<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 6, 1996
REGISTRATION NO. 333-2920
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 2
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
AMERICA FIRST APARTMENT INVESTORS, L.P.
(Exact name of registrant as specified in its charter)
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DELAWARE 6513 47-0797793
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
incorporation or No.)
organization)
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SUITE 400, 1004 FARNAM STREET
OMAHA, NEBRASKA 68102
(402) 444-1630
(Address, including ZIP Code, and telephone number,
including area code, of registrant's principal executive offices)
MICHAEL YANNEY
SUITE 400, 1004 FARNAM STREET
OMAHA, NEBRASKA 68102
(402) 444-1630
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
------------------------
COPIES TO:
Steven P. Amen, Esq.
Kutak Rock
1650 Farnam Street
Omaha, Nebraska 68102
(402) 346-6000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE AND
AFTER CONDITIONS IN THE MERGER AGREEMENT HAVE BEEN SATISFIED.
If any of the securities being registered on the Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box: / /
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AMERICA FIRST APARTMENT INVESTORS, L.P.
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
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FORM S-4 ITEM AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
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A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of the Registration Statement and Outside
Front Cover Page of Prospectus...................... Facing Page of Registration Statement; Outside Front
Cover Page of Consent Solicitation
Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus.......................................... Available Information; Incorporation of Certain
Documents By Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed Charges and Summary; Risk Factors; Summary; Financial
Other Information................................... Information; Selected Financial Data of the Old Fund
4. Terms of the Transaction............................. The Transaction; Terms of the New Partnership
Agreement; Description of the BUCs of the New Fund;
Material Federal Income Tax Consequences of the
Transaction
5. Pro Forma Financial Information...................... Pro Forma Financial Information
6. Material Contacts with the Company Being Acquired.... Not Applicable
7. Additional Information Required for Reoffering by
Persons and Parties Deemed to Be Underwriters....... Not Applicable
8. Interest of Named Experts and Counsel................ Not Applicable
9. Disclosure of Commission Position on Indemnification
for Securities Act Liabilities...................... Not Applicable
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to
S-3 Registrants..................................... Not Applicable
11. Incorporation of Certain Documents by Reference...... Not Applicable
12. Information with Respect to S-2 or S-3 Registrants... Not Applicable
13. Incorporation of Certain Documents by Reference...... Not Applicable
14. Information with Respect to Registrants Other Than
S-3 or S-2 Registrants.............................. Summary; Information Relating to the New Fund
</TABLE>
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FORM S-4 ITEM AND CAPTION LOCATION OR CAPTION IN PROSPECTUS
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C. INFORMATION ABOUT THE COMPANY BEING ACQUIRED
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15. Information with Rspect to S-3 Companies............. Incorporation Of Certain Documents By Reference;
Summary; Summary Financial Information; Information
Relating to the Old Fund; Selected Financial Data of
the Old Fund
16. Information with Respect to S-2 or S-3 Companies..... Not Applicable
17. Information with Respect to Companies Other Than S-3
or S-2 Companies.................................... Not Applicable
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or Authorizations
are to be Solicited................................. Outside Front Cover Page of Consent Solicitation
Statement/Prospectus; Summary's Solicitation of Buc
Holder Consent; Information Relating to the Old Fund
19. Information if Proxies, Consents or Authorizations
are not to be Solicited opr in an Exchange Offer.... Not Applicable
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<PAGE>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2
LIMITED PARTNERSHIP
NOTICE OF ACTION REQUIRING CONSENT OF BUC HOLDERS
[ ], 1996
America First Capital Associates Limited Partnership Four (the "General
Partner"), the general partner of America First Tax Exempt Mortgage Fund 2
Limited Partnership (the "Old Fund"), is seeking the written consent of the
holders of Beneficial Unit Certificates ("BUCs") representing assigned limited
partnership interests in the Old Fund to a proposed transaction (the
"Transaction") consisting of a merger of the Old Fund with America First
Apartment Investors, L.P., a newly-formed Delaware limited partnership (the "New
Fund"). Pursuant to the terms of the Agreement of Merger between the Old Fund
and the New Fund (the "Merger Agreement"): (i) the New Fund will be the
surviving partnership and will succeed to all of the assets and liabilities of
the Old Fund; (ii) the limited partnership agreement of the New Fund (the "New
Partnership Agreement") will control the operations of the New Fund after the
Transaction; and (iii) BUC holders in the Old Fund will receive one BUC in the
New Fund for each BUC they hold in the Old Fund as of [Record Date], 1996. The
form of the New Partnership Agreement and the Merger Agreement are attached as
Appendices A and B, respectively, to the Consent Solicitation
Statement/Prospectus accompanying this Notice.
The Transaction has been proposed by the General Partner in an effort to
increase cash distributions to BUC holders, increase net asset value and
increase market value of the BUCs by transferring the assets of the Old Fund to
the New Fund which will have the ability to acquire additional multifamily
residential properties with low-cost tax-exempt bond financing and to more
actively manage the makeup of its real estate portfolio. The New Fund intends to
borrow up to $70 million for additional property acquisitions by causing certain
of the tax-exempt mortgage bonds acquired from the Old Fund which are either in
default or which were foreclosed upon by the Old Fund to be reissued to
unaffiliated investors. The New Fund will only acquire a multifamily residential
property if there is a positive spread between the current net rental revenue
being generated by the property and the debt service payments that the New Fund
will incur on the mortgage bond issued to finance the acquisition of the
property. In addition, the New Fund will authorize the General Partner to take
other steps to create a larger and more homogeneous asset base which the General
Partner believes will be more attractive to potential buyers and which may
provide BUC holders with a greater potential for appreciation in the value of
their BUCs.
Enclosed herewith is a Consent Solicitation Statement/Prospectus setting
forth information with respect to the Transaction. No meeting of BUC holders
will be held in connection with the Transaction. Only BUC holders of record at
the close of business on May 31, 1996 will be entitled to receive this notice
and to grant or withhold their consent to the Transaction. BUC holders are
requested to complete, sign and date the enclosed consent card, which is
solicited on behalf of the General Partner, and return it promptly in the
envelope enclosed for that purpose. YOUR CONSENT WILL NOT BE REVOCABLE AFTER
DELIVERY.
AMERICA FIRST CAPITAL
ASSOCIATES LIMITED PARTNERSHIP
FOUR, General Partner
By America First Companies L.L.C.,
General Partner
/s/ MICHAEL THESING
--------------------------------------
Michael Thesing, SECRETARY
Omaha, Nebraska
[ ], 1996
IMPORTANT: THE PROMPT RETURN OF YOUR CONSENT WILL SAVE THE EXPENSE OF FURTHER
SOLICITATION.
<PAGE>
CONSENT
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
THIS CONSENT IS SOLICITED ON BEHALF OF THE GENERAL PARTNER OF AMERICA FIRST
TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP.
The undersigned, being the holder of record of Beneficial Unit Certificates
("BUCs") representing assigned limited partnership interests in America First
Tax Exempt Mortgage Fund 2 Limited Partnership (the "Old Fund") hereby
authorizes America First Fiduciary Corporation Number Eight (the "Limited
Partner") to grant or withhold consent to the matter set forth below or abstain
from granting or withholding the undersigned's consent as indicated below.
APPROVAL OF MERGER WITH AMERICA FIRST APARTMENT INVESTORS, L.P.:
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/ / FOR / / AGAINST / / ABSTAIN
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THIS CONSENT WHEN PROPERLY EXECUTED, WILL BE VOTED BY THE LIMITED PARTNER IN
THE MANNER DIRECTED HEREIN BY THE UNDERSIGNED BUC HOLDER. IF NO DIRECTION IS
MADE, THIS CONSENT WILL BE VOTED FOR THE MERGER WITH AMERICA FIRST APARTMENT
INVESTORS, L.P.
(continued and to be signed on the reverse hereof)
[FORM OF REVERSE SIDE OF CONSENT]
This consent is not revocable by the undersigned. The undersigned hereby
acknowledges receipt of a Notice of Action Requiring Consent of BUC Holders of
the Old Fund and the Consent Solicitation Statement/Prospectus prior to the
signing of this consent card.
Dated: , 1996.
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Signature
---------------------------------------------
(Signature if held jointly)
Please sign exactly as name appears on this
consent card. When BUCs are held by joint
tenants, both should sign. When signing as
attorney, executor, administrator, trustee or
guardian, please give your full title. If a
corporation, please sign in full corporate
name by an authorized officer. If a
partnership, please sign in partnership name
by an authorized person.
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PLEASE MARK, SIGN, DATE AND RETURN THIS CONSENT CARD USING THE ENCLOSED ENVELOPE
SO THAT IT ARRIVES NO LATER THAN 5:00 P.M. CENTRAL TIME ON [DATE], 1996.
<PAGE>
THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO COMPLETION
OR AMENDMENT. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
<PAGE>
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION DATED JUNE 6, 1996
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2
LIMITED PARTNERSHIP
CONSENT SOLICITATION STATEMENT
---------------------
AMERICA FIRST APARTMENT INVESTORS, L.P.
PROSPECTUS
This Consent Solicitation Statement/Prospectus is being furnished to the
holders of Beneficial Unit Certificates ("BUCs") representing assigned limited
partnership interests in America First Tax Exempt Mortgage Fund 2 Limited
Partnership (the "Old Fund") in connection with the solicitation of the written
consents of the BUC holders to a transaction (the "Transaction") consisting of a
merger of the Old Fund with America First Apartment Investors, L.P., a
newly-formed Delaware limited partnership (the "New Fund"), pursuant to the
terms of an Agreement of Merger between the Old Fund and the New Fund (the
"Merger Agreement"). Upon completion of the Transaction, the separate existence
of the Old Fund will cease and BUC holders of the Old Fund will become BUC
holders of the New Fund. Consummation of the Transaction is subject to various
conditions, including approval thereof by a majority in interest of the BUC
holders of the Old Fund. This Consent Solicitation Statement/Prospectus also
constitutes the Prospectus of the New Fund with respect to the issuance of
5,245,623 of BUCs representing assigned limited partnership interests in the New
Fund to the holders of BUCs in the Old Fund in connection with the Transaction.
A consent card is included with this Consent Solicitation
Statement/Prospectus and BUC holders are asked to complete, date and sign the
consent card and return it to Service Data Corporation in the enclosed envelope
as soon as possible. In order to be valid, consents must be received by Service
Data Corporation by 5:00 p.m. Central Time on [Date], 1996. A consent will be
valid only if it is executed by or on behalf of a person who is a beneficial
holder of a BUC as of May 31, 1996 (the "Record Date"). An otherwise valid
consent will be deemed to grant consent to the Transaction if it is not marked
to withhold consent or to abstain. A consent may not be revoked after the
consent card is delivered to Service Data Corporation. No meeting of BUC holders
will be held with respect to the Transaction.
THE TRANSACTION INVOLVES CERTAIN RISKS, ADVERSE CONSEQUENCES AND CONFLICTS
OF INTEREST THAT SHOULD BE CONSIDERED BY BUC HOLDERS. IN PARTICULAR, BUC HOLDERS
SHOULD CONSIDER THE FOLLOWING:
- The investment objective of the New Fund will be to generate taxable
rental income from the ownership of real estate rather than tax-exempt
interest income.
- The New Fund expects to acquire additional apartment complexes and to
finance such acquisitions with borrowed money. Accordingly, many of the
New Fund's existing and new properties will be encumbered by mortgages or
deeds of trust securing such borrowings. Cash distributions to BUC holders
of the New Fund will be subordinate to the payment of debt service on such
borrowings.
- The New Fund may also reinvest cash generated by the sale of existing
assets or from operations to acquire additional properties. Therefore,
cash distributions could be lower than those made by the Old Fund in
certain cases. BUC holders will be subject to income taxation on their
share of the New Fund's income notwithstanding the level of cash
distributions.
(CONTINUED ON INSIDE COVER PAGE)
FOR A MORE COMPLETE DISCUSSION OF RISK FACTORS WHICH SHOULD BE CONSIDERED IN
EVALUATING THE TRANSACTION, SEE "RISK FACTORS" ON PAGE .
This Consent Solicitation Statement/Prospectus and the consent cards are
first being mailed to BUC holders on or about , 1996.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE DATE OF THE CONSENT SOLICITATION STATEMENT/PROSPECTUS IS JUNE , 1996
<PAGE>
(CONTINUED FROM COVER PAGE)
- The General Partner has a conflict of interest in recommending the
Transaction to BUC holders because the General Partner expects to receive
increased amounts of fees and cash distributions as a result of the
Transaction.
- The limited partnership agreement of the New Fund is different from the
limited partnership agreement of the Old Fund and certain of the
differences may be adverse to the BUC holders.
- There are alternatives to the Transaction, including returning the Old
Fund to a tax-exempt mortgage bond fund. The General Partner expects to
realize greater economic benefits for itself if the Transaction is
completed than if any of the alternatives thereto are undertaken. By
approving the Transaction, the BUC holders will effectively preclude the
pursuit of any of these alternatives.
- The acquisition of additional properties by the New Fund will entail the
risks generally involved with investing in real estate. BUC holders will
be dependent on the General Partner to evaluate additional real estate
investments made by the New Fund and to negotiate the terms thereof.
- The properties originally financed by the tax-exempt bonds will remain
subject to certain restrictive covenants, including a requirement that at
least 20% of the apartment units in each such property be occupied by
certain low-income residents.
- If the New Fund continues to hold one or more tax-exempt bonds at the time
it borrows money by causing the issuance of refunding bonds, some or all
of the interest it pays on the refunding bonds may not be deductible.
- Certain expenses of the Transaction which are payable by the Old Fund may
be avoided if the Transaction is not consummated.
- There is no current trading market for the BUCs of the New Fund and there
can be no assurance that one will develop.
- BUC holders voting against the Transaction will not be entitled to any
appraisal or other dissenters' rights under Delaware law and will not be
afforded any by the Old Fund.
<PAGE>
AVAILABLE INFORMATION
America First Tax Exempt Mortgage Fund 2 Limited Partnership (the "Old
Fund") is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information may be inspected and copied at
the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and 75 Park Place, New York, New York 10007. Copies of such material
may be obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 at prescribed rates.
This Consent Solicitation Statement/Prospectus omits certain information
contained in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement") of which this
Consent Solicitation Statement/Prospectus is a part, and which America First
Apartment Investors, L.P. (the "New Fund") has filed with the Commission under
the Securities Act of 1933, as amended (the "Securities Act"). Reference is made
to such Registration Statement for further information with respect to the New
Fund and the BUCs of the New Fund offered hereby. Statements contained herein or
incorporated herein by reference concerning the provisions of documents are
summaries of such documents, and each such statement is qualified in all
respects by the provisions of such exhibit or other document to which reference
is thereby made for a full statement of the provisions thereof. A copy of the
Registration Statement, with exhibits, may be obtained from the Commission's
offices (at the above addresses) upon payment of the fees prescribed by the
rules and regulations of the Commission, or examined there without charge.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by the Old Fund with the
Commission pursuant to the Exchange Act, are incorporated herein by reference:
(a) the Old Fund's Annual Report on Form 10-K for the fiscal year ended
December 31, 1995; and
(b) the Old Fund's Quarterly Report on Form 10-Q for the three months
ended March 31, 1996.
Each additional document filed by the Old Fund pursuant to Sections 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this Consent
Solicitation Statement/Prospectus and prior to the last date upon which Consents
may be validly returned by BUC holders of the Old Fund, shall be deemed to be
incorporated by reference in this Consent Solicitation Statement/Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained herein or in a document incorporated by reference will be deemed to be
modified or superseded for the purpose of this Consent Solicitation
Statement/Prospectus to the extent that such statement contained therein or in
any other subsequently filed document which also is, or is deemed to be,
incorporated by reference modifies or supersedes such statement. Any such
statement so modified or superseded will not be deemed, except as so modified or
superseded, to constitute a part of this Consent Solicitation
Statement/Prospectus.
The Old Fund has incorporated certain of its reports filed with the
Commission into the Registration Statement. THE OLD FUND WILL PROVIDE WITHOUT
CHARGE TO EACH PERSON, INCLUDING ANY BENEFICIAL OWNER OF ITS BUCS, TO WHOM A
COPY OF THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS HAS BEEN DELIVERED, ON
THE WRITTEN OR ORAL REQUEST OF ANY SUCH PERSON, A COPY OF ANY OR ALL REPORTS
INCORPORATED BY REFERENCE IN THE REGISTRATION STATEMENT, OTHER THAN EXHIBITS TO
SUCH DOCUMENTS. SUCH WRITTEN OR ORAL REQUEST SHOULD BE DIRECTED TO MAURICE E.
COX, JR. AT AMERICA FIRST COMPANIES L.L.C., SUITE 400, 1004 FARNAM STREET,
OMAHA, NEBRASKA, TELEPHONE NUMBER (402) 444-1630.
<PAGE>
TABLE OF CONTENTS
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PAGE
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SUMMARY........................................................................................ 1
The Transaction.............................................................................. 1
Purposes of the Transaction.................................................................. 1
Bond Refundings.............................................................................. 2
Consideration of Alternatives................................................................ 2
Recommendation of the General Partner........................................................ 3
Fairness Determination of the General Partner................................................ 3
Risk Factors................................................................................. 3
Consent of BUC Holders....................................................................... 4
Comparison of the New Partnership Agreement and the Current Partnership Agreement............ 4
Transferability of BUCs...................................................................... 6
Federal Income Tax Consequences.............................................................. 6
Accounting Treatment......................................................................... 6
SUMMARY FINANCIAL INFORMATION.................................................................. 7
RISK FACTORS................................................................................... 8
Eventual Elimination of Tax-Exempt Interest Income........................................... 8
New Fund Will Borrow Money................................................................... 8
New Fund May Reinvest in Additional Real Estate.............................................. 8
Conflicts of Interest........................................................................ 9
Differences in Limited Partnership Agreement May Be Adverse to BUC Holders................... 9
Possible Alternatives to the Transaction Will Not Be Pursued................................. 9
Investing in Additional Real Estate Involves Certain Risks................................... 10
Properties Financed With Tax-Exempt Debt Are Subject to Certain Restrictions................. 10
Interest Paid on Money Borrowed By New Fund May Not Be Fully Deductible...................... 10
Expenses of the Transaction.................................................................. 11
Potential Lack of Public Trading Market for BUCs............................................. 11
No Dissenters' Rights........................................................................ 11
SOLICITATION OF BUC HOLDER CONSENT............................................................. 11
Solicitation by the General Partner.......................................................... 11
Communicating With Other BUC Holders......................................................... 12
THE TRANSACTION................................................................................ 13
General...................................................................................... 13
Terms of the Merger Agreement................................................................ 14
Issuance of BUCs of the New Fund............................................................. 14
Costs of the Transaction..................................................................... 15
Accounting Treatment......................................................................... 15
Regulatory Matters........................................................................... 15
Background and Reasons for the Transaction................................................... 15
Recommendation of the General Partner........................................................ 18
Consideration of Alternative Courses of Action............................................... 18
Fairness Determination of the General Partner................................................ 20
INFORMATION RELATING TO THE OLD FUND........................................................... 21
Description of Business...................................................................... 21
Management................................................................................... 22
Properties................................................................................... 23
Legal Proceedings............................................................................ 25
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Voting Securities and Beneficial Ownership Thereof by Principal BUC Holders, Directors and
Officers.................................................................................... 25
Market for the Old Fund's BUCs and Related BUC Holder Matters................................ 26
SELECTED FINANCIAL DATA OF THE OLD FUND........................................................ 27
INFORMATION RELATING TO THE NEW FUND........................................................... 28
Business..................................................................................... 28
Partners of the New Fund..................................................................... 29
Properties................................................................................... 29
Legal Proceedings............................................................................ 29
TERMS OF THE NEW PARTNERSHIP AGREEMENT......................................................... 29
General...................................................................................... 29
Formation.................................................................................... 29
Management of the New Fund................................................................... 30
Allocations and Distributions................................................................ 30
Payments to the General Partner.............................................................. 32
Liability of Partners and BUC Holders........................................................ 33
Voting Rights................................................................................ 34
Reports...................................................................................... 35
Removal or Withdrawal of the General Partner................................................. 35
Effect of Removal, Bankruptcy, Death, Dissolution, Incompetency or Withdrawal of a General
Partner..................................................................................... 35
Amendments................................................................................... 36
Dissolution and Liquidation.................................................................. 36
Designation of Tax Matters Partner........................................................... 36
Books and Records............................................................................ 37
Accounting Matters........................................................................... 37
Derivative Actions........................................................................... 37
DESCRIPTION OF THE BUCS OF THE NEW FUND........................................................ 37
Beneficial Unit Certificates................................................................. 37
Transfers.................................................................................... 37
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION.................................... 38
Partnership Status........................................................................... 38
Treatment of the New Fund as a Publicly Traded Partnership................................... 39
Consequences of a Merger..................................................................... 39
Nondeductibility of Interest Expense......................................................... 39
Tax Consequences of Change in Investment Objective........................................... 40
LEGAL MATTERS.................................................................................. 41
EXPERTS........................................................................................ 41
GLOSSARY....................................................................................... 42
PRO FORMA FINANCIAL INFORMATION................................................................ F-1
FORM OF AGREEMENT OF LIMITED PARTNERSHIP OF AMERICA FIRST APARTMENT INVESTORS, L.P............. APPENDIX A
AGREEMENT OF MERGER............................................................................ APPENDIX B
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ii
<PAGE>
SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. THIS
SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF ALL MATERIAL INFORMATION
RELATING TO THE AGREEMENT OF LIMITED PARTNERSHIP (THE "NEW PARTNERSHIP
AGREEMENT") OF THE NEW FUND AND THE AGREEMENT OF MERGER (THE "MERGER
AGREEMENT"), BETWEEN THE OLD FUND AND THE NEW FUND AND IS SUBJECT TO, AND
QUALIFIED IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION AND FINANCIAL
STATEMENTS CONTAINED OR INCORPORATED BY REFERENCE IN THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS. THE FORMS OF THE NEW PARTNERSHIP AGREEMENT AND THE MERGER
AGREEMENT ARE ATTACHED AS APPENDICES A AND B, RESPECTIVELY, TO THIS CONSENT
SOLICITATION STATEMENT/ PROSPECTUS. BUC HOLDERS SHOULD READ THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS IN ITS ENTIRETY PRIOR TO RETURNING THE CONSENT
CARD ENCLOSED HEREWITH. CERTAIN TERMS USED HEREIN ARE DEFINED IN THE "GLOSSARY."
THE TRANSACTION
The General Partner is seeking the consent of the BUC holders of the Old
Fund to a transaction (the "Transaction") in which Old Fund will be merged into
the New Fund. The New Fund is a newly-formed Delaware limited partnership the
business of which is to acquire multifamily residential properties and other
types of commercial real estate. As a result of the Transaction, the New Fund
will acquire all of the assets and liabilities of the Old Fund, including the
tax-exempt mortgage bonds originally issued to the Old Fund by various state and
municipal issuers (the "Bonds") to provide construction and permanent financing
of seven multifamily residential properties and one office/ warehouse facility.
Upon completion of the Transaction persons holding BUCs in the Old Fund as of
the Record Date will become BUC holders of the New Fund and the New Partnership
Agreement will control the operations of the New Fund after the Transaction. See
"THE TRANSACTION."
The General Partner and Limited Partner of the Old Fund will be the General
Partner and Limited Partner of the New Fund after the Transaction. Upon
completion of the Transaction, the principal executive offices of the New Fund
will remain at Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102 and the
telephone number of the New Fund will remain (402) 444-1630. See "INFORMATION
RELATING TO THE OLD FUND" and "INFORMATION RELATING TO THE NEW FUND."
PURPOSES OF THE TRANSACTION
The Transaction has been proposed in an effort to:
- increase the after-tax cash distributions to the BUC holders;
- increase net asset value; and
- increase the current trading price of the BUCs.
In the opinion of the General Partner, the best way to accomplish these
goals is to acquire additional multifamily residential properties which generate
net rental revenues in amounts greater than the debt service on moneys borrowed
to acquire the properties. By using the low-cost tax-exempt financing available
through the reissuance of certain of the Bonds, the General Partner expects to
be able to acquire additional apartment complexes which generate a positive
spread between the debt service on the reissued bonds and the net rental
revenues generated by the additional apartment complexes. Therefore, the General
Partner hopes to be able to increase the amount of cash available for
distribution to BUC holders of the New Fund over the current levels of cash
available to the Old Fund for distribution to BUC holders.
By acquiring additional properties, the General Partner also hopes to
increase net asset value so that BUC holders will receive greater distributions
upon the eventual sale of the assets or upon dissolution. By acquiring
additional properties with tax-exempt debt, the General Partner expects to be
able to increase net asset value because a property financed with below market
debt will generally have a greater potential return on investment and,
therefore, will be more valuable than it would be if
1
<PAGE>
it were financed with conventional debt. The General Partner also believes that
over time the net asset value will increase to the extent that the net rental
income of the new properties can be improved and as borrowings are repaid.
In addition, the General Partner believes that the attractiveness of the
asset portfolio to potential purchasers, and therefore its value, may be
enhanced by creating a more homogeneous group of properties. A more uniform
asset portfolio could be created by selling certain of the existing properties
that are inconsistent with the overall makeup of the current properties, and
reinvesting the proceeds from such sales to acquire new properties that are more
compatible with the overall asset mix. The General Partner also believes that a
more uniform asset portfolio may be viewed more favorably by investors and that
this could create a greater potential for appreciation in the value of the BUCs.
Because the Current Partnership Agreement does not provide the General
Partner with clear authority to take these steps, the General Partner is
proposing the Transaction so that the assets of the Old Fund (including the
Bonds) are transferred to the New Fund which will provide the General Partner
with the necessary authority to reinvest the proceeds from the reissuance of the
Bonds and from the sale of existing properties. The New Fund intends to borrow
approximately $70 million by causing the Bonds relating to six apartment
complexes which either have been or will be foreclosed on by the Fund to be
reissued to unaffiliated investors in a process known as a "refunding." See
"Bond Refundings," below. The New Fund will use these borrowings to purchase
additional multifamily residential properties. The New Fund will only cause a
Bond to be refunded and use the money borrowed in this manner to acquire an
additional apartment complex if there is a positive spread between the current
net rental revenue being generated by the new property and the interest payments
that the New Fund will incur on the refunding Bond. The General Partner
anticipates that the New Fund will be able to acquire between five and eight
additional apartment complexes in this manner. The New Fund will focus its
acquisition efforts on established apartment complexes in stable markets and, in
particular, will seek properties that it believes have the potential for
increased revenues through more effective management. In addition, the New Fund
will authorize the General Partner to reinvest the proceeds from the sale of an
existing property and other cash in order to create a larger and more
homogeneous asset base. See "THE TRANSACTION -- Background and Reasons for the
Transaction."
BOND REFUNDINGS
Although the Old Fund has foreclosed on properties which were originally
financed with Bonds, these Bonds have not been extinguished. Accordingly, they
continue to represent a source of tax-exempt borrowing. In order for the New
Fund to utilize the foreclosed Bonds as a source of low-cost borrowing, it may
request the state or local political authority which issued the original Bonds
to issue new bonds ("Refunding Bonds") to unaffiliated investors and use the
proceeds received from the issuance of the Refunding Bonds to repay all or part
of the principal of the original Bonds. As the owner the original Bonds, the
proceeds of the issuance of the Refunding Bonds will be paid to the New Fund.
The Refunding Bonds may be issued in a principal amount not greater than the
principal amount of the original Bonds. However, the Refunded Bonds will bear
interest at the tax-exempt rates prevailing at the time of issuance rather than
the interest rate payable on the original Bonds and the maturity date of the
Refunding Bonds may be extended beyond the original maturity date of the
original Bonds. The Refunding Bonds would be secured by first mortgages or deeds
of trust on the original properties financed by the Bonds and by the additional
properties acquired by the New Fund with the proceeds of the Refunding Bonds. It
is anticipated that the Refunding Bonds will be rated investment grade by a
national securities rating agency. See "THE TRANSACTION -- General" and "--
Background and Reasons for the Transaction" and "INFORMATION RELATING TO THE NEW
FUND -- Business."
CONSIDERATION OF ALTERNATIVES
In addition to the proposed Transaction, the General Partner considered the
options of (i) returning the Old Fund to a tax-exempt mortgage bond fund by
selling the foreclosed properties to
2
<PAGE>
unaffiliated parties and refunding the Bonds in reduced principal amounts and at
current tax-exempt interest rates, (ii) allowing the Old Fund to continue to
hold a combined portfolio consisting of both foreclosed real estate and Bonds
and (iii) dissolving the Old Fund and liquidating its assets. For the reasons
set forth under "THE TRANSACTION -- Consideration of Alternative Courses of
Action," the General Partner has rejected each of the alternatives in favor of
the Transaction. However, if the Transaction is not approved, the General
Partner will reconsider other options available to the Old Fund, including
returning the Old Fund to a tax-exempt bond fund.
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner believes that the Transaction is in the best interests
of the Old Fund and all of its BUC holders and recommends the approval thereof
by the BUC holders. See "THE TRANSACTION -- Recommendation of the General
Partner."
FAIRNESS DETERMINATION OF THE GENERAL PARTNER
The General Partner, including the Board of Managers of America First
Companies L.L.C. (the general partner of the General Partner)("America First"),
believes that the terms of the Transaction are fair to the BUC holders for the
reasons discussed under "THE TRANSACTION -- Fairness Determination of the
General Partner." The General Partner has not obtained a fairness opinion or any
other evaluation of the Transaction from an investment banker or other third
party.
RISK FACTORS
BUC holders of the Old Fund should consider the following risk factors in
connection with the Transaction. See "RISK FACTORS" on page .
- The investment objective of the New Fund will be to generate taxable
rental income from the ownership of real estate rather than tax-exempt
interest income.
- The New Fund expects to acquire additional apartment complexes and to
finance such acquisitions with borrowed money. Accordingly, many of the
New Fund's existing and new properties will be encumbered by mortgages or
deeds of trust securing such borrowings. Cash distributions to BUC holders
of the New Fund will be subordinate to the payment of debt service on such
borrowings.
- The New Fund may also reinvest cash generated by the sale of existing
assets or from operations to acquire additional properties. Therefore,
cash distributions could be lower than those made by the Old Fund in
certain cases. BUC holders will be subject to income taxation on their
share of the New Fund's income notwithstanding the level of cash
distributions.
- The General Partner has a conflict of interest in recommending the
Transaction to BUC holders because the General Partner expects to receive
increased amounts of fees and cash distributions as a result of the
Transaction.
- The limited partnership agreement of the New Fund is different from the
limited partnership agreement of the Old Fund and certain of the
differences may be adverse to the BUC holders.
- There are alternatives to the Transaction, including returning the Old
Fund to a tax-exempt mortgage bond fund. The General Partner expects to
realize greater economic benefits for itself if the Transaction is
completed than if any of the alternatives thereto are undertaken. By
approving the Transaction, the BUC holders will effectively preclude the
pursuit of any of these alternatives.
- The acquisition of additional properties by the New Fund will entail the
risks generally involved with investing in real estate. BUC holders will
be dependent on the General Partner to evaluate additional real estate
investments made by the New Fund and to negotiate the terms thereof.
3
<PAGE>
- The properties originally financed by the tax-exempt bonds will remain
subject to certain restrictive covenants, including a requirement that at
least 20% of the apartment units in each such property be occupied by
certain low-income residents.
- If the New Fund continues to hold one or more tax-exempt bonds at the time
it borrows money by causing the issuance of refunding bonds, some or all
of the interest it pays on the refunding bonds may not be deductible.
- Certain expenses of the Transaction which are payable by the Old Fund may
be avoided if the Transaction is not consummated.
- There is no current trading market for the BUCs of the New Fund and there
can be no assurance that one will develop.
- BUC holders voting against the Transaction will not be entitled to any
appraisal or other dissenters' rights under Delaware law and will not be
afforded any by the Old Fund.
CONSENT OF BUC HOLDERS
The General Partner will not hold a meeting of the BUC holders to consider
the Transaction, but instead is seeking the written consent of BUC holders as
provided in Section 10.02 of the Current Partnership Agreement. The Transaction
may not be consummated without the consent of the holders of a majority of the
outstanding BUCs of the Old Fund.
A consent card is included with this Consent Solicitation
Statement/Prospectus and BUC holders are asked to complete, date and sign the
consent card and return it to Service Data Corporation in the enclosed envelope
as soon as possible. In order to be valid, consents must be received by Service
Data Corporation by 5:00 p.m. Central Time on [Date], 1996, unless such date is
extended by the General Partner in its sole discretion. An otherwise valid
consent card will be deemed to grant consent to the Transaction if it is not
marked to withhold consent or to abstain. A BUC HOLDER MAY NOT REVOKE ITS
CONSENT AFTER THE CONSENT CARD IS DELIVERED TO SERVICE DATA CORPORATION. See
"SOLICITATION OF BUC HOLDER CONSENT."
COMPARISON OF THE NEW PARTNERSHIP AGREEMENT AND THE CURRENT PARTNERSHIP
AGREEMENT
In general, the terms of the New Partnership Agreement are the same as those
of the Current Partnership Agreement. However, there are some important
differences between the New Partnership Agreement and the Current Partnership
Agreement. These differences include (i) a different business purpose, (ii)
authority to use additional properties as collateral for Bond refundings, (iii)
authority to reinvest proceeds from Bond refundings, proceeds from the sale of
existing properties and cash from operations in additional apartment complexes,
(iv) changes in the fees payable to the General Partner, (v) changes in the
allocation of cash distributions between the BUC holders and the General
Partner, (vi) a change in the method of determining the value of the General
Partner's interest in the event of the General Partner's removal and (vii) the
elimination of a requirement that BUC holders unanimously consent to amendments
affecting cash distributions. See "TERMS OF NEW PARTNERSHIP AGREEMENT."
The following table sets forth the fees and cash distributions that the
General Partner and its affiliates currently receive from the Old Fund and the
fees and cash distributions that the General
4
<PAGE>
Partner and its affiliates will receive from the New Fund after the Transaction
and assuming the New Fund is able to borrow $70 million through the refunding of
Bonds and use these funds to acquire additional apartment complexes.
<TABLE>
<CAPTION>
TYPE OF COMPENSATION OLD FUND NEW FUND
- ----------------------- ------------------------------------------- -------------------------------------------
<S> <C> <C>
Administrative Fee 0.60% per annum of the original principal 0.60% per annum of (i) the original
amount of Bonds on foreclosed properties. principal amount of Bonds on foreclosed
This fee equaled $226,200 during year ended properties and (ii) the purchase price of
December 31, 1995. Fee could increase to any additional properties acquired by the
approximately $470,000 per annum if the Old New Fund. Estimated maximum of $870,000 per
Fund forecloses on two additional Bonds annum.
currently in default.
Property Acquisition None. A Mortgage Placement Fee of 1.25% of 1.25% of the purchase price paid by the New
Fee the principal amount of the Bonds was paid Fund for additional apartment complexes.
out of Bond proceeds to the General Estimated maximum of $780,000.
Partner.
Property Management Not to exceed the lesser of (i) 5% of the Same as Old Fund. Amount will increase over
Fees paid to gross revenue of the managed property (6% level paid by Old Fund if New Fund acquires
affiliated management for nonresidential properties), (ii) the additional properties, but the amount of
company fees charged by unaffiliated property the increase cannot be estimated because
managers in the same geographic area or the number of additional properties, if
(iii) the actual cost of providing such any, and the revenues generated thereby is
services. $382,143 during year ended not known.
December 31, 1995.
Distributions of 1% of Net Interest Income until BUC holders 1% of Net Operating Income. Not able to
Operating Cash Flow receive a cumulative noncompounded return estimate since future Net Operating Income
of 10% per annum on Adjusted Capital is not known, but may increase above the
Contributions; 10% of Net Interest Income amount distributed by the Old Fund if
thereafter. $39,740 during year ended additional properties are acquired which
December 31, 1995. generate net rental revenues in excess of
debt service on refunded Bonds.
Distributions of Cash None until BUC holders receive an amount None.
From Sale of Assets (when combined with all prior distributions
to BUC holders) equal to the sum of their
initial Adjusted Capital Contributions plus
a cumulative noncompounded annual return of
10% on their Adjusted Capital
Contributions; then 100% of Net Sale or
Refinancing Proceeds until the General
Partner receives an aggregate amount equal
to 10% of total cash distributions made by
the Old Fund; then 90% of Net Sale or
Refinancing Proceeds until the General
Partner receives an amount equal to 0.25%
per annum of the outstanding principal
amount of the Bonds for each year beginning
January 1, 1989; then 10% of any remaining
Net Sale or Refinancing Proceeds. None
during year ended December 31, 1995.
</TABLE>
5
<PAGE>
In addition to the foregoing, the General Partner will continue to be
reimbursed for certain expenses it and its affiliates incur in connection with
the business of the New Fund. See "TERMS OF THE NEW PARTNERSHIP AGREEMENT --
Payments to the General Partner" and "-- Allocations and Distributions."
TRANSFERABILITY OF BUCS
BUCs of the New Fund will be freely transferrable, subject to certain
restrictions set forth in the New Partnership Agreement which are identical to
those in the Current Partnership Agreement. The BUCs in the New Fund have been
approved for inclusion on The NASDAQ Stock Market under the symbol "APRTZ" upon
consummation of the Transaction. See "DESCRIPTION OF THE BUCS OF THE NEW FUND --
Transfers."
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes the New Fund will be treated as a
continuation of the Old Fund with a change of name and, accordingly, BUC holders
will not recognize any income, gain or loss as a result of the Transaction.
Consummation of the Transaction is conditioned on, among other things, receipt
of an opinion of counsel to this effect.
The New Fund has received an opinion of counsel that it will be treated as a
partnership for federal income tax purposes and BUC holders will be recognized
as partners for federal income tax purposes. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE TRANSACTION."
ACCOUNTING TREATMENT
The Transaction will not result in a change in the New Fund's financial
statement treatment of any asset or liability of the Old Fund or of the capital
account of any partner or BUC holder. See "THE TRANSACTION -- Accounting
Treatment."
6
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain financial data of the Old Fund which
has been derived from the audited financial statements of the Old Fund as of and
for the five-year period ended December 31, 1995. Such financial statements for
the three years ended December 31, 1995 have been audited by Coopers & Lybrand
L.L.P., independent accountants for the Old Fund, as indicated in their reports
included elsewhere in this Consent Solicitation Statement/Prospectus. The
unaudited data presented as of and for the three months ended March 31, 1995 and
1996 has been derived from the unaudited financial statements of the Old Fund
and, in the opinion of the General Partner, includes all adjustments, consisting
of normal recurring adjustments, necessary for a fair statement of the results
for such interim periods. The results of operations for the three months ended
March 31, 1996 will not necessarily be indicative of the results of operations
for the full year ending December 31, 1996.
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED MARCH 31,
FOR YEAR ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT FOR BUC AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage bond investment income................. $ 3,996 $ 2,190 $ 2,327 $ 2,452 $ 2,235 $ 693 $ 595
Rental income................................... 2,940 4,363 4,567 4,950 5,116 1,255 1,297
Interest income on temporary cash investments... 104 64 43 37 55 12 11
General and administrative expenses............. (871) (758) (720) (690) (792) (191) (229)
Real estate operating expenses.................. (1,564) (2,210) (2,268) (2,397) (2,360) (600) (717)
Depreciation.................................... (836) (1,142) (1,172) (1,183) (1,197) (297) (308)
Provision for loan losses..................... (1,000) -- -- -- -- --
Provision for losses on real estate acquired.... -- (1,000) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income...................................... $ 3,769 $ 507 $ 2,777 $ 3,169 $ 3,057 $ 872 $ 649
--------- --------- --------- --------- --------- --------- ---------
Net income per Beneficial Unit Certificate
(BUC).......................................... $ .71 $ .09 $ .52 $ .60 $ .57 $ .16 $ .12
--------- --------- --------- --------- --------- --------- ---------
Total cash distributions paid or accrued per
BUC............................................ $ 1.0594 $ .7500 $ .7500 $ .7500 $ .7500 $ .1875 $ .1875
--------- --------- --------- --------- --------- --------- ---------
Investment in tax-exempt mortgage bonds at
estimated fair value........................... $ 32,567 $ 31,567 $ 31,567 $ 31,567 $ 31,567 $ 31,567 $ 31,567
--------- --------- --------- --------- --------- --------- ---------
Real estate acquired in settlement of bonds, net
of accumulated depreciation and valuation
allowance...................................... $ 30,999 $ 29,051 $ 27,925 $ 26,771 $ 25,891 $ 26,501 $ 25,624
--------- --------- --------- --------- --------- --------- ---------
Total assets.................................. $ 65,953 $ 62,453 $ 61,329 $ 60,520 $ 59,630 $ 60,456 $ 59,346
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
7
<PAGE>
RISK FACTORS
THERE ARE CERTAIN DISADVANTAGES, ADVERSE CONSEQUENCES AND RISKS TO THE BUC
HOLDERS WHICH MAY RESULT FROM THE CONSUMMATION OF THE PROPOSED TRANSACTION,
INCLUDING THE FOLLOWING. BUC HOLDERS SHOULD READ THIS ENTIRE CONSENT
SOLICITATION STATEMENT/PROSPECTUS AND CONSIDER CAREFULLY THE FOLLOWING RISK
FACTORS BEFORE GRANTING THEIR CONSENT TO THE TRANSACTION.
EVENTUAL ELIMINATION OF TAX-EXEMPT INTEREST INCOME
The New Fund has different investment objectives than the original
investment objectives of the Old Fund. The principal investment objective of the
Old Fund was to generate federally tax-exempt interest, including contingent
interest based on a participation in the net cash flow and net sale or
refinancing proceeds from the properties financed by the Bonds. The New Fund, on
the other hand, will not seek to generate tax-exempt interest, but rather will
seek to generate taxable net rental revenue from the ownership of real estate.
While the New Fund will also initially generate tax-exempt interest from the
three outstanding Bonds acquired from the Old Fund, the General Partner expects
that the New Fund will not continue to hold the remaining Bonds. Notwithstanding
its stated investment objectives, the Old Fund currently generates taxable net
rental revenue rather than tax-exempt interest on a majority of the properties
that it originally financed and, therefore, a significant percentage of the
distributions currently paid by the Old Fund to the BUC holders is not
tax-exempt. The Old Fund could return to being a tax-exempt bond fund again by
selling the foreclosed properties to unaffiliated parties and causing the Bonds
to be refunded at current interest rates and held by the Old Fund. However, for
the reasons discussed under "THE TRANSACTION -- Consideration of Alternatives,"
the General Partner does not believe returning the Old Fund to a tax-exempt bond
fund is the best method of increasing the after-tax return to BUC holders or the
value of the BUC holders' investment.
NEW FUND WILL BORROW MONEY
The Old Fund has no borrowings and, accordingly, incurs no expense for debt
service and has no encumbrances against its assets. On the other hand, the
General Partner anticipates that the New Fund will borrow approximately
$70,000,000 by causing certain of the Bonds to be refunded and issued to
unaffiliated parties. This additional indebtedness will be secured by first
mortgages or deeds of trust on the original properties financed by the Refunding
Bonds and by additional properties acquired by the New Fund with the proceeds of
the Bond refundings. In the event of a default in the payment of debt service or
other covenants entered into by the New Fund in connection with the refunding of
a Bond, the property securing the Refunding Bond could be foreclosed upon by the
new holders of the Bond. Cash distributions made by the New Fund to its BUC
holders will be subordinated to the payment of interest and principal on the
Refunding Bonds. There can be no assurance that the New Fund's additional
properties will be able to produce net rental revenues in amounts sufficient to
pay all debt service on the Refunding Bond secured by these properties. If net
rental revenues from a property fall below the amount needed to pay debt service
on a Refunding Bond, the New Fund will have to pay the difference out of cash
flow that would otherwise be available for distribution to BUC holders. If
sufficient cash flow is not available from other cash flow of the New Fund for
the payment of debt service on a Refunding Bond, the properties securing such
Refunding Bond could be lost in foreclosure. In addition, upon the ultimate sale
of the New Fund's assets, the debt secured by these properties must be repaid
out of the sale proceeds before distributions can be made to BUC holders. There
can be no assurance that the value of a new property at the time it is sold will
exceed the remaining principal balance of the Refunding Bond secured by the
property.
NEW FUND MAY REINVEST IN ADDITIONAL REAL ESTATE
The Current Partnership Agreement prohibits the Old Fund from reinvesting
cash flow from operations or the proceeds from any sale of a property and
requires that these funds be distributed to BUC holders or, to the extent deemed
necessary by the General Partner, held in the Old Fund's reserve fund. In
addition, the Current Partnership Agreement does not clearly provide the
authority for the General Partner to reinvest money received from a Bond
refunding. In contrast, the New Partnership
8
<PAGE>
Agreement authorizes the General Partner to invest the money borrowed through
Bond refundings and to reinvest Operating Income and Sale Proceeds in additional
real estate rather than distribute such proceeds to the BUC holders. Because of
the authority to reinvest Operating Income and Sale Proceeds, it is possible the
cash distributions made by the New Fund to BUC holders may be less at various
times than the cash distributions which the Old Fund would have made to BUC
holders. BUC holders must include their proportionate share of the New Fund's
income in their individual taxable incomes, whether or not the New Fund makes
cash distributions.
CONFLICTS OF INTEREST
The General Partner has a conflict of interest in recommending the
Transaction to BUC holders because the General Partner expects to receive
increased amounts of fees and cash distributions as a result of the Transaction.
The New Fund will pay the General Partner an Administrative Fee equal to that
received by the General Partner from the Old Fund with respect to the properties
which are acquired in foreclosure of the Bonds. In addition, the General Partner
will be entitled to an Administrative Fee, payable at the same rate per annum,
with respect to additional properties acquired by the New Fund. The New Fund
will also pay the General Partner a Property Acquisition Fee in connection with
the acquisition of additional properties. If the New Fund refunds each of the
Bonds it intends to refund and applies the proceeds to the acquisition of
additional properties, the Administrative Fee is expected to increase by
approximately $400,000 per year and the General Partner will earn Property
Acquisition Fees of approximately $780,000. In addition, America First Property
Management L.L.C. (the "Manager"), an affiliate of the General Partner, may also
earn property management fees for managing some or all of the additional
properties acquired by the New Fund. The amount of such additional fees cannot
be currently estimated. The General Partner will continue to have a 1% interest
in cash distributions from operations, but to the extent the acquisition of
additional properties results in greater cash distributions from operations,
cash distributions to the General Partner will increase. The amount, if any, of
additional cash distributions cannot be currently estimated. In addition, by
virtue of the Transaction, the General Partner may also be able to earn fees and
be entitled to expense reimbursements for a longer period of time than it would
if the Old Fund were to continue in its current form or if it undertook the
liquidation of the Old Fund. Finally, if the General Partner is removed, the
value of the General Partner's interest in the New Fund will reflect the present
value of future Administrative Fees and distributions of Net Operating Income,
rather than its interest in the current liquidation value of the New Fund's
assets. Accordingly, the General Partner expects to realize greater economic
benefits if the Transaction is completed than if any of the alternatives thereto
are undertaken.
DIFFERENCES IN LIMITED PARTNERSHIP AGREEMENT MAY BE ADVERSE TO BUC HOLDERS
The New Partnership Agreement differs from the Current Partnership Agreement
in certain material respects and some of the differences may be adverse to the
BUC holders. As discussed above, the New Partnership Agreement provides the
General Partner with clearer authority to borrow money through Bond refundings
and allows the General Partner to reinvest cash that would be available for
distribution to the BUC holders under the Current Partnership Agreement. In
addition, the New Partnership Agreement provides for additional fees to the
General Partner and uses a different method to value the economic interest of
the General Partner in the event it is removed by the BUC holders. The New
Partnership Agreement has also eliminated the provision of the Current
Partnership Agreement which provides that no amendment could be adopted which
would have the effect of delaying or reducing the amount of cash distributions
to a BUC holder without the consent of such BUC holder. The effect of this
change is to allow such an amendment to be adopted with the consent of a
majority in interest of the BUC holders rather than the unanimous consent of BUC
holders.
POSSIBLE ALTERNATIVES TO THE TRANSACTION WILL NOT BE PURSUED
Alternatives to the Transaction include (i) returning the Old Fund to a
tax-exempt mortgage bond fund by selling the foreclosed properties to
unaffiliated parties and refunding the Bonds in reduced principal amounts and at
current tax-exempt interest rates, (ii) allowing the Old Fund to
9
<PAGE>
continue to hold a portfolio consisting of foreclosed real estate and Bonds and
(iii) dissolution of the Old Fund and liquidation of its assets. The General
Partner expects to realize greater economic benefits for itself if the
Transaction is completed than if any of the alternatives thereto are undertaken.
By approving the Transaction, the BUC holders will effectively preclude the
pursuit on any of these alternatives.
INVESTING IN ADDITIONAL REAL ESTATE INVOLVES CERTAIN RISKS
The acquisition of additional properties by the New Fund will entail the
risks generally involved with investing in real estate. Such risks include the
possibility that the properties will not perform in accordance with the New
Fund's expectations, that the New Fund will pay too high of a price for such
additional real estate or that the New Fund will underestimate the costs of any
necessary improvements to the properties. BUC holders will not have an
opportunity to review additional real estate investments prior to the time they
decide whether or not to consent to the Transaction or prior to the time the New
Fund makes such acquisition. Accordingly, BUC holders will be dependent on the
General Partner to evaluate additional real estate investments made by the New
Fund and to negotiate the terms thereof.
The economic returns from real property investments may be affected by a
number of factors, many of which are beyond the direct control of the property
owner. Such factors include general and local economic conditions, the relative
supply of apartments and alternative housing in the market area, interest rates
on home mortgage loans, government regulation and the cost of compliance
therewith, taxes and inflation. Real estate investments are relatively illiquid
and, therefore, the ability of the New Fund to vary its portfolio in response to
the foregoing factors will be limited.
In addition, the owner or operator of real property may become liable for
the costs of removal or remediation of certain hazardous substances released on
its property. Various federal, state and local laws often impose such liability
without regard to whether the owner or operator knew of, or was responsible for,
the release of such hazardous substances. There can be no assurance that
additional properties acquired by the New Fund will not be contaminated and that
the cost associated with the remediation of such contamination will not be
material.
PROPERTIES FINANCED WITH TAX-EXEMPT DEBT ARE SUBJECT TO CERTAIN RESTRICTIONS
Properties financed by tax-exempt housing bonds, such as the Refunding
Bonds, are subject to numerous restrictive covenants, including a requirement
that at least 20% of the apartment units in each such property be occupied by
residents whose income does not exceed 80% of the median income for the area in
which the property is located. These covenants will remain in effect with
respect to the apartment properties originally financed by the Bonds and it is
possible that such covenants may cause the rents charged by these properties to
be lowered, or rent increases foregone, in order to attract enough residents
meeting the income requirements. In the event that such requirements are not
met, interest on the Refunding Bonds could become subject to federal and state
income tax, which would result in either an increase in the interest rate on the
Bonds or an early redemption thereof.
INTEREST PAID ON MONEY BORROWED BY NEW FUND MAY NOT BE FULLY DEDUCTIBLE
As a result of the Transaction, the New Fund will acquire the three Bonds
which remain outstanding and will receive tax-exempt interest from these Bonds.
However, if the New Fund continues to hold one or more of these Bonds at the
time it borrows money by causing other Bonds to be refunded, then some of the
interest it pays on the Refunding Bonds may not be deductible. Since the New
Fund is a partnership, the BUC holders are required to take into account their
proportionate share of the tax-exempt obligations held, and the indebtedness
incurred by, the New Fund in combination with any tax-exempt obligations held,
or any debt incurred, in their individual capacities. Consequently, the BUC
holders will have to take their share of both items into account, along with any
similar items in their individual capacities, to determine the deductibility of
the interest paid by the New Fund on Refunding Bonds and interest paid directly
by them. Even if a BUC holder has no such items in his individual capacity, such
BUC holder will not be allowed a deduction for his full share of
10
<PAGE>
the interest paid by the New Fund on the Refunding Bonds since a portion thereof
will be attributed to the New Fund's holding of Bonds. See "CERTAIN FEDERAL
INCOME TAX CONSEQUENCES OF THE TRANSACTION -- Nondeductibility of Interest
Expense."
EXPENSES OF THE TRANSACTION
Expenses of the Transaction are expected to be approximately $150,000 and
will be paid by the Old Fund. Certain of the expenses may be avoided if the
Transaction is not consummated. See "THE TRANSACTION -- Costs of the
Transaction."
POTENTIAL LACK OF PUBLIC TRADING MARKET FOR BUCS
BUCs of the New Fund will be newly issued securities and there can be no
assurance that a public trading market in the New Fund's BUCs will develop or
that the BUCs of the New Fund will trade at or above the prices at which the Old
Fund's BUCs currently trade or would trade in the future if the Transaction were
not consummated. In addition, the transferability of the New Fund's BUCs may be
limited in certain circumstances similar to those set forth in the Current
Partnership Agreement. See "DESCRIPTION OF THE BUCS OF THE NEW FUND --
Transfers."
NO DISSENTERS' RIGHTS
BUC holders voting against the Transaction will not be entitled to any
appraisal or other dissenters' rights under Delaware law and will not be
afforded any by the Old Fund.
SOLICITATION OF BUC HOLDER CONSENT
SOLICITATION BY THE GENERAL PARTNER
The General Partner is seeking the consent of the BUC holders of the Old
Fund to the Transaction consisting of the merger of the Old Fund and the New
Fund pursuant to the terms of the Merger Agreement and Delaware law. As a result
of the Transaction, all of the assets and liabilities of the Old Fund will
become assets and liabilities of the New Fund and the separate existence of the
Old Fund will terminate. Under the terms of the Current Partnership Agreement,
the transfer of all the assets of the Old Fund in a single transaction and the
dissolution of the Old Fund requires the consent of the holders of a majority of
the outstanding BUCs. Accordingly, the Transaction may not be consummated
without the consent of the holders of a majority of the outstanding BUCs of the
Old Fund.
THE MATTER TO WHICH THE BUC HOLDERS ARE REQUESTED TO CONSENT IS OF GREAT
IMPORTANCE TO THE OLD FUND AND THE BUC HOLDERS. ACCORDINGLY, BUC HOLDERS ARE
URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS AND TO COMPLETE, DATE, SIGN AND PROMPTLY
RETURN THE ENCLOSED CONSENT CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
The General Partner will not hold a meeting of the BUC holders to consider
the Transaction, but instead is seeking the written consent of BUC holders as
provided in Section 10.02 of the Current Partnership Agreement. Each BUC holder
of the Old Fund is being asked to vote as follows:
YES, I approve of the merger of the Old Fund and the New Fund.
or
NO, I do not approve of the merger of the Old Fund and the New Fund.
THE GENERAL PARTNER BELIEVES THAT THE TERMS OF THE TRANSACTION ARE FAIR AND
IN THE BEST INTERESTS OF THE OLD FUND AND ALL OF ITS BUC HOLDERS AND RECOMMENDS
THE APPROVAL THEREOF BY THE BUC HOLDERS.
Only BUC holders of record at the close of business on the Record Date will
be entitled to receive this notice and to grant or withhold their consent to the
Transaction. Under the terms of the Current Partnership Agreement, BUC holders
are entitled to one vote for each BUC they hold as of the Record
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Date. As of the Record Date, there was a total of 5,245,623 BUCs outstanding.
Therefore, the affirmative vote of the holders of 2,622,812 BUCs is required to
approve the Transaction. As of the Record Date, no BUCs were beneficially owned
by the General Partner, America First or any of the officers and managers of
America First.
A consent card is included with this Consent Solicitation
Statement/Prospectus and BUC holders are asked to complete, date and sign the
consent card and return it to Service Data Corporation in the enclosed envelope
as soon as possible. BUC HOLDERS SHOULD NOT SEND THE CERTIFICATES FOR THEIR BUCS
WITH THE CONSENT CARD.
In order to be valid, consents must be received by Service Data Corporation
by 5:00 p.m. Central Time on [Date], 1996, which date may be extended by the
General Partner in its sole discretion. If the General Partners receives valid
consents to the Transaction from the holders of a majority of the outstanding
BUCs prior to such date, it may proceed with the consummation of the Transaction
at such earlier time. Consent cards should be returned in the enclosed envelope
to Service Data Corporation at the following address:
Service Data Corporation
2424 South 130th Circle
Omaha, Nebraska 68144
An otherwise valid consent card will be deemed to grant consent to the
Transaction if it is not marked to withhold consent or to abstain. Abstentions
and broker nonvotes will have the same effect as a vote against the Transaction.
BUC holders who withhold consent or abstain will have no right to require the
Old Fund to purchase their BUCs or any other rights similar to those available
to dissenting shareholders of corporations under Delaware law. A BUC HOLDER MAY
NOT REVOKE ITS CONSENT AFTER THE CONSENT CARD IS DELIVERED TO SERVICE DATA
CORPORATION.
Consents of the BUC holders will be tabulated by Service Data Corporation of
Omaha, Nebraska. Service Data Corporation currently serves as the transfer agent
and registrar for the Old Fund and for other public limited partnerships
sponsored by America First Companies L.L.C. (the general partner of the General
Partner), but is not otherwise affiliated with the General Partner.
The Old Fund will bear all costs associated with preparing, assembling and
mailing the Consent Solicitation Statement/Prospectus and any supplemental
solicitation materials. Certain officers and employees of America First
Companies L.L.C. may solicit consents without additional compensation therefor
other than reimbursement for actual and reasonable out-of-pocket expenses
incurred by such persons in connection with such solicitation. Brokerage firms,
fiduciaries, nominees and others will be reimbursed for out-of-pocket expenses
incurred by them in connection with forwarding consent materials to beneficial
holders of BUCs held in their names. In addition to the use of the mails,
consents may be solicited by officers and regular employees of the general
partner of the General Partner, who will not be specifically compensated for
such services, by means of personal calls upon or telephonic communications with
BUC holders or their representatives. Moreover, the General Partner may engage
the services of a professional proxy solicitation firm in connection with the
solicitation of consents.
COMMUNICATING WITH OTHER BUC HOLDERS
Under Rule 14a-7 of the Securities Exchange Act of 1934, as amended, the Old
Fund, upon written request from a BUC holder, will deliver to such BUC holder
(i) a statement of the approximate number of BUC holders of the Old Fund and
(ii) the estimated cost of mailing proxy materials or similar communications to
the BUC holders of the Old Fund. In addition, under such rule, a BUC holder has
the right, at his or her option, to have the Old Fund (i) mail (at the BUC
holder's expense) any such materials which the BUC holder desires to deliver to
the other BUC holders of the Old Fund in connection with the Transaction or (ii)
to have the Old Fund deliver, within five business days of the receipt of the
request, a reasonably current list of the names and addresses of the BUC holders
of the Old Fund as of the Record Date. The Old Fund may require a requesting BUC
holder to pay the
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reasonable cost of duplicating and mailing such BUC holder list. Any such
requests should be sent to Mr. Maurice E. Cox, Jr., America First Companies
L.L.C., Suite 400, 1004 Farnam Street, Omaha, Nebraska, 68102.
THE TRANSACTION
GENERAL
The General Partner has proposed a merger between the Old Fund and the New
Fund pursuant to which (i) the separate existence of the Old Fund will cease and
the New Fund will be the surviving partnership and will succeed to all of the
assets and liabilities of the Old Fund, (ii) the New Partnership Agreement will
control the operations of the New Fund after the Transaction and (iii) BUC
holders in the Old Fund will become BUC holders in the New Fund and will receive
one BUC in the New Fund for each BUC they hold in the Old Fund as of the Record
Date. The assets of the Old Fund being acquired by the New Fund as a result of
the Transaction include (i) four apartment complexes and one office/warehouse
facility acquired by the Old Fund through foreclosure of five of the Bonds and
(ii) three Bonds which remain outstanding.
The Transaction has been proposed by the General Partner in an effort to
increase cash distributions to BUC holders, increase net asset value and
increase market value of the BUCs by transferring the assets of the Old Fund to
the New Fund which will have the ability to acquire additional multifamily
residential properties with low-cost tax-exempt bond financing and to more
actively manage the makeup of its real estate portfolio. The New Fund intends to
borrow up to $70 million by causing each of the Bonds relating to the four
foreclosed apartment complexes and the two other Bonds that are currently in
default to be refunded through the issuance of Refunding Bonds to unaffiliated
investors. See "SUMMARY -- Bond Refundings." The New Fund will only cause a Bond
to be refunded and use the money borrowed in this manner to acquire an
additional property if there is a positive spread between the current net rental
revenue being generated by the property and the interest payments that the New
Fund will incur on the Refunding Bonds issued to finance the acquisition of the
property. Therefore, the General Partner hopes to be able to increase the amount
of cash available for distribution to BUC holders of the New Fund over the
current levels of cash available to the Old Fund for distribution to BUC
holders.
In addition, the New Fund will authorize the General Partner to take other
steps to create a larger and more homogeneous asset base which the General
Partner believes will be more attractive to potential buyers and which may
provide BUC holders with a greater potential for appreciation in the value of
their BUCs. See "Background and Reasons for the Transaction," below.
The New Fund and the Old Fund have entered into the Merger Agreement and
will consummate the Transaction pursuant to the terms thereof promptly after the
receipt of consents from BUC holders owning a majority of the outstanding BUCs
of the Old Fund. If the consent of a majority in interest of the BUC holders of
the Old Fund is not received, or all other conditions to the Transaction are not
satisfied, by [Date], 1996, the Merger Agreement will terminate. In addition,
the Merger Agreement may be terminated by a majority of the board of managers of
America First before or after the receipt of consents from BUC holders at any
time prior to the closing date of the Transaction. If the Transaction is not
consummated, the General Partner will reconsider other options available to the
Old Fund, including returning the Old Fund to a tax-exempt bond fund.
As a result of the Transaction, the New Fund will become the owner of the
four apartment complexes and one office/warehouse facility which the Old Fund
has acquired in foreclosure of the Bonds. The New Fund will also acquire the
remaining three Bonds from the Old Fund. In addition, the New Fund will become a
party to, and assume the obligations of the Old Fund under, certain property
management agreements between the Old Fund and America First Properties
Management Company, L.L.C. (the "Manager") under which the Manager conducts the
day-to-day management of four apartment complexes which the Old Fund has
acquired in foreclosure. The Manager is an affiliate of
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the General Partner. The terms of the property management agreements will not
change as a result of the Transaction. The Manager may enter into property
management agreements with the New Fund in connection with any additional
properties acquired by the New Fund.
TERMS OF THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary does not purport to be complete and is subject to, and qualified in
its entirety by, the terms of the Merger Agreement, a copy of which is attached
as Appendix B of this Consent Solicitation Statement/ Prospectus and is
incorporated by reference herein.
EFFECT OF THE MERGER. Under the terms of the Merger Agreement (i) the
separate existence of the Old Fund will cease and the New Fund will be the
surviving partnership and will succeed to all of the assets and liabilities of
the Old Fund, (ii) the New Partnership Agreement will control the operations of
the New Fund after the Transaction and (iii) BUC holders in the Old Fund will
become BUC holders of the New Fund and will receive one BUC in the New Fund for
each BUC they hold in the Old Fund as of the Record Date.
The partners of the New Fund prior to the Transaction are the General
Partner and the Limited Partner. The Limited Partner is also the sole limited
partner of the Old Fund and has assigned its limited partner interest in the Old
Fund to the BUC holders of the Old Fund. Upon consummation of the Transaction,
the interests of the General Partner and Initial Limited Partner in the Old Fund
will be converted into a general partner interest and limited partner interest,
respectively, in the New Fund and the Limited Partner will assign its limited
partner interest in the New Fund to the BUC holders of the Old Fund. As a
result, persons holding BUCs in the Old Fund will become BUC holders of the New
Fund and will receive one BUC in the New Fund for each BUC they hold in the Old
Fund on the Record Date.
CONDITIONS TO CONSUMMATION OF THE TRANSFER OF ASSETS. The closing for the
Transaction will take place promptly after the General Partner has received the
consent to the Transaction from the holders of a majority of the outstanding
BUCs of the Old Fund. The receipt of such consent by no later than [ ],
1996 (unless such date is extended by the General Partner in its sole
discretion) is a condition to closing the Transaction and if it is not obtained,
or all other conditions to closing are not satisfied or waived, the Merger
Agreement will terminate. Other conditions to closing include (i) the
declaration of effectiveness of the registration statement for the BUCs of the
New Fund under the Securities Act of 1933; (ii) obtaining appropriate clearance
for each state securities or "blue sky" administrator; (iii) the delivery of a
tax opinion acceptable to the General Partner to the effect that for federal
income tax purposes holders of BUCs in the Old Fund will not recognize any
income, gain or loss as a result of the Transaction; and (iv) the approval of
the BUCs of the New Fund for inclusion on The NASDAQ Stock Market.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated
by a majority of the board of managers of America First before or after the
receipt of consents from BUC holders at any time prior to the effective time of
the certificate of merger filed with the Secretary of State of the State of
Delaware relating to the Transaction.
ISSUANCE OF BUCS OF THE NEW FUND
As promptly as practical after the closing of the Transaction, Service Data
Corporation will mail to each BUC holder of the Old Fund of record on the Record
Date a letter of transmittal along with instructions for the exchange of BUCs of
the Old Fund for BUCs of the New Fund.
BUC HOLDERS SHOULD NOT SEND IN THEIR BUCS WITH THE CONSENT CARD. BUCS SHOULD
ONLY BE RETURNED ALONG WITH THE LETTER OF TRANSMITTAL FORM FROM SERVICE DATA
CORPORATION.
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Upon surrender by a BUC holder to Service Data Corporation of the
certificate for his or her BUCs in the Old Fund together with a properly
executed letter of transmittal and any other required documents, Service Data
Corporation will issue and mailed a certificate for the same number of BUCs of
the New Fund to the BUC holder.
Notwithstanding the failure of a BUC holder to surrender his or her Old Fund
BUCs for BUCs in the New Fund, such BUC holder will be recognized as a BUC
holder in the New Fund for all purposes and will be entitled to all rights
thereof, including the right to receive cash distributions and allocations of
income and expenses. However, there will be no transfers of BUCs in the Old Fund
recognized after the closing date of the Transaction. If certificates for Old
Fund BUCs are presented for transfer after the closing date of the Transaction,
they will be returned to the presenter together with a form of letter of
transmittal and exchange instructions.
If a certificate for Old Fund BUCs has been lost, stolen or destroyed,
Service Data Corporation will issue BUCs in the New Fund only upon receipt of
appropriate evidence as to such loss, theft or destruction, appropriate evidence
as to the ownership of such BUCs by the claimant and appropriate and customary
indemnification including, when appropriate, the posting of a bond. Neither the
New Fund, the Old Fund or Service Data Corporation will be liable to any holder
of BUCs in the Old Fund for any amount properly delivered to any public official
pursuant to applicable abandoned property, escheat or similar laws.
COSTS OF THE TRANSACTION
The Old Fund expects to incur approximately $150,000 of expenses in
connection with the Transaction which include legal and accounting fees,
printing and mailing expense, registration fees with the Securities and Exchange
Commission and state securities administrators, solicitation costs and transfer
taxes. Such expenses will be paid by the Old Fund and most will be incurred
whether or not the Transaction is consummated.
ACCOUNTING TREATMENT
The Transaction will not result in a change in the New Fund's financial
statement treatment of any asset or liability of the Old Fund or of the capital
account of any partner or BUC holder.
REGULATORY MATTERS
The Transaction will not be subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and, other than federal
proxy solicitation rules relating to the solicitation of BUC holder consents and
state and federal regulations relating to the offering of the New Fund's BUCs,
no other federal or state regulatory requirements must be complied with and no
approval thereunder must be obtained in connection with the Transaction.
BACKGROUND AND REASONS FOR THE TRANSACTION
The Old Fund was formed to invest in tax-exempt mortgage loans issued to
finance apartment complexes and other types of commercial real estate. The
investment objectives of the Old Fund are to provide (i) safety and preservation
of the Old Fund's capital, (ii) regular distribution of federally tax-exempt
interest from the payment of base interest on the Bonds and (iii) a potential
for an enhanced federally tax-exempt yield from the "contingent interest" earned
through a participation in the net cash flow from the properties financed by the
Bonds and in the net proceeds from the sale or refinancing of such properties.
The overbuilding of apartment complexes in the United States around the time
the Old Fund invested in the Bonds resulted in adverse market conditions for
apartment complexes in many of the markets in which the properties financed by
the Old Fund are located. Since that time, the resulting competitive conditions
have kept rents at most of these properties below the levels needed to produce
sufficient operating cash flow to allow the owners thereof to pay the full
amount of base interest due on the Bonds. In addition, no contingent interest
has been paid on any of the Bonds and the General Partner does not believe that
any contingent interest will be paid to the Old Fund. As a consequence of
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the failure to receive the full amount of base interest on five of the Bonds,
the Old Fund has foreclosed on five properties and now receives the net rental
revenue generated by these properties. The amount of net rental revenue received
by the Old Fund from these properties is less than the full amount of base
interest that was to be earned on the Bonds issued to finance these properties.
Two of the Old Fund's remaining Bonds are also in default and the Old Fund
currently accepts interest payments from the owners of these properties in
amounts less than the full amount of base interest due on the Bonds. As a
result, the amount of net cash flow available for distribution to the BUC
holders of the Old Fund is less than the amounts originally anticipated by the
General Partner and is not expected to increase significantly in the foreseeable
future.
In addition to realizing lower than expected net cash flow from its
investments in the Bonds, due to the foreclosures on five of the Bonds, only
about 48% of the net cash flow generated by the Old Fund during 1995 was
tax-exempt interest. The remaining net cash flow generated by the Old Fund was
from net rental revenues, less than one-half of which was sheltered from current
income taxation by depreciation. Under their terms, the three remaining Bonds
will become due in 1999 at which time either the principal will be repaid or the
Old Fund will be forced to foreclose on the properties securing these Bonds. As
a result of either repayment or foreclosure, the remaining tax-exempt interest
earned by the Old Fund will be eventually eliminated and the Old Fund will only
generate net rental revenues as the owner of the remaining properties.
Furthermore, the financed properties have generally fallen in value since
the time of the Old Fund's original investment therein. The value of an
apartment complex or other commercial property is, to a large degree, a function
of its ability to generate net rental revenue. While the General Partner has
worked to increase net rental revenue from the properties and expects the
properties' fair market values to increase as a result thereof, the General
Partner believes that it is unlikely that the value of these properties will
increase enough in the foreseeable future to allow the Old Fund to fully recoup
its original investment in the Bonds.
Moreover, the General Partner believes that the Old Fund's mixed portfolio
of equity interests in various types of properties and tax-exempt mortgage loans
is not attractive to potential purchasers. Real estate investment trusts and
other purchasers of real estate will typically be attracted to real estate
portfolios that are of the same nature as their current portfolios. Since most
of these potential purchasers own either debt or equity interests in one type of
real estate, it is less likely that a buyer will exist for the Old Fund's
current portfolio than for a more homogeneous group of assets. Even if a
potential buyer existed for the Old Fund's assets, it may not be willing to pay
as much for the Old Fund's existing assets as it would for a more uniform
portfolio. In addition, the General Partner believes that the equity securities
of a real estate company with assets representing the same type of interest in
the same type of real estate will generally trade at higher prices than those of
a real estate company holding equity and debt interests in real estate or
interests in real estate of different types. The General Partner believes the
Old Fund is perceived by certain investors as not having a consistent investment
strategy and that the market value of the Old Fund's BUCs may be negatively
affected by this perception.
The General Partner has considered a number of alternative actions in order
to (i) increase the after-tax cash distributions to the BUC holders, (ii)
increase net asset value and (iii) increase the current trading price of the
BUCs. These alternative actions include returning the Old Fund to a tax-exempt
mortgage bond fund. See "Consideration of Alternatives," below. In the opinion
of the General Partner, however, the best way to achieve its goals is to acquire
additional multifamily residential properties with money borrowed through the
refunding of the Bonds and from the sale of certain properties which are
inconsistent with the overall makeup of the asset portfolio.
The Bonds which are in default or which have been foreclosed upon by the Old
Fund represent up to $78 million of low-cost financing that is available to
acquire new multifamily properties. Through the issuance of Refunding Bonds to
unaffiliated investors, money may be borrowed at current tax-exempt rates and
this money may be used to finance the acquisition of additional multifamily
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residential properties. See "SUMMARY -- Bond Refundings." The General Partner
would recommend that approximately $70 million of Bonds be refunded at this
time. The General Partner anticipates that the New Fund will be able to acquire
between five and eight additional apartment complexes with $70 million. Through
the refunding of the Bonds, money may be borrowed at interest rates that are
approximately 25% lower than those available on conventional debt financing on
similar real estate. Because of the lower interest expense, properties acquired
with the proceeds of Refunding Bonds should have a competitive advantage over
conventionally-financed properties in the same market area.
The General Partner believes that using the proceeds of Bond refundings as a
low-cost method of financing will allow the acquisition of additional properties
which currently generate a positive spread between net rental revenues and the
financing costs associated with their acquisition, thereby increasing total net
cash flow available for distribution above the levels generated by the current
assets of the Old Fund. By limiting acquisitions to properties that will provide
a positive spread between the current net rental revenue being generated by the
property and the interest payments that will be incurred on the Refunding Bonds
issued to finance the acquisition of the property, the General Partner expects
to be able to increase the net cash flow available for distribution to BUC
holders by acquiring additional properties financed in this manner. Even though
the net cash flow generated by these additional properties will not be
tax-exempt interest, the General Partner believes that the percentage of cash
distributions made to BUC holders which are subject to current federal income
taxation will be at or below the present levels due to increased depreciation
expense from the additional properties. Accordingly, the General Partner expects
the current after-tax yield to the BUC holders to increase as a result of using
Bond refunding proceeds to acquire additional properties. There can be no
assurance, however, that the after-tax cash distributions to BUC holders will
increase by pursuing this strategy.
By acquiring additional properties, the General Partner also hopes to
increase net asset value so that BUC holders will receive greater distributions
upon the eventual sale of the assets or upon dissolution. Any gains realized
from the sale of the assets should be subject to taxation at long-term capital
gains rates which are generally less than rates for ordinary income. By
acquiring additional properties with tax-exempt debt, the General Partner
expects to be able to increase net asset value because a property financed with
below market debt will generally have a greater potential return on investment
and, therefore, will be more valuable than it would be if it were financed with
conventional debt. The General Partner also believes that over time the net
asset value will increase to the extent that the net rental income of the new
properties can be improved and as borrowings are repaid. Because the value of an
apartment property substantially depends on the net rental revenues generated by
the property, a rise in occupancy and rental rates should ultimately be
reflected in the value of apartment complexes. The General Partner and the
Manager will also seek to maintain the properties in good physical condition and
take other steps to enhance their ultimate value. There can be no assurance,
however, that the value of the properties will increase over time or that there
will be any net proceeds realized from the sale of the additional properties
after the repayment of the money borrowed to buy such properties.
In addition to creating a larger portfolio of assets, the General Partner
believes that it would be in the best interest of BUC holder to create a more
homogeneous asset portfolio. By acquiring ownership of additional multifamily
residential properties, the percentage of total assets represented by Bonds will
be reduced. If the two Bonds which are in default are to be refunded, the
properties will be foreclosed upon first, thereby further reducing the
percentage of assets represented by Bonds. A more uniform asset portfolio could
also be created by selling one or more properties which are inconsistent with
the nature of the overall portfolio and reinvesting the proceeds therefrom in
new properties. For example, it may be beneficial to sell the office/warehouse
facility and purchase an additional apartment complex. Likewise, the General
Partner may determine that it would be beneficial to sell an apartment complex
that is located in a different geographic area from other properties in the
portfolio
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and acquire one that is located in the same geographic area. By creating a
larger and more homogeneous asset portfolio, the General Partner believes the
overall portfolio of assets will be more attractive to potential buyers. The
General Partner also is of the view that a more uniform asset portfolio may be
viewed more favorably by investors and could create a greater potential for
appreciation in the value of the BUCs. However, there can be no assurance that
changing the makeup of the assets will increase the ultimate sale price of the
assets or the price at which BUCs trade in the secondary market.
Notwithstanding the availability of the Bonds as an advantageous source of
financing, the terms of the Current Partnership Agreement limits the amount of
mortgage indebtedness to which properties acquired in foreclosure may be
subjected to 80% of the current market value of these properties. This provision
arguably would not allow the Bonds to be refunded for an amount greater than 80%
of the current value of the original properties financed with the Bonds, even
though additional properties acquired with the refunding proceeds also
collateralized the refunded Bonds. Therefore, this provision may limit the
amount of low cost financing available to acquire additional properties. In
addition, the Current Partnership Agreement does not provide clear authority for
the General Partner to reinvest the proceeds that it would receive from the
refunding of the Bonds in additional properties. The Current Partnership
Agreement prohibits reinvestment of "Net Residual Proceeds." As defined,
"Residual Proceeds" can be read to include the proceeds received from the
refunding of the Bonds. For these reasons, the Old Fund may not take full
advantage of the availability of this low-cost method of financing to acquire
additional properties. Moreover, the limitation on reinventing Net Residual
Proceeds hampers the ability of the General Partner to actively adjust the
makeup of the Old Fund's real estate portfolio because it would not allow the
acquisition of a property which is more compatible with the overall asset
portfolio using the proceeds from the sale of a less compatible property.
In addition to these restrictions on the Old Fund's ability to use low-cost
tax-exempt financing to buy additional properties and on the authority of the
General Partner to vary the makeup of the Old Fund's real estate portfolio, the
terms of the Current Partnership Agreement do not allow an amendment to the
Current Partnership Agreement which would have the result of delaying the timing
of any distribution to a BUC holder without the consent of such BUC holder.
Accordingly, any amendment to the Current Partnership Agreement allowing for the
reinvestment of cash from operations or from the refunding of the Bonds or from
the sale of assets would require unanimous consent of the BUC holders which, as
a practical matter, would be extremely difficult or impossible to obtain.
For this reason, the General Partner has proposed that the Old Fund merge
into the New Fund with the New Fund being the surviving partnership of the
merger and the New Partnership Agreement controlling the operations of the New
Fund. The New Partnership Agreement authorizes the New Fund to reinvest the
proceeds from the refunding of the Bonds and the sale of present assets in
additional real estate.
RECOMMENDATION OF THE GENERAL PARTNER
For the reasons set forth above, the General Partner believes that the
Transaction is in the best interest of the Old Fund and its BUC holders and
recommends that the BUC holders grant their consent to the Transaction.
CONSIDERATION OF ALTERNATIVE COURSES OF ACTION
In addition to the proposed Transaction, the General Partner considered the
options of (i) returning the Old Fund to a tax-exempt bond fund by selling the
foreclosed properties to unaffiliated parties and refunding the Bonds in reduced
principal amounts and at current tax-exempt interest rates, (ii) allowing the
Old Fund to continue to hold a combined portfolio consisting of foreclosed real
estate and Bonds and (iii) dissolving the Old Fund and liquidating its assets.
For the reasons set forth below, the General Partner has rejected each of the
alternatives in favor of the Transaction.
RETURNING TO TAX-EXEMPT BOND FUND. The Old Fund's principal assets consist
of the three remaining Bonds and the four apartment buildings and one
office/warehouse facility acquired in foreclosure of Bonds. Because the Old Fund
has foreclosed on five of its original Bonds, it no longer
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receives tax-exempt interest payments from these Bonds. Rather, as the equity
owner of the underlying properties, the Old Fund receives the net rental revenue
generated by these properties. The Old Fund incurs operating expenses in
connection with these properties, including depreciation and other non-cash
expenses which partially shelter the cash distributions received from these
properties from current income taxation. By returning the Old Fund to a
tax-exempt bond fund, all of the income received by the Old Fund would again be
exempt from federal income taxation. Depending on the terms on which the Bonds
could be refunded, it may be possible to generate a higher after-tax return to
BUC holders than they currently receive from the Old Fund's current portfolio of
foreclosed real estate and Bonds.
In order to again generate tax-exempt income on the foreclosed properties,
the Old Fund would have to sell the properties to unaffiliated parties and
provide the financing for the sales by refunding the Bonds secured by these
properties. Unlike the Transaction, however, the Refunding Bonds would be
reissued and retained by the Old Fund rather than issued to new investors. The
properties would be sold to the new owners at their current fair market values
and, accordingly, the Bonds would be refunded in principal amounts not exceeding
the current fair market values of the properties. Since the current fair market
values of the foreclosed properties are significantly below the original
principal amounts of the Bonds relating to these properties, the Old Fund would
suffer an immediate and irretrievable loss of BUC holder's original capital from
the current refunding of the Bonds in this manner. The carrying value of the
Bonds approximates fair value. However, the Bonds could never be refunded for a
greater amount, even if the values of the underlying properties increased.
In addition to being issued in smaller principal amounts, the Refunding
Bonds would bear interest only on these smaller principal amounts and at current
tax-exempt interest rates which are currently less than 7% per annum and,
therefore, are substantially below the Bonds' original 8.5% base interest rate.
Furthermore, there can be no assurance that the General Partner would be able to
negotiate any type of contingent interest feature with respect to the Refunding
Bonds that would give the Old Fund the right to participate in the excess net
cash flow or net sale proceeds generated by the properties. The original terms
of the Bonds provided for contingent interest of up to 5.5% per annum (in
addition to the 8.5% base interest rate) payable out of excess cash flow from
the properties financed by the Bonds or out of the net sale proceeds from these
properties. Because prevailing interest rates are now significantly lower than
they were in 1987, it may be difficult to find property owners who are willing
to pay contingent interest on the Refunding Bonds or who would not expect a
reduction in the base interest rate on the Refunding Bonds in exchange therefor.
If no contingent interest feature can be obtained upon the refunding of the
Bonds, the Old Fund would only receive a fixed rate of interest on the Refunding
Bonds and would not realize the benefit from any future increases in net rental
revenue generated by the properties. In contrast, if the Transaction is
consummated, the New Fund will be entitled to all net rental revenue generated
thereby and any increases in net rental revenue realized in the future.
Therefore, if a Bond relating to a foreclosed property is refunded and the
Refunding Bonds are issued to the Old Fund, the General Partner expects that the
Old Fund will probably receive less interest income from the Refunding Bond than
the amount of net rental revenue the New Fund would receive from the foreclosed
property. Additionally, because a portion of the net rental revenues generated
by the properties will be sheltered from current income taxation due to
depreciation of the properties, it is likely that the current after-tax yield
which BUC holders would receive from Refunding Bonds would be less than the
current after-tax yield they would receive from owning the real estate directly.
In addition to the foregoing, the transfer of the foreclosed properties to
unaffiliated parties will result in a loss of control over these properties. The
Old Fund currently owns these properties and the Manager operates them on behalf
of the Old Fund. Because the Manager is an affiliate of the General Partner, the
Old Fund effectively retains complete control over the management of these
properties. The General Partner believes that the Manager has made significant
improvements to the operations and financial results of the foreclosed
properties since the time they were acquired by the Old Fund. While a new owner
may be as successful, or even more successful, than the Manager in improving the
19
<PAGE>
operations and financial results of these properties, there can be no assurance
that this will be the case. However, by retaining ownership of these properties,
the Manager will continue to earn management fees with respect thereto which it
would not receive if the properties were sold to unaffiliated parties.
OPERATING OLD FUND IN CURRENT MANNER. The General Partner has also rejected
the alternative of continuing to operate the Old Fund with a combined portfolio
consisting of foreclosed properties and Bonds. If the Old Fund continues to
operate as it is currently configured, it will be unable to take advantage of
the Bonds as a source of low-cost financing to increase the size of its real
estate portfolio and, potentially, the after-tax cash distributions and ultimate
return to BUC holders. After the Bonds have been outstanding for twelve years,
the ability of the Old Fund to refund the Bonds will be lost due to provisions
in the current Bond documents requiring them to be repaid at that time. These
twelve year periods will begin to expire in 1999. In the opinion of the General
Partner, the loss of the ability to refund the Bonds would represent a waste of
one of the Old Fund's most valuable assets and would relegate the Old Fund's
ability to increase cash distributions to BUC holders and to increase its
ultimate value upon liquidation to the incremental increases in profitability
that it is able to generate from its current properties.
In addition, the Current Partnership Agreement significantly limits the
ability of the General Partner to alter the makeup of the Old Fund's assets
because it is unable to apply the proceeds from the sale of an incompatible
asset to the acquisition of an additional property. The General Partner believes
that a more uniform portfolio of assets may be more attractive to a larger
number of potential purchasers and may command a higher sale price. The General
Partner is also of the view that the market value of the Old Fund's BUCs is
negatively affected by the perception that the Old Fund does not have a
consistent investment strategy due to the makeup of its assets.
LIQUIDATION OF OLD FUND. The Old Fund invested a total of $78,015,000 in
the three Bonds that it continues to hold and the five Bonds which were issued
to financed the foreclosed properties it now holds. As of March 31, 1996, the
General Partner estimated that the Old Fund's share of the net realizable value
of the properties (reduced by estimated selling costs equal to 3% of the gross
sale price of the eight properties) was approximately $62,225,000 or $11.86 per
BUC. It should be noted that the estimated net realizable value of two of the
three properties securing the outstanding Bonds is less than the outstanding
principal amount of these Bonds. As a result, if the assets of the Old Fund were
liquidated at this time, the General Partner expects that the Old Fund will
receive net proceeds therefrom which are approximately $15,790,000 less than the
amount of the Old Fund's initial investment in the Bonds.
In addition, the properties owned or financed by the Old Fund have
experienced significant improvements in operating results which the General
Partner expects to continue. As operating results for these properties improve,
the General Partner believes the value of the properties will increase.
Therefore, liquidating the assets of the Old Fund at this time would result in
the loss of an opportunity to realize any future increases in the value of the
properties.
Because a liquidation of the Old Fund's assets at this time would result in
a significant loss of original capital to the BUC holders and would preclude the
BUC holders from securing any benefit from potential increases in the value of
the Old Fund's assets in the future, the General Partner does not believe that
it would be in the best interest of the Old Fund and the BUC holders to
liquidate the Old Fund at this time. See "THE TRANSACTION -- Recommendation of
the General Partner."
FAIRNESS DETERMINATION OF THE GENERAL PARTNER
The General Partner, including the Board of Managers of America First,
believes that the terms of the Transaction are fair to the BUC holders. The
General Partner bases this determination on the following: (i) BUC holders will
receive one BUC in the New Fund for each BUC they hold in the Old Fund and,
accordingly, will have the same interest in the assets and cash available for
distributions of New Fund after the Transaction as they did in the Old Fund
prior to the Transaction, (ii) the interest
20
<PAGE>
of the General Partner in the cash distributions of New Fund is no greater than
its interest in the Old Fund, (iii) fees payable to the General Partner and its
affiliates by the New Fund with respect to the assets acquired from the Old Fund
will be the same as currently received by the General Partner and (iv) any fees
payable by the New Fund to the General Partner or its affiliates with respect to
additional assets acquired by the New Fund will be at the same rates as those
currently paid by the Old Fund.
The General Partner has not obtained a fairness opinion or any other
evaluation of the Transaction from an investment banker or other third party.
INFORMATION RELATING TO THE OLD FUND
DESCRIPTION OF BUSINESS
The Old Fund is a Delaware limited partnership which was formed on September
30, 1986 for the purpose of acquiring a portfolio of tax-exempt participating
mortgage bonds which were issued to provide construction and permanent financing
for apartment complexes and other commercial or industrial real estate. The
original investment objectives of the Old Fund were to provide (i) safety and
preservation of the Old Fund's capital, (ii) regular distribution of federally
tax-exempt interest and (iii) a potential for an enhanced federally tax-exempt
yield as a result of the Old Fund's participation in the net cash flow from the
properties financed by the tax-exempt participating mortgage bonds and in the
net proceeds from the sale or refinancing of such properties.
The Old Fund issued a total of 5,245,623 BUCs representing assigned limited
partnership interests in a public offering which raised net proceeds of
approximately $97,750,000 and applied such proceeds to the acquisition of nine
Bonds which were issued by various state and local housing authorities to
provide construction and permanent financing for eight apartment complexes and
one office/warehouse facility. The Bonds provide for the payment of base
interest at a fixed rate and for contingent interest based on a participation in
the net cash flow and the net sale or refinancing proceeds from the properties
financed thereby. The principal amounts of the Bonds do not amortize over their
terms, but are payable in full upon the maturity thereof along with any unpaid
base and contingent interest. Each of the Bonds has a term of 24 years, but the
Old Fund had the right to cause the owners of the financed properties to sell or
refinance the properties from time to time after ten years and to repay the full
principal amount of the Bond and all unpaid base and contingent interest accrued
at that time. In addition, after 12 years the owners of the financed properties
are required to sell or refinance the properties and repay the full principal
amount of the Bonds and all unpaid base and contingent interest accrued at that
time. Because of the contingent interest feature of the Bond, the return to the
Old Fund from the Bond depended to a substantial degree upon the economic
performance of the properties financed by the Bonds.
During 1988, one of the Bonds secured by an apartment complex was paid in
full. As of March 31, 1996, the Old Fund continues to hold only three Bonds with
an estimated fair value of $31,567,000. The Old Fund has acquired the other five
properties financed by the Bonds through foreclosure or deed in lieu of
foreclosure. The properties so acquired have a depreciated cost, net of a
valuation allowance, of $25,624,000 as of March 31, 1996.
The amount of net cash flow generated by the properties owned by the Old
Fund or secured by the remaining Bonds are, in part, a function of rental and
occupancy rates and operating expenses. The level of occupancy and rents that
can be charged are directly affected by the supply of, and demand for,
apartments or office/warehouse facilities in the market areas in which a
property is located. This, in turn, is affected by several factors such as local
or national economic conditions, the amount of new apartment or warehouse
construction and interest rates on single-family mortgage loans. In addition,
factors such as government regulation (such as zoning laws), inflation, real
estate and other taxes, labor problems and natural disasters can affect the
economic operations of a property.
In each city in which the Old Fund's properties are located, such properties
compete with a substantial number of other income-producing real estate of the
same types. Apartment complexes
21
<PAGE>
also compete with single-family housing that is either owned or leased by
potential tenants. The principal method of competition is to offer competitive
rental rates. The Old Fund's properties also compete by emphasizing regular
maintenance and property amenities.
The Old Fund is engaged solely in the business of providing financing for
the acquisition and improvement of real estate and the operation of real estate
acquired in foreclosure. Accordingly, the presentation of information about
industry segments is not applicable and would not be material to an
understanding of the Old Fund's business taken as a whole.
The General Partner believes that each of the properties financed by the
Bonds or acquired by the Old Fund in foreclosure thereof is in compliance in all
material respects with federal, state and local regulations regarding hazardous
waste and other environmental matters and the General Partner is not aware of
any environmental contamination at any of such properties that would require any
material capital expenditure by the Old Fund for the remediation thereof.
MANAGEMENT
The Old Fund has no employees. Certain services are provided to the Old Fund
by employees of America First and the Old Fund reimburses America First for such
services at cost. The Old Fund is not charged, and does not reimburse, for the
services performed by managers and officers of America First.
The Old Fund has no directors or officers. Management of the Old Fund
consists of the General Partner and its general partner, America First. The
following individuals are managers and executive officers of America First and
each serves for a term of one year:
<TABLE>
<CAPTION>
NAME POSITION HELD POSITION HELD SINCE
- ----------------------------------------- ------------------------------- -------------------
<S> <C> <C>
Michael B. Yanney........................ Chairman of the Board, 1987
President, Chief Executive
Officer and Manager
Michael Thesing.......................... Vice President, Secretary, 1987
Treasurer and Manager
William S. Carter, M.D................... Manager 1994
George Kubat............................. Manager 1994
Martin Massengale........................ Manager 1994
Alan Baer................................ Manager 1994
Gail Walling Yanney...................... Manager 1996
</TABLE>
Michael B. Yanney, 62, is the Chairman and Chief Executive Officer of
various Affiliates of America First which manage public investment funds which
have raised over $1.3 billion since 1984. From 1977 until the organization of
the first such fund in 1984, Mr. Yanney was principally engaged in the ownership
and management of commercial banks. Mr. Yanney also has investments in private
corporations engaged in a variety of businesses. From 1961 to 1977, Mr. Yanney
was employed by Omaha National Bank and Omaha National Corporation (subsequently
merged into FirsTier Financial, Inc.), where he held various positions,
including the position of Executive Vice President and Treasurer of the holding
company. Mr. Yanney is a member of the boards of directors of Burlington
Northern Santa Fe Corporation, Forest Oil Corporation, Lozier Corporation, MFS
Communications Company, Inc., Mid-America Apartment Communities, Inc. and PKS
Information Services, Inc.
Michael Thesing, 41, has been Vice President and Chief Financial Officer of
affiliates of America First since July 1984. From January 1984 until July 1984
he was employed by various companies controlled by Mr. Yanney. He was a
certified public accountant with Coopers & Lybrand L.L.P. from 1977 through
1983.
William S. Carter, M.D., 69, is a retired physician. Dr. Carter practiced
medicine for 30 years in Omaha, Nebraska, specializing in otolaryngology
(disorders of the ears, nose and throat).
22
<PAGE>
George Kubat, 50, is the President and Chief Executive Officer of Phillips
Manufacturing Co., an Omaha, Nebraska-based manufacturer of drywall and
construction materials. Prior to assuming that position in November 1992, Mr.
Kubat was an accountant with Coopers & Lybrand L.L.P. in Omaha, Nebraska from
1969. He was the tax partner in charge of the Omaha office from 1981 to 1992.
Martin Massengale, 62, is the President Emeritus of the University of
Nebraska. Prior to becoming President in 1991, he served as interim President
from August 1989, as Chancellor of the University of Nebraska-Lincoln from June
1981 through December 1990 and as Vice Chancellor for Agriculture and Natural
Resources from 1976 to 1981. Prior to that time, he was a professor and
associate dean of the College of Agriculture at the University of Arizona. Dr.
Massengale also serves on the board of directors of Woodmen Accident & Life
Insurance Company.
Alan Baer, 73, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman and
Chief Executive Officer of the Brandeis Department Store chain which, before its
acquisition, was one of the larger retailers in the Midwest. Mr. Baer has also
owned and served on the board of managers of several banks in Nebraska and
Illinois.
Gail Walling Yanney, 60, is a retired physician. Dr. Yanney practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a former director of
FirsTier Bank, N.A., Omaha. Ms. Yanney is the wife of Michael Yanney.
LB I Group, Inc. is the special limited partner of the General Partner with
the right to become the managing general partner of the General Partner or to
designate another corporation or other entity as the managing general partner,
upon the happening of any of the following events: (i) the commission of any act
which, in the opinion of LB I Group, Inc., constitutes negligence, misfeasance
or breach of fiduciary duty on the part of America First, (ii) the dissolution,
insolvency or bankruptcy of America First or the occurrence of such other events
which cause America First to cease to be a general partner under Delaware law or
(iii) the happening of an event which results in the change in control of
America First whether by operation of law or otherwise.
PROPERTIES
The Old Fund invested in Bonds secured by multifamily housing properties
which were located in Arizona, California, Illinois, Kansas, Tennessee and
Washington and one Bond secured by a commercial property located in Florida.
Foreclosure proceedings and other actions were instituted with respect to five
of the properties which has resulted in the Old Fund owning or indirectly owning
five properties at March 31, 1996.
23
<PAGE>
The following table sets forth certain information regarding the properties
securing Bonds or acquired by the Old Fund in foreclosure as of March 31, 1996:
<TABLE>
<CAPTION>
AVERAGE
NUMBER OF SQUARE FEDERAL TAX
PROPERTY NAME LOCATION UNITS FEET/UNIT BASIS
- ------------------------- ---------------------------- --------- ----------- --------------
<S> <C> <C> <C> <C>
Jackson Park Place....... Fresno, California 296 824 n/a
Jefferson Place.......... Olathe, Kansas 352 665 n/a
Avalon Ridge............. Renton, Washington 356 1,070 n/a
Covey at Fox Valley
(1)..................... Aurora, Illinois 216 948 $ 10,472,040
The Park at Fifty Eight
(1)..................... Chattanooga, Tennessee 96 950 2,099,151
Shelby Heights (1)....... Bristol, Tennessee 100 980 2,879,397
Coral Point (1).......... Mesa, Arizona 336 778 10,595,667
---------------------------- --------- ----- --------------
1,752 864
The Exchange at Palm Bay
(1)..................... Palm Bay, Florida 72,002(2) n/a 3,414,450
---------------------------- --------- ----- --------------
</TABLE>
- ------------------------
(1) Property acquired through foreclosure or deed in lieu of foreclosure.
(2) This is an office/warehouse facility. The figure represents square feet
available for lease to tenants.
On each property other than the Exchange at Palm Bay, depreciation is
recognized on a straight-line basis over a useful life of 27 1/2 years,
resulting in an annual depreciation rate of approximately 3.64%. The Exchange at
Palm Bay is depreciated on a straight-line basis over a useful life of 31 1/2
years, resulting in an annual depreciation rate of approximately 3.17%. In the
opinion of the General Partner, each of the properties is adequately covered by
insurance.
On May 16, 1996, the Old Fund acquired a 100-unit apartment project in
Chattanooga, Tennessee known as Oakwood Terrace Apartments ("Oakwood"). Oakwood
is located immediately adjacent to The Park at Fifty Eight Apartments (The
"Park") which was acquired by the Old Fund through foreclosure of a Bond.
Oakwood and The Park were originally intended to operate as a single apartment
complex and certain of the amenities, such as the clubhouse, are located in
Oakwood and are, therefore, not available to the tenants of The Park. This
situation has reduced the attractiveness of The Park to potential tenants when
compared to competing properties with full amenities. In addition, the General
Partner believes that The Park would be difficult to sell at an acceptable price
because it is a relatively small property without access to these amenities.
Therefore, in order to preserve the Old Fund's investment in The Park, the Old
Fund borrowed approximately $2,750,000 through the refunding of the Bond on The
Park and use the net proceeds to acquire Oakwood. The Refunding Bond bears
interest at 6.65% per annum. The Refunding Bond will mature on March 1, 2021 and
the principal thereof will amortize on a level basis over its term. See "PRO
FORMA FINANCIAL INFORMATION."
24
<PAGE>
The average annual occupancy rate and average effective rental rate per unit
for each of the Old Fund's properties for each of the last five years are listed
in the following table:
<TABLE>
<CAPTION>
1991 1992 1993 1994 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Jackson Park Place
- --------------------------------------------------------------
Average Occupancy Rate........................................ 90% 89% 86% 95% 96%
Average Effective Annual Rental Per Unit...................... $ 5,102 $ 5,139 $ 5,046 $ 5,585 $ 5,773
Jefferson Place
- --------------------------------------------------------------
Average Occupancy Rate........................................ 87% 87% 92% 97% 97%
Average Effective Annual Rental Per Unit...................... $ 3,577 $ 3,726 $ 4,091 $ 4,426 $ 4,557
Avalon Ridge
- --------------------------------------------------------------
Average Occupancy Rate........................................ 83% 87% 86% 84% 84%
Average Effective Annual Rental Per Unit...................... $ 5,830 $ 6,030 $ 6,195 $ 6,342 $ 5,835
Covey at Fox Valley
- --------------------------------------------------------------
Average Occupancy Rate........................................ 91% 91% 96% 95% 94%
Average Effective Annual Rental Per Unit...................... $ 7,075 $ 7,115 $ 7,568 $ 7,782 $ 8,057
The Park at Fifty-Eight
- --------------------------------------------------------------
Average Occupancy Rate........................................ 85% 94% 93% 96% 97%
Average Effective Annual Rental Per Unit...................... $ 3,017 $ 4,261 $ 4,372 $ 4,768 $ 4,937
Shelby Heights
- --------------------------------------------------------------
Average Occupancy Rate........................................ 93% 97% 96% 97% 95%
Average Effective Annual Rental Per Unit...................... $ 4,058 $ 5,252 $ 5,377 $ 5,601 $ 5,611
Coral Point
- --------------------------------------------------------------
Average Occupancy Rate........................................ 91% 89% 92% 97% 96%
Average Effective Annual Rental Per Unit...................... $ 4,473 $ 4,542 $ 4,740 $ 5,183 $ 5,537
The Exchange at Palm Bay
- --------------------------------------------------------------
Average Occupancy Rate........................................ 35% 35% 38% 39% 43%
Average Effective Annual Rental Per Square Foot............... $ 1.95 $ 1.93 $ 3.16 $ 3.27 $ 3.52
</TABLE>
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Old Fund is a
party or to which any of its property is subject.
VOTING SECURITIES AND BENEFICIAL OWNERSHIP THEREOF BY PRINCIPAL BUC HOLDERS,
DIRECTORS AND OFFICERS
Only BUC holders of record at the close of business on the Record Date will
be entitled to consent to the Transaction. On the Record Date, a total of
5,245,623 BUCs were issued and outstanding. Each BUC is entitled to one vote
with respect to the matter for which consent is sought hereby.
As of the Record Date, no person was known by the General Partner to own
beneficially more than 5% of the Old Fund's BUCs. In addition, no partner of the
General Partner (including America First), and no manager or officer of America
First owned any of the Old Fund's BUCs as of the Record Date.
25
<PAGE>
MARKET FOR THE OLD FUND'S BUCS AND RELATED BUC HOLDER MATTERS
MARKET INFORMATION. The BUCs of the Old Fund trade on The NASDAQ Stock
Market under the trading symbol "ATAXZ." The following table sets forth the high
and low final sale prices for the Old Fund's BUCs for each quarterly period from
January 1, 1994 through [Date], 1996:
<TABLE>
<CAPTION>
1994 HIGH LOW
--------- ---------
<S> <C> <C>
1st Quarter................................................... $ 9 $ 8
2nd Quarter................................................... $ 9 1/4 $ 8 1/2
3rd Quarter................................................... $ 9 1/4 $ 8 1/2
4th Quarter................................................... $ 9 1/4 $ 7 1/8
<CAPTION>
1995 HIGH LOW
--------- ---------
<S> <C> <C>
1st Quarter................................................... $ 8 1/2 $ 7 3/4
2nd Quarter................................................... $ 8 59/64 $ 8 1/8
3rd Quarter................................................... $ 9 1/4 $ 8 1/8
4th Quarter................................................... $ 9 3/8 $ 8 1/2
<CAPTION>
1996 HIGH LOW
--------- ---------
<S> <C> <C>
1st Quarter................................................... $ 9 3/4 $ 8 1/2
2nd Quarter (through [Date]).................................. $ $
</TABLE>
On [Date], 1996, the date prior to the date of the Consent Solicitation
Statement/Prospectus, the high and low sale prices of the Old Fund's BUCs were
$ and $ per BUC, respectively.
BUC HOLDERS. The approximate number of holders of the Old Fund's BUCs on
the Record Date was [Number].
DISTRIBUTIONS. Cash distributions are being made on a monthly basis. Total
cash distributions of $3,934,217 were paid or accrued to BUC holders during each
of the fiscal years ended December 31, 1995 and December 31, 1994 and total cash
distributions of $983,554 were paid or accrued to BUC holders during the three
months ended March 31, 1996. The cash distributions paid per BUC during such
each such period were as follows:
<TABLE>
<CAPTION>
CASH DISTRIBUTIONS PER BUC
-----------------------------------------------------
THREE MONTHS
YEAR ENDED YEAR ENDED ENDED
DECEMBER 31, 1994 DECEMBER 31, 1995 MARCH 31, 1996
----------------- ----------------- ---------------
<S> <C> <C> <C>
Income..................................................... $ .5244 $ .5217 $ .1288
Return of Capital.......................................... .2256 .2283 .0587
Total...................................................... $ .7500 $ .7500 $ .1875
</TABLE>
26
<PAGE>
SELECTED FINANCIAL DATA
OF THE OLD FUND
The following table sets forth certain financial data of the Old Fund which
has been derived from the audited financial statements of the Old Fund as of and
for the five-year period ended December 31, 1995. Such financial statements for
the three years ended December 31, 1995 have been audited by Coopers & Lybrand
L.L.P., independent accountants for the Old Fund, as indicated in their reports
included elsewhere in this Consent Solicitation Statement/Prospectus. The
unaudited data presented as of and for the three months ended March 31, 1995 and
1996 have been derived from the unaudited financial statements of the Old Fund
and, in the opinion of the General Partner, include all adjustments, consisting
of normal recurring adjustments, necessary for a fair statement of the results
for such interim periods. The results of operations for the three months ended
March 31, 1996 will not necessarily be indicative of the results of operations
for the full year ending December 31, 1996.
<TABLE>
<CAPTION>
FOR THREE MONTHS
ENDED MARCH 31,
FOR YEAR ENDED DECEMBER 31, (UNAUDITED)
----------------------------------------------------- --------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS, EXCEPT FOR BUC AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage bond investment income............. $ 3,996 $ 2,190 $ 2,327 $ 2,452 $ 2,235 $ 693 $ 595
Rental income............................... 2,940 4,363 4,567 4,950 5,116 1,255 1,297
Interest income on temporary cash
investments................................ 104 64 43 37 55 12 11
General and administrative
expenses................................... (871) (758) (720) (690) (792) (191) (229)
Real estate operating expenses.............. (1,564) (2,210) (2,268) (2,397) (2,360) (600) (717)
Depreciation................................ (836) (1,142) (1,172) (1,183) (1,197) (297) (308)
Provision for loan losses................... -- (1,000) -- -- -- -- --
Provision for losses on real estate
acquired................................... -- (1,000) -- -- -- -- --
--------- --------- --------- --------- --------- --------- ---------
Net income.................................. $ 3,769 $ 507 $ 2,777 $ 3,169 $ 3,057 $ 872 $ 649
--------- --------- --------- --------- --------- --------- ---------
Net income per Beneficial Unit Certificate
(BUC)...................................... $ .71 $ .09 $ .52 $ .60 $ .57 $ .16 $ .12
--------- --------- --------- --------- --------- --------- ---------
Total cash distributions paid or accrued per
BUC........................................ $ 1.0594 $ .7500 $ .7500 $ .7500 $ .7500 $ .1875 $ .1875
--------- --------- --------- --------- --------- --------- ---------
Investment in tax-exempt mortgage bonds at
estimated fair value....................... $ 32,567 $ 31,567 $ 31,567 $ 31,567 $ 31,567 $ 31,567 $ 31,567
--------- --------- --------- --------- --------- --------- ---------
Real estate acquired in settlement of bonds,
net of accumulated depreciation and
valuation allowance........................ $ 30,999 $ 29,051 $ 27,925 $ 26,771 $ 25,891 $ 26,501 $ 25,624
--------- --------- --------- --------- --------- --------- ---------
Total assets.............................. $ 65,953 $ 62,453 $ 61,329 $ 60,520 $ 59,630 $ 60,456 $ 59,346
--------- --------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- --------- ---------
</TABLE>
27
<PAGE>
INFORMATION RELATING TO THE NEW FUND
BUSINESS
The New Fund is a newly-formed Delaware limited partnership which was formed
on March 7, 1996 for the purpose of acquiring, holding, operating, selling and
otherwise dealing with multifamily residential properties and other types of
commercial real estate and interests therein. The New Fund will commence
operations upon consummation of the Transaction at which time it will acquire
the four apartment complexes and one office/warehouse facility which the Old
Fund has acquired in foreclosure of the Bonds. The New Fund will also acquire
the remaining three Bonds from the Old Fund. There is no presentation of
financial statements or other financial information of the New Fund in this
Consent Solicitation Statement/Prospectus because the New Fund has not been
capitalized and has not commenced operations.
The New Fund will have the explicit authority to acquire additional
properties and expects to acquire one or more additional multifamily residential
properties after the Transaction. The New Fund will focus its acquisition
efforts on established multifamily properties in stable markets. In particular,
the New Fund will seek out properties that it believes have the potential for
increased revenues through more effective management. In making an acquisition,
the New Fund's objective will be for the net cash flow from the original
property secured by a Refunding Bond plus the net cash flow from any additional
property acquired with the proceeds of the Bond refunding to provide a debt
service coverage ratio of no less than 1.5 to 1. In connection with each
potential property acquisition, the New Fund will review many factors, including
the following: (i) the location of the property; (ii) the construction quality,
condition and design of the property; (iii) the current and projected cash flow
generated by the property and the potential to increase cash flow through more
effective management; (iv) the potential for capital appreciation of the
property; (v) the potential for rental rate increases; (vi) the economic
situation in the community in which the property is located and the potential
changes thereto; (vii) the occupancy and rental rates at competing properties;
and (viii) the potential for liquidity through financing or refinancing of the
property or the ultimate sale of the property.
The New Fund has the authority to own commercial properties other than
apartment buildings. This authority is necessary so that it may acquire the
existing office/warehouse facility that is currently owned by the Old Fund.
However, the General Partner does not anticipate that the New Fund will acquire
any additional properties of this type after the Transaction.
The New Fund will have the authority to finance acquisitions of additional
properties through the refunding of the Bonds. The New Fund intends to borrow
approximately $70 million by causing each of the Bonds relating to the four
foreclosed apartment complexes and the two Bonds that are currently in default
to be refunded and the Refunding Bonds issued to unaffiliated parties. The
General Partner anticipates that the New Fund will be able to acquire between
five and eight additional apartment complexes in this manner. The New Fund will
also have the authority to finance additional property acquisitions through
borrowings from banks or other institutional lenders, but the General Partner
only intends to use these other sources of debt financing to provide temporary
financing until the proceeds of Bond refundings are available. The New Fund will
also be permitted to use undistributed Net Operating Income or Net Sale Proceeds
from the sale of a property to acquire additional properties.
The New Fund intends to hold and operate its properties as long-term
investments. In that regard, the New Fund's business strategies are to (i)
maintain high occupancy and increase rental rates through effective leasing,
reducing turnover rates and providing quality maintenance and services to
maximize resident satisfaction, (ii) manage operating expenses and achieve cost
reductions through operating efficiencies and economies of scale generally
inherent in the management of a portfolio of multiple properties and (iii)
emphasize regular programs of repairs, maintenance and property improvements to
enhance the competitive advantage and value of its properties in their
respective market areas.
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The New Fund will be engaged solely in the business of acquiring and
operating multifamily housing projects and other commercial real estate.
Accordingly, the presentation of information about industry segments is not
applicable and would not be material to an understanding of the New Fund's
business taken as a whole.
PARTNERS OF THE NEW FUND
The General Partner of the Old Fund will be the General Partner of the New
Fund. Accordingly, the persons responsible for the management of the New Fund
will be the same persons who are currently responsible for the management of the
Old Fund. See "INFORMATION RELATING TO THE OLD FUND -- Management."
In addition, Mr. Joseph N. Grego will act as portfolio manager of the New
Fund and will be responsible for identifying, evaluating and acquiring
additional properties for the New Fund. Mr. Grego, 49, has been employed by
America First since 1989 and is responsible for the acquisition and management
of various real estate and mortgage investments, including office, apartment and
retirement properties. From 1980 to 1989, Mr. Grego held several positions with
E.F. Hutton and Shearson Lehman Hutton, including president and director of
Hutton Real Estate Services, Inc., where he was responsible for the asset
management of 74 properties nationwide consisting of 3.6 million square feet of
commercial real estate and 8,300 apartment units. From 1974 to 1980 Mr. Grego
held positions with Levitt Corporation and Cavanaugh Communities Corporation,
both real estate development companies. Mr. Grego beneficially owned 11,800 BUCs
of the Old Fund as of the Record Date.
The Limited Partner of the New Fund will be America First Fiduciary
Corporation Number Eight, a Nebraska corporation, which is wholly owned by
America First and is the Limited Partner of the Old Fund. The Limited Partner
will undertake no business activity other than to serve as the Limited Partner
of the New Fund.
PROPERTIES
The New Fund currently has no properties, but will acquire the four
apartment complexes and one office/warehouse facility of the Old Fund, as well
as the Bonds secured by three additional properties, upon consummation of the
Transaction. For certain information with respect to these properties, see
"INFORMATION RELATING TO THE OLD FUND -- Properties."
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the New Fund is a
party or to which any of its assets are subject.
TERMS OF THE NEW PARTNERSHIP AGREEMENT
GENERAL
The following is a summary of certain material terms of the New Partnership
Agreement. This summary does not purport to be complete and is subject to, and
qualified in its entirety by, the terms of the New Partnership Agreement, the
form of which is attached as Appendix A of this Consent Solicitation
Statement/Prospectus and is incorporated by reference herein. In many respects,
the terms of the New Partnership Agreement are the same as those of the Current
Partnership Agreement. There are, however, some important differences.
FORMATION
The New Fund has been formed under the terms of the Delaware Revised Uniform
Limited Partnership Act (the "Delaware Act"). Upon consummation of the
Transaction, the capital accounts of the General Partner and Limited Partner in
the Old Fund will be treated as capital contributions to the New Fund and the
interest of the Limited Partner will be assigned to the BUC holders who will
become BUC holders in the New Fund. BUC holders will not be limited partners of
the New Fund and will have no right to be admitted as such.
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MANAGEMENT OF THE NEW FUND
Under the terms of the New Partnership Agreement, the General Partner has
full and exclusive authority to manage the business affairs of the New Fund.
Such authority specifically includes the power to cause the New Fund to (i)
acquire additional properties on such terms as the General Partner determines to
be in the best interest of the New Fund; provided that any property acquired by
the New Fund (other than the office/warehouse facility acquired from the Old
Fund) shall be a multifamily residential property, (ii) borrow money (including
through Bond refundings) and (iii) foreclose on any outstanding Bonds acquired
from the Old Fund. Unlike the Current Partnership Agreement, the New Partnership
agreement does not limit the authority to use additional properties as
collateral for Bond refundings. The New Partnership Agreement imposes certain
limitations on the authority of the General Partner, including restrictions on
the ability of the General Partner to dissolve the New Fund or to sell all or
substantially all of its assets without the consent of a majority in interest of
the BUC holders.
Other than certain limited voting rights discussed under "Voting Rights,"
neither the Limited Partner nor the BUC holders will have any authority to
transact business for, or participate in the management of, the New Fund. The
only recourse available to BUC holders in the event that the General Partner
takes actions with respect to the business of the New Fund with which BUC holder
do not agree, is to vote to remove the General Partner and admit a substitute
general partner. See "Removal or Withdrawal of the General Partner," below.
ALLOCATIONS AND DISTRIBUTIONS
NET OPERATING INCOME. The New Partnership Agreement provides that all Net
Operating Income generated by the New Fund will be distributed 99% to BUC
holders and 1% to the General Partner. In contrast, the Current Partnership
Agreement provides that the General Partner will receive 10% of all Net Interest
Income distributed after the BUC holders of the Old Fund have received a
cumulative noncompounded annual return of 10% on their Adjusted Capital
Contributions in the Old Fund. Therefore, unlike the Current Partnership
Agreement, the New Partnership Agreement limits the interest of the General
Partner to 1% of Net Operating Income regardless of the return paid to BUC
holders. To date, the General Partner has never received more than 1% of Net
Interest Income during any fiscal year. Distributions of Net Interest Income to
the General Partner during the year ended December 31, 1995 equaled
approximately $39,000.
Operating Income of the New Fund includes all cash receipts except for (i)
capital contributions, (ii) Sale Proceeds or (iii) the proceeds of any loan or
the refinancing of any loan. "Net Operating Income" of the New Fund means all
Operating Income plus any amount released from the Reserve for distribution less
expenses and debt service payments and any amount deposited in the Reserve or
used to acquire additional properties. This differs from the concept of "Net
Interest Income" used in the Current Partnership Agreement in that it would
allow the General Partner to use Operating Income for the acquisition of
properties. The Current Partnership Agreement does not allow Interest Income to
be used for this purpose. Notwithstanding this authority, the General Partner
intends to use Operating Income only as a supplemental source of funds to
finance property acquisitions and expects to maintain cash distributions to BUC
holders of the New Fund at or above the amount currently being distributed by
the Old Fund.
NET SALE PROCEEDS. The New Partnership Agreement provides that Net Sale
Proceeds generated by the New Fund will be distributed 100% to the BUC holders.
In comparison, the Current Partnership Agreement provides that Net Sale or
Refinancing Proceeds generated by the Old Fund will be distributed (i) 100% to
the BUC holders until the BUC holders have received an amount (when combined
with all prior distributions to them by the Old Fund) equal to the sum of their
initial Adjusted Capital Contributions, plus a cumulative, noncompounded annual
return of 10% on their Adjusted Capital Contributions as existing from time to
time; (ii) then 100% to the General Partner until the General Partner receives
an aggregate amount equal to 10% of the total distributions to all parties
(including for this purpose distributions of Net Interest Income); (iii) then 1%
to the
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BUC holders and 99% to the General Partner until the General Partner has
received an amount equal to 0.25% per annum of the outstanding principal amount
of the Bonds for each year beginning January 1, 1989; and (iv) thereafter, any
remaining Net Sale or Refinancing Proceeds will be distributed 90% to the BUC
holders and 10% to the General Partner. Therefore, by adopting the New
Partnership Agreement, the General Partner will no longer have a right to
participate in Net Sale Proceeds except upon the final liquidation of the Old
Fund as described below. The Old Fund has not made any distributions of Net Sale
or Refinancing Proceeds to date.
Under the terms of the New Partnership Agreement, Sale Proceeds means all
amounts received by the New Fund upon the sale of a property or other asset or
from the repayment of principal of any Bond which the New Fund continues to
hold. Net Sale Proceeds means, with respect to any distribution period, all Sale
Proceeds received by the New Fund during such distribution period, plus any
amounts released from the Reserve for distribution less all expenses that are
directly attributable to the sale of a property, amounts used to discharge
indebtedness and any amount deposited in the Reserve or used or held for the
acquisition of additional properties. Again, this differs from the concept of
"Net Residual Proceeds" used in the Current Partnership Agreement in that it
would allow the General Partner to use Sale Proceeds for the acquisition of
properties. The Current Partnership Agreement does not allow Residual Proceeds
to be used for this purpose. Notwithstanding this authority, the General Partner
does not intend to use this ability to continuously buy and sell properties
without making distributions to the BUC holders. Rather, it is designed to
afford the General Partner the ability to change the makeup of the New Fund's
property portfolio in order to increase the net revenues from, and value of, the
New Fund's properties.
Any cash received by the New Fund representing the proceeds from the
refunding of the Bonds relating to a foreclosed property will not be considered
as either Operating Income or Sale Proceeds and, consequently, need not be
distributed to the BUC holders. Under the terms of the New Partnership
Agreement, the General Partner will have explicit authority to reinvest these
proceeds in additional properties. In contrast, under the terms of the Current
Partnership Agreement, any proceeds from the refinancing of a property securing
a Bond could be considered as "Residual Proceeds." As such, there is no clear
authority under the Current Partnership Agreement for the reinvestment of these
moneys in additional real estate.
DISTRIBUTIONS UPON LIQUIDATION. The New Fund will have a term expiring on
December 31, 2016 unless terminated earlier as provided in the New Partnership
Agreement. Upon the dissolution of the New Fund, the proceeds from the
liquidation of its assets will be first applied to the payment of the
obligations and liabilities of the New Fund and the establishment of any reserve
therefor as the General Partner determines to be necessary and then distributed
to the General Partner and the BUC holders in proportion to, and to the extent
of, their respective capital account balances and then in the same manner as Net
Sale Proceeds.
TIMING OF CASH DISTRIBUTIONS. The General Partner expects to continue to
make monthly cash distributions to BUC holders after the Transaction. However,
the New Partnership Agreement, like the Current Partnership Agreement, allows
the General Partner to make cash distributions on a quarterly or semiannual
basis. Regardless of the distribution period selected by the General Partner,
cash distributions must be made within 60 days of the end of each such period.
ALLOCATION OF INCOME AND LOSSES. Income and losses of the New Fund will be
allocated among the partners and BUC holders in the same manner as such
allocations are currently made by the Old Fund. Accordingly, income and losses
from operations will be allocated 99% to the BUC holders and 1% the General
Partner. Income arising from a sale of a property or from the liquidation of the
New Fund's assets will be first allocated to the General Partner in an amount
equal to the Net Sale Proceeds or liquidation proceeds distributed to the
General Partner from such transaction and the balance will be distributed to the
BUC holders. Losses from a sale of a property or from a liquidation of the New
Fund will be allocated among the General Partner and the BUC holders in the same
manner as the Net Sale Proceeds or liquidation proceeds from such transaction
are distributed.
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ALLOCATION AMONG BUC HOLDERS. Allocations of cash distributions and of
income and losses will be made among BUC holders of the New Fund in the same
manner as such allocations are made among BUC holders of the Old Fund. Income
and losses will be allocated on a monthly basis to the BUC holders of record as
of the last day of a month. If a BUC holder is recognized as the record holder
of BUCs on such date, such BUC holder will be allocated all income and losses
for such month.
Cash distributions will be made to the BUC holders of record as of the last
day of each distribution period. If the New Fund recognizes a transfer prior to
the end of a distribution period, the transferee will be deemed to be the holder
for the entire distribution period and will receive the entire cash distribution
for such period. Accordingly, if the General Partner selects a quarterly or
semiannual distribution period, the transferor of BUCs during such a
distribution period may be recognized as the record holder of the BUCs at the
end of one or more months during such period and be allocated income or losses
for such months, but not be recognized as the record holder of the BUCs at the
end of the period and, therefore, not be entitled to a cash distribution for
such period.
The General Partner retains the right to change the method by which income
and losses of the New Fund will be allocated between buyers and sellers of BUCs
during a distribution period, based on consultation with tax counsel and
accountants. However, no change may be made in the method of allocation income
or losses without written notice to the BUC holders at least 10 days prior to
the proposed effectiveness of such change, unless otherwise required by law.
PAYMENTS TO THE GENERAL PARTNER
FEES. In addition to its share of Net Operating Income and Net Sale
Proceeds, the New Fund will pay General Partner or its affiliates fees at the
same rates as paid by the Old Fund as follows:
(i) an Administrative Fee in connection with the ongoing administration
of the business of the Partnership in an amount equal to 0.60% per annum of
the sum of (A) the original principal amount of any Bonds relating to
foreclosed properties and (B) the purchase price of any additional
properties acquired by the New Fund;
(ii) a Property Acquisition Fee in connection with the acquisition of
additional multifamily residential properties in an amount equal to 1.25% of
the purchase price paid by the New Fund for such properties; and
(iii) a property management fee paid to the Manager in connection with
the management of the properties owned by the New Fund in an amount not to
exceed the lesser of (A) 5% of the gross revenues of such property (in the
case of residential property) or 6% of the gross revenues of such property
(in the case of industrial or commercial property), (B) the fees charged by
unaffiliated property managers in the same geographic area or (C) the
Manager's actual cost of providing property management services for such
property.
The Administrative Fee provided for with respect to foreclosed properties is
the same as provided for under the Current Partnership Agreement. In addition,
as under the Current Partnership Agreement, no Administrative Fee will be paid
by the New Fund with respect to any Bonds which remain outstanding at the time
of the Transaction unless the New Fund subsequently forecloses on the property
underlying such Bonds. However, the General Partner will continue to be entitled
to receive an administrative fee from the owners of such properties under the
terms of the Bonds if the properties generate sufficient cash flow to pay the
full base interest on the Bonds. These administrative fees are accruing at a
rate of approximately $190,000 per year and would become payable to the General
Partner if all base interest on the outstanding Bonds was paid in full. If the
New Fund does not acquire additional properties, the amount of the
Administrative Fee (including administrative fees from property owners) is
estimated to between approximately $226,000 and $470,000 per year, depending on
whether the New Fund forecloses on one or more of the Bonds which remain
outstanding but are currently in default. If the New Fund refunds each of the
Bonds it intends to refund and uses the estimated net proceeds therefrom to
purchase additional properties, the Administrative Fee would increase to
approximately $870,000 per annum.
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The Property Acquisition Fee will be paid to the General Partner in
connection with the identifying and evaluating additional properties for
acquisition, consummation of such acquisitions and arranging the financing
thereof. If the New Fund refunds each of the Bonds it intends to refund and uses
the estimated net proceeds therefrom to purchase additional properties, the
General Partner would expect to earn Property Acquisition Fees of approximately
$780,000.
The amount of property management fees paid to the Manager cannot be
estimated at this time since the number of properties and the revenues generated
by such properties are not known. For the year ended December 31, 1995, the Old
Fund paid the Manager a total of $382,143 for the management of five properties
that the Old Fund had acquired in foreclosure of Bonds.
REIMBURSEMENT OF EXPENSES. In addition, the New Fund will reimburse the
General Partner or its affiliates on a monthly basis for the actual
out-of-pocket costs of direct telephone and travel expenses incurred by them in
connection with the business of the New Fund, direct out-of-pocket fees,
expenses and charges paid by them to third parties for rendering legal,
auditing, accounting, bookkeeping, computer, printing and public relations
services, expenses of preparing and distributing reports to BUC holders, an
allocable portion of the salaries and fringe benefits of nonofficer employees of
America First, insurance premiums (including premiums for liability insurance
which will cover the New Fund, the General Partner and America First), the cost
of compliance with all state and federal regulatory requirements and NASDAQ
listing fees and charges and other payments to third parties for services
rendered to the New Fund. The General Partner will also be reimbursed for any
expenses it incurs acting as tax matters partner for the New Fund. Any such
reimbursements may not exceed the lower of actual costs or the amount the New
Fund would be required to pay independent third parties for comparable services
in the same geographic location. The New Fund will not reimburse the General
Partner or its affiliates for the travel expenses of the president of America
First or for any items of general overhead, including, but not limited to, rent,
utilities or the use of computers, office equipment or other capital items owned
by the General Partner or its affiliates. The New Fund will not reimburse the
General Partner or America First for any salaries or fringe benefits of any
partner of the General Partner or of the officers or board of managers of
America First regardless of whether such persons provide services to the New
Fund. The New Fund's independent accountants are required to verify that any
reimbursements received by the General Partner from the New Fund were for
expenses incurred by the General Partner or its affiliates in connection with
the conduct of the business and affairs of the New Fund or the acquisition and
management of its assets and were otherwise permissible reimbursements under the
terms of the New Partnership Agreement. The annual report to BUC holders is
required to itemize the amounts reimbursed to the General Partner and its
affiliates.
LIABILITY OF PARTNERS AND BUC HOLDERS
Under the Delaware Act and the terms of the New Partnership Agreement, the
General Partner will be liable to third parties for all general obligations of
the New Fund to the extent not paid by the New Fund. However, the New
Partnership Agreement (in the same manner as the Current Partnership Agreement)
provides that the General Partner has no liability to the New Fund for any act
or omission reasonably believed to be within the scope of authority conferred by
the New Partnership Agreement and in the best interest of the New Fund; provided
that the course of conduct giving rise to the threatened, pending or completed
claim, action or suit did not constitute fraud, bad faith, negligence,
misconduct or a breach of its fiduciary obligations to the BUC holders.
Therefore, BUC holders may have a more limited right of action against the
General Partner than they would have absent those limitations in the New
Partnership Agreement. The New Partnership Agreement also provides for
indemnification of the General Partner and its affiliates by the New Fund for
certain liabilities which the General Partner and its affiliates may incur under
the Securities Act of 1933, as amended, and in dealings with the New Fund and
third parties on behalf of the New Fund. To the extent that the provisions of
the New Partnership Agreement include indemnification for liabilities arising
under the Securities Act of 1933, as amended, such provisions are, in the
opinion of the Securities and Exchange Commission, against public policy and,
therefore, unenforceable.
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No BUC holder will be personally liable for the debts, liabilities,
contracts or any other obligations of the New Fund unless, in addition to the
exercise of his rights and powers as a BUC holder, he takes part in the control
of the business of the New Fund. It should be noted, however, that the Delaware
Act prohibits a limited partnership from making a distribution which causes the
liabilities of the limited partnership to exceed the fair value of its assets.
Any limited partner who receives a distribution knowing that the distribution
was made in violation of this provision of the Delaware Act, is liable to the
limited partnership for the amount of the distribution. This provision of the
Delaware Act probably applies to BUC holders as well as partners of the New
Fund. In any event, the New Partnership Agreement provides that, to the extent
the Limited Partner is required to return any distributions or repay any amount
by law or pursuant to the New Partnership Agreement, each BUC holder who has
received any portion of such distributions is required to repay his
proportionate share of such distribution to the Limited Partner immediately upon
notice by the Limited Partner to such BUC holder. Furthermore, the New
Partnership Agreement allows the General Partner to withhold future
distributions to BUC holders until the amount so withheld equals the amount
required to be returned by the Limited Partner. Because BUCs are transferable,
it is possible that distributions may be withheld from a BUC holder who did not
receive the distribution required to be returned.
VOTING RIGHTS
The New Partnership Agreement provides that the Limited Partner will vote
its limited partnership interests as directed by the BUC holders. Accordingly,
the BUC holders, by vote of a majority in interest thereof, may:
(i) amend the New Partnership Agreement (provided that the concurrence
of the General Partner is required for any amendment which modifies the
compensation or distributions to which the General Partner is entitled, or
which affects the duties of the General Partner);
(ii) dissolve the New Fund;
(iii) remove any General Partner and consent to the admission of a
successor General Partner; or
(iv) terminate an agreement under which the General Partner provides
goods and services to the New Fund.
In addition, without the consent of a majority in interest of the BUC
holders, the General Partner may not, among other things:
(i) sell or otherwise dispose of all or substantially all of the assets
of the New Fund in a single transaction (provided that the General Partner
may sell the last property owned by the New Fund without such consent);
(ii) elect to dissolve the New Fund; or
(iii) admit an additional General Partner.
The General Partner may at any time call a meeting of the BUC holders, call
for a vote without a meeting of the BUC holders or otherwise solicit the consent
of the BUC holders and is required to call such a meeting or vote or solicit
consents following receipt of a written request therefor signed by 10% or more
in interest of the BUC holders. The New Fund does not intend to hold annual or
other periodic meetings of BUC holders. Although the New Partnership Agreement
permits the consent of the BUC holders to be given after the act is done with
respect to which the consent is solicited, the General Partner does not intend
to act without the prior consent of the BUC holders, in such cases where consent
of the BUC holders is required, except in extraordinary circumstances where
inaction may have a material adverse affect on the interest of the BUC holders.
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REPORTS
Within 120 days after the end of the fiscal year, the General Partner will
distribute a report to BUC holders which shall include (i) financial statements
of the New Fund for such year which have been audited by the New Fund's
independent public accountant, (ii) a report of the activities of the New Fund
during such year including a description of any properties acquired by the New
Fund during the final quarter of such year and (iii) a statement (which need not
be audited) showing distributions of Net Operating Income and Net Sale Proceeds.
The annual report will also include a detailed statement of the amounts of fees
and expense reimbursements paid to the General Partner and its affiliates by the
New Fund during the fiscal year.
Within 60 days after the end of first three quarters of each fiscal year,
the General Partner will distribute a report which shall include (i) unaudited
financial statements of the New Fund for such quarter (ii) a report of the
activities of the New Fund during such quarter including a description of any
properties acquired by the New Fund during such quarter and (iii) a statement
showing distributions of Net Operating Income and Net Sale Proceeds during such
quarter.
The New Fund will also provide BUC holders with a report on Form K-1 or
other information required for federal and state income tax purposes within 75
days of the end of each year.
REMOVAL OR WITHDRAWAL OF THE GENERAL PARTNER
The BUC holders may, by vote of a majority in interest, remove the General
Partner from the New Fund with or without cause and appoint a successor general
partner.
The General Partner may not withdraw voluntarily from the New Fund or sell,
transfer or assign all or any portion of its interest in the New Fund, unless a
substitute General Partner has been admitted in accordance with the terms of the
New Partnership Agreement. With the consent of a majority in interest of the BUC
holders, the General Partner may at any time designate one or more persons as
additional general partners, provided that the interests of the BUC holders in
the New Fund are not reduced thereby. The designation must meet the conditions
set out in the New Partnership Agreement and comply with the provisions of the
Delaware Act with respect to admission of an additional general partner. In
addition to the requirement that the admission of a person as successor or
additional general partner have the consent of the majority in interest of the
BUC holders, the New Partnership Agreement requires, among other things, that
(i) such person agrees to and executes the New Partnership Agreement, (ii)
counsel for the Partnership or BUC holders renders an opinion that such person's
admission is in accordance with the Delaware Act and (iii) accountants for the
New Fund or BUC holders render an opinion as to the net worth of such person as
it relates to the ability of the New Fund to continue to be classified as a
partnership for federal income tax purposes.
EFFECT OF REMOVAL, BANKRUPTCY, DEATH, DISSOLUTION, INCOMPETENCY OR WITHDRAWAL OF
A GENERAL PARTNER
In the event of a removal, bankruptcy, death, dissolution, incompetency or
withdrawal of the General Partner, it will cease to be the General Partner and
(except for a removal without cause) its interest in the New Fund will be
assigned to any remaining or successor general partners so that such remaining
or successor general partners have no less than 1% interest in the New Fund. Any
such interest not so assigned will be retained by the General Partner, but will
be converted into a limited partner interest. However, if the General Partner is
removed on account of acts of fraud, gross negligence or willful malfeasance of
the officers or employees of America First, then a portion of the General
Partners' interest in the New Fund equal to America First's interest in the
General Partner will be assigned, without compensation, to the successor or
remaining General Partners. The General Partner will remain liable for
obligations arising prior to such removal, bankruptcy, death, dissolution,
incompetency or withdrawal. In the event that the General Partner is removed
without cause, the successor General Partner has the obligation to acquire the
interest of the removed General Partner at its then fair market value, unless
the New Fund elects to acquire such interest or the removed General Partner
elects to have its interest converted to a limited partner interest. If the
General Partner is removed for cause, any successor General Partner will have
the option, but not the obligation, to acquire the interest of the removed
General Partner (which was not otherwise transferred to the successor general
partner
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as provided above) at its then fair market value. The Current Partnership
Agreement provides that the fair market value of the General Partner's interest
is to be based on its share of the proceeds resulting from an immediate
liquidation of the assets of the Old Fund. If the General Partner were removed
from the Old Fund at the current time, the value of its interest in the Old Fund
would be zero. The New Partnership Agreement provides that the General Partner
will not participate in the distribution of Net Sale Proceeds and, therefore,
the fair market value of the General Partner's interest under this provision
would always be zero. In order to provide the General Partner with a meaningful
value for its interest in the New Fund in the event it is removed as General
Partner, the New Partnership Agreement bases the fair market value of the
General Partner's interest on the present value of its future Administrative
Fees and distributions of Net Operating Income. Therefore, the General Partner
would expect to receive substantially more for its interest upon its immediate
removal from the New Fund than it would upon its current removal from the Old
Fund. Any disputes as to the fair market value of the General Partner's interest
in the New Fund will be settled through arbitration. The amendment of this
provision does not affect the cash distributions to be received by the General
Partner, if any, upon dissolution of the New Fund or sale of its assets.
AMENDMENTS
In addition to amendments to the New Partnership Agreement adopted by a
majority in interest of the BUC holders, the New Partnership Agreement may be
amended by the General Partner, without the consent of the BUC holders, in
certain limited respects if such amendments are not materially adverse to the
interest of the BUC holders. In addition, the General Partner is authorized to
amend the New Partnership Agreement to admit additional, substitute or successor
partners into the New Fund if such admission is effected in accordance with the
terms of the New Partnership Agreement.
DISSOLUTION AND LIQUIDATION
The New Fund will continue in full force and effect until December 31, 2016,
unless terminated earlier as a result of:
(i) the passage of 90 days following the bankruptcy, death, dissolution,
withdrawal, removal or adjudication of incompetence of a General Partner who
is at that time the sole General Partner, unless all of the remaining
partners (it being understood that for purposes of this provision the
Limited Partner shall vote as directed by a majority in interest of the BUC
holders) agree in writing to continue the business of the New Fund and a
successor General Partner is designated within such 90-day period;
(ii) the passage of 180 days after the repayment, sale or other
disposition of all of the New Fund's properties and substantially all its
other assets;
(iii) the election by a majority in interest of BUC holders or by the
General Partner (subject to the consent of a majority in interest of the BUC
holders) to dissolve the New Fund; or
(iv) any other event causing the dissolution of the New Fund under the
laws of the State of Delaware.
Upon dissolution of the New Fund, its assets will be liquidated and after
the payment of its obligations and the setting up of any reserves for
contingencies that the General Partner considers necessary, any proceeds from
the liquidation will be distributed as set forth under "Allocations and
Distributions -- DISTRIBUTIONS UPON LIQUIDATION."
DESIGNATION OF TAX MATTERS PARTNER
The General Partner will designate itself as the New Fund's "tax matters
partner" for purposes of federal income tax audits pursuant to Section 6231 of
the Code and the regulations thereunder. Each BUC holder agrees to execute such
documents as may be necessary or appropriate to evidence such appointment.
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BOOKS AND RECORDS
The books and records of the Partnership shall be maintained at the office
of the New Fund located at Suite 400, 1004 Farnam Street, Omaha Nebraska 68102
and shall be available there for examination and copying by any BUC holder or
his duly authorized representative, during ordinary business hours. The records
of the New Fund will include a list of the names and addresses of all BUC
holders and BUC holders will have the right to secure, upon written request to
the General Partner and payment of reasonable expenses in connection therewith,
a list of the names and addresses of, and the number of BUCs held by, all BUC
holders.
ACCOUNTING MATTERS
The fiscal year of the New Fund will be the calendar year. The books and
records of the New Fund shall be maintained on an accrual basis in accordance
with generally accepted accounting principles.
DERIVATIVE ACTIONS
The New Partnership Agreement provides that a BUC holder may bring a
derivative action on behalf of the New Fund to recover a judgment to the same
extent as a limited partner has such rights under the Delaware Act. The Delaware
Act provides for the right to bring a derivative action, although it only
authorizes a partner of a partnership to bring such an action. There is no
specific judicial or statutory authority governing the question of whether an
assignee of a partner (such as a BUC holder) has the right to bring a derivative
action where a specific provision exists in the partnership agreement granting
such rights. Furthermore, there is no express statutory authority for a limited
partner's class action in Delaware, and whether a class action may be brought by
BUC holders to recover damages for breach of the General Partner's fiduciary
duties in Delaware state courts is unclear.
DESCRIPTION OF THE BUCS OF THE NEW FUND
BENEFICIAL UNIT CERTIFICATES
BUCs represent beneficial assignments by the Limited Partner of its limited
partner interest in the New Fund. Although BUC holders will not be limited
partners of the New Fund and have no right to be admitted as limited partners,
they will be bound by the terms of the New Partnership Agreement and will be
entitled to the same economic benefits, including the same share of income,
gains, losses, deductions, credits and cash distributions, as if they were
limited partners of the New Fund.
A majority in interest of the BUC holders (voting through the Limited
Partner), without the concurrence of the General Partner, may, among other
things, (i) amend the New Partnership Agreement (with certain restrictions),
(ii) approve or disapprove the sale of all or substantially all of the New
Fund's assets in a single transaction, (iii) dissolve the New Fund or (iv)
remove the General Partner and elect a replacement therefor. The General Partner
may not dissolve the New Fund without the consent of a majority in interest of
the BUC holders.
TRANSFERS
The BUCs will be issued in registered form only and, except as noted below,
will be transferable upon consummation of the Transaction. The BUCs have been
accepted for inclusion on The NASDAQ Stock Market upon notice of issuance.
However, there can be no assurance that a public trading market for the BUCs
will develop.
A purchaser of BUCs will be recognized as a BUC holder for all purposes on
the books and records of the New Fund on the day on which the General Partner
(or other transfer agent appointed by the General Partner) receives satisfactory
evidence of the transfer of BUCs. All BUC holder rights, including voting
rights, rights to receive distributions and rights to receive reports, and all
allocations in respect of BUC holders, including allocations of income and
expenses, will vest in, and be allocable to, BUC holders as of the close of
business on such day. Service Data Corporation of Omaha, Nebraska, has been
appointed by the General Partner to act as the registrar and transfer agent for
the BUCs.
37
<PAGE>
A transfer or assignment of 50% or more of the outstanding BUCs within a
12-month period may terminate the New Fund for federal income tax purposes,
which may result in adverse tax consequences to BUC holders. In order to protect
against such a termination, the New Partnership Agreement permits the General
Partner to suspend or defer any transfers or assignments of BUCs at any time
after it determines that 45% or more of all BUCs may have been transferred (as
defined by the federal income tax laws) within a 12-month period and that the
resulting termination of the New Fund for tax purposes would adversely affect
the economic interests of the BUC holders. Any deferred transfers will be
effected (in chronological order to the extent practicable) on the first day of
the next succeeding period in which transfers can be effected without causing a
termination of the New Fund for tax purposes or any adverse effects from such
termination, as the case may be.
In addition, the New Partnership Agreement grants the General Partner the
authority to take such action as it deems necessary or appropriate, including
action with respect to the manner in which BUCs are being or may be transferred
or traded, in order to preserve the status of the New Fund as a partnership for
federal income tax purposes or to insure that BUC holders will be treated as
limited partners for federal income tax purposes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION
The following is a summary of the material federal income tax considerations
associated with the Transaction. The summary was prepared by Kutak Rock, legal
counsel to the General Partner. This discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations,
reported rulings and decisions thereunder, as in effect as of the date of this
Consent Solicitation Statement/Prospectus (or, in the case of certain
regulations, proposed as of such date), all of which are subject to change,
retroactively or prospectively, and to possibly differing interpretations. This
discussion does not purport to deal with the federal income or other tax
consequences applicable to all BUC holders in light of their particular
investment circumstances or to all categories of BUC holders, some of whom may
be subject to special rules (including, for example, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, subchapter S
corporations, recipients of Social Security income, United States branches of
foreign corporations and persons who are not citizens or residents of the United
States). No ruling on the federal, state or local tax considerations relevant to
the Transaction has been or will be requested from the Internal Revenue Service
(the "Service") or from any other tax authority. Moreover, no assurance can be
given that the conclusions reached by counsel would be accepted by the Service
or, if challenged by the Service, sustained in court.
As discussed below, counsel has opined that, based on the assumptions set
forth in the discussion below, the New Fund will be treated for federal income
tax purposes as a partnership and the BUC holders will be subject to tax as
partners. Moreover, counsel has opined that, based on the assumptions set forth
in the discussion below, the formation of the New Fund and the merger of the Old
Fund and the New Fund should be nontaxable to the Old Fund, the New Fund and the
BUC holders.
EACH BUC HOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE TRANSACTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
PARTNERSHIP STATUS
Treasury regulations provide that an entity generally will be treated as a
partnership rather than a corporation for federal income tax purposes if it has
associates and an objective to carry on business for a joint profit and has no
more than two of the following corporate attributes: (i) continuity of life,
(ii) centralization of management, (iii) limited liability and (iv) free
transferability of interests.
Based upon the continued organization and operation of the New Fund in
accordance with the Delaware Revised Uniform Limited Partnership Act, the terms
of the New Partnership Agreement, and the fact that the General Partner is the
general partner of the New Fund, counsel has opined that
38
<PAGE>
the New Fund will lack the corporate characteristics of continuity of life and
limited liability. Accordingly, counsel has opined that the New Fund will be
treated as a partnership as defined in sections 7701(a)(2) and 761(a) of the
Code and not as an association taxable as a corporation, and the BUC holders in
the New Fund will be subject to tax as partners pursuant to sections 701-761 of
the Code.
If the New Fund in any taxable year were treated for federal income tax
purposes as an association taxable as a corporation, income and deductions of
the New Fund would be reported only on its tax return rather than being passed
through to the BUC holders, and the New Fund would be required to pay income tax
on any portion of its net income that did not constitute tax-exempt income at
corporate tax rates. The imposition of any such tax would reduce the amount of
cash available to be distributed to the BUC holders. In addition, distributions
from the New Fund to BUC holders would be ordinary dividend income taxable to
the BUC holders as portfolio income to the extent of the New Fund's earnings and
profits, which would include its tax-exempt income as well as any taxable
income. Payment of such dividends would not be deductible by the New Fund.
TREATMENT OF THE NEW FUND AS A PUBLICLY TRADED PARTNERSHIP
The listing of the New Fund's BUCs for trading on The NASDAQ Stock Market
will cause the New Fund to be treated as a "publicly traded partnership" under
section 7704 of the Code, thus continuing the publicly traded partnership status
of the Old Fund. A publicly traded partnership is generally taxable as a
corporation unless 90% or more of its gross income is "qualifying" income.
Qualifying income includes interest, dividends, real property rents, gain from
the sale or other disposition of real property, gain from the sale or other
disposition of capital assets held for the production of interest or dividends
and certain other items.
Substantially all of the New Fund's gross income will be real property rents
or tax-exempt interest income on remaining Bonds, all of which constitutes
qualifying income. As long as 90% or more of the New Fund's gross income
consists of qualifying income, the New Fund will be treated as a partnership for
federal income tax purposes. If for any reason less than 90% of the New Fund's
gross income constituted qualifying income, the New Fund would be taxable as a
corporation rather than a partnership for federal income tax purposes, with the
consequences described above in "Partnership Status."
CONSEQUENCES OF A MERGER
The merger of the Old Fund and the New Fund pursuant to the terms of the
Merger Agreement will be treated as a tax-free continuation of the Old Fund for
federal income tax purposes. Accordingly, no gain or loss will be recognized by
the Old Fund, the New Fund or the BUC holders as a result thereof. The adjusted
basis of the New Fund in the assets acquired from the Old Fund will be equal to
the adjusted basis of the Old Fund therein as of the effective date of the
Transaction. Since the New Fund will have the same adjusted basis in the
transferred assets as the Old Fund, the holding period of the New Fund in the
transferred assets will include the holding period of the Old Fund in such
assets. Likewise, the BUC holders' adjusted basis in the New Fund BUCs will be
equal to their adjusted basis in the Old Fund BUCs. A BUC holder will include
the holding period of his or her Old Fund BUCs in his or her holding period for
the New Fund BUCs.
NONDEDUCTIBILITY OF INTEREST EXPENSE
The Code generally prohibits the deduction of interest on indebtedness which
is either incurred or continued for the purpose of either purchasing or carrying
tax-exempt obligations. In the case of a partnership, the partners are required
to take into account their proportionate share of the tax-exempt obligations
held, and the indebtedness incurred, by the partnership in combination with such
obligations held, or any debt incurred, in their individual capacities. The New
Fund may hold one or more of the original tax-exempt Bonds until 1999 and during
this time the New Fund intends to incur debt for investment purposes through the
refunding of Bonds related to the foreclosed properties. Consequently, the BUC
holders will have to take their share of both items into account, along with any
similar items in their individual capacities, to determine the deductibility of
the interest paid by the New Fund on the Refunding Bonds and interest paid
directly by them. Even if a BUC holder has no
39
<PAGE>
such items in his individual capacity, such BUC holder will not be allowed a
deduction for his full share of the interest paid by the New Fund on the
Refunding Bonds since a portion thereof will be attributed to the New Fund's
holding of Bonds.
TAX CONSEQUENCES OF CHANGE IN INVESTMENT OBJECTIVE
The principal investment of the Old Fund was to generate federally
tax-exempt interest. The New Fund, on the other hand, will not seek to generate
tax-exempt interest, but rather will seek to generate taxable net rental revenue
for the ownership of real estate. Notwithstanding its \tated investment
objectives, the Old Fund currently generates taxable net rental revenue rather
than tax-exempt interest on the five properties it acquired in foreclosure.
Likewise, notwithstanding its stated investment objective, the New Fund will
initially generate tax-exempt interest from the three outstanding Bonds it
acquires from the Old Fund as a result of the transaction. However, the General
Partner expects that the New Fund will foreclose on two of the remaining Bonds
and that the final outstanding Bond will be repaid no later than 1999.
Therefore, the Transaction is expected to ultimately eliminate all tax-exempt
interest so that cash distributions to BUC holders in the New Fund will be
taxable.
Although the New Fund is expected to eventually produce only taxable income
for BUC holders, it will also generate depreciation and other deductions which
will be allocable to BUC holders and which may generally be used by BUC holders
to offset income. The ability of a BUC holder to offset any such deductions and
losses against other income of the BUC holder in a given tax year is limited to
both such BUC holder's adjusted tax basis in his or her BUCs as of the end of
the tax year in which the deductions or losses are incurred, and by the
application of the passive activity loss rules of the Code. Under those rule,
losses generated from rental real property by a limited partnership can only be
offset against a partner's other passive activity income, which would include,
for example, income from other real estate, rents or income from activities
conducted by other limited partnerships. Any portion of such deductions and
losses which cannot be deducted by a BUC holder in the year incurred because of
the foregoing limitation can by carried forward to subsequent taxable years and,
if otherwise deductible, may be deducted in such taxable years to the extent of
any subsequent increase in the adjusted tax basis of his or her BUCs.
In order to pursue the New Fund's objective of creating a larger and more
homogenous asset portfolio, the General Partner will have the authority under
the New Partnership Agreement to reinvest Operating Income and Sale Proceeds in
additional apartment complexes rather than distribute such amounts to BUC
holders. To the extent the New Fund generates taxable income, BUC holders will
be liable for income tax on their proportionate share of such taxable income,
irrespective of the amount of cash distributions made to the BUC holders.
Accordingly, it is possible under certain circumstances for the taxable income
allocable to a BUC holder for a given period to exceed the cash distributions
made to such BUC holder during the same period.
40
<PAGE>
LEGAL MATTERS
The validity of the issuance of the BUCs of the New Fund offered pursuant to
his Consent Solicitation Statement/Prospectus will be passed upon for the New
Fund by Kutak Rock, a partnership including professional corporations, Omaha,
Nebraska. In addition, the description of federal income tax consequences under
the caption "MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION" is
based on the opinion of Kutak Rock. George H. Krauss, a partner of Kutak Rock,
beneficially owns a minority membership interest in America First Companies
L.L.C., which is the general partner of the General Partner.
EXPERTS
The Financial Statements of the Old Fund as of December 31, 1995 and for the
three years then ended have been incorporated by reference herein in reliance on
the reports of Coopers & Lybrand L.L.P., independent certified public
accountants and on the authority of said firm as experts in auditing and
accounting.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED BY THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A BUC HOLDER'S
CONSENT, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR CONSENT SOLICITATION
IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH OR INCORPORATED HEREIN SINCE THE DATE HEREOF.
41
<PAGE>
GLOSSARY
Certain terms used in this Consent Solicitation Statement/Prospectus shall
have the following meanings, unless the context requires otherwise:
"ADMINISTRATIVE FEE" means the fee paid by the New Fund to the General
Partner for the administration of the New Fund and its assets in an amount equal
to 0.60% per annum of the sum of (i) the original principal amount of any Bonds
relating to foreclosed properties and (ii) the purchase price of any additional
properties acquired by the New Fund.
"AMERICA FIRST" means America First Companies L.L.C., a Delaware limited
liability company which is the general partner of the General Partner.
"BASE INTEREST" means the fixed rate of interest payable under the original
terms of the Bonds.
"BONDS" means the tax-exempt mortgage bonds issued by various state and
local authorities to the Old Fund to provide construction and permanent
financing for seven apartment complexes and one office/warehouse facility.
"BUCS" means beneficial unit certificates representing assignments of the
Limited Partner's limited partner interests in the Old Fund or the New Fund, as
the case may be.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of succeeding law.
"COMMISSION" means the Securities and Exchange Commission.
"CONTINGENT INTEREST" means interest payable under the original terms of the
Bond which is payable out of the net cash flow from operations generated by the
properties financed by the Bonds and/or out of the net proceeds from the sale or
refinancing thereof.
"CURRENT PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership,
dated October 15, 1986, of the Old Fund.
"DELAWARE ACT" means the Delaware Revised Uniform Limited Partnership Act,
which consists of Title 6, Chapter 17 of the Delaware Code Annotated.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"GENERAL PARTNER" means America First Capital Associates Limited Partnership
Four, a Delaware limited partnership which is the General Partner of the Old
Fund and the New Fund.
"INTEREST INCOME" means all cash receipts of the Old Fund except for (i)
capital contributions, (ii) amounts received upon the repayment or sale of a
Bond or other asset which do not represent accrued interest thereon other than
accrued interest which represents accrued contingent interest or (iii) the
proceeds of any loan.
"LIMITED PARTNER" means America First Fiduciary Corporation Number Eight, a
Nebraska corporation which is the Limited Partner of the Old Fund and the New
Fund.
"MANAGER" means America First Properties Management Company, L.L.C., a
Delaware limited liability company engaged in the management of apartment
complexes, including the apartment complexes which the Old Fund has acquired in
foreclosure.
"MERGER AGREEMENT" means the Agreement of Merger, dated March 28, 1996, by
and between the Old Fund and the New Fund relating to the Transaction.
"NET INTEREST INCOME" means all Interest Income received by the Old Fund
plus any amount released from the Reserve for distribution, less expenses and
debt service payments and any amount deposited in the Reserve.
42
<PAGE>
"NET OPERATING INCOME" means all Operating Income of the Old Fund plus any
amount released from the Reserve for distribution, less expenses and debt
service payments and any amount deposited in the Reserve or used to acquire
additional properties.
"NET RESIDUAL PROCEEDS" means all Residual Proceeds received by the Old
Fund, plus any amounts released from the Reserve for distribution, less all
expenses that are directly attributable to the sale or refinancing of a
property, amounts used to discharge indebtedness and any amount deposited in the
Reserve.
"NET SALE PROCEEDS" means all Sale Proceeds received by the New Fund, plus
any amounts released from the Reserve for distribution, less all expenses that
are directly attributable to the sale of a property, amounts used to discharge
indebtedness and any amount deposited in the Reserve or used or held for the
acquisition of additional properties.
"NEW FUND" means America First Apartment Investors, L.P., a Delaware limited
partnership.
"NEW PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of
the New Fund.
"OLD FUND" means America First Tax Exempt Mortgage Fund 2 Limited
Partnership, a Delaware limited partnership.
"OPERATING INCOME" means all cash receipts of the New Fund except for (i)
capital contributions, (ii) Sale Proceeds or (iii) the proceeds of any loan or
the refinancing of any loan.
"PROPERTY ACQUISITION FEE" means the fee payable by the New Fund to the
General Partner in connection with the acquisition of additional multifamily
residential properties in an amount equal to 1.25% of the purchase price paid by
the New Fund for such properties.
"RECORD DATE" means May 31, 1996, the date established by the General
Partner to determine which BUC holders will be entitled to receive notice of,
and to grant or withhold their consent to, the Transaction.
"REFUNDING" means extinguishing an existing tax-exempt bond or bonds by
paying to the holder or holders thereof the proceeds from the issuance of
Refunding Bonds.
"REFUNDING BONDS" mean tax-exempt bonds issued by a state or local authority
in a Refunding in order to repay all or a portion of the outstanding principal
amount of an existing issue of tax-exempt bonds secured by the same property.
Refunding Bonds may be issued in any principal amount not exceeding the original
principal amount of the existing bonds and with an interest rate and maturity
which are different from the original bonds.
"RESIDUAL PROCEEDS" means all amounts received by the Old Fund from the
repayment or sale of a Bond or other asset except amounts representing accrued
interest on a Bond other than accrued contingent interest.
"RESERVE" means those funds withheld from Operating Income or Sale Proceeds
by the General Partner from time to time in order to provide working capital for
the New Fund and which may be used for any purpose relating to the operation
thereof, including the acquisition of additional properties.
"SALE PROCEEDS" means all amounts received by the New Fund upon the sale of
a property or other asset or from the repayment of principal of any Bond which
the New Fund continues to hold.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SERVICE" means the Internal Revenue Service.
"TAX MATTERS PARTNER" means the partner of the New Fund designated as such
under Section 6231 of the Code by the General Partner. The initial tax matters
partner of the New Fund will be the General Partner.
43
<PAGE>
"TRANSACTION" means the merger of the Old Fund and the New Fund pursuant to
which (i) the separate existence of the Old Fund will cease and the New Fund
will be the surviving partnership and will succeed to all of the assets and
liabilities of the Old Fund, (ii) the New Partnership Agreement will control the
operations of the New Fund after the Transaction and (iii) persons holding BUCs
in the Old Fund as of the Record Date will become BUC holders of the New Fund
and will receive one BUC in the New Fund for each BUC they hold in the Old Fund.
44
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The audited financial statements of the Old Fund for the three years ended
December 31, 1995, 1994 and 1993 and the unaudited financial statements for the
three months ended March 31, 1996 have been incorporated by reference into this
Consent Solicitation Statement/Prospectus. See "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE."
The unaudited pro forma balance sheet of the Old Fund as of March 31, 1996
has been prepared based on the historical balance sheet of the Old Fund as of
such date as adjusted to reflect (i) the probable acquisition of the Jefferson
Place and Avalon Ridge properties in settlement of the Bonds collateralized by
these properties and (ii) the purchase of Oakwood Terrace Apartments and the
related Bond refunding transaction as if each had occurred on March 31, 1996.
The unaudited pro forma statements of income of the Old Fund for the year ended
December 31, 1995 and for the three months ended March 31, 1996 have been
prepared based on the historical statements of income for such periods as
adjusted to reflect each of the foregoing transactions as if each had occurred
on January 1, 1995.
F-1
<PAGE>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
PRO FORMA BALANCE SHEET
MARCH 31, 1996
ASSETS
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
-------------- -------------------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Cash and temporary cash investments........................ $ 1,846,036 $ 650,000(b) $ 2,496,036
Investment in tax-exempt mortgage bonds at estimated fair
value..................................................... 31,566,526 (22,806,526)(a) 8,760,000
Real estate acquired in settlement of bonds, net of
accumulated depreciation.................................. 25,624,048 24,051,526(a) 51,575,574
1,900,000(b)
Interest receivable........................................ 186,228 0 186,228
Other...................................................... 123,369 200,000(b) 323,369
-------------- -------------------- --------------
$ 59,346,207 $ 3,995,000 $ 63,341,207
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable......................................... $ 743,470 $ 0 $ 743,470
Distributions payable.................................... 331,163 0 331,163
Participating loans(c)................................... 0 1,245,000(a) 1,245,000
Bonds payable............................................ 0 2,750,000(b) 2,750,000
-------------- -------------------- --------------
1,074,633 3,995,000 5,069,633
Partners' Capital
General Partner.......................................... 7,187 0 7,187
Beneficial Units Certificate Holders..................... 58,264,387 0 58,264,387
-------------- -------------------- --------------
58,271,574 0 58,271,574
-------------- -------------------- --------------
$ 59,346,207 $ 3,995,000 $ 63,341,207
Book value per BUC......................................... $ 11.11 $ 0.00 $ 11.11
</TABLE>
- ------------------------
The following transactions are reflected on a proforma basis:
(a) Record the acquisition of Jefferson Place and Avalon Ridge
properties in settlement of bonds.
(b) Record the purchase of Oakwood Terrace Apartments and the related
issuance of bonds payable.
(c) Represent first mortgages on properties jointly financed with an
affiliated limited partnership.
F-2
<PAGE>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1995
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ------------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Income
Mortgage investment income................................... $ 2,234,610 $ (1,490,010)(a) $ 744,600
Rental income................................................ 5,116,073 3,937,851(a) 9,514,752
460,828(b)
Interest income on temporary investments..................... 55,720 0 55,720
------------- ------------------- -------------
7,406,403 2,908,669 10,315,072
Expenses
General and administrative expenses.......................... 566,100 0 566,100
Administrative fees.......................................... 226,200 189,330(e) 415,530
Real estate operating expenses............................... 2,359,827 2,419,135(a) 5,033,497
254,535(b)
Depreciation................................................. 1,197,490 874,601(a) 2,134,657
62,566(b)
Interest expense............................................. 0 41,157(d) 231,432
190,275(c)
------------- ------------------- -------------
4,349,617 4,031,599 8,381,216
------------- ------------------- -------------
Net income..................................................... $ 3,056,786 $ (1,122,930) $ 1,933,856
Net income allocated to:
General Partner.............................................. $ 42,543 $ (11,229) $ 31,314
BUC Holders.................................................. 3,014,243 (1,111,701) 1,902,542
------------- ------------------- -------------
$ 3,056,786 $ (1,122,930) $ 1,933,856
------------- ------------------- -------------
Net income per BUC............................................. $ 0.57 $ (0.21) $ 0.36
Distributions paid or accrued:
General Partner.............................................. $ 39,740 $ 0 $ 39,740
BUC Holders.................................................. 3,934,217 0 3,934,217
------------- ------------------- -------------
$ 3,973,957 $ 0 $ 3,973,957
Distributions paid or accrued per BUC.......................... $ 0.75 $ 0.00 $ 0.75
</TABLE>
The following transactions are reflected on a proforma basis:
(a) Record the operating results of Jefferson Place and Avalon Ridge
properties acquired in settlement of bonds and the elimination of related
mortgage investment income. Buildings and improvements will be depreciated
on a straight-line basis over 27.5 years.
(b) Record the operating results of Oakwood Terrace Apartments.
Buildings and improvements will be depreciated on a straight-line basis over
27.5 years.
(c) Record (i) interest expense at the effective interest rate of 6.65%
and (ii) amortization of bond issuance costs on bonds issued to finance the
acquisition of Oakwood Terrace.
(d) Record interest expense on the participating loan related to Avalon
Ridge owed to an affiliated limited partnership.
(e) Record additional administrative fees resulting from the acquisition
of Jefferson Place and Avalon Ridge.
F-3
<PAGE>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP
PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 1996
<TABLE>
<CAPTION>
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
------------- ---------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
Income
Mortgage bond investment income................................ $ 594,905 $ (408,757)(a) $ 186,148
Rental income.................................................. 1,297,401 925,361(a) 2,339,841
117,079(b)
Interest income on temporary investments....................... 11,063 0 11,063
------------- ---------------- -------------
1,903,369 633,683 2,537,052
Expenses
General and administrative expenses............................ 172,631 0 172,531
Administrative fees............................................ 56,550 47,333(e) 103,883
Real estate operating expenses................................. 717,406 514,045(a) 1,307,658
76,207(b)
Depreciation and amortization.................................. 308,092 218,650(a) 542,305
15,563(b)
Interest expense............................................... 0 10,698(d) 56,937
46,239(c)
------------- ---------------- -------------
1,254,579 928,735 2,183,314
------------- ---------------- -------------
Net income....................................................... $ 648,790 $ (295,052) $ 353,738
Net income allocated to:
General Partner................................................ $ 9,569 $ (2,951) $ 6,618
BUC Holders.................................................... 639,221 (292,101) 347,120
------------- ---------------- -------------
$ 648,790 $ (295,052) $ 353,738
------------- ---------------- -------------
Net income per BUC............................................... $ 0.12 $ (0.06) $ 0.07
Distributions paid or accrued:
General Partner................................................ $ 9,935 $ 0 $ 9,935
BUC Holders.................................................... 983,554 0 983,554
------------- ---------------- -------------
$ 993,489 $ 0 $ 993,489
Distributions paid or accrued per BUC............................ $ 0.1875 $ 0.0000 $ 0.1875
</TABLE>
The following transactions are reflected on a proforma basis:
(a) Record the operating results of Jefferson Place and Avalon Ridge
properties acquired in settlement of bonds and the elimination of related
mortgage investment income. Buildings and improvements will be depreciated
on a straight-line basis over 27.5 years.
(b) Record the operating results of Oakwood Terrace Apartments.
Buildings and improvements will be depreciated on a straight-line basis over
27.5 years.
(c) Record (i) interest expense at the effective interest rate of 6.65%
and (ii) amortization of bond issuance costs on bonds issued to finance the
acquisition of Oakwood Terrace.
(d) Record interest expense on the participating loan related to Avalon
Ridge owed to an affiliated limited partnership.
(e) Record additional administrative fees resulting from the acquisition
of Jefferson Place and Avalon Ridge.
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APPENDIX A
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AMERICA FIRST
APARTMENT INVESTORS, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
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TABLE OF CONTENTS
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ARTICLE I
DEFINED TERMS ............................................................................................ A-1
ARTICLE II
NAME, PLACE OF BUSINESS, PURPOSE
AND TERM
SECTION 2.01. Name................................................................................ A-5
SECTION 2.02. Principal Office and Name and Address of Resident Agent............................. A-5
SECTION 2.03. Purpose............................................................................. A-6
SECTION 2.04. Term................................................................................ A-6
ARTICLE III
PARTNERS AND CAPITAL
SECTION 3.01. General Partner..................................................................... A-6
SECTION 3.02. Limited Partners.................................................................... A-6
SECTION 3.03. Partnership Capital................................................................. A-6
SECTION 3.04. Liability of Partners and BUC Holders............................................... A-7
ARTICLE IV
DISTRIBUTIONS OF CASH;
ALLOCATIONS OF INCOME AND LOSS
SECTION 4.01. Distributions of Net Operating Income............................................... A-7
SECTION 4.02. Distributions of Net Sale Proceeds and of Liquidation Proceeds...................... A-7
SECTION 4.03. Allocation of Income and Loss From Operations....................................... A-8
SECTION 4.04. Allocation of Income and Loss Arising From a Sale or Liquidation.................... A-8
SECTION 4.05. Determination of Allocations and Distributions Among Limited Partners and BUC
Holders............................................................................ A-8
SECTION 4.06. Capital Accounts.................................................................... A-9
SECTION 4.07. Rights to Distributions............................................................. A-9
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS
OF THE GENERAL PARTNER
SECTION 5.01. Management of the Partnership....................................................... A-10
SECTION 5.02. Authority of the General Partner.................................................... A-10
SECTION 5.03. Authority of General Partner and Its Affiliates To Deal With Partnership............ A-12
SECTION 5.04. General Restrictions on Authority of the General Partner............................ A-13
SECTION 5.05. Compensation and Fees............................................................... A-14
SECTION 5.06. Duties and Obligations of the General Partner....................................... A-15
SECTION 5.07. Delegation of Authority............................................................. A-16
SECTION 5.08. Other Activities.................................................................... A-16
SECTION 5.09. Limitation on Liability of the General Partner and Initial Limited Partner;
Indemnification.................................................................... A-16
SECTION 5.10. Special Amendments to the Agreement................................................. A-17
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ARTICLE VI
CHANGES IN GENERAL PARTNERS
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SECTION 6.01. Withdrawal of General Partner....................................................... A-18
SECTION 6.02. Admission of a Successor or Additional General Partner.............................. A-18
SECTION 6.03. Removal of a General Partner........................................................ A-18
SECTION 6.04. Effect of Incapacity of a General Partner........................................... A-19
ARTICLE VII
TRANSFERABILITY OF BUCS
AND LIMITED PARTNERS' INTERESTS
SECTION 7.01. Free Transferability of BUCs........................................................ A-20
SECTION 7.02. Restrictions on Transfers of BUCs and of Interests of Limited Partners Other Than
the Initial Limited Partner........................................................ A-21
SECTION 7.03. Assignees of Limited Partners Other Than the Initial Limited Partner................ A-21
SECTION 7.04. Joint Ownership of Interests........................................................ A-22
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.01. Events Causing Dissolution.......................................................... A-23
SECTION 8.02. Liquidation......................................................................... A-23
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING, REPORTS,
TAX ELECTIONS
SECTION 9.01. Books and Records................................................................... A-24
SECTION 9.02. Accounting Basis and Fiscal Year.................................................... A-24
SECTION 9.03. Reports............................................................................. A-25
SECTION 9.04. Designation of Tax Matters Partner.................................................. A-25
SECTION 9.05. Expenses of Tax Matters Partner..................................................... A-25
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
AND BUC HOLDERS
SECTION 10.01. Meetings............................................................................ A-26
SECTION 10.02. Voting Rights of Limited Partners and BUC Holders................................... A-27
SECTION 10.03. Opinion Regarding Effect of Action by Limited Partners and BUC Holders.............. A-28
SECTION 10.04. Other Activities.................................................................... A-28
ARTICLE XI
ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS TO
BUC HOLDERS AND RIGHTS OF BUC HOLDERS
SECTION 11.01. Assignment of Limited Partnership Interests to BUC Holders.......................... A-28
SECTION 11.02. Rights of BUC Holders............................................................... A-29
SECTION 11.03. Voting by the Initial Limited Partner on Behalf of BUC Holders...................... A-29
SECTION 11.04. Preservation of Tax Status.......................................................... A-30
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ARTICLE XII
MISCELLANEOUS PROVISIONS
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SECTION 12.01. Appointment of the General Partner as Attorney-in-Fact.............................. A-30
SECTION 12.02. Signatures.......................................................................... A-31
SECTION 12.03. Amendments.......................................................................... A-31
SECTION 12.04. Ownership by the Limited Partners of General Partners or Their Affiliates........... A-32
SECTION 12.05. Binding Provisions.................................................................. A-32
SECTION 12.06. Applicable Law...................................................................... A-32
SECTION 12.07. Separability of Provisions.......................................................... A-32
SECTION 12.08. Captions............................................................................ A-33
SECTION 12.09. Entire Agreement.................................................................... A-33
TESTIMONIUM .................................................................................... A-33
SCHEDULE A
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<PAGE>
AMERICA FIRST APARTMENT INVESTORS, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement is made as of , 1996 by and between America First
Capital Associates Limited Partnership Four (the "General Partner") and America
First Fiduciary Corporation Number Eight (the "Initial Limited Partner"), who by
joining in this Agreement agree to become partners in a limited partnership
under the laws of the State of Delaware.
ARTICLE I
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Article I. The singular shall
include the plural and the masculine genders shall include the feminine and
neuter gender, and vice versa, as the context requires.
"Accountants" means such nationally recognized firm of independent public
accountants as shall be engaged from time to time by the General Partner on
behalf of the Partnership.
"Act" means the Delaware Revised Uniform Limited Partnership Act, which
consists of Title 6, Chapter 17 of the Delaware Code Annotated, as it may be
amended or revised from time to time, or any other provision of Delaware law
which may, from time to time, supersede part or all of the Delaware Revised
Uniform Limited Partnership Act.
"Administrative Fee" means the fee paid by the Partnership to AFCA pursuant
to Section 5.05(c) hereof for the administration of the Partnership and its
assets.
"AFCA" means America First Capital Associates Limited Partnership Four, a
Delaware limited partnership, the General Partner.
"Affiliate" means, when used with reference to a specified Person, (i) any
Person who directly or indirectly controls or is controlled by or is under
common control with the specified Person, (ii) any Person who is (or has the
power to designate) an officer of, general partner in or trustee of, or serves
(or has the power to designate a person to serve) in a similar capacity with
respect to, the specified Person, or of which the specified Person is an
officer, general partner or trustee, or with respect to which the specified
Person serves in a similar capacity, and (iii) any Person who, directly or
indirectly, is the beneficial owner of 10% or more of any class of equity
securities of the specified Person or of which the specified Person is directly
or indirectly the owner of 10% or more of any class of equity securities. An
Affiliate of the Partnership or the General Partner does not include any limited
partner of the General Partner if such Person is not otherwise an Affiliate of
the Partnership or the General Partner.
"Agreement" means this Limited Partnership Agreement, as originally executed
and as amended from time to time.
"Bankruptcy" or "Bankrupt" as to any Person means the filing of a petition
for relief by such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or like provision of law or insolvency of such Person as finally determined
by a court proceeding.
"Bond" or "Bonds" means one or more of the tax-exempt housing bonds which
were originally issued by various state or local authorities to the Prior
Partnership in order to provide construction and permanent financing for seven
apartment complexes now known as Jackson Park Place in Fresno, California;
Jefferson Place in Olathe, Kansas; Avalon Ridge in Renton, Washington; Covey at
Fox Valley in Aurora, Illinois; The Park at Fifty Eight in Chattanooga,
Tennessee; Shelby Heights in Bristol, Tennessee and Coral Point in Mesa Arizona
and one office/warehouse facility known as the Exchange at Palm Bay in Palm Bay,
Florida.
A-1
<PAGE>
"BUC" means a Limited Partnership Interest which is credited to the Initial
Limited Partner on the books and records of the Partnership and assigned by the
Initial Limited Partner to a BUC Holder.
"BUC Holder" means any Person who has been assigned one or more Limited
Partnership Interests by the Initial Limited Partner pursuant to Section 11.01.
A BUC Holder is not a Limited Partner and will have no right to be admitted as a
Limited Partner.
"Business Day" means any day other than a Saturday, Sunday or a day on which
banking institutions in either New York, New York or Omaha, Nebraska are
obligated by law or executive order to be closed.
"Capital Account" means the capital account of a Partner or a BUC Holder as
described in Section 4.06 hereof.
"Capital Contribution" means the total amount contributed to the capital of
the Partnership by or on behalf of all Partners or any class of Partners or by
any one Partner, as the context may require (or by the predecessor holders of
the Partnership Interests of such Persons) and, with respect to a BUC Holder,
the Capital Contribution of the Initial Limited Partner made on behalf of such
BUC Holder.
"Cause" means conduct which constitutes fraud, bad faith, negligence,
misconduct or breach of a fiduciary duty.
"Certificate" means the certificate of limited partnership filed pursuant to
Section 17-201 of the Act.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of succeeding law.
"Consent" means either the consent given by a vote at a meeting called and
held in accordance with the provisions of Section 10.01 hereof or the written
consent, as the case may be, of a Person to do the act or thing for which the
consent is solicited, or the act of granting such consent, as the context may
require. Consent given after the act or thing is done with respect to which the
Consent is solicited shall be deemed to relate back to the date such act or
thing was done.
"Counsel" means the law firm representing the General Partner in connection
with the operation of the Partnership or the law firm, if any, selected by the
General Partner to represent the Partnership.
"Distribution Date" means a Business Day selected by the General Partner for
the distribution of Net Operating Income or Net Sale Proceeds with respect to a
Distribution Period, which Business Day shall be no later than 60 days following
the last day of the Distribution Period to which such Distribution Date relates.
"Distribution Period" means the period of time selected by the General
Partner for which the distribution of Net Operating Income or Net Sale Proceeds
is made, which period may be no longer than six calendar months.
"Foreclosed Bonds" means any Bonds which were originally issued in order to
provide construction and permanent financing for Properties which either the
Prior Partnership or the Partnership have acquired through foreclosure or deed
in lieu of foreclosure. As of the date of this Agreement, the Foreclosed Bonds
are those Bonds that were originally issued in order to provide construction and
permanent financing for four apartment complexes now known as Covey at Fox
Valley in Aurora, Illinois; The Park at Fifty Eight in Chattanooga, Tennessee;
Shelby Heights in Bristol, Tennessee and Coral Point in Mesa Arizona the
office/warehouse facility known as the Exchange at Palm Bay in Palm Bay,
Florida.
"General Partner" means AFCA or any Person or Persons who, at the time of
reference thereto, have been admitted as successors to the Partnership Interest
of AFCA or as additional General Partners, in each such Person's capacity as a
General Partner.
A-2
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"Incapacity" or "Incapacitated" means, as to any Person, death, the
adjudication of incompetency or insanity, Bankruptcy, dissolution, termination,
withdrawal pursuant to Section 6.01 or removal pursuant to Section 6.03, as the
case may be, of such Person.
"Income" means the taxable income of the Partnership as determined in
accordance with the Partnership's method of accounting and computed under
Section 703 of the Code; any item of taxable income required to be separately
stated on the Partnership's federal income tax return pursuant to Section
703(a)(1) of the Code; and any income of the Partnership excluded from the gross
income of the Partnership for federal income tax purposes under Section 103 of
the Code.
"Initial Limited Partner" means America First Fiduciary Corporation Number
Eight, a Nebraska corporation, or any Person or Persons who, at the time of
reference thereto, have been admitted to the Partnership, with the consent of
the General Partner, as successors to the Limited Partnership Interest of
America First Fiduciary Corporation Number Eight.
"Limited Partner" means any Person who is a Limited Partner, including the
Initial Limited Partner, at the time of reference thereto, in such Person's
capacity as a Limited Partner of the Partnership. A BUC Holder is not a Limited
Partner and has no right to be admitted as a Limited Partner.
"Limited Partnership Interest" means the Partnership Interest held by a
Limited Partner, including the Limited Partnership Interests assigned to BUC
Holders.
"Liquidation Proceeds" means all cash receipts of the Partnership (other
than Operating Income and Sale Proceeds) arising from the liquidation of the
Partnership's assets in the course of the dissolution of the Partnership.
"Loss" means taxable losses of the Partnership, as determined in accordance
with the Partnership's method of accounting and computed under Section 703 of
the Code; any item of loss or expense required to be separately stated on the
Partnership's federal income tax return pursuant to Section 703(a)(1) of the
Code; and any expenditures of the Partnership not deductible in computing its
taxable income and not properly treated as a capital expenditure.
"Merger Agreement" means the Agreement of Merger, dated March , 1996, by
and between the Partnership and the Prior Partnership pursuant to which the
Partnership and the Prior Partnership will be merged in accordance with the
provisions of the Act with the Partnership being the surviving partnership.
"Merger Date" means the effective date of the merger of the Partnership and
the Prior Partnership specified in the Merger Agreement.
"Monthly Record Date" means the last day of a calendar month.
"Net Operating Income" means, with respect to any Distribution Period, all
Operating Income received by the Partnership during such Distribution Period,
plus any amounts previously set aside as Reserves from Operating Income which
the General Partner releases from Reserves as being no longer necessary to hold
as part of Reserves, less (i) expenses of the Partnership (including fees and
reimbursements paid to the General Partner but excluding any expenses of the
Partnership which are directly attributable to the sale of a Property) paid from
Operating Income during the Distribution Period (other than operating expenses
paid from previously established Reserves), (ii) all cash payments made from
Operating Income during such Distribution Period to discharge Partnership
indebtedness, and (iii) all amounts from Operating Income set aside as Reserves
or used to acquire additional Properties during such Distribution Period.
"Net Sale Proceeds" means, with respect to any Distribution Period, all Sale
Proceeds received by the Partnership during such Distribution Period, plus any
amounts previously set aside as Reserves from Sale Proceeds which the General
Partner releases from Reserves as being no longer necessary to hold as part of
Reserves, less (i) all expenses of the Partnership which are directly
attributable to the
A-3
<PAGE>
sale of a Property, (ii) all cash payments made from Sale Proceeds during such
Distribution Period to discharge Partnership indebtedness and (iii) all amounts
from Sale Proceeds set aside as Reserves or used to acquire additional
Properties during such Distribution Period or held by the Partnership to acquire
additional Properties in future Distribution Periods.
"Notice" means a writing, containing the information required by this
Agreement to be communicated to any Person, personally delivered to such Person
or sent by registered, certified or regular mail, postage prepaid, to such
Person at the last known address of such Person.
"Operating Income" means all cash receipts of the Partnership with respect
to any period (including any interest payments received on an Outstanding Bond)
except for (i) Capital Contributions, (ii) Sale Proceeds or (iii) the proceeds
of any loan to the Partnership or the refinancing of any loan, including
proceeds received from the reissuance of any Foreclosed Bond.
"Outstanding Bonds" means the Bonds acquired by the Partnership from the
Prior Partnership which are not Foreclosed Bonds. As of the date of this
Agreement, the Outstanding Bonds are those Bonds which were originally issued in
order to provide construction and permanent financing for three apartment
complexes now known as Jackson Park Place in Fresno, California; Jefferson Place
in Olathe, Kansas and Avalon Ridge in Renton, Washington.
"Partner" means the General Partner or any Limited Partner.
"Partnership" means the limited partnership created by this Agreement and
known as the America First Apartment Investors, L.P., as said limited
partnership may from time to time be constituted.
"Partnership Interest" means the entire ownership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which a Partner may be entitled under this Agreement,
together with the obligations of such Partner to comply with all the terms and
provisions of this Agreement and the Act.
"Person" means any individual, partnership, corporation, trust, association
or other legal entity.
"Prior Partnership" means America First Tax Exempt Mortgage Fund 2 Limited
Partnership, a Delaware limited partnership.
"Prior Partnership Agreement" means the Agreement of Limited Partnership,
dated October 15, 1986, of the Prior Partnership.
"Property" or "Properties" means the real property, including land and the
buildings thereon, in which the Partnership holds an ownership interest.
"Property Acquisition Fee" means the fee paid by the Partnership to AFCA
pursuant to Section 5.05(b) hereof in connection with the identification,
evaluation and acquisition of real estate by the Partnership other than the
Properties which had originally been financed by the Bonds.
"Regulations" means the United States Treasury Regulations promulgated or
proposed under the Code.
"Reserve" means such amount of funds as shall be withheld from Operating
Income or Sale Proceeds by the General Partner from time to time in order to
provide working capital for the Partnership and which may be used for any
purpose relating to the operation of the Partnership and its Properties,
including the acquisition of additional Properties.
"Sale Proceeds" means all amounts received by the Partnership upon the sale
of a Property or other Partnership asset or from the repayment of all or a
portion of the principal of any Outstanding Bond.
A-4
<PAGE>
"Schedule A" means the schedule, as amended from time to time, of Partners'
names, addresses and Capital Contributions, which schedule, in its initial form,
is attached to and made a part of this Agreement.
"Tax Matters Partner" means the Partner designated as the Tax Matters
Partner of the Partnership by the General Partner pursuant to Section 9.04.
ARTICLE II
NAME, PLACE OF BUSINESS, PURPOSE AND TERM
Section 2.01. NAME. The Partners have caused the formation a limited
partnership pursuant to the Act under the name of "America First Apartment
Investors, L.P." The Partners and BUC Holders have entered into this Agreement
in order to set forth their respective rights and liabilities as such, subject
to the provisions of the Act unless otherwise provided herein.
Section 2.02. PRINCIPAL OFFICE AND NAME AND ADDRESS OF RESIDENT AGENT. The
address of the principal office and place of business of the Partnership, unless
hereafter changed by the General Partner, shall be 1004 Farnam Street, Suite
400, Omaha, Nebraska 68102. Notification of any change in the Partnership's
principal office and place of business shall be promptly given by the General
Partner to the Limited Partners and BUC Holders. The name and address of the
initial resident agent of the Partnership in the State of Delaware is The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The
resident agent may be changed by the General Partner.
Section 2.03. PURPOSE. The purpose of the Partnership is to acquire, hold,
operate, sell and otherwise deal with multifamily residential properties and
other types of commercial real estate and interests therein. The Partnership
will pursue its purpose in order (i) to preserve and protect the Partnership's
capital and (ii) to provide regular cash distribution to the BUC Holders. The
Partnership shall be authorized to continue to hold Outstanding Bonds, to
foreclose on Properties secured by Outstanding Bonds, to reissue Foreclosed
Bonds on terms and conditions as the General Partner shall determine in its sole
discretion and to engage in any and all acts necessary, appropriate, advisable
or incidental to its purpose and to the conduct of its business.
Section 2.04. TERM. The Partnership began on the date of the filing of the
Certificate and shall continue in full force and effect until December 31, 2016
or until sooner dissolved pursuant to the provisions of this Agreement.
ARTICLE III
PARTNERS AND CAPITAL
Section 3.01. GENERAL PARTNER. (a) The name, address and Capital
Contribution of the General Partner (which shall be measured by its capital
account in the Prior Partnership on the Merger Date) are set forth in Schedule
A. The General Partner, as such, shall not be required to make any additional
Capital Contribution to the Partnership, except as provided in paragraph (b) of
this Section 3.01.
(b) Upon the dissolution and termination of the Partnership, the General
Partner will contribute to the Partnership an amount equal to the lesser of (i)
any deficit balance in its Capital Account or (ii) the excess of (A) 1.01% of
the Capital Contributions of the Limited Partners to the Partnership (including
the Capital Contribution of the Initial Limited Partner made on behalf of the
BUC Holders) over (B) the amount of previous Capital Contributions made by the
General Partner to the Partnership.
Section 3.02. LIMITED PARTNER. The name, address and Capital Contribution
of the Limited Partner (which shall be measured by its capital account in the
Prior Partnership on the Merger Date) are as set forth in Schedule A. The
Capital Contribution made by the Initial Limited Partner shall be deemed to have
been made on behalf of, and as trustee for, the BUC Holders. Neither the Initial
A-5
<PAGE>
Limited Partner nor the BUC Holders shall be required to make any additional
Capital Contribution to the Partnership. Other than to serve as Initial Limited
Partner, the Initial Limited Partner shall have no other business purpose and
shall not engage in any other activity or incur any debts. The Initial Limited
Partner agrees not to amend its articles of incorporation with respect to the
incurrence of debt without the written Consent of a majority in interest of the
BUC Holders.
Section 3.03. PARTNERSHIP CAPITAL.
(a) No Partner or BUC Holder shall be paid interest on any Capital
Contribution.
(b) Except as specifically provided in Section 6.03, the Partnership shall
not be required to redeem or repurchase any Partnership Interest or BUC and no
Partner or BUC Holder shall have the right to withdraw, or receive any return
of, his Capital Contribution. Under circumstances requiring a return of any
Capital Contribution, no Limited Partner or BUC Holder will have the right to
receive property other than cash.
(c) No Limited Partner or BUC Holder shall have any priority over any other
Limited Partner or BUC Holder as to the return of his Capital Contribution or as
to distributions.
(d) The General Partner shall have no liability for the repayment of the
Capital Contributions.
Section 3.04. LIABILITY OF PARTNERS AND BUC HOLDERS. No Limited Partner or
BUC Holder shall be required to lend any funds to the Partnership or, after his
Capital Contribution has been paid, to make any further Capital Contribution to
the Partnership. The liability of any Limited Partner or BUC Holder for the
losses, debts, liabilities and obligations of the Partnership shall, so long as
the Limited Partner or BUC Holder complies with Section 5.01(b), be limited to
his Capital Contribution and his share of any undistributed Income of the
Partnership. Notwithstanding the foregoing, it is possible that, under
applicable law, a Limited Partner or BUC Holder may be liable to the Partnership
to the extent of previous distributions made to such Limited Partner or BUC does
not have sufficient assets to discharge liabilities to its creditors who
extended credit or whose claims arose prior to such distributions. To the extent
that the Initial Limited Partner is required by law to return any distributions
or repay any amount each BUC Holder who has received any portion of such
distributions agrees, by virtue of accepting such distribution, to pay his
proportionate share of such amount to the Initial Limited Partner immediately
upon Notice by the Initial Limited Partner to such BUC Holder. In lieu of
requiring return of such distributions from BUC Holders, the General Partner may
withhold future distributions of Net Operating Income, Net Sale Proceeds or
Liquidation Proceeds until the amount so withheld equals the amount of the
distributions the Initial Limited Partner is required to repay or return
regardless of whether the BUC Holders entitled to receive such distribution were
the same BUC Holders who actually received the distribution required to be
returned. In the event that the Initial Limited Partner is determined to have
unlimited liability for losses, debts, liabilities and obligations of the
Partnership, nothing set forth in this Section shall be construed to require BUC
Holders to assume any portion of such liability.
ARTICLE IV
DISTRIBUTIONS OF CASH; ALLOCATIONS OF INCOME AND LOSS
Section 4.01. DISTRIBUTIONS OF NET OPERATING INCOME. On each Distribution
Date, all Net Operating Income will be distributed 99% to the Limited Partners
and BUC Holders as a class and 1% to the General Partner.
Section 4.02. DISTRIBUTIONS OF NET SALE PROCEEDS AND OF LIQUIDATION
PROCEEDS.
(a) On each Distribution Date, all amounts representing Net Sale Proceeds
will be distributed 100% to the Limited Partners and BUC Holders as a class.
(b) All Liquidation Proceeds shall be applied and distributed in the
following amounts and order of priority:
A-6
<PAGE>
(i) to the payment of the amounts and the establishment of the reserves
provided for in Section 8.02(b);
(ii) to the Partners and BUC Holders in accordance with the positive
balances in their respective Capital Accounts until such accounts are
reduced to zero; and
(iii) then to the Partners and BUC Holders giving effect to the
provisions of Section 4.02(a) as if such Liquidation Proceeds constituted
Net Sale Proceeds for purposes of such Section.
Section 4.03. ALLOCATION OF INCOME AND LOSS FROM OPERATIONS.
(a) Income and Loss shall be determined in accordance with the accounting
methods followed by the Partnership for federal income tax purposes and
otherwise in accordance with generally accepted accounting principles. For
purposes of determining the Income, Loss, tax credits or any other items
allocable to any period, Income, Loss, tax credits and any such other items
shall be determined on a daily, monthly or other basis, as determined by the
General Partner using any permissible method under Section 706 of the Code and
the Regulations thereunder. An allocation to a Partner of a share of Income or
Loss under this Section 4.03 shall be treated as an allocation to such Partner
of the same share of each item of income, gain, loss, deduction and credit that
is taken into account in computing such Income and Loss.
(b) Subject to the provisions of Sections 4.03(c) and (d) and 5.04(m),
Income and Loss for each Distribution Period not arising from the sale of a
Property or the liquidation of the Partnership shall be allocated 1% to the
General Partner and 99% to the Limited Partners and the BUC Holders as a class.
(c) Notwithstanding any provision hereof to the contrary, if a Partner has a
deficit Capital Account balance as of the last day of any fiscal year, then all
items of Income for such fiscal year shall be first allocated to such Partner in
the amount and in the manner necessary to eliminate such deficit Capital Account
balance.
(d) Notwithstanding any other provision of this Agreement, all allocations
of Income and Loss shall be subject to and interpreted in accordance with
Section 704 of the Code to the extent applicable. The foregoing allocations are
intended to comply with Section 704 of the Code and the Regulations thereunder
and shall be interpreted consistently therewith.
Section 4.04. ALLOCATION OF INCOME AND LOSS ARISING FROM A SALE OR
LIQUIDATION.
(a) Subject to Section 4.03 (c), Income arising from a sale of a Property or
from the liquidation of the Partnership assets shall be allocated 100 % to the
Limited Partners and the BUC Holders as a class.
(b) Loss arising from the sale of a Property or from the liquidation of
Partnership assets shall be allocated among the Partners (including the Initial
Limited Partner on behalf of the BUC Holders) in the same manner as Net Sale
Proceeds or Liquidation Proceeds are allocated among the Partners pursuant to
Section 4.02.
Section 4.05. DETERMINATION OF ALLOCATIONS AND DISTRIBUTIONS AMONG LIMITED
PARTNERS AND BUC HOLDERS.
(a) As of each Monthly Record Date during the term of the Partnership, a
determination shall be made of the amount of Income and Loss which, under the
Partnership's method of accounting, is properly attributable to the month to
which such Monthly Record Date relates and which was allocable to the Limited
Partners and BUC Holders as a class in accordance with Sections 4.04 and 4.05.
(b) As of the last day of each Distribution Period during the term of the
Partnership, a determination shall be made of the amount of Net Operating Income
and Net Sale Proceeds available to the Partnership during such Distribution
Period which was allocated for distribution to the Limited
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Partners and BUC Holders in accordance with Sections 4.01 and 4.02; provided,
however, that the General Partner may elect to make the determination under this
Section 4.05(b) as of each Monthly Record Date.
(c) All allocations to the Limited Partners and BUC Holders as a class
pursuant to Section 4.03 shall be made on a monthly basis among the Limited
Partners or BUC Holders who held of record a Limited Partnership Interest or BUC
as of the Monthly Record Date in the ratio that (i) the number of Limited
Partnership Interests or BUCs held of record by each such Limited Partner or BUC
Holder as of the Monthly Record Date bears to (ii) the aggregate number of
Limited Partnership Interests and BUCs outstanding on each such Monthly Record
Date.
(d) All allocations to the Limited Partners and the BUC Holders as a class
pursuant to Section 4.04 shall be made among the Limited Partners or BUC Holders
of record on the Monthly Record Date for the month during which the Income or
Expense arose from a sale of a Property or liquidation of the Partnership, in
the ratio that (i) the number of Limited Partnership Interests or BUCs held of
record by each such Limited Partner or BUC Holder on such Monthly Record Date
bears to (ii) the number of Limited Partnership Interests or BUCs outstanding on
such Monthly Record Date.
(e) Net Operating Income and Net Sale Proceeds will be allocated to the
Limited Partners or BUC Holders of record on the last day of the Distribution
Period (or, if the General Partner so elects, on each Monthly Record Date during
such Distribution Period) in the ratio that (i) the number of Limited
Partnership Interests or BUCs owned of record by each such Limited Partner or
BUC Holder on each such date bears to (ii) the number of Limited Partnership
Interests or BUCs outstanding on such date.
Section 4.06. CAPITAL ACCOUNTS. A separate Capital Account shall be
maintained and adjusted for each Partner in accordance with the Code and the
Regulations. There shall be credited to each Partner's Capital Account the
amount of such Partner's Capital Contribution (equal to the amount of its
capital account on the books and records of the Prior Partnership as of the
Merger Date) and such Partner's share of Income; and there shall be charged
against each Partner's Capital Account the amount of such Partner's share of
Loss and cash distributions. The Initial Limited Partner's Capital Account shall
be subdivided into separate Capital Accounts to reflect the interest of each BUC
Holder. Any items credited or charged to the BUC Holders shall be reflected in
the Capital Account of the Initial Limited Partner and in the subaccounts
reflecting the interest of each BUC Holder. Any person who acquires a Limited
Partnership Interest or a BUC from a Limited Partner or BUC Holder shall have a
Capital Account equal to the Capital Account of the Limited Partner or BUC
Holder from which such Limited Partnership Interest or BUC was acquired.
Section 4.07. RIGHTS TO DISTRIBUTIONS. Each holder of Partnership
Interests and BUCs shall look solely to the assets of the Partnership for all
distributions with respect to the Partnership, his Capital Contributions and his
share of Net Operating Income, Net Sale Proceeds and Liquidation Proceeds and,
except as provided in Section 3.01(b), shall have no recourse therefor, upon
dissolution or otherwise, against the General Partner or the Initial Limited
Partner. No Partner or BUC Holder shall have any right to demand or receive
property other than cash upon dissolution and termination of the Partnership.
All distributions pursuant to this Article IV are subject to the provisions of
Section 3.04.
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
Section 5.01. MANAGEMENT OF THE PARTNERSHIP.
(a) The General Partner, within the authority granted to it under this
Agreement, shall have full, complete and exclusive discretion to manage and
control the business of the Partnership and to carry out the purposes of the
Partnership. In so doing, the General Partner shall use its best efforts to take
all actions necessary or appropriate to protect the interests of the Limited
Partners and the BUC
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Holders. All decisions made for and on behalf of the Partnership by the General
Partner shall be binding upon the Partnership. Except as otherwise provided in
this Agreement, the General Partner shall have all the rights and powers and
shall be subject to all the restrictions and liabilities of a partner in a
partnership without limited partners.
(b) No Limited Partner or BUC Holder shall take part in the management or
control of the business of the Partnership or transact any business in the name
of the Partnership. No Limited Partner or BUC Holder shall have the power or
authority to bind the Partnership or to sign any agreement or document in the
name of the Partnership. No Limited Partner or BUC Holder shall have any power
or authority with respect to the Partnership except insofar as the vote or
Consent of the Limited Partners or BUC Holders shall be expressly required or
permitted by this Agreement.
Section 5.02. AUTHORITY OF THE GENERAL PARTNER.
(a) Subject to Sections 5.03 and 5.04, but otherwise without in any way
limiting the power and authority conferred on the General Partner by Section
5.01(a), the General Partner, for and in the name and on behalf of the
Partnership, is hereby authorized, without limitation:
(i) to negotiate for and enter into agreements to acquire, hold,
operate, sell and otherwise deal with the Properties at such prices and upon
such terms as it determines in its sole discretion, including holding such
Properties through special purpose corporations or other entities as may be
required by a rating agency in connection with the refunding of a Bond;
provided that any Property acquired by the Partnership (other than the
office/warehouse facility acquired from the Prior Partnership) shall be a
multifamily residential property;
(ii) to make all decisions to hold, foreclose upon, sell or otherwise
deal with the Outstanding Bonds and enter into any agreements with respect
thereto on such terms as it determines in its sole discretion;
(iii) to acquire by purchase, lease, exchange or otherwise any real or
personal property to be used in connection with the business of the
Partnership; provided, however, that no property may be acquired from the
General Partner or its Affiliates except for goods and services provided
subject to the restrictions of Section 5.03;
(iv) to borrow money and issue evidences of indebtedness (including the
refunding or reissuing any of the Foreclosed Bonds) and to secure the same
by a pledge, lien, mortgage or other encumbrance on any assets of the
Partnership and to apply to proceeds of such borrowing to the acquisition of
Properties or such other proper Partnership purpose as the General Partner
shall determine in its sole discretion;
(v) to employ agents, accountants, attorneys, consultants and other
Persons that are necessary or appropriate to carry out the business and
operations of the Partnership and to pay fees, expenses and other
compensation to such Persons; provided, that if such Persons are Affiliates
of the General Partner, the terms of such employment shall be subject to the
restrictions of Section 5.03;
(vi) to pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as it may determine and
upon such evidence as it may deem sufficient, any obligation, suit,
liability, cause of action or claim, including taxes, either in favor of or
against the Partnership;
(vii) except as otherwise expressly provided herein, to determine the
appropriate accounting method or methods to be used by the Partnership;
(viii) except as prohibited by this Agreement, to cause the Partnership to
make or revoke any of the elections referred to in the Code or any similar
provisions enacted in lieu thereof, including, but not limited to, those
elections provided for in Code Sections 108, 709 and 1017;
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(ix) to amend the Certificate or this Agreement to reflect the addition
or substitution of Partners and to amend this Agreement as provided in
Section 12.03;
(x) to deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any Person who has
provided or may in the future provide any services to, lend money to, sell
property to or purchase property from the General Partner or any of its
Affiliates;
(xi) to obtain loans from the General Partner or its Affiliates, provided
that the requirements of Section 5.03(d)(iii) are met;
(xii) to establish and maintain the Reserve in such amounts as it deems
appropriate from time to time and to increase, reduce or eliminate the
Reserve as it deems appropriate from time to time;
(xiii) to invest all funds not immediately needed in the operation of the
business including, but not limited to, (A) Capital Contributions, (B) the
Reserves or (C) Net Operating Income and Net Sale Proceeds prior to their
distribution to the Partners and BUC Holders;
(xiv) to acquire BUCs for the account of the Partnership in the secondary
trading market, provided that the BUCs are listed on The Nasdaq Stock Market
or a national securities exchange and to cause such BUCs to be cancelled;
and
(xv) to engage in any kind of activity and to enter into, perform and
carry out contracts of any kind necessary or incidental to, or in connection
with, the accomplishment of the purposes of the Partnership.
(b) With respect to all of its obligations, powers and responsibilities
under this Agreement, the General Partner is authorized to execute and deliver,
for and on behalf of the Partnership, such notes and other evidences of
indebtedness, contracts, trust instruments, agreements, assignments, deeds, loan
agreements, mortgages, deeds of trust, leases and such other documents as it
deems proper, all on such terms and conditions as it deems proper.
(c) No Person dealing with the General Partner shall be required to
determine the General Partner's authority to enter into any contract, agreement
or undertaking on behalf of the Partnership or to determine any facts or
circumstances bearing upon the existence of such authority. Any Person dealing
with the Partnership or the General Partner may rely upon a certificate signed
by the General Partner as to:
(i) the identity of the General Partner or any BUC Holder or Limited
Partner;
(ii) the existence or nonexistence of any fact or facts which constitute
a condition precedent to acts by the General Partner or are in any other
manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver any
instrument or document by or on behalf of the Partnership; or
(iv) any act or failure to act by the Partnership or as to any other
matter whatsoever involving the Partnership or any Partner.
Section 5.03. AUTHORITY OF GENERAL PARTNER AND ITS AFFILIATES TO DEAL WITH
PARTNERSHIP.
(a) The General Partner and its Affiliates may, and shall have the right to,
provide goods and services to the Partnership (including the right to act as
property manager of a Property or servicer of any Bond), subject to the
conditions set forth in Section 5.03(b).
(b) The General Partner and its Affiliates shall have the right to provide
goods and services to the Partnership as long as (i) the provision of such goods
and services is in the General Partner's or such Affiliate's ordinary and
ongoing business in which it has previously engaged, independent of the
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activities of the Partnership, (ii) such goods and services are reasonable for
and necessary to the Partnership, are actually furnished to the Partnership and
are provided at the lower of the actual cost of such goods and services or at
the price that would be charged for such goods or services by independent
parties for comparable goods and services in the same geographic location and
(iii) the provision of such goods and services in all other respects meets the
requirements of Section 5.03(c) and (d). The costs of verifying that the amounts
paid to the General Partner or its Affiliates for such goods and services meet
the foregoing standard may be reimbursed to the General Partner or its
Affiliates only to the extent that, when added to the costs of such goods and
services rendered, such sum does not exceed the competitive rate for such goods
and services.
(c) All goods and services provided by the General Partner or any Affiliates
pursuant to Section 5.03(b) shall be rendered pursuant to this Agreement or a
written contract, which contract precisely describes the services to be rendered
and all compensation to be paid and shall contain a clause allowing termination
without penalty on 60 days' Notice to the General Partner by the vote of the
majority in interest of the Limited Partners and the BUC Holders (the Initial
Limited Partner acting according to direction of the BUC Holders). Any payment
made to the General Partner or any Affiliate for such goods and services shall
be fully disclosed to all Limited Partners and BUC Holders in the reports
required under this Agreement. Neither the General Partner nor any Affiliate
shall, by the making of lump sum payments to any other Person for disbursement
by such other Person, circumvent the provisions of Section 5.03(b), (c) or (d).
(d) The General Partner is prohibited from entering into any agreements,
contracts or arrangements on behalf of the Partnership with the General Partner
or any Affiliate of the General Partner under which:
(i) the General Partner or any Affiliate shall be given an exclusive
right to sell, or exclusive employment to sell, a Property;
(ii) the Partnership lends money to the General Partner or any Affiliate
of the General Partner; or
(iii) the General Partner or any Affiliate of the General Partner makes a
loan to the Partnership which provides for a prepayment penalty or provides
for an interest rate or other finance charges and fees which are in excess
of the lesser of (A) amounts charged by unrelated banks on comparable loans
to the Partnership or (B) the same rate as the General Partner or such
Affiliate paid to obtain the funds to make the loan to the Partnership.
(e) Notwithstanding any provisions of this Section 5.03, neither the General
Partner nor any of its Affiliates shall:
(i) receive any rebate or give-up, or participate in any reciprocal
arrangement, which would circumvent the provisions of this Section 5.03; or
(ii) receive any compensation for providing insurance brokerage services
to the Partnership; or
(iii) charge the Partnership for, or take from any other Person, any
property management or real estate brokerage fee with respect to Partnership
property or assets, except as provided in Section 5.05(d).
Section 5.04. GENERAL RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER. In
exercising management authority and control of the Partnership, the General
Partner, on behalf of the Partnership and in furtherance of the business of the
Partnership, shall have the authority to perform all acts which the Partnership
is authorized to perform. However, the General Partner shall not have any
authority to:
(a) perform any act in violation of this Agreement or any applicable law or
regulation thereunder;
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(b) do any act required to be approved or ratified by the Limited Partners
under the Act without Consent of the Limited Partners or the BUC Holders, unless
the right to do so is expressly otherwise given in this Agreement;
(c) sell or otherwise dispose of all or substantially all of the assets of
the Partnership in a single transaction without the Consent of a majority in
interest of the Limited Partners (including the Initial Limited Partner acting
on behalf of the BUC Holders) as provided in Section 10.02(a)(ii); provided,
however, that this subsection (c) shall not apply to the sale of the last
Property owned by the Partnership;
(d) borrow money from the Partnership;
(e) dissolve the Partnership without the Consent of a majority in interest
of the Limited Partners (including the Initial Limited Partner acting on behalf
of the BUC Holders) as provided in Section 10.02(a)(iii);
(f) possess Partnership property, or assign the Partnership's rights in
specific Partnership property, for other than a Partnership purpose;
(g) admit a Person as a General Partner, except as provided in this
Agreement;
(h) admit a Person as a Limited Partner, except as provided in this
Agreement;
(i) sell, lease or lend Partnership assets to the General Partner or any
Affiliate of the General Partner or purchase or lease property from the General
Partner or its Affiliates, except as permitted by Section 5.02(a)(i);
(j) underwrite the securities of other issuers;
(k) do any act which would make it impossible to carry on the ordinary
business of the Partnership;
(l) knowingly perform any act that would subject any Limited Partner or BUC
Holder to liability as a general partner in any jurisdiction;
(m) allocate any Income or Loss (or any item thereof) to any Partner or BUC
Holder if, and only to the extent that, such allocation will cause the
determinations and allocations of Income or Loss (or any item thereof) provided
for in Article IV hereof not to be permitted by Section 704(b) of the Code and
the Regulations promulgated thereunder;
(n) confess a judgment against the Partnership;
(o) issue additional BUCs or other equity securities with rights and
privileges senior to those of the BUCs;
(p) make loans to the Partnership or accept loans on behalf of the
Partnership from the General Partner or any Affiliates of the General Partner,
except as provided in Section 5.03(d)(iii);
(q) amend this Agreement, except to the extent the right to amend this
Agreement is expressly provided for in other provisions of this Agreement; or
(r) invest Partnership funds in (i) junior trust deeds, (ii) securities of
other issuers, except for temporary investments pursuant to Section 5.02(a)(xii)
and interests in special purpose corporations or other entities which have been
formed for the purpose of holding Properties, (iii) land contracts or (iv)
unimproved real estate not associated with a Property or mortgage loans secured
thereby.
Section 5.05. COMPENSATION AND FEES.
(a) Except as provided in this Agreement, the General Partner will receive
no compensation from the Partnership.
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(b) The Partnership will pay the General Partner a Property Acquisition Fee
in connection with the identification, evaluation and acquisition of Properties
(other than the Properties which had originally been financed by the Bonds) and
the financing thereof, including through the reissuance of Foreclosed Bonds, in
an amount equal to 1.25% of the purchase price paid by the Partnership for such
additional Properties. The Property Acquisition Fee with respect to an
acquisition of a Property will be payable at the time of the closing of the
acquisition of such Property by the Partnership.
(c) The Partnership will pay the General Partner an Administrative Fee in
connection with the ongoing administration of the business of the Partnership in
an amount equal to 0.60% per annum of the sum of (i) the original principal
amount of the Foreclosed Bonds (even if such Foreclosed Bonds are subsequently
reissued in different principal amounts) and (ii) the purchase price of any
additional Properties acquired by the Partnership. Such Administrative Fee will
be payable on a monthly basis.
(d) The Partnership may pay an Affiliate of the General Partner a reasonable
property management fee in connection with the management of the Properties. The
property management fee paid with respect to any Property will be subject to the
provisions of Section 5.03 and may not exceed 5% of the gross revenues of such
Property (in the case of residential property) or 6% or the gross revenues of
such Property (in the case of industrial or commercial property).
(e) Subject to Section 5.05(f), the Partnership will reimburse the General
Partner or its Affiliates on a monthly basis for the actual out-of-pocket costs
of direct telephone and travel expenses incurred by them on Partnership
business, direct out-of-pocket fees, expenses and charges paid by them to third
parties for rendering legal, auditing, accounting, bookkeeping, computer,
printing and public relations services, expenses of preparing and distributing
reports to Limited Partners and BUC Holders, an allocable portion of the
salaries and fringe benefits of employees of AFCA or its Affiliates, insurance
premiums (including premiums for liability insurance which will cover the
Partnership, the General Partner and its general partner), the cost of
compliance with all state and federal regulatory requirements and stock exchange
or NASDAQ listing fees and charges and other payments to third parties for
services rendered to the Partnership. Any reimbursements pursuant to this
provision shall not be in excess of the lower of actual costs or the amount the
Partnership would be required to pay independent third parties for comparable
services in the same geographic location.
(f) The Partnership will not reimburse the General Partner or its Affiliates
for the travel expenses of the president of the general partner of the General
Partner or for any items of general overhead, including, but not limited to,
rent, utilities or the use of computers, office equipment or other capital items
owned by the General Partner or its Affiliates. The Partnership will not
reimburse the General Partner or its general partner for any salaries or fringe
benefits of any partner of the General Partner or of the officers or board of
managers of its general partner regardless of whether such persons provide
services to the Partnership.
(g) The Accountants will verify on the basis of generally accepted auditing
standards that any amounts reimbursed by the Partnership pursuant to Section
5.05(e) were incurred by the General Partner or its Affiliates in connection
with the conduct of the business and affairs of the Partnership or the
acquisition and management of its assets and were permissible reimbursements
pursuant to Section 5.05(f).
Section 5.06. DUTIES AND OBLIGATIONS OF THE GENERAL PARTNER.
(a) The General Partner shall devote to the affairs of the Partnership such
time as it deems necessary for the proper performance of its duties under this
Agreement, but neither the General Partner, its general partner nor any officer
or manager of its general partners shall be expected to devote full time to the
performance of such duties.
(b) The General Partner shall at all times use its best efforts to maintain
its net worth (including that of its general partner) at a sufficient level to
assure that the Partnership will be classified for federal income tax purposes
as a partnership and not as an association taxable as a corporation.
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(c) The General Partner shall take such action as may be necessary or
appropriate for the continuation of the Partnership's valid existence under the
laws of the State of Delaware and in order to qualify the Partnership under the
laws of any jurisdiction in which the Partnership is doing business or in which
such qualification is necessary or appropriate to protect the limited liability
of the Limited Partners and BUC Holders or in order to continue in effect such
qualification. The General Partner shall file or cause to be filed for
recordation in the office of the appropriate authorities of the State of
Delaware, and in the proper office or offices in each other jurisdiction in
which the Partnership is qualified, such certificates, including limited
partnership and fictitious name certificates, and other documents as are
required by the applicable statutes, rules or regulations of any such
jurisdiction.
(d) The General Partner shall prepare or cause to be prepared and shall file
on or before the due date (or any extension thereof) any federal, state or local
tax returns required to be filed by the Partnership. The General Partner shall
cause the Partnership to pay any taxes payable by the Partnership.
(e) The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in the General Partner's possession or control. The General Partner shall not
employ, or permit another to employ, such funds or assets in any manner except
for the exclusive benefit of the Partnership. The General Partner shall take all
steps necessary to insure that the funds of the Partnership are not commingled
with the funds of any other entity. The General Partner owes the same fiduciary
duty to the BUC Holders as the General Partner owes to the Limited Partners.
Section 5.07. DELEGATION OF AUTHORITY. Subject to the provisions of this
Article V, the General Partner may delegate all or any of its powers, rights and
obligations under this Agreement and may appoint, employ, contract or otherwise
deal with any Person for the transaction of the business of the Partnership,
which Person may, under supervision of the General Partner, perform any acts or
services for the Partnership as the General Partner may approve. Notwithstanding
any such delegation, the General Partner shall remain liable for any acts or
omissions by such Person under the standards of responsibility for the General
Partner set forth herein.
Section 5.08. OTHER ACTIVITIES. The General Partner and its Affiliates may
engage in or possess interests in other business ventures of every kind and
description for their own accounts, including, without limitation, serving as
general partner of other partnerships which own, either directly or through
interests in other partnerships, real estate similar in nature to the
Properties. Neither the Partnership nor the Partners or BUC Holders shall have
any rights by virtue of this Agreement in or to such other business ventures or
to the income or profits derived therefrom, and the pursuit of such ventures,
even if competitive with the business of the Partnership, shall not be deemed
wrongful, improper or a breach of fiduciary duty.
Section 5.09. LIMITATION ON LIABILITY OF THE GENERAL PARTNER AND INITIAL
LIMITED PARTNER; INDEMNIFICATION.
(a) Neither the General Partner, the Initial Limited Partner nor their
Affiliates (including the officers, managers and members of the general partner
of AFCA) shall be liable, responsible or accountable in damages or otherwise to
the Partnership or to any of the Limited Partners or BUC Holders for any act or
omission performed or omitted by such General Partner or Initial Limited Partner
in good faith and in a manner reasonably believed by it to be within the scope
of the authority granted to it by this Agreement and in the best interests of
the Partnership, provided that such General Partner's or Initial Limited
Partner's conduct did not constitute Cause. The Partnership shall indemnify and
hold harmless the General Partner, the Initial Limited Partner and their
Affiliates (including the officers, managers and members of the general partner
of AFCA) against and for any loss, liability or damage incurred by any of them
or the Partnership by reason of any act performed or omitted to be performed by
them in connection with the business of the Partnership, including all
judgments, costs and attorneys' fees (which attorneys' fees may be paid as
incurred, except as
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provided in 5.09(b)) and any amounts expended in settlement of any claims of
liability, loss or damage, provided that the indemnified Person's conduct did
not constitute Cause. The satisfaction of any indemnification obligation shall
be from and limited to Partnership assets, and no Limited Partner or BUC Holder
shall have any personal liability on account thereof. The termination of any
action, suit or proceeding, by judgment or settlement, shall not, of itself,
create a presumption that the indemnified Person did not act in good faith and
in a manner which is reasonably believed to be in or not opposed to the best
interest of the Partnership. Any indemnification under this subsection, unless
ordered by a court, shall be made by the Partnership only upon a determination
by independent legal counsel in a written opinion that indemnification of the
indemnified Person is proper in the circumstances because he has met the
applicable standard of conduct set forth in this Agreement. Notwithstanding any
provision of this subsection to the contrary, the General Partner shall be
presumed to be personally liable to creditors for the debts of the Partnership.
(b) Notwithstanding the provisions of Section 5.09(a), neither the General
Partner, the Initial Limited Partner nor any officer, director, manager,
partner, member, employee, agent, Affiliate, subsidiary or assign of the General
Partner, the Initial Limited Partner or the Partnership shall be indemnified
with regard to any liability, loss or damage incurred by them in connection with
any claim or settlement involving allegations that the Securities Act of 1933,
as amended, or any state securities laws were violated by the General Partner or
by any such other Person unless: (A) (i) the General Partner or other Persons
seeking indemnification are successful in defending such action on the merits of
each count involving such violation, (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction or (iii) a court of
competent jurisdiction approves a settlement of such claims; and (B) such
indemnification is specifically approved by a court of law which shall have been
advised as to the then current position of the Securities and Exchange
Commission regarding indemnification for violations of securities laws.
Section 5.10. SPECIAL AMENDMENTS TO THE AGREEMENT.
(a) Any provision to the contrary herein notwithstanding, the General
Partner may, without the Consent of the Limited Partners or BUC Holders, amend
Sections 4.03, 4.04 and 4.05 of this Agreement on the advice of Counsel or the
Accountants and upon Notice to the Limited Partners and BUC Holders mailed 10
days prior to the proposed effectiveness of such amendment (unless earlier
effectiveness is required by law) to the extent necessary to ensure compliance
with the Code and Regulations then in effect, provided that such amendments do
not materially adversely affect the interests of the Limited Partners and BUC
Holders in the sole determination of the General Partner.
(b) New allocations made by the General Partner in reliance upon the advice
of Counsel or the Accountants pursuant to Section 5.10(a) shall be deemed to be
made pursuant to the fiduciary obligation of the General Partner to the
Partnership, the Limited Partners and the BUC Holders, and no such new
allocation shall give rise to any claim or cause of action by any Limited
Partner or BUC Holder.
(c) The General Partner may take such action as it deems necessary or
appropriate, including action with respect to the manner in which BUCs are being
or may be transferred or traded, in order to preserve the status of the
Partnership as a partnership rather than an association taxable as a corporation
for federal income tax purposes or to insure that BUC Holders will be treated as
limited partners for federal income tax purposes.
ARTICLE VI
CHANGES IN GENERAL PARTNERS
Section 6.01. WITHDRAWAL OF GENERAL PARTNER. The General Partner shall not
be entitled to voluntarily withdraw from the Partnership or to sell, transfer or
assign all or a portion of its Partnership Interest as General Partner unless a
substitute General Partner has been admitted in accordance with the conditions
of Section 6.02.
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Section 6.02. ADMISSION OF A SUCCESSOR OR ADDITIONAL GENERAL PARTNER. The
General Partner may at any time designate additional Persons to be General
Partners, whose Partnership Interest in the Partnership shall be such as shall
be agreed upon by the General Partner and such additional General Partners,
provided that the Partnership Interests of the Limited Partners and the BUC
Holders shall not be reduced thereby. A Person shall be admitted as a General
Partner of the Partnership only if each of the following conditions is
satisfied:
(a) The admission of such Person shall have been Consented to by a majority
in interest of the Limited Partners (including the Initial Limited Partner
voting on behalf of the BUC Holders) as a class;
(b) such Person shall have accepted and agreed to be bound by the terms and
provisions of this Agreement by executing a counterpart hereof, and such
documents or instruments as may be required or appropriate in order to effect
the admission of such Person as a General Partner shall have been filed for
recording, and all other actions required by law in connection with such
admission shall have been performed;
(c) if such Person is a corporation, it shall have provided the Partnership
evidence satisfactory to Counsel of its authority to become a General Partner
and to be bound by the terms and provisions of this Agreement;
(d) the Partnership shall have received an opinion of Counsel that the
admission of such Person is in conformity with the Act and that none of the
actions taken in connection with the admission of such Person is in violation of
the Act;
(e) the Partnership shall have received an opinion from Counsel or the
Accountants that the Person to be admitted has sufficient net worth when
combined with that of the other General Partners, if any, and meets all other
published requirements of the Internal Revenue Service relating to general
partners necessary to assure that the Partnership will continue to be classified
as a partnership for federal income tax purposes.
Section 6.03. REMOVAL OF A GENERAL PARTNER.
(a) Subject to Section 10.02, a majority in interest of the Limited Partners
(including the Initial Limited Partner voting on behalf of the BUC Holders)
acting together as a class, without the Consent or other action by the General
Partner to be removed, may remove any General Partner and, subject to the
provisions of Sections 6.02 and 8.01(a), may elect a replacement therefor. After
the Limited Partners vote to remove a General Partner pursuant to this Section
6.03, they shall provide the removed General Partner with Notice thereof, which
Notice shall set forth the date upon which such removal is to become effective,
which date shall be no earlier than the date upon which the General Partner
receives such Notice.
(b) If the General Partner is removed for Cause, the Limited Partners or any
successor General Partner, if any, proposed by them shall have the option, but
not the obligation, to acquire, upon payment of any agreed-upon value or the
then fair market value therefor, the Partnership Interest of any General Partner
so removed which has not been assigned to the successor General Partner pursuant
to Section 6.04(b). If such Partnership Interest is not acquired, it shall be
converted to a Limited Partnership Interest as provided in Section 6.04(b). If
the General Partner has been removed without Cause, the successor General
Partner shall have the obligation to acquire the Partnership Interest of the
General Partner so removed at the then fair market value of such Partnership
Interest, unless (i) the Partnership elects to purchase the Partnership Interest
of the removed General Partner at the then fair market value of such Partnership
Interest, or (ii) the removed General Partner elects to have its Partnership
Interest converted to a Limited Partnership Interest as provided in Section
6.04(b). The then fair market value of such Partnership Interest shall be
determined by agreement of the removed General Partner and the Partnership or,
if they cannot agree, by arbitration in accordance with the then current rules
of the American Arbitration Association. The expense of arbitration shall be
borne equally by the removed General Partner and the Partnership. The fair
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market value of the removed General Partner's Partnership Interest shall be the
sum of (i) the present value of future Administrative Fees and Net Operating
Income which would be paid to the General Partner if the removal had not
occurred and (ii) the amount the removed General Partner would receive upon
dissolution and termination of the Partnership, assuming that such dissolution
or termination occurred on the date of the terminating event and the assets of
the Partnership were sold for their then fair market value without any
compulsion on the part of the Partnership to sell such assets. The method of
payment to the removed General Partner may be in cash or a promissory note with
a term of no less than five years with equal annual installments; provided that
such note will become due and payable when the last Property held by the
Partnership is sold. Such promissory note (i) will bear interest at the then
current market interest rate available to the Partnership from an unrelated
bank, (ii) may be prepaid at any time without penalty and (iii) will have not
increased the priority of distributions to the removed General Partner in
relation to distributions to the Limited Partners and BUC Holders made pursuant
to Article IV hereof.
Section 6.04. EFFECT OF INCAPACITY OF A GENERAL PARTNER.
(a) In the event of the Incapacity of the General Partner, the business of
the Partnership shall be continued with Partnership property by any other
General Partner or General Partners; provided, however, that if the
Incapacitated General Partner is then the sole General Partner, the provisions
of Section 8.01(a)(i) shall be applicable.
(b) Upon the Incapacity of a General Partner, such General Partner shall
immediately cease to be a General Partner. Except in the case of the removal of
a General Partner without Cause, if at the time of such event the aggregate of
the Partnership Interests of the successor or remaining General Partner(s)
(including any Partnership Interest received by such successor or remaining
General Partner(s) pursuant to Section 6.04(e)) is less than 1% of all
Partnership Interests, there shall be then assigned and transferred, at the then
present fair market value as provided in Section 6.03(b), on a pro rata basis,
to the successor or remaining General Partner(s) such portion of the Partnership
Interest of the Incapacitated General Partner as shall be necessary to increase
the aggregate Partnership Interests of the successor or remaining General
Partner(s) to 1% of all Partnership Interests. To the extent that the
Partnership Interest of the Incapacitated General Partner is not so assigned and
transferred or acquired or repurchased pursuant to Section 6.03(b), such General
Partner's Partnership Interest shall be converted into that of a Limited
Partner, with the same rights under Article IV as before to share in Income,
Loss, Net Operating Income, Net Sale Proceeds and Liquidation Proceeds. However,
any General Partner which becomes a Limited Partner pursuant to this Section
shall not have the right to participate in the management of the affairs of the
Partnership or to vote on any matter requiring the Consent of the Limited
Partners and shall not be entitled to any portion of the Income, Loss, Net
Operating Income, Net Sale Proceeds or Liquidation Proceeds payable to the class
comprised of Limited Partners and BUC Holders and, further, the aggregate
distributions on the Limited Partnership Interests conveyed to the General
Partner hereunder shall not exceed the fair market value of the Partnership
Interest converted, computed as set forth in Section 6.03(b). Any General
Partner which becomes a Limited Partner pursuant to this Section shall be
entitled to the allocations and distributions such General Partner would have
been entitled to as a General Partner under Article IV of this Agreement but
only to the extent of the Partnership Interest held by such former General
Partner. Nothing in this Section 6.04 shall affect any rights, including the
rights to the payment of any fees under this Agreement, of the Incapacitated
General Partner which matured or were earned prior to the Incapacity of such
General Partner. Such Incapacitated General Partner shall remain liable for all
obligations and liabilities incurred by it as General Partner before such
Incapacity shall have become effective, but shall be free from any obligations
or liability as General Partner incurred on account of the activities of the
Partnership from and after the time such Incapacity shall have become effective.
(c) If, at the time of Incapacity of the General Partner, the Incapacitated
General Partner was not the sole General Partner of the Partnership, the
remaining General Partner or Partners shall immediately (i) give Notice to the
Limited Partners and BUC Holders of such Incapacity and (ii) prepare such
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amendments to this Agreement and execute and file for recording such amendments
or documents or other instruments necessary to reflect the assignment, transfer,
termination or conversion (as the case may be) of the Partnership Interest of
the Incapacitated General Partner.
(d) All parties hereto hereby agree to take all actions and to execute all
documents necessary or appropriate to effect the foregoing provisions of this
Section 6.04.
(e) Notwithstanding any other provision of Section 6.03 or 6.04, if AFCA is
removed as the General Partner for fraud, gross negligence or willful
malfeasance, as determined by a final judgment of a court of competent
jurisdiction, and which fraud, gross negligence or willful malfeasance is
committed by the Person or Persons, if any, owning a majority of the equity
interests in America First Companies L.L.C. or by employees of America First
Companies L.L.C., then a portion of AFCA's Partnership Interest which is
proportionately equal to such Person's or Persons' interest in AFCA (including
any limited partnership interest held by such Person in AFCA) shall be assigned
and transferred, on a pro rata basis without any compensation therefor, to the
successor or remaining General Partner.
ARTICLE VII
TRANSFERABILITY OF BUCS AND LIMITED PARTNERS' INTERESTS
Section 7.01. FREE TRANSFERABILITY OF BUCS.
(a) BUCs shall be issued in registered form only and shall be freely
transferable (subject to compliance with federal or state securities law and
Section 7.02 or 11.04 of this Agreement); provided, however, nothing in this
Agreement shall impose any obligation on the General Partner, the Partnership or
any transfer agent to restrict or place conditions on the transfer of BUCs.
(b) BUCs may be transferred only on the books and records of the
Partnership.
(c) A Person shall be recognized as a BUC Holder for all purposes on the
books and records of the Partnership as of the day on which the General Partner
(or other transfer agent appointed by the General Partner) receives evidence of
the transfer of a BUC to such Person which is satisfactory to the General
Partner. All BUC Holder rights, including voting rights, rights to receive
distributions and rights to receive reports, and all allocations in respect of
BUC Holders, including allocations of Income and Loss, will vest in, and be
allocable to, each BUC Holder as of the close of business on such day.
(d) In order to record a transfer of a BUC on the Partnership's books and
records, the General Partner may require such evidence of transfer or assignment
and authority of the transferor or assignor, including signature guarantees, and
such additional documentation as the General Partner may determine.
(e) The General Partner is hereby authorized to do all things necessary in
order to register the BUCs under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, pursuant to the rules and
regulations of the Securities and Exchange Commission, to qualify the BUCs with
state securities regulatory authorities or to perfect exemptions from
qualification, to cause the BUCs to be listed on The NASDAQ Stock Market or a
national stock exchange and to any other actions necessary to allow the resale
of BUCs by the BUC Holders.
Section 7.02. RESTRICTIONS ON TRANSFERS OF BUCS AND OF INTERESTS OF LIMITED
PARTNERS OTHER THAN THE INITIAL LIMITED PARTNER.
(a) If any sale, assignment, pledge or transfer of a Limited Partnership
Interest, other than by the Initial Limited Partner, or of a BUC, when
considered with all other sales, assignments, pledges or transfers of
Partnership Interests and BUCs within the previous 12-month period, may result
in the transfer (within the meaning of Section 708 of the Code and Regulations
promulgated thereunder) of more than 45% of the Partnership Interest and BUCs,
then the sale, assignment, pledge or transfer of a Limited Partnership Interest
or a BUC may be suspended or deferred by the General Partner; provided, however,
that the General Partner will have no obligation to suspend or defer any such
sale,
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assignment, pledge or transfer. The seller, assignor, pledgor or transferor
shall be notified of such deferral, and any transaction deferred pursuant to
this provision shall be effected (in chronological order to the extent
practicable) as of the first day of the next succeeding period as of which such
transaction can be effected without either termination of the Partnership for
tax purposes or any material adverse effects from such termination. In the event
transactions are suspended, the General Partner shall give written Notice of
such suspension to all Limited Partners and BUC Holders as soon as practicable.
(b) A Limited Partner (other than the Initial Limited Partner) may assign
his Limited Partnership Interests only by a duly executed written instrument of
assignment, the terms of which are not in contravention of any of the provisions
of this Agreement. Within 30 days after an assignment of Limited Partnership
Interests (other than by the Initial Limited Partner) which occurs without a
transfer of record ownership of such Limited Partnership Interests, the assignor
shall give Notice of such assignment to the General Partner.
(c) The provisions of this Section 7.02 and of Section 7.03 shall not apply
to the transfer and assignment by the Initial Limited Partner of Limited
Partnership Interests to BUC Holders in accordance with Section 11.01(a).
Section 7.03. ASSIGNEES OF LIMITED PARTNERS OTHER THAN THE INITIAL LIMITED
PARTNER.
(a) If a Limited Partner other than the Initial Limited Partner dies, his
executor, administrator or trustee, or, if he is adjudicated incompetent, his
committee, guardian or conservator, or, if he becomes Bankrupt, the trustee or
receiver of his estate, shall have all the rights of a Limited Partner for the
purpose of settling or managing his estate and such power as the deceased or
incompetent Limited Partner possessed to assign all or any part of his Limited
Partnership Interests and to join with the assignee thereof in satisfying any
conditions precedent to such assignee becoming a Limited Partner. The Incapacity
of a Limited Partner shall not dissolve the Partnership.
(b) The Partnership need not recognize for any purpose any assignment of all
or any fraction of the Limited Partnership Interests of a Limited Partner other
than the Initial Limited Partner unless there shall have been filed with the
Partnership and recorded on the Partnership's books a duly executed and
acknowledged counterpart of the instrument effecting such assignment, and unless
such instrument evidences the written acceptance by the assignee of all of the
terms and provisions of this Agreement, contains a representation that such
assignment was made in accordance with all applicable laws and regulations
(including any investor suitability requirements) and in all other respects is
satisfactory in form and substance to the General Partner.
(c) Any Limited Partner other than the Initial Limited Partner who shall
assign all of his Limited Partnership Interests shall cease to be a Limited
Partner of the Partnership, except that unless and until a Limited Partner is
admitted in his place, such assigning Limited Partner shall retain the statutory
rights and liabilities of an assignor of a limited partnership interest under
the Act.
(d) An assignee of Limited Partnership Interests (other than a BUC Holder)
may become a Limited Partner only if each of the following conditions is
satisfied:
(i) the instrument of assignment sets forth the intentions of the
assignor that the assignee succeed to the assignor's Limited Partnership
Interest in his place;
(ii) the assignee shall have fulfilled the requirements of Sections
7.03(b) and 12.03(b);
(iii) the assignee shall have paid all reasonable legal fees and filing
costs incurred by the Partnership in connection with his substitution as a
Limited Partner; and
(iv) the assignee shall have received the Consent of the General Partner,
which Consent the General Partner may withhold in its sole discretion.
(e) This Agreement and the Certificate shall be amended as necessary to
recognize the admission of any Limited Partners and shall be submitted in a
timely manner for filing with the Delaware
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Secretary of State. Assignees of Limited Partnership Interests (other than a BUC
Holder) shall be recognized as such, to the extent set forth in Section 7.03(b)
or 7.03(d), as of the day on which the Partnership has received the instrument
of assignment and all of the other conditions to the assignment are satisfied.
(f) An assignee of Limited Partnership Interests (other than a BUC Holder)
who does not become a Limited Partner and who desires to make a further
assignment of his Limited Partnership Interests shall be subject to all of the
provisions of this Article VII to the same extent and in the same manner as a
Limited Partner desiring to make an assignment of Limited Partnership Interests.
Section 7.04. JOINT OWNERSHIP OF INTERESTS. Subject to the other
provisions of this Agreement, a Limited Partnership Interest or BUC may be
acquired by two or more Persons, who shall, at the time they acquire such
Limited Partnership Interest or BUC, indicate to the Partnership whether the
Limited Partnership Interest or BUC is being held by them as joint tenants with
the right of survivorship, as tenants-in-common or as community property. In the
absence of any such designation, joint owners shall be presumed to hold such
Limited Partnership Interest or BUC as tenants-in-common. The Consent of such
joint Limited Partners or BUC Holders shall not require the action or vote of
all owners of any such jointly held Limited Partnership Interest or BUC.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
Section 8.01. EVENTS CAUSING DISSOLUTION.
(a) The Partnership shall dissolve upon the happening of any of the
following events:
(i) ninety days following the Incapacity of a General Partner who is at
that time the sole General Partner, unless all of the remaining Partners (it
being understood that, notwithstanding any other provision herein to the
contrary, for purposes of this provision the Initial Limited Partner shall
act solely in accordance with the direction of a majority in interest of the
BUC Holders) agree in writing to continue the business of the Partnership
and a successor General Partner satisfying the standards set forth in
Section 6.02 is designated within 90 days of the occurrence of such an
Incapacity;
(ii) the passage of 180 days after the repayment, sale or other
disposition of all of the Properties and substantially all other assets, if
any, held by the Partnership;
(iii) the election by a majority in interest of the Limited Partners
(including the Initial Limited Partner voting on behalf of the BUC Holders)
pursuant to Section 10.02(a)(iii) or the election by the General Partner to
dissolve the Partnership pursuant to Section 5.04(e) with the Consent of a
majority in interest of the Limited Partners thereto;
(iv) the expiration of the term of the Partnership specified in Section
2.04; or
(v) any other event causing the dissolution of the Partnership under the
laws of the State of Delaware.
(b) Dissolution of the Partnership shall be effective on the day on which
the event occurs giving rise to the dissolution, but the Partnership shall not
terminate until a certificate of cancellation is filed with the Delaware
Secretary of State and the assets of the Partnership are distributed as provided
in Section 8.02. Notwithstanding the dissolution of the Partnership, prior to
the termination of the Partnership, the business of the Partnership and the
affairs of the Partners shall continue to be governed by this Agreement.
(c) The obligations imposed on the General Partner by Article IX of the
Agreement will cease upon the termination of the Partnership.
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Section 8.02. LIQUIDATION.
(a) Upon dissolution of the Partnership, unless all of the Partners elect to
reform the Partnership (it being understood that, notwithstanding any other
provision herein to the contrary, for purposes of this provision the Initial
Limited Partner shall act solely in accordance with the direction of a majority
in interest of the BUC Holders), the General Partner shall liquidate the assets
of the Partnership and shall apply and distribute the proceeds thereof as
contemplated by this Section 8.02 and Article IV and cause the cancellation of
the Certificate in accordance with the Act. If there is no General Partner, a
majority in interest of the Limited Partners (including the Initial Limited
Partner voting on behalf of the BUC Holders) may elect a liquidator to liquidate
the assets of the Partnership and perform the functions of the General Partner
set forth in this Section 8.02.
(b) After payment of the expenses of the liquidation and of liabilities
owing to creditors of the Partnership (including the repayment of any loans from
the General Partner or its Affiliates), the General Partner may set aside as a
reserve such amount as it deems reasonably necessary for any contingent or
unforeseen liabilities or obligations of the Partnership which may be paid over
by the General Partner to a bank, to be held in escrow for the purpose of paying
any such contingent or unforeseen liabilities or obligations, and, at the
expiration of such period as the General Partner may deem advisable, the amount
in such reserve shall be distributed in the manner set forth in Section 4.02(b)
among the Partners and BUC Holders who would have been entitled to receive such
amounts had such amounts not been placed in such reserves.
(c) Notwithstanding the foregoing, if the General Partner or liquidator
shall determine that an immediate sale of part or all of the Partnership's
assets would cause undue loss to the Partners or the BUC Holders, the General
Partner or liquidator may, after giving Notice to the Limited Partners and BUC
Holders, and to the extent not then prohibited by any applicable law of any
jurisdiction in which the Partnership is then formed or qualified, defer
liquidation and withhold from distribution for a reasonable time any assets of
the Partnership, except those assets necessary to satisfy the Partnership's
debts and obligations.
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS
Section 9.01. BOOKS AND RECORDS. The Partnership shall maintain its books
and records at its principal office. The Partnership's books and records shall
be available during ordinary business hours for examination and copying there at
the reasonable request, and at the expense, of any Partner or BUC Holder or his
duly authorized representative, or copies of such books and records may be
requested in writing by any Partner or BUC Holder or his duly authorized
representative, provided that the reasonable costs of fulfilling such request,
including copying expenses, shall be paid by the Partner or BUC Holder making
such request. The Partnership's books and records shall include the following:
(a) a current list of the full name, last known home or business address and
Partnership Interest of each Partner and BUC Holder set forth in alphabetical
order;
(b) a copy of this Agreement and the Certificate, together with executed
copies of any powers of attorney pursuant to which such Certificate, and any
amendments thereto, have been executed;
(c) copies of the Partnership's federal, state and local income tax returns
and reports, if any, for the three most recent years;
(d) copies of all financial statements of the Partnership for the three most
recent years; and
(e) all appraisals, if any, obtained with respect to the Properties (which
appraisals shall be maintained for at least five years).
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Section 9.02. ACCOUNTING BASIS AND FISCAL YEAR. The books and records of
the Partnership initially shall be kept on the accrual method. The Partnership
will use a fiscal year identical to its taxable year. Unless permission is
granted by the Internal Revenue Service to use a taxable year other than the
calendar year, the Partnership will use a calendar year taxable year. The
Partnership shall not make an election under Section 754 of the Code.
Section 9.03. REPORTS.
(a) Within 60 days after the end of each of the first three quarters of each
fiscal year, the General Partner shall send to each Person who was a Limited
Partner or a BUC Holder during such quarter a balance sheet and statements of
income, changes in Partners' capital and cash flow of the Partnership (all
prepared in accordance with generally accepted accounting principles but none of
which need be audited) and a statement showing distributions of Net Operating
Income and Net Sale Proceeds during such quarter, which need not be audited,
together with a report of the activities of the Partnership during such quarter,
including a description of any Properties acquired by the Partnership during
such quarter.
(b) Within 75 days after the end of each fiscal year, the General Partner
shall send to each Person who was a Limited Partner or a BUC Holder at any time
during the year then ended such tax information relating to the Partnership as
shall be necessary for the preparation by such Limited Partner or BUC Holder of
his federal income tax return and required state income and other tax returns.
(c) Within 120 days after the end of each fiscal year, the General Partner
shall send to each Person who was a Limited Partner or BUC Holder at any time
during the year then ended a report including (i) the balance sheet of the
Partnership as of the end of such year and statements of income, changes in
Partners' capital and cash flow of the Partnership for such year, all of which
shall be prepared in accordance with generally accepted accounting principles
and accompanied by a report of the Accountants containing an opinion of the
Accountants, (ii) a report of the activities of the Partnership during such year
and (iii) a statement (which need not be audited) showing cash distributions per
Limited Partnership Interest and per BUC by Investment Date during such year in
respect of such year, which statement shall identify distributions of (a) Net
Operating Income and Net Sale Proceeds received by the Partnership during such
year, (b) Net Operating Income and Net Sale Proceeds received during prior years
which had been held in the Reserve and (c) cash placed in Reserves during such
year. The Partnership's annual report will include a detailed statement of (i)
the amount of the fees paid to the General Partner pursuant to Sections 5.05(b),
(c) and (d) hereof and (ii) the amounts actually reimbursed to the General
Partner and its Affiliates pursuant to Section 5.05(e) hereof. The Accountants
will certify that the amounts actually reimbursed to the General Partner
pursuant to Section 5.05(e) were costs incurred by the General Partner in
connection with the conduct of the business and affairs of the Partnership or
the acquisition and management of its assets and were permissible reimbursements
under this Agreement. The methods of verification used by the Accountants will
be in accordance with generally accepted auditing standards and include such
tests of the accounting records and other auditing procedures which the
Accountants consider appropriate.
(d) A copy of each report referred to in this Section 9.03 shall be filed
with each state securities commission requiring such filing at the time required
by such commissions.
Section 9.04. DESIGNATION OF TAX MATTERS PARTNER. The General Partner is
hereby authorized to designate itself or any other General Partner as Tax
Matters Partner of the Partnership, as provided in Section 6231 of the Code and
the Regulations promulgated thereunder. Each Partner, by execution of this
Agreement, and each BUC Holder, by acceptance of his BUCs, consents to such
designation of the General Partner as the Tax Matters Partner and agrees to
execute, certify, acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents as may be necessary or appropriate to
evidence the appointment of the General Partner as such.
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Section 9.05. EXPENSES OF TAX MATTERS PARTNER. The Partnership shall
reimburse the Tax Matters Partner for all expenses, including legal and
accounting fees, and shall indemnify him for claims, liabilities, losses and
damages incurred in connection with any administrative or judicial proceeding
with respect to the tax liability of the Partners and BUC Holders. The payment
of all such expenses and indemnification shall be made before any distributions
are made from Net Operating Income, Net Sale Proceeds or Liquidation Proceeds.
Neither the General Partner, nor any Affiliate, nor any other Person shall have
any obligation to provide funds for such purpose. The taking of any action and
the incurring of any expense by the Tax Matters Partner in connection with any
such proceeding, except to the extent required by law, is a matter in the sole
discretion of the Tax Matters Partner, and the provisions on limitations of
liability of the General Partner and indemnification set forth in Section 5.09
of this Agreement shall be fully applicable to the Tax Matters Partner in its
capacity as such.
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS AND BUC HOLDERS
Section 10.01. MEETINGS.
(a) The General Partner may call a meeting of the Limited Partners and BUC
Holders for any purpose or call for a vote of the Limited Partners and BUC
Holders without a meeting or otherwise solicit the consent of the Limited
Partners and BUC Holders at any time and the General Partner shall call for such
a meeting or vote without a meeting or solicit the consents of the Limited
Partners and BUC Holders upon receipt of a written request for such a meeting,
vote or solicitation signed by 10% or more in interest of the Limited Partners
(it being understood that the Initial Limited Partner will act in accordance
with the directions of the BUC Holders). Any such meeting shall be held not less
than 15 days nor more than 60 days after the receipt of such request. Any such
request shall state the purpose of the proposed meeting and the matters proposed
to be acted upon at such meeting, and no matter may be acted upon at the meeting
other than as set forth in such request or as otherwise permitted by the General
Partner. Meetings shall be held at the principal office of the Partnership or at
such other place as may be designated by the General Partner or, if the meeting
is called upon the request of the Limited Partners (including the Initial
Limited Partner acting on behalf of the BUC Holders), as designated by such
Limited Partners (including the Initial Limited Partner acting on behalf of the
BUC Holders).
(b) Notice of any meeting to be held pursuant to Section 10.01(a) shall be
given (in person or by certified mail) within 10 days of the receipt by the
General Partner of the request for such meeting to each Limited Partner at his
record address, or at such other address which he may have furnished in writing
to the General Partner and to the BUC Holders at the address shown on the
Partnership's books and records kept in accordance with Section 9.01. Such
Notice shall state the place, date and hour of the meeting and shall indicate
that the Notice is being issued at the direction of, or by, the Partner(s)
calling the meeting. The Notice shall state the record date established in
Section 10.01(c) and state the purpose of the meeting. If a meeting is adjourned
to another time or place, and if an announcement of the adjournment of time or
place is made at the meeting, it shall not be necessary to give Notice of the
adjourned meeting. The presence in person or by proxy of a majority in interest
of the Limited Partners (including the Initial Limited Partner acting for and at
the direction of the BUC Holders) considered as a class shall constitute a
quorum at all meetings of the Partners and BUC Holders; provided, however, that
if no such quorum is present, holders of a majority in interest of the Limited
Partners considered as a class (it being understood that the Initial Limited
Partner shall be present at the direction of the BUC Holders and only to the
extent of such direction) so present or so represented may adjourn the meeting
from time to time without further Notice, until a quorum shall have been
obtained. No Notice of the time, place or purpose of any meeting of Limited
Partners and BUC Holders need be given (i) to any Limited Partner or BUC Holder
who attends in person or is represented by proxy, except for a Partner attending
a meeting for the express purpose of objecting at the beginning of the meeting
to the transaction of any business on the ground that the meeting is not
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lawfully called or convened, or (ii) to any Limited Partner or BUC Holder
entitled to such Notice who, in writing, executed and filed with the records of
the meeting, either before or after the time thereof, waives such Notice.
(c) For the purpose of determining the Limited Partners entitled to vote at
any meeting of the Limited Partners and BUC Holders, and the BUC Holders
entitled to receive Notice of and direct the voting of the Initial Limited
Partner at any such meeting, or any adjournment thereof, or to act by written
Consent without a meeting, the General Partner or the Limited Partners or the
BUC Holders requesting such meeting or vote pursuant to Section 11.03(a) may
fix, in advance, a date as the record date of any such determination of Limited
Partners and BUC Holders. Such date shall not be more than 60 days nor less than
15 days before any such meeting or not more than 60 days prior to the initial
solicitation of Consents from the Limited Partners and BUC Holders.
(d) At each meeting of Limited Partners and BUC Holders, the Limited
Partners and BUC Holders present or represented by proxy shall elect such
officers and adopt such rules for the conduct of such meeting as they shall deem
appropriate.
Section 10.02. VOTING RIGHTS OF LIMITED PARTNERS AND BUC HOLDERS.
(a) Subject to Section 10.03, a majority in interest of the Limited Partners
(it being understood that the Initial Limited Partner shall act at the direction
of the BUC Holders), without the concurrence of the General Partner, may: (i)
amend this Agreement, provided that the concurrence of the General Partner shall
be required for any amendment to this Agreement which modifies the compensation
or distributions to which the General Partner is entitled or which affects the
duties of the General Partner; (ii) approve or disapprove the sale or other
disposition of all or substantially all of the Partnership's assets in a single
transaction in the circumstances provided by Section 5.04(c); (iii) dissolve the
Partnership; and (iv) remove any General Partner and elect a successor therefor,
which successor shall become a General Partner only in accordance with Section
6.02. Amendments to this Agreement may be proposed at any time by a writing
signed by 10% or more in interest of the Limited Partners (it being understood
that the Initial Limited Partner will act in accordance with the direction of
the BUC Holders).
(b) A Limited Partner shall be entitled to cast one vote for each Limited
Partnership Interest which he owns, and a BUC Holder shall be entitled to direct
the Initial Limited Partner to cast one vote for each BUC which he owns (it
being understood that the Initial Limited Partner will act at the direction of
the BUC Holders) at a meeting, in person, by written proxy or by a signed
writing directing the manner in which he desires that his vote be cast, which
writing must be received by the General Partner prior to the adjournment SINE
DIE of such meeting. In the alternative, BUC Holders may Consent to actions
without a meeting, by a signed writing identifying the action taken or proposed
to be taken. Every proxy must be signed by the Limited Partner or BUC Holder or
his attorney-in-fact. No proxy shall be valid after the expiration of 12 months
from the date thereof unless otherwise provided in the proxy. Every proxy shall
be revocable at the pleasure of the Limited Partner or the BUC Holder executing
it by Notice to the Person to whom the proxy was given. Written Consents may be
irrevocable if stated in a writing delivered to BUC Holders at the time at which
their Consent is solicited. Only the votes or Consents of Limited Partners or
BUC Holders of record on the record date established pursuant to Section
10.01(c), whether at a meeting or otherwise, shall be counted. The General
Partner shall not be entitled to vote in its capacity as General Partner. The
laws of the State of Delaware pertaining to the validity and use of corporate
proxies shall govern the validity and use of proxies given by the Limited
Partners and BUC Holders, except to the extent such laws are inconsistent with
this Agreement. The BUC Holders may give proxies only to the Initial Limited
Partner. The Initial Limited Partner will vote in accordance with the directions
of the BUC Holders so that each BUC will be voted separately.
(c) Reference in this Agreement to a specified percentage in interest of the
Limited Partners and BUC Holders means the Limited Partners and BUC Holders
whose combined Capital Contributions
A-24
<PAGE>
(it being understood that the BUC Holders' Capital Contributions were made by
the Initial Limited Partner) represent the specified percentage of the Capital
Contributions of all Limited Partners and BUC Holders.
Section 10.03. OPINION REGARDING EFFECT OF ACTION BY LIMITED PARTNERS AND
BUC HOLDERS. Prior to any vote or Consent by Limited Partners or BUC Holders
that might (i) materially affect the tax status of the Partnership, (ii) impair
the limited liability of the Limited Partners or BUC Holders, or (iii) result in
the dissolution or termination of the Partnership, the Partnership will provide
Limited Partners and BUC Holders written advice from Counsel as to the possible
and most likely consequences of such vote or Consent with respect thereto.
Section 10.04. OTHER ACTIVITIES. Except as provided in Section 12.04, the
Limited Partners and BUC Holders may engage in or possess interests in other
business ventures of every kind and description for their own accounts,
including without limitation serving as general or limited partners of other
partnerships which own, either directly or through interests in other
partnerships or otherwise, commercial real estate similar to the Properties.
Neither the Partnership nor any of the Partners or BUC Holders shall have any
rights by virtue of this Agreement in or to such business ventures or to the
income or profits derived therefrom.
ARTICLE XI
ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS TO
BUC HOLDERS AND RIGHTS OF BUC HOLDERS
Section 11.01. ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS TO BUC HOLDERS.
(a) Except as otherwise provided herein, the Initial Limited Partner, by the
execution of this Agreement, irrevocably assigns to the Persons who are BUC
Holders of the Prior Partnership as of the record date established therefor by
the General Partner, all of the Initial Limited Partner's rights and interest in
its Partnership Interests. The rights and interest so transferred and assigned
shall include, without limitation, the following:
(i) all rights to receive distributions of Net Operating Income pursuant
to Section 4.01;
(ii) all rights to receive Net Sale Proceeds and Liquidation Proceeds
pursuant to Section 4.02;
(iii) all rights in respect of allocations of Income and Loss pursuant to
Sections 4.03 and 4.04;
(iv) all rights in respect of determinations of allocations and
distributions pursuant to Section 4.05;
(v) all rights to inspect records and to receive reports pursuant to
Article IX;
(vi) all rights to vote on Partnership matters pursuant to Article X; and
(vii) all rights which Limited Partners have, or may have in the future,
under the Act, except as otherwise provided herein.
All Persons becoming BUC Holders shall be bound by the terms and conditions
of, and shall be entitled to all rights of, Limited Partners under this
Agreement.
(b) The Initial Limited Partner shall remain as Initial Limited Partner on
the books and records of the Partnership notwithstanding the assignment of all
of its Limited Partnership Interest until such time as the Initial Limited
Partner transfers its position as Initial Limited Partner to another Person with
the Consent of the General Partner. Other than pursuant to Section 11.01(a), the
Initial Limited Partner may not transfer or assign a Limited Partnership
Interest without the prior written Consent of the General Partner.
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<PAGE>
(c) The General Partner, by the execution of this Agreement, irrevocably
Consents to and acknowledges on behalf of itself and the Partnership that (i)
the foregoing assignment pursuant to Section 11.01(a) by the Initial Limited
Partner to the BUC Holders of the Initial Limited Partner's rights and interest
in the Limited Partnership Interests is valid and binding on the Partnership and
the General Partner, and (ii) the BUC Holders are intended to be third-party
beneficiaries of all rights and privileges of the Initial Limited Partner in
respect of the Limited Partnership Interests. The General Partner covenants and
agrees that, in accordance with the foregoing transfer and assignment, all the
Initial Limited Partner's rights and privileges in respect of the Limited
Partnership Interests assigned to the BUC Holders may be exercised by the BUC
Holders, including, without limitation, those listed in Section 11.01(a).
Section 11.02. RIGHTS OF BUC HOLDERS.
(a) Limited Partners (including the Initial Limited Partner but only with
respect to its own Limited Partnership Interests) and BUC Holders shall share
PARI PASSU on the basis of one Limited Partnership Interest for one BUC, and
shall be considered as a single class with respect to all rights to receive
distributions of Net Operating Income, Net Sale Proceeds and Liquidation
Proceeds, allocations of Income and Loss, and other determinations of
allocations and distributions pursuant to this Agreement.
(b) Limited Partners (including the Initial Limited Partner voting on behalf
of the BUC Holders) shall vote on all matters in respect of which they are
entitled to vote (either in person, by proxy or by written Consent), as a single
class with each entitled to one vote.
(c) A BUC Holder is entitled to the same duty (including any fiduciary duty
created by law) from the General Partner as the General Partner owes to a
Limited Partner and may sue the General Partner to enforce the same. A BUC
Holder may bring a derivative action against any Person (including the General
Partner) to enforce any right of the Partnership to recover a judgment to the
same extent as a Limited Partner has such a right under the Act.
(d) A BUC Holder is not a Limited Partner and has no right to be admitted to
the Partnership as such.
Section 11.03. VOTING BY THE INITIAL LIMITED PARTNER ON BEHALF OF BUC
HOLDERS.
(a) Subject to Section 8.01(a)(i), the Initial Limited Partner hereby agrees
that, with respect to any matter on which a vote of the Limited Partners is
taken, the Consent of the Limited Partners is required or any other action of
the Limited Partners is required or permitted, it will not vote its Limited
Partnership Interest or grant such Consent or take such action (other than
solely administrative actions as to which the Initial Limited Partner has no
discretion) except for the sole benefit of, and in accordance with the written
instructions of, the BUC Holders with respect to their BUCs. The Initial Limited
Partner (or the Partnership on behalf of the Initial Limited Partner) will
provide Notice to the BUC Holders containing information regarding any matters
to be voted upon or as to which any Consent or other action is requested or
proposed. The Partnership and the General Partner hereby agree to permit BUC
Holders to attend any meetings of Partners and the Initial Limited Partner
shall, upon the written request of BUC Holders owning BUCs which represent in
the aggregate 10% or more of all of the outstanding BUCs, request the General
Partner to call a meeting of Partners pursuant to Section 10.01 or to submit a
matter to the Initial Limited Partner without a meeting pursuant to this
Agreement. The General Partner shall give the BUC Holders Notice of any meeting
to be held pursuant to Section 10.01(a) at the same time and manner as such
Notice is required to be given to the Initial Limited Partner pursuant to
Section 10.01(b).
(b) The Initial Limited Partner will exercise its right to vote or Consent
to any action under this Agreement in accordance with the written instructions
of holders of BUCs outstanding as of the relevant record date. In addition,
holders of a majority of the BUCs outstanding may instruct the Initial Limited
Partner to take, and upon receipt of such instruction, the Initial Limited
Partner shall take, the actions permitted by Section 10.02.
A-26
<PAGE>
(c) The Initial Limited Partner will mail to any BUC Holder (at the address
shown on the Partnership's records kept in accordance with Section 9.01(a)) any
report, financial statement or other communication received from the Partnership
or the General Partner with respect to the Limited Partnership Interests held by
the Initial Limited Partner (including, without limitation, any financial
statement or report or tax information provided pursuant to Section 9.03). In
lieu of mailing of any such document by the Initial Limited Partner, the Initial
Limited Partner may, at its option, request the General Partner to mail any such
communications directly to the BUC Holders, and the Initial Limited Partner
shall be deemed to have satisfied its obligations under this Section 11.03(b)
upon its receipt of written notification from the General Partner that any such
communication has been mailed, postage prepaid, to all of the BUC Holders at the
addresses shown on the Partnership's records.
Section 11.04. PRESERVATION OF TAX STATUS. With the Consent of each BUC
Holder so affected, the General Partner may at any time cause such BUC Holder to
become a Limited Partner and may take such other action with respect to the
manner in which BUCs are being or may be transferred or traded as it may deem
necessary or appropriate, in order to preserve the status of the Partnership as
a partnership rather than an association taxable as a corporation for federal
income tax purposes or to insure that BUC Holders will be treated as limited
partners for federal income tax purposes.
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. APPOINTMENT OF THE GENERAL PARTNER AS ATTORNEY-IN-FACT.
(a) Each Limited Partner by the execution of this Agreement irrevocably
constitutes and appoints, with full power of substitution, the General Partner
as his true and lawful attorney-in-fact with full power and authority in his
name, place and stead to execute, certify, acknowledge, deliver, swear to, file
and record at the appropriate public offices such documents as may be necessary
or appropriate to carry out the provisions of this Agreement, including but not
limited to:
(i) the Certificate and amendments thereto, and all certificates and
other instruments (including counterparts of this Agreement), and any
amendments thereof, which any such Person deems appropriate to form, qualify
or continue the Partnership as a limited partnership (or a partnership in
which the Limited Partners will have limited liability comparable to that
provided by the Act on the date thereof) in a jurisdiction in which the
Partnership may conduct business or in which such formation, qualification
or continuation is, in the opinion of any such Person, necessary to protect
the limited liability of the Limited Partners and BUC Holders;
(ii) any other instrument or document which may be required to be filed
by the Partnership under federal law or under the laws of any state in which
any such Person deems it advisable to file;
(iii) all amendments to this Agreement adopted in accordance with the
terms hereof and all instruments which any such Person deems appropriate to
reflect a change or modification of the Partnership in accordance with the
terms of this Agreement; and
(iv) any instrument or document, including amendments to this Agreement,
which may be required to effect the continuation of the Partnership, the
admission of a Limited Partner or an additional or successor General Partner
or the dissolution and termination of the Partnership (provided such
continuation, admission or dissolution and termination are in accordance
with the terms of this Agreement) or to reflect any reductions in amount of
Capital Accounts.
(b) The appointment by each Limited Partner of each of such Persons as his
attorney-in-fact is irrevocable and shall be deemed to be a power coupled with
an interest, in recognition of the fact that each of the Partners under this
Agreement will be relying upon the power of such Persons to act as contemplated
by this Agreement in any filing and other action by them on behalf of the
Partnership,
A-27
<PAGE>
and such power shall survive the Incapacity of any Person hereby giving such
power and the transfer or assignment of all or any part of the Limited
Partnership Interests of such Person; provided, however, that in the event of a
transfer by a Limited Partner of all or any part of his Limited Partnership
Interests, the foregoing power of attorney shall survive such transfer only
until such time as the transferee is admitted to the Partnership as a Limited
Partner and all required documents and instruments are duly executed, filed and
recorded to effect such substitution.
Section 12.02. SIGNATURES. Each Limited Partner and any additional or
successor General Partner shall become a signatory hereto by signing such number
of counterpart signature pages to this Agreement and such other instrument or
instruments in such manner and at such time as the General Partner shall
determine. By so signing, each Limited Partner, successor General Partner or
additional General Partner, as the case may be, shall be deemed to have adopted,
and to have agreed to be bound by, all the provisions of this Agreement, as
amended from time to time; provided, however, that no such counterpart shall be
binding unless and until it has been accepted by the General Partner.
Section 12.03. AMENDMENTS.
(a) In addition to any amendments otherwise authorized herein, amendments
may be made to this Agreement or the Certificate from time to time by the
General Partner, without the Consent of the Limited Partners or the BUC Holders,
(i) to add to the representations, duties or obligations of the General Partner
or surrender any right or power granted to the General Partner in this
Agreement; (ii) to cure any ambiguity or correct or supplement any provision in
this Agreement which may be inconsistent with the manifest intent of this
Agreement, if such amendment is not materially adverse to the interests of
Limited Partners and BUC Holders in the sole judgment of the General Partner;
(iii) to delete or add to any provision of this Agreement required to be deleted
or added to based upon comments by the staff of the Securities and Exchange
Commission or other federal agency or by a state securities commissioner; (iv)
to delete, add or revise any provision of this Agreement that may be necessary
or appropriate, in the General Partner's judgment, to insure that the
Partnership will be treated as a partnership, and that each BUC Holder and each
Limited Partner will be treated as a limited partner, for federal income tax
purposes; (v) to reflect the withdrawal, removal or admission of Partners; and
(vi) to reflect a change in the name or address of the Partnership's registered
agent in the State of Delaware; provided, however, that no amendment shall be
adopted pursuant to this Section 12.03(a) unless the adoption thereof (A) is
consistent with Section 5.01 and is not prohibited by Section 5.04; (B) does not
affect the distribution of Net Operating Income, Net Sales Proceeds or
Liquidation Proceeds or the allocation of Income or Loss (except as provided in
Section 5.10); (C) does not, in the sole judgment of the General Partner after
consultation with Counsel, affect the limited liability of the Limited Partners
or the BUC Holders or cause the Partnership not to be treated as a partnership
for federal income tax purposes; and (D) does not amend this Section 12.03(a).
(b) If this Agreement shall be amended as a result of substituting a Limited
Partner, the amendment to this Agreement shall be signed by the General Partner,
the Person to be substituted and the assigning Limited Partner. If this
Agreement shall be amended to reflect the designation of an additional General
Partner, such amendment shall be signed by the other General Partners and by
such additional General Partner. If this Agreement shall be amended to reflect
the withdrawal of a General Partner when the business of the Partnership is
being continued, such amendment shall be signed by the withdrawing General
Partner and by the remaining or successor General Partner. In the event the
withdrawing General Partner or the assigning Limited Partner does not sign such
an amendment within 30 days following its withdrawal or substitution, the
remaining or successor General Partners are hereby appointed by the withdrawing
General Partner or the assigning Limited Partner as its attorney-in-fact for
purposes of signing such amendment.
(c) In making any amendments, there shall be prepared and filed by the
General Partner for recording such documents and certificates as shall be
required to be prepared and filed under the Act and in any other jurisdictions
under the laws of which the Partnership is then qualified.
A-28
<PAGE>
Section 12.04. OWNERSHIP BY THE LIMITED PARTNERS OF GENERAL PARTNERS OR
THEIR AFFILIATES. No Limited Partner or BUC Holder shall at any time, either
directly or indirectly, own any stock or other interest in any General Partner
or in any Affiliate of any General Partner if such ownership by itself or in
conjunction with the stock or other interest owned by other Limited Partners and
BUC Holders would, in the opinion of Counsel, jeopardize the classification of
the Partnership as a partnership for federal income tax purposes. Each Limited
Partner and BUC Holder shall promptly supply any information requested by the
General Partner in order to establish compliance by such Limited Partner or BUC
Holder with the provisions of this Section 12.04.
Section 12.05. BINDING PROVISIONS. The covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the heirs, executors,
administrators, personal representatives, successors and assigns of the
respective parties hereto.
Section 12.06. APPLICABLE LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware.
Section 12.07. SEPARABILITY OF PROVISIONS. Each provision of this
Agreement shall be considered separable and if for any reason any provision or
provisions hereof are determined to be invalid and contrary to any law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
Section 12.08. CAPTIONS. Article and Section titles are for descriptive
purposes only and shall not control or alter the meaning of this Agreement as
set forth in the text.
Section 12.09. ENTIRE AGREEMENT. This Agreement, together with Schedule A
hereto, sets forth all, and is intended by all parties to be an integration of
all, of the promises, agreements and understandings among the parties hereto
with respect to the Partnership, the Partnership business and the property of
the Partnership, and there are no promises, agreements, or understandings, oral
or written, express or implied, among them other than as set forth, incorporated
or contemplated in this Agreement.
IN WITNESS WHEREOF, the parties have signed this Agreement as of the day
of , 1996.
<TABLE>
<S> <C> <C>
GENERAL PARTNER:
AMERICA FIRST CAPITAL ASSOCIATES
LIMITED PARTNERSHIP FOUR
By America First Companies L.L.C.,
General Partner
By
-------------------------------------------
Michael B. Yanney, President
INITIAL LIMITED PARTNER:
AMERICA FIRST FIDUCIARY
CORPORATION NUMBER EIGHT
By
-------------------------------------------
Michael B. Yanney, President
</TABLE>
A-29
<PAGE>
SCHEDULE A
<TABLE>
<S> <C>
GENERAL PARTNER:
America First Capital ............................................ $[ ]
Associates Limited
Partnership Four
Suite 400
1004 Farnam Street
Omaha, NE 68102
INITIAL LIMITED PARTNER:
America First Fiduciary .......................................... $[ ]
Corporation Number Eight
Suite 400
1004 Farnam Street
Omaha, NE 68102
</TABLE>
A-30
<PAGE>
APPENDIX B
AGREEMENT OF MERGER
This Agreement of Merger (this "Agreement") is entered into as of March 28,
1996 by and between America First Tax Exempt Mortgage Fund 2 Limited
Partnership, a Delaware limited partnership (the "the Old Fund") whose principal
office is located at Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102 and
America First Apartment Investors L.P., a Delaware limited partnership (the "the
New Fund") whose principal office is located at Suite 400, 1004 Farnam Street,
Omaha, Nebraska 68102.
WHEREAS, the Old Fund is a limited partnership duly formed and existing
under the laws of the State of Delaware, having been formed on September 30,
1986, whose sole general partner is America First Capital Associates Limited
Partnership Four ("AFCA 4") and whose sole limited partner is America First
Fiduciary Corporation Number Eight ("AFFC 8"); and
WHEREAS, the New Fund is a limited partnership duly formed and existing
under the laws of the State of Delaware, having been formed on March 7, 1996,
whose sole general partner is AFCA 4 and whose sole limited partner is AFFC 8;
and
WHEREAS, upon the terms and conditions set forth herein, the Old Fund and
the New Fund agree to merge, with the New Fund as the surviving limited
partnership;
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties and undertakings of the parties set forth below, the
parties agree as follows:
Section 1. THE MERGER. At the effective time, the separate existence of
the Old Fund shall cease and the Old Fund shall be merged with and into the New
Fund, which shall continue its existence and be the limited partnership
surviving the merger (the "Merger"). Consummation of the Merger shall be
effected by the filing of a Certificate of Merger (the "Merger Certificate") in
the State of Delaware, in substantially the form attached hereto as Exhibit A.
The effective time of the Merger shall be the time at which the Merger
Certificate is filed in accordance with the laws of the State of Delaware.
Section 2. GOVERNING LAWS. The laws that shall govern the New Fund as the
surviving limited partnership are the laws of the State of Delaware.
Section 3. CERTIFICATE OF LIMITED PARTNERSHIP AND AGREEMENT OF LIMITED
PARTNERSHIP. (a) The certificate of limited partnership of the New Fund at the
effective time of the Merger shall become and continue to be the certificate of
limited partnership of the New Fund as the surviving limited partnership until
changed as provided therein and by law.
(b) The agreement of limited partnership of the New Fund at the effective
time of the Merger (the "Partnership Agreement") shall become and continue to be
the agreement of limited partnership of the New Fund as the surviving limited
partnership until altered or amended in accordance with the provisions thereof.
Section 4. PARTNERS. AFCA 4 and AFFC 8 shall continue to be the general
partner and initial limited partner, respectively, of the New Fund at the
effective time of the Merger.
Section 5. TERMS OF CONVERSION OF BUCS. Upon the effective time of the
Merger, by virtue of the Merger and without any action on the part of the
parties, each beneficial unit certificate representing an assignment of a
beneficial interest in a limited partnership interest in the Old Fund ("the Old
Fund BUCs") outstanding immediately prior to the effective time of the Merger
shall be cancelled and extinguished and the Old Fund shall be merged with and
into the New Fund. Holders of the Old Fund BUCs shall each receive one
beneficial unit certificate representing an assignment of a beneficial interest
in a limited partnership interest in the New Fund ("the New Fund BUCs") for each
Old Fund BUC they own as of the applicable record date.
B-1
<PAGE>
Section 6. RIGHTS AND LIABILITIES. At the effective time of the merger,
the New Fund shall succeed to, without other transfer, and shall possess and
enjoy, all the rights, privileges, powers and franchises both of a public and a
private nature and be subject to all the restrictions, disabilities and duties
of the Old Fund; and all rights, privileges, powers and franchises of the Old
Fund and all property, real, personal and mixed, and all debts due to said the
Old Fund on whatever account, for the Old Fund BUC subscriptions as well as for
all other things in action or belonging to said limited partnership, shall be
vested in the New Fund; and all property, rights, privileges, powers, franchises
and interests shall be thereafter as effectually the property of the New Fund as
they were of the Old Fund, and the title to any real estate vested by deed or
otherwise in said the Old Fund shall not revert or be in any way impaired by
reason of the Merger; provided, however, that all rights of creditors and all
liens upon any property of said the Old Fund shall be preserved unimpaired, and
all debts, liabilities and duties of said the Old Fund shall thenceforth attach
to the New Fund and may be enforced against it to the same extent as if said
debts, liabilities and duties had been incurred or contracted by the New Fund.
Section 7. CONDITIONS TO MERGER. The obligation of the Old Fund and of the
New Fund to consummate the transactions contemplated hereby shall be subject to
the satisfaction or written waiver by the Old Fund and the New Fund on or prior
to the effective date of the Merger of each of the following conditions:
(a) The holders of at least a majority of the outstanding Old Fund BUCs
consent to the Merger by the date established by AFCA 4 as the date upon
which such consent must be received and which shall be no earlier than 60
days after the effective date of the registration statement referred to in
(b) below or such later date as AFCA 4 may subsequently establish in its
sole discretion;
(b) A registration statement on Form S-4 filed under the Securities Act
of 1933, as amended (the "Act"), relating to the distribution of the the New
Fund BUCs pursuant to the Merger has been declared effective under the Act
by the Securities and Exchange Commission;
(c) Appropriate clearance of the distribution of the the New Fund BUCs
pursuant to the Merger has been obtained from each applicable state
securities commission or administrator;
(d) AFCA 4 shall have received, in form and substance acceptable to it,
an opinion to the effect that for federal income tax purposes that holders
of the Old Fund BUCs as of the record date will not recognize any income,
gain or loss as a result of the Merger; and
(e) The the New Fund BUCs have been approved for listing on The NASDAQ
Stock Market (NASDAQ National Market System).
Section 8. SIGNATURES. This Agreement shall be signed on behalf of the Old
Fund and the New Fund by a duly authorized officer of the general partner of
AFCA 4 and attested by the secretary of the general partner of AFCA 4.
Section 9. TERMINATION. This Agreement may be terminated by the action of
the board of managers of the general partner of AFCA 4 acting in its capacity as
the general partner of the general partner of the Old Fund and of the New Fund
before or after the date that holders of a majority in interest of the Old Fund
BUCs consent to the Merger.
Section 10. FURTHER ASSURANCES. The Old Fund agrees that from time to
time, as and when requested by the New Fund or by its successors or assigns, it
will execute and deliver, or cause to be executed and delivered, all such deeds
and other instruments, and will take or cause to be taken such further or other
action, as the New Fund may deem necessary or desirable in order to more fully
vest in and confirm to the New Fund title to and possession of all said
property, rights, privileges, powers and franchises and otherwise to carry out
the intent and purposes of this Agreement.
B-2
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly authorized, executed and
delivered by the parties on the date first set forth above.
AMERICA FIRST TAX EXEMPT MORTGAGE FUND
2 LIMITED PARTNERSHIP, a Delaware
limited partnership
By America First Capital Associates
Limited Partnership Four, General
Partner
By America First Companies L.L.C.,
General Partner
By: /s/ MICHAEL YANNEY
-----------------------------------
Michael Yanney, PRESIDENT
Attest:
/s/ MICHAEL THESING
- ---------------------------------------------
Michael Thesing, SECRETARY
AMERICA FIRST APARTMENT INVESTORS
L.P., a Delaware limited partnership
By America First Capital Associates
Limited Partnership Four, General
Partner
By America First Companies L.L.C.,
General Partner
By: /s/ MICHAEL YANNEY
-----------------------------------
Michael Yanney, PRESIDENT
Attest:
By: /s/ MICHAEL THESING
----------------------------------
Michael Thesing, SECRETARY
B-3
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
AMERICA FIRST TAX EXEMPT MORTGAGE FUND 2 LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
WITH AND INTO
AMERICA FIRST APARTMENT INVESTORS L.P.,
A DELAWARE LIMITED PARTNERSHIP
This certificate is prepared pursuant to Section 17-211 of the Revised
Uniform Limited Partnership Act of the State of Delaware.
It is hereby certified that:
1. The constituent limited partnerships participating in the merger
herein certified are: (i) America First Tax Exempt Mortgage Fund 2 Limited
Partnership, which is formed under the laws of the State of Delaware ("the
Old Fund"), and (ii) America First Apartment Investors L.P., which is formed
under the laws of the State of Delaware ("the New Fund").
2. In accordance with Section 17-211 of the Revised Uniform Limited
Partnership Act of the State of Delaware, an agreement of merger (the
"Merger Agreement") has been duly approved and executed by the Old Fund and
the New Fund.
3. The name of the surviving limited partnership in the merger herein
certified is America First Apartment Investors L.P., which will continue its
existence as said surviving limited partnership upon the effective time of
said merger.
4. The effective time of the merger herein certified shall be upon the
filing hereof with the Secretary of State of the State of Delaware.
5. The executed Merger Agreement between the aforesaid constituent
limited partnerships is on file at the principal place of business of the
aforesaid surviving limited partnership, the address of which is Suite 400,
1004 Farnam Street, Omaha, Nebraska 68102.
6. A copy of the Merger Agreement will be furnished by the the New
Fund, on request and without cost, to any partner of the Old Fund or the New
Fund or any person holding a beneficial unit certificate of the Old Fund at
the effective time of the merger.
Dated: , 1996.
AMERICA FIRST TAX EXEMPT MORTGAGE FUND
2 LIMITED PARTNERSHIP, a Delaware
limited partnership
By America First Capital Associates
Limited
Partnership Four, General Partner
By America First Companies L.L.C.,
General Partner
By:
-----------------------------------
Michael Yanney, President
<PAGE>
Attest:
By:
----------------------------------
Michael Thesing, Secretary
AMERICA FIRST APARTMENT INVESTORS
L.P., a Delaware limited partnership
By America First Capital Associates
Limited
Partnership Four, General Partner
By America First Companies L.L.C.,
General Partner
By:
-----------------------------------
Micheal Yanney, President
Attest:
By:
----------------------------------
Michael Thesing, Secretary
A-2
<PAGE>
<TABLE>
<S> <C>
STATE OF NEBRASKA
SS.
COUNTY OF DOUGLAS
</TABLE>
Before me this day of , 1996, Michael Yanney, personally known
to me to be the President of America First Companies L.L.C., a Delaware limited
liability company in its capacity as the general partner of America First
Capital Associates Limited Partnership Four which is the general partner of both
the constituent parties to the subject merger, appeared and, being first duly
sworn, did acknowledge the execution of the foregoing instrument on behalf of
such companies.
--------------------------------------
Notary Public
A-3
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------------------------
<C> <S>
4.1 Form of Beneficial Unit Certificate*
4.2 Form of Registrant's Agreement of Limited Partnership (included as Appendix A to Consent
Solicitation Statement/Prospectus contained in Part I hereof)
4.3 Agreement of Merger, dated March 28, 1996, between the Registrant and America First Tax Exempt
Mortgage Fund 2 Limited Partnership (included as Appendix B to Consent Solicitation
Statement/Prospectus contained in Part I hereof)
5.1 Opinion of Kutak Rock as to the legality of securities*
8.1 Opinion of Kutak Rock as to certain tax matters*
23.1 Consent of Coopers & Lybrand L.L.P.
23.2 Consent of Kutak Rock (included in Exhibits 5.1 and 8.1)*
23.3 Consent of Mueller, Prost, Purt & Willbrand, P.C.
24.1 Powers of Attorney*
</TABLE>
- ------------------------
* Previously filed
II-1
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment No. 2 to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the City of
Omaha, State of Nebraska, on the 5th day of June, 1996.
AMERICA FIRST APARTMENT
INVESTORS, L.P.
By America First Capital Associates
Limited
Partnership Four, Its General
Partner
By America First Companies L.L.C.,
Its General Partner
By /s/ MICHAEL YANNEY
-----------------------------------
Michael Yanney,
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities indicated on dates indicated opposite their names.
SIGNATURE TITLE DATE
- ---------------------------------------- ------------------------ ------------
Chairman of the Board,
/s/ MICHAEL YANNEY President and Chief
- ---------------------------------------- Executive June 5, 1996
Michael Yanney Officer
/s/ MICHAEL THESING*
- ---------------------------------------- Secretary and Chief June 5, 1996
Michael Thesing Financial Officer
/s/ WILLIAM S. CARTER*
- ---------------------------------------- Manager June 5, 1996
William S. Carter
/s/ GEORGE KUBAT*
- ---------------------------------------- Manager June 5, 1996
George Kubat
/s/ MARTIN MASSENGALE*
- ---------------------------------------- Manager June 5, 1996
Martin Massengale
/s/ ALAN BAER*
- ---------------------------------------- Manager June 5, 1996
Alan Baer
/s/ GAIL WALLING YANNEY*
- ---------------------------------------- Manager June 5, 1996
Gail Walling Yanney
*By MICHAEL YANNEY
--------------------------------------
ATTORNEY-IN-FACT
/s/ MICHAEL YANNEY
- ----------------------------------------
Michael Yanney
II-2
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement
on Form S-4 (File No. 333-2920) of America First Apartment Investors, L.P. of
our report dated March 22, 1996 and May 21, 1996, on our audits of the financial
statements and financial statement schedules of America First Tax Exempt
Mortgage Fund 2 Limited Partnership (the Partnership) as of December 31, 1995
and 1994, and for each of the three years in the period ending December 31,
1995, which report is included in the Partnership's 1995 Form 10-K. We also
consent to the reference to our firm under the caption "Experts."
/s/ COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
June 5, 1996
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-4 (File
No. 333-2920) of America First Apartment Investors, L.P. of our reports dated
March 22, 1996, on our audits of the financial statements of Jefferson Place,
L.P. as of December 31, 1994 and 1993, and for each of the two years in the
period ending December 31, 1994.
/s/ COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
June 5, 1996
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in the Registration Statement on Form S-4 (File
No. 333-2920) of America First Apartment Investors, L.P. of our report dated
January 26, 1996, on our audit of the financial statements of JEFFERSON PLACE
L.P. as of December 31, 1995 and for the year then ended.
/s/ MUELLER, PROST, PURK & WILBRAND,
P.C.
Certified Public Accountants
June 5, 1996
