FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1994, OR
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission File No. 1-8356
------
DVL, INC.
- --------------------------------------------------------------------------------
Exact name of Registrant as specified in its charter)
Delaware 13-2892858
- ------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
24 River Road, Bogota, New Jersey 07603
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (201) 487-1300
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
----------------------------- -----------------------
Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
---- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best
of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part IV of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by non-
affiliates as of March 28, 1995 was $2,378,741.
The number of shares outstanding of Common Stock of the Registrant as of March
28, 1995 was 8,593,268.
Part III, Items 10, 11, 12 and 13 are incorporated by reference to the Proxy
Statement for DVL, Inc's. 1994 Annual Meeting of Stockholders.
PART I
Item 1. Business
- -----------------
A. Business
--------
DVL, Inc. ("DVL"), is a Delaware corporation established in 1978.
DVL's common stock is traded on the New York Stock Exchange (Symbol:
DVL). The principal address of DVL is 24 River Road, P.O. Box 408,
Bogota, New Jersey 07603; telephone number: (201) 487-1300. DVL is a
real estate investment, management and finance company.
Prior to 1992 DVL primarily invested in mortgage loans to affiliates
secured principally by income-producing commercial, office and industrial
properties. In addition, DVL invested in loans to limited partners and
affiliates secured by interests in affiliated partnerships in which
Kenbee Management, Inc. ("Kenbee"), a Delaware corporation, and DVL's
former manager, was a general partner. See "Mortgage Loans and Loans
Secured by Limited Partner Interests". Pursuant to the Limited Partner
Settlement, defined below, DVL succeeded to Kenbee's position as general
partner in those partnerships.
Effective January 1, 1994 DVL revoked its election to be taxed as
a real estate investment trust ("REIT") and elected to be treated as a
"Sub-chapter C" corporation for tax purposes. Management's intent in
making this change was to enable DVL to pursue new business activities
which would generate income which is either not qualified as REIT income
or which would otherwise have been taxable at a rate of 100%.
From 1992 through 1994, DVL pursued two new potential businesses.
The first was the acquisition and development of Sunbelt
retirement/resort properties for the purpose of reselling tracts or
individual developed lots at a profit. The second entailed the
acquisition of installment sales contracts in the automotive services
business to selected dealers and auto mechanics.
Through early 1994 DVL or its wholly owned subsidiary RH Interests,
Inc. ("RH") acquired a total of five development properties for resale.
Although DVL was able to make a profit on the first two acquisitions, due
to lack of additional cash resources, DVL was unable to develop and
market its remaining three acquisitions and has transferred these
properties over to DVL's lenders in full satisfaction of DVL's
obligations to such lenders.
DVL incurred similar cash problems in connection with the
development of the business of acquiring installment sales contracts in
the automotive service business. After DVL was successful in
establishing and operating the business through a wholly owned
subsidiary, First Mechanics Finance Company ("FMF"), DVL was unable to
fund the continued expansion of FMF and was forced to sell the company
in December 1994. DVL had invested or loaned approximately $1,181,000 to
FMF, net of $58,000 received through March 30, 1995 from the sale of FMF,
(including $353,000 of allocated overhead) for start-up costs and to fund
loan acquisitions. DVL was paid $12,000 in cash at closing from the sale
and received a promissory note for $275,000 payable over 15 months,
bearing interest at 8% per annum and a subordinated debenture in the
amount of $550,000 due in three years and bearing interest based upon the
sales volume of FMF. DVL has fully reserved such obligations since their
collectibility is uncertain at this time. If and when DVL collects on
its note and subordinated debenture it will recognize income as received.
2
Because of DVL's lack of cash resources, DVL has eliminated its new
business operations and all related overhead expenses. DVL is now solely
focusing on its core business of managing, administering and servicing
existing real estate properties and partnerships. DVL is the general
partner of approximately 110 limited partnerships from which it receives
management and other fees. In addition, through Professional Service
Corporation ("PSC"), a wholly owned subsidiary, DVL is engaged in the
management of certain properties located in New Jersey pursuant to its
master lease interests. DVL is managing these partnerships and
properties as a result of various limited partner litigation settlements.
As discussed above, DVL has implemented significant measures to
reduce its current operating expenses and is currently working on methods
of making additional overhead reductions during 1995. However, to enable
DVL to continue to meet its short term operating needs, DVL must augment
its cash flow with additional cash provided by proceeds from the sale or
refinancing of assets and/or equity borrowings. In this regard, DVL has
retained an investment banker to assist DVL in obtaining such
refinancings or borrowings as well as to develop a long term business
strategy.
B. Recent Developments
-------------------
During 1994 and prior years, substantial progress has been made in
settling various litigation brought against DVL, its board members and
certain former and current officers and affiliates. However, several
cases are still being litigated or are pending final disposition
including the original shareholder class and derivative actions. See
"Legal and Administrative Proceedings".
In the shareholder class action entitled IN RE DEL-VAL FINANCIAL
CORP. SECURITIES LITIGATION, MASTER FILE NO. MDL 872 a settlement was
approved by the court in December 1993 in which DVL agreed to issue to
shareholders (i) 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 the
aggregate fair market value is less than $1,340,000); (ii) $9 million of
notes due in ten (10) years with interest at 10% payable in kind for five
(5) years, callable after the third year and payable on the tenth year
in cash or with DVL common stock equal to 110% of the face value of the
notes; and (iii) $1.4 million plus interest and expenses in cash or stock
(the settlement is hereinafter defined as the "Shareholder Settlement").
At December 31, 1994, management reflected the common stock and notes as
"to be issued" and a reserve of $1.81 million for the future $1.4 million
payment due and for any deficiency in the minimum price of the 900,000
shares to be issued. The $9 million face value notes to be issued were
valued at $3,690,000 by an independent investment banker. The settlement
is expected to result in a loss of $6.4 million which was fully provided
for in 1992. DVL anticipates that plaintiff's counsel will complete the
administration of the class and establish a distribution date in
accordance with the terms of the Stipulation of Settlement some time in
the second quarter of 1995. See "Legal and Administrative Proceedings".
A settlement with limited partner investor plaintiffs in IN RE
KENBEE LIMITED PARTNERSHIPS LITIGATION was approved by the court in
November 1992 pursuant to which a substantial portion of DVL's mortgages
were restructured and operational control of the partnerships was
transferred to DVL with substantial decisions subject to review by an
oversight committee of independent limited partner representatives (the
"Limited Partner Settlement").
During 1993 and prior, DVL completed settlements with all but two
of its major creditors. During the first quarter of 1995, DVL reached
an agreement with one of its two remaining unsettled creditors. The
3
settlement is expected to close in the second quarter of 1995. Pursuant
to the settlement DVL will make cash payments over time at a negotiated
discount and there will be an exchange of certain collateral. As a
result of this settlement, DVL will recognize a gain of approximately
$1,800,000 in the first quarter of 1995.
DVL is continuing negotiations with its remaining unsettled
creditor. DVL remains in default on its obligation for non-payment of
scheduled principal and interest payments of $13,804,000 to such
creditor. This loan is undercollateralized by approximately $13 million.
See Note 8 to DVL's Consolidated Financial Statements and "Loan
Portfolio". DVL has proposed to cure the default and restructure the
indebtedness by offering existing and replacement collateral to secure
cash payments over time at a negotiated discount. If the settlement as
proposed is finalized, DVL will recognize a significant gain on such
settlement. There can be no assurance that negotiations will proceed or
that a settlement will be reached.
In many of DVL's previously completed settlements, DVL has
restructured loans with mandatory repayment requirements. If DVL does
not meet such mandatory repayment requirements on previously restructured
debt, it will be in default of these loans and is at risk of losing all
of DVL's equity in the related collateral. DVL is currently attempting
to find new borrowings to meet its mandatory repayment requirements. In
addition, DVL has negotiated or is currently negotiating certain
discounts from existing creditors, if DVL is able to fully pay its
obligations to such creditors prior to specified dates.
DVL is still experiencing liquidity problems. If DVL is
unsuccessful in achieving a short term solution to its liquidity
problems, and, moreover, long term solutions to cure loan defaults and
meet its mandatory repayment requirements, then it may not be able to
continue as a going concern and may be forced to file for protection from
creditors under Chapter 11 of the United States Bankruptcy Code.
DVL's ability to continue as a going concern is dependent upon (1)
the success of the negotiations to restructure the payment terms of its
remaining unsettled indebtedness; (2) the sale or refinancing of certain
assets to improve its cash position to meet operating expenses and make
mandatory repayment requirements to its creditors; (3) the settlement of
its remaining litigation; (4) the realization of the estimated value of
the assets collateralizing its loan portfolio over an extended period of
time rather than the value of the assets on a liquidation basis; and (5)
the return to profitable operations which will primarily depend on the
outcome of the negotiations with its existing creditors to reduce its
interest expense burden.
C. Business Activities.
-------------------
1. Mortgage Loans and Loans Secured by Limited Partner Interests
-------------------------------------------------------------
At December 31, 1994, DVL had investments in 80 long-term mortgage
loans to affiliated partnerships and an unaffiliated entity (see
"Commercial Loans - Other") totalling $52,206,000 which are principally
pledged to secure indebtedness of the Company. Certain of the mortgage
loans due from affiliated partnerships, aggregating $29,786,000 at
December 31, 1994, were transferred from Kenbee and R&M Mortgage Company
("R&M") to DVL in replacement of DVL's loans to Kenbee and R&M
collateralized by such partnership mortgages as part of the Limited
Partner Settlement. This transfer significantly reduced the non-
performing portion of DVL's loan portfolio, as one of the primary
4
goals of the restructuring was to assure that the partnerships'
restructured mortgages would be serviced on a current basis from the base
rents. However, this reclassification will not result in significant
income or cash flow on the majority of such mortgages, as the mortgage
debt service is currently used to pay liens senior to DVL's before cash
flow from such mortgages is available to DVL. As a result of the Limited
Partner Settlement and another settlement, DVL wrote down its mortgage
loans in 1992 by $19,586,000. The balance of DVL's long-term mortgage
loans to affiliated partnerships were previously funded by DVL and bear
interest at effective rates of up to 15% per annum. At December 31,
1994, $5,261,000 of DVL's mortgage loans were non-performing. DVL has
established a loan loss reserve of approximately $10,346,000 in
connection with its mortgage loan portfolio.
The affiliated partnerships' properties provide the ultimate
security for DVL's loans and are leased, typically on a long-term basis,
to unaffiliated tenants chosen for their financial stability and growth
record. For virtually all properties, the leases are current and the
mortgages are being paid on a timely basis.
In addition DVL holds loans secured by limited partnership
interests, including those obtained from Kenbee as part of the Limited
Partner Settlement, aggregating $4,606,000 of which, $4,540,000 were non-
performing at December 31, 1994. Consequently, DVL has established a
loan loss reserve of approximately $2,416,000 in connection with these
loans.
Del-Val Capital Corp. ("DVCC") was organized in May 1989 as a
wholly-owned subsidiary of DVL to acquire, make and service loans due
from unaffiliated borrowers secured primarily by portfolios of consumer
receivables arising from sales of interests in vacation ownership
(timeshare) condominiums, improved homesites and membership campgrounds.
DVL continued to liquidate DVCC's loan portfolio during 1994 and in May
1994, DVCC sold one loan at its carrying value and pledged another loan
as collateral for a DVL loan. DVCC's remaining assets, net of an
additional reserve of $175,000, were absorbed by DVL, which treated these
transactions as the final disposal of DVCC.
2. Investments in Affiliated Partnerships.
--------------------------------------
DVL acquired interests in affiliated partnerships pursuant to the
terms of various settlement agreements. These interests were originally
valued at an average of approximately 33% of the original investment,
which reflected management's estimate of the investment's net realizable
value. At December 31, 1994, DVL had varying investments in numerous
partnerships with a net carrying value of $4,553,000. Based on potential
liquidations of such units to assist in meeting DVL's liquidity problems,
DVL has estimated a loan loss reserve of approximately $750,000 in
connection with these investments reducing the net realizable value to
approximately 25% of the original investment.
3. Real Estate Acquired for Resale.
-------------------------------
DVL had made investments in connection with the purchase and
development of residential real estate for resale. DVL has disposed of
its real estate projects located in North Carolina and South Carolina as
follows:
(a) The last remaining land parcel at the Wilmington, North
Carolina project, which was originally purchased for $875,000, was sold
in October 1994.
5
(b) A property located in Richlands Township, North Carolina was
acquired in April 1993 for $210,000. DVL received non-recourse seller
financing of $150,000 which required $75,000 payments, plus interest, in
April 1994 and April 1995. No lots from this property were sold. DVL
has deeded this property back to the seller.
(c) A property located in Henderson County, North Carolina and
Greenville County, South Carolina was acquired in July 1993 from a
corporation controlled by the individual investor (the "seller") who
provided the financing on the Wilmington, North Carolina property. DVL
assisted the seller's acquisition of the property by arranging for the
sale of certain land parcels simultaneously with the seller's purchase
of the property, thereby reducing the seller's purchase price and DVL's
subsidiary purchased the property from the seller. The acquisition was
fully financed by the seller with a $450,000 note maturing in September
1996, wherein DVL agreed to pay the seller 45% of the profits from any
property sales after the note was fully repaid. In November 1994 the
property was deeded back to the seller in consideration for a
cancellation of the note and a loan being made by the seller to DVL
secured by unrelated assets.
(d) A property consisting of developed and undeveloped land
surrounding an existing golf course located in Beaufort, South Carolina
was acquired by DVL in February 1994 for $2,025,000. DVL received
purchase money non-recourse financing from the seller of $1,202,779 and
financed the balance of the purchase price and an operating fund with a
$1,300,000 loan on a non-recourse basis from one of its existing
creditors. Under the terms of this financing, the lender was to earn 2%
over prime and was entitled to a portion of the profit from the sale of
the land parcels varying from 25% to 45% based upon the date of the full
repayment of the loan. In February 1995 DVL deeded this property to the
lender in full satisfaction of DVL's $1,300,000 obligation to such
lender.
4. Partnership and Property Management.
-----------------------------------
As part of the Limited Partner Settlement, DVL became general
partner of approximately 110 affiliated partnerships for which DVL
receives management and other fees.
As part of a settlement agreement with one of DVL's creditors, PSC
acquired master lease positions for two industrial parks located in New
Jersey. PSC manages both properties and is required to remit 75% of any
net cash flow generated by these properties to this creditor in payment
of DVL's restructured indebtedness.
D. Line of Business
----------------
DVL has continuously been deemed to be in one line of business,
commercial finance, for the past five years.
E. Investments
-----------
DVL's investments, the majority of which arose out of transactions
with affiliates, consist of commercial and other mortgage loans, loans
and notes secured by limited partnership interests, investments in
affiliated partnerships and commercial real estate. DVL also owns 100%
of the Common Stock of DVCC, PSC and RH. See "Financial Statements and
Supplementary Data".
A more detailed description of DVL's business follows. Certain
information in the description is incorporated herein by reference to the
Notes to the Consolidated Financial Statements of DVL (the "Notes")
included in Item 8 hereof.
6
F. Loan Portfolio
--------------
DVL's mortgage loan portfolio consists primarily of long term wrap
around and other mortgage loans due from affiliated partnerships secured
by income-producing commercial, office and industrial properties. In
addition, DVL maintains a portfolio of loans to limited partners secured
by their interests in affiliated partnerships. DVL does not anticipate
making any further loans to affiliated partnerships or limited partners.
Virtually all of DVL's mortgage loans receivable arose out of
transactions arranged by Kenbee in which affiliated partnerships
purchased commercial, office and industrial properties typically leased
on a long-term basis to unaffiliated, creditworthy tenants. Each
mortgage loan is collateralized by a lien, primarily subordinate to
senior liens, on real estate owned by an affiliated partnership. DVL's
loan portfolio is comprised of long-term wrap around and other mortgage
loans due from affiliated partnerships; interim second mortgage loans due
from affiliated partnerships; a loan due from an unaffiliated party; and
loans due from limited partners collateralized by their interests in
affiliated partnerships.
The following table sets forth the number of loans outstanding,
aggregate loan balances, including accrued interest, and the allowances
for loan losses, of the above investments at December 31, 1994. See
Tables 1 through 4 of Appendix "A" to this Form 10-K for detailed
information as to each such loan. Following the table is a brief
description of each type of loan.
Number
Aggregate Allowance
of
Loan for Loan
Type of Loan Loans
Amount Losses
------------ ------
- -------- ---------
(dollars in thousands)
Long-term mortgages due from affiliated
partnerships previously funded by DVL,
$37,416
net of underlying liens totalling $13,933,000
18,028
Less unearned interest (1)
- -------
Net long-term mortgages due from affiliated
partnerships previously funded by DVL 36
19,388 $ 2,808
Long-term mortgages due from affiliated partnerships
acquired pursuant to the Limited Partner Settlement,
net of underlying liens totalling $38,907,000 40
29,786 6,810
Interim second mortgages due from
affiliated partnerships 3
1,649 728
Mortgage loan due from an unaffiliated entity 1
1,383 -
---
- ------- -------
Total loans collateralized by mortgages 80
52,206 10,346
Loans collateralized by limited partnership ---
- ------- -------
interests 213
4,606 2,416
---
- ------- -------
Total loans 293
$56,812 $12,762
===
======= =======
[FN]
- --------------------
(1) Unearned interest represents the unamortized balance of discounts
on previously funded loans.
DVL's loans to affiliated partnerships are secured by mortgages on
properties leased to various tenants. For a list of these tenants see
Tables 1 through 3. The number of properties leased by any one company
from affiliated partnerships in which DVL holds a mortgage loan ranges
from one to 11 except for Wal-Mart, which is the tenant of 44
properties. The Grand Union Company, tenant of eleven properties, has
filed for protection from creditors under Chapter 11 of the U.S.
Bankruptcy Code. Two of these properties are under contract to be sold
and four have been assigned or subleased to other tenants. It is too
early in the Grand Union bankruptcy proceeding to determine whether any
of the Grand Union leases will be disaffirmed.
7
Generally, the tenants executed "triple-net" leases under which they
are responsible for the payment of all taxes, insurance and other
property costs. In certain instances, the partnership is required to
maintain the roof and structure of the premises. In addition to base
rent, most leases also require the tenant to pay additional rent equal
to a percentage of gross receipts from the tenant's operation of a
property above a specified amount ("Percentage Rent"). In virtually all
cases where the partnership is entitled to receive Percentage Rent, a
portion of such rent is required to be paid as additional interest or
additional debt service on the long-term mortgage due from the
partnership.
G. Collateralized Loans
--------------------
1. Long-Term Mortgages Due from Affiliated Partnerships.
----------------------------------------------------
DVL's long-term wrap around and other mortgage loans due from
affiliated partnerships consist of (1) loans purchased primarily from
Kenbee under prior commitments made by DVL to affiliated partnerships on
which DVL yields up to 15% per annum or (2) loans to affiliated
partnerships acquired pursuant to the Limited Partner Settlement, the
principal amount of which equals DVL's net investment in the related loan
previously due from Kenbee or R & M, less specific write-downs on certain
of these loans based on the anticipated cash flow to be generated by each
loan. Interest on these loans, if any, will be imputed based on their
anticipated cash flow.
Of all such loans, approximately 95% (in dollars) are self-
amortizing, while the balance require balloon payments at maturity. Upon
maturity of three of these loans, balloon payments will be required to
be made by the respective partnerships beginning in 2003, which aggregate
approximately $3 million. Two of such loans with balloon payments
aggregating approximately $2 million are expected to be transferred to
a creditor before the loans' maturities as part of a settlement
agreement. DVL's aggregate net investment in the remaining loan
requiring a balloon payment was approximately $184,000 at December 31,
1994. All of these mortgages are being serviced by partnership rents.
DVL's wrap around mortgages are all collateralized by second or
third mortgages on commercial and industrial properties located in
various states and mature through March 2036. DVL is obligated to make
principal and interest payments on the underlying 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.
2. Interim Second Mortgages Due from Partnerships.
----------------------------------------------
An interim second mortgage loan to an affiliated partnership
generally was equal to the difference between the partnership's purchase
price for its property and the amount of a first mortgage provided by an
unaffiliated lender. Although the remaining loans bear interest at
variable rates up to prime plus 4-1/4% per annum, DVL does not anticipate
realizing any income from these loans. Two of such loans are to
partnerships which were not part of the Limited Partner Settlement. All
such loans continue to be non-performing at December 31, 1994.
8
3. Commercial Loan - Other
-----------------------
DVL's mortgage loans from an unaffiliated entity resulted from the
satisfaction of its mortgage loan due from an affiliated partnership.
In 1994, DVL received a $1,450,000 loan from Grand Union in partial
satisfaction of one of its partnership mortgage loans. The loan bears
interest at 9% per annum and requires monthly payments of $18,000, with
a balloon payment of $1,161,000 due in December 1996. Grand Union is
current on this note and DVL expects that this loan is fully collectible
as the store was purchased by Grand Union with the intention of it being
expanded.
4. Loans Collateralized by Limited Partnership Interests.
-----------------------------------------------------
DVL made loans directly to limited partners to finance up to 80% of
their partnership investments. As a result of the Limited Partner
Settlement, DVL received similar such loans from Kenbee in 1992 in
replacement of loans due from Kenbee collateralized by such limited
partner loans. All of such loans due from limited partners ("Partners
Notes") mature at various dates through December 1995 and bear interest
at fixed rates of 15% to 16% and at variable rates of up to 2 1/2% over
prime. Certain of the variable rate loans are payable at fixed interest
rates, with interest accruing at variable rates subject to minimum and
maximum levels, payable upon the maturity of the loan.
DVL also made loans to Kenbee collateralized by limited partnership
investments. As a result of the acquisition of the limited partnership
interests collateralizing these loans, the amounts due, net of the value
of the interests acquired, were written off during 1993 and 1992. See
Note 6 and Note 7 to the Consolidated Financial Statements.
H. Refinancing Rights
------------------
DVL has the right to refinance certain of the presently outstanding
mortgage loans underlying its wrap around mortgage loans due from
affiliated partnerships, subject to any prepayment penalties, provided
that the debt service and principal amount of a refinanced loan are no
greater than that of the existing wrap around loan. DVL also has the
right to arrange senior financing secured by properties on which it
holds first or second mortgage loans by subordinating its mortgage loan
subject to the same such limitations.
In 1994, DVL refinanced a portion of its mortgage portfolio which
generated cash proceeds of approximately $5.9 million, of which
approximately $4.6 million was used to satisfy existing indebtedness and
approximately $1 million was placed in escrow in connection with proposed
settlements with DVL's remaining unsettled creditors. The amounts
obtained from this refinancing were based on the value of the base rents
during the period of the base lease term subsequent to the payoff of the
existing first mortgages. As a result of DVL's prior and current asset
liquidations and refinancings, DVL's asset base available for future
liquidations and refinancings has diminished.
I. Real Estate
-----------
DVL owns five real estate properties: two parcels of land in
Bogota, New Jersey and three parcels of land in Kearny, New Jersey. Two
parcels in Kearny, New Jersey are leased under long-term leases to
affiliated partnerships which purchased the buildings and improvements
thereon. The following describes DVL's properties more fully. All of
such properties are believed to be suitable for the uses indicated.
9
Two of the Kearny properties include 8.2 acres of land underlying
approximately 134,800 square feet of manufacturing, warehousing and
commercial buildings leased to (a) Toch Associates (2.6 acres) for an
annual rent of $7,000 until 2074; and (b) Kearny Associates (5.6 acres)
for an annual rent of $30,000 until 2079. Currently both Kearny and Toch
Associates have defaulted on the land leases held by DVL.
DVL has settled with the first mortgage holder and the limited
partners on the two Bogota properties and the third Kearny property. As
part of this settlement DVL's economic interests in these properties were
assigned to the related partnerships by DVL.
J. Employees
---------
On March 30, 1995, DVL had twenty-three (23) employees.
K. Foreign Activity
----------------
DVL or its subsidiaries have not engaged in any business activity
outside of the United States.
Item 2. Properties
- -------------------
A description of the properties owned by DVL, appearing under the
caption "Real Estate" in Item lI hereof, is incorporated herein by
reference.
Item 3. Legal and Administrative Proceedings
- ----------------------------------------------
Substantial progress has been made in settling various litigation
brought against DVL, its Board members and certain current and former
officers and affiliates by shareholders, banks and others. However,
several cases are still being litigated or are pending final disposition
including the original shareholder class and derivative actions. The
following is a summary of the status of all material outstanding cases.
Numerous class action suits commenced since 1990 were filed in
various jurisdictions and consolidated in the United States District
Court, Southern District of New York on February 28, 1991, in one
consolidated action entitled IN RE: DEL-VAL FINANCIAL CORP. SECURITIES
LITIGATION, MASTER FILE NO. MDL 872 ("IN RE DEL-VAL").
In IN RE DEL-VAL, a settlement has been approved by the court in
which DVL would issue to plaintiffs (i) 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 the aggregate fair market value is less than
$1,340,000); (ii) $9 million of notes due ten (10) years with interest
at 10% payable in kind for five (5) years, callable after the third year
and payable on the tenth year in cash or with DVL common stock equal to
110% of the face value of the notes; and (iii) $1.4 million plus interest
from August 16, 1993 and expenses in cash or stock. At December 31,
1994, management reflected the common stock and notes as "to be issued"
and a reserve of $1.81 million for the future $1.4 million payment due
and for any deficiency in the minimum price of the 900,000 shares to be
issued. The $9 million face value notes to be issued were valued at
$3,690,000 by an independent investment banker. The settlement is
expected to result in a loss of $6.4 million which was fully provided for
in 1992. DVL and related defendants have cross claimed against Deloitte
and Touche ("Deloitte"), DVL's former accountant, and have demanded
indemnification or contribution from Deloitte. Deloitte has cross-
claimed against DVL and related defendants in IN RE DEL-VAL. The court
has issued an opinion and order in connection with cross motions for
summary judgment filed by DVL and Deloitte. In that opinion and order,
10
the court ruled that Deloitte was not entitled to indemnification or
contribution on the state law claims, that Deloitte's cross claims for
indemnification or contribution against DVL are dismissed and that DVL
may have a right to contribution by Deloitte on the settlement.
A suit entitled DONALD LEVY, ET AL. V. ROGER D. STERN, ET AL.
("LEVY"), originally filed as a class action suit against current and
former directors of DVL in the Court of Chancery in New Castle County,
Delaware on February 13, 1991, has not been consolidated with the other
class action suits and plaintiffs have revised their complaint to proceed
on behalf of certain individuals as opposed to a class action. The
revised complaint was filed on or about May 4, 1994 against the same
current and former directors of DVL and alleges breaches of fiduciary
duty of care and candor. A recent United States Supreme Court decision
supports DVL's position in this matter and it is likely this action will
be dismissed without recovery to plaintiffs.
DVL is subject to three shareholder derivative suits. The first is
PHYLLIS RYE, ON BEHALF OF HERSELF IN THE RIGHT OF DEL-VAL FINANCIAL
CORPORATION V. ROGER STERN, ET AL. ("RYE"), filed in the United States
District Court, Southern District of New York on May 13, 1991. The other
two derivative suits are entitled DEL-VAL FINANCIAL CORP. DERIVATIVELY
BY HILDA WEIGART V. ROGER D. STERN, ET AL. ("WEIGART"), and DEL-VAL
FINANCIAL CORP. DERIVATIVELY BY MIRIAM FEINBERG V. ROGER D. STERN, ET
AL.
("FEINBERG"), and were filed in the Superior Court of New Jersey-Law
Division-Bergen County on October 31, 1990 and December 3, 1990,
respectively, and consolidated by court order dated February 8, 1991.
Pursuant to court order DVL and related defendants filed a third party
complaint in this consolidated action against their insurance carriers.
The Appellate Court in New Jersey and the Superior Court for Bergen
County, New Jersey have stayed all proceedings in the New Jersey cases.
Plaintiffs and all Defendants except Deloitte & Touche (the
"Settling Defendants") have reached a proposed settlement of WEIGART and
FEINBERG pursuant to a Settlement Agreement dated September 12, 1994 (the
"Settlement Agreement"). Under the Settlement Agreement, any claims
against the Settling Defendants were settled and all amounts to be
recovered by Plaintiffs were to be recovered exclusively against certain
insurance policies held by the Settling Defendants. The New York Court
in FEDERAL INSURANCE, discussed below, held that the Settling Defendants'
insurance excluded coverage of these matters and plaintiffs have sought
to transfer that ruling to the New Jersey cases.
Several limited partners who elected to opt out of the 1992
settlement of the limited partner class action, IN RE KENBEE LIMITED
PARTNERSHIPS LITIGATION, have named DVL in a case entitled FAYE CRAWFORD,
ET AL. V. ROGER STERN, ET AL. ("CRAWFORD"), filed in the Court of Common
Pleas in the State of South Carolina on September 23, 1993, in which
plaintiffs allege violations of RICO, common law fraud and civil
conspiracy in fiduciary securities transactions, common law fraud
including negligent deception, breach of fiduciary duty and negligence
by certain defendants and aiding and abetting other's breaches of
fiduciary duty and seek damages of $625,000 plus attorney fees, expenses
and interest. The case was removed to Federal Court and the defendants
have answered plaintiff's amended complaint. Settlement discussions are
underway and management has reserved for its estimation of settling or
defending the case.
DVL, and certain former officers have been named as defendants in
an action brought by a former employee of Kenbee entitled MICHAEL A.
BECKER V. KENBEE MANAGEMENT, INC. ET AL. ("BECKER"), and filed in the
Superior Court of New Jersey, Bergen County Law Division on September 22,
1993. In BECKER, plaintiff alleges violations of the New Jersey Law
11
Against Discrimination by Reason of Religious Discrimination, of oral
contract not to terminate plaintiff, of an implied promise not to
terminate employee for reasons violative of public policy, and for
intentional infliction of emotional distress, intentional interference
with contractual relations and slander and slander PER SE. Defendants
have answered the complaint, successfully moved to dismiss certain counts
and commenced discovery. Plaintiff was then given leave to amend and
filed an amended complaint, which Defendants have answered. More
extensive discovery is ongoing. It is expected that this case will not
settle and will proceed to trial and management has reserved for its
estimation of settling or defending the case.
In November 1993, the Securities and Exchange Commission (the
"Commission") commenced an administrative proceeding against DVL's
Treasurer in connection with certain events related to the 1990 stock
offering and price decline. Without admitting or denying the allegations
of the complaint, the Treasurer has agreed and the Commission has
consented to the issuance of a cease and desist order. Such Order will
not affect the ability of the Treasurer to perform his duties for DVL.
Federal Insurance Company ("Federal"), which carried DVL's directors
and officers insurance policy, has declined to cover DVL for these legal
costs and any liability. DVL commenced an action against its insurance
broker and Federal entitled DEL-VAL FINANCIAL CORPORATION, ET AL. V.
FEDERAL INSURANCE COMPANY ET AL. ("FEDERAL INSURANCE") on September 23,
1991 in the Supreme Court of the State of New York, County of New York
in which DVL alleges negligence against its broker and seeks declaratory
and injunctive relief against Federal. The New York Court in this matter
has held that the Settling Defendants' insurance excluded coverage of
these matters. DVL has filed a notice of appeal of that decision. DVL
has also named Federal as a third party defendant in the consolidated
WEIGART and FEINBERG cases, which have been stayed.
DVL has been named in actions for contractual indemnity, equitable
indemnity and declaratory relief in certain matters filed by Vanguard
Capital, Inc. in the Superior Court, State of California. These actions
are based on complaints by investors in affiliated limited partnerships
alleging that the investors' brokers sold to them unsuitable investments.
The broker is seeking indemnity against DVL and others. DVL has answered
these complaints.
DVL was a counterclaim defendant in an action entitled KEARNY
ASSOCIATES, ET AL. V. PLANNING BOARD OF KEARNY, ET AL., pending in the
Superior Court of New Jersey, Law Division, Hudson County, Docket Nos.
L-5436-92 and L-5978-92. In that case, an action was commenced in the
name of Del-Val Financial Corp., as well as Kearny Associates and
American Industrial Warehouses, Inc., seeking to overturn zoning
approvals granted to an adjacent property owner. The answer filed by
Pathmark's corporate entity and the property owner interposed a
counterclaim for tortious interference with prospective economic
advantage. DVL filed an answer to the counterclaim denying any liability
and raising other defenses. The action was consolidated with a similar
action commenced by an adjacent property owner and its tenant entitled
LJP ASSOCIATES V. PLANNING BOARD OF KEARNY, ET AL.
The main claims in both actions have been dismissed, leaving the
counterclaims which are being pursued. The counterclaims have been
amended to add as counterclaim defendants Foodtown of Kearny, Inc. and
its principal, Martin Vitale ("Foodtown"), and Kearny ShopRite, Inc. and
its principal, Richard Tully, as well as to name DVL as successor to Del-
Val Financial Corp. Foodtown has asserted crossclaims against, INTER
ALIA, DVL, counterclaims against Pathmark and its property owner and
third-party claims. DVL has settled this case as asserted by Pathmark
12
and the property owner, without admitting liability and the parties are
in the process of finalizing settlement documents. Foodtown's
crossclaims against DVL remain pending.
Item 4. Submission of Matters to a Vote of Security Holders
- -------------------------------------------------------------
None.
PART II
Item 5. Market for DVL's Common Stock and Related Shareholder Matters
- -----------------------------------------------------------------------
DVL is listed for trading on the New York Stock Exchange. DVL's New
York Stock Exchange symbol is DVL. As of March 27, 1995, DVL stock was
trading at $.25. The following table sets forth, for the calendar
periods indicated, the high and low sales prices of the Common Stock as
reported by the Exchange:
1994 High Low
- ---- ---- ---
First Quarter . . . . . . . . . . . . $1 3/8 $ 7/8
Second Quarter . . . . . . . . . . . 1 1/8 7/8
Third Quarter . . . . . . . . . . . . 7/8 1/2
Fourth Quarter . . . . . . . . . . . 1/2 3/8
1993 High Low
- ---- ---- ---
First Quarter . . . . . . . . . . . . $2 5/8 $ 5/8
Second Quarter . . . . . . . . . . . 2 1/8 1 1/8
Third Quarter . . . . . . . . . . . . 2 1
Fourth Quarter . . . . . . . . . . . 1 1/2 3/4
[FN]
At March 27, 1995, there were 1,800 holders of record of Common
Stock of DVL. DVL made monthly dividends to shareholders continuously
from May 1973 to October 1990. No dividends have been paid since October
1990. At this time, due to DVL's continued liquidity problems, DVL does
not anticipate paying any dividends in the foreseeable future.
[/FN]
13
Item 6. Selected Financial Data
- --------------------------------
The following summary sets forth DVL's consolidated financial data at
December 31, 1990,
1991,
1992, 1993 and 1994. The data set forth below should be read in conjunction
with other
financial
information of DVL, including its consolidated financial statements and
accountant's report
thereon
included elsewhere herein and "Management's Discussion and Analysis of
Financial Condition
and Results
of Operations."
Consolidated Income Statement Data
(In
thousands except for per share data)
Year Ended December 31
1990 1991
1992 1993
1994
---- ----
---- ---- ----
Revenues
Affiliates $ 17,100 $ 4,329
$ 4,002 $ 2,649
$ 3,425
Other 732 583
350 417
359
-------- --------
-------- -------
- --------
Total $ 17,832 $ 4,912
$ 4,352 $ 3,066
$ 3,784
======== ========
========
======= ========
Loss from continuing operations (A) $(58,836) $(13,487)
$(22,635)
$(6,163) $(12,887)
Loss from discontinued operations (243) (332)
(403)
(367) (223)
-------- --------
-------- -------
- --------
Loss before extraordinary gain (59,079) (13,819)
(23,038)
(6,530) (13,110)
Extraordinary gain on the settlement of - -
16,482 7,991
1,935
indebtedness -------- --------
-------- -------
- --------
Net Income (loss) $(59,079) $(13,819)
$ (6,556) $ 1,461
$(11,175)
======== ========
========
======= ========
Earnings (loss) per share (B)
Primary
Loss from continuing operations $ (9.25) $ (1.95)
$ (3.27) $
(.83) $ (1.54)
Loss from discontinued operations (.04) (.05)
(.06) (.05)
(.03)
-------- --------
-------- -------
- --------
Income (loss) before extraordinary gain (9.29) (2.00)
(3.33) (.88)
(1.57)
Extraordinary gain on the settlement of - -
2.38 1.08
.23
indebtedness -------- --------
-------- -------
- --------
Net Income (loss) $ (9.29) $ (2.00)
$ (.95) $ .20
$ (1.34)
======== ========
========
======= ========
Fully Diluted
Loss from continuing operations $ (9.25) $ (1.95)
$ (3.27) $
(.38) $ (1.54)
Loss from discontinued operations (.04) (.05)
(.06) (.02)
(.03)
-------- --------
-------- -------
- --------
Loss before extraordinary gain (9.29) (2.00)
(3.33) (.40)
(1.57)
Extraordinary gain on the settlement of - -
2.38 .50
.23
indebtedness -------- --------
-------- -------
- --------
Net Income (loss) $ (9.29) $ (2.00)
$ (.95) $ .10
$ (1.34)
======== ========
========
======= ========
Cash dividends per share (C) $ 1.41 $ -
$ - $ -
$ -
======== ========
========
======= ========
14
Consolidated Balance Sheet Data
(In thousands)
December 31
1990 1991
1992 1993
1994
---- ----
---- ---- ----
Total assets $146,831 $132,171
$97,938 $72,048
$54,085
======== ========
=======
======= =======
Long-term debt (D) $ 46,998 $ 43,450
$48,094
$37,270 $32,018
======== ========
=======
======= =======
Short-term debt (D) $ 42,816 $ 41,269
$23,486
$12,564 $ 9,657
======== ========
=======
======= =======
Shareholders' equity (capital
deficiency) $ 23,266 $ 9,447
$ 2,931 $ 5,660
$(5,131)
======== ========
=======
======= =======
[FN]
15
NOTES TO SELECTED FINANCIAL DATA
(A) In 1976, DVL sold real estate located in Kearny, New Jersey
(exclusive of land) to Toch, an affiliated partnership in which
Kenbee remains as the nominal general partner pursuant to an
agreement with the limited partners of the partnership. The
gain on this sale of $565,000 is being accounted for under the
installment method. DVL recognized $7,000, $7,000, $8,000,
$6,000 and $0 respectively, of the gain on this sale during the
five years ended December 31, 1994. See note 9 of notes to the
Consolidated Financial Statements of DVL.
In 1977, DVL sold real estate located in Rockingham, North
Carolina and Phoenix, Arizona to Kenbee and its subsidiary.
In 1992 this gain on sale was fully recognized.
In 1978, DVL sold real estate located in Bogota, New Jersey
(exclusive of land and machinery) to Kenbee and its subsidiary.
The gain on the sale of $1,130,000 is being accounted for under
the installment method. DVL recognized a gain of $7,000,
$8,000, $8,000, $9,000 and $9,000 respectively for the five
years ended December 31, 1994. See note 9 of notes to the
Consolidated Financial Statements of DVL.
(B) See note 1g of notes to the Consolidated Financial Statements
of DVL.
(C) Based upon the number of shares outstanding at date of
distribution. All dividends for the periods shown in the table
were taxable as ordinary income or treated as return of
capital.
(D) See note 8 to the notes to the Consolidated Financial
Statements of DVL.
[/FN]
16
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
- ----------------------------------------------------------
DVL continues to experience severe liquidity problems principally as
a result of the reduced cash flow received on the restructured and non-
performing portions of its loan portfolio. Although the Limited Partner
Settlement substantially reduced the non-performing portion of DVL's loan
portfolio, this reclassification has not, nor is it expected to result in
significant income or cash flow on the majority of the restructured
mortgages, as the mortgage debt service is used to pay liens senior to
DVL's. DVL remains in default on principal and interest payments on
approximately $13,800,000 of its indebtedness. DVL is also a defendant in
certain remaining litigation.
To enable DVL to meet its short-term operating needs, DVL must
continue to augment its cash flow with the proceeds from the sale or
refinancing of assets and equity borrowings. There is a risk that DVL may
not be able to raise the necessary funds with which to continue operations.
If DVL is unable to raise the necessary funds to continue operating, it may
be forced to file for protection from creditors in accordance with Chapter
11 of the United States Bankruptcy Code.
DVL's ability to continue as a going concern is dependent upon (1) the
success of the negotiations to restructure the payment terms of its
remaining unsettled indebtedness; (2) the sale or refinancing of certain
assets to improve its cash position to meet operating expenses and make
mandatory payment requirements to its creditors; (3) the settlement of its
remaining litigation; (4) the realization of the estimated value of the
assets collateralizing its loan portfolio over an extended period of time
rather than the value of the assets on a liquidation basis; and (5) the
return to profitable operations, which will primarily depend on the outcome
of the negotiations with its existing creditors to reduce its interest
expense burden. If DVL is unsuccessful in achieving a short term solution
to its liquidity problems, and moreover, long-term solutions to cure its
remaining loan defaults, meet its mandatory repayment requirements and
return it to profitable operations, then it may not be able to continue as
a going concern.
Results of Operations
- ---------------------
DVL realized a net loss of $11,175,000 in 1994, as compared to net
income of $1,461,000 in 1993, a change of $12,636,000. The net change in
1994 was primarily a result of decreased extraordinary gains realized upon
creditor settlements, substantial additional loss provisions for potential
forced asset liquidations and the loss incurred on the investment in FMF.
The net income in 1993 was primarily a result of extraordinary gains on the
settlements of indebtedness, which were partially offset by additional
provisions for losses on certain loans and for claim and litigation
settlements, increased general and administrative expenses and the effect
of a substantial portion of DVL's loan portfolio having little or no yields
based upon the restructured terms of such loans. The effects of these items
and the other factors contributing to DVL's operating results are as
follows:
Interest income on mortgage loans due from affiliates decreased by
$103,000 in 1994 and by $1,193,000 in 1993 primarily as a result of a
reduction in the amount of such loans to affiliated partnerships due to the
transfer of certain loans pursuant to creditor settlements in 1993 and from
the satisfaction of certain loans upon the sale of partnership properties.
Management fees from partnerships increased by $396,000 as a result
of DVL's management of its affiliated partnerships for all of 1994 after
the termination of its management agreement with RH effective January 1,
1994.
17
Transaction and other fees from partnerships aggregating $542,000
in 1994 represent the fees received upon the refinancing or sale of
certain partnership properties.
Rent income from affiliated partnerships decreased by $59,000 in
1994 and $25,000 in 1993 as a result of DVL's transfer of its economic
interest in three of its properties to affiliated partnerships in
connection with the settlement of litigation and the restructuring of one
of DVL's debts in 1993 in addition to the remaining two land leases being
in default.
Interest income on loans to limited partners decreased by $85,000
in 1994 and increased by $59,000 in 1993. The decrease in 1994 is due
to a decrease in the average outstanding balance of the performing
portion of this portfolio. The increase in 1993 was due to better than
expected collections on the non-performing portion of this portfolio,
partially offset by a decrease in the average outstanding balances of the
performing portion of this portfolio.
General and administrative expenses decreased by $665,000 in 1994
and increased by $1,396,000 in 1993. The decrease in 1994 primarily
resulted from a decrease in the value of performance units granted to
certain officers of $385,000 and the allocation of overhead to FMF. The
increase in 1993 primarily resulted from an increase in payroll and
operating costs incurred as an independently managed organization and the
accrual of $417,000 for the value of the performance units. Due to the
elimination of DVL's new business ventures and additional reductions in
personnel made in late 1994 and early 1995, management expects a decrease
in general and administrative expenses in the future.
The litigation settlement loss of $6,400,000 in 1992 represents the
expected loss to be incurred upon the final settlement of the IN RE DEL-
VAL litigation. The loss was fully provided for during 1992 and included
the estimated fair market value of the common stock and notes to be
issued in connection with the settlement.
The provision for losses aggregated $7,814,000 in 1994 and $995,000
in 1993. The provision in 1994 was primarily a result of potential losses
to be incurred upon the forced liquidation of assets to meet mandatory
repayment obligations on certain indebtedness and for losses incurred
upon the liquidation of assets to fund DVL's operating cash flow
deficiency. Furthermore, DVL provided for losses based upon updated
information on certain properties. The provision in 1993 is primarily
a result of provisions for additional loan losses based upon updated
information on certain properties and investments and for anticipated
losses to be incurred upon the liquidation of assets to fund DVL's
operating cash flow deficiency. These additional provisions were
partially offset by a net reduction in DVL's potential liability as
guarantor of indebtedness, due to settlements with certain of such
creditors, collections on previously reserved for loans due from Kenbee
resulting from RH's partnership management and real estate activities and
by collections on previously reserved for Partners' Notes.
Legal and professional fees decreased by $36,000 in 1994 and by
$33,000 in 1993. These fees continued to be significant during 1994
primarily as a result of the remaining litigation and the culmination of
the shareholder class action litigation. Such fees are expected to
continue until DVL settles its remaining litigation and restructures its
remaining unsettled indebtedness. DVL has been unable to pay its
professional fees on a current basis and is at risk of losing its
representation if significant payments are not made during the second
quarter of 1995.
18
Interest expense decreased by $250,000 in 1994 and by $2,800,000 in
1993 primarily as a result of a decrease in indebtedness and decreases
in interest rates on certain restructured indebtedness, which in 1994 was
partially offset by $744,000 of imputed interest on the notes to be
issued in connection with the Shareholder Settlement and by an increase
in the prime rate. The decrease in indebtedness is primarily the result
of the full satisfaction of certain indebtedness pursuant to debt
restructurings in 1993 as well as the principal payments made from
collections on the collateral pledged to secure the related indebtedness.
Management anticipates that such interest expenses on its existing
indebtedness will decline in the future as a result of the completed and
proposed settlements and restructuring agreements with DVL's creditors,
however, this decline may be more than offset by the interest, including
imputed interest, on the approximately $9 million of notes to be issued
in connection with the Shareholder Settlement.
Settlements and other litigation losses aggregating $973,000 in 1994
and $582,000 in 1993 represent both actual losses and management's
estimate of potential losses to be realized in connection with claims
originating from Kenbee's indebtedness to certain creditors and for
certain other litigation matters.
The net loss of $1,181,000 on the investment in FMF in 1994
represents DVL's investment to fund FMF's initial operations, before any
potential recoupment from additional cash received from the sale of FMF.
The loss included $353,000 of overhead allocated to FMF by DVL.
DVL's discontinued operations resulted in a net loss of $223,000 in
1994 and a net loss of $367,000 in 1993. The loss in 1994 resulted
primarily from a provision for losses on one of DVL's real estate
projects, and additional losses anticipated on the sale of the remaining
real estate or DVCC loans. The loss in 1993 represents the losses
incurred upon the liquidation of DVCC's loan portfolio.
DVL has reached settlements with the majority of its shareholders,
virtually all of the limited partners and the majority of its creditors.
As a result, management anticipates, (a) a steady flow of income in
partnership management and other fees, (b) a decrease in interest income
on mortgage loans transferred to satisfy indebtedness or liquidated for
repayment of indebtedness or cash flow purposes, (c) a decrease in
interest expense as indebtedness is satisfied by transferring assets to
certain creditors and as certain indebtedness is restructured with
reduced interests rates, (d) an increase in interest expense on notes to
be issued in connection with the Shareholder Settlement, (e) potential
gains on the settlement and restructuring of DVL's remaining unsettled
indebtedness, including the reduction or elimination of interest
previously accrued on such indebtedness if settlements are finalized on
the terms currently proposed, and (f) a reduction in the costs incurred
to defend against litigation, to comply with administrative
investigations and to settle or restructure its indebtedness.
Liquidity and Capital Resources
- -------------------------------
DVL continues to experience severe liquidity problems and its cash
flow provided by operations is not sufficient to meet its operating
needs. DVL is attempting to augment its cash flow with the proceeds from
the sale or refinancing of assets and equity financings. There is a
risk that DVL may not be able to raise the necessary funds with which to
continue operations.
DVL's revocation of its election to be taxed as a REIT effective
January 1, 1994 eliminated the requirement that DVL distribute at least
95% of its taxable income and will allow DVL to enter into new business
19
ventures that were not permitted or were subject to taxation at a rate
of 100% for a REIT. DVL does not anticipate making distributions to its
shareholders in the foreseeable future. DVL currently has net operating
loss carryforwards of approximately $67,000,000 which it may use as a "C"
Corporation to offset future taxable income, if any, and subject to
certain limitations, from federal income taxes.
DVL has the right to refinance a number of mortgage loans underlying
its wrap around mortgages due from affiliated partnerships and arrange
senior financing secured by properties on which it holds first or second
mortgage loans by subordinating its mortgage position. In 1994, DVL
refinanced a portion of its mortgage portfolio which generated cash
proceeds of approximately $5.9 million, of which approximately $4.6
million was used to satisfy existing indebtedness and approximately $1
million was placed in escrow in connection with proposed settlements with
DVL's remaining unsettled creditors. As a result of DVL's prior and
current asset liquidations and refinancings, DVL's asset base available
for future liquidations has diminished considerably.
In March 1993, DVL transferred certain mortgage loans, with a net
carrying value of $7,443,000, to a creditor in complete satisfaction of
its previously restructured indebtedness of approximately $6,420,000 and
in partial satisfaction of a $2.7 million loan which originated in April
1992 in connection with DVL's purchase of its own indebtedness from an
unaffiliated third party. In addition, DVL received approximately
$400,000, the release of certain other mortgages and certain limited
partnership investments held as collateral for this indebtedness. No
gain or loss resulted from this transaction in 1993. The $2.7 million
loan was fully repaid in October 1993 from the proceeds of the
liquidation of certain DVCC assets collateralizing this loan. In October
1993, DVL borrowed a total of $1.1 million from this same creditor
collateralized by certain mortgages which previously collateralized the
$2.7 million loan and by certain management fees to be received in 1994.
The loan collateralized by certain management fees was extended to April
30, 1995. The proceeds of these loans were used to meet operating
expenses and to satisfy the payment requirements of certain debt
restructuring agreements. The remaining loan to such creditor of
approximately $900,000 was fully satisfied in 1994.
In February 1994, this same creditor provided DVL with $1.3 million
of non-recourse second mortgage financing in connection with DVL's
acquisition of a residential development of improved and unimproved land
in Beaufort, South Carolina. Under the terms of this financing, the
creditor was entitled to receive interest at prime plus 2%, as well as
from 25% to 45% of the profit from the sale of such land parcels based
upon the date of the full repayment of the loan. Due to a lack of
funding for the project DVL deeded the property back to its creditor in
February 1995.
During 1994, DVL reduced the portion of its indebtedness which was
in default for non-payment of scheduled interest and/or principal by
approximately $3.6 million. This reduction resulted from the
restructuring of the principal balance, payment terms and interest rate
with one creditor. The restructuring agreement was signed in the first
quarter of 1995 and is expected to close by the end of the second quarter
of 1995. Such restructuring will result in a gain on the settlement of
indebtedness of approximately $1.8 million in the first quarter of 1995.
At December 31, 1994, DVL continued to be in default for non-payment
of scheduled interest and/or principal payments on approximately $13.8
million of its indebtedness and is currently negotiating to settle or
restructure payment terms with its remaining unsettled creditor. The
goal of such restructuring is to obtain a reduction of the total
20
indebtedness and to establish an acceptable payment schedule with such
creditor. This negotiation includes a proposal for curing the defaults
and restructuring the indebtedness by offering cash payments over time
at a negotiated discount to the creditor. If the above settlement is
finalized as proposed, DVL would recognize a substantial gain on such
settlement. There can be no assurance that these negotiations will
continue or that a settlement will be finalized as described above. In
addition, if DVL does not meet its previously settled mandatory repayment
requirements to other creditors, it would be in default on these loans
and at risk of losing all of the related collateral.
DVL is currently seeking replacement secured and equity borrowings
to meet its mandatory repayment requirements and its other cash needs.
There can be no assurance that DVL will be able to obtain such borrowings
or that the borrowings will be sufficient to meet mandatory repayment
requirements and any future cash flow deficiencies.
Impact of Inflation and Changes in Interest Rates
- -------------------------------------------------
DVL's mortgage loan portfolio due from affiliated partnerships is
primarily at fixed rates. Although management has restructured certain
indebtedness and is negotiating to restructure its remaining unsettled
indebtedness to fixed rates, DVL's indebtedness continues to be primarily
at variable rates. Therefore, currently, decreases in interest rates are
generally expected to have a positive effect on DVL's earnings while
increases in interest rates are generally expected to have a negative
effect on DVL's earnings. Other than as manifested in interest rates,
inflation has not had a significant effect on DVL's net income for the
past five years.
Other Matters
- -------------
As a temporary step designed to allow DVL to pursue the acquisition
of residential real estate for resale without subjecting any profits from
such resales to the 100% tax rate for REITs, DVL made four loans to RH
in 1993 in connection with RH's acquisition of real estate for resale.
The loans aggregated $213,000 of which $161,000 was repaid during 1993.
The remaining loan was eliminated through DVL's acquisition of RH
effective January 1, 1994.
At December 31, 1994, DVL had net operating loss carryforwards for
income tax purposes of approximately $67,000,000 available to offset
future taxable income, if any, expiring through 2008.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The financial statements, together with the report thereon of
Richard A. Eisner & Company, are set forth on pages F-1 through F-10,
which follow. The financial statements are listed in Item 14(a)(1)
hereof.
The remainder of the financial information required by this report
is set forth on page S-1, which follows the financial statements set
forth on pages F-1 through F-31 hereof. Such information is listed in
Item 14(a) hereof.
Item 9. Disagreements on Accounting and Financial Disclosure
- --------------------------------------------------------------
There have been no disagreements on any matter of accounting
principles or practices or financial statement disclosure between DVL and
its independent auditors within the twenty-four months prior to the date
of DVL's most recent financial statements.
21
PART III
Item 10. Directors and Executive Officers of DVL
- ---------------------------------------------------
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1994 Annual Meeting
of Stockholders which DVL intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 11. Executive Compensation
- ----------------------------------
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1994 Annual Meeting
of Stockholders which DVL intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and
Management
- ---------------------------------------------------------------
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1994 Annual Meeting
of Stockholders which DVL intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
Item 13. Certain Relationships and Related Transactions
- ----------------------------------------------------------
The information called for by this Item is incorporated herein by
reference to DVL's definitive proxy statement for its 1994 Annual Meeting
of Stockholders which DVL intends to file with the Commission not later
than 120 days after the end of the fiscal year covered by this Form 10-K.
22
PART IV
Item l4. Exhibits, Financial Statement Schedules and Reports on
Form 8-K
- ----------------------------------------------------------------
(a) The following documents are filed as a part of this report:
(1) The Financial Statements required by Item 8 of this
report are listed below:
Item 8
Page No.
--------
Report of Independent Auditors F- 1
Consolidated Balance Sheets -
December 31, 1994 and 1993 F- 2
Consolidated Statements of Operations
for each of the years in the three year period
ended December 31, 1994 F- 4
Consolidated Statements of Shareholders'
Equity (Capital Deficiency) for each of the
years in the three year period ended
December 31, 1994 F- 6
Consolidated Statements of Cash Flows
for each of the years in the three year period
ended December 31, 1994 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 IX - Short-Term Borrowings for the three
years ended December 31, 1994 S- 1
Other schedules are omitted because of the absence of conditions under
which they are required or because the required information is given in
the financial statements or notes thereto.
(3) Index of Exhibits
-----------------
The following is a list of the Exhibits filed as a part of this
report (those marked * are filed herewith):
23
3. Articles of Incorporation and By-laws.
-------------------------------------
(a) Copy of DVL's Certificate of Incorporation. (Incorporated by
reference to Exhibit 6(d) to DVL's Form S-l4 Registration
Statement No. 2-58847 dated April 28, l977.)
(b) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation. (Incorporated by reference to Exhibit 6(e) to
Amendment No. 1 to DVL's Form S-l4 Registration Statement No.
2-58847 dated August 25, l977.)
(c) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated August 3, 1982. (Incorporated by reference
to Exhibit 3(c) to DVL's Form 10-K for the fiscal year ended
December 31, 1982.)
(d) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated May 27, 1983. (Incorporated by reference
to Exhibit 3(d) to DVL's Form 10-K for the fiscal year ended
December 31, 1983.)
(e) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated July 24, 1987. (Incorporated by reference
to Exhibit 3(e) to DVL's Form 10-K for the fiscal year ended
December 31, 1987).
(f) Copy of DVL's By-Laws, as in full force and effect at all times
since March 28, l977. (Incorporated by reference to Exhibit
3(c) to DVL's Form 10-K for the fiscal year ended December 31,
1980.)
(g) Copy of DVL's First Amendment to By-Laws dated as of January
1, 1994.
(h) Copy of DVL's Certificate of Amendment to Certificate of
Incorporation dated December 17, 1993.
4. Instruments defining the rights of security holders.
---------------------------------------------------
There are no instruments defining the rights of holders of equity
securities required to be filed hereunder. Instruments defining the
rights of holders of long-term debt of DVL are summarized in Note 8 to
DVL's consolidated financial statements included in Item 8 hereof. None
of such instruments authorizes amounts to be borrowed by DVL in excess
of 10% of the total assets of DVL. DVL agrees to provide copies of such
debt instruments to the Commission upon request.
9. Voting trust agreement.
----------------------
Not applicable
10. Material Contracts.
------------------
10.1 Copy of Agreement between Martin Scheinberg and DVL dated
January 17, 1991. (Incorporated by reference to Exhibit 10 (a)
(11) to DVL's Form 10-K for the fiscal year ended December 31,
1990.)
10.2 Copy of Employment Agreement between DVL and Ben S. Read, Jr.,
dated November 1, 1990. (Incorporated by reference to Exhibit
10 (a) (12) to DVL's Form 10-K for the fiscal year ended
December 31, 1990.)
24
10.3 Copy of Employment Agreement between DVL and Alan E. Casnoff
dated January 1, 1991. (Incorporated by reference to Exhibit
10 (a) (13) to DVL's Form 10-K for the fiscal year ended
December 31, 1990.)
10.4 Copy of DVL Performance Unit Plan. (Incorporated by reference
to Exhibit 10 (a) (14) to DVL's Form 10-K for the fiscal year
ended December 31, 1990.)
10.5 Copy of Resignation and Indemnification Agreement dated May 3,
1991 between Roger D. Stern, Kenbee and DVL. (Incorporated by
reference to Exhibit 10 (a) (15) to DVL's Form 10-K for the
fiscal year ended December 31, 1990.)
10.6 Copy of Employment Agreement between DVL and Joel Zbar dated
October 1, 1991. (Incorporated by reference to Exhibit 10 (a)
(16) to DVL's Form 10-K for the fiscal year ended December 31,
1991.)
10.7 Copy of Voting Trust Agreement between R&M Holding Company and
Alan Casnoff dated May 15, 1991. (Incorporated by reference
to Exhibit 10 (a) (18) to DVL's Form 10-K for the fiscal year
ended December 31, 1991.)
10.8 Copy of Voting Trust Extension by Roger D. Stern dated December
10, 1991. (Incorporated by reference to Exhibit 10 (a) (19)
to DVL's Form 10-K for the fiscal year ended December 31,
1991.)
10.9 Copy of Voting Trust Extension Agreement between R&M Holding
Company and Alan Casnoff dated April 7, 1992. (Incorporated
by reference to Exhibit 10 (a) (20) to DVL's Form 10-K for the
fiscal year ended December 31, 1991.)
10.10 Form of Second Deed to Secure Debt between an affiliated
partnership and DVL. (Incorporated by reference to Exhibit
10(b)(1) to DVL's Form 10-K for the fiscal year ended December
31, 1983.)
10.11 Form of Note of an affiliated partnership to DVL.
(Incorporated by reference to Exhibit 10(b)(2) to DVL's Form
10-K for the fiscal year ended December 31, 1983.)
10.12 Form of Note of a subsidiary of Kenbee to DVL. (Incorporated
by reference to Exhibit 10(b)(3) to DVL's Form 10-K for the
fiscal year ended December 31, 1983.)
10.13 Assumption Agreement between DVL and North Lake Corporation
dated as of November 22, 1983. (Incorporated by reference to
Exhibit (b)(8) to DVL's Form 10-K for the fiscal year ended
December 31, 1983.)
10.14 Loan and Security Agreement between DVL and Kenbee dated
September 10, 1984. (Incorporated by reference to Exhibit
10(b)(11) to DVL's Form 10-K for the fiscal year ended December
31, 1984.)
10.15 Letter Agreement between DVL and Kenbee dated as of December
31, 1984. (Incorporated by reference to Exhibit 10(b)(16) to
DVL's Form 10-K for the fiscal year ended December 31, 1984.)
25
10.16 Loan and Security Agreement between DVL and Kenbee dated as of
December 31, 1984. (Incorporated by reference to Exhibit
10(b)(17) to DVL's Form 10-K for the fiscal year ended
December 31, 1984.)
10.17 Letter Agreement between DVL and Kenbee dated January 30, 1985.
(Incorporated by reference to Exhibit 10(b)(14) to DVL's Form
10-K for the fiscal year ended December 31, 1984.)
10.18 Supplemental Letter Agreement between DVL and Kenbee dated
March 12, 1985. (Incorporated by reference to Exhibit
10(b)(15) to DVL's Form 10-K for the fiscal year ended December
31, 1984.)
10.19 Letter Agreement between DVL and Kenbee dated as of December
31, 1984. (Incorporated by reference to Exhibit 10(b)(12) to
DVL's Form 10-K for the fiscal year ended December 31, 1984.)
10.20 Letter Agreement between DVL, LW Industries, Inc. and Kenbee
dated as of March 12, 1985. (Incorporated by reference to
Exhibit 10(b)(13) to DVL's Form 10-K for the fiscal year ended
December 31, 1984.)
10.21 Note of DVL to LW Industries, Inc. Defined Benefit Pension Plan
dated as of December 31, 1987. (Incorporated by reference to
Exhibit 10(b)(30) to DVL's Form 10-K for the fiscal year ended
December 31, 1987.)
10.22 Letter Agreement between DVL and Kenbee dated November 30,
1987. (Incorporated by reference to Exhibit 10(b)(30) to DVL's
Form 10-K for the fiscal year ended December 31, 1987.)
10.23 Form of Mortgage and Security Agreement between DVL and an
affiliated partnership. (Incorporated by reference to Exhibit
10(b)(33) to DVL's Form 10-K for the fiscal year ended December
31, 1988.)
10.24 Letter Agreement between P & A Associates and Kenbee dated
April 19, 1989. (Incorporated by reference to Exhibit 10(b)(5)
of DVL's Form S-2 Registration Statement No. 33-29184, dated
June 7, 1989.)
10.25 Copy of Stipulation of Settlement of IN RE KENBEE LIMITED
PARTNERSHIP LITIGATION dated August 12, 1992.
10.26 Copy of forms of DVL's Convertible Subordinated 12% Promissory
Note, Purchase Agreement, First Amendment to Purchase
Agreement, Second Amendment to Purchase Agreement and Warrant
to Purchase Common Stock of DVL.
10.27 Copy of forms of DVL's Convertible Subordinated 10% Promissory
Note, Purchase Agreement and Warrant to Purchase Common Stock
of DVL.
10.28 Copy of Stipulation of Partial Settlement and Order in IN RE
DEL-VAL FINANCIAL CORPORATION SECURITIES LITIGATION Master
File #MDL872.
10.29 Copy of Employment Agreement between DVL and Robert W.
LoSchiavo dated January 1, 1994.
*10.30 Copy of Employment Agreement between DVL and Robert W.
LoSchiavo dated January 1, 1995.
26
11. Statement re computation of per share earnings.
----------------------------------------------
12. Statements re computation of ratios.
-----------------------------------
Not applicable since there are no ratios of earnings to fixed
charges in DVL's Form l0-K.
13. Letter re change in accounting principles.
-----------------------------------------
There has been no change in accounting principles or practices
followed by DVL, or any change in the method of applying such
accounting principles or practices, which affect the financial
statements of DVL included in Item 8 hereof.
14. Previously unfiled documents.
----------------------------
None
15. Subsidiaries of DVL.
-------------------
(Incorporated by reference to Exhibit 15 to DVL Form 10-K for
the fiscal year ended December 31, 1989.) Three additional
subsidiaries, DV/MHC, PSC and RH were formed prior to the date
of this Form 10-K and all are wholly owned by DVL.
16. Published report regarding matters submitted to vote OF
SECURITY HOLDERS.
Not applicable.
17. Consents of Experts and Counsel.
-------------------------------
Not applicable.
18. Power of Attorney.
-----------------
Not applicable.
19. Additional Exhibits.
-------------------
There are no additional exhibits.
20. Information from reports furnished to state insurance
-----------------------------------------------------
regulatory authorities.
----------------------
Not applicable.
(b) No reports on Form 8-K were filed during the fiscal quarter ended
December 31, 1994.
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the '34 Act,
DVL has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DVL, INC.
Date: , 1995 By:
---------------------------
Alan E. Casnoff
President and Chief
Executive Officer
Pursuant to the requirements of the '34 Act, this report has been
signed below by the following persons on behalf of DVL and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
- ----------------------
Alan E. Casnoff President, Chief March 30, 1995
Executive Officer
(Principal Executive
Officer) and Director
- ----------------------
Frederick E. Smithline Director March 30, 1995
- ----------------------
Herbert L. Golden Director March, 30, 1995
- ----------------------
Myron Rosenberg Director March 30, 1995
- ----------------------
Joel Zbar Treasurer (Principal March 30, 1995
Financial and Accounting
Officer)
28
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the '34 Act,
DVL has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
DVL, INC.
Date: , 1995 By:/s/
---------------------------
Alan E. Casnoff
President and Chief
Executive Officer
Pursuant to the requirements of the '34 Act, this report has been
signed below by the following persons on behalf of DVL and in the
capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/
- ----------------------
Alan E. Casnoff President, Chief March 30, 1995
Executive Officer
(Principal Executive
Officer) and Director
/s/
- ----------------------
Frederick E. Smithline Director March 30, 1995
/s/
- ----------------------
Herbert L. Golden Director March 30, 1995
/s/
- ----------------------
Myron Rosenberg Director March 30, 1995
/s/
- ----------------------
Joel Zbar Treasurer (Principal March 30, 1995
Financial and Accounting
Officer)
29
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Consolidated Financial Statements of DVL, Inc.
(formerly "Del-Val Financial Corporation")
and Subsidiaries and Report of Independent Auditors
Page
----
Report of Independent Auditors F- 1
Consolidated Balance Sheets-December 31, 1994 and 1993 F- 2
Consolidated Statements of Operations for each of the
years in the three year period ended December 31, 1994 F- 4
Consolidated Statements of Shareholders' Equity/Capital
Deficiency for each of the years in the three year
period ended December 31, 1994 F- 6
Consolidated Statements of Cash Flows for each of the
years in the three year period ended December 31, 1994 F- 7
Notes to Consolidated Financial Statements F-10
RICHARD A. EISNER & COMPANY, LLP
575 Madison Avenue
New York, NY 10022-2597
- ------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
DVL, Inc.
Bogota, New Jersey
We have audited the accompanying consolidated balance sheets of DVL,
Inc. (formerly Del-Val Financial Corporation) and subsidiaries as at
December 31, 1994 and December 31, 1993, and the related consolidated
statements of operations, shareholders' equity/ capital deficiency, and
cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements enumerated above present
fairly, in all material respects, the consolidated financial position of
DVL, Inc. and subsidiaries at December 31, 1994 and December 31, 1993,
and the consolidated results of their operations and their cash flows for
each of the years in the three-year period ended December 31, 1994 in
conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note
2, the Company has suffered significant losses from operations in each
of the last three years, is in default of one of its loan agreements due
to nonpayment and is continuing to have liquidity problems. These
factors raise substantial doubt about the Company's ability to continue
as a going concern. Management's plans in regard to these matters are
described in Note 2. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 29, 1995
F-1
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
----------------------
1994 1993
ASSETS ---------- ----------
------
Loans receivable, including amounts maturing after one
year - principally pledged (Notes 1,2,5,6,8,11 and 13)
Affiliates:
Wrap around and other mortgages due from affiliated
partnerships (net of underlying liens of $52,840
and $52,022, respectively) $ 68,851 $ 80,767
Unearned interest (18,028) (20,426)
-------- --------
Net mortgage loans receivable from affiliated
partnerships (including $5,261 and $4,546 of
non-performing loans, respectively) 50,823 60,341
Others:
Other mortgage loans 1,383 1,459
Loans collateralized by limited partnership interests
due from limited partners (including $4,540 and
$5,226 of non-performing loans, respectively) 4,606 6,031
-------- --------
Total loans receivable 56,812 67,831
Allowance for loan losses (Note 6) 12,762 7,034
-------- --------
Net loans receivable 44,050 60,797
Cash (including restricted cash of $1,064 and $185,
respectively) 1,350 541
Due from affiliated partnerships (net of an allowance
for loss of $2,444 and $2,490, respectively) (Note 2) 200 266
Investments (Notes 1,5,7 and 13)
Real estate at cost - pledged (net of an allowance for
loss of $208) 289 497
Real estate lease interests 2,557 2,623
Affiliated limited partnerships (net of an allowance for
loss of $750) 3,803 4,497
Other investments (net of an allowance for loss of $400) 723 949
Other assets (Note 1) 1,113 632
Assets of discontinued operations (Note 3) - 1,246
-------- --------
Total assets $ 54,085 $ 72,048
======== ========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-2
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
December 31,
----------------------
1994 1993
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY/CAPITAL DEFICIENCY
-------------------------------------------------------
Liabilities:
Debt in default for non-payment - partially
collateralized (Notes 2 and 11) $ 9,442 $ 13,507
Accrued interest on debt in default for non-payment 4,362 4,272
Short-term debt (Note 8) 215 2,613
Long-term debt (Notes 2,7,8,11, and 13) 32,018 33,714
Notes to be issued pursuant to litigation settlement
(Notes 2 and 11) 4,434 3,690
Convertible subordinated debentures (Notes 10 and 12) 448 438
Accrued liability for litigation settlement (Notes 2
and 11) 1,810 1,810
Accrued liability for indebtedness of Kenbee
Management, Inc. and affiliates (Notes 6 and 11) 708 1,171
Accounts payable and accrued liabilities (Note 11) 4,383 3,768
-------- --------
Total liabilities 57,820 64,983
-------- --------
Deferred credits (Notes 1 and 9) 1,396 1,405
-------- --------
Commitments and contingent liabilities (Notes 2 and 11)
Shareholders' equity/capital deficiency (Notes 1,2,10,11 and 12):
Common stock, $1 par value, authorized - 16,000,000
shares, issued and to be issued - 8,513,200 and
8,103,043, respectively 8,513 8,103
Additional paid-in capital 84,074 84,100
Deficit (97,718)
(86,543)
-------- --------
Total shareholders' equity (capital deficiency) (5,131) 5,660
-------- --------
Total liabilities and shareholders' equity
(capital deficiency) $ 54,085 $ 72,048
======== ========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-3
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share data)
Year Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
Income from affiliates (Notes 1,2,4,5 and 7):
Interest on mortgage loans $ 2,344 $ 2,447 $ 3,640
Partnership management fees 514 118 -
Transaction and other fees from
partnerships 542 - -
Commitment and loan guarantee fees - - 253
Rent income 25 84 109
Income from others (Notes 1,2 and 5):
Interest on loans to limited partners
collateralized by limited partnership
interests 317 402 343
Other interest 42 15 7
-------- -------- --------
3,784 3,066 4,352
-------- -------- --------
Operating expenses:
Provision for losses (Notes 1,2,5,6,
7 and 11) 7,814 995 11,219
General and administrative 2,121 2,786 1,390
Legal and professional fees 621 657 690
Depreciation of real estate assets
(Notes 1 and 7) - 4 8
Interest expense - (Notes 1,2 and 8)
Affiliates 251 220 201
Others 3,719 4,000 6,819
Loss on investment in First Mechanics
Finance Company (Note 6) 1,181 - -
Reserve for estimated loss on shareholder
litigation settlement (Notes 2 and 11) - - 6,400
Claim settlement and other litigation
losses (Notes 6 and 11) 973 582 280
-------- -------- --------
16,680 9,244 27,007
-------- -------- --------
Loss before gain on sales of real estate (12,896) ( 6,178) (22,655)
Gain on sales of real estate to affiliates
(Notes 1 and 9) 9 15 20
-------- -------- --------
Loss from continuing operations (12,887) ( 6,163) (22,635)
Loss from discontinued operations (Note 3) (223) (367) (403)
-------- -------- --------
Loss before extraordinary gain (13,110) ( 6,530) (23,038)
Extraordinary gain on the settlements
of indebtedness (Notes 2 and 8) 1,935 7,991 16,482
-------- -------- --------
Net income (loss) $(11,175) $ 1,461 $( 6,556)
======== ======== ========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-4
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(continued)
Year Ended December 31,
---------------------------------
1994 1993 1992
--------- --------- ---------
Earnings (loss) per share (Note 1):
Primary:
Loss from continuing operations $ (1.54) $ (.83) $ (3.27)
Loss from discontinued operations (.03) (.05) (.06)
--------- --------- ---------
Loss before extraordinary gain (1.57) (.88) (3.33)
Extraordinary gain on the settlements
of indebtedness .23 1.08 2.38
--------- --------- ---------
Net income (loss) $ (1.34) $ .20 $ (.95)
========= ========= =========
Fully diluted:
Loss from continuing operations $ (1.54) $ (.76) $ (3.27)
Loss from discontinued operations (.03) (.04) (.06)
--------- --------- ---------
Loss before extraordinary gain (1.57) (.80) (3.33)
Extraordinary gain on the settlements
of indebtedness .23 .99 2.38
--------- --------- ---------
Net income (loss) $ (1.34) $ .19 $ ( .95)
========= ========= =========
Weighted average shares outstanding:
Primary 8,336,640 7,403,407 6,911,571
========= ========= =========
Fully diluted 8,336,640 8,039,428 6,911,571
========= ========= =========
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-5
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY/CAPITAL
DEFICIENCY
(NOTES 1, 2, 10, 11 AND 12)
(in thousands except share data)
Common stock Additional
-------------------- paid-in
Shares Amount capital Deficit
Total
---------- -------- ---------- ---------
- --------
Balance-December 31, 1991 6,911,571 $6,912 $83,983 $(81,448)
$9,447
Issuance of warrants in
connection with the sale
of subordinated debentures 40
40
Net loss (6,556)
(6,556)
--------- ------ ------- --------
- -------
Balance-December 31, 1992 6,911,571 6,912 84,023 (88,004)
2,931
Issuance of warrants in
connection with the sale
of subordinated debentures 7
7
Issuance of common stock in
payment of accounts payable 41,472 41 39
80
Issuance of common stock in
connection with a creditor
settlement 250,000 250 31
281
Common stock to be issued in
connection with shareholder
class action litigation 900,000 900
900
Net income 1,461
1,461
--------- ------ ------- --------
- -------
Balance-December 31, 1993 8,103,043 8,103 84,100 (86,543)
5,660
Issuance of common stock in
payment of accounts payable 90,157 90 (8)
82
Issuance of warrants in
connection with a creditor
agreement 2
2
Issuance of stock in connection
with a settlement of a
contingent liability 320,000 320 (20)
300
Net loss (11,175)
(11,175)
--------- ------ ------- --------
- -------
Balance-December 31, 1994 8,513,200 $8,513 $84,074 $(97,718)
$(5,131)
========= ====== ======= ========
=======
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-6
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
Cash flows from operating activities:
Net loss from continuing operations $(12,887) $ (6,163) $(22,635)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities
Provision for losses 7,814 995 11,219
Claim settlement losses 973 582 280
Reserve for loss on shareholder
litigation settlement - - 6,400
Depreciation of real estate assets - 4 8
Amortization of deferred charges 126 216 220
Net increase in other assets (197) (281) (112)
Decrease in unearned interest on loans
receivable (419) (472) (387)
Net increase in payables 831 2,791 4,129
Imputed interest on Notes to be issued 744 - -
Amortization of deferred credits (9) (15) (272)
Net cash provided by (used in) discontinued
operations 13 (396) (501)
-------- -------- --------
Net cash provided by (used in) operating
activities (3,011) (2,739) (1,651)
-------- -------- --------
Cash flows from investing activities:
Fundings of loans receivable to affiliates - (112) -
Collections on loans receivable (net of
payments on underlying loans)
Affiliates 7,146 2,530 4,801
Others 1,838 3,419 1,473
Net cash provided by (used in) real estate
acquired for resale - 76 (457)
Net reductions in real estate lease interests 66 110 -
Net collections on amounts due from affiliated
partnerships 66 - -
Acquisition of affiliated limited partnership
interests (108) - -
Distributions received on affiliated limited
partnership interests and other investments 238 121 31
Net cash provided by discontinued activities 530 8,434 11,202
-------- -------- --------
Net cash provided by investing activities 9,776 14,578 17,050
-------- -------- --------
(continued)
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-7
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
------------------------------
1994 1993 1992
-------- -------- --------
Cash flows from financing activities:
Proceeds from new borrowings $ 1,150 $ 1,110 $ 3,000
Proceeds from the issuance of subordinated
debentures - 21 255
Net decrease in amounts receivable from
Kenbee Management, Inc. - 275 68
Net cash received upon purchase of
indebtedness - - 125
Repayment of indebtedness (6,994) (7,962) (8,752)
Payments on guaranteed indebtedness (380) (367) -
Net cash used for debt repayments on
discontinued activities of Del-Val
Capital Corp. - (4,524) (9,973)
-------- -------- --------
Net cash used in financing activities (6,224) (11,447) (15,227)
-------- -------- --------
Net increase in cash 541 392 122
Cash, beginning of year 809 149 27
-------- -------- --------
Cash, end of year $ 1,350 $ 541 $ 149
======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest,
excluding amounts paid on underlying
loans $ 1,051 $ 2,033 $ 3,431
======== ======== ========
(continued)
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
F-8
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
Year Ended December 31,
---------------------------
1994 1993 1992
------- ------- -------
Supplemental disclosure of non-cash
investing and financing activities:
Net loans receivable transferred
to settle claim $ - $ - $ 63
Increase in indebtedness in connection
with claim settlement 973 582 217
------- ------- -------
Net effect of claim settlement $ 973 $ 582 $ 280
======= ======= =======
Net loans and other assets transferred to
satisfy indebtedness and loan guarantees $ 1,448 $10,046 $ 6,806
======= ======= =======
Net reduction in indebtedness pursuant
to creditor settlements $ 1,935 $ 7,991 $16,482
======= ======= =======
Subordinated debentures issued pursuant
to settlements $ - $ 51 $ 145
======= ======= =======
Common stock issued and to be issued in
reduction of a contingent liability and
accounts payable $ 382 $ 1,260 $ -
======= ======= =======
Increase in indebtedness upon capitalization
of accrued interest and other payables $ 1,068 $ 1,066 $ 3,119
======= ======= =======
Net effect of sale of real estate acquired
for resale $ - $ 381 $ -
======= ======= =======
[FN]
See accompanying accountants' report and notes to consolidated financial
statements.
[/FN]
F-9
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies and Principal Affiliates
a. THE COMPANY AND PRINCIPAL AFFILIATES: DVL, Inc. (formerly Del-Val
Financial Corporation) ("DVL"), a Delaware corporation whose common stock
is traded on the New York Stock Exchange (DVL), is a real estate
investment, management and finance company headquartered in Bogota, New
Jersey. DVL's investments consist primarily of commercial mortgage loans
due from affiliated partnerships, loans due from limited partners
collateralized by their interests in affiliated partnerships, limited
partnership investments in affiliated partnerships and other real estate
interests. DVL's wholly owned subsidiaries are Del-Val Capital Corp.
("DVCC"), Professional Service Corporation ("PSC") and RH Interests, Inc.
("RH"). DVCC was organized in 1989 to acquire, make and service full
recourse loans due from unaffiliated borrowers collateralized by consumer
receivables. PSC was organized in 1991 and holds certain master lease
positions acquired by DVL through a creditor settlement (Note 7). DVL
acquired RH from Kenbee Management, Inc. ("Kenbee"), DVL's former
manager, on January 1, 1994 (Note 4). RH held interests in several real
estate development projects. The accounts of DVCC, RH (reflected as
discontinued operations - see Note 3) and PSC have been consolidated in
these financial statements. All material intercompany transactions and
accounts are eliminated in consolidation.
In 1994, DVL organized the First Mechanics Finance Company ("FMF")
as a wholly-owned subsidiary to start-up a specialized tool loan
purchasing and servicing business. Due to the lack of cash resources and
as part of DVL's decision to refocus on its existing real estate
investment, management and finance business, DVL sold FMF in an effort
to recoup some of its initial investment (Note 6). FMF was sold
principally for a note and subordinated debenture which are fully
reserved for. The results of FMF's operations were not consolidated in
these financial statements as FMF is reflected as a temporary investment.
Kenbee was DVL's largest debtor and served as DVL's manager through
October, 1990. DVL's management assumed operational control of Kenbee
during 1991 and all of Kenbee's remaining unencumbered assets were
transferred to DVL in 1992. DVL replaced Kenbee as the general partner
of certain limited partnerships (Note 2), which are treated as affiliates
in these financial statements.
b. ALLOWANCE FOR LOSSES: Specific loss reserves are provided as
required based on management's evaluation of the underlying collateral
on each loan or investment (Note 6).
c. 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.
d. DEFERRED CHARGES: Deferred charges applicable to debt financing are
amortized over the term of the related debt.
e. INCOME RECOGNITION: Interest income is not recognized on the non-
performing portion of DVL's loan portfolio. A loan is considered non-
performing when scheduled interest or principal payments are not
received on a timely basis and, in the opinion of management, the
collection of such payments in the future appears doubtful. Interest
income on DVL's restructured mortgage loan portfolio is recognized using
an imputed interest rate based upon the anticipated future cash flow and
yield to maturity. Fees received in connection with previous agreements
F-10
to refinance existing mortgages were recognized in income on the straight-
line method over the commitment period. Gains on sales of real estate to
affiliates are recognized in income generally under the installment method,
whereby the gain on the portion of the sales price which is not received
in cash is deferred at the time of sale and recognized proportionately as
cash is subsequently collected. Any cash received on the collection of the
note or debenture obtained from the sale of FMF, subsequent to March 30,
1995, will be recognized into income when received.
f. FEDERAL INCOME TAXES: DVCC, PSC and RH will be included in DVL's
federal income tax return for 1994. DVL revoked its election to be taxed
as a real estate investment trust ("REIT") under Sections 856-860 of the
Internal Revenue Code ("Code"), effective January 1, 1994. As a REIT, DVL
was required to distribute to its shareholders at least 95% of its federal
taxable income, and assuming compliance with certain other requirements,
income so distributed would not be taxable to DVL.
The revocation of DVL's REIT status was approved by its shareholders
in order to permit DVL to earn income in ways which are not permitted or
which are subject to taxation at a rate of 100% for a REIT under the Code.
In this manner, DVL believes that it will be best able to utilize its
significant net operating loss carryforwards generated during the last five
years to offset such taxable income, if any, and, subject to certain
limitations, in the future.
The company accounts for income taxes under the provisions of
Statement of Financial Accounting Standards No. 109 ("FAS 109"), which
requires the Company to recognize deferred tax assets and liabilities for
the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. In addition, FAS 109 requires the recognition
of future tax benefits such as net operating loss carryforwards, to the
extent that realization of such benefits is more likely than not.
At December 31, 1994, DVL had net operating loss carryforwards for
income tax purposes of approximately $67 million available to offset future
taxable income, if any, expiring through 2009. Temporary differences arise
from differences between financial reporting and income tax reporting
relating primarily to provision for loan and other losses and the loss on
the shareholder litigation, which are not currently deductible for income
tax purposes. DVL's deferred tax asset of approximately $37 million, which
is comprised primarily of the tax benefit of net operating loss
carryforwards of approximately $27 million and temporary differences
represented by non-deductible loan reserves and litigation losses of
approximately $10 million is fully reserved for due to the uncertainty of
realizing taxable income in the future (Notes 2, 10, 11 and 12). The
change in the valuation reserve for deferred tax assets was approximately
$4 million for the year ended December 31, 1994. DVL does not believe
that, to date, the issuance of stock, stock options and warrants pursuant
to settlements with various lenders and with the shareholders, nor the
issuance of convertible debentures, will have an adverse affect upon its
ability to utilize its tax loss carryforward.
g. PER SHARE DATA: Primary earnings per share amounts are based upon the
weighted average number of common shares and equivalents issued and to be
issued. The dilutive effect of outstanding options and warrants is
computed using the treasury stock method.
Fully diluted earnings per share amounts are based upon the increased
number of shares that would be outstanding assuming the conversion of
existing and contingent debentures and the exercise of contingent warrants.
Net income has been adjusted for the interest expense on convertible
debentures.
F-11
2. Basis of Presentation and Financial Condition
The accompanying financial statements were prepared on a going
concern basis, which assumes that the realization of assets and repayment
of liabilities will be in the normal course of business.
During 1994, DVL continued to experience liquidity problems
primarily as a result of the limited cash flow generated by its
restructured mortgage portfolio, as the mortgage debt service is used to
pay senior liens before cash flow on such mortgages is available to DVL.
Furthermore, the start-up costs of FMF were significantly more than
originally anticipated which exacerbated DVL's liquidity problems. DVL's
cash flow provided by current operations is insufficient to meet its cash
requirements, and DVL is currently liquidating and refinancing its assets
in order to meet its operating cash flow deficiency and to satisfy
indebtedness, including mandatory repayments required under its
restructured indebtedness. There can be no assurance that the cash flow
generated by DVL's potential asset liquidations or refinancings will be
sufficient to meet any future operating cash flow deficiencies or
mandatory debt repayments. Although DVL restructured the majority of its
defaulted indebtedness, DVL remains in default for non-payment of
principal and interest repayments on a recourse debt of $13,804,000 at
December 31, 1994 (Note 8).
In December 1993, DVL reached a settlement in the shareholder class
action litigation which calls for DVL to issue 900,000 shares of DVL
common stock at a guaranteed fair market value of $1.50 per share and
notes with a face value of $9 million and to make payment of cash or
common stock of $1.4 million plus interest at 3% from August 16, 1993 and
expenses. Management reflected the common stock and notes as "to be
issued" in these financial statements, with a reserve of $1.81 million
for the future $1.4 million payment due and for any deficiency in the
minimum price of the 900,000 shares to be issued. If the 900,000 shares
were issued effective January 1, 1993, primary earnings per share for
1993 would have been $.18. The $9 million face value notes are due in
ten years, bear interest at 10% per annum payable in kind for five years,
are callable after the third year, are payable in cash or common stock
at DVL's option and were valued at $3.69 million by an independent
investment banker. The effective interest rate on such notes is
approximately 22%. The settlement is expected to result in a loss of
$6.4 million which was fully provided for in 1992 (Note 11).
In November 1992, DVL, Kenbee and the limited partners of certain
affiliated partnerships reached a settlement in the limited partnership
class action litigation ("Limited Partner Settlement") and, concurrently
with this settlement, DVL reached settlements with a number of its
creditors providing for the restructuring of a substantial portion of
DVL's defaulted indebtedness and loan guarantees. The Limited Partner
Settlement and the related settlements with DVL's creditors, resulted in
a) the reaffirmation and the restructuring of the terms of certain of
DVL's mortgage loans receivable from affiliated partnerships and similar
such partnership mortgages collateralizing DVL's loans due from
affiliates, including reductions in payment amounts and interest rates,
as well as discounts on the payoff of such loans prior to maturity, b)
the replacement of DVL's loans to affiliates collateralized by
partnership mortgage loans with the restructured mortgage loans due
directly from the partnerships, c) the cancellation of certain of DVL's
interim mortgage loans receivable due from affiliated partnerships and
a related reduction to DVL's indebtedness through the transfer of
substitute assets to certain creditors, d) a restructuring of the payment
terms on DVL's indebtedness to other creditors, e) the elimination of
DVL's and Kenbee's contingent liabilities to certain partnerships, f) the
F-12
elimination of certain obligations between Kenbee or DVL and the
partnerships, g) the ratification of the validity and enforceability of
loans to limited partners collateralized by limited partnership
interests, h) the transfer to DVL of the management of the affiliated
partnerships as the general partner (Note 4) and i) the establishment of
an independent oversight committee to monitor the management of the
affiliated partnerships. In addition, the Limited Partner Settlement
established a settlement fund into which DVL is required to deposit a
portion of its cash flow received from affiliated partnership mortgages
and other loans receivable from affiliated partnerships, as well as a
contribution of 5% of DVL's net income subject to certain adjustments in
the years 2001 to 2012 (Note 11). Although the Limited Partner
Settlement resulted in the reclassification of a substantial portion of
DVL's mortgage loan portfolio from non-performing to performing, this
reclassification has not resulted, nor is it expected to result in
significant income or cash flow on the majority of the restructured
mortgages until liens senior to DVL's are fully repaid, as the mortgage
debt service is currently used to pay liens senior to DVL's.
DVL's ability to continue as a going concern is dependent upon (1)
the success of the negotiations to restructure the payment terms of its
remaining defaulted indebtedness (Note 8), (2) the sale or refinancing
of certain assets to improve its cash position in order to meet operating
expenses and make payments to its creditors, including mandatory
repayments on previously restructured indebtedness, (3) the settlement
of remaining litigation, (4) the realization of the estimated value of
its loan portfolio over an extended period of time rather than the value
of the assets on a liquidation basis, and (5) the return to profitable
operations which will primarily depend on the outcome of the negotiations
with its existing creditors to reduce its interest expense burden. If
DVL is unsuccessful in achieving a short-term solution to its liquidity
problems, and moreover, long-term solutions to cure remaining loan
defaults and restore profitable operations, the Company may not be able
to continue as a going concern and may be forced to file for protection
from creditors under Chapter 11 of the United States Bankruptcy Code.
The financial statements do not include any adjustments that might result
from the outcome of these uncertainties.
3. Discontinued Operations
During 1993 and 1994, DVL began to pursue a new business venture
involving the acquisition, development and resale of residential real
estate. The sales and development of DVL's real estate projects
progressed more slowly than DVL originally anticipated and DVL did not
have the financial resources to make further investments in its projects.
Therefore, in 1994 DVL agreed to transfer its interests in its three
remaining projects to the creditors who financed DVL's purchases of such
projects in satisfaction of the related non-recourse debts. These
activities are reflected as a discontinued operation in these financial
statements with the assets presented net of non-recourse indebtedness of
$2,855,000 at December 31, 1994.
Furthermore, DVL continued to liquidate DVCC's loan portfolio during
1994 and, therefore, DVCC is also accounted for as a discontinued
operation in these financial statements. In May 1994, DVCC sold one loan
at its carrying value and pledged another loan as collateral for a DVL
loan (Note 13). DVCC's remaining assets, net of an additional reserve
of $175,000, were absorbed by DVL, which treated these transactions as
the final disposal of DVCC.
F-13
Certain financial information of discontinued operations is as follows:
December 31,
--------------------
1994 1993
------- -------
(in thousands)
Assets
Loans due from unaffiliated borrowers
(net of allowance for losses and
unearned interest) $ - $ 1,097
Residential development properties (net of
allowance for losses) 2,793 -
Non-recourse indebtedness (2,855) -
Cash 20 12
Other assets 59 137
Other liabilities (17) -
------- -------
$ - $ 1,246
======= =======
Net Revenues $ 10 $ 473
======= =======
4. Certain Related Party Transactions
TRANSACTIONS WITH RH: In April 1993, DVL entered into management
agreements
with RH for each of the affiliated partnerships in which DVL is now the general
partner, pursuant to which RH provided certain administrative and managerial
services
for the partnerships. RH and Kenbee agreed to pay to DVL 95% of any net income
from
such activities in repayment of prior existing indebtedness of Kenbee to DVL.
In
addition, DVL sold its real estate held for resale to RH at DVL's carrying
value in
the property and financed RH's entire purchase price. RH fully repaid this
loan out
of the net proceeds from property sales, and RH and Kenbee agreed to pay DVL
95% of
any net income from further property sales in repayment of prior existing
indebtedness of Kenbee to DVL. These were temporary actions taken to permit
DVL to
develop these new business opportunities while not being disqualified as a REIT
or
subject to a 100% tax rate on income generated by such property sales. There
can be
no assurance that these steps have successfully preserved DVL's REIT status and
not
subjected it to the 100% tax rate for 1993. DVL revoked its election to be
taxed as
a REIT effective January 1, 1994, and, concurrently, DVL cancelled the
management
agreements with RH and acquired Kenbee's interest in RH.
UNSECURED LOANS DUE FROM KENBEE: On December 31, 1992, Kenbee transferred
its
remaining assets to DVL in partial satisfaction of DVL's unsecured loan due from
Kenbee. The loan was reduced by the estimated fair market value of these assets
aggregating $908,000 and DVL fully provided for a loss on the remaining amount
due
from Kenbee aggregating $275,000 in 1992 (Note 6).
DVL reimbursed Kenbee $610,000 in 1992 for DVL's share of Kenbee's payroll
and
other operating costs. Effective January 1, 1993, DVL hired Kenbee's remaining
administrative personnel.
5. Loans Receivable
Most of DVL's loans receivable arose out of transactions previously
arranged by
Kenbee in which affiliated partnerships purchased commercial, office and
industrial
properties typically leased on a long-term basis to unaffiliated, creditworthy
tenants. Each mortgage loan is collateralized by a lien, primarily subordinate
to
senior liens, on real estate owned by an affiliated partnership. DVL's loan
portfolio is comprised of long-term wrap around and other mortgage loans due
from
F-14
affiliated partnerships; interim second mortgage loans due from affiliated
partnerships; a loan due from an unaffiliated party; and loans due from limited
partners collateralized by their interests in affiliated partnerships
("Partners'
Notes") and are principally pledged to collateralize DVL's indebtedness (Note
8).
As a result of the Limited Partner Settlement and other settlements, the
validity of all of DVL's mortgage portfolio was reaffirmed and virtually all of
DVL's loans to Kenbee collateralized by loans due from affiliated partnerships
were replaced by the restructured mortgage loans due directly from the
partnerships. In many cases, the restructuring of the partnership mortgages
called for a reduction in payment terms and interest rates, in order to assure
that the partnerships' restructured mortgages are serviced on a current basis
from
the base rents generated by the properties, and, in all cases, mandatory
discounts
on the payoffs of the loans prior to maturity. The Limited Partner Settlement
also ratified the validity and enforceability of the Partners' Notes and
resulted
in the replacement of certain loans due from Kenbee collateralized by Partners'
Notes with the loans receivable directly from the limited partners (Note 2).
In 1994, DVL refinanced a portion of its partnership mortgage portfolio
which
generated cash proceeds of approximately $5.9 million, of which approximately
$4.6
million was used to satisfy existing indebtedness and approximately $1 million
was
placed in escrow in connection with proposed settlements with DVL's remaining
unsettled creditors. As a result of DVL's prior and current asset liquidations
and refinancings, DVL's asset base available for future liquidations and
refinancings has diminished considerably (see 5(c) below).
The Limited Partner Settlement, as well as the settlements with other
limited
partnerships, resulted in the modification of terms of certain performing
mortgage
loans receivable from affiliated partnerships which bore interest at effective
rates of up to 15% per annum, aggregating $4,421,000 at December 31, 1994 and
mature through 2036. The effect of the modification on these mortgages on DVL's
interest income for 1994 was not material.
In addition, the terms of the loans to Kenbee collateralized by similar
loans
were restructured and modified. These loans, aggregating $64,141,000 at the
time
of the restructuring, bore interest at 3% over DVL's average interest rate for
short-term borrowings and matured through 1994. As DVL's net carrying value in
its original loans exceeded the anticipated cash flow to be received on a number
of such loans, these modifications resulted in a loss of $18,223,000, which was
charged to operations in 1992 (Note 6). The restructured and modified loans due
directly from the partnerships were written down to $45,918,000, net of
underlying mortgages of $46,073,000, at the time of the restructuring. These
restructured loans bear interest at stated rates of up to 15.5% and mature
through
2033. As of December 31, 1994, the modified loans due directly from the
partnerships aggregated $29,786,000 net of underlying mortgages of $38,907,000.
In 1992, interest income of $150,000 on these loans prior to modification is
included in operations. Management currently does not anticipate realizing a
material amount of interest income over the remaining terms of these modified
loans. Had these loans not been in default and had the terms not been modified,
interest income relating to these notes would have been approximately $5,000,000
in 1994, $5,000,000 in 1993 and $8,000,000 in 1992.
Pursuant to certain settlement agreements, DVL replaced certain mortgage
loans and loans collateralized by limited partnership interests due from
affiliates with similar loans due from unaffiliated parties aggregating
$8,936,000
in 1992 (Note 5 (g) and (i)).
F-15
DVL's mortgage and other loans due from affiliated partnerships, an
unaffiliated entity and
limited partners are as follows:
1994
1993
- ------------------------------------
- --------------------------------------
Accrued
Accrued
Interest
Allowance Interest
Allowance
Number Included For
Loan Number
Included For Loan
(dollar amounts in thousands) of Loan In Loan
Losses of Loan
In Loan Losses
Mortgage Loans Due From Affiliated Partnerships Loans Balance Balance
(Note 6) Loans
Balance Balance (Note 6)
- ----------------------------------------------- ----- ------- --------
- -------- ----- ------- --------
- --------
Long term wrap around mortgage loans (net of
underlying loans) ranging from $15 to
$5,279 in 1994 and from $325 to $5,278 in
1993, maturing at various dates through
March 2036 (a) 20 $ 19,496 $ 55 $
2,689 23 $ 21,775
$ 53 $ 1,447
Other long term mortgage loans ranging from
$221 to $2,522 in 1994 and from $240 to
$2,543 in 1993, maturing at various dates
through December 2029 (b) 16 17,920 7
119 18 20,811
16 118
Long term wrap around and other mortgage
loans (net of underlying loans) acquired
from Kenbee pursuant to the Limited
Partner Settlement ranging from $2 to
$1,970 in 1994 and from $228 to $2,543
in 1993, maturing at various dates through
May 2033 (c) 40 29,786 -
6,810 41 36,442
- 2,492
Interim second mortgage loans ranging from
$85 to $1,201 in 1994 and from $123 to
$1,250 in 1993, maturing at various dates
through December 2000 (d) 3 1,649 -
728 3 1,739
- 581
Other Mortgage Loans
- --------------------
Mortgage loan due from unaffiliated entities,
maturing in December 1996 (e) 1 1,383 -
- 1 1,459
- -
--- -------- -----
- ------- --- -------- ------
- -------
Total Mortgage Loans 80 70,234 62
10,346 86 82,226
69 4,638
Loans Collateralized By Limited Partnership Interests
- -----------------------------------------------------
Loans ranging from $1 to $317 in 1994 and
from $1 to $294 in 1993, maturing at
various dates through December 1995 (f) 213 4,606 523
2,416 282
6,031 763 2,396
--- -------- -----
- ------- --- -------- ------
- -------
Total Loans Receivable 293 74,840 $ 585
$12,762 368
88,257 $ 832 $ 7,034
Less unearned interest on partnership mortgage === =====
======= ===
====== =======
loans 18,028
20,426
--------
--------
Total Loans Receivable Per Balance Sheet $ 56,812
$ 67,831
========
========
F-16
(a) DVL previously funded certain wrap around mortgages due from
affiliated partnerships, whereby the original principal of the wrap
equalled the outstanding balance of an underlying first mortgage loan
plus the amount of funds advanced by DVL to the partnership. These loans
mature through March 2036, bear interest at effective rates of up to 15%
per annum and are collateralized primarily by second mortgages on
commercial and industrial properties located in various states. DVL is
responsible to make principal and interest payments on the first mortgage
loan to the extent received from the borrower and, in certain instances,
has the right to refinance or pay off the first mortgage loan and succeed
to its seniority. Currently, the partnerships or the tenants are making
the underlying mortgage payments directly and DVL is applying such
payments to its wrap around mortgage loans. To the extent that the
underlying mortgage payment is less than the wrap around mortgage
payment, the partnership is obligated to pay DVL the balance. These wrap
around loans are reflected net of underlying mortgage loans of
$13,933,000 in 1994 and $17,981,000 in 1993, which bear interest at rates
ranging from 7.5% to 13.125%, are payable to unaffiliated lenders in
monthly installments ranging from $2,000 to $19,000, mature on various
dates through August 2011 and are collateralized by liens senior to DVL's
liens. See Note 8 for the five year maturities of such underlying loans.
These wrap around loans include four non-performing loans with a net
investment aggregating $2,578,000 at December 31, 1994 and one non-
performing loan with a net investment aggregating $1,105,000 at December
31, 1993.
(b) DVL's other long-term mortgage loans to affiliated partnerships
mature through December 2029, bear interest at effective rates of up to
15% per annum and are collateralized by first mortgages on commercial and
industrial properties located in various states. Two of such loans
aggregating $1,340,000 in 1994 and $1,349,000 in 1993 arose from DVL's
sales of real estate prior to 1980 to Kenbee and affiliated partnerships
in which Kenbee is a general partner. DVL realized gains on such sales
of $2,280,000 (see Note 1(e) for DVL's income recognition policy). These
loans include one non-performing loan with a net investment aggregating
$1,119,000 at December 31, 1994 and two non-performing loans with a net
investment aggregating $1,702,000, subject to non-recourse senior liens
of $584,000 at December 31, 1993. Ten of such loans with a net
investment aggregating $6,946,000 at December 31, 1994 are collateralized
by properties leased to the Grand Union Company ("Grand Union"), which
filed for protection from creditors under Chapter 11 of the United States
Bankruptcy Code on January 25, 1995. The bankruptcy filing has not
resulted in any loan defaults to DVL and all rents and mortgage payments
relating to these loans are current. It is too early to determine
whether any of the Grand Union leases will be disaffirmed.
(c) DVL acquired long-term wrap around and other mortgage loans to
affiliated partnerships pursuant to the Limited Partner Settlement, the
principal balance of which equals DVL's net investment in the related
loan previously due from Kenbee less specific write-downs on certain of
these loans based upon the anticipated cash flow to be generated by each
loan. Although these loans have stated interest rates of up to 15.5%,
interest, if any, will be imputed based upon the anticipated cash flow
to be generated by each loan. The loans are collateralized by first,
second and third mortgages on commercial and industrial properties
located in various states and mature through May 2033. DVL subordinated
its second mortgage position on sixteen of these loans as part of a
refinancing in 1994. The wrap around loans are reflected net of senior
liens of $38,907,000 in 1994 and $34,041,000 in 1993, which bear interest
at rates ranging from 7.5% to 14%, are payable to unaffiliated lenders
on a zero coupon basis and in monthly installments ranging from $1,000
to $26,000, mature on various dates through January 2012 and are
F-17
collateralized by liens senior to DVL's liens. The payment of the
underlying first mortgages is also being made by the partnerships or
tenants as discussed in (a) above. See Note 8 for the five year
maturities of such underlying loans.
(d) An interim second mortgage loan to an affiliated partnership
generally was equal to the difference between the partnership's purchase
price for its property and the amount of a first mortgage provided by an
unaffiliated lender. Although the remaining loans bear interest at
variable rates of up to prime plus 4-1/4% per annum, DVL does not
anticipate realizing any income from these loans. Two of such loans are
to partnerships which were not part of the Limited Partner Settlement.
These loans are due on demand, are expected to be repaid primarily from
the future sales of the related properties and continue to be non-
performing at December 31, 1994.
(e) DVL's mortgage loans from unaffiliated entities resulted from
the restructuring or satisfaction of its mortgage loans due from
affiliated partnerships. In 1994, DVL received a $1,450,000 loan from
Grand Union in partial satisfaction of one of its partnership mortgage
loans. This loan bears interest at 9% per annum and requires monthly
payments of $18,000, with a balloon payment of $1,161,000 due in December
1996. DVL's other mortgage loan from an unaffiliated entity was
liquidated during 1994 in order to satisfy indebtedness and generate cash
flow for operations (Note 8). The liquidation resulted in a loss of
$128,000.
(f) DVL made loans directly to limited partners to finance up to
80% of their partnership investments. As a result of the Limited Partner
Settlement, DVL received $8,305,000 of such loans due from limited
partners in 1992 in replacement of loans due from Kenbee collateralized
by such Partners' Notes, which DVL valued at $6,936,000. All such
partner loans mature at various dates through December 1995 and bear
interest at fixed rates of 15% to 16% and at a variable rates up to 2
1/2% over prime. Certain of the variable rate loans are payable at fixed
interest rates, subject to additional interest charges payable upon the
maturity of the loan, based on variable interest rates, which are further
subject to minimum and maximum levels. Loans aggregating $4,540,000 in
1994 and $5,226,000 in 1993 were non-performing.
DVL's commercial mortgage loans, exclusive of its wrap around
mortgages, are collateralized by sixteen first mortgages aggregating
$18,120,000 and five second mortgages aggregating $3,284,000 at December
31, 1994 and by eighteen first mortgages aggregating $20,812,000 and six
second mortgages aggregating $3,815,000 at December 31, 1993. All such
commercial mortgage loans and the wrap around mortgages are
collateralized by liens on commercial and industrial properties located
in various states. The commercial mortgage loans have prior first or
second mortgage liens, principally on a nonrecourse basis, of
approximately $15,000,000 and $24,000,000 at December 31, 1994 and 1993,
respectively. DVL's commercial mortgage loans and loans collateralized
by limited partnership interests have principally the same cost basis for
federal income tax and financial reporting purposes, except for certain
of the loans acquired from Kenbee pursuant to the Limited Partner
Settlement whose basis for federal income tax purposes is less than the
financial reporting basis by approximately $3,000,000 as a result of
DVL's write-downs for financial reporting purposes based upon the
anticipated cash flow to be generated by each loan. The principal
maturities of DVL's commercial mortgage loan portfolio, excluding wrap
around mortgages, in each of the next five years are $2,024,000 in 1995,
$1,573,000 in 1996, $324,000 in 1997, $347,000 in 1998 and $361,000 in
1999.
F-18
Activity on all collateralized loans is as follows:
1994 1993 1992
-------- -------- --------
(in thousands)
Balance, beginning of year $ 88,257 $127,781 $195,662
Commercial financing loans-affiliates - 112 -
Collections on loans to affiliates (7,146) (2,530) (4,801)
Collections on loans to others (1,838) (3,419) (1,473)
Loans transferred in connection with
claim settlements - - (115)
Loans transferred to satisfy indebtedness
and guarantees (1,506) (9,623) (11,916)
Unearned interest offset against loans
upon loan restructurings (157) (2,150) -
Loans reduced in connection with
acquisition of the assets collateralizing
such loans (160) (5,363) (1,689)
Limited partner loans acquired through
settlements - - 551
Unearned interest offset against loans
satisfied, sold and written off (1,822) (4,801) (2,114)
Increase in loans in connection with
assumption of guaranteed indebtedness - - 1,441
Loan written-off and written down (692) (11,759) (47,945)
Other (96) 9 180
-------- -------- --------
Balance, end of year $ 74,840 $ 88,257 $127,781
======== ======== ========
Unearned interest activity is as follows:
1994 1993 1992
-------- -------- --------
(in thousands)
Balance, beginning of year $ 20,426 $ 28,619 $ 36,986
Amortization to income (419) (472) (387)
Decrease in connection with the
satisfaction or write-off of loans (1,822) (4,801) (2,114)
Decrease in connection with loans
transferred to satisfy indebtedness
and guarantees - (770) (5,814)
Decrease in connection with restructuring
of mortgage loans (157) (2,150) -
Decrease in connection with loans
transferred to settle claims - - (52)
-------- -------- --------
Balance, end of year $ 18,028 $ 20,426 $ 28,619
======== ======== ========
6. Allowance for Losses and Other Reserves
DVL's allowance for loan losses is based upon the value of the
collateral underlying each loan in its portfolio. Management's evaluation
of such collateral previously resulted in substantial loan write-offs and a
substantial allowance for loan losses. The current evaluation considered the
magnitude of DVL's non-performing loan portfolio, updated internally
generated appraisals of certain properties, updated information on certain
properties and DVL's anticipated liquidation of loans to meet 1995 and future
F-19
mandatory repayment obligations on certain indebtedness, as well as its
operating cash flow deficiency. In addition, DVL provided for
significant losses in 1992 resulting from the restructuring and
modification of a substantial portion of its loan portfolio pursuant to
the Limited Partner Settlement and realized concurrent extraordinary
gains on the restructuring of certain of its indebtedness (Note 8).
The allowance for losses on DVL's mortgage loan portfolio was
calculated by first comparing the appraised value of the property
collateralizing a mortgage loan, net of liens senior to DVL's liens, to
DVL's net investment in the mortgage loan. For those mortgages which
were modified, further losses were provided for by then comparing DVL's
net investment in the mortgage loan, less any allowance necessary based
upon the appraised value of the property, to the anticipated cash flow
to be generated by the terms of the mortgage or the amount anticipated
to be received through the liquidation of the mortgage. The partnership
properties were valued based upon the cash flow generated by base rents
and anticipated percentage rents or base rent escalations to be received
by the partnership. The value of partnership properties which are not
subject to percentage rents was based upon historical appraisals.
Management believes that, generally, the values of such properties have
not changed as the tenants, lease terms and timely payment of rent have
not changed. When any such changes have occurred, management revalued
the property as it reasonably believed appropriate. The value of the
partnership properties which are subject to percentage rents was based
upon internally generated appraisals. Such appraisals valued the future
percentage rents utilizing assumed sales growth percentages of up to 6%
annually, based upon each individual store's recent sales history through
January 31, 1993. Certain other properties were valued based upon
management's estimate of the current market value for each specific
property using similar procedures. In addition, management provided for
a general reserve on its mortgages and partnership investments (Note 7)
for anticipated losses to be realized if certain of such assets are
liquidated to meet DVL's mandatory repayment obligations (Note 8(d)) and
its operating cash flow deficiency.
Based upon the ratification of the enforceability and validity of
DVL's portfolio of Partners' Notes by the Limited Partner Settlement and
a related improvement in the payment experience on such notes, management
re-evaluated each note in its portfolio for specific loss reserves.
Those notes deemed uncollectible were provided for assuming an estimated
residual value of the related partnership investment of 25% of the
original investment, which reflects management's estimate of the
investment's net realizable value.
Allowance for loan loss activity is as follows:
1994 1993
-------- --------
(in thousands)
Balance, beginning of year $ 7,034 $17,156
Net provision for loan losses 6,420 1,637
Loans written-off and written-down (692) (11,759)
-------- --------
Balance, end of year $ 12,762 $ 7,034
======== ========
F-20
During 1993, DVL received full repayment of its unsecured loan due
from Kenbee, as a result of RH's operating activities. This repayment
reduced DVL's provision for losses by $275,000 in 1993, as this loan was
fully reserved for at December 31, 1992 (Note 4).
In addition, DVL reduced its provision for losses on guaranteed and
other indebtedness of Kenbee by $628,000 in 1993. This reduction
resulted primarily from the settlement of one guaranteed debt, which was
partially offset by management's re-evaluation of DVL's potential
liability for remaining guaranteed indebtedness, the potential liability
under a put agreement relating to previously guaranteed indebtedness and
by DVL's assumption of a Kenbee legal fee obligation in order to preserve
DVL's ability to use the services of this Kenbee creditor in the future.
DVL reserved $3,080,000 in 1992 for losses on guaranteed and other Kenbee
indebtedness. As a result of the Limited Partner Settlement, DVL
received certain affiliated partnership interests and a reinstated
interim mortgage and was relieved of obligations to certain affiliated
partnerships, thereby reducing DVL's provision for losses by $4,321,000
in 1992. At December 31, 1994, DVL maintained a reserve of $708,000 for
its estimated losses as guarantor and for other indebtedness of Kenbee
(Note 11).
Management provided for losses of $973,000, $582,000 and $280,000
in 1994, 1993 and 1992, respectively, in connection with certain
litigation and the settlements of claims against it and Kenbee
originating from Kenbee's indebtedness to certain creditors. Under
previously completed settlement agreements, DVL transferred certain
mortgages with a carrying value aggregating $3,007,000 in 1992 and 1991
to the claimants in full satisfaction of the claims against DVL and
Kenbee. DVL guaranteed that such claimants (the "Lender Group") will
receive a minimum cash flow from the transferred mortgages of $110,000
per year through 1996. Under the agreements, DVL agreed to pay $169,000
of the claimants' legal fees. In addition, DVL provided the Lender Group
with a contingent note for the reduction in the present value of the
transferred mortgages resulting from changes in the terms of such
mortgages in connection with the settlement of the limited partner suits.
If the contingent note amount is not satisfied by the cash flow generated
by the sale or refinancing of the transferred mortgages, any shortfall,
including interest at 7% per annum commencing in December 1996, will be
due in 2001. DVL is obligated to pay the Lender Group 20% of any cash
flow received from the sale or refinancing of its partnership mortgage
portfolio in satisfaction of this contingent note after the payments to
other creditors (Note 11). Management has accrued $584,000 in
anticipation of additional losses resulting from the issuance of the
contingent note and the guaranteed cash flow.
DVL sold FMF in December 1994 for $837,000 of which $825,000 was
financed by DVL with a secured promissory note and subordinated
debenture. DVL incurred a $1,181,000 (including $353,000 of overhead
allocated by DVL to FMF) loss on its temporary investment in FMF which
represents the start-up and operating costs funded by DVL, less the cash
received through March 30, 1995 from the sale of FMF. The loss provision
included a full reserve for the remaining payments due under the note and
debenture as their collectibility is uncertain and DVL has placed no
value on the note or debenture. If and when DVL receives payments on the
note and debenture, it will be recognized into income as received.
In addition, management provided for a loss of $261,000 in 1993 for
certain of its investments in and receivables due from affiliated
partnerships based upon updated information on the properties relating
to these assets (Note 7).
F-21
7. Investments
Real Estate
- -----------
DVL's remaining real estate, which is principally pledged to
collateralize indebtedness (Note 8), is leased to two affiliated
partnerships under long-term leases at aggregate annual rents of
approximately $37,000. At December 31, 1994, both leases are in default
and DVL has provided for a loss of $208,000 based upon the current value
of the properties. During 1993, DVL reached an agreement with one of its
creditors under which DVL assigned its interest in three of its land
leases and the related building improvements to affiliated partnerships
(Note 8). The carrying value of the transferred real estate assets
aggregated $1,274,000. As part of the agreement, PSC acquired the master
lease positions for these properties, which are pledged to the creditor
as additional collateral. Information for DVL's remaining properties is
as follows:
Land (a)
------------------------
Kearny, Kearny,
New Jersey New Jersey
---------- ----------
(in thousands)
Initial cost to the company and gross
amount at which the land is carried
at close of the period (b): $ 417 $ 80
========== ==========
Date acquired 1992 1971
Encumbrances (a) N/A
[FN]
(a) Pledged to collateralize indebtedness to a financial institution (Note
8).
(b) The total carrying value and the aggregate cost for federal income tax
purposes at the beginning and end of each of the three years ended
December 31, 1994 are as shown above.
[/FN]
The original costs basis of the properties transferred in 1993 was
$1,398,000. A reconciliation of the accumulated depreciation for the two
years ended December 31, 1993 relating to the properties transferred is as
follows:
1993 1992
---- ----
(in thousands)
Balance, beginning of year $120 $112
Depreciation charged to
operations 4 8
Decrease upon asset transfer (124) -
---- ----
Balance, end of year $ - $120
==== ====
F-22
Affiliated Limited Partnerships
- -------------------------------
DVL acquired various interests in affiliated partnerships pursuant
to the terms of certain settlement agreements. Management originally
valued all of these investments at 33% of the original investment amount,
except for interests acquired in one partnership with an original
investment aggregating $2,450,000 which are assigned to one of DVL's
creditors and were valued at 40% of their original investment amount
based upon the anticipated proceeds through the future sale of the
partnership's property as DVL controls more than 50% of the partnership.
In 1994, management provided for a general reserve on these investments
to bring the net carrying value down to 25% of the original investment
amount, exclusive of the $2,450,000 discussed above, due to potential
anticipated losses upon liquidation of these investments to meet DVL's
mandatory repayment requirements and operating cash flow deficiency.
(Note 6).
The activity on DVL's investments in affiliated partnerships is as
follows:
1994 1993
------ ------
(in thousands)
Balance, beginning of year $4,497 $2,796
Various interests acquired upon the satisfaction
of indebtedness - 206
Various interests acquired from defaulted
Partner Notes 160 66
Various interests acquired from limited
partners pursuant to settlements 108 146
Various interests acquired from former directors
and officers in reduction of loan to Kenbee
collateralized by such interests - 1,264
Distributions received (212) (121)
Write-offs and reserves (750) (43)
------ ------
Balance, end of year $3,803 $4,497
====== ======
At December 31, 1994, approximately $2.2 million of DVL's
investments in affiliated partnerships are pledged to collateralize
indebtedness.
Other Investments
- -----------------
As part of the restructuring of three of DVL's loans to Kenbee in
a settlement with the representatives of the related partnerships which
opted out of the Limited Partner Settlement, DVL acquired majority
limited partnership interests in three new partnerships in 1993, whose
sole assets are the restructured partnership mortgage loans. These
investments were valued based upon the anticipated cash flow to be
generated by the restructured mortgage loans (Notes 5(e) and 6).
Management reserved an additional $200,000 in 1994 based upon a decrease
in the value of the underlying collateral of one of the three partnership
mortgage loans.
F-23
8. Short-Term Debt, Long-Term Debt and Loans Payable Underlying Wrap Around
Mortgages
DVL's short-term and long-term debt is comprised of the following loans
payable to unaffiliated lenders, except as noted:
1994 1993
------- -------
(in thousands)
Loans currently in default for non-payment
collateralized by:
Limited partnership interests: bearing
interest at 2% over prime (a) $ 9,442 $ 9,951
Indebtedness restructured in 1995 (b) - 2,750
Indebtedness fully satisfied during 1994
through asset transfers - 806
------- -------
9,442 13,507
Short-term debt: ------- -------
Indebtedness bearing interest at 2% over prime
collateralized by partnership management fees,
maturing in April 1995 215 210
Non-interest bearing restructured indebtedness
collateralized by Partners' Notes, fully paid
in 1994 (c) - 2,403
------- -------
215 2,613
Restructured and other long-terms loans: ------- -------
Restructured indebtedness bearing interest
at variable rates of 1/2% to 1% over prime,
subject to minimum and maximum rates,
collateralized by commercial mortgages and
real estate, maturing through January 1999 (d) 12,801 14,613
Restructured indebtedness bearing interest at
varying fixed rates of up to 7% for one loan
and variable rates based upon prime for the
other loan, collateralized by Partners' Notes,
commercial mortgages and real estate interests,
maturing through May 1999 (d) 3,785 4,652
Non-interest bearing restructured indebtedness,
collateralized by commercial mortgages and
limited partnership interests, maturing in
January 1998 2,821 3,426
9% to 13 3/4% fixed rate mortgages maturing
through June 1999 9,075 9,827
12% loan principally collateralized by a loan
secured by consumer receivables maturing in
May 1999 (Note 13) 257 -
5% over prime rate loan collateralized by
commercial mortgages, maturing in September
1997 244 -
Loan collateralized by investments in limited
partnerships currently bearing interest at 10%,
maturing in May 1998 285 -
Indebtedness restructured in 1995 (b) 2,750 -
2% above prime rate loan collateralized by
commercial mortgages, satisfied in 1994 - 843
Other debt bearing interest at 4%, maturing
from February 1996 to March 1997, satisfied
in 1994 (c) - 353
------- -------
32,018 33,714
------- -------
Total debt $41,675 $49,834
======= =======
F-24
(a) At December 31, 1994, DVL's debt in default for non-payment
remained undercollateralized by approximately $13 million primarily as
a result of DVL's prior pledge of unsold partnership investments and the
related notes as collateral for loans. DVL is continuing to negotiate
with this creditor and proposed a settlement which, if completed as
proposed, would eliminate such undercollateralization. DVL has proposed
to satisfy this debt at a discount by making cash payments over time in
settlement of the $13.8 million debt in default for non-payment, as the
current value of the assets collateralizing this loan are not sufficient
to satisfy the indebtedness. If DVL is able to consummate the agreement
on the terms it has proposed to this creditor, it would realize a
substantial gain on the settlement and restructuring of this debt.
However, there can be no assurance the negotiations will continue or that
an agreement will be consummated pursuant to the currently proposed
terms.
(b) During 1994, DVL reduced the portion of its indebtedness which
was in default for non-payment of scheduled interest and/or principal by
approximately $3.6 million. This reduction resulted from the
restructuring of the principal balance, payment terms and interest rate
with one creditor. The restructuring agreement was signed in the first
quarter of 1995 and is expected to close by the end of the second quarter
of 1995. DVL is holding $480,000 in escrow in connection with this
settlement. Such restructuring will result in a gain on the settlement
of indebtedness of approximately $1.8 million in the first quarter of
1995 (Notes 9 and 13).
(c) The settlement and restructuring agreements completed during
1994 resulted in extraordinary gains on the restructuring of indebtedness
of $1,935,000 as follows:
i) In February 1994 and June 1994, DVL made the final
installment payments due under a settlement agreement with one of its
creditors aggregating $674,000, which resulted in an extraordinary gain
on the settlement of indebtedness of $1,729,000.
ii) In May 1994, a DVL creditor agreed to accept $250,000 in
full satisfaction of DVL's indebtedness, which resulted in an
extraordinary gain on the settlement of indebtedness of $106,000.
iii) In June 1994, DVL agreed to refinance collateral (Note 5)
which was previously pledged to one of DVL's creditors in connection with
the restructuring of DVL's indebtedness. As a result of this
refinancing, DVL obtained the residual interest in this collateral and
a reduction of its indebtedness of $450,000 in exchange for a payment of
$350,000, which resulted in an extraordinary gain on the settlement of
indebtedness of $100,000.
(d) DVL obtained extensions to June 30, 1995 from two creditors in
which DVL failed to meet mandatory repayment requirements at December 31,
1994 of $1,000,000 and $275,000.
During 1993 and 1992, DVL's settlement and restructuring agreements
with certain creditors resulted in extraordinary gains on the
restructuring of indebtedness of $7,991,000 and $16,482,000,
respectively. In addition, DVL entered into three agreements in 1992
whereby DVL assumed liabilities of Kenbee and its affiliates pursuant to
DVL's guarantees of such indebtedness, which resulted in an increase in
DVL's indebtedness of $6,136,000. Under two of these agreements, DVL
restructured the terms of the existing indebtedness which resulted in
extended payment terms and a retroactive and prospective reduction in
interest rates. In addition, $2,780,000 of accrued and unpaid interest
was added to the principal balance of these loans in connection with
F-25
these agreements. As a result of DVL's assumption of indebtedness, DVL
succeeded to the priority of liens which were senior to DVL's, thereby
increasing the value of its related mortgage loans by $1,441,000. These
settlements resulted in an ordinary loss of $4,635,000 in 1992.
The aggregate amount of restructured and other long-term debt and loans
payable underlying wrap around mortgages (Note 5) maturing during the next
five years is as follows:
Loans Payable
Long-term Underlying Wrap
Debt Around Mortgages
--------- ----------------
(in thousands)
1995 $ 5,677 $ 3,589
1996 4,797 2,159
1997 4,100 2,429
1998 6,927 3,432
1999 8,633 2,960
Thereafter 1,884 38,273
------- -------
$32,018 $52,840
======= =======
9. Deferred Credits
DVL's deferred credits at December 31, 1994 and 1993 are comprised of
deferred gains on the sales of real estate to affiliates. Under the terms
of a settlement agreement with one of DVL's creditors (Note 7), certain of
these mortgage loans will be cancelled in the future upon the restructuring
of DVL's indebtedness with a different creditor which is expected to be
completed in the second quarter of 1995 (Notes 8 and 13). As a result of
this restructuring, a substantial portion of the deferred gain on sales of
real estate will be realized in 1995.
Activity on deferred credits is as follows:
1994 1993 1992
------ ------ ------
(in thousands)
Balance, beginning of year $1,405 $1,420 $1,692
Amortization to income (9) (15) (272)
------ ------ ------
Balance, end of year $1,396 $1,405 $1,420
====== ====== ======
10. Convertible Subordinated Debentures
During 1993, DVL completed a $421,000 private placement of units
consisting of one convertible subordinated promissory note and two common
stock purchase warrants. The notes bear interest at 12% per annum, mature
on April 30, 1997 and are convertible, including accrued interest, into
shares of common stock at a price of $1.00 per share at any time prior to
maturity. In addition, DVL issued $51,000 of similar such units primarily
in connection with the settlement of claims of certain limited partners,
which included DVL's acquisition of certain limited partnership interests
(Note 7). The convertible notes included in these units bear interest at
10% per annum and mature on September 30, 1997 (Note 12).
F-26
11. Commitments, Contingent Liabilities and Legal Proceedings
Commitments and Contingent Liabilities
- --------------------------------------
As part of DVL's settlement and restructuring agreements, DVL made
the following commitments and guarantees: DVL guaranteed that a creditor
will receive minimum annual cash flow from 1994 through 2002 totalling
$87,000 on a mortgage loan transferred to the creditor; DVL guaranteed
that the Lender Group will receive minimum annual cash flow of $110,000
per year through 1996 on the mortgages transferred to the Lender Group
in 1991; DVL has agreed to pay two creditors additional amounts of up to
80% of the proceeds generated by the collateral pledged to these
creditors if any such collateral exists after the restructured loans have
been fully satisfied; and DVL has agreed to purchase in 1997 the mortgage
loans which were transferred to a creditor during 1992 in satisfaction
of DVL's guarantee obligations to such creditor, if the creditor has not
received a stated yield based upon the value of the mortgages transferred
and has not previously liquidated the mortgages. DVL has accrued
liabilities of $584,000 for the deficiency of the future guaranteed cash
flow and the contingent note for the Lender Group settlement and $300,000
for its obligation to purchase mortgages in 1997. Management does not
anticipate any additional losses on such guarantees or commitments at
this time.
Pursuant to the terms of the Limited Partner Settlement, a fund has
been established into which DVL is required to deposit 20% of the cash
flow received on its mortgage loans from affiliated partnerships net of
repayment to existing creditors, 50% of DVL's receipts from certain loans
to and general partnership investments in affiliated partnerships and a
contribution of 5% of DVL's net income subject to certain adjustments in
the years 2001 through 2012. DVL has not provided for losses on such
contingencies except where they can be estimated (Note 2).
In 1994, DVL reached a settlement agreement with a Kenbee creditor
(in which DVL was a guarantor) pursuant to which DVL issued 320,000
shares of common stock, with a guaranteed value of $1.50 per share, and
paid $275,000 in full satisfaction of this guarantee. The creditor may
sell these shares by July 1995, with DVL liable for any shortfall in the
guaranteed value or if it is unable to sell such shares, it may put the
shares back to DVL and DVL shall pay the creditor the guaranteed value
in installments over twelve months. If the creditor does not attempt to
sell the shares by July 1995, DVL shall have no further liability to the
creditor. DVL has provided for a reserve of $400,000 at December 31,
1994, based upon the shortfall in the guaranteed value.
DVL has employment contracts with two of its executive officers
expiring in October 1, 1995 and December 31, 1995 under which DVL is
required to pay annual salaries aggregating $395,000, as well as other
benefits and expense reimbursements. The contracts can be terminated
without cause by the Board of Directors, subject to certain termination
compensation arrangements. DVL is also obligated under a consulting
agreement with its former president to pay $110,000 per annum through
October 31, 1996. In addition, certain current and former officers
received grants of performance units, as defined in a performance unit
plan adopted by DVL. The performance unit plan provides for the Board
of Directors to grant performance units, as therein defined, to employees
who, in the opinion of the Board of Directors, are in a position to make
substantial contributions to the management, growth and success of DVL's
business. Performance units are payable on notice of exercise by the
grantee in cash generally in an amount equal to the difference between
the average of the stock's closing price for the last twenty trading days
and the Fair Market Value ("FMV"), as defined. Through December 31,
1994, the Board of Directors granted a total of 853,000 performance units
F-27
to its executive and other officers with FMV's of such units ranging from
$.47 to $.75. During 1994, 62,511 performance units were exercised for
$32,000. At December 31, 1994, all remaining performance units were
fully vested and were valued at $0. During 1995, certain officers were
issued 68,750 additional performance units and certain former officers
surrendered 95,000 performance units in conjunction with their
resignations from the company.
DVL is contingently liable as guarantor under a loan facility
obtained by FMF. The balance at December 31, 1994 was approximately
$550,000 and DVL believes that the underlying collateral will be
sufficient to fully pay off the loan.
Legal and Administrative Proceedings
- ------------------------------------
Substantial progress has been made in settling various litigation
brought against DVL, its Board members and certain current and former
officers and affiliates by shareholders, banks and others. However,
several cases are still being litigated or are pending final disposition
including the original shareholder class and derivative actions. The
following is a summary of the status of all material outstanding cases.
Numerous class action suits commenced since 1990 were filed in
various jurisdictions and consolidated in the United States District
Court, Southern District of New York on February 28, 1991, in one
consolidated action entitled IN RE: DEL-VAL FINANCIAL CORP. SECURITIES
LITIGATION, MASTER FILE NO. MDL 872 ("IN RE DEL-VAL").
In IN RE DEL-VAL, a settlement has been approved by the court in
which DVL would issue to plaintiffs (i) 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 the aggregate fair market value is less than
$1,340,000); (ii) $9 million of notes due ten (10) years with interest
at 10% payable in kind for five (5) years, callable after the third year
and payable on the tenth year in cash or with DVL common stock equal to
110% of the face value of the notes; and (iii) $1.4 million plus interest
from August 16, 1993 and expenses in cash or stock. At December 31,
1994, management reflected the common stock and notes as "to be issued"
and a reserve of $1.81 million for the future $1.4 million payment due
and for any deficiency in the minimum price of the 900,000 shares to be
issued. The $9 million face value notes to be issued were valued at
$3,690,000 by an independent investment banker. The settlement is
expected to result in a loss of $6.4 million which was fully provided for
in 1992. DVL and related defendants have cross claimed against Deloitte
and Touche ("Deloitte"), DVL's former accountant, and have demanded
indemnification or contribution from Deloitte. Deloitte has cross-
claimed against DVL and related defendants in IN RE DEL-VAL. The court
has issued an opinion and order in connection with cross motions for
summary judgment filed by DVL and Deloitte. In that opinion and order,
the court ruled that Deloitte was not entitled to indemnification or
contribution on the state law claims, that Deloitte's cross claims for
indemnification or contribution against DVL are dismissed and that DVL
may have a right to contribution by Deloitte on the settlement.
A suit entitled DONALD LEVY, ET AL. V. ROGER D. STERN, ET AL.
("LEVY"), originally filed as a class action suit against current and
former directors of DVL in the Court of Chancery in New Castle County,
Delaware on February 13, 1991, has not been consolidated with the other
class action suits and plaintiffs have revised their complaint to proceed
F-28
on behalf of certain individuals as opposed to a class action. The
revised complaint was filed on or about May 4, 1994 against the same
current and former directors of DVL and alleges breaches of fiduciary
duty of care and candor. A recent United States Supreme Court decision
supports DVL's position in this matter and it is likely this action will
be dismissed without recovery to plaintiffs.
DVL is subject to three shareholder derivative suits. The first is
PHYLLIS RYE, ON BEHALF OF HERSELF IN THE RIGHT OF DEL-VAL FINANCIAL
CORPORATION V. ROGER STERN, ET AL. ("RYE"), filed in the United States
District Court, Southern District of New York on May 13, 1991. The other
two derivative suits are entitled DEL-VAL FINANCIAL CORP. DERIVATIVELY
BY HILDA WEIGART V. ROGER D. STERN, ET AL. ("WEIGART"), and DEL-VAL
FINANCIAL CORP. DERIVATIVELY BY MIRIAM FEINBERG V. ROGER D. STERN, ET
AL.
("FEINBERG"), and were filed in the Superior Court of New Jersey-Law
Division-Bergen County on October 31, 1990 and December 3, 1990,
respectively, and consolidated by court order dated February 8, 1991.
Pursuant to court order DVL and related defendants filed a third party
complaint in this consolidated action against their insurance carriers.
The Appellate Court in New Jersey and the Superior Court for Bergen
County, New Jersey have stayed all proceedings in the New Jersey cases.
Plaintiffs and all Defendants except Deloitte & Touche (the
"Settling Defendants") have reached a proposed settlement of WEIGART and
FEINBERG pursuant to a Settlement Agreement dated September 12, 1994 (the
"Settlement Agreement"). Under the Settlement Agreement, any claims
against the Settling Defendants were settled and all amounts to be
recovered by Plaintiffs were to be recovered exclusively against certain
insurance policies held by the Settling Defendants. The New York Court
in FEDERAL INSURANCE, discussed below, held that the Settling Defendants'
insurance excluded coverage of these matters and plaintiffs have sought
to transfer that ruling to the New Jersey cases.
Several limited partners who elected to opt out of the 1992
settlement of the limited partner class action, IN RE KENBEE LIMITED
PARTNERSHIPS LITIGATION, have named DVL in a case entitled FAYE CRAWFORD,
ET AL. V. ROGER STERN, ET AL. ("CRAWFORD"), filed in the Court of Common
Pleas in the State of South Carolina on September 23, 1993, in which
plaintiffs allege violations of RICO, common law fraud and civil
conspiracy in fiduciary securities transactions, common law fraud
including negligent deception, breach of fiduciary duty and negligence
by certain defendants and aiding and abetting other's breaches of
fiduciary duty and seek damages of $625,000 plus attorney fees, expenses
and interest. The case was removed to Federal Court and the defendants
have answered plaintiff's amended complaint. Settlement discussions are
underway and management has reserved for its estimation of settling or
defending the case.
DVL, and certain former officers have been named as defendants in
an action brought by a former employee of Kenbee entitled MICHAEL A.
BECKER V. KENBEE MANAGEMENT, INC. ET AL. ("BECKER"), and filed in the
Superior Court of New Jersey, Bergen County Law Division on September 22,
1993. In BECKER, plaintiff alleges violations of the New Jersey Law
Against Discrimination by Reason of Religious Discrimination, of oral
contract not to terminate plaintiff, of an implied promise not to
terminate employee for reasons violative of public policy, and for
intentional infliction of emotional distress, intentional interference
with contractual relations and slander and slander PER SE. Defendants
have answered the complaint, successfully moved to dismiss certain counts
and commenced discovery. Plaintiff was then given leave to amend and
filed an amended complaint, which Defendants have answered. More
extensive discovery is ongoing. It is expected that this case will not
settle and will proceed to trial and management has reserved for its
estimation of settling or defending the case.
F-29
In November 1993, the Securities and Exchange Commission (the
"Commission") commenced an administrative proceeding against DVL's
Treasurer in connection with certain events related to the 1990 stock
offering and price decline. Without admitting or denying the allegations
of the complaint, the Treasurer has agreed and the Commission has
consented to the issuance of a cease and desist order. Such Order will
not affect the ability of the Treasurer to perform his duties for DVL.
Federal Insurance Company ("Federal"), which carried DVL's directors
and officers insurance policy, has declined to cover DVL for these legal
costs and any liability. DVL commenced an action against its insurance
broker and Federal entitled DEL-VAL FINANCIAL CORPORATION, ET AL. V.
FEDERAL INSURANCE COMPANY ET AL. ("FEDERAL INSURANCE") on September 23,
1991 in the Supreme Court of the State of New York, County of New York
in which DVL alleging negligence against its broker and seeking
declaratory and injunctive relief against Federal. The New York Court
in this matter has held that the Settling Defendants' insurance excluded
coverage of these matters. DVL has filed a notice of appeal of that
decision. DVL has also named Federal as a third party defendant in the
consolidated WEIGART and FEINBERG cases, which have been stayed.
DVL has been named in actions for contractual indemnity, equitable
indemnity and declaratory relief in certain matters filed by Vanguard
Capital, Inc. in the Superior Court, State of California. These actions
are based on complaints by investors in affiliated limited partnerships
alleging that the investors' brokers sold to them unsuitable investments.
The broker is seeking indemnity against DVL and others. DVL has answered
these complaints.
DVL was a counterclaim defendant in an action entitled KEARNY
ASSOCIATES, ET AL. V. PLANNING BOARD OF KEARNY, ET AL., pending in the
Superior Court of New Jersey, Law Division, Hudson County, Docket Nos.
L-5436-92 and L-5978-92. In that case, an action was commenced in the
name of Del-Val Financial Corp., as well as Kearny Associates and
American Industrial Warehouses, Inc., seeking to overturn zoning
approvals granted to an adjacent property owner. The answer filed by
Pathmark's corporate entity and the property owner interposed a
counterclaim for tortious interference with prospective economic
advantage. DVL filed an answer to the counterclaim denying any liability
and raising other defenses. The action was consolidated with a similar
action commenced by an adjacent property owner and its tenant entitled
LJP ASSOCIATES V. PLANNING BOARD OF KEARNY, ET AL..
The main claims in both actions have been dismissed, leaving the
counterclaims which are being pursued. The counterclaims have been
amended to add as counterclaim defendants Foodtown of Kearny, Inc. and
its principal, Martin Vitale ("Foodtown"), and Kearny ShopRite, Inc. and
its principal, Richard Tully, as well as to name DVL as successor to Del-
Val Financial Corp. Foodtown has asserted crossclaims against INTER ALIA
DVL, counterclaims against Pathmark and its property owner and third-
party claims. DVL has settled this case as asserted by Pathmark and the
property owner, without admitting liability and the parties are in the
process of finalizing settlement documents. Foodtown's crossclaims
against DVL remain pending.
12. Shareholders' Equity/Capital Deficiency
As a result of the shareholder class action settlement, DVL is
required to issue 900,000 shares of common stock and may issue additional
shares to make the $1.4 million payment due in the future (Notes 2 and
11). The 900,000 shares are reflected as "to be issued" in these
financial statements.
F-30
DVL issued warrants to purchase 944,000 shares of common stock in
connection with the issuance of $472,000 of 12% and 10% convertible
subordinated debentures (Note 10). The company recorded a debt discount
and allocated $47,000 of the proceeds to the value of the detachable
stock warrants. The accumulated amortization of the debt discount
aggregated $23,000 at December 31, 1994. The warrants entitle the holder
to purchase the company's common stock at an exercise price of $1.00 at
any time through their expiration in 1997. In addition, there was
$135,000 of accrued interest on the debentures outstanding at December
31, 1994. At December 31, 1994, approximately 1,551,000 shares of the
company's common stock were reserved for the conversion of subordinated
debentures and exercise of warrants.
13. Subsequent Events
In March 1995, DVL reached a settlement with one of its remaining
unsettled creditors. Such restructuring will result in a gain on the
settlement of indebtedness of approximately $1.8 million in the first
quarter of 1995 (Note 8).
In March 1995, DVL contracted to sell a DVCC loan which was pledged
as collateral for a DVL loan (Note 3). A portion of the proceeds will
be used to pay off the DVL loan (Note 8).
F-31
DVL, INC. -- TABLE 1
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
(1)
DECEMBER 31, 1994 (In Thousands)
Under-
Location of Partnership lying
Security
Affiliated Property Mortgage Loan Unearned Net
Monthly
[mortgage(s)
Partnership Securing Loan Balance Bal. Interest Invest. Yield
Amort. Maturity
upon] Tenant(s)
- --------------------------------------------------------------------------------
- ------------------------------------
- ---------------
Aberdeen Terre Haute, IN 15 0 0 15 (4)
Varying January
Land and Amax, Inc.
Associates
2012 a warehouse
building(2)
Alma Alma, AR 2,216 822 882 512 15%
$12 December
Land and Wal-Mart
Associates (5)
2027 a
commercial Stores, Inc.
building (2)
Bogota Bogota, NJ 657 0 0 657 6%
Varying January
An office and PSC - subleased
Associates
with a 2003 commercial
to various
final building,
unaffiliated
payment improvements
companies
of $634 and leasehold
interests
Boulevard Cheektowaga, NY 2,984 1,405 1,496 83 15%
Varying March
Land and SCOA Industries,
Associates
2012 a
commercial Inc. - Hills
building (2)
Department Store
Brent Brent, AL 1,640 552 745 343 15%
$9 December
Land and Wal-Mart
Associates(5)
2027 a
commercial Stores, Inc.
building (2)
Broadalbin Mayfield, NY 940 0 479 461 (7)
Varying January
Land and a Grand Union
Associates
2022 supermarket
Stores, Inc.
Cambridge Whitecreek, NY 940 0 479 461 (7)
Varying January
Land and a Grand Union
Associates
2022 supermarket
Stores, Inc.
Checotah Checotah, OK 1,740 606 731 403 15%
$9 December
Land and Wal-Mart
Associates (5)
2027 a
commercial Stores, Inc.
building (2)
Elizabeth City Elizabeth City, NC 623 0 284 339 15%
$4 January
Land and a Grand Union
Associates
2022 supermarket
Stores, Inc.-
subleased
to
McTavish RR
Salvage
Fairbury Fairbury, NE 1,962 725 842 395 15%
$10 December
Land and Wal-Mart
Associates (5)
2027 a
commercial Stores, Inc.
building (2)
Flourtown Flourtown, PA 3,304 1,823 911 570 (4)
$19 March
Land and K-Mart
Associates
2036 a
commercial Corporation
building (2)
Fort Edward Fort Edward, NY 1,466 0 79 1,387 (7)
$14 May
Land and a Grand Union
Associates
2029 supermarket
Stores, Inc.
Hoosick Falls Hoosick Falls, NY 1,531 0 777 754 (7)
Varying August
Land and a Grand Union
Associates
2021 supermarket
Stores, Inc.
Industrial Bogota, NJ 1,792 0 0 1,792 7%
Varying March
An industrial PSC - subleased
Associates
with a 2003 building
to various
final pmt.
unaffiliated
of $1,646
companies
DVL, INC. -- TABLE 1
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
(1)
DECEMBER 31, 1994 (In Thousands)
Under-
Location of Partnership lying
Security
Affiliated Property Mortgage Loan Unearned Net
Monthly
[mortgage(s)
Partnership Securing Loan Balance Bal. Interest Invest. Yield
Amort. Maturity
upon] Tenant(s)
- --------------------------------------------------------------------------------
- ------------------------------------
- ---------------
Kearny Kearny, NJ 5,279 2,265 1,824 1,190 (3)
Varying March
A shopping Various
Associates
2020 center (2)
unaffiliated
companies
Manchester Manchester, CT 1,114 444 45 625 (4)
Varying April
Land and office 2 unaffiliated
Associates
2015 buildings
(2) companies
Milford Milford, PA 2,522 0 1,395 1,127 (7)
$14 December
Land and a Grand Union
Associates
2029 supermarket
Stores, Inc.
Orange Park Jacksonville, FL 1,533 739 610 184 12%
$9 with January
Land and Toys "R" Us,
Associates
a final 2020 a
commercial Inc.
pmt. of building (2)
$1,066
Ossipee Ossipee, NH 1,183 0 596 587 15%
Varying February
Land and Ames Department
Associates
2022 a
commercial Stores, Inc.
building (2)
Port Isabel Port Isabel, TX 2,378 794 1,064 520 15%
$12 December
Land and Wal-Mart
Associates (5)
2027 a
commercial Stores, Inc.
building (2)
Progress Buffalo, NY 938 509 29 400 (4)
$8 March
Land, a Westinghouse
Associates
2017 supermarket
Scrivner-
and an
Buffalo
Windsor, CT 517 329 12 176 (4)
$5 June
industrial Sermatech
2022 building (2)
Realty Corp.
Rockingham Rockingham, NC 221 0 91 130 8%
$3 February
Land and Kenbee -
Associates
2003 a warehouse
subleased
building
to Sara Lee
Rockingham II Rockingham, NC 286 0 0 286 12%
$2 March
Land and an Kenbee -
Associates
2011 industrial
subleased
building
to Sara Lee
Salisbury Salisbury, MD 948 0 436 512 15%
$7 February
Land and a Grand Union
Associates
2022 supermarket
Stores, Inc.-
subleased to
Camellia Food
Stores, Inc
Sandy Springs Sandy Springs, GA 1,596 0 809 787 15%
Varying July
Land and a Grand Union
Associates
2021 supermarket
Stores, Inc.-
assigned to
Great Atlantic
&
Pacific Tea
Company
Smithfield Smithfield, VA 909 0 377 532 (7)
$7 November
Land and a Grand Union
Associates
2021 supermarket
Stores, Inc.-
assigned to
Farm Fresh
Inc
(6)
DVL, INC. -- TABLE 1
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
(1)
DECEMBER 31, 1994 (In Thousands)
Under-
Location of Partnership lying
Security
Affiliated Property Mortgage Loan Unearned Net
Monthly
[mortgage(s)
Partnership Securing Loan Balance Bal. Interest Invest. Yield
Amort. Maturity
upon] Tenant(s)
- --------------------------------------------------------------------------------
- ------------------------------------
- ---------------
Somersville Sommersville, CT 874 294 306 274 (4)
Varying February
Land and Various
Associates
2015 industrial
unaffiliated
buildings (2)
companies
Stigler Stigler, OK 1,751 777 771 203 15%
$9 December
Land and a Wal-Mart
Associates (5)
2027 commercial
Stores, Inc.
building (2)
Tilton Tilton, NH 2,006 608 604 794 (4)
$13 September
Land and a Various
Associates
2020 shopping
unaffiliated
center (2)
companies
Toch Kearny, NJ 1,119 0 0 1,119 (3)
$10 December
An industrial Various
Associates
2009 building
unaffiliated
companies
Trio Brooklyn, NY 1,431 61 271 1,099 (3)
$14 September
Land and an TEK Wire and
Associates
2007 industrial
Cable
building (2)
Watseka Watseka, IL 1,408 960 365 83 12%
$2 December
Land and a K Mart
Associates
2015 commercial
Corporation (6)
building (2)
WHS Idaho Falls, ID 339 220 117 2 12%
$2 December
Land and a Unisource
Associates
2014 warehouse
Corporation
building (2)
Woodstock Woodstock, NY 1,187 0 601 586 (7)
Varying June
Land and a Grand Union
Associates
2021 supermarket
Stores, Inc.
-------------------------------------
$51,349 $13,933 $18,028 $19,388
[FN]
- ------------------------------------
(1) See "Collateralized Loans (1)"
(2) These loans are wrap around loans.
(3) These loans are non-performing and DVL does not anticipate
and yield in the future.
(4) These loans are expected to be liquidated in the future and DVL
does not anticipate any yield on these loans.
(5) These loans were restructured as paret 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 hte actual additional debt service received
on these
mortgages in the future.
(6) Building is currently vacant, however tenant is obligated under the terms
of the
lease to continue to pay rent.
(7) Due to the Bankruptcy filing of Grand Union Stores, Inc., the yield on
these
mortgages will be reduced or eliminated based upon the outcome of the
bankruptcy.
DVL, INC. -- TABLE 2
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
(1)
DECEMBER 31, 1994 (In Thousands)
Location Partnership Underlying
Net Amount DVL's
of Property Mortgage Loan of
Collateral Loan
Affiliated Partnership Securing Loan Balance Balances
Pledged Balance
Maturity Tenant
- --------------------------------------------------------------------------------
- ------------------------------------
- ----------------------------
Aledo Associates LP Aledo, IL (2) $2,381 $1,223
$1,158 $ 285
November 2018 Wal-Mart Stores, Inc.
Alexandria Associates LP Alexandria, VA (3) 1,462 377
1,085 574
January 2023 Pitney-Bowes, Inc.
Ava Associates Ava, MO (2) 2,770 726
2,044 525
November 2028 Wal-Mart Stores, Inc.
Brownsville Associates LP Brownsville, TX (2) 4,948 2,029
2,919 1,826
February 2024 Wal-Mart Stores, Inc.
Caldwell Associates Caldwell, TX (2) 2,090 708
1,382 570
May 2019 Wal-Mart Stores, Inc.
Camilla Associates LP Camilla, GA (2) 2,091 713
1,378 689
December 2019 Wal-Mart Stores, Inc.
Canton Associates Canton, GA (2) 4,056 1,365
2,691 1,626
December 2029 Wal-Mart Stores, Inc.
Carthage Associates Carthage, TN (2) 1,945 657
1,288 575
March 2021 Wal-Mart Stores, Inc.
Cherokee Associates Woodstock, GA (2) 3,491 1,173
2,318 1,370
July 2023 Wal-Mart Stores, Inc.
Clanton Associates LP Clanton, AL (2) 2,019 849
1,170 960
June 2020 Wal-Mart Stores, Inc.(4)
Clinton Associates Clinton, IL (2) 3,318 1,070
2,248 1,108
June 2029 Wal-Mart Stores, Inc.
Columbus Associates Columbus, TX (2) 3,715 1,232
2,483 958
January 2030 Wal-Mart Stores, Inc.
Covington Associates Covington, GA (2) 4,217 1,585
2,632 614
January 2030 Wal-Mart Stores, Inc.(4)
Cynthiana Associates Cynthiana, KY (2) 2,319 773
1,546 870
July 2021 Wal-Mart Stores, Inc.
Douglas Associates Douglas, GA (2) 2,556 1,188
1,368 1,209
December 2023 Wal-Mart Stores, Inc.
subleased - Buds
Douglasville Associates Douglasville, GA (2) 5,174 1,802
3,372 1,844
June 2031 Wal-Mart Stores, Inc.
Elmira Associates Elmira, NY (2) 730 262
468 219
November 2021 Fays Drug Company, Inc.
Maryland Heights, MO (3) 915
915 452
May 2024 Pitney-Bowes, Inc.
Enderle Associates LP Hondo, TX (2) 2,361 972
1,389 826
May 2024 Wal-Mart Stores, Inc.
Floresville Associates Floresville, TX (2) 2,703 884
1,819 947
February 2029 Wal-Mart Stores, Inc.
Gainsville Associates Gainsville, GA (2) 4,885 1,620
3,265 1,970
February 2030 Wal-Mart Stores, Inc.(4)
Gatesville Associates Gatesville, TX (2) 3,440 905
2,535 668
February 2029 Wal-Mart Stores, Inc.
Iowa Park Associates LP Iowa Park, TX (2) 2,048 851
1,197 464
March 2021 Wal-Mart Stores, Inc.
Jamestown Road Associates Columbia, KY (2) 2,073 702
1,371
694 April 2023 Wal-Mart Stores, Inc.
Lawrenceburg Associates Lawrenceburg, KY (2) 2,848 677
2,171
602 December 2029 Wal-Mart Stores, Inc.
Lawrenceville Associates Lawrenceville, GA (2) 4,887 1,519
3,368 787
May 2033 Wal-Mart Stores, Inc.
subleased - National
Vision Center
Macon Associates LP Macon, MO (2) 2,599 1,313
1,286 353
March 2018 Wal-Mart Stores, Inc.
Madisonville Associates Madisonville, TX (2) 2,044 688
1,356 587
August 2021 Wal-Mart Stores, Inc.
Marlow Associates Marlow, OK (2) 2,416 810
1,606 215
December 2029 Wal-Mart Stores, Inc.
Marshall Associates LP Marshall, IL (2) 2,004 1,092
912 243
November 2018 Wal-Mart Stores, Inc.
Mount Pleasant Associates LP Mount Pleasant, IA (2) 2,913 1,458
1,455
357 November 2019 Wal-Mart Stores, Inc.
Mustang Associates Mustang, OK (2) 2,866 696
2,170 674
July 2029 Wal-Mart Stores, Inc.
Prattville Associates LP Prattville, AL (2) 2,816 1,163
1,653 1,048
January 2023 Wal-Mart Stores, Inc.
Robstown Associates LP Robstown, TX (2) 2,294 964
1,330
252 October 2020 Wal-Mart Stores, Inc.(4)
Sonya Associates LP Boonville, MO (2) 1,994 680
1,314 721
June 2018 Wal-Mart Stores, Inc.
Southfield Associates Southfield, MI (3) 2,890 865
2,025 311
July 2026 Pitney-Bowes, Inc.
Van Buren Associates LP Clinton, AR (2) 1,651 557
1,094 635
April 2020 Wal-Mart Stores, Inc.
Wambold Associates LP Cuba, MO (2) 1,418 912
506 324
December 2019 Wal-Mart Stores, Inc.
Waynesboro Associates LP Waynesboro, MS (2) 2,202 1,145
1,057
2 January 2019 Wal-Mart Stores, Inc.(4)
Winder Associates Winder, GA (2) 2,218 702
1,516 832
March 2021 Wal-Mart Stores, Inc.
-------- -------
- ------- -------
$107,767 $38,907
$68,860 $29,786
[FN]
- ------------------------------------------------------
(1) These loans were acquired pursuant to the Limited Partner Settlement from
Kenbee or R &
M. DVL's loan balance equals
it's net investment in the related loan due previously from Kenbee or R &
M, less specific
write-downs on certain loans
based upon the anticipated cash flow to be generated by each loan.
(2) The loans due from these partnerships are secured by mortgages upon land
and commercial
buildings.
(3) The loans due from these partnerships are secured by mortgages upon land
and office
buildings.
(4) Building is currently vacant, however, tenant is obligated under the terms
of the lease to
continue to pay rent.
=====================================================================
=====================================================================
========
DVL, INC. -- TABLE 3
INTERIM SECOND MORTGAGES DUE FROM AFFILIATED
PARTNERSHIPS (1)
DECEMBER 31, 1994
Partnership
Location of Property Mortgage
Affiliated Partnership Securing Loan Balance Yield
Maturity
Tenant
- --------------------------------------------------------------------------------
- ------------------------------------
- ---------
Attalla Associates (3) Attalla, AL $1,201 (4)
Due On Demand
Wal-Mart Stores, Inc.(2)
Parkland Associates LP (3) Overland Park, KS 363 (4)
Due On Demand
The Fleming Companies (2)
Rolla Associates LP (5) Rolla, MO 85 (4)
December 2000
Wal-Mart Stores, Inc.(2)
- subleased to
J. C.
Penney and
Heilig Meyer
------
$1,649
[FN]
- -------------------------------------------------
(1) See "Collateralized Loans (2)".
(2) Each loan is secured by a second mortgage upon land and a commercial
building owned by
the partnership.
(3) These partnerships were not part of the Limited Partner Settlement.
(4) These loans are non-performing and DVL does not anticipate any yield in
the future.
(5) This loan was reinstated pursuant to the Limited Partner Settlement
whereby the net cash
flow
from the property would be divided equally between DVL and the limited
partners. At such
time as
DVL's creditor, who is holding a collateral assignment of this loan, among
other DVL
mortgage loans,
is paid in full, this interim mortgage will be released for the benefit of
the partnership.
=====================================================================
========================================================
DVL, INC. -- TABLE 4
OTHER MORTGAGES LOANS (1)
DECEMBER 31, 1994 (In Thousands)
Location
of Property Mortgage Monthly
Owner of the Property Securing Loan Balance Yield
Amortization Maturity
Security
- --------------------------------------------------------------------------------
- ------------------------------------
- ---------
Due From an Unaffiliated Entity
- -------------------------------
The Grand Union Company Manchester, VT $1,383 9.00% Monthly
payment
December 1996 Mortgage on property
of $18
with a
final
payment
of $1,161
[FN]
- ------------------------------------
(1) See "Collateralized Loans (3)".
=====================================================================
========================================================
DVL, INC. -- SCHEDULE IX
SHORT-TERM BORROWINGS
DECEMBER 31, 1994 (In Thousands)
Category of Weighted Maximum amount
Average amount
Weighted average
short-term Balance at average outstanding
outstanding
interest rate
Year ended Borrowing end of year interest rate during the year
during the year
(1) during the year
- --------------------------------------------------------------------------------
- ------------------------------------
- ------
December 31, 1994 (2) (3) $ 9,657 10.5% $10,161
$10,629
8.4%
December 31, 1993 (2) (3) $10,161 8.0% $23,487
$17,975
8.4%
December 31, 1992 (2) $23,486 8.3% $41,269
$33,503
9.2%
[FN]
(1) Based on amounts outstanding at the end of each month.
(2) Revolving credit and other debt with lending institutions.
(3) Does not include non-interest bearing restructured debt of $2,403 in 1993
or balance paid
during 1994.
=====================================================================
=====================================================
S-1