UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1996
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-15724
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. -- Series 86
(Exact name of registrant as specified in its charter)
Delaware 13-3294835
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
411 West Putnam Avenue, Greenwich, CT 06830
(Address or principal executive offices) (Zip Code)
Registrant's telephone number, including area code 203-862-7000
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange on
Title of Each Class which registered
- ------------------- ----------------
None None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest, $250 per Unit
(Title of Class)
Indicate by check mark whether registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Exhibit Index set forth on page IV-1.
<PAGE>
PART I
Item 1. Business.
General
Registrant is a Delaware limited partnership formed as of September 25, 1985.
RAM Funding, Inc., a Delaware corporation, is Registrant's investment general
partner ("Investment General Partner") and is a wholly-owned subsidiary of
Presidio Capital Corp. ("Presidio"). Resources Capital Corp., a Delaware
corporation, is Registrant's administrative general partner ("Administrative
General Partner") and is also a wholly-owned subsidiary of Presidio. RAM Funding
Inc., and Resources Capital Corp., were until November 3, 1994 wholly owned
subsidiaries of Integrated Resources Inc. ("Integrated"). On November 3, 1994,
Integrated consummated its plan of reorganization under Chapter 11 of the United
States Bankruptcy Code, at which time, pursuant to such plan of reorganization,
the newly formed Presidio purchased substantially all of Integrated's assets.
The other General Partner of Registrant is Presidio AGP Corp., a Delaware
corporation ("Presidio AGP"), which replaced as Associate General Partner Z
Square G Partners II, a New York general partnership whose partners were
formerly associated with Integrated. Presidio AGP is also a wholly-owned
subsidiary of Presidio. (The Investment General Partner, Administrative General
Partner and Associate General Partner are hereinafter collectively referred to
as the "General Partners").
Effective with the consummation of Integrated's plan of reorganization, Presidio
entered into a management and administrative agreement with Concurrency
Management Corp. ("Concurrency"). Effective January 1, 1996, Wexford Management
Corp. (formerly Concurrency) assigned its agreement to provide management and
administrative services to Presidio and its subsidiaries to Wexford Management
LLC ("Wexford").
In December 1994, Z Square G Partners II notified Registrant of its withdrawal
as the Associate General Partner of Registrant. The withdrawal became effective,
after 60 days prior written notice to Limited Partners, on February 28, 1995.
Upon the effective date of such withdrawal, Presidio AGP became the Associate
General Partner.
Registrant invested in "zero-coupon" junior mortgage loans ("Mortgage Loans") on
properties owned or acquired principally by privately syndicated limited
partnerships originally sponsored by Integrated. The Mortgage Loans generally
had original terms of approximately twelve years (with a right to prepay with
payment of a prepayment penalty between the eighth and ninth years and without
penalty beginning in the tenth year) with all interest and principal due and
payable at the maturity or prepayment of the Mortgage Loan.
Beginning January 21, 1986, Registrant offered 500,000 units of limited
partnership interest (the "Units") pursuant to the Prospectus (the "Prospectus")
of Registrant dated January 21, 1986, as supplemented by Supplements dated March
14, 1986, April 9, 1986, July 25, 1986, August 1, 1986, September 8, 1986,
October 29, 1986 and December 30, 1987 (collectively, the "Supplements"), which
were filed pursuant to Rules 424(b) and 424(c) under the Securities Act of 1933,
as amended. The Prospectus was filed as part of Registrant's Registration
Statement on Form S-11, Commission File No. 33-00836, as amended (the
"Registration Statement"). The offering terminated on May 1, 1987 with 329,994
Units having been sold (excluding the 10 Units sold to the initial limited
partner) representing net proceeds of $78,582,310 (gross proceeds of $82,501,000
less organization and offering costs of $3,918,690). All underwriting and sales
commissions were paid by Integrated or its affiliates and not by Registrant.
<PAGE>
Investments of Registrant
Registrant originally invested 100% of its net proceeds in sixteen Mortgage
Loans which aggregated $70,332,103, three of which, the 595 Madison Loan, the
Bellekirk Loan and the Pace Loan, were prepaid on November 30, 1989, July 2,
1992 and January 23, 1997, respectively. In addition, Registrant has foreclosed
on one Mortgage Loan, four Mortgage Loans have been converted to possible equity
participations with BP Shopping Center's participation being paid on February
20, 1997, and Registrant has lost its entire investment in five Mortgage Loans
as a result of foreclosures by senior lenders. A brief discussion of these
events follows.
On December 31, 1991, the senior mortgage lender on one of Registrant's Mortgage
Loans, the Century Park Loan, foreclosed on the property securing its loan, and
Registrant lost its entire investment. In December 1992, the BP Loan was
converted to an equity participation pursuant to the borrower's bankruptcy plan
of reorganization and on February 20, 1997 Registrant was paid for this equity
participation. On January 13, 1993, the senior mortgage lender on another of
Registrant's investments, the Clovine Loan, foreclosed on the property securing
its loan and Registrant lost its entire investment. On April 1, 1993, Registrant
foreclosed on the Southern Inns Loan and assumed ownership of the Richmond
Comfort Inn, located in Richmond, Virginia. In July 1993, the Boram Loan was
converted to an equity participation in the future sale of the property pursuant
to a settlement agreement. The first mortgage lender of the Boram Property was
subsequently paid off at a discount and Registrant lost any potential recovery
from its equity participation interest. On January 13, 1994 and April 5, 1994,
the respective senior lenders associated with the Park Place and Lenox Loans,
foreclosed on the respective properties securing such loans and Registrant lost
its entire investment. In November 1994, the Berkeley Loan was restructured to
convert the Registrant's original investment to a new $550,000 loan and an
equity participation in the future sale of the property. In 1995 the Airport
Center Loan was foreclosed upon by the senior lender and Registrant lost its
entire investment and the RT Loan was exchanged for a 20% interest in the net
wrap cash flow of the senior Wrap Mortgages. During 1996, the Pike Creek Loan
was amended and reduced to $500,000 with interest to accrue at 7% per annum. In
addition, an additional $330,000 was advanced to the Pike Creek borrower which
bears interest at 12% per annum. In January 1997 the Pace Loan was prepaid in
its entirety.
Current Investments
As of March 1, 1997, Registrant's investments consisted of two zero coupon
Mortgage Loans (West Palm and Stockfield) in the original amounts of $13,537,142
including interest of $137,142 (all interest and principal is due and payable at
maturity and there are no current payments on either of the Mortgage Loans), and
equity participation interests in four properties (Berkley, Boram, Pike Creek
and Research Triangle) which originally secured four other Mortgage Loans. In
addition, Registrant owns a hotel as a result of the Southern Inns foreclosure.
During 1996, the Pike Creek Loan was amended and reduced to $500,000 with
interest to accrue at 7% per annum. In addition, $330,000 was advanced to the
Pike Creek borrower which bears interest at 12% per annum. Set forth below is a
description of the status of Registrant's current investments.
Berkeley Loan
A $2,250,000 (plus accrued interest) second mortgage loan (the "Berkeley Loan")
to Berkeley Western Associates Limited Partnership ("BW Associates"), a private
limited partnership sponsored by Integrated, was secured by an office building
commonly known as the Great Western Savings Building located in Berkeley,
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California (the "BW Property"). The BW Property consists of a thirteen-story
office building, an adjacent six-level parking garage and the 1.31 acres of land
underlying the building and garage located in downtown Berkeley. The land
consists of two separate contiguous parcels, the larger one of which
(approximately 46,100 square feet) is owned by BW Associates in fee simple and
the smaller parcel (approximately 10,700 square feet) lies under a portion of
the garage and is leased by BW Associates pursuant to a ground lease. The
building contains approximately 120,300 square feet of office space, 13,000
square feet of retail space and 3,770 square feet of basement space. The garage
contains parking space for 586 automobiles and approximately 9,400 square feet
of retail space.
The Berkeley Loan originally bore interest at the rate of 14.5% compounded
annually and was due December 31, 1997 at which time a balloon payment of
$11,474,491, together with additional interest (as described below), if any,
would be payable. The Berkeley Loan was allowed to be prepaid without penalty
beginning January 1, 1996 and provided for the payment by BW Associates of
additional interest reflecting a participation in the appreciation, if any, of
the BW Property. The percentage of the additional interest in the appreciation
of the property was 11%. The maximum annual compounded rate of interest,
including additional interest with respect to the Berkeley Loan, was not to
exceed 16.41%.
The total amount, including fees, allocated to the loan from the gross proceeds
of Registrant's offering was $2,749,653.
The BW Property was also encumbered by a first mortgage loan in the amount of
$14,750,000 originally held by Guaranty Federal Savings and Loan Association
("Guaranty Federal"). The first mortgage was to mature on January 1, 1996, bore
interest at the rate of 12.25% per annum and was payable at the following pay
rates: (i) for years 1 and 2, payments of interest only at the rate of 10.5% per
annum; (ii) years 3 through 5, payments of interest only at the rate of 11.0%,
11.5% and 12.0% per annum, respectively; and (iii) years 6 through 10, payments
of interest at 12.25% and principal payments based on a 30-year amortization
schedule. At maturity, a balloon payment equal to approximately $15,000,275
would be due and payable.
BW Associates had been unable to make payments on its first mortgage since May
1989. Notices of default with respect to the first mortgage held by Guaranty
Federal and the loan held by Registrant were issued shortly thereafter. Guaranty
Federal was placed under receivership by the Federal Savings and Loan Insurance
Corporation, which entity was subsequently absorbed by the Resolution Trust
Company. Shortly thereafter, BW Associates, Guaranty Federal and Registrant
entered into a cash flow arrangement whereby all cash flow from the property was
placed into an escrow account to be drawn down for payment of capital
improvements and asbestos abatement work only with the approval of Guaranty
Federal. In May 1992, Guaranty Federal elected to pursue its default remedies
under its first mortgage.
In January 1993, BW Associates filed for protection under Chapter 11 of the
United States Bankruptcy Code (the "Bankruptcy Code"). The Bankruptcy Court
entered a cash collateral order which permitted use of the cash flow from the BW
Property to pay operating and other expenses pursuant to a court approved
budget. On May 18, 1993, Registrant filed a Proof of Claim for all outstanding
principal, accrued interest, prepayment penalties and other costs and
obligations of BW Associates to Registrant. In September 1993, BW Associates and
Guaranty Federal signed a Memorandum of Understanding to restructure the first
<PAGE>
mortgage loan. BW Associates has incorporated the Memorandum of Understanding
into a plan of reorganization. The plan of reorganization (the "Plan") was
confirmed by the Court on November 14, 1994. A copy of the Plan is on file with
the bankruptcy court for the District of Connecticut. The Plan entitles
Registrant to certain economic benefits after Guaranty Federal is repaid upon a
sale or refinancing.
Some of the more relevant terms of the Plan are summarized as follows:
Guaranty Federal, a first priority mortgage holder which was owed in
excess of $22 million, consented to a claim of $10 million, the
approximate current value of the BW Property which constitutes BW
Associates major asset. A new promissory note (the "New Note"), in the
principal sum of $10 million and secured by a first mortgage on the BW
Property, supersedes the existing note.
The New Note has a term of four years and requires payments of interest
only at 5% per annum for the first two years, and 11% per annum for the
latter two years.
Upon repayment of all outstanding principal and interest of the New Note,
all economic benefits (net sale proceeds, refinancing proceeds and
distributable net cash flow) shall be apportioned as follows:
a) The Registrant will receive a total and maximum priority
distribution of $550,000 (inclusive of any previous priority
distributions paid from net refinancing proceeds and from distributable
net cash flow, if any). A non-interest bearing note for $550,000
replaced the original loan of $2,250,000 made by the Registrant to BW
Associates.
b) The next $6 million of proceeds will be allocated pari passu, 25% to
Guaranty Federal, 44% to the Registrant, and 31% to BW Associates.
c) Any additional amounts will be allocated pari passu, 12.5% to
Guaranty Federal, 43.75% each to BW Associates and the Registrant.
The entire carrying value of $2,481,562 was written off by Registrant during
1990.
Stockfield Loan
A $4,200,000 (plus accrued interest) second mortgage loan (the "Stockfield
Loan") to Stockfield Associates Limited Partnership ("Stockfield Associates"), a
private limited partnership originally sponsored by Integrated, is secured by an
office complex located in Bakersfield, California, consisting of a twelve-story,
193,830 square foot office building and related site improvements, and the 2.34
acres of land underlying the building (the "Stockfield Property").
The Stockfield Property is currently 100% occupied by two tenants. Shell
California Production, Inc. ("Shell"), a division of Shell Oil Company, occupies
a total of 186,420 square feet or approximately 96% of the building. Of this
amount, 14,980 square feet is basement space. The lease expires in August 1999,
and Shell has two five-year renewal options available at market rent. California
Republic Bank occupies the remaining 7,410 square feet on the first floor. Its
lease expires on August 1, 1998, and California Republic Bank has one five-year
renewal option at market rent.
<PAGE>
The Stockfield Loan bears interest at the rate of 14.5% per annum compounded
annually and is due March 31, 1998 at which time a balloon payment of
$21,326,281, together with additional interest (as described below), if any,
will be payable.
The Stockfield Loan may be prepaid beginning after March 31, 1996 without
penalty and provides for the payment by Stockfield Associates of additional
interest reflecting a participation in the appreciation, if any, of the
Stockfield Property. The percentage of the additional interest in the
appreciation of the Stockfield Property is 10%. The maximum annual compounded
rate of interest, including additional interest with respect to the Stockfield
Loan, shall not exceed 14.79%.
The total amount, including fees, allocated to the loan from the gross proceeds
of Registrant's offering was $5,087,556.
The Stockfield Property is also encumbered by a first mortgage in the amount of
$29,030,000 held by Teacher's Annuity and Insurance Associates of America, which
matured on April 1, 1996, bore interest at the rate of 11.75% per annum and was
payable on a monthly basis, interest only, during the first five years.
Stockfield Associates is currently negotiating an extension on the first
mortgage while continuing to make debt service payments. It is not possible to
predict if Stockfield Associates will be successful with the negotiations, or
what effect, if any, this will have on Registrant. During the sixth through
tenth years, monthly payments of interest and principal, based on a 30-year
amortization schedule, are due, until maturity at which time a balloon payment
equal to approximately $28,317,758 will be payable. The Stockfield Property is
96% occupied by Shell whose lease expires three years after the first mortgage
loan matures and one year after the Stockfield Loan matures. Shell is paying
rent that exceeds market rates for the area. Shell is unlikely to exercise its
renewal option without renegotiating the rental downward to market rates and may
make no decision with respect to renewal before the first mortgage and
Stockfield Loan mature. These factors are likely to hinder Stockfield
Associates' ability to obtain refinancing. As a result, Registrant decided in
1993 to cease accruing interest on the Stockfield Loan.
Due to the uncertainty associated with the ultimate collectibility of the
Stockfield Loan, an additional reserve for loan losses was established for the
quarter ended March 31, 1995, which reduced the carrying value of the Stockfield
Loan to $2,340,260. In August 1995, the Registrant entered into an agreement
with Stockfield Associates to restructure the Stockfield Loan (the "Stockfield
Restructuring"). The Stockfield Restructuring is premised upon Stockfield
Associates satisfying the following conditions (i) the existing lease with Shell
must be replaced by a bond type net lease which extends the expiration date of
the property lease, (ii) the first mortgage must be refinanced or restructured
and (iii) the net present value of the cash flow available to Stockfield
Associates from the restructured lease after payment of debt service on the
refinance/restructured first mortgage indebtedness (the "Net Cash Flow") must be
equal to or greater than $8 million, using an annual discount factor of 8%
without regard to the final residual value of the Stockfield Property. To date,
these conditions have not been met and Stockfield Associates is in the process
of negotiating an extension on the first mortgage.
Given the contingencies of the Stockfield Restructuring, the impact on the
Registrant can not be determined at the present time. As such, management
believes that no additional reserve is required for the year ended December 31,
1996.
<PAGE>
Pike Creek Loan
Originally, a $975,000 third mortgage loan (the "Pike Creek Loan") to Big Valley
Associates Limited Partnership ("Big Valley Associates"), a private limited
partnership originally sponsored by Integrated, was secured by the Pike Creek
Shopping Center located in Pike Creek Valley, Delaware, bore interest at 13.4%
per annum compounded monthly, and was originally scheduled to mature on December
31, 1999 at which time a balloon payment equal to the entire principal balance
plus accrued interest thereon (approximately $4,824,806), together with
additional interest, if any, would have been payable.
The property securing the Pike Creek Loan is currently operating with positive
cash flow and is meeting all debt service requirements. However, a second
mortgage, which required no debt service payments until maturity, matured at the
end of 1995. A first mortgage loan, which had a principal balance of
approximately $12,850,000, matured on February 15, 1996.
Negotiations were being conducted during early 1996 to refinance or otherwise
restructure the first and second mortgages. Based on an internal valuation, at
that time, the likelihood of obtaining continued financing would have been
difficult. Therefore, Registrant had determined that interest on this loan
should not be accrued.
Due to the uncertainty associated with the ultimate collectibility of the Pike
Creek Loan, an allowance for loan losses in the amount of $946,000 was
established during March 1995, which reduced the carrying value of the Pike
Creek Loan to $1,050,832.
In November 1996 this loan was amended and restated (the "Amended Note"). The
Amended Note has a principal balance of $830,000 which is comprised of $500,000
of the original loan made by Registrant and $330,000 of new funds advanced by
Registrant. The $500,000 portion of the Amended Note bears interest at 7% per
annum and the $330,000 portion bears interest at 12% per annum, both compounded
annually. The amendment was necessary in order to facilitate the refinancing of
the first mortgage loan of Big Valley Associates which was in default.
Additionally, it allowed for the satisfaction of the second mortgage loan. The
$330,000 advanced to Big Valley Associates was used, in addition to funds
provided by Big Valley Associates to satisfy its second mortgage loan payable.
Both portions of the Amended Note will be serviced by a percentage of net cash
flow from the property. Net cash flow is defined as the amount by which, in any
calendar year, rent received by Big Valley Associates exceeds all costs and
expenses incurred in connection with the property, including debt service. In
addition, various provisions were made for Registrant to receive additional
interest from Big Valley Associates upon the sale or refinancing of the
property.
BP Loan
A $1,900,000 second mortgage loan (the "BP Loan") to BP Shopping Center
Associates Limited Partnership ("BP Associates"), a private limited partnership
originally sponsored by Integrated which was secured by the Brentwood Place
Shopping Center, a 233,000 square foot shopping center located on 30 acres in
Brentwood, Tennessee (the "Brentwood Property").
The total amount, including fees, allocated to the BP Loan from the gross
proceeds of Registrant's offering was $2,228,739.
<PAGE>
The Brentwood Property was also encumbered by a first mortgage in the amount of
$16,162,338 held by The Northwestern Mutual Life Insurance Company
("Northwestern"). The first mortgage was schedule to mature on March 1, 1996 and
accrued interest at the rate of 11.25% per annum.
Decreasing rental rates combined with several merchant failures led to cash flow
problems at the Brentwood Property, which in turn caused BP Associates to
default on its first mortgage debt service obligations in February, 1991.
BP Associates' continuing operating problems and its inability to restructure
its existing financing led to BP Associates filing for protection under Chapter
11 of the Bankruptcy Code on May 16, 1991. In December 1992, a plan of
reorganization (the "BP Plan") was approved by all creditor classes (including
Registrant) and confirmed by the Bankruptcy Court.
Under the BP Plan, title and control of the Brentwood Property was transferred
to Northwestern which had the right to hold the Brentwood Property or sell it.
Registrant and certain other unsecured creditors received equity participation
certificates, of which Registrant had a majority interest. Under the BP Plan, if
Northwestern held the Brentwood Property for longer than 10 years and then sold
it, the holders of the equity participation certificates would receive a portion
of all excess proceeds from the ultimate sale of the Brentwood Property after
Northwestern received a specified return. If Northwestern sold the Brentwood
Property before holding it 10 years, Northwestern would pay the equity
participation certificate holders the greater of the excess proceeds described
in the preceding sentence or an alternate payment equal to a percentage of the
net sales price. In February 1997, Registrant received $1,224,861 for its share
of the equity participation certificate after the Brentwood Property was sold by
Northwestern. In the 4th quarter of 1996, the Registrant recorded a recovery of
prior loan losses to reflect this receipt. The full carrying value of the BP
Loan had been previously written off for financial statement purposes.
Boram Loan
A $6,900,000 mortgage loan (the "Boram Loan") to Boram Corporation ("Boram"),
formerly an affiliate of Integrated, is secured by a collateral assignment of
the first and wraparound mortgages which were secured by a portion of the Pierre
Bossier Mall, a 617,000 square foot enclosed shopping mall located on 79 acres
in Bossier City, Louisiana (the "Bossier Property"). The encumbered portion of
the Bossier Property, comprising 397,000 square feet, is owned by Bossier Plaza
Associates ("Bossier Associates"), a private limited partnership originally
sponsored by Integrated.
The Boram Loan accrued interest at 14.5% per annum compounded monthly and would
have been due on February 29, 2000 at which time a balloon payment equal to the
entire principal balance plus accrued interest thereon (approximately
$35,274,804), together with additional interest (as described below) if any,
would have been payable.
The Boram Loan was able to be prepaid beginning after February 28, 1995 and then
could be prepaid, in whole only, provided that (i) from March 1, 1995 through
February 29, 1996, such prepayment was accompanied by a prepayment penalty of
$345,000, (ii) from March 1, 1996 through February 28, 1997, such prepayment was
to be accompanied by a prepayment penalty of $207,000. The Boram Loan could have
been prepaid without penalty beginning on March 1, 1997.
<PAGE>
The Boram Loan provided for the payment by Boram of additional interest
reflecting a participation in the appreciation, if any, of the Bossier Property.
The percentage of the additional interest in the appreciation of the Bossier
Property was 16.24%. The maximum annual compounded rate of interest, including
additional interest with respect to the Boram Loan, was not to exceed 16.22%.
The total amount, including fees, allocated to the Boram Loan from the gross
proceeds of Registrant's offering was $8,093,842.
Boram acquired the first mortgage, in the amount of $40,943,425, from Gram-Brent
Corp. ("Gram-Brent"), a subsidiary of the Bank of New York ("BONY") in return
for payment of $6,560,000 in cash and a note (the "Gram-Brent Note") in the
amount of $25,600,000. The Gram-Brent Note was scheduled to mature 10 years from
the date of the Boram Loan, accrued interest at 10% and was payable in fixed
monthly payments based on a 30 year term. The Gram-Brent Note was secured by a
first lien collateral assignment, which was senior to the second lien collateral
assignment held by Registrant. In addition, there existed a wraparound mortgage
in the amount of $50,079,240 held by Pierre Property Corporation ("Pierre"),
formerly a wholly owned subsidiary of Integrated and the parent of Boram. The
wraparound mortgage accrued interest at the rate of 12.5% per annum and was
payable interest only to the extent of sufficient cash flow from the Bossier
Property, with any balance accruing without interest. Provided all accrued and
unpaid interest was paid, contingent interest would have been payable monthly,
equal to 25% of the excess of the Bossier Property's net cash flow for the
preceding month over $354,167. However, if the payments of contingent interest
created an effective yield on the outstanding principal amount in excess of
17.5% per annum, such excess would have been applied as a reduction in
principal. The second mortgage was a wraparound mortgage inclusive of and
subordinate to the lien of the first mortgage. The second mortgage was scheduled
to mature on December 1, 1998 and bore interest at the rate of 16.95% per annum
payable, interest only, to the extent the Bossier Property generated sufficient
cash flow, with the unpaid balance accruing without interest.
During the first quarter of 1993, Bossier Plaza Associates, L.P., the owner of
the Bossier Property, exercised its right to utilize cash flow from operations
to fund reserves for renovations which, in turn, eliminated any debt service
payments to Pierre and Boram. As a result, Boram did not have any funds
available to service its monthly fixed payment obligation to BONY. On April 21,
1993, Boram received a notice of default from BONY. In July 1993, Registrant,
Boram, Pierre, and BONY entered into a settlement agreement. BONY is now the
absolute owner and holder of the first mortgage and wrap mortgage. Upon BONY
receiving any payments pursuant to its interest in the Bossier Property, the
proceeds would be disbursed in the following order: (i) BONY will retain the
first $25,000,000 or such lesser amount as may be outstanding on the Gram-Brent
Note plus interest from December 12, 1992 to June 30, 1993 in the amount of
$1,356,684 plus simple interest on the principal balance from July 1, 1993, at
the rate of 10% per annum, (ii) BONY will retain the next $7,000,000 without
interest, (iii) BONY shall pay to Boram $150,000 plus interest at 10% per annum,
(iv) BONY shall pay to the Registrant, to the extent that remaining funds are
available, the amount, including accrued interest through June 30, 1993, of
$14,329,460 plus interest from July 1, 1993 at 14.5% per annum, (v) BONY shall
retain all excess proceeds available. In the event that the proceeds are derived
from a sale of the Bossier Property or a foreclosure, then payments related to
(iii) and (iv) above will be reduced by 10% which would be retained by BONY.
Since August 1991, Boram had been unable to make full debt service payments to
<PAGE>
BONY. Hence, Registrant provided a reserve for its entire investment in the
Boram Loan in 1991. Based on the settlement agreement, Registrant wrote off this
investment for the year ended December 31, 1993. The first mortgage lender of
the Boram Property was subsequently paid off at a discount and Registrant lost
any potential recovery from its equity participation interest.
West Palm Loan
A $9,200,000 second mortgage loan (the "West Palm Loan") to West Palm Associates
Limited Partnership ("West Palm Associates"), a private limited partnership
originally sponsored by Integrated, is secured by a 582 unit apartment complex
known as The West Palm located in Los Angeles, California (the "West Palm
Property").
The West Palm Loan bears simple interest and varying rates that are the
equivalent of 13.46% per annum compounded monthly and is due July 1, 2000, at
which time a balloon payment of approximately $46,021,411, together with
additional interest (as described below), if any, will be payable.
The West Palm Loan may not be prepaid, except in the event of a condemnation or
casualty, until after July 1, 1997 and then may be prepaid, in whole only,
without penalty.
The West Palm Loan provides for the payment by West Palm Associates of
additional interest reflecting a participation in the appreciation, if any, of
the West Palm Property. The percentage of the additional interest in the
appreciation of the West Palm Property is 13.63%. The maximum annual compounded
rate of interest, including additional interest, with respect to the West Palm
Loan shall not exceed 16.29%.
The total amount, including fees, allocated to the West Palm Loan from the gross
proceeds from Registrant's offering was $10,791,789.
The first mortgage matured in December 31, 1995, since which time West Palm had
been engaged in extensive negotiations with the first mortgage holder (Hancock)
in an effort to obtain a long term restructuring. Hancock was unwilling to
modify the first mortgage and on July 1, 1996, declared the mortgage to be in
default, and informed West Palm Associates that it would immediately seek the
appointment of a receiver and begin foreclosure proceedings. As a result, on
July 2, 1996, West Palm Associates filed for protection under Chapter 11 of the
United States Bankruptcy Code. West Palm Associates is currently attempting to
restructure the Hancock Mortgage and the West Palm Loan. Although the bankruptcy
protection enables West Palm Associates to avoid an imminent foreclosure, there
can be no assurance that West Palm Associates will be able to successfully
restructure its debt service obligations on either mortgage. Registrant had
reserved the entire carrying value of the West Palm Loan in 1993. Registrant
filed a proof of claim for all outstanding principal, accrued interest,
prepayment penalties, additional interest and all other costs and obligations of
West Palm Associates to Registrant. However, it is unlikely that the Registrant
will realize any proceeds on this investment.
Tri-State Loan
A $1,800,000 second mortgage loan (the "Tri-State Loan") to Tri-State Retail
Associates Limited Partnership ("Tri-State Associates"), a private limited
partnership originally sponsored by Integrated, secured by three second
mortgages on three wholesale/retail mass merchandising warehouse buildings
leased to Pace Membership Warehouses, Inc. ("Pace") and located in Omaha,
Nebraska, Lexington, Kentucky, and Ross Township, Pennsylvania (the "Tri-State
Properties").
<PAGE>
The Tri-State Loan bore interest at 13.46% per annum compounded monthly and was
due June 30, 2000, at which time a balloon payment of $8,998,152, together with
additional interest (as described below), if any, would have been payable.
The total amount, including fees, allocated to the Tri-State Loan from the gross
proceeds of Registrant's offering was $2,111,437.
Tri-State Associates was obligated under a first mortgage to Trans Ohio Savings
Bank ("Trans-Ohio") secured by the Tri-State Properties, in the original
principal amount of $10,650,000. The Tri-State Loan bore interest at 10.5% and
originally matured on July 1, 1993. Tri-State Associates extended this loan for
an additional 5 years at a lower interest rate of 8.10%. Lease revenue generated
from the use of the Pace warehouses was used by Tri-State Associates to make
payments under the first mortgage. K-Mart Corporation ("K-Mart"), the owner of
Pace, has sold most of its Pace warehouse operations. Of the three warehouses
owned by Tri-State Associates, one was sublet to Wal-Mart and the other two were
closed.
The vacant Lexington, Kentucky store's lease obligation had been guaranteed by
K-Mart, after Tri-State Associates agreed to limit increases in rent based on
increases in the consumer price index. In addition, the Omaha, Nebraska lease
had been assigned and rental obligations guaranteed by First Data Corporation.
At that time there was a substantial risk that the Registrant would lose its
entire investment in the Tri-State Loan at the time the first mortgage matured.
The entire carrying value of the Tri-State Loan in the amount of $1,963,522 was
reserved during 1993.
In June 1995 the Registrant entered into an agreement to restructure the
Tri-State Loan. The agreement, among other things, set certain release prices
for the three Tri-State Properties securing the Tri-State Loan, allowing
Tri-State Associates to sell one property alone. The release prices were 43% for
the Pennsylvania property, 33% for the Kentucky property and 24% for the
Nebraska property. The Registrant would also be entitled to a 25% acceleration
on the release prices for the first two properties that are sold.
The agreement also provided that Tri-State would not incur a prepayment penalty
in the event of a prepayment. In addition, Registrant waived its right to
receive additional interest (interest that represented a percentage of the
increase in the value of the Tri-State Properties). The restructuring enabled
Registrant to recoup all of its investment. In January 1997, Registrant received
the full contractual balance of the Tri-State loan of approximately $5,700,000.
In the 4th quarter of 1996, Registrant recorded a recovery of prior losses of
$1,963,522 and recorded $3,673,614 of interest income to reflect the repayment
of this loan.
RT Loan
Originally a $3,000,000 third mortgage loan (the "RT Loan") to Research Triangle
Associates Limited Partnership ("RT Associates"), a private limited partnership
originally sponsored by Integrated, was secured by seven leasehold mortgages on
an office complex commonly known as Research Triangle Park (the "Complex")
consisting of 16 office and commercial buildings of approximately 715,000
rentable square feet and a 200-room hotel located in Durham, North Carolina.
The RT Loan bore interest from and after January 1, 1988 at the rate of 13.675%
per annum, compounded monthly and was due to mature on January 1, 1996 at which
time a balloon payment of $8,858,190, plus additional interest, if any, would
have been payable. As described below, during 1995, the RT Loan was exchanged
for a 20% Participation Interest.
<PAGE>
The RT Loan could not have been prepaid in whole or in part at any time, except
in the event of a condemnation or casualty.
The RT Loan provided for the payment by RT Associates of additional interest in
an amount equal to 3.3% of the appreciation, if any, of the Complex. The maximum
annual compounded rate of interest, including additional interest, on the RT
Loan, was not to exceed 16.22%.
The total amount, including fees, allocated to the RT Loan from the gross
proceeds of Registrant's offering was $3,519,062.
The Complex is also encumbered by seven purchase money wraparound leasehold
mortgages (the "Senior Wrap Mortgages") held by Teer Enterprises, Ltd. (an
entity not affiliated with Integrated), with an aggregate outstanding principal
balance of approximately $52,750,000. The Senior Wrap Mortgages bear interest at
the rate of 11.875% per annum and matured on January 1, 1996. The Senior Wrap
Mortgages are currently being negotiated to extend the maturity dates. While
negotiations are in progress, RT continues to make all debt service payments.
The Senior Wrap Mortgages are inclusive of and subordinate to seven first
leasehold mortgages with a total approximate amount outstanding of $43,952,803.
The Complex is operating with positive cash flow and meeting all of its debt
service requirements on the Senior Wrap Mortgages. The RT Loan and the Senior
Wrap Mortgages matured January 1, 1996. Currently, a lease with IBM accounts for
over 70% of the leased space at the Complex and was due to expire in 1997. Since
refinancing would be difficult without a longer lease commitment from IBM,
Registrant decided to cease accruing interest effective after the second quarter
of 1993. Due to the uncertainty associated with the ultimate recoverability, an
additional reserve for loan losses in the amount of $2,360,000 was established
for the quarter ended March 31, 1995. During 1996, the IBM leases were extended
for periods expiring in 2 to 5 years.
On August 1, 1995 (the "Closing Date"), the Registrant entered into a Loan
Acquisition and Participation Agreement (the "Participation Agreement") with the
owner of the Senior Wrap Mortgages ("Teer"), whereas the Registrant conveyed its
interest in the RT loan to Teer in consideration of the grant of a RAM
Participation Interest. The RAM Participation Interest is a twenty (20%) percent
undivided interest in (a) the Wrap Cash Flow, which is all amounts received by
Teer on account of the Senior Wrap Mortgages reduced by the sum of the Senior
Loan Payments and the amount of all Reimbursable Expenses attributable to the
Senior Wrap Mortgages and (b) the RAM Cash Flow, which is all amounts received
by Teer under the RT Loan reduced by the amount of Reimbursable Expenses
attributable to the RT Loan. Reimbursable Expenses are costs and expenses of
Teer in connection with the performance of all obligations under the
Participation Agreement: the collection and enforcement of the Senior Wrap
Mortgages and the RT Loans, the preservation of the collateral, the filing and
prosecution of a complaint with respect to any of the above matters, etc.
Registrant granted Teer an option to purchase the RAM Participation Interest.
Teer may exercise the purchase option at any time from the Closing Date of the
agreement through third anniversary of the Closing Date. The Option Prices are
as follows: (i) on or prior to the first anniversary, an amount equal to
$1,750,000 (including cash payments made on account of the RAM Participation
Interest during the period following the Closing Date) (ii) on or prior to the
second anniversary, an amount equal to $2,200,000 (including cash payments made
on account of the RAM Participation Interest after the first anniversary date)
(iii) on or prior to the third anniversary, an amount equal to $2,600,000
(including cash payments made on account of the RAM Participation Interest after
the second anniversary date). Teer has not yet excercised its option to acquire
the RAM Participation Interest.
<PAGE>
As a result of this transaction and an analysis of the value of the Complex, it
was determined that an additional allowance for loan losses was required for the
RT Loan in the amount of $1,260,000 for the quarterly period ended September 30,
1995. The Complex was appraised in August 1995 and valued at $45,000,000. The
Registrant's 20% interest in the excess of market value over the first mortgage
amounted to approximately $1,360,000. The carrying value was approximately
$2,620,000 resulting in a $1,260,000 provision.
Investments Recently Terminated
Airport Center Loan
A $6,500,000 second mortgage loan (the "Airport Center Loan") to Airport Center
Associates Limited Partnership ("LAX"), a private limited partnership originally
sponsored by Integrated, was secured by a second leasehold mortgage on LAX's
leasehold interest in the Airport Center (formerly known as Integrated Resources
Airport Center) located in Los Angeles, California, consisting of three
buildings with 722,449 rentable square feet (the "Airport Property").
The original Airport Center Loan carried interest at varying simple rates
equivalent to 13.46% per annum, compounded monthly from January 1, 1988 to
January 31, 2000 at which time a balloon payment of $32,758,583, together with
additional interest (as described below), if any, would have been due.
The Airport Center Loan provided for the payment by LAX of additional interest
reflecting a participation in the appreciation, if any, of the Airport Property.
The percentage of the additional interest in the appreciation of the Airport
Property was 9.7%. The maximum annual effective compounded rate of interest,
including additional interest with respect to the Airport Center Loan, was not
to exceed 16.22%.
The total amount, including fees, allocated to the Airport Center Loan from the
gross proceeds of Registrant's offering was $7,624,633.
The Airport Property was also encumbered by a first mortgage in the amount of
$45,000,000 held by General Electric Capital Corporation ("GECC"). The first
mortgage was to mature on December 31, 1995 along with interest at the rate of
3.1% per annum in excess of GECC's composite commercial paper rate.
The Airport Property experienced operating deficits due to market softness and
capital upgrades required by new municipal codes, including the installation of
sprinkler systems and tenant procurement costs. Under a separate, unsecured loan
arrangement, Integrated advanced to LAX $6,300,000 to fund certain shortfalls.
On May 5, 1992, in accordance with the terms of a restructuring agreement, LAX
filed for protection under Chapter 11 of the Bankruptcy Code in Los Angeles,
California. On September 28, 1992, Registrant filed a proof of claim for all
outstanding principal, accrued interest, prepayment penalties, additional
interest and all other costs and obligations of LAX to Registrant. In December
1992, a plan of reorganization (the "LAX Plan") was approved by all classes of
creditors including Registrant and was confirmed by the Bankruptcy Court. The
terms of the LAX Plan entailed GECC advancing additional funds up to a maximum
of $16,550,000 for improvements and tenant procurement costs. GECC further
agreed to modify the interest rate on its loan as well as the pay rate.
<PAGE>
Registrant was notified during the first quarter of 1995 that LAX had defaulted
on its first mortgage obligation to GECC due to non-payment of debt service.
Registrant previously had provided a reserve for its entire investment in the
Airport Center Loan. In July 1995 the Airport Property was foreclosed and
Registrant lost its entire investment in the Airport Center Loan.
In September 1995, Registrant paid the Administrative General Partner the
mortgage servicing fee associated with the Airport Center Loan in the amount of
$175,423 in accordance with the terms of the Prospectus.
Lenox Loan
A $6,045,832 second leasehold mortgage loan (the "Lenox Loan") to Lenox Towers
Associates Limited Partnership ("Lenox Towers Associates"), a private limited
partnership originally sponsored by Integrated secured by a leasehold mortgage
on Lenox Towers I and Lenox Towers II located at 3390 and 3400 Peachtree Road,
Atlanta, Georgia comprising a total area of 369,308 square feet (the "Lenox
Property").
The Lenox Loan bore interest at 13.46% per annum compounded monthly and was due
on August 31, 1999 at which time a balloon payment of $26,412,989, plus
additional interest (as described below), if any, would have been payable.
The total amount, including fees, allocated to the Lenox Loan from the gross
proceeds of Registrant's offering was $7,091,885.
The Lenox Property was also encumbered by a first leasehold mortgage in the
amount of $24,500,000 held by the Prudential Insurance Co. ("Prudential"). The
first leasehold mortgage matured in March 1994 and was payable, interest only,
at the rate of 9.5% per annum.
Lenox Towers Associates' net operating income from the Lenox Property was
supplemented by a third party cash flow guarantee for the three year period
following the acquisition of the Lenox Property. This guarantee expired during
the third quarter of 1991. The Lenox Property had been experiencing high vacancy
levels with no immediate recovery in sight. Lenox Towers Associates had been
attempting to negotiate a possible restructuring or modification of the first
mortgage loan. However, they defaulted on the interest payment due February 1,
1994 and failed to cure the default. Prudential declared the entire principal
balance and all accrued interest immediately due and payable. On February 25,
1994, Prudential's Petition for Appointment of Receiver was granted by the
court. On April 5, 1994, Prudential foreclosed on the Lenox Property that
collateralized its loan and the Registrant lost its entire investment in the
Lenox Loan. On May 17, 1994, pursuant to the Prospectus, Registrant paid
$107,394 to the Administrative General Partner representing the mortgage
servicing fee on the Lenox Loan.
Park Place Loan
Until January 1994, Registrant held a $3,030,000 second mortgage loan (the "Park
Place Loan") issued to Park Place Associates Limited Partnership ("PP
Associates"), a private limited partnership originally sponsored by Integrated,
that was secured by the Park Place Mall, a 170,000 square foot shopping center
located in Memphis, Tennessee (the "Park Place Property"). The Park Place Loan
carried interest at varying simple rates of interest that were the equivalent of
13.46% per annum compounded monthly and was originally due on February 29, 2000
at which time a balloon payment of $15,129,950, together with additional
interest, if any, was to be paid.
<PAGE>
The total amount, including fees, allocated to the Park Place Loan from the
gross proceeds of Registrant's offering was $3,554,252.
The Park Place Property was also encumbered by a first mortgage loan in the
amount of $11,000,000 held by American National Insurance Company ("American
National"). The first mortgage loan was to mature March 1, 1998, accrued
interest at the rate of 10.375% per annum and was payable on a monthly basis,
interest only, during the first three years and interest and principal were to
be amortized over a 25-year schedule payable monthly in the latter seven years.
Upon maturity, a balloon payment of approximately $10,045,940 would have been
payable.
PP Associates defaulted on its debt service obligation due to American National,
in October 1991 as a result of cash flow problems brought about by the failures
of several of the Park Place Property's tenants. On January 21, 1992, American
National issued a Notice of Default and Acceleration to PP Associates. On
February 28, 1992, PP Associates filed for protection under Chapter 11 of the
Bankruptcy Code. Attempts by PP Associates to reach agreement with American
National on terms of a plan of reorganization failed, prompting American
National to file a motion in Bankruptcy Court seeking to dismiss PP Associates'
Chapter 11 case. On November 2, 1993, the case was dismissed enabling American
National to pursue its rights with respect to its seniority, including
foreclosure. On January 13, 1994, American National obtained title to the Park
Place Property through foreclosure and Registrant lost its entire investment in
the Park Place Loan. On March 8, 1994, Registrant paid the Administrative
General Partner the Mortgage Servicing Fee associated with the Park Place Loan
in the amount of $57,077.
Southern Inns Loan
A $4,000,000 second mortgage loan (the "Southern Inns Loan") to Southern Inns
Associates Limited Partnership ("Southern Inns Associates"), a private limited
partnership originally sponsored by Integrated, that was secured by five
properties located in North Carolina, one property located in Virginia and one
property in South Carolina (the "Southern Inns Properties"). The Southern Inns
Properties consisted of motels with a total of 939 rooms. Each of the Southern
Inns Properties was subject to a separate first mortgage which was senior to the
Southern Inns Loan. The senior mortgages were not cross collateralized.
The Southern Inns Loan accrued interest at the rate of 13.46% per annum
compounded monthly and was originally due on June 30, 2000, at which time a
balloon payment of $19,935,518, together with additional interest (as described
below), if any, would have been due.
The total amount, including fees, allocated to the Southern Inns Loan from the
gross proceeds of Registrant's offering was $4,692,082.
As a result of operational problems at the motels, six of the senior lenders
commenced foreclosure action or issued notices of default and had receivers
appointed on six of the seven Southern Inns Properties securing the Southern
Inns Loan. All six of the Southern Inns Properties have been sold at foreclosure
sales causing Southern Inns Associates to lose its entire collateral interest in
these properties. Registrant reached an agreement with Southern Inns Associates
with respect to the seventh Southern Inns Property, which is located in
Richmond, Virginia, pursuant to which Registrant foreclosed on this property and
acquired title on April 1, 1993, subject to the first mortgage. (See Note 6 to
<PAGE>
Financial Statements.) Registrant also received an unconditional release from
the guarantors of the first mortgages on the other six Southern Inns Properties
with respect to certain superior liens they may have been entitled to on the
Richmond Property. In connection with the foreclosure, Registrant obtained an
appraisal indicating the value of the Richmond Property to be more than the
value of the first mortgage. As part of the foreclosure, the Registrant was
entitled to receive a portion of the excess cash flow from operations for the
period prior to the foreclosure. As a result, Registrant received approximately
$236,000 during the second quarter of 1993. This cash received was recorded as
mortgage interest income in the statement of operations.
As of December 31, 1991, Registrant had a reserve established for its entire
investment in the Southern Inns Loan. In connection with the above foreclosure,
during 1993, Registrant wrote off its entire investment in the Southern Inns
Loan.
Additional Information Regarding Investments
See table appearing on page I-14 for additional information with respect to the
Mortgage Loans.
All interest and principal on the Mortgage Loans accrues and is payable upon the
maturity or earlier prepayment of the loans. Interest on short-term investments
accounted for 3.5%, 10% and 8.9% of Registrant's revenues (see Item 8,
"Financial Statements and Supplementary Data") for the years ended December 31,
1996, 1995 and 1994, respectively.
<PAGE>
The following table sets forth, as of March 1, 1997, the Mortgage Loans and
current investments acquired or made by Registrant:
<TABLE>
<CAPTION>
Property Original Date of Date Loan % Base Balance
Name/ Sq. Type of Principal of Original Acquired/ Maturity Interest due at
Location Ft./Use Investment Loan Loan Restructured Date Rate Maturity (1)
- ------------ -------- ----------- ----- ----- ------------ ---- ---- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Great 146,470/(Office Equity N/A N/A N/A N/A N/A N/A
Western Retail) Participation
Savings
Building
Berkeley,
CA
Stockfield 193,800/(Office) Second $4,200,000 4/86 8/95(2) 3/98 14.5(3) $21,326,281 (5)
Corporate Mortgage
Tower
Bakersfield,
CA
Pike Creek 232,000/(Retail) Note Payable $ 830,000(6) 12/87 11/96 11/16 (6) (6)
Shopping and Equity
Center Participation
Mill
Creek, DE
Research 715,000/(Office, Equity N/A N/A N/A N/A N/A N/A
Triangle Hotel, Retail) Participation
Park
Durham, NC
West Palm 582 units Second Mortgage $9,200,000 6/88 6/88 7/00 13.46(4) $ 46,021,411 (5)
Los Apartments
Angeles, CA (Residential)
- -----------
(1) Includes principal and accrued interest, but not any additional interest
which may be payable.
(2) The loan was initially funded by an affiliate of Integrated and was,
thereafter, acquired by Registrant at such affiliate's cost.
(3) To determine the balance due at maturity, interest is compounded
annually.
(4) To determine the balance due at maturity, interest is compounded monthly.
(5) Various allowances for loan losses were required on these mortgage loans.
See Note 4 to financial statements for a discussion.
(6) Loan restructured in November 1996 to consist of a note payable in two
portions ($500,000 and $330,000) bearing interest at 7% and 12%,
respectively, both compounded annually, and serviced by the cash flow of
the property.
</TABLE>
THIS TABLE SETS FORTH INFORMATION WITH RESPECT TO THE MORTGAGE LOANS AND CURRENT
INVESTMENTS ACQUIRED OR MADE BY REGISTRANT. HOWEVER, PLEASE SEE PAGES I-2
THROUGH I-13 FOR A DISCUSSION OF ADVERSE CONDITIONS AFFECTING THE VALUE OF
REGISTRANT'S INVESTMENT IN ITS MORTGAGE LOANS.
<PAGE>
Competition
The properties which secure Registrant's mortgage loans may face competition
from similar properties in the vicinity. To the extent such competition reduces
the gross revenue from the operation of such properties, and/or decreases any
appreciation in the value of such properties, such competition may reduce any
contingent interest, principal or base interest otherwise paid to Registrant. In
addition, Registrant would encounter competition should it sell its Mortgage
Loans.
Because Presidio is the parent of other corporations in addition to the
Investment and Administrative General Partners, such General Partners are or may
become affiliated with other entities which are engaged in businesses that are,
or may in the future be, in direct competition with Registrant.
Employees
Registrant does not have any employees. Certain services are currently performed
by the General Partners and/or their affiliates for Registrant in connection
with the servicing of the Mortgage Loans pursuant to a mortgage servicing
agreement. In addition, Wexford currently performs accounting, secretarial,
transfer and administrative services for Registrant and Registrant pays its pro
rata portion of such services. Wexford also performs similar services for other
affiliates of the General Partners.
Item 2. Properties
On April 1, 1993, Registrant acquired title by foreclosure and assumed ownership
responsibilities of a motel property, the Richmond Comfort Inn Executive Center,
located in Richmond, Virginia which had been part of Registrant's collateral for
the Southern Inns Loan. Registrant had originally loaned Southern Inns
Associates $4,000,000 secured by seven properties, one of which was this motel.
See Item 1, "Business -- Southern Inns Loan." Registrant acquired title by
foreclosure to this property subject to a first mortgage. The Comfort Inn is a
limited service motel situated on approximately 2.5 acres of land and it
contains 123 guest rooms.
Item 3. Legal Proceedings
For discussion of Legal Proceedings, please see Note 7 to the Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report through the solicitation of
proxies or otherwise.
PART II
Item 5. Market for Registrant's Common Securities and Related Security
Holder Matters
There is no established public trading market for the Units of Registrant.
<PAGE>
There are certain restrictions set forth in the Partnership Agreement which may
limit the ability of a limited partner to transfer units. Such restrictions
could impair the ability of a limited partner to liquidate its investment in the
event of an emergency on for any other reason.
As of March 1, 1997, there were approximately 11,500 holders of Units of
Registrant (including the initial limited partner), owning an aggregate of
330,004 Units.
On December 28, 1992, Registrant made a special distribution of $1,719,495 or
$4.95 per Unit to holders of record as of October 1, 1992 that was paid from the
proceeds of the prepayment of the Bellekirk Loan. The allocation between limited
partners and general partners was $1,633,520 and $85,975, respectively. No
distributions were made in 1993, 1994, 1995 or 1996. There are no material legal
restrictions set forth in the Partnership Agreement upon Registrant's present or
future ability to make distributions. However, no additional distributions are
anticipated to be made prior to the maturity of the Mortgage Loans, except in
the event of the prepayment of a Mortgage Loan, in as much as all payments due
from borrowers under the Mortgage Loans are deferred and payable upon maturity
or prepayment of the respective Mortgage Loans.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
---------------- --------------- --------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,764,309 (9) $ 1,997,835 (8) $ 1,858,087 (7) $ 2,233,474 (6) $ 2,157,028
Net Income (Loss) $ 7,113,916 (10) $(6,713,010)(5) $ (239,929) $(10,826,310)(3) $ 1,305,976 (4)
Net income (Loss)
Per Unit (1) $ 20.48 (10) $ (19.33)(5) $ (.69) $ (31.17)(3) $ 3.76 (4)
Distribution Per Unit $ - $ - $ - $ - $ 4.95 (2)
----------- ----------- ----------- ------------ ------------
At Year End:
Total Assets
Net of Reserves $19,540,249 $12,565,760 $19,536,535 $ 19,702,236 $ 26,420,017
=========== =========== =========== ============ ============
- ----------------
(1) Calculated based upon the average number of Units outstanding
(2) This distribution was made in December 1992.
(3) Net of a provision for loan losses of $11,186,231 or $32.20 per Unit for
1993.
(4) Net of a provision for loan losses of $11,815 or $.03 per Unit for 1992.
(5) Net of a provision for loan losses of $6,672,014 or $19.21 per Unit for
1995.
(6) 1993 revenues include the gross revenues $1,259,316 of a motel operation
for nine months and are not directly comparable with revenues in prior
years, which consisted primarily of interest income.
<PAGE>
(7) 1994 revenues include the gross revenues of $1,657,990 from a motel
operation for 12 months and are not directly comparable with revenues in
1992, which consisted primarily of interest income.
(8) 1995 revenues include the gross revenues of $1,706,256 from a motel
operation for 12 months and are not directly comparable with revenues in
1992 which consisted primarily of interest income.
(9) 1996 revenues include gross revenues of $1,712,325 from a motel operation
for 12 months and mortgage interest income of ($3,681,789), and are not
directly comparable with revenues in prior periods which consisted
primarily of interest income (1992) and motel revenue and interest income
1993 - 1995.
(10) Net of recovery of provisions for loan losses of $3,188,383 or $91.79 per
Unit.
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
Registrant invested 100% of the net proceeds of its public offering in zero
coupon junior Mortgage Loans secured by properties owned principally by
privately syndicated limited partnerships sponsored by affiliates of Integrated.
The public offering commenced on January 21, 1986, and Registrant had its
initial admission of limited partners on March 28, 1986. The offering terminated
on May 1, 1987 at which time Registrant had accepted subscriptions for 329,994
Units (exclusive of the ten Units owned by the initial limited partner) for
aggregate gross proceeds of $82,501,000. This amount includes $2,475,030 of
evaluation fees paid in accordance with the Partnership Agreement and $4,125,000
of mortgage placement fees. As of August 1988, Registrant had invested 100% of
the net proceeds in sixteen Mortgage Loans, one of which was prepaid in November
1989 and a second of which was prepaid in July 1992. On December 31, 1991,
January 13, 1993, January 13, 1994 and April 5, 1994 the senior mortgage lenders
on properties securing four of Registrant's investments foreclosed on the
properties securing their loans, and Registrant lost its entire investment in
each of the respective loans. Also, in December 1992, the BP Loan was converted
to equity participation certificates pursuant to the borrower's bankruptcy plan
of reorganization. On April 1, 1993 Registrant foreclosed and assumed ownership
of the Richmond Comfort Inn, located in Richmond, Virginia. The Richmond
property foreclosure and acquisition were part of a restructuring agreement
associated with the Southern Inns Loan. In July 1993, the Boram Loan, through a
settlement agreement, was converted to an equity participation in the future
sale of the property. The first mortgage lender of the Boram Property was
subsequently paid off at a discount and Registrant lost any potential recovery
from its equity participation interest. In November 1994, the Berkeley Loan was
restructured to convert the Registrant's original investment to a new $550,000
loan and an equity participation in the future sale of the property. In July
1995, the senior lender of the Airport Center loan foreclosed and Registrant
lost its entire investment. In August 1995, the Research Triangle loan was
exchanged for a 20% participation interest in the net wrap cash flow of the
Senior Wrap loan. In November 1996, the Big Valley loan was amended and
restated. The amended note is comprised of $500,000 of the original loan and
$330,000 of new funds advanced to Big Valley. Both portions of the note will be
<PAGE>
serviced by a percentage of net cash flow from the property, payable March 31st
of each calendar year. In January 1997, Registrant received $5,693,199 which
satisfied the Tri-State mortgage. In February 1997, Registrant received
$1,224,861 for an equity participation certificate relating to BP Shopping
Center. Because Registrant's loans are zero-coupon loans, Registrant receives no
current cash flow from such investments.
Registrant uses working capital reserves provided from the proceeds of its
public offering, any undistributed cash from temporary investments plus any cash
flow from the operation of its motel as its primary measure of liquidity. As of
December 31, 1996 Registrant's working capital reserves equaled $3,769,000.
Registrant may utilize its working capital reserves in the event Registrant
incurs additional expenses in taking legal action or lending additional funds to
protect its interest in certain of the mortgage loans on properties which are
currently experiencing difficulties or to pay fees. Registrant's cash flow from
the operation of its motel property is anticipated to be sufficient to meet such
property's capital expenditure needs in 1997. In December 1993, Registrant paid
the Clovine related deferred mortgage servicing fee to the Administrative
General Partner in the amount of $75,028. On March 8, 1994, Registrant paid
$57,077 to the Administrative General Partner representing the deferred mortgage
servicing fee on its Park Place Loan. On May 17, 1994 Registrant paid $107,394
representing the deferred mortgage servicing fee on its Lenox Loan. In March
1995, Registrant paid $75,919, $69,118, $29,219 and $137,918 which represented
the mortgage servicing fees associated with the Berkeley Western, Southern Inns,
BP Shopping Center and Boram loans, respectively. In September 1995, Registrant
paid $175,423 representing the mortgage servicing fee associated with the
Airport Center loan. (See Notes to Financial Statements - Note 3).
Registrant may use its working capital reserves in the future to pay deferred
fees relating to loans, the collateral for which has been foreclosed by senior
lenders. Registrant determines on a quarterly basis whether distributions are
warranted. Working capital reserves will be temporarily invested in short-term
money market instruments and are expected to be sufficient to pay administrative
expenses during the term of Registrant. As discussed more fully in the Notes to
Financial Statements - Note 3, the borrower under the West Palm Loan is
experiencing cash flow problems. If as a result of these cash flow problems an
eventual foreclosure should occur, Registrant does not have sufficient capital
to bid at a foreclosure. This would result in a total loss of Registrant's
investment in that particular mortgage if the amount bid at the foreclosure by
the successful bidder is the amount of the first mortgage holder's lien. Except
as discussed above, management is not aware of any other known trends, events,
commitments or uncertainties that will have a significant impact on liquidity.
Real Estate Market
The real estate market continues to suffer from the effects of the recession
which included a substantial decline in the market values of existing
properties. Market values have begun to recover, and while the pace of new
construction has slowed, high vacancy rates continue to exist in many areas. As
a result of such decline, investors will not recover a significant portion of
their original investment in Registrant.
Allowance for Loan Losses
Registrant invested principally in zero-coupon, non-recourse junior Mortgage
Loans. Collection of amounts due on Registrant's Loans is solely dependent upon
the sale or refinancing of collateral at amounts sufficient to satisfy
Registrant's mortgage loans after payment of the senior mortgage notes owned by
unaffiliated third parties.
<PAGE>
An allowance for loan losses is established based upon a quarterly review of
each mortgage in Registrant's portfolio. In performing this review, management
considers the estimated net realizable value of the properties or collateral as
well as other factors, such as the current occupancy, the amount and status of
senior debt, if any, the prospects for the property and the economic situation
in the region where the property is located. Because this determination of
estimated net realizable value is based upon projections of future economic
events which are inherently subjective, the amounts ultimately realized at
disposition may differ materially from the carrying value as of December 31,
1996.
The allowance is inherently subjective and is based on management's best
estimate of current conditions and assumptions about expected future conditions.
Registrant may provide additional losses in subsequent years and such provisions
could be material.
Certain of the properties, as described in the Notes to Financial Statements -
Note 4, to which Registrant has made loans are experiencing varying degrees of
operating problems. In one case the first mortgage holder has agreed to a
modification of their terms. Management has provided for some contingencies by
establishing an allowance for loan losses on its entire investment in Mortgage
Loans. In addition, during 1994, Management established a general reserve in the
approximate amount of $601,300 which represented approximately 5% of the
remaining mortgage portfolio at that time.
The property securing the Pike Creek Loan is currently operating with positive
cash flow and is meeting all debt service requirements to date. However, the
first mortgage matured on February 15, 1996 and the second mortgage matured on
December 15, 1995. During 1996, Big Valley Associates was negotiating with the
first mortgage lender to obtain permanent replacement debt. Based on internal
valuations, the likelihood of Big Valley Associates obtaining continued
financing at that time would be difficult. Based on this factor, the
Registrant's management determined as of March 31, 1995, that an additional
reserve in the amount of $946,000 was required. This reserve reduced the
carrying value of the Pike Creek Loan to $1,050,832. In November 1996, the Pike
Creek Loan was amended and restructured (See Note 4 to the Financial
Statements).
While the property securing the RT Loan was operating with positive cash flow
and meeting debt service requirements, the senior wrap mortgages and the RT Loan
matured on January 1, 1996. In March 1995, the IBM lease, which by itself
accounted for over 70% of the leased space at the property, was due to expire
one year after the current debt matured. The Senior Wrap Mortgages are currently
being negotiated to extend the maturity dates. While negotiations are in
progress, RT Associates continues to make debt service payments. Since
refinancing would be difficult without a longer lease commitment from IBM, the
Registrant's management determined that as of March 31, 1995, an additional
reserve in the amount of $2,360,000 was required which reduced the carrying
value of the RT Loan to $2,622,257. In August 1995, the RT Loan was acquired by
the senior wrap mortgage holders, with the Registrant obtaining a 20%
participating interest (See Note 4 to the Financial Statements). As a result of
this transaction and an analysis of the value of the investment, it was
determined that a provision for loan losses was required for the quarter ended
September 30, 1995 for the RT Loan in the amount of $1,260,000, reducing the
carrying value to $1,362,256. During 1996, the IBM leases were extended for
periods expiring between 2 and 5 years.
<PAGE>
In addition, the property securing the Stockfield Loan is 96% occupied by Shell
California Productions, Inc., whose lease expires in 1999. It is unlikely that
Shell will exercise its renewal option with renegotiating the rental downward
toward market rates. The first mortgage matured on April 1, 1996, and without a
long-term commitment from Shell, refinancing will be difficult. Stockfield
Associates is currently negotiating an extension of the first mortgage, while
continuing to make debt service payments. However, for the previous listed
reasons, and based upon the estimated fair value of the collateral, Registrant's
management decided at March 31, 1995, to reserve an additional $2,106,000 on the
Stockfield Loan, which reduced the carrying value to $2,340,260. No additional
reserves were deemed necessary for the year ended December 31, 1996.
During 1996, the Registrant recorded recoveries of prior provisions for loan
losses of $1,963,522 and $1,224,861 for the Tri-State and BP Loans,
respectively. Additionally, the Registrant recorded $3,673,614 of interest
income during 1996 with respect to the Tri-State Loan. All such amounts were
received by the Registrant during the first quarter of 1997.
Results of Operations
1996 vs. 1995
The Registrant experienced net income for the year ended December 31, 1996
compared with a net loss in the prior year primarily due to the allowance for
loan losses recorded during 1995 as discussed above, versus the recovery of the
loan provision related to the Tri-State and BP Loans, and the mortgage interest
income related to the Tri-State Loan recorded in 1996.
Revenues increased for the year ended December 31, 1996 compared to the same
period in 1995, due to both the recovery of the loan provision related to the
Tri-State and the BP Loans, and the recording of mortgage interest income
related to the Tri-State Loan during 1996. The Tri-State Loan, which had
previously been entirely reserved for, was satisfied in January 1997. The
recovery of the loan provision was $1,963,522 and $3,673,614 in mortgage
interest income was recognized for the year ended December 31, 1996. In
addition, in February 1997, $1,224,861 was received which related to the BP loan
equity participation certificates. The BP Loan had also previously been
written-off, and as such this amount was recorded as a recovery of loan
provision. Other income increased due to the interest income received during
1996 on the Research Triangle participation interest, which began in August 1995
and the receipt of approximately $55,000 in August 1996, in settlement of the
Registrant's claim against Integrated related to the Boram Loan.
Costs and expenses decreased for the year ended December 31, 1996 when compared
to the same period in 1995, primarily as a result of the allowance for loan
losses that was taken in 1995. In addition, there was a decrease in mortgage
servicing fees, and general and administrative expenses partially offset by an
increase in operating expenses. Mortgage servicing fees decreased as a result of
the payment of fees in March of 1995 and in February 1996 related to several
mortgages, thus eliminating interest accumulating on the deferred fees. General
and administrative expenses decreased as a result of a decrease in payroll
costs.
<PAGE>
1995 vs. 1994
Registrant had a net loss for the year ended December 31, 1995. The net loss was
greater than the net loss in the prior year. This is due to a large increase in
costs and expenses partially offset by a slight increase in revenues when
compared with 1994.
Costs and expenses increased overall primarily due to an increase in the
provision for loan losses, as previously discussed, partially offset by
decreases in mortgage servicing fees and general and administrative expenses in
1995 versus 1994. Mortgage servicing fees decreased as a result of the payment
of fees in 1995 associated with the Berkeley Western, Southern Inns, BP Shopping
Center, Boram, and Airport Center, thus eliminating interest accumulating on the
deferred fee. General and administrative expenses decreased primarily due to a
decrease in payroll costs.
Revenue increased for the year ended December 31, 1995 as compared with 1994.
The increase is due to an increase in short-term investment income, other income
and income from operations. Income from operations increased due to the positive
impact of the capital improvements made at the Richmond Comfort Inn. Other
income increased due to an increase in transfer fees coupled with the receipt in
1995 of participation interest from the Research Triangle loan. Short term
interest income increased due to an increase in interest rates in 1995 when
compared to 1994.
Other Legal Proceedings
Legal Proceedings
On or about May 11, 1993, three public real estate partnerships (the "HEP
Registrants") including High Equity Partners, L.P. - Series 86, in which the
Administrative General Partner is also a General Partner, were advised of the
existence of an action (the "HEP Action") filed in the Superior Court for the
State of California for the County of Los Angeles, by Mark Erwin, Trustee, Mark
Erwin Sales, Inc. Defined Benefit Plan; Nancy Cooper, Trustee of Nancy Cooper
Individual Retirement Account; and Leonard Drescher, Trustee of Drescher Family
Trust Account individually and purportedly on behalf of a class consisting of
all of the purchasers of limited partnership interests in the HEP Registrants
(the "Plaintiffs"). The HEP Action names as defendants the Administrative
General Partner and several individuals who are general partners of the former
Associate General Partner, among others.
On November 30, 1995, the original plaintiffs and the intervening plaintiffs
filed a Consolidated Class and Derivative Action Complaint against the General
Partners alleging, among other things, breach of fiduciary duties, breach of
contract, and negligence.
On or about January 31, 1996, the parties to the HEP Action agreed upon a
revised settlement, which would be significantly more favorable to the
Plaintiffs than the previously proposed settlement. The revised settlement
proposal, like the previous proposal, involves the reorganization of the HEP
Registrant. Upon the effectuation of the revised settlement, the HEP Action
would be dismissed with prejudice.
On July 18, 1996, the Court preliminarily approved the revised settlement. In
August 1996, the Court approved the form and method of notice regarding the
revised settlement which was sent to the HEP limited partners.
<PAGE>
Only approximately 2.5% of the limited partners of the HEP Registrants elected
to "opt out" of the revised settlement. Despite this, following the submission
of additional briefs, the Court entered an order on January 14, 1997 rejecting
the revised settlement and concluding that there had not been an adequate
showing that the settlement was fair and reasonable. Thereafter, the Plaintiffs
filed a motion seeking to have the Court reconsider its order. However, the
defendants withdrew the revised settlement and at a hearing on February 24,
1997, the Court denied the Plaintiffs' motion. Also at the February 24, 1997
hearing, the Court recused itself from considering a motion to intervene and to
file a new complaint in intervention by one of the objectors to the revised
settlement, granted the request of one of the Plaintiffs' law firm to withdraw
as class counsel and scheduled future hearings on various matters.
In the event that there is no settlement of the remaining claims, the
Administrative General Partner intends to vigorously contest such claims and
have, along with the other defendants, previously filed a motion to dismiss the
HEP Action, which is currently pending before the Superior Court. It is
impossible at this time to predict what the defense of this lawsuit will cost
the Administrative General Partner and whether such costs could adversely effect
the Administrative General Partners' ability to perform its obligations to
Registrant.
<PAGE>
Item 8. Financial Statements and Supplementary Data.
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
I N D E X
Independent Auditor's Report
Independent Auditors' Report
Financial Statements - years ended
December 31, 1996, 1995 and 1994
Balance sheets
Statements of operations
Statement of partners' equity
Statements of cash flows
Notes to financial statements
Financial statement schedules
Schedule III
Real Estate and Accumulated Depreciation
All other financial statement schedules are omitted because they are not
applicable or the required information is shown on the financial statements or
notes thereto.
<PAGE>
To the Partners of
Resources Accrued Mortgage Investors L.P. - Series 86
Greenwich, Connecticut
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Resources Accrued Mortgage
Investors L.P. - Series 86 (a limited partnership) as of December 31, 1996 and
1995, and the related statements of operations, partners' equity and cash flows
for the years then ended. Our audits also included the financial statement
schedule listed in the Index at Item 14(a)2. These financial statements and
financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on the financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Resources Accrued Mortgage
Investors L.P. - Series 86 as of December 31, 1996 and 1995, and the results of
its operations and its cash flows for the years then ended in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As more fully described in Note 4, the Partnership has provided for significant
losses on its investments in mortgage loans. As discussed in Note 2, the
determination of the allowance for loan losses is based upon projections of
future economic events which are inherently subjective. Accordingly, the
Partnership may provide for additional losses in subsequent years and such
provisions could be material.
Hays & Company
February 24, 1997
New York, New York
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners of
Resources Accrued Mortgage Investors L.P. - Series 86
We have audited the accompanying statements of operations, partners' equity and
cash flows of Resources Accrued Mortgage Investors L.P. - Series 86 (a Delaware
limited partnership) for the year ended December 31, 1994. Our audit also
included the financial statement schedule listed in the Index at Item 14(a)2 as
it relates to the year ended December 31, 1994. These financial statements and
the financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and the financial statement schedule based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the results of operations and cash flows of Resources Accrued Mortgage
Investors L.P. - Series 86 for the year ended December 31, 1994 in conformity
with generally accepted accounting principles. Also, in our opinion, such
financial statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
As more fully described in Note 4, the Partnership provided for significant
losses on its investments in mortgage loans in 1993. As disclosed in Note 2, the
determination of the allowance for loan losses is based upon projections of
future economic events which are inherently subjective.
March 16, 1995
Deloitte & Touche
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
BALANCE SHEETS
December 31,
-----------------------------
1996 1995
------------ ------------
<S> <C> <C>
ASSETS
Investments in mortgage loans (net of an allowance
for loan losses of $17,012,938 and $18,976,460) ................ $ 11,953,520 $ 4,753,348
Cash and cash equivalents .......................................... 3,769,118 4,035,754
Real estate - net .................................................. 3,730,284 3,737,816
Other assets ....................................................... 87,327 38,842
------------ ------------
$ 19,540,249 $ 12,565,760
============ ============
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Mortgage loan payable .............................................. $ 3,570,723 $ 3,633,032
Due to affiliates .................................................. 2,123,481 2,167,220
Accounts payable and accrued expenses .............................. 175,366 208,745
------------ ------------
Total liabilities .............................................. 5,869,570 6,008,997
------------ ------------
Commitments and contingencies (Notes 3, 4, 6 and 7 )
Partners' equity
Limited partners' equity (330,004 units issued
and outstanding) ............................................... 17,111,246 10,353,026
General partners' deficit .......................................... (3,440,567) (3,796,263)
------------ ------------
Total partners' equity ......................................... 13,670,679 6,556,763
------------ ------------
$ 19,540,249 $ 12,565,760
============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF OPERATIONS
Year ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Mortgage loan interest income ............... $ 3,681,789 $ -- $ --
Operating income - real estate .............. 1,712,325 1,706,256 1,657,990
Other income ................................ 167,319 88,502 34,718
Short-term investment interest .............. 202,876 203,077 165,379
----------- ----------- -----------
5,764,309 1,997,835 1,858,087
----------- ----------- -----------
Costs and expenses
(Recovery of) provision for loan losses ..... (3,188,383) 6,672,014 --
Operating expenses - real estate ............ 958,418 982,438 972,454
Mortgage loan interest expense .............. 342,110 347,730 353,088
General and administrative expenses ......... 192,836 330,727 359,684
Asset management fees ....................... 162,567 165,023 153,730
Mortgage servicing fees ..................... 93,527 124,829 171,302
Depreciation expense ........................ 89,318 88,084 87,758
----------- ----------- -----------
(1,349,607) 8,710,845 2,098,016
----------- ----------- -----------
Net income (loss) ................................ $ 7,113,916 $(6,713,010) $ (239,929)
=========== =========== ===========
Net income (loss) attributable to
Limited partners ............................ $ 6,758,220 $(6,377,359) $ (227,933)
General partners ............................ 355,696 (335,651) (11,996)
----------- ----------- -----------
$ 7,113,916 $(6,713,010) $ (239,929)
=========== =========== ===========
Net income (loss) per unit of limited partnership
interest (330,004 units outstanding) ........ $ 20.48 $ (19.33) $ (0.69)
=========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENT OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
General Limited Total
Partners' Partners' Partners'
Deficit Equity Equity
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1994 .... $ (3,448,616) $ 16,958,318 $ 13,509,702
Net loss - 1994 ............. (11,996) (227,933) (239,929)
------------ ------------ ------------
Balance, December 31, 1994 .. (3,460,612) 16,730,385 13,269,773
Net loss - 1995 ............. (335,651) (6,377,359) (6,713,010)
------------ ------------ ------------
Balance, December 31, 1995 .. (3,796,263) 10,353,026 6,556,763
Net income - 1996 ........... 355,696 6,758,220 7,113,916
------------ ------------ ------------
Balance, December 31, 1996 .. $ (3,440,567) $ 17,111,246 $ 13,670,679
============ ============ ============
See notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
STATEMENTS OF CASH FLOWS
Year ended December 31,
-------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
INCREASE (DECREASE) IN CASH AND
CASH EQUIVALENTS
Cash flows from operating activities
Net income (loss) ..................................... $ 7,113,916 $(6,713,010) $ (239,929)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities
Mortgage loan interest accrued ................ (3,681,789) -- --
(Recovery of) provision for loan losses ....... (3,188,383) 6,672,014 --
Deferred asset management and
mortgage servicing fees, net of
payments made .............................. (43,739) (197,745) 160,561
Depreciation expense .......................... 89,318 88,084 87,758
Changes in assets and liabilities
Other assets ...................................... (48,485) 21,197 17,985
Accounts payable and accrued expenses ............. (33,379) 1,137 (39,251)
----------- ----------- -----------
Net cash provided by (used in)
operating activities .................... 207,459 (128,323) (12,876)
----------- ----------- -----------
Cash flows from investing activities
Principal payments on mortgage loan payable ........... (62,309) (61,157) (47,082)
Additions to real estate .............................. (81,786) (16,651) (71,884)
Investment in mortgage loans .......................... (330,000) -- --
----------- ----------- -----------
Net cash used in investing activities ...... (474,095) (77,808) (118,966)
Net decrease in cash and cash equivalents .................. (266,636) (206,131) (131,842)
Cash and cash equivalents, beginning of year ............... 4,035,754 4,241,885 4,373,727
----------- ----------- -----------
Cash and cash equivalents, end of year ..................... $ 3,769,118 $ 4,035,754 $ 4,241,885
=========== =========== ===========
Supplemental disclosure of cash flow information
Interest paid ......................................... $ 342,110 $ 347,730 $ 353,088
=========== =========== ===========
See notes to financial statements.
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1 ORGANIZATION
Resources Accrued Mortgage Investors L.P. - Series 86, a Delaware limited
partnership (the "Partnership"), was formed in September 1985 under the
Delaware Revised Uniform Limited Partnership Act for the purpose of
investing primarily in nonrecourse, zero-coupon junior accrued interest
mortgage loans on properties owned or acquired principally by privately
and publicly syndicated limited partnerships sponsored by affiliates of
Integrated Resources Inc. ("Integrated"), the former parent of the
General Partners.
Beginning on January 21, 1986, the Partnership offered 500,000 units of
limited partnership interest (the "Units") pursuant to the Prospectus
dated January 21, 1986 (the "Prospectus"), as supplemented by Supplements
dated March 14, 1986, April 9, 1986, July 25, 1986, August 1, 1986,
September 8, 1986, October 29, 1986 and December 30, 1987 (collectively,
the "Supplements"), which were filed pursuant to Rules 424 (b) and 424
(c) under the Securities Act of 1933, as amended. The Prospectus was
filed as part of the Partnership's Registration Statement on Form S-11,
Commission File No. 33-00836, as amended (the "Registration Statement").
The offering terminated on May 1, 1987 with 329,994 Units having been
sold (excluding the 10 Units sold to the initial limited partner)
representing net proceeds of $78,582,310 (gross proceeds of $82,501,000
less organization and offering costs of $3,918,690). All underwriting and
sales commissions were paid by Integrated or its affiliates and not by
the Partnership.
The Partnership invested 100% of its net proceeds in sixteen mortgage
loans, three of which were prepaid. The 595 Madison loan was prepaid on
November 30, 1989, the Bellekirk loan was prepaid July 2, 1992 and the
Tri-State loan was prepaid on January 28, 1997. In addition, on December
31, 1991, January 13, 1993, January 13, 1994, April 5, 1994 and July 26,
1995, the senior mortgage lenders on properties securing five of the
Partnership's loans foreclosed on the properties securing their loans,
and the Partnership lost its entire investment in these loans. Also, in
December 1992, the Brentwood Place loan was converted into equity
participation certificates (on which the Partnership was paid
approximately $1.2 million in 1997) pursuant to the borrower's bankruptcy
Plan of Reorganization. On April 1, 1993 the Partnership foreclosed on
the Southern Inns loan and assumed ownership of the Richmond Comfort Inn,
located in Richmond, Virginia. The Richmond property foreclosure and
acquisition were part of a restructuring agreement. In July 1993, the
Boram loan was restructured and the Partnership received an equity
participation in the future sale of the property. In November, 1994 the
Berkeley Western loan was restructured to convert the Partnership's
original investment to a new $550,000 loan and an equity participation in
the future sale or refinancing of the property. In August 1995, the
Research Triangle loan was restructured to convert the Partnership's
original investment to a 20% cash flow participation. In November 1996,
the Big Valley Loan was amended and reduced to $500,000 and an additional
$330,000 was advanced to the Big Valley Associates.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in mortgage loans
The Partnership principally invested in nonrecourse, zero coupon junior
mortgage loans on properties owned or acquired by limited partnerships
sponsored by affiliates of the General Partners. These loans generally
contain provisions whereby the Partnership may be entitled to additional
interest represented by participation in the appreciation of the
underlying property.
The Partnership accounts for its investments in mortgage loans under the
following methods:
Investment method
Mortgage loans representing transactions in which the Partnership is
considered to have substantially the same risks and potential rewards as
the borrower are accounted for as investments in real estate rather than
as loans. Although the transactions are structured as loans, due to the
terms of the zero coupon mortgage, it is not readily determinable at
inception that the borrower will continue to maintain a minimum
investment in the property. Under this method of accounting, the
Partnership will recognize as revenue the lesser of the amount of
interest as contractually provided for in the mortgage loan, or its pro
rata share of the actual cash flow from operations of the underlying
property inclusive of depreciation and interest expense on any senior
indebtedness.
Interest method
Under this method of accounting, the Partnership recognizes revenue as
interest income over the term of the mortgage loans so as to produce a
constant periodic rate of return. Interest income will not be recognized
as revenue during periods where there are concerns about the ultimate
realization of the interest or loan principal.
Allowance for loan losses
An allowance for loan losses is established based upon a quarterly review
of each of the mortgage loans in the Partnership's portfolio. In
performing this review, management considers the estimated net realizable
value of the mortgage loan or collateral as well as other factors, such
as the current occupancy, the amount and status of any senior debt, the
prospects for the property and the economic situation in the region where
the property is located. Because this determination of net realizable
value is based upon projections of future economic events which are
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
inherently subjective, the amounts ultimately realized at disposition may
differ materially from the carrying value at each year end. Accordingly,
the Partnership may provide additional losses in subsequent years and
such provisions could be material.
Depreciation
Depreciation is computed using the straight-line method over the useful
life of the property, which is estimated to be 40 years. The original
cost of the property, which was acquired through foreclosure, represented
the carrying value of the first mortgage loan at the time of the
foreclosure. Repairs and maintenance are charged to operations as
incurred.
Write-down for impairment
The Partnership provides write-downs for impairment based upon a
quarterly review of the real estate in its portfolio, when management
believes that, based upon market analysis and appraisal reports, the
investment in such real estate may not be recoverable.
The initial test to determine if an impairment exists is to compute the
recoverability of the asset based upon anticipated cash flows compared to
the carrying value of the asset. If anticipated cash flows are
insufficient to recover the carrying value of the asset, an impairment
loss should be recognized and the asset written down to its estimated
fair value. The fair value of the asset is the amount by which the asset
could be bought or sold in a current transaction between willing parties,
that is, other than in a forced or liquidation sale.
The allowance is inherently subjective and is based on management's best
estimate of current conditions and assumptions about expected future
conditions. The Partnership may provide additional losses in subsequent
years and such provisions could be material.
Financial statements
The financial statements include only those assets, liabilities and
results of operations which relate to the business of the Partnership.
Cash and cash equivalents
For the purpose of the statements of cash flows, the Partnership
considers all short-term investments which have original maturities of
three months or less to be cash equivalents.
Principally all of the Partnership's cash and cash equivalents are held
at one financial institution.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Fair value of financial instruments
The fair value of financial instruments is determined by reference to
market data and other valuation techniques as appropriate. The
Partnership's financial instruments include cash and cash equivalents,
investments in mortgage loans and a mortgage loan payable. Unless
otherwise disclosed, the fair value of financial instruments approximates
their recorded values.
Net income (loss) per unit of limited partnership interest
Net income (loss) per unit of limited partnership interest is computed
based upon the number of units outstanding (330,004) for the years ended
December 31, 1996, 1995 and 1994.
Income taxes
No provisions have been made for federal, state and local income taxes,
since they are the personal responsibility of the partners.
The income tax returns of the Partnership are subject to examination be
federal, state and local taxing authorities. Such examinations could
result in adjustments to Partnership income or losses, which changes
could affect the income tax liability of the individual partners.
Reclassifications
Certain reclassifications have been made to the financial statements
shown for the prior years in order to conform to the current year's
classifications.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
The Investment General Partner of the Partnership, RAM Funding, Inc., and
the Administrative General Partner, Resources Capital Corp. are
wholly-owned subsidiaries of Presidio Capital Corp. ("Presidio"). RAM
Funding, Inc. and Resources Capital Corp. were, until November 3, 1994,
wholly-owned subsidiaries of Integrated. On November 3, 1994, Integrated
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
consummated its plan of reorganization under Chapter 11 of the United
States Bankruptcy Code, at which time, pursuant to such plan of
reorganization, the newly formed Presidio purchased substantially all of
Integrated's assets. As of February 28, 1995, the Associate General
Partner of the Partnership is Presidio AGP Corp., a Delaware Corporation,
which replaced Z Square G Partners II, a New York general partnership
comprised of a general partnership and individuals who were all former
officers, directors and significant shareholders of Integrated. Presidio
AGP is also a wholly owned subsidiary of Presidio. The General Partners
and certain of their affiliates are general partners in several other
limited partnerships which are also affiliated with Presidio, and which
are engaged in businesses that are, or may in the future, be in direct
competition with the Partnership.
Wexford Management Corp. had been engaged to perform management and
administrative services for Presidio and its direct and indirect
subsidiaries as well as the Partnership. Wexford Management Corp. was
engaged to perform similar services for other similar entities that may
be in competition with the Partnership. Effective January 1, 1996,
Wexford Management Corp., formerly Concurrency Management Corp., assigned
its agreement to provide management and administrative services to
Presidio and its subsidiaries to Wexford Management LLC ("Wexford").
During 1996, amounts paid to Wexford for management and administrative
services amounted to $36,799.
Subject to the rights of the Limited Partners under the Amended and
Restated Agreement of Limited Partnership (the "Limited Partnership
Agreement"), Presidio will control the Partnership through its indirect
ownership of all of the shares of the Administrative, Investment and, as
of February 28, 1995, Associate General Partners. Presidio is managed by
Presidio Management Company, LLC ("Presidio Management"), a company
controlled by a director of Presidio. Presidio Management is responsible
for the day to day management of Presidio and among other things, has
authority to designate directors of the Administrative, Investment and
Associate General Partners. In March 1996, Presidio Management assigned
its agreement for the day-to-day management of Presidio to Wexford.
Presidio is a liquidating company. Although it has no immediate plans to
do so, it will ultimately seek to dispose of the interests it acquired
from Integrated through liquidation; however, there can be no assurance
of the timing of such transaction or the effect it may have on the
Partnership.
Presidio has elected new directors for the Administrative and Investment
General Partners. However, one of its executive officers remains the same
and certain of Integrated's former employees who performed services with
respect to the Partnership are employed by Wexford which provides
management and administrative services to Presidio, its direct and
indirect subsidiaries, as well as to the Partnership.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
The Partnership has invested principally in mortgage loans on properties
owned or acquired by privately syndicated limited partnerships originally
sponsored by Integrated. Transactions entered into between the
Partnership and affiliates of Integrated are subject to inherent
conflicts of interest.
The Administrative General Partner is entitled to receive an asset
management fee for services rendered in the administration and management
of the Partnership's operations equal to 1/4 of 1% per annum of the Net
Asset Value of the Partnership, as defined in the Limited Partnership
Agreement. Payment of the asset management fee is deferred until
commencement of the disposition of the Partnership's mortgage loans, with
interest on the amount deferred at 10% per annum, compounded annually.
The Administrative General Partner earned $162,567, $165,023 and
$153,730, including accrued interest of $158,607, $149,402 and $127,872
for the years ended December 31, 1996, 1995 and 1994, respectively.
The Administrative General Partner is also entitled to receive a mortgage
servicing fee at an annual rate of 1/4 of 1% per annum of the principal
balance of the Partnership's mortgage loans outstanding from time to
time. Payment of the mortgage servicing fee is deferred until disposition
of the applicable mortgage loan, with interest on the amount deferred at
10% per annum, compounded annually. The Administrative General Partner
earned $93,527, $124,829 and $171,302, including accrued interest of
$28,120, $71,857 and $103,261, for the years ended December 31, 1996,
1995 and 1994, respectively.
In June 1996, the Administrative General Partner was paid $86,827 which
represented the mortgage servicing fee previously accrued for the RT
Loan. In March 1995, the Administrative General Partner was paid $75,919,
$69,118, $29,219 and $137,918, which represented the mortgage servicing
fees previously accrued associated with the Berkeley Western, Southern
Inns, Brentwood Place and Boram Loans, respectively. In September 1995,
the Administrative General Partner was paid $175,423, which represented
the mortgage servicing fee previously accrued associated with the LAX
loan. On March 8, 1994, the Partnership paid $57,077 to the
Administrative General Partner representing the mortgage servicing fee on
the Park Place loan. On May 17, 1994, the Partnership paid $107,394
representing the mortgage servicing fee on the Lenox Towers loan.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES (continued)
Amounts due to affiliates for asset management and mortgage servicing
fees, consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------
1996 1995
----------- ------------
<S> <C> <C>
Asset management fee $ 1,547,037 $ 1,597,478
Mortgage servicing fee 576,444 569,742
----------- -----------
$ 2,123,481 $ 2,167,220
=========== ===========
</TABLE>
The General Partners collectively are allocated 5% of the net income or
loss of the Partnership and are entitled to receive 5% of distributions.
Such amounts are allocated or distributed 4.8% to the Administrative
General Partner, 0.1% to the Investment General Partner, and 0.1% to the
Associate General Partner.
As of April 1, 1993, the Partnership entered into a hotel management
agreement with an affiliate of the General Partners to manage the hotel
property which the Partnership acquired through foreclosure of the
Southern Inns loan. The agreement provides for a management fee equal to
3 1/4% of Gross Revenues, as defined in the agreement, and could be
terminated by the Partnership on 30 days notice. The hotel management
agreement with the affiliate was terminated on February 28, 1994 and
replaced with an identical agreement with an unaffiliated entity. For the
two months ended February 28, 1994 the Partnership paid $7,437 in
management fees to the affiliate of the General Partners.
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES
The Partnership invested in nonrecourse, zero-coupon junior mortgage
loans. Collection of amounts due on the Partnership's junior mortgage
loans is solely dependent upon the sale or refinancing of the underlying
properties at amounts sufficient to satisfy the Partnership's mortgage
loans, after payment of the senior mortgage notes owned by unaffiliated
third parties.
The properties which collateralize the Partnership's mortgage loans have
experienced varying degrees of operating problems. The Century Park,
Clovine, Park Place, Lenox Towers and LAX loans were ultimately lost when
the senior lenders foreclosed on the properties securing the
Partnership's mortgage loans. The Brentwood Place, Berkeley Western, Big
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Valley and Boram loans have been restructured to allow the Partnership a
possible equity participation in the future sales or refinancing of the
properties. The Research Triangle loan was exchanged for a participating
interest in the cash flows from the senior loan on the property. This
transaction will allow the Partnership to receive current cash flow on a
monthly basis, and possible additional proceeds in the event of a sale or
refinancing.
The Partnership has provided for these contingencies, in some
circumstances, by establishing an allowance for loan losses on its entire
investment.
Berkeley Western loan
The Berkeley Western loan, in an original principal amount of $2,250,000,
was secured by an office building in downtown Berkeley, California. The
Borrower, Berkeley Western Associates ("BW Associates") had been unable
to make payments on its first mortgage loan since May, 1989. Notices of
Default with respect to the first mortgage held by Guaranty Federal
Savings and Loan Association ("Guaranty Federal") and the loan held by
the Partnership were issued shortly thereafter. Guaranty Federal was
placed under Receivership by the Federal Savings and Loan Insurance
Corporation, which entity was subsequently absorbed by the Resolution
Trust Corporation.
Shortly thereafter, BW Associates and Guaranty Federal entered into a
Cash Flow Arrangement whereby all cash flow from the property was placed
into an escrow account to be drawn down for payment of capital
improvements and asbestos abatement work only with the approval of
Guaranty Federal. In May 1992, Guaranty Federal elected to pursue its
default remedies under its first mortgage and issued a Notice of Default
and Election to Sell Under Deed of Trust, and commenced a foreclosure
action.
In January 1993, BW Associates filed for protection under Chapter 11 of
the United States Bankruptcy Code. Upon BW Associates' request, the
bankruptcy court entered a cash collateral order which permitted use of
the property's cash flow to pay operating and other expenses pursuant to
a court approved budget. On May 18, 1993, the Partnership filed a Proof
of Claim for all outstanding principal, accrued interest, prepayment
penalties and other costs and obligations of BW Associates to the
Partnership. In September 1993, BW Associates and Guaranty Federal signed
a Memorandum of Understanding to restructure the first mortgage loan. The
restructuring entitled the Partnership to certain economic benefits,
after Guaranty Federal is repaid, upon a sale or refinancing. BW
Associates has incorporated the Memorandum of Understanding into a plan
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Berkeley Western loan (continued)
of reorganization. The plan of reorganization (the "Plan") was confirmed
by the bankruptcy court on November 14, 1994. A copy of the Plan is on
file with the bankruptcy court for the District of Connecticut. Some of
the more relevant terms of the Plan, which was consummated in December
1994, are summarized as follows:
Guaranty Federal, a first priority mortgage holder, which was owed in
excess of $22 million, consented to a claim of $10 million, the
approximate value of the property which constitutes BW Associates major
asset. A new promissory note (the "New Note"), in the principal sum of
$10 million, and secured by a mortgage on the Property, supersedes the
existing note.
The New Note has a term of four years and requires payments of interest
only at 5% per annum for the first two years, and 11% per annum for the
latter two years.
Upon repayment of all outstanding principal and interest of the New Note,
all economic benefits (net sale proceeds, refinancing proceeds and
distributable net cash flow) shall be apportioned as follows:
a) The Partnership will receive a total and maximum priority
distribution of $550,000 (inclusive of any previous priority
distributions paid from net refinancing proceeds and from distributable
net cash flow, if any). A non-interest bearing note for $550,000
replaced the original loan of $2,250,000 made by the Partnership to BW
Associates.
b) The next $6,000,000 of proceeds will be allocated pari passu, 25% to
Guaranty Federal, 44% to the Partnership, and 31% to BW Associates.
c) Any additional amounts will be allocated pari passu, 12.5% to
Guaranty Federal, 43.75% each to BW Associates and the Partnership.
The entire carrying value of this loan of $2,481,562 had been written off
during 1990.
Brentwood Place loan
The Brentwood Place loan was made to BP Shopping Center Associates ("BP
Associates") in an original principal amount of $1,900,000 and was
secured by a shopping center in Brentwood, Tennessee. Decreasing rental
rates, combined with several merchant failures, created cash flow
problems which in turn, caused BP Associates to default on their first
mortgage debt service obligations to Northwestern Mutual Life Insurance
Company ("Northwestern") in February 1991. BP Associates continued
operating problems and its inability to restructure its existing
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Brentwood Place loan (continued)
indebtedness led to BP Associates filing for protection under Chapter 11
of the United States Bankruptcy Code on May 16, 1991. In December 1992, a
Plan of Reorganization was approved by all creditor classes, including
the Partnership, and confirmed by the bankruptcy court.
Under the plan, title and control of the property was transferred to
Northwestern which had the right to hold the property or sell it. The
Partnership, and certain other unsecured creditors, received equity
participation certificates of which the Partnership had a majority
interest. The entire carrying value of this loan of $2,081,130 had been
written off during 1990.
In February 1997 the Partnership received $1,224,861 for its equity
participation certificate due to the sale of the BP Shopping Center by
Northwestern. In the 4th quarter of 1996, the Partnership recorded a
recovery of prior loan losses to reflect this receipt.
LAX loan
The LAX loan, in an original principal amount of $6,500,000, was made to
Airport Center Associates L.P. ("Airport") and was secured by three
office buildings near the Los Angeles Airport.
These properties had been experiencing serious operating deficits due to
market softness and capital upgrades required by new municipal codes,
including the installation of sprinkler systems and tenant procurement
costs. Under a separate, unsecured loan arrangement, Integrated advanced
to Airport $6,300,000 to fund certain short-falls.
On May 5, 1992, Airport filed for protection under Chapter 11 of the
United States Bankruptcy Code in Los Angeles, California. On September
28, 1992, the Partnership filed a proof of claim for all outstanding
principal, accrued interest, prepayment penalties, additional interest
and all other costs and obligations of Airport to the Partnership. In
December 1992, a Plan of Reorganization was approved by all classes of
creditors, including the Partnership, and confirmed by the court. The
terms of the Plan of Reorganization entailed General Electric Capital
Corp. ("GECC") the first mortgage lender, agreeing to advance additional
funds, up to a maximum of $16,550,000, for improvements and tenant
procurement costs. GECC further agreed to modify the interest rate on its
loan as well as the pay rate.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
LAX loan (continued)
In accordance with the Plan of Reorganization, the Partnership was
required to reduce the outstanding balance of its mortgage loan
(including accrued and unpaid interest thereon) to an amount equal to (i)
$11,061,194, the outstanding principal plus accrued and unpaid interest
as of December 31, 1991, plus (ii) the amount of accrued interest as of
December 31, 1992. Interest ceased to accrue as of such date unless the
loan was extended past December 31, 1995. Additional interest, as
originally defined in the loan, was eliminated.
The Partnership's loan, as part of the restructuring, was to mature on
the earlier of (i) December 31, 1995 or (ii) the acceleration of the GECC
loan (as a result of the occurrence of an event of default thereunder).
The Partnership had been notified during the first quarter of 1995, that
Airport had defaulted on its first mortgage obligation to GECC, due to
non-payment of its debt service obligations. The Partnership subsequently
received a Notice of Trustees Sale of the property securing the LAX loan
scheduled for July 20, 1995. The property was sold on July 26, 1995 and
the Partnership lost its entire investment in the LAX loan, which had
been fully reserved since 1990.
Southern Inns loan
The Southern Inns loan, in the original principal amount of $4,000,000,
was made to Southern Inns Associates ("Southern Inns"), and was
originally secured by five hotel properties in North Carolina, one
property in Virginia and one property in South Carolina. Each of the
properties was subject to a separate first mortgage which was senior to
the Southern Inns loan. The senior mortgages were not cross
collateralized.
As a result of operational problems at the hotels, six of the senior
mortgage lenders commenced foreclosure actions or issued notices of
default and had receivers appointed on six of the seven properties
securing the Partnership's loan. All six of these properties have been
sold at foreclosure sales causing the Partnership to lose its entire
collateral interest in these properties. The Partnership reached an
agreement with Southern Inns with respect to the seventh property, which
is located in Richmond, Virginia pursuant to which the Partnership
foreclosed and acquired title to the property on April 1, 1993, subject
to the first mortgage. The Partnership also received an unconditional
release from the guarantors of the first mortgages on the other six
properties with respect to certain superior liens they may have been
entitled to on the Richmond property.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Southern Inns loan (continued)
In connection with the foreclosure, the Partnership obtained an appraisal
indicating the value of the Richmond property to be more than the value
of the first mortgage. As part of the foreclosure, the Partnership was
entitled to receive a portion of the excess cash flow from operations
resulting from the period prior to the foreclosure. As a result, the
Partnership received approximately $236,000 during the second quarter of
1993.
Lenox Towers loan
The Lenox Towers loan was made to Lenox Towers Associates ("Lenox
Towers"), in an original principal amount of $6,045,832, and was secured
by the Lenox Towers I and II office buildings in Atlanta, Georgia. Lenox
Towers' net operating income from the office buildings was supplemented
by a third party cash flow guarantee for the three year period following
the acquisition of the property.
This guarantee expired during the third quarter of 1991. The property had
been experiencing high vacancy levels with no immediate recovery
anticipated. Lenox Towers had been attempting to negotiate a possible
restructuring or modification of the first mortgage loan held by the
Prudential Insurance Company ("Prudential") in the amount of $24,500,000,
which was due to mature in March 1994. However, they defaulted on the
interest payment due February 1, 1994 and failed to cure the default.
Prudential declared the entire principal balance and all accrued interest
immediately due and payable. On February 25, 1994, Prudential's Petition
for Appointment on the Receiver was granted by the court.
On April 5, 1994, Prudential foreclosed on the property that
collateralized this loan. The entire carrying value of this loan of
$6,400,426 was fully reserved in 1991 and written off during 1994.
Park Place loan
The Park Place loan was made to Park Place Associates Limited Partnership
("Park Place"), in an original principal amount of $3,030,000, and was
secured by the Park Place Mall located in Memphis, Tennessee. Park Place
defaulted on its debt service obligation due to the first mortgage
holder, American National Insurance Company ("American National") in
October 1991, as a result of cash flow problems brought about by the
failures of several of the property's tenants. On January 21, 1992,
American National issued a Notice of Default and Acceleration to Park
Place. On February 28, 1992, Park Place filed for protection under
Chapter 11 of the United States Bankruptcy Code. Attempts by Park Place
to reach an agreement with American National on terms of a plan of
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Park Place loan (continued)
reorganization failed, prompting American National to file a motion in
bankruptcy court seeking to dismiss the Chapter 11 case. American
National obtained title to the property through foreclosure on January
13, 1994.
As a result of the foreclosure, the Partnership lost its entire
investment in the Park Place Loan. The entire carrying value of
$3,207,713 had been fully reserved in 1991 and written-off during 1994.
Boram loan
The Boram loan was made to Boram Corporation ("Boram"), an affiliate of
Integrated, in the original principal amount of $6,900,000. It was
secured by a collateral assignment of the first and wrap around
mortgages, which were secured by a portion of the Pierre Bossier Mall
located in Bossier City, Louisiana. The encumbered portion of the Pierre
Bossier Mall is owned by Bossier Plaza Associates L.P. ("Bossier"). The
Partnership's security for this loan originally consisted of (i) a second
collateral assignment of the first mortgage, subordinate only to
Gram-Brent Corp., a subsidiary of the Bank of New York ("BONY"), which
holds a $25.6 million note (the "Gram-Brent Note") secured by a first
collateral assignment of the first mortgage and (ii) a first collateral
assignment of the wrap around mortgage held by Pierre Property Corp.
("Pierre"), an affiliate of Integrated.
During the first quarter of 1993, Bossier exercised its right to utilize
cash flow from operations to fund reserves for renovations which, in
turn, eliminated any debt service payments to Pierre and Boram. As a
result, Boram did not have any funds available to service its monthly
fixed payment obligation to BONY. On April 21, 1993, Boram received a
notice of default from BONY. In July 1993, the Partnership, Boram,
Pierre, and BONY entered into a settlement agreement. BONY is now the
absolute owner and holder of the first mortgage and wraparound mortgage.
Upon BONY receiving any payments pursuant to its interest in the
property, the proceeds would be disbursed in the following order: (i)
BONY will retain the first $25,000,000 or such lesser amount as may be
outstanding on the Gram-Brent Note, plus interest from December 12, 1992
to June 30, 1993 in the amount of $1,356,684, plus simple interest on the
principal balance from July 1, 1993, at the rate of 10% per annum, (ii)
BONY will retain the next $7,000,000 without interest, (iii) BONY shall
pay to Boram $150,000 plus interest at 10% per annum, (iv) BONY shall pay
to the Partnership, to the extent that remaining funds are available, the
amount, including accrued interest through June 30, 1993, of $14,329,460
plus interest from July 1, 1993 at 14.5% per annum, (v) BONY shall retain
all excess proceeds available. In the event that the proceeds are derived
from a sale or foreclosure of the property, then payments related to
(iii) and (iv) above will reduced by 10% which would be retained by BONY.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Boram loan (continued)
The first mortgage lender of the Boram Property was subsequently paid off
at a discount and the Partnership lost any potential recovery from its
equity participation interest.
Since August 1991, Boram had been unable to make full debt service
payments to BONY. Therefore, the Partnership provided a reserve for its
entire investment in the Boram loan in 1991. Based on the settlement
agreement, the Partnership wrote off its entire investment during 1993.
West Palm loan
The West Palm loan, in the original principal amount of $9,200,000, was
made to West Palm Associates Limited Partnership ("West Palm"). The loan
is secured by a 582 unit apartment complex located in Los Angeles,
California.
Beginning in 1990, West Palm became entitled to draw on a cash flow
guarantee from the Seller in the amount of $1.5 million. Since that time,
West Palm has continuously drawn down on and almost depleted that amount
to meet operating and debt-service requirements.
Through a loan modification, debt service payments to the first mortgage
holder were modified to require interest only payments for a five month
period from August 1993 through December 1993. In addition, one debt
service payment due in July 1993, was deferred entirely and added to the
outstanding principal of the first mortgage. In January 1994, payments of
principal and interest resumed. However, beginning in February 1994, a
new modification with essentially the same terms as the first
modification was implemented. This modification required interest only
payments at the rate of 10.5% per annum through January 1995 except for
the payment due June 1994, which has been deferred entirely and added to
the outstanding principal balance of the first mortgage. The payments of
principal and interest resumed with the payment due February 1, 1995.
The first mortgage matured in December 31, 1995, since which time West
Palm had been engaged in extensive negotiations with the first mortgage
holder (Hancock) in an effort to obtain a long term restructuring.
Hancock was unwilling to modify the first mortgage and on July 1, 1996,
declared the mortgage to be in default, and informed West Palm that it
would immediately seek the appointment of a receiver and begin
foreclosure proceedings. As a result, on July 2, 1996, West Palm filed
for protection under Chapter 11 of the United States Bankruptcy Code.
West Palm is currently attempting to restructure the Hancock Mortgage and
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
West Palm loan (continued)
the Partnership's second mortgage. Although the bankruptcy protection
enables West Palm to avoid an imminent foreclosure, there can be no
assurance that West Palm will be able to successfully restructure its
debt service obligations on either mortgage. The Partnership had
reserved the entire carrying value of the West Palm loan in 1993. The
Partnership filed a proof of claim for all outstanding principal,
accrued interest, prepayment penalties, additional interest and all
other costs and obligations of West Palm to the Partnership. However, it
is not likely that the Partnership will realize any proceeds from this
investment.
Tri-State loan
The Tri-State loan, in the original principal amount of $1,800,000, was
made to Tri-State Retail Associates, L.P. ("Tri-State"). The
Partnership's security for this loan was subordinate to the first
mortgage held by Trans Ohio Savings Bank, in the original principal
amount of $10,650,000, which was schedule to mature on July 1, 1998. The
mortgage secured three retail warehouses formerly operated as PACE
membership clubs.
There was substantial risk that the Partnership would lose its entire
investment at the time the first mortgage matured. Therefore, the entire
carrying value of the loan, in the amount of $1,963,522, was reserved
during 1993.
In June 1995 the Partnership entered into an agreement to restructure its
loan to Tri-State. The agreement, among other things, set certain release
prices for the three properties securing the loan, allowing Tri-State to
sell one property alone. The release prices were 43% for the Pennsylvania
property, 33% for the Kentucky property and 24% for the Nebraska
property. The Partnership would also be entitled to a 25% acceleration on
the release prices for the first two properties that were sold.
The agreement also provided that Tri-State would not incur a prepayment
penalty in the event of a prepayment. In addition, the Partnership waived
its right to receive additional interest (interest that represented a
percentage of the increase in the value of the Tri-State Properties). The
restructuring enabled the Partnership to recoup all of its investment. In
January 1997, the Partnership received the full contractual balance of
the Tri-State loan of approximately $5,700,000. In the 4th quarter of
1996, the Partnership recorded a recovery of prior loan losses of
$1,963,522 and recorded $3,673,614 of interest income to reflect the
repayment of this loan.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Research Triangle loan
The Complex securing the Research Triangle loan ("RT Loan"), is operating
with positive cash flow and is presently meeting all its debt service
requirements. The RT Loan and the Senior Wrap Mortgages were due to
mature January 1, 1996. The Senior Wrap Mortgages are currently being
negotiated to extend the maturity dates. While negotiations are in
progress, RT continues to make debt service payments. Leases with IBM
account for over 70% of the leased space at the property and were due to
expire in 1997. Since refinancing would be difficult without a longer
lease commitment from IBM, the Partnership ceased accruing interest
during 1993. Due to the uncertainty associated with the ultimate
recoverability of the RT Loan, an additional reserve for loan losses in
the amount of $2,360,000 was established for the quarter ended March 31,
1995. In 1996 the IBM leases were extended for periods expiring in 2 to 5
years.
On August 1, 1995 (the "Closing Date"), the Partnership entered into a
Loan Acquisition and Participation Agreement (the "Agreement") with the
owner of the Senior Wrap Mortgages, TEER Associates ("Teer"), whereas the
Partnership conveyed its interest in the RT Loan to Teer in consideration
of the grant of a RAM Participation Interest. The RAM Participation
Interest is a twenty (20%) percent undivided interest in (i) the Wrap
Cash Flow, which is all amounts received by Teer on account of the Senior
Wrap Mortgages reduced by the sum of the senior loan payments and the
amount of all reimbursable expenses attributable to the Senior Wrap
Mortgages and (ii) the RAM Cash Flow, which is all amounts received by
Teer under the RT Loan reduced by the amount of reimbursable expenses
attributable to the RT Loan. Reimbursable expenses are costs and expenses
of Teer in connection with the performance of all obligations under the
Agreement, including the collection and enforcement of the Senior Wrap
Mortgages and the RT Loans, the preservation of the collateral, the
filing and prosecution of a complaint with respect to any of the above
matters, etc. The Partnership granted Teer an option to purchase the RAM
Participation Interest. Teer may exercise the purchase option at any time
from the Closing Date through the third anniversary of the Closing Date.
The option prices are as follows: (i) on or prior to the first
anniversary, an amount equal to $1,750,000 (including cash payments
received by the Partnership on the account of the RAM Participation
Interest during the period following the Closing Date), (ii) on or prior
to the second anniversary, an amount equal to $2,200,000 (including cash
payments made on account of the RAM Participation Interest after the
first anniversary date), (iii) on or prior to the third anniversary, an
amount equal to $2,600,000 (including cash payments made on account of
the RAM Participation Interest after the second anniversary date). Teer
has not excersized its option to acquire the RAM Participation Interest.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Research Triangle loan (continued)
As a result of this transaction and an analysis of the value of the
investment, it was determined that an additional allowance for loan
losses was required for the value of the RT Loan in the amount of
$1,260,000. The property securing the RT Loan was appraised in August
1995, and valued at $45,000,000. The Partnership's 20% interest in the
excess of market value over the Senior Wrap Mortgage amounted to
approximately $1,360,000. The carrying value prior to the additional
allowance was approximately $2,620,000, resulting in a $1,260,000
allowance in August 1995. The Partnership received $80,459 and $35,759,
during 1996 and 1995 respectively, from the RAM Participation Interest,
which amounts are included in other income in the accompanying statements
of operations.
Pike Creek loan
Originally a $975,000 third mortgage loan to Big Valley Associates, L.P.
which bore interest at 13.4% per annum compounded monthly, and was
schedule to mature on December 31, 1999.
The property securing the Pike Creek loan is currently operating with
positive cash flow and is meeting all debt service requirements. However,
a second mortgage, which required no debt service payments until
maturity, matured at the end of 1995. A first mortgage loan, which had a
principal balance of approximately $12,850,000, matured on February 15,
1996.
Negotiations were being conducted during early 1996 to refinance or
otherwise restructure the first and second mortgages. Based on an
internal valuation, at that time, the likelihood of obtaining continued
financing would be difficult. Therefore, the Partnership had determined
that interest on this loan should not be accrued.
Due to the uncertainty associated with the ultimate collectibility of the
Pike Creek loan, an additional allowance for loan losses in the amount of
$946,000 was established during March 1995, which reduced the carrying
value of the loan to $1,050,832.
In November 1996 this loan was amended and restated (the "Amended Note").
The Amended Note has a principal balance of $830,000 which is comprised
of $500,000 of the original loan made by the Partnership and $330,000 of
new funds advanced by the Partnership. The $500,000 portion of the
Amended Note bears interest at 7% per annum and the $330,000 portion
bears interest at 12% per annum, both compounded annually. The amendment
was necessary in order to facilitate the refinancing of the first
mortgage loan which was in default. Additionally, it allowed for the
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Pike Creek loan (continued)
satisfaction of the second mortgage loan. The $330,000 advanced to the
Pike Creek borrower was used, in addition to funds provided by the Pike
Creek borrower to satisfy its second mortgage loan payable. Both portions
of the Amended Note will be serviced by a percentage of net cash flow
from the property. Net cash flow is defined as the amount by which, in
any calendar year, rent received by the Pike Creek borrower exceeds all
costs and expenses incurred in connection with the property, including
debt service. In addition, various provisions were made for the
Partnership to receive additional interest from the Pike Creek borrower
upon the sale or refinancing of the property.
Stockfield loan
The property securing the Stockfield loan is 96% occupied by Shell
California Productions, Inc. ("Shell") whose lease expires in August
1999, approximately three years after the first mortgage loan matured on
April 1, 1996 and approximately one year after the Partnership's loan
matures on March 31, 1998. Shell is presently paying rent that exceeds
market rates for the area. Shell is unlikely to exercise its renewal
option without renegotiating the rental downward to market rates and may
make no decision with respect to renewal before the first mortgage or the
Stockfield loan matures. These factors are likely to hinder Stockfield
Associates Limited Partnership ("Stockfield"), the owner of the property
which secures the Stockfield loan, in its ability to obtain refinancing.
As a result, the Partnership decided in 1993 to cease accruing interest
on the Stockfield loan.
Due to the uncertainty associated with the ultimate collectibility of the
Stockfield loan, an additional allowance for loan losses in the amount of
$2,106,000 was established in March 1995, which reduced the carrying
value of the loan to $2,340,260. In August 1995, the Partnership entered
into an agreement with Stockfield to restructure the Stockfield loan (the
"Restructuring"). The Restructuring is premised upon Stockfield
satisfying the following conditions (i) the existing lease with Shell
must be replaced by a bond type net lease which extends the expiration
date of the property lease, (ii) the first mortgage must be refinanced or
restructured and (iii) the net present value of the cash flow available
to Stockfield from the restructured lease, after payment of debt service
on the refinanced/restructured first mortgage indebtedness (the "Net Cash
Flow"), must be equal to or greater than $8 million, using an annual
discount factor of 8% without regard to the final residual value of the
property owned by Stockfield. Currently, these conditions have not been
satisfied and Stockfield is in the process of negotiating an extension of
the first mortgage while continuing to meet debt service requirements.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Stockfield loan (continued)
Given the contingencies of the Stockfield Restructuring, the impact on
the Partnership cannot be determined at the present time. As such,
management believes that no additional provision for loan loss is
required at December 31, 1996.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Date
Interest Compound Loan Maturity Prepayment is
Description Rate Period Date Date Permissable
----------- ---- ------ ---- ---- -----------
<S> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (k) 14.50% Annual 20-Dec-85 (k) (k)
Berkeley, CA
Stockfield Associates (b)(c) 14.50% Annual 1-Apr-86 31-Mar-98 1-Apr-96
Bakersfield, CA
Research Triangle (d)(l) 13.675% Monthly 1-Jan-88 (l) (l)
Raleigh Durham, NC
Lenox Towers (l) 13.46% Monthly 26-Aug-88) (j) (j)
Atlanta, GA
Shopping Centers
Big Valley Associates (d)(m) 13.40% Monthly 31-Dec-99 31-Dec-99 1-Jan-97
Wilmington, DE
B.P. Associates (e) 13.40% Monthly (e) (e) (e)
Brentwood, TN
Boram (g) 14.50% Annual (g) (g) (g)
Shreveport, LA
Park Place (h) 13.46% Monthly (h) (h) (h)
Memphis, TN
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Interest recognized
----------------------------
Mortgage Mortgage Year Ended
Amount Purchased Placement December 31, 1995 and
Description Advanced Interest Fee 1996 Prior
----------- -------- -------- --- ---------- -----
<S> <C> <C> <C> <C> <C>
Office Buildings
Berkeley Western (k) $ 2,250,000 $ 94,079 $ 137,483 - $ -
Berkeley, CA
Stockfield Associates (b)(c)
Bakersfield, CA 4,200,000 137,142 254,378 - 89,000
Research Triangle (d)(l)
Raleigh Durham, NC 3,000,000 - 175,953 - 2,068,560
Lenox Towers (j)
Atlanta, GA 6,045,832 - 354,594 - -
Shopping Centers
Big Valley Associates (d)(m) 1,305,000 - 57,185 8,175 1,069,479
Wilmington, DE
B.P. Associates (e) 1,900,000 - 111,437 - 69,693
Brentwood, TN
Boram (g) 6,900,000 - 404,692 - 863,769
Shreveport, LA
Park Place (h) 3,030,000 - 177,713 - -
Memphis, TN
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Contractual
Carrying Value Balance (a)
December 31, December 31,
Write-offs -----------------------------------------------------
Description Reserves net of recoveries 1996 1995 1996 1995
-----------
<S> <C> <C> <C> <C>
Office Buildings
Berkeley Western (k) - $(2,481,562) $ - $ - (k) (k)
Berkeley, CA
Stockfield Associates (b)(c) (2,340,260) - 2,340,260 2,340,260 18,035,899 15,751,877
Bakersfield, CA
Research Triangle (d)(l) (3,882,257) - 1,362,256 1,362,256 (l) (l)
Raleigh Durham, NC
Lenox Towers (j) - (6,400,426) - - (j) (j)
Atlanta, GA
Shopping Centers
Big Valley Associates (d)(m) (1,050,832) - 1,389,007 1,050,832 838,175 2,831,314
Wilmington, DE
B.P. Associates (e) - (856,269) 1,224,861 - (e) (e)
Brentwood, TN
Boram (g) - (8,168,461) - - (g) (g)
Shreveport, LA
Park Place (h) - (3,207,713) - - (h) (h)
Memphis, TN
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
<TABLE>
<CAPTION>
Date Mortgage Mortgage
Interest Compound Loan Maturity Prepayment is Amount Purchased Placement
Description Rate % Period Date Date Permissible Advanced Interest Fees
- ----------- ------ ------ ---- ---- ------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
West Palm (c) 13.46% Monthly 16-Jun-88 1-Jul-2000 1-Jul-97 $9,200,000 - 539,589
Los Angeles, CA
Industrial/Commercial
Tri-State (b)(c)(l) 13.46% Monthly 22-Jun-88 30-Jun-2000 1-Jul-97 1,800,000 - 105,572
Kentucky, Nebraska,
Pennsylvania
Southern Inns, (f) 13.46% Monthly 29-Jun-88 (f) (f) 4,000,000 - 234,604
North and South Carolina,
Virginia ----------- -------- ----------
$43,630,832 $231,221 $2,553,200
=========== ======== ==========
<PAGE>
<CAPTION>
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Interest recognized Contractual
------------------- Carrying Value Balance (a)
Write-offs December 31, December 31,
June 30, 1995 and net of ------------------- -------------------------
Description 1996 Prior Reserves recoveries 1996 1995 1996 1995
- ----------- ---- ----- ---------- ---------- ---------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Residential
West Palm (c) $ - $ - $(9,739,589) $ - $ - $ - 28,826,915 25,198,003
Los Angeles, CA
Industrial/Commercial
Tri-State (b)(c)(l) 3,673,614 57,950 - - 5,637,136 - 5,631,611 4,926,086
Kentucky, Nebraska,
Pennsylvania
Southern Inns, (f) - - - (4,234,604) - - (f) (f)
North and South Carolina,
Virginia
----------- ---------- ------------ ------------ ----------- ---------- ----------- -----------
$3,681,789 $4,218,451 $(17,012,938) $(25,349,035) $11,953,520 $4,753,348 $53,332,600 $48,707,280
========== ========== ============ ============ =========== ========== =========== ===========
<PAGE>
(a) Contractual balance represents the amount to be paid by the borrower if the
loan were liquidated as of December 31, of each year, including principal plus
interest earned to such date.
(b) The Partnership may be entitled to additional interest in the appreciation
of property, which additional interest is subordinated to a specified return to
the borrowers.
(c) These loans are accounted for under the investment method.
(d) These loans are accounted for under the interest method.
(e) In December 1992, a Plan of Reorganization was confirmed and the Partnership
received Equity Participation Certificates. In Febraury, 1997, the property
wassold and the partnership reeive $1,221,861 for its share of the Equity.
(f) In April 1993, the Partnership acquired a property through foreclosure of
the original loan. The partnership recognized income of $235,644 in 1993, as
previously mentioned.
(g) In July 1993, the loan was restructured. The Partnership now has a
participating interest in a future sale of the property.
(h) The property securing this loan was foreclosed upon by the senior lender on
January 13, 1994. The Partnership lost its entire investment in this loan.
(i)The loan was repaid in January, 1997.
(j) The property securing this loan was foreclosed upon by the senior lender on
April 5, 1994. The Partnership lost its entire investment in this loan.
(k) In November 1994, a Plan of Reorganization was confirmed which converted the
Partnership's original investment into a non-interest bearing note for $550,000
and participating interest in the future sale of the property.
(l) During 1995, the Partnership conveyed its interest in this loan in exchange
for a participation interest in the cash flow of the Senior Wrap Mortgage
holder.
(m) During 1996, the Partnership amended and restated this loan. The new loan of
$830,000 consists of two components; $550,000 and $330,000 bearing interest at
7% and 12% per annum, respectively plus equity participation provisions.
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
A summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Investment Interest
Method Method Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1994 .............. $ 4,446,494 $ 6,978,868 $ 11,425,362
Provision for loan losses ............. -- -- --
Interest recognized ................... -- -- --
------------ ------------ ------------
Balance, December 31, 1994 ............ 4,446,494 6,978,868 11,425,362
Provision for loan losses ............. (2,106,234) (4,565,780) (6,672,014)
Interest recognized ................... -- -- --
------------ ------------ ------------
Balance, December 31, 1995 ............ 2,340,260 2,413,088 4,753,348
Additional funding .................... -- 330,000 330,000
Recovery of loan loss provision ....... 1,963,522 -- 1,963,522
Recovery of loan previously written-off -- 1,224,861 1,224,861
Interest recognized ................... 3,673,614 8,175 3,681,789
------------ ------------ ------------
Balance, December 31, 1996 ............ $ 7,977,396 $ 3,976,124 $ 11,953,520
============ ============ ============
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
4 INVESTMENTS IN MORTGAGE LOANS AND ALLOWANCE FOR LOAN LOSSES (continued)
Unaudited financial information for mortgage loans accounted for under
the investment method, which exceed 10% of the Partnership's original
capital contributions, is summarized as follows:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1996 1995
West Palm (Unaudited) (Unaudited)
--------- ----------- -----------
<S> <C> <C>
Real estate assets $ * $ *
Total liabilities * *
Rental income * *
Net operating loss * *
</TABLE>
West Palm is a residential property located in Los Angeles, California.
In addition to the mortgage loan interest payable at 13.46% per annum,
compounded monthly, the Partnership is entitled to 13.63% of the
appreciation of the property subordinated to a specified return to the
owners of the property. In no event shall the additional interest on the
West Palm loan cause the compounded annual return to exceed 16.3%.
However, as previously discussed, the West Palm loan has been fully
reserved due to operating problems at the property.
* 1996 and 1995 unaudited financial information for West Palm is not yet
available to the Partnership.
Information for mortgage loans accounted for under the investment method,
which do not exceed 10% of the Partnership's original capital
contributions, is listed below:
<TABLE>
<CAPTION>
% Maximum rate
of appreciation of compounded
Description to be received interest on loan
----------- -------------- ----------------
<S> <C> <C>
Stockfield loan 10.00% 14.79%
</TABLE>
Participation in the appreciation of property is subject to a specified
return to the borrowers. In no event shall the additional interest on the
above loan cause the compounded annual return of such loan to exceed the
listed maximum rate of compounded interest. However, as previously
discussed, the above mortgage loan has been partially reserved due to
operating problems at the property.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
5 REAL ESTATE
On April 1, 1993 the Partnership acquired title by foreclosure and
assumed ownership responsibilities of a hotel property, the Richmond
Comfort Inn Executive Center, located in Richmond, Virginia, which was
part of the Partnership's collateral for the Southern Inns loan.
The Partnership had originally loaned Southern Inns $4,000,000 secured by
seven properties, one of which was this hotel. The Partnership acquired
title by foreclosure to this property subject to a first mortgage. The
Partnership has recorded the land and buildings acquired by the
foreclosure at an initial cost equal to the existing first mortgage. The
operating income and expenses of the hotel are reflected in the
statements of operations.
A summary of the Partnership's real estate is as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
1996 1995
----------- -----------
<S> <C> <C>
Land ......................... $ 444,700 $ 444,700
Buildings and improvements ... 3,613,438 3,531,652
----------- -----------
4,058,138 3,976,352
Less: accumulated depreciation (327,854) (238,536)
----------- -----------
$ 3,730,284 $ 3,737,816
=========== ===========
</TABLE>
The land, building and improvements are pledged to collateralize the
mortgage loan payable.
6 MORTGAGE LOAN PAYABLE
In connection with the foreclosure of the Richmond Comfort Inn, the
Partnership acquired the property subject to a $4,000,000 nonrecourse
promissory note, secured by a first mortgage on the hotel property.
Interest rates on the loan are adjustable every five years with a current
interest rate of 9.49% effective through April 1, 1997. Interest is based
on a 2% premium over the Federal Home Loan Bank of Atlanta Five Year
Advance Rate. The loan requires monthly payments of interest and
principal aggregating $33,701. Interest expense for the years ended
December 31, 1996, 1995 and 1994 amounted to $342,110, $347,730 and
$353,088, respectively. The loan is held by the Resolution Trust Company
and the lender is permitted to accelerate the note as of April 1, 1997,
and thereafter with six months notice. The loan matures on February 1,
2016. A prepayment penalty of 2%, reducing to 1%, exists for the first
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6 MORTGAGE LOAN PAYABLE (continued)
two years after an interest rate change.
Minimum principal payments on the mortgage loan payable during the next
five years and thereafter, based upon the current interest rate, are as
follows:
<TABLE>
<CAPTION>
<S> <C>
Year ending December 31,
1997 $ 68,500
1998 75,300
1999 82,700
2000 90,900
2001 99,900
Thereafter 3,153,400
-----------
$ 3,570,700
===========
</TABLE>
7 COMMITMENTS AND CONTINGENCIES
Status of Integrated
On February 13, 1990, Integrated, the sole shareholder of the
Administrative and Investment General Partners, filed a voluntary
petition for reorganization under Chapter 11 of the United States
Bankruptcy Code. While Integrated's bankruptcy did not directly affect
the Partnership's operations, it has resulted in certain changes.
On August 8, 1994, the Bankruptcy Court confirmed a Plan of
Reorganization (the "Steinhardt Plan") proposed by Steinhardt Management
Company, Inc. and the Official Committee of Subordinated Bondholders and
on November 3, 1994, the Steindhardt Plan was consummated. Presidio
purchased substantially all of the assets of Integrated, including its
interest in the Administrative and Investment General Partners. Presidio
is a British Virgin Islands corporation owned 12% by IR Partners, a
general partnership, and 88% by former creditors of Integrated.
The Partnership filed a Proof of Claim against Integrated in Integrated's
Chapter 11 proceeding with respect to certain potential and unliquidated
claims and disputes involving Integrated and its affiliates. These claims
and disputes have not resulted in any adjustments to the accompanying
financial statements, nor is it possible to determine at this time
whether such adjustments may be warranted in the future. These claims
have not been resolved although a cash reserve has been established by
Presidio in the amount of $434,848 with respect to these claims.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7 COMMITMENTS AND CONTINGENCIES (continued)
Legal proceedings
HEP Action
On or about May 11, 1993, three public real estate partnerships (the "HEP
Partnerships") including High Equity Partners, L.P. Series 86, in which
the Administrative General Partner is also a General Partner, were
advised of the existence of an action (the "HEP Action") filed in the
Superior Court for the State of California for the County of Los Angeles,
by Mark Erwin, Trustee, Mark Erwin Sales, Inc. Defined Benefit Plan;
Nancy Cooper, Trustee of Nancy Cooper Individual Retirement Account; and
Leonard Drescher, Trustee of Drescher Family Trust Account individually
and purportedly on behalf of a class consisting of all of the purchasers
of limited partnership interests in the HEP Partnerships (the
"Plaintiffs"). The HEP Action names as defendants the Administrative
General Partner and several individuals who are general partners of the
former Associate General Partner, among others.
On November 30, 1995, the original plaintiffs and the intervening
plaintiffs filed a Consolidated Class and Derivative Action Complaint
against the General Partners alleging, among other things, breach of
fiduciary duties, breach of contract, and negligence.
On or about January 31, 1996, the parties to the HEP Action agreed upon a
revised settlement, which would be significantly more favorable to the
Plaintiffs than the previously proposed settlement. The revised
settlement proposal, like the previous proposal, involves the
reorganization of the HEP Partnership. Upon the effectuation of the
revised settlement, the HEP Action would be dismissed with prejudice.
On July 18, 1996, the Court preliminarily approved the revised
settlement. In August 1996, the Court approved the form and method of
notice regarding the revised settlement which was sent to the HEP limited
partners.
Only approximately 2.5% of the limited partners of the HEP Partnerships
elected to "opt out" of the revised settlement. Despite this, following
the submission of additional briefs, the Court entered an order on
January 14, 1997 rejecting the revised settlement and concluding that
there had not been an adequate showing that the settlement was fair and
reasonable. Thereafter, the Plaintiffs filed a motion seeking to have the
Court reconsider its order. However, the defendants withdrew the revised
settlement and at a hearing on February 24, 1997, the Court denied the
Plaintiffs' motion. Also at the February 24, 1997 hearing, the Court
recused itself from considering a motion to intervene and to file a new
complaint in intervention by one of the objectors to the revised
settlement, granted the request of one of the Plaintiffs' law firm to
withdraw as class counsel and scheduled future hearings on various
matters.
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
7 COMMITMENTS AND CONTINGENCIES (continued)
In the event that there is no settlement of the remaining claims, the
Administrative General Partner intends to vigorously contest such claims
and have, along with the other defendants, previously filed a motion to
dismiss the HEP Action, which is currently pending before the Superior
Court. It is impossible at this time to predict what the defense of this
lawsuit will cost the Administrative General Partner and whether such
costs could adversely effect the Administrative General Partners' ability
to perform its obligations to the Partnership.
8 RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER FINANCIAL
STATEMENTS TO TAX BASIS
The Partnership files its tax returns on an accrual basis. Additionally,
the Partnership recognizes interest income on all of its investments in
mortgage loans for tax purposes using the interest method. For financial
statement purposes mortgage loans accounted under the investment method
recognize income as described in Note 2.
A reconciliation of net income (loss) per financial statements to the tax
basis of accounting is as follows:
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8 RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER FINANCIAL
STATEMENTS TO TAX BASIS (continued)
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income (loss) per financial
statements ...................... $ 7,113,916 $ (6,713,010) $ (239,929)
Interest income recognized for
tax purposes in excess of
financial statements ............ (749,971) 2,911,647 3,503,338
Accrued expenses not recognized
for tax purposes ................ 256,094 -- --
Provision for loan losses not
recognized for tax purposes ..... -- 6,672,014 --
Tax depreciation in excess of
financial statement purposes .... (23,410) (23,311) (22,552)
Recovery of loan loss previously
reserved for financial statements (1,963,522) -- --
Tax write-off of loans previously
reserved for financial statements (1,837,010) (17,876,091) (23,230,137)
------------ ------------ ------------
Net income (loss) per tax basis . $ 2,796,097 $(15,028,751) $(19,989,280)
============ ============ ============
</TABLE>
<PAGE>
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
8 RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER FINANCIAL
STATEMENTS TO TAX BASIS (continued)
The differences between the Partnership's net assets per financial
statements to the tax basis of accounting are as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net assets per financial statements .......... $ 13,670,679 $ 6,556,763
Interest income recognized for tax purposes
in excess of amounts recognized for
financial statement purposes ............ 18,755,482 21,342,463
Allowance for loan losses .................... 17,012,938 18,976,460
Syndication costs ............................ 3,918,690 3,918,690
Due to affiliates ............................ 256,094 --
Cumulative tax depreciation in excess of
financial statement depreciation ........ (83,279) (59,869)
------------ ------------
Net assets per tax basis ..................... $ 53,530,604 $ 50,734,507
============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Building Building
Encum- and Carrying and
Description brances Land Improvements Improvements Costs Land Improvements Total
----------- ------- ---- ------------ ------------ ----- ---- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Comfort Inn $3,570,723 $444,700 $3,303,821 $309,617 $ - $444,700 $3,613,438 $4,058,138
---------- -------- ---------- -------- --- -------- ---------- ----------
Hotel
Richmond, VA
<CAPTION>
Life on Which
Depreciation In
Latest Income
Accumulated Date of Date Statement is
Description Depreciation Construction Acquired Computed
----------- ------------ ------------ -------- --------
<S> <C> <C> <C> <C>
$327,854 N/A 04/01/93 40 YEARS
Comfort Inn -------- Straight-line
Hotel method
Richmond, VA
</TABLE>
<PAGE>
(A) RECONCILIATION OF REAL ESTATE OWNED
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $3,887,817 $3,959,701 $3,976,352
Additions during year
Improvements 71,884 16,651 81,786
---------- ---------- ----------
Balance at end of year $3,959,701 $3,976,352 $4,058,138
========== ========== ==========
(B) RECONCILIATION OF ACCUMULATED DEPRECIATION
Year ended December 31,
------------------------------------
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Balance at beginning of year $ 62,694 $ 150,452 $ 238,536
Additions during year
Depreciation 87,758 88,084 89,318
--------- --------- ---------
Balance at end of year $ 150,452 $ 238,536 $ 327,854
========= ========= =========
Note: The aggregate cost for federal income tax purposes is $4,058,138 at
December 31, 1996.
</TABLE>
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
III - 9
PART III
Item 10. Directors and Executive Officers of Registrant
There are no officers or directors of Registrant. The Administrative General
Partner has overall administrative responsibility for Registrant and for
operations and for resolving conflicts of interest after the net proceeds of the
offering are invested in Mortgage Loans. The Investment General Partner has
responsibility for the selection, evaluation, negotiation and disposition of
Mortgage Loans. The Associate General Partner will not devote any material
amount of its business time and attention to the affairs of Registrant. The
Administrative General Partner and the Investment General Partner are
wholly-owned subsidiaries of Presidio and were incorporated in Delaware in
September 1985. The Administrative General Partner also serves as the
administrative general partner of High Equity Partners L.P. -- Series 86 and
Resources Pension Shares 5, L.P. The Investment General Partner also serves as
the managing general partner of Resources Accrued Mortgage Investor 2 L.P. ("RAM
2"). On February 13, 1990 Integrated filed a voluntary petition for
reorganization under Chapter 11 of the Bankruptcy Code. On August 8, 1994, the
Bankruptcy Court confirmed a Plan of Reorganization proposed by Steinhardt
Management Company and the Official Committee of Subordinated Bondholders. This
Plan was consummated November 3, 1994. See Item 1, "Business", for a discussion
regarding the change of ownership of the Investment and Administrative General
Partners.
Based on a review of Forms 3 and 4 and amendments thereto furnished to
Registrant pursuant to Rule 16a-3(e) under the Securities Exchange Act of 1934,
as amended (the "Exchange Act") during its most recent fiscal year and Forms 5
and amendments thereto furnished to Registrant with respect to its most recent
fiscal year and written representations received pursuant to Item 405(b)(2)(i)
of Regulation S-K, none of the General Partners, directors or officers of the
General Partners or beneficial owners of more than 10% of the Units failed to
file on a timely basis reports required by Section 16(a) of the Exchange Act
during the most recent fiscal or prior fiscal years. However, no written
representations were received from the partners of the former Associate General
Partner.
<PAGE>
As of March 15, 1997, the executive officers and directors of the Administrative
Partner were as follows:
<TABLE>
<CAPTION>
Has Served as a Director
Director and/or
Name Age Position Officer Since
- ---- --- -------- -------------
<S> <C> <C> <C>
Joseph M. Jacobs 43 Director and President November 1994
- -------------------------------------------------------------------------------------------------
Jay L. Maymudes 36 Director, Vice President, November 1994
Secretary and Treasurer
- -------------------------------------------------------------------------------------------------
Arthur H. Amron 40 Vice President and Assistant November 1994
Secretary
- -------------------------------------------------------------------------------------------------
Robert Holtz 29 Vice President November 1994
- -------------------------------------------------------------------------------------------------
Mark Plaumann 41 Vice President March 1995
- -------------------------------------------------------------------------------------------------
Frederick Simon 42 Vice President February 1996
- -------------------------------------------------------------------------------------------------
</TABLE>
As of March 15, 1996, Frank Goveia is a Director of the Investment General
Partner. As of February 1996, Frederick Simon is the President of the Investment
General Partner. All other executive officers and directors are the same as in
the Administrative General Partner.
Joseph M. Jacobs has been a director and President of Presidio since its
formation in August 1994 and a Director, Chief Executive Officer, President and
Treasurer of Resurgence Properties Inc., a company engaged in diversified real
estate activities ("Resurgence"), since its formation in March 1994. As of
January 1, 1996, Mr. Jacobs was a member and the President of Wexford. From May
1994 to December 1995, Mr. Jacobs was the President of Wexford Management Corp.
From 1982 through May 1994, Mr. Jacobs was employed by, and since 1988 was the
President of, Bear Stearns Real Estate Group, Inc., a firm engaged in all
aspects of real estate, where he was responsible for the management of all
activities, including maintaining worldwide relationships with institutional and
individual real estate investors, lenders, owners and developers.
Jay L. Maymudes has been the Chief Financial Officer, a Vice President and
Treasurer of Presidio since its formation in August 1994 and the Chief Financial
Officer and a Vice President of Resurgence since July 1994, Secretary of
Resurgence since January 1995 and Assistant Secretary from July 1994 to January
1995. Since January 1, 1996, Mr. Maymudes has been the Chief Financial Officer
and a Senior Vice President of Wexford and was the Chief Financial Officer and a
Vice President of Wexford Management Corp. from July 1994 to December 1995. He
also is a Vice President of Wexford Capital. From December 1988 through June
1994, Mr. Maymudes was the Secretary and Treasurer, and since February 1990 was
the Senior Vice President of Dusco, Inc., a real estate investment advisor,
where he was responsible for all financial, tax, treasury and financing
functions.
<PAGE>
Arthur H. Amron has been a Vice President of certain subsidiaries of Presidio
since November 1994. Since January 1996, Mr. Amron has been a Senior Vice
President and the General Counsel of Wexford. Also, from November 1994 to
December 1995, Mr. Amron was the General Counsel and, since March 1995, a Vice
President of Wexford Management Corp. From 1992 through November 1994, Mr. Amron
was an attorney with the law firm of Schulte, Roth and Zabel. Previously, Mr.
Amron was an attorney with the law firm of Debevoise & Plimpton.
Robert Holtz has been a Vice President and Secretary of Presidio since its
formation in August 1994 and a Vice President and Assistant Secretary of
Resurgence since its formation in March 1994. Since January 1, 1996, Mr. Holtz
has been a Senior Vice President and member of Wexford and was a Vice President
of Wexford Management Corp. from May 1994 to December 1995. From 1989 through
May 1994, Mr. Holtz was employed by, and since 1993 was a Vice President of,
Bear Stearns Real Estate Group, Inc., where he was responsible for analysis,
acquisitions and management of the assets owned by Bear Stearns Real Estate and
its clients.
Mark Plaumann has been a Senior Vice President of Wexford since January 1996.
From February 1995 through December 1995, Mr. Plaumann had been a Senior Vice
President of Wexford Management Corp. Mr. Plaumann was employed by Alvarez and
Marsel, Inc. as a Managing Director from February 1990 through January 1995, by
American Healthcare Management Inc. from February 1985 to January 1990 and by
Ernst & Young from January 1973 to February 1985.
Frederick Simon was a Senior Vice President of Wexford Management Corp. from
November 1995 to December 1995. Since January 1996, Mr. Simon has been a Senior
Vice President of Wexford. He is also a Vice President of Resurgence. From
January 1994 through November 1995, Mr. Simon was an independent real estate
investor. From 1984 through 1993, Mr. Simon was Executive Vice President and a
Partner of Greycoat Real Estate Corporation, the United States arm of Greycoat
PLC, a London stock exchange real estate investment and development company.
Frank Goveia has been the Chief Operating Officer and Senior Vice President of
Wexford since January 1996. From July 1994 to December 1995, Mr. Goveia was a
Vice President of Wexford Management Corp. Mr. Goveia was associated with
Integrated from February 1983 to November 1994, and was a Senior Vice President
since 1990, primarily involved in financial reporting and controls.
All of the directors will hold office until the next annual meeting of the
stockholders of the Administrative and the Investment General Partner, as the
case may be, and until their successors are elected and qualified.
There are no family relationships between any executive officer and any other
executive officer or any director of the Administrative General Partner or of
the Investment General Partner.
Many of the above officers, directors and partners of the Investment General
Partner, the Administrative General Partner and the current Associate General
Partner are also officers and/or directors of the general partners of other
public partnerships affiliated with Presidio or of various subsidiaries of
Presidio.
<PAGE>
In December 1994, Z Square G Partners II, the former Associate General Partner,
notified Registrant of its withdrawal as Associate General Partner. The
withdrawal became effective, after 60 days prior written notice to Limited
Partners, on February 28, 1995. Upon the effective date of such withdrawal,
Presidio Associate GP Corp. became the successor Associate General Partner. As
of March 1, 1997 the names of, as well as the positions held by the officers and
directors of the Associate General Partner were as follows:
<TABLE>
<CAPTION>
Has Served as a Director
Director and/or
Name Age Position Officer Since
- ---- --- -------- -------------
<S> <C> <C> <C>
Robert Holtz 29 President and Director March 1995
- ------------------------------------------------------------------------------------------------------
Mark Plaumann 41 Director and Vice President March 1995
- ------------------------------------------------------------------------------------------------------
Jay L. Maymudes 36 Vice President, Secretary and Treasurer March 1995
- ----------------------------------- ------------------------------------------------------------------
Arthur H. Amron 40 Vice President and Assistant Secretary March 1995
- ---------------------------------- -------------------------------------------------------------------
</TABLE>
See the biographies of the above named officers and directors in the preceding
section.
Item 11. Executive Compensation
Registrant is not required to and did not pay remuneration to the officers and
directors of the Investment General Partner, the Administrative General Partner
or the general partners of the former or current Associate General Partner.
Certain executive officers and directors of the General Partners receive
compensation from the General Partners and/or their affiliates (but not from
Registrant) for services performed for various affiliated entities, which may
include services performed for Registrant; however, the Administrative General
Partner believes that any compensation attributable to services performed for
Registrant is not material. See Item 13, "Certain Relationships and Related
Transactions."
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1997, no person owned of record or was known by Registrant to own
beneficially more than 5% of the Units of Registrant.
As of March 1, 1997, neither of the General Partners nor their officers and
directors were known by Registrant to beneficially own Units or shares of
Presidio, the parent of the General Partners.
As of March 1, 1997 there were 8,766,569 outstanding Class A shares of Presidio
common stock (the "Shares"). The following table sets forth certain information
known to Registrant with respect to beneficial ownership of the Shares as of
March 1, 1997, by each person who beneficially owns 5% or more of the Shares,
U.S. $.01 par value. The holders of Class A Shares are entitled to elect three
out of the five members of the Presidio's Board of Directors with the remaining
two directors being elected by holders of the Class B Shares, U.S.
$.01 par value of Presidio.
<PAGE>
<TABLE>
<CAPTION>
Beneficial Ownership
Name of Beneficial Owner Number of Shares Percentage Outstanding
- ------------------------ ---------------- ----------------------
<S> <C> <C>
Thomas F. Steyer/Fleur A. Fairman 4,553,560(1) 51.8%
- ------------------------------------------------------------------------------------------------
John M. Angelo/Michael L. Gordon 1,231,762(2) 14.0%
- ------------------------------------------------------------------------------------------------
Intermarket Corp. 1,000,918(3) 11.4%
- ------------------------------------------------------------------------------------------------
M.H. Davidson & Company 474,205(4) 5.4%
(1) As the managing partners of each of Farallon Capital Partners, L.P.
("FCP"), Farallon Capital Institutional Partners, L.P. ("FCIP"), Farallon
Capital Institutional Partners II, L.P. ("FCIP II") and Tinicum Partners,
L.P. ("Tinicum"), (collectively, the "Farallon Partnerships"), may each
be deemed to own beneficially for purposes of Rule 13d-3 of the Exchange
Act the 1,397,318, 1,610,730, 607,980 and 241,671 shares held,
respectively, by each of such Farallon Partnerships.
Farallon Capital Management, LLC ("FCMLLC"), the investment advisor to
certain discretionary accounts which collectively hold 695,861 shares and
Enrique H. Boilini, David I. Cohen, Joseph F. Downes, Jason M. Fish,
Andrew B. Fremder, William F. Mellin, Steven L. Millham, Meridee A. Moore
and Thomas F. Steyer, as a managing member of FCMLLC (collectively, the
"Managing Members") may be deemed to be the beneficial owner of all of
the shares owned by such discretionary accounts. FCMLLC and each Managing
Member disclaims any beneficial ownership of such shares.
Farallon Partners, LLC ("FPLLC") (the general partner of FCP, FCIP, FCIP
II and Tinicum), and each of Fleur A. Fairman, Mr. Boilini, Mr. Cohen,
Mr. Downes, Mr. Fish, Mr. Fremder, Mr. Mellin, Mr. Millham, Ms. Moore and
Mr. Steyer, each as managing member of FPLLC (collectively, the "Managing
Members"), may be deemed to be the beneficial owner of all of the shares
owned by FCP, FCIP, FCIP II and Tinicum. FPLLC and each managing Member
disclaims any beneficial ownership of such shares.
(2) John M. Angelo and Michael L. Gordon, the general partners and
controlling persons of AG Partners, L.P., which is the general partner of
Angelo, Gordon & Co., L.P., may be deemed to have beneficial ownership
under Section 13(d) of the Exchange Act of the securities beneficially
owned by Angelo, Gordon & Co., L.P. and its affiliates. Angelo, Gordon &
Co., L.P., a registered investment advisor, serves as general partner of
various limited partnerships and as investment advisor of third party
accounts with power to vote and direct the disposition of Class A Shares
owned by such limited partnerships and third party accounts.
(3) Intermarket Corp. serves as General Partner for certain limited
partnerships and as investment advisor to certain corporations and
foundations. As a result of such relationships, Intermarket Corp. may be
deemed to have the power to vote and the power to dispose of Class A
shares held by such partnerships, corporations and foundations.
<PAGE>
(4) Marvin H. Davidson, Thomas L. Kempner Jr., Stephen M. Dowicz, Scott E.
Davidson and Michael J. Leffell, the general partners, members and
stockholders of certain entities that are general partners or investment
advisors of Davidson Kempner Endowment Partners, L.P., Davidson Kempner
Partners, L.P., Davidson Kempner Institutional Partners, L.P., M.H.
Davison and Co. Davidson Kempner International Ltd. (collectively, the
"Investment Funds"), may be deemed to be the beneficial owners under
Sections 13(d) of the Exchange Act of the securities beneficially owned
by the Investment Funds and their affiliates.
In addition, Mr. Kempner owns 800 shares and may be deemed to
beneficially own certain securities held by certain foundations and
trusts. Mr. Kempner disclaims beneficial ownership of such shares.
</TABLE>
All of Presidio's Class B Shares are owned by IR Partners. Such Class B Shares
are convertible in certain circumstances into 1,200,000 Class A Shares; however,
such shares are not convertible at present. IR Partners is a general partnership
whose general partners are Steinhardt Management, certain of its affiliates and
accounts managed by it and Roundhill Associates. Roundhill Associates, is a
limited partnership whose general partner is Charles E. Davidson, the principal
of Presidio Management, the Chairman of the Board of Presidio and a Member of
Wexford. Joseph M. Jacobs, the Chief Executive Officer and President of Presidio
and a Member and the President of Wexford, has a limited partner's interest in
Roundhill Associates. Pursuant to Rule 13d-3 under the Exchange Act, each of
Michael H. Steinhardt, the controlling person of Steinhardt Management and its
affiliates and Charles E. Davidson may be deemed to be beneficial owners of such
1,200,000 shares.
Shares held by each Class A Director of Presidio were issued pursuant to a
Memorandum of Understanding Regarding Compensation of Class A Directors of
Presidio. (See "Executive Compensation - Compensation of Directors.")
The address of Thomas F. Steyer and the other individuals mentioned in footnote
1 to the table above (other than Fleur A. Fairman) is c/o Farallon Capital
Partners, L.P., One Maritime Plaza, San Francisco, California 94111 and the
address of Fleur A. Fairman is c/o Farallon Capital Management, Inc., 800 Third
Avenue, 40th Floor, New York, New York 10022. The address of Angelo, Gordon &
Co., L.P. and its affiliates is 245 Park Avenue, 26th Floor, New York, New York
10167. The address for Intermarket Corp. Is 667 Madison Avenue, New York, New
York 10021. The address of M.H. Davidson is 885 Third Avenue, New York, New York
10022.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The General Partners have, during Registrant's year ended December 31, 1996,
earned or received compensation or payments for services from or with respect to
Registrant or Integrated as follows:
<TABLE>
<CAPTION>
Name of Recipient Capacity in Which Served Compensation
- ----------------- ------------------------ ------------
<S> <C> <C>
Resources Capital Corp. Servicing of Mortgage Loans $ 93,527 (1)
- -------------------------------- ------------------------------------ --------------------
Resources Capital Corp. Management of Registrants' Assets $ 162,567 (2)
- -------------------------------- ------------------------------------ --------------------
Resources Capital Corp. General Partner $ 348,582 (3)
- -------------------------------- ------------------------------------ --------------------
RAM Funding, Inc. General Partner $ 3,557 (3)
- -------------------------------- ------------------------------------ --------------------
Presidio AGP Corp. General Partner $ 3,557 (3)
- -------------------------------- ------------------------------------ --------------------
(1) This amount represents fees (and interest) earned during 1996 by the
Administrative General Partner for servicing Mortgage Loans, which
fees equal 1/4 of 1% of the outstanding principal amount of the
Mortgage Loans. Payment of this fee is deferred until disposition of
the applicable Mortgage Loan, with interest on the amount deferred at
10% per annum, compounded annually.
(2) This amount represents fees (and interest) earned during 1996 by the
Administrative General Partner for managing the affairs of
Registrant, which fees equal 1/4 of 1% of the Net Asset Value per
annum of Registrant (as defined in Registrant's Partnership
Agreement). Payment of this fee is deferred until disposition of the
Mortgage Loans commences, with interest on the amount deferred at 10%
per annum compounded annually.
(3) The General Partners, pursuant to the Partnership Agreement, are
entitled to receive 5% of Registrant's income, loss, capital and
distributions (4.8% to the Administrative General Partner, .1% to the
Investment General Partner and .1% to the Associate General Partner)
including, without limitation, Registrant's cash flow from operations
and disposition proceeds. Generally, no distributions are expected to
be made from operations inasmuch as all interest and principal due on
the Mortgage Loans is deferred until maturity and distributions
attributable to principal and interest payments are not expected to
be made, unless there are prepayments of Mortgage Loans. In addition,
for the year ended December 31, 1996, the General Partners were
allocated taxable loss of $139,565, representing $136,773 to the
Administrative General Partner, $1,396 to the Investment General
Partner and $1,396 to the Associate General Partner.
</TABLE>
In addition, certain officers and directors of the General Partners receive
compensation from the General Partners and/or their affiliates (but not from
Registrant) for services performed for various affiliated entities, which may
include services performed for Registrant.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
See Item 8, "Financial Statements and Supplementary Data."
(a)(2) Financial Statement Schedules
III. Real Estate and Accumulated Depreciation (with notes)
All other schedules have been omitted because they are inapplicable, not
required, or the information is included in the Financial Statements or Notes
thereto.
(a)(3) Exhibits:
3. Amended and Restated Certificate of Limited Partnership (incorporated
by reference to Exhibit 3B to Amendment No. 1 to the Registration
Statement on Form S-11 (No. 33-00836) dated January 28, 1986 (Such
Registration Statement, as amended, is referred to herein as the
"Registration Statement")).
4. (A) Amended and Restated Partnership Agreement of Registrant dated as
of September 25, 1985 ("Partnership Agreement") (incorporated by
Reference to Exhibit 3A to the Registration Statement).
(B) Amendment to Partnership Agreement dated as of March 10, 1986
(incorporated by reference to Exhibit 3(a) to Post Effective
Amendment No. 1 to the Registration Statement).
(C) Amendment to Partnership Agreement dated as of April 1, 1988
(incorporated by reference to Exhibit 4(c) of Registrant's Annual
Report on Form 10-K for the period ended December 31, 1988
(hereinafter referred to as the "1988 10-K")).
(D) Amendment to Partnership Agreement dated as of January 23, 1989
(incorporated by reference to Exhibit 4(D) of 1988 10-K).
(E) Amendment to Partnership Agreement dated as of July 31, 1991
(incorporated by reference to Exhibit 4(E) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1991).
10. (A) Mortgage Services Agreement between Registrant and the
Administrative General Partner (incorporated by reference to Exhibit
10B to the Registration Statement).
(B) Agreement among the Administrative General Partner, the Associate
General Partner and Integrated Resources, Inc. (incorporated by
reference to Exhibit 10C to the Registration Statement).
<PAGE>
(C) Agreement dated as of March 1, 1986 among Registrant, the
Administrative General Partner, the Investment General Partner and
Rosenberg and Rosenberg, P.C. (incorporated by reference to Exhibit
10D to Post Effective No. 1 to the Registration Statement). (D)
Amendment to Agreement dated as of June 20, 1990 among Registrant,
the Administrative General Partner, the Investment General Partner
and Rosenberg and Rosenberg, P.C. (incorporated by reference to
Exhibit 10(D) to Registrant's Annual Report on Form 10-K for the
fiscal year ended December 31, 1990).
(E) Assignment dated April 25, 1986 by MAR Corp. to Registrant of the
Amendment and Restatement of Deed of Trust and Replacement Deed of
Trust Note Second Note and Second Mortgage (incorporated by reference
to Exhibit 10(a) to Registrant's Current Report on Form 8-K dated May
15, 1986).
(F) Replacement Deed of Trust Note dated as of December 20, 1985,
payable by Berkeley Western Associates Limited Partnership to the
order of Resources Real Estate Finance Group, Inc. in the original
principal amount of $2,250,000 (incorporated by reference to Exhibit
10(b) to Registrant's Current Report on Form 8-K dated May 15, 1986).
(G) Amendment and Restatement of Deed of Trust and Assignment of
Rents entered into as of February 28, 1986 between Berkeley Western
Associates Limited Partnership and Resources Real Estate Finance
Group, Inc. (incorporated by reference to Exhibit 10(c) to
Registrant's Current Report on Form 8-K dated May 15, 1986).
(H) Assignment dated April 1, 1986 by Resources Real Estate Finance
Group, Inc., to Registrant of the Amendment and Restatement Deed of
Trust Note Second Note and Second Mortgage (incorporated by reference
to Exhibit 10(a) to Registrant's Current Report on Form 8-K dated
August 5, 1986).
(I) Deed of Trust Note dated as of April 1, 1986, payable by
Stockfield Associates Limited Partnership to the order of Resources
Real Estate Finance Group, Inc. in the original principal amount of
$4,200,000 (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated August 5, 1986).
(J) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing entered into as of April 1, 1986 between Stockfield
Associates Limited Partnership and Resources Real Estate Finance
Group, Inc. (incorporated by reference to Exhibit 10(c) to
Registrant's Current Report on Form 8-K dated August 5, 1986).
(K) Mortgage Note dated December 16, 1987 in the amount of $975,000
made by Big Valley Associates and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated February 10, 1988).
(L) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Big Valley Associates and Registrant (incorporated by
reference to Exhibit 10(b) to Registrant's Current Report on Form 8-K
dated February 10, 1988).
<PAGE>
(M) NW Settlement Agreement, attached as an exhibit to the Third
Amended Plan of Reorganization of BP Shopping Center Associates
Limited Partnership, dated November 10, 1992, confirmed by an Order
of the U.S. Bankruptcy Court, District of Connecticut, entered
November 13, 1992 (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992).
(N) Settlement Agreement, dated as of July 27, 1993, among Boram
Corp., Pierre Property Corporation, Enmass, Inc. (successor by merger
to Gram-Brent Corp.), the Bank of New York and Registrant
incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
(O) Full Release of Liens and Intercreditor Agreement, dated December
4, 1992, executed by Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992). (P) Release, dated December 22, 1992, by The
Northwestern Mutual Life Insurance Company in favor of Registrant
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992).
(Q) Release, dated December 4, 1992, by Registrant in favor of The
Northwestern Mutual Life Insurance Company (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(R) Certificate of Participation, dated December 28, 1992, issued to
Registrant (incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992).
(S) Amended and Restated Mortgage Note dated January 1, 1988 in the
amount of $3,000,000 between Research Triangle Associates Limited
Partnership and Registrant (incorporated by reference to Exhibit
10(a) to Registrant's Current Report on Form 8-K dated February 17,
1988).
(T) Seven Modifications of Deeds of Trust, Security Agreements and
Financing Statements dated January 1, 1988 between Research Triangle
Associates and Registrant (incorporated by reference to Exhibit 10(b)
to Registrant's Current Report on Form 8-K dated February 17, 1988).
(U) Note dated as of January 1, 1988 between Airport Center
Associates Limited Partnership and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated February 17, 1988).
(V) Leasehold Deed of Trust, Assignment of Rents, Security Agreements
and Fixtures dated January 1, 1988 between Airport Center Associates
Limited Partnership and Registrant (incorporated by reference to
Exhibit 10(b) to Registrant's Current Report on Form 8-K dated
February 17, 1988).
(W) First Amendment to Note, Leasehold Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing dated as of December 26,
1990 between Airport Center Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(Y) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
<PAGE>
(X) Second Amendment to Note, Leasehold Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing, dated as of December
29, 1992, between Airport Center Associates Limited Partnership and
Registrant (incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992).
(Y) Subordination Agreement dated as of December 26, 1990 between
Airport Center Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(Z) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990).
(Z) Subordination Agreement dated as of December 29, 1992, between
Airport Center Associates Limited Partnership and Registrant
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992).
(AA) Intercreditor Agreement dated as of December 26, 1990 between
Airport Center Associates Limited Partnership, Registrant and General
Electric Capital Corporation (incorporated by reference to Exhibit
10(AA) to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990).
(BB) Letter Agreement dated as of December 26, 1990 between Airport
Center Associates Limited Partnership and Registrant (incorporated by
reference to Exhibit 10(BB) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990). (CC) Termination
Agreement dated December 29, 1992, between Airport Center Associates
Limited Partnership and Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(DD) Release dated December 29, 1992, by Airport Center Associates
Limited in favor of Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(EE) Release dated December 29, 1992, by Registrant in favor of
Airport Center Associates Limited (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(FF) Note dated as of January 1, 1988 in the amount of $5,000,000
between Clovine Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(a) to Registrant's Current
Report on Form 8-K dated February 23, 1988).
(GG) Open-End Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing between Clovine Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated February 23, 1988).
(HH) Note dated as of February 24, 1988 in the amount of $3,030,000
made by Park Place Associates and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated March 9, 1988).
<PAGE>
(II) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Park Place Associates and Registrant (incorporated by
reference to Exhibit 10(b) to Registrant's Current Report on Form 8-K
dated March 9, 1988).
(JJ) Registered Note dated August 26, 1988 in the amount of
$6,045,832 made by Lenox Tower Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(a) to
Registrant's Current Report on Form 8-K dated August 26, 1988).
(KK) Assignment of Leases and Rents between Lenox Towers Associates
and Registrant (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated August 26, 1988).
(LL) Deed to Secure Debt and Security Agreement between Lenox Towers
Associates and Registrant (incorporated by reference to Exhibit 10(c)
to Registrant's Current Report on Form 8-K dated August 26, 1988).
(MM) Note dated June 16, 1988 between Registrant and West Palm
Associates Limited Partnership (incorporated by reference to Exhibit
10(a) to Registrant's Current Report on Form 8-K dated June 22,
1988).
(NN) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing dated June 16, 1988 between Registrant and West Palm
Associates Limited Partnership (incorporated by reference to Exhibit
10(b) to Registrant's Current Report on Form 8-K dated June 22,
1988).
(OO) Note dated June 29, 1988 between Southern Inns Associates
Limited Partnership and Registrant (incorporated by reference to
Exhibit 10(a) to Registrant's Current Report on Form 8-K dated June
30, 1988).
(PP) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing between Southern Inns Associates Limited Partnership
and Registrant (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated June 30, 1988). (QQ)
Mortgage, Assignment of Rents, Security Agreement and Fixture Filing
between Southern Inns Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(c) to Registrant's Current
Report on Form 8-K dated June 30, 1988).
(RR) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing between Southern Inns Associates Limited Partnership
and Registrant (incorporated by reference to Exhibit 10(d) to
Registrant's Current Report on Form 8-K dated June 30, 1988).
(SS) Note dated as of June 22, 1988 in the amount of $1,800,000 made
by Tri-State Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(a) to Registrant's Current
Report on Form 8-K dated June 22, 1988).
(TT) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(1) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
<PAGE>
(UU) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(2) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(VV) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(3) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(WW) Loan Acquisition and Participation Agreement dated August 1,
1995 between 800 Park Group, 600 Park Group, 500 Park Group, 400 Park
Group, 200 Park Group, Teer Shareholders, and Registrant.
(XX) Amended and Restated Note between Big Valley Associates and
Registrant dated November 21, 1996.*
(b) Reports on Form 8-K
Registrant filed the following reports on Form 8-K during the last
quarter of the fiscal year:
None.
* Filed herewith
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized on the 29th day of March, 1997.
RESOURCES ACCRUED MORTGAGE
INVESTORS L.P. - SERIES 86
By: RESOURCES CAPITAL CORP.
Administrative General Partner
Date
By: /s/ Joseph M. Jacobs March 29, 1997
--------------------
Joseph M. Jacobs
President
By: RAM FUNDING
Investment General Partner
By: /s/ Frederick Simon March 29, 1997
-------------------
Frederick Simon
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant in their
capacities (with respect to The Administrative and Investment General Partners)
and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Joseph M. Jacobs Director and President March 29, 1997
- -------------------- (Principal Executive Officer)
Joseph M. Jacobs
/s/ Frank Goveia Director and Vice President March 29, 1997
- ----------------
Frank Goveia
/s/ Jay L. Maymudes Director, Vice President, March 29, 1997
- ------------------- Secretary and Treasurer
Jay L. Maymudes (Principal Financial Officer
and Principal Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit
- -------
3. Amended and Restated Certificate of Limited Partnership (incorporated
by reference to Exhibit 3B to Amendment No. 1 to the Registration
Statement on Form S-11 (No. 33-00836) dated January 28, 1986 (Such
Registration Statement, as amended, is referred to herein as the
"Registration Statement")).
4. (A) Amended and Restated Partnership Agreement of Registrant dated as
of September 25, 1985 ("Partnership Agreement") (incorporated by
Reference to Exhibit 3A to the Registration Statement).
(B) Amendment to Partnership Agreement dated as of March 10, 1986
(incorporated by reference to Exhibit 3(a) to Post Effective
Amendment No. 1 to the Registration Statement).
(C) Amendment to Partnership Agreement dated as of April 1, 1988
(incorporated by reference to Exhibit 4(c) of Registrant's Annual
Report on Form 10-K for the period ended December 31, 1988
(hereinafter referred to as the "1988 10-K")).
(D) Amendment to Partnership Agreement dated as of January 23, 1989
(incorporated by reference to Exhibit 4(D) of 1988 10-K).
(E) Amendment to Partnership Agreement dated as of July 31, 1991
(incorporated by reference to Exhibit 4(E) to Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1991).
10. (A) Mortgage Services Agreement between Registrant and the
Administrative General Partner (incorporated by reference to Exhibit
10B to the Registration Statement).
(B) Agreement among the Administrative General Partner, the Associate
General Partner and Integrated Resources, Inc. (incorporated by
reference to Exhibit 10C to the Registration Statement).
(C) Agreement dated as of March 1, 1986 among Registrant, the
Administrative General Partner, the Investment General Partner and
Rosenberg and Rosenberg, P.C. (incorporated by reference to Exhibit
10D to Post Effective No. 1 to the Registration Statement).
(D) Amendment to Agreement dated as of June 20, 1990 among
Registrant, the Administrative General Partner, the Investment
General Partner and Rosenberg and Rosenberg, P.C. (incorporated by
reference to Exhibit 10(D) to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1990).
(E) Assignment dated April 25, 1986 by MAR Corp. to Registrant of the
Amendment and Restatement of Deed of Trust and Replacement Deed of
Trust Note Second Note and Second Mortgage (incorporated by reference
to Exhibit 10(a) to Registrant's Current Report on Form 8-K dated May
15, 1986).
<PAGE>
(F) Replacement Deed of Trust Note dated as of December 20, 1985,
payable by Berkeley Western Associates Limited Partnership to the
order of Resources Real Estate Finance Group, Inc. in the original
principal amount of $2,250,000 (incorporated by reference to Exhibit
10(b) to Registrant's Current Report on Form 8-K dated May 15, 1986).
(G) Amendment and Restatement of Deed of Trust and Assignment of
Rents entered into as of February 28, 1986 between Berkeley Western
Associates Limited Partnership and Resources Real Estate Finance
Group, Inc. (incorporated by reference to Exhibit 10(c) to
Registrant's Current Report on Form 8-K dated May 15, 1986).
(H) Assignment dated April 1, 1986 by Resources Real Estate Finance
Group, Inc., to Registrant of the Amendment and Restatement Deed of
Trust Note Second Note and Second Mortgage (incorporated by reference
to Exhibit 10(a) to Registrant's Current Report on Form 8-K dated
August 5, 1986).
(I) Deed of Trust Note dated as of April 1, 1986, payable by
Stockfield Associates Limited Partnership to the order of Resources
Real Estate Finance Group, Inc. in the original principal amount of
$4,200,000 (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated August 5, 1986).
(J) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing entered into as of April 1, 1986 between Stockfield
Associates Limited Partnership and Resources Real Estate Finance
Group, Inc. (incorporated by reference to Exhibit 10(c) to
Registrant's Current Report on Form 8-K dated August 5, 1986).
(K) Mortgage Note dated December 16, 1987 in the amount of $975,000
made by Big Valley Associates and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated February 10, 1988).
(L) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Big Valley Associates and Registrant (incorporated by
reference to Exhibit 10(b) to Registrant's Current Report on Form 8-K
dated February 10, 1988).
(M) NW Settlement Agreement, attached as an exhibit to the Third
Amended Plan of Reorganization of BP Shopping Center Associates
Limited Partnership, dated November 10, 1992, confirmed by an Order
of the U.S. Bankruptcy Court, District of Connecticut, entered
November 13, 1992 (incorporated by reference to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992).
(N) Settlement Agreement, dated as of July 27, 1993, among Boram
Corp., Pierre Property Corporation, Enmass, Inc. (successor by merger
to Gram-Brent Corp.), the Bank of New York and Registrant
incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1993.
(O) Full Release of Liens and Intercreditor Agreement, dated December
4, 1992, executed by Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
<PAGE>
(P) Release, dated December 22, 1992, by The Northwestern Mutual Life
Insurance Company in favor of Registrant (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(Q) Release, dated December 4, 1992, by Registrant in favor of The
Northwestern Mutual Life Insurance Company (incorporated by reference
to Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(R) Certificate of Participation, dated December 28, 1992, issued to
Registrant (incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992).
(S) Amended and Restated Mortgage Note dated January 1, 1988 in the
amount of $3,000,000 between Research Triangle Associates Limited
Partnership and Registrant (incorporated by reference to Exhibit
10(a) to Registrant's Current Report on Form 8-K dated February 17,
1988).
(T) Seven Modifications of Deeds of Trust, Security Agreements and
Financing Statements dated January 1, 1988 between Research Triangle
Associates and Registrant (incorporated by reference to Exhibit 10(b)
to Registrant's Current Report on Form 8-K dated February 17, 1988).
(U) Note dated as of January 1, 1988 between Airport Center
Associates Limited Partnership and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated February 17, 1988).
(V) Leasehold Deed of Trust, Assignment of Rents, Security Agreements
and Fixtures dated January 1, 1988 between Airport Center Associates
Limited Partnership and Registrant (incorporated by reference to
Exhibit 10(b) to Registrant's Current Report on Form 8-K dated
February 17, 1988).
(W) First Amendment to Note, Leasehold Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing dated as of December 26,
1990 between Airport Center Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(Y) to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1990).
(X) Second Amendment to Note, Leasehold Deed of Trust, Assignment of
Rents, Security Agreement and Fixture Filing, dated as of December
29, 1992, between Airport Center Associates Limited Partnership and
Registrant (incorporated by reference to Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31, 1992).
(Y) Subordination Agreement dated as of December 26, 1990 between
Airport Center Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(Z) to Registrant's Annual
Report on Form 10-K for the fiscal year ended December 31, 1990).
(Z) Subordination Agreement dated as of December 29, 1992, between
Airport Center Associates Limited Partnership and Registrant
(incorporated by reference to Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992).
<PAGE>
(AA) Intercreditor Agreement dated as of December 26, 1990 between
Airport Center Associates Limited Partnership, Registrant and General
Electric Capital Corporation (incorporated by reference to Exhibit
10(AA) to Registrant's Annual Report on Form 10-K for the fiscal year
ended December 31, 1990).
(BB) Letter Agreement dated as of December 26, 1990 between Airport
Center Associates Limited Partnership and Registrant (incorporated by
reference to Exhibit 10(BB) to Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1990).
(CC) Termination Agreement dated December 29, 1992, between Airport
Center Associates Limited Partnership and Registrant (incorporated by
reference to Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992).
(DD) Release dated December 29, 1992, by Airport Center Associates
Limited in favor of Registrant (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(EE) Release dated December 29, 1992, by Registrant in favor of
Airport Center Associates Limited (incorporated by reference to
Registrant's Annual Report on Form 10-K for the fiscal year ended
December 31, 1992).
(FF) Note dated as of January 1, 1988 in the amount of $5,000,000
between Clovine Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(a) to Registrant's Current
Report on Form 8-K dated February 23, 1988).
(GG) Open-End Mortgage, Assignment of Rents, Security Agreement and
Fixture Filing between Clovine Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated February 23, 1988).
(HH) Note dated as of February 24, 1988 in the amount of $3,030,000
made by Park Place Associates and Registrant (incorporated by
reference to Exhibit 10(a) to Registrant's Current Report on Form 8-K
dated March 9, 1988).
(II) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Park Place Associates and Registrant (incorporated by
reference to Exhibit 10(b) to Registrant's Current Report on Form 8-K
dated March 9, 1988).
(JJ) Registered Note dated August 26, 1988 in the amount of
$6,045,832 made by Lenox Tower Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(a) to
Registrant's Current Report on Form 8-K dated August 26, 1988).
(KK) Assignment of Leases and Rents between Lenox Towers Associates
and Registrant (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated August 26, 1988).
(LL) Deed to Secure Debt and Security Agreement between Lenox Towers
Associates and Registrant (incorporated by reference to Exhibit 10(c)
to Registrant's Current Report on Form 8-K dated August 26, 1988).
<PAGE>
(MM) Note dated June 16, 1988 between Registrant and West Palm
Associates Limited Partnership (incorporated by reference to Exhibit
10(a) to Registrant's Current Report on Form 8-K dated June 22,
1988).
(NN) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing dated June 16, 1988 between Registrant and West Palm
Associates Limited Partnership (incorporated by reference to Exhibit
10(b) to Registrant's Current Report on Form 8-K dated June 22,
1988).
(OO) Note dated June 29, 1988 between Southern Inns Associates
Limited Partnership and Registrant (incorporated by reference to
Exhibit 10(a) to Registrant's Current Report on Form 8-K dated June
30, 1988).
(PP) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing between Southern Inns Associates Limited Partnership
and Registrant (incorporated by reference to Exhibit 10(b) to
Registrant's Current Report on Form 8-K dated June 30, 1988).
(QQ) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Southern Inns Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(c) to
Registrant's Current Report on Form 8-K dated June 30, 1988).
(RR) Deed of Trust, Assignment of Rents, Security Agreement and
Fixture Filing between Southern Inns Associates Limited Partnership
and Registrant (incorporated by reference to Exhibit 10(d) to
Registrant's Current Report on Form 8-K dated June 30, 1988).
(SS) Note dated as of June 22, 1988 in the amount of $1,800,000 made
by Tri-State Associates Limited Partnership and Registrant
(incorporated by reference to Exhibit 10(a) to Registrant's Current
Report on Form 8-K dated June 22, 1988).
(TT) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(1) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(UU) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(2) to
Registrant's Current Report on Form 8-K dated June 22, 1988). \pnf5
(VV) Mortgage, Assignment of Rents, Security Agreement and Fixture
Filing between Tri-State Associates Limited Partnership and
Registrant (incorporated by reference to Exhibit 10(b)(3) to
Registrant's Current Report on Form 8-K dated June 22, 1988).
(WW) Loan Acquisition and Participation Agreement dated August 1,
1995 between 800 Park Group, 600 Park Group, 500 Park Group, 400 Park
Group, 200 Park Group, Teer Shareholders, and Registrant.
(XX) Amended and Restated Note between Big Valley Associates and
Registrant dated November 21, 1996.*
* Filed herewith
EXHIBIT 10XX
AMENDED AND RESTATED NOTE
$830,000.00
As of November 21, 1996
FOR VALUE RECEIVED, BIG VALLEY ASSOCIATES LIMITED PARTNERSHIP,
a Delaware limited partnership having an address c/o Proskauer Rose Goetz &
Mendelsohn LLP, 1585 Broadway, New York, New York 10036 ("Maker"), promises to
pay to the order of RESOURCES ACCRUED MORTGAGE INVESTORS L.P. - SERIES 86,
having an office at c/o Wexford Management Company L.P., 411 West Putnam Avenue,
Greenwich, Connecticut 06830 ("Payee"), at such office of Payee, or at such
other place as may be designated, from time to time, in writing by Payee, (a)
the principal sum of EIGHT HUNDRED THIRTY THOUSAND AND 00/100 ($830,000) DOLLARS
in lawful money of the United States of America, with interest thereon from the
dates set forth below to and including November 21, 2016 (the "Maturity Date")
calculated at the rates of interest set forth below, and (b) Participation
Interest (as hereinafter defined), if any, pursuant to the provisions of
paragraph 7 below. This Note amends and restates in its entirety that certain
Registered Note, dated as of December 16, 1987, made by Maker to Payee in the
original principal amount of $975,000 (the "Original Note").
The following capitalized terms used in this Note shall have
the respective meanings ascribed to them below:
"Affiliate" shall mean an entity which controls, is controlled
by, or is under common control with, Maker.
"Appraised Value" shall mean the fair market value of the
Property as of the date of the subject Participation Interest Event (without
regard to the assumed costs of sale or the unpaid costs and expenses of Maker
incurred in connection with the Property), as determined by the agreement of two
appraisers each having at least ten (10) years experience in the business of
appraising commercial properties, one of whom shall be selected by Maker and one
of whom shall be selected by Payee. In the event that the two appraisers so
selected cannot agree as to the fair market value of the Property, the two
appraisers shall jointly select a third appraiser and shall each advise the
third appraiser of its determination of the Property's fair market value. The
third appraiser shall select either the fair market value determination of the
appraiser selected by Payee or the fair market value determination of the
appraiser selected by Maker as the Appraised Value for purposes of this
agreement.
"Available New Funds Cash Flow", with respect to any calendar
year, shall mean (i) until the Consulting Fee has been paid in full, 19.56% of
the Net Cash Flow allocable to such calendar year, and (ii) after the Consulting
Fee has been paid in full, 20.99% of the Net Cash Flow allocable to such
calendar year.
"Available New Funds Refinancing Proceeds" shall mean (i)
until the Consulting Fee has been paid in full, 19.56% of the Refinancing
Proceeds with respect to any Refinancing or Related Sale, and (ii) after the
Consulting Fee has been paid in full, 20.99% of the Refinancing Proceeds with
respect to any Refinancing or Related Sale.
<PAGE>
"Available New Funds Unrelated Sale Proceeds" shall mean (i)
until the Consulting Fee has been paid in full, 19.56% of the Net Sale Proceeds
of an Unrelated Sale, and (ii) after the Consulting Fee has been paid in full,
20.99% of the Net Sale Proceeds of an Unrelated Sale.
"Available Old Debt Cash Flow", with respect to any calendar
year, shall mean fifty percent (50%) of the amount, if any, by which (i) the Net
Cash Flow with respect to such calendar year exceeds (ii) the aggregate of (a)
payments to Payee from such Net Cash Flow pursuant to paragraph 3(a) below in
respect of outstanding New Funds and unpaid interest accrued thereon, and (b)
amounts retained by Maker from such Net Cash Flow pursuant to paragraph 3(a)
below (inclusive of amounts to be paid by Maker to the Consultant pursuant to
the provisions of paragraph 10 below, if any) in respect of the Maker Funds and
Maker Funds Interest.
"Available Old Debt Refinancing Proceeds" shall mean fifty
percent (50%) of the amount, if any, by which (i) Refinancing Proceeds exceed
(ii) the aggregate of (a) payments to Payee from such Refinancing Proceeds
pursuant to paragraph 4(a) below in respect of outstanding New Funds and unpaid
interest accrued thereon, and (b) amounts retained by Maker from such
Refinancing Proceeds pursuant to paragraph 4(a) below (inclusive of amounts to
be paid by Maker to the Consultant pursuant to the provisions of paragraph 10
below, if any) in respect of the Maker Funds and unpaid Maker Funds Interest.
"Available Old Debt Unrelated Sale Proceeds" shall mean the
amount, if any, by which (i) Net Sale Proceeds exceed (ii) the aggregate of (a)
payments to Payee from such Net Sale Proceeds pursuant to paragraph 5(a) below
in respect of outstanding New Funds and unpaid interest accrued thereon, and (b)
amounts retained by Maker from such Net Sale Proceeds pursuant to paragraph 5(a)
below (inclusive of amounts to be paid by Maker to the Consultant pursuant to
the provisions of paragraph 10 below, if any) in respect of the Maker Funds and
unpaid Maker Funds Interest.
"Consultant" shall mean the party entitled to receive the
Consulting Fee pursuant to the terms of the Consulting Agreement.
"Consulting Agreement" shall mean that certain Consulting
Agreement dated as of November 21, 1996 among Maker, L. Robert Lieb and New
Potomac Associates, Ltd.
"Consulting Fee" shall mean the $100,000 consulting fee
payable to the Consultant pursuant to the Consulting Agreement.
"Deferred Portion" shall have the meaning set forth in
paragraph 8 below.
"Distribution" shall have the meaning set forth in paragraph
16(b) below.
"Distribution Notice" shall have the meaning set forth in
paragraph 16(b) below.
"First Mortgage" shall mean the first priority mortgage
encumbering the Property held by General Electric Capital Corporation and any
amendment, modification, extension, replacement or refinancing thereof permitted
hereunder.
<PAGE>
"Maker Funds" shall mean $1,342,033, comprised of (i)
$1,242,033 advanced by Maker prior to or simultaneously with the execution and
delivery of this Note ($1,062,462 of Maker Funds, together with a portion of the
New Funds, have been used by Maker to cause the Second Mortgage to be satisfied
and released from the Property), and (ii) $100,000 to be paid by Maker to the
Consultant pursuant to the Consulting Agreement.
"Maker Funds Interest" shall mean interest accrued on the
outstanding Maker Funds (except the portion of Maker Funds that constitutes the
outstanding Consulting Fee) from and after the respective dates of disbursement
of portions thereof at the rate of twelve percent (12%) per annum, compounded
annually.
"Maximum Payment" shall mean, as of any date, an amount equal
to the aggregate of (i) the then outstanding New Funds and unpaid interest
accrued thereon, (ii) the then outstanding Old Debt and unpaid interest accrued
thereon, and (iii) the Write-Down Amount, together with interest accrued thereon
from and after the date hereof at the Old Debt Rate, all such interest
compounded annually.
"Net Cash Flow" shall mean the amount, in any calendar year,
by which (i) rent paid to Maker by the tenants of the Property and all other
amounts collected by Maker with respect to the Property from all sources (other
than Refinancing Proceeds and Net Sale Proceeds) in such year exceeds (ii) all
costs and expenses incurred by Maker in connection with the Property in such
year, whether ordinary or capital in nature, including debt service payments
made pursuant to the First Mortgage (provided that costs and expenses incurred
by Maker to Affiliates shall not exceed commercially reasonable amounts), and
all reserves established by Maker in such year.
"Net Property Value" shall mean the amount by which (i) the
Appraised Value exceeds (ii) the sum of (a) the then outstanding amount of the
First Mortgage, (b) the aggregate costs which would have been incurred by Maker
if the Property were sold for the Appraised Value and (c) an amount equal to the
unpaid costs and expenses of Maker incurred in connection with the Property
(provided that costs and expenses incurred by Maker to Affiliates shall not
exceed commercially reasonable amounts).
"Net Sale Proceeds" shall mean the amount by which (i) the
gross proceeds of an Unrelated Sale exceeds (ii) the sum of (a) the amount paid
in reduction of the First Mortgage in connection with such transaction, (b) the
aggregate costs incurred by Maker in connection with such transaction (provided
that costs incurred by Maker to Affiliates shall not exceed commercially
reasonable amounts) and (c) any portion of such proceeds applied to unpaid costs
and expenses of Maker incurred in connection with the Property (provided that
costs and expenses incurred by Maker to Affiliates shall not exceed commercially
reasonable amounts).
"New Funds" shall mean $330,000 composed of (i) $310,000
advanced by Payee to Maker simultaneously with the execution and delivery of
this Note which, together with the Maker Funds, have been used by Maker to cause
the Second Mortgage to be satisfied and released from the Property, and (ii)
$20,000 of legal and other expense incurred by Payee in connection with the
execution and delivery of this Note.
"New Funds Rate" shall mean the rate of twelve percent (12%)
per annum.
<PAGE>
"Notice of Dispute" shall have the meaning set forth in
paragraph 16(b) below.
"Old Debt" shall mean $500,000 of the outstanding principal
amount of the Original Note.
"Old Debt Rate" shall mean seven percent (7%) per annum.
"Old Debt Repayment Participation Interest Amount" shall mean
fifty percent (50%) of the amount (but only if a positive number) by which the
Net Property Value exceeds the sum of (i) an amount equal to the outstanding New
Funds and unpaid interest accrued thereon on the date of the subject
Participation Interest Event, (ii) an amount equal to the outstanding Maker
Funds and Maker Funds Interest (i.e., Maker Funds and Maker Funds Interest less
the aggregate amount retained by Maker pursuant to the provisions of this Note
in respect thereof (net of all payments made by Maker pursuant to the provisions
of paragraph 10 below, if any)), and (iii) an amount equal to 200% of the
outstanding Old Debt and unpaid interest accrued thereon immediately prior to
the subject Participation Interest Event.
"Participation Interest" shall mean additional interest
payable pursuant to paragraph 7, if any.
"Participation Interest Event" shall mean the earliest to
occur of (i) the date of an Unrelated Sale, (ii) the date upon which the entire
unpaid balance of New Funds and unpaid interest accrued thereon, and the entire
unpaid balance of Old Debt and unpaid interest accrued thereon, are repaid in
full, and (iii) the Maturity Date.
"Property" shall mean that certain property owned by Maker
known as the Pike Creek Shopping Center, Mill Creek Hundred, New Castle County,
Delaware and more particularly described on Exhibit A attached hereto;
"Refinancing" shall mean an amendment, modification,
extension, replacement or refinancing of the First Mortgage.
"Refinancing Proceeds" shall mean the amount by which (i) the
gross proceeds of a Refinancing or Related Sale, as the case may be, exceeds
(ii) the sum of (a) the amount paid in reduction of the First Mortgage in
connection with such transaction, (b) the aggregate costs incurred by Maker in
connection with such transaction (provided that costs incurred by Maker to
Affiliates shall not exceed commercially reasonable amounts), (c) any portion of
such proceeds applied to the payment of costs and expenses of Maker incurred in
connection with the Property (provided that costs and expenses incurred by Maker
to Affiliates shall not exceed commercially reasonable amounts), and (d) any
reserves established by Maker from such proceeds.
"Related Sale" shall mean (i) a sale, conveyance,
sale-leaseback or other transfer of all or any portion of the Property to an
Affiliate, (ii) a sale, conveyance, sale-leaseback or other transfer of a
portion, but not all, of the Property to an entity which is not an Affiliate, or
(iii) a transfer of all of the partnership interests in Maker to an Affiliate.
It shall be a condition to a Related Sale to an Affiliate that the Affiliate to
which all or any portion of the Property (or all of the partnership interests in
Maker, as the case may be) is transferred agrees to be bound by the terms and
conditions of this Note.
<PAGE>
"Second Mortgage" shall mean the second priority mortgage
formerly encumbering the Property held by L. Robert Lieb and New Potomac
Associates, Ltd.
"Unrelated Sale" shall mean a sale, conveyance, sale-leaseback
or other transfer of all of the Property to an entity which is not an Affiliate,
or a transfer of all of the partnership interests in Maker to an entity which is
not an Affiliate.
"Unrelated Sale Participation Interest Amount" shall mean
fifty percent (50%) of the amount (but only if a positive number) by which the
Net Sale Proceeds exceed the sum of (i) payments to Payee from such Net Sale
Proceeds pursuant to paragraph 5(a) below in respect of outstanding New Funds
and unpaid interest accrued thereon, (ii) amounts retained by Maker from such
Net Sale Proceeds pursuant to paragraph 5(a) below in respect of the Maker Funds
and unpaid Maker Funds Interest (net of payments to be made by Maker pursuant to
the provisions of paragraph 10 below, if any); and (iii) an amount equal to 200%
of the outstanding Old Debt and unpaid interest accrued thereon immediately
prior to the Unrelated Sale.
"Write Down Amount" shall mean $2,707,912.63, composed of (i)
the outstanding principal amount of the Original Note in excess of $500,000 and
(ii) all unpaid interest accrued on the principal amount of the Original Note.
1. (a) The principal amount of this Note consists of the Old
Debt and the New Funds.
(b) Payee hereby waives its right to receive, and hereby
forgives, (i) the outstanding principal amount of the Original Note in excess of
$500,000 and (ii) all unpaid interest accrued on the principal amount of the
Original Note. The provisions of this paragraph 1(b) are not intended to, and
shall not, prevent Payee from receiving, in accordance with the provisions
hereof, up to the maximum amount set forth in paragraph 9 below.
2. (a) Interest shall accrue on the outstanding balance of the
New Funds from the date hereof at the New Funds Rate, compounded annually.
(b) Interest shall accrue on the outstanding balance of the
Old Debt from the date hereof at the Old Debt Rate, compounded annually.
3. (a) On March 31st of each year, Available New Funds Cash
Flow with respect to the preceding calendar year shall be paid to Payee and
applied in reduction of the outstanding New Funds and unpaid interest accrued
thereon until the entire amount of the New Funds and all unpaid interest accrued
thereon have been paid in full. To the extent that such payments of Available
New Funds Cash Flow to Payee are insufficient to pay in full interest accrued on
the New Funds, payment of the unpaid interest shall be deferred and the unpaid
interest shall be added annually to the principal balance of the New Funds. Net
Cash Flow in excess of Available New Funds Cash Flow shall be retained by Maker
pursuant to this paragraph 3(a) and, subject to the provisions of paragraph 10
below, applied to the then outstanding Maker Funds and Maker Funds Interest
until Maker has retained, from Net Cash Flow, Refinancing Proceeds and/or Net
Sale Proceeds, an aggregate amount (net of payments to be made by Maker pursuant
to the provisions of paragraph 10 below, if any) equal to the Maker Funds and
Maker Funds Interest. It is intended that Net Cash Flow be shared by Payee and
Maker (net of payments to be made by Maker pursuant to the provisions of
<PAGE>
paragraph 10 below, if any), on a pari passu basis in the ratio of 20.99% to
Payee and 79.01% to Maker, until (i) the entire amount of the New Funds and all
unpaid interest accrued thereon have been paid in full to Payee pursuant to the
provisions of this Note and (ii) the entire amount of the Maker Funds and Maker
Funds Interest have been retained by Maker (net of payments to be made by Maker
pursuant to the provisions of paragraph 10 below) pursuant to the provisions of
this Note.
(b) On March 31st of each year, Available Old Debt Cash
Flow with respect to the preceding calendar year shall be paid to Payee and
applied in reduction of the outstanding Old Debt and unpaid interest accrued
thereon until the entire amount of the Old Debt and all unpaid interest accrued
thereon have been paid in full, provided that no payments in respect of the
outstanding Old Debt and unpaid interest accrued thereon shall be payable until
the entire amount of the New Funds and all unpaid interest accrued thereon have
been paid in full (it being intended that payment of Available Old Debt Cash
Flow pursuant to this paragraph 3(b) shall not occur until after the payment and
application of funds pursuant to paragraph 3(a) above). To the extent that such
payments of Available Old Debt Cash Flow to Payee are insufficient to pay in
full interest accrued on the Old Debt, payment of the unpaid interest shall be
deferred and the unpaid interest shall be added annually to the principal
balance of the Old Debt. Subject to the payment of (i) Available New Funds Cash
Flow pursuant to the provisions of paragraph 3(a) above, (ii) Participation
Interest pursuant to the provisions of paragraph 7(a) below and (iii) payments
in respect of the Consulting Fee pursuant to the provisions of paragraph 10
below, Net Cash Flow in excess of Available Old Debt Cash Flow shall be retained
by Maker.
4. (a) Simultaneously with and as a condition to each
Refinancing and each Related Sale which occurs on or prior to the date of a
Participation Interest Event, Available New Funds Refinancing Proceeds shall be
paid to Payee and applied in reduction of the outstanding New Funds and unpaid
interest accrued thereon until the entire amount of the New Funds and all unpaid
interest accrued thereon have been paid in full. Refinancing Proceeds in excess
of Available New Funds Refinancing Proceeds shall be retained by Maker pursuant
to this paragraph 4(a) and, subject to the provisions of paragraph 10 below,
applied to the then outstanding Maker Funds and Maker Funds Interest until Maker
has retained, from Net Cash Flow, Refinancing Proceeds, and/or Net Sale
Proceeds, an aggregate amount (net of payments to be made by Maker pursuant to
the provisions of paragraph 10 below, if any) equal to the Maker Funds and Maker
Funds Interest. It is intended that Refinancing Proceeds be shared by Payee and
Maker (net of payments to be made by Maker pursuant to the provisions of
paragraph 10 below), on a pari passu basis in the ratio of 20.99% to Payee and
79.01% to Maker, until (i) the entire amount of the New Funds and all unpaid
interest accrued thereon have been paid in full to Payee pursuant to the
provisions of this Note and (ii) the entire amount of the Maker Funds and Maker
Funds Interest have been retained by Maker (net of payments to be made by Maker
pursuant to the provisions of paragraph 10 below) pursuant to the provisions of
this Note.
(b) Simultaneously with and as a condition to each
Refinancing and each Related Sale which occurs on or prior to the date of a
Participation Interest Event, Available Old Debt Refinancing Proceeds shall be
paid to Payee and applied in reduction of the outstanding Old Debt and unpaid
interest accrued thereon until the entire amount of the Old Debt and all unpaid
interest accrued thereon have been paid in full; provided that no payments in
respect of the outstanding Old Debt and unpaid interest accrued thereon shall be
payable until the entire amount of the New Funds and all unpaid interest accrued
thereon have been paid in full (it being intended that payment of Available Old
<PAGE>
Debt Refinancing Proceeds pursuant to this paragraph 4(b) shall not occur until
after the payment and application of funds pursuant to paragraph 4(a) above).
Subject to the payment of (i) Available New Funds Refinancing Proceeds pursuant
to the provisions of paragraph 4(a) above, (ii) Participation Interest pursuant
to the provisions of paragraph 7(a) below and (iii) payments in respect of the
Consulting Fee pursuant to the provisions of paragraph 10 below, Refinancing
Proceeds in excess of Available Old Debt Refinancing Proceeds shall be retained
by Maker.
(c) Simultaneously with and as a condition to each
Refinancing and each Related Sale which occurs on or prior to the date of a
Participation Interest Event, Participation Interest, if any, payable pursuant
to paragraph 7(a) shall be paid by Maker to Payee.
5. (a) Simultaneously with and as a condition to an Unrelated
Sale, Available New Funds Unrelated Sale Proceeds shall be paid to Payee until
the entire amount of the New Funds and all unpaid interest accrued thereon have
been paid in full. Net Sale Proceeds in excess of Available New Funds Unrelated
Sale Proceeds shall be retained by Maker pursuant to this paragraph 5(a) and,
subject to the provisions of paragraph 10 below, applied to the then outstanding
Maker Funds and Maker Funds Interest until Maker has retained, from Net Cash
Flow, Refinancing Proceeds and/or Net Sale Proceeds, an aggregate amount equal
to the Maker Funds and Maker Funds Interest. It is intended that Net Sale
Proceeds be shared by Payee and Maker (net of payments to be made by Maker
pursuant to the provisions of paragraph 10 below), on a pari passu basis in the
ratio of 20.99% to Payee and 79.01% to Maker, until (i) the entire amount of the
New Funds and all unpaid interest accrued thereon have been paid in full to
Payee pursuant to the provisions of this Note and (ii) the entire amount of the
Maker Funds and Maker Funds Interest have been retained by Maker (net of
payments to be made by Maker pursuant to the provisions of paragraph 10 below)
pursuant to the provisions of this Note.
(b) Simultaneously with and as a condition to an Unrelated
Sale, Available Old Debt Unrelated Sale Proceeds shall be paid to Payee until
the entire amount of the Old Debt and all unpaid interest accrued thereon have
been paid in full.
(c) Simultaneously with and as a condition to an Unrelated
Sale, Participation Interest, if any, payable pursuant to paragraph 7(b) shall
be paid by Maker to Payee.
(d) If, upon consummation of an Unrelated Sale, (i)
Available New Funds Unrelated Sale Proceeds are insufficient to pay in full the
entire amount of the New Funds and all unpaid interest accrued thereon, or (ii)
Available Old Debt Unrelated Sale Proceeds are insufficient to pay in full the
entire amount of the Old Debt and all unpaid interest accrued thereon, then the
provisions of paragraph 8 shall be applicable.
6. The entire unpaid balance of New Funds and unpaid interest
accrued thereon, and the entire unpaid balance of Old Debt and unpaid interest
accrued thereon, and any Participation Interest payable on the Maturity Date
pursuant to paragraph 7(c), shall be due and payable in full on the Maturity
Date. If Maker has insufficient funds on the Maturity Date to pay the entire
unpaid balance of New Funds and unpaid interest accrued thereon, and the entire
unpaid balance of Old Debt and unpaid interest accrued thereon, and any
Participation Interest payable on the Maturity Date pursuant to paragraph 7(c),
then the provisions of paragraph 8 shall be applicable.
<PAGE>
7. Participation Interest, if any, shall be payable by Maker
to Payee subject to the following terms and conditions:
(a) Simultaneously with and as a condition to each
Refinancing and each Related Sale which occurs on or prior to the date of a
Participation Interest Event, Participation Interest shall be payable in an
amount, if any, equal to the amount by which (i) Available Old Debt Refinancing
Proceeds exceeds (ii) the then outstanding Old Debt and unpaid interest accrued
thereon.
(b) Simultaneously with and as a condition to an Unrelated
Sale, Participation Interest shall be payable in an amount, if any, equal to the
Unrelated Sale Participation Interest Amount.
(c) If, prior to the consummation of an Unrelated Sale, (i)
the Maturity Date occurs or (ii) the entire unpaid balance of the Old Debt and
unpaid interest accrued thereon is paid in full, Participation Interest shall be
payable (on the Maturity Date or on the date that the entire unpaid balance of
Old Debt and unpaid interest accrued thereon is paid in full, as the case may
be) in an amount, if any, equal to the Old Debt Repayment Participation Interest
Amount.
8. In the event that:
(a) upon consummation of an Unrelated Sale or the
occurrence of the Maturity Date, Maker has insufficient funds to pay in full, in
accordance with the provisions of this Note, (i) the entire unpaid balance of
the New Funds and unpaid interest accrued thereon, and/or (ii) the entire unpaid
balance of the Old Debt and unpaid interest accrued thereon, and/or
(b) prior to the consummation of an Unrelated Sale, (i) the
Maturity Date occurs or the entire unpaid balance of Old Debt and unpaid
interest accrued thereon is paid in full, and (ii) Maker has insufficient funds
to pay the Old Debt Repayment Participation Interest Amount,
then, Maker shall be permitted to pay any such deficiency with
respect to unpaid New Funds and unpaid interest thereon and/or unpaid Old Debt
and unpaid interest thereon and/or unpaid Participation Interest payable
pursuant to paragraph 7(c) (any such deficiency or deficiencies are collectively
referred to as the "Deferred Portion") over the succeeding ten (10) year period
in monthly installments sufficient to fully amortize the unpaid balance of the
Deferred Portion, together with interest on the Deferred Portion (i) at the New
Funds Rate with respect to any amount of the Deferred Portion that constitutes
unpaid New Funds and/or unpaid interest thereon, and (ii) at the Old Debt Rate
with respect to any other amount of the Deferred Portion; provided however that
the Deferred Portion shall be due and payable and must be paid in full upon any
subsequent sale or refinancing of the Property by Maker. Maker's obligation to
pay the Deferred Portion shall be an unsecured obligation of Maker enforceable
against any property of Maker, but not against any partner of Maker.
9. Anything herein to the contrary notwithstanding, in no
event shall Maker be obligated to pay to Payee hereunder an aggregate amount
greater than the sum of (i) the New Funds, together with interest accrued
thereon at the New Funds Rate, compounded annually, as provided above, (ii) the
Old Debt, together with interest accrued thereon on the Old Debt Rate,
compounded annually, as provided above, and (iii) the Write-Down Amount,
together with interest accrued thereon from and after the date hereof at the Old
Debt Rate, compounded annually.
<PAGE>
10. Maker agrees that, until the Consulting Fee has been paid
in full, Maker shall promptly pay to the Consultant in respect of the Consulting
Fee (i) 8.4659% of Net Cash Flow retained by Maker pursuant to the provisions of
paragraph 3(a) above, (ii) 8.4659% of Refinancing Proceeds retained by Maker
pursuant to the provisions of paragraph 4(a) above, and (iii) 8.4659% of Net
Sale Proceeds retained by Maker pursuant to the provisions of paragraph 5(a)
above. Maker shall provide to Payee evidence of the payments required to be made
to the Consultant pursuant to this paragraph 10 contemporaneously with such
payments (which evidence may consist of a copy of the transmittal letter and
check sent to the Consultant with any such payment).
11.(a) All payments hereunder in respect of the New Funds and
interest accrued thereon shall first be applied to interest and then to the
reduction of principal.
(b) All payments hereunder in respect of the Old Debt and
interest accrued thereon shall first be applied to interest and then to the
reduction of principal.
(c) All amounts retained hereunder by Maker in respect of
the Maker Funds and Maker Funds Interest (net of payments to be made by Maker
pursuant to the provisions of paragraph 10 above) shall first be applied in
reduction of the outstanding amount of Maker Funds Interest and then to the
reduction of the outstanding amount of Maker Funds.
12.(a) Maker agrees that it shall engage in no business other
than the acquisition, construction, operation, management, financing, selling,
leasing or other disposition of the Property or any portion thereof.
(b) Maker agrees that it shall not enter into a Related
Sale with an Affiliate without the prior written consent of Payee.
(c) Maker agrees that is shall not enter into a Refinancing
with an Affiliate prior to the ninetieth (90th) day preceding the maturity date
of the First Mortgage unless the terms of such Refinancing are not materially
different than, or are more favorable to Maker than, the terms of the First
Mortgage.
(d) Maker agrees that is shall not enter into a Refinancing
with an Affiliate on or after the ninetieth (90th) day preceding the maturity
date of the First Mortgage unless (i) the terms of such Refinancing are
commercially reasonable and (ii) comparable or more favorable terms are not
available from an unaffiliated lender.
(e) Maker shall not enter into a Refinancing prior to
August 1, 2016 without the prior written consent of Payee if the Refinancing
Proceeds therefrom would exceed an amount equal to the aggregate of the
following on the date of the Refinancing: (i) the outstanding New Funds and
unpaid interest accrued thereon, (ii) the outstanding Maker Funds and Maker
Funds Interest (i.e., Maker Funds and Maker Funds Interest less the aggregate
amount retained by Maker pursuant to the provisions of this Note in respect
thereof (net of payments to be made by Maker pursuant to the provisions of
paragraph 10 above)), (iii) the outstanding Consulting Fee, and (iv) the
outstanding Old Debt and unpaid interest accrued thereon. The provisions of this
paragraph 12(d) shall not be applicable if Maker pays to Payee the Maximum
Payment in full satisfaction of this Note.
<PAGE>
(f) After (i) the entire amount of the New Funds and all
unpaid interest accrued thereon have been paid in full to Payee pursuant to the
provisions of this Note and (ii) the entire amount of the Maker Funds and Maker
Funds Interest (net of payments to be made by Maker pursuant to the provisions
of paragraph 10 above) have been retained by Maker pursuant to the provisions of
this Note, Maker shall not, prior to August 1, 2016, enter into a Refinancing or
an Unrelated Sale, or incur any indebtedness for borrowed money (including both
unsecured debt and debt secured by the Property), without the prior written
consent of Payee, which consent shall not be unreasonably withheld, delayed or
conditioned. The provisions of this paragraph 12(e) shall not be applicable if
Maker pays to Payee the Maximum Payment in full satisfaction of this Note.
13. In the event Maker fails to make when due in accordance
with this Note any payment in respect of (i) the New Funds or interest thereon,
(ii) the Old Debt or interest thereon, or (iii) Participation Interest, and such
failure continues without cure for (10) days after notice thereof from Payee to
Maker, Payee may proceed to exercise any rights or remedies that it may have
under this Note or such other rights and remedies which Payee may have at law,
in equity or otherwise. The election of any one or more remedies by Payee shall
not preclude Payee from exercising any other remedy it may have at law or in
equity.
14. Maker, for itself and its successors and assigns, hereby
waives presentment, protest, demand, diligence, notice of dishonor and of
nonpayment (except to the extent that notice is required to be given to Maker
under the terms of this Note), and waives and renounces all rights to the
benefits of any moratorium, appraisement, and exemption now provid ed or which
may hereafter be provided by any federal or state statute, including but not
limited to exemptions provided by or allowed under federal or state bankruptcy
or insolvency laws, both as to itself and as to all of its property securing
payment of the loan, whether real or personal, against the enforcement and
collection of the obligations evidenced by this Note and any and all extensions,
renewals and modifications hereof.
15. It is the intention of the parties to conform strictly to
the usury laws from time to time in force, and all agreements between Maker and
Payee, whether now existing or hereafter arising and whether oral or written,
are hereby expressly limited so that in no contingency or event whatsoever,
whether by acceleration of maturity hereof or otherwise, shall the amount paid
or agreed to be paid to Payee, or collected by Payee or for the use, forbearance
or detention of the money to be loaned hereunder or otherwise, or for the
payment or performance of any covenant or obligation contained herein, or in any
other document evidencing or pertaining to the indebtedness evidenced hereby,
exceed the maximum amount permissible under applicable usury laws. If under any
circumstances whatsoever fulfillment of any provision hereof or any other
document, at the time performance of such provision shall be due, shall involve
transcending the limit of validity prescribed by law, then the obligation to be
fulfilled shall be reduced to the limit of such validity; and if under any
circumstances Payee shall ever receive an amount deemed interest, by applicable
law, which would exceed the highest lawful rate, such amount that would be
excessive interest under applicable usury laws shall be applied to the reduction
of the principal amount owing hereunder and not to the payment of interest, or
if such excessive interest exceeds the unpaid balance of principal of this Note,
and such other indebtedness, the excess shall be deemed to have been a payment
made by mistake and shall be refunded to Maker or to any other person making
such payment on Maker's behalf. For the purposes of calculating the actual
amount of interest paid and/or payable hereunder, in respect of laws pertaining
<PAGE>
to usury, all sums paid or agreed to be paid to the holder hereof for the use,
forbearance or detention of the indebtedness of Maker evidenced hereby,
outstanding from time to time shall, to the extent permitted by applicable law,
be amortized, prorated, allocated and spread from the date of disbursement of
the proceeds of this Note until payment in full of such indebtedness so that the
actual rate of interest on account of such indebtedness is uniform through the
term hereof. The terms and provisions of this paragraph shall control and
supersede every other provision of all agreements between Maker, any enforcer or
guarantor and Payee.
16. (a) Notwithstanding anything to the contrary contained in
this Note or any other document or certificate delivered by Maker in connection
with the loan evidenced hereby (each, a "Certificate"), except as expressly
provided in paragraph 16(b) below, no partner (limited or general) in Maker, nor
any legal representative, heir, estate, successor or assign of any such partner,
nor any partner, officer, director, shareholder or employee of any such partner,
nor any other principal in Maker, disclosed or undisclosed, shall have any
personal liability for (i) the payment of any sum that is or that may be payable
hereunder, or any Certificate, or (ii) the performance or discharge of any
covenants or undertakings of Maker hereunder, or under any Certificate, or (iii)
any claim based on, arising under or otherwise in respect of this Note or any
Certificate. In no event shall Payee seek or obtain a judgment against any
person or party hereinabove referred to as being exculpated from personal
liability, or seek or obtain any attachment, execution or other writ upon any
assets, properties or funds of Maker or such other person or party except for
the Property.
(b) As long as any amounts remain outstanding under this
Note, Maker shall provide notice to Payee (a "Distribution Notice") of any
proposed distribution of funds by Maker to its partners (a "Distribution"). A
Distribution Notice shall set forth (i) the aggregate amount proposed to be
distributed by Maker to its partners and (ii) the amount due and payable by
Maker to Payee pursuant to this Note on or about the date of the Distribution
described in the Distribution Notice. If (A) Maker makes a Distribution without
providing Payee with a Distribution Notice, or (B) Maker makes a Distribution
sooner than ten (10) business days after Payee's receipt of a Distribution
Notice, or (C) Maker makes Distribution in an amount greater than the amount set
forth in the Distribution Notice provided to Payee, or (D) Payee notifies Maker
in writing (a "Notice of Dispute") within ten (10) business days of Payee's
receipt of a Distribution Notice that Payee disputes the amount described in the
Distribution Notice as due and payable by Maker to Payee pursuant to this Note
on or about the date of the proposed Distribution, and Maker makes the
Distribution described in the Distribution Notice notwithstanding receipt of
such Notice of Dispute, then, in the case of any of the events described in
clauses (A), (B), (C) or (D), the general partner of Maker on the date of the
Distribution (but not any predecessor general partner or any individual partner
of the general partner) shall be personally liable to Payee for an amount equal
to the lesser of (i) the amount of such Distribution, and (ii) the amount, if
any, by which the amount due and payable by Maker to Payee pursuant to this Note
on or about the date of such Distribution exceeds the amount of any payment made
by Maker to Payee on or about the date of such Distribution.
17. (a) All notices and other communications hereunder shall
be in writing and shall be sent to the parties hereto at their respective
business addresses first hereinabove given (or at such other address or
addresses as any party shall hereafter designate by written notice). A copy of
any notice to Maker shall be sent to Proskauer Rose Goetz & Mendelsohn LLP, 1585
<PAGE>
Broadway, New York, New York 10036, Attention: Perry A. Cacace, Esq. A copy of
any notice to Payee shall be sent to Greenberg, Traurig, Hoffman, Lipoff, Rosen
& Quentel, 153 East 53rd Street, 36th floor, New York, New York 10022,
Attention: Judith Fryer, Esq. To be effective, any notice addressed as aforesaid
must be (1) delivered by hand with receipt acknowledged in writing, or (2) sent
by overnight mail by a nationally recognized courier guaranteeing overnight
delivery such as Federal Express. Any notice sent as aforesaid shall be
effective upon receipt or upon the intended recipient's refusal to accept
delivery.
(b) Maker agrees to provide to Payee copies of all
financial statements required to be provided to the holder of the First Mortgage
in accordance with the provisions of Section 7.1 of the Loan Agreement between
Maker and General Electric Capital Corporation dated as of November 20, 1996.
18. This Note shall be governed by and construed according to
the laws of the State of New York. Maker hereby submits to personal jurisdiction
in said State for the enforcement of Maker's obligations hereunder and under all
other documents executed by Maker in connection with the loan and waives any and
all personal rights under the law of any other state to object to jurisdiction
within such State for the purposes of litigation to enforce such obligations of
Maker.
19. This Note may not be changed or terminated orally, but
only by an agreement in writing signed by the party against whom enforcement of
such change or termination is sought.
20. The relationship between Maker and Payee is, and at all
times shall remain, solely that of debtor and creditor. No covenant or provision
of this Note is intended, nor shall it be deemed or construed, to create a
partnership, joint venture, agency or common interest in profits or income
between Maker and Payee or to create an equity in the Property in Payee.
21. This Note is subordinated to the rights of the holder of
the First Mortgage pursuant to a certain Subordination Agreement dated as of
November 20, 1996 between Payee and General Electric Capital Corporation.
<PAGE>
IN WITNESS WHEREOF, Maker and Payee have duly executed this
Amended and Restated Note as of the day and year first above written.
BIG VALLEY ASSOCIATES LIMITED PARTNERSHIP
By: Fivzar Associates, General Partner
By: Fivzar I Limited Partnership,
General Partner
By: Fivzar Corp., General Partner
By: /s/
---------------------
Name:
Title: Presidenet
RESOURCES ACCRUED MORTGAGE INVESTORS L.P. -
SERIES 86
By: Resources Capital Corp.,
Administrative General Partner
By: /s/Mark L. Plaumann
-----------------------
Name: Mark L. Plaumann
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information extracted from the Financial
Statements of the December 31, 1996 Form 10-K of Resources Accrued Mortgage
Investors L.P.-Series 86 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
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<SECURITIES> 0
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<ALLOWANCES> 0
<INVENTORY> 17,705
<CURRENT-ASSETS> 3,805,320
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 19,540,249
<CURRENT-LIABILITIES> 175,366
<BONDS> 3,570,723
0
0
<COMMON> 0
<OTHER-SE> 13,670,679
<TOTAL-LIABILITY-AND-EQUITY> 9,540,249
<SALES> 0
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<CGS> 0
<TOTAL-COSTS> 1,407,348
<OTHER-EXPENSES> 39,318
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 342,110
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<EPS-PRIMARY> 0
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</TABLE>
