SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d) of
Securities Exchange Act of 1934
For the year ended December 31, 1995 Commission File
Number 0-14568
WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP
(Exact Name of Registrant as specified in its charter)
Maryland 04-2846721
(State of organization) (I.R.S. Employer Identification No.)
One International Place, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number including area code: (617) 330-8600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Assignee Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
[X]
No market for the Limited Partnership Units exists and therefore, a market value
for such Units cannot be determined.
<PAGE>
PART I
Item 1. Business.
General.
Winthrop Financial Associates, A Limited Partnership ("WFA") was
organized as a Maryland limited partnership under the Maryland Revised Uniform
Limited Partnership Act on December 4, 1984. WFA is a real estate investment and
management firm, primarily engaged, through entities which it controls, in the
acquisition and operation of real estate for its own account and in the business
of providing property management, asset management and investor services to
affiliated investment partnerships and unaffiliated owners of developed real
estate.
The general partner of WFA is Linnaeus Associates Limited Partnership,
a Maryland limited partnership ("Linnaeus"). See "Change in Control" below.
At the time of its formation, WFA's principal business and revenue
source was its real estate syndication operation. This operation was the
mechanism by which WFA increased the portfolio of real estate assets under its
control and management. By the end of 1993, WFA decided to discontinue financing
its investment activities through the syndication process. WFA continues to
provide asset management, investor services and, in many instances, property
management services to investment partnerships previously syndicated by WFA, or
currently controlled by WFA or its affiliates.
The company's business is presently focused on strategic investment
acquisitions of improved real estate for its own account and the growth of its
asset and property management-related service operations.
Change In Control
Prior to December 22, 1994, Mr. Arthur J. Halleran, Jr. was the sole
general partner of Linnaeus. On December 22, 1994, the general partnership
interest in Linnaeus was transferred to W.L. Realty, L.P. ("W.L. Realty")
pursuant to an Investment Agreement entered into among Nomura Asset Capital
Corporation ("NACC"), a Delaware corporation, Mr. Halleran and certain other
individuals who comprised the senior management of WFA. NACC is a wholly-owned
subsidiary of Nomura America Holding Inc., a Delaware corporation, which is a
wholly-owned subsidiary of Nomura Securities Company, Ltd., a Japanese
corporation with worldwide investment banking, securities and commodities
operations. W.L. Realty was a then newly-organized Delaware limited partnership,
the general partner of which was A.I. Realty Company, LLC, a then
newly-organized New York limited liability company ("Realtyco"). The equity
securities of Realtyco were held by certain employees of NACC. The limited
partners of W.L. Realty at the time of its formation were NACC, Mr. Halleran and
five other individuals who comprised the senior management of WFA.
On July 18, 1995 Londonderry Acquisition II Limited Partnership
("Londonderry II"), a Delaware limited partnership and affiliate of Apollo Real
Estate Advisors, L.P. ("Apollo"), a Delaware limited partnership, executed a
purchase agreement, dated as of July 14, 1995 ("Purchase Agreement"), by and
among Londonderry II, NACC, Realtyco, Partnership Acquisition Trust I, a
Delaware business trust ("PATI"), and Property Acquisition Trust I, a Delaware
business trust ("PAT").
Pursuant to the Purchase Agreement, Londonderry II purchased (i) NACC's
sixty four percent (64%) limited partnership interest in W.L. Realty, (ii)
Realtyco's one percent (1%) general partnership interest in W.L. Realty, (iii)
all of NACC's right, title and interest in and to, and the indebtedness
evidenced by, that certain acquisition loan agreement (the "WLR Acquisition Loan
Agreement"), dated as of December 22, 1994, with W.L. Realty, as borrower,
pursuant to which NACC made loans to W.L. Realty to finance W.L. Realty's
acquisition of general and limited partnership interests in Linnaeus Associates
Limited Partnership, a Maryland limited partnership ("Linnaeus"), (iv) all of
NACC's right, title and interest to, and the indebtedness evidenced by, that
certain acquisition loan agreement dated as of January 31, 1995, with Aquarius
Acquisition, L.P., a Delaware limited partnership (the "Aquarius Partnership"),
as borrower, pursuant to which NACC made loans to the Aquarius Partnership to
finance the Aquarius Partnership's acquisition of limited partnership interests
in Springhill Lake Investors Limited Partnership, a Maryland limited partnership
("Springhill Lake"), pursuant to a tender offer and certain private acquisition
transactions, (v) all of NACC's right, title and interests pursuant to the
agreement (the "Investment Agreement"), dated as of December 3, 1994, by and
among NACC, Linnaeus, Mr. Arthur J. Halleran, Mr. Jonathan W. Wexler and the
other signatories thereto (collectively, the "Management Group"), (vi) the one
percent (1%) general partnership interest in the Aquarius Partnership, and (vii)
a seventy four percent (74%) limited partnership interest in the Aquarius
Partnership.
As a result of the foregoing acquisitions, Londonderry II is the sole
general partner of W.L. Realty which is the sole general partner of Linnaeus,
and which in turn is the sole general partner of WFA. As a result of the
foregoing, Londonderry II acquired control of WFA from NACC.
Londonderry II consummated the transactions set forth above for a total
consideration of $32 million, of which $10 million was provided by Apollo. In
addition, Londonderry II issued NACC a $22 million non-recourse purchase money
note due 1998 (the "Purchase Money Note"), as set forth in a loan agreement,
dated as of July 14, 1995, by and between NACC and Londonderry II.
Initial security for the Purchase Money Note includes (i) the W.L. Realty
partnership interest acquired by Londonderry II, (ii) the Aquarius partnership
interests in Springhill Lake, (iii) the partnership interests in WFA of
Londonderry Acquisition Limited Partnership, a Delaware limited partnership
which is an affiliate of Londonderry II and Apollo ("Londonderry I"), (iv) the
W.L. Realty partnership interest in Linnaeus, and (v) Londonderry II's title and
interest in and to, and the indebtedness evidenced by, the WLR Acquisition Loan
Agreement.
In addition to the foregoing, Apollo, Londonderry I, WFA and the
Management Group executed an agreement, dated as of July 14, 1995 (the
"Management Agreement"), which effected (i) the sale to WFA of the equity
interests held by the members of the Management Group in W.L. Realty and certain
of its affiliates, (ii) the release of the Management Group by Londonderry I,
Apollo and WFA from all claims other than those arising out of the Management
Agreement, (iii) the release of Londonderry I, Apollo and WFA by the Management
Group from all claims other than those arising out of the Management Agreement
and (iv) certain matters with respect to the employment of the Management Group,
as set forth below.
In connection with the Management Groups' sale of their equity interests in
W.L. Realty and certain of its affiliates, Messrs. Halleran and Wexler resigned
all of their positions as officers, employees and directors of WFA and its
affiliates. In connection therewith, pursuant to their respective employment
agreements WFA paid an aggregate of $2,318,537 in severance to Messrs. Halleran
and Wexler. Messrs. Halleran and Wexler also reaffirmed the survival of their
non-competition and non-solicitation covenants with WFA. Also, pursuant to the
Management Agreement, certain members of WFA's continuing management received
bonuses from WFA to continue in their current employ with WFA. Such members of
WFA's management have covenanted as to the continuing survival of their
employment agreements with WFA. See "Item 11, Executive Compensation".
As a result of these transactions and subsequent purchases of limited
partnership assignee units, Apollo and its affiliates beneficially own the
entire general partner ownership interest in WFA, representing a 13.01% of
ownership interest in WFA, and a limited partnership interest in WFA,
representing approximately a 82.25% ownership interest. See "Item 12, Security
Ownership of Certain Beneficial Owners and Management."
Description of Business.
(a) Investment Acquisitions.
During 1993, 1994 and 1995 WFA and its affiliates acquired the fee interest
in 35 apartment properties. As of December 31, 1995, WFA and its affiliates
owned a total of 35 apartment properties with a total of 8,176 apartment units.
Rental income derived from WFA's wholly-owned real estate represents
approximately 66% of the company's total revenue for 1995. WFA has no current
intention to syndicate its wholly-owned apartment properties and is presently
holding these properties for investment purposes. Significant property
acquisitions and financing activities completed in 1995, 1994 and 1993 are
summarized below.
Springhill Lake Limited Partnership ("Springhill Lake"). On February 1,
1995, Aquarius Acquisition, L.P., a Delaware limited partnership, the general
partner of which is Londonderry II and the limited partner of which is WFA
("Aquarius"), offered to purchase outstanding limited partner interests
("Springhill Units") in Springhill Lake. Springhill Lake was organized in 1984
to invest in ten operating partnerships formed to own and operate a garden
apartment complex containing 2,899 apartment units located in Greenbelt,
Maryland (the "Project"). On March 21, 1995, Aquarius' offer to purchase
Springhill Units for cash consideration of $36,400 concluded. Aquarius purchased
216.65 Springhill Units (approximately 33.4% of the total Springhill Units
outstanding). Subsequently, a number of limited partners in Springhill Lake
requested that Aquarius purchase their units for the price specified in the
tender offer. As of March 1, 1996, Aquarius owns a total of 234.65 Springhill
Units (approximately 36.16% of the total Springhill Units outstanding).
The tender offer was commenced shortly following the mailing on January
19, 1995 of a consent solicitation to the limited partners of Springhill Lake by
Greenbelt Residential Limited Partnership ("Greenbelt"), an affiliate of
Theodore N. Lerner ("Lerner"). Lerner negotiated the purchase of Springhill
Lake's 90% interest in the Project in the mid 1980's and holds a 10% limited
partnership interest in each of the ten operating partnerships. An affiliate of
Lerner ("Lerner Management") had performed property management services at the
Project for the 10 years prior to May 1995. In October 1994 Springhill Lake
notified Lerner Management of its intention to terminate the property management
contract with Lerner Management. Greenbelt thereafter made an offer to purchase
the Project and approximately six weeks later began soliciting the consent of a
majority in interest of the limited partners of Springhill Lake to a dissolution
of Springhill Lake, with the stated goal of forcing a sale of the Project. The
termination of Lerner Management as property manager, the engagement of Winthrop
Management as the new property manager and the tender offer have given rise to a
series of lawsuits. See, "Item 3, Legal Proceedings." Effective May 1, 1995,
Winthrop Management executed a property management agreement and assumed
responsibility for on-site management of the Project.
Winthrop-Austin Holdings, LP ("Winthrop-Austin"). Winthrop-Austin, a
Delaware limited partnership, was formed in 1995 for the purpose of acquiring in
April 1995 the fee interest in a 329 unit garden style apartment complex located
in Austin, Texas known as "The Hills" and "The Hills West". Fifteen Winthrop
Properties, Inc. is the sole general partner of Winthrop-Austin and WFA as the
sole limited partner of Winthrop-Austin. Winthrop-Austin acquired The Hills for
a total purchase price of $11,050,000 (approximately $33,587 per apartment unit)
of which $1,000,000 was provided in seller financing and $8,470,000 was provided
through a mortgage loan from NACC. See "Item 13, Certain Relationships and
Related Party Transactions." At the time of acquisition, Winthrop Management
assumed property management and asset management functions.
Southwestern Properties. In July 1993 two wholly-owned subsidiaries of
WFA acquired a general partnership interest and approximately 11% of the total
equity interest in a portfolio of 25 apartment properties (containing 6,287
units) located primarily in Texas and Arizona (the "Southwestern Properties").
WFA paid approximately $5.2 million (excluding brokerage fees) for these
interests and the management rights associated with these properties. In January
1994, WFA acquired the balance of the general partnership interest and control
of the partnerships owning these properties, together with a 30% equity interest
held by affiliates of an investment banking firm which had arranged debt
financing for the properties, for approximately $3.9 million. On May 31, 1994,
WFA acquired the balance of the equity interests held by the seller and its
affiliates for approximately $10.4 million.
As part of the transaction in which WFA acquired its general
partnership interest in the Southwestern Properties, the partnerships owning
these properties incurred an aggregate of $106.3 million of non-recourse
mortgage financing. The loans are generally payable, interest only at 9% per
annum until July 2000. A senior portion of the debt, in the approximate amount
of $93 million, matures in July 2000. A junior portion of the debt, in the
approximate amount of $13.3 million, matures in July 2018, but the annual rate
of interest payable on the principal balance and accrued interest after July
2000 is 11%.
In July 1995, WFA contributed to Winthrop Southwest Holdings Limited
Partnership ("WSWH"), a newly-formed partnership, all of its right, title and
interest in and to the Southwestern Properties and NACC contributed to WSWH a
$17,800,000 note receivable from WFA and First Winthrop Corporation. Pursuant to
the terms of WSWH's partnership agreement, NACC is entitled to receive the first
$17,800,000 in distributions from such partnership together with a priority
return of LIBOR plus 6.5% on such contribution. The $17,800,000 note was the
note made in connection with the settlement of a litigation involving First
Winthrop Corporation. See "Item 3, Legal Proceedings - Fred Rosen et al v. First
Winthrop Corporation et al."
Winthrop Florida Apartments Limited Partnership ("Winthrop Florida").
Winthrop Florida is a Maryland limited partnership which owns nine apartment
complexes (the "Winthrop Florida Properties") consisting of 1,560 units in the
aggregate. The general partner of Winthrop Florida is Fourteen Winthrop
Properties, Inc.("14 Winthrop") and WFA is the limited partner. The properties
owned by Winthrop Florida are all managed by Winthrop Management.
Of the nine properties, two garden style apartment complexes containing 486
units were acquired in 1994. These properties are located in Jacksonville,
Florida and San Antonio, Texas. The aggregate acquisition price for these
properties was $15.1 million (averaging approximately $31,100 per apartment
unit) which was originally funded from advances from WFA's cash resources,
advances under WFA's credit facilities and the assumption of $9.4 million of
mortgage debt. The average age of these properties is 8 years.
In connection with the refinancing of the Winthrop Florida Properties
described below:
(i) Sandcastles Associates Limited Partnership ("Sandcastles"), a limited
partnership, the general partner of which was 14 Winthrop and the limited
partner of which was WFA, transferred its interest in its 138 unit garden style
apartment complex located in Houston, Texas which it had acquired in 1994.
Sandcastles acquisition price for this property was $5.2 million (approximately
$37,700 per apartment unit) which was originally funded from advances from WFA's
cash resources, advances under WFA's credit facilities and the assumption of
$3.9 million of mortgage debt. The age of the property is 8 years; and
(ii) Winthrop Multi-Family Limited Partnership transferred its interest in
six properties containing 936 units in the aggregate. Of the six properties, two
are located in Houston, Texas, and one property is located in each of Morrow,
Georgia, Greensboro, North Carolina, Bedford, Texas and Austin, Texas. These
properties were encumbered by $15,000,000 of first mortgage debt.
In July, 1995, Winthrop Florida obtained a loan from a third party
lender in order to refinance the existing mortgages on all of the Winthrop
Florida Properties. The principal amount of the mortgage loan was $42,000,000.
It bears interest at LIBOR plus 3%, with an overall interest rate cap of 10.19%,
and matures on June 30, 1998.
See "Item 13, Certain Relationships & Related Party Transactions," for
additional information on investment acquisitions made by WFA.
(b) Service Business.
Approximately 27% of WFA's revenue in 1995 was derived from its
property management-related service operations. WFA, through its subsidiary
partnerships, performs on-site property management, leasing, asset management,
insurance brokerage and certain tenant-related services (collectively, the
"Service Business"). During 1995 and the first quarter of 1996, management
determined to outsource certain services which it had historically performed
such as building security and cleaning services. The Service Business provides
management and related services to many of the investment partnerships organized
or controlled by WFA. Most of the revenue earned by WFA's Service Business is
derived from contractual relationships with investment partnerships organized by
WFA.
WFA's Service Business is conducted primarily through Winthrop Management,
a general partnership consisting of wholly-owned corporate subsidiaries of WFA.
The Service Business is organized functionally into three principal divisions
which are described below.
Apartment Division. The Apartment Division of Winthrop Management is
responsible for property management (as well as acquisitions) with respect to
the portion of WFA's portfolio comprised of multifamily apartment properties.
This division also provides strategic direction, performance evaluation and
advisory services to certain investment partnerships organized or controlled by
WFA which own apartment properties. This division employs a total of
approximately 912 people, which total includes acquisitions officers, national
property management staff (including accounting functions), regional property
management staff and on-site management personnel. The division maintains its
headquarters in Boston and maintains regional offices at property locations
throughout the United States. As of January 1, 1996, the division managed a
total of approximately 30,287 apartment units, making WFA the 19th largest
apartment manager in the U.S., based on a ranking compiled by the National
Multi-Housing Council as of January 1, 1996. All but one of the apartment
properties under management at December 31, 1995 were owned either by investment
partnerships organized by WFA or by partnerships in which a subsidiary of WFA
has acquired control through purchase of the general partnership interest.
In addition to the new management assignments described in "Item 1,
Description of Business-Investment Acquisitions," dDuring the second quarter of
1995 the Apartment Division assumed management of an apartment complex owned by
a third party consisting of 643 units.
Commercial Division. During 1995 the Commercial Division provided property
management, leasing, consulting and tenant services to commercial office, retail
and industrial facilities owned by both Winthrop-syndicated partnerships and
unaffiliated third parties. Revenues for 1995 earned under contracts with
non-affiliates represented approximately 23.8% of the total revenues earned for
1995 from the operations of the Commercial Division. The decline in revenues
derived from non-affiliates compared to prior years is principally attributable
to the termination in August 1995 of Winthrop Management's management and
leasing assignment at One Federal Street, a 1.1 million square foot office tower
located in Boston, Massachusetts.
Following the loss of One Federal assignment, WFA evaluated the
staffing requirements and profitability of its remaining third party management
and advisory service assignments and its tenant services business. As a result
of this evaluation, WFA made the decision to downsize its Commercial Division
and to terminate the remainder of its existing third party assignments. In the
first quarter of 1996, WFA outsourced to third party operators all of its tenant
service functions, including construction services and building cleaning and
security. In addition, in connection with the sale by the holder of the debt
encumbering the properties owned by Nineteen New York Properties Limited
Partnership, an affiliate of WFA, WFA and its affiliates no longer provide
property management or leasing services for these properties.
<PAGE>
Until December 1995, the Commercial Division also provided advisory
services to Pioneer Winthrop Real Estate Investment Fund (the "Fund"), an
open-ended mutual fund which is a member of the Pioneer Group of Funds. The Fund
was organized in 1993 to invest in securities of real estate investment trusts
and other real estate-related companies. A registered Investment Advisor, which
is wholly-owned by WFA, had been engaged to provide advisory services to the
Fund's manager, including evaluating and selecting securities of real estate
investment trusts and other real estate-related companies for the Fund.
As a result of the placement of a number of services previously
performed by the Commercial Division with third parties, the number of employees
employed by the Commercial Division has been reduced from approximately 414
people in 1994 to 97 people at April 1, 1996. The Commercial Division employees
are located either in the Boston headquarters office or at the individual
properties.
As of March 1, 1996, Winthrop Management continues to provide management,
consulting, leasing, construction and supervisory services to three office
towers, five industrial properties and one mixed-use property, consisting
principally of retail shops. The division currently manages and/or leases
approximately 3.4 million square feet of commercial space, all of which is owned
by investment partnerships organized or controlled, directly or indirectly, by
WFA, of which 2,726,000 square feet consists of office space, 546,000 square
feet consists of industrial space and 143,000 square feet consists of retail
shops.
Revenue from the operations of the Commercial Division represented 3.7% of
WFA's annual revenue for 1995. As a result of the significant changes made in
the Commercial Division during 1995 and the first quarter of 1996, it is
expected that the percentage of WFA's total revenue earned from the activities
of the Commercial Division will be substantially less in 1996. Similarly, the
expenses attributable to the Commercial Division are expected to be
substantially reduced.
Asset Management Division. This division provides strategic direction,
performance evaluation and advisory services principally to 226 existing
investment partnerships sponsored by WFA and its affiliates. The division also
handles relations and communications with investor limited partners in these
partnerships. These investors consist of approximately 40,000 individuals and
fiduciaries.
Hotel Division. In July 1994, WFA sold its hotel management operations to
an unaffiliated party for $1.5 million. WFA and its affiliates, however, retain
their ownership interests in the related hotel properties. See "Item 7,
Management's Discussion and Analysis of Results of Operations and Financial
Condition."
Employees. As of March 1, 1996, WFA and its affiliates employed
approximately 1,050 individuals down from 1,245 at March 21, 1995, with
approximately 1,010 employed in the investment acquisition and Service Business
and approximately 40 employed in corporate administration and support functions.
<PAGE>
Competition. The performance of WFA's wholly-owned apartment properties is
impacted by a number of competitive factors, including (i) the relative age and
quality of WFA's properties in comparison to other apartment properties in the
same market, (ii) rental concessions offered at properties of similar quality in
similar locations in response to fluctuations in consumer demand, and (iii) and
the types and quality of amenities and services provided by properties in the
markets in which WFA's properties are located.
Competition for property management-related service contracts tends to
be dominated by regionally-based firms. WFA possesses industry knowledge,
relationships and operating efficiencies that come from being a large,
well-established organization. Because the company's operational activities are
conducted through a network of regional and local operating offices, WFA has
first-hand knowledge about the various economic, governmental and other
important factors affecting its markets.
Both the Commercial Division and, the Apartment Division provide
services primarily to properties which are either wholly-owned by, or controlled
by, WFA and its affiliates and is therefore not at significant risk of losing
property management-related business to competitors.
Environmental Regulations. Under various Federal and state environmental
laws and regulations, a current or previous owner or operator of real estate may
be required to investigate and clean up certain hazardous or toxic substances or
petroleum product releases at a property, and may be held liable to a
governmental entity or to third parties for property damage and for
investigation and cleanup costs incurred by such parties in connection with
contamination. The owner or operator of a site may be liable under common law to
third parties for damages and injuries resulting from environmental
contamination emanating from the site. Management is not currently aware of any
environmental liabilities which are expected to have a material adverse effect
on WFA's operations or financial condition.
Item 2. Properties
WFA currently rents its principal executive offices consisting of (i)
approximately 31,450 square feet in Boston, Massachusetts, and (ii)
approximately 4,800 square feet in Jericho, New York of which approximately
3,000 square feet is subleased to non-affiliated third parties.
In addition to the apartment properties referenced above under the
subheading "Investment Acquisitions," WFA and its affiliates also own (i)
certain retail properties containing 17,240 square feet and other real estate
assets on the island of Nantucket, Massachusetts, and (ii) six parcels of land
subject to long-term ground leases to investment partnerships organized by WFA.
<PAGE>
Item 3. Legal Proceedings.
WFA, its affiliates and subsidiaries are parties to routine litigation
arising in the ordinary course of business, in respect of which any liability is
expected to be covered by liability insurance. In addition, WFA, certain of it
affiliates and subsidiaries, and various former and current officers of WFA are
or were defendants in the following legal proceedings:
Fred Rosen, et al v. First Winthrop Corporation, et al., filed in
December, 1988 in the State District Court of Harris County, Texas. The
plaintiffs were investor limited partners in One Houston Associates Limited
Partnership ("One Houston"), a real estate investment partnership organized in
1982. One Houston owned an office building in Houston occupied by a single
tenant under a net lease. The tenant became insolvent in 1988, necessitating a
renegotiation of the lease and the mortgage indebtedness encumbering the
property. Ultimately, in 1992, the tenant's operations were taken over by the
FDIC, which rejected the lease, triggering a filing for relief under Federal
bankruptcy law by One Houston. A foreclosure sale occurred on March 30, 1994.
The case was tried to a jury and, on February 2, 1995, the jury
returned a verdict for the plaintiffs against First Winthrop and found damages
of at least $30 million. On March 3, 1995, WFA and First Winthrop entered into a
memorandum of agreement with the plaintiffs in which WFA and First Winthrop
agreed to settle the case by paying One Houston the sum of $17 million on or
before June 1, 1995. Notice of the settlement was sent out to limited partners
of One Houston and the settlement was approved by the court several weeks later
at a hearing held on May 12, 1995.
In order to finance the settlement amount, First Winthrop obtained an
unsecured loan from NACC in the amount of $17,700,000. This loan was
subsequently increased to $17,800,000 and contributed by NACC to a newly-formed
partnership, the partners of which are NACC and WFA. See "Item 1, Business -
Description of Business, Investment Acquisitions, Southwestern Properties."
Gray, et al v. First Winthrop Corporation, et al. (No. C-90-2600- JPV),
filed on September 10, 1990 in the U.S. District Court, Northern District of
California. This suit was brought by a class of limited partners in 353 San
Francisco Associates Limited Partnership ("353"), a real estate investment
partnership organized in 1984. 353 owned an office building in San Francisco
which was foreclosed upon by the first mortgage lender in April 1990. The
plaintiffs allege violations of common law and securities law fraud in the
conduct of the original offering of investment interests and seek rescission of
their investment, totaling $28 million.
In September, 1994, summary judgment was entered against the plaintiffs and
in favor of First Winthrop on all claims asserted by the plaintiffs. The
plaintiffs appealed to the United States Court of Appeals for the Ninth Circuit
and oral arguments were heard on January 6, 1996. First Winthrop expects that
summary judgment will be affirmed.
M&R Limited Partnership v. Winthrop Financial Associates, et al. (Case
No. 94-02575), filed on March 4, 1994 in Circuit Court of the 17th Judicial
Circuit, Broward County, State of Florida. The plaintiff is a limited partner in
Sixty Six Associates Limited Partnership ("Sixty-Six LP"). Sixty-Six LP was
organized in 1987 to invest in two operating partnerships formed to own and
operate the Pier 66 Resort and Marina in Fort Lauderdale, Florida. In March
1993, the operating partnerships filed for bankruptcy and, pursuant to a
pre-negotiated plan, the operating partnerships sold the resort to an
unaffiliated party. The plaintiff has asserted individual claims, derivative
claims and class claims (brought on behalf of an unidentified class of similarly
situated limited partners), alleging violations of Florida state securities
laws, breach of fiduciary duties, fraud and negligence associated with the
offering of limited partnership interests in the Partnership. The complaint
sought unspecified damages, but asserted that damages exceeded $66 million. In
December 1995, the court approved a Stipulation of Settlement and, after notice
to the class members and a final hearing, the court, on March 4, 1996, entered a
final order which dismissed with prejudice all class claims, all derivative
claims and the action in its entirety as against WFA. Pursuant to the terms of
the settlement, WFA and certain of its affiliates paid $675,000 in consideration
of the settlement. Twelve class members opted out of the settlement and are not
bound by the settlement.
Albert Friedman, individually and as a representative of a class of
similarly situated persons v. Linnaeus Associates Limited Partnership, et al.
(Case No. 94-CH-11524), filed in December, 1994, in Circuit Court of Cook
County, State of Illinois. The plaintiff is a limited partner in WFA and seeks
to represent a class comprised of Preferred Unitholders of WFA. The plaintiff
asserts various claims against Linnaeus, NACC and members of WFA's senior
management, including breaches of fiduciary duties in entering into the December
22, 1994 transactions resulting in the transfer of the general partnership
interest in Linnaeus. Plaintiff seeks damages in an unspecified amount. Linnaeus
and certain of the individual defendants have filed a special appearance with
the Court for the purpose of contesting personal jurisdiction.
On March 20, 1996, a Stipulation of Settlement was entered into pursuant to
which Londonderry Acquisition Corp., Inc. or its affiliate ("Londonderry
Corp."), an affiliate of WFA, will undertake to liquidate the investments of the
class members by effecting a merger pursuant to which the Preferred Unitholders
of WFA will have the right to receive cash consideration per Preferred Unit
equal to an amount determined by Londonderry Corp., but which must be opined on
by a nationally recognized, independent investment banking firm as fair from a
financial point of view. In no event will the price per Preferred Unit be less
than $10.50. Preferred Unitholders will retain their rights to receive, in lieu
of the merger price, an amount determined pursuant to such limited partner's
appraisal rights under Maryland law. In exchange, Preferred Unitholders who do
not request exclusion from the class will completely and finally release their
claims against the defendants in this action and their right to bring derivative
action on behalf and in the right of WFA. If Preferred Unitholders holding a
certain percentage of units request exclusion from the settlement, Londonderry
Corp. has the right to declare the stipulation null and void. A hearing for
final approval of the Stipulation of Settlement is scheduled for May 23, 1996.
If the settlement is approved, Preferred Unitholders interest in WFA will
be liquidated pursuant to the merger transaction and affiliates of Apollo will
own 100% of the total partnership interests in WFA.
Theodore N. Lerner v. Three Winthrop Properties, Inc., (Case No.
DKC-3601) (the "Lerner Action").
Mitchel R. Montgomery, et al. v. Three Winthrop Properties, Inc.
(Case No. 132222-V) (the "Montgomery Action")
LER 8 v. Three Winthrop Properties, Inc., et al. (Case No. DKC-95-
555) (the "LER 8 Action").
In connection with the tender offer made by Aquarius for units of limited
partnership interest in Springhill Lake and the termination of Lerner Management
and the appointment of Winthrop Management as the property manager at the
Springhill Lake property, a number of lawsuits were commenced against Three
Winthrop Properties, Inc., the managing general partner of Springhill Lake, NACC
and certain affiliated parties. These lawsuits, to the extent they involve
damage claims against WFA, its subsidiaries and affiliates, are described below:
The Lerner Action was filed on December 27, 1994, in United States District
Court for the District of Maryland, Southern District. The plaintiff ("Lerner")
is a limited partner in the Springhill Operating Partnerships. The claims
against Three Winthrop are for an accounting and breach of fiduciary duty. The
plaintiff contends that Three Winthrop as managing general partner of the
general partner of the Springhill Operating Partnerships has failed to make
certain distributions to which he claims an entitlement. Plaintiff has not
specified a particular monetary amount which he seeks, but does claim that more
than $50,000 is involved. Three Winthrop acknowledges that the plaintiff is
entitled to approximately $200,000 in distributions for the 1994 calendar year,
but has denied that he is owed any other amount. Discovery is ongoing and it is
not possible to predict the likely outcome of the litigation at this time.
The Montgomery Action was filed on February 7, 1995, in Circuit Court of
Montgomery County, Maryland. The plaintiffs are two limited partners in
Springhill Lake and the limited partner in the Springhill Operating Partnerships
(Lerner). Plaintiffs allege that Three Winthrop has breached its fiduciary duty
by attempting to discharge the current property management agent for the Project
and replace it with an affiliate of Three Winthrop. Plaintiffs seek equitable
relief and damages in an unspecified amount. During the pendency of the
Montgomery Action, one of the plaintiffs sold his interest in Springhill Lake
and ceased to be a plaintiff. On January 22, 1996, the court granted the
defendant's motion for partial summary judgment on all individual claims as well
as the claims of another of the plaintiffs. The only remaining claim is
therefore the claim of plaintiff Lerner on behalf of the operating partnerships.
The LER 8 Action was filed in U.S. District Court for the District of
Maryland, Southern District, on February 27, 1995. A limited partner filed this
lawsuit on its own behalf and derivatively on behalf of Springhill Lake,
alleging that Three Winthrop is in violation of Rule 13E-3 promulgated under the
Securities Exchange Act of 1934 and that Three Winthrop has breached its
fiduciary duty to limited partners. LER 8 also moved to preliminarily enjoin the
tender offer commenced by Aquarius. Plaintiff has not articulated a claim for
any damages. On February 27, 1995, Greenbelt Residential Limited Partnership
("Greenbelt"), an affiliate of Lerner, filed a motion to intervene as a
plaintiff in the above action. On March 7, 1995, the court held a hearing on a
motion to preliminarily enjoin the tender offer of Aquarius. Counsel for LER 8
and Greenbelt appeared and argued in support of the preliminary injunction. At
the conclusion of the hearing, the court denied the motion for preliminary
injunction, as well as an application for a temporary restraining order pursuant
to an amended complaint filed the day of the hearing. The Court based its
decision on the grounds that no irreparable injury would be suffered by limited
partners of Springhill Lake if Aquarius' offer to purchase limited partner
interests were allowed to proceed.
Three Winthrop believes that the aforementioned claims against Three
Winthrop are without merit and intends to defend vigorously against these
allegations.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted to a vote of security holders during the fourth quarter
of 1995.
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters.
WFA has, to date, issued 15,284,243 units of limited partnership interest.
WFA Nominee Co., Inc., a subsidiary of WFA, legally owns all units of limited
partnership interest in WFA and has assigned substantially all of such limited
partnership interests to Linnaeus and to those purchasers of assignee units of
limited partnership interest who acquired such units in a public offering
pursuant to a 1985 registration statement. Such units were assigned on the basis
of one unit of limited partnership interest per assignee unit of limited
partnership interest (the "Assignee Units"). All of the ownership attributes of
limited partnership interests were also granted to holders of Assignee Units
("Unitholders").
In September 1986, WFA's Partnership Agreement was amended by a
majority vote of Unitholders of WFA. The amendment had the effect of: (i)
granting to Unitholders, exclusive of Linnaeus, (the "Preferred Unitholders") a
preferred distribution from all available operating cash flow equal to 6% per
annum cumulative simple return on the Preferred Unitholders' original
investment, reduced from time to time by any capital distributions, (ii)
granting to all Preferred Unitholders a preferred distribution from all capital
distributions of an amount equal to the greater of their original investment or
fair market value, and (iii) granting WFA the right to redeem at any time all
Assignee Units held by Preferred Unitholders (the "Preferred Units").
There is generally no established public trading market for the
Preferred Units. Trading in the Preferred Units is sporadic and occurs solely
through private transactions. As of December 31, 1995, there were 1,424
Preferred Unitholders holding 2,712,814 Preferred Units. See "Item 3, Legal
Proceedings - Albert Friedman, individually and as a representative of a class
of similarly situated persons v. Linnaeus Associates Limited Partnership, et al"
for a description of the proposed settlement of this action which will cause the
liquidation of the Preferred Unitholders' interest in WFA.
On November 9, 1994, Londonderry Acquisition Limited Partnership, an
entity controlled by Apollo Real Estate Advisors, L.P., made a tender offer for
100% of the Preferred Units for a purchase price of $10.00 per Preferred Unit.
The tender offer concluded on December 14, 1994 and Londonderry submitted to WFA
transfer instruments for approximately 1,109,000 of such Preferred Units
representing 40.9% of the total Preferred Units. All Assignee Units, other than
the Preferred Units, are held by Linnaeus. See "Item 12, Security Ownership of
Certain Beneficial Owners and Management."
WFA's Certificate and Agreement of Limited Partnership, as amended to
the date hereof (the "Partnership Agreement"), provides that cash distributions
may be paid at any time and from time to time in the sole and absolute
discretion of Linnaeus. The amount of each distribution will be determined by
Linnaeus in its sole discretion. There are no legal or contractual restrictions
on WFA's present or future ability to make cash distributions.
As a result of the losses for the years ended December 31, 1995, 1994
and 1993, WFA did not have positive operating cash flow as defined for this
period. There were no distributions paid to Unitholders, including Linnaeus, for
1995, 1994, or 1993. Under the terms of the Partnership Agreement, the Preferred
Unitholders are entitled to a 6% per annum cumulative non-compounded priority
distribution from all operating cash flow. At December 31, 1995, this unpaid
accumulated preference amounted to $20,346,000 or $7.50 per Unit.
Item 6. Selected Financial Data.
The tables on the following pages sets forth selected financial data
for WFA and its consolidated subsidiaries and is qualified in its entirety by,
and should be read in conjunction with, the Consolidated Financial Statements
and Notes and Exhibits thereto included herein as an Exhibit.
<TABLE>
Statement of Operations Data:
For the Year Ended or as of
December 31,
1995 1994 1993 1992 1991
(Amounts in Thousands, except per Unit data)
Revenues:
<S> <C> <C> <C> <C> <C>
Property acquisition and related
fee income $ 670 $ 981 $ 3,348 $6,956 $ 4,011
Leasing commissions 1,007 2,237 1,660 979 648
Tenant service revenue 4,038 4,118 3,003 3,919 7,562
Management fees 13,924 14,269 14,949 11,819 14,896
Interest 3,002 3,029 6,001 2,781 7,102
Rent 47,388 42,371 3,190 535 503
Other 1,442 4,002 1,086 1,242 1,276
Total revenues 71,471 71,007 33,237 28,231 35,998
Expenses:
Management, general and
administrative $ 17,630 $ 19,233 $ 17,688 $18,955 $ 22,062
Depreciation and amortization 8,974 7,443 1,503 788 630
Tenant service expense 3,839 4,289 2,752 3,857 7,057
Interest 15,918 14,582 3,187 1,160 3,268
Rental operating expenses 23,421 21,989 1,481 235 318
Real estate charge -- -- -- 1,918 60,255
Total expenses 69,782 67,536 26,611 26,913 93,590
Operating income (loss) 1,689 3,471 6,626 1,318 (57,592)
Equity in loss of investment programs (22) (816) (1,398) (5,517) (223)
Loss on sale of asset -- -- -- (1,884) --
Nonrecurring organizational costs (7,355) (6,643) -- -- --
Legal settlement expense -- (17,500) -- -- --
Income (loss) from continuing operations
before minority interest and provision
(credit) for income taxes (5,688) (21,488) 5,228 (6,083) (57,815)
Minority interest 1,134 92 -- -- --
Provision (credit) for income taxes 1,530 (8,315) 2,609 1,879 (15,388)
Net income (loss) from continuing
operations (8,352) (13,265) 2,619 (7,962) (42,427)
Loss from operations of discontinued business segments (net of applicable income
tax benefits of $0, $0, $742, $947 and $741 for the five years ended December
31, 1995, 1994,
1993, 1992 and 1991 -- -- (2,206) (2,436) (1,024)
Loss on disposal of business segments
(net of income tax benefit of $0 and
$424 at December 31, 1994 and 1993) -- -- (1,403) -- --
Net loss from discontinued operations -- -- (3,609) (2,436) (1,024)
Net income (loss) $(8,352) $(13,265) $ (990) $(10,398) $ (43,451)
Net income (loss) to public
Unitholders per Unit
- continuing operations $ (.48) $ (.75) $ .15 $(.45) $ (2.41)
- discontinued operations $ -- $ -- $ (.21) $(.14) $ (.06)
Number of Preferred Units outstanding
(in thousands) 2,713 2,713 2,713 2,713 2,713
Number of Assignee Units outstanding
(in thousands) 15,284 15,284 15,284 15,284 15,284
Cash distributions to Preferred
Unitholders per Preferred Unit $ -- $ -- $ -- $ -- $ --
</TABLE>
Balance Sheet Data:
<TABLE>
For the Year Ended or as of
December 31,
1995 1994 1993 1992 1991
(Amounts in Millions)
<S> <C> <C> <C> <C> <C>
Current portion of fees, commissions
and reimbursements $ 5.5 $ 5.6 $ 12.7 $ 3.2 $ 7.4
Long-term portion of fees and
commissions receivable $ 9.7 $ 8.9 $ 7.7 $ 8.1 $ 7.5
Total assets $230.9 $231.2 $113.9 $84.0 $ 77.1
Working capital $ 3.7 $(37.7) $ 16.3 $44.9 $ 41.0
Long-term liabilities $193.8 $149.0 $ 58.6 $43.9 $ 25.6
Equity $ 4.7 $ 17.8 $ 31.1 $32.1 $ 42.5
</TABLE>
Item 7. Management's Discussion and Analysis of Results of
Operations and Financial Condition.
The following discussion should be read in conjunction with the
financial information contained in Item 6 above and Item 8 below. WFA and its
consolidated subsidiaries (including, but not limited to, First Winthrop and
Winthrop Management) are sometimes referred to herein together as the "Company."
Liquidity and Capital Resources
The Company generates substantially all of its income from rental
revenues received at its properties and management fees and tenant service fees
received by its Apartment, Commercial and Asset Management Divisions and is
responsible for costs associated with the ownership and maintenance of its
assets as well as general and administrative costs. At December 31, 1995, the
Company had cash resources available to it of $12,362,000 of which $3,484,000
was unrestricted as compared to $18,898,000 of cash at December 31, 1994 of
which $7,726,000 was unrestricted.
The Company used $16,782,000 in operating activities and $5,807,000 in
investing activities during 1995 which exceeded the Company's cash flow from
financing activities of $16,053,000 during 1995. The shortfall is principally
attributable to the payment of the One Houston settlement and the associated
legal costs. See "Item 3, Legal Proceedings-Fred Rosen, et al v. First Winthrop
Corporation, et al." The $16,053,000 of cash flow from financing activities is
net of $4,244,000 used in connection with the purchase of the Management Group's
equity interests in W.L. Realty. The cash requirements of the Company were
satisfied by: (i) approximately $6,536,000 of the Company's reserves and (ii)
the proceeds from a series of financing transactions consummated in the second
and third quarters, described below.
In July 1995 the Company entered into a financing arrangement, whereby the
Company borrowed approximately $42,000,000. The loan accrues interest at LIBOR
plus 3%, with an overall interest rate cap of 10.19%, and matures in 1998. The
proceeds of this loan were used to: (i) fund severance and equity repurchase
costs associated with the change in control of the general partner of the
company (see "Item 1, Business - Change in Control"); (ii) repay approximately
$9,400,000 of mortgage indebtedness due August 15, 1995 which was secured by a
WFA owned apartment property; (iii) repay approximately $3,400,000 of mortgage
indebtedness due October 31, 1996 secured by certain WFA owned properties; (iv)
repay approximately $15,000,000 of mortgage indebtedness secured by certain WFA
owned properties and was classified as a current liability due to a breach of
certain financial covenants provided for in the loan documents; and (iv) repay
$6,382,0000 relating a revolving credit facility.
In July 1995 the Company contributed the Southwestern Properties to a newly
formed partnership, Winthrop Southwest Holdings Limited Partnership ("WSWH") and
NACC contributed to WSWH a $17,800,000 note receivable from WFA and First
Winthrop Corporation in exchange for preferred equity which provides NACC with
certain preferences of cash flow from operations. The proceeds of the
$17,800,000 note were used to fund the settlement of the Rosen litigation
referred to above and to pay expenses associated with the litigation and the
loan transactions.
In April 1995, the Company obtained, as discussed in "Item 1, Business
- - Description of Business-Investment Acquisitions," approximately $9,470,000 in
financing in connection with the acquisition of a 329 unit apartment complex.
In February 1996, the Company contributed approximately $36.6 million
of receivables to Nineteen New York Properties Limited Partnership ("19NY") in
connection with a loan restructuring transaction pursuant to which an affiliate
of Apollo acquired the existing debt on certain of 19NY's properties. The
remaining $10 million of receivables owed by 19NY and 1626 New York Associates
Limited Partnership, a general partner of 19NY, were evidenced by a promissory
note which the Company sold to an affiliate of Apollo for $6,000,000. See "Item
8, Financial Statements and Supplementary Data, Note 4."
At this time the Company believes that its cash reserves and cash flow
from operations will be sufficient to satisfy future working capital
requirements. It appears, however, that the original investment objectives of
capital growth and quarterly distributions will not be attained in the
foreseeable future and that limited partners are unlikely to receive a return of
all of their invested capital.
During 1995, distributions to WFA's partners remained suspended and it is
anticipated that distributions will continue to be suspended for the foreseeable
future. However, if the terms of a proposed settlement of a lawsuit brought by a
limited partner of WFA on behalf of all Preferred Unitholders are approved, it
is expected that during 1996 each Preferred Unitholders' interest in WFA will be
liquidated at a price determined by Londonderry that is greater than or equal to
$10.50 per Preferred Unit and which must be opined upon by an independent
investment banking firm as fair from a financial point of view. See "Item 3,
Legal Proceedings - Albert Friedman, individually and as a representative of a
class of similarly situated persons v. Linnaeus Associates Limited Partnership
et al."
In March 1995, the FASB issued SFAS No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121
is effective for financial statements issued for fiscal years beginning after
December 15, 1995, with earlier application permitted. SFAS No. 121 addresses
the intangibles to be held and used by an entity to be reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. WFA will adopt SFAS No. 121 on January 1, 1996,
as required. Adopting SFAS No. 121 is not expected to have a significant effect
on WFA's consolidated financial statements.
Results of Operations
1995 Compared to 1994. The Company's operating income for 1995 and 1994 was
$1,689,000 and $3,471,000, respectively. The decrease is, as explained in more
detail below, principally the result of nonrecurring recoveries of previously
reserved for accounts receivable recognized in 1994. Operating income generated
in 1995 by the Service Business and the Company's property investments remained
consistent with 1994. The Company's total net loss for 1995 and 1994 was
$8,352,000 and $13,765,000, respectively. The decreased total net loss is
attributable to the accrual in 1994 of a $17,500,000 legal settlement discussed
below.
A principal component of the Company's revenues is Rental Revenue which
constitutes approximately 66% of the Company's total revenues. The company earns
Rental Revenue primarily from the residential properties it owns. Rental Revenue
in 1995 was $47,388,000, representing a $5,017,000 or 11.8% increase over 1994.
This increase is attributable to: (i) the April 1995 acquisition of a 329 unit
apartment complex located in Austin Texas; (ii) a full year of operations
recognized for three apartment complexes acquired during 1994 containing 624
apartment units; and (iii) improved operations at properties acquired
previously. Correspondingly, these acquisitions resulted in increased Rental
Operating Expense, Depreciation and Amortization Expense, and Interest Expense.
Revenue from the Company's Service Business is comprised of property and
asset management fees and fees earned in connection with tenant services,
leasing, and property acquisition. Management Fees, the largest component of the
Service Business revenue, decreased by $345,000 (2.4%) compared to 1994.
Management Fees represent fees earned in connection with property management,
asset management, and administrative services provided primarily to investment
programs the Company has sponsored or controls. In July 1994 the Company, in its
effort to focus the Service Business on apartment and commercial properties,
sold the Hotel Division. See "Item 1, Business - Description of Business -
Service Business - Hotel Division." The sale resulted in a $1,188,000 reduction
of management fees from 1994. Accordingly, as discussed below, this transaction
resulted in decreased Management, General and Administrative expenses. The
reduction in Management Fee revenue from the sale was offset by: (i) an increase
in Apartment Division Management Fees of approximately $432,000 attributable to
an additional property management contract for an apartment property containing
2,899 apartment units, along with improved operations at existing apartment
properties under management and (ii) an increase of approximately $320,000
recorded by the Asset Management Division relating primarily to prior years'
services. Property management fees earned in 1995 by the Commercial Division
increased by $52,000 or (2%) over 1994. Other fees associated with
administrative services increased by approximately $39,000.
The Company earned Tenant Service Revenue for providing commercial
cleaning, building security, and construction management to properties and to
the tenants of properties it manages. Tenant Service Revenue decreased by
$80,000 or (1.9%) over 1994 as the result of a $55,000 decrease in cleaning
revenues and a $19,000 decrease in security revenues. A $450,000 reduction in
Tenant Service expense was recognized in 1995 as result of management's efforts
to control costs. The Company elected to cease providing such services during
1996. See "Item 1, Business - Description of Business - Service Business -
Commercial Division" for information with respect to the Company's decision to
outsource certain of these services.
The Company earns leasing commissions from certain of the properties it
manages for brokering or co-brokering leases for space therein. Leasing
commissions fluctuate in any given period depending on market conditions in the
geographical areas where the property operates and the amount of space available
to rent at the properties. Leasing Commissions decreased by $1,230,000 or (55%).
This is primarily attributable to a $1,100,000 nonrecurring 1994 leasing
commission earned by the Company in connection with the lease renewal of a major
tenant at One Federal Street, Boston, Massachusetts. See "Item 1, Business -
Description of Business Service Business - Commercial Division".
Property Acquisition and Related Fee Income represents transactional
fees earned through structuring net lease arrangements and the institutional
placement of debt and equity associated with such arrangements. Fees earned from
these transactions were $670,000 in 1995, representing a $311,000 decline over
prior year.
Interest income is generated on the Company's cash equivalents and
long-term accounts receivable. Interest income decreased by $27,000 in 1995 over
1994 as the result of lower cash reserves held by the Company.
Other income for 1995 was $1,442,000 which represents a $2,560,000
decrease from 1994. This decrease is attributable to approximately $2,619,000 of
nonrecurring recoveries of previously recorded accounts receivable recognized in
1994.
The principal component of Management, General and Administrative expense
is operating overhead costs relating to the Service Business (excluding Tenant
Service), such as payroll, rent and other related costs. Management, General and
Administrative expense decreased by $1,603,000 or 8.33% in 1995 as compared to
1994. This is due largely to the 1994 sale of the Hotel Division as well as
management's efforts to reduce overhead costs.
Rental Operating Expenses reflect costs incurred in connection with the
operation of the Company's property investments, such as repairs and
maintenance, leasing , and payroll. As noted above, these costs and Depreciation
and Amortization increased in 1995 as compared to 1994, by $1,432,000 (6.5%) and
$1,531,000 (20.6%), respectively, as a result of the acquisition of a 329 unit
apartment complex located in Austin Texas and a full year of operations
recognized for three apartment complexes acquired during 1994.
Interest Expense increased by $1,336,000 or 9.2% as compared to 1994.
This increase is primarily the result of additional financing obtained during
1995 in connection with the acquisition of the property investments discussed
above and additional financing obtained by the Company during 1995 which is
secured by certain of the Company's apartment projects.
As described in "Item 3, Legal Proceedings", the 1994 Legal Settlement
Expense represents an accrued settlement and associated legal costs resulting
from the settlement of a lawsuit. The settlement was paid in 1995.
Nonrecurring organizational costs of $7,355,000 incurred in 1995 are
principally related to: (i) severance and equity repurchase costs associated
with the change in control of the Company discussed in "Item 1, Business -
Change in Control" and (ii) the costs associated with several proxy
solicitations and the settlement of related legal costs with The Alternative
Group which had sought to replace WFA as the general partner of certain
investment partnerships. See "Item 8, Financial Statements and Supplementary
Data, Note 5." Nonrecurring organizational costs incurred in 1994 are ascribed
to the Company's decision to postpone the formation of a real estate investment
trust.
Minority Interest Expense represents NACC's preferred equity in the
Southwest Properties as described in "Item 1, Business."
1994 Compared to 1993: The Company's revenues and expenses for the year
ended December 31, 1994 increased by more than 100% over the revenues and
expenses recognized in 1993 and 1992. This is attributable to the significant
change in the contributing components of the Company's revenues and expenses in
1994, as compared to prior years, resulting from the continued shift in the
direction of the Company's operations away from transactional syndication
activities to recurring revenues derived from the Company's property investments
and Service Business.
A principal component of the Company's revenues in 1994 is Rental
Revenue. Rental Revenue constituted approximately 60% of the Company's revenue
for 1994 compared to approximately 9% in 1993. This increase is attributable to
the Company's acquisition of 34 apartment properties (containing 7,847 units)
during 1993 and 1994 for its own account. This substantial increase in the
Company's wholly-owned portfolio of real property has correspondingly resulted
in significant increases in Depreciation and Amortization Expense, Rental
Operating Expense and Interest Expense. In 1994 these wholly-owned properties
generated approximately $40,587,000 of Rental Revenue, $20,024,000 of Rental
Operating Expenses, approximately $810,000 of additional Management, General,
and Administrative expenses, $5,814,000 of Depreciation and Amortization, and
$12,949,000 of Interest Expense (yielding $990,000 of operating income). The
corresponding operating income for 1993 was $163,000.
Through these property acquisitions, the Company has expanded its
apartment property management operations in a number of regional markets in the
southeast and southwest regions of the country. However, because of the 1994
consolidation of the Southwestern Properties which requires an elimination of
intercompany revenues and expenses (under Generally Accepted Accounting
Principles), the management fees reported by the Company relating to these
properties decreased by $638,000 over 1993. Offsetting this decrease was an
increase of approximately $350,000 resulting from additional management
contracts and improved operations at existing properties under management.
In 1994, Commercial Division property management fees decreased by
approximately $800,000 (or 21.4%) compared to 1993. This decrease was due to:
(i) a $600,000 decrease in the amount of fees that the Company accrues with
respect to one investment partnership owning commercial property in New York
City (see Note 4 to the accompanying Consolidated Financial Statements); (ii) a
$225,000 reduction in incentive management fees earned by the Company with
respect to One Federal Street, and (iii) a $100,000 reduction in fees resulting
from the foreclosure of one property. These reductions in fees earned were
offset in some part by additional third-party management and consulting
engagements obtained by the Commercial Division during 1994.
Leasing Commissions earned by the Commercial Division in 1994 increased by
$577,000 (or 34.8%) over 1993, due to an approximately $1,100,000 commission
earned with respect to a 580,000 square foot lease extension agreement executed
at One Federal Street. Tenant Service revenue increased by $1,115,000 (or 37.1%)
in 1994 over 1993, as a result of obtaining additional third-party security
service agreements and entering into a contract to provide security services to
an office building located in Miami, Florida which is owned by an affiliated
investment partnership. The corresponding Tenant Service expense increased by
$1,537,000 (or 55.9%) in 1994 over 1993, due to the additional payroll costs
incurred in connection with these new contracts.
Asset management fees earned by the Company increased by approximately
$600,000 (or 18.8%) in 1994 over 1993, primarily as a result of the acquisition
of general partnership interests in two investment partnerships owning apartment
complexes. Under the terms of these partnership agreements the general partner
earns asset management fees equal to 1% of the assets (as defined). These fees
amounted to $589,000 for 1994.
In early 1994, the Company decided to focus its Service Business on
apartment and commercial properties. Accordingly, in July 1994, the Company sold
its Hotel Division for $1,500,000 to an unaffiliated party. In conjunction with
this sale, the Company incurred $844,000 of severance and other nonrecurring
costs during 1994. The sale price, net of the costs incurred, are treated as
deferred income, as portions of these proceeds are refundable in the event of
termination prior to the sixth anniversary of the sale. The deferred income will
be recognized over such six year period. The Company and its affiliates,
however, retain their ownership interests in the related hotel properties. The
hotel management fees recognized in 1994 were $1,188,000, representing a
$201,000 decrease over the full year 1993 revenues of $1,389,000.
Property Acquisition and Related Fee Income continued to decline in
1994 due to the discontinuation of the Company's syndication activities. The
Company recorded $981,000 of revenue in this category, only $124,000 (12.6%) of
which was earned in connection with syndicated investment partnerships. The
remainder was attributable to fees earned through structuring net lease
arrangements.
Other Income for 1994 was $4,028,000 which represents a $2,916,000
increase over 1993. The predominant elements of this increase are: (i)
approximately $2,619,000 of recoveries of previously reserved receivables and
(ii) $131,650 in insurance commissions resulting from the additional apartment
properties under management.
Interest Income decreased by $2,972,000 or 49.5% over 1993. This is due
principally to a non-recurring 1993 prepayment of accrued interest on a deferred
fee paid in connection with the sale of a property owned by an investment
partnership previously organized by the Company. The remainder of the decrease
is the result of lower cash reserves held by the Company.
Management, General and Administrative expenses increased by $1,545,000
or 8.7%. This is due largely to increased management costs resulting from the
property acquisitions described above.
<PAGE>
The Company estimates that approximately $500,000 of additional costs were
incurred during 1994 in connection with the management of these properties. In
addition to these costs, the Company expended approximately $1,000,000 relating
to the restructuring and refocusing of WFA's business (primarily severance costs
and consulting fees).
Interest expense increased by $11,395,000 or 357% over 1993. This
increase is due to debt incurred or assumed in connection with the acquisition
of apartment properties. These obligations are described in Note 9 to the
accompanying Consolidated Financial Statements.
Equity in Loss of Investment partnerships decreased by $582,000 (41.6%)
as the result of a decreased loss in one investment partnership.
During the first quarter of 1993 Management began to explore the
desirability of converting WFA to a publicly-traded real estate investment
trust. By June 1993, Management had retained an investment banker and decided
that such a conversion was both desirable and feasible. Management developed a
plan (the "REIT Plan") to implement a series of transactions culminating in an
initial public offering of public stock in a newly formed real estate investment
trust. In the first half of 1994, Management's confidence in the feasibility of
the REIT Plan declined, and Management began to explore raising capital from
private sources, asset sales and other transactions. During the third quarter of
1994, Management concluded that WFA should primarily direct its efforts to
finding private capital, and that WFA should not pursue the REIT Plan. In
accordance with that decision, WFA's financial statements reflect a provision
for nonrecurring organizational costs of $6,643,000 related to the REIT Plan.
Legal Settlement Expense represents an accrued settlement and
associated legal costs resulting from a lawsuit as described in "Item 3, Legal
Proceedings."
<PAGE>
Item 8. Financial Statements and Supplementary Data.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Financial Statements
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31,
1995 and 1994
Consolidated Statements of Operations for the
years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the
years ended December 31, 1995, 1994 and 1993
Consolidated Statements of Partners' Capital
for the years ended December 31, 1995, 1994
and 1993
Notes to Consolidated Financial Statements
Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts
Schedule III - Real Estate Owned
<PAGE>
WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Winthrop Financial Associates, A Limited Partnership:
We have audited the accompanying consolidated balance sheets of Winthrop
Financial Associates, A Limited Partnership (a Maryland limited partnership) and
subsidiaries as of December 31, 1995 and 1994, and the related consolidated
statements of operations, partners' capital and cash flows for each of the three
years in the period ended December 31, 1995. These consolidated financial
statements and the schedules referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
consolidated financial statements and schedules 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 consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Winthrop Financial
Associates, A Limited Partnership, and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedules II and III are
presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic consolidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic consolidated financial statements and, in our
opinion, fairly state, in all material respects, the financial data required to
be set forth therein, in relation to the basic consolidated financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 29, 1996
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
ASSETS
December 31,
1995 1994
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (of which $3,484 and $7,726
is unrestricted at December 31, 1995 and 1994, respectively) $ 12,362 $ 18,898
Current portion of receivables-
Fees, commissions and reimbursements, including accrued interest 5,488 5,575
Related party receivables (Note 6) 234 -
Loans - 310
Earnest money deposit - 2,300
Other current assets 1,244 279
--------------- ---------------
Total current assets 19,328 27,362
--------------- ---------------
LONG-TERM RECEIVABLES (Notes 3 and 4):
Fees, net of reserves of $16,879 and $16,639 at
December 31, 1995 and 1994, respectively 9,678 8,921
Loans, net of reserves of $16,888 and $16,908 at
December 31, 1995 and 1994, respectively 3,200 3,050
--------------- ---------------
Total long-term receivables 12,878 11,971
--------------- ---------------
REAL ESTATE, AT COST:
Buildings (net of accumulated depreciation of $12,611 and
$6,930 at December 31, 1995 and 1994, respectively) 148,307 141,661
Land 30,727 28,061
Furniture, fixtures and equipment (net of accumulated depreciation of
$4,065 and $2,961 at December 31, 1995 and 1994, respectively) 3,190 3,559
--------------- ---------------
Total real estate 182,224 173,281
--------------- ---------------
OTHER ASSETS:
Equity interests in and advances to investment programs,
net (Notes 4 and 12) 4,973 5,933
Deferred costs (net of accumulated amortization of $3,837
and $2,869 at December 31, 1995 and 1994, respectively) 11,317 11,343
Other 181 1,314
--------------- ---------------
Total other assets 16,471 18,590
--------------- ---------------
$ 230,901 $ 231,204
============ ============
</TABLE>
<TABLE>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Notes payable (Note 9) $ 2,059 $ 32,708
Accounts payable 2,819 2,989
Other (Note 12) 10,759 28,702
--------------- ---------------
Total current liabilities 15,637 64,399
--------------- ---------------
LONG-TERM LIABILITIES:
<S> <C> <C>
Notes payable (Notes 7 and 9) 175,521 130,615
Deferred taxes, net (Note 10) 13,372 11,926
Other (Note 12) 4,859 6,449
--------------- ---------------
Total long-term liabilities 193,752 148,990
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 12)
MINORITY INTEREST (Notes 2 and 3) 16,851 -
PARTNERS' CAPITAL:
Limited Partners, $25 stated value per unit-
Authorized--21,249,942 units
Issued and outstanding--15,284,243 units-
Public unitholders--2,712,814 units with preferential rights 40,906 42,282
General Partners--12,571,429 units without preferential rights (26,636) (20,262)
General Partner (5,365) (4,205)
Investment in W.L. Realty Limited Partnership (4,244) -
--------------- ---------------
Total partners' capital 4,661 17,815
--------------- ---------------
$ 230,901 $ 231,204
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
<TABLE>
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT UNIT DATA)
For the Years Ended December 31,
1995 1994 1993
REVENUES:
<S> <C> <C> <C>
Rent $ 47,388 $ 42,371 $ 3,190
Management fees 13,924 14,269 14,949
Property acquisition and related fee income 670 981 3,348
Leasing commissions 1,007 2,237 1,660
Tenant service revenue 4,038 4,118 3,003
Interest 3,002 3,029 6,001
Other 1,442 4,002 1,086
------------- ------------ -------------
Total revenues 71,471 71,007 33,237
------------- ------------ -------------
EXPENSES:
Management, general and administrative 17,630 19,233 17,688
Depreciation and amortization 8,974 7,443 1,503
Tenant service expense 3,839 4,289 2,752
Interest (Notes 7 and 9) 15,918 14,582 3,187
Rental operating expenses 23,421 21,989 1,481
------------- ------------ -------------
Total expenses 69,782 67,536 26,611
------------- ------------ -------------
1,689 3,471 6,626
EQUITY IN LOSS OF INVESTMENT PROGRAMS (Note 7) (22) (816) (1,398)
NONRECURRING ORGANIZATIONAL COSTS (Note 5) (7,355) (6,643) -
LEGAL SETTLEMENT EXPENSE (Note 2) - (17,500) -
------------- ------------ -------------
(Loss) income from continuing operations before minority
interest and provision (credit) for income taxes (5,688) (21,488) 5,228
MINORITY INTEREST EXPENSE 1,134 92 -
PROVISION (CREDIT) FOR INCOME TAXES (Note 10) 1,530 (8,315) 2,609
------------- ------------ -------------
Net (loss) income from continuing operations (8,352) (13,265) 2,619
LOSS FROM OPERATIONS OF DISCONTINUED BUSINESS SEGMENTS (NET OF APPLICABLE INCOME
TAX BENEFITS OF $0, $0 AND $742 FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993, RESPECTIVELY) (Note 8)
- - (2,206)
LOSS FROM DISPOSAL OF DISCONTINUED BUSINESS SEGMENTS (NET OF INCOME TAX BENEFITS
OF $0, $0 AND $424 AT DECEMBER 31, 1995, 1994 AND 1993,
RESPECTIVELY) (Note 8) - - (1,403)
------------- ------------ -------------
Net loss from discontinued operations - - (3,609)
------------- ------------ -------------
Net loss $ (8,352) $ (13,265) $ (990)
============= ============ ==========
NET (LOSS) INCOME ALLOCATED TO:
General Partner (Note 6)-
Continuing operations $ (1,087) $ (1,726) $ 341
============= ============ ==========
Discontinued operations $ - $ - $ (470)
============= ============ ==========
Unitholders-
General Partner (Note 6)-
Continuing operations $ (5,975) $ (9,491) $ 1,874
============= ============ ==========
Discontinued operations $ - $ - $ (2,582)
============= ============ ==========
Public Unitholders-
Continuing operations $ (1,290) $ (2,048) $ 404
============= ============ ==========
Discontinued operations $ - $ - $ (557)
============= ============ ==========
PUBLIC UNITHOLDERS NET (LOSS) INCOME PER UNIT BASED UPON 2,712,814 WEIGHTED
AVERAGE UNITS OUTSTANDING:
Continuing operations $ (.48) $ (.75) $ .15
======= ======= =======
Discontinued operations $ - $ - $ (.21)
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
<TABLE>
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(AMOUNTS IN THOUSANDS)
Investment Limited Partnership Units General Total
in W.L. Public General Partners' Partners'
Realty L.P. Units Partner Deficit Capital
(Note 1)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $ - $ 44,483 $ (10,063) $ (2,350) $ 32,070
Net loss - (153) (708) (129) (990)
----------- ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1993 - 44,330 (10,771) (2,479) 31,080
Net loss - (2,048) (9,491) (1,726) (13,265)
----------- ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1994 - 42,282 (20,262) (4,205) 17,815
Purchase of WFA units (Note 1) (4,244) - - - (4,244)
Costs associated with preferred capital - (86) (399) (73) (558)
Net loss - (1,290) (5,975) (1,087) (8,352)
----------- ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1995 $ (4,244) $ 40,906 $ (26,636) $ (5,365) $ 4,661
========== =========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
For the Years Ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (8,352) $ (13,265) $ (990)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities-
Noncash portion of nonrecurring organizational costs - 4,848 -
Loss from discontinued operations - - 3,609
Cash flow from discontinued operations - - (3,678)
Depreciation and amortization 8,974 7,443 1,503
Minority interest expense 1,134 92 -
Equity in loss of investment programs 22 816 1,398
Deferred interest added to notes payable 727 - 81
Increase (decrease) in cash as a result of changes in
operating assets and liabilities-
Fees receivable (87) 7,060 (8,494)
Long-term fees receivable (757) - -
Tax refund receivable - - 977
Other current assets (462) 7,867 597
Other noncurrent assets 886 - -
Accounts payable (170) (6,736) 3,441
Accrued expenses (including accrued legal
settlement expense) - 23,266 (2,661)
Other current liabilities (17,826) - -
Deferred taxes 1,446 (7,789) 1,571
Accrued contingencies - - 698
Other long-term liabilities (2,317) (2,206) -
------------- ------------- -------------
Net cash provided by (used in) operating activities (16,782) 21,396 (1,948)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate and other capital expenditures,
net of cash acquired (8,456) (40,177) (34,782)
Contributions to investment programs - (150) (1,266)
Distributions from investment programs 423 - 457
Decrease in advances to investment programs - 3,253 2,202
Advances to a related party (234) - -
(Increase) decrease in other assets 2,300 (1,947) 1,946
(Increase) decrease in loans receivable 160 (1,007) (46)
------------- ------------- -------------
Net cash used in investing activities (5,807) (40,028) (31,489)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of notes payable 41,959 19,759 19,604
Proceeds of NACC financing 17,800 - -
Repayments of notes payable (28,587) (421) (5,900)
Net borrowings (repayments) under line of credit (6,382) (7,251) 13,618
(Increase) decrease in deferred costs (1,852) (563) (14,058)
Distributions to minority interest (2,083) - -
Purchase of treasury stock (4,244) - -
Costs associated with NACC preferred equity (558) - -
------------- ------------- -------------
Net cash provided by financing activities 16,053 11,524 13,264
------------- ------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,536) (7,108) (20,173)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 18,898 26,006 46,179
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,362 $ 18,898 $ 26,006
============= =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
On January 13, 1994, a subsidiary of WFA acquired the controlling interest in
partnerships that wholly own certain real estate properties. The assets and
liabilities acquired consisted primarily of real estate assets of
approximately $105 million and related mortgage notes payable of
approximately $106 million, as well as several operating assets and
liabilities.
In conjunction with the Company's 1994 purchase of a real estate asset, a
note in the amount of $604,000 was assumed by the Company. The principal
balance was paid in full during 1995.
In April 1995, the Company purchased, from an unaffiliated party, an
apartment complex (the Hills Apartments) in Austin, Texas. In conjunction
therewith, the Company obtained $1,000,000 in seller financing and a mortgage
loan from a related party of $8,470,000.
In July 1995, Nomura Asset Capital Corp. (NACC) contributed $17.7 million of
notes payable by the Company in exchange for a preferred equity interest (see
Note 2).
In October 1995, $2,108,000 in debt of a wholly owned property was forgiven
in exchange for real estate of approximately the same amount.
During 1995, the Company obtained debt from an affiliate and purchased
$8,000,000 of units in a limited partnership which had been previously
syndicated by the Company.
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION
Winthrop Financial Associates, A Limited Partnership (WFA), is organized
under the Revised Uniform Limited Partnership Act of the State of
Maryland. The primary operating companies in the WFA consolidated group
(the Company) are First Winthrop Corporation (First Winthrop) and
Winthrop Management. Also included in the financial statements are the
assets, liabilities and operating results of 35 majority-owned real
estate properties. (See Note 8 for discussion of discontinuance of the
operations of Winthrop Securities.)
The general partner of WFA is Linnaeus Associates Limited Partnership
(Linnaeus), a Maryland limited partnership. Prior to December 22, 1994,
Mr. Arthur J. Halleran, Jr., was the sole general partner of Linnaeus. On
December 22, 1994, pursuant to an Investment Agreement (the Investment
Agreement) entered into among Nomura Asset Capital Corporation (NACC), a
Delaware corporation, Mr. Halleran and certain other individuals who
comprised the senior management of WFA, the general partnership interest
in Linnaeus was transferred to W.L. Realty, L.P. (W.L. Realty). NACC is a
subsidiary of Nomura America Holding Inc., a Delaware corporation, which
is a wholly owned subsidiary of Nomura Securities Company, Ltd., a
Japanese corporation with worldwide investment banking, securities and
commodities operations. W.L. Realty is a Delaware limited partnership,
the general partner of which was A.I. Realty Company, LLC (Realtyco), a
New York limited liability company, prior to July 14, 1995.
On July 18, 1995, Londonderry Acquisition II Limited Partnership
(Londonderry II), a Delaware limited partnership and affiliate of Apollo
Real Estate Advisors, L.P. (Apollo), a Delaware limited partnership,
executed a purchase agreement, dated as of July 14, 1995 (Purchase
Agreement), by and among Londonderry II, NACC, Realtyco, Partnership
Acquisition Trust I (PATI), a Delaware business trust, and Property
Acquisition Trust I (PAT), a Delaware business trust. Pursuant to the
Purchase Agreement, Londonderry II purchased NACC's and Realtyco's
interests in W.L. Realty, and as a result, Londonderry II is the sole
general partner of W.L. Realty which is the sole general partner of
Linnaeus, and which in turn is the sole general partner of WFA.
In addition to the foregoing, Apollo and its affiliates, WFA and certain
executives of WFA (the Management Investors) executed an agreement
whereby the Management Investors sold to WFA their respective equity
interests in W.L. Realty, and certain executives resigned. The Company
has recorded the purchase of the interests in W.L. Realty as a treasury
stock transaction and, thus, has reduced equity by the purchase price
($4,244,000). In addition, the Company has recorded a provision for
Nonrecurring Organizational Costs in 1995 in the amount of $5,689,000
related to the settlement of certain employment contracts and other
transaction-related costs (see Note 6 for further discussion).
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(Continued)
(1) ORGANIZATION (Continued)
The Partnership Agreement of the Company provides that interests of
Public Unitholders are redeemable by the Company at the option of the
General Partner and that Unitholders are entitled to a 6% cumulative
noncompounded preferred priority return payable from cash flow (as
defined in the Partnership Agreement) on the Public Unitholders' original
investment, reduced from time to time by any capital distributions, and
priority allocation from all nonoperating distributions.
The Company made no distributions to its Partners during 1995, 1994 or
1993. The cumulative unpaid preferred priority is $20,346,000, or $7.50
per unit, at December 31, 1995.
On March 4, 1995, an Information Statement was mailed to the Public
Unitholders by the General Partner in connection with a proposed
amendment (the Amendment) to WFA's Partnership Agreement. The Amendment
modified the previous prohibition against the General Partner entering
into certain agreements, contracts or arrangements on behalf of WFA with
the General Partner, partners of the General Partner or an affiliate of
the General Partner. Under the Amendment, the General Partner is
authorized to enter into transactions with affiliates provided that the
transactions are of the nature contemplated under the Investment
Agreement or the General Partner reasonably believes that the transaction
is on terms no less favorable to WFA than those which could be obtained
from an unaffiliated third party. The Amendment was filed April 4, 1995,
and was operative, by its terms, as of December 22, 1994.
See Note 13, for discussion of a proposed settlement related to
interests of the Public Unitholders.
(2) FINANCIAL CONDITION
In 1988, the investor limited partners of One Houston Associates Limited
Partnership (One Houston), an investment program organized by the
Company, brought suit against WFA, First Winthrop, Linnaeus-Hawthorne
Associates (the general partner of One Houston), Arthur J. Halleran, Jr.,
Jonathan W. Wexler, George J. Carter, David C. Hewitt, John V. McMannon,
Jr., and John M. Nelson, IV (each general partners of Linnaeus-Hawthorne
Associates). The case was tried to a jury, and on February 2, 1995, the
jury returned a verdict for the plaintiffs against First Winthrop
Corporation and found damages of at least $30 million.
On March 3, 1995, WFA and First Winthrop entered into a memorandum of
agreement with the plaintiffs in which WFA and First Winthrop agreed to
settle the case by paying One Houston the sum of $17 million.
<PAGE>
(2) FINANCIAL CONDITION (Continued)
A trial court hearing announcing the terms of the proposed settlement was
held on March 13, 1995. At the hearing, the parties filed a conditional
agreed judgment for $20 million, plus postjudgment interest and costs,
which was to only become effective if First Winthrop defaulted on its
undertaking to fund the settlement payment of $17 million by June 1,
1995. The Company funded this settlement with interim financing provided
by NACC and, upon payment, was released from any prior or future claims
related to this lawsuit.
In July 1995, the Company contributed certain assets and liabilities to a
newly formed partnership owned by the Company (WSWH), and NACC
contributed its $17,800,000 note receivable (the interim financing
provided by NACC to the Company in order to settle the legal matter
discussed above) to WSWH in exchange for preferred equity which provides
NACC with certain preferences of cash flow from WSWH.
NACC's equity in WSWH has been recorded in the accompanying financial
statements as a Minority Interest Liability. In addition, NACC receives a
return on its equity, as defined, of LIBOR plus 6.5%. Such amounts have
been recorded as Minority Interest Expense in the accompanying
consolidated statements of operations.
Given the above transactions, as well as the financing arrangement with
General Electric Capital Corp. entered into July 1995 (see Note 9),
management believes the Company has sufficient working capital which,
when combined with cash flow from operations, will permit the Company to
continue its current operations for the foreseeable future.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements reflect the accounts
of WFA and its controlled subsidiaries (the Company). All significant
intercompany accounts and transactions have been eliminated in
consolidation.
Loans Receivable
The Company has made loans to certain investment programs it has
organized in order to provide the investment programs with working
capital to fund operations and other cash requirements. Such loans are
generally to be repaid from future operating cash flow of the programs.
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Land, Buildings, Furniture, Fixtures and Equipment and Depreciation
Land and buildings, furniture, fixtures and equipment are carried at
cost. Expenditures for replacements are capitalized; repairs and
maintenance are charged to operations, as incurred.
The Company provides for depreciation of buildings and furniture,
fixtures and equipment on the straight-line method using the assets'
estimated useful lives, ranging from 5 to 27.5 years.
Equity Interests in and Advances to Investment Programs
As of December 31, 1995, the Company had sponsored a total of 266
publicly and privately placed investment programs organized to own
various types of real estate projects, federally insured mortgages or
agricultural enterprises.
The Company acts as a general or limited partner in the majority of
investment programs that it has organized. The Company accounts for its
interests in investment programs in which it exercises significant
influence on the equity method. The Company accounts for all of its other
interests in investment programs on the cost method.
The Company has made both interest and noninterest-bearing advances to
certain investment programs, generally for operating purposes, debt
negotiation requirements or to satisfy partnership agreements. Such
advances are to be repaid from future sales of assets or equity
interests.
Long-term Fees Receivable
Long-term fees receivable consist primarily of the long-term portion of
fees due from 10 investment programs in fixed annual or semiannual
installments which began in 1995.
Deferred Costs
Deferred costs consist of expenses incurred in connection with the
acquisition of management contracts, properties and financings. These
costs are amortized over their estimated useful lives. Amortization
related to these costs was $1,888,000, $1,687,000 and $765,000 for the
years ended December 31, 1995, 1994 and 1993, respectively (see Note 5
for further discussion).
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Minority Interest
Minority interest included in the accompanying balance sheet represents
NACC's preferred equity in WSWH of $17,800,000 as increased by LIBOR plus
6.5% per annum, and reduced by any payments.
Property Acquisition and Related Fee Income
For accounting purposes, the Company's property acquisition and related
fee income includes acquisition fees and certain interest guarantee fees,
which are considered to be components of the Company's fees for providing
financial services to the investment programs organized by the Company.
The primary source of the Company's revenues in this category was
comprised of fees associated with the structuring of net lease
arrangements and the institutional placement of debt and equity
associated with such transactions.
Leasing Commissions
The Company earns leasing commissions from certain of the properties it
manages for brokering or co-brokering leases for space therein. Leasing
commissions fluctuate in any given period depending on market conditions
in the geographical areas where the Company operates and the amount of
space available to rent at the properties. Historically, a substantial
portion of the leasing commission revenue has been earned from one
investment partnership sponsored by the Company. As discussed further in
Note 4, the Company will no longer provide lease brokerage services to
this partnership.
Tenant Service Revenue
The Company earns tenant service revenue for providing commercial
cleaning, building security, construction management and other related
services to properties and to the tenants of properties it manages. The
fees are paid out of the properties' operating cash flow or directly by
the tenants and are recognized by the Company in the period the services
are performed. The Company has ceased providing such services in 1996.
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Management Fees
The Company earns management fees from most of the investment programs it
has organized, as well as from third parties. The Company provides
general property management, asset management, consulting and
administrative services for these investment programs and third parties.
Interest Income
Interest income is generated on the Company's cash equivalents and
long-term receivables.
Rental Revenue
The Company earns rental revenue from the various commercial and
residential properties it owns. The leases are generally for a term of
one year and are accounted for as operating leases in accordance with
Statement of Financial Accounting Standards (SFAS) No. 13, Accounting for
Leases.
Income Taxes
Taxes with respect to the portion of the net income or loss of the
Company attributable to its corporate subsidiaries are reflected in the
consolidated financial statements of the Company. The balance of the net
income or net loss is reflected on the tax returns of the partners of
WFA. The Company adopted SFAS No. 109, Accounting for Income Taxes, in
the first quarter of 1993. The adoption did not have a material impact on
reported results of operations.
Allocation of Income (Loss) to Partners
Allocations of income (loss) among the Partners for financial statement
and tax reporting purposes are made in accordance with WFA's Partnership
Agreement, assuming the continuing operations of the Partnership. Thus,
the related Partners' capital accounts do not represent amounts that
would be received upon liquidation of the Partnership.
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, cash
equivalents are defined by the Company as investments consisting of
certificates of deposit, money market funds, commercial paper and other
instruments with original maturities of less than 90 days. The Company
made interest and income tax payments (receipts) during the three years
in the period ended December 31 as follows:
Interest Taxes
(Amounts in thousands)
Year Ended
1993 $ 2,202 $ (4,710)
1994 13,870 412
1995 14,818 83
Financial Instruments
SFAS No. 105, Disclosure of Information about Financial Instruments,
requires disclosure of the off-balance-sheet credit risk and
concentrations of credit risk associated with financial instruments. The
Company satisfies the disclosure requirements related to its financial
instruments with off-balance-sheet credit risk in Note 12. The Company's
receivables are predominantly from real estate investment programs
organized by the Company, and as such, the Company's receivables may be
exposed to the inherent risks associated with the ownership and operation
of real estate (see Note 4). The viability of certain investment programs
is contingent on receipt of rents from one major national retail chain.
The Company has no other significant concentration of credit risk.
Reclassification
Certain reclassifications have been made to the prior years' financial
statements to conform to the 1995 presentation.
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.
<PAGE>
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of, which requires impairment losses to
be recorded on long-lived assets used in operations when indicators of
impairment are present and the undiscounted cash flows estimated to be
generated by those assets are less than the assets' carrying amount. SFAS
No. 121 also addresses the accounting for long-lived assets and
identifiable intangibles that are expected to be disposed of. The Company
intends to adopt SFAS No. 121 in the first quarter of 1996, as required.
Management does not expect that the effects of SFAS No. 121 will have a
material impact on its financial position.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures About the Fair Value of Financial Instruments,
which was adopted by the Company effective January 1, 1995, requires that
the Company disclose estimates of the fair value of all classes of
financial instruments.
The carrying amounts reported on the consolidated balance sheets for
cash, receivables, other current assets, accounts payable, accrued
expenses and current notes payable approximate fair value, due to the
short-term nature of these investments. All long-term receivables are
recorded net, at realizable value, which management believes approximates
fair value at December 31, 1995. Based on current market conditions,
management believes that the carrying value of its debt approximates fair
value at December 31, 1995.
(4) 1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
1626 New York Associates Limited Partnership (1626) is an investment
program sponsored by the Company in 1984 which owns a portfolio of office
buildings in New York City. 1626 had defaulted on certain receivables
payable to the Company, and in 1991, the Company wrote down the
receivables from 1626, which totaled $29,000,000. 1626's only source of
funds to pay the Company's receivables was the net proceeds from the
future distributable cash flow, sales or refinancing of the investment
program's properties.
<PAGE>
(4) 1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP (Continued)
During 1991 and 1992, Nineteen New York Properties Limited Partnership
(19NY), a subsidiary of 1626, defaulted on certain of its mortgage loans.
During the third quarter of 1992 through the first quarter of 1993, the
Company, 19NY and 19NY's lenders executed agreements to restructure
certain of the lenders' mortgage notes. Pursuant to the restructuring
agreements, the terms of the mortgages were modified to include a
reduction in the original principal due from 19NY, extensions of maturity
dates and reduction in the pay rates.
The agreements required the Company to provide, in September 1992, to
19NY, a $10,800,000 loan and, in January 1993, a $1,500,000 loan, both of
which accrued interest at prime plus .75%. Collection of these loans and
accrued interest was payable from proceeds available to 19NY from future
distributable cash flow, property sales and refinancings. During 1993,
1994 and 1995, the Company advanced additional funds and deferred certain
fees payable to the Company by 1626. This enabled 1626 to pay certain
interest and fees and comply with the loan restructuring in 1992, and
1993. On February 28, 1996, an affiliate of Apollo purchased the 19NY
lenders' mortgage notes and, WFA and certain of its affiliates entered
into an agreement with 1626, 19NY and the Apollo affiliate (the
Agreement).
In conjunction with the Agreement, WFA and its affiliates contributed
approximately $36.6 million of receivables to 19NY (which included
deferred syndication, property management and tenant service fees; such
amounts had been previously reserved, for financial reporting purposes).
In addition, WFA sold its remaining $10 million note to an affiliate of
Apollo in exchange for $6 million in cash, which management believes
represented the fair value of the note. This amount was greater than the
net carrying value of the Company's assets related to 1626 and 19NY
included in the accompanying balance sheet at December 31, 1995.
Subsequent to execution of the Agreement, the Company will not hold
receivables or other assets related to 1626 or 19NY.
In addition, the Agreement provided for a change in the property manager
of the 19NY properties and thus, beginning in 1996, the Company will no
longer provide property management services, including leasing brokerage
services, to 19NY.
<PAGE>
(4) 1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP (Continued)
As a result of a legal case settlement in 1994, the Company forgave $10
million plus interest accrued from December 1, 1992 through August 2,
1994. For financial reporting purposes, this amount was previously
reserved. The Company also subordinated the collection of an additional
$10 million (sold in 1996 to an Apollo affiliate), plus interest accrued
thereon since December 1, 1992 until the Limited Partners of 1626 receive
a distribution equal to a stated amount.
(5) NONRECURRING ORGANIZATIONAL COSTS
During the first quarter of 1993, the Company began to explore the
desirability of converting WFA to a publicly traded real estate
investment trust. By June 1993, the Company had retained an investment
banker and decided that such a conversion was both desirable and
feasible. The Company developed a plan (the REIT Plan) to implement a
series of transactions expected to culminate in an initial public
offering of common stock in a newly formed real estate investment trust.
In the first half of 1994, the Company's confidence in the feasibility of
the REIT Plan declined, and during the third quarter of 1994, the Company
concluded that WFA should primarily direct its efforts to finding private
capital, and that WFA should postpone the REIT Plan. In accordance with
this decision, WFA's financial statements reflect a pretax provision of
$6,643,000 to write off costs related to the REIT Plan.
See the Company's November 2, 1994 filing on Form 14D-9 for further
information concerning Management's capital-raising activities.
In conjunction with the organizational restructurings, certain
departments were eliminated and employees were severed, resulting in
severance costs of $519,500 for the year ended December 31, 1995.
WFA with certain affiliates and The Alternative Group Limited
Partnership (TAG), Beal Investment Group, Inc., Beal Companies, Steven
R. Bodi, Bruce A. Beal, Robert L. Beal and George L. McGoldrick, Jr.
agreed on December 28, 1995 to settle all existing disputes between
them. Each of the disputes arose out of a consent solicitation
initiated by TAG to unseat WFA or its affiliates as the general
partner of an investment limited partnership. TAG was not successful
in any of those solicitations, and the parties agreed to resolve their
disputes arising in connection with the solicitations. The Company has
included the proxy solicitation, legal and settlement costs related to
these disputes as a component of its 1995 Nonrecurring Organizational
Costs.
<PAGE>
(5) NONRECURRING ORGANIZATIONAL COSTS (Continued)
See Note 6 for a discussion of the additional 1995 provision related to
Nonrecurring Organizational Costs.
(6) CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
On December 22, 1994, all the general partnership interests and
substantially all of the limited partnership interests in the General
Partner were transferred to W.L. Realty pursuant to the Investment
Agreement dated as of December 3, 1994. The general partner of W.L. Realty
prior to July 14, 1995 was Realtyco which held a 1% interest in W.L.
Realty. The partners of W.L. Realty prior to July 14, 1995 in addition to
Realtyco, were (i) NACC, which held a 64% limited partnership interest and
(ii) each of the following individuals (who held limited partnership
interests in the specified percentages): Arthur J. Halleran, Jr. (17.5%),
Jonathan W. Wexler (4.45%), Jeffrey Furber (4.14%), Stephen G. Kasnet
(3.81%), F.X. Jacoby (2.55%) and Richard J. McCready (2.55%) (collectively
referred to as the Management Investors). Under the limited partnership
agreement of W.L. Realty, NACC and Realtyco had the right, at the election
of either of them, to purchase at any time all (but not less than all) of
the limited partnership interests held by the Management Investors for a
price equal to the greater of (i) the fair market value of such interests,
as determined by specified appraisal procedures, or (ii) $8,000,000, if the
purchase occurred on or before December 22, 1995, $6,500,000, if the
purchase occurred after December 22, 1995 but on or before December 22,
1996, and $4,000,000, if the purchase occurred after December 22, 1996 but
on or before December 22, 1999 (there was no minimum purchase price
thereafter). As further discussed in Note 1, pursuant to the Purchase
Agreement, Londonderry II purchased NACC's and Realtyco's interest in W.L.
Realty. In addition, the Management Investors sold to the Company their
respective equity interests in W.L. Realty, and certain Management
Investors resigned. The acquisition of the Management Investors' equity
interests was recorded as a reduction in equity, classified as Investment
in W.L.
Realty Limited Partnership.
In connection with the December 22, 1994 transaction, the Management
Investors entered into employment contracts with WFA, guaranteeing
employment for terms ranging from three to five years, commencing on
January 1, 1995. Two of the executives had five-year contracts
guaranteeing base salaries of $250,000, with guaranteed annual bonuses
of $150,000 and $450,000 for each year. In conjunction with the July
18, 1995 transaction described in Note 1 (the transfer of the G.P.
interest from NACC to Londonderry II), the Chairman and the Vice
Chairman resigned and $2,318,537 was paid to these executives in
settlement of their employment contracts. Each of the other four
executives executed a three-year contract, with guaranteed annual
salaries of $250,000, $250,000, $190,000 and $180,000, respectively.
One of these four executives has a guaranteed annual bonus of $250,000
for each year. During 1995, two of the remaining four executives
resigned, and therefore, the Company is no longer obligated under the
respective employment contracts.
<PAGE>
(6) CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (Continued)
In addition, also in conjunction with the July 18, 1995 transaction
described in Note 1, payments were made to obtain releases from certain
liabilities from the Chairman and Vice Chairman and bonuses were paid to
the remaining Management Investors to induce them to continue their
employment with the Company. Such payments amounted to $3,371,360. The
payments related to settlement of certain employment agreements, the
release of certain liabilities, and bonuses to certain members of
management to continue their employment with the Company have been
recorded as Nonrecurring Organizational Costs in the accompanying
Statement of Operations in the amount of $5,689,897, for the year ended
December 31, 1995.
As a result of its general partnership interest and its ownership of
12,571,429 units, the General Partner is entitled to allocations of WFA's
profits, losses and cash distributions as specified in WFA's Partnership
Agreement.
The previous General Partner and certain of the previous partners of W.L.
Realty were officers, directors or employees of WFA or First Winthrop and
received compensation in connection with such employment.
Partnerships composed of various combinations of current and former
officers of WFA have retained an equity interest in some of the
investment programs organized by the Company prior to the formation of
WFA. Certain current and former employees own equity interests in some of
the investment programs organized by the Company.
In December 1994 and in January 1995, WFA purchased from various current
and former officers of the Company an 89.47% interest in Clarendon Land
Company, Inc., an 82.61% interest in Marlboro Land Company, Inc., and a
63.63% interest in Linnaeus San Francisco Associates, Limited
Partnership. Marlboro Land Company, Inc. and Clarendon Land Company, Inc.
own residual interests in the land underlying properties owned by certain
of the Company's previous syndications. Linnaeus-San Francisco owns a
small, freestanding retail store. The Company paid an aggregate of
$935,926 to acquire these interests. The Company believed it to be the
fair market value of such interests.
During 1995, the Company made advances of $234,000 to certain affiliates of
Apollo. Such amounts bear interest at prime plus 1% and are due on demand..
In April 1995, the Company purchased, from an unaffiliated party, an
apartment complex for approximately $11.3 million (the Hills Apartments)
in Austin, Texas. In conjunction therewith, the Company obtained
$1,000,000 in seller financing and obtained a mortgage loan from a
related party of $8,470,000.
<PAGE>
(6) CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (Continued)
During 1995, the Company obtained debt from Londonderry II and purchased
$8,000,000 of units in a limited partnership which had been previously
syndicated by the Company. These units and the related debt were
subsequently transferred from the Company to Londonderry II and,
therefore, are not included in the financial statements of the Company at
December 31, 1995.
See Notes 2 and 4 for additional discussion of related party
transactions.
(7) ACCOUNTING FOR EQUITY INTERESTS IN INVESTMENT PROGRAMS
AND UNCONSOLIDATED SUBSIDIARY
The Company accounts for its interests in investment programs in which it
exercises significant influence using the equity method. Upon completion
of the offering of limited partnership interests, the Company's remaining
interest in the investment programs is generally less than 5%. The
following is an unaudited, combined summary of financial data for these
investment programs (including Winthrop California Investors, L.P., as
discussed below):
<TABLE>
December 31,
1995 1994
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
Real estate, net of accumulated depreciation $ 869,916 $ 1,032,269
Investments in partnerships (a) (17,826) 5,771
Cash and short-term investments 107,130 99,220
Other assets 144,995 145,470
--------------- ---------------
1,104,215 1,282,730
Mortgage notes payable 1,268,198 1,302,741
Other liabilities 228,703 235,051
--------------- ---------------
1,496,901 1,537,792
Net liabilities $ (392,686) $ (255,062)
=============== ===============
</TABLE>
<PAGE>
(7) ACCOUNTING FOR EQUITY INTERESTS IN INVESTMENT PROGRAMS
AND UNCONSOLIDATED SUBSIDIARY (Continued)
<TABLE>
For the Year Ended December 31,
1995 1994 1993
(Amounts in thousands)
(Unaudited)
<S> <C> <C> <C>
Rental income $ 274,988 $ 274,562 $ 295,308
Gain on property transfer 11 650 41,495
Interest income 20,713 17,918 16,374
------------- ------------- --------------
295,712 293,130 353,177
------------- ------------- --------------
Equity in loss of partnership investment (a) 3,596 (421) 124
Depreciation and amortization 75,852 77,065 81,569
Other expenses 346,690 276,163 298,683
------------- ------------- --------------
426,138 352,807 380,376
------------- ------------- --------------
Net loss $ (130,426) $ (59,677) $ (27,199)
============= ============= ============
</TABLE>
(a) Thirteen investment programs own interests in 58 partnerships
or joint ventures that own and operate commercial properties
or residential housing developments.
The Company typically held a substantial equity interest in the
investment programs it organized during the investment programs'
syndication period. The Company accounted for its interest in these
investment programs, during the syndication period, on the same basis as
the basis used on final admission of investor limited partners.
In May 1986, the Company acquired, through a wholly owned partnership
(consolidated with the Company through 1990), 1,000 units (Units) of
limited partnership interest in Winthrop California Investors, L.P.
(WCI), an investment program organized by the Company, for an aggregate
cost of $54,000,000 funded with $29,500,000 of working capital provided
by the Company and a $24,500,000 loan. The loan is nonrecourse except to
such Units (and cash held in escrow as described below) and bears
interest until December 31, 1998 at 10.75% per annum. During this period,
interest only is payable on the loan in annual amounts equal to the cash
flow received in respect to the Units, subject to specified minimum and
maximum interest payments. Interest not paid currently will be added to
principal and accrue interest at 10.75% per annum.
<PAGE>
(7) ACCOUNTING FOR EQUITY INTERESTS IN INVESTMENT PROGRAMS
AND UNCONSOLIDATED SUBSIDIARY (Continued)
The outstanding balance of this loan at December 31, 1995 is $52,282,000,
including unpaid interest that has been added to principal. The lender
has the option to acquire, on December 31, 1998, a 45% interest in the
WCI Units at a price equal to the lesser of (a) all accrued and unpaid
interest on the loan or (b) 45% of the fair market value of the Units
subject to the loan (excluding accrued and unpaid interests). The Company
has received a capital distribution of $3,373,000 in connection with its
investment in the Units. In accordance with the original terms of the
loan, these funds will remain in escrow until the lender's option to
acquire an interest in the Units is exercised or expires.
As of April 1991, the Company had stopped making the annual interest
payments and has since determined that it does not intend to invest or
commit significant further resources to maintain ownership of the WCI
Units. As a result, the Company, for financial reporting purposes, has
deconsolidated this wholly owned partnership and reflected the net
carrying value at December 31, 1995 and 1994 (which is accounted for on
the cost method beginning October 1, 1991) as an offset against equity
interests in and advances to investment programs, net, in the
accompanying consolidated balance sheets.
The following are the condensed balance sheets and statements of
operations and cash flows of this wholly owned partnership (amounts in
thousands):
<TABLE>
BALANCE SHEET
December 31,
1995 1994
Assets:
<S> <C> <C>
Restricted cash and cash equivalents $ 13 $ 4,002
Investments in WCI - 16,385
--------------- ---------------
$ 13 $ 20,387
=============== ===========
Liabilities:
Mortgage notes payable $ 47,422 $ 43,002
Accrued interest 4,860 4,420
--------------- ---------------
52,282 47,422
--------------- ---------------
Partners' Capital (52,269) (27,035)
--------------- ---------------
$ 13 $ 20,387
=============== ===========
</TABLE>
<PAGE>
(7) ACCOUNTING FOR EQUITY INTERESTS IN INVESTMENT PROGRAMS
AND UNCONSOLIDATED SUBSIDIARY (Continued)
<TABLE>
STATEMENTS OF OPERATIONS
For the Year
Ended
December 31,
1995 1994 1993
<S> <C> <C> <C>
Interest income $ 171 $ 153 $ 117
Interest expense (4,860) (4,420) (3,779)
Equity in loss of investment program (16,385) (4,790) (4,412)
------------- ------------- -------------
Net loss $ (21,074) $ (9,057) $ (8,074)
============= =========== ===========
</TABLE>
The wholly owned partnership accounts for its investment in the WCI units
on the equity method. Therefore, the significant loss recorded in 1995 is
directly attributable to the significant loss recorded by WCI, primarily
as a result of a provision to write down its real estate to net
realizable value. Since the wholly owned partnership owns limited partner
Units, it has not written its investment below zero.
<TABLE>
STATEMENTS OF CASH FLOWS
For the Year
Ended
December 31,
1995 1994 1993
<S> <C> <C> <C>
Net loss $ (21,074) $ (9,057) $ (8,074)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Equity in loss of investment program 16,385 4,790 4,412
Changes in assets and liabilities-
Increase in accrued interest 4,860 4,420 3,779
Return of restricted cash to lender (4,160) - -
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (3,989) 153 117
Cash and cash equivalents, beginning of year 4,002 3,849 3,732
------------- ------------- -------------
Cash and cash equivalents, end of year $ 13 $ 4,002 $ 3,849
============= =========== ===========
</TABLE>
<PAGE>
(8) DISCONTINUED OPERATIONS
In the fourth quarter of 1993, the Company decided to discontinue its
investment-sales related operations and to terminate the business
operations of Winthrop Securities, the Company's securities brokerage
subsidiary. This decision completed the Company's decision to terminate
all fee-based activity related to raising investment capital.
Accordingly, this business segment was presented as a discontinued
operation in 1993. The estimated loss on the disposal was $1,403,000 net
of tax benefit of $424,000, consisting of a provision for severance,
losses through disposal, etc.
Summary operating results of the discontinued operation for the year
ended December 31, 1993 are as follows:
Revenues $ 1,868
Expenses 4,816
-------------
Loss before tax (2,948)
Tax benefit 742
Loss from discontinued operations (2,206)
Loss on disposition (1,403)
-------------
Net loss from discontinued operations $ (3,609)
==========
<PAGE>
(9) NOTES PAYABLE
The Company's notes payable for 1995 and 1994 are summarized as follows:
<TABLE>
<S> <C> <C>
1995 1994
Mutual of Omaha notes payable, interest at 7.67% payable semiannually.
Represents two separate notes. Interest payable only in the first five
years, maturing in 2000 and 2005, respectively. Collateralized by
certain receivables of the Company as well as by certain restricted
cash reserves $ 9,250 $ 9,250
Note payable to a bank. Interest payable monthly at rates from 7% to
8.5%. The note is secured by and has recourse solely against certain
assets of the Company and matures in 2001 1,161 1,161
Revolving credit facility with a bank, with a $20,000,000 line of credit
bearing interest at the lenders' base rate plus 1%, expired May 1994.
The balance as of December 31, 1994 was the remaining outstanding
balance, with interest payable at 9.5%, repaid in full in
1995 - 6,382
Loan payable to a bank, secured by certain assets of the Company. Bore
a variable interest rate (8.125% at December 31, 1994) and was
scheduled to mature in November 1996, repaid in full in 1995 - 14,985
Mortgage notes payable to unrelated third parties, bearing interest from
8.75% to 9.625%, principal and interest paid monthly out of
property cash flow, maturing in 2002 and 2003 867 930
Mortgage notes payable to an insurance company, bearing interest at
9.875%, maturing in November 2000 1,655 1,670
Senior and Junior mortgage notes payable to a trust, bearing interest
at 9%, maturing in 2000 and 2018, respectively 106,326 106,326
Notes payable to a related party, bearing interest at 1% above the prime
rate of Bank of Boston, 9.5% at December 31, 1995, due in 1998
7,375 6,810
Note payable to a bank, bearing interest of 9%, scheduled to mature
in 2002, paid in full in 1995 - 2,123
Mortgage notes payable to an insurance company, bearing interest at
9.75% matured in 1995 - 9,999
Mortgage notes payable to General Electric Capital Corp., bearing
interest at LIBOR plus 3%, 8.72% at December 31, 1995, due on June 30,
1998 41,177 -
Mortgage note payable to Nomura Asset Capital Corporation, bearing
interest at 10.04%, due on May 1, 2002 8,424 -
Installment note payable to a limited partnership, bearing interest at
9.5%. Any remaining amounts owing under this note will be due on
January 31, 2000 1,000 -
Note payable to a bank, interest and principal payable monthly, bearing
interest at the prime rate plus 1.5%, scheduled to mature in 1996,
paid in full in 1995 - 3,557
Other notes payable, varying interest rates and maturities 345 130
------------- -------------
177,580 163,323
Less--Current portion 2,059 32,708
------------- -------------
$ 175,521 $ 130,615
============= =============
</TABLE>
Principal payments are due as follows:
1996 $ 2,059
1997 724
1998 49,559
1999 2,060
2000 96,332
Thereafter 26,846
------------
$ 177,580
<PAGE>
(9) NOTES PAYABLE (Continued)
The Company is currently in default on a mortgage payable of $1,161,000,
secured solely by specific assets of the Company. The Company is
currently negotiating with the lender of the note. The Company does not
expect a material adverse or significant impact on the Company's results
of operations or financial position, as a result of the current default.
As of December 31, 1995, substantially all of the Company's real estate
assets had been pledged as collateral for various notes payable.
Winthrop Florida Apartments, L.P. (Winthrop Florida), a wholly owned entity
of the Company, entered into an interest rate protection agreement with
Morgan Guaranty Trust Company of New York (MGT) in July 1995. The agreement
expires on July 1, 1998. Under the agreement, Winthrop Florida paid MGT a
transaction fee of $302,400 in exchange for an interest rate cap of 10.19%,
with a floating rate option on the notional principal amount of
$33,600,000. The original note rate was LIBOR plus three percent. In the
event of nonperformance by the counterparty, Winthrop Florida would be
exposed to interest rate risk if LIBOR plus three percent rate were to
exceed the cap rate. As of December 31, 1995, LIBOR plus three percent did
not exceed the cap rate. Winthrop Florida recorded $50,400 of amortization
expense during 1995 related to the interest rate protection agreement.
(10) INCOME TAXES
Effective the beginning of fiscal 1993, the Company adopted SFAS No. 109,
Accounting for Income Taxes. Taxes in respect of the portion of the net
income or loss of the Company attributable to its corporate subsidiaries is
reflected in the statements of the Company. The balance of the net income
or loss is reflected on the tax returns of the partners of WFA. SFAS No.
109 requires recognition of deferred tax liabilities and assets for the
expected future tax consequences of events that have been included in the
financial statements and tax returns. Under this method, deferred tax
liabilities and assets are determined based on the difference between the
financial statement and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
The components of the net deferred tax liability as of December 31, 1995
and 1994 are as follows:
<TABLE>
1995 1994
<S> <C> <C>
Total deferred tax liabilities $ 44,306,000 $ 44,113,000
Total deferred tax assets 30,394,000 32,187,000
--------------- ---------------
$ 13,372,000 $ 11,926,000
=============== ===============
</TABLE>
<PAGE>
(10) INCOME TAXES (Continued)
The Company's deferred tax assets are expected to be realized through the
reversal of the deferred tax liabilities.
Significant items making up the deferred tax liabilities and deferred tax
assets as of December 31, 1995 and 1994 are as follows:
<TABLE>
1995 1994
Assets:
<S> <C> <C>
Reserves not currently deductible for tax purposes $ 13,085,000 $ 20,757,000
Revenues recognized for tax purposes in advance of
financial statements 5,534,000 5,534,000
-----
Net operating loss carryforward 12,315,000 5,896,000
--------------- ---------------
$ 30,934,000 $ 32,187,000
=============== ===============
Liabilities:
Equity in investment programs' tax basis loss $ 32,849,000 $ 33,012,000
Revenues recognized for financial statements in advance
of tax purposes 11,457,000 11,101,000
--------------- ---------------
$ 44,306,000 $ 44,113,000
=============== ===============
</TABLE>
As of January 1, 1996, the Company has net operating loss carryforwards
which are available to offset future taxable income. These carryforwards,
which are expected to be fully utilized, expire in the year 2010.
WFA's taxable income (loss) differs from its net loss for financial
statement purposes due primarily to differences in the recognition of
WFA's share of First Winthrop's and certain investment programs' results
of operations for financial statement and tax reporting purposes.
<PAGE>
(10) INCOME TAXES (Continued)
WFA's taxable income is estimated as follows:
<TABLE>
For the Year
Ended
December 31
1995 1994 1993
(Amounts in Thousands)
<S> <C> <C> <C>
Net loss for financial statement purposes $ (8,352) $ (13,265) $ (990)
Equity in investment programs' tax basis loss in
excess of financial statement loss (4,969) (10,195) 6,935
Income not included for financial statement
purposes - - 5,280
Investment programs' distributions not included in
taxable income (338) (537) (66)
Expenses previously included for financial
statement purposes - - (9,263)
First Winthrop's net (income) loss for financial
statement purposes (2,226) 14,041 (2,262)
Charges related to real estate - -
Net expenses not deductible for tax reporting
purposes - 189 1,546
------------- ------------- -------------
WFA estimated taxable income (loss) $ (15,885) $ (9,767) $ 1,180
============== =========== ===========
</TABLE>
First Winthrop's total provision (credit) for income taxes differs from
that which would have been calculated using the statutory federal income
tax rate, due primarily to the net effect of the provision (credit) for
state income taxes. Deferred income taxes result from temporary
differences in the recognition of revenues and expenses for tax and
financial reporting purposes, primarily related to the excess, in respect
of various investment programs, of tax losses over losses reported for
financial statement purposes.
<PAGE>
(10) INCOME TAXES (Continued)
Significant components of the provision (credit) for income taxes from
continuing operations are as follows:
<TABLE>
For the Years Ended December 31,
1995 1994 1993
(Amounts in Thousands)
<S> <C> <C> <C>
Deferred tax (credit) liability $ 1,530 $ (8,315) $ (2,609)
-------- ----------- -----------
$ 1,530 $ (8,315) $ (2,609)
============= =========== ===========
</TABLE>
(11) PENSION AND PROFIT-SHARING PLANS
The Company has two contributory 401(k) plans (the Plans) covering most
of its employees meeting certain age and service criteria. The first plan
is for office employees and the second is for field employees. Under both
Plans, participants may make pretax contributions of up to 15% of their
salary. Under the office employees' plan, the Company will match employee
contributions up to 3.5% of the employees' salary. The Company's
contribution may be reduced as a result of forfeiture of unvested account
balances by terminated employees. The employee contributions will be 100%
vested, and the Company's matching contributions to the Plan, as well as
all prior account balances, will vest 50% upon completion of three years
of services and 100% upon completion of four years of service.
The Company recognized expenses relating to the Plans of $98,000,
$599,000 and $290,000 for the years ended December 31, 1995, 1994 and
1993, respectively. The Company currently funds amount accrued under the
Plans.
The Company does not provide any other postretirement benefits in
addition to the benefits discussed above.
(12) COMMITMENTS AND CONTINGENCIES
(a) Guarantees of Syndicated Investment Programs' Obligations
As of December 31, 1995, the Company has agreed to fund up to
$3,179,000 of potential operating deficits that may be incurred by
three investment programs. In general, the Company will not be
liable under these commitments until the investment programs'
reserves to fund operating deficits are exhausted.
As of December 31, 1995, the Company has guaranteed $45,700,000 of
seven investment programs' mortgage financing. The Company's
liability is for only the most senior portion of the mortgages,
and in none of the cases is this guaranteed portion more than 50%
of the mortgage financing. The Company will only be liable under
these guarantees to the extent that the potential sale or
refinancing of properties held by the investment programs do not
provide sufficient funds to satisfy the guaranteed portions of the
investment programs' obligations. In addition, the Company has
guaranteed $10,000,000 of one investment program's mortgage
financing in the event of environmental liability or fraud.
The Company has guaranteed a minimum return to the limited
partners of one investment program organized by the Company. In
another investment program organized by the Company, a partnership
is required to purchase those units tendered by the investor
limited partners, including a cumulative 10% annually compounded
return on the basic capital contribution, less any cash flow
previously distributed (the net amount so calculated being
referred to as the Put Payment). If the partnership does not have
sufficient funds to make all required Put Payments, then the
general partner, a subsidiary of First Winthrop, shall contribute
to the partnership, as an additional capital contribution, such
funds as are required to allow the partnership to complete the Put
Payments.
Liabilities related to the above commmmitments as of December 31, 1995
and December 31, 1994 are reflected in accrued expenses ($823,000 and
$600,000, respectively) and other long-term liabilities ($1,274,000
and $3,070,000, respectively). Management believes that these amounts
are adequate to cover the Company's exposure on these guarantees.
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES (Continued)
(b) Leases
Subsidiaries of the Company are leasing real properties on a
completely net basis under lease agreements (the Master Leases)
from two investment programs organized by the Company. The
subsidiaries are, in turn, leasing the real properties on a
completely net basis under separate lease agreements (the
Subleases) to unaffiliated corporate tenants. The Master Leases
have primary terms of 30 years while the Subleases have primary
terms of 25 years, both having several five-year renewal options.
The Company expects that the corporate tenants will exercise their
first five-year renewal options under the Subleases. Lease
payments due to the subsidiaries during the primary and renewal
periods of the Subleases are adequate to meet their obligations
under corresponding periods of the Master Leases.
The following is a summary of the average payments due during the
primary terms of the Master and Subleases, which are accounted for
as operating leases:
Master
Years Leases Subleases
(Amounts in Thousands)
1996-2008 $ 10,587 $ 10,656
2009-2013 3,895 -
The Company's liability under the Master Leases is limited to
$2,000,000 with respect to any one investment program, subject to
an overall $5,000,000 limitation.
The Company leases office space and office equipment. The Company
incurred rental expense of approximately $1,993,000, $1,933,000
and $2,658,000 for the years ended December 31, 1995, 1994 and
1993, respectively.
The following is a summary of the Company's approximate minimum
rental commitments under the noncancelable portion of long-term
operating leases (in thousands):
Year Ended December 31,
1996 $ 1,830
1997 1,487
1998 308
1999 140
2000 140
Thereafter 350
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES (Continued)
(c) Litigation
As a result of actions brought by investors, the Company is a
party to litigation involving certain investment programs it has
organized. Each of these programs has experienced financial
difficulties due to market conditions. In general, the actions
brought against the Company allege that the Company, as general
partner or sponsor, acted improperly in the organization,
syndication or operation of the investment programs. In each
pending case, the Company believes that the allegations are
without merit and intends to vigorously defend itself. The Company
does not expect that the outcome of any of these suits or any
other suits will have a material adverse effect on its financial
condition or results of operations.
During 1995, the Company settled lawsuits initiated by the limited
partners of Sixty-Six Associates Limited Partnership, Park Towne
Place Associates Limited Partnership, and Parsippany Commerce
Associates Limited Partnership for an aggregate amount of
$1,216,000. These amounts had been previously reserved for by the
Company, and thus, the settlements had no impact on the Company's
1995 results of operations.
As discussed in Note 2, as a result of a legal case settlement,
First Winthrop paid One Houston the sum of $17 million.
In addition, as discussed in Note 4, as a result of a legal case
settlement, the Company forgave $10 million plus accrued interest
owed by an investment program.
(d) Letters of Credit
In conjunction with WFA's acquisition of the Hills Apartments, WFA
executed two letters of credit, $100,000 and $900,000,
respectively, to collateralize notes retained by the seller,
Carwin, Ltd. These letters of credit have initial terms ending
January 3, 1997, and August 1, 1996, respectively.
(e) Employment Arrangements
On January 15, 1996, the Company entered into an employment
agreement with its newly hired Chief Executive Officer. Under the
terms of this three-year agreement, the Chief Executive Officer
will receive an annual salary of $360,000 per year, subject to
increase based upon the U.S. Consumer Price Index, and a bonus,
based upon the improved financial performance or
<PAGE>
(12) COMMITMENTS AND CONTINGENCIES (Continued)
(e) Employment Arrangements (Continued)
condition of the Company or its direct or indirect subsidiaries.
In addition, the Chief Executive Officer is entitled to a monthly
car allowance, as well as participation in all employee health and
benefit plans. This employment agreement will terminate
immediately upon the employee's death, disability, or for cause.
Upon the termination of the Chief Executive Officer's employment
agreement for any reason other than cause, the Company will
continue to be obligated to make payments in accordance with the
agreement for the remainder of the term, unless termination is a
result of the officer's death or disability, in which case the
amount to be paid will the lesser of one year's salary, or the
salary due over the remaining term of the agreement.
See Note 6 for discussion of additional employment contracts.
(13) SUBSEQUENT EVENTS
On December 22, 1994, a class action suit was brought against WFA,
Linnaeus Associates Limited Partnership (Linnaeus), a Maryland
limited partnership and sole general partner of WFA, former and
current members of WFA's senior management (collectively, the WFA
Defendants) and Nomura Asset Capital Corporation, by those
individuals who owned units of limited partnership interest in WFA
known as preferred units (Preferred Unitholders and Class
Members). The suit alleges in the first amended complaint, filed
February 28, 1995, that, among other things, the WFA Defendants
breached their fiduciary duties by improperly selling their
interest in Linnaeus to NACC, while failing to obtain a similar
buyout opportunity for the Preferred Unitholders.
On March 8, 1996, a second amended complaint was filed which
contained the class claims asserted in the previous complaint and,
in addition, that the defendants breached the twelfth amendment to
the Partnership Agreement by failing to make a capital
distribution as a result of the Investment Agreement and by
failing to effect a redemption of the Preferred Units.
<PAGE>
(13) SUBSEQUENT EVENTS (Continued)
A Stipulation for Settlement, dated as of March 20, 1996 (the
Stipulation), provides that Londonderry Acquisition Corp., Inc.
or its affiliate (Londonderry), an affiliate of Apollo, will
undertake to liquidate the investment of Class Members by
effecting a merger (the Merger Transaction) pursuant to Maryland
law which will provide Class Members (regardless whether such
Class Members opt out of the Class) with the right to receive
cash consideration per Preferred Unit in an amount to be opined
by a nationally recognized, independent investment banking firm
as fair from a financial point of view, but in no event less than
ten dollars and fifty cents ($10.50) per Preferred Unit (the
Offered Price). Class Members will retain their rights under
Maryland law to pursue an appraisal of the value of their units
and receive an amount determined pursuant to their appraisal
rights under Maryland law (the Appraised Price).
Londonderry has indicated that it is willing to purchase the
Preferred Units at the offered price only if the proposed
settlement, pursuant to the Stipulation, is approved and the class
action is dismissed with prejudice. If the proposed settlement is
not approved, Londonderry may not make an offer to liquidate the
Class Members' investment in WFA. The final approval hearing will
be held May 23, 1996 in Chicago, Illinois. If a significant number
of Class Members opt out of the proposed settlement, Londonderry
and Linnaeus have the right to declare the Stipulation null and
void.
WINTHROP FINANCIAL ASSOCIATES
(A Limited Partnership)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1995
<TABLE>
- ------------------------------- --------------- -------------------------------- ------------------ ---------------
Column A Column B Column C Column D Column E
- -------------------------------------- --------------- -------------------------------- ------------------ ---------------
Balance, Charged to Balance,
Beginning Costs and Charged to (Additions) End
Description of Period Expenses Other Accounts Deductions of Period
- -------------------------------------- --------------- ------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED, DECEMBER 31, 1995:
Deducted from asset accounts-
Allowance for doubtful accounts $ 16,639,000 $ 240,000 $ - $ - $ 16,879,000
Loan reserves 16,908,000 (20,000) - - 16,888,000
-------------- ------------ ------------ ------------ -------------
Total $ 33,547,000 $ 220,000 $ - $ - $ 33,767,000
============== ============ ============ ============ =============
General partner liability $ 4,777,000 $ - $ 1,121,000 $ (2,611,000) $ 3,287,000
============== ============ ============ ============ =============
YEAR ENDED DECEMBER 31, 1994
Deducted from asset accounts-
Allowance for doubtful accounts $ 26,614,000 $ 25,000 $ - $ 10,000,000 $ 16,639,000
(1)
Loan reserves 17,538,000 75,000 - 705,000 16,908,000
-------------- ------------ ------------ ------------ -------------
(1)
Total $ 44,152,000 $ 100,000 $ - $ 10,705,000 $ 33,547,000
============== ============ ============ ============ =============
General partner liability $ 8,304,000 $ - $ (171,000) $ 3,356,000 $ 4,777,000
============== ============ ============ ============ =============
(2)
YEAR ENDED DECEMBER 31, 1993
Deducted from asset accounts-
Allowance for doubtful accounts $ 27,870,000 $ 130,000 $ 1,386,000 $ 26,614,000
(1)
Loan reserves 25,107,000 137,000 7,706,000 17,538,000
-------------- ------------ ------------ -------------
(1)
Total $ 52,977,000 $ 267,000 $ 9,092,000 $ 44,152,000
============== ============ ============ =============
General partner liability $ 9,844,000 $ 1,540,000 $ 8,304,000
============== ============ =============
(2)
YEAR ENDED DECEMBER 31, 1992
Deducted from asset accounts-
Allowance for doubtful accounts $ 222,652,000 $ 901,000 $ 4,845,000 (3) $ 528,000 $ 27,870,000
(1)
Loan reserves 24,739,000 619,000 4,221,000 (3) 4,472,000 25,107,000
-------------- ------------ ------------ ------------ -------------
(1)
Total $ 47,391,000 $ 1,520,000 $ 9,066,000 $ 5,000,000 $ 52,977,000
============== ============ ============ ============ =============
General partner liability $ 9,850,000 $ 900,000 $ 906,000 $ 9,844,000
============== ============ ============ =============
(2)
</TABLE>
(1) Uncollectible accounts written off.
(2) Payments.
(3) These amounts represented deferred revenue.
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
10-K SCHEDULE III
SCHEDULE 3-A
DECEMBER 31, 1995
<TABLE>
Cost Capitalized Subsequent
(A) Acquisition Costs to Acquisition
Description Mortgage Buildings and Buildings and
Real Property Notes Land Improvements Land Improvements
<S> <C> <C> <C> <C> <C>
Beacon Hill Apts., Chambles, GA $ 3,701,986 $ 655,108 $ 3,520,283 $ - $ 214,888
Blossomtree Apts., Scottsdale, AZ 2,251,638 362,134 1,964,236 - 232,527
Ferntree III Apts., Phoenix, AZ 2,587,193 445,946 2,397,000 - 214,729
Foothils Apts., Tucson, AZ 6,043,093 804,081 6,296,430 - 62,375
Fox Bay Apts., Tucson, AZ 3,925,497 724,139 3,638,748 - 152,250
Foxtree Apts., Tempe, AZ 5,575,592 950,671 5,113,536 - 788,892
Grovetree Apts., Tempe, AZ 3,620,626 621,544 3,324,781 - 125,285
Hazeltree Apts., Phoenix, AZ 1,236,970 181,804 1,002,426 - 361,241
Hiddentree Apts., E. Lansing, MI 5,306,793 567,852 4,998,541 - 979,445
Islandtree Apts., Savannah, GA 6,047,438 1,097,172 5,852,607 - 110,844
Orchidtree Apts., Scottsdale, AZ 8,239,302 1,441,057 7,709,577 - 467,745
Pine Creek Apts., Pine Creek, MI 2,136,961 329,332 1,823,779 - 466,855
Polo Park Apts., Midland, TX 3,074,131 447,980 2,979,650 - 106,427
Quailtree Apts., Phoenix, AZ 2,629,152 441,855 2,373,552 - 215,026
Rivercrest Apts., Tucson, AZ 2,678,712 576,873 2,267,180 - 73,871
Sand Pebble Apts., El Paso, TX 5,007,302 754,565 5,015,097 - 123,993
Shadetree Apts., Tempe, AZ 1,724,979 287,774 1,549,185 - 153,922
Silktree Apts., Phoenix, AZ 1,292,390 205,395 1,104,863 - 71,132
Timbertree Apts., Phoenix, AZ 7,033,923 1,263,962 6,752,145 - 491,336
Twinbridge Apts., Tucson, AZ 763,274 124,654 625,458 - 36,133
Village Park Apts., North Miami, FL 14,755,882 2,325,130 14,371,343 - 961,808
Wickertree Apts., Phoenix, AZ 3,183,166 590,218 2,959,563 - 173,049
Wildflower Apts., Midland, TX 2,641,832 363,341 2,642,526 - 223,840
Wydewood Apts., Midland, TX 2,218,304 323,230 2,149,165 - 79,680
Yorktree Apts., Carol Stream, IL 8,649,878 605,045 7,820,340 (200,153) 2,110,395
Brant Rock Apts., Houston, TX 1,533,139 169,000 1,606,000 - 253,820
Freedom Place Apts., Jacksonville, FL 10,904,723 1,443,278 11,181,721 - 83,385
Olmos Club Apts., San Antonio, TX 2,137,758 304,425 2,170,575 - 38,107
Sandcastles Apts., League City, TX 4,491,450 624,000 4,576,000 - 75,305
Shadow Lake Apts., Greensboro, NC 4,301,427 850,000 4,130,000 - 118,607
Surrey Oaks Apts., Bedford, TX 3,454,962 574,000 3,426,000 - 110,226
Tall Timbers Apts., Houston, TX 5,268,817 1,299,300 4,800,700 23,434 844,641
Windsor Landing Apts., Morrow, GA 6,867,600 1,660,000 6,291,000 - 59,808
Woodhollow Apts., Austin, TX 2,915,124 972,000 2,403,000 (3,744) 190,153
Benjamin Franklin Land, Philedelphia, PA 1,655,088 1,712,365 - - -
Marlboro Unimp. Land, Various Loc. - 89,743 - - -
Northwood Land, Various Loc. 866,704 1,457,504 - - -
Linnaeus Unimp. Land, Manchester, CT - 160,000 - - -
Linnaeus Building, Manchester, CT - - 642,329 - -
Clarendon Land, Irving, CA - 302,411 - - -
The Hills Apts., Austin, TX 9,424,488 2,798,623 8,307,025 - 113,243
--------------- ------------- --------------- ------------ -------------
$ 160,147,294 $ 30,907,511 $ 149,786,361 $ (180,463) $ 10,884,983
=============== ============= =============== ============ =============
</TABLE>
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
10-K SCHEDULE III
DECEMBER 31, 1995
<TABLE>
Gross Balance,
December 31, 1995 (C)
Description Buildings and (B) Accumulated
Real Property Land Improvements Total Depreciation
<S> <C> <C> <C> <C>
Beacon Hill Apts., Chambles, GA $ 655,108 $ 3,735,171 $ 4,390,279 $ 317,019
Blossomtree Apts., Scottsdale, AZ 362,134 2,196,763 2,558,897 192,498
Ferntree III Apts., Phoenix, AZ 445,946 2,611,729 3,057,675 221,632
Foothils Apts., Tucson, AZ 804,081 6,358,805 7,162,886 496,052
Fox Bay Apts., Tucson, AZ 724,139 3,790,998 4,515,137 493,986
Foxtree Apts., Tempe, AZ 950,671 5,902,428 6,853,099 331,974
Grovetree Apts., Tempe, AZ 621,544 3,450,066 4,071,610 279,098
Hazeltree Apts., Phoenix, AZ 181,804 1,363,667 1,545,471 135,509
Hiddentree Apts., E. Lansing, MI 567,852 5,977,986 6,545,838 554,382
Islandtree Apts., Savannah, GA 1,097,172 5,963,451 7,060,623 468,724
Orchidtree Apts., Scottsdale, AZ 1,441,057 8,177,322 9,618,379 655,368
Pine Creek Apts., Pine Creek, MI 329,332 2,290,634 2,619,966 221,041
Polo Park Apts., Midland, TX 447,980 3,086,077 3,534,057 249,021
Quailtree Apts., Phoenix, AZ 441,855 2,588,578 3,030,433 213,327
Rivercrest Apts., Tucson, AZ 576,873 2,341,051 2,917,924 191,966
Sand Pebble Apts., El Paso, TX 754,565 5,139,090 5,893,655 407,374
Shadetree Apts., Tempe, AZ 287,774 1,703,107 1,990,881 144,656
Silktree Apts., Phoenix, AZ 205,395 1,175,995 1,381,390 98,791
Timbertree Apts., Phoenix, AZ 1,263,962 7,243,481 8,507,443 577,426
Twinbridge Apts., Tucson, AZ 124,654 661,591 786,245 55,997
Village Park Apts., North Miami, FL 2,325,130 15,333,151 17,658,281 1,296,400
Wickertree Apts., Phoenix, AZ 590,218 3,132,612 3,722,830 254,985
Wildflower Apts., Midland, TX 363,341 2,866,366 3,229,707 240,175
Wydewood Apts., Midland, TX 323,230 2,228,845 2,552,075 178,651
Yorktree Apts., Carol Stream, IL 404,892 9,930,735 10,335,627 808,188
Brant Rock Apts., Houston, TX 169,000 1,859,820 2,028,820 208,998
Freedom Place Apts., Jacksonville, FL 1,443,278 11,265,106 12,708,384 490,785
Olmos Club Apts., San Antonio, TX 304,425 2,208,682 2,513,107 91,315
Sandcastles Apts., League City, TX 624,000 4,651,305 5,275,305 193,174
Shadow Lake Apts., Greensboro, NC 850,000 4,248,607 5,098,607 385,723
Surrey Oaks Apts., Bedford, TX 574,000 3,536,226 4,110,226 330,050
Tall Timbers Apts., Houston, TX 1,322,734 5,645,341 6,968,075 508,004
Windsor Landing Apts., Morrow, GA 1,660,000 6,350,808 8,010,808 543,018
Woodhollow Apts., Austin, TX 968,256 2,593,153 3,561,409 260,286
Benjamin Franklin Land, Philedelphia, PA 1,712,365 - 1,712,365 -
Marlboro Unimp. Land, Various Loc. 89,743 - 89,743 -
Northwood Land, Various Loc. 1,457,504 - 1,457,504 -
Linnaeus Unimp. Land, Manchester, CT 160,000 - 160,000 -
Linnaeus Building, Manchester, CT - 642,329 642,329 208,017
Clarendon Land, Irving, CA 302,411 - 302,411 -
The Hills Apts., Austin, TX 2,798,623 8,420,268 11,218,891 307,792
--------------- ----------------- ----------------- ---------------
$ 30,727,048 $ 160,671,344 $ 191,398,392 $ 12,611,402
=============== ================= ================= ===============
</TABLE>
<PAGE>
WINTHROP FINANCIAL ASSOCIATES
10-K SCHEDULE III
DECEMBER 31, 1995
<TABLE>
Life on which
Depreciation
Description Date of Date Expense is
Real Property Construction Acquired Computed
<S> <C> <C> <C>
Beacon Hill Apts., Chambles, GA 1978 1993 5-27.5 years
Blossomtree Apts., Scottsdale, AZ 1970 1993 5-27.5 years
Ferntree III Apts., Phoenix, AZ 1973 1993 5-27.5 years
Foothils Apts., Tucson, AZ 1982 1993 5-27.5 years
Fox Bay Apts., Tucson, AZ 1983 1993 5-27.5 years
Foxtree Apts., Tempe, AZ 1972 1993 5-27.5 years
Grovetree Apts., Tempe, AZ 1959 1993 5-27.5 years
Hazeltree Apts., Phoenix, AZ 1959 1993 5-27.5 years
Hiddentree Apts., E. Lansing, MI 1969 1993 5-27.5 years
Islandtree Apts., Savannah, GA 1985 1993 5-27.5 years
Orchidtree Apts., Scottsdale, AZ 1972 1993 5-27.5 years
Pine Creek Apts., Pine Creek, MI 1976 1993 5-27.5 years
Polo Park Apts., Midland, TX 1982 1993 5-27.5 years
Quailtree Apts., Phoenix, AZ 1976 1993 5-27.5 years
Rivercrest Apts., Tucson, AZ 1984 1993 5-27.5 years
Sand Pebble Apts., El Paso, TX 1983 1993 5-27.5 years
Shadetree Apts., Tempe, AZ 1965 1993 5-27.5 years
Silktree Apts., Phoenix, AZ 1980 1993 5-27.5 years
Timbertree Apts., Phoenix, AZ 1980 1993 5-27.5 years
Twinbridge Apts., Tucson, AZ 1982 1993 5-27.5 years
Village Park Apts., North Miami, FL 1974-1981 1993 5-27.5 years
Wickertree Apts., Phoenix, AZ 1983 1993 5-27.5 years
Wildflower Apts., Midland, TX 1982 1993 5-27.5 years
Wydewood Apts., Midland, TX 1981 1993 5-27.5 years
Yorktree Apts., Carol Stream, IL 1970 1993 5-27.5 years
Brant Rock Apts., Houston, TX 1983 1993 5-27.5 years
Freedom Place Apts., Jacksonville, FL 1989 1994 5-27.5 years
Olmos Club Apts., San Antonio, TX 1983 1994 5-27.5 years
Sandcastles Apts., League City, TX 1987 1994 5-27.5 years
Shadow Lake Apts., Greensboro, NC 1986 1993 5-27.5 years
Surrey Oaks Apts., Bedford, TX 1984 1993 5-27.5 years
Tall Timbers Apts., Houston, TX 1983 1993 5-27.5 years
Windsor Landing Apts., Morrow, GA 1990 1993 5-27.5 years
Woodhollow Apts., Austin, TX 1974 1993 5-27.5 years
Benjamin Franklin Land, Philadelphia, PA N/A 1985 N/A
Marlboro Unimp. Land, Various Loc. N/A 1994 N/A
Northwood Land, Various Loc. N/A 1977 N/A
Linnaeus Unimp. Land, Manchester, CT N/A 1994 N/A
Linnaeus Building, Manchester, CT 1976 1994 5-27.5 years
Clarendon Land, Irving, CA N/A 1994 N/A
The Hills Apts., Austin, TX 1980-1982 1995 5-27.5 years
</TABLE>
Item 9. Changes in and Disagreements on Accounting and Financial
Disclosure.
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
(a) and (b) Identification of Directors and Executive Officers. WFA is a
limited partnership, the ultimate corporate general partner of which is
Londonderry Acquisition Corp. II, Inc. ("Londonderry Acquisition"). Pursuant to
the Partnership Agreement of WFA, the control of WFA is vested in its general
partner and the executive officers of WFA appointed by its general partner. As
of March 1, 1996, the names of the directors of Londonderry Acquisition and
executive officers of WFA and the position held by each of them, are as follows:
Position Held
with WFA or Served as an
Name Londonderry Acquisition Officer Since
Michael Weiner Director 7-95
W. Edward Scheetz Director 7-95
Michael L. Ashner Chief Executive Officer 1-96
Richard J. McCready President and
Chief Operating Officer 7-95
Jeffrey Furber Executive Vice President 1-96
and Clerk
Anthony R. Page Chief Financial Officer 8-95
Vice President and
Treasurer
Peter Braverman Senior Vice President 1-96
Each director of Londonderry Acquisition and officer of WFA will hold
office until the next annual meeting of the stockholders of Londonderry
Acquisition and until his successor is elected and qualified.
(c) Identification of Certain Significant Employees. None.
(d) Family Relationships. None.
Business Experience.
<PAGE>
Michael Weiner, age 43, has been an officer of Apollo Advisors, L.P. since
1992, which, together with an affiliate thereof, serves as the managing general
partner of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment Fund
III, L.P., private securities investment funds, and of Lion Advisors, L.P. which
serves as financial advisor to and with respect to and representative for
certain institutional investors with respect to securities investments. In
addition, Mr. Weiner has been an officer of Apollo Real Estate Advisors, L.P.
("Apollo"), the managing general partner of Apollo Real Estate Investment Fund,
L.P., a private real estate investment fund since 1993. Prior to joining Apollo,
Mr. Weiner was a partner of the national law firm of Morgan, Lewis & Bockius.
Mr. Weiner is a director of Applause, Inc., Capital Apartment Properties, Inc.,
a multi-family residential real estate investment trust, Continental Graphics
Holdings, Inc., The Florsheim Shoe Company, Inc. and Furniture Brands
International, Inc.
W. Edward Scheetz, age 31, has been a principal of Apollo directing its
real estate investment activities since May 1993. Mr. Scheetz is also a director
of Roland International, Inc., Capital Apartment Properties, Inc., and Crocker
Realty Trust, Inc. Prior to May 1993, Mr. Scheetz was a principal of Trammel
Crow Ventures, a national real estate investment firm.
Michael L. Ashner, age 44, has been the Chief Executive Officer of WFA
since January 15, 1996. From June 1994 until January 1996, Mr. Ashner was a
Director, President and Co-chairman of National Property Investors, Inc., a real
estate investment company ("NPI"). Mr. Ashner was also a Director and executive
officer of NPI Property Management Corporation ("NPI Management") from April
1984 until January 1996. In addition, since 1981 Mr. Ashner has been President
of Exeter Capital Corporation, a firm which has organized and administered real
estate limited partnerships.
Richard J. McCready, age 37, is the President and Chief Operating Officer
of WFA and its subsidiaries. Mr. McCready previously served as a Managing
Director, Vice President and Clerk of WFA and a Director, Vice President and
Clerk of the Managing General Partner and all other subsidiaries of WFA. Mr.
McCready joined the Winthrop organization in 1990.
Jeffrey Furber, age 36, has been the Executive Vice President of WFA and
the President of Winthrop Management since January 1996. Mr. Furber served as a
Managing Director of WFA from January 1991 to December 1995 and as a Vice
President from June 1984 until December 1990.
<PAGE>
Anthony R. Page, age 32, has been the Chief Financial Officer for WFA since
August 1995. From July, 1994 to August 1995, Mr. Page was a Vice President with
Victor Capital Group, L.P. and from 1990 to July 1994, Mr. Page was a Managing
Director with Principal Venture Group. Victor Capital and Principal Venture are
investment banks emphasizing on real estate securities, mergers and
acquisitions.
Peter Braverman, age 44, has been a Senior Vice President of WFA since
January 1996. From June 1995 until January 1996, Mr. Braverman was a Vice
President of NPI and NPI Management. From June 1991 until March 1994, Mr.
Braverman was President of the Braverman Group, a firm specializing in
management consulting for the real estate and construction industries. From 1988
to 1991, Mr. Braverman was a Vice President and Assistant Secretary of Fischbach
Corporation, a publicly traded, international real estate and construction firm.
Other than Mr. Weiner, each of the above individuals are also directors
or executive officers of a general partner (or general partner of a general
partner) of the following limited partnerships which either have a class of
securities registered pursuant to Section 12(g) of the Securities and Exchange
Act of 1934, or are subject to the reporting requirements of Section 15(d) of
such Act: Winthrop Partners 79 Limited Partnership; Winthrop Partners 80 Limited
Partnership; Winthrop Partners 81 Limited Partnership; Winthrop Residential
Associates I, A Limited Partnership; Winthrop Residential Associates II, A
Limited Partnership; Winthrop Residential Associates III, A Limited Partnership;
1626 New York Associates Limited Partnership; 1999 Broadway Associates Limited
Partnership; Indian River Citrus Investors Limited Partnership; Nantucket Island
Associates Limited Partnership; One Financial Place Limited Partnership;
Presidential Associates I Limited Partnership; Riverside Park Associates Limited
Partnership; Sixty- Six Associates Limited Partnership; Springhill Lake
Investors Limited Partnership; Twelve AMH Associates Limited Partnership;
Winthrop California Investors Limited Partnership; Winthrop Interim Partners I,
A Limited Partnership; Winthrop Growth Investors I Limited Partnership;
Southeastern Income Properties Limited Partnership; Southeastern Income
Properties II Limited Partnership; Winthrop Miami Associates Limited
Partnership; and Winthrop Apartment Investors Limited Partnership.
Item 11. Executive Compensation.
The following table sets forth the total annual compensation paid or accrued
by WFA to or for the account of the Chairman of WFA and each of the four other
highest compensated executive officers of WFA for services in all capacities to
WFA and its subsidiaries during the year ended December 31, 1995.
<PAGE>
Annual Compensation
Name and All Other
Principal Position Year Salary Bonus Compensation(2)
Arthur J. Halleran(1) 1995 $135,400 $ 50,000 $4,657,705(3)
Chairman 1994 250,000 50,000 8,771
1993 250,000 -- 8,816
Jonathan W. Wexler(1) 1995 $135,400 $ 50,000 $3,189,763(3)
Vice Chairman 1994 250,000 50,000 8,771
1993 250,000 -- 8,750
Jeffrey D. Furber 1995 $250,000 $250,000 $ 801,607(3)
Executive Vice 1994 250,000 250,000 7,743
President 1993 180,000 70,000 35,207(4)
Richard J. McCready 1995 $224,375 $ 50,000 $494,298 (3)
Chief Operating 1994 175,000 -- 4,813
Officer 1993 160,000 60,000 3,850
Francis X. Jacoby(1) 1995 $136,500 $ 65,000 484,479(3)
1994 160,000 50,000 5,616
1993 160,000 85,000 4,900
(1) For the period from January 1, 1995 to July 14, 1995, at which time Messrs.
Halleran and Wexler ceased being employed by WFA. For period the January 1, 1995
to September 18, 1995, at which time Jacoby ceased being employed by WFA.
(2) "All Other Compensation" represents matching contributions made by First
Winthrop during the period covered on behalf of each of the listed individuals
pursuant to the Company's 401(k) plan.
(3) Due to the transfer of control of Linnaeus to Apollo, Messrs. Halleran,
Wexler, Furber, McCready and Jacoby received from an affiliate of WFA's general
partner (i) as payment for such individuals interest in W.L. Realty, (ii) in the
case of Messrs. McCready and Furber, an inducement to remain with WFA and (iii)
in the case of Messrs. Halleran, Wexler and Jacoby, as payment for certain
restrictive covenants and amounts due under their employment contracts,
$4,651,122, $3,183,180, $792,836, $488,341 and $478,341, respectively.
(4) Includes $26,814 of relocation expenses and $1,383 of tax equalization
payments made in connection with Mr. Furber's assignment to WFA's Hong Kong
office.
Defined Benefit or Actuarial Plan Disclosure. The Company has two
contributory 401(k) plans (the Plans) covering most of its employees meeting
certain age and service criteria. The first plan is for office employees and the
second is for field employees. Under both Plans, participants may make pretax
contributions of up to 15% of their salary. Under the office employees' plan,
the Company will match employee contributions up to 3.5% of the employees'
salary. The Company's contribution may be reduced as a result of forfeiture of
unvested account balances by terminated employees. The employee contributions
will be 100% vested, and the Company's matching contributions to the Plan as
well as all prior account balances, will vest 50% upon completion of three years
of services and 100% upon completion of four years of service.
Employment Contracts and Termination of Employment and Change-in- Control
Arrangements. In connection with the December 22, 1994 transaction described in
"Item 12, Security Ownership of Certain Beneficial Owners and Management -
Changes in Control," the following named executive officers of WFA and two other
senior executives of WFA entered into employment contracts with WFA dated
December 22, 1994 guaranteeing employment for terms ranging from three years to
five years commencing on January 1, 1995. Arthur J. Halleran, Jr. and Jonathan
W. Wexler entered into five year employment contracts with WFA which extend
through December 31, 1999. These agreements were subsequently terminated upon
the acquisition of control of WFA by Londonderry II. Jeffrey D. Furber and
Richard McCready are employed pursuant to employment agreements which provide
for a term of three years extending through December 31, 1997. Pursuant to his
employment agreement, Mr. Furber will be paid a base salary of $250,000 per
annum and a minimum guaranteed annual bonus payment of $250,000 for each of the
calendar years 1995, 1996 and 1997. Pursuant to Mr. McCready's employment
agreement, Mr. McCready will be paid a base salary of $190,000 per annum and is
entitled to an annual discretionary bonus. Mr. McCready's employment contract
was amended in July 1995, when he was appointed Chief Operating Officer of WFA,
to increase his salary to $265,000 annually.
Effective January 15, 1996, Mr. Michael Ashner entered into an
employment agreement with WFA pursuant to which Mr. Ashner will serve as WFA's
Chief Executive Officer. Pursuant to the terms of the employment agreement which
has a term of three years, Mr. Ashner is entitled to receive an annual salary of
$360,000 per annum, subject to increase based on the U.S. Consumer Price Index
and a bonus which is based upon the improved financial performance or condition
of WFA or its direct or indirect subsidiaries. Upon the termination of Mr.
Ashner's employment for any reason other than cause, WFA will continue to be
obligated to make payments to Mr. Ashner in accordance with the agreement for
the remainder of the term, unless such termination is a result of his death or
disability, in which case the amount due to Mr. Ashner will be the lesser of one
year or the remaining term.
Compensation Committee Interlocks and Insider Participation in Compensation
Decisions. Compensation for all executive officers of WFA during 1995 was
determined in accordance with their respective employment agreements or pursuant
to agreements entered into in connection with the acquisition of control of WFA
by Londonderry II.
No executive officer of either WFA or its subsidiaries served on the
board of directors or any other committee establishing compensation for
executive entities or entities which are not affiliated with WFA.
<PAGE>
Performance Graph
Pursuant to Rule 304(d) of Regulation S-T, the following table summarizes
the information which would otherwise be presented in the performance graph
required by Regulation 402(l) of Regulation S-K. WFA, however, believes that the
presentation of this information is not informative because WFA's partnership
units are not traded on an exchange or NASDAQ market whereas the other groups
presented consist of securities traded on an exchange or NASDAQ market. WFA
partnership units are traded solely through private transactions and, because
WFA is a partnership, certain tax laws limit the number of units that can be
exchanged during any twelve month period. As a result, the volume of trades and
ability to purchase and sell WFA's units on the secondary market is
significantly lower than those of the other groups presented.
NAREIT Equity
Year WFA S&P 500 REIT Index
1/1/91 $111.00 $127.61 $ 89.57
1/1/92 69.32 166.40 148.04
1/1/93 53.96 178.18 169.66
1/1/94 52.52 188.32 203.00
1/1/95 32.96 190.74 209.43
1/1/96 13.57 257.89 250.85
Item 12. Security Ownership of Certain Beneficial Owners and
Management.
The following table sets forth information as of March 1, 1996 regarding
ownership of WFA's voting securities by each person who is known by WFA to own
beneficially more than 5% of the voting securities of the Company. The WFA
Partnership Agreement provides that all Assignee Units, including Preferred
Units, vote as a single class.
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Interest all Assignee Units
Linnaeus Associates 12,571,429 Assignee Units 82.25%
Limited Partnership
One International Place
Boston, MA 02110
Londonderry Acquisition 1,149,236 Preferred Units 7.52%
Limited Partnership
2 Manhattanville Road
Purchase, NY 10577
Changes in Control. In connection with its acquisition of control of Linnaeus,
Londonderry II issued NACC a $22 million non-recourse purchase money note due
1998 (the "Purchase Money Note"), as set forth in a loan agreement, dated as of
July 14, 1995, by and between NACC and Londonderry II. Initial security for the
Purchase Money Note includes (i) the WLR partnership interest acquired by
Londonderry II, (ii) the Aquarius partnership interests in Springhill Lake,
(iii) the Londonderry I partnership interests in WFA, (iv) the WLR partnership
interest in Linnaeus, and (v) the Londonderry's title and interest in and to,
and the indebtedness evidenced by, the WLR Acquisition Loan Agreement.
Accordingly, if Londonderry II does not satisfy its obligations under the
Purchase Money Note, NACC would have the right to foreclose upon Londonderry I's
and Londonderry II's interests in WFA and WLR respectively.
Item 13. Certain Relationships and Related Party Transactions.
See "Item 11, Executive Compensation" for information relating to
payments made to current and former executive officers in connection with the
acquisition of control of WFA by Londonderry II.
As a result of its general partnership interest and its ownership of
12,571,429 assignee units, Linnaeus is entitled to allocations of WFA's profits,
losses and cash distributions as specified in WFA's partnership agreement.
As a result of its ownership of 1,149,236 Preferred Units, Londonderry
I is entitled to allocations of WFA's profits, losses and cash distributions as
specified in WFA's partnership agreement.
In December 1994 and in January 1995, WFA purchased from various
current and former officers of WFA and its affiliates an 89.47% interest in
Clarendon Land Company, Inc. ("Clarendon"), an 82.61 interest in Marlboro Land
Company, Inc. ("Marlboro") and a 63.63% interest in Linnaeus San Francisco
Associates, Limited Partnership ("Linnaeus-San Francisco"). Clarendon and
Marlboro own residual interests in the land underlying properties owned by
certain of WFA's previous syndications. Linnaeus-San Francisco owns a small,
freestanding retail store. WFA paid an aggregate of $935,926 to acquire these
interests which it believed to the fair market value of such interests.
During 1995, WFA and its affiliates advanced $234,000 to affiliates of
Apollo. These amounts bear interest at the prime rate plus 1% and are due on
demand.
In February 1996, the Company contributed approximately $36.6 million
of receivables to 19NY in connection with a loan restructuring transaction
pursuant to which an affiliate of Apollo acquired the existing debt on certain
of 19NY's properties. The remaining $10 million of receivables owed by 19NY and
1626 New York Associates Limited Partnership, a general partner of 19NY, were
evidenced by a promissory note which the Company sold to an affiliate of Apollo
for $6,000,000, which management believes represented the fair value of the
note.
<PAGE>
Prior to transferring its interest in Linnaeus to Londonderry II, NACC
provided financing to WFA and its affiliates as follows:
In March 1995, WFA contributed to Winthrop Southwest Holdings Limited
Partnership ("WSWH"), a newly-formed partnership, all of its right, title and
interest in and to the Southwestern Properties and NACC contributed to WSWH a
$17,800,000 note receivable from WFA and First Winthrop Corporation. Pursuant to
the terms of WSWH's partnership agreement, NACC is entitled to receive the first
$17,800,000 in distributions from such partnership together with a priority
return of LIBOR plus 6.5% on such contribution. The $17,800,000 note was the
note made in connection with the settlement of a litigation involving First
Winthrop Corporation.
Aquarius Tender Offer. The funds necessary for the consummation of the
tender offer for Springhill Lake Units by Aquarius, an entity in which
affiliates of NACC then collectively owned a 75% ownership interest (as general
and limited partners) and WFA then owned a 25% limited partnership interest,
were obtained through a 10-year credit facility (the "Facility") provided to
Aquarius by NACC. This loan was subsequently acquired by an affiliate of Apollo
in July 1995. All cash flow distributions received by Aquarius from Springhill
Lake will be applied to the interest due on the Facility (which bears interest
at a variable rate equal to 3% above the 30-day London interbank offer rate,
reset monthly) and any unpaid interest will be accrued. Upon sale of the Project
or sale of the Springhill Units owned by Aquarius, the Facility and all accrued
interest will be repaid from proceeds received by Aquarius.
Acquisition of "The Hills" and "The Hills West" Apartment Properties. In
connection with its acquisition of The Hills and The Hills West in Austin, TX
(collectively, "The Hills"), Winthrop- Austin obtained a mortgage loan from NACC
in the amount of $8,470,000. The loan bears interest at a fixed rate of 10.04%;
is being amortized over a 25 year schedule with payments of interest and
principal due monthly for seven years. A balloon payment of the remaining
balance will be due on May 1, 2002. NACC had previously acquired the existing
mortgage on the Project from the prior lender which loan was in the principal
amount of $9,945,974 (the "Prior Loan"). At closing of the purchase of the
Hills, the Prior Loan was satisfied. Also in connection with this transaction,
WFA paid NACC (i) a financing fee in the amount of $198,920, which was refunded
in the form of a credit against closing costs payable by Winthrop-Austin at the
time of the closing on the purchase of the existing mortgage debt from NACC and
(ii) a loan commitment fee in connection with the new mortgage financing equal
to 1.5% of the principal amount of the new mortgage debt (totaling $127,050), as
well as reimbursements for legal fees and certain other costs.
Riverside Acquisition Tender Offer. During 1995, the Company obtained debt
from Londonderry II, and purchased $8,000,000 of units in a limited partnership
which had been previously syndicated by the Company. These units and the related
debt were subsequently transferred from the Company to Londonderry II, and
therefore, are not included in the financial statements of the Company at
December 31, 1995.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements - See Index to Financial Statements
in Item 8.
2. Financial Statement Schedules - See Index to Financial Statement
Schedule filed pursuant to Item 14(a) (2) in "Item 8, Financial Statements and
Supplementary Data." Financial statement schedules not included in Item 8 have
been omitted because of the absence of conditions under which they are required
or because the information is included elsewhere in the financial statements.
3. The exhibits listed in the accompanying Index to
Exhibits are filed as part of this Report.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the last quarter covered by
this report.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP
By: /s/ Michael L. Ashner
Michael Ashner
Chief Executive Officer
Date: April 12, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature/Name Title Date
/s/ W. Edward Scheetz Director April 12, 1996
W. Edward Scheetz
/s/ Michael Weiner Director April 12, 1996
Michael Weiner
/s/ Anthony R. Page Chief Financial April 12, 1996
Anthony R. Page Officer
EXHIBIT INDEX
Exhibit
3A Agreement and Certificate of Limited Partnership (a)
of Winthrop Financial Associates, A Limited
Partnership ("WFA") and Amendments One through
Twelve thereto
3B Amendments Thirteen and Fourteen to the WFA (b)
Partnership Agreement
3C Amendment Fifteen to the WFA Partnership Agreement (c)
3D Articles of Incorporation and By-Laws of WFA (a)
Nominee Co., Inc.
10A Agreement to Acquire Partnership Interests, dated (d)
as of January 31, 1994, by and among Eleven Winthrop
Properties, Inc. and 25 limited partnerships
identified on Exhibit A to the Agreement
10B Certificate of Limited Partnership of W.L. (c)
Realty, L.P. dated as of December 21, 1995
10C Agreement of Limited Partnership of W.L. (c)
Realty, L.P. dated as of December 22, 1994
10D Acquisition Loan Agreement between Nomura and
W.L. Realty dated December 22, 1994 (a)
10E Non-Recourse Note dated as of December 22, (c)
1994 by and between W.L. Realty, L.P., as
Borrower, and Nomura Asset Capital Corporation,
as Lender
10F Partnership Interest Pledge and Security (c)
Agreement between W.L. Realty, L.P., as Pledgor,
and Nomura Asset Capital Corporation, as Pledgee,
dated December 22, 1994
10G Employment Agreement between Richard J. McCready, (c)
and WFA, dated as of December, 1994
10H Employment Agreement between Jeffrey D. Furber and (c)
WFA, dated as of December, 1994
10I Employment Agreement between Michael Ashner and
WFA, dated as of February 21, 1996
10J Letter Amendment dated August 11, 1995 to Employement
Agreement between Richard J. McCready and WFA, dated as of
December, 1994
- -----------
(a) Incorporated by reference WFA's Registration Statement on Form S-11 filed
with the Commission on March 13, 1985 (the "Registration Statement")
(b) Incorporated by reference to WFA's Form 10-K for its fiscal year ended
December 31, 1991.
(c) Incorporated by reference to WFA's Form 10-K for its fiscal year ended
December 31, 1994.
(d) Incorporated by reference to WFA's current report on Form 8- K filed with
the Commission on April 11, 1994.
Exhibit 10I
EMPLOYMENT AGREEMENT
AGREEMENT made and entered into as of the 21st day of February, 1996, by
and between WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP, a Maryland
limited partnership with its principal place of business at One International
Place, Boston, Massachusetts 02110 (the "Company") and Michael L. Ashner, an
individual residing at 17 Buttonwood Drive, Dix Hills, New York 11746 (the
"Executive").
W I T N E S S E T H:
WHEREAS, the Company desires to retain the services of the Executive, and
the Executive is willing to provide such services to the Company, all upon the
terms and conditions set forth herein.
NOW, THEREFORE, for and in consideration of the foregoing premises and the
mutual agreements set forth below, the Company and the Executive hereby agree as
follows:
1. Employment. The Company shall employ the Executive, and the Executive
shall serve the Company, upon the terms and conditions hereinafter set forth.
2. Term. Subject to the terms and conditions hereinafter set forth, the
term of the Executive's employment hereunder (the "Term") shall commence on
January 15, 1996 (the "Effective Date"), and shall continue until the third
anniversary of the Effective Date, unless sooner terminated as hereinafter
provided.
3. Duties and Extent of Services.
(a) During the Term, the Executive shall serve as the Chief Executive
Officer and President of the Company and as the Chairman, Chief Executive
Officer and President of each direct and indirect subsidiary of the Company.
Subject to the supervision and direction of Linnaeus Associates Limited
Partnership, the general partner of the Company or its successor (the "General
Partner"), and subject to paragraphs (b) and (c) of this Section 3, the
Executive's duties under this Agreement shall consist of generally overseeing
all the operations of the Company and each of the Company's direct and indirect
subsidiaries, including, without limitation, the hiring and firing of officers
and employees, the establishment and modification of compensation payable to
officers and employees, the incurrence of non-recourse indebtedness, the
location of executive offices and other offices and the selection of legal
counsel, accountants and other advisors, together with such other reasonable
duties as may be assigned to him from time to time by the General Partner which
are consistent with the positions set forth in the first sentence of this
Section 3(a). The Executive will perform his duties under this Agreement
faithfully and to the best of his ability. The Executive shall devote
substantially all of his business time to his employment under this Agreement,
provided, that, the Company expressly acknowledges that the Executive will
devote a reasonable amount of his business time to the supervision and
management of assets which the Executive owns or controls prior to the date of
this Agreement and to the business activities described in Section 7.
(b) Notwithstanding the provisions of paragraph (a) of this Section 3, the
Executive shall not retain the services of any legal counsel, independent
accountants or other advisors without the consent of the General Partner.
(c) Notwithstanding the provisions of paragraph (a) of this Section 3, the
Executive shall perform his duties on behalf of the Company in full compliance
with the Company's Agreement and Amended Certificate of Limited Partnership
dated as of December 4, 1984, as amended and restated through February 13, 1995,
as amended.
(d) The Executive shall report to the Board of Directors of the general
partner of Londonderry Acquisition Corporation II, Inc. (or any successor
corporation in control of the General Partner) not less frequently than once
each calendar quarter during the Term regarding the operations of the Company
and its Affiliates.
(e) The Executive hereby represents and warrants to the Company that the
execution and delivery of this Agreement by the Executive and the performance of
its terms shall not violate or contravene any other agreement to which the
Executive is a party or by which he is bound.
(f) The Executive shall perform his services hereunder from the Company's
offices in Nassau County, New York, provided, however, Executive shall spend up
to 80 business days per year during the Term at the Company's offices in Boston,
Massachusetts.
4. Base Salary. Commencing on the Effective Date, the Company shall pay the
Executive during the Term a salary at the rate of $360,000 per annum, which
shall be payable in accordance with the Company's payroll practices as in effect
from time to time with respect to senior executives, but not less often than
monthly. The annual base salary of the Executive shall be increased on each
anniversary date of the Term in an amount equal of the product of the prior
year's base salary and the U.S. Consumer Price Index (as determined by the
United States Department of Commerce) increase for the 12 month period that most
closely corresponds to the prior year of the Term. (The annual salary of the
Executive as in effect from time to time is herein referred to as his "Base
Salary".)
5. Bonus. The Company shall pay to the Executive, in addition to the Base
Salary, an annual bonus payment ("Bonus"), the amount of which shall be based
upon improved financial performance of, improved financial condition of, and/or
realization of asset values of, the Company or its direct and indirect
subsidiaries, as reasonably determined by the General Partner in good faith. The
Company agrees to cause the General Partner to commence discussions with the
Executive regarding the amount of the Bonus no later than 30 days prior to each
anniversary date of this Agreement.
6. Other Compensation.
(a) The Company shall pay or reimburse the Executive for all reasonable
travel or other expenses incurred by the Executive in connection with the
performance of his duties and obligations under the Agreement, in accordance
with the Company's normal policies from time to time in effect for senior
executive employees.
(b) The Executive shall be entitled to participate in all employee group
hospitalization, health, dental care, life insurance, pension, savings and
thrift plans or programs, and to receive all benefits, perquisites and
emoluments for which senior executive employees of the Company are eligible
under any such plan or program, now or hereafter established by the Company and
maintained by the Company and/or its direct or indirect subsidiaries for
salaried employees, to the extent permissible under the general provisions of
such plans or programs.
(c) During the Term, the Executive shall be entitled to vacation at the
rate of 25 vacation days per annum. Except as otherwise permitted by the General
Partner, any unused vacation days in any year may not be carried over to
subsequent years, and the Executive shall receive no additional compensation for
any unused vacation days.
(d) The Company shall provide the Executive with a monthly allowance in
connection with his purchase or lease of an automobile in the amount of $1,500
plus costs of gasoline and insurance.
7. Participation Opportunities in Tender Offers. (a) For the purposes of
this Section 7, the following terms have the respective meanings specified or
referred to below:
(i) "Affiliate" means with respect to any Person, any other Person directly
or indirectly controlling, controlled by or under common control with such
Person. For purposes of this definition "control" (including with correlative
meanings, the terms "controlling", "controlled by" or "under common control
with") as applied to any Person means the possession, directly or indirectly, of
the power to direct or cause the direction of the management and powers of that
Person, whether through the ownership of voting securities or by contract or
otherwise.
(ii) "Apollo" means Apollo Real Estate Advisors, L.P., a Delaware limited
partnership.
(iii) "Associate" shall have the meaning set forth in Rule 12b-2
promulgated under the Securities Exchange Act of 1934, as amended.
(iv) A Person shall be deemed to "Beneficially Own" (and to be the
"Beneficial Owner" and have "Beneficial Ownership" of) any security if (a) such
Person "beneficially owns" such security within the meaning of Rule 13d-3
promulgated under the Securities Exchange Act of 1934, as amended or (b) such
Person has any direct or indirect economic interest in such security.
(v) "Invested Capital" means with respect to any Person the amount of cash
and other amounts contributed from time to time to the capital of any other
Person.
(vi) "Person" means any individual, corporation, partnership, joint
venture, estate, trust, cooperative, syndicate, consortium, coalition,
committee, firm or other enterprise, association, organization or other entity.
(vii) "Real Estate Business" means (A) the acquisition of any securities
(including general or limited partnership interests) in, (B) the management of
general partnership interests in, (C) the management of assets for, and/or (D)
the provision of investor services for, any public and/or private general or
limited partnerships, real estate companies or real estate investment trusts
whose primary business is the ownership, management and/or operation of real
property interests and related assets.
(viii) "Tender Offer" means an offer or proposal to acquire ownership by
means of an offer pursuant to Regulation 14D promulgated under the Securities
Exchange Act of 1934 of the equity or debt securities of any Person.
(b) Except as set forth in Section 7(f), if during the Term Apollo or any
controlled Affiliate of Apollo (an "Apollo Initiating Person") makes or proposes
to make a Tender Offer for equity or debt securities issued by any private or
publicly-held limited partnership that derives substantially all of its revenues
from the Real Estate Business which is not an Affiliate of Apollo, the Company
shall cause the Apollo Initiating Person to offer to the Executive in a written
notice (the "Apollo Tender Offer Notice") the opportunity to invest directly or
indirectly in the Person through which the Tender Offer is proposed to be made
(the "Tendering Entity"). The Executive will be granted the option to acquire a
direct or indirect ownership interest (which may be a so-called "phantom"
interest) in the Tendering Entity or in another Person which has Beneficial
Ownership in the Tendering Entity (as determined by the Apollo Initiating
Person) that gives the Executive the right to acquire direct or indirect
Beneficial Ownership in the Tendering Entity in an amount equal to up to 12% of
the Apollo Initiating Person's ownership interest in the Tendering Entity, at
the time such Tender Offer is initially made, on substantially similar terms as
the Apollo Initiating Person's investment in the Tendering Entity. The Apollo
Tender Offer Notice shall specify, in reasonable detail, the nature and scope of
the proposed Tender Offer and any other material terms thereof. The Executive
will have ten (10) days following the receipt of the Apollo Tender Offer Notice
to exercise the option provided for in this Section 7(b) by giving written
notice of such exercise to the Apollo Initiating Person. If the proposed Tender
Offer is made on terms and conditions materially more onerous than those set
forth in the Apollo Tender Offer Notice, the Executive shall have the right to
revoke any prior acceptance of the offer set forth in the Apollo Tender Offer
Notice and shall have a new 10 day period in which to elect to participate in
such Tender Offer on such revised terms.
(c) Except as set forth in Section 7(f), if during the Term an Apollo
Initiating Person makes or proposes to make a Tender Offer for equity or debt
securities issued by any private or publicly-held limited partnership that
derives substantially all its revenues from the Real Estate Business which, at
the time of such offer, is an Affiliate of Apollo, the Company shall cause the
Apollo Initiating Person to offer to the Executive in an Apollo Tender Offer
Notice the opportunity to invest directly or indirectly in the Tendering Entity.
The Executive will be granted the option to acquire a direct or indirect
ownership (which may be a so-called "phantom" interest) interest in the
Tendering Entity or in another Person which has Beneficial Ownership in the
Tendering Entity (as determined by the Apollo Initiating Person) that gives the
Executive the right to acquire direct or indirect Beneficial Ownership in the
Tendering Entity in an amount equal to up to 6% of the Apollo Initiating
Person's ownership interest in the Tendering Entity, at the time such Tender
Offer is initially made, on substantially similar terms as the Apollo Initiating
Person's investment in the Tendering Entity. The Apollo Tender Offer Notice
shall specify, in reasonable detail, the nature and scope of the proposed Tender
and any other material terms thereof. The Executive will have ten (10) days
following the receipt of the Apollo Tender Offer Notice to exercise the option
provided for in this Section 7(c) by giving written notice of such exercise to
the Apollo Initiating Person. If the proposed Tender Offer is made on terms and
conditions materially more onerous than those set forth in the Apollo Tender
Offer Notice, the Executive shall have the right to revoke any prior acceptance
of the offer set forth in the Apollo Tender Offer Notice and shall have a new 10
day period in which to elect to participate in such Tender Offer on such revised
terms. If the Executive exercises the option set forth in this Section 7(c),
makes an investment in the Tendering Entity on the accepted terms and is
responsible for implementing or supervising the implementation of such Tender
Offer, the Executive shall receive, at no cost to the Executive, an additional
ownership interest (which may be a so-called "phantom" interest) in the
Tendering Entity or in another Person which has Beneficial Ownership in the
Tendering Entity (as determined by the Apollo Initiating Person) that gives the
Executive the right to receive, directly or indirectly, 6% (or, if the
percentage interest initially acquired by the Executive in connection with such
Tender Offer shall be less than 6%, such lesser percentage) of the Apollo
Initiating Person's profits, losses and distributions from the Tendering Entity
subordinated to the receipt by the Apollo Initiating Person of distributions of
cash or other assets (valued at fair market value) in an amount equal to its
Invested Capital plus a cumulative compounded return equal to 12% per annum on
its unreturned Invested Capital.
(d) If during the Term the Executive, any Associate of Executive or any
controlled Affiliate of the Executive (an "Executive Initiating Person") makes
or proposes to make a Tender Offer for equity or debt securities issued by any
private or publicly-held limited partnership engaged in the Real Estate
Business, the Executive Initiating Person shall offer to Apollo in a written
notice (the "Executive Tender Offer Notice") the opportunity to invest in the
Tendering Entity, and Apollo (or its designee) will have the option to acquire
an ownership interest in the Tendering Entity in an amount not more than 7.33
times greater than the collective ownership interest of the Executive Initiating
Persons ownership interest in the Tendering Entity (it being understood that
Apollo (or its designee) therefore shall have the right to acquire up to 88% of
all ownership interests in the Tendering Entity), at the time such Tender Offer
is initially made, on substantially similar terms as the Executive Initiating
Person's investment in the Tendering Entity. The Executive Tender Offer Notice
shall specify, in reasonable detail, the nature and scope of the proposed Tender
Offer and any other material terms thereof. Apollo will have ten (10) days
following the receipt of the Executive Tender Offer Notice to exercise the
option provided for in this Section 7(d) by giving written notice of such
exercise to the Executive Initiating Person. If the proposed Tender Offer is
made on terms and conditions materially more onerous than those set forth in the
Executive Tender Offer Notice, Apollo shall have the right to revoke any prior
acceptance of the offer set forth in the Executive Tender Offer Notice and shall
have a new 10 day period in which to elect to participate in such Tender Offer
on such revised terms. If Apollo (or its designee) exercises the option set
forth in this Section 7(d) and makes an investment directly or indirectly in the
Tendering Entity on the accepted terms, the Executive Initiating Person shall
receive, at no cost to the Executive Initiating Person, an additional ownership
interest in the Tendering Entity or in another Person which has Beneficial
Ownership in the Tendering Entity (as determined by Apollo) that gives the
Executive Initiating Person the right to receive, directly or indirectly, 12%
(or, if the percentage interest initially acquired by the Executive in
connection with such Tender Offer shall be less than 12%, such lesser
percentage) of Apollo's or its designee's profits, losses and distributions from
the Tendering Entity subordinated to the receipt by Apollo or its designee of
distributions of cash or other assets (valued at fair market value) in an amount
equal to its Invested Capital plus a cumulative compounded return equal to 12%
per annum on its unreturned Invested Capital.
(e) If the Executive elects to acquire ownership interests in any Tendering
Entity, the Executive, subject to any restrictions that may be imposed by third
parties participating in the Tender Offer or restrictions imposed, based on the
advice of counsel, that are necessary in order to permit the Tendering Entity to
be taxed as a partnership for federal income tax purposes, shall have the right
to convey, assign, sell or transfer all, or any portion, of his right to acquire
such ownership interests to any other Person who is at the time of such transfer
a full time employee of the Company; provided, that, (A) the Executive (i)
retains the exclusive voting power with respect to all such ownership interests
or (ii) receives an irrevocable proxy from each transferee of any such ownership
interest giving the Executive the right to vote such ownership interests on any
matter to be voted upon by holders of such ownership interests, and (B) the
Executive remains liable for all his obligations to the Tendering Entity.
(f) The obligations of the Company set forth in this Section 7 shall not
apply to the Tender Offers listed in Schedule 1.
8. Termination.
(a) The Executive's employment under the Agreement will terminate:
(i) by the Company immediately upon the death of the Executive;
(ii) by the Company or the Executive in the event the Executive is totally
disabled (total disability meaning a disability which substantially prevents the
Executive from performing his duties under this Agreement for more than 90
consecutive days);
(iii) by the Executive for good reason which shall exist upon the
occurrence of either of the following, provided, that the Executive delivers
notice to the Company that he intends to terminate this Agreement for good
reason and the Executive allows the Company 30 days to correct the particular
act giving rise to such good reason termination, including as part of such
corrective action reimbursing the Executive for any loss, cost, liability or
expense incurred by the Executive as a result of the particular action or
inaction giving rise to such good reason termination: (x) there is a change in
the Executive's duties or responsibilities under this Agreement which would in
form or substance constitute a diminution in the Executive's duties or
responsibilities or (y) a material breach by the Company of any provision of
this Agreement;
(iv) by the Company for "Cause" (as defined below);
(v) by the Executive voluntarily for any reason other than good reason or
total disability; or
(vi) by the Company for any reason other than death, total disability or
Cause.
(b) Within 15 days after any termination of the Executive's employment
hereunder during the Term by the Executive for good reason or by the Company for
any reason other than death, total disability or Cause, the Executive may elect
to receive (A) either (x) the Executive's Base Salary at the rate then in effect
for the remainder of the Term as if the Executive had continued employment
through the end of the Term or (y) a lump sum payment representing the
discounted present value (computed using an 8% per annum discount rate) of the
Executive's Base Salary at the rate then in effect that would have been payable
from the date of such termination through the third anniversary of the date his
employment commenced under this Agreement had such employment not terminated and
(B) a lump sum payment equal to the pro rata portion (based on the number of
days the Executive was employed during the applicable period) of the Bonus which
the Executive would have earned during the year in which the termination of
employment occurred. The Executive shall be deemed to have made the election
contemplated by clause (A)(y) in the event that Executive shall fail to make the
election contemplated by the preceding sentence within such 15 day period. If an
election of the type contemplated by clause (A)(y) is made, then the Company
shall make the payment contemplated by such clause within 5 days following the
end of such 15 day period. In addition, the Executive shall (I) continue to be
entitled to any benefits which he may be entitled to as a former employee under
the terms of all applicable benefit plans or programs and (II) continue to be
entitled to the rights set forth in Section 7 (provided, that, Apollo shall also
continue to be entitled to the rights set forth in Section 7) until the third
anniversary of the Effective Date.
(c) Upon any termination of the Executive's employment hereunder by the
Company for Cause or by the Executive voluntarily other than for good reason or
as a result of total disability, the Company shall, within ten (10) days of such
termination, pay to the Executive any accrued but unpaid Base Salary.
(d) For the purposes of paragraph (a) of this Section 8, "Cause" shall mean
(i) the Executive is convicted of, pleads guilty to, or confesses to any felony
or any act of fraud, misappropriation or embezzlement under state or federal
law; (ii) any action by the Executive involving willful malfeasance or willful
misconduct in connection with the performance of his duties and obligations
under this Agreement; (iii) the Executive engages in a fraudulent act to the
material damage or prejudice of the Company or any Affiliate of the Company or
in conduct or activities materially damaging to the property, business or
reputation of the Company or any Affiliate of the Company; or (iv) failure by
the Executive to comply in any material respect with the terms of this Agreement
or any written policies or directives of the General Partner consistent with the
terms of this Agreement. In each case, the existence of Cause must be confirmed
by the General Partner on behalf of the Company prior to any termination
therefor in a notice to the Executive that the Company intends to terminate the
Executive's employment for Cause, specifying in reasonable detail the act or
acts constituting Cause. The Company cannot terminate the Executive for Cause
unless the Company delivers the foregoing notice and allows the Executive 30
days to correct the particular act or failure to act, including as part of such
corrective action reimbursing the Company for any loss, cost, liability or
expense incurred by the Company as a result of the particular act or failure to
act.
(e) In the event this Agreement is terminated as a result of the death or
total disability of Executive, the Company within 10 days of such termination
shall make a payment equal to the Executive's then applicable Base Salary for
the period equal to the lesser of (i) one year and (ii) the period of time from
the date of termination through the third anniversary of the Effective Date to
the Executive or the Executive's beneficiaries, estate or other legal
representatives entitled to receive the benefits of this Agreement.
(f) In the event of any termination of this Agreement, the Executive shall
be under no obligation to seek other employment, and there shall be no offset
against amounts due the Executive under this Agreement on account of any
remuneration attributable to any subsequent employment that he may obtain.
9. Noncompete; Non-Solicitation.
(a) Except as provided in the last sentence of Section 3(a) and in Section
7, the Executive agrees that to the extent permitted by law he shall not, during
his employment with the Company and, if the Executive's employment hereunder is
voluntarily terminated by the Executive or terminated by the Company for Cause,
for a period of two (2) years thereafter, commencing on the date of termination
of such employment, directly or indirectly, own, manage, operate, join or
control, or participate in the ownership, management, operation or control of,
or be a director or employee of, or a consultant to, or authorize the use of his
name by, or be connected in any manner with, any business, firm or corporation,
anywhere in the United States of America, which at the time or at any time
during such two year period is involved in business activities directly
competitive with the business operations of the Company (or any subsidiaries as
the same now exist or may be established from time to time) on the date of the
termination of such employment.
(b) The provisions of this Section 9 shall not apply to investments by the
Executive in shares of stock traded on a national securities exchange or on the
national over-the-counter market which shall constitute less than three percent
(3%) of the outstanding shares of any class of such stock.
(c) The Executive agrees that he shall not, during the Executive's
employment with the Company and, if the Executive's employment hereunder is
voluntarily terminated by the Executive or terminated by the Company for Cause,
for a period of two (2) years thereafter, commencing on the date of termination
of such employment, directly or indirectly, induce or attempt to influence any
present or future employee of the Company or any subsidiary of the Company to
leave its employ except Peter Braverman and the Executive's executive secretary
at the time of such termination.
10. Confidential Information. The Executive shall not at any time publish,
disseminate, distribute, disclose, sell, assign, transfer, commercially exploit,
or otherwise make use of any business and financial information, and other
information relating to the businesses, methods or tactics of the Company except
(a) as reasonably believed by the Executive to be authorized by the General
Partner or as required for the due and proper performance of his duties and
obligations under this Agreement, and (b) for any information which (i) is
generally available to the public, (ii) is lawfully obtained by the Executive
from a source other than the Company or (iii) is required to be disclosed by
judicial or administrative process or by applicable law. Upon any termination,
the Executive agrees that the Executive shall not retain any non-public
information of the Company or its direct and indirect subsidiaries.
11. Remedies. The Executive acknowledges that the services to be rendered
by him hereunder are of a special, unique and extraordinary character, and that
a breach by the Executive of the provisions of Sections 9 or 10 will cause the
Company irreparable injury and damage. If any court holds that the whole or any
part of the provisions of Sections 9 or 10 is unenforceable by reason of the
extent or duration thereof, or otherwise, then the court or arbitrator making
such determination shall have the right to reduce such extent, duration or other
provisions thereof, and in its reduced form the provisions of Sections 9 or 10
shall be enforceable in the manner contemplated hereby. In the event of the
Executive's breach of the provisions of Sections 9 or 10, the Company shall be
entitled to injunctive relief against the Executive in addition to such other
rights as the Company may have under this Agreement at law or in equity.
12. Indemnification.
(a) Subject to the limitations set forth in the Partnership Agreement and
applicable law, the Company will indemnify or reimburse the Executive against
any losses, claims, damages or liabilities and pay on his behalf all Expenses
(as defined below) incurred by the Executive in any Proceeding (as defined
below). This indemnification and reimbursement shall not apply if it is
determined by a court of competent jurisdiction in a Proceeding that any losses,
claims, damages or liabilities arose primarily out of the willful misconduct or
bad faith of the Executive.
(b) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, or any inquiry or investigation, whether
brought in the name of the Company or otherwise and whether of a civil,
criminal, administrative or investigative nature, in which the Executive was or
is a party or is threatened to be made a party by reason of the fact that the
Executive is or was a director, officer, employee, agent or fiduciary of the
Company or of any direct or indirect subsidiary of the Company or by reason of
the fact that he is or was serving at the request of the Company or any direct
or indirect subsidiary of the Company as a director, officer, employee, trustee,
fiduciary or agent of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, whether or not he is serving in such
capacity at the time any liability or expense is incurred for which
indemnification or reimbursement can be provided under this Agreement.
(c) The term "Expenses" shall include, without limitation thereto, expenses
(including, without limitation, reasonable attorneys' fees and expenses) of
investigations, judicial or administrative proceedings or appeals by or on
behalf of the Executive and any Expenses of establishing a right to
indemnification or reimbursement under this Agreement.
(d) The Expenses incurred by the Executive in any Proceeding shall be paid
by the Company as incurred and in advance of the final disposition of the
Proceeding at the written request of the Executive. The Executive hereby agrees
and undertakes to repay such amounts if it shall ultimately be decided in a
proceeding that he is not entitled to be indemnified by the Company pursuant to
this Agreement.
(e) The provisions of this Section 11 shall survive the expiration or
termination, for any reason, of this Agreement and shall be separately
enforceable and shall be nonrecourse to the General Partner.
13. Legal Expenses. The Company shall pay all of the Executive's reasonable
attorneys' fees and expenses in connection with the preparation and negotiation
of this Agreement, which fees and expenses shall not exceed $25,000.
14. Prior Agreement; Amendments. This Agreement contains the entire
understanding between the parties hereto with respect to the subject matter
hereof and supersedes any prior employment agreement between the Company and any
predecessor of the Company and the Executive. This Agreement may not be changed
orally, but only by an instrument in writing signed by the party against whom
enforcement of any waiver, change, modification, extension or discharge is
sought.
15. Assignability and Binding Effect. This Agreement shall inure to the
benefit of and shall be binding upon the Company and its successors and
permitted assigns and the Executive and his heirs, executors, legal
representatives, successors and permitted assigns. However, neither party may
assign, transfer, pledge, encumber, hypothecate or otherwise dispose of this
Agreement or any of its or his rights hereunder without the prior written
consent of the other party and any such attempted assignment, transfer, pledge,
encumbrance, hypothecation or other disposition without such consent shall be
null and void and without effect. Notwithstanding the foregoing, the Company
shall be entitled to assign this Agreement, without the prior written consent of
the Executive, in connection with the merger or consolidation of the Company
with another person or the sale of all or substantially all of the assets and
business of the Company to another person; provided, however, that the Company
shall cause such other person to assume the Company's obligations thereunder.
Upon such consolidation, merger or transfer of assets and assumption, the term
"the Company" as used herein shall mean such other person and this Agreement
shall continue in full force and effect.
16. Headings. The paragraph headings contained herein are included solely
for convenience of reference and shall not control or affect the meaning or
interpretation of any of the provisions of this Agreement.
17. Notices. Any notices or other communications hereunder by either party
shall be in writing and shall be deemed to have been duly given upon delivery,
if delivered personally to the other party, or five (5) business days after
deposit in a United States Postal Service Depository, if sent by registered or
certified mail, postage prepaid, return receipt requested, to the other party at
his or its address set forth at the beginning of this Agreement or at such other
address as such other party may designate in conformity with the foregoing.
18. Governing Law. This Agreement shall be governed by, and construed and
enforced in accordance with, the laws of New York applicable to contracts made
and to be performed therein, without giving effect to the principles thereof
relating to the conflict of laws.
IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have
duly executed this Agreement the day and year first above written.
WINTHROP FINANCIAL ASSOCIATES, A
LIMITED PARTNERSHIP
By: Linnaeus Associates
Limited Partnership, its
general partner
By: W. L. Realty L.P., its
general partner
By: Londonderry Acquisition
II Limited Partnership,
its general partner
By: LDY-GP Partners II, L.P.,
its general partner
By: Londonderry Acquisition
Corporation II, Inc., its
general partner
By:
---------------------------------
Name:
Title:
---------------------------------
Michael L. Ashner
<PAGE>
Schedule 1
1. Limited partnership interests or assignee units of limited
partnership interests in the Company, Apollo or Apollo Real Estate
Investment Fund.
2. CAPREIT interests and tender offers by CAPREIT for interests in the
CAPREIT Realty Investor Tax Exempt Funds.
3.Limited partnership interests in Growth Hotel Investors, a
California limited partnership.
4. Limited partnership interests in Growth Hotel Investors II, a
California limited partnership.
5. At such time, if ever, that Insignia Financial Group, Inc.
("Insignia") shall become an Affiliate of the Company or Apollo, the
Executive and the Company in good faith, with the consent of Insignia,
shall renegotiate whether or not the obligations of the Company and
the Executive set forth in Section 7 shall apply to Tender Offers for
Affiliates of Insignia.
<PAGE>
Exhibit 10J
W. Edward Scheetz August 11, 1995
Apollo Real Estate Advisors, L.P.
1301 Avenue of the Americas - 38th Floor
New York, New York 10019
Dear Ed:
Following up on a discussion we had several weeks ago, I am writing to confirm
our agreement that, in connection with my assuming the role of Chief Operating
Officer at Winthrop, my annual salary will be increased from $190,000 to
$265,000. This will serve as an amendment to the salary figure set forth in my
Employment Agreement dated as of December 22, 1994 with WFA
Very truly yours,
Richard J. McCready
Acknowledged and agreed to effective as of July 15, 1995:
- --------------------------
W. Edward Scheetz,
as Authorized Officer of
Londonderry Acquisition Corporation II, Inc.
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial
information extracted from audited financial
statements for the one year period ending
December 31, 1995 and is qualified in its
entirety by reference to such
financial statements.
</LEGEND>
<CIK> 0000759253
<NAME> Winthrop Financial Associates
<MULTIPLIER> 1
<CURRENCY> U. S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<EXCHANGE-RATE> 1.0000
<CASH> 12,362,000
<SECURITIES> 0
<RECEIVABLES> 52,367,000
<ALLOWANCES> 33,767,000
<INVENTORY> 0
<CURRENT-ASSETS> 19,328,000
<PP&E> 198,900,000
<DEPRECIATION> 16,676,000
<TOTAL-ASSETS> 230,901,000
<CURRENT-LIABILITIES> 15,637,000
<BONDS> 0
40,906,000
0
<COMMON> 0
<OTHER-SE> (36,245,000)
<TOTAL-LIABILITY-AND-EQUITY> 230,901,000
<SALES> 0
<TOTAL-REVENUES> 71,471,000
<CGS> 0
<TOTAL-COSTS> 44,890,000
<OTHER-EXPENSES> 8,974,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,918,000
<INCOME-PRETAX> (6,822,000)
<INCOME-TAX> (1,530,000)
<INCOME-CONTINUING> (8,352,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,352,000)
<EPS-PRIMARY> (0.48)
<EPS-DILUTED> 0.00
</TABLE>
