Offer to Purchase for Cash
Up to 20,000 Units of Limited Partnership Interest
in
XXXXXX XXXXXXX XXXXXXX REAL ESTATE ASSOCIATES III,
a New York limited partnership
for
$75 Net Per Unit
by
XXXXXX RIVER PROPERTIES, L.L.C.
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THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL
EXPIRE AT 12:00 MIDNIGHT, NEW YORK TIME, ON OCTOBER 27,
1998, UNLESS THE OFFER IS EXTENDED.
-------------------------------------------------------------------------------
IMPORTANT
Xxxxxx River Properties, L.L.C., a Delaware limited liability company
(the "Purchaser"), is offering to purchase up to 20,000 of the outstanding units
of limited partnership interest ("Units") in Xxxxxx Xxxxxxx Xxxxxxx Real Estate
Associates III, a New York limited partnership (the "Partnership"), at a
purchase price of $75 per Unit (the "Purchase Price"), net to the seller in
cash, without interest, upon the terms and subject to the conditions set forth
in this Offer to Purchase and in the related Assignment of Partnership Interest
(which, together with any supplements or amendments, collectively constitute the
"Offer"). The Purchase Price is subject to adjustment under certain
circumstances, as described herein. Holders of Units (each, a "Limited Partner")
who tender their Units in response to the Offer will not be obligated to pay any
commissions or partnership transfer fees. The Purchaser is an affiliate of DBL
Properties Corporation, which is the general partner of the Partnership (the
"General Partner").
Limited Partners are urged to consider the following factors:
o The Purchaser and the General Partner are both affiliates of
and controlled by Insignia Properties Trust ("IPT"), which is
controlled by Insignia Financial Group, Inc.
("Insignia").
o The net asset value per Unit most recently estimated by an
affiliate of the General Partner was $136 as of June 30, 1998,
and the net liquidation value per Unit (the "Estimated
Liquidation Value") estimated by the Purchaser (which is an
affiliate of the General Partner) in connection with the Offer
is $132.60. The Purchaser does not believe, however, that
either the net asset value estimate by the General Partner's
affiliate or the Estimated Liquidation Value represents a fair
estimate of the market value of a Unit, primarily due to the
fact that such estimates do not take into account timing
considerations, market uncertainties and legal and other
expenses that would be incurred in connection with a
liquidation of the Partnership. See Section 13. Accordingly,
the Purchaser does not believe that such estimates should be
viewed as representative of the amount a Limited Partner can
realistically expect to obtain on a sale of a Unit in the near
term.
o The Purchaser will have the right to vote all Units acquired
pursuant to the Offer. Accordingly, if the Purchaser (which is
an affiliate of the General Partner) is successful in
acquiring a significant number of Units, it will be able to
significantly influence all voting decisions with respect to
the Partnership, including decisions regarding liquidation,
amendments to the Limited Partnership Agreement, removal and
replacement of the General Partner and mergers, consolidations
and other extraordinary transactions.
o The Purchaser (which is an affiliate of the General Partner)
is making the Offer with a view to making a profit.
Accordingly, there is a conflict between the desire of the
Purchaser (which is an affiliate of the General Partner) to
purchase Units at a low price and the desire of the Limited
Partners to sell their Units at a high price.
THE OFFER IS NOT CONDITIONED ON FINANCING OR UPON ANY MINIMUM AGGREGATE
NUMBER OF UNITS BEING TENDERED.
----------------------------------------
Any Limited Partner desiring to tender Units should complete and sign
the Assignment of Partnership Interest in accordance with the Instructions to
the Assignment of Partnership Interest and mail or deliver the signed Assignment
of Partnership Interest to the Depositary. A Limited Partner may tender any or
all of the Units owned by that Limited Partner; provided, however, that because
of restrictions in the Partnership's Limited Partnership Agreement, (i) a
partial tender of Units must be for a minimum of ten Units and (ii) in order for
a partial tender to be valid, after a sale of Units pursuant to the Offer, the
tendering Limited Partner must continue to hold a minimum of ten Units (other
than Individual Retirement Accounts or Xxxxx Plans which purchased less than ten
Units, who must tender all or none of its Units). Tenders of fractional Units
will not be permitted, except by a Limited Partner who is tendering all of the
Units owned by that Limited Partner.
Questions and requests for assistance or for additional copies of this
Offer to Purchase and the Assignment of Partnership Interest may be directed to
the Information Agent at the address and telephone numbers set forth below and
on the back cover of this Offer to Purchase. No soliciting dealer fees or other
payments to brokers for tenders are being paid by the Purchaser (which is an
affiliate of the General Partner).
----------------------------------------
For More Information or for Further Assistance Please Call:
Beacon Hill Partners, Inc.
at
(800) 854-9486
September 29, 1998
TABLE OF CONTENTS
PAGE
----
INTRODUCTION.................................................................................................... 1
The Purchaser; Affiliation with the General Partner......................................................... 1
Some Factors to Be Considered by Limited Partners........................................................... 1
Reasons for and Effects of the Offer........................................................................ 3
Certain Tax Considerations.................................................................................. 3
Originally Anticipated Term of the Partnership; General Policy Regarding Sales
and Refinancings of Partnership Properties; Alternatives........................................... 4
Conditions.................................................................................................. 4
Distributions............................................................................................... 4
Outstanding Units........................................................................................... 4
THE OFFER....................................................................................................... 5
Section 1. Terms of the Offer; Expiration Date; Proration.................................................. 5
Section 2. Acceptance for Payment and Payment for Units.................................................... 6
Section 3. Procedure for Tendering Units................................................................... 6
Valid Tender............................................................................................ 6
Signature Requirements.................................................................................. 7
Delivery of Assignment of Partnership Interest.......................................................... 7
Appointment as Proxy; Power of Attorney................................................................. 7
Assignment of Interest in Future Distributions.......................................................... 8
Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects.......................................................................... 8
Backup Federal Income Tax Withholding................................................................... 8
FIRPTA Withholding...................................................................................... 8
Binding Obligation...................................................................................... 8
Section 4. Withdrawal Rights............................................................................... 8
Section 5. Extension of Tender Period; Termination; Amendment.............................................. 9
Section 6. Certain Federal Income Tax Matters.............................................................. 9
General................................................................................................. 9
Gain or Loss Generally.................................................................................. 10
Unrealized Receivables and Certain Inventory............................................................ 10
Passive Activity Loss Limitation........................................................................ 11
Partnership Termination................................................................................. 11
Backup Withholding and FIRPTA Withholding............................................................... 11
Section 7. Effects of the Offer............................................................................ 12
Limitations on Resales.................................................................................. 12
Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act.......................... 12
Control of Limited Partner Voting Decisions by Purchaser; Effect of Relationship
with General Partner............................................................................... 12
Section 8. Future Plans of Insignia, IPT and the Purchaser................................................. 13
Section 9. Certain Information Concerning the Partnership.................................................. 13
General................................................................................................. 14
Originally Anticipated Term of Partnership; Alternatives................................................ 14
General Policy Regarding Sales and Refinancings of Partnership Properties............................... 14
Selected Financial and Property-Related Data............................................................ 14
Cash Distributions History.............................................................................. 17
Operating Budgets of the Partnership.................................................................... 17
Section 10. Conflicts of Interest and Transactions with Affiliates......................................... 18
Conflicts of Interest with Respect to the Offer......................................................... 18
Voting by the Purchaser................................................................................. 18
i
Financing Arrangements.................................................................................. 18
Transactions with Affiliates............................................................................ 19
Section 11. Certain Information Concerning the Purchaser, IPLP, IPT and Insignia........................... 19
The Purchaser........................................................................................... 19
IPT and IPLP............................................................................................ 19
Insignia................................................................................................ 20
Section 12. Source of Funds................................................................................ 22
Section 13. Background of the Offer........................................................................ 23
Affiliation With the General Partner.................................................................... 23
Determination of Purchase Price......................................................................... 23
Section 14. Conditions of the Offer........................................................................ 28
Section 15. Certain Legal Matters.......................................................................... 29
General................................................................................................. 29
Antitrust............................................................................................... 29
Margin Requirements..................................................................................... 30
Section 16. Fees and Expenses.............................................................................. 30
Section 17. Miscellaneous.................................................................................. 30
SCHEDULE I - Information Regarding the Managers of the Purchaser......................................S-1
SCHEDULE II - Information Regarding the Trustees and Executive Officers of IPT.........................S-2
SCHEDULE III - Information Regarding the Directors and Executive Officers of Insignia...................S-4
SCHEDULE IV - IPT Partnerships.........................................................................S-7
ii
TO THE LIMITED PARTNERS OF
XXXXXX XXXXXXX XXXXXXX REAL ESTATE ASSOCIATES III
INTRODUCTION
Xxxxxx River Properties, L.L.C. (the "Purchaser"), which is a Delaware
limited liability company and an affiliate of the General Partner (as defined
below), hereby offers to purchase up to 20,000 of the outstanding units of
limited partnership interest ("Units"), representing approximately 33% of the
Units outstanding, in Xxxxxx Xxxxxxx Xxxxxxx Real Estate Associates III, a New
York limited partnership (the "Partnership"), at a purchase price of $75 per
Unit (the "Purchase Price"), net to the seller in cash, without interest, upon
the terms and subject to the conditions set forth in this Offer to Purchase and
in the related Assignment of Partnership Interest (which, together with any
supplements or amendments, collectively constitute the "Offer"). The Offer is
not conditioned on any aggregate minimum number of Units being tendered. A
Limited Partner may tender any or all of the Units owned by that Limited
Partner; provided, however, that because of restrictions in the Partnership's
Limited Partnership Agreement (the "Limited Partnership Agreement"), (i) a
partial tender of Units must be for a minimum of ten Units and (ii) in order for
a partial tender to be valid, after a sale of Units pursuant to the Offer, the
tendering Limited Partner must continue to hold a minimum of ten Units (other
than Individual Retirement Accounts ("IRAs") or Xxxxx Plans which purchased less
than ten Units, who must tender all or none of its Units). Accordingly, any
Limited Partner that owns ten or fewer Units (or, in the case of IRAs or Xxxxx
Plans which purchased less than ten Units, such amount of Units), must tender
all or none of its Units. Tenders of fractional Units will not be permitted,
except by a Limited Partner who is tendering all of the Units owned by that
Limited Partner. The Purchaser (which is an affiliate of the General Partner)
will pay all charges and expenses of Beacon Hill Partners, Inc., who will serve
as the Purchaser's information agent for the Offer (the "Information Agent"),
and Xxxxxx Trust Company of New York, who will act as depositary for the Offer
(the "Depositary").
The Purchaser; Affiliation with the General Partner. DBL Properties
Corporation, which is the general partner of the Partnership (the "General
Partner"), is a direct, wholly-owned subsidiary of Insignia Financial Group,
Inc., a Delaware corporation ("Insignia"), which is an affiliate of Insignia
Properties Trust, a Maryland real estate investment trust ("IPT"). The Purchaser
is a recently formed, wholly-owned subsidiary of Insignia Properties, L.P., a
Delaware limited partnership ("IPLP"), which is the operating partnership of
IPT. IPT is the sole general partner of IPLP (owning approximately 70% of the
total equity interests in IPLP), and Insignia is the sole limited partner of
IPLP (owning approximately 30% of the total equity interests in IPLP). Insignia
and its affiliates also own approximately 57% of the outstanding common shares
of IPT. Since June 1997, Insignia Residential Group, L.P. ("IRG") and
Insignia/ESG, Inc. (formerly known as Insignia Commercial Group, Inc.)
("I/ESG"), which are affiliates of IPT and the Purchaser, have provided asset
management and property management services to the Partnership, and for more
than the past three years, Insignia (directly or through affiliates) has
performed partnership administration and investor relations services for the
Partnership. By reason of these relationships, the General Partner has conflicts
of interest in considering the Offer. The General Partner has indicated in a
Statement on Schedule 14D-9 (the "Schedule 14D-9") filed with the Securities and
Exchange Commission (the "Commission") that it is remaining neutral and making
no recommendation as to whether Limited Partners should tender their Units in
response to the Offer. LIMITED PARTNERS ARE URGED TO READ THIS OFFER TO PURCHASE
AND THE RELATED MATERIALS AND THE SCHEDULE 14D-9 CAREFULLY AND IN THEIR ENTIRETY
BEFORE DECIDING WHETHER TO TENDER THEIR UNITS. See Sections 10 and 13.
Some Factors to Be Considered by Limited Partners. In considering the
Offer, Limited Partners may wish to consider the following factors:
Potential Adverse Aspects of the Offer for Limited Partners
o The Purchaser and the General Partner are affiliates of and
controlled by IPT, which is controlled by Insignia. See
Sections 11 and 13. The General Partner has conflicts of
interest in considering the Offer, including (i) as a result
of the fact that a sale or liquidation of the Partnership's
assets would result in a decrease or elimination of the fees
paid to the General Partner and/or its affiliates and (ii) the
fact that as a consequence of the Purchaser's ownership of
Units, the Purchaser (which is an affiliate of the General
Partner) may have incentives to seek to maximize
the value of its ownership of Units, which in turn may result
in a conflict for the General Partner in attempting to
reconcile the interests of the Purchaser (which is an
affiliate of the General Partner) with the interests of the
other Limited Partners. See Section 10.
o The net asset value per Unit most recently estimated by an
affiliate of the General Partner was $136 as of June 30, 1998,
and the net liquidation value per Unit (the "Estimated
Liquidation Value") estimated by the Purchaser (which is an
affiliate of the General Partner) in connection with the Offer
is $132.60. See Section 13 for a discussion of why the
Purchaser (which is an affiliate of the General Partner)
believes that such estimates are not necessarily indicative of
the fair market value of a Unit. THE PURCHASER (WHICH IS AN
AFFILIATE OF THE GENERAL PARTNER) MAKES NO REPRESENTATION AND
EXPRESSES NO OPINION AS TO THE FAIRNESS OR ADEQUACY OF THE
PURCHASE PRICE.
o The Purchase Price is approximately 53% less than the highest
reported sales price of any Unit during the past six months
(based on published information and information provided by
the General Partner). However, reported secondary market sales
prices do not take into account commissions and transfer fees
typically payable by a Limited Partner in connection with a
secondary market sale. Therefore, the actual proceeds received
by a Limited Partner who sells Units in the secondary market
are typically significantly less than the reported sales
prices.
o As with any rational investment decision, the Purchaser (which
is an affiliate of the General Partner) is making the Offer
with a view to making a profit. Accordingly, there is a
conflict between the desire of the Purchaser (which is an
affiliate of the General Partner) to purchase Units at a low
price and the desire of the Limited Partners to sell their
Units at a high price.
o If the Purchaser is successful in acquiring a significant
number of Units pursuant to the Offer, the Purchaser (which is
an affiliate of the General Partner) will have the right to
vote those Units and thereby significantly influence all
voting decisions with respect to the Partnership, including
decisions concerning liquidation, amendments to the Limited
Partnership Agreement, removal and replacement of the General
Partner and mergers, consolidations and other extraordinary
transactions. This means that (i) non-tendering Limited
Partners could be prevented from taking action they desire but
that IPT (which is an affiliate of the General Partner)
opposes and (ii) IPT (which is an affiliate of the General
Partner) may be able to take action desired by IPT but opposed
by the non-tendering Limited Partners.
Potentially Beneficial Aspects of the Offer for Limited Partners
o Although there are some limited resale mechanisms available to
Limited Partners wishing to sell their Units, there is no
formal trading market for Units. At present, Limited Partners
may seek to negotiate private sales or sales through a trading
system such as the American Partnership Board, which publishes
sell offers by Limited Partners in respect of Units.
Accordingly, THE OFFER AFFORDS LIMITED PARTNERS AN OPPORTUNITY
TO DISPOSE OF THEIR UNITS FOR CASH WHICH OTHERWISE MIGHT NOT
BE AVAILABLE TO THEM.
o THE OFFER MAY BE ATTRACTIVE TO LIMITED PARTNERS WHO HAVE AN
IMMEDIATE NEED FOR CASH.
o LIMITED PARTNERS WHO SELL UNITS PURSUANT TO THE OFFER WILL NOT
BE CHARGED ANY SALES COMMISSIONS (WHICH GENERALLY RANGE FROM
3% TO 10% OF THE SALES PRICE) OR PARTNERSHIP TRANSFER FEES
(WHICH ARE TYPICALLY $50 PER TRANSFER). The Purchaser will pay
all transfer fees imposed by the Partnership in connection
with sales of Units pursuant to the Offer.
2
o Real estate markets in the United States generally have
recovered and experienced an upward trend since the end of the
last recession. That recovery and upward trend might continue.
On the other hand, real estate markets also may be adversely
affected by a variety of factors, including possible
fluctuations in interest rates, economic slowdowns and
overbuilding. Accordingly, ownership of Units continues to be
a speculative investment. THE OFFER MAY PROVIDE LIMITED
PARTNERS WITH THE OPPORTUNITY TO LIQUIDATE THEIR INTERESTS IN
THE PARTNERSHIP AND REPLACE THEM WITH INVESTMENTS THAT ARE
LESS SPECULATIVE.
o The Offer may be attractive to Limited Partners who wish to
avoid in the future the expenses, delays and complications in
filing personal income tax returns which may be caused by
ownership of Units. In addition, A LIMITED PARTNER WHO SELLS
100% OF ITS UNITS PURSUANT TO THE OFFER WILL NO LONGER BE
SUBJECT TO THE PASSIVE ACTIVITY LOSS LIMITATION WITH RESPECT
TO "SUSPENDED" LOSSES ATTRIBUTABLE TO THOSE UNITS AND,
THEREFORE, WILL BE ABLE TO UTILIZE FULLY ANY SUCH LOSSES.
o The Offer may be attractive to those Limited Partners who have
become disenchanted with real estate investments generally,
and in particular with the perceived illiquidity of
investments made through limited partnerships, because it may
afford an immediate opportunity for those Limited Partners to
liquidate their investments in the Partnership. On the other
hand, Limited Partners who tender their Units will be giving
up the opportunity to participate in any potential future
benefits represented by the ownership of those Units,
including, for example, the right to participate in any future
distributions of cash or property, whether from operations,
the proceeds of a sale or refinancing of one or more of the
Partnership's properties or in connection with any future
liquidation of the Partnership. Instead, any such
distributions of cash or property with respect to Units
tendered in the Offer and purchased by the Purchaser will be
paid to the Purchaser.
The Purchaser (which is an affiliate of the General Partner) makes no
recommendation to any Limited Partner as to whether to tender or refrain from
tendering Units and has been advised by the General Partner that the General
Partner also expects to make no recommendation. Each Limited Partner must make
its own decision, based on the Limited Partner's particular circumstances, as to
whether to tender Units and, if so, how many Units to tender. Limited Partners
should consult with their respective advisors regarding the financial, tax,
legal and other implications of accepting the Offer. LIMITED PARTNERS ARE URGED
TO READ THIS OFFER TO PURCHASE AND THE RELATED MATERIALS CAREFULLY AND IN THEIR
ENTIRETY BEFORE DECIDING WHETHER TO TENDER THEIR UNITS.
Reasons for and Effects of the Offer. The Purchaser's purpose in making
the Offer is to increase IPT's equity interest in the Partnership, primarily for
investment purposes and with a view to making a profit. Although the number of
Units sought in the Offer will not give the Purchaser (which is an affiliate of
the General Partner) absolute control over the Partnership, if the Purchaser is
successful in acquiring all or a substantial portion of the Units it is
tendering for, it will be in a position to exercise significant influence over
the outcome of any vote by Limited Partners. See Sections 8, 10 and 13.
Certain Tax Considerations. A sale by a Limited Partner pursuant to the
Offer will result in taxable gain (or loss) equal to the excess (deficit) of the
amount realized by the Limited Partner for the Units sold over (under) such
Limited Partner's adjusted tax basis in those Units, which may be taxable as
ordinary income or loss, capital gain or loss or gain from real estate
depreciation recapture. If a Limited Partner has suspended "passive losses" from
the Partnership or other passive activity investments, such Limited Partner
generally may deduct these losses up to the amount of any gain from the sale. A
sale pursuant to the Offer of all of a Limited Partner's Units will terminate
his or her investment in the Partnership and, commencing with the year following
the year of sale, the Limited Partner will no longer receive Partnership tax
information or have to report the complicated tax information currently required
of Limited Partners. See Section 6.
3
Originally Anticipated Term of the Partnership; General Policy
Regarding Sales and Refinancings of Partnership Properties; Alternatives.
According to the Partnership's Prospectus dated March 21, 1985, the General
Partner anticipated that the Partnership would sell and/or refinance its
properties three to seven years after their acquisition, depending on the then
current real estate and money markets, economic climate and income tax
consequences to the Limited Partners. In general, the General Partner regularly
evaluates the Partnership's properties by considering various factors, such as
the Partnership's financial position and real estate and capital markets
conditions. The General Partner monitors each property's specific locale and
sub-market conditions evaluating current trends, competition, new construction
and economic changes. The General Partner oversees each asset's operating
performance and continuously evaluates the physical improvement requirements. In
addition, the financing structure for each property, tax implications and the
investment climate are all considered. Any of these factors, and possibly
others, could potentially contribute to any decision by the General Partner to
sell, refinance, upgrade with capital improvements or hold a particular
Partnership property. The General Partner has advised the Purchaser (which is an
affiliate of the General Partner) that it is in the process of evaluating the
feasibility of refinancing the mortgage encumbering the Shallowford Corners
Shopping Center in Roswell, Georgia. However, the General Partner has indicated
that it intends to use the proceeds from such refinancing to pay off a portion
of the mortgage debt encumbering the Partnership's other properties, and does
not expect to make any distributions to Limited Partners. Based on the above
considerations, and except for the potential refinancing of the Shallowford
Corners Shopping Center, the General Partner has determined that it is not in
the best interest of Limited Partners to sell or refinance any other property at
the present time. Under the Limited Partnership Agreement the term of the
Partnership will continue until December 31, 2034, unless sooner terminated as
provided in the Limited Partnership Agreement or by law. Limited Partners could,
as an alternative to tendering their Units, take a variety of possible actions,
including voting to liquidate the Partnership or amending the Limited
Partnership Agreement to authorize Limited Partners to cause the Partnership to
merge with another entity or engage in a "roll-up" or similar transaction.
Conditions. The Offer is not conditioned on any aggregate minimum
number of Units being tendered. Certain other conditions do apply, however. See
Section 14.
Distributions. The Partnership has made cash distributions to Limited
Partners of $10.00 per Unit in 1998 (through September 29), and made
distributions of $10.00 per Unit in each of 1996 and 1995. In total, original
investors in the Partnership have received distributions of only $152.39 in
respect of their original $500 investment made in 1985. See Section 9. The
Partnership is currently generating positive cash flow from operations, and the
Purchaser (which is an affiliate of the General Partner) believes that the
Partnership will continue to generate positive cash flow from operations. The
potential for future distributions was considered by the Purchaser (which is an
affiliate of the General Partner) when establishing the Purchase Price. Limited
Partners who tender their Units in response to the Offer will retain any
distributions made through September 29, 1998, and will be entitled to receive
and retain any subsequent distributions made by the Partnership prior to the
date on which the Purchaser pays for tendered Units pursuant to the Offer,
although any such subsequent distribution will result in a reduction of the
Purchase Price. See Section 1. However, tendering Limited Partners will not be
entitled to receive or retain any distributions in respect of tendered Units
which are made on or after the date on which the Purchaser pays for such Units
pursuant to the Offer, regardless of the fact that the record date (as opposed
to the payment date) for any such distribution may be a date prior to the date
of purchase. See Section 3.
Outstanding Units. According to information supplied by the
Partnership, as of September 1, 1998 there were 59,905 Units issued and
outstanding, which were held of record by 2,051 Limited Partners. None of IPLP,
IPT or Insignia currently owns any Units.
4
THE OFFER
SECTION 1. TERMS OF THE OFFER; EXPIRATION DATE; PRORATION. Upon the
terms and subject to the conditions of the Offer, the Purchaser (which is an
affiliate of the General Partner) will accept for payment (and thereby purchase)
up to 20,000 Units that are validly tendered on or prior to the Expiration Date
and not withdrawn in accordance with the procedures set forth in Section 4. For
purposes of the Offer, the term "Expiration Date" shall mean 12:00 midnight, New
York City time, on October 27, 1998, unless the Purchaser (which is an affiliate
of the General Partner) in its sole discretion shall have extended the period of
time for which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date on which the Offer, as extended by the
Purchaser, shall expire. See Section 5 for a description of the Purchaser's
right to extend the period of time during which the Offer is open and to amend
or terminate the Offer.
THE PURCHASE PRICE WILL AUTOMATICALLY BE REDUCED BY THE AGGREGATE
AMOUNT OF DISTRIBUTIONS PER UNIT, IF ANY, MADE BY THE PARTNERSHIP TO LIMITED
PARTNERS ON OR AFTER SEPTEMBER 29, 1998, AND PRIOR TO THE DATE ON WHICH THE
PURCHASER PAYS FOR UNITS PURCHASED PURSUANT TO THE OFFER.
If, prior to the Expiration Date, the Purchaser (which is an affiliate
of the General Partner) increases the consideration offered to Limited Partners
pursuant to the Offer, the increased consideration will be paid for all Units
accepted for payment pursuant to the Offer, regardless of whether the Units were
tendered prior to the increase in the consideration offered.
If more than 20,000 Units are validly tendered prior to the Expiration
Date and not properly withdrawn prior to the Expiration Date in accordance with
the procedures specified in Section 4, the Purchaser (which is an affiliate of
the General Partner) will, upon the terms and subject to the conditions of the
Offer, accept for payment and pay for an aggregate of 20,000 of the Units so
tendered, pro rata according to the number of Units validly tendered by each
Limited Partner and not properly withdrawn on or prior to the Expiration Date,
with appropriate adjustments to avoid (i) purchases of fractional Units and (ii)
purchases that would violate Section 13.2 of the Limited Partnership Agreement
(which generally requires that (a) a partial tender of Units must be for a
minimum of ten Units and (b) in order for a partial tender to be valid, after a
sale of Units pursuant to the Offer, the tendering Limited Partner must continue
to hold a minimum of ten Units (other than IRAs or Xxxxx Plans which purchased
less than ten Units, who must tender all or none of its Units)). If the number
of Units validly tendered and not properly withdrawn on or prior to the
Expiration Date is less than or equal to 20,000 Units, the Purchaser (which is
an affiliate of the General Partner) will purchase all Units so tendered and not
withdrawn, upon the terms and subject to the conditions of the Offer.
If proration of tendered Units is required, then, subject to the
Purchaser's obligation under Rule 14e-1(c) under the Securities Exchange Act of
1934 (the "Exchange Act") to pay Limited Partners the Purchase Price in respect
of Units tendered or return those Units promptly after the termination or
withdrawal of the Offer, the Purchaser (which is an affiliate of the General
Partner) does not intend to pay for any Units accepted for payment pursuant to
the Offer until the final proration results are known. NOTWITHSTANDING ANY SUCH
DELAY IN PAYMENT, NO INTEREST WILL BE PAID ON THE PURCHASE PRICE.
The Offer is conditioned on satisfaction of certain conditions. See
Section 14, which sets forth in full the conditions of the Offer. The Purchaser
(which is an affiliate of the General Partner) reserves the right (but in no
event shall be obligated), in its sole discretion, to waive any or all of those
conditions. If, on or prior to the Expiration Date, any or all of the conditions
have not been satisfied or waived, the Purchaser reserves the right to (i)
decline to purchase any of the Units tendered and terminate the Offer, (ii)
waive all of the unsatisfied conditions and, subject to complying with
applicable rules and regulations of the Commission, purchase all Units validly
tendered, (iii) extend the Offer and, subject to the right of Limited Partners
to withdraw Units until the Expiration Date, retain the Units that have been
tendered during the period or periods for which the Offer is extended, and/or
(iv) amend the Offer.
This Offer to Purchase and the related Assignment of Partnership
Interest are being mailed by the Purchaser (which is an affiliate of the General
Partner) to the persons shown by the Partnership's records to have been Limited
5
Partners or (in the case of Units owned of record by IRAs and qualified plans)
beneficial owners of Units as of September 1, 1998.
SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS. Upon the terms
and subject to the conditions of the Offer, the Purchaser (which is an affiliate
of the General Partner) will accept for payment (and thereby purchase) and will
pay for all Units validly tendered and not withdrawn in accordance with the
procedures specified in Section 4, as promptly as practicable following the
Expiration Date. A tendering beneficial owner of Units whose Units are owned of
record by an IRA or other qualified plan will not receive direct payment of the
Purchase Price; rather, payment will be made to the custodian of such account or
plan. In all cases, payment for Units purchased pursuant to the Offer will be
made only after timely receipt by the Depositary of a properly completed and
duly executed Assignment of Partnership Interest and any other documents
required by the Assignment of Partnership Interest. See Section 3. UNDER NO
CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE BY REASON OF ANY DELAY
IN MAKING SUCH PAYMENT.
For purposes of the Offer, the Purchaser (which is an affiliate of the
General Partner) will be deemed to have accepted for payment pursuant to the
Offer, and thereby purchased, validly tendered Units if, as and when the
Purchaser (which is an affiliate of the General Partner) gives verbal or written
notice to the Depositary of the Purchaser's acceptance of those Units for
payment pursuant to the Offer. Upon the terms and subject to the conditions of
the Offer, payment for Units accepted for payment pursuant to the Offer will be
made by deposit of the Purchase Price with the Depositary, which will act as
agent for tendering Limited Partners for the purpose of receiving payments from
the Purchaser and transmitting those payments to Limited Partners whose Units
have been accepted for payment.
If any tendered Units are not purchased for any reason, the Assignment
of Partnership Interest with respect to such Units will be destroyed by the
Purchaser (which is an affiliate of the General Partner). If for any reason
acceptance for payment of, or payment for, any Units tendered pursuant to the
Offer is delayed or the Purchaser is unable to accept for payment, purchase or
pay for Units tendered pursuant to the Offer, then, without prejudice to the
Purchaser's rights under Section 14, the Depositary may, nevertheless, on behalf
of the Purchaser (which is an affiliate of the General Partner) retain tendered
Units, and those Units may not be withdrawn except to the extent that the
tendering Limited Partners are entitled to withdrawal rights as described in
Section 4; subject, however, to the Purchaser's obligation under Rule 14e-1(c)
under the Exchange Act to pay Limited Partners the Purchase Price in respect of
Units tendered or return those Units promptly after termination or withdrawal of
the Offer.
The Purchaser (which is an affiliate of the General Partner) reserves
the right to transfer or assign, in whole or from time to time in part, to one
or more of the Purchaser's affiliates, the right to purchase Units tendered
pursuant to the Offer, but any such transfer or assignment will not relieve the
Purchaser of its obligations under the Offer or prejudice the rights of
tendering Limited Partners to receive payment for Units validly tendered and
accepted for payment pursuant to the Offer.
SECTION 3. PROCEDURE FOR TENDERING UNITS.
Valid Tender. In order for a tendering Limited Partner to participate
in the Offer, its Units must be validly tendered and not withdrawn on or prior
to the Expiration Date. To validly tender Units, a properly completed and duly
executed Assignment of Partnership Interest and any other documents required by
the Assignment of Partnership Interest must be received by the Depositary, at
its address set forth on the back cover of this Offer to Purchase, on or prior
to the Expiration Date. A Limited Partner may tender any or all of the Units
owned by that Limited Partner; provided, however, that because of restrictions
in the Limited Partnership Agreement, (i) a partial tender of Units must be for
a minimum of ten Units and (ii) in order for a partial tender to be valid, after
a sale of Units pursuant to the Offer, the tendering Limited Partner must
continue to hold a minimum of ten Units (other than IRAs or Xxxxx Plans which
purchased less than ten Units, who must tender all or none of its Units).
Accordingly, any Limited Partner that owns ten or fewer Units (or, in the case
of IRAs or Xxxxx Plans which purchased less than ten Units, such amount of
Units) must tender all or none of its Units. Tenders of fractional Units will
not be permitted, except by a Limited Partner who is tendering all of the Units
owned by that Limited Partner. No alternative, conditional or contingent tenders
will be accepted.
6
Signature Requirements. If the Assignment of Partnership Interest is
signed by the registered holder of the Units and payment is to be made directly
to that holder, then no signature guarantee is required on the Assignment of
Partnership Interest. Similarly, if the Units are tendered for the account of a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc. or a commercial bank, savings
bank, credit union, savings and loan association or trust company having an
office, branch or agency in the United States (each an "Eligible Institution"),
no signature guarantee is required on the Assignment of Partnership Interest.
HOWEVER, IN ALL OTHER CASES, ALL SIGNATURES ON THE ASSIGNMENT OF PARTNERSHIP
INTEREST MUST BE GUARANTEED BY AN ELIGIBLE INSTITUTION. Please contact the
Information Agent for assistance in obtaining a signature guarantee.
Delivery of Assignment of Partnership Interest. The method of delivery
of the Assignment of Partnership Interest and all other required documents is at
the option and risk of the tendering Limited Partner, and delivery will be
deemed made only when actually received by the Depositary. In all cases,
sufficient time should be allowed to assure timely delivery.
Appointment as Proxy; Power of Attorney. By executing an Assignment of
Partnership Interest, a tendering Limited Partner irrevocably appoints the
Purchaser (which is an affiliate of the General Partner), and its managers and
designees as the Limited Partner's proxies, in the manner set forth in the
Assignment of Partnership Interest, each with full power of substitution, to the
full extent of the Limited Partner's rights with respect to the Units tendered
by the Limited Partner and accepted for payment by the Purchaser (which is an
affiliate of the General Partner). Each such proxy shall be considered coupled
with an interest in the tendered Units. Such appointment will be effective when,
and only to the extent that, the Purchaser (which is an affiliate of the General
Partner) accepts the tendered Units for payment. Upon such acceptance for
payment, all prior proxies given by the Limited Partner with respect to the
Units will, without further action, be revoked, and no subsequent proxies may be
given (and if given will not be effective). The Purchaser (which is an affiliate
of the General Partner) and its managers and designees will, as to those Units,
be empowered to exercise all voting and other rights of the Limited Partner as
they in their sole discretion may deem proper at any meeting of Limited
Partners, by written consent or otherwise. The Purchaser (which is an affiliate
of the General Partner) reserves the right to require that, in order for Units
to be deemed validly tendered, immediately upon the Purchaser's acceptance for
payment of the Units, the Purchaser must be able to exercise full voting rights
with respect to the Units, including voting at any meeting of Limited Partners
then scheduled or acting by written consent without a meeting.
By executing an Assignment of Partnership Interest, a tendering Limited
Partner also irrevocably constitutes and appoints the Purchaser and its managers
and designees as the Limited Partner's attorneys-in-fact, each with full power
of substitution, to the full extent of the Limited Partner's rights with respect
to the Units tendered by the Limited Partner and accepted for payment by the
Purchaser. Such appointment will be effective when, and only to the extent that,
the Purchaser accepts the tendered Units for payment. The tendering Limited
Partner agrees not to exercise any rights pertaining to the tendered Units
without the prior consent of the Purchaser. Upon such acceptance for payment,
all prior powers of attorney granted by the Limited Partner with respect to such
Units will, without further action, be revoked, and no subsequent powers of
attorney may be granted (and if granted will not be effective). Pursuant to such
appointment as attorneys-in-fact, the Purchaser and its managers and designees
each will have the power, among other things, (i) to transfer ownership of such
Units on the Partnership books maintained by the General Partner (and execute
and deliver any accompanying evidences of transfer and authenticity any of them
may deem necessary or appropriate in connection therewith), (ii) upon receipt by
the Depositary (as the tendering Limited Partner's agent) of the Purchase Price,
to become a substituted Limited Partner, to receive any and all distributions
made by the Partnership on or after the date on which the Purchaser purchases
such Units, and to receive all benefits and otherwise exercise all rights of
beneficial ownership of such Units in accordance with the terms of the Offer,
(iii) to execute and deliver to the General Partner a change of address form
instructing the General Partner to send any and all future distributions to
which the Purchaser is entitled pursuant to the terms of the Offer in respect of
tendered Units to the address specified in such form, and (iv) to endorse any
check payable to or upon the order of such Limited Partner representing a
distribution to which the Purchaser is entitled pursuant to the terms of the
Offer, in each case in the name and on behalf of the tendering Limited Partner.
7
Assignment of Interest in Future Distributions. By executing an
Assignment of Partnership Interest, a tendering Limited Partner irrevocably
assigns to the Purchaser (which is an affiliate of the General Partner) and its
assigns all of the right, title and interest of the Limited Partner in and to
any and all distributions made by the Partnership on or after the date on which
the Purchaser purchases such Units, in respect of the Units tendered by such
Limited Partner and accepted for payment by the Purchaser, regardless of the
fact that the record date for any such distribution may be a date prior to the
date of such purchase. The Purchaser will seek to be admitted to the Partnership
as a substituted Limited Partner upon consummation of the Offer.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Units pursuant to the Offer will be determined by the Purchaser (which is an
affiliate of the General Partner), in its sole discretion, which determination
shall be final and binding. The Purchaser (which is an affiliate of the General
Partner) reserves the absolute right to reject any or all tenders of any
particular Units determined by it not to be in proper form or if the acceptance
of or payment for those Units may, in the opinion of the Purchaser's counsel, be
unlawful. The Purchaser (which is an affiliate of the General Partner) also
reserves the absolute right to waive or amend any of the conditions of the Offer
that it is legally permitted to waive as to the tender of any particular Units
and to waive any defect or irregularity in any tender with respect to any
particular Units of any particular Limited Partner. The Purchaser's
interpretation of the terms and conditions of the Offer (including the
Assignment of Partnership Interest and the Instructions thereto) will be final
and binding. No tender of Units will be deemed to have been validly made until
all defects and irregularities have been cured or waived. None of the Purchaser
(which is an affiliate of the General Partner), the Information Agent, the
Depositary or any other person will be under any duty to give notification of
any defects or irregularities in the tender of any Units or will incur any
liability for failure to give any such notification.
Backup Federal Income Tax Withholding. To prevent the possible
application of backup federal income tax withholding of 31% with respect to
payment of the Purchase Price, each tendering Limited Partner must provide the
Purchaser (which is an affiliate of the General Partner) with the Limited
Partner's correct taxpayer identification number by completing the Substitute
Form W-9 included in the Assignment of Partnership Interest. See the
Instructions to the Assignment of Partnership Interest and Section 6.
FIRPTA Withholding. To prevent the withholding of federal income tax in
an amount equal to 10% of the amount of the Purchase Price plus Partnership
liabilities allocable to each Unit purchased, each tendering Limited Partner
must complete the FIRPTA Affidavit included in the Assignment of Partnership
Interest certifying the Limited Partner's taxpayer identification number and
address and that such Limited Partner is not a foreign person.
See the Instructions to the Assignment of Partnership Interest and Section 6.
Binding Obligation. A tender of Units pursuant to and in accordance
with the procedures described in this Section 3 and the acceptance for payment
of such Units will constitute a binding agreement between the tendering Limited
Partner and the Purchaser (which is an affiliate of the General Partner) on the
terms set forth in this Offer to Purchase and in the Assignment of Partnership
Interest.
SECTION 4. WITHDRAWAL RIGHTS. Tenders of Units pursuant to the Offer
are irrevocable, except that Units tendered pursuant to the Offer may be
withdrawn at any time prior to the Expiration Date and, unless already accepted
for payment as provided in this Offer to Purchase, may also be withdrawn at any
time after November 27, 1998. For withdrawal to be effective, a written or
facsimile transmission notice of withdrawal must be timely received by the
Depositary at its address set forth on the back cover of this Offer to Purchase.
Any such notice of withdrawal must specify the name of the person who tendered
the Units to be withdrawn and must be signed by the person(s) who signed the
Assignment of Partnership Interest in the same manner as the Assignment of
Partnership Interest was signed (including signature guarantees by an Eligible
Institution). Units properly withdrawn will be deemed not to be validly tendered
for purposes of the Offer. Withdrawn Units may be re-tendered, however, by
following the procedures described in Section 3 at any time prior to the
Expiration Date.
If payment for Units is delayed for any reason or if the Purchaser
(which is an affiliate of the General Partner) is unable to pay for Units for
any reason, then, without prejudice to the Purchaser's rights under the Offer,
8
tendered Units may be retained by the Depositary and may not be withdrawn except
to the extent that tendering Limited Partners are entitled to withdrawal rights
as set forth in this Section 4; subject, however, to the Purchaser's obligation,
pursuant to Rule 14e-1(c) under the Exchange Act, to pay Limited Partners the
Purchase Price in respect of Units tendered or return those Units promptly after
termination or withdrawal of the Offer.
All questions as to the validity and form (including time of receipt)
of notices of withdrawal will be determined by the Purchaser (which is an
affiliate of the General Partner), in its sole discretion, which determination
shall be final and binding. None of the Purchaser, the Information Agent, the
Depositary or any other person will be under any duty to give notification of
any defects or irregularities in any notice of withdrawal or incur any liability
for failure to give any such notification.
SECTION 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT. The
Purchaser (which is an affiliate of the General Partner) expressly reserves the
right, in its sole discretion, at any time and from time to time, (i) to extend
the period of time during which the Offer is open and thereby delay acceptance
for payment of, and the payment for, validly tendered Units, (ii) to terminate
the Offer if any condition referred to in Section 14 has not been satisfied or
upon the occurrence of any event specified in Section 14 and (iii) to amend the
Offer in any respect (including, without limitation, by increasing the
consideration offered, increasing or decreasing the number of Units being
sought, or both). Notice of any such extension, termination or amendment will be
disseminated promptly to Limited Partners in a manner reasonably designed to
inform Limited Partners of such change in compliance with Rule 14d-4(c) under
the Exchange Act. In the case of an extension of the Offer, the extension will
be followed by a press release or public announcement which will be issued no
later than 9:00 a.m., New York City time, on the next business day after the
then scheduled Expiration Date, in accordance with Rule 14e-1(d) under the
Exchange Act.
If the Purchaser (which is an affiliate of the General Partner) extends
the Offer, or if the Purchaser (whether before or after its acceptance for
payment of Units) is delayed in its payment for Units or is unable to pay for
Units pursuant to the Offer for any reason, then, without prejudice to the
Purchaser's rights under the Offer, the Depositary may retain tendered Units and
those Units may not be withdrawn except to the extent tendering Limited Partners
are entitled to withdrawal rights as described in Section 4; subject, however,
to the Purchaser's obligation, pursuant to Rule 14e-1(c) under the Exchange Act,
to pay Limited Partners the Purchase Price in respect of Units tendered or
return those Units promptly after termination or withdrawal of the Offer.
If the Purchaser (which is an affiliate of the General Partner) makes a
material change in the terms of the Offer or the information concerning the
Offer or waives a material condition of the Offer, the Purchaser will extend the
Offer and disseminate additional tender offer materials to the extent required
by Rules 14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during
which an offer must remain open following a material change in the terms of the
offer or information concerning the offer will depend upon the facts and
circumstances, including the relative materiality of the change in the terms or
information. In the Commission's view, an offer should remain open for a minimum
of five business days from the date the material change is first published, sent
or given to securityholders, and if material changes are made with respect to
information that approaches the significance of price or the percentage of
securities sought, a minimum of ten business days may be required to allow for
adequate dissemination to securityholders and investor response. As used in this
Offer to Purchase, "business day" means any day other than a Saturday, Sunday or
a federal holiday, and consists of the time period from 12:01 a.m. through 12:00
midnight, New York City time.
SECTION 6. CERTAIN FEDERAL INCOME TAX MATTERS.
General. The following summary is a general discussion of certain of
the federal income tax consequences of a sale of Units pursuant to the Offer.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury regulations thereunder, administrative rulings,
practice and procedures and judicial authority, all as of the date of the Offer.
All of the foregoing are subject to change, and any such change could affect the
continuing accuracy of this summary. This summary does not discuss all aspects
of federal income taxation that may be relevant to a particular Limited Partner
in light of such Limited Partner's specific circumstances or to certain types of
Limited Partners subject to special treatment under the federal income tax laws
(for example,
9
foreign persons, dealers in securities, banks, insurance companies and
tax-exempt organizations), nor (except as otherwise expressly indicated) does it
describe any aspect of state, local, foreign or other tax laws. Sales of Units
pursuant to the Offer will be taxable transactions for federal income tax
purposes, and also may be taxable transactions under applicable state, local,
foreign and other tax laws. EACH LIMITED PARTNER SHOULD CONSULT ITS OWN TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH LIMITED PARTNER OF SELLING
UNITS PURSUANT TO THE OFFER.
Gain or Loss Generally. In general, a Limited Partner will recognize
gain or loss on a sale of Units pursuant to the Offer equal to the difference
between (i) the Limited Partner's "amount realized" on the sale and (ii) the
Limited Partner's adjusted tax basis in the Units sold. Generally, a Limited
Partner's adjusted tax basis with respect to a Unit equals its cost, increased
by the amount of income and the amount of Partnership liabilities (as determined
under Code Section 752) allocated to the Unit, and decreased by (i) any
distributions made with respect to such Unit, (ii) the amount of deductions or
losses allocated to the Unit and (iii) any decrease in the amount of Partnership
liabilities (as determined under Code Section 752) allocated to the Unit. Thus,
the amount of a Limited Partner's adjusted tax basis in tendered Units will vary
depending upon the Limited Partner's particular circumstances. The "amount
realized" with respect to a Unit will be a sum equal to the amount of cash
received by the Limited Partner for the Unit pursuant to the Offer, plus the
amount of the Partnership's liabilities allocable to the Unit (as determined
under Code Section 752).
A portion of the gain or loss recognized by a Limited Partner on a sale
of a Unit pursuant to the Offer generally will be treated as a capital gain or
loss, if (as is generally expected to be the case) the Unit was held by the
Limited Partner as a capital asset. Under the IRS Restructuring and Reform Act
of 1998, the capital gains rate for individuals and other non-corporate
taxpayers is 20% for sales of capital assets held for more than one year.
However, any gain from the sale of such assets attributable to the recapture of
depreciation with respect to real property (other than certain depreciation
recapture taxable as ordinary income) is taxed at a maximum rate of 25%.
Corporate taxpayers are taxed at a maximum marginal rate of 35% for both capital
gains and ordinary income. The maximum marginal federal income tax rate for
ordinary income of individuals and other noncorporate taxpayers is 39.6%.
Capital losses are deductible only to the extent of capital gains, except that,
subject to the passive activity loss limitations discussed below, non-corporate
taxpayers may deduct up to $3,000 of capital losses in excess of the amount of
their capital gains against ordinary income. Excess capital losses generally can
be carried forward to succeeding years (a corporation's carryforward period is
five years and a non-corporate taxpayer can carry forward such losses
indefinitely); and a corporation is permitted to carry back excess capital
losses to the three preceding taxable years, provided the carryback does not
increase or produce a net operating loss for any of those years.
A tendering Limited Partner will be allocated a pro rata share of the
Partnership's taxable income or loss for the year of sale with respect to the
Units sold in accordance with the provisions of the Limited Partnership
Agreement concerning transfers of Units. Such allocation and any cash
distributed by the Partnership to the Limited Partner for that year will affect
the Limited Partner's adjusted tax basis in Units and, therefore, the amount of
such Limited Partner's taxable gain or loss upon a sale of Units pursuant to the
Offer.
Unrealized Receivables and Certain Inventory. A portion of the gain or
loss upon the sale of Units may be attributable to unrealized receivables. If
any portion of the amount of gain or loss realized by a Limited Partner is
attributable to "unrealized receivables" (which includes certain depreciation
recapture) or "substantially appreciated inventory" as defined in Code Section
751, then a portion of the Limited Partner's gain or loss may be ordinary rather
than capital. In addition, a portion of such gain may be taxed at the 25% rate
discussed above. A Limited Partner who tenders Units which are purchased
pursuant to the Offer must file an information statement with such Limited
Partner's federal income tax return for the year of the sale which provides the
information specified in Treasury Regulation ss. 1.751-1(a)(3). A selling
Limited Partner also must notify the Partnership of the date of the transfer and
the names, addresses and tax identification numbers of the transferor(s) and
transferee within 30 days of the date of the transfer (or, if earlier, by
January 15 of the following calendar year).
10
Passive Activity Loss Limitation. Under Code Section 469, a
non-corporate taxpayer or personal service corporation generally can deduct
"passive losses" in any year only to the extent of the person's passive income
for that year. Closely held corporations (other than personal service
corporations) may offset such losses against active income as well as passive
activity income for that year. A portion of any post-1986 losses of Limited
Partners from the Partnership may have been passive losses. Thus, Limited
Partners may have "suspended" passive losses from the Partnership (i.e.,
post-1986 net taxable losses in excess of statutorily permitted "phase-in"
amounts which have not been used to offset income from other passive activities
or from the Partnership). Substantially all gain or loss from a sale of Units
pursuant to the Offer will be passive income or loss.
If a Limited Partner sells less than all of its Units pursuant to the
Offer, suspended passive losses, if any (including a portion of any loss
recognized on the sale of Units), can be currently deducted (subject to other
applicable limitations) to the extent of the Limited Partner's passive income
from the Partnership for that year (including any gain recognized on the sale of
Units) plus any other passive income for that year. If, on the other hand, a
Limited Partner sells 100% of its Units pursuant to the Offer, any "suspended"
losses and any losses recognized upon the sale of the Units will be offset first
against any other net passive gain to the Limited Partner from the sale of the
Units and any other net passive activity income from other passive activity
investments, and the balance of any "suspended" net losses from the Units will
no longer be subject to the passive activity loss limitation and, therefore,
will be deductible by such Limited Partner from its other income (subject to any
other applicable limitations), including ordinary income. If a tendering Limited
Partner has suspended passive losses from the Partnership, such Limited Partner
must sell all of its Units to receive these tax benefits. If more than 20,000 of
the outstanding Units are tendered, some tendering Limited Partners may not be
able to sell 100% of their Units pursuant to the Offer because of proration of
the number of Units to be purchased by the Purchaser. See Section 1.
Partnership Termination. Section 708(b) of the Code provides that a
partnership terminates for income tax purposes if there is a sale or exchange of
50% or more of the total interest in partnership capital and profits within a
twelve-month period (although successive transfers of the same interest within a
twelve-month period will be treated as a single transfer for this purpose). In
the event of a termination, the Partnership's tax year would close and the
Partnership would be treated for income tax purposes as if it had contributed
all of its assets and liabilities to a "new" partnership in exchange for an
interest in the "new" partnership. The Partnership would then be treated as
making a distribution of the interests in the "new" partnership to the new
partners and the remaining partners, followed by the liquidation of the
Partnership. Because the "new" partnership would be treated as having acquired
its assets on the date of the deemed contribution, a new depreciation recovery
period would begin on such date, the Partnership's annual depreciation
deductions over the next few years would be substantially reduced, and the
Partnership would have greater taxable income (or less tax loss) than if no tax
termination occurred. In addition, depreciation may be required to be allocated
to those Limited Partners that have a higher tax basis. A tax termination of the
Partnership would also terminate any partnership in which the Partnership holds
a majority interest (50% or more).
The Limited Partnership Agreement prohibits transfers of Units if a
transfer, when considered with all other transfers during the same applicable
twelve-month period, would cause a termination of the Partnership for tax
purposes. The Purchaser believes that even if the maximum number of Units is
purchased pursuant to the Offer, those transfers will not cause a tax
termination of the Partnership.
Backup Withholding and FIRPTA Withholding. Limited Partners (other than
tax-exempt persons, corporations and certain foreign persons) who tender Units
may be subject to 31% backup withholding unless those Limited Partners provide a
taxpayer identification number ("TIN") and certify that the TIN is correct or
properly certify that they are awaiting a TIN. A Limited Partner may avoid
backup withholding by properly completing and signing the Substitute Form W-9
included as part of the Assignment of Partnership Interest. If a Limited Partner
who is subject to backup withholding does not properly complete and sign the
Substitute Form W-9, the Purchaser will withhold 31% from payments to such
Limited Partner.
Xxxx realized by a foreign Limited Partner on the sale of a Unit
pursuant to the Offer will be subject to federal income tax. Under Code Section
1445, the transferee of an interest held by a foreign person in a partnership
which owns United States real property generally is required to deduct and
withhold a tax equal to 10% of the
11
amount realized on the disposition. In order to comply with this requirement,
the Purchaser will withhold 10% of the amount realized by a tendering Limited
Partner unless the Limited Partner properly completes and signs the FIRPTA
Affidavit included as part of the Assignment of Partnership Interest certifying
the Limited Partner's TIN and address, and that such Limited Partner is not a
foreign person. Amounts withheld would be creditable against a foreign Limited
Partner's federal income tax liability and, if in excess thereof, a refund could
be obtained from the Internal Revenue Service by filing a U.S. income tax
return.
SECTION 7. EFFECTS OF THE OFFER.
Limitations on Resales. The Limited Partnership Agreement prohibits
transfers of Units if a transfer, when considered with all other transfers
during the same applicable twelve-month period, would cause a termination of the
Partnership for federal income tax purposes. This provision may limit sales of
Units in the secondary market and in private transactions for the twelve-month
period following completion of the Offer. The General Partner has advised the
Purchaser that the Partnership will not process any requests for recognition of
substitution of Limited Partners upon a transfer of Units during such
twelve-month period which the General Partner believes may cause a tax
termination in contravention of the Limited Partnership Agreement. In
determining the number of Units for which the Offer is made (representing
approximately 33% of the outstanding Units), the Purchaser (which is an
affiliate of the General Partner) took this restriction into account so as to
permit normal historical levels of transfers to occur following the transfers of
Units pursuant to the Offer without violating this restriction.
Effect on Trading Market; Registration Under Section 12(g) of the
Exchange Act. If a substantial number of Units are purchased pursuant to the
Offer, the result will be a reduction in the number of Limited Partners. In the
case of certain kinds of equity securities, a reduction in the number of
security-holders might be expected to result in a reduction in the liquidity and
volume of activity in the trading market for the security. In this case,
however, there is no established public trading market for the Units and,
therefore, the Purchaser (which is an affiliate of the General Partner) does not
believe a reduction in the number of Limited Partners will materially further
restrict the Limited Partners' ability to find purchasers for their Units
through secondary market transactions. See Section 13 for certain limited
information regarding recent secondary market sales of the Units.
The Units are registered under Section 12(g) of the Exchange Act, which
means, among other things, that the Partnership is required to file periodic
reports with the Commission and to comply with the Commission's proxy rules. The
Purchaser (which is an affiliate of the General Partner) does not expect or
intend that consummation of the Offer will cause the Units to cease to be
registered under Section 12(g) of the Exchange Act. If the Units were to be held
by fewer than 300 persons, the Partnership could apply to de-register the Units
under the Exchange Act. Because the Units are widely held, however, the
Purchaser (which is an affiliate of the General Partner) believes that, even if
it purchases the maximum number of Units in the Offer, after that purchase the
Units will be held of record by more than 300 persons.
Control of Limited Partner Voting Decisions by Purchaser; Effect of
Relationship with General Partner. The Limited Partnership Agreement provides
that the General Partner has absolute discretion as to whether to admit an
assignee of Units to the Partnership as a substituted Limited Partner. The
Purchaser (which is an affiliate of the General Partner) will seek to be
admitted to the Partnership as a substituted Limited Partner upon consummation
of the Offer and, if admitted, will have the right to vote each Unit purchased
pursuant to the Offer. Even if the Purchaser (which is an affiliate of the
General Partner) is not admitted to the Partnership as a substituted Limited
Partner, however, the Purchaser nonetheless will have the right to vote each
Unit purchased in the Offer pursuant to the irrevocable appointment by tendering
Limited Partners of the Purchaser and its managers and designees as proxies with
respect to the Units tendered by such Limited Partners and accepted for payment
by the Purchaser. See Section 3. As a result, the Purchaser (which is an
affiliate of the General Partner) could be in a position to significantly
influence all voting decisions with respect to the Partnership. In general, IPLP
and the Purchaser (which are affiliates of the General Partner) will vote the
Units owned by them in whatever manner they deem to be in the best interests of
IPT, which, because of their relationship with the General Partner, also may be
in the interest of the General Partner, but may not be in the interest of other
Limited Partners. This could (i) prevent non- tendering Limited Partners from
taking action they desire but that IPT opposes and (ii) enable IPT to take
action desired by IPT but opposed by non-tendering Limited Partners. Under the
Limited Partnership Agreement, Limited
12
Partners holding a majority of the Units are entitled to take action with
respect to a variety of matters including: removal of the General Partner and in
certain circumstances election of a new or successor general partner;
dissolution of the Partnership; sale of all or substantially all of the assets
of the Partnership; and most types of amendments to the Limited Partnership
Agreement.
The Offer will not result in any change in the compensation payable to
the General Partner or its affiliates. However, as a result of the Offer, the
Purchaser (which is an affiliate of the General Partner) will participate, in
its capacity as a Limited Partner, in any subsequent distributions to Limited
Partners to the extent of the Units purchased pursuant to the Offer.
SECTION 8. FUTURE PLANS OF INSIGNIA, IPT AND THE PURCHASER. IPT,
through the Purchaser (which is an affiliate of the General Partner), is seeking
to acquire Units pursuant to the Offer in order to increase its equity interest
in the Partnership, primarily for investment purposes and with a view to making
a profit. Following the completion of the Offer, IPT and/or persons related to
or affiliated with it may acquire additional Units. Any such acquisition may be
made through private purchases, through one or more future tender or exchange
offers or by any other means deemed advisable. Any such acquisition may be at a
price higher or lower than the price to be paid for the Units purchased pursuant
to the Offer, and may be for cash or other consideration. Insignia and IPT
(which are affiliates of the General Partner) also may consider disposing of
some or all of the Units the Purchaser acquires pursuant to the Offer, either
directly or by a sale or other disposition of one or more interests in IPT or
IPLP, depending among other things on the requirements from time to time of
Insignia, IPT and their affiliates in light of liquidity, strategic, tax and
other considerations.
Neither IPT nor the Purchaser (which are affiliates of the General
Partner) has any present plans or intentions with respect to an extraordinary
transaction, such as a merger, reorganization or liquidation, involving the
Partnership or a sale or refinancing of any of the Partnership's properties,
other than the potential refinancing of Shallowford Corners Shopping Center (as
described in Section 9). However, IPT and the Purchaser expect that consistent
with the General Partner's fiduciary obligations, the General Partner will seek
and review opportunities (including opportunities identified by IPT and the
Purchaser) to engage in transactions which could benefit the Partnership, such
as sales or refinancings of assets or a combination of the Partnership with one
or more other entities, with the objective of seeking to maximize returns to
Limited Partners.
IPT and the Purchaser (which are affiliates of the General Partner)
have been advised that the possible future transactions the General Partner
expects to consider on behalf of the Partnership include (i) payment of
extraordinary distributions; (ii) refinancing, reducing or increasing existing
indebtedness of the Partnership; (iii) sales of assets, individually or as part
of a complete liquidation; and (iv) mergers or other consolidation transactions
involving the Partnership. Any such merger or consolidation transaction could
involve other limited partnerships in which the General Partner or its
affiliates serve as general partners, or a combination of the Partnership with
one or more existing, publicly traded entities (including, possibly, affiliates
of IPT (which is an affiliate of the General Partner) or IPT itself), in any of
which Limited Partners might receive cash, common stock or other securities or
consideration. There is no assurance, however, as to when or whether any of the
transactions referred to above might occur. If any such transaction is effected
by the Partnership and financial benefits accrue to the Limited Partners of the
Partnership, the Purchaser (and thus IPT) will participate in those benefits to
the extent of its ownership of Units. A merger or other consolidation
transaction and certain kinds of other extraordinary transactions would require
a vote of the Limited Partners, and if the Purchaser is successful in acquiring
a significant number of Units pursuant to the Offer (or otherwise), IPT will be
able to significantly influence the outcome of any such vote. IPT's primary
objective in seeking to acquire the Units through the Purchaser pursuant to the
Offer is not, however, to influence the vote on any particular transaction, but
rather to generate a profit on the investment represented by those Units.
SECTION 9. CERTAIN INFORMATION CONCERNING THE PARTNERSHIP. Except as
otherwise indicated, information contained in this Section 9 is based upon
documents and reports publicly filed by the Partnership with the Commission.
13
General. The Partnership was organized on December 21, 1984 under the
laws of the State of New York. Its principal executive offices are located at
Xxx Xxxxxxxx Xxxxxxxxx Xxxxx, Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000, and its
telephone number at that address is (000) 000-0000.
The Partnership's primary business is to invest mainly in
income-producing commercial and residential real estate, including, but not
limited to, office buildings, apartment complexes, shopping centers, retail
stores, hotels and other commercial facilities and storage, distribution,
manufacturing and other facilities. In addition, limited amounts may be invested
in unimproved property. Subject to certain conditions described in the Limited
Partnership Agreement, properties may be purchased outright or owned by a joint
venture in which the Partnership is a participant having a controlling interest.
Such properties may or may not be subject to either intermediate or long-term
net leases. The real estate to be acquired by the Partnership may include
leasehold as well as fee interests and may constitute equitable as well as legal
interests.
The Partnership's investment portfolio currently consists of one
shopping center, a 58,000 square foot retail center in Tulsa, Oklahoma. In
addition, the Partnership has a 90% general partnership interest in DBL Airport
Valley Limited Partnership (the "DBL Joint Venture"), which owns two hotels, a
194-room hotel in Tucson, Arizona, and a 110-room hotel in Green Valley,
Arizona. The Partnership also has a 90% general partnership interest in
Shallowford Associates, Ltd. (the "Shallowford Joint Venture," and together with
the DBL Joint Venture, the "Joint Ventures"), which owns one shopping center, a
116,000 square foot retail center in Roswell, Georgia.
Originally Anticipated Term of Partnership; Alternatives. According to
the Partnership's Prospectus dated March 21, 1985, the General Partner
anticipated that the Partnership would sell and/or refinance its properties
three to seven years after their acquisition, depending on the then current real
estate and money markets, economic climate and income tax consequences to the
Limited Partners. Under the Limited Partnership Agreement, the term of the
Partnership will continue until December 31, 2034, unless sooner terminated as
provided in the Limited Partnership Agreement or by law. Limited Partners could,
as an alternative to tendering their Units, take a variety of possible actions,
including voting to liquidate the Partnership or amending the Limited
Partnership Agreement to authorize Limited Partners to cause the Partnership to
merge with another entity or engage in a "roll-up" or similar transaction.
General Policy Regarding Sales and Refinancings of Partnership
Properties. In general, the General Partner regularly evaluates the
Partnership's properties by considering various factors, such as the
Partnership's financial position and real estate and capital markets conditions.
The General Partner monitors each property's specific locale and sub-market
conditions evaluating current trends, competition, new construction and economic
changes. The General Partner oversees each asset's operating performance and
continuously evaluates the physical improvement requirements. In addition, the
financing structure for each property, tax implications and the investment
climate are all considered. Any of these factors, and possibly others, could
potentially contribute to any decision by the General Partner to sell,
refinance, upgrade with capital improvements or hold a particular Partnership
property. The General Partner has advised the Purchaser (which is an affiliate
of the General Partner) that it is in the process of evaluating the feasibility
of refinancing the mortgage encumbering the Shallowford Corners Shopping Center
in Roswell, Georgia. However, the General Partner has indicated that it intends
to use the proceeds from such refinancing to pay off a portion of the mortgage
debt encumbering the Partnership's other properties, and does not expect to make
any distributions to Limited Partners. Based on the above considerations, and
except for the potential refinancing of the Shallowford Corners Shopping Center,
the General Partner has determined that it is not in the best interest of
Limited Partners to sell or refinance any other property at the present time.
Selected Financial and Property-Related Data. Set forth below is a
summary of certain financial and statistical information with respect to the
Partnership and its properties, all of which has been excerpted or derived from
the Partnership's Annual Reports on Form 10-KSB for the years ended December 31,
1997, 1996, 1995, 1994 and 1993 and the Partnership's Quarterly Reports on Form
10-QSB for the periods ended June 30, 1998 and 1997. More comprehensive
financial and other information is included in such reports and other documents
filed by the Partnership with the Commission, and the following summary is
qualified in its entirety by reference to such reports and other documents and
all the financial information and related notes contained therein.
14
XXXXXX XXXXXXX XXXXXXX REAL ESTATE ASSOCIATES III
SELECTED FINANCIAL DATA
(in thousands, except Unit data)
SIX MONTHS ENDED FISCAL YEAR ENDED
JUNE 30, DECEMBER 31,
----------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ------------ ----------- ----------- ----------- ---------- ----------
(UNAUDITED)
Statements of Operations Data:
Rental Income................. $ 4,014 $ 4,447 $ 7,569 $ 7,196 $ 7,142 $ 6,445 $ 5,948
Hotel Income.................. $ 852 $ 884 $ 1,729 $ 1,664 $ 1,564 $ 1,581 $ 2,287
Other Income.................. $ 73 $ 84 $ 170 $ 212 $ 205 $ 355 $ 192
Total Revenues............. $ 4,939 $ 5,415 $ 9,468 $ 9,072 $ 8,911 $ 8,382 $ 8,427
Income (Loss) from Operations
(before extraordinary item) $ 139 $ 533 $ (160) $ (62) $ (225) $ (324) $ 1,997
Net Income (Loss)............. $ 139 $ 533 $ (160) $ (62) $ (225) $ (324) $ 1,997
Net Income (Loss) per Unit.... $ 2.30 $ 8.80 $ (2.64) $ (1.02) $ (3.71) $ (5.36) $ (32.89)
AS OF AS OF
JUNE 30, DECEMBER 31,
----------------------- ------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ------------ ----------- ----------- ----------- ---------- ----------
(UNAUDITED)
Balance Sheets Data:
Total Assets.................. $ 21,770 $ 23,059 $ 22,934 $ 23,265 $ 23,477 $ 24,425 $ 24,734
Total Liabilities............. $ 16,444 $ 16,580 $ 17,148 $ 17,318 $ 16,869 $ 16,994 $ 16,380
Limited Partners' Equity
(Deficit).................... $) ,447 $ 6,593 $ 5,908 $ 6,066 $ 6,726 $ 7,547 $ 8,467
Units Outstanding............. 59,905 59,905 59,905 59,905 59,905 59,905 60,095
Book Value per Unit........... $ 90.93 $ 110.06 $ 98.62 $ 101.26 $ 112.28 $ 129.98 $ 140.89
Description of Properties. Set forth below is a table showing the
location, the date of purchase, the nature of the Partnership's ownership
interest in and the use of each of the Partnership's properties.
DATE OF
PROPERTY PURCHASE TYPE OF OWNERSHIP USE
------------------------------- -------- ----------------------------- ------------------------------
Perimeter Square 07/31/85 Fee ownership Retail Center
Shopping Center (subject to first mortgage) (58,000 sq. ft.)
Tulsa, Oklahoma
Tucson Airport Hotel 12/30/85 Fee ownership(1) Hotel
Tucson, Arizona (subject to first mortgage) (194 rooms)
Green Valley Hotel 12/30/85 Fee ownership(1) Hotel
Green Valley, Arizona (subject to first mortgage) (110 rooms)
Shallowford Corners 12/30/86 Fee ownership(2) Retail Center
Shopping Center (subject to first mortgage) (116,000 sq. ft.)
Roswell, Georgia
---------------
(1) The Partnership has a 90% general partnership interest in DBL Airport Valley
Limited Partnership (the "DBL Joint Venture"). The DBL Joint Venture owns
two properties, the Tucson Airport Hotel and the Green Valley Hotel.
(2) The Partnership has a 90% general partnership interest in Shallowford
Associates, Ltd. (the "Shallowford Joint Venture"). Shallowford Corners
Shopping Center represents the only property owned by the Shallowford Joint
Venture.
15
Accumulated Depreciation Schedule. Set forth below is a table showing
the gross carrying value, accumulated depreciation and federal tax basis of each
of the Partnership's properties as of December 31, 1997 ($ amounts in
thousands).
GROSS
CARRYING ACCUMULATED FEDERAL
PROPERTY VALUE DEPRECIATION RATE METHOD TAX BASIS
----------------------------------- -------------- ------------- ---------- ----------- -----------
Perimeter Square Shopping
Center $ 4,499 $ 2,277 3-19 yrs. S/L $ 2,047
Tucson Airport Hotel 11,144 5,738 5-39 yrs. S/L 4,742
Green Valley Hotel 5,523 2,983 5-39 yrs. S/L 2,416
Shallowford Corners
Shopping Center 12,214 4,284 3-30 yrs. (1) 6,861
------- -------- -------
TOTALS $33,380 $ 15,282 $16,066
======= ======== =======
(1) Depreciated on a 150%/200% declining balance basis.
Schedule of Mortgages. Set forth below is a table showing certain
information regarding the outstanding mortgages encumbering each of the
Partnership's properties as of December 31, 1997 ($ amounts in thousands).
PRINCIPAL PRINCIPAL
BALANCE AT STATED BALANCE
DECEMBER 31, INTEREST PERIOD MATURITY DUE AT
PROPERTY 1997 RATE AMORTIZED DATE MATURITY
---------------------------------------- --------------- --------------- --------------- -------------- -----------
Perimeter Square Shopping Center $ 1,449 9.25% 15 yrs. 9.25% 10/07/99 $ 1,350
Tucson Airport Hotel 3,643 10.00% 25 yrs. 11/01/01 2,753
Green Valley Hotel 2,618 10.25% 25 yrs. 12/31/00 2,500
Shallowford Corners
Shopping Center 7,750 10.00% (1) 06/30/98 7,750
-------- -------
TOTAL $15,460 $14,353
======= =======
---------
(1) The original maturity date of April 15, 1997 has been extended through a
forbearance agreement. The forbearance agreement requires interest only
payments.
Average Annual Rental Rate and Occupancy. Set forth below is a table
showing the average annual rental rates and occupancy percentages for each of
the Partnership's properties during the past two years.
PROPERTY AVERAGE ANNUAL RENTAL RATE AVERAGE ANNUAL OCCUPANCY
--------------------------------------- --------------------------------- ------------------------
1997 1996 1997 1996
------------- -------------- ---- ----
Perimeter Square Shopping Center $ 7.42/sq.ft. $ 7.52/sq.ft. 91% 94%
Tucson Airport Hotel* $ 67.26 $ 64.70 77% 78%
Green Valley Hotel* $ 64.87 $ 65.76 64% 69%
Shallowford Corners
Shopping Center $ 9.88/sq.ft. $ 9.45 sq.ft. 91% 89%
-----------------------
* Average rental rates for the hotels represent average daily rental rates.
16
Schedule of Real Estate Taxes and Rates. Set forth below is a table
showing the real estate taxes and rates for 1997 for each of the Partnership's
properties.
1997 1997
PROPERTY BILLING RATE
-------------------------------------------- ----------- ----
Perimeter Square Shopping Center $ 28,000 1.4%
Tucson Airport Hotel $ 186,000 2.6%
Green Valley Hotel $ 64,000 1.7%
Shallowford Corners Shopping Center $ 88,000 1.3%
Other Information. The Partnership is subject to the information
reporting requirements of the Exchange Act and accordingly is required to file
reports and other information with the Commission relating to its business,
financial results and other matters. Such reports and other documents may be
inspected at the Commission's Public Reference Section, Room 1024, 000 Xxxxx
Xxxxxx, X.X., Xxxxxxxxxx, X.X. 00000, where copies may be obtained at prescribed
rates, and at the regional offices of the Commission located in the Citicorp
Center, 000 Xxxx Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxx, Xxxxxxxx 00000, and 7
World Trade Center, New York, New York 10048. Copies should be available by mail
upon payment of the Commission's customary charges by writing to the
Commission's principal offices at 000 Xxxxx Xxxxxx, X.X., Xxxxxxxxxx, X.X.
00000. The Commission also maintains a web site that contains reports, proxy and
other information filed electronically with the Commission, the address of which
is xxxx://xxx.xxx.xxx.
Cash Distributions History. The Partnership has made cash distributions
to Limited Partners of $10.00 per Unit in 1998 (through September 29), and made
distributions of $10.00 per Unit in each of 1996 and 1995. In total, original
investors in the Partnership have received distributions of only $152.39 in
respect of their original $500 investment made in 1985.
Operating Budgets of the Partnership. A summary of the fiscal 1998
operating budget and the audited results of operations for fiscal 1997 of the
Partnership are set forth in the table below. The fiscal 1997 operating budget
was not prepared by the General Partner or any other affiliate of the Purchaser,
IPT or Insignia because the General Partner did not purchase the general partner
interest in the Partnership until June 1997. See Section 13. The budgeted
amounts provided below are figures that were not computed in accordance with
generally accepted accounting principles ("GAAP"). Historically, budgeted
operating results of operations for a particular fiscal year have differed
significantly in certain respects from the audited operating results for that
year. In particular, items that are categorized as capital expenditures for
purposes of preparing the operating budgets are often re-categorized as expenses
when the financial statements are audited and presented in accordance with GAAP.
Therefore, the summary operating budget presented for fiscal 1998 should not
necessarily be considered as indicative of what the audited operating results
for fiscal 1998 will be. Furthermore, any estimate of the future performance of
a business, such as the Partnership's business, is forward-looking and based on
numerous assumptions, some of which inevitably will prove to be incorrect. For
this reason, it is probable that the Partnership's future operating results will
differ from those projected in the operating budget, and those differences may
be material. Therefore, such information should not be relied on by Limited
Partners.
FISCAL 1997 FISCAL 1998
AUDITED BUDGETED
------------ ------------
Total Revenues from Property Operations.... $ 9,468,000 $ 8,147,000
Total Operating Expenses .................. $ 6,771,000 $ 5,561,000
Net Operating Income....................... $ 2,697,000 $ 2,586,000
Capital Expenditures....................... $ 316,000 $ 538,000
17
SECTION 10. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES. The
General Partner and its affiliates have conflicts of interest with respect to
the Offer as set forth below.
Conflicts of Interest with Respect to the Offer. The General Partner
has conflicts of interest with respect to the Offer, including conflicts
resulting from its affiliation with IPT and the Purchaser. The General Partner
also would have a conflict of interest (i) as a result of the fact that a sale
or liquidation of the Partnership's assets would result in a decrease or
elimination of the fees paid to the General Partner and/or its affiliates and
(ii) as a consequence of the Purchaser's ownership of Units, because the
Purchaser (which is an affiliate of the General Partner) may have incentives to
seek to maximize the value of its ownership of Units, which in turn may result
in a conflict for the General Partner in attempting to reconcile the interests
of the Purchaser (which is an affiliate of the General Partner) with the
interests of the other Limited Partners. In addition, the Purchaser (which is an
affiliate of the General Partner) is making the Offer with a view to making a
profit. Accordingly, there is a conflict between the desire of the Purchaser
(which is an affiliate of the General Partner) to purchase Units at a low price
and the desire of the Limited Partners to sell their Units at a high price. The
General Partner has indicated in the Schedule 14D-9 that it is remaining neutral
and making no recommendation as to whether Limited Partners should tender their
Units pursuant to the Offer. LIMITED PARTNERS ARE URGED TO READ THIS OFFER TO
PURCHASE AND THE SCHEDULE 14D-9 AND THE RELATED MATERIALS CAREFULLY AND IN THEIR
ENTIRETY BEFORE DECIDING WHETHER TO TENDER THEIR UNITS.
Voting by the Purchaser. The Limited Partnership Agreement provides
that the General Partner has absolute discretion as to whether to admit an
assignee of Units to the Partnership as a substituted Limited Partner. The
Purchaser (which is an affiliate of the General Partner) will seek to be
admitted to the Partnership as a substituted Limited Partner upon consummation
of the Offer and, when admitted, will have the right to vote each Unit purchased
pursuant to the Offer. Even if the Purchaser (which is an affiliate of the
General Partner) is not admitted to the Partnership as a substituted Limited
Partner, however, the Purchaser nonetheless will have the right to vote each
Unit purchased in the Offer pursuant to the irrevocable appointment by tendering
Limited Partners of the Purchaser (which is an affiliate of the General Partner)
and its managers and designees as proxies with respect to the Units tendered by
such Limited Partners and accepted for payment by the Purchaser. See Section 3.
As a result, if the Purchaser (which is an affiliate of the General Partner) is
successful in acquiring a significant number of Units pursuant to the Offer, the
Purchaser will have the right to vote those Units and thereby significantly
influence all voting decisions with respect to the Partnership. In general, IPLP
and the Purchaser (which are affiliates of the General Partner) will vote the
Units owned by them in whatever manner they deem to be in IPT's best interests,
which, because of their relationship with the General Partner, also may be in
the interest of the General Partner, but may not be in the interest of other
Limited Partners. This could (i) prevent non-tendering Limited Partners from
taking action they desire but that IPT opposes and (ii) enable IPT to take
action desired by IPT but opposed by non-tendering Limited Partners. Under the
Limited Partnership Agreement, Limited Partners holding a majority of the Units
are entitled to take action with respect to a variety of matters including:
removal of the General Partner and in certain circumstances election of a new or
successor general partner; dissolution of the Partnership; sale of all or
substantially all of the assets of the Partnership; and most types of amendments
to the Limited Partnership Agreement. See Section 7.
Financing Arrangements. The Purchaser (which is an affiliate of the
General Partner) expects to pay for the Units it purchases pursuant to the Offer
with funds provided by IPLP as capital contributions. IPLP in turn intends to
use its cash on hand and, if necessary, funds available to it under its credit
facility (as described in Section 12) to make such contributions. See Section
12. It is possible, however, that in connection with its future financing
activities, IPT or IPLP may cause or request the Purchaser (which is an
affiliate of the General Partner) to pledge the Units as collateral for loans,
or otherwise agree to terms which provide IPT, IPLP and the Purchaser with
incentives to generate substantial near-term cash flow from the Purchaser's
investment in the Units. This could be the case, for example, if a loan has a
"balloon" maturity after a relatively short time or bears a high or increasing
interest rate. In such a situation, the General Partner may experience a
conflict of interest in seeking to reconcile the best interests of the
Partnership with the need of its affiliates for cash flow from the Partnership's
activities.
18
Transactions with Affiliates. The Partnership and the General Partner
were not affiliates of Insignia prior to June 1997. Accordingly, this section
only discusses transactions between the Partnership, on the one hand, and
Insignia and its affiliates (including the General Partner, IRG and I/ESG), on
the other hand, which have occurred since June 1997.
The Partnership paid IRG and I/ESG fees for property management
services in the amount of approximately $368,000 for the year ended December 31,
1997 and has paid IRG and I/ESG property management fees equal to approximately
$234,000 during the first six months of 1998. The Partnership reimbursed the
General Partner and its affiliates (including Insignia) for expenses incurred in
connection with asset management and partnership administration services
performed by them for the Partnership for the year ended December 31, 1997 in
the amount of approximately $29,000 and has reimbursed them for such services in
the amount of approximately $45,000 through June 30, 1998.
SECTION 11. CERTAIN INFORMATION CONCERNING THE PURCHASER, IPLP, IPT AND
INSIGNIA.
The Purchaser. The Purchaser (which is an affiliate of the General
Partner) is a recently formed entity controlled by IPT and organized for the
purpose of making tender offers (including the Offer). The Purchaser is a
wholly-owned subsidiary of IPLP. The Purchaser (which is an affiliate of the
General Partner) has not engaged in any business activity other than in
connection with the Offer and certain other tender offers for units of limited
partnership interests in other IPT Partnerships (as defined below).
The principal executive offices of the Purchaser (which is an affiliate
of the General Partner) are located at One Insignia Financial Plaza, P.O. Box
19059, Greenville, South Carolina 29602, and its telephone number is (864)
239-1300. For certain information concerning the managers of the Purchaser
(which is an affiliate of the General Partner), see Schedule I to this Offer to
Purchase.
IPT and IPLP. IPT was formed by Insignia in May 1996 for the purpose of
acquiring and owning interests in multi-family residential properties,
principally through ownership of limited and general partner interests in real
estate limited partnerships. IPT has been organized and operates in a manner
that will qualify it to be taxed as a real estate investment trust ("REIT")
under the Code. Substantially all of IPT's investments are held through IPLP,
which is the operating partnership of IPT. IPT is presently the sole general
partner and Insignia is presently the sole limited partner of IPLP. IPT has
engaged Insignia to provide certain investment banking and related services to
IPT and IPLP, including in connection with the Offer.
Substantially all of IPT's assets consist of (i) interests in entities
which comprise or control the managing general partners of real estate limited
partnerships (the "IPT Partnerships"), which interests are held by IPT directly
or through wholly-owned subsidiaries, and (ii) limited partner interests in the
IPT Partnerships, which interests are held through IPLP. The IPT Partnerships
own, in the aggregate, 349 properties containing approximately 73,000
residential apartment units and approximately 5.8 million square feet of
commercial space. See Schedule IV for a list of the IPT Partnerships in which
IPT has a material investment.
On September 17, 1998, Angeles Mortgage Investment Trust, an
unincorporated California business trust whose Class A shares were traded on the
American Stock Exchange under the symbol ANM ("AMIT"), was merged with and into
IPT, with IPT being the surviving entity (the "AMIT Merger"). As a result of the
AMIT Merger, IPT's common shares are now listed and traded on the American Stock
Exchange under the symbol FFO.
IPT is subject to the information and reporting requirements of the
Exchange Act and in accordance therewith is required to file periodic reports,
proxy statements and other information with the Commission relating to its
business, financial condition and other matters. Certain information, as of
particular dates, concerning IPT's business, principal properties, capital
structure, material pending legal proceedings, operating results, financial
condition, directors and officers (including their remuneration and stock
options granted to them), the principal holders of IPT's securities, any
material interests of such persons in transactions with IPT and certain other
matters is required to be disclosed in proxy statements and annual reports
distributed to IPT's shareholders and filed with the Commission. Such reports,
proxy statements and other information may be inspected and copied at the
19
Commission's public reference facilities and should also be available for
inspection in the same manner as set forth with respect to the Partnership in
Section 9.
The principal executive offices of IPT and IPLP are located at One
Insignia Financial Plaza, P.O. Box 19059, Greenville, South Carolina 29602, and
the telephone number of each is (000) 000-0000. For certain information
concerning the trustees and executive officers of IPT, see Schedule II to this
Offer to Purchase. IPLP does not have any officers or employees.
Set forth below is certain consolidated financial information with
respect to IPT, IPLP and its consolidated subsidiaries for its fiscal years
ended December 31, 1997 and 1996 and the six-month periods ended June 30, 1998
and 1997. More comprehensive financial and other information is included in
IPT's Registration Statement on Form S-4, as most recently amended on August 10,
1998 (including management's discussion and analysis of financial condition and
results of operations), and in other reports and documents filed by IPT with the
Commission. The financial information set forth below is qualified in its
entirety by reference to such reports and documents filed with the Commission
and the financial statements and related notes contained therein. These reports
and other documents may be examined and copies thereof may be obtained in the
manner set forth above.
INSIGNIA PROPERTIES TRUST SELECTED
CONSOLIDATED FINANCIAL INFORMATION (in
thousands, except share and unit data)
SIX MONTHS ENDED SIX MONTHS ENDED Year Ended Year Ended
JUNE 30, 1998 JUNE 30, 1997 December 31, 1997 December 31, 1996
------------------ ---------------- ----------------- -----------------
(unaudited) (unaudited) (audited) (audited)
Statements of Operations Data:
Revenues.......................... $ 12,977 $ 6,715 $ 16,826 $ 9,705
Income Before Extraordinary Item.. $ 9,164 $ 1,248 $ 6,074 $ 3,557
Net Income........................ $ 8,907 $ 1,248 $ 6,004 $ 2,425
Supplemental Data:
Funds From Operations(1).......... $ 16,825 $ 8,718 $ 20,939 $ 12,563
IPT Common Shares Outstanding..... 19,427,760 15,501,487 18,573,151 11,168,036
IPLP Units Outstanding............ 9,934,476 8,399,499 9,415,947 8,399,499
----------- ----------- ---------- ----------
IPT Common Shares and IPLP
Units Outstanding(2).......... 29,362,236 23,900,986 27,989,098 19,567,535
========== ========== ========== ==========
Balance Sheets Data:
Cash.............................. $ 14,639 $ 35,520 $ 37,432 $ 4,928
Investments in IPT Partnerships(3) $ 192,832 $ 124,951 $ 159,469 $ 118,741
Long-Term Debt.................... $ 21,951 $ 19,950 $ 19,300 $ 19,730
Shareholders' Equity(4)........... $ 212,697 $ 163,466 $ 200,659 $ 121,068
--------------
(1) Funds from Operations represent income or loss from real estate operations,
which is net income or loss in accordance with GAAP, excluding gains or
losses from debt restructuring or sales of property, plus depreciation and
provision for impairment.
(2) Assumes all outstanding IPLP units are exchanged for IPT Common Shares.
(3) As of June 30, 1998, represented IPT's investment in 41 of the 124 IPT
Partnerships which IPT accounts for using the equity method. Of the
remaining 83 IPT Partnerships, IPT accounts for 81 using the cost method and
two using the consolidation method.
(4) Includes Insignia's minority interest in IPLP.
Insignia. Insignia is a fully integrated real estate services
organization. Insignia is the largest manager of multi-family residential
properties in the United States and is among the largest managers of commercial
properties. Insignia's real estate services include property management,
providing all of the day-to-day services necessary to operate a property,
whether residential or commercial; asset management, including long-term
financial planning, monitoring and implementing capital improvement plans, and
development and execution of refinancings and dispositions; real estate leasing
and brokerage; maintenance and construction services; marketing and
20
advertising; investor reporting and accounting; and investment banking,
including assistance in workouts and restructurings, mergers and acquisitions,
and debt and equity securitizations.
Insignia provides property and/or asset management services for
approximately 3,800 properties, which include approximately 272,000 residential
units (including cooperative and condominium units), and in excess of 208
million square feet of retail, commercial and industrial space, located in over
500 cities in 48 states, Italy, the United Kingdom and Germany. Insignia
currently provides partnership administration services to approximately 900
limited partnerships having approximately 350,000 limited partners. Insignia is
a public company whose stock is traded on the New York Stock Exchange under the
symbol IFS.
On March 17, 1998, Insignia and Apartment Investment and Management
Company, a Maryland corporation ("AIMCO"), entered into a definitive merger
agreement (as amended and restated, the "AIMCO Merger Agreement"), pursuant to
which substantially all of Insignia's residential real estate operations and
ownership interests, including its interests in IPT and IPLP, are to be merged
with and into AIMCO, with AIMCO as the surviving corporation (the "AIMCO
Merger"). AIMCO is a public REIT whose Class A shares trade on the New York
Stock Exchange under the symbol AIV. The XXXXX Xxxxxx is expected to close in
early October 1998.
Assuming the AIMCO Merger is consummated, the Partnership will
thereafter be controlled by AIMCO. In addition, AIMCO is required pursuant to
the AIMCO Merger Agreement to acquire all of the outstanding shares of IPT not
owned by Insignia by causing IPT to merge with and into AIMCO (or a subsidiary
of AIMCO) as soon as practicable after the consummation of the AIMCO Merger, in
which event IPT would cease to exist as a separate entity and AIMCO would
effectively own all of the Units acquired by the Purchaser pursuant to the
Offer.
Insignia is subject to the information and reporting requirements of
the Exchange Act and in accordance therewith is required to file periodic
reports, proxy statements and other information with the Commission relating to
its business, financial condition and other matters. Certain information, as of
particular dates, concerning Insignia's business, principal properties, capital
structure, material pending legal proceedings, operating results, financial
condition, directors and officers (including their remuneration and stock
options granted to them), the principal holders of Insignia's securities, any
material interests of such persons in transactions with Insignia and certain
other matters is required to be disclosed in proxy statements and annual reports
distributed to Insignia's shareholders and filed with the Commission. Such
reports, proxy statements and other information may be inspected and copied at
the Commission's public reference facilities and should also be available for
inspection in the same manner as set forth with respect to the Partnership in
Section 9.
Insignia's principal executive offices are located at Xxx Xxxxxxxx
Xxxxxxxxx Xxxxx, Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000, and its telephone number is
(000) 000-0000. For certain information concerning the directors and executive
officers of Insignia, see Schedule III to this Offer to Purchase.
Set forth below is certain consolidated financial information with
respect to Insignia and its consolidated subsidiaries for its fiscal years ended
December 31, 1997, 1996 and 1995 and the six-month periods ended June 30, 1998
and 1997. More comprehensive financial and other information is included in
Insignia's Annual Report on Form 10-K for the year ended December 31, 1997
(including management's discussion and analysis of financial condition and
results of operations) and in other reports and documents filed by Insignia with
the Commission. The financial information set forth below is qualified in its
entirety by reference to such reports and documents filed with the Commission
and the financial statements and related notes contained therein. These reports
and other documents may be examined and copies thereof may be obtained in the
manner set forth above.
21
INSIGNIA FINANCIAL GROUP, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
(in thousands, except per share data)
SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------
1998 1997 1997 1996 1995
----------- ------------ ------------ ------------ -----------
(unaudited)
Statements of Operations Data:
Total Revenues.................................. $ 281,254 $ 154,527 $ 400,843 $ 227,074 $ 123,032
Income Before Taxes and Extraordinary Item...... $ 12,134 $ 7,630 $ 17,055 $ 14,946 $ 10,093
Net Income...................................... $ 6,674 $ 4,578 $ 10,233 $ 8,564 $ 5,806
Earnings Per Share.............................. $ 0.19 $ 0.14 $ 0.32 $ 0.26 $ 0.20
AS OF AS OF
JUNE 30, DECEMBER 31,
------------------------- --------------------------------------
1998 1997 1997 1996 1995
----------- ------------ ------------ ------------ -----------
(unaudited)
Balance Sheets Data:
Cash and Cash Equivalents....................... $ 57,807 $ 88,847 $ 88,847 $ 54,614 $ 49,846
Receivables..................................... $ 147,569 $ 122,180 $ 122,180 $ 46,040 $ 26,445
Total Assets................................ $ 954,189 $ 800,223 $ 800,223 $ 492,402 $ 245,409
Accounts Payable................................ $ 16,205 $ 13,705 $ 13,705 $ 1,711 $ 1,497
Commissions Payable............................. $ 54,467 $ 51,285 $ 51,285 $ 18,736 $ 602
Accrued and Sundry Liabilities.................. $ 105,658 $ 102,009 $ 102,009 $ 40,741 $ 25,619
Long-Term Debt.................................. $ 289,335 $ 189,704 $ 189,704 $ 69,140 $ 42,996
Total Liabilities........................... $ 465,665 $ 356,703 $ 356,703 $ 130,328 $ 70,714
Redeemable Convertible Preferred Stock.......... -- -- -- -- $ 15,000
Redeemable Convertible Preferred Securities
of Subsidiary Trust........................... $ 144,210 $ 144,065 $ 144,065 $ 144,169 --
Minority Interest in Consolidated Subsidiaries.. $ 66,484 $ 61,546 $ 61,546 -- $ 2,682
Shareholders' Equity........................ $ 277,830 $ 237,909 $ 237,909 $ 217,905 $ 157,013
Except as otherwise set forth herein, none of the Purchaser (which is
an affiliate of the General Partner), IPLP, IPT, Insignia or, to the best of the
Purchaser's knowledge, any of the persons listed on Schedules I, II or III
hereto, or any affiliate of the foregoing, (i) beneficially owns or has a right
to acquire any Units, (ii) has effected any transaction in the Units in the last
60 days, or (iii) has any contract, arrangement, understanding or relationship
with any other person with respect to any securities of the Partnership,
including, but not limited to, contracts, arrangements, understandings or
relationships concerning the transfer or voting thereof, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against loss
or the giving or withholding of proxies. Xxxxxx X. Xxxxxx, who is the Chairman
of the Board, Chief Executive Officer and President of Insignia and a trustee of
IPT, beneficially owns approximately 18% of Insignia's outstanding common stock
and, as a result, may be deemed to beneficially own the Units owned by IPLP.
SECTION 12. SOURCE OF FUNDS. The Purchaser (which is an affiliate of
the General Partner) expects that approximately $1,600,000 will be required to
purchase 20,000 Units, if tendered, and to pay related fees and expenses. The
Purchaser (which is an affiliate of the General Partner) expects to obtain all
of those funds from IPLP, which in turn intends to use its cash on hand and
borrowings from its credit facility. The Purchaser has not conditioned the Offer
on obtaining financing.
The following is a summary description of the existing credit facility
(the "Facility") provided for the benefit of IPLP pursuant to the Credit
Agreement, dated as of December 30, 1997 (the "Credit Agreement"), among IPLP,
as borrower, Xxxxxx Commercial Paper, Inc., as syndication agent, First Union
National Bank, as administrative agent and the lenders from time to time parties
thereto (the "Lenders"). This summary description does not purport to be
complete and is qualified in its entirety by reference to the Credit Agreement,
a copy of
22
which has been filed as an exhibit to the Purchaser's Tender Offer Statement on
Schedule 14D-1 filed with the Commission.
Pursuant to the Credit Agreement, the Lenders have made available to
IPLP a revolving credit facility of up to $50 million at any one time
outstanding. Loans under the Facility (the "Loans") may be utilized to finance
certain permitted investments and refinance certain investments made prior to
the date of the Credit Agreement. The Facility matures in a single installment
on December 30, 2000.
Loans bear interest, at IPLP's election, (i) at a rate equal to the
higher of (a) the rate announced from time to time by First Union National Bank
as its base lending rate or (b) the daily effective federal funds rate as quoted
by First Union National Bank; or (ii) at rates based on the London interbank
offered rate, as adjusted for certain reserve and other requirements applicable
to lenders, for one-, two-, three- or six-month periods plus an interest margin
of 2.50%. As of the date hereof, IPT has $30 million of outstanding indebtedness
under the Facility.
IPT is obligated to pay a commitment fee at a rate of 0.25% per annum
on the undrawn portion of the Facility. Such commitment fee is payable quarterly
in arrears and calculated based on the actual number of days elapsed over a
365-day year.
The Loans are subject to mandatory prepayment only to the extent that
the aggregate outstanding principal amount of the Loans on any day exceeds the
amount of the Facility then in effect. Voluntary prepayments of the Loans and
voluntary reductions of the Facility are permitted, in whole or in part, at the
option of IPLP in minimum principal amounts, without premium or penalty, subject
to reimbursement of certain of the Lenders' costs under certain conditions.
IPLP's obligations under the Facility have been guaranteed by IPT and
such guaranty is secured by a first priority pledge of and security interest in
the capital stock or other equity interests held by IPT in each of the
subsidiaries of IPT which directly or indirectly owns or controls the general
partner interest (including an interest in the General Partner) in any Real
Estate Entity (as defined below) in which IPLP directly or indirectly owns a
limited partner interest (including the Partnership). In addition, the Facility
is secured by a first priority pledge of and security interest in all limited
partnership interests from time to time owned by IPLP and the equity interests
from time to time held by IPLP in any subsidiary of IPLP which itself owns
limited partnership interests. The Credit Agreement defines a "Real Estate
Entity" as any limited partnership, limited liability company, corporation or
other entity which has as its principal business the ownership of real property
or debt secured by real property. Thus, the IPT Partnerships (including the
Partnership) constitute Real Estate Entities for purposes of the Credit
Agreement.
The Facility contains representations and warranties, conditions
precedent, covenants, events of default and other provisions customarily found
in similar transactions.
SECTION 13. BACKGROUND OF THE OFFER.
Affiliation With the General Partner. Since June 24, 1997, the General
Partner has been a direct, wholly-owned subsidiary of Insignia. Prior to that
time, the General Partner was unaffiliated with IPT or Insignia.
Determination of Purchase Price. In establishing the Purchase Price,
the Purchaser (which is an affiliate of the General Partner) reviewed certain
publicly available information and certain information made available to it by
the General Partner and its other affiliates, including among other things: (i)
the Limited Partnership Agreement, as amended to date; (ii) the Partnership's
Annual Report on Form 10-KSB for the year ended December 31, 1997 and the
Partnership's Quarterly Report on Form 10-QSB for the period ended June 30,
1998; (iii) unaudited results of operations of the Partnership's properties for
the period since the beginning of the Partnership's current fiscal year and to
date in 1998; (iv) the operating budgets prepared by IRG and I/ESG with respect
to the Partnership's properties for the year ending December 31, 1998; and (v)
other information obtained by IRG, I/ESG, Insignia and other affiliates in their
capacities as providers of property management, asset management and partnership
administration services to the Partnership. The Purchaser's determination of the
23
Purchase Price was based on its review and analysis of the foregoing
information, the other financial information and analyses concerning the
Partnership summarized below. In determining the Purchase Price, the Purchaser
did not rely upon any material, non-public information concerning the
Partnership not summarized below or elsewhere in this Offer to Purchase.
Trading History of Units. Secondary market sales activity for the
Units, including privately negotiated sales, has been limited and sporadic.
According to information obtained from the General Partner, from July 1, 1996 to
June 30, 1998 an aggregate of 3,530 Units (representing less than 5.9% of the
total outstanding Units) was transferred in sale transactions. Set forth in the
table below are the high and low sales prices of Units for the quarterly periods
from July 1, 1996 to June 30, 1998, as reported by the General Partner and by
The Partnership Spectrum, which is an independent, third-party source. The gross
sales prices reported by The Partnership Spectrum do not necessarily reflect the
net sales proceeds received by sellers of Units, which typically are reduced by
commissions and other secondary market transaction costs to amounts less than
the reported prices; thus the Purchaser does not know whether the information
compiled by The Partnership Spectrum is accurate or complete. The transfer
paperwork submitted to the General Partner often does not include the requested
price information or contains conflicting information as to the actual sales
price; accordingly, Limited Partners should not rely upon this information as
being completely accurate.
XXXXXX XXXXXXX XXXXXXX REAL ESTATE ASSOCIATES III
REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY
THE GENERAL PARTNER(a) THE PARTNERSHIP SPECTRUM(b)
-------------------------- ---------------------------
LOW SALES HIGH SALES LOW SALES HIGH SALES
PRICE PRICE PRICE PRICE
PER UNIT PER UNIT PER UNIT PER UNIT
--------- ---------- --------- -----------
Fiscal Year Ended December 31, 1998:
Second Quarter.................................... $ 60 $160 $100 $132
First Quarter..................................... 32 137 114 127
Fiscal Year Ended December 31, 1997:
Fourth Quarter.................................... 130 130 106 130
Third Quarter ................................... 75 189 127 137
Second Quarter.................................... 65 113 80 152
First Quarter .................................... 50 200 (c) (c)
Fiscal Year Ended December 31, 1996:
Fourth Quarter ................................... 80 101 100 187
Third Quarter..................................... 90 124 122 182
--------------
(a) Although the General Partner requests and records information on the prices
at which Units are sold, it does not regularly receive or maintain
information regarding the bid or asked quotations of secondary market
makers, if any. The General Partner processes transfers of Units only 4
times per year - on the first day of each quarter. The prices in the table
are based solely on information provided to the General Partner by sellers
and buyers of Units transferred in sale transactions (i.e., excluding
transactions believed to result from the death of a Limited Partner,
rollover to an IRA account, establishment of a trust, trustee to trustee
transfers, termination of a benefit plan, distributions from a qualified or
non-qualified plan, uniform gifts, abandonment of Units or similar non-
sale transactions).
(b) The gross sales prices reported by The Partnership Spectrum do not
necessarily reflect the net sales proceeds received by sellers of Units,
which typically are reduced by commissions and other secondary market
transaction costs to amounts less than the reported prices. The Purchaser
(which is an affiliate of the General Partner) does not know whether the
information compiled by The Partnership Spectrum is accurate or complete.
(c) No Units were reported by The Partnership Spectrum as having been sold
during the quarter.
The Purchaser (which is an affiliate of the General Partner) believes
that, although secondary market sales information probably is not a reliable
measure of value because of the limited and inefficient nature of the market for
Units, this information may be relevant to a Limited Partner's decision as to
whether to tender its Units pursuant to the Offer. At present, privately
negotiated sales and sales through intermediaries (e.g., through the trading
system operated by American Partnership Board, Inc., which publishes sell offers
by holders of Units) are the only means available to a Limited Partner to
liquidate an investment in Units (other than the Offer) because the Units are
not listed or traded on any exchange or quoted on NASDAQ.
24
General Partner's Estimate of Net Asset Value. An affiliate of the
General Partner prepared an estimate of the Partnership's net asset value per
Unit in connection with an offer to purchase up to 4.9% of the outstanding Units
commenced by a party unaffiliated with the Purchaser, IPLP, IPT or Insignia in
September 1998. That estimate of the Partnership's net asset value per Unit as
of June 30, 1998 was $136. The General Partner's affiliate estimates net asset
value based on a hypothetical sale of the Partnership's wholly-owned property
and the Joint Ventures' properties and the distribution to the Limited Partners
and the General Partner of the gross proceeds of such sales, net of related
indebtedness, together with the cash, proceeds from temporary investments, and
all other assets that are believed to have liquidation value, after provision in
full for all of the other known liabilities of the Partnership and the Joint
Ventures. The net asset value estimate prepared by the General Partner's
affiliate does not take into account (i) timing considerations or (ii) costs
associated with winding up the Partnership and the Joint Ventures. Therefore,
the Purchaser believes that the estimate of net asset value per Unit prepared by
an affiliate of the General Partner does not necessarily represent either the
fair market value of a Unit or the amount a Limited Partner reasonably could
expect to receive if the Partnership's wholly-owned property and the Joint
Ventures' properties were sold and the Partnership and the Joint Ventures were
liquidated. For this reason, the Purchaser considered the net asset value
estimate prepared by the General Partner's affiliate to be less meaningful in
determining the Purchase Price than the pro forma liquidation analysis described
below.
Purchaser's Estimate of Gross Real Estate Value. In estimating the
gross real estate value of the Partnership's wholly-owned property and the Joint
Ventures' properties, the Purchaser utilized the capitalization of income
approach for the Partnership's properties. The estimate of the gross real estate
value of the Partnership's wholly-owned property and the Joint Ventures'
properties prepared by the Purchaser does not purport to be an estimate of the
aggregate fair market value of the Units themselves, nor should it be viewed as
such by Limited Partners. Neither the Purchaser nor any of its affiliates
prepared any estimates of the values of the Partnership's wholly-owned property
or the Joint Ventures' properties based upon any other valuation method.
The following is a description of the methodology employed by the
Purchaser in preparing such estimates for the values of the hotel properties
owned by the Partnership (as used below, "net operating income" is calculated
before depreciation, amortization, debt service payments and certain capital
expenditure items):
HOTEL PROPERTIES
TUCSON AIRPORT HOTEL. In estimating the value of this property, the
Purchaser reviewed the income ($2,592,019) generated by the property for the six
months ended June 30, 1998 (comprised of $1,593,432 of gross rental income and
$998,587 of other income), and then deducted from this amount the total
operating expenses of the property for the six months ($1,991,629), resulting in
the Purchaser's estimated net operating income for the six months ($600,390).
The Purchaser then adjusted the net operating income amount for the first six
months of 1998 by the budgeted net operating income amount for the remaining six
months of 1998 ($288,592). The Purchaser utilized this method, rather than
annualizing the net operating income amount through June 30,1998, to adjust for
the seasonal nature of this property, which results in increased earnings during
the first quarter primarily due to weather. This method resulted in an estimated
annual net operating income of $888,982. Finally, the Purchaser capitalized its
estimated annual net operating income amount at an 11% capitalization rate,
resulting in an estimated gross property value of $8,081,655. The Purchaser then
multiplied the estimated gross property by 90% to reflect the Partnership's 90%
interest in the DBL Joint Venture (which owns the property), resulting in a
value of $7,273,490.
GREEN VALLEY HOTEL. In estimating the value of this property, the
Purchaser reviewed the income ($1,347,650) generated by the property for the six
months ended June 30, 1998 (comprised of $1,064,187 of gross rental income and
$283,463 of other income), and then deducted from this amount the total
operating expenses of the property for the six months ($955,680), resulting in
the Purchaser's estimated net operating income for the six months ($391,970).
The Purchaser then adjusted the net operating income amount for the first six
months of 1998 by the budgeted net operating income amount for the remaining six
months of 1998 (-$64,003). The Purchaser utilized this method, rather than
annualizing the net operating income amount through June 30, 1998, to adjust for
the seasonal nature of this property, which results in increased earnings during
the first quarter primarily due to weather. This method resulted in an estimated
annual net operating income amount of $327,967. Finally, the
25
Purchaser capitalized its estimated annual net operating income amount at a 12%
capitalization rate, resulting in an estimated gross property value of
$2,733,058. The Purchaser then multiplied the estimated gross property value by
90% to reflect the Partnership's 90% interest in the DBL Joint Venture (which
owns the property), resulting in a value of $2,459,752.
COMMERCIAL PROPERTIES
The following is a description of the methodology employed by the
Purchaser in preparing the estimates of the values of the commercial properties
owned by the Partnership.
PERIMETER SQUARE SHOPPING CENTER. In estimating the value of this
property, the Purchaser reviewed the income ($220,709) generated by the property
for the six months ended June 30, 1998 (comprised of $192,915 of gross rental
income and $27,794 of other income), and then deducted from this amount the
total operating expenses of the property for the six months ($62,110), resulting
in the Purchaser's estimate of net operating income for the six months
($158,599). The Purchaser then annualized this amount, resulting in estimated
annual net operating income of $317,198. The Purchaser then capitalized that
estimated annual net operating income amount at an 11% capitalization rate,
resulting in an estimated gross property value of $2,883,618. Finally, the
Purchaser reduced the estimated gross property value by $150,000 to reflect
capital expenditures that the Purchaser believes a third party purchaser would
deem necessary at the time of acquisition or in connection with recently
executed leases, resulting in an estimated gross property value of $2,733,618.
SHALLOWFORD CORNERS SHOPPING CENTER. In estimating the value of this
property, the Purchaser reviewed the income ($634,496) generated by the property
for the six months ended June 30, 1998 (comprised of $531,744 of gross rental
income and $102,752 of other income), and then deducted from this amount the
total operating expenses of the property for the six months ($189,272),
resulting in the Purchaser's estimate of net operating income for the six months
($445,224). The Purchaser then annualized this amount, resulting in estimated
annual net operating income of $890,448. The Purchaser then capitalized that
estimated annual net operating income amount at a 10.5% capitalization rate,
resulting in an estimated gross property value of $8,480,457. Finally, the
Purchaser reduced the estimated gross property value by $200,000 to reflect
capital expenditures that the Purchaser believes a third party purchaser would
deem necessary at the time of acquisition or in connection with recently
executed leases, resulting in an estimated gross property value of $8,280,457.
The Purchaser then multiplied the estimated gross property value by 90% to
reflect the Partnership's 90% interest in the Shallowford Joint Venture (which
owns the property), resulting in a value of $7,452,411.
* * *
Based on the individual estimates of the gross values of the
Partnership's wholly-owned property and the Joint Ventures' properties described
above, the Purchaser estimated that the current aggregate gross real estate
value is $19,919,271 (the "Gross Real Estate Value Estimate"). The
property-specific capitalization rates used by the Purchaser in the valuation
estimates described above were based upon the Purchaser's, IPT's and Insignia's
general knowledge of the revenues and expenses associated with operating hotel
and commercial properties in the markets in which the Partnership's wholly-owned
property and the Joint Ventures' properties are located, their general knowledge
of property values in those markets and their experience in the real estate
market in general.
Although there are several other methods of estimating the value of
real estate of these types, the Purchaser believes that this approach represents
a reasonable method of estimating the aggregate gross value of the Partnership's
wholly-owned property and the Joint Ventures' properties (without taking into
account the costs of disposing of the hotel properties), subject to the
substantial uncertainties inherent in any estimate of value. The use of other
assumptions, however, particularly as to the applicable capitalization rate,
could produce substantially different results. None of the Purchaser, IPT or
Insignia solicited any offers or inquiries from prospective buyers of the
Partnership's wholly-owned property and the Joint Ventures' properties in
connection with preparing the Purchaser's estimates of the fair market values of
those properties, and the actual amounts for which the Partnership's
wholly-owned property (or the Joint Ventures' properties) might be sold could be
significantly higher or significantly lower than the Purchaser's estimates.
26
The Gross Real Estate Value Estimate does not take into account (i) the
debt encumbering the Joint Ventures' properties and the Partnership's
wholly-owned property or the other liabilities of the Partnership and the Joint
Ventures, (ii) cash and other assets held by the Partnership and the Joint
Ventures, (iii) real estate transaction costs that would be incurred on a sale
of the Partnership's hotel properties, such as brokerage commissions and other
selling and closing expenses, (iv) timing considerations or (v) costs associated
with winding up the Partnership or the Joint Ventures. For this reason, the
Purchaser considers the Gross Real Estate Value Estimate to be less meaningful
in evaluating the Purchase Price offered by the Purchaser than its pro forma
estimate of the net liquidation value per Unit described below.
Purchaser's Pro Forma Estimate of Net Liquidation Value per Unit. The
Purchaser is offering to purchase Units, which are a relatively illiquid
investment, and is not offering to purchase the Partnership's underlying assets
or assume any of its liabilities. Consequently, the Purchaser does not believe
that the per-Unit amount which might be distributed to Limited Partners
following a future sale of the Partnership's wholly-owned property and the Joint
Ventures' properties necessarily reflects the present fair value of a Unit.
Conversely, the realizable value of the Partnership's assets clearly is a
relevant factor in determining the price a prudent purchaser would offer for
Units. In considering this factor, the Purchaser made a pro forma calculation of
the amount each Limited Partner might receive in a theoretical orderly
liquidation of the Partnership (which may not be realistically possible,
particularly in the near term, due to real estate market conditions, the general
difficulty of disposing of real estate in a short period of time, and other
general economic factors), based on the Gross Real Estate Value Estimate
described above and the other considerations described below. The Purchaser
based its pro forma liquidation analysis on the Gross Real Estate Value Estimate
(and thus on the Purchaser's estimates of the values of the Partnership's
wholly-owned property and the Joint Ventures' properties described above), as
opposed to the value estimated by the General Partner's affiliate (as described
above), because the Purchaser believes that the Gross Real Estate Value Estimate
represents the best estimate, based on currently available information, of the
values of the Partnership's wholly-owned property and the Joint Ventures'
properties.
In estimating the pro forma net liquidation value per Unit, the
Purchaser adjusted its Gross Real Estate Value Estimate of $19,919,271 to
reflect the Partnership's other assets and liabilities (excluding prepaid and
deferred expenses and security deposits). Specifically, the Purchaser added the
amounts of cash, accounts receivable and escrow deposits shown on the
Partnership's unaudited balance sheet at June 30, 1998 ($3,900,000), and
subtracted the mortgage debt encumbering the Partnership's wholly-owned property
and the Joint Ventures' properties ($15,317,000) and all other liabilities shown
on that balance sheet ($1,127,000). The Purchaser then adjusted the Gross Real
Estate Value Estimate for the minority interest in the Joint Ventures. The
Purchaser valued the DBL Joint Venture's interest in each of Tucson Airport
Hotel and Green Valley Hotel based on the DBL Joint Venture's unaudited balance
sheet at June 30, 1998. The Purchaser estimated the amount of cash, accounts
receivable and escrow deposits reflected on that balance sheet ($915,103) and
subtracted the mortgage debt encumbering the DBL Joint Venture's properties
($6,143,065) and all other liabilities shown on that balance sheet ($881,767).
The Purchaser then multiplied the result (-$6,109,729) by the 10% interest it
does not own in the DBL Joint Venture, and added such amount ($610,973) to the
adjusted Gross Real Estate Value Estimate. The Purchaser valued the Shallowford
Joint Venture's interest in Shallowford Corners Shopping Center based on the
Shallowford Joint Venture's unaudited balance sheet at June 30, 1998. The
Purchaser estimated the amount of cash, accounts receivable and escrow deposits
reflected on that balance sheet ($379,285) and subtracted the mortgage debt
encumbering the Shallowford Joint Venture's property ($7,750,000) and all other
liabilities shown on that balance sheet ($170,705). The Purchaser then
multiplied the result (-$7,541,420) by the 10% interest it does not own in the
Shallowford Joint Venture, and added such amount ($754,142) to the adjusted
Gross Real Estate Value Estimate as well. The Purchaser then deducted $796,771,
representing a reserve equal to 4% of the Gross Real Estate Value Estimate
(which represents the Purchaser's estimate of the probable costs of brokerage
commissions, real estate transfer taxes and other disposition expenses). The
result, $7,943,615, represents the Purchaser's pro forma estimate of the
aggregate net liquidation proceeds (before provision for the costs described in
the following sentence) which could be realized on an orderly liquidation of the
Partnership, based on the assumptions implicit in the calculations described
above. The Purchaser did not, however, deduct any amounts in respect of the
legal and other costs which the Purchaser expects would be incurred in a
liquidation, including costs of negotiating purchase and sale contracts,
possibly conducting a consent solicitation in order to obtain the Limited
Partners' approvals for
27
the sales as may be required by the Limited Partnership Agreement, and winding
up the Partnership, because of the difficulty of estimating those amounts.
To complete its pro forma estimate of the amount of the theoretical
liquidation proceeds that would be distributable per Unit, the Purchaser divided
the estimated net liquidation proceeds of $7,943,615 by the 59,905 Units
reported as outstanding by the General Partner as of September 1, 1998. The
resulting estimated pro forma liquidation value was $132.60 per Unit (the
"Estimated Liquidation Value"), before provision for the legal and other costs
of liquidating the Partnership described in the last sentence of the preceding
paragraph.
The Purchaser's pro forma liquidation analysis described above is
merely theoretical and does not itself reflect the value of the Units because
(i) there is no assurance that any such liquidation in fact will occur in the
foreseeable future and (ii) any liquidation in which the estimated fair market
values described above might be realized would take an extended period of time
(at least a year, and quite possibly significantly longer), during which time
the Partnership and its partners would continue to be exposed to the risk of
fluctuations in asset values because of changing market conditions and other
factors. For any property sales in which the Partnership is required to
indemnify the buyer for matters arising after the closing, a portion of the
sales proceeds could be held by the Partnership until all possible claims are
satisfied, further extending the delay in the receipt by the Limited Partners of
liquidation proceeds. In light of these factors, the Purchaser (which is an
affiliate of the General Partner) believes the actual current value of the Units
is substantially less than its estimate of the Estimated Liquidation Value.
Conversely, there is a substantial possibility that the per-Unit value realized
in an orderly liquidation could be greater than the Estimated Liquidation Value.
A reduction in either operating expenses or capital expenditures from the levels
reflected in the property operating statements for the six months ended June 30,
1998 would result in a higher liquidation value under the method described
above. Similarly, a higher liquidation value would result if a buyer applied
lower capitalization rates for the Partnership's properties (reflecting a
willingness to accept a lower rate of return on its investment) to the
applicable net operating income generated by the Partnership's properties than
the capitalization rates, applied by the Purchaser. For example, a 5% increase
or decrease in the value of the Partnership's properties would produce a
corresponding increase or decrease in the Estimated Liquidation Value of
approximately $16 per Unit. Furthermore, the analysis described above is based
on a series of assumptions, some of which may not be correct. Accordingly, this
analysis should be viewed merely as indicative of the Purchaser's approach to
valuing Units and not as any way predictive of the likely result of any future
transactions.
SECTION 14. CONDITIONS OF THE OFFER. Notwithstanding any other term of
the Offer, the Purchaser (which is an affiliate of the General Partner) will not
be required to accept for payment or to pay for any Units tendered if all
authorizations, consents, orders or approvals of, or declarations or filings
with, or expirations of waiting periods imposed by, any court, administrative
agency or commission or other governmental authority or instrumentality,
domestic or foreign, necessary for the consummation of the transactions
contemplated by the Offer shall not have been filed, occurred or been obtained
prior to the Expiration Date. Furthermore, notwithstanding any other term of the
Offer and in addition to the Purchaser's right to withdraw the Offer at any time
before the Expiration Date, the Purchaser (which is an affiliate of the General
Partner) will not be required to accept for payment or pay for any Units not
theretofore accepted for payment or paid for and may terminate or amend the
Offer as to such Units if, at any time on or after the date of the Offer and
before the Expiration Date, any of the following conditions exists:
(a) a preliminary or permanent injunction or other order of any federal
or state court, government or governmental authority or agency shall have been
issued and shall remain in effect which (i) makes illegal, delays or otherwise
directly or indirectly restrains or prohibits the making of the Offer or the
acceptance for payment, purchase of or payment for any Units by the Purchaser
(which is an affiliate of the General Partner), (ii) imposes or confirms
limitations on the ability of the Purchaser effectively to exercise full rights
of ownership of any Units, including without limitation the right to vote any
Units acquired by the Purchaser pursuant to the Offer or otherwise on all
matters properly presented to the Partnership's Limited Partners, (iii) requires
divestiture by the Purchaser of any Units, (iv) causes any material diminution
of the benefits to be derived by the Purchaser as a result of the transactions
contemplated by the Offer, or (v) might materially adversely affect the
business, properties, assets, liabilities, financial condition, operations,
results of operations or prospects of the Purchaser or the Partnership;
28
(b) there shall be any action taken, or any statute, rule, regulation
or order proposed, enacted, enforced, promulgated, issued or deemed applicable
to the Offer by any federal or state court, government or governmental authority
or agency, which might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph (a) above;
(c) any change or development shall have occurred or been threatened
since the date of the Offer to Purchase, in the business, properties, assets,
liabilities, financial condition, operations, results of operations or prospects
of the Partnership, which is or may be materially adverse to the Partnership, or
the Purchaser (which is an affiliate of the General Partner) shall have become
aware of any fact that does or may have a material adverse effect on the value
of the Units;
(d) there shall have occurred (i) any general suspension of trading in,
or limitation on prices for, securities on any national securities exchange or
in the over-the-counter market in the United States, (ii) a declaration of a
banking moratorium or any suspension of payments in respect of banks in the
United States, (iii) any limitation by any governmental authority on, or other
event which might affect, the extension of credit by lending institutions or
result in any imposition of currency controls in the United States, (iv) a
commencement of a war or armed hostilities or other national or international
calamity directly or indirectly involving the United States, (v) a material
change in United States or other currency exchange rates or a suspension of, or
imposition of a limitation on, the markets thereof, or (vi) in the case of any
of the foregoing existing at the time of the commencement of the Offer, a
material acceleration or worsening thereof; or
(e) it shall have been publicly disclosed or the Purchaser (which is an
affiliate of the General Partner) shall have otherwise learned that (i) more
than ten percent of the outstanding Units have been or are proposed to be
acquired by another person (including a "group" within the meaning of Section
13(d)(3) of the Exchange Act), or (ii) any person or group that prior to such
date had filed a Statement with the Commission pursuant to Section 13(d) or (g)
of the Exchange Act has increased or proposes to increase the number of Units
beneficially owned by such person or group as disclosed in such Statement by two
percent or more of the outstanding Units.
The foregoing conditions are for the sole benefit of the Purchaser
(which is an affiliate of the General Partner) and may be asserted by the
Purchaser regardless of the circumstances giving rise to such conditions or may
be waived by the Purchaser in whole or in part at any time and from time to time
in its sole discretion. Any determination by the Purchaser (which is an
affiliate of the General Partner) concerning the events described above will be
final and binding upon all parties.
SECTION 15. CERTAIN LEGAL MATTERS.
General. The Purchaser (which is an affiliate of the General Partner)
is not aware of any filings, approvals or other actions by any domestic or
foreign governmental or administrative agency that would be required prior to
the acquisition of Units by the Purchaser (which is an affiliate of the General
Partner) pursuant to the Offer, other than the filing of a Tender Offer
Statement on Schedule 14D-1 with the Commission (which has already been filed)
and any required amendments thereto. Should any such approval or other action be
required, it is the Purchaser's present intention that such additional approval
or action would be sought. Although there is no present intent to delay the
purchase of Units tendered pursuant to the Offer pending receipt of any such
additional approval or the taking of any such action, there can be no assurance
that any such additional approval or action, if needed, would be obtained
without substantial conditions or that adverse consequences might not result to
the Partnership's business, or that certain parts of the Partnership's business
might not have to be disposed of or other substantial conditions complied with
in order to obtain such approval or action, any of which could cause the
Purchaser (which is an affiliate of the General Partner) to elect to terminate
the Offer without purchasing Units thereunder.
Antitrust. The Purchaser (which is an affiliate of the General Partner)
does not believe that the Xxxx-Xxxxx- Xxxxxx Antitrust Improvements Act of 1976,
as amended, is applicable to the acquisition of Units contemplated by the Offer.
29
Margin Requirements. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, those regulations generally are not applicable to the Offer.
SECTION 16. FEES AND EXPENSES. Except as set forth in this Section 16,
the Purchaser (which is an affiliate of the General Partner) will not pay any
fees or commissions to any broker, dealer or other person for soliciting tenders
of Units pursuant to the Offer. The Purchaser (which is an affiliate of the
General Partner) has retained Beacon Hill Partners, Inc. to act as Information
Agent and Xxxxxx Trust Company of New York to act as Depositary in connection
with the Offer. The Purchaser (which is an affiliate of the General Partner)
will pay the Information Agent and the Depositary reasonable and customary
compensation for their respective services in connection with the Offer, plus
reimbursement for out-of-pocket expenses, and has agreed to indemnify the
Information Agent and the Depositary against certain liabilities and expenses in
connection therewith, including liabilities under the federal securities laws.
The Purchaser (which is an affiliate of the General Partner) will also pay all
costs and expenses of printing and mailing the Offer and its legal fees and
expenses.
SECTION 17. MISCELLANEOUS. The Purchaser (which is an affiliate of the
General Partner) is not aware of any jurisdiction in which the making of the
Offer is not in compliance with applicable law. If the Purchaser (which is an
affiliate of the General Partner) becomes aware of any jurisdiction in which the
making of the Offer would not be in compliance with applicable law, the
Purchaser will make a good faith effort to comply with any such law. If, after
such good faith effort, the Purchaser (which is an affiliate of the General
Partner) cannot comply with any such law, the Offer will not be made to (nor
will tenders be accepted from or on behalf of) Limited Partners residing in such
jurisdiction. In those jurisdictions whose securities or blue sky laws require
the Offer to be made by a licensed broker or dealer, the Offer will be deemed to
be made on behalf of the Purchaser (which is an affiliate of the General
Partner) by one or more registered brokers or dealers licensed under the laws of
that jurisdiction.
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser (which is an affiliate of the General
Partner) not contained in this Offer to Purchase or in the Assignment of
Partnership Interest and, if given or made, such information or representation
must not be relied upon as having been authorized.
The Purchaser (which is an affiliate of the General Partner), IPLP, IPT
and Insignia have filed with the Commission a Tender Offer Statement on Schedule
14D-1, pursuant to Rule 14d-3 under the Exchange Act, furnishing certain
additional information with respect to the Offer, and may file amendments
thereto. The Schedule 14D-1 and any amendments thereto, including exhibits, may
be inspected and copies may be obtained at the same places and in the same
manner as set forth in Section 9 (except that they will not be available at the
regional offices of the Commission).
XXXXXX RIVER PROPERTIES, L.L.C.
SEPTEMBER 29, 1998
30
SCHEDULE I
INFORMATION REGARDING THE MANAGERS OF THE PURCHASER
Set forth in the table below are the name and the present principal occupations
or employment and the name, principal business and address of any corporation or
other organization in which such occupation or employment is conducted, and the
five-year employment history of each of the managers of the Purchaser. Each
person identified below is employed by Xxxxxxxx and is a United States citizen.
The principal business address of the Purchaser and, unless otherwise indicated,
the business address of each person identified below, is One Insignia Financial
Plaza, Xxxxxxxxxx, Xxxxx Xxxxxxxx 00000.
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx has been a Manager of the Purchaser
000 Xxxx Xxxxxx since its inception in July 1998. For additional
Suite 3401 information regarding Xx. Xxxxx, see Schedule II.
New York, NY 10152
Xxxx X. Xxxxxxx Xxxx X. Xxxxxxx has been a Manager of the Purchaser
000 Xxxx Xxxxxx since July 1998. For additional information regarding
New York, NY 10166 Xx. Xxxxxxx, see Schedule III.
Xxxxxx Xxxxxx Xxxxxx Xxxxxx has been a Manager of the Purchaser
since its inception in July 1998. For additional
information regarding Xx. Xxxxxx, see Schedules II
and III.
S-1
SCHEDULE II
INFORMATION REGARDING THE
TRUSTEES AND EXECUTIVE OFFICERS OF IPT
Set forth in the table below are the name and the present principal occupations
or employment and the name, principal business and address of any corporation or
other organization in which such occupation or employment is conducted, and the
five-year employment history of each of the trustees and executive officers of
IPT. Each person identified below is employed by Xxxxxxxx and is a United States
citizen. The principal business address of IPT and, unless otherwise indicated,
the business address of each person identified below, is One Insignia Financial
Plaza, Greenville, South Carolina 29602. Trustees are identified by an asterisk.
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------
Xxxxxx X. Xxxxxx* Xxxxxx X. Xxxxxx has served as a Trustee of IPT and
375 Park Avenue as Chairman of the Board of Trustees and Chief
Suite 3401 Executive Officer of IPT since December 1996. For
New York, NY 10152 additional information regarding Xx. Xxxxxx, see
Schedule III.
Xxxxx X. Xxxxx* Xxxxx X. Xxxxx has served as a Trustee of IPT since
its inception in May 1996, and has served as
President and Director of IPT since December 1996.
For additional information regarding Xx. Xxxxx, see
Schedule III.
Xxxxx X. Xxxxxxxx* Xxxxx X. Xxxxxxxx has served as a Trustee of IPT
000 Xxxxxxxx Xxxxxxxxx since December 1996. Xx. Xxxxxxxx has also served as
Suite 400 an Executive Managing Director of IPT since December
Nashville, TN 37205 1996. For additional information regarding Xx.
Xxxxxxxx, see Schedule III.
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx has served as a Senior Vice
000 Xxxx Xxxxxx President of IPT since August 1997, and has served as
Suite 3401 Secretary of IPT since January 1998. From June until
New York, NY 10152 August 1997, Xx. Xxxxx served as a Vice President of
IPT. Since April 1997, Xx. Xxxxx'x principal
occupation has been to serve as a Senior Vice
President -- Investment Banking of Insignia. Prior to
April 1997, Xx. Xxxxx'x principal occupation was as
an attorney with the law firm of Xxxxxx & Xxxxx, New
York, New York.
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx has served as the Controller of IPT
since August 1997. Since April 1995, Mr. Xxxxx'
principal occupation has been to serve as an
accountant with Insignia. Prior to April 1995, Mr.
Xxxxx' principal occupation was as a senior auditor
with the accounting firm of Ernst & Young LLP.
Xxxxxxx X. Xxxxxxx, Xx. Xxxxxxx X. Xxxxxxx, Xx. has served as a Senior Vice
President of IPT since August 1997, and served as
Vice President and Director of Operations of IPT from
December 1996 until August 1997. Xx. Xxxxxxx'x
principal employment has been with Insignia for more
than the past five years. From January 1994 to
September 1997, Xx. Xxxxxxx served as Managing
Director-- Partnership Administration of Insignia.
S-2
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------
Xxxxxx Xxxxxx Xxxxxx Xxxxxx has served as Vice President and
Treasurer of IPT since December 1996. Xx. Xxxxxx
served as a Vice President of IPT from December 1996
until August 1997 and as Chief Financial Officer of
IPT from May 1996 until December 1996. For additional
information regarding Xx. Xxxxxx, see Schedule III.
Xxxxxxx X. Xxxxxx Xxxxxxx X. Xxxxxx has served as Chief Operating
Officer of IPT since May 1997. Since August 1994, Xx.
Xxxxxx'x principal occupation has been to serve as
President of the various corporate general partners
of partnerships controlled by Metropolitan Asset
Enhancement, L.P., which is an affiliate of Insignia.
S-3
SCHEDULE III
INFORMATION REGARDING THE
DIRECTORS AND EXECUTIVE OFFICERS OF INSIGNIA
Set forth in the table below are the name and the present principal occupations
or employment and the name, principal business and address of any corporation or
other organization in which such occupation or employment is conducted, and the
five-year employment history of each of the directors and executive officers of
Insignia. Unless otherwise indicated, each person identified below is employed
by Insignia and is a United States citizen. The principal business address of
Insignia and, unless otherwise indicated, the business address of each person
identified below, is One Insignia Financial Plaza, Xxxxxxxxxx, Xxxxx Xxxxxxxx
00000. Directors are identified by an asterisk.
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------
Xxxxxx X. Xxxxxx* Xxxxxx X. Xxxxxx has been a Director of Insignia
000 Xxxx Xxxxxx since its inception in July 1990. Xx. Xxxxxx has been
Suite 3401 Chairman and Chief Executive Officer of Insignia
New York, NY 10152 since January 1991 and President since May 1995. Xx.
Xxxxxx has also been President of Metropolitan Asset
Group, Ltd. ("MAG"), a real estate investment banking
firm, since 1983.
Xxxxxx X. Xxxxxxx* Xxxxxx X. Xxxxxxx has been a Director of Insignia
0000 Xxxxx Xxxxxx Xxxxx since May 1996. For more than the past five years,
Santa Fe, NM 87501 Xx. Xxxxxxx'x principal occupation has been as a
General Partner of First Security Company II, L.P.,
an investment advisory firm.
Xxxxx X. Xxxxxx* Xxxxx X. Xxxxxx has been a Director of Insignia sinc
000 Xxxx Xxxxxx August 1993. Xx. Xxxxxx is the retired Chairman of
New York, NY 10021 the Board and Chief Executive Officer of Xxxxxxxxx'x
Inc., a real estate company. He also serves as a
director of Refac Technology Development Corporation
Noodle Kiddoodle, and Containerways International e
Ltd.
Xxxxxx X. Xxxx* Xxxxxx X. Xxxx has been a Director of Insignia since
000 Xxxx 00xx Xxxxxx August 1993. Since February 1996, Xx. Xxxx has been a
New York, NY 10019 partner in the law firm of Akin, Gump, Strauss, Xxxxx
& Xxxx, which represents Insignia and certain of its
affiliates from time to time. From January 1991 to
February 1996, Xx. Xxxx was a partner in the law firm
LeBoeuf, Lamb, Xxxxxx & XxxXxx.
Xxxxxxx X. Xxxxxxxx* Xxxxxxx X. Xxxxxxxx has been a Director of Insignia
000 Xxxx 00xx Xxxxxx since August 1993. For more than the past five years,
New York, NY 10022 Xx. Xxxxxxxx'x principal occupation has been as a
self-employed consultant in the real estate business,
including ownership, management and lending.
Xxxxx X. Aston Xxxxx X. Aston's principal employment has been with
Insignia for more than the past five years. Xx. Xxxxx
currently serves as Chief Financial Officer of
Insignia (since August 1996), with the Office of the
Chairman (since July 1994) and Executive Managing
Director of Investment Banking of Insignia (since
January 1991).
Xxxxxx X. Xxxxx Xxxxxx X. Xxxxx'x principal employment has been with
0000 Xxxxxxxx Xxxxx Xxxx. Realty One, Inc., a wholly-owned subsidiary of
Cleveland, OH 44131 Insignia ("Realty One"), for more than the past five
years. Xx. Xxxxx currently serves as Chairman and
Chief Executive Officer of Realty One (since October
1997).
S-4
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------
Xxxxxxx X. Xxxxxxx Xx. Xxxxxxx currently serves as a Director and Chief
0000 Xxxxxxxx Xxxxx Xxxx. Operating Officer of Realty One (since October 1997)
Cleveland, OH 44131 From 1994 to 1997, Xx. Xxxxxxx was the President of
Realty One. Prior to 1994, Xx. Xxxxxxx was the Chief
Financial Officer and Executive Vice President of
Xxxxxxxx, Inc., a full service advertising agency.
Xxxx X.X. Xxxxxxxxx Xxxx X.X. Xxxxxxxxx'x principal employment has been
Berkeley Square House with Xxxxxxx Xxxxx for more than the past five years.
London W1X 6AN Xx. Xxxxxxxxx currently serves as a Managing Director
England of Insignia for Xxxxxxx Xxxxx (since Insignia's
acquisition of Xxxxxxx Xxxxx in 1998) and has been a
director of Xxxxxxx Xxxxx since its inception in
1997. Xx. Xxxxxxxxx is a citizen of the United
Kingdom.
Xxxxxx X. Xxxxxx Xxxxxx Xxxxxx has been a Senior Vice President --
Human Resources of Insignia since August 1997. Prior
to August 1997, Xx. Xxxxxx'x principal employment for
more than the prior five years was as Director --
Human Resources of E&Y Xxxxxxx Xxxxxxxxx Real Estate
Group, New York, New York.
Xxxx X. Xxxxxxxx Xxxx X. Xxxxxxxx'x principal employment has been with
Berkeley Square House Xxxxxxx Xxxxx for more than the past five years. Mr.
London W1X 6AN Froggatt currently serves as Chief Executive Officer
England of Xxxxxxx Xxxxx (since Insignia's acquisition of
Xxxxxxx Xxxxx in 1998). Xx. Xxxxxxxx is a citizen of
the United Kingdom.
Xxxxx X. Xxxxxxxx Xxxxx X. Xxxxxxxx'x principal employment has been
000 Xxxxxxxx Xxxxxxxxx with Insignia for more than the past five years. Mr.
Suite 400 Xxxxxxxx currently serves as an Executive Managing
Nashville, TN 37205 Director of Insignia (since July 1994) and as
President of Insignia Financial Services, a division
of Insignia (since July 1994).
Xxxx X. Xxxxxxx Xxxx X. Xxxxxxx has been General Counsel and
000 Xxxx Xxxxxx Secretary of Insignia since March 1998. Prior to that
New York, NY 10166 time, Xx. Xxxxxxx'x principal occupation was as a
partner with the law firm of Nixon, Hargrave, Devans
& Xxxxx, LLP, New York, New York.
Xxxxxxx X. Xxxxxxxx Xxxxxxx X. Xxxxxxxx'x principal employment has been
000 Xxxx Xxxxxx with Insignia for more than the past five years. Mr.
New York, NY 10166 Xxxxxxxx currently serves as a Managing Director --
Investment Banking of Insignia (since July 1994).
Xxxxxx X. Xxxxxx Xxxxxx X. Xxxxxx has been with the Office of the
000 Xxxx Xxxxxx Chairman of Insignia and has been Chairman of
New York, NY 10166 Insignia/ESG, Inc. since July 1996. Prior to July
1996, Xx. Xxxxxx'x principal employment for more than
the prior five years was as a founder and Chairman of
Xxxxxx X. Xxxxxx Company, Incorporated ("ESG"), a
commercial property management and brokerage firm
located in New York, New York that was acquired by
Insignia in June 1996.
Xxxxxx X. Xxxxxxx Xxxxxx X. Xxxxxxx'x principal employment has been
with Insignia for more than the past five years. Xx.
Xxxxxxx currently serves as a Senior Vice President
of Insignia (since July 1994) and as Chief
Information Officer of Insignia (since January 1991).
S-5
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------
Xxxxxx X.X. Xxxxxxx Xxxxxx Xxxxxxx'x principal employment has been with
Berkeley Square House Xxxxxxx Xxxxx Group Limited, a wholly-owned U.K.
London W1X 6AN subsidiary of Insignia ("Xxxxxxx Xxxxx"), for more
England than the past five years. Xx. Xxxxxxx currently
serves as Chairman of Xxxxxxx Xxxxx (since Insignia's
acquisition of Xxxxxxx Xxxxx in 1998). Xx. Xxxxxxx is
a citizen of the United Kingdom.
Xxxx Xxxxxxx Xxxx Xxxxxxx has been an Executive Managing Director
000 Xxxxx Xxxxxx of Insignia since September 1995 and President of
New York, NY 10022 Insignia Residential Group since September 1997. Xx.
Xxxxxxx has also served as President of Insignia
Management Services -- New York, Inc., a subsidiary
of Insignia, since September 1995. Prior to September
1995, Xx. Xxxxxxx'x principal occupation was to serve
as President and Chief Executive Officer of Xxxxxxx
Company, Inc., a residential property management firm
located in New York, New York which Insignia acquired
in September 1995.
Xxxxxx Xxxx Xxxxxx Xxxx has been a Senior Vice President --
Finance of Insignia since January 1997 and Controller
of Insignia since June 1994. Prior to June 1994, Xx.
Xxxx was Senior Vice President and Controller of The
First Savings Bank, FSB located in Greenville, South
Carolina.
Xxxxxx X. Xxxxxx Xxxxxx X. Xxxxxx'x principal employment has been with
Insignia for more than the past five years. Xx.
Xxxxxx currently serves as Chief Operating Officer of
Insignia Residential Group (since January 1997).
Xxxxxxx X. Xxxxxx Xxxxxxx X. Xxxxxx has been a Managing Director of
000 Xxxx Xxxxxx Insignia since June 1996, President of Insignia
New York, NY 10166 Commercial Group since January 1997 and President of
Insignia/ESG, Inc. since June 1996. From February
1992 until July 1996, Xx. Xxxxxx'x principal
employment was as President of ESG. Xx. Xxxxxx
currently serves as a Director of Liberty Property
Trust and Tower Realty, Inc.
Xxxxxx Xxxxxx Xxxxxx Xxxxxx'x principal employment has been with
Insignia for more than the past five years. Xx.
Xxxxxx currently serves as Chief Operating Officer
(since August 1996) and Treasurer (since January
1992) of Insignia. Xx. Xxxxxx has also served as the
Chief Financial Officer and Controller of MAG since
September 1990.
S-6
SCHEDULE IV
IPT PARTNERSHIPS
Consolidated Capital Growth Fund
Consolidated Capital Institutional Properties
Consolidated Capital Institutional Properties/2
Consolidated Capital Institutional Properties/3
Consolidated Capital Properties III
Consolidated Capital Properties IV
Consolidated Capital Properties V
Consolidated Capital Properties VI
Johnstown/Consolidated Income Partners
Multi-Benefit Realty Fund 87-1
Shelter Properties I Limited Partnership
Shelter Properties II Limited Partnership
Shelter Properties III Limited Partnership
Shelter Properties IV Limited Partnership
Shelter Properties V Limited Partnership
Shelter Properties VI Limited Partnership
Shelter Properties VII Limited Partnership
National Property Investors III
National Property Investors 4
National Property Investors 5
National Property Investors 6
National Property Investors 7
National Property Investors 8
Century Properties Fund XIV
Century Properties Fund XV
Century Properties Fund XVI
Century Properties Fund XVII
Century Properties Fund XVIII
Century Properties Fund XIX
Century Properties Growth Fund XXII
Fox Strategic Housing Income Partners
Davidson Growth Plus, X.X.
Xxxxxxxx Diversified Real Estate II, X.X.
Xxxxxxxx Income Real Estate, L.P.
HCW Pension Real Estate Fund
Angeles Income Properties, Ltd. II
Angeles Income Properties, Ltd. IV
Angeles Income Properties, Ltd. 6
Angeles Opportunity Properties, Ltd.
Angeles Partners IX
Angeles Partners XII
S-7
Manually signed facsimile copies of the Assignment of Partnership
Interest will be accepted. The Assignment of Partnership Interest and any other
required documents should be sent or delivered by each Limited Partner or such
Limited Partner's broker, dealer, bank, trust company or other nominee to the
Depositary as set forth below.
The Depositary for the Offer is:
XXXXXX TRUST COMPANY OF NEW YORK
By Mail: By Facsimile: To Confirm: By Hand/Overnight Delivery:
Wall Street Station (000) 000-0000 (212) 701-0000 Xxxx Xxxxxx Plaza
P.O. Box 0000 00 Xxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000-0000 Xxx Xxxx, Xxx Xxxx 00000
Questions and requests for assistance or for additional copies of this
Offer to Purchase and the Assignment of Partnership Interest may be directed to
the Information Agent at its telephone number and address listed below. You may
also contact your broker, dealer, bank, trust company or other nominee for
assistance concerning the Offer.
The Information Agent for the Offer is:
BEACON HILL PARTNERS, INC.
00 Xxxxx Xxxxxx
20th Floor
New York, New York 10004
(000) 000-0000
(Toll Free)
(000) 000-0000
(Call Collect)