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, 1998
OR
[] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _________________
Commission file number 0-768
GARMENT CAPITOL ASSOCIATES
(Exact name of registrant as specified in its charter)
New York 13-6083208
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
60 East 42nd Street, New York, New York 10165
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 687-8700
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
N/A N/A
Securities registered pursuant to section 12(g) of the Act:
$10,470,000 of Participations in Partnership Interests
(Title of class)
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
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X No
An Exhibit Index is located on pages 36 through 38 of this Report.
Number of Pages (including exhibits) in this filing: 39 <PAGE>
PART I
Item 1. Business.
(a) General
Registrant, a partnership, was organized on January 10,
1957. On May 1, 1957, Registrant acquired fee title to the
Garment Capitol Building (the "Building") and the land thereunder,
located at 498 Seventh Avenue, New York, New York (the
"Property"). Registrant's partners are Peter L. Malkin, Thomas N.
Keltner, Jr. and Richard A. Shapiro (individually, a "Partner"
and, collectively, the "Partners"), each of whom also acts as
agent for holders of participations in their respective
partnership interests in Registrant (each holder of a
participation, individually, a "Participant" and, collectively,
the "Participants"). As described below, the Property has been
sold and distributions from sale proceeds has been made to the
Participants.
Registrant did not operate the Property. Registrant
leased the Property to 498 Seventh Avenue Associates (the
"Original Lessee") under a net operating lease (the "Operating
Lease") which commenced as of May 1, 1957 and was scheduled to
expire on April 30, 2007.
In 1994 and 1995 the Original Lessee made capital calls
on its partners in the aggregate amount of $1,300,000 to defray
certain operating expenses and improvement costs at the Property.
Despite these new capital infusions, however, the Original Lessee
concluded that to return the Property to profitability would
require a very large additional capital investment, estimated by
the Original Lessee to be as high as $16,000,000. Therefore, on
December 29, 1995, in accordance with the terms of the Operating
Lease, the Original Lessee assigned the Operating Lease to 4987
Corporation (the "New Lessee"), thereby effectively terminating
the liability of the Original Lessee and its partners under the
Operating Lease. The shares in the New Lessee are owned by the
partners in the Original Lessee except that a substantial portion
of the shares originally owned by Peter L. Malkin is held for the
benefit of members of his family but he retains voting control.
The New Lessee had paid basic rent under the Operating
Lease through March 27, 1997, the date of the sale of the
Property, as hereinafter described. Registrant applied these
rents to cover (1) its monthly mortgage payments to the Apple Bank
for Savings ("Apple Bank") on Registrants' fee mortgage on the
Property (the "Mortgage Loan"), (2) its monthly fee for
-2- <PAGE>
supervisory services and (3) its distributions to the Participants
in Registrant. The New Lessee did not pay the New York City real
estate taxes and Business Improvement District ("BID") assessments
in the amounts of $936,180.00 and $29,695.14, respectively, and
certain other minor assessments and charges aggregating less than
$1,500, all of which were due on January 1, 1996 or shortly
thereafter. The New Lessee also failed to pay the New York City
real estate taxes and BID assessments in the amounts of
$1,053,254.50 and $28,529.26, respectively, which were due on July
1, 1996 and $740,845.50 and $28,529.26, respectively, which were
due on January 1, 1997. As a result, although payment of the
January 1, 1996 and July 1, 1996 and January 1, 1997 real estate
taxes and BID assessments has been made as described below, the
New Lessee was in default of the Operating Lease as of January 1,
1996.
The New Lessee requested that Registrant forbear from
exercising its rights and remedies under the Operating Lease,
including termination of the Operating Lease, by reason of the
failure to pay the January 1, 1996 and July 1, 1996 real estate
taxes and BID assessments, while management of Registrant
solicited the consent of the Participants to a sale of the
Property (the "Solicitation"). On July 26, 1996, the Partners
mailed to the Participants a STATEMENT ISSUED BY THE AGENTS IN
CONNECTION WITH THE SOLICITATION OF CONSENTS OF THE PARTICIPANTS
(the "Statement") requesting their authorization for a sale of the
Property and forbearance in favor of the New Lessee. The details
of the Partners' proposal are provided in the Definitive Proxy
Statement which was filed with the Securities and Exchange
Commission as Schedule 14-A on July 25, 1996, and is incorporated
herein by reference. If Registrant did forbear, the New Lessee
agreed to cooperate fully with Registrant in connection with the
sale of the Property and to continue to perform its other
obligations under the Operating Lease, including payment of Basic
Rent, to enable Registrant to continue its monthly distributions
to the Participants, pay its supervisory fee and pay its monthly
mortgage obligation. The continuation of the Operating Lease was
also to serve to insulate Registrant from third party liabilities
attendant on property operations. Because the consent
solicitation program included the continuation of the Operating
Lease with the New Lessee, Registrant did not send a notice of
default under the Operating Lease based on the failure of the New
Lessee to pay the January 1, 1996 and July 1, 1996 real estate
taxes and BID assessments.
Although the failure to pay the January 1, 1996, July 1,
1996 and January 1, 1997 real estate taxes and BID assessments
also constituted a breach of Registrant's obligations under the
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Mortgage Loan, Apple Bank had agreed to forbear from exercising
its rights and remedies during the period of the solicitation of
consents through a sale of the Property based on arrangements
consummated in March 1996 between the shareholders of the New
Lessee (or designees on their behalf) and Apple Bank to fund the
January 1, 1996 real estate taxes and BID assessments and certain
future real estate taxes and BID assessments on the Property
(together with the January 1, 1996 real estate taxes, the "Real
Estate Taxes") through protective advances under the Mortgage
Loan. The shareholders of the New Lessee (or designees on their
behalf) had personally borrowed from Apple Bank (a) on April 2,
1996, the sum of $1,012,274.18, equal to the January 1, 1996 real
estate taxes and BID assessments and interest thereon to the date
of the borrowing, and certain other minor city charges and
interest aggregating less than $1,500 and (b) on June 28, 1996,
the sum of $1,081,783.76 equal to the July 1, 1996 real estate
taxes and BID assessment and (c) on December 31, 1996, the sum of
$769,374.76 equal to the January 1, 1997 real estate taxes and BID
assessment. The April 2, 1996 borrowing was used to fund a
protective advance by Apple Bank to pay the January 1, 1996 real
estate taxes and BID assessments, interest thereon and such minor
charges, through the purchase of a subordinate participating
interest in the Mortgage Loan in such amount. The June 28, 1996
and December 31, 1996 borrowings were used to fund protective
advances by Apple Bank to pay, respectively, the July 1, 1996 and
January 1, 1997 Real Estate Taxes and BID assessments through the
purchase of additional subordinate participating interests in the
Mortgage Loan in such amounts. Interest and principal required to
be paid on the protective advances and on any future protective
advances have been paid by the New Lessee.
On January 29, 1997, Registrant received the consent of
the Participants for the sale and forbearance program and for the
liquidation of Registrant, as described in the Statement. See
Items 10, 11 12 and 13 hereof for a description of the services
rendered by, and compensation paid to, Counsel and for a
discussion of certain relationships which may pose actual or
potential conflicts of interest among Registrant, Original Lessee,
New Lessee and certain of their respective affiliates.
Registrant, together with the New Lessee, entered into a
contract with George Comfort & Sons, Inc., as Agent, and Tirrem
Management Company, Inc., collectively as Purchasers, to sell the
Property to the Purchasers for $42,000,000, subject to adjustments
(the "Contract of Sale"). The sale closed as of March 27, 1997.
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After priority allocation for certain payments, as more
particularly described in the Statement, net sale proceeds of
$34,885,810 were allocated between Registrant and the New Lessee
pursuant to the formula described in the Statement, as approved by
the Participants. From its share of the proceeds, Registrant had
made an initial distribution on March 31, 1997 of $27,000,000 to
the Participants, and each holder of an original $10,000
Participation, as reduced to $5,000, received an initial
distribution of sale proceeds of $25,714, which included the
return of the Participant's remaining original capital investment.
On July 23, 1997, an additional distribution of $800,000 ($761.90
per $5,000 participation unit) was made to the Participants out of
the proceeds of sale.
Based on advice from legal counsel, the partnership was
terminated on November 30, 1997. At the time of termination,
Registrant was still involved in litigation. In order to provide
for the anticipated costs of the litigation, an escrow account, in
the amount of $207,983 is being held by counsel. See Item 3
hereto.
(b) The Operating Lease
Under the Operating Lease, the New Lessee paid (i)
annual basic rent of $1,090,000 (the "Basic Rent") to Registrant
and (ii) additional rent equal to 50% of New Lessee's net
operating profit in excess of $200,000 for each Operating Lease
year (the "Additional Rent").
Additional Rent income was recognized when earned from
the New Lessee, at the close of the lease year ending April 30.
Such income, if any, was not determined until the New Lessee,
pursuant to the Operating Lease, rendered to Registrant a
certified report on the operation of the Property. The Operating
Lease required that this report be delivered to Registrant
annually within 60 days after the end of each such lease year.
All Additional Rent income and certain supervisory service expense
could only be determined after the receipt of such report. The
Operating Lease did not provide for the New Lessee to render
interim reports to Registrant, so no Additional Rent income was
reflected for the period between the end of the Operating Lease
year and the end of Registrant's fiscal year. There was no
additional rent for the eleven months ended November 30, 1997 and
for the fiscal year ended December 31, 1996. See Note 4 of Notes.
(c) The First Mortgage Loan
On March 23, 1995, Registrant entered into a
Modification and Extension Agreement (the "Modification"), as of
December 1, 1992, with Apple Bank concerning the Mortgage Loan,
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which was originally made on November 30, 1987 in the principal
amount of $3,485,000. The Mortgage Loan was secured by a first
mortgage on the Property.
The principal terms of the Modification were as follows:
Date: As of December 1, 1992.
Amount as of the
effective date of
the Modification: $3,376,340.61.
Term: Five years, maturing on December 1, 1997.
Interest Rates: 10.0% per annum from December 1, 1992
through October 31, 1993;
10.50% per annum from November 1, 1993
through November 30, 1994; and
10.60% per annum from December 1, 1994
through December 1, 1997.
Monthly
Payments: $36,282.33 from January 1, 1993 through
November 1, 1993;
$37,276.35 from December 1, 1993 through
December 1, 1994; and
$37,465.52 from January 1, 1995 through
December 1, 1997.
Prepayment
Privilege: The Mortgage Loan was prepayable at any time
in whole only, without penalty, on 60 days'
prior written notice.
The following provisions from the Mortgage Loan before
the Modification continued to be applicable during the extended
term:
Liability: No Partner had personal liability for the
obligation under the Mortgage Loan to pay
principal and interest;
Due on Sale: Upon a sale or further encumbrance of the
Property without Apple Bank's consent, the
Mortgage Loan would have become immediately
due and payable; and
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Operating Lease: No modification or cancellation of the
Operating Lease was permitted without Apple
Bank's consent.
The Mortgage Loan was repaid in full in connection with
the sale of the Property.
The total amount paid to Apple Bank in respect of the
Mortgage Loan was $5,809,686. This amount consisted of the
following elements: (a) principal - $2,886,125 (b) accrued
interest on the principal balance to the date of sale - $22,945;
(c) prepayment charges to expiration of 60 day notice period (as
reduced based on discussions between Apple Bank and Counsel
- $14,419; (d) real estate tax advances - $2,863,433 (of which
amount $333,181 was paid by the New Lessee from its share of sale
proceeds, as contemplated by the statement; and (e) accrued
interest on the real estate tax advances - $22,764 (paid by the
New Lessee).
(d) Competition
Since the sale of the Building in March, 1997, no
operations have been conducted at the Building directly or
indirectly for the account of Registrant or the New Lessee.
(e) Tenant Operating Leases
The New Lessee operated the Building free from any
federal, state or local government restrictions involving rent
control or other similar rent regulations which may be imposed
upon residential real estate in Manhattan. Any increase or
decrease in the amount of rent payable by a tenant was governed by
the provisions of the tenant's lease.
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Item 2. Property.
Registrant owned the Building located at 498 Seventh
Avenue, New York, New York, known as the "Garment Capitol
Building," and the land thereunder. See Item 1 hereof. The
Building, erected in 1921 and containing 24 floors, stands on the
southwest corner of Seventh Avenue and 37th Street in New York
City's Garment District. The Building contains office, showroom
and loft space. The Building is equipped with individual air-
conditioning units and has 11 passenger elevators and 10 freight
elevators. The Building was leased to the New Lessee under the
Operating Lease, the initial term of which expired on April 30,
1982 and which contained two 25-year renewal options, the first of
which was exercised on January 7, 1981. See Item 1 hereof for
additional information concerning the Operating Lease. The
Property was sold on March 27, 1997 pursuant to the Contract of
Sale. See Item 1.
Item 3. Legal Proceedings.
The Property of Registrant is the subject of the
following pending litigation:
On October 4, 1996, the alleged holder of three
participation interests in Registrant brought suit in the U.S.
District Court for the Southern District of New York against the
New Lessee, the Original Lessee, the partners in Registrant, and
Counsel. Registrant is a nominal defendant. The suit claims that
defendants violated the anti-fraud provisions of the federal
securities laws and committed breaches of fiduciary duty and fraud
in relation to the Solicitation. The suit is styled as a class
action, but the plaintiff has not applied for class certification
to date. The suit seeks to enjoin the allocation of sale proceeds
to the New Lessee approved by the Participants, money damages and
related relief. Defendants responded to the complaint with a
motion seeking dismissal of the action in its entirety. The Court
granted that motion and dismissed the action by order and decision
dated December 8, 1997. Upon plaintiff's appeal of that order
U.S. Court of Appeals affirmed in part and reversed in part the
dismissal of the action. The complaint does not seek any relief
-8- <PAGE>
against Registrant, and, accordingly, Registrant's litigation
counsel is of the opinion that no material loss or other
unfavorable outcome of the action against Registrant is
anticipated. In accordance with the Solicitation, sale proceeds
were allocated to repay the Fee Mortgagee the protective advances
as well as all other sums then outstanding on the Fee Mortgage.
Pursuant to an agreement between counsel for the plaintiff in the
1996 proceeding and counsel for the defendants, net sale proceeds
allocated to the New Lessee in accordance with the formula set
forth in the Solicitation will not be distributed to the New
Lessee, except upon 30 days' notice to counsel for the plaintiff.
Such allocated proceeds are currently being held by Counsel.
On March 13, 1997, the alleged holder of a fractional
participation interest in Registrant brought suit in the U.S.
District Court for the Southern District of New York against New
Lessee, Original Lessee, Registrant's Partners and Counsel.
Registrant is a nominal defendant. The suit is essentially
similar to the legal action described in the preceding paragraph,
alleging that defendants violated the Federal proxy rules,
committed breaches of fiduciary duty and fraud in relation to the
Solicitation for the sale and forbearance program and for
liquidation of Registrant. The suit seeks to enjoin the
allocation of sale proceeds to New Lessee approved by the
Participants, money damages and related relief. Defendants
responded to the complaint with a motion seeking dismissal of the
action in its entirety. The Court granted the motion and
dismissed the action by the same order and decision dated December
8, 1997 and referred to in the preceding paragraph. Upon
plaintiff's appeal of the order, the U.S. Court of Appeals
affirmed in part and reversed in part the dismissal of the action.
The complaint does not seek any relief against Registrant, and,
accordingly, Registrant's litigation counsel is of the opinion
that no loss or other unfavorable outcome of the action against
Registrant is anticipated.
On July 24, 1997, a former holder of a 1.66% partnership
interest in the Original Lessee filed a complaint in New York
Supreme Court against Registrant, Original Lessee, New Lessee and
Peter L. Malkin, individually and as a partner or shareholder in
those entities. As against Registrant, the complaint alleges a
claim for damages or other relief based on the sale of the
Property and the allocation of sale proceeds to Registrant. An
answer for Registrant denying all allegations of liability and
damages asserted by plaintiff has been filed. The action is now
in the pretrial discovery stage.
Item 4. Submission of Matters to a Vote of Participants.
On July 26, 1996, the consent of Participants was sought
to the sale and forbearance program, and, following a sale, to the
liquidation of Registrant, as described in the Statement. The
consent of Participants was received by the Partners, and the
Property was sold on March 27, 1997. Registrant was terminated on
November 30, 1997. See Item 1(a).
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PART II
Item 5. Market for Registrant's Common Equity
and Related Security Holder Matters.
Registrant was a partnership organized pursuant to a
partnership agreement dated January 10, 1957.
Registrant did not issue any common stock. The
securities registered by it under the Securities Exchange Act of
1934, as amended, consisted of participations in the partnership
interests of the Partners in Registrant (the "Participations") and
are not shares of common stock or their equivalent. The
Participations represented each Participant's fractional share in
a Partner's undivided interest in Registrant and are divided
approximately equally among the Partners. A full unit of the
Participations was originally offered at a purchase price of
$10,000; fractional units were also offered at proportionate
purchase prices. In November 1957, one-half of the original
purchase price was returned to the Participants from the proceeds
of a first mortgage on the Property leaving a remaining unreturned
cash investment of $5,000 (a "$5,000 Participation"). On March
31, 1997 and July 23, 1997 distributions of sale proceeds from the
sale of the Property were made to the Participants. Each holder
of a $5,000 Participation received a total of $26,475.90, which
included a return of remaining original capital. Registrant has
not repurchased Participations in the past.
(a) The Participations were not traded on an
established securities market, nor were they readily tradable on a
secondary market or the substantial equivalent thereof. Based on
Registrant's transfer records, Participations were sold by the
holders thereof from time to time in privately negotiated
transactions and, in many instances, Registrant was not aware of
the prices at which such transactions occurred.
(b) Registrant did not pay dividends. No Additional
Rent was paid by the Original Lessee for the lease year ended
April 30, 1997. See Item 1 hereof. There were no restrictions on
Registrant's present or future ability to make distributions;
however, the amount of such distributions, particularly
distributions of Additional Rent, depended solely on the New
Lessee's payments of Basic Rent and Additional Rent to Registrant.
See Item 1 hereof and Note 9 of the Notes.
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By reason of the sale of the Property, the Operating
Lease has expired and the Registrant was liquidated. There was no
additional regular monthly distributions following the
distribution on April 1, 1997 in respect of March, 1997 rent under
the Operating Lease.
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[SELECTED FINANCIAL DATA]
Item 6.
GARMENT CAPITOL ASSOCIATES
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Years ended December 31,
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Basic rent income......$ - $ 257,850 $1,090,000 $1,090,000 $1,090,000
Additional rent income. - - - - -
Interest income........ - 87,951 140,266 - -
Dividend income....... 11,829 17,533 43 3,027 7,994
Total revenue.. ... $ 11,829 $ 363,334 $1,230,309 $1,093,027 $1,097,994
Gain on sale of real
estate ............ $ - $28,164,634 $ - $ - $ -
Net income........... $ - $28,334,587 $ 693,299 $ 693,538 $ 691,708
Earnings per $5,000 participation
unit, based on 1,050 participa-
tion units outstanding during
the year:
Income from operations$ - $ 162 $ 660 $ 661 $ 659
Gain on sale of real
estate.. ...... - 26,823 - - -
Net income..... $ - $ 26,985 $ 660 $ 661 $ 659
Total assets......... $ 207,983 $ 206,894 $5,496,454 $2,642,224 $2,865,967
Long-term obligations..$ - $ - $ - $2,912,936 $ -
Distributions per $5,000 par-
ticipation unit, based on 1,050
participation units outstanding
during the year:
Income............ $ - $ 26,666 $ 569 $ 583 $ 583
Return of capital.. - - - - -
Total distributions $ - $ 26,666 $ 569 $ 583 $ 583
</TABLE>
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Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
Registrant was organized solely for the purposes of
acquiring the Property subject to the Operating Lease. Registrant
was required to pay from Basic Rent the mortgage charges and
supervisory services and to distribute the balance of such Basic
Rent to the Participants. Pursuant to the Operating Lease, the
holder of the leasehold interest thereunder had sole responsibil-
ity for the condition, operation, repair, maintenance and
management of the Property. Registrant did not maintain
substantial reserves or otherwise maintain liquid assets to defray
any operating expenses of the Property. Registrant's results of
operations were affected primarily by the amount of rent payable
to it under the Operating Lease.
As a result of the Sale, on July 23, 1997, Registrant
made a final distribution to the Participants of the remaining
sales proceeds. At the closing of the sale pursuant to the
Contract of Sale, the interests of Registrant, as lessor, and the
New Lessee, as lessee, under the Operating Lease were assigned to
the purchaser and the Operating Lease was terminated. There were
no additional regular monthly distributions following the
distribution on April 1, 1997 in respect of March 1997 rent under
the Operating Lease. See Item 1.
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Liquidity and Capital Resources
N/A
Inflation
Inflationary trends in the economy did not directly
affect Registrant's operations, since as noted above, Registrant
did not actively engage in the operation of the Property.
Inflation may have affected the operations of the New Lessee. The
New Lessee was required to pay Basic Rent, regardless of the
results of its operations. Inflation and other operating factors
affected only the amount of Additional Rent payable by the New
Lessee, which was based on the New Lessee's net operating profit.
Item 8. Financial Statements and Supplementary Data.
The financial statements, together with the accompanying
report by, and the consent to the use thereof, prepared by Jacobs
Evall & Blumenfeld LLP immediately following, are being filed in
response to this item.
Item 9. Disagreements on Accounting and Financial Disclosure.
Not applicable.
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PART III
Item 10. Directors and Executive Officers of the Registrant.
Registrant had no directors or officers or any other
centralization of management. There is no specific term of office
for any Partner. The table below sets forth as to each individual
who was serving as a Partner the following: name, age, nature of
any family relationship with any other Partner, business
experience during the past five years and principal occupation and
employment during such period, including the name and principal
business of any corporation or any organization in which such
occupation and employment was carried on and the date such
individual became a Partner:
Principal Date
Nature of Occupation Individual
Family Business and became
Name Age Relationship Experience Employment Partner
Peter L. Malkin 65 None Attorney-at-Law; Partner 1983
Real Estate Wien & Malkin
LLP
Thomas N. Keltner,
Jr. 52 None Attorney-at-Law; Partner 1998
Real Estate Wien & Malkin
LLP
Richard A. Shapiro
53 None Attorney-at-Law; Partner 1998
Real Estate Wien & Malkin
LLP
As stated above, the Partners are also members of
Counsel. See Items 11, 12 and 13 hereof for a description of the
services rendered by, and the compensation paid to, Counsel and
for a discussion of certain relationships which may have posed
actual or potential conflicts of interest among Registrant,
Original Lessee, New Lessee and certain of their respective
affiliates.
The names of entities which have a class of securities
registered pursuant to Section 12 of the Securities Exchange Act
of 1934 or are subject to the requirements of Section 15(d) of
that Act, and in which the Partners are either a director, joint
venturer or general partner are as follows:
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Peter L. Malkin is a joint venturer in 250 West 57th St.
Associates and Navarre-500 Building Associates; and a
general partner in Empire State Building Associates and
60 East 42nd St. Associates.
Thomas N. Keltner, Jr. is a joint venturer in Navarre-
500 Building Associates; and a general partner in Empire
State Building Associates and 60 East 42nd St.
Associates; and
Richard A. Shapiro is a general partner in Empire State
Building Associates and 60 East 42nd St. Associates; and
Counsel was responsible for overseeing the liquidation
of Registrant.
Item 11. Executive Compensation
As stated in Item 10 hereof, Registrant had no directors
or officers or any other centralization of management.
No remuneration was paid during the current fiscal year
by Registrant to any of the Partners as such. Registrant's
supervisory fee arrangement with Counsel provided for (i) the
basic payment of $42,500 per annum; (ii) an additional payment of
the first $37,500 of Additional Rent paid by the lessee under the
Operating Lease in any lease year; and (iii) the payment of 10% of
all distributions to Participants in any year from Basic Rent and
Additional Rent in excess of the amount representing a return at
the rate of 18% per annum on their remaining cash investment in
any year. Pursuant to such fee arrangements described herein,
Registrant paid Counsel $21,360 during the eleven month period
ended November 30, 1997. The supervisory services provided to
Registrant by Counsel included legal, administrative and financial
services. The legal and administrative services included acting
as general counsel to Registrant, maintaining all of its
partnership records, performing physical inspections of the
Building, reviewing insurance coverage and conducting annual
partnership meetings. Financial services included monthly receipt
of rent from the New Lessee, payment of monthly and additional
distributions to the Participants, payment of all other
disbursements, confirmation of the payment of real estate taxes,
active review of financial statements submitted to Registrant by
the New Lessee and financial statements audited by and tax
information prepared by Registrant's independent certified public
accountant, and distribution of such materials to the
Participants. Counsel also prepared quarterly, annual and other
periodic filings with the Securities and Exchange Commission and
applicable state authorities. As noted in Items 1 and 10 of this
report, the Partners are also members of Counsel.
-16-<PAGE>
Counsel did not receive a supervisory fee based on sale
proceeds allocated to Registrant but has been paid for its legal
services in connection with the Statement, the sale, and various
legal and other services rendered to Registrant since the date of
sale. Counsel has also been paid legal fees by the New Lessee for
various work in 1996 and 1997.
Item 12. Security Ownership of Certain
Beneficial Owners and Management.
(a) Registrant had no voting securities (see Item 5
hereof).
(b) The Partners (see Item 10 hereof) beneficially
owned, directly or indirectly, the following Participations:
Name & Address Amount of
of Beneficial Beneficial Percent
Title of Class Owners Ownership of Class
Participations Thomas N. Keltner, Jr. $ 2,500 .0476%
in Partnership 1111 Park Avenue
Interests New York, NY 10128
Peter L. Malkin $42,500 .8095%
21 Bobolink Lane
Greenwich, CT 06830
At the date of sale, March 27, 1997, certain of the
Partners (or their respective spouses) held additional
Participations as follows:
Peter L. Malkin owned of record as trustee, but not
beneficially, a $5,000 Participation. Mr. Malkin
disclaims any beneficial ownership in such
Participation.
Isabel Malkin, the wife of Peter Malkin, owned of record
and beneficially, $21,250 of Participations. Mr. Malkin
disclaims any beneficial ownership of such
Participations.
-17-<PAGE>
Agency Holdings Associates, an affiliate of Counsel,
owned a $5,000 Participation which was distributed in
liquidation to its members.
(c) Not applicable.
Item 13. Certain Relationships and Related Transactions.
(a) As stated in Item 1 hereof, Peter L. Malkin,
Thomas N. Keltner, Jr. and Richard A. Shapiro were the three
Partners in Registrant and also acted as agents for the Par-
ticipants in their respective partnership interests. Mr. and Mrs.
Malkin were also among the partners in the Original Lessee and
shareholders in the New Lessee. Because one of the three Partners
and his wife were partners in the Original Lessee and shareholders
in the New Lessee and all three Partners are members of Counsel
(which represents Registrant and Original Lessee), certain actual
or potential conflicts of interest may have arose with respect to
the management and administration of the business of Registrant.
Conflicts may have also existed in connection with the sale of the
Property. Under the respective Participating Agreements pursuant
to which the Partners acted as agents for the Participants,
certain transactions required the prior consent from Participants
owning a specified interest under the agreements in order for the
Agents to act on their behalf. Such transactions included
modifications and extensions of the Operating Lease or the
Mortgage Loan, or a sale or other disposition of the Property or
substantially all of Registrant's other assets. As noted in Item
1(a) above, the sale of the Property, as part of the Sale and
Forbearance Program described in the Statement, had been approved
by the Participants and the closing of the sale was on March 27,
1997.
-18- <PAGE>
Reference is made to Items 1 and 2 hereof for a
description of the terms of the Operating Lease between Registrant
and the New Lessee. The respective interests of Messrs. Shapiro,
Keltner and Malkin, if any, in Registrant arose solely from the
ownership of their respective participations in Registrant. The
respective interests of Mr. and Mrs. Malkin in Original Lessee and
New Lessee arose solely from the ownership of their respective
partnership interests in Original Lessee and shares in New Lessee.
The Partners (and Mrs. Malkin) received no extra or special
benefit not shared on a pro rata basis with all other Participants
in Registrant or partners in Original Lessee and shareholders in
New Lessee. However, each of the Partners, by reason of his
respective interest in Counsel, was entitled to receive his share
of any legal fees or other remuneration paid to Counsel for
professional services rendered to Registrant and Original Lessee.
See Item 11 hereof for a description of the renumeration
arrangements between Registrant and Counsel relating to
supervisory services provided by Counsel. Counsel has also been
paid fees for legal services rendered to the New Lessee in
connection with certain of its operations during 1996 and 1997.
Reference is also made to Items 1 and 10 hereof for a
description of the relationship between Registrant and Counsel, of
which the Partners are among the members. The respective
interests of the Partners in any remuneration paid or given by
Registrant or New Lessee to Counsel arose solely from the
ownership of their respective partnership interests in Counsel.
See Item 11 hereof for a description of the remuneration
arrangements between Registrant and Counsel.
(b) Reference is made to Paragraph (a) above.
(c) Not applicable.
(d) Not applicable.
-19- <PAGE>
PART IV
Item 14. Exhibits, Financial Statement
Schedules and Reports on Form 8-K.
(a)(1) Financial Statements:
Consent of Jacobs Evall & Blumenfeld LLP, Certified
Public Accountants, dated January 31, 1999.
Accountant's Report of Jacobs Evall & Blumenfeld LLP,
Certified Public Accountants, dated January 29, 1999.
Balance Sheets at December 31, 1998 and at December 31,
1997 (Exhibit A).
Statements of Income for the years ended December 31,
1998, 1997 and 1996 (Exhibit B).
Statement of Partners' Capital Deficit for the eleven
months ended November 30, 1997 (Exhibit C-1).
Statement of Partners' Capital Deficit for the fiscal
year ended December 31, 1996 (Exhibit C-2).
Statements of Cash Flows for fiscal year ended December
31, 1998, 1997 and 1996 (Exhibit D).
Notes to Financial Statements for the fiscal year ended
December 31, 1998, 1997 and 1996.
(2) Financial Statement Schedules:
List of Omitted Schedules.
(3) Exhibits: See Exhibit Index.
-20-<PAGE>
[LETTERHEARD OF
JACOBS EVALL & BLUMENFELD LLP
CERTIFIED PUBLIC ACCOUNTANT]
January 31, 1999
Garment Capitol Associates
New York, N.Y.
We consent to the use of our independent accountants' report
dated January 29, 1999, covering our audits of the
accompanying financial statements of Garment Capitol
Associates in connection with and as part of your December
31, 1998 annual report (Form 10-K) to the Securities and
Exchange Commission.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
-21- <PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
To the participants in Garment Capitol Associates
(a Partnership)
New York, N. Y.
We have audited the accompanying balance sheets of Garment
Capitol Associates (the "Company") as of December 31, 1998
and 1997, and the related statements of income, partners'
capital (deficit) and cash flows for each of the three years
in the period ended December 31, 1998. 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 referred to above
present fairly, in all material respects, the financial
position of Garment Capitol Associates as of December 31,
1998 and 1997, and the results of its operations and its
cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted
accounting principles.
Jacobs Evall & Blumenfeld LLP
Certified Public Accountants
New York, N. Y.
January 29, 1999
-22- <PAGE>
EXHIBIT A
GARMENT CAPITOL ASSOCIATES
BALANCE SHEETS
A S S E T S
<TABLE>
<CAPTION>
December 31,
1998 1997
<S> <C> <C>
Current Assets:
Cash and cash equivalents:
Escrow account held by Wien
& Malkin LLP (Note 10)........... $ 207,983 $ 206,894
TOTAL CURRENT ASSETS........ 207,983 206,894
TOTAL ASSETS................ $ 207,983 $ 206,894
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Accrued legal costs reserved re: pending
litigation concerning sale of real
estate (Notes 9 and 10)............ $ 207,983 $ 206,894
TOTAL LIABILITIES........... 207,983 206,894
Partners' capital (Exhibit C)......... - -
TOTAL LIABILITIES AND PARTNERS'
CAPITAL.................... $ 207,983 $ 206,894
</TABLE>
See accompanying notes to financial statements.
-23-
<PAGE>
EXHIBIT B
GARMENT CAPITOL ASSOCIATES
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Revenues:
Rent income, from a related
party (Note 4)..................$ - $ 257,850 $1,090,000
Interest income.................. - 87,951 140,266
Dividend income.................. 11,829 17,533 43
11,829 363,334 1,230,309
Expenses:
Interest on mortgage (Note 3).... - 146,183 466,323
Supervisory services, to a
related party (Note 5)........... - 21,360 42,500
Legal fees, to a related party
(Note 5).................... 11,829 - -
Amortization of mortgage
refinancing costs (Note 2b)..... - 25,838 28,187
11,829 193,381 537,010
Income from operations........ - 169,953 693,299
Gain on sale of real estate (Note 9). - 28,164,634 -
NET INCOME, CARRIED TO PARTNERS'
CAPITAL DEFICIT (NOTE 8).. $ - $28,334,587 $ 693,299
Earnings per $5,000 participation
unit, based on 1,050 participation
units outstanding during each year:
Income from operations....... $ - $ 162 $ 660
Gain on sale of real estate... - 26,823 -
NET INCOME............ $ - $ 26,985 $ 660
</TABLE>
See accompanying notes to financial statements.
-24-<PAGE>
EXHIBIT C-1
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Partners'
capital (deficit) Share of Partners' capital
January 1, 1998 net income Distributions December 31, 1998
<S> <C> <C> <C> <C>
Richard A. Shapiro Group
(formerly John L.
Loehr Group)...... $ - $ - $ - $ -
Peter L. Malkin Group
(formerly Stanley
Katzman Group).... - - - -
Thomas N. Keltner, Jr. Group
(formerly Stanley
Katzman Group).... - - - -
$ - $ - $ - $ -
</TABLE>
See accompanying notes to financial statements.
-25- <PAGE>
EXHIBIT C-2
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Partners'
capital (deficit) Share of Partners' capital
January 1, 1997 net income Distributions December 31, 1997
<S> <C> <C> <C> <C>
John L. Loehr Group..$(111,761) $ 9,444,862 $ 9,333,101 $ -
Peter L. Malkin Group.. (111,761) 9,444,862 9,333,101 -
Stanley Katzman Group.. (111,761) 9,444,863 9,333,102 -
$(335,283) $28,334,587 $27,999,304 $ -
</TABLE>
See accompanying notes to financial statements.
-26- <PAGE>
EXHIBIT C-3
GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL (DEFICIT)
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Partners' Partners'
capital (deficit) Share of capital (deficit)
January 1, 1996 net income Distributions December 31, 1996
<S> <C> <C> <C> <C>
John L. Loehr Group (formerly
Donald A. Bettex
Group)......... $(143,557) $ 231,100 $ 199,304 $(111,761)
Peter L. Malkin Group(143,557) 231,100 199,304 (111,761)
Stanley Katzman Group
(formerly Martin D. Newman
Group)........... (143,556) 231,099 199,304 (111,761)
$(430,670) $ 693,299 $ 597,912 $(335,283)
</TABLE>
See accompanying notes to financial statements.
-27-
<PAGE>
EXHIBIT D
GARMENT CAPITOL ASSOCIATES
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net income......................... $ - $ 28,334,587 $ 693,299
Adjustments to reconcile net income to
cash provided by operating activities:
Amortization of mortgage refinancing
costs (Note 2c)................ - 25,838 28,187
Gain on sale of real estate..... - (28,164,634) -
Changes in operating liabilities:
Accrued interest payable...... - (45,790) 18,884
Accrued legal fees reserved
re: pending litigation....... 1,089 206,894 -
Net cash provided by
operating activities... 1,089 356,895 740,370
Cash flows from investing activities:
Payments from (advances to)
lessee, net (Note 9).............. - 2,854,624 (2,854,624)
Net proceeds from sale of real estate. - 30,664,634 -
Net cash provided by (used in)
investing activities....... - 33,519,258 (2,854,624)
Cash flows from financing activities:
Cash distributions..................... - (27,999,304) (597,912)
Principal payments on first mortgage
payable............................ - (5,785,947) (123,473)
Proceeds from issuance of long-term
debt re: protective advances (Note 9). - - 2,863,432
Net cash provided by (used in)
financing activities....... - (33,785,251) 2,142,047
Net increase in cash
and cash equivalents...... 1,089 90,902 27,793
Cash and cash equivalents, beginning
of year...................... 206,894 115,992 88,199
CASH AND CASH EQUIVALENTS,
END OF YEAR.......... $ 207,983 $ 206,894 $ 115,992
Supplemental disclosures of cash flow information:
1998 1997 1996
Cash paid for:
Interest........................ - $ 191,973 $ 447,439
</TABLE>
See accompanying notes to financial statements.
-28- <PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Garment Capitol Associates ("Associates") is a general partnership
which, until March 27, 1997, owned commercial property situated at
498 Seventh Avenue, New York, New York (the "Property"). Through
December 28, 1995 the Property was net leased to 498 Seventh Avenue
Associates (the "Original Lessee"). Effective December 29, 1995 the
operating lease was assigned to 4987 Corporation (the "New Lessee")
(see Note 4). On March 27, 1997 Associates sold the Property and
discontinued operations. See Note 9. Associates does not currently
engage in a formal business activity except insofar as it relates to
the outcome of the litigation referred to in Note 10.
2. Summary of Significant Accounting Policies
a. Cash and Cash Equivalents:
Cash and cash equivalents include amounts held by Wien & Malkin LLP
(see Note 5) in escrow on December 31, 1998 as a reserve to cover
possible legal costs for pending litigation in which Associates is
named as a defendant (see Note 10).
b. Mortgage Refinancing Costs and Amortization:
Mortgage refinancing costs were incurred in connection with the
December 1, 1992 refinancing of the first mortgage payable (see
Note 3), and were being charged to income ratably over the five
year term of the first mortgage. The unamortized balance was
written off in 1997, when the Property was sold (Note 1) and the
balance of the first mortgage was paid.
c. Use of Estimates:
In preparing financial statements in conformity with generally
accepted accounting principles, management often makes estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities
at the date of the financial statements, as well as the reported
amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
3. First Mortgage Payable
On November 30, 1987, a first mortgage was placed on the Property with
Apple Bank for Savings in the amount of $3,485,000. Annual mortgage
charges were $348,500, payable in equal monthly installments, applied
first to interest at the rate of 9-1/2% per annum and the balance to
principal. The mortgage was scheduled to mature on December 1, 1992
with a balance of $3,376,341 but was extended until June 16, 1993, when
the bank issued a commitment to extend and modify the mortgage for a
five-year period from December 1, 1992 through December 1, 1997. The
closing, which had been delayed, occurred on March 23, 1995. The terms
of the extended mortgage include provision for constant monthly payments
totaling $447,316 per annum, including interest at the rate of 10 1/2%
per annum from November 1, 1993 through November 30, 1994, and constant
payments totaling $449,586 per annum, including interest at the rate of
10.6% per annum from December 1, 1994 through maturity. The constant
payments were based on a fifteen year amortization
-29- <PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
3. First Mortgage Payable (continued)
schedule. Payments of principal and interest made subsequent to the
original maturity date (December 1, 1992) were reapplied according to
these new repayment terms and, at the closing, a retroactive payment of
$218,081 was made to bring the payments current with the new mortgage
schedule. The balance of the mortgage at December 31, 1996 was
scheduled to be $2,912,936. However, protective advances by the Fee
Mortgagee in 1996 (see Note 9) increased the mortgage payable balance
to $5,785,947. Interest only on the increased mortgage amounts were
also payable monthly at the rate of 10.6% per annum through maturity.
In accordance with the Solicitation, interest on the protective
advances were payable by the New Lessee so long as the lease continued
in effect; the principal of the protective advances was collectible
from the proceeds of the sale of the Property.
The Property was sold on March 27, 1997 and proceeds from the sale were
used to pay the first mortgage and the protective advances in full.
4. Related Party Transactions - Rent Income
Rent income for the period of ownership of the Property in 1997 (Note 1)
and for the year ended December 31, 1996 was earned pursuant to the
terms of a net operating lease dated May 1, 1957 (the "Operating
Lease") with the Original Lessee.
For the period January 1, 1997 through March 27, 1997 and for the year
ended December 31, 1996, no additional rent was earned from the Original
Lessee or the New Lessee for its lease years ended April 30, 1997 and
1996.
The current term of the Operating Lease was due to expire on April 30,
2007, with a renewal option of 25 years. Pursuant to the Operating
Lease, the lessee had the right to surrender its leasehold interest
at any time, upon 60 days' prior written notice, without further
liability after the date of surrender. The lessee also had the right
to assign the Operating Lease. The Original Lessee exercised such
assignment right on December 29, 1995, and the New Lessee assumed all
lessee obligations under the Operating Lease of that date; such
assignment effectively terminated the liability of the Original Lessee
and its remaining partners under the lease. On March 27, 1997, with
the sale of the Property, the Operating Lease was terminated.
The shares in the New Lessee were owned by the partners in the Original
Lessee and a partner in Associates was also a partner in the Original
Lessee.
5. Related Party Transactions - Supervisory Services And Legal Fees
Supervisory services (including disbursements and cost of regular
accounting services) for the period January 1, 1997 through March 27,
1997 and for the year ended December 31, 1996, totaling $21,360 and
$42,500, respectively, were paid to the firm of Wien & Malkin LLP.
Fees for supervisory services were paid pursuant to an agreement, which
amount was based on a rate of return of investment achieved by the
participants in Associates each period.
Legal fees and disbursements of $11,829 for the year ended December 31,
1998 were incurred for services rendered by the firm of Wien & Malkin
LLP.
Some members of that firm are also partners in Associates.
See Notes 9 and 10 for additional related party transactions in
connection with the sale of the Property and amounts held in escrow
as a reserve against possible legal costs.
-30- <PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
6. Number of Participants
There were approximately 900 participants in the participating groups
at December 31, 1998, 1997 and 1996.
7. Determination of Distributions to Participants
Distributions to participants represent mainly proceeds from the sale
of the Property and the excess of rent income received over the
mortgage requirements, as anticipated, and expenses paid or accrued.
8. Distributions and Amount of Income per $5,000 Participation Unit
Distributions per $5,000 participation unit during the years ended
December 31, 1997 and 1996, based on 1,050 participation units
outstanding during each year, totaled $26,666 and $569, respectively.
All such distributions consisted of income only. Distributions in 1997
include $26,476 per $5,000 unit resulting from proceeds on the sale of
the Property. See Note 9. There were no distributions made in 1998.
Net income is computed without regard to income tax expense since
Associates does not pay a tax on its income; instead, any such taxes
are paid by the participants in their individual capacities.
For income tax purposes in 1997, the reserve for contingent future
legal costs in the amount of $206,894, deducted for financial statement
purposes in 1997 from the gain on sale of real estate, ($197 per $5,000
participation unit, based on $1,050 participant units outstanding in
1997) was not deductible; the gain on the sale of real estate in 1997
for income tax purposes was $28,371,528.
For income tax purposes in 1998, the additional reserve for contingent
future legal costs taken for financial statement purposes in the amount
of $1,089 ($1 per $5,000 participation unit), was not deductible.
9. Sale of the Property on March 27, 1997 and Preceding Events Regarding
Default by New Lessee of the Operating Lease and Breach of Associates'
Obligations Under the Fee Mortgage
Default by New Lessee of Operating Lease and Breach of Associates'
Obligations Under Fee Mortgage:
Since January 1, 1996, the New Lessee paid Basic Rent under the
Operating Lease. Associates in turn continued to pay (1) the monthly
mortgage payments to Apple Bank for Savings (the "Fee Mortgagee") on
Associates' fee mortgage on the Property (the "Fee Mortgage"); (2)
its monthly fee for supervisory services; and (3) monthly distributions
to the participants in Associates.
However, from January 1, 1996 through the date of sale of the Property,
the New Lessee failed to pay the New York City real estate and Business
Improvement District ("BID") assessments, which were due on January 1,
1996 (collectively, the "1/1/96 Real Estate Taxes"). As a result, the
New Lessee was in default of the Operating Lease as of that date.
-31- <PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
9. Sale of the Property on March 27, 1997 and Preceding Events Regarding
Default by New Lessee of the Operating Lease and Breach of Associates'
Obligations Under the Fee Mortgage (continued)
The New Lessee requested that Associates forbear from exercising its
rights and remedies under the Operating Lease, including termination
of the Operating Lease, by reason of the failure to pay the 1/1/96
Real Estate Taxes, while management of Associates solicited the consent
of its participants to a sale of the Property (the "Solicitation").
In connection with Associates' forbearance, the New Lessee agreed
to cooperate fully with Associates in connection with the sale of the
Property and to continue to perform its other obligations under the
Operating Lease, including payment of the Basic Rent, to enable
Associates to continue its monthly distributions to the participants,
pay its supervisory fee and pay its monthly mortgage obligation.
The failure to pay the 1/1/96 Real Estate Taxes also constituted a
breach of Associates' obligations under the Fee Mortgage. The
shareholders of the New Lessee (or designees on their behalf) borrowed
from the Fee Mortgagee a sum equal to the 1/1/96 Real Estate Taxes and
interest thereon to the date of the borrowing and further sums equal
to the subsequent semi-annual installments of the New York City real
estate taxes and BID assessments (together with the 1/1/96 Real Estate
Taxes, the "Real Estate Taxes") which had since become due. These sums
were used to fund protective advances by the Fee Mortgagee to pay the
Real Estate Taxes and interest thereon through the purchase of
subordinate participating interests in the Fee Mortgage in such
amounts. As a result, the Fee Mortgagee agreed to forbear from
exercising rights and remedies under the Fee Mortgage based on
Associates' failure to pay (or cause to be paid by the New Lessee) the
Real Estate Taxes.
On July 26, 1996 management completed its Solicitation, in which it
expressed its belief that the Property could not be operated on a
profitable basis without significant capital improvements; it also
opined that the program to sell the Property would permit Associates
to liquidate its investment in an orderly fashion and avoid the
necessity of raising additional capital from the participants and o
thers to support and renovate the Property while avoiding litigation
costs and the risk of loss of the Property through a Fee Mortgage
foreclosure.
On January 29, 1997 Associates, having received authorization from
its participants to sell the Property, entered into a contract of
sale of the Property at a selling price of $42,000,000. Such sale w
as concluded on March 27, 1997, at which time the first mortgage was
paid in full and Associates discontinued operations. In accordance with
the Solicitation, the proceeds of sale were allocated between Associates
and the New Lessee, with Associates receiving $32,681,200 and the New
Lessee receiving $9,318,800.
The gain on sale of real estate is computed as follows:
Sales proceeds allocated to Associates.................... $32,681,200
Less: costs of sale:
Building, net of depreciation........... $ -
Land.................................... 2,500,000
Closing costs........................... 1,809,672 4,309,672
28,371,528
Less: accrued legal costs reserved
re: pending litigation (see Note 10).... 206,894
Gain on sale of real estate...................... $28,164,634
Closing costs on the sale of the Property include $297,544 paid to the
firm of Wien & Malkin LLP, a related party (Note 5).
-32- <PAGE>
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
(continued)
9. Sale of the Property on March 27, 1997 and Preceding Events Regarding
Default by New Lessee of the Operating Lease and Breach of Associates'
Obligations Under the Fee Mortgage (continued)
On March 31, 1997 a distribution of $27,000,000 ($25,714 per $5,000
participation unit) was made to the participants out of the proceeds
of sale. On July 22, 1997 a final distribution of $800,000 ($762 per
$5,000 participation unit) was made to the participants out of the
proceeds of sale. Associates' receivable from the New Lessee as of
the date of the sale of the Property, in the amount of $2,399,317 was
satisfied on March 27, 1997 by the payment of the protective advances
from proceeds of the sale in accordance with the Solicitation.
However, the New Lessee's share of such proceeds, which according to
the Solicitation amounts to $6,919,483, is being held by Wien & Malkin
LLP, a related party and counsel to Associates ("Counsel"), in
connection with litigation referred to in Note 10.
10. Litigation and Contingency Reserve Held in Escrow
On October 4, 1996, the alleged holder of three participation interests
in Associates brought suit in the U.S. District Court for the Southern
District of New York against the New Lessee, the Original Lessee, the
partners of Associates, and Counsel. Associates is a nominal defendant.
The suit claims that defendants violated the anti-fraud provisions and
federal proxy rules of the federal securities laws and committed
breaches of fiduciary duty and fraud in relation to the Solicitation
(Note 9). The suit is styled as a class action, but the plaintiff has
not applied for class certification to date. The suit seeks to enjoin
the allocation of sale proceeds to the New Lessee approved by the
participants, money damages and related relief. Defendants responded
to the complaint with a motion seeking dismissal of the action in its
entirety. The Court granted that motion and dismissed the action by
order and decision dated December 8, 1997. Plaintiff's appeal of the
order is pending.
A similar suit was filed by another alleged holder of a fractional
interest in Associates on March 13, 1997. The defendants responded to
the complaint with a motion seeking dismissal of the action in its
entirety and the Court granted that motion by the same order and
decision referred to in the preceding paragraph. Plaintiff's appeal of
that order is also pending.
The complaints do not seek any relief against Associates, and,
accordingly, Associates' litigation counsel is of the opinion that no
loss or other unfavorable outcome of the action against Associates is
anticipated. No provision has been made in the accompanying financial
statements for any adjustments that might result from the outcome of
the litigation. In accordance with the Solicitation, sale proceeds were
allocated to repay the Fee Mortgagee the protective advances as well as
all other sums then outstanding on the Fee Mortgage. Pursuant to an
agreement between counsel for the plaintiff in the 1996 proceeding and
counsel for the defendants, net sale proceeds allocated to the New
Lessee in accordance with the formula set forth in the Solicitation
will not be distributed to the New Lessee, except upon 30 days' notice
to counsel for the plaintiff. Such allocated proceeds are currently
being held by Counsel.
On July 24, 1997, a former holder of a 1.66% partnership interest in
the Original Lessee filed a complaint in New York Supreme Court
against Associates, the Original Lessee, the New Lessee and Peter L.
Malkin, individually and as a partner or shareholder in those entities.
As against Associates, the complaint alleges a claim for damages or
other relief based on the sale of the Property and the allocation of
sale proceeds to Associates. An answer for Associates denying all
allegations of liability and damages asserted by plaintiff has been
filed. The action is now in the pretrial discovery stage.
To reserve against possible legal costs associated with the
aforementioned pending litigation Associates has set aside $207,983 at
December 31, 1998 in an escrow account held by Wien & Malkin LLP, a
related party. Of that amount $1,089 was reserved in 1998 and the
balance, $206,894, was reserved and charged in the accompanying 1997
financial statements against the gain on the sale of real estate
(Note 9).
-33- <PAGE>
GARMENT CAPITOL ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the
present instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE III - Real estate and accumulated depreciation.
SCHEDULE IV - Mortgage loans on real estate.
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
The individual signing this report on behalf of
Registrant is Attorney-in-Fact for Registrant and each of the
Partners in Registrant, pursuant to a Power of Attorney, dated
April 10, 1996 and May 14, 1998 (collectively the "Power").
GARMENT CAPITOL ASSOCIATES (Registrant)
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact
Date: April 16, 1999
Pursuant to the requirements of the Securities Exchange
Act of 1934, this report has been signed by the undersigned as
Attorney-in-Fact for each of the Partners in Registrant, pursuant
to the Power, on behalf of Registrant and as a Partner in
Registrant on the date indicated.
By /s/ Stanley Katzman
Stanley Katzman, Attorney-in-Fact*
Date: April 16, 1999
_________________________________
* Mr. Katzman supervises accounting functions for Registrant.
-34- <PAGE>
Exhibit Index
Number Document Page*
2 (a) Proxy Statement issued by Agents in
connection with the solicitation of
consents of the Participants, which
was filed by Registrant on July 25,
1996 on Schedule 14-A and is
incorporated herein by reference.
2 (b) Contract of Sale, among Registrant
and New Lessee, as Seller, and
George Comfort & Sons, Inc., as
Agent, and Tirrem Management
Company, Inc., as Purchasers, which
was filed as Exhibit 2(b) to
Registrant's Annual Report on Form
10-K for the year ended December 31,
1996 and is incorporated by
reference, but excluding exhibits,
which are available for inspection
at the offices of Counsel.
3 (a) Registrant's Partnership Agreement,
dated January 10, 1957, which was
filed as Exhibit No. 1 to
Registrant's Registration Statement
on Form S-1 as amended (the
"Registration Statement") effective
February 13, 1957 and assigned File
No. 2-13034, is incorporated by
reference as an exhibit hereto.
3 (b) Amended Business Certificate of
Registrant, reflecting a change in
the partners of Registrant effective
as of April 15, 1998, which was
filed as Exhibit 3(b) to
Registrant's Amended 10-Q for the
quarter ended September 30, 1998 and
is incorporated by reference as an
exhibit hereto.
______________________________________
Page references are based on sequential numbering system.
-35-<PAGE>
Number Document Page*
4 Registrant's form of Participation
Agreement, which was filed as
Exhibit No. 5 to the Registration
Statement effective February 13,
1957 and assigned File No. 2-13034,
is incorporated by reference as an
exhibit hereto.
10 (a) Contract between Lawrence A. Wien
("Wien") and Garment Center Capitol
Inc. for the purchase of the
property 498 Seventh Avenue and
certain other property, dated
January 7, 1957, which was filed as
Exhibit No. 2 to the Registration
Statement effective February 13,
1957 and assigned File No. 2-1304,
is hereby incorporated by reference
as an exhibit hereto.
10 (b) Assignment by Wien to Registrant of
his rights under the contract
assignment, dated January 11, 1957,
insofar as they pertain to 498
Seventh Avenue and agreement of
assignment, dated January 11, 1957,
which was filed as Exhibit No. 3 to
the Registration Statement effective
February 13, 1957 and assigned File
No. 2-13034, is hereby incorporated
by reference as an exhibit hereto.
10 (c) Modification and Extension
Agreement, dated as of December 1,
1992, between Apple Savings Bank and
Garment Capitol Associates, which
was filed as Exhibit 10(c) to
Registrant's Annual Report on Form
10K for the year ended 1994, is
incorporated herein by reference.
__________________________________
Page references are based on sequential numbering system.
-36-<PAGE>
Number Document Page*
24 Power of Attorney dated April 10,
1996 and May 14, 1998, between
Partners of Registrant and Stanley
Katzman and Richard A. Shapiro,
attached as Exhibit 24 to
Registrant's 10-Q for the Quarter
ended March 31, 1998 and is
incorporated by reference as an
exhibit hereto.
27 Financial Data Schedule of
Registrant for the fiscal year ended
December 31, 1998.
____________________________________
* Page references are based on sequential numbering system.
-37-<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's Balance Sheet as of December 31, 1998 and the Statement Of Income
for the year ended December 31, 1998, and is qualified in its entirety by
reference to such financial staements.
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 207,983
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 207,983
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 207,983
<CURRENT-LIABILITIES> 207,983
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 207,983
<SALES> 0<F1>
<TOTAL-REVENUES> 11,829<F2>
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,829<F3>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Rental Income
<F2>Includes dividend income
<F3>Legal fees
</TABLE>
