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 [FEE REQUIRED]
For the fiscal year ended December 31, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-15690
RESOURCES PENSION SHARES 5, L.P.
(Exact name of registrant as specified in its charter)
Delaware 13-3353722
(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 203-862-7444
Securities registered pursuant to Section 12(b) of the Act:
None
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that 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 the 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 ]
<PAGE>
PART I
Item 1. Business
General
Resources Pension Shares 5, L.P. (the "Registrant") is a Delaware limited
partnership which was formed on February 11, 1986 as an investment medium
primarily for tax-exempt investors. Registrant was formed for the purpose of
investing primarily in participating mortgage loans and, to a lesser extent, in
land sale-leasebacks on improved, income-producing commercial real estate.
Through April 1, 1998, Disposition Proceeds (as hereinafter defined) must be
reinvested by Registrant or held as reserves. Thereafter, the Administrative
General Partner may either reinvest or distribute any such Disposition Proceeds.
Due to the substantial changes which have occurred in the real estate financing
markets during the last several years, none of the mortgage loans made after
1992 contain provisions permitting Registrant to participate in the economic
benefits of any increase in a property's revenue or value ("Participations").
Such mortgage loans also do not provide for a certain portion of the base
interest to accrue and be paid upon maturity of the respective mortgage loan,
upon sale or refinancing of the property or after a stated period of time.
Certain loans made prior to 1993 do contain such features. The security for any
mortgage loan investment is intended to consist of commercial and industrial
properties (such as office buildings, shopping centers and industrial buildings)
and, possibly, leasehold interests in properties.
The Investment General Partner of the Registrant, Resources Pension Advisory
Corp., and the Administrative General Partner, Resources Capital Corp., are
wholly-owned subsidiaries of Presidio Capital Corp. ("Presidio"). Resources
Pension Advisory Corp. 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 Associate General Partner is Presidio AGP Corp.
("Presidio AGP"), a Delaware corporation, which replaced as Associate General
Partner Richard H. Ader, a former executive officer of Integrated. Presidio AGP
is also a wholly-owned subsidiary of Presidio.
In December 1994, Richard Ader notified Registrant of his 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 AGP became the Associate General Partner. The
Administrative General Partner is also a general partner in several other
limited partnerships which are controlled by Presidio. (The Investment General
Partner, Administrative General Partner and the 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 administrative
services to Presidio and its subsidiaries to Wexford Management LLC ("Wexford").
On August 28, 1997, an affiliate of NorthStar Capital Partners acquired all of
the class B shares of Presidio, the corporate parent of the General Partners.
This acquisition when aggregated with previous acquisitions, caused NorthStar
<PAGE>
Capital Partners to acquire indirect control of the General Partners. On
November 2, 1997, the Administrative Services Agreement with Wexford expired.
Pursuant to that agreement Wexford had the authority to designate directors of
the General Partners. Effective November 3, 1997, Wexford and Presidio entered
into a new Administrative Services Agreement (the "ASA"), which expires on May
3, 1998. Under the terms of the ASA, Wexford will provide consulting and
administrative services to Presidio and its affiliates including the General
Partners and Registrant. Presidio also entered into a management agreement with
NorthStar Presidio Management Company, LLC ("NorthStar Presidio"). Under the
terms of the management agreement, NorthStar Presidio will provide the
day-to-day management of Presidio and its direct and indirect subsidiaries and
affiliates.
Effective November 3, 1997, the officers and employees of Wexford that had
served as officers and/or directors of the General Partners tendered their
resignation. On the same date, the Board of Directors of Presidio appointed new
individuals to serve as officers and/or directors of the General Partners.
Registrant had registered 16,000,000 units of limited partnership interest at
$10 per interest (the "Units") with the Securities and Exchange Commission,
6,000,000 of which were for Registrant's Reinvestment Plan. On February 12,
1988, Registrant terminated its offering of Units, having raised $56,907,425
from approximately 5,800 investors (including $699,565 from Units issued
pursuant to the Reinvestment Plan). After the payment of a nonaccountable
expense reimbursement to the Administrative General Partner, Registrant had
approximately $54,238,000, including evaluation fees and acquisition fees paid
or payable to the Administrative General Partner, available for investment and
reserves.
<PAGE>
Mortgage Investments of Registrant
As of December 31, 1997, the Registrant had investments in six mortgage loans,
consisting of five first mortgage loans and one wraparound mortgage loan, in the
aggregate original amount of $26,950,000. The following table sets forth, as of
December 31, 1997, the outstanding mortgage loan investments made by Registrant:
<TABLE>
<CAPTION>
Mortgage loans as of December 31, 1997
----------------------------------------------------------------------------
Original Current Deferred
Rentable Mortgage Date Maturity Interest Interest
Sq. Ft. Amount (1) Funded Date Rate Rate
------- ---------- ------ ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers
DVL, Inc. N/A $ 2,000,000 2/97 2/00 12% -
Lucky Supermarket
Buena Park, California 47,000 2,200,000 5/88 5/05 10.0 % (2) -
Avon Marketplace
Avon, Colorado 70,211 3,750,000 3/93 4/03 8.35% -
Hotel
Crowne Plaza Hotel 200,000 6,500,000 10/97 10/00 11% -
Cincinnati, Ohio
Office Buildings
Bank of California 618,041 8,500,000 (3) 5/88 5/98 7-10.0% 3.0% - 0%
Seattle, Washington
Lionmark Corporate
Center Columbus, Ohio 79,415 4,000,000 6/93 6/03 8.5% -
------------
$ 26,950,000
============
</TABLE>
1. All of these loans are first mortgage loans except the Bank of
California, which is a wraparound mortgage loan.
2. In addition to fixed interest, Registrant is entitled to contingent
interest in an amount equal to a percentage of the rent received by the
borrower from the property securing the mortgage above a base amount,
payable annually, and/or a percentage of the excess of the value of the
property above a base amount, payable at maturity.
3. The wraparound mortgage loan is in the amount of $16,500,000,
$8,500,000 of which has been funded by Registrant. The balance
represents the underlying first mortgage financing to which
Registrant's investment is subordinate.
<PAGE>
On December 21, 1992, the Investment General Partner, on behalf of Registrant,
foreclosed on the property securing the Garfinkel Loan. On December 9, 1993,
Registrant foreclosed on the mortgage securing the Groton Shopping Center (the
"Groton Loan"). On September 30, 1997, Registrant received a deed-in-lieu of
foreclosure on the property underlying the Xerox loan and is currently
attempting to secure a sale of the property. See Item 2, "Properties."
On April 10, 1997, Registrant entered into a settlement agreement with the Santa
Ana borrower in which, among other things, the borrower gave to Registrant a
deed-in-lieu of foreclosure on the property securing this loan. On April 30,
1997, Registrant sold this property for net proceeds of $3,213,908. See
"Mortgage Transactions and Defaults" below.
On February 28, 1997, Registrant funded an additional promissory note in the
original principal amount of $2,000,000 on which the Registrant received a
partial prepayment of $1,075,000, a portion of which was applied to the
outstanding principal. On October 31, 1997, Registrant funded a first mortgage
loan to Oliveye Hotel Limited Partnership in the principal amount of $6,500,000.
In addition, during 1997, Registrant received $8,129,181 in full satisfaction of
the Medford Village loan. For additional information regarding Registrant's
mortgage investments see "Mortgage Transactions and Defaults" below.
For the year ended December 31, 1997, the Bank of California loan generated
approximately 48% of Registrant's mortgage interest revenue.
Recent Mortgage Transactions and Defaults
Allowance for Loan Losses
Certain of the properties, as described below, on which Registrant made loans
have experienced varying degrees of operating or other problems which resulted
in the establishment of an allowance for loan losses. For a discussion of
Registrant's policy regarding allowances for loan losses, see Item 8, "Financial
Statements and Supplementary Data".
Bank of California, Seattle Loan
Bank of California Loan, in the principal amount of $8,500,000 ("Wrap Loan"), is
secured by, among other things, the interest of Gum Loong Limited Partnership
("Gum Loong") in land (the "Land") located in downtown Seattle, Washington. The
building situated on the Land is commonly known as the Bank of California
Building (the "Building"). The Land is subject to a long term ground lease (the
"Ground Lease"). Concurrently with the closing of the Wrap Loan, Gum Loong
acquired the lessor's interest under the Ground Lease and Continental Seattle
Partners L.P. ("CSP"), an affiliate of Gum Loong, acquired the lessee's interest
under the Ground Lease and the fee interest in the Building. CSP also acquired
the lessor's interest under a master (net) sublease with the Bank of California
for the entire Building. A first mortgage on the land ("Land Loan") in the
amount of $8,000,000 is held by Anchor National Life Insurance Company
("Anchor"). Under the provisions of the Wrap Loan, Gum Loong is required to make
the payments required under both the Land Loan and the Wrap Loan to Registrant
on a monthly basis. Registrant, in turn, then pays Anchor the amounts due under
the Land Loan on a monthly basis. The Wrap Loan is secured by a Wraparound Deed
<PAGE>
of Trust dated May 2, 1988 in the amount of $16,500,000 between Registrant and
Gum Loong. The Building is encumbered by a loan ("Building Loan") between the
Bank of Tokyo Trust Company (Seattle Branch) ("BOT") and CSP, in the amount of
$48,000,000, secured by a first mortgage on the Building and a third mortgage on
the Land. This loan is also guaranteed by Gum Loong. Registrant's collateral for
the Wrap Loan is the Land, the Ground Lease, and, subject to the BOT's lien, the
Building.
Registrant received a letter dated April 22, 1993 stating that BOT had commenced
a foreclosure action against CSP for failure to repay the Building Loan which
matured on March 26, 1992. An Option Agreement entered into at the time the Wrap
Loan was made gives BOT the right, after commencing a foreclosure action, to
exercise an option to purchase either (i) the Land Loan and the Wrap Loan from
Anchor and Registrant or (ii) the Land from Gum Loong subject to the Land Loan
and the Wrap Loan. On July 9, 1993, Registrant received notice from BOT that it
intended to exercise the option to purchase the Land.
Gum Loong did not make timely payment of its scheduled July, August, and
September 1993 installments on the Wrap Loan. Registrant utilized its working
capital reserves to make the required payments on the Land Loan. On July 20,
1993 and again on August 9, 1993, Registrant notified Gum Loong that an event of
default had occurred because of the CSP default on the BOT loan and because of
Gum Loong's failure to make scheduled payments. Both Gum Loong and CSP filed for
bankruptcy protection in August 1993, staying the exercise by BOT of its option
to purchase the Land. On September 27, 1993 Registrant, Anchor and Gum Loong
entered into an Interim Stipulation and Order Concerning Cash Collateral, which
was approved by the bankruptcy court on September 29, 1993. On October 5, 1993
Registrant, Anchor and Gum Loong entered into a Second Interim Stipulation and
Order Concerning Cash Collateral, which was approved by the bankruptcy court on
October 5, 1993. Since October 1993, various Cash Collateral Orders have been
entered into which require Gum Loong to make monthly payments to Registrant. The
September 1993 payment and all monthly contract interest payments due thereafter
under the Cash Collateral Orders have been made, including payments due
subsequent to September 30, 1994. The current Cash Collateral Order requires Gum
Loong to make monthly payments to Registrant through the maturity date of the
loan.
On January 31, 1994, a Proof of Claim was filed in connection with the Gum Loong
Bankruptcy by Registrant as it related to amounts due under the Wraparound
Mortgage, including principal, interest and other amounts due. On January 6,
1995, a Proof of Claim was filed in connection with the CSP bankruptcy by the
Registrant for a contingent and unliquidated claim under the Wraparound
Mortgage. Despite the bankruptcy filings by both Gum Loong and CSP, Registrant
had not reserved for this loan. Registrant believes that the collateral for the
Wrap Loan, the Land as encumbered by the Ground Lease, is of sufficient value to
realize the amount due under the Wrap Loan. If BOT exercises the option to
purchase the Land, it will be required as a condition of such exercise to cure
any defaults by Gum Loong.
On or about January 3, 1995, the United States Trustee moved to convert the Gum
Loong Bankruptcy to a Chapter 7 case, or to dismiss the Gum Loong case, or to
set a deadline for filing a plan of reorganization. This motion was scheduled
for a hearing on February 3, 1995. This motion has been adjourned pending the
hearing on BOT's proposed disclosure statement and proposed plan. The hearing on
the adequacy of BOT's proposed disclosure statement was scheduled for April 6,
1995. The Third Amended Disclosure Statement was approved on May 31, 1995.
<PAGE>
Thereafter, BOT sought confirmation of various amended plans to which the
Registrant successfully objected. Such plans included provisions that were
adverse to Registrant's interests. Registrant's objections, and the Bankruptcy
Court's rulings thereon, prompted BOT to make various amendments and revisions
to the proposed plan of reorganization and withdraw various provisions that were
objectionable to Registrant. After extended confirmation hearings on BOT's
proposed plans, the Bankruptcy Court approved the revised Fifth Amended Plan in
September 1995. As part of the approved plan, in September 1995 approximately
$335,000 was paid to Registrant. This amount consisted of approximately $266,000
of interest payments due the Registrant which resulted from two missed interest
payments in 1993, and late charges and interest related to these payments of
approximately $69,000.
The plan calls for, among other things, a Court appointed liquidating agent to
manage the building securing Registrant's loan, and to pay the installments due
under Registrant's loan. The liquidating agent is also required to sell the
building and the property by June 1998 in a sale that must be approved by the
Bankruptcy Court, and to which Registrant may object, or at a court approved
auction in which the Registrant could bid. If the property is sold in a
non-auction sale, the purchaser can buy the building free and clear by
satisfying Registrant's mortgage indebtedness, or purchase the property subject
to Registrant's loan. Registrant has been informed that the agent is attempting
to sell the property. If the building is purchased subject to Registrant's loan,
the purchaser will have the right to extend the loan for three years from the
present maturity date at a rate of 300 basis points over the yield on three year
United States Treasury notes at that time, paying interest only from May 1998
until the new maturity date. Such a purchaser would also have to pay an
extension fee of 60 basis points if it elects the three year extension option.
Medford Village Loan
On July 25, 1995 Registrant purchased a first mortgage loan in the principal
amount of $8,612,500 for approximately $8,700,000 in cash. The loan had a
floating interest rate, capped at 10%, based on the Eurodollar rate for each
quarterly interest period plus 280 basis points. The loan was payable in
quarterly installments of principal and interest, maturing on April 22, 1998
with a balloon payment of $7,737,500 plus any deferred interest due. The
borrower had the right to two, one year extensions for a fee of $23,500 each
year, provided the loan to value ratio at the time did not exceed 60%. The loan
was collateralized by a guarantee from the borrowers' principals, should the
borrower have defaulted, and was secured by a 121,660 square foot shopping
center known as Medford Village Outlet Center located in Medford, Minnesota.
On June 30, 1997, the Medford loan was repaid in its entirety. Registrant
received $8,129,181 of which $8,000,000 was applied towards the outstanding
principal balance of the loan and the remainder was applied to interest.
Santa Ana Loan
Originally, a $2,600,000 first mortgage loan which was secured by a shopping
center located in Santa Ana, California. As a result of an economic decline in
the surrounding area, the tenancy at the Santa Ana Shopping Center has been
slowly shifting from regional, credit tenants to local, non-credit tenants.
Consequently, although the cash flow from the operation of the center had not
declined, its value has been eroded due to the shift in tenancy. Management
performed cash flow projections and analyzed data regarding sales of comparable
centers in order to estimate the fair value of the center for the purpose of
<PAGE>
valuing the loan. Based upon analysis of the projected cash flow from the center
using a 13% capitalization rate and market comparables indicating a value of
approximately $78 per square foot, the fair value of the center was estimated to
be approximately $2,500,000. The net carrying value of the loan at September 30,
1996, was $4,047,830, necessitating an allowance for loan losses in the amount
of $1,547,830 which was recorded by the Registrant during the quarter ended
September 30, 1996. Additionally, the Registrant ceased accruing interest on
this loan.
On April 10, 1997, Registrant entered into a settlement agreement with the Santa
Ana borrower in which, among other thing, the borrower gave to Registrant a
deed-in-lieu of foreclosure on the property. A separate entity was formed, Santa
Ana Holding, LLC, to take title to the property. Registrant is the sole member
of the entity and is entitled to 100% of all assets, distributions and net
income. On April 30, 1997, Registrant sold this property for net proceeds of
$3,213,908. The net carrying value of the Santa Ana loan was $2,491,962,
necessitating a recovery of loan losses of $721,946 which was recorded during
the first quarter of 1997.
DVL Negotiable Promissory Note
On February 28, 1997, Registrant funded a Negotiable Promissory Note (the
"Note") to DVL, Inc. ("DVL"), in the principal amount of $2,000,000 at an annual
interest rate of 12% with interest payable monthly. In addition, Registrant is
entitled to receive payments equal to DVL's excess cash flow (as defined) from
the mortgages underlying DVL's collateral assignment, which is to be applied as
a reduction of principal. The Note matures on February 27, 2000 and may be
pre-paid during the first two years without penalty. The Note is secured by
(among other things) a collateral assignment of DVL's interest in certain
promissory notes payable to DVL, which in the aggregate amounted to $4,325,000
as of February 28, 1997.
Oliveye Loan
On October 31, 1997, Registrant funded a first mortgage loan to Oliveye Hotel
Limited Partnership in the principal amount of $6,500,000. The loan has an
annual interest rate of 11% and is payable monthly. The loan is secured by the
Crowne Plaza Hotel located in Cincinnati, Ohio, and matures in October, 2000.
Xerox Loan
The Xerox loan was originally a $1,100,000 first mortgage loan which was secured
by an office building located in Arlington, Texas. This loan was accounted for
under the investment method.
In March 1997, the Xerox loan matured in accordance with its terms. On September
30, 1997, Registrant received a deed-in-lieu of foreclosure on the property
underlying this loan. At that date, the Xerox loan had a carrying value of
$1,100,000 and the underlying property had an estimated net realizable value of
$1,500,000. Accordingly, Registrant has reduced its investments in mortgage
loans by the carrying value of the Xerox loan and recorded an addition to real
estate for the fair market value of the underlying property, which resulted in
recognition of interest income for amounts previously deferred in the amount of
$400,000. A separate entity was formed, 2810 Arlington Holding, LLC, to take
title to the property. Registrant is the sole member of the entity and is
entitled to 100% of all assets, distributions and net income. Registrant is
currently attempting to sell this property.
<PAGE>
Competition
To the extent Registrant reinvests any funds received from loan repayments or
property sales, Registrant will be in competition with other companies which are
engaged in the business of making loans and selling properties. Registrant's
competition would include a large number of lenders, many of whom have resources
substantially larger than those of Registrant. The principal competitive factor
in Registrant's business is the effective rate charged for loans and the
loan-to-value ratio.
In addition, 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 will reduce any contingent interest otherwise payable to Registrant.
Because Presidio (including its affiliates) is the parent of other entities in
addition to the 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. NorthStar Presidio currently performs accounting, secretarial,
transfer and administrative services for Registrant and Registrant pays its pro
rata portion of such services. NorthStar Presidio also performs similar services
for other affiliates of the General Partners. See Item 10, "Directors and
Executive Officers of Registrant", Item 11, "Executive Compensation" and Item
13, "Certain Relationships and Related Transactions."
Item 2. Properties
On December 21, 1992, through a foreclosure auction, Registrant acquired fee
simple title to the Garfinkel property by bidding $3,200,000 of the mortgage
indebtedness owed to it. The Garfinkel property is located in Landover, Maryland
and is part of a regional shopping center known as Landover Mall. The parcel of
land comprises approximately 4.93 acres. The building is a two-story retail
facility consisting of 93,384 rentable square feet of space. The building
contains asbestos-containing material and, on January 27, 1992, Registrant
received $450,000 from the former property owner in exchange for a release of a
personal guarantee which obligated the owner to reimburse Registrant for
asbestos removal to a maximum of $500,000. During June 1992, $6,950 was paid for
remedial cleaning in connection with the asbestos removal and at December 31,
1997, the unexpended asbestos reserve aggregated $443,050. Registrant does not
presently plan to commence removal of the asbestos until a purchaser or tenant
for the property is identified. As of March 1, 1998, Registrant has been unable
to sell or lease the property, and the building remains vacant.
<PAGE>
On December 9, 1993, through a foreclosure, Registrant acquired fee simple title
to the Groton Shopping Center property. The shopping center is located in
Groton, Connecticut. The parcel of land comprises approximately 17 acres. The
property is a neighborhood strip shopping center containing a gross leasable
area of 118,938 square feet. In addition, the strip center has a parking area
for approximately 450 automobiles. As of March 1, 1998, the Groton Shopping
Center was approximately 77% occupied. On December 9, 1993, Registrant entered
into a supervisory management agreement with Resources Supervisory Management
Corp. ("RSMC"), also an affiliate of Presidio, to perform certain functions
related to supervising the management of the Groton property. As such, RSMC is
entitled to receive as compensation the greater of 6% of annual gross revenues
when leasing services are performed or 3% of gross revenues when no leasing
services are performed. During 1994 RSMC entered into an agreement with an
unaffiliated local management company to perform such services on behalf of
Registrant. The terms of the agreement are substantially the same as the
agreement entered into between Registrant and RSMC. There was no fee earned by
RSMC for the year ended December 31, 1997.
The Xerox property, located in Arlington, Texas, was acquired via a deed-in-lieu
of foreclosure on September 30, 1997. The property has been recorded at its
estimated net realizable value of $1,500,000 at such date. Registrant is
currently attempting to sell this property.
Item 3. Legal Proceedings
For a discussion of Legal Proceedings, see Item 8, "Financial Statements and
Supplementary Data", Note 8, ("Commitments and Contingencies") to the Financial
Statements.
Item 4. Submission of Matters to a Vote of Security Holders
None.
<PAGE>
PART II
Item 5. Market for Registrant's Securities and Related
Security Holder Matters
There is no established public trading market for the Units of Registrant. From
time to time however, tender offers have been or are presently being made. See
Footnote 10 to the Financial Statements.
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 or any other reason.
As of March 1, 1998, there were approximately 5,700 limited partners of
Registrant, owning an aggregate of 5,690,843 Units.
Distributions per Unit during 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
Distribution with
Respect to Quarter Ended Amount of Distribution Per Unit
------------------------ -------------------------------
1997 1996
<S> <C> <C>
March 31 $ .11 $ .11
June 30 $ .11 $ .11
September 30 $ .11 $ .11
December 31 $ .11 $ .11
</TABLE>
There are no material legal restrictions upon Registrant's present or future
ability to make distributions from operations in accordance with the provisions
of Registrant's Amended and Restated Certificate of Limited Partnership and
Partnership Agreement ("Partnership Agreement"). The Partnership Agreement
requires that Disposition Proceeds received through April 1, 1998 must be
reinvested or held as reserves, but not distributed. For a further discussion of
factors which may affect distributions see Item 7 in Part II of this Form 10-K.
<PAGE>
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
Year ended December 31,
(dollars in thousands except per unit amounts)
1997 1996 1995 1994 1993
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues $ 5,335 $ 4,748 $ 4,130 $ 3,824 $ 4,115
Net Income $ 4,033 (4) $ 1,244 (1) $ 254 (3) $ 1,864 $ 1,634 (2)
Net Income
Per Unit $ .70 (4) $ .22 (1) $ .04 (3) $ .32 $ .28 (2)
Distributions
Per Unit $ .44 $ .44 $ .24 $ .28 $ .34
Total Assets $ 50,793 $ 48,916 $ 49,731 $ 50,607 $ 50,491
Partners' Equity $ 48,451 $ 46,947 $ 48,232 $ 49,358 $ 49,103
</TABLE>
(1) Net of provision for loan losses of $1,547,830 or $.27 per Unit.
(2) Net of provision for loan losses of $750,000 or $.13 per Unit.
(3) Net of write-down for impairment of $1,860,000 or $.32 per Unit.
(4) Net of recovery for loan losses of $721,946 or $.13 per Unit.
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Liquidity and Capital Resources
The General Partners hold a 1% equity interest in Registrant. However, at the
inception of Registrant, the General Partners' equity account was credited with
only the actual capital contributed in cash, $1,000. Registrant's management
determined that this accounting does not appropriately reflect the Limited
Partners' and the General Partners' relative participations in Registrant's net
assets, since it does not reflect the General Partners' 1% equity interest in
Registrant. Thus, Registrant has restated its financial statements to reallocate
$541,390 (1% of the gross proceeds raised at Registrant's formation) of the
partners' equity to the General Partners' equity account. This reallocation was
made as of the inception of Registrant and all periods presented in the
financial statements have been restated to reflect the reallocation. The
reallocation has no impact on Registrant's financial position, results of
operations, cash flows, distributions to partners, or the partners' tax basis
capital accounts.
<PAGE>
Registrant's public offering commenced on May 15, 1986 and terminated on
February 12, 1988 generating gross proceeds of $56,907,425, including $699,565
through Registrant's Reinvestment Plan. Registrant initially made ten permanent
investments, consisting of nine first mortgage loans and one wraparound mortgage
loan, in which Registrant had funded a total of $49,300,000 or 100% of its net
proceeds available for investment. On May 21, 1992 and November 16, 1992 loans
in the original principal amounts of $8,200,000 and $3,800,000, respectively
were repaid. In addition, on December 21, 1992 the Investment General Partner,
on behalf of Registrant foreclosed on the property securing the Garfinkel Loan.
The original principal amount of this loan was $4,850,000. On March 12, 1993,
Registrant funded an additional mortgage loan in the principal amount of
$3,750,000 at an annual rate of 8.35% payable in monthly installments of
principal and interest. On June 15, 1993 Registrant funded another new mortgage
loan in the principal amount of $4,000,000 at an annual interest rate of 8.5%
payable in monthly installments of principal and interest. On December 9, 1993
the Investment General Partner on behalf of Registrant foreclosed on the
shopping center securing the Groton loan which was in the original principal
amount of $8,000,000. On February 2, 1994 the mortgagor on the 415 East 149th
Street loan prepaid the entire amount of such loan. The Registrant received
$4,781,922 of gross proceeds, consisting of $4,739,540 of principal and $43,382
of interest. On October 11, 1994 the mortgagor on the 134-140 East Fordham Road
loan prepaid the entire amount of such loan. The Registrant received $5,238,595
in gross proceeds. In July 1995 Registrant funded an additional mortgage loan in
the principal amount of $8,612,500, payable in quarterly installments of
principal and interest at a floating interest rate based on the Eurodollar plus
280 basis points for the applicable period, capped at 10%.
On June 30, 1997 the Medford loan was prepaid in its entirety. Registrant
received $8,129,181, of which $8,000,000 was applied toward the outstanding
principal balance of the loan and the remainder was applied to interest.
On February 28, 1997, Registrant funded the note to DVL, in the principal amount
of $2,000,000, at an annual interest rate of 12%, with interest payable monthly.
In addition, Registrant is entitled to receive payments equal to DVL's excess
cash flow (as defined) from the mortgages underlying DVL's collateral
assignment, which is to be applied as a reduction of principal. The Note matures
on February 27, 2000 and may be pre-paid during the first two years without
penalty. The Note is secured by (among other things) a collateral assignment of
DVL's interest in certain promissory notes payable to DVL.
On July 30, 1997, DVL sold one of the properties underlying the promissory notes
and made a $1,075,000 prepayment of the Note. Approximately $1,032,000 of the
prepayment was applied toward the principal balance of the Note and the
remainder was applied to interest and a yield maintenance fee.
On April 10, 1997, Registrant entered into a settlement agreement with the Santa
Ana borrower in which, among other things, the borrower gave Registrant a
deed-in-lieu of foreclosure on the property. On April 30, 1997, Registrant sold
this property for net proceeds of $3,213,908. The net carrying value of the
Santa Ana loan at that time was $2,491,962, necessitating a recovery of loan
loss of $721,946 which was recorded in the first quarter of 1997.
In March 1997, the Xerox loan matured. On September 30, 1997 Registrant received
a deed-in-lieu of foreclosure on the property underlying this loan. At that
date, the Xerox loan had a carrying value of $1,100,000 and the underlying
property had an estimated net realizable value of $1,500,000. Accordingly,
Registrant has reduced its investments in mortgage loans by the carrying value
of the Xerox loan and recorded an addition to real estate for the estimated net
realizable value of the underlying property.
<PAGE>
On October 31, 1997, Registrant funded a first mortgage loan to Oliveye Hotel
Limited Partnership, in the principal amount of $6,500,000. This loan has an
annual interest rate of 11% and is payable monthly. The loan is secured by the
Crowne Plaza Hotel located in Cincinnati, Ohio, and matures in October, 2000.
As of December 31, 1997, Registrant has funded an aggregate of $26,950,000 to
the mortgagors in six mortgage loans which are outstanding, consisting of five
first mortgage loans and one wraparound mortgage loan.
Previously, the Bank of California, Seattle wraparound mortgage loan was in
default. See Item 1 "Business Mortgage Transactions and Defaults - Bank of
California, Seattle Loan." The borrower is currently making payments to
Registrant on the Wrap Loan sufficient to make payments on the Land Loan.
If necessary, Registrant has the right to establish reserves either from
disposition proceeds or from cash flow.
For the year ended December 31, 1997 as compared to 1996, cash distributions
were consistent. At December 31, 1997, working capital reserves were
approximately $14,700,000. This represents an increase of approximately
$5,400,000 from December 31, 1996 primarily as a result of placing undistributed
cash flow from operations into working capital reserves and as a result of the
payoffs of the Medford, Santa Ana and DVL loans only partially off set by the
funding of the balance of the DVL and the Crowne Plaza loan.
Currently, the foreclosed property which formerly secured the Garfinkel Loan is
vacant. Funds which are necessary to lease up the property and to remedy
deferred maintenance conditions at the Garfinkel's property will be supplied
from Registrant's working capital reserves. In addition, Registrant might need
to expend funds for capital improvements and leasing of the property. These
funds may be expended from working capital reserves. Registrant currently holds
working capital reserves in short term investments, at rates which are lower
than the returns previously earned on the loans that have been repaid. If excess
working capital is ultimately invested in new loans, these investments are
likely to be at lower rates than previous investments due to current market
conditions. Loan proceeds are required, as per the Partnership agreement, to be
either reinvested or held in working capital reserves until April 1998, after
which time the Partnership may distribute, reinvest or hold such proceeds in
working capital reserves.
Real Estate Market
The real estate market has begun to recover from the effects of the recent
recession which included a substantial decline in the market value of existing
properties. However, high vacancy rates continue to exist in many areas. As a
result, Registrant's potential for realizing the full value of its investment in
mortgages is at increased risk.
Allowance for Loan Losses and Write-Down for Impairment
A provision for loan losses is established based upon a quarterly review of each
mortgage loan and property in Registrant's portfolio. Real estate property is
carried at the lower of cost or net realizable value. In performing its review,
management considers the estimated net realizable value of the property or
collateral as well as other factors, such as the current occupancy, the amount
and status of senior debt, if any, the prospect for the property and the
economic situation in the region where the property is located. Because this
<PAGE>
determination of 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,
1997. Registrant recorded (recoveries), provisions and write-downs of
$(721,946), $1,547,830 and $1,860,000 for the years ended December 31, 1997,
1996 and 1995, respectively, as follows:
As a result of an economic decline in the surrounding area, the tenancy at the
Santa Ana Shopping Center has been slowly shifting from regional, credit tenants
to local, non-credit tenants. Consequently, although the cash flow from the
operation of the center had not declined, its value has been eroded due to the
shift in tenancy. Management performed cash flow projections and analyzed data
regarding sales of comparable centers in order to estimate the fair value of the
center for the purpose of valuing the loan. Based upon analysis of the projected
cash flow from the center using a 13% capitalization rate and market comparables
indicating a value of approximately $78 per square foot, the fair value of the
center was estimated to be approximately $2,500,000. The net carrying value of
the loan at September 30, 1996, was $4,047,830, necessitating an allowance for
loan losses in the amount of $1,547,830 which was recorded by Registrant during
the quarter ended September 30, 1996. Additionally, Registrant ceased accruing
interest on this loan as of this date.
On April 10, 1997, Registrant entered into a settlement agreement with the Santa
Ana borrower in which, among other thing, the borrower gave to Registrant a
deed-in-lieu of foreclosure on the property. A separate entity was formed, Santa
Ana Holding, LLC, to take title to the property. Registrant is the sole member
of the entity and is entitled to 100% of all assets, distributions and net
income. On April 30, 1997, Registrant sold this property for net proceeds of
$3,213,908. The net carrying value of the Santa Ana loan was $2,491,962,
necessitating a recovery of loan losses of $721,946 which was recorded during
the first quarter of 1997.
Occupancy at the Groton Shopping Center ("Groton") declined from 82% at the time
of foreclosure to 69% at March 1, 1995. The anticipated lease-up of the vacant
space had not occurred as of March 31, 1995 resulting in lower than anticipated
net operating income. In addition, Management was investigating the potential
cost to correct certain environmental violations at the shopping center. As a
result Groton would not likely realize its carrying value at March 31, 1995
prior to the establishment of a provision for impairment. Consequently,
management recorded a write-down for impairment on the shopping center of
$1,860,000 at March 31, 1995.
Provisions and write-downs are inherently subjective and are based on
management's best estimate of current conditions and assumptions about expected
future conditions. Registrant may provide for additional provisions and
write-downs in subsequent years which could be material.
Year 2000
Costs associated with the year 2000 conversion are not expected to have any
impact on Registrant's operations.
<PAGE>
Results of Operations
1997 vs. 1996
Net income increased for the year ended December 31, 1997 compared to the same
period in the prior year. The increase is primarily due to the recovery of loan
loss related to the Santa Ana loan during 1997 in the amount of $721,946,
compared to a provision for loan losses recorded during 1996 in the amount of
$1,547,830 and an increase in mortgage interest income due to the Xerox Loan.
Revenues increased primarily due to an increase in short-term investment income,
mortgage interest income and operating income partially offset by a decrease in
other income. Short-term investment income increased due to an increase in cash
and cash equivalents available for short-term investments. Operating income
increased primarily due to the income generated from the Xerox property during
1997. Mortgage interest income increased as a result of recording of the
interest income relating to the Xerox Loan. Other income decreased primarily as
a result legal reimbursement related to the Bank of California loan which was
recorded in 1996.
Costs and expenses decreased primarily due to the recovery of loan loss recorded
on the Santa Ana loan in 1997 compared with a provision for loan loss recorded
in 1996, as well as decreases in general and administrative expenses, and
mortgage servicing fees partially offset by an increase in operating expenses.
General and administrative expenses decreased primarily due to a decrease in
payroll costs. Mortgage servicing fees decreased as a result of a decrease in
the principal balance of loans outstanding in 1997, on which the fee is based.
Operating expenses increased as a result of the addition of the Xerox property
and the expenses related to it.
1996 vs. 1995
Net income increased for the year ended December 31, 1996 when compared to the
same period in 1995. The increase was due to an increase in revenues and a
decrease in expenses.
The increase in revenues for the year ended December 31, 1996 was primarily due
to an increase in mortgage interest income and other income, partially offset by
a decrease in short term investment income. Mortgage interest income increased
as a result of additional interest income earned on the Medford loan which was
funded in July 1995. Other income increased due to the reimbursement of legal
expenses related to the Bank of California loan in 1996. Short term investment
income decreased as a result of decreased interest rates and decreased working
capital reserves as a result of funding the Medford loan.
The decrease in costs and expenses for the year ended December 31, 1996 was
primarily a result of a decrease in the provision for loan losses when compared
to the write-down for impairment in the same period of 1995, and a decrease in
general and administrative expenses. General and administrative expenses
decreased primarily as a result of a decrease in legal fees related to the Bank
of California loan.
Inflation
Inflation has not had a material effect on Registrant's operations and financial
position during the last three years and is not expected to have a material
effect in the future. However, prolonged periods of low or no inflation could
result in low levels of interest rates which could result in certain of
Registrant's loans being prepaid prior to maturity and Registrant receiving
decreased revenues on any reinvestment of such funds.
<PAGE>
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 ("Consolidated
Complaint") against the General Partners of the HEP Partnerships 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
Partnerships. 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 granted the request of one of the Plaintiffs' law firm to
withdraw as class counsel.
Thereafter, in June 1997, the Plaintiffs again amended their complaint ("Amended
Complaint"). The Amended Complaint asserts substantially the same claims as the
Consolidated Complaint, except that it no longer contains causes of action for
fraud, except on behalf of the two original Plaintiffs, or for negligence. In
February 1998, the Court certified three Plaintiffs classes consisting of
current unit holders in each of the three HEP Partnerships. On March 11, 1998,
the Court stayed the action through June 30, 1998 to permit the parties to
engage in renewed settlement discussions.
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
<PAGE>
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.
Everest Litigation
On February 6, 1998, Everest Investors 8, LLC ("Everest") commenced an action in
the Superior Court of the state of California for the County of Los Angeles,
against, among others, the HEP Partnerships and Registrant, and the general
partners of each of the Partnership's. In the action, Everest alleged, among
other things, that the Partnerships and the general partners breached the
provisions of the applicable partnership agreements by refusing to recognize
transfers to Everest of limited partnership units purportedly acquired pursuant
to tender offers that had been made by Everest (the "Everest Tender Units").
Everest sought injunctive relief (i) directing the recognition of the transfers
to Everest of the Everest Tender Units and the admission of Everest as a limited
partner with respect to the Everest Tender Units and (ii) enjoining the
transfers of the Everest Tender Units to any other party. Everest seeks damages,
including punitive damages, for alleged breach of contract, defamation and
intentional interference with contractual relations. Everest's motion for a
temporary restraining order was denied on February 6, 1998. A hearing on
Everest's application for a preliminary injunction had been scheduled for
February 26; however, on February 20, 1998, Everest asked the Court to take its
application off the calendar. Merits discovery has commenced. The Partnerships
and the general partners believe that Everest's claims are without merit and
intend to vigorously contest the action.
On March 27, 1998, Everest commenced an action in the United States District
Court for the Central District of California against, among others, the general
partners of the Registrant and of the HEP partnerships. In the action, Everest
alleged, among other things, various violations of the Williams Act Section
14(d) of the Securities Exchange Act of 1934 in connection with the general
partners' refusal to recognize transfers to Everest of limited partnership units
purportedly acquired pursuant to the Everest tender offers and the letters sent
by the general partners to the limited partners advising them of the general
partners' determination that the Everest tender offers violated applicable
securities laws. The general partners believe that Everest's claims are without
merit and intend to vigorously contest the action.
<PAGE>
Item 8. Financial Statements and Supplementary Data
RESOURCES PENSION SHARES 5, L.P.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
INDEX
Independent Auditor's Report
Financial statements - Years ended
December 31, 1997, 1996 and 1995
Balance sheets
Statements of income
Statement of partners' equity
Statements of cash flows
Notes to financial statements
Schedule:
II - Valuation and Qualifying Accounts
III - Real Estate and Accumulated Depreciation
All other schedules have been omitted because they are inapplicable or the
information is included in the financial statements or notes thereto.
<PAGE>
To the Partners
Resources Pension Shares 5, L.P.
Greenwich, Connecticut
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheets of Resources Pension Shares 5,
L.P. (a limited partnership) as of December 31, 1997 and 1996, and the related
statements of income, partners' equity and cash flows for each of the three
years in the period ended December 31, 1997. Our audits also included the
financial statement schedules listed in the Index at Item 14(a)2. These
financial statements and financial statement schedules are the responsibility of
the Partnership's management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Resources Pension Shares 5,
L.P. as of December 31, 1997 and 1996, and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1997 in
conformity with generally accepted accounting principles. Also, in our opinion,
such financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
/s/Hays & Company
- -----------------
Hays & Company
February 16, 1998, except for Note 10 which
is dated March 3, 1998.
New York, New York
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
BALANCE SHEETS
December 31,
---------------------------
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Investments in mortgage loans (net of allowance for loan
losses of $1,547,830 at December 31, 1996) ................ $25,448,823 $30,255,687
Cash and cash equivalents .................................... 15,725,616 10,375,892
Real estate - net ............................................ 9,232,074 7,777,158
Other assets ................................................. 181,635 154,030
Interest receivable - mortgage loans ......................... 126,512 306,101
Interest receivable - other .................................. 78,593 46,886
----------- -----------
$50,793,253 $48,915,754
=========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities
Accounts payable and accrued expenses ........................ $ 779,912 $ 668,794
Distributions payable ........................................ 632,316 632,316
Other liabilities ............................................ 608,438 443,050
Due to affiliates ............................................ 321,525 224,716
----------- -----------
Total liabilities ......................................... 2,342,191 1,968,876
----------- -----------
Commitments and contingencies (Notes 3, 4, 5, 8 and 10)
Partners' equity
Limited partners' equity (as restated) (5,690,843 units issued
and outstanding) .......................................... 47,966,562 46,477,419
General partners' equity (as restated) ....................... 484,500 469,459
----------- -----------
Total partners' equity .................................... 48,451,062 46,946,878
----------- -----------
$50,793,253 $48,915,754
=========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENTS OF INCOME
Year ended December 31,
--------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues
Mortgage loans interest income ........ $ 3,267,488 $ 3,050,689 $ 2,485,841
Operating income - real estate ........ 1,191,478 979,454 756,471
Short term investment interest ........ 757,945 459,974 779,837
Other income .......................... 118,139 251,964 104,427
Additional contingent interest ........ -- 6,000 3,366
----------- ----------- -----------
5,335,050 4,748,081 4,129,942
----------- ----------- -----------
Costs and expenses
(Recovery of) provision for loan losses (721,946) 1,547,830 --
Management fees ....................... 847,690 775,060 736,256
Operating expenses - real estate ...... 654,978 553,598 575,442
Depreciation and amortization expense . 234,259 209,047 189,292
General and administrative expenses ... 160,296 286,180 402,836
Mortgage servicing fees ............... 65,122 76,184 64,149
Property management fees .............. 61,203 55,920 48,241
Write-down for impairment ............. -- -- 1,860,000
----------- ----------- -----------
1,301,602 3,503,819 3,876,216
----------- ----------- -----------
Net income ................................. $ 4,033,448 $ 1,244,262 $ 253,726
=========== =========== ===========
Net income attributable to
Limited partners ...................... $ 3,993,114 $ 1,231,819 $ 251,189
General partners ...................... 40,334 12,443 2,537
----------- ----------- -----------
$ 4,033,448 $ 1,244,262 $ 253,726
=========== =========== ===========
Net income per unit of limited partnership
interest (5,690,843 units outstanding) $ .70 $ .22 $ .04
=========== =========== ===========
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENT OF PARTNERS' EQUITY
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
General Limited Total
Partners' Partners' Partners'
Equity Equity Equity
<S> <C> <C> <C>
Balance, January 1, 1995 ................ $ (47,823) $ 49,405,575 $ 49,357,752
Reallocation of partners' equity (Note 7) 541,390 (541,390) --
------------ ------------ ------------
Balance, January 1, 1995 (as restated) .. 493,567 48,864,185 49,357,752
Net income - 1995 ....................... 2,537 251,189 253,726
Distributions to partners
($.24 per limited partnership unit) (13,796) (1,365,803) (1,379,599)
------------ ------------ ------------
Balance, December 31, 1995 (as restated) 482,308 47,749,571 48,231,879
Net income - 1996 ....................... 12,443 1,231,819 1,244,262
Distributions to partners
($.44 per limited partnership unit) (25,292) (2,503,971) (2,529,263)
------------ ------------ ------------
Balance, December 31, 1996 (as restated) 469,459 46,477,419 46,946,878
Net income - 1997 ....................... 40,334 3,993,114 4,033,448
Distributions to partners
($.44 per limited partnership unit) (25,293) (2,503,971) (2,529,264)
------------ ------------ ------------
Balance, December 31, 1997 .............. $ 484,500 $ 47,966,562 $ 48,451,062
============ ============ ============
</TABLE>
See notes to financial statements.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENTS OF CASH FLOWS
Year ended December 31,
INCREASE (DECREASE) IN CASH AND ------------------------------------------------
CASH EQUIVALENTS 1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities
Net income ......................................... $ 4,033,448 $ 1,244,262 $ 253,726
Adjustments to reconcile net income to net
cash provided by operating activities
(Recovery of) provision for loan losses ..... (721,946) 1,547,830 --
Write-down for impairment ................... -- -- 1,860,000
Depreciation and amortization expense ....... 234,259 209,077 189,292
Interest earned on Xerox loan ............... (400,000) -- --
Amortization of origination and
acquisition fees ............................ 119,919 127,705 92,084
Deferred interest receivable ................ -- (75,463) (141,637)
Stepped lease rentals ....................... (63,245) (18,510) --
Changes in assets and liabilities
Interest receivable ............................. 147,882 (46,886) 109,611
Other assets .................................... 6,437 (52,130) (14,029)
Accounts payable and accrued expenses ........... 111,118 216,984 48,314
Other liabilities ............................... 165,388 -- --
Due to affiliates ............................... 96,809 22,768 201,948
------------ ------------ ------------
Net cash provided by operating activities 3,730,069 3,175,637 2,599,309
------------ ------------ ------------
Cash flows from investing activities
Investments in mortgage loans ...................... (8,500,000) -- (8,746,181)
Mortgage loan repayments received .................. 12,695,141 397,167 130,706
Loan origination fees received ..................... 113,750 -- --
Additions to real estate ........................... (159,972) (90,488) (275,467)
------------ ------------ ------------
Net cash provided by (used in)
investing activities .................. 4,148,919 306,679 (8,890,942)
------------ ------------ ------------
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
STATEMENTS OF CASH FLOWS
Year ended December 31,
------------------------------------------------
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from financing activities
Distributions to partners .......................... (2,529,264) (2,299,330) (1,379,599)
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents ................................... 5,349,724 1,182,986 (7,671,232)
Cash and cash equivalents, beginning of year ............ 10,375,892 9,192,906 16,864,138
------------ ------------ ------------
Cash and cash equivalents, end of year .................. $ 15,725,616 $ 10,375,892 $ 9,192,906
============ ============ ============
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
On September 30, 1997 the Partnership received a deed-in-lieu of foreclosure on
the property underlying the Xerox loan. At that date, the Xerox loan (which was
accounted for under the investment method) had a carrying value of $1,100,000
and the property had an estimated net realizable value of $1,500,000.
Accordingly, the Partnership has reduced its investments in mortgage loans by
the carrying value of the Xerox loan, recorded an addition to real estate for
the estimated net realizable value of the underlying property which resulted in
mortgage loan interest income of $400,000.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
1 ORGANIZATION
Resources Pension Shares 5, L.P., a Delaware limited partnership (the
"Partnership"), was formed under the Delaware Revised Uniform Limited
Partnership Act on February 11, 1986 for the purpose of investing
primarily in participating mortgage loans and, to a lesser extent, land
sale-leaseback transactions on improved, income-producing real estate.
The Partnership will terminate on December 31, 2010, or sooner, in
accordance with the terms of the Amended and Restated Agreement of
Limited Partnership (the "Limited Partnership Agreement").
The Partnership registered 16,000,000 units of limited partnership
interests at $10 per unit with the Securities and Exchange Commission,
6,000,000 of which were for the Partnership's Reinvestment Plan. On
February 12, 1988, the Partnership terminated its offering of limited
partnership units, having raised $56,907,425 from approximately 5,800
investors (including $699,565 from limited partnership units issued
pursuant to the Reinvestment Plan). After the payment of a
nonaccountable expense reimbursement to the Administrative General
Partner, the Partnership had approximately $54,238,000, including
evaluation and acquisition fees paid or payable to the Administrative
General Partner, available for investment and reserves.
Limited partners' units were issued at a stated value of $10 per unit.
A total of 5,690,843 units of limited partnership were issued,
including 100 units to the initial limited partner, for an aggregate
capital contribution of $56,908,426. The General Partners collectively
contributed $1,000 to the Partnership.
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investments in mortgage loans
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 deferred interest
portion of the mortgage loan, 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 recognizes as revenue the lesser of the amount of
interest as contractually provided for in the mortgage loan, or
the pro rata share of the actual cash flow from operations of the
underlying property inclusive of depreciation and interest
expense on any senior indebtedness.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Interest method
Under this method of accounting, the Partnership recognizes
revenue as interest income over the term of the mortgage loan so
as to produce a constant periodic rate of return. Interest income
is not recognized as revenue during periods where there are
concerns about the ultimate realization of the interest or the
loan principal.
Loan origination and acquisition fees
Fees received and costs associated with the funding of mortgage loans
are included in investments in mortgage loans and amortized over the
life of the mortgage loan. Amortization is included in interest income.
Allowance for loan losses
A provision 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 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.
Write-down for impairment
The Partnership provides write-downs for impairment based upon a
quarterly review of the real estate in its portfolio. Real estate
property is carried at the lower of depreciated cost or estimated fair
value. In performing this review, management considers the estimated
fair value of the property based upon the undiscounted future cash
flows, as well as other factors, such as the current occupancy, the
prospects for the property and the economic situation in the region
where the property is located. Because this determination of estimated
fair 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 at each year
end. Accordingly, the Partnership may record additional write-downs in
subsequent years and such write-downs could be material.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Depreciation
Depreciation on properties acquired by the Partnership as a result of a
loan default is computed using the straight-line method over the useful
life of the property, which is estimated to be 40 years. The initial
cost of property represents the lower of the loan principal or the fair
market value of the property at the time of acquisition. Repairs and
maintenance are charged to operations as incurred.
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.
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
and investments in mortgage loans. Unless otherwise disclosed, the fair
value of financial instruments approximates their recorded values.
Net income and distributions per unit of limited partnership interest
Net income and distributions per unit of limited partnership interest
are computed based upon the number of units outstanding (5,690,843) for
the year.
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 by
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.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Recently issued accounting pronouncements
The Financial Accounting Standards Board has recently issued several
new accounting pronouncements. Statement No. 128, "Earnings Per Share"
established standards for computing and presenting earnings per share,
and became effective for financial statements for both interim and
annual periods ending after December 15, 1997. Statement No. 129,
"Disclosure of Information about Capital Structure" established
standards for disclosing information about an entity's capital
structure, and became effective for financial statements for periods
ending after December 15, 1997. Statement No. 130, "Reporting
Comprehensive Income" establishes standards for reporting and display
of comprehensive income and its components, and is effective for fiscal
years beginning after December 15, 1997. Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information"
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and major
customers, and is effective for financial statements for periods
beginning after December 15, 1997.
Management of the Partnership does not believe that these new standards
have, or will have a material effect on the Partnership's reported
operating results, per unit amounts, financial position or cash flows.
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, Resources Pension
Advisory Corp., and the Administrative General Partner, Resources
Capital Corp., are wholly-owned subsidiaries of Presidio Capital Corp.
("Presidio"). Resources Pension Advisory and Resources Capital Corp.
were, until November 3, 1994, wholly-owned subsidiaries of Integrated
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(continued)
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 the assets of Integrated.
As of February 28, 1995, the Associate General Partner of the
Partnership is Presidio AGP Corp., a Delaware corporation ("Presidio
AGP"), which replaced Richard H. Ader, formerly an executive officer of
Integrated. Presidio AGP is a wholly-owned subsidiary of Presidio. The
Administrative General Partner is also a general partner in several
other limited partnerships which are also affiliated with Presidio, and
which are engaged in businesses that are, or may be in the future, in
direct competition with the Partnership. The Investment General
Partner, Administrative General Partner and Associate General Partner
are collectively referred to as the "General Partners".
Presidio controls the Partnership through its direct and indirect
ownership of the General Partners. On August 28, 1997, an affiliate of
NorthStar Capital Partners acquired all of the Class B shares of
Presidio. This acquisition, when aggregated with previous acquisitions,
caused NorthStar Capital Partners to acquire indirect control of the
General Partners.
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 under an Administrative
Services Agreement. Wexford Management Corp. was also 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 administrative services to Presidio and its
subsidiaries to Wexford Management LLC ("Wexford"). Under this
agreement, Wexford also had the authority to designate directors of the
General Partners.
On November 2, 1997, the Administrative Services Agreement with Wexford
expired. Effective November 3, 1997, Wexford and Presidio entered into
a new Administrative Services Agreement (the "ASA"), which expires on
May 3, 1998. Under the terms of the ASA, Wexford will provide
consulting and administrative services to Presidio and its affiliates,
including the General Partners and the Partnership. Presidio also
entered into a management agreement with NorthStar Presidio Management
Company, LLC ("NorthStar Presidio"). Under the terms of the management
agreement, NorthStar Presidio will provide the day-to-day management of
Presidio and its direct and indirect subsidiaries and affiliates.
During the years ended December 31, 1997 and 1996, amounts paid to
Wexford for administrative services rendered amounted to $22,667 and
$42,545, respectively.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(continued)
Effective November 3, 1997, the officers and employees of Wexford that
had served as officers and/or directors of the General Partners
tendered their resignation. On the same date, the Board of Directors of
Presidio appointed new individuals to serve as officers and/or
directors of the General Partners.
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.
For management of the affairs of the Partnership, the Administrative
General Partner is entitled to receive a management fee equal to 1.25%
per annum of the average month-end net asset value of the Partnership
for the first four years after the initial closing date; 1.5% for the
next six years; and 1.75% thereafter. For the years ended December 31,
1997, 1996 and 1995, the Administrative General Partner earned
$847,690, $775,060 and $736,256, respectively, for its management
services. Amounts due to the Administrative General Partner at December
31, 1997 and 1996, for management services amounted to $307,397 and
$205,670, respectively, and is included in due to affiliates.
For the servicing of mortgage loans made by the Partnership, the
Investment General Partner is entitled to receive a mortgage servicing
fee of 1/4 of 1% per annum of the principal balances loaned. During the
years ended December 31, 1997, 1996 and 1995, the Investment General
Partner earned $65,122, $76,184 and $64,149, respectively, for mortgage
servicing fees. Amounts due to the Investment General Partner at
December 31, 1997 and 1996, for mortgage servicing fees amounted to
$14,128 and $19,046, respectively, and is included in due to
affiliates.
On December 9, 1993, the Partnership entered into a supervisory
management agreement with Resources Supervisory Management Corp.
("RSMC"), an affiliate of the General Partners, to perform certain
functions relating to supervising the management of the Groton
property. As such, RSMC is entitled to receive as compensation for its
supervisory management services the greater of 6% of annual gross
revenues from the Groton property when leasing services are performed
or 3% of gross revenue when no leasing services are performed. During
1994, RSMC entered into an agreement with an unaffiliated local
management company to perform such services on behalf of the
Partnership. The terms of this agreement are substantially the same as
the agreement entered into between the Partnership and RSMC. There was
no supervisory management fee earned by RSMC for the years ended
December 31, 1997, 1996 and 1995. Management fees earned by the
unaffiliated local management company amounted to $61,203, $55,920 and
$48,241 for the years ended December 31, 1997, 1996 and 1995,
respectively.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
3 CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
(continued)
The General Partners collectively are allocated 1% of net income, loss
and cash flow distributions of the Partnership. Such amounts allocated
or distributed to the General Partners are apportioned .98% to the
Administrative General Partner, .01% to the Investment General Partner
and .01% to the Associate General Partner.
During 1996 and 1997, an affiliate of Presidio purchased 536,959
limited partnership units of the Partnership. These units represent
approximately 9.4% of the issued and outstanding limited partnership
units, and entitle the purchaser to approximately $236,000 and $59,000
in distributions for the years ended December 31, 1997 and 1996,
respectively.
4 INVESTMENTS IN MORTGAGE LOANS
As of December 31, 1997, the Partnership has six outstanding mortgage
loans, consisting of five first mortgage loans and one wraparound
mortgage loan representing an aggregate mortgage amount advanced of
$26,950,000. During 1997, the Partnership was repaid its entire
outstanding balance on one of its mortgage investments (Medford Village
Loan); received a property in lieu of foreclosure which was
subsequently sold for net proceeds of $3,213,908 (Santa Ana Square
Loan); acquired a property in lieu of foreclosure which the Partnership
is presently attempting to sell (Xerox Loan); and funded two additional
mortgage loans (DVL Loan and Oliveye Loan). A discussion of these
events, as well as a description of the Partnership's other mortgage
investments is described below.
Bank of California Loan
The Bank of California Loan, in the original principal amount of
$8,500,000 ("Wrap Loan"), is secured by, among other things, the
interest of Gum Loong Limited Partnership ("Gum Loong") in the land
located in downtown Seattle, Washington underlying a building commonly
known as The Bank of California Building (the "Building"). The land is
subject to a long term ground lease (the "Ground Lease"). Concurrently
with the closing of the Wrap Loan, Gum Loong acquired the lessor's
interest under the Ground Lease and Continental Seattle Partners, L.P.
("CSP"), a partnership related to Gum Loong, acquired the lessee's
interest under the Ground Lease. CSP also acquired the lessor's
interest under a master (net) sublease with The Bank of California for
a substantial portion of the Building. A first mortgage on the land
("Land Loan") in the principal amount of $8,000,000, is held by Anchor
National Life Insurance Company ("Anchor"). Under the provisions of the
Wrap Loan, Gum Loong is required to make the payments required under
both the Land Loan and the Wrap Loan to the Partnership on a monthly
basis. The Partnership, in turn, then pays Anchor the amounts due under
the Land Loan on a monthly basis.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Bank of California Loan (continued)
The Wrap Loan is secured by a Wraparound Deed of Trust, Security
Agreement, Financing Statement and Assignment of Lessor's Interest in
Ground Lease dated May 5, 1988 in the amount of $16,500,000, between
the Partnership and Gum Loong. The Building is encumbered by a loan
("Building Loan"), which matured on March 26, 1992, between The Bank of
Tokyo Trust Company (Seattle Branch) ("BOT") and CSP, in the principal
amount of $48,000,000, secured by a first mortgage on the Building and
a third mortgage on the land. This loan is also guaranteed by Gum
Loong. The Partnership's collateral for the Wrap Loan is the land, the
lessor's interest in the Ground Lease and subject to the Ground Lease,
BOT's lien, the Building, the rents and profit and proceeds therefrom.
The Partnership received a letter dated April 22, 1993, stating that
BOT had commenced a foreclosure action against CSP for failure to repay
the Building Loan which matured on March 26, 1992. An Option Agreement
entered into at the time the Wrap Loan was made gives BOT the right,
after commencing a foreclosure action, to exercise an option to
purchase either (i) the Land Loan and the Wrap Loan from Anchor and the
Partnership or (ii) the land from Gum Loong subject to the Land Loan
and the Wrap Loan. On July 9, 1993 the Partnership received notice from
BOT that it intended to exercise its option to purchase the land.
Gum Loong did not make timely payments of its scheduled July, August,
and September 1993 debt service on the Wrap Loan. The Partnership
utilized its working capital reserves to make the required payments on
the Land Loan. On July 20, 1993, and again on August 9, 1993, the
Partnership notified Gum Loong that an event of default had occurred
because of the CSP default on the BOT loan and because of Gum Loong's
failure to make its scheduled payments. Both Gum Loong and CSP filed
for bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code in August 1993, staying BOT's foreclosure action. On
September 27, 1993 the Partnership, Anchor and Gum Loong entered into
an Interim Stipulation and Order Concerning Cash Collateral, which was
approved by the Bankruptcy Court on September 29, 1993. Since October
1993, various Cash Collateral Orders had been entered into which
required Gum Loong to make its monthly payments to the Partnership. The
September 1993 payment and all monthly contract interest payments due
thereafter under the Cash Collateral Orders have been made. The current
Cash Collateral Order requires Gum Loong to make monthly payments to
the Partnership through the maturity date of the loan.
On January 31, 1994, a Proof of Claim was filed in connection with the
Gum Loong Bankruptcy by the Partnership as it relates to amounts due
under the Wrap Loan, including principal, interest and other amounts
due. On January 6, 1995, a Proof of Claim was filed in connection with
the CSP bankruptcy by the Partnership for a contingent and unliquidated
claim under the Wrap Loan. Despite the bankruptcy filings by both Gum
Loong and CSP, the Partnership has not provided for an allowance for
loan loss on this loan. The Partnership believes that the collateral
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Bank of California Loan (continued)
for the Wrap Loan, the land as encumbered by the Ground Lease, is of
sufficient value to realize the amount due under the Wrap Loan. If BOT
exercises its option to purchase the land, it will be required, as a
condition of such exercise, to cure any defaults by Gum Loong.
On or about January 3, 1995, the United States Trustee moved to convert
the Gum Loong Chapter 11 Bankruptcy to a Chapter 7 Bankruptcy or to
dismiss the Gum Loong Case, or to set a deadline for filing a plan of
reorganization. This motion was scheduled for a hearing on February 9,
1995. This motion has been adjourned pending the hearing on its
proposed disclosure statement and proposed plan. The hearing on the
adequacy of BOT's proposed disclosure statement was set for April 6,
1995. The Third Amended Disclosure Statement was approved on May 31,
1995.
Thereafter, BOT sought confirmation of various amended plans to which
the Partnership successfully objected. Such plans included provisions
that were adverse to the Partnership's interests. The Partnership's
objections, and the Bankruptcy Court's rulings thereon, prompted BOT to
make various amendments and revisions to its proposed plan of
reorganization and withdraw various provisions that were objectionable
to the Partnership. After extended confirmation hearings on BOT's
proposed plans, the Bankruptcy Court approved the revised Fifth Amended
Plan in September 1995. As part of the approved plan, in September
1995, approximately $335,000 was paid to the Partnership. This amount
consisted of approximately $266,000 of interest payments due the
Partnership which resulted from two missed interest payments in 1993,
and late charges and interest related to these payments of
approximately $69,000, which is included in other income in the
statement of income for the year ended December 31, 1995.
The approved plan calls for, among other things, a Bankruptcy Court
appointed liquidating agent to manage the Building securing the Wrap
Loan and to pay the installments due the Partnership. The liquidating
agent is also required to sell the Building by June 1998 in a sale that
must be approved by the Bankruptcy Court and to which the Partnership
may object, or at a court approved auction in which the Partnership
could bid. If the property is sold in a non-auction sale, the purchaser
can buy the Building by satisfying the Wrap Loan, or purchase the
Building subject to the Wrap Loan. If the Building is purchased subject
to the Wrap Loan, the purchaser will have the right to extend the Wrap
Loan for three years from the present maturity date at a rate of 300
basis points over the yield on three year United States Treasury Notes
at that time, paying interest only from May 1998 until the new maturity
date. Such a purchaser would also have to pay an extension fee of 60
basis points if it elects the three year extension option. In
connection with the plan of reorganization, in September 1996, the
Partnership was reimbursed $216,000 for legal expenses relating to the
bankruptcy which amount is included in the accompanying statement of
income as other income.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Bank of California Loan (continued)
Management of the Investment General Partner estimates the fair value
of the Wrap Loan to be approximately $11,800,000 at December 31, 1997.
Methods and assumptions used in estimating fair value included, but
were not limited to, (i) present value of expected cash flows, (ii)
current rates for similar issues, (iii) recent transactions for similar
issues and (iv) market risks.
Avon Market Center Loan
On March 19, 1993, the Partnership funded a first mortgage loan in the
principal amount of $3,750,000 at an annual interest rate of 8.35%,
payable in monthly installments of principal and interest (based on a
35-year amortization schedule). The loan is for a period of ten years,
may not be prepaid during its first two years and may be prepaid
thereafter without penalty. The loan does not provide for any accrued
or contingent interest. The Partnership received a non-refundable
origination fee in the amount of $35,500 along with a non-refundable
application fee of $2,000. The loan is secured by a shopping center
located in Eagle County, Colorado which consists of approximately
70,211 square feet of net rentable area and parking for approximately
352 automobiles. The shopping center's major tenant is a Wal-Mart
Discount Store which occupies 53,318 square feet of retail space. There
is also a separate retail center which consists of 16,893 square feet
of retail space. The shopping center is located in the commercial area
of the town of Avon which is located close to Beaver Creek, a
well-known ski resort. This development serves as a convenience-center
for the neighboring communities as well as the near-by resorts,
including Vail.
Lionmark Corporate Center Loan
On June 15, 1993, the Partnership funded a first mortgage loan in the
principal amount of $4,000,000 at an annual interest rate of 8.5%,
payable in monthly installments of principal and interest (based on a
35-year amortization schedule). The loan is for a 10 year period and
may not be prepaid during the first two years and may be prepaid
thereafter without penalty. The loan is with recourse to principals of
the borrower if at any time the borrower files a petition under the
United States Bankruptcy Code. The loan is secured by a one story
campus type office/flexible use building which is part of a larger
office park. The building is located in Columbus, Ohio and consists of
approximately 79,000 square feet of net rentable area and parking for
approximately 357 automobiles. The office building's major tenants
include Star Bank Services, GDE Systems, Inc. and TransAmerica. In
connection with issuing the commitment, the Partnership received
application and commitment fees aggregating $40,000.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
DVL Loan
On February 28, 1997, the Partnership funded a Negotiable Promissory
Note (the "Note") to DVL, Inc. ("DVL"), in the principal amount of
$2,000,000 at an annual interest rate of 12% with interest payable
monthly. In addition, the Partnership is entitled to receive payments
equal to DVL's excess cash flow (as defined) from the mortgages
underlying DVL's collateral assignment, which is to be applied as a
reduction of principal. The Note matures on February 27, 2000 and may
be prepaid during the first two years. The Note is secured by (among
other things) a collateral assignment of DVL's interest in certain
promissory notes payable to DVL.
On July 30, 1997, DVL sold one of the properties underlying the Note
and made a $1,075,000 prepayment to the Partnership. Approximately
$1,032,000 of the prepayment was applied towards the principal balance
of the Note and the remainder was applied to interest.
Medford Village Loan
On July 25, 1995, the Partnership purchased a first mortgage loan in
the principal amount of $8,612,500 for approximately $8,700,000 in
cash. In addition, the Partnership incurred $45,469 of consulting fees
with respect to this loan. The loan had a floating interest rate,
capped at 10%, based on the Eurodollar rate for each quarterly interest
period plus 280 basis points. The loan was payable in quarterly
installments of principal and interest, maturing on April 22, 1998,
with a balloon payment of $7,737,500, plus any accrued interest due.
The borrower had the right to two, one year extensions for a fee of
$23,500 each year, provided the loan to value ratio at the time did not
exceed 60%. The loan was collateralized by a guarantee from the
borrower's principals, should the borrower have defaulted, and was
secured by a 121,660 square foot shopping center known as the Medford
Village Outlet Center located in Medford, Minnesota.
On June 30, 1997, the Medford loan was repaid in its entirety. The
Partnership received $8,129,181 of which $8,000,000 was applied towards
the principal balance of the loan and the remainder was applied to
interest.
Santa Ana Square Loan
On March 15, 1988, the Partnership funded a first mortgage loan in the
principal amount of $2,600,000 at an annual interest rate of 10.91%.
Payments were due based upon a payment schedule which required monthly
payments ranging from $6,250 and increasing to $23,750. Interest, which
was in excess of amounts received, was deferred and added to the
principal balance for purposes of computing interest. This loan matured
during March 1997.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Santa Ana Square Loan (continued)
As a result of an economic decline in the surrounding area, the tenancy
at the Santa Ana Shopping Center had been slowly shifting from
regional, credit tenants to local, non-credit tenants. Consequently,
although the cash flow from the operation of the center had not
declined, its value had been eroded due to the shift in tenancy. During
1996, management performed cash flow projections and analyzed data
regarding sales of comparable centers in order to estimate the fair
value of the center for the purpose of valuing the loan. Based upon
analysis of the projected cash flow from the center using a 13%
capitalization rate and market comparables indicating a value of
approximately $78 per square foot, the fair value of the center was
estimated to be approximately $2,500,000. The net carrying value of the
loan at that time was $4,047,830, necessitating a provision of
$1,547,830 which was recorded by the Partnership during 1996.
Additionally, the Partnership ceased accruing interest on this loan.
On April 10, 1997 the Partnership entered into a settlement agreement
with the Santa Ana borrower in which, among other things, the borrower
gave the Partnership a deed-in-lieu of foreclosure on the property. A
separate entity was formed, Santa Ana Holding, LLC, to take title to
the property. The Partnership is the sole member of the entity and is
entitled to 100% of all assets, distributions and net income. On April
30, 1997 the Partnership sold this property for net proceeds of
$3,213,908. The net carrying value of the Santa Ana loan at that time
was $2,491,962, necessitating a recovery of loan losses of $721,946.
Xerox Loan
The Xerox loan was originally a $1,100,000 first mortgage loan which
was secured by an office building located in Arlington, Texas. In March
1997, the Xerox loan matured in accordance with its terms. On September
30, 1997, the Partnership received a deed-in-lieu of foreclosure on the
property underlying this loan. At that date, the Xerox loan had a
carrying value of $1,100,000 (this loan was accounted for under the
investment method) and the underlying property had an estimated net
realizable value of $1,500,000. Accordingly, the Partnership has
reduced its investments in mortgage loans by the carrying value of the
Xerox loan and recorded an addition to real estate for the fair market
value of the underlying property, which resulted in recognition of
interest income for amounts previously deferred in the amount of
$400,000. A separate entity was formed, 2810 Arlington Holding, LLC, to
take title to the property. The Partnership is the sole member of the
entity and is entitled to 100% of all assets, distributions and net
income. The Partnership is actively attempting to sell this property.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Oliveye Loan
On October 31, 1997, the Partnership funded a first mortgage loan to
Oliveye Hotel Limited Partnership in the principal amount of
$6,500,000. The loan has an annual interest rate of 11% and is payable
monthly. The loan is secured by the Crowne Plaza Hotel located in
Cincinnati, Ohio, and matures in October, 2000. In connection with the
funding of this loan, the Partnership received $113,750 in loan
origination fees.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Information with respect to the Partnership's investments in mortgage
loans is summarized below:
<TABLE>
<CAPTION>
Interest Contractual
Mortgage Recognized Balance
Interest Rate Maturity Amount Dec. 31, Dec. 31,
Description Current % Accrued % Date Advanced 1997 1997 (2)
----------- --------- --------- ---- -------- ---- --------
<S> <C> <C> <C> <C> <C> <C>
Shopping Centers
Santa Ana Square
Santa Ana, CA (3) 10.91 1.29 - 0 March 1997 $ 2,600,000 $ 43,259 $ -
Lucky Supermarket
Buena Park, CA (4) 8.41-10.00 1.82 - 0 May 2005 2,200,000 225,126 2,524,736
Avon Market Ctr.
Avon, CO (3) 8.35 - April 2003 3,750,000 305,560 3,647,740
Medford Village
Outlet Center
Medford, MN (3) 8.55 - April 1998 8,612,500 287,374 -
DVL, Inc. (3) 12.00 - February 2000 2,000,000 164,616 746,801
Hotel
Crowne Plaza Hotel (3)
Cincinnati, Ohio 11.00 - October 2000 6,500,000 125,486 6,392,569
Office Buildings
Bank of California
Seattle, WA (4) 9.36 - 10.24 3.0 - 0 May 1998 8,500,000 1,379,404 16,874,768
Xerox
Arlington, TX (4) 4.55 10.38 - 11.47 March 1997 1,100,000 406,224 -
Lionmark Corp. Ctr.
Columbus, OH (3) 8.5 - June 2003 4,000,000 330,439 3,899,057
----------- ---------- -----------
$39,262,500 $ 3,267,488 $34,085,671
=========== =========== ===========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Carrying Carrying
Value Value
Dec. 31, Dec. 31,
Description 1997 (1) 1996 (1)
----------- -------- --------
<S> <C> <C>
Shopping Centers
Santa Ana Square
Santa Ana, CA (3) $ - $ 2,495,981
Lucky Supermarket
Buena Park, CA (4) 2,239,257 2,244,550
Avon Market Ctr.
Avon, CO (3) 3,647,740 3,673,112
Medford Village
Outlet Center
Medford, MN (3) - 8,239,815
DVL, Inc. (3) 746,801 -
Hotel
Crowne Plaza Hotel (3)
Cincinnati, Ohio 6,392,569 -
Office Buildings
Bank of California
Seattle, WA (4) 8,523,399 8,573,639
Xerox
Arlington, TX (4) - 1,101,872
Lionmark Corp. Ctr.
Columbus, OH (3) 3,899,057 3,926,718
---------- -----------
25,448,823 $30,255,687
=========== ===========
</TABLE>
1. The carrying values of the above mortgage loans are inclusive of
acquisition fees, accrued interest recognized, loan origination fees
and allowance for loan losses.
2. The contractual balance represents the original mortgage amount
advanced plus accrued interest calculated in accordance with the loan
agreements, less principal amortization received.
3. These loans are accounted for under the interest method.
4. These loans are accounted for under the investment method.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
A summary of mortgage activity is as follows:
<TABLE>
<CAPTION>
Investment Interest
Method Method Total
------------ ------------ ------------
<S> <C> <C> <C>
Balance, January 1, 1995 ............ $ 12,039,684 $ 11,548,214 $ 23,587,898
Interest recognized ................. 1,139,501 1,346,340 2,485,841
Amortization of loan principal ...... -- (130,706) (130,706)
Investment in mortgage loan ......... -- 8,746,181 8,746,181
Cash received inclusive of
current interest accruals ......... (1,196,328) (1,239,960) (2,436,288)
------------ ------------ ------------
Balance, December 31, 1995 .......... 11,982,857 20,270,069 32,252,926
Interest recognized ................. 1,409,349 1,641,340 3,050,689
Amortization of loan principal ...... -- (397,167) (397,167)
Provision for loan losses ........... -- (1,547,830) (1,547,830)
Cash received inclusive of
current interest accruals ......... (1,472,368) (1,630,563) (3,102,931)
------------ ------------ ------------
Balance, December 31, 1996 .......... 11,919,838 18,335,849 30,255,687
Investments in mortgage loans ....... -- 8,500,000 8,500,000
Interest recognized ................. 2,010,754 1,256,734 3,267,488
Amortization of loan principal ...... -- (449,565) (449,565)
Recovery of provision for loan losses -- 721,946 721,946
Loan payoffs/foreclosure ............ (1,500,000) (3,213,908) (4,713,908)
Loan origination fees received ...... -- (113,750) (113,750)
Cash received inclusive of
current interest accruals ......... (1,667,936) (10,351,139) (12,019,075)
------------ ------------ ------------
Balance, December 31, 1997 .......... $ 10,762,656 $ 14,686,167 $ 25,448,823
============ ============ ============
</TABLE>
Unaudited financial information for mortgage loans accounted for under
the investment method, which exceed 10% of the Partnership's original
contributions, is summarized as follows:
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
4 INVESTMENTS IN MORTGAGE LOANS (continued)
Gum Loong, L.P.
Due to the bankruptcy filing of Gum Loong, L.P., unaudited financial
information for 1997 and 1996 is not presently available for The Bank
of California property.
5 REAL ESTATE - NET
A summary of the Partnership's real estate is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Land ........................ $ 2,202,000 $ 1,902,000
Buildings and improvements .. 7,880,162 6,520,190
------------ ------------
10,082,162 8,422,190
Less accumulated depreciation (850,088) (645,032)
------------ ------------
$ 9,232,074 $ 7,777,158
============ ============
</TABLE>
Landover, Maryland
On December 21, 1992 the Investment General Partner, on behalf of the
Partnership, foreclosed on the property securing the Garfinkel's loan.
At the foreclosure sale, the Partnership acquired the property for a
bid of $3,200,000. In addition, in June 1993, the Partnership paid
$84,404 for costs associated with the foreclosure. Such costs have been
capitalized as real estate assets and are being depreciated over the
estimated useful life of the property.
The Partnership paid real estate taxes for this property during the
years ended December 31, 1997, 1996 and 1995 in the amount of $44,024,
$48,926 and $49,189, respectively. Such amounts are included in
operating expenses - real estate in the statements of income.
On January 27, 1992, the Partnership received $450,000 from the former
property owner in exchange for a release of a personal guarantee in
which the former property owner was obligated to reimburse the
Partnership for asbestos removal up to a maximum of $500,000. The
receipt of these funds was recorded as a liability on the Partnership's
balance sheet. During June 1992, $6,950 was paid for remedial cleaning
in connection with the asbestos removal and the unexpended asbestos
reserve aggregated $443,050, which is included in other liabilities in
the accompanying balance sheets at December 31, 1997 and 1996. The
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5 REAL ESTATE - NET (continued)
Landover, Maryland (continued)
Partnership does not presently plan to commence removal of the asbestos
until a purchaser or tenant for the property is identified.
Additionally, the owner of the Landover Mall ("Mall Owner"), where the
property is located, had requested reimbursement from the Partnership
for common area maintenance and utility usage charges, allegedly due
under certain agreements made between the former owner of the property
and Mall Owner, for periods subsequent to the date that the Partnership
took title to the property. The Partnership believed it was obligated
only for the actual value of certain items. Discussions between the
Partnership and Mall Owner were on-going as to the exact amount to be
paid. However, the Partnership had provided a liability (included in
accounts payable and accrued expenses in the accompanying balance
sheets) in the amount of $672,329 and $500,829 at December 31, 1997 and
1996, respectively, for such charges. On December 22, 1997 the
Partnership entered into a settlement agreement with Mall Owner and on
February 4, 1998 the Partnership paid $667,407 in full satisfaction of
amounts owed at December 31, 1997 (excluding energy charges for
December 1997).
The Garfinkel's property has been vacant since the foreclosure by the
Partnership.
Groton, Connecticut
The Groton loan, in the original principal amount of $8,000,000, was
collateralized by a shopping center in Groton, Connecticut. On
September 20, 1991, Groton Associates, the borrower, filed a voluntary
petition for reorganization pursuant to the provisions of Chapter 11 of
the United States Bankruptcy Code.
The Investment General Partner, on behalf of the Partnership, obtained
an order from the Bankruptcy Court on July 27, 1993 permitting it to
proceed with a foreclosure against the property and directing Groton
Associates to turn over all cash collateral and provide an accounting
for rents. In addition, beginning with the rents due on August 1, 1993,
the Partnership began to collect rents directly. The Partnership
commenced a foreclosure action in Connecticut and on December 9, 1993
foreclosed on the shopping center.
At the foreclosure, the estimated net realizable value of the shopping
center was determined to be $6,500,000 based on the third party
appraisal of the shopping center previously received by the
Partnership. All reserves previously recorded on the loan were written
off after the foreclosure and the remaining balance of $6,500,000 was
transferred to real estate on the Partnership's balance sheet.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
5 REAL ESTATE - NET (continued)
Arlington, Texas (continued)
Occupancy at the shopping center has declined from approximately 82% at
the time of foreclosure to approximately 77% at December 31, 1997. The
anticipated lease-up of the vacant space has not occurred as of
December 31, 1997 resulting in lower than anticipated net operating
income. In addition, management is currently investigating the
potential cost to correct certain environmental violations at the
shopping center. Management determined, as a result of an internally
prepared analysis during March 1995, that the estimated net realizable
value of the Groton property was approximately $5,500,000. The carrying
value was approximately $7,360,000 at that time, thus requiring a
$1,860,000 write-down for impairment.
As discussed in Note 4, this property was acquired by the Partnership
via a deed-in-lieu of foreclosure on September 30, 1997. The property
has been recorded at its estimated net realizable value of $1,500,000
at such date. The Partnership is currently attempting to sell this
property, however in the interim, the Partnership is operating the
property.
6 DISTRIBUTIONS PAYABLE
Distributions payable represent distributions of adjusted cash flows
from operations as defined in the Limited Partnership Agreement.
Distributions payable to limited partners of $625,993 for each of the
quarters ended December 31, 1997 and 1996, respectively, were paid in
the first quarters of 1998 and 1997, respectively. Distributions of
$6,323 payable to the general partners for each of the quarters ended
December 31, 1997 and 1996, respectively, were also paid in the first
quarters of December 31, 1998 and 1997, respectively.
7 PARTNERS' EQUITY
The General Partners hold a 1% equity interest in the Partnership.
However, at the inception of the Partnership, the General Partners'
equity account was credited with only the actual capital contributed in
cash, $1,000. The Partnership's management determined that this
accounting does not appropriately reflect the Limited Partners' and the
General Partners' relative participations in the Partnership's net
assets, since it does not reflect the General Partners' 1% equity
interest in the Partnership. Thus, the Partnership has restated its
financial statements to reallocate $541,390 (1% of the gross proceeds
raised at the Partnership's formation) of the partners' equity to the
General Partners' equity account. This reallocation was made as of the
inception of the Partnership and all periods presented in the financial
statements have been restated to reflect the reallocation. The
reallocation has no impact on the Partnership's financial position,
results of operations, cash flows, distributions to partners, or the
partners' tax basis capital accounts.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8 COMMITMENTS AND CONTINGENCIES
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
("Consolidated Complaint") against the General Partners of the HEP
Partnerships 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 Partnerships. 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 granted the request of
one of the Plaintiffs' law firm to withdraw as class counsel.
Thereafter, in June 1997, the Plaintiffs again amended their complaint
("Amended Complaint"). The Amended Complaint asserts substantially the
same claims as the Consolidated Complaint, except that it no longer
contains causes of action for fraud, except on behalf of the two
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
8 COMMITMENTS AND CONTINGENCIES
HEP Action
original Plaintiffs, or for negligence. In February 1998, the Court
certified three Plaintiffs classes consisting of current unit holders
in each of the three HEP Partnerships. On March 11, 1998, the Court
stayed the action through June 30, 1998 to permit the parties to engage
in renewed settlement discussions.
With respect to the above litigation, the Limited Partnership Agreement
provides for the indemnification of the General Partners and their
affiliates in certain circumstances. It is impossible to predict what
financial exposure the Partnership will have as a result of this
indemnification.
Everest Litigation
On February 6, 1998, Everest Investors 8, LLC ("Everest") commenced an
action in the Superior Court of the state of California for the County
of Los Angeles, against, among others things, the HEP Partnerships and
Registrant, and the general partners of each of the Partnerships. In
the action, Everest alleged, among other things, that the Partnerships
and the general partners breached the provisions of the applicable
partnership agreements by refusing to recognize transfers to Everest of
limited partnership units purportedly acquired pursuant to tender
offers that had been made by Everest (the "Everest Tender Units").
Everest sought injunctive relief (i) directing the recognition of the
transfers to Everest of the Everest Tender Units and the admission of
Everest as a limited partner with respect to the Everest Tender Units
and (ii) enjoining the transfers of the Everest Tender Units to any
other party. Everest seeks damages, including punitive damages, for
alleged breach of contract, defamation and intentional interference
with contractual relations. Everest's motion for a temporary
restraining order was denied on February 6, 1998. A hearing on
Everest's application for a preliminary injunction had been scheduled
for February 26; however, on February 20, 1998, Everest asked the Court
to take its application off the calendar. Merits discovery has
commenced. The Partnerships and the general partners believe that
Everest's claims are without merit and intend to vigorously contest the
action.
9 RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL STATEMENTS
TO TAX BASIS
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 for under the
investment method recognize income as described in Note 2.
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
9 RECONCILIATION OF NET INCOME AND NET ASSETS PER FINANCIAL STATEMENTS
TO TAX BASIS (continued)
A reconciliation of net income per financial statements to the tax
basis of accounting is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Net income per financial statements ........... $ 4,033,448 $ 1,244,262 $ 253,726
Difference in (recovery of) provision for loan
losses and write-down for impairment ...... (721,946) 1,547,830 1,860,000
Difference in income recognized on
mortgage investments ...................... (22,741) 745,403 863,987
Difference in reserves ........................ (144,000) 144,000 --
Tax write-off of loan in excess of
financial statement ....................... (933,092) -- --
Tax depreciation in excess of
financial statement depreciation .......... (25,175) (20,717) (21,647)
----------- ----------- -----------
Net income per tax basis ...................... $ 2,186,494 $ 3,660,778 $ 2,956,066
=========== =========== ===========
</TABLE>
<PAGE>
RESOURCES PENSION SHARES 5, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
9 RECONCILIATION OF NET INCOME 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,
------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net assets per financial statements ........ $ 48,451,062 $ 46,946,878
Deferred interest receivable ............... 9,210,601 9,367,011
Acquisition and origination fees ........... (16,217) (42,678)
Allowance for loan losses and impairments .. 1,860,000 3,407,830
Syndication costs .......................... 2,669,697 2,669,697
Financial statement reserves in excess of
tax amounts ........................... -- 144,000
Cumulative tax depreciation in excess of
financial statement depreciation ...... (100,720) (75,545)
------------ ------------
Net assets per tax basis ................... $ 62,074,423 $ 62,417,193
============ ============
</TABLE>
10 SUBSEQUENT EVENT
On February 18, 1998, Presidio RPS Acquisition Corp. (the "Purchaser"),
an affiliate of the General Partners and a subsidiary of Presidio,
filed an offer to tender for up to 2,000,000 limited partnership units
of the Partnership at $6.00 per unit. Included in the offering is a
discussion of the estimated fair market value of the Partnership's
investments in mortgage loans and real estate assets, which is not
necessarily indicative of the carrying values presented in the
accompanying balance sheets. The offer expired on March 17, 1998. On
March 3, 1998 the Purchaser increased the offer price to $6.50 per
unit.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Additions
-----------------------------
Balance at Charged to Charged Balance at
Beginning of Costs and to Other End of
Description Period Expenses Accounts Deductions Period
----------- ------ -------- -------- ---------- ------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1997
Write-down for impairment:
Groton Shopping Center
Groton, Connecticut ... $ 1,860,000 (A) $ -- $ -- $ -- $1,860,000
=========== =========== ====== ============ ==========
Allowance for loan losses:
Santa Ana Loan
Santa Ana, California . $ 1,547,830 (B) $ -- $ -- $ (1,547,830) (B) $ --
=========== =========== ====== ============= ==========
YEAR ENDED DECEMBER 31, 1996
Write-down for impairment:
Groton Shopping Center
Groton, Connecticut ... $ 1,860,000 (A) $ -- $ -- $ -- $1,860,000
=========== =========== ====== ============ ==========
Allowance for loan losses:
Santa Ana Loan
Santa Ana, California . $ -- (B) $ 1,547,830 $ -- $ -- $1,547,830
=========== =========== ====== ============ ==========
YEAR ENDED DECEMBER 31, 1995
Write-down for impairment:
Groton Shopping Center
Groton, Connecticut ... $ -- $ 1,860,000 (A) $ -- $ -- $1,860,000
=========== =========== ====== ============ ==========
</TABLE>
(A) Represents a write-down for impairment on the Groton Shopping Center
provided during 1995.
(B) Represents a provision for loan losses on the Santa Ana Loan provided
during 1996 which was reversed during 1997 upon receipt by the
Partnership and subsequent sale of the property underlying the loan.
<PAGE>
<TABLE>
<CAPTION>
RESOURCES PENSION SHARES 5, L.P.
Schedule III - REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
COSTS CAPITALIZED GROSS AMOUNT AT
INITIAL COST TO SUBSEQUENT TO CLOSE OF
PARTNERSHIP (1) ACQUISITION PERIOD
------------------------ ---------------------- ------------------------------------------
BUILDINGS BUILDINGS WRITE-DOWN
AND CARRYING AND FOR
DESCRIPTION ENCUMBRANCES LAND IMPROVEMENTS IMPROVEMENTS COSTS LAND IMPROVEMENTS IMPAIRMENT
----------- ------------ ---- ------------ ------------ ----- ---- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
LANDOVER MALL
LANDOVER, MARYLAND $ - $ 640,000 $ 2,560,000 $ - $ 84,404 $ 640,000 $ 2,644,404 $ -
XEROX OFFICE BUILDING
ARLINGTON, TEXAS - 300,000 1,200,000 - - 300,000 1,200,000 -
GROTON SHOPPING CENTER
GROTON, CONNECTICUT - 1,820,000 4,680,000 657,758 - 1,820,000 5,337,758 (1,860,000)
-- ---------- ----------- --------- -------- ---------- ----------- ------------
TOTAL $ - $ 2,760,00 $ 8,440,000 $ 657,758 $ 84,404 $ 2,760,00 $ 9,182,162 $ (1,860,000)
==== ========== ============ ========== ======== ========== =========== ============
<CAPTION>
GROSS
AMOUNT AT LIFE ON WHICH
CLOSE OF DEPRECIATION IN
PERIOD LATEST INCOME
------------ ACCUMULATED DATE OF DATE STATEMENTS
DESCRIPTION TOTAL DEPRECIATION CONSTRUCTION ACQUIRED IS COMPUTED
----------- ----- ------------ ------------ -------- -----------
<S> <C> <C> <C> <C> <C>
LANDOVER MALL
LANDOVER, MARYLAND $ 3,284,404 $ 331,250 N/A 12/21/92 40 YEARS
Straight-line method
XEROX OFFICE BUILDING
ARLINGTON, TEXAS 1,500,000 7,500 N/A 9/30/97 40 YEARS
Straight-line method
GROTON SHOPPING CENTER
GROTON, CONNECTICUT 5,297,758 511,338 N/A 12/9/93 40 YEARS
----------- --------- Straight-line method
TOTAL $10,082,162 $ 850,088
=========== =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
-----------------------------------------
(A) RECONCILIATION OF REAL ESTATE OWNED 1997 1996 1995
------------ ------------ -----------
<S> <C> <C> <C>
Balance at beginning of year $ 8,422,190 $ 8,331,702 $ 9,916,235
Additions during year:
Building 1,200,000 - -
Land 300,000 - -
Improvements 159,972 90,488 275,467
Write-down for impairment - - (1,860,000)
------------ ------------ -----------
Balance at end of year $ 10,082,162 $ 8,422,190 $ 8,331,702
============= ============ ===========
<CAPTION>
Year ended December 31,
-------------------------------------
(B) RECONCILIATION OF ACCUMULATED DEPRECIATION 1997 1996 1995
--------- ---------- ---------
<S> <C> <C> <C>
Balance at beginning of year $ 645,032 $ 450,608 $ 261,316
Additions during year
Depreciation expense 205,056 194,424 189,292
-------- ---------- ---------
Balance at end of year $ 850,088 $ 645,032 $ 450,608
========== ========== =========
</TABLE>
(1) Aggregate cost for income tax purposes is $12,412,137 at December 31, 1997.
See notes to financial statements.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
None.
<PAGE>
PART III
Item 10. Directors and Executive Officers of Registrant
There are no officers or directors of Registrant. The Administrative General
Partner is responsible for all administrative functions of Registrant and the
Investment General Partner is responsible for Registrant's investments in
mortgage loans and land sale-leasebacks. The Associate General Partner will not
devote any material amount of its business time and attention to the affairs of
Registrant.
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 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.
As of March 15, 1998, the executive officers and directors of the
Administrative, Investment and Associate General Partners were as follows:
<TABLE>
<CAPTION>
Has served as a
Director and/or
Name Age Position Held Officer since
---- --- ------------- -------------
<S> <C> <C> <C>
W. Edward Scheetz 33 Director November 1997
David Hamamoto 38 Director November 1997
Richard Sabella 42 President, Director November 1997
David King 35 Executive VP, Director, Assistant Treasurer November 1997
Lawrence R. Schachter 41 Senior VP, Chief Financial Officer January 1998
Kevin Reardon 39 VP, Secretary, Treasurer, Director November 1997
Allan B. Rothschild 36 Executive VP December 1997
Marc Gordon 33 VP November 1997
Charles Humber 24 VP November 1997
Adam Anhang 24 VP November 1997
Gregory Peck 23 Assistant Secretary November 1997
</TABLE>
W. Edward Scheetz co-founded NorthStar Capital Partners with David Hamamoto in
July 1997, having previously been a partner at Apollo Real Estate Advisors L.P.
since 1993. From 1988 to 1993, Mr. Scheetz was a principal with Trammell Crow
Ventures.
David Hamamoto co-founded NorthStar Capital Partners with W. Edward Scheetz in
July 1997, having previously been a partner and a co-head of the Real Estate
Principal Investment Area at Goldman, Sachs & Co., where he initiated the effort
to build a real estate principal investment business in 1988 under the auspices
of the Whitehall Funds.
<PAGE>
Richard Sabella joined NorthStar Capital Partners in November 1997, having
previously been the head of real estate and a partner at the law firm of Cahill,
Gordon & Reindel since 1989. Mr. Sabella has also been associated with the law
firms of Milgrim, Thomajian, Jacobs & Lee, P.C. and Cravath, Swaine & Moore.
David King joined NorthStar Capital Partners in November 1997, having previously
been a Senior Vice President of Finance at Olympia & York Companies (USA). Prior
to joining Olympia & York in 1990, Mr. King worked for Bankers Trust in its real
estate finance group.
Lawrence R. Schachter joined NorthStar Presidio in January 1998, having
previously held the position as Controller at CB Commercial/Hampshire, LLC from
1996 to 1997. Prior to joining CB, Mr. Schachter held the position of Controller
at Goodrich Associates in 1996 and at Greenthal/Harlan Realty Services Co. from
1992 to 1995. Mr. Schachter, who holds a CPA, graduated from Miami University
(Ohio).
Kevin Reardon joined NorthStar Capital Partners in October 1997, having
previously held the position of Controller at Lazard Freres Real Estate
Investors from 1996 to 1997. Prior to joining Lazard Freres, Mr. Reardon was the
Director of Finance in charge of European expansion at the law firm of Dewey
Ballantine from 1993 to 1996. Prior to 1993, Mr. Reardon held a financial
position at Hearst - ABC - Viacom Entertainment Services. Mr. Reardon, who holds
a CPA, graduated from Fordham University with a B.S. in Accounting.
Allan B. Rothschild joined NorthStar Presidio in December 1997, having
previously been the Senior Vice President and General Counsel of Newkirk Limited
Partnership where he managed a large portfolio of net-leased real estate assets.
Prior to joining Newkirk, Mr. Rothschild was associated with the law firm of
Proskauer, Rose LLP in its real estate group.
Marc Gordon joined NorthStar Capital Partners in October 1997, having previously
been a Vice President in the Real Estate Investment Banking Group at Merrill
Lynch where he executed corporate finance and strategic transactions for public
and private real estate ownership companies, including REITs, real estate
service companies, and real estate intensive operating companies. Prior to
joining Merrill Lynch in 1993, Mr. Gordon was in the Real Estate and Banking
Group at the law firm of Irell & Manella. Mr. Gordon graduated from Dartmouth
College with an A.B. in economics and also holds a J.D. from the UCLA School of
Law.
Charles Humber joined NorthStar Capital Partners in September 1997, having
previously worked for Merrill Lynch's Real Estate Investment Banking Group from
1996 to 1997. Mr. Humber graduated from Brown University with a B.A. in
international relations and organizational behavior and management which is
where he was prior to 1996.
Adam Anhang joined NorthStar Capital Partners in August 1997, having previously
worked for The Athena Group's Russia and Former Soviet Union development team
from 1996 to 1997. Mr. Anhang graduated from the Wharton School of the
University of Pennsylvania with a B.S. in economics with concentrations in
finance and real estate, which is where he was prior to 1996.
Gregory Peck joined NorthStar Capital Partners in July 1997, having previously
worked for the Morgan Stanley Realty Real Estate Funds (MSREF) and Morgan
Stanley's Real Estate Investment Banking Group from 1996 to 1997. Prior to
joining Morgan Stanley, Mr. Peck worked for Lazard Freres & Co. LLC in the Real
Estate Investment Banking Group from 1994 to 1996. Mr. Peck graduated from
Columbia College with an A.B. in mathematics and an A.B. in economics.
<PAGE>
There are no family relations between any executive officer and any other
executive officer or director of either the Administrative, Investment and
Associate General Partners.
Many of the above officers and directors of the Administrative, Investment and
Associate General Partners are also officers and/or directors of the general
partners of other public partnerships affiliated with Presidio or of various
subsidiaries of Presidio.
Item 11. Executive Compensation
Registrant is not required to and did not pay remuneration to the executive
officers and directors of the Administrative General Partner, the Investment
General Partner or the former Associate General Partner. Certain officers and
directors of the Investment General Partner and the Administrative General
Partner receive compensation from Presidio or its affiliates (but not from
Registrant) for services performed for various affiliated entities, which may
include services performed for Registrant; however, the Administrative and
Investment General Partners believe 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, 1998, only the following entity was known by Registrant to be the
beneficial owner of more than 5% of Registrant's Units:
<TABLE>
<CAPTION>
Name and Amount of
Address of Beneficial Percentage of Beneficial
Title of Class Beneficial Owner Ownership Ownership
-------------- ---------------- --------- ---------
<S> <C> <C> <C>
Limited Partnership Presidio Partnership 536,959 9.4%
Units II Corp.
411 West Putnam Avenue
Greenwich, CT 06830
Limited Partnership Presidio RPS Acquisition 862,497.573 15.2%
Units Corp.
411 West Putnam Avenue
Greenwich, CT 06830
</TABLE>
As of March 1, 1998, neither the General Partners nor their officers and
directors were known by Registrant to be beneficially own Units or shares of
Presidio, the parent of the General Partners.
To the knowledge of the Registrant, the following sets forth certain information
regarding ownership of the Class A shares of Presidio as of March 11, 1998
(except as otherwise noted) by (i) each person or entity who owns of record or
beneficially five percent or more of the Class A shares, (ii) each director and
executive officer of Presidio, and (iii) all directors and executive officers of
Presidio as a group. To the knowledge of Presidio, each of such shareholders has
sole voting and investment power as to the shares shown unless otherwise noted.
<PAGE>
All outstanding shares of Presidio are owned by Presidio Capital Investment
Company, LLC ("PCIC"), a Delaware limited liability company. The interest in
PCIC (and beneficial ownership in Presidio) are held as follows:
<TABLE>
<CAPTION>
Percentage Ownership
in PCIC and Percentage
Beneficial Ownership
Name of Beneficial Owner in Presidio
------------------------ -----------------------
<S> <C>
Five Percent Holders:
Presidio Holding Company, LLC(1) 71.93%
AG Presidio Investors, LLC(2) 14.12%
DK Presidio Investors, LLC(3) 8.45%
Stonehill Partners, LP(4) 5.50%
</TABLE>
The holdings of the directors and executive officers of Presidio are as follows:
<TABLE>
<CAPTION>
<S> <C>
Directors and Officers:
Adam Anhang(5) 0%
Marc Gordon(5) 0%
David Hamamoto(5) 71.93%
Charles Humber(5) 0%
David King(5) 0%
Gregory Peck(5) 0%
Kevin Reardon(5) 0%
Allan Rothschild(5) 0%
Richard J. Sabella(5) 0%
Lawrence Schachter(5) 0%
W. Edward Scheetz(5) 71.93%
Directors and Officers as a group: 71.93%
</TABLE>
(1) Presidio Holding Company, LLC is a New York limited liability
company whose address is 527 Madison Avenue, 16th Floor, New
York, New York 10022. PHC has two members, Polaris Operating
LLC ("Polaris") which holds a 1% interest, and Northstar
Operating, LLC ("Northstar") which holds a 99% interest.
Polaris is a Delaware limited liability company whose address
is 527 Madison Avenue, 16th Floor, New York, New York 10022.
Polaris has two members, Sextant Operating Corp. ("Sextant"),
which holds a 1% interest, and Northstar, which holds a 99%
interest. Sextant is a Delaware corporation whose address is
527 Madison Avenue, 16th Floor, New York, New York 10022 and
whose sole shareholder is Northstar. Northstar is a Delaware
limited liability company whose address is527 Madison Avenue,
16th Floor, New York, New York 10022. Northstar has two
members, Northstar Capital Partners ("NCP"), which holds a 99%
interest, and Northstar Capital Holdings I, LLC ("NCHI"),
which holds a 1% interest. Both NCP and NCHI are Delaware
limited liability companies, whose business address is 527
Madison Avenue, 16th Floor, New York, New York 10022. NCP has
<PAGE>
two members, NCHI, which holds a 74.75% interest, and
Northstar Capital Holdings II LLC ("NCHII"), which holds a
25.25% interest. The business address for NCHII, a Delaware
limited liability company is 527 Madison Avenue, 16th Floor,
New York, New York 10022. NCHII has three members, NCHI, which
holds a 99% interest, Edward Scheetz, who holds a 0.5%
interest and David Hamamoto, who holds a 0.5% interest. Mr.
Scheetz, a U.S. citizen whose business address is 527 Madison
Avenue, 16th Floor, New York, New York 10022, is a founding
member of NCP. Mr. Hamamoto, a U.S. citizen whose business
address is 527 Madison Avenue, 16th Floor, New York, New York
10022, is a founding member of NCP. NCHI has two members, Mr.
Scheetz and Mr. Hamamoto, each of whom holds a 50% interest.
Pursuant to that certain Amended and Restated Pledge and
Security Agreement (the "Pledge Agreement") dated March 5,
1998 made by PHC in favor of Credit Suisse First Boston
Mortgage Capital LLC ("CSFB"), PHC pledged all of its
membership interest in PCIC to CSFB as security for loans
issued under the Loan Agreement dated as of February 20, 1998
by and among PHC and CSFB and the First Amendment thereon
dated March 5, 1998 (together, the "Loan Agreement"). The
Pledge Agreement and Loan Agreement contain standard default
and event of default provisions which may at a subsequent date
result in a change of control of PCIC and, therefore, the
Registrant.
(2) Each of Angelo, Gordon & Company, LP, as sole manager of AG
Presidio Investors, LLC, and John M. Angelo and Michael L.
Gordon, as general partners of the general partner of Angelo,
Gordon & Company, LP may be deemed to beneficially own for
purposes of rule 13 d-3 of the Exchange Act, the securities
beneficially owned by AG Presidio Investors, LLC. Each of John
M. Angelo and Michael L. Gordon disclaim such beneficial
ownership. The business address for such persons is c/o
Angelo, Gordon & Company, LP, 345 Park Avenue, 26th Floor, New
York, New York 10167.
(3) M.H. Davidson & Company, Inc., as sole manager of DK Presidio
Investors, LLC may be deemed to beneficially own for purposes
of Rule 13d-3 of the Exchange Act, the securities beneficially
owned by DK Presidio Investors, LLC. The business address for
such person is c/o M.H. Davidson & Company, 885 Third Avenue,
New York, New York 10022.
(4) Includes shares of PCIC beneficially owned by Stonehill
Offshore Partners Limited and Stonehill Institutional
Partners, LP. John A. Motulsky is a managing general partner
of Stonehill Partners, LP, a managing member of the investment
advisor to Stonehill Offshore Partners Limited and is a
general partner of Stonehill Institutional Partners, LP. John
A. Motulsky disclaims beneficial ownership of the shares held
by these entities. The business address for such person is c/o
Stonehill Investment Corporation, 110 East 59th Street, New
York, New York 10022.
(5) The business address for such person is 527 Madison Avenue,
16th Floor, New York, New York 10022.
<PAGE>
Item 13. Certain Relationships and Related Transactions
During Registrant's fiscal year ended December 31, 1997, the General Partners
and certain affiliated entities have earned or received compensation or payments
for services from Registrant as follows:
<TABLE>
<CAPTION>
Name of Recipient Capacity in Which Served Compensation
----------------- ------------------------ ------------
<S> <C> <C>
Resources Capital Corp. Administrative General Partner $887,218 (1)
Resources Pension Advisory Corp. Investment General Partner $ 65,525 (2)
Presidio AGP Corp. Associate General Partner $403 (3)
</TABLE>
(1) This amount includes the following:
(a) a Partnership Management Fee of $847,690 for managing the affairs
of Registrant.
(b) $39,528 as the Administrative General Partner's share of the
General Partners' 1% distribution of Adjusted Cash From Operations.
<PAGE>
(2) This amount includes the following:
(a) a Mortgage Servicing Fee of $65,122 for servicing the mortgage loan
portfolio of Registrant.
(b) $403 as the Investment General Partner's share of the General
Partners' 1% distribution of Adjusted Cash From Operations.
(3) This amount represents the Associate General Partner's share of the
General Partner's 1% distribution of
Adjusted Cash from Operations.
(4) Pursuant to Registrant's Partnership Agreement, for the year ended
December 31, 1997, the General Partners were allocated taxable income
as follows: taxable income of $79,265 to the Administrative General
Partner and taxable income of $809 to each of the Investment and
Associate General Partners.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements: See Item 8.
(2) Financial Statement Schedules: See Item 8.
(3) Exhibits:
3 Amended and Restated Certificate of Limited Partnership and Partnership
Agreement, incorporated by reference to Exhibit A to Registrant's
Prospectus dated May 15, 1986, filed pursuant to Rule 424(b) under the
Securities Act of 1933 (File No. 33-3572).
10(a) Services Agreement, incorporated by reference to Exhibit 10B to
Registrant's Registration Statement (No. 33-3572).
10(b) Agreement with Associate General Partner incorporated by reference to
Exhibit 10C to Registrant's Registration Statement (No. 33-3572).
10(c) Supervisory Management Agreement dated as of December 9, 1993 between
Registrant and Resources Supervisory Management Corporation
incorporated by reference to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
10(d) Mortgage Note between M G Medford Limited Partnership and Tokyo Leasing
(U.S.A.) Inc. dated as of April 22, 1993, purchased by Registrant on
July 12, 1995.
10(e) Negotiable Promissory Note between DVL, Inc. and Registrant, dated
February 28, 1997.
10(f) Loan agreement between Oliveye Hotel Limited Partnership and
Registrant, dated October 31, 1997. *
(b) Reports on Form 8-K filed 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 27th day of March, 1998.
RESOURCES PENSION SHARES 5, L.P.
By: RESOURCES CAPITAL CORP.
Administrative General Partner
DATE
By: /s/ Richard Sabella March 27, 1998
-------------------
Richard Sabella
President, Director
(Chief Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of Registrant in their
capacities as directors and/or officers (with respect to the Administrative and
Investment General Partners) on the date indicated below.
Signature Title Date
--------- ----- ----
/s/ Lawrence Schachter Senior Vice President and March 27, 1998
- ----------------------- (Principal Financial Officer,
Lawrence Schachter and Principal Accounting Office)
/s/ Richard Sabella Director and President March 27, 1998
- ----------------------- (Chief Executive Officer)
Richard Sabella
/s/ David King Director and Executive
David King Vice President March 27, 1998
/s/ Kevin Reardon Director and Vice President,
Kevin Reardon Treasurer and Secretary March 27, 1998
<PAGE>
EXHIBIT INDEX
Exhibits
3 Amended and Restated Certificate of Limited Partnership and Partnership
Agreement, incorporated by reference to Exhibit A to Registrant's
Prospectus dated May 15, 1986, filed pursuant to Rule 424(b) under the
Securities Act of 1933 (File No. 33-3572).
10(a) Services Agreement, incorporated by reference to Exhibit 10B to
Registrant's Registration Statement (No. 33-3572).
10(b) Agreement with Associate General Partner incorporated by reference to
Exhibit 10C to Registrant's Registration Statement (No. 33-3572).
10(c) Supervisory Management Agreement dated as of December 9, 1993 between
Registrant and Resources Supervisory Management Corporation
incorporated by reference to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.
10(d) Mortgage Note between M G Medford Limited Partnership and Tokyo Leasing
(U.S.A.) Inc. dated as of April 22, 1993, purchased by Registrant on
July 12, 1995.
10(e) Negotiable Promissory Note between DVL, Inc. and Registrant, dated
February 28, 1997.
10(f) Loan Agreement between Oliveye Hotel Limited Partnership and
Registrant, dated October 31, 1997.*
* Filed herewith
===============================================================================
EXHIBIT 10(f)
LOAN AGREEMENT
between
RESOURCES PENSION SHARES 5, L.P.
Lender
and
OLIVEYE HOTEL LIMITED PARTNERSHIP
Borrower
Dated: as of October ___, 1997
Property Location:
The Crowne Plaza Hotel
15 West Sixth Street
Cincinnati, Ohio
================================================================================
<PAGE>
LOAN AGREEMENT
This LOAN AGREEMENT (this "Agreement") dated as of October 31,
1997, between OLIVEYE HOTEL LIMITED PARTNERSHIP, an Ohio limited partnership
having an address c/o Continental Realty Corp., One Boca Plaza, 2255 Glades
Road, 223 Atrium, Boca Raton, Florida 33431 ("Borrower"), and RESOURCES PENSION
SHARES 5, L.P., a Delaware limited partnership having an address c/o Wexford
Management LLC, at 411 West Putnam Avenue, Greenwich, Connecticut 06830
("Lender").
W I T N E S S E T H:
WHEREAS, Lender is concurrently herewith making a loan to
Borrower in the original principal amount of $6,500,000 (the "Loan") secured by
a mortgage lien on, and security interest in, Borrower's interest in and to the
real and personal property comprising the hotel commonly known as the Crowne
Plaza Hotel located at 15 West Sixth Street, Cincinnati, Ohio (such real and
personal property as more particularly described in and defined in the Mortgage
(as defined below) sometimes referred to herein as the "Mortgaged Property");
WHEREAS, the Loan is to be evidenced by a certain Mortgage
Note dated the date hereof made by Borrower in favor of Lender (hereafter,
together with any and all subsequent renewals, extension, substitutions,
modifications and consolidations of the indebtedness evidenced by the Mortgage
Note, sometimes referred to as the "Note") and to be secured by, among other
things, (i) an Open-End Mortgage, Assignment of Leases and Rents and Security
Agreement dated as of the date hereof from Borrower to Lender (hereafter,
together with any and all subsequent restatements, amendments, supplements and
modifications thereof, sometimes referred to as the "Mortgage"); (ii) an
Assignment of Leases and Rents dated as of the date hereof from Borrower to
Lender (hereafter, together with any and all subsequent restatements,
amendments, supplements and modifications thereof, sometimes referred to as the
"Assignment"); (iii) an Environmental Indemnity Agreement dated as of the date
hereof from Borrower, Oliveye Office Limited Partnership ("Oliveye Office") and
Emanuel Organek ("Organek") in favor of Lender (hereafter, together with any and
all subsequent restatements, amendments, supplements and modifications thereof,
sometimes referred to as the "Environmental Agreement"); (iv) a Security
Agreement dated as of the date hereof from Borrower to Lender (hereafter,
together with any and all subsequent restatements, amendments, supplements and
modifications thereof, sometimes referred to as the "Security Agreement"); (v)
an Assignment of Contracts, Licenses, Permits, Agreements, Warranties and
Approvals dated as of the date hereof from Borrower to Lender (hereafter,
together with any and all subsequent restatements, amendments, supplements and
modifications thereof, sometimes referred to as the "Contracts Assignment");
(vi) an Improvements Escrow and Security Agreement dated as of the date hereof
from Borrower in favor of Lender (hereafter, together with any and all
subsequent restatements, amendments, supplements and modifications thereof,
sometimes referred to as the "Improvements Escrow Agreement"); (vii) a Note
Payment Reserve and Security Agreement dated as of the date hereof from Borrower
in favor of Lender (hereafter, together with any and all subsequent
restatements, amendments, supplements and modifications thereof, sometimes
referred to as the "Note Payment Reserve Agreement") and (viii) UCC Financing
<PAGE>
Statements executed by Borrower, as debtor, and Lender, as secured party, to
perfect the security interests granted in the Mortgage and the Security
Agreement (the "Financing Statements"); the Note, this Agreement, all of the
foregoing security documents and all other documents executed or delivered in
connection with the Loan (including, without limitation, any and all
restatements, amendments, supplements and modifications of any such documents
hereafter executed or delivered in connection with the Loan, collectively, the
"Loan Documents"); and
WHEREAS, Lender and Borrower have agreed to enter into this
Agreement to memorialize their understanding regarding their respective rights
and obligations in respect of the Loan.
NOW, THEREFORE, in consideration of the making of the Loan and
the covenants, agreements, representations and warranties set forth in this
Agreement, the parties hereby covenant, agree, represent and warrant as follows:
1. Defined Terms
Capitalized terms not otherwise defined herein shall have the
meanings ascribed to them in the Mortgage. In addition, the following terms
shall have the following meanings:
"Affiliate" shall mean with respect to the person in question,
any immediate family member of such person (if a natural person) and any person
that directly, or indirectly through one or more intermediaries, controls or is
controlled by or under common control with such person. For purposes of the
foregoing, "control" shall mean the possession directly or indirectly of the
power to direct or cause the direction of the management policies of a person,
whether through the ownership of voting securities, by contract or otherwise,
and the terms "controlling" and "controlled" shall have meanings correlative
thereto.
"Closing Date" shall mean the date upon which the Loan is
closed and the proceeds thereof paid by Lender to Borrower pursuant to the terms
of this Agreement, the Note and the other Loan Documents.
"Debt Service Coverage Ratio" shall mean the ratio of (i) the
NOI produced by the operation of the Mortgaged Property during the 6 calendar
month period immediately preceding the calculation to(ii) the payments of
principal and interest due under this Loan Agreement and the Note for the 6
calendar month period immediately following the calculation. For the purpose of
determining Debt Service Coverage Ratio, the then balance of the Note Payment
Reserve established under Section 6 below shall be treated as part of NOI for
the 6 calendar month period immediately preceding the calculation.
"Default Rate" means the rate of interest payable from and
after the occurrence of an Event of Default, as more particularly described in
the Note.
"Expenses" means the aggregate of the following items actually
incurred and paid by Borrower during the 6 month period for which the NOI is to
be calculated (except that capital expenses and reserves set forth in subsection
(viii) below shall be adjusted to reflect projected adjustments for the
subsequent 6 month period beginning on the date on which the NOI is to be
calculated):
<PAGE>
(i) Taxes and Other Charges;
(ii) sales, use and personal property taxes;
(iii) management fees of not less than two (2%)
percent of the gross income derived from the operation of the Mortgaged
Property and disbursements;
(iv) wages, salaries, pension costs and all fringe
and other employee-related benefits and expenses;
(v) franchise fees and other fees due under the
Franchise Agreement;
(vi) Insurance Premiums;
(vii) the cost of utilities, and all other
administrative, management, ownership, operating, leasing and
maintenance expenses incurred in connection with the operation of the
Mortgaged Property;
(viii) the cost of necessary repair or replacement of
existing improvements on the Mortgaged Property with repairs or
replacements of like kind and quality or such kind or quality that is
necessary to maintain the Mortgaged Property to the same standards as
competitive properties of similar size and location to the Mortgaged
Property or that are required under the Franchise Agreement together
with adequate reserves for the repair and replacement of capital
improvements on the Mortgaged Property;
(ix) the cost of replacement of Equipment with
Equipment of like kind and quality or of such kind or quality that is
necessary to maintain the Mortgaged Property to the same standards as
competitive properties of similar size and location to the Mortgaged
Property or that are required under the Franchise Agreement;
(x) the cost of any other maintenance materials, HVAC
repairs, parts and supplies, and equipment;
(xi) any and all condominium fees, assessments and
expenses paid by Borrower with regard to the Mortgaged Property; and
(xii) all replacement reserves established by
Borrower for capital and non-capital items as are normally required to
be maintained with regard to the operation of a hotel.
"Franchise Agreement" means the Holiday Inn Crowne Plaza
Conversion License Agreement dated September 30,1994 between Borrower and
Holiday Inns Franchising, Inc. (together with such amendments, supplements or
modifications thereto as may be approved by Lender) or any subsequent franchise
agreement which Borrower enters into with another franchisor, subject to
Lender's express, prior written approval thereof, in its sole and absolute
discretion, pursuant to which Borrower has the right to operate the hotel
located on the Mortgaged Property under a name and/or hotel system controlled by
such franchisor.
<PAGE>
"Franchisor" means Holiday Inns Franchising, Inc., or any
other Franchisor with which Borrower has entered into a Franchise Agreement,
subject to Lender's express, prior written approval of such Franchisor, in its
sole and absolute discretion, with regard to operating the Hotel on the
Mortgaged Property under a name and/or hotel system controlled by such
Franchisor.
"Indemnitor" means each of Organek and Oliveye Office.
"Loan-to-Value Ratio" means the ratio of: (i) the Debt, plus
all other debt (or other liquidated economic obligations) which are then
outstanding and secured by the Mortgaged Property, to (ii) the appraised value
of the Mortgaged Property as estimated by an appraiser reasonably acceptable to
Lender.
"Management Agreement" shall mean one of the following
(depending upon which one of the following such management agreements is in
effect at the relevant time):
(i) the existing Hotel Management Agreement, in
effect as of the date of this Agreement, by and between Borrower and
Cincinnati Innkeepers, Inc., an Ohio corporation ("Cincinnati
Innkeepers") dated October 16, 1994, relating to the operation of the
Hotel located on the Mortgaged Property by Cincinnati Innkeepers (this
Management Agreement shall be hereinafter individually referred to as
the "Existing Management Agreement"); and
(ii) the new Management Agreement which Borrower is
covenanting in this Agreement to make and enter into within one hundred
twenty (120) days after the date of this Agreement (which such new
Management Agreement shall be in form and substance satisfactory to
Lender, in its sole and absolute discretion, and subject to its prior,
written approval thereof) with a new experienced third party hotel
management company other than Cincinnati Innkeepers, Inc., or any of
its Affiliates, (the "New Manager") as to which Lender has given its
prior, written approval, in its sole and absolute discretion, pursuant
to which such New Manager will operate the Hotel located on the
Mortgaged Property in lieu and instead of Cincinnati Innkeepers (this
new Management Agreement to be hereinafter entered into by the Borrower
and such New Manager shall be hereinafter individually referred to as
the "New Management Agreement").
"NOI" means the gross income derived from the operation of the
Mortgaged Property less Expenses. NOI shall include only Rents and such other
income, including any rent loss, business interruption or business income
insurance proceeds, vending or concession income, late fees, forfeited security
deposits and other miscellaneous tenant charges, which are actually received and
Expenses actually incurred and paid during the period for which the NOI is being
calculated, as set forth on operating statements satisfactory to Lender. NOI
shall be calculated on a cash basis in accordance with generally accepted
accounting principles consistently applied, based on the Uniform System of
Accounts.
"Second Mortgage Security Documents" means collectively any
promissory note, second mortgage encumbering the Mortgaged Property and any such
other documents hereafter granted, executed and delivered by Borrower to the New
Manager, or its Affiliates as a second mortgage lender to secure the repayment
<PAGE>
of a certain second mortgage loan hereafter made by the New Manager, or its
Affiliate to Borrower pursuant to the permission granted to Borrower to obtain
such a second mortgage loan, subject to Lender's prior approval of the terms,
conditions and documentation thereof, in accordance with the provisions of
Section 10(d) of this Agreement, below, up to a maximum principal amount of
$2,050,000 ("Second Mortgage Loan"), including, without limitation, any and all
restatements, amendments, supplements and modifications of any such documents
hereafter executed or delivered in connection with the Second Mortgage Loan.
"Uniform System of Accounts" has the meaning set forth
in Section 9(f) hereof.
2. Conditions of Closing and Disbursement
Lender's obligation to close the Loan and disburse the
proceeds thereof is subject to the fulfillment to Lender's satisfaction on or
before the Closing Date of each of the following conditions:
(a) Execution and Delivery of Loan Documents. Each of the Loan
Documents, in form and substance satisfactory to Lender in its sole discretion,
shall have been duly authorized, executed and delivered to Lender by the
respective parties thereto.
(b) Recording and Filing. The Mortgage and the Assignment
shall have been duly recorded in the Office of the Recorder of Hamilton County,
Ohio and any other offices in which such filing is necessary in order to cause
such documents to be enforceable as against third parties and to cause the
Mortgage to be a valid first lien upon the Mortgaged Property and the Assignment
to be a valid first assignment of leases, rents, income and profits from the
Mortgaged Property subject only to those easements, agreements and restrictions
which have been approved by the Lender and are set forth in the Title Policy (as
defined in Section 2(c) below) (the "Permitted Encumbrances"). The Financing
Statements shall have been duly filed in any offices in which such filing is
necessary in order to perfect the security interests granted in the Mortgage,
the Security Agreement and other Loan Documents.
(c) Title Evidence. Lender shall have received a title
insurance policy (the "Title Policy") which complies with Lender's title
insurance requirements and which is issued by Lawyer's Title Insurance Company
(the "Title Company") through Insured Land Title Agency Limited Partnership (the
"Title Agent") setting forth in Schedule B, Section II thereof only the
Permitted Encumbrances with an ALTA Endorsement Form 6 (Variable Rate Mortgage
Endorsement), an access endorsement, a comprehensive endorsement, a condominium
endorsement, a survey endorsement, a tax sale endorsement and a usury
endorsement and such other endorsements as Lender shall require in its sole
discretion, insuring the lien of the Mortgage with respect to the Mortgaged
Property. Lender shall also have received UCC search reports, in form and
substance satisfactory to Lender, from each office in which the Financing
Statements are filed in accordance with Section 2(a) hereof, showing that no
financing statements have been filed with respect to the collateral covered by
the Financing Statements.
(d) Opinion of Counsel. Lender shall have received a favorable
opinion of counsel from counsel to Borrower acceptable to Lender, in form and
substance acceptable to Lender, addressed to Lender relating to such matters as
Lender may require, which shall be substantially in the form attached to this
Agreement as Schedule 1.
<PAGE>
(e) Survey. Lender shall have received a survey of the
Mortgaged Property in form and substance satisfactory to Lender and certified to
Lender, the Title Agent and the Title Company by an independent surveyor or
engineer licensed by the State of Ohio, selected by Borrower and acceptable to
Lender, showing the matters required to be shown by the Minimum Standard Detail
Requirements for Land Title Surveys promulgated by the American Land Title
Association and the American Congress of Surveying and Mapping in 1992,
including items 1, 3, 4, 6, 7(a), 7(b)(1), 7(c), 8, 9, 10, 11 and 13 of Table A
thereof and complying with the accuracy requirements for an urban survey. The
survey shall in all respects be satisfactory to Lender, the Title Agent and the
Title Company.
(f) Contracts and Leases. Borrower shall have furnished to
Lender and Lender, exercising its sole discretion, shall have approved, true and
complete copies of (i) the Management Agreement, (ii) the Franchise Agreement
and (iii) all Leases, including, a current certified rent roll describing, among
other things, the rental, term, security deposits and other items as Lender may
require with respect to the Leases. In addition, Lender shall have received a
Consent and Recognition Agreement, in form and substance satisfactory to Lender
in its sole discretion, duly executed by Manager and Borrower with respect to
the Management Agreement and duly executed by Franchisor and Borrower with
respect to the Franchise Agreement.
(g) Policies of Insurance. Borrower, at Borrower's expense,
shall have furnished to Lender policies of insurance, in amounts, form and
substance and bearing endorsements satisfactory to Lender, providing all of the
insurance coverages required pursuant to the Mortgage.
(h) Financial Information. Lender shall have received and
approved the most recent, available financial statements of Borrower and each
Indemnitor. All such financial statements shall be acceptable to Lender in such
detail and form as Lender may request and shall show no material adverse change
in the business and financial condition of Borrower or any Indemnitor from that
previously represented to Lender.
(i) Loan Fees and Expenses. Lender shall have received payment
of the Loan Fee, as provided in Section 4 hereof. Borrower shall have paid all
costs paid or incurred by Lender or Borrower in connection with the closing of
the Loan, including without limitation, all appraisal and inspection fees,
Lender's attorneys' fees, all fees and costs of the Title Insurance Agent, the
Title Insurance Company, the surveyor, the environmental consultant, Borrower's
liability and property insurance agents and/or underwriters and recording fees.
(j) Environmental Assessment. Borrower shall have furnished to
Lender an environmental site assessment of the Mortgaged Property satisfactory
to Lender in all respects issued by an environmental engineer reasonably
satisfactory to Lender.
(k) Appraisal. Lender shall have received an appraisal of the
Property satisfactory to Lender in all respects and is issued by an appraiser
reasonably satisfactory to Lender.
<PAGE>
(l) Organizational Documents and Resolutions. Borrower shall
have furnished to Lender and Lender, exercising its sole discretion, shall have
approved (i) certified copies of all organizational documents relating to
Borrower and Oliveye Office and their respective general partners, (ii)
certified copies of resolutions of Borrower and Oliveye Office and their
respective general partners authorizing, to the extent applicable, all
borrowings hereunder and execution and delivery of the Loan Documents and (iii)
current good standing certificates for the State of Ohio as to Borrower and
Oliveye Office and their respective general partners.
(m) Licenses, Permits, Etc.. Borrower shall have provided to
Lender copies of all certificates of occupancy, or completion, liquor licenses,
assembly permits, any building permits required with regard to the construction
contemplated pursuant to the Improvements Escrow Agreement, and of any and all
other requisite certificates or permits which are necessary for the operation of
a hotel or any of the other businesses being conducted on the Mortgaged Property
by Borrower.
Lender shall not be deemed to have waived the satisfaction of
any of the foregoing conditions by reason of the fact that it does not require
satisfaction of any such condition prior to closing.
3. Payment of Debt; Incorporation of Covenants,
Conditions and Agreements
(a) Borrower shall pay the Debt, as that term is defined in
the Mortgage, at the time and in the manner provided in the Note, the Mortgage
and in this Agreement. Payments made by Borrower to Lender shall be applied by
Lender in the following order of priority: (i) first, to required deposits to
the escrows established in accordance with the Mortgage for the payment of Taxes
and Other Charges and Insurance Premiums; (ii) next, to reimburse Lender for any
unpaid costs and expenses incurred by Lender on Borrower's behalf, including any
unpaid late fees; (iii) next, to accrued and unpaid Interest on the Loan; and
(iv) last, to the reduction of the principal balance of the Loan; or in such
other order and priority as Lender shall determine in its sole discretion.
(b) All the covenants, conditions and agreements contained in
the Note, the Mortgage and the other Loan Documents are hereby made a part of
this Agreement to the same extent and with the same force as if fully set forth
herein.
4. Loan Fee
Lender acknowledges its prior receipt of $50,000 from Borrower
representing a portion of the total loan origination fee (the "Loan Fee")
payable by Borrower in the amount of $113,750.00 (i.e., 1.75% of the principal
amount of the Loan). The remaining $63,750.00 of such loan fee shall be paid by
Borrower to Lender on the date hereof.
5. Use of Loan Proceeds
Borrower shall use the proceeds from the Loan in accordance
with Schedule 2 attached hereto, which shall be subject to Lender's prior
approval thereof, in its sole and absolute discretion, which shall provide for
use of the Loan proceeds substantially as follows: (i) to repay existing
mortgage debt owing to Nations Credit and General Innkeeping Acceptance
Corporation of approximately $3,800,000, (ii) to pay Borrower's existing
accounts payable of approximately $500,000, provided Borrower has provided to
<PAGE>
Lender prior to its disbursement of this amount of the loan proceeds for this
purpose evidence satisfactory to Lender, in its sole and absolute discretion, of
the existence and amounts of such unpaid accounts payable totalling the amount
being requested to be paid with this portion of the loan proceeds and with the
written certificate of Borrower's general partner's President certifying as of
such time that the payment of such accounts payable with the loan proceeds will
satisfy all existing accounts payable of Borrower which are more than thirty
(30) days old as of the date of such disbursement, (iii) to repay in full the
related existing Banker's Trust line of credit of approximately $500,000,
provided Borrower has provided to Lender prior to its disbursement of this
portion of the loan proceeds for this purpose written evidence satisfactory to
Lender, in its sole and absolute discretion that substantially all of the funds
advanced on this Banker's Trust line of credit were expended for the benefit of
the Mortgaged Property, (iv) to pay transactions costs relating to the
structuring, negotiating and effecting the Loan in the amount of approximately
$200,000, (v) to fund the Improvements Escrow in the amount of $1,000,000 and
(vi) to fund the Note Payment Reserve in the amount of $500,000. On or before
the Closing Date, Borrower shall provide detailed information to Lender as to
the application of the loan proceeds consistent with the foregoing to be set
forth on Schedule 2 hereto.
6. Improvements Escrow
Borrower shall deposit with Lender from proceeds of the Loan
the sum of $1,000,000, for which Lender has established an interest bearing
escrow account in Lender's name at a federally insured institution (the
"Improvements Escrow") to be maintained and disbursed in accordance with the
Improvements Escrow Agreement. On or before the Closing Date, Borrower shall
provide to Lender a detailed budget of the expenditures to be paid for the
construction and rehabilitation of portions of the Mortgaged Property pursuant
to the Improvements Escrow Agreement. Borrower hereby pledges to Lender, and
grants to Lender a security interest in, any and all monies now or hereafter
deposited in the Improvements Escrow as additional security for the payment of
the Debt. All earnings or interest on the Improvements Escrow shall be and
become part of such Improvements Escrow and shall be disbursed as provided in
the Improvements Agreement.
7. Note Payment Reserve
Borrower shall deposit with Lender from proceeds of the Loan
the sum of $500,000, for which Lender has established an interest bearing escrow
account in Lender's name at a federally insured institution (the "Note Payment
Reserve") to be maintained and disbursed in accordance with the Note Payment
Reserve Agreement. Borrower hereby pledges to Lender, and grants to Lender a
security interest in, any and all monies now or hereafter deposited in the Note
Payment Reserve as additional security for the payment of the Debt. All earnings
or interest on the Note Payment Reserve shall be and become part of such Note
Payment Reserve and shall be disbursed as provided in the Note Payment Reserve
Agreement.
8. Prepayment of Debt Relating to an Environmental Claim
Notwithstanding any provision in the Note to the contrary,
provided that no other Event of Default exists, in the event that Lender
provides written notice (an "Indemnification Notice") to Borrower that Lender
believes it has reason to invoke Lender's indemnification rights under the
Environmental Agreement, then Borrower shall have the privilege of prepaying the
<PAGE>
Debt in full (but not in part) without payment of the Prepayment Consideration
(as defined in the Note) on the first day of any month occurring within 120 days
of Borrower's receipt of the applicable Indemnification Notice, provided further
that Borrower provides Lender with not less than 30 days prior written notice of
its intention to so prepay the Debt.
9. Representations Concerning Borrower, the Loan and the
Mortgaged Property
Borrower represents, warrants and covenants as follows:
(a) This Agreement, the Note, the Mortgage and the other Loan
Documents are the legal, valid, binding and effective obligations of Borrower
and (with respect to the Environmental Agreement only) each Indemnitor, fully
enforceable in accordance with their respective terms and are not subject to any
right of rescission, set-off, counterclaim or defense, including the defense of
usury, nor would the operation of any of the terms of this Agreement, the Note,
the Mortgage and the other Loan Documents, or the exercise of any right
thereunder, render the Loan Documents unenforceable, in whole or in part, or
subject to any right of rescission, set-off, counterclaim or defense, including
the defense of usury.
(b) All certifications, permits, licenses and approvals
required for the legal use, occupancy and operation of the Mortgaged Property as
a hotel including, without limitation, any applicable liquor license,
certificate of completion and occupancy permit, have been obtained and are in
full force and effect. The Mortgaged Property is free of material damage and is
in good repair, and there is no proceeding pending or, to the best of Borrower's
knowledge, threatened for the total or partial condemnation of, or affecting,
the Mortgaged Property.
(c) All of the Improvements which were considered in
determining the appraised value of the Mortgaged Property lie wholly within the
boundaries and building restriction lines of the Mortgaged Property, no
improvements on adjoining properties encroach upon the Mortgaged Property, and
no easements or other encumbrances upon the Premises encroach upon any of the
Improvements, so as to affect the value or marketability of the Mortgaged
Property. Except as shown on the Survey, the Mortgaged Property is contiguous to
and has access to a physically and legally open all-weather public street, has
all necessary permits and approvals for ingress and egress, is adequately
serviced by public water, sewer systems and utilities and is on one or more
separate tax parcels, all of which are separate and apart from any other
property owned by Borrower or any other person. Except as shown on the Survey,
the Mortgaged Property has all necessary access by public roads or easements
which in each case are not terminable and are not subordinate to any mortgage
other than the Mortgage. Borrower and the Mortgaged Property are in full and
complete compliance with all applicable laws, statutes, ordinances, rules,
regulations and orders of any governmental entity, including without limitation,
building codes, zoning, environmental, handicapped-access and subdivision laws
and ordinances, except those violations which do not affect the value, operation
and/or the marketability of the Mortgaged Property.
(d) The Mortgaged Property is not subject to any leases,
licenses or other use or occupancy agreements other than the Leases described in
the rent roll delivered to Lender in connection with this Agreement. No person
has any possessory interest in the Mortgaged Property or right to occupy any
portion thereof except under and pursuant to the provisions of the Leases or
transient hotel guests in the ordinary course of Borrower's business.
<PAGE>
(e) The survey of the Mortgaged Property delivered to Lender
in connection with this Agreement has been performed by a duly licensed surveyor
or registered professional engineer in the jurisdiction in which the Mortgaged
Property is situated, and, to Borrower's knowledge, after due inquiry, does not
fail to reflect any material matter affecting the Mortgaged Property or the
title thereto.
(f) The financial statements heretofore furnished to Lender
are, as of the date specified therein, complete and correct in all material
respects and fairly present the financial condition of Borrower and each
Indemnitor, and are prepared in accordance with the Uniform System of Accounts
for hotel and motel properties as approved by the American Hotel and Motel
Association (as in effect from time to time, the "Uniform System of Accounts")
applied on a consistent basis. Borrower and each Indemnitor does not have on the
date hereof any contingent liabilities, liabilities for taxes, unusual forward
or long-term commitments or unrealized or anticipated losses from any
unfavorable commitments which in each case are known to Borrower and which are
reasonably likely to result in a material adverse effect on the Mortgaged
Property or the operation thereof as a hotel or the financial condition of
Borrower or any Indemnitor, except as referred to or reflected or provided for
in the financial statements heretofore furnished to Lender or as otherwise
disclosed to Lender herein. Since the last date of such financial statements,
there has been no material adverse change in the financial condition, operations
or business of Borrower or any Indemnitor from that set forth in such financial
statements as of the dates thereof.
(g) Except as previously described in writing to Lender, there
is no litigation action, proceeding or investigation pending or, so far as
Borrower knows, threatened (or any basis therefor) to include, without
limitation, any proceeding for condemnation of any portion of the Mortgaged
Property, against Borrower or any Indemnitor or which affects the Mortgaged
Property or any part thereof or which might result in any material adverse
change in the condition (financial or otherwise) or business of Borrower or any
Indemnitor.
(h) The Franchise Agreement is in full force and effect and
there is no default, breach or violation existing thereunder by any party
thereto and no event (other than payments due but not yet delinquent) which,
with the passage of time or with notice and the expiration of any grace or cure
period, would constitute a default, breach or violation by any party thereunder.
(i) The Management Agreement is and will be kept in full force
and effect at all times during the term of the Loan and there is no default,
breach or violation existing thereunder by any party thereto and no event (other
than payments due but not yet delinquent) which, with the passage of time or
with notice and the expiration of any grace or cure period, would constitute a
default, breach or violation by any party thereunder.
(j) Neither the execution and delivery of the Loan Documents,
Borrower's performance thereunder, the recordation of the Mortgage, nor the
exercise of any remedies by Lender, will adversely affect (i) Borrower's rights
under the Franchise Agreement, the Management Agreement, or the Condominium
Documents or (ii) the licenses, registrations, permits, certificates,
authorizations and approvals necessary for the operation of the Mortgaged
Property as a hotel.
(k) The current Leases are in full force and effect and there
are no defaults thereunder by either party and there are no conditions which
with the passage of time and/or notice would constitute defaults thereunder.
<PAGE>
(l) The Condominium Documents are in full force and effect and
there are no defaults thereunder by any person bound thereby and there are no
conditions which with the passing of time and/or notice would constitute a
default thereunder.
(m) Borrower, each Indemnitor and each general partner of
Borrower and Indemnitor has filed all federal, state and local tax returns and
other reports which they are required by law to file, have paid all taxes,
assessments and similar charges that are due and payable, and have withheld all
employee and similar taxes which they are required by law to withhold.
10. Single Purpose Entity; Authorization
Borrower represents and warrants, and covenants for so long as
any obligations secured by the Mortgage remain outstanding, as follows:
(a) Borrower does not and shall not own any asset or property
other than: (i) the Mortgaged Property; and (ii) incidental personal property
necessary for the ownership or operation of the Mortgaged Property.
(b) Borrower does not and shall not engage in any business
other than the ownership, management and operation of the Mortgaged Property,
and Borrower will conduct and operate its business in all material respects as
presently conducted and operated.
(c) Borrower shall not enter into any contract or agreement
with any Indemnitor or an affiliate, except upon terms and conditions that are
intrinsically fair and substantially similar to those that would be available on
an arms-length third-party basis.
(d) Borrower has not incurred and shall not incur any
indebtedness, secured or unsecured, direct or indirect, absolute or contingent
(including guaranteeing any obligation), other than: (i) the Debt; and (ii)
trade and operational debt incurred in the ordinary course of business with
trade creditors and in amounts as are customary and reasonable under the
circumstances. Except with Lender's prior written approval in each instance, no
indebtedness other than the Debt is or shall be secured by the Mortgaged
Property. Lender's approval shall be granted or withheld at Lender's sole
discretion. Notwithstanding the foregoing, provided Borrower has entered into a
New Management Agreement with a New Manager within one hundred twenty (120) days
after the date of this Agreement in fulfillment of Borrower's covenant to do so
set forth in Section 13(b), below, and provided no Event of Default shall be in
existence hereunder, Borrower shall be entitled to obtain a Second Mortgage Loan
from the New Manager or its Affiliate, to be secured by Second Mortgage Loan
Security Documents, including the granting of a second mortgage lien on the
Mortgaged Property to be expressly subordinate to the Mortgage in order to
secure the repayment of such Second Mortgage Loan which shall not exceed the
maximum, principal amount of $2,050,000.00 (as additional collateral for the
repayment of such Second Mortgage Loan to the New Manager or its Affiliate),
provided, however, that, in all events, the total debt of Borrower, inclusive of
the Debt and such Second Mortgage Loan, shall not at any time exceed a
Loan-to-Value Ratio of 0.6:1.0. Any such Second Mortgage Loan to be obtained by
Borrower pursuant to the foregoing provisions of this Agreement shall be
expressly subject to and conditioned upon the following: (x) Lender shall have
given Borrower its prior written approval of the terms and conditions of such
<PAGE>
proposed Second Mortgage Loan, which approval shall not be unreasonably
withheld, conditioned or denied by Lender; (y) Borrower shall be required to
obtain and provide to Lender a subordination and standstill agreement executed
by the Lender which is making such Second Mortgage Loan pursuant to this
subsection, which shall be in form and substance satisfactory to Lender in its
sole and absolute discretion, and (z) all of the documents to be executed by
Borrower to evidence and in conjunction with such Second Mortgage Loan shall be
in form and substance satisfactory to Lender in its sole and absolute
discretion.
(e) Borrower has not made and shall not make any loans or
advances to any third party (including any Affiliate), except in de minimus
amounts in the ordinary course of business and of the character of trade or
operational expenses.
(f) Borrower has done or caused to be done, and shall do or
cause to be done, all things necessary to preserve its existence, and Borrower
will not, nor will Borrower permit any Affiliate, to amend, modify or otherwise
change the partnership certificate, partnership agreement, articles of
incorporation and bylaws, trust or other organizational documents, as the case
may be, in a manner which would adversely affect the Borrower's existence as a
single purpose entity.
(g) Borrower shall maintain books and records and bank
accounts separate from those of its Affiliates, and Borrower will file or cause
to be filed separate tax returns. Borrower shall not change the principal place
of its business without providing Lender with at least 30 days prior written
notice of such change to Lender.
(h) Borrower is and shall be, and at all times will hold
itself out to the public as, a legal entity separate and distinct from any other
entity (including any Affiliate).
(i) Neither Borrower, any Indemnitor nor any of their
respective Affiliates shall cause or seek the dissolution or winding up, in
whole or in part, of Borrower.
(j) Borrower shall not commingle its funds and other assets
with those of any Affiliate or any other person.
(k) Borrower shall not file or consent to the filing of any
petition to take advantage of any applicable insolvency, bankruptcy, liquidation
or reorganization statute, or make an assignment for the benefit of creditors.
(l) Borrower does not and shall not hold itself out to be
responsible for the debts or obligations of any other person.
11. Controlling Agreement; Usury Savings Clause
It is expressly stipulated and agreed to be the intent of
Borrower and Lender at all times to comply with applicable state law or
applicable United States federal law (to the extent that it permits Lender to
contract for, charge, take, reserve, or receive a greater amount of interest
than under state law) and that this Section shall control every other covenant
and agreement in this Agreement and the other Loan Documents. If the applicable
law (state or federal) is ever judicially interpreted so as to render usurious
any amount called for under the Note or under any of the other Loan Documents,
or contracted for, charged, taken, reserved, or received with respect to the
<PAGE>
Debt, or if Lender's exercise of the option to accelerate the maturity of the
Note, or if any prepayment by Borrower results in Borrower having paid any
interest in excess of that permitted by applicable law, then it is Borrower's
and Lender's express intent that all excess amounts theretofore collected by
Lender shall be credited on the principal balance of the Note and all other Debt
(or, if the Note and all other Debt have been or would thereby be paid in full,
refunded to Borrower), and the provisions of the Note and the other Loan
Documents immediately be deemed reformed and the amounts thereafter collectible
hereunder and thereunder reduced, without the necessity of the execution of any
new documents, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder or thereunder. All
sums paid or agreed to be paid to Lender for the use, forbearance, or detention
of the Debt shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full stated term of the Debt
until payment in full so that the rate or amount of interest on account of the
Debt does not exceed the maximum lawful rate from time to time in effect and
applicable to the Debt for so long as the Debt is outstanding. Notwithstanding
anything to the contrary contained herein or in any of the other Loan Documents,
it is not the intention of Lender to accelerate the maturity of any interest
that has not accrued at the time of such acceleration or to collect unearned
interest at the time of such acceleration.
12. Books and Records
Borrower, or the property manager of Borrower's Mortgaged
Property on Borrower's behalf, shall maintain full and accurate books of
accounts and other records reflecting the operations of the Mortgaged Property.
Borrower shall furnish, or cause to be furnished to Lender, within 15 days of
the end of each calendar month, the following items, each certified by a senior
financial officer of Borrower as true, correct and complete as of the end of and
for such period (subject to normal year-end adjustments), and as having been
prepared in accordance with the Uniform System of Accounts: (a) a written
occupancy statement dated as of the last day of the most recently ended calendar
month identifying the room occupancy for each day of the preceding month and the
average daily room rate of the hotel operated on the Mortgaged Property for that
month; (b) monthly and year to date operating statements detailing outstanding
accounts receivable and accounts payable, the total revenues received and total
expenses incurred in connection with the ownership and operation of the
Mortgaged Property, including a comparison of the budgeted income and expenses
and the actual income and expenses for such month and the year to date (which
operating information shall include the hotel located thereon); and (c) a
written statement dated as of the last day of the most recently ended month
showing the percentage of hotel or motel rooms rented and occupied during such
month and the average daily room rate charged during such month. Borrower, or
the property manager of Borrower's Mortgaged Property on Borrower's behalf, will
provide a detailed explanation of any variances of ten (10%) percent or more (or
any other material variances) between budgeted and actual amounts for such
periods. Borrower shall furnish, within 90 days following the end of each
calendar year, an audited statement of the financial affairs and condition of
the Mortgaged Property, including a statement of profit and loss and a balance
sheet for the Mortgaged Property (and the Borrower) for the immediately
preceding fiscal year, prepared by an independent certified public accountant
reasonably acceptable to Lender in accordance with generally accepted accounting
principles. Borrower shall deliver to Lender on or before December 1 of each
calendar year an itemized operating budget, capital expenditure and capital
reserve budget for the Mortgaged Property and a management plan for the
Mortgaged Property for the next succeeding calendar year in such detail as
Lender may reasonably request. Borrower shall promptly after receipt deliver to
<PAGE>
Lender copies of all quality inspection reports or similar reports or inspection
results that are delivered to it by the Franchisor. At any time and from time to
time Borrower shall deliver to Lender or its agents such other financial data as
Lender or its agents shall reasonably request with respect to Borrower and the
ownership, maintenance, use and operation of the Mortgaged Property. All
information required to be furnished to Lender pursuant to this Section shall be
on forms reasonably approved by Lender. Lender at any time and from time to time
(but not more than once in any given 12 month period) shall have the right to
cause to be performed an audit by a firm of independent certified public
accounts retained by Lender of the books of accounts, records, financial
statements and other financial information relating to Borrower and the
ownership and operation of the Mortgaged Property. Borrower shall pay Lender's
out-of-pocket costs for any such audit, which costs shall be payable by Borrower
to Lender upon demand.
13. Management of the Hotel
Borrower further specifically covenants and agrees with Lender
as follows:
(a) Borrower shall cause the hotel located on the Mortgaged
Property to be operated pursuant to the Franchise Agreement and the Management
Agreement.
(b) Borrower expressly covenants and agrees that it shall make
and enter into a New Management Agreement with a New Manager (other than
Cincinnati Innkeepers or any of its Affiliates) for the operation of the hotel
located on the Mortgaged Property within one hundred twenty (120) days after the
date of this Agreement and will terminate and cancel the Existing Management
Agreement. Borrower agrees that the New Management Agreement must be in form and
substance satisfactory to Lender, in its sole and absolute discretion, and made
and entered into by Borrower with a New Manager to which Lender has given its
prior, written approval, in its sole and absolute discretion. Borrower further
covenants and agrees as an express condition to and requirement of Borrower
entering into a New Management Agreement with a New Manager that Borrower shall
obtain from the New Manager and provide to Lender on or before the date the New
Management Agreement is entered into, a Consent and Recognition Agreement in
substantially the same substance and form as the Consent and Recognition
Agreement being made, executed and delivered by Cincinnati Innkeepers this same
date with regard to the Existing Management Agreement, with any changes therein
to be subject to the prior written approval of Lender, in its sole and absolute
discretion, duly executed by New Manager and Borrower with respect to the New
Management Agreement. Borrower acknowledges and agrees that this covenant is a
material and substantial term of this Agreement and that the making of this
covenant was a material and significant inducement to Lender for the making the
Loan to Borrower. Accordingly, Borrower specifically agrees that its breach or
failure to timely perform the covenant set forth in this Section 13(b) shall be
deemed to be a material breach of this Agreement and shall entitle Lender to
declare a default hereunder at such time without any further notice or
opportunity to cure being given to Borrower pursuant to the provisions of
Section 18 of this Agreement below.
(c) Borrower shall:
(i) pay all sums required to be paid by Borrower
under the Franchise Agreement and the Management Agreement and promptly
perform and/or observe all of the covenants and agreements required to
<PAGE>
be performed and observed by it under the Franchise Agreement and the
Management Agreement and do all things necessary to preserve and to
keep unimpaired its material rights thereunder;
(ii) promptly notify Lender of any default under the
Franchise Agreement or the Management Agreement of which it is aware
and provide Lender with copies of any notices delivered in connection
therewith;
(iii) promptly deliver to Lender a copy of each
financial statement, business plan, capital expenditures plan, notice,
report and estimate produced by it or received by it under the
Franchise Agreement or the Management Agreement;
(iv) promptly enforce the performance and observance
of all of the covenants and agreements required to be performed and/or
observed by the franchisor under the Franchise Agreement and the
manager under the Management Agreement;
(v) assign to Lender any right it may have to modify
the Franchise Agreement or the Management Agreement.
(vi) grant Lender the right, but Lender shall be
under no obligation, to pay any sums and to perform any act or take any
action as may be appropriate to cause all the terms, covenants and
conditions of the Franchise Agreement on the part of Borrower to be
performed or observed to be promptly performed or observed on behalf of
Borrower, to the end that the rights of Borrower in, to and under the
Franchise Agreement shall be kept unimpaired and free from default;
(vii) use its reasonable efforts to obtain, from time
to time, from the franchisor under the Franchise Agreement such
certificates of estoppel with respect to compliance by Borrower with
the terms of the Franchise Agreement as may be requested by Lender; and
(viii) exercise each individual option, if any, to
extend or renew the term of the Franchise Agreement upon demand by
Lender made at any time within one year of the last day upon which any
such option may be exercised, and Borrower hereby expressly authorizes
and appoints Lender its attorney-in-fact to exercise any such option in
the name of and upon behalf of Borrower, which power of attorney shall
be irrevocable and shall be deemed to be coupled with an interest.
(d) Borrower shall not, without Lender's prior written
consent: (i) surrender, terminate or cancel the Franchise Agreement or the
Management Agreement; (ii) reduce or consent to the reduction of the term of the
Franchise Agreement or the Management Agreement or any Second Mortgage Loan;
(iii) increase or consent to the increase of the amount of any charges under the
Franchise Agreement or the Management Agreement or in any Second Mortgage
Security Documents; (iv) otherwise modify, change, supplement, alter or amend,
or waive or release any of its rights and remedies under the Franchise Agreement
or the Management Agreement or any Second Mortgage Security Documents in any
material respect; or (v) operate the Mortgaged Property under the name of any
hotel chain or system other than the Crowne Plaza.
(e) Borrower shall not, without Lender's prior written
consent, enter into transactions with any Affiliate including, without
limitation, any arrangement providing for the management of the hotel on the
Mortgaged Property, the rendering or receipt of services or the purchase or sale
<PAGE>
of inventory, except any such transaction in the ordinary course of business of
Borrower if the monetary or business consideration arising therefrom would be
substantially as advantageous to Borrower as the monetary or business
consideration which would obtain in a comparable transaction with a person not
an Affiliate.
(f) Borrower irrevocably authorizes and directs Franchisor to
deliver to Lender: (i) all operating information concerning the Mortgaged
Property submitted by Borrower to Franchisor; (ii) the written results of all
quality assurance inspections of the Property performed by Franchisor's Quality
Assurance Directors; and (iii) such other information that Lender or Lender's
agents may reasonably request, from time to time, including any information in
the possession of Franchisor relating to Borrower not included in the reports
referred to above.
14. Debt Service Coverage Ratio
Borrower covenants and warrants that, throughout the term of
the Loan, Borrower shall maintain a Debt Service Coverage Ratio equal to not
less than 1.2, to be determined as of the first anniversary of the date of the
Note based upon the immediately preceding six (6) month period of operations of
the Mortgaged Property and to be redetermined at the end of each successive six
(6) month period occurring thereafter based upon the then immediately preceding
six (6) months of operation. In addition to the financial information to be
provided by Borrower under Section 12 hereof, Borrower will furnish, or cause to
be furnished to Lender, within 30 days following each six (6) month period for
which Debt Service Coverage Ratio is to be determined thereunder, Borrower's
calculation of Debt Service Coverage Ratio for such period, which shall be
certified by a senior financial officer of Borrower as true, correct and
complete and be accompanied by such supporting financial information as Lender
may request.
15. Performance of Other Agreements
Borrower shall observe and perform each and every term to be
observed or performed by Borrower pursuant to the terms of any agreement or
recorded instrument affecting or pertaining to the Mortgaged Property,
including, without limitation, the Condominium Documents and any Second Mortgage
Security Documents.
16. Reporting Requirements
Borrower shall give prompt notice to Lender of the death,
insolvency or bankruptcy filing of Borrower, any Indemnitor or any general
partner thereof.
17. Lender's Right to Inspect
Borrower shall, at all reasonable times and as often as Lender
may request, permit any officers, employees and authorized representatives of
Lender to visit and inspect the Mortgaged Property, to inspect any construction
or improvements being carried out thereon, to examine and make copies of, or
take extracts from, Borrower's books of account, records and other papers
relating to the Mortgaged Property or any part thereof, and to discuss
Borrower's business and financial affairs with, and be advised as to the same
by, appropriate representatives having the most complete or direct knowledge of
such matters, so long as Lender's inspections, visits and inquiries do not
unreasonably interfere with Borrower's operation of Borrower's business on the
<PAGE>
Mortgaged Property. Borrower shall pay Lender's out-of-pocket costs for such
inspection. The reimbursement of said costs for each such inspection shall be
due and payable upon demand. Any such inspections and/or examinations are for
the sole benefit of Lender and neither Borrower or any Indemnitor shall be
entitled to rely thereon.
18. Events of Default
The term "Event of Default" as used herein shall mean the
occurrence or happening, at any time and from time to time, of any one or more
of the following:
(a) if any portion of the Debt is not paid prior to the fifth
(5th) day after the date such payment is due or if the entire Debt is not paid
on or before the Maturity Date;
(b) subject to Borrower's right to contest as provided in the
Mortgage, if any of the Taxes or Other Charges are not paid when due and
payable;
(c) if the Policies are not kept in full force and effect, or
if the Policies are not delivered to Lender upon request;
(d) if there occurs any sale, conveyance, declaration,
mortgage, encumbrance, pledge or transfer in a manner inconsistent with the
terms of Section 1.15 of the Mortgage;
(e) if any representation or warranty of Borrower, or of any
Indemnitor, made herein, in any Loan Document, any guaranty, or in any
certificate, report, financial statement or other instrument or document
furnished to Lender shall have been false or misleading in any material respect
when made;
(f) if Borrower, any general partner of Borrower or any
Indemnitor shall make an assignment for the benefit of creditors, or if
Borrower, any general partner of Borrower or any Indemnitor shall generally not
be paying its debts as they become due;
(g) if a receiver, liquidator or trustee of Borrower, any
general partner of Borrower or any Indemnitor shall be appointed, or if
Borrower, any general partner of Borrower or any Indemnitor shall be adjudicated
a bankrupt or insolvent, or if any petition for bankruptcy, reorganization or
arrangement pursuant to federal bankruptcy law, or any similar federal or state
law, shall be filed by or against, consented to, or acquiesced in by, Borrower,
any general partner of Borrower or any Indemnitor or if any proceeding for the
dissolution or liquidation of Borrower,any general partner of Borrower or of any
Indemnitor shall be instituted; provided, however, that such appointment,
adjudication, petition or proceeding, if involuntary and not consented to by
Borrower, any general partner of Borrower or such Indemnitor, shall constitute
an Event of Default only if not being discharged, stayed or dismissed within 60
days;
(h) if Borrower shall be in default under any other mortgage
or security agreement covering any part of the Mortgaged Property, whether it be
superior or junior in lien to the Mortgage;
<PAGE>
(i) subject to Borrower's right to contest as provided in the
Mortgage, if the Mortgaged Property becomes subject to any mechanic's,
materialman's or other lien except a lien for local real estate taxes and
assessments not then due and payable;
(j) if Borrower fails to cure promptly any violations of laws
or ordinances which affect the value, operation or marketability of the
Mortgaged Property;
(k) except as expressly permitted in the Mortgage and the
other Loan Documents, the actual or threatened alteration, improvement,
demolition or removal of any of the Improvements without the prior written
consent of Lender;
(l) if there shall occur any damage to the Mortgaged Property
in any manner which is not covered by insurance solely as a result of Borrower's
failure to maintain insurance required in accordance with the Mortgage;
(m) if Borrower fails to maintain the Debt Service Coverage
Ratio in the amount required under Section 14 hereof;
(n) if without Lender's prior written consent, there is any
amendment or modification to or termination of the Management Agreement (or any
succeeding management agreement);
(o) if without Lender's prior written consent, there is any
amendment or modification to or termination of the Franchise Agreement (or any
succeeding franchise agreement);
(p) if without Lender's prior written consent, there is any
amendment or modification to or termination of, or default or acceleration under
any Second Mortgage Security Documents;
(q) if a default has occurred and continues beyond any
applicable cure period under the Management Agreement, whether under any
Existing Management Agreement or under any New Management Agreement;
(r) if a default has occurred and continues beyond any
applicable cure period under the Franchise Agreement;
(s) if a default has occurred and continues beyond any
applicable cure period under any Second Mortgage Security
Documents;
(t) if without Lender's prior written consent, there is any
amendment or modification to or termination of any of the Condominium Documents
or a default by Borrower has occurred thereunder and continues beyond any
applicable cure period set forth therein;
(u) if Borrower fails to timely perform its covenant to obtain
a New Manager to operate the hotel on the Mortgaged Property under a New
Management Agreement within one hundred twenty (120) days after the date of this
Agreement in breach or default of its obligation to do so set forth in Section
13(b) above;
(v) if Borrower ceases to operate a hotel on the Mortgaged
Property or terminates such business for any reason whatsoever (other than
temporary cessation in connection with any renovations to the Mortgaged Property
or restoration of the Mortgaged Property after casualty or condemnation);
<PAGE>
(w) if Borrower terminates or cancels the Franchise Agreement
or operates the Mortgaged Property under the name of any hotel chain or system
other than the Crowne Plaza, without Lender's prior written consent; or
(x) if for more than 30 days after receipt of notice from
Lender, Borrower shall continue to be in default under or in breach of any term,
covenant, or condition of this Agreement, the Note, the Security Agreement, the
Mortgage, the Environmental Agreement or any of the other Loan Documents other
than as specified in any of subsections (a) through (w) of this Section;
provided, however, that if the cure of any such default cannot reasonably be
effected within such 30 day period and Borrower shall have promptly and
diligently commenced to cure such default within such 30 day period, then the
period to cure shall be deemed extended for up to an additional 30 days from
Lender's default notice so long as Borrower diligently and continuously proceeds
to cure such default to Lender's satisfaction.
19. Remedies
Upon the occurrence of any Event of Default, Lender may take
any and all such actions set forth in the Mortgage and any of the other Loan
Documents or which are otherwise available to Lender at law or in equity.
20. Late Payment Charge; Default Rate of Interest
Subject to the express provisions of the Note Payment Reserve
Agreement, if any portion of the Debt is not paid prior to the fifth (5th) day
after the date such payment is due or if the entire Debt is not paid on or
before the Maturity Date, Borrower shall pay to Lender upon demand an amount
equal to five (5%) percent of such overdue portion of the Debt, to defray the
expense incurred by Lender in handling and processing such delinquent payment
and to compensate Lender for the loss of the use of such delinquent payment, and
such amount shall be secured by the Mortgage and the other Loan Documents.
Without limitation of any of the foregoing and any other remedies available to
Lender, upon the occurrence of any Event of Default, Lender shall also be
entitled to receive from Borrower interest on any Debt then due equal to the
Default Rate as defined in the Note.
21. ERISA
(a) Borrower covenants and agrees that it shall not engage in
any transaction which would cause any obligation, or action taken or to be
taken, hereunder (or the exercise by Lender of any of its rights under the Note,
the Mortgage, this Agreement and the other Loan Documents) to be a nonexempt
(under a statutory or administrative class exemption) prohibited transaction
under the Employee Retirement Income Security Act of 1974 (or any successor
legislation thereto), as amended ("ERISA").
(b) Borrower further covenants and agrees to deliver to Lender
such certifications or other evidence from time to time throughout the term of
this Agreement, as requested by Lender in its sole discretion, that: (i)
Borrower is not an "employee benefit plan" as defined in Section 3(3) of ERISA,
which is subject to Title I of ERISA, or a "governmental plan" within the
meaning of Section 3(32) of ERISA; (ii) Borrower is not subject to state
statutes regulating investments and fiduciary obligations with respect to
governmental plans; and (iii) one or more of the following circumstances is
true:
<PAGE>
(A) Equity interests in Borrower are publicly offered
securities, within the meaning of 29 C.F.R. ss. 2510.3- 101(b)(2);
(B) Less than 25 percent of each outstanding class of equity
interests in Borrower are held by "benefit plan investors" within the
meaning of 29 C.F.R. ss. 2510.3- 101(f)(2); or
(C) Borrower qualifies as an "operating company" or a "real
estate operating company" within the meaning of 29 C.F.R ss.
2510.3-101(c) or (e) or an investment company registered under The
Investment Company Act of 1940.
22. Notice
Any notice, demand, statement, request or consent made
hereunder shall be in writing and shall be deemed given on the next business day
if sent by Federal Express or other reputable overnight courier and designated
for next business day delivery, or on the third day following the day such
notice is deposited with the United States postal service first class certified
mail, return receipt requested, addressed to the address, as set forth above, of
the party to whom such notice is to be given, or to such other address or
additional party as Borrower or Lender, as the case may be, shall in like manner
designate in writing.
23. Authority; Non-Foreign Person
Borrower represents and warrants that: (a) it has full power,
authority and right to execute, deliver and perform its obligations pursuant to
this Agreement, and to mortgage, give, grant, bargain, sell, alien, enfeoff,
convey, confirm, warrant, pledge, hypothecate and assign the Mortgaged Property
pursuant to the terms of the Mortgage and to keep and observe all of the terms
of this Agreement and the other Loan Documents on Borrower's part to be
performed; and (b) Borrower is not a "foreign person" within the meaning of
Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended, and the
related Treasury Department regulations, including temporary regulations.
24. Waiver of Notice
Borrower shall not be entitled to any notices of any nature
whatsoever from Lender except with respect to matters for which this Agreement
specifically and expressly provides for the giving of notice by Lender to
Borrower and except with respect to matters for which Lender is required by
applicable law to give notice, and Borrower hereby expressly waives the right to
receive any notice from Lender with respect to any matter for which this
Agreement does not specifically and expressly provide for the giving of notice
by Lender to Borrower.
25. Remedies of Borrower
In the event that a claim or adjudication is made that Lender
has acted unreasonably or has unreasonably delayed acting in any case where by
law or under the Note, the Mortgage, this Agreement, the Environmental Agreement
or the other Loan Documents, it has an obligation to act reasonably or promptly,
Lender shall not be liable for any monetary damages, and Borrower's remedies
shall be limited to injunctive relief or declaratory judgment.
<PAGE>
26. Sole Discretion of Lender
Wherever pursuant to this Agreement Lender exercises any right
given to it to approve or disapprove, or any arrangement or term is to be
satisfactory to Lender, the decision of Lender to approve or disapprove or to
decide that arrangements or terms are satisfactory or not satisfactory shall be
in the sole discretion of Lender and shall be final and conclusive, except as
may be otherwise expressly and specifically provided herein.
27. Non-Waiver
The failure of Lender to insist upon strict performance of any
term hereof shall not be deemed to be a waiver of any term of this Agreement.
Borrower shall not be relieved of Borrower's obligations hereunder by reason of:
(a) the failure of Lender to comply with any request of Borrower or any
Indemnitor to take any action to foreclose the Mortgage or otherwise to enforce
any of the provisions hereof or of the Note, the Environmental Agreement or the
other Loan Documents; (b) the release, regardless of consideration, of the whole
or any part of the Mortgaged Property, or of any person liable for the Debt or
any portion thereof, or (c) any agreement or stipulation by Lender extending the
time of payment or otherwise modifying or supplementing the terms of the Note,
the Mortgage, this Agreement, the Environmental Agreement or the other Loan
Documents. Lender may resort for the payment of the Debt to any other security
held by Lender in such order and manner as Lender, in its discretion, may elect.
Lender may take action to recover the Debt, or any portion thereof, or to
enforce any covenant hereof without prejudice to the right of Lender thereafter
to foreclosure of the Mortgage. The rights and remedies of Lender under this
Agreement shall be separate, distinct and cumulative and none shall be given
effect to the exclusion of the others. No act of Lender shall be construed as an
election to proceed under any one provision herein to the exclusion of any other
provision. Lender shall not be limited exclusively to the rights and remedies
herein stated but shall be entitled to every right and remedy now or hereafter
afforded at law or in equity.
28. No Oral Change
This Agreement, and any provisions hereof, may not be
modified, amended, waived, extended, changed, discharged or terminated orally or
by any act or failure to act on the part of Borrower or Lender, but only by an
agreement in writing signed by the party against whom enforcement of any
modification, amendment, waiver, extension, change, discharge or termination is
sought.
29. Liability
If Borrower consists of more than one person, the obligations
and liabilities of each such person hereunder shall be joint and several.
Subject to the provisions hereof requiring Lender's consent to any transfer of
the Mortgaged Property, this Agreement shall be binding upon and inure to the
benefit of Borrower and Lender and their respective successors and assigns
forever.
30. Severability
If any provision hereof is invalid or unenforceable in any
jurisdiction, then, to the fullest extent permitted by law: (i) the other
provisions hereof shall remain in full force and effect in such jurisdiction and
shall be liberally construed in favor of Lender in order to carry out the
<PAGE>
intentions of the parties hereto as nearly as may be possible, and (ii) the
invalidity or unenforceability of any provision hereof in any jurisdiction shall
not affect the validity or enforceability of such provision in any other
jurisdiction.
31. Section Headings
The headings and captions of the various Sections of this
Agreement are for convenience of reference only and are not to be construed as
defining or limiting, in any way, the scope or intent of the provisions hereof.
32. Counterparts
This Agreement may be executed in any number of counterparts
and each such duplicate original shall be deemed to be an original.
33. Certain Definitions
Unless the context clearly indicates a contrary intent or
unless otherwise specifically provided herein, words used in this Agreement may
be used interchangeably in singular or plural form and the word "Borrower" shall
mean "each Borrower and any subsequent owner or owners of the Mortgaged Property
or any part thereof or any interest therein", the word "Lender" shall mean
"Lender and any subsequent holder of the Note", the word "person" shall include
an individual, corporation, partnership, trust, unincorporated association,
government, governmental authority and any other entity, and the words
"attorneys' fees" shall include any and all attorneys' fees, paralegal and law
clerk fees including, without limitation, fees at the pretrial, trial and
appellate levels incurred or paid by Lender in protecting its interest in the
Mortgaged Property and enforcing its rights hereunder. Whenever the context may
require, any pronouns used herein shall include the corresponding masculine,
feminine or neuter forms, and the singular form of nouns and pronouns shall
include the plural and vice versa.
34. Assignment
Lender shall have the right to assign or transfer its rights
under this Agreement and the other Loan Documents without limitation. Borrower
shall not assign any of its rights or obligations under this Agreement without
the prior written consent of Lender.
35. Successors and Assigns
This Agreement shall be binding upon Borrower and Lender and
their respective successors and assigns, and shall inure to the benefit of and
may be enforced by Lender and its successors, transferees and assigns.
36. Expenses
Borrower shall pay to Lender and save Lender harmless from all
liability for the payment of: (a) all filing and recording fees and taxes (other
than Lender's income taxes) payable to any taxing authority (including without
limitation any interest and penalties in respect thereof) determined to be
payable in connection with any of the transactions contemplated by this
Agreement; (b) all costs (including reasonable attorneys' fees and
disbursements) incurred by Lender in connection with the defense of any
litigation or other legal proceedings instituted by third parties relating to
<PAGE>
the Mortgaged Property; and (c) all other out-of-pocket expenses (including
without limitation fees, disbursements and expenses of the Title Company, Title
Agent and Lender's counsel) incurred by Lender in connection with the
preparation and execution of this Agreement and all other documents related to
the Loan, the administration of the Loan, any extension, renewal or modification
of the Loan, the making of any inspection of the Mortgaged Property and/or the
enforcement of Lender's rights and remedies hereunder.
37. SUBMISSION TO JURISDICTION
BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY
OHIO STATE OR FEDERAL COURT SITTING IN HAMILTON COUNTY OVER ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT. LENDER MAY, AT ITS SOLE
DISCRETION, ELECT THE STATE OF OHIO, HAMILTON COUNTY, OR THE UNITED STATES OF
AMERICA, FEDERAL DISTRICT COURT HAVING JURISDICTION OVER HAMILTON COUNTY, AS THE
VENUE OF ANY SUCH SUIT, ACTION OR PROCEEDING. BORROWER HEREBY IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR
HEREAFTER HAVE TO SUCH VENUE AS BEING AN INCONVENIENT FORUM.
38. Service of Process
To the extent permitted by applicable law, process in any
suit, action or proceeding of the nature referred to in Section 37 hereof may be
served by registered or certified mail, postage prepaid, to Borrower at the
address set forth above or to such other address of which Borrower shall have
given Lender written notice. Nothing in this Section shall affect the Lender's
right to serve process in any manner permitted by law, or limit Lender's right
to bring proceedings against Borrower in the courts of any other jurisdiction.
39. WAIVER OF JURY TRIAL
BORROWER HEREBY AGREES NOT TO ELECT A TRIAL BY JURY OF ANY
ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO
THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THE
NOTE, THE MORTGAGE, THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM,
COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF
RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY BORROWER, AND IS
INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE
RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO
FILE A COPY OF THIS SECTION IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS
WAIVER BY BORROWER.
40. CHOICE OF LAW
THIS AGREEMENT SHALL BE DEEMED TO BE A CONTRACT ENTERED INTO
PURSUANT TO THE LAWS OF THE STATE IN WHICH THE MORTGAGED PROPERTY IS LOCATED AND
SHALL IN ALL RESPECTS BE GOVERNED, CONSTRUED, APPLIED, AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF SUCH JURISDICTION.
<PAGE>
IN WITNESS WHEREOF, Borrower and Lender have executed this
Loan Agreement as of the day and year first above written.
BORROWER: OLIVEYE HOTEL LIMITED PARTNERSHIP
By: OLIVEYE HOTEL CORPORATION
By:
Emanuel Organek, President
LENDER: RESOURCES PENSION SHARES 5, L.P.
By: RESOURCES CAPITAL CORP.
By:
Printed Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The schedule contains summary information from the Financial Statements of the
December 31, 1997 Form 10-K of Resources Pension Shares 5, L.P. and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 15,725,616
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 16,112,356
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 50,793,253
<CURRENT-LIABILITIES> 1,733,753
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 48,451,062
<TOTAL-LIABILITY-AND-EQUITY> 50,793,253
<SALES> 0
<TOTAL-REVENUES> 5,335,050
<CGS> 0
<TOTAL-COSTS> 1,789,289
<OTHER-EXPENSES> (487,687)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,033,448
<INCOME-TAX> 0
<INCOME-CONTINUING> 4,033,448
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,033,448
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
