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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2000 OR
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[ ] 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
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DVL, INC.
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Exact name of Registrant as specified in its charter)
Delaware 13-2892858
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 East 55th Street, 7th Floor, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 350-9900
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value None
Securities registered pursuant to Section 12(g) of the Act: None
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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
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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. [X ]
The aggregate market value of the Common Stock of the Registrant held by non-
affiliates as of March 15, 2001 was $750,590.
The number of shares outstanding of Common Stock of the Registrant as of March
15, 2001 was 16,560,450.
DVL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 2000
ITEMS IN FORM 10-K
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Page
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PART I
Item 1. Business 1
Item 2. Properties 9
Item 3. Legal Proceedings 9
Item 4. Submission of Matters to a Vote of Security Holders 9
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 10
Item 6. Selected Consolidated Financial Data 11
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 13
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 23
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 24
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management 34
Item 13. Certain Relationships and Related Transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 45
PART I
This 2000 Annual Report on Form 10-K contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent, belief or
current expectations of the Registrant and its management team. The Registrant's
stockholders and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements. Such risks and uncertainties
include, among other things, general economic conditions, the ability of the
Registrant to obtain additional financings, the ability of the Registrant to
successfully implement its business strategy and other risks and uncertainties
that are discussed herein.
ITEM 1. BUSINESS.
OVERVIEW
DVL, Inc., a Delaware corporation incorporated in 1977 ("DVL" or the
"Company"), is a commercial finance company which is primarily engaged in the
ownership and servicing of a portfolio of secured commercial mortgage loans, as
well as acting as the general partner of the limited partnerships which own the
properties which secure such mortgages (each an "Affiliated Limited
Partnership"). Also, the Company performs real estate asset management and
administrative services for third parties.
DVL is the general partner of approximately 80 Affiliated Limited
Partnerships which own income-producing commercial, office and industrial
properties comprising approximately 3.0 million square feet. A majority of the
properties are subject to long-term triple net leases with various tenants. The
principal tenant is Wal-Mart Stores, Inc. The remaining properties are shopping
centers, industrial properties and other commercial properties. The Company also
performs real estate and partnership management services for these partnerships,
as well as, for third parties.
The mortgage loans held by the Company are primarily "wrap-around" mortgage
loans which are subject to non-recourse, underlying mortgages held by unrelated
institutional lenders which self-liquidate from the base rents payable by the
underlying tenants over the primary term of the related leases. The Company
receives mortgage payments from the Affiliated Limited Partnerships and pays the
underlying mortgage holders their required monthly principal and interest
payments. In addition, the Company receives a portion of the Affiliated Limited
Partnerships' percentage rent income as additional debt service. The Company's
other principal assets include (a) loans made to limited partners of Affiliated
Limited Partnerships, which loans are secured by the limited partnership
interests held by such limited partners, (b) a long term leasehold interest in a
certain commercial property, (c) investments as a limited partner in certain
Affiliated Limited Partnerships and (d) certain real estate interests.
The Company derives the majority of its income as a result of the
difference in the effective interest rates on its wrap-around mortgages and the
interest rates on the underlying mortgages, as well as from a share of
percentage rents received from various tenants of the Affiliated Limited
1
Partnerships, from rentals received as a result of its long-term leasehold
interests, from fees received as General Partner of the Affiliated Limited
Partnerships (including disposition and management fees), from distributions
received as a limited partner in the Affiliated Limited Partnerships, from the
sale of partnership properties, and fees from third-party management contracts.
Through an arrangement developed with a related entity called the
"Opportunity Fund", described below, the Company continues to seek out and
participate in investment opportunities related to its existing asset base.
These opportunities do not require the direct investment of the Company's
capital. To date, the Opportunity Fund has purchased 15 mortgages secured by
properties owned by certain Affiliated Limited Partnerships as well as a
commercial property and various limited partnership interests in certain
Affiliated Limited Partnerships. The Company, as a participant in the
Opportunity Fund, has a right to participate in profits after the other
investors in the Opportunity Fund receive a required return on their investment.
At December 31, 2000, the Company had net operating loss carry- forwards
("NOLS") aggregating approximately $61 million, which expire in various years
through 2019, including $54 million which expire through 2007. If the Company
generates profits in the future, the Company may be subject to limitations on
the use of its NOLS pursuant to the Internal Revenue Code. There can be no
assurance that a significant amount of the Company's existing NOLS will be
available to the Company at such time as the Company desires to use them.
DVL's anticipated cash flow provided by operations is sufficient to meet
its current cash requirements through January 2002. In the event that Management
determines that such cash flow is not sufficient, NPO Management LLC ("NPO") has
agreed to allow the Company to defer payment of its management fees. See Item 7
and 13 below for a description of the Company's obligation to NPO. The Company
has in the past and expects in the future to continue to augment its cash flow
with additional cash generated from either the sale or refinancing of its assets
and/or borrowings. See Management Discussion and Analysis of Financial
Conditions and Results of Operations.
The Company's current strategy is to (i) maximize the value of its assets
and meet its short-term working capital needs by continuing to manage,
administer and service its existing real estate properties, the Affiliated
Limited Partnerships and the mortgages on loans to such Affiliated Limited
Partnerships, (ii) increase its participation in the Opportunity Fund, (iii)
obtain investments through the use of bank borrowings and (iv) expand through
the acquisition of one or more companies to generate income and positive cash
flow. There can be no assurance that the Company will be able to identify or
acquire businesses. See Business Developments - New Acquisition for a pending
new acquisition.
2
The Company anticipates that it would finance any possible future
acquisition through new borrowing or the issuance of its common or preferred
stock. During 2000, the Company purchased eight new mortgage loans and
refinanced three existing mortgage loans. The purchases were primarily funded
through new bank financings. Also, during 2000, the Company purchased all of the
real estate assets of a limited partnership from which the Company had been
leasing such real estate assets under a master lease agreement. This acquisition
was also financed with a new bank loan. In early 2001, the Company purchased a
parcel of land that was partially funded with bank financings. See Business
Activities below for details of these transactions. The Company has no other
current commitments or arrangements for additional financings.
The principal executive offices of the Company are located at 70 East 55th
Street, 7th Floor, New York, New York 10022. The Company's telephone number is
(212) 350-9900. The Company and its subsidiaries have not engaged in any
business activity outside of the United States.
BUSINESS ACTIVITIES
Mortgage Loans
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The Company's mortgage loan portfolio consists primarily of long-term
wrap-around and other mortgage loans to its Affiliated Limited Partnerships
secured by the types of properties discussed above. Most of such loans are
subordinated obligations with the majority of the payments received being
utilized to amortize the related underlying mortgage loan over the primary term
of the related lease. The Company builds equity in the mortgage loans over time.
At December 31, 2000, the Company had investments in 38 mortgage loans to
Affiliated Limited Partnerships with an aggregate mortgage balance due of
$74,379,000 and a carrying value for financial reporting purposes of $41,639,000
prior to a loan loss reserve of approximately $5,250,000. These mortgage loan
receivables are subject to underlying mortgage obligations of $26,019,000.
Generally, the tenants of the Affiliated Limited Partnerships executed
"triple-net" leases and, therefore, the tenants 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.
DVL's mortgage portfolio included 26 and 24 loans with net carrying values
of $33,639,000 and $31,621,000 as of December 31, 2000 and 1999, respectively,
which are due from Affiliated Limited Partnerships that own properties leased to
Wal-Mart Stores, Inc. Wal-Mart is a public company subject to the reporting
requirements of the SEC. Wal-Mart has closed certain of its stores located on
the properties subject to the Company's mortgages. However, Wal-Mart continues
to pay the required rent with respect to such properties. Net carrying value
refers to the unpaid principal balance less any allowance for reserves, and any
amount which represents future interest based upon the purchase of the loan at a
discount.
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 to the Company as additional
interest and/or additional debt service on the long-term mortgage.
3
The Company has the right to refinance the outstanding mortgage loans
underlying its wrap-around mortgage loans to Affiliated Limited Partnerships,
provided that the debt service and principal amount of a refinanced loan are no
greater than that of the existing wrap-around loan. The Company also has the
right to arrange senior financing secured by properties on which it holds first
or second mortgage loans by subordinating such mortgage loans, subject to the
limitations set forth above.
During 2000, DVL purchased five wrap mortgage loans from an unaffiliated
third party which are secured by real estate properties owned by Affiliated
Limited Partnerships in which DVL is the general partner. The loans were
purchased for an aggregate price of $1,210,000 plus closing costs, paid as
follows: cash of $135,000, a $75,000 unsecured promissory note payable to the
seller of the loans maturing on March 1, 2001, without interest, and bank
financings of $1,000,000. The $75,000 note was paid in full in March 2001. This
bank financing is a self-amortizing loan that was originally was scheduled to
mature on April 1,2005 with interest accruing at the annual rate of prime plus
1.5% and requires payments to be made from the net cash proceeds DVL will
receive on the mortgage loans. The wrap mortgage loans were previously owned by
DVL and were transferred to the seller in 1992 in settlement of indebtedness. In
May 2000, DVL, as the general partner of an Affiliated Limited Partnership that
owned one of the real estate properties that secured this bank loan, negotiated
the sale of the partnership's property. DVL received $700,000 in connection with
the sale as the mortgage holder which DVL paid to the bank to reduce the loan.
During 2000, DVL purchased two additional mortgage loans from an entity
that is part of the Opportunity Fund (see "Opportunity Fund", defined below)
which are secured by real estate owned by Affiliated Limited Partnerships in
which DVL is the general partner. The loans were purchased for an aggregate
price of $900,000, paid as follows: the issuance to the seller of a secured
promissory note in the amount of $200,000 maturing on August 31, 2002 with
interest accrued at the rate of 12% per annum, compounded monthly, and bank
financing of $700,000 which was added to the loan described above. The maturity
date of the loan was extended until May 1, 2006.
In 2000, the Company obtained additional bank financing in the amount of
$1,450,000 that is secured by the assignment of three existing mortgage
receivables and a $405,000 face value mortgage receivable which was purchased
from an entity that is part of the Opportunity Fund for $315,000. The net
proceeds of this loan were used to repay one existing underlying mortgage of
approximately $92,000 and the balance of the funds were used for general
corporate purposes including the payment of accrued fees to NPO. This bank
financing is a self-amortizing loan that matures on April 1, 2005 with interest
accruing at the annual rate of prime plus 1.5% and requires payments be made
from the net cash proceeds DVL will receive on these mortgage loans. In 1998,
the Company refinanced one mortgage which generated approximately $40,000 in
excess of the existing underlying mortgage. The net excess funds from the 1998
refinancing were used to pay the expenses of the refinancings, and to pay down
the loan to NPM Capital LLC ("NPM") as required by the applicable loan
agreements. During 1999, DVL did not refinance any of its wrap mortgages. The
amounts obtained from all of the refinancings were primarily based on the value
of the base rents due from tenants during the period of the base lease term
subsequent to the payoff of the existing first mortgages. As a result of the
refinancings, the Company's asset base available for future refinancings has
diminished.
4
All of the Company's mortgage loans are pledged to secure the indebtedness
of the Company to NPO (together with NPM, the "NPM Parties") and Blackacre
Capital Group, LLC ("BCG"), which are entities engaged in real estate lending
and management transactions and are affiliated with certain stockholders and
insiders of the Company. All outstanding indebtedness owed to NPM was fully paid
off in May 1999. See Items 7 and 13 below for a description of certain related
transactions involving the NPM Parties.
LOANS SECURED BY LIMITED PARTNERSHIP INTERESTS
The Company maintains a relatively small portfolio of loans to individual
limited partners of the Affiliated Limited Partnerships, which loans are secured
by limited partnership interests in such Affiliated Limited Partnerships. As of
December 31, 2000, such loans had an aggregate carrying value of $105,000 after
a loan loss reserve of approximately $284,000. Substantially all of such loans
were non-performing. The Company, through NPO, has been aggressively attempting
to collect these loans including the institution of litigation and foreclosure
on the limited partnership interests, where appropriate.
LOAN PORTFOLIO
The following table sets forth the number of various loans owed to the
Company which are outstanding, the aggregate loan balances, including accrued
interest, and the allowances for loan losses, at December 31, 2000. See Tables 1
and 2 of Appendix "A" to this Form 10-K for detailed information as to each such
loan.
Number Aggregate Allowance
of Loan for Loan
Type of Loan Loans Amount Losses
------------ ------ ---------- ---------
(dollars in thousands)
Long-term mortgages due from Affiliated
Limited Partnerships $ 53,979
Less: unearned interest (1) (12,340)
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Total loans collateralized by mortgages 38 41,639 $ 5,250
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Loans collateralized by limited partnership
interests 24 389 284
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Advances due from Affiliated Limited Partnerships 16 170 -
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Total loans 78 $ 42,198 $ 5,534
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(1) Unearned interest represents the unamortized balance of discounts on
previously funded loans.
INVESTMENTS IN AFFILIATED LIMITED PARTNERSHIPS
The Company over the years has acquired various limited partnership
interests in its Affiliated Limited Partnerships pursuant to the terms of
certain settlement agreements and through various purchases and foreclosures.
5
PARTNERSHIP AND PROPERTY MANAGEMENT
The Company is the general partner of approximately 80 Affiliated Limited
Partnerships from which it receives management, transaction and other fees. The
Company, through Professional Service Corporation ("PSC"), its wholly-owned
subsidiary, is engaged in the management of one industrial property located in
New Jersey pursuant to a master lease interest. This master lease permits PSC to
sub-lease the property to tenants and retain profits subject to the payment by
PSC of operating expenses and rent to the partnership that owns the property.
Prior to December 2000, PSC managed a second industrial property in New Jersey
pursuant to a master lease. In December 2000, the Company purchased all of the
real estate assets that encompassed the second master lease, as discussed below.
In June 1998, the Company entered into a Management Services Agreement with
a limited partnership (in which certain of its partners are affiliates of NPO)
to render services for a fee. This agreement may be terminated with 30 days
notice by either party. As compensation, the Company receives the following (a)
a monthly fee of $5,000 through November 2000, and (b) after all the partners of
the partnership have earned a 20% internal rate of return, compounded quarterly,
on their capital contributions, an amount of cash equal to 25% of the profits,
as defined in the agreement. For 2000 and 1999 the Company received compensation
under such agreement equal to $362,500 and $480,000, respectively.
In addition, the Company entered into a service agreement with another
limited partnership whose general partner is an affiliate of NPO, to render
certain accounting and administrative services. As compensation, the Company
receives a monthly fee of $3,000, and expense reimbursements of $1,000 per
month. For 2000 and 1999, the Company received aggregate compensation under such
agreement of $48,000 each year.
The Company entered into a property management agreement with an entity
that is part of the Opportunity Fund pursuant to which DVL provides property
management services in exchange for fees equal to 3% of rent collections. For
2000 and 1999, the Company received compensation equal to $27,000 and $12,000,
respectively.
In November 1999, the Company entered into a management service agreement
with an entity whose partners are affiliates of NPO to render certain accounting
and administrative services. As compensation, the Company receives a monthly fee
of $2,000, a monthly deferred fee of $6,500 and an annual incentive fee if
certain levels of profitability are obtained. For 2000 and 1999, the Company was
paid $24,000 and $4,000 and accrued fees of $78,000 and $13,000, respectively.
In early 2001, the Company was paid an aggregate amount of $91,000, which
represented all of the deferred fees through December 31, 2000.
REAL ESTATE HOLDINGS
The Company currently owns three properties located in New Jersey. Prior to
May 1999 the Company owned an additional parcel, consisting of 6.9 acres of
land, which was leased for an annual rent of $30,000 to an Affiliated Limited
Partnership which owned the buildings and improvements on the parcel. In April
1999, the Company sold this property to an affiliated entity which is part of
the Opportunity Fund. In connection with the sale, the Company also was repaid
on a mortgage which it held on the leasehold interest.
One of the remaining properties consists of approximately two acres of land
underlying approximately 80,000 square feet of manufacturing, warehousing and
commercial buildings which was leased through November 1998 to an Affiliated
Limited Partnership ("Toch"), which owned the buildings and improvements on the
property subject to a mortgage held by the Company. In November of 1998, the
Company foreclosed on the mortgage and now owns the land, buildings and
improvements.
6
During 2000, DVL purchased the land, buildings, and improvements from a
limited partnership which owned seven buildings located in an industrial park in
Kearny, NJ for an aggregate purchase price of $3,000,000, plus closing costs.
Prior to the purchase, the Company had been leasing all of these buildings,
under a master lease agreement, and subletting this property to various
unrelated tenants. The acquisition was funded with bank financing in the
original principal amount of $3,000,000 and cash of approximately $255,000. The
bank financing accrues interest at the rate of 10% per annum and requires
monthly interest-only payments until December 1, 2001, at which time the loan
matures. The Company may extend the loan under the same terms until June 1, 2002
by paying an extension fee of $15,000.
In early 2001, DVL purchased the fee title in a parcel of land in Kearny,
NJ from an unrelated third party for a purchase price of $365,000, plus closing
costs. The acquisition was funded with bank financing in the original principal
amount of $200,000 and cash of approximately $175,000. This bank financing
accrues interest at the rate of 9.5% per annum and requires monthly interest
only payments until December 31, 2001, at which time the loan matures. The
Company may extend the loan under the same terms until June 1, 2002, by paying
an extension fee of $750.
OPPORTUNITY FUND
The Company, BCG, an affiliate of Blackacre (as defined below), P.N.M.
Capital LLC, an affiliate of NPO ("PNM"), and Pemmil Management LLC, an
affiliate of NPO ("Pemmil"), and PNM (collectively the "NPO Affiliates") are
parties to a certain Agreement which is called the Opportunity Agreement (the
"Opportunity Agreement"). The Opportunity Agreement has a term of three years
expiring April 2001, subject to earlier termination if certain maximum capital
contributions have been reached. The Opportunity Agreement provides for an
arrangement (the "Opportunity Fund") whereby the fund has the right of first
refusal to finance the acquisition of limited partnership interests or mortgage
loans to Affiliated Limited Partnerships in which the Company is general
partner, or which the Company already owns, if the Company is unable to pursue
such business opportunity with its own funds from its reserves or available from
operations, or by obtaining financing from a third party or issuing equity.
The Opportunity Fund is expected to pursue each opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by the other members. The Company will receive up to 20% of the
profits from an opportunity after the other investors receive a return of their
investment plus preferred annual returns ranging from 12% to 20%.
The transactions in which the Opportunity Fund may engage include, for
example, acquisition of partnership interests from existing limited partners of
Affiliated Limited Partnerships, and investment in certain properties owned by
the Company or such partnerships, where capital may be required to enhance value
but is not currently available to the Company. There can be no assurance that
the Opportunity Fund's activities will generate profit or distributions to the
Company.
7
As of March 1, 2001, the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven were
purchased in 1998, one was purchased in 1999 and seven mortgages were purchased
in 2000), acquired limited partnership units from unaffiliated individuals in
three Affiliated Limited Partnerships, and acquired a leasehold interest of a
tenant of an Affiliated Limited Partnership. In addition, during 1999, the
Opportunity Fund acquired a property of an Affiliated Limited Partnership and
the land underlying this property from DVL. During 2000, DVL purchased three of
the mortgages owned by the Opportunity Fund and the Opportunity Fund was fully
satisfied on an additional four mortgage loans, as each of the properties that
secured these four mortgage loans was sold. As of March 1, 2001, the Opportunity
Fund owns eight mortgages. During 2000, DVL was paid approximately $8,000 from
the investments by the Opportunity Fund, which was used to pay amounts owed by
DVL under a note in favor of an entity that is part of the Opportunity Fund.
NEW ACQUISITION
On March 30, 2001, the Company's newly-formed wholly owned subsidiary, S2
Holdings, Inc., ("S2") entered into an agreement for the purchase of a 99.9%
Class B member interest in Receivables II-A LLC, a limited liability company
("Receivables II-A"), from Receivables II-A Holding Company LLC ("Seller"), a
newly formed indirect wholly owned subsidiary of a company engaged in the
acquisition and management of periodic payment receivables. The Class B member
interest will entitle S2 to be allocated 99.9% of all items of income, loss and
distribution. Receivables II-A owns all of the equity interests in three
subsidiary limited liability companies that have previously acquired and
securitized four portfolios of periodic payment receivables. Receivables II-A
solely has the right to receive the residual cash flow from the securitized
receivables after payment of the securitized noteholders.
S2 will purchase its interest for an aggregate purchase price of
$25,399,000. The purchase price will be paid by the issuance of promissory notes
by S2 in the aggregate amount of $25,325,000, which are limited recourse and
payable from the future monthly cash flow received by S2 as distributions from
the periodic payment receivables owned by Receivables II-A's subsidiaries. The
notes will mature on December 31, 2021, bear interest at the rate of 8%
annually, and will be secured by a pledge of S2's interest in Receivables II-A
and all proceeds and distributions related to such interest. The principal
amount of the notes and the purchase price may be increased or decreased, from
time to time, based upon the performance of the underlying receivables. The
balance of the purchase price will be paid by the issuance by DVL of a warrant,
valued at $74,000, for the purchase of 2 million shares of the common stock of
DVL, exercisable until February 15, 2011 at a price of $.20 per share. DVL also
will issue its guaranty of up to $2,532,500 of the purchase price, which is
callable after December 31, 2021.
Pursuant to the terms and conditions of the transaction, S2 deposited the
promissory notes and the pledge, and DVL deposited the warrant and its guarantee
in escrow pending the closing. The closing of the purchase is subject to
satisfaction of certain conditions precedent, including the receipt of consents
and approvals to the transaction by certain rating agencies that rated the
securitizations and by a senior lender to the Seller. The transaction is
expected to close by May 1, 2001, but there can be no assurance that such
consents and approvals will be obtained or that the transaction will close.
EMPLOYEES
As of March 2001, the Company had 11 employees all of whom were employed on
a full-time basis other than the President of the Company, who serves on a part-
time basis. The Company is not a party to any collective bargaining agreement
and the Company's employees are not represented by any labor union. The Company
considers its relationship with its employees to be good.
8
ITEM 2. PROPERTIES.
The Company maintains corporate headquarters in New York City in a leased
facility located at 70 E. 55th Street, New York, New York, which occupies
approximately 6,000 square feet of office space. The lease for such office space
is due to expire on February 7, 2003. The base rent is $227,160 per annum, plus
real estate tax and operating expense escalation clauses. The Company sub-leases
to tenants on a month-to-month basis, certain office space at 70 East 55th
Street. During 2000 and 1999, the Company received approximately $48,000 each
year, from these sub-tenants. A description of the other properties owned by the
Company appears in the subsection captioned "Real Estate Holdings" in Item 1
above. The Company believes that its existing facilities are adequate to meet
its current operating needs and that suitable additional space should be
available to the Company on reasonable terms should the Company require
additional space to accommodate future operations or expansion.
ITEM 3. LEGAL PROCEEDINGS.
The Company from time to time is a party in various lawsuits incidental to
its business operations. In the opinion of the Company, none of such litigation
in which it is currently a party, if adversely determined, will have a material
adverse effect on the Company's financial condition or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
9
PART II
ITEM 5. MARKET FOR DVL'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock of DVL is traded on the over-the-counter market and is
quoted on the OTC Bulletin Board maintained by the NASD under the symbol "DVLN".
As of March 7, 2001, DVL stock was trading at $.05 per share based on the last
sale price. The following table sets forth, for the calendar periods indicated,
the high and low bid prices of the Common Stock as reported by the NASD for 2000
and 1999. Such prices are inter-dealer prices without retail mark-up, mark-down
or commission, and do not represent actual transactions.
2000 High Low
- ---- ------ -----
Fourth Quarter . . . . . . . . . . . $ .11 $ .05
Third Quarter . . . . . . . . . . . . .13 .06
Second Quarter . . . . . . . . . . . .20 .06
First Quarter . . . . . . . . . . . . .34 .13
1999 High Low
- ---- ------ -----
Fourth Quarter . . . . . . . . . . . $ .20 $ .13
Third Quarter . . . . . . . . . . . . .23 .17
Second Quarter . . . . . . . . . . . .22 .19
First Quarter . . . . . . . . . . . . .23 .14
At March 15, 2001, there were 3,568 holders of record of Common Stock of
DVL. No dividends have been paid since October 1990. At this time, DVL does not
anticipate paying any dividends in the foreseeable future.
10
ITEM 6. SELECTED FINANCIAL DATA
The data set forth below should be read in conjunction with other financial
information of DVL, including its consolidated financial statements and
accountants' report thereon included elsewhere herein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Consolidated Statements of Operations Data
(In thousands except for per share data)
Year Ended December 31,
1996 1997 1998 1999 2000
-------- -------- -------- -------- --------
Revenues
Affiliates $ 5,835 $ 6,183 $ 5,794 $ 6,375 $ 4,818
Other 399 70 528 1,360 1,245
-------- -------- -------- -------- --------
Total $ 6,234 $ 6,253 $ 6,322 $ 7,735 $ 6,063
======== ======== ======== ======== ========
Income (loss) before extraordinary gain (4,471) (2,415) (758) 1,026 $ 199
Extraordinary gain on the settlement of 8,349 4,011 202 1,267 306
indebtedness
-------- -------- -------- -------- --------
Net Income (loss) $ 3,878 $ 1,596 $ (556) $ 2,293 $ 505
======== ======== ======== ======== ========
Basic earnings (loss) per share
Income (loss) before extraordinary gain $ (.31) $ (.15) $ (.04) $ .06 $ .01
Extraordinary gain .58 .25 .01 .08 .02
-------- -------- -------- -------- --------
Net Income (loss) $ .27 $ .10 $ (.03) $ .14 $ .03
======== ======== ======== ======== ========
Diluted earnings (loss) per share
Income (loss) before extraordinary gain (.31) (.15) (.04) .02 .01
Extraordinary gain .58 .25 .01 .02 .00
-------- -------- -------- -------- --------
Net Income (loss) $ .27 $ .10 $ (.03) $ .04 $ .01
======== ======== ======== ======== ========
11
Consolidated Balance Sheet Data
(In thousands)
As at December 31
1996 1997 1998 1999 2000
------- ------- ------- ------- -------
Total assets $76,383 $64,942 $55,635 $41,858 $45,437
======= ======= ======= ======= =======
Underlying mortgages payable $49,749 $45,306 $38,644 $27,692 $26,019
======= ======= ======= ======= =======
Long-term debt and notes payable $20,340 $12,143 $ 9,937 $ 5,156 $10,887
======= ======= ======= ======= =======
Shareholders' equity $ 3,582 $ 5,279 $ 4,775 $ 7,068 $ 7,573
======= ======= ======= ======= =======
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
INTRODUCTION
The Company is a commercial finance company which has been primarily
engaged in the ownership and servicing of a portfolio of secured commercial
mortgage loans, as well as managing numerous properties and the limited
partnerships which typically own such properties.
DVL's anticipated cash flow provided by operations is sufficient to meet
its current cash requirements through January 2002. In the event that the cash
flow is less than anticipated, NPO has agreed to accept as partial payment of
its fees, the cash sums available. See below for a description of the Company's
obligations to NPO. The Company has in the past and expects in the future to
continue to augment its cash flow with additional cash generated from either the
sale or refinancing of its assets and/or borrowings.
The Company's current strategy is to (i) maximize the value of its assets
and meet its short-term working capital needs by continuing to manage,
administer and service its existing real estate properties, the Affiliated
Limited Partnerships and the mortgages on loans to such Affiliated Limited
Partnerships, (ii) increase its participation in the Opportunity Fund, (iii)
obtain assets using borrowed funds, where possible, and (iv) expand through the
acquisition of one or more companies to generate positive income. There can be
no assurance that the Company will be able to identify or acquire businesses.
While the Company regularly evaluates and discusses potential acquisitions, the
Company currently has no understandings, commitments or agreements with respect
to any acquisitions. The Company anticipates that it would finance any possible
future acquisition through new borrowings or the issuance of its common or
preferred stock. During 2000, the Company purchased eight new mortgage loans and
refinanced three existing mortgage loans, which was primarily funded through new
bank financings. Also, during 2000, the Company purchased the land and building
on a property that the Company had a master lease agreement. This acquisition
was financed with a new bank loan. In early 2001, the Company purchased a parcel
of land that was partially funded with bank financing.
At December 31, 2000, the Company had net operating loss carry forward
("NOLS") aggregating approximately $61 million, which expire in various years
through 2019, including $54 million which expire through 2007. If the Company
generates profits in the future, the Company may be subject to limitations on
the use of its NOLS pursuant to the Internal Revenue Code. There can be no
assurance that a significant amount of the Company's existing NOLS will be
available to the Company at such time as the Company desires to use them.
13
SIGNIFICANT EVENTS
NPM AND NPO TRANSACTIONS
In an effort to alleviate its liquidity problems and to meet certain
mandatory debt repayment requirements, on September 27, 1996, the Company
entered into a loan transaction with NPM under a certain Amended and Restated
Loan Agreement dated as of March 27, 1996 (the "Original Loan Agreement"),
pursuant to which NPM purchased certain loans from creditors of the Company, and
agreed to make principal installment payments of up to $600,000 on DVL's
obligations to two of its creditors. NPM fulfilled this additional funding
obligation. The original principal loan amount from NPM was $8,382,000 (the
"Original Loan"), which was $3,150,000 in excess of the aggregate balances due
on the loans sold to NPM. Accordingly, the transaction resulted in a loss of
$880,000 in 1996 and an effective interest rate of 15% on the NPM loan in 1999,
1998 and 1997. In 1997, NPM advanced the Company an aggregate of $200,000, which
amount was being paid back to NPM pari passu with the Original Loan. In
addition, from January 1998 through May 1999, NPM advanced amounts aggregating
an additional $370,000 to the Company to fund quarterly payments to a creditor
of the Company. All advances not contemplated by the Original Loan bore interest
at 15% per annum and were being re-paid pari passu with the Original Loan (such
amounts, collectively, are referred to herein as the "NPM Loan").
Under the terms of the NPM Loan, the principal balance was payable over six
years with interest accruing at the rate of 10.25% per annum. In May 1999, DVL
repaid all amounts due under the NPM loan.
In connection with the transactions contemplated by the Original Loan
Agreement, in March 1996, the Company and NPO, an affiliate of certain
principals of NPM, entered into an Asset Servicing Agreement (the "Asset
Servicing Agreement"), pursuant to which NPO is providing the Company with
administrative and advisory services relating to the assets of the Company and
its Affiliated Limited Partnerships. In consideration for such services, the
Company is required to pay NPO $600,000 per year (with cost of living increases)
over the seven-year term of the agreement, subject to early termination under
certain conditions. DVL had the right to defer up to $600,000 of such fees, with
interest at 15% per annum, during the first two years and to defer reduced
amounts during the third year. DVL had accrued and unpaid service fees of
$373,000 as of December 31, 2000. NPO has waived any event of default which may
exist under the Asset Servicing Agreement during the period through December 31,
2001, based on the fact that the amount of accrued service fees has exceeded the
operative limitations since mid-1997. The waiver does not affect NPO's right to
receive payment of all deferred service fees, and interest thereon, which are
currently outstanding or which may become outstanding through December 31, 2001.
In connection with the Original Loan Agreement, certain affiliates of NPM
acquired an aggregate of 1,000,000 shares (the "Base Shares") of the Company's
Common Stock for $200,000. The Base Shares currently represent approximately 6%
of the outstanding Common Stock of the Company. An affiliate of NPM also
acquired 100 shares of preferred stock of the Company for $1,000. The Company
issued to affiliates of the NPM Parties warrants (the "Warrants"), exercisable
as of January 1999 in accordance with the terms of such Warrants, to purchase
such number of shares of Common Stock as, when added to the Base Shares,
represent an aggregate of 49% of the outstanding Common Stock of the Company on
a fully-diluted basis. The original exercise price of the Warrants was $.16 per
share, subject to applicable anti-dilution provisions and subject to a maximum
aggregate exercise price of approximately $1,900,000. The Warrants expire on
December 31, 2007. The Warrants were valued for financial statement purposes at
$516,000 at the date of issuance and such value resulted in a debt discount to
be amortized using the effective interest rate method. Through March 2001, no
Warrants have been exercised.
14
The possibility that some or all of the Warrants may be exercised creates
the potential for significant dilution of the current stockholders. The actual
dilutive effect cannot be currently ascertained, since it depends on whether,
and if so to what extent, the Warrants are exercised.
RECENT DEBT TENDER OFFERS AND REDEMPTIONS
Since October 1997, the Company conducted three cash tender offers (the
"Offers") with an offer price of $0.12 per $1.00 principal amount of the
Company's 10% redeemable promissory notes due December 31, 2005 (the "Notes").
The first two Offers were financed with a loan from Blackacre, discussed below.
The results were as follows:
Principal Amount Principal Amount
of Notes of Notes Extraordinary
Purchased by Purchased by Gains to
DVL Blackacre DVL
---------------- ---------------- -------------
Offer # 1 $ 6,224,390 $ 392,750 $ 202,000
(1998)
$ 2,906,000
(1997)
Offer # 2 $ 2,413,652 $ 423,213 $ 1,267,000
(1999)
Offer # 3 $ 378,270 $ - 0 - $ 306,000
(2000)
The Company has had the option to redeem the outstanding Notes since
January 1, 1999 by issuing additional shares of Common Stock with a then current
market value (determined based on a formula set forth in the Notes), equal to
110% of the face value of the Notes plus any accrued and unpaid interest
thereon. Because the applicable market value of the Common Stock will be
determined at the time of redemption, it is not possible currently to ascertain
the precise number of shares of Common Stock that may have to be issued to
redeem the outstanding Notes. The redemption of the notes may cause significant
dilution for current shareholders. The actual dilutive effect cannot be
currently ascertained since it depends on the number of shares to be actually
issued to satisfy the Notes. The Company currently intends to exercise at some
point in the future its redemption option to the extent it does not buy back the
outstanding Notes by means of cash tender offers or cash redemptions.
Notes with an aggregate principal amount of approximately $3,725,000 remain
outstanding as of December 31, 2000. The Offers have reduced the potential
dilutive effective on the Company's current stockholders that would result from
redemption of the notes for shares of Common Stock. However, given the aggregate
principal amount of Notes which remains outstanding, the potential dilutive
effect of such a redemption is still significant.
In order to fund the acquisition of the Notes in the first and second
Offers and pay the related costs and expenses, the Company entered into an
amended financing arrangement (the "BC Arrangement") with Blackacre, NPM and NPO
as of October 20, 1997, in the form of a Fourth Amendment to a Loan Agreement
between such parties (as amended, the "Amended Loan Agreement), permitting the
Company to borrow up to $1,760,000 (the amount actually borrowed by the Company
pursuant to the BC Arrangement is referred to as the "BC Loan"). The BC Loan
matures on September 30, 2002 and bears interest at the rate of 12% per annum
compounded monthly and payable at maturity. Total borrowings under the BC
Arrangement were $1,560,000 as of December 31, 2000. In addition, Blackacre is
15
entitled to acquire 15% of all Notes acquired by the Company in excess of
$3,998,000 under the same terms and conditions as the Company. Blackacre
acquired Notes aggregating $392,750 under these terms from the first Offer and
$423,213 from the second Offer. DVL funded the third Offer with available cash.
As further consideration for Blackacre's providing the Company with the BC
Loan, the Company issued to Blackacre 653,000 shares of Common Stock.
The Company's obligations under the BC Loan are secured by all of the
assets of the Company currently pledged to NPO under the Amended Loan Agreement
and the other documents executed in connection therewith. The BC Loan is senior
to all indebtedness of the Company other than indebtedness to NPO and, with
respect to individual assets, the related secured lender. The effective interest
rate to the Company for financial reporting purposes, including the Company's
costs associated with the BC Loan, and the value of the 653,000 shares of common
stock issued to Blackacre in connection therewith, is approximately 14% per
annum. Interest payable in connection with the BC Loan will be deferred until
the Company satisfies all of its obligations owing to NPO. However, since April
27, 2000, the Company must pay principal payments of 15% of all proceeds that
would otherwise be remitted to NPO to Blackacre. Thereafter, interest and
principal will be paid from 100% of the proceeds then available to the Company
from the mortgage collateral held as security for the BC Loan.
During December 2000, the Company sent redemption letters to note holders
who hold Notes that aggregate approximately $106,000 offering to pay the Notes
in cash at the face value. As of December 31, 2000, no monies were disbursed.
OPPORTUNITY FUND
In April 1998, DVL, an affiliate of Blackacre and affiliates of NPO entered
into an Opportunity Agreement providing for the Opportunity Fund, pursuant to
which entities would be formed, from time to time, to enter into certain
transactions involving the acquisition of limited partnership interests in the
assets of, or mortgage loans to, Affiliated Limited Partnerships or other assets
in which the Company has an interest. These investment opportunities will be
presented to the Opportunity Fund on a first-refusal basis, if the Company, due
to financial constraints, is unable to pursue such business opportunities with
its own funds.
The Opportunity Fund is expected to pursue each opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by Blackacre and the NPO affiliates. The Company will receive up
to 20% of the profits from an opportunity after Blackacre and the NPO affiliates
receive a return of their investment plus preferred returns ranging from 12% to
20% per annum.
As of March 1, 2001, the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven
mortgages were purchased in 1998, one mortgage was purchased in 1999 and seven
mortgages were purchased in January 2000), acquired limited partnership units
from unaffiliated individuals in three Affiliated Limited Partnerships, and
acquired a lease hold interest of a tenant of an Affiliated Limited Partnership.
In addition, during 1999, the Opportunity Fund acquired a property of an
Affiliated Limited Partnership and the land underlying this property from DVL.
During 2000, DVL purchased three of the mortgages owned by the Opportunity Fund
and the Opportunity Fund was fully satisfied on an additional four mortgage
loans, as the properties that secured these four mortgage loans was sold. As of
16
March 1, 2001, the Opportunity Fund owns eight mortgages. During 2000, DVL was
paid approximately $8,000 from the investments by the Opportunity Fund, which
amount was used to pay amounts owed by DVL under a note in favor of an entity
that is part of the Opportunity Fund.
RESULTS OF OPERATIONS
DVL had net income (loss) from operations, net income (loss) after
extraordinary items, and extraordinary gains, as follows:
2000 1999 1998
-------- ---------- ---------
Net income (loss)
from operations $199,000 $1,026,000 $(758,000)
Net income (loss) after
extraordinary gains $505,000 $2,293,000 $(556,000)
Extraordinary gains $306,000 $1,267,000 $ 202,000
Interest income on mortgage loans from affiliates and interest expense on
underlying mortgages decreased from 1998 through 2000, as a result of a
reduction in the size of DVL's mortgage portfolio. The decrease from 1999 to
2000 was partially offset by additional interest income and interest expense
from the purchase of eight new mortgage loans, some of which have underlying
mortgages.
Gains on satisfaction of mortgage loans were as follows:
2000 1999 1998
-------- ---------- ---------
$256,000 $1,639,000 $ 173,000
These gains resulted from the Company collecting net proceeds on the
satisfaction of mortgage loans that were greater than the carrying value.
Transaction and other fees from Affiliated Limited Partnerships were as follows:
2000 1999 1998
-------- ---------- ---------
$413,000 $ 502,000 $ 497,000
Transaction and other fees were earned in connection with the sales of
partnership properties and refinancings of underlying mortgages.
Distributions from investments in affiliates decreased in 2000 compared to
1999 but were greater in 1999 than 1998. Distributions were higher in 1999 due
to the refinancing of certain underlying mortgages in the limited partnerships
in which DVL owned limited partnership units, but did not hold mortgages.
Distributions from investments in 2000 included approximately $77,000
distributed to the Company from an Affiliated Limited Partnership that had
excess cash.
Net rental income from others was as follows:
2000 1999 1998
-------- ---------- ---------
$523,000 $ 532,000 $ 333,000
The primary reason for the decrease in 2000 from 1999 was greater repair and
maintenance costs, as well as a $10,000 per month rent reduction granted to a
major tenant beginning in September 2000. However, the decrease was partially
offset by both higher occupancy, as well as, higher rents paid by new tenants.
The primary reason for the increase from 1998 to 1999 was the addition of rental
income received on a property on which DVL had foreclosed in November 1998.
17
Management fees from others were as follows:
2000 1999 1998
-------- ---------- ---------
$500,000 $ 533,000 $ 59,000
The Company was paid incentive management fees of $312,500 and $420,000 during
2000 and 1999, respectively, from an entity that is owned by affiliates of NPO
and BCG. The decreased incentive management fees earned was partially offset by
a new management service agreement entered into in November 1999 with an entity
whose partners are affiliates of NPO to render certain accounting and
administrative services.
Distribution from investments from others increased in 2000 from 1999
primarily as a result of the purchase by the Company of certain real estate
assets which the Company previously had been leasing under a master lease
agreement. The Company owned limited partnership units in the seller of the real
estate and as a result, the Company received approximately $121,000 from these
limited partnership units.
Each year, the Company finalized settlement agreements that allow the
Company to realize cash proceeds that exceed the carrying value in previously
reserved limited partner notes receivable. As a result, DVL reflected a recovery
in the provision for losses as follows:
2000 1999 1998
-------- ---------- ---------
$ 37,000 $ 48,000 $ 153,000
General and administrative expenses decreased in 2000 from 1999 but
increased in 1999 as compared to 1998. The primary reasons for the decrease in
2000 from 1999 were a decrease in salaries and payroll related costs, as well
as, a reduction in stockholder communication costs. These decreases were
partially offset by greater franchise and tax costs. The primary reason for the
increase from 1998 to 1999 was a result of DVL's move in November 1998 to its
new corporate headquarters.
The asset servicing fee due from the Company to NPO increased in 2000 from
1999 and 1998 due to an increase in the consumer price index, as provided for in
the governing agreement.
Legal and professional fees decreased in 2000 as compared to 1999 but were
greater in 1999 than in 1998. The increased costs in 2000 and 1999 as compared
to 1998 were a result of the reduction of in-house legal personnel and the use
of outside legal counsel for all corporate matters, including those costs
incurred relating to transaction fees earned.
Interest expense on the loan to NPM decreased in 1999 compared to 1998 as a
result of the accelerated pay-down of this loan. The financing costs of the NPM
Loan, as well as the value of the warrants issued in connection with obtaining
such loan, were amortized proportionately as such loan was repaid. As the loan
was totally repaid in May of 1999, all remaining costs were amortized in 1999.
Interest expense on the loan from Blackacre increased from 1998 through
2000 as a result of compounding interest. In addition, the increase in 1999 from
1998 was also a result of an additional borrowing of $500,000 in January 1999 in
connection with the Second Offer.
18
Interest expense on the Notes increased in 2000 from 1999 but decreased in
1999 from 1998. Additional Notes are issued every year for the interest that has
accrued during such year. The interest cost was reduced for each of the past
three years, as a result of DVL having repurchased Notes in the Tender Offers.
Interest expense associated with the NPO asset servicing fee decreased in
2000 as compared to 1999 but increased in 1999 as compared to 1998. Interest
accrues on all amounts due to NPO and during 2000 such outstanding amount due
was reduced significantly.
Interest expense relating to other debts increased in 2000 as compared to
1999 but decreased in 1999 as compared to 1998. During 2000, the Company
borrowed an aggregate of $6,425,000 to fund the acquisition of eight new
mortgage loans, the purchase of all the land, buildings, and improvements from a
limited partnership which owned seven buildings in an industrial park in New
Jersey, and refinanced three existing mortgage receivables. The Company paid
$700,000 towards the principal balance of one of such loans during 2000 and
re-borrowed the $700,000 to partially fund the acquisition of additional
mortgage loans.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations is generated principally from
rental income from its leasehold interests in real estate, management fees from
the operation of Affiliated Limited Partnerships and transaction and other fees
received as a result of the sale and/or refinancing of partnership properties
and mortgages. The Company's portfolio of loans to Affiliated Limited
Partnerships currently does not produce substantial cash flow from operations
because most of the cash received from the mortgages is used to pay the debt
service on mortgages on the properties senior to those held by the Company, with
any excess being used to pay certain other creditors, including NPO.
DVL's anticipated cash flow provided by operations is sufficient to meet
its current cash requirements through January 2002. In the event that Management
determines that such cash flow is not sufficient, NPO has agreed to allow the
Company to defer payment of its management fees. NPO has agreed to waive any
events of default that may exist under its servicing agreements due to the
deferral of fees through December 31, 2001. As of December 31, 2000, the Company
owed approximately $373,000 to NPO. From January 1, 2000 through December 31,
2000, the Company paid an aggregate of $1,813,885 to NPO. Of this amount paid,
$750,000 was paid out of proceeds from the refinancing discussed below. DVL
believes that its current liquid assets and credit resources will be sufficient
to fund operations on a short-term basis as well as on a long-term basis.
In 1997, the Company entered into the BC Loan with Blackacre, permitting
the Company to borrow up to $1,760,000 to fund the purchase of Notes, and to pay
related costs and expenses. A total of $1,060,000 had been borrowed as of the
expiration of the first offer and an additional $500,000 was borrowed as of May
14, 1999 to fund the second offer. During the period from May 18, 2000 through
August 1, 2000, DVL expended approximately $45,000 from available cash to fund
the purchase of Notes, and to pay related costs and expenses, for the third
offer. As further consideration for Blackacre's providing the Company with the
BC Loan, the Company issued to Blackacre 653,000 shares of Common Stock. The BC
Loan matures on September 30, 2002 and bears interest at the rate of 12% per
annum. The effective rate to the Company for financial reporting purposes,
including the Company's costs associated with the BC Loan, and the value of the
653,000 shares issued to Blackacre is approximately 14%. Interest payable in
connection with the BC Loan will be payable in the form of the issuance of
additional Notes until the Company satisfies all of its obligations owing to
NPO.
19
However, since April 27, 2000, the Company must pay principal payments of
15% of all proceeds that would have otherwise been remitted to NPO, to
Blackacre. Once NPO is paid in full, interest and principal will be paid from
100% of the proceeds then available to the Company from the mortgage collateral
held as security for the BC Loan.
From January 1998 through May 1999, NPM advanced additional amounts
aggregating $370,000 to DVL to fund quarterly payments to a creditor of the
Company. These advances were not required under the Original Loan. These
advances bore interest at 15% per annum and were paid pari passu with the
Original Loan. In May 1999, DVL paid all remaining outstanding amounts due on
the NPM Loan.
During 2000, DVL purchased five wrap mortgage loans from an unaffiliated
third party which are secured by real estate properties owned by Affiliated
Limited Partnerships in which DVL is the general partner. The loans were
purchased for an aggregate price of $1,210,000 plus closing costs, paid as
follows: cash of $135,000, a $75,000 unsecured promissory note payable to the
seller of the loans maturing on March 1, 2001, without interest, and bank
financings of $1,000,000. This $75,000 note was paid in full in March 2001. This
bank financing is a self-amortizing loan that matures on April 1,2005 with
interest accruing at the annual rate of prime plus 1.5% and requires payments to
be made from the net cash proceeds DVL will receive on the loans. The wrap
mortgage loans were previously owned by DVL and were transferred to the seller
in 1992 in settlement of indebtedness. In May 2000, DVL, as the general partner
of an Affiliated Limited Partnership that owned one of the real estate
properties that secured this bank loan, negotiated the sale of the partnership's
property. DVL received $700,000 as the mortgage holder which DVL paid to the
bank to reduce the loan.
During 2000, DVL purchased two additional mortgage loans from an entity
that is part of the Opportunity Fund which are secured by real estate owned by
Affiliated Limited Partnerships in which DVL is the general partner. The loans
were purchased for an aggregate price of $900,000, paid as follows: the issuance
to the seller of a secured promissory note in the amount of $200,000 maturing on
August 31, 2002 with interest accrued at the annual rate of 12% per annum,
compounded monthly, and bank financing of $700,000. All closing costs were paid
in cash. The bank loan is from the same lender and the same terms as the
$1,000,000 loan described above, except that the maturity date of the loan was
extended until May 1, 2006.
In 2000, the Company obtained additional bank financing in the amount of
$1,450,000 that is secured by the assignment of three existing mortgage
receivables and a $405,000 face value mortgage receivable which was purchased
from an entity that is part of the Opportunity Fund for $315,000. The net
proceeds of this loan were used to repay one existing underlying mortgage of
approximately $92,000 and the balance of the funds were used for general
corporate purposes including the payment of accrued fees to NPO. This bank
financing is a self-amortizing loan that matures on April 1, 2005 with interest
accruing at the annual rate of prime plus 1.5% and requires payments be made
from the net cash proceeds DVL will receive on these loans. In 1998, the Company
refinanced one mortgage which generated approximately $40,000 in excess of the
existing underlying mortgage. The net excess funds from the 1998 refinancing
were used to pay the expenses of the refinancings, and to pay down the loan to
NPM as required by the applicable loan agreements. During 1999, DVL did not
refinance any of its wrap mortgages.
20
The amounts obtained from all of the refinancings were primarily based on
the value of the base rents due from tenants during the period of the base lease
term subsequent to the payoff of the existing first mortgages. As a result of
the refinancings, the Company's asset base available for future refinancings has
diminished.
During 2000, DVL purchased the land, buildings, and improvements from a
limited partnership which owned seven buildings located in an industrial park in
Kearny, NJ for an aggregate purchase price of $3,000,000, plus closing costs.
Prior to the purchase, the Company had been leasing all of these buildings,
under a master lease agreement, and subletting this property to various
unrelated tenants. The acquisition was funded with bank financing in the
original principal amount of $3,000,000 and cash of approximately $255,000. The
bank financing accrues interest at the rate of 10% per annum and requires
monthly interest-only payments until December 1, 2001, at which time the loan
matures. The Company may extend the loan under the same terms until June 1, 2002
by paying an extension fee of $15,000.
In early 2001, DVL purchased the fee title to a parcel of land in Kearny,
NJ from an unrelated third party for a purchase price of $365,000, plus closing
costs. The acquisition was funded with bank financing in the original principal
amount of $200,000 and cash of approximately $175,000. This bank financing
accrues interest at the rate of 9.5% per annum and requires monthly
interest-only payments until December 31, 2001, at which time the loan matures.
The Company may extend the loan under the same terms until June 1, 2002 by
paying an extension fee of $750.
On March 30, 2001, the Company's newly-formed wholly owned subsidiary, S2
Holdings, Inc., ("S2") entered into an agreement for the purchase of a 99.9%
Class B member interest in Receivables II-A LLC, a limited liability company
("Receivables II-A"), from Receivables II-A Holding Company LLC ("Seller"), a
newly formed indirect wholly owned subsidiary of a company engaged in the
acquisition and management of periodic payment receivables. The Class B member
interest will entitle S2 to be allocated 99.9% of all items of income, loss and
distribution. Receivables II-A owns all of the equity interests in three
subsidiary limited liability companies that have previously acquired and
securitized four portfolios of periodic payment receivables. Receivables II - A
solely has the right to receive the residual cash flow from the securitized
receivables after payment to the securitized noteholders.
S2 will purchase its interest for an aggregate purchase price of
$25,399,000. The purchase price will be paid by the issuance of promissory notes
by S2 in the aggregate amount of $25,325,000, which are limited recourse and
payable from the future monthly cash flow received by S2 as distributions from
the periodic payment receivables owned by Receivables II-A's subsidiaries. The
notes will mature on December 31, 2021, bear interest at the rate of 8%
annually, and will be secured by a pledge of S2's interest in Receivables II-A
and all proceeds and distributions related to such interest. The principal
amount of the notes and the purchase price may be increased or decreased, from
time to time, based upon the performance of the underlying receivables. The
balance of the purchase price will be paid by the issuance by DVL of a warrant,
valued at $74,000, for the purchase of 2 million shares of the common stock of
DVL, exercisable until February 15, 2011 at a price of $.20 per share. DVL also
will issue its guaranty of up to $2,532,500 of the purchase price, which is
callable after December 31, 2021.
21
Pursuant to the terms and conditions of the transaction, S2 deposited the
promissory notes and the pledge, and DVL deposited the warrant and its guarantee
in escrow pending the closing. The closing of the purchase is subject to
satisfaction of certain conditions precedent, including the receipt of consents
and approvals to the transaction by certain rating agencies that rated the
securitizations and by a senior lender to the Seller. The transaction is
expected to close by May 1, 2001, but there can be no assurance that such
consents and approvals will be obtained or that the transaction will close.
The purchase agreement contains annual minimum and maximum levels of cash
flow that will be retained by S2, after the payment of interest and principal on
the notes, which are as follows:
Years Minimum Maximum
2001 to 2009 $462,500 $500,000
2010 to 2015 700,000 750,000
2016 to 2021 700,000 None
IMPACT OF INFLATION AND CHANGES IN INTEREST RATES
- -------------------------------------------------
The Company's portfolio of mortgage loans made to Affiliated Limited
Partnerships consists primarily of loans made at fixed rates of interest.
Therefore, increases or decreases in market interest rates are generally not
expected to have an effect on the Company's earnings. Other than as a factor in
determining market interest rates, inflation has not had a significant effect on
the Company's net income.
22
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DVL has no substantial cash flow exposure due to interest-rate changes for
long-term debt obligations, because a majority of the long-term debt is at fixed
rates. DVL primarily enters into long-term debt for specific business purposes
such as the repurchase of debt at a discount or the acquisition of mortgage
loans.
DVL's ability to realize on its mortgage holdings is sensitive to interest
rate fluctuations in that the sales prices of real property and mortgages vary
with interest rates.
The table set forth below presents principal amounts and related weighted
average interest rates by year of maturity for DVL's investment portfolio and
debt obligations.
There-
In Thousands 2001 2002 2003 2004 2005 After Total
- --------------------------------------------------------------------------------
ASSETS
Cash equivalents $1,184 $ 1,184
Variable rate
Average interest rate 4.5% 4.5%
LONG TERM DEBT
Fixed rate $5,343 $4,562 $2,511 $2,465 $2,688 $14,005 $31,574
Average interest rate 9.10% 9.10% 9.10% 9.10% 9.10% 9.10% 9.10%
Variable rate $ 382 $ 466 $ 519 $ 707 $ 230 $ -0- $ 2,304
Average interest rate 11% 11% 11% 11% 11% -0-
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUPPLEMENTARY DATA
Quarterly Data (Unaudited)
For the Year Ended December 31, 2000
(In Thousands Except Share and Per Share Data)
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
------------ ----------- ------------ ----------- -----------
Total Revenue $ 1,257 $ 1,523 $ 1,448 $ 1,835 $ 6,063
Total Expenses 1,383 1,504 1,405 1,572 5,864
Net income (loss) before
extraordinary gain (126) 19 43 263 199
Extraordinary gain 23 126 107 50 306
Net (income) loss (103) 145 150 313 505
Basic earnings (loss)
per share:
Income (loss) before
extraordinary gain $ (0.01) $ 0.00 $ 0.00 $ 0.02 $ 0.01
Extraordinary gain $ 0.00 $ 0.01 $ 0.01 $ 0.00 $ 0.02
Net income (loss) $ (0.01) $ 0.01 $ 0.01 $ 0.02 $ 0.03
Diluted earnings (loss)
per share:
Income (loss) before
extraordinary gain $ (0.01) $ 0.00 $ 0.00 $ 0.00 $ 0.01
Extraordinary gain $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Net income (loss) $ (0.01) $ 0.00 $ 0.00 $ 0.00 $ 0.01
Weighted average
shares outstanding:
Basic 16,560,450 16,560,450 16,560,450 16,560,450 16,560,450
Diluted 16,560,450 87,278,791 107,114,914 96,337,586 96,337,586
Quarterly Data (Unaudited)
For the Year Ended December 31, 1999
(In Thousands Except Share and Per Share Data)
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
------------ ----------- ------------ ----------- -----------
Total Revenue $ 2,170 $ 2,458 $ 1,398 $ 1,709 $ 7,735
Total Expenses 1,936 1,820 1,356 1,597 6,709
Net income (loss) before
extraordinary gain 234 638 42 112 1,026
Extraordinary gain 736 497 25 9 1,267
Net (income) loss 970 1,135 67 121 2,293
Basic earnings (loss)
per share:
Income (loss) before
extraordinary gain $ 0.01 $ 0.04 $ 0.00 $ 0.01 $ 0.06
Extraordinary gain $ 0.04 $ 0.03 $ 0.00 $ 0.00 $ 0.08
Net income (loss) $ 0.05 $ 0.07 $ 0.00 $ 0.01 $ 0.14
Diluted earnings (loss)
per share:
Income (loss) before
extraordinary gain $ 0.00 $ 0.01 $ 0.00 $ 0.00 $ 0.02
Extraordinary gain $ 0.01 $ 0.01 $ 0.00 $ 0.00 $ 0.02
Net income (loss) $ 0.01 $ 0.02 $ 0.00 $ 0.00 $ 0.04
Weighted average
shares outstanding:
Basic 16,560,450 16,560,450 16,560,450 16,560,450 16,560,450
Diluted 75,016,577 64,314,433 64,170,369 66,983,238 66,983,238
The financial statements and notes thereto, together with the accountants'
report thereon of Richard A. Eisner & Company, LLP, are set forth on pages F-1
through F-30, which follow. The financial statements are listed in Item 14(a)(1)
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
24
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF DVL
A. The following table sets forth the name of each director and executive
office of the Company, and the nature of all positions and offices with the
Company held by him at present. The term of all directors (other than the
special purpose director) expires at the Company's next annual meeting of
stockholders, which will be held on a date to be scheduled. The term of all
executive officers expires at the next annual meeting of directors, to be held
immediately thereafter.
NAME POSITION
Frederick E. Smithline Chairman of the Board
Myron Rosenberg Director
Allen Yudell Director
Alan E. Casnoff President and Chief Executive Officer
Gary Flicker Executive Vice President and Chief Financial
Officer
Keith B. Stein Special Purpose Director
In addition to three regular directors, who were elected by the holders of
Common Stock and who have all of the powers normally granted to corporate
directors, the Company has one special purpose director, who was elected in 1996
by the holder of the Class A Preferred Stock. The special purpose director has
no right to vote at meetings of the Board, except as to Bankruptcy Matters (as
such term is defined in the Certificate of Incorporation).
B. The following is a brief account of the recent business experience of
each director and executive officer and directorships held with other companies
which file reports with the Securities and Exchange Commission:
FREDERICK E. SMITHLINE (age 68) has served as Chairman of the Board of the
Company since 1990 and as a director since 1982. From September 1989 to May
1996, Mr. Smithline was of counsel to the law firm of Epstein, Becker & Green,
P.C., New York, New York. He is currently in private practice as an attorney.
MYRON ROSENBERG (age 72) has served as a director of the Company since
1973. Mr. Rosenberg is currently a financial consultant. Through December 1996,
Mr. Rosenberg served as Executive Vice President of Rosenthal & Rosenthal, Inc.,
New York, New York, a commercial finance concern, where he had been employed
since 1961. Mr. Rosenberg also serves as a director of Deotexis, Inc.
ALLEN YUDELL (age 61) has served as a director of the Company since
September 1996. From 1967 to 1991, Mr. Yudell was President of Delco Development
Corporation. From 1992 to 1996, Mr. Yudell was a Vice President of Unidell
Realty Corp., and he is currently a consultant to Unidell. Delco and Unidell are
shopping center development companies based in Boca Raton, Florida. Mr. Yudell
is also a member of the International Council of Shopping Centers.
25
ALAN E. CASNOFF (age 57) has served as President of the Company since
November 1994, and was a director from October 1991 to September 1996. Mr.
Casnoff served as Executive Vice President of the Company from October 1991 to
November 1994. Mr. Casnoff has maintained his other business interests during
this period and thus has devoted less than full time to the business affairs of
DVL. From November 1990 to October 1991, Mr. Casnoff served as a consultant to
the Company and from 1971 to October 1991, as Secretary of the Company. Since
May 1991, Mr. Casnoff has also served as a director of Kenbee Management, Inc.
("Kenbee"), an affiliate of the Company, and as President of Kenbee since
November 1994. Since 1977, Mr. Casnoff has also been a partner of P&A
Associates, a private real estate development firm headquartered in
Philadelphia, Pennsylvania. Since 1969, Mr. Casnoff was associated with various
Philadelphia, Pennsylvania law firms which have been legal counsel to the
Company and Kenbee. Since July 1999, he is of counsel to Klehr, Harrision,
Harvey, Brazenburg & Ellers ("Klehr"). Klehr is providing some legal services to
the Company.
GARY FLICKER (age 41) became Vice President and Chief Financial Officer of
the Company in April 1997 and Executive Vice President in September 1998. Mr.
Flicker is a Certified Public Accountant. From January 1996 to April 1997, he
was a financial consultant, performing acquisition analysis and financial
reporting consulting services. From November 1985 to November 1994, he was Vice
President - Director of Real Estate Accounting and Financial Analysis with
Integrated Resources, Inc. ("Integrated"), a publicly-held real estate
investment company. Thereafter, until December 1995, Mr. Flicker served as
Senior Real Estate Controller for Concurrency Management, Inc. which was engaged
by Integrated's successor to perform management services. Mr. Flicker's
principal responsibilities for Integrated involved the performance of
accounting, tax and financial reporting services, as well as financial analysis
for limited partnerships in which a subsidiary of Integrated was the general
partner. From November 1983 to November 1985, Mr. Flicker was a Supervising
Senior Accountant at Kenneth Leventhal & Company, C.P.A.s, and from September
1980 to November 1983 he was a Senior Accountant at Garnick, Mansfield, et al.,
C.P.A.s (formerly Lester Witte & Company).
KEITH B. STEIN (age 44) has been a special purpose director of the Company
since September 1996. Mr. Stein is the Chairman, Chief Executive Officer, and a
director of National Auto Receivables Liquidation, Inc. (NASDAQ/BB: NATA), a
specialty automobile finance company. From March 1993 to September 1994, he
served as Senior Vice President, Secretary and General Counsel of WestPoint
Stevens, Inc., a textile company, after having served the same company from
October 1992 to February 1993 in the capacity of Acting General Counsel and
Secretary. From May 1989 to February 1993, Mr. Stein was associated with the law
firm of Weil, Gotshal & Manges LLP. Mr. Stein is an affiliate of NPM.
(c) COMPLIANCE WITH SECTION 16 (a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who are beneficial owners of more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Commission. Officers,
directors, and greater than 10% beneficial owners are required by Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of such reports
furnished to the Company, and written representations that no other reports were
required during or with respect to the fiscal year ended December 31, 2000, all
Section 16(a) filing requirements applicable to such persons were satisfied.
26
ITEM 11. EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
The following table sets forth all compensation awarded to, earned by or
paid to the following persons for services rendered to the Company in 2000 and
(if applicable) in 1999 and 1998: (1) the person serving as the Company's chief
executive officer during 2000; (2) those other persons who were serving as
executive officers as of the end of 2000 whose compensation exceeded $100,000
during 2000:
SUMMARY COMPENSATION TABLE
Long-Term
Annual Compensation Compensation Awards
----------------------------- --------------------
Securities
Other Annual Underlying LTIP
Name Year Salary Bonus Compensation Options/SAR Payouts
---- ---- ------ ----- ------------ ----------- -------
Alan E. Casnoff 2000 $120,000 $ - - - -
President and 1999 120,000 10,000 - -
Chief Executive 1998 120,000 - - 25,000(2) -
Officer
Gary Flicker 2000 $136,000 $ 17,500 - 25,000(2) -
Executive Vice 1999 132,500 17,500 - 25,000(3) -
President and Chief 1998 125,000 15,000 - 25,000(3) -
Financial Officer(1)
- ----------
(1) Mr. Flicker became Vice President and Chief Financial Officer of the
Company on April 16, 1997 and Executive Vice President in September 1998.
(2) Consists of options to purchase shares of Common Stock under the 1996 Stock
Options Plan.
27
B. OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information as to options granted in 2000
under the DVL, Inc. 1996 Stock Option Plan (the "Plan") to the executive
officers named in the Summary Compensation Table. The Plan originally provided
for the grant of options to purchase up to 1,500,000 shares of Common Stock to
Employees and Non-Employee Directors (in each case as defined in the Plan). In
February 2000, DVL amended the Plan to increase the number of shares of common
stock available under the Plan by an additional 1,000,000 shares.
The Plan provides that any one employee wishing to exercise an option must
give prior notice to the Board. If the Board determines, in its reasonable
discretion, that such exercise will cause an "ownership change" (as defined in
Section 382 of the Internal Revenue Code of 1986, as amended) in the Company
which would have an adverse effect on the Company's use of its NOLS (as defined
in Section 382) (an "Adverse Ownership Change"), the Board shall deny approval
of the exercise. If the Board determines that such exercise would not cause an
Adverse Ownership change, it shall approve the exercise. The conditions
described in this paragraph are referred to below as the "Section 382
Restrictions".
As of December 31, 2000, options to purchase 1,278,131 shares were
outstanding under the Plan and 1,221,869 shares were available for issuance upon
exercise of options which may be granted in the future.
28
Individual Grants Grant Date Value
------------------------------------------------------------- -------------------
Percentage of
Total Options
Number of Securities Granted to Exercise
Underlying Options Employees in Price Expiration Grant Date
Name(1) Granted(1) Fiscal Year(2) ($/Sh)(3) Date Present Value (4)
- ------------------- -------------------- -------------- --------- ---------- -------------------
Gary Flicker 25,000 50.0% .11 05/08/10 $2,500
(1) Individual grants to employees become exercisable in whole or in
installments, and at such times, and subject to the fulfillment of any
conditions on exercisability (in addition to the Section 382 Restrictions)
as may be determined by the Compensation Committee of the Board of
Directors (the "Committee") at the time of grant. All options listed in the
above table became exercisable upon grant, subject only to the Section 382
Restrictions. The Committee also has the discretion to establish provisions
relating to the forfeiture of an option in connection with the employee's
termination of employment with the Company, or to grant any option without
a forfeiture provision. Each of the options listed in the above table
provides that the option will be forfeited upon termination of employment
for "cause" (as therein defined). In addition, the options granted to Mr.
Flicker limit the period of exercise after termination under other
circumstances (except death or disability).
(2) Total options granted to employees in fiscal year 2000 was 50,000.
(3) Represents the fair market value of the underlying shares on the date of
grant (determined in accordance with the Plan as the closing price of the
Common Stock on the OTC Bulletin Board).
(4) The Black-Scholes option pricing model was chosen to estimate the grant
date present value of the options set forth in this table. The Company does
not believe that the Black-Scholes model, or any other model, can
accurately determine the value of an option. Accordingly, there is no
assurance that the value, if any, realized by an option holder will be at
or near the value estimated by the Black-Scholes model. Future compensation
resulting from option grants is based solely on the performance of the
Company's stock price. The Black-Scholes ratio of .10 was determined using
the following assumptions: a volatility of 85%, an historic average
dividend yield of 0%, a risk free interest rate of 6.56% and a 10 year
projected exercise period.
29
C. FISCAL YEAR-END OPTION VALUES
The following table sets forth information as to options held as of the end
of 2000 by the executive officers named in the Summary Compensation Table. No
options were exercised by said officers in 2000. All options held by said
officers at fiscal year-end were immediately exercisable.
Number of Securities Underlying Value of Unexercised
Unexercised Options At Fiscal In-The-Money Options
Name Year End At Fiscal Year End
---- ------------------------------- --------------------
Alan E. Casnoff 375,000 none
Gary Flicker 125,000 none
D. COMPENSATION OF DIRECTORS
Regular directors who are not officers or employees of the Company
("Non-Employee Directors") presently receive a director's fee of $1,500 per
month, plus $500 for each Audit Committee meeting of the Board of Directors
attended. Directors who are officers or employees of the Company receive no
compensation for their services as directors or attendance at any Board of
Directors or committee meetings. None of the current directors is an officer or
employee. The special purpose director receives no compensation for his service
as a director or attendance at any Board of Directors or committee meetings.
On September 17, 1998, 1999 and 2000, options to purchase 15,000 shares of
Common Stock were granted to each of the three directors (Messrs. Rosenberg,
Smithline and Yudell). The options were granted under the Plan, which provides
for automatic grants of options for 15,000 shares to each incumbent regular
director on each anniversary of the adoption of the Plan. The options vested
immediately and are exercisable for a term of ten (10) years from the date of
grant. The exercise price is equal to the fair market value on the date of
grant.
E. EMPLOYMENT CONTRACTS AND ARRANGEMENTS
Gary Flicker entered into an Employment Agreement with the Company,
effective as of April 16, 1997, providing for his employment as Vice President
and Chief Financial Officer for a one-year term at an annual salary of $120,000,
and for the grant of 50,000 stock options under the Plan upon commencement of
employment. Effective January 1, 2001, 2000, and 1999, Mr. Flicker's annual
salary was increased to $140,600, $136,500, and $132,500, respectively. The
Employment Agreement with Mr. Flicker expired on April 16, 1998 and was not
renewed. However, Mr. Flicker continues to be employed by the Company, without
an employment agreement, as Chief Financial Officer and Executive Vice
President.
The Company also entered into an Indemnification Agreement with Mr.
Flicker, effective upon commencement of his employment, contractually obligating
the Company to indemnify him to the fullest extent permitted by applicable law,
in connection with claims arising from his service to, and activities on behalf
of, the Company.
30
As of August 11, 1998, the Company entered into Indemnification Agreements
which agreements are substantially the same as that entered into with Mr.
Flicker.
F. BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
During 2000, no executive officer of the Company served as a director of or
a member of a compensation committee of any entity for which any of the persons
serving on the Board of Directors of the Company is an executive officer.
G. BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
The Board of Directors of the Company, which acts in the stead of a formal
compensation committee, is comprised of Messrs. Rosenberg, Smithline and Yudell,
all of whom are independent directors. In such capacity, the Board of Directors
reviews compensation of the executive officers of the Company to determine if
such compensation is in line with similar organizations and determine the
compensation of the executive officers of the Company.
The Company's executive compensation program is designed to attract and
retain qualified executives with competitive levels of compensation that are
related to performance goals and which recognize individual initiative and
accomplishments. The principal components of the Company's executive
compensation program are fixed compensation in the form of base salary, variable
compensation in the form of annual cash bonuses and stock options.
The Company is subject to Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), which limits the deductibility of certain
compensation payments to its executive officers. The Company does not have a
policy requiring the Board to qualify all compensation for deductibility under
this provision. The Board, however, considers the net cost to the Company in
making all compensation decisions and will continue to evaluate the impact of
this provision on its executive compensation.
Base Salary: Any discretionary increases in base salary are based on an
annual evaluation by the Board of the performance of the Company and each
executive officer, and take into account any new responsibilities of the
executive, his or her experience and years of service with the Company and a
comparison of base salaries for comparable positions at other real estate
finance companies.
Annual Bonus: The Board may decide to award a bonus to any executive
officer. Any awards of discretionary bonuses are based on an annual evaluation
by the Board of the performance of the Company and each executive officer, and
take into account any special contributions of the executive officer. Mr.
Flicker was awarded a discretionary bonus of $17,500 for 2000.
31
Stock Options: The Stock Option Plan was adopted by the Board in April 1996
and ratified by the stockholders in September 1996. The Board believes that the
significant equity interests in the Company held by the Company's executive
officers have served to link the interest of the executive officers with those
of the stockholders. Under the Company's Stock Option Plan, options to purchase
shares of Common Stock may be granted to the executive officers of the Company.
The Board believes that the grant of stock options is, and will continue to be,
an important component of the Company's executive compensation program. During
2000, Mr. Flicker was granted an amount of stock options under the Stock Option
Plan as provided in the table set forth herein entitled "Option Grants in Last
Fiscal Year." In determining the size of such grants to executive officers, the
Board reviewed various factors, including the executives' total compensation
package and the performance of the Company and each executive officer. The
stockholdings of an executive officer were not a factor in determining the size
of such grants.
Chief Executive Officer Compensation: Mr. Casnoff, the Company's President
and Chief Executive Officer, is not party to an employment agreement with the
Company, and Mr. Casnoff's compensation is established in accordance with the
principles described above in connection with the compensation of executive
officers. The Board reviews Mr. Casnoff's performance and determines any base
salary adjustments, additional bonuses and stock option grants considering the
various factors described above with respect to executive officers.
Mr. Casnoff's base salary was $120,000 for fiscal 2000 which was the same
as 1999 and 1998. Mr. Casnoff did not receive a discretionary bonus or a Stock
Option grant for 2000.
H. PERFORMANCE COMPARISON
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock for each of the last five
years with the cumulative return (assuming reinvestment of dividends) of the Dow
Jones Equity Market Index and the Dow Jones Real Estate Investment Index.
Since August 1995, the Common Stock has been traded on the over-the-counter
market and has been quoted on the NASD OTC Bulletin Board under the symbol
"DVLN". Until August 3, 1995, the Common Stock was traded on the New York Stock
Exchange.
32
COMPARISON OF FIVE YEAR CUMULATIVE
TOTAL RETURN
AMONG DVL, INC. INDEX, DOW JONES EQUITY MARKET
INDEX AND DOW JONES REAL ESTATE INVESTMENT INDEX
FISCAL YEAR ENDING DECEMBER 31
[The table below represents a line chart in the printed piece.]
DOW JONES US TOTAL MARKET INDEX (DJDOW)
TOTAL RETURN INDEX TOTAL RETURN
12/31/95 163.42 100.00 12/29/95
12/31/96 199.41 122.02
12/31/97 262.84 160.84
12/31/98 328.28 200.88
12/31/99 402.88 246.53
12/31/00 365.54 223.68 12/29/00
DVL, INC. (DVI)
12/31/95 14.00 100.00 12/29/95
12/31/96 13 92.86
12/31/97 18.50 132.14
12/31/98 18.00 128.57
12/31/99 15.19 108.48
12/31/00 17.06 121.88 12/29/00
DOW JONES REAL ESTATE INDEX (DJREA)
12/31/95 159.26 100.00 12/29/95
12/31/96 214.38 134.61
12/31/97 253.15 158.95
12/31/98 199.69 125.39
12/31/99 189.08 118.72
12/31/00 241.11 151.39 12/29/00
33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of December 31, 2000
regarding the ownership of common stock of the Company by each person who is
known to the management of the Company to have been the beneficial owner of more
than 5% of the outstanding shares of the Company's common stock.
NAME AND ADDRESS OF AMOUNT AND NATURE OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS*
------------------- -------------------- -----------------
Lawrence J. Cohen 3,351,388 (1)(4) 17.0%
Milton Neustadter 1,973,991 (1)(5) 10.7%
Jay Chazanoff 3,142,948 (2)(6) 16.1%
Ron Jacobs 2,941,860 (2)(7) 15.2%
Stephen Simms 2,941,959 (2)(8) 15.2%
Keith B. Stein 3,039,303 (3)(9) 15.6%
Robert W. Barron 2,772,926 (3)(10) 14.4%
Adam Frieman 2,661,212 (3)(11) 13.9%
Peter Offerman 2,584,567 (3)(12) 13.5%
Joseph Huston 2,555,875 (3)(13) 13.4%
Jan Sirota 2,584,567 (3)(14) 13.5%
Neal Polan 2,584,567 (3)(15) 13.5%
Michael Zarriello 2,584,567 (3)(16) 13.5%
Mark Mahoney 2,572,925 (3)(17) 13.4%
The SIII Associates Limited 3,914,446 (3)(18) 19.3%
Partnership Third Addison
Park Corporation and
Gary L. Shapiro
34
NOTES TO TABLE
In each instance where a named individual is listed as the holder of a
currently exercisable option or Warrant, the shares which may be acquired upon
exercise thereof have been deemed outstanding for the purpose of computing the
percentage owned by such person, but not for the purpose of computing the
percentage owned by any other person, except with respect to options or Warrants
held by other members of a Holder's Holder Group (as defined below). An option
or Warrant is deemed to be currently exercisable if it may be exercised within
60 days. The number of Warrants attributed to each Holder herein is based upon
the number originally issued, and is subject to adjustment to eliminate any
possible dilution, as described in "Changes of Control" below.
(1) As described in detail below in "Changes of Control", such persons are
members of the Pembroke Group (as defined in "Changes of Control" below), and
said persons share dispositive power with each other as to 1,689,629 shares of
the Company's Common Stock issuable to the members of the Pembroke Group upon
the exercise of Warrants by such members, which shares constitute 50.1% of all
of the shares issuable to the members of the Pembroke Group upon the exercise of
Warrants. The address of each member of the Pembroke Group is c/o Lawrence J.
Cohen, 70 East 55th Street, Seventh Floor, New York, NY 10022. The members of
the Pembroke Group explicitly disclaim beneficial ownership of all of the shares
of Common Stock and Warrants (and shares of Common Stock issuable upon exercise
of Warrants) owned by the other members of the Pembroke Group.
(2) As described in detail below in "Changes of Control", such persons are
members of the Millennium Group (as defined in "Changes of Control" below), and
said persons share dispositive power with each other as to 2,172,275 shares of
the Company's Common Stock issuable to the members of the Millennium Group upon
the exercise of Warrants by such members, which shares constitute 50.1% of all
of the shares issuable to the members of the Millennium Group upon the exercise
of Warrants. The address of each member of the Millennium Group is c/o Lawrence
J. Cohen, 70 East 55th Street, Seventh Floor, New York, NY 10022. The members of
the Millennium Group explicitly disclaim beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Millennium Group.
(3) As described in detail below in "Changes of Control", such persons are
members of the Florida Group (as defined in "Changes in Control" below), and
said persons share dispositive power with each other as to 2,498,498 shares of
the Company's Common Stock issuable to the members of the Florida Group upon the
exercise of Warrants (as defined in "Changes in Control" below) by such members,
which shares constitute 50.1% of all of the shares issuable to the members of
the Florida Group upon the exercise of Warrants. The address of each member of
the Florida Group is c/o Keith Stein, 70 East 55th Street, Seventh Floor, New
York, NY 10022.
35
(4) Based upon a Schedule 13D, as amended, as filed with the Securities and
Exchange Commission (the "Commission") on November 18, 1999, Mr. Cohen
possesses: (i) the sole power to vote 3,104,540 shares of Common Stock, which
includes 2,879,802 shares of Common Stock issuable upon exercise of Warrants;
(ii) shared power to vote 0 shares of Common Stock; (iii) the sole power to
dispose of 1,661,759 shares of Common Stock, which includes 1,437,021 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other member of the Pembroke Group to dispose of 1,689,629 shares of Common
Stock, which includes 1,442,781 shares of Common Stock issuable upon the
exercise of Warrants held by Mr. Cohen and 246,848 shares of Common Stock
issuable upon exercise of Warrants held by the other member of the Pembroke
Group. Mr. Cohen explicitly disclaims beneficial ownership of all of the shares
of Common Stock and Warrants (and shares of Common Stock issuable upon exercise
of Warrants) owned by the other member of the Pembroke Group.
(5) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Neustadter possesses: (i) the sole power to vote 531,210
shares of Common Stock, which includes 492,710 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 284,362 shares of Common Stock, which
includes 245,862 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other member of the Pembroke Group to dispose of
1,689,629 shares of Common Stock, which includes 246,848 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Neustadter and 1,442,781
shares of Common Stock issuable upon exercise of Warrants held by the other
member of the Pembroke Group. Mr. Neustadter explicitly disclaims beneficial
ownership of all of the shares of Common Stock and Warrants (and shares of
Common Stock issuable upon exercise of Warrants) owned by the other member of
the Pembroke Group.
(6) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Chazanoff possesses: (i) the sole power to vote 1,811,156
shares of Common Stock, which includes 1,677,610 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 970,673 shares of Common Stock, which
includes 837,127 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Millennium Group to dispose of
2,172,275 shares of Common Stock, which includes 840,483 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Chazanoff and 1,331,792
shares of Common Stock issuable upon exercise of Warrants held by the other
members of the Millennium Group. Mr. Chazanoff explicitly disclaims beneficial
ownership of all of the shares of Common Stock and Warrants (and shares of
Common Stock issuable upon exercise of Warrants) owned by the other members of
the Millennium Group.
(7) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Jacobs possesses: (i) the sole power to vote 1,435,481
shares of Common Stock, which includes 1,329,134 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 769,585 shares of Common Stock, which
includes 1,329,134 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Millennium Group to dispose
of 2,172,275 shares of Common Stock, which includes 665,896 shares of Common
Stock issuable upon the exercise of Warrants held by Mr. Jacobs and 1,506,379
shares of Common Stock
36
issuable upon exercise of Warrants held by the other members of the Millennium
Group. Mr. Jacobs explicitly disclaims beneficial ownership of all of the shares
of Common Stock and Warrants (and shares of Common Stock issuable upon exercise
of Warrants) owned by the other members of the Millennium Group.
(8) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Simms possesses: (i) the sole power to vote 1,435,480
shares of Common Stock, which includes 1,329,134 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 769,584 shares of Common Stock, which
includes 663,238 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Millennium Group to dispose of
2,172,275 shares of Common Stock, which includes 665,896 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Simms and 1,506,379 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Millennium Group. Mr. Simms explicitly disclaims beneficial ownership of all of
the shares of Common Stock and Warrants (and shares of Common Stock issuable
upon exercise of Warrants) owned by the other members of the Millennium Group.
(9) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Stein possesses: (i) the sole power to vote 1,006,963
shares of Common Stock, which includes 930,456 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 540,805 shares of Common Stock, which
includes 464,298 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 466,158 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Stein and 2,032,340 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group. Mr. Stein explicitly disclaims beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Florida Group.
(10) To the Company's knowledge, Mr. Barron possesses: (i) the sole power to
vote 512,687 shares of Common Stock, which includes 475,567 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 274,428 shares of Common Stock,
which includes 237,308 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 2,498,498 shares of Common Stock, which includes 238,259 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Barron and
2,260,239 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
37
(11) To the Company's knowledge, Mr. Frieman possesses: (i) the sole power to
vote 314,391 shares of Common Stock, which includes 302,749 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 162,714 shares of Common Stock,
which includes 151,072 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 2,498,498 shares of Common Stock, which includes 151,677 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Frieman and
2,346,821 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(12) To the Company's knowledge, Mr. Offerman possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Offerman and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(13) To the Company's knowledge, Mr. Huston possesses: (i) the sole power to
vote 107,192 shares of Common Stock, which includes 99,431 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 57,377 shares of Common Stock,
which includes 49,616 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 49,815 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Huston and 2,448,683 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(14) To the Company's knowledge, Mr. Sirota possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Sirota and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(15) To the Company's knowledge, Mr. Polan possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Polan and 2,423,772 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group.
38
(16) To the Company's knowledge, Mr. Zarriello possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Zarriello and 2,423,772
shares of Common Stock issuable upon exercise of Warrants held by the other
members of the Florida Group.
(17) To the Company's knowledge, Mr. Mahoney possesses: (i) the sole power to
vote 149,153 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 74,427 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Mahoney and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(18) To the Company's knowledge, the SIII Associates Limited Partnership
possesses: (i) the sole power to vote 2,634,908 shares of Common Stock, which
includes 2,433,054 shares of Common Stock issuable upon exercise of Warrants;
(ii) shared power to vote 0 shares of Common Stock; (iii) the sole power to
dispose of 1,415,948 shares of Common Stock, which includes 1,214,094 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other members of the Florida Group to dispose of 2,498,498 shares of Common
Stock, which includes 1,218,960 shares of Common Stock issuable upon the
exercise of Warrants held by the SIII Associates Limited Partnership and
1,279,538 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group. Third Addison Park Corporation is the
general partner of the SIII Associates Limited Partnership, and Gary L. Shapiro
is the chief executive officer of Third Addison Park Corporation.
39
B. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of December 31, 2000
regarding ownership of Common Stock by (i) each director and nominee for
director, (ii) each of the executive officers named in the Summary Compensation
Table contained herein, and (iii) all executive officers and directors as a
group (7 persons). Unless otherwise indicated, each stockholder listed below has
sole voting and investment power with respect to the shares set forth opposite
such stockholder's name. All persons listed below have an address c/o the
Company's principal executive offices in New York.
Name of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership of Class
- ---------------- -------------------- ----------
Alan E. Casnoff 585,000 (2) 3.5%
Gary Flicker 125,000 (3) **
Myron Rosenberg 348,854 (4) 2.1%
Frederick E. Smithline 117,550 (5) **
Keith B. Stein 3,039,303 (6) 15.6%
Allen Yudell 75,000 (7) **
All current directors
and executive officers
as a group (6 persons) 4,290,707 (8) 21.14%
* In each instance where a named individual is listed as the holder of a
currently exercisable option or warrant, the shares which may be acquired upon
exercise thereof have been deemed outstanding for the purpose of computing the
percentage owned by such person, but not for the purpose of computing the
percentage owned by any other person, except the group referred to in note 8. An
option or warrant is deemed to be currently exercisable if it may be exercised
within 60 days.
** Less than 1%
(1) Messrs. Casnoff and Flicker are executive officers of the Company. Messrs.
Rosenberg, Smithline and Yudell are the regular directors, and Mr. Stein is the
special purpose director.
(2) Excludes 480 shares held by Mr. Casnoff's adult son, as to which shares
Mr. Casnoff disclaims beneficial ownership. Includes 26,000 shares owned by a
corporation partially owned and controlled by Mr. Casnoff, and 375,000 shares
which may be acquired upon the exercise of currently exercisable options.
(3) Represents 125,000 shares which may be acquired upon the exercise of
currently exercisable options.
(4) Includes 4,300 shares held by Mr. Rosenberg's wife, as to which shares he
disclaims beneficial ownership, and 60,000 shares which may be acquired upon the
exercise of currently exercisable options.
(5) Includes 550 shares held by Mr. Smithline and his brother as tenants-in-
common and 6,000 shares held by Mr. Smithline's wife, as to which 6,000 shares
Mr. Smithline disclaims beneficial ownership. Also includes 60,000 shares which
may be acquired upon the exercise of currently exercisable options.
40
(6) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Stein possesses: (i) the sole power to vote 1,006,963
shares of Common Stock, which includes 930,456 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 540,805 shares of Common Stock, which
includes 464,298 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 466,158 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Stein and 2,032,340 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group. Mr. Stein explicitly disclaims beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Florida Group.
(7) Represents 75,000 shares which may be acquired upon the exercise of
currently exercisable options.
(8) Number of shares and percentage owned includes 3,734,303 shares which may
be acquired through exercise of currently exercisable options and Warrants held
by certain of the named persons. The number of outstanding shares for the
purpose of computation of percentage of ownership by the group includes such
shares.
C. CHANGES IN CONTROL
In connection with the Original Loan by NPM in September 1996, the Company
issued to, or for the benefit of, the members of the Florida Group (who are
affiliates of NPM) and the Pembroke and Millennium Groups (who are affiliates of
NPM and NPO, Warrants to purchase such number of shares of Common Stock as, when
added to the 1,000,000 shares issued to the members of the Holder Groups
contemporaneously with the Warrants, represent rights to acquire up to 49% of
the outstanding Common Stock on a fully diluted basis. In accordance with their
terms, the Warrants were originally exercisable commencing January 1999 and
expire after December 31, 2007. Pursuant to a stockholders agreement (the
"Agreement") entered into among each of the parties that acquired the Warrants
(each, a "Holder"), such parties agreed, among other things, that the Warrants
could not be exercised until September 27, 1999. If and at such time as any or
all of the Warrants are exercised, it is possible that a "change in control" of
the Company, within the meaning of applicable rules and regulations under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), may be
deemed to occur, depending upon the extent of exercise.
Pursuant to the Agreement, the Holders have agreed to certain limitations
on the disposition of Common Stock and Warrants owned or held by them, which are
described below. The Holders presently have rights of first refusal/first offer
with respect to the disposition of shares of Common Stock and Warrants held by
other Holders (unless the disposition is made to certain specified affiliates of
a Holder). Subject to the above-mentioned rights of first refusal/first offer
and certain other limitations, (i) through September 27, 1999, a Holder may
dispose of up to one-half (or more subject to the consent of a majority of the
Holders in such Holder's Holder Group) of his shares of Common Stock and (ii)
after September 27,
41
1999, a Holder may dispose of all of his or its shares of Common Stock
(excluding shares issuable upon exercise of Warrants). A Holder may not dispose
of his Warrants (except to another Holder or certain specified affiliates of a
Holder) or convert, exercise or exchange any of such Warrants until after
September 27, 1999. After September 27, 1999, subject to the above-mentioned
rights of first refusal/first offer and certain other limitations, a Holder may
dispose of up to an aggregate of 49.9% (or more, subject to the consent of a
majority of the other Holders in such Holder's Holder Group) of his shares of
Common Stock issuable upon exercise of his Warrants after giving effect to
conversion, exercise or exchange of such Warrants. The "Holder Groups" consist
of the "Millennium Group", the "Pembroke Group" and the "Florida Group". The
members of the Millennium Group are Jay Chazanoff, Ron Jacobs and Stephen Simms.
The members of the Pembroke Group are Lawrence J. Cohen and Milton Neustadter.
The members of the Florida Group are Stephen L. Gurba, Peter Offermann, Joseph
Huston, Jan Sirota, Neal Polan, Michael Zarriello, Adam Frieman, Mark Mahoney,
Keith B. Stein, Robert W. Barron and Gary Shapiro (through his holdings in The
SIII Associates Limited Partnership and Third Addison Park Corporation). For
further information regarding the foregoing, see "Certain Relationships and
Related Transactions" below.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NPM AND NPO TRANSACTIONS
The Company consummated a multi-faceted transaction on September 27, 1996,
pursuant to which: (i) certain existing indebtedness of the Company was acquired
by NPM, under an Amended and Restated Loan Agreement dated as of March 27, 1996
pursuant to which the Company became indebted to NPM in the original principal
amount of $8,382,000; (ii) 1,000,000 shares of Common Stock (representing 6.0%
of the Common Stock now outstanding) were issued to, and purchased by, the
Holders (see Item 12(C) above); (iii) the Certificate of Incorporation of the
Company was amended to permit the issuance of warrants, to limit change of
ownership of capital stock of the Company and to designate Preferred Stock
together with rights, powers and preferences (including the appointment of a
special purpose director); (iv) Warrants to purchase additional shares of Common
Stock (which, when added to the 1,000,000 shares acquired, represent rights to
acquire up to 49% of the outstanding Common Stock, on a fully diluted basis)
were issued to, or for the benefit of, the Holders; (v) 100 shares of Preferred
Stock were issued to an affiliate of NPM; (vi) most, but not all, convertible
securities and warrants existing and outstanding prior to the transaction were
converted into Common Stock; and (vii) the Company continued the engagement of
NPO to perform administrative and advisory services relating to the assets of
the Company and its affiliated partnerships, pursuant to an Asset Servicing
Agreement dated March 27, 1996.
In 1997, NPM advanced the Company an additional $200,000. In addition,
from January 1998 through May 1999, NPM advanced additional amounts aggregating
$370,000 to DVL. These advances were not required under the Original Loan
Documents. In May 1999, the Company paid all remaining outstanding amounts due
on the loan to NPM. As of March 15, 2001, the Company had accrued service fees
to NPO in the amount of approximately $373,000.
42
The members of the Millenium Group, the Pembroke Group, and the Florida
Group are affiliates of NPM, and therefore have a material interest in the
transactions between the Company and NPM, described in the preceding paragraphs.
Keith B. Stein, the special purpose director of the Company is an affiliate of
NPM, and therefore has a material interest in said transactions. The members of
the Millenium Group and the Pembroke Group are affiliates of NPO.
In June 1998, the Company entered into a management services agreement
with a limited partnership (in which certain of its partners are affiliates of
NPO) to render services for a fee. This agreement shall terminate with 30 days
notice by either party. As compensation, the Company receives the following (a)
a monthly fee of $5,000 through November 2000, and (b) after all the partners of
the partnership have earned a 20% internal rate of return, compounded quarterly,
on their capital contributions, an amount of cash equal to 25% of the profits,
as defined in the agreement. For 2000 and 1999 the Company received compensation
under such agreement equal to $362,500 and $480,000, respectively.
In addition, the Company entered into a service agreement with another
limited partnership whose general partner is an affiliate of NPO, to render
certain accounting and administrative services. As compensation, the Company
receives a monthly fee of $3,000, and expense reimbursements of $1,000 per
month. The Company received aggregate compensation under such agreement of
$48,000 each year.
The Company entered into a property management agreement with an entity
that is part of the Opportunity Fund pursuant to which DVL provides property
management services in exchange for fees equal to 3% of rent collections. For
2000 and 1999, the Company received compensation equal to $27,000 and $12,000,
respectively.
In November 1999, the Company entered into a management service agreement
with an entity whose partners are affiliates of NPO to render certain accounting
and administrative services. As compensation, the Company receives a monthly fee
of $2,000, a monthly deferred fee of $6,500 and an annual incentive fee if
certain levels of profitability are obtained. For 2000 and 1999, the Company was
paid $24,000 and $4,000 and accrued fees of $78,000 and $13,000, respectively.
In early 2001, the Company was paid an aggregate amount of $91,000, which
represented all of the deferred fees through December 31, 2000.
The Millenium Group, an affiliate of NPO, received approximately $94,000,
$145,000 and $71,000 for 2000, 1999, and 1998, respectively, representing
compensation and reimbursement of expenses for collection services on limited
partner notes. In 2000 and 1999 the Company paid to the Millenium Group $25,000
each year and the Pembroke Group, another affiliate of NPO, $55,000 and $75,000
respectively, for professional fees. In 1998, the Company paid to the Millenium
Group $25,000 for professional fees.
OPPORTUNITY FUND
The Company, Blackacre, PNM, and Pem Mil are parties to the Opportunity
Agreement. The Opportunity Agreement has a term of three years, subject to
earlier termination if certain maximum capital contributions have been reached.
The Opportunity Agreement provides for an arrangement (the "Opportunity Fund")
whereunder, with respect to certain transactions involving the acquisition of
limited partnership interests of, or mortgage loans to, Affiliated Limited
Partnerships in which the Company is general partner, or which the Company
already owns, if the Company, due to financial constraints, is unable to pursue
such business opportunity with its own funds from its reserves or available from
operations, or by obtaining financing from a third party or issuing equity (each
such opportunity, an "Opportunity"), then the Opportunity Fund has a right of
first refusal to finance such Opportunity.
43
The Opportunity Fund is expected to pursue each Opportunity with respect
to which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by BCG and the NPO Affiliates. The Company will receive up to 20%
of the profits from an Opportunity after BCG and the NPO Affiliates receive the
return of their investment plus preferred returns ranging from 12% to 20%. As
part of its obligation under the Opportunity Agreement, certain employees of DVL
also perform certain services on behalf of the Opportunity Fund. Pem Mil is to
serve as managing member of each special purpose limited liability company
formed in connection with the Opportunity Fund, for which it receives out of the
proceeds generated from Opportunities a maximum aggregate annual fee based upon
capital invested by the members in consideration for management services.
The transactions in which the Opportunity Fund may engage include, for
example, acquisition of partnership interests from existing limited partners of
Affiliated Limited Partnerships and investment in certain properties owned by
the Company or such partnerships where capital may be required to enhance value
but is not currently available to the Company. There can be no assurance that
the Opportunity Fund's activities will generate profit distributions to the
Company.
As of March 1, 2001, the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven were
purchased in 1998, one was purchased in 1999 and seven mortgages were purchased
in 2000), acquired limited partnership units from unaffiliated individuals in
three Affiliated Limited Partnerships, and acquired a leasehold interest of a
tenant of an Affiliated Limited Partnership. In addition, during 1999, the
Opportunity Fund acquired a property of an Affiliated Limited Partnership and
the land underlying this property from DVL. During 2000, DVL purchased three of
the mortgages owned by the Opportunity Fund and the Opportunity Fund was fully
satisfied on an additional four mortgage loans, as each of the properties that
secured these four mortgage loans was sold. As of March 1, 2001, the Opportunity
Fund owns eight mortgages. During 2000, DVL was paid approximately $8,000 from
the investments by the Opportunity Fund, which was used to pay amounts owed by
DVL under a note in favor of an entity that is part of the Opportunity Fund.
44
PART IV
ITEM 14. 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.
--------
Independent Auditors' Report F- 1
Consolidated Balance Sheets -
December 31, 2000 and 1999 F- 2
Consolidated Statements of Operations
for each of the years in the three year period
ended December 31, 2000 F- 4
Consolidated Statements of Shareholders'
Equity for each of the years in the three
year period ended December 31, 2000 F- 6
Consolidated Statements of Cash Flows for
each of the years in the three year period
ended December 31, 2000 F- 7
Notes to Consolidated Financial Statements F- 10
(2) The Financial Statement Schedules required by
Item 8 of this report are listed below:
Schedule III - Real Estate and Accumulated
Depreciation
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.
45
(3) INDEX OF EXHIBITS
The following is a list of the Exhibits filed as a part of this report
(those marked * are filed herewith):
3. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) DVL's Certificate of Incorporation, filed March 28, 1977 (Incorpo-
rated by reference to Exhibit 6(d) to DVL's Form S-1 Registra-
tion Statement No. 2-58847 dated April 28, l977.)
(b) DVL's Certificate of Amendment to Certificate of Incorporation,
filed July 13, 1977 (Incorporated by reference to Exhibit 6(e) to
Amendment No. 1. to DVL's Form S-1 Registration Statement No.
2-58847 dated August 25, l977.)
(c) DVL's Certificate of Amendment to Certificate of Incorporation,
filed 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) DVL's Certificate of Amendment to Certificate of Incorporation,
filed 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) DVL's Certificate of Amendment to Certificate of Incorporation,
filed 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) DVL's Certificate of Amendment to Certificate of Incorporation,
filed December 20, 1993. (Incorporated by reference to DVL's Form
10-K for fiscal year ended December 31, 1993.)
(g) DVL's Certificate of Amendment to Certificate of Incorporation,
filed December 4, 1995 (Incorporated by reference to DVL's proxy
statement dated October 13, 1995 - Exhibit A).
(h) DVL's Certificate of Amendment to Certificate of Incorporation
filed September 17, 1996. (Incorporated by reference to DVL's
proxy statement dated July 31, 1996 - Exhibit I.)
(i) DVL's Certificate of Amendment of Certificate of Incorporation
filed February 7, 2000. (Incorporated by reference to DVL's Form
10-K for the fiscal year ended December 31, 1999.)
(j) 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.)
(k) DVL's First Amendment to By-Laws dated as of January 1, 1994.
(Incorporated by reference to Exhibit 3(d) to DVL's Form 10-K for
the fiscal year ended December 31, 1995.)
(l) DVL's Second Amendment to By-Laws, effective September 17, 1996
(Incorporated by reference to DVL's proxy statement dated July 31,
1996 - Exhibit J.)
(m) DVL's Third Amendment to the By-Laws, effective February 1, 2000.
(Incorporated by reference to DVL's Form 10-K for the fiscal year
ended December 31, 1999.)
46
10. MATERIAL CONTRACTS.
10.1 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.)
10.2 Stipulation of Settlement of IN RE KENBEE LIMITED PARTNERSHIP
LITIGATION dated August 12, 1992. (Incorporated by reference to
Exhibit 10(b)(25) to DVL's Form 10-K for the fiscal year ended
December 31, 1995.)
10.3 Stipulation of Partial Settlement and Order in IN RE DEL-VAL
FINANCIAL CORPORATION SECURITIES LITIGATION Master File #MDL872.
(Incorporated by reference to Exhibit 10(b)(28) to DVL's Form 10-K
for the fiscal year ended December 31, 1995.)
10.4 Amended and Restated Loan Agreement between DVL and NPM, dated as
of March 27, 1996. (Incorporated by reference to Exhibit 10(b)(33)
to DVL's Form 10-K for the fiscal year ended December 31, 1995.)
10.5 Asset Servicing Agreement between DVL, PSC, Kenbee Realty and NPO
dated as of March 27, 1996. (Incorporated by reference to Exhibit
10(b)(34) to DVL's Form 10-K for the fiscal year ended December
31, 1995.)
10.6 Third Voting Trust Extension between R&M Holding Company and Alan
Casnoff dated March 7, 1996. (Incorporated by reference to Exhibit
10(b)(35) to DVL's Form 10-K for the fiscal year ended December
31, 1995.)
10.7 Amended and Restated Loan Agreement between DVL, and NPM, dated
dated March 27, 1996 (Incorporated by reference to Proxy State-
ment dated July 31, 1996 - Exhibit A.)
10.8 Amended and Restated Negotiable Promissory Note from DVL to NPM
(Incorporated by reference to DVL's Proxy Statement dated July
July 31, 1996 - Exhibit B.)
10.9 Asset Servicing Agreement between DVL and NPO (Incorporated by
Reference to DVL's Proxy Statement dated July 31, 1996 - Exhibit
C.)
10.10 Stock Purchase Agreement between DVL and NPM (Incorporated by
Reference to DVL's Proxy Statement dated July 31, 1996 - Exhibit
D.)
10.11 Securities Purchase Agreement between DVL and NPM (Incorporated by
Reference to DVL's Proxy Statement dated July 31, 1996 -
Exhibit E.)
10.12 Common Stock Warrant issued by DVL to NPO (Incorporated by
Reference to DVL's Proxy Statement dated July 31, 1996 -
Exhibit F.)
10.13 DVL 1996 Stock Option Plan (Incorporated by Reference to DVL's
Proxy Statement dated July 31, 1996 - Exhibit K.)
47
10.14 Amendment to DVL 1996 Stock Option Plan effective February 1,
2000. (Incorporated by reference to DVL's Form 10-K for fiscal
year ended December 31, 1999.)
10.15 Employment Agreement and Indemnification Agreement comprising
Exhibit A thereto, between DVL and Gary Flicker, dated April 16,
1997 (effective as of said date) (Incorporated by reference to to
Exhibit 10.2 to DVL's Form 10-Q for the quarter ended June 30,
1997).
10.16 Amendment dated as a July 10, 1996, to Amended and Restated Loan
Agreement dated as of March 27, 1996 between DVL and NPM. (In-
corporated by reference to Exhibit 10.3.1 to DVL's Form 10-Q for
the quarter ended June 30, 1997.)
10.17 Second Amendment dated as of September 27, 1996, to Amended and
Restated Loan Agreement dated as of March 27, 1996 between DVL and
NPM. (Incorporated by reference to Exhibit 10.3.2 to DVL's Form
10-Q for the quarter ended June 30, 1997.)
10.18 Third Amendment dated as of March 6, 1997, to Amended and Restated
Loan Agreement dated as of March 27, 1996 between DVL and NPM and
Promissory Note dated as of March 6, 1997, comprising Exhibit A-1
thereto. (Incorporated by reference to Exhibit 10.3.3 to DVL's
Form 10-Q for the quarter ended June 30, 1997.)
10.19 Fourth Amendment dated as of October 20, 1997, among DVL, Black-
acre, NPM and NPO, to Amended and Restated Loan Agreement, dated
as of March 27, 1997, as amended, between DVL and NPM. (Incorpo-
rated by reference to Exhibit 10.1 to DVL's Form 10-Q for the
quarter ended September 30, 1997.)
10.20 Promissory Note dated as of October 20, 1997, in the original
principal amount of $1,760,000 from DVL to Blackacre. (Incorpo-
rated by reference to Exhibit 10.2 to DVL's Form 10-Q for the
quarter ended September 30, 1997.)
10.21 Subordination Agreement, dated as of October 20, 1997, among DVL,
Blackacre, NPM and NPO. (Incorporated by reference to Exhibit 10.3
to DVL's Form 10-Q for the quarter ended September 30, 1997).
10.22 Agreement Among Members dated April 10, 1998, by and among Black-
acre, PNM, Pem Mil, and DVL. (Incorporated by reference to DVL's
Form 10-K for the fiscal year ended December 31, 1998.)
10.23 Management Services Agreement dated June 1, 1998, by and between
DVL and PBD Holdings, LP ("PBD"). (Incorporated by reference to
DVL's Form 10-K for the fiscal year ended December 31, 1998.)
10.24 Waiver of Event of Default and Agreement regarding the Demand and
Payment of Fees dated March 1999 by NPO. (Incorporated by
reference to DVL's Form 10-K for the fiscal year ended December
31, 1998.)
10.25 Waiver of Event of Default and Agreement regarding the Demand and
Payment of Fees dated March 2000 by NPO. (Incorporated by
reference to DVL's Form 10-K for the fiscal year ended December
31, 1999.)
48
10.26 Loan Agreement, Promissory Note and Pledge, Collateral Assignment
and Security Agreement, each dated as of March, 2000, each relat-
ing to a loan from Pennsylvania Business Bank to DVL in the orig-
inal principal amount of $1,000,000. (Incorporated by reference to
DVL's Form 10-Q for the quarter ended June 30, 2000.)
10.27 Term Loan Note and Term Loan Agreement, each dated as of March,
2000, each relating to a loan from Bankphiladelphia to DVL in the
original principal amount of $1,450,000. (Incorporated by
reference to DVL's Form 10-Q for the quarter ended June 30, 2000.)
10.28 First Amendment to Loan Agreement, Pledge Agreement, Promissory
Note and Other Documents dated August 2000, relating to a loan
from Pennsylvania Business Bank to DVL, Inc. in the original
principal amount of $1,000,000. (Incorporated by reference to
DVL's Form 10-Q for the quarter ended September 30, 2000.)
10.29 Mortgage Assignment Agreement dated August 2000, relating to an
assignment and sale of two mortgage loans from Rumson Mortgage
Holdings, LLC to DVL, Inc. for a total sale price of $900,000.
(Incorporated by reference to DVL's Form 10-Q for the quarter
ended September 30, 2000.)
10.30 Note in the original principal amount of $200,000, dated August
2000, relating to the sale of two mortgage loans from Rumson
Mortgage Holdings, LLC to DVL, Inc. (Incorporated by reference to
DVL's Form 10-Q for the quarter ended September 30, 2000.)
*10.31 Agreement of Purchase and Sale, dated as of October 2, 2000,
relating to the purchase of real estate assets by Del Toch, LLC
from Passaic Avenue South Associates.
*10.32 Agreement of Purchase and Sale, dated as of October 12, 2000,
relating to the purchase of land by Delborne Land Company, LLC
from Mcany of Kearny, Inc.
*10.33 Waiver of Event of Default and Agreement regarding demand and
payment of fees dated March 2001 by NPO.
*11. Schedule of Computation of Net Earnings Per Share.
21. SUBSIDIARIES OF DVL.
The Company's only significant subsidiaries are Professional
Service Corporation (a Delaware Corporation), Del Toch, LLC (a
Delaware Limited Liability Corporation), and Delborne Land
Company, LLC (a Delaware Limited Liability Corporation).
(b) No reports on Form 8-K were filed during the quarter ended December 31,
2000.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, DVL has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DVL, INC.
Date: March --, 2001 By:
---------------------------
Alan E. Casnoff, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, 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 E. Casnoff President and Chief Executive March --, 2001
Officer (Principal Executive
Officer)
- --------------------------
Gary Flicker Executive Vice President and March --, 2001
Chief Financial Officer
(Principal Financial and
Accounting Officer)
- --------------------------
Frederick E. Smithline Director March --, 2001
- --------------------------
Allen Yudell Director March --, 2001
- --------------------------
Myron Rosenberg Director March --, 2001
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, DVL has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DVL, INC.
Date: March --, 2001 By: /s/ Alan E. Casnoff
---------------------------
Alan E. Casnoff, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, 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
- --------------------------
Alan E. Casnoff President and Chief Executive March --, 2001
Officer (Principal Executive
Officer)
/s/ Gary Flicker
- --------------------------
Gary Flicker Executive Vice President and March --, 2001
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Frederick E. Smithline
- --------------------------
Frederick E. Smithline Director March --, 2001
/s/ Allen Yudell
- --------------------------
Allen Yudell Director March --, 2001
/s/ Myron Rosenberg
- --------------------------
Myron Rosenberg Director March --, 2001
51
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Financial Statements of DVL, Inc.
and Subsidiaries and Independent Auditors Report
Page
----
Independent Auditors' Report F- 1
Consolidated Balance Sheets-December 31, 2000 and 1999 F- 2
Consolidated Statements of Operations for each of the
years in the three year period ended December 31, 2000 F- 4
Consolidated Statements of Shareholders' Equity
for each of the years in the three year period
ended December 31, 2000 F- 6
Consolidated Statements of Cash Flows for each of the
years in the three year period ended December 31, 2000 F- 7
Notes to Consolidated Financial Statements F- 10
Schedule III - Real Estate and Accumulated Depreciation
Richard A. Eisner & Company, LLP
575 Madison Avenue
New York, New York 10022
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
DVL, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of DVL, Inc.
and subsidiaries as of December 31, 2000 and 1999, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 2000. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
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, 2000 and 1999, and the consolidated results of
their operations and their consolidated cash flows for each of the years in the
three-year period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America.
Our audits referred to above included Schedule III for each of the years in
the three-year period ended December 31, 2000. In our opinion, such schedule
presents fairly the information set forth therein in accordance with the
applicable accounting regulations of the Securities and Exchange Commission.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 9, 2001
With respect to Note 13
March 30, 2001
F-1
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
--------------------
2000 1999
ASSETS -------- --------
------
Loans receivable (including amounts maturing after one
year)
Affiliates:
Mortgages due from affiliated partnerships $ 53,979 $ 48,038
Unearned interest (12,340) (5,810)
-------- --------
Net mortgage loans receivable from affiliated
partnerships 41,639 42,228
Others:
Non-performing loans collateralized by limited
partnership interests 389 764
Due from affiliated partnerships 170 48
-------- --------
Total loans receivable 42,198 43,040
Allowance for loan losses 5,534 6,697
-------- --------
Net loans receivable 36,664 36,343
Cash (including restricted cash of $213 and $81 for 2000
and 1999, respectively) 1,184 1,270
Investments
Real estate at cost 3,737 494
Real estate lease interests 1,215 1,351
Affiliated limited partnerships (net of allowance for
loss of $647 and $927 for 2000 and 1999, respectively) 1,157 1,326
Other investments (net of allowance for loss of $400
for 2000 and 1999) 648 648
Prepaid financing and other assets 832 426
-------- --------
Total assets $ 45,437 $ 41,858
======== ========
See notes to consolidated financial statements.
F-2
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) except share data
December 31,
--------------------
2000 1999
-------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Underlying mortgages payable $ 26,019 $ 27,692
Long-term debt - Blackacre Bridge Capital, LLC 2,080 1,868
Long-term debt - Rumson 202 -
Long-term debt - Other 5,577 285
Notes payable - litigation settlement 3,028 3,003
Asset Service Fee Payable - NPO 373 1,467
Accounts payable, security deposits and accrued
liabilities 585 475
-------- --------
Total liabilities 37,864 34,790
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 par value, authorized -
100 shares for 2000 and 1999,
issued - 100 shares
for 2000 and 1999 1 1
Preferred stock, $.01 par value, authorized 5,000,000
shares for 2000 and 0 shares for 1999, issued - 0
shares for 2000 and 1999 - -
Common stock, $.01 par value, authorized -
90,000,000 shares for 2000 and 40,000,000 shares
for 1999, issued - 16,560,450 shares for 2000 and
1999 166 166
Additional paid-in capital 95,288 95,288
Deficit (87,882) (88,387)
-------- --------
Total shareholders' equity 7,573 7,068
-------- --------
Total liabilities and shareholders' equity $ 45,437 $ 41,858
======== ========
See notes to consolidated financial statements.
F-3
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
Year Ended December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Income from affiliates:
Interest on mortgage loans $ 3,436 $ 3,549 $ 4,523
Gain on satisfaction of mortgage loans 256 1,639 173
Partnership management fees 454 405 417
Transaction and other fees from
partnerships 413 502 497
Distributions from investments 253 265 148
Rent and other income 6 15 36
Income from others:
Net rental income 523 532 330
Management Fees 500 533 59
Distributions from investments 149 34 31
Other income and interest 73 261 108
---------- ---------- ----------
6,063 7,735 6,322
---------- ---------- ----------
Operating expenses:
Interest on underlying mortgages 2,329 2,640 3,445
Recovery of provision for losses (37) (48) (153)
General and administrative 1,309 1,327 1,142
Asset Servicing Fee - NPO Management LLC 623 600 600
Legal and professional fees 393 427 157
Interest expense
NPM Capital LLC - 665 780
Blackacre Bridge Capital, LLC 275 245 171
Litigation Settlement Notes 502 481 584
NPO 149 281 194
Rumson 10 - -
Others 311 91 160
---------- ---------- ----------
5,864 6,709 7,080
---------- ---------- ----------
Income (loss) before extraordinary
gain 199 1,026 (758)
Extraordinary gain on the settlements
of indebtedness 306 1,267 202
---------- --------- ----------
Net income (loss) $ 505 $ 2,293 $ (556)
========== ========== ==========
(continued)
F-4
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(continued)
Year Ended December 31,
----------------------------------
2000 1999 1998
---------- ---------- ----------
Basic earnings (loss) per share:
Income(loss) before extraordinary gain $ .01 $ .06 $ (.04)
Extraordinary gain .02 .08 .01
---------- ---------- ----------
Net income (loss) $ .03 $ .14 $ (.03)
========== ========== ==========
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain $ .01 $ .02 $ (.04)
Extraordinary gain .00 .02 .01
---------- ---------- ----------
Net income (loss) $ .01 $ .04 $ (.03)
========== ========== ==========
Weighted average shares outstanding -
basic 16,560,450 16,560,450 16,508,329
Effect of dilutive securities 79,777,136 50,422,788 --
---------- ---------- ----------
Weighted average shares outstanding -
diluted 96,337,586 66,983,238 16,508,329
========== ========== ==========
See notes to consolidated financial statements.
F-5
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands except share data)
Preferred Stock Common Stock Additional
----------------- --------------------- paid-in
Shares Amount Shares Amount capital Deficit Total
------ ------ ---------- ------ ------- -------- -------
Balance-January 1, 1998 100 $ 1 16,232,450 $ 162 $95,240 $(90,124) $ 5,279
Issuance of common stock in connection
with the loan from Blackacre Bridge, LLC -- -- 328,000 4 48 -- 52
Net loss -- -- -- -- -- (556) (556)
------ ------ ---------- ------ ------- -------- -------
Balance-December 31, 1998 100 1 16,560,450 166 95,288 (90,680) 4,775
Net income -- -- -- -- -- 2,293 2,293
------ ------ ---------- ------ ------- -------- -------
Balance-December 31, 1999 100 1 16,560,450 166 95,288 (88,387) 7,068
Net Income -- -- -- -- -- 505 505
------ ------ ---------- ------ ------- -------- -------
Balance-December 31, 2000 100 $ 1 16,560,450 $ 166 $95,288 $(87,882) $ 7,573
=== ==== ====== ====== ========== ====== ======= ======== =======
See notes to consolidated financial statements.
F-6
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
Cash flows from operating activities:
Income (loss) before extraordinary gain $ 199 $ 1,026 $ (758)
Adjustments to reconcile income (loss) before
extraordinary gains to net cash provided by
(used) in) operating activities
Recovery of provision for losses (37) (48) (153)
Accrued interest added to indebtedness 273 247 460
Gain on satisfactions of mortgage loans (256) (1,639) (173)
Amortization of unearned interest on loans
receivable (62) (67) 63
Amortization of real estate lease interests 136 138 132
Amortization of debt discount - 234 105
Imputed interest on notes 502 481 584
Amortization of deferred credits - - (296)
Net (increase) decrease in other assets (268) 614 (39)
Net increase (decrease) in accounts payable
and accrued liabilities 110 (90) (376)
Net (decrease) increase in asset service
fee payable - NPO (1,094) (247) 789
Net (increase) decrease in due from
affiliated partnerships (122) 383 3
-------- -------- --------
Net cash (used in) provided by operating
activities (619) 1,032 341
-------- -------- --------
Cash flows from investing activities:
Collections on loans receivable 4,949 14,851 9,393
Investments in loans receivable (2,426) -- --
Real estate purchases and capital improvements (3,381) -- --
Net decrease (increase) in affiliated limited
partnership interests and other investments 169 123 (23)
Proceeds on sale of real estate - 300 -
-------- -------- --------
Net cash (used in) provided by investing
activities $ (689) $ 15,274 $ 9,370
-------- -------- --------
(continued)
F-7
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(continued)
Year Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
Cash flows from financing activities:
Proceeds from new borrowings $ 6,425 $ 588 $ 600
Repayment of indebtedness (992) (4,707) (3,457)
Payments on underlying mortgages payable (4,040) (10,952) (6,662)
Payments related to debt tender offer (171) (357) (296)
-------- -------- --------
Net cash (used in) financing activities 1,222 (15,428) (9,815)
-------- -------- --------
Net (decrease) increase in cash (86) 878 (104)
Cash, beginning of year 1,270 392 496
-------- -------- --------
Cash, end of year $ 1,184 $ 1,270 $ 392
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for interest $ 2,499 $ 2,382 $ 3,396
======== ======== ========
Cash paid for income taxes $ 35 $ 21 $ 6
======== ======== ========
(continued)
F-8
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(continued)
Year Ended December 31,
---------------------------
2000 1999 1998
------- ------- -------
Supplemental disclosure of non-cash investing
and financing activities:
Net reduction of Notes Payable - Debt
Tender Offer $ 306 $ 1,267 $ 202
======= ======= =======
Reduction in accrued liabilities upon
issuance of Common Stock $ - $ - $ 52
======= ======= =======
Real estate asset acquired in satisfaction
of mortgage receivable $ - $ - $ 416
======= ======= =======
Note received in sale of affiliated
partnership units $ - $ - $ 88
======= ======= =======
See notes to consolidated financial statements.
F-9
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. THE COMPANY: DVL, Inc. ("DVL or the "Company") is a Delaware corporation
headquartered in New York, New York. DVL's common stock is traded on the
over-the-counter market and is quoted on the OTC Bulletin Board maintained by
the NASD under the symbol "DVLN". DVL is a commercial finance company which
manages numerous real estate properties and partnerships, and holds and services
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 has three 100% owned active subsidiaries: Professional Service
Corporation ("PSC"), Del Toch, LLC ("Del Toch"), and Delborne Land Company, LLC
("Delborne"), all of which are consolidated for accounting purposes. DVL does
not consolidate any of the various partnerships in which it holds the general
partner and limited partner interests nor does DVL account for such interests on
the equity method due to the following: (i) DVL's interest in the partnership as
the general partner is a 1% interest, (which 1% interest is payable to the
limited partnership settlement fund pursuant to the 1993 settlement of the class
action between the limited partners and DVL); (ii) under the terms of such
settlement, the limited partners have the right to remove DVL as the general
partner upon the vote of 70% or more of the limited partners; (iii) all major
decisions must be approved by a limited partnership Oversight Committee in which
DVL is not a member, (iv) there are no operating policies or decisions made by
the partnership, due to the triple net lease arrangements for the partnership
properties and (v) there are no financing policies determined by the
partnerships as all mortgages were either in place prior to DVL's obtaining its
interest and all potential refinancings are reviewed by the Oversight Committee.
Accordingly, DVL accounts for its investments in the limited partnerships, which
are considered affiliates, on a cost basis with the cost basis adjusted for
impairments which took place in prior years. Accounting for such investments on
the equity method would not result in any material change to the Company's
financial position or results of operations.
Also, DVL has two inactive subsidiaries: Del-Val Capital Corp. ("DVCC") and
RH Interests, Inc. ("RH") which have been consolidated in these financial
statements. All material intercompany transactions and accounts are eliminated
in consolidation.
b. 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.
c. 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 4).
F-10
d. 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.
e. DEFERRED CHARGES: Deferred charges applicable to debt financing are
amortized over the term of the debt using the effective interest rate method.
f. 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. DVL accounts for increases and decreases in the amount or
timing of expected future cash flows on its loan portfolio by adjusting the
valuation allowance, not to exceed the recorded investment in the loan. Cash
receipts on restructured loans are treated as interest income as a result of
previous write-downs of such loans due to prior impairments. DVL records
contingent rents in the period in which the contingency is resolved. Gains on
sales of real estate to affiliates were 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. As of December 31, 1998, DVL
is no longer recognizing any income under the installment method. DVL recognized
$47,000 of installment income in 1998. No installment income was recognized in
1999 and 2000.
g. IMPAIRMENT OF REAL ESTATE INVESTMENTS AND REAL ESTATE LEASE INTERESTS: DVL
does not have any impaired real estate investments and/or real estate lease
interests at December 31, 2000. All assets are analyzed annually based upon
prior appraised values, which are adjusted every year based on cash flow
assumptions set forth in such appraisals. As of December 31, 2000, the analysis
of such assets reflect the full recovery of those investments.
h. RESTRICTED CASH: As of December 31, 2000 and 1999, DVL had restricted cash
of $213,000 and $81,000, respectively. The restricted cash at December 31, 1999
represented funds that were deposited into an escrow account pursuant to the
terms of a lease entered into by DVL which required that the funds be set aside
as a security deposit. This escrow account was closed in 2000 as a result of the
purchase by the Company of the leased real estate assets. (See Note 5). The
restricted cash at December 31, 2000, represents monies owed to the Settlement
Fund (Note 2) from a 2000 refinancing. There are corresponding liabilities of
$213,000 and $81,000, respectively, included in accounts payable on DVL's
balance sheet.
i. UNEARNED INTEREST ON MORTGAGE LOANS AND LOAN ORIGINATION FEES AND COSTS:
Unearned interest on mortgage loans is recognized as income using the effective
interest method over the life of the corresponding loans. Presently, DVL does
not receive loan origination fees as the Company is not originating new loans
receivable.
F-11
j. FAIR VALUE OF FINANCIAL INSTRUMENTS: As disclosed in Note 4, DVL's loan
portfolio is valued based on the value of the underlying collateral. As all
loans are either receivables from affiliated limited partnerships or are
collateralized by interests in affiliated limited partnerships, it is not
practical to estimate fair value of the loans. Due to the nature of the
relationship between the limited partnerships and DVL's general partner interest
in the limited partnerships and the authority of the Oversight Committee, the
amount at which the loans could be exchanged with third parties is not
reasonably determinable, as any such estimate would have to consider the
intention of the Oversight Committee, the amounts owed, if any, to DVL for its
interests in the partnerships and any transaction fees to which DVL might be
entitled.
k. FEDERAL INCOME TAXES: DVCC, PSC, RH, Del Toch, and Delborne are included in
DVL's consolidated federal income tax return.
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, 2000, DVL had net operating loss carryforwards for income
tax purposes of approximately $61 million available to offset future taxable
income, if any, expiring through 2019, with approximately $54 million expiring
through 2007. Temporary differences arise from differences between financial
reporting and income tax reporting relating primarily to provisions for loan and
other losses and remaining notes outstanding 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 $31 million,
which is comprised of the tax benefit of net operating loss carryforwards of
approximately $25 million, temporary differences represented primarily by the
excess in tax basis of mortgages receivable over book basis of $3 million,
non-deductible loan reserves of $2 million, and the issuance of the notes
payable pursuant to the shareholder litigation of $1 million which are fully
reserved for due to the uncertainty of realizing taxable income in the future
(Notes 2 and 11). DVL's total deferred tax asset and the valuation allowance
increased by approximately $1 million in 2000. The difference between the tax
provision at the statutory rate of 34% and the provision of 0% reflected on the
accompanying financial statements is principally due to the increase in the
valuation allowance.
l. EARNINGS PER SHARE: All income is attributable to common stock. The
preferred stock issued by DVL at the present time total 100 shares with a par
value of $10.00 per share. There are no cumulative dividends or accretion.
Diluted earnings per share includes the dilutive effect of the outstanding
litigation settlement notes payable (Note 7), the NPM warrants (Note 6d) and
stock options (Note 10).
m. RECENTLY ISSUED ACCOUNTING STANDARDS: There are no recently issued
accounting standards, based upon DVL's current operations, which would affect
DVL's disclosures or method of accounting.
F-12
2. Basis of Presentation and Financial Condition
DVL's cash in-flow generated by its mortgage portfolio is currently used to
pay the underlying first mortgages, and any excess was used to fund principal
and interest payments on the NPM Loan (as here after defined), based on the
collateral interest of NPM Capital LLC in the mortgages (Note 6), and to pay
certain other creditors. The NPM Loan was repaid in May 1999. NPO Management LLC
("NPO") has agreed to defer amounts due under its management agreement through
December 31, 2001, unless DVL would have, after making such payments, sufficient
cash to fund its operations through that date. Management estimates that DVL's
anticipated cash flow provided by operations will be sufficient to meet its cash
requirements through January 2002.
In November 1992, DVL, Kenbee Management, Inc. ("Kenbee"), DVL's former
manager, 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 established a settlement fund into which DVL is required to deposit a
portion of its cash flow received from Affiliated Limited Partnership mortgages
and other loans receivable from Affiliated Limited Partnerships, as well as a
contribution of 5% of DVL's net income subject to certain adjustments in the
years 2001 to 2012.
DVL has implemented significant measures to reduce its operating expenses.
DVL has in the past and expects in the future to continue to augment its cash
flow with additional cash provided by proceeds from the sale or refinancing of
assets and/or borrowings.
3. Loans Receivable and Underlying Mortgages
Virtually all of DVL's loans receivable arose out of transactions in which
Affiliated Limited 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 Limited Partnership.
DVL's loan portfolio is comprised of long-term wrap-around and other mortgage
loans due from Affiliated Limited Partnerships; and loans due from limited
partners collateralized by their interests in Affiliated Limited Partnerships
("Partners' Notes") and were principally pledged to collateralize DVL's
indebtedness to NPM (Note 6), until May 1999, at which time, the loan was
repaid.
DVL's mortgage portfolio included 26 and 24 loans with net carrying values
of $33,639,000 and $31,621,000 as of December 31, 2000 and 1999, respectively,
which are due from Affiliated Limited Partnerships that own properties leased to
Wal-Mart Stores, Inc. Wal-Mart is a public company subject to the reporting
requirements of the SEC. Wal-Mart has closed certain of its stores located on
the properties subject to the Company's mortgages. However, Wal-Mart continues
to pay the required rent with respect to such leases. Net carrying value refers
to the unpaid principal balance less any allowance for reserves, and any amount
which represents future interest based upon the purchase of the loan at a
discount.
DVL is liable for underlying first mortgages on a substantial portion of
its mortgage portfolio. The underlying mortgages are payable to unrelated
financial institutions and bear interest at rates of 6.66% to 14.0% and require
principal and interest payments solely from the proceeds of the wrap mortgages
receivable.
F-13
During 2000, DVL purchased five wrap mortgage loans from an unaffiliated
third party which are secured by real estate properties owned by Affiliated
Limited Partnerships in which DVL is the general partner. The loans were
purchased for an aggregate price of $1,210,000 plus closing costs, paid as
follows: cash of $135,000, a $75,000 unsecured promissory note payable to the
seller of the loans maturing on March 1, 2001, without interest, and bank
financings of $1,000,000. This $75,000 note was paid in full in March 2001. This
bank financing is a self-amortizing loan that originally was scheduled to mature
on April 1,2005 with interest accruing at the annual rate of prime plus 1.5% and
requires payments to be made from the net cash proceeds DVL will receive on the
mortgage loans. The wrap mortgage loans were previously owned by DVL and were
transferred to the seller in 1992 in settlement of indebtedness. In May 2000,
DVL, as the general partner of an Affiliated Limited Partnership that owned one
of the real estate properties that secured this bank loan, negotiated the sale
of the partnership's property. DVL received $700,000 in connection with the sale
as the mortgage holder which DVL paid to the bank to reduce the loan.
During 2000, DVL purchased two additional mortgage loans from an entity
that is part of the Opportunity Fund (see "Opportunity Fund", defined below)
which are secured by real estate owned by Affiliated Limited Partnerships in
which DVL is the general partner. The loans were purchased for an aggregate
price of $900,000, paid as follows: the issuance to the seller of a secured
promissory note in the amount of $200,000 maturing on August 31, 2002 with
interest accrued at the rate of 12% per annum, compounded monthly, and bank
financing of $700,000 which was added to the loan described above. The maturity
date of the loan was extended until May 1, 2006.
In 2000, the Company obtained additional bank financing in the amount of
$1,450,000 that is secured by the assignment of three existing mortgage
receivables and a $405,000 face value mortgage receivable which was purchased
from an entity that is part of the Opportunity Fund for $315,000. The net
proceeds of this loan were used to repay one existing underlying mortgage of
approximately $92,000 and the balance of the funds were used for general
corporate purposes including the payment of accrued fees to NPO. This bank
financing is a self-amortizing loan that matures on April 1, 2005 with interest
accruing at the annual rate of prime plus 1.5% and requires payments be made
from the net cash proceeds DVL will receive on these mortgage loans. In 1998,
the Company refinanced one mortgage which generated approximately $40,000 in
excess of the existing underlying mortgage. The net excess funds from the 1998
refinancing were used to pay the expenses of the refinancings, and to pay down
the loan to NPM Capital LLC ("NPM") as required by the applicable loan
agreements. During 1999, DVL did not refinance any of its wrap mortgages. The
amounts obtained from all of the refinancings were primarily based on the value
of the base rents due from tenants during the period of the base lease term
subsequent to the payoff of the existing first mortgages. As a result of the
refinancings, the Company's asset base available for future refinancings has
diminished.
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 Limited Partnerships which
bore interest at effective rates of up to 15% per annum, aggregating net
carrying values of $4,853,000, and $5,874,000 subject to underlying mortgages of
$3,488,000 and $4,165,000 at December 31, 2000 and 1999, respectively, and
mature through 2027. The effect of the modification on these mortgages on DVL's
interest income for 2000 was not material.
F-14
In addition, at the time of the settlement, the terms of the loans to
Kenbee collateralized by similar loans were restructured and modified. These
loans originally bore interest at 3% over DVL's average interest rate for short-
term borrowings and matured through 1996. 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, 2000 and 1999 the modified loans due
directly from the partnerships aggregated net carrying values of $24,224,000 and
$27,314,000 subject to underlying mortgages of $18,905,000 and $21,926,000,
respectively. DVL recognized interest income on these restructured mortgage
loans of approximately $309,000, $360,000 and $378,000, for 2000, 1999, and
1998, respectively. Had these loans not been in default and had the terms not
been modified, interest income relating to these notes would have been
approximately $2,500,000 in 2000, $3,000,000 in 1999, and $4,000,000 in 1998.
F-15
DVL's mortgage and other loans due from Affiliated Limited Partnerships, an
unaffiliated entity and limited partners are as follows:
2000 1999
------------------------------------ -----------------------------------------
Accrued Accrued
Interest Allowance Interest Allowance
Number Included For Loan Number Included For Loan
Mortgage Loans Due From Affiliated Partnerships of Loan In Loan Losses of Loan In Loan Losses
(dollar amounts in thousands) Loans Balance Balance (Note 4) Loans Balance Balance (Note 4)
- ----------------------------------------------- ------ ------- -------- -------- ------- ------- -------- ---------
Long-term wrap-around mortgage loans ranging
from $393 to $2,625 in 2000 and from $512 to
$2,157 in 1999 maturing at various dates
through May 2029 (a) 16 $ 23,127 $ 74 $ -- 9 $ 13,398 $ 52 $ 527
Other long-term mortgage loans ranging from
$1,363 to $1,436 in 2000 and from $1,395 to
$1,442 in 1999 maturing at various dates
through May 2029 (b) 2 2,799 -- 545 2 2,837 -- 191
Long-term wrap-around and other mortgage
loans acquired from Kenbee pursuant to
the Limited Partner Settlement ranging
from $285 and $3,308 in 2000 and from $298 to
$3,390 in 1999 maturing at various dates
through June 2031 (c) 20 28,053 -- 4,705 21 31,803 -- 5,365
-- -------- ----- ------- --- -------- ------ -------
Total mortgage loans 38 53,979 74 5,250 32 48,038 52 6,083
Loans Collateralized By Limited Partnership Interests
- -----------------------------------------------------
Loans ranging from $1 and $58 in 2000 and
from $1 to $68 in 1999 in default (d) 24 389 -- 284 45 764 -- 614
Due from affiliated partnerships
- --------------------------------
Advances and Other 16 170 -- -- 17 48 -- -
-- -------- ----- ------- --- -------- ------ ------
Total loans receivable 78 54,538 $ 74 $ 5,534 94 48,850 $ 52 $ 6,697
Less unearned interest on partnership mortgage === ===== ======= === ====== =======
loans 12,340 5,810
-------- --------
Net loans receivable $ 42,198 $ 43,040
======== ========
Underlying mortgages ranging from $30 and $2,836 in
2000 and from $105 to $2,903 in 1999 maturing at
various dates through 2011 $ 26,019 $ 27,692
======== ========
F-16
Activity on all collateralized loans is as follows:
2000 1999 1998
-------- -------- --------
(in thousands)
Balance, beginning of year $ 48,802 $ 65,861 $ 77,811
Investments in loans receivables 13,584 -- --
Collections on loans to affiliates (4,949) (14,851) (9,393)
Unearned interest offset against loans
satisfied, sold and written off (2,199) (2,066) (324)
Loans written-off and written down (870) (142) (2,233)
-------- -------- --------
Balance, end of year $ 54,368 $ 48,802 $ 65,861
======== ======== ========
Unearned interest activity is as follows:
2000 1999 1998
-------- -------- --------
(in thousands)
Balance, beginning of year $ 5,810 $ 7,944 $ 8,350
Additional unearned interest in
connection with new loans receivable 8,791 -- --
Amortization to income (62) (68) (82)
Decrease in connection with the
satisfaction or write-off of loans (2,199) (2,066) (324)
-------- -------- --------
Balance, end of year $ 12,340 $ 5,810 $ 7,944
======== ======== ========
(a) DVL previously funded certain wrap-around mortgages due from
Affiliated Limited Partnerships, whereby the original principal of the wrap
equaled the outstanding balance of an underlying first mortgage loan plus the
amount of funds advanced by DVL to the partnership. These loans mature through
May 2029, bear interest at effective rates from 10% to 51% 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
subject to underlying mortgage loans of $7,114,000 in 2000 and $5,766,000 in
1999, which bear interest at rates ranging from 7.5% to 13.125% per annum, are
payable to unaffiliated lenders in monthly installments, mature on various dates
through August 2011 and are collateralized by liens senior to DVL's liens. See
Note 6 for the five year maturities of such underlying loans.
F-17
(b) DVL's other long-term mortgage loans, exclusive of its wrap-around
mortgages, are collateralized by two first mortgages aggregating $2,799,000 and
$2,837,000 at December 31, 2000 and 1999, respectively. These loans 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. The principal maturities of DVL's
commercial mortgage loan portfolio, excluding wrap-around mortgages, in each of
the next five years are $41,000 in 2001, $44,000 in 2002, $47,000 in 2003,
$51,000 in 2004 and $55,000 in 2005. All such commercial mortgage loans and the
wrap-around mortgages are collateralized by liens on commercial and industrial
properties located in various states.
(c) DVL acquired long-term wrap-around and other mortgage loans to
Affiliated Limited Partnerships pursuant to the Limited Partner Settlement. The
principal balance of such loans when acquired in 1992 equaled 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 4). Although these loans have
stated interest rates of up to 15.5% per annum, interest, if any, is 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 subject to senior liens of
$18,905,000 in 2000 and $21,926,000 in 1999, which bear interest at rates
ranging from 7.5% to 14% per annum, are payable to unaffiliated lenders on a
zero coupon basis and in monthly installments, mature on various dates through
January 2012 and are collateralized by liens senior to DVL's liens. The payment
of the underlying first mortgages are also being made by the partnerships or
tenants as discussed in (a) above. See Note 6 for the five year maturities of
such underlying loans.
(d) 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
matured at various dates through December 1995 and bore interest at fixed rates
of 15% to 16% per annum and at variable rates up to 2 1/2% over prime.
Substantially, all of these loans were non- performing at December 31, 2000 and
1999. The Company is pursuing collection efforts and is foreclosing on the
limited partnership interests pledged as collateral when collection efforts
fail.
4. Allowance for Losses and Other Reserves
Allowance for loan loss activity is as follows:
2000 1999
------- -------
(in thousands)
Balance, beginning of year $ 6,697 $ 8,435
Loans satisfied, written-off or written-down (1,163) (1,738)
------- -------
Balance, end of year $ 5,534 $ 6,697
======= =======
F-18
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 evaluation considered the magnitude of DVL's
non-performing loan portfolio, updated internally generated appraisals of
certain properties and updated information on certain properties.
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 3% annually, based upon each individual store's sales history through
January 31, 2000. Management evaluates and updates such appraisals,
periodically, and considers changes in the status of the existing tenancy in
such evaluations. Certain other properties were valued based upon management's
estimate of the current market value for each specific property using similar
procedures.
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. As of December 31, 2000 and 1999, the notes deemed
uncollectible were provided for assuming an estimated residual value of the
related partnership investment of approximately 14% of the original investment,
which reflects management's estimate of the investment's net realizable value.
F-19
5. Investments
REAL ESTATE
At December 31, 2000, DVL's land investments consisted of three properties
in New Jersey which were previously pledged to collateralize indebtedness to NPM
(Note 6)until May 1999, at which time the NPM loan was repaid (Note 6). Prior to
May 1999, DVL owned an additional parcel which was leased to an affiliate
partnership under a long-term lease with annual rents of approximately $30,000.
In April 1999, DVL sold this property for $300,000, to an affiliated entity
which is part of the Opportunity Fund resulting in a gain of $90,000. An
adjoining parcel was also leased to an Affiliated Limited Partnership under a
long term lease, however, this partnership had been in default in its monthly
obligations. In November 1998, DVL, as mortgagee, foreclosed on the building
that secured its mortgage loan receivable. DVL had a net carrying value of its
mortgage receivable of approximately $417,000 at the time of foreclosure and has
recorded its building at this same cost basis, as it approximated the current
market value of the property. The partnership which had the land lease
obligation to DVL, that DVL foreclosed upon, was liquidated with no additional
monies paid under its land lease agreement.
During 2000, DVL purchased the land, buildings, and improvements from a
limited partnership which owned seven buildings located in an industrial park in
Kearny, NJ for an aggregate purchase price of $3,000,000, plus closing costs.
Prior to the purchase, the Company had been leasing all of these buildings,
under a master lease agreement, and subletting this property to various
unrelated tenants. The acquisition was funded with bank financing in the
original principal amount of $3,000,000 and cash of approximately $255,000. The
bank financing accrues interest at the rate of 10% per annum and requires
monthly interest-only payments until December 1, 2001, at which time the loan
matures. The Company may extend the loan under the same terms until June 1, 2002
by paying an extension fee of $15,000.
In early 2001, DVL purchased the fee title in a parcel of land in Kearny,
NJ from an unrelated third party for a purchase price of $365,000, plus closing
costs. The acquisition was funded with bank financing in the original principal
amount of $200,000 and cash of approximately $175,000. This bank financing
accrues interest at the rate of 9.5% per annum and requires monthly
interest-only payments until December 31, 2001, at which time the loan matures.
The Company may extend the loan under the same terms until June 1, 2002, by
paying an extension fee of $750.
AFFILIATED LIMITED PARTNERSHIPS
DVL acquired various interests in Affiliated Limited Partnerships pursuant
to the terms of certain settlement agreements and through purchases. Management
valued all of these investments at approximately 14% of the original investment
amount due to potential anticipated losses upon liquidation of these investments
(Notes 2, 3, 4, and 6). During 2000, 1999 and 1998, DVL recorded income of
$253,000, $265,000 and $148,000, respectively, from distributions received from
these investments.
F-20
The activity on DVL's investments in Affiliated Limited Partnerships is as
follows:
2000 1999
------- -------
(in thousands)
Balance, beginning of year $ 1,326 $ 1,449
Various interests acquired through
purchases and foreclosed partner notes 3 45
Distributions received from sales (447) (413)
Income from distributions 253 265
Write-offs and reserves 22 (20)
------- -------
Balance, end of year $ 1,157 $ 1,326
======= =======
At December 31, 2000, all of DVL's investments in Affiliated Limited
Partnerships are pledged to collateralize its indebtedness (Note 6).
OTHER INVESTMENTS
In connection with a 1993 litigation settlement with three related
partnerships that opted out of the Limited Partner Settlement, DVL received
limited partnership interests in three partnerships. These partnerships' sole
assets are the restructured partnership mortgage loans on the properties leased
to Wal-Mart Stores, Inc. by the three partnerships which opted out. These
investments were valued based upon the anticipated cash flow to be generated by
the restructured mortgage loans (Notes 3(c) and 4). Management has reserved a
total of $400,000 as of December 31, 2000 and 1999 primarily resulting from a
decrease in the value of the underlying collateral of one of the three
partnership mortgage loans. Prior to 1998, as distributions were received or the
investments were disposed of, the carrying value was reduced and no income was
recognized. In 2000 and 1999, distributions in the amount of $28,000 and $34,000
were received by DVL and these amounts were recognized as income since it is now
anticipated that the expected future cash flow will exceed the carrying value.
F-21
6. Long-Term Debt and Loans Payable Underlying Wrap-around Mortgages
DVL's long-term debt is comprised of the following loans payable:
2000 1999
------ ------
(in thousands)
Indebtness restructured in 1995 collateralized
by commercial mortgages maturing in 2001 $ 198 $ 285
Loan collateralized by commercial mortgage loans
and real estate bearing interest at prime plus
1.5% per annum maturing May, 2006 (a) 987 --
Loan collateralized by commercial mortgage loans
and real estate bearing interest at prime plus
1.5% per annum maturing April, 2005 (a) 1,317 --
Unsecured promissory note maturing March 2001,
without interest (paid in full March 2001) 75 --
Loan collateralized by real estate bearing
interest at 10% per annum, maturing
December, 2001 (b) 3,000 --
------ ------
5,577 285
Loan collateralized by commercial mortgages
and real estate bearing interest at 12% per
annum, maturing September 2002 (c) 2,080 1,868
Loan collateralized by DVL's interest in the
Opportunity Fund bearing interest at 12% per
annum maturing August 2002 (a) 202 --
Loan indebtedness due NPM bearing interest at
10.25% maturing in September 2002, collater-
alized by commercial mortgages and real estate
(loan repaid May 1999)(d) -- --
------ ------
Total long-term debt $7,859 $2,153
====== ======
(a) See loans receivable and underlying mortgages (Note 3).
(b) See Investments-Real Estate (Note 5) for financing agreements.
(c) See Debt Tender Offer (Note 7) for description of financing agreement
with Blackacre Bridge Capital, LLC.
(d) To better enable DVL to resolve its liquidity problems and to meet its
certain mandatory repayment requirements, on September 27, 1996, DVL and NPM
closed a loan transaction under a certain Loan Agreement dated March 27, 1996
(the "Original Loan Agreement"), pursuant to which NPM purchased three loans
from three creditors, and agreed to make principal installment payments of up to
$600,000 on DVL's obligation to two additional creditors (the "Original Loan").
NPM has fulfilled this additional funding obligation. The three purchased loans
represented an aggregate outstanding balance of $7,501,000. Two of the five
loans had negotiated discounts of $2,773,000.
F-22
The actual amount loaned by NPM at the closing, which included the balances due
to the above mentioned creditors, less the realized discount, plus NPM's costs,
equaled $5,232,000. Included in the loan balance were NPM's costs (in excess of
$175,000) incurred in connection with this transaction, such excess totaled
approximately $503,000. In consideration of NPM's loan enabling DVL to avail
itself of discounts to existing lenders, and for providing DVL with the extended
payment schedule, the principal amount of the loan was increased by $3,150,000.
All such funds advanced at the closing were consolidated into a single note with
NPM in the amount of $8,382,000. For financial reporting purposes, DVL
recognized an extraordinary loss of $880,000 on this transaction in 1996.
In March and April 1997, NPM advanced DVL an aggregate of $200,000 (the
"Additional Advances"). In addition, from January 1998 through May 1999, NPM
advanced additional amounts aggregating $370,000 to DVL. These advances, which
were not required under the Original Loan Agreement, bore interest at 15% per
annum and were paid pari passu with said loan. The Original Loan and the
Additional Advances are referred to in the aggregate herein as the "NPM Loan".
In May 1999, DVL paid all remaining amounts due on the NPM loan.
Under the terms of the NPM Loan, the principal balance was payable over six
years with interest at the rate of 10.25%. DVL was required to make certain
mandatory payments towards the principal balance over the term of the loan. The
first such payment (when combined with all prior principal reductions) must be
sufficient to reduce the principal balance of the NPM Loan by 15%, and was due
by March 31, 1998. The next such payment, which must be sufficient to cause
cumulative principal reductions to aggregate 33% of the principal balance, was
due by December 31, 1998. The third such payment, which must be sufficient to
cause cumulative principal reductions to aggregate 50% of the principal balance,
was due by September 30, 1999. DVL's principal payments exceeded these
requirements from September 27, 1996 through May 1999 when the entire loan was
repaid.
The rate of interest on the NPM Loan was approximately 36% including the
$880,000 extraordinary loss. The effective annual interest rate to DVL for
financial reporting purposes, as currently computed, including DVL's costs
associated with the NPM Loan and the value of the Warrants (described below) was
15%. These rates are based on payments made through May 1999.
In connection with the transactions contemplated by the Original Loan
Agreement in March 1996, DVL and NPO (an affiliate of NPM) entered into an Asset
Servicing Agreement, pursuant to which NPO is providing DVL with administrative
and advisory services relating to the assets of DVL and its affiliated
partnerships. In consideration for such services, DVL is required to pay NPO
$600,000 per year (with cost of living increases beginning in 1999) over the
seven (7) year term of the asset servicing agreement, subject to early
termination under certain conditions. DVL had the right to defer up to $600,000
of such fees, with interest at 15% per annum, during the first two years and to
defer reduced amounts during the third year. DVL had accrued service fees of
$373,000 as of December 31, 2000. NPO has waived any Event of Default which may
exist under the Asset Servicing Agreement during the period through December 31,
2001 based on the fact that the amount of accrued service fees has exceeded the
operative limitations since mid-1997, and may continue to do so. The waiver does
not affect NPO's right to receive payment of all deferred service fees, and
interest thereon, which are currently outstanding or which may become
outstanding through December 31, 2001.
F-23
In connection with the Original Loan, affiliates of NPM acquired 1,000,000
shares (the "Base Shares") of DVL Common Stock for $200,000. The Base Shares
currently represent approximately 6% of the outstanding common stock of DVL. An
affiliate of NPM also acquired 100 shares of preferred stock for $1,000. DVL
issued to affiliates of NPM and NPO warrants (the "Warrants") to purchase such
number of shares of Common Stock as, when added to the Base Shares, represent
rights to acquire up to 49% of the outstanding Common Stock of DVL on a fully
diluted basis. The original exercise price of the Warrants was $.16 per share,
subject to applicable anti-dilution provisions and subject to a maximum
aggregrate exercise price of $1,900,000. The Warrants expire on December 31,
2007. Except under certain circumstances, they were not exercisable prior to
September 1999 in accordance with the terms of such Warrants. The limitations on
exercise were intended primarily to help preserve the utilization of DVL's
carryforwards of net operating losses and credits for federal income tax
purposes. The Warrants were valued for financial statement purposes at $516,000
at the date of issuance and such value resulted in a debt discount to be
amortized using the effective interest rate method. No Warrants have been
exercised through December 31, 2000.
The aggregate amount of restructured and other long-term debt and loans
payable underlying wrap-around mortgages (Note 4) maturing during the next five
years is as follows:
Loans Payable
Long-term Underlying Wrap
Debt Around Mortgages
--------- ----------------
(in thousands)
2001 $ 3,655 $ 2,070
2002 2,748 2,280
2003 519 2,511
2004 707 2,465
2005 230 2,688
Thereafter - 14,005
--------- -------
$ 7,859 $26,019
========= =======
7. Notes Payable - Litigation Settlement/Debt Tender Offers and
Redemptions
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 in 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 DVL 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 $1,386,851 (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.
F-24
In December 1995, DVL issued notes (the "Notes") in the aggregate principal
amount of $10,386,851 as a series in conjunction with the settlement agreed upon
in the DVL stockholder class action matter entitled IN RE DEL-VAL FINANCIAL
CORP. SECURITIES LITIGATION. The Notes, which are general unsecured obligations
of DVL, accrue interest at the rate of ten (10%) percent per annum, with
principal under the Notes, together with all accrued and unpaid interest
thereunder, due on December 31, 2005. Pursuant to the terms of the Notes,
accrued and unpaid interest payable on any of the first five anniversary dates
following the issuance of the Notes is payable, at the option of DVL, by the
issuance of similar additional Notes with a principal amount equal to the
accrued and unpaid interest obligation then due. On the five anniversary dates
following the issuance of the Notes, the Company satisfied its interest
obligations thereunder by issuing such additional Notes in lieu of payment of
any cash.
Since October 1997, the Company conducted three cash tender offers (the
"Offers") at a Tender Offer price of $0.12 per $1.00 principal amount of the
Company's 10% redeemable promissory notes due December 31, 2005 (the "Notes").
The first two Offers were financed with a loan from Blackacre discussed below.
The results were as follows:
Principal Amount Principal Amount
of Notes of Notes Extraordinary
Purchased by Purchased by Gains to
DVL by Blackacre DVL
---------------- ---------------- ------------
Offer # 1 $ 6,224,390 $ 392,750 $ 202,000
(1998)
$ 2,906,000
(1997)
Offer # 2 $ 2,413,652 $ 423,213 $ 1,267,000
(1999)
Offer # 3 $ 378,270 $ - 0 - $ 306,000
(2000)
The Company has had the option to redeem the outstanding Notes since
January 1, 1999 by issuing additional shares of Common Stock with a then current
market value (determined based on a formula set forth in the Notes), equal to
110% of the face value of the Notes plus any accrued and unpaid interest
thereon. Because the applicable market value of the Common Stock will be
determined at the time of redemption, it is not possible currently to ascertain
the precise number of shares of Common Stock that may have to be issued to
redeem the outstanding Notes. The redemption of the notes may cause significant
dilution for current shareholders. The actual dilutive effect cannot be
currently ascertained since it depends on the number of shares to be actually
issued to satisfy the Notes. The Company currently intends to exercise at some
point in the future its redemption option to the extent it does not buy back the
outstanding Notes by means of cash tender offers or cash redemptions.
Notes with an aggregate principal amount of approximately $3,725,000 remain
outstanding as of December 31, 2000 (discounted value $3,028,000). The offers
have reduced the potential dilutive effective on the Company's current
stockholders that would result from redemption of the notes for shares of Common
Stock. However, given the aggregate principal amount of Notes which remain
outstanding, the potential dilutive effect of such a redemption is still
significant.
F-25
In order to fund the acquisition of the Notes in the first and second
offers and pay the related costs and expenses, the Company entered into an
amended financing arrangement (the "BC Arrangement") with Blackacre, NPM and NPO
as of October 20, 1997, in the form of a Fourth Amendment to a Loan Agreement
between such parties (as amended, the "Amended Loan Agreement), permitting the
Company to borrow up to $1,760,000 (the amount actually borrowed by the Company
pursuant to the BC Arrangement is referred to as the "BC Loan"). The BC Loan
matures on September 30, 2002 and bears interest at the rate of 12% per annum
compounded monthly and payable at maturity. Total borrowings under the BC
Arrangement were $1,560,000 as of December 31, 2000. In addition, Blackacre is
entitled to acquire 15% of all Notes acquired by the Company in excess of
$3,998,000 under the same terms and conditions as the Company. Blackacre
acquired Notes aggregating $392,750 under these terms from the First Offer and
$423,213 from the Second Offer. DVL funded the Third Offer with available cash.
As further consideration for Blackacre's providing the Company with the BC
Loan, the Company issued to Blackacre 653,000 shares of Common Stock.
The Company's obligations under the BC Loan are secured by all of the
assets of the Company currently pledged to NPO under the Amended Loan Agreement
and the other documents executed in connection therewith. The BC Loan is senior
to all indebtedness of the Company other than indebtedness to NPO and, with
respect to individual assets, the related secured lender. The effective interest
rate to the Company for financial reporting purposes, including the Company's
costs associated with the BC Loan, and the value of the 653,000 shares issued to
Blackacre in connection therewith, is approximately 14% per annum. Interest
payable in connection with the BC Loan will be deferred until the Company
satisfies all of its obligations owing to NPO. However, since April 27, 2000 the
Company must pay principal payments of 15% of all proceeds that would otherwise
be remitted to NPO, to Blackacre. Thereafter, interest and principal will be
paid from 100% of the proceeds then available to the Company from the mortgage
collateral held as security for the BC Loan.
During December 2000, the Company sent redemption letters to note holders
who hold Notes that aggregate approximately $106,000 offering to pay the Notes
in cash at the face value. As of December 31, 2000, no monies were disbursed and
the Company has established restricted cash with corresponding liabilities for
amounts due.
8. OTHER TRANSACTIONS WITH AFFILIATES
A. OPPORTUNITY FUND
In April 1998, DVL, an affiliate of Blackacre and affiliates of NPO entered
into a certain Agreement Among Members (the "Opportunity Agreement"), providing
for an arrangement (the "Opportunity Fund"), pursuant to which entities would be
formed, from time to time, to enter into certain transactions involving the
acquisition of limited partnership interests in the assets of, or mortgage loans
to, affiliated limited partnerships or other assets in which the Company has an
interest. These investment opportunities will be presented to the Opportunity
Fund on a first refusal basis, if the Company, due to financial constraints, is
unable to pursue such business opportunity with its own funds.
The Opportunity Fund is expected to pursue each Opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by Blackacre and the NPO Affiliates. The Company will receive up
to 20% of the profits from an opportunity after BCG and the NPO Affiliates
receive the return of their investment plus preferred returns ranging from 12%
to 20% per annum.
F-26
As of March 1, 2001, the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven were
purchased in 1998, one was purchased in 1999 and seven mortgages were purchased
in 2000), acquired limited partnership units from unaffiliated individuals in
three Affiliated Limited Partnerships, and acquired a leasehold interest of a
tenant of an Affiliated Limited Partnership. In addition, during 1999, the
Opportunity Fund acquired a property of an Affiliated Limited Partnership and
the land underlying this property from DVL. During 2000, DVL purchased three of
the mortgages owned by the Opportunity Fund for an aggregate purchase price of
$900,000 and the Opportunity Fund was fully satisfied on an additional four
mortgage loans, as each of the properties that secured these four mortgage loans
was sold. As of March 1, 2001, the Opportunity Fund owns eight mortgages. During
2000, DVL was paid approximately $8,000 from the investments by the Opportunity
Fund, which was used to pay amounts owed by DVL under a note in favor of an
entity that is part of the Opportunity Fund.
B. In June 1998, the Company entered into a management services agreement with
a limited partnership (in which certain of its partners are affiliates of NPO)
to render services for a fee. This agreement may be terminated with 30 days
notice by either party. As compensation, the Company receives the following (a)
a monthly fee of $5,000 through November 2000, and (b) after all the partners of
the partnership have earned a 20% internal rate of return, compounded quarterly,
on their capital contributions, an amount of cash equal to 25% of the profits,
as defined in the agreement. For 2000, 1999, and 1998 the Company received
compensation under such agreement equal to $362,500, $480,000, and $35,000,
respectively.
C. In addition, the Company entered into a service agreement with another
limited partnership whose general partner is an affiliate of NPO, to render
certain accounting and administrative services. As compensation, the Company
receives a monthly fee of $3,000, and expense reimbursements of $1,000 per
month. For 2000, 1999, and 1998 the Company received aggregate compensation
under such agreement of $48,000, $48,000, and $36,000, respectively.
D. The Company entered into a property management agreement with an entity
that is part of the Opportunity Fund pursuant to which DVL provides property
management services in exchange for fees equal to 3% of rent collections. For
2000 and 1999, the Company received compensation equal to $27,000 and $12,000,
respectively.
E. In November 1999, the Company entered into a management service agreement
with an entity whose partners are affiliates of NPO to render certain accounting
and administrative services. As compensation, the Company receives a monthly fee
of $2,000, a monthly deferred fee of $6,500 and an annual incentive fee if
certain levels of profitability are attained. For 2000 and 1999, the Company was
paid $24,000 and $4,000 and accrued fees of $78,000 and $13,000, respectively.
In early 2001, the Company was paid an aggregate amount of $91,000, which
represented all of the deferred fees through December 31, 2000.
F. The Millenium Group, an affiliate of NPO, received $94,000, $145,000 and
$71,000 for 2000, 1999, and 1998, respectively, representing compensation and
reimbursement of expenses for collection services on limited partner notes. In
2000 and 1999 the Company paid to the Millenium Group $25,000 each year and the
Pembroke Group, another affiliate of NPO, $55,000 and $75,000 respectively, for
professional fees. In 1998, the Company paid to the Millenium Group $25,000 for
professional fees.
F-27
9. Deferred Credits
DVL's deferred credits were comprised of deferred gains on the sales of
real estate to affiliates. At December 31, 1998, all deferred credits have been
amortized.
Activity on deferred credits is as follows:
1998
-------
(in thousands)
Balance, beginning of year $ 296
Amortization to income (47)
Deferred gain on foreclosure recognized upon
cancellation of mortgage loans (249)
-------
Balance, end of year $ 0
=======
10. Stock Option Plans
DVL has elected to follow Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" ("APB 25") and related
interpretations in accounting for its employee stock options. Under APB 25,
where the exercise price of DVL's employee stock options equals the market price
of the underlying stock on the date of grant, no compensation is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). Such information has been determined
as if DVL has accounted for its employee stock options under the fair value
method of that statement. The effect of applying SFAS No. 123 on 1998, 1999 and
2000 pro forma net income (loss) is not necessarily representative of the
effects on reported net income for future years due to, among other things: (1)
vesting period of the stock options and(2) the fair value of additional stock
options in future years. Had compensation cost for DVL's stock option plans been
determined based upon the fair value at the grant date for awards under the
plans consistent with the methodology prescribed under SFAS No. 123, DVL's net
income (loss) in 2000, 1999, and 1998, would have been approximately $505,000,
$2,270,000, and ($567,000), and diluted earnings per share would have been of
$.01, $.04, and ($.04), respectively.
DVL's 1996 Stock Option Plan, as amended (the "Plan") provides for the
grant of options to purchase up to 2,500,000 shares of Common Stock to
directors, officers and key employees of DVL. It includes automatic grants of
15,000 options to individuals upon their becoming non-employee directors, as
well as automatic annual grants of 15,000 options to each non- employee
director.
All options are non-qualified stock options.
In February 2000, DVL amended the Plan to increase the number of shares of
common stock available under the Plan by an additional 1,000,000 shares.
As of December 31, 2000, there were outstanding 1,278,131 ten (10) year
options. Under the Plan, the Company had 1,221,869 shares of common stock
remaining under the Plan for future grants of stock options.
F-28
The following table summarizes the activity under the Plan:
Year Ended December 31,
---------------------------------------------------------
2000 1999 1998
------------------ ----------------- -----------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ------- -------- -------- --------- --------
Options Outstanding
at Beginning of Year 1,175,131 $0.19 1,020,131 $0.18 892,131 $0.20
Granted 120,000 0.10 205,000 0.21 128,000 0.10
Cancelled (17,000) 0.21 (50,000) 0.12 - -
--------- ----- --------- ----- --------- -----
Options Outstanding
at End of Year 1,278,131 0.18 1,175,131 0.19 1,020,131 0.18
========= ===== ========= ===== ========= =====
Options Exercisable
at End of Year 1,278,131 $0.18 1,175,131 $0.19 1,020,131 $0.18
========= ===== ========= ===== ========= =====
Year Ended December 31, 2000
----------------------------------------------
Options Outstanding Options Exercisable
- -------------------------------------------------- ---------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Exercise Life In Exercise
Price Shares Price Years Shares Price
- ----------- --------- -------- --------- --------- --------
$.08 0.12 225,000 $0.09 8.26 225,000 $0.09
.13 - 0.19 205,000 0.16 7.38 205,000 0.16
.20 - 0.22 848,131 0.21 6.13 848,131 0.21
- ----------- --------- ----- ------ --------- ------
TOTAL 1,278,131 $0.18 6.71 1,278,131 $0.18
========= ===== ====== ========= ======
The weighted-average fair value at date of grant for options granted during
the years ended December 31, 2000, 1999 and 1998 was $.09, $.17 and $.08 per
option, respectively. The fair value of options at date of grant was estimated
using the Black-Scholes option price model utilizing the following assumptions:
December 31,
-----------------------------------------------
2000 1999 1998
------------- ------------- --------------
Risk-free interest rates 5.83% - 6.56% 5.00% - 5.92% 4.81% - 5.54%
Expected option life in years 10 10 10
Expected stock price volatility 85% 85% 80%
Expected divided yield 0% 0% 0%
F-29
11. Commitments, Contingent Liabilities and Legal Proceedings
COMMITMENTS AND CONTINGENT LIABILITIES
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 Limited Partnerships after repayment of
certain creditors, 50% of DVL's receipts from certain loans to and general
partnership investments in Affiliated Limited 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 such contingencies and record as they became
payable.
No monies have been paid to the fund through December 31, 1999 as DVL had a
receivable from the fund for expenses paid by DVL on behalf of Affiliated
Limited Partnerships. During 2000, the Company paid $117,000 to the fund which
represented all amounts due to/from the fund as of December 31, 2000, except for
monies owed to the fund of approximately $213,000 that was the result of the
refinancing of three mortgage loans receivable. This amount due is reflected as
restricted cash with a corresponding liability recorded. All amounts paid or
accrued were expensed.
In August 1998, DVL entered into a lease of premises comprising
approximately 6,000 square feet. The lease for such office space is due to
expire on February 7, 2003. The base rent is $227,160 per annum, plus real
estate and operating expense escalation clauses. Net rent expense was $189,000,
$187,000 and $-0- in 2000, 1999, and 1998, respectively.
12. Shareholders' Equity
As a result of the shareholder class action settlement, DVL issued
4,017,582 shares of common stock in December 1995 (Note 7).
On February 27, 1998, DVL issued 328,000 shares to the lender in connection
with the debt tender offer (Note 7).
See Note 6(d) and 7 with respect to Warrants and Notes, which are
redeemable at the Company's option in stock. Depending on the market price of
the Company's stock, there may not be sufficient authorized shares available to
be issued upon the redemption of the Warrants and the Notes.
The 100 shares of issued preferred stock carry no specified dividend but do
receive any dividend approved by the Board. To date, no dividend has been
authorized by the Board. On liquidation, the preferred is paid at face value
before the common stock.
o In February 2000, DVL amended its Certificate of Incorporation and
increased its number of authorized shares of capital stock from
40,000,100 to 95,000,100 in order to (a) increase the number of
authorized shares of DVL's common stock, $.01 par value from 40,000,000
to 90,000,000 and (b) authorize 5,000,000 shares of "blank check"
preferred stock, $.01 par value.
13. Subsequent Events
On March 30, 2001, the Company's newly-formed wholly owned subsidiary, S2
Holdings, Inc., ("S2") entered into an agreement for the purchase of a 99.9%
Class B member interest in Receivables II-A LLC, a limited liability company
("Receivables II-A"), from Receivables II-A Holding Company LLC ("Seller"), a
newly formed indirect wholly owned subsidiary of a company engaged in the
acquisition and management of periodic payment receivables. The Class B member
interest will entitle S2 to be allocated 99.9% of all items of income, loss and
distribution. Receivables II-A owns all of the equity interests in three
subsidiary limited liability companies that have previously acquired and
securitized four portfolios of periodic payment receivables. Receivables II-A
solely has the right to receive the residual cash flow from the securitized
receivables after payment to the securitized noteholders.
F-30
S2 will purchase its interest for an aggregate purchase price of
$25,399,000. The purchase price will be paid by the issuance of promissory notes
by S2 in the aggregate amount of $25,325,000, which are limited recourse and
payable from the future monthly cash flow received by S2 as distributions from
the periodic payment receivables owned by Receivables II-A's subsidiaries. The
notes will mature on December 31, 2021, bear interest at the rate of 8%
annually, and will be secured by a pledge of S2's interest in Receivables II-A
and all proceeds and distributions related to such interest. The principal
amount of the notes and the purchase price may be increased or decreased, from
time to time, based upon the performance of the underlying receivables. The
balance of the purchase price will be paid by the issuance by DVL of a warrant,
valued at $74,000, for the purchase of 2 million shares of the common stock of
DVL, exercisable until February 15, 2011 at a price of $.20 per share. DVL also
will issue its guaranty of up to $2,532,500 of the purchase price, which is
callable after December 31, 2021.
Pursuant to the terms and conditions of the transaction, S2 deposited the
promissory notes and the pledge, and DVL deposited the warrant and its guarantee
in escrow pending the closing. The closing of the purchase is subject to
satisfaction of certain conditions precedent, including the receipt of consents
and approvals to the transaction by certain rating agencies that rated the
securitizations and by a senior lender to the Seller. The transaction is
expected to close by May 1, 2001, but there can be no assurance that such
consents and approvals will be obtained or that the transaction will close.
F-31
DVL, INC. AND SUBSIDIARIES
Schedule III- REAL ESTATE AND ACCUMULATED DEPRECIATION
IN THOUSANDS
Costs
Capitalized
Subsequent Gross Amount
to Acqui- of Which Carried
INITIAL COST sition At Close of Period
--------------- -------- -----------------------
Building Building Building Accumu- Line on Which
and and and lated Date of Depreciation in Latest
Encum- improve improve- improve- Depre- Construc- Date Income Statement
Description brances Land ments ments Land ment Total ciation tion Acquired is Computed
- ----------- ------- ---- -------- -------- ---- -------- ----- ------- -------- -------- ----------------------
Warehouse
Manufacturing
Kearny, New Jersey $ -- $ 80 $ 426 $-- $ 80 $ 426 $ 506 $23 1977 11/98 Straight-line method
40 years
Warehouse Manu-
facturing & Retail
Kearny, New Jersey $3,000 $648 $2,590 $-- $648 $2,590 $3,238 $ 3 1977 12/00 Straight-line method
40 years
Leasehold Improve-
ments
Bogota, New Jersey $ -- $ -- $ 19 $19 $ -- $ 19 $ 19 $-- 2000 12/00 Straight-line method
40 years
Year ended December 31,
2000 1999 1998
----------------------------
(A) Reconciliation of Real Estate Owned
Balance at beginning of year $ 506 $ 706 $289
Additions during the year 3,257 9 417
Deletions during the year -- (209) --
------ ----- ----
Balance at end of year $3,763 $ 506 $706
====== ===== ====
Year ended December 31,
2000 1999 1998
----------------------------
(A) Reconciliation of Accumulated Depreciation
Balance at beginning of year $ 13 $ 2 $ --
Additions during the year: Depreciation 13 11 2
------ ----- ----
Balance at end of year $ 26 $ 13 $ 2
====== ===== ====
See notes to consolidated financial statements
EXHIBIT 11
DVL, INC. and Subsidiaries
Computation of Earnings Per Share
(in thousands except share and per share data)
(unaudited)
Year Ended
December 31,
----------------------------
2000 1999
----------- -----------
Income before extraordinary gain $ 199 $ 1,026
Interest expense on litigation/settlement
notes 502 481
----------- -----------
Ordinary income 701 1,507
Extraordinary gain 306 1,267
----------- -----------
Net income $ 1,007 $ 2,774
=========== ===========
Weighted average number of common
shares outstanding - basic 16,560,450 16,560,450
Shares issuable upon exercise of
dilutive options and warrants 97,577,336 61,028,722
Less shares assumed repurchased (17,800,200) (10,605,934)
----------- -----------
Weighted average number of common
shares outstanding - diluted 96,337,586 66,983,238
=========== ===========
Basic earnings per share:
Income before extraordinary gain $ .01 $ .06
Extraordinary gain .02 .08
----------- -----------
Net income $ .03 $ .14
=========== ===========
Diluted earnings per share:
Income before extraordinary gain $ .01 $ .02
Extraordinary gain .00 .02
----------- -----------
Net income $ .01 $ .04
=========== ===========
DVL, INC. -- TABLE 1
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS (5)
DECEMBER 31, 2000 (In Thousands)
Net Under-
Location of Mtg. Lying Security
Affiliated Property Mortgage Unearned Loan Loan Monthly [Mortgage(s)
Partnership Securing Loan Balance Interest Receiv. Balance Yield Amort. Maturity Upon] Tenant(s)
- -----------------------------------------------------------------------------------------------------------------------------------
Alexandria Wellsville, NY $ 847 $ 622 $ 225 $ 30 51% $ 1 February Land and Eckerd
Associates 2027 a commercial Stores, Inc.
building (1)
Alma Alma, AR 1,929 738 1,191 776 15% $12 March Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Ava Associates Ossipee, NH 812 549 263 - 16% $ - February Land and Hannaford
Associates (3) 2027 a commercial Bros. Co.
building (1)
Brent Brent, AL 1,440 532 908 587 15% $ 9 February Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Champlain Champlain, NY 1,370 734 636 - 21% $ - January Land and Ames Dept.
Associates 2020 a commercial Stores, Inc.
building (1)
Checotah Checotah, OK 1,514 612 902 596 15% $ 9 February Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Fairbury Fairbury, NE 1,750 731 1,019 685 15% $10 August Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Fort Edward Fort Edward, NY 1,436 73 1,363 - 12% $14 May Land and a Grand Union
Associates 2029 supermarket Stores, Inc.
FYS Yakima, WA 393 85 308 - 10% $ 1 August Land and a Kroger Co.
Associates 2021 supermarket
Hoosick Falls Hoosick Falls, NY 1,363 657 706 - 15% $10 August Land and a Grand Union
Associates 2021 supermarket Stores, Inc.
DVL, INC. -- TABLE 1: CONTINUED
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS (5)
DECEMBER 31, 2000 (In Thousands)
Net Under-
Location of Mtg. Lying Security
Affiliated Property Mortgage Unearned Loan Loan Monthly [Mortgage(s)
Partnership Securing Loan Balance Interest Receiv. Balance Yield Amort. Maturity Upon] Tenant(s)
- ------------------------------------------------------------------------------------------------------------------------------------
Jena Jena, LA $ 2,625 $ 1,905 $ 720 $ 658 35% $ 1 February Land and Wal-Mart
Associates 2027 a commercial Stores, Inc.
building (1)
Kinder Kinder, LA 20 - 20 - N/A N/A N/A Land and Wal-Mart
Associates (6) a commercial Stores, Inc.
building (1)
Orange Park Jacksonville, FL 1,426 567 859 827 12% $9 with January Land and Toys "R" Us,
Associates a final 2020 a commercial Inc.
pmt. of building (1)
$672
Port Isabel Port Isabel, TX 2,106 773 1,333 844 15% $12 February Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Stigler Stigler, OK 2,577 1,895 682 579 28% $ 2 August Land and Wal-Mart
Associates 2027 a commercial Stores, Inc.
building (1)
St. Albans St. Albans, VT 1,930 829 1,101 828 30% $15 May Land and a Fonda Group
Associates 2029 commercial
building (1)
Tilton Tilton, NH 1,287 775 512 - N/A $13 September Land and a Various
Associates (2) 2020 shopping unaffiliated
center companies
Watseka Watseka, IL 1,101 263 838 704 12% Varying December Land and a K Mart
Associates 2015 commercial Corporation (4)
building (1)
------- ------- ------- -------
$25,926 $12,340 $13,586 $ 7,114
- --------------
(1) These loans are wrap-around loans.
(2) In early 2001, the property that secures this loan was sold at a
foreclosure auction. DVL is awaiting finalization of this sale and
anticipates receiving proceeds on its mortgage loan.
(3) 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.
(4) Building is currently vacant, however, tenant is obligated under the terms
of the lease to continue to pay rent.
(5) DVL's net investment in these mortgages was $6,472,000 and $4,659,000 at
December 31, 2000 and 1999, respectively. The increase resulted from the
purchase of eight new mortgage loans in 2000 partially offset by
collections on certain mortgages.
(6) This loan was purchased and the property was sold during 2000. Amount shown
reflects amounts due at December 31, 2000 that was satisfied in 2001.
DVL, INC. -- TABLE 2
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
DECEMBER 31, 2000 (In Thousands)
Partner- Under- Net Amt. Net
Location ship lying of Col- Mtg.
of Property Mortgage Loan lateral Loans
Affiliated Partnership Securing Loan Balance Balance Pledged Recvable Maturity Tenant
- -----------------------------------------------------------------------------------------------------------------------------------
Aledo Associates LP Aledo, IL (2)(5) $ 1,929 $ 1,019 $ 910 $ 1,262 November 2018 Wal-Mart Stores, Inc.
Caldwell Associates Caldwell, TX (2) 1,695 895 800 1,160 May 2019 Wal-Mart Stores, Inc.
Cherokee Associates Woodstock, GA (2) 2,997 2,836 161 2,850 July 2023 Wal-Mart Stores, Inc.
Clinton Associates Clinton, IL (2)(5) 3,395 838 2,557 1,932 June 2029 Wal-Mart Stores, Inc.
Columbus Associates Columbus, TX (2)(5) 3,875 968 2,907 1,889 December 2029 Wal-Mart Stores, Inc.
Covington Associates Covington, GA (2)(5) 4,705 1,346 3,359 1,960 January 2030 Wal-Mart Stores, Inc.(4)
Douglas Associates Douglas, GA (2)(5) 2,208 997 1,211 2,179 December 2023 Wal-Mart Stores, Inc.
operating as - Buds
Douglasville Associates Douglasville, GA (2)(5) 5,809 1,463 4,346 3,308 June 2031 Wal-Mart Stores, Inc.
Elmira Associates Elmira, NY (2) 724 - 724 285 November 2021 Fays Drug Company, Inc.
Iowa Park Associates LP Iowa Park, TX (2) 1,770 740 1,030 1,021 March 2021 Wal-Mart Stores, Inc.
Lawrenceburg Associates Lawrenceburg, KY (2) 2,986 798 2,188 1,102 December 2029 Wal-Mart Stores, Inc.
Marlow Associates Marlow, OK (2)(5) 2,551 638 1,913 853 December 2029 Wal-Mart Stores, Inc.
Marshall Associates LP Marshall, IL (2)(5) 1,645 912 733 1,123 November 2018 Wal-Mart Stores, Inc.
Mt. Pleasant Associates LP Mt. Pleasant, IA (2)(5) 2,387 1,217 1,170 1,525 November 2019 Wal-Mart Stores, Inc.
Robstown Associates LP Robstown, TX (2) 1,959 889 1,070 962 October 2020 Wal-Mart Stores, Inc.(4)
Sonya Associates LP Booneville, MO (2) 1,625 991 634 1,243 June 2018 Wal-Mart Stores, Inc.
Southfield Associates Southfield, MI (3) 3,483 659 2,824 904 July 2026 Pitney-Bowes, Inc.
Van Buren Associates LP Clinton, AR (2) 1,383 812 571 1,036 April 2020 Wal-Mart Stores, Inc.
Waynesboro Associates LP Waynesboro, MS (2)(5) - - - 10 January 2019 Wal-Mart Stores, Inc.(4)
Winder Associates Winder, GA (2) 1,827 887 940 1,449 March 2021 Wal-Mart Stores, Inc.
------- ------- ------- -------
$48,953 $18,905 $30,048 $28,053
- ----------
(1) These loans were acquired pursuant to the Limited Partner Settlement from
Kenbee. DVL's loan balance equals it's net investment in the related loan
due previously from Kenbee, 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) The property securing this mortgage was sold in 2000. Amount shown reflects
amounts due at December 31, 2000 that was satisfied in 2001.
(6) DVL's total loan balances of these mortgages were $28,053,000 and
$31,803,000 at December 31, 2000 and 1999, respectively. The decrease
resulted from the satisfaction of certain mortgage indebtedness (eg.
Clanton and Waynesboro) and collections on certain mortgages.