SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31,1996
Commission file number: 0-25780
PRESIDIO CAPITAL CORP.
(Exact name of registrant as specified in its charter)
British Virgin Islands N/A
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
c/o Hemisphere Management (Cayman) Limited
Zephyr House, Mary Street, Grand Cayman
Cayman Islands, British West Indies N/A
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (441) 295-9166
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
Common Stock, par value US $.01 per share
(Title of class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes[ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the best
of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes [ X ] No [ ]
The number of shares outstanding of each of the issuers classes of common stock,
as of the last practicable date:
As of March 1, 1997, there were 8,797,255 Class A Common Shares, U.S. $.01 per
share, par value, outstanding.
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TABLE OF CONTENTS
Item
PART I. 1. Business
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
PART II. 5. Market Price for the Registrant's Common Stock and
Related Stockholder Matters
6. Selected Consolidated Financial Data
7. Management's Discussion and Analysis of Financial Condition
and Liquidation Activities
8. Financial Statements and Supplemental Data
9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
PART III. 10. Directors and Executive Officers of the Registrant
11. Security Ownership of Certain Beneficial Owners and Management
12. Certain Relationships and Related Transactions
PART IV. 13. Financial Statements, Exhibits, and Reports on Form 8-K
SIGNATURES
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The statements contained in this Annual Report on Form 10-K which are
not historical or current may contain forward-looking statements that involve
risks and uncertainties, including, but not limited to, business conditions and
changes in the general economy, and the ability of the Presidio Capital Corp.
("Presidio") and its subsidiaries (collectively the "Company") to effectively
manage its operating businesses and to liquidate its assets.
PART I
Item 1. BUSINESS.
General
The Company is engaged in the sale, liquidation or other disposition of
the assets (the "Acquired Assets") of Integrated Resources, Inc. ("Integrated"),
title or rights to which were acquired by the Company pursuant to the Sixth
Amended Plan of Reorganization Submitted by the Steinhardt Group and the
Official Committee of Subordinated Bondholders, as amended (the "Plan"),
confirmed August 8, 1994 in Integrated's Chapter 11 reorganization case. The
Acquired Assets included deferred origination fees, installment obligations and
other indebtedness owed by various real estate investment or "net lease"
partnerships to the Company under written agreements ("Contract Rights") and
various operating businesses, real estate and other assets. As assets are
liquidated or sold, proceeds from disposition, as well as other available cash
is distributed to Presidio's shareholders.
The Company is managed by Presidio Management Company, LLC ("Presidio
Management"), a limited liability company, and Steinhardt Management Company,
Inc. ("Steinhardt Management"), and is administered by Wexford Management LLC, a
Connecticut limited liability company ("Wexford"). Presidio and its non-U.S.
subsidiaries are administered offshore by Hemisphere Management (Cayman) Limited
("Hemisphere"). See "Material Agreements and Instruments" and "Certain
Relationships and Related Transactions."
Background
Presidio was organized on August 29, 1994, in the British Virgin Islands
under The International Business Companies Act (Cap. 291). In connection with
the Plan, Integrated(1) transferred to the Company title and rights to the
Acquired Assets and the Company assumed certain of Integrated's obligations
effective November 3, 1994 (the "Consummation Date"). Pursuant to the Plan,
Presidio controlled and was entitled to the remaining assets of Integrated as of
the Consummation Date.
The following summarizes the material events relating to the Company
which occurred pursuant to the Plan on the Consummation Date:
(i) an asset purchase agreement, dated as of May 5, 1994 (as amended, the
"Asset Purchase Agreement") was consummated pursuant to which Presidio
acquired, directly or indirectly, from Integrated the Acquired Assets;
(ii) holders of allowed and disputed Integrated senior general unsecured and
subordinated claims (aggregating approximately $1.9 billion) received
Presidio's 8.8 million Class A Common Shares, U.S. $.01 par value ("Class
A Shares"), and 8.8 million shares of the common stock of XRC Corp., a
Delaware corporation which succeeded to assets of Integrated with a net
value of less than $5 million pursuant to the Plan.
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(1) Pursuant to Article 3 of Regulation S-X, Integrated is considered to be the
predecessor of Presidio.
<PAGE>
(iii) IRPartners,(2) contributed approximately $35.8 million to the Company for
the purchase of the Acquired Assets and the funding of the Plan. In
consideration therefor, Presidio issued to IR Partners 1.2 million of its
Class B Common Shares, U.S.$.01 par value ("Class B Shares"),
representing a 12% economic interest in Presidio. See "Security Ownership
of Certain Beneficial Owners and Management";
(iv) a reserve for disputed claims in the Integrated case was established and
funded by Presidio with $46 million in cash and 162,932 Class A Shares.
At December 31, 1996 approximately $1.6 million in cash and 16,395 shares
remained in reserve. See "Management's Discussion and Analysis of
Financial Condition and Liquidation Activities";
(v) Presidio paid $23.1 million in the aggregate for the consummation of an
agreement of settlement relating to 47 lawsuits (including six class
action suits) brought by various investors in partnerships syndicated by
Integrated;
(vi) Presidio's Board of Directors was increased to five members and
classified into two classes by the addition of three directors appointed
by the Integrated creditors' committees (the "Class A Directors") and
Presidio issued 4,550 Class A Shares to each of its then Class A
Directors; and
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(2) IR Partners is a general partnership whose general partners are Steinhardt
Management, certain of its affiliates and accounts managed by it and
Roundhill Associates, L.P. ("Roundhill Associates"). Roundhill Associates
is a limited partnership whose general partner is Charles E. Davidson, the
principal of Presidio Management and the Chairman of the Board of both
Presidio and Wexford. Joseph M. Jacobs, the President and Chief Executive
Officer of Presidio and the President of Wexford, has a limited partner's
interest in Roundhill Associates. Robert Holtz, a Vice-President of
Presidio and Senior Vice-President of Wexford, also has a limited partner's
interest in Roundhill Associates.
<PAGE>
(vii) Presidio entered into various other agreements described under "Material
Agreements and Instruments" below.
Description of Assets of the Company
Set forth below is a description of the Company's assets, together with
the principal strategies that the Company currently plans to use to liquidate
such assets. The description of the Company's assets has been divided into four
major categories: Contract Rights, Operating Businesses, Real Estate and Other
Assets.
Contract Rights.
The Contract Rights evidence deferred origination fees and contract right
obligations owed in connection with Integrated's (or its affiliates')
organization and syndication, from 1978 to 1985, of more than 100 privately
offered net lease partnerships (the "Partnerships"). The Partnerships invested
in commercial real estate leased primarily to investment grade tenants under
long-term, "triple net" leases. The leases generally provide for 25-year primary
terms and tenant renewal options for additional periods aggregating up to 30
years. The leases are generally non-cancelable except in certain limited
circumstances.
The Partnerships were originally organized by Integrated or its
affiliates for the purpose of investing in commercial properties. When the
Partnerships were originally organized and funded, Integrated (or one or more of
its affiliates) became entitled by agreement to receive certain syndication fees
and other compensation from the Partnerships in consideration of the various
financial and other services which Integrated (or its affiliates) had rendered
to the Partnerships, as well as in exchange for providing the Partnerships with
the opportunity to purchase the properties.
Contract Right Modification. Pursuant to the Agreement to Modify Contract
Agreements, dated as of September 29, 1994, and amended on October 20, 1995,
among Presidio and substantially all of the Partnerships, modifications were
made in various ways which intended to make the Contract Rights more readily
saleable and or financeable.
Securitization and Related Transactions. In a private securitization
transaction completed on March 28, 1996 (the "Closing Date"), the Company sold
117 of the 123 Contract Rights owned directly or indirectly by the Company. Such
securitized transaction, which was unanimously approved by Presidio's Board of
Directors, yielded proceeds before expenses and reserves of approximately $233
million, approximately $205 million of which has been distributed to Presidio or
one of its subsidiaries. Of the remaining funds, $20 million is being held in
reserve accounts managed by a Grantor Trust (see Securitization, below). The
following describes the structure of such securitization. During 1996,
approximately $9.4 million of the reserves were returned to the Company.
<PAGE>
Securitization. On the Closing Date, Presidio CR Holdings, L.P. (the
"Seller"), a limited partnership that is indirectly wholly-owned by Presidio,
Presidio and Integrated Resources Life Companies Inc., a wholly-owned subsidiary
of Presidio ("IRL" and, with Presidio, the "Affiliated Sellers"), sold all of
their right, title and interest in 117 Contract Rights to the Contract Right
Grantor Trust (the "Grantor Trust"), formed pursuant to a Grantor Trust
Agreement, dated as of January 1, 1996, as amended and restated by the Amended
and Restated Grantor Trust Agreement (the "Grantor Trust Agreement"), dated as
of January 1, 1996, among the Seller, the Affiliated Sellers, Bankers Trust
Company, as servicer and Union Bank, as trustee (the "Grantor Trust Trustee").
The Grantor Trust issued a certificate (the "Grantor Trust T-1 Certificate") to
a trust (the "Trust") formed pursuant to a Pooling Agreement, dated as of
January 1, 1996, among the Grantor Trust, acting through the Grantor Trust
Trustee, as depositor, Bankers Trust Company, as servicer, and The First
National Bank of Chicago, as trustee in exchange for the Certificates (as
defined below).
The Grantor Trust also issued a second certificate and certain related
assets (the "Grantor Trust T-2 Certificate") to T-Two Partners, L.P., a Delaware
limited partnership (the "T-2 Holder"), in exchange for approximately $20
million in cash and the assumption of certain liabilities. The Grantor Trust T-1
Certificate evidences the interest of the Trust in the Contract Rights
transferred to the Grantor Trust, and are secured by substantially all of the
payment stream from the primary term of such Contract Rights. The Grantor Trust
T-2 Certificate evidences the balance of all payments on such Contract Rights as
well as the six other Contract Rights sold directly to the Grantor Trust.
Payments made in respect of the Grantor Trust T-2 Certificate will be deposited
in a reserve fund as security for the T-2 Holder's obligation to indemnify the
Trust against losses on the Contract Rights.
The Trust consists, among other things, of all the right, title and
interest arising from and in connection with the Grantor Trust T-1 Certificate.
A "real estate mortgage investment conduit" ("REMIC") election has been made in
connection with certain assets of the Trust for U.S. Federal income tax
purposes. The Trust issued five classes of certificates: the Class A-1
Certificates, the Class B-1 Certificates, the Class C-1 Certificates and the
Class D-1 Certificates (collectively, the "Offered Certificates") and the Class
R Certificate (collectively, with the Offered Certificates, the "Certificates").
The Class R Certificate was transferred to T-Two Corp, a new corporation
affiliated with the T-2 Holder.
<PAGE>
Upon the transfer of the Certificates to the Grantor Trust in exchange
for the Grantor Trust T-1 Certificate, the Grantor Trust sold the Offered
Certificates to Bear, Stearns & Co. Inc. ("Bear Stearns") in a private
placement, which Bear Stearns, in turn, sold in transactions pursuant to Rule
144A under the Securities Act. The Grantor Trust applied substantially all of
the proceeds from the sale of the Offered Certificates to the purchase price for
the Contract Rights.
Presidio Loan. On the Closing Date, Presidio loaned $31.5 million to
Roundhill Associates L.P. and Roundhill Associates II L.P., both Connecticut
limited partnerships (collectively, the "T-2 Organizers"). Charles E. Davidson,
Chairman of the Company, is the managing general partner with a 50 percent
partnership interest in each of the T-2 Organizers; Joseph M. Jacobs, President
of the Company, is a limited partner with a 45 percent partnership interest in
each of the T-2 Organizers; and Robert Holtz, Vice President of the Company, has
the remaining 5% limited partnership interest in the T-2 Organizers. Such loan
(i) is obligated to be repaid on the completion of the rights offering discussed
below but no later than March 28, 1999, (ii) bears interest at the rate of 25%
per annum and (iii) is secured by a pledge of 100% of the membership interests
in a Delaware a limited liability company, T-Two Holding LLC ("T-2 LLC").
Principal and interest due to Presidio under the terms of this loan were
approximately $37.5 million at December 31, 1996 and are approximately $38.8
million at March 1, 1997.
Capitalization of T-2 LLC. In order to capitalize T-2 LLC, the T-2
Organizers contributed the entire $31.5 million loan from Presidio to T-2 LLC in
exchange for 100% of the membership interests of T-2 LLC. T-2 LLC contributed
$20.0 million of such amount to the T-2 Holder in exchange for all of the T-2
Holder's limited partnership interest (which constitutes 99% of the T-2 Holder's
partnership interests) and $9.9 million to T-Two Corp. in exchange for 99% of
the common stock of T-Two Corp. The capital contribution to (i) the T-2 Holder
was used to fund its purchase of the Grantor Trust T-2 Certificate and related
assets, as well as for working capital purposes and (ii) T-Two Corp. is being
used to fund T-Two Corp.'s tax liabilities and working capital. T-2 LLC retained
the balance of such funds for working capital purposes.
Rights Offering. Pursuant to a Rights Offering Agreement, dated as of
March 19, 1996, among T-2 LLC, Presidio and the T-2 Organizers, the T-2
Organizers are obligated to conduct a rights offering, or equivalent transaction
in favor of Presidio shareholders. Until the rights offering is completed, T-2
LLC is precluded from making any distributions to its members. The rights
offering will be an offering of transferable rights to purchase the equivalent
of 100% of the membership interests in T-2 LLC. The rights offering will be made
to shareholders of Presidio common shares at an exercise price and on such terms
as are approved by a majority of the Class A Directors, except that interests in
T-2 LLC may only be held by U.S. persons. Pursuant to the Rights Offering
Agreement, the T-2 Organizers will sell their membership interests in T-2 LLC
upon completion of the rights offering in the same percentage that the rights
issued in the rights offering are subscribed in exchange therefore, and will
receive out of the proceeds of the rights offering an amount equal to the
following: (i) the purchase price for such membership interests, (ii) their
interest payments on the $31.5 million loan from Presidio, (iii) their net tax
liability as a consequence of owning the interests being sold, computed based
upon the marginal effective tax rates of the individual partners of the T-2
<PAGE>
Organizers, minus 12% of the losses, if any, recognized by them as a consequence
of their ownership of such interest, plus (iv) $50,000, which represents the
anticipated out-of-pocket expenses of the affiliates of the T-2 Organizers in
maintaining their investments through certain entities in the T-2 Holders (as
described below) in a manner that was designed to facilitate the completion of
the Contract Rights securitization.
Presidio and the T-2 Organizers are working on the rights offering of
T-2 LLC, and contemplate making the offering during the second or third quarter
of 1997.
T-Two Structure. The general partner of the T-2 Holder is a limited
partnership, T-Two General, L.P. ("T-2 GP"), the 1% corporate general partner of
which is owned by Messrs. Davidson and Jacobs and the 99% limited partnership
interests of which was owned by Joseph Jacobs. Such limited partnership
interests have been sold to individual retirement accounts of Messrs. Davidson
and Jacobs. T-2 Holder and another affiliate of Messrs. Davidson and Jacobs, T-2
Management LLC (formerly CD/JJ, LLC) ("T-2 Management"), are required to make
contributions to T-2 LLC and its related entities in the same aggregate amount
that a 1% interest holder in T-2 LLC would have to make to acquire and retain a
1% interest in T-2 LLC. T-2 Management acquired a 1% interest in T-Two Corp.
which, as noted above, is the holder of the Class R Certificate issued in the
Contract Rights securitization.
Remaining Contract Rights. During 1996, two tenants purchased its leased
property from the Company, as permitted under the terms of their respective
leases, for an aggregate of approximately $3.8 million. At December 31, 1996 the
Company owns four Contract Rights, which in the aggregate are valued at $41.1
million. On March 12, 1997, one of the Partnerships exercised its option and
prepaid approximately $40.0 million representing the remaining balance due under
one of the Contract Right obligations.
<PAGE>
Operating Businesses.
The acquired assets included interests in several partnerships which have
invested in operating businesses. The Company and Presidio Management have been
working closely with existing management in order to maximize value consistent
with the Company's fiduciary obligations to the limited partners of such
partnerships.
Cable Interests. The Company acquired Integrated's interests in six
limited partnerships which solely invested in cable television systems. Of these
six partnerships, five have sold substantially all of their cable system assets
and four of those have distributed the majority of the funds received to their
respective partners, while one (ACT IV) has made a distribution of funds to its
partners for which a subsidiary of Presidio received $2.1 million in 1996. The
balance of funds remaining in such four partnerships are being held in reserve
to cover any additional contingent liabilities of such partnerships. These
liabilities include potential taxes, professional fees, closing costs and
defense of the partnership litigation relating to the sales of the partnerships'
assets.
A discussion of other material operating business investments of the
Company follows:
Intergen Company, L.P. ("Intergen"). Intergen markets biochemical
products from animal, human, synthetic and semi-synthetic sources, primarily
from bovine (cow) plasma and serum. The products are sold primarily to the
pharmaceutical and biotechnology industries for research, development and
manufacturing of products. The Company holds a general partnership interest in
Intergen Investors, L.P. which entitles the Company to 30% of profits
distributed after an 8% per annum priority return to the limited partners.
Intergen Investors, L.P. owns approximately 75% of Intergen. Additionally, the
Company holds a Deferred Origination Note with an accreted face value of
approximately $5 million at December 31, 1996.
Majco Building Specialties, L.P. ("Majco"). The Company, through an
indirect wholly- owned subsidiary, owned a general partnership interest in the
general partner of Majco. In 1995, Majco consummated the sale of substantially
all of its assets for a gross sales price of $66.6 million. The Company's
allocable distribution from this sale was approximately $12 million. In
addition, certain amounts were withheld in an escrow account. During 1996, the
Company received approximately $588,000 in distributions from this escrow and
believes its remaining interest in the escrow is approximately $1.0 million.
Northeastern Television Investors, L.P. ("NETV"). Presidio holds a 9%
accreting promissary note due 1999 in the principal amount of $400,000 which was
received by Integrated when its interests in NETV were sold on December 17,
1993.
Real Estate.
The Company continues to manage publicly- and privately-offered
investment programs organized by Integrated which have invested in residential,
retail and commercial real estate and mortgages. The Company retains an interest
in the following series of investment programs which have been publicly-offered
and are in existence: High Equity Partners ("HEP" or the "HEP Partnerships");
Resources Pension Shares 5; Vista Properties, one publicly-offered investment
<PAGE>
program which made highly-leveraged commercial real estate investments; and
Resources Accrued Mortgage Investors, two investment programs which made zero
coupon loans to public and private real estate investment programs (including
programs in which the Company retains an interest).
In addition to the foregoing interests, the Company retains various
interests in real property issued by privately-offered investment programs. The
Company believes that the liquidation values of these assets are immaterial
relative to the total assets of the Company, still such interests include
wraparound mortgages secured by subordinated liens on various commercial
properties, investment program interests and other notes and mortgages issued by
investment programs.
The Company plans to liquidate most of its interests in the subsidiaries
which serve as the general partners of and advisers to publicly-offered real
estate investment programs. Management is considering a variety of liquidation
alternatives to maximize the value of such interests, including, but not limited
to, individual sales, bulk sales, securitizations and converting limited
partnerships to publicly traded corporations. The Company's ability to sell such
interests could be affected by actual or potential claims of limited partners
against the interests being conveyed by the Company, the settlement of pending
litigation involving such limited partnerships and compliance with applicable
provisions of Regulation S-K of the federal securities law. Both the timing of,
and the amount that the Company will be able to realize upon, the sale of these
assets depends upon numerous factors, including market conditions, prevailing
interest rates and issues specific to the individual properties.
Information on specific real estate investments follows:
HEP. The HEP Partnerships are a series of three public partnerships
(HEP-85, HEP-86 and HEP-88), which invested in unleveraged commercial real
estate between 1985-1989. The HEP Partnerships' portfolios consist of 18
properties with an original cost of approximately $253 million. The real estate
properties in which such Partnerships either own or maintain a material interest
consist of eight shopping centers, locations currently leased to five
supermarkets, three office buildings, two office parks, two industrial
warehouses and one parcel of land. Subsidiaries of Presidio (the "HEP
Subsidiaries") serve as general partners and hold a 5.0% interest in each of the
HEP Partnerships. For managing the affairs of the HEP Partnerships, the HEP
Subsidiaries receive partnership management fees, property management fees and
certain expense reimbursements in the aggregate of approximately $4.5 million
per year.
HEP is subject to a class action lawsuit as described in Item 3 "Legal
Proceedings".
On January 14, 1997, the Superior Court of California, County of Los
Angeles, issued an order denying final approval of a proposed settlement of such
proceedings. The Company is considering alternate strategies with respect to the
HEP Partnerships. The Company acquired 4.7% of the outstanding limited partner
units of HEP-85, 0.6% of the outstanding limited partner units of HEP-86 and
0.6% of the outstanding limited partner units of HEP-88, during 1996.
<PAGE>
Resources Pension Shares 5 ("RPS-5"). RPS-5 is a public partnership which
invested approximately $50 million in first mortgage loans on commercial real
estate. Subsidiaries of Presidio serve as general partner of RPS-5. For managing
the affairs of the partnership, servicing mortgage loans made by RPS-5 and
acting as a supervisory manager on the properties, subsidiaries of Presidio
received a partnership management fee, a mortgage servicing fee and a property
management fee of approximately $900,000 for the year ended December 31, 1996.
During 1996 Presidio acquired 9.4% of the outstanding limited partner interests
in RPS-5.
Other Real Estate. The Company also acquired from Integrated interests in
or rights to numerous other real estate-related assets including approximately
10 subordinated purchase money mortgages on net leased real estate which are
collateralized by second liens on commercial real estate properties owned by
limited partnerships. The Company believes that the liquidation values of these
other real estate interests are immaterial relative to the total assets of the
Company. In 1996, Presidio received $3.7 million related to such assets.
Other Assets.
The Company acquired title or rights to various other assets from
Integrated on the Consummation Date. These interests include receivables on
leased equipment, expected proceeds from liquidation of interests in
equipment-related limited partnerships. The Company intends to pursue value
maximizing alternatives to sell or wind up its interests in these assets. A
description of the more significant other assets follows:
Equipment Leasing Activities. As of March 1, 1997 the Company, through
its subsidiaries, owns interests in 10 publicly- and privately-offered
investment programs (the "Leasing Programs") which have invested in equipment
subject to leases to third parties. These programs are in the form of single
investor transactions, limited partnerships and grantor trusts. In April 1995,
the Company engaged Fieldstone Private Capital Group L.P. ("Fieldstone"), an
entity unaffiliated with the Company or its subsidiaries, for the purpose of
managing such interests. In consideration for such services, Fieldstone
receives: (i) aggregate fixed fees; (ii) performance fees depending upon their
ability to reduce contingent liabilities and successfully manage any pending
litigations; and (iii) reimbursement of their out-of-pocket expenses. Actual
fees, including performance fees, paid to and accrued for Fieldstone in 1995 and
1996 aggregated approximately $1.5 million and $1.3 million, respectively. The
engagement of Fieldstone expires on November 3, 1997, but may be terminated by
Presidio upon 60 days notice to Fieldstone or at any time for cause, as defined.
As of March 1, 1997, Fieldstone manages for the Company three series of
publicly-offered investment programs which have invested in various equipment
subject to leases with third parties: National Lease Income Fund 6, L.P.,
Aircraft Income Partners L.P. and American Leasing Investors VIII-B L.P. The
Company through Fieldstone also manages seven, privately offered investment
programs which have invested in commercial and corporate aircraft and various
other equipment, in each case subject to leases with third parties. In addition
to its involvement in equipment leasing investment programs, the Company has
direct ownership interests in aircraft and aircraft engines subject to leases
with commercial airline end-users. The equipment group also realizes revenues by
managing the assets owned by investment programs after their expiration. At
present, the equipment group is involved in three such transactions.
<PAGE>
The Company anticipates that the investment programs which own aircraft
may encounter severe competition in attempting to re-lease aircraft as they come
off-lease due in part to the substantial costs associated with maintaining and
bringing used aircraft into compliance with FAA noise and maintenance
requirements adopted since 1990. Additionally, such investment programs will
also have to compete with newer, more fuel-efficient aircraft that comply with
noise requirements adopted by the FAA. The Company also believes that as a
result of the factors listed above there has been a significant decline in the
re-sale value of narrow-body aircraft of the types owned by the various
investment programs.
IRLife Co. In 1990, Integrated sold the majority of its core financial
services businesses (including its insurance subsidiary Integrated Resources
Life Co. ("Life")) to Broad, Inc. In connection with the sale, certain cash in
Life was restricted by order of the Iowa Insurance Commissioner from being
distributed to Integrated. Approval for distribution was contingent, in part,
upon the resolution of various contingent liabilities, including contingent
claims relating to state guarantee funds for failed insurance companies. The
right to receive this remaining receivable from Life was transferred to an
indirect wholly owned subsidiary of Presidio, in connection with the
consummation of the Plan. On July 1, 1996, the Iowa Insurance Commissioner
concluded that all contingent liabilities had been satisfied, and approved the
transfer of all remaining cash from Life to the Company. As a result, the
Company received approximately $13.4 million on July 2, 1996.
Tax Sheltered Annuities ("TSA"). Integrated sold its TSA business to
Metropolitan Life Insurance Company of America ("Met Life") effective September
30, 1989 in consideration for a deferred payment arrangement.
On November 21, 1996 the Company sold in a private securitization
transaction, its rights to this deferred payment stream. Proceeds realized, net
of the underwriting discount, rating agency fees and reserves was approximately
$20.5 million.
The securitization notes that were sold are backed solely by the deferred
payment stream and not by Presidio. As part of this transaction, certificates
evidencing a residual beneficial interest were issued and sold to two newly
formed companies, T-2, TSA LLC ("T-2 TSA") and T-2 TSA II LLC ("T-2 TSA II").
The purchasers of the residual equity certificates are entitled to receive the
deferred payment stream payments, upon satisfaction in full of the notes sold in
the securitization. The rights of the residual equity certificates are fully
subordinated to the notes. The purchasers of the residual equity certificates
are each owned 99% by T-2 LLC. The purchase of this residual interest was
financed through a $1 million loan from Presidio to T-2 LLC. This loan accrues
interest at 15% and matures on March 31, 2001. This note can be prepaid without
penalty, and it is anticipated that prepayment will occur with the successful
completion of the rights offering for T-2 LLC as previously described under
Contract Rights.
First Britannia. The Company owns 836,956 common and 85,937 preferred
shares in a private U.K. fund which has invested in mezzanine debt of leveraged
buy out transactions.
<PAGE>
Material Agreements and Instruments
The management and liquidation of the Company is governed by several
arrangements, as well as by the provisions of a letter (the "No Action Letter")
from the Securities and Exchange Commission (the "Commission"). These
arrangements were developed through the negotiations of various constituencies
(including the official creditors' committees) involved in the Integrated
bankruptcy. These arrangements are for the most part contained in the Management
Agreements with Presidio Management and Steinhardt Management, the
Administrative Services Agreement with Wexford, the Indemnification Agreements
(the "Indemnification Agreements") and Indemnification Security Agreement (the
"Indemnification Security Agreement") with certain former officers and directors
of Integrated, the indemnification and indemnification trust agreements entered
into with officers and directors of Presidio. The material terms of these
agreements and instruments and the No Action Letter are summarized below and
elsewhere in this Form 10-K. The summaries of such agreements and instruments
and the No Action Letter included in this Form 10-K do not purport to be
complete and are subject to and qualified in their entirety by reference to all
of the provisions of such agreements and instruments and the No Action Letter,
including the definitions thereof of certain terms.
The Management Agreements.
Effective as of the Consummation Date, the Company entered into a
management agreement with Presidio Management (the "Presidio Management
Agreement") and a management agreement with Steinhardt Management (the
"Steinhardt Management Agreement" and together with the Presidio Management
Agreement, the "Management Agreements"). Pursuant to the Presidio Management
Agreement, Presidio Management oversees the management of the Company and the
management and liquidation of the Company's assets. Pursuant to the Steinhardt
Management Agreement, Steinhardt Management will be available to consult with
Presidio Management in connection with certain material transactions relating to
the Company's assets. Each Management Agreement provides for a fixed fee of
$1.25 million per year, payable in equal monthly installments.
<PAGE>
Pursuant to the Presidio Management Agreement, Presidio Management has
full discretion and authority, without the need for any subsequent approval of
the Board of Directors or shareholders of Presidio, or any subsidiary, except as
expressly required by Presidio's Articles of Association or otherwise required
by law, to manage and to liquidate the Company's assets (whether by sale,
hypothecation, securitization or otherwise) in such manner as Presidio
Management considers appropriate, subject to restrictions on affiliate
transactions and except as follows:
1. Presidio Management may not enter into any contract or
arrangement for the provision of services to Presidio (i)
which is terminable by the other party thereto as a result of
the termination of the Presidio Management Agreement or (ii)
which is not terminable by Presidio without premium or penalty
on not more than 60 days notice, unless in each case such
contract or arrangement is approved by a majority of
Presidio's Class A Directors or, if Presidio's Board is not
then classified, by a majority of Presidio's directors (in
each case excluding any director nominated by Presidio
Management, Steinhardt Management or either of their
affiliates).
2. The Presidio Management Agreement also prohibits Presidio
Management from contractually restricting its employees from
being retained independently by Presidio following termination
of the Presidio Management Agreement.
Pursuant to the Presidio Management Agreement, Presidio Management is required
to provide each of Presidio's directors reasonable prior notice of any material
transaction involving the Company's assets where such transaction, or series of
related transactions, has a fair market value or a cost exceeding $5.0 million.
The Steinhardt Management Agreement requires Steinhardt Management to provide
notice to each of Presidio's directors of any such transaction of which it has
knowledge (to the extent such notice is not given by Presidio Management).
Under the Presidio Management Agreement, Presidio Management may direct
Presidio to pay up to 50% of the $1.25 million annual management fee directly to
Joseph M. Jacobs or a corporation controlled by him. Presidio Management has
directed Presidio to pay 50% of such management fee to Mr. Jacobs. In March
1996, the Board of Directors of Presidio approved the assignment of Presidio
Management's Agreement to Wexford. In October 1996 this assignment was revoked,
and a new agreement whereby Presidio Management has retained Wexford to assist
in the performance of such duties, as manager, was entered into. Charles E.
Davidson, the Chairman of Presidio, has a significant interest in both Wexford
and Presidio Management.
The term of each of the Management Agreements expires on November 3,
1997. The Management Agreements may be terminated without cause by Presidio upon
not less than 10 days notice. Each Management Agreement is also terminable if
Presidio Management or Steinhardt Management, as the case may be, has been
grossly negligent or has committed willful malfeasance in carrying out its
duties, or is in material breach of its obligations thereunder. In the event of
early termination of either of the Management Agreements, Presidio shall pay on
<PAGE>
the date of the termination a lump sum amount equal to the aggregate management
fee that would have been payable had the Management Agreement not been
terminated, unless Presidio has deposited such amount with an escrow agent
satisfactory to Presidio Management or Steinhardt Management, as the case may
be, with a distribution thereof upon entry of a final court order determining
that such termination was not for cause. If either Management Agreement is
terminated by Presidio, the other Management Agreement shall be deemed to have
been similarly terminated.
Presidio Management and Steinhardt Management are each required to
render their services at their own expense. Presidio is responsible for all
other expenses relating to its assets, including, without limitation, services
of attorneys, accountants and other third party professionals, employees
provided to Presidio and other operating expenses, and must periodically
reimburse Presidio Management for any such expenses advanced by Presidio
Management.
Administrative Services Agreement.
Wexford entered into an Administrative Services Agreement (the
"Administrative Services Agreement") with Presidio to provide certain
administrative and management services to the Company. Joseph M. Jacobs is a
Member and the President of Wexford. Robert Holtz is a Member and a Senior Vice
President of Wexford. Jay L. Maymudes is the Chief Financial Officer and a
Senior Vice President of Wexford. Charles E. Davidson, the Chairman of the Board
of Presidio, is a Member and Chairman of Wexford. Wexford provides management
and other services to third parties that are not related to the Company.
Pursuant to the Administrative Services Agreement, Wexford oversees the
day-to-day management of the Company. In such capacity, Wexford has agreed to
make available (i) Mr. Jacobs to serve as the Chief Executive Officer, President
and a Class B Director of Presidio, (ii) Mr. Holtz to serve as Vice President
and Secretary of Presidio, (iii) Mr. Maymudes to serve as Chief Financial
Officer, Vice President and Treasurer of Presidio, (iv) persons to serve as
officers and directors of Presidio's direct or indirect subsidiaries or
affiliates and (v) such other persons as may be necessary to fulfill Wexford's
obligations under such agreement. Presidio retains the right to remove any
employee of Wexford serving as an officer or director of the Company. As
described in the The Management Agreements, Wexford also serves as an advisor to
Presidio Management.
The Administrative Services Agreement expires on November 3, 1997, but
may be terminated by (A) Presidio or Presidio Management (so long as it remains
the Manager pursuant to the Presidio Management Agreement) (i) upon 60 days'
prior written notice to Wexford or (ii) at any time for cause (as defined in the
Wexford Administrative Services Agreement) and (B) Wexford at its option upon 60
days' prior notice to Presidio.
Pursuant to the Administrative Services Agreement, Presidio has agreed
to indemnify Wexford and its direct or indirect officers, directors, partners,
employees and agents (including, without limitation, persons serving as officers
of the Company) from losses occurring after the Consummation Date, provided,
among other things, that such losses resulted from (i) a mistake of judgment or
action or inaction taken by such person in connection with Wexford's duties
under the Administrative Services Agreement honestly and in good faith that such
person reasonably believed to be in the best interests of Presidio or (ii) the
negligence, dishonesty or bad faith of any agent selected by such person with
reasonable care on behalf of Presidio.
<PAGE>
Presidio is obligated to pay Wexford annual amounts of $350,000 and
$125,000 in respect of the services performed by Messrs. Jacobs and Holtz,
respectively, and for its direct and indirect costs properly allocable to the
performance of its duties under the Administrative Services Agreement and
providing officers and directors of the Company. Such expenses include, without
limitation, payroll, payroll taxes, costs of employee benefit plans approved by
Presidio Management or by Presidio's board of directors, accounting fees, rent
and other overhead expenses of Wexford, and any required severance payments to
Wexford's employees (other than Messrs. Jacobs, Holtz and Maymudes). Any other
bonus, severance or similar payments is subject to approval of Presidio
Management or, in the case of such payments to Messrs. Jacobs, Holtz or Maymudes
or if required by Presidio's organizational documents or the Presidio Management
Agreement, the Board of Directors of Presidio.
Indemnification Agreements and Indemnification Security Agreement.
Presidio has entered into Indemnification Agreements with certain
former officers and directors of Integrated and its subsidiaries (the "Qualified
Indemnitees"). Pursuant to the Indemnification Agreements, Presidio assumed the
obligations of Integrated to indemnify the Qualified Indemnitees pursuant to the
orders of the Bankruptcy Court, Integrated's charter documents and applicable
Delaware corporate law, for acts or omissions taken by such Qualified
Indemnitees on or after February 13, 1990 (the date on which Integrated filed
for protection under Chapter 11 of the Bankruptcy Code), provided that such
obligations constitute (or would constitute) an administrative claim under
Section 507(a)(1) of the Bankruptcy Code ("Qualified Indemnity Obligations").
Presidio's obligations under the Indemnification Agreements are
unlimited and are secured by certain cash collateral and a pledge of all the
outstanding shares of stock or partnership interests of Presidio's direct or
indirect non-U.S. subsidiaries ("ForeignCo") pursuant to the Indemnification
Security Agreement. ForeignCo is subject to various covenants which require,
among other things, ForeignCo to maintain certain minimum net worth requirements
for the term of the Indemnification Agreements, and which restrict, among other
things, the payment of any dividends or other distributions by Presidio to its
shareholders. Presidio has also agreed to certain covenants restricting, among
other things, sales and other transfers of assets to its affiliates.
Under the Indemnification Agreements and the Indemnification Security
Agreement, ForeignCo must maintain assets in excess of liabilities (other than
Qualified Indemnity Obligations) having a minimum fair market value (as defined
therein) until November 3, 1997, of at least $20 million, and thereafter $5
million until the termination of the Indemnification Agreements.
Restrictions Under the No Action Letter.
On August 5, 1994, Presidio obtained the No Action Letter from the
Staff of the Division of Investment Management (the "Staff") of the Commission.
The No Action Letter applies to Presidio, as well as Presidio CR Holdings, L.P.
(which prior to March 28, 1996 held all of the Contract Rights) along with the
direct and indirect U.S. subsidiaries of Presidio (the "DomesticCos") set up to
acquire assets from Integrated. The No Action Letter provides Presidio
assurances that the Staff would not recommend enforcement action to the
Commission if Presidio did not register under the Investment Company Act of 1940
(the "Company Act").
<PAGE>
Receipt of the No Action Letter was based on and subject to the
continued accuracy of various representations as well as agreements to comply
with certain restrictions set forth in the letter requesting the No Action
Letter, and summarized in the No Action Letter. In order to obtain the No Action
Letter, the proposed managers of Presidio were also bound to comply with the
restrictions. Consequently, both Presidio Management and Steinhardt Management
have agreed to abide by the following restrictions:
A. Liquidation. Presidio's activities must be geared to the liquidation
of its assets and the distribution of the net proceeds therefrom to holders of
its shares. Presidio should (i) not identify in any communications released to
its shareholders, the press and the public, as well as in any regulatory
filings, that its purpose or plans consist of any activity other than
liquidation and distribution of proceeds (see also item D below), and (ii)
refrain from any "investment" activities which are inconsistent with this
restriction (see items B and C below). Of course, orderly liquidation of assets
may require (i) continuing to operate "going concern" businesses pending sale,
(ii) reorganization and restructuring of assets to facilitate sales, (iii)
securitizations to realize value; and (iv) similar actions related to the
orderly liquidation of assets.
B. No Trade or Business. Presidio may not conduct a trade or business
other than maintaining as a going concern each business acquired from Integrated
pending sale or liquidation thereof (see items A above and D below).
C. No Investments. Presidio must promptly distribute proceeds from
sales of its assets, and may not make investments with such proceeds. Presidio
may, however, make temporary investments in (a) money market instruments, (b)
short-term government securities (c) other investment grade short term debt
securities, pending distribution of liquidation proceeds to holders of Presidio
shares or (d) other investments incidental to the liquidation.
D. No "Holding Out" as Investment Company. Presidio may not hold itself
out to the public as an investment company, but rather only as a liquidating
entity. Compliance with this condition requires that no communications released
to shareholders, the press, the public or in regulatory filings contain
statements which would characterize holding shares in Presidio as an "investment
opportunity." This restriction is based on the concern that shareholders
themselves, or potential transferees, would view Presidio as an "investment
company" rather than a liquidating entity, which in turn might lead to interest
in trading in Presidio shares.
E. 5-Year Term. Presidio must dissolve on or before November 3, 1999,
unless updated "no-action" assurance is obtained from the Staff permitting a
longer liquidation period.
F. No Active Trading Market. In order to obtain the No Action Letter,
Presidio represented to the Staff that "it is unlikely that ... trading [in
Presidio shares] will be active or that a significant market will develop of
holders far beyond the initial holders ..." In granting the No Action Letter,
the Staff explicitly relied on this representation, which they restated as "an
active trading market in the common stock of [Presidio] is unlikely to develop."
In support of this representation, Presidio and Presidio Management
agreed to restrictions on their own conduct, as follows. Neither Presidio nor
Presidio Management may:
<PAGE>
1. cause Presidio's shares to be listed on any national securities
exchange or NASDAQ;
2. engage the services of any market maker;
3. facilitate the development of an active trading market in
Presidio's securities, nor encourage others to do so;
4. place any advertisements in the media promoting an investment in
Presidio; or
5. except as otherwise required by the Securities Exchange Act of
1934, as amended (the "Exchange Act"), collect or publish
information about prices at which Presidio's shares may be
transferred.
Notwithstanding the foregoing restrictions, Presidio or its offshore
administrator may provide information to shareholders and their representatives
regarding matters legitimately related to their holdings of Presidio shares,
including information about current portfolio assets and cash held by Presidio,
status of transactions and securitizations of portfolio assets, timing of
distributions of assets to shareholders and prospects for liquidation of
portfolio assets. Shareholders may reasonably expect to obtain such information
from time to time, even if the shareholder requests such information in
connection with a proposed transfer of Presidio shares. This is because the
scope of the No Action Letter permits, and even contemplates, a limited amount
of transfers or even trading of stock of Presidio in order to accommodate
liquidity needs of holders.
G. Financial Reporting. Presidio voluntarily agreed in the request for
the No Action Letter to issue audited year-end financial statements and
unaudited quarterly financial statements (all on a consolidated basis) to all
shareholders of record, in each case with management's discussion and analysis
thereof, regardless of whether compliance with the Exchange Act is required.
Hemisphere Administration Agreements.
Presidio and two of its non-U.S. subsidiaries, Presidio GP Corp. and
Presidio LP Corp. (collectively, the "BVI Group"), have each entered into
Administration Agreements (the "Hemisphere Administration Agreements") with
Hemisphere, pursuant to which Hemisphere will act as the BVI Group's offshore
administrator. Pursuant to the Hemisphere Administration Agreements, Hemisphere
shall, among other things, (i) provide office facilities, personnel and
accommodations required by the BVI Group in the Cayman Islands, (ii) communicate
with shareholders and the general public on the BVI Group's behalf, (iii)
maintain corporate books and records and a shareholder register, (iv) call and
hold all meetings of shareholders and directors, (v) disburse all necessary
payments on behalf of the BVI Group and (vi) accept subscriptions for shares and
make redemptions and repurchases of shares, in each case, subject to the
provisions of the Memorandum and Articles of the respective companies within the
BVI Group and under the supervision of their respective directors and officers.
In consideration for such services, Hemisphere receives an aggregate fee of
$36,000 per annum (subject to annual review and reduction in certain
circumstances) and reimbursement of its out-of-pocket expenditures. The
Hemisphere Administration Agreements are effective for successive one-year terms
unless and until terminated by either party on 30 days' written notice to the
other party, or upon written notice of the occurrence of any breach and a
failure to cure such breach within 10 days thereafter.
<PAGE>
Competition
The Company is subject to substantial competition in each of its lines
of business and in each such line competes with others having substantially
greater financial and other resources than those available to the Company.
Inasmuch as the Company is not presently offering new investment
products, the principal competition faced by the Company is from other parties
that may be selling assets similar to those held by the Company. The principal
competitive factors in connection with such sales relate to matters such as the
nature and quality of the assets to be disposed of, their prior performance and
their future anticipated performance.
In addition, to the extent that cash payments to the Company are
dependent upon the performance of assets, the Company's results will be subject
to competition from other businesses which own similar properties and compete
for tenants (in the case of real property) or compete with other businesses
owned by the Company.
Employees
Presidio does not have any employees. Pursuant to the Administrative
Services Agreement, Wexford provides all of the administrative personnel
required by the Company (including the Company's executive officers) and the
Company reimburses the expenses of Wexford.
Item 2. PROPERTIES.
Certain domestic subsidiaries of Presidio currently lease offices at
411 West Putnam Avenue, Greenwich, Connecticut, under a lease expiring in July
1998. The lease of office space in Greenwich is in an office building in which
Charles E. Davidson, the Chairman of the Board of Presidio, and Joseph M.
Jacobs, the Chief Executive Officer and President of Presidio, have an ownership
interest of approximately 67%. See "Certain Relationships and Related
Transactions." The Company believes such office space is adequate for the
continuing operations of such domestic subsidiaries.
Item 3. LEGAL PROCEEDINGS.
Presidio and its subsidiaries are parties to various legal proceedings
as successors to Integrated and its subsidiaries. The following is a description
of material litigation in which the Company is involved.
The Hallwood Group Incorporated v. Steinhardt Management Company, Inc., et al.
Presidio and two subsidiaries, Presidio LP Corp. and Presidio GP Corp. (the
"Presidio Defendants"), have been named as defendants in this action which
commenced in May 1995 in the United States District Court for the Southern
District of New York. The complaint alleges that the Presidio Defendants are
affiliates of Steinhardt Management and as such are liable for a $1.5 million
fee allegedly owed the plaintiff under a written agreement between Steinhardt
Management and the plaintiff. The Presidio Defendants have filed an answer,
dated July 7, 1995 denying the material allegations of the complaint. On or
about July 1, 1996, the plaintiff amended its complaint to also name Charles E.
Davidson, Michael H. Steinhardt and IR Partners as defendants. At the same time,
the plaintiff also brought a related State Court action against Presidio CR
Holdings, L.P. Defendants answered the Amended Complaint and the State Court
Complaint on August 23, 1996. Document discovery is complete, and depositions
have been taken. The Company intends to vigorously defend the claims made by the
plaintiff in this action.
WEBBCO v. Tele-Communications, Inc., et al.; The Carter Revocable Trust v. Tele
Communications, Inc., et al. IR-Daniels II and IR-Daniels III, two partnerships
(the "Daniels General Partners") in which an indirect subsidiary of Presidio is
the co-general partner, and Integrated Cable Corp. have been named as defendants
in two Integrated Cable Corp. class action lawsuits commenced in September 1994
in the United States District Court for the District of Colorado. The complaints
allege that the Daniels General Partners, which serve as managing general
partners of two publicly held partnerships (the "Daniels Partnerships"), and
certain affiliated entities committed violations of Sections 10(b) and 14(a) of
the Exchange Act and breached their fiduciary duties to limited partners of the
Daniels Partnerships in connection with the sale of the Daniels Partnerships'
assets. The complaints assert that the proxy statements issued in connection
with those sales contained material false or misleading information and/or
failed to disclose material information and assert that certain actions taken in
connection with the sales constituted breaches of fiduciary duty. The complaints
seek unspecified monetary damages. The defendants filed global motions to
dismiss the complaint, which were denied by the District Court. The defendants
filed summary judgement motion to conclude after discovery was complete.
Subsequently, discovery was completed, however no judgement has been issued by
the District Court. Ultimate conclusion is impossible to predict and defendants
intend to contest vigorously all allegations against them.
Mark Erwin, Trustee, et. al. v. Resources High Equity, Inc.,et. al. (the "HEP
Action"). On or about May 11, 1993 the HEP Partnerships were advised of the
existence of an action (the "HEP Action") in which a complaint (the "HEP
Complaint") was filed in the Superior Court for the State of California for the
County of Los Angeles (the "Court") on behalf of a purported class consisting of
all of the purchasers of limited partnership interests in the HEP Partnerships.
On April 7, 1994 the plaintiffs were granted leave to file an amended complaint
(the "Amended Complaint").
On November 30, 1995, after the Court preliminarily approved a settlement of the
HEP Action but ultimately declined to grant final approval and after the Court
granted motions to intervene by the original plaintiffs, the original and
intervening plaintiffs filed a Consolidated Class and Derivative Action
Complaint ( the "Consolidated Complaint") against certain subsidiaries of the
Company who are general partners of the HEP Partnerships (the "General
Partners"). The Consolidated Complaint alleges various state law class and
derivative claims, including claims for breach of fiduciary duties; breach of
contract; unfair and fraudulent business practices under California Bus. & Prof.
Code Sec. 17200; negligence; dissolution, accounting and receivership, fraud;
and negligent misrepresentation. The Consolidated Complaint alleges, among other
things, that the General Partners caused a waste of HEP Partnership assets by
collecting management fees in lieu of pursuing a strategy to maximize the value
of the investments owned by the limited partners; that the General Partners
breached their duty of loyalty and due care to the limited partners by
expropriating management fees from the partnerships without trying to run the
HEP Partnerships for the purposes for which they are intended; that the General
Partners are acting improperly to enrich themselves in their position of control
over the HEP Partnerships and that their actions prevent non-affiliated entities
from making and completing tender offers to purchase outstanding limited
partnership units in the HEP Partnerships; that by refusing to seek the sale of
the HEP Partnerships' properties, the General Partners have diminished the value
of the limited partners' equity in the HEP Partnerships; that the General
Partners have taken a heavily overvalued partnership asset management fee; and
that limited partnership units were sold and marketed through the use of false
and misleading statements.
<PAGE>
In January, 1996, the parties to the HEP Action agreed upon a revised settlement
(the "Revised Settlement"). The principal features of the Revised Settlement
were the surrender by the General Partners of certain fees that they are
entitled to receive, the reorganization of the HEP Partnerships into a publicly
traded real estate investment trust ("REIT"), and the issuance of stock in the
REIT to the limited partners (in exchange for their limited partnership
interests) and General Partners (in exchange for their existing interest in the
HEP Partnerships and future income). The principal benefits of the Revised
Settlement were (1) substantially increased distributions to limited partners,
(2) market liquidity through a NASDAQ listed security, and (3) the opportunity
for growth and diversification that was not permitted under the Partnership
structure. There were also other significant tax benefits, corporate governance
advantages and other benefits of the Revised Settlement.
On July 18, 1996, the Court preliminarily approved the Revised Settlement and
made a preliminary finding that the Revised Settlement was fair, adequate and
reasonable to the class. In August 1996, the Court approved the form and method
of notice regarding the Revised Settlement which was sent to the limited
partners.
Only approximately 2.5% of the limited partners of the HEP Partnerships elected
to "opt out" of the Revised Settlement. Despite this, following the submission
of additional materials, the Court entered an order on January 14, 1997
rejecting the Revised Settlement and concluding that there had not been an
adequate showing that the settlement was fair and reasonable. Thereafter, the
plaintiffs filed a motion seeking to have the Court reconsider its order.
Subsequently, the defendants withdrew the Revised Settlement and at a hearing on
February 24, 1997, the Court denied the plaintiffs' motion. Also, at the
February 24, 1997 hearing, the Court recused itself from considering a motion to
intervene and to file a new complaint in intervention by one of the objectors to
the Revised Settlement, and granted the request of one plaintiffs' law firm to
withdraw as class counsel and scheduled future hearings on various matters.
The HEP Partnerships and the General Partners believe that each of the claims
asserted in the Consolidated Complaint are meritless and intend to continue to
vigorously defend the HEP Action.
600 Grant Street Associates Limited Partnership v. General Electric Capital
Corporation, et al. Sivram Corp. and Grant Property Corp. (the "Affiliated
Defendants"), two indirect subsidiaries of Presidio, have been named as
defendants in this action which was commenced in December 1994 in the Court of
Common Pleas of Philadelphia County, Pennsylvania. The complaint asserted three
causes of action against the Affiliated Defendants for breach of contract,
declaratory relief that the plaintiff has not breached its contractual
obligations, and an accounting. The claim for breach of contract sought damages
in excess of $50 million as well as punitive damages. During 1996, this case was
dismissed with prejudice.
Wright v. Integrated Aircraft Fund Management Corp., et. al. Integrated Aircraft
Fund Management Corp., Integrated Resources Marketing, Inc., and Integrated
Resources Equity Corp., three indirect subsidiaries of Presidio, have been named
as defendants in this purported class action which was commenced in February
1994 in the Supreme Court of the State of New York for the County of New York.
The first amended complaint asserts causes of actions for fraud, breach of
fiduciary duty and negligent misrepresentation based upon alleged material
misrepresentations and omissions by the defendants in connection with the
offering for sale of limited partnership units in the Aircraft Income Partners,
L.P. partnership. On October 2, 1995, the Supreme Court of the State of New York
for the County of New York granted a dismissal of the amended complaint in its
entirety without leave to replead. The time for appeal has expired.
<PAGE>
Integrated Resources Equity Corporation Litigation. Integrated Resources Equity
Corporation ("IREC"), an indirect subsidiary of Presidio, has been named as a
defendant or respondent in approximately 21 lawsuits and arbitration proceedings
arising out of its conduct as a broker-dealer in securities. Integrated
Resources Marketing Corporation ("IRMI"), another indirect subsidiary of
Presidio, has also been named as a defendant or a respondent in several of these
actions. The majority of these lawsuits seek damages for former customers of
IREC arising out of purchases or sales of securities. IREC and the other
defendants in these actions are vigorously defending each of the lawsuits and
arbitration proceedings.
Israel Aircraft Industries v. Integrated Aircraft Corp. On or about December 14,
1995, a complaint was filed by Israel Aircraft Industries Ltd. (Bedek Aviation
Division) ("IAI"), in the Ontario Court (General Division) in the Province of
Ontario, City of Toronto (the "Ontario Action"). The Ontario Action named as
defendants Integrated Aircraft Corp. ("IAC") (a wholly-owned subsidiary of
Presidio Equipment Leasing), Jetall Airways, Inc ("Jetall"), Jetall Holding
Corp. and Arie Tall. IAC had leased a Boeing 737-200 aircraft (the "Aircraft")
to Jetall pursuant to a lease agreement dated August 6, 1993 (the "Lease") which
has since been terminated. The Lease called for Jetall to undertake certain
repairs and refurbishment of the Aircraft, in return for which, IAC agreed to
forgo certain rent and reserve payments over the term of the Lease up to an
aggregate amount of $850,000. As an inducement to IAI to enter into a contract
with Jetall to perform the required work, IAC's agreement to forgo Lease
payments was confirmed to IAI by IAC pursuant to a letter agreement dated August
11, 1993 (the "August Letter"). The complaint in the Ontario Action alleges,
among other things, that IAC and Jetall conspired and illegally agreed to
interfere with the contractual relationships existing between IAI and Jetall,
and that IAC induced Jetall to breach its agreement with IAI. The complaint
seeks actual damages of approximately US$386,000 for breach of contract and
exemplary damages in the amount of CDN$1 million for the alleged conspiracy to
breach a contract. An initial motion by IAC's counsel to dismiss the Ontario
Action based on lack of jurisdiction, inconvenient forum and failure to state a
claim was denied by the Ontario Court, and IAC's counsel filed an answer denying
all of the allegation in the complaint.
In December 1995, shortly following IAI's filing of the Ontario Action, Jetall
sought protection under one of the Canadian bankruptcy statutes. During the
pendency of the Jetall bankruptcy proceedings, IAI asserted a lien against the
Aircraft under the Repair and Storage Liens Act in an effort to prevent IAC from
regaining possession of the Aircraft from the Jetall estate. IAC's counsel
brought a motion in a separate division of the Ontario Courts to declare this
lien invalid, and as a result of favorable ruling issued with respect to that
motion (which found that IAI's interpretation of the August Letter was without
merit), IAC is now in a position to file a summary judgement motion in the
Ontario Action seeking to dismiss all of the claims against IAC.
Presidio v. Koll Management Services, Inc., Liquidity Financial Group, L.P. and
Liquidity Financial Corporation. On November 9, 1995, Presidio and the General
Partners of the HEP Partnerships, commenced an action in the United States
Bankruptcy Court for the Southern District of New York, against Koll Management
Services, Inc. ("Koll"), Liquidity Financial Group, L.P. and the Liquidity
Financial Corporation (collectively, "Liquidity"). The plaintiffs sought a
preliminary and permanent injunction to prevent violations of the
Confidentiality and Standstill Agreement (the "Agreement") which had been
entered into between Koll and Integrated in 1994 during Integrated's
<PAGE>
reorganization proceeding and damages in an amount to be proven at trial. The
complaint alleged that Liquidity, which had become an affiliate of Koll and was,
for that reason, bound by the Agreement, was violating the Agreement by, among
other things, objecting to a settlement involving the HEP Partnerships which was
an integral part of the Integrated Plan of Reorganization, and that Liquidity
was otherwise interfering with the management and policies of the HEP
Partnerships.
On November 21, 1995, after a contested hearing, the Bankruptcy Court granted
plaintiffs' motion for a preliminary injunction. The preliminary injunction has
been extended periodically since its entry. The defendants have denied the
material allegations of the complaint, and asserted various defenses. The
parties are actively engaged in discovery. On March 7, 1997, the defendants
filed a motion seeking to dissolve the preliminary injunction. The motion is
schedule to be heard by the Bankruptcy Court on April 11, 1997.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted during the fiscal year covered by this report,
to a vote of security holders.
<PAGE>
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON STOCK AND
RELATED STOCKHOLDER MATTERS.
Market Information
There is no existing market for Presidio's Class A Shares and an active
trading market is unlikely to develop. In connection with the No-Action Letter,
Presidio represented that neither it nor its managers will (i) cause the Class A
Shares to be listed on any national securities exchange or NASDAQ, (ii) engage
the services of any market maker, facilitate the development of an active
trading market or encourage others to do so, (iii) place any advertisements in
the media promoting investment in the Class A Shares, or (iv) collect or publish
information regarding the price at which Class A Shares may be transferred.
Conversion of Class B Shares. The 1,200,000 Class B Shares held by IR
Partners are convertible in certain circumstances into an equivalent number of
Class A Shares which are reserved for such conversion. The Class B Shares will
automatically convert into a like number of Class A Shares upon the earlier of
(i) the first anniversary of the termination of each of the Management
Agreements, (ii) the 90th day (or, if earlier, the date of the annual meeting)
following the date upon which more than 80% of Presidio's outstanding common
stock is held by three or fewer entities (counting entities under common control
or managed by a common adviser as a single entity) or (iii) if Steinhardt
Management and all of its affiliates (including any funds under their
management) beneficially own in the aggregate less than 5% of the Company's
outstanding shares. In addition, in the event a holder of Class B shares
transfers or disposes of any such shares by operation of law or following
termination of the Management Agreements and the transferee is not an affiliate
of the transferor or of Steinhardt Management, such transferred shares shall
automatically be converted into a like number of Class A Shares.
Restrictions on Transfers of Class B Shares. Until November 3, 1997,
the Class B Shares are nontransferable except (i) transfers by operation of law,
(ii) transfers to an affiliate of the holder thereof, (iii) following the
termination of each of the Management Agreement or (iv) pursuant to liquidating
distributions to such holder's shareholders or partners. The Memorandum and
Articles of Association impose no such restrictions on the transferability of
the Class A Shares. Otherwise no Class A Shares are subject to outstanding
options, warrants or convertible securities.
Holders and Dividends
As of March 1, 1997, there were 277 holders of record of the Class A
Shares.
Presidio has paid dividends with respect to Class A Shares and Class B
Shares, and expects to declare and pay dividends from time to time in the
future, depending on available cash balances generated by the liquidation of the
Acquired Assets. Presidio's Articles of Association provide that Presidio shall
make quarterly distributions of cash to the holders of Class A and Class B
Shares in certain circumstances to the extent it appears to the directors of
Presidio to be justified by available cash and surplus. From November 3, 1994
through December 31, 1996, the Company has paid approximately $347.8 million in
the aggregate or $34.73 per share in dividends. Additionally, on March 19, 1997,
Presidio announced the approval for payment of a $1.65 per share ($16.5 million)
dividend payable on April 3, 1997 to all shareholders of record as of March 25,
1997.
<PAGE>
The Indemnification Agreements and the Indemnification Security
Agreement contain certain restrictions on Presidio's ability to pay dividends.
See "Business -- Material Agreements and Instruments."
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA.
The following table sets forth selected consolidated financial data at
the end of and for the periods set forth below. The selected consolidated
financial data for Integrated for the periods December 31, 1992 to November 2,
1994 have been derived from audited financial statements.
Presidio's selected consolidated financial data at November 3, 1994,
and for the period ended December 31, 1994 and the years ended December 31, 1995
and 1996 have been derived from Presidio's consolidated financial statements
audited by Deloitte & Touche (the report for which expresses an unqualified
opinion and includes an emphasis of a matter paragraph).
The financial statements of Integrated and Presidio have been prepared
on the liquidation basis of accounting for all periods subsequent to October 1,
1993. The liquidation basis of accounting is appropriate when liquidation is
imminent, a company is no longer viewed as a going concern and the net
realizable value of a company's assets is reasonably determinable. Under this
method of accounting, assets are stated at their estimated net realizable value
and liabilities are stated at their anticipated settlement amounts. The
valuations presented in these financial statements are based on current facts
and circumstances and may differ materially from amounts ultimately realized.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF SELECTED FINANCIAL DATA
INTEGRATED RESOURCES INC.
CONSOLIDATED
For the period ended
NOVEMBER 2, 1994 DECEMBER 31, 1993 SEPTEMBER 30, 1993 DECEMBER 31, 1992
---------------- ----------------- ------------------ -----------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Revenues N/A N/A $ 93,061 $124,098
General and administrative costs N/A N/A 25,659 60,927
Restructuring costs and expenses N/A N/A 10,683 25,464
Extraordinary items N/A N/A 1,568 19,562
Net income N/A N/A 38,763 23,829
Income per common share N/A N/A 3.39 2.08
STATEMENT OF CHANGES IN NET ASSETS
IN LIQUIDATION DATA:
Increase (Decrease)
Adjustment for adoption of
liquidation accounting $ 0 $ (19,207)
------ ------------
Net revaluation of assets and
liabilities 0 38,928
Adjustment of liabilities to
estimated settlement amounts 0 1,032,210
Net change in net assets
in liquidation 0 1,071,138
STATEMENT OF NET ASSETS
IN LIQUIDATION DATA:
Total assets $992,402 $ 1,052,330
Total liabilities - net of
adjustment to estimated
settlement amounts $992,402 $ 1,052,330
Net assets in liquidation 0 0
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE OF SELECTED FINANCIAL DATA
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED
(in thousands of United States dollars)
____________ For the period ended ___________
DECEMBER 31, 1996 DECEMBER 31, 1995 DECEMBER 31, 1994 NOVEMBER 3, 1994
----------------- ----------------- ------------------- -----------------
<S> <C> <C> <C> <C>
STATEMENTS OF CHANGES IN NET ASSETS
IN LIQUIDATION DATA:
Increase from revaluation of
assets and liabilities $ 39,659 $ 73,808 $ 0 $ 0
Interest income 5,477 7,038 0 0
Dividends paid/accrued (252,753) (95,014) 0 0
Net change in net assets
in liquidation (207,617) (14,168) 0 0
STATEMENTS OF NET ASSETS
IN LIQUIDATION DATA:
Total assets $ 212,528 $ 455,750 $ 518,795 $1,028,173
Total liabilities 34,917 70,522 119,399 628,777
Net assets in liquidation $ 177,611 $ 385,228 $ 399,396 $ 399,396
</TABLE>
<PAGE>
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND LIQUIDATION ACTIVITIES.
The following section includes (i) a discussion and analysis of the liquidity,
capital resources and liquidation activities of the Company for the years ended
December 31, 1996, December 31, 1995 and for the period November 3, 1994 to
December 31, 1994, and (ii) a discussion and analysis of the historical
liquidity, capital resources and liquidation activities of Integrated for the
period January 1, 1994 to November 2, 1994.
Liquidity and Capital Resources -- The Company
Consummation Date Activities and Organization
The Company was organized in accordance with the Plan, which was consummated on
November 3, 1994. The Plan called for the issuance of Presidio's Class A Shares
to the former creditors of Integrated ("Creditors") and the issuance of
Presidio's Class B Shares to IR Partners, the funder of the Plan. Creditors
received a combination of cash, approximately 8.8 million Class A Shares and
approximately 8.8 million shares of XRC Corp. common stock in lieu of
forgiveness of approximately $1.4 billion of liabilities recorded by Integrated.
IR Partners paid approximately $35.8 million on the Consummation Date and
received 1.2 million Class B Shares in accordance with the provisions of the
Plan. Substantially all assets and remaining liabilities of Integrated were
transferred to and assumed by the Company. Additionally, certain assets and
liabilities were transferred to and assumed by XRC Corp. (which serves as the
nominal successor corporation to Integrated as required under bankruptcy law).
The Company acts as a liquidating entity and accordingly net cash is distributed
subject to restrictions imposed by various indemnification agreements and
amounts not retained for working capital requirements. See "Business --
Background."
On the Consummation Date, the Company disbursed approximately $456 million to
discharge various claims filed by Creditors.
The Company also reserved $46 million for disputed claims on the Consummation
Date, approximately $1.6 million of which remained in reserve at December 31,
1996. Such claims are included in the estimated costs of liquidation and are
currently being evaluated. As settlements are reached on these claims, cash is
either disbursed to the claimant, or released to the Company. In addition,
162,932 of the 8.8 million Class A Shares reserved for Creditors were reserved
for such disputed claims on the Consummation Date. These shares are also
released upon settlement of the disputed claims. Reserved shares for disputed
claims that are expunged, will be made available for sale to Creditors. During
1996, settlements were made on certain claims and 30,686 of such shares were
disbursed. As of December 31, 1996, 16,395 Class A Shares remained in reserve
for disputed claims.
On the Consummation Date, the Company deposited amounts in various escrow
accounts as security for indemnification of certain former officers and
directors of Integrated and the Class A Directors of Presidio.
Indemnity for the former officers and directors of Integrated is secured by $10
million in cash and a pledge of all of the Company's stock and partnership
interests in all of its non-U.S. subsidiaries. These subsidiaries must meet
<PAGE>
certain minimum net worth requirements for certain specified periods after the
Consummation Date. All distributions made by Presidio are limited by a
requirement that Presidio has sufficient net assets after distributions to
discharge any pending and expected Qualified Indemnity Obligations. See
"Business -- Material Agreements and Instruments -- Indemnification Agreements
and Indemnification Security Agreement."
The Plan also provided for indemnification of the Class A Directors of Presidio
(the "Class A Indemnification"). This indemnification agreement was secured by a
$1 million escrow deposit made on the Consummation Date. Presidio is also
required to deposit the greater of $750,000, or 1% of distributions made per
quarter to this escrow account for additional indemnification security. As of
December 31, 1996, approximately $6 million has been deposited (of which $3
million was deposited in 1996), and will be held in escrow for a period of six
years subsequent to the Consummation Date. The remaining Class A Indemnification
funds will ultimitely be returned to Presidio. All such security amounts are
classified in the accompanying consolidated financial statements as restricted
cash.
Current Liquidity
The Company is currently liquidating its assets pursuant to the Plan. The
liquidation basis of accounting has been adopted and, as such, comparisons of
results of operations to prior periods are not meaningful. The Consolidated
Statements of Net Assets in Liquidation of Presidio filed herewith reflect the
net realizable value of assets, estimated costs of liquidation through the end
of the process and estimated costs relating to the settlement of certain
disputed claims.
The Company has accrued a liability of approximately $29 million as of December
31, 1996, in anticipation of costs needed to liquidate the entire portfolio of
assets, including expected liabilities for the settlement of remaining claims.
The actual costs may be higher or lower depending on a number of factors
including but not limited to the amount of time necessary to dispose of the
remaining assets, as well as current and future market conditions.
Presidio's ability to make distributions to shareholders remains limited in
accordance with the terms of the indemnification obligations of the former
officers and directors of Integrated and its subsidiaries. Presidio has no basis
for believing that any of those indemnification obligations will be material,
however, pursuant to the terms of such agreements, Presidio is required to
notify beneficiaries thereunder of dividends and certain other transfers of cash
made by subsidiaries of Presidio to Presidio and to retain the value of certain
collateral granted as security for such indemnification obligations. Although
such restrictions may impede the timing of distributions to Presidio
shareholders, Presidio does not anticipate that those restrictions will
materially impair its liquidity. Presidio distributed $263 million and $85
million to shareholders during 1996 and 1995, respectively, for which notice to
the beneficiaries of the Indemnification Agreements was provided. Such
distributions were not challenged by the beneficiaries. Additionally, on March
19, 1997, Presidio announced the approval for payment of a $1.65 per share
($16.5 million) dividend payable on April 3, 1997 to all shareholders of record
as of March 25, 1997.
In accordance with restrictions under the No Action Letter, Presidio has only
made temporary investments in money market instruments, short-term government
securities or other investment grade short-term debt securities. Because of the
liquid nature of such investments, compliance with the No Action Letter would
generally be expected to increase liquidity.
<PAGE>
As of December 31, 1996, Presidio had restricted cash of approximately $20
million, primarily comprised of reserves for disputed bankruptcy claims of
approximately $1.6 million and deposits for escrow accounts as security for
indemnification of certain former officers and directors of Integrated and the
Class A directors of Presidio of approximately $18 million.
<PAGE>
The Company's primary objective is to liquidate its assets in the shortest time
period possible while realizing the maximum values for such assets. Although the
Company considers its assumptions and estimates as to the values and timing of
such liquidations to be reasonable, the period of time to liquidate the assets
and distribute the proceeds of such assets is subject to significant business,
economic and competitive uncertainties and contingencies. The components of the
change in cash and cash equivalents, are as follows:
<TABLE>
<CAPTION>
(Millions)
Year Ended
December 31,
-------------------------
1996 1995
-------- --------
<S> <C> <C>
Cash Inflows
Contract rights securitization proceeds, net ........... $ 205.1 $ --
Other liquidating activities ........................... 59.4 40.3
Operating cash receipts ................................ 25.5 48.3
Interest income ........................................ 5.5 7.0
-------- --------
Total Cash Inflows .................................. 295.5 95.6
-------- --------
Cash Outflows
Dividends paid ......................................... 262.8 85.0
Loans to affiliates .................................... 32.5 --
Bankruptcy claims paid ................................. 2.7 21.6
Steinhardt Management Co., Inc. expense reimbursement .. 0.2 2.1
Legal, accounting and consulting fees .................. 7.6 9.2
Legal and other expenses - Contract Rights ............. 16.3 14.5
Management fees ........................................ 2.5 2.3
General administrative and other ....................... 11.1 14.2
-------- --------
Total Cash Outflows ................................. 335.7 148.9
-------- --------
Decrease in cash and cash equivalents .................. (40.2) (53.3)
-------- --------
Cash and cash equivalents, beginning of period ......... 118.8 172.1
-------- --------
Cash and cash equivalents, end of period ............... $ 78.6 $ 118.8
======== ========
</TABLE>
The Acquired Assets are reflected in the financial statements filed
herewith at their net realizable value based on the Company's planned
disposition strategies.
Presidio believes that cash on hand, revenues generated from interests
in businesses that continue to operate and the proceeds from sales of businesses
and other assets will be sufficient to support Presidio's operations and to pay
its current obligations as they become due.
<PAGE>
Liquidation Activities -- The Company
1996
Contract Rights
In May 1995, Presidio entered into a series of interest rate hedges (the
"Hedges") through the short sales of ten-year U.S. government treasury notes
(the "Notes") maturing in February and March 2005. These Notes had an aggregate
notional value of $225 million, and were designed to reduce the impact of
interest rate fluctuations on the projected proceeds from future Contract Right
transactions. In March, 1996 the Company settled its position with regard to the
Hedges, realizing a loss of $2.6 million which was effectively offset by an
increase in total liquidation proceeds.
On March 28, 1996 (the "Closing Date"), the Company and certain of its
subsidiaries sold 117 of its 123 Contract Rights in a private securitization
transaction. Net proceeds realized by the Company after securitization and
related hedge position costs and reserves to be held for more than 90 days
relating to the securitization were approximately $205 million. As of December
31, 1996, there were four Contract Rights remaining which the Company estimates
have an approximate net realizable value of $41 million. On March 12, 1997, one
of the Partnerships exercised its option and prepaid approximately $40.0 million
representing the remaining balance due under one of the Contract Right
obligations.
The Company sold all of its right, title and interest in the Contract Rights to
the Contract Right Grantor Trust (the "Grantor Trust"), formed pursuant to a
Grantor Trust Agreement. The Grantor Trust issued a certificate (the "Grantor
Trust T-1 Certificate") to a trust (the "Trust") formed pursuant to a Pooling
Agreement dated as of January 1, 1996, among the Grantor Trust, acting through
the Grantor Trust Trustee, as depositor, Bankers Trust Company, as servicer, and
The First National Bank of Chicago, as trustee in exchange for the Certificates
(as defined below).
The Grantor Trust also issued a second certificate and certain related assets
(the "Grantor Trust T-2 Certificate") to T-Two Partners, L.P., a Delaware
limited partnership (the "T-2 Holder"), in exchange for approximately $20
million in cash and the assumption of certain liabilities. The Grantor Trust T-1
Certificate evidences the interest of the Trust in the Contract Rights
transferred to the Grantor Trust, and are secured by substantially all of the
payment stream from the primary term of such Contract Rights. The Grantor Trust
T-2 Certificate evidences the balance of all payments on such Contract Rights as
well as the six other Contract Rights sold directly to the Grantor Trust.
Payments made in respect to the Grantor Trust T-2 Certificate will be deposited
in a reserve fund as security for the T-2 Holder's obligation to indemnify the
Trust against losses on the Contract Rights.
The Trust consists, among other things, of all the right, title and interest
arising from and in connection with the Grantor Trust T-1 Certificate. A "real
estate mortgage investment conduit" ("REMIC") election has been made in
connection with certain assets of the Trust for U.S. Federal income tax
purposes. The Trust issued five classes of certificates; the Class A-1
Certificates, the Class B-1 Certificates, the Class C-1 Certificates and the
Class D-1 Certificates (collectively, the "Offered Certificates") and the Class
R Certificate (collectively, with the Offered Certificates, the "Certificates").
The Class R Certificate was transferred to a new corporation affiliated with the
T-2 Holder, T-Two Corp.
<PAGE>
Upon the transfer of the Certificates to the Grantor Trust in exchange for the
Grantor Trust T-1 Certificate, the Grantor Trust sold the Offered Certificates
to Bear, Stearns & Co. Inc. ("Bear Stearns") in a private placement, which Bear
Stearns, in turn, sold in transactions pursuant to Rule 144A under the
Securities Act. The Grantor Trust applied substantially all of the proceeds from
the sale of the Offered Certificates as the purchase price for the Contract
Rights.
On the Closing Date, Presidio loaned an aggregate of $31.5 million to Roundhill
Associates L.P. and Roundhill Associates II, L.P. both Connecticut limited
partnerships (collectively, the "T-2 Organizers"). Charles E. Davidson, Chairman
of the Company, is the managing general partner with a 50 percent partnership
interest in each of the T-2 Organizers, Joseph M. Jacobs, President of the
Company, is a limited partner with a 45 percent partnership interest in each of
the T-2 Organizers and Robert Holtz, Vice President of the Company, has the
remaining 5% limited partnership interest in the T-2 Organizers. Such loans (i)
are obligated to be repaid on the completion of the rights offering discussed
below but no later than March 28, 1999, (ii) bear interest payable on the
payment of principal at the rate of 25% per annum and (iii) are secured by a
pledge of 100% of the membership interests in a newly-formed limited liability
company ("T-2 LLC"). Proceeds for the loan were used to capitalize the T-2
Organizers interest in T-2 LLC.
The owners of T-2 LLC are obligated to conduct a rights offering or equivalent
transaction of interests in T-2 LLC. Until the rights offering is completed, T-2
LLC is precluded from making any distributions to its members. The rights
offering will be an offering of transferable rights to purchase the equivalent
of 100% of the membership interests in T-2 LLC, and will be made to the holders
of Presidio common stock. The T-2 Organizers will sell their membership interest
to T-2 LLC upon completion of the rights offering to the extent that the rights
issued in the rights offering are subscribed and will receive out of the
proceeds of the rights offering the following: (i) the purchase price for such
interest, (ii) their interest payments on the $31.5 million loans from Presidio,
(iii) their net tax liability as a consequence of owning the interest being
sold, computed based upon the marginal effective tax rates of the individual
partners of the T-2 Organizers, minus 12% of the losses, if any, recognized by
them as a consequence of their ownership of such interest plus (iv) $50,000
representing the anticipated out-of-pocket expenses of the affiliates of the T-2
Organizers in maintaining their investments through certain entities in the T-2
Holders in a manner that was designed to facilitate the completion of the
Contract Rights securitization.
Presidio and the T-2 Organizers are working on the rights offering of T-2 LLC,
and contemplate making the offering during the second or third quarter of 1997.
<PAGE>
During 1996, approximately $9.4 million, which was withheld from the Contract
Rights Securitization net proceeds as reserves were returned to the Company.
For the year ended December 31, 1996, two tenants of Partnerships whose Contract
Rights were not included in the securitization purchased their leased property
from the Company as permitted un der the terms of their leases for $3.8 million.
IR Life Co.
In 1990, Integrated sold the majority of its core financial services businesses
(including its insurance subsidiary Integrated Resources Life Co., ("Life")) to
Broad, Inc. In connection with the sale, certain cash in Life was restricted by
order of Iowa Insurance Commissioner from being distributed to Integrated.
Approval for distribution was contingent, in part, upon the resolution of
various contingent liabilities, including contingent claims relating to state
guarantee funds for failed insurance companies. The right to this remaining
receivable from Life was transferred to an indirect wholly owned subsidiary of
Presidio, in connection with Presidio's purchase of Integrated's estate in
November 1994. On July 1, 1996, the Iowa Insurance Commissioner concluded that
all contingent liabilities had been satisfied, and approved the transfer of all
remaining cash from Life to the Company. As a result, the Company received
approximately $13.4 million on July 2, 1996, which was $5.9 million more than
had been estimated by the Company.
TSA Securitization
In November 1996, Presidio sold in a private securitization transaction, the
Company's rights to a deferred payment stream which was originally generated by
Integrated's tax shelter annuity business (the "TSA Payment Stream"). This
transaction yielded net proceeds of approximately $20.5 million. The
securitization notes will not and have not been registered under the Securities
Act of 1933, and may not be offered or sold in the United States absent
registration or applicable exemption of registration requirement.
As part of this transaction, certificates evidencing 99% of the entire residual
beneficial interest in the TSA Payment Stream, have been issued (the
"Certificates"), and have been sold to T-2 TSA, LLC (the "Certificateholder")
and Certificate(s) evidencing the remaining 1% beneficial ownership interest
have been sold to T-2 TSA II LLC (the "Affiliated Purchaser"). Each of the
Affiliated Purchaser and the Certificateholder is a Delaware limited liability
company whose members are T-2 Management, LLC and T-2 LLC. Each of the
Certificateholder and the Affiliated Purchaser have purchased its Certificate(s)
<PAGE>
for cash equal to the estimated fair value thereof. The Company has loaned to
T-2 LLC $1,000,000 (the "TSA Loan"), with interest at 15% per annum, the
proceeds of which were contributed to the Certificateholder and used to acquire
the Certificates. The TSA Loan matures on the earlier of March 31, 2001, or the
successful completion of a rights offering. The proceeds from a rights offering,
will be used in part to repay T-2 LLC's obligation to the Company.
HEP Partnerships
The HEP Partnerships are a series of three public partnerships (HEP-85, HEP-86
and HEP-88) which invested in unleveraged commercial real estate between 1985
and 1989. The HEP Partnerships' portfolios consist of 18 properties with an
original cost of approximately $253 million. The real estate properties in which
the HEP Partnerships either own or maintain a material interest consist of seven
shopping centers, locations currently leased to three supermarkets, four office
buildings, two office parks, one industrial warehouses and one parcel of land.
Subsidiaries of Presidio (the "HEP Subsidiaries") serve as general partners and
hold a 5.0% interest in each of the HEP Partnerships. For managing the affairs
of the HEP Partnerships, the HEP Subsidiaries receive partnership management
fees, property management fees and certain expense reimbursements of
approximately $4.5 million per annum.
HEP is subject to a class action lawsuit as described in Item 3 "Legal
Proceedings".
Wrap Mortgage
On June 25, 1996 certain direct and indirect wholly owned subsidiaries of the
Company sold a wraparound mortgage position and general partnership interest for
a sales price of approximately $1.7 million. The wraparound mortgage was sold
subject to the buyer assuming the obligation of the underlying first mortgage.
Limited Partnership Interests
During 1996, Resources Funding Corp. ("RFC"), a wholly owned indirect subsidiary
of the Company received $1.4 million under the confirmed Chapter 11 plan of
reorganization of Congrecare Coral Oaks Partners Ltd. ("Investor Partnership"),
a limited partnership in which RFC is managing partner. This payment was in
respect of RFC's unsecured claim against the Investor Partnership. The claim
resulted from an agreement entered into by and among RFC and the Investor
Partnership, among others, dated January 28, 1988 pursuant to which RFC agreed
to obtain letters of credit on behalf of the Investor Partnership for its
operating deficit and working capital needs. These letters of credit were drawn
upon by the Investor Partnership. RFC was never reimbursed for the draws under
the letters of credit. On February 16, 1996, the Investor Partnership filed for
protection under Chapter 11 of the United States Bankruptcy Code in order to
implement a settlement it had reached with its primary secured lender. RFC filed
a claim in the bankruptcy court proceeding for the amount drawn down on the
letters of credit and the interest thereon as well as related costs and
expenses. The $1.4 million received by RFC represents the distribution made by
the Investor Partnership under its Chapter 11 plan on account of such claim.
<PAGE>
During 1996, the Company continued to review the status of resolved and
unresolved claims against Integrated. Through various settlements reached
between the Company and one of its wholly owned indirect subsidiaries and
various lenders, all claims relating to $4 million of capital contribution
obligations of the subsidiary which were guaranteed by Integrated have been
dismissed. It was concluded that the claims made on behalf of the guarantees
have been fully satisfied under the terms of the Plan. As such, Net Assets in
Liquidation have been increased during 1996 by approximately $4 million as a
result of the dismissal of the obligations.
Operating Business
During 1996, the Company received liquidating distributions of approximately
$4.0 million on behalf of the Company's remaining interests in cable ventures.
Operating Real Estate
During 1996, the Company received $2.3 million from Fillmore Center Project
Corporation ("FCPC") in which the Company owned 86% of the stock. The proceeds,
net of legal expenses, represent a portion of a $3 million settlement payment
received by FCPC in connection with the foreclosure of its principal assets.
1995
Contract Rights
In October 1995, certain of the Company's subsidiaries modified the
contract right obligations pursuant to the Agreement to Modify certain of the
Contract Right Agreements, dated as of September 29, 1994 (collectively the
"Modification"). Among other things, the Modification provided for (i) the
<PAGE>
restatement of the Contract Rights as promissory notes in order to better
evidence the existing Contract Right obligations and provide a more definite
payment schedule, (ii) the delivery of subordinate mortgages or negative pledges
in order to secure the partnerships' obligations under such negotiable
promissory notes, (iii) the creation of a paying agency arrangement (the paying
agent agreement was executed with Bankers Trust Company) in order to collect
monies payable under leases in excess of amounts required to service existing
first mortgage indebtedness, and (iv) the delivery of certain estoppels and
other certificates by the Partnerships and various tenants, superior mortgagees
and ground lessors in order to provide the Company with more detailed
information regarding the partnership, the tenant, the property and existing
operating leases. The Modification made the Contract Rights a more readily
saleable/financeable instrument.
During the year ended December 31, 1995, 13 tenants purchased their
leased property from the Company as permitted under the terms of their leases
for $15.4 million. During the year, the Company received $900,000 as scheduled
payments on Contract Rights and two tenants who had been leasing property from
the Company prepaid $2.1 million as final payments on an existing Contract
Right.
Operating Businesses
The Company, through an indirect wholly-owned subsidiary, owned a
general partnership interest in the general partner of Majco Building
Specialties, L.P. ("Majco"). On September 29, 1995, Majco consummated the sale
of substantially all of its assets for a gross sale price of $66.6 million
inclusive of $3.3 million which was paid into escrow. The Company's allocable
share from this sale was approximately $12 million (exclusive of any amounts
from escrow) from its interest in Majco. The Company had valued this asset at $8
million at December 31, 1994. In addition, approximately $1.3 million of the
gross sales price is being held in escrow through December 1997.
Presidio owned a deferred fee receivable from Rotor Tool, L.P., the
manufacturer of a comprehensive line of high quality semi-customized portable
pneumatic assembly and other tools. In December 1995, Rotor Tool, L.P.
consummated the sale of 100% of all its common stock interests in Rotor Tool
Company. As a result, Presidio received approximately $3.55 million on the
deferred fee due from the partnership.
Other
In December 1995, a subsidiary of the Company received approximately
$1.1 million as a brokerage commission on a sale of assets of a partnership
owning a health care facility in which the Company served as a general partner
of the general partner. Presidio had not previously recorded a value for this
asset at December 31, 1994.
During the fourth quarter of 1995, Presidio sold approximately 279,000
shares of stock in a publicly traded company engaged in the mortgage banking
business for an average price of $21.53 per share, realizing proceeds of
approximately $6 million on the transactions. Presidio had valued this asset at
$2 million at December 31, 1994.
During the third quarter of 1995, a third party note receivable
relating to a property sold by Integrated in April 1993 was prepaid. The Company
received proceeds of $3.6 million, equal to the estimated net realizable value.
<PAGE>
During the second quarter of 1995, the Company sold a first mortgage
note and assigned its interests in a wraparound mortgage, in two separate
transactions, from which the aggregate proceeds were $500,000, and which
resulted in the release of non-recourse indebtedness obligations and notes and
other receivables of approximately $353.9 million.
1994
During the period from November 3, 1994 through December 31, 1994 there
were no material dispositions of assets, except that (a) in November 1994 ACT 4
and ACT 5, partnerships in which indirect subsidiaries of Presidio own
co-general partnership interests, entered into a contract for the sale of
certain assets in cable television partnerships and (b) in December 1994,
Presidio disposed of rights to receive 56% of all payments relating to a
Contract Right in settlement of the claims of certain creditors.
During the period January 1, 1994 to November 2, 1994 Integrated had no
liquidation activities.
<PAGE>
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
Financial Statements - Presidio Capital Corp. and Subsidiaries
Independent Auditors' Report
Consolidated Statements of Net Assets in Liquidation at December 31, 1996 and
1995
Consolidated Statements of Changes in Net Assets in Liquidation for the Years
Ended December 31, 1996 and 1995 and for the period November 3, 1994
(Consummation Date) through December 31, 1994
Notes to Consolidated Financial Statements
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors of
Presidio Capital Corp.
We have audited the accompanying consolidated financial statements of net assets
in liquidation of Presidio Capital Corp. and subsidiaries (the "Company") at
December 31, 1996 and 1995 and the related consolidated statements of changes in
net assets in liquidation for the years ended December 31, 1996 and 1995 and for
the period November 3, 1994 (Consummation Date) through December 31, 1994 (all
expressed in thousand of United States dollars). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. 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, such consolidated financial statements present fairly, in all
material respects, the net assets in liquidation of the Company at December 31,
1996 and 1995 and the changes in its net assets in liquidation for the years
ended December 31, 1996 and 1995 and for the period November 3, 1994
(Consummation Date) through December 31, 1994 in conformity with accounting
principles generally accepted in the United States of America on the basis
described in the succeeding paragraph.
As discussed in Note 1 to the consolidated financial statements, the Company was
formed in accordance with the Sixth Amended Plan of Reorganization confirmed by
the United States Bankruptcy Court for the purpose of purchasing substantially
all of the assets of Integrated Resources, Inc. and liquidating and distributing
capital to the Company's shareholders. The Company adopted the liquidation basis
of accounting effective November 3, 1994 (Consummation Date) and the
consolidated financial statements reflect assets at estimated net realizable
amounts and liabilities at anticipated settlement amounts.
As emphasized in Notes 1 and 12 to the consolidated financial statements, the
Company determined the amounts realizable from the disposition of the remaining
assets, the amounts of certain liabilities, and the outcome of litigation using
various assumptions about future events.
/s/Deloitte & Touche
- --------------------
Deloitte & Touche
Cayman Islands
March 25, 1997
<PAGE>
<TABLE>
<CAPTION>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF NET ASSETS IN LIQUIDATION
(Expressed in thousands of United States dollars)
December 31,
----------------------
1996 1995
-------- --------
<S> <C> <C>
Assets:
Cash and cash equivalents (including
restricted cash of $20,527 and $21,603 at
December 31, 1996 and 1995,
respectively) ...................................... $ 78,639 $118,790
Investments ........................................ 29,993 32,769
Contract rights receivable ......................... 41,083 235,681
Notes and other receivables (net of non-
recourse indebtedness of $ 0 and $17,599
at December 31, 1996 and 1995, respectively) ....... 22,467 62,991
Loans to Affiliates ................................ 38,532 --
Other assets ....................................... 1,814 5,519
-------- --------
Total assets ................... $212,528 $455,750
======== ========
Liabilities:
Debt ............................................... $ 900 $ 4,895
Dividends payable .................................. -- 10,014
Estimated costs of liquidation ..................... 29,434 49,613
Estimated tax liability ............................ 5,970 6,000
-------- --------
Total liabilities .............. 36,304 70,522
-------- --------
Net Assets in Liquidation .... $176,224 $385,228
======== ========
See notes to consolidated financial statements
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS IN LIQUIDATION
(Expressed in thousands of United States dollars)
November 3,
1994
(Consummation Date)
Year Ended Year Ended through
December 31, 1996 December 31, 1995 December 31, 1994
----------------- ----------------- -----------------
<S> <C> <C> <C>
Net Assets in Liquidation,
beginning of period ...... $ 385,228 $ 399,396 $ 399,396
--------- --------- ---------
Dividends declared ......... (252,753) (95,014) --
Accretion from loans to
Affiliates .............. 6,032 -- --
Increase from revaluation of
assets and liabilities .. 32,240 73,808 --
Interest income ............ 5,477 7,038 --
--------- --------- ---------
Net change in net assets
in liquidation ........... (209,004) (14,168) --
--------- --------- ---------
Net Assets in Liquidation,
end of period ........... $ 176,224 $ 385,228 $ 399,396
========= ========= =========
See notes to consolidated financial statements
</TABLE>
<PAGE>
PRESIDIO CAPITAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except share and per share amounts)
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Presidio Capital Corp. ("Presidio" and, collectively with its subsidiaries, the
"Company") was organized on August 29, 1994, in the British Virgin Islands under
the International Business Companies Act (Cap. 291), to purchase, directly or
through its subsidiaries, substantially all of the assets of Integrated
Resources, Inc. ("Integrated") for the purpose of liquidation and distribution
of capital to shareholders. The Company was formed in accordance with the Sixth
Amended Plan of Reorganization Submitted by the Official Committee of
Subordinated Bondholders and the Steinhardt Group, (the "Plan") confirmed by the
United States Bankruptcy Court for the Southern District of New York (the
"Bankruptcy Court") by order dated August 8, 1994. The Plan was officially
consummated on November 3, 1994 (the "Consummation Date").
The Plan gave creditors of Integrated the right to receive 88% of Presidio's
Class A shares in lieu of all or part of their cash distribution as defined in
the Plan. The remaining 12% of stock was issued to and purchased by IR Partners,
a general partnership among Steinhardt Management Company Inc., ("Steinhardt")
certain of its affiliates and an affiliate of Charles E. Davidson, the principal
of Presidio Management Company, LLC ("Presidio Management") and Chairman of the
Board of the Company and Joseph M. Jacobs, the Chief Executive Officer and
President of the Company, for approximately $36 million, under the terms of an
Asset Purchase Agreement. In addition to the issuance of Class A shares,
subsequent to the Consummation Date, Presidio disbursed approximately $456
million to the former creditors in satisfaction of bankruptcy claims against
Integrated.
The Company is co-managed by Presidio Management and Steinhardt, who direct on a
discretionary basis, the disposition, liquidation and sale of the Company's
assets. The administration of these liquidating responsibilities is performed by
Wexford Management LLC ("Wexford"). Wexford is principally responsible for the
implementation of the day to day operations as well as the liquidation of the
Company. A fixed annual fee is paid to each of the co-managers.
Liquidation Basis
As a result of the consummation of the Plan, the Company has adopted the
liquidation basis of accounting. The liquidation basis of accounting is
appropriate when liquidation is imminent and the Company is no longer viewed as
a going concern. Under this method of accounting, assets are stated at their
estimated net realizable values and liabilities are stated at their anticipated
settlement amounts. The valuations presented in these financial statements are
presented in U.S. dollars under U.S. Generally Accepted Accounting Principles.
The valuation of assets and liabilities require many estimates and assumptions.
The actual value of any liquidating distributions depends upon a variety of
factors including, among others, the actual market prices of any assets
distributed in kind, the proceeds from the sale of any of the Company's assets
and the actual timing of distributions.
<PAGE>
The valuations presented in the accompanying Statements of Net Assets in
Liquidation represent current estimates, based on facts and circumstances, of
the estimated net realizable value of assets and estimated costs of implementing
the Plan. The net values ultimately realized could be higher or lower than the
amounts recorded.
Consolidation
The consolidated financial statements include the accounts of Presidio and its
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents include time deposits, certificates of deposit and all
instruments (including commercial paper, treasury bills and repurchase
agreements) with original maturities of three months or less. Restricted cash
represents cash held in escrow as security under various officer and director
indemnification agreements, and cash reserved for the payment of certain
bankruptcy related claims.
Investments
Investments in corporate equity securities and interests in limited partnerships
are valued at their estimated net realizable value.
Non-Recourse Indebtedness
Non-recourse indebtedness represents obligations on wraparound mortgages of
certain real estate subsidiaries. These obligations were collateralized by first
liens on commercial real estate properties owned by limited partnerships and are
recorded net of related receivables.
Estimated Costs of Liquidation
The estimated costs of liquidation represent the estimated costs of operating
the Company through its expected termination. The financial statements as
presented assume completion of the liquidation by November 3, 1999. These costs
include management fees, estimated reimbursable expenses, the fees of outside
professionals, estimated liabilities for the settlement of remaining bankruptcy
claims and other costs, and are based on various assumptions. Actual total costs
of liquidation are likely to differ from estimated costs and these differences
may be material.
Income Taxes
Income taxes include taxes that will be payable on account of and upon sale or
disposition of interests in operating businesses, real estate or other assets.
Net Realizable Value
In determining the net realizable values of the assets, the Company considers
each asset's ability to generate future cash flow, offers received from third
parties, if any, and other general market information. Such information is
<PAGE>
considered in conjunction with the Company's current plans for its disposition
of assets. Computations of net realizable value necessitate the use of
assumptions and estimates. Future events, including economic conditions that
relate to real estate markets in general, may differ from those assumed or
estimated in the computations. As a result, the amounts ultimately realized may
materially differ from those currently reflected in these financial statements.
Reclassifications
Certain reclassifications have been made to the financial statements shown for
the prior periods in order to conform to the current year classifications for
the Statements of Changes in Net Assets in Liquidation. The Statements of
Changes in Net Assets for Integrated has not been reflected for the period
January 1, 1994 to November 2, 1994, since there was no activity for that
period.
NOTE 2 - INVESTMENTS
Investments held by the Company consist of:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------- -------
<S> <C> <C>
Equity securities .......................... $ 1,375 $ 1,630
Interests in limited partnerships .......... 28,618 31,139
------- -------
$29,993 $32,769
======= =======
</TABLE>
Investments in corporate equity securities at December 31, 1996 and 1995,
include equity interests in a privately held company which are valued at its
estimated net realizable value.
Interests in limited partnerships include general and limited partnership
interests in both public and privately held partnerships which invested in
leveraged and unleveraged real estate and various operating businesses. These
interests include a series of three public partnerships (HEP-85, HEP-86 and
HEP-88) (the "HEP Partnerships") which invested in unleveraged commercial real
estate between 1985 and 1989. The HEP Partnerships' portfolios consist of 18
properties. Subsidiaries of Presidio (the "HEP Subsidiaries") serve as general
partners and hold a 5.0% interest in each of the HEP Partnerships. The HEP
Subsidiaries receive partnership management fees and certain expense
reimbursements. The net realizable value of these interests are based on
expected management fees and distributions through estimated dates of disposal
and/or expected net liquidation proceeds to be realized upon dissolution of
these partnership/investment interests.
The HEP Partnerships are subject to a class action lawsuit.
During 1996, the Company purchased certain limited partnership units in
partnerships where they are general partners (including the HEP Partnerships).
These interests are reflected at the historical cost of approximately $3.7
million. These units were purchased with the intent of enhancing and preserving
the value of the Company's general partnership interests.
<PAGE>
NOTE 3 - CONTRACT RIGHTS
Presidio, through two wholly-owned non-U.S. subsidiaries, is entitled to (i)
certain compensation representing deferred acquisition fees plus interest in
connection with Integrated's organization, from 1978 to 1985, of privately
offered net lease partnerships (the "Partnerships") and (ii) payment for
providing the Partnerships with the opportunity to purchase certain properties.
Such Partnerships invested in commercial real estate leased primarily to
investment grade tenants under non-cancelable, long term, triple net leases that
generally provided for 25 year primary terms, with options to renew granted to
the tenant for additional terms of up to 30 years.
On March 28, 1996 (the "Closing Date"), the Company and certain of its
subsidiaries sold 117 of its 123 Contract Rights in a private securitization
transaction.
The securitization certificates that were sold are secured by substantially all
of the payment stream from the primary term of the related Contract Rights, and
are not backed by the Company. Most of the remaining payment stream, which is
effectively subordinated to the certificates sold in the securitization, will be
used to make payment to the holder of another certificate, (the "T-2 Holder")
99% of which was sold to a newly formed company, T-Two Holding, LLC (the "T-2
LLC"), an entity owned by certain affiliates of Presidio (the "Affiliates").
These Affiliates are controlled by the Chairman of the Board and the President
of Presidio. On the Closing Date, Presidio made two loans to the Affiliates,
aggregating $31.5 million; the proceeds of which were used to purchase the
Affiliates interest in T-2 LLC. These loans accrue interest at 25% per annum,
and are reflected in the Company's Notes and Receivables at a net realizable
value of $37.5 million at December 31, 1996. The owners of T-2 LLC will conduct
a rights offering, or equivalent transaction, enabling the Company's
shareholders to acquire 100% of the membership interests in T-2 LLC.
At December 31, 1996, there were four Contract Rights remaining, which the
Company estimates have an approximate net realizable value of $41.1 million. On
March 12, 1997, one of the Partnerships exercised its option and prepaid
approximately $40.0 million, representing the remaining balance due under one of
the Contract Right obligations.
NOTE 4 - NOTES AND OTHER RECEIVABLES
Notes and other receivables primarily consist of deferred payment arrangements
on assets previously liquidated by Integrated and economic interests of
equipment leasing subsidiaries (including management fees receivable). The
Company has recorded liquidation values on deferred payment arrangements based
on estimated recoverable cash flows based on the specific liquidation strategy
for each asset. The receivables relating to the equipment leasing subsidiaries
are based primarily on scheduled lease payments as well as recurring quarterly
distributions and fees received from partnerships originally sponsored by
Integrated.
<PAGE>
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
-------- --------
<S> <C> <C>
Receivable from TSA Note (a) .................. $ -- $ 29,030
Notes and other receivables (b) ............... 22,467 25,562
Receivable from sale of life insurance
operations (c) .............................. -- 7,499
Other (d) ..................................... -- 18,499
-------- --------
22,467 80,590
Less non-recourse indebtedness (d) ............ -- (17,599)
-------- --------
$ 22,467 $ 62,991
======== ========
</TABLE>
(a) In November 1996, Presidio sold in a private securitization
transaction, the Company's rights to a deferred payment stream which
was originally generated by Integrated's tax shelter annuity business
(the "TSA Payment Stream"). This transaction yielded net proceeds
excluding legal expenses of approximately $20.5 million. Additionally,
the Company received $6.0 million in cash collections on this note
during the holding period prior to completion of the securitization.
As part of this transaction, certificates evidencing 99% of the entire
residual beneficial interest in TSA Payment Stream, have been issued
(the "Certificates"), and have been sold to T-Two TSA, LLC (the
"Certificateholder") and Certificate(s) evidencing the remaining 1%
beneficial ownership interest have been sold to T-Two TSA II LLC (the
"Affiliated Purchaser"). The Certificateholder and the Affiliated
Purchaser are entitled to receive the TSA Payment Stream, upon
satisfaction in full of the notes sold in the securitization. The
rights of the Certificates are fully subordinated to the notes. Each of
the Affiliated Purchaser and Certificateholder is a Delaware limited
liability company whose members are T-Two Management, LLC and T-Two
LLC. Each of the Certificateholder and the Affiliated Purchaser have
purchased its Certificates(s) for cash equal to the estimated fair
value thereof. The Company has loaned T-Two LLC $1 million (the "TSA
Loan"), with interest at 15% per annum, the proceeds of which has been
contributed to the Certificateholder and used to acquire the
Certificates. The TSA Loan matures on the earlier of March 31, 2001, or
the successful completion of the rights offering.
(b) Includes receivables, net of liabilities of the Company's equipment
leasing subsidiaries of approximately $9.3 million and $7.7 million at
December 31, 1996 and 1995, respectively.
(c) In 1990, Integrated sold the majority of its core financial services
businesses (including its insurance subsidiary Integrated Resources
Life Co. ("Life")) to Broad, Inc. In connection with the sale, certain
cash in Life was restricted by order of the Iowa Insurance Commissioner
from being distributed to Integrated. Approval for distribution was
contingent, in part, upon the resolution of various contingent
liabilities, including contingent claims relating to state guarantee
funds for failed insurance companies. The right to this remaining
receivable from Life was transferred to an indirect wholly owned
<PAGE>
subsidiary of Presidio, in connection with Presidio's purchase of
Integrated's estate in November 1994. On July 1, 1996, the Iowa
Insurance Commissioner concluded that all contingent liabilities had
been satisfied, and approved the transfer of all remaining cash from
Life to the Company. As a result, the Company received approximately
$13.4 million on July 2, 1996.
(d) Includes wraparound mortgages due from certain limited partnerships
with interest at 7% to 14.55% and due in installments through 2014,
which are collateralized principally by second liens on commercial real
estate properties owned by limited partnerships. The unamortized
principal amount of such mortgages receivable, including accrued
interest, exceeds the corresponding unamortized amount of the
underlying mortgages payable (non-recourse indebtedness of $17.6
million). The remaining wrap mortgage position was sold during 1996 for
gross proceeds of $1.8 million. This transaction effectively relieved
the Company of all its non-recourse indebtedness.
NOTE 5 - ESTIMATED COSTS OF LIQUIDATION
The estimated costs of liquidation include current accounts payable, obligations
under disputed bankruptcy claims, obligations of the Company and the estimated
future costs to liquidate the Company pursuant to the Plan.
Estimated costs of liquidation include the following:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
-------- --------
<S> <C> <C>
Reserve for disputed claims .................... $ 1,580 $ 7,000
Estimated general and administrative
costs ..................................... 20,443 31,298
Other .......................................... 7,411 11,315
------- -------
$29,434 $49,613
======= =======
</TABLE>
Pursuant to the consummation of the Plan, certain amounts were reserved for
claims filed by creditors of Integrated, which, due to either the nature of the
claim or the amount requested, have not yet been resolved. Reserves for the
maximum amounts under the provisions of the Plan were recorded. As settlements
are reached on these claims, cash is either disbursed to the claimant, or
released to the Company. As of December 31, 1996 and 1995, approximately $1.6
million and $7.0 million remained in reserve for disputed claims, respectively.
Estimated general and administrative costs are based upon current facts and
circumstances, and have decreased from the prior year primarily due to payments
made in 1996.
Other liabilities represent reserves estimated to satisfy certain liabilities as
discussed in Note 12.
<PAGE>
A summary of the changes in estimated costs of liquidation are as follows:
<TABLE>
<CAPTION>
<S> <C>
Balance - December 31, 1995 (A) $ 49,613
---------
Amounts paid for bankruptcy claims,
settlements, administration and operations (B) (18,356)
Adjustments to estimated costs of liquidation (1,823)
---------
Balance - December 31, 1996 (A) $ 29,434
=========
</TABLE>
(A) The estimated costs of liquidation may be adjusted in future periods
primarily due to the timing and type of asset sales and the resolution of
disputed claims. Actual costs of liquidation are likely to differ from
estimated costs and these differences may be material.
(B) Includes payments of approximately $2.7 million on disputed bankruptcy
claims that were settled during 1996.
NOTE 6 - ESTIMATED INCOME TAX LIABILITY
As a result of the inability of Presidio to use Integrated's net operating loss
carryforwards, the Company has recorded an estimated tax liability.
Estimated tax liabilities consist of:
<TABLE>
<CAPTION>
December 31, December 31,
1996 1995
------ ------
<S> <C> <C>
Contract rights .............................. $3,200 $3,000
Other ........................................ 2,770 3,000
------ ------
Estimated income tax liability ............... $5,970 $6,000
====== ======
</TABLE>
Actual tax obligations may differ from estimated amounts, primarily due to the
timing of future liquidation activities and these differences may be material.
NOTE 7 - COMMON STOCK
The Company has 11.25 million shares of common stock authorized, with a par
value of U.S. $.01 per share. Creditors of Integrated were issued 8.8 million
Class A shares (including 162,932 shares reserved in respect of disputed claims
of which 16,395 shares remained in reserve at December 31, 1996) and IR Partners
received 1,200,000 Class B shares.
<PAGE>
The rights and privileges of the Class A and Class B shares are identical except
with respect to elections of directors and certain restrictions on the transfer
of Class B shares. Additionally, 13,650 shares were issued to the Class A
directors on the Consummation Date (4,550 of which were forfeited to the Company
in February 1995 and later reissued to a new director). The 1,200,000 Class B
shares held by IR Partners are convertible in certain circumstances into an
equivalent number of Class A shares.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
The Company established a reserve on the Consummation Date of $46 million in
cash ($1.6 million of which remained in reserve at December 31, 1996) and
162,932 Class A shares in respect of disputed claims against Integrated (16,395
of which remained in reserve at December 31, 1996). These claims represent
claims unresolved as of the Consummation Date. Additionally, certain creditors
have disputed the amounts of cash and common shares received upon completion of
the distribution process. As such claims are resolved, cash and or shares will
be disbursed to the prevailing claimant. If claims are resolved in favor of the
Company, reserved cash will revert back to the Company, while reserved shares
will be made available for purchase to the current Class A shareholders.
Presidio has reserved $11.1 million to provide for indemnification of Qualified
Indemnities (former officers and directors of Integrated and its subsidiaries)
against claims relating to certain pre-bankruptcy conduct. The indemnity is
secured by $10.0 million in cash collateral as well as the stock of the
Company's non-U.S. subsidiaries. Under this agreement, the Company must also
maintain certain minimum net worth requirements throughout the liquidation
process which may restrict Presidio's ability to pay future dividends.
Additionally, on the Consummation Date Presidio deposited into an escrow account
$1.0 million as security for the indemnification of the Company's Class A
Directors. Presidio is obligated to increase such security by the greater of
$750 thousand or 1% of distributions made in each quarter up to a maximum of
$10.0 million. During 1996, the Company deposited $3.0 million as additional
security into this account. All security amounts are reflected as restricted
cash.
<PAGE>
NOTE 9 - REVALUATION OF ASSETS AND LIABILITIES
The increase in Net Assets in Liquidation resulting from revaluation, for the
years ended December 31, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
Year Ended Year Ended
December 31, 1996 December 31, 1995
----------------- -----------------
<S> <C> <C>
Increase in estimated net
realizable value of assets (a) ........ $ 11,822 $ 66,988
Decrease in estimated costs
of liquidation ........................ 1,823 2,579
Return of overpayments and
bankruptcy settlements ................ 3,918 3,619
Gains/(losses) on
liquidation and other (b) ............. 16,064 (1,173)
(Increase)/decrease in estimated
tax liability ......................... (1,387) 1,795
-------- --------
$ 32,240 $ 73,808
======== ========
</TABLE>
(a) Increases in 1996 relate principally to Contract Rights of $8
million and increases in 1995 relate principally to Contract Rights of $30
million, TSA of $10 million and Investments of $10 million.
(b) Increases in 1996 includes gains on IR Life transaction of $5.9
million.
NOTE 10 - DIVIDENDS DECLARED
Presidio has paid $347.8 million or $34.73 per share since the Consummation
Date, of which $262.8 million, or $26.24 per share was paid in cash in 1996.
Additionally, on March 19, 1997, Presidio announced the approval for payment of
a $1.65 per share ($16.5 million) dividend payable on April 3, 1997 to all
shareholders of record as of March 25, 1997.
NOTE 11 - RELATED PARTY TRANSACTIONS
On November 3, 1994, Presidio entered into an administrative services agreement
with Concurrency Management Corp. ("Concurrency"), whereby Concurrency will be
responsible for the day to day administration of the Company. Effective January
1, 1996, this agreement was assigned to Wexford. Concurrency was 100% owned by
Joseph M. Jacobs, the President and a director of Presidio. Charles E. Davidson,
the Chairman and a director of Presidio, and the beneficial owner of Presidio
Management LLC, Joseph M. Jacobs and Robert Holtz, a Vice President of Presidio,
are members of Wexford.
The Company has also entered into management agreements with Presidio Management
and Steinhardt pursuant to which Presidio Management will manage the Company and
its liquidation and Steinhardt will render certain consulting services to the
Company.
<PAGE>
These agreements require the Company to pay both Presidio Management and
Steinhardt management fees of $1.25 million per year for a three year period
expiring November 3, 1997. Presidio Management has directed that 50% of its
annual management fee be paid to Mr. Jacobs. In March 1996, the Board of
Directors of Presidio approved the assignment of Presidio Management's Agreement
to Wexford. Additionally, during 1996, Presidio reimbursed Wexford $5.5 million
in connection with the operation and administration of the Company. Presidio
also had a payable to Wexford of $2.0 million at December 31, 1996.
The Company has loaned $32.5 million to certain affiliates of the Company in
connection with the securitization of certain assets. These loans which were
made with recourse, will be repaid upon successful completion of a rights
offering to the shareholders of Presidio. These affiliates are both officers of
Presidio as well as members of Wexford. As of December 31, 1996, these loans
have accreted interest of approximately $6.0 million.
NOTE 12 - LITIGATION
Presidio and its subsidiaries are parties to various legal proceedings as
successors to Integrated and its subsidiaries. The following is a description of
material litigation in which the Company is involved.
The Hallwood Group Incorporated v. Steinhardt Management Company, Inc., et al.
Presidio and two subsidiaries, Presidio LP Corp. and Presidio GP Corp. (the
"Presidio Defendants"), have been named as defendants in this action which
commenced in May 1995 in the United States District Court for the Southern
District of New York. The complaint alleges that the Presidio Defendants are
affiliates of Steinhardt Management and as such are liable for a $1.5 million
fee allegedly owed the plaintiff under a written agreement between Steinhardt
Management and the plaintiff. The Presidio Defendants have filed an answer,
dated July 7, 1995 denying the material allegations of the complaint. On or
about July 1, 1996, the plaintiff amended its complaint to also name Charles E.
Davidson, Michael H. Steinhardt and IR Partners as defendants. At the same time,
the plaintiff also brought a related State Court action against Presidio CR
Holdings, L.P.Defendants answered the Amended Complaint and the State Court
Complaint on August 23, 1996. Document discovery is complete, and depositions
have been taken. The Company intends to vigorously defend the claims made by the
plaintiff in this action.
WEBBCO v. Tele-Communications, Inc., et al.; The Carter Revocable Trust v. Tele
Communications, Inc., et al. IR-Daniels II and IR-Daniels III, two partnerships
(the "Daniels General Partners") in which an indirect subsidiary of Presidio is
the co-general partner, and Integrated Cable Corp. have been named as defendants
in two Integrated Cable Corp. class action lawsuits commenced in September 1994
in the United States District Court for the District of Colorado. The complaints
allege that the Daniels General Partners, which serve as managing general
partners of two publicly held partnerships (the "Daniels Partnerships"), and
certain affiliated entities committed violations of Sections 10(b) and 14(a) of
the Exchange Act and breached their fiduciary duties to limited partners of the
Daniels Partnerships in connection with the sale of the Daniels Partnerships'
assets. The complaints assert that the proxy statements issued in connection
with those sales contained material false or misleading information and/or
failed to disclose material information and assert that certain actions taken in
connection with the sales constituted breaches of fiduciary duty. The complaints
seek unspecified monetary damages. The defendants filed global motions to
dismiss the complaint, which were denied by the District Court. The defendants
filed summary judgement motion to conclude after discovery was complete.
Subsequently, discovery was completed, however no judgement has been issued by
the District Court. Ultimate conclusion is impossible to predict and defendants
intend to contest vigorously all allegations against them.
<PAGE>
Mark Erwin, Trustee, et. al. v. Resources High Equity, Inc.,et. al. (the "HEP
Action"). On or about May 11, 1993 the HEP Partnerships were advised of the
existence of an action (the "HEP Action") in which a complaint (the "HEP
Complaint") was filed in the Superior Court for the State of California for the
County of Los Angeles (the "Court") on behalf of a purported class consisting of
all of the purchasers of limited partnership interests in the HEP Partnerships.
On April 7, 1994 the plaintiffs were granted leave to file an amended complaint
(the "Amended Complaint").
On November 30, 1995, after the Court preliminarily approved a settlement of the
HEP Action but ultimately declined to grant final approval and after the Court
granted motions to intervene by the original plaintiffs, the original and
intervening plaintiffs filed a Consolidated Class and Derivative Action
Complaint ( the "Consolidated Complaint") against certain subsidiaries of the
Company who are general partners of the HEP Partnerships (the "General
Partners"). The Consolidated Complaint alleges various state law class and
derivative claims, including claims for breach of fiduciary duties; breach of
contract; unfair and fraudulent business practices under California Bus. & Prof.
Code Sec. 17200; negligence; dissolution, accounting and receivership, fraud;
and negligent misrepresentation. The Consolidated Complaint alleges, among other
things, that the General Partners caused a waste of HEP Partnership assets by
collecting management fees in lieu of pursuing a strategy to maximize the value
of the investments owned by the limited partners; that the General Partners
breached their duty of loyalty and due care to the limited partners by
expropriating management fees from the partnerships without trying to run the
HEP Partnerships for the purposes for which they are intended; that the General
Partners are acting improperly to enrich themselves in their position of control
over the HEP Partnerships and that their actions prevent non-affiliated entities
from making and completing tender offers to purchase outstanding limited
partnership units in the HEP Partnerships; that by refusing to seek the sale of
the HEP Partnerships' properties, the General Partners have diminished the value
of the limited partners' equity in the HEP Partnerships; that the General
Partners have taken a heavily overvalued partnership asset management fee; and
that limited partnership units were sold and marketed through the use of false
and misleading statements.
In January, 1996, the parties to the HEP Action agreed upon a revised settlement
(the "Revised Settlement"). The principal features of the Revised Settlement
were the surrender by the General Partners of certain fees that they are
entitled to receive, the reorganization of the HEP Partnerships into a publicly
traded real estate investment trust ("REIT"), and the issuance of stock in the
REIT to the limited partners (in exchange for their limited partnership
interests) and General Partners (in exchange for their existing interest in the
HEP Partnerships and future income). The principal benefits of the Revised
Settlement were (1) substantially increased distributions to limited partners,
(2) market liquidity through a NASDAQ listed security, and (3) the opportunity
for growth and diversification that was not permitted under the Partnership
structure. There were also other significant tax benefits, corporate governance
advantages and other benefits of the Revised Settlement.
On July 18, 1996, the Court preliminarily approved the Revised Settlement and
made a preliminary finding that the Revised Settlement was fair, adequate and
reasonable to the class. In August 1996, the Court approved the form and method
of notice regarding the Revised Settlement which was sent to the limited
partners.
<PAGE>
Only approximately 2.5% of the limited partners of the HEP Partnerships elected
to "opt out" of the Revised Settlement. Despite this, following the submission
of additional materials, the Court entered an order on January 14, 1997
rejecting the Revised Settlement and concluding that there had not been an
adequate showing that the settlement was fair and reasonable. Thereafter, the
plaintiffs filed a motion seeking to have the Court reconsider its order.
Subsequently, the defendants withdrew the Revised Settlement and at a hearing on
February 24, 1997, the Court denied the plaintiffs' motion. Also, at the
February 24, 1997 hearing, the Court recused itself from considering a motion to
intervene and to file a new complaint in intervention by one of the objectors to
the Revised Settlement, and granted the request of one plaintiffs' law firm to
withdraw as class counsel and scheduled future hearings on various matters.
The HEP Partnerships and the General Partners believe that each of the claims
asserted in the Consolidated Complaint are meritless and intend to continue to
vigorously defend the HEP Action.
600 Grant Street Associates Limited Partnership v. General Electric Capital
Corporation, et al. Sivram Corp. and Grant Property Corp. (the "Affiliated
Defendants"), two indirect subsidiaries of Presidio, have been named as
defendants in this action which was commenced in December 1994 in the Court of
Common Pleas of Philadelphia County, Pennsylvania. The complaint asserted three
causes of action against the Affiliated Defendants for breach of contract,
declaratory relief that the plaintiff has not breached its contractual
obligations, and an accounting. The claim for breach of contract sought damages
in excess of $50 million as well as punitive damages. During 1996, this case was
dismissed with prejudice.
Wright v. Integrated Aircraft Fund Management Corp., et. al. Integrated Aircraft
Fund Management Corp., Integrated Resources Marketing, Inc., and Integrated
Resources Equity Corp., three indirect subsidiaries of Presidio, have been named
as defendants in this purported class action which was commenced in February
1994 in the Supreme Court of the State of New York for the County of New York.
The first amended complaint asserts causes of actions for fraud, breach of
fiduciary duty and negligent misrepresentation based upon alleged material
misrepresentations and omissions by the defendants in connection with the
offering for sale of limited partnership units in the Aircraft Income Partners,
L.P. partnership. On October 2, 1995, the Supreme Court of the State of New York
for the County of New York granted a dismissal of the amended complaint in its
entirety without leave to replead. The time for appeal has expired.
Integrated Resources Equity Corporation Litigation. Integrated Resources Equity
Corporation ("IREC"), an indirect subsidiary of Presidio, has been named as a
defendant or respondent in approximately 21 lawsuits and arbitration proceedings
arising out of its conduct as a broker-dealer in securities. Integrated
Resources Marketing Corporation ("IRMI"), another indirect subsidiary of
Presidio, has also been named as a defendant or a respondent in several of these
actions. The majority of these lawsuits seek damages for former customers of
IREC arising out of purchases or sales of securities. IREC and the other
defendants in these actions are vigorously defending each of the lawsuits and
arbitration proceedings.
Israel Aircraft Industries v. Integrated Aircraft Corp. On or about December 14,
1995, a complaint was filed by Israel Aircraft Industries Ltd. (Bedek Aviation
Division) ("IAI"), in the Ontario Court (General Division) in the Province of
Ontario, City of Toronto (the "Ontario Action"). The Ontario Action named as
<PAGE>
defendants Integrated Aircraft Corp. ("IAC") (a wholly-owned subsidiary of
Presidio Equipment Leasing), Jetall Airways, Inc ("Jetall"), Jetall Holding
Corp. and Arie Tall. IAC had leased a Boeing 737-200 aircraft (the "Aircraft")
to Jetall pursuant to a lease agreement dated August 6, 1993 (the "Lease") which
has since been terminated. The Lease called for Jetall to undertake certain
repairs and refurbishment of the Aircraft, in return for which, IAC agreed to
forgo certain rent and reserve payments over the term of the Lease up to an
aggregate amount of $850,000. As an inducement to IAI to enter into a contract
with Jetall to perform the required work, IAC's agreement to forgo Lease
payments was confirmed to IAI by IAC pursuant to a letter agreement dated August
11, 1993 (the "August Letter"). The complaint in the Ontario Action alleges,
among other things, that IAC and Jetall conspired and illegally agreed to
interfere with the contractual relationships existing between IAI and Jetall,
and that IAC induced Jetall to breach its agreement with IAI. The complaint
seeks actual damages of approximately US$386,000 for breach of contract and
exemplary damages in the amount of CDN$1 million for the alleged conspiracy to
breach a contract. An initial motion by IAC's counsel to dismiss the Ontario
Action based on lack of jurisdiction, inconvenient forum and failure to state a
claim was denied by the Ontario Court, and IAC's counsel filed an answer denying
all of the allegation in the complaint.
In December 1995, shortly following IAI's filing of the Ontario Action, Jetall
sought protection under one of the Canadian bankruptcy statutes. During the
pendency of the Jetall bankruptcy proceedings, IAI asserted a lien against the
Aircraft under the Repair and Storage Liens Act in an effort to prevent IAC from
regaining possession of the Aircraft from the Jetall estate. IAC's counsel
brought a motion in a separate division of the Ontario Courts to declare this
lien invalid, and as a result of favorable ruling issued with respect to that
motion (which found that IAI's interpretation of the August Letter was without
merit), IAC is now in a position to file a summary judgement motion in the
Ontario Action seeking to dismiss all of the claims against IAC.
Presidio v. Koll Management Services, Inc., Liquidity Financial Group, L.P. and
Liquidity Financial Corporation. On November 9, 1995, Presidio and the General
Partners of the HEP Partnerships, commenced an action in the United States
Bankruptcy Court for the Southern District of New York, against Koll Management
Services, Inc. ("Koll"), Liquidity Financial Group, L.P. and the Liquidity
Financial Corporation (collectively, "Liquidity"). The plaintiffs sought a
preliminary and permanent injunction to prevent violations of the
Confidentiality and Standstill Agreement (the "Agreement") which had been
entered into between Koll and Integrated in 1994 during Integrated's
reorganization proceeding and damages in an amount to be proven at trial. The
complaint alleged that Liquidity, which had become an affiliate of Koll and was,
for that reason, bound by the Agreement, was violating the Agreement by, among
other things, objecting to a settlement involving the HEP Partnerships which was
an integral part of the Integrated Plan of Reorganization, and that Liquidity
was otherwise interfering with the management and policies of the HEP
Partnerships.
On November 21, 1995, after a contested hearing, the Bankruptcy Court granted
plaintiffs' motion for a preliminary injunction. The preliminary injunction has
been extended periodically since its entry. The defendants have denied the
material allegations of the complaint, and asserted various defenses. The
parties are actively engaged in discovery. On March 7, 1997, the defendants
filed a motion seeking to dissolve the preliminary injunction. The motion is
schedule to be heard by the Bankruptcy Court on April 11, 1997.
<PAGE>
The Company is involved in certain other legal proceedings arising in the
ordinary course of the Company's business. The Company does not believe that
such claims or lawsuits, individually or in the aggregate, will have a material
adverse effect on its financial condition or operations.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The names, ages and positions of the directors and executive officers
of Presidio are set forth below. Pursuant to the Plan, the Class A Directors
serve an initial term which expires November 1997 and the Class B Directors
serve an initial term of one year. Thereafter, all directors will be elected
annually and hold office until their successors are elected and qualified, or
until the earlier of their removal or resignation. All officers serve at the
discretion of the Board of Directors.
<TABLE>
<CAPTION>
Name Age Positions
---- --- ---------
<S> <C> <C>
Charles E. Davidson 43 Chairman of the Board and Class B Director
Joseph M. Jacobs 44 Chief Executive Officer, President, and Class B Director
Martin L. Edelman 56 Class A Director
Dean J. Takahashi 39 Class A Director
Paul T. Walker 61 Class A Director
Robert Holtz 29 Vice President and Secretary
Jay L. Maymudes 36 Vice President, Treasurer and Chief Financial Officer
</TABLE>
Charles E. Davidson has been a director of Presidio and the Chairman of
the Board of Directors of Presidio since its formation in August 1994. Mr.
Davidson is also Chairman of DLB Oil and Gas, Inc., an oil exploration company
and has served as Chairman of the Board and director of Resurgence Properties
Inc. ("Resurgence") since its formation in March 1994. He is also a director of
Technology Service Group, Inc., a company engaged in the design, development,
manufacturing and sale of public communications products and services. From
December 1985 to May 1994, Mr. Davidson was a general partner of Steinhardt
Partners, L.P. and Institutional Partners, L.P., private investment funds. He is
currently the Chairman of the Board and a Member of Wexford and is the managing
partner of a number of private investment partnerships.
<PAGE>
Joseph M. Jacobs has been a director of Presidio and the Chief
Executive Officer and President of Presidio since its formation in August 1994.
Since January 1996, Mr. Jacobs has been the President and a Member of Wexford.
From April 1994 through December 31, 1995, Mr. Jacobs was the President and sole
shareholder of Concurrency. Mr. Jacobs has been a director of Resurgence and the
Chief Executive Officer, President and Treasurer of Resurgence since its
formation in March 1994. From 1982 through May 1994, Mr. Jacobs was employed by,
and since 1988 was the President of, Bear Stearns Real Estate Group Inc., a firm
engaged in all aspects of real estate, where he was responsible for the
management of all activities, including maintaining worldwide relationships with
institutional and individual real estate investors, lenders, owners and
developers.
Martin L. Edelman has been a director of Presidio since February 1995.
Mr. Edelman has been of Counsel to Battle Fowler LLP, a New York law firm, since
January 1994. From prior to 1989 to December 1994, he was a partner in such
firm. He is a director of Hospitality Franchise Systems, Inc., National Gaming
Corporation and numerous private companies.
Dean J. Takahashi has been a director of Presidio since November 1994.
Mr. Takahashi is a Senior Director of Investments - Endowment Management of Yale
University. Since 1986, he has been responsible for analysis and recommendations
regarding asset allocation and investment policy for Yale's $5.0 billion
Endowment, $200 million Staff Pension Plan, and various Life Income Funds. Mr.
Takahashi currently is a director of Smith Offshore Exploration, and an Advisory
Board Member of Highland Capital Partners, APEX European Ventures, Summit
Ventures, and Bain Capital.
Paul T. Walker has been a director of Presidio since November 1994.
Since February 1995, Mr. Walker has been President of Walker, Truesdell &
Associates, a financial consulting firm located in New York City. From March
1992 to April 1996, Mr. Walker was a Trustee of The DBL Liquidating Trust which
was responsible for liquidating Drexel Burnham Lambert, Inc. for the benefit of
creditors. From 1957 to 1990, Mr. Walker was employed by, and from 1985 to 1990
was the Executive Vice President and Senior Credit Policy Officer of, The Chase
Manhattan Bank.
Robert Holtz has been a Vice President and Secretary of Presidio since
its formation in August 1994. Since January 1996, Mr. Holtz has been a Senior
Vice President and a Member of Wexford. From April 1994 through December 31,
1994, Mr. Holtz was a Vice President of Concurrency. Mr. Holtz has been a Vice
President and Assistant Secretary of Resurgence since its formation in March
1994. From 1989 through May 1994, Mr. Holtz was employed by, and since 1993 was
a Vice President of, Bear Stearns Real Estate Group Inc. where he was
responsible for analysis, acquisitions and management of the assets owned by
Bear Stearns Real Estate Group Inc. and its clients.
Jay L. Maymudes has been a Vice President, Treasurer and Chief
Financial Officer of Presidio since its formation in August 1994. Mr. Maymudes
has been the Chief Financial Officer and a Vice President of Resurgence since
July 1994, Secretary of Resurgence since January 1995 and Assistant Secretary
from July 1994 to January 1995. Since January 1996, Mr. Maymudes has been the
Chief Financial Officer, Treasurer and a Senior Vice President of Wexford. From
July 1994 through December 31, 1995, Mr. Maymudes was the Chief Financial
Officer and a Vice President of Concurrency. From December 1988 through June
1994, Mr. Maymudes was the Secretary and Treasurer, and since February 1990 was
the Senior Vice President, of Dusco, Inc., a real estate investment advisor.
<PAGE>
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information known to Presidio
with respect to beneficial ownership of the Class A Shares as of March 1, 1997
(based on 8,797,255 Class A Shares outstanding on such date) by: (i) each person
who beneficially owns 5% or more of the Class A Shares, (ii) the executive
officers of Presidio, (iii) each of Presidio's directors, and (iv) all directors
and executive officers as a group:
<TABLE>
<CAPTION>
Beneficial Ownership
--------------------------------
Number of Percentage
Name of Beneficial Owner Shares Outstanding
------------------------ ------ -----------
<S> <C> <C>
Thomas F. Steyer 4,553,560 (1) 51.8%
Fleur A. Fairman
John M. Angelo 1,231,762 (2) 14.0%
Michael L. Gordon
Intermarket Corp. 1,000,918 (3) 11.4%
M. H. Davidson & Co. 474,205 (4) 5.4%
Michael H. Steinhardt -- (5) --
Joseph M. Jacobs -- (5) --
Robert Holtz -- (5) --
Jay L. Maymudes -- --
Charles E. Davidson -- (5) --
Martin L. Edelman 4,550 (6) *
Dean J. Takahashi 4,550 (6) *
Paul T. Walker 4,550 (6) *
Directors and executive officers as a group (7 persons) 13,650 *
- -----------------------
* Less than 1% of the outstanding Common Stock.
(1) As the managing partners of each of Farallon Capital Partners, L.P.
("FCP"), Farallon Capital Institutional Partners, L.P. ("FCIP"), Farallon
Capital Institutional Partners II, L.P. ("FCIP II") and Tinicum Partners
L.P. ("Tinicum"), (collectively, the "Farallon Partnerships"), may each be
deemed to own beneficially for purposes of Rule 13d-3 of the Exchange Act
the 1,397,318, 1,610,730, 607,980 and 241,671 shares held, respectively, by
each of such Farallon Partnerships. Farallon Capital Management, LLC
("FCMLLC"), the investment advisor to certain discretionary accounts which
collectively hold 695,861 shares and Enrique H. Boilini, David I. Cohen,
<PAGE>
Joseph F. Downes, Jason M. Fish, Andrew B. Fremder, William F. Mellin,
Stephen L. Millham, Meridee A. Moore and Thomas F. Steyer, as a managing
member of FCMLLC (collectively the "Managing Members") may be deemed to be
the beneficial owner of all of the shares owned by such discretionary
accounts. FCMLLC and each Managing Member disclaims any beneficial
ownership of such shares.
Farallon Partners, LLC ("FPLLC") (the general partner of FCP, FCIP, FCIP II
and Tinicum), and each of Fleur A. Fairman, Mr. Boilini, Mr. Cohen, Mr.
Downes, Mr. Fish, Mr. Fremder, Mr. Mellin, Mr. Millham, Ms. Moore and Mr.
Steyer, each as managing member of FPLLC (collectively, the "Managing
Members"), may be deemed to be the beneficial owner of all of the shares
owned by FCP, FCIP, FCIP II and Tinicum. FPLLC and each Managing Member
disclaims any beneficial ownership of such shares.
(2) John M. Angelo and Michael L. Gordon, the general partners and controlling
persons of AG Partners, L.P., which is the general partner of Angelo,
Gordon & Co., L.P., may be deemed to have beneficial ownership under
Section 13(d) of the Exchange Act of the securities beneficially owned by
Angelo, Gordon & Co., L.P. and its affiliates. Angelo, Gordon & Co., L.P.,
a registered investment advisor, serves as general partner of various
limited partnerships and as investment advisor of third party accounts with
power to vote and direct the disposition of Class A Shares owned by such
limited partnerships and third party accounts.
(3) Intermarket Corp. serves as General Partner for certain limited
partnerships and as investment advisor to certain corporations and
foundations. As a result of such relationships, Intermarket Corp. may be
deemed to have the power to vote and the power to dispose of Class A shares
held by such partnerships, corporations and foundations.
(4) Marvin H. Davidson, Thomas L. Kempner Jr., Stephen M. Dowicz, Scott E.
Davidson and Michael J. Leffell, the general partners, members and
stockholders of certain entities that are general partners or investment
advisors of Davidson Kempner Endowment Partners, L.P., Davidson Kempner
Partners, L.P., Davidson Kempner Institutional Partners, L.P., M. H.
Davidson and Co., Davidson Kempner International Ltd. (collectively, the
"Investment Funds"), may be deemed to be the beneficial owners under
Section 13(d) of the Exchange Act of the securities beneficially owned by
the Investment Funds and their affiliates.
In addition, Mr. Kempner owns 800 shares and may be deemed to beneficially
own certain securities held by certain foundations and trusts. Mr. Kempner
disclaims beneficial ownership of such shares.
(5) Excludes 1,200,000 Class B Shares owned by IR Partners. Such Class B Shares
are convertible in certain circumstances into 1,200,000 Class A Shares;
however, such shares are not convertible at present. IR Partners is a
general partnership whose general partners are Steinhardt Management,
certain of its affiliates and accounts managed by it and Roundhill
Associates. Roundhill Associates is a limited partnership whose general
partner is Charles E. Davidson, the principal of Presidio Management, the
Chairman of the Board of Presidio and a Member of Wexford. Joseph M.
Jacobs, the Chief Executive Officer and President of Presidio and a Member
and the President of Wexford, and Robert Holtz, a Vice President of
<PAGE>
Presidio and a Member of Wexford, have limited partner's interest in
Roundhill Associates. Pursuant to Rule 13d-3 under the Exchange Act, each
of Michael H. Steinhardt, the controlling person of Steinhardt Management
and its affiliates and Charles E. Davidson may be deemed to be beneficial
owners of such 1,200,000 shares.
(6) Shares held by each Class A Director of Presidio were issued pursuant to a
Memorandum of Understanding Regarding Compensation of Class A Directors of
Presidio. See "Executive Compensation -- Compensation of Directors."
</TABLE>
The address of Thomas F. Steyer and the other individuals mentioned in footnote
1 above (other than Fleur A. Fairman) is c/o Farallon Capital Partners, L.P.,
One Maritime Plaza, San Francisco, California 94111 and the address of Fleur A.
Fairman is c/o Farallon Capital Management, Inc., 800 Third Avenue, 40th Floor,
New York, New York 10022. The address of Angelo, Gordon & Co., L.P. and its
affiliates is 245 Park Avenue, 26th Floor, New York, New York 10167. The address
for Intermarket Corp. is 667 Madison Avenue, New York, New York 10021. The
address for M. H. Davidson and Co. is 885 Third Avenue, New York, New York
10022.
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Presidio Management Agreement
Pursuant to the Presidio Management Agreement, Presidio Management was
engaged to serve as manager of the Company. See "Business -- Material Agreements
and Instruments." Charles E. Davidson, a director of Presidio, is the principal
and controlling Member of Presidio Management. Mr. Davidson is the controlling
person of one of the general partners IR Partners, the owner of 1.2 million
Class B Shares. Mr. Davidson and his affiliates also provide management and
other services to third parties that are not related to the Company. Presidio
Management has directed that 50% of its annual management fee be paid to Joseph
M. Jacobs, the Chief Executive Officer and President of Presidio and beginning
January 1, 1996, 50% of its annual management fee be paid to Wexford. During
1996 Presidio Management and Mr. Jacobs each received approximately $600,000
under the terms of this agreement.
Administrative Services Agreement
Pursuant to the Administrative Services Agreement, Wexford is engaged
to provide certain administrative and management services to the Company. See
"Business -- Material Agreements and Instruments." Under the Administrative
Services Agreement, Presidio reimburses Wexford for Wexford's compensation and
employee benefit costs allocable to the management of the Company. See
"Executive Compensation." Joseph M. Jacobs, the Chief Executive Officer and
President of Presidio, is the President and a Member of Wexford. Mr. Jacobs is
also a limited partner of Roundhill Associates, which serves as a general
partner of IR Partners, the owner of 1.2 million Class B Shares. Robert Holtz, a
Vice President and Secretary of Presidio, is a Senior Vice President and a
Member of Wexford. Jay L. Maymudes, the Chief Financial Officer, Vice President
and Treasurer of Presidio, is the Chief Financial Officer and a Senior Vice
President of Wexford. Charles E. Davidson, a director and the Chairman of the
Board of Directors of Presidio, is a Member and the Chairman of Wexford. Wexford
also provides management and other services to third parties that are not
related to Wexford.
<PAGE>
Steinhardt Management Agreement and Steinhardt Expense Reimbursement
Pursuant to the Steinhardt Management Agreement, Steinhardt Management
was engaged to render certain consulting services to Presidio. See "Business --
Material Agreements and Instruments". Steinhardt Management and certain of its
affiliates are partners of IR Partners which owns 1.2 million Class B Shares.
Steinhardt Management and its affiliates also provide management and other
services to third parties that are not related to the Company.
Pursuant to the Plan, Steinhardt Management was entitled to
reimbursement of its out-of-pocket expenses in connection with the Plan and
related matters in an amount not to exceed $7.5 million. Steinhardt Management
was paid such amount on the Consummation Date. Steinhardt Management, with the
support of the various Integrated Creditors' Committees, sought reimbursement
from Presidio for additional expenses incurred by Steinhardt Management in
connection with the Plan of approximately $1.96 million. The Class A Directors
of Presidio unanimously approved the payment of such amount on January 18, 1995.
Subsequently, Steinhardt Management sought an additional reimbursement of
approximately $161,000, which was unanimously approved by the Class A Directors
of Presidio on March 28, 1995 and paid on April 27, 1995.
Greenwich, Connecticut Office Space
Certain domestic subsidiaries of Presidio currently lease offices at
411 West Putnam Avenue, Greenwich, Connecticut, under a lease expiring in July
1998. The owner of the premises located in Greenwich, Connecticut is a
partnership in which Charles E. Davidson, Presidio's Chairman of the Board, and
Joseph M. Jacobs, Presidio's Chief Executive Officer and President, have an
ownership interest of approximately 67%.
PART IV
Item 13. FINANCIAL STATEMENTS, EXHIBITS AND REPORTS ON FORM 8-K
(a) Financial Statements filed as part of this report, set forth in
Item 8 of this annual report on Form 10-K:
Financial Statements - Presidio Capital Corp. and Subsidiaries
Independent Auditors' Report
Consolidated Statements of Net Assets in Liquidation at December
31, 1996 and 1995
Consolidated Statements of Changes in Net Assets in Liquidation
for the Years Ended December 31, 1996 and 1995 and for the Period
November 3, 1994 (Consummation Date) through December 31, 1994
Notes to Consolidated Financial Statements
<PAGE>
<TABLE>
<CAPTION>
Description
-----------
Exhibit
- -------
<S> <C> <C>
2.1 Disclosure Statement for Sixth Amended Plan of Reorganization submitted by the *
Steinhardt Group and the Official Committee of Subordinated Bondholders, dated May 5,
1994 (Volumes I and II only).
2.2 Sixth Amended Plan of Reorganization Submitted by the Steinhardt Group and the *
Official Committee of Subordinated Bondholders, dated May 5, 1994.
2.3 Confirmation Order, dated August 8, 1994. *
3.1 Memorandum of Association of the Registrant and Amendment dated October 31, 1994. *
3.2 Articles of Association of the Registrant. *
10.1 Asset Purchase Agreement between Steinhardt Management Company, Inc. and Integrated *
Resources, Inc., dated as of May 5, 1994.
10.2 First Amendment to Asset Purchase Agreement, dated as of August 8, 1994. *
10.3 Management Agreement between the Registrant and Presidio Management Company, LLC, *
dated as of November 3, 1994.
10.4 Management Agreement between the Registrant and Steinhardt Management Company, Inc., *
dated as of November 3, 1994.
10.5 Administrative Services Agreement between the Registrant and Concurrency Management *
Corp, dated as of November 3, 1994.
10.6 Form of Class A Director Indemnification Agreement, dated November 3, 1994. *
10.7 Class A Director Indemnification Trust Agreement, dated as of November 3, 1994. *
10.8 Form of Indemnification Agreement with Qualified Indemnitees, dated as of August 29, *
1994.
10.9 Indemnification Security Agreement, dated as of November 3, 1994. *
10.10 Note Payable to Presidio TSA Corp., dated November 3, 1994. *
10.11 Security Agreement between the Registrant and Presidio TSA Corp., dated as of November *
3, 1994.
10.12 Agreement to Modify Contract Right Agreements, dated as of September 29, 1994. *
10.13 Discount Purchase Option Agreement, dated as of November 2, 1994. *
10.14 Second Amended and Restated Settlement Agreement, dated as of September 29, 1994 (as *
amended on October 5, 1994) by and among Steinhardt Management, Presidio and Beigel
Schy Lasky Rifkind Goldberg and Fertik (the B&S Settlement Agreement).
10.15 Asset Purchase Agreement by and between Newport News Cablevision, Ltd. and Cox Cable *
Hampton Roads, Inc., dated as of November 8, 1994.
<PAGE>
10.16 Asset Purchase Agreement by and between American Cable TV Investors 4, Ltd. and Time *
Warner Cable Ventures, a division of Time Warner Entertainment, L.P., dated as of
February 8, 1995.
10.17 Office Lease, dated as of March 31, 1995, between Concurrency, Inc., as Landlord, and *
Presidio FF&E Corp., as Tenant, for the premises located at 411 West Putnam Avenue,
Greenwich, Connecticut 06830
10.18 Management and Administrative Services Agreement, dated March 31, 1995, among *
Fieldstone Private Capital Group, L.P., Presidio Capital Corp., Presidio ALI Corp.,
ALI Capital Corp., ALI Equipment Management Corp., Integrated Resources Equipment
Group, Inc., Presidio Equipment Leasing Corp., IAC Leasing Corp. III, Walker Leasing
Corp., Investors Credit Corp., IR Birch Corp., Integrated Equipment Leasing Corp.,
Integrated Aircraft Corp., Integrated Equipment Holding Corp., Regional Airlines
Leasing, Presidio Aircraft Fund Management Corp., Integrated Lease Plans, Inc.,
Presidio Rail Corp., Integrated Rail Corp., Presidio High Equity Corp., Integrated
Container Corp., Integrated Resources Aircraft Corp., Resources Satellite Corp.,
Integrated Aircraft Fund Management Corp.
10.19 Assignment of Administrative Services Agreement between Concurrency Management Corp. *
and Wexford Management LLC, effective January 1, 1996.
10.20 Asset Sale Agreement dated as of September 7, 1995, between Majco Building Specialties *
L.P. ("Seller") and CFM International.
10.21 Amendment No. 1 to Asset Sale Agreement, dated as of September 7, 1995, by and between *
Majco Building Specialties, L.P. ("Seller") and CFM International Inc. ("Purchaser").
Subsidiaries of the Registrant
10.22 Stock Purchase Agreement, dated December 21, 1995 between the Rotor Tool L.P. *
("Seller") and INTOOL, Inc. ("Buyer").
10.23 Resignation as Co-General Partner of ACT V dated January 17, 1996. *
10.24 Amended and Restated Grantor Trust Agreement, dated January 1, 1996. *
10.25 Secured Promissory Note, dated March 28, 1996, between Roundhill Associates L.P. and
Roundhill Associates II L.P. and Presidio Capital Corp. *
10.26 Rights Offering Agreement, dated March 19, 1996, between T-Two Holding, LLC, Presidio
Capital Corp., Roundhill Associates L.P. and Roundhill Associates L.P. II.
10.27 Promissory Note, dated November 21, 1996, between T-Two
Holding, LLC and Presidio Capital Corp.
21 Subsidiaries of the Registrant
99 No Action Letter Response of the Office of Chief Counsel, Division of Investment
Management, dated August 5, 1994, and No Action Request Letter of Schulte Roth &
Zabel, LLP dated August 4, 1994.
</TABLE>
<PAGE>
(c) Reports on Form 8-K
A Report on Form 8-K was filed on November 26, 1996, reporting under
Item 5, the sale in a private securitization transaction of Presidio's rights to
a deferred payment stream that was originally generated by Integrated's tax
shelter annuity business.
A Report on Form 8-K was filed on January 30, 1997, reporting under
Item 5, the denial of final approval of the proposed settlement of the HEP
Action.
*Incorporated herein by reference to Presidio's Form 10 Registration
Statement.
*Incorporated herein by reference to Presidio's Form 10-K for the year
ended December 31, 1995.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
PRESIDIO CAPITAL CORP.
By: /s/ Jay L. Maymudes
Jay L. Maymudes
Vice President,
Treasurer and Chief Financial Officer
Date: April 15, 1997
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 in the capacities and on the 15th day of April, 1997.
Signature Title
--------- -----
By: /s/ Charles E. Davidson Chairman of the Board,
- --------------------------- and Class B Director
Charles E. Davidson
By: /s/ Joseph M. Jacobs Chief Executive Officer, President,
- ------------------------ and Class B Director
Joseph M. Jacobs
By: /s/ Martin L. Edelman Class A Director
- -------------------------
Martin L. Edelman
By: /s/ Dean J. Takahashi Class A Director
- -------------------------
Dean J. Takahashi
By: /s/ Paul T. Walker Class A Director
- ----------------------
Paul T. Walker
By: /s/ Jay L. Maymudes Chief Financial Officer, Vice President
- ----------------------- and Secretary (Principal Financial and
Jay L. Maymudes Accounting Officer)
RIGHTS OFFERING AGREEMENT
RIGHTS OFFERING AGREEMENT, dated as of March 19, 1996 (the
"Agreement") among T-Two Holding, L.L.C., a Delaware limited liability company
(the "Company"), Presidio Capital Corp. ("PCC") and Roundhill Associates Limited
Partnership, a Connecticut limited partnership, and Roundhill Associates Limited
Partnership II, a Connecticut limited partnership (the latter two collectively,
the "Initial Members").
WHEREAS, the Initial Members are borrowing in the aggregate,
up to $31,500,000 from PCC (the "Loan") and PCC is lending such funds to the
Initial Members with all of the principal and interest payments due on the
earlier of the date of the completion of the Rights Offering (as defined below)
and March 19, 1999;
WHEREAS, the Initial Members will contribute the entire amount
of the Loan to the Company in exchange for 100% of the Company's membership
interests;
WHEREAS, the Company will contribute a substantial portion of
such amount to T-Two Partners, L.P. (the "T-2 Holder"), a Delaware limited
partnership, in exchange for all of the T-2 Holder's limited partnership
interests, constituting 99% of the T-2 Holder's partnership interests and the
Company will retain the balance of such amount for working capital purposes;
WHEREAS, the T-2 Holder will use such funds as are contributed
to it by the Company to purchase the Grantor Trust T-Two Certificates (as
defined in the T-Two Certificate Purchase Agreement (the "T-2 Purchase
Agreement") dated as of March 28, 1996 between T-2 Holder and the Contract Right
Grantor Trust (the "Grantor Trust")) pursuant to the T-2 Purchase Agreement;
WHEREAS, the Grantor Trust T-Two Certificates will represent
an interest primarily in certain contract receivables that are currently owned
by Presidio CR Holdings, L.P., which is wholly owned by wholly owned
subsidiaries of PCC;
NOW, THEREFORE, in consideration of and premised upon the
various agreements and undertakings of each of the parties hereto contained in
this Agreement, and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. RIGHTS OFFERING
(a) The Initial Members hereby agree to cause the Company to
conduct the Rights Offering, as soon as practicable after completion of the sale
of the Grantor Trust T-Two Certificates to the T-2 Holder. Pursuant to the
Rights Offering, transferable rights to purchase the equivalent of 100% of the
membership interests in the Company (the "Offered Interests") will be offered to
the stockholders of PCC at such exercise price and on such terms as are approved
by a majority of the Class A directors of PCC (the "Rights Offering").
(b) If the Company is prevented from initiating the Rights
Offering within one year of the sale of the Grantor Trust T-Two Certificates to
the T-2 Holder, the Initial Members agree to develop an alternative transaction
comparable to the Rights Offering, subject to the approval of a majority of the
Class A directors of PCC.
<PAGE>
(c) The Company hereby (i) agrees to conduct the Rights
Offering or the alternative thereto developed pursuant to Section 1(c) and, (ii)
agrees not to make any distribution to its members until the completion of the
Rights Offering or the alternative thereto developed pursuant to Section 1(c).
(d) The Initial Members agree to remain the sole members of
the Company and not to dispose of any of their membership interests in the
Company and the Company agrees to cause the Initial Members to remain as the
sole members of the Company, in each case, until the completion of the Rights
Offering or the alternative thereto developed pursuant to Section 1(c), unless
PCC consents to the contrary.
(e) The Initial Members agree that, prior to the completion of
the Rights Offering, if necessary or appropriate to the successful completion of
the Rights Offering, to cause the amendment of the Operating Agreement of the
Company to admit a corporation (the "Corporation") which shall be designated as
the managing member of the Company, which Corporation shall be issued a
membership interest by the Company in exchange for a capital contribution equal
to the percentage of the Corporation's Common Stock acquired in the Rights
Offering, times the exercise price under the Rights Offering attributable to
such part of an Offered Interest which consists of a 1% membership interest in
the Company. Notwithstanding the foregoing, the Corporation's maximum capital
contribution to the Company shall be $500,000 (or the applicable fraction
thereof, if less than 100% of the Common Stock is acquired in the Rights
Offering), and the Corporation's membership interest shall represent a
percentage interest in the Company equivalent to the membership interest
acquired as part of an Offered Interest in the Rights Offering for an exercise
price of which $500,000 is attributable to such membership interest in the
Company; provided, however, that in no event shall the Corporation's membership
interest constitute less than 0.2% of the membership interests in the Company.
As used herein, the term "Capital Contribution" shall mean the total capital
contributions required to be made by the Corporation in the Company under this
Section 1(e) assuming 100% of the rights issued in the Rights Offering are
exercised. All of the shares of common stock of the Corporation will be offered
in the Rights Offering pro rata with membership interests in the Company as
units, in which event, the term "Offered Interests" used herein shall be deemed
to refer to such units. The Board of Directors of the Company shall be
disbanded, and the initial Board of Directors of the Corporation shall be
comprised of the same individuals as the Board of Directors of the Company at
that time. The constituent documents of the Corporation shall contain comparable
terms for its directors and Board of Directors as are contained in the Limited
Liability Company Agreement, dated as of March 19, 1996, by and between the
Initial Members, including without limitation, term, classification of
directors, removal and qualification. Notwithstanding the foregoing, the Initial
Members shall have the option to develop an alternative to designating a
managing member that would have the effect of preserving the partnership status
of the Company for tax purposes.
(f) PCC agrees to advance to the Company such funds as are
necessary for the Company to pay the out-of-pocket costs and expenses associated
with conducting the Rights Offering and the other transactions contemplated
hereby as such costs and expenses are incurred, which advances shall be repaid
on the expiration of the Rights Offering or alternative thereto developed
pursuant to Section 1(c), but in no event later than March 19, 1999, together
with interest thereon at the minimum applicable federal rate in effect from time
to time.
<PAGE>
2. REPURCHASE OF INTERESTS IN THE COMPANY
(a) The Company hereby agrees to repurchase and the Initial
Members agree to sell to the Company on a pro rata basis the Initial Interests
immediately upon a successful completion of the Rights Offering in the same
percentage that the Offered Interests are acquired in the Rights Offering. To
the extent that any Offered Interests consisting of units representing, in part,
common stock of the Corporation are not acquired in the Rights Offering, the
Initial Members agree to acquire and the Corporation shall issue and sell to the
Initial Members or their designees all such unacquired common stock in exchange
for the pro rata portion of the Capital Contribution represented by such
unacquired common stock; provided that the Initial Members may use their
membership interests in the Company in lieu of cash.
(b) The Initial Members and the Company agree that the
repurchase price for these Interests shall be calculated on a proportionate
basis so that the aggregate repurchase price for 100% of such Interests equals
the sum of (i) $50,000, (ii) the amount due on the date of completion of the
Rights Offering by the Initial Members under the Loan plus all amounts
previously paid thereunder and, (iii) the product of (A) the marginal effective
combined federal, state and local income tax rates applicable to the individual
owners of the Initial Members, and (B) an amount equal to the total net income
recognized by the Company during the period from the date of acquisition of the
interests in the Company by the Initial Members up to, and including, the date
of such repurchase, which sum shall be reduced by each of (X) the product of (1)
the marginal federal income tax rate applicable to the individual owners of the
Initial Members, and (2) the total interest expense on the Loan, and (Y) the
product of (1) the marginal effective state and local income tax rates
applicable to the individual owners of the Initial Members, and (2) the total
interest expense on the Loan which is deductible by such individuals for state
and local income tax purposes; provided that, to the extent such aggregate
repurchase price, excluding the $50,000 component, is greater than the aggregate
tax basis of the Initial Members in all of their interests in the Company, as
adjusted, then the aggregate repurchase price shall be increased by the amount
equal to the product of (i) such excess amount and (ii) the difference between
(a) the fraction, the numerator of which is 1 and the denominator of which is
the difference between 100% and the marginal effective combined federal, state
and local income tax rates applicable to the individual owners of the Initial
Members and (b) 1; and provided further that, to the extent such aggregate
repurchase price, excluding the $50,000 component, is less than the aggregate
tax basis of the Initial Members in all of their interests in the Company, as
adjusted (solely with respect to Company-level items), then such repurchase
price shall be reduced by an amount equal to the product of such difference and
a fraction of which the numerator is 12% and the denominator is 88%.
3. MISCELLANEOUS
(a) Entire Agreement. This Agreement constitutes the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral, among
the parties hereto with respect to the subject matter hereof.
(b) Amendment. This Agreement may not be amended, altered or
modified except by a written instrument executed by the parties hereto.
<PAGE>
(c) Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of this Agreement is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties hereto shall negotiate in
good faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in a mutually acceptable manner in order that the
terms of this Agreement remain as originally contemplated to the fullest extent
possible.
(d) Governing Law. This Agreement shall be construed and
interpreted according to the laws of the State of New York which are applicable
to contracts made and to be performed wholly within such state.
(e) Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original but all of which
shall constitute one and the same instrument.
(f) Benefits of Agreement. This Agreement does not confer on
the shareholders of PCC the right to enforce the obligations of the Company or
the Initial Members hereunder.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and
delivered this Agreement on the date first above written.
PRESIDIO CAPITAL CORP.
By: Wexford Management LLC
as agent
By: /s/ Mark Plaumann
-----------------
Name: Mark Plaumann
Title: Senior Vice President
T-TWO HOLDING, L.L.C.
By: Roundhill Associates Limited
Partnership
By: /s/ Mark Plaumann
-----------------
Name: Mark Plaumann
Title: Vice President
ROUNDHILL ASSOCIATES LIMITED
PARTNERSHIP
By: /s/ Mark Plaumann
------------------
Name: Mark Plaumann
Title: Vice President
ROUNDHILL ASSOCIATES LIMITED
PARTNERSHIP II
By: /s/ Mark Plaumann
Name: Mark Plaumann
Title: Vice President
$1,000,000.00 Greenwich, Connecticut
November 21, 1996
DEMAND PROMISSORY NOTE
FOR VALUE RECEIVED, the undersigned, T-TWO HOLDING LLC, a Delaware limited
liability company with an address at 411 West Putnam Avenue, Greenwich, CT 06830
(the "Borrower") hereby promises to pay on March 31, 2001 to the order of
PRESIDIO CAPITAL CORP. ("Lender"), a British Virgin Islands company, (i) the
principal sum of one million dollars ($1,000,000.00), together with (ii)
interest on any and all principal amounts remaining unpaid hereunder from time
to time outstanding, from the date hereof until such payment is made at a rate
of fifteen percent per annum, compounded annually.
Both principal and interest are payable in lawful money of the United States and
in immediately available funds at the office of Wexford Management LLC, 411 West
Putnam Avenue, Suite 125, Greenwich, Connecticut 06830 or at such other place as
Lender shall designate in writing to the Borrower. Borrower agrees that the
outstanding principal and all interest then accrued shall be prepaid on the date
and to the extent any proceeds are received from a rights offering in Borrower.
The Borrower hereby waives presentment, protest, demand and notice of dishonor
of this Note.
The Borrower represents and warrants as follows: (a) the Borrower is a limited
liability company duly organized, validly existing and in good standing under
the laws of the State of Delaware (b) the execution, delivery and performance by
the Borrower of this Note are within the Borrower's powers, have been duly
authorized by all necessary action, and do not contravene the Borrowers by-laws
or other organizational documents or any law or contractual restriction binding
on or affecting the Borrower; (c) the Note constitutes the legal, valid and
binding obligation of the Borrower, enforceable against the Borrower in
accordance with its terms.
No amendment of this Note shall be effective without the written consent of
Lender.
This Note shall be governed by, and construed in accordance with, the law of the
State of New York without giving effect to the conflicts of law principles
thereof, and shall be binding upon and shall inure to the benefit of the parties
hereto and their respective heirs, executors, personal or legal representatives
and permitted assigns. The Borrower hereby submits to nonexclusive personal
jurisdiction of any New York State or Federal court sitting in New York County,
New York or the Southern District of the State of New York, and waives any
objection which it may now or hereafter have the laying of venue in such
jurisdiction in any action brought under this Note.
In the event the payment due hereunder shall not be made in full when due, such
payment, inclusive of interest accrued to such date, shall continue to bear
interest at the rate hereinabove provided from the date which such payment was
due until paid. Upon default in payment of interest or principal hereunder, the
Borrower agrees to reimburse Lender for all costs of collection, including
reasonable attorneys fees incurred in collection of such principal and/or
interest.
<PAGE>
The Borrower's obligations hereunder are unconditional and all payments due
hereunder shall be made without offset or deduction of any kind.
Any notice or demand required or permitted to be made or given hereunder shall
be deemed sufficiently made and given by personal service, or by the mailing of
said notice via registered or certified mail, return receipt requested,
addressed to the addresses set forth herein.
SIGNED AND DELIVERED as of the day and year first hereinabove set forth.
T-TWO HOLDING LLC
By: __________________
Name:
Title:
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS OF THE DECEMBER 31, 1996 FORM 10-K OF PRESIDIO CAPITAL CORP. AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 78,639
<SECURITIES> 29,993
<RECEIVABLES> 102,082
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 212,528
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 212,258
<CURRENT-LIABILITIES> 35,404
<BONDS> 900
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 212,528
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
