UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
_X_ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1996
OR
___ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
Commission File Number 0-15726
SUMMIT TAX EXEMPT L.P. II
(Exact name of Registrant as specified in its charter)
Delaware 13-3370413
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
625 Madison Avenue, New York, New York 10022
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (212) 421-5333
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Beneficial Unit Certificates
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No ___
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
DOCUMENTS INCORPORATED BY REFERENCE
Agreement of Limited Partnership, dated July 2, 1986, included as part of
the Registration Statement filed with the Securities and Exchange Commission
pursuant to Rule 424(b) under the Securities Act of 1933 is incorporated by
reference into Part IV of this Annual Report on Form 10-K.
Index to exhibits may be found on page 38
Page 1 of 63
<PAGE>
PART I
Item 1. Business.
General
Summit Tax Exempt L.P. II, a Delaware limited partnership (the
"Registrant"), was formed on April 11, 1986 and will terminate on December 31,
2020 unless terminated sooner under the provisions of the Registrant's Agreement
of Limited Partnership (the "Partnership Agreement"). The Registrant was formed
to invest in tax-exempt participating first mortgage revenue bonds ("First
Mortgage Bonds" or "FMBs") issued by various state or local governments or their
agencies or authorities. These investments were made with proceeds from the
initial sale of 9,151,620 Beneficial Unit Certificates ("BUC$"). The FMBs are
secured by participating first mortgage loans ("Mortgage Loans") on multi-family
residential apartment properties ("Properties") developed by unaffiliated
developers. The Properties are garden apartment projects diversified nationwide.
The Registrant's fiscal year for book and tax purposes ends on December 31.
The Registrant is engaged solely in the business of investing in FMBs;
therefore, presentation of industry segment information is not applicable.
General Partners
The general partners of the Registrant are Prudential-Bache Properties,
Inc. ("PBP") and Related Tax Exempt Associates II, Inc. (the "Related General
Partner") (collectively, the "General Partners"). Related BUC$ Associates II,
Inc. (the "Assignor Limited Partner"), which acquired and holds limited
partnership interests on behalf of those persons who purchase BUC$, has assigned
to those persons substantially all of its rights and interests in and under such
limited partnership interests. The Related General Partner and the Assignor
Limited Partner are under common ownership.
Competition
The General Partners and/or their affiliates have formed, and may continue
to form, various entities to engage in businesses which may be competitive with
the Registrant.
The Registrant's business is affected by competition to the extent that the
underlying Properties from which it derives interest and, ultimately, principal
payments may be subject to competition relating to rental rates and relative
level of amenities from offered by comparable neighboring properties.
Structure of First Mortgage Bonds
The principal and interest payments on each FMB are payable only from the
cash flows, including proceeds in the event of a sale, from the Properties
underlying the FMBs. None of these FMBs constitute a general obligation of any
state or local government, agency or authority. The FMBs are secured by the
Mortgage Loans on the underlying Properties and the structure of each Mortgage
Loan mirrors the structure of the corresponding FMB.
Unless otherwise modified, the principal of the FMBs will not be amortized
during their respective terms (which are generally up to 24 years) and will be
required to be repaid in lump sum "balloon" payments at the expiration of the
respective terms or at such earlier times as the Registrant may require pursuant
to the terms of the bond documents. The Registrant has a right to require
redemption of the FMBs approximately twelve years after their issuance. The
Registrant anticipates holding the FMBs for approximately 12 to 15 years from
the date of issuance; however, it can and may elect to hold them to maturity.
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<PAGE>
In addition to the stated base rates of interest ranging from 4.87% to
8.25% per annum, each of the FMBs (which have not been modified) provides for
"contingent interest" which is equal to: (a) an amount equal to 50% to 100% of
net property cash flow and 75% to 100% of net sale or refinancing proceeds until
the borrower has paid, during the post-construction period, annually compounded
interest at a rate ranging from 9.0% to 9.25% on a cumulative basis, and
thereafter (b) an amount equal to 25% to 50% of the remaining net property cash
flow and 25% to 50% of the remaining net sale or refinancing proceeds until the
borrower has paid interest at a simple annual rate of 16% over the term of the
FMB. Both the stated and contingent interest are exempt from federal income
taxation. During the year ended December 31, 1996, two FMBs, The Lakes and River
Run, paid contingent interest amounting to approximately $98,000 and $122,000,
respectively. During the year ended December 31, 1995, one FMB, The Lakes, paid
contingent interest amounting to approximately $68,000.
In order to protect the tax-exempt status of the FMBs, the owners of
Properties are required to enter into certain agreements to own, manage and
operate such Properties in accordance with requirements of the Internal Revenue
Code.
No single FMB provided interest income which exceeded 15% of the
Registrant's total revenue for any of the years ended December 31, 1996, 1995 or
1994.
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<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
The following table lists the FMBs that the Registrant owns together with
the occupancy and rental rates of the underlying properties:
<TABLE>
<CAPTION>
Carrying Average Minimum
Face Amount Final Interest Stated Pay Rate at Occupancy
Closing Amount at December Completion Rate Paid Interest December 31, February 11,
Property Date of Bond 31, 1996 (G) Date for 1996* Rate* 1996* 1997
- - -------- ---- ------- ------------ ---- --------- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bay Club,
Mt. Pleasant, SC 9/11/86 $ 6,400,000 $ 6,134,588 12/87 8.43%(A) 8.25% 7.50%(A) 99.4%
Loveridge,
Contra Costa, CA 11/13/86 8,550,000 6,826,198 3/87 4.83 8.00 (C) 93.9
The Lakes,
Kansas City, MO 12/30/86 13,650,000 10,101,816 1/89 5.61 (E) 4.87 4.87 96.9
Crowne Pointe,
Olympia, WA 12/31/86 5,075,000 5,322,225 6/87 8.00 8.00 8.00 96.0
Orchard Hills,
Tacoma, WA 12/31/86 5,650,000 5,842,439 9/87 8.00 8.00 8.00 98.3
Highland Ridge,
St. Paul, MN 2/02/87 15,000,000 12,971,183 1/89 7.06 8.00 7.25 (F) 97.7
Newport Village,
Tacoma, WA 2/11/87 13,000,000 12,843,816 2/87 7.98 (D) 8.00 8.00 90.2
Sunset Downs,
Lancaster, CA 2/11/87 15,000,000 11,306,665 7/87 4.35 8.00 (C) 90.2
Pelican Cove,
St. Louis, MO 2/27/87 18,000,000 16,907,362 11/89 7.50 8.00 (C) 94.5
Willow Creek,
Ames, IA 2/27/87 6,100,000 6,019,067 8/88 8.00 8.00 8.00 100.0
Cedar Pointe,
Nashville, TN 4/22/87 9,500,000 8,423,412 9/89 7.88 (H) 8.00 7.00 84.8
Shannon Lake,
Atlanta, GA 6/26/87 12,000,000 10,920,358 8/88 6.00 8.00 6.00 (F) 88.1
Bristol Village,
Bloomington, MN 7/31/87 17,000,000 17,254,892 9/89 9.87 (D) 8.00 7.75 (F) 94.6
Suntree,
Ft. Myers, FL 7/31/87 7,500,000 7,387,848 12/85 7.63 8.00 7.50 (F) 90.7
<CAPTION>
Rental Rates No. of
at December Rental
Property 31, 1996 Units
- - -------- -------- -----
<S> <C> <C>
Bay Club,
Mt. Pleasant, SC $520-670 164
Loveridge,
Contra Costa, CA 540-800 148
The Lakes,
Kansas City, MO 435-620 400
Crowne Pointe,
Olympia, WA 480-795 160
Orchard Hills,
Tacoma, WA 460-755 174
Highland Ridge,
St. Paul, MN 745-1,285 228
Newport Village,
Tacoma, WA 435-600 402
Sunset Downs,
Lancaster, CA 460-680 264
Pelican Cove,
St. Louis, MO 485-660 402
Willow Creek,
Ames, IA 500-825 138
Cedar Pointe,
Nashville, TN 505-840 210
Shannon Lake,
Atlanta, GA 395-765 294
Bristol Village,
Bloomington, MN 660-1,129 290
Suntree,
Ft. Myers, FL 460-635 240
</TABLE>
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<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
The following table lists the FMBs that the Registrant owns together with
the occupancy and rental rates of the underlying properties:
<TABLE>
<CAPTION>
Carrying Average Minimum
Face Amount Final Interest Stated Pay Rate at Occupancy
Closing Amount at December Completion Rate Paid Interest December 31, February 11,
Property Date of Bond 31, 1996 (G) Date for 1996* Rate* 1996* 1997
- - -------- ---- ------- ------------ ---- --------- ----- ----- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
River Run,
Miami, FL 8/07/87 $7,200,000 $7,457,110 7/87 9.83%(I) 8.00% 8.00% 95.0
Players Club,
Ft. Myers, FL (B) 8/14/87 2,500,000 2,404,447 12/85 7.37 8.00 7.00 (F) 83.9
------------ ------------
$162,125,000 $148,123,426
============ ============
<CAPTION>
Rental Rates No. of
at December Rental
Property 31, 1996 Units
- - -------- -------- -----
<S> <C> <C>
River Run,
Miami, FL $609-829 164
Players Club,
Ft. Myers, FL (B) 425-570 288
</TABLE>
*The average interest rate paid represents the interest recorded by the
Registrant while the stated interest rate represents the coupon rate of the FMB
and the minimum pay rate represents the minimum rate payable pursuant to the
applicable forbearance agreement, if any.
(A) The minimum pay rate on the FMB increases in increments from 6.0% in 1990
to 8.25% in 1997. The actual pay rate is adjusted as of the property's
fiscal year-end based on audited financial statements to no less than the
minimum pay rate.
(B) Summit Tax Exempt L.P. III, of which the general partners are either the
same or affiliates of the General Partners of the Registrant, acquired the
other $7,200,000 of the Players Club bond issue.
(C) The pay rate is based on the net cash flow generated by the operations of
the underlying property. See Note 3 to the Financial Statements.
(D) Includes receipt of deferred base interest relating to prior periods.
(E) Includes receipt of primary and supplemental contingent interest.
(F) The minimum pay rate on the FMB is scheduled to increase to the stated
interest rate over the remaining term of the FMB.
(G) The FMBs are carried at their estimated fair values at December 31, 1996.
(H) Reflects payments accrued at December 31, 1996 that were received pursuant
to a forbearance agreement entered as of February 1, 1997, which lowered
the base interest rate to 7% effective September 16, 1996.
(I) Includes receipt of primary contingent interest.
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<PAGE>
Bond Modifications/Forbearance Agreements
Highland Ridge
Due to increases in its real estate taxes, in April, 1996, the obligor of
the Highland Ridge FMB entered into a forbearance agreement with the Registrant
effective retroactive to October, 1995. In accordance with the terms and
conditions of this agreement, the obligor will make minimum monthly debt service
payments beginning at a 7% annual rate and increasing in annual increments over
a period of four years back to the original stated rate. The difference between
the actual pay rate and the stated rate of the FMB is deferred and payable from
future available cash flow or sale or refinancing proceeds. In addition,
delinquent taxes will be paid in three installments by the developer over an 18
month period. The developer has paid the first and second such installments of
the delinquent taxes due as of May 7, 1996 and February 5, 1997. The obligations
under the forbearance agreement are further secured by a guarantee from the
general partner of the obligor.
Sunset Downs
In June 1992, under a forbearance agreement, the Sunset Downs property
began paying debt service at 7.0% and was scheduled to increase in annual
increments to the original stated rate of 8.0% in June 1996. Effective with the
May 1, 1995 payment date, the Sunset Downs FMB has made payments based on the
monthly net cash flow generated by the operations of its underlying property in
accordance with the terms of the agreement outlined below. Effective as of
August 1, 1995, the obligor of the Sunset Downs FMB entered into a forbearance
agreement. In accordance with the terms of this agreement, the obligor of the
FMB is paying debt service of the FMB to the extent of cash flow generated by
the underlying property. In addition, pursuant to the agreement, the obligor
replaced the present property manager and leasing agent with a new property
manager who is an affiliate of the Related General Partner. Effective as of
January 30, 1997, the obligor transferred the deed to the underlying property to
an affiliate of the Related General Partner, who made no equity investment in
the property but assumed the day-to-day responsibilities of operations and
obligations under the FMB.
Loveridge
Effective with the May 1, 1995 payment date, the Loveridge FMB has made
payments based on the monthly net cash flow generated by the operations of the
underlying properties. Subsequently, on August 1, 1995, the original owner and
obligor of the Loveridge FMB transferred the deed to the underlying property to
an affiliate of the Related General Partner for limited consideration. The
Related General Partner's affiliate, who has not made an equity investment in
the underlying property, assumed the day-to-day responsibilities and obligations
of operating the property. Although this property is not producing sufficient
cash flow to fully service the debt, the Registrant has no present intention to
declare a default on the FMB.
Lakes
On May 13, 1993, the Registrant, on behalf of Lakes Project Investors, Inc.
("LPI"), an affiliate of the Related General Partner who replaced the original
developer, deposited a cash escrow of $500,000 in connection with the filing of
an appeal of a mechanics lien judgment rendered against LPI. In July, 1994, the
appeal was rejected and the judgment affirmed. However, at that time LPI
petitioned the court for a rehearing. On January 23, 1995, in settlement of this
case, LPI and the plaintiff agreed that approximately $422,000 of the current
escrow balance be paid to the plaintiff. The balance of funds (approximately
$99,000) remaining in escrow was returned to LPI and thence to the Registrant as
payment towards previously accrued and unpaid interest. Previously, the
Registrant had reserved fully for the appeal.
On January 27, 1994, LPI sold an option to purchase the ownership interest
in the Lakes, subject to the assumption of the obligation under the Registrant's
$13,650,000 FMB, to an unrelated third party for $200,000. The Lakes FMB was
modified to allow debt service payments at 4.87% per annum with 100% of the
excess property cash flow paid to the Registrant up to a rate of 5.24% and
participation in the net cash flow thereafter. Pursuant to the terms of the
option and assumption of the FMB, the option was exercised on August 31, 1994.
The net cash
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<PAGE>
proceeds of approximately $487,000 (net of an escrow for certain repairs and
closing costs), paid to the Registrant to reduce previously accrued and unpaid
interest, was recorded as deferred income and is being accreted as interest
income from participating first mortgage bonds over the remaining life of The
Lakes FMB. The balance of the deferred income relating to The Lakes FMB was
approximately $394,000 at December 31, 1996 and $434,000 at December 31, 1995.
Newport Village, Bristol Village, Suntree and Players Club
In 1992, forbearance agreements were finalized with the owners of the
Newport Village, Bristol Village, Suntree and Players Club properties. In
October 1992, the Newport Village property began paying debt service at 6.0% per
annum and was scheduled to increase in annual increments to the original stated
rate of 8.0% in September 1996. As of September 16, 1996, the pay rate of the
Newport Village returned to the original stated base interest rate of 8% per
annum. In October 1992, the Bristol Village property began paying debt service
at 6.0% per annum and was scheduled to increase in annual increments to the
stated rate of 8.0% in January 1997. As of January 1, 1997, the pay rate for the
Bristol Village property returned to the stated rate of 8% per annum. During
1992, the Suntree and Players Club properties began paying debt service at 7.0%
per annum. In 1994, the Suntree and Players Club forbearance agreements were
further modified to allow debt service payments to be made at 6.0% per annum
through the end of 1994. Effective January 1, 1995, and again extended effective
January 1, 1996 the Suntree and Players Club forbearance agreements were again
modified to allow minimum debt service payments to be made at 7.5% and 7.0% per
annum, respectively, through the end of 1996. Effective January 1, 1997 the
Suntree and Players Club forbearance agreements were modified to allow minimum
debt service payments at 6.50% and 6.25% per annum, respectively, through August
1, 1997 and December 31, 1997, respectively.
The Registrant also made a $125,000 loan in April 1993 to the owner of the
property underlying the Bristol Village FMB for payment of past due property
taxes. This loan is self-amortizing over four years with interest at 8.0% per
annum payable monthly. The current balance outstanding as of December 31,1996 is
approximately $15,000. Payments on this loan are current at December 31, 1996.
Shannon Lake
A forbearance agreement with the owner of the Shannon Lake property
originally made in 1991, further modified as of June 1, 1993 was extended as of
May 1, 1996 to allow the property to make minimum monthly interest payments at
annual rate of 6%. The Registrant agreed to extend other provisions and terms of
the 1993 agreement effective for the period March 16, 1993 through December 15,
1997. In addition, as of June 1, 1996 an Extension and Modification Agreement
was executed regarding the extension and modification of the $138,000 note due
on April 30, 1996. The note was increased by $300,000 for certain capital
improvements, to $438,000. The modified loan is self-amortizing beginning August
1, 1996 at the annual rate of 8%, payable in 48 equal monthly installments of
$10,692.86, with a final maturity of July 1, 2000. An allowance for possible
loss was established for $138,000 during 1993.
Bay Club
In 1990, the terms of the Bay Club FMB were modified when the equity
interest in the property and the related obligation of the FMB were sold by an
affiliate of the Related General Partner to an unrelated third party. As part of
this transaction, the minimum annual pay rate increases in annual increments
from 6.0% in 1990 to 8.25% in 1997. The difference between the rate paid and the
original stated rate is deferred and is payable from available future cash flow
or ultimately from sale or refinancing proceeds. As part of this modification,
the Registrant received $360,000 in a 13% second mortgage note with interest and
principal payments due monthly through December 1995. This note is also
partially secured by a letter of credit. In January 1996 the second mortgage
note to Bay Club was paid in full and the letter of credit released.
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<PAGE>
Pelican Cove
The original owner of the underlying property and obligor of the Pelican
Cove FMB has been replaced with an affiliate of the Related General Partner who
has not made an equity investment. This entity has assumed the day-to-day
responsibilities and obligations of the underlying property. Buyers are being
sought who would make an equity investment in the underlying property and assume
the nonrecourse obligations for the FMB. Although this property is not producing
sufficient cash flow to fully service the debt, the Registrant has no present
intention to declare a default on the FMB.
Cedar Pointe
A forbearance agreement with the owner of the Cedar Pointe property was
executed on February 1, 1997, which provided for a minimum pay rate of 7% per
annum effective September 16, 1996. Pursuant to the terms of the forbearance
agreement, it is envisioned that the FMB will be formally and permanently
modified to provide for a new base interest rate of 7% and a contingent interest
rate of up to 5% payable from 25% of cash flow or sale or refinancing proceeds.
In addition, the FMB modification will call for the discharge of accrued and
unpaid primary contingent interest, primary deferred interest, supplemental
contingent interest, supplemental deferred interest and construction period
deferred and contingent interest through September 15, 1996, whether payable
before, on, or after September 15, 1996. It is further expected that maturity of
the FMB will be extended to 2017 and the call date extended to 2006.
General
The determination as to whether it is in the best interest of the
Registrant to enter into forbearance agreements on the FMBs, or alternatively,
to pursue its remedies under the loan documents, including foreclosure, is based
upon several factors. These factors include, but are not limited to, property
performance, owner cooperation and projected legal costs. Payments under each of
the existing forbearance agreements are current as of December 31, 1996.
With respect to the FMBs which are subject to forbearance agreements with
the respective obligors, the difference between the stated interest rates and
the rates paid (whether deferred and payable out of available future cash flow
or, ultimately, from sale or refinancing proceeds) on FMBs is not accrued for
financial statement purposes. The accrual of interest at the stated interest
rate will resume once a property's ability to pay the stated rate has been
adequately demonstrated. Unrecorded contractual interest income was
approximately $1,470,000, $704,000 and $931,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General partners and their affiliates
pursuant to the Partnership Agreement. See Note 5 to the financial statements in
Item 8.
Other Events
On December 31, 1996, the United States District Court for the Southern
District of New York (the "Court") issued a preliminary approval order (the
"Order") with respect to settlement (the "Related Settlement") of the class
action litigation (the "Class Action") relating to the Registrant (In re
Prudential Securities Inc. Limited Partnership Litigation, MDL No. 1005) against
the Related General Partner and certain of its affiliates. See Note 6 to the
financial statements in Item 8. Pursuant to the stipulation of settlement
entered into with counsel for the class on December 24, 1996, the proposed
Related Settlement contemplates, among other matters, the reorganization (the
"Reorganization") of the Registrant and two other partnerships co-sponsored by
affiliates of the Related General Partner and PBP.
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<PAGE>
The proposed Related settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Registrant as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the Registrant,
and Summit Tax Exempt Bond Fund, L.P. and Summit Tax Exempt L.P., III will
receive shares in a newly formed business trust. It is anticipated that the
shares will be allocated proportionately among the partnerships and their
respective investors based upon appraisals and other factors as supported by a
third-party fairness opinion. Detailed information about the proposed Related
Settlement and Reorganization will be sent to BUC$holders in the near future.
The terms of the Reorganization include, among other matters, the acquisition by
affiliates of the Related Capital Company ("RCC") of PBP's general partner
interest (the "PBP Interest"), transfer to the BUC$holders of one-half of the
PBP Interest, reduction of fees currently payable to the General Partners by
25%, filing an application to list the new company's shares on an exchange and
the creation of an infinite, as opposed to finite, life-operating business.
In connection with the proposed Related Settlement and Reorganization, on
December 19, 1996, PBP and RCC entered into an agreement for the purchase by RCC
or its affiliates of the PBP Interest. The agreement is subject to numerous
conditions, including the effectiveness of the Related Settlement of the Class
Action and the approval of the sale and withdrawal of PBP as a general partner
of the Registrant by the Court.
Pending final approval of the Related Settlement, the Court's Order
prohibits class members (including the BUC$holders) from, among other matters,
(i) transferring their BUC$ unless the transferee agrees to be bound by the
Related Settlement; (ii) granting a proxy to object to the Reorganization; or
(iii) commencing a tender offer for the BUC$. In addition, the General Partners
are enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.
There can be no assurance that the conditions to the closing of the
proposed Related Settlement and Reorganization will be satisfied nor that a
closing may occur in the projected time frame.
Item 2. Properties
The Registrant does not own or lease any property.
Item 3. Legal Proceedings
This information is incorporated by reference from Item 1. Business - Other
Events and Note 6 to the financial statements in Item 8.
Item 4. Submission of Matters to a Vote of BUC$holders
None
PART II
Item 5. Market for the Registrant's BUC$ and Related BUC$holder Matters.
As of March 3, 1997 there were 9,161 holders of record owning 9,151,620
BUC$. A significant secondary market for the BUC$ has not developed and it is
not expected that one will develop in the future. There are also certain
restrictions set forth in Sections 12 and 13 of the Partnership Agreement
limiting the ability of a BUC$holder to transfer their BUC$. Furthermore, the
Court's Order in connection with the proposed Related Settlement of the Class
Action imposes certain restrictions on the transfer of the BUC$. See Item 1.
Business -
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<PAGE>
Other Events. Consequently, BUC$holders may not be able to liquidate
their investments in the event of emergency or for any other reason.
Cash distributions per BUC were paid during the following calendar
quarters. Distributions were funded by current and previously undistribtued
adjusted cash flow from operations.
Quarter Ended 1996 1995
------------- ---- ----
March 31 $0.26 $0.26
June 30 0.26 0.26
September 30 0.26 0.26
December 31 0.26 0.26
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement. Approximately $3,790,000 of the $9,518,000 and $514,000
of the $9,518,000 paid to the BUC$holders in 1996 and 1995, respectively,
represents a return of capital on a generally accepted accounting principles
("GAAP") basis. (The return of capital on a GAAP basis is calculated as
BUC$holder distributions less net income allocated to BUC$holders). The
Registrant currently expects that cash distributions will continue to be paid in
the foreseeable future from current and previously undistributed cash flow from
operations. For a discussion of other factors that may affect the amount of
future distributions, see Management's Discussion and Analysis of Financial
Condition and Results of Operations in Item 7.
Item 6. Selected Financial Data.
The information set forth below presents selected financial data of the
Registrant. Additional financial information is set forth in the financial
statements and notes thereto contained in Item 8 hereof.
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------------------------------------------------
1996 1995 1994 1993 1992
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Interest income from
participating first
mortgage bonds $ 11,647,431 $ 11,895,439 $ 11,765,112 $ 11,543,922 $ 11,132,119
============ ============ ============ ============ ============
Loss on impairment
of assets $ 4,000,000 $ 1,000,000 $ 500,000 $ 1,000,000 $ 0
============ ============ ============ ============ ============
Net income $ 5,845,041 $ 9,187,803 $ 9,623,049 $ 8,285,673 $ 9,214,047
============ ============ ============ ============ ============
Net income per BUC $ 0.63 $ 0.98 $ 1.03 $ 0.89 $ 0.99
============ ============ ============ ============ ============
Total assets $154,896,475 $157,019,314 $157,436,945 $165,778,624 $166,738,439
============ ============ ============ ============ ============
Total Partners' Capital $154,322,601 $156,366,964 $164,829,205 $164,918,079 $166,344,329
============ ============ ============ ============ ============
Distributions to
BUC$holders $ 9,517,685 $ 9,517,685 $ 9,517,685 $ 9,517,685 $ 9,536,926
============ ============ ============ ============ ============
Distributions per BUC $ 1.0400 $ 1.0400 $ 1.0400 $ 1.0400 $ 1.0421
============ ============ ============ ============ ============
</TABLE>
-10-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Liquidity and Capital Resources
Summit Tax Exempt L.P. II ("the Registrant") has invested in sixteen
tax-exempt participating first mortgage bonds ("FMBs") issued by various state
or local governments or their agencies or authorities. The FMBs are secured by
participating first mortgage loans on multi-family residential apartment
properties.
At the beginning of the year, the Registrant had cash and temporary
investments of approximately $3,773,000. After payment of distributions of
approximately $9,712,000, net loans made to properties of approximately $277,000
and receipt of the net cash flow from operations of approximately $10,015,000,
the Registrant ended the year with approximately $3,849,000 in cash and
temporary investments. The fourth quarter distribution of approximately
$2,379,000 ($.26 per BUC) was paid to BUC$holders in February 1997 from current
and previously undistributed cash flow from operations. The Registrant
anticipates funding future cash distributions from current and previously
undistributed cash flow from operations.
Due to increases in its real estate taxes, in April, 1996, the obligor of
the Highland Ridge FMB entered into a forbearance agreement with the Registrant
effective retroactive to October, 1995. In accordance with the terms and
conditions of this agreement, the obligor will make minimum monthly debt service
payments beginning at a 7% annual rate and increasing in annual increments over
a period of four years back to the original stated rate. The difference between
the actual pay rate and the stated rate of the FMB is deferred and payable from
future available cash flow or sale or refinancing proceeds. In addition,
delinquent taxes will be paid in three installments by the developer over an 18
month period. The developer has paid the first and second such installments of
the delinquent taxes due as of May 7, 1996 and February 5, 1997. The obligations
under the forbearance agreement are further secured by a guarantee from the
general partner of the obligor. Payments under the forbearance agreement are
current as of December 31, 1996.
A forbearance agreement with the owner of the Shannon Lake property
originally made in 1991, further modified as of June 1, 1993 was extended as of
May 1, 1996 to allow the property to make minimum monthly interest payments at
annual rate of 6%. The Registrant agreed to extend other provisions and terms of
the 1993 agreement effective for the period March 16, 1993 through December 15,
1997. In addition, as of June 1, 1996 an Extension and Modification Agreement
was executed regarding the extension and modification of the $138,000 note due
on April 30, 1996. The note was increased by $300,000 for certain capital
improvements to $438,000. The modified loan is self-amortizing beginning August
1, 1996 at the annual rate of 8%, payable in 48 equal monthly installments of
$10,692.86, with a final maturity of July 1, 2000. Allowance for possible loss
was established for $138,000 during 1993. Payments due under the forbearance
agreement and the note are current as of December 31, 1996.
A forbearance agreement with the owner of the Cedar Pointe property was
executed on February 1, 1997, which provided for a minimum pay rate of 7% per
annum effective September 16, 1996. Pursuant to the terms of the forbearance
agreement, it is envisioned that the FMB will be formally and permanently
modified to provide for a new base interest rate of 7% and a contingent interest
rate of up to 5% payable from 25% of cash flow or sale or refinancing proceeds.
In addition, the FMB modification will call for the discharge of accrued and
unpaid primary contingent interest, primary deferred interest, supplemental
contingent interest, supplemental deferred interest and construction period
deferred and contingent interest through September 15, 1996, whether payable
before, on, or after September 15, 1996. It is further expected that maturity of
the FMB will be extended to 2017 and the call date extended to 2006.
The Registrant has entered into forbearance agreements on several FMBs and
may be required to extend these agreements or enter into new agreements in the
future. Such agreements may adversely impact liquidity; however interest
payments from FMBs are anticipated to provide sufficient liquidity to fund in
future years the Registrant's operating expenditures and distributions.
-11-
<PAGE>
For a discussion of the proposed settlement of the Class Action relating to
the Registrant see Other Events in Item 1. Business above.
Management is not aware of any trends or events, commitments or
uncertainties, which have not otherwise been disclosed that will or are likely
to impact liquidity in a material way. The Partnership's investments in FMBs are
secured by a Partnership interest in properties which are diversified by
location so that if one area of the country is experiencing downturns in the
economy, the remaining properties may be experiencing upswings. However, the
geographic diversifications of the portfolio may not protect against a general
downturn in the national economy.
Results of Operations
The Registrant accounts for its investments in the FMBs as debt securities
under the provisions of Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS 115").
The Registrant has a right to require redemption of the FMBs approximately
twelve years after their issuance. The Registrant anticipates holding the FMBs
for approximately 12 to 15 years from the date of issuance; however, it can and
may elect to hold until maturity. As such, SFAS 115 requires the Partnership to
classify these investments as "available for sale." Accordingly, investments in
FMBs are carried at their estimated fair values, with unrealized gains and
losses reported in a separate component of partners' capital. Unrealized holding
gains or losses do not affect the cash flow generated from property operations,
distributions to BUC$holders, the characterization of the tax-exempt income
stream or the financial obligations under the FMBs.
The Registrant periodically evaluates each FMB to determine whether a
decline in fair value below the FMB's cost basis is other than temporary. Such a
decline is considered to be other than temporary if, based on current
information and events, it is probable that the Registrant will be unable to
collect all amounts due according to the existing contractual terms of the
bonds. If the decline is judged to be other than temporary, the cost basis of
the bond is written down to its then estimated fair value, with the amount of
the write-down accounted for as a realized loss.
Because the FMBs are not readily marketable, the Registrant estimates fair
value for each bond as the present value of its expected cash flows using a
discount rate for comparable tax-exempt investments. This process is based upon
projections of future economic events affecting the real estate collateralizing
the bonds, such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates, and upon determination of an
appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Registrant's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.
1996 vs. 1995
Net income decreased approximately $3,343,000 for the year ended December
31, 1996 as compared to the corresponding period in1995 primarily due to the
loss on impairment of assets of $4,000,000 and $1,000,000 recorded in 1996 and
1995, respectively, and for the reasons discussed below.
Interest income from participating FMBs decreased by approximately $248,000
as compared to the corresponding period in 1995 primarily due to reduced
interest payments received from the Loveridge and Sunset Downs FMBs as a result
of payments being based on the monthly cash flow generated by the operations of
the underlying properties effective with the May 1, 1995 payment date and a
reduction in the minimum monthly debt service payments from the Highland Ridge
FMB as a result of a forbearance agreement retroactive to October 1995. These
decreases were partially offset by the receipt of contingent interest from the
River Run FMB and an increase in deferred base interest received from the
Bristol Village FMB in 1996.
Interest income from temporary investments increased approximately $18,000
for the year ended December 31, 1996 as compared to the corresponding period in
1995 primarily due to higher invested cash balances in 1996.
-12-
<PAGE>
Interest income from promissory notes increased approximately $3,000 for
the year ended December 31, 1996 as compared to the corresponding period in 1995
primarily due to a $300,000 increase in the Shannon Lake loan in July 1996 which
was partially offset by a decrease due to the maturity of the Bay Club loan in
January 1996.
General and administrative expenses increased approximately $116,000 for
the year ended December 31, 1996 as compared to the corresponding period in 1995
primarily due to increases in legal costs, most of which relate to the Kinnes
litigation described in Note 6 to the financial statements as well as an
increase in non-recurring legal expenses, partially offset by the cost of
obtaining appraisals in 1995.
A $4,000,000 loss on impairment of assets was recorded during the year
ended December 31, 1996 to recognize other-than-temporary impairment of three
FMBs based upon continuing operating difficulties being experienced at the
properties securing the FMBs.
1995 vs. 1994
Net income decreased approximately $435,000 for the year ended December 31,
1995 as compared to the corresponding period in 1994 primarily due to the loss
on impairment of assets of $1,000,000 and $500,000 recorded in 1995 and 1994,
respectively, and for the reasons discussed below.
Interest income from FMBs increased by approximately $130,000 as compared
to the corresponding period in 1994 primarily due to additional interest
received from the Newport Village, Shannon Lake, Bristol Village, Players Club,
Bay Club and Suntree FMBs as required by the terms of their respective
forbearance agreements together with increased cash flow generated by the
Pelican Cove property resulting in an increase of its interest payments to the
Registrant and contingent interest received from The Lakes. The increase is
partially offset by reduced debt service payments received from the Loveridge,
Sunset Downs and Highland Ridge FMBs and nonrecurring contingent interest
received in 1994 from Crowne Pointe and Willow Creek.
Interest income from temporary investments increased approximately $52,000
for the year ended December 31, 1995 as compared to the corresponding period in
1994 due to higher interest rates and invested balances in 1995.
Interest income from promissory notes decreased approximately $14,000 for
the year ended December 31, 1995 as compared to the corresponding period in 1994
due to the repayment of the Pelican Cove and The Lakes property tax loans in May
1994.
A $1,000,000 loss on impairment of assets was recorded during the year
ended December 31, 1995 to write down the cost basis of certain FMBs to
recognize other-than-temporary impairment.
General and administrative expenses increased approximately $126,000 for
the year ended December 31, 1995 as compared to the corresponding period in 1994
primarily due to an increase in administrative expense as well as the cost of
obtaining appraisals in 1995.
-13-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
Property Information
The following table lists the Registrant's FMBs together with occupancy
rates of the underlying properties as of February 11, 1997:
<TABLE>
<CAPTION>
Carrying
Amount Average Stated Minimum Pay
Face Amount at December Interest Rate Interest Rate at December
Property Location of Bond 31,1996 (G) Occupancy Paid for 1996* Rate* 31,1996*
- - -------- -------- ------- ----------- --------- -------------- ----- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Bay Club Mt. Pleasant, SC $ 6,400,000 $ 6,134,588 99.4% 8.43%(A) 8.25% 7.50%(A)
Loveridge Contra Costa, CA 8,550,000 6,826,198 93.9 4.83 8.00 (C)
The Lakes Kansas City, MO 13,650,000 10,101,816 96.9 5.61 (E) 4.87 4.87
Crowne Pointe Olympia, WA 5,075,000 5,322,225 96.0 8.00 8.00 8.00
Orchard Hills Tacoma, WA 5,650,000 5,842,439 98.3 8.00 8.00 8.00
Highland Ridge St. Paul, MN 15,000,000 12,971,183 97.7 7.06 8.00 7.25 (F)
Newport Village Tacoma, WA 13,000,000 12,843,816 90.2 7.98 (D) 8.00 8.00
Sunset Downs Lancaster, CA 15,000,000 11,306,665 90.2 4.35 8.00 (C)
Pelican Cove St. Louis, MO 18,000,000 16,907,362 94.5 7.50 8.00 (C)
Willow Creek Ames, IA 6,100,000 6,019,067 100.0 8.00 8.00 8.00
Cedar Pointe Nashville, TN 9,500,000 8,423,412 84.8 7.88 (H) 8.00 7.00
Shannon Lake Atlanta, GA 12,000,000 10,920,358 88.1 6.00 8.00 6.00 (F)
Bristol Village Bloomington, MN 17,000,000 17,254,892 94.6 9.87 (D) 8.00 7.75 (F)
Suntree Ft. Myers, FL 7,500,000 7,387,848 90.7 7.63 8.00 7.50 (F)
River Run Miami, FL 7,200,000 7,457,110 95.0 9.83 (I) 8.00 8.00
Players Club (B) Ft. Myers, FL 2,500,000 2,404,447 83.9 7.37 8.00 7.00 (F)
------------ ------------
$162,125,000 $148,123,426
============ ============
</TABLE>
*The average rate paid represents the interest recorded by the Registrant while
the stated interest rate represents the coupon rate of the FMB and the minimum
pay rate represents the minimum rate payable pursuant to the applicable
forbearance agreement, if any.
(A) The minimum pay rate on the FMB increases in increments from 6.0% in 1990
to 8.25% in 1997. The actual pay rate is adjusted as of the property's
fiscal year-end based on audited financials to no less than the minimum pay
rate.
(B) Summit Tax Exempt L.P. III, of which the general partners are either the
same or affiliates of the General Partners of the Registrant, acquired the
other $7,200,000 of the Players Club bond issue.
(C) The pay rate is based on the net cash flow generated by the underlying
property. See Note 3 to the financial statements.
(D) Includes receipt of deferred base interest relating to prior periods.
(E) Includes receipt of primary and supplemental contingent interest.
(F) The minimum pay rate on the FMB is scheduled to increase to the stated
interest rate over the remaining term of the FMB.
(G) The FMBs are carried at their estimated fair values at December 31, 1996.
(H) Reflects payments accrued at December 31, 1996 that were received pursuant
to a forbearance agreement entered as of February 1, 1997, which lowered
the base interest rate to 7% effective September 16, 1996.
(I) Includes receipt of primary contingent interest.
-14-
<PAGE>
General
The determination as to whether it is in the best interest of the
Registrant to enter into forbearance agreements on the FMBs or, alternatively,
to pursue its remedies under the loan documents, including foreclosures, is
based upon several factors. These factors include, but are not limited to,
property performance, owner cooperation and projected legal costs.
The difference between the stated interest rates and the rates paid by FMBs
is not accrued as interest income for financial reporting purposes. The accrual
of interest at the stated interest rate will resume once a property's ability to
pay the stated rate has been adequately demonstrated. Interest income of
approximately $1,407,000, $704,000 and $931,000 was not recognized for the years
ended December 31, 1996, 1995 and 1994, respectively.
From time to time, certain property owners have elected to supplement the
cash flow generated by the properties to meet the required FMB interest
payments. There can be no assurance that in the future any property owner will
continue to elect to supplement property cash flow to satisfy bond interest
requirements if necessary. The owners of the Sunset Downs, Highland Ridge and
Loveridge properties supplemented the cash flow generated by the respective
properties to meet the required interest payments in 1994. No property owner
made supplementary payments in 1995 or 1996.
-15-
<PAGE>
Item 8. Financial Statements and Supplementary Data.
<TABLE>
<CAPTION>
(a) 1. Financial Statements Page
-------------------- ----
<S> <C> <C>
Independent Auditors' Report 17
Statements of Financial Condition as of December 31, 1996 and 1995 18
Statements of Income for the years ended December 31, 1996, 1995 and
1994 19
Statements of Changes in Partners' Capital (Deficit) for the years
ended December 31, 1996, 1995 and 1994 20
Statements of Cash Flows for the years ended December 31, 1996, 1995
and 1994 21
Notes to Financial Statements 22
</TABLE>
-16-
<PAGE>
(Letterhead of Deloitte & Touche LLP)
INDEPENDENT AUDITORS' REPORT
To the Partners of
Summit Tax Exempt L.P. II
New York, New York
We have audited the accompanying statements of financial condition of Summit
Tax Exempt L.P. II (a Delaware Limited Partnership) as of December 31, 1996 and
1995, and the related statements of income, changes in partners' capital
(deficit) and cash flows for each of the three years in the period ended
December 31, 1996. These financial statements are the responsibility of the
General Partners. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
General Partners, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Summit Tax Exempt L.P. II as of December 31,
1996 and 1995, and the results of its operations and its cash flows for each of
the three years in the period ended December 31, 1996 in conformity with
generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
New York, New York
March 20, 1997
-17-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
ASSETS
December 31,
--------------------------------------
1996 1995
------------- -------------
<S> <C> <C>
Participating first mortgage bonds-at fair value $ 148,123,426 $ 150,274,452
Temporary investments 3,600,000 2,800,000
Cash and cash equivalents 249,192 972,889
Interest receivable, net 735,343 899,299
Promissory notes receivable, net 275,572 70,513
Deferred bond selection fees, net 1,804,942 1,989,663
Due from affiliates 84,225 0
Other assets 23,775 12,498
------------- -------------
Total assets $ 154,896,475 $ 157,019,314
============= =============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Deferred income $ 394,259 $ 455,636
Accrued expenses 107,421 132,653
Due to affiliates 72,194 64,061
------------- -------------
Total liabilities 573,874 652,350
------------- -------------
Contingencies
Partners' capital (deficit):
BUC$holders (9,151,620 BUC$
issued and outstanding) 160,622,463 164,412,008
General partners (184,260) (106,923)
Net unrealized loss on
participating first mortgage bonds (6,115,602) (7,938,121)
------------- -------------
Total partners' capital 154,322,601 156,366,964
------------- -------------
Total liabilities and partners' capital $ 154,896,475 $ 157,019,314
============= =============
</TABLE>
See accompanying notes to financial statements
-18-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Years ended December 31,
-----------------------------------------------------
1996 1995 1994
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Interest income:
Participating first mortgage loans $11,647,431 $11,895,439 $11,765,112
Temporary investments 138,088 120,370 68,017
Promissory notes 26,797 23,478 37,361
----------- ----------- -----------
Total revenues 11,812,316 12,039,287 11,870,490
----------- ----------- -----------
Expenses:
Management fees 810,625 810,625 810,625
Loan servicing fees 405,313 405,313 405,313
General and administrative 566,616 450,823 324,496
Amortization of deferred bond selection fees 184,721 184,723 184,720
Provision for disputed claim 0 0 22,287
Loss on impairment of assets 4,000,000 1,000,000 500,000
----------- ----------- -----------
Total expenses 5,967,275 2,851,484 2,247,441
----------- ----------- -----------
Net income $ 5,845,041 $ 9,187,803 $ 9,623,049
=========== =========== ===========
Allocation of Net Income:
BUC$holders $ 5,728,140 $ 9,004,047 $ 9,430,588
----------- ----------- -----------
General Partners $ 116,901 $ 183,756 $ 192,461
=========== =========== ===========
Net income per BUC $ 0.63 $ 0.98 $ 1.03
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements
-19-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Participating First
Total BUC$holders General Partners Mortgage Bonds
----- ----------- ---------------- --------------
<S> <C> <C> <C> <C>
Partners' capital (deficit) -
December 31, 1993 $ 164,918,079 $ 165,012,743 $ (94,664)
Cumulative effect through
January 1, 1994 of
accounting change (Note 2) (9,337,668) 0 0 $ (9,337,668)
Net income 9,623,049 9,430,588 192,461 0
Distributions (9,711,923) (9,517,685) (194,238) 0
Net change in fair value of
participating first mortgage bonds 856,670 0 0 856,670
------------- ------------- ------------- -------------
Partners' capital (deficit) -
December 31, 1994 156,348,207 164,925,646 (96,441) (8,480,998)
Net income 9,187,803 9,004,047 183,756 0
Distributions (9,711,923) (9,517,685) (194,238) 0
Net change in fair value of
participating first mortgage bonds 542,877 0 0 542,877
------------- ------------- ------------- -------------
Partners' capital (deficit) -
December 31, 1995 156,366,964 164,412,008 (106,923) (7,938,121)
Net income 5,845,041 5,728,140 116,901 0
Distributions (9,711,923) (9,517,685) (194,238) 0
Realization of loss on
impairment of assets 4,000,000 0 0 4,000,000
Net change in fair value of
participating first mortgage bonds (2,177,481) 0 0 (2,177,481)
------------- ------------- ------------- -------------
Partners' capital (deficit) -
December 31, 1996 $ 154,322,601 $ 160,622,463 $ (184,260) $ (6,115,602)
============= ============= ============= =============
</TABLE>
See accompanying notes to financial statements
-20-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------------
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Interest received $ 11,910,060 $ 11,871,177 $ 11,839,187
Fees and expenses paid (1,895,155) (1,564,240) (1,741,023)
Cash held in escrow 0 98,390 (12,654)
------------ ------------ ------------
Net cash provided by operating activities 10,014,905 10,405,327 10,085,510
------------ ------------ ------------
Cash flows from investing activities:
Net purchase of temporary investments (800,000) (624,510) (319,710)
Loans made to properties (300,000) 0 0
Principal payments received from loans made to
properties 73,321 31,333 28,934
Income deferred upon assumption of bond by new
debtor 0 0 487,025
------------ ------------ ------------
Net cash (used in) provided by investing activities (1,026,679) (593,177) 196,249
------------ ------------ ------------
Cash flows from financing activities:
Distributions paid (9,711,923) (9,711,923) (9,711,923)
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (723,697) 100,227 569,836
Cash and cash equivalents at the beginning of year 972,889 872,662 302,826
------------ ------------ ------------
Cash and cash equivalents at the end of the year $ 249,192 $ 972,889 $ 872,662
============ ============ ============
Schedule reconciling net income to net cash
provided by operating activities
Net income $ 5,845,041 $ 9,187,803 $ 9,623,049
------------ ------------ ------------
Adjustments to reconcile net income to net cash
provided by operating activities:
Loss on impairment of assets 4,000,000 1,000,000 500,000
Provision for disputed claim 0 0 22,287
Amortization of deferred bond selection fees 184,721 184,723 184,720
Accretion of deferred income (66,212) (66,212) (39,707)
Changes in:
Cash held in escrow 0 520,677 (12,654)
Interest receivable, net 163,956 (101,898) 8,404
Promissory notes receivable, net 21,620 73,560 65,334
Other assets (11,277) 3,305 1,944
Reserve for disputed claim 0 (422,287) 0
Accrued expenses (25,232) 65,636 (74,852)
Deferred income (21,620) (73,560) (65,334)
Due from affiliates (84,225) 0 0
Due to affiliates 8,133 33,580 (127,681)
------------ ------------ ------------
Total adjustments 4,169,864 1,217,524 462,461
------------ ------------ ------------
Net cash provided by operating activities $ 10,014,905 $ 10,405,327 $ 10,085,510
============ ============ ============
</TABLE>
See accompanying notes to financial statements
-21-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 1 - General
Summit Tax Exempt L.P. II, a Delaware limited partnership (the
"Partnership"), was formed on April 11, 1986 and will terminate on December 31,
2020 unless terminated sooner under the provisions of the Agreement of Limited
Partnership (the "Partnership Agreement"). The Partnership was formed to invest
in tax-exempt participating first mortgage revenue bonds ("FMBs") issued by
various state or local governments or their agencies or authorities. The FMBs
are secured by participating first mortgage loans on multi-family residential
apartment projects (the "Properties"). The General Partners of the Partnership
(the "General Partners") are Prudential-Bache Properties, Inc. ("PBP") (a
wholly-owned subsidiary of Prudential Securities Group Inc.) and Related Tax
Exempt Associates II, Inc. (the "Related General Partner"). Related BUC$
Associates II, Inc. (the "Assignor Limited Partner"), which acquired and holds
limited partnership interests on behalf of those persons who purchased
Beneficial Unit Certificates ("BUC$"), has assigned to those persons
substantially all of its rights and interest in and under such limited
partnership interests. The Related General Partner and the Assignor Limited
Partner are under common ownership. As of December 31, 1996, the Partnership had
invested in a total of sixteen FMBs.
NOTE 2 - Summary of Significant Accounting Policies
a) Basis of Accounting
The books and records of the Partnership are maintained on the accrual
basis of accounting in accordance with generally accepted accounting principles.
The preparation of financial statements in conformity with generally
accepted accounting principles requires the General Partners to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
the disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
b) Participating first mortgage bonds and promissory notes receivable
Effective January 1, 1994, the Partnership accounts for its investments in
the FMBs as debt securities under the provisions of Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities" ("SFAS 115").
The Partnership has a right to require redemption of the FMBs approximately
twelve years after their issuance. The Partnership anticipates holding the FMBs
for approximately 12 to 15 years from the date of issuance; however, it can and
may elect to hold until maturity. As such, SFAS 115 requires the Partnership to
classify these investments as "available for sale." Accordingly, investments in
FMBs are carried at their estimated fair values, with unrealized gains and
losses reported in a separate component of partners' capital. The cumulative
effect of adopting this accounting was a decrease in partners capital at January
1, 1994 of approximately $9,338,000 due to unrealized holding losses. Unrealized
holding gains or losses do not affect the cash flow generated from property
operations, distributions to BUC$holders, the characterization of the tax-exempt
income stream or the financial obligations under the FMBs.
The Partnership periodically evaluates each FMB to determine whether a
decline in fair value below the FMB's cost basis is other than temporary. Such a
decline is considered to be other than temporary if, based on current
information and events, it is probable that the Partnership will be unable to
collect all amounts due according to the existing contractual
-22-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 - Summary of Significant Accounting Policies (continued)
terms of the bonds. If the decline is judged to be other than temporary, the
cost basis of the bond is written down to its then estimated fair value, with
the amount of the write-down accounted for as a realized loss.
Because the FMBs are not readily marketable, the Partnership estimates fair
value for each bond as the present value of its expected cash flows using a
discount rate for comparable tax-exempt investments. This process is based upon
projections of future economic events affecting the real estate collateralizing
the bonds, such as property occupancy rates, rental rates, operating cost
inflation and market capitalization rates, and upon determination of an
appropriate market rate of interest, all of which are based on good faith
estimates and assumptions developed by the Partnership's management. Changes in
market conditions and circumstances may occur which would cause these estimates
and assumptions to change, therefore, actual results may vary from the estimates
and the variance may be material.
From time to time, the Partnership has advanced funds to the owners of
certain properties in the form of promissory notes collateralized by second
mortgages on these properties. These promissory notes are carried at cost less a
valuation allowance where appropriate. The Partnership periodically evaluates
the collectibility of both interest and principal of these investments to
determine whether a reserve is necessary. As of both December 31, 1996 and 1995
reserves on these investments totaled approximately $138,000.
For both FMBs and promissory notes, interest income is recognized at the
stated rate when collectibility of future amounts is reasonably assured.
Interest income from FMBs with modified terms where the collectibility of future
amounts is uncertain is recognized based upon expected cash receipts.
c) Temporary Investments
Temporary investments at December 31, 1996 represent tax-exempt municipal
preferred stock and tax-exempt floating rate municipal bonds which are carried
at cost plus accrued interest which approximates market value. Temporary
investments at December 31, 1995 represent tax-exempt municipal preferred stock
which is also carried at cost which approximates market value.
d) Cash and Cash Equivalents
Cash and cash equivalents include cash in banks, and investments in
short-term instruments with an original maturity of three months or less, for
which cost approximates market value.
e) Income Taxes
The Partnership is not required to provide for, or pay, any Federal income
taxes. Income tax attributes that arise from its operations are passed directly
to the BUC$holders. The Partnership may be subject to other state and local
taxes in jurisdictions in which it operates.
-23-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 2 - Summary of Significant Accounting Policies (continued)
f) Profit and Loss Allocations and Distributions
Net profits or losses and distributions are allocated 98% to the
BUC$holders and 2% to the General Partners in accordance with the Partnership
Agreement.
g) Deferred Bond Selection Fees
The General Partners were paid bond selection fees (equal to 2% of the
gross proceeds from the initial offering) for evaluating and selecting FMBs,
negotiating the terms of mortgage loans and coordinating the development effort
with property developers and government agencies. These fees have been
capitalized and are being amortized over the terms of the FMBs. The accumulated
amortization as of December 31, 1996 and 1995 was approximately $1,822,000 and
$1,637,000, respectively.
h) Fair Value of Financial Investments
As described in Note 2.b. above, the Partnership's investment in FMBs are
carried at estimated fair values. The Partnership has determined that the fair
value of its remaining financial instruments, including its temporary
investments, cash and cash equivalents and promissory notes receivable
approximates their carrying values.
i) Reclassifications
Certain reclassifications have been made to prior year amounts to conform
to the current year presentation.
NOTE 3 - Participating First Mortgage Bonds
Overview
The principal and interest payments on each FMB are payable only from the
cash flows, including proceeds in the event of a sale, from the Properties. None
of these FMBs constitute a general obligation of any state or local government,
agency or authority. The FMBs are secured by the mortgage loans on the
underlying Properties and the structure of each mortgage loan mirrors the
structure of the corresponding FMB.
Unless otherwise modified, the principal of the FMBs will not be amortized
during their respective terms (which are generally up to 24 years) and will be
required to be repaid in lump sum "balloon" payments at the expiration of the
respective terms or at such earlier times as the Partnership may require. The
Partnership has a right to require redemption of the FMBs approximately twelve
years after their issuance. The Partnership anticipates holding the FMBs for
approximately 12 to 15 years from the date of issuance; however, it can and may
elect to hold to maturity.
In addition to the stated base rates of interest ranging from 4.87% to
8.25% per annum, each of the FMBs (which have not been modified) provides for
"contingent interest" which is equal to: (a) an amount equal to 50% to 100% of
net property cash flow and 75% to 100% of net sale or refinancing proceeds until
the borrower has paid, during the post-construction period, annually compounded
interest at a rate ranging from 9.0% to 9.25% on a cumulative basis, and
thereafter (b) an amount equal to 25% to 50% of the remaining net property cash
flow and 25% to 50% of the remaining net sale of refinancing proceeds until the
borrower has paid interest at a simle annual
-24-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
rate of 16% over the term of the FMB. Both stated and contingent interest are
exempt from federal income taxation. During the year ended December 31, 1996,
two FMBs, the Lakes and River Run, paid contingent interest amounting to
approximately $98,000 and $122,000, respectively. During the year ended December
31, 1995, one FMB, The Lakes, paid contingent interest amounting to
approximately $68,000.
In order to protect the tax-exempt status of the FMBs, the owners of the
Properties are required to enter into certain agreements to own, manage and
operate such Properties in accordance with requirements of the Internal Revenue
Code.
Highland Ridge
Due to increases in its real estate taxes, in April, 1996, the obligor of
the Highland Ridge FMB entered into a forbearance agreement with the Partnership
effective retroactive to October, 1995. In accordance with the terms and
conditions of this agreement, the obligor will make minimum monthly debt service
payments beginning at a 7% annual rate and increasing in annual increments over
a period of four years back to the original stated rate. The difference between
the actual pay rate and the stated rate of the FMB is deferred and payable from
future available cash flow or sale or refinancing proceeds. In addition,
delinquent taxes will be paid in three installments by the developer over an 18
month period. The developer has paid the first and second such installments of
the delinquent taxes due as of May 7, 1996 and February 5, 1997. The obligations
under the forbearance agreement are further secured by a guarantee from the
general partner of the obligor.
Sunset Downs
In June 1992, under a forbearance agreement, the Sunset Downs property
began paying debt service at 7.0% and was scheduled to increase in annual
increments to the original stated rate of 8.0% in June 1996. Effective with the
May 1, 1995 payment date, the Sunset Downs FMB has made payments based on the
monthly net cash flow generated by the operations of its underlying property in
accordance with the terms of the agreement outlined below. Effective as of
August 1, 1995, the obligor of the Sunset Downs FMB entered into a forbearance
agreement. In accordance with the terms of this agreement, the obligor of the
FMB is paying debt service of the FMB to the extent of cash flow generated by
the underlying property. In addition, pursuant to the agreement, the obligor has
replaced the present property manager and leasing agent with a new property
manager who is an affiliate of the Related General Partner. Effective as of
January 30, 1997, the obligor transferred the deed to the underlying property to
an affiliate of the Related General Partner, who made no equity investment in
the property but assumed the day-to-day responsibilities of operations and
obligations under the FMB.
Loveridge
Effective with the May 1, 1995 payment date, the Loveridge FMB has made
payments based on the monthly net cash flow generated by the operations of the
underlying properties. Subsequently, on August 1, 1995, the original owner and
obligor of the Loveridge FMB transferred the deed to the underlying property to
an affiliate of the Related General Partner for limited consideration. The
Related General Partner's affiliate, who has not made an equity investment in
the underlying property, assumed the day-to-day responsibilities and obligations
of operating the property. Although this property is not producing
sufficient cash flow to fully service the debt, the Registrant has no present
intention to declare a default on the FMB.
-25-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
Lakes
On May 13, 1993, the Partnership, on behalf of Lakes Project Investors,
Inc. ("LPI"), affiliate of the Related General Partner who replaced the original
developer, deposited a cash escrow of $500,000 in connection with the filing of
an appeal of a mechanics lien judgment rendered against LPI. In July, 1994, the
appeal was rejected and the judgment affirmed. However, at that time LPI
petitioned the court for a rehearing. On January 23, 1995, in settlement of this
case, LPI and the plaintiff agreed that approximately $422,000 of the current
escrow balance be paid to the plaintiff. The balance of funds (approximately
$99,000) remaining in escrow was returned to LPI and thence to the Partnership
as payment toward previously accrued and unpaid interest. Previously, the
Partnership had reserved fully for the appeal.
On January 27, 1994, LPI sold an option to purchase the ownership interest
in the Lakes, subject to the assumption of the obligation under the
Partnership's $13,650,000 FMB, to an unrelated third party for $200,000.
Pursuant to the terms of the option and assumption of the FMB, the option was
exercised on August 31, 1994. In conjunction with the sale, the Lakes FMB was
modified to allow debt service payments at 4.87% per annum with 100% of the
excess property cash flow paid to the Partnership up to a rate of 5.24% and
participation in the net cash flow thereafter. The net cash proceeds of
approximately $487,000 (net of an escrow for certain repairs and closing costs),
paid to the Partnership to reduce previously accrued and unpaid interest, was
recorded as deferred income and is being accreted as interest income from
participating first mortgage bonds over the remaining life of The Lakes FMB. The
balance of the deferred income relating to The Lakes FMB was approximately
$394,000 at December 31, 1996 and $434,000 at December 31, 1995.
Newport Village, Bristol Village, Suntree and Players Club
In 1992, forbearance agreements were finalized with the owners of the
Newport Village, Bristol Village, Suntree and Players Club properties. In
October 1992, the Newport Village property began paying debt service at 6.0% per
annum and was scheduled to increase in annual increments to the original stated
rate of 8.0% in September 1996. As of September 16, 1996, the pay rate of the
Newport Village returned to the original stated base interest rate of 8% per
annum. In October 1992, the Bristol Village property began paying debt service
at 6.0% per annum and was scheduled to increase in annual increments to the
stated rate of 8.0% in January 1997. As of January 1, 1997 the pay rate for the
Bristol Village property returned to the stated rate of 8% per annum. During
1992, the Suntree and Players Club properties began paying debt service at 7.0%
per annum. In 1994, the Suntree and Players Club forbearance agreements were
further modified to allow debt service payments to be made at 6.0% per annum
through the end of 1994. Effective January 1, 1995, and again extended effective
January 1, 1996 the Suntree and Players Club forbearance agreements were again
modified to allow minimum debt service payments to be made at 7.5% and 7.0% per
annum, respectively, through the end of 1996. Effective January 1, 1997 the
Suntree and Players Club forbearance agreements were modified to allow minimum
debt service payments at 6.50% and 6.25% per annum, respectively, through August
1, 1997 and December 31, 1997, respectively.
The Partnership also made a $125,000 loan in April 1993 to the owner of the
property underlying the Bristol Village FMB for payment of past due property
taxes. This loan is self-amortizing over four years with interest at 8.0% per
annum payable monthly. The current balance outstanding as of December 31, 1996
is approximately $15,000. Payments on this loan are current at December 31,
1996.
-26-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
Shannon Lake
A forbearance agreement with the owner of the Shannon Lake property
originally made in 1991, further modified as of June 1, 1993 was extended as of
May 1, 1996 to allow the property to make minimum monthly interest payments at
annual rate of 6%. The Partnership agreed to extend other provisions and terms
of the 1993 agreement effective for the period March 16, 1993 through December
15, 1997. In addition, as of June 1, 1996 an Extension and Modification
Agreement was executed regarding the extension and modification of the $138,000
note due on April 30, 1996. The note was increased by $300,000 for certain
capital improvements to $438,000. The modified loan is self amortizing beginning
August 1, 1996 at the annual rate of 8%, payable in 48 equal monthly
installments of $10,692.86, with a final maturity of July 1, 2000. An allowance
for possible loss was established for $138,000 during 1993.
Bay Club
In 1990, the terms of the Bay Club FMB were modified when the equity
interest in the property and the related obligation of the FMB were sold by an
affiliate of the Related General Partner to an unrelated third party. As part of
this transaction, the minimum annual pay rate increases in annual increments
from 6.0% in 1990 to 8.25% in 1997. The difference between the rate paid and the
original stated rate is deferred and is payable from available future cash flow
or ultimately from sale or refinancing proceeds. The Partnership received
$360,000 in a 13% second mortgage note with interest and principal payments due
monthly through December 1995. This note is also partially secured by a letter
of credit. In January 1996 the second mortgage note to Bay Club was paid in full
and the letter of credit released.
Pelican Cove
The original owner of the underlying property and obligor of the Pelican
Cove FMB has been replaced with an affiliate of the Related General Partner who
has not made an equity investment. This entity has assumed the day-to-day
responsibilities and obligations of the underlying property. Buyers are being
sought who would make an equity investment in the underlying property and assume
the nonrecourse obligations for the FMB. Although this property is not producing
sufficient cash flow to fully service the debt, the Partnership has no present
intention to declare a default on the FMB.
Cedar Pointe
A forbearance agreement with the owner of the Cedar Pointe property was
executed on February 1, 1997, which provided for a minimum pay rate of 7% per
annum effective September 16, 1996. Pursuant to the terms of the forbearance
agreement, it is envisioned that the FMB will be formally and permanently
modified to provide for a new base interest rate of 7% and a contingent interest
rate of up to 5% payable from 25% of cash flow or sale or refinancing proceeds.
In addition, the FMB modification will call for the discharge of accrued and
unpaid primary contingent interest, primary deferred interest, supplemental
contingent interest, supplemental deferred interest and construction period
deferred and contingent interest through September 15, 1996, whether payable
-27-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds (continued)
before, on, or after September 15, 1996. It is further expected that maturity of
the FMB will be extended to 2017 and the call date extended to 2006.
General
The determination as to whether it is in the best interest of the
Partnership to enter into forbearance agreements on the FMBs, or alternatively,
to pursue its remedies under the loan documents, including foreclosure, is based
upon several factors. These factors include, but are not limited to, property
performance, owner cooperation and projected legal costs. Payments under each of
the existing forbearance agreements are current as of December 31, 1996.
With respect to the FMBs which are subject to forbearance agreements with
the respective obligors, the difference between the stated interest rates and
the rates paid (whether deferred and payable out of available future cash flow
or, ultimately, from sale or refinancing proceeds) on FMBs is not accrued for
financial statement purposes. The accrual of interest at the stated interest
rate will resume once a property's ability to pay the stated rate has been
adequately demonstrated. Unrecorded contractual interest income was
approximately $1,407,000, $704,000 and $931,000 for the years ended December 31,
1996, 1995 and 1994, respectively.
The cost basis of the FMBs at December 31, 1996 and 1995 was $154,239,028
and $158,212,573, respectively. The net unrealized loss on FMBs consists of
gross unrealized gains and losses of $951,666 and $7,067,268, respectively, at
December 31, 1996 and $2,113,430 and $10,051,551, respectively, at December 31,
1995.
-28-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 3 - Participating First Mortgage Bonds
Descriptions of the various FMBs owned by the Partnership at December 31,
1996 are as follows:
<TABLE>
<CAPTION>
Minimum Carrying
Average Pay Rate Stated Amount
Interest Rate at December Interest at December
Property Location Paid for 1996* 31,1996* Rate* Call Date Maturity Date Face Amount 31, 1996 (G)
- - -------- -------- -------------- -------- ----- --------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Bay Club Mt. Pleasant, SC 8.43%(E) 7.50%(E) 8.25% Sep. 2000 Sep. 2006 $ 6,400,000 $ 6,134,588
Loveridge Contra Costa, CA 4.83 (B) 8.00 Nov. 1998 Nov. 2006 8,550,000 6,826,198
The Lakes Kansas City, MO 5.61 (D) 4.87 4.87 Dec. 2006 Dec. 2006 13,650,000 10,101,816
Crowne Pointe Olympia, WA 8.00 8.00 8.00 Dec. 1998 Dec. 2006 5,075,000 5,322,225
Orchard Hills Tacoma, WA 8.00 8.00 8.00 Dec. 1998 Dec. 2006 5,650,000 5,842,439
Highland Ridge St. Paul, MN 7.06 7.25 (F) 8.00 Feb. 1999 Feb. 2007 15,000,000 12,971,183
Newport Village Tacoma, WA 7.98 (C) 8.00 8.00 Jan. 1999 Jan. 2007 13,000,000 12,843,816
Sunset Downs Lancaster, CA 4.35 (B) 8.00 May 1999 May 2007 15,000,000 11,306,665
Pelican Cove St Louis, MO 7.50 (B) 8.00 Feb. 1999 Feb. 2007 18,000,000 16,907,362
Willow Creek Ames, IA 8.00 8.00 8.00 Oct. 1999 Oct. 2006 6,100,000 6,019,067
Cedar Pointe Nashville, TN 7.88 (H) 7.00 8.00 Apr. 1999 Apr. 2007 9,500,000 8,423,412
Shannon Lake Atlanta, GA 6.00 6.00 (F) 8.00 Jun. 1999 Jun. 2007 12,000,000 10,920,358
Bristol Village Bloomington, MN 9.87 (C) 7.75 (F) 8.00 Jun. 1999 Jun. 2005 17,000,000 17,254,892
Suntree Ft. Myers, FL 7.63 7.50 (F) 8.00 Jul. 1999 Jul. 2007 7,500,000 7,387,848
River Run Miami, FL 9.83 (I) 8.00 8.00 Aug. 1999 Aug. 2007 7,200,000 7,457,110
Players Club (A) Ft. Myers, FL 7.37 7.00 (F) 8.00 Aug. 1999 Aug. 2007 2,500,000 2,404,447
------------ ------------
$162,125,000 $148,123,426
============ ============
</TABLE>
*The average interest rate paid represents the interest recorded by the
Partnership while the stated interest rate represents the coupon rate of the FMB
and the minimum pay rate represents the minimum rate payable pursuant to the
applicable forbearance agreement, if any.
(A) Summit Tax Exempt L.P. III, of which the general partners are either the
same of affiliates of the General Partners of the Partnership, acquired the
other $7,200,000 of the Players Club FMB.
(B) Pay rate is based on the net cash flow generated by operations of the
underlying property.
(C) Includes receipt of deferred base interest relating to prior periods.
(D) Includes receipt of primary and supplemental contingent interest.
(E) The minimum pay rate on the FMB increases in increments from 6.0% in 1990
to 8.25% in 1997. The actual pay rate is adjusted as of the property's
fiscal year-end based on audited financial statements to no less than the
minimum pay rate.
(F) The minimum pay rate on the FMB is scheduled to increase to the stated
interest rate over the remaining term of the FMB.
(G) The FMBs are carried at their estimated fair values at December 31, 1996.
(H) Reflects payments accrued at December 31, 1996 that were received pursuant
to a forbearance agreement entered as of February 1, 1997, which lowered
the base interest rate to 7% effective September 16, 1996.
(I) Includes receipt of primary contingent interest.
-29-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 4 - Income Taxes
The following is a reconciliation of net income for financial reporting
purposes with net income for tax reporting for the years ended December 31,
1996, 1995 and 1994, respectively:
<TABLE>
<CAPTION>
1996 1995 1994
------------ ------------ ------------
<S> <C> <C> <C>
Net income per financial statements $ 5,845,041 $ 9,187,803 $ 9,623,049
Uncollected interest on FMBs and
receivables 1,157,499 704,152 931,251
Loss on impairment of assets 4,000,000 1,000,000 500,000
Property tax loans deferred for tax
reporting purposes, net 260,614 0 (116,199)
Amortization of bond selection fees 184,721 184,723 184,720
Write-off of accrued and unpaid interest 0 0 (2,229,178)
Loss from debt restructure 0 0 (1,331,857)
Reversal of reserve for
disputed claim 0 (422,287) 0
Other 53,887 (26,455) (104,944)
------------ ------------ ------------
Tax basis net income $ 11,501,762 $ 10,627,936 $ 7,456,842
============ ============ ============
</TABLE>
Net income for tax purposes is generally exempt from Federal income tax.
The differences between the tax and book bases of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments, the recording of distributions and the Partnership's accounting for
the FMBs at fair value for book purposes and cost for tax purposes.
NOTE 5 - Related Parties
The General Partners and their affiliates perform services for the
Partnership which include, but are not limited to: accounting and financial
management; registrar, transfer and assignment functions; asset management;
investor communications; printing and other administrative services. The General
Partners and their affiliates receive reimbursements for costs incurred in
connection with these services, the amount of which is limited by the provisions
of the Partnership Agreement. The costs and expenses were:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
PBP and affiliates
General and administrative $ 67,483 $ 103,839 $ 102,633
Management fee 405,312 405,312 405,312
---------- ---------- ----------
472,795 509,151 507,945
---------- ---------- ----------
Related General Partner and affiliates
General and administrative 46,725 49,073 15,124
Management fee 405,313 405,313 405,313
Loan servicing fee 405,313 405,313 405,313
---------- ---------- ----------
857,351 859,699 825,750
---------- ---------- ----------
$1,330,146 $1,368,850 $1,333,695
========== ========== ==========
</TABLE>
Effective October 1, 1995, the Related General Partner has assumed from PBP
the responsibilities and duties of the Tax Matters Partner as defined in the
Partnership Agreement.
-30-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 5 - Related Parties (continued)
The General Partners are paid, in aggregate, an annual management fee equal
to .5% of the total invested assets (which equals the total original face amount
of the FMBs).
An affiliate of the Related General Partner receives loan servicing fees in
an amount of .25% per annum of the principal amount outstanding on mortgage
loans serviced by the affiliate.
During 1995 and January and February of 1996, a division of Prudential
Securities Incorporated ("PSI"), an affiliate of PBP, was responsible for the
purchase, sale and safekeeping of the Partnership's temporary investments. This
account was maintained in accordance with the Partnership Agreement.
PSI owns 62,015 BUC$ at December 31, 1996.
The Players Club property (securing a $2,500,000 FMB in this Partnership)
also secures an FMB for $7,200,000 owned by Summit Tax Exempt L.P. III, of which
the general partners are either the same or affiliates of the General Partners
of this Partnership.
The original obligors of the Suntree, Players Club and River Run FMBs are
affiliates of the Related General Partner.
As of December 31, 1996, the original owners of the underlying properties
and obligors of the Pelican Cove and Loveridge have been replaced with
affiliates of the Related General Partner who have not made equity investments.
These entities have assumed the day-to-day responsibilities and obligations of
the underlying properties. Buyers are being sought who would make equity
investments in the underlying properties and assume the nonrecourse obligations
for the FMB.
NOTE 6 - Contingencies
On or about October 18, 1993, a putative class action, captioned Kinnes et
al. v. Prudential Securities Group, Inc. et al. (CV-93-654), was filed in the
United States District Court for the District of Arizona, purportedly on behalf
of investors in the Partnership, against the Partnership, PBP, PSI and a number
of other defendants. On November 16, 1993, a putative class action captioned
Connelly et al. v. Prudential-Bache Securities Inc. et al. (93 Civ. 713) , was
filed in the United States District Court for the District of Arizona ,
purportedly on behalf of investors in the Partnership against the Partnership,
PBP, PSI and a number of other defendants. On January 3, 1992, a putative class
action, captioned Levine v. Prudential-Bache Properties Inc. et al.. (92 Civ.
52), was filed in the United States District Court for the Northern District of
Illinois purportedly on behalf of investors in the Partnership against the
General Partners, PSI and a number of other defendants. Subsequently the Related
General Partner was dismissed from the Levine litigation.
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, the Kinnes case, by order dated May 4, 1994, the Connelly case and by
order dated July 13, 1994, the Levine case, to a single judge of the United
States District Court for the Southern District of New York (the "Court") and
consolidated for pretrial proceedings under the caption In re Prudential
Securities Incorporated Limited Partnerships Litigation (MDL Docket 1005) (the
"Class Action"). On June 8, 1994, plaintiffs in the transferred cases filed a
complaint that consolidated the previously filed complaints and named as
defendants, among others, PSI, certain of its present and former
-31-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 - Contingencies (continued)
employees and the General Partners. The Partnership was not named a defendant in
the consolidated complaint, but the name of the Partnership was listed as being
among the limited partnerships at issue in the case.
On August 9, 1995 PBP, PSI and other Prudential defendants entered into a
Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
Court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI. The Levine and Connelly
cases were dismissed with prejudice as to the Prudential defendants by court
order dated October 25, 1996. The consolidated action remains pending against
the Related General Partner and certain of its affiliates.
On December 31, 1996, the Court issued a preliminary approval order (the
"Order") with respect to the settlement (the "Related Settlement") of the Class
Action against the Related General Partner and certain of its affiliates.
Pursuant to the stipulation of settlement entered into with counsel for the
class on December 24, 1996, the proposed Related Settlement contemplates, among
other matters, the reorganization (the "Reorganization") of the Partnership and
two other partnerships co-sponsored by affiliates of the Related General Partner
and PBP.
The proposed Related Settlement and Reorganization are subject to
objections by the BUC$holders and limited partners of the Partnership as well as
each of the other concerned partnerships and final approval of the Court after
review of the proposals at a fairness hearing.
Under the proposed Reorganization plan, the BUC$holders of the Partnership,
and Summit Tax Exempt Bond Fund L.P. and Summit Tax Exempt L.P. III, will
receive shares in a newly formed business trust. It is anticipated that the
shares will be allocated proportionately among the partnerships and their
respective investors based upon appraisals and other factors as supported by a
third-party fairness opinion. Detailed information about the proposed Related
Settlement and Reorganization will be sent to BUC$holders in the near future.
The terms of the Reorganization include, among other matters, the acquisition by
affiliates of the Related Capital Company ("RCC") of PBP's general partner
interest (the "PBP Interest"), transfer to the BUC$holders of one-half of the
PBP Interest, reduction of fees currently payable to the General Partners by
25%, filing an application to list the new company's shares on an exchange and
the creation of an infinite, as opposed to finite, life-operating business.
In connection with the proposed Related Settlement and Reorganization, on
December 19, 1996, PBP and RCC entered into an agreement for the purchase by RCC
or its affiliates of the PBP Interest. The agreement is subject to numerous
conditions, including the effectiveness of the Related Settlement of the Class
Action and the approval of the sale and withdrawal of PBP as a general partner
of the Partnership by the Court.
Pending final approval of the Related Settlement, the Court's Order
prohibits class members (including the BUC$holders) from, among other matters,
(i) transferring their BUC$ unless the transferee agrees to be bound by the
Related Settlement; (ii) granting a proxy to object to the Reorganization; or
(iii) commencing a tender offer for the BUC$. In addition, the General Partners
are enjoined from (i) recording any transfers made in violation of the Order and
(ii) providing the list of investors in any of the partnerships which are the
subject of the Reorganization to any person conducting a tender offer.
-32-
<PAGE>
SUMMIT TAX EXEMPT L.P. II
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996, 1995 AND 1994
NOTE 6 - Contingencies (continued)
There can be no assurance that the conditions to the closing of the
proposed Related Settlement and Reorganization will be satisfied nor that a
closing may occur in the projected time frame. In the event a settlement cannot
be reached, the Related General Partner believes it has meritorious defenses to
the consolidated complaint and intends to vigorously defend this action.
NOTE 7 - Subsequent Events
In February 1997, distributions of approximately $2,379,000 and $49,000
were paid to the BUC$holders and General Partners, respectively, for the quarter
ended December 31, 1996.
A forbearance agreement with the owner of the Cedar Pointe property was
executed on February 1, 1997, which provided for a minimum pay rate of 7% per
annum effective September 16, 1996 (see Note 3).
Effective as of January 30, 1997, the obligor of the Sunset Downs FMB
transferred the deed to the underlying property to an affiliate of the Related
General Partner, who made no equity investment in the property but assumed the
day-to-day responsibilities of operations and obligations under the FMB (see
Note 3).
-33-
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Registrant has no directors or executive officers. The Registrant's
affairs are managed and controlled by the General Partners. Certain information
concerning the directors and officers of the General Partners are set forth
below.
The Related General Partner assumed the responsibilities of the Tax Matters
Partner as of October 1, 1995.
The Registrant, the Registrant's General Partners and their directors and
executive officers, and any persons holding more than ten percent of the
Registrant's BUC$ are required to report their initial ownership of such BUC$
and any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 and 5. Such executive officers, directors and persons
who own greater than ten percent of the Registrant's BUC$ are required by
Securities and Exchange Commission regulations to furnish the Registrant with
copies of all Forms 3, 4 or 5 they file. All of these filing requirements were
satisfied on a timely basis for the current year. In making these disclosures,
the Registrant has relied solely on written representations of the General
Partners' directors and executive officers and persons who own greater than ten
percent of the Registrant's BUC$ or copies of the reports they have filed with
the Securities and Exchange Commission during and with respect to its most
recent fiscal year.
Prudential-Bache Properties, Inc.
The directors and executive officers of PBP with regard to managing the
Registrant are as follows:
<TABLE>
<CAPTION>
Name Position
---- --------
<S> <C>
Thomas F. Lynch, III President, Chief Executive Officer, Chairman of the
Board of Directors and Director
Barbara J. Brooks Vice President-Finance and Chief Financial Officer
Eugene D. Burak Vice President
Chester A. Piskorowski Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
</TABLE>
THOMAS F. LYNCH, III, age 38, is the President, Chief Executive Officer,
Chairman of the Board of Directors, and a Director of PBP. He is a Senior Vice
President of Prudential Securities Incorporated ("PSI"), an affiliate of PBP.
Mr. Lynch also serves in various capacities for other affiliated companies. Mr.
Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 48, is the Vice President-Finance and Chief
Financial Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also
serves in various capacities for other affiliated companies. She has held
several positions within PSI since 1983. Ms. Brooks is a certified public
accountant.
-34-
<PAGE>
EUGENE D. BURAK, age 51, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 53, is a Senior Vice President of PBP. He is a
Senior Vice President of PSI and is the Senior Manager of the Specialty Finance
Asset Management area. Mr. Piskorowski has held several positions within PSI
since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 54, is a Director of PBP. He is a Senior Vice
President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management, LLC, an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.
NATHALIE P. MAIO, age 46, is a Director of PBP. Ms. Maio is a Senior Vice
President and Deputy General Counsel of PSI and supervises non-litigation legal
work. She joined the Law Department of PSI in 1983, presently, she also serves
in various capacities for other affiliated companies.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and executive officers have
indefinite terms.
The Related General Partner
The directors and executive officers of the Related General Partner with
respect to the Registrant and their positions with the Related General Partner
are as follows:
Name Position
---- --------
J. Michael Fried President and Director
Stuart J. Boesky Vice President
Alan P. Hirmes Vice President
Richard A. Palermo Treasurer
Stephen M. Ross Director
Lynn A. McMahon Secretary
-35-
<PAGE>
J. MICHAEL FRIED, 52, is President and a Director of the Related General
Partner. Mr. Fried is President, a Director and a principal shareholder of
Related Capital Company ("Capital"), a real estate finance and acquisition
affiliate of the Related General Partner. In that capacity, he is the chief
executive officer of Capital, and is responsible for initiating and directing
all of Capital's syndication, finance, acquisition and investor reporting
activities. Mr. Fried practiced corporate law in New York City with the law firm
of Proskauer Rose Goetz & Mendelsohn from 1974 until he joined Capital in 1979.
Mr. Fried graduated from Brooklyn Law School with a Juris Doctor degree, magna
cum laude; from Long Island University Graduate School with a Master of Science
degree in Psychology; and from Michigan State University with a Bachelor of Arts
degree in History.
STUART J. BOESKY, 40, is a Vice President of the Related General Partner.
Mr. Boesky practiced real estate and tax law in New York City with the law firm
of Shipley & Rothstein from 1984 until February 1986 when he joined Capital
where he presently serves as Managing Director. From 1983 to 1984 Mr. Boesky
practiced law with the Boston law firm of Kaye, Fialkow, Richard & Rothstein
(which subsequently merged with Strook & Strook & Lavan) and from 1978 to 1980
was a consultant specializing in real estate at the accounting firm of Laventhol
& Horwath. Mr. Boesky graduated from Michigan State University with a Bachelor
of Arts degree and from Wayne State University School of Law with a Juris Doctor
degree. He then received a Master of Law degree in Taxation from Boston
University School of Law.
ALAN P. HIRMES, 42, is a Vice President of the Related General Partner. Mr.
Hirmes has been a Certified Public Accountant in New York since 1978. Prior to
joining Capital in October 1983, Mr. Hirmes was employed by Weiner & Co.,
certified public accountants. Mr. Hirmes is also a Managing Director of Capital.
Mr. Hirmes graduated from Hofstra University with a Bachelor of Arts degree.
RICHARD A. PALERMO, 36, is Treasurer of the Related General Partner. Mr.
Palermo has been a Certified Public Accountant in New York since 1985. Prior to
joining Related in September 1993, Mr. Palermo was employed by Sterling Grace
Capital Management from October 1990 to September 1993, Integrated Resources,
Inc. from October 1988 to October 1990 and E.F. Hutton & Company, Inc. from June
1986 to October 1988. From October 1982 to June 1986, Mr. Palermo was employed
by Marks Shron & Company and Mann Judd Landau, certified public accountants. Mr.
Palermo graduated from Adelphi University with a Bachelor of Business
Administration degree.
STEPHEN M. ROSS, 56, is a Director of the Related General Partner. Mr. Ross
is President of The Related Companies, L.P. He graduated from The University of
Michigan with a Bachelor of Business Administration degree and from Wayne State
University School of Law. Mr. Ross then received a Master of Law degree in
taxation from New York University School of Law. He joined the accounting firm
of Coopers & Lybrand in Detroit as a tax specialist and later moved to New York,
where he worked for two large Wall Street investment banking firms in their real
estate and corporate finance departments. Mr. Ross formed The Related Companies,
Inc. in 1972, to develop, manage, finance and acquire subsidized and
conventional apartment developments. To date, The Related Companies, Inc. has
developed multi-family properties totaling in excess of 25,000 units, all of
which it manages.
LYNN A. McMAHON, 41, is Secretary of the Related General Partner. Since
1983, she has served as Assistant to the President of Capital. From 1978 to 1983
she was employed at Sony Corporation of America in the Government Relations
Department.
There are no family relationships among any of the foregoing directors or
officers. All of the foregoing officers and/or directors have indefinite terms.
-36-
<PAGE>
Item 11. Executive Compensation.
The Registrant does not pay or accrue any fees, salaries or any other form
of compensation to directors and officers of the General Partners for their
services. Certain officers and directors of the General Partners receive
compensation from affiliates of the General Partners, not from the Registrant,
for services performed for various affiliated entities, which may include
services performed for the Registrant; however, the General Partners believe
that any compensation attributable to services performed for the Registrant is
immaterial. See Item 13 Certain Relationships and Related Transactions for
information regarding compensation to the General Partners.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
As of March 3, 1997, the directors and officers of the Related General
Partner directly or indirectly own 99.97% of the voting securities of the
Related General Partner; however, no director or officer of either General
Partner owns directly or beneficially any interest in the voting securities of
PBP.
As of March 3, 1997, directors and officers of the Related General Partner
own directly or beneficially BUC$ issued by the Registrant as follows:
<TABLE>
<CAPTION>
Title of Name of Amount and Nature of
Class Directors and Officers Beneficial Ownership Percent of Class
----- ---------------------- -------------------- ----------------
<S> <C> <C> <C>
BUC$ J. Michael Fried 6,625 BUC$** *
BUC$ Stuart J. Boesky 6,625 BUC$** *
-----------
13,250 BUC$
===========
</TABLE>
*Less than 1% of the outstanding BUC$.
**All BUC$ are owned directly by BF Security Partners (a New York general
partnership) of which Messrs. Fried and Boesky are each 50% partners.
As of March 3, 1997 no director or officer of PBP owns directly or
beneficially any BUC$ issued by the Registrant.
As of March 3, 1997, no BUC$holder beneficially owns more than five percent
(5%) of the BUC$ issued by the Registrant.
Item 13. Certain Relationships and Related Transactions.
The Registrant has, and will continue to have, certain relationships with
the General Partners and their affiliates. However, there have been no direct
financial transactions between the Registrant and the directors or officers of
the General Partners.
Reference is made to Notes 1 and 5 to the financial statements in Item 8,
which identify the related parties and discuss the services provided by these
parties and the amounts paid or payable for their services.
-37-
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K.
<TABLE>
<CAPTION>
Sequential
Page
----------
<S> <C> <C>
(a) 1. Financial Statements
Independent Auditors' Report 17
Statements of Financial Condition of as of
December 31, 1996 and 1995 18
Statements of Income for the years ended
December 31, 1996, 1995 and 1994 19
Statements of Changes in Partners' Capital (Deficit) for the years
ended December 31, 1996, 1995 and 1994 20
Statements of Cash Flows for the years ended
December 31, 1996, 1995 and 1994 21
Notes to Financial Statements 22
(a) 2. Financial Statement Schedules
All schedules have been omitted because they are not applicable
or the required information is included in the financial
statements and the notes thereto.
</TABLE>
-38-
<PAGE>
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (continued)
Sequential
Page
----------
<S> <C> <C>
(a) 3. Exhibits
3(a) and 4(a) Partnership Agreement, incorporated by reference to
Exhibit A to the Prospectus of Registrant, dated July 2, 1986,
filed pursuant to Rule 424(b) under the Securities Act of 1933,
File No. 33-5213
3(b) and 4(b) Certificate of Limited Partnership (incorporated by reference to Exhibit
4 to Amendment No. 1 to Registration Statement on Form S-11, File No.
33-5213)
3(c) and 4(c) Amendment No 1. to the Partnership Agreement, dated
October 1, 1995 (incorporated by reference to Exhibit 3(c) and
4(c) in the Registrant's Annual Report on Form 10-K dated December
31, 1995)
10(a) First Mortgage Bond, dated September 11, 1986, with respect to the
Bay Club project, in the principal amount of $6,400,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated September 11, 1986)
10(b) First Mortgage Bond, dated November 13, 1986, with respect to the
Loveridge project, in the principal amount of $8,550,000
(incorporated by reference to exhibit 10(d) in Registrant's Form 8
Amendment No. 1 to Current Report on Form 8-K, dated February 10,
1987)
10(c) First Mortgage Bond, dated December 30, 1986 with respect to The
Lakes project, in the principal amount of $13,650,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated December 30, 1986)
10(d) First Mortgage Bond, dated December 31, 1986, with respect to the
Crowne Pointe project, in the principal amount of $5,075,000
(incorporated by reference to exhibit 10(b) in Registrant's
Current Report on Form 8-K dated December 31, 1986)
10(e) First Mortgage Bond, dated December 31, 1986, with respect to the
Orchard Hills project, in the principal amount of $5,650,000
(incorporated by reference to exhibit 10(c) in Registrant's
Current Report on Form 8-K dated December 31, 1986)
10(f) First Mortgage Bond, dated February 2, 1987, with respect to the
Highland Ridge project, in the principal amount of $15,000,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated February 2, 1987)
10(g) First Mortgage Bond, dated February 11, 1987, with respect to the
Newport Village project, in the principal amount of $13,000,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated February 11, 1987)
</TABLE>
-39-
<PAGE>
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (continued)
Sequential
Page
----------
<S> <C> <C>
(a) 3. Exhibits (continued)
10(h) First Mortgage Bond, dated February 11, 1987, with respect to the
Sunset Downs project, in the principal amount of $15,000,000
(incorporated by reference to exhibit 10(b) in Registrant's
Current Report on Form 8-K dated February 11, 1987)
10(i) First Mortgage Bond, dated February 27, 1987, with respect to the
Pelican Cove project, in the principal amount of $18,000,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated February 27, 1987)
10(j) First Mortgage Bond, dated February 27, 1987, with respect to the
Willow Creek project, in the principal amount of $6,100,000
(incorporated by reference to exhibit 10(c) in Registrant's
Current Report on Form 8-K dated February 27, 1987)
10(k) First Mortgage Bond, dated April 22, 1987, with respect to the
Cedar Pointe project, in the principal amount of $9,500,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated April 22, 1987)
10(l) First Mortgage Bond, dated June 26, 1987, with respect to the
Shannon Lake project, in the principal amount of $12,000,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated June 26, 1987)
10(m) First Mortgage Bond, dated July 31, 1987, with respect to the
Bristol Village project, in the principal amount of $17,000,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated July 31,1987)
10(n) First Mortgage Bond, dated July 31, 1987, with respect to the
Suntree project, in the principal amount of $7,500,000
(incorporated by reference to exhibit 10(b) in Registrant's
Current Report on Form 8-K dated July 31, 1987)
10(o) First Mortgage Bond, dated August 7, 1987, with respect to the
River Run project, in the principal amount of $6,700,000
(incorporated by reference to exhibit 10(b) in Registrant's
Current Report on Form 8-K dated August 7, 1987)
10(p) First Mortgage Bond, dated August 14, 1987, with respect to the
Players Club project, in the principal amount of $2,500,000
(incorporated by reference to exhibit 10(a) in Registrant's
Current Report on Form 8-K dated August 14, 1987)
10(q) Settlement Agreement for the Shannon Lake First Mortgage Bond
dated December 3, 1990 (incorporated by reference to Exhibit 10(q)
in Registrant's 1991 Annual Report on Form 10K)
</TABLE>
-40
<PAGE>
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (continued)
Sequential
Page
----------
<S> <C> <C>
(a) 3. Exhibits (continued)
10(r) Settlement Agreement for the Newport Village First Mortgage Bond
dated October 9, 1992 (incorporated by reference to Exhibit 10(r)
in Registrant's 1992 Annual Report on Form 10K)
10(s) Settlement Agreement for the Sunset Downs First Mortgage Bond
dated July 10, 1992 (incorporated by reference to Exhibit 10(s) in
Registrant's 1992 Annual Report on Form 10K)
10(t) Settlement Agreement for the Suntree First Mortgage Bond dated
February 1, 1992 (incorporated by reference to Exhibit 10(t) in
Registrant's 1992 Annual Report on Form 10K)
10(w) Settlement Agreement for the Players Club First Mortgage Bond
dated February 1, 1992 (incorporated by reference to Exhibit 10(w)
in Registrant's 1992 Annual Report on Form 10K)
10(x) Settlement Agreement for the Bristol Village First Mortgage Bond
dated March 2, 1993 (incorporated by reference to Exhibit 10(x) in
Registrant's 1992 Annual Report on Form 10K)
10(y) Amended Settlement Agreement for the Shannon Lake First Mortgage
Bond dated June 1, 1993 (incorporated by reference to Exhibit
10(y) in Registrant's 1993 Annual Report on Form 10K)
10(z) Amended Settlement Agreement for the Player's Club First Mortgage
Bond dated December 1, 1993 (incorporated by reference to Exhibit
10(z) in Registrant's 1993 Annual Report on Form 10K)
10(aa) Amended Settlement Agreement for the Suntree First Mortgage Bond
dated December 1, 1993 (incorporated by reference to Exhibit
10(aa) in Registrant's 1993 Annual Report on Form 10K)
10(ab) First Supplemental Indenture between The Industrial Development
Authority of the City of Kansas City, Missouri and Boatmen's First
National Bank of Kansas City dated January 24, 1994 (incorporated
by reference to Exhibit 10(ab) in the Registrant's Quarterly
Report on Form 10Q dated March 31, 1994)
10(ac) Option Agreement between The Lakes Project Investors, Inc., Seller
and ZIPCO, Inc., Purchaser, dated January 27, 1994 (incorporated
by reference to Exhibit 10(ac) in the Registrant's Quarterly
Report on Form 10Q dated September 30, 1994)
10(ad) Assignment and Assumption Agreements between The Lakes Apartments,
Inc., Seller, and ZIPCO, Inc., Purchaser, dated August 31, 1994
(incorporated by reference to Exhibit 10(ad) in the Registrant's
Quarterly Report on Form 10Q dated September 30, 1994)
</TABLE>
-41
<PAGE>
<TABLE>
<CAPTION>
Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K. (continued)
Sequential
Page
----------
<S> <C> <C>
(a) 3. Exhibits (continued)
10(ae) Sale-Purchase Agreement between The Lakes Project Investors, Inc.,
Seller, and ZIPCO, Inc., Purchaser, dated August 31, 1994
(incorporated by reference to Exhibit 10(ae) in the Registrant's
Quarterly Report on Form 10Q dated September 30, 1994)
10(af) Amended Settlement Agreement for the Player's Club First Mortgage
Bond dated December 1, 1994 (incorporated by reference to Exhibit
10(af) in the Registrant's 1994 Annual Report on Form 10K)
10(ag) Amended Settlement Agreement for the Suntree First Mortgage Bond
dated December 1, 1994 (incorporated by reference to Exhibit
10(ag) in the Registrant's 1994 Annual Report on Form 10K)
10(ah) Amended Settlement Agreement for the Loveridge First Mortgage Bond
dated July 31, 1995 (incorporated by reference to Exhibit 10(ah)
in the Registrant's Quarterly Report on Form 10Q dated September
30, 1995)
10(ai) Amended Settlement and Forbearance Agreement for the Sunset Downs
First Mortgage Bond dated July 31, 1995 (incorporated by reference
to Exhibit 10(ai) in the Registrant's Quarterly Report on Form 10Q
dated September 30, 1995)
10(aj) Amended Settlement Agreement for the Suntree First Mortgage Bond
dated January 26, 1996 (incorporated by reference to Exhibit
10(aj) in the Registrant's 1995 Annual Report on Form 10K/A-1)
10(ak) Amended Settlement Agreement for the Shannon Lake First Mortgage
Bond dated May 1, 1996 (incorporated by reference to Exhibit
10(ak) in the Registrant's 1995 Annual Report on Form 10K/A-1)
10(al) Amended Settlement Agreement for the Player's Club First Mortgage
Bond date January 26, 1996 (incorporated by reference to Exhibit
10(al) in the Registrant's 1995 Annual Report on Form 10K/A-1)
10(am) Forbearance Agreement for the Highland Ridge First Mortgage Bond
dated May 14, 1996 (incorporated by reference to Exhibit 10(am) in
the Registrant's 1995 Annual Report on Form 10K/A-1)
10(an) Forbearance Agreement for the Cedar Pointe First Mortgage Bond dated
February 1, 1997 (filed herewith) 45
27 Financial Data Schedule (filed herewith) 63
(b) Reports on Form 8-K
Current Report on Form 8-K dated December 31, 1996, was filed on
January 10, 1997 relating to a preliminary approval order with
respect to the settlement of the class action litigation.
</TABLE>
-42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
SUMMIT TAX EXEMPT L.P. II
By: RELATED TAX EXEMPT ASSOCIATES II, INC.
a General Partner
Date: March 27, 1997
By: /s/ J. Michael Fried
-----------------------------------
J. Michael Fried
President and Director
and
By: PRUDENTIAL-BACHE PROPERTIES, INC.,
a General Partner
Date: March 27, 1997
By: /s/ Thomas F. Lynch, III
-----------------------------------
Thomas F. Lynch, III
President, Chief Executive Officer,
Chairman of the Board of Directors
and Director
-43
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
report has been signed below by the following persons on behalf by the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
President (principal executive officer)
/s/ J. Michael Fried and Director of Related Tax Exempt
- - -------------------------------- Associates II, Inc. (as General Partner of the
J. Michael Fried Registrant) March 27, 1997
/s/ Alan P. Hirmes Vice President (principal financial officer) of
- - -------------------------------- Related Tax Exempt Associates II, Inc. March 27, 1997
Alan P. Hirmes
/s/ Richard A. Palermo Treasurer (principal accounting officer)
- - -------------------------------- of Related Tax Exempt Associates II,
Richard A. Palermo Inc. March 27, 1997
/s/ Stephen M. Ross
- - -------------------------------- Director of
Stephen M. Ross Related Tax Exempt Associates II, Inc. March 27, 1997
Chairman of the Board, President,
/s/ Thomas F. Lynch, III (principal executive officer)
- - -------------------------------- and Director of Prudential-Bache Properties,
Thomas F. Lynch, III Inc. (a General Partner of the Registrant) March 27, 1997
/s/ Barbara J. Brooks Vice President - Finance and Chief Financial
- - -------------------------------- Officer (principal financial officer) of
Barbara J. Brooks Prudential-Bache Properties, Inc. March 27, 1997
/s/ Nathalie P. Maio
- - -------------------------------- Director of Prudential-Bache Properties, Inc. March 27, 1997
Nathalie P. Maio
/s/ Eugene D. Burak Vice President of
- - -------------------------------- Prudential-Bache Properties, Inc. March 27, 1997
Eugene D. Burak
/s/ Frank W. Giordano
- - --------------------------------
Frank W. Giordano Director of Prudential-Bache Properties, Inc. March 27, 1997
</TABLE>
-44
FORBEARANCE AGREEMENT
THIS FORBEARANCE AGREEMENT (the "Agreement") is made and entered into as of
the first day of February, 1997, by and between Summit Tax Exempt L. P. II, a
Delaware limited partnership ("Summit") An Cedar Pointe Properties, Ltd., a
Georgia limited partnership ("Borrower").
RECITALS:
A. Borrower is the developer and owner of a multifamily rental housing
development known as Cedar Pointe Apartments located in Davidson County,
Tennessee (the "Project").
B. The cost of acquiring, constructing, improving and equipping the Project
was financed by The Industrial Development Board Of The Metropolitan Government
of Nashville and Davidson County (the "Issuer") by the issuance of its
Multifamily Housing Revenue Refunding Bonds (Cedar Pointe Project) Series 1987
(the "Bonds"), in the principal amount of $9,500,000, by Resolution adopted
March 10, 1987.
C. The terms of the Bonds, the security therefore, the rights and remedies
of the holders thereof, and various other matters in connection therewith were
prescribed pursuant to a Trust Indenture dated as of April 1, 1987 (the
"Indenture"), between the Issuer and First American National Bartok of
Nashville, as Trustee (the "Trustee").
D. The Bonds were issued and sold on April 22, 1987 to Summit, which
continues to own all of the outstanding Bonds.
E. Proceeds of the Bonds were used to provide funds to make a mortgage loan
in the principal amount of $9,500,000 (the "Mortgage Loan") pursuant to a Loan
Agreement between the Borrower and the Issuer (the "Loan Agreement"). The
Mortgage Loan is evidenced by a promissory note (the "Note") and is secured by a
Building Loan Deed of Trust and Security Agreement (the "Mortgage").
F. The Project was completed and has been owned and operated continuously
by Borrower.
G. As of December 1, 1996, the Borrower had failed to pay certain amounts
of Base Interest (as defined in the Indenture) on the Note when due
Page 1
<PAGE>
on October 15 and November 15, 1996, each of which occurrences constitute an
Event of Default pursuant to the Indenture and Loan Agreement (the "Designated
Default").
H. Upon the occurrence of an uncured Event of Default, the "Acting Party"
(as defined in the Indenture) may elect to pursue one or more remedies as
provided in Article VII of the Indenture, Article X of the Loan Agreement, and
Article Six of the Mortgage (hereinafter collectively referred to as the
"Remedies Provisions"), including, but not limited to, the right to repossession
and sale of the Project under the Mortgage.
I. Pursuant to Section 7.02 of the Indenture, Summit, as the owner of all
the Bonds, is the designated "Acting Party" with the sole authority to take
action in respect of an Event of Default.
J. Whitney Cedar, LLC, is a recently formed Tennessee limited liability
company ("Whitney").
K. Borrower and Whitney have negotiated a contingent agreement (the
"Purchase Agreement") whereby Whitney will be admitted as the Managing General
Partner of Borrower, with Whitney to own a forty-nine percent (49%) interest in
the partnership in consideration of a $450,000 capital contribution (the
"Capital Contribution") to be utilized for, among other expenses, the partial
payment of past-due interest on the Note, substantial repairs to the Project's
apartment units, and funding of an escrow account to pay real property taxes due
in 1997.
L. Accordingly, contingent on consummation of the Purchase Agreement
between Borrower and Whitney and Borrower's receipt of the Capital Contribution
to be disbursed as agreed therein, Borrower has requested that Summit, in its
capacity as Acting Party, enter into an interim agreement to forbear from
enforcing its remedies under the Remedies Provisions with respect to the
Designated Default, which interim agreement shall not supersede, amend or
supplement the Indenture or Loan Agreement.
M. In addition, Borrower has requested that Summit agree to forbear from
enforcing its remedies under the Remedies Provisions upon the future occurrence
of defaults for the non-payment of certain portions of Base Interest when due,
pending issuance of a Supplemental Indenture by the Issuer and amendment of the
Loan Documents (as defined in the Loan Agreement) to reflect modifications to
the interest rates payable on the Bonds, extension of the maturity date of the
Bonds, modification of the dates applicable to redemption of the Bonds prior
thereto and other matters related thereto.
Page 2
<PAGE>
N. Summit, conditioned on consummation of the Purchase Agreement between
Borrower and Whitney and disbursement of the Capital Contribution on terms
acceptable to Summit, is willing to forbear from exercising its remedies under
the Remedies Provisions, and to consent to the issuance of a Supplemental
Indenture and amendment of the Loan Documents, on the terms and conditions set
forth herein.
NOW, THEREFORE, in consideration of the Recitals and of the mutual promises
and covenants contained herein, Summit and Borrower agree as follows:
1. Recitals.
The foregoing Recitals are hereby incorporated herein and made a part
hereof.
2. Term.
This Agreement shall commence and be effective as of the Closing Date, and
shall continue in full force and effect until the occurrence of a Forbearance
Termination Event (the "Forbearance Period"). For purposes of this Agreement:
(a) The "Closing Date" shall mean the date on which Whitney is admitted to
and made Managing General Partner of the Borrower; and
(b) a "Forbearance Termination Event" shall mean the occurrence of any one
or more of the following events which is not cured within applicable notice and
cure periods, if any:
(1) The Borrower's failure to provide for disbursement of the Capital
Contribution on the terms set forth in Section 4 herein, within ten
(10) days after the Closing Date;
(2) The Issuance of a Supplemental Indenture in accordance with the
provisions of Article IX of the Indenture, and amendment of the Loan
Documents to incorporate the proposed modifications, terms and
conditions set forth in this Agreement (collectively, the "Bond
Restructuring");
(3) The failure or inability of the parties to accomplish the Bond
Restructuring for any reason whatsoever, on or before June 15, 1997;
Page 3
<PAGE>
(4) Borrower's commitment of a material default or breach of any
material representation, warranty or covenant under this Agreement,
the Indenture or the Loan Documents; or
(5) Borrower's failure, during the Forbearance Period, to make all
required payments of Base Interest, Operating Expenses, and deposits
to the Replacement Reserve Fund, in accordance with the terms and
conditions of Section 5 hereof.
3. Agreement to Forbear.
During the Forbearance Period, Summit will forbear in the exercise of its
rights and remedies under the Indenture and Loan Documents with respect to the
Designated Default and any Deferred Defaults (as defined in Section 5 hereof).
Without limiting the generality of the foregoing, during the Forbearance Period
and so long as no Forbearance Termination Event occurs and continues, Summit
will not (i) accelerate the maturity of the Loan or the Bond or initiate
proceedings for the collection of the Mortgage Loan or the Bond; (ii) file or
join in filing any involuntary petition in bankruptcy with respect to Borrower,
or otherwise initiate or participate in similar insolvency, reorganization, or
moratorium proceedings for the benefit of creditors of Borrower; (iii) repossess
or sell, through judicial proceedings or otherwise, the Project; or (iv)
exercise any other of its rights pursuant to the Remedies Provisions.
Notwithstanding anything herein to the contrary, Summit's agreement to
forbear as set forth in this Section 3 pertains only to the Designated Default
and any Deferred Defaults described in Section 5 hereof.
4. Use of Proceeds of Capital Contribution.
It is a condition of this Agreement that Whitney's Capital Contribution to
the Borrower in the amount of $450,000 be utilized for the payment of Project
and related expenses and obligations in the approximate amounts set forth in
Exhibit A, affixed hereto and made a part hereof, subject to the following:
(a) The sum of $150,000 for "repairs" shall be delivered to Summit, to be
held in an interest-bearing repair escrow account (the "Repair Escrow Account").
Summit and Borrower agree that the upgrades and repairs designated in Exhibit B
(the "Designated Repairs"), affixed hereto and made a part hereof, shall be
performed and completed as quickly as is feasible, and Summit shall pay the
reasonable costs thereof from the Repair Escrow Account. Any amounts remaining
in the Repair Escrow Account after the payment of all costs and expenses
incurred in connection with the Designated Repairs shall be held therein, and
shall be used for future upgrades and
Page 4
<PAGE>
repairs to be performed with the prior written consent of Summit, through
December 31, 1999. The Repair Escrow Account shall be closed as of January 1,
2000, and any amounts remaining therein less any amounts required to be held for
the payment of agreed upgrades and repairs not completed or invoiced as of
December 31, 1999, shall be paid to Summit as a Repair Escrow Account Service
Fee.
(b) The amount of $40,000 budgeted for legal expenses includes an estimate
and allocation of $10,000 to cover Whitney's organizational expenses, amendment
of Borrower's partnership agreement, and related costs and expenses incurred by
Borrower and/or Whitney in connection therewith ("Borrower's Legal Expenses").
In the event that Borrower's Legal Expenses are less than $10,000, the remainder
shall be used to supplement the $30,000 budget for legal costs and expenses
incurred in connection with this Agreement, preparation of the Supplement
Indenture and amendment of the Loan Documents as contemplated herein (the
"Forbearance and Bond Restructuring Legal Expenses").
In the event that Borrower's Legal Expenses exceed $10,000, Borrower shall
be responsible for the payment of such excess.
In the event that the Forbearance and Bond Restructuring Legal Expenses
exceed the amount available for payment as provided herein, Summit shall be
responsible for the payment of such excess.
(c) Any amounts remaining unused after the payment of all line item
expenses and escrow deposits set forth in Exhibit A, with the exception of
amounts designated to fund the Repair Escrow Account described in subsection
4(a) above, may be used, with the prior written consent of Summit, (i) for other
Project costs and expenses now or hereafter incurred, or (ii) to supplement the
Repair Escrow Account.
5. Payment of Interest and Operating Expenses During the Forbearance Period.
(a) Borrower, within ten (10) days following the Closing Date, will make a
payment in the amount of $104,765 to be applied as a partial payment of Base
Interest (as defined in the Indenture) for the period September 16 - November
15, 1996.
(b) The parties acknowledge and agree that (i) on or about December 16,
1996, Borrower made a payment in the amount of $63,333.33 which was applied to
Base Interest for the period November 16 - December 15, 1996, and (ii) on or
about January 16, 1997, Borrower made a payment in the amount of $57,263.89
which was applied to Base Interest for the period December 16 - January 15,
1997.
Page 5
<PAGE>
(c) Commencing February 15,1997, and on the 15th day of each and every
month thereafter during the Forbearance Period, Borrower will make minimum
monthly partial payments of Base Interest consisting of:
(1) an amount calculated as though such payment is interest-only at
the rate of seven percent (7.0%) per annum, based upon a 360-day year
for the actual number of days elapsed for the month through each
payment due date; plus
(2) Twenty-five percent (25%) of Net Cash Flow (as defined in the
Indenture) remaining after payment of the interest amount calculated
pursuant to subsection 5(c)(1) above.
Borrower acknowledges and understands that subject to and pending issuance
of a Supplemental Indenture and amendment of the Bonds and Loan Documents on the
terms and conditions set forth in Section 6 hereof, the rate for the payment of
Base Interest pursuant to the Indenture and Bonds is eight percent (8.0%) per
annum based upon a 360-day year for the actual number of days elapsed, the
minimum monthly interest payments calculated in accordance with this Section 5
(the "Minimum Pay Rates") will or may be less than the Base Interest required to
be paid under the Indenture and Bonds, the failure to pay the full amount of
Base Interest constitutes an Event of Default under the Indenture and Loan
Documents, and all Base Interest which remains unpaid from time to time,
together with interest thereon as provided in the Indenture, shall accrue and be
paid as provided in the Indenture and Bonds.
(c) Notwithstanding anything herein to the contrary, for purposes of this
Agreement any Event of Default resulting from Borrower's failure to pay Base
Interest in excess of the Minimum Pay Rates, in connection with Base Interest
due and payable for the period commencing November 16, 1996 and continuing
through the last day of the Forbearance Period, shall be termed a "Deferred
Default" subject to Summit's agreement to forbear from exercising its rights and
remedies, as set forth in Section 3 hereof.
(d) It is a further condition of this Agreement that:
(1) all operating expenses of the Project (as defined in the
Indenture), other than the payment of Base Interest, are paid when
due;
(2) all deposits to the Replacement Reserve Fund required by Section
6.05 of the Indenture and Section 2.3(g) of the Loan Agreement, are
paid when due; and
(3) all deposits to the Tax and Insurance Escrow established pursuant
to Section 2.4.5 of the Mortgage are paid when due.
Page 6
<PAGE>
6. Summit's Consent to Issuance of a Supplemental Indenture and Amendment of
the Loan Documents.
During the Forbearance Period, Summit agrees to consent to the issuance of
a Supplemental Indenture by and between the Agency and the Trustee,
restructuring of the Bonds, and certain proposed amendments to the Loan
Documents (and other related loan documents as appropriate) incorporating the
following terms and conditions:
(a) Base Interest on the Bonds from January 16, 1997 through the remainder
of the Second Period (as defined in the Indenture), established pursuant to
Section 3.06(b)(2) of the Indenture, shall be 7.0% per annum.
(b) All provisions requiring or related to the payment of Primary
Contingent Interest (as defined in the Indenture) will be deleted effective
January 16, 1997.
(C) The interest rate applicable to the payment of "Maximum Supplemental
Contingent Interest" (as defined in the Indenture) will be reduced to 5%
effective January 16, 1997.
(d) Summit will waive and forgive any Base Interest, Primary Deferred
Interest and Supplemental Deferred Interest (as defined in the Indenture)
accrued and unpaid through January 15, 1997.
(e) Summit will waive and forgive any Construction Period Deferred and
Contingent Interest (as defined in the Indenture) accrued and unpaid through
January 15, 1997.
(f) Summit's option to elect Mandatory Redemption of the Bonds prior to
maturity pursuant to Section 4.01(h) of the Indenture shall be extended to a
date no earlier than the first day of November, 2006.
(g) Borrower's option to elect Optional Redemption of the Bonds prior to
maturity pursuant to Section 4.03 of the Indenture shall be restricted to a date
no earlier than March 1, 1999, at a Redemption Price equal to 100% of the
principal amount of the Bonds to be redeemed.
(h) The Maturity Date (as defined in the Indenture) of the Bonds shall be
extended to April 1, 2017.
(i) The "Cost Basis" applicable to the calculation of Net Sale or
Refinancing Proceeds (as defined in the Indenture) shall be established as
$9,950,000 as of the Closing Date.
Page 7
<PAGE>
(j) The Trustee will be replaced by First Tennessee Bank National
Association pursuant to Article VIII of the Indenture.
(k) The Issuer, Trustee and Borrower may enter into such other revisions,
modifications and amendments as may be consented to in writing by Summit.
The proposed Supplemental Indenture, Bonds, and amended Loan Documents,
together with all required legal opinions and such other materials or
information as may be necessary, shall be prepared by or at the direction of
Borrower, with the consent and assistance of Summit where appropriate, for
submission to the Issuer and Trustee in accordance with the Indenture and Loan
Documents.
7. Effect and Construction of Agreement.
Except as expressly provided herein, the Indenture and Loan Documents
shall remain in full force and effect in accordance with their respective terms,
and this Agreement shall not be construed to:
(a) impair the validity, perfection or priority of any lien or security
interest securing the Note;
(b) waive or impair any rights, powers or remedies of Summit under the
Indenture or Loan Documents (as the same may be amended as provided herein) upon
termination of the Forbearance Period, with respect to the Designated Default,
the Deferred Defaults or otherwise; or
(c) constitute an agreement by Summit or require Summit to extend the
Forbearance Period or grant additional forbearance periods, or extend the time
for payment of any of Borrower's obligations.
8. Covenants of Borrower.
Unless Summit otherwise consents in writing, Borrower covenants and agrees
that during the Forbearance Period it will:
(a) Comply with all covenants and obligations of Borrower under the
Indenture and Loan Documents, provided that Borrower shall not be required to
cure the Designated Default or Deferred Defaults during the Forbearance Period;
(b) comply with all covenants and obligations of Borrower under this
Agreement; and
Page 8
<PAGE>
(C) use its best efforts to accomplish the Bond Restructuring on or before
June 15,1997.
9. Defaults and Remedies.
Upon the occurrence of a Forbearance Termination Event under subsections
2(b)(1), (3), (4) or (5) above, Summit shall have the right to terminate and
rescind this Agreement, at Summit's sole option, in which event the parties
hereto shall be restored to their respective former positions and rights under
the Indenture, Bonds and Loan Documents, and Summit shall have the further right
to exercise and enforce any rights or remedies available thereunder.
Upon the occurrence of the Bond Restructuring described in subsection
2(b)(2) above, this Agreement shall terminate in accordance with its terms, and
the parties hereto shall continue and be subject to the terms and conditions of
the Supplemental Indenture, Bonds, and Loan Documents, as issued and amended
pursuant to the Bond Restructuring.
10. Non-Waiver of Other Events of Default.
Summit's forbearance of the enforcement of any or all of its remedies
pursuant to the Remedies Provisions in connection with any uncured Designated
Default or Deferred Default is expressly limited to the provisions, terms and
conditions set forth in this Agreement, and, in accordance with the Indenture,
Bonds, and Loan Documents, no such forbearance shall extend to any other Event
of Default or impair any right consequent thereto.
11. Miscellaneous.
(a) Further Assurance. Borrower and Summit agree to execute such other and
further documents and instruments as either party may request to implement the
provisions of this Agreement and to perfect and protect the liens and security
interests Heated by the Loan Documents and Indenture.
(b) Benefit of Agreement. This Agreement shall be binding upon and inure to
the benefit of and be enforceable by the parties hereto, their respective
successors and assigns. No other person or entity shall be entitled to claim any
right or benefit hereunder, including, without limitation, the status of a
third-party beneficiary of this Agreement.
(c) Integration. This Agreement, together with the Indenture and Loan
Documents, constitutes the entire agreement and understanding among
Page 9
<PAGE>
the parties relating to the subject matter hereof, and supersedes all prior
proposals, negotiations, agreements and understandings relating to such subject
matter. In entering into this Agreement, Borrower acknowledges that it is
relying on no statement, representation, warranty, covenant or agreement of any
kind made by any employee or agent of Summit, except for the agreements of
Summit set forth herein.
(d) Severability. The provisions of this Agreement are intended to be
severable. If any provisions of this Agreement shall be held invalid or
unenforceable in whole or in part in any jurisdiction, such provision shall, as
to such jurisdiction, be ineffective to the extent of such invalidity or
enforceability without in any manner affecting the validity or enforceability of
such provision in any other jurisdiction or the remaining provisions of this
Agreement in any jurisdiction.
(e) Determination of Taxability. The various provisions, terms and
conditions of this Agreement are intended merely to supplement, and not to
effect any revision, modification or amendment to the provisions, terms, and
conditions of the Bonds, Indenture and Loan Documents except as expressly set
forth herein. If any provision, term or condition of this Agreement requires any
action, or the forbearance thereof, which could or will result in a
Determination of Taxability (as defined in the Indenture), then such provision,
term or condition shall be rescinded, void and of no further force or effect,
and shall be deemed severable from the remaining provisions, terms and
conditions, and in no way shall effect the validity of the other provisions of
this Agreement.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the internal substantive laws of the State of Tennessee, without
regard to the choice of law principles of such state.
(g) Counterparts: Telecopied signatures. This Agreement may be executed in
any number of counterparts and by different parties to this Agreement on
separate counterparts, each of which when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same agreement.
Any signature delivered by a party by facsimile transmission shall be deemed to
be an original signature hereto.
(h) Notices. Any notices with respect to this Agreement shall be given in
the manner provided for in Section 11.8 of the Loan Agreement.
(i) Amendment. No amendment, modification, rescission, waiver or release of
any provision of this Agreement shall be effective unless the same shall be in
writing and signed by the parties hereto.
Page 10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written
SUMMIT TAX EXEMPT L.P. II,
a Delaware Limited Partnership
By: Related Tax Exempt Associates II, Inc.
a General Partner
By:/s/ J. Michael Fried
-----------------------------
Name
Title
CEDAR POINTE PROPERTIES, LTD.,
a Georgia Limited Partnership
By:/s/ Asbury D. Snow, Jr.
----------------------------
Asbury D. Snow, Jr.
General Partner
Page 11
<PAGE>
CONSENT OF WHITNEY CEDAR LLC
Whitney Cedar, LLC, ("WC"), a Tennessee limited liability company, as the
prospective Managing General Partner of Cedar Pointe Properties, Ltd. ("CPP")
pursuant to the Purchase Agreement between CPP and WC referred to in the
foregoing Forbearance Agreement, hereby consents to the terms of the Forbearance
Agreement and to the execution thereof by Asbury D. Snow, Jr. on behalf of CPP.
WHITNEY CEDAR, LLC
a Tennessee limited liability company
By: /s/ Thomas Granville
-----------------------------
Thomas Granville,
Chief Manager
Page 12
<PAGE>
CONSENT OF ISSUER
The Industrial Development Board of the Metropolitan Government of
Nashville and Davidson County, as the Issuer referred to in the preceding
Forbearance Agreement, hereby consents to the terms of this Forbearance
Agreement.
THE INDUSTRIAL DEVELOPMENT
BOARD OF THE METROPOLITAN
GOVERNMENT OF NASHVILLE AND
DAVIDSON COUNTY
By: /s/ Wm. E. McDonald
------------------------------
Chairman
(seal)
Attest:
/s/ Nettie Scalf
- - ----------------------------
Assistant Secretary
Page 13
<PAGE>
EXHIBIT A
CEDAR POINTE APARTMENTS
Repairs $150,000
Partial lnterest 9/16-11/15/1996 104,765
Legal 40,000
Real Estate Tax Escrow Account 104,000
Payables 51,235
------
Total $450,000
Page 14
<PAGE>
EXHIBIT B
NORMAN TANDY AND ASSOCIATES
550 FAIRWAY DRIVE, SUITE 101, DEERFIELD BEACH, FLORIDA 33441
PHONE (305) 426-8936
TELECOPIER (305) 426-5578
December 30, 1996
Bruce Brown
Related Capital Corp.
625 Madison Avenue
New York, NY 10022
Re: Cedar Pointe Apartments
Dear Bruce:
I am enclosing a color chart for a Solid Wood Stain by Martin Senour Paints
which I sent to Jeff Isaacs of LEDC.
I am also enclosing photographs that I took during my inspection of the
site on December 17, 1996, at which time I met with Jeff concerning those items
on his Cedar Pointe Needed Improvement list.
The following are my observations:
1. The gate arms need to be replaced, and the cost of new cards for the
residents. There is an intercom from the entry gate to the tenants which should
be checked for proper operation before investing the funds for new gates and
cards. This will control access to the site, however the arms are always subject
to breakage, and maintenance problems.
2. Clubhouse refurbishing is a management call.
3. Landscaping - This is to freshen up the landscaping at the entrance,
around the clubhouse and mulching the shrub beds around the site. A list of what
will be included should be made.
4. Asphalt repair - The area between buildings No. 8 & 11 needs repairs,
and I believe that this can be done for less than the $5,000 shown on the list.
CONSTRUCTION CONSULTANTS, MANAGEMENT, INSPECTIONS
Page 15
<PAGE>
EXHIBIT B-PAGE 2
5. Signs - An itemized price should be firmed up with a painter for this
item.
6. Fitness Center - The ceiling panels in the Fitness Center needs to be
replaced.
7. Exterior Paint - The use of a Solid Stain should reduce the cost of this
item. Perhaps the choice of the stain color should be decided now.
8. Swimming Pool Fence - The repair to this item could be done in house by
maintenance.
9. Pool Replastering - A firm price from several contractors should be
replaced. There are several different materials that can be used for this work.
10. Carpet Replacement -The carpeting can be replaced as the apartments in
question are leased.
Very Truly Yours,
Herman Hochberg
Norman Tandy & Associates
CONSTRUCTION CONSULTANTS, MANAGEMENT, INSPECTIONS
2
Page 16
<PAGE>
EXHIBIT B-PAGE 3
CEDAR POINTE
Needed Improvements
1. Entrance Gates - $3,500
Replace existing gate arms and purchase cards for residents.
2. Clubhouse - $4,500
The interior of the clubhouse needs to be redecorated (paint, carpet,
etc.) in order to compete in the submarket.
3. Landscaping - $7,500
The entrance needs to be dressed up and the entire property needs to be
mulched.
4. Asphalt Repair - $5,000
Repairs need to be made throughout the complex.
5. Signage - $2,500
All signs need to be repainted and/or replaced.
6. Fitness Center - $3,500
The room needs redecorating and equipment repaired.
7. Exterior Paint and Wood Repair - $85,000
This was the lowest bid received by Sanbury.
8. Swimming Pool Fence - $3,500
Fence needs to be reanchored in retaining wall.
9. Pool Replastering - $10,000
The Board of Health will not issue a 1997 permit if this is not
completed.
10. Carpet Replacement - $25,000
This will be used to replace carpet in approximately twenty-five units.
Page 17
<PAGE>
EXHIBIT B -PAGE 4
NORMAN TANDY AND ASSOCIATES
550 FAIRWAY DRIVE, SUITE 101, DEERFIELD BEACH, FLORIDA 33441
PHONE (305) 426-8936
TELECOPIER (305) 426-8936
December 26, 1996
Mr. Jeff Isaacs
LEDC Management Group
111 Westwood Place Suite # 107
Brentwood, Tenn. 37027
Re: Cedar Pointe Apartments
Dear Jeff:
I am enclosing a color chart for a Solid Color Wood Stain by Martin Senour
Paints. Please have American Coatings, Inc. submit a bid to do the exterior
paint proposal for Cedar Pointe using two coats of Solid Stain instead of paint.
The cleaning and preparation of surfaces as shown on the rear of the brochure,
and the cleaning outlined in American's bid appears to be similar.
The repairs to the wood, caulking, and painting of the metal doors,
breezeway ceilings, signage etc. will remain the same.
Please call me when you receive this letter so that we can discuss it.
Very Truly Yours,
Herman Hochberg
Norman Tandy & Associates
C.C. Bruce Brown
CONSTRUCTION CONSULTANTS, MANAGEMENT, INSPECTIONS
Page 18
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial information extracted from the
financial statements for Summit Tax Exempt L.P. II and is qualified in its
entirety by reference to such financial statements
</LEGEND>
<CIK> 0000792924
<NAME> Summit Tax Exempt L.P. II
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 249,192
<SECURITIES> 151,723,426
<RECEIVABLES> 1,233,140
<ALLOWANCES> 138,000
<INVENTORY> 0
<CURRENT-ASSETS> 23,775
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 154,896,475
<CURRENT-LIABILITIES> 179,615
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 154,322,601
<TOTAL-LIABILITY-AND-EQUITY> 154,896,475
<SALES> 0
<TOTAL-REVENUES> 11,812,316
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 1,967,275
<LOSS-PROVISION> 4,000,000
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 5,845,041
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,845,041
<EPS-PRIMARY> .63
<EPS-DILUTED> 0
</TABLE>
