Item 1.Business
General Development of Business
Registrant (also referred to as the "Partnership") is a limited partnership which was formed under the Delaware Revised Uniform Limited Partnership Act on October 15, 1987. The general partner of the Partnership is Wilder Richman Historic Corporation, a Delaware corporation (the "General Partner" or "WRHC").
Registrant was organized to acquire all of the limited partnership interests in Dixon Mill Associates I (Phase One), Limited Partnership, Dixon Mill Associates II (Phase Two), Limited Partnership, and Dixon Mill Associates III (Phase Three), Limited Partnership, each of which is a New Jersey limited partnership (individually "Dixon Mill I," "Dixon Mill II" and "Dixon Mill III," respectively, and collectively the "Operating Partnerships"). Each Operating Partnership owns one phase ("Phase") of an aggregate 433-unit residential apartment complex (the "Complex") located in Jersey City, New Jersey, that consists of buildings designated as certified historic structures by the U.S. Department of the Interior. The Operating Partnerships have constructed, substantially rehabilitated and are operating the Complex. The rehabilitation of the Complex qualified for a rehabilitation tax credit in 1988, 1989 and 1990. The general partner of the Operating Partnerships is Dixon Venture Corp. (the "Operating General Partner"), which is not an affiliate of the Partnership or WRHC.
Pursuant to the Partnership's prospectus dated May 13, 1988, (the "Prospectus"), the Partnership offered $19,280,000 of units of limited partnership interest in the Partnership (the "Units") at an offering price of $24,100 per Unit. The Units were registered under the Securities Act of 1933 pursuant to a Registration Statement on Form S-11 (Registration No. 33-19646). The Prospectus is incorporated herein by reference.
The closing of the offering of Units (the "Offering") occurred on July 15, 1988. At such closing, 800 Units were sold, representing $19,280,000 in gross proceeds. After payment of $674,800 of organization and offering expenses, $674,800 in an origination fee and $1,349,600 of selling commissions, the net proceeds available for investment were $16,580,800. Of such net proceeds, $16,388,000 was allocated to the investment in the Operating Partnerships, which included investments in guaranteed investments contracts. The remainder of $192,800 was designated as working capital to be used for operating expenses of the Partnership.
Financial Information About Industry Segments
Registrant is engaged solely in the business of owning a limited partnership interest in each of the Operating Partnerships. A presentation of information regarding industry segments is not applicable and would not be material to an understanding of the Partnership's business taken as a whole. See Item 8 below for a summary of Registrant's operations.
Working Capital Reserves
As of February 28, 1997, Registrant had working capital reserves of approximately $630,000 inclusive of funds previously restricted for the purpose of providing operating deficit loans to the Operating Partnerships (in order to avoid default under their mortgages pursuant to their modified mortgage documents) which were substantially invested in interest-bearing deposits. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Competition
Information regarding competition, general risks, tax risks and partnership risks is set forth under the heading "RISK FACTORS" at pp. 37 - 57 of the Prospectus.
Compliance with Environmental Protection Provisions
In connection with the environmental cleanup responsibilities pertaining to the Complex, the Operating General Partner submitted a declaration to the State of New Jersey Department of Environmental Protection ("NJDEP") stating that there remains no
hazardous substances and wastes on the site. In August, 1989, the Operating General Partner received notification from NJDEP that the environmental testing was complete and the Complex was in compliance with NJDEP requirements. All costs incurred in connection with the review conducted by NJDEP were borne by The Dixon Venture, an affiliate of the Operating General Partner. Information regarding such environmental matters is set forth under the heading "DESCRIPTION OF THE COMPLEX Environmental Matters" at pp. 87 - 92 of the Prospectus, which is incorporated herein by reference.
Employees of Registrant
Registrant employs no personnel and incurs no payroll costs. An affiliate of the General Partner employs individuals who perform accounting, secretarial, transfer and other services on behalf of Registrant as are necessary in the ordinary course of business. Such individuals also perform similar services for other affiliates of the General Partner.
Tax Reform Act of 1986, Revenue Act of 1987, Technical and Miscellaneous Revenue Act of 1988, Omnibus Budget Reconciliation Act of 1989, Omnibus Budget Reconciliation Act of 1990, Tax Extension Act of 1991, Omnibus Budget Reconciliation Act of 1993 and Uruguay Round Agreements Act (collectively the "Tax Acts")
Registrant is organized as a limited partnership and is a pass through tax entity which does not, itself, pay Federal income tax. However, the partners of Registrant who are subject to Federal income tax may be affected by the Tax Acts. Registrant will consider the effect of certain aspects of the Tax Acts on the partners when making decisions regarding its investment. Registrant does not anticipate that the Tax Acts will currently have a material adverse impact on Registrant's business operations, capital resources and plans or liquidity.
Item 2.
Item 2.Properties
The Complex consists of approximately 34 historic mill buildings built between 1847 and 1932, all of which are certified historic structures that have been converted and substantially rehabilitated into a 433 unit luxury apartment complex that has received financing exempt from Federal income taxation under Internal Revenue Code Section 103(b)(4)(A). As a consequence of this tax exempt financing, the Operating Partnerships are required to rent at least 15% of the dwelling units ("D.U.'s") in the Complex to individuals or families of low or moderate income as determined under such Code Section, currently based on their income not exceeding 80% of the median income for the area as determined by the United States Department of Housing and Urban Development ("HUD"). These income limits are subject to increases pursuant to HUD guidelines. In the Complex, 68 studio and efficiency D.U.'s and 17 one-bedroom D.U.'s are set aside for rental to low or moderate income persons. There are no rent ceilings on those D.U.'s set aside for low or moderate income persons. Because such tax exempt financing consists of bonds sold in 1985, the 80% of median income limit is not required to be adjusted based on family size as would be required under the Tax Reform Act of 1986.
The Complex is located on a 4-acre site in Jersey City, New Jersey. In addition, one new five-story building, approximately 20 feet by 50 feet, was built on the site. The Complex is located in the Dixon Crucible Redevelopment Area, an area so designated pursuant to a redevelopment plan adopted in September, 1983 by ordinance of the City of Jersey City. The actual development entails three Phases with each Phase owned by a separate New Jersey limited partnership, respectively Dixon Mill I, Dixon Mill II and Dixon Mill III. Phase I consists of seven industrial buildings which have been rehabilitated to provide 134 D.U.'s, 55 underground and 77 surface parking spaces and approximately 1,550 square feet of commercial space. Phase II consists of 11 industrial buildings which have been rehabilitated to provide 191 D.U.'s and 62 underground and 124 surface parking spaces. Phase III consists of four industrial buildings which have been rehabilitated to provide 108 D.U.'s, 35 underground and 73 surface parking spaces and approximately 2,230 square feet of commercial space.
The Complex features gardens, elevated walkways and brick paved walkways. The Complex also has its own electronic security system and a free shuttle service to the Grove Street PATH station is being provided. In addition, the residents of the Complex have access to a private fitness facility. The Complex's commercial space is designated for retail stores and/or professional offices.
The rental rates reflect significant ranges because the apartments vary as to size and floor plans (i.e., square footage, duplex, triplex, penthouse) and due to the low-moderate tenant income restrictions for 15% to 20% of the D.U.'s resulting from the tax-exempt financing described above.
Item 3.
Item 3.Legal Proceedings
As of February 28, 1997, there were no material pending legal proceedings to which Registrant or any of its affiliates was a party or to which any of their property was subject except for the following:
A complaint, through the Equal Employment Opportunity Commission, has been filed by a former employee of the Operating Partnerships claiming sexual harassment. The Operating General Partner cannot measure the potential liability, if any, at this time.
The Operating Partnerships have been named as a third-party defendant in a lawsuit between The Dixon Venture, the party who sold the Complex to the Operating Partnerships, and the former owner, Joseph Dixon Crucible Company, for indemnification for cost clean-up under the Comprehensive Environmental Response Compensation and Liability Act of 1980. The Operating General Partner believes that the Operating Partnerships have no liability or no liability that is not adequately covered by an indemnification from The Dixon Venture.
Item 4.
Item 4.Submission of Matters to a Vote of Security Holders
There were no matters submitted to a vote of the limited partners of Registrant during the fourth quarter of the fiscal year covered by this report.
PART II
Item 5.
Item 5.Market for Registrant's Common Equity and Related Unit Matters
a) Market
There is no developed public market for the purchase and sale of Units and Registrant does not anticipate that such a market will develop.
b) Holders
As of February 28, 1997, there were approximately 766 record holders of Units holding an aggregate of 800 Units in the Partnership.
c) Distributions
The Agreement of Limited Partnership of the Registrant provides that cash available for distribution, if any, be distributed annually to the partners in specified proportions. As a result of the mortgage modification on June 11, 1992, certain cash flow restrictions have been placed on the Operating Partnerships. See Item 7 - "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Notes 3 and 5 to the Dixon Mills Financial Statements included herein.
Item 6.
Item 6. Selected Financial Data
* This amount is net of an extraordinary gain of $366,499 resulting from the forgiveness of debt of the Operating Partnerships reflected in Registrant's financial statements.
Item 7.
Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources
The operating results of the Complex for 1996 were favorable compared to 1995. On June 11, 1992, the mortgages of the Operating Partnerships were modified pursuant to agreements among Federal National Mortgage Association ("FNMA" or the "Lender"), Chase Manhattan Bank, N.A. ("Chase") and the Operating General Partner. The Partnership obtained the consent of the limited partners to utilize the proceeds from the final distribution from the guaranteed investment contracts to assist in modifying the mortgages. As a result of the mortgage modification, the interest rate under the mortgages decreased from approximately 9.6% to approximately 6.74%, thereby improving the financial viability of the Complex. Recently, there has been new construction of luxury multi-family housing in the vicinity of the Complex. Such housing includes asking rents that are comparable and substantially higher than rents currently charged by the Complex. It has not been determined whether such new housing will have a positive or negative impact on the Complex or its cash flow in the future.
In connection with the mortgage modification, Chase and the Partnership each advanced $277,500 to the Operating Partnerships to pay for certain costs of the mortgage modification. In addition, in the event of future operating deficits, Chase and the Partnership each provided a letter of credit and cash of approximately $622,500 (the "Operating Deficit Escrows"), for the purpose of providing FNMA the ability to make pro-rata draws for debt service payments and other operating expenses to the extent cash flow of the Operating Partnerships was insufficient to make the required payments under the modified mortgages. The release of the Operating Deficit Escrow was based upon the later of (i) the date on which the Operating Partnerships satisfy the Lender as to the 110% debt service coverage ratio requirements on the mortgages or (ii) January 1, 1996 (to coincide with the expiration of Federal income tax recapture of the rehabilitation credits). During April, 1995, the Operating General Partner submitted to the Lender the operating statement of the Complex for 1994, reflecting that the 1994 operations satisfied the 110% debt service coverage ratio requirement. Such submission was reviewed by the Lender and was approved in June, 1995 and the letters of credit were released by the Lender in January, 1996.
Chase and the Partnership each provided advances of $317,713 as of December 31, 1995, with aggregate interest of approximately $126,000 accrued thereon by the Operating Partnerships. However, the Operating General Partner entered into an agreement with Chase on July 5, 1995 whereby Chase agreed to release the Operating Partnerships from substantially all of the outstanding liabilities owed to Chase in connection with outstanding advances and accrued interest thereon (discussed above) in return for the release of its outstanding letter of credit in January, 1996. Accordingly, the Operating Partnerships recorded a forgiveness of the outstanding debt and accrued interest as of December 31, 1995 in the aggregate of $370,201 and reflected such forgiveness as an extraordinary gain in the statement of operations for the year then ended. As of February 28, 1997, the Partnership has accrued interest receivable of $98,436 in connection with the advances provided.
Because of the outstanding advances, the Operating Partnerships are subject to restrictions concerning cash flow distributions. Cash flow, if any, generated subsequent to 1995 may be retained by the Operating Partnerships or may be distributed at the discretion of management. If distributed, such cash flow distributions must follow the priority of (i) accrued interest owing to the Partnership, (ii) principal owing to the Partnership and (iii) thereafter, pursuant to the terms of the limited partnership agreements of the Operating Partnerships. To the extent there are proceeds from a future sale or refinancing of the Complex, the Partnership will receive 100% of any such proceeds available for distribution until the 7% cumulative preferred distribution has been achieved. Through December 1996, the cumulative preferred distribution is approximately $8,086,000. Although recent rental market conditions have been strong, management has been building up its cash balance (approximately $563,000 as of December 31, 1996) to protect against potential adverse changes in market conditions and unanticipated expenses. Accordingly, the Partnership does not anticipate making significant cash flow distributions in the near future and cannot determine the extent of cash flow distributions over the long term. As of December 31, 1996, the Operating Partnerships' balance in the replacement reserves account, which is controlled by the Lender to be used for certain repairs or capital improvements, was approximately $518,000.
As of December 31, 1996, the Operating Partnerships' liquidity is improved compared to December 31, 1995, with cash and cash equivalents having increased by approximately $482,000 and the replacement reserve having increased by approximately $200,000. Although accounts payable and accrued expenses decreased by approximately $17,000, amounts due to related parties, which balance is $1,660,566 as of December 31, 1996, increased by approximately $179,000 due to the accrual of management fees and investor service fees.
Cash and cash equivalents of the Partnership as of February 28, 1997 includes approximately $582,000 which was released from the Operating Deficit Escrow. Pursuant to the Partnership Agreement, the released Operating Deficit Escrow of the Partnership may be held or utilized for other Partnership purposes in the discretion of the General Partner. Presently, the General Partner intends for the Partnership to hold such funds. During the year ended February 28, 1997, the Partnership's investment in Operating Partnerships decreased by $799,980 as a result of the equity in loss of investment in Operating Partnerships.
The annual investor service fees are payable from the operating results of the Operating Partnerships and from reserves. As of February 28, 1997, due to affiliates includes $125,000 of accrued investor service fees, which includes the Partnership's expense for the last five fiscal periods and $50,000 otherwise payable from the final distribution of the guaranteed investment contracts in January, 1992.
Results of Operations
The Partnership's operating results are dependent upon the operating results of the Operating Partnerships and are significantly impacted by the policies of the Operating Partnerships. Registrant accounts for its investment in Operating Partnerships in accordance with the equity method of accounting. Under the equity method of accounting, the investment is carried at cost and is adjusted for
Registrant's share of the Operating Partnerships' results of operations and by any cash distributions received. Equity in loss of each investment in Operating Partnership allocated to Registrant is recognized to the extent of Registrant's investment balance in each Operating Partnership. Any equity in loss in excess of Registrant's investment balance in an Operating Partnership is allocated to other partners' capital in each such Operating Partnership. As a result, the equity in loss of investment in Operating Partnerships is expected to decrease as Registrant's investment balances in the respective Operating Partnerships become zero.
Cumulative losses and cash distributions in excess of investment in Operating Partnerships may result from a variety of circumstances, including the Operating Partnerships' accounting policies, debt structure and operating deficits, among other things. Accordingly, cumulative losses and cash distributions in excess of the investment are not necessarily indicative of adverse operating results of the Operating Partnerships.
Year Ended February 28, 1997
During the year ended February 28, 1997, the Partnership earned interest of approximately $51,000 including $21,000 of accrued interest on advances provided to the Operating Partnerships discussed above. During the year ended February 28, 1997, interest earnings increased compared to the previous fiscal period due to the average increase of short-term interest rates. The Partnership's operating expenses (which include accrued investor service fees of $15,000) were comparable to the year ended February 29, 1996. The operating expenses of the Partnership are not expected to vary significantly in the near future. Registrant's equity in loss in Operating Partnerships does not include a 99% allocation of the loss reported by the Operating Partnerships due to the nonrecognition of losses in excess of Registrant's investment in Dixon Mills I of approximately $47,000, in accordance with the equity method of accounting.
The Operating Partnerships reported a net loss from operations for the year ended December 31, 1996 in the amount of approximately $855,000, inclusive of depreciation and amortization of approximately $1,363,000. However, the Operating Partnerships generated cash flow after required debt service payments and required replacement reserve deposits of approximately $285,000 during 1996, which considers principal amortization under the mortgages (approximately $223,000) and net deposits to required escrows (approximately $200,000), and excludes accrued fees to affiliates of the Operating General Partner and the General Partner (approximately $179,000) and accrued interest to the Partnership (approximately $21,000). Occupancy remained high throughout 1996, resulting in an improvement in operating results compared to 1995.
The Operating Partnerships did not utilize any replacement reserves during 1996. Although the results of operations have been stable, management continues to examine methods to stabilize healthy occupancy rates while attempting modest increases in rental rates and to closely monitor its operating costs. As of December 31, 1996, the occupancy rate was approximately 99%. Although operations have significantly improved since the mortgage modification in June, 1992, the future operating results of the Complex will be extremely dependent on market conditions (which have been very strong but include newly developed multi-family housing in the area) and therefore may be subject to significant volatility.
Year Ended February 29, 1996
During the year ended February 29, 1996, the Partnership earned interest of approximately $43,000 on restricted funds (discussed above), reserves and advances provided to the Operating Partnerships. During the year ended February 29, 1996, interest earnings slightly increased compared to the previous fiscal period due to the average increase of short-term interest rates and a change in interest rates on the restricted deposits. The Partnership's operating expenses (which include accrued investor service fees of $15,000) were comparable to the year ended February 28, 1995.
The Operating Partnerships reported a net loss from operations for the year ended December 31, 1995 in the amount of approximately $1,123,000, inclusive of depreciation and amortization of approximately $1,363,000 and exclusive of the extraordinary gain recorded in connection with the forgiveness of the note payable to Chase discussed above. However, the Operating Partnerships generated cash flow after required debt service payments and required replacement reserve deposits of approximately $63,000 during 1995, which include principal amortization under the mortgages (approximately $208,000) and net deposits to required escrows (approximately $154,000), and excludes accrued fees to affiliates of the Operating General Partner and the General Partner (approximately $164,000), and accrued interest to Chase and the Partnership (approximately $21,000). The occupancy fluctuated during 1995 while operating expenses increased (primarily from increases in real estate taxes and insurance and planned improvements which were not funded from replacement reserves), resulting in a decline in operating results compared to 1994. The Operating Partnerships did not utilize any Operating Deficit Escrows or replacement reserves during 1995. As of December 31, 1995, the occupancy rate was approximately 98%.
Year Ended February 28, 1995
During the year ended February 28, 1995, the Partnership earned interest of approximately $31,000 on restricted funds (discussed above), reserves and advances provided to the Operating Partnerships. During the year ended February 28, 1995, interest earnings slightly decreased compared to the previous fiscal period due to the average decrease of interest-bearing deposits and lower interest rates. The Partnership's operating expenses (which include accrued investor service fees of $15,000) were comparable to the year ended February 28, 1994.
The Operating Partnerships reported a net loss from operations for the year ended December 31, 1994 in the amount of approximately $883,000, inclusive of depreciation and amortization of approximately $1,369,000. However, the Operating Partnerships generated cash flow after required debt service payments and required replacement reserve deposits of approximately $438,000 during 1994, which includes principal amortization under the mortgages (approximately $140,000) and net deposits to required escrows (approximately $106,000), and excludes accrued fees to affiliates of the Operating General Partner and the General Partner (approximately $150,000), and accrued interest to Chase and the Partnership (approximately $41,000). The improved occupancy during the second half of 1993 was maintained throughout 1994 while operating expenses increased slightly, resulting in improved operating results in 1994. The Operating Partnerships did not utilize any Operating Deficit Escrows during 1994. As of December 31, 1994, the occupancy rate was approximately 97%.
Inflation
Inflation is not expected to have a material adverse impact on Registrant's revenues during its period of equity ownership in the Operating Partnerships.
Item 8.
Item 8.Financial Statements and Supplementary Data
The financial information required in response to this Item 8 is submitted as part of Item 14(a) of this report.
Item 9.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
PART III
Item 10Directors and Executive Officers of the Registrant
The Partnership has no directors or executive officers.
The General Partner was incorporated in Delaware on November 24, 1986. As described below, its principals have had significant experience in various facets of the real estate business including the development of multi-family rental housing. The directors and officers of the General Partner, who have served as such since inception, are as follows:
Name Age Office
Richard Paul Richman 49 President and Director
Robert H. Wilder, Jr. 51 Executive Vice President, Assistant Secretary, Treasurer and Director.
Gina S. Scotti 41 Secretary
Richard Paul Richman, 49 years old, is President and Director of WRHC. Mr. Richman graduated from the Columbia University Law School with a Juris Doctor degree, the Columbia University Graduate School of Business Administration with a Master of Business Administration degree and Syracuse University with a Bachelor of Arts degree in Political Science. Mr. Richman has over ten years of extensive experience in both the development and management of residential properties. From 1973 until 1979, Mr. Richman practiced corporate law in New York City with the law firm of Greenbaum, Wolff & Ernst and then as a partner of Shipley, Richman & Nierenberg. For over six years, Mr. Richman acted as a lawyer in connection with the development, syndication and tax issues relating to real estate. Since 1988, Mr. Richman has been the President and sole stockholder of The Richman Group, Inc. and the managing partner of The Richman Group of Connecticut, L.L.C. In recent years, Mr. Richman has devoted full time to the syndication and development of real estate. Mr. Richman was a vice president and shareholder of Related Housing Companies Incorporated, New York, New York from 1978 until mid-1979 with responsibility for that company's project acquisition and syndication activities. Mr. Richman has been a member of the National Advisory Board of the Housing and Development Reporter, a bi-weekly publication of the Bureau of National Affairs, Inc., a frequent speaker on real estate syndication, and a member of the New York State Historic Credit Task Force, the National Leased Housing Association, the Coalition to Preserve the Low-Income Tax Credit and the Minority Developer Assistance Corporation (which was established by the New York State Battery Park Commission).
Robert H. Wilder, Jr., 51 years old, is Executive Vice President, Secretary and Treasurer and Director of WRHC. Mr. Wilder graduated from the University of Michigan with a Bachelor of Arts degree in Economics and from the Columbia University Graduate School of Business with a Master of Business Administration degree. After graduation in 1968, Mr. Wilder joined James D. Landauer Associates, Inc., a national real estate consulting firm, where his account responsibilities included feasibility studies, market analyses, land use studies, portfolio valuations and appraisals of industrial, office, commercial and multi-family properties. From 1973 until mid-1979, Mr. Wilder was executive vice president and shareholder of Related Housing Companies Incorporated, New York, New York, and was responsible for mortgage financing and construction loan placement and the supervision of the development of the company's projects. Since 1988, Mr. Wilder has been the President and sole shareholder of Wilder Property Companies Inc. Mr. Wilder is also a licensed real estate broker in New York and Connecticut.
Gina S. Scotti, 41 years old, is Secretary of WRHC. Ms. Scotti, a Vice President and Secretary of The Richman Group, Inc. and Secretary of Wilder Richman Corporation ("WRC"), joined WRC in 1984 as a special assistant to the President, and has been the Director of Investor Services with responsibility for all communications with investors since 1986.
Item 11.
Item 11. Executive Compensation
The Partnership is not required to pay the officers, directors or partners of the General Partner any direct compensation, and no such compensation was paid during the year ended February 28, 1997.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No person or group is known by the Partnership to be the owner of record of more than 5% of the outstanding Units as of February 28, 1997.
Item 13.
Item 13. Certain Relationships and Related Transactions
The financial interests in Registrant of the General Partner and Special Limited Partner are set forth under the heading "PROFITS, LOSSES and DISTRIBUTIONS" at pp. 117 - 124 of the Prospectus.
Transactions with Affiliates of Management
The General Partner and certain of its affiliates are entitled to receive certain compensation, fees and reimbursement of expenses during the offering, operational and termination or refinancing stages of the Partnership.
Wilder Richman Management Corporation ("WRMC"), an affiliate of the General Partner, became a co-management agent of the Complex on July 1, 1992. In connection with these services, WRMC earned management fees of $84,488 in 1996, of which $35,005 was paid.
Richman Asset Management, LLC., an affiliate of the General Partner, earned compensation in the amount of $60,000 in 1996 for its performance in connection with investor services for the Partnership and the Operating Partnerships, all of which was accrued.
Indebtedness of Management
No officer or director of the General Partner or any affiliate of the foregoing was indebted to Registrant at any time during the years ended February 28, 1997 and February 29, 1996.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
a)Financial Statements
(i) The list of Financial Statements of Registrant appears on page .
(ii) The list of Financial Statements of the Operating Partnerships appears on page.
(3) Exhibits:
(3A) Certificate of Limited Partnership of Wilder Richman Historic Properties II, L.P., as filed with the Secretary of State of Delaware on October 15, 1987;*
(3B) Form of Agreement of Limited Partnership of Wilder Richman Historic Properties II, L.P. (attached to Prospectus as Exhibit A);
(4) Form of Subscription Agreement (attached to Prospectus as Exhibit B);
(10A) Previously executed and filed Certificate of Limited Partnership and Amended and Restated Certificate of Limited Partnership of (x) Dixon Mill Associates I (Phase One), Limited Partnership, (y) Dixon Mill Associates II (Phase Two), Limited Partnership and (z) Dixon Mill Associates III (Phase Three), Limited Partnership;*
(10B) Form of Amended and Restated Agreement and Certificate of Limited Partnership of the Dixon Mill Partnerships:
(1) Dixon Mill Associates I (Phase One), Limited Partnership Amended and Restated Agreement and Certificate of Limited Partnership;**
(2) Dixon Mill Associates II (Phase Two), Limited Partnership Amended and Restated Agreement and Certificate of Limited Partnership;** and
(3) Dixon Mill Associates III (Phase Three), Limited Partnership Amended and Restated Agreement and Certificate of Limited Partnership;**
(10C) Dixon Mill Complex Financing Documents;*
(10D) Administrative Consent Order with New Jersey Department of Environmental Protection ("NJDEP") and NJDEP Non-Applicability Letter as to Dixon Mill Partnerships;*
(10E) Master Services Agreement, dated June 18, 1986, between Varick Construction Corp. and IT Corporation;*
(10F) Documents related to Dixon Mill Complex historic certification;*
(10G) Form of Operating Deficit Guarantee Agreement;*
(10H) Form of Repurchase Agreement;**
(10I) Form of Investor Services Agreement;**
(10J) Form of Escrow Agreement among Wilder Richman Historic Properties II, L.P., Wilder Richman Historic Corporation, Shearson Lehman Hutton Inc. and FirsTier Bank, N.A., as escrow agent;**
(10K) Form of Financial Development Consulting Agreement between Wilder Richman Corporation and the Operating Partnerships;**
(10L) Form of Annuity Issuance Agreement between Wilder Richman Historic Properties II, L.P. and the Issuer;**
(10M) Form of Guaranteed Investment Contract Escrow Agreement among Wilder Richman Historic Properties II, L.P., the Dixon Mill Partnerships and the escrow agent;**
(10N) Form of Assignment between the Dixon Mill Partnership, as Assignor, and Wilder Richman Historic Properties II, L.P., as Assignee;**
(10O) Form of Letter from The Dixon Venture to Wilder Richman Historic Properties II, L.P. and the Dixon Mill Partnerships, as to The Dixon Venture's agreement to bear all costs of compliance with the New Jersey Environmental Cleanup Responsibility Act;**
(10P) Amendment No. 1 to Agreement of Limited Partnership; ***
(10Q) Reinstatement and Modification Agreement; ***
(10R) Operating Deficit Escrow Agreement; ***
(10S) Priority Operating Deficit Escrow Agreement; ***
(10T) Amended and Restated Achievement Escrow Agreement; ***
(10U) Default Avoiding Loan Agreement; ***
(10V) Management Agreement; ***
(10W) Chase Note; ***
(10X) Letter of Intent to Reinstate and Modify the Mortgages; ****
(27) Financial Data Schedule.
* Incorporated by Reference to Registrant's Form S-11 Registration Statement as filed with the Securities and Exchange Commission on January 15, 1988. ** Incorporated by Reference to Amendment No.1 to Registrant's Form S-11 Registration Statement as filed with the Securities and Exchange Commission on May 9, 1988. *** Submitted as exhibit to Form 10-K for the fiscal year ended February 29, 1992. **** Incorporated by Reference to Proxy dated March 23, 1992.
b) Reports on Form 8-K
None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30th day of May, 1997.
Wilder Richman Historic Properties II, L.P.
By: Wilder Richman Historic Corporation, General Partner
By: Richard Paul Richman President and Director
By: Robert H. Wilder, Jr. Executive Vice President and Director
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30th day of May, 1997.
Wilder Richman Historic Properties II, L.P.
By: Wilder Richman Historic Corporation, General Partner
By: /s/ Richard Paul Richman Richard Paul Richman President and Director
By: /s/ Robert H. Wilder, Jr. Robert H. Wilder, Jr. Executive Vice President and Director
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
FINANCIAL STATEMENTS FOR THE
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
AND INDEPENDENT AUDITORS' REPORT
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
Financial Statements for the
Years Ended February 28, 1997, February 29, 1996 and February 28, 1995
and Independent Auditors' Report
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT
FINANCIAL STATEMENTS:
Balance sheets
Statements of operations
Statements of partners' equity
Statements of cash flows
Notes to financial statements -
INDEPENDENT AUDITORS' REPORT
Parrtners Wilder Richman Historic Properties II, L.P. Greenwich, Connecticut
We have audited the accompanying balance sheets of Wilder Richman Historic Properties II, L.P. as of February 28, 1997 and February 29, 1996, and the related statements of operations, partners' equity and cash flows for the years ended February 28, 1997, February 29, 1996 and February 28, 1995. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wilder Richman Historic Properties II, L.P. as of February 28, 1997 and February 29, 1996 and the results of its operations, changes in partners' equity and cash flows for the years ended February 28, 1997, February 29, 1996 and February 28, 1995 in conformity with generally accepted accounting principles.
/s/ Rosenburg, Neuwirth & Kuchner
April 21, 1997 New York, New York
See notes to financial statements
See notes to financial statements
See notes to financial statements
See notes to financial statements
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
1. ORGANIZATION
Wilder Richman Historic Properties II, L.P. (the "Partnership") was formed under the Delaware Revised Uniform Limited Partnership Act on October 15, 1987 to acquire all of the limited partnership interest in Dixon Mill Associates I (Phase One), Limited Partnership ("Dixon Mill I"), Dixon Mill Associates II (Phase Two), Limited Partnership ("Dixon Mill II") and Dixon Mill Associates III (Phase Three), Limited Partnership ("Dixon Mill III") (together herein referred to as the "Operating Partnerships") which, collectively, constructed, rehabilitated and own and operate a 433-unit apartment complex (the "Complex") located in Jersey City, New Jersey. Wilder Richman Historic Corporation (the "General Partner") is the General Partner of the Partnership. The general partner of the Operating Partnerships is Dixon Venture Corp. (the "Operating General Partner").
The Partnership filed a Form S-11 registration statement with the Securities and Exchange Commission, which became effective May 9, 1988, covering an offering (the "Offering") of 800 limited partnership units at $24,100 per unit.
On July 15, 1988, the Partnership admitted 754 limited partners representing 800 units of limited partnership interest (the "Closing") for $19,280,000 in cash and notes. Immediately following the Closing, the Partnership acquired a 99% limited partnership interest in the Operating Partnerships. The Partnership acquired its limited partnership interest for $16,388,000 which was paid in installments.
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Partnership are prepared on the accrual basis of accounting and include only those assets, liabilities and results of operations related to the business of the Partnership.
Investments in Operating Partnerships
The Partnership accounts for its investment in the Operating Partnerships on the equity method of accounting. Under the equity method of accounting, the investment cost is adjusted by the Partnership's share of the Operating Partnerships' results of operations, which are limited to the respective investment balances and by distributions received or accrued. The statements of operations includes the Partnership's equity in the earnings of the Operating Partnerships on a calendar year basis.
Syndication costs
Syndication costs of $2,639,200 were charged against limited partners' capital upon the closing of the public offering, in accordance with prevalent industry practice.
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
No provisions have been made for federal, state and local income taxes, as they are the personal responsibility of the partners.
Cash and cash equivalents
For purposes of the statements of cash flows, the Partnership considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are recorded at cost which approximates fair value.
Fiscal year
The Partnership's fiscal year ends on the last day in February.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. INVESTMENTS IN OPERATING PARTNERSHIPS
The Investments in Operating Partnerships are as follows:
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
3. INVESTMENTS IN OPERATING PARTNERSHIPS (CONTINUED)
In connection with the modification of the mortgages of the Operating Partnerships on June 11, 1992, the Partnership provided (i) an advance of $300,000 to assist in covering costs associated with such modification and (ii) a letter of credit to Federal National Mortgage Association ("FNMA"), the lender, in the amount of $600,000. Such letter of credit was provided to assist in covering future operating shortfalls, if any, of the Operating Partnerships in order to avoid default under their respective mortgage obligations. The term of the letter of credit was the later of (i) January 1, 1996 or (ii) the ability of the operating Partnerships to operate at a debt service coverage ratio of 1.10 for a twelve month period. Such condition was satisfied for the twelve-month period ended December 31, 1994; accordingly, the Partnership's letter of credit was released on January 1, 1996. The Partnership provided an advance of $17,713 during 1992 to cover operating shortfalls pursuant to the terms of the mortgage modification.
Any such advances bear interest at 6.5% per annum and are guaranteed by principals of the Operating General Partner to the extent that such sums would have otherwise been advanced pursuant to their operating deficit guarantee obligation. Outstanding advances as of February 28, 1997 and February 29, 1996 amounted to $317,713 with accrued interest thereon of $98,436 and $77,498 at February 28, 1997 and February 29, 1996, respectively. The outstanding advances and accrued interest are reflected in Note Payable and Accrued Interest Payable in the combined balance sheet of the Operating Partnerships presented above.
4. RELATED PARTY TRANSACTIONS
An annual investor services fee is payable to an affiliate of the general partner of the Partnership in the amount of $15,000 from the Partnership and each of the Operating Partnerships. At February 28, 1997 and February 29, 1996, due to related parties includes $125,000 and $110,000, respectively of Investor Services fees payable from the Partnership and the Operating Partnerships.
At February 28, 1997 and February 29, 1996, due to related parties also includes $9,846 due to the Operating Partnerships.
An affiliate of the General Partner is the co-management agent of the properties owned by the Operating Partnerships. Pursuant to the management agreement such management fees are not to exceed 1.5% of annual gross operating revenues of the Complex. The affiliated management agent earned $84,488 and $76,641 in the years ended December 31, 1996 and 1995, respectively of which $35,005 and $35,004 were paid in 1996 and 1995.
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
5. PARTNERS' EQUITY
The general partner, the special limited partner and the limited partners were allocated 1%, .01% and 98.99%, respectively, of the losses.
Distributions
Cash flow of the Partnership available annually for distribution after payment of Partnership expenses will be distributed 98.99% to the investor limited partners, .01% to the special limited partner and 1.00% to the General Partner.
Net cash proceeds resulting from a sale or refinancing by the Operating Partnerships, to the extent available (after the discharge of debts and obligations of the Operating Partnerships and the Partnership, including outstanding loans from partners or affiliates), will be distributed generally as follows:
- 98.99% to the investor limited partners, .01% to the special limited partner and 1.00% to the General Partner, until the investor limited partners have received an amount equal to their adjusted contributions;
- 98.99% to the investor limited partners, .01% to the special limited partner and 1.00% to the General Partner, until the investor limited partners have received an amount equal to the accrued cumulative, non-compounded rate of 7% per annum (see Note 7).
- The balance of adjusted capital contributions of the General Partner and special limited partner, and
- The balance, if any, 97.99% to the investor limited partners, .01% to the special limited partner and 2.00% to the General Partner.
WILDER RICHMAN HISTORIC PROPERTIES II, L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED FEBRUARY 28, 1997, FEBRUARY 29, 1996 AND FEBRUARY 28, 1995
7. COMMITMENTS AND CONTINGENCIES
Preferred return
Pursuant to the Partnership Agreement, the investor limited partners are entitled to an annual preferred return in the amount of 7% of the investor limited partners' adjusted contributions outstanding from time to time, subject to cash flow available for distribution (including lender restrictions). As of December 31, 1996, the cumulative preferred amount due from the Operating Partnerships is $8,086,602. Any cumulative shortfall not recovered out of future cash flow distributions will be payable from sale or refinancing proceeds, to the extent available.
DIXON MILLS ASSOCIATES
COMBINED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
AND INDEPENDENT AUDITORS' REPORT
DIXON MILLS ASSOCIATES
Combined Financial Statements for the
Years Ended December 31, 1996, 1995 and 1994
and Independent Auditors' Report
C O N T E N T S
Page
INDEPENDENT AUDITORS' REPORT
COMBINED FINANCIAL STATEMENTS:
Combined balance sheets
Combined statements of operations
Combined statements of partners' equity
Combined statements of cash flows
Notes to combined financial statements -
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders Dixon Venture Corp. Secaucus, New Jersey
and
Partners Wilder Richman Historic Properties II, LP Greenwich, Connecticut
We have audited the accompanying combined balance sheets of Dixon Mills Associates as of December 31, 1996 and 1995, and the related statements of operations, partners' equity and cash flows for the years ended December 31, 1996, 1995 and 1994. These financial statements are the responsibility of the Partnerships' management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Dixon Mills Associates, as of December 31, 1996 and 1995, and the results of its operations, changes in partners' equity and cash flows for the years ended December 31, 1996, 1995 and 1994 in conformity with generally accepted accounting principles.
/s/ Rosenburg, Neuwirth & Kuchner
February 21, 1997 New York, New York
See notes to combined financial statements
See notes to combined financial statements
See notes to combined financial statements
See notes to combined financial statements
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
1. COMBINATION AND ORGANIZATION
The combined financial statements include the accounts of Dixon Mill Associates I (Phase One), Limited Partnership ("DM I"), Dixon Mill Associates II, (Phase Two), Limited Partnership ("DM II") and Dixon Mill Associates III, (Phase Three), Limited Partnership ("DM III") after elimination of all significant intercompany balances and transactions.
Description of the business
The partnerships are one of three limited partnerships collectively known as "Dixon Mills Associates" or the "Operating Partnerships", each of which owns one phase of an aggregate 433 units of residential apartments located in Jersey City, New Jersey, that consist of buildings that are designated as "certified historic structures" by the U.S. Department of the Interior. The Operating Partnerships have constructed, rehabilitated, and own and operate the complex. In accordance with the tax exempt financing of the complex, the Operating Partnerships are required to rent 15% to 20% of the apartment units to individuals of low or moderate income.
On July 15, 1988, the Operating Partnerships transferred their 99% limited partnership interests to Wilder Richman Historic Properties II, L.P. (the "Limited Partner") in connection with that limited partnership's public offering. The remaining 1% interest remained with the Operating General Partner, Dixon Venture Corp. ("DVC")
2. SIGNIFICANT ACCOUNTING POLICIES
Financial statements
The financial statements of the Operating Partnerships are prepared on the accrual basis of accounting and include only those assets, liabilities and results of operations related to the business of the Operating Partnerships.
Combined financial statements are presented as the companies are under common control, ownership, and management.
Land and buildings
Land and buildings are stated at lower of cost or net realizable value, ("NRV"). NRV is the net cash flow necessary to recover costs exclusive of debt service. Depreciation on buildings is computed on the straight-line method. The depreciable lives assigned is 40 years for the real property.
Effective for the year ended December 31, 1996 the Partnership adopted Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of." This standard requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income taxes
No provisions have been made for federal, state and local income taxes, as they are the responsibility of the partners.
The partners of the Operating Partnerships were entitled to a 25% historic rehabilitation tax credit on eligible costs as a reduction of their tax liabilities. In addition, the tax basis of the property has been reduced by one-half of the historic rehabilitation tax credit for income tax purposes only.
Cash and cash equivalents
For purposes of the statements of cash flows, the Operating Partnerships consider all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents. Cash and cash equivalents are recorded at cost which approximates fair value.
Deferred costs
Deferred costs represent costs incurred in connection with the mortgages (Note 5) and are being amortized over the term of the mortgages using the straight line method.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Reclassifications and other
Certain balances in the 1995 and 1994 financial statements have been reclassified to conform to the presentation used in 1996.
3. PARTNERS' EQUITY
In accordance with the Partnership agreement, income and losses are to be allocated 1% and 99% to the general partner and the Limited Partner, respectively.
Any equity in loss in excess of the Limited Partner's investment balance in an operating partnership is allocated to the General Partner.
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
3. PARTNERS' EQUITY (CONTINUED)
Distributions
The partnership agreements of the Operating Partnerships provide that cash flow from operations will be distributed 99% to the Limited Partner and 1% to the Operating General Partner until the Limited Partner has received a 7% preferred return (the "Preference Amount") on their initial capital contributions. The balance, if any, would be distributed 75% to the limited partner and 25% to the Operating General Partner. For years ending through December 31, 1991, any insufficient cash flow (shortfall) from operations and/or distributions from the guaranteed investment contracts to make distributions equal to the Preference Amount will be paid at sale or refinancing to the extent proceeds are available and after payment of all debt service and outstanding loans payable (Note 6). If in any year after 1992 cash flow distributions are less than the Preference Amount, such shortfalls will increase the amount that is distributable 99% to the limited partner and 1% to the general partner in any subsequent year before the ratio in which distributions of cash flow are shared at 75% for the Limited Partner and 25% for the Operating General Partner. Any cumulative shortfall not recovered out of subsequent cash flow distributions will be payable from sale or refinancing proceeds, to the extent available. To date, the Operating Partnerships have provided distributions only to the extent of proceeds generated from the guaranteed investment contracts discussed above. The cumulative preferred amount due to the limited partners at December 31, 1996 is $8,086,602. There is no assurance that all or a portion of such amount will be paid, and no amount has been accrued.
Distributions of annual net cash flow are subject to the provisions of the notes payable (Note 6).
Net cash proceeds resulting from a sale or refinancing, to the extent available (after the discharge of debts and obligations of the Partnership, including outstanding loans from partners or affiliates), will be distributed generally as follows:
- 99% to the Limited Partner and 1% to the Operating General Partner, until the Limited Partner has received an amount equal to its adjusted contributions.
- 99% to the Limited Partner and 1% to the Operating General Partner, until the Limited Partner has received an amount equal to the accrued cumulative Preference Amount.
- The balance of adjusted capital contributions of the General Partner.
- The balance, if any, 75% to the Limited Partnership and 25% to the Operating General Partner.
The Operating Partnerships incurred annual property management fees to Wilder Richman Management Corp. ("WRMC"), an affiliate of the Limited Partner, in the amount of $84,488 in 1996, $76,641 in 1995 and $75,717 in 1994. WRMC received payments of $35,005 and $35,004 in 1996 and 1995, respectively.
In addition, property management fees of $84,488, $76,640 and $75,718 were incurred in 1996, 1995 and 1994, respectively to Morris Property Management.
The Operating Partnerships incurred investor service fees of $45,000 to Richman Asset Management, LLC in 1996 and 1995 and $45,000 to RG Housing Advisors, Inc., in 1994. Both companies are affiliates of the Limited Partner.
5. MORTGAGES PAYABLE
On June 11, 1992, the Jersey City Redevelopment Agency provided mortgage financing for the Operating Partnerships through the issuance of tax-exempt Bonds (the "Bonds") guaranteed and secured by the Federal National Mortgage Association ("FNMA") mortgage pass-through certificate ("FNMA Certificate"). The FNMA Certificate in turn was secured by mortgages in the amount of $27,545,000 (collectively, the "Mortgages") and letters of credit of $4,260,000 (the "Letters of Credit") issued by Chase Manhattan Bank ("Chase"). The Letters of Credit were secured by an additional mortgage in the same amount and the personal guarantees of certain principals of DVC. The Mortgages provided that the Letters of Credit would remain until the Operating Partnerships meet certain debt service ratio tests as defined in the Mortgages (the "Debt Service Test"). The Debt Service Test was met and the letters of credit were released in June, 1995.
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
5. MORTGAGES PAYABLE (CONTINUED)
The Mortgages require monthly payments of interest and principal, except that the first 24 installments through June 1994 did not include principal. The interest rate on the Mortgages is 6.74% with a 7.448% constant. Principal amortization is based on a thirty-five year payment schedule. The Mortgages mature as follows:
1997 $ 238,188 1998 254,748 1999 262,586 2000 290,713 2001 310,924 Thereafter 25,657,969 -----------
$27,015,128
The Mortgages are callable for payment on May 1, 2000, extendable by FNMA until May 1, 2010. The maximum bond remarket rate is 8% pursuant to the bond trust indenture dated May 1, 1992 between the Jersey City Redevelopment Agency and United Jersey Bank.
The Mortgages require monthly payments to a replacement reserve ("Replacement Reserve") account as follows:
June 1996 - May 1997 $16,667 June 1997 - May 2012 5,400
The Replacement Reserve shall be used exclusively to pay for certain repairs or replacements, subject to the approval of FNMA. The balance in this account was $518,233 and $317,751 at December 31, 1996 and 1995, respectively.
FNMA provided the Operating Partnerships with a mortgage loan for closing costs evidenced by a second note in the amount of $163,000 (the "Second Note") and secured by a second mortgage. The Second Note was retired, evenly, without interest, over a 24-month term ending in June 1994.
6. NOTE PAYABLE
Chase Manhattan Bank Chase advanced $277,500 to the Operating Partnerships for costs associated with the Mortgages, bearing interest at 6.50% with a maturity of May 1, 2000. Payments of principal and interest could not commence sooner than January 1, 1996 depending on, among other things, cash flow generated by the Operating Partnerships. In addition, Chase provided FNMA with cash and letter of credit in the amount of $622,500 (the "Chase Operating Deficit Escrows") to provide assistance in the event the Operating Partnerships experience future operating deficits. Any amounts drawn on the Chase Operating Deficit Escrows also bore interest of 6.50%. Any and all advances provided by Chase were secured by the second mortgage (Note 5).
DIXON MILLS ASSOCIATES
NOTES TO COMBINED FINANCIAL STATEMENTS (CONTINUED)
YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994
6. NOTE PAYABLE (CONTINUED)
In addition by an agreement with Chase dated July 5, 1995, to the extent that the $600,000 letter of credit issued to FNMA was released, the Chase note and any accrued and unpaid interest would be forgiven. In January 1996, pursuant to the Operating Deficit Escrow Agreement, FNMA released the Chase letter of credit. As a result of the full release of the Chase Operating Deficit Escrow, the note payable of $317,714 and accrued interest of $52,487 was written down to zero and is reflected as a forgiveness of debt in the accompanying statements of operations.
Limited Partner
The Limited Partner also advanced $277,500 in connection with the Mortgages which bear interest at 6.50%. Payments of principal and interest could commence no sooner than January 1, 1996 depending on, among other things, cash flow generated by the Operating Partnerships. The principal balance and unpaid interest become due upon a sale or refinancing of the property. In addition, the Limited Partner provided FNMA with a letter of credit and cash in the amount of $622,500 (the "Limited Partner Operating Deficit Escrow") to provide assistance in the event the Operating Partnerships experience future operating deficits. Pursuant to the Operating Deficit Escrow Agreement, FNMA released the letter of credit in January 1996. Any amount drawn on the Limited Partner Operating Deficit Escrow bore interest at 6.50%. To the extent the Operating Partnerships make distributions of net cash flow, all such net cash flow with respect to the applicable distribution periods must be paid to the Limited Partner until the amounts outstanding to the Limited Partner are satisfied.
Total advances provided by the Limited Partner as of December 31, 1996 amount to $317,713 and accrued interest of approximately $94,000 and $73,000 as of December 31, 1996 and 1995, respectively. This note is secured by the personal guarantees of certain principals of DVC to the extent such amounts were advanced before February 1, 1994.
7. COMMITMENTS AND CONTINGENCIES
Litigation
A complaint, through the Equal Employment Opportunity Commission, has been filed by a former employee claiming sexual harassment by a Partnership employee. Management cannot measure the potential liability, if any, at this time.
The Operating Partnerships had been named as a third party defendant in a lawsuit between The Dixon Venture, the party who sold the Premises to the Operating Partnerships and the former owner, Joseph Dixon Crucible Company for indemnification for cost clean-up under the comprehensive Environmental Responses Compensation and Liability Act of 1980. The Operating General Partner believes that the Operating Partnerships have no liability or no liability that is not adequately covered by an indemnification from The Dixon Venture.