U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ]TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-14283
ANGELES INCOME PROPERTIES, LTD. IV
California 95-3974194
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will 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-KSB or any amendment to
this Form 10-KSB.[X]
State issuer's revenues for its most recent fiscal year. $4,349,000
State the aggregate market value of the voting stock held by nonaffiliates of
the Registrant. The aggregate market value shall be computed by reference to
the price at which the stock was sold, or the average bid and asked prices of
such stock, as of a specified date within the past 60 days. Market value
information for Registrant's Partnership Interests is not available. Should a
trading market develop for these Interests, it is the General Partner's belief
that such trading would not exceed $25 million.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Angeles Income Properties, Ltd. IV (the "Partnership" or "Registrant") is a
publicly-held limited partnership organized under the California Uniform Limited
Partnership Act pursuant to the Certificate and Agreement of Limited Partnership
(hereinafter referred to as the "Agreement") dated June 29, 1984. The
Partnership's General Partner is Angeles Realty Corporation II, a California
corporation (hereinafter referred to as the "General Partner" or "ARCII").
The Partnership, through its public offering of Limited Partnership Units, sold
131,800 units aggregating $65,900,000. The General Partner contributed capital
in the amount of $1,000 for a 2% interest in the Partnership. The Partnership
was formed for the purpose of acquiring fee and other forms of equity interests
in various types of real property. The Partnership presently owns two
investment properties and owns a general partnership interest in one additional
property. The General Partner of the Partnership intends to maximize the
operating results and, ultimately, the net realizable value of each of the
Partnership's properties in order to achieve the best possible return for the
investors. Such results may best be achieved through property sales,
refinancings, debt restructurings or relinquishment of the assets. The
Partnership intends to evaluate each of its holdings periodically to determine
the most appropriate strategy for each of the assets.
The Partnership has no full time employees. The General Partner is vested with
full authority as to the general management and supervision of the business and
affairs of the Partnership. Limited Partners have no right to participate in
the management or conduct of such business and affairs. Insignia Commercial
Group, L.P. provides property management services to each of the Partnership's
investment properties. The property in which the Partnership has a general
partnership interest is managed by a third party. Moraine made a final
distribution and was dissolved in 1995.
The business in which the Partnership is engaged is highly competitive, and the
Partnership is not a significant factor in its industry. Each investment
property is located in or near a major urban area and, accordingly, competes for
rentals not only with similar properties in its immediate area but with hundreds
of similar properties throughout the urban area. Such competition is primarily
on the basis of location, rents, services and amenities. In addition, the
Partnership competes with significant numbers of individuals and organizations
(including similar partnerships, real estate investment trusts and financial
institutions) with respect to the sale of improved real properties, primarily on
the basis of the prices and terms of such transactions.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth the Registrant's investments in properties:
Date of
Property Purchase Type of Ownership Use
Eastgate Marketplace 08/29/86 Fee ownership Commercial
Walla Walla, Washington 141,366 sq.ft.
Factory Merchants Mall 05/22/86 Fee ownership subject Commercial
Pigeon Forge, Tennessee to a first mortgage 198,864 sq.ft.
The Partnership has a 66.7% investment in Northtown Mall Partners ("Northtown").
The Partnership entered into a General Partnership Agreement with Angeles Income
Properties, Ltd. III, a California partnership and an affiliate of the General
Partner, to form Northtown. Northtown is accounted for on the Partnership's
balance sheet using the equity method of accounting and is included in "Equity
interest in net liabilities of joint venture". The property owned by Northtown,
as of December 31, 1996, is summarized as follows:
Date of
Property Purchase Type of Ownership Use
Northtown Mall 06/28/85 66.7% Commercial
806,730 sq.ft.
The Partnership had a 50% investment in Moraine West Carrollton Partners
("Moraine"). The Partnership entered into a General Partnership Agreement with
Angeles Income Properties, Ltd. III, a California partnership and an affiliate
of the General Partner, to form Moraine. The investment property owned by
Moraine was sold on July 21, 1994, to an unaffiliated party. Moraine made a
final distribution and was dissolved in 1995.
Additionally, the Partnership had a 43% investment in the Fort Worth Option
Joint Venture ("Fort Worth"). The Partnership entered into a General
Partnership Agreement with Angeles Income Properties, Ltd. V, a California
partnership and an affiliate of the General Partner, to form Fort Worth. The
remaining property owned by Fort Worth was sold on March 22, 1995, to an
unaffiliated party.
Finally, the Partnership also had a 43% investment in Burlington Outlet Mall
Joint Venture ("Burlington"). The Partnership entered into a General
Partnership Agreement with Angeles Income Properties, Ltd. III, a California
partnership and an affiliate of the General Partner, to form Burlington. On
October 30, 1995, Burlington lost its only investment property, Burlington
Outlet Mall, through a foreclosure by an unaffiliated mortgage holder.
SCHEDULE OF PROPERTIES:
(dollar amounts in thousands)
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
Eastgate Marketplace $ 2,774 $ 1,988 5-20 yrs (1) $ 3,628
Factory Merchants Mall 20,092 9,521 5-20 yrs (1) 11,398
$ 22,866 $ 11,509 $15,026
(1) Straight line
See "Note A" of the financial statements included in "Item 7." for a description
of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES:
(dollar amounts in thousands)
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1996 Rate Amortized Date Maturity
Factory Merchants Mall
First mortgage $ 15,376 9.75% 25 years 10/2006 $ 12,955
Average annual rental rate and occupancy for 1996 and 1995 for each property:
Average Annual Average
Rental Rates Occupancy
Property 1996 1995 1996 1995
Eastgate Marketplace $ 2.95/s.f. $ 3.29/s.f. 92% (1) 94%
Factory Merchants Mall 13.28/s.f. 13.94/s.f. 91% (2) 91%
(1) The General Partner is presently in negotiations to lease an additional
25,000 square feet of space. The General Partner is hopeful that such
negotiations will lead to occupancy of this space in 1997.
(2) Nationwide the outlets mall industry is not performing well.
As noted in "Item 1. Description of Business," the real estate industry is
highly competitive. All of the properties of the Partnership are subject to
competition from other commercial buildings in the area. The General Partner
believes that all of the properties are adequately insured.
The following is a schedule of the lease expirations for the years 1997-2006:
Number of % of Gross
Expirations Square Feet Annual Rent Annual Rent
Eastgate Marketplace
1997 1 46,000 $ 62,100 15.44%
1998 2 3,264 25,881 6.43%
1999 - -- -- --
2000 1 1,150 11,362 2.82%
2001-2006 - -- -- --
Factory Merchants Mall
1997 3 8,271 $ 76,868 3.13%
1998 6 22,916 326,672 13.32%
1999 10 36,547 474,292 19.33%
2000 5 17,757 285,923 11.66%
2001 15 77,530 1,172,125 47.78%
2002 - -- -- --
2003 - -- -- --
2004 1 8,680 117,180 4.78%
2006 - -- -- --
The following schedule reflects information on tenants occupying 10% or more of
the leasable square footage for Eastgate Marketplace:
Nature of Square Footage Annual Rent
Business Leased Per Square Foot Lease Expiration
Retail 38,524 $4.40 11/30/07
Retail 22,400 3.16 02/13/14
Retail 46,000 1.35 09/30/97
Factory Merchants Mall has no tenants occupying 10% or more of the leasable
square footage.
Real estate taxes and rates in 1996 for each property were:
(dollar amounts in thousands)
1996 1996
Billing Rate
Eastgate Marketplace $ 71 1.45%
Factory Merchants Mall 138 1.37%
ITEM 3. LEGAL PROCEEDINGS
In July 1993, Angeles Mortgage Investment Trust ("AMIT"), a real estate
investment trust, formerly affiliated with Angeles Corporation ("Angeles"),
initiated litigation against Fort Worth, and other partnerships which loaned
money to AMIT seeking to avoid repayment of such obligations. The Partnership
subsequently filed a counterclaim against AMIT seeking to enforce the
obligation, the principal amount of which was $2,240,000 plus accrued interest
from March 1993 ("AMIT Obligation").
MAE GP Corporation ("MAE GP"), an affiliate of the General Partner, owns
1,675,113 Class B Shares of AMIT. MAE GP has the option to convert these Class
B Shares, in whole or in part, into Class A Shares on the basis of 1 Class A
Share for every 49 Class B Shares. These Class B Shares entitle MAE GP to
receive 1% of the distributions of net cash distributed by AMIT. These Class B
Shares also entitle MAE GP to vote on the same basis as Class A Shares which
allows MAE GP to vote approximately 39% of the total shares (unless and until
converted to Class A Shares at which time the percentage of the vote controlled
represented by the shares held by MAE GP would approximate 1.3% of the vote).
Between the date of acquisition of these shares (November 24, 1992) and March
31, 1995, MAE GP declined to vote these shares. Since that date, MAE GP voted
its shares at the 1995 and 1996 annual meetings in connection with the election
of trustees and other matters. MAE GP has not exerted, and continues to decline
to exert, any management control over or participate in the management of AMIT.
MAE GP may choose to vote these shares as it deems appropriate in the future.
In addition, Liquidity Assistance, LLC, ("LAC"), an affiliate of the General
Partner and an affiliate of Insignia Financial Group, Inc. ("Insignia"), which
provides property management and partnership administration services to the
Partnership, owns 126,500 Class A Shares of AMIT at December 31, 1996. As of
February 1, 1997, the number of shares owned by LAC decreased to 96,800. These
Class A Shares entitle LAC to vote approximately 2.2% of the total shares. In
addition, Insignia has engaged and continues to engage in discussions with AMIT
regarding various potential business combinations with affiliates of Insignia.
On November 9, 1994, Fort Worth executed a definitive Settlement Agreement to
settle the dispute with respect to the AMIT obligation. The actual closing of
the Settlement occurred April 14, 1995. The Partnership's claim against AMIT
was satisfied by a cash payment by AMIT totaling $1,933,000 (the "Settlement
Amount") plus interest at closing. These funds were applied against the
Partnership's $5,000,000 note receivable from Fort Worth. On August 9, 1995,
Fort Worth and Angeles entered into an agreement in principle regarding the
allowance of an amended claim for the deficiency between the original principal
and the Settlement Amount (the "deficiency"). The amended claim equaled 90% of
the deficiency, or $276,000. In January 1996, the Partnership received $48,000
from AMIT as payment on the deficiency.
As part of the settlement, MAE GP granted to AMIT an option to acquire the Class
B Shares owned by it. This option can be exercised at the end of 10 years or
when all loans made by AMIT to partnerships affiliated with MAE GP as of
November 9, 1994, (which is the date of execution of a definitive Settlement
Agreement), have been paid in full, but in no event prior to November 9, 1997.
AMIT delivered to MAE GP cash in the sum of $250,000 at closing, which occurred
April 14, 1995, as payment for the option. Upon exercise of the option, AMIT
would remit to MAE GP an additional $94,000.
Simultaneously with the execution of the option, MAE GP executed an irrevocable
proxy in favor of AMIT the result of which is MAE GP will be able to vote the
Class B Shares on all matters except those involving transactions between AMIT
and MAE GP affiliated borrowers or the election of any MAE GP affiliate as an
officer or trustee of AMIT. On these matters, MAE GP granted to the AMIT
trustees, in their capacity as trustees of AMIT, proxies with regard to the
Class B Shares instructing such trustees to vote said Class B Shares in
accordance with the vote of the majority of the Class A Shares voting to be
determined without consideration of the votes of "Excess Class A Shares" as
defined in Section 6.13 of the Declaration of Trust of AMIT.
Additionally, Angeles, either directly or through an affiliate, maintained a
central disbursement account (the "Account") for the properties and partnerships
managed by Angeles and its affiliates, including the Registrant. Angeles caused
the Partnership to make deposits to the Account ostensibly to fund the payment
of certain obligations of the Partnership. Angeles further caused checks on
such account to be written to or on behalf of certain other partnerships.
However, of these total deposits, at least $81,000 deposited by or on behalf of
the Partnership was used for purposes other than satisfying the liabilities of
the Partnership. Accordingly, the Partnership filed a Proof of Claim in the
Angeles bankruptcy proceedings for such amount. However, subsequently the
General Partner of the Partnership has determined that the cost involved to
pursue such claim would likely exceed any amount received, if in fact such claim
were to be resolved in favor of the Partnership. Therefore, the Partnership
withdrew this claim on August 9, 1995.
The Partnership, along with other affiliates, has been named in a suit brought
by a company which owned a 20% interest ("Plaintiff") in Fort Worth's investment
property, the W.T. Waggoner Building, which was sold in 1995. The Plaintiff is
suing for breach of contract and negligence for mismanagement of the property.
The General Partner believes that there is no merit in this suit and intends to
vigorously defend it.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner of the Partnership believes
that all such pending or outstanding litigation will be resolved without a
material adverse effect upon the business, financial condition or operations of
the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Unit holders of the Partnership did not vote on any matter during the fourth
quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S COMMON EQUITY AND RELATED SECURITY HOLDER
MATTERS
The Partnership, a publicly-held limited partnership, sold 131,800 Limited
Partnership Units during its offering period through April 24, 1986, and
currently has 131,585 Limited Partnership Units and 5,944 Limited Partners of
record. There is no intention to sell additional Limited Partnership Units nor
is there an established market for these units.
During 1996, the number of Limited Partnership Units decreased by 175 units due
to limited partners abandoning their units. In abandoning his or her Limited
Partnership Unit(s), a limited partner relinquishes all right, title and
interest in the Partnership as of the date of abandonment.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
The Partnership recognized a net loss of $2,285,000 for the year ended December
31, 1996, versus net income of $1,447,000 for the year ended December 31, 1995.
The decrease in income for the year ended December 31, 1996, as compared to the
year ended December 31, 1995, is primarily due to a decrease in revenues and
tenant reimbursements, as well as an increased loss from the joint venture (see
discussion below).
The decrease in rental revenue for the year ended December 31, 1996, as compared
to the year ended December 31, 1995, is a result of a decrease in percentage
rent and a decrease in common area maintenance reimbursements at Factory
Merchant's Mall. Nationwide the outlets mall industry is not performing well.
Potential customers of the outlets mall industry are realizing that these malls
may not offer large discounts and, therefore, customers are shopping at more
convenient locations. Maintenance expense increased due to an exterior painting
project at Factory Merchant's Mall in 1996 in an effort to increase the
attractiveness of the property. During 1996, the Partnership recognized bad debt
recovery of $48,000 from AMIT (see "Note D") and $61,000 from Fort Worth as
payment on its note payable to the Partnership. In addition, there were debt
recoveries from tenants of the Partnership's investment properties that had been
previously reserved.
The increased net loss can also be attributed to the $284,000 loss on early
extinguishment of debt related to the refinance of Factory Merchant's Mall (see
"Note B"). $234,000 of the loss is due to prepayment penalties relating to the
old mortgage and $50,000 of the loss is due to the write-off of unamortized loan
costs.
The Partnership's equity in the losses of the joint venture is $1,578,000 for
the year ended December 31, 1996, and the Partnership's equity in the income of
the joint ventures was $1,350,000 for the year ended December 31, 1995. The
change in the equity in the income of the joint venture(s) can be attributed to
$1,933,000 in bad debt recovery for Fort Worth in 1995, as a result of AMIT's
note payment to Fort Worth, and due to the $5,174,000 extraordinary gain on debt
forgiveness at Fort Worth in 1995. Additionally, Burlington recognized a
$2,607,000 gain on the foreclosure of it's investment property in 1995.
Included in maintenance expenses for the year ended December 31, 1996, is
$130,000 of major repairs and maintenance mainly comprised of exterior building
repairs and painting.
As part of the ongoing business plan of the Partnership, the General Partner
monitors the rental market environment of each of its investment properties to
assess the feasibility of increasing rents, maintaining or increasing occupancy
levels and protecting the Partnership from increases in expense. As part of
this plan, the General Partner attempts to protect the Partnership from the
burden of inflation-related increases in expenses by increasing rents and
maintaining a high overall occupancy level. However, due to changing market
conditions, which can result in the use of rental concessions and rental
reductions to offset softening market conditions, there is no guarantee that the
General Partner will be able to sustain such a plan.
CAPITAL RESOURCES AND LIQUIDITY
The Partnership's primary source of cash is from the operations of its
properties and from financing placed on such properties. Cash from these
sources is utilized for property operations, capital improvements, and/or
repayment of debt.
At December 31, 1996, the Partnership had unrestricted cash of $3,308,000 versus
$3,425,000 at December 31, 1995. Net cash provided by operating activities
decreased in 1996 due to the decrease in income. Net cash flow from investing
activities decreased as a result of a non-recurring distribution received from
Moraine in 1995, collection on the note receivable from Fort Worth in 1995, and
deposits to restricted escrows in association with the refinancing of the debt
secured by Factory Merchant's Mall in October 1996. Net cash flow from financing
activities resulted from the refinancing of the debt secured by Factory
Merchant's Mall.
Northtown is in default on its non-recourse mortgage note payable due to
allowing a mechanics lien to remain on its mortgaged property, which is in
violation of its mortgage agreement. The Partnership incurred significant costs
for tenant improvements and other expenditures for a new tenant during 1996. In
November 1996, the lender and the Partnership disagreed on the funding for these
costs, resulting in the Partnership refusing to authorize any further
disbursements from its "Improvements and Leasing Commissions Reserve Escrow" to
pay the remaining balance of approximately $1 million due to the contractors and
other vendors. In January 1997, the contractors filed a mechanics lien against
the property. The Partnership and the lenders are presently in negotiations to
settle their disagreement over the funding of the tenant improvements. Upon
settlement, the Partnership will authorize the remaining payments to the
contractors and vendors and ensure that the mechanics lien will be removed.
There can be no assurance that these negotiations will be successful.
On March 15, 1991, Northtown and the holder of the Northtown Mall mortgage note
payable entered into an Option Agreement ("Option") whereby the lender has the
right and an option to purchase the Northtown Mall property on the terms and
conditions as set forth in the Option. The purchase price of the property, as
set forth in the Option, is defined as the fair market value of the property.
Such Option can be exercised by written notice by the lender at specified dates.
The option expires in 2006. In accordance with the Option, the lender gave
notice to Northtown in November 1996, that it intended to exercise this Option.
The lender and Northtown have begun the determination of the property's fair
value as defined in the Option and in the loan agreement. If the determined
fair value exceeds the annual appraisal by more than 5%, the lender may withdraw
its exercise of the Option and the Option continues in full force. The fair
value of the property, as defined in the Option and loan agreement, has not been
determined; therefore, Northtown cannot presently determine if the property will
be sold.
On October 1, 1996, the Partnership, through its 99.99% owned subsidiary
(Factory Merchants AIP IV, L.P. ("FM")), refinanced the mortgage debt secured by
Factory Merchants Mall. FM paid off debt of $14,242,000 and incurred penalty
costs of $234,000 at closing. The new loan, in the principal amount of
$15,400,000, matures in October 2006 and carries a 9.75% interest rate.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near term needs of the Partnership. The
mortgage indebtedness of $15,376,000, which is secured by the Factory Merchant's
Mall investment property, matures in October 2006, at which time the property
will be refinanced or the property will be sold. Future cash distributions will
depend on the levels of net cash generated from operations, refinancings,
property sales and the availability of cash reserves. There were no cash
distributions in 1996 and 1995.
ITEM 7. FINANCIAL STATEMENTS
ANGELES INCOME PROPERTIES, LTD. IV
LIST OF FINANCIAL STATEMENTS
Report of Independent Auditors
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended December 31, 1996 and
1995
Consolidated Statement of Changes in Partners' Deficit - Years ended
December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1996 and
1995
Notes to Consolidated Financial Statements
Report of Ernst & Young LLP, Independent Auditors
The Partners
Angeles Income Properties, Ltd. IV
We have audited the accompanying consolidated balance sheet of Angeles Income
Properties, Ltd. IV as of December 31, 1996, and the related consolidated
statements of operations, changes in partners' deficit and cash flows for each
of the two years in the period ended December 31, 1996. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Partnership's management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Angeles Income
Properties, Ltd. IV as of December 31, 1996 and the consolidated results of its
operations and its cash flows for each of the two years in the period ended
December 31, 1996, in conformity with generally accepted accounting principles.
/S/ ERNST & YOUNG LLP
Greenville, South Carolina
February 14, 1997
ANGELES INCOME PROPERTIES, LTD. IV
CONSOLIDATED BALANCE SHEET
December 31, 1996
(in thousands, except unit data)
Assets
Cash:
Unrestricted $ 3,308
Restricted--tenant security deposits 6
Accounts receivable, net of allowance
of $128 246
Escrows for taxes and insurance 295
Restricted escrows 309
Other assets 607
Investment properties (Notes B and E):
Land $ 2,708
Buildings and related personal
property 20,158
22,866
Less accumulated depreciation (11,509) 11,357
$ 16,128
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 81
Tenant security deposits 9
Accrued taxes 138
Other liabilities 177
Mortgage note payable (Notes B and E) 15,376
Equity interest in net liabilities of
joint venture, net of advances of
$1,632 (Note F) 13,642
Partners' Deficit
General partner $ (1,405)
Limited partners (131,585
units issued and outstanding) (11,890) (13,295)
$ 16,128
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. IV
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended December 31,
1996 1995
Revenues:
Rental income $ 4,196 $ 4,870
Other income 153 191
Total revenues 4,349 5,061
Expenses:
Operating 1,344 1,250
General and administrative 387 419
Maintenance 471 306
Depreciation 1,051 1,112
Interest 1,485 1,483
Property taxes 211 222
Bad debt (recovery) expense, net (177) 172
Total expenses 4,772 4,964
(Loss) income before equity in (loss)
income of joint venture(s) and
extraordinary item (423) 97
Equity in (loss) income of joint
venture(s) (Note F) (1,578) 1,350
(Loss) income before extraordinary item (2,001) 1,447
Extraordinary item - loss on early
extinguishment of debt (Note B) (284) --
Net (loss) income $ (2,285) $ 1,447
(Loss) income allocated to general
partner (2%) $ (46) $ 29
(Loss) income allocated to limited
partners (98%) (2,239) 1,418
Net (loss) income $ (2,285) $ 1,447
Per limited partnership unit:
(Loss) income before extraordinary item $ (14.88) $ 10.76
Extraordinary item (2.11) --
Net (loss) income $ (16.99) $ 10.76
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. IV
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 131,800 $ 1 $ 65,900 $ 65,901
Partners' deficit at
December 31, 1994 131,760 $ (1,388) $ (11,069) $ (12,457)
Net income for the year
ended December 31, 1995 -- 29 1,418 1,447
Partners' deficit at
December 31, 1995 131,760 (1,359) (9,651) (11,010)
Abandonment of limited
partnership units (Note I) (175) -- -- --
Net loss for the year ended
December 31, 1996 -- (46) (2,239) (2,285)
Partner's deficit at
December 31, 1996 131,585 $ (1,405) $ (11,890) $ (13,295)
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. IV
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1996 1995
Cash flows from operating activities:
Net (loss) income $ (2,285) $ 1,447
Adjustments to reconcile net (loss)
income to net cash provided by
operating activities:
Equity in loss (income) of joint ventures 1,578 (1,350)
Depreciation 1,051 1,112
Bad debt (recovery) expense, net (177) 172
Amortization of loan costs and leasing
commissions 195 145
Extraordinary item - loss on early
extinguishment of debt 284 --
Change in accounts:
Restricted cash 1 1
Accounts receivable 35 (281)
Escrows for taxes (72) (52)
Other assets (42) (99)
Accounts payable 18 24
Tenant security deposit liabilities 1 (1)
Accrued taxes (9) 15
Other liabilities 37 (35)
Net cash provided by operating
activities 615 1,098
Cash flows from investing activities:
Property improvements and replacements (127) (271)
Deposits to restricted escrows (309) --
Distributions from joint venture -- 966
Advances to joint ventures (741) (750)
Proceeds from notes receivable 109 2,112
Net cash (used in) provided by
investing activities (1,068) 2,057
Cash flows from financing activities:
Payments on mortgage notes payable (251) (278)
Repayment of mortgage note payable (14,242) --
Proceeds from refinancing of debt 15,400 --
Loan costs (337) --
Debt extinguishment costs (234) --
Net cash provided by (used in)
financing activities 336 (278)
Net (decrease) increase in cash and cash
equivalents (117) 2,877
Unrestricted cash and cash equivalents at
beginning of year 3,425 548
Unrestricted cash and cash equivalents at end
of year $ 3,308 $ 3,425
Supplemental disclosure of cash flow
information:
Cash paid for interest $ 1,439 $ 1,443
See Accompanying Notes to Consolidated Financial Statements
ANGELES INCOME PROPERTIES, LTD. IV
Notes to Consolidated Financial Statements
December 31, 1996
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization: Angeles Income Properties, Ltd. IV (the "Partnership" or
"Registrant") is a California limited partnership organized on June 29, 1984, to
acquire and operate residential and commercial real estate properties. The
Partnership's General Partner is Angeles Realty Corporation II ("ARC II"), an
affiliate of Insignia Financial Group, Inc. As of December 31, 1996, the
Partnership owns and operates two commercial properties, located in Walla Walla,
Washington and Pigeon Forge, Tennessee, and owns a general partner interest in a
third commercial property located near Minneapolis, Minnesota.
Principles of Consolidation: The financial statements include all of the
accounts of the Partnership and its majority owned partnerships. All significant
interpartnership balances have been eliminated. Minority interest is immaterial
and not shown separately on the financial statements.
Investment in Joint Ventures: The Partnership accounts for its investments in
joint ventures using the equity method of accounting (see "Note F"). Under the
equity method of accounting, the Partnership records its equity interest in
earnings or losses of the joint ventures; however, the investment in the joint
ventures will be recorded at an amount less than zero (a liability) to the
extent of the Partnership's share of net liabilities of the joint ventures.
Allocations and Distributions to Partners: In accordance with the Agreement,
any gain from the sale or other disposition of Partnership assets will be
allocated first to the General Partner to the extent of the amount of any
Brokerage Compensation and Incentive Interest to which the General Partner is
entitled. Any gain remaining after said allocation will be allocated to the
General Partner and Limited Partners in proportion to their interests in the
Partnership.
The Partnership will allocate other profits and losses 2% to the General Partner
and 98% to the Limited Partners.
Except as discussed below, the Partnership will allocate distributions 2% to the
General Partner and 98% to the Limited Partners.
Upon the sale or other disposition, or refinancing, of any asset of the
Partnership, the Distributable Net Proceeds shall be distributed as follows:
(i) First, to the General Partner, on account of the current and accrued
Management Fee Payable, deferred as contemplated therein; (ii) Second, to the
Partners in proportion to their interests until the Limited Partners have
received proceeds equal to their Original Capital Investment applicable to the
property; (iii) Third, to the Partners until the Limited Partners have received
distributions from all sources equal to their 8% Cumulative Distribution; (iv)
Fourth, to the General Partner until it has received its Brokerage Compensation
and (v) Thereafter, 88% to the Limited Partners in proportion to their
interests and 12% ("Incentive Interest") to the General Partner.
Depreciation: Depreciation is computed utilizing the straight-line method over
the estimated lives of the investment properties and related personal property.
For Federal income tax purposes, depreciation is computed by using the straight-
line method over an estimated life of 5 to 20 years for personal property and 15
to 40 years for real property.
Cash and Cash Equivalents - Unrestricted Cash: The Partnership considers all
highly liquid investments with a maturity when purchased of three months or less
to be cash equivalents. At certain times, the amount of cash deposited at a
bank may exceed the limit on insured deposits.
Restricted Cash - Tenant Security Deposits: The Partnership requires security
deposits from some lessees for the duration of the lease and considers the
deposits to be restricted cash. Deposits are refunded when the tenant vacates
the commercial space if there has been no damage to the area.
Investment Properties: Prior to the fourth quarter of 1995, investment
properties were carried at the lower of cost or estimated fair value, which was
determined using the higher of the property's non-recourse debt amount, when
applicable, or the net operating income of the investment property capitalized
at a rate deemed reasonable for the type of property. During the fourth quarter
of 1995, the Partnership adopted "FASB Statement 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. The impairment loss is measured by comparing the fair value of
the asset to its carrying amount. The effect of adoption was not material.
Loan Costs: Loan costs of $337,000, which are included in "Other assets" in the
accompanying balance sheet, are being amortized on a straight-line basis over
the life of the loan. Current accumulated amortization is $8,000.
Leases: Commercial building lease terms are generally for one to twenty years.
Several tenants have percentage rent clauses which provide for additional rent
upon the tenant achieving certain rental objectives. Percentage rent totaled
$235,000 in 1996 and $485,000 in 1995.
Lease Commissions: Lease commissions, which are included in "Other assets" in
the accompanying balance sheet, of $624,000 are being amortized on a straight-
line basis over the terms of the respective leases. Current accumulated
amortization is $408,000.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Reclassifications: Certain reclassifications have been made to the 1995
balances to conform to the 1996 presentation.
Fair Value: In 1995, the Partnership implemented "Statement of Financial
Accounting Standards No. 107, Disclosure about Fair Value of Financial
Instruments," which requires disclosure of fair value information about
financial instruments for which it is practicable to estimate that value. The
carrying amount of the Partnership's cash and cash equivalents approximates fair
value due to short-term maturities. The Partnership estimates the fair value of
its fixed rate mortgage by discounted cash flow analysis, based on estimated
borrowing rates currently available to the Partnership (see "Note B").
NOTE B - MORTGAGE NOTE PAYABLE
The principal terms of the mortgage note payable are as follows (in thousands):
Monthly Principal Principal
Payment Stated Balance Balance At
Including Interest Maturity Due At December 31,
Property Interest Rate Date Maturity 1996
Factory Merchants Mall
First mortgage $ 137 9.75% 10/2006 $ 12,955 $ 15,376
On October 1, 1996, the Partnership, through its 99.99% owned subsidiary
(Factory Merchants AIP IV, L.P. ("FM")), refinanced the previous mortgage debt
secured by Factory Merchants Mall. FM paid off debt of $14,242,000, penalty
costs of $234,000, and paid closing costs and funded escrows with the remainder
of the proceeds.
The mortgage note payable is non-recourse and is secured by pledge of the
Partnership's investment property and by pledge of revenues from the investment
property. Prepayment penalties are imposed if the mortgage note is repaid prior
to maturity. The estimated fair value of the Partnership's debt approximates
its carrying amount. Scheduled principal payments for the mortgage note payable
subsequent to December 31, 1996, are as follows (dollar amounts in thousands):
1997 $ 154
1998 170
1999 188
2000 207
2001 228
Thereafter 14,429
$ 15,376
NOTE C - INCOME TAXES
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
Differences between the net (loss) income as reported and Federal taxable loss
result primarily from differences in methods of accounting for joint ventures
and depreciation over different methods and lives and on differing cost basis of
investment properties. The following is a reconciliation of reported net (loss)
income and Federal taxable loss:
1996 1995
(in thousands)
Net (loss) income as reported $ (2,285) $ 1,447
Add (deduct):
Depreciation differences 45 119
Unearned income 3 (39)
Investment in joint venture 406 (7,802)
Bad debts -- (2,596)
Other 38 (149)
Federal taxable loss $ (1,793) $ (9,020)
Federal taxable loss per
limited partnership unit $ (13.34) $ (67.09)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets and liabilities:
Net deficiency as reported $ (13,295)
Land and buildings 2,697
Accumulated depreciation 972
Syndication and distribution costs 8,848
Investments in Joint Ventures 3,842
Other 1,386
Net assets - Federal tax basis $ 4,450
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for payments to affiliates for services and
as reimbursement of certain expenses incurred by affiliates on behalf of the
Partnership.
The following payments were made to the General Partner and affiliates in 1996
and 1995 (in thousands):
1996 1995
Property management fees $ 129 $ 171
Reimbursement for services of affiliates
242 334
The Partnership insures its properties under a master policy through an agency
and insurer unaffiliated with the General Partner. An affiliate of the General
Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which were later acquired by the agent who
placed the current year's master policy. The current agent assumed the
financial obligations to the affiliate of the General Partner who receives
payment on these obligations from the agent. The amount of the Partnership's
insurance premiums accruing to the benefit of the affiliate of the General
Partner by virtue of the agent's obligations is not significant.
In July 1993, Angeles Mortgage Investment Trust ("AMIT"), a real estate
investment trust, formerly affiliated with Angeles Corporation ("Angeles"),
initiated litigation against the Angeles Fort Worth Option Joint Venture ("Fort
Worth"), of which the Partnership is a General Partner, and other partnerships
which loaned money to AMIT seeking to avoid repayment of such obligations. The
Partnership subsequently filed a counterclaim against AMIT seeking to enforce
the obligation, the principal amount of which was $2,240,000 plus accrued
interest from March 1993 ("AMIT Obligation").
MAE GP Corporation ("MAE GP"), an affiliate of the General Partner, owns
1,675,113 Class B Shares of AMIT. MAE GP has the option to convert these Class
B Shares, in whole or in part, into Class A Shares on the basis of 1 Class A
Share for every 49 Class B Shares. These Class B Shares entitle MAE GP to
receive 1% of the distributions of net cash distributed by AMIT. These Class B
Shares also entitle MAE GP to vote on the same basis as Class A Shares which
allows MAE GP to vote approximately 39% of the total shares (unless and until
converted to Class A Shares at which time the percentage of the vote controlled
represented by the shares held by MAE GP would approximate 1.3% of the vote).
Between the date of acquisition of these shares (November 24, 1992) and March
31, 1995, MAE GP declined to vote these shares. Since that date, MAE GP voted
its shares at the 1995 and 1996 annual meetings in connection with the election
of trustees and other matters. MAE GP has not exerted, and continues to decline
to exert, any management control over or participate in the management of AMIT.
MAE GP may choose to vote these shares as it deems appropriate in the future.
In addition, Liquidity Assistance, LLC, ("LAC"), an affiliate of the General
Partner and an affiliate of Insignia Financial Group, Inc., ("Insignia") which
provides property management and partnership administration services to the
Partnership, owns 126,500 Class A Shares of AMIT at December 31, 1996. As of
February 1, 1997, the number of shares owned by LAC decreased to 96,800. These
Class A Shares entitle LAC to vote approximately 2.2% of the total shares. In
addition, Insignia has engaged and continues to engage in discussions with AMIT
regarding various potential business combinations with affiliates of Insignia.
On November 9, 1994, Fort Worth executed a definitive Settlement Agreement to
settle the dispute with respect to the AMIT obligation. The actual closing of
the Settlement occurred April 14, 1995. The Partnership's claim against AMIT
was satisfied by a cash payment by AMIT totaling $1,933,000 (the "Settlement
Amount") plus interest at closing. These funds were applied against the
Partnership's $5,000,000 note receivable from Fort Worth (See discussion below).
On August 9, 1995, Fort Worth and Angeles entered into an agreement in principle
regarding the allowance of an amended claim for the deficiency between the
original principal and the Settlement Amount (the "deficiency"). The amended
claim equaled 90% of the deficiency, or $276,000. In January 1996, the
Partnership received $48,000 from AMIT as payment on the deficiency.
As part of the settlement, MAE GP granted to AMIT an option to acquire the Class
B Shares owned by it. This option can be exercised at the end of 10 years or
when all loans made by AMIT to partnerships affiliated with MAE GP as of
November 9, 1994, (which is the date of execution of a definitive Settlement
Agreement), have been paid in full, but in no event prior to November 9, 1997.
AMIT delivered to MAE GP cash in the sum of $250,000 at closing, which occurred
April 14, 1995, as payment for the option. Upon exercise of the option, AMIT
would remit to MAE GP an additional $94,000.
Simultaneously with the execution of the option, MAE GP executed an irrevocable
proxy in favor of AMIT the result of which is MAE GP will be able to vote the
Class B Shares on all matters except those involving transactions between AMIT
and MAE GP affiliated borrowers or the election of any MAE GP affiliate as an
officer or trustee of AMIT. On these matters, MAE GP granted to the AMIT
trustees, in their capacity as trustees of AMIT, proxies with regard to the
Class B Shares instructing such trustees to vote said Class B Shares in
accordance with the vote of the majority of the Class A Shares voting to be
determined without consideration of the votes of "Excess Class A Shares" as
defined in Section 6.13 of the Declaration of Trust of AMIT.
In 1992, the Partnership loaned Fort Worth $5,000,000 to cover leasing
commissions, tenant improvements, and capital expenditures. The note payable
required interest at a rate of prime plus 1.5% with monthly interest only
payments through January 1996, at which time the principal was due. The note
was in default in prior years due to non-payment of interest when due.
On December 22, 1994, the Partnership entered into an agreement with Fort Worth
and Angeles Income Properties, Ltd. V ("AIPL V"), an affiliate of the General
Partner and the other 57% owner of Fort Worth, whereby Fort Worth transferred,
assigned and delivered to the Partnership all of Fort Worth's right, title and
interests in and to all payment, distributions, profits, returns of capital and
benefits accruing from the repayment by AMIT of the loan made to AMIT from Fort
Worth. This transfer effectively transferred AIPL V's right, title and interest
in and to all payment, distributions, profits, returns of capital and benefits
accruing from the repayment by AMIT of the loan made to AMIT from Fort Worth.
AIPL V has consented to this transfer, assignment and delivery.
The Partnership may make advances to the affiliated joint ventures as deemed
appropriate by the General Partner. These advances do not bear interest and do
not have stated terms of repayment.
NOTE E - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION
Initial Cost
To Partnership
(in thousands)
Cost
Buildings Capitalized
and Related (Removed)
Personal Subsequent to
Description Encumbrances Land Property Acquisition
Eastgate Marketplace $ -- $ 901 $ 3,991 $ (2,118)
Factory Merchants Mall 15,376 2,414 16,155 1,523
Totals $ 15,376 $ 3,315 $ 20,146 $ (595)
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1996
(in thousands)
Buildings
And Related
Personal Accumulated Date Depreciable
Description Land Property Total Depreciation Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C>
Eastgate Marketplace $ 294 $ 2,480 $ 2,774 $ 1,988 08/29/86 10-20
Factory Merchants
Mall 2,414 17,678 20,092 9,521 05/22/86 10-20
Totals $ 2,708 $ 20,158 $ 22,866 $ 11,509
<FN>
The depreciable lives included above are for the buildings and components.
The depreciable lives for related personal property are for 5 to 7 years.
</TABLE>
Reconciliation of "Investment Properties and Accumulated Depreciation":
Year Ended December 31,
1996 1995
(in thousands)
Investment Properties
Balance at beginning of year $ 22,739 $ 22,468
Property improvements 127 271
Balance at end of year $ 22,866 $ 22,739
Accumulated Depreciation
Balance at beginning of year $ 10,458 $ 9,346
Additions charged to expense 1,051 1,112
Balance at end of year $ 11,509 $ 10,458
The aggregate cost of the investment for Federal income tax purposes at December
31, 1996 and 1995, is $25,563,000 and $25,432,000, respectively. The
accumulated depreciation taken for Federal income tax purposes at December 31,
1996 and 1995, is $10,537,000 and $9,531,000 respectively.
NOTE F - INVESTMENT IN JOINT VENTURES
The Partnership has a 66.7% investment in Northtown Mall Partners ("Northtown")
which is included in "Equity interest in net liabilities of joint venture". The
Partnership had a 43% investment in Fort Worth, a 43% investment in Burlington
Outlet Mall Joint Venture ("Burlington") and a 50% investment in Moraine West
Carrollton Joint Venture ("Moraine"). The Partnership no longer has an
investment in these joint ventures, due to the sale of Fort Worth's investment
property, the foreclosure of Burlington's investment property and the
dissolution of Moraine during 1995 as discussed below. The condensed balance
sheet information as of December 31, 1996, for Northtown is as follows: (in
thousands)
Northtown
Cash $ 277
Accounts receivable 857
Other assets 5,264
Investment property, net 26,806
Total assets $ 33,204
Mortgage note payable $ 51,387
Other liabilities 1,368
Due to partners 3,285
Partners' deficit (22,836)
Total liabilities and partners'
deficit $ 33,204
The condensed statements of operations of Northtown, Fort Worth, Burlington and
Moraine for the years ended December 31, 1996 and 1995, are summarized as
follows:
Northtown Fort Worth
1996 1995 1996 1995
Revenues $ 10,765 $ 11,036 $ -- $ 208
Costs and expenses (13,136) (13,024) (461)
Bad debt recovery -- -- -- 1,933
(Loss) income before
loss on disposal of property
and extraordinary item (2,371) (1,988) -- 1,680
Loss on disposal of
property -- (141) -- --
(Loss) income before
extraordinary item (2,371) (2,129) -- 1,680
Extraordinary item - gain on
forgiveness of debt -- -- -- 5,174
Net (loss) income $ (2,371) $ (2,129) $ -- $ 6,854
Burlington Moraine
1996 1995 1996 1995
Revenues $ -- $ 230 $ -- $ 13
Costs and expenses -- (762) -- (1)
(Loss) income before gain
on foreclosure of property -- (532) -- 12
Gain on foreclosure of property -- 2,607 --
Net income $ -- $ 2,075 $ -- $ 12
The Partnership's equity in the loss of the joint venture was $1,578,000 for the
year ended December 31, 1996, and the Partnership's equity in the income of the
joint ventures was $1,350,000 for the year ended December 31, 1995. This
increase in loss can be primarily attributed to the extraordinary gain on
forgiveness of debt at Fort Worth in 1995 and the gain recognized on the
foreclosure of Burlington in 1995.
Northtown:
The net loss at Northtown Mall increased from 1995 to 1996 due to a loss in
tenants, which decreased revenues, and an increase in maintenance expense. The
$141,000 loss on disposal of property at Northtown Mall in 1995 is the result of
a roof replacement at the investment property. This loss was due to the write-
off of the old roof which was not fully depreciated. Northtown is in default on
its non-recourse mortgage note payable due to allowing a mechanics lien to
remain on its mortgaged property which is in violation of its mortgage
agreement. The Partnership incurred significant costs for tenant improvements
and other expenditures for a new tenant during 1996. In November 1996, the
lender and the Partnership disagreed on the funding for these costs, resulting
in the Partnership refusing to authorize any further disbursements from its
"Improvements and Leasing Commissions Reserve Escrow" to pay the remaining
balance of approximately $1 million due to the contractors and other vendors.
In January 1997, the contractors filed a mechanics lien against the property.
The Partnership and the lenders are presently in negotiations to settle their
disagreement over the funding of the tenant improvements. Upon settlement, the
Partnership will authorize the remaining payments to the contractors and vendors
and ensure that the mechanics lien will be removed. There can be no assurance
that these negotiations will be successful.
On March 15, 1991, Northtown and the holder of the Northtown Mall mortgage note
payable entered into an Option Agreement ("Option") whereby the lender has the
right and an option to purchase the Northtown Mall property on the terms and
conditions as set forth in the Option. The purchase price of the property, as
set forth in the Option, is defined as the fair market value of the property.
Such Option can be exercised by written notice by the lender at specified dates.
The option expires in 2006. In accordance with the Option, the lender gave
notice to Northtown in November 1996, that it intended to exercise this Option.
The lender and Northtown have begun the determination of the property's fair
value as defined in the Option and in the loan agreement. If the determined
fair value exceeds the annual appraisal by more than 5%, the lender may withdraw
its exercise of the Option and the Option continues in full force. The fair
value of the property, as defined in the Option and loan agreement, has not been
determined; therefore, Northtown cannot presently determine if the property will
be sold.
Fort Worth:
Fort Worth's general partners decided to terminate the joint venture in 1995
after the W.T. Waggoner Building, Fort Worth's remaining property, was sold on
March 22, 1995. All remaining cash was used to pay Fort Worth's liabilities in
January 1996, at which time the joint venture was dissolved. Forth Worth
recognized a gain on debt forgiveness in 1995 as the result of the write-off of
all outstanding liabilities.
In 1996, the Partnership, along with other affiliates, was named in a suit
brought by a company which owned a 20% interest in Fort Worth's investment
property, the W.T. Waggoner Building, which was sold in 1995. The General
Partner believes that there is no merit in this suit and intends to vigorously
defend it.
Burlington:
On October 30, 1995, Burlington lost its investment property, the Burlington
Outlet Mall located in Burlington, NC, through foreclosure by an unaffiliated
mortgage holder. The property was not generating sufficient cash flow to meet
debt service requirements. The non-payment of principal and interest
constituted a default under the terms of the mortgage agreement and allowed the
holder of the nonrecourse mortgage to foreclose on the property. Burlington
recognized a gain of $2,607,000 as a result of the foreclosure, and subsequently
the general partners decided to terminate the joint venture. All remaining cash
was used to pay the joint venture's liabilities in 1996, at which time
Burlington was dissolved.
Moraine:
The sale of Moraine to an affiliate of the third party managing agent closed on
July 21, 1994. Moraine received a net amount of $2,199,000 in proceeds after
satisfying all indebtedness. Moraine made a final distribution of $1,931,000 in
1995, of which the Partnership's share was $966,000, and the joint venture was
then dissolved.
NOTE G - OPERATING LEASES
Tenants of the commercial properties are responsible for their own utilities and
maintenance of their space, and payment of their proportionate share of common
area maintenance, utilities, insurance and real estate taxes. Tenants are
generally not required to pay a security deposit.
As of December 31, 1996, the Partnership had minimum future rentals under
noncancellable leases with terms ranging from twelve months to twenty-one years
as follows (in thousands):
1997 $ 2,749
1998 2,544
1999 2,110
2000 1,639
2001 645
Thereafter 2,109
$ 11,796
NOTE H - GROUND LEASE
Factory Merchants Mall is subject to three ground leases. The aggregate annual
lease expense was approximately $160,000 for each of the years ended December
31, 1996 and 1995. Such amounts are included in the statements of operation as
operating expenses. The terms of two of the leases provide for increases every
year, based on the Consumer Price Index. The terms of the third lease provide
for increases every five years, based on the Consumer Price Index.
As of December 31, 1996, the aggregate minimum rental payments under the land
leases are as follows (in thousands):
1997 $ 160
1998 160
1999 160
2000 160
2001 160
Thereafter 4,220
$ 5,020
NOTE I - ABANDONMENT OF LIMITED PARTNERSHIP UNITS
In 1996, the number of Limited Partnership Units decreased by 175 units due to
limited partners abandoning their units. In abandoning his or her Limited
Partnership Unit(s), a limited partner relinquishes all right, title and
interest in the Partnership as of the date of abandonment. However, the limited
partner is allocated his or her share of income or loss in the year of
abandonment.
The loss or income per limited partnership unit in the accompanying statements
of operations is calculated based on the number of units outstanding at the
beginning of the year.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no disagreements with Ernst & Young LLP regarding the 1996 or 1995
audits of the Partnership's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The names of the directors and executive officers of Angeles Realty Corporation
II ("ARC II"), the Partnership's General Partner as of December 31, 1996, their
ages and the nature of all positions with ARC II presently held by them are as
follows:
Name Age Position
Carroll D. Vinson 56 President, Director
Robert D. Long, Jr. 29 Controller and Principal
Accounting Officer
William H. Jarrard, Jr. 50 Vice President
John K. Lines, Esq. 37 Vice President and
Secretary
Kelley M. Buechler 39 Assistant Secretary
Carroll D. Vinson has been President of Metropolitan Asset Enhancement, L.P.,
and subsidiaries since August of 1994. Prior to that, during 1993 to August
1994, Mr. Vinson was affiliated with Crisp, Hughes & Co. (regional CPA firm) and
engaged in various other investment and consulting activities. Briefly, in
early 1993, Mr. Vinson served as President and Chief Executive Officer of
Angeles Corporation, a real estate investment firm. From 1991 to 1993, Mr.
Vinson was employed by Insignia in various capacities including Managing
Director-President during 1991. From 1986 to 1990, Mr. Vinson was President and
a Director of U.S. Shelter Corporation, a real estate services company, which
sold substantially all of its assets to Insignia in December 1990.
Robert D. Long, Jr. is Controller and Principal Accounting Officer. Prior to
joining Metropolitan Asset Enhancement, L.P., and subsidiaries, he was an
auditor for the State of Tennessee and was associated with the accounting firm
of Harshman Lewis and Associates.
William H. Jarrard, Jr. is Managing Director - Partnership Administration of
Insignia since January 1991. Mr. Jarrard served as Managing Director
Partnership Administration & Asset Management from July 1994 until January 1996.
John K. Lines, Esq. has been Insignia's General Counsel since June 1994 and
General Counsel and Secretary since July 1994. From May 1993 until June 1994,
Mr. Lines was the Assistant General Counsel and Vice President of Ocwen
Financial Corporation in West Palm Beach, Florida. From October 1991 until
April 1993, Mr. Lines was a Senior Attorney with Banc One Corporation in
Columbus, Ohio. From May 1984 until October 1991, Mr. Lines was employed as an
Associate Attorney with Squire Sanders & Dempsey in Columbus, Ohio.
Kelley M. Buechler is Assistant Secretary of the General Partner and has served
as Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of ARC II. The Partnership has no plan, nor does the
Partnership presently propose a plan, which will result in any remuneration
being paid to any officer or director upon termination of employment. However,
fees and other payments have been made to the Partnership's General Partner and
its affiliates, as described in "Note D" of the Financial Statements included
under "Item 7.", which is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
As of January 1, 1997, no person owned of record more than 5% of the Limited
Partnership Units of the Partnership nor was any person known by the Partnership
to own of record and beneficially, or beneficially only, more than 5% of such
securities.
The Partnership knows of no contractual arrangements, the operation or the terms
of which may at a subsequent date result in a change in control of the
Partnership, except for: Article 12.1 of the Agreement, which provide that upon
a vote of the Limited Partners holding more than 50% of the then outstanding
Limited Partnership Units the General Partner may be expelled from the
Partnership upon 90 days written notice. In the event that a successor general
partner has been elected by Limited Partners holding more than 50% of the then
outstanding Limited Partnership Units and if said Limited Partners elect to
continue the business of the Partnership, the Partnership is required to pay in
cash to the expelled General Partner an amount equal to the accrued and unpaid
management fee described in Article 10 of the Agreement and to purchase the
General Partner's interest in the Partnership on the effective date of the
expulsion, which shall be an amount equal to the difference between (i) the
balance of the General Partner's capital account and (ii) the fair market value
of the share of Distributable Net Proceeds to which the General Partner would be
entitled. Such determination of the fair market value of the share of
Distributable Net Proceeds is defined in Article 12.2(b) of the Agreement.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions have occurred between the Partnership and any officer or
director of ARC II.
During the years ended December 31, 1996, and December 31, 1995, the
transactions that occurred between the Partnership and ARC II and affiliates of
ARC II pursuant to the terms of the Agreement are disclosed under "Note D" of
the Partnership's Financial Statements included under "Item 7.", which is hereby
incorporated by reference.
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits required by Item 601 of Regulation S-B: Refer to Exhibit
Index.
(b) Reports on Form 8-K:
None.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
ANGELES INCOME PROPERTIES, LTD. IV
(A California Limited Partnership)
(Registrant)
By: Angeles Realty Corporation II
By: /s/ Carroll D. Vinson
Carroll D. Vinson
President
Date: March 27, 1997
In accordance with the Exchange Act, this report has been signed below by
the following persons on behalf of the Registrant and in the capacities on the
date indicated.
/s/ Carroll D. Vinson President Date: March 27, 1997
Carroll D. Vinson
/s/Robert D. Long, Jr. Controller and Principal Date: March 27, 1997
Robert D. Long, Jr. Accounting Officer
ANGELES INCOME PROPERTIES, LTD. IV
EXHIBIT INDEX
Exhibit Number Description of Exhibit
3.1 Amended Certificate and Agreement of the Limited
Partnership filed in Amendment Number 2 to Form S-11
dated April 25, 1985 which is incorporated herein by
reference
10.1 Agreement of Purchase and Sale of Real Property with
Exhibits - Northtown Mall filed in Form 8K dated July
15, 1985 which is incorporated herein by reference
10.2 Agreement of Purchase and Sale of Real Property with
Exhibits-Burlington Mall Partners filed in Form 8K
dated December 19, 1985 which is incorporated herein
by reference
10.3 Agreement of Purchase and Sale of Real Property with
Exhibits - Moraine West Carrollton Partners filed in
Form 8K dated December 20, 1985 which is incorporated
herein by reference
10.4 Agreement of Purchase and Sale of Property with
Exhibits - Factory Merchants Etc. Mall-Phase I and
Phase II filed in Form 8K dated May 22, 1986 which is
incorporated herein by reference
10.5 Promissory Note - Fort Worth Center and the W.T.
Waggoner Building filed in Form 8K dated July 16,
1986 which is incorporated herein by reference
10.6 Deed of Trust, Assignment of Leases and Rents and
Security Agreement - Fort Worth Center and the W.T.
Waggoner Building filed in Form 8K dated July 16,
1986 which is incorporated herein by reference
10.7 Deed of Trust - Option - Fort Worth Center and the
W.T. Waggoner Building filed in Form 8K dated July
16, 1986 which is incorporated herein by reference
10.8 Security Agreement - Fort Worth Center and the W.T.
Waggoner Building filed in Form 8K dated July 16,
1986 which is incorporated herein by reference
10.9 Option Agreement - Fort Worth Center and the W.T.
Waggoner Building filed in Form 8K dated July 16,
1986 which is incorporated herein by reference
10.10 Covenant not to compete - Fort Worth Center and the
W.T. Waggoner Building filed in Form 8K dated July
16, 1986 which is incorporated herein by reference
10.12 Acquisition or Disposition of Assets - Fort Worth
Option Joint Venture - filed in form 8K dated
November 1, 1987, which is incorporated herein by
reference
10.13 Promissory Note - Northtown Mall. Filed in Form 10-K
dated December 31, 1990, Exhibit 10.13, which is
incorporated herein by reference
10.14 Stock Purchase Agreement dated November 24, 1992
showing the purchase of 100% of the outstanding stock
of Angeles Realty Corporation II, a subsidiary of MAE
GP Corporation, filed in Form 8-K dated December 31,
1992, which is incorporated herein by reference
10.15 Acquisition or Disposition of Assets - Moraine West
Carrollton - filed in Form 8-K dated July 21, 1994,
which is incorporated herein by reference.
10.16 Promissory note - dated August 19, 1996, between
Factory Merchants AIP IV, L.P., and Union Capital
Investments, LLC.
16 Letter from Registrant's former accountant regarding
its concurrence with the statements made by the
Registrant is incorporated by reference to the
Exhibit filed with Form 8-K dated September 1, 1993.
27 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Angeles
Income Properties Ltd. IV 1996 Year-End 10-KSB and is qualified in its entirety
by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000763049
<NAME> ANGELES INCOME PROPERTIES LTD. IV
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 3,308
<SECURITIES> 0
<RECEIVABLES> 246
<ALLOWANCES> 128
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,866
<DEPRECIATION> 11,509
<TOTAL-ASSETS> 16,128
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 15,376
0
0
<COMMON> 0
<OTHER-SE> (13,295)
<TOTAL-LIABILITY-AND-EQUITY> 16,128
<SALES> 0
<TOTAL-REVENUES> 4,349
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 4,772
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,485
<INCOME-PRETAX> (2,285)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,285)
<DISCONTINUED> 0
<EXTRAORDINARY> (284)
<CHANGES> 0
<NET-INCOME> (2,285)
<EPS-PRIMARY> (16.99)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
PROMISSORY NOTE
$15,400,000.00 Greenville, South Carolina
As of August 19, 1996
FOR VALUE RECEIVED FACTORY MERCHANTS AIP IV, L.P., a South Carolina
limited partnership, as maker, having its principal place of business at One
Insignia Financial Plaza, 16th Floor, Greenville, South Carolina 29601
("BORROWER"), hereby unconditionally promises to pay to the order of UNION
CAPITAL INVESTMENTS, LLC, a Georgia limited liability company, as payee, having
its principal place of business at 5901-A Peachtree Dunwoody Road, Suite 220,
Atlanta, Georgia 30328 ("LENDER"), or at such other place as the holder hereof
may from time to time designate in writing, the principal sum of FIFTEEN MILLION
FOUR HUNDRED THOUSAND AND NO 100s DOLLARS, in lawful money of the United States
of America with interest thereon to be computed from the date of this Note at
the Applicable Interest Rate (defined below), and to be paid in installments as
follows:
1. PAYMENT TERMS
A constant payment of $137,235.18 on the first day of November 1, 1996
and on the first day of each calendar month thereafter up to and including the
first day of October 1, 2006; each of the payments to be applied as follows:
(a) First, to the payment of interest computed at the Applicable
Interest Rate;
(b) The balance applied toward the reduction of the principal sum;
and the balance of the principal sum and all interest thereon shall be due and
payable on the first day of November, 2006 (the "MATURITY DATE"). Interest on
the principal sum of this Note shall be calculated on the basis of a three
hundred sixty (360) day year based on twelve (12) thirty (30) day months except
that interest due and payable for a period of less than a full calendar month
shall be calculated by multiplying the actual number of days elapsed in such
period by a daily rate based on said 360-day year. The term "LOAN YEAR" as used
in this Note shall mean each complete twelve (12) month period after the first
day of the first full calendar month following the date hereof (or the date
hereof if the date hereof is the first day of a calendar month).
2. INTEREST
The term "APPLICABLE INTEREST RATE" as used in the Security Instrument
(defined below) and this Note shall mean an interest rate equal to nine and
three-quarters percent (9.75%) per annum.
3. DEFAULT AND ACCELERATION
(a) The whole of the principal sum of this Note, (b) interest,
default interest, late charges and other sums, as provided in this Note, the
Security Instrument or the Other Security Documents (defined below), (c) all
other monies agreed or provided to be paid by Borrower in this Note, the
Security Instrument or the Other Security Documents, (d) all sums advanced
pursuant to the Security Instrument to protect and preserve the Property
(defined below) and the lien and the security interest created thereby, and (e)
all sums advanced and costs and expenses incurred by Lender in connection with
the Debt (defined below) or any part thereof, any renewal, extension, or change
of or substitution for the Debt or any part thereof, or the acquisition or
perfection of the security therefor, whether made or incurred at the request of
Borrower or Lender (all the sums referred to in (a) through (e) above shall
collectively be referred to as the "DEBT") shall without notice become
immediately due and payable at the option of Lender if any payment required in
this Note is not paid prior to the fifth (5th) day after the date when due or on
the Maturity Date or on the happening of any other default, after the expiration
of any applicable notice and grace periods, herein or under the terms of the
Security Instrument or any of the Other Security Documents (collectively, an
"EVENT OF DEFAULT").
4. DEFAULT INTEREST
Borrower does hereby agree that upon the occurrence of an Event of
Default, Lender shall be entitled to receive and Borrower shall pay interest on
the entire unpaid principal sum at a rate equal to the lesser of (a) five
percent (5%) plus the Applicable Interest Rate and (b) the maximum interest
rate which Borrower may by law pay (the "DEFAULT RATE"). The Default Rate shall
be computed from the occurrence of the Event of Default until the earlier of the
date upon which the Event of Default is cured or the date upon which the Debt is
paid in full. Interest calculated at the Default Rate shall be added to the
Debt, and shall be deemed secured by the Security Instrument. This clause,
however, shall not be construed as an agreement or privilege to extend the date
of the payment of the Debt, nor as a waiver of any other right or remedy
accruing to Lender by reason of the occurrence of any Event of Default.
5. PREPAYMENT
(a) The principal balance of this Note may not be prepaid in whole or in
part prior to the third Loan Year. During the third Loan Year or any time
thereafter, provided no Event of Default exists, the principal balance of this
Note may be prepaid in whole, but not in part, upon but not less than thirty
(30) days and not more than forty (40) days prior written notice to Lender
specifying the date on which prepayment is to be made (the "PREPAYMENT DATE")
and upon payment of (i) accrued interest to and including the Prepayment Date
together with a payment of all interest which would have accrued on the
principal balance of this Note to and including the first day of the calendar
month immediately following the Prepayment Date, if such prepayment occurs on a
date which is not the first day of a month (the "INTEREST SHORTFALL PAYMENT"),
(ii) all other sums due under this Note, the Security Instrument and the Other
Security Documents, and (iii) the Prepayment Consideration (defined below).
Notwithstanding the foregoing, Borrower shall have the additional privilege to
prepay the entire principal balance of this Note during the sixty (60) calendar
days immediately preceding the Maturity Date without any fee or consideration
for such privilege provided (i) no Event of Default exists, (ii) written notice
of such prepayment is given by Borrower to Lender in the manner set forth above
and (iii) Borrower shall be required to make the Interest Shortfall Payment, if
applicable.
(b) The term "PREPAYMENT CONSIDERATION" shall mean an amount equal to the
greater of (i) one percent (1%) of the amount prepaid, or (ii) the present value
of a series of payments each equal to the Payment Differential (hereinafter
defined) and payable on the first day of each month ("MONTHLY PAYMENT DATE")
from the date of prepayment through and including the Maturity Date discounted
at the Reinvestment Yield (hereinafter defined) (monthly compounding) for the
number of months remaining from the date of prepayment to each such Monthly
Payment Date. The term "REINVESTMENT YIELD" as used herein shall be equal to
the yield on the U.S. Treasury issue (primary issue) with a maturity date
closest to, but not earlier than, the Maturity Date with such yield being based
on the bid price for such issue as published in The Wall Street Journal in New
York City, New York on a date fourteen (14) days prior to the date of prepayment
set forth in the prepayment notice (or, if such bid price is not published on
that date, the next preceding date on which such bid price is so published) and
converted to a monthly compounded nominal yield. In the event The Wall Street
Journal ceases publication or ceases to publish the bid price for such U.S.
Treasury issues, Lender shall select a comparable publication to determine such
bid price. Absent manifest error, the determination of the Reinvestment Yield
and the calculation of the Prepayment Consideration by Lender shall be binding
on Borrower. The term "PAYMENT DIFFERENTIAL" as used herein shall be equal to
the product of (y) a fraction, the numerator of which is the excess, if any, of
a per annum interest rate equal to the Applicable Interest Rate over the
Reinvestment Yield (expressed as a decimal percentage), and the denominator of
which is 12, and (z) the principal balance of this Note.
(c) If any notice of prepayment is given under this Section 5, the
principal balance of this Note and the other sums required under this prepayment
section shall be due and payable on the Prepayment Date. Lender shall not be
obligated to accept any prepayment of the principal balance of this Note unless
it is accompanied by the prepayment fees and the Prepayment Consideration due in
connection therewith. Notwithstanding anything contained in this Section 5 to
the contrary, provided no Event of Default exists, no prepayment fee shall be
due in connection with a complete or partial prepayment resulting from the
application of insurance proceeds or condemnation awards pursuant to Sections
3.3 or 3.6 of the Security Instrument, but Borrower shall be required to make
the Interest Shortfall Payment, if applicable.
(d) If following the occurrence of any Event of Default, Borrower shall
tender payment of an amount sufficient to satisfy the entire Debt at any time
prior to a judicial or non-judicial foreclosure sale or sale pursuant to a power
of sale of any Property and prior to the time prepayment of the principal
balance of this Note is permitted hereunder, Borrower shall, in addition to the
entire Debt, also pay to Lender an amount equal to the sum of (i) interest
calculated as set forth in Subsection 5(a)(i) including the Interest Shortfall
Payment, (ii) prepayment fees equal to the present value of all interest
payments which would have accrued on the principal balance of this Note
outstanding as of the date of such tender at the Applicable Interest Rate from
the date of such tender to the first day prepayment is permitted pursuant to
this Note discounted at a rate equal to the Treasury Rate based on U.S. Treasury
constant maturities with maturity dates (one longer and one shorter) most nearly
approximating the date upon which prepayment is first permitted pursuant to this
Note, and (iii) a prepayment consideration equal to the Prepayment Consideration
which would have been payable to Lender pursuant to Subsection 5(a)(iii) as of
the first day of the third Loan Year based on the Treasury Rate in effect as of
the date of such tender. If at the time of such voluntary or involuntary
prepayment of this Note, prepayment of the principal balance of the Loan is
permitted, Borrower shall, in addition to the entire Debt, also pay to Lender
the Interest Shortfall Payment, and the applicable prepayment fees and the
Prepayment Consideration set forth in Subsection 5(b) above. An involuntary
prepayment shall include any prepayment made in connection with reinstatement of
the Security Instrument under foreclosure proceedings, or exercise of a power of
sale, any right of redemption exercised by Borrower or any other party having a
right to redeem or prevent foreclosure, or which is made or occurs upon the
consummation of any sale in foreclosure or under exercise of a power of sale.
(e) Any permitted partial prepayment (in connection with the application
of insurance proceeds or condemnation awards pursuant to Sections 3.3 or 3.6 of
the Security Instrument) shall be applied to the installments of principal last
due under this Note and shall not release Borrower from the obligation to pay
the installments of interest and/or principal next becoming due under this Note.
6. SECURITY
This Note is secured by the Security Instrument and the Other Security
Documents. The term "SECURITY INSTRUMENT" as used in this Note shall mean the
Deed of Trust and Security Agreement dated the date hereof in the principal sum
of $15,400,000.00 given by Borrower to (or for the benefit of) Lender covering
the fee and leasehold estates of Borrower in certain premises (the "PROPERTY")
located in Sevier County, State of Tennessee, and other property, as more
particularly described therein and intended to be duly recorded in said County.
The term "OTHER SECURITY DOCUMENTS" as used in this Note shall mean all and any
of the documents other than this Note or the Security Instrument now or
hereafter executed by Borrower and/or others and by or in favor of Lender, which
wholly or partially secure or guarantee payment of this Note. Whenever used,
the singular number shall include the plural, the plural number shall include
the singular, and the words "LENDER" and "BORROWER" shall include their
respective successors, assigns, heirs, executors and administrators.
All of the terms, covenants and conditions contained in the Security
Instrument and the Other Security Documents are hereby made part of this Note to
the same extent and with the same force as if they were fully set forth herein.
7. SAVINGS CLAUSE
This Note is subject to the express condition that at no time shall
Borrower be obligated or required to pay interest on the principal balance due
hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Note, Borrower is at any time required or obligated to pay
interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate or the Default Rate, as the case may
be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of this Note until payment in full so that the rate or amount
of interest on account of the Debt does not exceed the maximum lawful rate of
interest from time to time in effect and applicable to the Debt for so long as
the Debt is outstanding.
8. LATE CHARGE
If any sum payable under this Note is not paid prior to the fifth (5th) day
after the date on which it is due, Borrower shall pay to Lender upon demand an
amount equal to the lesser of five percent (5%) of the unpaid sum or the maximum
amount permitted by applicable law to defray the expenses incurred by Lender in
handling and processing the delinquent payment and to compensate Lender for the
loss of the use of the delinquent payment and the amount shall be secured by the
Security Instrument and the Other Security Documents.
9. NO ORAL CHANGE
This Note may not be modified, amended, waived, extended, changed,
discharged or terminated orally or by any act or failure to act on the part of
Borrower or Lender, but only by an agreement in writing signed by the party
against whom enforcement of any modification, amendment, waiver, extension,
change, discharge or termination is sought.
10. JOINT AND SEVERAL LIABILITY
If Borrower consists of more than one person or party, the obligations and
liabilities of each person or party shall be joint and several.
11. WAIVERS
Borrower and all others who may become liable for the payment of all or any
part of the Debt do hereby severally waive presentment and demand for payment,
notice of dishonor, protest and notice of protest and non-payment and all other
notices of any kind. No release of any security for the Debt or extension of
time for payment of this Note or any installment hereof, and no alteration,
amendment or waiver of any provision of this Note, the Security Instrument or
the Other Security Documents made by agreement between Lender or any other
person or party shall release, modify, amend, waive, extend, change, discharge,
terminate or affect the liability of Borrower, and any other person or entity
who may become liable for the payment of all or any part of the Debt, under this
Note, the Security Instrument or the Other Security Documents. No notice to or
demand on Borrower shall be deemed to be a waiver of the obligation of Borrower
or of the right of Lender to take further action without further notice or
demand as provided for in this Note, the Security Instrument or the Other
Security Documents. If Borrower is a partnership, the agreements herein
contained shall remain in force and applicable, notwithstanding any changes in
the individuals comprising the partnership after the date of this Note, and the
term "BORROWER," as used herein, shall include any alternate or successor
partnership, but any predecessor partnership and their partners shall not
thereby be released from any liability; provided, however, except for liability
under (i) a separate guaranty of this Note, or (ii) a separate indemnity, which
liability shall be determined solely by the express terms of such guaranty or
indemnity, the provisions of this sentence shall not impose liability for the
satisfaction of Borrower's obligations under this Note upon any person or entity
who is not on the date hereof a general partner of Borrower or a general partner
of Borrower's general partner. If Borrower is a corporation, the agreements
contained herein shall remain in full force and applicable notwithstanding any
changes in the shareholders comprising, or the officers and directors relating
to, the corporation, and the term "BORROWER" as used herein, shall include any
alternative or successor corporation, but any predecessor corporation shall not
be relieved of liability hereunder. If Borrower is a limited liability company,
the agreements herein contained shall remain in full force and effect
notwithstanding any changes in the members comprising the limited liability
company, and the term "BORROWER" as used herein shall include any alternate or
successor company, but any predecessor company and its members shall not thereby
be released from any liability. (Nothing in the foregoing sentence shall be
construed as a consent to, or a waiver of, any prohibition or restriction on
transfers of interests in such partnership which may be set forth in the
Security Instrument or any Other Security Document.)
12. TRANSFER
Upon the transfer of this Note, Borrower hereby waiving notice of any such
transfer, Lender may deliver all the collateral mortgaged, granted, pledged or
assigned pursuant to the Security Instrument and the Other Security Documents,
or any part thereof, to the transferee who shall thereupon become vested with
all the rights herein or under applicable law given to Lender with respect
thereto, and Lender shall thereafter forever be relieved and fully discharged
from any liability or responsibility in the matter; but Lender shall retain all
rights hereby given to it with respect to any liabilities and the collateral not
so transferred.
13. WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT,
TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS
NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE, THIS NOTE, THE
SECURITY INSTRUMENT OR THE OTHER SECURITY DOCUMENTS OR ANY ACTS OR OMISSIONS OF
LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
14. EXCULPATION
(a) Except as otherwise provided herein, in the Security Instrument or in
the Other Security Documents, Lender shall not enforce the liability and
obligation of Borrower to perform and observe the obligations contained in this
Note or the Security Instrument by any action or proceeding wherein a money
judgment shall be sought against Borrower, except that Lender may bring a
foreclosure action, action for specific performance or other appropriate action
or proceeding to enable Lender to enforce and realize upon this Note, the
Security Instrument, the Other Security Documents, and the interest in the
Property, the Rents (as defined in the Security Instrument) and any other
collateral given to Lender created by this Note, the Security Instrument and the
Other Security Documents; provided, however, that any judgment in any such
action or proceeding shall be enforceable against Borrower only to the extent of
Borrower's interest in the Property, in the Rents and in any other collateral
given to Lender. Lender, by accepting this Note and the Security Instrument,
agrees that it shall not, except as otherwise provided in Section 11.10 of the
Security Instrument, sue for, seek or demand any deficiency judgment against
Borrower in any such action or proceeding, under or by reason of or under or in
connection with this Note, the Other Security Documents or the Security
Instrument. The provisions of this Section shall not, however, (i) constitute a
waiver, release or impairment of any obligation evidenced or secured by this
Note, the Other Security Documents or the Security Instrument; (ii) impair the
right of Lender to name Borrower as a party defendant in any action or suit for
judicial foreclosure and sale under the Security Instrument; (iii) affect the
validity or enforceability of any indemnity, guaranty, master lease or similar
instrument made in connection with this Note, the Security Instrument, or the
Other Security Documents; (iv) impair the right of Lender to obtain the
appointment of a receiver; (v) impair the enforcement of the Assignment of
Leases and Rents executed in connection herewith; (vi) impair the right of
Lender to obtain a deficiency judgment on the Note against Borrower if necessary
to obtain insurance proceeds or condemnation awards to which Lender would
otherwise be entitled under the Security Instrument; provided however, Lender
shall only enforce such judgment against the insurance proceeds and/or
condemnation awards; or (vii) impair the right of Lender to enforce the
provisions of Sections 13.2, 13.3 and 13.4 of the Security Instrument.
(b) Notwithstanding the provisions of this Section 14 to the contrary,
Borrower shall be personally liable to Lender for the Losses (as defined in the
Security Instrument) it incurs due to: (i) fraud or intentional
misrepresentation by Borrower, its general partners, if any, its members, if
any, its principals, its affiliates, its agents or its employees or by any
Guarantor or Indemnitor in connection with the execution and the delivery of
this Note, the Security Instrument or the Other Security Documents; (ii)
Borrower's misapplication or misappropriation of (A) Rents received by Borrower
after the occurrence of an Event of Default or (B) tenant security deposits or
Rents collected in advance; (iii) the misapplication or the misappropriation of
insurance proceeds or condemnation awards; (iv) Borrower's failure to return or
to reimburse Lender for all Personal Property (as defined in the Security
Instrument) taken from the Property by or on behalf of Borrower and not replaced
with Personal Property of the same utility and of the same or greater value; (v)
any act of actual waste or arson by Borrower, any principal, affiliate, member
or general partner thereof or by any Indemnitor (as defined in the Security
Instrument) or Guarantor (as defined in the Security Instrument); (vi) any fees
or commissions paid by Borrower to any principal, affiliate, member or general
partner of Borrower, any Indemnitor or any Guarantor in violation of the terms
of this Note, the Security Instrument or the Other Security Documents; or (vii)
Borrower's failure to comply with the provisions of Sections 7.1, 12.1, 12.2,
13.2, 13.3 or 13.4 of the Security Instrument.
(c) Notwithstanding the foregoing, the agreement of Lender not to pursue
recourse liability as set forth in Subsection (a) above SHALL BECOME NULL AND
VOID and shall be of no further force and effect (1) in the event of Borrower's
default under Section 4.3 or 8.2 of the Security Instrument, or (2) if the
Property or any part thereof shall become an asset in a voluntary bankruptcy or
insolvency proceeding; provided, however, that upon the occurrence of a
voluntary bankruptcy of insolvency as described in this Subsection 14 (c)(2),
Borrower shall only become personally liable to Lender for up to fifty percent
(50%) of the unpaid principal balance due under the Loan. In such event, upon
the sale of the Property by Lender in a foreclosure proceeding, or otherwise,
the portion of the unpaid principal balance of this Note with respect to which
Borrower is personally liable, shall be deemed to be paid and satisfied first
from the proceeds of such sale applied by Lender to the Debt and Other
Obligations.
(d) Nothing herein shall be deemed to be a waiver of any right which
Lender may have under Sections 506(a), 506(b), 1111(b) or any other provisions
of the U.S. Bankruptcy Code to file a claim for the full amount of the
indebtedness secured by the Security Instrument or to require that all
collateral shall continue to secure all of the indebtedness owing to Lender in
accordance with this Note, the Security Instrument and the Other Security
Documents.
15. AUTHORITY
Borrower (and the undersigned representative of Borrower, if any)
represents that Borrower has full power, authority and legal right to execute
and deliver this Note, the Security Instrument and the Other Security Documents
and that this Note, the Security Instrument and the Other Security Documents
constitute valid and binding obligations of Borrower.
16. APPLICABLE LAW
This Note shall be deemed to be a contract entered into pursuant to the
laws of the State of New York and shall in all respects be governed, construed,
applied and enforced in accordance with applicable federal law and the laws of
the State of New York, without reference or giving effect to any choice of law
doctrine.
17. VENUE AND JURISDICTION
Borrower agrees to submit to personal jurisdiction in the State of New York
in any action or proceeding arising out of this Note. In furtherance of such
agreement, Borrower hereby agrees and consents that without limiting other
methods of obtaining jurisdiction, personal jurisdiction over Borrower in any
such action or proceeding may be obtained within or without the jurisdiction of
any court located in New York and that any process or notice of motion or other
application to any such court in connection with any such action or proceeding
may be served upon Borrower by registered or certified mail to, or by personal
service at, the last known address of Borrower, whether such address be within
or without the jurisdiction of any such court. Borrower hereby agrees that the
venue of any litigation arising in connection with the indebtedness, or in
respect of any of the obligations of Borrower under this Note, shall, to the
extent permitted by law, be in New York County.
18. COUNSEL FEES
In the event that it should become necessary to employ counsel to collect
the Debt or to protect or foreclose the security therefor, Borrower also agrees
to pay all reasonable fees and expenses of Lender, including, without
limitation, reasonable attorney's fees for the services of such counsel whether
or not suit be brought.
19. NOTICES
All notices or other written communications hereunder shall be deemed to
have been properly given (i) upon delivery, if delivered in person or by
facsimile transmission with receipt acknowledged, (ii) one (1) Business Day
(defined below) after having been deposited for overnight delivery with any
reputable overnight courier service, or (iii) three (3) Business Days after
having been deposited in any post office or mail depository regularly maintained
by the U.S. Postal Service and sent by registered or certified mail, postage
prepaid, addressed as follows:
If to Borrower: Factory Merchants AIP IV, L.P.
c/o Insignia Financial Group, Inc.
One Insignia Financial Plaza
16th Floor
Greenville, South Carolina 29601
Attention: John LeBeau
Facsimile No.: (864) 239-1066
With a copy to: Douglas G. Brown, Esq.
One Insignia Financial Plaza
Greenville, South Carolina 29601
Facsimile No.: (864) 239-1096
If to Lender: Union Capital Investments, LLC
5901-A Peachtree Dunwoody Road
Suite 220
Atlanta, Georgia 30328
Attention: Douglas M. Horack
Facsimile No.: (770) 394-1595
With a copy to: Glass, McCullough, Sherrill & Harrold
1409 Peachtree Street, N.E.
Atlanta, Georgia 30309
Attention: G. Wilson Horde III, Esq.
Facsimile No.: (404) 885-6694
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
"BUSINESS DAY" shall mean a day upon which commercial banks are not
authorized or required by law to close in Pigeon Forge, Tennessee.
IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and
year first above written.
FACTORY MERCHANTS AIP IV, L.P., a South Carolina limited partnership
By: AIP IV GP Limited Partnership, a
South Carolina limited partnership,
Its general partner
By: G.P. Services VIII, Inc., a
South Carolina corporation,
Its general partner
By: /s/ Robert D. Long
Robert D. Long
Vice President
