Item 1. Business
Organization
Bayfield Low Income Housing Limited Partnership (the “Partnership”) is a Delaware limited partnership organized as of July 1, 1990 pursuant to the provisions of a Joint Plan of Reorganization of 52 Debtors (investor limited partnerships - the “Debtor Investor Partnerships”), dated May 9, 1990, pursuant to the provisions of Chapter 11 of Title 11, United States Code, as confirmed July 13, 1990 and amended from time to time thereafter (the “Plan”). Each of the Debtor Investor Partnerships was a newly formed Delaware limited partnership which was originally formed to and did acquire equity interests in limited partnerships (the “Operating Partnerships”), each of which has developed and now owns and operates a multi-family apartment complex for low to moderate income tenants (each, a “Project” - See “Ownership Interest in Operating Partnerships” chart below).
The Partnership was created under the Plan as a master limited partnership into which all of the assets and liabilities of the Debtor Investor Partnerships were “rolled-up” as of July 1, 1990. Pursuant to the Plan, the Partnership has succeeded to the interests of the Debtor Investor Partnerships in the Operating Partnerships, and the Debtor Investor Partnerships were liquidated in 1990.
The 52 Debtor Investor Partnerships were the following Delaware limited partnerships:
Arlington Estates Limited Partnership
Barrington Estates Limited Partnership
Bayfield Estates Limited Partnership
Beechfield Estates Limited Partnership
Birchfield Estates Limited Partnership
Blakefield Estates Limited Partnership
Brighton Estates Limited Partnership
Brookline Estates Limited Partnership
Candle Ridge Estates Limited Partnership
Canterbury Estates Limited Partnership
Carlysle Estates Limited Partnership
Cherrywood Estates Limited Partnership
Chesterfield Estates Limited Partnership
Clarkson Estates Limited Partnership
Clayton Estates Limited Partnership
Cloverfield Estates Limited Partnership
Copperfield Estates Limited Partnership
Crescent Estates Limited Partnership
Deerfield Estates Limited Partnership
Delafield Estates Limited Partnership
Edenfield Estates Limited Partnership
Emerald Estates Limited Partnership
Everest Estates Limited Partnership
Evergreen Estates Limited Partnership
First Estates Limited Partnership
Glenwood Estates Limited Partnership
Greenfield Estates Limited Partnership
Greenwood Estates Limited Partnership
Harborfield Estates Limited Partnership
Holly Estates Limited Partnership
Hunter Estates Limited Partnership
Kehrs Mill Estates Limited Partnership
Littlefield Estates Limited Partnership
Livingston Realty Investors Limited
Meadowfield Estates Limited Partnership
Mitchellfield Estates Limited Partnership
Northfield Estates Limited Partnership
Norwich Estates Limited Partnership
Oleander Estates Limited Partnership
Pine Hollow Estates, A Delaware Ltd. Partnership
Plainfield Estates Limited Partnership
Plantingfield Estates Limited Partnership
Redwood Estates Limited Partnership
Rosewood Estates Limited Partnership
Sagewood Estates Limited Partnership
Southfield Estates Limited Partnership
Springfield Estates Limited Partnership
Summerfield Estates Limited Partnership
Sycamore Realty Investors Limited Partnership
Walnut Estates Limited Partnership
Wynnfield Estates Limited Partnership
Wilshire Estates Limited Partnership
First American Holdings, Inc., a Delaware corporation (“First American”), was the sole general partner of each of the Debtor Investor Partnerships, and was the initial General Partner of the Partnership under the Plan. The Plan required that an independent manager that was not affiliated with First American take over the responsibility for the administration of the Partnership. A committee formed by the representatives of the three principal creditor classes in the bankruptcy proceedings (respectively, the “Developer Committee”, the “Secured Lender Group”, and the “Investors Committee”) selected Megan Management Company, Inc. (“Megan Management”) as the independent manager and entered into a management agreement with Megan Management as of July 10, 1990 (as amended by that Amended and Restated Management Agreement as of December 23, 1991 the “Management Agreement”).
Effective December 23, 1991, First American withdrew as general partner, subject to the approval of the Limited Partners, pursuant to a Settlement Agreement (the “Settlement Agreement”) with the Partnership and Megan Management. Among other things, the Settlement Agreement provided for certain amendments to the partnership agreement of the Partnership and, at the request of the Investors Committee, for the replacement of First American as General Partner of the Partnership by Megan Management or an affiliated company which were effected by the Second Amended and Restated Agreement of Limited Partnership of Bayfield Low Income Housing Limited Partnership entered into as of the 23rd day of December, 1991 (the “ Partnership Agreement”). The Settlement Agreement was approved by the bankruptcy court, and the Plan modified in accordance therewith, by an order entered June 22, 1992. Consent of the Limited Partners of the Partnership was obtained in October 1992.
As of December 31, 1992, Megan Management’s rights and obligations as General Partner and Independent Manager of the Partnership were assigned to, and assumed by, Megan Asset Management, Inc. (“Megan Asset Management” or the “Independent Manager”), a corporation which was under common ownership and control with Megan Management.
The General Partner has full, exclusive and complete discretion in the management and control of the Partnership, except as limited by the Partnership Agreement, by the Plan or by the Management Agreement. Megan Asset Management, in its capacity as Independent Manager under the Plan, is responsible for the day-to-day management of the Partnership’s operations.
Each of the Debtor Investor Partnerships’ offerings of Limited Partnership Interests (as hereinafter defined) had been closed prior to the organization of the Partnership. Accordingly, no additional interests in the Partnership are being made available and only limited transfers of Limited Partnership Interests in the Partnership are being effected in accordance with the Partnership Agreement.
Description of Business
The Partnership’s principal business was to maintain its investments in the form of limited partnership interests in the Operating Partnerships (the “Partnership Interests” and, through such investments, in the Projects) and to carry out the provisions of the Plan. Generation of low income housing tax credits (the “Tax Credits”), under Section 42 of the Internal Revenue Code of 1986, as amended (the “Tax Code”), which was enacted by the United States Congress to promote the development of low income rental housing, by the Partnership and the receipt thereof by the Limited Partners was one of the primary business objectives of the Partnership.
A majority of the Projects received financing under Section 515 of the Housing Act of 1949, as amended (“Section 515”), which authorized Rural Housing Service, the successor agency to the Farmers Home Administration of the Department of Agriculture (collectively referred to as “RD”) to provide direct below-market-rate mortgage loans for rural rental housing.
For Projects funded under Section 515 after December 21, 1979, which include substantially all of those in which the Partnership owns an interest, applicable law and regulations require the owner to utilize the housing for eligible low income tenants at restricted lower rents for a period of 20 years following closing of the RD mortgage.
The direct below-market-rate mortgage loans for rural rental housing provided by RD under Section 515, in amounts up to 97% of an apartment complex’s cost as determined pursuant to RD regulations and for terms up to 50 years, were extended to qualified sponsors/owners organized exclusively for the purpose of providing housing. In addition, RD provided each owner with mortgage interest subsidies, which effectively lowered the interest rate of the loan to 1% after the completion of the apartment complex, the benefits of which the owner must pass through to eligible tenants in the form of lower rents. RD regulations limit cash distributions to owners of apartment complexes which it finances to a maximum annual return of 8% per annum, on a non-cumulative basis, on the owner’s equity contribution of 3% to 5% of the cost of the apartment complex.
RD approval is required if an owner wishes to sell a Project. In addition, applicable law and regulations also preclude prepayment of mortgage loans, except in certain very limited circumstances and unless the owner agrees to utilize the project for eligible tenants for a specified period.
Each of the Projects indirectly owned by the Partnership qualified for Tax Credits. In order to generate Tax Credits and avoid recapture thereafter, there were significant additional continuing occupancy requirements with which each Project must comply for a 15-year Tax Credit compliance period under the Tax Code (“15-year Tax Credit Compliance Period”). Each Project must be rented to tenants whose incomes are below certain levels established by the federal government, and the rents which are permitted to be charged are strictly limited by government regulations. To the extent a Project does not comply with the Tax Credit occupancy requirements, all of the Tax Credits previously generated by the non-complying dwelling units in the applicable Project, and used by the Limited Partners, would have to be recaptured (“Tax Credit Recapture”). If this occurs the Limited Partners would have to pay a tax equal to one-third of the Tax Credits so generated by such Project and used by the Limited Partners to reduce their tax liability, together with possible penalties and interest.
Since the inception of the Partnership, eight of its Operating Partnerships became insolvent or bankrupt and RD has commenced foreclosure proceedings against five other Operating Partnerships (See “Item 2.
Item 2. Properties.
Each Operating Partnership owns and operates a Project, which generated Tax Credits under Section 42 of the Tax Code over its initial 10-years of existence or slightly longer. A description of the Projects is contained in the following tables. Immediately following these tables, is a glossary which provides an explanation of certain terms used in the table headings, as well as a discussion of certain Projects.
Bayfield Low Income Housing Limited Partnership
Ownership Interest in Operating Partnerships
Bayfield Low Income Housing Limited Partnership
Ownership Interest in Operating Partnerships
Bayfield Low Income Housing Limited Partnership
Ownership Interest in Operating Partnerships
Bayfield Low Income Housing Limited Partnership
Ownership Interest in Operating Partnerships
Bayfield Low Income Housing Limited Partnership
Ownership Interest in Operating Partnerships
Glossary
Developers Original Equity - The amount of original capital contributed or to have been contributed by the developer/general partner of the Operating Partnership.
Original Tax Items - The Partnership’s original allocation percentage of tax items from the Operating Partnerships, including income, gain, loss, deduction and tax credits.
Original Capital Events - The Partnership’s original allocation percentage of proceeds to be realized by the Operating Partnership upon the sale, refinancing, transfer or other disposal of all or a substantial portion of the assets of the Operating Partnership.
Bayfield’s Committed Capital Contribution - The amount of original capital contribution paid or to be paid by the Partnership for its limited partnership ownership interest in the Operating Partnership.
% of Interests Sold - The percentage of the Partnership’s Interest in the Operating Partnerships sold pursuant to the Liquidity Program or further sales toward implementing an exit strategy as of the date of this report.
Accumulated LIHC (from Inception of Bayfield) - The amount of LIHC generated by the Operating Partnerships and allocated to the Partnership from the 7/1/90 inception of Bayfield through the tax year ending 12/31/00.
The following is additional information on certain Operating Partnerships:
PROJECTS LOST THROUGH OR SUBJECT TO FORECLOSURE
Anderson Country Estates, L.P., Cedar Crest Apartments, L.P., Gilman Senior Apartments, L.P., Lagrange Apartments-Phase II, L.P., Lewistown Apartments, L.P., Oakwood Apartments, Ltd., Perry Apartments, L.P. and Wayland Apartments, L.P.
In December, 2004 the Partnership learned that the following Operating Partnerships were being foreclosed upon by RD due to substantial deferred maintenance and extremely high vacancies:
•
Anderson Country Estates, L.P. a Missouri limited partnership, owner of a twenty-four (24) unit apartment project located in Palmyra, Missouri;
•
Cedar Crest Apartments, L.P., a Missouri limited partnership, owner of a sixteen (16) unit apartment project located in Bourbon, Missouri;
•
Gilman Senior Apartments, L.P., a Missouri limited partnership, owner of a six (6) unit apartment project located in Gilman City, Missouri;
•
Lagrange Apartments-Phase II, L.P., a Missouri limited partnership, owner of an eight (8) unit apartment project located in Lagrange, Missouri;
•
Lewistown Apartments, L.P., a Missouri limited partnership, owner of a twelve (12) unit apartment project located in Lewistown, Missouri;
•
Oakwood Apartments, Ltd., a Missouri limited partnership, owner of a twenty-four (24) unit apartment project located in Hannibal, Missouri;
•
Perry Apartments, L.P., a Missouri limited partnership, owner of an eight (8) unit apartment project located in Perry, Missouri; and
•
Wayland Apartments, L.P., a Missouri limited partnership, owner of an eight (8) unit apartment project located in Wayland, Missouri (the “Missouri Operating Partnerships”).
As each of the Missouri Operating Partnerships were the subject of contracts to purchase and option agreements, the Partnership had to repurchase the interests in Anderson Country Estates, L.P., Oakwood Apartments, Ltd. and Perry Apartments, L.P. from Dominium (as hereinafter defined) for $52,168; Gilman Senior Apartments, L.P. from AHP2 (as hereinafter defined) for $6,830; and Cedar Crest Apartments, L.P., Lagrange Apartments-Phase II, L.P., Lewistown Apartments, L.P. and Wayland Apartments, L.P. from MPF BA (as hereinafter defined) for $32,573.
Upon the payment of $10,000, the Partnership entered in to an Option with the Operating General Partners of the Missouri Operating Partnerships for their repurchase of Anderson Country Estates, L.P., Cedar Crest Apartments, L.P., Lagrange Apartments-Phase II, L.P., Lewistown Apartments, L.P., Oakwood Apartments, Ltd., and Perry Apartments, L.P. from the Partnership for $124,815. The Partnership is still negotiating with the Operating General Partners of the Missouri Operating Partnerships with respect to its interest in Gilman Senior Apartments, L.P. and Wayland Apartments, L.P. which have been foreclosed upon.
The Missouri Operating Partners exercised their option to purchase and did purchase Oakwood Apartments, Ltd. by an agreement dated the 27th day of September, 2005. The obligation by the Missouri General Partners to pay the purchase price, in the amount of $28,589 due and payable on or before December 31, 2005, was secured by a Security Agreement of even date.
While all of the Missouri Operating Partnerships generated the last of their Tax Credits to which they were entitled, $1,330,028, in years 1998 to 2002, and each, except for Gilman Senior Apartments, L.P., have achieved the end of its 15-Year Tax Credit Compliance Period, RD’s foreclose will not cause the Partnership to lose any future Tax Credits and to recapture any of the Tax Credits the Partnership received from these Projects over the years. With respect to Gilman Senior Apartments, L.P., as this Project was foreclosed upon on August 25, 2005, the Partnership will not lose any future Tax Credits, however in that the foreclosure took place in the 14th year of its 15-Year Tax Credit Compliance Period, the Partnership will be required to recapture two-fifths of one-third of the Tax Credits the Partnership received from this Project over the years or $8,753, or approximately $4 per 0.05% of Limited Partnership Interest on its 2005 tax return, which recapture will be passed on to the Limited Partners on their 2005 K-1’s. In addition, the value of Gilman Senior Apartments of (i) $1,500 which was the price the Partnership had to pay to repurchase 49.5% of that Project from AHP #2 and (ii) the value of the balance of the sale price of $2,500 will likely be lost to the Partnership as a result of this foreclosure.
Wayland Apartments, L.P. was also foreclosed upon as scheduled in August, 2005. As it had already achieved the end of its 15-Year Tax Credit Compliance Period, RD’s foreclosure will not cause the Partnership to lose any future or have to recapture any prior Tax Credits. The value of Wayland Apartments of (i) $7,287 which was the price the Partnership had to pay to repurchase 49.5% of that Project from MPF BA and (ii) the value of the balance of the sale price of $8,317 will likely be lost to the Partnership as a result of this foreclosure, although the Partnership intends to attempt to collect said amounts from the Missouri General Partners.
SALE OF THE PARTNERSHIP’S INTERESTS IN THE OPERATING PARTNERSHIPS
Sale of Additional of the Partnership’s Interest in the Operating Partnerships
The Partnership continued the sale of its Partnership Interests back to the developer/General Partners of the Operating Partnerships who were interested in repurchasing the Partnership’s Interests in their Operating Partnerships and to others pursuant to its Liquidity Program and began further sales toward implementing an exit strategy and seeking the consents of a majority in interest of the Limited Partners (the “Required Consents”).
Negotiations with and Loans from Dominium Development and Acquisition, LLC
Early in 2000, a third party, Dominium Development and Acquisition, LLC, a Minnesota limited liability company (“Dominium”) expressed an interest in buying Megan Asset Management’s
general partnership interest and its other interests in the Partnership (collectively “General Partnership Interests”). Megan Asset Management declined this proposal as it did not include an immediate offer to purchase each of the interests in the Partnership from the Limited Partners as well.
Thereafter in July 2000, when Dominium suggested a proposal which was to include the purchase of substantially all of the Limited Partnership Interests and its General Partnership Interests, and the assumption of approximately $1,800,000 owed by the Partnership to the Operating General Partners, the Partnership and Megan Asset Management entered into an agreement by which they agreed to negotiate exclusively with Dominium with respect to said proposal through December 31, 2000 (the “Exclusivity Agreement”). Had this proposal materialized it was expected to yield $1,200 per 0.05% Limited Partnership Interest to the Limited Partners. However, prior to December 31, 2000, Dominium indicated that it had been unable to raise sufficient funds and was no longer able to discuss a price of this amount and could only discuss a price at approximately one-half of that amount. The revised proposal was unacceptable to the Partnership and the Exclusivity Agreement expired by its terms on December 31, 2000.
Not having found any other parties interested in making an offer for the Limited Partnership Interests or the Partnership’s Interests, in July 2001, the Partnership and Megan Asset Management entered into a second agreement with Dominium to pursue a possible tender offer for some or all of the Limited Partnership Interests, as well as a possible purchase of the stock of Megan Asset Management, including its General Partnership Interest (the “Second Exclusivity Agreement”) at the revised lower price. These negotiations ultimately proved unsuccessful and the Second Exclusivity Agreement expired by its terms on August 31, 2001. While further discussions followed, those discussions were not fruitful, were eventually curtailed and the Partnership’s search for and consideration of other alternatives continued.
In January, 2003, as no other buyers or alternatives were identified, the Partnership made an alternative proposal to Dominium for it to enter into one or more options to purchase the balance of the Partnership Interests in the Operating Partnerships, subject to the Required Consents. Dominium expressed an interest in this proposal and as an incentive to keep the Partnership from selling more of its Operating Partnership Interests under its Liquidity Program (see “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations” - “Liquidity” below) while Dominium considered and performed its due diligence in connection with the Partnership’s proposal, Dominium loaned $116,130 and $46,335 to the Partnership to assist it in covering its operating expenses, pursuant to a Loan Commitment dated April 2, 2003. The loan was evidenced by two promissory notes one dated April 16, 2003 and the other dated July 18, 2003, a Loan Agreement dated April 16, 2003 and First Amendment to Loan Agreement dated July 1, 2003 and was secured by security interests in five of the Partnership’s Operating Partnership Interests pursuant to a Security Agreement dated April 16, 2003.
In July, 2003 Dominium delivered a counter proposal to the Partnership which, after further negotiations, was accepted and resulted in the entry into a Purchase Agreement by the Partnership and Megan Asset Management and a newly formed affiliate of Dominium, Bayfield Acquisition Limited Partnership, a Minnesota limited partnership (“BALP”), dated September 19, 2003 (the
“BALP Purchase Agreement”), however, under the BALP Purchase Agreement, BALP had a further ninety days to complete its due diligence and terminate the BALP Purchase Agreement at its sole discretion (“Due Diligence Period”) prior to its scheduled closing on the transaction on December 23, 2003.
In summary, the BALP Purchase Agreement provided, with respect to the Partnership’s Interests in 123 Operating Partnerships, that BALP would:
(i)
Purchase forty-nine and one-half percent of each of the Partnership’s Interests and its Accounts Receivable in those 61 Operating Partnerships which achieved the end of their 15-year Tax Credit Compliance Period on or before January 1, 2003 (the “49.5% Operating Partnership Interests”) and purchase thirty-three percent of the Partnership’s Interests and its Accounts Receivable in each of those 62 Operating Partnership which will achieve the end of their Tax Credit Compliance Period on or after January 1, 2004 (the “33% Operating Partnership Interests”) for $444,939, plus to the extent that it relates to the 49.5% Operating Partnership Interests and the 33% Operating Partnership Interests, respectively (a) the Partnership’s obligations as the Limited or Investor Partner under each Operating Partnership Agreement, (b) the 8% interest still due by the Partnership to many of the Operating Partnerships payable pursuant to Article 15 (1)(a)(ii) of the Plan as a first priority from the proceeds of any Capital Events (the “8% Interest Obligation”) estimated at $609,847 with respect to the 49.5% Operating Partnership Interests and the 33% Operating Partnership Interests; and (c) $942,659 to Megan Asset Management in satisfaction of the Partnership’s obligation to Megan Asset Management for Megan Asset Management’s Continental Interest Claim with respect to the 49.5% Operating Partnership Interests and the 33% Operating Partnership Interests;
(ii)
Upon the payment of $123,000, the Partnership would grant BALP an option:
(a)
To purchase a further sixteen and one-half percent of the 33% Operating Partnerships which would achieve the end of their Tax Credit Compliance Period after January 1, 2004 (the “Short Option” and the “Short Option Interests”), for $122,266, plus to the extent that it relates to the Short Option Interests (a) the Partnership’s obligations as the Limited or Investor Partner under each Operating Partnership Agreement; (b) the 8% Interest Obligation of an estimated $104,881; and (c) $106,658 to Megan Asset Management in satisfaction of the Partnership’s obligation to Megan Asset Management for Megan Asset Management’s Continental Interest Claim;
(b)
To (I) purchase the balance of (a) the Partnership’s Interests in, (b) the related Accounts Receivable and (c) the related Annual Distributions from the 49.5% Operating Partnership Interests and the 33% Operating Partnerships which would achieve the end of their Tax Credit Compliance Period on January 1, 2004; and (II) to purchase a further fifty and one-half percent of (a) the Partnership’s Interests in and (b) the related Accounts
Receivable from the 33% Operating Partnerships which would achieve the end of their Tax Credit Compliance Period after January 1, 2004 (collectively, the “First Option Interests”) in the 15th month after the Closing, subject to the receipt of the Required Consents (the “First Option”), for $613,884, plus to the extent that it relates to the First Option Interests (a) the Partnership’s obligations as the Limited or Investor Partner under each Operating Partnership Agreement, (b) the 8% Interest Obligation of an estimated $760,769; and (c) $1,095,069 to Megan Asset Management in satisfaction of the balance of the Partnership’s obligation to Megan Asset Management for Megan Asset Management’s Continental Interest Claim; and
(c)
To purchase the balance of all of (a) the Partnership’s Interests, (b) the related Accounts Receivable and (c) the related Annual Distributions previously not transferred pursuant to the BALP Purchase Agreement (the “Second Option Interests”) in the 13th month after the Third Closing, subject to the receipt of the Required Consents (the “Second Option”), for $34,524, plus to the extent that it relates to the Second Option Interests (a) the Partnership’s obligations as the Limited or Investor Partner under each Operating Partnership Agreement, (b) the 8% Interest Obligation of an estimated $30,975; and (c) $24,068, to Megan Asset Management in satisfaction of the balance of the Partnership’s obligation to Megan Asset Management for Megan Asset Management’s Continental Interest Claim.
In further consideration of the Partnership’s agreement not to sell additional interests in its 123 Operating Partnerships prior to the Closing contemplated by the BALP Purchase Agreement, Dominium made subsequent loans to the Partnership during its Due Diligence Period in the amount of $120,000 on September 25, 2003 (the “First Subsequent Loan”), $60,000 on October 23, 2003 (the “Second Subsequent Loan”) and $60,000 in November, 2003 (the “Third Subsequent Loan” and collectively “Subsequent Loans”). Each Subsequent Loan was evidenced by a promissory note and secured by collateral interests in the Partnership’s Interests in the following fourteen (14) Operating Partnerships (the “Dominium Collateral Partnerships):
AFM RRH, Ltd.
Anderson County Estates
Blanchard Apartments
Bunkie Apartments
Cottonwood Seniors Apts
Coushatta Seniors Apts
Donaldsonville Seniors
Joaquin Apartments
Many Seniors Apartments
Oakdale-T F Management
Oakwood Apartments Ltd
Pecanwood Apts Iii, Ltd.
Perry Apartments
Southern Apartments
Dominium Failed Sale
In December, 2003, after three years of exclusivity agreements, the BALP Purchase Agreement, extensive due diligence and attempts to close a deal with Dominium, Dominium could not raise the money to pay the purchase price and terminated the BALP Purchase Agreement prior to its scheduled closing on December 23, 2003. However, as of January 1, 2004, Dominium did exercise its option to purchase 49.5% of the Partnership’s Interests in the Dominium Collateral Partnerships by the cancellation of a proportionate amount for the principal and interest due on the Loan and the Subsequent Loans and maintained its option to purchase the balance of the Dominium Collateral Partnerships in 2005.
The BALP Purchase Agreement, had it closed was expected to have resulted in only an estimated final distribution payment of less than $250 to the Limited Partners for each unit they owned in the Partnership, after payment of the Partnership’s obligations and expenses of the sale and liquidation.
Sale of Eleven Operating Partnership Interests to Dominium Development and Acquisition, LLC
As of January 1, 2005, Dominium did exercise its option to purchase the balance of the Partnership’s Interests in the Dominium Collateral Partnerships, other than Anderson Country Estates, L.P., Oakwood Apartments, Ltd., and Perry Apartments, L.P., which were repurchased by the Partnership (as discussed above), by the cancellation of the balance of principal totaling $402,465 dollars and all interest due on the Loan and the Subsequent Loans.
Sale of Five Operating Partnership Interests to Affordable Housing Limited Partnership No.
In July, 2003 the Partnership negotiated a contract to purchase limited partnership interests with Affordable Housing Partners No. 1 (“AHP1”) dated the 30th day of September, 2003 (the “AHP1 Contract to Purchase”) for the purchase of the Partnership’s Interests in the following five Operating Partnerships (the “Five Operating Partnerships”):
Alachua Villas
Citrus Terrace, Ltd.
Lake City Village
Longview Terrace Ltd.
Pontotoc Ridge Apts
In summary, the AHP1 Contract to Purchase provided that AHP1 would close upon the purchase of one-third of the Partnership’s Interests in the Five Operating Partnerships for $44,500, plus the assumption of a proportionate amount of: (i) the Partnership’s obligations as the Limited or Investor Partner under each Operating Partnership Agreement and (ii) the 8% Interest Obligation to the extent that it relates to the Operating Partnership Interests being transferred in the approximate amount of $39,337. This purchase closed on the 21st day of October, 2003.
The AHP1 Contract to Purchase further provided that in consideration of the payment of $5,000 the Partnership granted AHP1 options to purchase the balance of the Partnership’s Interests in each of the Five Operating Partnership in January 2004. The options to purchase were exercised with respect to each of the Five Operating Partnerships and the option purchase prices totaling $100,500 dollars was paid in January 2004.
Sale of Fifteen Operating Partnership Interests to Affordable Housing Limited Partnership No. 2
As of the 15th day of April, 2004, an affiliate of AHP1, Affordable Housing Limited Partnership No. 2 (“AHP2”) entered into a contract to purchase limited partnership interests with the Partnership (the “AHP2 Contract to Purchase”) for the purchase of up to fifty percent (50%) of the Partnership’s Interests in the following fifteen Operating Partnerships (the “Fifteen Operating Partnerships”):
Gilman Seniors
Canal Town Associates
Cle Elum
Cleveland Courts, Ltd.
East Magnolia Village
Elliott Manor, Ltd
Franklin Vista II
Hitchcock Housing
Hurricane
Kent Summit, Ltd.
Kingswood Ii, Ltd.
Lakecrest Apartments
Laurel Wood Apts., Ltd.
Lead Bayou, Ltd.
Riverbend Apartments
In summary, the AHP2 Contract to Purchase provided that AHP2 would close upon the purchase of up to fifty percent of the Partnership’s Interests in the Fifteen Operating Partnerships for $160,000, plus the assumption of a proportionate amount of: (i) the Partnership’s obligations as the
Limited or Investor Partner under each Operating Partnership Agreement and (ii) the 8% Interest Obligation to the extent that it relates to the Operating Partnership Interests being transferred in the approximate amount of $79,550.
The AFHP2 Contract to Purchase further provided that in consideration of the payment of $15,000 the Partnership granted AHP2 an option to purchase the balance of the Partnership’s Interests in the Fifteen Operating Partnerships on or after July 15, 2005. The option to purchase was exercised with respect to all but one of the Fifteen Operating Partnerships (Gilman Senior Apartments as it was the subject of a foreclosure sale by RD, as discussed above, and only up to sixteen and one-half percent of the Partnership interests in Elliott Manor, Ltd., Kent Summit, Ltd., Lakecrest Apartments and Lead Bayou, Ltd. which would not have achieved the end of their 15-year Tax Credit Compliance Period and could not be sold until late in 2006 to avoid a technical termination of those Operating Partnerships which would cause adverse tax consequences to AHP2, but which continue subject to an option to purchase by AHP2). The option purchase price of $162,126 was paid in July 2005 by AHP2 and an affiliated of AHP2, Affordable Housing Limited Partnership No. 9 (“AHP9”), and the interests under option were split between AHP2 and AHP9.
Negotiations with Housing and Tax Consultants, LLC
As of July 15, 2004 an affiliate of Affordable Housing Limited Partnership Nos. 1, 2 and 9, Housing and Tax Consultants, LLC (“HTC”) entered into a contract to purchase limited partnership interests with the Partnership (the “HTC Contract to Purchase”) for the purchase of up to fifty percent of the Partnership’s Interests in seventy-seven of the Partnership’s Operating Partnership (the “Seventy-Seven Operating Partnerships”):
In summary, the HTC Contract to Purchase provided that HTC would close upon the purchase of up to fifty percent of the Partnership’s Interests in the Seventy-Seven Operating Partnerships on or before October 15, 2004 for $1,122,7801, plus the assumption of a proportionate amount of: (i) the Partnership’s obligations as the Limited or Investor Partner under each Operating Partnership Agreement and (ii) the 8% Interest Obligation to the extent that it relates to the Operating Partnership Interests being transferred in the approximate amount of $1,114,709.
HTC failed to close on the purchase of up to fifty percent (50%) of the Partnership’s Interest in the Seventy-Seven Operating Partnerships, demanded and was granted an extension by the Partnership to close until November 30, 2004 to enable it additional time to raise the funds with which to pay the purchase price. On November 30, 2004 HTC again failed to close and defaulted on the HTC Contract to Purchase.
The HTC Contract to Purchase, had it closed would have resulted in only an estimated $50 final distribution payment to the Limited Partners for each 0.05% unit owned by the Partnership’s Limited Partners, after payment of the Partnership’s obligations and expenses of the sale and liquidation.
Sale of Eighty-one Operating Partnership Interests to MPF Bayfield Acquisition, LLC
On December 23, 2004, the Partnership entered into a Purchase Agreement (the “MPF Purchase Agreement”) with MPF Bayfield Acquisition, LLC, a California limited liability company and an affiliate of Mackenzie Patterson Fuller, Inc. (“MPF BA”) and Mackenzie Patterson Fuller, Inc. (the “Guarantor”) for the purchase up to forty-nine and one-half percent of the Partnership’s Interests in eighty-one Operating Partnerships (the “81 Operating Partnerships”). The MPF Purchase Agreement also provides MPF BA with options to purchase the remaining Partnership Interests in the 81 Operating Partnerships between December 1 and December 30, 2005, when such purchase and sale will not cause a technical termination of the Partnerships and adverse tax consequences to MPF BA, subject to the Required Consents. Under the terms of the MPF Purchase Agreement, Guarantor unconditionally guaranteed the MPF BA’s obligations under the MPF Purchase Agreement.
Pursuant to the terms of the MPF Purchase Agreement, MPF BA agreed to:
(ii)
Assume up to 49.5% of the Partnership’s 8% Interest Obligation with respect to the Partnership Interests being purchased in the approximate amount of $595,250; and
(iii)
Assume up to 49.5% of the Partnership’s obligations as a limited partner under each of the Operating Partnerships that arise on and after the date of the Agreement.
All Cash Consideration to be paid after the signing of the MPF Purchase Agreement was evidenced by secured promissory notes of MPF BA and guarantied by the Guarantor.
Pursuant to the MPF Purchase Agreement, upon the payment of $81,000, the Partnership granted MPF BA (i) an option to purchase an additional 16.5% of the Partnership’s Interests in certain of the Operating Partnerships exercisable on or between January 1, 2005 and January 15, 2005, for $34,494 (the “Short Option” which was exercised and closed in accordance with its terms) and (ii) an option to purchase the balance of the Partnership’s Interests in the Operating Partnerships on or between December 1, 2005 and December 30, 2005, subject to the Required Consents, for $1,740,594 (the “First Option”).
The MPF Purchase Agreement provides for a repurchase of any Partnership Interests by the Partnership in the event that an Operating Partnership experiences an event that would cause a minimum gain chargeback with respect to that Operating Partnership such that MPF BA will not be able to match such income allocations with applicable losses from the sale of such Partnership Interests.
Pursuant to the MPF Purchase Agreement, Megan Asset Management, the Partnership’s general partner and MPF BA have executed a management agreement whereby Megan Asset Management will perform certain management, financial, and tax services for MPF BA with respect to the Partnership Interests purchased. Fees paid to Megan Asset Management pursuant to this contract are not to exceed a pro rata portion of $52,000 annually until, if at all, the First Option is exercised.
The MPF Purchase Agreement, if the promissory notes due December 15, 2005 and June 15, 2006, are paid and if MPF BA exercises its option to purchase the balance of the Partnership’s interests in those Operating Partnerships and, as a result thereof, the notes payable through June, 2008 are paid, it together with the exercise of the few other options to purchase outstanding, would be expected to result in only an estimated $3 final distribution payment for each Unit owned by the Partnership’s limited partners, after payment of the expenses of implementing the sales, the required SEC consent and solicitation of the Limited Partner’s approval, payment of all of the Partnership’s obligations and liquidation of the Partnership.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5. Market for Registrant’s Limited Partnership Interests and Related Security Holder Matters
Market Information
The Partnership is a limited partnership and thus has no common stock. There is no established public trading market for limited partnership interests in the Partnership (“Limited Partnership Interests”) and it is not anticipated that any such public market will develop.
Article XI of the Partnership Agreement effectively prevents the transfer of Limited Partnership Interests except under very limited circumstances. In order to transfer a Limited Partnership Interest, a Limited Partner must obtain the consent of the General Partner of the Partnership, which has the absolute right to refuse any request for a transfer. In addition, the Partnership Agreement requires the transferring Limited Partner to obtain a legal opinion from counsel, at its expense, as to certain tax and securities law matters with regard to the proposed transfer. In addition, the proposed transferee must meet all applicable suitability standards and agree to be bound by the Partnership Agreement.
Approximate Number of Security Holders
As of December 31, 2000, there were approximately 1,842 holders of Limited Partnership Interests.
Distributions
No distributions were made to Limited Partners for fiscal years ending March 31, 2001, March 31, 2000, and March 31, 1999.
Item 6. Selected Financial Data
The information set forth below presents selected historical financial data of the Partnership for the years ended March 31, 2001, 2000, 1999, 1998 and 1997. This information has been derived from and is qualified by reference to the additional detailed information set forth in the audited financial statements listed in Item 14 hereof and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as Item 7 in this Report.
OPERATIONS
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Partnership was formed as of July 1, 1990, pursuant to the Plan. In 1992 its fiscal year-end for accounting purposes was changed to March 31, from December 31. The Partnership’s fiscal year-end for tax purposes remains December 31.
Overview
The Partnership was formed pursuant to the terms of the Plan, which mandated the Partnership’s material commitments for expenditures and the anticipated sources of funds needed to fulfill such commitments. A Final Decree was signed by the United States Bankruptcy Court, Eastern District of New York in the Jointly Administered Chapter 11 cases on May 20, 1993.
Prior to calendar 1995, the Partnership’s primary source of funds was the payment by Limited Partners of the amounts owed to the Partnership for their capital contributions pursuant to their Investor Notes. Each of the Investor Notes was payable in semi-annual installments through December 31, 1994. As of March 31, 2001, an aggregate of $1,057,195 was owed pursuant to the Investor Notes. These notes are past due and are considered uncollectible. These amounts are not written off on the Partnership’s financial statements as the amount is reflected as a negative in the Partners’ Capital section of the balance sheet and since the defaulted investor units have not been cancelled. The aggregate amount outstanding and past due was $1,118,845 for the fiscal year ending March 31, 2000 and $1,185,709 for the fiscal year ending March 31, 1999.
Commencing in calendar 1995, although funds from certain other sources were received during the 1995 and 1996 fiscal years (see “Liquidity” below), the Partnership’s primary source of funds became the annual distributions from the Operating Partnerships in which the Partnership has an interest, which has been negotiated at $750 per year, per Operating Partnership (the maximum allowed by the Plan), provided that such payment is not prohibited by any applicable agreement with a governmental agency or any applicable governmental agency rules or regulations.
The total amount due annually to the Partnership from the $750 distributions from the Operating Partnerships is approximately $104,000. The Partnership has been receiving only approximately 50% of the distributions due from the Operating Partnerships. To the extent that such distributions or portion thereof are not paid in any year, the remainder accumulate and are to be paid at the earliest time permitted. As indicated above, many of the distributions are not being made do to limitations by governmental regulations.
Beginning in 2002 the Partnership’s primary source of funds became loans or the sale of its Partnership Interests in the Operating Partnerships (see “Liquidity” below and “Item 2. Properties” above).
The Partnership also receives interest income on account balances.
The ability of the Partnership to make all cash distributions to its Limited Partners contemplated by the Plan is dependent upon the receipt by the Partnership of sufficient proceeds from the sale of its interests in the Operating Partnerships (the General Partner, after exploring various exit strategies, has begun the sale of the Partnership’s Interests in the Operating Partnerships - See “Item 1. - Description of Business” above). There can be no assurance that the proceeds from the sale of the Operating Partnerships will be sufficient to enable the Partnership to make all or any portion of such distributions. Further there can be no assurance that the application of funds available for distribution to Limited Partners which, from time to time, were deferred by the Independent Manager with the consent of the Investor Committee to pay certain costs and expenses of the Partnership or to purchase interests in partnerships which own, or are intended to own, projects which are intended to qualify for Tax Credits (see “Liquidity” section below), will ultimately yield an economic benefit to the Limited Partners.
It is anticipated that the liquidation and termination of a Limited Partner’s interest in the Partnership or the winding up and termination of the Partnership will enable a majority of the Partnership’s Limited Partners to begin utilizing the tax losses they have received but could not use and have carried forward over the life of the Partnership, estimated by the Partnership to be approximately $30,000 in “suspended” loss deductions for most Limited Partners, which could produce additional tax savings for those Limited Partners.
Other than the annual payment referred to above, the Partnership does not anticipate that it will receive material cash distributions from the operations of the Operating Partnerships, or that it will derive net cash from its ordinary operations generally. Aside from such payments, the Partnership does not have significant external sources of Capital Resources other than through the sale of its Operating Partnership Interests under its Liquidity Program (discussed in “Item 1. Business - Description of Business” above and “Liquidity” below). All of the above-named sources of Capital Resources are being used to meet the operating expenses of the Partnership, to preserve and maintain the investment in its Projects and to sell its interests in the Operating Partnerships in anticipation of liquidating the Partnership, subject to the consent of a majority in interest of the Limited Partners.
Liquidity
The Partnership’s principal uses of funds are its operating and sales expenses and, prior to December 31, 1994, were for (i) capital contributions to the Operating Partnerships and (ii) payments to the Secured Lenders of the Debtor Investor Partnerships. The remaining unpaid balance of such contractual obligations at each of March 31, 2001 and March 31, 2000 was $83,588 and March 31, 1999 was $94,535 with respect to the Operating Partnerships that were in default on their obligations to the Partnership. The Partnership also assumed certain accrued expenses pursuant to the Plan that, except for the Continental pre-petition expenses and 8% Interest Obligation, were paid in full as of March 31, 1996. The Partnership also made distributions to certain Limited Partners that were in the original debtor Brighton Estates Limited Partnership as provided in the Plan.
For the 2001 Fiscal Year, the 2000 Fiscal Year, and the 1999 Fiscal Year gross cash amounts received by the Partnership were as follows:
(i) $61,650, $66,864, and $37,578 from payments of capital contributions by Limited Partners pursuant to their Investor Notes; and
(ii) None from interest income on the Investor Notes during any of these years; however $44,776, $28,378 and $63,763, respectively, of interest income on deposits maintained in escrow accounts pursuant to the Plan were received.
(iii) None from proceeds of sales of partnership interests.
For the 2001 Fiscal Year, the 2000 Fiscal Year, and the 1999 Fiscal Year, the uses of funds by the Partnership were as follows:
(I) $10,947, $ -0- and $ -0-, respectively, for capital contributions to the Operating Partnerships;
(II) $431,191, $292,376 and $280,970, respectively, for professional fees. Professional fees of approximately $431,191 in the 2001 Fiscal Year included fees incurred in connection with the Exclusivity Agreement, negotiations, drafting agreements and due diligence with Dominium to pursue a possible purchase of substantially all of the Limited and General Partnership Interests and, among other things, other sales pursuant to the Partnership’s Liquidity Program and the preparation of amended partnership agreements for Operating Partnerships with interests being transferred.
(iii) $150,906, $126,048 and $121,647, respectively, for operating expenses; and
(iv) None for payments of Continental pre-petition expenses in accordance with the Plan.
(v) None for payments as a return of capital to the Limited Partners during any of these periods.
The previous distributions to Limited Partners included a full distribution of the $1,014,628 contemplated by the Plan for the 1995 Fiscal Year, and a partial distribution for the 1994 Fiscal Year. In Fiscal 1994, $516,901 of the $1,014,628, contemplated by the Plan to be distributed, was distributed to the Limited Partners in such year. As permitted under the Plan and approved by the Investors Committee, undistributed amounts of $507,314 for the 1994 Fiscal Year, together with the entire $1,014,628 to have been distributed in the 1993 Fiscal Year, were deferred and were applied to meet the increased obligations of the Partnership.
No such distributions are payable after December 31, 1994, except to the extent that the Independent Manager, in consultation with the Investors Committee, determines that the financial resources of the Partnership will permit payment of previously deferred distributions. It is not presently anticipated that any such payments will be made. (See “Item 10. Directors and Executive Officers of the Registrant - Investor Committee”.)
The net decrease in cash held by the Partnership was $392,717 for the 2001 Fiscal Year, $290,682 for the 2000 Fiscal Year and $239,552 for the 1999 Fiscal Year. As discussed above in “Item 1. - Description of Business”, the Partnership no longer anticipates that the annual payments to be received from the Operating Partnerships, in combination with the Partnership’s reserves, will be sufficient to permit the Partnership to meet its operating expenses until such time, if at all, a complete exit strategy has been identified and implemented. Accordingly, in view of the Partnership’s need to raise more capital to continue to maintain its operations as set forth herein, the Partnership obtained loans secured by and also began accepting offers it received to sell the Partnership’s limited partnership interests in a number of those Operating Partnerships which own the Projects (See “Liquidity” and “Item 2. Properties” above).
However, there can be no assurance in the future that the Partnership will be able to meet its obligations through its Liquidity Program should the implementation of an exit strategy extend beyond the originally anticipated 15-year compliance period of the Operating Partnerships, years 2002-2004, or if sufficient purchasers of the Operating Partnership interests are not available.
Results of Operations
Expenses, comprised principally of depreciation expenses, management fees and professional services costs, exceeded income, which was comprised principally of proceeds from payments of capital contributions by Limited Partners pursuant to their Investor Notes, interest income and miscellaneous items, by $811,624 for the 2001 Fiscal Year, $530,879 for the 2000 Fiscal Year and $388,893 for the 1999 Fiscal Year.
As noted above under “Item 1. Business - Description of Business”, the Partnership’s principal business was the maintenance of its interests in the Operating Partnerships, and because the Partnership has reached the end of its economic life, it does not expect to and does not have the funds available to make new investments or otherwise engage in additional activities. The Partnership’s results of operations and its obligations are primarily determined by the results of operations of the Operating Partnerships, its obligations to the Independent Manager, and by expenses arising out of legal and professional fees related to its Operating Partnership sales or business transactions. Accordingly, period-to-period comparisons of the results of operations of the Partnership may not be meaningful. The following discussion attempts to highlight certain elements of the results of operations of the Partnership for the periods discussed.
We estimated that, without additional acquisitions of interests in limited partnerships owning properties with or eligible for Tax Credits to replace interests lost through insolvency, bankruptcy or the settlement of litigation, for which the Partnership does not have funds available, the amount of Tax Credits generated by the Partnership aggregated approximately $0.97 for every $1.00 invested by the Limited Partners, rather than the $1.10 for every $1.00 estimated in the Plan. This includes Tax Credits passed through to the Limited Partners by the Debtor Investor Partnerships previous to the inception of the Partnership.
Approximately, the following Tax Credits were generated by the Projects or passed through by the Partnership to the Limited Partners for the tax years ended:
Interest income increased by approximately 158% for the 2001 Fiscal Year from the 2000 Fiscal Year due primarily interest income on a savings account, and deceased by approximately 55% for the 2000 Fiscal Year from the 1999 Fiscal Year and decreased by approximately 19% for the 1999 Fiscal Year from the 1998 Fiscal Year due primarily to the decrease in the Partnership’s cash balances resulting from the end of the investor pay-in period as of December 31, 1994 and the Partnership’s collection of substantially all collectable payments due it from the Investor Notes and the depletion of the Partnerships reserves to maintain its operations while seeking an exit strategy.
Equity in losses from Operating Partnerships was $811,624 for the 2001 Fiscal Year, $530,879 for the 2000 Fiscal Year and $388,893 for the 1999 Fiscal Year. The equity in income or losses from Operating Partnerships fluctuate from year to year based on the results of operations from the Projects. For the 2001 Fiscal Year the total equity in losses of $811,624 comprised principally of $275,803 in depreciation expenses and losses from the Operating Partnerships and $582,097 in management fees, professional services costs and other expenses. The Partnership uses the equity method of accounting for its investment in its Operating Partnerships and under the equity method losses in excess of aggregate investment in each Operating Partnership are not recognized. Therefore in recent years the reported losses from the Operating Partnerships have been declining due to basis limitation and the sale of Operating Partnership Interests. For income tax reporting purposes 100% of the losses are permitted to be passed through to the Limited Partners on their K-1’s and each Limited Partner is to calculate basis limitation separately.
Management fees paid were $119,500 for the 2001, 2000 and 1999 Fiscal Years.
Professional fees of approximately $431,191 in the 2001 Fiscal Year included fees incurred in connection with the Exclusivity Agreement, negotiations, drafting agreements and due diligence with Dominium to pursue a possible purchase of substantially all of the Limited and General Partnership Interests and, among other things, other sales pursuant to the Partnership’s Liquidity Program and the preparation of amended partnership agreements for Operating Partnerships with interests being transferred. Professional fees of approximately $292,376 in the 2000 Fiscal Year included fees incurred in connection with negotiations leading up to the Exclusivity Agreement and due diligence with Dominium to pursue a possible purchase of substantially all of the Limited and General Partnership Interests and, among other things, work related to defaulted developers, their removal from the Operating Partnerships and litigation in connection therewith, defaulted Investor litigation and other sales pursuant to the Partnership’s Liquidity Program and the preparation of amended partnership agreements for Operating Partnerships with interests being transferred. Professional fees of approximately $280,970 in the 1999 Fiscal Year included fees incurred in connection with work related to defaulted developers, their removal from the Operating Partnerships and litigation in connection therewith, including a lawsuit against the CPA who failed to report a scheme by which the developer wrongfully took substantial sums from the projects, defaulted Investor litigation and preparation of SEC reports.
No interest expense was incurred in the 2001, 2000, and 1999 Fiscal Years as all indebtedness to the Secured Lenders was paid in full prior to the 1996 Fiscal Year and interest on the Dominium Loan and Subsequent Loans was included as part of the purchase price when Dominium accepted the Dominium Collateral Partnerships in full satisfaction of all principal and interest due on the Loan and Subsequent Loans.
No amortization of organization costs were incurred in the 2001, 2000, and 1999 Fiscal Years due to the fact that amortization of all organization costs was completed in 1996.
Other income of approximately $1,500 in the 2001 Fiscal Year, $1,334 in the 2000 Fiscal Year and $1,600 in the 1999 Fiscal Year, was recorded as a result of miscellaneous items, and the receipt of a share of the management fees earned by an affiliate of the Independent Manager from Operating Partnerships pursuant to the Independent Manager’s Management Agreement.
Pursuant to the Plan, amounts due and unpaid to Operating Partnerships by the Debtor Investor Partnerships prior to the implementation of the Plan in July 1990 accrued interest at the rate of eight percent (8%) until paid. Pursuant to the Settlement Agreement (described in “Item 1. Business - Organization” above) and the Management Agreement (described in “Item 11. Executive Compensation - Compensation of the Independent Manager” below) the Independent Manager is entitled to receive an amount equal to 50% of any distributions originally payable to Continental Construction Management Corporation, a subsidiary of First American, which sums also accrue interest at the rate of eight percent (8%) until paid. As the non-payment of these amounts are not a default under the Plan and any such unpaid amount becomes payable only as a first and second priority out of Capital Events respectively, contingent liabilities, or as liabilities or debts of the Partnership prior to any distribution under the Partnership Agreement, as the Partnership has not had sufficient funds to pay these amounts, the Partnership did not pay them currently and has not accrued the amount or any interest on its financial statements. In the 2002 Fiscal Year, the 2001 Fiscal Year and the 2000 Fiscal Year the Partnership paid nothing to the Independent Manager toward what it is entitled to receive of the amount originally payable to Continental Construction Management Corporation under the Plan.
The amount of the interest which could be payable under the Plan to the Operating Partnerships as a first priority from Capital Events or as a liability or debt of the Partnership prior to any distribution under the Partnership Agreement is estimated at $1,506,474 as of March 31, 2001 and is subject to offsets of the amount of fees for professional services paid on behalf of certain Operating Partnerships (see “Item 2. Properties” above), any unpaid or accrued annual distributions due the Partnership (see “Overview” above) and a reduction by said sums payable to Operating Partnerships which have lost their Projects through foreclosure, bankruptcy or insolvency. The amount and interest which could be payable under the Plan as a second priority from Capital Events or as a liability or debt of the Partnership prior to any distribution under the Partnership Agreement to the Independent Manager is estimated at $2,100,000 as of March 31, 2001.
The Partnership is organized as a limited partnership and is a “pass through” entity which does not, itself, pay federal income tax. However, the partners of the Partnership receive their proportionate share of Tax Credits and other tax benefits accruing to the Partnership. For the tax years ended December 31, 2000, 1999 and 1998 the Limited Partners were allocated about $191,858, $1,232,441 and $3,723,899, respectively, in Tax Credits, or approximately $96, $616 and $1,861 per 0.05% of Partnership Interest, respectively.
The following is financial data for the Partnership that reflects the quarterly results of operations for the fiscal quarters ended June 30, September 30, and December 31, 2001.
Balance Sheets
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
Statement of Operations
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
Statement of Operations
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
Statement of Cash Flows
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
Statement of Cash Flows
Bayfield Low Income Housing Partnership
Statement of Cash Flows
Bayfield Low Income Housing Partnership
Forward Looking Statements
Certain items discussed in this Report constitute forward-looking statements within the meaning of the Private Securities Litigation reform Act of 1995 and, as such, involve known and
unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You can identify such statements by the fact that they do not relate strictly to historical or current facts. Statements which make reference to the expectations or beliefs of the Partnership or any of its management are such forward-looking statements. These statements use words such as “believe”, “expect”, “should”, “may”, “might”, “estimate” and “anticipate”.
All such forward-looking statements speak only as of the date of this Report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
Not Applicable
Item 8. Financial Statements and Supplementary Data.
See Item 14 and Exhibit 13 for a list of the Partnership’s Financial Statements filed as part of this report.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no directors or executive officers and has no employees of its own.
General Partner
The sole General Partner of the Partnership is Megan Asset Management, Inc., whose mailing address is 1424 West Century Ave., Suite 102, Bismarck, ND 58503. Megan Asset Management, which is also the Independent Manager of the Partnership, is a Delaware corporation whose executive officers are Gary L. Maddock, Chairman and Secretary, and Paul J. Maddock, President and Treasurer. The shareholders of Megan Asset Management are Gary L. Maddock (25%), Michele Maddock (25%) and Paul J. Maddock (50%).
Except as limited by the Partnership Agreement, by the Plan or by the Management Agreement, the General Partner has full, exclusive and complete discretion in the management and control of the Partnership.
The Independent Manager
In view of the need to have an independent manager that was not affiliated with First American take over the responsibility for the administration of the Partnership, a Management Agreement between the Partnership and the Independent Manager was entered into and provides for the Independent Manager to conduct and manage, on the Partnership’s behalf, the Partnership’s operations in connection with, among other things, collection, investment and disbursement of funds, maintenance of books and records, preparation of tax returns and review and coordination of related-party tax filings. Pursuant to the Management Agreement, the Independent Manager was appointed the exclusive agent of the Partnership to supervise and manage, on behalf of the Partnership, all of the operations of the Partnership under the Plan. (See “Item 1. Business - Organization” above). Even after the merger of both the General Partner’s and Independent Manager’s rights and obligations into Megan Management, and subsequently Megan Asset Management, the Management Agreement was kept in place because it outlined the compensation and duties to be performed more specifically than did the Partnership Agreement. The compensation of the Independent Manager is set forth under “Item 11. Executive Compensation.”
Gary L. Maddock, 65, Chairman of Megan Asset Management, was a real estate attorney, CPA and has been a licensed real estate broker. He also has extensive experience in other phases of real estate. Prior to July, 1989, Gary Maddock was Executive Vice President of First American for two years, resigning in a management dispute. As a former partner of Burns, Summit, Rovins and Feldesman, and in his own subsequent New York law practice, he has represented owner/developers of projects ranging from condominium and single-family developments to a 250-room urban hotel and conference center. As an officer of various companies affiliated with Megan Asset Management, he has consulted and assisted developers in (i) obtaining in excess of $20 million in debt financing, (ii) placing in excess of $60 million in Tax Credits and (iii) building hundreds of units of low to moderate income housing. He also has overseen the management of numerous projects with housing units for low income families and the elderly and the development of real estate subdivisions and the building of single-family homes. He has and continues to perform professional services for the Partnership. See “Item 13. Certain Relationships and Related Transactions”.
Paul J. Maddock, 55, President of Megan Asset Management, has been with the Independent Manager for fifteen years. Paul Maddock spends about 75% of his time working on and overseeing the management of the Partnership and 25% of his time in his own public accounting practice, Paul J. Maddock, PC., which was formed in 1992 and through which he provides tax return preparation services on a fee basis for many of the Operating Partnerships. He is a CPA and was formerly a tax manager for a regional CPA firm.
The Investor Committee
Pursuant to the Plan, the Investor Committee performed an oversight role in connection with the approval of the deferral of distributions to be made to the Limited Partners and the use thereof to pay costs and expenses for the administration and operation of the Partnership or to purchase interests in partnerships which own, or are intended to own, projects which are intended to qualify for Tax Credit and to maintain its investment in the Projects. (See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview” and “Liquidity” above). The Investor Committee does not perform any management functions with respect to the Partnership. All of the current members of the Investors Committee are direct or indirect holders of an Interest in the Partnership.
The members of the Investor Committee are as follows:
Fran Hoaglund, Chair, 62. President of Tax Equity Associates for over23 years. Financial planner and tax specialist for more than 25 years. Holder of an Interest.
David Apple, 51. President of David Apple, Ltd. (certified public accountants) for over 23 years. CPA for more than 25 years. Holder of an Interest.
James Linna, 65. Chairman of The Investor Company, Inc. and/or President of affiliates for over 16 years. National Association of Securities Dealers (“NASD”) principal; licensed real estate broker; security representative for more than 35 years. Holder of an Interest.
William Walczak, 64. CPA for the past 24 years and currently a member of the accounting firm of MacDonald & Walczak, CPAs, LLC. Holder of an Interest.
The Developer Class Representative
The Developer Class Representative is ERC Properties, Inc. located in Fort Smith, Arkansas which was the chairman of the Unofficial Committee of Developers during the Debtor Investor Limited Partnerships’ bankruptcy proceedings (see “Item 1. Business - Organization” above) and continues to represent the approximately 110 Operating Partnerships. Pursuant to the Plan, the Developer Class Representative had and continues to have many responsibilities including but not limited to negotiating with the Independent Manager as to the amount each Operating Partnership shall distribute to the Master Limited Partnership on or before April 1 of each year commencing in the year 2000 which shall not exceed $750; filing any financing statement (without a Debtor Investor Limited Partnership’s or the Master Limited Partnership’s signature) which is reasonable or necessary to perfect any security interests granted to, or retained by, an Operating Partnership under the Plan; executing and recording any and all documents which are required to be executed and recorded under applicable nonbankruptcy law to effect the admission of the Master Limited Partnership as a limited partner of the Operating Partnerships; and under the Management Agreement to preapprove all withdrawals by the Independent Manager from the Escrow Account, including all checks drawn on and wire transfers made from the Escrow Account.
The Developer Class Representative is to be exculpated from any and all liability that may arise out of any action or inaction by the Developer Class Representative under the Plan and Management Agreement unless caused by his gross negligence or willful misconduct.
For its services, the Developer Class Representative is paid $15,000 per year by the Partnership.
Item 11. Executive Compensation.
The following table shows compensation for management services rendered in all capacities to the Partnership by Megan Asset Management, Inc. as Independent Manager during the periods indicated.
(1)
Consists of payment for Continental pre-petition expenses pursuant to the Settlement Agreement and Management Agreement.
Compensation of the Independent Manager
Prior to calendar 1995, the Independent Manager was entitled to receive $396,000, plus $40,000 per year to cover the cost of preparation of tax returns and financial statements and $75,000 in relation to investor billings due to the Secured Lender refinancing. Commencing in calendar year 1995, the Independent Manager, under the Management Agreement, was entitled to receive $119,500 annually, plus $30,000 per year to cover the cost of preparation of tax returns and financial statements, for each of the years 1995 through 1998. Commencing with calendar year 1999, the Independent Manager became entitled to an annual base fee of $119,500, together with an additional $30,000 to cover the cost of preparation of tax returns and financial statements, less $750 for each Operating Limited Partnership in which the Partnership ceases to own the limited partnership interest during 1999 and thereafter. The foregoing is in lieu of payment to the Independent Manager of amounts pursuant to the Plan sections 6(6)(c) (providing for annual payment from each Operating Partnership to the Partnership of $750 for each of the years 1995 through 1999) and 6(6)(d) (providing for annual payments from each Operating Partnership to the Partnership of an amount to be negotiated but not to exceed $750 for each year commencing with the year 2000) of the Plan.
The Independent Manager is also entitled to receive an amount equal to 50% of any distributions originally payable to Continental Construction Management Corporation, a subsidiary of First American, under the Plan (“Continental Construction”) and the Independent Manager is to pay to the Partnership an amount equal to 25% of gross fees, if any, earned by it or its Affiliates directly from any of the Operating Partnerships (not including amounts owed to the Independent Manager pursuant to the Management Agreement).
The total amount originally due to Continental Construction was $2,379,645, plus 8% interest as provided in the Plan from September 30, 1989. As of March 31, 2001 the total amount remaining due, plus accrued interest was $4,773,422, of which, pursuant to the Settlement Agreement, 50% is due to the Independent Manager however, the 50% due to the Partnership was off-set by the Partnership from payments due the respective Operating Partnerships under the Plan. With respect to the above 25% of gross fees earned from any of the Operating Partnerships, $1,500, $1,125 and $1,600 were due and paid to the Partnership, respectively, for the 2001, 2000 and 1999 Fiscal Years.
The Management Agreement also provides for the Partnership to indemnify the Independent Manager and its officers, directors and employees against claims arising in connection with the formation of the Partnership and the performance of their duties, except to the extent arising from gross negligence or willful misconduct.
Compensation of the General Partner
Prior to December 31, 1994, pursuant to the Settlement Agreement, the General Partner was entitled to $10,000 per month ($120,000 per year) for performing the day-to-day obligations and duties as the general partner of the Partnership through December 31, 1994. Thereafter, the General Partner was to receive no additional amounts payable by the Partnership for the performance of such functions during the remaining term of the Partnership, except as otherwise provided in the Plan. If any such additional compensation is requested by the General Partner it will be subject to competitive bidding. No such additional sums have been paid or requested by the General Partner.
Compensation of the Investors Committee
The Investors Committee received an annual operating budget from the Partnership of up to $50,000, through December 31, 1994, but which was continued during subsequent periods including the periods in which the Partnership was considering exit or liquidation strategies pursuant to a budget approved by the General Partner, to cover the costs, fees and expenses of performing its oversight duties. Members of the Investors Committee receive $125.00 per hour, plus direct expenses, for time spent in the performance of their duties on behalf of the Investors Committee, including $1,000 for attendance at meetings of the Investors Committee. An aggregate of $9,290, and $9,334 and $3,575 was paid to Investors Committee by the Partnership for fiscal periods ending March 31, 2001, March 31, 2000, and March 31, 1999. The members of the Investors Committee are also indemnified by the Partnership against claims arising in connection with the formation of the Partnership and the performance of their duties, except to the extent arising from gross negligence or willful misconduct the same as the Independent Manager and the Developers Class Representative.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
No partner is the holder of 5% or more in Limited Partnership Interests of the Partnership. Neither the General Partner, Independent Manager nor any of its officers or directors hold any Limited Partnership Interests.
Item 13. Certain Relationships and Related Transactions.
Gary L. Maddock P.C.
Gary L. Maddock P.C. is a New York corporation of which Megan Asset Management’s Chairman, Secretary and shareholder, Gary L. Maddock, is also the president, sole shareholder and employee and through which he was engaged in the public practice of law. The Partnership paid Gary L. Maddock P.C. approximately $185,203 in fees and expenses related to services rendered to the Partnership, during the 2001 Fiscal Year.
Paul J. Maddock P.C.
Paul J. Maddock P.C. is a North Dakota corporation of which Megan Asset Management’s President, Treasurer and shareholder, Paul J. Maddock, is also the president and sole shareholder and through which he practices public accounting. The Partnership paid Paul J. Maddock P.C. approximately $44,100 in accounting fees during the 2001 Fiscal Year related to tax return services rendered to Operating Partnerships and the review of the tax returns of all other Operating Partnerships. Each Operating Partnership is responsible for and is billed for these accounting and review services which are, when and if collected, reimbursed to the Partnership.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)
Financial Statements and Financial Statement Schedules
(b)
Exhibits (listed according to the number assigned in the table to Item 601 of Regulation S-K)
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dated indicated.
Item 4. Submission of Matters to a Vote of Security Holders
None.
PART II
Item 5.
Item 5. Market for Registrant’s Limited Partnership Interests and Related Security Holder Matters
Market Information
The Partnership is a limited partnership and thus has no common stock. There is no established public trading market for limited partnership interests in the Partnership (“Limited Partnership Interests”) and it is not anticipated that any such public market will develop.
Article XI of the Partnership Agreement effectively prevents the transfer of Limited Partnership Interests except under very limited circumstances. In order to transfer a Limited Partnership Interest, a Limited Partner must obtain the consent of the General Partner of the Partnership, which has the absolute right to refuse any request for a transfer. In addition, the Partnership Agreement requires the transferring Limited Partner to obtain a legal opinion from counsel, at its expense, as to certain tax and securities law matters with regard to the proposed transfer. In addition, the proposed transferee must meet all applicable suitability standards and agree to be bound by the Partnership Agreement.
Approximate Number of Security Holders
As of December 31, 2000, there were approximately 1,842 holders of Limited Partnership Interests.
Distributions
No distributions were made to Limited Partners for fiscal years ending March 31, 2001, March 31, 2000, and March 31, 1999.
Item 6.
Item 6. Selected Financial Data
The information set forth below presents selected historical financial data of the Partnership for the years ended March 31, 2001, 2000, 1999, 1998 and 1997. This information has been derived from and is qualified by reference to the additional detailed information set forth in the audited financial statements listed in Item 14 hereof and should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included as Item 7
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The Partnership was formed as of July 1, 1990, pursuant to the Plan. In 1992 its fiscal year-end for accounting purposes was changed to March 31, from December 31. The Partnership’s fiscal year-end for tax purposes remains December 31.
Overview
The Partnership was formed pursuant to the terms of the Plan, which mandated the Partnership’s material commitments for expenditures and the anticipated sources of funds needed to fulfill such commitments. A Final Decree was signed by the United States Bankruptcy Court, Eastern District of New York in the Jointly Administered Chapter 11 cases on May 20, 1993.
Prior to calendar 1995, the Partnership’s primary source of funds was the payment by Limited Partners of the amounts owed to the Partnership for their capital contributions pursuant to their Investor Notes. Each of the Investor Notes was payable in semi-annual installments through December 31, 1994. As of March 31, 2001, an aggregate of $1,057,195 was owed pursuant to the Investor Notes. These notes are past due and are considered uncollectible. These amounts are not written off on the Partnership’s financial statements as the amount is reflected as a negative in the Partners’ Capital section of the balance sheet and since the defaulted investor units have not been cancelled. The aggregate amount outstanding and past due was $1,118,845 for the fiscal year ending March 31, 2000 and $1,185,709 for the fiscal year ending March 31, 1999.
Commencing in calendar 1995, although funds from certain other sources were received during the 1995 and 1996 fiscal years (see “Liquidity” below), the Partnership’s primary source of funds became the annual distributions from the Operating Partnerships in which the Partnership has an interest, which has been negotiated at $750 per year, per Operating Partnership (the maximum allowed by the Plan), provided that such payment is not prohibited by any applicable agreement with a governmental agency or any applicable governmental agency rules or regulations.
The total amount due annually to the Partnership from the $750 distributions from the Operating Partnerships is approximately $104,000. The Partnership has been receiving only approximately 50% of the distributions due from the Operating Partnerships. To the extent that such distributions or portion thereof are not paid in any year, the remainder accumulate and are to be paid at the earliest time permitted. As indicated above, many of the distributions are not being made do to limitations by governmental regulations.
Beginning in 2002 the Partnership’s primary source of funds became loans or the sale of its Partnership Interests in the Operating Partnerships (see “Liquidity” below and “Item 2. Properties” above).
The Partnership also receives interest income on account balances.
The ability of the Partnership to make all cash distributions to its Limited Partners contemplated by the Plan is dependent upon the receipt by the Partnership of sufficient proceeds from the sale of its interests in the Operating Partnerships (the General Partner, after exploring various exit strategies, has begun the sale of the Partnership’s Interests in the Operating Partnerships - See “Item 1. - Description of Business” above). There can be no assurance that the proceeds from the sale of the Operating Partnerships will be sufficient to enable the Partnership to make all or any portion of such distributions. Further there can be no assurance that the application of funds available for distribution to Limited Partners which, from time to time, were deferred by the Independent Manager with the consent of the Investor Committee to pay certain costs and expenses of the Partnership or to purchase interests in partnerships which own, or are intended to own, projects which are intended to qualify for Tax Credits (see “Liquidity” section below), will ultimately yield an economic benefit to the Limited Partners.
It is anticipated that the liquidation and termination of a Limited Partner’s interest in the Partnership or the winding up and termination of the Partnership will enable a majority of the Partnership’s Limited Partners to begin utilizing the tax losses they have received but could not use and have carried forward over the life of the Partnership, estimated by the Partnership to be approximately $30,000 in “suspended” loss deductions for most Limited Partners, which could produce additional tax savings for those Limited Partners.
Other than the annual payment referred to above, the Partnership does not anticipate that it will receive material cash distributions from the operations of the Operating Partnerships, or that it will derive net cash from its ordinary operations generally. Aside from such payments, the Partnership does not have significant external sources of Capital Resources other than through the sale of its Operating Partnership Interests under its Liquidity Program (discussed in “Item 1. Business - Description of Business” above and “Liquidity” below). All of the above-named sources of Capital Resources are being used to meet the operating expenses of the Partnership, to preserve and maintain the investment in its Projects and to sell its interests in the Operating Partnerships in anticipation of liquidating the Partnership, subject to the consent of a majority in interest of the Limited Partners.
Liquidity
The Partnership’s principal uses of funds are its operating and sales expenses and, prior to December 31, 1994, were for (i) capital contributions to the Operating Partnerships and (ii) payments to the Secured Lenders of the Debtor Investor Partnerships. The remaining unpaid balance of such contractual obligations at each of March 31, 2001 and March 31, 2000 was $83,588 and March 31, 1999 was $94,535 with respect to the Operating Partnerships that were in default on their obligations to the Partnership. The Partnership also assumed certain accrued expenses pursuant to the Plan that, except for the Continental pre-petition expenses and 8% Interest Obligation, were paid in full as of March 31, 1996. The Partnership also made distributions to certain Limited Partners that were in the original debtor Brighton Estates Limited Partnership as provided in the Plan.
For the 2001 Fiscal Year, the 2000 Fiscal Year, and the 1999 Fiscal Year gross cash amounts received by the Partnership were as follows:
(i) $61,650, $66,864, and $37,578 from payments of capital contributions by Limited Partners pursuant to their Investor Notes; and
(ii) None from interest income on the Investor Notes during any of these years; however $44,776, $28,378 and $63,763, respectively, of interest income on deposits maintained in escrow accounts pursuant to the Plan were received.
(iii) None from proceeds of sales of partnership interests.
For the 2001 Fiscal Year, the 2000 Fiscal Year, and the 1999 Fiscal Year, the uses of funds by the Partnership were as follows:
(I) $10,947, $ -0- and $ -0-, respectively, for capital contributions to the Operating Partnerships;
(II) $431,191, $292,376 and $280,970, respectively, for professional fees. Professional fees of approximately $431,191 in the 2001 Fiscal Year included fees incurred in connection with the Exclusivity Agreement, negotiations, drafting agreements and due diligence with Dominium to pursue a possible purchase of substantially all of the Limited and General Partnership Interests and, among other things, other sales pursuant to the Partnership’s Liquidity Program and the preparation of amended partnership agreements for Operating Partnerships with interests being transferred.
(iii) $150,906, $126,048 and $121,647, respectively, for operating expenses; and
(iv) None for payments of Continental pre-petition expenses in accordance with the Plan.
(v) None for payments as a return of capital to the Limited Partners during any of these periods.
The previous distributions to Limited Partners included a full distribution of the $1,014,628 contemplated by the Plan for the 1995 Fiscal Year, and a partial distribution for the 1994 Fiscal Year. In Fiscal 1994, $516,901 of the $1,014,628, contemplated by the Plan to be distributed, was distributed to the Limited Partners in such year. As permitted under the Plan and approved by the Investors Committee, undistributed amounts of $507,314 for the 1994 Fiscal Year, together with the entire $1,014,628 to have been distributed in the 1993 Fiscal Year, were deferred and were applied to meet the increased obligations of the Partnership.
No such distributions are payable after December 31, 1994, except to the extent that the Independent Manager, in consultation with the Investors Committee, determines that the financial resources of the Partnership will permit payment of previously deferred distributions. It is not presently anticipated that any such payments will be made. (See “Item 10. Directors and Executive Officers of the Registrant - Investor Committee”.)
The net decrease in cash held by the Partnership was $392,717 for the 2001 Fiscal Year, $290,682 for the 2000 Fiscal Year and $239,552 for the 1999 Fiscal Year. As discussed above in “Item 1. - Description of Business”, the Partnership no longer anticipates that the annual payments to be received from the Operating Partnerships, in combination with the Partnership’s reserves, will be sufficient to permit the Partnership to meet its operating expenses until such time, if at all, a complete exit strategy has been identified and implemented. Accordingly, in view of the Partnership’s need to raise more capital to continue to maintain its operations as set forth herein, the Partnership obtained loans secured by and also began accepting offers it received to sell the Partnership’s limited partnership interests in a number of those Operating Partnerships which own the Projects (See “Liquidity” and “Item 2. Properties” above).
However, there can be no assurance in the future that the Partnership will be able to meet its obligations through its Liquidity Program should the implementation of an exit strategy extend beyond the originally anticipated 15-year compliance period of the Operating Partnerships, years 2002-2004, or if sufficient purchasers of the Operating Partnership interests are not available.
Results of Operations
Expenses, comprised principally of depreciation expenses, management fees and professional services costs, exceeded income, which was comprised principally of proceeds from payments of capital contributions by Limited Partners pursuant to their Investor Notes, interest income and miscellaneous items, by $811,624 for the 2001 Fiscal Year, $530,879 for the 2000 Fiscal Year and $388,893 for the 1999 Fiscal Year.
As noted above under “Item 1. Business - Description of Business”, the Partnership’s principal business was the maintenance of its interests in the Operating Partnerships, and because the Partnership has reached the end of its economic life, it does not expect to and does not have the funds available to make new investments or otherwise engage in additional activities. The Partnership’s results of operations and its obligations are primarily determined by the results of operations of the Operating Partnerships, its obligations to the Independent Manager, and by expenses arising out of legal and professional fees related to its Operating Partnership sales or business transactions. Accordingly, period-to-period comparisons of the results of operations of the Partnership may not be meaningful. The following discussion attempts to highlight certain elements of the results of operations of the Partnership for the periods discussed.
We estimated that, without additional acquisitions of interests in limited partnerships owning properties with or eligible for Tax Credits to replace interests lost through insolvency, bankruptcy or the settlement of litigation, for which the Partnership does not have funds available, the amount of Tax Credits generated by the Partnership aggregated approximately $0.97 for every $1.00 invested by the Limited Partners, rather than the $1.10 for every $1.00 estimated in the Plan. This includes Tax Credits passed through to the Limited Partners by the Debtor Investor Partnerships previous to the inception of the Partnership.
Approximately, the following Tax Credits were generated by the Projects or passed through by the Partnership to the Limited Partners for the tax years ended:
Interest income increased by approximately 158% for the 2001 Fiscal Year from the 2000 Fiscal Year due primarily interest income on a savings account, and deceased by approximately 55% for the 2000 Fiscal Year from the 1999 Fiscal Year and decreased by approximately 19% for the 1999 Fiscal Year from the 1998 Fiscal Year due primarily to the decrease in the Partnership’s cash balances resulting from the end of the investor pay-in period as of December 31, 1994 and the Partnership’s collection of substantially all collectable payments due it from the Investor Notes and the depletion of the Partnerships reserves to maintain its operations while seeking an exit strategy.
Equity in losses from Operating Partnerships was $811,624 for the 2001 Fiscal Year, $530,879 for the 2000 Fiscal Year and $388,893 for the 1999 Fiscal Year. The equity in income or losses from Operating Partnerships fluctuate from year to year based on the results of operations from the Projects. For the 2001 Fiscal Year the total equity in losses of $811,624 comprised principally of $275,803 in depreciation expenses and losses from the Operating Partnerships and $582,097 in management fees, professional services costs and other expenses. The Partnership uses the equity method of accounting for its investment in its Operating Partnerships and under the equity method losses in excess of aggregate investment in each Operating Partnership are not recognized. Therefore in recent years the reported losses from the Operating Partnerships have been declining due to basis limitation and the sale of Operating Partnership Interests. For income tax reporting purposes 100% of the losses are permitted to be passed through to the Limited Partners on their K-1’s and each Limited Partner is to calculate basis limitation separately.
Management fees paid were $119,500 for the 2001, 2000 and 1999 Fiscal Years.
Professional fees of approximately $431,191 in the 2001 Fiscal Year included fees incurred in connection with the Exclusivity Agreement, negotiations, drafting agreements and due diligence with Dominium to pursue a possible purchase of substantially all of the Limited and General Partnership Interests and, among other things, other sales pursuant to the Partnership’s Liquidity Program and the preparation of amended partnership agreements for Operating Partnerships with interests being transferred. Professional fees of approximately $292,376 in the 2000 Fiscal Year included fees incurred in connection with negotiations leading up to the Exclusivity Agreement and due diligence with Dominium to pursue a possible purchase of substantially all of the Limited and General Partnership Interests and, among other things, work related to defaulted developers, their removal from the Operating Partnerships and litigation in connection therewith, defaulted Investor litigation and other sales pursuant to the Partnership’s Liquidity Program and the preparation of amended partnership agreements for Operating Partnerships with interests being transferred. Professional fees of approximately $280,970 in the 1999 Fiscal Year included fees incurred in connection with work related to defaulted developers, their removal from the Operating Partnerships and litigation in connection therewith, including a lawsuit against the CPA who failed to report a scheme by which the developer wrongfully took substantial sums from the projects, defaulted Investor litigation and preparation of SEC reports.
No interest expense was incurred in the 2001, 2000, and 1999 Fiscal Years as all indebtedness to the Secured Lenders was paid in full prior to the 1996 Fiscal Year and interest on the Dominium Loan and Subsequent Loans was included as part of the purchase price when Dominium accepted the Dominium Collateral Partnerships in full satisfaction of all principal and interest due on the Loan and Subsequent Loans.
No amortization of organization costs were incurred in the 2001, 2000, and 1999 Fiscal Years due to the fact that amortization of all organization costs was completed in 1996.
Other income of approximately $1,500 in the 2001 Fiscal Year, $1,334 in the 2000 Fiscal Year and $1,600 in the 1999 Fiscal Year, was recorded as a result of miscellaneous items, and the receipt of a share of the management fees earned by an affiliate of the Independent Manager from Operating Partnerships pursuant to the Independent Manager’s Management Agreement.
Pursuant to the Plan, amounts due and unpaid to Operating Partnerships by the Debtor Investor Partnerships prior to the implementation of the Plan in July 1990 accrued interest at the rate of eight percent (8%) until paid. Pursuant to the Settlement Agreement (described in “Item 1. Business - Organization” above) and the Management Agreement (described in “Item 11. Executive Compensation - Compensation of the Independent Manager” below) the Independent Manager is entitled to receive an amount equal to 50% of any distributions originally payable to Continental Construction Management Corporation, a subsidiary of First American, which sums also accrue interest at the rate of eight percent (8%) until paid. As the non-payment of these amounts are not a default under the Plan and any such unpaid amount becomes payable only as a first and second priority out of Capital Events respectively, contingent liabilities, or as liabilities or debts of the Partnership prior to any distribution under the Partnership Agreement, as the Partnership has not had sufficient funds to pay these amounts, the Partnership did not pay them currently and has not accrued the amount or any interest on its financial statements. In the 2002 Fiscal Year, the 2001 Fiscal Year and the 2000 Fiscal Year the Partnership paid nothing to the Independent Manager toward what it is entitled to receive of the amount originally payable to Continental Construction Management Corporation under the Plan.
The amount of the interest which could be payable under the Plan to the Operating Partnerships as a first priority from Capital Events or as a liability or debt of the Partnership prior to any distribution under the Partnership Agreement is estimated at $1,506,474 as of March 31, 2001 and is subject to offsets of the amount of fees for professional services paid on behalf of certain Operating Partnerships (see “Item 2. Properties” above), any unpaid or accrued annual distributions due the Partnership (see “Overview” above) and a reduction by said sums payable to Operating Partnerships which have lost their Projects through foreclosure, bankruptcy or insolvency. The amount and interest which could be payable under the Plan as a second priority from Capital Events or as a liability or debt of the Partnership prior to any distribution under the Partnership Agreement to the Independent Manager is estimated at $2,100,000 as of March 31, 2001.
The Partnership is organized as a limited partnership and is a “pass through” entity which does not, itself, pay federal income tax. However, the partners of the Partnership receive their proportionate share of Tax Credits and other tax benefits accruing to the Partnership. For the tax years ended December 31, 2000, 1999 and 1998 the Limited Partners were allocated about $191,858, $1,232,441 and $3,723,899, respectively, in Tax Credits, or approximately $96, $616 and $1,861 per 0.05% of Partnership Interest, respectively.
The following is financial data for the Partnership that reflects the quarterly results of operations for the fiscal quarters ended June 30, September 30, and December 31, 2001.
Balance Sheets
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
Statement of Operations
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
Statement of Operations
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
Statement of Cash Flows
BAYFIELD LOW INCOME HOUSING LIMITED PARTNERSHIP
Statement of Cash Flows
Bayfield Low Income Housing Partnership
Statement of Cash Flows
Bayfield Low Income Housing Partnership
Forward Looking Statements
Certain items discussed in this Report constitute forward-looking statements within the meaning of the Private Securities Litigation reform Act of 1995 and, as such, involve known and
unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Partnership to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. You can identify such statements by the fact that they do not relate strictly to historical or current facts. Statements which make reference to the expectations or beliefs of the Partnership or any of its management are such forward-looking statements. These statements use words such as “believe”, “expect”, “should”, “may”, “might”, “estimate” and “anticipate”.
All such forward-looking statements speak only as of the date of this Report. The Partnership expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained herein to reflect any change in the Partnership’s expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure about Market Risk.
Not Applicable
Item 8.
Item 8. Financial Statements and Supplementary Data.
See Item 14 and Exhibit 13 for a list of the Partnership’s Financial Statements filed as part of this report.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
PART III
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no directors or executive officers and has no employees of its own.
General Partner
The sole General Partner of the Partnership is Megan Asset Management, Inc., whose mailing address is 1424 West Century Ave., Suite 102, Bismarck, ND 58503. Megan Asset Management, which is also the Independent Manager of the Partnership, is a Delaware corporation whose executive officers are Gary L. Maddock, Chairman and Secretary, and Paul J. Maddock, President and Treasurer. The shareholders of Megan Asset Management are Gary L. Maddock (25%), Michele Maddock (25%) and Paul J. Maddock (50%).
Except as limited by the Partnership Agreement, by the Plan or by the Management Agreement, the General Partner has full, exclusive and complete discretion in the management and control of the Partnership.
The Independent Manager
In view of the need to have an independent manager that was not affiliated with First American take over the responsibility for the administration of the Partnership, a Management Agreement between the Partnership and the Independent Manager was entered into and provides for the Independent Manager to conduct and manage, on the Partnership’s behalf, the Partnership’s operations in connection with, among other things, collection, investment and disbursement of funds, maintenance of books and records, preparation of tax returns and review and coordination of related-party tax filings. Pursuant to the Management Agreement, the Independent Manager was appointed the exclusive agent of the Partnership to supervise and manage, on behalf of the Partnership, all of the operations of the Partnership under the Plan. (See “Item 1. Business - Organization” above). Even after the merger of both the General Partner’s and Independent Manager’s rights and obligations into Megan Management, and subsequently Megan Asset Management, the Management Agreement was kept in place because it outlined the compensation and duties to be performed more specifically than did the Partnership Agreement. The compensation of the Independent Manager is set forth under “Item 11. Executive Compensation.”
Gary L. Maddock, 65, Chairman of Megan Asset Management, was a real estate attorney, CPA and has been a licensed real estate broker. He also has extensive experience in other phases of real estate. Prior to July, 1989, Gary Maddock was Executive Vice President of First American for two years, resigning in a management dispute. As a former partner of Burns, Summit, Rovins and Feldesman, and in his own subsequent New York law practice, he has represented owner/developers of projects ranging from condominium and single-family developments to a 250-room urban hotel and conference center. As an officer of various companies affiliated with Megan Asset Management, he has consulted and assisted developers in (i) obtaining in excess of $20 million in debt financing, (ii) placing in excess of $60 million in Tax Credits and (iii) building hundreds of units of low to moderate income housing. He also has overseen the management of numerous projects with housing units for low income families and the elderly and the development of real estate subdivisions and the building of single-family homes. He has and continues to perform professional services for the Partnership. See “Item 13. Certain Relationships and Related Transactions”.
Paul J. Maddock, 55, President of Megan Asset Management, has been with the Independent Manager for fifteen years. Paul Maddock spends about 75% of his time working on and overseeing the management of the Partnership and 25% of his time in his own public accounting practice, Paul J. Maddock, PC., which was formed in 1992 and through which he provides tax return preparation services on a fee basis for many of the Operating Partnerships. He is a CPA and was formerly a tax manager for a regional CPA firm.
The Investor Committee
Pursuant to the Plan, the Investor Committee performed an oversight role in connection with the approval of the deferral of distributions to be made to the Limited Partners and the use thereof to pay costs and expenses for the administration and operation of the Partnership or to purchase interests in partnerships which own, or are intended to own, projects which are intended to qualify for Tax Credit and to maintain its investment in the Projects. (See “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Overview” and “Liquidity” above). The Investor Committee does not perform any management functions with respect to the Partnership. All of the current members of the Investors Committee are direct or indirect holders of an Interest in the Partnership.
The members of the Investor Committee are as follows:
Fran Hoaglund, Chair, 62. President of Tax Equity Associates for over23 years. Financial planner and tax specialist for more than 25 years. Holder of an Interest.
David Apple, 51. President of David Apple, Ltd. (certified public accountants) for over 23 years. CPA for more than 25 years. Holder of an Interest.
James Linna, 65. Chairman of The Investor Company, Inc. and/or President of affiliates for over 16 years. National Association of Securities Dealers (“NASD”) principal; licensed real estate broker; security representative for more than 35 years. Holder of an Interest.
William Walczak, 64. CPA for the past 24 years and currently a member of the accounting firm of MacDonald & Walczak, CPAs, LLC. Holder of an Interest.
The Developer Class Representative
The Developer Class Representative is ERC Properties, Inc. located in Fort Smith, Arkansas which was the chairman of the Unofficial Committee of Developers during the Debtor Investor Limited Partnerships’ bankruptcy proceedings (see “Item 1. Business - Organization” above) and continues to represent the approximately 110 Operating Partnerships. Pursuant to the Plan, the Developer Class Representative had and continues to have many responsibilities including but not limited to negotiating with the Independent Manager as to the amount each Operating Partnership shall distribute to the Master Limited Partnership on or before April 1 of each year commencing in the year 2000 which shall not exceed $750; filing any financing statement (without a Debtor Investor Limited Partnership’s or the Master Limited Partnership’s signature) which is reasonable or necessary to perfect any security interests granted to, or retained by, an Operating Partnership under the Plan; executing and recording any and all documents which are required to be executed and recorded under applicable nonbankruptcy law to effect the admission of the Master Limited Partnership as a limited partner of the Operating Partnerships; and under the Management Agreement to preapprove all withdrawals by the Independent Manager from the Escrow Account, including all checks drawn on and wire transfers made from the Escrow Account.
The Developer Class Representative is to be exculpated from any and all liability that may arise out of any action or inaction by the Developer Class Representative under the Plan and Management Agreement unless caused by his gross negligence or willful misconduct.
For its services, the Developer Class Representative is paid $15,000 per year by the Partnership.
Item 11. Executive Compensation.
The following table shows compensation for management services rendered in all capacities to the Partnership by Megan Asset Management, Inc. as Independent Manager during the periods indicated.
(1)
Consists of payment for Continental pre-petition expenses pursuant to the Settlement Agreement and Management Agreement.
Compensation of the Independent Manager
Prior to calendar 1995, the Independent Manager was entitled to receive $396,000, plus $40,000 per year to cover the cost of preparation of tax returns and financial statements and $75,000 in relation to investor billings due to the Secured Lender refinancing. Commencing in calendar year 1995, the Independent Manager, under the Management Agreement, was entitled to receive $119,500 annually, plus $30,000 per year to cover the cost of preparation of tax returns and financial statements, for each of the years 1995 through 1998. Commencing with calendar year 1999, the Independent Manager became entitled to an annual base fee of $119,500, together with an additional $30,000 to cover the cost of preparation of tax returns and financial statements, less $750 for each Operating Limited Partnership in which the Partnership ceases to own the limited partnership interest during 1999 and thereafter. The foregoing is in lieu of payment to the Independent Manager of amounts pursuant to the Plan sections 6(6)(c) (providing for annual payment from each Operating Partnership to the Partnership of $750 for each of the years 1995 through 1999) and 6(6)(d) (providing for annual payments from each Operating Partnership to the Partnership of an amount to be negotiated but not to exceed $750 for each year commencing with the year 2000) of the Plan.
The Independent Manager is also entitled to receive an amount equal to 50% of any distributions originally payable to Continental Construction Management Corporation, a subsidiary of First American, under the Plan (“Continental Construction”) and the Independent Manager is to pay to the Partnership an amount equal to 25% of gross fees, if any, earned by it or its Affiliates directly from any of the Operating Partnerships (not including amounts owed to the Independent Manager pursuant to the Management Agreement).
The total amount originally due to Continental Construction was $2,379,645, plus 8% interest as provided in the Plan from September 30, 1989. As of March 31, 2001 the total amount remaining due, plus accrued interest was $4,773,422, of which, pursuant to the Settlement Agreement, 50% is due to the Independent Manager however, the 50% due to the Partnership was off-set by the Partnership from payments due the respective Operating Partnerships under the Plan. With respect to the above 25% of gross fees earned from any of the Operating Partnerships, $1,500, $1,125 and $1,600 were due and paid to the Partnership, respectively, for the 2001, 2000 and 1999 Fiscal Years.
The Management Agreement also provides for the Partnership to indemnify the Independent Manager and its officers, directors and employees against claims arising in connection with the formation of the Partnership and the performance of their duties, except to the extent arising from gross negligence or willful misconduct.
Compensation of the General Partner
Prior to December 31, 1994, pursuant to the Settlement Agreement, the General Partner was entitled to $10,000 per month ($120,000 per year) for performing the day-to-day obligations and duties as the general partner of the Partnership through December 31, 1994. Thereafter, the General Partner was to receive no additional amounts payable by the Partnership for the performance of such functions during the remaining term of the Partnership, except as otherwise provided in the Plan. If any such additional compensation is requested by the General Partner it will be subject to competitive bidding. No such additional sums have been paid or requested by the General Partner.
Compensation of the Investors Committee
The Investors Committee received an annual operating budget from the Partnership of up to $50,000, through December 31, 1994, but which was continued during subsequent periods including the periods in which the Partnership was considering exit or liquidation strategies pursuant to a budget approved by the General Partner, to cover the costs, fees and expenses of performing its oversight duties. Members of the Investors Committee receive $125.00 per hour, plus direct expenses, for time spent in the performance of their duties on behalf of the Investors Committee, including $1,000 for attendance at meetings of the Investors Committee. An aggregate of $9,290, and $9,334 and $3,575 was paid to Investors Committee by the Partnership for fiscal periods ending March 31, 2001, March 31, 2000, and March 31, 1999. The members of the Investors Committee are also indemnified by the Partnership against claims arising in connection with the formation of the Partnership and the performance of their duties, except to the extent arising from gross negligence or willful misconduct the same as the Independent Manager and the Developers Class Representative.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
No partner is the holder of 5% or more in Limited Partnership Interests of the Partnership. Neither the General Partner, Independent Manager nor any of its officers or directors hold any Limited Partnership Interests.
Item 13. Certain Relationships and Related Transactions.
Gary L. Maddock P.C.
Gary L. Maddock P.C. is a New York corporation of which Megan Asset Management’s Chairman, Secretary and shareholder, Gary L. Maddock, is also the president, sole shareholder and employee and through which he was engaged in the public practice of law. The Partnership paid Gary L. Maddock P.C. approximately $185,203 in fees and expenses related to services rendered to the Partnership, during the 2001 Fiscal Year.
Paul J. Maddock P.C.
Paul J. Maddock P.C. is a North Dakota corporation of which Megan Asset Management’s President, Treasurer and shareholder, Paul J. Maddock, is also the president and sole shareholder and through which he practices public accounting. The Partnership paid Paul J. Maddock P.C. approximately $44,100 in accounting fees during the 2001 Fiscal Year related to tax return services rendered to Operating Partnerships and the review of the tax returns of all other Operating Partnerships. Each Operating Partnership is responsible for and is billed for these accounting and review services which are, when and if collected, reimbursed to the Partnership.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)
Financial Statements and Financial Statement Schedules
(b)
Exhibits (listed according to the number assigned in the table to Item 601 of Regulation S-K)
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dated indicated.
Item 10. Directors and Executive Officers of the Registrant.
The Partnership has no directors or executive officers and has no employees of its own.
General Partner
The sole General Partner of the Partnership is Megan Asset Management, Inc., whose mailing address is 1424 West Century Ave., Suite 102, Bismarck, ND 58503. Megan Asset Management, which is also the Independent Manager of the Partnership, is a Delaware corporation whose executive officers are Gary L. Maddock, Chairman and Secretary, and Paul J. Maddock, President and Treasurer. The shareholders of Megan Asset Management are Gary L. Maddock (25%), Michele Maddock (25%) and Paul J. Maddock (50%).
Except as limited by the Partnership Agreement, by the Plan or by the Management Agreement, the General Partner has full, exclusive and complete discretion in the management and control of the Partnership.
The Independent Manager
In view of the need to have an independent manager that was not affiliated with First American take over the responsibility for the administration of the Partnership, a Management Agreement between the Partnership and the Independent Manager was entered into and provides for the Independent Manager to conduct and manage, on the Partnership’s behalf, the Partnership’s operations in connection with, among other things, collection, investment and disbursement of funds, maintenance of books and records, preparation of tax returns and review and coordination of related-party tax filings. Pursuant to the Management Agreement, the Independent Manager was appointed the exclusive agent of the Partnership to supervise and manage, on behalf of the Partnership, all of the operations of the Partnership under the Plan. (See “Item 1. Business - Organization” above). Even after the merger of both the General Partner’s and Independent Manager’s rights and obligations into Megan Management, and subsequently Megan Asset Management, the Management Agreement was kept in place because it outlined the compensation and duties to be performed more specifically than did the Partnership Agreement. The compensation of the Independent Manager is set forth under “Item 11.
Item 11. Executive Compensation.
The following table shows compensation for management services rendered in all capacities to the Partnership by Megan Asset Management, Inc. as Independent Manager during the periods indicated.
(1)
Consists of payment for Continental pre-petition expenses pursuant to the Settlement Agreement and Management Agreement.
Compensation of the Independent Manager
Prior to calendar 1995, the Independent Manager was entitled to receive $396,000, plus $40,000 per year to cover the cost of preparation of tax returns and financial statements and $75,000 in relation to investor billings due to the Secured Lender refinancing. Commencing in calendar year 1995, the Independent Manager, under the Management Agreement, was entitled to receive $119,500 annually, plus $30,000 per year to cover the cost of preparation of tax returns and financial statements, for each of the years 1995 through 1998. Commencing with calendar year 1999, the Independent Manager became entitled to an annual base fee of $119,500, together with an additional $30,000 to cover the cost of preparation of tax returns and financial statements, less $750 for each Operating Limited Partnership in which the Partnership ceases to own the limited partnership interest during 1999 and thereafter. The foregoing is in lieu of payment to the Independent Manager of amounts pursuant to the Plan sections 6(6)(c) (providing for annual payment from each Operating Partnership to the Partnership of $750 for each of the years 1995 through 1999) and 6(6)(d) (providing for annual payments from each Operating Partnership to the Partnership of an amount to be negotiated but not to exceed $750 for each year commencing with the year 2000) of the Plan.
The Independent Manager is also entitled to receive an amount equal to 50% of any distributions originally payable to Continental Construction Management Corporation, a subsidiary of First American, under the Plan (“Continental Construction”) and the Independent Manager is to pay to the Partnership an amount equal to 25% of gross fees, if any, earned by it or its Affiliates directly from any of the Operating Partnerships (not including amounts owed to the Independent Manager pursuant to the Management Agreement).
The total amount originally due to Continental Construction was $2,379,645, plus 8% interest as provided in the Plan from September 30, 1989. As of March 31, 2001 the total amount remaining due, plus accrued interest was $4,773,422, of which, pursuant to the Settlement Agreement, 50% is due to the Independent Manager however, the 50% due to the Partnership was off-set by the Partnership from payments due the respective Operating Partnerships under the Plan. With respect to the above 25% of gross fees earned from any of the Operating Partnerships, $1,500, $1,125 and $1,600 were due and paid to the Partnership, respectively, for the 2001, 2000 and 1999 Fiscal Years.
The Management Agreement also provides for the Partnership to indemnify the Independent Manager and its officers, directors and employees against claims arising in connection with the formation of the Partnership and the performance of their duties, except to the extent arising from gross negligence or willful misconduct.
Compensation of the General Partner
Prior to December 31, 1994, pursuant to the Settlement Agreement, the General Partner was entitled to $10,000 per month ($120,000 per year) for performing the day-to-day obligations and duties as the general partner of the Partnership through December 31, 1994. Thereafter, the General Partner was to receive no additional amounts payable by the Partnership for the performance of such functions during the remaining term of the Partnership, except as otherwise provided in the Plan. If any such additional compensation is requested by the General Partner it will be subject to competitive bidding. No such additional sums have been paid or requested by the General Partner.
Compensation of the Investors Committee
The Investors Committee received an annual operating budget from the Partnership of up to $50,000, through December 31, 1994, but which was continued during subsequent periods including the periods in which the Partnership was considering exit or liquidation strategies pursuant to a budget approved by the General Partner, to cover the costs, fees and expenses of performing its oversight duties. Members of the Investors Committee receive $125.00 per hour, plus direct expenses, for time spent in the performance of their duties on behalf of the Investors Committee, including $1,000 for attendance at meetings of the Investors Committee. An aggregate of $9,290, and $9,334 and $3,575 was paid to Investors Committee by the Partnership for fiscal periods ending March 31, 2001, March 31, 2000, and March 31, 1999. The members of the Investors Committee are also indemnified by the Partnership against claims arising in connection with the formation of the Partnership and the performance of their duties, except to the extent arising from gross negligence or willful misconduct the same as the Independent Manager and the Developers Class Representative.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
No partner is the holder of 5% or more in Limited Partnership Interests of the Partnership. Neither the General Partner, Independent Manager nor any of its officers or directors hold any Limited Partnership Interests.
Item 13.
Item 13. Certain Relationships and Related Transactions.
Gary L. Maddock P.C.
Gary L. Maddock P.C. is a New York corporation of which Megan Asset Management’s Chairman, Secretary and shareholder, Gary L. Maddock, is also the president, sole shareholder and employee and through which he was engaged in the public practice of law. The Partnership paid Gary L. Maddock P.C. approximately $185,203 in fees and expenses related to services rendered to the Partnership, during the 2001 Fiscal Year.
Paul J. Maddock P.C.
Paul J. Maddock P.C. is a North Dakota corporation of which Megan Asset Management’s President, Treasurer and shareholder, Paul J. Maddock, is also the president and sole shareholder and through which he practices public accounting. The Partnership paid Paul J. Maddock P.C. approximately $44,100 in accounting fees during the 2001 Fiscal Year related to tax return services rendered to Operating Partnerships and the review of the tax returns of all other Operating Partnerships. Each Operating Partnership is responsible for and is billed for these accounting and review services which are, when and if collected, reimbursed to the Partnership.
PART IV
Item 14.
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a)
Financial Statements and Financial Statement Schedules
(b)
Exhibits (listed according to the number assigned in the table to Item 601 of Regulation S-K)
None
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dated indicated.