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SCHEDULE 14C
(RULE 14c-101)
INFORMATION REQUIRED IN INFORMATION STATEMENT
SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Check the appropriate box:
<TABLE>
<S> <C>
[ ] Preliminary Information Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14c-5(d)(2))
[X] Definitive Information Statement
</TABLE>
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required
[ ] Fee computed on table below per Exchange Act Rule 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form of Schedule and the date of its filing.
(1) Amount Previously Paid:
------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
------------------------------------------------------------------------
(3) Filing Party:
------------------------------------------------------------------------
(4) Date Filed:
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VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
3 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10285
April 15, 1999
To Each Holder of a Beneficial
Assignee Certificate (a "BAC")
in Victory Tax Exempt Realty
Income Fund Limited Partnership
Re: Consent Solicitation Regarding Proposed Sale of the Partnership's
Assets
Dear BAC Holder:
CA Victory Inc. (the "General Partner"), the sole General Partner of
Victory Tax Exempt Realty Income Fund Limited Partnership, a Delaware limited
partnership (the "Partnership"), is soliciting your consent to the proposed sale
("Sale") by the Partnership of its principal asset, the mortgage revenue bond
issued by the City of Fresno, California, in the original principal amount of
$15,515,000 (the "Bond"), to Wasatch Acquisitions LLC or its designated
affiliate (the "Buyer"), for a gross sale price of $11.6 million.
In connection with the Sale, the Buyer has made an earnest money deposit in
the amount of $500,000, which is non-refundable except in the event of a breach
or default by the Partnership or a failure to satisfy certain customary
conditions to closing. The Sale is not subject to a financing or due diligence
contingency. The Sale is subject to the approval of a majority-in-interest of
the BAC Holders, as well as to the concurrent acquisition by the Buyer or its
designee of the Camelot Lakes Apartments (the "Property") located in Fresno,
California (which Property secures the Bond), all as more particularly described
in the attached Consent Solicitation Statement (the "Statement").
The General Partner anticipates that the Partnership will wind up,
liquidate and terminate (the "Liquidation") as soon as practicable after the
proposed Sale and the anticipated distribution of the proceeds generated
thereby, all as more particularly described in the Statement. The Liquidation is
required pursuant to the Partnership's Agreement of Limited Partnership (the
"Partnership Agreement") following the sale of all or substantially all of the
Partnership's assets.
Although no assurance can be given as to the timing or amount of any
distribution, it is currently estimated that each BAC Holder may receive from
proceeds generated by the Sale and funds held in previously-established reserves
approximately $5.49 to $5.61 per BAC as a liquidating distribution.
The General Partner has carefully reviewed the various alternatives
available to the Partnership and has determined that the Sale represents the
best course of action for, and the Sale is in the best interests of, the
Partnership and BAC Holders. ACCORDINGLY, THE GENERAL PARTNER HAS APPROVED THE
SALE AND RECOMMENDS THAT THE BAC HOLDERS RETURN THE ENCLOSED CONSENT AND DIRECT
CA VICTORY ASSIGNOR CORP. (THE "ASSIGNOR LIMITED PARTNER") TO CONSENT TO THE
SALE.
Background and Reasons for the Sale
Operating difficulties at the Property have resulted in past defaults by
the Property owner on payments due to the Partnership and have led to, with
certain exceptions, a general decline of the Partnership's operating income. On
February 1, 1994, the Partnership reached a restructuring agreement with the
original owner of the Property, whereby the ownership of the Property was
transferred to ConCam Associates, LP ("ConCam") and property management was
transferred to ConAm Management Corporation ("ConAm"), an affiliate of ConCam.
ConCam also assumed the owner's obligations under the loan documents related to
the Bond on a nonrecourse basis. Pursuant to the restructuring, the Partnership
entered into a forbearance agreement (the
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"Forbearance Agreement") with ConCam whereby the Partnership, for a limited
period, agreed to forbear from exercising certain remedies against ConCam and
the Property, provided certain conditions (including certain minimum debt
service requirements) were met.
In February 1996, ConCam indicated that the Property's operations could not
support debt service payments at the then-applicable minimum interest rate
payment on the Bond of 7.0%, which rate had been increased from 6.5% pursuant to
the Forbearance Agreement. On May 8, 1996, the Partnership executed a standstill
agreement (the "Standstill Agreement") to generally allow a continuance of the
terms of the Forbearance Agreement, provided that in lieu of the minimum
interest rate payment, ConCam pay as debt service all available cash flow
generated by the Property. The Partnership and ConCam have on three subsequent
occasions extended the Standstill Agreement.
Since the Property secures the Bond on a non-recourse basis, the Property
represents the sole means of repayment of the Bond and, as a result, the value
of the Bond is dependent upon the value of the Property. The General Partner
believes that a sale of the Bond to a buyer who desires to acquire the Property
(such as is the case with the proposed Sale) represents the best course of
action for the Partnership at this time, because such a buyer would be willing
to pay a premium for the tax-exempt financing terms which the Bond financing
affords the Property.
The General Partner believes that occupancy at the Property stabilized in
1998 (occupancy being approximately 92% as of January 31, 1999), resulting in an
increased value of the Property and, accordingly, an advantageous time to sell
the Property and the Bond. Accordingly, in connection with the extension of the
Standstill Agreement in 1998, and in light of the past operating history of the
Property, the General Partner authorized ConCam to pursue a sale of the
Property. The proposed Sale is a result of these efforts.
Terms of the Proposed Sale
In the Bond Purchase Agreement (defined in the Statement), the Buyer has
agreed to buy the Bond from the Partnership for $11.6 million in cash. In
addition, the Buyer has also entered into a Property Purchase Agreement (defined
in the Statement) pursuant to which ConCam has agreed to sell the Property to
the Buyer concurrently with the sale of the Bond for the sum of One Dollar
($1.00) and the assumption of all of the obligations of ConCam under the Bond
documents. The Partnership will apply the Buyer's $500,000 deposit against the
purchase price of the Bond at closing. In connection with the most recent
extension of the Standstill Agreement, the Partnership has agreed to reimburse
ConCam for any closing and reasonable property operating expenses paid by ConCam
in connection with the sale of the Property in excess of ConCam's available cash
and to pay an incentive management fee of $232,000 to ConAm.
The closing of the Sale of the Bond and the concurrent sale of the Property
is subject to the receipt of consent of a majority-in-interest of the BAC
Holders and the satisfaction or waiver of other customary conditions. The
Buyer's obligation to close is not subject to any financing or due diligence
condition.
The Bond Purchase Agreement provides that the Sale's closing is to occur
within 10 days following receipt of the requisite consent by BAC Holders, but no
later than May 31, 1999. BAC Holders, as a class, will receive 100% of the net
Sale proceeds on account of their interest in the Partnership, as a distribution
in Liquidation as set forth in the Statement.
The Partnership Agreement requires that the Partnership be dissolved
following the Sale. Prior to making any distributions in Liquidation, all
liabilities of the Partnership must be paid and adequate reserves must be
established. Accordingly, the Partnership will pay, or reserve an amount that in
the General Partner's determination is adequate to pay, all Partnership
liabilities, including estimated or contingent liabilities. After the
Partnership has determined and paid (or reserved for) all of its liabilities,
the General Partner will take all necessary action to cause the Partnership to
dissolve.
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Recommendation
FOR THE REASONS DESCRIBED HEREIN, THE GENERAL PARTNER BELIEVES THAT THE
SALE AT THIS TIME IS IN THE BEST INTERESTS OF THE PARTNERSHIP AND THE BAC
HOLDERS. ACCORDINGLY, THE GENERAL PARTNER RECOMMENDS THAT BAC HOLDERS CONSENT TO
THE SALE. The consent of the holders of a majority of outstanding BACs is
required to direct the Assignor Limited Partner to approve the Sale. Failure to
return the enclosed consent form will have the same effect as a vote against the
Sale, so you are urged to complete, sign and date the enclosed consent form and
return it in the enclosed postage-paid envelope at your earliest convenience.
The address to which the enclosed consent form should be sent is 156 Fifth
Avenue, New York, NY 10010.
THE CONSENT SOLICITATION WILL EXPIRE AT 12:00 NOON, NEW YORK CITY TIME, ON
MAY 10, 1999 UNLESS EXTENDED IN THE SOLE DISCRETION OF THE GENERAL PARTNER (SUCH
DATE, AS THE SAME MAY BE SO EXTENDED, BEING REFERRED TO AS THE "EXPIRATION
DATE"). CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE DATE ON WHICH THE
GENERAL PARTNER HAS RECEIVED THE REQUISITE NUMBER OF CONSENTS FROM BAC HOLDERS,
WHICH DATE MAY BE PRIOR TO THE EXPIRATION DATE BUT UNDER NO CIRCUMSTANCES SHALL
BE PRIOR TO MAY 5, 1999.
The enclosed Statement contains important information concerning the matter
to which your consent is sought and should be reviewed carefully. We urge you to
complete, sign, date and return the enclosed consent form in the enclosed
postage-paid envelope. If you have any questions, or would like more information
regarding the Consent Solicitation Statement, please call the Partnership's
Solicitation Agent for this Consent Solicitation, MacKenzie Partners, Inc., at
(800) 322-2885.
CA VICTORY INC.
General Partner
/s/ DAPHNE ARONSON
--------------------------
Daphne Aronson
President
3
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VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
3 WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10285
------------------------
NOTICE OF CONSENT SOLICITATION
THE CONSENT SOLICITATION WILL EXPIRE AT 12:00 NOON, NEW YORK CITY TIME, ON MAY
10, 1999 UNLESS EXTENDED IN THE SOLE DISCRETION OF THE GENERAL PARTNER (SUCH
DATE, AS THE SAME MAY BE SO EXTENDED, BEING REFERRED TO AS THE "EXPIRATION
DATE"). CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE DATE ON WHICH THE
GENERAL PARTNER HAS RECEIVED THE REQUISITE NUMBER OF CONSENTS FROM BAC HOLDERS,
WHICH DATE MAY BE PRIOR TO THE EXPIRATION DATE BUT UNDER NO CIRCUMSTANCES SHALL
BE PRIOR TO MAY 5, 1999. BECAUSE NO MEETING WILL BE HELD, WE ARE NOT ASKING YOU
FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
To each Holder of a Beneficial Assignee Certificate (a "BAC") in Victory Tax
Exempt Realty Income Fund Limited Partnership, a Delaware limited partnership
(the "Partnership") formerly known as Olympic Tax Exempt Realty Income Fund
Limited Partnership :
Record holders of BACs (each such holder of a BAC, a "BAC Holder")
evidencing economic and certain other rights attributable to the limited
partnership interests in the Partnership are being requested by CA Victory Inc.,
the sole general partner (the "General Partner") of the Partnership, to provide
their consent to the sale (the "Sale") to Wasatch Acquisitions LLC, a Utah
limited liability company, or its designee (the "Buyer"), of the Partnership's
principal asset, the mortgage revenue bond issued by the City of Fresno,
California, in the original principal amount of $15,515,000 (the "Bond"), and
secured by a first deed of trust encumbering the Camelot Lakes Apartments (the
"Property") located in the City of Fresno, County of Fresno, California, for a
gross cash purchase price of $11.6 million.
Only BAC Holders of record at the close of business on April 15, 1999,
shall be entitled to notice of the Consent Solicitation and to consent or not
consent by so directing CA Victory Assignor Corp., a Delaware corporation (the
"Assignor Limited Partner"). BAC Holders will not be entitled to dissenters'
rights of appraisal under Delaware law or the Partnership Agreement in
connection with the Sale. The consent of the holders of a majority of
outstanding BACs is required to direct the Assignor Limited Partner to approve
the Sale.
Information regarding the Sale and related matters is contained in the
enclosed Consent Solicitation Statement and the annex thereto, which are
incorporated by reference herein and form a part of this notice.
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Please complete, sign and date the enclosed consent form and return it
promptly in the enclosed postage-paid envelope. It is important that your
consent form be received.
By order of the General Partner,
CA VICTORY INC.
General Partner
/s/ DAPHNE ARONSON
-----------------------------
Daphne Aronson
President
New York, New York
April 15, 1999
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CONSENT SOLICITATION BY VICTORY TAX EXEMPT
REALTY INCOME FUND LIMITED PARTNERSHIP
THE CONSENT SOLICITATION WILL EXPIRE AT 12:00 NOON, NEW YORK CITY TIME, ON MAY
10, 1999 UNLESS EXTENDED IN THE SOLE DISCRETION OF THE GENERAL PARTNER (SUCH
DATE, AS THE SAME MAY BE SO EXTENDED, BEING REFERRED TO AS THE "EXPIRATION
DATE"). CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE DATE ON WHICH THE
GENERAL PARTNER HAS RECEIVED THE REQUISITE NUMBER OF CONSENTS FROM BAC HOLDERS,
WHICH DATE MAY BE PRIOR TO THE EXPIRATION DATE BUT UNDER NO CIRCUMSTANCES SHALL
BE PRIOR TO MAY 5, 1999. BECAUSE NO MEETING WILL BE HELD, WE ARE NOT ASKING YOU
FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
This Consent Solicitation Statement (the "Statement") and the accompanying
Annual Report on Form 10-K for the fiscal year ended December 31, 1998 and form
of consent (the "Consent") are being mailed to record holders of the
certificates (each such certificate, a "BAC" and each such holder of a BAC, a
"BAC Holder") evidencing economic and certain other rights attributable to the
limited partnership interests in Victory Tax Exempt Realty Income Fund Limited
Partnership, a Delaware limited partnership (the "Partnership"), formerly known
as Olympic Tax Exempt Realty Income Fund Limited Partnership, in connection with
the solicitation by CA Victory Inc., the sole general partner (the "General
Partner") of the Partnership, of the consent of BAC Holders to a proposed Sale
described below.
The Consent directs CA Victory Assignor Corp., a Delaware corporation (the
"Assignor Limited Partner"), to approve a proposed sale (the "Sale") to Wasatch
Acquisitions LLC, a Utah limited liability company or its designee (the
"Buyer"), of the Partnership's principal asset, a mortgage revenue bond issued
by the City of Fresno, California in the original principal amount of
$15,515,000 (the "Bond"), and secured by a first deed of trust encumbering the
Camelot Lakes Apartments (the "Property"), located in the City of Fresno, County
of Fresno, California, for a gross cash purchase price of $11.6 million pursuant
to a Bond Purchase Agreement (the "Bond Purchase Agreement"), dated February 5,
1999 (the "Effective Date"), between the Buyer and the Partnership.
As the Bond is the Partnership's principal asset, the Partnership's
Agreement of Limited Partnership (the "Partnership Agreement") provides that
ninety (90) days following the Sale, and after the distribution of the proceeds
thereof in accordance with the Partnership Agreement, the Partnership is to be
dissolved. Subsequent to such dissolution, the Partnership's affairs are to be
wound up and the Partnership will be liquidated (the "Liquidation" and, together
with the Sale, the "Transaction"). The General Partner intends to make
distributions in connection with the Liquidation solely to BAC Holders. See "THE
TRANSACTION -- The Liquidation of the Partnership." Such distributions will be
made only after (i) satisfaction or discharge of all debts, liabilities and
obligations of the Partnership, (ii) payment of other expenses of the Sale and
of the dissolution and Liquidation and (iii) the establishment of such reserve
as the General Partner deems necessary for liabilities of the Partnership that
are ascertained but as yet unpaid, estimated or contingent (whether known or
unknown), which reserve will be determined only after the completion of the Sale
(the "Reserve"). The General Partner estimates that proceeds available for
liquidating distributions to BAC Holders from the proceeds generated by the Sale
and funds held in previously-established reserves will be approximately $11.75
million to $12.0 million in the aggregate, or $5.49 to $5.61 per BAC, assuming
that the Sale is completed on or prior to May 31, 1999. See "THE
TRANSACTION -- The Liquidation of the Partnership." The General Partner
anticipates that any liquidating distributions will be paid within 90 days of
completion of the Sale. The actual amount of net proceeds to be derived from the
Sale will not be known until after the consummation of the Sale, and no
assurance may be given that either the obligations of the Partnership or the
Reserve will not exceed current expectations or that the amount of liquidating
distributions will be equal to the estimates specified herein.
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Enclosed with this Statement is a Notice of the Consent Solicitation,
together with a consent form for your signature. Failure to return a properly
executed and dated consent form will have the same effect as a non-consent to
the Sale. If no instructions are indicated on a properly executed consent form,
the BACs represented by such consent form will be counted by the Assignor
Limited Partner as consenting to the Sale.
This Statement is accompanied by the Partnership's latest Annual Report on
Form 10-K and a form of consent, each of which is first being mailed to BAC
Holders on or about April 15, 1999.
THE DATE OF THIS STATEMENT IS APRIL 15, 1999.
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TABLE OF CONTENTS
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PAGE
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SUMMARY..................................................... 1
THE CONSENT SOLICITATION.................................... 4
General................................................... 4
Record Date and Outstanding BACs; Voting Rights........... 4
Consents Required......................................... 4
Voting; Revocation of Consents and Expiration of Consent
Solicitation........................................... 4
Solicitation of Consents.................................. 4
THE PROPERTY................................................ 4
THE TRANSACTION............................................. 6
Overview.................................................. 6
Background of the Sale.................................... 6
Recommendation of the General Partner; Reasons for the
Sale................................................... 7
The Liquidation of the Partnership........................ 8
Certain Federal Income Tax Consequences................... 8
Accounting Treatment...................................... 9
Absence of Dissenters' Rights of Appraisal................ 9
Regulatory Matters........................................ 9
THE BOND PURCHASE AGREEMENT................................. 10
The Sale of the Bond...................................... 10
Termination; Default...................................... 10
Representations and Warranties............................ 10
Conditions to Closing..................................... 10
Accrued Interest.......................................... 11
Assignment................................................ 11
SELECTED HISTORICAL FINANCIAL DATA OF THE PARTNERSHIP....... 12
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION......... 13
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS............. 16
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE............. 16
ANNEX A -- Bond Purchase Agreement
ANNEX B -- Annual Report on Form 10-K for the fiscal year
ended December 31, 1998
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SUMMARY
The following is a summary of certain information contained elsewhere in
this Statement and is presented herein solely to furnish limited introductory
information regarding the Sale. This summary is not intended to be complete and
is qualified in its entirety by the more detailed information contained in this
Statement and the annexes hereto, to which reference is made for a complete
statement of the matters discussed below. BAC Holders are urged to read this
Statement, including the annexes hereto, in its entirety and to consider it with
care.
This Statement contains forward-looking statements. Discussions containing
such forward-looking statements may be found in the material set forth under
"Summary," "The Transaction" and "Unaudited Pro Forma Condensed Financial
Information," as well as within this Statement generally. In addition, when used
in this Statement, the words "believes," "anticipates," "expects," and similar
expressions are intended to identify forward-looking statements. Such statements
are subject to a number of risks and uncertainties. Actual results in the future
could differ materially from those described in the forward-looking statements
as a result of the factors set forth in this Statement generally. The
Partnership further cautions BAC Holders that the discussion of these factors
may not be exhaustive. The Partnership undertakes no obligation to publicly
release the result of any revisions to these forward-looking statements that may
be made to reflect any future events or circumstances.
THE CONSENT SOLICITATION
The purpose of this Statement is to solicit the consent of a
majority-in-interest of the BAC Holders to the Sale. Only BAC Holders of record
at the close of business on April 15, 1999 (the "Record Date") shall be entitled
to notice of, and to direct the consent of the Assignor Limited Partner to the
Sale. As of the Record Date, there were approximately 1,032 BAC Holders of
record with 2,140,000 BACs issued and outstanding. Each BAC Holder shall be
entitled to direct the Assignor Limited Partner to deliver one Consent per BAC
held of record by such BAC Holder. In order for the Sale to be approved, BAC
Holders representing a majority-in-interest of the outstanding BACs must direct
the Assignor Limited Partner to approve the Sale. All properly executed Consents
that are not revoked will be counted in accordance with the instructions
contained therein. If a BAC Holder executes and returns a Consent and does not
specify otherwise, the BACs represented by such Consent will be treated by the
Assignor Limited Partner as consenting to the Sale. The consent solicitation
will expire at 12:00 noon, New York City time, on May 10, 1999 unless extended
in the sole discretion of the General Partner. Consents may be revoked at any
time prior to the date on which the General Partner has received the requisite
number of Consents from BAC Holders, which date may be prior to the Expiration
Date but under no circumstances shall be prior to May 5, 1999. Fully completed
and executed Consents should be sent by mail in the self-addressed, postage paid
envelope enclosed for that purpose, or by fax to: (212) 929-0308.
THE PARTNERSHIP
The Partnership was formed in January 1988. The General Partner of the
Partnership (formerly named Shearson/Victory Inc.) is an affiliate of Lehman
Brothers Inc., formerly named Shearson Lehman Brothers Inc. The Partnership was
formed to acquire tax-exempt mortgage revenue bonds issued by one or more states
or local governments or their agencies or authorities, the proceeds of which are
used to make participating first mortgage loans on multifamily residential
rental developments and to make, in limited circumstances, taxable working
capital loans to owners of such developments.
The Partnership's principal asset is the Bond, which is secured by the
Property. The Property is currently owned by ConCam Associates, LP ("ConCam")
and managed by ConAm Management Corporation ("ConAm"), an affiliate of ConCam.
The principal executive offices of the Partnership are located at 3 World
Financial Center, 29th Floor, New York, New York 10285 and its telephone number
is (212) 526-3183.
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THE PROPERTY
Since the Property secures the Bond on a non-recourse basis, the Property
represents the sole means of repayment of the Bond and, as a result, the value
of the Bond is dependent on the value of the Property.
The Property is an existing 476-unit apartment development which was
constructed in two phases on approximately 29.68 acres of land located at 937
North Peach Avenue in the City of Fresno, California. The Property consists of
476 garden style apartments, 714 parking spaces including approximately 160
garages, 316 carports and 238 open spaces, a site irrigation system that
includes seven lakes, two swimming pools, a club house, a leasing office and a
weight room, two tennis courts and two playgrounds. Individual units contain
central air-conditioning, refrigerator, range, oven, microwave, dishwasher,
disposal, washer/dryer hookup, wall-to-wall carpeting, patio or balcony, cable
T.V. hook-up and a fireplace in the three bedroom units.
THE TRANSACTION
Overview
On behalf of the Partnership, the General Partner has entered into the Bond
Purchase Agreement to sell the Bond, which is secured by the Property, to the
Buyer for a gross cash purchase price of $11.6 million. See "THE BOND PURCHASE
AGREEMENT." Concurrently therewith and conditional thereupon, ConCam will sell
the Property to the Buyer for a purchase price in cash of One Dollar ($1.00)
pursuant to the Property Purchase Agreement dated February 5, 1999 (the
"Property Purchase Agreement") between ConCam and the Buyer. Pursuant to an
amendment to the Standstill Agreement (defined herein), ConCam will cease making
payments to the Partnership and will use the cash flow generated by the Property
from January 1, 1999 until the date of the Sale to pay ConCam's expenses
incurred in connection with the Property's operation as well as ConCam's
expenses in connection with the sale of the Property to the Buyer. In the event
that the cash flow generated by the Property for such period together with any
Property-level reserves is insufficient to cover such expenses, the Partnership
will reimburse ConCam for the difference. Additionally, the Partnership will
apply a portion of the proceeds from the Sale to pay an incentive management fee
of $232,000 to ConAm. Furthermore, upon closing of the Sale, ConCam will be
released from any further obligation to the Partnership to repay the working
capital loan and the capital improvements loan which were made in connection
with the Forbearance Agreement (defined herein) and, if requested by the Buyer,
the Partnership will assign these loans (and all related instruments evidencing
or securing the same) to the Buyer.
After payment of costs associated with the Sale, the making of closing
adjustments and the satisfaction of or reservation for all other obligations of
the Partnership, the General Partner intends to effect the Liquidation and make
liquidating distributions to BAC Holders. See "THE TRANSACTION -- The
Liquidation of the Partnership."
THE LIQUIDATION OF THE PARTNERSHIP
The Partnership Agreement provides that ninety (90) days following the
disposition of all or substantially all of the assets of the Partnership, as is
contemplated by the Sale, the Partnership shall be dissolved and thereafter its
business affairs wound-up.
Upon such dissolution and after (i) satisfaction or discharge of all the
debts, liabilities and obligations of the Partnership, (ii) payment of other
expenses of the Sale and of the dissolution and the Liquidation and (iii) the
establishment of the Reserve, distributions in Liquidation shall be made to BAC
Holders. The General Partner estimates that amounts available for liquidating
distributions to BAC Holders from the proceeds generated by the Sale and funds
held in previously-established reserves will be approximately $11.75 million to
$12.0 million in the aggregate, or $5.49 to $5.61 per BAC, assuming that the
Sale is completed on or prior to May 31, 1999. The General Partner anticipates
that liquidating distributions will be paid within 90 days of the completion of
the Sale. The actual amount of net proceeds to be derived from the Sale will not
be known until after the Sale is consummated, and no assurance may be given that
either the obligations of the Partnership or the Reserve will not exceed current
expectations or that the amount of liquidating distributions
2
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will be equal to the estimates specified herein. See "THE TRANSACTION -- The
Liquidation of the Partnership."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Sale will result in the Partnership recognizing a loss for Federal
income tax purposes, which loss will generally constitute a capital loss. Based
upon the description of the Sale contained in this Statement and assuming the
Sale is consummated on or before May 31, 1999, the BAC Holders should be
allocated a long-term capital loss on the Sale for Federal income tax purposes
of approximately $3.81 per BAC. There are limitations on the deductibility of
capital losses by both individual and corporate taxpayers.
A BAC Holder will recognize capital gain on the Liquidation to the extent
the cash distributed to such holder exceeds a BAC Holder's adjusted tax basis in
his BAC (after taking into account his allocable share of the Partnership's loss
on the Sale). A BAC Holder with an adjusted tax basis in its BAC that exceeds
the cash received in the Liquidation will recognize a capital loss (after taking
into account his allocable share of the Partnership's loss on the Sale). A BAC
Holder's capital gain or loss on the Liquidation will be long-term or short-term
depending on the BAC Holder's holding period.
THE ESTIMATED LOSS ON THE SALE PROVIDED HEREIN IS BASED UPON A NUMBER OF
ASSUMPTIONS. IN ADDITION, THE ESTIMATE IS BASED ON UNAUDITED INFORMATION
REGARDING THE PARTNERSHIP'S RESULTS OF OPERATIONS AND FINANCIAL CONDITION AS OF
DECEMBER 31, 1998, AND PROJECTIONS OF SUCH RESULTS OF OPERATION AND FINANCIAL
CONDITION THROUGH THE ANTICIPATED CLOSING OF THE SALE, WHICH MAY NOT BE COMPLETE
IN A NUMBER OF MATERIAL RESPECTS. THUS, THE ACTUAL LOSS ALLOCATED TO ANY BAC
HOLDER CANNOT BE DETERMINED WITH CERTAINTY. RULINGS AND OPINIONS HAVE NOT AND
WILL NOT BE REQUESTED FROM THE INTERNAL REVENUE SERVICE OR PROVIDED BY COUNSEL
TO THE PARTNERSHIP WITH RESPECT TO THE MATTERS DISCUSSED HEREIN. CONSEQUENTLY,
BAC HOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE TAX
CONSEQUENCES OF THE SALE AND THE LIQUIDATION IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION. SEE "THE TRANSACTION -- CERTAIN FEDERAL
INCOME TAX CONSEQUENCES."
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THE CONSENT SOLICITATION
GENERAL
The purpose of this Statement is to solicit Consents to the Sale, as
described herein.
RECORD DATE AND OUTSTANDING BACS; VOTING RIGHTS
Only BAC Holders of record at the close of business on the Record Date
shall be entitled to notice of and to direct the consent of the Assignor Limited
Partner. As of the Record Date, there were approximately 1,032 BAC Holders of
record and 2,140,000 BACs issued and outstanding. Each BAC Holder shall be
entitled to direct the Assignor Limited Partner to deliver one Consent (or
non-Consent) per BAC owned by such BAC Holder. Neither the General Partner nor
any of its affiliates are permitted to direct the vote of any BACs, but any
individual officer, director or stockholder of the General Partner or its
affiliates who holds any BACs in an individual capacity shall be entitled to
direct the vote of the BACs held in such individual capacity.
CONSENTS REQUIRED
In order for the Sale to be approved, BAC Holders representing a
majority-in-interest of the outstanding BACs must direct the Assignor Limited
Partner to approve the Sale.
VOTING; REVOCATION OF CONSENTS AND EXPIRATION OF CONSENT SOLICITATION
All properly executed Consents that are not revoked will be counted in
accordance with the instructions contained therein. If a BAC Holder executes and
returns a Consent and does not specify otherwise, the BACs represented by such
Consent will be counted by the Assignor Limited Partner as consenting to the
Sale. THE CONSENT SOLICITATION WILL EXPIRE AT 12:00 NOON, NEW YORK CITY TIME, ON
MAY 10, 1999 UNLESS EXTENDED IN THE SOLE DISCRETION OF THE GENERAL PARTNER.
CONSENTS MAY BE REVOKED AT ANY TIME PRIOR TO THE DATE ON WHICH THE GENERAL
PARTNER HAS RECEIVED THE REQUISITE NUMBER OF CONSENTS FROM BAC HOLDERS, WHICH
DATE MAY BE PRIOR TO THE EXPIRATION DATE BUT UNDER NO CIRCUMSTANCES SHALL BE
PRIOR TO MAY 5, 1999.
SOLICITATION OF CONSENTS
Consents are being solicited hereby by the General Partner. The Partnership
will bear the cost of the solicitation of Consents from the BAC Holders. In
addition to solicitation by mail, directors, officers, employees and agents of
the General Partner may solicit consents from BAC Holders in person, by
telephone or facsimile, or by other means of communication. Such directors,
officers, employees and agents will not be additionally compensated for such
solicitation but may be reimbursed for the reasonable out-of-pocket expenses
incurred in connection therewith. The Partnership will make arrangements with
custodians, nominees and fiduciaries for forwarding of solicitation materials to
the beneficial owners of BACs held of record by such persons, and the
Partnership will reimburse such custodians, nominees and fiduciaries for the
reasonable out-of-pocket expenses incurred by them in connection therewith.
The Partnership has retained MacKenzie Partners, Inc. ("MacKenzie") to
assist in the solicitation of consents, for which MacKenzie will receive
reasonable and customary compensation, which is not anticipated to exceed
$12,000, plus out-of-pocket expenses.
Fully completed and executed Consents should be sent by mail in the
self-addressed, postage paid envelope enclosed for that purpose, or by fax to:
(212) 929-0308.
THE PROPERTY
Since the Property secures the Bond on a non-recourse basis, the Property
represents the sole means of repayment of the Bond and, as a result, the value
of the Bond is dependent upon the value of the Property.
Camelot Lakes Apartments is an existing 476-unit apartment development
which was constructed in two phases on approximately 29.68 acres of land located
at 937 North Peach Avenue in the City of Fresno,
4
<PAGE> 14
California. Construction of Phase I of the Camelot Lakes Complex, containing 248
units, was completed in June 1986. Construction of Phase II, containing 228
units, was completed in October 1987.
The Property consists of 476 garden style apartments contained in 64
buildings, approximately 43 of which are two-story, with the remainder being
one-story or a combination of one and two-story; a total of approximately 714
parking spaces including approximately 160 garages, 316 carports and 238 open
spaces; a site irrigation system that includes seven lakes; two swimming pools;
a club house, leasing office and weight room; two tennis courts and two
playgrounds. Building construction exterior is tan vertical wood siding with
asphalt shingled roofs. Each apartment entrance is located off of a landscaped
courtyard.
Individual units contain central air-conditioning, refrigerator, range,
oven, microwave, dishwasher, disposal, washer/dryer hookup, wall-to-wall
carpeting, patio or balcony, cable T.V. hook-up and a fireplace in the three
bedroom units. All utility charges for each dwelling unit are paid by the
tenant.
The number and type of units, as well as the current asking monthly rents
are as follows:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------
MONTHLY
NO. OF SIZE RENTS
UNITS UNIT TYPE (SQ. FT.) (MARKET RATE)
- -----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
92 1 Bedroom/1 Bath 620 $375.00
- -----------------------------------------------------------------------------------
136 2 Bedroom/1 Bath 743 $385.00
- -----------------------------------------------------------------------------------
208 2 Bedroom/2 Bath 889 $425.00
- -----------------------------------------------------------------------------------
40 3 Bedroom/2 Bath 1,058 $600.00
- -----------------------------------------------------------------------------------
476
- -----------------------------------------------------------------------------------
</TABLE>
The Property is located in the City of Fresno, Fresno County, California,
in the San Joaquin Valley. The Property is located in the eastern section of
Fresno, approximately one mile south of the Fresno Air Terminal and three miles
northeast of the City's central business district.
During calendar year 1998, the Camelot Lakes Complex had an average
physical occupancy level of approximately 94% and an average economic occupancy
(taking into account delinquencies and rent concessions) of approximately 86%.
As of January 31, 1999, the Property was approximately 92% physically occupied
and approximately 83% economically occupied.
5
<PAGE> 15
THE TRANSACTION
OVERVIEW
On behalf of the Partnership, the General Partner has entered into an
agreement to sell the Bond, which is secured by the Property, to the Buyer for
$11.6 million in cash. See "THE BOND PURCHASE AGREEMENT." The principal
executive offices of the Buyer are located at 399 North Main Street, Suite 200,
Logan, Utah 84321 and its telephone number is (435) 755-2024. The Buyer is
principally engaged in the business of purchasing, restructuring and managing
apartment units and office buildings.
Concurrently with consummation of the Sale and conditional thereupon,
ConCam will sell the Property to the Buyer for a purchase price in cash of One
Dollar ($1.00) pursuant to a separate agreement. Pursuant to an amendment to the
Standstill Agreement (defined herein), ConCam will cease making payments to the
Partnership and will use the cash flow generated by the Property from January 1,
1999 until the date of the Sale to pay ConCam's expenses incurred in connection
with the Property's operation as well as ConCam's expenses in connection with
the sale of the Property to the Buyer. In the event that the cash flow generated
by the Property for such period together with any Property-level reserves is
insufficient to cover such expenses, the Partnership will reimburse ConCam for
the difference. Additionally, the Partnership will apply a portion of the
proceeds from the Sale to pay an incentive management fee of $232,000 to ConAm.
After payment of costs associated with the Sale, the making of closing
adjustments and the satisfaction of or reservation for all other obligations of
the Partnership, the General Partner intends to effect the Liquidation and make
liquidating distributions to BAC Holders. The General Partner expects to make
liquidating distributions to BAC Holders of approximately $11.75 million to
$12.0 million in the aggregate, or $5.49 to $5.61 per BAC. See "THE
TRANSACTION -- The Liquidation of the Partnership."
BACKGROUND OF THE SALE
Operating difficulties at the Property have resulted in past defaults by
the Property owner on payments due to the Partnership and have led to the
decline of the Partnership's operating income. On February 1, 1994, the
Partnership reached a restructuring agreement with the original owner of the
Property, whereby the ownership of the Property was transferred to ConCam and
property management was transferred to ConAm, an affiliate of ConCam. ConCam
also assumed the owner's obligations under the loan documents related to the
Bond on a nonrecourse basis. Pursuant to the restructuring, the Partnership
entered into a forbearance agreement (the "Forbearance Agreement") with ConCam
whereby the Partnership, for a limited period, agreed to forbear from exercising
certain remedies against ConCam and the Property, provided certain conditions
(including certain minimum debt service requirements) were met.
In February 1996, ConCam indicated that the Property's operations could not
support debt service payments on the Bond at the then-applicable minimum
interest rate payment of 7.0%, which rate had been increased from 6.5% pursuant
to the Forbearance Agreement. On May 8, 1996, the Partnership executed a
standstill agreement (the "Standstill Agreement") to generally allow a
continuance of the terms of the Forbearance Agreement, provided that in lieu of
the minimum interest rate payment, ConCam pay as debt service all available cash
flow generated by the Property. The Partnership and ConCam have on three
subsequent occasions extended the Standstill Agreement. Pursuant to an amendment
to the Standstill Agreement, ConCam will cease making payments to the
Partnership and will use the cash flow generated by the Property from January 1,
1999 until the date of the Sale to pay ConCam's expenses incurred in connection
with the Property's operation as well as ConCam's expenses in connection with
the sale of the Property to the Buyer. Furthermore, upon closing of the Sale,
ConCam will be released from any further obligation to the Partnership to repay
the working capital loan and the capital improvements loan which were made in
connection with the Forbearance Agreement and, if requested by the Buyer, the
Partnership will assign these loans (and all related instruments evidencing or
securing the same) to the Buyer.
The General Partner believes that occupancy at the Property stabilized in
1998 (occupancy being approximately 92% as of January 31, 1999), resulting in an
increased value of the Property and, accordingly, an advantageous time to sell
the Property and the Bond. Accordingly, in connection with the extension of the
6
<PAGE> 16
Standstill Agreement in 1998, and in light of the past operating history of the
Property, the General Partner authorized ConCam to pursue a sale of the
Property. The proposed Sale is a result of these efforts.
RECOMMENDATION OF THE GENERAL PARTNER; REASONS FOR THE SALE
The General Partner has determined that the Sale represents the best course
of action for, and that the Sale is in the best interests of, the Partnership
and BAC Holders. Accordingly, the General Partner has approved the Sale and
recommends that the BAC Holders return the enclosed Consent and direct the
Assignor Limited Partner to consent to the Sale.
In the course of reaching its decision to approve the Sale, the General
Partner considered the following factors with regard to the Sale:
Factors Favoring the Sale
(i) the fact that, while the General Partner believes that the Property's
occupancy has stabilized, the General Partner does not expect any meaningful
improvement in the future and, given the Property's market position and age, the
Property is anticipated to need significant capital improvements, repairs and
cosmetic enhancements in order to remain competitive in the rental market, the
costs of which could result in a decrease in cash flow available to the
Partnership or a decline in occupancy in the absence of the Sale;
(ii) the fact that if the Sale is not consummated, the Partnership and
ConCam will not be able to extend the terms of the Standstill Agreement further,
but will be required to restructure the terms of the Bond and the security
documents related thereto, at significant expense to the Partnership;
(iii) certain terms and conditions of the Bond Purchase Agreement and the
Property Purchase Agreement, including the fact that the Buyer's obligation to
close is not subject to any financing or due diligence condition and that the
Buyer has made a $500,000 earnest money deposit;
(iv) the fact that a buyer of both the Bond and the Property (such as is
the case with the Sale) would be willing to pay a premium for the tax-exempt
financing rates which the Bond financing affords the Property; and
(v) the fact that the Loan Agreement, dated as of April 15, 1989 among the
Partnership, the original owner of the Property and the City of Fresno (the
"Loan Agreement"), requires a mandatory tender and remarketing of the Bond on
April 28, 1999, and if the Sale is not consummated and such date is extended by
the Partnership and the City of Fresno, a sale of the Property within six months
thereafter will be prohibited unless the Bond is reissued and the Property will
become subject to more stringent low income housing restrictions for an extended
period.
Factors Not Favoring the Sale
(i) the fact that the Sale of the Bond will result in less than a full
recovery of the original principal amount of the Bond;
(ii) the possibility that the Fresno rental market could become more
desirable in the future;
(iii) the fact that the Property was not widely marketed and an extended
competitive bidding process for the Property was not undertaken; rather, offers
were solicited from a limited number of qualified buyers with experience in the
Fresno rental property market and tax exempt bond financings; and
(iv) the fact that the interest income of the Partnership is currently free
from Federal income taxes, which would generally no longer be the case upon the
Sale.
The General Partner concluded, based on the foregoing, that the positive
factors outweighed the negative factors as set forth above. The foregoing
discussion of the factors considered by the General Partner is not intended to
be exhaustive. The General Partner did not find it practical to, and did not,
quantify or otherwise attempt to assign relative weights to the foregoing
factors or determine that any factor was of particular
7
<PAGE> 17
importance. Rather, the General Partner views its position as being based on the
totality of the information presented to and considered by it.
THE LIQUIDATION OF THE PARTNERSHIP
The Partnership Agreement provides that ninety (90) days following the
disposition of all or substantially all of the assets of the Partnership, as is
contemplated by the Sale, the Partnership shall be dissolved and thereafter its
business affairs wound-up. The Partnership Agreement requires that upon any
dissolution of the Partnership, before any liquidating distribution may be made,
the Partnership must satisfy, or set aside for payment of, all debts,
liabilities and obligations of the Partnership including expenses of the Sale.
In order to facilitate the prompt distribution of assets in Liquidation to the
BAC Holders, the Partnership intends to establish the Reserve. The Reserve will
be determined only after completion of the Sale and will be utilized for
liabilities of the Partnership that are ascertained but as yet unpaid, estimated
and contingent (whether known or unknown). The General Partner does not believe
that the amount of the Reserve to be established will significantly exceed the
amount of the foregoing liabilities and any anticipated additional costs of
administering the Partnership. However, it is possible that the amount of the
Reserve may be greater or less than the ultimate amount of such liabilities and
costs. To the extent that, in the opinion of the General Partner, the cost of
distributing any residual from the Reserve would exceed the value of such
residual, the General Partner intends to retain indefinitely any such residual.
The full amount available for distribution will be distributed to the BAC
Holders in proportion to the number of BACs held by each BAC Holder. The General
Partner estimates that amounts available for distribution to BAC Holders will be
approximately $11.75 million to $12.0 million in the aggregate, or $5.49 to
$5.61 per BAC, assuming that the Sale is completed on or prior to May 31, 1999.
The estimates are based upon the factors set forth herein. THERE CAN BE NO
ASSURANCES AS TO THE ACTUAL AMOUNTS DISTRIBUTED OR AS TO THE AMOUNTS SET FORTH
HEREIN. ACTUAL AMOUNTS MAY DIFFER MATERIALLY FROM THOSE SET FORTH HEREIN.
The General Partner anticipates that liquidating distributions will be paid
within 90 days of completion of the Sale. The actual amount of net proceeds to
be derived from the Sale will not be known until after the consummation of the
Sale, and no assurance may be given that either the obligations of the
Partnership or the Reserve will not exceed current expectations or that the
amount of liquidating distributions will be equal to the estimates specified
herein.
Following the Liquidation, the Partnership will file a certificate of
cancellation with the Secretary of State of the State of Delaware in accordance
with Section 17-203 of the Delaware Revised Uniform Limited Partnership Act.
After the filing of the certificate of cancellation, the Partnership will no
longer be authorized to undertake partnership actions.
Various laws for the protection of creditors may apply to the Liquidation.
In this regard, it should be noted that if a court were to find that the
Partnership failed to place a sufficient amount of funds in the Reserve, or that
the liquidating distribution to BAC Holders rendered the Partnership insolvent,
the liquidating distributions to BAC Holders could be deemed to be "fraudulent
conveyances" or impermissible dividends or distributions under applicable law,
and therefore may be subject to claims of certain creditors of the Partnership,
if such creditors have not been paid by the Partnership. In the event that such
a claim is asserted after the Liquidation, there is a risk that persons who were
BAC Holders on the distribution record date will be ordered by a court to submit
to the Partnership's creditors all or a portion of the liquidating distributions
they received from the Partnership in Liquidation.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The material Federal income tax issues associated with the BAC Holders'
investment in the Partnership have generally been addressed in the Partnership's
Offering Prospectus, dated May 26, l988, in connection with the initial public
offering of the Partnership (the "IPO"). The following is a summary of the
material Federal income tax consequences of the Sale and the Liquidation to
individual BAC Holders, but is not intended as personal tax advice. This summary
is based on the Federal income tax law currently in effect, which is subject to
change, possibly with retroactive effect. Except to the limited extent described
below, this summary does not discuss all aspects of Federal income taxation
which may be important to particular BAC
8
<PAGE> 18
Holders in light of their individual investment circumstances, including certain
types of holders subject to special tax rules (e.g., corporations, financial
institutions, broker-dealers, insurance companies, tax-exempt organizations and
foreign taxpayers) and BAC Holders who acquired their BACs subsequent to the
IPO. In addition, this summary does not address state, local, foreign or
alternative minimum tax consequences. This summary assumes that all interest
received or accrued by the Partnership on the Bond is excludible from gross
income for Federal income tax purposes. No rulings have been or will be
requested from the Internal Revenue Service (the "Service"), and no opinions
have been or will be provided by counsel to the Partnership, with respect to any
of the matters discussed herein. Moreover, because the treatment of the tax
issues relating to certain aspects of the Sale is unclear under current law,
there can be no assurance that the Service would not take positions contrary to
those described below and that a court would not sustain the Service's position,
in which case a BAC Holder may realize different tax consequences. BAC HOLDERS
ARE URGED TO CONSULT THEIR TAX ADVISORS REGARDING THE SPECIFIC FEDERAL, STATE,
LOCAL, FOREIGN, ALTERNATIVE MINIMUM AND OTHER TAX CONSEQUENCES OF THE SALE.
Estimated Loss On Sale. The Sale, if consummated, will constitute a
taxable event and will result in the Partnership recognizing a loss for Federal
income tax purposes, substantially all of which will be a long-term capital
loss. Based upon the description of the Sale contained in this Statement and
assuming the Sale is consummated on or before May 31, 1999, the BAC Holders
should be allocated a long-term capital loss on the Sale of approximately $3.81
per BAC.
Distributions and Liquidation. Cash will generally be distributed in the
Liquidation 100% to the BAC Holders. A BAC Holder will recognize gain on the
Liquidation to the extent the cash distributed to such holder exceeds a BAC
Holder's adjusted tax basis in his BAC (after taking into account his allocable
share of the Partnership's loss on the Sale). A BAC Holder with an adjusted tax
basis in its BAC that exceeds the cash received in the Liquidation will
recognize a capital loss (after taking into account his allocable share of the
Partnership's loss on the Sale). A BAC Holder's capital gain or loss on the
Liquidation will be long-term or short-term depending on the BAC Holder's
holding period. A BAC Holder should generally be prohibited from recognizing a
loss on the Liquidation for Federal income tax purposes until the Partnership is
fully and finally dissolved and any remaining amount in the Reserve is
distributed.
Limitations on Use of Capital Losses. For individuals, capital losses may
generally be used to offset all capital gains plus ordinary income of up to
$3,000 per year, with any unused capital losses being carried forward until such
capital losses are exhausted. Corporations may generally use capital losses only
to offset capital gains and may carry back capital losses three years and
forward five years.
THE ESTIMATES OF LOSS PROVIDED HEREIN ARE HYPOTHETICAL AMOUNTS BASED UPON A
NUMBER OF ASSUMPTIONS WHICH MAY NOT BE CORRECT FOR ANY GIVEN BAC HOLDER, ARE
PRELIMINARY, AND ARE FOR ILLUSTRATIVE PURPOSES ONLY. IN ADDITION, THESE
ESTIMATES ARE BASED ON UNAUDITED INFORMATION REGARDING THE PARTNERSHIP'S RESULTS
OF OPERATIONS AND FINANCIAL CONDITION AS OF DECEMBER 31, 1998, AND PROJECTIONS
OF SUCH RESULTS OF OPERATION AND FINANCIAL CONDITION THROUGH THE ANTICIPATED
CLOSING OF THE SALE, WHICH MAY NOT BE COMPLETE IN A NUMBER OF MATERIAL RESPECTS.
THUS, THE ACTUAL LOSS (OR GAIN) RECOGNIZED BY ANY BAC HOLDER CANNOT BE
DETERMINED WITH CERTAINTY, IS LIKELY TO VARY MATERIALLY FOR ANY SPECIFIC BAC
HOLDER, PARTICULARLY A BAC HOLDER WHO ACQUIRED ITS BACS SUBSEQUENT TO THE IPO,
AND MAY BE SIGNIFICANTLY GREATER OR LESS THAN THAT DESCRIBED HEREIN.
CONSEQUENTLY, BAC HOLDERS ARE STRONGLY URGED TO CONSULT THEIR TAX ADVISORS
REGARDING THE TAX CONSEQUENCES OF THE SALE IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATION.
ACCOUNTING TREATMENT
The proposed Sale is expected to result in a gain by the Partnership for
financial reporting purposes.
ABSENCE OF DISSENTERS' RIGHTS OF APPRAISAL
BAC Holders are not entitled to dissenters' rights of appraisal under the
Delaware Revised Uniform Partnership Act or the Partnership Agreement in
connection with the Sale.
REGULATORY MATTERS
Other than the Municipal Approval (defined herein), the Partnership is not
aware of any federal or state regulatory approvals that would be required in
connection with the Sale.
9
<PAGE> 19
THE BOND PURCHASE AGREEMENT
The following is a summary of material provisions of the Bond Purchase
Agreement, a copy of which is attached hereto as Annex A and incorporated herein
by reference. This summary is qualified in its entirety by reference to the Bond
Purchase Agreement, and BAC Holders should read that agreement carefully in its
entirety. Capitalized terms used but not defined in this Statement shall have
the meanings set forth in the Bond Purchase Agreement, and are used herein with
the same meanings.
THE SALE OF THE BOND
The Bond Purchase Agreement provides that the Partnership will sell,
transfer and assign the Bond to the Buyer in exchange for a gross purchase price
of $11.6 million in cash. On the Effective Date, the Buyer delivered $500,000 to
the Title Company as a deposit (the "Deposit") against the purchase price. The
closing date of the Sale (the "Closing Date") will be the tenth day following
the date on which the Partnership certifies in writing to the Buyer that the
Partnership has obtained the written consent of a majority-in-interest of the
BAC Holders to the transactions contemplated by the Bond Purchase Agreement. The
closing of the Sale (the "Closing") must occur on or before May 31, 1999.
TERMINATION; DEFAULT
Provided that the Buyer is not in default under the Bond Purchase
Agreement, the Buyer may terminate the Bond Purchase Agreement only because of
(i) the occurrence after the Effective Date of a material default under the Bond
documents (other than a failure to remarket the Bond on April 28, 1999), (ii)
the failure of the Property Purchase Agreement to close due to no fault, act or
omission of the Buyer or any of its affiliates or agents or (iii) the failure of
the Partnership to deliver to the Buyer by May 31, 1999 written evidence of the
consent of the Assignor Limited Partner to the transactions contemplated by the
Bond Purchase Agreement. In such instance, the Deposit shall be promptly
refunded to the Buyer. In the event that the Closing fails to occur due to a
default of the Partnership in performing its obligations under the Bond Purchase
Agreement, the Buyer will have the right to specifically enforce or terminate
the Bond Purchase Agreement, in which latter event the Deposit will promptly be
refunded to the Buyer.
If the Closing fails to occur for any reason (including a failure to obtain
the consent of the City of Fresno, California to the Sale (the "Municipal
Approval")), other than due to: (i) a default of the Partnership, (ii) a failure
to obtain the consent of the Assignor Limited Partner (as directed by the BAC
Holders) or (iii) a failure of ConCam to close under the Property Purchase
Agreement which is not due to the act or omission of the Buyer or its agents or
affiliates, then the Partnership may terminate the Bond Purchase Agreement and
retain the Deposit as liquidated damages and will not be entitled to any other
damages in connection therewith.
REPRESENTATIONS AND WARRANTIES
Each of the Partnership and the Buyer is making customary representations
and warranties regarding its organization and authority to execute and deliver
all documents required to be executed and delivered and the enforceability
thereof (including, in the case of the Partnership, the enforceability of the
Bond Purchase Agreement upon the consent of the Assignor Limited Partner). In
addition, the Partnership is making certain additional customary representations
and warranties regarding the absence of violations of law or legal proceedings,
the solvency of the Partnership, the Partnership's ownership of the Property and
the status of any lien affecting the Property. The Buyer is also making the
additional representation and warranty that it will, with the reasonable
cooperation of the Partnership, obtain the Municipal Approval. The
representations and warranties made by the Partnership shall terminate at the
Closing.
CONDITIONS TO CLOSING
In addition to customary conditions precedent to the Closing, the
Partnership must secure the consent of the Assignor Limited Partner (as directed
by the BAC Holders). The Closing is further conditioned upon the
10
<PAGE> 20
prior or concurrent consummation of all of the transactions contemplated by the
Property Purchase Agreement (except for any failure due to the acts or omissions
of the Buyer or any of its agents or affiliates).
ACCRUED INTEREST
The Bond will be sold as of the Closing Date, but the Buyer is not
obligated to pay to the Partnership any interest that has theretofore accrued
under the Bond. The Partnership is entitled to all Net Cash Flow (as defined in
the operative Bond documents) generated by the Property and attributable to the
period prior to the Closing Date subject to the terms of an amendment to the
Standstill Agreement whereby the Partnership is obligated to (a) reimburse
ConCam for any closing and reasonable property operating expenses of ConCam in
connection with the sale of the Property in excess of ConCam's available cash
and (b) pay an incentive management fee of $232,000 to ConAm.
ASSIGNMENT
Without the prior consent of the Partnership, the Buyer may assign its
rights and obligations under the Bond Purchase Agreement only once and only to
an entity controlled by the Buyer or to an entity as to which Dell Loy Hansen
acts as the general partner, managing member or majority shareholder. The Buyer
may not otherwise assign such rights or obligations without the prior consent of
the Partnership, which consent may not be unreasonably withheld.
11
<PAGE> 21
SELECTED HISTORICAL FINANCIAL DATA OF THE PARTNERSHIP
The following table sets forth certain historical financial information of
the Partnership for each of the five years ended December 31, 1994 through 1998.
The historical financial information of the Partnership for the years ended
December 31, 1998 and 1997 as set forth below has been derived from the audited
financial statements of the Partnership included in the Annual Report on Form
10-K annexed to this Statement. The historical financial information of the
Partnership for the years ended December 31, 1996, 1995 and 1994 as set forth
below has been derived from the audited financial statements of the Partnership
not included in the Annual Report on Form 10-K attached to this Statement.
The following table should be read in conjunction with the Partnership's
Annual Report on Form 10-K as of December 31, 1998 and 1997, and for each of the
years in the three year period ended December 31, 1998, all of which are
attached to this Statement. For additional information, see Unaudited Pro Forma
Condensed Financial Information included elsewhere in this Statement.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenues.......... $ 713,166 $ 440,246 $ 646,191 $ 71,044 $ 406,502
Net Income (Loss)....... 482,048 (2,692,230) 514,121 (30,145) 211,582
Net Income (Loss) per
BAC(1)................ .23 (1.25) .24 (.01) .10
Total Assets as of
December 31........... 10,918,467 10,422,735 13,493,316 14,044,167 15,168,426
Total Cash distributions
declared per BAC(1)... -- .111 .449 .500 .500
</TABLE>
- ---------------
(1) 2,140,000 BACs outstanding.
12
<PAGE> 22
UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION
The following Unaudited Pro Forma Condensed Balance Sheet as of December
31, 1998 and the Unaudited Pro Forma Statement of Changes in Net Assets
Available for Liquidation as of the same date are presented as if the
Partnership's Bond is sold for $11.6 million and the Partnership is liquidated
on December 31, 1998. This unaudited pro forma condensed financial data should
be read in conjunction with the audited financial statements for the fiscal year
ended December 31, 1998 included in the Annual Report on Form 10-K attached to
this Statement.
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
DECEMBER 31, 1998
<TABLE>
<CAPTION>
HISTORICAL(1) PRO FORMA PRO FORMA PRO FORMA
BALANCE SHEET AT ADJUSTMENTS LIQUIDATION BALANCE SHEET AT
DECEMBER 31, 1998 TO EFFECT THE SALE ADJUSTMENTS DECEMBER 31, 1998
----------------- ------------------ ----------- -----------------
<S> <C> <C> <C> <C>
ASSETS
Investment in mortgage revenue
bond, working capital loan,
and capital improvements loan
(Note 2)...................... $ 9,826,236 $(9,826,236)(2) -- $ --
Cash and cash equivalents....... 1,078,440 11,123,000(2) (86,700)(3) 12,192,211
77,471(3) --
Mortgage acquisition fees, net
of accumulated amortization of
$414,209...................... 13,791 (13,791)(2) -- --
------------- ----------- --------- -----------
Total Assets............... $ 10,918,467 $ 1,282,973 $ (9,229) $12,192,211
============= =========== ========= ===========
LIABILITIES AND PARTNERS'
CAPITAL (DEFICIT)
Liabilities:
Accounts payable and accrued
expenses................... $ 68,700 -- 263,209(4) $ 263,209
(68,700)(3)
Due to affiliates............. 18,000 -- (18,000)(3) --
------------- ----------- --------- -----------
Total Liabilities.......... 86,700 -- 176,509 263,209
------------- ----------- --------- -----------
Partners' Capital (Deficit):
General Partner............... (87,669) 12,830(2) (2,632)(4) --
77,471(3)
BAC Holders (2,140,000 BACS
outstanding).................. 10,919,436 1,270,143(2) (260,577)(4) 11,929,002
------------- ----------- --------- -----------
Total Partners' Capital.... 10,831,767 1,282,973 (185,738) 11,929,002
------------- ----------- --------- -----------
Total Liabilities and
Partners' Capital........ $ 10,918,467 1,282,973 $ (9,229) $12,192,211
============= =========== ========= ===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial Information.
13
<PAGE> 23
UNAUDITED PRO FORMA CONDENSED STATEMENT OF CHANGES IN NET ASSETS
AVAILABLE FOR LIQUIDATION
DECEMBER 31, 1998
<TABLE>
<S> <C>
Gross Sales Price........................................... $11,600,000(2)
Less Estimated Sales Costs.................................. (477,000)(2)
-----------
Estimated Net Sales Proceeds................................ 11,123,000(2)
-----------
Cash Available at December 31, 1998......................... 1,078,440(1)
Reserves for unanticipated costs related to liquidation..... (263,209)(4)
General Partner deficit restoration......................... 77,471(3)
Liquidation of Balance Sheet Accounts....................... (86,700)(3)
-----------
Allocation of Cash Available from Operations................ 806,002(5)
-----------
Total Distributions......................................... $11,929,002(6)
===========
</TABLE>
See accompanying Notes to Unaudited Pro Forma Condensed Financial
Information.
NOTES TO UNAUDITED PRO FORMA CONDENSED FINANCIAL INFORMATION.
(1) The pro forma balance sheet was prepared by taking the historical December
31, 1998 balance sheet reflected in the Partnership's December 31, 1998 10-K and
making adjustments for the Proposed Sale and estimated Partnership liquidation
costs as if these transactions were as of the balance sheet date.
(2) To record the sale of the mortgage revenue bond reflecting the removal of
the working capital loan, and capital improvements loan, the receipt of net
proceeds and the allocation of the gain to the General Partner and BAC Holders
as follows:
<TABLE>
<S> <C>
Gross Sales Price........................................... $11,600,000
Incentive Management Fee.................................... (232,000)
Estimated selling costs..................................... (245,000)
-----------
Estimated Net Sales Proceeds........................... 11,123,000
Investment in mortgage revenue bond and other loans plus
mortgage acquisition fees, net............................ 9,840,027
-----------
Gain on Sale........................................... $ 1,282,973
===========
Allocated as follows:....................................... $ 12,830
General Partner........................................... 1,270,143
-----------
BAC Holders............................................... $ 1,282,973
===========
</TABLE>
(3) The net adjustment represents payments of the December 31, 1998 liabilities
and receipt of the General Partner's deficit restoration payment.
(4) The amount represents reserves for expenses related to the dissolution and
liquidation of the Partnership that the General Partner reasonably deems
necessary. These costs include legal, transfer agent fees, other professional
fees, reimbursed costs and miscellaneous expenses.
(5) After the payment of all the debts, liabilities and obligations of the
Partnership and the expenses of dissolution and liquidation and the setting up
of any reserves for contingencies that the General Partner reasonably deems
necessary, liquidating distributions shall be made to the BAC Holders.
14
<PAGE> 24
(6) Pursuant to the terms of the Partnership Agreement, proceeds arising from a
sale or other disposition of the mortgaged property or the repayment of the
Bond will be distributed as follows:
(a) to repay all debts and obligations of the Partnership and to increase
the working capital reserve as the General Partner deems necessary;
(b) to each BAC Holder equal to the unpaid portion of any Preferred Cash
Flow Return up to the amount of income allocated to each BAC Holder;
(c) to the General Partner and to each BAC Holder up to the amount of their
Adjusted Capital Contributions, as defined; and
(d) to the General Partner and to each BAC Holder, in accordance with their
respective capital accounts.
15
<PAGE> 25
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
To the knowledge of the General Partner, as of the Record Date, there were
approximately 1,032 BAC Holders of record with 2,140,000 BACs issued and
outstanding, and no officer or director of the General Partner owned any BACs.
To the knowledge of the General Partner, no person or group owns more than 5% of
the outstanding BACs.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by the Partnership
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), are incorporated by reference into this Statement.
1. Annual Report on Form 10-K for the fiscal year ended December 31, 1998.
All documents and reports filed by the Partnership pursuant to Sections
13(a) or 15(d) of the Exchange Act subsequent to the date of this Statement
shall be deemed to be incorporated by reference in this Statement and to be a
part hereof from the date of filing of such documents or reports. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Statement to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Statement.
This Statement incorporates documents by reference which are not presented
herein or delivered herewith. A copy of any or all documents incorporated by
reference herein (other than exhibits thereto which are not specifically
incorporated by reference herein) will be provided without charge to each person
to whom this Statement is delivered upon oral or written request within one
business day of receipt of such request to MacKenzie Partners, Inc., 156 Fifth
Avenue, New York, NY 10010. In order to ensure timely delivery of the documents,
any such request should be made not later than May 5, 1999.
16
<PAGE> 26
ANNEX A
BOND PURCHASE AGREEMENT
THIS BOND PURCHASE AGREEMENT (this "Agreement") is executed as of February
5, 1999 (the "Effective Date") by and between WASATCH ACQUISITIONS LLC, a Utah
limited liability company, and its permitted assigns hereunder (the
"Purchaser"), and VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP, a
Delaware limited partnership (the "Seller").
W I T N E S S E T H :
WHEREAS, the Seller is the owner and holder of those tax-exempt multifamily
housing revenue bonds issued by The City of Fresno, California (the "Issuer")
known as the Issuer's $15,515,000 Multifamily Housing Revenue Bond (Camelot
Lakes Apartment Project) Series 1989 (the "Bonds") under an Indenture of Trust
and Lender Loan Agreement (the "Indenture") dated as of April 15, 1989 among the
Issuer, the Seller and First Interstate Bank of California, as trustee (the
"Trustee"), to finance that apartment project known as Camelot Lakes Apartments
(the "Project") currently owned by Concam Associates, L.P., a California limited
partnership ("Concam"), all as designated on Exhibit A attached hereto; and
WHEREAS, contemporaneously with the execution of this Agreement, the
Purchaser and Concam have entered into an Agreement for Purchase and Sale and
Joint Escrow Instructions for the purchase of the Project (the "Project
Agreement"); and
WHEREAS, the Seller has agreed to sell, transfer and assign the Bonds to
the Purchaser, and the Purchaser has agreed to purchase and assume the Bonds
from Seller, all on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the mutual covenants and agreements
hereinafter set forth, and other good and valuable consideration, the receipt
and legal sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
SECTION 1. AGREEMENT OF PURCHASE AND SALE. The Seller hereby agrees to
sell, transfer and assign to the Purchaser, and the Purchaser hereby agrees to
purchase from the Seller, all of the Bonds (but not less than all of the Bonds)
on the terms and conditions set forth herein.
SECTION 2. PURCHASE PRICE. The purchase price for the Bonds shall be
$11,600,000 (the "Purchase Price"), which shall be payable in immediately
available funds at the Closing (hereinafter defined).
SECTION 3. DEPOSIT. As of the Effective Date, the Purchaser will deliver
to LandAmerica Title Company (the "Title Company"), 3636 North Central Avenue,
Suite 350, Phoenix, Arizona 85012, Attention: John Johnson, the sum of $500,000
as a deposit (the "Deposit") against the Purchase Price. The Deposit shall be
non-refundable except as provided in Section 11 below.
SECTION 4. CLOSING DATE. The consummation of the purchase and sale of the
Bonds contemplated hereunder (the "Closing") shall occur on a business day
contemporaneously with the closing of the transaction covered by the Project
Agreement and shall be on the date which is ten days following the date on which
the Seller has certified in writing to the Purchaser that the Seller has
obtained the written consent of a majority in interest of the Seller's limited
partners to the transactions contemplated by this Agreement (the "Consent of the
Seller's Limited Partners") (the actual date upon which the Closing occurs being
herein referred to as the "Closing Date"), in the offices of the Title Company
in Phoenix, Arizona. The closing shall occur on or before April 30, 1999;
provided, however, the final date for closing shall be extended to the extent
the United States Securities and Exchange Commission reviews and approves or
otherwise delays the Seller's proxy for the written consent of the Seller's
limited partners, but in no event later than May 31, 1999.
<PAGE> 27
SECTION 5. DUE DILIGENCE.
(a) PROJECT MATERIALS. As of the Effective Date, the Seller has
delivered to the Purchaser and the Purchaser hereby acknowledges receipt
and approval of the following items (the "Project Materials"):
(i) Copies of all documents in Seller's possession with respect to
the Bonds, including, without limitation, the Indenture (including any
and all amendments and supplements thereto); that Loan Agreement dated
as of April 15, 1989 among the Issuer, Camelot Lakes Associates, a
California Limited Partnership (the "Prior Owner"), and the Seller, as
amended; the Regulatory Agreement entered into as of April 15, 1989
among the Issuer, the Trustee, the Prior Owner and the Seller (the
"Regulatory Agreement") (including any and all amendments thereto)
imposing restrictions on the Project in order to insure compliance with
requirements under the Internal Revenue Code of 1954, as amended, or the
Internal Revenue Code of 1986, as amended, that must be satisfied for
interest payable on any Bonds to be excluded from the gross income of
the holder of such Bonds which is subject to payment of federal income
taxation; any mortgage, deed of trust, security agreement or other
agreement creating a lien or encumbrance on any real or personal
property for the direct or indirect benefit of the holders from time to
time of the Bonds (including any and all amendments thereto and any and
all forbearance or standstill agreements with respect thereto); any
reimbursement, intercreditor or remarketing agreements; any other
agreements, instruments, certificates or opinions received by the Seller
in connection with its ownership of the Bonds, which are currently in
the possession of the Seller, including, but not limited to, any of the
documents, instruments or agreements included in this definition of Bond
Documents to which the Seller is a party or signatory, or executed and
delivered in connection with any Bonds, as such agreements, instruments,
certificates or opinions may be amended or supplemented from time to
time in accordance with the terms thereof (together, the "Bond
Documents");
(ii) Copies of all notices, correspondence, memoranda or other
materials relating to the Bonds issued by or received by the Seller
since the date of the original issuance of any Bonds and which are
currently in the possession of the Seller;
(iii) A photocopy of the current Bond certificate authenticated by
the Trustee, registered in the name of the Seller, as sole registered
owner; and
(iv) a written accounting of all interest on the Bonds which is
accrued and unpaid as of the date of this Agreement.
(b) RETURN OF PROJECT MATERIALS AND OTHER MATERIALS. Upon termination
of this Agreement without the Closing, the Purchaser agrees to return to
the Seller all of the Project Materials and any other information delivered
to the Purchaser by the Seller or the Trustee during the term of this
Agreement.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
(a) SELLER'S REPRESENTATIONS AND WARRANTIES. The Seller hereby
represents and warrants to the Purchaser as follows:
(i) The Seller is a limited partnership duly organized, validly
existing and in good standing under the laws of the State of Delaware
with adequate power and authority to execute and deliver this Agreement
and carry out the terms and provisions hereof, subject only to the
Consent of the Seller's Limited Partners.
(ii) Upon Consent of the Seller's Limited Partners, this Agreement
will be the valid and binding agreement of the Seller, enforceable
against the Seller in accordance with its terms, except as such
enforceability may be limited by bankruptcy, receivership, fraudulent
conveyance, moratorium or other similar laws and by general principles
of equity.
(iii) Subject to the Consent of Seller's Limited Partners, the
execution and delivery of this Agreement and all related documents by
the Seller, and the performance of its obligations hereunder and
thereunder by the Seller, do not conflict with any provision of any law
or regulation to which the
2
<PAGE> 28
Seller is subject or conflict with or result in a breach of or
constitute a default by the Seller under any of the terms, conditions or
provisions of any agreement or instrument to which the Seller is a party
or by which the Seller is bound or any order or degree applicable to the
Seller or result in the creation or imposition of any lien on any of the
Seller's respective assets or property; and except for the Consent of
Seller's Limited Partners, the Seller has obtained all consents,
approvals, authorizations or orders of any court or governmental agency
or body, if any, required for the execution, delivery and performance by
the Seller of this Agreement, except for the consents of any court or
public or governmental body required for the execution of this Agreement
and the transfer of the Bonds and the Consent of the Seller's Limited
Partners.
(iv) To Seller's actual knowledge, there are no judgments, orders
or decrees of any kind against the Seller or any legal action, suit or
other legal or administrative proceeding pending, threatened or
reasonably anticipated which could be likely filed before any court or
administrative agency which has, or is likely to have, any material
adverse effect on the ability of the Seller to sell the Bonds and
consummate the transactions contemplated by this Agreement.
(v) The Seller has not filed any petition seeking or acquiescing in
any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any law relating to bankruptcy or
insolvency, nor has any such petition been filed against the Seller. No
general assignment of the Seller's property has been made for the
benefit of creditors, and no receiver, master, liquidator or trustee has
been appointed for the Seller or any of its property. The Seller is not
insolvent, and the consummation of the transactions contemplated by this
Agreement shall not render the Seller insolvent.
(vi) The Seller is the legal, equitable and beneficial owner and
holder of the Bonds in the principal amount of $15,515,000. The Seller
is the holder or beneficiary of all rights, titles, interests, liens and
encumbrances created or existing for the benefit of the holder of the
Bonds under each of the Bond Documents. The Seller has not previously
assigned any such rights, titles, interests, liens or encumbrances, or
its interest in any of the Bond Documents, and, on the Closing Date, the
Seller's interest in all such rights, titles, interests, liens or
encumbrances, and in the Bond Documents, as assigned to the Purchaser
under or as contemplated in this Agreement, will be free of any right,
title or valid claim of any third party except as set forth in the Bond
Documents.
(vii) To the Seller's actual knowledge, the Bond Documents provided
by the Seller to the Purchaser constitute true, complete and correct
copies of all documents executed in connection with the Bonds. The
Seller is not aware of amendments, modifications, terminations,
subordinations or supplements of or to the Bond Documents, other than as
the Seller will provide to the Purchaser in writing with the delivery of
the Bond Documents. The Seller has not released, canceled or
acknowledged as satisfied any lien or encumbrance purported to be
created by any of the Bond Documents or any indebtedness or obligation
purported to be created, actually or contingently, by any of the Bond
Documents.
(viii) The Seller has not received any written notice of any
governmental, judicial or other action or claim by any person which is
pending or threatened against the Issuer or the Trustee with respect to
the Bonds or with respect to or affecting any of the Bond Documents.
(ix) The Seller has not received any written notice of default from
the Trustee or any other party with respect to the Bonds or Bond
Documents.
(x) Each of the representations and warranties contained herein and
its various subparagraphs are intended for the benefit of the Purchaser
and may be waived, in whole or in part, by the Purchaser, but only by an
instrument in writing signed by the Purchaser. The representations and
warranties of the Seller set forth herein shall terminate at the
Closing.
(xi) From and after the Effective Date, and until the earlier to
occur of the termination of this Agreement or the Closing, the Seller
will not actively market the Bonds for sale to third parties.
3
<PAGE> 29
(b) PURCHASER'S COVENANTS, REPRESENTATIONS AND WARRANTIES. The
Purchaser hereby covenants, represents and warrants to the Seller as
follows:
(i) Each entity comprising the Purchaser is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Utah with adequate power and authority to execute
and deliver this Agreement and carry out the terms and provisions
hereof.
(ii) This Agreement is the valid and binding agreement of the
Purchaser, enforceable against the Purchaser in accordance with its
terms, except as such enforceability may be limited by bankruptcy,
receivership, fraudulent conveyance, moratorium or other similar laws
and by general principles of equity.
(iii) The execution and delivery of this Agreement and all related
documents by the Purchaser, and the performance of its obligations
hereunder and thereunder by the Purchaser, do not conflict with any
provision of any law or regulation to which the Purchaser is subject or
conflict with or result in a breach of or constitute a default by the
Purchaser under any of the terms, conditions or provisions of any
agreement or instrument to which the Purchaser is a party or by which
the Purchaser is bound or any order or degree applicable to the
Purchaser or result in the creation or imposition of any lien on any of
the Purchaser's respective assets or property; and the Purchaser has
obtained all consents, approvals, authorizations or orders of any court
or governmental agency or body, if any, required for the execution,
delivery and performance by the Purchaser of this Agreement.
(iv) The Purchaser will, with the reasonable cooperation of the
Seller, obtain, at the Purchaser's expense, the consent of the City of
Fresno, California to the transactions contemplated by this Agreement
and the Project Agreement (the "Municipal Approval").
(v) There are no judgments, orders or decrees of any kind against
the Purchaser or any legal action, suit or other legal or administrative
proceeding pending, threatened or reasonably anticipated which could be
likely filed before any court or administrative agency which has, or is
likely to have, any material adverse effect on the ability of the
Purchaser to purchase the Bonds and consummate the transactions
contemplated by this Agreement.
(vi) The Purchaser has not filed any petition seeking or
acquiescing in any reorganization, arrangement, composition,
readjustment, liquidation, dissolution or similar relief under any law
relating to bankruptcy or insolvency, nor has any such petition been
filed against the Purchaser. No general assignment of the Purchaser's
property has been made for the benefit of creditors, and no receiver,
master, liquidator or trustee has been appointed for the Purchaser or
any of its property. The Purchaser is not insolvent, and the
consummation of the transactions contemplated by this Agreement shall
not render the Purchaser insolvent.
SECTION 7. CLOSING. At the Closing, which shall take place on the Closing
Date, the parties shall deliver the following items:
(a) SELLER. The Seller shall deliver the Title Company for transfer
to the Purchaser the following:
(i) the certificated and authenticated Bonds, free and clear of all
liens, security interests or other encumbrances (with the transfer and
assignment form attached to the Bonds) executed in blank by the Seller;
(ii) one or more assignments of all of the Seller's rights and
interests under all Bond Documents, in form and substance consistent
herewith and reasonably satisfactory to the Seller and Purchaser;
(iii) payment of all transfer taxes required in connection with
the transfer of the Bonds;
(iv) such additional instruments of transfer or other documents as
are reasonably requested by the Purchaser or Title Company to effectuate
the transactions contemplated by this Agreement; and
4
<PAGE> 30
(v) a written accounting of all interest accrued and unpaid on the
Bonds to the date of Closing.
b. PURCHASER. The Purchaser shall deliver to the Title Company for
transfer to the Seller (or to the Seller's designee) the Purchase Price in
immediately available funds, the executed Municipal Approval and the
investment letter required under the Bond Documents. The Purchaser shall
also execute and deliver such other documents as may be reasonably required
by the Seller or the Title Company and a certificate of the Purchaser
designating those persons authorized to execute and deliver all necessary
documents at Closing.
SECTION 8. CONDITIONS TO CLOSING. The obligations of the Purchaser and
the Seller hereunder shall be subject to the following conditions precedent or
concurrent:
(a) CLOSING UNDER THE PROJECT AGREEMENT. The consummation of all of
the transactions contemplated by the Project Agreement and all documents,
instruments and agreements contemplated thereby shall have occurred on or
before the Closing Date, as herein defined (except for any failure due to
the acts or omissions of the Purchaser or any of its agents or affiliates.
(b) DELIVERY OF THE BONDS. The Seller shall have delivered the Bonds
and the Purchaser shall have delivered the Purchase Price, as set forth in
Section 7 hereof.
(c) LIMITED PARTNERS CONSENT. The Seller shall have secured the
Consent of Seller's Limited Partners.
SECTION 9. ACCRUED INTEREST. The Bonds will be sold as of the Closing
Date and the Purchaser shall pay no accrued interest to the Seller. Seller shall
be entitled to all Net Cash Flow (as defined in the Bond Documents) attributable
to the period prior to the Closing Date.
SECTION 10. NOTICES. Any notice, demand or request that may be permitted,
required or desired to be given in connection herewith shall be in writing and
directed to the Seller and the Purchaser by (a) personal delivery, (b) Federal
Express, Airborne or similar reputable overnight express delivery service, (c)
registered or certified United States mail, return receipt requested, postage
prepaid, in each instance addressed to the appropriate addresses set forth
below, or (d) telecopy to the telecopy number set forth below. If any notice or
other communication is effected by personal delivery, by telecopy or by an
overnight express delivery service, the date and hour of actual delivery shall
fix the time of notice. Absent a postal strike or other stoppage of the mails,
as to any notice given by registered or certified United States mail, the date
three days following the date on which the sealed enveloped containing the
notice is deposited in the United States mail, properly addressed and with
postage prepaid, shall fix the time of notice. Each party shall have the right
to change its address, for purposes of notice, by giving notice to the other
party hereto as provided above.
If to the Seller, to:
Victory Tax Exempt Realty Income Fund Limited Partnership
c/o Lehman Brothers, Inc.
29th Floor
3 World Trade Center
New York, NY 10285
Attention: Doreen Odell
with a copy to:
Mintz Levin Cohn Ferris Glovsky and Popeo, P.C.
One Financial Center
Boston, MA 02111
Attention: Charles E. Carey, Esq.
5
<PAGE> 31
If to the Purchaser, to:
c/o Wasatch Property Management Co.
Suite 200
399 North Main Street
Logan, UT 84321
Attention: Tony Johnson
SECTION 11. TERMINATION; DEFAULT.
(a) Provided that Purchaser is not in default hereunder, the Purchaser
may terminate this Agreement only because of (i) the occurrence after the
Effective Date of a material default under the Bond Documents, other than a
failure to remarket the Bonds on the Initial Remarketing Date, (ii) the
failure of the Project Agreement to close due to no fault, act or omission
of Purchaser or any of its agents or affiliates or (iii) the failure of the
Seller to furnish to the Purchaser by May 31, 1999, written evidence of the
Consent of Seller's Limited Partners, in any of which events the Deposit
shall be promptly refunded to the Purchaser.
(b) In the event that the Closing does not occur because of the
default by the Seller in performing its obligations hereunder (except for
the termination or the failure of the Project Agreement to close
simultaneously with the Closing of this Agreement) and the Purchaser has
performed its obligations hereunder and under the Project Agreement, the
Purchaser shall have the right either to seek specific performance of the
Seller's obligations hereunder or to terminate this Agreement, in which
latter event the Deposit shall promptly be refunded to the Purchaser.
(c) If Closing fails to occur for any reason (including without
limitation, a failure to obtain the Municipal Approval) other than due to:
(i) a default of the Seller; (ii) a failure to obtain the Consent of
Seller's Limited Partners; or (iii) a failure of Concam to close under the
Project Agreement which is not due to the act or omission of the Purchaser
or its agents or affiliates, the Seller may terminate this Agreement and
retain the Deposit as liquidated damages, the parties agreeing that the
Seller's actual damages would be difficult to calculate or ascertain and
that such amount reflects a reasonable estimate of such damages, and the
Seller agrees that it shall not be entitled to any other damages under or
in connection with this Agreement.
(d) The failure of the closing under the Project Agreement and this
Agreement to occur simultaneously (other than due to the failure of the
Seller or any third party to perform any of its respective obligations
under any such agreements) will result in the release of the Seller from
all of the Seller's obligations under the terms of this Agreement.
SECTION 12. PAYMENT OF EXPENSES. The Purchaser shall be responsible for
the expenses and out-of-pocket costs that it incurs in connection with its
inspection of the Bonds, including all legal fees and costs and such fees as are
imposed by the Issuer and the Trustee. Each party shall be responsible for its
own legal costs incurred in connection with the negotiation and consummation of
this Agreement. If either party hereto employs an attorney to enforce or defend
its rights hereunder, the prevailing party shall be entitled to recover its
reasonable attorneys' fees. Seller and Purchaser shall pay equal shares of the
fees and expenses of the Title Company.
SECTION 13. GOVERNING LAW. The internal laws of the State of California
shall govern the validity, construction, enforcement and interpretation of this
Agreement.
SECTION 14. ATTORNEYS' FEES. In the event either party hereto is required
to employ an attorney because any litigation arises out of this Agreement
between the parties hereto, the nonprevailing party shall pay the prevailing
party all reasonable fees and expenses incurred in connection with such
transaction.
SECTION 15. ENTIRETY AND AMENDMENTS. This Agreement embodies the entire
agreement between the parties with respect to the acquisition of the Bonds and
supersedes all prior agreements and understandings, if any, relating to the
acquisition of the Bonds and may be amended or supplemented only by an
instrument in writing executed by the party against whom enforcement is sought.
6
<PAGE> 32
SECTION 16. PARTIES BOUND. This Agreement is binding upon and inures to
the benefit of the Seller and the Purchaser and their respective successors and
permitted assigns.
SECTION 17. FURTHER ACTS. In addition to the acts and deeds recited in
this Agreement and contemplated to be performed, executed and/or delivered by
the Seller or the Purchaser, the Seller and the Purchaser agree to perform,
execute and/or deliver or cause to be performed, executed and/or delivered at
the Closing or after the Closing any and all further acts, deeds and assurances
as are reasonably necessary to consummate the transactions contemplated hereby,
but not inconsistent with the terms of this Agreement.
SECTION 18. MULTIPLE COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one and the
same agreement, and any of the parties to this Agreement may execute this
Agreement by signing any of the counterparts.
SECTION 19. TIME. Time is of the essence in all things pertaining to the
performance of this Agreement.
SECTION 20. SECTION HEADINGS. The section headings contained in this
Agreement are for convenience only and shall in no way enlarge or limit the
scope or meaning of the various and several sections hereof.
SECTION 21. NO THIRD PARTY BENEFICIARY. This Agreement is solely for the
benefit of the Seller and the Purchaser, and there shall be no implied
third-party beneficiaries unless this Agreement has been assigned in accordance
with the provisions hereof.
SECTION 22. BROKERS. The Seller and the Purchaser each represent that
they have not dealt with any broker, finder or other party entitled to a
commission or other compensation or which was instrumental or had any role in
bringing about the sale of the Bonds. Should any claim be made for a commission,
finder's fee or other compensation arising out of the actions or agreements of
the Seller or the Purchaser, each party will hold the other free and harmless
from any and all claims, liabilities, losses, damages, costs or expenses as a
result of a breach of the foregoing representation by such breaching party,
including, without limitation, reasonable attorneys' fees and expenses in
connection therewith.
SECTION 23. COVENANT OF FURTHER ASSURANCES. The Seller hereby covenants
to cooperate and render reasonable assistance to the Buyer in obtaining
Municipal Approval in order to effect the transactions contemplated by this
Agreement. Third party costs incurred by the Seller at the request of the Buyer
in rendering such assistance shall be reimbursed by the Buyer.
SECTION 24. ASSIGNMENT. All rights and obligations of the Purchaser under
this Agreement shall be freely assignable by the Purchaser one time to an entity
controlled by Wasatch Acquisitions LLC or which Dell Loy Hansen acts as the
general partner, managing member or majority shareholder, without the prior
consent of the Seller, and shall otherwise be assignable with the prior consent
of the Seller, which consent shall not be unreasonably withheld.
SECTION 25. EFFECTIVE DATE. The effective date of this Agreement shall be
February 5, 1999.
7
<PAGE> 33
EXECUTED as of the Effective Date.
SELLER:
VICTORY TAX EXEMPT REALTY INCOME
FUND LIMITED PARTNERSHIP
By CA Victory Inc., Its General
Partner
By /s/ DOREEN D. ODELL
------------------------------------
Name Doreen D. Odell
----------------------------------
Title President
-----------------------------------
PURCHASER:
WASATCH ACQUISITIONS, LLC
By: Wasatch Property Management Inc,
Manager
By /s/ TONY R. JOHNSON
------------------------------------
Name Tony R. Johnson
----------------------------------
Title Vice President
-----------------------------------
FULLY EXECUTED COPY
AND DEPOSIT RECEIVED
February 12, 1999
LANDAMERICA FINANCIAL GROUP, INC.
By /s/ MARY L. GARCIA
--------------------------------------------------------
Name Mary L. Garcia
-------------------------------------------------------
Title National Title Officer
--------------------------------------------------------
8
<PAGE> 34
ANNEX B
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER: 0-18333
VICTORY TAX EXEMPT REALTY
INCOME FUND LIMITED PARTNERSHIP
EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER
<TABLE>
<S> <C>
DELAWARE 13-3516912
STATE OR OTHER JURISDICTION OF I.R.S EMPLOYER
INCORPORATION OR ORGANIZATION IDENTIFICATION NO.
ATTN.: ANDRE ANDERSON
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285
ADDRESS OF PRINCIPAL EXECUTIVE OFFICES ZIP CODE
</TABLE>
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 526-3183
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
BENEFICIAL ASSIGNEE CERTIFICATES (BACS)
TITLE OF CLASS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for 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 the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
As of December 31, 1998, 2,140,000 beneficial assignee certificates (BACs)
had been issued at a subscription price of $10 per BAC. The BACs are not
currently being traded in any market and as such, the BACs have neither a market
selling price nor an average bid or asked price.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Parts I, II, III and IV are incorporated by reference to the
Partnership's Annual Report to BAC Holders for the year ended December 31, 1998,
filed as an exhibit under Item 14.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE> 35
PART I
ITEM 1 BUSINESS
(a) General Development of Business
Victory Tax Exempt Realty Income Fund Limited Partnership (the
"Partnership" or "Registrant") was organized January 15, 1988 under the Delaware
Revised Uniform Limited Partnership Act and will continue until December 31,
2018, unless dissolved earlier in accordance with the Agreement of Limited
Partnership (the "Partnership Agreement"). The Partnership was formed for the
purpose of acquiring tax-exempt mortgage revenue bonds issued by one or more
state or local governments or their agencies or authorities, the proceeds of
which are used to make participating first mortgage loans on multifamily
residential rental developments and to make, in limited circumstances, taxable
working capital loans to owners of such developments.
The general partner of the Partnership is CA Victory Inc. (the "General
Partner"), formerly Shearson/ Victory Inc., a Delaware corporation and an
affiliate of Lehman Brothers Inc. ("Lehman"), formerly Shearson Lehman Brothers
Inc. (see section entitled "Certain Matters Involving Affiliates" contained in
Item 10. "Directors and Executive Officers of the Registrant"). The assignor
limited partner is CA Victory Assignor Corp. (the "Assignor Limited Partner"),
formerly Shearson/Victory Assignor Corp. (see section entitled "Certain Matters
Involving Affiliates" contained in Item 10. "Directors and Executive Officers of
the Registrant"), which is an affiliate of Lehman.
The Assignor Limited Partner has assigned certain of the ownership
attributes of its limited partnership interests, including rights to a
percentage of the income, gains, losses, deductions and distributions of the
Partnership to the BAC Holders on the basis of one unit of limited partnership
for one BAC.
The business objectives of the Partnership were:
(1) to preserve and protect the Partnership's capital;
(2) to provide to BAC Holders quarterly cash distributions from payments of
base interest on the mortgage revenue bond which has been acquired by
the Partnership, that are excludable from gross income for federal
income tax purposes, and in certain instances, nontaxable distributions
from the Partnership's Interest Reserve Account;
(3) to provide to BAC Holders additional cash distributions from payments
of contingent interest on the mortgage revenue bond that are excludable
from gross income for Federal income tax purposes which are derived to
the extent allocable from participation in project cash flow and sale
or repayment proceeds; and
(4) to provide additional cash distributions from payments of taxable
interest pursuant to working capital loans, which will constitute no
more than 10% of the Partnership's invested assets.
On April 28, 1989, the Partnership acquired a mortgage revenue bond (the
"Bond") issued by the city of Fresno, California in the original principal
amount of $15,515,000. The Bond is secured by a first mortgage loan (the "Loan")
on Camelot Lakes Apartments (the "Property") located in Fresno. In conjunction
with the investment in the Bond, the Partnership also made a working capital
loan on the Property in the amount of $420,000 (the "Working Capital Loan")
which was secured by a second deed of trust encumbering the Property. The owner
of the Property at the time the Partnership purchased the Bond was Camelot Lakes
Associates ("Camelot Lakes"), an unaffiliated California limited partnership. On
February 1, 1994, the General Partner finalized a restructuring with Camelot
Lakes, which included transferring the Property to a new owner, entering into a
Forbearance Agreement with the new owner, amending the second deed of trust, and
replacing the original property management company. Pursuant to the
restructuring, the current owner and borrower is ConCam Associates, LP ("ConCam"
or the "New Borrower"), an unaffiliated California limited partnership, and the
current property manager is ConAm Management Corporation ("ConAm"), an affiliate
of ConCam. In conjunction with this restructuring, the Partnership also made a
capital improvements
2
<PAGE> 36
loan (the "Capital Improvements Loan") of $500,000 during 1994, which was also
secured by the second deed of trust encumbering the Property. Additional
information regarding the Bond, the Working Capital Loan and the Capital
Improvements Loan is incorporated by reference to Note 4 "Mortgage Revenue Bond,
Working Capital Loan, and Capital Improvements Loan" of the Notes to the
Financial Statements contained in the Partnership's Annual Report to BAC Holders
for the year ended December 31, 1998, filed as an exhibit under Item 14.
During 1997, the General Partner and ConCam agreed to pursue a sale of the
Property and/or Bond prior to the Loan's scheduled maturity date on April 28,
1999. In February 1999, the Partnership entered into a binding agreement to sell
the Bond. A detailed discussion of the proposed sale (the "Sale") is
incorporated by reference to Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained herein.
(b) Employees
The Partnership does not have any employees. Services are performed for the
Partnership by affiliates of the General Partner and agents retained by them.
(c) Competition
The Property is subject to competition in its renting and leasing activity
from several similar properties also located within the southeast submarket of
Fresno County. Many one and two family houses in the area are also available for
rent or purchase and compete with the Property for prospective tenants.
Because the Property offers amenities such as a swimming pool and tennis
courts, it demands rents that are at the upper end of the Fresno market. The
General Partner believes that the sluggish economy in Fresno and a demographic
shift in the region have somewhat shifted demand for housing in Southeastern
Fresno to the lower end of the rate structure. This shift, combined with
competitive forces and modest growth in demand, has caused limited or virtually
no rental rate growth at many area properties, including the Property.
ITEM 2. PROPERTIES
The Partnership does not own any property. The Partnership has, however,
invested in the Bond for which an underlying first mortgage on the Property has
been assigned to the Partnership as collateral and the Partnership has made the
initial Working Capital Loan and the Capital Improvements Loan to the owner.
Additional information regarding the Bond, Working Capital Loan, the Capital
Improvements Loan and the Property is incorporated by reference to Note 4
"Mortgage Revenue Bond, Working Capital Loan, and Capital Improvements Loan" of
the Notes to the Financial Statements contained in the Partnership's Annual
Report to BAC Holders for the year ended December 31, 1998, filed as an exhibit
under Item 14.
ITEM 3. LEGAL PROCEEDINGS
The Partnership is not the subject of any material legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to the BAC Holders to be voted on during the
fourth quarter of the year for which this report was filed.
In February 1999, the Partnership entered into a binding agreement to sell
the Bond (see Item 7). The proposed Sale will require the consent of a
majority-in-interest of the BAC Holders to direct the consent of the Assignor
Limited Partner to the Sale. Consent of the BAC Holders will be solicited only
by means of a consent solicitation, which will be mailed to BAC Holders upon the
completion of a customary Securities and Exchange Commission review process.
There can be no assurance that the sale will be consummated on the announced
terms, if at all.
3
<PAGE> 37
PART II
ITEM 5.MARKET FOR REGISTRANT'S LIMITED PARTNERSHIP UNITS AND RELATED UNITHOLDER
MATTERS
(a) Market Information.
There is no established public market in which the BACs are currently
traded.
(b) Approximate Number of Security Holders.
As of December 31, 1998, there were 1,032 BAC Holders.
(c) Dividend History and Restrictions.
Information on the Partnership's cash distributions is incorporated by
reference to Item 7., "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained herein, and Note 6 "Distributions
Payable" of the Notes to the Financial Statements in the Partnership's Annual
Report to BAC Holders for the year ended December 31, 1998, filed as an exhibit
under Item 14.
Quarterly cash distributions per $10 BAC are shown below for the years
ended December 31, 1998 and 1997.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
1997.. $0.0740 $0.0370 $0.0000 $0.0000 $0.1110
1998.. 0.0000 0.0000 0.0000 0.0000 0.0000
</TABLE>
- ---------------
(Based on 2,140,000 BACs outstanding)
Cash distributions were suspended beginning with the 1997 third quarter
distribution, which would have been paid in November 1997. In light of the
decision to sell the Property and/or the Bond, quarterly distributions will not
be reinstated. Following the Sale, the General Partner will distribute to the
BAC Holders the net proceeds received on the Bond together with the
Partnership's remaining cash reserves (after payment of, or provision for, the
Partnership's liabilities and expenses), and dissolve the Partnership.
ITEM 6. SELECTED FINANCIAL DATA
Selected Partnership financial data as of and for each of the years ended
December 31, 1998, 1997, 1996, 1995 and 1994 are shown below. This data should
be read in conjunction with the Partnership's financial statements and the
related notes included herein, filed as an exhibit under Item 14.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total Revenues.................. $ 713,166 $ 440,246 $ 646,191 $ 71,044 $ 406,502
Net Income (Loss)............... 482,048 (2,692,230) 514,121 (30,145) 211,582
Net Income (Loss) per BAC(1).... .23 (1.25) .24 (.01) .10
Total Assets as of December
31............................ 10,918,467 10,422,735 13,493,316 14,044,167 15,168,426
Total Cash Distributions
declared per BAC(1)........... 0.00 0.111 0.449 0.500 0.500
</TABLE>
- ---------------
(1) 2,140,000 BACs outstanding.
4
<PAGE> 38
ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's operating income is derived from its investment in a
mortgage revenue bond (the "Bond") in the original principal amount of
$15,515,000 secured by a first mortgage loan (the "Loan") on Camelot Lakes
Apartments (the "Property").
Operating difficulties at the Property resulted in Camelot Lakes
Associates, an unaffiliated limited partnership (the "Original Borrower"),
defaulting on the November 1993 through January 1994 Bond payments. On February
1, 1994, the General Partner reached a restructuring agreement with the Original
Borrower, whereby the ownership of the Property was transferred to ConCam
Associates, LP ("ConCam"), and property management was transferred to ConAm
Management Corporation ("ConAm"), a major property management company and an
affiliate of ConCam. In addition to ownership, ConCam assumed the obligations
under the Bond and Loan documents on a nonrecourse basis. Pursuant to the
restructuring, the Partnership entered into a forbearance agreement (the
"Forbearance Agreement") with ConCam pursuant to which the Partnership, for a
limited period, agreed to forbear from exercising certain remedies against
ConCam and the Property provided certain conditions were met.
Pursuant to the Forbearance Agreement, the minimum interest payment on the
Bond increased to 7.0% on February 1, 1996 from the previous rate of 6.5%. In
February 1996, ConCam indicated that the Property's operations could not support
debt service payments at the increased rate in 1996. On May 8, 1996, as a result
of negotiations with ConCam, the Partnership executed a standstill agreement
(the "Agreement") to generally allow a continuance of the terms of the
Forbearance Agreement provided that in lieu of the minimum pay rate, ConCam pays
as debt service all available cash flow generated by the Property. The Agreement
remained in effect until the Forbearance Agreement expired on December 31, 1996.
At such time, the parties were engaged in good faith negotiations and therefore,
the Partnership extended the Agreement with ConCam through December 31, 1997.
Effective January 1, 1998, the Partnership executed an extension of the
Agreement with ConCam until the earlier to occur of December 31, 1998 or the
closing of a sale of the Property. The Agreement was subsequently extended to
the earlier to occur of June 30, 1999, or the closing of a sale of the Bond and
the Property.
The General Partner's objective is to maximize the recovery of the
Partnership's investment. After careful consideration, the General Partner has
determined that a sale of the Property and an accelerated repayment of the Bond,
or a sale of the Bond in conjunction with a sale of the Property, are the most
viable means to achieve this objective. Therefore, the Partnership and ConCam
agreed to pursue a sale of the Property and/or the Bond prior to the Loan's
scheduled maturity date on April 28, 1999. In February 1999, the Partnership
entered into a binding agreement to sell the Bond to Wasatch Acquisitions LLC, a
Utah limited liability company, or its designated affiliate, for a gross sale
price of $11.6 million (the "Sale"). The proposed Sale is subject to the consent
of the City of Fresno, California and of a majority-in-interest of the
outstanding BAC Holders evidencing economic and certain other rights
attributable to the limited partnership interests in the Partnership and to the
satisfaction or waiver of the other customary closing conditions. Approval by
the BAC Holders will be solicited only by means of a consent solicitation, which
will be mailed to BAC Holders upon the completion of a customary Securities and
Exchange Commission review process. There can be no assurance that the Sale will
be consummated on the announced terms, if at all. Subject to closing of the
Sale, the Partnership has agreed to allow ConCam to cease making "cash-flow"
debt payments from January 1, 1999, and instead use the cash flow generated by
the Property to pay ConCam's expenses in connection with the operation and sale
of the Property to the buyer, which is intended to occur simultaneously with the
sale of the Bond.
During 1997, the Partnership wrote down the carrying value of its
investment in the mortgage revenue bond, working capital loan, and capital
improvements loan to its estimated fair value as determined by management at
that time. At December 31, 1998, the carrying value totaled $9,826,236. If the
proposed Sale is consummated on the announced terms, it is expected to result in
a gain in the amount of approximately $1.2 million.
5
<PAGE> 39
In anticipation of a potential sale, ConCam has been concentrating its
efforts on stabilizing Property operations and positioning the Property in the
Fresno market. To this end, the Partnership authorized ConCam in 1997 to utilize
a portion of operating cash flow to make certain Property improvements deemed
necessary to increase occupancy and ensure that the Property is well-positioned
for sale. The level of debt service payments made by ConCam to the Partnership
decreased to an average annual pay rate of 3.3% during 1997 as a result of these
additional capital expenses at the Property level. However, debt service
payments during 1998 were made at an average annual rate of 5.1%. This
improvement primarily was due to efforts to stabilize Property operations, as
discussed above.
Effective as of December 31, 1998, the Agreement was extended through the
earlier of (i) June 30, 1999, (ii) the closing of the sale of the Bond and the
Property or (iii) the termination of the Agreement upon default by the borrower.
At December 31, 1998, the Partnership had cash and cash equivalents, which
are invested in tax-exempt money market accounts, of $1,078,440, compared with
$366,144 at December 31, 1997. The increase primarily is due to an increase in
net cash flow from operations due to ConCam making higher minimum interest
payments to the Partnership and the discontinuation of quarterly cash
distributions.
Due to the Property's operating difficulties, the General Partner reduced
the cash distribution paid to the partners commencing in 1993, and subsequently
suspended cash distributions beginning with the 1997 third quarter distribution,
which would have been paid in November 1997. In light of the decision to sell
the Property and/or the Bond, quarterly distributions will not be reinstated.
Following a sale of the Bond, the General Partner will distribute to the BAC
Holders the net proceeds received on the Bond together with the Partnership's
remaining cash reserves (after payment of, or provision for, the Partnership's
liabilities and expenses), and dissolve the Partnership. As of December 31,
1998, total cash distributions paid to the Limited Partners since inception have
been funded 77% from operating cash flow and 23% from the Partnership's cash
reserves. Other than from a sale of the Bond, the sources of the Partnership's
future cash flows absent a sale of the Property or the Bond, are expected to be
interest earned on cash and cash equivalents.
YEAR 2000 INITIATIVES
The Year 2000 compliance issue concerns the ability of computerized
information systems to accurately calculate, store or use a date after 1999.
This could result in computer system failures or miscalculations causing
disruptions of operations. The Year 2000 issue affects almost all companies and
organizations.
The Partnership has entered into a binding agreement to sell the Bond, and
it is anticipated that the Sale will be completed and the Partnership dissolved
prior to December 31, 1999. In the event that the Partnership is not dissolved
prior to December 31, 1999, potential Year 2000 issues relate to the outside
vendors which provide the Partnership's administrative services, including
accounting, tax preparation and transfer agent services. Such services are
reliant on computer systems, software products and equipment which are expected
to be Year 2000 compliant prior to December 31, 1999. The General Partner
continues to discuss Year 2000 compliance with these outside vendors. It is
anticipated that the cost of vendor compliance with Year 2000 issues will be
borne primarily by these vendors. Although it is not possible at present to
estimate the cost of this remediation work based on available information, the
General Partner does not expect such costs to have a material adverse impact on
the Partnership's business, results of operations or financial condition.
The Partnership may have potential Year 2000 issues related to ConCam's own
vendors which provide accounting and property management services to them as
well as Year 2000 issues related to property operating systems. Such problems
may impair the ability of ConCam to make its debt service payments. Due to the
General Partner's intent to dissolve the Partnership before December 31, 1999,
no assessment has been made by the General Partner as to potential adverse
impact of ConCam's failure to prepare for the Year 2000.
Due to the General Partner's intent to dissolve the Partnership before
December 31, 1999, the General Partner currently does not have Year 2000
contingency plans. In the event the Sale is not completed, the General Partner
intends to develop and implement contingency plans in 1999. However, there is no
certainty such plans would fully mitigate any Year 2000 problems.
6
<PAGE> 40
MARKET RISK
The Partnership's principal market risk exposure is interest rate risk.
Interest income from the Partnership's cash and cash equivalents is subject to
interest rate risk in that such funds consist of short-term, highly liquid
investments invested at short-term rates. Since the General Partner expects the
Partnership to dissolve in 1999, such risk is not considered to be material to
the Partnership's operations.
RESULTS OF OPERATIONS
1998 VERSUS 1997
The Partnership accounts for its investment in the Bond using the equity
method of accounting. Accordingly, the Partnership reports as income its share
of the Property's results of operations.
For the year ended December 31, 1998, the Partnership generated net income
of $482,048, compared with a net loss of $2,692,230 for the year ended December
31, 1997. The change from net loss to net income is primarily due to the
write-down in the amount of $2,892,415 during 1997 of the carrying value of the
investment in the mortgage revenue bond, working capital loan, and capital
improvements loan to its estimated fair value at December 31, 1997. The
improvement is also due to an increase in the Partnership's share of earnings
from its investment in the Bond.
The Partnership's share of earnings from investment in the Bond is based on
the Property's earnings before debt service, which increased for the year ended
December 31, 1998 relative to 1997. The Partnership's equity interest in the
Property's earnings in 1998 was $688,788 compared to $426,352 in 1997. The
increase is primarily due to higher rental income and the containment of
expenses incurred at the Property. Total income at Camelot Lakes Apartments was
$2,134,358 for the year ended December 31, 1998, compared to $1,993,837 for the
year ended December 31, 1997. The increase primarily is due to an increase in
rental income as a result of higher average occupancy at the Property. Total
expenses at Camelot Lakes Apartments, net of debt service, depreciation and
amortization and impairment loss were $1,200,732 for the year ended December 31,
1998 compared with $1,223,351 for the year ended December 31, 1997.
Other interest totaled $24,378 for the year ended December 31, 1998,
compared to $13,894 for the year ended December 31, 1997. The increase primarily
is due to higher average cash balances maintained by the Partnership during the
1998 period.
Total expenses for the year ended December 31, 1998 were $231,118 compared
to $240,061 in 1997, excluding the $2,892,415 loss on write-down of investment
in revenue bond, working capital loan and capital improvements loan, discussed
above. The slight decrease primarily reflects lower general and administrative
expenses. General and administrative expenses totaled $188,318 in 1998 compared
to $197,261 in 1997. The decrease is primarily due to lower management and legal
fees, partially offset by higher audit and administrative servicing fees.
Interest received on the mortgage revenue bond was $862,552 for the year
ended December 31, 1998, compared with $517,413 for the year ended December 31,
1997. The increase is largely due to higher property cash flow, averaging 5.1%
for the 1998 period.
Average occupancy at the Property for the year ended December 31, 1998 was
93.6%, compared with 86.1% for the year ended December 31, 1997. As of December
31, 1998, the Property was 91.7% occupied, compared with 90.9% as of December
31, 1997.
1997 VERSUS 1996
For the year ended December 31, 1997, the Partnership had a net loss of
$2,692,230, compared with net income of $514,121 for the year ended December 31,
1996. The change is primarily due to the loss on the Partnership's write-down in
1997 of the investment in mortgage revenue bond, working capital loan, and
capital improvements loan of $2,892,415. Excluding the loss on the write-down,
the Partnership generated net income of $200,185 for the year ended December 31,
1997, compared with net income of $514,121 for the
7
<PAGE> 41
year ended December 31, 1996. The decrease primarily is due to a decrease in the
Partnership's share of earnings from its investment in the Bond, an increase in
general and administrative expenses and a slight decrease in other interest.
The Partnership's share of earnings from investment in the Bond is based on
the Property's earnings before debt service, which decreased for the year ended
December 31, 1997 relative to 1996. The Partnership's equity interest in the
Property's earnings for the year ended December 31, 1997 was $426,352, compared
to $627,378 for the year ended December 31, 1996. The Partnership's equity
interest in the Property's earnings decreased for the 1997 period, primarily due
to lower rental income and higher expenses incurred at the Property. Total
income at Camelot Lakes Apartments was $1,993,837 for the year ended December
31, 1997, compared to $2,056,281 for the year ended December 31, 1996. The
decrease primarily is due to a decrease in rental income as a result of lower
average rental rates and increased concessions, as well as a slight decrease in
average occupancy at the Property. Total expenses at Camelot Lakes Apartments,
net of debt service, were $1,223,351 for the year ended December 31, 1997,
compared to $1,111,401 for the year ended December 31, 1996. The increase
primarily is due to higher security, advertising and promotion and utilities
expenses, higher property taxes, and higher administrative and repairs and
maintenance expenses, which were partially offset by lower management fees,
insurance and other property expenses.
For the year ended December 31, 1997, other interest was $13,894, compared
to $18,813 for the year ended December 31, 1996. The decrease primarily is due
to lower cash balances maintained by the Partnership during 1997.
Total Partnership expenses for the year ended December 31, 1997, excluding
the loss on write-down of investment in mortgage revenue bond, working capital
loan, and capital improvements loan of $2,892,415, were $240,061, compared to
$132,070 for the year ended December 31, 1996. The increase is attributable to
higher general and administrative expenses for the 1997 period. General and
administrative expenses for the year ended December 31, 1997 were $197,261,
compared to $89,270 for the year ended December 31, 1996. Effective January 1,
1997, certain expenses incurred by the General Partner, its affiliates, and an
unaffiliated third party service provider in servicing the Partnership, which
were voluntarily absorbed by affiliates of the General Partner in prior periods,
were reimbursable to the General Partner and its affiliates. The change is also
due to an increase in other professional fees during 1997.
Interest received on the mortgage revenue bond was $517,413 for the year
ended December 31, 1997, compared with $866,258 for the year ended December 31,
1996. The decrease is largely due to ConCam providing for debt service at a
lower rate averaging 3.3% for 1997, due to the current operating and market
constraints mentioned above.
Average occupancy at the Property for the year ended December 31, 1997 was
86.1%, compared with 86.6% for the year ended December 31, 1996. As of December
31, 1997, the Property was 90.9% occupied, compared with 83.5% as of December
31, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Incorporated by reference to the Partnership's Annual Report to BAC Holders
for the year ended December 31, 1998, filed as an exhibit under Item 14.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
8
<PAGE> 42
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership has no directors, executive officers or employees of its
own.
The names, ages and business experience for the directors and executive
officers of the General Partner as of the filing date are as follows:
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
Daphne H. Aronson Director, President and Chief Financial
Officer
Rocco F. Andriola Director
Jaime Fuertes Vice President
</TABLE>
DAPHNE H. ARONSON, 35, Vice President, joined Lehman Brothers in February
1996, and has worked with the firm's Expense Management, Legal Department,
Purchasing Unit, Diversified Asset Group and Real Estate Department on a variety
of matters, including acquisition and disposition of various real estate
interests. Ms. Aronson graduated Phi Beta Kappa and received a B.A. in Music
magna cum laude from New York University in 1986. She received a J.D. and an
LL.M. in Taxation from New York University School of Law in 1989 and 1992,
respectively. Prior to joining Lehman Brothers, Ms. Aronson practiced real
estate law from 1994 to 1996 at Thatcher Proffitt & Wood in New York, working on
originations of securitized loans.
ROCCO F. ANDRIOLA, 40, is a Managing Director of Lehman Brothers Inc. in
its Diversified Asset Group and has held such position since October 1996. Since
joining Lehman in 1986, Mr. Andriola has been involved in a wide range of
restructuring and asset management activities involving real estate and other
direct investment transactions. From June 1991 through September 1996, Mr.
Andriola held the position of Senior Vice President in Lehman's Diversified
Asset Group. From June 1989 through May 1991, Mr. Andriola held the position of
First Vice President in Lehman's Capital Preservation and Restructuring Group.
From 1986-89, Mr. Andriola served as a Vice President in the Corporate
Transactions Group of Shearson Lehman Brothers' office of the general counsel.
Prior to joining Lehman, Mr. Andriola practiced corporate and securities law at
Donovan Leisure Newton & Irvine in New York. Mr. Andriola received a B.A. from
Fordham University, a J.D. from New York University School of Law, and an LL.M.
in Corporate Law from New York University's Graduate School of Law.
JAIME FUERTES, 32, is a Senior Associate at Lehman Brothers Inc. He joined
Lehman in 1997 as the Controller of the Diversified Asset Group and since then
has also been engaged in the analysis and negotiations of Lehman's worldwide
current and future lease commitments. Prior to joining Lehman, Mr. Fuertes held
various positions in Finance and Treasury at Chase Manhattan Bank between 1990
and 1996 and at GE Capital Services between 1996 and 1997. Mr. Fuertes received
Bachelor of Science and Master of Science degrees in Finance from Fairfield
University.
Certain officers and directors of CA Victory Inc., formerly
Shearson/Victory, Inc. (see below) are now serving as officers or directors of
entities which act as general partners of a number of real estate limited
partnerships which have sought protection under the provisions of the Federal
Bankruptcy Code. The partnerships which have filed bankruptcy petitions own real
estate which has been adversely affected by the economic conditions in the
markets in which that real estate is located and, consequently, the partnerships
sought the protection of the bankruptcy laws to protect the partnerships' assets
from loss through foreclosure.
ITEM 11. EXECUTIVE COMPENSATION
Neither the General Partner nor any of its directors and officers received
any compensation from the Registrant. See Item 13 below with respect to a
description of certain transactions of the General Partner and its affiliates
with the Registrant.
9
<PAGE> 43
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
(a) Security ownership of certain beneficial owners
To the knowledge of the General Partner, no person or group owned more than
5% of the outstanding BACs as of December 31, 1998.
(b) Security ownership of management
As of December 31, 1998, none of the officers and directors of the General
Partner owned any BACs.
(c) Changes in control
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Commencing January 1, 1997, the Partnership began reimbursing certain
expenses incurred by the General Partner and its affiliates in servicing the
Partnership to the extent permitted by the Partnership Agreement. In prior
years, affiliates of the General Partner had voluntarily absorbed these
expenses.
Additional information is incorporated by reference to Note 5 "Transactions
with Related Parties" of Notes to the Financial Statements contained in the
Partnership's Annual Report to BAC Holders for the year ended December 31, 1998,
filed as an exhibit under Item 14.
10
<PAGE> 44
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) FINANCIAL STATEMENTS:
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Auditors.............................. (1)
Balance Sheets -- As of December 31, 1998 and 1997.......... (1)
Statements of Operations -- For the years ended December 31,
1998, 1997 and 1996....................................... (1)
Statements of Partners' Capital (Deficit) -- For the years
ended December 31, 1998, 1997 and 1996.................... (1)
Statements of Cash Flows -- For the years ended December 31,
1998, 1997 and 1996....................................... (1)
Notes to the Financial Statements........................... (1)
</TABLE>
- ---------------
(1) Incorporated by reference to the Partnership's Annual Report to BAC Holders
for the year ended December 31, 1998, which is filed as an exhibit under
Item 14.
(a) (2) FINANCIAL STATEMENT SCHEDULES:
ConCam Associates, LP, a California Limited Partnership
<TABLE>
<S> <C>
Independent Auditors' Report................................ A-1
Financial Statements:
Balance Sheets at December 31, 1998 and 1997........... A-2
Statements of Operations and Partners' Deficit for the
years ended December 31, 1998, 1997 and 1996.......... A-3
Statements of Cash Flows for the years ended December
31, 1998, 1997 and 1996............................... A-4
Notes to the Financial Statements...................... A-5
</TABLE>
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
(a) (3) EXHIBITS:
<TABLE>
<S> <C>
3.1 Certificate of Limited Partnership of Victory Tax Exempt
Realty Income Fund Limited Partnership. (Incorporated by
reference from Exhibit 3 to the Registrant's Post-Effective
Amendment No. 2, dated February 14, 1989, to the
Registration Statement on Form S-11.)
3.2 Agreement of Limited Partnership of Victory Tax Exempt
Realty Income Fund Limited Partnership. (Incorporated by
reference from Exhibit 3 to the Registrant's Post-Effective
Amendment No. 2, dated February 14, 1989, to the
Registration Statement on Form S-11.)
3.3 Beneficial Assignee Certificate. (Incorporated by reference
from Exhibit 3 to the Registrant's Registration Statement on
Form S-11.)
10.1 Forbearance Agreement between Victory Tax Exempt Realty
Income Fund Limited Partnership and ConCam Associates, LP
dated January 31, 1994. (Incorporated by reference from
Exhibit 10.1 to the Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993.)
</TABLE>
11
<PAGE> 45
<TABLE>
<S> <C>
10.2 First Amendment to Working Capital Loan Agreement between
Victory Tax Exempt Realty Income Fund Limited Partnership
and ConCam Associates, LP dated February 1, 1994.
(Incorporated by reference from Exhibit 10.2 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.)
10.3 Property Management Agreement between ConCam Associates, LP
and ConAm Management Corporation dated January 31, 1994.
(Incorporated by reference from Exhibit 10.3 to the
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1993.)
10.4 Termination and Release Agreement between Victory Tax Exempt
Realty Income Fund Limited Partnership, Camelot Lakes
Associates and James Hendricks and Associates, Inc. dated
February 1, 1994. (Incorporated by reference from Exhibit
10.4 to the Registrant's Annual Report on Form 10-K for the
year ended December 31, 1993.)
10.5 Standstill Agreement between Victory Tax Exempt Realty
Income Fund Limited Partnership and ConCam Associates, LP
dated May 8, 1996. (Incorporated by reference from Exhibit
10.5 to the Registrant's Quarterly Report on Form 10-Q for
the quarterly period ended March 1, 1996.)
10.6 Extension Letter between Victory Tax Exempt Realty Income
Fund Limited Partnership and ConCam Associates, LP dated
January 1, 1997. (Incorporated by reference to Exhibit 10.6
to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1996).
10.7 Amendment to Standstill Agreement Between Victory Tax Exempt
Realty Income Fund Limited Partnership and ConCam
Associates, LP.
13.1 Annual Report to BAC Holders for the year ended December 31,
1998.
27.1 Financial Data Schedule.
</TABLE>
(b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the fourth quarter of fiscal 1998.
On February 23, 1999, the Partnership filed a report on Form 8-K reporting
that the Partnership had entered into a binding agreement to sell the Bond.
12
<PAGE> 46
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.
VICTORY TAX EXEMPT REALTY INCOME
FUND LIMITED PARTNERSHIP
BY: CA Victory Inc.,
General Partner
Date: March 31, 1999 BY: /s/ DAPHNE H. ARONSON
------------------------------------
Name: Daphne H. Aronson
Title: President, Director and
Chief Financial Officer
13
<PAGE> 47
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
CA VICTORY INC.
General Partner
Date: March 31, 1999 By: /s/ DAPHNE H. ARONSON
------------------------------------
Name: Daphne H. Aronson
Title: President, Director and
Chief Financial Officer
Date: March 31, 1999 BY: /s/ ROCCO F. ANDRIOLA
-----------------------------------
Name: Rocco F. Andriola
Title: Director
Date: March 31, 1999 BY: /s/ JAIME FUERTES
-----------------------------------
Name: Jaime Fuertes
Title: Vice President
14
<PAGE> 48
EXHIBIT 13.1
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
1998 ANNUAL REPORT TO BAC HOLDERS
Victory Tax Exempt Realty Income Fund Limited Partnership was formed in
1989 to acquire a $15,515,000 Mortgage Revenue Bond (the "Bond") issued by the
city of Fresno, California. Securing the Bond is a first mortgage loan (the
"Loan") on Camelot Lakes Apartments (the "Property"), a 476-unit complex owned
by an unaffiliated company. The complex consists of 64 buildings situated on 30
acres and includes a swimming pool, tennis court and covered parking.
CONTENTS
<TABLE>
<S> <C>
Message to Investors.................................... 15
Financial Statements.................................... 17
Notes to the Financial Statements....................... 21
Report of Independent Auditors.......................... 29
</TABLE>
MESSAGE TO INVESTORS
Presented for your review is the 1998 Annual Report for Victory Tax Exempt
Realty Income Fund Limited Partnership (the "Partnership"). This report includes
a discussion of the Partnership's operations and audited financial statements
for the year ended December 31, 1998.
CURRENT STATUS
As discussed in prior reports, the General Partner and the Property's
owner, ConCam Associates, LP ("ConCam"), have agreed to pursue a sale of the
Property or the Bond prior to the Loan's scheduled maturity date on April 28,
1999. We are pleased to report the Partnership has entered into a binding
agreement to sell the Bond to Wasatch Acquisitions LLC, a Utah limited liability
company, for a gross sales price of $11.6 million (the "Sale"). The proposed
Sale is subject to the consent of the City of Fresno, California and a
majority-in-interest of the outstanding limited partners (the "Limited
Partners"), and to the satisfaction or waiver of other customary closing
conditions. Approval by the Limited Partners will be solicited by a consent
solicitation, which will be mailed in the near future to investors upon the
completion of a Securities and Exchange Commission review process. If the Sale
is ultimately consummated, we intend to distribute the net proceeds received for
the Bond, together with the Partnership's remaining cash reserves (after payment
of, or provision for, the Partnership's liabilities and expenses), and
subsequently dissolve the Partnership. There can be no assurance that the sale
will be completed in accordance with the announced terms, if at all.
Property operations improved during 1998, with the Property maintaining an
average occupancy rate of 94% in 1998 compared to 86% in 1997.
FINANCIAL HIGHLIGHTS
The following chart highlights the performance of the Partnership for the
year ended December 31st of the indicated years:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Interest received on the Bond.......................... $862,552 $517,413
Other interest......................................... 24,378 13,894
Cash provided by operating activities.................. 712,296 358,539
</TABLE>
- Interest received on the Bond increased primarily due to the payment of
debt service by ConCam at a higher average rate of 5.1% during 1998,
compared with an average rate of 3.4% during 1997.
15
<PAGE> 49
- Other interest increased slightly due to higher average cash balances
maintained by the Partnership.
- Cash provided by operating activities increased largely due to the
increase in interest received on the Bond.
GENERAL INFORMATION
As you are probably aware, several unaffiliated third parties have
commenced tender offers to purchase limited partnership units at prices that are
below the Partnership's estimate of the fair market value per unit. In response,
we have recommended that Limited Partners reject such offers since we believe
that they do not reflect the underlying value of the Partnership's assets.
SUMMARY
We believe that a sale of the Bond is the most effective means for
maximizing the recovery of your investment in the Partnership. If the proposed
Sale is completed, Limited Partners will receive a final liquidating
distribution, and the Partnership will be dissolved during 1999. We will inform
you of any material developments in future investor correspondence. In the
interim, questions regarding the Partnership's performance should be directed to
your Financial Consultant or Partnership Investor Services. All requests for a
change of address or transfer should be submitted in writing to the
Partnership's administrative agent at P.O. Box 7090, Troy, MI 48007-7090.
Partnership Investor Services can be reached at (617) 342-4225, and the
Partnership's administrative agent can be reached at (248) 637-7900.
Very truly yours,
CA Victory Inc.
General Partner
Daphne H. Aronson
President
March 31, 1999
16
<PAGE> 50
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
AT DECEMBER 31, AT DECEMBER 31,
1998 1997
--------------- ---------------
<S> <C> <C>
Investment in mortgage revenue bond, working capital loan,
and capital improvements loan............................. $ 9,826,236 $10,000,000
Cash and cash equivalents................................... 1,078,440 366,144
Mortgage acquisition fees, net of accumulated amortization
of $414,209 and $371,409 in 1998 and 1997, respectively... 13,791 56,591
----------- -----------
TOTAL ASSETS...................................... $10,918,467 $10,422,735
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT)
Liabilities:
Accounts payable and accrued expenses..................... $ 68,700 $ 51,016
Due to affiliates......................................... 18,000 22,000
----------- -----------
Total Liabilities................................. 86,700 73,016
----------- -----------
Partners' Capital (Deficit):
General Partner........................................... (87,669) (92,489)
BAC Holders (2,140,000 BACS outstanding).................. 10,919,436 10,442,208
----------- -----------
Total Partners' Capital........................... 10,831,767 10,349,719
----------- -----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL........... $10,918,467 $10,422,735
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
17
<PAGE> 51
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
STATEMENTS OF PARTNERS' CAPITAL (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
GENERAL BAC
PARTNER HOLDERS TOTAL
-------- ----------- -----------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995.......................... $(58,613) $13,797,670 $13,739,057
Net income............................................ 5,141 508,980 514,121
Cash distributions.................................... (9,688) (960,802) (970,490)
-------- ----------- -----------
BALANCE AT DECEMBER 31, 1996.......................... $(63,160) $13,345,848 $13,282,688
Net loss.............................................. (26,922) (2,665,308) (2,692,230)
Cash distributions.................................... (2,407) (238,332) (240,739)
-------- ----------- -----------
BALANCE AT DECEMBER 31, 1997.......................... $(92,489) $10,442,208 $10,349,719
Net income............................................ 4,820 477,228 482,048
-------- ----------- -----------
BALANCE AT DECEMBER 31, 1998.......................... $(87,669) $10,919,436 $10,831,767
======== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
18
<PAGE> 52
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
-------- ----------- --------
<S> <C> <C> <C>
REVENUE
Share of earnings from investment in mortgage revenue
bond................................................... $688,788 $ 426,352 $627,378
Other interest........................................... 24,378 13,894 18,813
-------- ----------- --------
Total Revenue.................................. 713,166 440,246 646,191
-------- ----------- --------
EXPENSES
Loss on write-down of investment in mortgage revenue
bond, working capital loan, and capital improvements
loan................................................... -- 2,892,415 --
General and administrative............................... 188,318 197,261 89,270
Amortization of mortgage costs........................... 42,800 42,800 42,800
-------- ----------- --------
Total Expenses................................. 231,118 3,132,476 132,070
-------- ----------- --------
NET INCOME (LOSS).............................. $482,048 $(2,692,230) $514,121
======== =========== ========
NET INCOME (LOSS) ALLOCATED:
To the General Partner................................... $ 4,820 $ (26,922) $ 5,141
To the BAC Holders....................................... 477,228 (2,665,308) 508,980
-------- ----------- --------
NET INCOME (LOSS).............................. $482,048 $(2,692,230) $514,121
======== =========== ========
PER BAC
(2,140,000 OUTSTANDING).................................. $ .23 $ (1.25) $ .24
======== =========== ========
</TABLE>
See accompanying notes to the financial statements.
19
<PAGE> 53
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1998 1997 1996
---------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss).................................... $ 482,048 $(2,692,230) $ 514,121
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Loss on write-down of investment in mortgage
revenue bond, working capital loan, and capital
improvements loan............................... -- 2,892,415 --
Share of earnings from investment in mortgage
revenue bond.................................... (688,788) (426,352) (627,378)
Interest received on mortgage revenue bond......... 862,552 517,413 866,258
Amortization of mortgage costs..................... 42,800 42,800 42,800
Increase (decrease) in cash arising from changes in
operating assets and liabilities:
Accounts payable and accrued expenses........... 17,684 2,493 15,836
Due to affiliates............................... (4,000) 22,000 --
---------- ----------- -----------
Net cash provided by operating activities............ 712,296 358,539 811,637
---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash distributions................................... -- (402,844) (1,080,808)
---------- ----------- -----------
Net cash used for financing activities............... -- (402,844) (1,080,808)
---------- ----------- -----------
Net increase (decrease) in cash and cash
equivalents........................................ 712,296 (44,305) (269,171)
Cash and cash equivalents, beginning of year......... 366,144 410,449 679,620
---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR............... $1,078,440 $ 366,144 $ 410,449
========== =========== ===========
</TABLE>
See accompanying notes to the financial statements.
20
<PAGE> 54
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
1. ORGANIZATION AND THE PUBLIC OFFERING
Victory Tax Exempt Realty Income Fund L. P. (the "Partnership") was formed
under the Delaware Revised Uniform Limited Partnership Act on January 15, 1988
and will continue until December 31, 2018, unless dissolved earlier under the
provisions of the Agreement of Limited Partnership. The Partnership was formed
for the purpose of acquiring a pool of tax-exempt Mortgage Revenue Bonds issued
by various state or local governments or their agencies or authorities, and
secured by participating first mortgage loans on multifamily residential rental
developments and/or retirement complexes. The Partnership is also authorized to
have up to ten percent of its invested assets consist of taxable working capital
loans from the Partnership to borrowers of the mortgage loans to cover certain
expenses that are not financed from Mortgage Revenue Bond proceeds.
A Registration Statement on Form S-11 was filed with the Securities and
Exchange Commission and became effective on May 26, 1988 for a maximum offering
of 20,000,000 Beneficial Assignee Certificates (the "BACs") at $10 per BAC (the
"Public Offering"). The Public Offering commenced on November 1, 1988 and
terminated on April 28, 1989. Gross proceeds of $21,400,000 were received
representing 2,140,000 BACs. On April 28, 1989, the subscribers of the BACs were
admitted to the Partnership as BAC Holders. The related limited partnership
interests are held by the Assignor Limited Partner, which has assigned certain
ownership attributes of the limited partnership interests to the BAC Holders on
the basis of one unit of limited partnership interest for one BAC.
The General Partner is CA Victory Inc., formerly Shearson/Victory Inc. (see
below), which is a Delaware corporation and an affiliate of Lehman Brothers Inc.
(the "Selling Agent"), formerly Shearson Lehman Brothers Inc., (see below). The
Assignor Limited Partner is CA Victory Assignor Corp., formerly Shearson/Victory
Assignor Corp. (see below), which is wholly-owned by Lehman Brothers.
On July 31, 1993, Shearson Lehman Brothers Inc. sold certain of its
domestic retail brokerage and asset management business to Smith Barney, Harris
Upham & Co. Incorporated ("Smith Barney"). Subsequent to the sale, Shearson
Lehman Brothers Inc. changed its name to Lehman Brothers Inc. ("Lehman
Brothers"). The transaction did not affect the ownership of the General Partner.
However the assets acquired by Smith Barney included the name "Shearson".
Consequently, effective October 29, 1993, the Shearson/Victory Inc. General
Partner and the Shearson/Victory Assignor Corp. Assignor Limited Partner changed
their names to CA Victory Inc. and CA Victory Assignor Corp., respectively.
On April 28, 1989, the Partnership acquired an investment in a mortgage
revenue bond (the "Bond") from the City of Fresno, California in the principal
amount of $15,515,000 secured by a mortgage loan (the "Loan") on Camelot Lakes
Apartments, a 476 unit apartment complex (the "Property"). Until February 1,
1994, the original owner of the Property was Camelot Lakes Associates ("Camelot
Lakes"), an unaffiliated California Limited Partnership. The current owner of
the Property is ConCam Associates, LP ("ConCam" or the "Borrower"), an
unaffiliated California Limited Partnership.
2. SIGNIFICANT ACCOUNTING POLICIES
Investment in Mortgage Revenue Bond, Working Capital Loan and Capital
Improvements Loan. The Partnership accounts for its investment in the Mortgage
Revenue Bond, the Working Capital Loan and the Capital Improvements Loan (the
"Investment") using the equity method in accordance with AICPA Statement of
Position 78-9. The Partnership is not obligated to fund net operating losses of
the property underlying the Investment. Under this method, the carrying value of
the Bond is (i) reduced for the interest received from Camelot Lakes and (ii)
increased or decreased by the Partnership's share of earnings or losses of
Camelot Lakes. The Partnership generally receives a special allocation of income
equal to the mortgage loan interest due under the bond and loan agreements,
which payments are funded by property operations.
21
<PAGE> 55
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
Prior to October 1, 1998, depreciation on the building and personal property
funded by the bond and loans was provided using the straight-line method over 40
years and 5 - 7 years, for the amounts allocable to buildings and personal
property, respectively. On October 1, 1998, the Partnership committed to sell
the investment and, as a result, ceased depreciation of building and personal
property funded by the Bond.
At December 31, 1997, the Partnership completed a review of the
recoverability of the carrying amount of its investment in the Mortgage Revenue
Bond, Working Capital Loan, and Capital Improvements Loan based upon an estimate
of undiscounted cash flows expected to result from the property underlying the
investment's use and eventual disposition. Based upon the review completed at
December 31, 1997 and a change in management's estimated holding period, the
Partnership wrote down the carrying value of its investment in accordance with
Statement of Financial Accounting Standards No. 121 (See Note 4).
Syndication Costs. During 1989, selling commissions paid in connection with
the Public Offering, totaling $1,070,000, and sales and registration costs,
totaling $719,754, were charged against BAC Holders' capital.
Mortgage Acquisition Fees. Mortgage acquisition fees are recorded at cost
less accumulated amortization, and are being amortized using the straight-line
method over the term of the Bond.
Income Taxes. No provision for income taxes has been made in the financial
statements since such taxes are the responsibility of the individual partners
rather than that of the Partnership.
Cash and Cash Equivalents. Cash and cash equivalents consist of short-term
highly liquid investments which have maturities of three months or less from the
date of purchase. The carrying value approximates fair value because of the
short maturity of these instruments.
Fair Value of Financial Instruments. Statement of Financial Accounting
Standards No. 107, "Disclosures about Fair Value of Financial Instruments" ("FAS
107"), requires that the Partnership disclose the estimated fair values of its
financial instruments. Fair values generally represent estimates of amounts at
which a financial instrument could be exchanged between willing parties in a
current transaction other than in forced liquidation.
The carrying amount of cash and cash equivalents, due to affiliates, and
accounts payable and accrued expenses are estimates of their fair value due to
the short-term nature of those instruments.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Concentration of Credit Risk. Financial instruments which potentially
subject the Partnership to a concentration of credit risk principally consist of
cash and cash equivalents in excess of the financial institution's insurance
limits.
3. PARTNERSHIP AGREEMENT
Pursuant to the terms of the Partnership Agreement, cash available for
distribution from operations will be distributed 99% to the BAC Holders and 1%
to the General Partner for each year until the BAC Holders receive an amount
equal to the Preferred Cash Flow Return, as defined, and, thereafter, 90% to the
BAC Holders and 10% to the General Partner.
22
<PAGE> 56
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
Proceeds arising from a sale or other disposition of the mortgaged property
or the repayment of the Bond will be distributed as follows:
(1) to repay all debts and obligations of the Partnership and to increase
the working capital reserve as the General Partner deems necessary;
(2) to each BAC Holder equal to the unpaid portion of any Preferred Cash
Flow Return up to the amount of income allocated to each BAC holder;
(3) to the General Partner and to each BAC Holder up to the amount of their
Adjusted Capital Contributions, as defined; and
(4) to the General Partner and to each BAC Holder, in accordance with their
respective capital accounts.
All profits and losses not arising from a sale of a mortgaged property or
repayment of a mortgage loan shall be allocated 99% to the BAC Holders and 1% to
the General Partner until the BAC Holders realize an amount equal to the
Preferred Cash Flow Return. Thereafter, such profits and losses shall be
allocated 90% to the BAC Holders and 10% to the General Partner.
Profits arising from a sale of a mortgaged property or repayment of a
mortgage loan will be allocated to the General Partner and BAC Holders as
follows: first, in proportion to the negative balances in their capital
accounts, up to the amount of the negative balance; second, in proportion to any
unpaid portion of Preferred Cash Flow Return to realize an amount equal to the
Preferred Cash Flow Return; third, in proportion to their Adjusted Capital
Contributions up to their Adjusted Capital Contributions; and fourth, 90% to the
BAC Holders and 10% to the General Partner.
Losses from such sale or repayment will be allocated to the General Partner
and BAC Holders as follows: first, an amount of loss to the General Partner or
BAC Holders to adjust their capital accounts to 1% and 99%, respectively, of
total Partners' Capital; second, 1% to the General Partner and 99% to the BAC
Holders until the BAC Holders capital account is zero; third, to the General
Partner.
23
<PAGE> 57
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
4. MORTGAGE REVENUE BOND, WORKING CAPITAL LOAN, AND CAPITAL IMPROVEMENTS LOAN
Mortgage Revenue Bond. The following schedule represents the changes made
to the carrying value of the mortgage revenue bond since its acquisition:
<TABLE>
<S> <C>
Original issue value........................................ $15,515,000
Working Capital Loan................................... 420,000
1989 share of Camelot Lakes earnings................... 488,679
1989 interest received on mortgage revenue bond........ (615,040)
-----------
Carrying value, December 31, 1989........................... 15,808,639
1990 share of Camelot Lakes earnings................... 772,557
1990 interest received on mortgage revenue bond........ (1,039,505)
-----------
Carrying value, December 31, 1990........................... 15,541,691
1991 share of Camelot Lakes earnings................... 805,999
1991 interest received on mortgage revenue bond........ (1,039,505)
-----------
Carrying value, December 31, 1991........................... 15,308,185
1992 share of Camelot Lakes earnings................... 677,121
1992 interest received on mortgage revenue bond........ (1,202,412)
-----------
Carrying value, December 31, 1992........................... 14,782,894
1993 share of Camelot Lakes earnings................... 527,857
1993 interest received on mortgage revenue bond........ (1,172,899)
-----------
Carrying value, December 31, 1993........................... 14,137,852
Capital Improvements Loan.............................. 500,000
1994 share of Camelot Lakes earnings................... 377,211
1994 interest received on mortgage revenue bond........ (833,850)
-----------
Carrying value, December 31, 1994........................... 14,181,213
1995 share of Camelot Lakes earnings................... 43,158
1995 interest received on mortgage revenue bond........ (1,002,015)
-----------
Carrying value, December 31, 1995........................... 13,222,356
1996 share of Camelot Lakes earnings................... 627,378
1996 interest received on mortgage revenue bond........ (866,258)
-----------
Carrying value, December 31, 1996........................... 12,983,476
1997 share of Camelot Lakes earnings................... 426,352
1997 interest received on mortgage revenue bond........ (517,413)
-----------
Carrying value, December 31, 1997, before write down........ 12,892,415
Loss on write-down of investment in mortgage revenue
bond, working capital loan, and capital improvements
loan................................................. (2,892,415)
-----------
Carrying value, December 31, 1997........................... 10,000,000
1998 share of Camelot Lakes earnings................... 688,788
1998 interest received on mortgage revenue bond........ (862,552)
-----------
Net carrying value, December 31, 1998....................... $ 9,826,236
===========
</TABLE>
24
<PAGE> 58
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
Under the original loan documents, the interest rates during the term of
the mortgage loan are as follows:
<TABLE>
<CAPTION>
BASE PRIMARY SUPPLEMENTAL
INTEREST DEFERRED BASE CONTINGENT CONTINGENT
RATE INTEREST RATE INTEREST RATE INTEREST RATE
-------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
April 28, 1989 to April 30, 1992... 6.70% 5.30% 4.00% --
May 1, 1992 to April 30, 1994...... 8.50% -- 4.25% 3.25%
May 1, 1994 to April 28, 1999...... 8.75% -- 4.00% 3.25%
</TABLE>
The Loan matures April 28, 1999. Base interest accrued monthly and was
payable in arrears. Deferred base interest and primary contingent interest,
which totaled $2,473,737 and $6,081,880 at December 31, 1998, will be payable
monthly in arrears from excess Net Cash Flow, as defined, from the Property.
Supplemental contingent interest, which totaled $3,361,583 and $2,857,346 at
December 31, 1998 and 1997, respectively, will be payable monthly in arrears to
the extent of 65% of Net Cash Flow remaining after the payment of deferred base
interest and primary contingent interest. Should the Net Cash Flow of the
Property in any year be insufficient to pay any primary or supplemental
contingent interest, the unpaid amounts will be deferred and payable from future
cash flows or upon maturity of the mortgage loan. Based on the current
performance of the Property, it is unlikely that any deferred base interest,
primary contingent interest or supplemental contingent interest payments will be
collected by the Partnership.
To address the possibility of available cash from Property operations being
insufficient to provide the necessary funds for payments of base interest, the
Partnership required at closing that the Borrower establish a Borrower Operating
Reserve in the original amount of $337,326, consisting of cash of $112,326 and
an irrevocable letter of credit of $225,000. In addition, net interim income,
equal to Net Cash Flow from the Property less one month's anticipated operating
expenses, was deposited into the reserve account on a monthly basis, provided
the Property generated sufficient cash flow. In November 1992, the cash balance
in the account reached approximately $187,000, through the addition of net
interim income and the accrued interest income. In November 1992, the
Partnership began withdrawing funds from the Borrower Operating Reserve in order
that Camelot Lakes meet its interest payments. In 1993, funds in the amount of
$232,780 were withdrawn and applied to the payment of base interest. As of
December 31, 1993, a balance of $50,000 remained on the letter of credit; the
Partnership agreed to waive its right to draw on the remaining balance.
Operating difficulties at the Property resulted in Camelot Lakes defaulting
on the November 1993 through January 1994 Bond payments. On February 1, 1994,
the Partnership executed a Termination and Release Agreement with the original
owner of the Property, Camelot Lakes, to relinquish the ownership of the
Property and its cash reserves of approximately $400,000 in return for the
Partnership's agreement to waive its right to draw on the remaining $50,000 of
the Borrower's undrawn letter of credit with the Partnership. Camelot Lakes
agreed to transfer its ownership and management of the Property to ConCam, an
affiliate of ConAm Management Corporation ("ConAm"), a major property management
company, whereby ConCam executed a Forbearance Agreement with the Partnership to
assume the obligations under the Bond and loan documents. ConAm manages the
Property and receives fees for such services. The Forbearance Agreement
temporarily modified the interest payment terms under the Bond to include
minimum interest pay rates as follows:
<TABLE>
<CAPTION>
MINIMUM INTEREST
PAY RATE
----------------
<S> <C>
Per annum rate -- 1995............................... 6.50%
Per annum rate -- 1996............................... 7.00%
Per annum rate -- 1997............................... 7.50%
Per annum rate -- 1998............................... 8.00%
</TABLE>
25
<PAGE> 59
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The unpaid interest from the difference between the original base interest
rate (8.5% through April 30, 1994 and 8.75% thereafter) and the minimum interest
pay rate are being added to the unpaid interest as of February 1, 1994, and are
accrued and compounded monthly at the base interest rate. As of December 31,
1998 and December 31, 1997, the accrued interest differential totaled $3,550,839
and $2,779,324, respectively. Any excess cash flow from the Property after
payment of the minimum interest payment will be allocated to reducing such
accrued interest. During the forbearance period, an annual deposit into the
reserve fund for replacements is required in the amount of $130,900, increasing
3% per annum beginning in January 1995. On April 22, 1994, the General Partner
and ConCam modified the Forbearance Agreement to redirect the monthly deposits
for 1994 to the Partnership as payment of Base Interest, beginning with the
April 1994 payment. Monthly deposits into the replacement reserve were scheduled
to resume effective January 1, 1995, subject to the original terms of the
Forbearance Agreement. However, on October 24, 1994, the Partnership agreed to
allow ConCam to discontinue monthly payments into the reserve fund, including
the remaining 1994 payments that, pursuant to the agreement dated April 22,
1994, were to be redirected as payment of Base Interest. Such payments have
remained discontinued throughout 1998 and reinstatement is at the sole
discretion of the General Partner.
On May 8, 1996, as a result of negotiations with ConCam, the Partnership
executed a Letter Agreement as further amended (the "Agreement") to generally
allow a continuance of the terms of the Forbearance Agreement which originally
became effective January 31, 1994. The Agreement provided that in lieu of the
minimum pay rate, ConCam pay as debt service all available cash flow. The
Agreement was in effect through December 31, 1996, the expiration of the
Forbearance Agreement. At such time, the parties were engaged in good faith
negotiations, and therefore, the Partnership extended the Agreement with ConCam
through December 31, 1997, which was further extended through December 31, 1998.
Payments made by ConCam during 1998 approximated an average pay rate of 5.1%.
Effective December 31, 1998, the Agreement was extended through the earlier of
(i) June 30, 1999, (ii) the closing of the sale of the Bond and the Property or
(iii) the termination of the Agreement upon default by the borrower. Subject to
closing on the sale of the Bond, ConCam will cease making debt service payments
beginning January 1, 1999 and instead will use the cash flow generated by the
property to pay operating expenses and closing costs.
Based on its evaluation of conditions in the Fresno market, the General
Partner concluded there is little indication that job growth, or, consequently,
demand for rental units, will improve substantially in the foreseeable future.
Given these factors, the General Partner and ConCam agreed to pursue a sale of
the Property and/or the Bond prior to the Loan's scheduled maturity date on
April 28, 1999. In February 1999, the Partnership entered into a binding
agreement to sell the Bond to Wasatch Acquisitions LLC, a Utah limited liability
company, or its designated affiliate, for a gross sale price of $11.6 million
(the "Sale"). The proposed Sale will require the consent of a
majority-in-interest of the outstanding BAC Holders and the City of Fresno,
California. Approval by the BAC Holders will be solicited only by means of a
consent solicitation, which will be mailed to BAC Holders upon the completion of
a customary Securities and Exchange Commission review process. There can be no
assurance that the Sale will be consummated on the announced terms, if at all.
Based upon the decision to pursue a sale of the investment and the
resulting change in the estimated holding period, the Partnership wrote down the
carrying value of its investment in Mortgage Revenue Bond, Working Capital Loan,
and Capital Improvements Loan at December 31, 1997 to $10,000,000, the estimated
fair value of the collateral as determined by management as of that date. At
December 31, 1998, the carrying value totaled $9,826,236.
Working Capital and Capital Improvements Loans. In conjunction with the
investment in the mortgage revenue bond, the Partnership made a working capital
loan to Camelot Lakes in the amount of $420,000, maturing on April 28, 1999 and
bearing interest at the rate of 12.625% per annum. The loan is secured by a
Second Deed of Trust on the Property, which is subordinate to the first mortgage
loan on the Bond.
26
<PAGE> 60
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
On February 1, 1994, the Partnership executed a First Amendment to the
Working Capital Loan Agreement (the "Amendment") with the current owner of the
Property. Under the Amendment, the Partnership agreed to lend the Property up to
the aggregate amount of $500,000 (the "Capital Improvements Loan") for capital
improvements to be made to the Property in 1994. The Capital Improvements Loan
bears simple interest, non-compounding, at the per annum rate of 6.0% and all
interest shall be due and payable, together with the principal balance of the
Capital Improvements Loan, upon the earlier of the end of the forbearance period
or the Maturity Payment Date. As of December 31, 1998 and December 31, 1997, the
interest receivable on the Capital Improvements Loan totaled $132,725 and
$102,724, respectively. The Amendment also provides that the principal balance
and accrued interest balance of the Working Capital Loan, $420,000 and $13,256,
respectively as of February 1, 1994, plus all future accrued working capital
loan base interest is due and payable on the Maturity Payment Date. All working
capital loan base interest shall continue to accrue at the per annum rate of
6.0%, a reduction in the previous rate of 12.625%. The Borrower shall not be
obligated to pay working capital loan base interest or any other interest
payments that may be required under the Working Capital Loan Agreement until the
Maturity Payment Date. As of December 31, 1998 and December 31, 1997, the
interest receivable on the Working Capital Loan totaled $137,157 and $111,957,
respectively. Based on the Property's performance, it is unlikely that any
interest on Capital Improvements Loan and the Working Capital Loan will be
received by the Partnership. Consequently, the interest receivable amounts are
not recorded on the accompanying financial statements. The obligation to repay
all loans, including the Bond, and interest thereon, is a nonrecourse obligation
of the Borrower and will be repaid only to the extent excess cash flow from
Property operations or proceeds from the sale of the Property are available. If
the sale of the Bond is consummated, upon closing of such sale and compliance by
ConCam of the terms and conditions of the Agreement, ConCam will be released
from all monetary obligations under the Working Capital Loan and Capital
Improvement Loan.
5. TRANSACTIONS WITH RELATED PARTIES
The Partnership reimbursed Lehman Brothers in the amount of $557,353 for
organizational and offering expenses incurred in connection with the Public
Offering.
The Selling Agent received selling commissions equal to 5% of the gross
proceeds from the Public Offering. The Selling Agent received $1,070,000 for
selling commissions and $321,000 for additional sales and registration costs.
The General Partner was paid a nonrecurring bond acquisition fee equal to
2% of gross proceeds of the Public Offering in the amount of $428,000 in
consideration for its services in connection with selecting, evaluating and
negotiating the terms of the investment in the Bond.
Commencing January 1, 1997, the Partnership began reimbursing certain
expenses incurred by the General Partner and its affiliates in servicing the
Partnership to the extent permitted by the Partnership Agreement. These expenses
totaled approximately $25,400 and $43,000 in 1998 and 1997, of which $18,000 and
$22,000 is due to affiliates at December 31, 1998 and 1997, respectively. In
prior years, affiliates of the General Partner had voluntarily absorbed these
expenses.
27
<PAGE> 61
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
6. DISTRIBUTIONS PAYABLE
Cash distributions, per the Statements of Partners' Capital (Deficit), are
recorded on the accrual basis, which recognizes specific record dates for
payments within each fiscal year; the Statements of Cash Flows recognize actual
cash paid during the period. The following table discloses the annual
differences as presented on the accompanying financial statements:
<TABLE>
<CAPTION>
DISTRIBUTIONS DISTRIBUTIONS
PAYABLE AT STATEMENTS OF PAYABLE AT
BEGINNING PARTNERS' CAPITAL STATEMENTS OF END OF
OF PERIOD (DEFICIT) CASH FLOWS PERIOD
------------- ----------------- ------------- -------------
<S> <C> <C> <C> <C>
1998........................ $ -- $ -- $ -- $ --
1997........................ 162,105 240,739 402,844 --
1996........................ 272,423 970,490 1,080,808 162,105
</TABLE>
Cash distributions were suspended beginning with the 1997 third quarter
distribution, which would have been paid in November 1997.
7. RECONCILIATION OF FINANCIAL STATEMENT NET INCOME (LOSS) TO FEDERAL INCOME
TAX NET INCOME
As discussed in Note 4, the investment in the Bond is accounted for using
the equity method for financial reporting purposes. However, for tax purposes,
the investment in the Bond is treated as a mortgage loan receivable. Primarily
as a result of this difference in accounting and the 1997 impairment loss
adjustment, income for tax purposes, including tax exempt income reported to the
BAC Holders for each of the years ended December 31, 1998 and December 31, 1997
was greater than net income (loss) per the Statements of Operations by
approximately $115,000 and $2,973,000, respectively. Tax exempt income reported
to the BAC Holders amounted to approximately $887,000 and $531,000 for 1998 and
1997, respectively.
28
<PAGE> 62
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
REPORT OF INDEPENDENT AUDITORS
The Partners
Victory Tax Exempt Realty Income Fund Limited Partnership:
We have audited the accompanying balance sheets of Victory Tax Exempt Realty
Income Fund Limited Partnership (a Delaware limited partnership) as of December
31, 1998 and 1997, and the related statements of operations, partners' capital
(deficit) and cash flows for each of the years in the three-year period ended
December 31, 1998. These financial statements are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Victory Tax Exempt Realty
Income Fund Limited Partnership as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles.
KPMG PEAT MARWICK LLP
Boston, Massachusetts
March 15, 1999
29
<PAGE> 63
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
(WITH INDEPENDENT AUDITORS' REPORT THEREON)
30
<PAGE> 64
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
INDEPENDENT AUDITORS' REPORT
The General Partner
ConCam Associates, LP,
A California Limited Partnership:
We have audited the accompanying balance sheets of ConCam Associates, LP, A
California Limited Partnership (the Partnership), as of December 31, 1998 and
1997 and the related statements of operations and partners' deficit, and cash
flows for each of the years in the three-year period ended December 31, 1998. In
connection with our audits of the financial statements, we also have audited the
related financial statement schedule III. These financial statements and the
related financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and the related financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of ConCam Associates, LP, A
California Limited Partnership, as of December 31, 1998 and 1997, and the
results of its operations and its cash flows for each of the years in the
three-year period ended December 31, 1998, in conformity with generally accepted
accounting principles. Also in our opinion, based on our audits, the related
financial statement schedule III, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
The accompanying financial statements and the related financial statement
schedule III have been prepared assuming that the Partnership will continue as a
going concern. As discussed in Note 9 to the financial statements, the ability
of the Partnership to meet its obligations as they become due has been adversely
affected by cash flow deficits from operations. This condition raises
substantial doubt about the Partnership's ability to continue as a going
concern. Management's plans in regard to this matter are also described in Note
9 to the financial statements. The financial statements and financial statement
schedule do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
San Diego, California
February 11, 1999, except for Note 11
to the financial statements, as to which
the date is March 15, 1999
31
<PAGE> 65
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
Cash held in trust by ConAm Management Corporation including
$56,180 and $54,762 in 1998 and 1997, respectively, in
interest-bearing accounts................................. $ 113,142 $ 170,236
Impound deposits and other assets........................... 58,056 41,752
Prepaid expenses............................................ 5,093 8,012
Property and equipment, at cost, encumbered (notes 3 and 4):
Land...................................................... 2,380,000 2,380,000
Land improvements......................................... 917,187 913,097
Buildings................................................. 6,980,559 6,980,559
Furnishings and equipment................................. 1,004,558 889,164
------------ ------------
11,282,304 11,162,820
Less accumulated depreciation............................. (1,451,071) (1,162,820)
------------ ------------
Net property and equipment........................ 9,831,233 10,000,000
Organization costs, less amortization of $11,851 and $9,399
in 1998 and 1997, respectively............................ 407 2,859
------------ ------------
$ 10,007,931 $ 10,222,859
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable and other liabilities...................... $ 50,526 $ 50,224
Due to affiliate (note 5)................................... 27,602 27,602
Rental security deposits.................................... 143,421 139,022
First trust deed note payable, net of discount (Note 4)..... 14,524,270 12,128,111
Working capital loan payable, net of discount (Note 4)...... 392,764 328,069
Capital improvement loan payable (Note 4)................... 500,000 500,000
Deferred and accrued interest payable, net of discount (Note
4)........................................................ 15,448,327 12,455,378
------------ ------------
Total liabilities................................. 31,086,910 25,628,406
------------ ------------
Partners' deficit (Notes 7 and 8):
General partner........................................... (210,789) (154,055)
Limited partner........................................... (20,868,190) (15,251,492)
------------ ------------
Total partners' deficit........................... (21,078,979) (15,405,547)
------------ ------------
$ 10,007,931 $ 10,222,859
============ ============
</TABLE>
See accompanying notes to financial statements.
32
<PAGE> 66
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS AND PARTNERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
------------ ------------ -----------
<S> <C> <C> <C>
Revenue:
Rent (Note 4)................................... $ 1,965,461 $ 1,822,507 $ 1,883,836
Laundry......................................... 9,031 14,787 12,995
Forfeited deposits.............................. 67,637 62,057 76,049
Late charges and other.......................... 55,051 59,361 47,979
Carport and garage.............................. 35,760 33,523 33,772
Interest........................................ 1,418 1,602 1,650
------------ ------------ -----------
2,134,358 1,993,837 2,056,281
------------ ------------ -----------
Expenses:
Salaries........................................ 244,637 234,062 229,114
Payroll taxes................................... 58,482 50,841 53,345
Office supplies................................. 29,181 36,822 20,108
Utilities....................................... 188,641 188,544 182,973
Repairs and maintenance......................... 257,395 306,431 266,556
Advertising..................................... 36,968 44,567 25,885
Management fees (Note 5)........................ 86,209 79,919 82,251
Real estate taxes............................... 132,877 145,136 131,108
Insurance....................................... 24,103 30,963 34,467
Professional fees............................... 38,948 35,972 39,996
Security services............................... 74,562 58,843 39,121
Miscellaneous................................... 28,729 11,251 36,558
Interest, including $3,497,022, $2,406,902 and
$1,609,522 for the years ended December 31,
1998, 1997 and 1996, respectively, of
amortization of discount..................... 6,316,355 5,145,445 4,277,558
Depreciation.................................... 288,251 305,768 295,962
Amortization of organization costs.............. 2,452 2,452 2,452
Provision for impairment loss (Note 3).......... -- 1,196,951 --
------------ ------------ -----------
7,807,790 7,873,967 5,717,454
------------ ------------ -----------
Net loss................................ (5,673,432) (5,880,130) (3,661,173)
Partners' deficit at beginning of year............ (15,405,547) (9,525,417) (5,864,244)
------------ ------------ -----------
Partners' deficit at end of year (Notes 7 and
8).............................................. $(21,078,979) $(15,405,547) $(9,525,417)
============ ============ ===========
</TABLE>
See accompanying notes to financial statements.
33
<PAGE> 67
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss.......................................... $(5,673,432) $(5,880,130) $(3,661,173)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation................................... 288,251 305,768 295,962
Amortization of discount on long-term debt..... 3,497,022 2,406,902 1,609,522
Amortization of organization costs............. 2,452 2,452 2,452
Provision for impairment loss.................. -- 1,196,951 --
Change in assets and liabilities:
Impound deposits and other assets............ (16,304) (5,637) 11,959
Prepaid expenses............................. 2,919 5,453 1,150
Accounts payable and other liabilities....... 302 (6,363) 14
Due to affiliate............................. -- (1,114) (1,413)
Rental security deposits..................... 4,399 17,908 (12,580)
Deferred and accrued interest................ 1,956,781 2,221,130 1,801,778
----------- ----------- -----------
Net cash provided by operating
activities.............................. 62,390 263,320 47,671
Cash flows from investing activities - purchase of
fixed assets...................................... (119,484) (251,233) (39,763)
----------- ----------- -----------
Net increase (decrease) in cash held in trust by
ConAm Management Corporation...................... (57,094) 12,087 7,908
Cash held in trust by ConAm Management Corporation
at beginning of year.............................. 170,236 158,149 150,241
----------- ----------- -----------
Cash held in trust by ConAm Management Corporation
at end of year.................................... $ 113,142 $ 170,236 $ 158,149
=========== =========== ===========
Supplemental disclosure of cash flow
information -- cash paid during the year for
interest.......................................... $ 862,552 $ 517,413 $ 866,258
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
34
<PAGE> 68
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997 AND 1996
(1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
(a) General
ConCam Associates, LP (the Partnership), a partnership between ConCam,
Inc., as the general partner, and Continental American Properties, Ltd., as the
limited partner, was formed January 28, 1994 for the purpose of acquiring and
operating Camelot Lakes Apartments (the Property), a 476-unit apartment complex
located in Fresno, California. The Partnership acquired the Property on February
1, 1994. The Partnership generally leases its apartment units with lease terms
of one year or less. The Property operations is the Partnership's only business
segment.
(b) Basis of Accounting
The accompanying financial statements are prepared on the accrual basis of
accounting. Revenue is recognized when earned and expenses are recognized when
incurred in accordance with generally accepted accounting principles.
(c) Depreciation
Depreciation has been provided over the estimated useful lives of the
related assets (buildings and improvements -- 35 years; furniture -- 10 years)
using the straight-line method with an estimated residual value equal to 10% of
the original cost.
(d) Organization Costs
Organization costs are amortized using the straight-line method over a
5-year period.
(e) Income Taxes
No provision for income taxes has been made as the liability for such taxes
is that of the partners, rather than the Partnership. At December 31, 1998 and
1997, the tax basis of the Partnership's assets was $176,698 and $222,859,
respectively, and the tax basis of the Partnership's liabilities was $221,549
and $216,848, respectively.
(f) Discount on Long-Term Debt
The discount on long-term debt is amortized over the life of the related
liabilities using the interest method.
(g) Impairment of Long-Lived Assets
The Partnership assesses its long-lived assets for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is measured
by a comparison of the carrying amount of an asset to future net cash flows
(undiscounted and without interest) expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. At December 31, 1998, the Property was an asset to be
held and used as the Partnership did not have the ability to sell the Property
without the approval of the Lender.
35
<PAGE> 69
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(h) Loss Per Unit
The Partnership did not issue units to the limited partner, therefore, loss
per unit is not applicable.
(i) Use of Estimates
Management of the Partnership has made a number of estimates and
assumptions relating to the reporting of assets and liabilities, the disclosure
of contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenue and expenses during the reporting period to
prepare these financial statements in conformity with generally accepted
accounting principles. Actual results could differ from those estimates.
(j) Concentration of Credit Risk
The Partnership's cash held in trust by ConAm Management Corporation is a
financial instrument that is exposed to a concentration of credit risk. ConAm
Management Corporation places the Partnership's cash balances with high credit
quality and federally insured institutions. Cash balances with any one
institution may be in excess of federally insured limits or may be invested in a
non-federally insured money market account. The Partnership has not experienced
any losses in such accounts and believes it is not exposed to any significant
credit risk.
(2) ACQUISITION OF PROPERTY
The Partnership acquired the Property for $1 plus the assumption of
existing debt, and discounted the debt and related deferred and accrued interest
payable in order to value the liabilities at the fair value of the assets
acquired in accordance with APB Opinion No. 21, "Interest on Receivables and
Payables." The Property was valued at $11,900,000 on February 1, 1994. The
$10,449,842 difference between the face amount of the notes and the value of the
property is shown as a discount. As of December 31, 1998, 1997 and 1996,
respectively, $3,497,022, $2,406,902 and $1,609,522 of the discount was
amortized as interest expense at an effective rate of 23.17% for 1998, 23.12%
for 1997 and 23.26% for 1996. At December 31, 1998 and 1997, the tax basis of
the Partnership's Property was zero.
(3) IMPAIRMENT LOSS
In 1997, after the completion of the renovation of a number of the
Property's apartment units and other property improvements, management of the
Partnership reevaluated the recoverability of the carrying value of the
Property. Based on its current and projected performance, management did not
believe the Partnership will be able to recover the carrying value of its
Property. Therefore, the Partnership recorded an impairment loss of $1,196,951.
The loss represented the difference between the carrying value and the estimated
fair value of the Property at that time. The fair value was estimated based on
discounted projected future cash flows and comparable sales. At December 31,
1998, the Partnership believes that it will be able to recover the carrying
value of its property.
(4) LONG-TERM DEBT
On February 1, 1994, the Partnership executed an assignment and assumption
agreement with the original owner of the Property, Camelot Lakes Associates,
whereby, in conjunction with the acquisition of the Property, the Partnership
assumed the first and second trust deed notes payable.
36
<PAGE> 70
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(a) First Trust Deed Note Payable
The funds for the first trust deed were made available to the lender
through the issuance of revenue bonds (Revenue Bonds), with the stipulation that
20% of the Property's units must be reserved for low or very low income tenants,
as defined. On December 16, 1997, the Property's requirement to reserve units
for low or very low income tenants expired. The first trust deed note payable in
the amount of $15,515,000, is secured by property and equipment and an
assignment of rents. The note bears interest at 16% per annum consisting of base
interest, deferral period deferred base interest, primary contingent interest
and supplemental contingent interest. Unamortized discount on the first trust
deed note payable at December 31, 1998 and 1997 was $990,730 and $3,386,889,
respectively.
Under the original loan agreement, interest rates during the term of the
note are as follows:
<TABLE>
<CAPTION>
DEFERRAL
PERIOD
DEFERRED PRIMARY SUPPLEMENTAL
BASE BASE CONTINGENT CONTINGENT
INTEREST INTEREST INTEREST INTEREST
-------- -------- ---------- ------------
<S> <C> <C> <C> <C>
April 28, 1989 through April 30, 1992..... 6.70% 5.30% 4.00% --
May 1, 1992 through April 30, 1994........ 8.50% -- 4.25% 3.25%
May 1, 1994 through April 28, 1999........ 8.75% -- 4.00% 3.25%
</TABLE>
In conjunction with the acquisition of the Property, the Partnership
executed a forbearance agreement with Victory Tax Exempt Realty Income Fund
Limited Partnership (the Lender). The forbearance agreement was effective from
February 1, 1995 through December 31, 1996, at which time the Lender had the
option to extend the forbearance period or reinstate the original terms of the
first trust deed note agreement (Note 11).
In accordance with the forbearance agreement, the minimum base interest pay
rate in 1998, 1997 and 1996 was 8.0%, 7.5% and 7.0%, respectively. The unpaid
interest from the difference between the original base interest rate and the
minimum base interest pay rate is to be added to the unpaid interest as of
February 1, 1994, and compounds monthly at the base interest rate. Deferral
period deferred base interest is payable on April 28, 1999. Primary contingent
interest is payable in arrears from excess Net Cash Flow, as defined.
Supplemental contingent interest is payable from 65% of Net Cash Flow remaining
after the payment of deferred base interest and primary contingent interest.
Interest only payments are scheduled until April 28, 1999, at which time all
outstanding principal and interest are payable. Beginning in February 1996,
payments of the minimum base interest were less than the amounts required by the
forbearance agreement. As such, on May 8, 1996, the Lender issued a standstill
letter effective through December 31, 1996. The standstill letter allowed for
the continuance of the forbearance agreement however, the Partnership was
required to pay debt service based on all available cash flow, in lieu of the
minimum base interest pay rate, as required in the forbearance agreement. On
February 26, 1997, the standstill letter was extended through December 31, 1997.
On May 11, 1998, the standstill letter was extended through December 31, 1998
(Note 11). Accrued base interest, deferral period deferred base interest,
primary contingent interest and supplemental contingent interest at December 31,
1998 were $3,689,256, $2,473,737, $6,081,880 and $3,362,095, respectively.
Accrued base interest, deferral period deferred base interest, primary
contingent interest and supplemental contingent interest at December 31, 1997
were $2,913,025, $2,473,737, $5,416,280 and $2,857,346, respectively.
Unamortized discount on accrued base interest, deferral period deferred base
interest, primary contingent interest and supplemental contingent interest at
December 31, 1998 and 1997 was $428,523 and $1,464,691, respectively.
37
<PAGE> 71
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
In accordance with the forbearance agreement, monthly deposits were
required to be made to a replacement reserve. In April 1994, the Lender agreed
to allow the Partnership to redirect the funds to payment of base interest. The
reinstatement of monthly replacement reserve deposits is at the sole discretion
of the Lender (Note 11).
(b) Working Capital Loan Payable
The working capital loan payable has an outstanding principal amount of
$420,000 at December 31, 1998 and 1997. The loan is secured by a second trust
deed on the Partnership's property and equipment and an assignment of rents.
Based on the original terms of the note, interest only payments are due until
April 28, 1999, at which time all outstanding principal and interest are
payable. The note was amended on February 1, 1994, resulting in a reduction of
the interest rate from 12.625% to 6.00%, simple interest. In addition, no
interest payments are due until April 28, 1999 (Note 11). At December 31, 1998
and 1997, accrued interest on the note was $137,157 and $111,957, respectively.
Unamortized discount on the working capital loan payable at December 31, 1998
and 1997 was $27,236 and $91,931, respectively.
(c) Capital Improvement Loan Payable
In conjunction with the amendment to the second trust deed note payable,
the Lender agreed to lend the Partnership an additional $500,000 for capital
improvements to be made to the Property in 1994. The loan is secured by a second
trust deed on the Partnership's property and equipment and an assignment of
rents. The capital improvement loan bears simple interest at 6.0% per annum.
Principal and interest are due and payable at the earlier of the end of the
forbearance period as extended or April 28, 1999 (Note 11). At December 31, 1998
and 1997, accrued interest on the note was $132,725 and $102,724, respectively.
38
<PAGE> 72
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(d) Summary of Long-Term Debt
A summary of long-term debt at December 31, 1998 and 1997 is as follows:
<TABLE>
<CAPTION>
FIRST WORKING CAPITAL DEFERRED
TRUST DEED CAPITAL IMPROVEMENT AND ACCRUED
NOTE LOAN LOAN INTEREST
PAYABLE PAYABLE PAYABLE PAYABLE TOTAL
----------- -------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance, net of discount at
December 31, 1995.............. $ 9,376,058 $253,766 $500,000 $7,242,402 $17,372,226
Deferred and accrued interest
during the year ended December
31, 1996....................... -- -- -- 1,801,778 1,801,778
Discount amortization during the
year ended December 31, 1996... 1,102,844 29,776 -- 476,902 1,609,522
----------- -------- -------- ----------- -----------
Balance, net of discount at
December 31, 1996.............. 10,478,902 283,542 500,000 9,521,082 20,783,526
Deferred and accrued interest
during the year ended December
31, 1997....................... -- -- -- 2,221,130 2,221,130
Discount amortization during the
year ended December 31, 1997... 1,649,209 44,527 -- 713,166 2,406,902
----------- -------- -------- ----------- -----------
Balance, net of discount at
December 31, 1997.............. 12,128,111 328,069 500,000 12,455,378 25,411,558
Deferred and accrued interest
during the year ended December
31, 1998....................... -- -- -- 1,956,781 1,956,781
Discount amortization during the
year ended December 31, 1998... 2,396,159 64,695 -- 1,036,168 3,497,022
----------- -------- -------- ----------- -----------
Balance, net of discount at
December 31, 1998.............. $14,524,270 $392,764 $500,000 $15,448,327 $30,865,361
=========== ======== ======== =========== ===========
</TABLE>
(5) GENERAL PARTNER AND MANAGEMENT SERVICES
(a) Management Agreement
A management agreement between the Partnership and ConAm Management
Corporation (CAMC), an affiliate of ConCam, Inc., the general partner, provides
for base management fees of 4% of gross revenue and an incentive management fee,
which ranges from 0.5% to 1.5% of gross rental revenue, based on annual cash
flow, as defined. If however, annual cash flow, as defined, does not exceed
$1,200,000, the incentive fee will not be earned. No incentive management fee
was earned for the years ended December 31, 1998, 1997 or 1996 (Note 11). The
agreement has an initial term of 35 months, terminating on December 31, 1996,
and is automatically renewable for successive 1-year terms unless either party
elects to terminate upon written notice given at least 90 days prior to the end
of the current contract year. The Property is operating under the automatic
renewal feature of the agreement in 1999 as neither party elected to terminate
the contract within the last 90 days of the year ended December 31, 1998.
Accrued management fees at December 31, 1998 and 1997 were $7,131.
(b) Reimbursements to Affiliate
As of December 31, 1998 and 1997, the Partnership had accrued a total of
$20,471 of reimbursable expenses payable to an affiliate of the general partner
for costs incurred on behalf of the Partnership.
39
<PAGE> 73
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
(6) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of funds held in trust, impound deposits and other
assets, accounts payable and other liabilities, due to affiliate, and rental
security deposits are reasonable estimates of their fair values due to the
short-term nature of those instruments. Management estimates that the fair value
of the Partnership's first trust deed note payable is $11,600,000. This estimate
is based on the fair value offered to the Lender by an unrelated party in
conjunction with the proposed sale of the related Revenue Bonds. Management
estimates that the fair value of the working capital loan payable, capital
improvement loan payable, and deferred and accrued interest payable to be zero
based on the Partnership's expectation that such debts will not be repaid.
(7) ALLOCATIONS OF EARNINGS AND LOSSES
(1) Net loss of the Partnership is to be allocated 99% to the limited
partner and 1% to the general partner.
(2) Net income of the Partnership is to be allocated as follows:
(i) First, to each partner, an amount equal to (or in proportion to if
less than) the excess, if any, of the aggregate amount of net loss
allocated to such partner over the aggregate amount of net income allocated
to such partner; and
(ii) Second, the balance, 99% to the limited partner and 1% to the
general partner.
Notwithstanding anything to the contrary, the partnership agreement
requires that the general partner's interest in each material item of
partnership income, gain, loss, deduction or credit shall be equal to at least
1% of each item at all times during the existence of the Partnership.
(8) DISTRIBUTIONS
Cash Available for Distribution, as defined, is to be distributed 99% to
the limited partner and 1% to the general partner. Cash Available for
Distribution in Liquidation, as defined, is to be distributed to the partners,
pro rata, in accordance with each partner's capital account balance, to the
extent thereof, after allocation of income, loss and other appropriate capital
account adjustments.
(9) ABILITY TO MEET CURRENT OBLIGATIONS AND MANAGEMENT'S PLAN
The liquidity of the Partnership has been adversely affected by cash flow
deficits from operations. The operating deficits have prevented the Partnership
from meeting its current obligations under the forbearance agreement and the
standstill letters (Notes 4 and 11).
Management is currently under contract (Note 10) to sell the Property. The
sale is contingent upon the buyer assuming the Partnership's first trust deed
note payable and purchasing the Revenue Bonds from the Lender and the Lender
forgiving all other outstanding debts due from the Partnership. There is no
assurance that the sale will be completed. If the sale isn't completed, the
Partnership's ability to continue its operations is dependent upon the
restructuring of the long-term debt.
(10) POTENTIAL SALE OF PROPERTY
On February 5, 1999, the Partnership entered into a purchase and sale
agreement with an unrelated party to sell the Property for $1 plus the
assumption of the principal balance of the Partnership's first trust deed note
payable.
40
<PAGE> 74
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1998, 1997 AND 1996
The sale is contingent on the buyer's ability to simultaneously acquire the
Revenue Bonds at a discount for $11,600,000 from the Lender.
(11) SUBSEQUENT EVENT
On March 15, 1999, the standstill letter discussed in Notes 4 and 9 was
extended through the earlier of: (i) June 30, 1999; (ii) the closing of the sale
or other disposition of all or substantially all of the Property and the Revenue
Bonds; or (iii) the termination of the standstill letter by the Lender upon a
default by the Partnership of the terms and conditions of this agreement.
In connection with this extension, which is effective as of January 1,
1999, the Partnership ceased making payments to the Lender and the Partnership
is to use any excess cash flow generated by the Property to pay the Property's
operating expenses and the Partnership's expenses including those related to the
sale of the Property. In the event that the cash flow generated by the Property
for the period of this extension together with any Property-level cash balances
are insufficient to cover such expenses, the Lender is to reimburse the
Partnership for such difference. In addition, a $232,000 incentive management
fee is to be paid to CAMC from the proceeds from the sale of the Revenue Bonds.
Upon the closing of the sale of the Property and the Revenue Bonds, the
Lender is to forgive all of the Partnership's obligations to repay any principal
or interest due to the Lender.
41
<PAGE> 75
CONCAM ASSOCIATES, LP,
A CALIFORNIA LIMITED PARTNERSHIP
SCHEDULE III -- REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
CAMELOT LAKES
RESIDENTIAL PROPERTY: APARTMENTS
--------------------- -------------
<S> <C>
Location.................................................... Fresno, Ca
Construction date........................................... 1985
Acquisition date............................................ 04/01/94
Life on which depreciation in latest income statements is
computed.................................................. (3)
Encumbrances................................................ $32,311,850
Initial cost to the Partnership:
Land...................................................... $ 2,380,000
Land improvements......................................... 952,000
Buildings................................................. 7,934,395
Furnishings and equipment................................. 633,605
Costs capitalized subsequent to acquisition:
Land, land improvements, buildings, furnishings and
equipment.............................................. 579,255
Write-down of land improvements and buildings............... (1,196,951)
Gross amount at which carried at close of period(1):
Land...................................................... $ 2,380,000
Land improvements......................................... 917,187
Buildings................................................. 6,980,559
Furnishings and equipment................................. 1,004,558
-----------
$11,282,304
===========
Accumulated depreciation(2)................................. $ 1,451,071
===========
</TABLE>
- ---------------
(1) Aggregate cost for federal income tax purposes is $0.
(2) The amount of accumulated depreciation for federal income tax purposes is
$0.
(3) Land improvements and buildings -- 35 years; furnishings and equipment -- 10
years.
A reconciliation of the carrying amount of property and equipment and
accumulated depreciation for the years ended December 31, 1998, 1997 and 1996
follows:
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Property and equipment:
Beginning of period............................... $11,162,820 $12,108,538 $12,068,775
Additions......................................... 119,484 251,233 39,763
Write-down of assets.............................. -- (1,196,951) --
----------- ----------- -----------
End of period..................................... $11,282,304 $11,162,820 $12,108,538
=========== =========== ===========
Accumulated depreciation:
Beginning of period............................... $ 1,162,820 $ 857,052 $ 561,090
Depreciation expense.............................. 288,251 305,768 295,962
----------- ----------- -----------
End of period..................................... $ 1,451,071 $ 1,162,820 $ 857,052
=========== =========== ===========
</TABLE>
42
<PAGE> 76
EXHIBIT 10.7
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
AMENDMENT TO STANDSTILL AGREEMENT
BETWEEN
VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP
AND
CONCAM ASSOCIATES, LP
43
<PAGE> 77
AMENDMENT TO STANDSTILL AGREEMENT
This AMENDMENT TO STANDSTILL AGREEMENT (this "Agreement") is made effective
as of December 31, 1998, by and between VICTORY TAX EXEMPT REALTY INCOME FUND
LIMITED PARTNERSHIP, a Delaware limited partnership ("Lender"), and CONCAM
ASSOCIATES, L.P., a California limited partnership ("Borrower").
R E C I T A L S :
1. Lender is the sole holder and owner of a $15,515,000 Mortgage Revenue
Bond (the "Bond"), issued by the City of Fresno, California ("Issuer"), pursuant
to the terms of that certain Indenture of Trust and Lender Loan Agreement, dated
as of April 15, 1989, and that certain Regulatory Agreement, dated as of April
15, 1989 (collectively, the "Bond Documents"), with respect to that certain
property commonly known as the "Camelot Lake Apartment Project" located in
Fresno, California and more particularly described on Exhibit A attached hereto,
which, with all Improvements, Fixtures and Personalty thereon, shall hereafter
be referred to as the "Property."
2. In connection with the issuance of the Bond, Issuer, Lender and Camelot
Lake Associates, a California limited partnership ("Camelot"), entered into that
certain Loan Agreement, dated as of April 15, 1989 (the "Loan Agreement"), as
well as certain other documents in connection therewith, including the Bond
Documents, as described on Exhibit B attached hereto (collectively, the "Loan
Documents"), including, without limitation, that certain Deed of Trust with
Assignment of Rents and Fixture Filing, dated as of April 15, 1989 (the "Deed of
Trust"), made by Camelot for the benefit of Lender. Pursuant to the Loan
Documents, Lender made a loan to Camelot in the original principal amount of
$15,515,000 (the "Loan") from the proceeds of the Bond.
3. Borrower has heretofore acquired title to the Property and accordingly
replaced Camelot as the owner of the Property and as borrower and obligor under
the Loan Documents.
4. Certain Events of Default under the Loan Documents existed at the time
Borrower acquired title to the Property because income from the Property was not
sufficient to pay operating expenses and amounts payable under the Loan. Rather
than exercise its remedies based on any such Events of Default, Lender agreed to
forbear exercising such remedies, on the terms and conditions of that certain
Forebearance [sic] Agreement, dated as of January 31, 1994, by and between
Lender and Borrower (the "Forbearance Agreement"). All capitalized terms used
and not otherwise defined herein shall have the respective meanings ascribed
thereto in the Forbearance Agreement.
5. The Forbearance Agreement was amended by that certain Standstill Letter,
dated as of May 8, 1996 (as the same may have been amended, the "Standstill
Agreement").
6. Lender and Borrower now desire to sell the Bond and the Property and, as
a result, (i) Borrower expects to sell the Property to Wasatch Acquisitions,
LLC, a Utah limited liability company ("Buyer"), or its affiliate, for a
purchase price of One Dollar ($1.00) and the assumption by Buyer of Borrower's
obligations under the Loan Documents and (ii) concurrently with the sale of the
Property, Lender expects to sell the Bond to Buyer or its affiliate for a
purchase price of Eleven Million Six Hundred Thousand Dollars ($11,600,000) (the
"Sale Proceeds").
7. Lender and Borrower desire to enter into this Agreement in order to
facilitate and agree to such sale of the Bond and the Property to Buyer or its
affiliate in accordance with, and subject to, the terms and conditions set forth
in this Agreement.
44
<PAGE> 78
AGREEMENT:
NOW, THEREFORE, in consideration of the covenants contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby covenant and agree as follows:
1. TERM. The term of the Standstill Agreement and this Agreement shall be
extended and shall continue until the earlier to occur of (a) June 30, 1999, (b)
the closing (the "Closing") of the sale or other disposition of all or
substantially all of the Property to Buyer or its affiliate and the sale of the
Bond (collectively, the "Sale") or (c) the termination of this Agreement by
Lender upon a default by Borrower of the terms and conditions of the Standstill
Agreement or this Agreement which continues for a period of thirty (30) days
after written notice thereof from Lender to Borrower. Except with respect to
Paragraph 3 herein which will survive the termination or expiration of this
Agreement, upon the termination or expiration of the Standstill Agreement, the
rights and obligations of the parties under the Standstill Agreement shall cease
and the Standstill Agreement (including, without limitation, this Agreement)
shall be of no further force or effect, and the rights, liabilities and
obligations of the parties shall be as they existed immediately prior to the
execution of this Agreement.
2. FEES, COSTS AND EXPENSES.
1. Deposits to Operating Account and Savings Account. Notwithstanding
anything to the contrary contained in the Loan Documents, the Forbearance
Agreement or the Standstill Agreement, during the period that this Agreement is
in effect, Borrower shall deposit all rental and other income or receipts
attributable to or with respect to the Property (the "Gross Receipts") for such
period in the "Operating Account" (as hereinafter defined). In addition,
concurrently with the execution hereof, Borrower shall deposit in the Operating
Account all Net Cash Flow (if any) in Borrower's possession or control and
attributable to the period prior to January 1, 1999. From time to time in
Borrower's reasonable discretion, Borrower may (i) transfer funds in the
Operating Account in excess of the "Permitted Expenses" (as hereinafter defined)
to the "Savings Account" (as hereinafter defined) and (ii) to the extent
required, transfer funds from the Savings Account to the Operating Account to
fund the Permitted Expenses. Borrower shall maintain with Bank of America, N.T.
& S.A. (a) corporate checking account no. 1450-1-04695 (the "Operating Account")
and (b) corporate account no. 1450-4-04702 (the "Savings Account"). Borrower
shall and does hereby grant to Lender a first priority security interest in the
Operating Account and the Savings Account in the manner provided in Article 2 of
the Deed of Trust and shall execute such further instruments, notices and
agreements as may be reasonably required by Lender in order to perfect or
effectuate the security interest granted hereby.
2. Permitted Expenses. Borrower may make disbursements from the Operating
Account only for (i) the reasonable, actual costs, fees and expenses of
operation, maintenance and management of the Property, (ii) the reasonable,
actual costs, fees and expenses of administration of Borrower's partnership and
(iii) the "Closing Costs" (as hereinafter defined), all of the foregoing
disbursements as paid and incurred by Borrower in accordance with Schedule 1
attached hereto (collectively, the "Permitted Expenses") during the applicable
period, including, without limitation, the reasonable, actual amounts paid and
incurred for leasing, marketing, taxes, assessments, capital improvements,
refund of security deposits, insurance, salaries, repairs and utilities,
accounting, tax preparation and auditing fees of the Property or Borrower, the
Bond Trustee Fee, the property management fee paid to the Management Agent (to
the extent approved by Lender pursuant to Section 11.1 of the Loan Agreement),
and the reasonable out-of-pocket fees and expenses incurred by Borrower in
connection with this Agreement or the Sale, but excluding (i) any payments of
interest on, or the repayment of principal of, the Loan and the Working Capital
Loan, (ii) amounts paid in payment of the Mortgage Administration and Servicing
Fee, (iii) any property management fee paid to the Management Agent if the
Management Agent is the Fund or an affiliate of the Fund, and (iv) payments on
account of any Operating Working Capital Loan(s) and/or interest thereon. All
disbursements from the Operating Account shall be made in accordance with
Schedule 1 attached hereto, provided, however, that Borrower may, without
Lender's consent, allocate amounts from the contingency line-item in such
schedule to any other line item.
45
<PAGE> 79
3. Suspension of Debt Service. During the period that this Agreement
remains in effect, and provided that Borrower complies with the terms and
conditions hereof and no Event of Default hereafter occurs, Borrower shall not
be required to make any payments of Base Interest nor deposits into the Reserve
Fund for Replacements or Property tax payments to Lender that would otherwise be
scheduled to be made during the term of this Agreement.
4. Closing Costs. At the Closing of the Sale, Borrower shall use (i) the
amounts remaining in the Operating Account, (ii) the amounts remaining in the
Savings Account, (iii) any amounts held in the Reserve Account or by Lender on
account of real property taxes, insurance, replacements, security deposits or
bond fees (collectively, the "Reserve Funds"), and (iv) any other income
attributable to the Property and retained by Borrower, to pay the reasonable,
actual expenses of the Sale (including, without limitation, payment by Borrower
of any amounts due from Borrower under the "Purchase Agreement" (as hereinafter
defined) and any Permitted Expenses paid or prorated at the Closing) incurred by
Borrower and approved by Lender in its reasonable discretion prior to or at the
Closing (collectively, the "Closing Costs"). If at the Closing or any time prior
thereto that this Agreement is in effect (A) the amount of the Closing Costs
exceeds the amounts then held in the Operating Account, the Savings Account and
any Reserve Funds or (B) the total amount of the Permitted Expenses paid or
incurred during the term of this Agreement exceeds the amounts available in the
Operating Account and the Savings Account (such events collectively being
referred to herein as a "Shortage"), then (1) Borrower shall fund any Shortage
and (2) upon an "Accounting" (as hereinafter defined) pursuant to Paragraph 3
below, Lender shall reimburse Borrower for such expenses.
5. Incentive Management Fee. At the Closing of the Sale of the Bond, Lender
shall cause the escrow agent to pay, from the net proceeds of such Sale, an
amount equal to two percent (2%) of the gross Sale price (which equals Two
Hundred Thirty Two Thousand Dollars ($232,000)) based upon a Sale price of
Eleven Million Six Hundred Thousand Dollars ($11,600,000)) which shall be paid
to ConAm Management Corporation, a California corporation ("Management
Company"), as an incentive management fee.
6. Mortgage Administration and Servicing Fee. Borrower shall suspend
payment of the Mortgage Administration and Servicing Fee as of the date hereof.
7. Purchase Agreement. Lender has read and approved that certain Agreement
of Purchase and Sale and Joint Escrow Instructions, dated as of February 5, 1999
(the "Purchase Agreement"), by and between Borrower and Buyer. Upon the Closing
of the Sale pursuant to the Purchase Agreement and provided that Borrower
complies with the terms and provisions hereof, Lender acknowledges that, except
as provided herein, Borrower shall have no further obligation to Lender to repay
any principal or interest to Lender under any of the Loan Documents, the Working
Capital Loan, the Capital Improvements Loan or any other loan (including accrued
interest) outstanding from Borrower to Lender. During the term of this Agreement
and the Standstill Agreement, Borrower shall not amend or modify the Purchase
Agreement without the prior written consent of Lender.
(1) FINAL ACCOUNTING. On or before seventy-five (75) days after the
Closing, Borrower shall deliver to Lender a final accounting (the "Accounting")
reconciling (a) the Gross Receipts delivered into the Operating Account, the
Savings Account and any other amounts held in any Reserve Funds and any other
income attributable to the Property and retained by Borrower prior to the
Closing, (b) the actual expenses of the Sale incurred by Borrower and reasonably
approved by Lender and (c) the actual Permitted Expenses incurred by Borrower
and reasonably approved by Lender. Upon Lender's reasonable approval of the
Accounting, any and all remaining funds held by or on behalf of Borrower per the
Accounting shall be remitted to Lender as final payment of the Base Interest, or
in the event that the Accounting establishes that a Shortage occurred, Lender
shall reimburse Borrower for the amount of such Shortage.
(1) MISCELLANEOUS.
1. In the event the Sale of the Property or the Bond to Buyer does not
occur, nothing contained herein shall be construed as a commitment by Lender to
(i) make any new loan or loans or to grant or extend any other financial
accommodations to Borrower, (ii) restructure the Loan or to modify any Loan
Document or (iii) except as expressly provided for herein, waive, modify or
forbear from exercising any rights, powers,
46
<PAGE> 80
remedies or privileges, whether under the Loan Documents, the Forbearance
Agreement or the Standstill Agreement, at law or in equity.
2. No purported alteration, amendment, change, waiver, termination or other
modification of this Agreement, the Loan Documents, the Forbearance Agreement or
the Standstill Agreement shall be binding upon any party hereto, or have any
other force or effect in any respect unless the same shall be in writing and
signed by, or on behalf of, the party to be charged therewith.
3. Each of the parties hereto understands that this Agreement is a legally
binding agreement that may affect such party's rights. Each party hereto
represents to the other that it has been represented by independent legal
counsel of its choice regarding the meaning and legal significance of this
Agreement and that it is satisfied with its legal counsel and the advice
received from it.
4. Should any provision of this Agreement require judicial interpretation,
it is agreed that a court interpreting or construing the same shall not apply a
presumption that the terms hereof shall be more strictly construed against any
party by reason of the rule of construction that a document is to be construed
more strictly against the party who itself or through its agent prepared the
same.
5. This Agreement shall be interpreted and enforced in accordance with the
internal laws of the State of California as the same may from time to time
exist, without giving effect to the principles of conflicts of laws.
6. This Agreement constitutes the entire agreement of the parties
concerning the subject matter hereof, and supersedes any prior or
contemporaneous representations or agreements, either oral or written, not
contained herein.
7. Each party executing this Agreement represents that such party has the
full authority and legal power to do so.
8. This Agreement may be executed in one or more counterparts, each of
which shall be deemed an original but all of which together shall constitute one
and the same instrument, with the same effect as if each party had executed all
counterparts.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK.]
47
<PAGE> 81
IN WITNESS WHEREOF, Lender and Borrower have caused this Agreement to be
duly executed as of the date first written above.
LENDER:
VICTORY TAX EXEMPT REALTY INCOME
FUND LIMITED PARTNERSHIP, a
Delaware limited partnership
By: CA VICTORY, INC., a Delaware
corporation, Its General Partner
By: /s/ DAPHNE ARONSON
------------------------------------
Name: Daphne Aronson
Its: President
BORROWER:
CONCAM ASSOCIATES, L.P., a California
limited partnership
By: CONCAM, INC., a California
corporation, Its General Partner
By: /s/ RALPH W. TILLEY
------------------------------------
Name: Ralph W. Tilley
Its: Vice President
48
<PAGE> 82
EXHIBIT A
LEGAL DESCRIPTION
All that certain real property located in the County of Fresno, State of
California, described as follows: Lot 16 of Tract No. 3155, Peach Tree Village,
in the City of Fresno, County of Fresno, State of California, according to the
Map thereof Recorded in Book 37, Pages 99 and 100 of Plats, in the Office of the
County Recorder of said county.
49
<PAGE> 83
EXHIBIT B
BOND DOCUMENTS
(2)Deed of Trust with Assignment of Rents and Fixture Filing, dated as of April
15, 1989, from Borrower to Ticor Title Insurance Company ("TICOR"), as
trustee, for the benefit of Lender.
(3) Assignment of Lessor's Interest in Leases, dated as of April 15, 1989, from
Borrower to Lender.
(4) Working Capital Loan Agreement, dated as of April 15, 1989, by and between
Borrower and Lender.
(5) Second Deed of Trust with Assignment of Rents and Fixture Filing, dated as
of April 15, 1989, from Borrower to TICOR for the benefit of Lender.
(6) Second Assignment of Lessor's Interest in Leases, dated as of April 15,
1989, from Borrower to Lender.
(7) Regulatory Agreement, dated as of April 15, 1989, by and among Issuer,
Lender, Borrower and First Interstate Bank of California ("Trustee").
(8) Indenture of Trust and Lender Loan Agreement, dated as of April 15, 1989, by
and among Issuer, Lender and Trustee.
50
<PAGE> 84
SCHEDULE 1
ADJUSTED CASH FLOW PROJECTIONS
SEE ATTACHED.
51
<PAGE> 85
SCHEDULE 1
CAMELOT LAKES
PROJECTED ENDING CASH BALANCE AT MAY 31, 1999
<TABLE>
<S> <C> <C>
Cash Balance at 2/28/99..................................... $ 209,648
Estimated Net Cash Flow(1)
March..................................................... $ 62,000
April..................................................... 20,000
May....................................................... 68,000
----------
150,000 150,000
==========
Property Insurance
Insurance Effective Date.................................. 5/16/98
Projected Selling Date.................................... 5/31/99
Estimated Annual Cost..................................... 23,803
Payments Made Through Sale................................ 24,000
Less: Earned Premium Through Sale......................... (24,846)381Days
----------
Refund/(Payment) Due...................................... (846) (846)
==========
Property Taxes Property Tax Paid Through Date............... 6/30/99
Projected Selling Date.................................... 5/31/99
Actual Taxes Due (7/1/98 - 6/30/99)....................... 120,942
Less: Seller Portion Due Through Closing.................. 0 0 Days 0
Less: Buyer Portion Due Through Closing................... 9,940 30 Days 9,940
Miscellaneous
Last Month's Expenses..................................... (85,000)
Prepaid Rents............................................. (3,500)
Security Deposits 2/28/99................................. (143,177)
Tax Impound Account Balance 12/31/98...................... 66,000
----------
(165,677) (165,677)
========== ---------
Projected Ending Cash Balance at 5/31/99.................... 203,065
Other Final Costs Final Audit/Tax Return.................... (20,000)
Legal Fees................................................ (20,000)
Title Costs (per LandAmerica estimate).................... (31,000)
Fire Damage Deductible.................................... (5,000)
Contingency............................................... (25,000) (101,000)
========== ---------
Projected Ending Cash Surplus (Deficit)..................... $ 102,065
=========
</TABLE>
<TABLE>
<CAPTION>
MAR APR MAY
-------- -------- --------
<S> <C> <C> <C>
(1) Income................................. $175,000 $175,000 $175,000
Operating Expense..................... (94,000) (80,000) (94,000)
Other Income/Expense.................. (1,000) (1,000) (1,000)
Taxes................................. (61,000) 0
Insurance............................. (2,000) (2,000) (2,000)
Debt Service Impounds................. 0 0 0
Capital Items......................... (16,000) (11,000) (10,000)
-------- -------- --------
Net Cash Flow......................... $ 62,000 $ 20,000 $ 68,000
======== ======== ========
</TABLE>
52
<PAGE> 86
CONSENT FORM
VICTORY TAX EXEMPT REALTY INCOME FUND LIMITED PARTNERSHIP
The undersigned holder of record on April 15, 1999 of certificates
evidencing economic and certain other rights (each such certificate, a "BAC"),
attributable to the limited partnership interests in Victory Tax Exempt Realty
Income Fund Limited Partnership (the "Partnership"), formerly known as Olympic
Tax Exempt Realty Income Fund Limited Partnership, hereby:
[ ] Consents [ ] Does Not Consent
to the Sale (as defined in the Statement dated April 15, 1999 (the "Statement"))
of the Partnership). The undersigned acknowledges receipt of the Statement
(including the supplemental material thereto).
Unless otherwise specified by the undersigned, this form relates to the
total number of BACs held by the undersigned on the date hereof.
Number of BACs Held:
-------------------------------------------------------------------------
Number of BACs Consenting:
-------------------------------------------------------------------------
Please sign and date on reverse side
<PAGE> 87
If forms of Consent are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, officers of corporations or other persons acting
in a fiduciary or representative capacity, such persons should so indicate when
signing.
<TABLE>
<S> <C>
Date: ------------------------------
--------------------------------------------------------
(Signature of BAC Holder)
--------------------------------------------------------
(Signature of BAC Holder)
Please sign your name exactly as it appears hereon. If
acting as attorney, executor, trustee, or in other
representative capacity, please sign name and title. If
BACs are held jointly, each joint owner should sign.
PLEASE SIGN, DATE AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE OR DELIVER BY FACSIMILE TO: (212) 929-0308 .
</TABLE>
