<PAGE>
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999 OR
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission File No. 1-8356
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DVL, INC.
- -------------------------------------------------------------------------------
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.)
70 East 55th Street, 7th Floor, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 350-9900
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value None
Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part IV of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by non-
affiliates as of March 17, 2000 was $3,301,038.
The number of shares outstanding of Common Stock of the Registrant as of March
17, 2000 was 16,560,450.
<PAGE>
DVL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 1999
ITEMS IN FORM 10-K
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Page
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PART I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Consolidated Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management 27
Item 13. Certain Relationships and Related Transactions 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 38
<PAGE>
PART I
This 1999 Annual Report on Form 10-K contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent, belief or
current expectations of the Registrant and its management team. The Registrant's
stockholders and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements. Such risks and uncertainties
include, among other things, general economic conditions, the ability of the
Registrant to successfully implement its business strategy and other risks and
uncertainties that are discussed herein.
ITEM 1. BUSINESS.
OVERVIEW
DVL, Inc., a Delaware corporation incorporated in 1977 ("DVL" or the
"Company"), is a commercial finance company which is primarily engaged in the
ownership and servicing of a portfolio of secured commercial mortgage loans, as
well as acting as the general partner of the limited partnerships which own the
properties which secure such mortgages (each an "Affiliated Limited
Partnership"). Also, the Company performs real estate asset management and
administrative services for third parties.
DVL is the general partner of approximately 90 affiliated limited
partnerships which own income-producing commercial, office and industrial
properties comprising approximately 3.5 million square feet. A majority of the
properties are subject to long-term triple net leases with various tenants. The
principal tenant is Wal-Mart Stores, Inc. The remaining properties are shopping
centers, industrial properties and other commercial properties. In connection
therewith, the Company performs real estate and partnership management services.
The mortgage loans held by the Company are primarily "wrap-around" mortgage
loans which are subject to non-recourse, underlying mortgages held by unrelated
institutional lenders which self liquidate from the base rents payable by the
underlying tenant over the primary term of the related lease. The Company
receives mortgage payments from the Affiliated Limited Partnerships and pays the
underlying mortgage holder their required monthly principal and interest
payments. In addition, the Company receives a portion of the Affiliated Limited
Partnerships percentage rent income as additional debt service. The Company's
other principal assets include (a) loans made to limited partners of Affiliated
Limited Partnerships, which loans are secured by the limited partnerships
interests held by such limited partners, (b) long term leasehold interests in
certain commercial properties, (c) investments as a limited partner in certain
Affiliated Limited Partnerships and (d) certain real estate.
The Company derives the majority of its income as a result of the
difference in the effective interest rates on its wrap-around mortgages and the
interest rates on the underlying mortgages, as well as from a share of
percentage rents received from various tenants of the Affiliated Limited
1
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Partnerships, from rentals received as a result of its long term leasehold
interests, from fees received as General Partner of the Affiliated Limited
Partnerships (including disposition and management fees), from distributions
received as a limited partner in the Affiliated Limited Partnerships, from the
sale of partnership properties, and fees from third party management contracts.
Through an arrangement developed with a related entity, called the
"Opportunity Fund", described below, the Company continues to seek out and
participate in investment opportunities related to its existing asset base.
These opportunities do not require the direct investment of the Company's
capital. To date, the Opportunity Fund has purchased several mortgages secured
by properties owned by certain Affiliated Limited Partnerships as well as a
commercial property and various limited partnership interests in certain
Affiliated Limited Partnerships. The Company, as a participant in the
Opportunity Fund, has a right to participate in profits after the other
investors in the Opportunity Fund receive a required return on their investment.
At December 31, 1999, the Company had net operating loss carry- forwards
("NOLS") aggregating approximately $63 million, which expire in various years
through 2014 with approximately $55 million expiring through 2007. If the
Company generates profits in the future, the Company may be subject to
limitations on the use of its NOLS pursuant to the Internal Revenue Code. There
can be no assurance that a significant amount of the Company's existing NOLS
will be available to the Company at such time as the Company desires to use
them.
As a result of focusing on historic issues and resolving claims of
creditors, the Company has lacked sufficient cash resources to develop new
business and has therefore been focused on (i) managing, administering and
servicing its existing loan portfolio, the Affiliated Limited Partnerships and
the mortgages it holds on such properties, (ii) seeking to sell or refinance or
otherwise maximize the value of the real estate assets of DVL and its Affiliated
Limited Partnerships, (iii) seeking management contracts to perform asset
management and administrative services for third parties.
DVL's anticipated cash flow provided by operations is sufficient to meet
its current cash requirements through January 2001, assuming that no payments
are made to NPO Management LLC ("NPO"). The Company has in the past and expects
in the future to continue to augment its cash flow with additional cash
generated from either the sale or refinancing of its assets and/or borrowings.
(See Management Discussion and Analysis of Financial Conditions and Results of
Operations).
The Company's current strategy is to (i) maximize the value of its assets
and meet its short-term working capital needs by continuing to manage,
administer and service its existing real estate properties, the Affiliated
Limited Partnerships and the mortgages on loans to such Affiliated Limited
Partnerships, (ii) increase its participation in the Opportunity Fund, (iii)
obtain investments through the use of bank borrowings and (iv) expand through
the acquisition of one or more companies to generate income and positive cash
flow. There can be no assurance that the Company will be able to identify or
acquire businesses. While the Company regularly evaluates and discusses
potential acquisitions, the Company currently has no understandings, commitments
or agreements with respect to any acquisitions.
2
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The Company anticipates that it would finance any possible future acquisition
through new borrowing or the issuance of its common or preferred stock. However,
the Company has no current commitments or arrangements for such additional
financing and there can be no assurance that the Company will be able to obtain
additional financing on acceptable terms except for the new bank financing that
was consummated in March 2000 for the acquisition of five mortgage loans.
The principal executive offices of the Company are located at 70 East 55th
Street, 7th Floor, New York, New York 10022. The Company's telephone number is
(212) 350-9900. The Company and its subsidiaries have not engaged in any
business activity outside of the United States.
BUSINESS ACTIVITIES
Mortgage Loans
The Company's mortgage loan portfolio consists primarily of long term
wrap-around and other mortgage loans due from its Affiliated Limited
Partnerships secured by income-producing commercial, office and industrial
properties leased on a long-term basis to unaffiliated, creditworthy tenants.
The principal tenant is Wal-Mart Stores, Inc. Most of such loans are
subordinated obligations with the majority of the payments received being
utilized to amortize the related underlying mortgage loan over the primary term
of the related lease. This has the effect of creating an equity build up in the
value of the mortgage loans over time. At December 31, 1999, the Company had
investments in 32 mortgage loans to Affiliated Limited Partnerships with an
aggregate mortgage balance due of $69,557,000 and a carrying value for financial
reporting purposes of $42,228,000 as of December 31, 1999, prior to a loan loss
reserve of approximately $6,083,000 in connection with its mortgage loan
portfolio. These mortgage loan receivable are subject to underlying mortgage
obligations of $27,692,000.
Generally, the tenants of the Affiliated Limited Partnerships 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 to the Company as additional
interest and/or additional debt service on the long-term mortgage.
The Company has the right to refinance the outstanding mortgage loans
underlying its wrap-around mortgage loans due from Affiliated Limited
Partnerships, provided that the debt service and principal amount of a
refinanced loan are no greater than that of the existing wrap-around loan. The
Company also has the right to arrange senior financing secured by properties on
which it holds first or second mortgage loans by subordinating such mortgage
loans, subject to the same such limitations set forth above.
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In 1997, the Company refinanced five mortgages which generated
approximately $957,000 in excess of the existing underlying mortgage loans. In
1998, the Company refinanced one mortgage which generated approximately $40,000
in excess of the existing underlying mortgage. During 1999, DVL did not
refinance any of its wrap mortgages. The net excess funds from the 1997 and 1998
refinancings were used to pay the expenses of the refinancings, and to pay down
the loan to NPM, as required by the applicable loan agreements. The amounts
obtained from these refinancings were primarily based on the value of the base
rents due from tenants during the period of the base lease term subsequent to
the payoff of the existing first mortgages. As a result of these refinancings,
the Company's asset base available for future refinancings has diminished.
All of these mortgage loans are pledged to secure the indebtedness of the
Company to NPM Capital LLC ("NPM"), NPO, and together with NPM, (the "NPM
Parties") and Blackacre Capital Group, LLC ("BCG"), which are entities engaged
in real estate lending and management transactions and are affiliated with
certain stockholders and insiders of the Company. All outstanding indebtedness
owed to NPM was fully paid off in May 1999. (See Items 7 and 13 below for a
description of certain related transactions involving the NPM Parties).
Loans Secured by Limited Partnership Interests
The Company maintains a relatively small portfolio of loans to individual
limited partners of the Affiliated Limited Partnerships, which loans are secured
by limited partnership interests. As of December 31, 1999, such loans had an
aggregate carrying value of $150,000 after a loan loss reserve of approximately
$614,000. Substantially all of such loans were non-performing. The Company,
through NPO, has been aggressively attempting to collect these loans including
the institution of litigation and foreclosure on the limited partnership
interests, where appropriate.
Loan Portfolio
The following table sets forth the number of various loans outstanding, the
aggregate loan balances, including accrued interest, and the allowances for loan
losses, at December 31, 1999. See Tables 1 and 2 of Appendix "A" to this Form
10-K for detailed information as to each such loan.
<TABLE>
<CAPTION>
Number Aggregate Allowance
of Loan for Loan
Type of Loan Loans Amount Losses
------------ ----- ------ ------
(dollars in thousands)
<S> <C> <C> <C>
Long-term mortgages due from Affiliated
Limited Partnerships $ 48,038
Less: unearned interest (1) (5,810)
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Total loans collateralized by mortgages 32 42,228 $ 6,083
-- ------- ------
Loans collateralized by limited partnership
interests 45 764 614
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Advances due from affiliated partnerships 17 48 -
--- -------- -----
Total loans 94 $ 43,040 $ 6,697
=== ======== =======
</TABLE>
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(1) Unearned interest represents the unamortized balance of discounts on
previously funded loans.
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Investments in Affiliated Limited Partnerships
The Company over the years has acquired various limited partnership
interests in its Affiliated Limited Partnerships pursuant to the terms of
certain settlement agreements and through various purchases.
Partnership and Property Management
The Company is the general partner of approximately 90 Affiliated Limited
Partnerships from which it receives management, transaction and other fees. The
Company, through Professional Service Corporation ("PSC"), its wholly-owned
subsidiary, is engaged in the management of two industrial properties located in
New Jersey pursuant to master lease interests. These master leases permit PSC to
sub-lease the properties to tenants and retain profits subject to the payment by
PSC of operating expenses and rent to the partnerships that own the properties.
In June 1998, the Company entered into a Management Services Agreement with
a limited partnership in which certain of its partners are affiliates of NPO to
render certain services. This agreement will continue until the date that all of
these partnerships' assets are sold unless terminated at any time prior, with 30
days notice by either party. As compensation, the Company receives an aggregate
fee equal to (a) a monthly fee of $5,000 (b) after all the partners of the
partnership have earned a 20% internal rate of return, compounded quarterly, on
their capital contributions, an amount of cash equal to 25% of the profits, as
defined in the agreement. For 1999 and 1998 the Company received compensation
equal to $480,000 and $35,000, respectively.
In addition, the Company entered into a service agreement with another
limited partnership whose general partner is an affiliate of NPO, to render
certain accounting and administrative services. As compensation, the Company
receives a monthly fee of $3,000, and expense reimbursements of $1,000 per
month.
Also, the Company entered into a property management agreement with an
entity that is part of the Opportunity Fund pursuant to which DVL provides
property management services in exchange for fees equal to 3% of rent
collections.
In November 1999, the Company entered into a management service agreement
with an entity whose partners are affiliates of NPO, to render certain
accounting and administrative services. As compensation, the Company receives a
monthly fee of $2,000, a monthly deferred fee of $6,500 which is payable upon
certain capital events and an annual incentive fee, if certain levels of
profitability occurs. For 1999, the Company was paid $4,000 and accrued fees of
$13,000.
Real Estate Holdings
The Company currently owns one property located in New Jersey. Prior to May
1999 the Company owned an additional parcel, consisting of 6.9 acres of land,
which was leased for an annual rent of $30,000 to an Affiliated Limited
Partnership which owned the buildings and improvements on the parcel. In April
1999, the Company sold this property to an affiliated entity which is part of
the Opportunity Fund. In connection with the sale, the Company also was repaid
on a mortgage which it held on the leasehold interest. The one remaining
property consists of approximately two acres
5
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of land underlying approximately 80,000 square feet of manufacturing,
warehousing and commercial buildings which was leased through November 1998 to
an Affiliated Limited Partnership ("Toch"), which owned the buildings and
improvements on the property subject to a mortgage held by the Company. In
November of 1998, the Company foreclosed on the mortgage and now owns the
buildings and improvements.
Opportunity Fund
The Company, BCG, an affiliate of Blackacre (as defined below), P.N.M.
Capital LLC, an affiliate of NPO ("PNM"), and Pemmil Management LLC, an
affiliate of NPO ("Pemmil"), and PNM, the ("NPO Affiliates") are parties to a
certain Agreement which is called the Opportunity Agreement (the "Opportunity
Agreement"). The Opportunity Agreement has a term of three years expiring April
2001, subject to earlier termination if certain maximum capital contributions
have been reached. The Opportunity Agreement provides for an arrangement (the
"Opportunity Fund") whereby the fund has the right of first refusal to finance
the acquisition of limited partnership interests or mortgage loans of Affiliated
Limited Partnerships in which the Company is general partner, or which the
Company already owns, if the Company is unable to pursue such business
opportunity with its own funds from its reserves or available from operations,
and without financing from a third party or issuing equity.
The Opportunity Fund is expected to pursue each opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by the other members. The Company will receive up to 20% of the
profits from an opportunity after the other investors receive a return of their
investment plus preferred returns ranging from 12% to 20%.
The transactions in which the Opportunity Fund may engage include, for
example, acquisition of partnership interests from existing limited partners of
Affiliated Limited Partnerships, and investment in certain properties owned by
the Company or such partnerships, where capital may be required to enhance value
but is not currently available to the Company. There can be no assurance that
the Opportunity Fund's activities will generate profit distributions to the
Company.
As of March 15, 2000, the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven
mortgages were purchased in 1998, one of which was purchased in 1999 and seven
mortgages were purchased in January 2000), acquired limited partnership units
from unaffiliated individuals in three Affiliated Limited Partnerships, and
acquired a leasehold interest of a tenant of an Affiliated Limited Partnership.
In addition, during 1999, the Opportunity Fund acquired a property of an
Affiliated Limited Partnership and the land underlying this property from DVL.
To date, DVL has not realized any revenues from the investments by the
Opportunity Fund.
Employees
As of March 15, 2000, the Company had 12 employees all of whom were
employed on a full-time basis other than the President of the Company, who
serves on a part-time basis. The Company is not a party to any collective
bargaining agreement and the Company's employees are not represented by any
labor union. The Company considers its relationship with its employees to be
good.
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ITEM 2. PROPERTIES.
The Company maintains corporate headquarters in New York City in a leased
facility located at 70 E. 55th Street, New York, New York, which occupies
approximately 6,000 square feet of office space. The lease for such office space
is due to expire on February 7, 2003. The base rent is $227,160 per annum, plus
real estate tax and operating expense escalation clauses. The Company leases on
a month to month basis, certain office space. In 1999, the Company received
approximately $48,000 from these sub- tenants. A description of the other
properties owned by the Company appears in the subsection captioned "Real Estate
Holdings" in Item 1 above. The Company believes that its existing facilities are
adequate to meet its current operating needs and that suitable additional space
should be available to the Company on reasonable terms should the Company
require additional space to accommodate future operations or expansion.
ITEM 3. LEGAL PROCEEDINGS.
The Company from time to time is a party in various lawsuits incidental to
its business operations. In the opinion of the Company, none of such litigation
in which it is currently a party, if adversely determined, will have a material
adverse effect on the Company's financial condition or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 1, 2000, the Company held its Annual Meeting of Stockholders
(the "Annual Meeting"). The holders of record of 14,058,457 shares of Common
Stock were present in person or represented by proxy at the Annual Meeting. At
the Annual Meeting, the Company's stockholders approved the following:
(1) Election of Directors.
The stockholders elected the following persons to serve as directors of the
Company until the next Annual Meeting, or until their successors are duly
elected and qualified. Votes were cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
Myron Rosenberg 13,396,227 0 662,230
Frederick E. Smithline 13,400,667 0 657,790
Allen Yudell 13,404,784 0 653,673
Keith B. Stein continued his term as Special Purpose Director (as described
in Item 10) after the Annual Meeting.
(2) Amendment of the Company's Certificate of Incorporation to increase the
Authorized Issue.
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The Stockholders approved the amendment of the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), to increase the
number of authorized shares of capital stock of the Company from 40,000,100 to
95,000,100 in order to (a) increase the number of authorized shares of the
Company's Common Stock from 40,000,000 to 90,000,000, and (b) authorize
5,000,000 shares of "blank check" preferred stock, $.01 par value. Votes were
cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
8,792,527 1,508,389 123,769
(3) Various other Amendments of the Company's Certificate of Incorporation.
The Stockholders approved the amendments to the Company's Certificate
of Incorporation to bring it into conformity with contemporary corporate legal
practices and to help preserve the utilization of the Company's carryforwards of
net operating losses for federal income tax purposes. Votes were cast as
follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
13,630,080 318,252 110,125
(4) Various Amendments of the Company's By-laws.
The Stockholders approved the amendments to the Company's By-laws to
bring them into conformity with contemporary corporate legal practices and to
help preserve the utilization of the Company's carryforwards of net operating
losses for federal income tax purposes. Votes were cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
13,580,364 318,252 110,125
(5) Amendment of 1996 Stock Option Plan (the "Plan").
The Stockholders approved the amendment to the Company's Plan to
increase by 1,000,000 the aggregate number of shares of the Company's Common
Stock available under the Plan. Votes were cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
8,373,770 1,574,912 399,264
(6) Appointment of Auditors
The stockholders approved the appointment of Richard A. Eisner &
Company, LLP as independent auditors of the Company for the 1999 fiscal year.
Votes were cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
13,621,478 313,694 123,285
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PART II
ITEM 5. MARKET FOR DVL'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock of DVL is traded on the over-the-counter market and is
quoted on the OTC Bulletin Board maintained by the NASD under the symbol "DVLN".
As of March 15, 2000, DVL stock was trading at $.1875 based on the last sale
price. The following table sets forth, for the calendar periods indicated, the
high and low bid prices of the Common Stock as reported by the NASD for 1999 and
1998. Such prices are inter-dealer prices without retail mark-up, mark-down or
commission, and do not represent actual transactions.
1999 High Low
- ---- ---- ---
First Quarter . . . . . . . . . . . . $ .23 $ .14
Second Quarter . . . . . . . . . . . .22 .19
Third Quarter . . . . . . . . . . . . .23 .17
Fourth Quarter . . . . . . . . . . . .20 .13
1998 High Low
- ---- ---- ---
First Quarter . . . . . . . . . . . . $ .20 $ .07
Second Quarter . . . . . . . . . . . .185 .14
Third Quarter . . . . . . . . . . . . .17 .13
Fourth Quarter . . . . . . . . . . . .19 .125
At March 15, 2000, there were 3,639 holders of record of Common Stock of
DVL. No dividends have been paid since October 1990. At this time, DVL does not
anticipate paying any dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
The data set forth below should be read in conjunction with other financial
information of DVL, including its consolidated financial statements and
accountants' report thereon included elsewhere herein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Consolidated Statements of Operations Data
(In thousands except for per share data)
Year Ended December 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Revenues
Affiliates $ 7,188 $ 5,835 $ 6,183 $ 5,794 $ 6,375
Other 369 399 70 528 1,360
-------- -------- -------- -------- --------
Total $ 7,557 $ 6,234 $ 6,253 $ 6,322 $ 7,735
======== ======== ======== ======== ========
Income (loss) before extraordinary gain (5,780) (4,471) (2,415) (758) $ 1,026
Extraordinary gain on the settlement of 7,900 8,349 4,011 202 1,267
-------- -------- -------- -------- --------
indebtedness
Net Income (loss) $ 2,120 $ 3,878 $ 1,596 $ (556) $ 2,293
======== ======== ======== ======== ========
Basic earnings (loss) per share
Income (loss) before extraordinary gain $ (.58) $ (.31) $ (.15) $ (.04) $ .06
Extraordinary gain .79 .58 .25 .01 .08
-------- -------- -------- -------- --------
Net Income (loss) $ .21 $ .27 $ .10 $ (.03) $ .14
======== ======== ======== ======== ========
Diluted earnings (loss) per share
Income (loss) before extraordinary gain (.58) (.31) (.15) (.04) .02
Extraordinary gain .79 .58 .25 .01 .02
-------- -------- -------- -------- --------
Net Income (loss) $ .21 $ .27 $ .10 $ (.03) $ .04
======== ======== ======== ======== ========
</TABLE>
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Consolidated Balance Sheet Data
(In thousands)
As at December 31
<TABLE>
<CAPTION>
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total assets $85,799 $76,383 $64,942 $55,635 $41,858
======= ======= ======= ======= =======
Underlying mortgages payable $44,300 $49,749 $45,306 $38,644 $27,692
======= ======= ======= ======= =======
Long-term debt and notes payable $32,290 $20,340 $12,143 $ 9,937 $ 5,156
======= ======= ======= ======= =======
Short-term debt $ 1,060 $ - $ - $ - $ -
======= ======= ======= ======= =======
Shareholders' equity (capital
deficiency) $(1,330) $ 3,582 $ 5,279 $ 4,775 $ 7,068
======= ======= ======= ======= =======
</TABLE>
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
INTRODUCTION
The Company is a commercial finance company which has been primarily
engaged in the ownership and servicing of a portfolio of secured commercial
mortgage loans, as well as managing numerous properties and the limited
partnerships which typically own such properties.
DVL's anticipated cash flow provided by operations is sufficient to meet
its current cash requirements through January 2001, assuming that no payments
are made to NPO Management LLC ("NPO"). The Company has in the past and expects
in the future to continue to augment its cash flow with additional cash
generated from either the sale or refinancing of its assets and/or borrowings.
The Company's current strategy is to (i) maximize the value of its assets
and meet its short-term working capital needs by continuing to manage,
administer and service its existing real estate properties, the Affiliated
Limited Partnerships and the mortgages on loans to such Affiliated Limited
Partnerships, (ii) increase its participation in the Opportunity Fund, (iii)
obtain assets using borrowed funds, where possible, and (iv) expand through the
acquisition of one or more companies to generate positive income. There can be
no assurance that the Company will be able to identify or acquire businesses.
While the Company regularly evaluates and discusses potential acquisitions, the
Company currently has no understandings, commitments or agreements with respect
to any acquisitions other than the mortgage portfolio acquired in March of 2000,
which is described in the Liquidity section below. The Company anticipates that
it would finance any possible future acquisition through new borrowings or the
issuance of its common or preferred stock. The Company has no current
commitments or arrangements for such additional financing and there can be no
assurance that the Company will be able to obtain additional financing on
acceptable terms or at all other than the new bank financing obtained in
connection with the mortgage portfolio acquired in March of 2000.
At December 31, 1999, the Company had net operating loss carry forward
("NOLS") aggregating approximately $63 million, which expire in various years
through 2014 including $55 million which expire through 2007. If the Company
generates profits in the future, the Company may be subject to limitations on
the use of its NOLS pursuant to the Internal Revenue Code. There can be no
assurance that a significant amount of the Company's existing NOLS will be
available to the Company at such time as the Company desires to use them.
SIGNIFICANT EVENTS
NPM and NPO Transactions
In an effort to alleviate its liquidity problems and to meet certain
mandatory debt repayment requirements, on September 27, 1996, the Company
entered into a loan transaction with NPM under a certain Amended and Restated
Loan Agreement dated as of March 27, 1996 (the "Original Loan Agreement"),
pursuant to which NPM purchased certain loans from creditors of the Company, and
agreed to make principal installment payments of up to $600,000 on DVL's
obligations to two of its creditors. NPM has fulfilled this additional funding
obligation. The original principal loan amount from
12
<PAGE>
NPM was $8,382,000 (the "Original Loan"), which was $3,150,000 in excess of the
aggregate balances due on the loans sold to NPM. Accordingly, the transaction
resulted in a loss of $880,000 in 1996 and an effective interest rate of 15% on
the NPM loan in 1999, 1998 and 1997. In 1997, NPM advanced the Company an
aggregate of $200,000, which amount was being paid back to NPM pari passu with
the Original Loan. In addition, from January 1998 through May 1999, NPM advanced
amounts aggregating an additional $370,000 to the Company to fund quarterly
payments to a creditor of the Company. All advances not contemplated by the
Original Loan bore interest at 15% per annum and were being paid pari passu with
the Original Loan (such amounts, collectively, are referred to herein as the
"NPM Loan").
Under the terms of the NPM Loan, the principal balance was payable over six
years with interest accruing at the rate of 10.25% per annum. In May 1999, DVL
repaid all amounts due on the loan to NPM.
In connection with the transactions contemplated by the Original Loan
Agreement, in March 1996, the Company, NPO, an affiliate of certain principals
of NPM, entered into an Asset Servicing Agreement (the "Asset Servicing
Agreement"), pursuant to which NPO is providing the Company with administrative
and advisory services relating to the assets of the Company and its Affiliated
Limited Partnerships. In consideration for such services, the Company is
required to pay NPO $600,000 per year (with cost of living increases) over the
seven-year term of the agreement, subject to early termination under certain
conditions. DVL had the right to defer up to $600,000 of such fees, with
interest at 15% per annum, during the first two years and to defer reduced
amounts during the third year. DVL had accrued service fees of $1,467,000 as of
December 31, 1999. NPO has waived any event of default which may exist under the
Asset Servicing Agreement during the period through December 31, 2000, based on
the fact that the amount of accrued service fees has exceeded the operative
limitations since mid-1997. The waiver does not affect NPO's right to receive
payment of all deferred service fees, and interest thereon, which are currently
outstanding or which may become outstanding through December 31, 2000.
In connection with the Original Loan Agreement, certain affiliates of NPM
acquired an aggregate of 1,000,000 shares (the "Base Shares") of the Company's
Common Stock for $200,000. The Base Shares currently represent approximately 6%
of the outstanding Common Stock of the Company. An affiliate of NPM also
acquired 100 shares of preferred stock of the Company for $1,000. The Company
issued to affiliates of the NPM Parties warrants (the "Warrants"), exercisable
as of January 1999 in accordance with the terms of such Warrants, to purchase
such number of shares of Common Stock as, when added to the Base Shares,
represent an aggregate of 49% of the outstanding Common Stock of the Company on
a fully diluted basis. The original exercise price of the Warrants was $.16 per
share, subject to applicable anti-dilution provisions and subject to a maximum
aggregate exercise price of approximately $1,900,000. The Warrants expire on
December 31, 2007. The Warrants were valued for financial statement purposes at
$516,000 at the date of issuance and such value resulted in a debt discount to
be amortized using the effective interest rate method. Through March 2000, no
Warrants have been exercised.
13
<PAGE>
The possibility that some or all of the Warrants may be exercised creates
the potential for significant dilution of the current stockholders. The actual
dilutive effect cannot be currently ascertained, since it depends on whether,
and if so to what extent, the Warrants are exercised.
Recent Debt Tender Offers
From October 27, 1997 through February 27, 1998 (the "First Tender
Expiration Date"), the Company conducted a cash tender offer (the "First Offer")
for the Promissory notes (the "Notes")at a price of $0.12 per $1.00 principal
amount of the Notes. The Notes were originally issued in December 1995 in
conjunction with the settlement of a stockholder class action lawsuit. The
Company purchased and retired a total of $6,224,390 principal amount of Notes in
the First Offer. An additional $392,750 principal amount of the Notes were
purchased by Blackacre Bridge Capital, LLC ("Blackacre"), an unaffiliated
entity, pursuant to the terms of the BC Arrangement (as defined below).
On February 26, 1999, the Company commenced a second cash tender offer (the
"Second Offer", and together with the First Offer, the "Offers") for its
outstanding Notes at a price of $0.12 per $1.00 principal amount of the Notes.
During the period from February 26, 1999 through May 14, 1999, the Company
purchased and retired a total of $2,413,652 principal amount of Notes. In
addition, $423,213 principal amount of the Notes were purchased by Blackacre,
pursuant to the terms of the BC Agreement. Notes with an aggregate principal
amount of $3,863,437 remained outstanding as of December 31, 1999, including
those purchased by Blackacre.
The Company has had the option to redeem the outstanding Notes since
January 1, 1999 by issuing additional shares of Common Stock with a then current
market value (determined based on a formula set forth in the Notes), equal to
110% of the face value of the Notes plus any accrued and unpaid interest
thereon. Because the applicable market value of the Common Stock will be
determined at the time of redemption, it is not possible currently to ascertain
the precise number of shares of Common Stock that may have to be issued to
redeem the outstanding Notes. The redemption of the notes may cause significant
dilution for current shareholders. The actual dilutive effect cannot be
currently ascertained since it depends on the number of share to be actually
issued to satisfy the Notes. The Company currently intends to exercise at some
point in the future its redemption option to the extent it does not buy back the
outstanding Notes by means of cash tender offers.
The Offers effected a reduction in the Company's long-term debt and
resulted in an extraordinary gain of $2,906,000 for the year ended December 31,
1997, $202,000 for the year ended December 31, 1998, and $1,267,000 for the year
ended December 31, 1999. Furthermore, the Offers have reduced the potential
dilutive effect on the Company's current stockholders that would result from
redemption of the Notes for shares of Common Stock. However, given the aggregate
principal amount of Notes which remains outstanding, the potential dilutive
effect of such a redemption is still significant.
14
<PAGE>
In order to fund the acquisition of the Notes and pay the related costs and
expenses, the Company entered into an amended financing arrangement (the "BC
Arrangement") with Blackacre, NPM Capital LLC ("NPM") and NPO Management LLC
("NPO") as of October 20, 1997, in the form of a Fourth Amendment to a Loan
Agreement between such parties (as amended, the "Amended Loan Agreement),
permitting the Company to borrow up to $1,760,000 (the amount actually borrowed
by the Company pursuant to the BC Arrangement is referred to as the "BC Loan").
The BC Loan matures on September 30, 2002 and bears interest at the rate of 12%
compounded monthly per annum payable at maturity. Total outstanding borrowings
under the BC Arrangement were $1,560,000 as of December 31, 1999. In addition,
Blackacre is entitled to acquire 15% of all Notes acquired by the Company in
excess of $3,998,000 under the same terms and conditions as the Company.
Blackacre acquired Notes aggregating $392,750 under these terms from the First
Offer and $423,213 from the Second Offer.
As further consideration for Blackacre's providing the Company with the BC
Loan, the Company issued to Blackacre 653,000 shares of Common Stock.
The Company's obligations under the BC Loan are secured by all of the
assets of the Company currently pledged to NPO under the Amended Loan Agreement
and the other documents executed in connection therewith. The BC Loan is senior
to all indebtedness of the Company other than indebtedness to NPO and, with
respect to individual assets, the related secured lender. The effective interest
rate to the Company for financial reporting purposes, including the Company's
costs associated with the BC Loan, and the value of the 653,000 shares issued to
Blackacre in connection therewith, is approximately 14% per annum. Interest
payable in connection with the BC Loan will be deferred until the Company
satisfies all of its obligations owing to NPO. Thereafter, interest and
principal will be paid from 100% of the proceeds then available to the Company
from the mortgage collateral held as security for the BC Loan.
Opportunity Fund
In April 1998, DVL, an affiliate of Blackacre, and affiliates of NPO
entered into a certain Agreement Among Members (the "Opportunity Agreement"),
providing for an arrangement (the "Opportunity Fund"), pursuant to which
entities would be formed, from time to time, to enter into certain transactions
involving the acquisition of limited partnership interests in the assets of, or
mortgage loans to, Affiliated Limited Partnerships or other assets in which the
Company has an interest. These investment opportunities will be presented to the
Opportunity Fund on a first refusal basis, if the Company, due to financial
constraints, is unable to pursue such business opportunity with its own funds.
The Opportunity Fund is expected to pursue each such opportunity with
respect to which it exercises its right of first refusal through the use of a
special purpose limited liability company. All of the required capital
contributions are to be provided by Blackacre and the NPO Affiliates. The
Company will receive up to 20% of the profits from an opportunity after
Blackacre and the NPO Affiliates receive a return of their investment plus
preferred returns ranging from 12% to 20%.
15
<PAGE>
As of March 15, 2000 the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven were
purchased in 1998, one was purchased in 1999 and seven mortgages were purchased
in January 2000), acquired limited partnership interests from unaffiliated
individuals in three Affiliated Limited Partnerships, and acquired a leasehold
interest of a tenant of an Affiliated Limited Partnership. In addition, during
1999, the Opportunity Fund acquired a property of an Affiliated Limited
Partnership and the land underlying this property from DVL (see Note 5 of Notes
to Financial Statements).
RESULTS OF OPERATIONS
DVL realized net income from operations of $1,026,000 for the year ended
December 31, 1999 compared to net operating losses of $758,000 and $2,415,000
for the years ended December 31, 1998 and 1997, respectively. DVL realized net
income after extraordinary gains of $2,293,000 for the year ended December 31,
1999 compared to a net loss after extraordinary gains of $556,000 for the year
ended December 31, 1998 and net income after extraordinary gains of $1,596,000
for the year ended December 31, 1997. Extraordinary gains were $1,267,000,
$202,000, and $4,011,000 for the years ended December 31, 1999, 1998, and 1997,
respectively, resulting from debt settlements.
Interest on mortgage loans from affiliates decreased from 1997 through
1999, as a result of a reduction in DVL's mortgage portfolio. The decrease in
interest income was partially offset by greater interest income recognition on
certain loans in DVL's portfolio, beginning in 1998. This increase was primarily
a result of the Company's revaluation of several mortgage loans in its
portfolio. Additional interest income recognized in 1998 and 1999 due to the
revaluation of mortgage loans was $378,000 and $362,000, respectively. The
income recognition was adjusted as a result of DVL's determination that future
cash flows from the mortgage loans would result in DVL recovering its carrying
value plus interest. The carrying amount of such loans was not adjusted. The
Company accounts for increases and decreases in the amount or timing of expected
future cash flows on the Company's loan portfolio by adjusting the valuation
allowance, but does not exceed the recorded investment in the loan.
During 1999, DVL was paid aggregate proceeds of $4,215,000 as full
satisfaction of eight of its mortgage loans. The aggregate net proceeds paid on
the satisfaction of mortgage loans was greater than the net carrying value,
which resulted in a gain of $1,639,000. During 1998, the gain recognized was
$173,000. Transaction fees and other fees from Affiliated Limited Partnerships
increased in each of the last three years. Transaction and other fees are earned
in connection with the sales of partnership properties and refinancings of
underlying mortgages. Distributions from investments in Affiliated Limited
Partnerships increased in 1999 from 1998 but was lower than the amount earned in
1997. Distributions were higher in 1999 than 1998 due to the refinancing of
certain underlying mortgages in the limited partnerships in which DVL owned
limited partnership units, but did not hold the mortgages. In 1997, several DVL
mortgages were refinanced and DVL received distributions on the units that the
Company owned.
16
<PAGE>
Rental income from others was $532,000 in 1999 compared to $330,000 in 1998
and $0 in 1997. The increase from 1997 to 1998 resulted from a change in the
amortization method of the leasehold interest held by DVL. Previously, the
leasehold was being amortized at a rate equal to the income. This would have
meant that the asset would have been fully amortized years before the
termination of the leasehold. Therefore, amortization of the leaseholds were
adjusted prospectively from January 1998 to reflect the remaining term of the
leases and the Company began recognizing rental income as received. The primary
reason for the increase from 1998 to 1999 was the addition of the rental income
received on a property which DVL had foreclosed on in November 1998.
Management fee income from others was $533,000 in 1999 compared to $59,000
in 1998 and $0 in 1997. The primary reason for the increase in 1999 was
approximately $420,000 of incentive management fees earned and paid from an
entity that is owned by affiliates of NPO and BCG.
Interest expense on underlying mortgages decreased for each of the last
three years due to a decrease in the size of DVL's mortgage loan portfolio.
During 1999 and 1998, the Company finalized settlement agreements that
allow the Company to realize cash proceeds that exceed the carrying value on
previously reserved limited partner notes receivable. As a result, for 1999 and
1998 DVL has reflected a recovery in the provision for losses of $48,000 and
$153,000, respectively.
General and administrative expenses were higher in 1999 as compared to 1998
but lower than 1997. The primary reason for the increase from 1998 to 1999 was a
result of DVL's move in November 1998 to its new corporate headquarters. The
majority of decreases for all three years in general and administrative expenses
are related to decreases in executive salaries, personnel expenses, consulting
fees, office costs and employment agency fees. The reduction in these expenses
resulted principally from the settlement of outside litigation matters and the
restructuring of debt. NPO's asset management servicing fee of $600,000 was
constant from 1997 through 1999.
Legal and professional fees increased in 1999 from 1998 primarily as a
result of certain one time costs expended in connection with the collection of
limited partner note delinquencies, as well as, higher outside legal
expenditures due to the reduction of in-house legal personnel. Legal and
professional costs were lower in 1998 than 1997.
Interest expense on the loan to NPM decreased in 1999 compared to 1998,
and in 1998 compared to 1997, as a result of the accelerated paydown of this
loan. The financing costs of the loan, as well as the value of the warrants
issued in connection with obtaining the loan, are amortized proportionately as
the loan is repaid. As the loan was totally repaid in May of 1999, all remaining
costs were amortized in 1999. Interest expense on the loan from Blackacre
increased in 1999 from 1998 due to an additional borrowing of $500,000 in
January 1999 for the Second Offer, as well as the compounding of interest.
Interest expense on the Notes decreased in 1999 compared to 1998 and 1998
compared to 1997 as a result of DVL having repurchased Notes in the Tender
Offers. Interest expense on the NPO asset service fee payable increased in 1999
compared to 1998 and 1998 compared to 1997 as a result of the increase in the
accrual of fees. Interest expense from others decreased in 1999 from 1998 and
1998 compared to 1997 due to the paydowns of debt to DVL's long-term creditors.
17
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations is generated principally from
rental income from its leasehold interests in real estate, management fees from
the operation of Affiliated Limited Partnerships and transaction and other fees
received as a result of the sale and/or refinancing of partnership properties
and mortgages. The Company's portfolio of loans to Affiliated Limited
Partnerships currently does not produce substantial cash flow from operations
because most of the cash received from the mortgages is used to pay the debt
service on mortgages on the properties senior to those held by the Company, with
any excess being used to pay certain other creditors, including NPO.
As a result of the above factors, the Company continues to experience
liquidity problems, though at a level lower than in prior years. To enable the
Company to meet its short-term operating needs, the Company still needs to
augment its cash flow with the proceeds from the sale or refinancing of assets
and borrowings. NPO has agreed to waive any events of default that may exist
under its servicing agreements due to the deferral of fees through December 31,
2000. As of December 31, 1999, the Company owed approximately $1,467,000 to NPO.
During 1999, the Company paid an aggregate of $1,128,000 to NPO as partial
payment of amounts due. DVL believes that its current liquid assets and credit
resources will be sufficient to fund operations both on a short term basis as
well as on a long term basis.
The Company entered into the BC Loan with Blackacre, permitting the Company
to borrow up to $1,760,000 to fund the purchase of Notes, and to pay related
costs and expenses. A total of $1,060,000 had been borrowed as of the expiration
of the First Offer and an additional $500,000 was borrowed as of May 14, 1999 to
fund the Second Offer. As further consideration for Blackacre's providing the
Company with the BC Loan, the Company issued to Blackacre 653,000 shares of
Common Stock. The BC Loan matures on September 30, 2002 and bears interest at
the rate of 12% per annum. The effective rate to the Company for financial
reporting purposes, including the Company's costs associated with the BC Loan,
and the value of the 653,000 shares issued to Blackacre is approximately 14%.
Interest payable in connection with the BC Loan will be payable in the form of
the issuance of additional notes until the Company satisfies all of its
obligations owing to NPM and NPO. However, beginning April 27, 2000, the Company
must pay principal payments of 15% of all proceeds that would have otherwise
been remitted to either NPM or NPO, to Blackacre. Once NPO is paid in full,
interest and principal will be paid from 100% of the proceeds then available to
the Company from the mortgage collateral held as security for the BC Loan.
From January 1998 through May 1999, NPM advanced additional amounts
aggregating $370,000 to DVL to fund quarterly payments to a creditor of the
Company. These advances were not required under the original loan transaction
with NPM, consummated in September 1996 (the "Original Loan"). These advances
bore interest at 15% per annum and were paid pari passu with the Original Loan,
and with the additional advances aggregating $200,000 made in March and April
1997. The Original Loan, together with the advances, are referred to in the
aggregate herein as the "NPM Loan". In May 1999, DVL paid all remaining
outstanding amounts due on the NPM Loan.
18
<PAGE>
In March 2000, DVL purchased five wrap mortgage loans from an unaffiliated
third party which are secured by real estate properties owned by partnerships in
which DVL is the general partner. The loans were purchased for an aggregate
purchase price of $1,210,000 paid as follows: cash of $135,000, the issuance of
an unsecured promissory note in the amount of $75,000 to the seller of the loans
maturing on March 1, 2001 with no interest, and new bank financing of
$1,000,000. This new bank financing is a self amortizing loan that matures on
April 1, 2005 with interest at the rate of prime plus 1.5% and requires payments
to be made from the net cash proceeds to be received on these loans. The
acquired loans were held previously by DVL and were transferred to the seller in
1992 in settlement of debt owed.
IMPACT OF INFLATION AND CHANGES IN INTEREST RATES
The Company's portfolio of mortgage loans made to Affiliated Limited
Partnerships consists primarily of loans made at fixed rates of interest.
Therefore, increases or decreases in market interest rates are generally not
expected to have an effect on the Company's earnings. Other than as a factor in
determining market interest rates, inflation has not had a significant effect on
the Company's net income for the past three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DVL has no substantial cash flow exposure due to interest rate changes for
long term debt obligations, because all long-term debt is at fixed rates. DVL
primarily enters into long term debt for specific business purposes such as the
repurchase of debt at a discount or the acquisition of mortgage loans.
DVL's ability to realize on its mortgage holdings is sensitive to interest
rate fluctuations in that the sales prices of real property and mortgages vary
with interest rates.
The table set fourth below presents principal amounts and related weighted
average interest rates by year of maturity for DVL's investment portfolio and
debt obligations.
<TABLE>
<CAPTION>
There
In Thousands 2000 2001 2002 2003 2004 after Total
- ------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash equivalents $1,270 $ 1,270
Variable rate
Average interest rate 4.5% 4.5%
LONG TERM DEBT
Fixed rate $2,083 $1,929 $3,985 $2,318 $2,479 $17,051 $29,845
Average interest rate 8.95% 8.95% 8.95% 8.95% 8.95% 8.95% 8.95%
</TABLE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto, together with the accountants'
report thereon of Richard A. Eisner & Company, LLP, are set forth on pages F-1
through F-31, which follow. The financial statements are listed in Item 14(a)(1)
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF DVL
A. The following table sets forth the name of each director and executive
office of the Company, and the nature of all positions and offices with the
Company held by him at present. The term of all directors (other than the
special purpose director) expires at the Company's next annual meeting of
stockholders, which will be held on a date to be scheduled. The term of all
executive officers expires at the next annual meeting of directors, to be held
immediately thereafter.
NAME POSITION
---- --------
Frederick E. Smithline Chairman of the Board & Director
Myron Rosenberg Director
Allen Yudell Director
Alan E. Casnoff President and Chief Executive Officer
Gary Flicker Executive Vice President and Chief Financial
Officer
Keith B. Stein Special Purpose Director
In addition to three regular directors, who were elected by the holders of
Common Stock and who have all of the powers normally granted to corporate
directors, the Company has one special purpose director, who was elected in 1996
by the holder of the Class A Preferred Stock. The special purpose director has
no right to vote at meetings of the Board, except as to Bankruptcy Matters (as
such term is defined in the Certificate of Incorporation).
B. The following is a brief account of the recent business experience of
each director and executive officer and directorships held with other companies
which file reports with the Securities and Exchange Commission:
FREDERICK E. SMITHLINE (age 67) has served as Chairman of the Board of
the Company since 1990 and as a director since 1982. From September 1989 to
May 1996, Mr. Smithline was of counsel to the law firm of Epstein, Becker &
Green, P.C., New York, New York. He is currently in private practice as an
attorney. Mr. Smithline also serves as a director of the Hungarian
Broadcasting Corporation.
MYRON ROSENBERG (age 71) has served as a director of the Company since
1973. Mr. Rosenberg is currently a financial consultant. Through December
1996, Mr. Rosenberg served as Executive Vice President of Rosenthal &
Rosenthal, Inc., New York, New York, a commercial finance concern, where he
had been employed since 1961. He is currently also a director of Deotexis,
Inc.
ALLEN YUDELL (age 60) has served as a director of the Company since
September 1996. From 1967 to 1991, Mr. Yudell was President of Delco
Development Corporation. From 1992 to 1996, Mr. Yudell was a Vice President
of Unidell Realty Corp., and he is currently a consultant to Unidell. Delco
and Unidell are shopping center development companies based in Boca Raton,
Florida. Mr. Yudell is also a member of the International Council of
Shopping Centers.
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<PAGE>
ALAN E. CASNOFF (age 55) has served as President of the Company since
November 1994, and was a director from October 1991 to September 1996. Mr.
Casnoff served as Executive Vice President of the Company from October 1991
to November 1994. Mr. Casnoff has maintained his other business interests
during this period and thus has devoted less than full time to the business
affairs of DVL. From November 1990 to October 1991, Mr. Casnoff served as
a consultant to the Company and from 1971 to October 1991, as Secretary of
the Company. Since May 1991, Mr. Casnoff has also served as a director of
Kenbee Management, Inc. ("Kenbee"), an affiliate of the Company, and as
President of Kenbee since November 1994. Since 1977, Mr. Casnoff has also
been a partner of P&A Associates, a private real estate development firm
headquartered in Philadelphia, Pennsylvania. From 1969 to October 1990, Mr.
Casnoff was associated with the Philadelphia, Pennsylvania law firm of Saul,
Ewing, Remick & Saul, previous legal counsel to the Company and Kenbee.
Since 1990, Mr. Casnoff has acted as counsel to various law firms. As of
July 1999, he is of counsel to Klehr, Harrision, Harvey, Brazenburg & Ellers.
Mr. Casnoff's firm is providing some legal services to the Company.
GARY FLICKER (age 40) became Vice President and Chief Financial Officer of
the Company in April 1997 and Executive Vice President in September 1998. Mr.
Flicker is a Certified Public Accountant. From January 1996 to April 1997, he
was a financial consultant, performing acquisition analysis and financial
reporting consulting services. From November 1985 to November 1994, he was Vice
President - Director of Real Estate Accounting and Financial Analysis with
Integrated Resources, Inc. ("Integrated"), a publicly-held real estate
investment company. Thereafter, until December 1995, Mr. Flicker served as
Senior Real Estate Controller for Concurrency Management, Inc. which was engaged
by Integrated's successor to perform management services. Mr. Flicker's
principal responsibilities for Integrated involved the performance of
accounting, tax and financial reporting services, as well as financial analysis
for limited partnerships in which a subsidiary of Integrated was the general
partner. From November 1983 to November 1985, Mr. Flicker was a Supervising
Senior Accountant at Kenneth Leventhal & Company, C.P.A.s, and from September
1980 to November 1983 he was a Senior Accountant at Garnick, Mansfield, et al.,
C.P.A.s (formerly Lester Witte & Company).
KEITH B. STEIN (age 43) has been a special purpose director of the
Company since September 1996. Mr. Stein is the Vice Chairman, Chief
Executive Officer, and a director of National Auto Finance Company, Inc.
(NASDAQ/OTC: NAFI), a specialty automobile finance company. From March 1993
to September 1994, he served as Senior Vice President, Secretary and General
Counsel of WestPoint Stevens, Inc., a textile company, after having served
the same company from October 1992 to February 1993 in the capacity of Acting
General Counsel and Secretary. From May 1989 to February 1993, Mr. Stein was
associated with the law firm of Weil, Gotshal & Manges LLP. Mr. Stein is an
affiliate of NPM.
21
<PAGE>
(c) Compliance with Section 16 (a) Beneficial Ownership Reporting Compliance
------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who are beneficial owners of more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Commission. Officers,
directors, and greater than 10% beneficial owners are required by Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of such reports
furnished to the Company, and written representations that no other reports were
required during or with respect to the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to such persons were satisfied,
except that: (i) based upon a Schedule 13D, as amended, as filed with the
Commission on November 18, 1999, the following individuals became 10% beneficial
owners of the Company's Common Stock as a result of the Warrants becoming
exercisable on September 27, 1999 (as described in Item 12(C)below), and none of
whom have filed Form 3's with the Commission with respect thereto: Lawrence J.
Cohen, Milton Neustadter, Jay Chazanoff, Ron Jacobs, Stephen Simms and Keith B.
Stein; in addition, each of the foregoing failed to file a Form 4 with respect
to the purchase of shares of common stock and warrrants on November 12, 1999;
however, each of the foregoing has filed a delinquent Form 5 in March of 2000
with respect to the foregoing failures to file Form 3's and Form 4's; and (ii)
to the Company's knowledge, the following individuals became 10% beneficial
owners of the Company's Common Stock as a result of the Warrants becoming
exercisable on September 27, 1999, and none of whom have filed Form 3's with the
Commission with respect thereto: Robert W. Barron, Adam Frieman, Peter Offerman,
Joseph Huston, Jan Sirota, Neal Polan, Michael Zarriello, Mark Mahoney and the
SIII Associates Limited Partnership, Third Addison Park Corporation and Gary
Shapiro.
22
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
--------------------------
The following table sets forth all compensation awarded to, earned by or
paid to the following persons for services rendered to the Company in 1999 and
(if applicable) in 1998, 1997, and 1996: (1) the person serving as the Company's
chief executive officer during 1999; (2) those other persons who were serving as
executive officers as of the end of 1999 whose compensation exceeded $100,000
during 1999:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term Compensation Awards
----------------------------------------- ------------------------------
Securities
Other Annual Underlying LTIP
Name Year Salary Bonus Compensation Options/SAR Payouts
---- ---- ----------- ------- ---------------- --------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Alan E. Casnoff 1999 $120,000 $10,000 - - -
President and Chief 1998 120,000 - - 25,000(3) -
Executive Officer 1997 186,500 - - 50,000(3) -
Gary Flicker 1999 $132,500 $17,500 - 25,000(3) -
Executive Vice 1998 125,000 15,000 - 25,000(3) -
President and Chief 1997 84,549 15,000 $27,123(2) 50,000(3) -
Financial Officer(1)
</TABLE>
- ----------------------
(1) Mr. Flicker became Vice President and Chief Financial Officer of the
Company on April 16, 1997 and Executive Vice President in September 1998.
The amounts shown as his salary and bonus for 1997 represent the amounts
paid to him for services rendered from April 16, 1997 through December 31,
1997.
(2) Represents consulting fees paid by the Company to Mr. Flicker for services
during the period February 18, 1997 through April 15, 1997.
(3) Consists of options to purchase shares of Common Stock under the 1996 Stock
Options Plan, granted to Mr. Casnoff on April 9, 1997 and Mr. Flicker on
April 17, 1997 (50,000 each), options to purchase 25,000 shares granted to
each of such persons on January 9, 1998 as a bonus in respect of services
rendered in 1997 and options to purchase 25,000 options issued to Mr.
Flicker on March 26, 1999 as a bonus in respect of services rendered in
1998.
23
<PAGE>
B. OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
The following table sets forth information as to options granted in 1999
under the DVL, Inc. 1996 Stock Option Plan (the "Plan") to the executive
officers named in the Summary Compensation Table. The Plan originally provided
for the grant of options to purchase up to 1,500,000 shares of Common Stock to
Employees and Non-Employee Directors (in each case as defined in the Plan). In
February 2000, DVL amended the Plan to increase the number of shares of common
stock available under the Plan by an additional 1,000,000 shares.
The Plan provides that any Employee wishing to exercise an option must give
prior notice to the Board. If the Board determines, in its reasonable
discretion, that such exercise will cause an "ownership change" (as defined in
Section 382 of the Internal Revenue Code of 1986, as amended) in the Company
which would have an adverse effect on the Company's use of its NOLS (as defined
in Section 382) (an "Adverse Ownership Change"), the Board shall deny approval
of the exercise. If the Board determines that such exercise would not cause an
Adverse Ownership change, it shall approve the exercise. The conditions
described in this paragraph are referred to below as the "Section 382
Restrictions".
As of December 31, 1999, options to purchase 1,175,131 shares were
outstanding under the Plan and 324,869 shares were available for issuance upon
exercise of options which may be granted in the future.
24
<PAGE>
<TABLE>
<CAPTION>
Individual Grants Grant Date Value
------------------------------------------------------------- -------------------
Percentage of
Total Options
Number of Securities Granted to Exercise
Underlying Options Employees in Price Expiration Grant Date
Name(1) Granted(1) Fiscal Year(2) ($/Sh)(3) Date Present Value (4)
- ------------------- -------------------- -------------- --------- ---------- -------------------
<S> <C> <C> <C> <C> <C>
Gary Flicker 25,000 41.0% .22 03/26/09 $4,750
</TABLE>
(1) Individual grants to employees become exercisable in whole or in
installments, and at such times, and subject to the fulfillment of any
conditions on exercisability (in addition to the Section 382
Restrictions) as may be determined by the Compensation Committee of the
Board of Directors (the "Committee") at the time of grant. All options
listed in the above table became exercisable upon grant, subject only to
the Section 382 Restrictions. The Committee also has the discretion to
establish provisions relating to the forfeiture of an option in connection
with the employee's termination of employment with the Company, or to grant
any option without a forfeiture provision. Each of the options listed in
the above table provides that the option will be forfeited upon termination
of employment for "cause" (as therein defined). In addition, the options
granted to Mr. Flicker limit the period of exercise after termination under
other circumstances (except death or disability).
(2) Total options granted to employees in fiscal year 1999 was 60,000.
(3) Represents the fair market value of the underlying shares on the date of
grant (determined in accordance with the Plan as the closing price of the
Common Stock on the OTC Bulletin Board).
(4) The Black-Scholes option pricing model was chosen to estimate the grant
date present value of the options set forth in this table. The Company does
not believe that the Black-Scholes model, or any other model, can
accurately determine the value of an option. Accordingly, there is no
assurance that the value, if any, realized by an option holder will be at
or near the value estimated by the Black-Scholes model. Future compensation
resulting from option grants is based solely on the per- formance of the
Company's stock price. The Black-Scholes ratio of .19 was determined using
the following assumptions: a volatility of 85%, an historic average
dividend yield of 0%, a risk free interest rate of 5.23% and a 10 year
projected exercise period.
25
<PAGE>
C. FISCAL YEAR-END OPTION VALUES
-----------------------------
The following table sets forth information as to options held as of the end
of 1999 by the executive officers named in the Summary Compensation Table. No
options were exercised by said officers in 1999. All options held by said
officers at fiscal year-end were immediately exercisable.
Number of Securities Underlying Value of Unexercised
Unexercised Options At Fiscal In The Money Options
Name Year End At Fiscal Year End
---- ------------------------------- --------------------
Alan E. Casnoff 375,000 $1,250
Gary Flicker 100,000 $1,250
D. COMPENSATION OF DIRECTORS
-------------------------
Regular directors who are not officers or employees of the Company
("Non-Employee Directors") presently receive a director's fee of $1,500 per
month, plus $500 for each Audit Committee meeting of the Board of Directors
attended. Directors who are officers or employees of the Company receive no
compensation for their services as directors or attendance at any Board of
Directors or committee meetings. None of the current directors is an officer or
employee. The special purpose director receives no compensation for his service
as a director or attendance at any Board of Directors or committee meetings.
On September 17, 1997, 1998, and 1999, options to purchase 15,000 shares of
Common Stock were granted to each of the three directors (Messrs. Rosenberg,
Smithline and Yudell). The options were granted under the Plan, which provides
for automatic grants of options for 15,000 shares to each incumbent regular
director on each anniversary of the adoption of the Plan. The options vested
immediately and are exercisable for a term of ten (10) years from the date of
grant. The exercise price is equal to the fair market value on the date of
grant.
E. EMPLOYMENT CONTRACTS AND ARRANGEMENTS
-------------------------------------
Gary Flicker entered into an Employment Agreement with the Company,
effective as of April 16, 1997, providing for his employment as Vice President
and Chief Financial Officer for a one-year term at an annual salary of $120,000,
and for the grant of 50,000 stock options under the Plan upon commencement of
employment. Effective January 1, 2000, 1999, and 1998, Mr. Flicker's annual
salary was increased to $136,500, $132,500, and $125,000, respectively. The
Employment Agreement with Mr. Flicker expired on April 16, 1998 and was not
renewed. However, Mr. Flicker continues to be employed by the Company, without
an employment agreement, as Chief Financial Officer and Executive Vice
President.
The Company also entered into an Indemnification Agreement with Mr.
Flicker, effective upon commencement of his employment, contractually obligating
the Company to indemnify him to the fullest extent permitted by applicable law,
in connection with claims arising from their service to, and activities on
behalf of, the Company.
As of August 11, 1998, the Company entered into Indemnification Agreements
which agreements are substantially the same as that entered into with Mr.
Flicker.
26
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
The following table sets forth certain information as of December 31, 2000
regarding the ownership of common stock of the Company by each person who is
known to the management of the Company to have been the beneficial owner of more
than 5% of the outstanding shares of the Company's common stock.
Name and Address of Amount and Nature of Percent of Class*
------------------- -------------------- -----------------
Beneficial Owner Beneficial Ownership
---------------- --------------------
Lawrence J. Cohen 3,351,388 (1)(4) 17.0%
Milton Neustadter 1,973,991 (1)(5) 10.7%
Jay Chazanoff 3,142,948 (2)(6) 16.1%
Ron Jacobs 2,941,860 (2)(7) 15.2%
Stephen Simms 2,941,959 (2)(8) 15.2%
Keith B. Stein 3,039,303 (3)(9) 15.6%
Robert W. Barron 2,772,926 (3)(10) 14.4%
Adam Frieman 2,661,212 (3)(11) 13.9%
Peter Offerman 2,584,567 (3)(12) 13.5%
Joseph Huston 2,555,875 (3)(13) 13.4%
Jan Sirota 2,584,567 (3)(14) 13.5%
Neal Polan 2,584,567 (3)(15) 13.5%
Michael Zarriello 2,584,567 (3)(16) 13.5%
Mark Mahoney 2,572,925 (3)(17) 13.4%
The SIII Associates Limited 3,914,446 (3)(18) 19.3%
Partnership Third Addison
Park Corporation and
Gary L. Shapiro
27
<PAGE>
NOTES TO TABLE
- --------------
In each instance where a named individual is listed as the holder of a
currently exercisable option or Warrant, the shares which may be acquired upon
exercise thereof have been deemed outstanding for the purpose of computing the
percentage owned by such person, but not for the purpose of computing the
percentage owned by any other person, except with respect to options or Warrants
held by other members of a Holder's Holder Group (as defined below). An option
or Warrant is deemed to be currently exercisable if it may be exercised within
60 days. The number of Warrants attributed to each Holder herein is based upon
the number originally issued, and is subject to adjustment to eliminate any
possible dilution, as described in "Changes of Control" below.
(1) As described in detail below in "Changes of Control", such persons are
members of the Pembroke Group (as defined in "Changes of Control" below), and
said persons share dispositive power with each other as to 1,689,629 shares of
the Company's Common Stock issuable to the members of the Pembroke Group upon
the exercise of Warrants by such members, which shares constitute 50.1% of all
of the shares issuable to the members of the Pembroke Group upon the exercise of
Warrants. The address of each member of the Pembroke Group is c/o Lawrence J.
Cohen, 70 East 55th Street, Seventh Floor, New York, NY 10022. The members of
the Pembroke Group explicitly disclaim beneficial ownership of all of the shares
of Common Stock and Warrants (and shares of Common Stock issuable upon exercise
of Warrants) owned by the other members of the Pembroke Group.
(2) As described in detail below in "Changes of Control", such persons are
members of the Millennium Group (as defined in "Changes of Control" below), and
said persons share dispositive power with each other as to 2,172,275 shares of
the Company's Common Stock issuable to the members of the Millennium Group upon
the exercise of Warrants by such members, which shares constitute 50.1% of all
of the shares issuable to the members of the Millennium Group upon the exercise
of Warrants. The address of each member of the Millennium Group is c/o Lawrence
J. Cohen, 70 East 55th Street, Seventh Floor, New York, NY 10022. The members of
the Millennium Group explicitly disclaim beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Millennium Group.
(3) As described in detail below in "Changes of Control", such persons are
members of the Florida Group (as defined in "Changes in Control" below), and
said persons share dispositive power with each other as to 2,498,498 shares of
the Company's Common Stock issuable to the members of the Florida Group upon the
exercise of Warrants (as defined in "Changes in Control" below) by such members,
which shares constitute 50.1% of all of the shares issuable to the members of
the Florida Group upon the exercise of Warrants. The address of each member of
the Florida Group is c/o Keith Stein, 70 East 55th Street, Seventh Floor, New
York, NY 10022.
28
<PAGE>
(4) Based upon a Schedule 13D, as amended, as filed with the Securities and
Exchange Commission (the "Commission") on November 18, 1999, Mr. Cohen
possesses: (i) the sole power to vote 3,104,540 shares of Common Stock, which
includes 2,879,802 shares of Common Stock issuable upon exercise of Warrants;
(ii) shared power to vote 0 shares of Common Stock; (iii) the sole power to
dispose of 1,661,759 shares of Common Stock, which includes 1,437,021 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other member of the Pembroke Group to dispose of 1,689,629 shares of Common
Stock, which includes 1,442,781 shares of Common Stock issuable upon the
exercise of Warrants held by Mr. Cohen and 246,848 shares of Common Stock
issuable upon exercise of Warrants held by the other member of the Pembroke
Group. Mr. Cohen explicitly disclaims beneficial ownership of all of the shares
of Common Stock and Warrants (and shares of Common Stock issuable upon exercise
of Warrants) owned by the other member of the Pembroke Group.
(5) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Neustadter possesses: (i) the sole power to vote 531,210
shares of Common Stock, which includes 492,710 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 284,362 shares of Common Stock, which
includes 245,862 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other member of the Pembroke Group to dispose of
1,689,629 shares of Common Stock, which includes 246,848 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Neustadter and 1,442,781
shares of Common Stock issuable upon exercise of Warrants held by the other
member of the Pembroke Group. Mr. Neustadter explicitly disclaims beneficial
ownership of all of the shares of Common Stock and Warrants (and shares of
Common Stock issuable upon exercise of Warrants) owned by the other member of
the Pembroke Group.
(6) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Chazanoff possesses: (i) the sole power to vote 1,811,156
shares of Common Stock, which includes 1,677,610 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 970,673 shares of Common Stock, which
includes 837,127 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Millennium Group to dispose of
2,172,275 shares of Common Stock, which includes 840,483 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Chazanoff and 1,331,792
shares of Common Stock issuable upon exercise of Warrants held by the other
members of the Millennium Group. Mr. Chazanoff explicitly disclaims beneficial
ownership of all of the shares of Common Stock and Warrants (and shares of
Common Stock issuable upon exercise of Warrants) owned by the other members of
the Millennium Group.
(7) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Jacobs possesses: (i) the sole power to vote 1,435,481
shares of Common Stock, which includes 1,329,134 shares of Common Stock
issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 769,585 shares of Common
Stock, which includes 1,329,134 shares of Common Stock issuable upon exercise
of Warrants; and (iv) shared power with the other members of the Millennium
Group to dispose of 2,172,275 shares of Common Stock, which includes 665,896
shares of Common Stock issuable upon the exercise of Warrants held by Mr.
Jacobs and 1,506,379 shares of Common Stock issuable upon exercise of
Warrants held by the other members of the Millennium Group. Mr. Jacobs
29
<PAGE>
explicitly disclaims beneficial ownership of all of the shares of Common Stock
and Warrants (and shares of Common Stock issuable upon exercise of Warrants)
owned by the other members of the Millennium Group.
(8) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Simms possesses: (i) the sole power to vote 1,435,480
shares of Common Stock, which includes 1,329,134 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 769,584 shares of Common Stock, which
includes 663,238 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Millennium Group to dispose of
2,172,275 shares of Common Stock, which includes 665,896 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Simms and 1,506,379 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Millennium Group. Mr. Simms explicitly disclaims beneficial ownership of all of
the shares of Common Stock and Warrants (and shares of Common Stock issuable
upon exercise of Warrants) owned by the other members of the Millennium Group.
(9) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Stein possesses: (i) the sole power to vote 1,006,963
shares of Common Stock, which includes 930,456 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 540,805 shares of Common Stock, which
includes 464,298 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 466,158 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Stein and 2,032,340 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group. Mr. Stein explicitly disclaims beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Florida Group.
(10) To the Company's knowledge, Mr. Barron possesses: (i) the sole power to
vote 512,687 shares of Common Stock, which includes 475,567 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 274,428 shares of Common Stock,
which includes 237,308 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 2,498,498 shares of Common Stock, which includes 238,259 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Barron and
2,260,239 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
30
<PAGE>
(11) To the Company's knowledge, Mr. Frieman possesses: (i) the sole power to
vote 314,391 shares of Common Stock, which includes 302,749 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 162,714 shares of Common Stock,
which includes 151,072 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 2,498,498 shares of Common Stock, which includes 151,677 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Frieman and
2,346,821 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(12) To the Company's knowledge, Mr. Offerman possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Offerman and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(13) To the Company's knowledge, Mr. Huston possesses: (i) the sole power to
vote 107,192 shares of Common Stock, which includes 99,431 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 57,377 shares of Common Stock,
which includes 49,616 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 49,815 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Huston and 2,448,683 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(14) To the Company's knowledge, Mr. Sirota possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Sirota and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(15) To the Company's knowledge, Mr. Polan possesses: (i) the sole power to vote
160,795 shares of Common Stock, which includes 149,153 shares of Common Stock
issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of Common
Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock, which
includes 74,427 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Polan and 2,423,772 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group.
31
<PAGE>
(16) To the Company's knowledge, Mr. Zarriello possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Zarriello and 2,423,772
shares of Common Stock issuable upon exercise of Warrants held by the other
members of the Florida Group.
(17) To the Company's knowledge, Mr. Mahoney possesses: (i) the sole power to
vote 149,153 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 74,427 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Mahoney and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(18) To the Company's knowledge, the SIII Associates Limited Partnership
possesses: (i) the sole power to vote 2,634,908 shares of Common Stock, which
includes 2,433,054 shares of Common Stock issuable upon exercise of Warrants;
(ii) shared power to vote 0 shares of Common Stock; (iii) the sole power to
dispose of 1,415,948 shares of Common Stock, which includes 1,214,094 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other members of the Florida Group to dispose of 2,498,498 shares of Common
Stock, which includes 1,218,960 shares of Common Stock issuable upon the
exercise of Warrants held by the SIII Associates Limited Partnership and
1,279,538 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group. Third Addison Park Corporation is the
general partner of the SIII Associates Limited Partnership, and Gary L. Shapiro
is the chief executive officer of Third Addison Park Corporation.
32
<PAGE>
B. SECURITY OWNERSHIP OF MANAGEMENT
--------------------------------
The following table sets forth certain information as of December 31,
1999 regarding ownership of Common Stock by (i) each director and nominee for
director, (ii) each of the executive officers named in the Summary Compensation
Table contained herein, and (iii) all executive officers and directors as a
group (7 persons). Unless otherwise indicated, each stockholder listed below has
sole voting and investment power with respect to the shares set forth opposite
such stockholder's name. All persons listed below have an address c/o the
Company's principal executive offices in New York.
Name of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership of Class
- ---------------- -------------------- --------
Alan E. Casnoff 585,000 (2) 3.5%
Gary Flicker 100,000 (3) **
Myron Rosenberg 233,854 (4) 1.3%
Frederick E. Smithline 102,550 (5) **
Keith B. Stein 3,039,303 (6) 15.6%
Allen Yudell 60,000 (7) **
All current directors
and executive officers
as a group (6 persons) 4,120,707 (8) 20.5%
* In each instance where a named individual is listed as the holder of
a currently exercisable option or warrant, the shares which may be acquired upon
exercise thereof have been deemed outstanding for the purpose of computing the
percentage owned by such person, but not for the purpose of computing the
percentage owned by any other person, except the group referred to in note 9. An
option or warrant is deemed to be currently exercisable if it may be exercised
within 60 days.
** Less than 1%
(1) Messrs. Casnoff and Flicker are executive officers of the Company.
Messrs. Rosenberg, Smithline and Yudell are the regular directors, and Mr.
Stein is the special purpose director.
(2) Excludes 480 shares held by Mr. Casnoff's adult son, as to which shares
Mr. Casnoff disclaims beneficial ownership. Includes 26,000 shares owned by a
corporation partially owned and controlled by Mr. Casnoff, and 375,000 shares
which may be acquired upon the exercise of currently exercisable options.
(3) Represents 100,000 shares which may be acquired upon the exercise of
currently exercisable options.
(4) Includes 4,300 shares held by Mr. Rosenberg's wife, as to which shares
he disclaims beneficial ownership, and 45,000 shares which may be acquired upon
the exercise of currently exercisable options.
(5) Includes 550 shares held by Mr. Smithline and his brother as tenants-
in-common and 6,000 shares held by Mr. Smithline's wife, as to which 6,000
shares Mr. Smithline disclaims beneficial ownership. Also includes 45,000 shares
which may be acquired upon the exercise of currently exercisable options.
33
<PAGE>
(6) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Stein possesses: (i) the sole power to vote 1,006,963
shares of Common Stock, which includes 930,456 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 540,805 shares of Common Stock, which
includes 464,298 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 466,158 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Stein and 2,032,340 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group. Mr. Stein explicitly disclaims beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Florida Group.
(7) Represents 60,000 shares which may be acquired upon the exercise of
currently exercisable options.
(8) Number of shares and percentage owned includes 4,020,447 shares which
may be acquired through exercise of currently exercisable options and Warrants
held by certain of the named persons. The number of outstanding shares for the
purpose of computation of percentage of ownership by the group includes such
shares.
C. CHANGES IN CONTROL
------------------
In connection with the Original Loan by NPM in September 1996, the
Company issued to, or for the benefit of, the members of the Florida Group (who
are affiliates of NPM) and the Pembroke and Millennium Groups (who are
affiliates of NPM and NPO, Warrants to purchase such number of shares of Common
Stock as, when added to the 1,000,000 shares issued to the members of the Holder
Groups contemporaneously with the Warrants, represent rights to acquire up to
49% of the outstanding Common Stock on a fully diluted basis. In accordance with
their terms, the Warrants were originally exercisable commencing January 1999
and expire after December 31, 2007. Pursuant to a stockholders agreement (the
"Agreement") entered into among each of the parties that acquired the Warrants
(each, a "Holder"), such parties agreed, among other things, that the Warrants
could not be exercised until September 27, 1999. If and at such time as any or
all of the Warrants are exercised, it is possible that a "change in control" of
the Company, within the meaning of applicable rules and regulations under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), may be
deemed to occur, depending upon the extent of exercise.
Pursuant to the Agreement, the Holders have agreed to certain
limitations on the disposition of Common Stock and Warrants owned or held by
them, which are described below. The Holders presently have rights of first
refusal/first offer with respect to the disposition of shares of Common Stock
and Warrants held by other Holders (unless the disposition is made to certain
specified affiliates of a Holder). Subject to the above-mentioned rights of
first refusal/first offer and certain other limitations, (i) through September
27, 1999, a Holder may dispose of up to one-half (or more subject to the consent
of a majority of the Holders in such Holder's Holder Group) of his shares of
Common Stock and (ii) after September 27, 1999, a Holder may
34
<PAGE>
dispose of all of his or its shares of Common Stock (excluding shares issuable
upon exercise of Warrants). A Holder may not dispose of his Warrants (except to
another Holder or certain specified affiliates of a Holder) or convert, exercise
or exchange any of such Warrants until after September 27, 1999. After September
27, 1999, subject to the above-mentioned rights of first refusal/first offer and
certain other limitations, a Holder may dispose of up to an aggregate of 49.9%
(or more, subject to the consent of a majority of the other Holders in such
Holder's Holder Group) of his shares of Common Stock issuable upon exercise of
his Warrants after giving effect to conversion, exercise or exchange of such
Warrants. The "Holder Groups" consist of the "Millennium Group", the "Pembroke
Group" and the "Florida Group". The members of the Millennium Group are Jay
Chazanoff, Ron Jacobs and Stephen Simms. The members of the Pembroke Group are
Lawrence J. Cohen and Milton Neustadter. The members of the Florida Group are
Stephen L. Gurba, Peter Offermann, Joseph Huston, Jan Sirota, Neal Polan,
Michael Zarriello, Adam Frieman, Mark Mahoney, Keith B. Stein, Robert W. Barron
and Gary Shapiro (through his holdings in The SIII Associates Limited
Partnership and Third Addison Park Corporation). For further information
regarding the foregoing, see Certain Relationships and "Related Transactions"
below.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NPM AND NPO TRANSACTIONS
------------------------
The Company consummated a multi-faceted transaction on September 27, 1996,
pursuant to which: (i) certain existing indebtedness of the Company was acquired
by NPM, under an Amended and Restated Loan Agreement dated as of March 27, 1996
pursuant to which the Company became indebted to NPM in the original principal
amount of $8,382,000; (ii) 1,000,000 shares of Common Stock (representing 6.0%
of the Common Stock now outstanding) were issued to, and purchased by, the
Holders (see Item 12(C) above); (iii) the Certificate of Incorporation of the
Company was amended to permit the issuance of warrants, to limit change of
ownership of capital stock of the Company and to designate Preferred Stock
together with rights, powers and preferences (including the appointment of a
special purpose director); (iv) Warrants to purchase additional shares of Common
Stock (which, when added to the 1,000,000 shares acquired, represent rights to
acquire up to 49% of the outstanding Common Stock, on a fully diluted basis)
were issued to, or for the benefit of, the Holders; (v) 100 shares of Preferred
Stock were issued to an affiliate of NPM; (vi) most, but not all, convertible
securities and warrants existing and outstanding prior to the transaction were
converted into Common Stock; and (vii) the Company continued the engagement of
NPO to perform administrative and advisory services relating to the assets of
the Company and its affiliated partnerships, pursuant to an Asset Servicing
Agreement dated March 27, 1996.
In March and April 1997, NPM advanced the Company an additional $200,000.
In addition, from January 1998 through May 1999, NPM advanced additional amounts
aggregating $370,000 to DVL. These advances were not required under the Original
Loan Documents. In May 1999, the Company paid all remaining outstanding amounts
due on the loan to NPM. As of March 15, 2000, the Company had accrued service
fees to NPO in the amount of approximately $1,467,000.
35
<PAGE>
The members of the Millenium Group, the Pembroke Group, and the Florida
Group are affiliates of NPM, and therefore have a material interest in the
transactions between the Company and NPM, described in the preceding paragraphs.
Keith B. Stein, the special purpose director of the Company is an affiliate of
NPM, and therefore has a material interest in said transactions. The members of
the Millenium Group and the Pembroke Group are affiliates of NPO.
In June 1998, the Company entered into a Management Services Agreement with
a limited partnership where certain of its partners are affiliates of NPO, to
render certain services. The agreement shall continue until the date that all
these partnerships' assets are sold or at any time prior with 30 days notice by
either party. As compensation, the Company earns an aggregate fee equal to (a) a
monthly fee of $5,000 plus (b) after all the partners of the partnership have
earned a 20% internal rate of return, compounded quarterly, on their capital
contributions an amount of cash equal to 25% of the profits, as defined in the
agreement. For 1999 and 1998, the Company received management fees equal to
$480,000 and $35,000, respectively.
In addition, the Company entered into a service agreement with another
limited partnership whose general partner is an affiliate of NPO, to render
certain accounting and administrative services. As compensation, the Company
receives a monthly fee of $3,000 and expense reimbursements of $1,000 per month.
For 1999 and 1998, the Company received fees of $36,000, per annum.
Also, the Company entered into a property management agreement with an
entity that is part of the Opportunity Fund, pursuant to which the Company
provides property management services in exchange for fees equal to 3% of rent
collections.
In November, 1999, the Company entered into a management service agreement
with an entity whose partners are affiliates of NPO, to render certain
accounting and administrative services. As compensation, the Company receives a
monthly fee of $2,000, a monthly deferred fee of $6,500 which is payable upon
certain capital events and an annual incentive fee, if certain levels of
profitability occurs. For 1999, the Company was paid $4,000 and accrued fees of
$13,000.
Opportunity Fund
----------------
The Company, Blackacre, PNM, and Pem Mil are parties to the Opportunity
Agreement. The Opportunity Agreement has a term of three years, subject to
earlier termination if certain maximum capital contributions have been reached.
The Opportunity Agreement provides for an arrangement (the "Opportunity Fund")
whereunder, with respect to certain transactions involving the acquisition of
limited partnership interests of, or mortgage loans to, Affiliated Limited
Partnerships in which the Company is general partner, or which the Company
already owns, if the Company, due to financial constraints, is unable to pursue
such business opportunity with its own funds from its reserves or available from
operations, and without financing from a third party or issuing equity (each
such opportunity, an "Opportunity"), then the Opportunity Fund has a right of
first refusal to finance such Opportunity.
36
<PAGE>
The Opportunity Fund is expected to pursue each Opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by BCG and the NPO Affiliates. The Company will receive up to 20%
of the profits from an Opportunity after BCG and the NPO Affiliates receive the
return of their investment plus preferred returns ranging from 12% to 20%. As
part of its obligation under the Opportunity Agreement, certain employees of DVL
also perform certain services on behalf of the Opportunity Fund. Pem Mil is to
serve as managing member of each special purpose limited liability company
formed in connection with the Opportunity Fund, for which it receives out of the
proceeds generated from Opportunities, a maximum aggregate annual fee based upon
capital invested by the members, in consideration for management services.
The transactions in which the Opportunity Fund may engage include, for
example, acquisition of partnership interests from existing limited partners of
Affiliated Limited Partnerships, and investment in certain properties owned by
the Company or such partnerships, where capital may be required to enhance value
but is not currently available to the Company. There can be no assurance that
the Opportunity Fund's activities will generate profit distributions to the
Company.
As of March 15, 2000, the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships, acquired limited partnership units in three
Affiliated Limited Partnerships, and acquired a leasehold interest of a tenant
of an Affiliated Limited Partnership. In addition, during 1999 the Opportunity
Fund acquired a property of an Affiliated Limited Partnership. Currently, DVL
has not realized any monies from these investments.
37
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
(a) The following documents are filed as a part of this report:
(1) The Financial Statements required by Item 8 of this report are listed
below:
Item 8
Page No.
--------
Independent Auditors' Report F- 1
Consolidated Balance Sheets -
December 31, 1999 and 1998 F- 2
Consolidated Statements of Operations
for each of the years in the three year period
ended December 31, 1999 F- 4
Consolidated Statements of Shareholders'
Equity for each of the years in the three
year period ended December 31, 1999 F- 6
Consolidated Statements of Cash Flows for
each of the years in the three year period
ended December 31, 1999 F- 7
Notes to Consolidated Financial Statements F- 10
(2) The Financial Statement Schedules required by Item 8 of this report
are listed below:
Schedule III - Real Estate and Accumulated
Depreciation
Other schedules are omitted because of the absence of conditions under which
they are required or because the required information is given in the financial
statements or notes thereto.
(3) INDEX OF EXHIBITS
The following is a list of the Exhibits filed as a part of this report
(those marked * are filed herewith):
38
<PAGE>
3. ARTICLES OF INCORPORATION AND BY-LAWS.
(a) DVL's Certificate of Incorporation, filed March 28, 1977 (Incorpo-
rated by reference to Exhibit 6(d) to DVL's Form S-1 Registra- tion
Statement No. 2-58847 dated April 28, l977.)
(b) DVL's Certificate of Amendment to Certificate of Incorporation,
filed July 13, 1977 (Incorporated by reference to Exhibit 6(e) to
Amendment No. 1. to DVL's Form S-1 Registration Statement No.
2-58847 dated August 25, l977.)
(c) DVL's Certificate of Amendment to Certificate of Incorporation, filed
August 3, 1982. (Incorporated by reference to Exhibit 3(c) to DVL's
Form 10-K for the fiscal year ended December 31, 1982.)
(d) DVL's Certificate of Amendment to Certificate of Incorporation, filed
May 27, 1983. (Incorporated by reference to Exhibit 3(d) to DVL's Form
10-K for the fiscal year ended December 31, 1983.)
(e) DVL's Certificate of Amendment to Certificate of Incorporation, filed
July 24, 1987. (Incorporated by reference to Exhibit 3(e) to DVL's
Form 10-K for the fiscal year ended December 31, 1987).
(f) DVL's Certificate of Amendment to Certificate of Incorporation, filed
December 20, 1993. (Incorporated by reference to DVL's Form 10-K for
fiscal year ended December 31, 1993.)
(g) DVL's Certificate of Amendment to Certificate of Incorporation, filed
December 4, 1995 (Incorporated by reference to DVL's proxy statement
dated October 13, 1995 - Exhibit A).
(h) DVL's Certificate of Amendment to Certificate of Incorporation filed
September 17, 1996. (Incorporated by reference to DVL's DVL's proxy
statement dated July 31, 1996 - Exhibit I.)
(i) DVL's Certificate of Amendment of Certificate of Incorporation
filed February 7, 2000.
(j) DVL's By-Laws, as in full force and effect at all times since March
28, l977. (Incorporated by reference to Exhibit 3(c) to DVL's Form
10-K for the fiscal year ended December 31, 1980.)
(k) DVL's First Amendment to By-Laws dated as of January 1, 1994.
(Incorporated by reference to Exhibit 3(d) to DVL's Form 10-K for the
fiscal year ended December 31, 1995.)
(l) DVL's Second Amendment to By-Laws, effective September 17, 1996
(Incorporated by reference to DVL's proxy statement dated July 31,
1996 - Exhibit J.)
(m) DVL's Third Amendment to the By-Laws, effective February 1, 2000.
10. MATERIAL CONTRACTS.
10.1 Voting Trust Agreement between R&M Holding Company and Alan Casnoff
dated May 15, 1991. (Incorporated by reference to Exhibit 10(a)(18) to
DVL's Form 10-K for the fiscal year ended December 31, 1991.)
39
<PAGE>
10.2 Stipulation of Settlement of IN RE KENBEE LIMITED PARTNERSHIP
LITIGATION dated August 12, 1992. (Incorporated by reference to
Exhibit 10(b)(25) to DVL's Form 10-K for the fiscal year ended
December 31, 1995.)
10.3 Stipulation of Partial Settlement and Order in IN RE DEL-VAL FINANCIAL
CORPORATION SECURITIES LITIGATION Master File #MDL872. (Incorporated
by reference to Exhibit 10(b)(28) to DVL's Form 10-K for the fiscal
year ended December 31, 1995.)
10.4 Amended and Restated Loan Agreement between DVL and NPM, dated as of
March 27, 1996. (Incorporated by reference to Exhibit 10(b)(33) to
DVL's Form 10-K for the fiscal year ended December 31, 1995.)
10.5 Asset Servicing Agreement between DVL, PSC, Kenbee Realty and NPO
dated as of March 27, 1996. (Incorporated by reference to Exhibit
10(b)(34) to DVL's Form 10-K for the fiscal year ended December 31,
1995.)
10.6 Third Voting Trust Extension between R&M Holding Company and Alan
Casnoff dated March 7, 1996. (Incorporated by reference to Exhibit
10(b)(35) to DVL's Form 10-K for the fiscal year ended December 31,
1995.)
10.7 Amended and Restated Loan Agreement between DVL, and NPM, dated dated
March 27, 1996 (Incorporated by reference to Proxy State- ment dated
July 31, 1996 - Exhibit A.)
10.8 Amended and Restated Negotiable Promissory Note from DVL to NPM
(Incorporated by reference to DVL's Proxy Statement dated July July
31, 1996 - Exhibit B.)
10.9 Asset Servicing Agreement between DVL and NPO (Incorporated by
Reference to DVL's Proxy Statement dated July 31, 1996 - Exhibit C.)
10.10 Stock Purchase Agreement between DVL and NPM (Incorporated by
Reference to DVL's Proxy Statement dated July 31, 1996 - Exhibit D.)
10.11 Securities Purchase Agreement between DVL and NPM (Incorporated by
Reference to DVL's Proxy Statement dated July 31, 1996 - Exhibit E.)
10.12 Common Stock Warrant issued by DVL to NPO (Incorporated by Reference
to DVL's Proxy Statement dated July 31, 1996 - Exhibit F.)
10.13 DVL 1996 Stock Option Plan (Incorporated by Reference to DVL's Proxy
Statement dated July 31, 1996 - Exhibit K.)
10.14 Amendment to DVL 1996 Stock Option Plan effective February 1, 2000.
10.15 Employment Agreement and Indemnification Agreement comprising Exhibit
A thereto, between DVL and Gary Flicker, dated April 16, 1997
(effective as of said date) (Incorporated by reference to to Exhibit
10.2 to DVL's Form 10-Q for the quarter ended June 30, 1997).
40
<PAGE>
10.16 Amendment dated as a July 10, 1996, to Amended and Restated Loan
Agreement dated as of March 27, 1996 between DVL and NPM. (In-
corporated by reference to Exhibit 10.3.1 to DVL's Form 10-Q for the
quarter ended June 30, 1997.)
10.17 Second Amendment dated as of September 27, 1996, to Amended and
Restated Loan Agreement dated as of March 27, 1996 between DVL and
NPM. (Incorporated by reference to Exhibit 10.3.2 to DVL's Form 10-Q
for the quarter ended June 30, 1997.)
10.18 Third Amendment dated as of March 6, 1997, to Amended and Restated
Loan Agreement dated as of March 27, 1996 between DVL and NPM and
Promissory Note dated as of March 6, 1997, comprising Exhibit A-1
thereto. (Incorporated by reference to Exhibit 10.3.3 to DVL's Form
10-Q for the quarter ended June 30, 1997.)
10.19 Fourth Amendment dated as of October 20, 1997, among DVL, Black- acre,
NPM and NPO, to Amended and Restated Loan Agreement, dated as of March
27, 1997, as amended, between DVL and NPM. (Incorpo- rated by
reference to Exhibit 10.1 to DVL's Form 10-Q for the quarter ended
September 30, 1997.)
10.20 Promissory Note dated as of October 20, 1997, in the original
principal amount of $1,760,000 from DVL to Blackacre. (Incorpo- rated
by reference to Exhibit 10.2 to DVL's Form 10-Q for the quarter ended
September 30, 1997.)
10.21 Subordination Agreement, dated as of October 20, 1997, among DVL,
Blackacre, NPM and NPO. (Incorporated by reference to Exhibit
10.3 to DVL's Form 10-Q for the quarter ended September 30, 1997).
10.22 Agreement Among Members dated April 10, 1998, by and among Black-
acre, PNM, Pem Mil, and DVL.
10.23 Management Services Agreement dated June 1, 1998, by and between DVL
and PBD Holdings, LP ("PBD").
10.24 Waiver of Event of Default and Agreement regarding the Demand and
Payment of Fees dated March 1999 by NPO.
10.25 Waiver of Event of Default and Agreement regarding the Demand and
Payment of Fees dated March 2000 by NPO.
11. Schedule of Computation of Net Earnings Per Share.
15. SUBSIDIARIES OF DVL.
The Company's only significant subsidiary is Professional Service
Corporation (a Delaware corporation).
*27. FINANCIAL DATA SCHEDULE
(b) No reports on Form 8-K were filed during the quarter ended December 31,
1999.
41
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, DVL has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DVL, INC.
Date: March 30, 2000 By:
---------------------------
Alan E. Casnoff, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of DVL and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
- ----------------------
Alan E. Casnoff President and Chief Executive March 30, 2000
Officer (Principal Executive
Officer)
- ----------------------
Gary Flicker Executive Vice President and March 30, 2000
Chief Financial Officer
(Principal Financial and
Accounting Officer)
- ----------------------
Frederick E. Smithline Director March 30, 2000
- ----------------------
Allen Yudell Director March 30, 2000
- ----------------------
Myron Rosenberg Director March 30, 2000
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, DVL has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DVL, INC.
Date: March 30, 2000 By: /s/ Alan E. Casnoff
---------------------------
Alan E. Casnoff, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of DVL and in
the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Alan E. Casnoff
- --------------------------
Alan E. Casnoff President and Chief Executive March 30, 2000
Officer (Principal Executive
Officer)
/s/ Gary Flicker
- --------------------------
Gary Flicker Executive Vice President and March 30, 2000
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ Frederick E. Smithline
- --------------------------
Frederick E. Smithline Director March 30, 2000
/s/ Allen Yudell
- --------------------------
Allen Yudell Director March 30, 2000
/s/ Myron Rosenberg
- --------------------------
Myron Rosenberg Director March 30, 2000
43
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
Consolidated Financial Statements of DVL, Inc.
and Subsidiaries and Independent Auditors Report
Page
----
Independent Auditors' Report F- 1
Consolidated Balance Sheets-December 31, 1999 and 1998 F- 2
Consolidated Statements of Operations for each of the
years in the three year period ended December 31, 1999 F- 4
Consolidated Statements of Shareholders' Equity
for each of the years in the three year period
ended December 31, 1999 F- 6
Consolidated Statements of Cash Flows for each of the
years in the three year period ended December 31, 1999 F- 7
Notes to Consolidated Financial Statements F- 10
Schedule III - Real Estate and Accumulated Depreciation
<PAGE>
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
DVL, Inc.
New York, New York
We have audited the accompanying consolidated balance sheets of DVL, Inc.
and subsidiaries as of December 31, 1999 and 1998, and the related consolidated
statements of operations, shareholders' equity, and cash flows for each of the
years in the three year period ended December 31, 1999. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements enumerated above present fairly,
in all material respects, the consolidated financial position of DVL, Inc. and
subsidiaries as at December 31, 1999 and 1998, and the consolidated results of
their operations and their consolidated cash flows for each of the years in the
three-year period ended December 31, 1999 in conformity with generally accepted
accounting principles.
As described in Note 3, the Company's presentation of certain mortgages
receivable from Affiliated Limited Partnerships and related underlying mortgages
payable in the 1999 consolidated financial statements has been changed to
recognize such items without offsetting assets and liabilities and without
netting corresponding income and expense amounts. The prior comparative 1998 and
1997 consolidated financial statements have been revised to reflect the
application of this change on those statements.
RICHARD A. EISNER & COMPANY, LLP
New York, New York
March 13, 2000
F-1
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
December 31,
---------------------
1999 1998
ASSETS ---------- ---------
------
Loans receivable (including amounts maturing after one
year)
Affiliates:
Mortgages due from affiliated partnerships (Note 3) $ 48,038 $ 64,967
Unearned interest (5,810) (7,944)
-------- --------
Net mortgage loans receivable from affiliated
partnerships 42,228 57,023
Others:
Non-performing loans collateralized by limited
partnership interests 764 894
Due from affiliated partnerships 48 431
-------- --------
Total loans receivable 43,040 58,348
Allowance for loan losses 6,697 8,435
-------- --------
Net loans receivable 36,343 49,913
Cash (including restricted cash of $81 and $77 for 1999
and 1998, respectively) 1,270 392
Investments
Real estate at cost (net of allowance for loss of $0
and $208 for 1999 and 1998, respectively) 494 704
Real estate lease interests 1,351 1,489
Affiliated limited partnerships (net of allowance for
loss of $927 and $1,051, respectively) 1,326 1,449
Other investments (net of allowance for loss of $400
for 1999 and 1998) 648 648
Prepaid financing and other assets 426 1,040
-------- --------
Total assets $ 41,858 $ 55,635
======== ========
See notes to consolidated financial statements.
F-2
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands) except share data
December 31,
---------------------
1999 1998
--------- --------
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Underlying mortgages payable (Note 3) $ 27,692 $ 38,644
Long-term debt - NPM Capital LLC --- 3,921
Long-term debt - Blackacre Bridge Capital, LLC 1,868 1,207
Long-term debt - Other 285 663
Notes payable - litigation settlement 3,003 4,146
Asset Service Fee Payable - NPO 1,467 1,714
Accounts payable, security deposits and accrued
liabilities 475 565
-------- --------
Total liabilities 34,790 50,860
-------- --------
Commitments and contingencies
Shareholders' equity:
Preferred stock $10.00 par value, authorized - 100
shares, issued - 100 shares at December 31, 1999
and 1998 1 1
Common stock, $.01 par value, authorized - 40,000,000
shares, issued - 16,560,450 shares at December 31,
1999 and 1998 166 166
Additional paid-in capital 95,288 95,288
Deficit (88,387) (90,680)
-------- --------
Total shareholders' equity 7,068 4,775
-------- --------
Total liabilities and shareholders' equity $ 41,858 $ 55,635
======== ========
See notes to consolidated financial statements.
F-3
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Income from affiliates:
Interest on mortgage loans (Note 3) $ 3,549 $ 4,523 $ 4,912
Gain on satisfaction of mortgage loans 1,639 173 -
Partnership management fees 405 417 411
Transaction and other fees from
partnerships 502 497 435
Distributions from investments 265 148 360
Rent and other income 15 36 65
Income from others:
Rent income 532 330 -
Management Fees 533 59 -
Distributions from investments 34 31 -
Other income and interest 261 108 70
---------- ---------- ----------
7,735 6,322 6,253
---------- ---------- ----------
Operating expenses:
Interest on underlying mortgages (Note 3) 2,640 3,445 4,012
Recovery of provision for losses (48) (153) -
General and administrative 1,352 1,142 1,459
Asset Servicing Fee - NPO Management LLC 600 600 600
Legal and professional fees 402 157 184
Interest expense
NPM Capital LLC 665 780 849
Blackacre Bridge Capital, LLC 245 171 -
Litigation Settlement Notes 481 584 1,010
NPO 281 194 90
Others 91 160 464
---------- ---------- ----------
6,709 7,080 8,668
---------- ---------- ----------
Operating income (loss) before extra-
ordinary gain 1,026 (758) (2,415)
Extraordinary gain on the settlements
of indebtedness 1,267 202 4,011
---------- --------- ----------
Net income (loss) $ 2,293 $ (556) $ 1,596
========== ========== ==========
(continued)
F-4
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except per share data)
(continued)
Year Ended December 31,
----------------------------------
1999 1998 1997
---------- ---------- ----------
Basic earnings (loss) per share:
Income(loss) before extraordinary gain $ .06 $ (.04) $ (.15)
Extraordinary gain .08 .01 .25
---------- ---------- ----------
Net income (loss) $ .14 $ (.03) $ .10
========== ========== ==========
Diluted earnings (loss) per share:
Income (loss) before extraordinary gain $ .02 $ (.04) $ (.15)
Extraordinary gain .02 .01 .25
---------- ---------- ----------
Net income (loss) $ .04 $ (.03) $ .10
========== ========== ==========
Weighted average shares outstanding -
basic 16,560,450 16,508,329 15,788,535
Effect of dilutive securities 50,422,788 -- --
---------- ---------- ----------
Weighted average shares outstanding -
diluted 66,983,238 16,508,329 15,788,535
========== ========== ==========
See notes to consolidated financial statements.
F-5
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(in thousands except per share data)
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
--------------- -------------------- paid-in
Shares Amount Shares Amount capital Deficit Total
-------- ------ ----------- -------- ---------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance-January 1, 1997 100 $ 1 15,479,450 $ 155 $95,146 $ (91,720) $ 3,582
Issuance of common stock in satisfaction of certain claims - - 550,000 6 44 - 50
Issuance of common stock in connection with the loan from
NPM Capital LLC - - 150,000 1 21 - 22
Issuance of common stock in connection with the loan from
Blackacre Bridge Capital, LLC - - 325,000 3 26 - 29
Retirement of Shares of Common Stock - - (272,000) (3) 3 - -
Net income - - - - - 1,596 1,596
------- ----- ---------- -------- ------- -------- -------
Balance-December 31, 1997 100 1 16,232,450 162 95,240 (90,124) 5,279
Issuance of common stock in connection with the loan from
Blackacre Bridge, LLC - - 328,000 4 48 - 52
Net loss - - - - - (556) (556)
------- ----- ---------- -------- ------- -------- -------
Balance-December 31, 1998 100 1 16,560,450 166 95,288 (90,680) 4,775
Net income - - - - - 2,293 2,293
------- ----- ---------- -------- ------- -------- -------
Balance-December 31, 1999 100 $ 1 16,560,450 $ 166 $95,288 $(88,387) $ 7,068
======= ===== ========== ======== ======= ======== =======
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Income (loss) before extraordinary gain $ 1,026 $ (758) $ (2,415)
Adjustments to reconcile net income (loss)
before extraordinary gains to net cash provided
by (used in) operating activities
Recovery of provision for losses (48) (153) -
Accrued interest added to indebtedness 247 460 394
Gain on satisfactions of mortgage loans (1,639) (173) -
Amortization of unearned interest on loans
receivable (67) 63 (57)
Amortization of real estate lease interests 138 132 -
Amortization of debt discount 234 105 154
Amortization of deferred charges - - 34
Stock issued for services and settlements - - 101
Imputed interest on notes and debentures 481 584 1,010
Amortization of deferred credits - (296) (25)
Net decrease (increase) in other assets 614 (39) (27)
Net (decrease) in accounts payable
and accrued liabilities (90) (376) (555)
Net (decrease) increase in asset service
fee payable - NPO (247) 789 553
Net decrease (increase) in due from affiliated
partnerships 383 3 (28)
-------- -------- --------
Net cash provided by (used in) operating
activities 1,032 341 (861)
-------- -------- --------
Cash flows from investing activities:
Collections on loans receivable 14,851 9,393 11,789
Net decrease (increase) in affiliated limited
partnership interests and other investments 123 (23) -
Net reductions in real estate lease interests - - 344
Distributions received on affiliated limited
partnership interests and other investments - - 779
Proceeds on sale of real estate 300 - -
-------- -------- --------
Net cash provided by investing activities $ 15,274 $ 9,370 $ 12,912
-------- -------- --------
(continued)
F-7
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(continued)
Year Ended December 31,
------------------------------
1999 1998 1997
-------- -------- --------
Cash flows from financing activities:
Proceeds from new borrowings $ 588 $ 600 $ 3,522
Repayment of indebtedness (4,707) (3,457) (8,610)
Payments on underlying mortgages payable (10,952) (6,662) (5,695)
Payments related to debt tender offer (357) (296) (678)
Payments on guaranteed indebtedness - - (115)
Payments on subordinated debentures - - (334)
-------- -------- --------
Net cash (used in) financing activities (15,428) (9,815) (11,910)
-------- -------- --------
Net increase (decrease) in cash 878 (104) 141
Cash, beginning of year 392 496 355
-------- -------- --------
Cash, end of year $ 1,270 $ 392 $ 496
======== ======== ========
Supplemental disclosure of cash flow
information:
Cash paid during the year for interest $ 2,382 $ 3,396 $ 4,096
======== ======== ========
(continued)
F-8
<PAGE>
DVL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(continued)
Year Ended December 31,
---------------------------
1999 1998 1997
------- ------- -------
Supplemental disclosure of non-cash investing
and financing activities:
Net reduction in indebtedness pursuant
to creditor settlements $ - $ - $ 1,104
======= ======= =======
Net reduction of Notes Payable - Debt
Tender Offer $ 1,267 $ 202 $ 2,907
======= ======= =======
Reduction in accrued liabilities upon
issuance of Common Stock $ - $ 52 $ 22
======= ======= =======
Common stock issued in connection with a
creditor settlement $ - $ - $ 50
======= ======= =======
Real estate asset acquired in satisfaction
of mortgage receivable $ - $ 416 $ -
======= ======= =======
Note received in sale of affiliated
partnership units $ - $ 88 $ -
======= ======= =======
See notes to consolidated financial statements.
F-9
<PAGE>
DVL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
a. THE COMPANY: DVL, Inc. ("DVL") is a Delaware corporation headquartered in New
York, New York. DVL's common stock is traded on the over-the-counter market and
is quoted on the OTC Bulletin Board maintained by the NASD under the symbol
"DVLN". DVL is a commercial finance company which manages numerous real estate
properties and partnerships, and holds and services commercial mortgage loans.
DVL's investments consist primarily of commercial mortgage loans due from
affiliated partnerships, loans due from limited partners collateralized by their
interests in affiliated partnerships, limited partnership investments in
affiliated partnerships and other real estate interests. DVL's 100% owned
subsidiary, Professional Services Corporation ("PSC"), which is its only active
subsidiary, is consolidated for accounting purposes. DVL does not consolidate
any of the various partnerships in which it holds the general partner and
limited partner interests nor does DVL account for such interests on the equity
method due to the following factors: (i) DVL's interest in the partnership as
the general partner is 1%, (which 1% is payable to the limited partnership
settlement fund pursuant to the 1993 settlement of the class action between the
limited partners and DVL); (ii) under the terms of such settlement, the limited
partners have the right to remove DVL as the general partner upon the vote of
70% or more of the limited partners; (iii) all major decisions must be approved
by a limited partnership Oversight Committee in which DVL is not a member, (iv)
there are no operating policies or decisions made by the partnership, due to the
triple net lease arrangements for the partnership properties and (v) there are
no financing policies determined by the partnerships as all mortgages were
either in place prior to DVL's obtaining its interest and all potential
refinancings are reviewed by the Oversight Committee. Accordingly, DVL accounts
for its investments in the limited partnerships, which are considered
affiliates, on a cost basis with the cost basis adjusted for impairments which
took place in prior years. Accounting for such investments on the equity method
would not result in any material change to the Company's financial position or
results of operations.
Also, DVL has two inactive subsidiaries; Del-Val Capital Corp. (DVCC) and
RH Interests, Inc. (RH) which have been consolidated in these financial
statements. All material intercompany transactions and accounts are eliminated
in consolidation.
b. USE OF ESTIMATES: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
c. ALLOWANCE FOR LOSSES: Specific loss reserves are provided as required
based on management's evaluation of the underlying collateral on each loan
or investment (Note 4).
F-10
<PAGE>
d. DEPRECIATION: Depreciation is provided by charges to operations on
either a straight-line basis or accelerated basis at rates which will
allocate the cost of the assets over their estimated useful lives.
e. DEFERRED CHARGES: Deferred charges applicable to debt financing are
amortized over the term of the debt using the effective interest rate method.
f. INCOME RECOGNITION: Interest income is not recognized on the non-performing
portion of DVL's loan portfolio. A loan is considered non- performing when
scheduled interest or principal payments are not received on a timely basis and,
in the opinion of management, the collection of such payments in the future
appears doubtful. DVL accounts for increases and decreases in the amount or
timing of expected future cash flows on its loan portfolio by adjusting the
valuation allowance, not to exceed the recorded investment in the loan. Cash
receipts on restructured loans are treated as interest income as a result of
previous write-downs of such loans due to prior impairments. DVL records
contingent rents in the period in which the contingency is resolved. Gains on
sales of real estate to affiliates 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. As of December 31, 1998, DVL
is no longer recognizing any income under the installment method. DVL recognized
$25,000 and $47,000 of installment income in 1997 and 1998, respectfully.
g. IMPAIRMENT OF REAL ESTATE INVESTMENTS AND REAL ESTATE LEASE INTERESTS: DVL
does not have any impaired real estate investments and/or real estate lease
interests at December 31, 1999. All assets are analyzed annually based upon
prior appraised values, which are adjusted every year based on cash flow
assumptions set forth in such appraisals. As of December 31, 1999, the analysis
of such assets reflect the full recovery of those investments.
h. RESTRICTED CASH: As of December 31, 1999 and 1998, DVL had restricted cash
of $81,000 and $77,000, respectively. These funds were deposited into an escrow
account pursuant to the terms of a lease entered into by DVL which requires that
the funds be set aside as a security deposit. There are corresponding
liabilities of $81,000 and $77,000, respectively, reflected in accounts payable
on DVL's balance sheet.
i. UNEARNED INTEREST ON MORTGAGE LOANS AND LOAN ORIGINATION FEES AND COSTS:
Unearned interest on mortgage loans is recognized as income using the effective
interest method over the life of the corresponding loans. Presently, DVL does
not receive loan origination fees as the Company is not originating new loans
receivable.
j. FAIR VALUE OF FINANCIAL INSTRUMENTS: As disclosed in Note 4, DVL's loan
portfolio is valued based on the value of the underlying collateral. As all
loans are either receivables from affiliated limited partnerships or are
collateralized by interests in affiliated limited partnerships, it is not
practical to estimate fair value of the loans. Due to the nature of the
relationship between the limited partnerships and DVL's general partner interest
in the limited partnerships and the authority of the Oversight Committee, the
amount at which the loans could be exchanged with third parties is not
reasonably determinable, as any such estimate would have to consider the
intention of the Oversight Committee, the amounts owed, if any, to DVL for its
interests in the partnerships and any transaction fees to which DVL might be
entitled.
F-11
<PAGE>
k. FEDERAL INCOME TAXES: DVCC, PSC and RH are included in DVL's
consolidated federal income tax return.
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109 ("FAS 109"), which requires the Company
to recognize deferred tax assets and liabilities for the future tax consequences
attributable to differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases. In addition, FAS
109 requires the recognition of future tax benefits such as net operating loss
carryforwards, to the extent that realization of such benefits is more likely
than not.
At December 31, 1999, DVL had net operating loss carryforwards for income
tax purposes of approximately $63 million available to offset future taxable
income, if any, expiring through 2014, with approximately $55 million expiring
through 2007. Temporary differences arise from differences between financial
reporting and income tax reporting relating primarily to provisions for loan and
other losses and remaining notes outstanding of the notes payable pursuant to
the shareholder litigation settlement, which are currently not deductible for
income tax purposes. DVL's deferred tax asset of approximately $30 million,
which is comprised of the tax benefit of net operating loss carryforwards of
approximately $25 million and temporary differences represented primarily by
non-deductible loan reserves and the issuance of the notes payable pursuant to
the shareholder litigation is fully reserved for due to the uncertainty of
realizing taxable income in the future (Notes 2 and 11). DVL's total deferred
tax asset and the valuation allowance decreased by approximately $1,000,000 in
1999. The difference between the tax provision at the statutory rate of 34% and
the provision of 0% reflected on the accompanying financial statements is
principally due to the decrease in the valuation allowance.
l. EARNINGS PER SHARE: All income is attributable to common stock. The preferred
stock issued by DVL at the present time total 100 shares with a par value of
$10.00 per share. There are no cumulative dividends or accretion. Diluted
earnings per share includes the dilutive effect of the outstanding litigation
settlement notes payable (Note 7), the NPM warrants (Note 6d) and stock options
(Note 9).
m. RECENTLY ISSUED ACCOUNTING STANDARDS: There are no recently issued
accounting standards based upon DVL's current operations, which would affect
DVL's disclosures or method of accounting.
2. Basis of Presentation and Financial Condition
DVL's cash in-flow generated by its mortgage portfolio is currently used
to pay the underlying first mortgages, and any excess was used to fund principal
and interest payments on the NPM Loan (as herein after defined), based on the
collateral interest of NPM Capital LLC in the mortgages (Note 6), and to pay
certain other creditors. NPO has agreed to defer amounts due from their
management agreement through December 31, 2000, unless DVL has sufficient cash
to fund its operations through that date. DVL's anticipated cash flow provided
by operations is sufficient to meet its cash requirements, through January 2001,
assuming that no such payments are made to NPO.
F-12
<PAGE>
In November 1992, DVL, Kenbee Management, Inc. ("Kenbee"), DVL's former
manager, and the limited partners of certain affiliated partnerships reached a
settlement in the limited partnership class action litigation ("Limited Partner
Settlement") and, concurrently with this settlement, DVL reached settlements
with a number of its creditors providing for the restructuring of a substantial
portion of DVL's defaulted indebtedness and loan guarantees. The Limited Partner
Settlement established a settlement fund into which DVL is required to deposit a
portion of its cash flow received from affiliated 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.
DVL has implemented significant measures to reduce its operating expenses.
DVL has in the past and expects in the future to continue to augment its cash
flow with additional cash provided by proceeds from the sale or refinancing of
assets and/or borrowings.
3. Loans Receivable and Underlying Mortgages
Virtually all of DVL's loans receivable arose out of transactions in which
affiliated partnerships purchased commercial, office and industrial properties
typically leased on a long-term basis to unaffiliated, creditworthy tenants.
Each mortgage loan is collateralized by a lien, primarily subordinate to senior
liens, on real estate owned by an Affiliated Limited Partnership. DVL's loan
portfolio is comprised of long-term wrap- around and other mortgage loans due
from Affiliated Limited Partnerships; and loans due from limited partners
collateralized by their interests in affiliated partnerships ("Partners' Notes")
and were principally pledged to collateralize DVL's indebtedness to NPM (Note
6), until May 1999, at which time, the loan was repaid. DVL's mortgage portfolio
included 24 and 31 loans with net carrying values of $31,621,000 and $42,290,000
as of December 31, 1999 and 1998 respectively, which are due from affiliated
partnerships that own properties leased to Wal-Mart Stores, Inc. Wal-Mart is a
public company subject to the reporting requirements of the SEC. Walmart has
closed certain of its stores located on the properties subject to the Company's
mortgages. However, Walmart continues to pay the required rent to the
partnerships. Net carrying value refers to the unpaid principal balance less any
allowance for reserves, and any amount which represents future interest based
upon the purchase of the loan at a discount.
The Company's presentation of certain mortgages receivable from Affiliated
Limited Partnerships and related underlying mortgages payable in the 1999
consolidated financial statements has been changed to recognize such items
without offsetting assets and liabilities and without netting corresponding
income and expense amounts. The prior comparative 1998 and 1997 consolidated
financial statements have been revised to reflect the application of this change
on those statements. Mortgages due from affiliated partnerships and underlying
mortgages payable increased by $38,644,000 as of December 31, 1998. Interest on
mortgage loans and interest on underlying mortgages each increased by $2,779,000
and $3,236,000 for 1998 and 1997, respectively.
DVL is liable for underlying first mortgages on a substantial portion of
its mortgage portfolio. The underlying mortgages are payable to unrelated
financial institutions and bear interest at rates of 6.66% to 14.0% and require
principal and interest payments solely from the proceeds of the wrap mortgages
receivable.
F-13
<PAGE>
During 1998, DVL refinanced a mortgage which generated approximately
$40,000 in excess of the underlying mortgage loan. In 1997, DVL refinanced five
mortgages which generated approximately $957,000 in excess of the underlying
mortgage loans. DVL did not refinance any of its mortgages in 1999. The excess
funds were used to pay the expenses of the refinancings and repay the NPM Loan
(see note 6(d)), as required by the NPM loan agreement. The amounts obtained
from these refinancings were primarily based on the value of the base rents
during the period of the base lease term subsequent to the payoff of the
existing first mortgages. As a result of DVL's prior and current asset
liquidations and refinancings, DVL's asset base available for future
liquidations and refinancings has diminished considerably.
The Limited Partner Settlement, as well as the settlements with other
limited partnerships, resulted in the modification of terms of certain
performing mortgage loans receivable from Affiliated Limited Partnerships which
bore interest at effective rates of up to 15% per annum, aggregating net
carrying values of $5,874,000 and $6,088,000 subject to underlying mortgages of
$4,165,000 and $4,516,000 at December 31, 1999, and 1998, respectively, and
mature through 2027. The effect of the modification on these mortgages on DVL's
interest income for 1999 was not material.
In addition, the terms of the loans to Kenbee collateralized by similar
loans were restructured and modified. These loans, at the time of the
restructuring, bore interest at 3% over DVL's average interest rate for
short-term borrowings and matured through 1996. The restructured and modified
loans due directly from the partnerships bear interest at stated rates of up to
15.5% and mature through 2031. As of December 31, 1999 and 1998 the modified
loans due directly from the partnerships aggregated net carrying values of
$27,314,000 and $38,021,000 subject to underlying mortgages of $21,926,000 and
$30,350,000, respectively. 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 $3,000,000
in 1999, $4,000,000 in 1998, and $4,400,000 in 1997.
There are no debts which were restructured during 1998 or 1999.
F-14
<PAGE>
DVL's mortgage and other loans due from affiliated partnerships, an
unaffiliated entity and limited partners are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------ ----------------------------------------
Accrued Accrued
Interest Allowance Interest Allowance
Number Included For Loan Number Included For Loan
Mortgage Loans Due From Affiliated Partnerships of Loan In Loan Losses of Loan In Loan Losses
(dollar amounts in thousands) Loans Balance Balance (Note 4) Loans Balance Balance (Note 4)
- ----------------------------------------------- ------ -------- -------- --------- ------ -------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-term wrap-around mortgage loans ranging
from $512 to $2,157 in 1999 and from $512
to $5,184 in 1998 maturing at various dates
through August, 2027 (a) 9 $ 13,398 $ 52 $ 527 10 $ 18,883 $ 78 $ 1,121
Other long-term mortgage loans ranging from
$1,395 to $1,442 in 1999 and from $1,425 to
$1,448 in 1998 maturing at various dates
through May 2029 (b) 2 2,837 - 191 2 2,874 - 191
Long-term wrap-around and other mortgage
loans acquired from Kenbee pursuant to
the Limited Partner Settlement ranging
from $298 to $3,390 in 1999 and from $366
to $3,461 in 1998 maturing at various
dates through January 2030 (c) 21 31,803 - 5,365 28 43,210 - 6,109
-- -------- ----- ------- --- -------- ------ -------
Total mortgage loans 32 48,038 52 6,083 40 64,967 78 7,421
Loans Collateralized By Limited Partnership
Interests
- --------------------------------------------
Loans ranging from $1 to $68 in 1999 and
from $2 to $336 in 1998 and maturing at
various dates through December 1995 (d) 45 764 - 614 51 894 - 722
Due from affiliated partnerships
- --------------------------------
Advances and Other 17 48 - - 18 431 - 292
--- -------- ----- ------- --- -------- ------ -------
Total loans receivable 94 48,850 $ 52 $ 6,697 109 66,292 $ 78 $ 8,435
Less unearned interest on partnership mortgage === ===== ======= === ====== =======
loans 5,810 7,944
-------- --------
Net loans receivable $ 43,040 $ 58,348
======== ========
Underlying mortgages ranging from $105 to $2,903
in 1999 and $173 to $2,966 in 1998 maturing at
various dates through 2011 $ 27,692 $ 38,644
======== ========
</TABLE>
F-15
<PAGE>
Activity on all collateralized loans is as follows:
1999 1998 1997
-------- -------- --------
(in thousands)
Balance, beginning of year $ 65,861 $ 77,811 $ 94,978
Collections on loans to affiliates (14,851) (9,393) (11,789)
Unearned interest offset against loans
satisfied, sold and written off (2,066) (324) (3,918)
Loans written-off and written down (142) (2,233) (1,460)
-------- -------- --------
Balance, end of year $ 48,802 $ 65,861 $ 77,811
======== ======== ========
Unearned interest activity is as follows:
1999 1998 1997
-------- -------- --------
(in thousands)
Balance, beginning of year $ 7,944 $ 8,350 $ 12,325
Amortization to income (68) (82) (57)
Decrease in connection with the
satisfaction or write-off of loans (2,066) (324) (3,918)
-------- -------- --------
Balance, end of year $ 5,810 $ 7,944 $ 8,350
======== ======== ========
(a) DVL previously funded certain wrap-around mortgages due from Affiliated
Limited Partnerships, whereby the original principal of the wrap equaled the
outstanding balance of an underlying first mortgage loan plus the amount of
funds advanced by DVL to the partnership. These loans mature through August
2027, bear interest at effective rates of up to 15% per annum and are
collateralized primarily by second mortgages on commercial and industrial
properties located in various states. DVL is responsible to make principal and
interest payments on the first mortgage loan to the extent received from the
borrower and, in certain instances, has the right to refinance or pay off the
first mortgage loan and succeed to its seniority. Currently, the partnerships or
the tenants are making the underlying mortgage payments directly and DVL is
applying such payments to its wrap-around mortgage loans. To the extent that the
underlying mortgage payment is less than the wrap-around mortgage payment, the
partnership is obligated to pay DVL the balance. These wrap-around loans are
subject to underlying mortgage loans of $5,766,000 in 1999 and $8,167,000 in
1998, which bear interest at rates ranging from 7.5% to 13.125%, are payable to
unaffiliated lenders in monthly installments, mature on various dates through
August 2011 and are collateralized by liens senior to DVL's liens. See Note 6
for the five year maturities of such underlying loans.
F-16
<PAGE>
(b) DVL's other long-term mortgage loans, exclusive of its wrap-around
mortgages, are collateralized by two first mortgages aggregating $2,837,000 and
$2,874,000 at December 31, 1999 and 1998. These loans mature through December
2029, bear interest at effective rates of up to 15% per annum and are
collateralized by first mortgages on commercial and industrial properties
located in various states. The principal maturities of DVL's commercial mortgage
loan portfolio, excluding wrap-around mortgages, in each of the next five years
are $39,000 in 2000, $41,000 in 2001, $43,000 in 2002, $45,000 in 2003 and
$47,000 in 2004. All such commercial mortgage loans and the wrap- around
mortgages are collateralized by liens on commercial and industrial properties
located in various states.
(c) DVL acquired long-term wrap-around and other mortgage loans to
affiliated partnerships pursuant to the Limited Partner Settlement. The
principal balance of such loans when acquired in 1992 equaled DVL's net
investment in the related loan previously due from Kenbee less specific
write-downs of $18,223,000 on certain of these loans based upon the anticipated
cash flow to be generated by each loan (Note 4). Although these loans have
stated interest rates of up to 15.5%, interest, if any, is imputed based upon
the anticipated cash flow to be generated by each loan. The loans are
collateralized by first, second and third mortgages on commercial and industrial
properties located in various states and mature through June 2031. DVL
subordinated its second mortgage position on sixteen of these loans as part of a
refinancing in 1994. The wrap-around loans are subject to senior liens of
$21,926,000 in 1999 and $30,477,000 in 1998, 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, mature on various dates through January 2012
and are collateralized by liens senior to DVL's liens. The payment of the
underlying first mortgages are also being made by the partnerships or tenants as
discussed in (a) above. See Note 6 for the five year maturities of such
underlying loans.
(d) DVL made loans directly to limited partners to finance up to 80% of
their partnership investments. As a result of the Limited Partner Settlement,
DVL received loans due from limited partners in 1992 in replacement of loans due
from Kenbee collateralized by such Partners' Notes. All such partner loans
matured at various dates through December 1995 and 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.
Substantially, all of these loans were non-performing at December 31, 1999 and
December 31, 1998. The Company is pursuing collection efforts and is foreclosing
on the collateral limited partnership units when collection efforts fail.
4. Allowance for Losses and Other Reserves
Allowance for loan loss activity is as follows:
1999 1998
-------- --------
(in thousands)
Balance, beginning of year $ 8,435 $ 11,869
Loans satisfied, written-off or written-down (1,738) (3,434)
------- --------
Balance, end of year $ 6,697 $ 8,435
======== ========
F-17
<PAGE>
DVL's allowance for loan losses is based upon the value of the collateral
underlying each loan in its portfolio. Management's evaluation of such
collateral previously resulted in substantial loan write-offs and a substantial
allowance for loan losses. The evaluation considered the magnitude of DVL's
non-performing loan portfolio, updated internally generated appraisals of
certain properties, updated information on certain properties and DVL's
anticipated liquidation of loans to meet future mandatory repayment obligations
on certain indebtedness, as well as its cash flow deficiency.
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 sales history through
January 31, 1993. Management evaluates and updates such appraisals,
periodically, and considers changes in the status of the existing tenancy in
such evaluations. Certain other properties were valued based upon management's
estimate of the current market value for each specific property using similar
procedures. In addition, management provided for a reserve on certain of its
mortgages and partnership investments (Note 5) for anticipated losses to be
realized as certain of such assets are liquidated to meet DVL's mandatory
repayment obligations (Note 6) and its operating cash flow deficiency.
Based upon the ratification of the enforceability and validity of DVL's
portfolio of Partners' Notes by the Limited Partner Settlement and the payment
experience on such notes, management re-evaluated each note in its portfolio for
specific loss reserves. As of December 31, 1999 and 1998, the notes deemed
uncollectible were provided for assuming an estimated residual value of the
related partnership investment of approximately 14% of the original investment,
which reflects management's estimate of the investment's net realizable value.
F-18
<PAGE>
5. Investments
Real Estate
At December 31, 1999, DVL's land investments, which were principally
pledged to collateralize indebtedness to NPM (Note 6)until May 1999, at which
time, the NPM loan was repaid (Note 6) consists of one parcel. Prior to May
1999, DVL owned an additional parcel which was leased to an affiliate
partnership under a long-term lease with annual rents of approximately $30,000.
In April 1999, DVL sold this property for $300,000, resulting in a gain of
$90,000, to an affiliated entity which is part of the Opportunity Fund. The
remaining parcel was also leased to an Affiliated Limited Partnership under a
long term lease, however, this partnership had been in default in its monthly
obligations. In November 1998, DVL as mortgagee foreclosed on the building that
secured its mortgage loan receivable, which was obligated by the same
partnership that had been in default of its land lease agreement. DVL had a net
carrying value of its mortgage receivable of approximately $417,000 at the time
of foreclosure and has recorded its building at this same cost basis, as it
approximates the current market value of the property. The partnership which had
the land lease obligation to DVL, that DVL foreclosed upon, was liquidated with
no additional monies paid under its land lease agreement.
During 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. The carrying value of the transferred
real estate assets aggregated $1,274,000. PSC holds the master lease positions
for two properties, which were pledged to a creditor as collateral.
Affiliated Limited Partnerships
DVL acquired various interests in Affiliated Limited Partnerships pursuant
to the terms of certain settlement agreements and through purchases. Management
valued all of these investments at approximately 14% of the original investment
amount due to potential anticipated losses upon liquidation of these investments
(Notes 2, 3, 4, and 6), except for interests acquired in one partnership with an
original investment aggregating $2,450,000 which were 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.
During 1999 and 1998, DVL recorded income of $265,000 and $148,000 from
distributions received from these investments. During 1997, DVL recorded income
of $360,000 from distributions received from these investments, including
$270,000 of excess proceeds over the net carrying value on the one partnership
investment, discussed above, carried at 40%.
F-19
<PAGE>
The activity on DVL's investments in Affiliated Limited Partnerships is as
follows:
1999 1998
------ ------
(in thousands)
Balance, beginning of year $1,449 $1,461
Various interests acquired through
purchases and defaulted partner notes 45 178
Distributions received from sales (413) (255)
Income from distributions 265 148
Write-offs and reserves (20) (83)
----- ------
Balance, end of year $1,326 $1,449
====== ======
At December 31, 1999, all DVL's investments in Affiliated Limited
Partnerships are pledged to collateralize indebtedness (Note 6).
Other Investments
-----------------
In connection with a 1993 litigation settlement with three related
partnerships that opted out of the Limited Partner Settlement, DVL received
limited partnership interests in three new partnerships. These partnerships'
sole assets are the restructured partnership mortgage loans on the properties
leased to Wal-Mart Stores, Inc. by the three partnerships which opted out. These
investments were valued based upon the anticipated cash flow to be generated by
the restructured mortgage loans (Notes 3(c) and 4). Management has reserved a
total of $400,000 as of December 31, 1999 and 1998 primarily resulting from a
decrease in the value of the underlying collateral of one of the three
partnership mortgage loans. Prior to 1998, as distributions were received or the
investments were disposed of, the carrying value was reduced and no income was
recognized. In 1999 and 1998, distributions in the amount of $34,000 and $31,000
were received by DVL and these amounts were recognized as income since it now
anticipated that the expected future cash will exceed the carrying value.
F-20
<PAGE>
6. Long-Term Debt and Loans Payable Underlying Wrap-around Mortgages
DVL's long-term debt is comprised of the following loans payable to
unaffiliated lenders:
1999 1998
------- -------
(in thousands)
Indebtness restructured in 1995 collateralized
by commercial mortgages maturing in 2001 $ 285 $ 660
Loan collateralized by commercial mortgages
currently bearing interest at 12% per annum,
maturing February 27, 2000 (a) (b) - 3
Loan collateralized by commercial mortgages
and real estate bearing interest at 12% per
annum, maturing September 2002 (c) 1,868 1,207
------- -------
2,153 1,870
------- -------
Loan indebtedness due NPM bearing interest at
10.25% maturing in September 2002, collater-
alized by commercial mortgages and real estate
(net of debt discounts of $-0- and $233,978
for 1999 and 1998, respectively) (d) - 3,921
------- -------
Total long-term debt $ 2,153 $ 5,791
======= =======
(a) During 1997, DVL repaid a creditor $1,474,000 in full satisfaction of
a loan which had a current principal balance due of $1,901,000. This repayment
resulted in an extraordinary gain of approximately $406,000 in the first quarter
of 1997. The payment was made by refinancing the asset held by the creditor as
collateral with a new unaffiliated lender in the principal sum of $2,000,000.
(b) This loan required monthly payments of principal and interest equal to
cash flow, as defined, from the loan's collateral. Interest on the outstanding
balance of the loan accrued at 12% per annum. The principal amount of the loan,
and all accrued interest was due February 27, 2000. The Company was permitted to
repay the loan prior to maturity, with certain prepayment penalties. From the
proceeds, DVL remitted approximately $406,000 to NPM to repay the NPM Loan, as
required by the NPM loan agreement. During 1998 and 1997, two of the properties
that were collateral for this loan were sold, and the principal amount was
substantially repaid. The entire loan was repaid in January, 1999.
(c) See Debt Tender Offer (Note 7) for description of financing agreement
with Blackacre Bridge Capital, LLC.
F-21
<PAGE>
(d) To better enable DVL to resolve its liquidity problems and to meet its
certain mandatory repayment requirements, on September 27, 1996, DVL and NPM
closed a loan transaction under a certain Loan Agreement dated March 27, 1996
(the "Original Loan Agreement"), pursuant to which NPM purchased three loans
from three creditors, and agreed to make principal installment payments of up to
$600,000 on DVL's obligation to two additional creditors (the "Original Loan").
NPM has fulfilled this additional funding obligation. The three purchased loans
represented an aggregate outstanding balance of $7,501,000. Two of the five
loans had negotiated discounts of $2,773,000. The actual amount loaned by NPM at
the closing, which included the balances due to the above mentioned creditors,
less the realized discount, plus NPM's costs, equaled $5,232,000. Included in
the loan balance were NPM's costs (in excess of $175,000) incurred in connection
with this transaction, such excess totaled approximately $503,000. In
consideration of NPM's loan enabling DVL to avail itself of discounts to
existing lenders, and for providing DVL with the extended payment schedule, the
principal amount of the loan was increased by $3,150,000. All such funds
advanced at the closing were consolidated into a single note with NPM in the
amount of $8,382,000. For financial reporting purposes, DVL recognized an
extraordinary loss of $880,000 on this transaction in 1996.
In March and April 1997, NPM advanced DVL an aggregate of $200,000 (the
"Additional Advances"). In addition, from January 1998 through May 1999, NPM
advanced additional amounts aggregating $370,000 to DVL. These advances, which
were not required under the Original Loan Agreement, bore interest at 15% per
annum and were paid pari passu with said loan. The Original Loan and the
Additional Advances are referred to in the aggregate herein as the "NPM Loan".
In May 1999, DVL paid all remaining amounts due on the NPM loan.
Under the terms of the NPM Loan, the principal balance was payable over six
years with interest at the rate of 10.25%. DVL was required to make certain
mandatory payments towards the principal balance over the term of the loan. The
first such payment (when combined with all prior principal reductions) must be
sufficient to reduce the principal balance of the NPM Loan by 15%, and was due
by March 31, 1998. The next such payment, which must be sufficient to cause
cumulative principal reductions to aggregate 33% of the principal balance, was
due by December 31, 1998. The third such payment, which must be sufficient to
cause cumulative principal reductions to aggregate 50% of the principal balance,
is due by September 30, 1999. DVL's principal payments exceeded these
requirements from September 27, 1996 through May 1999 when the entire loan was
repaid.
The rate of interest on the NPM Loan was approximately 36% including the
$880,000 extraordinary loss. The effective annual interest rate to DVL for
financial reporting purposes, as currently computed, including DVL's costs
associated with the NPM Loan and the value of the Warrants (described below) was
15%. These rates are based on payments made through May 1999.
F-22
<PAGE>
In connection with the transactions contemplated by the Original Loan
Agreement in March 1996, DVL and NPO Management LLC ("NPO") (an affiliate of
NPM) entered into an Asset Servicing Agreement, pursuant to which NPO is
providing DVL with administrative and advisory services relating to the assets
of DVL and its affiliated partnerships. In consideration for such services, DVL
is required to pay NPO $600,000 per year (with cost of living increases
beginning in 1999) over the seven (7) year term of the asset servicing
agreement, subject to early termination under certain conditions. DVL has the
right to defer up to $600,000 of such fees, with interest at 15% per annum,
during the first two years and to defer reduced amounts during the third year.
DVL had accrued service fees of $1,467,000 as of December 31, 1999. NPO has
waived any Event of Default which may exist under the Asset Servicing Agreement
during the period through December 31, 2000, based on the fact that the amount
of accrued service fees has exceeded the operative limitations since mid-1997,
and may continue to do so. The waiver does not affect NPO's right to receive
payment of all deferred service fees, and interest thereon, which are currently
outstanding or which may become outstanding through December 31, 2000.
In connection with the Original Loan, affiliates of NPM acquired 1,000,000
shares (the "Base Shares") of DVL Common Stock for $200,000. The Base Shares
currently represent approximately 6% of the outstanding common stock of DVL. An
affiliate of NPM also acquired 100 shares of preferred stock for $1,000. DVL
issued to affiliates of NPM and NPO warrants (the "Warrants") to purchase such
number of shares of Common Stock as, when added to the Base Shares, represent
rights to acquire up to 49% of the outstanding Common Stock of DVL on a fully
diluted basis. The original exercise price of the Warrants was $.16 per share,
subject to applicable anti-dilution provisions and subject a maximum aggregrate
exercise price of $1,900,000. The Warrants expire on December 31, 2007. Except
under certain circumstances, they were not exercisable prior to September 1999
in accordance with the terms of such Warrants. The limitations on exercise were
intended primarily to help preserve the utilization of DVL's carryforwards of
net operating losses and credits for federal income tax purposes. The Warrants
were valued for financial statement purposes at $516,000 at the date of issuance
and such value resulted in a debt discount to be amortized using the effective
interest rate method. No Warrants have been exercised through December 31, 1999.
OTHER
- -----
During 1997, DVL repaid a creditor $1,037,335 in cash and transferred
certain mortgage and property interests affecting property owned by certain
Affiliated Limited Partnerships in exchange for full satisfaction of its
long-term debt obligation to this creditor. This transaction resulted in an
extraordinary gain of approximately $650,000 in the second quarter of 1997. The
source of the cash payment was the sale of a partnership property in which DVL
held a 55% limited partnership interest.
F-23
<PAGE>
The aggregate amount of restructured and other long-term debt and loans
payable underlying wrap-around mortgages (Note 4) maturing during the next five
years is as follows:
Loans Payable
Long-term Underlying Wrap
Debt Around Mortgages
--------- ----------------
(in thousands)
2000 $ 285 $ 1,798
2001 - 1,929
2002 1,868 2,117
2003 - 2,318
2004 - 2,479
Thereafter - 17,051
------- -------
$ 2,153 $27,692
======= =======
7. Notes Payable - Litigation Settlement/Debt Tender Offer
In December 1995, DVL completed its obligations under a 1993 settlement of
its class action litigation. The settlement, which was approved by the court in
1993, provided that DVL would issue the plaintiffs (1) 900,000 shares of DVL
common stock at a minimum price of $1.50 per share (or notes to cover any
deficiency in the event that aggregate market value was less than $1,340,000);
(2) $9 million face value of notes due in ten years, with interest at 10%
payable in kind for five years, callable after the third year and payable on the
tenth year in cash or with DVL common stock equal to 110% of the face value of
the notes (valued in 1993 at $3,690,000 by an independent investment banker) and
(3) $1.4 million plus interest at 3% from August 16, 1993 and expenses, payable
in cash or DVL common stock. In December 1995, DVL issued the 900,000 shares of
common stock and as a result of the deficiency in its market value, issued
additional notes with the same terms, in the face amount of $1,386,351 (valued
at $330,000 by DVL). In payment of the $1.4 million plus interest and expenses,
DVL issued 4,017,582 shares of common stock in December 1995.
In December 1995, DVL issued notes (the "Notes") in the aggregate principal
amount of $10,386,851 as a series in conjunction with the settlement agreed upon
in the DVL stockholder class action matter entitled IN RE DEL-VAL FINANCIAL
CORP. SECURITIES LITIGATION. The Notes, which are general unsecured obligations
of DVL, accrue interest at the rate of ten (10%) percent per annum, with
principal under the Notes, together with all accrued and unpaid interest
thereunder, due on December 31, 2005. Pursuant to the terms of the Notes,
accrued and unpaid interest payable on any of the first five anniversary dates
following the issuance of the Notes is payable, at the option of DVL, by the
issuance of similar additional Notes with a principal amount equal to the
accrued and unpaid interest obligation then due. On the three anniversary dates
following the issuance of the Notes, the Company satisfied its interest
obligations thereunder by issuing such additional Notes in lieu of payment of
any cash. The Company currently intends to issue additional Notes, rather than
make payments in cash, to satisfy its interest obligations under the Notes.
F-24
<PAGE>
At any time after January 1, 1999, DVL may satisfy principal and interest
obligations under the Notes by issuing, in lieu of the payment of cash, shares
of its Common Stock with a then current market value equal to 110% of the
principal and/or interest obligation in question. It is therefore not possible
to ascertain currently the precise number of shares of Common Stock that would
be issued by DVL upon redemption of the Notes. DVL currently intends to exercise
its redemption option and issue to noteholders shares of DVL's Common Stock, in
lieu of the payment of any cash, in exchange for the Notes.
From October 27, 1997 through February 27, 1998 (the "First Tender
Expiration Date"), the Company conducted a cash tender offer (the "First Offer")
for the Notes at a price of $0.12 per $1.00 principal amount of the Notes. The
Notes were originally issued in December 1995 in conjunction with the settlement
of a stockholder class action lawsuit. The Company purchased and retired a total
of $6,224,390 principal amount of Notes in the First Offer. An additional
$392,750 principal amount of the Notes were purchased by Blackacre Bridge
Capital, LLC ("Blackacre"), an unaffiliated entity, pursuant to the terms of the
BC Arrangement (as defined below).
On February 26, 1999, the Company commenced a second cash tender offer (the
"Second Offer", and together with the First Offer, the "Offers") for its
outstanding Notes at a price of $0.12 per $1.00 principal amount of the Notes.
During the period from February 26, 1999 through May 14, 1999, the Company
purchased and retired a total of $2,413,652 principal amount of Notes. In
addition, $423,213 principal amount of the Notes were purchased by Blackacre,
pursuant to the terms of the BC Agreement. Notes with an aggregate principal
amount of $3,863,437 remained outstanding as of December 31, 1999, including
those purchased by Blackacre.
The Company has had the option to redeem the outstanding Notes since
January 1, 1999 by issuing additional shares of Common Stock with a then current
market value (determined based on a formula set forth in the Notes), equal to
110% of the face value of the Notes plus any accrued and unpaid interest
thereon. Because the applicable market value of the Common Stock will be
determined at the time of redemption, it is not possible currently to ascertain
the precise number of shares of Common Stock that may be issued to redeem the
outstanding Notes. The redemption of the Notes may cause significant dilution
for current shareholders. The actual dilutive effect cannot be currently
ascertained since it depends on the number of shares to be actually issued to
satisfy the Notes. The Company currently intends to exercise at some point in
the future its redemption option to the extent it does not buy back the
outstanding Notes by means of cash tender offers.
The Offers effected a reduction in the Company's long-term debt and
resulted in an extraordinary gain of $2,906,000 for the year ended December 31,
1997, $202,000 for the year ended December 31, 1998, and $1,267,000 for the year
ended December 31, 1999. Furthermore, the Offers have reduced the potential
dilutive effect on the Company's current stockholders that would result from
redemption of the Notes for shares of Common Stock. However, given the aggregate
principal amount of Notes which remains outstanding, the potential dilutive
effect of such a redemption is still significant.
F-25
<PAGE>
In order to fund the acquisition of the Notes and pay the related costs
and expenses, the Company entered into an amended financing arrangement (the "BC
Arrangement") with Blackacre, NPM and NPO as of October 20, 1997, in the form of
a Fourth Amendment to a Loan Agreement between such parties (as amended, the
"Amended Loan Agreement), permitting the Company to borrow up to $1,760,000 (the
amount actually borrowed by the Company pursuant to the BC Arrangement is
referred to as the "BC Loan"). The BC Loan matures on September 30, 2002 and
bears interest at the rate of 12% per annum compounded monthly payable at
maturity. Total borrowings under the BC Arrangement were $1,560,000 as of
December 31, 1999. In addition, Blackacre is entitled to acquire 15% of all
notes acquired by the Company in excess of $3,998,000 under the same terms and
conditions as the Company. Blackacre acquired notes aggregating $392,750 under
these terms from the First Offer and $423,213 from the Second Offer.
As further consideration for Blackacre's providing the Company with the BC
Loan, the Company issued to Blackacre 653,000 shares of Common Stock.
The Company's obligations under the BC Loan are secured by all of the
assets of the Company currently pledged to NPO under the Amended Loan Agreement
and the other documents executed in connection therewith. The BC Loan is senior
to all indebtedness of the Company other than indebtedness to NPO and, with
respect to individual assets, the related secured lender. The effective interest
rate to the Company for financial reporting purposes, including the Company's
costs associated with the BC Loan, and the value of the 653,000 shares issued to
Blackacre in connection therewith is approximately 14% per annum. Interest
payable in connection with the BC Loan will be deferred until the Company
satisfies all of its obligations owing to NPO. However, beginning April 27, 2000
the Company must pay principal payments of 15% of all proceeds that would
otherwise be remitted to NPO, to Blackacre. Thereafter, interest and principal
will be paid from 100% of the proceeds then available to the Company from the
mortgage collateral held as security for the BC Loan.
8. Other Transactions with Affiliates
A. Opportunity Fund
In April 1998, DVL, an affiliate of Blackacre, and affiliates of NPO
entered into a certain Agreement Among Members (the "Opportunity Agreement"),
providing for an arrangement (the "Opportunity Fund"), pursuant to which
entities would be formed, from time to time, to enter into certain transactions
involving the acquisition of limited partnership interests in the assets of, or
mortgage loans to, affiliated limited partnerships or other assets in which the
Company has an interest. These investment opportunities will be presented to the
Opportunity Fund on a first refusal basis, if the Company, due to financial
constraints, is unable to pursue such business opportunity with its own funds.
F-26
<PAGE>
The Opportunity Fund is expected to pursue each Opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by Blackacre and the NPO Affiliates. The Company will receive up
to 20% of the profits from an opportunity after BCG and the NPO Affiliates
receive the return of their investment plus preferred returns ranging from 12%
to 20%.
B. In June 1998, the Company entered into a Management Services Agreement
with a limited partnership where certain of its partners are affiliates of NPO,
to render certain services. The agreement shall continue until the date that all
these partnerships' assets are sold or at any time prior with 30 days notice by
either party. As compensation, the Company earns an aggregate fee equal to (a) a
monthly fee of $5,000 plus (b) after all the partners of the partnership have
earned a 20% internal rate of return, compounded quarterly, on their capital
contributions an amount of cash equal to 25% of the profits, as defined in the
agreement. For 1999 and 1998, the Company received management fees equal to
$480,000 and $35,000, respectively.
C. In addition, the Company entered into a service agreement with another
limited partnership whose general partner is an affiliate of NPO, to render
certain accounting and administrative services. As compensation, the Company
receives a monthly fee of $3,000 and expense reimbursements of $1,000 per month.
For 1999 and 1998, the Company received fees of $36,000, per annum.
D. Also, the Company entered into a property management agreement with an
entity that is part of the Opportunity Fund, pursuant to which the Company
provides property management services in exchange for fees equal to 3% of rent
collections.
E. In November 1999, the Company entered into a Management Service
Agreement with an entity whose partners are affiliates of NPO, to render certain
accounting and administrative services. As compensation, the Company receives a
monthly fee of $2,000, a monthly deferred fee of $6,500 which is payable upon
certain capital events, and an annual incentive fee, if certain levels of
profitability occurs. For 1999, the Company was paid $4,000 and accrued fees of
$13,000.
F. The Millenium Group, an affiliate of NPO, received $145,483 in 1999 and
$70,866 in 1998 representing compensation and reimbursement of expenses for
collection services on limited partner notes. In 1999 the Company paid to the
Millenium Group and the Pembroke Group, another affiliate of NPO, $25,000 and
$75,000 respectively, for professional fees. In 1998, the Company paid to the
Millenium Group $25,000 for professional fees.
F-27
<PAGE>
9. Deferred Credits
DVL's deferred credits were comprised of deferred gains on the sales of
real estate to affiliates. At December 31, 1998, all deferred credits have been
amortized.
Activity on deferred credits is as follows:
1998
----
(in thousands)
Balance, beginning of year $ 296
Amortization to income (47)
Deferred gain on foreclosure recognized upon
cancellation of mortgage loans (249)
------
Balance, end of year $ 0
======
10. Stock Option Plans
DVL has elected to follow "Accounting Principles Board Opinion No. 25
"Accounting for Stock Issued to Employees" (APB 25") and related interpretations
in accounting for its employee stock options. Under APB 25, where the exercise
price of DVL's employee stock options equals the market price of the underlying
stock on the date of grant, no compensation is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123 "Accounting for
Stock-Based Compensation" ("SFAS No. 123"). Such information has been determined
as if DVL has accounted for its employee stock options under the fair value
method of that statement. The effect of applying SFAS No. 123 on 1997, 1998 and
1999 pro forma net income (loss) is not necessarily representative of the
effects on reported net income for future years due to, among other things: (1)
The vesting period of the stock options and the (2) fair value of additional
stock options in future years. Had compensation cost for DVL's stock option
plans been determined based upon the fair value at the grant date for awards
under the plans consistent with the methodology prescribed under SFAS No. 123,
DVL's net income (loss) in 1999, 1998, and 1997 would have been approximately
$2,270,000, ($567,000), and $1,570,000, and diluted earnings per share would
have been of $.04, ($.04), and $.10, respectively.
DVL's 1996 stock option plan, as amended, (the "Plan") provides for the
grant of options to purchase up to 2,500,000 shares of Common Stock to officers
and key employees of DVL. It includes automatic grants of 15,000 options to
individuals upon their becoming non-employee directors, as well as automatic
annual grants of 15,000 options to each non-employee director.
All options are non-qualified stock options.
F-28
<PAGE>
During 1996, employees and a former employee of DVL exchanged 673,131
performance units (considered to be stock appreciation rights) for 673,131
non-qualified stock options in conjunction with the termination of the
performance plan and the adoption of the Plan. Each of the options was granted
at an exercise price of $.21 for a ten year term. The Company recorded a charge
of $60,000 in connection with this transaction in 1996. There are no performance
shares outstanding as of December 31, 1999 and 1998.
As of December 31, 1999, there were outstanding 1,175,131 ten (10) year
options. Under the Plan, the Company had 324,869 options remaining for future
grants.
In February 2000, DVL amended the Plan to increase the number of shares of
common stock available under the Plan by an additional 1,000,000 shares.
F-29
<PAGE>
The following table summarizes the activity under the Plan:
Year Ended December 31,
-------------------------------------------
1999 1998
------------------- -----------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
--------- -------- ------- --------
Options Outstanding at
Beginning of Year 1,020,131 $0.18 892,131 $0.20
Granted 205,000 0.21 128,000 0.10
Cancelled (50,000) 0.12 - -
--------- ----- ------- -----
Options Outstanding at
End of Year 1,175,131 0.19 1,020,131 0.18
========= ===== ========= =====
Options Exercisable at
End of Year 1,175,131 $0.19 1,020,131 $0.18
========= ===== ========= =====
Options Outstanding Options Exercisable
- -------------------------------------------------- ---------------------
Weighted
Weighted Average Weighted
Range of Average Remaining Average
Exercise Exercise Life In Exercise
Price Shares Price Years Shares Price
- ----------- --------- -------- --------- --------- --------
$.08 0.12 105,000 $0.08 7.88 105,000 $0.08
.13 - 0.19 207,000 0.16 8.13 207,000 0.16
.20 - 0.22 863,131 0.21 7.17 863,131 0.21
- ----------- --------- -------- --------- --------- --------
TOTAL 1,175,131 $0.19 7.40 1,175,131 $0.19
========= ======== ========= ========= ========
The weighted-average fair value at date of grant for options granted during
the year ended December 31, 1999 and December 31, 1998 was $.17 and $.08 per
option, respectively. The fair value of options at date of grant was estimated
using the Black-Scholes option price model utilizing the following assumptions:
December 31,
--------------------------------
1999 1998
------------- -------------
Risk-free interest rates 5.00% - 5.92% 4.81% - 5.54%
Expected option life in years 10 10
Expected stock price volatility 85% 80%
Expected divided yield 0% 0%
F-30
<PAGE>
11. Commitments, Contingent Liabilities and Legal Proceedings
Commitments and Contingent Liabilities
Pursuant to the terms of the Limited Partner Settlement, a fund has been
established into which DVL is required to deposit 20% of the cash flow received
on its mortgage loans from Affiliated Limited Partnerships after repayment of
certain creditors, 50% of DVL's receipts from certain loans to and general
partnership investments in Affiliated Limited Partnerships and a contribution of
5% of DVL's net income subject to certain adjustments in the years 2001 through
2012. DVL has not provided for such contingencies.
No monies have been paid to the fund through December 31, 1999 as DVL has a
receivable from the fund for expenses paid by DVL on behalf of Affiliated
Limited Partnerships. All of the excess cash continues to be paid to the
specific creditor who has a priority on such cash as a result of its lien on the
specific property. Any future payment made to the fund will be expensed as they
are due.
In August 1998, DVL entered into a lease of premises comprising
approximately 6,000 square feet. The lease for such office space is due to
expire on February 7, 2003. The base rent is $227,160 per annum, plus real
estate and operating expense escalation clauses.
12. Shareholders' Equity
As a result of the shareholder class action settlement, DVL issued
4,017,582 shares of common stock in December 1995 (Note 7).
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 9). 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 $42,000 and $0 at December 31, 1996
and 1997, respectively. The warrants entitled 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 $30,000 and $0 of accrued interest on
the debentures outstanding at December 31, 1996 and 1997, respectively. At
December 31, 1996, approximately 1,605,000 shares of the Company's Common Stock
were reserved for the conversion of subordinated debentures and exercise of
warrants. During 1997, all subordinated debentures were repaid.
In January 1997, DVL issued 150,000 shares of stock to an investment banker
for services rendered in connection with the NPM loan transaction and issued
50,000 shares of stock to certain unrelated individuals in exchange for 100,000
warrants which such individuals received in connection with a prior transaction
with DVL.
F-31
<PAGE>
In October 1997, DVL issued 500,000 shares of stock in the settlement of
litigation and 325,000 shares of stock to the lender in connection with the debt
tender offer (See Note 7). In an unrelated transaction, 272,000 shares were
retired in October 1997. On February 27, 1998, 328,000 additional shares were
issued to such lender.
See Note 6(d) and 7 with respect to Warrants and Notes, which are
redeemable at the Company's option in stock. Depending on the market price of
the Company's stock, there may not be sufficient authorized shares to be issued
upon the redemption of the Warrants and the Notes.
The 100 shares of issued preferred stock carry no specified dividend but
do receive any dividend approved by the Board. To date, no dividend has been
authorized by the Board. On liquidation, the preferred is paid at face value
before the common stock.
In February 2000, DVL amended its Certificate of Incorporation and increased
its number of authorized shares of capital stock from 40,000,100 to 95,000,100
in order to (a) increase the number of authorized shares of DVL's common stock,
$.01 per value from 40,000,000 to 90,000,000 and (b) authorize 5,000,000 shares
of "blank check" preferred stock, $.01 per value.
13. Subsequent Events
In March 2000, DVL purchased five wrap mortgage loans from an unaffiliated
third party which are secured by real estate properties owned by partnerships in
which DVL is the general partner. The loans were purchased for an aggregate
purchase price of $1,210,000 paid as follows: cash of $135,000, the issuance of
an unsecured promissory note in the amount of $75,000 to the seller of the loans
maturing on March 1, 2001 with no accrued interest, and bank financing of
$1,000,000. This bank financing is a self amortizing loan that matures on April
1, 2005 with interest at the rate of prime plus 1.5% and requires payments to be
made from the net cash proceeds DVL will receive on these loans. The wrap
mortgage loans were previously owned by DVL and were transferred to the seller
in 1992 in settlement of indebtedness.
F-32
<PAGE>
DVL, INC. AND SUBSIDIARIES
Schedule III- REAL ESTATE AND ACCUMULATED DEPRECIATION
IN THOUSANDS
<TABLE>
<CAPTION>
I N I T I A L C O S T S C A R R Y I N G C O S T
------------------------------ --------------------------------------------------------
Building and Building and Accumulated
Description Land improvements Land improvement Total Depreciation
- -------------- ------ ----------------- ------- --------------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Warehouse Manufacturing
Kearny, New Jersey $ 289 $ 426 $ 289 $ 426 $ 715 $ 13
<CAPTION>
Line on Which
Depreciation in
Date of Date Latest income State-
Description Construction Acquired ment is Computed
- -------------- ---------------- ------------ ------------------------
<S> <C> <C> <C>
Warehouse Manufacturing
Straight-line method
Kearny, New Jersey 1977 11/98 40 years
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
-----------------------------------
<S> <C> <C> <C>
(A) Reconciliation of Real Estate Owned
Balance at beginning of year $ 289 $ 289 $ 706
Additions during the year $ --- $ 417 $ 9
-------- --------- --------
Balance at end of year $ 289 $ 706 $ 715
======== ========= ========
</TABLE>
<TABLE>
<CAPTION>
Year ended December 31,
1997 1998 1999
-----------------------------------------
<S> <C> <C> <C>
(A) Reconciliation of Accumulated Depreciation
Balance at beginning of year $ ---- $ --- $ 2
Additions during the year
Depreciation $ --- $ 2 $ 11
-------- -------- -------
Balance at end of year $ ---- $ 2 $ 13
======== ======== =======
</TABLE>
See notes to consolidated financial statements
<PAGE>
Exhibit 3I
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
DVL, INC.
The undersigned corporation, DVL, Inc., a Delaware corporation
(the "Corporation"), in order to amend its Certificate of Incorporation, hereby
certifies as follows:
FIRST: The name of the Corporation is DVL, Inc.
SECOND: The Corporation hereby amends its Certificate of
Incorporation as follows:
Article FOURTH of the Certificate of Incorporation of DVL,
Inc. is hereby deleted and replaced in its entirety to read as follows:
"FOURTH: The total number of shares of capital stock
which the Corporation shall have the authority to issue is
Ninety-Five Million and One Hundred (95,000,100) shares, of which
Ninety Million (90,000,000) shares shall be Common Stock, par value
$.01 per share (the "Common Stock"), One Hundred (100) shares shall
be Class A Preferred Stock, par value $10.00 per share (the "Class A
Preferred Stock"), and Five Million (5,000,000) shares shall be
undesignated Preferred Stock, par value $.01 per share (the
"Preferred Stock").
A. Provisions Relating to the Common Stock.
(i) Dividends. The holders of shares of Common Stock
shall be entitled to receive such dividends as may be declared by the
Board of Directors of the Corporation, if any, out of funds legally
available therefor.
(ii) Liquidation Rights. Subject to the preferential
liquidation rights of the holders of the shares of the Class A
Preferred Stock and the Preferred Stock described in subparagraphs B
and C below, in the event of any voluntary or involuntary liquidation,
dissolution or winding up of, or any distribution of the assets of, the
Corporation, the holders of shares of Common Stock shall be entitled to
receive all of the assets of the Corporation available for distribution
to its stockholders ratably in proportion to the number of shares of
Common Stock held by them.
(iii) Voting Rights. The holders of the shares of
Common Stock shall be entitled to vote on all matters at all meetings
of the stockholders of the Corporation, and shall be entitled to one
vote for each share of Common Stock entitled to vote at such meeting as
a class separate from the holders of the shares of Class A Preferred
Stock and from the holders of the Preferred Stock.
B. Provisions Relating to the Class A Preferred
Stock.
(i) Designation and Amount. The distinctive
designation of this class of preferred stock is "Class A Preferred
Stock" and the number of shares constituting such class shall be One
Hundred (100).
<PAGE>
(ii) Rank. The Class A Preferred Stock shall, with
respect to dividend rights and rights on liquidation, winding up and
dissolution, rank junior to all Senior Securities and senior to all
Junior Securities, all as more fully set forth herein. For the purposes
of this Article FOURTH, "Senior Securities" shall mean all classes and
series of stock of the Corporation hereafter authorized, issued or
outstanding, other than Junior Securities. For the purposes of this
Article FOURTH, "Junior Securities" shall mean the Common Stock of the
Corporation, par value $.01 per share, any other class or series of the
Corporation's common equity, and such other classes or series of stock
of the Corporation as shall be designated as junior to the Class A
Preferred Stock with respect to dividend rights and rights on
liquidation, winding up and dissolution by the Board of Directors of
the Corporation or by amendment of the Certificate of Incorporation of
the Corporation, duly adopted by the Corporation and its stockholders
as provided pursuant to the General Corporation Law of the State of
Delaware (the "DGCL").
(iii) Dividends. The holders of the shares of Class A
Preferred Stock shall be entitled to receive such dividends as may be
declared by the Board of Directors of the Corporation, if any, out of
funds legally available therefor.
(iv) Liquidation Preference. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, the holders of the shares of Class A
Preferred Stock then outstanding shall be entitled to be paid out of
the assets of the Corporation available for distribution to its
stockholders, prior and in preference to any distribution of any of the
assets of the Corporation, an amount in cash equal to $10.00 for each
share outstanding (the "Class A Liquidation Preference"). If the assets
of the Corporation are not sufficient to pay in full the Class A
Liquidation Preference payable to the holders of outstanding shares of
Class A Preferred Stock, then the holders of all such shares shall
share ratably in such distribution of assets in proportion to the
amount which would be payable on such distribution if the Class A
Liquidation Preference to which the holders of outstanding shares of
Class A Preferred Stock are entitled were paid in full. Upon any such
liquidation, dissolution or winding up of the Corporation, after the
holders of Class A Preferred Stock shall have been paid in full their
Class A Liquidation Preference, the remaining assets of the Corporation
may be distributed to the holders of shares of Common Stock and
Preferred Stock, and the holders of shares of Class A Preferred Stock
shall not be entitled to share therein. For the purposes of this
Article FOURTH, neither the voluntary sale, lease, conveyance, exchange
or transfer (for cash, shares of stock, securities or other
consideration) of all or any part of the property or assets of the
Corporation nor the merger or consolidation of the Corporation with one
or more corporations nor the reduction of the capital stock of the
Corporation shall be deemed to be a liquidation, dissolution or winding
up, voluntary or involuntary, of the Corporation. Written notice of any
voluntary or involuntary liquidation, dissolution or winding up of the
affairs of the Corporation, stating the payment date and the place
where the distributable amount shall be payable, shall be given by
mail, postage prepaid, not less than thirty (30) days prior to the
payment date stated therein, to the holders of record of the Class A
Preferred Stock at their respective addresses as the same shall then
appear on the books of the Corporation.
(v) Voting Rights.
<PAGE>
(a) Special Purpose Director. The holders of shares
of Class A Preferred Stock shall be entitled to nominate and elect one
director (the "Special Purpose Director") to the Board of Directors of
the Corporation by a vote of a majority of the then outstanding shares
of Class A Preferred Stock voting as one class at a meeting of such
holders or by written consent of the holders of a majority of such
shares then outstanding, provided, however, that such Special Purpose
Director, in accordance with Section 141(d) of the DGCL, shall have no
right to vote on matters presented for a vote at meetings of the Board
of Directors of the Corporation other than with respect to matters
relating to (i) the filing by the Corporation of a petition in
bankruptcy pursuant to Title 11 of the United States Code and (ii) in
connection with the insolvency of the Corporation, the dissolution or
liquidation of the Corporation or the making of a compromise or
arrangement under applicable state law between the Corporation and its
creditors who hold a substantial portion of the Corporation's
indebtedness (collectively, the "Bankruptcy Matters"). As to any
Bankruptcy Matter, only the unanimous vote of the fully constituted
Board of Directors of the Corporation (including, without limitation,
the Special Purpose Director) will be required to constitute an act of
the Board of Directors of the Corporation.
(b) Board Observation Rights. For so long as there
shall be a Special Purpose Director, and notwithstanding the limitation
upon the voting rights of the Special Purpose Director contained
herein:
(1) The Corporation shall give to the Special Purpose
Director notice of each meeting of the Board of Directors of
the Corporation at the same time and in the same manner as
notice is given to the other directors;
(2) The Special Purpose Director shall be entitled to
attend in person all meetings held in person and to
participate in telephone or other meetings of the Board of
Directors of the Corporation;
(3) The Corporation shall provide to the Special
Purpose Director in connection with each meeting of the Board
of Directors (whether in person or otherwise), copies of all
notices, minutes, consents, and all other materials or
information that the Corporation provides to the other
directors of the Corporation with respect to such meeting or
otherwise, at the same time such materials and information are
given to the other directors of the Corporation (except that
materials and information provided to other directors at
meetings of the Board of Directors of the Corporation at which
the Special Purpose Director is not present shall be provided
to him or her promptly after the meetings);
(4) If the Board of Directors proposes to take any
action by written consent in lieu of a meeting, the
Corporation shall give written notice thereof to the Special
Purpose Director prior to the effective date of such consent
describing in reasonable detail the nature and substance of
such action; and
(5) Except as otherwise provided herein, the Special
Purpose Director shall otherwise enjoy all rights, privileges
and benefits conferred upon directors of the Corporation by
the Certificate of Incorporation, the By-Laws of the
Corporation or by law, including, without limitation, with
respect to indemnification and advancement of expenses.
(c) Removal and Vacancy. The Special Purpose Director
may be removed without cause only by the holders of the then
outstanding shares of Class A Preferred Stock. Any vacancy in the
position of Special Purpose Director shall be filled only by the
holders of the then outstanding shares of Class A Preferred Stock. The
Special Purpose Director shall be paid $100 per year by the Corporation
for his services.
<PAGE>
(d) No Additional Voting Rights. Except as otherwise
expressly provided herein or as required by law, holders of shares of
Class A Preferred Stock shall not have any voting rights.
(e) Amendments Affecting Class A Preferred Stock. So
long as any shares of Class A Preferred Stock are outstanding, the
written consent or the affirmative vote at a meeting called for that
purpose of the holders of a majority of the votes of the shares of
Class A Preferred Stock then outstanding, voting separately as a class,
shall be necessary to validate or effectuate any amendment, alteration
or repeal of the Certificate of Incorporation of the Corporation so as
to affect adversely the powers, preferences or special rights of such
Class A Preferred Stock.
(vi) Redemption by Corporation.
(a) The Corporation shall have the right, commencing
on the date that is three years following the date that the
Corporation's obligations to NPM Capital LLC and its affiliates are
satisfied in full, to redeem out of funds legally available therefor
all or any part of the shares of Class A Preferred Stock at its
election expressed by resolution of the Board of Directors of the
Corporation, upon not less than thirty (30) days' prior notice to
the holders of record of the Class A Preferred Stock to be redeemed,
given by mail, at the Redemption Price (as hereinafter defined) on
the Redemption Date (as hereinafter defined).
(b) The "Redemption Date" shall be the date fixed for
redemption in the notice of redemption.
(c) The price at which outstanding shares of Class A
Preferred Stock shall be redeemed pursuant to subsection (vi)(a)
shall be $10.00 per share (the "Redemption Price").
(d) If less than all outstanding Class A Preferred
Stock is to be redeemed, the redemption may be made either pro rata
or by lot or in some other equitable manner as may be prescribed by
resolution of the Board of Directors.
(e) Any notice of redemption mailed to a holder of
Class A Preferred Stock at his or her address as the same shall
appear on the books of the Corporation shall be conclusively
presumed to have been given whether or not the holder receives the
notice. Each such notice shall state: the Redemption Date; the
number of shares of Class A Preferred Stock to be redeemed and, if
less than all shares of Class A Preferred Stock held by such holder
are to be redeemed, the number of such shares to be redeemed from
him or her and the fact that a new certificate or certificates
representing any unredeemed shares shall be issued without cost to
such holder; the Redemption Price applicable to the shares to be
redeemed; and the place or places where such shares are to be
surrendered. No defect in any such notice to any holder of Class A
Preferred Stock shall affect the validity of the proceedings for the
redemption of any other shares of such Class A Preferred Stock.
(f) From and after the Redemption Date, all rights of
the holders of shares of Class A Preferred Stock as stockholders of the
Corporation, except the right to receive the Redemption Price, shall
terminate. Any moneys set aside by the Corporation on account of the
Redemption Price and unclaimed by the end of three years from the
Redemption Date shall revert to the general funds of the Corporation.
(g) Any shares of Class A Preferred Stock redeemed
pursuant to the provisions of this subsection (vi) shall be retired and
given the status of authorized and unissued preferred stock,
undesignated as to series, and subject to reissuance by the Corporation
as shares of Preferred Stock of one or more series, as may be
determined from time to time by the Board of Directors of the
Corporation.
<PAGE>
(h) No shares of Class A Preferred Stock shall be
redeemed in whole or in part under this subsection (vi): (1) at any
time that such redemption is prohibited by the DGCL;(2) at any time
that the terms and provisions of any contract or other agreement of the
Corporation or any of its directly or indirectly owned subsidiaries
specifically prohibits such redemption or provides that such redemption
would constitute a breach thereof or a default thereunder; (3) unless,
prior to or concurrently with such redemption, all unpaid dividends on
all Senior Securities for periods preceding or ending on the Redemption
Date have been paid in full or have been declared and set aside for
payment in full; or (4) at any time that the Corporation shall be in
default in respect of any redemption obligations on or under Senior
Securities.
(vii) No Conversion Rights. The holders of shares of
Class A Preferred Stock shall not have any rights to convert such
shares into shares of any other class or series of capital stock
or into any other securities of, or any other interest in, the
Corporation.
(viii) No Sinking Fund. No sinking fund shall be
established for the payment of dividends on shares of Class A
Preferred Stock, if any, or the liquidation of shares of Class A
Preferred Stock.
(ix) No Preemptive or Subscription Rights. No holder
of shares of Class A Preferred Stock shall have any preemptive or
subscription rights in respect of any securities of the
Corporation that may be issued.
(x) No Other Rights. The shares of Class A Preferred
Stock shall not have any designations, preferences or relative,
participating, optional or other special rights except as
expressly set forth in this Article FOURTH of the Certificate of
Incorporation of the Corporation or as otherwise required by law.
(xi) Legend. All certificates for shares of Class A
Preferred Stock issued by the Corporation shall conspicuously bear
the following legend:
"The Corporation will furnish without charge to the holder of
record of this certificate a copy of the Certificate of
Incorporation of the Corporation, containing the powers,
designations, preferences and relative, participating,
optional or other special rights of each class of stock of the
Corporation or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights,
upon written request to the Corporation at its principal place
of business."
C. Provisions Relating to the Preferred Stock. Shares
of Preferred Stock may be issued from time to time in one or more
series, and the Board of Directors of the Corporation is hereby
authorized, subject to the limitations provided by law, to establish
and designate one or more series of Preferred Stock, to fix the number
of shares constituting each series, and to fix the designation, powers,
preferences and relative, participating, optional or other special
rights, and qualifications, limitations or restrictions thereof, of
each series and the variations and the relative rights, preferences and
limitations as between series, and to increase and to decrease the
number of shares constituting each series (in each case subject to the
rights of the holders of the Common Stock and Series A Preferred Stock
set forth above). The authority of the Board of Directors of the
Corporation with respect to each series shall include, but shall not be
limited to, the authority to determine the following:
(i) The designation of such series, which may be by distinguishing
number or letter;
<PAGE>
(ii) The number of shares initially constituting such series;
(iii) The increase, and the decrease to a number not less than
the number of the then outstanding shares of such series, of the
number of shares constituting such series theretofore fixed;
(iv) The rate or rates, and the conditions upon and the times at
which dividends on the shares of such series shall be paid, the
preference or relation which such dividends shall bear to the dividends
payable on any other class or classes or on any other series of stock
of the Corporation, and whether or not such dividends shall be
cumulative, and, if such dividends shall be cumulative, the date or
dates from and after which they shall accumulate;
(v) Whether or not the shares of such series shall be redeemable
and, if such shares shall be redeemable, the terms and conditions of
such redemption, including, but not limited to, the date or dates upon
or after which such shares shall be redeemable and the amount per share
which shall be payable upon such redemption, which amount may vary
under different conditions and at different redemption dates;
(vi) The rights to which the holders of the shares of such series
shall be entitled upon the voluntary or involuntary liquidation,
dissolution or winding up of, or upon any distribution of the assets
of, the Corporation, which rights may be different in the case of a
voluntary liquidation, dissolution or winding up than in the case of
such an involuntary event;
(vii) Whether or not the shares of such series shall have
voting rights, in addition to the voting rights provided by law and,
if such shares shall have such voting rights, the terms and
conditions thereof, including, but not limited to, the right of the
holders of such shares to vote as a separate class either alone or
with the holders of shares of one or more other series of Preferred
Stock and the right to have more than one vote per share;
(viii) Whether or not a sinking or a purchase fund shall be provided
for the redemption or purchase of the shares of such series and, if
such a sinking fund or purchase fund shall be provided, the terms and
conditions thereof;
(ix) Whether or not the shares of such series shall be convertible
into, or exchangeable for, shares of any other class or classes or any
other series of the same or any other class or classes of stock or any
other security of the Corporation or any other entity and, if provision
be made for conversion or exchange, the terms and conditions of
conversion or exchange, including, but not limited to, any provision
for the adjustment of the conversion or exchange rate or price; and
(x) Any other relative rights, preferences and
limitations."
***
Article SIXTH of the Certificate of Incorporation of the
Corporation is hereby deleted and replaced in its entirety to read as follows:
"SIXTH: Directors and By-Laws. In furtherance and not in
limitation of the powers conferred by law, subject to any limitations
contained elsewhere in this Certificate of Incorporation, By-laws of
the Corporation may be adopted, amended or repealed by the Board of
Directors of the Corporation, provided that any By-laws adopted by the
Board of Directors may be amended or repealed by the stockholders
entitled to vote thereon."
<PAGE>
***
Article ELEVENTH of the Certificate of Incorporation of the
Corporation is hereby deleted and replaced in its entirety to read as follows:
"ELEVENTH: Limitation on Transfer of Shares. Except as
expressly provided below in this Article ELEVENTH, shares of capital stock
of the Corporation are fully and freely transferable.
A. Certain Transfers Prohibited.
(i) Until September 30, 2009 (the "Restriction
Period"), no individual, partnership, firm, corporation, association,
trust, unincorporated organization or other entity, as well as any
syndicate or group deemed to be a person under Section 14(d)(2) of the
Securities Exchange Act of 1934, as amended (each a "Person"), who (i)
purports to purchase or acquire any shares of capital stock of the
Corporation from the Corporation by the exercise of a warrant or option
or otherwise or (ii) beneficially owns directly or through attribution
(as determined under Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code")) five percent or more of the value of the
outstanding shares of capital stock of the Corporation or who, upon the
acquisition of any shares of capital stock of the Corporation, would
beneficially own directly or through attribution (as determined under
Code Section 382) five percent or more of the value of the outstanding
shares of capital stock of the Corporation (each such Person described
in (i) or (ii) above being a "Restricted Holder"), shall sell,
transfer, or dispose, or purchase or acquire in any manner whatsoever,
whether voluntarily or involuntarily, by operation of law or otherwise
(any such sale, transfer, disposition, purchase, acquisition or
contract being a "Transfer"), any shares of capital stock of the
Corporation or any option, warrant or other right to purchase or
acquire capital stock of the corporation (such warrant, option or
security being an "Option") or any securities convertible into or
exchangeable for capital stock of the Corporation, except as authorized
pursuant to this Article ELEVENTH. For purposes of this Article
ELEVENTH, "capital stock" shall include the Common Stock, the Class A
Preferred Stock and the Preferred Stock of the Corporation and any
Option. Notwithstanding the preceding sentence, for purposes of
determining whether a Person owns five percent or more of the value of
the outstanding shares of capital stock of the Corporation, Options
shall be taken into account to the extent taking such Options into
account would cause a Person to become a Restricted Holder.
Notwithstanding the provisions of this clause (i), nothing herein shall
prohibit the acquisition by NPM Capital LLC, a Delaware limited
liability company, and its affiliates, including NPO Holdings LLC, a
Delaware limited liability company, of 1,000,000 shares of the
Corporation's Common Stock pursuant to the terms of that certain Stock
Purchase Agreement dated as of March 27, 1996 between the Corporation
and NPO Holdings LLC.
(ii) The restrictions contained in this Article
ELEVENTH are for the purpose of reducing the risk that any change in
stock ownership may jeopardize the preservation of the Corporation's
federal income tax attributes. In connection therewith, and to provide
for the effective policing of these provisions, a Restricted Holder who
proposes to Transfer shares of capital stock shall, prior to the date
of the proposed Transfer, request in writing (a "Request") that the
Board of Directors of the Corporation review the proposed Transfer and
authorize or not authorize the proposed Transfer pursuant to subsection
C hereof. A Request a shall be mailed or delivered to the President of
the Corporation at the Corporation's principal place of business or
telecopied to the Corporation's telecopier number at its principal
place of business. Such Request shall be deemed to have been delivered
when actually received by the Corporation. A Request shall include (a)
the name, address and telephone number of the Restricted Holder, (b) a
description of the shares of capital stock proposed to be Transferred
by or to the Restricted
<PAGE>
Holder, (c) the date on which the proposed Transfer is expected to take
place, (d) the name of the proposed transferor and transferee of the
capital stock to be transferred by or to the Restricted Holder, and (e)
a Request that the Board of Directors authorize, if appropriate, the
Transfer pursuant to subsection C hereof and inform the Restricted
Holder of its determination regarding the proposed Transfer. If the
Restricted Holder seeks to sell or dispose of shares of capital stock,
then, within five business days of receipt by the President of a
Request, a meeting of the Board of Directors shall be held to determine
whether to authorize the proposed Transfer described in the Request
under subsection C hereof. If the Restricted Holder seeks to purchase
or acquire shares of capital stock, at the next regularly scheduled
meeting of the Board of Directors following the fifth business day
after receipt by the President of a Request, the Board of Directors
will meet to determine whether to authorize the proposed Transfer
described in the Request under subsection C hereof. The Board of
Directors shall conclusively determine whether to authorize the
proposed Transfer, in its sole discretion and judgment, and shall
immediately cause the Restricted Holder making the Request to be
informed of such determination.
B. Effect of Unauthorized Transfer. Any Transfer attempted to
be made in violation of this Article ELEVENTH will be null and void. In
the event of an attempted or purported Transfer involving a sale or
disposition of capital stock in violation of this Article ELEVENTH the
Restricted Holder shall remain the owner of such shares. In the event
of an attempted or purported Transfer involving the purchase or
acquisition by a Restricted Holder in violation of this Article
ELEVENTH, the Corporation shall be deemed to be the exclusive and
irrevocable agent for the transferor of such capital stock. The
Corporation shall be such agent for the limited purpose of consummating
a sale of such shares to a Person who is not a Restricted Holder (an
"eligible transferee"), which may include, without limitation, the
transferor. The record ownership of the subject shares shall remain in
the name of the transferor until the shares have been sold by the
Corporation or its assignee, as agent, to an eligible transferee. The
Corporation shall be entitled to assign its agency hereunder to any
person or entity including, but not limited to, the intended transferee
of the shares, for the purpose of effecting a permitted sale of such
shares. Neither the Corporation, as agent, nor any assignee of its
agency hereunder, shall be deemed to be a stockholder of the
Corporation nor be entitled to any rights of a stockholder of the
Corporation, including, but not limited to, any right to vote such
capital stock or to receive dividends or liquidating distributions in
respect thereof, if any, but the Corporation or its assignee shall only
have the right to sell and transfer such shares on behalf of and as
agent for the transferor to another person or entity; provided,
however, that a Transfer to such other person or entity does not
violate the provisions of this Article ELEVENTH. The rights to vote and
to receive dividends and liquidating distributions with respect to such
shares shall remain with the transferor. The intended transferee shall
not be entitled to any rights of stockholders of the Corporation,
including, but not limited to, the rights to vote or to receive
dividends and liquidating distributions with respect to such shares. In
the event of a permitted sale and transfer, whether by the Corporation
or its assignee, as agent, the proceeds to such sale shall be applied
first to reimburse the Corporation or its assignee for any expenses
incurred by the Corporation acting in its role as the agent for the
sale of such shares, second to the extent of any remaining proceeds, to
reimburse the intended transferee for any payments made to the
transferor by such intended transferee for such shares, and the
reminder, if any, to the original transferor.
<PAGE>
C. Authorization of Transfer of Capital Stock by a Restricted
Holder. The Board of Directors shall authorize a Transfer by a
Restricted Holder or to a Restricted Holder, if, in its sole discretion
and judgment, it determines that the Transfer will not jeopardize the
Corporation's preservation of its federal income tax attributes
pursuant to Code Section 382. In deciding whether to approve any
proposed Transfer of capital stock by or to a Restricted Holder, the
Board of Directors may seek the advice of counsel with respect to the
Corporation's preservation of its federal income tax attributes
pursuant to Code Section 382 and may request all relevant information
from the Restricted Holder with respect to all capital stock directly
or indirectly owned by such Restricted Holder. Any Person who makes a
Request of the Board of Directors pursuant to this subsection C to
Transfer shares of capital stock shall reimburse the Corporation, on
demand, for all costs and expenses incurred by the Corporation with
respect to any proposed Transfer of capital stock, including, without
limitation, the Corporation's costs and expenses incurred in
determining whether to authorize that proposed Transfer.
D. Legend on Certificates. All certificates for shares of
capital stock issued by the Corporation shall conspicuously bear the
following legend:
"Each of the Certificate of Incorporation (the "Certificate") and
the By-laws (the "By- laws") of the Corporation contains
restrictions prohibiting the sale, transfer, disposition, purchase
or acquisition of any capital stock until September 30, 2009,
without the authorization of the Board of Directors of the
Corporation (the "Board of Directors"), by or to any holder (a) who
beneficially owns directly or through attribution (as generally
determined under Section 382 of the Internal Revenue Code of 1986,
as amended (the "Code")) five percent or more of the value of the
then issued and outstanding shares of capital stock of the
Corporation or (b) who, upon the sale, transfer, disposition,
purchase or acquisition of any capital stock of the Corporation
would beneficially own directly or through attribution (as generally
determined under Section 382 of the Code) five percent or more of
the value of the then issued and outstanding capital stock of the
Corporation, it that sale, transfer, disposition, purchase or
acquisition would, in the sole discretion and judgment of the Board
of Directors, jeopardize the Corporation's preservation of its
federal income tax attributes pursuant to Section 382 of the Code.
The Corporation will furnish without charge to the holder of record
of this certificate a copy of the Certificate and/or By- laws,
containing the above-referenced restrictions on transfer of stock,
upon written request to the Corporation at its principal place of
business."
A new Article TWELTH is hereby added to the Certificate of
Incorporation of the Corporation to read as follows:
<PAGE>
"TWELTH: Indemnification. Each person who is or was or had
agreed to become a director or officer of the Corporation, or each such
person who is or was serving or who had agreed to serve at the request of
the Board of Directors or an officer of the Corporation as an employee or
agent of the Corporation or as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other
enterprise (including the heirs, executors, administrators or estate of
such person), shall be indemnified by the Corporation to the full extent
permitted from time to time by the General Corporation Law of the State
of Delaware as the same exists or may hereafter be amended (but, in the
case of any such amendment, only to the extent that such amendment
permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment) or
any other applicable statutory or decisional laws as currently or
hereafter in effect. Without limiting the generality or the effect of the
foregoing, the Corporation may enter into one or more agreements with any
person or adopt provisions or policies pursuant to the By-laws of the
Corporation or otherwise which provide for indemnification greater or
different than that provided in this Article TWELTH. Any amendment or
repeal of this Article TWELTH shall not adversely affect any right or
protection existing hereunder immediately prior to such amendment or
repeal."
A new Article THIRTEENTH is hereby added to the Certificate of
Incorporation of the Corporation to read as follows:
"THIRTEENTH: Limited Liability. A director of the Corporation
shall not be personally liable to the Corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the General Corporation Law of the State
of Delaware, as the same exists or may hereafter be amended, or (iv) for
any transaction from which the director derived an improper personal
benefit. Any amendment or repeal of this Article THIRTEENTH shall not
adversely affect any right or protection of a director of the Corporation
existing immediately prior to such amendment or repeal."
THIRD: The amendments set forth herein were duly adopted pursuant to
Sections 222 and 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the undersigned has executed this certificate
this 7th day of February, 2000.
DVL, INC.
/s/ Jay Thailer
----------------------------------------
Jay Thailer, Secretary
<PAGE>
Exhibit 3M
THIRD AMENDMENT
TO THE BY-LAWS
OF
DVL, INC.
(formerly known as Del-Val Financial Corporation, Inc.)
----------------------------------
FIRST: Articles II, III and VIII of
the By-laws of the Corporation are hereby deleted.
SECOND: Sections 11.1, 11.2 and 11.3 of
the By-laws of the Corporation are hereby deleted.
THIRD: Article XII of the By-laws of
the Corporation is hereby deleted and replaced in its entirety to read as
follows:
"ARTICLE XII
Limitation on Transfer of Shares
Section 12.1 Limitation on Transfer of Shares. Except as
expressly provided below in this ARTICLE XII, shares of capital stock of
the Corporation are fully and freely transferable.
Section 12.2 Certain Transfers Prohibited.
(a) Until September 30, 2009 (the "Restriction Period"), no
individual, partnership, firm, corporation, association, trust,
unincorporated organization or other entity, as well as any syndicate or
group deemed to be a person under Section 14(d)(2) of the Securities
Exchange Act of 1934, as amended (each a "Person"), who (i) purports to
purchase or acquire any shares of capital stock of the Corporation from
the Corporation by the exercise of a warrant or option or otherwise or
(ii) beneficially owns directly or through attribution (as determined
under Section 382 of the Internal Revenue Code of 1986, as amended (the
"Code")) five percent or more of the value of the outstanding shares of
capital stock of the Corporation or who, upon the acquisition of any
shares of capital stock of the Corporation, would beneficially own
directly or through attribution (as determined under Code Section 382)
five percent or more of the value of the outstanding shares of capital
stock of the Corporation (each such Person described in (i) or (ii) above
being a "Restricted Holder"), shall sell, transfer, or dispose, or
purchase or acquire in any manner whatsoever, whether voluntarily or
involuntarily, by operation of law or otherwise (any such sale, transfer,
disposition, purchase, acquisition or contract being a "Transfer"), any
shares of capital stock of the Corporation or any option, warrant or
other right to purchase or acquire capital stock of the Corporation (such
warrant, option or security being an "Option") or any securities
convertible into or exchangeable for capital stock of the Corporation,
except as authorized pursuant to this ARTICLE XII. For purposes of this
ARTICLE XII, "capital stock" shall include the Common Stock, the Class A
Preferred Stock and the Preferred Stock of the Corporation and any
Option. Notwithstanding
<PAGE>
the preceding sentence, for purposes of determining whether a Person owns
five percent or more of the value of the outstanding shares of capital
stock of the Corporation, Options shall be taken into account to the
extent taking such Options into account would cause a Person to become a
Restricted Holder. Notwithstanding the provisions of this clause (a),
nothing herein shall prohibit the acquisition by NPM Capital LLC, a
Delaware limited liability company, and its affiliates, including NPO
Holdings LLC, a Delaware limited liability company, of 1,000,000 shares
of the Corporation's Common Stock pursuant to the terms of that certain
Stock Purchase Agreement dated as of March 27, 1996 between the
Corporation and NPO Holdings LLC.
(b) The restrictions contained in this ARTICLE XII are for the
purpose of reducing the risk that any change in stock ownership may
jeopardize the preservation of the Corporation's federal income tax
attributes. In connection therewith, and to provide for the effective
policing of these provisions, a Restricted Holder who proposes to
Transfer shares of capital stock shall, prior to the date of the proposed
Transfer, request in writing (a "Request") that the Board of Directors of
the Corporation review the proposed Transfer and authorize or not
authorize the proposed Transfer pursuant to Section 12.4 hereof. A
Request a shall be mailed or delivered to the President of the
Corporation at the Corporation's principal place of business or
telecopied to the Corporation's telecopier number at its principal place
of business. Such Request shall be deemed to have been delivered when
actually received by the Corporation. A Request shall include (a) the
name, address and telephone number of the Restricted Holder, (b) a
description of the shares of capital stock proposed to be Transferred by
or to the Restricted Holder, (c) the date on which the proposed Transfer
is expected to take place, (d) the name of the proposed transferor and
transferee of the capital stock to be Transferred by or to the Restricted
Holder, and (e) a Request that the Board of Directors authorize, if
appropriate, the Transfer pursuant to Section 12.4 hereof and inform the
Restricted Holder of its determination regarding the proposed Transfer.
If the Restricted Holder seeks to sell or dispose of shares of capital
stock, then, within five business days of receipt by the President of a
Request, a meeting of the Board of Directors shall be held to determine
whether to authorize the proposed Transfer described in the Request under
Section 12.4 hereof. If the Restricted Holder seeks to purchase or
acquire shares of capital stock, at the next regularly scheduled meeting
of the Board of Directors following the fifth business day after receipt
by the President of a Request, the Board of Directors will meet to
determine whether to authorize the proposed Transfer described in the
Request under Section 12.4 hereof. The Board of Directors shall
conclusively determine whether to authorize the proposed Transfer, in its
sole discretion and judgment, and shall immediately cause the Restricted
Holder making the Request to be informed of such determination.
Section 12.3 Effect of Unauthorized Transfer. Any Transfer
attempted to be made in violation of this ARTICLE XII will be null and
void. In the event of an attempted or purported Transfer involving a sale
or disposition of capital stock in violation of this ARTICLE XII, the
Restricted Holder shall remain the owner of such shares. In the event of
an attempted or purported Transfer involving the purchase or acquisition
by a Restricted Holder in violation of this ARTICLE XII, the Corporation
shall be deemed to be the exclusive and irrevocable agent for the
transferor of such capital stock. The Corporation shall be such agent for
the limited purpose of consummating a sale of such shares to a Person who
is not a Restricted Holder (an "eligible transferee"), which may include,
without limitation, the transferor. The record ownership of the subject
shares shall remain in the name of the transferor until the shares have
been sold by the Corporation or its assignee, as agent, to an eligible
transferee. The Corporation shall be entitled to assign its agency
hereunder to any person or entity including, but not limited to, the
intended transferee of the shares, for the purpose of effecting a
permitted sale of such shares. Neither the Corporation, as agent, nor any
assignee of its agency hereunder, shall be deemed to be a stockholder of
the Corporation nor be entitled to any rights of a stockholder of the
Corporation, including, but not limited to, any
<PAGE>
right to vote such capital stock or to receive dividends or liquidating
distributions in respect thereof, if any, but the Corporation or its
assignee shall only have the right to sell and transfer such shares on
behalf of and as agent for the transferor to another person or entity;
provided, however, that a Transfer to such other person or entity does
not violate the provisions of this ARTICLE XII. The rights to vote and to
receive dividends and liquidating distributions with respect to such
shares shall remain with the transferor. The intended transferee shall
not be entitled to any rights of stockholders of the Corporation,
including, but not limited to, the rights to vote or to receive dividends
and liquidating distributions with respect to such shares. In the event
of a permitted sale and transfer, whether by the Corporation or its
assignee, as agent, the proceeds to such sale shall be applied first to
reimburse the Corporation or its assignee for any expenses incurred by
the Corporation acting in its role as the agent for the sale of such
shares, second to the extent of any remaining proceeds, to reimburse the
intended transferee for any payments made to the transferor by such
intended transferee for such shares, and the reminder, if any, to the
original transferor.
Section 12.4 Authorization of Transfer of Capital Stock by a
Restricted Holder. The Board of Directors shall authorize a Transfer by a
Restricted Holder, or to a Restricted Holder, if, in its sole discretion
and judgment it determines that the Transfer will not jeopardize the
Corporation's preservation of its federal income tax attributes pursuant
to Code Section 382. In deciding whether to approve any proposed Transfer
of capital stock by or to a Restricted Holder, the Board of Directors may
seek the advice of counsel with respect to the Corporation's preservation
of its federal income tax attributes pursuant to Code Section 382 and may
request all relevant information from the Restricted Holder with respect
to all capital stock directly or indirectly owned by such Restricted
Holder. Any Person who makes a Request of the Board of Directors pursuant
to this Section 12.4 to Transfer shares of capital stock shall reimburse
the Corporation, on demand, for all costs and expenses incurred by the
Corporation with respect to any proposed Transfer of capital stock,
including, without limitation, the Corporation's costs and expenses
incurred in determining whether to authorize that proposed Transfer.
Section 12.5 Legend on Certificates. All certificates for
shares of capital stock issued by the Corporation shall conspicuously
bear the following legend:
"Each of the Certificate of Incorporation (the "Certificate")
and the By-laws (the "By- laws") of the Corporation contains
restrictions prohibiting the sale, transfer, disposition,
purchase or acquisition of any capital stock until September
30, 2009, without the authorization of the Board of Directors
of the Corporation (the "Board of Directors"), by or to any
holder (a) who beneficially owns directly or through
attribution (as generally determined under Section 382 of the
Internal Revenue Code of 1986, as amended (the "Code")) five
percent or more of the value of the then issued and
outstanding shares of capital stock of the Corporation or (b)
who, upon the sale, transfer, disposition, purchase or
acquisition of any capital stock of the Corporation would
beneficially own directly or through attribution (as generally
determined under Section 382 of the Code) five percent or more
of the value of the then issued and outstanding capital stock
of the Corporation, it that sale, transfer, disposition,
purchase or acquisition would, in the sole discretion and
judgment of the Board of Directors, jeopardize the
Corporation's preservation of its federal income tax
attributes pursuant to Section 382 of the Code. The
Corporation will furnish without charge to the holder of
record of this certificate a copy of the Certificate and/or
By- laws, containing the above-referenced restrictions on
transfer of stock, upon written request to the Corporation at
its principal place of business."
<PAGE>
Exhibit 10.14
AMENDMENT
TO
DVL, INC.
1996 STOCK OPTION PLAN
AMENDMENT (this "Amendment") to the DVL, Inc. 1996 Stock Option
Plan (the "Plan").
WHEREAS, the Plan was adopted in 1996 by DVL, Inc., a Delaware
corporation (the "Company"), and originally provided for the issuance in the
aggregate of up to 1,500,000 shares of the Company's Common Stock, par value
$.01 per share (the "Common Stock");
WHEREAS, the Board of Directors adopted, subject to stockholder
approval, and the stockholders of the Company at the Annual Meeting of
Stockholders of the Company held on February 1, 2000, approved, a subsequent
amendment to the Plan to increase the number of shares available under the Plan
by an aggregate of 1,000,000 shares of Common Stock; and
WHEREAS, all terms and conditions of the Plan, other than as
specifically amended as set forth in this Amendment, shall remain in full force
and effect.
NOW THEREFORE, the Plan has been amended as follows:
The first sentence of Section II of the Plan is deleted in its entirety
and the following sentence is inserted in its place:
"Subject to the adjustments provided in Section VII of the Plan,
the aggregate number of shares of the Common Stock which may be issued
for all purposes under the Plan shall be two million five hundred
thousand (2,500,000) shares."
IN WITNESS WHEREOF, the Secretary of the Company has executed
this Amendment and certifies that the amendment to the Plan set forth above
accurately reflects the amendment to the Plan adopted by the Board of Directors
and the stockholders of the Company.
/s/ Jay Thailer
-------------------------
Jay Thailer, Secretary
<PAGE>
EXHIBIT 10.25
Waiver of Event of Default and
Agreement Regarding the Demand and Payment of Fees
This Waiver of Event of Default and Agreement Regarding Payment of and
Demand of Fees (this "Agreement") is made by NPO Management LLC ("NPO"), as
follows:
1. Reference is made to that certain Asset Servicing Agreement dated as
of March 27, 1996 (the "Servicing Agreement") by and among DVL, Inc. ("DVL"),
Professional Service Corporation ("PSC"), KM Realty Corporation ("KMR") and NPO.
DVL, PSC and KMR are sometimes collectively referred to herein as the
"Companies". Capitalized terms which are not otherwise defined herein shall have
the meanings assigned to them in the Servicing Agreement.
2. Section 9 of the Servicing Agreement imposes limitations on the amount
of Servicing Fees (excluding any accrued and unpaid interest thereon) which may
be deferred by DVL (the "Limitations"). NPO acknowledges that the amount of
deferred Servicing Fees has exceeded the operative Limitation since mid-1997.
Furthermore, DVL has advised NPO that, the amount of deferred Servicing Fees may
continue, through December 31, 2000, to exceed the Limitations which are
currently operative, or which are scheduled to become operative. The deferral of
Servicing Fees in excess of the Limitations constitutes an Event of Default
under Section 15(a)(ii)(b). The Companies have requested that NPO waive this
Event of Default, defer the payment of the Servicing Fee and loan to or pay on
behalf of DVL certain obligations of DVL, in order to accommodate DVL in its
continuing efforts to improve its financial situation. Therefore, for the sum of
$3,500 and other valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, NPO consents and agrees to the following:
(a) NPO hereby waives any Event of Default which may have
existed under Section 15(a)(ii)(b) of the Servicing Agreement during the period
from January 1, 2000 to the dates of this Agreement, and which may exist under
said Section 15(a)(ii)(b) during the period from the date hereof through
December 31, 2000, solely by virtue of the deferral of any Servicing Fees in
excess of the Limitations.
(b) NPO hereby agrees that it will not demand payment by DVL of
any Servicing Fees which may be due and owing to NPO as of the date of this
Agreement and/or which NPO may be entitled to receive for the period from the
date of this Agreement through December 31, 2000 until the earlier to occur of
(i) January 1, 2001 or (ii) the time that DVL obtains cash in excess of that
required by DVL in order for it to fund its operations through January 1, 2001.
(c) Notwithstanding anything to the contrary contained herein,
the terms of this Agreement shall not affect any other rights of NPO under the
Servicing Agreement, or under any other agreement it has with DVL, including but
not limited to the right to receive payment of all deferred Servicing Fees, and
interest thereon computed pursuant to Section 9(a) of the Servicing Agreement,
which are currently outstanding or which may become outstanding during the
period from the date hereof through December 31, 2000.
3. This Agreement by NPO, may be signed in counterpart. All such executed
counterparts taken together shall be deemed an original.
IN WITNESS WHEREOF, the undersigned has executed this Waiver on the
21st day of March, 2000.
NPO MANAGEMENT LLC
By: Pembroke Companies, Inc., its member
By: /s/ Lawrence J. Cohen
-----------------------------------------
Lawrence J. Cohen, President
By: Omni Partnership Capital I, Inc., its
Member
By: /s/ Jay Chazanoff
-----------------------------------------
Jay Chazanoff
<PAGE>
EXHIBIT 11
DVL, INC. and Subsidiaries
Computation of Earnings Per Share
(in thousands except share and per share data)
(unaudited)
Year Ended
December 31,
-----------------------
1999 1998
---------- ----------
Income (loss) before extraordinary gain $ 1,026 $ (758)
Interest expense on litigation/settlement
notes 481 -
---------- ----------
Ordinary income (loss) 1,507 (758)
Extraordinary gain 1,267 202
---------- ----------
Net income (loss) $ 2,774 $ (556)
========== ==========
Weighted average number of common
shares outstanding - basic 16,560,450 16,508,329
Shares issuable upon exercise of
dilutive options and warrants 61,028,722 -
Less shares assumed repurchased (10,605,934) -
---------- ----------
Weighted average number of common
shares outstanding - diluted 66,983,238 16,508,329
========== ==========
Basic earnings (loss) per share:
Income (loss) before extraordinary gain $ .06 $ (.04)
Extraordinary gain .08 .01
---------- ----------
Net income (loss) $ .14 $ (.03)
========== ==========
Diluted earnings (loss) per share:
Income before extraordinary gain $ .02 $ (.04)
Extraordinary gain .02 .01
---------- ----------
Net income (loss) $ .04 $ (.03)
========== ==========
<PAGE>
DVL, INC. -- TABLE 1
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS (5)
DECEMBER 31, 1999 (In Thousands)
<TABLE>
<CAPTION>
Net Under-
Location of Mtg. lying Security
Affiliated Property Mortgage Unearned Loan Loan Monthly [mortgage(s)
Partnership Securing Loan Balance Interest Receiv. Balance Yield Amort. Maturity upon] Tenant(s)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Alma Alma, AR $ 1,985 $ 741 $ 1,244 $ 860 15% $12 March Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Brent Brent, AL 1,478 533 945 649 15% $ 9 February Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Checotah Checotah, OK 1,557 615 942 659 15% $ 9 February Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Fairbury Fairbury, NE 1,791 733 1,058 758 15% $10 August Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Fort Edward Fort Edward, NY 1,442 74 1,368 - 12% $14 May Land and a Grand Union
Associates 2029 supermarket Stores, Inc.
Hoosick Falls Hoosick Falls, NY 1,395 672 723 - 15% $10 August Land and a Grand Union
Associates 2021 supermarket Stores, Inc.
companies
Orange Park Jacksonville, FL 1,446 583 863 841 12% $9 with January Land and Toys "R" Us,
Associates a final 2020 a commercial Inc.
pmt. of building (1)
$672
Port Isabel Port Isabel, TX 2,157 776 1,381 935 15% $12 February Land and Wal-Mart
Associates (3) 2027 a commercial Stores, Inc.
building (1)
Progress Windsor, CT 512 35 477 304 (2) $ 5 June Industrial Vacant
Associates 2022 building (1)
Tilton Tilton, NH 1,312 775 537 - (2) $13 September Land and a Various
Associates 2020 shopping unaffiliated
center companies
Watseka Watseka, IL 1,160 273 887 760 12% Varying December Land and a K Mart
Associates 2015 commercial Corporation(4)
building (1)
------- ------- ------- -------
$16,235 $ 5,810 $10,425 $ 5,766
</TABLE>
- ------------------------------------
(1) These loans are wrap-around loans.
(2) These loans are expected to be liquidated in the future and DVL does not
anticipate any yield on these loans.
(3) These loans were restructured as part of the Limited Partner Settlement.
The settlement may have the effect of reducing DVL's yield in the future,
which reduced yield is dependent on the actual additional debt service
received on these mortgages in the future.
(4) Building is currently vacant, however, tenant is obligated under the terms
of the lease to continue to pay rent.
(5) DVL's net investment in these mortgages was $4,659 at December 31, 1999 and
$5,646 at December 31, 1998. The decrease resulted from satisfaction of a
certain mortgage indebtedness (eg. Kearny) and collections on certain
mortgages.
<PAGE>
DVL, INC. -- TABLE 2
LONG TERM MORTGAGES DUE FROM AFFILIATED PARTNERSHIPS
DECEMBER 31, 1999 (In Thousands)
<TABLE>
<CAPTION>
Partner- Under- Net Amt. Net
Location ship lying of Col- Mtg.
of Property Mortgage Loan lateral Loans
Affiliated Partnership Securing Loan Balance Balance Pledged Recvable Maturity Tenant
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Aledo Associates LP Aledo, IL (2)(5) $ 2,011 $ 1,068 $ 943 $ 1,311 November 2018 Wal-Mart Stores, Inc.
Caldwell Associates Caldwell, TX (2) 1,767 963 804 1,228 May 2019 Wal-Mart Stores, Inc.
Cherokee Associates Woodstock, GA (2) 3,088 2,903 185 2,917 July 2023 Wal-Mart Stores, Inc.
Clanton Associates LP Clanton, AL (2) 1,783 815 968 1,624 June 2020 Wal-Mart Stores, Inc.
subleased - Fantasy
Land Flea Market
Clinton Associates Clinton, IL (2)(5) 3,419 893 2,526 1,987 June 2029 Wal-Mart Stores, Inc.
Columbus Associates Columbus, TX (2)(5) 3,892 1,032 2,860 1,953 December 2029 Wal-Mart Stores, Inc.
Covington Associates Covington, GA (2)(5) 4,679 1,407 3,272 2,021 January 2030 Wal-Mart Stores, Inc.(4)
Douglas Associates Douglas, GA (2)(5) 2,272 1,046 1,226 2,235 December 2023 Wal-Mart Stores, Inc.
operating as - Buds
Douglasville Associates Douglasville, GA (2)(5) 5,788 1,546 4,242 3,390 June 2031 Wal-Mart Stores, Inc.
Elmira Associates Elmira, NY (2) 733 105 628 298 November 2021 Fays Drug Company, Inc.
Iowa Park Associates LP Iowa Park, TX (2) 1,822 817 1,005 1,098 March 2021 Wal-Mart Stores, Inc.
Lawrenceburg Associates Lawrenceburg, KY (2) 2,996 869 2,127 1,173 December 2029 Wal-Mart Stores, Inc.
Marlow Associates Marlow, OK (2)(5) 2,556 679 1,877 894 December 2029 Wal-Mart Stores, Inc.
Marshall Associates LP Marshall, IL (2)(5) 1,711 953 758 1,164 November 2018 Wal-Mart Stores, Inc.
Mt. Pleasant
Associates LP Mt. Pleasant, IA (2)(5) 2,482 1,272 1,210 1,580 November 2019 Wal-Mart Stores, Inc.
Robstown Associates LP Robstown, TX (2) 2,021 966 1,055 1,040 October 2020 Wal-Mart Stores, Inc.(4)
Sonya Associates LP Booneville, MO (2) 1,693 1,057 636 1,309 June 2018 Wal-Mart Stores, Inc.
Southfield Associates Southfield, MI (3) 3,415 720 2,695 965 July 2026 Pitney-Bowes, Inc.
Van Buren Associates LP Clinton, AR (2) 1,432 866 566 1,090 April 2020 Wal-Mart Stores, Inc.
Waynesboro Associates LP Waynesboro, MS (2)(5) 1,865 994 871 996 January 2019 Wal-Mart Stores, Inc.(4)
Winder Associates Winder, GA (2) 1,897 955 942 1,530 March 2021 Wal-Mart Stores, Inc.
------- ------- ------- -------
$53,322 $21,926 $31,396 $31,803
- -------------------------------------------------
</TABLE>
(1) These loans were acquired pursuant to the Limited Partner Settlement from
Kenbee. DVL's loan balance equals it's net investment in the related loan
due previously from Kenbee, less specific write-downs on certain loans
based upon the anticipated cash flow to be generated by each loan.
(2) The loans due from these partnerships are secured by mortgages upon land
and commercial buildings.
(3) The loans due from these partnerships are secured by mortgages upon land
and office buildings.
(4) Building is currently vacant, however, tenant is obligated under the terms
of the lease to continue to pay rent.
(5) Underlying loan balances include second mortgages from 1994 refinancing.
(6) DVL's total loan balances of these mortgages were $31,803,000 at December
31, 1999 and $43,083,000 at December 31, 1998.
The decrease resulted from the satisfaction of certain mortgage
indebtedness (eg. Ava, Camilla, Cynthiana, Floresville, Gatesville,
Jamestown Road, and Madisonville) and collections on certain mortgages.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,270
<SECURITIES> 0
<RECEIVABLES> 43,040
<ALLOWANCES> 6,697
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 41,858
<CURRENT-LIABILITIES> 0
<BONDS> 5,156
<COMMON> 166
0
1
<OTHER-SE> 6,901
<TOTAL-LIABILITY-AND-EQUITY> 41,858
<SALES> 0
<TOTAL-REVENUES> 7,735
<CGS> 0
<TOTAL-COSTS> 2,354
<OTHER-EXPENSES> 0
<LOSS-PROVISION> (48)
<INTEREST-EXPENSE> 4,403
<INCOME-PRETAX> 1,026
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,026
<DISCONTINUED> 0
<EXTRAORDINARY> 1,267
<CHANGES> 0
<NET-INCOME> 2,293
<EPS-BASIC> .14
<EPS-DILUTED> .04
</TABLE>
