-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, IKJBeP9W+V7FPSWmHtS9EJ9jJTTqRANv1NOf9UNfP33v1auXgbVllky6IqgNcudz 0K96y6QZ//ftCpkSk61MMA== 0000930413-04-003630.txt : 20040813 0000930413-04-003630.hdr.sgml : 20040813 20040813104259 ACCESSION NUMBER: 0000930413-04-003630 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20040630 FILED AS OF DATE: 20040813 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DVL INC /DE/ CENTRAL INDEX KEY: 0000215639 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 132892858 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-08356 FILM NUMBER: 04972240 BUSINESS ADDRESS: STREET 1: 70 EAST 55TH STREET STREET 2: 7TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 BUSINESS PHONE: 2014871300 MAIL ADDRESS: STREET 1: 70 EAST 55TH STREET STREET 2: 7TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10022 FORMER COMPANY: FORMER CONFORMED NAME: DEL VAL FINANCIAL CORP DATE OF NAME CHANGE: 19920703 10-Q 1 c33350_10q.txt UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 -------------------- FORM 10-Q [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 2004 ------------------------------------------------- [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURTIES AND EXCHANGE ACT OF 1934 For the transition period from to ------------------ ---------------------------- Commission file number: 1-8356 DVL, INC. - -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Delaware 13-2892858 - -------------------------------------------------------------------------------- (State or other jurisdiction of (I.R.S. employer identification no.) 70 East 55th Street, New York, New York 10022 - -------------------------------------------------------------------------------- (Address of principal executive offices) (Zip code) Registrant's telephone number, including area code (212) 350-9900 --------------------------- Former name, former address and former fiscal year, if changed since last report. Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days Yes: X No: ----- ----- Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes: No: X ----- ----- Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practical date. CLASS OUTSTANDING AT AUGUST 13, 2004 ----- ------------------------------ Common Stock, $.01 par value 27,738,402 DVL, INC. AND SUBSIDIARIES INDEX Part I. Financial Information: Item 1 - Financial Statements: PAGES ----- Consolidated Balance Sheets - June 30, 2004 (unaudited) and December 31, 2003 1-2 Consolidated Statements of Operations - Three Months Ended June 30, 2004 (unaudited) and 2003 (unaudited) 3,5 Consolidated Statements of Operations - Six Months Ended June 30, 2004 (unaudited) and 2003 (unaudited) 4,5 Consolidated Statement of Shareholder's Equity - Six Months Ended June 30, 2004 (unaudited) 6 Consolidated Statements of Cash Flows - Six Months Ended June 30, 2004 (unaudited) and 2003 (unaudited) 7-8 Notes to Consolidated Financial Statements (unaudited) 9-17 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations 18-24 Item 3 - Quantitative and Qualitative Disclosures About Market Risk 25 Item 4 - Controls and Procedures 25 Part II. Other Information: Item 6 - Exhibits and Reports on Form 8-K 26 Signature 27 Part I - Financial Information Item 1. Financial Statements DVL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands)
June 30, December 31, 2004 2003 ----------- ------------ (unaudited) ASSETS Residual interests in securitized portfolios $34,478 $36,662 ------- ------- Mortgage loans receivable from affiliated partnerships (net of unearned interest of $14,059 for 2004 and $14,300 for 2003) 24,446 25,986 Allowance for loan losses 2,386 2,386 ------- ------- Net mortgage loans receivable 22,060 23,600 ------- ------- Cash (including restricted cash of $148 and $172 for 2004 and 2003) 3,384 2,176 Investments Real estate at cost (net of accumulated depreciation of $510 for 2004 and $412 for 2003) 8,447 8,380 Real estate lease interests 100 100 Affiliated limited partnerships (net of allowance for losses of $469 for 2004 and $476 for 2003) 985 1,000 Deferred income tax benefits 1,814 1,814 Other assets 897 1,008 ------- ------- Total assets $72,165 $74,740 ======= =======
(continued) See notes to consolidated financial statements. 1 DVL, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (in thousands except share data) (continued)
June 30, December 31, 2004 2003 ----------- ------------ (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities: Notes payable - residual interests $ 30,321 $ 33,016 Underlying mortgages payable 13,369 14,753 Debt - affiliates 2,311 2,287 Debt - other 8,935 8,262 Notes payable - litigation settlement 1,064 1,093 Redeemed notes payable-litigation settlement 801 801 Fees due to affiliates 41 218 Line of credit -- 168 Security deposits, accounts payable and accrued liabilities (including deferred income of $292 for 2004 and $18 for 2003) 794 477 -------- -------- Total liabilities 57,636 61,075 -------- -------- Commitments and contingencies Shareholders' equity: Preferred stock $10.00 par value, authorized, issued and outstanding 100 shares 1 1 Preferred stock, $.01 par value, authorized 5,000,000 Common stock, $.01 par value, authorized - 90,000,000 issued and outstanding 27,738,402 shares for 2004 and 2003 277 277 Additional paid-in capital 96,464 96,464 Deficit (82,213) (83,077) -------- -------- Total shareholders' equity 14,529 13,665 -------- -------- Total liabilities and shareholders' equity $ 72,165 $ 74,740 ======== ========
See notes to consolidated financial statements. 2 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (unaudited)
Three Months Ended June 30, ------------ 2004 2003 ---- ---- Income from affiliates: Interest on mortgage loans $ 594 $ 659 Gain on satisfaction of mortgage loans 502 40 Partnership management fees 72 70 Management fees 49 48 Transaction and other fees from partnerships 70 1 Distributions from partnerships 25 23 Income from others: Interest income - residual interests 1,084 1,154 Net rental income (including depreciation and amortization of $45 for 2004 and $46 for 2003) 172 231 Distributions from investments 49 35 Other income and interest 8 13 ------- ------- 2,625 2,274 ------- ------- Operating expenses: General and administrative 374 420 Asset Servicing Fee - NPO Management LLC 171 168 Legal and professional fees 97 79 Interest expense: Underlying mortgages 256 340 Notes payable - residual interests 625 721 Affiliates 80 73 Litigation Settlement Notes 45 71 Others 242 186 ------- ------- 1,890 2,058 ------- ------- Income before income tax expense (benefit) 735 216 Income tax benefit -- (153) ------- ------- Net income $ 735 $ 369 ======= =======
(continued) See notes to consolidated financial statements. 3 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands) (unaudited) (continued)
Six Months Ended June 30, ------------ 2004 2003 ---- ---- Income from affiliates: Interest on mortgage loans $ 1,236 $ 1,380 Gain on satisfaction of mortgage loans 502 88 Partnership management fees 143 139 Management fees 110 143 Transaction and other fees from partnerships 108 37 Distributions from partnerships 45 53 Income from others: Interest income - residual interests 2,182 2,250 Net rental income (including depreciation and amortization of $93 for 2004 and $95 for 2003) 268 531 Distributions from investments 133 35 Other income and interest 18 22 ------- ------- 4,745 4,678 ------- ------- Operating expenses: General and administrative 741 819 Asset Servicing Fee - NPO Management LLC 340 332 Legal and professional fee 171 137 Impairment on real estate 100 -- Interest expense: Underlying mortgages 528 697 Notes payable - residual interests 1,281 1,411 Affiliates 158 144 Litigation Settlement Notes 89 139 Others 448 376 ------- ------- 3,856 4,055 ------- ------- Income before income tax expense (benefit) 889 623 Income tax expense (benefit) 25 (307) ------- ------- Net income $ 864 $ 930 ======= =======
(continued) See notes to consolidated financial statements. 4 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands except share and per share data) (unaudited) (continued)
Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2004 2003 2004 2003 ----------- ----------- ----------- ----------- Basic earnings per share: Net income $ .03 $ .02 $ .03 $ .04 =========== =========== =========== =========== Diluted earnings per share: Net income $ .01 $ .01 $ .02 $ .02 =========== =========== =========== =========== Weighted average shares outstanding - basic 27,738,402 21,713,563 27,738,402 21,713,563 Effect of dilutive securities 27,871,412 33,765,095 27,559,045 33,091,210 ----------- ----------- ----------- ----------- Weighted average shares outstanding - diluted 55,609,814 55,478,658 55,297,447 54,804,773 =========== =========== =========== ===========
See notes to consolidated financial statements. 5 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (in thousands except share data) (unaudited)
Preferred Stock Common Stock Additional ------------------------- ------------------------- Paid - In Shares Amount Shares Amount Capital Deficit Total ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance - January 1, 2004 100 $ 1 27,738,402 $ 277 $ 96,464 $ (83,077) $ 13,665 Net income -- -- -- -- -- 864 864 ---------- ---------- ---------- ---------- ---------- ---------- ---------- Balance - June 30, 2004 100 $ 1 27,738,402 $ 277 $ 96,464 $ (82,213) $ 14,529 ========== ========== ========== ========== ========== ========== ==========
See notes to consolidated financial statements. 6 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited)
Six Months Ended June 30, ------------------------- 2004 2003 ------- ------- Cash flows from operating activities: Net income $ 864 $ 930 Adjustments to reconcile net income to net cash provided by operating activities Interest income accreted on residual interests (232) (270) Accrued interest added to indebtedness 140 132 Gain on satisfactions of mortgage loans (502) (88) Issuance and repricing of options -- 13 Depreciation 93 88 Amortized of unearned interest on loan receivables (241) (157) Amortization of real estate lease interests -- 83 Impairment on real estate 100 -- Imputed interest on notes 89 139 Net increase in deferred income tax benefits -- (357) Net (increase) decrease in prepaid financing and other Assets (149) 28 Net increase in accounts payable, security deposits and accrued liabilities 43 34 Net decrease in fees due to affiliates (177) (178) Net increase in deferred income 274 283 ------- ------- Net cash provided by operating activities 302 680 ------- ------- Cash flows from investing activities: Collections on residual interests -- 7 Collections on loans receivable 2,283 1,903 Net decrease in affiliated limited partnership interests and other investments 15 4 ------- ------- Net cash provided by investing activities 2,298 1,914 ------- -------
(continued) See notes to consolidated financial statements 7 DVL, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands) (unaudited) (continued)
Six Months Ended June 30, ------------------------- 2004 2003 ------- ------- Cash flows from financing activities: Proceeds from new borrowings $ 949 $ 283 Principal payments on debt (678) (508) Repayments on underlying mortgages payable (1,384) (1,769) Payments on notes payable - residual interest (279) (189) Payments related to debt redemptions -- (16) ------- ------- Net cash used in financing activities (1,392) (2,199) ------- ------- Net increase in cash 1,208 395 Cash, beginning of period 2,176 2,373 ------- ------- Cash, end of period $ 3,384 $ 2,768 ======= ======= Supplemental disclosure of cash flow information: Cash paid during the period for interest $ 2,255 $ 2,647 ======= ======= Supplemental disclosure of non-cash investing and financing activities: Residual interests in securitized portfolios - (decrease) increase $(2,416) $ 2,676 ======= ======= Notes payable - residual interests - (decrease) increase $(2,416) $ 2,676 ======= ======= Foreclosure on mortgage loan receivable collateralized by real estate $ -- $ 300 ======= =======
See notes to consolidated financial statements. 8 DVL, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) Dollars in thousands unless otherwise noted (except share and per share amounts) 1. Basis of Presentation In the opinion of DVL, Inc. ("DVL" or the "Company"), the accompanying financial statements contain all adjustments (consisting of only normal accruals) necessary in order to present a fair presentation of the financial position of DVL and the results of its operations for the periods set forth herein. The results of the Company's operations for the six months ended June 30, 2004 should not be regarded as indicative of the results that may be expected from its operations for the full year. Certain amounts from the six months ended June 30, 2003 have been reclassified to conform to the presentation for the six months ended June 30, 2004. For further information, refer to the consolidated financial statements and the accompanying notes included in DVL's Annual Report on Form 10-K for the year ended December 31, 2003. 2. Residual Interests in Securitized Portfolios During 2001, the Company, through its wholly-owned consolidated subsidiary, S2 Holdings Inc. ("S2"), acquired 99.9% Class B member interests in Receivables II-A LLC, a limited liability company ("Receivables II-A") and Receivables II-B LLC, a limited liability company ("Receivables II-B"), from an unrelated party engaged in the acquisition and management of periodic payment receivables. The Class B member interests entitle the Company to be allocated 99.9% of all items of income, loss and distribution of Receivables II-A and Receivables II-B. Receivables II-A and Receivables II-B receive all the residual cash flow from five securitized receivable pools after payment to the securitized noteholders. The Company purchased its interests for an aggregate purchase price of $35,791, including costs of $1,366, which included the issuance of warrants, valued at $136, for the purchase of 3 million shares of the common stock of DVL, exercisable until 2011 at a price of $.20 per share and investment banking fees to an affiliate aggregating $900. The purchase price was paid by the issuance of 8% per annum limited recourse promissory notes by S2 in the aggregate amount of $34,425. Principal and interest are payable from the future monthly cash flow. The notes mature August 15, 2020 through December 31, 2021 and are secured by a pledge of S2's interests in Receivable II-A, Receivables II-B and all proceeds and distributions related to such interests. The principal amount of the notes and the purchase price are adjusted, from time to time, based upon the performance of the underlying receivables. DVL also issued its guaranty of payment of up to $3,443 of the purchase price. The amount of the guaranty is regularly reduced by 10% of the principal paid. The amount of the guaranty at June 30, 2004 was $3,327. Payments, if any, due under this guaranty are payable after August 15, 2020. In accordance with the purchase agreements with respect to such acquisitions, from the acquisition dates through June 30, 2004, the residual interest in securitized portfolios and the notes payable were decreased by approximately $2,953 as a result of purchase price adjustments. Adjustments to the receivables based on the performance of the underlying periodic payment receivables, both increases and decreases, could be material in the future. 9 The following table reconciles the initial purchase price with the carrying value at June 30, 2004: Initial purchase price $ 35,791 Adjustments to purchase price (2,953) Principal payments (48) Accretion 1,688 -------- $ 34,478 ======== The purchase agreements contain annual minimum and maximum levels of cash flow that will be retained by the Company, after the payment of interest and principal on the notes payable, which are as follows: Years Minimum Maximum ----- ------- ------- 2004 to 2009 $ 743 $ 880 2010 to final payment on notes payable* $ 1,050 $ 1,150 * Final payment on the notes payable expected 2016 related to the Receivables II-A transaction and 2018 for the Receivables II-B transaction. 3. Mortgage Loans Receivable Virtually all of DVL's loans receivable arose out of transactions in which affiliated limited partnerships purchased commercial, office and industrial properties typically leased on a long-term basis to unaffiliated creditworthy tenants. Each mortgage loan is collateralized by a lien, subordinate to senior liens, on real estate owned by the affiliated limited partnership. DVL's loan portfolio is comprised of long-term wrap-around and other mortgage loans due from affiliated limited partnerships. 4. Real Estate The Company, directly and through various wholly owned subsidiaries, currently owns the following properties: (1) Eight buildings totaling 347,000 square feet on eight acres located in an industrial park in Kearny, NJ leased to various unrelated tenants. This site represents a portion of the Passaic River Development area as designated for redevelopment by the town of Kearny, New Jersey. The Company is currently negotiating with the Town of Kearny to be designated as the developer for the site as well as other sites along Passaic Avenue. There can be no assurance that the Company will be designated as the developer for such site or any other site along Passaic Avenue. Pending final resolution of this issue, the Company continues to lease the property to multiple tenants and receives a positive cash flow from the properties. (2) An 89,000 square foot building on approximately eight acres of land leased to K-Mart in Kearny, NJ which adjoins the property described above. 10 (3) A vacant 31,000 square foot former Grand Union Supermarket and approximately six acres of land underlying the building located in Fort Edward, NY. The entire property, which was acquired through foreclosure on a mortgage, was recorded at $416, which was the net carrying value of the mortgage at the date of foreclosure and was less than the fair value at that date. The property is currently being carried at $352 after the sale of approximately one acre of land in November 2003. (4) A vacant 32,000 square foot former Ames Department Store and approximately one acre of land underlying the building located in Champlain, NY. The property, which was acquired through foreclosure on a mortgage, was recorded at $300, which was the net carrying value of the mortgage at the date of foreclosure and was less than the fair value at that date. During the quarter ended March 31, 2004 an impairment expense of $100 was recorded relating to this property in order to reduce the net carrying value to the expected net realizable value based on a contract to sell the property, which is anticipated to close by September of 2004. (5) The Company also operates an industrial property in Bogota, NJ under a master lease. The Company carries the master lease as an asset (real estate lease interests). Due to vacancies at the property and difficulties arranging a sale of the property, the Company had written down the value of the master lease by $762 during the year ended December 31, 2003 to its estimated net realizable value of $100. The estimated net realizable value was determined based on the amount the Company would expect to realize based on an existing agreement of sale with respect to such property. The Company anticipates the contract to close in September 2004. There can be no assurance that the Company will consummate a sale of the property on acceptable terms or at all. Activity related to the real estate lease interest is included in the real estate segment. 5. Notes Payable - Litigation Settlement/Redemptions Notes with an aggregate principal amount of approximately $1,171 remain outstanding as of June 30, 2004 (carrying value $1,064). In December 1995, DVL completed its obligations under a 1993 settlement of its class action litigation by, among other things, issuing notes to the plaintiffs (the "Notes") in the aggregate principal amount of $10,387. The Notes, which are general unsecured obligations of DVL, accrue interest at a rate of ten (10%) percent per annum, with principal under the Notes, together with all accrued and unpaid interest thereunder, due on December 31, 2005. The Company has the option to redeem the outstanding Notes by issuing shares of Common Stock. Any redemption of the Notes for Common Stock will have a dilutive effect on current shareholders (See Note 8, Shareholder's Equity). To date, the Company has sent redemption letters to certain note holders offering to pay the Notes in cash at face value plus accrued interest. As of June 30, 2004, $801 is payable as a result of the redemption letters and is reflected as a non-interest bearing liability. 11 6. Transactions with Affiliates MONIES RECEIVED The Company receives fee income for providing management, accounting, and administrative services to certain entities which are affiliated with NPO Management, LLC ("NPO") and/or, Blackacre Capital, LLC ("Blackacre"), which are entities engaged in real estate lending and management transactions and are affiliated with certain stockholders and insiders of the Company. The fee income from management service contracts are as follows:
Fee Income Fee Income Fee Income Fee Income For The Three For The Three For The Six For The Six AFFILIATE Months Ended Months Ended Months Ended Months Ended --------- 06/30/04 06/30/03 06/30/04 06/30/03 ------------- ------------- ------------ ------------ NPO and Blackacre $ 6 $ 6 $ 12 $ 12 NPO $ 44 $ 41 $ 98 $ 131
MONIES PAID A. The Company recorded fees to NPO of $340 and $332 for the six months ended June 30, 2004 and 2003, respectively, under the Asset Servicing Agreement (the "Asset Servicing Agreement") between the Company and NPO, pursuant to which NPO provides the Company with administrative and advisory services relating to the assets of the Company and its Affiliated Limited Partnerships. During 2004 and 2003 the Company provided office space under the Asset Servicing Agreement to NPO consisting of 228 square feet of the Company's New York location. B. Millennium Financial Services, an affiliate of NPO, has received fees from the Company representing compensation and reimbursement of expenses for collection services as follows: Fees Recorded Fees Recorded Fees Recorded Fees Recorded For The Three For The Three For The Six For The Six Months Ended Months Ended Months Ended Months Ended 06/30/04 06/30/03 06/30/04 06/30/03 ------------- ------------- ------------- ------------- $ 50 $ 48 $ 77 $ 95 In connection with the sales of property owned by affiliated limited partnerships, a licensed real estate brokerage affiliate of the Pembroke Group, whose members are affiliates of NPO, was paid brokerage fees as follows: Fees Recorded Fees Recorded Fees Recorded Fees Recorded For The Three For The Three For The Six For The Six Months Ended Months Ended Months Ended Months Ended 06/30/04 06/30/03 06/30/04 06/30/03 ------------- ------------- ------------- ------------- $ -- $ -- $ 13 $ 12 C. In connection with the acquisitions of residual interests in Receivables II-A and Receivables II-B, affiliates of NPO and the special director of the Company were paid investment banking fees of $900 in aggregate for their services in connection with the origination, negotiation and structuring of the transactions. The fee was payable without interest, over 30 months starting January, 2002, from a portion of the monthly cash flow generated by the acquisitions. The fee was paid in full as of June 30, 2004. 12 D. Interest expense on amounts due to affiliates was as follows: Three Months Three Months Six Months Six Months Ended Ended Ended Ended 06/30/03 06/30/04 06/30/04 06/30/03 -------- -------- -------- -------- Blackacre Capital Group, LLC $ 78 $ 71 $155 $141 NPO 2 2 3 3 ---- ---- ---- ---- $ 80 $ 73 $158 $144 ==== ==== ==== ==== 7. Contingent Liabilities Pursuant to the terms of the Limited Partnership Settlement, a fund has been established into which DVL is required to deposit 20% of the cash flow received on certain of its mortgage loans from Affiliated Limited Partnerships after repayment of certain creditors, 50% of DVL's receipts from certain loans to, and general partnership investments in, Affiliated Limited Partnerships and a contribution of 5% of DVL's net income (based on accounting principles generally accepted in the United States of America) subject to certain adjustments in the years 2001 through 2012. The adjustments are significant enough that no amounts were accrued for the six months ended June 30, 2004 and 2003. During the six months ended June 30, 2004 and 2003 the Company expensed approximately $266 and $107, respectively, for amounts due to the fund of which $-0- was accrued at both June 30, 2004 and 2003. These costs have been netted against the gain on satisfaction of mortgages and/or interest on mortgage loans, where appropriate. The real estate lease interest held by the Company's subsidiary, Professional Service Corporation, is subject to a master lease agreement through June 2010 which requires monthly payments of approximately $39. The master lease payments are netted against rental income in the Company's financial statements. DVL is a limited recourse guarantor on debt of approximately $2,302 which is secured solely by DVL's interest in the property. 8. Shareholder's Equity The Company has the option to redeem the outstanding Notes (approximately $1,171 at June 30, 2004) by issuing additional shares of Common Stock with a then current market value (determined based on a formula set forth in the Notes), equal to 110% of the face value of the Notes plus any accrued and unpaid interest thereon. Because the applicable market value of the Common Stock will be determined at the time of redemption, it is not possible currently to ascertain the precise number of shares of Common Stock that may have to be issued to redeem the outstanding Notes. The redemption of the notes may cause significant dilution for current shareholders. In 1996, affiliates of NPM acquired 1,000,000 shares (the "Base Shares") of DVL Common Stock and DVL issued to affiliates of NPM and NPO warrants (the "Warrants") to purchase shares of Common Stock which, when added to the Base Shares, aggregate 49% of the outstanding Common Stock of DVL, adjusted for shares of common stock subsequently issued to and purchased by affiliates of NPM and NPO, on a diluted basis expiring December 31, 2007. The original exercise price of the Warrants was $.16 per share, subject to applicable anti-dilution provisions including, without limitation, anti-dilution protection from any redemption of the Notes and subject to a maximum aggregate exercise price of $1,916. At June 30, 2004, shares underlying the Warrants aggregated 26,082,149 at an exercise price of $.07. No warrants have been exercised through June 30, 2004. 13 The actual dilutive effect of the Warrants and the outstanding Notes cannot be currently ascertained since it depends on the number of shares to be actually issued to satisfy the Notes and the Warrants and because the Warrants have anti-dilution protection from the redemption of the Notes for Common Stock. The Company currently intends to exercise at some point in the future its redemption option to the extent it does not buy back the outstanding Notes by means of cash tender offers or cash redemptions. RESTRICTION ON CERTAIN TRANSFERS OF COMMON STOCK: Each share of the stock of the Company includes a restriction prohibiting sale, transfer, disposition or acquisition of any stock until September 30, 2009 without the prior consent of the Board of Directors of the Company by any person or entity that owns or would own 5% or more of the issued and outstanding stock of the Company if such sale, purchase or transfer would, in the opinion of the Board, jeopardize the Company's preservation of its federal income tax attributes under Section 382 of the Internal Revenue Code. 14 9. Earnings per share (unaudited) The following tables present the computation of basic and diluted per share data for the three and six months ended June 30, 2004 and 2003.
Three Months Ended June 30, --------------------------- 2004 2003 ------------------------------------ -------------------------------------- Weighted Weighted Average Average Number of Per Share Number of Per Share Amount Shares Amount Amount Shares Amount ------ ------ ------ ------ ------ ------ Basic EPS, Income available to common stockholders $ 735 27,738,402 $ .03 $ 369 21,713,563 $ .02 ======= ======= Effect of litigation settlement notes 45 10,175,989 71 13,420,602 Effect of dilutive stock options and warrants -- 17,695,423 -- 20,344,493 ------ ---------- ------ ---------- Diluted EPS, Income available to common stockholders $ 780 55,609,814 $ .01 $ 440 55,478,658 $ .01 ====== ========== ======= ====== ========== =======
Six Months Ended June 30, ------------------------- 2004 2003 ------------------------------------ -------------------------------------- Weighted Weighted Average Average Number of Per Share Number of Per Share Amount Shares Amount Amount Shares Amount ------ ------ ------ ------ ------ ------ Basic EPS, Income available to common stockholders $ 864 27,738,402 $ .03 $ 930 21,713,563 $ .04 ======= ======= Effect of litigation settlement notes 89 9,403,372 139 12,757,935 Effect of dilutive stock options and warrants -- 18,155,673 -- 20,333,275 ------ ---------- ------ ---------- Diluted EPS, Income available to common stockholders $ 953 55,297,447 $ .02 $1,069 54,804,773 $ .02 ====== ========== ======= ====== ========== =======
15 At June 30, 2004 and 2003 there were 4,068,131 and 3,884,085 respectively, potentially dilutive options and warrants excluded from the computation of Diluted EPS because the exercise price was greater than the average market price of the Common Stock, thereby resulting in an anti-dilutive effect. Stock-based compensation: SFAS 123 and SFAS 148 allow companies to either expense the estimated fair value of stock options or to follow the intrinsic value method set forth in APB Opinion 25, "Accounting for Stock Issued to Employees" ("APB 25" and related interpretations) but disclose the pro forma effects on net income had the fair value of the options been expensed. The Company has elected to continue to apply APB 25 in accounting for its stock option incentive plans. The following pro forma information regarding net income and earnings per share is required by Statement of Financial Accounting Standards No. 123 "Accounting for Stock-Based Compensation" ("SFAS No. 123").
Three Months Ended Six Months Ended June 30, June 30, -------- -------- 2004 2003 2004 2003 ---- ---- ---- ---- Reported net income $ 735 $ 369 $ 864 $ 930 Stock based compensation included in net Income -- 13 -- 13 Proforma and actual stock based compensation charge for stock options -- (13) -- (13) ---------- -------- ---------- -------- Proforma net income $ 735 $ 369 $ 864 $ 930 ========== ======== ========== ======== Earnings per share as reported: Basic $ 0.03 $ 0.02 $ 0.03 $ 0.04 ========== ======== ========== ======== Diluted $ 0.01 $ 0.01 $ 0.02 $ 0.02 ========== ======== ========== ======== Proforma earnings per share: Basic $ 0.03 $ 0.02 $ 0.03 $ 0.04 ========== ======== ========== ======== Diluted $ 0.01 $ 0.01 $ 0.02 $ 0.02 ========== ======== ========== ========
For the three and six months ended June 30, 2003 the Company recognized an expense of $13 relative to the issuance and repricing of options to a consultant. 16 10. Segment Information The Company has two reportable segments; real estate and residual interests. The real estate business is comprised of real estate assets, mortgage loans on real estate, real estate management and investments in affiliated limited partnerships which own real estate. The residual interests business is comprised of investments in residual interests in securitized receivables portfolios. The corporate/other net (loss) income of $(25) and $131 in 2004 and 2003 respectively, include $0 and $179 of deferred income tax benefit, respectively. June 30, -------- 2004 2003 ---- ---- Revenues Real estate $ 2,545 $ 2,406 Residual interests 2,182 2,250 Corporate/other 18 22 -------- -------- Total consolidated revenues $ 4,745 $ 4,678 ======== ======== Net income (loss) Real estate $ (6) $ (151) Residual interests 898 830 Corporate/other (28) 251 -------- -------- Total consolidated net income $ 864 $ 930 ======== ======== Assets Real estate $ 35,873 $ 40,560 Residual interests 34,478 39,050 Corporate/other 1,814 1,804 -------- -------- Total consolidated assets $ 72,165 $ 81,414 ======== ======== 11. Income Taxes The Company accounts for income taxes under the provisions of Statement of Financial Accounting Standards No. 109 ("FAS 109"), which requires the Company to recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. In addition, FAS 109 requires the recognition of future tax benefits such as net operating loss carryforwards, to the extent that realization of such benefits is more likely than not. In 2004 and 2003, the Company recognized $0 and $307, respectively, of income tax benefit as a result of a reduction in the valuation allowance on deferred tax assets. 17 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (in thousands) This June 30, 2004 Quarterly Report on Form 10-Q contains statements which constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Those statements include statements regarding the intent, belief or current expectations of DVL and its management team. DVL's stockholders and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements. Such risks and uncertainties include, among other things, general economic conditions and other risks and uncertainties that are discussed herein and in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2003. CRITICAL ACCOUNTING POLICIES AND ESTIMATES The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principals generally accepted in the United States of America. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to residual interests and allowance for losses. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements. RESIDUAL INTERESTS: Residual interests represent the estimated discounted cash flow of the differential of the total interest to be earned on the securitized receivables and the sum of the interest to be paid to the noteholders and the contractual servicing fee. Since these residual interests are not subject to prepayment risk, they are accounted for as investments held to maturity and are carried at amortized cost using the effective yield method. Permanent impairments are recorded immediately through earnings. Favorable changes in future cash flows are recognized through earnings over the remaining life of the retained interest. INCOME RECOGNITION: Interest income is recognized on the effective interest method for the residual interest and all performing loans. The Company stops accruing interest once a loan becomes non-performing. A loan is considered non-performing when scheduled interest or principal payments are not received on a timely basis and in the opinion of management, the collection of such payments in the future appears doubtful. Interest income on restructured loans are recorded as the payments are received. 18 ALLOWANCE FOR LOSSES: The adequacy of the allowance for losses is determined through a quarterly review of the portfolios. Specific loss reserves are provided as required based on management's evaluation of the underlying collateral on each loan or investment. DVL's allowance for loan losses generally is based upon the value of the collateral underlying each loan and its carrying value. Management's evaluation considers the magnitude of DVL's non-performing loan portfolio and internally generated appraisals of certain properties. For the Company's mortgage loan portfolio, the partnership properties are valued based upon the cash flow generated by base rents and anticipated percentage rents or base rent escalations to be received by the partnership. The value of partnership properties which are not subject to percentage rents are based upon historical appraisals. Management believes that generally, the values of such properties have not changed as the tenants, lease terms and timely payment of rent have not changed. When any such changes have occurred, management revalues the property as appropriate. Management evaluates and updates such appraisals periodically, and considers changes in the status of the existing tenancy in such evaluations. Certain other properties were valued based upon management's estimate of the current market value for each specific property using similar procedures. LIMITED PARTNERSHIPS: DVL does not consolidate any of the various Affiliated Limited Partnerships in which it holds the general partner and limited partner interests, except where DVL holds greater than 50% ownership, nor does DVL account for such interests on the equity method due to the following: (i) DVL's interest in the partnerships as the general partner is a 1% interest (the proceeds of such 1% interest are payable to the limited partnership settlement fund pursuant to the 1993 settlement of the class action between the limited partners and DVL (the "Limited Partnership Settlement")); (ii) under the terms of such settlement, the limited partners have the right to remove DVL as the general partner upon the vote of 70% or more of the limited partners; (iii) all major decisions must be approved by a limited partnership oversight committee in which DVL is not a member, (iv) there are no operating policies or decisions made by the Affiliated Limited Partnership, due to the triple net lease arrangements for the Affiliated Limited Partnership properties and (v) there are no financing policies determined by the partnerships as all mortgages were in place prior to DVL's obtaining its interest and all potential refinancings are reviewed by the oversight committee. Accordingly, DVL accounts for its investments in the Affiliated Limited Partnerships on a cost basis with the cost basis adjusted for impairments which took place in prior years. RESULTS OF OPERATIONS THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003 DVL had net income of $735 and $369 for the three months ended June 30, 2004 and 2003, respectively. Interest income on mortgage loans from affiliates decreased (2004 - $594, 2003 - $659) and interest expense on underlying mortgages decreased (2004 - $256, 2003 - - $340). During 2003 the Company sold properties securing two underlying mortgages and paid off the outstanding balances, wrote off one underlying mortgage after the foreclosure of the related property and paid off another underlying mortgage balance with a refinancing transaction. In April 2004, the Company sold a property securing an underlying mortgage and paid off the outstanding balance. 19 Gain on satisfaction of mortgage loans was as follows: Three Months Ended Three Months Ended June 30, 2004 June 30, 2003 ------------- ------------- $ 502 $ 40 The gains in 2004 and 2003 were a result of the Company collecting net proceeds on the satisfaction of mortgage loans that were greater than the carrying values. Transaction and other fees from affiliated limited partnerships were as follows: Three Months Ended Three Months Ended June 30, 2004 June 30, 2003 ------------- ------------- $ 70 $ 1 Transaction fees are earned by the Company in connection with sales of partnership properties. Interest income on residual interests (2004 - $1,084, 2003 - $1,154) remained consistent as periodic payment receivables continued to perform. Interest expense on the related notes payable (2004 - $625, 2003 - $721) decreased due to a decrease in the outstanding principal balance of the notes payable. Three Months Ended Three Months Ended June 30, 2004 June 30, 2003 ------------- ------------- Net rental income from others $ 172 $ 231 Gross rental income from others $ 472 $ 605 The decrease in net rental income from 2003 to 2004 was the result of a temporary tenant, which had contributed to higher gross rents in previous periods, vacating a property which the Company operates under a master lease. The property is currently under contract to be sold. General and administrative expenses decreased (2004 - $374, 2003 - $420). The primary reason for the decrease was reduced stockholder expenses. The asset servicing fee due from the Company to NPO increased slightly (2004 - $171, 2003 - $168) pursuant to the terms of the Asset Servicing Agreement due to an increase in the consumer price index. Legal and professional fees increased (2004 - $97, 2003 - $79) as a result of legal fees incurred with respect to the sale of affiliated limited partnership properties. Interest expense on the litigation settlement notes decreased (2004 - $45, 2003 - - $71) as a result of the redemption by the Company of litigation settlement notes during 2003. 20 Interest expense relating to other debts increased (2004 - $242, 2003 - $186) primarily due to the Company borrowing $949 as a result of a refinancing transaction and the amortization of financing costs. In 2003, the Company recognized $153 of income tax benefit as a result of a reduction in the valuation allowance on deferred tax assets. SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003 DVL had net income of $864 and $930 for the six months ended June 30, 2004 and 2003, respectively. Interest income on mortgage loans from affiliates decreased (2004 - $1,236, 2003 - - $1,380) and interest expense on underlying mortgages decreased (2004 - $528, 2003 - $697). During 2003 the Company sold properties securing two underlying mortgages and paid off the outstanding balances, wrote off one underlying mortgage after the foreclosure of the related property and paid off another underlying mortgage balance with a refinancing transaction. In April 2004, the Company sold a property securing an underlying mortgage and paid off the outstanding balance. Gain on satisfaction of mortgage loans was as follows: Six Months Ended Six Months Ended June 30, 2004 June 30, 2003 ------------- ------------- $ 502 $ 88 The gains in 2004 and 2003 were a result of the Company collecting net proceeds on the satisfaction of mortgage loans that were greater than the carrying values. Transaction and other fees from affiliated limited partnerships were as follows: Six Months Ended Six Months Ended June 30, 2004 June 30, 2003 ------------- ------------- $ 108 $ 37 Transaction fees are earned by the Company in connection with sales of partnership properties. Interest income on residual interests (2004 - $2,182, 2003 - $2,250) remained consistent as periodic payment receivables continued to perform. Interest expense on the related notes payable (2004 - $1,281, 2003 - $1,411) decreased due to a decrease in the outstanding principal balance of the notes payable. Six Months Ended Six Months Ended June 30, 2004 June 30, 2003 ------------- ------------- Net rental income from others $ 268 $ 531 Gross rental income from others $ 927 $ 1,335 The decrease in net rental income from 2003 to 2004 was the result of a temporary tenant, which had contributed to higher gross rents in previous periods, vacating a property which the Company operates under a master lease. The property is currently under contract to be sold. 21 The increase in distributions from investments from others resulted primarily from receiving an $84 distribution from the Opportunity Fund in 2004. General and administrative expenses decreased (2004 - $741, 2003 - $819). The primary reasons for the decrease were reduced stockholder and consulting fees. The asset servicing fee due from the Company to NPO increased slightly (2004 - $340, 2003 - $332) pursuant to the terms of the Asset Servicing Agreement due to an increase in the consumer price index. Legal and professional fees increased (2004 - $171, 2003 - $137) as a result of the increased cost of accounting services to the Company and legal fees incurred with respect to sales of affiliated limited partnership properties. The Company recognized an impairment on real estate of $100 in 2004 to reflect its anticipated realizable value. The Company has negotiated a contract of sale for such property to a third party. Interest expense on the litigation settlement notes decreased (2004 - $89, 2003 - - $139) as a result of the redemption by the Company of litigation settlement notes during 2003. Interest expense relating to other debts increased (2004 - $448, 2003 - $376) primarily due to the Company borrowing an additional $949 as a result of a refinancing transaction and the amortization of financing costs. In 2003, the Company recognized $307 of income tax benefit as a result of a reduction in the valuation allowance on deferred tax assets. LIQUIDITY AND CAPITAL RESOURCES The Company's cash flow from operations is generated principally from interest on the residual interests in securitized portfolios, and interest on its mortgage portfolio. Additionally the cash flows from operations arise from management fees and transaction and other fees received as a result of the sale and/or refinancing of partnership properties and mortgages, and rental income. The Company believes that its anticipated cash flow provided by operations is sufficient to meet its current cash requirements through at least August, 2005. The Company believes that its current liquid assets will be sufficient to fund operations on a short-term basis as well as on a long-term basis. The Company maintains a $500 unsecured line of credit with an interest rate of prime plus one percent per annum and which terminates January 14, 2005. There were no amounts outstanding on the line of credit as of June 30, 2004. The terms of the line of credit provide that interest shall be payable on the first day of each month. The cash flow from the Company's member interests in Receivables II-A and Receivables II-B should provide significant liquidity to the Company. 22 The purchase agreements with respect to such acquisition contain annual minimum and maximum levels of cash flow that will be retained by the Company after the payment of interest and principal on the notes payable, which are as follows: Years Minimum Maximum ----- ------- ------- 2004 to 2009 $ 743 $ 880 2010 to final payment on the notes* $ 1,050 $ 1,150 * Final payment on the notes payable expected 2016 related to the Receivables IIA transaction and 2018 for the Receivables IIB transaction. The Company believes it will continue to receive significant cash flow after final payment of the notes payable. 23 ACQUISITIONS AND FINANCINGS Loans which are scheduled to become due through 2009 are as follows:
Outstanding Principal Original Balance at Loan June 30, Due Purpose Creditor Amount 2004 Date ------- -------- ------ ---- ---- Repurchase of Notes Issued by the Company Blackacre (1) $ 1,560 $ 2,311 01/02/05 Purchase of Mortgages Unaffiliated Bank (2)(3) $ 1,450 $ 1,426 05/01/09 Purchase of a Mortgage and Refinancing of Existing Mortgages Unaffiliated Bank (2)(3) $ 1,450 $ 387 11/30/06 Purchase of Real Estate Assets Unaffiliated Bank (4) $ 4,500 $ 4,500 09/01/04 Purchase of Real Estate Assets Unaffiliated Bank (5) $ 2,668 $ 2,565 06/30/08
(1) Interest paid is 12% per annum, compounded monthly. Interest is added to principal and is paid from a portion of cash received in satisfaction of certain mortgage loans. The Company anticipates extending this loan. If the Company is unable to extend this loan, the balance would have to be paid in cash or alternative financing would have to be arranged. There can be no assurance that the Company would be able to obtain alternative financing on similar terms or at all. (2) This loan self-amortizes. (3) Interest rate is prime plus 1.5% per annum payable monthly. (4) Interest rate is 8.5% per annum. Monthly payments are interest only. The Company is currently negotiating to extend this loan and has been advised by the lender that they have preliminary approval for a one year extension at an interest rate of 7.5% per annum, interest only, with a 1% fee. There can be no assurance that the Company will be able to enter into such an extension. If the Company is unable to enter into such an extension, there can be no assurance that the Company would be able to obtain alternative financing on similar terms or at all. Failure to obtain such financing could have a material adverse effect on the Company. (5) Interest rate is 7.5% per annum with a balloon payment due June 30, 2008 of $2,285. IMPACT OF INLFATION AND CHANGES IN INTEREST RATES The Company's portfolio of mortgage loans made to affiliated limited partnerships consists primarily of loans made at fixed rates of interest. Therefore, increases or decreases in market interest rates are generally not expected to have an effect on the Company's earnings. Other than as a factor in determining market interest rates, inflation has not had a significant effect on the Company's net income. 24 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK DVL has no substantial cash flow exposure due to interest rate changes for long term debt obligations, because a majority of the long-term debt is at fixed rates. DVL primarily enters into long-term debt for specific business purposes such as the repurchase of debt at a discount, the acquisition of mortgage loans or the acquisition of real estate. DVL's ability to realize value on its mortgage holdings is sensitive to interest rate fluctuations in that the sales prices of real property and mortgages vary with interest rates. ITEM 4. CONTROLS AND PROCEDURES In designing and evaluating the disclosure and procedures, the Company's management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurances of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. As of the end of the period covered by this report the Company carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC reports. No change occurred in the Company's internal controls concerning financial reporting during the Company's second quarter that has materially affected, or is reasonably likely to materially affect, the Company's internal controls over financial reporting. 25 Part II - Other Information Item 6. EXHIBITS AND REPORTS ON FORM 8-K (A) Exhibits: 10.1 Promissory Note for $1,450,000 between DVL, Inc. and Pennsylvania Business Bank dated April 28, 2004. 10.2 Loan Agreement between DVL, Inc. and Pennsylvania Business Bank dated April 28, 2004. 31.1 Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification of Chief Executive Officer and Chief Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. (B) There were no reports on Form 8-K filed during the three months ended June 30, 2004. 26 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 thereunto duly authorized. DVL, Inc. By: /s/ Jay Thailer ------------------------------------- Jay Thailer, Executive Vice President and Chief Financial Officer August 13, 2004 27 EX-10.1 2 c33350_ex10-1.txt EXHIBIT 10.1 PROMISSORY NOTE $1,450,000 Date: April 28, 2004 Philadelphia, Pennsylvania 1. BORROWER'S PROMISE TO PAY In return for a loan that it has received, DVL, INC. ("DVL"), a Delaware corporation with an address at 70 E. 55th Street, New York, NY 10022, and DVL MORTGAGE HOLDINGS, LLC ("DVL HOLDINGS"), a Delaware limited liability company with an address at 70 E. 55th Street, New York, NY 10022 (DVL and DVL Holdings hereinafter being referred to individually and collectively as the "BORROWER"), promise to pay U.S. One Million Four Hundred Fifty Thousand Dollars ($1,450,000) (the "PRINCIPAL"), or so much of the Principal as may be advanced under this Note, plus interest, to the order of PENNSYLVANIA BUSINESS BANK (hereinafter referred to as "BANK" or "LENDER"). Borrower understands that the Lender may transfer this Note. The Lender or anyone who takes this Note by transfer and who is entitled to receive payments under this Note is called the "NOTE HOLDER". This Note evidences a Loan from Lender to Borrower pursuant to a Loan Agreement dated the same date as this Note ("LOAN AGREEMENT"). Terms defined in the Loan Agreement and not defined in this Note are used with the meanings defined for those terms in the Loan Agreement. The terms and conditions of the Loan Agreement are made part of this Note. 2. INTEREST Interest will be charged on unpaid Principal until the full amount of Principal advanced has been paid. Interest on unpaid Principal shall accrue at a rate per annum (the "INTEREST RATE") from time to time equal to one and one-half percent (1.5%) above the "Prime Commercial Rate" as published daily in the Wall Street Journal, provided that under no circumstances shall the Interest Rate be less than six percent (6%) per annum. In the event that the "Prime Rate" shall no longer be quoted, then such rate shall be substituted by a similar floating rate as reasonably determined by Lender. Interest shall accrue hereunder on the basis of a 365/360 day year. The Interest Rate required by this Section 2 is the rate Borrower shall pay before any Event of Default described in Section 6(B) of this Note. Upon the occurrence of an Event of Default, the Interest Rate shall be increased to the Default Rate of Interest specified in Section 6(D) below. 3. PAYMENTS Time and Place of Payments Beginning on June 1, 2004, Borrower shall make monthly payments of principal and interest, in immediately available funds, in equal installments of principal of $24,166.67 per month, plus monthly payments of interest as billed by the Lender, on or before the first (1st) day of each month until the Maturity Date (as defined below). In addition, and anything to the contrary notwithstanding, all outstanding principal and unpaid interest shall be due and payable on or before May 1, 2009 (the "MATURITY DATE"). Borrower shall make all monthly payments by the first (1st) day of each month, from and after the first disbursement of the Loan, at: Pennsylvania Business Bank, 1401 Walnut Street, Suite 400, Philadelphia, Pennsylvania 19102, or at a different place if required by the Note Holder. (B) Amount of Monthly Payments The amount of each monthly payment may change depending on the unpaid Principal of the Loan and the then applicable Interest Rate. (C) Straight Extension of Credit The Loan is a non-revolving, straight extension of credit; once the total Principal has been advanced, Borrower is not entitled to further loan disbursements. Borrower agrees to be liable for all sums either: (a) advanced in accordance with the instructions of an authorized person, or (b) credited to any of Borrower's accounts with Note Holder. The unpaid Principal balance owing on this Note at any time may be evidenced by endorsements on this Note or by Note Holder's internal records, including daily computer printouts, as acknowledged by Borrower. 2 4. BORROWER'S RIGHT TO PREPAY Borrower may prepay this Note, in whole or in part, at any time and from time to time without premium or penalty. Any partial prepayment of principal shall not affect the timing of subsequent payments due under the Note. 5. LOAN CHARGES If a law, which applies to the loan and which sets maximum loan charges, is finally interpreted so that the interest or other loan charges collected or to be collected in connection with the Loan exceed the permitted limits, then: (i) any such loan charge shall be reduced by the amount necessary to reduce the charge to the permitted limit; and (ii) any sums already collected from Borrower which exceeded permitted limits will be refunded. The Note Holder may choose to make this refund by reducing the Principal owed under this Note or by making a direct payment to Borrower. If a refund reduces Principal, the reduction will be treated as a partial prepayment without assessment of any prepayment penalty. 6. BORROWER'S FAILURE TO PAY AS REQUIRED (A) Late Charge for Overdue Payments If the Note Holder has not received the full amount of any monthly payment by the end of ten (10) calendar days after the date it is due, Borrower shall pay a late charge to the Note Holder. The amount of the late charge will be ten percent (10%) of the overdue payment of Principal and interest. Borrower shall pay this late charge promptly but only once on each late payment. (B) Event Default The occurrence of an Event of Default as defined and described in the Loan Agreement shall constitute an Event of Default under this Note and the other Bank Loan Documents. 3 (C) Remedies Cumulative Upon the occurrence of an Event of Default, the entire unpaid balance of Principal (including any additional loans or advances in all other sums paid by Note Holder to or on behalf of Borrower or add it to the principal hereof pursuant to the terms of this Note or any of the Bank Loan Documents), together with all accrued interest thereon, and all other sums due and owing under this Note or under the Bank Loan Documents shall, at the option of Note Holder, become immediately due and payable without presentment, demand or further action of any kind. Even if, at a time when Borrower is in default, the Note Holder does not require it to pay immediately in full as described above, the Note Holder will still have the right to do so at a later date (or if Borrower is in default at a later time). The Note Holder can exercise all the remedies it has under this Note or the Bank Loan Documents at the same time. (D) Default Rate of Interest Upon an Event of Default, at the option of the Note Holder, interest on the unpaid Principal balance shall be increased to and shall accrue at a rate per annum equal to the interest rate provided for in Section 2, above, plus five percent (5%); provided, however, that no interest shall accrue hereunder in excess of the maximum rate of interest then allowed by law. Borrower agrees to pay such accrued interest on demand. The default rate of interest set forth herein is strictly a measure of liquidated damages to the Note Holder and is not meant to be construed as a penalty. (E) Payment of Note Holder's Costs and Expenses Borrower shall reimburse the Note Holder for all of the Note Holder's costs and expenses in enforcing this Note and any of the other Bank Loan Documents to the extent not prohibited by applicable law. Those expenses include, for example, reasonable attorneys' fees. 4 (F) Confession of Judgment FOLLOWING THE OCCURRENCE OF ANY EVENT OF DEFAULT HEREUNDER, SUBJECT TO APPLICABLE GRACE OR CURE PERIODS, BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS ANY ATTORNEY OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR ELSEWHERE TO APPEAR AS ATTORNEY FOR BORROWER AND ALL PERSONS CLAIMING UNDER OR THROUGH BORROWER TO SIGN AN AGREEMENT IN ANY COMPETENT COURT AND, WITH OR WITHOUT COMPLAINT FILED, TO CONFESS JUDGMENT OR A SERIES OF JUDGMENTS AGAINST BORROWER AND AGAINST ALL PERSONS CLAIMING THROUGH OR UNDER BORROWER, IN FAVOR OF THE NOTE HOLDER AND ITS SUCCESSORS AND ASSIGNS, AS OF ANY TERM, FOR THE UNPAID BALANCE OF ALL PRINCIPAL, INTEREST AND ALL OTHER SUMS OWING UNDER THIS NOTE, TOGETHER WITH COSTS OF SUIT AND REASONABLE ATTORNEY'S FEES FOR COLLECTION, ON WHICH JUDGMENT OR JUDGMENTS ONE OR MORE EXECUTIONS MAY ISSUE FORTHWITH. FOR PURPOSES OF CONFESSING JUDGMENT AGAINST BORROWER AND ALL PERSONS CLAIMING UNDER OR THROUGH BORROWER, AS AFORESAID, THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE A SUFFICIENT WARRANT. BORROWER HEREBY FOREVER WAIVES AND RELEASES ALL ERRORS IN SAID PROCEEDINGS, AND WAIVES STAY OF EXECUTION AND THE RIGHT OF INQUISITION AND EXTENSION OF TIME OF PAYMENT, AGREES TO CONDEMNATION OF ANY PROPERTY LEVIED UPON BY VIRTUE OF ANY SUCH EXECUTION, AND WAIVES ALL EXEMPTIONS FROM LEVY AND SALE OF ANY PROPERTY THAT NOW IS OR HEREAFTER MAY BE EXEMPTED BY LAW. THE AUTHORITY AND POWER HEREIN GRANTED SHALL NOT BE EXHAUSTED BY ANY EXERCISE OR ATTEMPTED EXERCISE THEREOF BUT MAY BE EXERCISED TO CONFESS JUDGMENT AS AFORESAID FROM TIME TO TIME. BORROWER ACKNOWLEDGES THAT IT HAS KNOWINGLY AND VOLUNTARILY WAIVED THE RIGHT TO SERVICE AND NOTICE AND DESCRIBED ABOVE WITH THE ADVICE OF COUNSEL. 7. GIVING OF NOTICES Unless applicable law requires a different method, any notice that must be given to Borrower under this Note will be given by delivering it or by mailing it by registered or certified mail, postage prepaid, and to the address set forth for Borrower in the Loan Agreement or at such other address as Borrower may provide to Note Holder pursuant to notice hereunder. 5 Any notice that must be given to the Note Holder under this Note will be given by registered or certified mail, postage prepaid, addressed to the Note Holder at the address stated in Section 3(A) above or at such other address as Note Holder may provide to Note Holder pursuant to notice hereunder. 8. OBLIGATIONS OF PERSONS UNDER THIS NOTE If more than one person signs this Note, each person is fully and personally obligated to keep all of the promises made in this Note, including the promise to pay the full amount owed. Any person who is a guarantor, surety or endorser of this Note is also obligated to do these things. Any person who takes over these obligations, including the obligations of a guarantor, surety or endorser of this Note, is also obligated to keep all of the promises made in this Note. The Note Holder may enforce its rights under this Note and the obligations under this Note shall be jointly and severally. 9. WAIVERS Borrower and any other person who has obligations under this Note waive the rights of presentment and notice of dishonor. "Presentment" means the right to require the Note Holder to demand payment of amounts due. "Notice of dishonor" means the right to require the Note Holder to give notice to other persons that amounts due have not been paid. BORROWER, AND LENDER BY ITS ACCEPTANCE HEREOF, EACH HEREBY ABSOLUTELY, IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY AND THE RIGHT TO CLAIM OR RECEIVE CONSEQUENTIAL OR PUNITIVE DAMAGES IN ANY LITIGATION, ACTION, CLAIM, SUIT OR PROCEEDING, AT LAW OR IN EQUITY, ARISING OUT OF, PERTAINING TO OR IN ANY WAY ASSOCIATED WITH THE INDEBTEDNESS EVIDENCED HEREBY, THE RELATIONSHIP OF THE PARTIES HERETO AS LENDER AND BORROWER, THIS NOTE, THE MORTGAGE, THE OTHER BANK LOAN DOCUMENTS, THE PREMISES OR THE ACTIONS OF THE PARTIES HERETO IN CONNECTION WITH ANY OF THE FOREGOING. 10. SECURED NOTE In addition to the protections given to the Note Holder under this Note, the Collateral Assignment Documents, the St. Albans Mortgage, the Environmental Indemnity Agreement, and the other Bank Loan Documents protect the Note Holder from possible losses which might result if Borrower does not keep the promises it has made in this Note. The Bank Loan Documents describe how 6 and under what conditions Borrower may be required to make immediate payment in full of all amounts owed this Note. 11. MISCELLANEOUS This instrument shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania and the parties submit to the jurisdiction of the courts of that state. The captions and headings in this Note are inserted for convenience only, and in no way describe, or limit the scope or intent of this Note or any of its provisions. The provisions of the Note are severable, which means that if any provision of this Note is held to be invalid or unenforceable in any Court which has jurisdiction over the matter, all other provisions of this Note shall remain in full force and effect in that and all other jurisdictions, and the provision held invalid or unenforceable in that jurisdiction shall nevertheless be and remain in full force and effect in all other jurisdictions and shall be liberally construed in favor of Lender. [REMAINDER OF PAGE LEFT BLANK] 7 IN WITNESS WHEREOF, Borrower, intending to be legally bound, has duly executed this Note the day and year first above written and has hereunto set Borrower's hand and seal. BORROWER: Witness/Attest: DVL, INC., a Delaware corporation By: By: ---------------------------------- ---------------------------------- Name: Name: Title: Title: Witness/Attest: DVL MORTGAGE HOLDINGS, LLC, a Delaware limited liability company By: By: ---------------------------------- ---------------------------------- Name: Name: Alan E. Casnoff Title: Title: Manager 8 EX-10.2 3 c33350_ex10-2.txt EXHIBIT 10.2 LOAN AGREEMENT BY AND BETWEEN DVL, INC. AND DVL MORTGAGE HOLDINGS, LLC (COLLECTIVELY "BORROWER") AND PENNSYLVANIA BUSINESS BANK ("BANK") April __ 2004 Table of Contents
Page ARTICLE I DEFINITIONS 1.1 Definitions....................................................................... 1 1.2 Construction...................................................................... 7 1.3. Accounting Principles............................................................. 7 ARTICLE II AGREEMENT TO LEND 2.1. Agreement to Lend................................................................. 7 2.2 The Note ......................................................................... 7 2.3 Term ......................................................................... 7 ARTICLE III LOAN INTEREST, PAYMENTS AND FEES 3.1 Interest Rate..................................................................... 7 3.2 Default Interest; Late Payment Charge............................................. 8 3.3 Payments ......................................................................... 8 3.4 Interest Payment Dates............................................................ 8 3.5 Mandatory Amortization............................................................ 8 3.6 Optional Prepayments.............................................................. 8 3.7 Increased Costs or Reduced Return................................................. 9 3.8 Application of Prepayments........................................................ 9 3.9 Receipt of Payment................................................................ 9 ARTICLE IV AFFIRMATIVE COVENANTS 4.1 Preservation of Existence......................................................... 10 4.2 Payment of Liabilities............................................................ 10 4.3 Compliance with Laws.............................................................. 10 4.4 Keeping of Records and Books of Account........................................... 10 4.5 Visitation Rights................................................................. 10 4.6 Subordination of Affiliate Loans and Advances to Borrower......................... 11 4.7 Performance of Obligations........................................................ 11 4.8 Enforcement of the Collateral Loan Documents...................................... 11 4.9 Notices ......................................................................... 11 4.10 Further Assurances................................................................ 11 4.11 Estoppel Certificates............................................................. 11 4.12 Inspection........................................................................ 12 4.13 Accounts ......................................................................... 12
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ARTICLE V NEGATIVE COVENANTS 5.1 Changes in Organizational Documents............................................... 12 5.2 Transfer of the Collateral........................................................ 12 5.3 Liquidation or Dissolution or Transfer of Interest in Borrower.................... 13 5.4 Transfer of the Properties or Ownership Interest in the Collateral Borrowers...... 13 5.5 Breach of Documents............................................................... 13 5.6 Judgments......................................................................... 13 5.7 Creation of Liens................................................................. 13 5.8 Material Adverse Change........................................................... 13 5.9 Collateral Loan Documents......................................................... 13 5.10 Publicity......................................................................... 13 ARTICLE VI CONDITIONS PRECEDENT AND DISBURSEMENT MATTERS 6.1 Conditions Precedent to Closing................................................... 14 6.2 Disbursement Procedures........................................................... 15 6.3 Note and Collateral Documents..................................................... 15 6.4 No Other Rights................................................................... 15 ARTICLE VII REPORTING REQUIREMENTS 7.1 Financial Reports................................................................. 15 ARTICLE VIII REPRESENTATIONS AND WARRANTIES 8.1 Due Formation; Capacity........................................................... 16 8.2 Power and Authority............................................................... 16 8.3 General Partners.................................................................. 16 8.4 Validity and Binding Effect of Bank Loan Documents................................ 17 8.5 Validity and Binding Effect of Collateral Loan Documents.......................... 17 8.6 Validity and Binding Effect of Tenant Leases...................................... 17 8.7 No Conflict....................................................................... 17 8.8 Other Agreements.................................................................. 17 8.9 No Conditional Default or Event of Default........................................ 17 8.10 Default Under the Collateral Loan Documents....................................... 17 8.11 Senior Loan Balances and Collateral Loan Balances................................. 18 8.12 Default Under the Senior Loan Documents........................................... 18 8.13 Tenant Leases..................................................................... 18 8.14 Senior Loans and Tenant Leases.................................................... 18 8.15 No Litigation or Investigations................................................... 18
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8.16 Information....................................................................... 18 8.17 Title Aspects..................................................................... 18 8.18 Government Approvals.............................................................. 19 8.19 Security Interests................................................................ 19 8.20 Mortgages......................................................................... 19 8.21 Insurance......................................................................... 19 8.22 Solvency ......................................................................... 19 8.23 Hazardous Substances.............................................................. 19 ARTICLE IX DEFAULTS AND REMEDIES 9.1 Events of Default................................................................. 19 9.2 Remedies ......................................................................... 21 9.3 Notice of Sale.................................................................... 23 ARTICLE X MISCELLANEOUS 10.1 Modifications, Amendments or Waivers.............................................. 23 10.2 No Implied Waivers; Cumulative Remedies; Writing Required......................... 23 10.3 Reimbursement and Indemnification of Bank by Borrower; Impositions................ 23 10.4 Holidays ......................................................................... 24 10.5 Participation and Assignment of the Loan by Bank.................................. 24 10.6 Notices ......................................................................... 24 10.7 Severability...................................................................... 25 10.8 Governing Law..................................................................... 25 10.9 Prior Understanding............................................................... 25 10.10 Duration; Survival................................................................ 25 10.11 Successors and Assigns............................................................ 26 10.12 Joint and Several Liability....................................................... 26 10.13 Counterparts...................................................................... 26 10.14 Exceptions........................................................................ 26 10.15 Jurisdiction, etc................................................................. 26 10.16 Waiver of Jury Trial.............................................................. 26 10.17 No Third Parties Benefited........................................................ 26 10.18 Authority to File Notices......................................................... 27 10.19 Interpretation.................................................................... 27 10.20 Status of Parties................................................................. 27 10.21 Brokerage Fee..................................................................... 27
iii LOAN AGREEMENT THIS LOAN AGREEMENT (this "Agreement") is made as of the _____ day of April, 2004, by and between DVL, INC. ("DVL"), a Delaware corporation, and DVL Mortgage Holdings, LLC ("DVL Holdings"), a Delaware limited liability company (DVL and DVL Holdings hereinafter sometimes are referred to collectively as "Borrower") and PENNSYLVANIA BUSINESS BANK, a Pennsylvania State banking association ("Bank"). WITNESSETH THAT: WHEREAS, Borrower has requested and applied to Bank for the Loan in order to refinance the costs for the acquisition of the Collateral Loans and certain costs related thereto, and to provide funds for capital investments, and Bank is willing to make the Loan on the terms and conditions hereinafter set forth. NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, and intending to be legally bound hereby, the parties hereby covenant and agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINITIONS. As used herein, and in the schedules and exhibits attached hereto, the following terms shall have the following meanings: "Affiliates" shall mean any Person controlled, controlling or under common control with such affiliated Person. Control shall mean the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise. "Assignments of Leases and Rents" shall mean those assignments of leases and rents set forth on Schedule I hereto, and all amendments and modifications thereof, which secure the Collateral Notes and which have been acquired by Borrower this day and collaterally assigned to Bank as security for the Loan. "Bank" shall mean Pennsylvania Business Bank, a Pennsylvania banking corporation, and its successors and assigns. "Bank Debt" shall mean all obligations, liabilities and indebtedness of Borrower to Bank, its successors and assigns, evidenced by, arising under or relating to Bank Loan Documents, whether as principal, guarantor, surety or otherwise, direct or indirect, secured or unsecured, joint and/or several, absolute or contingent, due or not due, matured and unmatured, original, renewed, extended, refinanced or replaced, now existing or hereafter incurred or created, consensual or created by law, and including principal (whether resulting from advances made by Bank or from indebtedness purchased by Bank), interest, yield protection payments, premiums, fees, expenses (including collection expenses), taxes, charges, commissions and attorneys' fees, including indemnification 1 obligations of Borrower with respect to any claims that may be made against Bank whether arising before or after payment of Bank Debt or any assignment of Bank Debt, and including all obligations, liabilities and indebtedness of Borrower to Bank incurred or arising after the commencement of any case by or against Borrower under the U.S. Bankruptcy Code, specifically including any post-petition interest or advances. "Bank Loan Documents" shall mean this Agreement, the Note, the Collateral Assignment Documents, the Environmental Indemnity Agreement, the St. Albans Mortgage and all other guaranties, security agreements, documents, instruments, certificates and agreements now or hereafter executed and/or delivered to Bank in connection with the Loan, as the same may be amended, modified, restated, refinanced, extended, restructured, converted, increased, replaced or supplemented from time to time. "Borrower" shall mean, collectively, jointly and severally, DVL, Inc., a Delaware corporation, DVL Mortgage Holdings, LLC, a Delaware limited liability company, and their respective successors and permitted assigns. "Borrower Documents" shall mean all articles of incorporation, by-laws, authorizing resolutions, and organizational or governing documents of either DVL or DVL Holdings, all amendments, and all consents, certificates and agreements issued or entered into in respect to any of the foregoing. "Business Day" shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Philadelphia, Pennsylvania. "Collateral" shall mean the Collateral Loan Documents as collaterally assigned and pledged by the Collateral Assignment Documents and all other security pledged or otherwise provided pursuant to this Agreement, the Collateral Assignment Documents or any of the other Bank Loan Documents. "Collateral Assignments of Assignments of Leases and Rents" shall mean those certain Collateral Assignments of Assignments of Leases and Rents dated this date and executed and delivered by Borrower pursuant to which Borrower has collaterally assigned and pledged to Bank the Collateral Assignments of Leases and Rents, as the same may be amended or modified. "Collateral Assignment Documents" shall mean the Collateral Assignment and Pledge Agreement, the Note Allonges, the Collateral Assignments of Mortgages, and the Collateral Assignments of Assignments of Leases and Rents, as the same may be amended, replaced or supplemented from time to time. "Collateral Assignment and Pledge Agreement" shall mean that certain Pledge, Collateral Assignment and Security Agreement dated this date and executed and delivered by Borrower pursuant to which Borrower has collaterally assigned and pledged to Bank the Collateral Loan Documents, as the same may be amended or modified. 2 "Collateral Assignments of Mortgages" shall mean those certain Collateral Assignments of Mortgage dated this date and executed and delivered by Borrower pursuant to which Borrower has collaterally assigned and pledged to Bank the Collateral Mortgages. "Collateral Borrowers" shall mean the maker, and its successors and assigns, of each of the Collateral Notes. "Collateral Loan Documents" shall mean the Collateral Notes, the Mortgages, the Collateral Assignments of Leases and Rents and any and all other documents, agreements or instruments evidencing, securing or otherwise pertaining to the Collateral Loans. "Collateral Loans" shall mean the loans evidenced by the Collateral Notes. "Collateral Notes" shall mean those promissory notes set forth on Schedule II hereto, and all amendments and modifications thereof, which have been acquired by Borrower on or about this day and which have been collaterally assigned to Bank as security for the Loan. "Conditional Default" shall mean an event or condition which, with the passage of time or the giving of notice, or both, would become an Event of Default. "Default Rate" shall have the meaning assigned to it in SECTION 3.2 hereof. "Environmental Indemnity Agreement" shall mean that certain Environmental Indemnity Agreement of even date from Borrower to Lender with respect to all properties encumbered by any of the Mortgages or the St. Albans Mortgage. "Event of Default" or "Events of Default" shall have the meaning assigned to those terms in SECTION 9.1 hereof. "GAAP" shall mean generally accepted accounting principles as are in effect from time to time, applied on a consistent basis both as to classification of items and amounts. "Governmental Approvals" shall mean all consents, licenses, permits and all other authorizations or approvals required with respect to the use and occupancy of the Improvements. "Guarantor" shall mean, individually and collectively, any guarantor, surety, endorser, or any other party now or hereafter liable with respect to the Loan or any of Borrower's obligations thereunder. "Hazardous Substances" shall mean any substances, chemicals, materials or elements that are prohibited, limited or regulated by any Law, or any other substances, 3 chemicals, materials or elements that are defined as "hazardous" or "toxic," or otherwise regulated, under any Law, or that are known or considered to be harmful to the health or safety of occupants or users of the Properties. The term Hazardous Substances shall also include any substance, chemical, material or element (i) defined as a "hazardous substance" under the Comprehensive-Environmental Response, Compensation and Liability Act of 1980 ("CERCLA") (42 U.S.C. ss.ss. 9601, ET SEQ.), as amended by the Superfund Amendments and Reauthorization Act of 1986, and as further amended from time to time, and regulations promulgated thereunder, (ii) defined as a "regulated substance" within the meaning of Subtitle I of the Resource Conservation and Recovery Act (42 U.S.C. ss.ss. 6991-69911), and regulations promulgated thereunder; (iii) designated as a "hazardous substance" pursuant to Section 311 of the Clean Water Act (33 U.S.C. ss. 1321), or listed pursuant to Section 307 of the Clean Water Act (33 U.S.C. ss. 1317); (iv) defined as "hazardous", "toxic", or otherwise regulated, under any Law or by any Federal, state or local agency or political subdivision, including,; (v) which is petroleum, petroleum products or derivatives or constituents thereof; (vi) which is asbestos or asbestos-containing materials; (vii) the presence of which requires notification, investigation or remediation under any Laws or common law; (viii) the presence of which on the Properties causes or threatens to cause a nuisance upon any of the Properties or to adjacent properties or poses or threatens to pose a hazard to the health or safety of persons on or about any of the Properties; (ix) the presence of which on adjacent properties would constitute a trespass; (x) which is urea formaldehyde foam insulation or urea formaldehyde foam insulation-containing materials; (xi) which is lead base paint or lead base paint-containing materials; (xii) which are polychlorinated biphenyls or polychlorinated biphenyl-containing materials; (xiii) which is radon or radon-containing or producing materials; or (xiv) which by any laws of any governmental authority requires special handling in its collection, storage, treatment, or disposal. "Impositions" shall mean all (i) real estate and personal property taxes and other taxes and assessments, water and sewer rates and charges and all other governmental charges and any interest or costs or penalties with respect thereto and charges for any easement or agreement maintained for the benefit of any of the Properties, general and special, ordinary and extraordinary, foreseen and unforeseen, of any kind and nature whatsoever which at any time may be assessed, levied or imposed upon the Properties, or the rent or income received therefrom, or any use or occupancy thereof, and (ii) other taxes, assessments, fees and governmental charges levied, imposed or assessed upon or against the Properties. "Improvements" shall mean all improvements now or hereafter located on any of the Land. "Indebtedness" shall mean any and all indebtedness, obligations, or liabilities (whether matured or unmatured, liquidated or unliquidated, direct or indirect, absolute or contingent, or joint or several) of any nature whatsoever. "Insolvency Proceedings" shall mean an action or proceeding seeking any reorganization, arrangement, composition, readjustment, liquidation or other similar relief 4 under the U.S. Bankruptcy Code or any present or future statute, law or regulation, or any proceedings for voluntary liquidation, dissolution or other winding up, or the appointment of any trustee, receiver, liquidator or conservator or similar official (whether in a proceeding or otherwise), or any assignment for the benefit of creditors or any marshalling of assets. "Interest Payment Date" shall mean each date specified for the payment of interest in Section 3.4 hereof. "Land" shall mean the land and other real property and appurtenants thereto which are encumbered by the Mortgages or the St. Albans Mortgage. "Law" shall mean any law (including common law), constitution, statute, treaty, regulation, rule, ordinance, order, injunction, writ, decree or award of any Official Body. "Loan" shall mean the loan to be made by Bank pursuant to this Agreement in the principal amount of One Million Four Hundred and Fifty Thousand Dollars ($1,450,000). "Loan Fee" shall have the meaning assigned to it in SECTION 6.1 (d). "Material Adverse Change" shall mean any set of circumstances or events which (a) has or could reasonably be expected to have any material adverse effect whatsoever upon the validity or enforceability of this Agreement, any other Bank Loan Document or any of the Collateral Loan Documents, (b) impairs materially or could reasonably be expected to impair materially the ability of Borrower or St. Albans to duly and punctually pay or perform its obligations under any of the Bank Loan Documents or to enforce, or realize the benefits of, the Collateral Loan Documents, (c) impairs materially or could reasonably be expected to impair materially the ability of Bank to enforce its legal remedies pursuant to this Agreement or any other Bank Loan Document, or (d) impairs materially or could reasonably be expected to impair materially the value of the Collateral Loans or the Properties. "Maturity Date" shall have the meaning assigned to it in SECTION 2.3 hereof. "Mortgages" shall mean those mortgages set forth on Schedule III hereto, and all amendments and modifications thereof; which secure the Collateral Notes and which have been acquired by Borrower on or about this day and collaterally assigned to Bank as security for the Loan. "Note" shall mean that certain Promissory Note, of even date herewith, given by Borrower to Bank in a face amount equal to the Loan, as amended, renewed, replaced or supplemented from time to time. "Note Allonges" shall mean those certain allonges by which Borrower has endorsed over to Bank the Collateral Notes. 5 "Official Body" shall mean any national, federal, state, local or other government or political subdivision or any agency, authority, bureau, central bank, commission, department or instrumentality of either, or any court, tribunal, grand jury or arbitrator, in each case whether foreign or domestic. "Prime Rate" shall mean the interest rate per annum as the "Prime Commercial Rate" in the Money Rates section of the Wall Street Journal (or any successor publication, or if such publication ceases to exist or ceases to report such rate, a rate of interest as is reasonably determined by Bank (which determination shall be conclusive absent manifest error) and publicly announced by Bank from time to time as its prime rate of interest), which interest rate is not necessarily the most favorable interest rate offered by Bank. "Principal Office" shall mean the main banking office of Bank in Philadelphia, Pennsylvania. "Properties" shall mean the Land and the Improvements. "Senior Loans" shall mean any and all loans which are secured by Senior Mortgages. "Senior Lender" shall mean the lender under or holder of a Senior Loan. "Senior Loan Documents" shall mean the Senior Mortgages and any and all other documents, agreements or instruments evidencing, securing or delivered in connection with the Senior Loans. "Senior Mortgages" shall mean any and all mortgages on the Properties which mortgages are senior in lien priority to the Mortgages and which mortgages are set forth in the Title Policies. "Solvent" shall mean, with respect to any party on a particular date, that on such date (i) the fair value of the property of such party is greater than the total amount of liabilities, including, without limitation, contingent liabilities, of such party, (ii) the present fair market value of the assets of such party is not less than the amount that will be required to pay the probable liability of such party on its debts as they become absolute and matured, (iii) such party is able to realize upon its assets and pay its debts and other liabilities, contingent obligations and other commitments as they mature in the normal course of business, and (iv) such party does not intend to, and does not believe that it will, incur debts or liabilities beyond such party's ability to pay such debts and liabilities as they mature. "St. Albans" shall mean Saint Albans Associates, a Pennsylvania Limited Partnership. 6 "St. Albans Mortgage" shall mean that certain first Mortgage of even date from St. Albans to Bank encumbering certain land located at 21 Lower Newton Street, St. Albans, Franklin County, Vermont, as more fully described in the St. Albans Mortgage. "Tenants" shall mean any and all lessees, tenants or occupants, now or hereafter, of the Improvements or any portion thereof. "Tenant Leases" shall mean those leases set forth on Schedule IV hereto pursuant to which a Tenant leases, occupies or licenses the Improvements or any portion thereof. "Term" shall have the meaning assigned to that term in SECTION 2.3 hereof. "Title Policies" shall mean the title policies insuring the lien priority of the Mortgages and naming Bank as an insured party pursuant to the Collateral Assignments of Mortgages, which Title Policy shall be in form and substance, and issued by a title company, reasonably satisfactory to Bank. "Uniform Commercial Code" shall mean the Uniform Commercial Code as enacted in each applicable jurisdiction. 1.2 CONSTRUCTION. All references to article or section numbers shall refer to this Agreement, unless otherwise stated. The above recitals are hereby made a part of this Agreement. 1.3 ACCOUNTING PRINCIPLES. Except as otherwise provided in this Agreement, all accounting or financial terms shall have the meanings ascribed to such terms by GAAP. ARTICLE II AGREEMENT TO LEND 2.1 AGREEMENT TO LEND. Subject to and conditioned upon the terms, provisions and conditions contained in this Agreement and the other Bank Loan Documents and in reliance upon the representations and warranties set forth herein, Bank agrees to advance the Loan to Borrower. 2.2 THE NOTE. The Loan shall be evidenced by the Note, and the Loan shall bear interest calculated and payable as provided in Article III below. 2.3 TERM. The term of the Loan (the "Term") shall commence as of the date hereof and shall terminate on May 1, 2009 (the "Maturity Date"). Borrower shall pay the outstanding principal of the Loan and all unpaid interest accrued on the Loan in full on the Maturity Date. The unpaid amounts of the Loan, as set forth on the books and records of Bank or other holders of the Note maintained in the ordinary course of business shall be presumptive evidence of the principal amount thereof owing and unpaid, absent manifest error, but the failure to record any such amount on the books and records shall not limit or 7 affect the obligations of Borrower hereunder or under the Note to make payments of principal and interest on the Loan when due. ARTICLE III LOAN INTEREST. PAYMENTS AND FEES 3.1 INTEREST RATE. Borrower shall pay interest in respect of the outstanding unpaid principal amount of the Loan at a per annum rate equal to the Prime Rate, as it may change from time to time, plus one and one half percent (1.50%) but in no event less than six percent (6%). Bank's determination, made generally in accordance with its determinations applicable on loans similar to the Loan, of a rate of interest and any change therein shall, in the absence of manifest error, be presumed correct and binding upon all parties hereto. If at any time the designated rate applicable to any portion of the Loan made by Bank exceeds the highest lawful rate, the rate of interest on the Loan shall be limited to the highest lawful rate. 3.2 DEFAULT INTEREST; LATE PAYMENT CHARGE. To the extent permitted by law, upon the occurrence and during the continuation of any Event of Default, Borrower shall pay interest on the entire principal amount of the Loan then outstanding and all other sums due under the Loan, at a rate per annum equal to the interest rate then in effect pursuant to Section 3.1 above plus five percent (5%) (the "Default Rate"). The rate of interest payable under this SECTION 3.2 shall accrue before and after any judgment has been entered. In addition, Borrower shall pay a late payment charge equal to five percent (5%) of the amount of any payment due under the Loan which is not received by Bank within ten (10) days after the date such payment is due. Borrower acknowledges that the increased interest rate and the late payment charge provided for herein reflect, among other things, the fact that the Loan has become a substantially greater risk given its default status and that Bank is entitled to additional compensation for such risk. 3.3 PAYMENTS. All payments and prepayments to be made in respect of principal, interest or other amounts due from Borrower hereunder (including amounts to be advanced from the proceeds of the Loan pursuant to SECTION 6.1 hereof), shall be payable prior to 12:00 Noon Philadelphia time on the date when due without presentment, demand, protest or notice of any kind except as otherwise required by Bank Loan Documents, all of which are hereby expressly waived by Borrower, and without setoff, counterclaim or other deduction of any nature, and an action therefor shall immediately accrue, subject, nevertheless, to any grace and cure periods provided in this Agreement and applicable thereto. Such payments shall be made to Bank at the Principal Office in U.S. Dollars and in immediately available funds. 3.4 INTEREST PAYMENT DATES. Interest on the Loan shall be due and payable in arrears on the first (1st) day of each month, beginning on June 1, 2004, and also on the Maturity Date or any earlier date to which payment of the Note has been accelerated. Interest on the outstanding principal balance of the Loan shall be billed to Borrower as provided in the Note. 8 3.5 MANDATORY AMORTIZATION. (a) Mandatory payments on account of principal of the Loan shall be due and payable as follows: (i) Borrower shall make monthly payments of principal in the amount of $24,166.67 on the first (1st) day of each month, commencing on June 1, 2004 and ending on the Maturity Date. If not earlier paid, all outstanding principal and interest under the Loan shall be due and payable on the Maturity Date. (b) As additional payments to be applied to principal outstanding under the Loan, Borrower shall remit or cause to be remitted to Bank, within three (3) days of receipt, any and all amounts paid on account of principal outstanding under any of the Collateral Loans which are in excess of the regularly scheduled monthly payments made by, or on behalf of, the Collateral Borrower under such Collateral Loans including, without limitation, any repayment in full of any of the Collateral Loans. 3.6 OPTIONAL PREPAYMENTS. Borrower shall have the right at its option from time to time to make permanent prepayments of the Loan in whole or part without premium or penalty. 3.7 INCREASED COSTS OR REDUCED RETURN. If any Law, guideline or interpretation or any change in any Law, guideline or interpretation or application thereof by any Official Body charged with the interpretation or administration thereof or compliance with any request or directive (whether or not having the force of Law) of any central bank or other Official Body: (a) subjects Bank, its holding company or any of their respective assets to any tax or charge with respect to this Agreement, the Note or payments by Borrower of principal, interest, or other amounts due from Borrower hereunder or under the Note (except for taxes, including any franchise tax, on the overall net income of Bank), (b) imposes, modifies or deems applicable any reserve, special deposit, allocation of capital or similar requirement (including, without limitation, Regulation D of the Board of Governors of the Federal Reserve System) against credits or commitments to extend credit extended by, or assets (funded or contingent) of, deposits with or for the account of, or other acquisition of funds by, Bank or its holding company, or (c) imposes, modifies or deems applicable any capital adequacy or similar requirement (A) against assets (funded or contingent) of, or credits or commitments to extend credit extended by, Bank or its holding company, or (B) otherwise applicable to the obligations of Bank under this Agreement, and the result of any of the foregoing is to increase the actual cost to, reduce the actual income receivable by, or impose any actual expenses (including loss of margin) upon Bank with respect to this Agreement, the Note, or the making, maintenance or funding of any part of the Loan (or, in the case of any capital adequacy or similar requirement, to have the effect of reducing the rate of return on Bank's capital, taking into consideration Bank's customary policies with respect to capital adequacy) by an amount which Bank in its reasonable discretion deems to be material, 9 and, provided such cost, reduction in income, or expense affects other loans similar to the Loan and Bank generally requires compensation similar to the compensation provided herein to be paid on such similar loans, Bank may from time to time notify Borrower of the amount determined in good faith (using any averaging and attribution methods employed in good faith) by Bank to be necessary to compensate Bank for such increase in cost, reduction of income or additional expense. Such notice shall be delivered within three (3) months of the date Bank becomes aware of the increased costs or reduced return and shall set forth in reasonable detail the basis for such determination. Such amount shall be due and payable by Borrower to Bank within twenty (20) days following receipt of such notice; provided, that, if within such twenty (20) day period, Borrower gives notice that it intends to repay in full the Loan and all other sums owing under this Loan Agreement, the Note and the other Bank Loan Documents and Borrower does in fact make such full repayment within ninety (90) days of Bank's original notice, no additional compensation under this Section 3.7 shall be required. 3.8 APPLICATION OF PREPAYMENTS. All prepayments permitted pursuant to SECTION 3.6 shall be applied in the following order: first, to the payment of any outstanding fees, expenses or other charges due to Bank; second, to accrued and unpaid interest due on the Loan; and third, to the principal amount of the Loan. 3.9 RECEIPT OF PAYMENT. Subject to the rights of the Senior Lenders, Borrower hereby acknowledges and agrees that it is intended that Bank shall receive directly all payments made by the Tenants under the Tenant Leases and the Collateral Borrowers under the Collateral Loans, such payments to be applied to interest and principal under the Loan in accordance with the terms hereof. Borrower shall take all actions necessary to cause such payments to be sent to Bank including the giving by Borrower of any necessary notices. ARTICLE IV AFFIRMATIVE COVENANTS Borrower hereby covenants and agrees that, from the date hereof and until all Bank Debt has been paid in full and all other obligations hereunder shall have been performed and discharged, it will comply (and will cause St. Albans to comply) with each of the following covenants: 4.1 PRESERVATION OF EXISTENCE. DVL shall maintain its existence as a corporation under the laws of the State of Delaware. DVL Holdings shall maintain its existence as a limited liability company under the laws of the State of Delaware. St. Albans shall maintain its existence as a limited partnership under the laws of the Commonwealth of Pennsylvania. 4.2 PAYMENT OF LIABILITIES. Borrower (and St. Albans) shall duly pay and discharge all liabilities to which it is subject or which are asserted against it, prior to the date when any fine, late charge or other penalty for late payment may be imposed, except to the extent that such liabilities are being contested in good faith and by appropriate and 10 lawful proceedings diligently conducted. Borrower shall cause the Collateral Borrowers to duly pay and discharge all liabilities to which any of them or the Properties are subject or which are asserted against it or the Properties, prior to the date when any fine, late charge or other penalty for late payment may be imposed, except to the extent that such liabilities are being contested in good faith and by appropriate and lawful proceedings diligently conducted. 4.3 COMPLIANCE WITH LAWS. Borrower shall comply with, and shall cause St. Albans and each of the Collateral Borrowers to comply with, all applicable Laws in all respects, provided that Borrower shall not be deemed to be in violation of this SECTION 4.3 if any failure to comply with any Law (a) would not result in fines, penalties, other similar liabilities or injunctive relief, the imposition of which would result in a Material Adverse Change and (b) would not materially adversely affect the Collateral or the validity of the Loan, any of Bank Loan Documents, the Collateral Loan or any of the Collateral Loan Documents. 4.4 KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Borrower shall, and shall cause St. Albans and each of the Collateral Borrowers to, maintain and keep proper books of record and account, which enable it to issue financial statements and reports in accordance with SECTION 7.1 and in which full, true and correct entries shall be made in all material respects of all of its dealings and business and financial affairs. 4.5 VISITATION RIGHTS. Borrower shall permit any of the officers or authorized employees or representatives of Bank to, as often as Bank may reasonably request, with reasonable notice, at Bank's expense and at such reasonable times, to examine, copy and make excerpts from its books and records. Borrower shall cause St. Albans to comply with the preceding sentence as to the books and records of St. Albans. 4.6 SUBORDINATION OF AFFILIATE LOANS AND ADVANCES TO BORROWER. Borrower shall cause any Indebtedness between it and any and all of the Collateral Borrowers and/or St. Albans to be subordinated to the Loan, Bank Loan Documents, the Collateral Loans and the Collateral Loan Documents. Notwithstanding the preceding sentence, Borrower shall, in the normal course of its business as general partner of the Collateral Borrowers, be permitted, from time to time, to make, and receive payment on, loans to the Collateral Borrowers, provided, that such outstanding loans shall not exceed $10,000 to any one of the Collateral Borrowers and payment shall be suspended and subordinated to the Loan upon the occurrence of an Event of Default. 4.7 PERFORMANCE OF OBLIGATIONS. Borrower and St. Albans shall duly pay, perform and discharge all of its obligations hereunder and under the other Bank Loan Documents and with respect to the Collateral Loans. Borrower shall cause each of the Collateral Borrowers to duly pay, perform and discharge all of the Collateral Borrower's obligations under the Collateral Loan Documents and the Senior Loan Documents. 4.8 ENFORCEMENT OF THE COLLATERAL LOAN DOCUMENTS. Borrower shall enforce, and preserve all of its rights under, the Collateral Loan Documents in accordance with their 11 terms subject to the right of Bank hereunder. In the event Borrower becomes aware of a default under the Collateral Loan Documents, Borrower shall promptly provide Bank with written notice of such default. 4.9 NOTICES. Borrower shall promptly provide Bank with written notice of the occurrence of a default under any of the Tenant Leases or any of the Senior Loan Documents. 4.10 FURTHER ASSURANCES. Borrower and St. Albans shall, from time to time, at its expense, faithfully preserve and protect Bank's lien on and security interest in the Collateral as continuing first priority perfected liens, and shall take such other action as Bank may reasonably deem necessary or advisable from time to time in order to preserve, perfect and protect the liens granted under the Collateral Documents, to exercise and enforce Bank's rights and remedies thereunder and with respect to the Collateral and to carry out the terms of this Agreement and the other Bank Loan Documents. Borrower shall, from time to time, at its expense, cause the Collateral Borrowers to take such action as Bank may reasonably deem necessary or advisable from time to time in order to preserve, perfect and protect the liens granted under the Collateral Loan Documents, to exercise and enforce Borrower or Bank's rights and remedies under the Collateral Loan Documents and with respect to the Collateral Loans and to carry out the terms of this Agreement, the other Bark Loan Documents and the Collateral Loan Documents. 4.11 ESTOPPEL CERTIFICATES. At any time or times, within ten (10) Business Days after written demand by Bank therefor, Borrower shall deliver to Bank a certificate duly executed and in form satisfactory to Bank, stating and acknowledging the then unpaid principal balance of, and interest due and unpaid under, the Loan, the fact that there are no defenses, offsets or counterclaims thereto (or, if such should not be the fact, then the facts and circumstances relating to such defenses, off sets or counterclaims) and such other matters as Bank may reasonably require. At anytime or times, within ten (10) Business Days after written demand by Bank therefor, Borrower shall deliver to Bank a certificate duly executed by each of the Collateral Borrowers in form satisfactory to Bank, stating and acknowledging the then unpaid principal balance of, and interest due and unpaid under, each of the Collateral Loans, the fact that there are no defenses, off-sets or counterclaims thereto (or, if such should not be the fact, then the facts and circumstances relating to such defenses, off sets or counterclaims) and such other matters as Bank may reasonably require. Within forty-five (45) days of the date hereof and from time to time within ten (10) Business Days after written demand by Bank therefor, Borrower shall endeavor to deliver to Bank a certificate duly executed by each of the Tenants in form satisfactory to Bank, but in accordance with the form required to be given by each of the Tenants under its Tenant Lease, stating and acknowledging the date through which rent is paid under, and the remaining term of, its Tenant Lease, the fact that there are no defenses, off sets or counterclaims thereto or defaults on the part of the Collateral Borrower thereunder (or, if such should not be the fact, then the facts and circumstances relating to such defenses, off sets, counterclaims or defaults) and such other matters as Bank may reasonably require; provided, that the failure by Borrower to provide such certificate from one or more of the 12 Tenants shall not constitute an Event of Default if Borrower has exercised diligent good faith efforts to obtain such certificates. 4.12 INSPECTION. Borrower shall endeavor, in good faith, to provide, or cause to be provided, to Bank, or its designees, access to the Properties upon the reasonable request of Bank Prior to the occurrence of an Event of Default hereunder, the cost of all such inspections shall be at the reasonable expense of Borrower. 4.13 ACCOUNTS. Borrower and any Guarantor shall maintain with the Bank at all times during the Term deposit accounts having an aggregate balance in an amount equal to at least five percent (5%) of the sum, from time to time, of the balance outstanding under the Loan plus the balance outstanding under all other loans made by Bank to Borrower or to any affiliate of Borrower or any Guarantor . ARTICLE V NEGATIVE COVENANTS Borrower hereby covenants and agrees that, from the date hereof and until Bank Debt has been paid in full and all other obligations hereunder shall have been performed and discharged, it will comply with each of the following negative covenants: 5.1 CHANGES IN ORGANIZATIONAL DOCUMENTS. Borrower shall not amend or modify, or permit any material, non-administrative amendment or modification of; in any respect, any of the Borrower Documents to the extent the same would result in a Material Adverse Change. In addition, Borrower shall provide to Bank copies of any and all amendments or modifications to Borrower Documents. 5.2 TRANSFER OF THE COLLATERAL. Borrower shall not, voluntarily or by operation of law, directly or indirectly, sell, convey, transfer, assign, pledge, encumber, or permit to be sold, conveyed, transferred, assigned, pledged or encumbered any interest, whether nominal, beneficial or otherwise in or any part of the Collateral. Any prohibited transaction under this SECTION 5.2 shall be null and void. Bank shall not be under any obligation to allege or show any impairment of the Collateral, and Bank may pursue any legal or equitable remedies for default without such allegation or showing, notwithstanding the foregoing. 5.3 LIQUIDATION OR DISSOLUTION OR TRANSFER OF INTEREST IN BORROWER. Borrower shall not liquidate or dissolve nor shall any portion of the ownership interest in Borrower be transferred, assigned, pledged or encumbered. 5.4 TRANSFER OF THE PROPERTIES OR OWNERSHIP INTEREST IN THE COLLATERAL BORROWERS. Borrower shall not authorize, permit or allow (i) the Properties or any of them to be sold, conveyed, transferred, assigned, pledged or encumbered except for the Senior Mortgages and the Mortgages, whether nominal, beneficial or otherwise or (ii) its general partnership interest or its limited partnership interest, if any, in the Collateral Borrowers to be sold, conveyed, transferred, assigned, pledged or encumbered. Any prohibited 13 transaction under this SECTION 5.5 shall be null and void. Bank shall not be under any obligation to allege or show any impairment of the Properties, the Collateral Loan Documents or the Collateral, and Bank may pursue any legal or equitable remedies for default without such allegation or showing, notwithstanding the foregoing. 5.5 BREACH OF DOCUMENTS. Borrower shall not commit any act, or permit any act to occur, which would, in any manner, give rise to a breach of any term, covenant or condition under any of Bank Loan Documents, the Collateral Loan Documents or any other contract to which Borrower is a party or by which it is bound. 5.6 JUDGMENTS. Borrower shall not permit any judgment obtained against it in an amount exceeding $50,000 to remain unpaid for a period of thirty (30) days following the entry - thereof without obtaining a stay of execution or causing such judgment to be bonded 5.7 CREATION OF LIENS. Borrower shall not, whether voluntarily or involuntarily, create, incur, assume or suffer to exist or be created, or permit any pledge of, or any deed of trust, mortgage, lien, charge, security interest or encumbrances of any nature with respect to the Collateral, or assign, pledge or in any way transfer or encumber its rights to receive income from the Collateral, except for Bank Loan Documents. 5.8 MATERIAL ADVERSE CHANCE. Borrower shall not take any action which would result in a Material Adverse Change. 5.9 COLLATERAL LOAN DOCUMENTS. Borrower shall not amend, modify, replace or extend any of the Collateral Loan Documents or any of the obligations of the Collateral Borrowers thereunder nor shall Borrower release, enforce or file suit with respect to any obligation on the part of the Collateral Borrower without the prior written consent of Bank, which consent shall not be unreasonably withheld. 5.10 PUBLICITY. Borrower shall not without the prior written consent of Bank (which consent may be withheld at Bank's sole discretion) allow, cause or otherwise permit any publicity, advertisement or other public notice of the Loan or the matters described herein, unless Borrower in its good faith discretion, believes that such publicity, advertisement or other public notice is required by law. ARTICLE VI CONDITIONS PRECEDENT AND DISBURSEMENT MATTERS 6.1 CONDITIONS PRECEDENT TO CLOSING. As a condition to Bank's obligation to close and fund the Loan and to proceed with the transactions contemplated herein, Borrower, at its expense, shall have satisfied, fulfilled or provided, to Bank's sole satisfaction, at or before the date hereof all of the conditions and items set forth below unless the satisfaction, fulfillment or provision thereof shall have been waived by Bank: 14 (a) No portion of the Property shall have been damaged by fire or other casualty and not repaired to the condition immediately prior to such casualty, and no condemnation or taking of the Property or any portion thereof shall be pending or threatened; (b) Bank shall have received all duly executed, and acknowledged if necessary, Bank Loan Documents, Borrower Documents and Collateral Documents, including originals of all of the Collateral Notes and all amendments and modification thereto, and all other documents to be delivered and/or executed by third parties shall have been delivered and/or executed, and all of the same shall be in form and substance acceptable to Bank; (c) The security interests in all personal property described in the Collateral Documents shall have been, subject to recording of any financing statements, duly perfected and shall constitute valid and enforceable first priority liens and security interests in such property, (d) A Loan Fee in the amount of $7,600.00 shall have been paid to Bank; (e) No Event of Default or Conditional Default shall have occurred and be continuing under this Agreement or any of the other Bank Loan Documents; (f) No default shall have occurred and be continuing under any of the Senior Loan Documents or any of the Tenant Leases; (g) Bank shall have received the most recent financial statements of Borrower as required by SECTION 7.1: (h) Bank shall have received a written opinion or opinions of counsel to Borrower addressed to Bank in form and scope satisfactory to Bank and its counsel; (i) Bank shall have received or be reimbursed for all of Bank's reasonable out-of-pocket expenses incurred in connection with the Loan, including, but not limited to, the reasonable fees and expenses of Bank's legal counsel; (j) All of the representations and warranties of Borrower as set forth in Article VIII hereof shall be true, correct and accurate in all material respects; Documents; (k) Bank shall have received, reviewed and approved the Collateral Loan (l) Bank shall have received commitments for the Title Policies; (m) Bank shall have received and reviewed all of the documents in connection with the acquisition of the Collateral Loan Documents by Borrower; 15 (n) Borrower and, if necessary, each of the Collateral Borrowers, shall have executed and delivered to Bank letters addressed to each of the Senior Lenders and/or the Tenants, as the case may be, directing payment to Bank of all sums to be paid by the Tenants under the Tenant Leases, subject to the rights of the Senior Lenders; and (o) Bank shall have received and reviewed such other materials and documents as Bank may reasonably require. 6.2 DISBURSEMENT PROCEDURES. Upon satisfaction of the requirements set forth in SECTION 6.1 hereof, Bank shall disburse the Loan, in a manner satisfactory to Bank, for payment towards the acquisition of the Collateral Loan Documents. 6.3 NOTE AND COLLATERAL DOCUMENTS. All advances of the Loan proceeds shall be evidenced by the Note and secured by the Collateral Documents. 6.4 NO OTHER RIGHTS. All conditions to the obligation of Bank to make advances hereunder are imposed solely and exclusively for the benefit of Bank and its assigns, and no other person shall have standing to require satisfaction of such conditions in accordance with their terms or be entitled to assume that Bank will make or not make advances in the absence of strict compliance with any or all thereof, and no other person shall, under any circumstances, be deemed to be a beneficiary of such conditions, any or all of which may be freely waived in whole or in part by Bank at any time if, in its sole discretion, it deems it advisable to do so. In no event shall any other party be deemed to be a beneficiary of the Loan that may be advanced to Borrower pursuant to the terms hereof or have any right to an accounting therefor. Bank shall not in anyway or for any purpose be deemed to be or to become a partner of or a joint venturer or a member of a joint enterprise with Borrower in connection with the ownership of the Collateral Loan Documents or the ownership, development or operation of the Properties or the Loan contemplated herein. ARTICLE VII REPORTING REQUIREMENTS 7.1 FINANCIAL REPORTS. Until Bank Debt is repaid in full, Borrower shall furnish or cause to be furnished to Bank within the time periods specified below, the following financial reports and information: (a) In the case of any Guarantor, as soon as available, but in no event later than thirty (30) days after filing, copies of all (i) quarterly 10Q reports filed with the Securities and Exchange Commission, (ii) annual I OK reports filed with the Securities and Exchange Commission and (iii) income tax returns and any requests for extensions thereof filed with the Internal Revenue Service; (b) In the case of Borrower, within sixty (60) days (i) after the end of each calendar year, a balance sheet and annual income and cash flow statements as of December 16 31 of such calendar year, and (ii) after filing, income tax returns and any requests for extensions thereof filed with the Internal Revenue Service; (c) Within fifteen (l5) days after receipts, all reports and materials submitted by the Collateral Borrowers to Borrower, and (d) Within a reasonable period after demand, such other information requested by Bank from time to time as reasonably deemed necessary or appropriate by Bank to evaluate the financial condition of Borrower, any Guarantor or any of the Collateral Loan Documents. ARTICLE VIII REPRESENTATIONS AND WARRANTIES Borrower hereby represents and warrants to Bank as follows, which representations and warranties shall be recertified to Bank with submission of the information set forth in Article VII: 8.1 DUE FORMATION; CAPACITY. DVL Holdings is a limited liability company duly formed and validly existing under the laws of the State of Delaware, and has full power and authority to own such of the Collateral Loan Documents as it presently owns and to conduct its affairs as now being conducted and as proposed to be conducted. One hundred percent (100%) of the ownership interest in DVL Holdings is owned by DVL. 8.2 POWER AND AUTHORITY. DVL is a corporation duly formed and validly existing under the laws of the State of Delaware, and has full power and authority to own such of the Collateral Loan Documents it presently owns. Each of DVL and DVL Holdings has full power and authority to enter into, execute, deliver and carry out this Agreement and the other Bank Loan Documents to which it is a party, and to perform its respective obligations hereunder and thereunder, and all such actions have been duly authorized by all necessary proceedings on its part. Each of DVL and DVL Holdings has obtained all consents and authorizations required for its existence and for their operation and ownership of the Collateral Loan Documents by any Law, Official Body, Borrower Documents or any other agreement or instrument to which it is bound 8.3 GENERAL PARTNERS. DVL is the sole general partner of each of the Collateral Borrowers. 8.4 VALIDITY AND BINDING EFFECT OF BANK LOAN DOCUMENTS. Borrower has duly and validly executed and delivered this Agreement and the other Bank Loan Documents to which it is a party. This Agreement and the other Bank Loan Documents constitute legal, valid and binding obligations of Borrower enforceable against it in accordance with their respective terms, except to the extent that enforceability of any of such documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally and general principles of equity 17 including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. 8.5 VALIDITY AND BINDING EFFECT OF COLLATERAL LOAN DOCUMENTS. The Collateral Borrowers have each duly and validly executed and delivered each of the Collateral Loan Documents to which it is a party. The Collateral Loan Documents constitute legal, valid and binding obligations of each of the Collateral Borrowers enforceable against each in accordance with their respective terms, except to the extent that enforceability of any of such documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally and general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. 8.6 VALIDITY AND BINDING EFFECT OF TENANT LEASES. Each of the Tenant Leases were duly and validly executed and delivered by each of the Tenants to which it is a party. The Tenant Leases constitute legal, valid and binding obligations of each of the Tenants enforceable against each in accordance with their respective terms, except to the extent that enforceability of any of such documents may be limited by bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforceability of creditors' rights generally and general principles of equity including, without limitation, concepts of materiality, reasonableness, good faith and fair dealing. 8.7 NO CONFLICT. Neither the execution and delivery of this Agreement or the other Bank Loan Documents nor the consummation of the transactions herein or therein contemplated or compliance with the terms and provisions hereof or thereof by them will conflict with, constitute a default under or result in any breach of (i) the terms and conditions of Borrower's Documents, (ii) any Governmental Approval or (iii) or any agreement or instrument to which Borrower is a party or is bound by any Law. 8.8 OTHER AGREEMENTS. Borrower is not a party to any agreement or instrument materially adversely affecting its present or proposed business, properties or assets, operation or conditions, financial or otherwise and Borrower has no actual knowledge that it is in default of the performance, observance, or fulfillment of any material obligation, covenant or condition set forth in any agreement or instrument to which it is a party. 8.9 NO CONDITIONAL DEFAULT OR EVENT OF DEFAULT. No Conditional Default has occurred and is continuing and no condition exists or will be caused by the disbursement of the Loan which will constitute a Conditional Default or an Event of Default. 8.10 DEFAULT UNDER THE COLLATERAL LOAN DOCUMENTS. No default on the part of any of the Collateral Borrower exists under the Collateral Loan Documents. 8.11 SENIOR LOAN BALANCES AND COLLATERAL LOAN BALANCES. The current principal amount outstanding under each of the Senior Loans and the Collateral Loans is as set forth on Schedule V hereto. The annual payments to be made under the Collateral Loan 18 Documents, after reduction for payments owing under the Senior Loans, are as set forth on Schedule VI hereto. 8.12 DEFAULT UNDER THE SENIOR LOAN DOCUMENTS. No default on the part of any of the Collateral Borrower exists under the Senior Loan Documents. 8.13 TENANT LEASES. Except for the Tenant Leases, there are no leases, occupancy agreements, licenses or other agreements pertaining to the leasing, occupancy or licensing of the Improvements, or any portion thereof. No default on the part of any of the Tenants or the Collateral Borrower exists under the Tenant Leases and the Tenant Leases remain in full force and effect binding on the Tenants in accordance with their terms. 8.14 SENIOR LOANS AND TENANT LEASES. The information with respect to the Senior Loans and the Tenant Leases as set forth on Schedule IV hereto is true, correct and complete. 8.15 NO LITIGATION OR INVESTIGATIONS. There is no pending or, to Borrower's knowledge, threatened litigation or governmental investigation (or any basis therefor known to Borrower) which questions the capacity, ability or authority of (i) Borrower to execute, deliver and perform the provisions of this Agreement or Bank Loan Documents or (ii) any of the Collateral Borrowers to have executed, delivered and perform the provisions of the Collateral Loan Documents. 8.16 INFORMATION. The information, financial statements and other financial data furnished by Borrower to Bank are true and correct in all material respects and, in the case of financial statements, present fairly the financial condition of Borrower in accordance with GAAP (if such information, financial statements and other information are required to be prepared in accordance with GAAP accounting pursuant to the terms hereof). All other information given to Bank with respect to Borrower, the Collateral Borrowers, the Guarantor and the Collateral Loans is accurate and correct in all material respects and is complete insofar as completeness may be necessary to give Bank a true and accurate knowledge of the subject matter. All surveys, plot plans and similar documents heretofore furnished by Borrower to Bank with respect to the Properties were, to Borrower's knowledge, accurate and complete in all material respects as of their respective dates and, to Borrower's knowledge, remain true and correct in all material respects as of the date hereof. Except as set forth on Schedules 1, II and III hereto, there are no documents or agreements pertaining to (i) the Collateral Loans, (ii) the Collateral Borrower's obligations under the Collateral Loans, or (iii) Borrower's obligations, rights and remedies with respect to the Collateral Loans. 8.17 TITLE ASPECTS. The Collateral Borrowers and St. Albans have clear and unencumbered title to the Properties owned by them, subject to only to the Senior Mortgages, the Mortgages and the other exceptions set forth in the Title Policies. 8.18 GOVERNMENTAL APPROVALS. To Borrower's knowledge, all Governmental Approvals are in full force and effect. 19 8.19 SECURITY INTERESTS. The liens and security interests granted or to be granted to Bank pursuant to this Agreement and the other Bank Loan Documents constitute and will continue to constitute valid perfected first priority security interests under the Uniform Commercial Code or other applicable Law, entitled to all the rights, benefits and priorities provided by the Uniform Commercial Code or any other Law, and the property secured thereby is subject to no other liens or encumbrances. Borrower authorizes Bank to file such UCC-1 Financing Statements as Bank deems necessary to perfect the security interests granted hereby and by the other Bank Loan Documents. 8.20 MORTGAGES. The liens and security interests granted to Borrower pursuant to the Collateral Mortgages and the other Collateral Loan Documents constitute and will continue to constitute valid perfected mortgage liens on the Properties and valid perfected security interests under the Uniform Commercial Code or other applicable Law on all personalty of the Collateral Borrowers located at the Properties, entitled to all the rights, benefits and priorities provided pursuant to the terms thereof and by the Uniform Commercial Code or any other Law, and the Properties secured thereby are subject to no other liens or encumbrances except as set forth on the Title Policies. 8.21 INSURANCE. All insurance policies and bonds to be furnished pursuant to the Leases and the Collateral Loan Documents have been famished and are valid and in full force and effect. No notice has been received by Borrower and, to Borrower's knowledge, no claim made and no grounds exist to cancel or void any of such policies or bonds or to reduce the coverage provided thereby. 8.22 SOLVENCY. Borrower and each of the Collateral Borrowers is Solvent as of the date of this Agreement. After giving effect to the transactions contemplated by Bank Loan Documents, including all indebtedness incurred thereby and the security interests granted and the payment of all fees related thereto, Borrower will be Solvent. 8.23 HAZARDOUS SUBSTANCES. To the best of Borrower's actual knowledge (without inquiry or investigation), there are no Hazardous Substances located or present at or about the Properties, or any portion thereof. ARTICLE IX DEFAULTS AND REMEDIES 9.1 EVENTS OF DEFAULT. The following shall be deemed to be Events of Default under this Agreement (whatever the reason therefor and whether voluntary, involuntary or affected by operation of Law): (a) Borrower or St. Albans shall (i) fail to pay the principal of the Loan at the Maturity Date or (ii) fail to make any other payment of principal (including the Mandatory Principal Payments), interest or any other amount owing hereunder or under the other Bank Loan Documents for five (5) business days after such payment became due and payable. 20 (b) Any representation or warranty made at any time by Borrower or St. Albans herein or in any other Bank Loan Document, or in any certificate, other instrument or written statement furnished to Bank pursuant to the provisions hereof or thereof, shall prove to have been false or misleading in any material and adverse respect as of the time it was made or furnished; (c) Borrower or St. Albans shall default in the performance or observance of any of the covenants set forth in SECTIONS 4.1 OR 4.3. (d) Borrower or St. Albans shall fail to comply with any covenant contained in this Agreement or any of the other Bank Loan Documents, other than those defaults referred to in the other subparagraphs of this SECTION 9.1. and shall not cure that failure within the period of time specified for such cure or, if no such period of time is specified, within thirty (30) days after written notice thereof by Bank to Borrower, or, if such failure can not be cured using diligent efforts in said thirty (30) day period, then such longer period of time as Bank determines to be reasonable under the circumstances, but in no event longer than ninety (90) days provided Borrower is diligently pursuing such cure. (e) Borrower or St. Albans or any of the Collateral Borrowers shall cease to be Solvent or shall be unable to pay its respective debts as the same shall mature or there shall be filed by or against (unless dismissed within sixty (60) days after any involuntary filing) Borrower, St. Albans or any of the Collateral Borrowers a petition in bankruptcy or a petition seeking the appointment of a receiver, trustee or conservator for Borrower, St. Albans or any of the Collateral Borrowers or any portion of their respective properties or seeking reorganization or to effect a plan or other arrangement with or for the benefit of creditors, or Borrower, or St. Albans or any of the Collateral Borrowers shall consent to the appointment of a receiver, trustee or conservator, (f) Any of Bank Loan Documents shall cease to be legal, valid and binding agreements enforceable against Borrower or any other party thereto in accordance with the material respective terms thereof or shall in any way be terminated (except in accordance with their terms) or any of Bank Loan Documents become or be judicially declared ineffective or inoperative or shall in any way cease to give or provide the respective liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby, (g) Any of the Collateral Loan Documents shall cease to be legal, valid and binding agreements enforceable against any of the Collateral Borrowers or any other party thereto in accordance with the material respective terms thereof or shall in any way be terminated (except in accordance with their terms) or any of the Collateral Loan Documents become or be judicially declared ineffective or inoperative or shall in any way cease to give or provide the respective liens, security interests, rights, titles, interests, remedies, powers or privileges intended to be created thereby; 21 (h) A default shall occur under any of the other Bank Loan Documents beyond the longer of any applicable notice or grace period contained therein or contained in this Loan Agreement; (i) A default on the part of any of the Collateral Borrowers shall occur under any of the other Collateral Loan Documents beyond any applicable notice or grace period contained therein but in no event beyond thirty (30) days; (j) A default on the part of any of the Collateral Borrowers shall occur under any of the other Senior Loan Documents beyond any applicable notice or grace period contained therein but in no event beyond thirty (30) days; (k) A default shall occur under any of the Tenant Leases on the part of any of the Tenants or on the part of any of the Collateral Borrowers beyond any applicable notice or grace period contained therein but in no event beyond thirty (30) days; (l) A Material Adverse Change shall have occurred; (m) Any party shall obtain an order or decree in any court of competent jurisdiction enjoining or prohibiting Bank, Borrower or St. Albans from carrying out the terms and conditions of any of Bank Loan Documents or any of the Collateral Loan Documents and such order or decree is not vacated or stayed within sixty (60) days after the filing thereof; (n) A judgment is entered in connection with any obligation, other than the Loan, in excess of $50,000 with respect to Borrower, St. Albans or any of the Collateral Borrowers and any such judgment remains unpaid for a period of thirty (30) days following the entry thereof without the obtaining of a stay of execution or causing such judgment to be bonded; (o) The Land or the Improvements, or any portion thereof, shall be sold without the prior written consent of Bank which consent shall be granted or conditioned at the sole discretion of Bank; or (p) Any Guarantor shall default under any of the Bank Loan Documents or any other obligation to Bank, and such default shall continue uncured after the expiration of all applicable notice and cure periods, if any. 9.2 REMEDIES. (a) If an Event of Default shall occur and be continuing, and without any notice to Borrower or any other act by Bank, at the election of Bank, the Note shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby waived by Borrower, together with interest at the Default Rate accruing on the principal amount thereof from and after the date of such Event of Default (including following the entry of a judgment); and 22 (b) If an Event of Default shall occur and be continuing, and without any notice to Borrower or any other act by Bank, at the election of Bank, Bank (i) shall have, and may exercise, every and all of the rights and benefits of the holder of the Collateral Loan Documents (including without limitation the right to receive all payments under the Collateral Loan Documents or any of them) including, without limitation; under the Collateral Mortgages in accordance with their terms, (ii) may give any notices, declare any defaults or file any actions or petitions with respect to any of the Collateral Loan Documents including, without limitation, mortgage foreclosure actions with respect to some or all of the Properties, (iii) may endorse, assign, sell or otherwise convey any or all of the Collateral Notes and any or all of the other Collateral Loans and (iv) shall have any and all other rights with respect to the Collateral Loan Documents as is provided to it under this Loan Agreement, any of the other Bank Loan Documents or at law or in equity, all of which Borrower hereby authorizes and agrees to. (c) If an Event of Default shall occur and be continuing, Bank shall have the right, in addition to all other rights and remedies available to it, without notice to Borrower, to set-off against and apply to the then unpaid balance of Bank Debt and all other obligations of Borrower hereunder or under any other Bank Loan Document any debt owing to, and any other funds held in any manner for the account of, Borrower, other than third party security and similar deposits, by Bank or by such branch, subsidiary or affiliate, including without limitation, all funds in all deposit accounts (whether time or demand, general or special, provisionally credited or finally credited, or otherwise) now or hereafter maintained by Borrower for its own account with Bank or such branch, subsidiary or affiliate. Such right shall exist whether or not Bank shall have made any demand under this Agreement or any other Bank Loan Document, whether or not such debt owing to or funds held for the account of Borrower is or are matured or unmatured and regardless of the existence or adequacy of any Collateral, the Guaranty or other security for the Loan, right or remedy available to Bank; and (d) From and after the date on which Bank has taken any action pursuant to this Article IX and until all Bank Debt has been paid in full, any and all proceeds received by Bank from any sale or other disposition of any Collateral, or any part thereof, or the exercise of any other remedy by Bank, shall be applied as follows: (i) first, to reimburse Bank for reasonable out-of-pocket costs, expenses and disbursements, including without limitation, reasonable attorneys' fees and legal expenses, incurred by Bank in connection with realizing on any Collateral or collection of any obligations of Borrower under any of Bank Loan Documents or of any of the Collateral Borrowers under any of the Collateral Loan Documents, including advances made subsequent to an Event of Default by Bank or for the reasonable maintenance, preservation, protection or enforcement of, or realization upon, any Collateral, including without limitation, advances for Impositions, insurance, repairs and the like and reasonable expenses incurred to sell or otherwise realize on, or prepare for sale or other realization on, any of the Collateral; and 23 (ii) second, to the repayment of the Loan principal, interest, fees, expenses or otherwise, in such order as Bank shall determine. (e) Bank shall have all of the rights and remedies contained in this Agreement and the other Bank Loan Documents. In exercising any rights or remedies hereunder or under the other Bank Loan Documents or the Collateral Loan Documents (including without limitation, delivery of any default notice and the election of judicial or non judicial remedies) or in waiving any of the express terms of this Agreement or the other Bank Loan Documents or any of the Collateral Loan Documents, Bank shall be permitted to proceed in such order, successively or concurrently, and manner as Bank may determine in its sole discretion. In addition, Bank shall have all of the rights and remedies of a secured party under the Uniform Commercial Code or other applicable Law, all of which rights and remedies shall be cumulative and non-exclusive, to the extent permitted by Law. 9.3 NOTICE OF SALE. Any notice required to be given by Bank of a sale, lease, or other disposition of any Collateral or any other intended action by Bank, if given five (5) Business Days prior to such proposed action, shall constitute commercially reasonable and fair notice thereof to Borrower. ARTICLE X MISCELLANEOUS 10.1 MODIFICATIONS. AMENDMENTS OR WAIVERS. This Agreement maybe modified or amended and any right set forth herein waived, only by an instrument in writing signed by both Bank and Borrower. 10.2 NO IMPLIED WAIVERS, CUMULATIVE REMEDIES; WRITING REQUIRED. No course of dealing and no delay or failure of Bank in exercising any right, power, remedy or privilege under this Agreement or any other Bank Loan Document or any of the Collateral Loan Documents shall affect any other or future exercise thereof or operate as a waiver thereof; nor shall any single or partial exercise thereof or any abandonment or discontinuance of steps to enforce such a right, power, remedy or privilege preclude any further exercise thereof or of any other right, power, remedy or privilege. The rights and remedies of Bank under this Agreement and any other Bank Loan Documents and any of the Collateral Loan Documents are cumulative and not exclusive of any rights or remedies which they would otherwise have and may be exercised multiple times. Any waiver, consent or approval of any kind or character on the part of Bank of any breach or default under this Agreement or any such waiver of any provision or condition of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. 10.3 REIMBURSEMENT AND INDEMNIFICATION OF BANK BY BORROWER; IMPOSITIONS. Except as otherwise limited in this Agreement, Borrower agrees unconditionally upon demand to pay or reimburse to Bank and to hold Bank harmless against (i) liability for the payment of all reasonable out-of-pocket costs, expenses and disbursements, including but not limited to reasonable fees and expenses of counsel, incurred by Bank 24 subsequent to the date of this Agreement (a) relating to any amendments, waivers or consents pursuant to the provisions hereof, and (b) in connection with any workout or restructuring, or in connection with the protection, preservation, exercise or enforcement of this Agreement or any other Bank Loan Document or any of the Collateral Loan Documents or collection of amounts due hereunder or under any of the other Bank Loan Documents or due under any of the Collateral Loan Documents or the proof and allowability of any claim arising under this Agreement or any other Bank Loan Document or any of the Collateral Loan Documents, whether in insolvency proceedings or otherwise, upon an Event of Default or Conditional Default, and (ii) all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against Bank in any way relating to or arising out of this Agreement or any other Bank Loan Document or any of the Collateral Loan Documents or any action taken or omitted by Bank hereunder or thereunder, except to the extent the same is caused by the gross negligence or willful misconduct of Bank or its agents, employees, contractors or Affiliates. Borrower agrees unconditionally to pay all stamp, document, transfer, recording or filing taxes or fees and similar Impositions (except for taxes, including any franchise tax, on the overall net income of Bank) now or hereafter determined by Bank to be payable in connection with this Agreement or any other Bank Loan Document or any of the Collateral Loan Documents, and Borrower agrees unconditionally to save Bank harmless from and against any and all present or future claims, liabilities or losses with respect to or resulting from any omission to pay or delay in paying any such taxes, fees or other similar Impositions. 10.4 HOLIDAYS. Whenever any payment or action to be made or taken hereunder shall be stated to be due, or any time period is otherwise set to expire, on a day which is not a Business Day, such payment or action shall be made or taken on the next following Business Day, and such extension of time shall be included in computing interest or fees, if any, in connection with such payment or action, or such time period shall be extended to the next following Business Day. 10.5 PARTICIPATION AND ASSIGNMENT OF THE LOAN BY BANK. Notwithstanding any other provision of this Agreement, Borrower understands that Bank may, without notice to Borrower, at any time or from time to time assign and/or participate all or portions of the Loan. 10.6 NOTICES. All notices, requests, demands, directions and other communications (collectively, "Notices") given to or made upon any party hereto under the provisions of this Agreement shall be in writing and shall be delivered or sent to the respective parties at the addresses and numbers set forth below or in accordance with any subsequent written direction from any party to the others. All Notices shall, except as otherwise expressly herein provided, be effective (i) in the case of hand delivered notice, when hand delivered, (ii) if given by mail, with first class postage prepaid, return receipt requested, on the date of delivery indicated on the return receipt, and (iii) if given by any other means (including by air courier), when delivered. 25 If to Borrower. c/o DVL, Inc. Heron Tower 70 East 55th Street, 7th Floor New York, NY 10022 Attention: Peter Grey 26 With a copy to: Klehr, Harrison, Harvey, Branzburg & Ellers LLP 260 S. Broad Street Philadelphia, PA 19102 Attention: Richard S. Roisman, Esquire With a copy to: c/o P&A Associates 4900 South Broad Street Philadelphia, PA 19112 Attention: Alan E. Casnoff, President If to Bank: Pennsylvania Business Bank 1401 Walnut Street, Suite 400 Philadelphia, PA 19102 Attention: Alan S. Fellheimer, President & CEO With a copy to: Obermayer Rebmann Maxwell & Hippel LLP 19th Floor, 1617 John F. Kennedy Boulevard Philadelphia, PA 19103 John E. Ryan, Esquire 10.7 SEVERABILITY. The provisions of this Agreement are intended to be severable. If any provision of this Agreement shall be held invalid or unenforceable in whole or in part in any jurisdiction such provision shall, as to such jurisdiction, be ineffective to the extent of such invalidity or unenforceability without in any manner affecting the validity or enforceability thereof in any other jurisdiction or the remaining provisions hereof in any jurisdiction. 10.8 GOVERNING LAW. This Agreement shall be deemed to be a contract under the laws of the Commonwealth of Pennsylvania and for all purposes shall be governed by and construed and enforced in accordance with the laws of the Commonwealth of Pennsylvania without regard to its conflicts of laws principles. 10.9 PRIOR UNDERSTANDING. This Agreement, together with the other Bank Loan Documents, supersedes all prior understandings and agreements, whether written or oral, between the parties hereto and thereto relating to the transactions provided for herein and therein, including any prior confidentiality agreements and commitments. 27 10.10 DURATION; SURVIVAL. All representations and warranties of Borrower contained herein or made in connection herewith shall survive the making of the Loan and shall not be waived by the execution and delivery of this Agreement, any investigation by Bank, the making of the Loan or payment in full of Bank Debt. All covenants and agreements of Borrower contained herein relating to the payment of principal, interest, premiums, additional compensation or expenses and indemnification, including those set forth in the Note, Article III and SECTIONS 10.3 AND 10.20 hereof, shall survive payment in full of Bank Debt. 10.11 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and shall inure to the benefit of Bank, and Borrower its successors and assigns, except that Borrower may not assign or transfer any of its rights and obligations hereunder or any interest herein. 10.12 JOINT AND SEVERAL LIABILITY. Anything in this Agreement to the contrary notwithstanding, it is specifically agreed that the liability of DVL and DVL Holdings hereunder and under the Bank Loan Documents shall be joint and several in all respects. 10.13 COUNTERPARTS. This Agreement may be executed by different parties hereto on any number of separate counterparts, each of which, when so executed and delivered, shall be an original, and all such counterparts shall together constitute one and the same instrument. 10.14 EXCEPTIONS. The representations and warranties and covenants contained herein shall be independent of each other and no exception to any representation, warranty or covenant shall be deemed to be an exception to any other representation, warranty or covenant contained herein unless expressly provided, nor shall any such exceptions be deemed to permit any action or omission that would be in contravention of applicable Law. 10.15 JURISDICTION, ETC. Borrower hereby unconditionally and irrevocably (a) subjects itself to the jurisdiction of the courts of the Commonwealth of Pennsylvania and any federal courts sitting in Pennsylvania in connection with any action, suit or proceeding under or relating to, or to enforce any of the provisions of, this Agreement, (b) waives, to the extent permitted by law, any right to obtain a change in venue from any such court in any such action, suit or proceeding, and (c) agrees to service of process sent both by certified mail, return receipt requested, postage prepaid and by reputable overnight courier to its address referred to in SECTION 10.6 hereof Borrower irrevocably agrees that service of process in accordance with the foregoing sentence shall be deemed in every respect effective and valid personal service of process upon Borrower. The provisions of this SECTION 10.14 shall not limit or otherwise affect the right of Bank to institute and conduct an action in any other appropriate manner, jurisdiction or court. 10.16 WAIVER OF JURY TRIAL. BORROWER AND BANK AS CONSIDERATION TO THE OTHER FOR ENTERING INTO THIS LOAN AGREEMENT HEREBY WAIVE TRIAL BY JURY IN ANY ACTION OR 28 PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER BANK LOAN DOCUMENT TO THE FULL EXTENT PERMITTED BY LAW. 10.17 NO THIRD PARTIES BENEFITED. This Agreement is made and entered into for the sole protection and benefit of Borrower and Bank. No trust fund is created by this Agreement and no other persons or entities including, without limitation, any Collateral Borrower will have any right of action under this Agreement or any right against Bank to obtain any proceeds of the Loan. 10.18 AUTHORITY TO FILE NOTICES. Borrower irrevocably appoints Bank as its attorney-in-fact, coupled with an interest, with full power of substitution, after the occurrence of and during the continuation of any Event of Default, to file for record, at Borrower's cost and expense and in Borrower's names, any actions, complaints, petitions, requests or notices that Bank considers necessary or desirable to protect the Collateral. 10.19 INTERPRETATION. Whenever the context requires, all words used in the singular will be construed to have been used in the plural, and vice versa, and each gender will include any other gender. The captions of the articles, sections, schedules and exhibits of this Agreement are for convenience only and do not define or limit any terms or provisions. In the event of a conflict between the terms of the other Bank Loan Documents and this Agreement, the terms of this Agreement shall control. The terms and provisions of this Agreement and the other Bank Loan Documents shall be construed in accordance with their plain meaning, without regard for any canons or principles requiring interpretation against the party responsible for the preparation of same, or for any other inconsistent or contrary canons or principles of construction. 10.20 STATUS OF PARTIES. It is understood and agreed that the relationship of the parties hereto is that of borrower and lender and that nothing contained herein or in any of the other Bank Loan Documents shall be construed to constitute a partnership, joint venture or co-tenancy between Borrower and Bank. 10.21 BROKERAGE FEE. Borrower represents to Bank that no broker or other person is entitled to a brokerage fee or commission as a result of Borrower's actions or undertakings in connection with the Loan and agrees to hold Bank harmless from all claims for brokerage commissions which may be made as a result of such actions or undertakings, if any. [REMAINDER OF PAGE LEFT INTENTIONALLY BLANK] 29 IN WITNESS WHEREOF, the parties hereto, by their officers thereunto duly authorized, have executed this Agreement under seal as of the day and year first above written. BORROWER: DVL, INC., a Delaware corporation By: ----------------------------------- Name: Title: DVL Mortgage Holdings, LLC, a Delaware limited liability company By: ----------------------------------- Name: Title: BANK: PENNSYLVANIA BUSINESS BANK By: ----------------------------------- Name: Title: 30 SCHEDULE I ASSIGNMENTS OF LEASES AND RENTS
- ----------------------------------------------------------------------------------------------------- DOCUMENT EXECUTION RECORDING BOOK/PAGE DATE DATE Assignment of Leases from 2/1/88 2/21/89 111/293 Waldron Associates to Del-Val Financial Corporation, as amended and assigned Assignment of Leases and Rents from 11/23/82 11/30/82 394/129 Stigler Associates to Kenbee Management - Oklahoma, Inc., as assigned Assignment of Leases and Rents from 11/19/85 11/20/85 904/337 Alexandria Associates to Kenbee Management - Oklahoma, Inc. - -----------------------------------------------------------------------------------------------------
SCHEDULE II COLLATERAL NOTES
-------------------------------------------------------------------------------------------------- DOCUMENT EXECUTION DATE -------------------------------------------------------------------------------------------------- $1,000,000 Note from Edna Associates to Kenbee Management-Oklahoma, Inc., 05/25/83 as amended 3/26/84 and 1/1/92 -------------------------------------------------------------------------------------------------- $2,040,000 Wraparound Note from Waldron Associates to Del-Val Financial 02/01/88 Corporation, as amended 1/1/92 -------------------------------------------------------------------------------------------------- $900,000 Note from Jena Associates to Kenbee Management-Oklahoma, Inc., as 11/28/83 amended 11/28/83 -------------------------------------------------------------------------------------------------- $3,550,000 Note from St. Albans Associates to Spring Valley Development 12/28/79 Corporation, Inc. -------------------------------------------------------------------------------------------------- $1,090,000 Note from Stigler Associates to Kenbee Management-Oklahoma, Inc. 11/23/82 -------------------------------------------------------------------------------------------------- $685,000 Note from Alexandria Associates to Kenbee Management-Oklahoma, Inc. 11/19/85 -------------------------------------------------------------------------------------------------- $1,083,000 Note from Champlain Associates to Kenbee Management-Connecticut, Inc. 1/29/82 -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- $260,000 Note from Ava Associates to Kenbee Management-Connecticut, Inc. 11/7/83 --------------------------------------------------------------------------------------------------
SCHEDULE III MORTGAGES
- ------------------------------------------------------------------------------------------------------------------------- EXECUTION RECORDING DOCUMENT DATE DATE BOOK/PAGE - ------------------------------------------------------------------------------------------------------------------------- $1,000,000 Mortgage from Edna Associates to Kenbee 05/25/83 05/31/83 170/447 Management-Oklahoma, Inc., as amended 3/26/84 and 1/1/92 $2,040,000 Wraparound Mortgage from Waldron 02/01/88 02/21/89 111/270 Associates to Del-Val Financial Corporation, as amended 1/1/92 $1,083,000 Mortgage from Champlain Associates to 1/29/82 2/8/82 343/111 Kenbee Management - Connecticut, Inc., as modified 1/1/92 $260,000 Mortgage from Ava Associates to Kenbee 11/7/83 Management - Connecticut, Inc., as modified 1/1/92 $900,000 Wrap-Around Mortgage from Jena Associates to 11/28/83 11/30/83 123/414 Kenbee Management - Oklahoma, Inc., as modified 1/1/92 $1,090,000 Mortgage from Stigler Associates to Kenbee 11/23/82 11/30/82 394/118 Management - Oklahoma, Inc., as modified 12/15/83, 9/25/92 and 9/15/93 $3,550,000 Mortgage from St. Albans Associates to 12/28/79 1/10/80 39/336 Spring Valley Development Corporation, Inc., as corrected 12/28/79, as modified 1/1/92, as corrected 9/16/92, as modified 3/18/96 $685,000 Mortgage from Alexandria Associates to Kenbee 11/19/85 11/20/85 480/219 Management - Oklahoma, Inc., as modified 3/20/86, as modified 1/1/92 $1,000,000 Mortgage from Edna Associates to Kenbee 5/25/83 5/31/83 170/447 Management - Oklahoma, Inc., as modified 1/1/92 - -------------------------------------------------------------------------------------------------------------------------
SCHEDULE IV TENANT LEASES
- ------------------------------------------------------------------------------------------------ DOCUMENT EXECUTION DATE - ------------------------------------------------------------------------------------------------ Lease between Edna Associates and Wal-Mart Stores, Inc. 05/25/83 - ------------------------------------------------------------------------------------------------ Lease between Waldron Associates and Wal-Mart Stores, Inc. 11/12/82 - ------------------------------------------------------------------------------------------------ Lease between Kenbee Management - Oklahoma, Inc. and Wal-Mart Stores, Inc. 11/28/83 - ------------------------------------------------------------------------------------------------ Lease between Tanner Building Co., Inc. and Fay's Drug Company 3/25/85 - ------------------------------------------------------------------------------------------------ Lease between St. Albans Associates and The Fonda Group, Inc., as amended August 24, 1990 and March 24, 1995 9/1/89 - ------------------------------------------------------------------------------------------------ Lease between Stigler Associates and Wal-Mart Stores, Inc. 11/23/82 - ------------------------------------------------------------------------------------------------ Lease between Ava Associates and Hannaford Bros. Co. - ------------------------------------------------------------------------------------------------
SCHEDULE V SENIOR LOAN AND COLLATERAL LOAN BALANCES - ------------------------------------------------------------------------------- PROPERTY Senior Loan Balances Collateral Loan Balances - ------------------------------------------------------------------------------- Edna $536,122 - ------------------------------------------------------------------------------- Waldron $483,443 - ------------------------------------------------------------------------------- Alexandria $820,278 - ------------------------------------------------------------------------------- Jena $480,857 - ------------------------------------------------------------------------------- Stigler $392,498 - ------------------------------------------------------------------------------- St. Albans $1,385,907 - ------------------------------------------------------------------------------- Ava $800,465 - ------------------------------------------------------------------------------- Champlain $1,250,251 - ------------------------------------------------------------------------------- SCHEDULE VI SENIOR LOANS AND TENANT LEASES
- -------------------------------------------------------------------------------------------------------------------------- PROPERTY Senior Loans Tenant Leases - -------------------------------------------------------------------------------------------------------------------------- Edna State of Wisconsin Investment Board dated Wal-Mart Stores, Inc. 3/26/84 in the original principal amount of $907,427 - -------------------------------------------------------------------------------------------------------------------------- Waldron Western National Life Insurance Company Wal-Mart Stores, Inc. dated 4/3/84 in the original principal amount of $896.116. - -------------------------------------------------------------------------------------------------------------------------- Alexandria Central Life Assurance Company dated 3/18/86 in original Fay's Drug Company principal amount of $603,500 - -------------------------------------------------------------------------------------------------------------------------- Jena State of Wisconsin Investment Board dated 11/28/83 in Wal-Mart Stores, Inc. original principal amount of $800,631 Firstar Trust Company, as agent for Phoenix Home Life Mutual Insurance Company dated 5/6/94 in original principal amount of $231,784.48 - -------------------------------------------------------------------------------------------------------------------------- Stigler State of Wisconsin Board of Investment dated 12/15/83 in Wal-Mart Stores, Inc. original principal amount of $783,493 Firstar Trust Company, as agent for Phoenix Home Life Mutual Insurance Company dated 5/23/94 in original principal amount of $184,048.84 - -------------------------------------------------------------------------------------------------------------------------- St. Albans Lincoln National Life Insurance Company dated 6/30/95 in The Fonda Group original principal amount of $1,633,456.25 - --------------------------------------------------------------------------------------------------------------------------
EX-31.1 4 c33350_ex31-1.txt Exhibit 31.1 CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER I, Alan E. Casnoff, certify that: 1. I have reviewed this quarterly report of Form 10-Q of DVL, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adverse affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Alan E. Casnoff - ----------------------------- Alan E. Casnoff Chief Executive Officer August 13, 2004 28 EX-31.2 5 c33350_ex31-2.txt Exhibit 31.2 CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER I, Jay Thailer, certify that: 1. I have reviewed this quarterly report of Form 10-Q of DVL, Inc; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report. 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and we have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent function): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adverse affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. /s/ Jay Thailer - ----------------------------- Jay Thailer Chief Financial Officer August 13, 2004 29 EX-32.1 6 c33350_ex32-1.txt Exhibit 32.1 CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 I, Alan E. Casnoff, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of DVL, Inc. on Form 10-Q for the quarter ended June 30, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly presents in all material respects the financial condition and results of operations of DVL, Inc. Date: August 13, 2004 By: /s/ Alan E. Casnoff ------------------------- Name: Alan E. Casnoff Title: Chief Executive Officer I, Jay Thailer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that the Quarterly Report of DVL, Inc. on Form 10-Q for the quarter ended June 30, 2004, fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 and that information contained in such Quarterly Report on Form 10-Q fairly represents in all material respects the financial condition and results of operations of DVL, Inc. Date: August 13, 2004 By: /s/ Jay Thailer ------------------------- Name: Jay Thailer Title: Chief Financial Officer 30 -----END PRIVACY-ENHANCED MESSAGE-----