Back to GetFilings.com
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999 OR
-----------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _____________ to _____________
Commission File No. 1-8356
------
DVL, INC.
- -------------------------------------------------------------------------------
Exact name of Registrant as specified in its charter)
Delaware 13-2892858
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 East 55th Street, 7th Floor, New York 10022
- -------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 350-9900
--------------
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
---------------------------- ---------------------
Common Stock, $.01 par value None
Securities registered pursuant to Section 12(g) of the Act: None
----
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- ----
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy information statements
incorporated by reference in Part IV of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the Common Stock of the Registrant held by non-
affiliates as of March 17, 2000 was $3,301,038.
The number of shares outstanding of Common Stock of the Registrant as of March
17, 2000 was 16,560,450.
DVL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 1999
ITEMS IN FORM 10-K
------------------
Page
----
PART I
Item 1. Business 1
Item 2. Properties 7
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 9
Item 6. Selected Consolidated Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk 19
Item 8. Financial Statements and Supplementary Data 19
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 19
PART III
Item 10. Directors and Executive Officers of the Registrant 20
Item 11. Executive Compensation 23
Item 12. Security Ownership of Certain Beneficial Owners
and Management 27
Item 13. Certain Relationships and Related Transactions 35
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 38
PART I
This 1999 Annual Report on Form 10-K contains statements which constitute
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Those statements include statements regarding the intent, belief or
current expectations of the Registrant and its management team. The Registrant's
stockholders and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those projected in the forward-looking statements. Such risks and uncertainties
include, among other things, general economic conditions, the ability of the
Registrant to successfully implement its business strategy and other risks and
uncertainties that are discussed herein.
ITEM 1. BUSINESS.
OVERVIEW
DVL, Inc., a Delaware corporation incorporated in 1977 ("DVL" or the
"Company"), is a commercial finance company which is primarily engaged in the
ownership and servicing of a portfolio of secured commercial mortgage loans, as
well as acting as the general partner of the limited partnerships which own the
properties which secure such mortgages (each an "Affiliated Limited
Partnership"). Also, the Company performs real estate asset management and
administrative services for third parties.
DVL is the general partner of approximately 90 affiliated limited
partnerships which own income-producing commercial, office and industrial
properties comprising approximately 3.5 million square feet. A majority of the
properties are subject to long-term triple net leases with various tenants. The
principal tenant is Wal-Mart Stores, Inc. The remaining properties are shopping
centers, industrial properties and other commercial properties. In connection
therewith, the Company performs real estate and partnership management services.
The mortgage loans held by the Company are primarily "wrap-around" mortgage
loans which are subject to non-recourse, underlying mortgages held by unrelated
institutional lenders which self liquidate from the base rents payable by the
underlying tenant over the primary term of the related lease. The Company
receives mortgage payments from the Affiliated Limited Partnerships and pays the
underlying mortgage holder their required monthly principal and interest
payments. In addition, the Company receives a portion of the Affiliated Limited
Partnerships percentage rent income as additional debt service. The Company's
other principal assets include (a) loans made to limited partners of Affiliated
Limited Partnerships, which loans are secured by the limited partnerships
interests held by such limited partners, (b) long term leasehold interests in
certain commercial properties, (c) investments as a limited partner in certain
Affiliated Limited Partnerships and (d) certain real estate.
The Company derives the majority of its income as a result of the
difference in the effective interest rates on its wrap-around mortgages and the
interest rates on the underlying mortgages, as well as from a share of
percentage rents received from various tenants of the Affiliated Limited
1
Partnerships, from rentals received as a result of its long term leasehold
interests, from fees received as General Partner of the Affiliated Limited
Partnerships (including disposition and management fees), from distributions
received as a limited partner in the Affiliated Limited Partnerships, from the
sale of partnership properties, and fees from third party management contracts.
Through an arrangement developed with a related entity, called the
"Opportunity Fund", described below, the Company continues to seek out and
participate in investment opportunities related to its existing asset base.
These opportunities do not require the direct investment of the Company's
capital. To date, the Opportunity Fund has purchased several mortgages secured
by properties owned by certain Affiliated Limited Partnerships as well as a
commercial property and various limited partnership interests in certain
Affiliated Limited Partnerships. The Company, as a participant in the
Opportunity Fund, has a right to participate in profits after the other
investors in the Opportunity Fund receive a required return on their investment.
At December 31, 1999, the Company had net operating loss carry- forwards
("NOLS") aggregating approximately $63 million, which expire in various years
through 2014 with approximately $55 million expiring through 2007. If the
Company generates profits in the future, the Company may be subject to
limitations on the use of its NOLS pursuant to the Internal Revenue Code. There
can be no assurance that a significant amount of the Company's existing NOLS
will be available to the Company at such time as the Company desires to use
them.
As a result of focusing on historic issues and resolving claims of
creditors, the Company has lacked sufficient cash resources to develop new
business and has therefore been focused on (i) managing, administering and
servicing its existing loan portfolio, the Affiliated Limited Partnerships and
the mortgages it holds on such properties, (ii) seeking to sell or refinance or
otherwise maximize the value of the real estate assets of DVL and its Affiliated
Limited Partnerships, (iii) seeking management contracts to perform asset
management and administrative services for third parties.
DVL's anticipated cash flow provided by operations is sufficient to meet
its current cash requirements through January 2001, assuming that no payments
are made to NPO Management LLC ("NPO"). The Company has in the past and expects
in the future to continue to augment its cash flow with additional cash
generated from either the sale or refinancing of its assets and/or borrowings.
(See Management Discussion and Analysis of Financial Conditions and Results of
Operations).
The Company's current strategy is to (i) maximize the value of its assets
and meet its short-term working capital needs by continuing to manage,
administer and service its existing real estate properties, the Affiliated
Limited Partnerships and the mortgages on loans to such Affiliated Limited
Partnerships, (ii) increase its participation in the Opportunity Fund, (iii)
obtain investments through the use of bank borrowings and (iv) expand through
the acquisition of one or more companies to generate income and positive cash
flow. There can be no assurance that the Company will be able to identify or
acquire businesses. While the Company regularly evaluates and discusses
potential acquisitions, the Company currently has no understandings, commitments
or agreements with respect to any acquisitions.
2
The Company anticipates that it would finance any possible future acquisition
through new borrowing or the issuance of its common or preferred stock. However,
the Company has no current commitments or arrangements for such additional
financing and there can be no assurance that the Company will be able to obtain
additional financing on acceptable terms except for the new bank financing that
was consummated in March 2000 for the acquisition of five mortgage loans.
The principal executive offices of the Company are located at 70 East 55th
Street, 7th Floor, New York, New York 10022. The Company's telephone number is
(212) 350-9900. The Company and its subsidiaries have not engaged in any
business activity outside of the United States.
BUSINESS ACTIVITIES
Mortgage Loans
The Company's mortgage loan portfolio consists primarily of long term
wrap-around and other mortgage loans due from its Affiliated Limited
Partnerships secured by income-producing commercial, office and industrial
properties leased on a long-term basis to unaffiliated, creditworthy tenants.
The principal tenant is Wal-Mart Stores, Inc. Most of such loans are
subordinated obligations with the majority of the payments received being
utilized to amortize the related underlying mortgage loan over the primary term
of the related lease. This has the effect of creating an equity build up in the
value of the mortgage loans over time. At December 31, 1999, the Company had
investments in 32 mortgage loans to Affiliated Limited Partnerships with an
aggregate mortgage balance due of $69,557,000 and a carrying value for financial
reporting purposes of $42,228,000 as of December 31, 1999, prior to a loan loss
reserve of approximately $6,083,000 in connection with its mortgage loan
portfolio. These mortgage loan receivable are subject to underlying mortgage
obligations of $27,692,000.
Generally, the tenants of the Affiliated Limited Partnerships executed
"triple-net" leases under which they are responsible for the payment of all
taxes, insurance and other property costs. In certain instances, the partnership
is required to maintain the roof and structure of the premises.
In addition to base rent, most leases also require the tenant to pay
additional rent equal to a percentage of gross receipts from the tenant's
operation of a property above a specified amount ("Percentage Rent"). In
virtually all cases where the partnership is entitled to receive Percentage
Rent, a portion of such rent is required to be paid to the Company as additional
interest and/or additional debt service on the long-term mortgage.
The Company has the right to refinance the outstanding mortgage loans
underlying its wrap-around mortgage loans due from Affiliated Limited
Partnerships, provided that the debt service and principal amount of a
refinanced loan are no greater than that of the existing wrap-around loan. The
Company also has the right to arrange senior financing secured by properties on
which it holds first or second mortgage loans by subordinating such mortgage
loans, subject to the same such limitations set forth above.
3
In 1997, the Company refinanced five mortgages which generated
approximately $957,000 in excess of the existing underlying mortgage loans. In
1998, the Company refinanced one mortgage which generated approximately $40,000
in excess of the existing underlying mortgage. During 1999, DVL did not
refinance any of its wrap mortgages. The net excess funds from the 1997 and 1998
refinancings were used to pay the expenses of the refinancings, and to pay down
the loan to NPM, as required by the applicable loan agreements. The amounts
obtained from these refinancings were primarily based on the value of the base
rents due from tenants during the period of the base lease term subsequent to
the payoff of the existing first mortgages. As a result of these refinancings,
the Company's asset base available for future refinancings has diminished.
All of these mortgage loans are pledged to secure the indebtedness of the
Company to NPM Capital LLC ("NPM"), NPO, and together with NPM, (the "NPM
Parties") and Blackacre Capital Group, LLC ("BCG"), which are entities engaged
in real estate lending and management transactions and are affiliated with
certain stockholders and insiders of the Company. All outstanding indebtedness
owed to NPM was fully paid off in May 1999. (See Items 7 and 13 below for a
description of certain related transactions involving the NPM Parties).
Loans Secured by Limited Partnership Interests
The Company maintains a relatively small portfolio of loans to individual
limited partners of the Affiliated Limited Partnerships, which loans are secured
by limited partnership interests. As of December 31, 1999, such loans had an
aggregate carrying value of $150,000 after a loan loss reserve of approximately
$614,000. Substantially all of such loans were non-performing. The Company,
through NPO, has been aggressively attempting to collect these loans including
the institution of litigation and foreclosure on the limited partnership
interests, where appropriate.
Loan Portfolio
The following table sets forth the number of various loans outstanding, the
aggregate loan balances, including accrued interest, and the allowances for loan
losses, at December 31, 1999. See Tables 1 and 2 of Appendix "A" to this Form
10-K for detailed information as to each such loan.
Number Aggregate Allowance
of Loan for Loan
Type of Loan Loans Amount Losses
------------ ----- ------ ------
(dollars in thousands)
Long-term mortgages due from Affiliated
Limited Partnerships $ 48,038
Less: unearned interest (1) (5,810)
-------
Total loans collateralized by mortgages 32 42,228 $ 6,083
-- ------- ------
Loans collateralized by limited partnership
interests 45 764 614
--- -------- ------
Advances due from affiliated partnerships 17 48 -
--- -------- -----
Total loans 94 $ 43,040 $ 6,697
=== ======== =======
- ------------
(1) Unearned interest represents the unamortized balance of discounts on
previously funded loans.
4
Investments in Affiliated Limited Partnerships
The Company over the years has acquired various limited partnership
interests in its Affiliated Limited Partnerships pursuant to the terms of
certain settlement agreements and through various purchases.
Partnership and Property Management
The Company is the general partner of approximately 90 Affiliated Limited
Partnerships from which it receives management, transaction and other fees. The
Company, through Professional Service Corporation ("PSC"), its wholly-owned
subsidiary, is engaged in the management of two industrial properties located in
New Jersey pursuant to master lease interests. These master leases permit PSC to
sub-lease the properties to tenants and retain profits subject to the payment by
PSC of operating expenses and rent to the partnerships that own the properties.
In June 1998, the Company entered into a Management Services Agreement with
a limited partnership in which certain of its partners are affiliates of NPO to
render certain services. This agreement will continue until the date that all of
these partnerships' assets are sold unless terminated at any time prior, with 30
days notice by either party. As compensation, the Company receives an aggregate
fee equal to (a) a monthly fee of $5,000 (b) after all the partners of the
partnership have earned a 20% internal rate of return, compounded quarterly, on
their capital contributions, an amount of cash equal to 25% of the profits, as
defined in the agreement. For 1999 and 1998 the Company received compensation
equal to $480,000 and $35,000, respectively.
In addition, the Company entered into a service agreement with another
limited partnership whose general partner is an affiliate of NPO, to render
certain accounting and administrative services. As compensation, the Company
receives a monthly fee of $3,000, and expense reimbursements of $1,000 per
month.
Also, the Company entered into a property management agreement with an
entity that is part of the Opportunity Fund pursuant to which DVL provides
property management services in exchange for fees equal to 3% of rent
collections.
In November 1999, the Company entered into a management service agreement
with an entity whose partners are affiliates of NPO, to render certain
accounting and administrative services. As compensation, the Company receives a
monthly fee of $2,000, a monthly deferred fee of $6,500 which is payable upon
certain capital events and an annual incentive fee, if certain levels of
profitability occurs. For 1999, the Company was paid $4,000 and accrued fees of
$13,000.
Real Estate Holdings
The Company currently owns one property located in New Jersey. Prior to May
1999 the Company owned an additional parcel, consisting of 6.9 acres of land,
which was leased for an annual rent of $30,000 to an Affiliated Limited
Partnership which owned the buildings and improvements on the parcel. In April
1999, the Company sold this property to an affiliated entity which is part of
the Opportunity Fund. In connection with the sale, the Company also was repaid
on a mortgage which it held on the leasehold interest. The one remaining
property consists of approximately two acres
5
of land underlying approximately 80,000 square feet of manufacturing,
warehousing and commercial buildings which was leased through November 1998 to
an Affiliated Limited Partnership ("Toch"), which owned the buildings and
improvements on the property subject to a mortgage held by the Company. In
November of 1998, the Company foreclosed on the mortgage and now owns the
buildings and improvements.
Opportunity Fund
The Company, BCG, an affiliate of Blackacre (as defined below), P.N.M.
Capital LLC, an affiliate of NPO ("PNM"), and Pemmil Management LLC, an
affiliate of NPO ("Pemmil"), and PNM, the ("NPO Affiliates") are parties to a
certain Agreement which is called the Opportunity Agreement (the "Opportunity
Agreement"). The Opportunity Agreement has a term of three years expiring April
2001, subject to earlier termination if certain maximum capital contributions
have been reached. The Opportunity Agreement provides for an arrangement (the
"Opportunity Fund") whereby the fund has the right of first refusal to finance
the acquisition of limited partnership interests or mortgage loans of Affiliated
Limited Partnerships in which the Company is general partner, or which the
Company already owns, if the Company is unable to pursue such business
opportunity with its own funds from its reserves or available from operations,
and without financing from a third party or issuing equity.
The Opportunity Fund is expected to pursue each opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by the other members. The Company will receive up to 20% of the
profits from an opportunity after the other investors receive a return of their
investment plus preferred returns ranging from 12% to 20%.
The transactions in which the Opportunity Fund may engage include, for
example, acquisition of partnership interests from existing limited partners of
Affiliated Limited Partnerships, and investment in certain properties owned by
the Company or such partnerships, where capital may be required to enhance value
but is not currently available to the Company. There can be no assurance that
the Opportunity Fund's activities will generate profit distributions to the
Company.
As of March 15, 2000, the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven
mortgages were purchased in 1998, one of which was purchased in 1999 and seven
mortgages were purchased in January 2000), acquired limited partnership units
from unaffiliated individuals in three Affiliated Limited Partnerships, and
acquired a leasehold interest of a tenant of an Affiliated Limited Partnership.
In addition, during 1999, the Opportunity Fund acquired a property of an
Affiliated Limited Partnership and the land underlying this property from DVL.
To date, DVL has not realized any revenues from the investments by the
Opportunity Fund.
Employees
As of March 15, 2000, the Company had 12 employees all of whom were
employed on a full-time basis other than the President of the Company, who
serves on a part-time basis. The Company is not a party to any collective
bargaining agreement and the Company's employees are not represented by any
labor union. The Company considers its relationship with its employees to be
good.
6
ITEM 2. PROPERTIES.
The Company maintains corporate headquarters in New York City in a leased
facility located at 70 E. 55th Street, New York, New York, which occupies
approximately 6,000 square feet of office space. The lease for such office space
is due to expire on February 7, 2003. The base rent is $227,160 per annum, plus
real estate tax and operating expense escalation clauses. The Company leases on
a month to month basis, certain office space. In 1999, the Company received
approximately $48,000 from these sub- tenants. A description of the other
properties owned by the Company appears in the subsection captioned "Real Estate
Holdings" in Item 1 above. The Company believes that its existing facilities are
adequate to meet its current operating needs and that suitable additional space
should be available to the Company on reasonable terms should the Company
require additional space to accommodate future operations or expansion.
ITEM 3. LEGAL PROCEEDINGS.
The Company from time to time is a party in various lawsuits incidental to
its business operations. In the opinion of the Company, none of such litigation
in which it is currently a party, if adversely determined, will have a material
adverse effect on the Company's financial condition or its operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On February 1, 2000, the Company held its Annual Meeting of Stockholders
(the "Annual Meeting"). The holders of record of 14,058,457 shares of Common
Stock were present in person or represented by proxy at the Annual Meeting. At
the Annual Meeting, the Company's stockholders approved the following:
(1) Election of Directors.
The stockholders elected the following persons to serve as directors of the
Company until the next Annual Meeting, or until their successors are duly
elected and qualified. Votes were cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
Myron Rosenberg 13,396,227 0 662,230
Frederick E. Smithline 13,400,667 0 657,790
Allen Yudell 13,404,784 0 653,673
Keith B. Stein continued his term as Special Purpose Director (as described
in Item 10) after the Annual Meeting.
(2) Amendment of the Company's Certificate of Incorporation to increase the
Authorized Issue.
7
The Stockholders approved the amendment of the Company's Certificate of
Incorporation, as amended (the "Certificate of Incorporation"), to increase the
number of authorized shares of capital stock of the Company from 40,000,100 to
95,000,100 in order to (a) increase the number of authorized shares of the
Company's Common Stock from 40,000,000 to 90,000,000, and (b) authorize
5,000,000 shares of "blank check" preferred stock, $.01 par value. Votes were
cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
8,792,527 1,508,389 123,769
(3) Various other Amendments of the Company's Certificate of Incorporation.
The Stockholders approved the amendments to the Company's Certificate
of Incorporation to bring it into conformity with contemporary corporate legal
practices and to help preserve the utilization of the Company's carryforwards of
net operating losses for federal income tax purposes. Votes were cast as
follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
13,630,080 318,252 110,125
(4) Various Amendments of the Company's By-laws.
The Stockholders approved the amendments to the Company's By-laws to
bring them into conformity with contemporary corporate legal practices and to
help preserve the utilization of the Company's carryforwards of net operating
losses for federal income tax purposes. Votes were cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
13,580,364 318,252 110,125
(5) Amendment of 1996 Stock Option Plan (the "Plan").
The Stockholders approved the amendment to the Company's Plan to
increase by 1,000,000 the aggregate number of shares of the Company's Common
Stock available under the Plan. Votes were cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
8,373,770 1,574,912 399,264
(6) Appointment of Auditors
The stockholders approved the appointment of Richard A. Eisner &
Company, LLP as independent auditors of the Company for the 1999 fiscal year.
Votes were cast as follows:
Number Of Number Of Number Of
Votes For Votes Against Votes Abstaining
--------- ------------- ----------------
13,621,478 313,694 123,285
8
PART II
ITEM 5. MARKET FOR DVL'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Common Stock of DVL is traded on the over-the-counter market and is
quoted on the OTC Bulletin Board maintained by the NASD under the symbol "DVLN".
As of March 15, 2000, DVL stock was trading at $.1875 based on the last sale
price. The following table sets forth, for the calendar periods indicated, the
high and low bid prices of the Common Stock as reported by the NASD for 1999 and
1998. Such prices are inter-dealer prices without retail mark-up, mark-down or
commission, and do not represent actual transactions.
1999 High Low
- ---- ---- ---
First Quarter . . . . . . . . . . . . $ .23 $ .14
Second Quarter . . . . . . . . . . . .22 .19
Third Quarter . . . . . . . . . . . . .23 .17
Fourth Quarter . . . . . . . . . . . .20 .13
1998 High Low
- ---- ---- ---
First Quarter . . . . . . . . . . . . $ .20 $ .07
Second Quarter . . . . . . . . . . . .185 .14
Third Quarter . . . . . . . . . . . . .17 .13
Fourth Quarter . . . . . . . . . . . .19 .125
At March 15, 2000, there were 3,639 holders of record of Common Stock of
DVL. No dividends have been paid since October 1990. At this time, DVL does not
anticipate paying any dividends in the foreseeable future.
9
ITEM 6. SELECTED FINANCIAL DATA
The data set forth below should be read in conjunction with other financial
information of DVL, including its consolidated financial statements and
accountants' report thereon included elsewhere herein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Consolidated Statements of Operations Data
(In thousands except for per share data)
Year Ended December 31,
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Revenues
Affiliates $ 7,188 $ 5,835 $ 6,183 $ 5,794 $ 6,375
Other 369 399 70 528 1,360
-------- -------- -------- -------- --------
Total $ 7,557 $ 6,234 $ 6,253 $ 6,322 $ 7,735
======== ======== ======== ======== ========
Income (loss) before extraordinary gain (5,780) (4,471) (2,415) (758) $ 1,026
Extraordinary gain on the settlement of 7,900 8,349 4,011 202 1,267
-------- -------- -------- -------- --------
indebtedness
Net Income (loss) $ 2,120 $ 3,878 $ 1,596 $ (556) $ 2,293
======== ======== ======== ======== ========
Basic earnings (loss) per share
Income (loss) before extraordinary gain $ (.58) $ (.31) $ (.15) $ (.04) $ .06
Extraordinary gain .79 .58 .25 .01 .08
-------- -------- -------- -------- --------
Net Income (loss) $ .21 $ .27 $ .10 $ (.03) $ .14
======== ======== ======== ======== ========
Diluted earnings (loss) per share
Income (loss) before extraordinary gain (.58) (.31) (.15) (.04) .02
Extraordinary gain .79 .58 .25 .01 .02
-------- -------- -------- -------- --------
Net Income (loss) $ .21 $ .27 $ .10 $ (.03) $ .04
======== ======== ======== ======== ========
10
Consolidated Balance Sheet Data
(In thousands)
As at December 31
1995 1996 1997 1998 1999
---- ---- ---- ---- ----
Total assets $85,799 $76,383 $64,942 $55,635 $41,858
======= ======= ======= ======= =======
Underlying mortgages payable $44,300 $49,749 $45,306 $38,644 $27,692
======= ======= ======= ======= =======
Long-term debt and notes payable $32,290 $20,340 $12,143 $ 9,937 $ 5,156
======= ======= ======= ======= =======
Short-term debt $ 1,060 $ - $ - $ - $ -
======= ======= ======= ======= =======
Shareholders' equity (capital
deficiency) $(1,330) $ 3,582 $ 5,279 $ 4,775 $ 7,068
======= ======= ======= ======= =======
11
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
INTRODUCTION
The Company is a commercial finance company which has been primarily
engaged in the ownership and servicing of a portfolio of secured commercial
mortgage loans, as well as managing numerous properties and the limited
partnerships which typically own such properties.
DVL's anticipated cash flow provided by operations is sufficient to meet
its current cash requirements through January 2001, assuming that no payments
are made to NPO Management LLC ("NPO"). The Company has in the past and expects
in the future to continue to augment its cash flow with additional cash
generated from either the sale or refinancing of its assets and/or borrowings.
The Company's current strategy is to (i) maximize the value of its assets
and meet its short-term working capital needs by continuing to manage,
administer and service its existing real estate properties, the Affiliated
Limited Partnerships and the mortgages on loans to such Affiliated Limited
Partnerships, (ii) increase its participation in the Opportunity Fund, (iii)
obtain assets using borrowed funds, where possible, and (iv) expand through the
acquisition of one or more companies to generate positive income. There can be
no assurance that the Company will be able to identify or acquire businesses.
While the Company regularly evaluates and discusses potential acquisitions, the
Company currently has no understandings, commitments or agreements with respect
to any acquisitions other than the mortgage portfolio acquired in March of 2000,
which is described in the Liquidity section below. The Company anticipates that
it would finance any possible future acquisition through new borrowings or the
issuance of its common or preferred stock. The Company has no current
commitments or arrangements for such additional financing and there can be no
assurance that the Company will be able to obtain additional financing on
acceptable terms or at all other than the new bank financing obtained in
connection with the mortgage portfolio acquired in March of 2000.
At December 31, 1999, the Company had net operating loss carry forward
("NOLS") aggregating approximately $63 million, which expire in various years
through 2014 including $55 million which expire through 2007. If the Company
generates profits in the future, the Company may be subject to limitations on
the use of its NOLS pursuant to the Internal Revenue Code. There can be no
assurance that a significant amount of the Company's existing NOLS will be
available to the Company at such time as the Company desires to use them.
SIGNIFICANT EVENTS
NPM and NPO Transactions
In an effort to alleviate its liquidity problems and to meet certain
mandatory debt repayment requirements, on September 27, 1996, the Company
entered into a loan transaction with NPM under a certain Amended and Restated
Loan Agreement dated as of March 27, 1996 (the "Original Loan Agreement"),
pursuant to which NPM purchased certain loans from creditors of the Company, and
agreed to make principal installment payments of up to $600,000 on DVL's
obligations to two of its creditors. NPM has fulfilled this additional funding
obligation. The original principal loan amount from
12
NPM was $8,382,000 (the "Original Loan"), which was $3,150,000 in excess of the
aggregate balances due on the loans sold to NPM. Accordingly, the transaction
resulted in a loss of $880,000 in 1996 and an effective interest rate of 15% on
the NPM loan in 1999, 1998 and 1997. In 1997, NPM advanced the Company an
aggregate of $200,000, which amount was being paid back to NPM pari passu with
the Original Loan. In addition, from January 1998 through May 1999, NPM advanced
amounts aggregating an additional $370,000 to the Company to fund quarterly
payments to a creditor of the Company. All advances not contemplated by the
Original Loan bore interest at 15% per annum and were being paid pari passu with
the Original Loan (such amounts, collectively, are referred to herein as the
"NPM Loan").
Under the terms of the NPM Loan, the principal balance was payable over six
years with interest accruing at the rate of 10.25% per annum. In May 1999, DVL
repaid all amounts due on the loan to NPM.
In connection with the transactions contemplated by the Original Loan
Agreement, in March 1996, the Company, NPO, an affiliate of certain principals
of NPM, entered into an Asset Servicing Agreement (the "Asset Servicing
Agreement"), pursuant to which NPO is providing the Company with administrative
and advisory services relating to the assets of the Company and its Affiliated
Limited Partnerships. In consideration for such services, the Company is
required to pay NPO $600,000 per year (with cost of living increases) over the
seven-year term of the agreement, subject to early termination under certain
conditions. DVL had the right to defer up to $600,000 of such fees, with
interest at 15% per annum, during the first two years and to defer reduced
amounts during the third year. DVL had accrued service fees of $1,467,000 as of
December 31, 1999. NPO has waived any event of default which may exist under the
Asset Servicing Agreement during the period through December 31, 2000, based on
the fact that the amount of accrued service fees has exceeded the operative
limitations since mid-1997. The waiver does not affect NPO's right to receive
payment of all deferred service fees, and interest thereon, which are currently
outstanding or which may become outstanding through December 31, 2000.
In connection with the Original Loan Agreement, certain affiliates of NPM
acquired an aggregate of 1,000,000 shares (the "Base Shares") of the Company's
Common Stock for $200,000. The Base Shares currently represent approximately 6%
of the outstanding Common Stock of the Company. An affiliate of NPM also
acquired 100 shares of preferred stock of the Company for $1,000. The Company
issued to affiliates of the NPM Parties warrants (the "Warrants"), exercisable
as of January 1999 in accordance with the terms of such Warrants, to purchase
such number of shares of Common Stock as, when added to the Base Shares,
represent an aggregate of 49% of the outstanding Common Stock of the Company on
a fully diluted basis. The original exercise price of the Warrants was $.16 per
share, subject to applicable anti-dilution provisions and subject to a maximum
aggregate exercise price of approximately $1,900,000. The Warrants expire on
December 31, 2007. The Warrants were valued for financial statement purposes at
$516,000 at the date of issuance and such value resulted in a debt discount to
be amortized using the effective interest rate method. Through March 2000, no
Warrants have been exercised.
13
The possibility that some or all of the Warrants may be exercised creates
the potential for significant dilution of the current stockholders. The actual
dilutive effect cannot be currently ascertained, since it depends on whether,
and if so to what extent, the Warrants are exercised.
Recent Debt Tender Offers
From October 27, 1997 through February 27, 1998 (the "First Tender
Expiration Date"), the Company conducted a cash tender offer (the "First Offer")
for the Promissory notes (the "Notes")at a price of $0.12 per $1.00 principal
amount of the Notes. The Notes were originally issued in December 1995 in
conjunction with the settlement of a stockholder class action lawsuit. The
Company purchased and retired a total of $6,224,390 principal amount of Notes in
the First Offer. An additional $392,750 principal amount of the Notes were
purchased by Blackacre Bridge Capital, LLC ("Blackacre"), an unaffiliated
entity, pursuant to the terms of the BC Arrangement (as defined below).
On February 26, 1999, the Company commenced a second cash tender offer (the
"Second Offer", and together with the First Offer, the "Offers") for its
outstanding Notes at a price of $0.12 per $1.00 principal amount of the Notes.
During the period from February 26, 1999 through May 14, 1999, the Company
purchased and retired a total of $2,413,652 principal amount of Notes. In
addition, $423,213 principal amount of the Notes were purchased by Blackacre,
pursuant to the terms of the BC Agreement. Notes with an aggregate principal
amount of $3,863,437 remained outstanding as of December 31, 1999, including
those purchased by Blackacre.
The Company has had the option to redeem the outstanding Notes since
January 1, 1999 by issuing additional shares of Common Stock with a then current
market value (determined based on a formula set forth in the Notes), equal to
110% of the face value of the Notes plus any accrued and unpaid interest
thereon. Because the applicable market value of the Common Stock will be
determined at the time of redemption, it is not possible currently to ascertain
the precise number of shares of Common Stock that may have to be issued to
redeem the outstanding Notes. The redemption of the notes may cause significant
dilution for current shareholders. The actual dilutive effect cannot be
currently ascertained since it depends on the number of share to be actually
issued to satisfy the Notes. The Company currently intends to exercise at some
point in the future its redemption option to the extent it does not buy back the
outstanding Notes by means of cash tender offers.
The Offers effected a reduction in the Company's long-term debt and
resulted in an extraordinary gain of $2,906,000 for the year ended December 31,
1997, $202,000 for the year ended December 31, 1998, and $1,267,000 for the year
ended December 31, 1999. Furthermore, the Offers have reduced the potential
dilutive effect on the Company's current stockholders that would result from
redemption of the Notes for shares of Common Stock. However, given the aggregate
principal amount of Notes which remains outstanding, the potential dilutive
effect of such a redemption is still significant.
14
In order to fund the acquisition of the Notes and pay the related costs and
expenses, the Company entered into an amended financing arrangement (the "BC
Arrangement") with Blackacre, NPM Capital LLC ("NPM") and NPO Management LLC
("NPO") as of October 20, 1997, in the form of a Fourth Amendment to a Loan
Agreement between such parties (as amended, the "Amended Loan Agreement),
permitting the Company to borrow up to $1,760,000 (the amount actually borrowed
by the Company pursuant to the BC Arrangement is referred to as the "BC Loan").
The BC Loan matures on September 30, 2002 and bears interest at the rate of 12%
compounded monthly per annum payable at maturity. Total outstanding borrowings
under the BC Arrangement were $1,560,000 as of December 31, 1999. In addition,
Blackacre is entitled to acquire 15% of all Notes acquired by the Company in
excess of $3,998,000 under the same terms and conditions as the Company.
Blackacre acquired Notes aggregating $392,750 under these terms from the First
Offer and $423,213 from the Second Offer.
As further consideration for Blackacre's providing the Company with the BC
Loan, the Company issued to Blackacre 653,000 shares of Common Stock.
The Company's obligations under the BC Loan are secured by all of the
assets of the Company currently pledged to NPO under the Amended Loan Agreement
and the other documents executed in connection therewith. The BC Loan is senior
to all indebtedness of the Company other than indebtedness to NPO and, with
respect to individual assets, the related secured lender. The effective interest
rate to the Company for financial reporting purposes, including the Company's
costs associated with the BC Loan, and the value of the 653,000 shares issued to
Blackacre in connection therewith, is approximately 14% per annum. Interest
payable in connection with the BC Loan will be deferred until the Company
satisfies all of its obligations owing to NPO. Thereafter, interest and
principal will be paid from 100% of the proceeds then available to the Company
from the mortgage collateral held as security for the BC Loan.
Opportunity Fund
In April 1998, DVL, an affiliate of Blackacre, and affiliates of NPO
entered into a certain Agreement Among Members (the "Opportunity Agreement"),
providing for an arrangement (the "Opportunity Fund"), pursuant to which
entities would be formed, from time to time, to enter into certain transactions
involving the acquisition of limited partnership interests in the assets of, or
mortgage loans to, Affiliated Limited Partnerships or other assets in which the
Company has an interest. These investment opportunities will be presented to the
Opportunity Fund on a first refusal basis, if the Company, due to financial
constraints, is unable to pursue such business opportunity with its own funds.
The Opportunity Fund is expected to pursue each such opportunity with
respect to which it exercises its right of first refusal through the use of a
special purpose limited liability company. All of the required capital
contributions are to be provided by Blackacre and the NPO Affiliates. The
Company will receive up to 20% of the profits from an opportunity after
Blackacre and the NPO Affiliates receive a return of their investment plus
preferred returns ranging from 12% to 20%.
15
As of March 15, 2000 the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven were
purchased in 1998, one was purchased in 1999 and seven mortgages were purchased
in January 2000), acquired limited partnership interests from unaffiliated
individuals in three Affiliated Limited Partnerships, and acquired a leasehold
interest of a tenant of an Affiliated Limited Partnership. In addition, during
1999, the Opportunity Fund acquired a property of an Affiliated Limited
Partnership and the land underlying this property from DVL (see Note 5 of Notes
to Financial Statements).
RESULTS OF OPERATIONS
DVL realized net income from operations of $1,026,000 for the year ended
December 31, 1999 compared to net operating losses of $758,000 and $2,415,000
for the years ended December 31, 1998 and 1997, respectively. DVL realized net
income after extraordinary gains of $2,293,000 for the year ended December 31,
1999 compared to a net loss after extraordinary gains of $556,000 for the year
ended December 31, 1998 and net income after extraordinary gains of $1,596,000
for the year ended December 31, 1997. Extraordinary gains were $1,267,000,
$202,000, and $4,011,000 for the years ended December 31, 1999, 1998, and 1997,
respectively, resulting from debt settlements.
Interest on mortgage loans from affiliates decreased from 1997 through
1999, as a result of a reduction in DVL's mortgage portfolio. The decrease in
interest income was partially offset by greater interest income recognition on
certain loans in DVL's portfolio, beginning in 1998. This increase was primarily
a result of the Company's revaluation of several mortgage loans in its
portfolio. Additional interest income recognized in 1998 and 1999 due to the
revaluation of mortgage loans was $378,000 and $362,000, respectively. The
income recognition was adjusted as a result of DVL's determination that future
cash flows from the mortgage loans would result in DVL recovering its carrying
value plus interest. The carrying amount of such loans was not adjusted. The
Company accounts for increases and decreases in the amount or timing of expected
future cash flows on the Company's loan portfolio by adjusting the valuation
allowance, but does not exceed the recorded investment in the loan.
During 1999, DVL was paid aggregate proceeds of $4,215,000 as full
satisfaction of eight of its mortgage loans. The aggregate net proceeds paid on
the satisfaction of mortgage loans was greater than the net carrying value,
which resulted in a gain of $1,639,000. During 1998, the gain recognized was
$173,000. Transaction fees and other fees from Affiliated Limited Partnerships
increased in each of the last three years. Transaction and other fees are earned
in connection with the sales of partnership properties and refinancings of
underlying mortgages. Distributions from investments in Affiliated Limited
Partnerships increased in 1999 from 1998 but was lower than the amount earned in
1997. Distributions were higher in 1999 than 1998 due to the refinancing of
certain underlying mortgages in the limited partnerships in which DVL owned
limited partnership units, but did not hold the mortgages. In 1997, several DVL
mortgages were refinanced and DVL received distributions on the units that the
Company owned.
16
Rental income from others was $532,000 in 1999 compared to $330,000 in 1998
and $0 in 1997. The increase from 1997 to 1998 resulted from a change in the
amortization method of the leasehold interest held by DVL. Previously, the
leasehold was being amortized at a rate equal to the income. This would have
meant that the asset would have been fully amortized years before the
termination of the leasehold. Therefore, amortization of the leaseholds were
adjusted prospectively from January 1998 to reflect the remaining term of the
leases and the Company began recognizing rental income as received. The primary
reason for the increase from 1998 to 1999 was the addition of the rental income
received on a property which DVL had foreclosed on in November 1998.
Management fee income from others was $533,000 in 1999 compared to $59,000
in 1998 and $0 in 1997. The primary reason for the increase in 1999 was
approximately $420,000 of incentive management fees earned and paid from an
entity that is owned by affiliates of NPO and BCG.
Interest expense on underlying mortgages decreased for each of the last
three years due to a decrease in the size of DVL's mortgage loan portfolio.
During 1999 and 1998, the Company finalized settlement agreements that
allow the Company to realize cash proceeds that exceed the carrying value on
previously reserved limited partner notes receivable. As a result, for 1999 and
1998 DVL has reflected a recovery in the provision for losses of $48,000 and
$153,000, respectively.
General and administrative expenses were higher in 1999 as compared to 1998
but lower than 1997. The primary reason for the increase from 1998 to 1999 was a
result of DVL's move in November 1998 to its new corporate headquarters. The
majority of decreases for all three years in general and administrative expenses
are related to decreases in executive salaries, personnel expenses, consulting
fees, office costs and employment agency fees. The reduction in these expenses
resulted principally from the settlement of outside litigation matters and the
restructuring of debt. NPO's asset management servicing fee of $600,000 was
constant from 1997 through 1999.
Legal and professional fees increased in 1999 from 1998 primarily as a
result of certain one time costs expended in connection with the collection of
limited partner note delinquencies, as well as, higher outside legal
expenditures due to the reduction of in-house legal personnel. Legal and
professional costs were lower in 1998 than 1997.
Interest expense on the loan to NPM decreased in 1999 compared to 1998,
and in 1998 compared to 1997, as a result of the accelerated paydown of this
loan. The financing costs of the loan, as well as the value of the warrants
issued in connection with obtaining the loan, are amortized proportionately as
the loan is repaid. As the loan was totally repaid in May of 1999, all remaining
costs were amortized in 1999. Interest expense on the loan from Blackacre
increased in 1999 from 1998 due to an additional borrowing of $500,000 in
January 1999 for the Second Offer, as well as the compounding of interest.
Interest expense on the Notes decreased in 1999 compared to 1998 and 1998
compared to 1997 as a result of DVL having repurchased Notes in the Tender
Offers. Interest expense on the NPO asset service fee payable increased in 1999
compared to 1998 and 1998 compared to 1997 as a result of the increase in the
accrual of fees. Interest expense from others decreased in 1999 from 1998 and
1998 compared to 1997 due to the paydowns of debt to DVL's long-term creditors.
17
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash flow from operations is generated principally from
rental income from its leasehold interests in real estate, management fees from
the operation of Affiliated Limited Partnerships and transaction and other fees
received as a result of the sale and/or refinancing of partnership properties
and mortgages. The Company's portfolio of loans to Affiliated Limited
Partnerships currently does not produce substantial cash flow from operations
because most of the cash received from the mortgages is used to pay the debt
service on mortgages on the properties senior to those held by the Company, with
any excess being used to pay certain other creditors, including NPO.
As a result of the above factors, the Company continues to experience
liquidity problems, though at a level lower than in prior years. To enable the
Company to meet its short-term operating needs, the Company still needs to
augment its cash flow with the proceeds from the sale or refinancing of assets
and borrowings. NPO has agreed to waive any events of default that may exist
under its servicing agreements due to the deferral of fees through December 31,
2000. As of December 31, 1999, the Company owed approximately $1,467,000 to NPO.
During 1999, the Company paid an aggregate of $1,128,000 to NPO as partial
payment of amounts due. DVL believes that its current liquid assets and credit
resources will be sufficient to fund operations both on a short term basis as
well as on a long term basis.
The Company entered into the BC Loan with Blackacre, permitting the Company
to borrow up to $1,760,000 to fund the purchase of Notes, and to pay related
costs and expenses. A total of $1,060,000 had been borrowed as of the expiration
of the First Offer and an additional $500,000 was borrowed as of May 14, 1999 to
fund the Second Offer. As further consideration for Blackacre's providing the
Company with the BC Loan, the Company issued to Blackacre 653,000 shares of
Common Stock. The BC Loan matures on September 30, 2002 and bears interest at
the rate of 12% per annum. The effective rate to the Company for financial
reporting purposes, including the Company's costs associated with the BC Loan,
and the value of the 653,000 shares issued to Blackacre is approximately 14%.
Interest payable in connection with the BC Loan will be payable in the form of
the issuance of additional notes until the Company satisfies all of its
obligations owing to NPM and NPO. However, beginning April 27, 2000, the Company
must pay principal payments of 15% of all proceeds that would have otherwise
been remitted to either NPM or NPO, to Blackacre. Once NPO is paid in full,
interest and principal will be paid from 100% of the proceeds then available to
the Company from the mortgage collateral held as security for the BC Loan.
From January 1998 through May 1999, NPM advanced additional amounts
aggregating $370,000 to DVL to fund quarterly payments to a creditor of the
Company. These advances were not required under the original loan transaction
with NPM, consummated in September 1996 (the "Original Loan"). These advances
bore interest at 15% per annum and were paid pari passu with the Original Loan,
and with the additional advances aggregating $200,000 made in March and April
1997. The Original Loan, together with the advances, are referred to in the
aggregate herein as the "NPM Loan". In May 1999, DVL paid all remaining
outstanding amounts due on the NPM Loan.
18
In March 2000, DVL purchased five wrap mortgage loans from an unaffiliated
third party which are secured by real estate properties owned by partnerships in
which DVL is the general partner. The loans were purchased for an aggregate
purchase price of $1,210,000 paid as follows: cash of $135,000, the issuance of
an unsecured promissory note in the amount of $75,000 to the seller of the loans
maturing on March 1, 2001 with no interest, and new bank financing of
$1,000,000. This new bank financing is a self amortizing loan that matures on
April 1, 2005 with interest at the rate of prime plus 1.5% and requires payments
to be made from the net cash proceeds to be received on these loans. The
acquired loans were held previously by DVL and were transferred to the seller in
1992 in settlement of debt owed.
IMPACT OF INFLATION AND CHANGES IN INTEREST RATES
The Company's portfolio of mortgage loans made to Affiliated Limited
Partnerships consists primarily of loans made at fixed rates of interest.
Therefore, increases or decreases in market interest rates are generally not
expected to have an effect on the Company's earnings. Other than as a factor in
determining market interest rates, inflation has not had a significant effect on
the Company's net income for the past three years.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
DVL has no substantial cash flow exposure due to interest rate changes for
long term debt obligations, because all long-term debt is at fixed rates. DVL
primarily enters into long term debt for specific business purposes such as the
repurchase of debt at a discount or the acquisition of mortgage loans.
DVL's ability to realize on its mortgage holdings is sensitive to interest
rate fluctuations in that the sales prices of real property and mortgages vary
with interest rates.
The table set fourth below presents principal amounts and related weighted
average interest rates by year of maturity for DVL's investment portfolio and
debt obligations.
There
In Thousands 2000 2001 2002 2003 2004 after Total
- ------------------------------------------------------------------------------------
ASSETS
Cash equivalents $1,270 $ 1,270
Variable rate
Average interest rate 4.5% 4.5%
LONG TERM DEBT
Fixed rate $2,083 $1,929 $3,985 $2,318 $2,479 $17,051 $29,845
Average interest rate 8.95% 8.95% 8.95% 8.95% 8.95% 8.95% 8.95%
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and notes thereto, together with the accountants'
report thereon of Richard A. Eisner & Company, LLP, are set forth on pages F-1
through F-31, which follow. The financial statements are listed in Item 14(a)(1)
hereof.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
19
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF DVL
A. The following table sets forth the name of each director and executive
office of the Company, and the nature of all positions and offices with the
Company held by him at present. The term of all directors (other than the
special purpose director) expires at the Company's next annual meeting of
stockholders, which will be held on a date to be scheduled. The term of all
executive officers expires at the next annual meeting of directors, to be held
immediately thereafter.
NAME POSITION
---- --------
Frederick E. Smithline Chairman of the Board & Director
Myron Rosenberg Director
Allen Yudell Director
Alan E. Casnoff President and Chief Executive Officer
Gary Flicker Executive Vice President and Chief Financial
Officer
Keith B. Stein Special Purpose Director
In addition to three regular directors, who were elected by the holders of
Common Stock and who have all of the powers normally granted to corporate
directors, the Company has one special purpose director, who was elected in 1996
by the holder of the Class A Preferred Stock. The special purpose director has
no right to vote at meetings of the Board, except as to Bankruptcy Matters (as
such term is defined in the Certificate of Incorporation).
B. The following is a brief account of the recent business experience of
each director and executive officer and directorships held with other companies
which file reports with the Securities and Exchange Commission:
FREDERICK E. SMITHLINE (age 67) has served as Chairman of the Board of
the Company since 1990 and as a director since 1982. From September 1989 to
May 1996, Mr. Smithline was of counsel to the law firm of Epstein, Becker &
Green, P.C., New York, New York. He is currently in private practice as an
attorney. Mr. Smithline also serves as a director of the Hungarian
Broadcasting Corporation.
MYRON ROSENBERG (age 71) has served as a director of the Company since
1973. Mr. Rosenberg is currently a financial consultant. Through December
1996, Mr. Rosenberg served as Executive Vice President of Rosenthal &
Rosenthal, Inc., New York, New York, a commercial finance concern, where he
had been employed since 1961. He is currently also a director of Deotexis,
Inc.
ALLEN YUDELL (age 60) has served as a director of the Company since
September 1996. From 1967 to 1991, Mr. Yudell was President of Delco
Development Corporation. From 1992 to 1996, Mr. Yudell was a Vice President
of Unidell Realty Corp., and he is currently a consultant to Unidell. Delco
and Unidell are shopping center development companies based in Boca Raton,
Florida. Mr. Yudell is also a member of the International Council of
Shopping Centers.
20
ALAN E. CASNOFF (age 55) has served as President of the Company since
November 1994, and was a director from October 1991 to September 1996. Mr.
Casnoff served as Executive Vice President of the Company from October 1991
to November 1994. Mr. Casnoff has maintained his other business interests
during this period and thus has devoted less than full time to the business
affairs of DVL. From November 1990 to October 1991, Mr. Casnoff served as
a consultant to the Company and from 1971 to October 1991, as Secretary of
the Company. Since May 1991, Mr. Casnoff has also served as a director of
Kenbee Management, Inc. ("Kenbee"), an affiliate of the Company, and as
President of Kenbee since November 1994. Since 1977, Mr. Casnoff has also
been a partner of P&A Associates, a private real estate development firm
headquartered in Philadelphia, Pennsylvania. From 1969 to October 1990, Mr.
Casnoff was associated with the Philadelphia, Pennsylvania law firm of Saul,
Ewing, Remick & Saul, previous legal counsel to the Company and Kenbee.
Since 1990, Mr. Casnoff has acted as counsel to various law firms. As of
July 1999, he is of counsel to Klehr, Harrision, Harvey, Brazenburg & Ellers.
Mr. Casnoff's firm is providing some legal services to the Company.
GARY FLICKER (age 40) became Vice President and Chief Financial Officer of
the Company in April 1997 and Executive Vice President in September 1998. Mr.
Flicker is a Certified Public Accountant. From January 1996 to April 1997, he
was a financial consultant, performing acquisition analysis and financial
reporting consulting services. From November 1985 to November 1994, he was Vice
President - Director of Real Estate Accounting and Financial Analysis with
Integrated Resources, Inc. ("Integrated"), a publicly-held real estate
investment company. Thereafter, until December 1995, Mr. Flicker served as
Senior Real Estate Controller for Concurrency Management, Inc. which was engaged
by Integrated's successor to perform management services. Mr. Flicker's
principal responsibilities for Integrated involved the performance of
accounting, tax and financial reporting services, as well as financial analysis
for limited partnerships in which a subsidiary of Integrated was the general
partner. From November 1983 to November 1985, Mr. Flicker was a Supervising
Senior Accountant at Kenneth Leventhal & Company, C.P.A.s, and from September
1980 to November 1983 he was a Senior Accountant at Garnick, Mansfield, et al.,
C.P.A.s (formerly Lester Witte & Company).
KEITH B. STEIN (age 43) has been a special purpose director of the
Company since September 1996. Mr. Stein is the Vice Chairman, Chief
Executive Officer, and a director of National Auto Finance Company, Inc.
(NASDAQ/OTC: NAFI), a specialty automobile finance company. From March 1993
to September 1994, he served as Senior Vice President, Secretary and General
Counsel of WestPoint Stevens, Inc., a textile company, after having served
the same company from October 1992 to February 1993 in the capacity of Acting
General Counsel and Secretary. From May 1989 to February 1993, Mr. Stein was
associated with the law firm of Weil, Gotshal & Manges LLP. Mr. Stein is an
affiliate of NPM.
21
(c) Compliance with Section 16 (a) Beneficial Ownership Reporting Compliance
------------------------------------------------------------------------
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who are beneficial owners of more
than 10% of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership with the Commission. Officers,
directors, and greater than 10% beneficial owners are required by Commission
regulations to furnish the Company with copies of all Section 16(a) forms they
file. To the Company's knowledge, based solely on review of such reports
furnished to the Company, and written representations that no other reports were
required during or with respect to the fiscal year ended December 31, 1999, all
Section 16(a) filing requirements applicable to such persons were satisfied,
except that: (i) based upon a Schedule 13D, as amended, as filed with the
Commission on November 18, 1999, the following individuals became 10% beneficial
owners of the Company's Common Stock as a result of the Warrants becoming
exercisable on September 27, 1999 (as described in Item 12(C)below), and none of
whom have filed Form 3's with the Commission with respect thereto: Lawrence J.
Cohen, Milton Neustadter, Jay Chazanoff, Ron Jacobs, Stephen Simms and Keith B.
Stein; in addition, each of the foregoing failed to file a Form 4 with respect
to the purchase of shares of common stock and warrrants on November 12, 1999;
however, each of the foregoing has filed a delinquent Form 5 in March of 2000
with respect to the foregoing failures to file Form 3's and Form 4's; and (ii)
to the Company's knowledge, the following individuals became 10% beneficial
owners of the Company's Common Stock as a result of the Warrants becoming
exercisable on September 27, 1999, and none of whom have filed Form 3's with the
Commission with respect thereto: Robert W. Barron, Adam Frieman, Peter Offerman,
Joseph Huston, Jan Sirota, Neal Polan, Michael Zarriello, Mark Mahoney and the
SIII Associates Limited Partnership, Third Addison Park Corporation and Gary
Shapiro.
22
ITEM 11. EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
--------------------------
The following table sets forth all compensation awarded to, earned by or
paid to the following persons for services rendered to the Company in 1999 and
(if applicable) in 1998, 1997, and 1996: (1) the person serving as the Company's
chief executive officer during 1999; (2) those other persons who were serving as
executive officers as of the end of 1999 whose compensation exceeded $100,000
during 1999:
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation Awards
----------------------------------------- ------------------------------
Securities
Other Annual Underlying LTIP
Name Year Salary Bonus Compensation Options/SAR Payouts
---- ---- ----------- ------- ---------------- --------------- ---------
Alan E. Casnoff 1999 $120,000 $10,000 - - -
President and Chief 1998 120,000 - - 25,000(3) -
Executive Officer 1997 186,500 - - 50,000(3) -
Gary Flicker 1999 $132,500 $17,500 - 25,000(3) -
Executive Vice 1998 125,000 15,000 - 25,000(3) -
President and Chief 1997 84,549 15,000 $27,123(2) 50,000(3) -
Financial Officer(1)
- ----------------------
(1) Mr. Flicker became Vice President and Chief Financial Officer of the
Company on April 16, 1997 and Executive Vice President in September 1998.
The amounts shown as his salary and bonus for 1997 represent the amounts
paid to him for services rendered from April 16, 1997 through December 31,
1997.
(2) Represents consulting fees paid by the Company to Mr. Flicker for services
during the period February 18, 1997 through April 15, 1997.
(3) Consists of options to purchase shares of Common Stock under the 1996 Stock
Options Plan, granted to Mr. Casnoff on April 9, 1997 and Mr. Flicker on
April 17, 1997 (50,000 each), options to purchase 25,000 shares granted to
each of such persons on January 9, 1998 as a bonus in respect of services
rendered in 1997 and options to purchase 25,000 options issued to Mr.
Flicker on March 26, 1999 as a bonus in respect of services rendered in
1998.
23
B. OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
The following table sets forth information as to options granted in 1999
under the DVL, Inc. 1996 Stock Option Plan (the "Plan") to the executive
officers named in the Summary Compensation Table. The Plan originally provided
for the grant of options to purchase up to 1,500,000 shares of Common Stock to
Employees and Non-Employee Directors (in each case as defined in the Plan). In
February 2000, DVL amended the Plan to increase the number of shares of common
stock available under the Plan by an additional 1,000,000 shares.
The Plan provides that any Employee wishing to exercise an option must give
prior notice to the Board. If the Board determines, in its reasonable
discretion, that such exercise will cause an "ownership change" (as defined in
Section 382 of the Internal Revenue Code of 1986, as amended) in the Company
which would have an adverse effect on the Company's use of its NOLS (as defined
in Section 382) (an "Adverse Ownership Change"), the Board shall deny approval
of the exercise. If the Board determines that such exercise would not cause an
Adverse Ownership change, it shall approve the exercise. The conditions
described in this paragraph are referred to below as the "Section 382
Restrictions".
As of December 31, 1999, options to purchase 1,175,131 shares were
outstanding under the Plan and 324,869 shares were available for issuance upon
exercise of options which may be granted in the future.
24
Individual Grants Grant Date Value
------------------------------------------------------------- -------------------
Percentage of
Total Options
Number of Securities Granted to Exercise
Underlying Options Employees in Price Expiration Grant Date
Name(1) Granted(1) Fiscal Year(2) ($/Sh)(3) Date Present Value (4)
- ------------------- -------------------- -------------- --------- ---------- -------------------
Gary Flicker 25,000 41.0% .22 03/26/09 $4,750
(1) Individual grants to employees become exercisable in whole or in
installments, and at such times, and subject to the fulfillment of any
conditions on exercisability (in addition to the Section 382
Restrictions) as may be determined by the Compensation Committee of the
Board of Directors (the "Committee") at the time of grant. All options
listed in the above table became exercisable upon grant, subject only to
the Section 382 Restrictions. The Committee also has the discretion to
establish provisions relating to the forfeiture of an option in connection
with the employee's termination of employment with the Company, or to grant
any option without a forfeiture provision. Each of the options listed in
the above table provides that the option will be forfeited upon termination
of employment for "cause" (as therein defined). In addition, the options
granted to Mr. Flicker limit the period of exercise after termination under
other circumstances (except death or disability).
(2) Total options granted to employees in fiscal year 1999 was 60,000.
(3) Represents the fair market value of the underlying shares on the date of
grant (determined in accordance with the Plan as the closing price of the
Common Stock on the OTC Bulletin Board).
(4) The Black-Scholes option pricing model was chosen to estimate the grant
date present value of the options set forth in this table. The Company does
not believe that the Black-Scholes model, or any other model, can
accurately determine the value of an option. Accordingly, there is no
assurance that the value, if any, realized by an option holder will be at
or near the value estimated by the Black-Scholes model. Future compensation
resulting from option grants is based solely on the per- formance of the
Company's stock price. The Black-Scholes ratio of .19 was determined using
the following assumptions: a volatility of 85%, an historic average
dividend yield of 0%, a risk free interest rate of 5.23% and a 10 year
projected exercise period.
25
C. FISCAL YEAR-END OPTION VALUES
-----------------------------
The following table sets forth information as to options held as of the end
of 1999 by the executive officers named in the Summary Compensation Table. No
options were exercised by said officers in 1999. All options held by said
officers at fiscal year-end were immediately exercisable.
Number of Securities Underlying Value of Unexercised
Unexercised Options At Fiscal In The Money Options
Name Year End At Fiscal Year End
---- ------------------------------- --------------------
Alan E. Casnoff 375,000 $1,250
Gary Flicker 100,000 $1,250
D. COMPENSATION OF DIRECTORS
-------------------------
Regular directors who are not officers or employees of the Company
("Non-Employee Directors") presently receive a director's fee of $1,500 per
month, plus $500 for each Audit Committee meeting of the Board of Directors
attended. Directors who are officers or employees of the Company receive no
compensation for their services as directors or attendance at any Board of
Directors or committee meetings. None of the current directors is an officer or
employee. The special purpose director receives no compensation for his service
as a director or attendance at any Board of Directors or committee meetings.
On September 17, 1997, 1998, and 1999, options to purchase 15,000 shares of
Common Stock were granted to each of the three directors (Messrs. Rosenberg,
Smithline and Yudell). The options were granted under the Plan, which provides
for automatic grants of options for 15,000 shares to each incumbent regular
director on each anniversary of the adoption of the Plan. The options vested
immediately and are exercisable for a term of ten (10) years from the date of
grant. The exercise price is equal to the fair market value on the date of
grant.
E. EMPLOYMENT CONTRACTS AND ARRANGEMENTS
-------------------------------------
Gary Flicker entered into an Employment Agreement with the Company,
effective as of April 16, 1997, providing for his employment as Vice President
and Chief Financial Officer for a one-year term at an annual salary of $120,000,
and for the grant of 50,000 stock options under the Plan upon commencement of
employment. Effective January 1, 2000, 1999, and 1998, Mr. Flicker's annual
salary was increased to $136,500, $132,500, and $125,000, respectively. The
Employment Agreement with Mr. Flicker expired on April 16, 1998 and was not
renewed. However, Mr. Flicker continues to be employed by the Company, without
an employment agreement, as Chief Financial Officer and Executive Vice
President.
The Company also entered into an Indemnification Agreement with Mr.
Flicker, effective upon commencement of his employment, contractually obligating
the Company to indemnify him to the fullest extent permitted by applicable law,
in connection with claims arising from their service to, and activities on
behalf of, the Company.
As of August 11, 1998, the Company entered into Indemnification Agreements
which agreements are substantially the same as that entered into with Mr.
Flicker.
26
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
-----------------------------------------------
The following table sets forth certain information as of December 31, 2000
regarding the ownership of common stock of the Company by each person who is
known to the management of the Company to have been the beneficial owner of more
than 5% of the outstanding shares of the Company's common stock.
Name and Address of Amount and Nature of Percent of Class*
------------------- -------------------- -----------------
Beneficial Owner Beneficial Ownership
---------------- --------------------
Lawrence J. Cohen 3,351,388 (1)(4) 17.0%
Milton Neustadter 1,973,991 (1)(5) 10.7%
Jay Chazanoff 3,142,948 (2)(6) 16.1%
Ron Jacobs 2,941,860 (2)(7) 15.2%
Stephen Simms 2,941,959 (2)(8) 15.2%
Keith B. Stein 3,039,303 (3)(9) 15.6%
Robert W. Barron 2,772,926 (3)(10) 14.4%
Adam Frieman 2,661,212 (3)(11) 13.9%
Peter Offerman 2,584,567 (3)(12) 13.5%
Joseph Huston 2,555,875 (3)(13) 13.4%
Jan Sirota 2,584,567 (3)(14) 13.5%
Neal Polan 2,584,567 (3)(15) 13.5%
Michael Zarriello 2,584,567 (3)(16) 13.5%
Mark Mahoney 2,572,925 (3)(17) 13.4%
The SIII Associates Limited 3,914,446 (3)(18) 19.3%
Partnership Third Addison
Park Corporation and
Gary L. Shapiro
27
NOTES TO TABLE
- --------------
In each instance where a named individual is listed as the holder of a
currently exercisable option or Warrant, the shares which may be acquired upon
exercise thereof have been deemed outstanding for the purpose of computing the
percentage owned by such person, but not for the purpose of computing the
percentage owned by any other person, except with respect to options or Warrants
held by other members of a Holder's Holder Group (as defined below). An option
or Warrant is deemed to be currently exercisable if it may be exercised within
60 days. The number of Warrants attributed to each Holder herein is based upon
the number originally issued, and is subject to adjustment to eliminate any
possible dilution, as described in "Changes of Control" below.
(1) As described in detail below in "Changes of Control", such persons are
members of the Pembroke Group (as defined in "Changes of Control" below), and
said persons share dispositive power with each other as to 1,689,629 shares of
the Company's Common Stock issuable to the members of the Pembroke Group upon
the exercise of Warrants by such members, which shares constitute 50.1% of all
of the shares issuable to the members of the Pembroke Group upon the exercise of
Warrants. The address of each member of the Pembroke Group is c/o Lawrence J.
Cohen, 70 East 55th Street, Seventh Floor, New York, NY 10022. The members of
the Pembroke Group explicitly disclaim beneficial ownership of all of the shares
of Common Stock and Warrants (and shares of Common Stock issuable upon exercise
of Warrants) owned by the other members of the Pembroke Group.
(2) As described in detail below in "Changes of Control", such persons are
members of the Millennium Group (as defined in "Changes of Control" below), and
said persons share dispositive power with each other as to 2,172,275 shares of
the Company's Common Stock issuable to the members of the Millennium Group upon
the exercise of Warrants by such members, which shares constitute 50.1% of all
of the shares issuable to the members of the Millennium Group upon the exercise
of Warrants. The address of each member of the Millennium Group is c/o Lawrence
J. Cohen, 70 East 55th Street, Seventh Floor, New York, NY 10022. The members of
the Millennium Group explicitly disclaim beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Millennium Group.
(3) As described in detail below in "Changes of Control", such persons are
members of the Florida Group (as defined in "Changes in Control" below), and
said persons share dispositive power with each other as to 2,498,498 shares of
the Company's Common Stock issuable to the members of the Florida Group upon the
exercise of Warrants (as defined in "Changes in Control" below) by such members,
which shares constitute 50.1% of all of the shares issuable to the members of
the Florida Group upon the exercise of Warrants. The address of each member of
the Florida Group is c/o Keith Stein, 70 East 55th Street, Seventh Floor, New
York, NY 10022.
28
(4) Based upon a Schedule 13D, as amended, as filed with the Securities and
Exchange Commission (the "Commission") on November 18, 1999, Mr. Cohen
possesses: (i) the sole power to vote 3,104,540 shares of Common Stock, which
includes 2,879,802 shares of Common Stock issuable upon exercise of Warrants;
(ii) shared power to vote 0 shares of Common Stock; (iii) the sole power to
dispose of 1,661,759 shares of Common Stock, which includes 1,437,021 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other member of the Pembroke Group to dispose of 1,689,629 shares of Common
Stock, which includes 1,442,781 shares of Common Stock issuable upon the
exercise of Warrants held by Mr. Cohen and 246,848 shares of Common Stock
issuable upon exercise of Warrants held by the other member of the Pembroke
Group. Mr. Cohen explicitly disclaims beneficial ownership of all of the shares
of Common Stock and Warrants (and shares of Common Stock issuable upon exercise
of Warrants) owned by the other member of the Pembroke Group.
(5) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Neustadter possesses: (i) the sole power to vote 531,210
shares of Common Stock, which includes 492,710 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 284,362 shares of Common Stock, which
includes 245,862 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other member of the Pembroke Group to dispose of
1,689,629 shares of Common Stock, which includes 246,848 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Neustadter and 1,442,781
shares of Common Stock issuable upon exercise of Warrants held by the other
member of the Pembroke Group. Mr. Neustadter explicitly disclaims beneficial
ownership of all of the shares of Common Stock and Warrants (and shares of
Common Stock issuable upon exercise of Warrants) owned by the other member of
the Pembroke Group.
(6) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Chazanoff possesses: (i) the sole power to vote 1,811,156
shares of Common Stock, which includes 1,677,610 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 970,673 shares of Common Stock, which
includes 837,127 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Millennium Group to dispose of
2,172,275 shares of Common Stock, which includes 840,483 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Chazanoff and 1,331,792
shares of Common Stock issuable upon exercise of Warrants held by the other
members of the Millennium Group. Mr. Chazanoff explicitly disclaims beneficial
ownership of all of the shares of Common Stock and Warrants (and shares of
Common Stock issuable upon exercise of Warrants) owned by the other members of
the Millennium Group.
(7) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Jacobs possesses: (i) the sole power to vote 1,435,481
shares of Common Stock, which includes 1,329,134 shares of Common Stock
issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 769,585 shares of Common
Stock, which includes 1,329,134 shares of Common Stock issuable upon exercise
of Warrants; and (iv) shared power with the other members of the Millennium
Group to dispose of 2,172,275 shares of Common Stock, which includes 665,896
shares of Common Stock issuable upon the exercise of Warrants held by Mr.
Jacobs and 1,506,379 shares of Common Stock issuable upon exercise of
Warrants held by the other members of the Millennium Group. Mr. Jacobs
29
explicitly disclaims beneficial ownership of all of the shares of Common Stock
and Warrants (and shares of Common Stock issuable upon exercise of Warrants)
owned by the other members of the Millennium Group.
(8) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Simms possesses: (i) the sole power to vote 1,435,480
shares of Common Stock, which includes 1,329,134 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 769,584 shares of Common Stock, which
includes 663,238 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Millennium Group to dispose of
2,172,275 shares of Common Stock, which includes 665,896 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Simms and 1,506,379 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Millennium Group. Mr. Simms explicitly disclaims beneficial ownership of all of
the shares of Common Stock and Warrants (and shares of Common Stock issuable
upon exercise of Warrants) owned by the other members of the Millennium Group.
(9) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Stein possesses: (i) the sole power to vote 1,006,963
shares of Common Stock, which includes 930,456 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 540,805 shares of Common Stock, which
includes 464,298 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 466,158 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Stein and 2,032,340 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group. Mr. Stein explicitly disclaims beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Florida Group.
(10) To the Company's knowledge, Mr. Barron possesses: (i) the sole power to
vote 512,687 shares of Common Stock, which includes 475,567 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 274,428 shares of Common Stock,
which includes 237,308 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 2,498,498 shares of Common Stock, which includes 238,259 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Barron and
2,260,239 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
30
(11) To the Company's knowledge, Mr. Frieman possesses: (i) the sole power to
vote 314,391 shares of Common Stock, which includes 302,749 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 162,714 shares of Common Stock,
which includes 151,072 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 2,498,498 shares of Common Stock, which includes 151,677 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Frieman and
2,346,821 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(12) To the Company's knowledge, Mr. Offerman possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Offerman and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(13) To the Company's knowledge, Mr. Huston possesses: (i) the sole power to
vote 107,192 shares of Common Stock, which includes 99,431 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 57,377 shares of Common Stock,
which includes 49,616 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 49,815 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Huston and 2,448,683 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(14) To the Company's knowledge, Mr. Sirota possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Sirota and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(15) To the Company's knowledge, Mr. Polan possesses: (i) the sole power to vote
160,795 shares of Common Stock, which includes 149,153 shares of Common Stock
issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of Common
Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock, which
includes 74,427 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Polan and 2,423,772 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group.
31
(16) To the Company's knowledge, Mr. Zarriello possesses: (i) the sole power to
vote 160,795 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 86,069 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Zarriello and 2,423,772
shares of Common Stock issuable upon exercise of Warrants held by the other
members of the Florida Group.
(17) To the Company's knowledge, Mr. Mahoney possesses: (i) the sole power to
vote 149,153 shares of Common Stock, which includes 149,153 shares of Common
Stock issuable upon exercise of Warrants; (ii) shared power to vote 0 shares of
Common Stock; (iii) the sole power to dispose of 74,427 shares of Common Stock,
which includes 74,427 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 74,726 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Mahoney and 2,423,772 shares
of Common Stock issuable upon exercise of Warrants held by the other members of
the Florida Group.
(18) To the Company's knowledge, the SIII Associates Limited Partnership
possesses: (i) the sole power to vote 2,634,908 shares of Common Stock, which
includes 2,433,054 shares of Common Stock issuable upon exercise of Warrants;
(ii) shared power to vote 0 shares of Common Stock; (iii) the sole power to
dispose of 1,415,948 shares of Common Stock, which includes 1,214,094 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other members of the Florida Group to dispose of 2,498,498 shares of Common
Stock, which includes 1,218,960 shares of Common Stock issuable upon the
exercise of Warrants held by the SIII Associates Limited Partnership and
1,279,538 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group. Third Addison Park Corporation is the
general partner of the SIII Associates Limited Partnership, and Gary L. Shapiro
is the chief executive officer of Third Addison Park Corporation.
32
B. SECURITY OWNERSHIP OF MANAGEMENT
--------------------------------
The following table sets forth certain information as of December 31,
1999 regarding ownership of Common Stock by (i) each director and nominee for
director, (ii) each of the executive officers named in the Summary Compensation
Table contained herein, and (iii) all executive officers and directors as a
group (7 persons). Unless otherwise indicated, each stockholder listed below has
sole voting and investment power with respect to the shares set forth opposite
such stockholder's name. All persons listed below have an address c/o the
Company's principal executive offices in New York.
Name of Amount and Nature of Percentage
Beneficial Owner Beneficial Ownership of Class
- ---------------- -------------------- --------
Alan E. Casnoff 585,000 (2) 3.5%
Gary Flicker 100,000 (3) **
Myron Rosenberg 233,854 (4) 1.3%
Frederick E. Smithline 102,550 (5) **
Keith B. Stein 3,039,303 (6) 15.6%
Allen Yudell 60,000 (7) **
All current directors
and executive officers
as a group (6 persons) 4,120,707 (8) 20.5%
* In each instance where a named individual is listed as the holder of
a currently exercisable option or warrant, the shares which may be acquired upon
exercise thereof have been deemed outstanding for the purpose of computing the
percentage owned by such person, but not for the purpose of computing the
percentage owned by any other person, except the group referred to in note 9. An
option or warrant is deemed to be currently exercisable if it may be exercised
within 60 days.
** Less than 1%
(1) Messrs. Casnoff and Flicker are executive officers of the Company.
Messrs. Rosenberg, Smithline and Yudell are the regular directors, and Mr.
Stein is the special purpose director.
(2) Excludes 480 shares held by Mr. Casnoff's adult son, as to which shares
Mr. Casnoff disclaims beneficial ownership. Includes 26,000 shares owned by a
corporation partially owned and controlled by Mr. Casnoff, and 375,000 shares
which may be acquired upon the exercise of currently exercisable options.
(3) Represents 100,000 shares which may be acquired upon the exercise of
currently exercisable options.
(4) Includes 4,300 shares held by Mr. Rosenberg's wife, as to which shares
he disclaims beneficial ownership, and 45,000 shares which may be acquired upon
the exercise of currently exercisable options.
(5) Includes 550 shares held by Mr. Smithline and his brother as tenants-
in-common and 6,000 shares held by Mr. Smithline's wife, as to which 6,000
shares Mr. Smithline disclaims beneficial ownership. Also includes 45,000 shares
which may be acquired upon the exercise of currently exercisable options.
33
(6) Based upon a Schedule 13D, as amended, as filed with the Commission on
November 18, 1999, Mr. Stein possesses: (i) the sole power to vote 1,006,963
shares of Common Stock, which includes 930,456 shares of Common Stock issuable
upon exercise of Warrants; (ii) shared power to vote 0 shares of Common Stock;
(iii) the sole power to dispose of 540,805 shares of Common Stock, which
includes 464,298 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other members of the Florida Group to dispose of
2,498,498 shares of Common Stock, which includes 466,158 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Stein and 2,032,340 shares of
Common Stock issuable upon exercise of Warrants held by the other members of the
Florida Group. Mr. Stein explicitly disclaims beneficial ownership of all of the
shares of Common Stock and Warrants (and shares of Common Stock issuable upon
exercise of Warrants) owned by the other members of the Florida Group.
(7) Represents 60,000 shares which may be acquired upon the exercise of
currently exercisable options.
(8) Number of shares and percentage owned includes 4,020,447 shares which
may be acquired through exercise of currently exercisable options and Warrants
held by certain of the named persons. The number of outstanding shares for the
purpose of computation of percentage of ownership by the group includes such
shares.
C. CHANGES IN CONTROL
------------------
In connection with the Original Loan by NPM in September 1996, the
Company issued to, or for the benefit of, the members of the Florida Group (who
are affiliates of NPM) and the Pembroke and Millennium Groups (who are
affiliates of NPM and NPO, Warrants to purchase such number of shares of Common
Stock as, when added to the 1,000,000 shares issued to the members of the Holder
Groups contemporaneously with the Warrants, represent rights to acquire up to
49% of the outstanding Common Stock on a fully diluted basis. In accordance with
their terms, the Warrants were originally exercisable commencing January 1999
and expire after December 31, 2007. Pursuant to a stockholders agreement (the
"Agreement") entered into among each of the parties that acquired the Warrants
(each, a "Holder"), such parties agreed, among other things, that the Warrants
could not be exercised until September 27, 1999. If and at such time as any or
all of the Warrants are exercised, it is possible that a "change in control" of
the Company, within the meaning of applicable rules and regulations under the
Securities and Exchange Act of 1934, as amended (the "Exchange Act"), may be
deemed to occur, depending upon the extent of exercise.
Pursuant to the Agreement, the Holders have agreed to certain
limitations on the disposition of Common Stock and Warrants owned or held by
them, which are described below. The Holders presently have rights of first
refusal/first offer with respect to the disposition of shares of Common Stock
and Warrants held by other Holders (unless the disposition is made to certain
specified affiliates of a Holder). Subject to the above-mentioned rights of
first refusal/first offer and certain other limitations, (i) through September
27, 1999, a Holder may dispose of up to one-half (or more subject to the consent
of a majority of the Holders in such Holder's Holder Group) of his shares of
Common Stock and (ii) after September 27, 1999, a Holder may
34
dispose of all of his or its shares of Common Stock (excluding shares issuable
upon exercise of Warrants). A Holder may not dispose of his Warrants (except to
another Holder or certain specified affiliates of a Holder) or convert, exercise
or exchange any of such Warrants until after September 27, 1999. After September
27, 1999, subject to the above-mentioned rights of first refusal/first offer and
certain other limitations, a Holder may dispose of up to an aggregate of 49.9%
(or more, subject to the consent of a majority of the other Holders in such
Holder's Holder Group) of his shares of Common Stock issuable upon exercise of
his Warrants after giving effect to conversion, exercise or exchange of such
Warrants. The "Holder Groups" consist of the "Millennium Group", the "Pembroke
Group" and the "Florida Group". The members of the Millennium Group are Jay
Chazanoff, Ron Jacobs and Stephen Simms. The members of the Pembroke Group are
Lawrence J. Cohen and Milton Neustadter. The members of the Florida Group are
Stephen L. Gurba, Peter Offermann, Joseph Huston, Jan Sirota, Neal Polan,
Michael Zarriello, Adam Frieman, Mark Mahoney, Keith B. Stein, Robert W. Barron
and Gary Shapiro (through his holdings in The SIII Associates Limited
Partnership and Third Addison Park Corporation). For further information
regarding the foregoing, see Certain Relationships and "Related Transactions"
below.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
NPM AND NPO TRANSACTIONS
------------------------
The Company consummated a multi-faceted transaction on September 27, 1996,
pursuant to which: (i) certain existing indebtedness of the Company was acquired
by NPM, under an Amended and Restated Loan Agreement dated as of March 27, 1996
pursuant to which the Company became indebted to NPM in the original principal
amount of $8,382,000; (ii) 1,000,000 shares of Common Stock (representing 6.0%
of the Common Stock now outstanding) were issued to, and purchased by, the
Holders (see Item 12(C) above); (iii) the Certificate of Incorporation of the
Company was amended to permit the issuance of warrants, to limit change of
ownership of capital stock of the Company and to designate Preferred Stock
together with rights, powers and preferences (including the appointment of a
special purpose director); (iv) Warrants to purchase additional shares of Common
Stock (which, when added to the 1,000,000 shares acquired, represent rights to
acquire up to 49% of the outstanding Common Stock, on a fully diluted basis)
were issued to, or for the benefit of, the Holders; (v) 100 shares of Preferred
Stock were issued to an affiliate of NPM; (vi) most, but not all, convertible
securities and warrants existing and outstanding prior to the transaction were
converted into Common Stock; and (vii) the Company continued the engagement of
NPO to perform administrative and advisory services relating to the assets of
the Company and its affiliated partnerships, pursuant to an Asset Servicing
Agreement dated March 27, 1996.
In March and April 1997, NPM advanced the Company an additional $200,000.
In addition, from January 1998 through May 1999, NPM advanced additional amounts
aggregating $370,000 to DVL. These advances were not required under the Original
Loan Documents. In May 1999, the Company paid all remaining outstanding amounts
due on the loan to NPM. As of March 15, 2000, the Company had accrued service
fees to NPO in the amount of approximately $1,467,000.
35
The members of the Millenium Group, the Pembroke Group, and the Florida
Group are affiliates of NPM, and therefore have a material interest in the
transactions between the Company and NPM, described in the preceding paragraphs.
Keith B. Stein, the special purpose director of the Company is an affiliate of
NPM, and therefore has a material interest in said transactions. The members of
the Millenium Group and the Pembroke Group are affiliates of NPO.
In June 1998, the Company entered into a Management Services Agreement with
a limited partnership where certain of its partners are affiliates of NPO, to
render certain services. The agreement shall continue until the date that all
these partnerships' assets are sold or at any time prior with 30 days notice by
either party. As compensation, the Company earns an aggregate fee equal to (a) a
monthly fee of $5,000 plus (b) after all the partners of the partnership have
earned a 20% internal rate of return, compounded quarterly, on their capital
contributions an amount of cash equal to 25% of the profits, as defined in the
agreement. For 1999 and 1998, the Company received management fees equal to
$480,000 and $35,000, respectively.
In addition, the Company entered into a service agreement with another
limited partnership whose general partner is an affiliate of NPO, to render
certain accounting and administrative services. As compensation, the Company
receives a monthly fee of $3,000 and expense reimbursements of $1,000 per month.
For 1999 and 1998, the Company received fees of $36,000, per annum.
Also, the Company entered into a property management agreement with an
entity that is part of the Opportunity Fund, pursuant to which the Company
provides property management services in exchange for fees equal to 3% of rent
collections.
In November, 1999, the Company entered into a management service agreement
with an entity whose partners are affiliates of NPO, to render certain
accounting and administrative services. As compensation, the Company receives a
monthly fee of $2,000, a monthly deferred fee of $6,500 which is payable upon
certain capital events and an annual incentive fee, if certain levels of
profitability occurs. For 1999, the Company was paid $4,000 and accrued fees of
$13,000.
Opportunity Fund
----------------
The Company, Blackacre, PNM, and Pem Mil are parties to the Opportunity
Agreement. The Opportunity Agreement has a term of three years, subject to
earlier termination if certain maximum capital contributions have been reached.
The Opportunity Agreement provides for an arrangement (the "Opportunity Fund")
whereunder, with respect to certain transactions involving the acquisition of
limited partnership interests of, or mortgage loans to, Affiliated Limited
Partnerships in which the Company is general partner, or which the Company
already owns, if the Company, due to financial constraints, is unable to pursue
such business opportunity with its own funds from its reserves or available from
operations, and without financing from a third party or issuing equity (each
such opportunity, an "Opportunity"), then the Opportunity Fund has a right of
first refusal to finance such Opportunity.
36
The Opportunity Fund is expected to pursue each Opportunity with respect to
which it exercises its right of first refusal through the use of a special
purpose limited liability company. All of the required capital contributions are
to be provided by BCG and the NPO Affiliates. The Company will receive up to 20%
of the profits from an Opportunity after BCG and the NPO Affiliates receive the
return of their investment plus preferred returns ranging from 12% to 20%. As
part of its obligation under the Opportunity Agreement, certain employees of DVL
also perform certain services on behalf of the Opportunity Fund. Pem Mil is to
serve as managing member of each special purpose limited liability company
formed in connection with the Opportunity Fund, for which it receives out of the
proceeds generated from Opportunities, a maximum aggregate annual fee based upon
capital invested by the members, in consideration for management services.
The transactions in which the Opportunity Fund may engage include, for
example, acquisition of partnership interests from existing limited partners of
Affiliated Limited Partnerships, and investment in certain properties owned by
the Company or such partnerships, where capital may be required to enhance value
but is not currently available to the Company. There can be no assurance that
the Opportunity Fund's activities will generate profit distributions to the
Company.
As o