Offer to Purchase for Cash
Up to 300 Units of Limited Partnership Interest
in
XXXXXXXX DIVERSIFIED REAL ESTATE III, L.P.,
a Delaware limited partnership
for
$3,000 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 SEPTEMBER 24, 1998, UNLESS THE OFFER IS EXTENDED.
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IMPORTANT
Xxxxxx River Properties, L.L.C., a Delaware limited liability
company (the "Purchaser"), is offering to purchase up to 300 of the outstanding
units of limited partnership interest ("Units") in Davidson Diversified Real
Estate III, L.P., a Delaware limited partnership (the "Partnership"), at a
purchase price of $3,000 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 Davidson Diversified Properties, Inc., which is the managing
general partner of the Partnership (the "Managing General Partner").
Limited Partners are urged to consider the following factors:
o The Purchaser and the Managing General Partner are both
affiliates of and controlled by Insignia Properties Trust
("IPT"), which is controlled by Insignia Financial Group, Inc.
("Insignia"). IPT, through its operating partnership Insignia
Properties, L.P. ("IPLP"), currently owns 32.75 Units.
o The net asset value per Unit most recently estimated by an
affiliate of the Managing General Partner was $4,415 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 Managing General Partner) in connection with the
Offer is $4,353.60. The Purchaser does not believe, however, that
either the net asset value estimate by the Managing 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 Managing 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 Managing General Partner and the other
non-managing general partners and mergers, consolidations and
other extraordinary transactions.
o The Purchaser (which is an affiliate of the Managing 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 Managing 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, a partial tender of Units must be for a minimum of one-quarter of a
Unit. 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 Managing General Partner).
----------------------------------------
For More Information or for Further Assistance Please Call:
Beacon Hill Partners, Inc.
at
(000) 000-0000
August 27, 1998
TABLE OF CONTENTS
PAGE
----
INTRODUCTION............................................................................................... 1
The Purchaser; Affiliation with the Managing General Partner......................................... 1
Some Factors to Be Considered by Limited Partners.................................................... 2
Reasons for and Effects of the Offer................................................................. 4
Certain Tax Considerations........................................................................... 4
Originally Anticipated Term of the Partnership; General Policy Regarding Sales
and Refinancings of Partnership Properties; Alternatives.................................. 4
Conditions........................................................................................... 4
Distributions........................................................................................ 4
Outstanding Units.................................................................................... 5
THE OFFER.................................................................................................. 6
Section 1. Terms of the Offer; Expiration Date; Proration........................................... 6
Section 2. Acceptance for Payment and Payment for Units............................................. 7
Section 3. Procedure for Tendering Units............................................................ 7
Valid Tender..................................................................................... 7
Signature Requirements........................................................................... 7
Delivery of Assignment of Partnership Interest................................................... 8
Appointment as Proxy; Power of Attorney.......................................................... 8
Assignment of Interest in Future Distributions................................................... 9
Determination of Validity; Rejection of Units; Waiver of Defects; No Obligation
to Give Notice of Defects................................................................. 9
Backup Federal Income Tax Withholding............................................................ 9
FIRPTA Withholding............................................................................... 9
Binding Obligation............................................................................... 9
Section 4. Withdrawal Rights........................................................................ 9
Section 5. Extension of Tender Period; Termination; Amendment....................................... 10
Section 6. Certain Federal Income Tax Matters....................................................... 10
General.......................................................................................... 10
Gain or Loss Generally........................................................................... 11
Unrealized Receivables and Certain Inventory..................................................... 11
Passive Activity Loss Limitation................................................................. 12
Partnership Termination.......................................................................... 12
Backup Withholding and FIRPTA Withholding........................................................ 12
Section 7. Effects of the Offer..................................................................... 13
Limitations on Resales........................................................................... 13
Effect on Trading Market; Registration Under Section 12(g) of the Exchange Act................... 13
Control of Limited Partner Voting Decisions by Purchaser; Effect of Relationship
with Managing General Partner............................................................. 13
Section 8. Future Plans of Insignia, IPT and the Purchaser.......................................... 14
Section 9. Certain Information Concerning the Partnership........................................... 15
General.......................................................................................... 15
Originally Anticipated Term of Partnership; Alternatives......................................... 15
General Policy Regarding Sales and Refinancings of Partnership Properties........................ 15
Selected Financial and Property-Related Data..................................................... 15
Cash Distributions History....................................................................... 17
Operating Budgets of the Partnership............................................................. 18
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........................................................................... 19
Transactions with Affiliates..................................................................... 19
Section 11. Certain Information Concerning the Purchaser, IPLP, IPT and Insignia.................... 19
The Purchaser.................................................................................... 19
IPT and IPLP..................................................................................... 20
Insignia......................................................................................... 21
Section 12. Source of Funds......................................................................... 23
Section 13. Background of the Offer................................................................. 24
Affiliation With the Managing General Partner.................................................... 24
Determination of Purchase Price.................................................................. 24
Litigation....................................................................................... 28
Section 14. Conditions of the Offer................................................................. 29
Section 15. Certain Legal Matters................................................................... 31
General.......................................................................................... 31
Antitrust........................................................................................ 31
Margin Requirements.............................................................................. 31
Section 16. Fees and Expenses....................................................................... 31
Section 17. Miscellaneous........................................................................... 31
SCHEDULE I - Transactions in the Units Effected by IPLP in the Past 60 Days..............S-1
SCHEDULE II - Information Regarding the Managers of the Purchaser.........................S-2
SCHEDULE III - Information Regarding the Trustees and Executive Officers of IPT............S-3
SCHEDULE IV - Information Regarding the Directors and Executive Officers of Insignia......S-5
SCHEDULE V - IPT Partnerships............................................................S-8
ii
TO THE LIMITED PARTNERS OF
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
INTRODUCTION
Xxxxxx River Properties, L.L.C. (the "Purchaser"), which is a
Delaware limited liability company and an affiliate of the Managing General
Partner (as defined below), hereby offers to purchase up to 300 of the
outstanding units of limited partnership interest ("Units"), representing
approximately 30% of the Units outstanding, in Davidson Diversified Real Estate
III, L.P., a Delaware limited partnership (the "Partnership"), at a purchase
price of $3,000 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"), a partial tender of Units must be for a minimum of one-quarter of
a Unit. Accordingly, any Limited Partner that owns one-quarter or fewer 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 Managing
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 Managing General Partner.
Davidson Diversified Properties, Inc., which is the managing general partner of
the Partnership (the "Managing General Partner"), is a direct, wholly-owned
subsidiary of Insignia Properties Trust, a Maryland real estate investment
trust ("IPT"). The other general partners of the Partnership, Xxxxxxx Equities,
Ltd., Xxxxx X. Xxxxxx and Xxxxx X. Xxxx, are prohibited by the Limited
Partnership Agreement from participating in the activities of the Partnership.
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 66% of the total equity interests in IPLP), and Insignia
Financial Group, Inc., a Delaware corporation ("Insignia"), is the sole limited
partner of IPLP (owning approximately 34% of the total equity interests in
IPLP). Insignia and its affiliates also own approximately 68% of the
outstanding common shares of IPT. For more than the past three years, Insignia
Residential Group, L.P. ("IRG"), which is an affiliate of Insignia and the
Purchaser, has provided property management services to the Partnership, and
Insignia (directly or through affiliates) has performed asset management,
partnership administration and investor relations services for the Partnership.
By reason of these relationships, the Managing General Partner has conflicts of
interest in considering the Offer. The Managing 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 Managing General Partner are affiliates of
and controlled by IPT, which is controlled by Insignia. See
Sections 11 and 13. The Managing 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
Managing 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 Managing 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 Managing General Partner in attempting to reconcile the
interests of the Purchaser (which is an affiliate of the Managing
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 Managing General Partner was $4,415 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 Managing General Partner) in connection with the
Offer is $4,353.60. See Section 13 for a discussion of why the
Purchaser (which is an affiliate of the Managing 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 MANAGING GENERAL PARTNER) MAKES NO
REPRESENTATION AND EXPRESSES NO OPINION AS TO THE FAIRNESS OR
ADEQUACY OF THE PURCHASE PRICE.
o As with any rational investment decision, the Purchaser (which is
an affiliate of the Managing 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
Managing 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 Managing 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 Managing General
Partner and the other non-managing general partners 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 Managing General Partner) opposes and (ii) IPT (which is an
affiliate of the Managing 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.
2
o THE OFFER MAY BE ATTRACTIVE TO LIMITED PARTNERS WHO HAVE AN
IMMEDIATE NEED FOR CASH. The Purchase Price is approximately 1%
greater than the highest reported sales price of any Unit
(excluding Units transferred by Insignia to IPLP) during the past
six months (based on published information and information
provided by the Managing 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 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 $100 PER TRANSFER). The Purchaser will pay all transfer
fees imposed by the Partnership in connection with sales of Units
pursuant to the Offer.
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 Managing 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 Managing General
Partner that the Managing 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.
3
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 Managing 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. In the case of a Limited
Partner who is an individual and who has held Units since their issuance by the
Partnership, the sale is expected to result in a gain, which may be taxable as
ordinary income, capital gain or gain from real estate depreciation recapture.
Limited Partners who have suspended "passive losses" from the Partnership or
other passive activity investments generally may deduct these losses up to the
amount of 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.
Originally Anticipated Term of the Partnership; General Policy Regarding
Sales and Refinancings of Partnership Properties; Alternatives. According to
the Partnership's Prospectus dated October 28, 1985, the then managing general
partner (predecessor to the current Managing General Partner and which at the
time was not affiliated with Insignia or IPT) 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 Managing 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 Managing General
Partner monitors each property's specific locale and sub-market conditions
evaluating current trends, competition, new construction and economic changes.
The Managing 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 Managing General Partner to sell,
refinance, upgrade with capital improvements or hold either of the
Partnership's properties. Based on the above considerations, the Managing
General Partner has determined that it is not in the best interest of Limited
Partners to sell or refinance either of the Partnership's properties at the
present time. Under the Limited Partnership Agreement the term of the
Partnership will continue until December 31, 2010, 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 not made any cash distributions to
Limited Partners in respect of their original $20,000 investment made in 1985.
See Section 9. However, the Partnership is currently generating positive cash
flow from operations, and the Purchaser (which is an affiliate of the Managing
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 Managing General
Partner) when establishing the Purchase Price. Limited Partners who tender
their Units in response to the Offer will retain any distributions made through
August 27, 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
4
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 August 1, 1998 there were 1,011.5 Units issued and outstanding, which
were held of record by 1,367 Limited Partners. IPLP currently owns 32.75
(representing approximately 3.2%) of the outstanding Units. Schedule I to this
Offer to Purchase for a list of transactions in the Units effected by IPLP
within the past 60 days.
5
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 Managing General Partner) will accept for payment (and thereby
purchase) up to 300 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 September 24, 1998, unless the Purchaser
(which is an affiliate of the Managing 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 24, 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 Managing 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 300 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 Managing General Partner) will, upon the terms and subject to the
conditions of the Offer, accept for payment and pay for an aggregate of 300 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 12.1 of the
Limited Partnership Agreement (which generally requires that, a partial tender
of Units must be for a minimum of one-quarter of a Unit. If the number of Units
validly tendered and not properly withdrawn on or prior to the Expiration Date
is less than or equal to 300 Units, the Purchaser (which is an affiliate of the
Managing 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 Managing
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 Managing 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
Managing General Partner) to the persons shown by the Partnership's records to
have been Limited Partners or (in the case of Units owned of record by
Individual Retirement Accounts ("IRAs") and qualified plans) beneficial owners
of Units as of August 1, 1998.
6
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 Managing 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 Managing 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 Managing 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 Managing 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
Managing 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 Managing 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, a partial tender
of Units must be for a minimum of one-quarter of a Unit. Accordingly, any
Limited Partner that owns one-quarter or fewer 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.
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
7
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 Managing 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 Managing 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 Managing 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 Managing 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 Managing
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 Managing 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 Managing General Partner a change of address form
instructing the Managing 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.
8
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 Managing 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 Managing General Partner), in its sole
discretion, which determination shall be final and binding. The Purchaser
(which is an affiliate of the Managing 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 Managing 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 Managing
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 Managing 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 Managing 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 October 26, 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.
9
If payment for Units is delayed for any reason or if the Purchaser
(which is an affiliate of the Managing General Partner) is unable to pay for
Units for any reason, then, without prejudice to the Purchaser's rights under
the Offer, 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 Managing 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 Managing 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 Managing 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 Managing 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
10
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, 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). Limited Partners who purchased their
interests from the Partnership in the original issuance of the Units are
expected to recognize taxable gain on the sale in an amount in excess of the
Purchase Price.
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
upon the sale of Units may be attributable to unrealized receivables. If any
portion of the amount of gain 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).
11
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 would 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 300 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.
12
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 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 Managing 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 Managing 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 30% of the outstanding Units), the
Purchaser (which is an affiliate of the Managing 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 Managing 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 Managing 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 Managing 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 Managing General Partner. The Limited Partnership Agreement
provides that the Managing 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 Managing 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 Managing 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
Managing 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 Managing General Partner) will vote
13
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 Managing
General Partner, also may be in the interest of the Managing 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 Managing General
Partner or the other non-managing general partners and in certain circumstances
election of a new or successor managing general partner or non-managing general
partners; sale of all or substantially all of the assets of the Partnership;
dissolution 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 Managing General Partner or its affiliates. However, as a result of the
Offer, the Purchaser (which is an affiliate of the Managing 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 Managing 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 Managing 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 Managing
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 either of the
Partnership's properties. However, IPT and the Purchaser expect that consistent
with the Managing General Partner's fiduciary obligations, the Managing 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 Managing General
Partner) have been advised that the possible future transactions the Managing
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
Managing 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
Managing 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.
14
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.
General. The Partnership was organized on July 8, 1985 under the
laws of the State of Delaware. 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 real estate ownership and
related operations. The Partnership was formed for the purpose of investing in,
holding and managing existing income producing residential real estate and, to
a lesser extent, existing or to-be-built commercial real estate.
The Partnership's investment portfolio currently consists of two
residential apartment complexes: a 480- unit residential complex in Louisville,
Kentucky, and a 388-unit residential complex in Indianapolis, Indiana.
Originally Anticipated Term of Partnership; Alternatives. According
to the Partnership's Prospectus dated October 28, 1985, the then managing
general partner (predecessor to the current Managing General Partner and which
at the time was not affiliated with Insignia or IPT) 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, 2010, 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 Managing 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 Managing General Partner monitors each property's specific
locale and sub-market conditions evaluating current trends, competition, new
construction and economic changes. The Managing 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 Managing General Partner to sell, refinance, upgrade with
capital improvements or hold either of the Partnership's properties. There are
no plans to sell or refinance either of the Partnership's properties 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.
15
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
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...................... $ 2,638 $ 2,579 $ 5,297 $ 5,156 $ 4,883 $ 4,856 $ 4,823
Other Income....................... $ 244 $ 251 $ 409 $ 433 $ 469 $ 434 $ 301
Total Revenues.................. $ 2,882 $ 2,830 $ 5,706 $ 5,589 $ 5,352 $ 5,290 $ 5,124
Income (Loss) from Operations
(before extraordinary item)..... $ (477) $ (533) $ (1,168) $ (940) $ (997) $ (573) $ (799)
Net Income (Loss).................. $ (477) $ (533) $ (1,168) $ (940) $ (997) $ (573) $ (823)
Net Income (Loss) per Unit......... $ (462) $ (516) $ (1,132) $ (911) $ (966) $ (555) $ (796)
AS OF AS OF
JUNE 30, DECEMBER 31,
--------------------------- ----------------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
------------- ------------ ---------- ----------- -------------- ------------ ---------
(UNAUDITED)
Balance Sheets Data:
Total Assets........................ $ 19,494 $ 20,672 $ 20,002 $ 21,370 $ 22,197 $ 23,243 $ 23,702
Total Liabilities................... $ 24,590 $ 24,656 $ 24,621 $ 24,821 $ 24,708 $ 24,757 $ 24,643
Limited Partners' Equity (Deficit).. $ (4,994) $ (3,904) $ (4,527) $ 3,382 $ (2,461) $ (1,484) $ (923)
Units Outstanding................... 1,011.5 1,011.5 1,011.5 1,011.5 1,011.5 1,011.5 1,013
Book Value per Unit................. $ (4,937) $ (3,860) $ (4,476) $ (3,344) $ (2,433) $ (1,467) $ (911)
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
------------------- -------- ------------------------------------ --------------------------
Plainview Apartments 05/06/86 Fee ownership Residential Apartments
Louisville, Kentucky (subject to wraparound mortgage) (480 Units)
Salem Courthouse 11/30/85 Fee ownership Residential Apartments
Apartments (subject to first and second mortgages) (388 units)
Indianapolis, Indiana
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
------------------------------------ ------------------ ------------------ -------------- -------------- --------------
Plainview Apartments $ 20,998 $ 8,977 5-25 yrs. S/L $ 8,287
--
Salem Courthouse Apartments 12,952 6,077 5-25 yrs. S/L 4,321
------------ -------------- --------------
TOTALS $ 33,950 $ 15,054 $ 12,608
-- --============ ============== ==============
16
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
--------------------------------- --------------------- --------------- ----------------- ----------------- --------------
Plainview Apartments
1st mortgage $ 15,336 9.33% (1) 11/2010 $ 15,336
Salem Courthouse Apartments
1st mortgage 8,352 7.83% 28.67 yrs. 10/2003 7,513
2nd mortgage 257 7.83% (1) 10/2003 271
-------
23,959 $23,120
=======
Less unamortized discounts (117)
-----------
TOTALS $ 23,842
===========
-------------
(1) 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
------------------- -------------------------- --------------- --------------
Plainview Apartments $ 6,974/unit $ 6,672/unit 92% 94%
Salem Courthouse Apartments $ 6,021/unit $ 5,915/unit 93% 93%
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
----------------------------- ------------------------ --------------
Plainview Apartments $ 148,000 1.1%
Salem Courthouse Apartments $ 265,000 9.6%
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 not made any cash
distributions to Limited Partners in respect of their original $20,000
investment made in 1985.
17
Operating Budgets of the Partnership. A summary of the fiscal 1997
and 1998 operating budgets and the audited results of operations for fiscal
1997 of the Partnership are set forth in the table below. 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 1997 FISCAL 1998
BUDGETED AUDITED BUDGETED
------------------- ------------------- --------------------
Total Revenues from Property Operations..... $ 5,724,000 $ 5,706,000 $ 5,914,000
Total Operating Expenses ................... $ 2,865,000 $ 3,297,000 $ 3,062,000
Net Operating Income........................ $ 2,859,000 $ 2,409,000 $ 2,852,000
Capital Expenditures........................ $ 506,000 $ 337,000 $ 461,000
SECTION 10. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES.
The Managing 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 Managing
General Partner has conflicts of interest with respect to the Offer, including
conflicts resulting from its affiliation with IPT and the Purchaser. The
Managing 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 Managing 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 Managing 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 Managing General Partner
in attempting to reconcile the interests of the Purchaser (which is an
affiliate of the Managing General Partner) with the interests of the other
Limited Partners. In addition, the Purchaser (which is an affiliate of the
Managing 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 Managing 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
Managing 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 Managing 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 Managing 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 Managing 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 Managing 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 Managing 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 Managing 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 Managing General Partner, also
may be in the interest of the Managing General Partner, but may not be in the
interest of other
18
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 Managing General Partner or the other non-managing general
partners and in certain circumstances election of a new or successor managing
general partner or non- managing general partners; sale of all or substantially
all of the assets of the Partnership; dissolution 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
Managing 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 Managing 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 Managing 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.
Transactions with Affiliates. The Partnership paid IRG property
management fees for property management services in the amounts of
approximately $284,000, $277,000 and $261,000 for the years ended December 31,
1997, 1996 and 1995, respectively, and has paid IRG property management fees
equal to $147,000 during the first six months of 1998. The Partnership
reimbursed the Managing 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 years
ended December 31, 1997, 1996 and 1995 in the amounts of $130,000, $174,000 and
$114,000, respectively, and has reimbursed them for such services in the amount
of $85,000 through June 30, 1998. The reimbursement amounts for the years ended
December 31, 1997 and 1996, and for the six months ended June 30, 1998, include
$2,000, $46,000 and $18,000, respectively, which amounts were paid to an
affiliate of the Managing General Partner for costs incurred in connection with
construction oversight services. For the period January 1, 1996 through
December 31, 1996, the Partnership insured its properties under a master policy
through an agency and insurer unaffiliated with the Managing General Partner,
and through an agency affiliated with the Managing General Partner for the
period January 1, 1997 through August 31, 1997. An affiliate of the Managing
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. That agent assumed the financial
obligations to the affiliate of the Managing General Partner who received
payments on these obligations from the agent. Insignia and the Managing General
Partner believe that the aggregate financial benefit derived by Insignia and
its affiliates from such arrangement was immaterial.
SECTION 11. CERTAIN INFORMATION CONCERNING THE PURCHASER, IPLP, IPT
AND INSIGNIA.
The Purchaser. The Purchaser (which is an affiliate of the Managing
General Partner) is a recently formed entity controlled by IPT and organized
for the purpose of making the Offer. The Purchaser is a wholly-owned subsidiary
of IPLP. The Purchaser (which is an affiliate of the Managing 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) being made
contemporaneously with and during the 30 days preceding the Offer, and has no
significant assets or liabilities at the present time other than the units of
limited partnership interest acquired in such other offers. Upon consummation
of the Offer and such other offers, the Purchaser's only significant assets
will be the Units it acquires pursuant to the Offer and the limited partnership
units it acquires pursuant to such other offers.
19
The principal executive offices of the Purchaser (which is an
affiliate of the Managing General Partner) are located at One Insignia
Financial Plaza, P.O. Box 19059, Greenville, South Carolina 29602, and its
telephone number is (000) 000-0000. For certain information concerning the
managers of the Purchaser (which is an affiliate of the Managing General
Partner), see Schedule II 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 (including the Partnership). 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, including the Partnership (the "IPT Partnerships"), which
interests are held by IPT directly, 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 V for a list of the IPT Partnerships in which
IPT has a material investment.
On July 18, 1997, IPT, Insignia, MAE GP Corporation (which at the
time was an affiliate of IPT but has subsequently been merged into IPT, see
Section 13) ("MAE GP"), and Angeles Mortgage Investment Trust, an
unincorporated California business trust ("AMIT"), entered into a definitive
merger agreement (the "AMIT Merger Agreement"), pursuant to which AMIT is to be
merged with and into IPT, with IPT being the surviving entity, in a stock for
stock transaction (the "AMIT Merger"). XXXX is a public company whose Class A
shares trade on the American Stock Exchange under the symbol ANM. Insignia and
its affiliates currently own 96,800 (or approximately 3.7%) of the 2,617,000
outstanding AMIT Class A shares and all of the 1,675,113 outstanding AMIT Class
B shares. If the AMIT Merger is consummated, IPT will become a publicly traded
company (IPT's common shares have been approved for listing on the American
Stock Exchange under the symbol "FFO," subject to consummation of the AMIT
Merger) and it is anticipated that Insignia and its affiliates will own
approximately 57% of post-merger IPT, the former AMIT shareholders (other than
Insignia and its affiliates) will own approximately 16% of post-merger IPT, and
the current unaffiliated shareholders of IPT will own the remaining 27% of
post-merger IPT (see, however, the discussion of the merger of Insignia and
AIMCO in the following subsection of this Section 9 captioned "Insignia").
The XXXX Xxxxxx is expected to be completed in early September
1998. However, consummation of the AMIT Merger is subject to several
conditions, including approval of the AMIT Merger Agreement and the AMIT Merger
by the shareholders of AMIT. Accordingly, there can be no assurance as to when
the AMIT Merger will occur, or that it will occur at all.
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 III to this
Offer to Purchase. IPLP does not have any officers or employees.
20
Set forth below is certain consolidated financial information with
respect to IPT and IPLP.
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
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 be
completed early in the fourth quarter of 1998. However, consummation of the
AIMCO Merger is subject to certain conditions, including the
21
approval of the shareholders of Insignia. Accordingly, there can be no
assurance as to when the AIMCO Merger will occur, or that it will occur at all.
Assuming the AIMCO Merger is consummated, AIMCO will succeed to
Insignia's ownership of IPT and IPLP, and thus IPT (and 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 IV 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.
22
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 and in Schedule I, none of the
Purchaser (which is an affiliate of the Managing General Partner), IPLP, IPT,
Insignia or, to the best of the Purchaser's knowledge, any of the persons
listed on Schedules II, III or IV 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 Managing General Partner) expects that approximately $750,000 will be
required to purchase 300 Units, if tendered, and to pay related fees and
expenses. The Purchaser (which is an affiliate of the Managing 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 with a commercial bank
and financial institution. 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 which has been filed as an exhibit to the Purchaser's
Tender Offer Statement on Schedule 14D-1 filed with the Commission.
23
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 no 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 Managing 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 Managing General Partner. Since March 7, 1998,
the Managing General Partner (which also serves as the general partner of three
other affiliated public real estate limited partnerships) has been a direct,
wholly-owned subsidiary of IPT. Prior to that time, the Managing General
Partner was a direct, wholly-owned subsidiary of MAE GP Corporation ("MAE GP"),
which in turn was a direct, wholly-owned subsidiary of Metropolitan Asset
Enhancement L.P., which was an affiliate of IPT and Insignia. Effective March
7, 1998, MAE GP was merged with and into IPT, with IPT being the surviving
entity (the "MAE GP Merger"). In connection with the MAE GP Merger, effective
February 17, 1998, Insignia contributed 33.75 Units owned by it and its
subsidiaries (representing all Units then owned by such entities) to IPLP in
exchange for additional units of partnership interest in IPLP.
Determination of Purchase Price. In establishing the Purchase
Price, the Purchaser (which is an affiliate of the Managing General Partner)
reviewed certain publicly available information and certain information made
available to it by the Managing 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
24
of the Partnership's current fiscal year; (iv) the operating budgets prepared
by IRG with respect to the Partnership's properties for the year ending
December 31, 1998; and (v) other information obtained by IRG, 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 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 Managing General Partner, from July
1, 1996 to June 30, 1998 an aggregate of 28 Units (representing less than 2.8%
of the total outstanding Units) was transferred (excluding the Units
transferred by Insignia to IPLP in February 1998) 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
Managing 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 Managing 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.
DAVIDSON DIVERSIFIED REAL ESTATE III, L.P.
REPORTED SALES PRICES OF PARTNERSHIP UNITS
AS REPORTED BY AS REPORTED BY
THE MANAGING 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...................... $1,500 $1,500 $2,800 $2,960
First Quarter....................... (c) (c) 2,500 2,500
Fiscal Year Ended December 31, 1997:
Fourth Quarter...................... 1,900 2,596 (d) (d)
Third Quarter ..................... 1,900 2,650 2,650 2,650
Second Quarter...................... 1,000 1,900 1,900 1,900
First Quarter ...................... 920 1,600 1,840 1,840
Fiscal Year Ended December 31, 1996:
Fourth Quarter ..................... 650 2,020 1,633 1,711
Third Quarter....................... (c) (c) 1,200 1,384
-----------------
(a) Although the Managing 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 Managing General Partner processes transfers
of Units 4 times per year - on the first day of each calendar quarter.
The prices in the table are based solely on information provided to the
Managing 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 Managing General Partner) does not know
whether the information compiled by The Partnership Spectrum is accurate
or complete.
(c) No Units were reported by the Managing General Partner as having been
sold during the quarter.
(d) No Units were reported by The Partnership Spectrum as having been
sold during the quarter.
25
The Purchaser (which is an affiliate of the Managing 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.
Estimate of Net Asset Value in Connection with the MAE GP Merger.
In connection with the MAE GP Merger (as described in Section 11), IPT
estimated the net asset value of a Unit to be $3,654. This net asset value
estimate was based on a hypothetical sale of the Partnership's properties and
the distribution to the Limited Partners, the Managing General Partner and the
other general partners of the gross proceeds of such sales, net of related
indebtedness, together with the Partnership's cash, proceeds from temporary
investments, and all other assets that are believed to have liquidation value,
after provision in full for all of the Partnership's other known liabilities.
This net asset value estimate did not take into account (i) timing
considerations or (ii) costs associated with winding up the Partnership.
Therefore, the Purchaser believes that IPT's estimate of the net asset value of
a Unit prepared in connection with the MAE GP Merger 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 properties were
sold and the Partnership was liquidated. For this reason, the Purchaser
considered such net asset value estimate to be less meaningful in determining
the Purchase Price than the pro forma liquidation analysis described below.
Managing General Partner's Estimates of Net Asset Value. An
affiliate of the Managing 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 August 1998. That estimate of the
Partnership's net asset value per Unit as of June 30, 1998 was $4,415 per Unit.
The Managing General Partner also prepares annual estimates of the
Partnership's net asset value per Unit. The Managing General Partner's three
most recent estimates of the Partnership's net asset value per Unit were
$4,111, $4,405 and $2,745 as of December 31, 1997, 1996 and 1995, respectively.
The Managing General Partner estimates net asset value based on a hypothetical
sale of the Partnership's properties and the distribution to the Limited
Partners, the Managing General Partner and the other general partners of the
gross proceeds of such sales, net of related indebtedness, together with the
Partnership's cash, proceeds from temporary investments, and all other assets
that are believed to have liquidation value, after provision in full for all of
the Partnership's other known liabilities. The net asset value estimates
prepared by the Managing General Partner do not take into account (i) timing
considerations or (ii) costs associated with winding up the Partnership.
Therefore, the Purchaser believes that the Managing General Partner's estimates
of net asset value per Unit do 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 properties were sold and the Partnership was
liquidated. For this reason, the Purchaser considered the Managing General
Partner's net asset value estimates 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 properties, the Purchaser utilized
the capitalization of income approach. The estimate of the gross real estate
value of the Partnership's 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 properties based upon any other valuation method.
The following is a description of the methodology employed by the
Purchaser in preparing such estimates of the values of the properties owned by
the Partnership (as used below, "net operating income" is calculated before
depreciation, amortization, debt service payments and certain capital
expenditure items):
PLAINVIEW APARTMENTS. In estimating the value of this property, the
Purchaser reviewed the income ($1,680,580) generated by the property for the
six months ended June 30, 1998 (comprised of $1,509,328 of gross rental income
and $171,252 of other income), and then deducted from this amount the total
operating expenses of
26
the property for the six months ended 1998 ($811,684), resulting in the
Purchaser's estimated net operating income for the six months ended 1998
($868,896). The Purchaser then annualized this amount, resulting in estimated
annual net operating income of $1,737,792, and then increased the estimated
annual net operating income amount by $100 per apartment unit, representing the
Purchaser's estimate of the adjustment that would be imputed by a third party
purchaser in underwriting the operating expenses, including normal replacement
reserves, of the property for valuation purposes. Finally, the Purchaser
capitalized its estimate adjusted net operating income amount ($1,785,792) at a
10% capitalization rate, resulting in an estimated gross property value of
$17,857,920.
SALEM COURTHOUSE APARTMENTS. In estimating the value of this
property, the Purchaser reviewed the income ($1,191,532) generated by the
property for the six months ended June 30, 1998 (comprised of $1,111,012 of
gross rental income and $80,520 of other income), and then deducted from this
amount the total operating expenses of the property for the six months ended
1998 ($619,383), resulting in the Purchaser's estimate of net operating income
for the six months ended 1998 ($572,149). The Purchaser than annualized this
amount, resulting in estimated annual net operating income of $1,144,298.
Finally, the Purchaser capitalized its estimated annual net operating income
amount at a 9.75 % capitalization rate, resulting in an estimated gross
property value of $11,736,390.
Based on the individual estimates of the gross values of the
Partnership's properties described above, the Purchaser estimated that the
current aggregate gross real estate value of the Partnership's properties is
$29,594,310 (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 multi-family properties
in the markets in which the Partnership's 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 this type, the Purchaser believes that this approach represents
a reasonable method of estimating the aggregate gross value of the
Partnership's properties (without taking into account the costs of disposing of
the 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 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 properties might
be sold could be significantly higher or significantly lower than the
Purchaser's estimates.
The Gross Real Estate Value Estimate does not take into account (i)
the debt encumbering the Partnership's properties or the other liabilities of
the Partnership, (ii) cash and other assets held by the Partnership, (iii) real
estate transaction costs that would be incurred on a sale of the Partnership's
properties, such as brokerage commissions and other selling and closing
expenses, (iv) timing considerations or (v) costs associated with winding up
the Partnership. 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 all the Partnership's 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 (as 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
27
on the Purchaser's estimate of the values of the Partnership's properties
described above) as opposed to the values estimated by IPT in connection with
the MAE GP Merger or by the Managing General Partner (each, 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 properties.
In estimating the pro forma net liquidation value per Unit, the
Purchaser adjusted its Gross Real Estate Value Estimate of $29,594,310 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 ($673,000), and
subtracted the mortgage debt encumbering the Partnership's properties
($23,792,000) and all other liabilities shown on that balance sheet ($798,000).
The Purchaser then deducted $1,183,772 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, $4,493,538, 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 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 then
deducted 2%, which would be the percentage allocable to the Managing General
Partner in respect of its non-subordinated interest in the Partnership, and the
remaining $4,403,667 was then divided by the 1,011.5 Units reported as
outstanding by the Managing General Partner as of August 1, 1998. The resulting
estimated pro forma liquidation value was $4,353.60 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 Managing 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 (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 $1,376 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 predictive of the likely
result of any future transactions.
Litigation. On March 24, 1998, certain persons claiming to own
limited partner interests in certain limited partnerships (including the
Partnership) whose general partners (the "General Partners") are affiliates of
Insignia (the "Partnerships") filed a purported class and derivative action in
California Superior Court in the County of San
28
Xxxxx (the "San Mateo Complaint") against Insignia, the General Partners
(including the Managing General Partner), certain persons and entities who
purportedly formerly controlled the General Partners, and additional entities
affiliated with and individuals who are officers, directors and/or principals
of several of the defendants. The San Mateo Complaint contains allegations
that, among other things, (i) the defendants breached their fiduciary duties to
the plaintiffs by selling or agreeing to sell their "fiduciary positions" as
stockholders, officers and directors of the General Partners for a profit and
retaining said profit rather than distributing it to the plaintiffs; (ii) the
defendants breached their fiduciary duties by mismanaging the Partnerships and
misappropriating the assets of the Partnerships by (a) manipulating the
operations of the Partnerships to depress the trading price of limited
partnership units (the "Units") of the Partnerships; (b) coercing and
fraudulently inducing unitholders to sell Units to certain of the defendants at
depressed prices; and (c) using the voting control obtained by purchasing Units
at depressed prices to entrench certain of the defendants' positions of control
over the Partnerships; and (iii) the defendants breached their fiduciary duties
to the plaintiffs by (a) selling assets of the Partnerships such as mailing
lists of unitholders; and (b) causing the General Partners to enter into
exclusive arrangements with their affiliates to sell goods and services to the
General Partners, the unitholders and tenants of Partnership properties. The
San Mateo Complaint also alleges that the foregoing allegations constitute
violations of various California securities, corporate and partnership
statutes, as well as conversion and common law fraud. The San Mateo Complaint
seeks unspecified compensatory and punitive damages, an injunction blocking the
sale of control of the General Partners to AIMCO and a court order directing
the defendants to discharge their fiduciary duties to the plaintiffs. On June
24, 1998, the Managing General Partner filed a motion seeking dismissal of the
action. IPT and Insignia believe that the allegations contained in the San
Mateo Complaint are without merit and intend to vigorously contest the
plaintiffs' action.
On July 30, 1998, certain entities claiming to own limited
partnership interests in certain limited partnerships (including the
Partnership) whose general partners are affiliates of Insignia, IPT and the
Purchaser (the "Affiliated General Partners") filed a complaint in the Superior
Court of the State of California, County of Los Angeles (the "Los Angeles
Complaint") against Insignia, the Subject Partnerships (defined below), the
Affiliated General Partners (including the Managing General Partner) and
additional entities affiliated with several of the defendants. The action
involves 44 real estate limited partnerships (each named as a defendant) in
which the plaintiffs allegedly own interests and which Insignia affiliates
allegedly manage or control (the "Subject Partnerships"). Plaintiffs allege
that they have requested from, but have been denied by each of the Subject
Partnerships, lists of their respective limited partners for the purpose of
making tender offers to purchase up to 4.9% of the units of limited partnership
interest in each of the Subject Partnerships. The Los Angeles Complaint also
alleges that certain of the defendants made tender offers to purchase units of
limited partnership interest in many of the Subject Partnerships, with the
alleged result that plaintiffs have been deprived of the benefits they would
have realized from ownership of the additional units. The plaintiffs assert
eleven causes of action, including breach of contract, unfair business
practices, and violations of the partnership statutes of the states in which
the Subject Partnerships are organized. Plaintiffs seek compensatory, punitive
and treble damages. Insignia was only recently served with the Los Angeles
Complaint and has not yet responded to it. Xxxxxxxx believes the claims to be
without merit and intends to defend the action vigorously.
SECTION 14. CONDITIONS OF THE OFFER. Notwithstanding any other term
of the Offer, the Purchaser (which is an affiliate of the Managing 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 Managing 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:
29
(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 Managing 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;
(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
Managing 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 Managing 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 Managing 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 Managing General Partner) concerning the events described
above will be final and binding upon all parties.
30
SECTION 15. CERTAIN LEGAL MATTERS.
General. The Purchaser (which is an affiliate of the Managing
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 Managing 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
Managing General Partner) to elect to terminate the Offer without purchasing
Units thereunder.
Antitrust. The Purchaser (which is an affiliate of the Managing
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.
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 Managing 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 Managing 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 Managing 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
Managing 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 Managing 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 Managing 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 Managing 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 Managing 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
Managing 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 Managing 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,
31
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.
AUGUST 27, 1998
32
SCHEDULE I
TRANSACTIONS IN THE UNITS
EFFECTED BY IPLP IN THE PAST 60 DAYS
Number of Price
DATE Units Purchased Per Unit
---- --------------- --------
8/17/98 1.00 $2,375.00
8/17/98 0.50 2,375.00
S-1
SCHEDULE II
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 III.
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
New York, NY 10166 regarding Xx. Xxxxxxx, see Schedule IV.
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 III
and IV.
S-2
SCHEDULE III
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.
New York, NY 10152 For additional information regarding Xx. Xxxxxx,
see Schedule IV.
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 IV.
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 IV.
Xxxxxxx X. Xxxxx Xxxxxxx X. Xxxxx has served as a Senior Vice
000 Xxxx Xxxxxx President of IPT since August 1997, and has served
Suite 3401 as Secretary of IPT since January 1998. From June
New York, NY 10152 until 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-3
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 IV.
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-4
SCHEDULE IV
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
Suite 3401 been Chairman and Chief Executive Officer of
New York, NY 10152 Insignia 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.
XxxxxxX.Xxxxxxx* Xxxxxx X. Xxxxxxx has been a Director of Insignia
since May 1996. For 0000 Xxxxx Xxxxxx Xxxxx more
than the past five years, Xx. Xxxxxxx'x principal
occupation has Santa Fe, NM 87501 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
000 Xxxx Xxxxxx since August 1993. Xx. Xxxxxx is the retired
New York, NY 10021 Chairman of 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 Ltd.
Xxxxxx X. Xxxx* Xxxxxx X. Xxxx has been a Director of Insignia
000 Xxxx 00xx Xxxxxx since August 1993. Since February 1996, Xx. Xxxx
New York, NY 10019 has been a 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
New York, NY 10022 years, 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
0000 Xxxxxxxx Xxxxx Xxxx. with 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-5
PRESENT PRINCIPAL OCCUPATION
OR EMPLOYMENT AND
NAME FIVE-YEAR EMPLOYMENT HISTORY
---- ----------------------------
Xxxxxxx X. Xxxxxxx Xx. Xxxxxxx currently serves as a Director and
0000 Xxxxxxxx Xxxxx Xxxx. Chief Operating Officer of Realty One (since
Cleveland, OH 44131 October 1997). 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
London W1X 6AN years. Xx. Xxxxxxxxx currently serves as a Managing
England Director 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
Berkeley Square House with Xxxxxxx Xxxxx for more than the past five
London W1X 6AN years. Xx. Xxxxxxxx currently serves as Chief
England Executive Officer 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.
Suite 400 Xx. Xxxxxxxx currently serves as an Executive
Nashville, TN 37205 Managing 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
New York, NY 10166 that 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.
New York, NY 10166 Xx. 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-6
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
000 Xxxxx Xxxxxx Director of Insignia since September 1995 and
New York, NY 10022 President of 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-7
SCHEDULE V
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-8
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 Xxx Xxxx, Xxx Xxxx 10005
10268-1023
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
00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
(000) 000-0000
(Toll Free)
(000) 000-0000
(Call Collect)
