ITEM 1. BUSINESS
GENERAL
Resources Accrued Mortgage Investors 2, L.P. (the "Registrant"), formerly Resources Accrued Mortgage Investors L.P. - Series 87 and Resources Accrued Mortgage Investors L.P. - Series 88, was organized as a Delaware limited partnership on August 14, 1986. The general partners of the Registrant are RAM Funding Inc. (the "Managing General Partner"), and Presidio AGP Corp. (the "Associate General Partner"). The Associate General Partner and the Managing General Partner are collectively referred to herein as the "General Partners". The General Partners are all ultimately wholly-owned subsidiaries of Presidio Capital Corporation, a British Virgin Islands corporation ("Presidio"). See "Management/Employees" below.
In 1988, the Registrant sold, pursuant to a registration statement filed with the Securities Exchange Commission, 187,919 units of limited partnership interest (the "Units") for gross proceeds aggregating $46,979,750. Pursuant to the terms of the Registrant's partnership agreement, any subscription proceeds not invested by April 12, 1990 where required to be returned to the investors. At April 12, 1990, the Registrant had not invested $18,405,847 of the original gross proceeds. Accordingly, such amount was returned to the investors.
The principal business of the Registrant is and has been to invest primarily in "zero coupon" first and junior mortgage loans ("Mortgage Loans") on properties owned or acquired principally by privately and publicly syndicated limited partnerships originally sponsored by affiliates of Integrated Resources, Inc. ("Integrated"), the original owner of the Managing General Partner. The Mortgage Loans had original terms of approximately twelve years with all interest and principal due and payable at the maturity or prepayment of the Mortgage Loan. See "Investments of Registrant" below.
MANAGEMENT/EMPLOYEES
Registrant does not have any employees. The business of the Registrant is managed by the General Partners, their affiliates and agents. Through November 2, 1994, the Managing General Partner was a wholly-owned subsidiary of Integrated. On November 3, 1994, as a result of the consummation of the reorganization plan relating to Integrated's bankruptcy, indirect ownership of the Managing General Partner and the Corporate General Partner was purchased by Presidio. Further, on February 28, 1995, the Associate General Partner replaced Z Square G Partners II as the associate general partner of Registrant. As a result, all of the General Partners became ultimately wholly-owned by Presidio. Presidio, in turn, is controlled by NorthStar Capital Investment Corp., a Maryland corporation ("NorthStar").
Presidio previously retained Wexford Management LLC ("Wexford") to provide consulting and administrative services to Presidio and its affiliates, including the General Partners and Registrant. The agreement with Wexford expired on May 3, 1998 at which time Presidio entered into a management agreement with NorthStar Presidio Management Company, LLC ("NorthStar Presidio"). Under the terms of the management agreement, NorthStar Presidio provided the day-to-day management of Presidio and its direct and indirect subsidiaries and affiliates.
On October 21, 1999, Presidio entered into a Services Agreement with AP-PCC III, L.P. (the "Agent") pursuant to which the Agent was retained to provide asset management and investor relation services to Registrant and other entities affiliated with Registrant.
As a result of this agreement, the Agent has the duty to direct the day to day affairs of Registrant, including, without limitation, reviewing and analyzing potential sale, financing or restructuring proposals regarding the Registrant's assets, preparation of all reports, maintaining records and maintaining bank
accounts of Registrant. The Agent is not permitted, however, without the consent of Presidio, or as otherwise required under the terms of the Limited Partnership Agreement to, among other things, cause Registrant to sell or acquire an asset or file for bankruptcy protection.
In order to facilitate the Agent's provision of the asset management services and the investor relation services, effective October 25, 1999, the officers and directors of the General Partners resigned and nominees of the Agent were elected as the officers and directors of the General Partners. The Agent is an affiliate of Winthrop Financial Associates, a Boston based company that provides asset management services, investor relation services and property management services to over 150 limited partnerships which own commercial property and other assets. The General Partners do not believe this transaction will have a material effect on the operations of Registrant.
INVESTMENTS OF REGISTRANT
Registrant originally invested 100% of the non-returned portion of its net proceeds in four Mortgage Loans in the original amount of $23,323,513, including interest of $23,513, one of which is still outstanding at December 31, 2000. In June 1992, the senior mortgage lender on one of Registrant's investments, the Promenade Loan, foreclosed on the property securing its loan and Registrant lost its entire investment. During 1999, Registrant received proceeds in settlement of the Harborista and Twin Oak loans. As of March 1, 2001, Registrant had an investment in one remaining Mortgage Loan in the original amount of $6,500,000. All interest and principal is due and payable at maturity and there are no current payments due. Following is a description of the status of Registrant's investments:
For the years ended December 31, 2000, 1999 and 1998, the percentage of Registrant's revenue attributable to interest on short-term investments was 100%, 67.85% and 86.16%, respectively.
A. SIERRA MARKETPLACE LOAN
On February 10, 1989, Registrant made a $6,500,000 first Mortgage Loan (the "Sierra Loan") to High Cash Partners, L.P. (the "Sierra Borrower"), a public limited partnership originally sponsored by Integrated. The Sierra Loan is secured by a shopping center commonly known as the Sierra Marketplace located in Reno, Nevada (the "Sierra Property"). The Sierra Property consists of approximately 233,000 square feet of net rentable area. The shopping center occupies 18.67 acres, consisting of two main buildings and three anchor tenant buildings with surface parking for 1,184 automobiles.
The total amount, including fees, allocated to the Sierra Loan from the gross proceeds of Registrant's offering was $7,715,134 including payment to the Managing General Partner of a mortgage placement fee of $385,757.
The Sierra Loan, which bears interest at a rate of 11.22% per annum, compounded monthly and was scheduled to mature on February 28, 2001, at which time a balloon payment of $24,966,653, together with additional interest (as described below) if any, was to be due and payable, was modified on December 21, 2000. Prior to its modification, the Sierra Borrower was required to provide, on request, a current appraisal of the Sierra Property. If the sum of (i) the principal balance of the Sierra Loan plus all other then outstanding indebtedness secured by the Sierra Property plus (ii) all accrued and unpaid interest in excess of 5% per annum of the principal balance of such mortgages, exceed 85% of the current appraised value, the Sierra Borrower shall be immediately obligated to pay such excess. In the event that such excess becomes due, the Sierra Borrower may not have sufficient liquidity to satisfy its obligation to Registrant. The Sierra Borrower could be forced to sell its property or seek other relief, including protection under the bankruptcy laws. In 1997, the Managing General Partner prepared a valuation of the Sierra Property and based on that valuation, no additional amounts were then presently due. However, as a result of such valuation, the Sierra Borrower wrote the Sierra Property down on its books to what its management believed to be its estimated fair market value of $15,875,000. The Managing General Partner performed its own evaluation and determined that this estimate was a fair representation of the
property value at that time. The balance of the Sierra Loan at December 31, 1996 was approximately $15,979,000 and it was unlikely that any additional interest accrued on the Sierra Loan would ultimately be recovered from the value of the underlying property. Consequently, as of January 1, 1997, Registrant ceased accruing interest on the Sierra Loan.
The Sierra Borrower advised the Registrant in 2000 that it believed that the value of the Sierra Property had increased since the beginning of 1997 and that, depending on the results of the appraisal, the value of the Registrant's mortgage loan may exceed the value at which the mortgage loan was then being carried on the Registrant's financial statements. The Sierra Borrower also requested that the Sierra Loan be restructured prior to its maturity (February 1, 2001). After extensive negotiations, on December 21, 2000 the Registrant and the Sierra Borrower agreed to modify the Sierra Loan as follows:
1. To extend the term of the loan until February 28, 2003.
2. The Sierra Borrower placed in escrow a deed as well as documents necessary to convey the property, which documents will be released to the Registrant on the earlier (A) March 1, 2003, (B) at such time as a third-party purchaser is identified to acquire the Sierra Property or (C) at any time after March 1, 2002 if the Registrant deems it necessary to protect its economic interest.
3. The Sierra Borrower will pay to the Registrant to be applied towards the Sierra Loan all cash flow generated from the property in excess of $100,000 per year.
4. The Sierra Borrower will have an appraisal prepared on the Sierra Property to determine if an excess payment as described above is due and, if such a payment is due, to make such payment. On March 27, 2001, the Registrant received an appraisal from the Borrower which valued the Sierra Property at $20,000,000. As a result, based on current information available to the Registrant, no excess payment is presently required.
5. Sierra Borrower has the right to prepay the loan after the initial maturity date (February 2001) by paying to the Registrant the sum of the then unpaid principal balance of the loan together with accrued interest and other charges due under the loan and 66% of the value of the Sierra Property in excess of such amount.
In addition, the Registrant now has significantly more input over the operation of the Sierra Property including, the selection of the management company, leasing programs and capital improvements. In this regard, an affiliate of the Agent began providing property management services at the Sierra Property effective March 2001. In light of these enhanced rights, the Registrant believes that if the Sierra Property can be leased-up and renovated, the value of the shopping center may be significantly enhanced resulting in a loan value well in excess of the current carrying value.
In January 2000, the Partnership and Ben Farahi who, according to the Western Offer (as hereinafter defined) is a partner in the sole member of Western, entered into an agreement (the "Agreement") pursuant to which Mr. Farahi was provided with a list of limited partners of the Partnership. Shortly thereafter, Western proposed to make a tender offer for a number of Units which did not require that Western comply with Regulation 14d of the Securities Exchange Act of 1934. However, Western never made such offer.
On January 23, 2001, Western Real Estate Investments, LLC ("Western"), through its attorneys' Much Shelist Freed Denenberg Ament & Rubinstein, P.C., made an offer to purchase the Sierra Loan for $12,500,000 which offer was subsequently increased to $15,000,000 on January 26, 2001. The General Partners advised Western's attorneys that the offer was declined because the General Partners believe that the value of the Sierra Property could ultimately be well in excess of the price offered. The General Partners advised Western that if certain events favorable to the Sierra Property were to occur, the Sierra Property could have a value of as high as $19,000,000. It is the Registrant's understanding that an affiliate of Western
owns the property adjacent to the Sierra Property and desires to ultimately own the Sierra Property. See "Tender Offers" below.
B. HARBORISTA LOAN
On February 13, 1989, Registrant made a second Mortgage Loan (the "Harborista Loan") to Harborista Associates L.P. (the "Harborista Borrower"), a private limited partnership originally sponsored by Integrated, in the original principal amount of $10,000,000. The Harborista Loan was secured by an office building commonly known as the Harbor Plaza, located in Boston, Massachusetts ("Harbor Plaza"). Harbor Plaza consists of a 13-story office building on .88 acres containing approximately 334,000 square feet of rentable space, located in the Fort Point Channel section of downtown Boston. Harbor Plaza was 100% leased pursuant to a master net lease (the "Master Lease") which, subject to a right of early termination by the Harborista Borrower, expired on November 30, 1998. On March 30, 1999, Registrant sold its interest in the Harborista Loan for net proceeds of approximately $800,000
The Harborista Loan bore interest at a rate of 13.307% per annum, compounded monthly and was originally due on December 1, 1998 at which time a balloon payment of $36,568,146 would have been payable.
The total amount, including fees, allocated to the loan from the gross proceeds of Registrant's offering was $11,897,345 including payment to the Managing General Partner of a mortgage placement fee of $594,867.
During 1993, management determined that interest on the Harborista Loan should cease to accrue and that an allowance for loan losses was necessary for the entire carrying value of the Harborista Loan which, at that time, was $10,618,380.
Harbor Plaza was also encumbered by a first mortgage loan (the "First Mortgage") in the original amount of $24,475,000. The First Mortgage was due to mature on December 1, 1995, but was extended until January 1, 1999. On February 9, 1999, the holder of the First Mortgage filed a motion for foreclosure of the First Mortgage and a foreclosure sale was scheduled to be held in March 1999.
During the latter part of 1998 and continuing into 1999 Registrant attempted to arrange for financing in order to satisfy the First Mortgage and protect Registrant's interest in Harbor Plaza. Registrant was unable to obtain financing and, on March 29, 1999, Registrant sold its interest in the Harborista Loan to the holder of the First Mortgage for gross proceeds of $1,000,000, exclusive of legal and other costs related to the transaction of approximately $200,000.
Following its acquisition of the Harborista Loan, the holder of the First Mortgage foreclosed on its interests in the two mortgages and acquired Harbor Plaza. On March 29, 1999, the holder of the First Mortgage entered into an agreement with Charbird Enterprises LLC ("Charbird"), an affiliate of Northstar and the General Partners, for the performance of services in connection with the marketing of Harbor Plaza. Charbird assigned to Northstar its right to receive a substantial portion of amounts paid under the agreement and Northstar agreed to indemnify Charbird for any liabilities under the agreement. Harbor Plaza was sold in December 1999 for approximately $50,500,000. Charbird received a fee of $14,050,884 under the agreement, $12,645,796 of which was paid to Northstar. See "Item 3. Legal Proceedings" below.
C. TWIN OAK LOAN
Registrant held a $1,200,000 second Mortgage Loan (the "Twin Oak Loan") made to Twin Oak Plaza Associates (the "Twin Oak Borrower"), a limited partnership originally sponsored by Integrated, which was secured by the Twin Oak Shopping Center, located in Fort Lauderdale, Florida (the "Twin Oak Property").
The Twin Oak Property is a 113,217 square foot community retail shopping center which includes a 15,000 square foot addition built by the Twin Oak Borrower.
The Twin Oak Property was also encumbered by a first mortgage in the original amount of $4,250,000, held by Southern Life Assurance Company (the "Southern Life Mortgage"). The Southern Life Mortgage bore interest at a rate of 10% per annum plus contingent interest, and was payable in 119 equal monthly installments of $36,550. The maturity date of the Southern Life Mortgage, originally July 1, 1993, was extended by three years to July 1, 1996. The terms and conditions of the extension were essentially the same as the original loan. During October 1997, the Twin Oak borrower and its first mortgage lender formally agreed to extend the maturity date to July 1, 1998. It was the intention of the Twin Oak General Partners to sell the property prior to the July 1, 1998 extended maturity date.
During the year ended 1996, a provision of loan losses of $1,515,0000 was recorded on the Twin Oak loan. A $400,000 allowance for loan losses was recorded during 1998 to reduce the carrying value of the loan to the estimated amount anticipated to be received by the Partnership under the terms outlined in this new contract.
The property was marketed for sale during the first and second quarters of 1998, and Twin Oak entered into a formal contract of sale ("Contract #1") in May of 1998. The purchaser failed to perform on Contract #1 in August of 1998. The property was again marketed for sale. During this period, the Southern Life Mortgage matured on July 1, and was not repaid. On October 20, 1998, a formal agreement was executed in which the first mortgage lender again agreed to extend the maturity of the loan to July 1, 1999 in exchange for a modification to the interest rate and payment of an extension fee. On October 15, 1998, a new contract for sale was executed.
On March 1, 1999, the Twin Oak Property was sold for a gross purchase price of approximately $4,150,000 (subject to customary adjustments at closing). The Twin Oak Borrower used the proceeds from the sale to repay the first mortgage to Southern Life Mortgage and on May 5, 1999, Registrant received approximately $237,000 representing the carrying value of the Twin Oak Loan. During December, 1999, Registrant received an additional $99,156 representing residual proceeds from the Twin Oak sale and recorded such amount as additional loan loss recovery in 1999.
TENDER OFFERS
On January 17, 2001, Bighorn Associates I, LLC ("Bighorn"), an affiliate of Presidio, commenced a tender offer to acquire up to 57,000 Units for a price of $90 per unit. Subsequent to Bighorn's offer, Western commenced an offer to acquire up to 40,000 Units for a price of $97 per unit. After a series of amendments, both the Bighorn purchase price and the Western purchase price was $127 per Unit.
On March 16, 2001, Bighorn's offer expired and on March 20, 2001, Western's offer expired. Based on its filings with the Securities and Exchange Commission, Bighorn acquired 22,636 Units in its offer representing approximately 12.05% of the total outstanding Units. As of March 28, 2001, Western had not yet made its final filing with the Securities and Exchange Commission indicating the number of Units they acquired.
ITEM 2.
ITEM 2. PROPERTIES
None
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
Dr. Warren Heller, on behalf of himself and all others similarly situated, v. RAM Funding Inc., Presidio AGP Corp., NorthStar Capital Investment Corp. and Charbird Enterprises, LLC, defendants, and Resources Accrued Mortgage Investors 2, L.P., as nominal defendant, Court of Chancery, New Castle County, Delaware (Case No. 18059). On or about May 19, 2000, Dr. Warren Heller, a limited partner, commenced a putative class action and derivative lawsuit in the Delaware Chancery Court seeking, among other things, monetary damages resulting from purported breaches of fiduciary duties and breaches of the Registrant's partnership agreement in connection with the March 1999 sale of the Harborista Loan and the marketing of Harbor Plaza which secured the Harborista Loan. In addition, the action alleges breaches of fiduciary duty in connection with the purported failure of the Registrant to distribute cash and the purported failure of the Registrant to enforce the provisions of the loan secured by the Reno, Nevada property. The defendants have preliminarily agreed to enter into a Memorandum of Understanding (the "MOU") settling this lawsuit. As currently contemplated, the MOU (i) provides for an $8,000,000 payment by the defendants to the Registrant and (ii) requires that the Registrant distribute to its partners the $8,000,000 payment, less fees and expenses awarded by the court to plaintiff's counsel (which amount is not expected to exceed 20% of the settlement amount), along with $1,000,000 of the Registrant's cash reserves. The MOU is subject to many conditions including execution of a definitive settlement agreement, completion of discovery by plaintiffs and court approval of the settlement following notice to limited partners. Discovery is currently ongoing and it is anticipated that discovery will be concluded in the second quarter of 2001. Accordingly, there can be no assurance that the settlement will be consummated on the terms currently contemplated or that the settlement will be consummated at all.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5.
ITEM 5. MARKET FOR REGISTRANT'S SECURITIES AND RELATED SECURITY HOLDER MATTERS
There is no established public trading market for the Units of Registrant.
There are restrictions set forth in the Partnership Agreement, which may limit the ability of a limited partner to transfer units. Such restrictions could impair the ability of a limited partner to liquidate its investment in the event of an emergency or for any other reason.
As of January 1, 2001 there were approximately 3,367 holders of Units of Registrant, owning an aggregate of 187,919 Units (including Units held by the initial limited partner).
There are no material legal restrictions set forth in the Partnership Agreement upon Registrant's present or future ability to make distributions. No distributions were made in 2000 and 1999.
On January 17, 2001, Bighorn commenced a tender offer to acquire up to 57,000 Units for a price of $90 per unit. Subsequent to Bighorn's offer, Western commenced an offer to acquire up to 40,000 Units for a price of $97 per unit. After a series of amendments, both the Bighorn purchase price and the Western purchase price was $127 per Unit.
On March 16, 2001, Bighorn's offer expired and on March 20, 2001, Western's offer expired. Based on its filings with the Securities and Exchange Commission, Bighorn acquired 22,636 Units in its offer representing approximately 12.05% of the total outstanding Units. As of March 28, 2001, Western had not yet made its final filing with the Securities and Exchange Commission indicating the number of Units they acquired.
ITEM 6.
ITEM 6. SELECTED FINANCIAL DATA.
(1) Net of provision for loan losses of $1,515,000 or $7.86 per Unit. (2) Net of provision for loan losses of $400,000 or $2.08 per Unit on the Twin Oak loan and recovery of loan losses of $800,000 or $4.15 per unit on the Harborista loan.
ITEM 7.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The matters discussed in this Form 10-K contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosure contained in this Form 10-K and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's liquidity, capital resources and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein.
This item should be read in conjunction with the financial statements and other items contained elsewhere in the report.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant initially invested the net proceeds of its public offering in four zero coupon first and junior mortgage loans aggregating $23,300,000. These loans were secured by properties owned principally by privately and publicly syndicated limited partnerships originally sponsored by affiliates of the general partners. The Registrant currently retains an investment in one of the original four mortgage loans, which had an initial principal balance of approximately $6,500,000. During the first quarter of 1997, the obligor under the Registrant's remaining mortgage loan wrote the property down to what its management believed to be its estimated fair market value of $15,875,000. Management of the Registrant performed its own evaluation at that time and determined that this amount was a fair estimate of the property value. The outstanding balance of the loan at December 31, 1996 was approximately $15,979,000 and it was unlikely that any additional interest accrued on the loan would ultimately be recovered from the value of the underlying property. Consequently, as of January 1, 1997 the Registrant ceased accruing interest on the loan. At December 31, 2000, the contractual balance of principal and accrued interest on this loan was $24,506,244 and the Registrant had a carrying value in this loan of $15,979,355.
The Registrant's remaining mortgage note contains a provision, which requires the borrower to provide a current appraisal based upon certain conditions or in some cases upon request. If an appraisal indicates the value of all indebtedness senior to and including the Registrant's loan, taking into account principal plus accrued interest in excess of 5% per annum, exceeds 85% of the then current appraisal, the borrower must repay the indebtedness to a point where the 85% loan to value ratio is restored.
The borrower advised the Registrant in 2000 that believes that the value of the Sierra property had increased since the beginning of 1997 and that, depending on the results of the appraisal, the value of the Registrant's mortgage loan may exceed the value at which the mortgage loan was then being carried on the Registrant's financial statements. In addition, the loan, which was scheduled to mature on February 1, 2001, was extended and modified. See "Item 8. Financial Statements and Supplementary Data", Note 4.
The Registrant's level of liquidity based on cash and cash equivalents increased by $65,427 to $4,342,270 during the year ended December 31, 2000 as compared to December 31, 1999. The increase is due to cash provided by operating activities. Cash and cash equivalents are invested in short-term instruments and are expected to be sufficient to pay administrative expenses during the term of the Registrant. If the proposed settlement of the class action litigation is consummated as currently contemplated, it is anticipated that the Registrant will make a distribution to its partners, upon consummation of such settlement, in an amount not less than $7,400,000 in the aggregate ($38.39 per unit), $1,000,000 of which will be provided from existing capital reserves and the balance from settlement proceeds. See "Item 8. Financial Statements and Supplemental Data", Note 6.
Registrant uses working capital reserves provided from the proceeds of its public offering and subsequent settlement amounts, and interest earned thereon as its primary measure of liquidity. Registrant did not
anticipate making any distributions from cash flow during its first 8 to 12 years or operations, or until such time as the Mortgage loans mature or are prepaid. Working capital reserves are invested in short-term instruments and are expected to be sufficient to pay administrative expenses during the term of Registrant. As of December 31, 2000, Registrant had approximately $4,337,000 invested in money market accounts which is included in cash and cash equivalents.
During the latter part of 1998 and continuing into 1999, the Registrant attempted to arrange for financing in order to satisfy the underlying First Mortgage encumbering Harbor Plaza, the property underlying the Harborista Loan, and protect the Registrant's interest in the Harborista Loan. The Registrant was unable to obtain financing and, on March 29, 1999, the Registrant sold its interest in the Harborista Loan to the holder of the First Mortgage for gross proceeds of $1,000,000, exclusive of legal and other costs related to the transaction of approximately $200,000.
Following its acquisition of the Harborista Loan, 470 Atlantic Avenue Management Corp. ("470 Atlantic") foreclosed on its interests in the two mortgages and acquired Harbor Plaza. On March 29, 1999, 470 Atlantic entered into an agreement with Charbird Enterprises LLC ("Charbird"), an affiliate of NorthStar and the General Partners, for the performance of services in connection with the marketing of Harbor Plaza. Charbird assigned to NorthStar its right to receive a substantial portion of amounts paid under the agreement and NorthStar agreed to indemnify Charbird for any liabilities under the agreement. Harbor plaza was sold in December 1999 for approximately $50,500,000. Charbird received a fee of $14,050,884 under the agreement, $12,645,796 of which was paid to NorthStar. See "Item 8. Financial Statements and Supplemental Data", Note 6.
On March 1, 1999, the Twin Oak Property was sold to an affiliate of NorthStar Capital Investment Corp. ("NorthStar") for a gross purchase price of approximately $4,150,000 (subject to customary adjustments at closing). The Twin Oak Borrower used the proceeds from the sale to repay the first mortgage to Southern Life Mortgage and on May 5, 1999, the Registrant received approximately $237,000 representing the carrying value of the Twin Oak loan. During the year ended December 31, 1999, the Registrant received an additional $99,156 representing residual proceeds from The Twin Oak sale and recorded such amount as loan loss recovery during the year ended December 31, 1999.
Recently Issued Accounting Standards
The Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." The Statement deferred for one year the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement requires companies to recognize all derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether they qualify for hedge accounting. This Statement is effective for fiscal years beginning after June 15, 2000. The Partnership believes that the effect of SFAS 133 on its financial statements will be immaterial.
REAL ESTATE MARKET
The real estate market in Reno, Nevada has begun to recover from the effects of the recession which included a substantial decline in the market value of existing properties. However, due to increased competition from newly constructed retail properties, Registrant's potential for realizing the full value of its investment in Sierra Marketplace is considered unlikely.
Inflation has not had a material effect on the Registrant's recent operations or financial condition and is not expected to have a material effect in the future. Except as discussed above, management is not aware of any other known trends, events, commitments, or uncertainties that will have a significant impact on liquidity.
RESULTS OF OPERATIONS
2000 AS COMPARED TO 1999
Net income decreased by $189,013 to $75,541 for the year ended December 31, 2000 as compared to 1999, due to a decrease in revenue and an increase in costs and expenses.
Revenues decreased by $3,882 for the year ended December 31, 2000 as compared to the same period in 1999 due to a decrease in other income items, which was substantially offset by an increase in short term investment interest resulting from larger cash balances available for investment.
Costs and expenses increased by $185,131 for the year ended December 31, 2000 as compared to the same period in 1999 due to higher professional fees in 2000 and the recovery of loan loss in 1999, relating to the Twin Oaks property.
1999 AS COMPARED TO 1998
Registrant generated net income of $264,554 for the year ended December 31, 1999, as compared to net income of $481,315 for the year ended December 31, 1998. The decrease in net income was due primarily to 1998 result including $400,000 of net loan loss recovery.
Revenues increased in 1999 to $256,051 from $168,888 in 1998 or an increase of $87,163. The increase was the result of increased investment interest of $28,218 and other income increases of $58,945.
General and administrative expenses remained relatively constant in 1999 at $90,653 compared to $87,573 in 1998 or an increase of $3,080.
Recovery of loan losses in 1999 was $99,156 from the Twin Oak property sale compared to $800,000 in 1998 from the Harborista loan sale. The decrease from 1998 was partially offset by 1998 incurring $400,000 of loan losses for the Twin Oak loan in 1998.
ITEM 7A.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Registrant is not subject to market risk as its cash and cash equivalents are invested in short term money market mutual funds. The Registrant has no loans outstanding.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
INDEX
PAGE NUMBER ------
Independent Auditors' Report 14
Financial Statements - Years ended December 31, 2000, 1999 and 1998
Balance sheets 16
Statements of income 17
Statement of partners' equity 18
Statements of cash flows 19
Notes to financial statements 20
All financial statement schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto.
INDEPENDENT AUDITORS' REPORT
To the Partners
Resources Accrued Mortgage Investors 2, L.P.:
We have audited the accompanying balance sheet of Resources Accrued Mortgage Investors 2, L.P. (a limited partnership) (the "Partnership") as of December 31, 2000 and the related statements of operations, partners' equity and cash flows for the year then ended. 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 audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Resources Accrued Mortgage Investors 2, L.P. (a limited partnership) as of December 31, 2000 and its operations and cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.
/s/ Imowitz Koenig & Co., LLP
New York, New York March 2, 2001
To the Partners of Resources Accrued Mortgage Investors 2, L.P. Cambridge, Massachusetts
INDEPENDENT AUDITOR'S REPORT
We have audited the accompanying balance sheet of Resources Accrued Mortgage Investors 2 L.P. (a limited partnership) as of December 31, 1999 and the related statements of operations, shareholders' equity and cash flows for each of the two years in the period ended December 31, 1999. 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 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, the financial statements referred to above present fairly, in all material respects, the financial position of Resources Accrued Mortgage Investors 2 L.P. as of December 31, 1999 and the results of its operations and its cash flows for each of the two years in the period ended December 31, 1999 in conformity with accounting principles generally accepted in the United States of America.
/s/ Hays & Company
March 15, 2000 New York, New York
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
BALANCE SHEETS
DECEMBER 31, ---------------------------
2000 1999 ----------- -----------
ASSETS
Investment in mortgage loan $15,979,355 $15,979,355 Cash and cash equivalents 4,342,270 4,276,843 Other receivables -- 32,525 ----------- -----------
Total Assets $20,321,625 $20,288,723 =========== ===========
LIABILITIES AND PARTNERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 57,315 $ 99,954 ----------- -----------
Total Liabilities 57,315 99,954 ----------- -----------
Commitments and Contingencies
Partners' Equity:
Limited partners' equity (187,919 units issued and outstanding) 19,757,727 19,684,075 General partners' equity 506,583 504,694 ----------- -----------
Total Partners' Equity 20,264,310 20,188,769 ----------- -----------
Total Liabilities and Partners' Equity $20,321,625 $20,288,723 =========== ===========
See notes to financial statements.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
STATEMENTS OF OPERATIONS
See notes to financial statements.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
STATEMENT OF PARTNERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
See notes to financial statements.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
STATEMENTS OF CASH FLOWS
See notes to financial statements.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
1. ORGANIZATION
Resources Accrued Mortgage Investors 2, L.P. (formerly Resources Accrued Mortgage Investors L.P. - Series 87 and Resources Accrued Mortgage Investors - Series 88), a Delaware limited partnership (the "Partnership"), was formed in August 1986 under the Delaware Revised Uniform Limited Partnership Law for the purpose of investing primarily in senior and junior accrued interest mortgage loans on properties owned or acquired principally by publicly or privately syndicated limited partnerships sponsored by affiliates of Integrated Resources, Inc. ("Integrated"), the former parent of the general partners. During 1994, Integrated's indirect ownership of the managing general partner was purchased by Presidio Capital Corp. ("Presidio").
The Partnership originally offered 400,000 units of limited partnership interest (the "Units") pursuant to the Prospectus dated April 12, 1988 (the "Prospectus"). Since all gross proceeds that were raised had not been invested or committed for investment, the Partnership was obligated, under the terms of the Prospectus, to return such uninvested funds. The Partnership distributed these funds in the amount of $19,263,445, including interest of $857,598, in August 1990. Additionally, the Partnership made a second related distribution of $606,978 on October 30, 1990.
The managing general partner of the Partnership, RAM Funding, Inc. and the associate general partner, Presidio AGP Corp. (collectively referred to as the "General Partners") are wholly-owned subsidiaries of Presidio. The General Partners and certain affiliates of the General Partners, are general partners in several other limited partnerships which are also affiliated with Presidio, and which are engaged in businesses that are, or may be in the future, in direct competition with the Partnership.
Subject to the rights of the limited partners, Presidio controls the Partnership through its indirect ownership of the General Partners. Presidio is indirectly controlled by NorthStar Capital Investment Corp. ("NorthStar"), a Maryland Corporation.
Presidio entered into a management agreement with NorthStar Presidio Management Company LLC ("NorthStar Presidio"), an affiliate of NorthStar. Under the terms of the management agreement, NorthStar Presidio provides the management of Presidio's operation and its direct and indirect subsidiaries and affiliates.
On October 21, 1999, Presidio entered into a Services Agreement with AP-PCC III, L.P. (the "Agent") pursuant to which the Agent was retained and is compensated by Presidio to provide asset management and investor relation services to the Partnership and other entities affiliated with the Partnership, which were previously provided by NorthStar Presidio.
As a result of this agreement, the Agent has the duty to direct the day-to-day affairs of the Partnership, including, without limitation, reviewing and analyzing potential sale, financing or restructuring proposals regarding the Partnership's assets, preparation of all Partnership reports, maintaining Partnership records and maintaining bank accounts of the Partnership. The Agent is not permitted, however, without the consent of Presidio, or as otherwise required under the terms of the Partnership Agreement to, among other things, cause the Partnership to sell or acquire an asset or file for bankruptcy.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
1. ORGANIZATION (CONTINUED)
In order to facilitate the provision by the Agent of the asset management services and the investor relation services, effective October 25, 1999, the officers and directors of the General Partner resigned and nominees of the Agent were elected as the officers and directors of the General Partner. The Agent is an affiliate of Winthrop Financial Associates, a Boston based company that provides asset management services, investor relation services and property management services to over 150 limited partnerships which own commercial property and other assets. The General Partner does not believe that this transaction will have a material effect on the operations of the Partnership.
In accordance with the Partnership's Agreement of Limited Partnership (the "Partnership Agreement"), net income and loss, adjusted cash from operations and disposition proceeds are allocated 97.5% to the limited partners and 2.5% to the General Partners.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVESTMENT IN MORTGAGE LOANS
The Partnership principally invested in "zero coupon" senior and junior mortgage loans on properties owned or acquired by limited partnerships originally sponsored by affiliates of the General Partners. These loans generally contain provisions whereby the Partnership may be entitled to additional interest represented by participation in the appreciation of the underlying property.
The Partnership accounts for its investments in mortgage loans under the following methods:
INVESTMENT METHOD
Mortgage loans representing transactions in which the Partnership is considered to have substantially the same risks and potential rewards as the borrower are accounted for as investments in real estate rather than as loans. Although the transactions are structured as loans, due to the terms of the zero coupon mortgage, it is not readily determinable at inception that the borrower will continue to maintain a minimum investment in the property. Under the method of accounting, the Partnership will recognize as revenue the lesser of the amount of interest as contractually provided for in the mortgage loan, or its pro rata share of the actual cash flow from operations of the underlying property inclusive of depreciation and interest expense on any senior indebtedness.
INTEREST METHOD
Under this method of accounting, the Partnership recognizes revenue as interest income over the term of the mortgage loan so as to produce a constant periodic rate of return. Interest income will not be recognized as revenue during periods where there are concerns about the ultimate realization of the interest or loan principal.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is established based upon a periodic review of each of the mortgage loans in the Partnership's portfolio. In performing this review, management considers the estimated net realizable value of the mortgage loan or collateral as well as other factors, such as the current occupancy, the amount and status of any senior debt, the prospects for the property and the economic situation in the region where the property is located. Because this determination of net realizable value is based upon projections of future economic events which are inherently subjective, the amounts ultimately realized at disposition may differ materially from the carrying value at each year end.
The allowance is inherently subjective and is based upon management's best estimate of current conditions and assumptions about expected future conditions. The Partnership may provide for additional losses in subsequent periods and such provisions could be material.
CASH AND CASH EQUIVALENTS
For the purpose of the statements of cash flows, the Partnership considers all short-term investments which have original maturities of three months or less to be cash equivalents. Substantially all of the Partnership's cash and cash equivalents are held at one financial institution.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of financial instruments is determined by reference to market data and other valuation techniques as appropriate. The Partnership's financial instruments include cash and cash equivalents and an investment in a mortgage loan. Unless otherwise disclosed, the fair value of financial instruments approximates their recorded value.
NET INCOME PER UNIT OF LIMITED PARTNERSHIP INTEREST
Net income per unit of limited partnership interest is computed based upon the number of units outstanding (187,919) during the year.
INCOME TAXES
No provisions have been made for federal, state and local income taxes, since they are the personal responsibility of the partners.
The income tax returns of the Partnership are subject to examination by federal, state and local taxing authorities. Such examinations could result in adjustments to Partnership income, which changes could effect the tax liability of the individual partners.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principals requires management to make estimates and assumptions that affect the reported amount 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.
Recently Issued Accounting Standards
The Financial Accounting Standards Board issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of SFAS No. 133." The Statement deferred for one year the effective date of SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities". The Statement requires companies to recognize all derivatives on the balance sheet as assets or liabilities, measured at fair value. Gains or losses resulting from changes in the values of those derivatives would be accounted for depending on the use of the derivative and whether they qualify for hedge accounting. This Statement is effective for fiscal years beginning after June 15, 2000. The Partnership believes that the effect of SFAS 133 on its financial statements will be immaterial.
3. CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
For the years ended December 31, 2000, 1999 and 1998, reimbursable expenses due to NorthStar Presidio from the Partnership amounted to $ 0, $12,781 and $1,000, respectively.
As of December 31, 2000, affiliates of Presidio had acquired 31,893 units of limited partnership interest of the Partnership. These units represent 16.972% of the issued and outstanding limited partnership units.
4. INVESTMENTS IN MORTGAGE LOAN AND ALLOWANCE FOR LOAN LOSSES
The Partnership invested in zero-coupon, nonrecourse senior and junior mortgage loans. Collection of the amounts due on the Partnership's mortgage loans is solely dependent upon the sale or refinancing of the underlying properties at amounts sufficient to satisfy the Partnership's mortgage notes after payment of the senior mortgage notes owned by unaffiliated third parties.
The Partnership currently has one outstanding mortgage loan.
The Partnership's mortgage note contains a provision which requires the borrower to provide current appraisals based upon certain conditions or in some cases upon request.
While there are risks inherent in a zero-coupon nonrecourse senior or junior mortgage loan portfolio, the above described provisions were intended to provide some mitigation of these risks. However, in the event a borrower is required to make a payment under such loan provisions, there can be no assurance that the borrower will be able to make such payments.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
4. INVESTMENTS IN MORTGAGE LOAN AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
HARBORISTA LOAN
A $10,000,000 second mortgage loan ("the Harborista Loan") to Harborista Associates, L.P. was secured by an office building, commonly known as the Harbor Plaza, located in Boston, Massachusetts (the "Harbor Plaza"). The Harborista Loan was funded on February 13, 1989 and bore interest at the rate of 13.307% per annum, compounded monthly and was originally due to mature on December 1, 1998, at which time a balloon payment of approximately $36,000,000 would have been due and payable. Harbor Plaza was also encumbered by a first mortgage loan in the original amount of $24,475,000 held by Northwestern Mutual Life Insurance Co. ("Northwestern"). The first mortgage was due to mature on December 1, 1995, but was extended until January 1, 1999.
During 1993 management determined that interest on the Harborista Loan should cease to accrue and that an allowance for loan losses was necessary for the entire carrying value of the Harborista Loan which amounted to $10,618,380.
On February 9, 1999, 470 Atlantic Avenue Management Corp. ("470 Atlantic"), which had acquired Northwestern's first mortgage loan, filed a motion for foreclosure on its mortgage.
On March 30, 1999, the Partnership sold its interest in Harborista Loan to 470 Atlantic for gross proceeds of $1,000,000, exclusive of legal and other costs related to the transaction of $200,000. Accordingly, the Partnership recorded $800,000 of recovery of loan losses with respect to the sale of this loan as of December 31, 1998.
Following its acquisition of the Harborista Loan, 470 Atlantic foreclosed on its interests in the two mortgages and acquired Harbor Plaza. On March 29, 1999, 470 Atlantic entered into an agreement with Charbird Enterprises LLC ("Charbird"), an affiliate of NorthStar and the General Partners, for the performance of services in connection with the marketing of Harbor Plaza. Charbird assigned to NorthStar its right to receive a substantial portion of amounts paid under the agreement and NorthStar agreed to indemnify Charbird for any liabilities under the agreement. Harbor Plaza was sold in December 1999 for approximately $50,500,000. Charbird received a fee of $14,050,884 under the agreement, $12,645,796 of which was paid to NorthStar (see Note 6).
TWIN OAK LOAN
On March 1, 1999, the Twin Oak Property was sold to an affiliate of NorthStar for a gross purchase price of approximately $4,150,000 (subject to customary adjustments at closing). The Twin Oak Borrower used the proceeds from the sale to repay the first mortgage to Southern Life Mortgage and on May 5, 1999, the Partnership received approximately $237,000 representing the carrying value of the Twin Oak loan. During the quarter ended December 31, 1999, the Partnership received an additional $99,156 representing residual proceeds from The Twin Oak sale and recorded such amount as loan loss recovery during the quarter ended December 31, 1999. A $400,000 allowance for loan losses had been recorded during 1998 to reduce the carrying value of the loan to the estimated amount anticipated to be received by the Partnership.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
4. INVESTMENTS IN MORTGAGE LOAN AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
SIERRA LOAN
A $6,500,000 first mortgage loan to High Cash Partners, L.P. ("High Cash") is secured by a shopping center located in Reno, Nevada. Interest on the loan accrues at the rate of 11.22% per annum with no payments due until maturity on February 28, 2001 (see below).
During the first quarter of 1997, High Cash wrote the property down to what its management believed to be its estimated fair market value of $15,875,000. Management of the Partnership performed its own evaluation at that time and determined that this amount was a fair estimate of the property value. The outstanding balance of the loan at December 31, 1996 was approximately $15,979,000 and it was unlikely that any additional interest accrued on the Sierra loan would ultimately be recovered from the value of the underlying property. Consequently, as of January 1, 1997 the Partnership ceased accruing interest on the Sierra loan.
On June 13, 1997, the general partners of High Cash, who were formerly affiliated with the General Partners, sold their general partner interest to Pembroke HCP LLC and Pembroke AGP Corp., unaffiliated third parties.
In December 2000, the Partnership and High Cash agreed on an extension to the loan as follows:
1. To extend the term of the loan until February 28, 2003.
2. The borrower placed in escrow a deed as well as documents necessary to convey the property, which documents will be released to the Partnership on the earlier (A) March 1, 2003, (B) at such time as a third-party purchaser is identified to acquire the Sierra property or (C) at any time after March 1, 2002 if the Partnership deems it necessary to protect its economic interest.
3. The borrower will pay to the Partnership, to be applied towards the Sierra loan, all cash flow generated from the property in excess of $100,000 per year.
4. The borrower will have an appraisal prepared on the Sierra property to determine if an excess payment as described above is due and, if such a payment is due, to make such payment.
5. The borrower has the right to prepay the loan after the initial maturity date (February 2001) by paying to the Partnership the sum of the then unpaid principal balance of the loan together with accrued interest and other charges due under the loan and 66% of the value of the Sierra property in excess of such amount.
In addition, the Partnership now has significantly more input over the operation of the Sierra property including, the selection of the management company, leasing programs and capital improvements. In this regard, Kestrel Management Company, an affiliate of the Agent, began providing property management services at the Sierra property effective March 2001.
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
4. INVESTMENTS IN MORTGAGE LOAN AND ALLOWANCE FOR LOAN LOSSES (CONTINUED)
A summary of mortgage activity is as follows:
Information with respect to the Partnership's mortgage loan is as follows:
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
5. RECONCILIATION OF NET INCOME (LOSS) AND NET ASSETS PER FINANCIAL STATEMENTS TO TAX BASIS
The Partnership presently recognizes interest income on all of its investments in mortgage loans using the interest method for tax purposes. For financial statement purposes, mortgage loans accounted for under the investment method recognize income as described in Note 2.
A reconciliation of net income per financial statements to the tax basis of accounting is as follows:
The differences between the Partnership's net assets per financial statements and tax basis of accounting are as follows:
YEAR ENDED DECEMBER 31, --------------------------- 2000 1999 ----------- -----------
Net assets per financial statements $20,264,310 $20,188,769 Interest income recognized for tax purposes in excess of amounts recognized for financial statements 8,525,002 6,008,372 Syndication costs 2,230,944 2,230,944 ----------- -----------
Net assets per tax basis $31,020,256 $28,428,085 =========== ===========
RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999 AND 1998
6. LITIGATION
DR. WARREN HELLER, ON BEHALF OF HIMSELF AND ALL OTHERS SIMILARLY SITUATED, V. RAM FUNDING INC., PRESIDIO AGP CORP., NORTHSTAR CAPITAL INVESTMENT CORP. AND CHARBIRD ENTERPRISES, LLC, DEFENDANTS, AND RESOURCES ACCRUED MORTGAGE INVESTORS 2, L.P., AS NOMINAL DEFENDANT, Court of Chancery, New Castle County, Delaware (Case No. 18059). On or about May 19, 2000, Dr. Warren Heller, a limited partner, commenced a punitive class action and derivative lawsuit in the Delaware Chancery Court seeking, among other things, monetary damages resulting from purported breaches of fiduciary duties and breaches of the Partnership's partnership agreement in connection with the March 1999 sale of the Harborista loan and the marketing of the property which secured the Harborista loan. In addition, the action alleges breaches of fiduciary duty in connection with the purported failure of the Partnership to distribute cash and the purported failure of the Partnership to enforce the provisions of the loan secured by the Reno, Nevada property. The defendants have preliminarily agreed to enter into a Memorandum of Understanding (the "MOU") settling this lawsuit. As currently contemplated, the MOU (i) provides for an $8,000,000 payment by the defendants to the Partnership and (ii) requires that the Partnership distribute to its partners the $8,000,000 payment, less fees and expenses awarded by the court to plaintiff's counsel (which amount is not expected to exceed 20% of the settlement amount), along with $1,000,000 of the Partnership's cash reserves. The MOU is subject to many conditions including execution of a definitive settlement agreement, completion of discovery by plaintiffs and court approval of the settlement following notice to limited partners. Discovery is currently ongoing and it is anticipated that discovery will be concluded in the second quarter of 2001. Accordingly, there can be no assurance that the settlement will be consummated on the terms currently contemplated or that the settlement will be consummated at all.
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
Effective July 28,2000, the Registrant dismissed its prior Independent Auditors, Hays & Company (the "Prior Auditors"). Hays & Company's auditors' report on the balance sheets of the Registrant as of and for years ended December 31, 1999 and 1998, and the related statements of operations, partner's equity and cash flows for each of the three years in the period ended December 31, 1999, did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainty, audit scope, or accounting principles. The decision to change Independent Auditors was approved by the Registrant's managing general partner's directors. During calendar year ended 1998 and 1999 and through July 28, 2000, there were no disagreements between the Registrant and the Prior Auditors on any matter of accounting principles or practices, financial statement disclosure, or auditing scope of procedure which disagreements if not resolved to the satisfaction of the Prior Auditors.
Effective October 25, 2000, the Registrant engaged Imowitz Koenig & Co., LLP. as its Independent Auditors. The Registrant did not consult Imowitz Koenig & Co., LLP. regarding any of the matters or events set forth in Item 304(a)(2) of Regulation S-K prior to October 25, 2000.
PART III
ITEM 10.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF REGISTRANT.
Registrant has no officers or directors. The Managing General Partner manages and controls substantially all of Registrant's affairs and has general responsibility and ultimate authority in all matters affecting its business. The officers and directors of the Associate General Partner, in their respective capacities as such, do not devote any material amount of their business time and attention to Registrant's affairs. The names and positions held by the officers and directors of the Managing General Partner are described below. The officers and directors of the Associate General Partner are the same as the officers and directors of the Managing General Partner.
POSITION HELD WITH THE HAS SERVED AS A DIRECTOR NAME MANAGING GENERAL PARTNER OR OFFICER SINCE - ---- ------------------------ ------------------------
Michael L. Ashner President and Director 10-99
David G. King, Jr. Vice President 11-97
Peter Braverman Executive Vice President 10-99
Lara K. Sweeney Vice President and Secretary 10-99
Carolyn Tiffany Vice President and Treasurer 10-99
Michael L. Ashner, age 48, has been the Chief Executive Officer of Winthrop Financial Associates, A Limited Partnership ("WFA") since January 15, 1996. From June 1994 until January 1996, Mr. Ashner was a Director, President and Co-chairman of National Property Investors, Inc., a real estate investment company ("NPI"). Mr. Ashner was also a Director and executive officer of NPI Property Management Corporation ("NPI Management") from April 1984 until January 1996. In addition, since 1981 Mr. Ashner has been President of Exeter Capital Corporation, a firm which has organized and administered real estate limited partnerships. Mr. Ashner also currently serves as a Director of Interstate Hotels Corporation, Nexthealth Corp., Great Bay Hotel and Casino Inc., Burnham Pacific Properties, Inc. and NBTY, Inc.
David G. King, Jr., 38, has been a Vice President and Assistant Treasurer of NorthStar Capital Investment Corp. since November 1997. He is also a Vice President of the General Partner. For more than the previous five years he was a Senior Vice President of Finance at Olympia & York Companies (USA).
Peter Braverman, age 49, has been a Vice President of WFA since January 1996. From June 1995 until January 1996, Mr. Braverman was a Vice President of NPI and NPI Management. From June 1991 until March 1994, Mr. Braverman was President of the Braverman Group, a firm specializing in management consulting for the real estate and construction industries. From 1988 to 1991, Mr. Braverman was a Vice President and Assistant Secretary of Fischbach Corporation, a publicly traded, international real estate and construction firm.
Lara K. Sweeney, age 28, has been a Senior Vice President of WFA since January 1996. Prior to joining WFA, Ms. Sweeney was an officer of NPI and NPI Management in the asset management and investor relations departments.
Carolyn Tiffany, age 34, has been employed with WFA since January 1993. From 1993 to September 1995, Ms. Tiffany was a Senior Analyst and Associate in WFA's accounting and asset management departments. From October 1995 to present Ms. Tiffany was a Vice President in the asset management and investor relations departments of WFA until December 1997, at which time she became the Chief Operating Officer of WFA.
Each director and officer of the General Partner will hold office until the next annual meeting of stockholders of the General Partner and until his successor is elected and qualified.
One or more of the above persons are also directors or officers of a general partner (or general partner of a general partner) of a number of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act.
There are no family relationships among the officers and directors of the General Partners.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION.
Registrant is not required to and did not pay remuneration to the officers and directors of the Managing General Partner or the general partners of the former Associate General Partner. Certain officers and directors of the Managing General Partner receive compensation from affiliates of the Managing General Partner and/or its affiliates (but not from Registrant) for services performed for various affiliated entities, which may include services performed for Registrant; however, the Managing General Partner believes that any compensation attributable to services performed for Registrant is not material. See Item 13, "Certain Relationships and Related Transactions."
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(a) SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS.
Except as set forth below, no person or group is known by the Registrant to be the beneficial owner of more than 5% of the outstanding Units at March 1, 2001:
NUMBER OF NAME OF BENEFICIAL OWNER UNITS OWNED % OF CLASS ------------------------ ----------- ----------
Presidio Partnership II Corp.(1) 17,462 9.29% Bighorn Associates LLC(2) 14,122 7.515%
(1) The principal business address of Presidio Partnership II Corp., an affiliate of the General Partners, is 527 Madison Avenue, New York, New York 10022.
(2) The principal business address of Bighorn Associates LLC, an affiliate of the General Partners, is 5 Cambridge Center, 9th Floor, Cambridge, Massachusetts 02142.
On January 17, 2001, Bighorn commenced a tender offer to acquire up to 57,000 Units for a price of $90 per unit. Subsequent to Bighorn's offer, Western commenced an offer to acquire up to 40,000 Units for a price of $97 per unit. After a series of amendments, both the Bighorn purchase price and the Western purchase price was $127 per Unit.
On March 16, 2001, Bighorn's offer expired and on March 20, 2001, Western's offer expired. Based on its filings with the Securities and Exchange Commission, Bighorn acquired 22,636 Units in its offer representing approximately 12.05% of the total outstanding Units. As of March 28, 2001, Western had not
yet made its final filing with the Securities and Exchange Commission indicating the number of Units they acquired.
(b) SECURITY OWNERSHIP OF MANAGEMENT.
At March 1, 2001, Presidio, the Managing General Partner and their affiliates, officers and directors owned as a group own 31,893 Units representing approximately 16.97% of the total number of Units outstanding. As indicated above, Bighorn acquired an additional 22,636 Units (12.05%) in its tender offer in March 2001.
(c) CHANGES IN CONTROL.
There exists no arrangement known to the Registrant the operation of which may at a subsequent date result in a change in control of the Registrant.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The General Partners, during Registrant's year ended December 31, 2000, earned or received compensation or payments for services from or with respect to Registrant as follows:
CAPACITY IN WHICH SERVED OR NAME OF RECIPIENT SERVICES PERFORMED COMPENSATION - ----------------- --------------------------- ------------ RAM Funding, Inc. Managing General Partner (1) Presidio AGP Corp. Associate General Partner (1)
(1) The General Partners were not entitled to any payment for services from or with respect to Registrant, Integrated or Presidio. However, the General Partners, pursuant to the Partnership Agreement, are entitled to receive 2.5% of Registrant's income, loss, capital and distributions (2.45% to the Managing General Partner and .05% to the Associate General Partner) including without limitation Registrant's cash flow from operations and disposition proceeds. No distributions are expected to be made from operations inasmuch as all interest and principal due on the Mortgage Loans is deferred until maturity, unless there are prepayments of Mortgage Loans. For the year ended December 31, 2000, the General Partners were allocated an aggregate of $64,660 of taxable income ($63,367 to the Managing General Partner and $1,293 to the Associate General Partner).
Under the terms of a management agreement with NorthStar Presidio Management Company LLC ("NorthStar Presidio"). NorthStar Presidio was retained to provide the day-to-day management of, among other entities, the Registrant. During the years ended December 31, 2000 and 1999, the Registrant paid NorthStar Presidio $0 and $12,781, respectively, for management and administrative services rendered. Effective October 21, 1999, Presidio retained AP-PCC III, L.P. to provide the day to day management of the Registrant.
PART IV
ITEM 14.
ITEM 14. EXHIBITS, FINANCIAL STATEMENTS SCHEDULES AND REPORTS ON FORM 8-K
(A)(1) FINANCIAL STATEMENTS
See Item 8, "Financial Statements and Supplementary Data."
(A)(2) FINANCIAL STATEMENT SCHEDULES
None.
All schedules have been omitted because they are inapplicable, not required, or the information is included in the Financial Statements or Notes thereto.
(A)(3) EXHIBITS
3. Certificate of Limited Partnership filed August 14, 1986 (incorporated by reference to Exhibit 3B as filed as part of Pre-Effective Amendment No. 1 filed on May 14, 1987 ("Pre-Effective Amendment") to the Registration Statement) and Amendments to Certificate of Limited Partnership filed on March 12, 1987, May 7, 1987 (incorporated by reference as filed as part of Pre-Effective Amendment to the Registration Statement) and February 5, 1988 (incorporated by reference to Post-Effective Amendment No. 2 to the Registration Statement).
4.
(A) Amended and Restated Agreement of Limited Partnership (incorporated by reference to Exhibit 3A as filed as part of Post-Effective Amendment No. 2 filed on March 23, 1988 ("Post-Effective Amendment No. 2") to the Registration Statement).
(B) Amendment No. 1 to Amended and Restated Partnership Agreement dated as of June 1, 1988, incorporated by reference to Exhibit 4(B) of the 1988 10-K.
(C) Amendment No. 2 to Amended and Restated Partnership Agreement (incorporated by reference to Supplement No. 1 dated August 12, 1988 to the Prospectus as filed pursuant to Rules 424(b)(3) and 424(c).
10.
(A) Agreement with Associate General Partner dated as of May 17, 1988 among Integrated, RAM Funding, Inc. and Z Square G Partners II, incorporated by reference to Exhibit 10(B) of the 1988 10-K.
(B) Mortgage Services Agreement dated as of April 12, 1988 between Registrant and RAM Funding, Inc., incorporated by reference to Exhibit 10(C) of the 1988 10-K.
(C) Deed of Trust, Assignment of Rents, Fixture Filing and Security Agreement among High Cash Partners, L.P., Truster; First Commercial Title, Inc., Trustee and Resources Accrued Mortgage Investors 2 L.P., Beneficiary, dated February 10, 1989 (incorporated by reference to Exhibit 10(a) of Registrant's Current Report on Form 8-K dated February 13, 1989 (hereinafter referred to as the February 13, 1989 Form 8-K)).
(D) Registered Note among High Cash Partners L.P. and Resources Accrued Mortgage Investors 2 L.P., dated February 10, 1989 (incorporated by reference to Exhibit 10(b) of the February 13, 1989 Form 8-K).
(E) Assignment of Leases and Rents among High Cash Partners L.P. and Resources Accrued Mortgage Investors 2 L.P., dated February 10, 1989 (incorporated by reference to Exhibit 10(c) of the February 13, 1989 Form 8-K).
(F) Modification Agreement, dated as of December 21, 2000, between High Cash Partners, L.P. and Resources Accrued Mortgage Investors 2 L.P. (incorporated by reference to Exhibit 10 of the February 9, 2001 Form 8-K)
16. Letter dated July 31, 2000 from Hays & Company (incorporated by reference to Exhibit 16 of the July 28, 2000 Form 8-K)
(B) REPORTS ON FORM 8-K
A Current Report on Form 8-K was filed on October 25, 2000 with respect to the Registrant's change of accountants (Item 4).
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 29th day of March 2001.
RESOURCES ACCRUED MORTGAGE INVESTORS 2 L.P.
By: RAM FUNDING, INC., Managing General Partner
DATE
By: /S/ MICHAEL L. ASHNER March 29, 2001 -------------------------------- Michael L. Ashner President
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Registrant and in their capacities as directors and/or officers (with respect to the Managing General Partner) and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ----
/S/ MICHAEL L. ASHNER Director and President March 29, 2001 - -------------------------- Michael L. Ashner
/S/ CAROLYN TIFFANY Vice President and Treasurer March 29, 2001 - -------------------------- Carolyn Tiffany
EXHIBIT INDEX
PAGE EXHIBIT NUMBER - ------- ------
3. Certificate of Limited Partnership filed August 14, 1986 (incorporated by reference to Exhibit 3B as filed as part of Pre-Effective Amendment No. 1 filed on May 14, 1987 ("Pre-Effective Amendment") to the Registration Statement) and Amendments to Certificate of Limited Partnership filed on March 12, 1987, May 7, 1987 (incorporated by reference as filed as part of Pre-Effective Amendment to the Registration Statement) and February 5, 1988 (incorporated by reference to Post-Effective Amendment No. 2 to the Registration Statement).
4.
(A) Amended and Restated Agreement of Limited Partnership (incorporated by reference to Exhibit 3A as filed as part of Post-Effective Amendment No. 2 filed on March 23, 1988 ("Post-Effective Amendment No. 2") to the Registration Statement).
(B) Amendment No. 1 to Amended and Restated Partnership Agreement dated as of June 1, 1988, incorporated by reference to Exhibit 4(B) of the 1988 10-K.
(C) Amendment No. 2 to Amended and Restated Partnership Agreement (incorporated by reference to Supplement No. 1 dated August 12, 1988 to the Prospectus as filed pursuant to Rules 424(b)(3) and 424(c).
10.
(A) Agreement with Associate General Partner dated as of May 17, 1988 among Integrated, RAM Funding, Inc. and Z Square G Partners II, incorporated by reference to Exhibit 10(B) of the 1988 10-K.
(B) Mortgage Services Agreement dated as of April 12, 1988 between Registrant and RAM Funding, Inc., incorporated by reference to Exhibit 10(C) of the 1988 10-K.
(C) Deed of Trust, Assignment of Rents, Fixture Filing and Security Agreement among High Cash Partners, L.P., Truster; First Commercial Title, Inc., Trustee and Resources Accrued Mortgage Investors 2 L.P., Beneficiary, dated February 10, 1989 (incorporated by reference to Exhibit 10(a) of Registrant's Current Report on Form 8-K dated February 13, 1989 (hereinafter referred to as the February 13, 1989 Form 8-K)).
(D) Registered Note among High Cash Partners L.P. and Resources Accrued Mortgage Investors 2 L.P., dated February 10, 1989 (incorporated by reference to Exhibit 10(b) of the February 13, 1989 Form 8-K).
(E) Assignment of Leases and Rents among High Cash Partners L.P. and Resources Accrued Mortgage Investors 2 L.P., dated February 10, 1989 (incorporated by reference to Exhibit 10(c) of the February 13, 1989 Form 8-K).
(F) Modification Agreement, dated as of December 21, 2000, between High Cash Partners, L.P. and Resources Accrued Mortgage Investors 2 L.P. (incorporated by reference to Exhibit 10 of the February 9, 2001 Form 8-K)
16. Letter dated July 31, 2000 from Hays & Company (incorporated by reference to Exhibit 16 of the July 28, 2000 Form 8-K)