methods to stabilize healthy occupancy rates while attempting modest
increases in rental rates and to closely monitor its operating costs. As of
December 31, 1996, the occupancy rate was approximately 99%. Although operations
have significantly improved since the mortgage modification in June, 1992, the
future operating results of the Complex will be extremely dependent on market
conditions (which have been very strong but include newly developed multi-family
housing in the area) and therefore may be subject to significant volatility.
Year Ended February 29, 1996
During the year ended February 29, 1996, the Partnership earned interest of
approximately $43,000 on restricted funds (discussed above), reserves and
advances provided to the Operating Partnerships. During the year ended February
29, 1996, interest earnings slightly increased compared to the previous fiscal
period due to the average increase of short-term interest rates and a change in
interest rates on the restricted deposits. The Partnership's operating expenses
(which include accrued investor service fees of $15,000) were comparable to the
year ended February 28, 1995.
The Operating Partnerships reported a net loss from operations for the year
ended December 31, 1995 in the amount of approximately $1,123,000, inclusive of
depreciation and amortization of approximately $1,363,000 and exclusive of the
extraordinary gain recorded in connection with the forgiveness of the note
payable to Chase discussed above. However, the Operating Partnerships generated
cash flow after required debt service payments and required replacement reserve
deposits of approximately $63,000 during 1995, which include principal
amortization under the mortgages (approximately $208,000) and net deposits to
required escrows (approximately $154,000), and excludes accrued fees to
affiliates of the Operating General Partner and the General Partner
(approximately $164,000), and accrued interest to Chase and the Partnership
(approximately $21,000). The occupancy fluctuated during 1995 while operating
expenses increased (primarily from increases in real estate taxes and insurance
and planned improvements which were not funded from replacement reserves),
resulting in a decline in operating results compared to 1994. The Operating
Partnerships did not utilize any Operating Deficit Escrows or replacement
reserves during 1995. As of December 31, 1995, the occupancy rate was
approximately 98%.
7
Year Ended February 28, 1995
During the year ended February 28, 1995, the Partnership earned interest of
approximately $31,000 on restricted funds (discussed above), reserves and
advances provided to the Operating Partnerships. During the year ended February
28, 1995, interest earnings slightly decreased compared to the previous fiscal
period due to the average decrease of interest-bearing deposits and lower
interest rates. The Partnership's operating expenses (which include accrued
investor service fees of $15,000) were comparable to the year ended February 28,
1994.
The Operating Partnerships reported a net loss from operations for the year
ended December 31, 1994 in the amount of approximately $883,000, inclusive of
depreciation and amortization of approximately $1,369,000. However, the
Operating Partnerships generated cash flow after required debt service payments
and required replacement reserve deposits of approximately $438,000 during 1994,
which includes principal amortization under the mortgages (approximately
$140,000) and net deposits to required escrows (approximately $106,000), and
excludes accrued fees to affiliates of the Operating General Partner and the
General Partner (approximately $150,000), and accrued interest to Chase and the
Partnership (approximately $41,000). The improved occupancy during the second
half of 1993 was maintained throughout 1994 while operating expenses increased
slightly, resulting in improved operating results in 1994. The Operating
Partnerships did not utilize any Operating Deficit Escrows during 1994. As of
December 31, 1994, the occupancy rate was approximately 97%.
Inflation
Inflation is not expected to have a material adverse impact on Registrant's
revenues during its period of equity ownership in the Operating Partnerships.
Item 8.Financial Statements and Supplementary Data
The financial information required in response to this Item 8 is submitted
as part of Item 14(a) of this report.
Item 9.Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
8
PART III
Item 10Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers.
The General Partner was incorporated in Delaware on November 24, 1986. As
described below, its principals have had significant experience in various
facets of the real estate business including the development of multi-family
rental housing. The directors and officers of the General Partner, who have
served as such since inception, are as follows:
Name Age Office
Richard Paul Richman 49 President and Director
Robert H. Wilder, Jr. 51 Executive Vice President, Assistant Secretary,
Treasurer and Director.
Gina S. Scotti 41 Secretary
Richard Paul Richman, 49 years old, is President and Director of WRHC. Mr.
Richman graduated from the Columbia University Law School with a Juris Doctor
degree, the Columbia University Graduate School of Business Administration with
a Master of Business Administration degree and Syracuse University with a
Bachelor of Arts degree in Political Science. Mr. Richman has over ten years of
extensive experience in both the development and management of residential
properties. From 1973 until 1979, Mr. Richman practiced corporate law in New
York City with the law firm of Greenbaum, Wolff & Ernst and then as a partner of
Shipley, Richman & Nierenberg. For over six years, Mr. Richman acted as a lawyer
in connection with the development, syndication and tax issues relating to real
estate. Since 1988, Mr. Richman has been the President and sole stockholder of
The Richman Group, Inc. and the managing partner of The Richman Group of
Connecticut, L.L.C. In recent years, Mr. Richman has devoted full time to the
syndication and development of real estate. Mr. Richman was a vice president and
shareholder of Related Housing Companies Incorporated, New York, New York from
1978 until mid-1979 with responsibility for that company's project acquisition
and syndication activities. Mr. Richman has been a member of the National
Advisory Board of the Housing and Development Reporter, a bi-weekly publication
of the Bureau of National Affairs, Inc., a frequent speaker on real estate
syndication, and a member of the New York State Historic Credit Task Force, the
National Leased Housing Association, the Coalition to Preserve the Low-Income
Tax Credit and the Minority Developer Assistance Corporation (which was
established by the New York State Battery Park Commission).
Robert H. Wilder, Jr., 51 years old, is Executive Vice President, Secretary
and Treasurer and Director of WRHC. Mr. Wilder graduated from the University of
Michigan with a Bachelor of Arts degree in Economics and from the Columbia
University Graduate School of Business with a Master of Business Administration
degree. After graduation in 1968, Mr. Wilder joined James D. Landauer
Associates, Inc., a national real estate consulting firm, where his account
responsibilities included feasibility studies, market analyses, land use
studies, portfolio valuations and appraisals of industrial, office, commercial
and multi-family properties. From 1973 until mid-1979, Mr. Wilder was executive
vice president and shareholder of Related Housing Companies Incorporated, New
York, New York, and was responsible for mortgage financing and construction loan
placement and the supervision of the development of the company's projects.
Since 1988, Mr. Wilder has been the President and sole shareholder of Wilder
Property Companies Inc. Mr.
Wilder is also a licensed real estate broker in New York and Connecticut.
Gina S. Scotti, 41 years old, is Secretary of WRHC. Ms. Scotti, a Vice
President and Secretary of The Richman Group, Inc. and Secretary of Wilder
Richman Corporation ("WRC"), joined WRC in 1984 as a special assistant to the
President, and has been the Director of Investor Services with responsibility
for all communications with investors since 1986.
9
Item 11. Executive Compensation
The Partnership is not required to pay the officers, directors or partners
of the General Partner any direct compensation, and no such compensation was
paid during the year ended February 28, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person or group is known by the Partnership to be the owner of record of
more than 5% of the outstanding Units as of February 28, 1997.
Item 13. Certain Relationships and Related Transactions
The financial interests in Registrant of the General Partner and Special
Limited Partner are set forth under the heading "PROFITS, LOSSES and
DISTRIBUTIONS" at pp. 117 - 124 of the Prospectus.
Transactions with Affiliates of Management
The General Partner and certain of its affiliates are entitled to receive
certain compensation, fees and reimbursement of expenses during the offering,
operational and termination or refinancing stages of the Partnership.
Wilder Richman Management Corporation ("WRMC"), an affiliate of the General
Partner, became a co-management agent of the Complex on July 1, 1992. In
connection with these services, WRMC earned management fees of $84,488 in 1996,
of which $35,005 was paid.
Richman Asset Management, LLC., an affiliate of the General Partner, earned
compensation in the amount of $60,000 in 1996 for its performance in connection
with investor services for the Partnership and the Operating Partnerships, all
of which was accrued.
Indebtedness of Management
No officer or director of the General Partner or any affiliate of the
foregoing was indebted to Registrant at any time during the years ended February
28, 1997 and February 29, 1996.
10
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a)Financial Statements
(i) The list of Financial Statements of Registrant appears on page
F-1.
(ii) The list of Financial Statements of the Operating Partnerships
appears on page F-16.
(3) Exhibits:
(3A) Certificate of Limited Partnership of Wilder Richman Historic
Properties II, L.P., as filed with the Secretary of State of
Delaware on October 15, 1987;*
(3B) Form of Agreement of Limited Partnership of Wilder Richman
Historic Properties II, L.P. (attached to Prospectus as
Exhibit A);
(4) Form of Subscription Agreement (attached to Prospectus as Exhibit
B);
(10A) Previously executed and filed Certificate of Limited Partnership
and Amended and Restated Certificate of Limited Partnership of (x)
Dixon Mill Associates I (Phase One), Limited Partnership, (y)
Dixon Mill Associates II (Phase Two), Limited Partnership and (z)
Dixon Mill Associates III (Phase Three), Limited Partnership;*
(10B) Form of Amended and Restated Agreement and Certificate of Limited
Partnership of the Dixon Mill Partnerships:
(1) Dixon Mill Associates I (Phase One), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;**
(2) Dixon Mill Associates II (Phase Two), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;** and
(3) Dixon Mill Associates III (Phase Three), Limited Partnership
Amended and Restated Agreement and Certificate of Limited
Partnership;**
(10C) Dixon Mill Complex Financing Documents;*
(10D) Administrative Consent Order with New Jersey Department of
Environmental Protection ("NJDEP") and NJDEP Non-Applicability
Letter as to Dixon Mill Partnerships;*
(10E) Master Services Agreement, dated June 18, 1986, between Varick
Construction Corp. and IT Corporation;*
(10F) Documents related to Dixon Mill Complex historic certification;*
(10G) Form of Operating Deficit Guarantee Agreement;*
(10H) Form of Repurchase Agreement;**
(10I) Form of Investor Services Agreement;**
(10J) Form of Escrow Agreement among Wilder Richman Historic Properties
II, L.P., Wilder Richman Historic Corporation, Shearson Lehman
Hutton Inc. and FirsTier Bank, N.A., as escrow agent;**
11
(10K) Form of Financial Development Consulting Agreement between Wilder
Richman Corporation and the Operating Partnerships;**
(10L) Form of Annuity Issuance Agreement between Wilder Richman
Historic Properties II, L.P. and the Issuer;**
(10M) Form of Guaranteed Investment Contract Escrow Agreement among
Wilder Richman Historic Properties II, L.P., the Dixon Mill
Partnerships and the escrow agent;**
(10N) Form of Assignment between the Dixon Mill Partnership, as
Assignor, and Wilder Richman Historic Properties II, L.P., as
Assignee;**
(10O) Form of Letter from The Dixon Venture to Wilder Richman Historic
Properties II, L.P. and the Dixon Mill Partnerships, as to The
Dixon Venture's agreement to bear all costs of compliance with the
New Jersey Environmental Cleanup Responsibility Act;**
(10P) Amendment No. 1 to Agreement of Limited Partnership; ***
(10Q) Reinstatement and Modification Agreement; ***
(10R) Operating Deficit Escrow Agreement; ***
(10S) Priority Operating Deficit Escrow Agreement; ***
(10T) Amended and Restated Achievement Escrow Agreement; ***
(10U) Default Avoiding Loan Agreement; ***
(10V) Management Agreement; ***
(10W) Chase Note; ***
(10X) Letter of Intent to Reinstate and Modify the Mortgages; ****
(27) Financial Data Schedule.
* Incorporated by Reference to Registrant's Form S-11 Registration Statement
as filed with the Securities and Exchange Commission on January 15, 1988.
** Incorporated by Reference to Amendment No.1 to Registrant's Form S-11
Registration Statement as filed with the Securities and Exchange Commission
on May 9, 1988.
*** Submitted as exhibit to Form 10-K for the fiscal year ended February 29,
1992.
**** Incorporated by Reference to Proxy dated March 23, 1992.
b) Reports on Form 8-K
None.
12
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on the 30th day of May,
1997.
Wilder Richman Historic Properties II, L.P.
By: Wilder Richman Historic Corporation,
General Partner
By:
Richard Paul Richman
President and Director
By:
Robert H. Wilder, Jr.
Executive Vice President and
Director
13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 30th day of May, 1997.
Wilder Richman Historic Properties II, L.P.
By: Wilder Richman Historic Corporation,
General Partner
By: /s/ Richard Paul Richman
Richard Paul Richman
President and Director
By: /s/ Robert H. Wilder, Jr.
Robert H. Wilder, Jr.
Executive Vice President and
Director
13
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
FINANCIAL STATEMENTS FOR THE
YEARS ENDED FEBRUARY 28, 1997,
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
AND INDEPENDENT AUDITORS' REPORT
14
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Financial Statements for the
Years Ended February 28, 1997,
February 29, 1996 and February 28, 1995
and Independent Auditors' Report
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance sheets F-3
Statements of operations F-4
Statements of partners' equity F-5
Statements of cash flows F-6
Notes to financial statements F-7 - F-14
F-1
INDEPENDENT AUDITORS' REPORT
Parrtners
Wilder Richman Historic Properties II, L.P.
Greenwich, Connecticut
We have audited the accompanying balance sheets of Wilder Richman Historic
Properties II, L.P. as of February 28, 1997 and February 29, 1996, and the
related statements of operations, partners' equity and cash flows for the years
ended February 28, 1997, February 29, 1996 and February 28, 1995. These
financial statements are the responsibility of the Partnership'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 referred to above present fairly, in
all material respects, the financial position of Wilder Richman Historic
Properties II, L.P. as of February 28, 1997 and February 29, 1996 and the
results of its operations, changes in partners' equity and cash flows for the
years ended February 28, 1997, February 29, 1996 and February 28, 1995 in
conformity with generally accepted accounting principles.
/s/ Rosenburg, Neuwirth & Kuchner
April 21, 1997
New York, New York
F-2
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
BALANCE SHEETS
February 28, February 29,
A S S E T S 1997 1996
----------- ------------ --------
INVESTMENTS IN OPERATING PARTNERSHIPS
(Notes 2, 3, 4 and 7) $2,059,757 $2,859,737
CASH AND CASH EQUIVALENTS (Note 2) 629,975 615,815
NOTE RECEIVABLE (Note 3) 317,713 317,713
ACCRUED INTEREST RECEIVABLE (Note 3) 98,436 77,498
---------- ----------
$3,105,881 $3,870,763
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Other liabilities $ 10,000 $ 10,000
Due to related parties (Note 4) 139,201 124,201
---------- ----------
149,201 134,201
COMMITMENTS AND CONTINGENCIES (Notes 3 and 7)
PARTNERS' EQUITY (Notes 2 and 5):
Limited partners' equity 3,093,422 3,865,505
General partner's deficit (136,742) (128,943)
---------- ----------
2,956,680 3,736,562
$3,105,881 $3,870,763
See notes to financial statements
F-3
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF OPERATIONS
Year ended
February 28, February 29, February 28,
1997 1996 1995
---- ---- ----
Revenues:
Interest income $ 50,994 $ 43,259 $ 30,858
------------ ---------- -----------
Expenses:
Operating 30,896 34,629 32,656
----------- --------- -----------
Income (loss) from operations 20,098 8,630 (1,798)
Equity in loss of Operating
Partnerships before extraordinary item (799,980) (1,111,892) (873,701)
--------- --------- -----------
Net loss before extraordinary item (779,882) (1,103,262) (875,499)
----------- ---------- -----------
Extraordinary item - Equity in
forgiveness of debt of Operating
Partnerships (Note 3) - 366,499 -
----------- ----------- -----------
NET LOSS $ (779,882) $ (736,763) $ (875,499)
=========== =========== ===========
Net loss attributable to:
Limited partners $ (772,083) $(729,395) $ (866,744)
General partner (7,799) (7,368) (8,755)
----------- --------- ----------
$ (779,882) $(736,763) $ (875,499)
=========== =========== ===========
Net loss per unit of limited
partnership interest before
extraordinary item (800 units) (965) (1,365) (1,083)
Extraordinary item - 453 -
----------- ----------- ------------
Net loss per unit of limited
partnership interest $ (965) $ (912) $ (1,083)
========== =========== ==========
See notes to financial statements
F-4
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED FEBRUARY 28, 1997,
FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
Limited General
Total partners partner
Partners' equity (deficit),
March 1, 1994 $5,348,824 $5,461,644 $ (112,820)
Net loss, year ended
February 28, 1995 (875,499) (866,744) (8,755)
---------- ---------- ----------
Partners' equity (deficit),
February 28, 1995 4,473,325 4,594,900 (121,575)
Net loss, year ended February
29, 1996 (736,763) (729,395) (7,368)
---------- ---------- ----------
Partners' equity (deficit),
February 29, 1996 3,736,562 3,865,505 (128,943)
Net loss, year ended February
28, 1997 (779,882) (772,083) (7,799)
---------- ---------- ----------
Partners' equity (deficit),
February 28, 1997 $2,956,680 $3,093,422 $ (136,742)
========== ========== ==========
Limited partnership units outstanding at
February 28, 1997, February 29, 1996
and February 28, 1995 800
===
See notes to financial statements
F-5
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
STATEMENTS OF CASH FLOWS
Year ended
February 28, February 29, February 28,
1997 1996 1995
---- ---- ----
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net loss $ (779,882) $(736,763) $(875,499)
---------- ----------- -----------
Adjustments to reconcile net
loss to net cash (used in)
provided by operating
activities:
Equity in loss of Operating
Partnerships 799,980 745,393 873,701
Changes in assets and
liabilities:
Decrease in restricted cash 582,287
Increase in accrued interest
receivable (20,938) (20,938) (20,938)
Increase in due to related
parties 15,000 15,000 15,000
----------- ----------- -----------
Total adjustments 794,042 1,321,742 867,763
----------- ----------- -----------
Net cash provided by
(used in)operating
activities 14,160 584,979 (7,736)
----------- ----------- -----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS 14,160 584,979 (7,736)
CASH AND CASH EQUIVALENTS,
beginning of year 615,815 30,836 38,572
------------ ---------- ------------
CASH AND CASH EQUIVALENTS,
end of year $ 629,975 $ 615,815 $ 30,836
=========== =========== ===========
See notes to financial statements
F-6
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
1. ORGANIZATION
Wilder Richman Historic Properties II, L.P. (the "Partnership") was formed
under the Delaware Revised Uniform Limited Partnership Act on October 15,
1987 to acquire all of the limited partnership interest in Dixon Mill
Associates I (Phase One), Limited Partnership ("Dixon Mill I"), Dixon Mill
Associates II (Phase Two), Limited Partnership ("Dixon Mill II") and Dixon
Mill Associates III (Phase Three), Limited Partnership ("Dixon Mill III")
(together herein referred to as the "Operating Partnerships") which,
collectively, constructed, rehabilitated and own and operate a 433-unit
apartment complex (the "Complex") located in Jersey City, New Jersey.
Wilder Richman Historic Corporation (the "General Partner") is the General
Partner of the Partnership. The general partner of the Operating
Partnerships is Dixon Venture Corp. (the "Operating General Partner").
The Partnership filed a Form S-11 registration statement with the
Securities and Exchange Commission, which became effective May 9, 1988,
covering an offering (the "Offering") of 800 limited partnership units at
$24,100 per unit.
On July 15, 1988, the Partnership admitted 754 limited partners
representing 800 units of limited partnership interest (the "Closing") for
$19,280,000 in cash and notes. Immediately following the Closing, the
Partnership acquired a 99% limited partnership interest in the Operating
Partnerships. The Partnership acquired its limited partnership interest
for $16,388,000 which was paid in installments.
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Partnership are prepared on the accrual
basis of accounting and include only those assets, liabilities and results
of operations related to the business of the Partnership.
Investments in Operating Partnerships
The Partnership accounts for its investment in the Operating Partnerships
on the equity method of accounting. Under the equity method of accounting,
the investment cost is adjusted by the Partnership's share of the
Operating Partnerships' results of operations, which are limited to the
respective investment balances and by distributions received or accrued.
The statements of operations includes the Partnership's equity in the
earnings of the Operating Partnerships on a calendar year basis.
Syndication costs
Syndication costs of $2,639,200 were charged against limited partners'
capital upon the closing of the public offering, in accordance with
prevalent industry practice.
F-7
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
No provisions have been made for federal, state and local income taxes, as
they are the personal responsibility of the partners.
Cash and cash equivalents
For purposes of the statements of cash flows, the Partnership considers
all highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents. Cash and cash equivalents are
recorded at cost which approximates fair value.
Fiscal year
The Partnership's fiscal year ends on the last day in February.
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.
3. INVESTMENTS IN OPERATING PARTNERSHIPS
The Investments in Operating Partnerships are as follows:
Dixon Dixon Dixon
Mill I Mill II Mill III Total
Balance, March 1, 1994 $803,058 $1,739,423 $1,936,350 $4,478,831
Equity in loss of
Operating Partnerships (255,941) (394,712) (223,048) (873,701)
---------- ---------- ---------- ----------
Balance, February 28,
1995 547,117 1,344,711 1,713,302 3,605,130
Equity in loss of
Operating Partnerships (269,033) (365,973) (110,387) (745,393)
---------- ---------- ---------- ----------
Balance, February 29,
1996 278,084 978,738 1,602,915 2,859,737
Equity in loss of
Operating Partnerships (278,084) (346,227) (175,669) (799,980)
---------- ---------- ---------- ----------
Balance, February 28,
1997 $ - $ 632,511 $1,427,246 $2,059,757
=========== ========== ========== ==========
F-8
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
The combined balance sheets of the Operating Partnerships at December 31,
1996 and 1995 are shown below.
December 31,
1996 1995
Assets:
Land $ 1,150,473 $ 1,150,473
Buildings (net of accumulated depreciation
of $9,869,372 and $8,549,669 in 1996 and
1995, respectively) 42,739,754 44,059,457
Cash and cash equivalents 563,084 80,531
Deferred costs 580,814 624,448
Mortgage escrow deposits 902,221 848,818
Tenant security deposits 630,000 601,984
Other assets 1,935 71,098
------------ ------------
Total assets $46,568,281 $47,436,809
=========== ===========
Liabilities:
Mortgages payable $27,015,128 $27,237,789
Note payable 317,713 317,713
Accounts payable and accrued expenses 118,418 135,598
Accrued interest payable 230,288 210,804
Tenants' security deposits payable 630,000 601,984
Due to general partner and affiliates 1,660,566 1,481,595
------------- -------------
Total liabilities 29,972,113 29,985,483
------------ ------------
Partners' equity:
Wilder Richman Historic Properties II, L.P. 2,059,757 2,859,737
General partner 14,536,411 14,591,589
Total partners' equity 16,596,168 17,451,326
----------- -----------
Total liabilities and partners' equity $46,568,281 $47,436,809
F-9
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
The combined statements of operations of the Operating Partnerships for the
years ended December 31, 1996, 1995 and 1994 are as follows:
Year ended
December 31,
1996 1995 1994
---- ---- ----
Revenues:
Rent $5,530,885 $ 5,196,552 $ 5,148,859
Interest 14,497 11,419 5,267
----------- ----------- -----------
5,545,382 5,207,971 5,154,126
----------- ------------ ------------
Expenses:
Administrative 978,505 972,779 879,316
Operating 2,041,985 1,978,650 1,756,166
Management fees 168,976 153,281 151,435
Interest 1,847,737 1,863,047 1,880,529
Depreciation and amortization 1,363,337 1,363,337 1,369,206
----------- ------------ ------------
6,400,540 6,331,094 6,036,652
----------- ------------ ------------
Loss before extraordinary item (855,158) (1,123,123) (882,526)
Extraordinary item - forgiveness
of debt - 370,201 -
----------- ----------- ----------
NET LOSS $ (855,158) $ (752,922) $ (882,526)
=========== =========== ===========
Loss before extraordinary item
allocated to Wilder Richman Historic
Properties II, L.P. $ (799,980) $(1,111,892) $ (873,701)
Extraordinary item - 366,499 -
----------- ------------ ----------
Net loss allocated to Wilder Richman
Historic Properties II, L.P. $ (799,980) $ (745,393)$ (873,701)
========== ============ ===========
Loss before extraordinary item
allocated to Dixon Venture Corp. $ (55,178) $ (11,231) $ (8,825)
Extraordinary item - 3,702 -
------------ ---------- -----------
Net loss allocated to Dixon
Venture Corp. $ (55,178) $ (7,529) $ (8,825)
========== ========== ===========
F-10
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
In connection with the modification of the mortgages of the Operating
Partnerships on June 11, 1992, the Partnership provided (i) an advance of
$300,000 to assist in covering costs associated with such modification and
(ii) a letter of credit to Federal National Mortgage Association ("FNMA"),
the lender, in the amount of $600,000. Such letter of credit was provided to
assist in covering future operating shortfalls, if any, of the Operating
Partnerships in order to avoid default under their respective mortgage
obligations. The term of the letter of credit was the later of (i) January
1, 1996 or (ii) the ability of the operating Partnerships to operate at a
debt service coverage ratio of 1.10 for a twelve month period. Such
condition was satisfied for the twelve-month period ended December 31, 1994;
accordingly, the Partnership's letter of credit was released on January 1,
1996. The Partnership provided an advance of $17,713 during 1992 to cover
operating shortfalls pursuant to the terms of the mortgage modification.
Any such advances bear interest at 6.5% per annum and are guaranteed by
principals of the Operating General Partner to the extent that such sums
would have otherwise been advanced pursuant to their operating deficit
guarantee obligation. Outstanding advances as of February 28, 1997 and
February 29, 1996 amounted to $317,713 with accrued interest thereon of
$98,436 and $77,498 at February 28, 1997 and February 29, 1996,
respectively. The outstanding advances and accrued interest are reflected in
Note Payable and Accrued Interest Payable in the combined balance sheet of
the Operating Partnerships presented above.
4. RELATED PARTY TRANSACTIONS
An annual investor services fee is payable to an affiliate of the general
partner of the Partnership in the amount of $15,000 from the Partnership and
each of the Operating Partnerships. At February 28, 1997 and February 29,
1996, due to related parties includes $125,000 and $110,000, respectively of
Investor Services fees payable from the Partnership and the Operating
Partnerships.
At February 28, 1997 and February 29, 1996, due to related parties also
includes $9,846 due to the Operating Partnerships.
An affiliate of the General Partner is the co-management agent of the
properties owned by the Operating Partnerships. Pursuant to the management
agreement such management fees are not to exceed 1.5% of annual gross
operating revenues of the Complex. The affiliated management agent earned
$84,488 and $76,641 in the years ended December 31, 1996 and 1995,
respectively of which $35,005 and $35,004 were paid in 1996 and 1995.
F-11
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
5. PARTNERS' EQUITY
The general partner, the special limited partner and the limited partners
were allocated 1%, .01% and 98.99%, respectively, of the losses.
Distributions
Cash flow of the Partnership available annually for distribution after
payment of Partnership expenses will be distributed 98.99% to the investor
limited partners, .01% to the special limited partner and 1.00% to the
General Partner.
Net cash proceeds resulting from a sale or refinancing by the Operating
Partnerships, to the extent available (after the discharge of debts and
obligations of the Operating Partnerships and the Partnership, including
outstanding loans from partners or affiliates), will be distributed
generally as follows:
- 98.99% to the investor limited partners, .01% to the special limited
partner and 1.00% to the General Partner, until the investor limited
partners have received an amount equal to their adjusted
contributions;
- 98.99% to the investor limited partners, .01% to the special limited
partner and 1.00% to the General Partner, until the investor limited
partners have received an amount equal to the accrued cumulative,
non-compounded rate of 7% per annum (see Note 7).
- The balance of adjusted capital contributions of the General Partner
and special limited partner, and
- The balance, if any, 97.99% to the investor limited partners, .01%
to the special limited partner and 2.00% to the General Partner.
F-12
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
6. TAXABLE LOSS
A reconciliation of the financial statement loss of the Partnership for
the years ended February 28, 1997, February 29, 1996 and February 28, 1995
to the net loss as shown on the tax returns for the years ended December
31, 1996, 1995 and 1994 is as follows:
Year ended
December 31,
1996 1995 1994
---- ---- ----
Financial statement loss as of
February 28, 1997, February 29, 1996
and February 28, 1995, respectively $(779,882) $(736,763) $(875,499)
Less transactions occurring during
January 1 to end of February of
respective periods:
Interest income (1,393) (1,362) (1,237)
Operating expenses, including fees
not deductible under Internal
Revenue Code Section 267 15,000 15,000 15,000
------------- ---------- ----------
(766,275) (723,125) (861,736)
Financial statement to tax return difference arising from investments in
Operating Partnerships:
Forgiveness of debt 366,499 (366,499) -
Excess of depreciation expense of
the operating partnerships for
income tax purposes over financial
reporting purposes (1,048,735) (817,582) (1,110,420)
---------- ---------- ---------
Taxable loss $(1,448,511)$(1,907,206) $(1,972,156)
=========== ========== ==========
F-13
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
7. COMMITMENTS AND CONTINGENCIES
Preferred return
Pursuant to the Partnership Agreement, the investor limited partners are
entitled to an annual preferred return in the amount of 7% of the investor
limited partners' adjusted contributions outstanding from time to time,
subject to cash flow available for distribution (including lender
restrictions). As of December 31, 1996, the cumulative preferred amount due
from the Operating Partnerships is $8,086,602. Any cumulative shortfall not
recovered out of future cash flow distributions will be payable from sale
or refinancing proceeds, to the extent available.
F-14
DIXON MILLS ASSOCIATES
COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND INDEPENDENT AUDITORS' REPORT
DIXON MILLS ASSOCIATES
Combined Financial Statements for the
Years Ended December 31, 1996, 1995 and 1994
and Independent Auditors' Report
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT F-17
COMBINED FINANCIAL STATEMENTS:
Combined balance sheets F-18
Combined statements of operations F-19
Combined statements of partners' equity F-20
Combined statements of cash flows F-21
Notes to combined financial statements F-22 - F-27
F-16
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Dixon Venture Corp.
Secaucus, New Jersey
and
Partners
Wilder Richman Historic Properties II, LP
Greenwich, Connecticut
We have audited the accompanying combined balance sheets of Dixon Mills
Associates as of December 31, 1996 and 1995, and the related statements of
operations, partners' equity and cash flows for the years ended December 31,
1996, 1995 and 1994. These financial statements are the responsibility of the
Partnerships' 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 referred to above present fairly, in
all material respects, the financial position of Dixon Mills Associates, as of
December 31, 1996 and 1995, and the results of its operations, changes in
partners' equity and cash flows for the years ended December 31, 1996, 1995 and
1994 in conformity with generally accepted accounting principles.
/s/ Rosenburg, Neuwirth & Kuchner
February 21, 1997
New York, New York
F-17
DIXON MILLS ASSOCIATES
COMBINED BALANCE SHEETS
December 31,
A S S E T S 1996 1995
----------- ---- ----
LAND (Notes 2 and 5) $1,150,473 $ 1,150,473
BUILDINGS (net of accumulated depreciation
of $9,869,372 and $8,549,669 in 1996 and 1995,
respectively) (Notes 2 and 5) 42,739,754 44,059,457
CASH AND CASH EQUIVALENTS (Note 2) 563,084 80,531
DEFERRED COSTS (Note 2) 580,814 624,448
MORTGAGE ESCROW DEPOSITS (Note 5) 902,221 848,818
TENANT SECURITY DEPOSITS 630,000 601,984
OTHER ASSETS 1,935 71,098
------------ -----------
$46,568,281 $47,436,809
LIABILITIES AND PARTNERS' EQUITY
LIABILITIES:
Mortgages payable (Note 5) $27,015,128 $27,237,789
Note payable (Note 6) 317,713 317,713
Accounts payable and accrued expenses 118,418 135,598
Accrued interest payable (Notes 5 and 6) 230,288 210,804
Tenants' security deposits payable 630,000 601,984
Due to general partner and
affiliates (Notes 4 and 6) 1,660,566 1,481,595
------------ ------------
29,972,113 29,985,483
COMMITMENTS AND CONTINGENCIES (Note 7)
PARTNERS' EQUITY (Note 3):
WILDER RICHMAN HISTORIC
PROPERTIES II, L.P., LIMITED PARTNER 2,059,757 2,859,737
DIXON VENTURE CORP., GENERAL PARTNER 14,536,411 14,591,589
----------- -----------
16,596,168 17,451,326
$46,568,281 $47,436,809
See notes to combined financial statements
F-18
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF OPERATIONS
Year ended
December 31,
1996 1995 1994
---- ---- -----
Revenues:
Rent $5,530,885 $5,196,552 $5,148,859
Interest 14,497 11,419 5,267
---------- ----------- -----------
5,545,382 5,207,971 5,154,126
---------- ----------- -----------
Expenses:
Administrative 978,505 972,779 879,316
Operating 2,041,985 1,978,650 1,756,166
Management fees (Note 4) 168,976 153,281 151,435
Interest (Notes 5 and 6) 1,847,737 1,863,047 1,880,529
Depreciation and amortization 1,363,337 1,363,337 1,369,206
---------- ----------- -----------
6,400,540 6,331,094 6,036,652
---------- ----------- -----------
Loss before extraordinary item (855,158) (1,123,123) (882,526)
Extraordinary item - forgiveness
of debt (Note 6) - 370,201 -
------------ ----------- -----------
NET LOSS $ (855,158) $ (752,922) $ (882,526)
========== =========== ===========
Loss before extraordinary item
allocated to Wilder Richman Historic
Properties II, L.P. $ (799,980) $(1,111,892) $ (873,701)
Extraordinary item - 366,499 -
----------- ------------ -----------
Net loss allocated to Wilder Richman
Historic Properties II, L.P. $ (799,980) $ (745,393) $ (873,701)
========== =========== ===========
Loss before extraordinary item
allocated to Dixon Venture Corp. $ (55,178) $ (11,231) $ (8,825)
Extraordinary item - 3,702 -
------------ ----------- ----------
Net loss allocated to Dixon Venture
Corp. $ (55,178) $ (7,529) $ (8,825)
========== =========== ===========
See notes to combined financial statements
F-19
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
Limited General
Total partner partner
Partners' equity, January 1, 1994 $19,086,774 $4,478,831 $14,607,943
Net loss, year ended December 31, 1994 (882,526) (873,701) (8,825)
----------- ---------- -----------
Partners' equity, December 31, 1994 18,204,248 3,605,130 14,599,118
Net loss, year ended December 31, 1995 (752,922) (745,393) (7,529)
----------- ---------- -----------
Partners' equity, December 31, 1995 17,451,326 2,859,737 14,591,589
Net loss, year ended December 31, 1996 (855,158) (799,980) (55,178)
----------- ---------- -----------
Partners' equity, December 31, 1996 $16,596,168 $2,059,757 $14,536,411
=========== ========== ===========
See notes to combined financial statements
F-20
DIXON MILLS ASSOCIATES
COMBINED STATEMENTS OF CASH FLOWS
Year ended
December 31,
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(855,158) $(752,922) $(882,526)
--------- --------- ---------
Adjustments to reconcile net loss to
net cash provided by operating
activities:
Depreciation and amortization 1,363,337 1,363,337 1,369,206
Forgiveness of debt - note payable - (317,714) -
Change in assets:
Increase in mortgage escrow deposits (53,403) (491,546) (117,796)
Increase in tenant security deposits (28,016) (111,102) (52,277)
Decrease (increase) in other assets 69,163 (34,004) 33,761
Decrease (increase) in real estate tax
receivable - 208,442 (208,442)
Change in liabilities:
(Decrease) increase in accounts payable
and accrued expenses (17,180) 17,159 83,727)
Increase (decrease) in accrued interest
payable 19,484 (32,948) 25,367
Increase in tenants security deposit 28,016 111,102 52,277
Increase in due to General Partner
and affiliates 178,971 164,101 161,436
----------- ---------- ----------
Total adjustments 1,560,372 876,827 1,179,805
----------- --------- ---------
Net cash provided by
operating activities 705,214 123,905 297,279
----------- -------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of fixed assets - - (35,826)
---------- ---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payment of mortgages payable (222,661) (208,229) (139,796)
--------- ---------- ----------
INCREASE (DECREASE) IN CASH 482,553 (84,324) 121,657
CASH, beginning of year 80,531 164,855 43,198
----------- --------- -----------
CASH, end of year $ 563,084 $ 80,531 $ 164,855
=========== =========== ==========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during year for interest $ 1,828,253 $1,843,507 $1,855,162
=========== ========== ==========
See notes to combined financial statements
F-21
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. COMBINATION AND ORGANIZATION
The combined financial statements include the accounts of Dixon Mill
Associates I (Phase One), Limited Partnership ("DM I"), Dixon Mill
Associates II, (Phase Two), Limited Partnership ("DM II") and Dixon Mill
Associates III, (Phase Three), Limited Partnership ("DM III") after
elimination of all significant intercompany balances and transactions.
Description of the business
The partnerships are one of three limited partnerships collectively known
as "Dixon Mills Associates" or the "Operating Partnerships", each of which
owns one phase of an aggregate 433 units of residential apartments located
in Jersey City, New Jersey, that consist of buildings that are designated
as "certified historic structures" by the U.S. Department of the Interior.
The Operating Partnerships have constructed, rehabilitated, and own and
operate the complex. In accordance with the tax exempt financing of the
complex, the Operating Partnerships are required to rent 15% to 20% of the
apartment units to individuals of low or moderate income.
On July 15, 1988, the Operating Partnerships transferred their 99%
limited partnership interests to Wilder Richman Historic Properties II,
L.P. (the "Limited Partner") in connection with that limited
partnership's public offering. The remaining 1% interest remained with
the Operating General Partner, Dixon Venture Corp. ("DVC")
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Operating Partnerships are prepared on the
accrual basis of accounting and include only those assets, liabilities and
results of operations related to the business of the Operating
Partnerships.
Combined financial statements are presented as the companies are under
common control, ownership, and management.
Land and buildings
Land and buildings are stated at lower of cost or net realizable value,
("NRV"). NRV is the net cash flow necessary to recover costs exclusive of
debt service. Depreciation on buildings is computed on the straight-line
method. The depreciable lives assigned is 40 years for the real property.
Effective for the year ended December 31, 1996 the Partnership adopted
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed of." This standard requires that long-lived assets and certain
identifiable intangibles held and used 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.
F-22
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
No provisions have been made for federal, state and local income taxes, as
they are the responsibility of the partners.
The partners of the Operating Partnerships were entitled to a 25% historic
rehabilitation tax credit on eligible costs as a reduction of their tax
liabilities. In addition, the tax basis of the property has been reduced
by one-half of the historic rehabilitation tax credit for income tax
purposes only.
Cash and cash equivalents
For purposes of the statements of cash flows, the Operating Partnerships
consider all highly liquid debt instruments purchased with a maturity of
three months or less to be cash equivalents. Cash and cash equivalents are
recorded at cost which approximates fair value.
Deferred costs
Deferred costs represent costs incurred in connection with the mortgages
(Note 5) and are being amortized over the term of the mortgages using the
straight line method.
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.
Reclassifications and other
Certain balances in the 1995 and 1994 financial statements have been
reclassified to conform to the presentation used in 1996.
3. PARTNERS' EQUITY
In accordance with the Partnership agreement, income and losses are to be
allocated 1% and 99% to the general partner and the Limited Partner,
respectively.
Any equity in loss in excess of the Limited Partner's investment balance
in an operating partnership is allocated to the General Partner.
F-23
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. PARTNERS' EQUITY (CONTINUED)
Distributions
The partnership agreements of the Operating Partnerships provide that cash
flow from operations will be distributed 99% to the Limited Partner and 1%
to the Operating General Partner until the Limited Partner has received a
7% preferred return (the "Preference Amount") on their initial capital
contributions. The balance, if any, would be distributed 75% to the
limited partner and 25% to the Operating General Partner. For years ending
through December 31, 1991, any insufficient cash flow (shortfall) from
operations and/or distributions from the guaranteed investment contracts
to make distributions equal to the Preference Amount will be paid at sale
or refinancing to the extent proceeds are available and after payment of
all debt service and outstanding loans payable (Note 6). If in any year
after 1992 cash flow distributions are less than the Preference Amount,
such shortfalls will increase the amount that is distributable 99% to the
limited partner and 1% to the general partner in any subsequent year
before the ratio in which distributions of cash flow are shared at 75% for
the Limited Partner and 25% for the Operating General Partner. Any
cumulative shortfall not recovered out of subsequent cash flow
distributions will be payable from sale or refinancing proceeds, to the
extent available. To date, the Operating Partnerships have provided
distributions only to the extent of proceeds generated from the guaranteed
investment contracts discussed above. The cumulative preferred amount due
to the limited partners at December 31, 1996 is $8,086,602. There is no
assurance that all or a portion of such amount will be paid, and no amount
has been accrued.
Distributions of annual net cash flow are subject to the provisions of the
notes payable (Note 6).
Net cash proceeds resulting from a sale or refinancing, to the extent
available (after the discharge of debts and obligations of the
Partnership, including outstanding loans from partners or affiliates),
will be distributed generally as follows:
- 99% to the Limited Partner and 1% to the Operating General Partner,
until the Limited Partner has received an amount equal to its adjusted
contributions.
- 99% to the Limited Partner and 1% to the Operating General Partner,
until the Limited Partner has received an amount equal to the accrued
cumulative Preference Amount.
- The balance of adjusted capital contributions of the General Partner.
- The balance, if any, 75% to the Limited Partnership and 25% to the
Operating General Partner.
F-24
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4. RELATED PARTY TRANSACTIONS
DVC has complete authority, management and control of the Operating
Partnerships. The Operating Partnerships, in the normal course of
business, have transactions with related parties. Included in the balance
sheet are the following items:
Due to(from):
1996 1995
Morris Property Management $ 306,888 $ 222,400
Morris Realty (5,259) (5,259)
DVC 936,830 936,830
Wilder Richman Management Corporation 242,107 192,624
RG Housing Advisors, Inc. 90,000 90,000
Richman Asset Management, LLC 90,000 45,000
------------- -------------
$1,660,566 $1,481,595
The Operating Partnerships incurred annual property management fees to
Wilder Richman Management Corp. ("WRMC"), an affiliate of the Limited
Partner, in the amount of $84,488 in 1996, $76,641 in 1995 and $75,717 in
1994.
WRMC received payments of $35,005 and $35,004 in 1996 and 1995,
respectively.
In addition, property management fees of $84,488, $76,640 and $75,718 were
incurred in 1996, 1995 and 1994, respectively to Morris Property
Management.
The Operating Partnerships incurred investor service fees of $45,000 to
Richman Asset Management, LLC in 1996 and 1995 and $45,000 to RG Housing
Advisors, Inc., in 1994. Both companies are affiliates of the Limited
Partner.
5. MORTGAGES PAYABLE
On June 11, 1992, the Jersey City Redevelopment Agency provided mortgage
financing for the Operating Partnerships through the issuance of
tax-exempt Bonds (the "Bonds") guaranteed and secured by the Federal
National Mortgage Association ("FNMA") mortgage pass-through certificate
("FNMA Certificate"). The FNMA Certificate in turn was secured by
mortgages in the amount of $27,545,000 (collectively, the "Mortgages") and
letters of credit of $4,260,000 (the "Letters of Credit") issued by Chase
Manhattan Bank ("Chase"). The Letters of Credit were secured by an
additional mortgage in the same amount and the personal guarantees of
certain principals of DVC. The Mortgages provided that the Letters of
Credit would remain until the Operating Partnerships meet certain debt
service ratio tests as defined in the Mortgages (the "Debt Service Test").
The Debt Service Test was met and the letters of credit were released in
June, 1995.
F-25
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
5. MORTGAGES PAYABLE (CONTINUED)
The Mortgages require monthly payments of interest and principal, except
that the first 24 installments through June 1994 did not include
principal. The interest rate on the Mortgages is 6.74% with a 7.448%
constant. Principal amortization is based on a thirty-five year payment
schedule. The Mortgages mature as follows:
1997 $ 238,188
1998 254,748
1999 262,586
2000 290,713
2001 310,924
Thereafter 25,657,969
-----------
$27,015,128
The Mortgages are callable for payment on May 1, 2000, extendable by FNMA
until May 1, 2010. The maximum bond remarket rate is 8% pursuant to the
bond trust indenture dated May 1, 1992 between the Jersey City
Redevelopment Agency and United Jersey Bank.
The Mortgages require monthly payments to a replacement reserve
("Replacement Reserve") account as follows:
June 1996 - May 1997 $16,667
June 1997 - May 2012 5,400
The Replacement Reserve shall be used exclusively to pay for certain
repairs or replacements, subject to the approval of FNMA. The balance in
this account was $518,233 and $317,751 at December 31, 1996 and 1995,
respectively.
FNMA provided the Operating Partnerships with a mortgage loan for closing
costs evidenced by a second note in the amount of $163,000 (the "Second
Note") and secured by a second mortgage. The Second Note was retired,
evenly, without interest, over a 24-month term ending in June 1994.
6. NOTE PAYABLE
Chase Manhattan Bank
Chase advanced $277,500 to the Operating Partnerships for costs associated
with the Mortgages, bearing interest at 6.50% with a maturity of May 1,
2000. Payments of principal and interest could not commence sooner than
January 1, 1996 depending on, among other things, cash flow generated by
the Operating Partnerships. In addition, Chase provided FNMA with cash and
letter of credit in the amount of $622,500 (the "Chase Operating Deficit
Escrows") to provide assistance in the event the Operating Partnerships
experience future operating deficits. Any amounts drawn on the Chase
Operating Deficit Escrows also bore interest of 6.50%. Any and all
advances provided by Chase were secured by the second mortgage (Note 5).
F-26
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. NOTE PAYABLE (CONTINUED)
In addition by an agreement with Chase dated July 5, 1995, to the extent
that the $600,000 letter of credit issued to FNMA was released, the Chase
note and any accrued and unpaid interest would be forgiven. In January
1996, pursuant to the Operating Deficit Escrow Agreement, FNMA released
the Chase letter of credit. As a result of the full release of the Chase
Operating Deficit Escrow, the note payable of $317,714 and accrued
interest of $52,487 was written down to zero and is reflected as a
forgiveness of debt in the accompanying statements of operations.
Limited Partner
The Limited Partner also advanced $277,500 in connection with the
Mortgages which bear interest at 6.50%. Payments of principal and interest
could commence no sooner than January 1, 1996 depending on, among other
things, cash flow generated by the Operating Partnerships. The principal
balance and unpaid interest become due upon a sale or refinancing of the
property. In addition, the Limited Partner provided FNMA with a letter of
credit and cash in the amount of $622,500 (the "Limited Partner Operating
Deficit Escrow") to provide assistance in the event the Operating
Partnerships experience future operating deficits. Pursuant to the
Operating Deficit Escrow Agreement, FNMA released the letter of credit in
January 1996. Any amount drawn on the Limited Partner Operating Deficit
Escrow bore interest at 6.50%. To the extent the Operating Partnerships
make distributions of net cash flow, all such net cash flow with respect
to the applicable distribution periods must be paid to the Limited Partner
until the amounts outstanding to the Limited Partner are satisfied.
Total advances provided by the Limited Partner as of December 31, 1996
amount to $317,713 and accrued interest of approximately $94,000 and
$73,000 as of December 31, 1996 and 1995, respectively. This note is
secured by the personal guarantees of certain principals of DVC to the
extent such amounts were advanced before February 1, 1994.
7. COMMITMENTS AND CONTINGENCIES
Litigation
A complaint, through the Equal Employment Opportunity Commission, has been
filed by a former employee claiming sexual harassment by a Partnership
employee. Management cannot measure the potential liability, if any, at
this time.
The Operating Partnerships had been named as a third party defendant in a
lawsuit between The Dixon Venture, the party who sold the Premises to the
Operating Partnerships and the former owner, Joseph Dixon Crucible Company
for indemnification for cost clean-up under the comprehensive
Environmental Responses Compensation and Liability Act of 1980. The
Operating General Partner believes that the Operating Partnerships have no
liability or no liability that is not adequately covered by an
indemnification from The Dixon Venture.
F-27