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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, 2001 OR
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[ ] 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
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DVL, INC.
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Exact name of Registrant as specified in its charter)
Delaware 13-2892858
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
70 East 55th Street, 7th Floor, New York 10022
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 350-9900
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Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $.01 par value None
Securities registered pursuant to Section 12(g) of the Act: None
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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. [X]
The aggregate market value of the Common Stock of the Registrant held by non-
affiliates as of March 15, 2002 was $2,870,209.
The number of shares outstanding of Common Stock of the Registrant as of March
15, 2002 was 21,313,563.
DVL, INC.
INDEX TO ANNUAL REPORT ON FORM 10-K FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION
YEAR ENDED DECEMBER 31, 2001
ITEMS IN FORM 10-K
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Page
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PART I
Item 1. Business 1
Item 2. Properties 8
Item 3. Legal Proceedings 8
Item 4. Submission of Matters to a Vote of Security Holders 8
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 23
Item 8. Financial Statements and Supplementary Data 24
Item 9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure 25
PART III
Item 10. Directors and Executive Officers of the Registrant 25
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners
and Management 34
Item 13. Certain Relationships and Related Transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 45
PART I
This 2001 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 obtain additional financings, 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 of residual interests in securitized portfolios, and the ownership and
servicing of a portfolio of secured commercial mortgage loans made to limited
partnerships in which the Company serves as general partner (each an "Affiliated
Limited Partnership"). In addition, the Company performs real estate asset
management and administrative services for third parties.
DVL is the 99.9% owner of two entities whose sole assets are the residual
interests in five securitized receivable pools. The securitized receivable pools
consist of receivables which are the obligations of various insurance companies
to pay money over a term of years. DVL receives the residual cash flow from the
five securitized receivable pools after payment to the securitized noteholders.
DVL is the general partner of approximately 70 Affiliated Limited
Partnerships which own income-producing commercial, office and industrial
properties comprising approximately 3.0 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. DVL does not consolidate any of the
various Partnerships in which it holds the general partner and limited partner
interest nor does DVL account for such interests on the equity method. The
remaining properties are shopping centers, industrial properties and other
commercial properties. The Company also performs real estate and partnership
management services for these partnerships, as well as, for third parties.
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. These underlying loans self-liquidate from the base rents
payable by the tenants over the primary term of their leases. The majority of
the mortgage payments from the Affiliated Limited Partnerships are used to pay
the underlying mortgage holders 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) real estate interests held for development,
(b) a long term leasehold interest in a commercial property, and (c) Limited
Partnership interests in certain Affiliated Limited Partnerships.
The Company derives the majority of its income from the residual interests
in securitized receivables portfolios, wrap-around mortgages as a result of the
difference in the effective interest rates between the wrap around mortgage and
the underlying mortgages, percentage rents received from various tenants of the
Affiliated Limited Partnerships, rentals received as a result of its real
1
estate holdings and long-term leasehold interests, fees received as General
Partner of the Affiliated Limited Partnerships (including disposition and
management fees), distributions received as a limited partner in the Affiliated
Limited Partnerships, and the sale of partnership properties, and fees from
third-party management contracts.
At December 31, 2001, the Company had net operating loss carry-forwards
("NOLS") aggregating approximately $57 million, which expire in various years
through 2019, including $50 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. It is anticipated
that the taxable income associated with the residual interests will utilize
significant NOLS. 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.
DVL believes that its anticipated cash flow provided by operations is
sufficient to meet its current cash requirements through January 2003. 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 Condition 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 portfolio,(ii) obtain investments through
the use of bank borrowings and (iii) expand through the acquisition of one or
more companies to generate income and positive cash flow. The Company
anticipates that it would finance any possible future acquisition through new
borrowing or the issuance of its common or preferred stock. There can be no
assurance that the Company will be able to identify or acquire businesses.
Each share of the stock of the Company includes a restriction prohibiting
sale, transfer, disposition or acquisition of any stock until September 30, 2009
without the prior consent of the Board of Directors of the Company by any person
or entity that owns or would own 5% or more of the issued and outstanding stock
of the Company if such sale, purchase or transfer would in the opinion of the
Board, jeopardize the Company's preservation of its federal income tax
attributes under Section 382 of the Internal Revenue Code. See the Changes in
Control section for a more detailed discussion.
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.
2
BUSINESS ACTIVITIES
RESIDUAL INTERESTS IN SECURITIZED PORTFOLIOS
On March 30, 2001, the Company, through a consolidated subsidiary, acquired
a 99.9% Class B member interest in Receivables II-A LLC, a limited liability
company ("Receivables II-A"), from an unrelated party engaged in the acquisition
and management of periodic payment receivables. The Class B member interest
entitles the Company to be allocated 99.9% of all items of income, loss and
distribution of Receivables II-A. Receivables II-A solely receives the residual
cash flow from four securitized receivable pools after payment to the
securitized noteholders.
The Company purchased its interest in Receivables II-A for an aggregate
purchase price of $26,134,264, including costs of $809,264 including the
issuance of a warrant, valued at $74,000, for the purchase of 2 million shares
of the common stock of DVL, exercisable until February 15, 2011 at a price of
$.20 per share. The purchase price was paid by the issuance of limited recourse
promissory notes by the consolidated subsidiary in the aggregate amount of
$25,325,000. Principal and interest are payable from the future monthly cash
flow. The notes mature on December 31, 2021, bear interest at the rate of 8%
annually, and are secured by a pledge of the consolidated subsidiary's interest
in Receivables II-A and all proceeds and distributions related to such interest.
The principal amount of the notes and the purchase price are adjusted, from time
to time, based upon the performance of the underlying receivables. DVL also
issued its guaranty of up to $2,532,500 of the purchase price. The guaranty is
reduced by 10% of the principal paid. The amount of the guaranty at December 31,
2001 was $2,532,500. Payments, if any, due under this guaranty are payable after
December 31, 2021.
In accordance with the purchase agreement, through December 31, 2001, the
residual interests in securitized portfolios and the notes payable increased by
approximately $699,000 based on the performance of the underlying receivables.
On August 15, 2001, the Company, through a consolidated subsidiary,
acquired a 99.9% Class B member interest in Receivables II-B LLC, a limited
liability company ("Receivables II-B"), from the same party from which it
acquired Receivables II-A. The Class B member interest entitles the Company to
99.9% of all items of income, loss and distribution of Receivables II-B.
Receivables II-B receives the residual cash flow from a securitized receivable
pool after payment to the securitized noteholders.
The Company purchased its interest in Receivables II-B for an aggregate
purchase price of $9,657,000, including costs of $557,000 including the issuance
of a warrant, valued at $62,000, for the purchase of 1 million shares of the
common stock of DVL, exercisable until August 15, 2011 at a price of $.20 per
share. The purchase price was paid by the issuance of limited recourse
promissory notes by the consolidated subsidiary in the aggregate amount of a
$9,100,000. Principal and interest are payable from the future monthly residual
interest cash flow. The notes mature on August 15, 2020, bear interest at the
rate of 8% annually, and are secured by a pledge of the consolidated
subsidiary's interest in Receivables II-B and all proceeds and distributions
related to such interest. The principal amount of the notes and the purchase
price are adjusted from time to time, based upon the performance of the
underlying receivables. DVL also issued its guaranty of up to $910,000 of the
purchase price. The guaranty is reduced by 10% of the principal paid. The amount
of the guarantee at December 31, 2001 was $899,464. Payments, if any, due under
this guaranty are payable after August 15, 2020.
3
The purchase agreements contain annual minimum and maximum levels of cash
flow that will be retained by the Company, after the payment of interest and
principal on the notes payable, which are as follows:
March 30, 2001 Transaction August 15, 2001 Transaction
-------------------------- ---------------------------
Years Minimum Maximum Minimum Maximum
----- ------- ------- ------- -------
2001 to 2009 $462,500 $500,000 $280,000 $380,000
2010 to final payment 700,000 750,000 $350,000 $400,000
on notes payable*
* Final payment on the notes payable expected 2016 related to the March
transaction and 2018 for the August transaction.
The Company believes it will receive significant cash flow after final payment
of the notes payable.
In connection with the acquisitions of residual interests in Receivables II-A
and Receivables II-B affiliates of NPO Management, LLC ("NPO" the Company's
asset servicer) and the special director of the Company will be paid investment
banking fees of $900,000 for their services including the origination,
negotiation and structuring of the transactions. The total fees will be payable
without interest, over the next three years from a portion of the monthly cash
flow generated by the acquisitions.
MORTGAGE LOANS
The Company's mortgage loan portfolio consists primarily of long-term wrap-
around and other mortgage loans to its Affiliated Limited Partnerships secured
by the types of properties discussed above. Most of the 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. The Company builds equity in the mortgage loans over time. At
December 31, 2001, the Company had investments in 34 mortgage loans to
Affiliated Limited Partnerships with a carrying value for financial reporting
purposes of $35,567,000 (prior to a loan loss reserve of approximately
$4,095,000). These mortgage loan receivables are subject to underlying mortgage
obligations of $22,218,000.
Generally, the tenants of the Affiliated Limited Partnerships executed
"triple-net" leases and, therefore, the tenants 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.
DVL's mortgage portfolio included 23 and 26 loans with net carrying values
of $28,377,000 and $33,639,000 as of December 31, 2001 and 2000, respectively,
which are due from Affiliated Limited Partnerships that own properties leased to
Wal-Mart Stores, Inc. These mortgage loan receivables are subject to underlying
mortgage obligations of $19,546,000 and $22,971,000 as of December 31, 2001 and
2000, respectively. Wal-Mart is a public company subject to the reporting
requirements of the SEC. Wal-Mart has closed certain of its stores located on
the properties subject to the Company's mortgages. However, Wal-Mart continues
to pay the required rent with respect to such properties. Net carrying value
refers to the unpaid principal balance less any allowance for reserves, and any
amount which represents future interest based upon the purchase of the loan at a
discount.
4
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 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 limitations set forth above.
During 2001, DVL purchased two additional mortgage loans from an entity
that is part of the Opportunity Fund (see "Opportunity Fund", discussed below on
page 16) which are secured by real estate owned by Affiliated Limited
Partnerships in which DVL is the general partner. The loans were purchased for
an aggregate price of $325,000, paid in cash. In early 2002, DVL obtained bank
financing of $400,000, less closing costs, secured by the loans.
All of the Company's mortgage loans are pledged to secure the indebtedness
of the Company to NPO 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. See Items 7
and 13 below for a description of certain related transactions involving NPO and
BCG.
LOAN PORTFOLIO
The following table sets forth the number of various loans owed to the
Company which are outstanding, the aggregate loan balances, including accrued
interest, and the allowances for loan losses, at December 31, 2001. 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 $ 51,475
Less: unearned interest (1) (15,908)
--------
Total loans collateralized by mortgages 34 35,567 $ 4,095
-- -------- ------
Loans collateralized by limited partnership
interests 21 355 277
-- -------- ------
Advances due from Affiliated Limited Partnerships 5 14 -
-- -------- ------
Total loans 60 $ 35,936 $ 4,372
== ======== =======
- ------------
(1) Unearned interest represents the unamortized balance of discounts on
previously funded loans.
5
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 and foreclosures. At
December 31, 2001 and 2000 the Company's carrying value was $1,121,000 and
$1,157,000, respectively.
PARTNERSHIP AND PROPERTY MANAGEMENT
The Company is the general partner of approximately 70 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 an industrial property located in
New Jersey pursuant to a master lease. This master lease permits PSC to
sub-lease the property to tenants and retain profits subject to the payment by
PSC of operating expenses and rent to the entity that owns the property. Prior
to December 2000, PSC managed a second industrial property in New Jersey
pursuant to a master lease. In December 2000, the Company purchased all of the
real estate assets that encompassed the second master lease, as discussed below.
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
and Blackacre) under which the Company renders services for a fee. This
agreement may be terminated with 30 days notice by either party. As
compensation, the Company received the following (a) a monthly fee of $5,000
through November 2000, and (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. The Company received compensation under such agreement equal to
$442,900 in 2001 and $362,500 in 2000.
In addition, the Company provides services for a limited partnership (whose
general partner is an affiliate of NPO) to render certain accounting and
administrative services. As compensation, the Company receives expense
reimbursements of $4,000 per month. The Company received compensation under such
agreement of $48,000 during 2001 and 2000.
The Company has a property management agreement with an entity that is part
of the Opportunity Fund pursuant to which DVL provides property management
services. The Company received compensation, under such agreement of $27,000 in
each of 2001 and in 2000.
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 and an annual incentive fee if
certain levels of profitability are obtained. The Company recorded fees of
$152,000 and $102,000 in 2001 and 2000 which included incentive fees of $50,000
and $-0-, respectively.
6
REAL ESTATE HOLDINGS
The Company currently owns three contiguous properties located in Kearny,
New Jersey. These properties are:
(1) Two acres of land underlying approximately 80,000 square feet of
manufacturing, warehousing and commercial buildings. In November of 1998, the
Company foreclosed on its mortgage and now owns the land, buildings and
improvements.
(2) Seven buildings located in an industrial park in Kearny, NJ purchased for
$3,000,000, plus closing costs. Prior to the purchase, the Company had been
leasing all of these buildings, under a master lease agreement, and subletting
this property to various unrelated tenants. The acquisition was funded with bank
financing in the original principal amount of $3,000,000 and cash of
approximately $255,000. The bank financing accrues interest at the rate of 10%
per annum and requires monthly interest-only payments until June 30, 2002, at
which time the loan matures. The Company is currently negotiating an extension
of this loan.
(3) Fee title in a parcel of land in Kearny, NJ purchased from an unrelated
third party for a $365,000, plus closing costs. The acquisition was funded with
bank financing in the original principal amount of $200,000 and cash of
approximately $175,000. The financing accrues interest at the rate of 9.5% per
annum and requires monthly interest only payments until June 30, 2002, at which
time the loan matures. The Company is currently negotiating an extension of this
loan.
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 (collectively the "NPO Affiliates") are
parties to a certain Agreement which is called the Opportunity Agreement (the
"Opportunity Agreement"). The Opportunity Agreement had a term of three years
and expired April 2001. The Opportunity Agreement provided for an arrangement
(the "Opportunity Fund") whereby the fund had the right of first refusal to
finance the acquisition of limited partnership interests or mortgage loans to
Affiliated Limited Partnerships in which the Company is general partner, or
which the Company already owns, if the Company was unable to pursue such
business opportunity with its own funds from its reserves or available from
operations, or by obtaining financing from a third party or issuing equity.
All of the required capital contributions were to be provided by the other
members. The Company was to receive up to 20% of the profits from an opportunity
after the other investors received a return of their investment plus preferred
annual returns ranging from 12% to 20.
The Opportunity Agreement has not been renewed or extended. While the
Opportunity Fund no longer has the right of first refusal with regard to
opportunities, the Company may continue to present opportunities to the fund.
As of March 1, 2002, 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 were purchased in 2000),
acquired limited partnership units from unaffiliated individuals in three
Affiliated Limited Partnerships, and acquired an ownership interest in a
property of an Affiliated Limited Partnership. During 2000, DVL purchased three
of the mortgages owned by the Opportunity Fund and the Opportunity Fund was
fully satisfied on an additional four mortgage loans, as each of the properties
that
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secured these four mortgage loans was sold. During 2001, a newly formed, wholly-
owned subsidiary of DVL purchased two of mortgages owned by the Opportunity Fund
and the Opportunity Fund was fully satisfied on an additional two mortgage loans
as each of the properties that secured these two mortgage loans were sold. In
December 2001, the Opportunity Fund also sold its ownership interest in the
property located in Kearny, NJ to an entity in which certain partners are
affiliates of NPO. As of March 1, 2002, the Opportunity Fund owns four
mortgages. During 2001, DVL was paid approximately $280,000 from the investments
by the Opportunity Fund, of which $189,000 was used to pay amounts owed by DVL
under a note in favor of an entity that is part of the Opportunity Fund.
EMPLOYEES
As of March 2002, the Company had 11 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.
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. 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.
None.
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, 2002, the last reported sale price of DVL common stock was $.20
per share. 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 2001
and 2000. Such prices are inter-dealer prices without retail mark-up, mark-down
or commission, and do not represent actual transactions.
2001 HIGH LOW
- ---- ---- ---
Fourth Quarter ....................................... $ .10 $ .07
Third Quarter ........................................ .09 .05
Second Quarter ....................................... .07 .05
First Quarter ........................................ .06 .05
2000 HIGH LOW
- ---- ---- ---
Fourth Quarter ....................................... $ .11 $ .05
Third Quarter ........................................ .13 .06
Second Quarter ....................................... .20 .06
First Quarter ........................................ .34 .13
At March 8, 2002, there were 3,510 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.
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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,
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Revenues
Affiliates $ 4,499 $ 4,812 $ 6,360 $ 5,794 $ 6,183
Other 5,056 1,251 1,375 528 70
-------- -------- -------- -------- --------
Total $ 9,555 $ 6,063 $ 7,735 $ 6,322 $ 6,253
======== ======== ======== ======= ========
Income (loss) before extraordinary gain $ 2,505 $ 199 $ 1,026 $ (758) $ (2,415)
Extraordinary gain on the settlement of 361 306 1,267 202 4,011
-------- -------- -------- -------- --------
indebtedness
Net Income (loss) $ 2,866 $ 505 $ 2,293 $ (556) $ 1,596
======== ======== ======== ======== ========
Basic earnings (loss) per share
Income (loss) before extraordinary gain $ .15 $ .01 $ .06 $ (.04) $ (.15)
Extraordinary gain .02 .02 .08 .01 .25
-------- -------- -------- ------- --------
Net Income (loss) $ .17 $ .03 $ .14 $ (.03) $ .10
======== ======== ======== ======= ========
Diluted earnings (loss) per share
Income (loss) before extraordinary gain .03 .01 .02 (.04) (.15)
Extraordinary gain .00 .00 .02 .01 .25
-------- -------- -------- ------- --------
Net Income (loss) $ .03 $ .01 $ .04 $ (.03) $ .10
======== ======== ======== ======= ========
10
Consolidated Balance Sheet Data
(In thousands)
As at December 31
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Total assets $79,690 $45,437 $41,858 $55,635 $64,942
======= ======= ======= ======= =======
Notes payable - residual interests $35,044 $ - $ - $ - $ -
======= ======= ======= ======= =======
Underlying mortgages payable $22,218 $26,019 $27,692 $38,644 $45,306
======= ======= ======= ======= =======
Long-term debt and notes payable $ 8,911 $10,781 $ 5,156 $ 9,937 $12,143
======= ======= ======= ======= =======
Shareholders' equity $10,955 $ 7,573 $ 7,068 $ 4,775 $ 5,279
======= ======= ======= ======= =======
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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 own such properties. During 2001, the Company purchased
ownership interests in residual interests in securitized receivables portfolios,
which should provide significant cash flow and income for the Company.
DVL believes that its anticipated cash flow provided by operations is
sufficient to meet its current cash requirements through January 2003. 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 portfolio, (ii) obtain investments through
the use of bank borrowings, and (iii) 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. The Company anticipates that it would finance any possible future
acquisition through new borrowings or the issuance of its common or preferred
stock. During 2001, the Company purchased two new mortgage loans, purchased
securitized receivables portfolios, purchased a parcel of land and refinanced
other investments.
At December 31, 2001, the Company had net operating loss carryforward
("NOLS") aggregating approximately $57 million, which expire in various years
through 2019, including $50 million which expire through 2007. If the Company
generates taxable income in the future, the Company may be subject to
limitations on the use of its NOLS pursuant to the Internal Revenue Code. It is
anticipated that the taxable income associated with the residual interests will
utilize significant NOLS. 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.
12
SIGNIFICANT EVENTS
ACQUISITION OF RESIDUAL INTERESTS IN SECURITIZED PORTFOLIOS
On March 30, 2001, the Company, through its consolidated subsidiary, S2,
acquired a 99.9% Class B member interest in Receivables II-A LLC, a limited
liability company ("Receivables II-A"), and on August 15, 2001 acquired a 99.9%
Class B member interest in Receivables II-B, LLC, a limited liability company
("Receivables II-B") from an unrelated party engaged in the acquisition and
management of periodic payment receivables. The Class B member interest entitles
the Company to be allocated 99.9% of all items of income, loss and distribution.
Receivables II-A and II-B solely receive the residual cash flow from five
securitized receivable pools after payment to the securitized noteholders.
The Company purchased its interest in Receivables II-A for an aggregate
purchase price of $26,134,264, including costs of $809,264 including the
issuance of a warrant, valued at $74,000, for the purchase of 2 million shares
of the common stock of DVL, exercisable until February 15, 2011 at a price of
$.20 per share. The purchase price was paid by the issuance of limited recourse
promissory notes by the consolidated subsidiary in the aggregate amount of
$25,325,000. Principal and interest are payable from the future monthly cash
flow. The notes mature on December 31, 2021, bear interest at the rate of 8%
annually, and are secured by a pledge of the consolidated subsidiary's interest
in Receivables II-A and all proceeds and distributions related to such interest.
The principal amount of the notes and the purchase price are adjusted, from time
to time, based upon the performance of the underlying receivables. DVL also
issued its guaranty of up to $2,532,500 of the purchase price. Payments, if any,
due under this guaranty are payable after December 31, 2021. The guaranty is
reduced by 10% of the principal paid. The amount of the guaranty at December 31,
2001 was $2,532,500.
In accordance with the purchase agreement, through December 31, 2001, the
residual interests in securitized portfolios and the notes payable to
Receivables II-A increased by approximately $699,000 based on the performance of
the underlying receivables.
The Company purchased its interest in Receivables II-B for an aggregate
purchase price of $9,657,000, including costs of $557,000 including the issuance
of a warrant, valued at $62,000, for the purchase of 1 million shares of the
common stock of DVL, exercisable until August 15, 2011 at a price of $.20 per
share. The purchase price was paid by the issuance of limited recourse
promissory notes by the consolidated subsidiary in the aggregate amount of a
$9,100,000. Principal and interest are payable from the future monthly residual
interest cash flow. The notes mature on August 15, 2020, bear interest at the
rate of 8% annually, and are secured by a pledge of the consolidated
subsidiary's interest in Receivables II-B and all proceeds and distributions
related to such interest. The principal amount of the notes and the purchase
price are adjusted from time to time, based upon the performance of the
underlying receivables. DVL also issued its guaranty of up to $910,000 of the
purchase price. The guaranty is reduced by 10% of the principal paid. The amount
of the guaranty at December 31,2001 was $899,464. Payments, if any, due under
this guaranty are payable after August 15, 2020.
In connection with the acquisitions of residual interests in Receivables
II-A and Receivables II-B an affiliate of NPO and the special director of the
Company will be paid investment banking fees of $900,000 for their services in
connection with the origination, negotiation and structuring of the
transactions. The total fees will be payable without interest, over the next
three years from a portion of the monthly cash flow generated by the
acquisitions.
13
The purchase agreements contain annual minimum and maximum levels of cash
flow that will be retained by the Company, after the payment of interest and
principal on the notes payable, which are as follows:
March 30, 2001 Transaction August 15, 2001 Transaction
-------------------------- ---------------------------
Years Minimum Maximum Minimum Maximum
----- ------- ------- ------- -------
2001 to 2009 $462,500 $500,000 $280,000 $380,000
2010 to final payment 700,000 750,000 $350,000 $400,000
on the notes*
* Final payment on the notes payable expected 2016 related to the March
transaction and 2018 for the August transaction.
The Company believes it will receive significant cash flow after final payment
of the notes payable.
BLACKACRE TRANSACTION
The Company had outstanding as of December 31, 2001 approximately
$2,400,000 aggregate principal amount of 10% redeemable notes due December 31,
2005. The notes are redeemable in cash, or at the option of DVL, for common
stock at a formula based upon the market price of the DVL common stock.
In an effort to reduce the potential future dilution to existing
shareholders resulting from a redemption of the notes for stock, in December
2001 the Company entered into an agreement with Blackacre Bridge Capital, LLC
("Blackacre") under which Blackacre exchanged $1,188,278 principal amount of
notes for 4,753,113 shares of DVL's common stock (the "Exchange Agreement").
This represents a conversion rate of $.25 per share.
The Exchange Agreement includes a provision which states that Blackacre
shall not sell or acquire any shares of the Company without the written consent
of the Board of Directors of the Company. The Board may withhold consent prior
to December 31, 2005, only if such transfer would, in the sole discretion of the
Board of Directors, jeopardize the Company's preservation of its Federal Income
Tax attributes under Section 382 of the Internal Revenue Code or in the case of
a transfer after December 31, 2005 would be materially adverse to the interest
of the Company.
If at any time after December 31, 2005, Blackacre is prevented from
disposing of any of its shares as a result of the Board of Directors
determination that the transfer would be materially adverse to the interest of
the Company, then Blackacre shall have the right to sell to the Company and the
Company shall be obligated to purchase up to the number of shares of common
stock which when added to all prior shares of common stock sold to the Company
by Blackacre would have an aggregate market value of not more than $1 million
dollars.
After the transaction, DVL had 21,313,563 shares of common stock issued and
outstanding.
The transaction resulted in an extraordinary gain of $482,000. As a result
of the exchange, Blackacre and its affiliates now own approximately 25% of DVL's
issued and outstanding common stock.
14
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 Capital, LLC ("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. The original principal loan amount from NPM was $8,382,000 (the
"Original Loan").
Under the terms of the original 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 under the NPM loan.
In connection with the transactions contemplated by the Original Loan
Agreement, in March 1996, the Company and 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 pays NPO $600,000 per year (with cost of living increases) over the
seven-year term of the original agreement, subject to early termination under
certain conditions. During 2001 the agreement was extended under the same terms
and conditions for another five years to March 2008. The current annual fee is
$645,000. The Company paid to NPO $1,038,000 and $1,866,000 in 2001 and 2000,
respectively. As of December 31, 2001 and 2000 the Company owed accrued fees of
$28,000 and $373,000, respectively.
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
4.7% 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 NPM warrants (the "Warrants"), exercisable as of January
1999, 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 which was amortized using the effective interest rate method.
Through March 2002, no Warrants have been exercised.
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 AND REDEMPTIONS
During 2000 and 2001, the Company redeemed an aggregate of $721,000 of the
Company's 10% redeemable promissory notes due December 31, 2005 (the "Notes")
for cash at the face value plus accrued interest of approximately $37,000. As of
December 31, 2001, $162,000 has been paid and the remaining $596,000 to be paid
has been accrued, but will no longer accrue interest.
15
Since October 1997, the Company conducted three cash tender offers (the
"Offers") at a Tender Offer price of $0.12 per $1.00 principal amount of the
Notes. The first two Offers were financed with a loan from Blackacre discussed
below.
The results were as follows:
Principal Amount Principal Amount
of Notes of Notes Extraordinary
Purchased by Purchased by Gains to
DVL Blackacre DVL
---------------- ---------------- ------------
Offer # 1 $ 6,224,390 $ 392,750 $ 202,000
(1998)
$ 2,906,000
(1997)
Offer # 2 $ 2,413,652 $ 423,213 $ 1,267,000
(1999)
Offer # 3 $ 378,270 $ - 0 - $ 306,000
(2000)
The Company has the option to redeem the outstanding Notes 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 shares 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
or cash redemptions.
Notes with an aggregate principal amount of approximately $2,400,000 remain
outstanding as of December 31, 2001. The Offers, redemptions and the exchange of
Notes for Common Stock by Blackacre have reduced the potential dilutive
effective 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.
Opportunity Fund
- ----------------
In April 1998, DVL, an affiliate of Blackacre and affiliates of NPO entered
into an Opportunity Agreement providing for 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 were to be
presented to the Opportunity Fund on a first-refusal basis, if the Company, due
to financial constraints, was unable to pursue such business opportunities with
its own funds.
16
All of the required capital contributions were to be provided by the other
members. The Company was to receive up to 20% of the profits from an opportunity
after the other investors received a return of their investment plus preferred
annual returns ranging from 12% to 20%.
The Opportunity Agreement which expired, has not been renewed or extended.
While the fund no longer has the right of first refusal with regard to
opportunities, the Company may continue to present opportunities to the fund.
As of March 1, 2002, the Opportunity Fund has purchased 15 wrap mortgages
of Affiliated Limited Partnerships from unaffiliated third parties (seven in
1998, one in 1999 and seven mortgages in 2000), acquired limited partnership
units from unaffiliated individuals in three Affiliated Limited Partnerships,
and acquired an ownership of interest in a property of an Affiliated Limited
Partnership.
During 2000, DVL purchased three of the mortgages owned by the Opportunity
Fund and the Opportunity Fund was fully satisfied on an additional four mortgage
loans, when each of the properties that secured these four mortgage loans were
sold. During 2001, a newly formed, wholly-owned subsidiary of DVL purchased two
of mortgages owned by the Opportunity Fund and the Opportunity Fund was fully
satisfied on an additional two mortgage loans as each of the properties that
secured these two mortgage loans were sold. In December 2001, the Opportunity
Fund sold its ownership interest in the property in Kearny, NJ to an entity in
which certain partners are affiliates of NPO. As of March 1, 2002, the
Opportunity Fund owns four mortgages. During 2001, DVL was paid approximately
$280,000 from the investments by the Opportunity Fund, of which $189,000 was
used to pay amounts owed by DVL under a note in favor of an entity that is part
of the Opportunity Fund.
RESULTS OF OPERATIONS
DVL had income before extraordinary gain, net income after extraordinary
items, and extraordinary gains, as follows:
2001 2000 1999
---- ---- ----
Income before extraordinary gain $2,505,000 $ 199,000 $1,026,000
Net income $2,866,000 $ 505,000 $2,293,000
Extraordinary gains $ 361,000 $ 306,000 $1,267,000
Interest income on mortgage loans from affiliates and interest expense on
underlying mortgages decreased from 1999 through 2001, as a result of a
reduction in the size of DVL's mortgage portfolio. The decrease from 1999 to
2000 was partially offset by additional interest income and interest expense
from the purchase of eight new mortgage loans, some of which have underlying
mortgages.
Gains on satisfaction of mortgage loans were as follows:
2001 2000 1999
---- ---- ----
$ 615,000 $ 256,000 $1,639,000
These gains resulted from the Company collecting net proceeds on the
satisfaction of mortgage loans that were greater than the Company's carrying
value.
17
Transaction and other fees from Affiliated Limited Partnerships were as follows:
2001 2000 1999
---- ---- ----
$ 260,000 $ 413,000 $ 502,000
Transaction and other fees were earned in connection with the sales of
partnership properties and refinancings of underlying mortgages. The decrease
from 1999 through 2001 was the result of fewer transactions in 2000 and 2001.
Distributions from investments in affiliates decreased in 2001 compared to
2000 due to fewer sales of Affiliated Limited Partnerships in which DVL owns
limited partnership units. Distributions were higher in 1999 compared to 2000
due to the distribution of proceeds to limited partners resulting from the
refinancing of certain underlying mortgages. Distributions from investments in
2000 included approximately $77,000 distributed to the Company from an
Affiliated Limited Partnership that distributed excess cash to its limited
partners.
Interest income on residual interests and interest expense on the related
notes payable arose as DVL completed the acquisitions in March 2001 and August
2001.
Net rental income from others was as follows:
2001 2000 1999
---- ---- ----
$ 720,000 $ 523,000 $ 532,000
The primary reason for the increase in net rental income from 1999 to 2001
was the result of lower costs. The primary reason for the reduction in costs was
due to a reduction in lease obligations resulting from the purchase in December
2000 of certain real estate which the Company had previously leased. The
increase in net rental income was partially offset by a rent reduction granted
to a tenant and greater depreciation expense due to the purchase of the real
estate assets, as well as higher insurance costs.
The Company has one large tenant which has been experiencing financial
difficulties. As a result, the tenant has been paying rent equal to 70% of its
monthly rental and 100% of its share of monthly operating expenses. The Company
has not agreed to reduce the monthly rental and continues to invoice for the
full sum but has taken no other action as of this time. The monthly reduction in
rent being paid is approximately $30,000.
Management fees from others were as follows:
2001 2000 1999
---- ---- ----
$ 804,000 $ 500,000 $ 533,000
Included in management fees were incentive management fees of $442,900,
$312,500 and $420,000 received during 2001, 2000 and 1999, respectively, from
PBD Holdings, Inc. an entity that is owned by affiliates of NPO and BCG ("PBD").
Incentive management fees are earned when properties owned by PBD are sold;
therefore, the fees earned by the Company vary based on the sales proceeds. PBD
currently has one parcel of land remaining.
The Company also provided property management and administrative services
for which it received fees of $361,000, $138,000 and $36,000 for 2001, 2000 and
1999 respectively, which are included in management fees. The increases in
property management and administrative services from 1999 to 2001 were a result
of the Company obtaining new property management contracts. The fees for 2001
included non recurring fees of $174,000.
18
Distributions from investments from others increased in 2001 from 2000
primarily as a result of receiving $280,000 in distributions from investments in
the opportunity funds and $348,000 in distributions above the carrying value of
other investments.
Distribution from investments from others increased in 2000 from 1999
primarily as a result of the purchase by the Company of certain real estate
assets which the Company previously had been leasing under a master lease
agreement. The Company owned limited partnership units in the seller of the real
estate and as a result, the Company received approximately $121,000 from the
sale.
General and administrative expenses increased in 2001 from 2000 and
decreased in 2000 as compared to 1999. The primary reason for the increase in
2001 from 2000 was increased salaries and hiring costs as well as rent costs for
the Company's office headquarters due to escalation charges and lower rental
reimbursements. The primary reasons for the decrease in 2000 from 1999 were a
decrease in salaries and payroll related costs, as well as, a reduction in
stockholder communication costs. These decreases were partially offset by
greater franchise and tax costs.
The asset servicing fee to NPO increased in 2001 from 2000 and 1999 due to
an increase in the consumer price index, as provided for in the agreement.
Legal and professional fees increased in 2001 as compared to 2000 but were
less in 2000 than in 1999. Legal and professional fees increased in 2001 from
2000 primarily due to expenses incurred in evaluating a potential acquisition
that was not completed and the payment of fees for additional services provided
by NPO. The Company has not employed an in-house legal counsel since 1998 and;
therefore, legal fees vary depending on the number and sophistication of
transactions that are executed.
Legal and professional fees decreased slightly in 2000 from 1999 due to the
Company completing less transactions.
Interest expense on litigation settlement Notes would have increased in
each year from 1999 through 2001 because of compounding of interest; however,
the Company's efforts to reduce the principal amount of Notes outstanding
through tender offers, redemptions and the exchange of Notes for common stock by
Blackacre have resulted in the interest expense remaining fairly consistent. The
exchange of the Notes by Blackacre in December, 2001 should significantly reduce
the interest expense on the litigation settlement Notes in the future.
Interest expense to affiliates consists primarily of interest on the
accrued NPO asset servicing fees, interest on the loan from Blackacre, and
interest expense on the loan to NPM.
Interest expense on the loan from Blackacre increased from 1999 through
2001 as a result of compounding interest. The Company made payments on the loan
from Blackacre of approximately $390,000 during 2001. These payments
significantly reduced the amount of interest expense recorded for 2001.
Interest expense associated with the accrued NPO asset servicing fee
decreased from 1999 through 2001. Interest accrues on all amounts due to NPO and
during 1999 through 2001 the amount due was reduced significantly. As of
December 31, 2001 $28,000 remains due to NPO.
Interest expense on the loan to NPM decreased from $665,000 in 1999 to $-0-
in 2000 as a result of the repayment of this loan in 1999. The financing costs
of the NPM Loan, as well as the value of the warrants issued in connection with
obtaining such loan, were amortized proportionately as such loan was repaid. As
the loan was totally repaid in 1999, all remaining costs were amortized in 1999.
19
Interest expense relating to other debts increased from 1999 through 2001.
During 2000, the Company borrowed an aggregate of $6,425,000 to fund the
acquisition of eight new mortgage loans, the purchase of all the land,
buildings, and improvements from a limited partnership which owned seven
buildings in an industrial park in New Jersey, and refinanced three existing
mortgage receivables. The Company paid $700,000 towards the principal balance of
one of such loans during 2000 and re-borrowed the $700,000 to partially fund the
acquisition of additional mortgage loans. Also, during the first quarter of
2001, the Company borrowed $200,000 to purchase a parcel of land.
Extraordinary gains in 2001, 2000 and 1999 of $525,000, $306,000 and
$1,267,000 respectively were the result of tender offers and redemptions at less
than book value of the Notes. The Company also realized an extraordinary loss in
2001 of $164,000 resulting from the redemption of Notes at face value. The net
extraordinary gain for 2001 was $361,000.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash balance was $2,987,000 at December 31, 2001, compared
with $1,184,000 at December 31, 2000.
The Company's cash flow from operations is generated principally from
rental income from its leasehold interests and ownership of real estate,
distributions in connection with residual interests in securitized portfolios,
interest on its mortgage portfolio, management fees from third parties and
affiliates and transaction and other fees received as a result of the sale
and/or refinancing of partnership properties and mortgages.
The Company believes that its anticipated cash flow provided by operations
is sufficient to meet its current cash requirements through January 2003. DVL
believes that its current liquid assets and credit resources will be sufficient
to fund operations on a short-term basis as well as on a long-term basis.
The Company's acquisition in 2001 of its member interest in Receivables
II-A and Receivables II-B should provide significant liquidity to the Company.
The purchase agreements contain annual minimum and maximum levels of cash
flow that will be retained by the Company, after the payment of interest and
principal on the notes payable, which are as follows:
March 30, 2001 Transaction August 15, 2001 Transaction
-------------------------- ---------------------------
Years Minimum Maximum Minimum Maximum
----- ------- ------- ------- -------
2001 to 2009 $462,500 $500,000 $280,000 $380,000
2010 to final payment 700,000 750,000 $350,000 $400,000
on the notes*
* Final payment on the notes payable expected 2016 related to the March
transaction and 2018 for the August transaction.
The Company believes it will receive significant cash flow after final payment
of the notes payable.
20
Acquisitions and Financings
- ---------------------------
Loans payable which are scheduled to become due through 2006 are as follows:
Outstanding
Original Principal
Loan Balance at Due
Purpose Creditor Amount Dec. 31, 2001 Date
- ------- -------- ---------- -------------- ----
Repurchase of Notes
Issued by the Company Blackacre(1) $ 1,560,000 $ 1,942,000 09/30/03
Purchase of Mortgages Unaffiliated Bank(2)(3) $ 1,000,000 $ 820,000 05/01/06
Purchase of a Mortgage
and Refinancing of
Existing Mortgages Unaffiliated Bank(2)(3) $ 1,450,000 $ 1,035,000 04/01/05
Purchase of Real Estate
Assets Unaffiliated Bank(4) $ 3,000,000 $ 3,000,000 06/01/02
Purchase of Land Unaffiliated Bank(5) $ 200,000 $ 200,000 06/01/02
Purchase of Mortgages Unaffiliated Bank(6) $ 400,000 $ - 05/01/06
(1) Interest rate is 12% per annum, compounded monthly. Interest is added to
principal.
(2) This loan self-amortizes.
(3) Interest rate is prime plus 1.5% per annum.
(4) Interest rate is 10% per annum.
(5) Interest rate is 9.5% per annum.
(6) Interest rate is 8.25% per annum. This loan was originated in January of
2002.
The Company is currently negotiating an extension of the two loans which are due
June 1, 2002.
21
In early 2001, DVL purchased the fee title to a parcel of land in Kearny,
NJ from an unrelated third party for a purchase price of $365,000, plus closing
costs. The acquisition was funded with bank financing in the original principal
amount of $200,000 and cash of approximately $175,000. This bank financing
accrues interest at the rate of 9.5% per annum and requires monthly
interest-only payments. The Company extended the loan under the same terms until
June 1, 2002 by paying an extension fee of $750.
During 2001, DVL purchased two mortgage loans from an entity that is part
of the Opportunity Fund which are secured by real estate owned by Affiliated
Limited Partnerships in which DVL is the general partner. The loans were
purchased for an aggregate price of $400,000, paid in cash. The loans were
subsequently refinanced in 2002 and DVL realized approximately $380,000 from the
refinancing after closing costs.
The amounts obtained from the 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
the refinancings, the Company's asset base available for future refinancings has
diminished.
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.
22
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 a majority of the 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 forth 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 2002 2003 2004 2005 2006 After Total
- ------------------------------------------------------------------------------------
ASSETS
Cash equivalents $2,987 $ 2,987
Variable rate
Average interest rate 1.3% 1.3%
LONG TERM DEBT
Fixed rate $7,377 $2,421 $2,037 $2,115 $2,786 $10,651 $27,387
Average interest rate 9.03% 9.03% 9.03% 9.03% 9.03% 9.03% 9.03%
Variable rate $ 466 $ 519 $ 707 $ 173 $ -0- $ -0- $ 1,865
Average interest rate 11% 11% 11% 11% -0- -0-
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
SUPPLEMENTARY DATA
------------------
Quarterly Data (Unaudited)
For the Year Ended December 31, 2001
(In Thousands Except Share and Per Share Data)
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
Total Revenue $ 1,546 $ 2,401 $ 2,436 $ 3,172 $ 9,555
Total Expenses 1,474 1,985 2,082 2,479 8,020
Income before
extraordinary gain 72 416 354 1,663 2,505
Extraordinary gain 14 - - 347 361
Net income 86 416 354 2,010 2,866
Basic earnings per
share:
Income before extra-
ordinary gain $ .01 $ .03 $ .02 $ .10 $ .15
Extraordinary gain $ .00 $ .00 $ .00 $ .02 $ .02
Net income $ .01 $ .03 $ .02 $ .12 $ .17
Diluted earnings per
share:
Income before extra-
ordinary gain $ .00 $ .00 $ .00 $ .02 $ .03
Extraordinary gain $ .00 $ .00 $ .00 $ .01 $ .00
Net income $ .00 $ .00 $ .00 $ .03 $ .03
Weighted average
shares outstanding:
Basic 16,560,450 16,560,450 16,560,450 17,020,429 16,599,517
Diluted 147,071,400 125,829,094 91,295,902 72,820,396 124,772,115
Quarterly Data (Unaudited)
For the Year Ended December 31, 2000
(In Thousands Except Share and Per Share Data)
1st 2nd 3rd 4th Full
Quarter Quarter Quarter Quarter Year
Total Revenue $ 1,257 $ 1,523 $ 1,448 $ 1,835 $ 6,063
Total Expenses 1,383 1,504 1,405 1,572 5,864
Income (loss) before
extraordinary gain (126) 19 43 263 199
Extraordinary gain 23 126 107 50 306
Net income (loss) (103) 145 150 313 505
Basic earnings (loss)
per share:
Income (loss) before
extraordinary gain $ (0.01) $ 0.00 $ 0.00 $ 0.02 $ 0.01
Extraordinary gain $ 0.00 $ 0.01 $ 0.01 $ 0.00 $ 0.02
Net income (loss) $ (0.01) $ 0.01 $ 0.01 $ 0.02 $ 0.03
Diluted earnings (loss)
per share:
Income (loss) before
extraordinary gain $ (0.01) $ 0.00 $ 0.00 $ 0.00 $ 0.01
Extraordinary gain $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 0.00
Net income (loss) $ (0.01) $ 0.00 $ 0.00 $ 0.00 $ 0.01
Weighted average
shares outstanding:
Basic 16,560,450 16,560,450 16,560,450 16,560,450 16,560,450
Diluted 16,560,450 87,278,971 107,114,914 96,337,586 96,337,586
Basic and diluted earnings per share are computed independently for each of the
periods. Accordingly the sum of the quarterly earnings per share amounts may not
agree to the total for the year.
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-32, which follow. The financial statements are listed in Item 14(a)(1)
hereof.
24
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF DVL
A. The following table sets forth the name of each director and executive
officer 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
Myron Rosenberg Director
Alan E. Casnoff Director, President and Chief Executive Officer
Jay Thailer Executive Vice President and Chief Financial
Officer
Gary Flicker Executive Vice President
Keith B. Stein Special Purpose Director
In addition to three directors, 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 69) 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.
MYRON ROSENBERG (age 73) 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.
ALLEN YUDELL (age 62) served as a director of the Company from September
1996 until November 2001 when he resigned for personal reasons.
25
ALAN E. CASNOFF (age 58) has served as President of the Company since
November 1994, and was appointed as a director in November 2001 upon the
resignation of Allen Yudell. 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. Since 1969, Mr. Casnoff was
associated with various Philadelphia, Pennsylvania law firms which have been
legal counsel to the Company and Kenbee. Since July 1999, he is of counsel to
Klehr, Harrision, Harvey, Brazenburg & Ellers ("Klehr").
JAY THAILER (age 33) has served as Chief Financial Officer and Executive
Vice President since November 2001. From August 1998 to November 2001, Mr.
Thailer served as Vice President and Secretary of the Company. Mr. Thailer is a
Certified Public Accountant. Prior to joining the Company in 1997, Mr. Thailer
was associated with the accounting firm of Sobel & Company, C.P.A.'s where his
clients included real estate development companies.
GARY FLICKER (age 42) was Chief Financial Officer of the Company from April
1997 through November 2001. Mr. Flicker continues to be employed by the Company
as Executive Vice President; however, Mr. Flicker has relocated out of New York
and will cease employment with the Company as of May 1, 2002.
KEITH B. STEIN (age 45) has been a special purpose director of the Company
since September 1996. Mr. Stein is the Chairman, Chief Executive Officer, and a
director of National Auto Receivables Liquidation, Inc. (NASDAQ/BB: NATA), 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.
(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, 2001, all
Section 16(a) filing requirements applicable to such persons were satisfied.
26
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 2001 and
(if applicable) in 2000 and 1999: (1) the person serving as the Company's chief
executive officer during 2001; (2) those other persons who were serving as
executive officers as of the end of 2001 whose compensation exceeded $100,000
during 2001:
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 2001 $120,000 $ 10,000 - 100,000(3) -
President and 2000 120,000 - - - -
Chief Executive 1999 120,000 10,000 - - -
Officer
Jay Thailer 2001 $110,000 $ 15,000 - 15,000(3) -
Executive Vice
President and Chief
Financial Officer(2)
Gary Flicker 2001 $140,600 $ 20,000 - - -
Executive Vice 2000 136,000 17,500 - 25,000(3) -
President (1) 1999 132,500 17,500 - 25,000(3) -
- -------------------
(1) Mr. Flicker became Vice President and Chief Financial Officer of the
Company on April 16, 1997 and Executive Vice President in September 1998.
Mr. Flicker served as Chief Financial Officer until November 8, 2001.
(2) Mr. Thailer became Executive Vice President and Chief Financial Officer of
the Company on November 8, 2001.
(3) Consists of options to purchase shares of Common Stock under the 1996 Stock
Options Plan.
27
B. OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
The following table sets forth information as to options granted in 2001
under the DVL, Inc. 1996 Stock Option Plan (the "Plan") to the executive
officers named in the Summary Compensation Table. The Plan provides for the
grant of options to purchase up to 2,500,000 shares of Common Stock to Employees
and Non-Employee Directors (in each case as defined in the Plan).
The Plan provides that any one 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, 2001, options to purchase 1,473,131 shares were
outstanding under the Plan and 1,027,869 shares were available for issuance upon
exercise of options which may be granted in the future.
28
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)
- ------------------- -------------------- -------------- --------- ---------- -------------------
Alan Casnoff 100,000 80% .075 08/07/2011 $7,000
Jay Thailer 15,000 12% .075 08/07/2011 $1,050
(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).
(2) Total options granted to employees in fiscal year 2001 was 125,000.
(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 performance of the
Company's stock price. The Black-Scholes ratio of .07 was determined using
the following assumptions: a volatility of 85%, an historic average
dividend yield of 0%, a risk free interest rate of 4.98% and a 10 year
projected exercise period.
29
C. FISCAL YEAR-END OPTION VALUES
-----------------------------
The following table sets forth information as to options held as of the end
of 2001 by the executive officers named in the Summary Compensation Table. No
options were exercised by said officers in 2001. 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 475,000 none
Gary Flicker 125,000 none
Jay Thailer 42,000 none
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. Mr. Casnoff, who is a director, is also President and Chief
Executive Officer of the Company. 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, 1999, 2000 and 2001, options to purchase 15,000 shares of
Common Stock were granted to each of the three directors (Messrs. Rosenberg,
Smithline and Yudell (who resigned as a director in November 2001)). 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, 2002, 2001, and 2000, Mr. Flicker's annual
salary was $140,600, $140,600 and $136,500, 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 Executive Vice President; however, Mr. Flicker has
relocated out of New York and will cease his employment with the Company as of
May 1, 2002.
The Company 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 his service to, and activities on behalf of,
the Company.
Jay Thailer became a Vice President of the Company in August 1998 at which
time the Company entered into an Indemnification Agreement with Mr. Thailer
which is equivalent to agreement entered into with Mr. Flicker. Mr. Thailer
currently serves as Chief Financial Officer and Executive Vice President to the
Company.
30
F. BOARD OF DIRECTORS INTERLOCKS AND INSIDER PARTICIPATION
During 2001, no executive officer of the Company served as a director of or
a member of a compensation committee of any entity for which any of the persons
serving on the Board of Directors of the Company is an executive officer.
G. BOARD OF DIRECTORS REPORT ON EXECUTIVE COMPENSATION
The independent members of the Board of Directors of the Company, Messrs.
Rosenberg and Smithline act in the stead of a formal compensation committee. In
such capacity, the Board of Directors reviews compensation of the executive
officers of the Company to determine if such compensation is in line with
similar organizations and determine the compensation of the executive officers
of the Company.
The Company's executive compensation program is designed to attract and
retain qualified executives with competitive levels of compensation that are
related to performance goals and which recognize individual initiative and
accomplishments. The principal components of the Company's executive
compensation program are fixed compensation in the form of base salary, variable
compensation in the form of annual cash bonuses and stock options.
The Company is subject to Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), which limits the deductibility of certain
compensation payments to its executive officers. The Company does not have a
policy requiring the Board to qualify all compensation for deductibility under
this provision. The Board, however, considers the net cost to the Company in
making all compensation decisions and will continue to evaluate the impact of
this provision on its executive compensation.
Base Salary: Any discretionary increases in base salary are based on an
annual evaluation by the Board of the performance of the Company and each
executive officer, and take into account any new responsibilities of the
executive, his or her experience and years of service with the Company and a
comparison of base salaries for comparable positions at similar companies.
Annual Bonus: The Board may decide to award a bonus to any executive
officer. Any awards of discretionary bonuses are based on an annual evaluation
by the Board of the performance of the Company and each executive officer, and
take into account any special contributions of the executive officer. Messrs.
Flicker, Casnoff and Thailer were awarded a discretionary bonus of $20,000,
$10,000 and $15,000, respectively in 2001.
Stock Options: The Stock Option Plan was adopted by the Board in April 1996
and ratified by the stockholders in September 1996. The Board believes that the
significant equity interests in the Company held by the Company's executive
officers have served to link the interest of the executive officers with those
of the stockholders. Under the Company's Stock Option Plan, options to purchase
shares of Common Stock may be granted to the executive officers of the Company.
The Board believes that the grant of stock options is, and will continue to be,
an important component of the Company's executive compensation program. During
2001, Mr. Thailer was granted an amount of stock options under the Stock Option
Plan as provided in the table set forth herein entitled "Option Grants in Last
Fiscal Year." In determining the size of such grants to executive officers, the
Board reviewed various factors, including the executives' total compensation
package and the performance of the Company and each executive officer. The
stockholdings of an executive officer were not a factor in determining the size
of such grants.
Chief Executive Officer Compensation: Mr. Casnoff, the Company's President
and Chief Executive Officer, is not party to an employment agreement with the
Company, and Mr. Casnoff's compensation is established in accordance with the
principles described above in connection with the compensation of executive
officers. The Board reviews Mr. Casnoff's performance and determines any base
salary adjustments, additional bonuses and stock option grants considering the
various factors described above with respect to executive officers.
31
Mr. Casnoff's base salary was $120,000 for fiscal 2001 which was the same
as 2000 and 1999. Mr. Casnoff received a discretionary bonus of $10,000, and a
Stock Option grant for 2001 of 100,000 shares.
Myron Rosenberg
Fred Smithline
H. PERFORMANCE COMPARISON
The following graph compares the yearly percentage change in the cumulative
total stockholder return on the Company's Common Stock for each of the last five
years with the cumulative return (assuming reinvestment of dividends) of the Dow
Jones Industrials Index and the S&P 1500 Diversified Financial Services Index.
Since August 1995, the Common Stock has been traded on the over-the-counter
market and has been quoted on the NASD OTC Bulletin Board under the symbol
"DVLN". Until August 3, 1995, the Common Stock was traded on the New York Stock
Exchange.
32
[GRAPHIC OMITTED]
33
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, 2001
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
Beneficial Owner Beneficial Ownership Percent of Class*
------------------- --------------------- -----------------
Lawrence J. Cohen 5,284,162 (1)(4) 17.1%
Milton Neustadter 3,170,437 (1)(5) 11.0%
Jay Chazanoff 5,003,245 (2)(6) 16.3%
Ron Jacobs 4,694,664 (2)(7) 15.5%
Stephen Simms 4,694,663 (2)(8) 15.5%
Keith B. Stein 4,870,788 (3)(9) 15.9%
Robert W. Barron 4,464,096 (3)(10) 14.8%
Adam Frieman 4,299,074 (3)(11) 14.3%
Peter Offerman 4,175,051 (3)(12) 13.9%
Joseph Huston 4,131,021 (3)(13) 13.8%
Jan Sirota 4,175,051 (3)(14) 13.9%
Neal Polan 4,175,051 (3)(15) 13.9%
Michael Zarriello 4,175,051 (3)(16) 13.9%
Mark Mahoney 4,163,409 (3)(17) 13.9%
The SIII Associates Limited 6,209,427 (3)(18) 19.5%
Partnership Third Addison
Park Corporation and
Gary L. Shapiro
J.G. Wentworth, S.S.C.
Limited Partnership 3,000,000 (19) 11.6%
Stephen Feinberg, 5,406,113 (20) 21.0%
34
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 of warrants that would be issued as of the date of this document, 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 2,734,092 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 3,515,091 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 4,042,973 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.
(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 4,884,722 shares of Common Stock, which
includes 4,659,984 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 2,550,070 shares of Common Stock, which includes 2,325,332 shares of
Common Stock issuable upon exercise of Warrants; and (iv) shared power with the
other member of the Pembroke Group to dispose of 2,734,092 shares of Common
Stock, which includes 2,334,652 shares of Common Stock issuable upon the
exercise of Warrants held by Mr. Cohen and 399,440 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.
35
(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 835,784
shares of Common Stock, which includes 797,284 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 436,345 shares of Common Stock, which
includes 397,845 shares of Common Stock issuable upon exercise of Warrants; and
(iv) shared power with the other member of the Pembroke Group to dispose of
2,734,092 shares of Common Stock, which includes 399,440 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Neustadter and 2,334,652
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 2,848,190
shares of Common Stock, which includes 2,714,644 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 1,488,153 shares of Common Stock, which
includes 1,354,607 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Millennium Group to dispose
of 3,515,091 shares of Common Stock, which includes 1,360,037 shares of Common
Stock issuable upon the exercise of Warrants held by Mr. Chazanoff and 2,155,054
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 2,257,100
shares of Common Stock, which includes 2,150,753 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 1,179,573 shares of Common Stock, which
includes 1,073,226 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Millennium Group to dispose
of 3,515,091 shares of Common Stock, which includes 1,077,527 shares of Common
Stock issuable upon the exercise of Warrants held by Mr. Jacobs and 2,437,564
shares of common stock issuable upon exercise of Warrants held by the other
members of the Millennium Group. Mr. Jacobs 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 Millenium 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 2,257,099
shares of Common Stock, which includes 2,150,752 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 1,179,572 shares of Common Stock, which
includes 1,073,226 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Millennium Group to dispose
of 3,515,091 shares of Common Stock, which includes 1,077,527 shares of Common
Stock issuable upon the exercise of Warrants held by Mr. Simms and 2,437,564
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 1,582,135
shares of Common Stock, which includes 1,505,628 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 827,815 shares of Common Stock, which
includes 751,308 shares of Common Stock issuable upon exercise of Warrants; and
(iv)
36
shared power with the other members of the Florida Group to dispose of 4,042,973
shares of Common Stock, which includes 754,320 shares of Common Stock issuable
upon the exercise of Warrants held by Mr. Stein and 3,288,653 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 806,664 shares of Common Stock, which includes 769,544 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 385,541 shares of Common Stock,
which includes 384,003 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 4,042,973 shares of Common Stock, which includes 385,541 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Barron and
3,657,432 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
(11) To the Company's knowledge, Mr. Frieman possesses: (i) the sole power to
vote 501,539 shares of Common Stock, which includes 489,897 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 256,100 shares of Common Stock,
which includes 244,458 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 4,042,973 shares of Common Stock, which includes 245,439 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Frieman and
3,797,534 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 252,996 shares of Common Stock, which includes 241,354 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 132,077 shares of Common Stock,
which includes 120,435 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 4,042,973 shares of Common Stock, which includes 120,919 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Offerman and
3,922,054 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 168,656 shares of Common Stock, which includes 160,895 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 88,048 shares of Common Stock,
which includes 80,287 shares of Common Stock issuable upon exercise of Warrants;
and (iv) shared power with the other members of the Florida Group to dispose of
4,042,973 shares of Common Stock, which includes 80,608 shares of Common Stock
issuable upon the exercise of Warrants held by Mr. Huston and 3,962,365 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 252,996 shares of Common Stock, which includes 241,354 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 132,077 shares of Common Stock,
which includes 120,435 shares of Common Stock issuable upon exercise of
Warrants; and (iv) shared power with the other members of the Florida Group to
dispose of 4,042,973 shares of Common Stock, which includes 120,919 shares of
Common Stock issuable upon the exercise of Warrants held by Mr. Sirota and
3,922,054 shares of Common Stock issuable upon exercise of Warrants held by the
other members of the Florida Group.
37
(15) To the Company's knowledge, Mr. Polan possesses: (i) the sole power to vote
252,996 shares of Comm