Item 1. Business.
(a) General
Registrant, a partnership, was organized on January 10, 1957. On May 1, 1957, Registrant acquired fee title to the Garment Capitol Building (the "Building") and the land thereunder, located at 498 Seventh Avenue, New York, New York (the "Property"). Registrant's partners are Stanley Katzman, John L. Loehr and Peter L. Malkin (individually, a "Partner" and, collectively, the "Partners"), each of whom also acts as agent for holders of participations in their respective partnership interests in Registrant (each holder of a participation, individually, a "Participant" and, collectively, the "Participants"). As described below, the Property has been sold and a distribution from sale proceeds has been made to the Participants.
Registrant does not operate the Property. Registrant leased the Property to 498 Seventh Avenue Associates (the "Original Lessee") under a net operating lease (the "Lease") which commenced as of May 1, 1957 and currently expires on April 30, 2007. The Lease provides for one 25-year renewal option which has not been exercised and which, if exercised, will extend the Lease to April 30, 2032.
In 1994 and 1995 the Original Lessee made capital calls on its partners in the aggregate amount of $1,300,000 to defray certain operating expenses and improvement costs at the Property. Despite these new capital infusions, however, the Original Lessee concluded that to return the Property to profitability would require a very large additional capital investment, estimated by the Original Lessee to be as high as $16,000,000. Therefore, on December 29, 1995, in accordance with the terms of the Lease, the Original Lessee assigned the Lease to 4987 Corporation (the "New Lessee"), thereby effectively terminating the liability of the Original Lessee and its partners under the Lease. The shares in the New Lessee are owned by the partners in the Original Lessee except that a substantial portion of the shares originally owned by Peter L. Malkin is held for the benefit of members of his family but he retains voting control.
The New Lessee has paid basic rent under the Lease through March 27, 1997, the date of the sale of the Property, as hereinafter described. Registrant applied these rents to cover (1) its monthly mortgage payments to the Apple Bank for Savings ("Apple Bank") on Registrants' fee mortgage on the Property (the "Mortgage Loan"), (2) its monthly fee for supervisory services and (3) its distributions to the Participants in Registrant. The New
Lessee did not pay the New York City real estate taxes and Business Improvement District ("BID") assessments in the amounts of $936,180.00 and $29,695.14, respectively, and certain other minor assessments and charges aggregating less than $1,500, all of which were due on January 1, 1996 or shortly thereafter. The New Lessee also failed to pay the New York City real estate taxes and BID assessments in the amounts of $1,053,254.50 and $28,529.26, respectively, which were due on July 1, 1996 and $740,845.50 and $28,529.26, respectively, which were due on January 1, 1997. As a result, although payment of the January 1, 1996 and July 1, 1996 and January 1, 1997 real estate taxes and BID assessments has been made as described below, the New Lessee was in default of the Lease as of January 1, 1996.
The New Lessee requested that Registrant forbear from exercising its rights and remedies under the Lease, including termination of the Lease, by reason of the failure to pay the January 1, 1996 and July 1, 1996 real estate taxes and BID assessments, while Registrant solicited the consent of the Participants to a sale of the Property. On July 26, 1996, the Partners mailed to the Participants a STATEMENT ISSUED BY THE AGENTS IN CONNECTION WITH THE SOLICITATION OF CONSENTS OF THE PARTICIPANTS (the "Statement") requesting their authorization for a sale of the Property and forbearance in favor of the New Lessee. The details of the Partners' proposal are provided in the Definitive Proxy Statement which was filed with the Securities and Exchange Commission as Schedule 14-A on July 25, 1996, and is incorporated herein by reference. If Registrant did forbear, the New Lessee agreed to cooperate fully with Registrant in connection with the sale of the Property and to continue to perform its other obligations under the Lease, including payment of basic rent, to enable Registrant to continue its monthly distributions to the Participants, pay its supervisory fee and pay its monthly mortgage obligation. The continuation of the Lease was also to serve to insulate Registrant from third party liabilities attendant on property operations. Because the consent solicitation program included the continuation of the Lease with the New Lessee, Registrant did not send a notice of default under the Lease based on the failure of the New Lessee to pay the January 1, 1996 and July 1, 1996 real estate taxes and BID assessments.
Although the failure to pay the January 1, 1996, July 1, 1996 and January 1, 1997 real estate taxes and BID assessments also constitutes a breach of Registrant's obligations under the Mortgage Loan, Apple Bank had agreed to forbear from exercising its rights and remedies during the period of the solicitation of consents through a sale of the Property based on arrangements consummated in March 1996 between the shareholders of the New Lessee (or designees on their behalf) and Apple Bank to fund the January 1, 1996 real estate taxes and BID assessments and certain future real estate taxes and BID assessments on the Property (together with the January 1, 1996 real estate taxes, the "Real
Estate Taxes") through protective advances under the Mortgage Loan. The shareholders of the New Lessee (or designees on their behalf) have personally borrowed from Apple Bank (a) on April 2, 1996, the sum of $1,012,274.18, equal to the January 1, 1996 real estate taxes and BID assessments and interest thereon to the date of the borrowing, and certain other minor city charges and interest aggregating less than $1,500 and (b) on June 28, 1996, the sum of $1,081,783.76 equal to the July 1, 1996 real estate taxes and BID assessment and (c) on December 31, 1996, the sum of $769,374.76 equal to the January 1, 1997 real estate taxes and BID assessment. The April 2, 1996 borrowing was used to fund a protective advance by Apple Bank to pay the January 1, 1996 real estate taxes and BID assessments, interest thereon and such minor charges, through the purchase of a subordinate participating interest in the Mortgage Loan in such amount. The June 28, 1996 and December 31, 1996 borrowings were used to fund protective advances by Apple Bank to pay, respectively, the July 1, 1996 and January 1, 1997 Real Estate Taxes and BID assessments through the purchase of additional subordinate participating interests in the Mortgage Loan in such amounts. Interest and principal required to be paid on the protective advances and on any future protective advances have been paid by the New Lessee.
Registrant received the consent of the Participants for the sale and forbearance program and for the liquidation of Registrant, as described in the Statement. See Items 10, 11 12 and 13 hereof for a description of the ongoing services rendered by, and compensation paid to, Counsel and for a discussion of certain relationships which may pose actual or potential conflicts of interest among Registrant, Original Lessee, New Lessee and certain of their respective affiliates.
Registrant, together with the New Lessee, entered into a contract with George Comfort & Sons, Inc., as Agent, and Tirrem Management Company, Inc., collectively as Purchasers, to sell the Property to the Purchasers for $42,000,000, subject to adjustments (the "Contract of Sale"). The sale closed as of March 27, 1997. After priority allocation for certain payments, as more particularly described in the Statement, net sale proceeds of $34,885,810 were allocated between Registrant and the New Lessee pursuant to the formula described in the Statement, as approved by the Participants. From its share of the proceeds, Registrant has made an initial distribution of $27,000,000 to the Participants, and each holder of an original $10,000 Participation, as reduced to $5,000, received an initial distribution of sale proceeds of $25,714, which includes a return of the Participant's remaining original capital investment.
The balance of sale proceeds allocated to Registrant, $951,518 (subject to adjustment), continues to be held by Counsel in a money market fund as a reserve against contingencies and to cover winding up, liquidation and final accounting costs. If the full amount of this balance were distributed to Participants, each
holder of an original $10,000 unit (as reduced to $5,000) would receive $906.21. It cannot be determined now what costs will be incurred and what contingencies may arise. The final distribution will likely occur before December 31, 1997.
Sale proceeds allocated to New Lessee, in the approximate amount of $6,934,292, are being held by Counsel pursuant to agreement with counsel for plaintiff in the Koppel litigation (as hereinafter defined). See Item 3 hereto. It is not now clear whether, as a result of the litigation described in Item 3 any sale proceeds now allocated to the New Lessee will be reallocated.
As of December 31, 1996, the occupancy rate at the Building was approximately 60%. The Building had approximately 104 tenants who principally engage in the sale of ladies' apparel. Registrant did not maintain a full-time staff. See Item 2

Item 2. Property.
Registrant owned the Building located at 498 Seventh Avenue, New York, New York, known as the "Garment Capitol Building," and the land thereunder. See Item 1 hereof. Registrant's fee title to the Property was encumbered by the Mortgage Loan with an unpaid balance of $5,785,947 at December 31, 1996, consisting of a principal balance of $2,922,687 and protective advances for real estate taxes of $2,863,260. For a description of the terms of the Modification of the Mortgage Loan, see Item 1 hereof and Note 3 of the Notes. The Building, erected in 1921 and containing 24 floors, stands on the southwest corner of Seventh Avenue and 37th Street in New York City's Garment District. The Building contains office, showroom and loft space. The Building is equipped with individual air-conditioning units and has 11 passenger elevators and 10 freight elevators. The Building was leased to the New Lessee under the Lease, the initial term of which expired on April 30, 1982 and which contained two 25-year renewal options, the first of which was exercised on January 7, 1981. See Item 1 hereof for additional information concerning the Lease. The Property was sold on March 27, 1997 pursuant to the Contract of Sale. See Item 1.
Item 3.

Item 3. Legal Proceedings.
On October 4, 1996, the alleged holder of three participation interests in Registrant brought suit in the U.S. District Court for the Southern District of New York against New Lessee, Original Lessee, Registrant's Partners, and Counsel. Registrant is a nominal defendant. The suit claims that defendants violated the anti-fraud provisions of the federal securities laws and committed breaches of fiduciary duty and fraud in relation to the Partners' solicitation of consents of the Participants, as described in the Statement, for the sale and forbearance program and for the liquidation of Registrant, as described in the Statement. The suit is styled as a class action, but the plaintiff has not applied for class certification to date. The suit seeks to enjoin the allocation of sale proceeds to New Lessee approved by the Participants, money damages and related relief. Defendants have responded to the complaint with a motion seeking dismissal of the action in its entirety. That motion is now pending. The complaint does not seek any relief against
Registrant, and, accordingly, Registrant's litigation counsel is of the opinion that no loss or other unfavorable outcome of the action against Registrant is anticipated. In accordance with the Statement, sale proceeds were allocated to repay the Fee Mortgagee the protective advances as well as all other sums then outstanding on the Fee Mortgage. Pursuant to an agreement between counsel for the plaintiff in the 1996 proceeding and counsel for the defendants, net sale proceeds allocated to the New Lessee in accordance with the formula set forth in the Statement will not be distributed to the New Lessee, except upon 30 days' notice to counsel for the plaintiff. Such allocated proceeds are currently being held by Counsel.
On March 13, 1997, the alleged holder of a fractional participation interest in Registrant brought suit in the U.S. District Court for the Southern District of New York against New Lessee, Original Lessee, Registrant's Partners and Counsel. Registrant is a nominal defendant. The suit is essentially similar to the legal action described in the preceding paragraph, alleging that defendants violated the Federal proxy rules, committed breaches of fiduciary duty and fraud in relation to the Partners' solicitation of consents of the Participants, as described in the Statement, for the sale and forbearance program and for liquidation of Registrant, as described in the Statement. The suit seeks to enjoin the allocation of sale proceeds to New Lessee approved by the Participants, money damages and related relief. Defendants' response to the complaint is due on or about April 25, 1997. Defendants currently intend to move to dismiss this complaint as well. The complaint does not seek any relief against Registrant, and, accordingly, Registrant's litigation counsel is of the opinion that no loss or other unfavorable outcome of the action against Registrant is anticipated.
Item 4.

Item 4. Submission of Matters to a Vote of Participants.
On July 26, 1996, the consent of Participants was sought to the sale and forbearance program, and, following a sale, to the liquidation of Associates, as described in the Statement. The consent of Participants was received by the Partners, and the Property was sold on March 27, 1997. See Item 1(a).
PART II
Item 5.

Item 5. Market for Registrant's Common Equity and Related Security Holder Matters.
Registrant is a partnership organized pursuant to a partnership agreement dated January 10, 1957.
Registrant has not issued any common stock. The securities registered by it under the Securities Exchange Act of 1934, as amended, consist of participations in the partnership interests of the Partners in Registrant (the "Participations") and are not shares of common stock or their equivalent. The Participations represent each Participant's fractional share in a Partner's undivided interest in Registrant and are divided approximately equally among the Partners. A full unit of the Participations was originally offered at a purchase price of $10,000; fractional units were also offered at proportionate purchase prices. In November 1957, one-half of the original purchase price was returned to the Participants from the proceeds of a first mortgage on the Property leaving a remaining unreturned cash investment of $5,000 (a "$5,000 Participation"). On March 31, 1997 a distribution of sale proceeds from sale of the Property was made to the Participants. Each holder of a $5,000 Participation received $25,714, which included a return of remaining original capital. Additional funds of Registrant have been retained by Counsel in a money market account as a reserve against contingencies and to cover various costs associated with liquidating Registrant. Registrant has not repurchased Participa- tions in the past and is not likely to change its policy in the future.
(a) The Participations are not traded on an established securities market, nor are they readily tradable on a secondary market or the substantial equivalent thereof. Based on Registrant's transfer records, Participations are sold by the holders thereof from time to time in privately negotiated transactions and, in many instances, Registrant is not aware of the prices at which such transactions occur. Registrant has been advised that there were 47 transfers of Participations for the year ended December 31, 1996. In only one instance was consideration indicated for the transfer. In this instance, the purchase price was equal to 1.33 times the remaining unreturned cash investment of the Participation, i.e., $6,650 for a $5,000 Participation. In all other cases, no consideration was indicated.
(b) As of December 31, 1996, there were 909 holders of Participations of record.
(c) Registrant does not pay dividends. During the year ended December 31, 1996, Registrant made regular monthly
distributions of $47.45 for each $5,000 Participation. Because no Additional Rent was paid by the Original Lessee for the lease year ended April 30, 1996, no additional distribution was made to Participants in 1996. For each $5,000 Participation during the year ended December 31, 1995, Registrant made monthly distributions of $48.58. There was no Additional Rent earned for the Lease year ended April 30, 1995. See Item 1 hereof. There are no restrictions on Registrant's present or future ability to make distributions; however, the amount of such distributions, particularly distributions of Additional Rent, depends solely on the New Lessee's payments of Basic Rent and Additional Rent to Registrant. See Item 1 hereof and Note 9 of the Notes.
By reason of the sale of the Property, the Lease has expired and the Registrant will be liquidated. There will be no additional regular monthly distributions following the distribution on April 1, 1997 in respect of March, 1997 rent under the Lease. An additional, one-time distribution following the winding up and liquidation of Registrant is likely, but the amount of it cannot now be determined.
Item 6.

Item 6.
GARMENT CAPITOL ASSOCIATES
SELECTED FINANCIAL DATA
See accompanying notes to financial statements.
EXHIBIT B
GARMENT CAPITOL ASSOCIATES
STATEMENTS OF INCOME
See accompanying notes to financial statements.
EXHIBIT C-3 GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT YEAR ENDED DECEMBER 31, 1994
See accompanying notes to financial statements.
EXHIBIT C-1 GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT YEAR ENDED DECEMBER 31, 1996
See accompanying notes to financial statement
EXHIBIT C-2 GARMENT CAPITOL ASSOCIATES
STATEMENT OF PARTNERS' CAPITAL DEFICIT YEAR ENDED DECEMBER 31, 1995
See accompanying notes to financial statements.
EXHIBIT D
GARMENT CAPITOL ASSOCIATES
STATEMENTS OF CASH FLOWS
See accompanying notes to financial statements.
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
1. Business Activity
Garment Capitol Associates ("Associates") is a general partnership which owns commercial property situated at 498 Seventh Avenue, New York, New York (the "Property"). Through December 28, 1995 the Property was net leased to 498 Seventh Avenue Associates (the "Original Lessee"). Effective December 29, 1995 the operating lease was assigned to 4987 Corporation (the "New Lessee") (see Note 4). See Note 11b regarding subsequent events concerning Associates' sale of the Property on March 27, 1997 and its discontinuance of operations.
2. Summary of Significant Accounting Policies
a. Cash and Cash Equivalents:
Cash and cash equivalents include investments in money market funds and all highly liquid debt instruments purchased with a maturity of three months or less.
b. Real Estate and Depreciation of Building:
Real estate, consisting of land and building, is stated at cost. The building is fully depreciated. Depreciation of the building had been provided on the straight-line method based on a thirty-year life (3-1/3% per annum).
c. Mortgage Refinancing Costs and Amortization:
Mortgage refinancing costs totaling $107,050 have been incurred in connection with the December 1, 1992 refinancing of the first mortgage payable (see Note 3), and are being charged to income ratably over the five year term of the first mortgage. Such costs include payments of $49,564 to the firm of Wien, Malkin & Bettex LLP, a related party. See Note 5.
d. Use of Estimates:
In preparing financial statements in conformity with generally accepted accounting principles, management often makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
3. First Mortgage Payable
On November 30, 1987, a first mortgage was placed on the Property with Apple Bank for Savings in the amount of $3,485,000. Annual mortgage charges were $348,500, payable in equal monthly installments, applied first to interest at the rate of 9-1/2% per annum and the balance to principal. The mortgage was scheduled to mature on December 1, 1992 with a balance of
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (continued)
3. First Mortgage Payable (continued)
$3,376,341 but was extended until June 16, 1993, when the bank issued a commitment to extend and modify the mortgage for a five year period from December 1, 1992 through December 1, 1997. The closing, which had been delayed, occurred on March 23, 1995. The terms of the extended mortgage include provision for constant monthly payments totaling $447,316 per annum, including interest at the rate of 10 1/2% per annum from November 1, 1993 through November 30, 1994, and constant payments totaling $449,586 per annum, including interest at the rate of 10.6% per annum from December 1, 1994 through maturity. The constant payments are based on a fifteen year amortization schedule. Payments of principal and interest made subsequent to the original maturity date (December 1, 1992) were reapplied according to these new repayment terms and, at the closing, a retroactive payment of $218,081 was made to bring the payments current with the new mortgage schedule. The balance of the mortgage at December 31, 1996 was scheduled to be $2,912,936. However, protective advances by the Fee Mortgagee in 1996 (see Note 11a) have increased the mortgage payable balance to $5,785,947. Interest only on the increased mortgage amounts are also payable monthly at the rate of 10.6% per annum through maturity. In accordance with the Solicitation, interest required to be paid on the protective advances is payable by the New Lessee so long as the lease continues in effect; interest is being paid currently, while the principal of the protective advances is collectible from the proceeds of the sale of the Property (see Note 11b).
Principal payments required to be made on long-term debt are as follows:
Through December 1, 1997............................ $5,785,947 $5,785,947
The Property is pledged as collateral for the first mortgage.
4. Related Party Transactions - Rent Income
Rent income for the years ended December 31, 1996, 1995 and 1994 represents twelve equal monthly installments of an annual net rent of $1,090,000 (the "Basic Rent") under a net operating lease dated May 1, 1957 (the "Operating Lease") with the Original Lessee, plus, where applicable, payments of additional rent as provided under certain conditions with respect to the lessee's defined net income from operations for lease years ending April 30th.
For the years ended December 31, 1996, 1995 and 1994, no additional rent was earned from the Original Lessee or the New Lessee for its lease years ended April 30, 1996, 1995 and 1994.
No additional rent is accrued by Associates for the period between the end of the lessee's lease year and the end of Associates' fiscal year.
The current term of the Operating Lease expires on April 30, 2007. The Operating Lease includes a renewal option to extend the term to April 30, 2032. Pursuant to the Operating Lease, the lessee has the right to
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (continued)
4. Related Party Transactions - Rent Income (continued)
surrender its leasehold interest at any time, upon 60 days' prior written notice, without further liability after the date of surrender. The lessee also has the right to assign the Operating Lease, without Associates' consent, so long as the assignee assumes, in writing, all of the obligations of the Operating Lease. The Original Lessee exercised such assignment right on December 29, 1995, and the New Lessee assumed all lessee obligations under the Operating Lease as of that date; such assignment effectively terminated the liability of the Original Lessee and its remaining partners under the Operating Lease. The shares in the New Lessee are owned by the partners in the Original Lessee. See Note 11.
A partner in Associates is also a partner in the Original Lessee.
5. Related Party Transactions - Supervisory Services
Supervisory services (including disbursements and cost of regular accounting services) for the years ended December 31, 1996, 1995 and 1994, totaling $42,500 in each year were paid to the firm of Wien, Malkin & Bettex LLP. Some members of that firm are also partners in Associates. Fees for supervisory services are paid pursuant to an agreement, which amount is based on a rate of return of investment achieved by the participants in Associates each year.
6. Number of Participants
There were approximately 900 participants in the participating groups at December 31, 1996, 1995 and 1994.
7. Determination of Distributions to Participants
Distributions to participants represent mainly the excess of rent income received over the mortgage requirements, as anticipated, and expenses paid.
8. Distributions and Amount of Income per $5,000 Participation Unit
Distributions per $5,000 participation unit during the years 1996, 1995 and 1994, based on 1,050 participation units outstanding during each year, totaled $569, $583 and $583, respectively. All such distributions consisted of income only. See Note 11.
Net income is computed without regard to income tax expense since Associates does not pay a tax on its income; instead, any such taxes are paid by the participants in their individual capacities.
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (continued)
9. Economic Dependency on Operations of Building
Associates' building is located in the heart of New York City's "Garment District", and its tenants are almost exclusively in the garment business. The Property, as well as other buildings in the district, has suffered significant vacancies in recent years. As a result, the Original Lessee and/or the New Lessee has experienced continuous decreases in its revenue stream, causing its net income from operations, as defined in the Operating Lease for each of the three years in the period ended December 31, 1996, to fall below the amount necessary to require payment of any additional rent for such year (Note 4). For the lease years ended April 30, 1996 and 1995 the lessees reported a net loss (unaudited) of $1,862,412 and $2,222,031, respectively. See Note 11.
10. Concentration of Credit Risk
Associates maintains cash balances in a bank, money market fund (Fidelity U.S. Treasury Income Portfolio), and a distribution account held by Wien, Malkin & Bettex LLP. The bank balance is insured by the Federal Deposit Insurance Corporation up to $100,000, and at December 31, 1996 was completely insured. The cash in the money market fund and the distribution account held by Wien, Malkin & Bettex LLP is not insured. The funds held in the distribution account were paid to the participants on January 1, 1997.
11. Events Regarding Default by New Lessee of the Operating Lease, Breach of Associates' Obligations Under the Fee Mortgage, and Subsequent Events Concerning the Sale of the Property
a. Default By New Lessee of Operating Lease and Breach of Associates' Obligations Under Fee Mortgage:
Since January 1, 1996, the New Lessee has paid Basic Rent under the Operating Lease. Associates in turn has continued to pay (1) the monthly mortgage payments to Apple Bank for Savings (the "Fee Mortgagee") on Associates' fee mortgage on the Property (the "Fee Mortgage"); (2) its monthly fee for supervisory services; and (3) monthly distributions to the participants in Associates.
However, since January 1, 1996, the New Lessee has failed to pay the New York City real estate and Business Improvement District ("BID") assessments, which were due on January 1, 1996 (collectively, the "1/1/96 Real Estate Taxes"). As a result, the New Lessee is in default of the Operating Lease as of that date.
The New Lessee requested that Associates forbear from exercising its rights and remedies under the Operating Lease, including termination of the Operating Lease, by reason of the failure to pay the 1/1/96 Real Estate Taxes, while management of Associates solicited the consent of its participants to a sale of the Property (the "Solicitation"). In connection with Associates' forbearance, the New Lessee agreed to
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (continued)
11. Events Regarding Default by New Lessee of the Operating Lease, Breach of Associates' Obligations Under the Fee Mortgage, and Subsequent Events Concerning the Sale of the Property (continued)
a. Default By New Lessee of Operating Lease and Breach of Associates' Obligations Under Fee Mortgage (continued):
cooperate fully with Associates in connection with the sale of the Property and to continue to perform its other obligations under the Operating Lease, including payment of the Basic Rent, to enable Associates to continue its monthly distributions to the participants, pay its supervisory fee and pay its monthly mortgage obligation.
The failure to pay the 1/1/96 Real Estate Taxes also constituted a breach of Associates' obligations under the Fee Mortgage. The shareholders of the New Lessee (or designees on their behalf) have borrowed from the Fee Mortgagee a sum equal to the 1/1/96 Real Estate Taxes and interest thereon to the date of the borrowing and further sums equal to the subsequent semi-annual installments of the New York City real estate taxes and BID assessments (together with the 1/1/96 Real Estate Taxes, the "Real Estate Taxes") which have since become due. These sums were used to fund protective advances by the Fee Mortgagee to pay the Real Estate Taxes and interest thereon through the purchase of subordinate participating interests in the Fee Mortgage in such amounts. As a result, the Fee Mortgagee has agreed to forbear from exercising rights and remedies under the Fee Mortgage based on Associates' failure to pay (or cause to be paid by the New Lessee) the Real Estate Taxes.
On July 26, 1996 management completed its Solicitation, in which it expressed its belief that the Property could not be operated on a profitable basis without significant capital improvements; it also opined that the program to sell the Property would permit Associates to liquidate its investment in an orderly fashion and avoid the necessity of raising additional capital from the participants and others to support and renovate the Property while avoiding litigation costs and the risk of loss of the Property through a Fee Mortgage foreclosure.
b. Subsequent Events:
On January 29, 1997, Associates, having received authorization from its participants to sell the Property, entered into a contract of sale of the Property at a selling price of $42,000,000. Such sale was concluded on March 27, 1997, at which time the first mortgage was paid in full and Associates discontinued operations. In accordance with the Solicitation, the proceeds of sale are to be allocated between Associates and the New Lessee. On March 31, 1997, a distribution of $27,000,000 ($25,714 per $5,000 participation unit) was made to the participants out of the proceeds of sale. However, the New Lessee's share of such proceeds, which according to the Solicitation amounts to approximately $6,900,000, is being held by Wien & Malkin LLP, a related party and counsel to Associates ("Counsel"), in connection with litigation referred to in Note 12. Associates' receivable from the New Lessee was satisfied on March 29, 1997 by the payment of the protective advances from proceeds of the sale of the property in accordance with the Solicitation.
GARMENT CAPITOL ASSOCIATES
NOTES TO FINANCIAL STATEMENTS (continued)
12. Litigation
On October 4, 1996, the alleged holder of three participation interests in Associates brought suit in the U.S. District Court for the Southern District of New York against the New Lessee, the Original Lessee, the partners of Associates, and Counsel. Associates is a nominal defendant. The suit claims that defendants violated the anti-fraud provisions of the federal securities laws and committed breaches of fiduciary duty and fraud in relation to the Solicitation (Note 11a). The suit is styled as a class action, but the plaintiff has not applied for class certification to date. The suit seeks to enjoin the allocation of sale proceeds to the New Lessee approved by the participants, money damages and related relief. Defendants have responded to the complaint with a motion seeking dismissal of the action in its entirety. That motion is now pending. A similar suit was filed by another alleged holder of a fractional interest in Associates on March 13, 1997. Defendants currently intend to move to dismiss this complaint as well. The complaints do not seek any relief against Associates, and, accordingly, Associates' litigation counsel is of the opinion that no loss or other unfavorable outcome of the action against Associates is anticipated. No provision has been made in the accompanying financial statements for any adjustments that might result from the outcome of the litigation. In accordance with the Solicitation, sale proceeds were allocated to repay the Fee Mortgagee the protective advances as well as all other sums then outstanding on the Fee Mortgage. Pursuant to an agreement between counsel for the plaintiff in the 1996 proceeding and counsel for the defendants, net sale proceeds allocated to the New Lessee in accordance with the formula set forth in the Solicitation will not be distributed to the New Lessee, except upon 30 days' notice to counsel for the plaintiff. Such allocated proceeds are currently being held by Counsel.
GARMENT CAPITOL ASSOCIATES
OMITTED SCHEDULES
The following schedules have been omitted as not applicable in the present instance:
SCHEDULE I - Condensed financial information of registrant.
SCHEDULE II - Valuation and qualifying accounts.
SCHEDULE IV - Mortgage loans on real estate.
SCHEDULE III
GARMENT CAPITOL ASSOCIATES
Real Estate and Accumulated Depreciation December 31, 1996
(a) There have been no changes in the carrying values of real estate for the years ended December 31, 1996, December 31, 1995 and December 31, 1994. The costs for federal income tax purposes are the same as for financial statement purposes.
(b) Accumulated depreciation Balance at January 1, 1994 $8,000,000 Depreciation: F/Y/E 12/31/94 None 12/31/95 None 12/31/96 None None
Balance at December 31, 1996 $8,000,000
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
The individual signing this report on behalf of Registrant is Attorney-in-Fact for Registrant and each of the Partners in Registrant, pursuant to a Power of Attorney, dated April 10, 1996 (the "Power").
GARMENT CAPITOL ASSOCIATES (Registrant)
By /s/ Stanley Katzman Stanley Katzman, Attorney-in-Fact*
Date: April 17, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the undersigned as Attorney-in-Fact for each of the Partners in Registrant, pursuant to the Power, on behalf of Registrant and as a Partner in Registrant on the date indicated.
By /s/ Stanley Katzman Stanley Katzman, Attorney-in-Fact*
Date: April 17, 1997
______________________ * Mr. Katzman supervises accounting functions for Registrant.
Exhibit Index
Number Document Page*
2 (a) Proxy Statement issued by Agents in connection with the solicitation of consents of the Participants, which was filed by Registrant on July 25, 1996 on Schedule 14-A and is incorporated herein by reference.
2 (c) Contract of Sale, among Registrant and New Lessee, as Seller, and George Comfort & Sons, Inc., as Agent, and Tirrem Management Company, Inc., as Purchasers, but excluding exhibits, which are available for inspection at the offices of Counsel.
3 (a) Registrant's Partnership Agree- ment, dated January 10, 1957, which was filed as Exhibit No. 1 to Registrant's Registration Statement on Form S-1 as amended (the "Registration Statement") effective February 13, 1957 and assigned File No. 2-13034, is incorporated by reference as an exhibit hereto.
3 (b) Amended Business Certificate of Registrant effective as of January 1, 1996, reflecting a change in the partners of Registrant, which was filed as Exhibit 3(b) to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and is incorporated by reference as an exhibit hereto.
4 Registrant's form of Participation Agreement, which was filed as Exhibit No. 5 to the Registration Statement effective February 13, 1957 and assigned File No. 2-13034, is incorporated by reference as an exhibit hereto.
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10 (a) Contract between Lawrence A. Wien ("Wien") and Garment Center Capitol Inc. for the purchase of the property 498 Seventh Avenue and certain other property, dated January 7, 1957, which was filed as Exhibit No. 2 to the Registration Statement effective February 13, 1957 and assigned File No. 2-1304, is hereby incorporated by reference as an exhibit hereto.
10 (b) Assignment by Wien to Registrant of his rights under the contract assignment, dated January 11, 1957, insofar as they pertain to 498 Seventh Avenue and agreement of assignment, dated January 11, 1957, which was filed as Exhibit No. 3 to the Registration Statement effective February 13, 1957 and assigned File No. 2-13034, is hereby incorporated by reference as an exhibit hereto.
10 (c) Modification and Extension Agreement, dated as of December 1, 1992, between Apple Savings Bank and Garment Capitol Associates, which was filed as Exhibit 10(c) to Registrant's Annual Report on Form 10K for the year ended 1994, is incorporated herein by reference.
13 Letter to Participants dated August 8, 1996 and accompanying financial reports for the lease years ended April 30, 1996 and April 30, 1995. The foregoing material shall not be deemed to be "filed" with the Commission or otherwise subject to the liabilities of Section 18 of the Securities Exchange Act of 1934.
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24 Power of Attorney dated April 10, 1996, between Stanley Katzman, Peter L. Malkin, and John L. Loehr as Partners of Registrant and Stanley Katzman and Richard A. Shapiro, attached as Exhibit 24 to Registrant's Annual Report on Form 10-K for the year ended December 31, 1995 and is incorporated by reference as an exhibit hereto.
27 Financial Data Schedule of Registrant for fiscal year ended December 31, 1995.
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