AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1997
SECURITIES ACT FILE NO. 333-15035
INVESTMENT COMPANY ACT FILE NO. 811-7887
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-2
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
/X/ PRE-EFFECTIVE AMENDMENT NO. 1
/ / POST-EFFECTIVE AMENDMENT NO.
AND/OR
/X/ REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
/X/ AMENDMENT NO. 1
------------------------------
MERRILL LYNCH KECALP L.P. 1997
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
------------------------------
WORLD FINANCIAL CENTER - SOUTH TOWER
225 LIBERTY STREET
NEW YORK, NEW YORK 10080-6123
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
REGISTRANT TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 236-7302
KECALP INC.
WORLD FINANCIAL CENTER - NORTH TOWER
250 VESEY STREET
NEW YORK, NEW YORK 10281-1334
ATTN: MARK B. GOLDFUS
(NAME AND ADDRESS OF AGENT FOR SERVICE)
-----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered
on a delayed or continuous basis pursuant to Rule 415 under the Securities
Act of 1933, other than securities offered only in connection with dividend
or interest reinvestment plans, check the following box. / /
CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933
<TABLE>
<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM
AMOUNT OFFERING AGGREGATE AMOUNT OF
BEING PRICE PER OFFERING REGISTRATION
TITLE OF SECURITIES BEING REGISTERED REGISTERED UNIT PRICE FEE
<S> <C> <C> <C> <C>
Limited Partnership Interest . . . . . 250,000 Units $1,000.00 $250,000,000 $75,757.57/(1)/
</TABLE>
- -------------------
(1) $30,303.04 of the Registration Fee was previously paid.
- -------------------
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
files a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall
become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
Merrill Lynch KECALP L. P. 1997
CROSS REFERENCE SHEET
Between Items of Registration Statement (Form N-2)
and Prospectus
Pursuant to Rule 404 (c)
PARTS A and B
Item
No. Caption Location in Prospectus
------- ----------------------
1. Outside Front Cover Outside Front Cover
2. Inside Front and Outside
Back Cover Page Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis Prospectus Summary; Fund Expenses
4. Financial Highlights Not Applicable
5. Plan of Distribution Outside Front Cover; Offering and
Sale of Units
6. Selling Shareholders Not Applicable
7. Use of Proceeds The Partnership; Investment Objective
and Policies
8. General Description of
the Registrant Cover Page of Prospectus; The
Partnership; Risk and Other Important
Factors; Investment Objective and
Policies; Fiduciary Responsibility of
the General Partner; Summary of the
Partnership Agreement
9. Management Fiduciary Responsibility of the General
Partner; The General Partner and Its
Affiliates; Summary of the Partnership
Agreement
10. Capital Stock, Long-Term
Debt, and
Other Securities Summary of the Partnership
Agreement; Transferability of the Units
11. Defaults and Arrears on
Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the
Statement of Additional Not Applicable
14. Cover Page Not Applicable
15. Table of Contents Not Applicable
16. General Information
and History Not Applicable
17. Investment Objective
and Policies Investment Objective and Policies
18. Management Fiduciary Responsibility of the General
Partner; The General Partner and Its
Affiliates; Summary of the Partnership
Agreement
19. Control Persons and
Principal Holders of
Securities Cover Page; The General Partner and
Its Affiliates
20. Investment Advisory and
Other Services The General Partner and Its Affiliates
21. Brokerage Allocation and
Other Practices Not Applicable
22. Tax Status Tax Aspects of Investment in the
Partnership
23. Financial Statements Financial Statements
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
Information contained herein is 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.
SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MAY 19, 1997
$250,000,000
250,000 UNITS OF LIMITED PARTNERSHIP INTEREST
MERRILL LYNCH KECALP L.P. 1997
$1,000 PER UNIT MINIMUM INVESTMENT 5 UNITS ($5,000)
Merrill Lynch KECALP L.P. 1997 (the "Partnership") hereby offers 250,000
units of limited partnership interest (the "Units") in the Partnership to
certain employees of Merrill Lynch & Co., Inc. ("ML & Co.") and its
subsidiaries and to non-employee directors of ML & Co. ("Eligible
Investors"). Units are also being offered to ML & Co. for purchase in
connection with a deferred compensation program of ML & Co. for certain of
its key employees. The Partnership's principal offices are at South Tower,
World Financial Center, 225 Liberty Street, New York, New York 10080-6123 and
its telephone number is (212) 236-7302. KECALP Inc., a wholly-owned
subsidiary of ML & Co., is the general partner (the "General Partner") of the
Partnership. The Partnership will operate as a non-diversified, closed-end
investment company of the management type. The General Partner has obtained
an order from the Securities and Exchange Commission exempting the
Partnership, as an "employees' securities company", from certain provisions
of the Investment Company Act of 1940. See "Exemptions from the Investment
Company Act of 1940".
The investment objective of the Partnership is to seek long-term capital
appreciation. It is expected that a significant portion of the proceeds of
this offering will be invested in privately-offered equity investments in
U.S. and non-U.S. issuers. The Partnership's investments may include
securities issued in leveraged buyout transactions, transactions involving
financial restructurings, recapitalizations of operating companies,
financings of companies in an early stage of development and opportunities in
the technology sector. Investments may also be made in real estate
opportunities. Investments in non-U.S. issuers may include opportunities in
both emerging markets and developed countries. The Partnership's investments
may be made directly or through the purchase of interests in other funds.
The Partnership may make other investments in equity and fixed income
securities that the General Partner considers appropriate in terms of their
potential for long-term capital appreciation. The Partnership's investment
policies involve a very high degree of risk. See "Investor Suitability
Standards", "Conflicts of Interest", "Risk and Other Important Factors" and
"Investment Objective and Policies". The Partnership may borrow funds for
investment in securities, which would have the effect of leveraging the
Units. See "Investment Objective and Policies Leverage".
The Units are being offered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") on a "best efforts" basis. Eligible Investors must
submit completed subscription documents not later than July , 1997, or such
other subsequent date, not later than August , 1997, as MLPF&S and the
General Partner may agree upon. Subsequent to such date, the General Partner
will advise such investors as to whether their subscriptions have been
accepted and thereupon such investors shall transfer funds for payment into
the Partnership's escrow account. The General Partner will also advise
prospective investors of the termination date of the offering (the "Offering
Termination Date"). If subscriptions (including subscriptions of ML & Co.)
for 40,000 Units have not been received by the Offering Termination Date, no
Units will be sold. Funds paid by subscribers will be deposited in a bank
escrow account and held in trust for the benefit of subscribers, and, if the
required minimum is not obtained or other conditions not satisfied, will be
refunded promptly with interest, if any. Subscriptions deposited in the
escrow account may not be terminated or withdrawn by subscribers. See
"Offering and Sale of Units".
________________________
This Prospectus sets forth concisely information about the Partnership
that a prospective investor ought to know before investing. Investors are
advised to read this Prospectus and retain it for future reference.
________________________
THE UNITS ARE A SPECULATIVE INVESTMENT AND THIS OFFERING INVOLVES
VARIOUS SUBSTANTIAL RISKS AS DESCRIBED IN THIS PROSPECTUS.
________________________
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 PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO PUBLIC SALES LOAD(1) PARTNERSHIP(2)
<S> <C> <C> <C>
Per Unit . . . . . . . . . . . . . . $ 1,000 -- $ 1,000
Total Minimum . . . . . . . . . . . . $ 40,000,000 -- $ 40,000,000
Total Maximum . . . . . . . . . . . . $250,000,000 -- $250,000,000
</TABLE>
(footnotes on next page)
MERRILL LYNCH & CO.
________________________
THE DATE OF THIS PROSPECTUS IS MAY , 1997.
(Continued from cover page)
(1) No sales commission will be charged purchasers of Units. The General
Partner has agreed to indemnify MLPF&S against certain liabilities,
including liabilities under the Securities Act of 1933. See "Offering
and Sale of Units".
(2) Before deducting organizational and offering expenses payable by the
Partnership, estimated at $400,000 but not exceeding 1% of the proceeds
of the offering. The General Partner will bear the remaining costs, if
any, of forming the Partnership and registering the Units under the
Securities Act of 1933 and the securities laws of various states.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST
NOT BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER.
UNTIL AUGUST , 1997, ALL DEALERS EFFECTING TRANSACTIONS IN THE UNITS,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER
A CURRENT COPY OF THIS PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF
DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS.
INVESTOR SUITABILITY STANDARDS
Only employees of ML & Co. and its subsidiaries and non-employee
directors of ML & Co. who meet the suitability standards described below
("Eligible Investors"), together with ML & Co., will be eligible to purchase
Units. THE PURCHASE OF UNITS INVOLVES SIGNIFICANT RISKS AND UNITS ARE NOT A
SUITABLE INVESTMENT FOR ALL QUALIFIED INVESTORS. See "Risk and Other
Important Factors".
1. Substantial Means and Net Worth. The purchase of Units is suitable
only for those persons who have no need for liquidity in this investment and
who have adequate means of providing for their current needs and
contingencies. Accordingly, no Units will be sold to an employee of ML & Co.
or its subsidiaries or a non-employee director of ML & Co. unless such
investor (i) in the case of employees of ML & Co. or its subsidiaries, has a
current annual salary in an amount which, together with bonus received from
ML & Co. or its subsidiaries in respect of 1996, equals at least $100,000 or,
if employed for less than a full calendar year, is employed with an
annualized gross income from ML & Co. or its subsidiaries of at least
$100,000, or (ii) in the case of non-employee directors of ML & Co., (a) has
a net worth (exclusive of homes, home furnishings, personal automobiles and
the amount to be invested in Units) of not less than $125,000 in excess of
the price of the Units for which such investor has subscribed, or (b) has a
net worth (exclusive of homes, home furnishings, personal automobiles and the
amount to be invested in Units) of not less than $100,000 in excess of the
price of the Units for which such investor has subscribed and expects to have
during each of the current and the next three taxable years, gross income
from all sources in excess of $100,000. Investors will be required to
represent in writing in the Subscription Agreement that they meet the
applicable requirements. Investors who can make such representation, together
with ML & Co., are hereinafter referred to as "Qualified Investors". CERTAIN
MAXIMUM PURCHASE RESTRICTIONS HAVE BEEN IMPOSED ON QUALIFIED INVESTORS. SEE
"OFFERING AND SALE OF UNITS MAXIMUM PURCHASE BY QUALIFIED INVESTORS".
2. Ability and Willingness to Accept Risks. The economic benefit from
an investment in the Partnership depends on many factors beyond the control
of the General Partner, including general economic conditions, changes in
governmental regulation, inflation, tax treatment of portfolio investments
and resale value of Partnership investments. See "Risk and Other Important
Factors". Accordingly, the suitability for any Qualified Investor of a
purchase of Units will depend on, among other things, such investor's
investment objectives and such investor's ability to accept speculative
risks.
3. Ability to Accept Limitations on Transferability. PURCHASERS OF
UNITS SHOULD VIEW THEIR INTEREST IN THE PARTNERSHIP AS A LONG-TERM, ILLIQUID
INVESTMENT. Limited partners may not be able to liquidate their investment
in the event of emergency or for any other reason because there is not any
public market for Partnership Units and there are restrictions contained in
the Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), the form of which is attached as Exhibit A to this Prospectus,
which are intended to prevent the development of a public market for Units.
Moreover, the transferability of Units is subject to certain restrictions in
the Partnership Agreement and may be affected by restrictions on resales
imposed by the laws of some states. See "Transferability of Units".
SUMMARY OF THE OFFERING
The summary information below should be read in conjunction with the
detailed information provided elsewhere in this Prospectus.
INTRODUCTION: The Partnership is designed as a convenient
vehicle for Qualified Investors to acquire
interests in a portfolio of varied investments.
It is expected that a significant portion of
the Partnership's investments will be
privately-offered equity investments that have
been made available to ML & Co. or its
affiliates and are generally not available to
individuals. See "Investment Objective and
Policies".
THE OFFERING: 250,000 units of limited partnership interest
in the Partnership, each representing a capital
contribution of $1,000. MLPF&S is acting as
selling agent for the Partnership and the
General Partner. The minimum investment is
five Units ($5,000) and additional Units may be
purchased in increments of $1,000. Certain
maximum purchase restrictions will be imposed
on Qualified Investors (see "Offering and Sale
of Units Maximum Purchase by Qualified
Investor"). Eligible Investors must submit
completed subscription documents not later than
July , 1997, or such subsequent date, not
later than August , 1997, as the General
Partner and MLPF&S may determine. Subsequent
to such date, the General Partner will advise
such investors as to whether their
subscriptions have been accepted and thereupon
such investors shall transfer funds for payment
into the Partnership's escrow account. The
General Partner will also advise such investors
of the termination date of the offering (the
"Offering Termination Date"). If subscriptions
(including subscriptions of ML & Co.) for
40,000 Units are not received by the Offering
Termination Date, the offering will be
terminated, and all funds received will be
refunded with interest, if any, actually earned
thereon. If subscriptions for more than
250,000 Units are received, the General Partner
may reject any subscription in whole or part.
Funds paid for any subscription for Units that
is rejected will be refunded promptly.
Qualified Investors admitted as limited
partners are hereinafter referred to, together
with the initial limited partner and any
substituted limited partners, as the "Limited
Partners". The Units will be non-assessable.
See "Offering and Sale of Units".
The Partnership is also offering Units to ML &
Co. for purchase by it in connection with its
obligations under a 1997 deferred compensation
plan offered by ML & Co. to certain of its key
employees. ML & Co. has advised the
Partnership that it may purchase up to 200,000
Units as a result of participation by eligible
employees in such plan. See "Offering and Sale
of Units--Purchase of Units by ML & Co."
THE PARTNERSHIP: A Delaware limited partnership formed on
October 28, 1996. Its address is South Tower,
World Financial Center, 225 Liberty Street, New
York, New York 10080-6123 (telephone: (212)
236-7302). The Partnership will operate as a
non-diversified, closed-end investment company
of the management type under the Investment
Company Act of 1940. An order has been
obtained from the Securities and Exchange
Commission exempting the Partnership from
certain provisions of such Act. The functions
and responsibilities of the General Partner and
the rights of the Limited Partners are
authorized by or specified in the Partnership
Agreement. See "The Partnership", "Summary of
the Partnership Agreement" and "Exemptions from
the Investment Company Act of 1940".
THE GENERAL PARTNER: KECALP Inc. (the "General Partner"), a Delaware
corporation indirectly wholly-owned by ML &
Co., a Delaware corporation, and located at
South Tower, World Financial Center, 225
Liberty Street, New York, New York 10080-6123
(telephone: (212) 236-7302). The General
Partner will manage and make
investment decisions for the Partnership.
KECALP Inc. serves as the general partner of
seven limited partnerships which have been
established since 1983 for investment by
qualifying employees of ML & Co. (collectively,
the "KECALP Partnerships"), and it is
contemplated that in the future it will serve
in the same capacity for other similar
partnerships that may be offered to the same
class of limited partner investors. See "The
General Partner and Its Affiliates". The
General Partner has also been designated to
serve as Tax Matters Partner for the
Partnership with respect to all administrative
and judicial proceedings relating to an audit
of the Partnership's U.S. Federal income tax
information return. See "Tax Aspects of
Investment in the Partnership".
INVESTMENT OBJECTIVE: The investment objective of the Partnership is
to seek long-term capital appreciation. It is
expected that a significant portion of its
assets will be invested in privately-offered
equity investments in U.S. and non-U.S.
issuers. The Partnership's investments may
include securities issued in leveraged buyout
transactions, transactions involving financial
restructurings, recapitalizations of operating
companies, financings by companies in an early
stage of development and opportunities in the
technology sector. Investments may also be
made in real estate opportunities. Investments
in non-U.S. issuers may include opportunities
in both emerging markets and developed
countries. The Partnership's investments may
be made directly in portfolio companies or
through the purchase of interests in other
investment funds, including hedge funds. The
Partnership anticipates that many of its
investments will be made available to it by ML
& Co. or its affiliates. Information
concerning potential sources of investments,
including potential co-investment
opportunities, is set forth under "Investment
Objective and Policies--Sources of Investment
Opportunities". The Partnership may make other
investments in equity and fixed income
securities that the General Partner considers
appropriate in terms of their potential for
capital appreciation. Current income will not
generally be a significant factor in the
selection of investments. There can be no
assurance that the Partnership's investment
objective will be attained. See "Investment
Objective and Policies" and "Tax Aspects of
Investment in the Partnership".
LEVERAGE: The Partnership is authorized to borrow funds
when it believes such action is desirable to
enable the Partnership to make new investments
or follow-on investments. Such use of leverage
would exaggerate increases or decreases in the
Partnership's net assets. See "Investment
Objective and Policies--Leverage".
COMPENSATION AND FEES: The Partnership will pay organizational and
offering expenses in an amount of up to 1% of
the proceeds of the offering. During the term
of the Partnership, the General Partner is
obligated to pay all expenses, fees,
commissions and other expenditures on behalf of
the Partnership not paid by ML & Co. or its
other subsidiaries. The General Partner will
be entitled to receive annual reimbursement
from the Partnership, in amounts up to 0.5% of
Limited Partners' capital contributions (1%, if
the capital contributions are less than $60
million), of operating expenses incurred by the
General Partner with respect to the
Partnership. Expenses paid by the General
Partner that are not reimbursed to it shall be
deemed a contribution to capital and be
reflected in the General Partner's capital
account. Since repayment of any positive
amount in a Partner's capital account is a
priority item upon dissolution, the General
Partner may, upon dissolution, recoup
expenditures made on behalf of the Partnership.
In addition, the General Partner will be
entitled to a 1% interest in all items of
Partnership income, gain, deduction, loss and
credit, for which it has no obligation to make
a cash capital contribution upon the admission
of Qualified Investors as Limited Partners. To
the extent that investments are made in
transactions in which affiliates of the General
Partner are involved, certain other benefits
may accrue to affiliates. See "Compensation
and Fees".
PARTNERSHIP DISTRIBUTIONS
AND ALLOCATIONS: During the Partnership term, items of income,
gain, deduction, loss and credit will generally
be allocated 99% to the Limited Partners and 1%
to the General Partner. Cash distributions
will be made in the same manner. The General
Partner may make distributions of Partnership
assets in kind, in addition to cash
distributions. Each Limited Partner will be
required to take into account in computing his
Federal income tax liability his allocable
share of the Partnership's income, gain, loss,
deductions, credits and items of tax preference
for any taxable year of the Partnership ending
within or with the taxable year of such Limited
Partner, without regard to whether he has
received or will receive any distribution from
the Partnership. The Partnership has adopted a
calendar year for tax reporting purposes. TO
THE EXTENT THE PARTNERSHIP INVESTS IN OTHER
INVESTMENT FUNDS, IT MAY EXPERIENCE DELAYS IN
OBTAINING ANNUAL TAX INFORMATION, WHICH MAY
REQUIRE LIMITED PARTNERS TO OBTAIN EXTENSIONS
FOR FILING INCOME TAX RETURNS. See "The
Partnership" and "Tax Aspects of Investment in
the Partnership".
REINVESTMENT POLICY: The General Partner has the discretion to
reinvest all Partnership revenues. To the
extent portfolio investments are disposed of
within two years after the closing of the sale
of Units, the General Partner will consider
reinvesting all or a substantial portion of the
proceeds realized by the Partnership. However,
the General Partner does not expect to reinvest
proceeds from the liquidation of portfolio
investments (other than temporary investments)
occurring more than two years after the closing
of the sale of Units, except in connection with
follow-on investments made in existing
portfolio companies. The General Partner may
also cause the Partnership to maintain reserves
for follow-on investments or to apply cash
received from investments to the prepayment of
any borrowings made by the Partnership. To the
extent that cash received by the Partnership is
not required for such purposes or to reimburse
the General Partner for any expenses incurred
or held for reinvestment, it will be
distributed to the Partners at least annually.
See "Investment Objective and Policies".
DISSOLUTION: The Partnership term extends to December 31,
2037. However, pursuant to the Partnership
Agreement, the General Partner may dissolve the
Partnership, without the consent of the Limited
Partners, at any time after January 1, 2003.
It is not the General Partners intention to
dissolve the Partnership prior to the time when
the Partnership's equity investments have
matured and disposition of its other portfolio
investments can be effected. See "The
Partnership" and "Summary of the Partnership
Agreement".
RISKS: The purchase of Units involves a number of
significant risk factors. See "Risk and Other
Important Factors". Prospective investors
should also see the information set forth under
"Conflicts of Interest".
HOW TO SUBSCRIBE: (a) The Qualified Investor completes, dates,
executes and delivers to KECALP Inc., a copy of
the Limited Partner Signature Page and Power of
Attorney attached as part of the Subscription
Agreement, a form of which is attached as
Exhibit B to this Prospectus.
(b) The Qualified Investor's MLPF&S securities
account will be debited in the amount of $1,000
for each Unit (minimum purchase of five Units)
that he desires to purchase. A securities
account will be opened by MLPF&S for any
Qualified Investor who does not have such an
account.
PARTNERSHIP EXPENSES
The following table is intended to assist potential investors in
understanding the various costs and expenses associated with investing in the
Partnership.
Limited Partner Transaction Expenses
Sales Load (as a percentage of offering price) None
Annual Expenses (as a percentage of net assets)
Management Fees Payable to General Partner /(1)/ None
Other Expenses (audit, legal and administrative) /(2)/ 1.0%
-----
Total Annual Expenses 1.0%
------------------
(1) Does not include management fees that may be payable to managers of
any investment funds in which the Partnership invests, which will
be accounted for as an item of Partnership expense.
(2) "Other Expenses" have been estimated for the current fiscal year
and assume Limited Partners' capital contributions of $40 million,
the minimum in the Partnership's offering. Although the
Partnership does not pay operating expenses directly, the General
Partner is entitled to receive annual reimbursements from the
Partnership of Partnership expenses paid by it, in amounts of up to
0.5% of the Limited Partners' capital contributions (1%, if the
capital contributions are less than $60 million).
Example
An investor would pay the following expenses on a hypothetical $1,000
investment in the Partnership, assuming a 5% annual return:
ONE YEAR THREE YEARS FIVE YEARS TEN YEARS
- -------- ----------- ---------- ---------
$10 $32 $55 $122
This "Example" assumes that all distributions are reinvested at net
asset value and that the percentage amounts listed under Annual Expenses
remain the same in the years shown. However, Limited Partners will not be
able to reinvest distributions of the Partnership. The above tables and the
assumption in the Example of a 5% annual return are required by regulations
of the Securities and Exchange Commission applicable to all investment
companies. THE ASSUMED 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE
CONSIDERED A REPRESENTATION OF ACTUAL OR EXPECTED PARTNERSHIP PERFORMANCE OR
EXPENSES, BOTH OF WHICH MAY VARY.
CONFLICTS OF INTEREST
The General Partner and its affiliates may be subject to various
conflicts of interest in their relationships with the Partnership. Such
conflicts of interest include:
1. Conflicts with Respect to Investment Opportunities. Affiliates of
the General Partner may in the future perform investment advisory services
for other investment entities with investment objectives and policies similar
to those of the Partnership and such entities may compete with the
Partnership for investment opportunities. It is anticipated that investment
vehicles with investment objectives and policies similar to the Partnership
may be offered from time to time to employees of subsidiaries of ML & Co.
located outside of the United States, including two investment vehicles (the
"Offshore KECALP Funds") expected to be offered concurrently with the
offering by the Partnership. It is anticipated that, to the extent permitted
by the Investment Company Act or exemptions therefrom, such vehicles will co-
invest with the Partnership in making portfolio investments, except where
such investments would not be advisable for such vehicles due to tax or other
considerations. Furthermore, ML & Co. and its affiliates may invest directly
in investments that would be appropriate investments for the Partnership.
While the General Partner is obligated to use its best efforts to provide the
Partnership with a continuing and suitable investment program consistent with
its investment objective and policies, the General Partner is not required to
present to the Partnership any particular investment opportunity that has
come to its attention, even if such opportunity is within the investment
objective and policies of the Partnership. Because of different objectives
or other factors, a particular investment may be bought by the Partnership,
the General Partner or its affiliates or one of their clients at a time
when one of such entities is selling such investment. In addition, affiliates
of the General Partner, including its officers and directors, may benefit
to the extent the Partnership invests in securities offered to other
investors by MLPF&S in public offerings or private placements. See
"Compensation and Fees". The General Partner will endeavor to resolve
conflicts with respect to investment opportunities in a manner deemed
equitable to all to the extent possible under the prevailing facts and
circumstances.
2. Relations with Issuers of Portfolio Investments. Affiliates of
the General Partner, including MLPF&S, may perform financial services for
issuers of securities held by the Partnership or for affiliates of such
issuers. These relationships could influence the General Partner to take
actions, or forbear from taking actions, that an independent general partner
might not take or forbear from taking.
3. Conflicts with Respect to Dissolution. The General Partner has the
authority to dissolve the Partnership, without the consent of the Limited
Partners, at any time after January 1, 2003. The General Partner does not
intend to dissolve the Partnership until its equity investments have reached
a level of maturity where their disposition can be considered and the
Partnership can dispose of its other portfolio securities. However, the
General Partner may dissolve the Partnership, for its administrative
convenience, at a time when some Limited Partners might prefer to have the
Partnership continue its operations.
4. Allocation of Management Time and Services. The Partnership will
not have independent management or employees and will rely on the General
Partner and its affiliates for management and administration of the
Partnership and its assets. Conflicts of interest may arise in allocating
management time, services or functions between the Partnership, the
established KECALP Partnerships and other entities for which officers of the
General Partner may provide services. The officers and directors of the
General Partner will devote such time to the affairs of the Partnership as
they, in their sole discretion, determine to be necessary for the conduct of
the business of the Partnership.
5. Participation by an Affiliate as Underwriter. As an affiliate of
the General Partner, MLPF&S may experience a conflict of interest in
performing its due diligence in connection with the public offering of the
Units. Although MLPF&S believes that its investigation of the General
Partner, the Partnership and their affairs for purposes of this offering has
in fact been as complete as would be the case in dealing with nonaffiliated
persons, the review performed by MLPF&S cannot be considered independent.
6. Determination of Reserves. In determining the appropriate level of
working capital reserves, the interest of the General Partner in assuring
adequate funds for operation (which may reduce the potential liability of the
General Partner to certain Partnership creditors) may, in some cases, be in
conflict with the interest of the Limited Partners in maximizing cash
distributions.
7. Lack of Separate Representation. The Partnership, the General
Partner and MLPF&S are represented by the same legal counsel and auditors.
However, should a dispute arise between the Partnership and either the
General Partner or any affiliate, the General Partner anticipates that it
will retain separate counsel or auditors as required for the Partnership for
such matter.
8. Conflicts Resulting from ML & Co.'s Ownership of Units. Conflicts
may arise in the selection of investments for the Partnership since
participants in the deferred compensation plan will have an interest in
seeking to maximize total return (including the receipt of ordinary income)
as opposed to capital gains. Such participants would receive no advantageous
tax treatment for capital gains in respect of their participation in such
plan, while Limited Partners would receive such advantageous treatment for
capital gains. In addition, ML & Co., in light of its anticipated
significant holdings in the Partnership, would have the ability to determine
matters submitted to the vote of Limited Partners. However, ML & Co. will
agree to vote its Units in the same proportion as other Limited Partners in
respect of any matter submitted to the vote of Limited Partners.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNER
The General Partner is under a fiduciary duty to conduct the affairs of
the Partnership in the best interests of the Partnership and consequently
must exercise good faith and integrity in handling Partnership affairs.
Prospective Limited Partners who have questions concerning the duties of the
General Partner should consult with their counsel.
The Partnership Agreement provides that neither the General Partner nor
any of its officers, directors, stockholders, employees, or agents shall be
liable to the Partnership or the Limited Partners for any act or omission
based on errors of judgment or other fault in connection with the business or
affairs of the Partnership so long as the person against whom liability is
asserted acted in good faith on behalf of the Partnership and in a manner
reasonably believed by such person to be within the scope of his or its
authority under the Partnership Agreement and in or not opposed to the best
interests of the Partnership, but only if such action or failure to act does
not constitute negligence or misconduct, and, with respect to any criminal
proceeding, such person had no reasonable cause to believe his or its conduct
was unlawful. The General Partner and its officers, directors, stockholders,
employees, and agents will be indemnified by the Partnership to the fullest
extent permitted by law for any (a) fees (including, without limitation,
legal fees), costs and expenses incurred in connection with or resulting from
any claim, action or demand, or threatened claim, action or demand, against
the General Partner, the Partnership or any of their officers, directors,
stockholders, employees or agents that arise out of or in any way relate to
the Partnership, its properties, business or affairs and (b) losses or
damages resulting from such claims, actions and demands, or threatened
claims, actions or demands, including amounts paid in settlement or
compromise (if recommended by attorneys for the Partnership) of any such
claim, action or demand or threatened claims, actions or demands; provided,
however, that this indemnification shall apply only so long as the person
against whom a claim, action or demand is asserted or threatened to be
asserted has acted in good faith and in a manner reasonably believed by such
person to be within the scope of his or its authority under the Partnership
Agreement and in or not opposed to the best interests of the Partnership, but
only if such action or failure to act does not constitute negligence or
misconduct. Thus, the Limited Partners may have a more limited right of
action than would otherwise be the case in the absence of such provisions.
In the absence of a court determination that the General Partner or officers
or directors of the General Partner were not liable on the merits or guilty
of disabling conduct within the meaning of Section 17(h) of the Investment
Company Act of 1940, the decision by the Partnership to indemnify the General
Partner or any such person must be based on the reasonable determination of
independent counsel, after review of the facts, that such disabling conduct
did not occur.
RISK AND OTHER IMPORTANT FACTORS
The purchase of Units offered hereby involves a number of significant
risk factors. In addition to risk factors set forth elsewhere in this
Prospectus, prospective purchasers should consider the following:
A. GENERAL RISKS
1. Risk of Unspecified and Unprofitable Investments. The proceeds of
this offering are intended to be invested in speculative growth securities
most of which have not yet been selected by the General Partner. See
"Investment Objective and Policies". Therefore, persons who purchase Units
will not have an opportunity to evaluate for themselves the specific
investments in which funds of the Partnership will be invested or the terms
of any such investments, and, accordingly, the risk of investing in Units may
be substantially increased. In addition, there can be no assurance that the
Partnership's investments will prove to be profitable. The purchasers of
Units must depend solely on the ability of the General Partner with respect
to the selection and timing of investments. See "The General Partner and Its
Affiliates" and "Investment Objective and Policies--Sources of Investment
Opportunities".
2. Risks of Equity Investments. The Partnership is authorized to make
equity investments offering the potential for long-term capital appreciation
in U.S. and non-U.S. issuers. These investments may include equity
investments in leveraged buyout transactions, transactions involving
financial restructurings or recapitalization of operating companies and
financings by companies in an early stage of development. Investments may
also be made in real estate opportunities and in venture capital
transactions. These investments involve a high degree of business and
financial risk that can result in substantial losses. Among these are the
risks associated with investment in companies with little or no operating
history and companies operating at a loss or with substantial variations in
operating results from period to period. These companies may encounter
intense competition from established companies with greater resources. In
addition, companies in high-technology fields face special risks of
product obsolescence. Leveraged buyout investments typically involve
a high degree of debt financing and the highly leveraged financial
structure of these transactions introduces substantial additional
risks. Investments in companies that undertake financial
recapitalization or restructuring transactions involve the risk,
among others, that the transaction may not resolve financial or
operational conditions that led to the recapitalization or restructuring;
in addition, to the extent that a company remains leveraged following
the completion of such a transaction, an equity investment in the company
may involve risks similar to an equity investment in a leveraged
buyout transaction. In addition, companies in which the Partnership
makes private equity investments may subsequently require additional
capital and may seek follow-on investments.
3. Illiquid Investments. Investments of the types to be made by the
Partnership are generally illiquid. Leveraged buyout and venture capital
investments may typically take from four to seven years to reach a state of
maturity where disposition can be considered. Real estate investments are
expected to be illiquid as described above. Investments in corporate
restructurings and recapitalization transactions may also require a
substantial time period before dispositions can be effected. In addition,
investments acquired by the Partnership in private transactions will
generally be subject to restrictions imposed by the Federal securities laws
on resale by the Partnership. Investments made by the Partnership in issuers
in which ML & Co. or its affiliates have significant investment positions may
be subject to further limitations imposed by the Federal securities laws
which may delay the disposition of publicly-traded securities owned by the
Partnership.
4. Delay in Partnership Investments. Although the General Partner will
use its best efforts to commit Partnership funds as promptly as practicable,
it is anticipated that there may be a significant period of time (up to three
to four years) before the proceeds from the offering will be fully committed.
In addition, investment funds in which the Partnership invests may not draw
down on the Partnership's commitment (i.e. require the Partnership to
contribute the funds it has previously committed) for an additional period of
up to four to five years. Such investment funds also may re-invest capital
returned to them from portfolio investments during an initial period. These
delays in the Partnership's investments will detract from the average annual
return of an investment in the Partnership.
5. Availability of and Competition for Investments. The success of the
Partnership depends upon the availability of appropriate investment
opportunities. The availability of investment opportunities generally will
be subject to market conditions. It may be expected that the Partnership
will encounter substantial competition for certain investments, particularly
from other entities having similar investment objectives. There can be no
assurance that the Partnership will be successful in obtaining suitable
investment opportunities or that a desirable mix of investments will be
achieved.
6. Risks of Real Estate Investments. Real estate investments are
subject to a number of risks, including uncertainty of cash flow to meet
fixed obligations, adverse changes in local market conditions and
neighborhoods, changes in interest rates, the need for unanticipated
renovation, changes in real estate taxes and increases in other operating
expenses. Real estate investments may be illiquid. Investments in real
estate of the type contemplated by the Partnership are usually long term and
can be as long as fifteen years. Real estate investment cycles typically
have lasted three to five years, but recently have been longer.
7. Risks of High Yield Debt Investments. The Partnership is authorized
to make investments in high yield corporate debt securities (also referred to
as "junk bonds") offering the potential for long-term capital appreciation.
High yield debt securities are predominantly speculative with respect to the
capacity to pay interest and repay principal in accordance with the terms of
the security and generally involve a greater volatility of price than
securities in higher rating categories. In addition, to the extent that
affiliates of the Partnership hold securities of issuers in which the
Partnership has invested, the Partnership may be precluded by the Investment
Company Act of 1940 (the "Investment Company Act") from participating in
sales or other transactions in which such affiliates are participants unless
it is able to obtain exemptions under such statute from the Securities and
Exchange Commission. The inability to participate in such transactions may
adversely affect the Partnership in terms of the timing of dispositions of
such investments and the proceeds realized by the Partnership from such
investments.
8. Need for Investment Company Act Exemptions. In addition to the
restrictions described above, the Investment Company Act contains
restrictions on co-investments by a registered investment company (such as
the Partnership) and affiliates of its sponsor and on purchases of securities
by a registered investment company from affiliates of its sponsor.
Accordingly, as described under "Investment Objective and Policies--Sources
of Investment Opportunities", exemptions under the Investment Company Act
may be required before the Partnership can make investments in transactions
where ML & Co. or its affiliates are co-investors or where ML & Co. or its
affiliates seek to sell an investment to the Partnership. In this regard,
the General Partner has obtained blanket exemptive relief from the
Securities and Exchange Commission permitting co-investments and other
transactions with ML & Co. and its affiliates in leveraged buyout and other
equity investments. There can be no assurance that the Partnership will be
able to obtain similar exemptions in the future with respect to proposed
purchases and sales of portfolio securities in transactions in which
affiliates of the Partnership are participants and which do not qualify
under the terms of existing exemptions or those currently pending.
9. Reliance on the General Partner and Others. All decisions with
respect to the management of the Partnership will be made exclusively by the
General Partner. Limited Partners have no right or power to take part in the
management or control of the business of the Partnership. Accordingly, no
person should purchase Units unless such person is willing to entrust all
aspects of the management of the Partnership to the General Partner. See
"Summary of the Partnership Agreement" for the limitations imposed on the
Limited Partners' ability to remove the General Partner as general partner.
The Partnership may make minority equity investments in corporations, general
partnerships, limited partnerships, grantor trusts or management programs
where investors are permitted at most a limited role in the management of
such ventures. To the extent the Partnership invests in or through such
entities or programs, the success or failure of such ventures will depend on
the skills of the venture's sponsor, promoter or manager and not on the
General Partner.
10. Absence of Operating History and Management Experience. The
Partnership has been recently formed and has no operating history upon which
purchasers of Units may base an evaluation of its likely performance. While
the composition of its officers and directors has changed over the years
since the General Partner's formation, the General Partner has managed
similar partnerships for more than ten years. See "The General Partner and
Its Affiliates".
11. Use of Leverage. The Partnership has authority to utilize leverage
(i.e., borrowed funds or senior securities) in making investments as will
many of the entities in which the Partnership will make its investments. The
use of leverage, either by the Partnership or by the entities in which it
invests, would exaggerate increases or decreases in the Partnership's net
assets and, because of required debt service obligations, may result in
delays in the distribution of cash to Limited Partners. The Partnership
Agreement does not limit the amount of indebtedness that the Partnership may
incur. The Investment Company Act generally limits the amount of
indebtedness the Partnership may incur to 33-1/3% of its gross assets.
B. INTERNATIONAL INVESTMENT RISKS
12. General. Investments on an international basis involve certain
risks not involved in domestic investments, including fluctuations in foreign
exchange rates, future political and economic developments, different legal
systems and the existence or possible imposition of exchange controls or
other foreign or U.S. government laws or restrictions applicable to such
investments. Investments in different countries are subject to different
economic, financial, political and social factors. Because the Partnership
may invest in securities denominated in currencies other than the U.S.
dollar, changes in foreign currency exchange rates may affect the value of
securities owned by the Partnership and the unrealized appreciation or
depreciation of investments. With respect to certain countries, there may be
the possibility of expropriation of assets, confiscatory taxation, high rates
of inflation, political or social instability, changes in laws and rules or
in interpretations thereof, or diplomatic developments which could adversely
affect investments, or result in a total loss of investments, in issuers in
those countries. These risks may be heightened in countries that have only
recently permitted private ownership (including foreign private ownership) of
businesses. In addition, certain foreign investments may be subject to
foreign withholding taxes. Further, satisfactory custodial services for
investment securities may not be available in certain countries.
13. Regulatory Considerations. It is expected that the securities
purchased by the Partnership in international investments will not be
registered with the Securities and Exchange Commission and that the issuers
thereof will not be subject to the reporting requirements of such agency.
Accordingly, there will likely be less publicly available information about a
foreign company than about a U.S. company, and foreign companies may not be
subject to accounting, auditing and financial reporting standards and
requirements comparable to those to which U.S. companies are subject. In
addition, certain countries in which the Partnership may invest may not have
a comprehensive system of laws protecting the rights and interests of
investors (particularly foreign investors), and the enforcement of existing
laws may be inconsistent. The profitability of foreign investments may also
be impacted by regulatory burdens, such as lengthy regulatory approval
processes and strict environmental regulation. Some countries prohibit
or impose substantial restrictions on investments in their countries by
foreign entities such as the Partnership. Certain countries may also limit
the ability of the Partnership to dispose of investments by requiring regulatory
approvals prior to such disposition or by other means, including limiting the
ability to convert local currencies.
14. Developing Country Considerations. It is anticipated that a
significant portion of the Partnership's international investments may be in
the developing countries of the world, including countries located in the Far
East, the Indian subcontinent, Eastern Europe and Latin America. The risks
noted above are heightened for investments in developing countries.
C. INVESTMENT FUND CONSIDERATIONS
15. General. Investments by the Partnership in investment funds
involve considerations or risks not otherwise present in direct investments.
The managers of investment funds are usually compensated from the assets of
the funds based upon a fixed percentage of assets or capital, and also may
receive an incentive performance component such as a carried interest in the
profits generated by the funds. These fees will be paid by the Partnership
and will not be counted toward the limitation on the annual expenses of the
Partnership under which the General Partner is reimbursed for expenses paid
on behalf of the Partnership in an amount up to 0.5% of the Limited Partners'
capital contributions (1%, if the capital contributions are less than $60
million). Further, to the extent the Partnership invests in investment
funds, it will surrender a significant degree of control over the underlying
investment. In addition, investment funds incur certain administrative and
other expenses. As a result, the Partnership may incur additional, indirect
expenses with respect to investments in such funds in the form of management
compensation paid to such managers and other expenses incurred by such funds.
Furthermore, such funds may adopt time horizons for their underlying
investments that differ from that of the Partnership. As a result,
investments in such funds may cause the expected term of the Partnership to
continue beyond the date the Partnership would otherwise have terminated and
may have a negative impact on investors' rate of return. In addition, it is
possible that the Partnership's allocable share of earnings from an
investment fund for a taxable year could exceed the amount of cash
distributed to the Partnership by the investment fund for such year. As a
result, Limited Partners may receive allocations of income or gain during a
taxable year without a corresponding distribution of cash from the
Partnership to pay the related tax.
16. Delays in Preparation of Tax Information. It is expected that
annual tax information from investment funds in which the Partnership invests
may not be received in sufficient time to permit the Partnership to
incorporate such information into its annual tax information and distribute
such information to Limited Partners prior to April 15 of each year. As a
result, limited partners may be required to obtain extensions for filing
federal, state and local income tax returns each year. Limited Partners
anticipating tax refunds in respect of such year will not be able to file
their tax return requesting such refund until receipt of the annual tax
information from the Partnership. To the extent practicable, the Partnership
anticipates that it will provide estimated annual tax information in a timely
manner in order to assist Limited Partners in estimating their tax
liabilities. The Partnership's ability to make such estimates will be
dependent upon its ability to obtain estimated annual tax information from
the investment funds.
17. Investments in Hedge Funds. The Partnership may invest up to (10)%
of its total assets in hedge funds. These funds, for purposes of the
Partnership's policy, consist of private investment funds seeking to maximize
total return through use of various trading strategies. Investments in hedge
funds are speculative and involve substantial risks, including risks related
to implementation of the funds' trading strategies, leverage and investments
in derivative instruments. In addition, hedge funds may generate income or
gains that are re-invested by the hedge fund managers and the Partnership's
allocable share of earnings from such funds for a taxable year may exceed the
amount of cash distributed to the Partnership by the hedge funds for such
year. Under these circumstances, Limited Partners may receive allocations of
income or gain during a taxable year without a corresponding distribution of
cash from the Partnership to pay the related tax.
D. INCOME TAX RISKS
18. Fringe Benefits. The General Partner will incur various expenses
in connection with the organization and operation of the Partnership and will
pay any sales or brokerage commissions charged in connection with the
Partnership's investments. Since Units are being offered solely to ML & Co.
employees and non-employee directors, it is possible that the IRS would view
the General Partner's payment of such expenses as an indirect
method of compensating the employee-Limited Partner (i.e., as a fringe
benefit). If the IRS were successful in such characterization, an amount
equal to the fair market value of the underlying goods and services provided
by the General Partner in connection with the Partnership might be includable
in the Limited Partner's gross income as additional compensation. The
Limited Partner may not, however, be allocated a Partnership deduction in an
amount corresponding to such income inclusion because some of such fees and
expenses incurred by the General Partner on behalf of the Partnership would
be attributable to nondeductible syndication expenses, or investment expenses
subject to the limitations on deductibility of itemized miscellaneous
expenses, or treated as part of the capitalized cost of the Partnership's
portfolio assets. See "Fringe Benefits" under "Tax Aspects of Investment in
the Partnership--Other Tax Considerations".
19. Possible Changes in Law. The rules dealing with Federal income
taxation are under continual review by Congress and the IRS, resulting in
frequent revisions of the Federal tax laws and regulations promulgated
thereunder and revised interpretations of established concepts. No assurance
can be given that, during the term of the Partnership, applicable Federal
income tax laws or the interpretations thereof will not be changed in a
manner that would have a material adverse effect on an investment in the
Partnership.
E. PARTNERSHIP AND CONTRACTUAL RISKS
20. Funds Available from Offering. The potential profitability of the
Partnership and the risks associated therewith could be affected by the
amount of funds at its disposal. In the event the Partnership receives less
than the maximum proceeds, its ability to invest in a diversity of
investments and obtain a spreading of risk will be lessened and thus the
risks associated with the investment may be increased. See "Investment
Objective and Policies".
21. Possible Loss of Limited Liability. The Partnership Agreement
provides certain rights for the Limited Partners by vote of a
majority-in-interest of the Limited Partners to, among other things, remove
and replace the General Partner, amend the Partnership Agreement, dissolve
the Partnership, approve or consent to certain actions of the General Partner
and approve the sale of all or substantially all of the Partnership's assets.
(As used in this Prospectus, "majority-in-interest" means the Limited
Partners whose aggregate capital contributions represent over 50% of the
aggregate capital contributions of all Limited Partners.) Although under
current law in Delaware, the jurisdiction of the Partnership's organization,
such rights are permitted without resulting in a loss of limited liability of
Limited Partners, in some jurisdictions there is uncertainty as to whether
the exercise of these rights under certain circumstances could cause the
Limited Partners to be deemed general partners of the Partnership under
applicable state laws with a resulting loss of limited liability. If the
Limited Partners were deemed to be general partners of the Partnership, they
would be generally liable for Partnership obligations (other than nonrecourse
obligations), which could be satisfied out of their personal assets.
In order to minimize the risk of general liability, the exercise of
these rights by the Limited Partners is subject under the Partnership
Agreement to the prior receipt of an opinion of counsel to the effect that
the existence and exercise of such rights will not adversely affect the
status of the Limited Partners as limited partners of the Partnership. If
the Limited Partners receive such an opinion of counsel, the General Partner
will pay the cost involved in obtaining such an opinion. See "Summary of the
Partnership Agreement--Voting Rights". It should be noted that due to
present and possible future uncertainties in this area of partnership law, it
may be difficult or impossible to obtain an opinion of counsel to the effect
that the Limited Partners may exercise certain of their rights without
jeopardizing their status as Limited Partners.
22. Repayment of Certain Distributions. In the event that the
Partnership is unable otherwise to meet its obligations, its Limited Partners
may be required to pay to the Partnership or to pay to creditors of the
Partnership distributions previously received by them to the extent such
distributions are deemed to have been wrongfully paid to them. In addition,
Limited Partners may be required to repay to the Partnership any amounts
distributed which are required to be withheld by the Partnership for tax
purposes.
23. Absence of Market for Partnership Units. Purchasers of Units
should view their interest in the Partnership as a long-term, illiquid
investment. There is not now any market for Partnership Units and no market
is expected to develop. See "Transferability of Units". In addition, Units
will not be redeemable, except that the estate of any deceased Limited
Partner will be able to elect to have the Limited Partner's Units repurchased
by the General Partner or the Partnership for a price equal to the value of
the Limited Partner's interest determined at the next succeeding annual
appraisal date, which will generally occur as of the last day of the fiscal
year. To have Units repurchased, the estate of a Limited Partner must notify
the General Partner of its election to have the Units repurchased within 30
days after the date the annual appraisal is sent to Limited Partners.
24. Reinvestment. The General Partner has the discretion to reinvest
all Partnership revenues. See "Summary of the Offering--Reinvestment
Policy".
25. Dissolution. The General Partner has the right to dissolve the
Partnership without the consent of the Limited Partners at any time after
January 1, 2003. See "Summary of the Offering--Dissolution".
COMPENSATION AND FEES
The Partnership is designed to serve as an employee-benefit vehicle for
employees of ML & Co. and its subsidiaries satisfying certain income
requirements and is not intended to earn compensation or fees for ML & Co. or
its affiliates. However, due to the structure of the Partnership, its
management by an affiliate of ML & Co. and its proposed investment
activities, some benefits will accrue to affiliates of ML & Co. and their
employees, including the following:
(i) The General Partner will receive a 1% interest in all items of
Partnership income, gain, deduction, loss and credit, for which it
will make no cash capital contribution beyond the $99.00 it
contributed upon formation of the Partnership. However, the
General Partner is generally obligated to pay, on behalf of the
Partnership, all expenses incurred by the Partnership that are not
paid by ML & Co. or its other subsidiaries, including brokerage
costs and sales commissions (including sales commissions paid
directly or indirectly to MLPF&S) and operating expenses. The
General Partner will be entitled to receive annual reimbursements
from the Partnership, in amounts of up to 0.5% of the Limited
Partner's capital contributions (1%, if the capital contributions
are less than $60 million), of operating expenses incurred by the
General Partner with respect to the Partnership. Expenses paid by
the General Partner which are not reimbursed to it will be treated
as capital contributions of the General Partner and reflected in
its capital account. Under the terms of the Partnership Agreement,
upon dissolution of the Partnership, positive amounts in a
Partner's capital account will be a priority item in the
distribution of liquidated assets, and the General Partner will be
entitled to such distributions, if any.
(ii) To the extent that the Partnership invests in investment
partnerships or other investment vehicles offered by MLPF&S
("Sponsored Programs"), the Partnership's purchase of such
securities or assets will be counted toward the minimum sales
requirements often included as a condition to "best efforts"
offerings and therefore help satisfy conditions to MLPF&S's receipt
of any compensation in connection with such offerings.
(iii) Employees of affiliates of ML & Co. (including certain members
of the Advisory Committee of the General Partner) are involved
in the origination of investments that may be acquired by the
Partnership and the sale or management of Sponsored Programs,
and their compensation is in large part determined by or
related to the success of such offerings. If the Partnership
invests in these investments, such employees may benefit
accordingly.
(iv) If the Partnership invests in Sponsored Programs in which
affiliates of the General Partner issue securities and/or perform
management and other services for which they receive compensation,
ML & Co. and its subsidiaries will derive such benefits. The
Partnership's investment will, in all cases, be on the same terms
as an investment offered to nonaffiliated parties.
(v) To the extent the General Partner or its affiliates lend funds to
the Partnership or any partnership or other entity in which the
Partnership invests, the interest charges on such funds may be
deemed to be additional compensation to the General Partner or such
affiliates.
THE PARTNERSHIP
The Partnership was formed on October 28, 1996, as a limited partnership
under Delaware law for the purpose of enabling Qualified Investors to pool
their investment resources in order to participate in certain investment
opportunities that are sponsored by or become available to ML & Co. and its
affiliates. It is intended that the Partnership serve as an investment
vehicle which provides access to investment opportunities which are not
otherwise available, thus serving as an incentive for Qualified Investors to
remain as employees of ML & Co. and its affiliates.
Upon the admission of Qualified Investors as Limited Partners, the
Initial Limited Partner will withdraw as a Partner of the Partnership.
The Partnership intends, whenever possible, to form, re-form or
otherwise qualify to do business in all jurisdictions where such
qualification is necessary to carry on Partnership business or to preserve
the limited liability of the Limited Partners.
The Partnership is a non-diversified, closed-end investment company.
See "Exemptions from the Investment Company Act of 1940" for a summary of
certain exemptions from the Investment Company Act applicable to the
Partnership.
FINANCIAL STATUS OF THE PARTNERSHIP
The Partnership was formed with a minimal capitalization of $100.00,
consisting of capital contributions of $99.00 by the General Partner and
$1.00 by the Initial Limited Partner. The Partnership has not commenced
operations, other than temporarily to invest its start-up monies in a money
market fund sponsored by a subsidiary of ML & Co. Because the General
Partner is obligated to pay all the operating and overhead expenses of the
Partnership, the Partnership has no current or long-term liabilities arising
from such expenses. See "Financial Statements".
The Partnership has adopted a calendar year for tax reporting purposes.
USE OF PROCEEDS
All of the proceeds of the offering of Units will be contributed to the
Partnership as capital contributions of the Limited Partners. After payment
by the Partnership of organizational and offering expenses, estimated at
$400,000, but not exceeding 1% of the proceeds of the offering, the net
proceeds will be available for investment.
The Partnership will expend substantially all of its funds for
Partnership investments as soon as practicable. Pending selection of
long-term investments, Partnership funds will be temporarily invested in
money market instruments, securities issued by other investment companies and
other marketable securities. The Partnership may maintain reserves for
follow-on investments and other investment contingencies. See "Investment
Objective and Policies". The Partnership may also maintain reserves to the
extent necessary to reimburse the General Partner for expenses incurred by it
as described below under "Capital Contributions; Partnership Expenses".
Capital contributions of Limited Partners will be held by the
Partnership in a Partnership account for the benefit of the Limited Partners
and will be used only for the purposes set forth herein.
CAPITAL CONTRIBUTIONS; PARTNERSHIP EXPENSES
The proceeds of the offering of Units will be contributed to the
Partnership as capital contributions of the Limited Partners. The General
Partner made an initial capital contribution of $99.00 to the Partnership
upon its formation and will not make any further cash capital contribution
upon the admission of subscribing Qualified Investors as Limited Partners;
however, the General Partner will incur various expenses in connection with
the operation of the Partnership for, among other items, legal and accounting
fees, telephone charges, postage and other general and administrative items
and out-of-pocket costs of examination, appraisal and negotiation of
investments, which expenses may exceed the amounts for such expenses paid by
ML & Co. or its other subsidiaries or reimbursed to it by the Partnership.
The General Partner will also be obligated to pay any sales or brokerage
commissions charged in connection with Partnership investments, but will not
be obligated to pay debt service or other interest charges incurred in
connection with Partnership investments. The General Partner will be
entitled to receive annual reimbursements from the Partnership, in amounts of
up to 0.5% of the Limited Partners' capital contributions (1%, if the capital
contributions are less than $60 million), of operating expenses incurred by
the General Partner with respect to the Partnership. Expenses paid by the
General Partner which are not reimbursed to it will be deemed to be a capital
contribution by the General Partner to the Partnership. See "Compensation
and Fees". The General Partner will deliver to the Partnership quarterly
a certificate itemizing the Partnership expenses it has paid and maintain
adequate records of such expenses.
PARTNERSHIP DISTRIBUTIONS AND ALLOCATIONS
In general, during the term of the Partnership, all items of Partnership
income, gain, deduction, loss or credit will be allocated 1% to the General
Partner and 99% to the Limited Partners (except that losses will be allocated
to the General Partner to the extent the Limited Partners' capital accounts
equal zero and the General Partner's capital account is positive due to its
payment of organizational expenses of the Partnership in excess of 1% of the
Limited Partners' capital contributions and annual operating expenses in
excess of 0.5% of Limited Partners' capital contributions (1%, if the capital
contribution are less than $60 million)). Upon liquidation, gross income
from the sale of the Partnerships assets will be allocated to the Partners in
the amount of their negative capital account balances, then to the General
Partner to the extent the amount of the capital contribution made by it to
the Partnership is in excess of 1% of the Limited Partners' capital
contributions, and thereafter 99% to the Limited Partners and 1% to the
General Partner. These items will be allocated among the Limited Partners in
the ratio the capital contribution of each Limited Partner (or the capital
contribution attributable to the interest held by a transferee Limited
Partner) bears to the total capital contributions of all Limited Partners.
Distributable Cash, as defined in the Partnership Agreement, will be
distributed 99% to the Limited Partners and 1% to the General Partner. The
General Partner may also make distributions in kind of securities or assets
held by the Partnership. Cash distributions will be credited to the Limited
Partner's MLPF&S securities account specified in his Signature Page and Power
of Attorney unless the General Partner is instructed otherwise by a Limited
Partner.
Allocations among the transferor and transferee of a Partnership
interest are described under "Transferability of Units".
DISSOLUTION; DISTRIBUTIONS ON LIQUIDATION
The Partnership term extends to December 31, 2037. However, pursuant to
the Partnership Agreement, the General Partner may dissolve the Partnership,
without the consent of the Limited Partners, at any time after January 1,
2003. It is not the General Partner's intention to dissolve the Partnership
prior to the time when the Partnership's equity investments have matured and
the Partnership can dispose of its other portfolio investments. Other events
causing dissolution are summarized under "Summary of the Partnership
Agreement--Dissolution".
In settling accounts after the sale of all Partnership property upon
liquidation, the assets of the Partnership shall be paid out (i) to creditors
(including any creditor who is a Partner), in the order of priority as
provided by law; (ii) to each Partner in an amount equivalent to the positive
amount of his capital account on the date of distribution, after giving
effect to any allocation of profits or losses arising from sales on
liquidation; and (iii) the balance, 99% to the Limited Partners and 1% to the
General Partner.
Upon liquidation, the General Partner may distribute Partnership assets
in kind.
THE GENERAL PARTNER AND ITS AFFILIATES
KECALP Inc., an indirect wholly-owned subsidiary of ML & Co., is the
General Partner of the Partnership and as such will manage and control the
business and affairs of the Partnership and invest Partnership funds. The
General Partner is a Delaware corporation formed in June 1981 for the purpose
of serving as general partner of employee benefit partnerships such as the
Partnership, and has its business and executive offices at South Tower, World
Financial Center, 225 Liberty Street, New York, New York 10080-6123
(telephone: (212) 236-7302). Although most of the officers and directors of
the General Partner have been employed in the financial community for many
years, the experience of the General Partner in managing portfolios of
investments has been limited to the management of seven partnerships similar
to the Partnership. The directors and principal officers of the General
Partner and their business experience for the past five years are:
John L. Steffens Chairman of the Board and
Director
Matthias B. Bowman President and Director
Daniel P. Tully Vice President and Director
James V. Caruso Vice President and Director
Mark B. Goldfus Vice President and Director
Andrew J. Melnick Vice President and Director
Patrick J. Walsh Vice President and Director
Margaret E. Nelson Secretary and Counsel
Robert F. Tully Vice President and Treasurer
John L. Steffens, age 55, Chairman of the Board and Director. Mr.
Steffens has served the General Partner as a member of the Board of Directors
since 1981. Mr. Steffens is Vice Chairman and Head of the Domestic Private
Client Group of ML & Co. From 1990-1996, Mr. Steffens was Executive Vice
President and Head of the Private Client Group of ML & Co. Prior to that,
from July 1985, he was President of the Consumer Markets Sector of ML & Co.
Matthias B. Bowman, age 48, President, Chief Investment Officer and
Director. Mr. Bowman has served the General Partner in various capacities
since 1981. Mr. Bowman has been a Managing Director in the Investment
Banking Group of ML & Co. since 1978 and a Vice Chairman since 1993. Mr.
Bowman is Chief Investment Officer of the General Partner and the Manager of
a department within the Investment Banking Group that has responsibility for
most of the Group's principal investments. Prior to 1994, Mr. Bowman managed
a department that was responsible for maintaining ML & Co.'s relationship
with several corporate clients and financial investors.
Daniel P. Tully, age 65, Vice President and Director. Mr. Tully was
elected to the Board of Directors of the General Partner in April 1997.
Prior to April 15, 1997 when he retired from ML & Co., Mr. Tully was Chairman
of the Board of ML & Co. Mr. Tully was Chief Executive Officer of ML & Co.
from May 1992 until December 1996. He became Chairman of the Board and CEO
in June 1993. Mr. Tully was President and Chief Operating Officer of ML &
Co. from 1985 until 1992.
James V. Caruso, age 45, Vice President and Director. Mr. Caruso has
served the General Partner in various capacities since 1981 and as a member
of the Board of Directors since 1986. Mr. Caruso is a Director in the
Investment Banking Group of ML & Co., managing the Investment Banking Group
Corporate Accounting Department and the Controller's area of the Partnership
Analysis and Finance Department. He also serves as the Chief Financial
Officer from ML & Co.'s key employee investment partnerships and Treasurer of
Merrill Lynch Capital Partners, Inc., the general partner of two
institutional leveraged buyout funds. Since June 1992, Mr. Caruso has also
performed administrative services for Merrill Lynch's retail partnerships.
Mark B. Goldfus, age 50, Vice President and Director. Mr. Goldfus was
elected to the Board of Directors of the General Partner in 1997. Mr.
Goldfus is General Counsel of the Corporate Law Department of ML & Co. and a
Senior Vice President of MLPF&S. From January 1985 until April 1997, Mr.
Goldfus was Vice President of Merrill Lynch Asset Management.
Andrew J. Melnick, CFA, age 55, Vice President and Director. Mr.
Melnick has served the General Partner as a Director since 1990. Mr. Melnick
is a Senior Vice President of MLPF&S and co-head of Global Research &
Economics at ML & Co. From 1988 to March 1997, Mr. Melnick was Director of
the Global Fundamental Equity Research Department.
Patrick J. Walsh, age 53, Vice President and Director. Mr. Walsh has
served the General Partner as a member of the Board of Directors since 1991.
Mr. Walsh is Senior Vice President, Director of Human Resources of ML & Co.
From 1984 to January 1991, Mr. Walsh managed Asset Accumulation Services in
the Consumer Markets Sector of ML & Co. and was responsible for managing and
marketing various account services tailored to individual investors.
Margaret E. Nelson, age 47, Secretary and Counsel. Ms. Nelson has
served the General Partner as Counsel and Corporate Secretary since 1993.
Ms. Nelson is a Vice President and Senior Counsel in the Corporate Law
Department of the General Counsel's Office of ML & Co.
Robert F. Tully, age 49, Vice President and Treasurer. Mr. Tully has
served the General Partner as a Vice President and Treasurer since 1993. Mr.
Tully has been a Vice President in the Investment Banking Group of ML & Co.
since 1989.
In addition, the General Partner has established an advisory committee
(the "Advisory Committee") to assist the directors and principal officers of
the General Partner in evaluating investment opportunities presented to the
Partnership. The members of the Advisory Committee and their business
experience for the past five years are:
Kevin K. Albert
James J. Burke, Jr.
Kevin M. Cox
Robert J. Farrell
Alain Lebec
G. Kelley Martin
Alison J. Mass
E. Stanley O'Neal
Stephen I. Silverman
Charles K. Sweeney
Nathan C. Thorne
Kevin K. Albert, age 44. Mr. Albert was appointed to the Committee of
Advisors of the General Partner in April 1997. Mr. Albert is head of the
Private Equity Group of ML & Co. Mr. Albert has also served as a Managing
Director in the Investment Banking Group since 1988 and as a Vice President
in such group from 1983 to 1988.
James J. Burke, Jr., age 45. Mr. Burke has served the General Partner
in various capacities since 1987. Mr. Burke is a Managing Partner and
Director of Stonington Partners, Inc., a private investment firm, a position
that he has held since 1993. He has also been a member of the Board of
Directors of MLCP since 1987. He was the Managing Partner of MLCP from 1993
to July 1994 and President of MLCP from 1987 to 1994. Mr. Burke was also a
Managing Director of the Investment Banking Division of MLPF&S from 1985 to
1994.
Kevin M. Cox, age 44. Mr. Cox has served the General Partner as a
member of the Committee of Advisors since 1990. Mr. Cox is a Managing
Director and head of the Leveraged Finance Group in New York. Prior to that
he was head of MLPF&S's Investment Banking office in Tokyo. Mr. Cox, who has
been with Merrill Lynch since 1984, has also held various positions in the
Merchant Banking, High Yield and Treasury/Finance departments.
Robert J. Farrell, age 64. Mr. Farrell has served the General Partner
in various capacities since 1981. Mr. Farrell is Senior Investment Advisor
for MLPF&S. From 1968 to March, 1992, he served as Chief Market Analyst and
Manager of the Market Analysis Department of the Securities Research Division
of MLPF&S. Mr. Farrell has served as a Senior Vice President of MLPF&S since
January, 1986.
Alain Lebec, age 47. Mr. Lebec has served the General Partner in
various capacities since 1987. Mr. Lebec is a Vice Chairman of the
Investment Banking Group of ML & Co. Mr. Lebec joined ML & Co. as a Managing
Director in the Investment Banking Group and as a Vice President of MLPF&S in
1984, and, within MLPF&S's Investment Banking Group, has been co-head of its
Mergers and Acquisitions Department from 1988 to 1993 and head or co-head of
its Telecommunications, Media and Technology Department from 1993 to 1996
before being named a Vice Chairman of Investment Banking in 1996.
G. Kelly Martin, age 38. Mr. Martin was appointed to the Committee of
Advisors of the General Partner in April 1997. Mr. Martin is Chief Operating
Officer of ML & Co.'s Corporate and Institutional Client Group, a position he
has held since 1993, and serves as CICG's Chief Technology Officer.
Alison J. Mass, age 38. Ms. Mass has served the General Partner as a
member of the Committee of Advisors since 1994. Ms. Mass is a Managing
Director in the Investment Banking Group of ML & Co. She has responsibility
for the Global Consumer Products Industry Group. Ms. Mass also serves as the
Chair for the Investment Banking Promotions Committee. Ms. Mass joined ML &
Co. in 1990.
E. Stanley O'Neal, age 45. Mr. O'Neal has served the General Partner as
a member of the Committee of Advisors since 1994. Mr. O'Neal is an Executive
Vice President of ML & Co. and Co-head of ML & Co.'s Corporate and
Institutional Client Group. From 1995 to 1997, Mr. O'Neal was head of Global
Capital Markets and prior to 1995, Mr. O'Neal was responsible for the
Financial Services Group. Mr. O'Neal joined ML & Co. in 1986.
Stephen I. Silverman, age 46. Mr. Silverman was appointed to the
Committee of Advisors of the General partner in April 1997. Mr. Silverman is
a Vice President and portfolio manager of the Merrill Lynch Pacific Fund, a
position he has held since 1983, and the Merrill Lynch Global Value Fund.
Charles K. Sweeney, age 55. Mr. Sweeney has served the General Partner
as a member of the Committee of Advisors since 1993. Mr. Sweeney joined
MLPF&S in 1965 as a member of the Junior Executive Training Program. Since
1966, he has continued to work as a Financial Consultant within both the
Private Client and Capital Markets Groups of the firm. He was elected a
Senior Vice President - Investments in 1989.
Nathan C. Thorne, age 43. Mr. Thorne has served the General Partner as
a member of the Committee of Advisors since 1995. Mr. Thorne has been a
Managing Director in the Investment Banking Group of ML & Co. since 1986.
Mr. Thorne has managed many different departments within MLPF&S's Investment
Banking Group including the High Yield Finance and Restructuring Group and is
presently a member of a department within the Investment Banking Group that
has responsibility for the Group's principal investments.
AUTHORITY OF THE GENERAL PARTNER
The General Partner will have the authority to make all decisions
regarding the acquisition, financing, operation, management and ultimate
disposition of Partnership investments, assets and properties. The Board of
Directors of the General Partner will approve all investments made by the
Partnership and will be responsible for the general supervision and
administration of Partnership activities. In investing the Partnership's
capital, the General Partner will consider those investments proposed by
unrelated third parties as well as opportunities presented to the Partnership
by affiliates of the General Partner. All investments chosen by the General
Partner for the Partnership, whether from third parties or from other
opportunities presented to the Partnership by affiliates, will be evaluated
independently of each other and chosen only if the General Partner believes
they are suitable for and in the best interest of the Partnership. The
General Partner is unable to predict to what extent Partnership investments
will be made in affiliate-proposed investments or investment opportunities
proposed by unrelated third parties. The General Partner will execute or
cause to be executed any and all agreements, purchase orders, debt
agreements, documents, certificates and other instruments necessary for the
purchase of, and investment in, assets by the Partnership. See "Conflicts of
Interest" and "Investment Objective and Policies".
FINANCIAL STATUS OF THE GENERAL PARTNER
The General Partner was formed with minimal capitalization. The General
Partner has agreed to use its best efforts at all times to maintain its net
worth at a level necessary to meet any present or future requirements of the
Federal income tax law regarding the net worth of a general partner of a
limited partnership. ML & Co. will issue a demand promissory note to the
General Partner in an amount necessary to meet current requirements and
provide the General Partner with such funds as are necessary to meet its
other obligations under the Partnership Agreement. See "Financial
Statements".
SIGNIFICANT AFFILIATES OF THE GENERAL PARTNER
MLPF&S and the General Partner are both wholly-owned subsidiaries of ML
& Co. It is anticipated that ML & Co. and the Investment Banking Group
within MLPF&S will be important sources of Partnership investments,
particularly with respect to leveraged buyout, corporate restructuring and
recapitalization and real estate transactions, and that other groups within
MLPF&S and other subsidiaries of ML & Co. may also be sources of investments.
PRIOR PARTNERSHIPS
The General Partner also acts as the general partner for Merrill Lynch
KECALP L.P. 1994 (the "1994 Partnership"), Merrill Lynch KECALP L.P. 1991
(the "1991 Partnership"), Merrill Lynch KECALP L.P. 1989 (the "1989
Partnership"), Merrill Lynch KECALP L.P. 1987 (the "1987 Partnership"),
Merrill Lynch KECALP L.P. 1986 (the "1986 Partnership"), Merrill Lynch KECALP
L.P. 1984 (the "1984 Partnership") and Merrill Lynch KECALP Growth
Investments Limited Partnership 1983 (the "1983 Partnership", and together
with each of such other partnerships, the "KECALP Partnerships"). The
limited partnership interests in these partnerships were offered only to
certain employees and directors of ML & Co. and its subsidiaries. Set forth
below is information concerning these investments by the partnerships. This
information should not be construed to indicate that the Partnership will or
could make investments that will produce results comparable to those of the
investments made by the earlier partnerships. Investors should note that the
average annual return of an investment in the KECALP Partnerships may be
adversely affected by delays in the making and realizing of investments. The
Partnership expects that the types of investments it will make will more
closely resemble those of the 1994 Partnerships than the earlier
partnerships. In addition, the Partnership may invest in international
investments and investment funds to a greater extent than have other KECALP
Partnerships.
1994 PARTNERSHIP
The 1994 Partnership closed its subscription offering on September 21,
1994, at which time it sold 40,384 units of partnership interest to 1,401
investors for $40,384,000. As of December 31, 1996, the Partnership has
invested or committed approximately $42.8 million of its initial $40.4
million in assets to 22 portfolio investments. As a result, at such date,
approximately $1.6 million remained to be invested or committed. Existing
investments consist of investments in nine leveraged buyout transactions
(with an aggregate cost of $13.5 million), one financial restructuring and
recapitalization (with an aggregate cost of $4.6 million), one real estate
related transaction (with an aggregate cost of $2.0 million), four venture
capital transactions (with an aggregate cost of $6.5 million) and seven other
types of transactions, including four private fund investments (with an
aggregate cost of $16.2 million).
Set forth below is a chart showing the results, as of March 31, 1997, of
completed equity transactions with respect to the 1994 Partnership's
investments. The dates of purchase refer to the dates on which investments
were acquired by or on behalf of the 1994 Partnership.
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Mail-Well, Inc. 7/95 3/96 $ 263,089 $ 636,875
Leveraged Buyout Westlink Holdings, 7/95 5/96 2,114,825 4,672,000
Inc.
Leveraged Buyout Mail-Well, Inc. 7/95 6/96 704,456 1,592,857
Leveraged Buyout Revere Holding 1/95 12/96 1,800,000 4,890,600
Corporation
Leveraged Buyout Mail-Well, Inc. 12/94 12/96 304,976 1,240,274
Total $5,187,346 $13,032,606
NET PROFIT REALIZED $7,845,260
</TABLE>
1991 PARTNERSHIP
The 1991 Partnership closed its subscription offering on September 11,
1991, at which time it sold 20,799 units of limited partnership interest to
964 investors for $20,799,000. By July 20, 1995, the 1991 Partnership had
invested in or committed to 18 investments with an aggregate purchase price
of $22.1 million. Eighteen were made in leveraged buyouts ($20.5 million)
and one in real estate ($1.6 million).
Set forth below is a chart showing the results, as of August 31, 1996,
of completed equity transactions with respect to the 1991 Partnership's
investments. The dates of purchase refer to the dates on which investments
were acquired by or on behalf of the 1991 Partnership.
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
<S> <C> <C> <C> <C> <C>
Leveraged Buyout First USA, Inc. 9/91 2/93 $ 52,913 $ 162,037
Leveraged Buyout First USA, Inc. 9/91 3/93 3,052 9,345
Leveraged Buyout Hospitality 1/92 7/93 345,751 1,009,411
Franchise Systems,
Inc.
Leveraged Buyout First USA, Inc. 9/91 8/93 68,808 390,261
Leveraged Buyout Hospitality 1/92 11/93 315,159 1,244,700
Franchise Systems,
Inc.
Leveraged Buyout Hospitality 1/92 2/94 339,090 1,726,943
Franchise Systems,
Inc.
Leveraged Buyout First USA, Inc. 9/91 3/94 62,649 451,075
Leveraged Buyout First USA, Inc. 9/91 1/95 12,750 103,674
Leveraged Buyout First USA, Inc. 9/91 3/95 139,880 1,327,052
Leveraged Buyout Triarc Companies, 4/93 7/95 1,500,000 1,963,158
Inc
Leveraged Buyout Mail-Well, Inc. 2/94 3/96 244,723 636,875
Leveraged Buyout American Re 9/92 3/96 1,500,000 5,967,188
Corporation
Leveraged Buyout Westlink Holdings, 7/94 5/96 1,000,000 2,336,000
Inc.
Leveraged Buyout Mail-Well, Inc. 2/94 6/96 655,277 1,592,857
Leveraged Buyout ACE Limited 9/93 11/96 1,000,000 1,862,789
Leveraged Buyout Blue Bird 4/92 11/96 1,500,000 3,300,000
Corporation
Leveraged Buyout Mail-Well, Inc. 12/94 12/96 304,976 1,240,274
Total $9,045,028 $25,323,639
NET PROFIT REALIZED $16,276,611
</TABLE>
1989 PARTNERSHIP
The 1989 Partnership closed its subscription offering on May 16, 1989,
at which time it sold 21,096 units of limited partnership interest to 843
investors for $21,096,000. By May 1, 1992, the 1989 Partnership was fully
invested in 24 investments with an aggregate purchase price of $23.1
million. Of the 24 investments, 23 were in leveraged buyouts ($22.6 million)
and one in venture capital ($500,000).
Set forth below is a chart showing the results, as of March 31, 1997, of
completed equity transactions with respect to the 1989 Partnership. The
dates of purchase refer to the dates on which investments were acquired by or
on behalf of the 1989 Partnership.
<TABLE>
<CAPTION>
Date of
Classification Company Purchase Date of Sale Cost Proceeds
<S> <C> <C> <C> <C> <C>
Leveraged Buyout RJR Nabisco 5/91 9/92 $ 5,071 $ 2,407,194
Holding Corp.
Leveraged Buyout RJR Nabisco 5/91 12/92 2,535,044 3,621,389
Holding Corp.
Leveraged Buyout First USA, Inc. 5/91 2/93 83,961 379,830
Leveraged Buyout First USA, Inc. 8/91 2/93 316,370 968,837
Leveraged Buyout First USA, Inc. 5/91 3/93 17,193 77,778
Leveraged Buyout First USA, Inc. 5/91 8/93 376,132 3,151,488
Leveraged Buyout First USA, Inc. 5/91 8/93 17,463 146,317
Leveraged Buyout First USA, Inc. 5/91 3/94 358,358 3,811,597
Leveraged Buyout Eckerd 5/91 5/94 139,512 517,378
Corporation
Leveraged Buyout Ann Taylor Stores 5/91 5/94 895,676 3,370,105
Corporation
Leveraged Buyout CMI Acquisition 5/91 8/94 252,581 0(A)
Corporation
Leveraged Buyout Ann Taylor Stores 5/91 12/94 297,510 1,423,450
Corporation
Leveraged Buyout Kash n' Karry 5/91 12/94 253,050 0
Food Stores, Inc.
Leveraged Buyout First USA, Inc. 5/91 1/95 74,801 898,508
Leveraged Buyout First USA, Inc. 5/91 3/95 798,261 11,187,510
Leveraged Buyout Eckerd 5/91 8/95 161,754 1,018,839
Corporation
Leveraged Buyout Houlihan's 5/91 8/95 1 69,660
Restaurant Group,
Inc.
Leveraged Buyout Esstar 5/91 9/95 1,601,960 324,415
Incorporated
Leveraged Buyout London Fog 5/91 5/95 2,259,221 0
Industries
Leveraged Buyout Caterair Holdings 5/91 11/95 138,817 0
Corporation
Leveraged Buyout Eckerd 5/91 12/95 264,141 2,362,673
Corporation
Leveraged Buyout Caterair Holdings 5/91 12/95 788,769 26,008
Corporation
Venture Capital TranSwitch 7/89 12/95 183,232 748,173
Corporation
Venture Capital TranSwitch 7/89 1/96 297,461 899,338
Corporation
Leveraged Buyout El Holdings, Inc. 5/91 1/96 323,074 318,887
Leveraged Buyout Simmons Company 5/91 3/96 744,130 2,757,345
Leveraged Buyout Loehmann's 5/91 5/96 61,609 213,245
Holdings
Leveraged Buyout Loehmann's 5/91 6/96 183,393 301,325
Holdings
Leveraged Buyout Loehmann's 5/91 11/96 202,555 1,136,384
Holdings
Leveraged Buyout Blue Bird 4/91 11/96 425,000 935,000
Corporation
Leveraged Buyout Eckerd 5/91 12/96 81,763 600,320
Corporation
Total $14,137,863 $43,672,993
NET PROFIT REALIZED $29,535,130
</TABLE>
_________________
(A) Received stock in Fleming Companies worth $231,044
1987 PARTNERSHIP
The 1987 Partnership closed its subscription offering on May 28, 1987,
at which time it sold 13,549 units of limited partnership interest to 895
investors for $13,549,000. By May 23, 1991, the 1987 Partnership was fully
invested or committed to invest in 26 investments with an aggregate purchase
price of $15.3 million. Of the 26 investments or commitments, 18 were in
leveraged buyouts ($10.6 million), seven in venture capital situations ($2.7
million) and one in real estate ($2.0 million).
Set forth below is a chart showing the results, as of March 31, 1997, of
completed equity transactions with respect to the 1987 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1987 Partnership.
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Mueller Holdings, 11/88 11/88 $ 62,507 $ 169,124
Inc.
Leveraged Buyout Apparel Marketing 5/89 5/89 158,872 1,124,950
Industries, Inc.
Leveraged Buyout GU Acquisition 7/89 7/89 1,373,836 2,497,239
Corporation
Venture Capital Telecom USA 6/89 7/89 440,616 649,625
Venture Capital Magnesys 9/88 12/89 253,073 0
Venture Capital TCOM Systems, Inc. 12/87 3/91 581,791 0
Venture Capital Meteor Message 9/88 9/91 308,086 0
Corporation
Leveraged Buyout GND Holdings 7/89 6/92 0 1,215,869
Corporation
Leveraged Buyout Peter J. Schmitt Co., 5/91 6/92 190,580 0
Inc.
Venture Capital IDEC Pharmaceuticals 6/89 7/92 16,304 88,244
Corporation
Leveraged Buyout RJR Nabisco Holdings 5/91 9/92 2,901 1,374,093
Corporation
Leveraged Buyout John Alden Financial 5/91 10/92 248,476 230,257
Group
Venture Capital Bolt, Barenek & 3/89 11/92 554,128 19,956(A)
Newman
Leveraged Buyout RJR Nabisco Holdings 5/91 12/92 1,450,665 2,066,766
Corporation
Leveraged Buyout General Felt 5/91 3/93 237,846 359,023
Industries
Leveraged Buyout John Alden Financial 5/89 11/93 20,705 645,439
Group
Leveraged Buyout Servam Corporation 5/91 12/93 26,048 0
Leveraged Buyout Ann Taylor Stores 5/91 5/94 42,456 159,748
Corporation
Leveraged Buyout John Alden Financial 5/89 6/94 2,797 116,223
Group
Leveraged Buyout John Alden Financial 5/89 8/94 25,438 945,182
Group
Leveraged Buyout Borg-Warner 9/88 10/94 118,836 476,350
Automotive, Inc.
Leveraged Buyout Borg-Warner 9/88 11/94 1,429 5,728
Automotive, Inc.
Leveraged Buyout Ann Taylor Stores 5/91 12/94 16,257 78,620
Corporation
Leveraged Buyout Kash 'N Karry Food 5/91 12/94 96,951 0
Stores, Inc.
Leveraged Buyout John Alden Financial 5/89 1/95 24,702 789,447
Group
Leveraged Buyout Apparel Marketing 5/89 12/95 0 179,079
Industries, Inc.
Venture Capital TranSwitch 12/88 12/95 72,800 406,300
Corporation
Venture Capital TranSwitch 12/88 1/96 127,200 524,100
Corporation
Leveraged Buyout El Holdings, Inc. 5/91 1/96 1,181,250 235,139(B)
Leveraged Buyout Simmons Company 5/91 3/96 858,253 3,180,222
Leveraged Buyout Loehmann's Holdings 5/91 5/96 61,609 213,245
Leveraged Buyout Loehmann's Holdings 5/91 6/96 183,393 301,325
Leveraged Buyout Borg-Warner 9/88 8/96 2,513,242
Automotive, Inc. 419,400
Leveraged Buyout Lochmann's Holdings 5/91 11/96 202,555 1,136,384
Leveraged Buyout Borg-Warner 9/88 2-3/97 547,033 3,855,886
Automotive, Inc.
Total $9,908,793 $25,556,886
NET PROFIT REALIZED $15,648,093
</TABLE>
- -----------------
(A) Received shares of Bolt, Barenek & Newman as part of dissolution of
partnership.
(B) Received shares of E1 Holdings as part of the sale of Esstar
Incorporated.
1986 PARTNERSHIP
The 1986 Partnership closed its subscription offering on April 15, 1986,
at which time it sold 7,234 units of limited partnership interest to
approximately 500 investors for $7,234,000. By May 10, 1991, the Partnership
was fully invested in 26 investments with an aggregate purchase price of $8.3
million. Of the 26 investments, 16 were in venture capital situations ($4.4
million), nine in leveraged buyouts ($3.1 million) and one in a package of
securities in connection with a recapitalization ($759,000).
Set forth below is a chart showing the results, as of March 31, 1997, of
completed equity transactions with respect to the 1986 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1986 Partnership.
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
<S> <C> <C> <C> <C> <C>
Venture Capital FGIC Corporation 6/86 3/88 $1,084,447 $ 1,889,415
Venture Capital Dallas Semiconductor 4/86 5/88 203,867 470,412
Corporation
Venture Capital Data Recording 2/88 6/88 202,450 0
Systems, Inc.
Venture Capital Alliant Computer 6/86 7/88 158,529 95,375
Systems Corp.
Leveraged Buyout CMI Holdings, Inc. 1/88 4/89 45,349 153,451
Other Varity 4/89 4/89 758,842 1,906,283
Leveraged Buyout Printing Holdings, 4/89 4/89 649,949 2,135,285
L.P.
Leveraged Buyout Amstar Corporation 1/88 7/89 354,728 1,303,520
Venture Capital Intek Diagnostics, 8/86 9/89 104,534 0
Inc.
Leveraged Buyout Education Management 4/89 10/89 192,432 643,824
Corp.
Venture Capital Qume Corporation 8/86 4/90 211,193 485,625
Venture Capital Computer-Aided Design 1/88 9/90 117,183 0
Group
Venture Capital International Power 2/87 9/90 208,592 61,466
Technology, Inc.
Venture Capital Robert Wooldridge & 7/87 9/90 205,882 0
Co.
Venture Capital Shared Resource 2/87 9/90 262,501 0
Exchange, Inc.
Leveraged Buyout Prince Holdings, Inc. 5/89 10/90 147,601 1,400,807
Venture Capital IDEXX Corporation 2/87 6/91 33,583 66,388
Venture Capital Computer-Aided Design 1/88 9/91 39,061 0
Group
Venture Capital ViewLogic Systems, 6/86 12/91 212,874 1,474,388
Inc.
Venture Capital IDEXX Corporation 2/87 1/92 178,312 580,571
Venture Capital Enhance Financial 4/89 2/92 238,366 332,558
Services Group Inc.
Leveraged Buyout ALLTEL Corporation 2/87 7/92 11,589 163,649
Venture Capital Enhance Financial 4/89 8/92 251,042 369,949
Svcs. Group Inc.
Venture Capital Zentec Corporation 12/86 9/92 277,500 0
Leveraged Buyout ALLTEL Corporation 2/87 3/93 24,277 428,451
Venture Capital BehaviorTech, Inc. 8/86 7/93 105,669 9,900
Leveraged Buyout ALLTEL Corporation 2/87 8/93 25,480 483,124
Leveraged Buyout ALLTEL Corporation 2/87 11/93 12,071 240,807
Leveraged Buyout Eckerd Corporation 4/89 5/94 91,725 381,088
Leveraged Buyout Borg-Warner 9/88 11/94 24,076 96,419
Automotive, Inc.
Leveraged Buyout Eckerd Corporation 4/89 12/94 17,561 110,000
Leveraged Buyout Eckerd Corporation 4/89 4/95 17,561 114,711
Leveraged Buyout Eckerd Corporation 4/89 8/95 95,400 673,195
Leveraged Buyout Eckerd Corporation 4/89 12/95 286,372 1,561,177
Venture Capital Shared Resource 2/87 12/95 87,500 1
Exchange, Inc.
Leveraged Buyout World Color Press, 4/89 1/96 480,806 922,012
Inc.
Leveraged Buyout Borg-Warner 9/88 8/96 83,960 502,661
Automotive, Inc.
Leveraged Buyout Education Management 4/89 11/96 0 133,278
Corporation
Leveraged Buyout Eckerd Corporation 4/89 12/96 41,993 396,655
Leveraged Buyout Borg-Warner 9/88 2/97 95,147 670,059
Automotive, Inc.
Leveraged Buyout Borg-Warner 9/88 3/97 14,358 101,112
Automotive, Inc.
Total $7,654,361 $20,357,616
NET PROFIT REALIZED $12,703,255
</TABLE>
1984 PARTNERSHIP
The 1984 Partnership closed its subscription offering on May 22, 1984,
at which time it sold 3,747 units of limited partnership interest to
approximately 300 investors for $3,747,000. By February 3, 1988, the 1984
Partnership was fully invested in 23 investments with an aggregate purchase
price of $4.1 million. Of the 23 investments, six were in real estate
($750,000), nine in venture capital ($1.6 million), five in leveraged buyouts
($1.1 million), one in oil and gas ($350,000), one in equipment leasing
($250,000) and one in research and development ($90,000).
Set forth below is a chart showing the results, as of March 31, 1997, of
completed equity transactions with respect to the 1984 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1984 Partnership.
<TABLE>
<CAPTION>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
<S> <C> <C> <C> <C> <C>
Real Estate Cortland 6/84 12/86 $ 82,416 $ 43,772
Venture Capital California Devices, 12/85 8/87 150,000 0
Inc.
Leveraged Buyout Denny's, Inc. 9/86 9/87 399,968 1,898,631
Leveraged Buyout Ithaca Corporation 4/86 1/88 422,563 7,448,000
Venture Capital FGIC Corp. 6/86 3/88 601,205 1,133,550
Venture Capital Alliant Computer 6/86 7/88 101,225 63,563
Systems Corp.
Venture Capital Data Recording 2/85 8/88 152,444 0
Systems
Leveraged Buyout Printing Holdings, 4/89 4/89 115,706 376,815
L.P.
Leveraged Buyout New Axia Holdings 9/86 12/89 31,225 262,500
Corporation
Venture Capital Intek Diagnostics, 8/86 12/89 100,980 0
Inc.
Leveraged Buyout C.C. Packaging, Inc. 9/86 3/90 11,223 15,110
Venture Capital Shared Resource 2/87 9/90 74,999 0
Exchange, Inc.
Oil and Gas Berresford 11/84 3/93 350,000 70
Enterprises-Jerry
1984
Venture Capital BehaviorTech, Inc. 8/86 7/93 70,973 6,930
Venture Capital Private Satellite 8/84 9/93 158,575 30,665
Network, Inc.
Leveraged Buyout Axia Incorporated 9/86 3/94 0 86,120
Equipment Dry Van Trailers 11/84 9/94 250,572 149,650
Financing
Venture Capital Acuity Imaging 12/85 12/94 200,000 227,496
Corporation (Itran)
Real Estate JMB Income 11/85 12/95 34,335 12,010
Properties, Ltd. -
VIII
Venture Capital Shared Resource 2/87 12/95 25,000 1
Exchange, Inc.
Leveraged Buyout World Color Press, 4/89 1/96 84,848 162,718
Inc. (Printing
Holdings, L.P.)
Real Estate JMB Income 11/85 12/96 6,488 4,469
Properties, Ltd.-IX
Total $3,424,745 $11,922,070
NET PROFIT REALIZED $ 8,497,325
</TABLE>
1983 PARTNERSHIP
The 1983 Partnership closed its subscription offering on May 20, 1983,
at which time it sold 6,915 units of limited partnership interest to
approximately 600 investors for $6,915,000. By March 2, 1987, the 1983
Partnership was fully invested with 21 investments with an aggregate purchase
price of approximately $7.6 million. Of the 21 investments, four were in
venture capital ($1.3 million), three in leveraged buyouts ($1.0 million),
six in real estate ($2.8 million), three in oil and gas ($900,000), three in
equipment financing ($1.1 million) and two in research and development
($500,000).
Set forth below is a chart showing the results as of March 31, 1997, of
completed equity transactions with respect to the 1983 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by or on behalf of the 1983 Partnership.
<TABLE>
<CAPTION>
Date of
Classification Company Purchase Date of Sale Cost Proceeds
<S> <C> <C> <C> <C> <C>
Leveraged Buyout Signode Industries 12/85 9/86 $ 761,003 $ 8,096,509
Venture Capital UAS Automation Systems, 6/83 11/86 100,003 394,520
Inc.
Equipment Financing Aztex Associates, L.P. 5/83 12/86 142,224 0
Research & Devlpmt. BRN R/S Expert, L.P. 6/84 5/87 230,000 769,531
Leveraged Buyout Denny's, Inc. 9/86 9/87 199,984 949,315
Venture Capital FGIC Corporation 8/85 3/88 1,000,000 1,649,840
Venture Capital Alliant Computer Systems 6/86 7/88 100,000 63,563
Corp.
Leveraged Buyout Medical Disposables 6/86 4/90 65,000 162,070
Company
Oil and Gas Posse Petroleum, Ltd. 10/83 2/91 176,469 60,000
Research and NPI Plant Research, Ltd. 4/84 3/91 232,500 25,000
Devlpmt.
Equipment Financing Cortlandt Intermodal 6/83 4/92 500,000 180,624
Leasing
Oil and Gas Berresford Enterprises- 11/84 3/93 150,000 30
Jerry 1984
Oil and Gas Berresford Enterprises- 10/83 3/93 550,000 55
Margaret #1
Real Estate Casselberry-Oxford 6/83 12/95 840,007 140,000
Associates, L.P.
Research and Windpower Partners 1983-1 6/83 12/95 540,350 14,000
Development
Real Estate Capital Realty Investors - 6/83 2/96 452,500 19,385
II
Venture Capital ML Venture Partners I L.P. 6/83 9/96 39,249 4,140
Total $6,096,789 $12,528,582
NET PROFIT REALIZED $ 6,431,793
</TABLE>
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The investment objective of the Partnership is to seek long-term capital
appreciation. It is expected that a significant portion of the Partnership's
assets will be invested in privately-offered equity investments in U.S. and
non-U.S. issuers. The Partnership's investments may include securities
issued in leveraged buyout transactions, transactions involving financial
restructurings, recapitalizations of operating companies, financings of
companies in an early stage of development and opportunities in the
technology sector. Investments in non-U.S. issuers may include opportunities
in both the emerging markets and developed countries. Investments may also
be made in real estate opportunities and in venture capital transactions.
These investments are described below. The Partnership may make other
investments in equity and fixed income securities that the General Partner
considers appropriate in terms of their potential for capital appreciation.
The Partnership's investments may be made directly in portfolio companies or
through the purchase of interests in other investment funds. Current income
will not generally be a significant factor in the selection of investments.
The Partnership may not change its investment objective unless authorized by
the vote of a majority-in-interest of the Limited Partners of the
Partnership. There can be no assurance that the investment objective of the
Partnership will be realized.
While privately-offered equity investments of the types expected to be
acquired by the Partnership generally have the potential for achieving
greater appreciation than investments in publicly-traded securities of
established companies, these investments are highly speculative and involve
substantial risks which are increased by the long-term nature and limited
liquidity of such investments. It is anticipated that the proceeds of the
offering will be invested, or committed for investment, within three to four
years after the date the Partnership commences operations. It is also
anticipated that the Partnership will not reinvest proceeds from the sale of
portfolio investments except that the General Partner may consider
reinvestments to the extent initial investments are disposed of within two
years from the closing of the sale of Units or in connection with follow-on
investments made in existing portfolio companies.
The Partnership may invest, without limit, in the securities of non-U.S.
corporations and other issuers. While there are no prescribed limits on the
geographic allocation of the Partnership's international investments, the
Partnership expects that a substantial portion of these investments may be
made in developing countries, including developing countries located in the
Far East, the Indian subcontinent, Eastern Europe (including the former
Soviet Union) and Latin America. The General Partner believes that private
equity investments in growing companies in developing countries are consistent
with the Partnership's investment objective and can provide attractive
opportunities in light of the fact that emerging capital markets are not as
developed as those in Western Europe and the United States.
In addition to its direct investments, the Partnership may invest in
U.S. or non-U.S. investment funds offering opportunities consistent with its
investment objective. The Partnership expects that investments in investment
funds organized or operating outside the United States will be made to
facilitate the Partnership's investments in selected regions or industries.
In addition, such investments may be made when it is considered more
efficient to invest in a particular market on an indirect basis rather than
through direct investments in non-U.S. issuers. The Partnership expects that
domestic investment funds in which it invests will generally emphasize the
types of equity securities in which the Partnership invests directly.
Examples include funds investing in buyout opportunities, recapitalizations
transactions involving financial restructuring and funds with a focus on
technology or real estate. The Partnership may also invest in hedge funds as
described below. The General Partner believes that investment funds may have
access to certain investment opportunities that will not otherwise be
available to the Partnership. In addition, managers of investment funds may
have specialized investment skills regarding certain industries, types of
investments or regions.
TYPES OF INVESTMENTS
Leveraged buyout transactions typically involve the purchase of public
or privately-held corporations, or divisions or subsidiaries of such
corporations, through financing provided by equity investors and debt
financing. The transactions generally involve a significant degree of debt
financing and the highly leveraged financial structure of these investments
may introduce substantial risks to equity investors apart from those directly
related to a company's operations. As described under "Sources of Investment
Opportunities" below, the Partnership anticipates that it will seek to
co-invest in a number of these investments with ML & Co. or its affiliates.
The Partnership anticipates that it may also make equity investments in
transactions involving financial restructurings or recapitalizations of
operating companies. It is expected that these investments would be made in
connection with the restructuring or recapitalization of a leveraged company
pursuant to which a portion of its outstanding capitalization is to be
exchanged for, or repaid from the proceeds of the issuance of, one or more
classes of new securities. A company will generally undertake a financial
restructuring or recapitalization transaction because its financial structure
is overly leveraged in light of its current or anticipated operations.
These companies may also be encountering financial difficulties in meeting
current debt service payments. The Partnership anticipates that it will seek
to co-invest in financial restructuring or recapitalization transactions with
ML & Co. or its affiliates.
The Partnership also expects that it will make investments in venture
capital transactions offering investment potential consistent with the
Partnership's objective of seeking long-term capital appreciation. The
Partnership may also invest a portion of its assets in real estate
investments. To the extent the Partnership makes such investments, it
expects that these investments will generally consist of investments in a
limited number of new companies or companies in an early stage of development
that the General Partner believes have outstanding appreciation and profit
potential. Typically venture capital investments may take from four to seven
years to reach a state of maturity where disposition can be considered.
In considering international investments, the Partnership may seek
investments particularly in emerging markets, where there is generally more
limited access to capital than in developed countries. Such international
investments may include companies in a variety of sectors, including
manufacturing, telecommunications, infrastructure, and financial and other
services. In reviewing international investment opportunities, the General
Partner will consider factors such as whether companies have an established
record of profitability, proven management capability, the potential for
above average rates of growth, a significant market share and competitive
advantages in their markets (such as barriers to entry). The General Partner
will also review the potential exit strategies with respect to international
investments, and factors particular to the location of a company such as the
availability of trained labor, political, economic and social conditions and
tax and regulatory considerations.
The international investments that the Partnership may make include (i)
the private purchase from an enterprise of an equity interest in the
enterprise in the form of shares of common stock or equity interests in
trusts, partnerships, joint ventures or similar enterprises, (ii) the
purchase of such an equity interest in an enterprise from an investor in the
enterprise and (iii) securities traded on exchanges in emerging markets. It
is expected that in certain cases, the Partnership may at the time of
making the investment, enter into a shareholder or similar agreement with
the enterprise or one or more other holders of equity interests in the
enterprise. These agreements may, in appropriate circumstances, provide the
Partnership or an affiliate of the General Partner with the ability to
appoint one or more representatives to the board of directors or similar
body of the enterprise and for eventual disposition of the Partnership's
investment in the enterprise.
The investment funds in which the Partnership may invest include
investment vehicles that are deemed to be "investment companies" under the
Investment Company Act and similar managed investment vehicles organized
outside the United States that are outside the scope of such Act. The
Investment Company Act contains limitations on the ability of the Partnership
to invest in entities that are considered "investment companies" for purposes
of such Act, although this limitation does not apply to the Partnership's
investments in U.S.-organized private investment funds. Pursuant to the
Investment Company Act, the Partnership may invest generally no more than 10%
of its total assets in shares of other investment companies (as defined in
such Act) and no more than 5% of its total assets in any one investment
company. To the extent the Partnership and its "affiliated persons" (as
defined in the Investment Company Act) own no more than 3% of the outstanding
stock of an investment company, the Partnership's ownership of the securities
of such investment company is not subject to the foregoing 5% and 10%
limitations.
The Partnership may invest up to (10)% of its total assets in hedge
funds. These funds, for purposes of the Partnership's policy, consist of
private investment partnerships or other private investment funds seeking to
maximize total return through use of various trading strategies. The
Partnership anticipates that the hedge funds in which it may invest will
typically operate on a leveraged basis and will reserve authority to maintain
long and short positions in equity and debt securities and to invest in a
variety of financial instruments, including derivative instruments, warrants,
swap agreements and currency-related obligations, and commodities.
Following an initial equity investment in transactions described above,
the Partnership anticipates that it may, at times, provide additional or
follow-on funds to the issuer. Follow-on investments may be made pursuant to
rights to acquire additional securities, or otherwise in order to increase
the Partnership's position in a successful or promising portfolio company.
The Partnership may also be called on to provide follow-on investments for a
number of other reasons, including providing additional capital to a company
to implement fully its business plans, to develop a new line of business or
to recover from unexpected business problems.
The Partnership may make direct investments of up to 5% of its total
assets in high yield corporate debt securities that the General Partner
believes have significant potential for capital appreciation. These
securities may be acquired in restructuring or reorganization transactions in
which ML & Co. or its affiliates are participating as financial adviser or in
other capacities. High yield debt securities, also referred to as "junk
bonds", are regarded as predominantly speculative as to the issuer's ability
to make payments of principal and interest. See "Risk and Other Important
Factors". The Fund also may make investments in funds that invest in high
yield corporate debt securities.
The Partnership does not intend to invest more than 15% of its assets in
any one portfolio company. The equity investments made by the Partnership in
portfolio companies will typically be structured in negotiated private
transactions and will generally be restricted as to the manner of resale or
disposition. The securities acquired by the Partnership will primarily
consist of common stocks and securities convertible into common stocks, but
may also consist of a combination of equity and debt securities and warrants,
options and other rights to obtain such securities or, in the case of high
yield debt securities, the debt securities themselves.
SOURCES OF INVESTMENT OPPORTUNITIES
The Partnership expects to locate suitable investments from a variety of
sources, including affiliates of the General Partner and third parties.
Although the Partnership cannot predict what percentage of its investments
will be in opportunities presented by affiliates of the General Partner or by
third parties, it expects that a significant portion will be invested in
opportunities presented by affiliates of the General Partner. See "The
General Partner and Its Affiliates--Significant Affiliates of the General
Partner" and "Conflicts of Interest".
The Partnership will seek to invest in leveraged buyout and other equity
investments. Previous KECALP Partnerships (particularly the 1989 Partnership
and the 1991 Partnership) co-invested to a significant degree in buyout
investments with partnerships managed by Merrill Lynch Capital Partners Inc.
("MLCP"), a subsidiary of ML & Co. These investments were made available to
the KECALP Partnerships by ML & Co. from its co-investments with such buyout
partnerships. The investment professionals of MLCP formed a new management
company in 1994 which is not affiliated with ML & Co. for the purpose of
managing buyout partnerships. The principals of such new management company
have advised the General Partner that the KECALP Partnerships may co-invest
with such partnership in an aggregate amount of up to $2.5 million in each
investment made by such partnership, subject to a maximum investment by
the KECALP Partnerships of a 3% interest in any acquired company. Since
ML & Co. invested in such partnership as a limited
partner, the General Partner obtained an exemptive order from the Securities
and Exchange Commission to enable the KECALP Partnerships to make any such
co-investments.
The Investment Company Act contains restrictions on co-investments by a
registered investment company (such as the Partnership) and affiliates of its
sponsor and on purchases of securities by a registered investment company
from affiliates of its sponsor. Accordingly, to the extent the Partnership
seeks to invest in transactions in which ML & Co. or any of its affiliates is
also a participant or to purchase securities from ML & Co. or any of its
affiliates, the Partnership may be required to obtain an exemptive order from
the Securities and Exchange Commission under such Act before it can make the
investment. The prior partnerships for which the General Partner acts as
general partner have been able to obtain such exemptive orders under the
Investment Company Act. In this regard, the Partnership has obtained blanket
exemptive relief from the Securities and Exchange Commission permitting
co-investments under certain circumstances in leveraged buyout and other
equity investments with ML & Co. and its affiliates. There can be no
assurance that the General Partner will be able to obtain exemptions in the
future with respect to investments that do not qualify under the terms of
existing exemptions.
INVESTMENT FACTORS
Prospective investments will be evaluated by the General Partner upon
selection factors established by the General Partner from time to time. The
following are typical of the factors which may be considered by the General
Partner:
(1) the potential return that may be earned from the investment;
(2) the nature of the risks associated with such investment (e.g.,
industry risks or risks related to the structure of the
investment opportunity);
(3) the degree of diversification in the Partnership's investment
portfolio;
(4) the financial stability, creditworthiness and reputation of
any proposed partners or joint venturers;
(5) in the case of Sponsored Programs or indirect investments made
through third parties, the background, experience and, where
applicable, prior performance of the issuer of the constituent
securities;
(6) the potential return available in alternative investments; and
(7) other considerations relative to a specific investment being
considered.
PROPOSED INITIAL INVESTMENTS
As of the date of this Prospectus, the General Partner has approved the
purchase by the Partnership of 19 investments, the details of which are set
forth below. It is anticipated that, to the extent permitted by the
Investment Company Act or exemptions therefrom, each of the 19 investments
that are deemed suitable investments for the Offshore KECALP Funds will be
allocated proportionately among the Partnership and the Offshore KECALP Funds
based upon uncommitted capital, although such investments may be allocated in
a different manner. The Offshore KECALP Funds may refrain from investing in
one or more of the investments due to tax or other considerations. The cost
of the 19 investments that the General Partner has approved for investment by
the Partnership and, to the extent suitable, the Offshore KECALP Funds,
aggregates approximately $79.7 million.
CANDESCENT TECHNOLOGIES CORPORATION. Candescent Technologies Corporation
("Candescent") is a company founded to develop, manufacture and market a thin
cathode ray tube for use in televisions and laptop computers. Candescent is
developing a technology that would produce the quality of the standard
television set in a thin format that could be used in small televisions and
computers and other video displays. The company is producing the thin CRT in
small formats but has not begun actual commercial manufacture of the thin
cathode ray tube which it expects to do starting in 1998 with the assistance
of technical, manufacturing and customer strategic partners. The General
Partner has approved an investment of $5 million in Candescent.
CAPTURA SOFTWARE, INC. Captura Software, Inc. ("Captura") is a privately-
held enterprise software company, founded in 1994, which has developed a
business application to automate travel and expense processing, reporting and
analysis into one fully-integrated system. Such system (i) enables corporate
credit card companies to electronically submit expenses; (ii) interfaces
directly with corporate accounting systems; (iii) allows information to be
processed using company expense rules that eliminates significant processing
and (iv) allows remote users to input cash receipt data into laptop
computers. The General Partner has approved an investment of $1.25 million
in Captura.
ICHAT, INC. ichat, Inc., ("ichat") is a leading supplier of interactive
real-time Internet and intranet communications software products, tools and
technology. The company's ROOMS product enable companies/organizations to
add two-way communications to their external or internal web sites, so that
site visitors can communicate with representatives and each other. When
visitors enter a chat-enabled web page, an ichat frame opens up and displays
any on-going chat session among visitors. The General Partner has approved
the investment of $2 million in convertible preferred securities in ichat.
LEINER HEALTH PRODUCTS GROUP INC. Leiner Health Products Groups Inc.
("Leiner") is the nation's largest manufacturer of vitamins, minerals, and
nutritional supplements and distributes its products primarily through the
mass market retailers. Leiner has a 23% market share of all mass market
vitamin sales in the United States and a 50% share of the mass market private
label segment. Leiner's products are sold in more than 50,000 of the
nation's leading retail outlets, including the 20 largest drugstore chains
and 18 of the 20 largest supermarket chains. This investment will be held
indirectly through another entity, North Castle Partners I, L.L.C., formed
by third parties to acquire the investment in connection with the Leiner
financing. Such third parties will receive a carried interest in the profits
of such entity. The General Partner has approved an investment of at least
$9.3 million in Leiner.
ORBITAL IMAGING CORPORATION. Orbital Imaging Corporation ("Orbimage") is a
start-up company that seeks to become a satellite operator in the global
space-based imagery industry. Orbimage, an affiliate of the Orbital Sciences
Corporation, intends to launch and operate a fleet of small, low-cost Earth
observation satellites to collect, process and distribute digital imagery of
land areas, oceans and weather conditions. The General Partner has approved
the investment of up to $7 million in convertible preferred securities in
Orbimage.
PACKARD BIOSCIENCE COMPANY. Packard, founded in 1949, is a leading global
manufacturer of analytical instruments and related supplies and services.
Packard's long-term relationships with pharmaceutical laboratories,
engineering capabilities and extensive international sales and service
organization left it in a unique position to benefit from trends influencing
the life sciences market such as (1) the growth in funding from
pharmaceutical and biotechnology industries; (2) the demand for increased
automation at pharmaceutical, biotechnology and clinical laboratories; (3)
the need for accelerated drug discovery; (4) the need to improve research
efficiency and (5) the growth of non-radioisotopic bioanalytical research.
Packard's subsidiary Canberra Nuclear Products Group sells instruments (1) to
detect the presence of nuclear materials; (2) for use in the decommission and
decontamination of nuclear plants; (3) for use for worker health and safety
in connection with nuclear products and (4) for use in connection with the
disposal of nuclear waste. The General Partner has approved the investment
of $1 million in Packard.
PROCOMP AMAZONIA INDUSTRIA ELECTRONICA LTDA. Procomp Amazonia Industria
Electronica LTDA ("Procomp"), the leading bank automation company in Brazil.
Procomp sells packaged proprietary and remarketed hardware and software to
banks in Brazil and provides after-market maintenance and services to its
customers. The company's products, which are assembled at a production
facility in the Free-Trade Zone of Manaus in Brazil, include Automatic Teller
Machines ("ATMs"), financial terminals and other peripheral products. The
General Partner has approved an investment in Procomp of up to $4 million,
but not to exceed 3% of the Partnership's assets.
PT KERAMIKA INDONESIA ASSOSIASI. PT Keramika Indonesia Assosiasi ("KIA") is
an Indonesian ceramic tile manufacturer, which trades on the Jakarta Stock
Exchange. The company is 70.6%-owned by the Ongko Group, an Indonesian
conglomerate owned and managed by the Ongko family. KIA is the only domestic
ceramic tile producer that offers a full line of wall, roof and floor tiles
in addition to ceramic bathroom products. The company has a network of
showrooms through which it markets its products. The company's strategy is
to: (1) expand its capacity to address undersupply in its primary market;
(2) emphasize the manufacture of larger tile, which can be sold at higher
prices; (3) move away from the manufacture of swimming pool tile which is
expensive to produce; (4) increase its capacity to produce roof tiles; and
(5) strengthen its marketing and distribution network. The General Partner
has approved an investment in KIA of $2 million.
WALLS HOLDING COMPANY, INC. Walls Holding Company, Inc. ("Walls") is a
leading designer, manufacturer and marketer of a broad line of high-quality
branded workwear, hunting and outdoor apparel and outerwear. Founded more
than 50 years ago, Walls sells its products nationwide through mass
merchandisers, sporting goods stores, independent retailers and catalog
retailers. In addition, Walls operates eight retail factory outlets. This
investment will be held indirectly through another entity formed by third
parties to acquire the investment in connection with the Walls financing.
Such entity will charge a management fee and a carried interest. The General
Partner has approved an investment of $1.9 million in Walls.
WENDENG TIANRUN CRANKSHAFT CO. LTD. Wendeng Tianrun Crankshaft Co. Ltd.
("WTC") is a joint venture established to own Shandong Crankshaft General
Factory ("SCGF"), the largest independent manufacturer of crankshafts for
diesel trucks in People's Republic of China. The factory is located in
Shandong province in China which is south of Beijing. WTC is 60% owned by
the government of the People's Republic of China, which contributed SCGF to
the joint venture and 40% owned by entities affiliated with Merrill Lynch.
The proceeds of the new investment is targeted to build a new casting plan
and additional facilities and to purchase equipment for these facilities
which are scheduled to be completed in 1998. The plan currently produces
crankshafts for diesel trucks and passengers, for sale to the new car and
replacement market. SCGF's current customers include some of the top
domestic diesel manufacturers in China. The General Partner has approved an
investment of $1 million by the Partnership in WTC.
CHARTERHOUSE EQUITY PARTNERS III, L.P. Charterhouse Equity Partners is a
limited partnership fund with a maximum size of $750 million that will seek
to make private equity investments in buyouts, recapitalizations and
companies requiring capital for business expansion. The General Partner has
approved an investment of $5 million in Charterhouse Equity Partners III,
L.P.
FLEMING U.S. DISCOVERY FUND III, L.P. The Fleming U.S. Discovery Fund III
("U.S. Discovery Fund III") is a fund organized by Fleming Capital Management
that will seek to make privately-negotiated purchases of companies with small
capitalizations that are already traded in the public market. The fund will
seek to take advantage of the inefficiencies in the public market with
respect to so-called "small cap" companies that had little research coverage
and therefore were not as well known to public. The General Partner has
approved an investment of $1 million by the Partnership in the U.S. Discovery
Fund III.
JERUSALEM VENTURE PARTNERS, L.P. Jerusalem Venture Partners, L.P. is a
private venture capital fund, that will seek to make venture capital
investments in technological companies based in or with connections to
Israel. The General Partner has approved an investment of up to $1 million
in Jerusalem Venture Partners, L.P.
M.D. SASS CORPORATE RESURGENCE PARTNERS, L.P. M.D. Sass Corporate Resurgence
Partners, L.P. ("MD Sass") is a limited partnership fund formed by the M.D.
Sass investment management firm that will seek to continue the firm's
historical strategy of investing in various classes of securities of
companies in financial distress or which have recently emerged from financial
reorganization. The new fund will also seek positions in distressed
securities on a short-term basis, but will also take control positions in
distressed companies. The General Partner has approved an investment of up
to $3 million in MD Sass.
SPECTRUM EQUITY INVESTORS II L.P. Spectrum Equity Investors II L.P.
("Spectrum II") is a fund formed that will seek to make private equity
investments in companies in the communications, information, media,
entertainment and telecommunications segments of the economy. The organizers
of the fund have been investors in the communications industry since 1980 and
had made 42 private investments in the sector prior to raising the fund.
Spectrum II will seek to make equity investments in communications,
telecommunications, information, media and entertainment product and service
companies by taking majority positions in middle-market growth companies and
minority positions in earlier-stage companies serving rapidly developing
market segments. The General Partner has approved an investment of up to
$2.7 million in Spectrum II.
SUN CAPITAL PARTNERS L.P. SUN Capital Partners L.P. is a fund organized by
the SUN group of companies to make direct equity and equity-related in
enterprises organized or operating primarily in the Russian Federation
countries. The SUN group of companies is affiliated with the Khemka group
based in India, which has been operating in Russia for almost four decades.
The General Partner has approved an investment of $10 million by the
Partnership in the fund.
TPG PARTNERS II L.P. TPG Partners II L.P. is a limited partnership fund with
a maximum size of $2.5 billion which will seek to acquire control of
companies (primarily in the United States) though acquisitions and corporate
restructurings. The fund was formed by the Texas Pacific Group. The General
Partner has approved an investment of $10 million in TPG Partners II L.P.
WARBURG, PINCUS VENTURES INTERNATIONAL, L.P. Warburg, Pincus Ventures
International, L.P. is a limited partnership fund which will be managed by
E.M. Warburg, Pincus & Co. LLC and will seek to make private equity and
venture capital investments in companies whose principal place of business is
located outside the United States. The General Partner has approved an
investment of $10 million in Warburg, Pincus Ventures International, L.P.
ZML PARTNERS LIMITED PARTNERSHIP IV. ZML Partners Limited Partnership IV
("Zell IV") is a limited partnership formed to act as the general partner of
Zell/Merrill Lynch Real Estate Opportunity Partners Limited Partnership IV
(the "Fund"). The Fund will seek to acquire a high quality, geographically
diversified portfolio of real estate assets, primarily office buildings. The
investment period is ten years and Zell IV has agreed to use its best efforts
to sell the property of the Fund within 15 years from the initial closing of
the Fund. The General Partner has approved an investment of $2.5 million in
Zell IV. Such limited partnership interest permits participation in the
carried interest of Zell IV in the Fund.
LEVERAGE
The Partnership Agreement permits the General Partner to borrow funds on
behalf of or lend funds to the Partnership. The General Partner will obtain
funds for making Partnership investments when it believes such action is
desirable. The Partnership may also borrow funds to enable it to make
follow-on investments with respect to any direct investments it might make in
portfolio companies. However, it is expected that the Partnership would not
otherwise incur substantial debt with respect to other types of investments.
The Partnership Agreement does not limit the amount of indebtedness which the
Partnership may incur. The Investment Company Act generally limits the
amount of indebtedness the Partnership may incur to 33-1/3% of its gross
assets. However, the General Partner has obtained an order from the
Securities and Exchange Commission applicable to the Partnership which
permits the Partnership to enter into nonrecourse loans relating to
investments other than securities without regard to such limitation.
The use of leverage would exaggerate increases or decreases in the
Partnership's net assets. To the extent that Partnership revenues are
required to meet debt service obligations, the Partners may be allocated
income (and therefore tax liability) in excess of cash available for
distribution.
LIQUIDATION OF INVESTMENTS
The Partnership intends to liquidate its portfolio investments prior to
dissolution. Leveraged buyout investments typically require from four to
seven years to reach a state of maturity before disposition can be
considered. Investments in corporate restructuring and recapitalization
transactions may also require a substantial holding period. Investments in
partnerships involved in real estate investments may also be illiquid for
significant periods, including periods extending for the term of the
underlying investment vehicle. As a result, the Partnership's investments
will generally be held for a significant time period until disposition can be
considered through negotiated private sales or sales made in the public
market pursuant to exemptions from registration under the Federal securities
laws. The Partnership expects to utilize the services of MLPF&S, to the
extent permitted by the Investment Company Act, in executing transactions for
the sale of its investments. In the absence of a specific exemption, the
Partnership is generally precluded by the Investment Company Act from selling
portfolio securities, including high yield debt securities, to MLPF&S on a
principal basis.
REINVESTMENT POLICY
The General Partner has the discretion to reinvest all Partnership
revenues. To the extent portfolio investments are disposed of within two
years after the closing of the sale of Units, the General Partner will
consider reinvesting all or a substantial portion of the proceeds realized by
the Partnership. However, the General Partner does not expect to reinvest
proceeds from the liquidation of portfolio investments (other than temporary
investments) occurring more than two years after the closing of the sale of
Units, except in connection with follow-on investments made in existing
portfolio companies. The General Partner may also cause the Partnership to
maintain reserves for follow-on investments or to apply cash received from
investments to the prepayment of any borrowings made by
the Partnership. To the extent that cash received by the Partnership is not
required for such purposes or to reimburse the General Partner for expenses
incurred by it, such cash will be distributed to the Partners at least
annually.
INVESTMENT RESTRICTIONS
The Partnership has adopted the following investment restrictions which
may not be changed unless authorized by an amendment of the Partnership
Agreement by the vote of a majority-in-interest of the Limited Partners of
the Partnership. These restrictions provide that the Partnership may not (i)
issue senior securities other than in connection with borrowings described in
(iii) below, (ii) make short sales of securities, purchase securities on
margin, except for use of short-term credit necessary for the clearance of
transactions, or write put or call options, (iii) borrow amounts in excess of
33-1/3% of its gross assets, except that the Partnership may enter into
nonrecourse loans relating to investments other than securities without
regard to such limitation, (iv) underwrite securities of other issuers,
except insofar as the Partnership may be deemed an underwriter under the
Securities Act of 1933 in selling portfolio securities, (v) invest more than
25% of its Partners' capital contributions in the securities of issuers in
any particular industry, except for temporary investments in United States
Government and Government agency securities, domestic bank money market
instruments and money market funds, or (vi) make loans to other persons in
excess of 33-1/3% of its gross assets, provided that investments in privately
offered debt securities issued by entities in which the Partnership has an
equity participation or with which the Partnership has contracted to acquire
an equity participation are not considered loans for purposes of this
restriction. In addition, the Partnership will not invest any of its assets
in the securities of other registered investment companies or investment
companies organized outside of the United States, except to the extent
permitted by the Investment Company Act.
TEMPORARY INVESTMENTS
Prior to the expenditure of the capital contributions of the Limited
Partners, and pending distributions of available cash, the Partnership will
invest funds in various types of marketable securities. These securities
include money market instruments and securities issued by taxable or tax-
exempt money market funds (including funds sponsored by affiliates of the
General Partner). An exemptive order obtained from the Securities and
Exchange Commission permits the Partnership to purchase money market
instruments, shares of money market funds and certain other securities from
affiliates of ML & Co. in principal transactions.
TAX ASPECTS OF INVESTMENT IN THE PARTNERSHIP
EACH PROSPECTIVE LIMITED PARTNER IS URGED TO CONSULT A PERSONAL TAX ADVISOR
WITH RESPECT TO THE MATTERS DISCUSSED BELOW AS THEY RELATE TO SUCH
PROSPECTIVE LIMITED PARTNER'S CIRCUMSTANCES.
SCOPE AND LIMITATION
The following discussion of the Federal income tax consequences of an
investment in the Partnership, together with the opinions of counsel referred
to below, are based upon the existing provisions of the Internal Revenue Code
of 1986, as amended to date (the "Code"), the regulations promulgated or
proposed thereunder (the "Regulations" or the "Proposed Regulations"),
current administrative rulings and practices of the Internal Revenue Service
(the "IRS") and existing court decisions, any of which could be changed at
any time. Any such changes may or may not be retroactive with respect to
transactions prior to the date of such changes and could significantly modify
the statements and opinions expressed herein.
At the Closing of the offering of Units, the Partnership will receive
the opinion of Brown & Wood LLP ("Tax Counsel") to the effect that:
(i) the Partnership will be classified as a partnership for Federal
income tax purposes and not as an "association" taxable as a corporation and
will not be classified as a publicly traded partnership within the meaning of
Code Section 7704(b) (see "Classification as a Partnership" below); and
(ii) the allocations of income, gain, loss, deduction and credit of the
Partnership will be respected for Federal income tax purposes, so long as no
Limited Partner's capital account becomes negative (see "General Principles
of Partnership Taxation--Allocations and Distributions" below).
The Partnership also will request additional opinions of Tax Counsel
with respect to the other material Federal income tax issues described in
this Prospectus as such matters arise in the course of the Partnership's
investment decisions. All such opinions of Tax Counsel will be subject to,
and limited by, the assumptions made and matters referred to in such
opinions, including the laws, rulings and regulations in effect as of the
date of such opinions, all of which are subject to change.
Partners should note that the opinions of Tax Counsel are not binding on
the IRS or the courts. The opinions of Tax Counsel regarding the issues
specifically identified represent Tax Counsel's judgment based on its
analysis of the law, and express what Tax Counsel believes a court would
conclude if properly presented with such issues. Accordingly, no assurance
can be given that the IRS will not challenge the tax treatment of certain
items or, if it does, that it will not be successful. The opinions are based
on the applicable statutes, regulations, cases and rulings in effect on the
date of the opinions. If any of the authorities on which the opinions are
based should change, the conclusions set forth in the opinions may be
affected. The opinions of Tax Counsel are also based on certain
representations by the General Partner, including a representation that the
factual matters referred to herein are accurate and complete as of the date
of Closing. If such facts or representations are inaccurate, Tax Counsel's
opinion may not apply to such changed circumstances.
OVERVIEW OF TAX ASPECTS
The Code provides that a partnership is not itself subject to Federal
income taxation. Rather, each Limited Partner will be required to take into
account in computing his of her Federal income tax liability his or her
allocable share of the Partnership's capital gains and capital losses and
other income, losses, deductions, credits and items of tax preference for any
taxable year of the Partnership ending within or with the taxable year of
such Limited Partner, without regard to whether he or she has received or
will receive any distribution from the Partnership. Partnership revenues may
be retained by the Partnership to be applied to working capital reserves, or
used to reduce outstanding debts or borrowings or Partnership expenses. In
addition, some of the investment funds in which the Partnership may invest,
including hedge funds, may re-invest all or a potion of realized capital
gains or other income rather than making cash distributions. Also, certain
of the temporary investments which may be made by the Partnership or any
investment partnership in which the Partnership invests include zero coupon
bonds or other obligations having original issue discount. For Federal
income tax purposes, accrual of original issue discount will be attributable
to Partners as interest income even though the Partnership does not realize
any cash flow as a result of such accrual.
The Partnership is required to (i) file annually an information return
on Form 1065 and (ii) following the close of the Partnership's taxable years,
provide to each Partner a Schedule K-1 indicating such Partner's allocable
share of the Partnership's income, gain, losses, deductions, credits, and
items of tax preference. Assignees of Limited Partners who are not admitted
to the Partnership will not receive any tax information from the Partnership.
See "General Principles of Partnership Taxation--Partners, Not Partnership,
Subject to Tax" below.
CLASSIFICATION OF A PARTNERSHIP AS A PTP
Under Section 7704 of the Code, generally a publicly traded partnership
("PTP") is to be treated as a corporation for Federal income tax purposes.
PTPs are defined in Code Section 7704(b) as partnerships whose interests
are (i) traded on an established securities market (i.e., a national
exchange, local exchange, or over-the-counter market) or (ii) readily
tradeable on a secondary market or the substantial equivalent thereof. Units
in the Partnership will not be listed for trading on an established
securities market and the General Partner will not participate in the
establishment of any secondary market or substantial equivalent thereof and
will not recognize any transfers made on any such market. A Limited Partner
may not transfer a Unit unless the Limited Partner represents, and provides
other documentation, satisfactory in form and substance to the General
Partner that such transfer was not effected through a broker-dealer or
matching agent which makes a market in Units or which provides a readily
available, regular and ongoing opportunity to Partners to sell or exchange
their Units through a public means of obtaining or providing information of
offers to buy, sell or exchange Units. Prior to recognizing the sale of a
Unit, the General Partner must determine that such sale, assignment or
transfer will not, by itself or together with any other sales, transfers
or assignments, substantially increase the risk of the Partnership
being classified as a publicly traded partnership. A transferor will not
be required to make the representations described above if the
transferor represents that the transfer is effected through an agent
whose procedures have been approved by the General Partner as consistent
with the requirements for avoiding classification as a publicly traded
partnership.
On November 21, 1995, the IRS issued final regulations on classifying
certain publicly traded partnerships as corporations (the "Final PTP
Regulations"). The Final PTP Regulations provide certain safe harbors which,
if satisfied by a partnership, will result in interests in the partnership
not being treated as readily tradeable on a secondary market or the
substantial equivalent thereof. The Final PTP Regulations provide, in
relevant part, that interests in a partnership will not be considered readily
tradeable on a secondary market or a substantial equivalent thereof within
the meaning of Section 7704(b) of the Code for a taxable year of the
partnership if the sum of the percentage interests in partnership capital or
profits represented by partnership interests that are sold or otherwise
disposed of during the taxable year does not exceed 2% of the total interest
in partnership capital or profits (the "2% Safe Harbor"). For this purpose,
the following transfers, as well as certain redemptions (collectively, "Safe
Harbor Transfers"), will be disregarded: (i) transfers in which the basis of
the partnership interest in the hands of the transferee is determined, in
whole or in part, by reference to its basis in the hands of the transferor or
is determined under Section 732 of the Code; (ii) transfers at death,
including transfers from an estate or testamentary trust; (iii) transfers
between members of a family (as defined in Section 267(c)(4) of the Code);
(iv) the issuance of interests by or on behalf of the partnership in exchange
for cash, property, or services; (v) distributions from a retirement plan
qualified under Section 401(a); and (vi) block transfers. (The term "block
transfer" means the transfer by a partner in one or more transactions during
any thirty calendar day period of partnership interests representing in the
aggregate more than 2% of the total interest in partnership capital or
profits.)
The Final PTP Regulations also provide that sales through a matching
service ("Matched Sales") will be disregarded (the "Matching Service Safe
Harbor") for purposes of determining whether partnership interests are to be
considered readily tradeable on a secondary market or the substantial
equivalent thereof if: (i) at least a 15 calendar day delay occurs between
the day the operator receives written confirmation from the listing customer
that an interest in a partnership is available for sale (the "contact date")
and the earlier of (A) the day information is made available to potential
buyers regarding the offering of such interest for sale, or (B) the day
information is made available to the listing customer regarding the existence
of any outstanding bids to purchase an interest in such partnership at a
stated price; (ii) the closing of the sale effected through the matching
service does not occur prior to the 45th calendar day after the contact date;
(iii) the listing customer's information is removed from the matching service
within 120 calendar days after the contact date; (iv) following any removal
of the listing customer's information from the matching service (other than
removal by reason of a sale of any part of such interest), no interest in the
partnership is entered into the matching service by such listing customer for
at least 60 calendar days; and (v) the sum of the percentage interests in
partnership capital and profits represented by partnership interests that are
sold or otherwise disposed of other than in Safe Harbor Transfers during the
taxable year of the partnership does not exceed 10 percent of the total
interest in partnership capital and profits.
The Partnership Agreement provides that the Partnership will satisfy one
of such safe harbors. The Partnership Agreement also provides that any
transfer of Units to a market maker will be null and void unless the market
maker certifies that it is holding such Units for investment purposes. The
General Partner has also represented that it intends to exercise its
discretion regarding transfers in a manner designed to prevent the
Partnership from becoming a PTP. Accordingly, it is not anticipated that
the Partnership will be a PTP. There can be no assurance, however, that the
General Partner will be successful in its efforts.
CLASSIFICATION AS A PARTNERSHIP
SIGNIFICANCE OF PARTNERSHIP STATUS
A limited partnership may be classified for Federal income tax purposes
as either a "partnership" or an association taxable as a corporation. If the
Partnership is classified as a partnership, the Partners will be subject to
tax currently on their respective distributive shares of Partnership income
and gain, and, subject to certain limitations, will be entitled to claim
currently their respective distributive shares of any Partnership losses and
credits. If the Partnership were to be classified as an association taxable
as a corporation, the Partners therein would be treated as shareholders of a
corporation and, consequently, (i) items of income, gain, deduction, loss and
credit would not flow through to such Partners to be accounted for on their
individual Federal income tax returns, (ii) cash
distributions would be treated as corporate distributions to such Partners,
some or all of which might be taxable as dividends, and (iii) the taxable
income of the Partnership would be subject at the partnership level to the
Federal income tax imposed on corporations and, potentially, to state and
local corporate income and franchise taxes.
The Partnership will not seek a ruling from the IRS on the question of
its classification for Federal income tax purposes as a partnership but
rather will rely on an opinion of Tax Counsel as described below. The
opinion of Tax Counsel will not be binding upon the IRS.
QUALIFICATION OF THE PARTNERSHIP AS A PARTNERSHIP
At the Closing of the offering of Units, Tax Counsel will deliver its
opinion that, under the present provisions of the Code, Regulations,
published rulings of the IRS and court decisions, all of which are subject to
change, assuming the activities of the Partnership are conducted as described
herein and in compliance with the provisions of the Partnership Agreement,
and based on certain representations of the General Partner, for Federal
income tax purposes, the Partnership will be treated as a partnership.
Tax Counsel's opinion as to the partnership status of the Partnership is
based in part upon Section 301.7701-2 of the current Regulations which
provides that an unincorporated organization with two or more members that is
created or qualifies under applicable state law will be classified as a
partnership for Federal income tax purposes unless the organization elects to
be classified as a corporation. In Tax Counsel's opinion, based upon certain
representations of the General Partner, the Partnership will be treated as a
partnership for Federal income tax purposes rather than an association
taxable as a corporation.
No assurance can be given that partnership status will not be lost as a
result of future changes in the applicable law or Regulations (which changes
might be applied retroactively) or due to changes in the manner in which the
Partnership in fact is operated. As more fully described below, loss of
partnership status and treatment of the Partnership as an "association"
taxable as a corporation would have a material adverse effect of the tax
treatment of the Partnership, the Partners and on the value of the Units.
In addition to the foregoing considerations concerning classification of
the Partnership as a partnership, the General Partner has instituted measures
which are intended to reduce the risk of the Partnership being treated as a
PTP or an association taxable as a corporation for Federal income tax
purposes. Specifically, the General Partner will represent, at the time of
Closing, that it will take such actions and implement such procedures as are
necessary to enable the Partnership to comply with one of the safe harbors
enumerated in the Final PTP Regulations. In addition, the General Partner
will not recognize any transfer of Units if, in the opinion of the
Partnership's tax counsel, the manner of such transfer could cause the
Partnership to be classified as an association taxable as a corporation for
Federal income tax purposes or cause it to be a PTP. Accordingly, at the
Closing of the offering of Units, Tax Counsel will deliver their opinion that
the Partnership will not be a PTP within the meaning of Section 7704(b) of
the Code.
If for any reason the Partnership were treated as an "association"
taxable as a corporation, capital gains and losses and other income and
deductions of the Partnership would not be passed through to the Limited
Partners, and the Limited Partners would be treated as shareholders for tax
purposes. Any distributions by the Partnership to each Limited Partner would
be taxable to that Limited Partner as a dividend, to the extent of the
Partnership's current and accumulated earnings and profits, and treated as
gain from the sale of a Partnership interest to the extent it exceeded both
the current and accumulated earnings and profits of the Partnership and the
Limited Partner's tax basis for his or her interest.
________________________
The remainder of the discussion under "Tax Aspects of Investment in the
Partnership", including observations as to the tax results of the normal
operation of the Partnership and of such events as the Partnership's sale of
an interest in portfolio companies or a Partner's sale of an interest in the
Partnership, is based on the assumption that the Partnership will be
classified as a partnership for Federal income tax purposes. In general,
this discussion is limited to the Federal income tax aspects of investment in
the Partnership, although reference is made to other tax considerations. See
"State and Local Taxes".
GENERAL PRINCIPLES OF PARTNERSHIP TAXATION
PARTNERS, NOT PARTNERSHIP, SUBJECT TO TAX
As discussed above, the Partnership, if recognized as a partnership for
Federal income tax purposes, will not itself be liable for any Federal income
tax. Although the Partnership must annually file a U.S. Partnership Return of
Income, Form 1065, that return is merely an information return. Instead, the
Partnership will report to each Partner such Partner's distributive share
(generally, as determined under the Partnership Agreement, as discussed under
"Allocations and Distributions" below, and reported on Schedule K-1 of Form
1065) of income, gain, loss, deduction, credit and items of tax preference.
Each Partner will then report on his or her own Federal income tax return,
much as if the Partner were directly engaged in the investment activities of
the Partnership, such Partner's share of those items for the Partnership tax
year that ends with or within the Partner's tax year.
A Partner's share of items of Partnership income are included directly
in the computations of the Partner's adjusted gross income and taxable
income. The Partner's share of any Partnership deductions or losses may,
subject to certain exceptions discussed below (see "Basis of Partnership
Interest", "`At Risk' Limitation on Deducting Losses", "Passive Activity Loss
Limitation", "Deductibility of Operating Expenses" and "Limitations on the
Deductibility of Interest"), offset the Partner's allocable share of
Partnership income and, if sufficient in amount, a Partner's income from
other sources.
As a general rule, any cash distributions or constructive distributions
(e.g., a decrease in the Partner's share of Partnership liabilities) by the
Partnership will be taxable to a Partner only to the extent that such
distributions exceed the tax basis of the recipient Partner in the year of
receipt or are received in exchange for the recipient Partner's interest in
"unrealized receivables" or substantially appreciated "inventory items" under
Section 751 of the Code. See "Basis of Partnership Interest" and "Transfer
of a Partnership Interest" below. Conversely, the mere absence of cash or
constructive distributions will not, of itself, limit or affect the
recognition of taxable income by Partners.
BASIS OF PARTNERSHIP INTEREST
As a general matter, a partner's basis for his or her interest in a
partnership is significant in determining (i) taxable gain or loss to the
partner on disposition or liquidation of such partner's interest in the
partnership, (ii) the extent to which partnership expenses or losses are
deductible by the partner, and (iii) the extent to which partnership
distributions represent taxable income to the partner. In this respect, a
partner's basis for his or her partnership interest represents a measure of
the partner's "investment" in the partnership at any given time for Federal
income tax purposes.
A Limited Partner's basis for his or her interest in the Partnership
will initially be the amount of such Partner's cash contribution to the
capital of the Partnership, plus such Partner's share, as discussed below, of
any Partnership liabilities. Such basis will be increased by (i) the
Partner's distributive share of Partnership taxable income, including capital
gain, (ii) the Partner's distributive share of Partnership income exempt from
tax, if any, and (iii) any increase in the Partner's share of Partnership
liabilities. A Partner's basis will be decreased (but not below zero) by (i)
the Partner's distributive share of cash distributions, (ii) the Partner's
distributive share of Partnership losses and deductions, (iii) any decrease
in the Partner's share of Partnership liabilities, and (iv) the Partner's
distributive share of Partnership expenditures that are neither deductible
nor properly chargeable to his or her capital account.
It is anticipated that the Partnership may incur borrowings to make
follow-on investments with respect to its direct equity investments. It
should also be anticipated that debt financing will be utilized by the
Sponsored Programs in which the Partnership may acquire interests. Such
borrowings will usually be nonrecourse liabilities by their terms secured
solely by the assets of the Partnership or the Sponsored Program and for
which no Partner will have any personal liability. Each Limited Partner will
be permitted to include his or her allocable share (as determined under Code
Section 752) of any such nonrecourse liabilities in the basis of his or her
Partnership interest, but only to the extent that the amount of such
liabilities does not exceed the fair market value of the property securing
such liabilities. However, even though a Limited Partner's allocable share
of Partnership nonrecourse borrowings will be includable in the tax basis of
his or her Partnership interest, such borrowings will not increase the amount
the Limited Partner is considered "at risk" for purpose of the deductibility
of Partnership losses. See "`At Risk' Limitation on Deducting Losses".
If recognition of a Partner's distributive share of Partnership losses
would reduce the tax basis of the Partner's interest in the Partnership below
zero, the recognition of such losses is deferred until such time as the
recognition of such losses would not reduce the Partner's basis below zero.
To the extent that Partnership cash distributions, or any decrease in a
Partner's share of the nonrecourse liabilities of the Partnership (which is
considered a constructive cash distribution to the Partners), would reduce a
Partner's basis below zero, such distributions constitute taxable income to
the recipient Partner. If the Partner is not a "dealer" in securities, the
distribution will normally represent a capital gain and, if the Partnership
interest has been held for longer than the capital gains holding period
(currently one year), the distribution will constitute a long-term capital
gain.
"AT RISK" LIMITATION ON DEDUCTING LOSSES
Under Section 465 of the Code, individuals and certain closely-held
corporations are entitled to deduct their distributive shares of partnership
losses attributable to partnership activities only to the extent of the
amount they are considered "at risk" with respect to their partnership
interests at the end of the taxable year.
A Limited Partner in the Partnership will initially be considered "at
risk" with respect to his or her Partnership interest to the extent of the
cash contributed to the Partnership for Units, provided such Units are not
financed with borrowings from persons with certain interests (other than as a
creditor) in the Partnership activities or with borrowings solely secured by
Units. While a Limited Partner's tax basis in his or her Units will be
increased by his or her allocable share of any nonrecourse liabilities of the
Partnership (see "Basis in Partnership Interest" above), such liabilities are
not includable in the Partner's amount "at risk". However, the Code provides
an exception to this general rule that permits certain qualified nonrecourse
financing secured by real property to be included in an investor's amount "at
risk". This exception may have relevance if the Partnership indirectly
invests in real estate through a Sponsored Program.
The amount a Limited Partner is "at risk" in the Partnership will be
increased by, among other things, his or her share of Partnership ordinary
income and capital gain. A Limited Partner's amount "at risk" will be
reduced by (i) all Partnership distributions to, or on behalf of, the Partner
and (ii) his or her share of Partnership deductions and losses. The
Partner's share of Partnership deductions and losses over Partnership income
not allowable in any year as a result of the "at risk" limitation is carried
forward until such time, if ever, as it is allowable under the "at risk"
rules.
If, at the end of any taxable year, the amount a Partner is "at risk" is
less than zero (for example, as a result of a cash distribution from the
Partnership) the deficit amount "at risk" is "recaptured"; that is, the
taxpayer must include in gross income an amount equal to the negative amount
"at risk". However, the amount of gross income so recognized to offset the
deficit amount "at risk" may be treated as a deduction and carried forward as
a suspended loss until such time, if ever, as it is allowable.
The timing, duration and extent of any deferral or "recapture" of losses
as a consequence of the "at risk" limitation will depend upon the nature of
the Partnership's investments, the amount of Partnership revenue and expenses
and the amount and the terms of Partnership leverage. In any event,
prospective investors should consider the effect of the "at risk" rules in
arranging any financing for a purchase of Units.
PASSIVE ACTIVITY LOSS LIMITATION
Under the passive activity loss provisions of Section 469 of the Code,
losses and credits from trade or business activities in which a taxpayer does
not materially participate (i.e., "passive activities") will only be allowed
against income from such activities. Therefore, such losses cannot be used
to offset salary or other earned income, active business income or "portfolio
income" (such as dividends, interest, royalties and nonbusiness capital
gains) of the taxpayer. Losses and credits suspended under this limitation
can be carried forward indefinitely and can be used in later years against
income from passive activities. Moreover, a taxable disposition by a
taxpayer of the entire interest in a passive activity will cause the
recognition of any suspended losses attributable to that activity. The
passive activity loss limitation applies to individuals, estates, trusts, and
most personal service corporations. A modified form of the rule also applies
to closely-held corporations.
The primary activity of the Partnership will be the investment, holding
and eventual disposition of privately-offered securities acquired in
connection with direct equity investments. Prior to the commitment of
Partnership funds to such investments, and pending distributions of available
cash to the Partners, the Partnership
will temporarily invest funds in various types of marketable securities. Any
ordinary income (such as interest or dividend income) derived from either of
such investment activities, or capital gains realized upon disposition of
such investments, will be treated as portfolio income. Portfolio income is
not considered passive income and, thus, cannot be offset by a Partner's
passive losses from other activities of the Partnership (such as investment
in certain Sponsored Programs) or other sources. Accordingly, a prospective
Limited Partner should not invest in the Partnership with the expectation of
using his or her proportionate share of portfolio income and capital gain
from the Partnership to offset losses from his or her interest in passive
activities. On the other hand, a Limited Partner's proportionate share of
any capital loss from portfolio investments or any ordinary expense
(including any interest expense) allocable to portfolio investments, although
they may be subject to the limitations imposed on deductibility of (i)
capital losses (ii) itemized investment expenses incurred in the production
of portfolio income (see "Deductibility of Operating Expenses") or (iii)
investment interest (see "Other Tax Considerations--Limitations on the
Deductibility of Interest"), will not be subject to the passive loss
limitation rules described above.
ALLOCATIONS AND DISTRIBUTIONS
Under Section 704 of the Code, a partner's distributive share of the
income, gain, loss and deduction of a partnership is determined in accordance
with the partnership agreement unless the allocation of such items does not
have a "substantial economic effect" independent of tax consequences. The
IRS has issued final Regulations relating to a partner's distributive share
of tax items and the "substantial economic effect" test. Under such
Regulations, an allocation of partnership income, gain, loss or deduction (or
item thereof) to a partner will be considered to have "substantial economic
effect" if it is determined that (i) the allocation has "economic effect" and
(ii) that economic effect is "substantial". An allocation of tax items to
partners will be considered to have "economic effect" if (a) the partnership
maintains capital accounts in accordance with specific rules set forth in
such Regulations and such allocation is reflected through an appropriate
increase or decrease in the partners' capital accounts, (b) liquidating
distributions (including liquidations of a partner's interest in the
partnership) are required to be made in accordance with the partners'
respective capital account balances, and (c) any partner with a deficit in
his or her capital account following the distribution of liquidation proceeds
would be unconditionally required to restore the amount of such deficit to
the partnership. If the first two of these requirements are met, but the
partner to whom an allocation is made is not obligated to restore the full
amount of any deficit balance in his capital account, the allocation still
will be considered to have "economic effect" to the extent the allocation
does not cause or increase a deficit balance in the partner's capital account
(determined after reducing that account for certain "expected" adjustments,
allocations, and distributions specified by the Regulations) if the
partnership agreement contains a "qualified income offset" provision.
The Partnership Agreement provides that a capital account is to be
maintained for each Partner, that the capital accounts are to be maintained
in accordance with applicable tax accounting principles set forth in the
Regulations, and that all allocations of Federal tax items to a Partner are
to be reflected by an appropriate increase or decrease in the Partner's
capital account. In addition, distributions on liquidation of the
Partnership (or of a Partner's interest) are to be made in accordance with
respective positive capital account balances. Although the Partnership
Agreement does not impose any obligation on the part of a Limited Partner to
restore any deficit in his or her capital account balance following
liquidation, the Partnership Agreement does contain a "qualified income
offset'' provision as defined in the Regulations.
In order for the "economic effect" of an allocation to be considered
"substantial", the Regulations require that the allocation must have a
"reasonable possibility" of "substantially" affecting the dollar amounts to
be received by the partners, independent of tax consequences. An allocation
is insubstantial if its after-tax consequences on at least one partner, in
present value, are enhanced and it is likely that the allocation will not
lessen such consequences for any partner. Also, allocations are
insubstantial if they just shift tax consequences within a partnership's tax
year or, if they will probably be offset by future allocations.
Based on the Regulations, Tax Counsel is of the opinion that the tax
allocations of income, gain, loss, deduction and credit under the Partnership
Agreement for Federal income tax purposes will be considered to have
"substantial economic effect" (and thus should be respected by the IRS) to
the extent such allocations do not result in any Limited Partner having a
deficit in his or her capital account balance. Tax Counsel has advised the
Partnership that allocations to Limited Partners that actually result in
deficit capital account balances likely would not be recognized for Federal
income tax purposes in the absence of an obligation to restore deficit
capital account balances. It is extremely unlikely, however, that the
Partnership's operations will result in any Limited Partner having a deficit
balance in his or her capital account.
If any allocation fails to satisfy the "substantial economic effect"
requirement, the allocated items would be allocated among the Partners based
on their respective "interests in the Partnership", determined on the basis
of all of the relevant facts and circumstances. Such a determination might
result in the income, gains, losses, deductions or credits allocated under
the Partnership Agreement being reallocated among the Limited Partners and
the General Partner. Such a reallocation, however, would not alter the
distribution of cash flow under the Partnership Agreement, resulting in a
possible mismatching of taxable income and cash distributed to the Partners.
Retroactive allocations of income, gain, deductions, losses and credits
are not permitted under the Federal income tax laws. Accordingly, under the
Partnership Agreement, items of income, gain, deduction, loss or credit will
be allocable to Partners only for the quarterly periods of the tax year in
which they are members of the Partnership. When the Partnership recognizes a
transfer of an interest by a Limited Partner the distributive share of any
Partnership income, gain, loss, deduction or credit for the taxable year will
be allocated between the transferor Partner and the transferee based upon the
quarterly periods during the taxable year that each owned such Partnership
interest.
DEDUCTIBILITY OF OPERATING EXPENSES
The Code imposes limitations on individuals with respect to the
deductibility of investment expenses by allowing a deduction for itemized
expenses incurred for the production of income only to the extent such
expenses, combined with certain other itemized deductions, in the aggregate
exceed 2% of adjusted gross income. Accordingly, to the extent certain
Partnership expenses are not deductible as trade or business expenses, but
rather as investment expenses, the Limited Partners might not be able to
fully claim their proportionate shares of these expenses as an itemized
deduction on their individual income tax returns. To the extent certain
Partnership expenses are nondeductible under this limitation, Limited
Partners may have to recognize taxable income in an amount greater than cash
available from the Partnership for distribution to the Partners. However,
the effect of this limitation will to some extent be mitigated by the fact
that the General Partner is responsible for paying Partnership investment
expenses in excess of the amount of 0.5% of the aggregate capital
contributions of the Limited Partners (1%, if such capital contributions are
less than $60 million) (which payment will be treated as an additional
capital contribution of the General Partner to be reflected in its capital
account). Moreover, the General Partner may attempt to minimize the effect
of the investment expense limitation provision by investing funds not
invested in equity investments in short-term tax-exempt securities. The
Partnership's distributive share of investment expenses incurred by any
investment fund in which the Partnership invests will pass through to
individual Partners as investment expenses subject to this deduction
limitation.
ORGANIZATION AND SYNDICATION EXPENSES
For Federal income tax purposes, a partnership may not deduct
organizational or syndication expenses in the year in which they are paid or
incurred. Rather, Section 709(b) of the Code provides that a partnership
must amortize amounts paid or incurred to organize the partnership over a
period of not less than 60 months. Under Regulation 1.709-2 examples of
organizational expenses of a partnership include "legal fees for services
incident to the organization of the partnership, such as negotiation and
preparation of a partnership agreement; accounting fees for establishing a
partnership accounting system; and necessary filing fees." However, the
expenses of syndicating a partnership, i.e., the expenses to promote the sale
of, or to sell, interests in the partnership (such as most of the printing
costs and professional fees incurred in connection with preparation and
registration of this Prospectus), are non-amortizable capital assets of the
partnership.
The Partnership will pay expenses in connection with its organization
and the sale of Units in an amount up to 1% of the proceeds of this offering.
The General Partner will bear the remainder of any such costs. The General
Partner will allocate expenses between organizational expenses, which can be
amortized, and syndication expenses, which cannot be amortized or deducted,
but must be capitalized. There can be no assurance, however, that the IRS
would not challenge such allocation, attributing a greater amount of such
expenditures to nondeductible syndication costs.
TRANSFER OF A PARTNERSHIP INTEREST
The amount of gain recognized on the sale by a Limited Partner of his or
her interest in the Partnership generally will be the excess of the sales
price received over his or her adjusted basis in such interest. The sale by a
Limited Partner of an interest held by him or her for more than one year
generally will result in his or her recognizing long-term capital gain
or loss (provided such Limited Partner is not deemed to be a "dealer"
in such property). However, to the extent the proceeds of sale are
attributable to such Limited Partner's allocable share of Partnership
"unrealized receivables" or "substantially appreciated inventory items", as
defined in Section 751 of the Code, any gain will be treated as ordinary
income. It is not anticipated that the Partnership will have significant
amounts, if any, of "unrealized receivables" or "substantially appreciated
inventory items". The sale by a Limited Partner of an interest held by him
or her for less than one year generally will result in his or her
recognizing short-term capital gain or loss. With respect to the
allocation of tax items between the transferor and the transferee in
the year in which an interest is transferred, see "Allocations and
Distributions" above.
It is not expected that a transfer of an interest in the Partnership by
gift or upon death will result in recognition of gain or loss. In general,
the recipient of an interest in the Partnership by gift will have a tax basis
in that interest equal to the transferor's basis increased by the amount of
any gift tax paid on the transfer. However, if the fair market value of the
interest at the time of the gift is less than this amount, Section 1015 of
the Code may reduce the amount of loss the recipient can recognize on a
subsequent sale. The recipient of such an interest resulting from a transfer
upon death generally would have a tax basis in such interest equal to the
fair market value of the interest at the date of death or, where applicable,
the estate tax alternate valuation date.
NO ELECTION UNDER SECTION 754
Section 754 of the Code permits a partnership to make an election to
adjust the basis of the partnership's assets in the event of a distribution
of partnership property to a partner or transfer of a partnership interest.
Depending upon particular facts at the time of any such event, such an
election could increase the value of a partnership interest to the transferee
(because the election would increase the basis of the partnership's assets
for the purpose of computing the transferee's allocable share of partnership
tax items) or decrease the value of a partnership interest to the transferee
(because the election would decrease the basis of the partnership's assets
for that purpose). Because an election under Section 754, once made, cannot
be revoked without obtaining the consent of the IRS, because such an election
may not necessarily be advantageous to all the Limited Partners, and because
of the accounting complexities that can result from having such an election
in effect, it is unlikely that the General Partner would make such an
election on behalf of the Partnership. The General Partner will advise the
Limited Partners prior to any election under Section 754.
TERMINATION OF THE PARTNERSHIP FOR TAX PURPOSES
Because of the absence of an established market for the Units, and
because investments in the Partnership most likely will be made primarily
with a view toward realizing long-term capital appreciation, it is not
anticipated that 50% or more of the capital and profits interests in the
Partnership will be sold or exchanged within any single 12-month period.
However, if 50% or more of such interest were sold or exchanged within any
single 12-month period, the Partnership would be deemed terminated for
Federal income tax purposes. Among other tax consequences, the effect to a
Limited Partner of such a deemed termination would be that he or she would
recognize gain to the extent that his or her allocable share of the
Partnership's cash on the date of termination exceeded the adjusted tax basis
of his or her interest in the Partnership.
LIQUIDATION OF THE PARTNERSHIP
In the event of the liquidation of the Partnership, the Limited Partner
will recognize gain (i) to the extent that the cash received in the
liquidation exceeds the tax basis for such Partner's interest in the
Partnership, adjusted by such Partner's share of income, gain or loss arising
from normal operations or the sale of any property held by the Partnership in
the year of dissolution or (ii) if the cash so received does not exceed such
Partner's basis, as so adjusted, to the extent such cash is treated as
received in exchange for such Partner's interest in "unrealized receivables"
and substantially appreciated "inventory items". Such gain would be capital
gain, except to the extent treated as ordinary income because attributable to
"unrealized receivables" and substantially appreciated "inventory items" held
by the Partnership.
Capital loss will be recognized in the event only cash, "unrealized
receivables" and "inventory items" are distributed, and only to the extent
the adjusted basis of a Limited Partner's interest in the Partnership exceeds
the sum of money distributed and such Limited Partner's acquired basis for
"unrealized receivables" and substantially appreciated "inventory items".
Income, gain, losses, deductions, credits and items of tax preference of
the Partnership realized prior to the liquidation of the Partnership will be
allocated to the Limited Partners in accordance with the Partnership
Agreement.
TAX RETURNS AND INFORMATION; AUDITS
The Partnership has adopted the calendar year as its tax year. The Code
requires entities, such as the Partnership, in which interests are publicly
offered for sale pursuant to a registration statement under the Securities
Act of 1933, to adopt an accrual method of accounting for Federal income tax
purposes. Within 75 days or as soon as practicable, after the close of the
taxable year, the Partnership will furnish each Limited Partner (and the
assignees of the Partnership interest of any Partner) copies of (i) the
Partnership Schedule K-1 indicating the Partner's distributive share of tax
items and (ii) such additional information as is reasonably necessary to
permit the Limited Partners to prepare their own Federal, state and local tax
returns. HOWEVER, IT IS EXPECTED THAT ANNUAL TAX INFORMATION FROM INVESTMENT
FUNDS IN WHICH THE PARTNERSHIP INVESTS MAY NOT BE RECEIVED IN SUFFICIENT TIME
TO PERMIT THE PARTNERSHIP TO INCORPORATE SUCH INFORMATION INTO ITS ANNUAL TAX
INFORMATION AND DISTRIBUTE SUCH INFORMATION TO LIMITED PARTNERS PRIOR TO
APRIL 15 OF EACH YEAR. AS A RESULT, LIMITED PARTNERS MAY BE REQUIRED TO
OBTAIN EXTENSIONS FOR FILING FEDERAL, STATE AND LOCAL INCOME TAX RETURNS EACH
YEAR. LIMITED PARTNERS ANTICIPATING TAX REFUNDS IN RESPECT OF SUCH YEAR WILL
NOT BE ABLE TO FILE THEIR TAX RETURN REQUESTING SUCH REFUND UNTIL RECEIPT OF
THE ANNUAL TAX INFORMATION FROM THE PARTNERSHIP. TO THE EXTENT PRACTICABLE,
THE PARTNERSHIP ANTICIPATES THAT IT WILL PROVIDE ESTIMATED ANNUAL TAX
INFORMATION IN A TIMELY MANNER IN ORDER TO ASSIST LIMITED PARTNERS IN
ESTIMATING THEIR TAX LIABILITIES. THE PARTNERSHIP'S ABILITY TO MAKE SUCH
ESTIMATES WILL BE DEPENDENT UPON ITS ABILITY TO OBTAIN ESTIMATED ANNUAL TAX
INFORMATION FROM THE INVESTMENT FUNDS.
The Code provides for a single unified audit of partnerships at the
partnership level rather than separate audits of individual partners. Under
this procedure, a "Tax Matters Partner" must be appointed to represent the
partnership in connection with IRS audits and other administrative and
judicial proceedings. (The General Partner will act as Tax Matters Partner
of the Partnership.) The IRS must send notice of a commencement of a
partnership level audit to each partner with a 1% or more interest in the
partnership and to the Tax Matters Partner. All partners may participate in
administrative proceedings relating to the determination of partnership
items; however, the Tax Matters Partner has the primary responsibility for
representing the partnership in an audit and for contesting any adverse
determinations. A settlement agreement between the IRS and one or more
partners binds all parties to the agreement, and all other partners have the
right to enter into consistent agreements. The final result of the
partnership proceeding will be binding on all partners (other than partners
agreeing to or being bound by a settlement with the IRS), and any resulting
deficiency may be assessed and collected by notice and demand at any time
after the determination becomes final.
The Code also provides that (i) a partner must report a partnership item
consistent with its treatment on the partnership return, unless the partner
files a statement which identifies the inconsistency, and (ii) the statute of
limitations for assessment of tax with respect to partnership items (or
affected items) under the partnership level proceedings will generally be
three years from the date of filing of the partnership return or the last
date without extension for filing such return, whichever date is later.
Notwithstanding the partnership level audit procedures, the IRS may assess a
deficiency against any partner where treatment of an item in his or her
individual return is inconsistent with the treatment on the partnership
return.
Any costs which the Partnership or the General Partner may incur with
respect to a "unified" partnership audit and related administrative or
judicial proceedings would reduce the cash otherwise available for
distribution to the Partners or otherwise be borne by the Partners.
The "unified" partnership audit procedures may increase the likelihood
of IRS audits for organizations such as the Partnership.
OTHER TAX CONSIDERATIONS
FOREIGN SOURCE INCOME, FOREIGN TAX CREDITS AND INVESTMENTS IN PASSIVE FOREIGN
INVESTMENT COMPANIES
Dividends and interest received by the Partnership from foreign
investments generally will be considered foreign source income and may be
subject to foreign withholding taxes. Each Limited Partner may be entitled
to credit his or her respective portion of any such taxes against his or her
U.S. federal income taxes or to deduct such taxes from his or her U.S.
taxable income. The amount of foreign withholding taxes that may be
credited against a Limited Partner's U.S. federal income tax liability in
any particular year will be limited, as a general rule, to an amount equal
to the Limited Partner's U.S. federal income tax rate multiplied by
such Limited Partner's foreign source taxable income. This limitation
must be applied separately to certain categories of foreign source
income, one category of which is foreign source "passive income". For
this purpose, foreign source "passive income" includes dividends and
interest. As a consequence, although certain Limited Partners may be
able to carry back or carry forward their unused foreign tax credits,
certain Limited Partners may not be able to claim a foreign tax credit
for the full amount of their proportionate share of foreign taxes paid by
the Partnership. Any gain or loss recognized on the sale or exchange of
a foreign investment generally will be considered United States source
income. Accordingly, if a foreign jurisdiction were to impose a tax on
such gain, Limited Partners may not be able to derive effective U.S.
foreign tax benefits in respect of such tax.
The Partnership may invest directly or indirectly in equity interests of
an investment company organized under foreign law that is treated as a
passive foreign investment company ("PFIC"). Generally, income from a PFIC
in excess of a certain average amount and any gain on sale or exchange of an
interest in a PFIC is subject to an additional level of tax calculated in a
manner that could substantially reduce, eliminate, or even exceed such income
or gain. Such income or gain earned by the Partnership is treated as earned
by the Limited Partners and a Limited Partner that sells or exchanges an
interest in the Partnership is deemed to have sold or exchanged his or her
pro rata share of any PFIC stock held directly or indirectly by the
Partnership. An election (the "QEF Election") can be made by a U.S.
shareholder of a PFIC that would eliminate such additional tax but would
require a current inclusion by such shareholder of its share of the earnings
of the PFIC, whether or not such earnings are distributed by the PFIC. The
QEF Election is permitted only if the PFIC makes certain information
available to shareholders. It is uncertain whether any PFIC in which the
Partnership acquires an interest will provide such information. It should be
noted, however, that only the first U.S. person that owns stock in a PFIC may
make the QEF election. Accordingly, Limited Partners cannot make such
election individually with respect to shares owned by the Partnership, and if
the Partnership owns its interest in a PFIC through another U.S. partnership,
the election can only be made by that other partnership. Any such election
by the first U.S. shareholder would bind all direct and indirect partners of
such partnership. To the extent that the Partnership is eligible to make a
QEF Election with respect to a particular PFIC, the Partnership intends to
make such an election.
LIMITATIONS ON THE DEDUCTIBILITY OF INTEREST
Section 163(d) of the Code substantially limits the deductibility of
interest on funds borrowed to purchase or hold property held for investment.
"Investment interest" generally is deductible by a noncorporate taxpayer only
to the extent of "net investment income". With certain limitations, excess
investment interest not allowed as a deduction in one taxable year may be
carried forward and deducted in subsequent taxable years to the extent that
there is sufficient net investment income in such subsequent taxable years.
The deductibility of interest also affects an investor's potential minimum
tax liability. See "Alternative Minimum Tax".
Investment interest is broadly defined as interest which is paid or
accrued on indebtedness incurred or continued to purchase or carry property
held for investment including generally the purchase of Units. Interest
taken into account in determining a taxpayers passive losses, including
generally any interest incurred or continued by a taxpayer to purchase or
carry an interest in a partnership to which the passive loss rules apply, is
not considered investment interest for purposes of the investment interest
limitations. See "General Principles of Partnership Taxation--Basis of
Partnership Interest; Passive Activity Loss Limitation".
In addition to the "investment interest" limitation described above,
Section 265 (a) (2) of the Code disallows certain deductions for interest
paid by a taxpayer or a related person on indebtedness incurred or continued
to purchase or carry tax-exempt obligations. A Limited Partner for whom
tax-exempt obligations constitute a significant portion of such Limited
Partners net worth should consider the impact of Section 265 (a) (2) of the
Code on his ability to deduct his allocable share of the Partnership's
interest expense.
ALTERNATIVE MINIMUM TAX
The alternative minimum tax, which applies to individuals, is determined
by: (i) adding "tax preference" items to the individual's adjusted gross
income (as reduced by certain itemized deductions and as otherwise adjusted
pursuant to Sections 56 and 58 of the Code), (ii) subtracting therefrom the
statutory exemption ($33,750 for single taxpayers, $45,000 for married
taxpayers filing joint returns; but such exemptions are phased out for
alternative minimum taxable incomes above $112,500 for single taxpayers and
$150,000 for joint returns), and (iii) computing a tax at the rate of 26%
on the first $175,000 of alternative minimum taxable income in excess of
the exemption amount, and 28% on alternative minimum taxable income that
is more than $175,000 above the exemption amount. For married individuals
filing separate returns, the 28% rate applies to alternative minimum taxable
income that is more than $87,500 above the applicable exemption amount. If
the alternative tax so computed exceeds the individual's regular tax, then he
or she must pay an additional tax equal to the excess.
Each Limited Partner must include his or her allocable share of the
Partnership's tax preference items in the computation of the applicable
minimum tax. It is anticipated that the Partnership will not generate any
significant items of tax preference for Limited Partners. However, for
investors with substantial tax preference items from sources other than the
Partnership, the imposition of the alternative minimum tax could reduce the
after-tax economic benefits of investment in the Partnership. Prospective
investors are urged to consult their tax advisors with regard to the specific
effect of the new alternative minimum tax on an investment in the
Partnership.
FRINGE BENEFITS
Unless excluded under Section 132 of the Code or some other statutory
provision, employee "fringe benefits" are includable in gross income. Under
the Partnership Agreement, the General Partner will bear various expenses in
connection with the organization of the Partnership (to the extent such
expenses exceed 1%) and operation of the Partnership (to the extent such
expenses exceed 0.5% of the proceeds of this offering, or 1% if such proceeds
are less than $60 million) and will bear any sales or brokerage commissions
charged in connection with the Partnerships investments. Payment by the
General Partner of such expenses in excess of such amounts of the Limited
Partners' capital contributions will be treated as an additional capital
contribution of the General Partner under the Partnership Agreement and the
General Partner's capital account will be credited to reflect such additional
contribution.
Since Units are being solely offered to ML & Co. and its employees and
non-employee directors, it is possible that the IRS would view the General
Partner's payment of such expenses as an indirect method of compensating the
employee-Limited Partner (i.e., a fringe benefit). If the IRS were
successful in such characterization, a Limited Partner's pro rata share of
such expenses (equal to the fair market value of the underlying goods and
services rendered the Limited Partner) might be includable in the Limited
Partner's gross income as additional compensation. The Limited Partner may
not, however, be allocated a Partnership deduction for such fees and expenses
in an amount corresponding to such income inclusion because some of such fees
and expenses would be attributable to non-deductible syndication expenses, or
investment expenses subject to the new limitation imposed on the
deductibility of itemized miscellaneous expenses, or treated as part of the
capitalized cost of the Partnerships portfolio assets. See "General
Principles of Partnership Taxation--Deductibility of Operating Expenses;
Organization and Syndication Expenses" above.
STATE AND LOCAL TAXES
In addition to the Federal income tax consequences described above,
prospective Limited Partners should consider potential state and local tax
consequences of an investment in the Partnership. State and local laws often
differ from Federal income tax law with respect to the treatment of specific
items of income, gain, loss, deductions and credit. A Limited Partner's
distributive share of the taxable income or loss of the Partnership generally
will be required to be included in determining his or her reportable income
for state and local tax purposes in the jurisdiction in which he or she is a
resident. In addition, a number of other states in which the Partnership may
do business or own properties may impose a tax on non-resident Limited
Partners determined with reference to their allocable shares of Partnership
income derived by the Partnership from such state. Partners may be subject to
tax return filing obligations and income, franchise, estate, inheritance or
other taxes in other jurisdictions in which the Partnership does business, as
well as in their own states or localities of residence or domicile. Also,
any tax losses derived through the Partnership from operations in such states
may be available to offset only income from other sources within the same
state. To the extent that a non-resident Limited Partner pays tax to a state
by virtue of Partnership operations within that state, he or she may be
entitled to a deduction or credit against tax owed to his or her state of
residence with respect to the same income. In addition, estate or
inheritance taxes might be payable in a jurisdiction in which the Partnership
owns property upon the death of a Limited Partner. Prospective Limited
Partners are urged to consult their tax advisors with respect to possible
state and local income and death tax consequences of an investment in the
Partnership.
TAX CONSIDERATIONS FOR FOREIGN INVESTORS
The tax treatment applicable to a non-resident alien who invests in the
Partnership is complex and will vary depending upon the particular
circumstances of each Limited Partner. Each foreign investor is urged to
consult with his or her tax counsel concerning the U.S. Federal, state and
local and foreign tax treatment of his or her investment in the Partnership.
In general, the U.S. tax treatment will vary depending upon whether the
Partnership is deemed to be engaged in a U.S. trade or business. At present,
it is uncertain whether, or at which point in time, the Partnership will be
so engaged.
If the Partnership is not engaged in a U.S. trade or business in the tax
year, the foreign Limited Partner would, in general, be subject to a 30% (or
lower treaty rate) withholding tax with respect to his or her share of the
Partnership's U.S. source interest, dividends and most other portfolio or
investment income for such year, but would be exempt from U.S. taxation on
his or her share of capital gains realized by the Partnership if he or she is
not present in the United States for 183 days or more in the calendar year in
which the Partnership's year ends.
If the Partnership is engaged in a U.S. trade or business in the tax
year, the foreign Limited Partner would be required to file a U.S. Federal
income tax return and would be taxed in the United States at graduated
Federal income rates upon that portion of his or her net income from the
Partnership for such year which is "effectively connected" with such
business. Moreover, under the Code, the Partnership would be required to
withhold an amount equal to the U.S. tax on the foreign partners distributive
share (whether or not actually distributed) of income which is attributable
to "effectively connected income" with the Partnerships conduct of a trade or
business in the United States. Such withholding tax would be required to be
made by the Partnership on a quarterly basis. For tax treaty purposes, the
foreign Limited Partner would generally be deemed to have a "permanent
establishment" in the United States in any year in which the Partnership is
engaged in a U.S. trade or business.
A non-resident alien's interest in the Partnership would be subject to
U.S. Federal estate taxation if the investor dies while owning such interest.
The above general guidelines are subject to modification by a tax
treaty. Moreover, the internal tax rules of the foreign investor's home
country must also be considered in determining the advisability of an
investment in the Partnership.
BACKUP WITHHOLDING
When a Unit is sold through a broker, the proceeds of the sale may
constitute a "reportable payment" under the Federal income tax rules
regarding backup withholding. Backup withholding, however, would apply only
if the Limited Partner (i) failed to furnish and certify his or her Social
Security number or other taxpayer identification number to the person subject
to the backup withholding requirement (e.g., the broker) or (ii) furnished an
incorrect Social Security number or taxpayer identification number. If
backup withholding were applicable to a Limited Partner, the person subject
to the backup withholding requirement would be required to withhold 31% of
each distribution to such Partner and to pay such amount to the IRS on behalf
of such Partner.
POSSIBLE CHANGES IN LAW
The rules dealing with Federal income taxation are under continual
review by Congress and the IRS, resulting in frequent revisions of the
Federal tax laws and regulations promulgated thereunder and revised
interpretations of established concepts. No assurance can be given that,
during the term of the Partnership, applicable Federal income tax laws or the
interpretations thereof will not be changed in a manner that would have a
material adverse effect on an investment in the Partnership.
IMPORTANCE OF OBTAINING PROFESSIONAL ADVICE
The foregoing analysis is not intended as a substitute for careful tax
planning. The tax matters relating to the Partnership and the transactions
described herein are complex and are subject to varying interpretations.
Moreover, the effect of existing income tax laws and possible changes in such
laws will vary with the particular circumstances of each investor. In
addition, with the exception of those issues specifically referred to as the
subject of the opinion of Tax Counsel to the Partnership, no opinion as to
the tax consequences of an investment in the Partnership has been obtained by
the Partnership. Accordingly, as previously stated, each prospective Limited
Partner should consult with and rely on his or her own advisors with respect
to the possible tax consequences of an investment in the Partnership.
SUMMARY OF THE PARTNERSHIP AGREEMENT
The form of the Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement") is included as Exhibit A to this Prospectus.
It is recommended that each prospective purchaser read it in its entirety.
Certain provisions of the Partnership Agreement have been described
elsewhere in this Prospectus. With regard to various transactions and
relationships of the Partnership with the General Partner and its affiliates,
see "Conflicts of Interest", with regard to the management of the
Partnership, see "The Partnership" and "The General Partner and Its
Affiliates", with regard to the transfer of Limited Partners' Units, see
"Transferability of Units", and with regard to reports to be made to the
Limited Partners, see "Reports".
The following briefly summarizes certain provisions of the Partnership
Agreement which are not described elsewhere in this Prospectus. All
statements made below and elsewhere in this Prospectus relating to the
Partnership Agreement are hereby qualified in their entirety by reference to
the Partnership Agreement. Capitalized terms used in this summary have the
meanings ascribed to them in the Partnership Agreement.
TERM
The Partnership shall continue in full force and effect until December
31, 2037, or until dissolution prior thereto.
PARTNERSHIP CAPITAL
No Partner shall be entitled to interest on any Capital Contribution to
the Partnership or on such Partner's Capital Account. No Partner, other than
the Initial Limited Partner, has the right to withdraw, or to receive any
return of, his or her Capital Contribution. However, upon the death of a
Limited Partner, the legal representative of such Partner may cause the
interest of such Partner to be purchased as described under "Transferability
of Units". No Partner has the right to receive property other than cash in
return for his or her Capital Contribution.
ANNUAL APPRAISAL
The Partnership Agreement provides that, beginning December 31, 1997 and
each succeeding December 31 (the "Valuation Date"), the General Partner will
make an Appraisal or have an Appraisal made of all of the assets of the
Partnership as of such date. The Appraisal, which may be made by independent
third parties appointed by the General Partner, is to be based on such
methods relating to the valuation of the Partnership's assets and liabilities
as are deemed appropriate by the General Partner or an independent third
party. A copy of the Appraisal will be sent to the Limited Partners within
120 days, or as soon as practicable, after the end of the Partnership's
fiscal year, which ends December 31. See "Reports" for information as to the
valuation procedures expected to be utilized with respect to private equity
investments.
VOTING RIGHTS
Under the Partnership Agreement, either the General Partner or 10% or
more in Interest of the Limited Partners may propose any act or other matter
to which the Consent of any Partner is required. Within 20 days of the
making of any such proposal, the General Partner must give all Partners
Notification of such proposal (including the text of any amendment or
document, a statement of its purposes and a favorable opinion of counsel,
pursuant to Section 10.1A of the Partnership Agreement). Any matter
requiring the Consent of any or all of the Limited Partners may be considered
at a meeting of the Partners held not less than 15 nor more than 30 days
after Notification to the Limited Partners of any proposal. Any Consent
required by the Partnership Agreement shall be deemed to have been given only
when the General Partner has actually received the written Consents of the
Partners to the doing of the act or to such matter for which the Consent was
solicited, or after the affirmative vote of the Partners to the doing of such
act or to such matter at a meeting called to consider the same. Any Consent
so given will be nullified if a written nullification by a Limited Partner of
his Consent is actually received by the General Partner prior to the time
such proposed act or such matter is actually voted upon.
Among other matters subject to approval by the Limited Partners are
admission of a successor General Partner, Removal of the General Partner,
Sale of all or substantially all of the assets of the Partnership, certain
amendments to the Partnership Agreement, and dissolution of the Partnership
prior to January 1, 2003. However, as provided in detail in Section 11.3 of
the Partnership Agreement, unless, at the time of the giving or withholding
of Consent for certain actions by the Limited Partners, counsel retained by
the Partnership at such time is of the opinion that the giving or withholding
of Consent for such action is permitted by the Delaware Revised Uniform
Limited Partnership Act, does not impair the liability of the Limited
Partners and does not adversely affect the tax status of the Partnership,
certain voting rights of the Limited Partners may be restricted.
In light of its anticipated significant holdings in the Partnership, ML
& Co. will agree to vote its Units in the same proportion as other Limited
Partners in respect of any matter submitted to the vote of Limited Partners.
LIABILITY OF PARTNERS TO THIRD PARTIES
The General Partner will be generally liable for all obligations of the
Partnership.
The Partnership Agreement provides that no Limited Partner shall be
personally liable for the debts of the Partnership beyond the amount
committed by such Limited Partner to the capital of the Partnership and such
Limited Partner's share of the Partnership's assets and undistributed
profits. See "Risk and Other Important Factors--Possible Loss of Limited
Liability". In the event the Partnership is unable otherwise to meet its
obligations, the Limited Partners might, under applicable law, be obligated
under some circumstances to return distributions previously received by them.
See "Risk and Other Important Factors--Repayment of Certain Distributions".
DISSOLUTION
The Partnership shall be dissolved upon: the expiration of its term; the
Incapacity, Removal or withdrawal of the General Partner and failure to
designate a successor; the Sale or other disposition at one time of all or
substantially all of the assets of the Partnership; an election prior to
January 1, 2003 to dissolve by the General Partner with the Consent of a
Majority-in-Interest of the Limited Partners; the failure of the Limited
Partners to approve, by Consent of a Majority-in-Interest, the admission of a
successor General Partner to the General Partner pursuant to Section 6.1A of
the Partnership Agreement; after January 1, 2003, the General Partner's
election to dissolve the Partnership; or the occurrence of any other event
causing dissolution of the Partnership under the laws of the State of
Delaware.
AMENDMENT
Subject to the provisions of Section 10.1 thereof, the Partnership
Agreement may be amended by action of a Majority-in-Interest of the Limited
Partners. However, without the Consent of all Partners, Section 4.3C of the
Partnership Agreement (relating to certain restrictions on the General
Partner's authority), Article Ten (relating to amendment of the Partnership
Agreement) and Section 11.3 (relating to certain limitations on Limited
Partners' voting rights) may not be amended. Also, without the Consent of
each Partner who may be adversely affected, the Partnership Agreement may not
be amended to (i) enlarge the obligation of any Partner under the Partnership
Agreement or convert a Limited Partner's Interest into a General Partner's
Interest; (ii) modify the limited liability of a Limited Partner; or (iii)
alter the provisions of the Partnership Agreement relating to distributions
of Distributable Cash and allocations of Profits and Losses. In addition,
Sections 6.1 and 6.2 (relating to successors to the General Partner) may not
be amended without the Consent of the General Partner. As a result of the
limitations on Limited Partners' voting rights described above under "Voting
Rights", there may be situations when Limited Partners are not permitted to
vote on amendments of the Partnership Agreement. However, in accordance with
Section 10.1 of the Partnership Agreement, under certain circumstances the
General Partner, without the Consent of a Majority-in-Interest of the Limited
Partners, may amend the Partnership Agreement if, in its opinion, such
amendment does not have a material adverse effect on the Limited Partners or
the Partnership.
ELECTIONS
All elections required or permitted to be made by the Partnership under
the Code may be made by the General Partner in such manner as it deems most
advantageous to individual taxpayers who are (i) married and filing joint
returns, (ii) not "dealers" for Federal income tax purposes, and (iii) in the
highest marginal Federal income tax bracket.
APPOINTMENT OF GENERAL PARTNER AS ATTORNEY-IN-FACT
Each Limited Partner irrevocably constitutes and appoints the General
Partner such Limited Partner's true and lawful attorney-in-fact, with full
power and authority in such Limited Partner's name, place and stead to make,
execute, acknowledge and file such documents, instruments and conveyances as
may be necessary or appropriate to carry out the provisions of the
Partnership Agreement.
PRINCIPAL OFFICE OF THE PARTNERSHIP
The principal business office of the Partnership shall be at South
Tower, World Financial Center, 225 Liberty Street, New York, New York
10080-6123, unless changed by the General Partner. The business of the
Partnership may also be conducted at such additional places as the General
Partner may determine.
APPLICABLE LAW
The Partnership Agreement will be construed and enforced in accordance
with the laws of the State of Delaware.
OFFERING AND SALE OF UNITS
OFFERING OF UNITS
MLPF&S has entered into an Agency Agreement with the Partnership and the
General Partner pursuant to which MLPF&S has agreed to act as selling agent
for the Partnership and the General Partner to assist in the sale of the
Units to Qualified Investors on a "best efforts" basis. MLPF&S and its
affiliates will not receive, directly or indirectly, any payments or
compensation in connection with the offering and sale of Units.
The Agency Agreement contains cross-indemnification clauses with respect
to certain liabilities under the Securities Act of 1933.
Eligible Investors must submit completed subscription documents not
later than July , 1997, or such subsequent date, not later than August ,
1997, as the General Partner and MLPF&S may determine. Subsequent to such
date, the General Partner will advise such investors as to whether their
subscriptions have been accepted and thereupon such investors shall transfer
funds for payment into the Partnership's escrow account. The General Partner
will also advise such investors of the Offering Termination Date. If
subscriptions (including subscriptions of ML & Co.) for 40,000 Units are not
received by the Offering Termination Date, the offering will be terminated,
and all funds received will be refunded with interest, if any, actually
earned thereon.
If subscriptions for more than 250,000 Units are received, the General
Partner may, in its sole discretion, reject, in whole or in part, any
Limited Partner's subscription.
INVESTOR SUITABILITY STANDARDS
Only Qualified Investors will be eligible to purchase Units. See
"Investor Suitability Standards" on page 2.
MAXIMUM PURCHASE BY QUALIFIED INVESTORS
The Partnership has imposed restrictions on the maximum amount of Units
which may be purchased by any Qualified Investor. An employee of ML & Co. or
its subsidiaries may only purchase Units in an amount which does not exceed
15% of such employee's cash compensation from ML & Co. or its subsidiaries
received with respect to 1996 on an annualized basis unless the employee
either (x) has a net worth, individually or jointly with the employee's
spouse, in excess of $1,000,000 at the time of purchase of the Units, or (y)
had an individual income in excess of $200,000 in each of 1995 and 1996 or
joint income with the employee's spouse in excess of $300,000 in each of
those years and reached or has a reasonable expectation of reaching the same
level in 1997. An employee of ML & Co. who meets the requirements of
clause (x) or (y) above may purchase Units in an amount which does not
exceed 75% of the employee's compensation in respect of 1996 on an
annualized basis. A non-employee director of ML & Co. may only purchase
Units in an amount which does not exceed two times the director's fees
(including committee fees, but not including reimbursement of expenses)
received from ML & Co. during 1996. Notwithstanding the foregoing, a
Qualified Investor (other than ML & Co.) will only be permitted to purchase
Units in the Partnership in an aggregate amount in excess of $250,000 if the
offering is not fully subscribed. In the event that the offering is not fully
subscribed, Qualified Investors will be permitted to invest up to the
specified percentage of his or her 1996 compensation (or directors fees,
as applicable), provided that such amount is equal to less than 10% of the
outstanding limited partnership interests of the Partnership.
PURCHASE OF UNITS BY ML & CO.
The Partnership is also offering Units to ML & Co. ML & Co. has advised
the Partnership that it intends to offer a deferred compensation plan to
certain key employees of ML & Co. and its subsidiaries pursuant to which such
employees will be permitted to defer compensation earned during 1996 and to
elect to receive a return from ML & Co. determined by reference to the
performance of the Partnership. ML & Co. intends to acquire Units having a
purchase price approximately equivalent to the aggregate amount of
compensation deferred under its plan. ML & Co. will acquire such Units at
the Closing for a purchase price of $1,000 per Unit. Participants in the
plan will not acquire any ownership interest in the Units purchased by ML &
Co. The ability of ML & Co. to purchase Units is subject to receipt by the
Partnership of an amendment to an order it previously obtained from the
Commission under the Investment Company Act concerning eligible purchasers of
interests in the KECALP Partnerships.
SUBSCRIPTION TO PURCHASE UNITS
Each Qualified Investor who desires to purchase any Units must:
(a) subscribe to purchase five or more Units;
(b) complete, date, execute and deliver to KECALP Inc., South Tower,
World Financial Center, 225 Liberty Street, New York, NY 10080-6123, one copy
of the Signature Page and Power of Attorney, a form of which is attached as
part of the Subscription Agreement attached to this Prospectus as Exhibit B;
and
(c) authorize an amount equal to $1,000 for each Unit that the
prospective purchaser desires to purchase to be debited from his MLPF&S
securities account.
The General Partner will not, under any circumstances, accept
subscriptions for a fractional interest in a Unit.
PAYMENT FOR UNITS
Each Qualified Investor who subscribes to purchase Units will, by
execution of the Subscription Agreement, agree to make a capital contribution
of $1,000 for each Unit subscribed for and authorize that amount to be
debited from his MLPF&S securities account specified on his Signature Page
and Power of Attorney. If sufficient funds are not already available in the
Qualified Investor's MLPF&S securities account, the Qualified Investor must
deposit additional funds so that the full amount of the capital contribution
for the Units for which the investor has subscribed will be available in such
account.
Not more than 30 days after any Qualified Investor enters into a
Subscription Agreement, the General Partner will notify such investor whether
such investor's subscription will be rejected (and any subscription not so
rejected will be accepted, subject to the satisfaction of the conditions
referred to below). Amounts paid by an investor whose subscription is
rejected will be promptly returned with interest, if any, actually earned and
received thereon, as provided below.
MLPF&S will promptly debit subscription amounts upon subscription from
subscribers' MLPF&S securities accounts and deposit such funds in an escrow
account with The Bank of New York, for the benefit of investors. The bank
escrow agent for such account may, at the direction of MLPF&S, invest such
payment in U.S. government securities, bank time deposits, certificates of
deposit of a domestic bank which mature prior to the Closing of the purchase
of Units or bank money market accounts. The Qualified Investors' funds
in such account, but not the interest earned thereon, will be released to
the Partnership only if each of the following conditions has been
satisfied:
(a) on the date of Closing, the Partnership has received subscriptions
for at least 40,000 Units;
(b) on the date of Closing, the escrow agent has received the full
payment of the capital contributions for the Units which the Partnership will
issue and sell at such Closing; and
(c) on the date of Closing, Brown & Wood LLP has delivered its opinion
that the Partnership will be treated as a partnership for Federal income tax
purposes and will not be treated as a publicly traded partnership within the
meaning of Section 7704(b) of the Internal Revenue Code of 1986, as amended.
If such conditions are not timely satisfied, all the investors' funds so
held in such account will be returned to the investors. If all of such
conditions are timely satisfied, each investor who has subscribed to purchase
Units to be issued and sold at such Closing will become a Limited Partner and
thereafter (but only thereafter) such investor's capital contributions will
be paid to the Partnership, to be applied by it as described in this
Prospectus. Any interest earned on funds held in escrow will be paid to
subscribers in proportion to their respective subscription amounts and the
length of time their subscription amounts were on deposit.
Each Limited Partner will be entitled to the distributive share of items
of income, gain, deduction, loss or credit and cash distributions allocable
to such Limited Partners interest in the Partnership, as provided in the
Partnership Agreement, without regard to the dates on which any Limited
Partners may have subscribed to purchase Units.
TRANSFERABILITY OF UNITS
RESTRICTIONS
The Partnership is designed as an investment vehicle for Qualified
Investors only. The Partnership has obtained exemptions from certain
provisions of the Investment Company Act on the basis that, with certain
exceptions, only Qualified Investors will become Limited Partners.
PURCHASERS OF UNITS SHOULD VIEW THEIR INTEREST IN THE PARTNERSHIP AS A
LONG-TERM, ILLIQUID INVESTMENT.
No transfer or assignment by a Limited Partner of his or her interest in
the Partnership shall be effective unless made in accordance with the
provisions of the Partnership Agreement. The Partnership Agreement prohibits
transfer or assignment by a Limited Partner of his or her interest in the
Partnership to any person who is not a Qualified Investor, except transfers
to a member of his or her immediate family or transfers resulting by
operation of law. (For this purpose, the members of a Limited Partner's
immediate family consist of the partner's spouse and children.) No transfer
of a Limited Partner's interest may be made without the consent of the
General Partner, which consent may be withheld in the sole discretion of the
General Partner. No sale, assignment or transfer of, or after which the
transferor and transferee would each hold, an interest representing a capital
contribution of less than $1,000, will be permitted or recognized for any
purpose without the consent of the General Partner, which consent will be
granted only for good cause shown.
The sale or transfer of a Partnership interest may result in adverse
income tax consequences to the transferor. Limited Partners are advised to
consult their tax advisors prior to any such transfer. See "Tax Aspects of
Investment in the Partnership--Transfer of a Partnership Interest".
No transfer, assignment or negotiation of an interest in the Partnership
will be recognized or effective if such transfer or assignment, together with
all other such transfers on the books of the Partnership during the
immediately preceding 12 months, would result in the transfer of 50% or more
of the Units. See "Tax Aspects of Investment in the Partnership--General
Principles of Partnership Taxation--Termination of the Partnership for Tax
Purposes". In addition, pursuant to the Partnership Agreement, the
Partnership will satisfy one or more safe harbor limitations from
classification as a publicly traded partnership which would impose more
restrictive numerical limitations on the number of Units transferred. One
safe harbor under current law would restrict transfers (except for certain
exempt transfers) of 2% or more Units during the same taxable year.
Transfers, assignments or negotiations, the recognition and effectiveness of
which are so suspended and deferred, will be recognized (in chronological
order to the extent practicable) when, and to the extent that, such
recognition will not result in there having been transfers of Units
in excess of the limitations referred to above.
The General Partner has the authority to amend the transferability
provisions of the Partnership Agreement in such manner as may be necessary or
desirable to preserve the tax status of the Partnership.
Further, no sale, exchange, transfer or assignment of a Limited
Partner's interest may be made if the sale of such interest would, in the
opinion of counsel for the Partnership, result in a termination of the
Partnership for purposes of Section 708 of the Code, violate any applicable
Federal or state securities laws, cause the Partnership to be treated as an
association taxable as a corporation for Federal income tax purposes, cause
the Partnership to be classified as a publicly traded partnership and taxable
as a corporation for Federal income tax purposes, or cause all or a portion
of the Partnerships assets to be treated as "tax-exempt use property" under
Section 168(j) of the Code.
ACQUISITION OF CERTAIN LIMITED PARTNERS' INTERESTS
BY THE GENERAL PARTNER OR THE PARTNERSHIP
Upon the death of a Limited Partner, the legal representative(s) of such
Limited Partner may tender, and the General Partner shall purchase the
interest in the Partnership held by such Limited Partner at a purchase price
equal to the value of the interest determined at the next annual Valuation
Date. To have Units repurchased, the estate of a Limited Partner must notify
the General Partner of its election to have the Units repurchased within 30
days after the date the appraisal is sent to the Limited Partners. The
Partnership, rather than the General Partner, may purchase such interest if
it is determined the purchase is in the best interests of the Partnership.
If the General Partner purchases any such interest for its own account
pursuant to this provision, it shall be entitled to the rights of an assignee
of such interest, including the right to vote as if it were a Substituted
Limited Partner, and it may become a Substituted Limited Partner. The General
Partner may sell any interest acquired pursuant to this provision and the
purchaser will be entitled to be admitted as a Substituted Limited Partner
effective as of the date of payment to the General Partner for such interest.
ASSIGNEES
An assignee of a Limited Partner does not automatically become a
Substituted Limited Partner, but has the right to receive the same share of
profits, losses and distributable cash of the Partnership to which the
assignor Limited Partner would have been entitled. A Limited Partner who
assigns all of his Partnership interest ceases to be a Limited Partner, and
shall not retain any statutory rights as a Limited Partner. The assignee of
a Partnership interest who does not become a Substituted Limited Partner and
desires to make further assignment of such interest is subject to all of the
restrictions on transferability of Partnership interests described in this
Prospectus and the Partnership Agreement.
In the event of the death, incapacity or bankruptcy of a Limited
Partner, his or her legal representatives will have all the rights of a
Limited Partner for the purpose of settling or managing his or her estate and
such power as the decedent, incompetent or bankrupt Limited Partner possessed
to assign all or any part of his interest in the Partnership, and to join
with such assignee in satisfying conditions precedent to such assignees
becoming a Substituted Limited Partner. In the event of the death of a
Limited Partner, but not in the event of adjudication of incompetence or
bankruptcy, the deceased Limited Partner's interest may be distributed as
part of the estate, transferred by operation of law, tendered to the General
Partner as described above, or assigned to another Qualified Investor.
A purported sale, assignment or transfer of a Limited Partner's interest
will be recognized by the Partnership on the first day of the fiscal quarter
following the quarter in which the Partnership has received written notice of
such sale, assignment or transfer in form satisfactory to the General
Partner, signed by both parties, containing the purchaser's, assignee's or
transferee's acceptance of the terms of the Partnership Agreement and a
representation by the parties that the sale or assignment was made in
accordance with all applicable laws and regulations.
SUBSTITUTED LIMITED PARTNERS
No Limited Partner has the right to substitute an assignee as a Limited
Partner in his or her place. The General Partner, however, has the right in
its sole and absolute discretion, to permit such assignee to become a
Substituted Limited Partner and any such permission by the General Partner is
binding and conclusive without the consent or approval of any Limited
Partner. Any Substituted Limited Partner must, as a condition to receiving
any interest in the Partnership, sign a Signature Page and Power of Attorney,
pay the reasonable legal fees and filing and publication costs of the
Partnership and the General Partner in connection with his or her
substitution as a Limited Partner and satisfy the other conditions specified
in Section 10.2 of the Partnership Agreement. Notwithstanding the actual time
of the admission of a Substituted Limited Partner, for purposes of allocating
profits, losses and distributable cash (as those terms are defined in the
Partnership Agreement), a person will be treated as having become a Limited
Partner as of the date on which the sale, assignment or transfer of such
persons interest was recognized by the Partnership, as described above, even
if that person does not in fact become a Substituted Limited Partner.
REPORTS
Financial information contained in all reports to the Limited Partners
will be prepared on an accrual basis of accounting in accordance with
generally accepted accounting principles and will include, where applicable,
a reconciliation to information furnished to the Limited Partners for income
tax purposes. Federal and state tax information will be provided to the
Limited Partners within 75 days following the close of each calendar year or
as soon as practicable thereafter. (As described under "Risk and Other
Important Factors", to the extent the Partnership invests in other investment
funds, it may experience delays in obtaining annual tax information, which
may require Limited Partners to obtain extensions for filing income tax
returns.) Financial statements, which will be prepared annually, will be
certified by independent auditors and will be furnished within 120 days (or
as soon as practicable thereafter) following the close of the calendar year.
A statement of appraisal of the value of Partnership assets will be provided
with the financial statements. Limited Partners also have the right under
applicable law to obtain other information about the Partnership and may, at
their expense, obtain a list of the names and addresses of all of the Limited
Partners for any proper purpose.
In connection with the appraisal of the value of the Partnership's
investments in portfolio companies that are not publicly traded, there is a
range of values which is reasonable for such investments at any particular
time. The General Partner presently expects that the following procedures
will be utilized with respect to these investments. In the early stages of
development, these investments will typically be valued based on their
original cost to the Partnership (the "cost method"). The cost method will
be utilized until significant developments affecting the portfolio company
provide a basis for use of an appraisal valuation (the "appraisal method").
The appraisal method will be based on such factors affecting the portfolio
company as earnings and net worth, the market prices for similar securities
of comparable companies and an assessment of the company's future prospects.
In the case of unsuccessful operations, the appraisal may be based on
liquidation value. Valuations based on the appraisal method are necessarily
subjective. The General Partner will also use third party transactions
(actual or proposed) in the portfolio company's securities as the basis of
valuation (the "private market method"). The private market method will be
used only with respect to actual transactions or actual firm offers by
sophisticated, independent investors. The valuation of debt securities that
are not publicly traded will be determined by or under the direction of the
General Partner. The General Partner expects that the private market method
of valuation will be the primary method utilized with respect to these
securities. Securities with legal, contractual or practical restrictions on
transfer may be valued at a discount from their value determined by the
foregoing methods to reflect the effect of such restrictions.
EXPERTS
The financial statements included in this Prospectus have been examined
by Deloitte & Touche LLP, independent auditors, as indicated in their
opinions with respect thereto, and are included herein in reliance upon the
authority of that firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon by
Brown & Wood LLP, One World Trade Center, New York, New York 10048, as
counsel to the Partnership and the General Partner, who may rely as to
matters of Delaware law upon the opinion of Richards, Layton & Finger, One
Rodney Square, Wilmington, Delaware 19801.
The statements under the heading "Tax Aspects of Investment in the
Partnership" have been reviewed by Brown & Wood LLP.
EXEMPTIONS FROM THE INVESTMENT COMPANY ACT OF 1940
The Partnership will operate as a non-diversified, closed-end,
management investment company registered with the Securities and Exchange
Commission (the "Commission") under the Investment Company Act. However, an
exemptive order was obtained from the Commission in 1982 pursuant to Section
6(b) of the Act that exempts the Partnership, as an "employees securities
company" within the meaning of the Investment Company Act, from certain
provisions of such Act. The exemptive order relates to the following
provisions of the Investment Company Act and the rules and regulations
promulgated thereunder:
Section 8(b) to exempt the Partnership from filing annual amendments to
its Registration Statement under the Investment Company Act;
Section 10(a) to permit the Partnership to include the General Partner
as the sole general partner and to permit all of the directors and officers
of the General Partner to be persons who are employees of ML & Co. or its
affiliates;
Section 10(b) to permit the Partnership to employ subsidiaries of ML &
Co. to act as broker and principal underwriter for the Partnership;
Section 10(f) to permit the Partnership to purchase securities in
underwritten offerings, a principal underwriter of which may be an affiliate
of the General Partner;
Section 14(a) to permit the Partnership to offer Units to Qualified
Investors prior to the time the Partnership has a net worth of $100,000;
Section 15(a) to permit the General Partner to act from time to time as
investment adviser to the Partnership without a written contract and without
the approval of the Limited Partners;
Section 16(a) to permit ML & Co. to appoint and replace the directors of
the General Partner in accordance with the Partnership Agreement;
Section 17(a) to permit ML & Co. and its subsidiaries to engage in
certain transactions as principal with the Partnership in addition to
transactions as agent, including transactions involving money market
securities and real estate, and, under limited circumstances and subject to
certain conditions, the acquisition of investments from the General Partner
(or an affiliate thereof) that were purchased for the Partnership prior to
the closing of its offering;
Section 17(d) to permit the Partnership to engage in transactions in
which certain affiliated persons of the Partnership may also be participants;
Section 17(f) to permit ML & Co. or one of its subsidiaries to act as
custodian without a written contract;
Section 17(g) to permit the Partnership to comply with requirements
applicable to fidelity bonds without the necessity of having a majority of
the Board of Directors of the General Partner which are not "interested
persons" take such action and make such approvals as are set forth in Rule
17g-1 under the Investment Company Act;
Section 18(a)(1) to exempt the Partnership from certain limitations on
borrowings so that the Partnership may enter into nonrecourse loans relating
to investments other than securities without regard to the restrictions on
"asset coverage" contained in the Investment Company Act;
Section 18(i) to permit the Limited Partners to have only those rights
with respect to the management of the Partnership as are set forth in the
Partnership Agreement;
Section 19(b) to permit the Partnership to distribute long-term capital
gains more frequently than annually;
Section 20(a) to exempt the Partnership from the proxy requirements set
forth in the rules under the Investment Company Act;
Section 23(c) to permit the Partnership to repurchase Partnership
interests pursuant to the terms of the Partnership Agreement;
Section 30(a),(b) and (d) to exempt the Partnership from filing annual
and quarterly reports with the Commission and from sending semi-annual
reports to Limited Partners; and
Section 32(a) to permit the General Partner to select independent
certified public accountants for the Partnership without submitting their
selection to the Limited Partners for ratification or rejection.
In 1991, the Commission issued an order amending the order described
above to expand the categories of investments in which the Partnership and
other partnerships managed by the General Partner may participate with ML &
Co. and its affiliates. The transactions in which such joint investments may
be made relate generally to equity and equity-related investments in buyout
transactions and other transactions structured by ML & Co. or its affiliates
or in which ML & Co. or its affiliates have an equity or equity-related
investment. The order requires, among other things, that the General Partner
make specified findings before the Partnership participates in such
investments and that the General Partner, at least annually, provide to the
Limited Partners a list of such investments in which the Partnership has
invested with ML & Co. or its affiliates.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement that the Partnership has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933 and
the Investment Company Act. For further information pertaining to the
securities offered hereby, reference is made to the Registration Statement
including the exhibits filed as a part thereof.
INDEX TO FINANCIAL STATEMENTS
Page
----
Merrill Lynch KECALP L.P. 1997
Independent Auditors' Report 51
Balance Sheet, May 12, 1997 52
Notes to Balance Sheet 52
KECALP Inc. (Unaudited)
Balance Sheet, December 27, 1996 53
Notes to Balance Sheet 54
INDEPENDENT AUDITORS' REPORT
Merrill Lynch KECALP L.P. 1997:
We have audited the accompanying balance sheet of Merrill Lynch KECALP L.P.
1997 as of May 12, 1997. This financial statement is the responsibility of
the Partnership's management. Our responsibility is to express an opinion on
this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
In our opinion, such balance sheet presents fairly, in all material respects,
the financial position of Merrill Lynch KECALP L.P. 1997 at May 12, 1997, in
conformity with generally accepted accounting principles.
/s/ Deloitte & Touche LLP
New York, New York
May 14, 1997
MERRILL LYNCH KECALP L.P. 1997
BALANCE SHEET
May 12, 1997
Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $100
PARTNERS' CAPITAL ACCOUNT
Capital Contributions:
General Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 99
Initial Limited Partner . . . . . . . . . . . . . . . . . . . . . . . 1
----
$100
NOTES TO BALANCE SHEET
1. Organization and Purpose
Merrill Lynch KECALP L.P. 1997 (the "Partnership") was formed as of
October 28, 1996 and the Certificate of Limited Partnership was filed under
the Delaware Revised Uniform Limited Partnership Act on October 28, 1996.
The only transactions to date have been capital contributions of $99 by
KECALP Inc. ("KECALP" or the "General Partner") and $1 by the Initial Limited
Partner. The Initial Limited Partner purchased an interest in the Partnership
for $1 to permit the formation of the Partnership. KECALP is a Delaware
corporation, formed in June 1981 and an indirect wholly-owned subsidiary of
Merrill Lynch & Co., Inc. The General Partner is authorized to admit
additional limited partners to the Partnership if, after the admission of
such additional limited partners, the capital contributions of all additional
limited partners would not be less than $40,000,000. The Partnership is an
"employees securities company" under the Investment Company Act of 1940.
KECALP will pay the organizational expenses of the Partnership incurred prior
to the commencement of the offering of the Partnership's units. The
Partnership has agreed to reimburse KECALP for such costs. Deferred
organizational expenses of the Partnership will be amortized on a straight
line basis over a period not to exceed five years from the commencement of
the Partnership's operations. In the event that the Partnership liquidates
before the deferred organizational expenses are fully amortized, KECALP shall
bear such unamortized deferred organizational expenses for the Partnership.
2. Business
The Partnership intends to seek long-term capital appreciation. The
Partnership will invest primarily in privately offered investments. The
Partnership shall not engage in any other business or activity. The
Partnership term extends to December 31, 2037. However, pursuant to the
Partnership Agreement, the General Partner may dissolve the Partnership,
without the consent of the Limited Partners, at any time after January 1,
2003.
3. Fiscal Year
The fiscal year of the Partnership will be the year ending December 31
of each year.
INVESTORS WILL NOT ACQUIRE ANY INTEREST IN THIS COMPANY
KECALP INC.
BALANCE SHEET (UNAUDITED)
DECEMBER 27, 1996
ASSETS
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 20,918
Other receivable . . . . . . . . . . . . . . . . . . . . . . . 50,330
Due from Merrill Lynch & Co. Inc. (Note 4) . . . . . . . . . . . 881,438
Investment in limited partnerships (Note 1) . . . . . . . . . . . 736,238
--------
TOTAL $1,688,924
LIABILITIES AND STOCKHOLDER'S EQUITY
Liabilities:
Deferred federal and state income taxes . . . . . . . . . . . . $32,288
Accrued expenses . . . . . . . . . . . . . . . . . . . . . . 61,790
-------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 94,078
-------
STOCKHOLDER'S EQUITY: (Note 1)
Common stock $1 par value; authorized and
outstanding 1,000 shares (Note 3) . . . . . . . . . . . . $ 1,000
Additional paid-in-capital (Note 3) . . . . . . . . . . . . . 12,435,556
Capital contribution receivable (Note 2) . . . . . . . . . . (11,100,000)
Excess . . . . . . . . . . . . . . . . . . . . . . . . . . . 258,290
------------
Total stockholders equity . . . . . . . . . . . . . . . . $ 1,594,846
------------
TOTAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,688,924
See notes to balance sheet.
KECALP INC.
NOTES TO BALANCE SHEET
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
KECALP Inc. ("KECALP"), a Delaware corporation, is a wholly-owned
subsidiary of Merrill Lynch Group Inc. ("ML Group"). ML Group is a wholly-
owned subsidiary of Merrill Lynch & Co., Inc. ("ML & CO."). KECALP is the
General Partner of seven Delaware limited partnerships, Merrill Lynch KECALP
Growth Investments Limited Partnership 1983 (the "1983 Partnership"), Merrill
Lynch KECALP L.P. 1984 (the "1984 Partnership"), Merrill Lynch KECALP L.P.
(the "1986 Partnership"), Merrill Lynch KECALP L.P. 1987 (the "1987
Partnership"), Merrill Lynch KECALP L.P. 1989 (the "1989 Partnership"),
Merrill Lynch KECALP L.P. 1991 (the "1991 Partnership") and Merrill Lynch
KECALP L.P. 1994 (the "1994 Partnership"), collectively referred to as the
"Partnerships". As General Partner, KECALP manages the Partnerships, pays
certain of their expenses and maintains a 1% ownership interest in each of
the Partnerships.
The 1983 Partnership and the 1984 Partnership intend to seek long-term
capital appreciation and the tax advantages associated with certain
investments, primarily through the purchase of speculative, tax-oriented
investments in real estate, oil and gas properties, personal property and/or
indirect interests therein. At least 25% of the total proceeds will be
invested in real estate. The investment objectives of the 1986, 1987, 1989,
1991 and 1994 Partnerships are to seek long-term capital appreciation with a
substantial portion of its total proceeds invested in venture capital and
leveraged buyout investments. The Partnerships may purchase other
investments that KECALP deems appropriate. The Partnerships shall not engage
in any other business or activity.
Investment in Partnerships The investment in the Partnerships is
accounted for using the cost method.
Capital Requirements As a condition to the closing of the sales of
units of limited partnership interest, KECALP has agreed to maintain a net
worth as required in accordance with applicable U.S. income tax regulations
and rulings of the Internal Revenue Service. ML & Co. provides capital to
KECALP by a demand promissory note or other investment to satisfy the
requirement that KECALP have such net worth (see Note 2).
2. CAPITAL CONTRIBUTION RECEIVABLE
The Capital Contribution receivable represents promissory notes from ML
& Co. The notes are due on demand and bear interest at the daily brokers
call rate. Intercompany interest and taxes are not paid, but KECALP's
obligations have been settled through an adjustment of the intercompany
receivable account.
3. RELATED PARTY TRANSACTIONS
KECALP is obligated to pay certain expenses, fees, sales or brokerage
commissions, and other expenditures (except for debt service and interest
expense) of the Partnerships.
KECALP is required to maintain an investment in the Partnerships of
approximately 1% of the Partnerships' net assets less (plus) unallocated net
unrealized appreciation (depreciation) of investments.
4. DUE FROM MERRILL LYNCH & CO.
The Corporation has been authorized to transfer funds, as required by
policy, to ML & Co. ML & Co. is to repay this loan with interest based on
the daily brokers call rate.
5. INCOME TAXES
The results of operations of KECALP are included in the consolidated
Federal income tax returns of ML & Co., Inc. It is the policy of ML & Co.,
Inc. to allocate to KECALP the Federal and state tax expense associated with
such operating results in its consolidated tax return, including the
recognition of deferred tax assets.
EXHIBIT A
MERRILL LYNCH KECALP L.P. 1997
(A DELAWARE LIMITED PARTNERSHIP)
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
TABLE OF CONTENTS
-----------------
CAPTION PAGE
------- ----
ARTICLE ONE
DEFINED TERMS A-1
ARTICLE TWO
ORGANIZATION
SECTION 2.1 Governance A-3
SECTION 2.2 Name, Place of Business and Office; Registered Agent
A-3
SECTION 2.3 Purpose A-4
SECTION 2.4 Term A-4
ARTICLE THREE
PARTNERS AND CAPITAL
SECTION 3.1 General Partner A-4
SECTION 3.2 Initial Limited Partner A-4
SECTION 3.3 Additional Limited Partners A-4
SECTION 3.4 Partnership Capital A-5
SECTION 3.5 Liability of Partners A-5
SECTION 3.6 Lender as Partner A-5
ARTICLE FOUR
MANAGEMENT
SECTION 4.1 Powers of the General Partner A-6
SECTION 4.2 Prohibited Transactions A-7
SECTION 4.3 Restrictions on the Authority of the General Partner
A-8
SECTION 4.4 Duties and Obligations of the General Partner A-8
SECTION 4.5 Compensation and Reimbursement of the General Partner
A-10
SECTION 4.6 Other Businesses of Partners A-10
SECTION 4.7 Indemnification A-10
SECTION 4.8 Management by Limited Partners A-11
ARTICLE FIVE
DISTRIBUTIONS OF PARTNERSHIP FUNDS;
ALLOCATIONS OF PROFITS AND LOSSES
SECTION 5.1 Distributions of Partnership Funds A-11
SECTION 5.2 Allocations of Profits and Losses A-11
SECTION 5.3 Determinations of Allocations and Distributions
Among Limited Partners A-12
ARTICLE SIX
TRANSFERABILITY OF THE GENERAL PARTNERS INTEREST
SECTION 6.1 Voluntary Withdrawal or Transfer by the General
Partner A-13
SECTION 6.2 Admission of Successor General Partner A-14
SECTION 6.3 Liability of a Withdrawn or Removed General Partner
A-14
SECTION 6.4 Incapacity of the General Partner A-14
SECTION 6.5 Removal of the General Partner A-14
SECTION 6.6 Distributions on Withdrawal or Removal of the General
Partner A-15
ARTICLE SEVEN
TRANSFERABILITY OF A LIMITED PARTNERS INTEREST
SECTION 7.1 Restrictions on Transfers of Interest A-15
SECTION 7.2 Incapacity of Limited Partner A-17
SECTION 7.3 Assignees A-17
SECTION 7.4 Substituted Limited Partners A-17
SECTION 7.5 Acquisition of Certain Limited Partners' Interests by
the General
Partner or the Partnership A-19
ARTICLE EIGHT
DISSOLUTION, LIQUIDATION AND
TERMINATION OF THE PARTNERSHIP
SECTION 8.1 Events Causing Dissolution A-19
SECTION 8.2 Liquidation A-20
ARTICLE NINE
BOOKS AND RECORDS; ACCOUNTING;
APPRAISAL; TAX ELECTIONS; ETC.
SECTION 9.1 Books and Records A-21
SECTION 9.2 Accounting Basis for Tax and Reporting Purposes;
Fiscal Year A-21
SECTION 9.3 Bank Accounts A-21
SECTION 9.4 Appraisal A-21
SECTION 9.5 Reports A-22
SECTION 9.6 Elections A-22
ARTICLE TEN
AMENDMENTS
SECTION 10.1 Proposal and Adoption of Amendments Generally A-22
SECTION 10.2 Amendments on Admission or Withdrawal of PartnersA-23
ARTICLE ELEVEN
CONSENTS, VOTING AND MEETINGS
SECTION 11.1 Method of Giving Consent A-23
SECTION 11.2 Meetings of Partners A-24
SECTION 11.3 Limitations on Requirements for Consents A-24
SECTION 11.4 Submissions to Limited Partners A-25
ARTICLE TWELVE
MISCELLANEOUS PROVISIONS
SECTION 12.1 Appointment of the General Partner as
Attorney-in-Fact A-25
SECTION 12.2 Notification to the Partnership or the General
Partner A-26
SECTION 12.3 Binding Provisions A-26
SECTION 12.4 Applicable Law A-26
SECTION 12.5 Counterparts A-26
SECTION 12.6 Separability of Provisions A-26
SECTION 12.7 Entire Agreement A-26
SECTION 12.8 Headings A-26
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF MERRILL LYNCH KECALP L.P. 1997
Amended and Restated Agreement of Limited Partnership of Merrill Lynch
KECALP L.P. 1997 (the "Partnership") dated _________, 1997, among KECALP
Inc., a Delaware corporation, as General Partner, Robert F. Tully, the
Initial Limited Partner, and those Persons who shall be admitted as
Additional Limited Partners and as Substituted Limited Partners.
Whereas, pursuant to a Certificate of Limited Partnership dated as of
October 28, 1996, and filed with the Delaware Secretary of State on October
28, 1996, and an Agreement of Limited Partnership, dated October 28, 1996
(the "Original Agreement"), KECALP Inc. and Robert F. Tully have heretofore
formed the Partnership under the Delaware Revised Uniform Limited Partnership
Act;
Whereas, KECALP Inc., the Initial Limited Partner, and the Additional
Limited Partners, as defined herein, desire to amend and restate in its
entirety the terms and provisions of the Original Agreement governing the
Partnership;
Now, Therefore, in consideration of the mutual promises made herein, the
parties, intending to be legally bound, hereby agree as follows:
ARTICLE ONE
Defined Terms
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article One. The
singular shall include the plural and the masculine gender shall include the
feminine, and vice versa, as the context requires.
"Act" means the Delaware Revised Uniform Limited Partnership Act (6 Del.
C.17-101 et seq.), as amended from time to time and any successor to the said
Act.
"Additional Limited Partners" means those Persons admitted to the
Partnership pursuant to Section 3.3 and shown as limited partners of the
Partnership on the books and records of the Partnership.
"Affiliate" means when used with reference to a specified Person, (i)
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the specified
Person, (ii) any Person that is an officer, partner (excluding unrelated
third parties who are joint venturers or participants in joint ventures
electing to be taxed as partners for Federal income tax purposes) or trustee
of, or serves in a similar capacity with respect to, the specified Person or
of which the specified Person is an officer, partner or trustee, or with
respect to which the specified Person serves in a similar capacity, (iii) any
Person that, directly or indirectly, is the beneficial owner of 5% 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 5% or more of any
class of equity securities and (iv) any member of the immediate family of the
specified Person or his or her spouse.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as originally executed and as amended and restated from time to
time, as the context requires.
"Appraisal" means the statement of valuation of the assets of the
Partnership as described in Section 9.4.
"Auditors" means Deloitte & Touche LLP or such other nationally or
regionally recognized firm of independent auditors as shall be engaged by the
Partnership.
"Capital Account", as to any Partner, means the sum of a Partner's
Capital Contributions, increased by his share of any Profits, and decreased
by his share of any Losses and by his share of any Partnership Distributable
Cash reasonably expected to be distributed to such Partner and other assets
distributed to such Partner or on behalf
of such Partner in payment of any taxes or other expenses allocable to such
Partner and as otherwise increased or decreased in accordance with the tax
accounting principles set forth in Treasury Regulation Section
1.704-1(b)(2)(iv) of the Code.
"Capital Contribution" means the total amount of money contributed to
the Partnership by all Partners or any class of Partners or any one Partner
(or the predecessor holders of the Interests of such Partners or Partner), as
the context requires, upon the formation of the Partnership or the admission
of such Partner to the Partnership, or as that money is contributed to the
Partnership.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision of succeeding law).
"Consent" means the approval of a Person, given as provided in Section
11.1, to do the act or thing for which the approval is solicited, or the act
of granting such approval, as the context may require. Reference to the
Consent of a specified percentage in Interest of the Limited Partners means
the Consent of Limited Partners whose combined Capital Contributions
represent, at the time in question, at least such specified percentage of the
Capital Contributions of all the then Limited Partners.
"Distributable Cash" means, with respect to any fiscal period of the
Partnership, the cash assets of the Partnership on hand at the end of such
fiscal period (but not including the Capital Contribution to the Partnership)
less amounts required to be retained out of such cash assets in the sole
judgment of the General Partner to pay the Partnership's liabilities whether
accrued or anticipated to accrue in the future or to make permissible
investments.
"Fiscal Year" means the calendar year.
"General Partner" means KECALP Inc., a Delaware corporation whose
business address is South Tower, World Financial Center, 225 Liberty Street,
New York, New York 10080-6123, and any successor to it in its capacity as
general partner of the Partnership.
"Incapacity" or "Incapacitated" means the entry of an order for relief
in a case under Title 11 of the United States Code (the "Bankruptcy Code")
("bankruptcy") (except that, in the case of the General Partner, the term
"bankruptcy" shall mean only the being subject to Chapter 7 of the Bankruptcy
Code) or the incompetence, insanity, interdiction, death, incapacity,
disability, dissolution or termination (other than by merger or
consolidation), as the case may be, of any Person.
"Income" means the gross income of the Partnership as determined for
Federal income tax purposes including capital gains and Code Section 1231
gains (but not losses).
"Initial Limited Partner" means Robert F. Tully.
"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 as provided in this
Agreement, together with the obligations of such Partner to comply with all
the terms and provisions of this Agreement. Reference to a specified
percentage in Interest of the Limited Partners shall mean Limited Partners
whose Capital Contributions represent, at the time in question, at least such
specified percentage of the Capital Contributions of all the then Limited
Partners.
"Limited Partner" means any Person who is a limited partner of the
Partnership as shown on the books and records of the Partnership (whether the
Initial Limited Partner, an Additional Limited Partner or a Substituted
Limited Partner) at the time of reference thereto, in such Person's capacity
as a limited partner of the Partnership.
"Majority-in-Interest" means the Limited Partners whose aggregate
Capital Contributions represent over 50% of the aggregate Capital
Contributions of all Limited Partners.
"Notification" means a writing, containing the information required by
this Agreement to be communicated to any Person, sent by first class mail,
postage prepaid, to such Person at the last known address of such Person,
five days after the mailing thereof being deemed the date of the giving of
Notification; provided however, that any
communication containing the information sent to the Person and actually
received by the Person shall constitute Notification for all purposes of this
Agreement.
"Partner" means the General Partner or a Limited Partner.
"Partnership" means the limited partnership governed hereby, as said
limited partnership may from time to time be constituted.
"Partnership Account" means the bank account or bank accounts to be
maintained by the General Partner on behalf of the Partnership with any bank
in the United States having assets in excess of $100,000,000.
"Person" means any individual, partnership, corporation, trust or other
entity.
"Profits" or "Losses" means the profits or losses of the Partnership for
Federal income tax purposes including, without limitation, each item of
Partnership Income, gain, loss, deduction or credit.
"Prospectus" means the prospectus contained in the registration
statement filed by the Partnership on Form N-2 at the time such registration
statement was declared effective by the Securities and Exchange Commission;
except that if a prospectus filed by the Partnership pursuant to Rule 497(b)
or 497(d) under the Securities Act of 1933 differs from the prospectus
contained in the registration statement, as aforesaid, then the term
"Prospectus" refers to the Rule 497(b) or 497(d) prospectus from and after
the time it is mailed to the Securities and Exchange Commission for filing.
"Remove", "Removed" or "Removal" when used in reference to the removal
of the General Partner means the termination of all management powers, duties
and responsibilities of the General Partner pursuant to Section 6.5, but not
the elimination of the General Partner as a Partner.
"Sale" means any event, action or transaction that is, for Federal
income tax purposes, considered a sale, exchange or abandonment by the
Partnership of any Partnership property.
"State" means the State of Delaware.
"Substituted Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to the provisions of Section 7.4
and who is shown on the books and records of the Partnership as a limited
partner of the Partnership.
"Unit" means an Interest in the Partnership attributable to an aggregate
payment of $1,000 to the Partnership by, or on behalf of, the Limited Partner
who originally acquired the Interest.
"Valuation Date" means each of the dates described in Section 9.4.
ARTICLE TWO
Organization
Section 2.1 Governance
The undersigned parties hereto hereby agree that the rights and
liabilities of the Partners shall be as provided in the Act except as herein
otherwise expressly provided.
Section 2.2 Name, Place of Business and Office; Registered Agent
The name of the limited partnership heretofore formed and hereby
continued shall be Merrill Lynch KECALP L.P. 1997. The business of the
Partnership may be conducted under any other name deemed necessary or
desirable by the General Partner in order to comply with local law. The
Partnership shall maintain a registered office in the State c/o The
Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, Wilmington, New Castle County, Delaware 19801. The
Partnership shall maintain its principal office at South Tower,
World Financial Center, 225 Liberty Street, New York, New York
10080-6123. The General Partner may at any time change the location of
the Partnership's offices and may establish additional offices, if it
deems it advisable. The name and address of the Partnership's registered
agent for service of process in the State is The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The General Partner has filed the certificate of
limited partnership of the Partnership and shall file any amendment to the
certificate of limited partnership of the Partnership as required by the
Act in the proper office in the State and shall take such steps as are
necessary to qualify the Partnership to conduct business in other
jurisdictions in which it owns properties or conducts business and
otherwise to insure that the Limited Partners will have limited liability
with respect to the activities of the Partnership in such other
jurisdictions.
Section 2.3 Purpose
The purpose and character of the business of the Partnership is to
invest the funds of the Partnership in various speculative and
non-speculative investments, seeking, among other things, long-term capital
appreciation, and to engage in any and all activities necessary or incidental
thereto.
Section 2.4 Term
The Partnership term commenced on October 28, 1996, and shall continue
in full force and effect until December 31, 2037, or until dissolution prior
thereto pursuant to the provisions hereof.
ARTICLE THREE
Partners and Capital
Section 3.1 General Partner
A. The name, residence, business or mailing address and Capital
Contribution of the General Partner are set forth in the books and records of
the Partnership, as amended from time to time, and are incorporated herein by
reference.
B. The General Partner, as general partner of the Partnership, shall
be deemed to have made additional Capital Contributions to the Partnership to
the extent it pays expenses of the Partnership pursuant to this Agreement
which are not reimbursed to it by either the Partnership or an Affiliate of
the General Partner.
Section 3.2 Initial Limited Partner
A. The name, business address and Capital Contribution of the Initial
Limited Partner are Robert F. Tully, South Tower, World Financial Center, 225
Liberty Street, New York, N.Y. 10080-6123 and his Capital Contribution is
$1.00.
B. Upon the admission of Additional Limited Partners pursuant to
Section 3.3, the Initial Limited Partner shall withdraw from the Partnership
and receive forthwith the return of his Capital Contribution without interest
or deduction.
Section 3.3 Additional Limited Partners
A. The General Partner is authorized to admit Additional Limited
Partners to the Partnership pursuant to the terms contained in the Prospectus
and this Agreement. The manner of the offering of Additional Limited
Partners Units, the terms and conditions under which subscriptions for such
Units will be accepted, and the manner of and conditions to the sale
of Units to subscribers therefor and the admission of such subscribers
as Additional Limited Partners will be as provided in the Prospectus and
subject to any provisions thereof.
B. The name, residence, business or mailing address and Capital
Contribution of each Additional Limited Partner shall be set forth in the
books and records of the Partnership, as amended from time to time.
C. No Limited Partner shall be required to make any additional
contributions to the capital of the Partnership.
Section 3.4 Partnership Capital
A. No Partner shall be paid interest on any Capital Contribution to
the Partnership.
B. No Partner, other than the Initial Limited Partner pursuant to
Section 3.2, shall have the right to withdraw any part of his Capital
Contribution or to receive any return of any portion of his Capital
Contribution except as otherwise provided herein.
C. Under circumstances involving a return of any Capital Contribution,
no Partner shall have the right to receive property other than cash, except
as may be specifically provided in this Agreement.
D. The General Partner shall make additional contributions to the
capital of the Partnership in an amount sufficient to pay for Partnership
expenses allocable to it pursuant to Section 4.4A.
Section 3.5 Liability of Partners
A. No Limited Partner shall be liable for the debts, liabilities,
contracts or any other obligations of the Partnership, except to the extent
of his Capital Contribution and his share of the Partnership's assets and
undistributed profits, or for the debts or liabilities of any other Partner.
To the extent provided by law, a Limited Partner may, under certain
circumstances, be required to return, for the benefit of Partnership
creditors, amounts previously distributed to such Limited Partner.
B. A Limited Partner shall be liable only to make the payment of his
Capital Contribution as set forth in Sections 3.2A and 3.3B.
C. No Limited Partner shall be required to lend funds to the
Partnership or make any further contribution to the capital of the
Partnership.
D. The General Partner shall not be required to contribute to the
capital of, or loan, the Partnership any funds other than the General
Partner's Capital Contributions to the capital of the Partnership as set
forth in Sections 3.1 and 3.4D. Neither the General Partner nor any of its
Affiliates shall have (i) any personal liability for the return or repayment
of the Capital Contribution of any Limited Partner or (ii) to repay to the
Partnership any portion or all of any negative amount of the General
Partner's Capital Account, except as otherwise provided in Section 8.2D.
Section 3.6 Lender as Partner
No creditor who makes a nonrecourse loan to the Partnership shall have
or acquire, at any time as a result of making the loan, any direct interest
in the profits, capital or property of the Partnership, other than as a
secured creditor.
ARTICLE FOUR
Management
Section 4.1 Powers of the General Partner
A. The General Partner shall manage the affairs of, and shall control
the business of, the Partnership and shall have all powers necessary to
manage and control the Partnership's affairs and business and fulfill the
purposes of the Partnership, including, by way of illustration and not by way
of limitation:
(i) The power and duty to invest the balance (after the setting
aside of suitable reserves) of the Capital Contributions of the Partners
and reinvest revenues of the Partnership in accordance with the purpose
of the Partnership and in keeping with its investment objectives as
stated in the Prospectus.
(ii) The power to acquire securities or property of all types on
behalf of the Partnership, including, without limitation, stocks, bonds,
debentures, notes, shares in investment companies, general and limited
partnership interests, investment contracts and interests in trusts.
(iii) The power to enter into transactions and make investments
with or through Affiliates of the General Partner and to participate in
investment transactions sponsored or underwritten (either on a best
efforts or firm commitment basis) by Affiliates of the General Partner
or in entities as to which Affiliates of the General Partner serve as
investment adviser or placement agent.
(iv) The power to purchase interests in entities sponsored by
Affiliates of the General Partner or in which Affiliates of the General
Partner have an interest, including, but not limited to, limited
partnership interests in limited partnerships in which such Affiliates
serve as general partner.
(v) The power to cause securities owned by the Partnership to be
registered in the Partnership name or in the name of a nominee or to be
held in street name, as it shall elect.
(vi) The power and duty to maintain the books and records of the
Partnership in accordance with the provisions of Section 9.1.
(vii) The power to reserve funds out of Partnership Income or
borrow money in the name of the Partnership from any bank or other
lending institution in the United States or from an Affiliate of the
General Partner for the purpose of leveraging investments of the
Partnership, paying assessments levied on Partnership investments or
paying other costs of the Partnership (other than costs that the General
Partner is obligated to pay) and in connection with any borrowing, to
mortgage, pledge, encumber, and hypothecate the assets of the
Partnership.
(viii) The power to lend money to the Partnership on commercially
reasonable terms.
(ix) The power to make temporary investments of Partnership
capital in all types of securities, including, without limitation,
short-term U.S. Government and Government agency securities,
certificates of deposit, interest-bearing deposits in U.S. banks,
securities issued by or on behalf of states, municipalities and their
instrumentalities, the interest from which is exempt from Federal income
tax, securities issued by other investment companies (including unit
investment trusts and taxable and tax-exempt money market funds
sponsored and/or advised by Affiliates of the General Partner) prior to
long-term investment or pending cash distributions to the Partners.
(x) The power to seek exemptions from provisions of the Investment
Company Act of 1940 from the Securities and Exchange Commission.
(xi) The power to enter into a sales agency agreement relating to
the offering and sale of Units by the Partnership with Merrill Lynch,
Pierce, Fenner & Smith Incorporated, or any other Affiliate of the
General Partner.
(xii) In addition to and not in limitation of any rights and
powers conferred by law or other provisions of this Agreement, and
except as limited, restricted or prohibited by the express provisions of
this Agreement, the General Partner shall have and may exercise on
behalf of the Partnership all powers and rights necessary, proper,
convenient or advisable to effectuate and carry out the purpose,
business and objectives of the Partnership including the power to have
investment opportunities evaluated by an advisory committee selected by
the General Partner.
B. In order to expedite the handling of the Partnership's business, it
is understood and agreed that any document executed by the General Partner
while acting in the name and on behalf of the Partnership shall be deemed to
be the action of the Partnership vis-a-vis any third parties (including the
Limited Partners as third parties for such purpose).
C. In the event the original General Partner withdraws as provided in
Article Six, is Incapacitated or is Removed, any additional or successor
General Partner or General Partners shall possess all the power and authority
of the original General Partner. Any remaining and any additional and
successor General Partner is authorized to and shall continue the business of
the Partnership. The General Partner may admit an additional or successor
General Partner provided that if it subsequently wishes to withdraw or
transfer its interest, Sections 6.1 and 6.2 shall be complied with as to the
additional or successor General Partner prior to its becoming a sole General
Partner, and provided that the following conditions are satisfied:
(i) appropriate filings are made under the Act and in such other
jurisdictions as the Partnership's business requires;
(ii) the Interest of Limited Partners will not be adversely
affected; and
(iii) the sole General Partner shall not be Incapacitated.
In the event an additional or successor General Partner is admitted, the
term "General Partner" as used in this Agreement shall include the additional
or successor General Partner.
Section 4.2 Prohibited Transactions
Notwithstanding anything to the contrary contained herein, the following
transactions are specifically prohibited to the Partnership:
(i) The Partnership shall not make any loans to the General
Partner or any of its Affiliates unless permitted by the Investment
Company Act of 1940 or an order of exemption therefrom;
(ii) The Partnership shall not sell or lease any property to the
General Partner or any of its Affiliates except on terms at least as
favorable as those obtainable from unaffiliated third parties and except
that this provision shall not prohibit any transaction contemplated by
Section 8.2 or permitted by the terms of any partnership agreement or
investment contract into which the Partnership may enter by virtue of
its investment as a general or limited partner, where an Affiliate of
the General Partner also acts as general partner of such partnership;
(iii) No funds of the Partnership shall be kept in any account
other than a Partnership Account, and funds shall not be commingled with
the funds of any other Person, and the General Partner shall not employ,
or permit any other Person to employ, such funds in any manner except
for the benefit of the Partnership; it being understood that the General
Partner may invest temporarily Partnership funds in accordance with the
provisions of Section 4.1 (A) (ix); and
(iv) No expense of the Partnership shall be billed except directly
to the Partnership (but shall be paid pursuant to the terms of this
Agreement), and no reimbursements shall be made therefor to the General
Partner or any of its Affiliates except as permitted by Section 4.5.
Section 4.3 Restrictions on the Authority of the General Partner
A. The General Partner shall not have the authority to:
(i) do any act in contravention of the Investment Company Act of
1940, as applied to the Partnership; or
(ii) do any act that would make it impossible to carry on the
ordinary business of the Partnership.
B. The General Partner shall not perform any act that would subject
any Limited Partner to liability as a general partner in any jurisdiction.
C. Without the Consent of a Majority-in-Interest of the Limited
Partners, the General Partner shall not have the authority to:
(i) lease, sell, or otherwise dispose of at any one time all or
substantially all of the assets of the Partnership;
(ii) elect to dissolve the Partnership prior to January 1, 2003;
(iii) issue senior securities other than in connection with the
borrowings described in (v) below;
(iv) make short sales of securities, purchase securities on margin,
except for use of short-term credit necessary for the clearance of
transactions, or write put or call options;
(v) borrow amounts in excess of 33-1/3% of the Partnership's gross
assets, or otherwise as permitted under the Investment Company Act of
1940, except that the Partnership may enter into nonrecourse loans
relating to investments other than securities without regard to such
limitation;
(vi) underwrite securities of other issuers, except insofar as the
Partnership may be deemed an underwriter under the Securities Act of
1933 in selling portfolio securities;
(vii) invest more than 25% of its Partners' Capital Contributions in
the securities of issuers in any particular industry, except for real
estate investments and for temporary investments in U.S. Government and
Government agency securities, domestic bank money market instruments and
money market funds;
(viii) make loans to other Persons in excess of 33-1/3% of the
Partnership's gross assets, provided that investments in
privately-offered debt securities issued by entities in which the
Partnership has an equity participation or with which the Partnership
has contracted to acquire an equity participation shall not be
considered loans for purposes of this paragraph; or
(ix) alter the investment objective and business purpose of the
Partnership.
D. The General Partner shall not borrow funds on behalf of the
Partnership except in accordance with Section 4.1A (vii) and (xii).
E. The General Partner shall not cause the Partnership to consent to,
or join in, any waiver, amendment, or modification of the terms of any
partnership agreement, limited partnership agreement, management agreement or
investment contract to which it is a party unless, in the good faith judgment
of the General Partner, such waiver, amendment, or modification would be in
the best interest of the Partnership.
Section 4.4 Duties and Obligations of the General Partner
A. The General Partner shall pay all expenses (but not income, personal
property, franchise or other taxes) incurred in the organization and
operation of the Partnership, including, without limitation, Auditors' fees,
legal fees, postage, printing costs, Appraisal costs, general and
administrative costs and expenses and, in addition, any brokerage
commissions, selling agents' fees, advisory fees or similar charges
incurred in investing Partnership funds. The General Partner is not
obligated to pay from its own funds, debt service or other interest charges
incurred in connection with the making of Partnership investments and is
entitled to indemnification in accordance with Section 4.7.
B. The General Partner shall take all action that may be necessary or
appropriate for the continuation of the Partnership's valid existence as a
limited partnership under the laws of the State, and for the acquisition,
holding and disposition, in accordance with the provisions of this Agreement
and applicable laws and regulations, of the investments of the Partnership.
C. The General Partner shall devote to the Partnership the time that
it deems to be necessary to conduct the Partnership business and affairs in
the best interests of the Partnership and use its best efforts to obtain a
suitable investment portfolio for the Partnership.
D. The General Partner shall be under an obligation to conduct the
affairs of the Partnership in the best interest (or not opposed to the best
interest) of the Partnership, including the safekeeping and use of all
Partnership funds and assets (whether or not in the immediate possession or
control of the General Partner) and the use thereof for the benefit of the
Partnership. Notwithstanding the foregoing, the General Partner may, in its
sole and absolute discretion, elect to dissolve the Partnership at any time
after January 1, 2003, and, upon liquidation, to purchase Partnership assets
in accordance with Section 8.2. The General Partner shall at all times act
with integrity and good faith and exercise due diligence in all activities
relating to the conduct of the business of the Partnership and in resolving
conflicts of interest.
E. The General Partner will use its best efforts at all times to
maintain its net worth at a level that is sufficient to meet all present and
future requirements set by statute, Treasury Regulations, the Internal
Revenue Service or the courts applicable to a corporate general partner in a
limited partnership to insure that the Partnership will not fail to be
classified for Federal income tax purposes as a partnership, rather than as
an association taxable as a corporation, on account of the net worth of the
General Partner.
F. 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, from Partnership funds, any taxes
payable by the Partnership.
G. The General Partner shall, from time to time, submit to any
appropriate Federal or state securities administrator, or any other
regulatory authorities having jurisdiction, all documents, papers, statistics
and reports required to be filed with or submitted to such authority.
H. The General Partner shall use its best efforts to cause the
Partnership to be formed, reformed, qualified to do business, or registered
under any applicable assumed or fictitious name statute or similar law in any
jurisdiction in which the Partnership then owns property or transacts
business, if such formation, reformation, qualification or registration is
necessary in order to protect the limited liability of the Limited Partners
or to permit the Partnership lawfully to own property or transact business.
I. The General Partner shall, from time to time, prepare and file all
amendments to this Agreement, the certificate of limited partnership of the
Partnership and other similar documents that are required by law to be filed
and recorded for any reason, in the office or offices that are required under
the laws of the State or any other jurisdiction in which the Partnership is
then qualified or formed. The General Partner shall do all other acts and
things (including making publications or periodic filings of this Agreement
or amendments thereto or other similar documents) that may now or hereafter
be required, or deemed by the General Partner to be necessary, (i) for the
perfection and continued maintenance of the Partnership as a limited
partnership under the laws of the State and each other state in which the
Partnership is then qualified or formed, (ii) to protect the limited
liability of the Limited Partners under the laws of the State and each other
state in which the Partnership is then qualified or formed, and (iii) to
cause such certificates or other documents to reflect accurately the
agreement of the Partners, the identity of the Limited Partners and the
General Partner and the amounts of their respective Capital Contributions as
may be required by such laws.
J. The General Partner shall monitor the activities of entities
invested in by the Partnership and keep the Limited Partners informed of such
activities in the manner provided in this Agreement.
K. The General Partner shall inform each Limited Partner of all
administrative and judicial proceedings for an adjustment at the Partnership
level for Partnership tax items and forward to each Limited Partner within 30
days of receipt all notices received from the Internal Revenue Service
regarding the commencement of a partnership level audit or a final
partnership administrative adjustment and will perform all other duties
imposed by Sections 6221 through 6232 of the Code on the General Partner as
"tax matters partner" of the Partnership, including (but not limited to) the
following: (a) the power to conduct all audits and other administrative
proceedings (including windfall profit tax audits) with respect to
Partnership tax items; (b) the power to extend the statute of limitations for
all Partners with respect to Partnership tax items; and (c) the power to file
a petition with an appropriate Federal court for review of a final
partnership administrative adjustment. The General Partner shall be the "tax
matters partner" of the Partnership.
Section 4.5 Compensation and Reimbursement of the General Partner
A. Except as provided in Article Five, the General Partner shall not
receive any salary, fees or Profits from the Partnership.
B. The General Partner shall be entitled to reimbursement from the
Partnership for expenses it incurs up to an amount equal to 1% of the Limited
Partners' Capital Contributions in connection with the organization of the
Partnership and the offering of the Units and, commencing in 1997 and
annually in each calendar year thereafter, for expenses it incurs up to an
annual amount equal to 0.5% of the Limited Partners' Capital Contributions if
such Capital Contributions aggregate $60,000,000 or more, or, if such Capital
Contributions aggregate less than $60,000,000, up to an amount equal to 1% of
the Limited Partners' Capital Contributions, in connection with the operation
of the Partnership. Except as provided in this Article Four and Article
Eight, neither the General Partner nor its Affiliates shall be reimbursed out
of Partnership funds for expenses incurred by them on behalf of the
Partnership.
Section 4.6 Other Businesses of Partners
Subject to Section 4.4C, any Partner, and any Affiliate of any Partner
may engage in or possess any interest in other business ventures of any kind,
nature or description, independently or with others, for his, her or its own
account or for the account of others. Neither the Partnership nor any
Partner as a result of this Agreement shall have any rights or obligations in
or to such independent ventures or the income or profits or losses derived
therefrom.
Section 4.7 Indemnification
Neither the General Partner nor any of its officers, directors,
stockholders, employees, or agents shall be liable to the Partnership or the
Limited Partners for any act or omission based on errors of judgment, or
other fault in connection with the business or affairs of the Partnership so
long as the Person against whom liability is asserted acted in good faith on
behalf of the Partnership and in a manner reasonably believed by such Person
to be within the scope of its authority under this Agreement and in or not
opposed to the best interests of the Partnership, but only if such action or
failure to act does not constitute negligence or misconduct, and, with
respect to any criminal proceeding, such Person had no reasonable cause to
believe its conduct was unlawful. The General Partner and its officers,
directors, stockholders, employees, and agents will be indemnified by the
Partnership to the fullest extent permitted by law for any (a) fees
(including, without limitation, legal fees), costs and expenses incurred in
connection with or resulting from any claim, action or demand, or threatened
claim, action or demand, against the General Partner, the Partnership or any
of their officers, directors, stockholders, employees, or agents that arises
out of or in any way relates to the Partnership, its properties, business or
affairs and (b) losses or damages resulting from such claims, actions and
demands, or threatened claims, actions or demands, including amounts paid in
settlement or compromise (if recommended by attorneys for the Partnership) of
any such claim, action or demand or threatened claims, actions or demands;
provided, however, that this indemnification shall apply only so long as
the Person against whom a claim, action or demand is asserted or threatened
to be asserted has acted in good faith on behalf of the Partnership and in a
manner reasonably believed by such Person to be within the scope of his or
its authority under this Agreement and in or not opposed to the best
interests of the Partnership, but only if such action or failure to act does
not constitute negligence or misconduct. Absent a court determination that
the General Partner or officers or directors of the General Partner were not
liable on the merits or guilty of disabling conduct within the meaning of
Section 17(h) of the Investment Company Act of 1940, the decision by the
Partnership to indemnify the General Partner or any such Person must be based
upon the reasonable determination of independent counsel, after review of the
facts, that such disabling conduct did not occur. The rights set forth above
shall continue as to the General Partner and its officers, directors,
stockholders, employees or agents who have ceased to serve in such capacities
and shall inure to the benefit of their heirs, successors, assigns and
administrators.
Section 4.8 Management by Limited Partners
No Limited Partner shall participate in the management or in the control
of the business of the Partnership or use his name in the Partnership's
business or perform any actions prohibited to limited partners under the laws
of the State or the laws of any other jurisdiction where the Partnership is
qualified or formed to conduct business. Limited Partners hereby consent to
the exercise by the General Partner of the powers conferred on it by this
Agreement.
ARTICLE FIVE
Distributions of Partnership Funds;
Allocations of Profits and Losses
Section 5.1 Distributions of Partnership Funds
Distributable Cash of the Partnership shall be distributed at least
annually, within 30 days after the end of the Fiscal Year, and distributions
may be made at such other times as the General Partner deems advisable, and
each such distribution shall be made 99% to the Limited Partners and 1% to
the General Partner. If the General Partner deems it advisable,
distributions of Partnership assets may be made in kind, in the same manner
and to the same Persons as Distributable Cash is then being distributed.
Cash distributions to Limited Partners will be credited to each Limited
Partner's securities account with Merrill Lynch, Pierce, Fenner & Smith
Incorporated or as otherwise instructed to the General Partner by a Limited
Partner.
Section 5.2 Allocations of Profits and Losses
A. The Profits and Losses of the Partnership shall be determined and
allocated with respect to each Fiscal Year of the Partnership as of the end
of, and within 75 days after the end of, such Fiscal Year.
B. Profits and Losses of the Partnership, other than arising from
Sales upon liquidation pursuant to Section 8.2, shall be allocated among and
credited to or charged against each Partner's Capital Account as follows:
(i) With respect to Losses, (a) 99% to the Limited Partners and 1%
to the General Partner until the Limited Partners' Capital Accounts
equal zero; (b) thereafter, 100% to the General Partner until the
General Partner's Capital Account equals zero; (c) thereafter, 99% to
the Limited Partners and 1% to the General Partner or 100% to the
General Partner, as appropriate, to the extent necessary to make the
Capital Account balances of the General Partner and Limited Partners
equal 1% and 99%, respectively, of the total of the Partners' Capital
Accounts; and (d) thereafter, 99% to the Limited Partners and 1% to the
General Partner; and
(ii) With respect to Profits, (a) 99% to the Limited Partners and
1% to the General Partner or 100% to the General Partner, as
appropriate, to the extent necessary to make the Capital Account
balances of the General Partner and the Limited Partners equal 1% and
99%, respectively, of the total of the Partners' Capital Accounts; and
(b) thereafter, 99% to the Limited Partners and 1% to the General
Partner.
C. For purposes of determining the Capital Account balance of any
Limited Partner as of the end of any Fiscal Year under this Section 5.2, any
such Partner's Capital Account shall be reduced by:
(i) Allocations of Loss (or any item thereof) as of the end of
such Fiscal Year, which reasonably are expected to be made to such
Partner pursuant to Code Sections 704, 706, and 752 and Treasury
Regulations promulgated thereunder; and
(ii) Distributions that, as of the end of such Fiscal Year,
reasonably are expected to be made to such Partner to the extent they
exceed offsetting increases to such Partner's Capital Account that
reasonably are expected to occur during (or prior to) the Partnership's
Fiscal Year in which such distributions reasonably are expected to be
made.
D. Notwithstanding any provision of this Agreement to the contrary, if
a Partner receives an unexpected adjustment, allocation or distribution
described in Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) or (6)
which creates or increases a deficit balance in the Partner's Capital
Account, items of income and gain shall be allocated to such Partner in an
amount and manner sufficient to eliminate the Partner's Capital Account
deficit as quickly as possible. If any allocations are made pursuant to the
previous sentence, then future allocations of income or gain to such Partner
will be reduced by an amount of income or gain equal to the amount previously
allocated to the Partner under the previous sentence.
E. If there is a net decrease in the Partnership's Minimum Gain (as
defined in Treasury Regulations under Section 704(b) of the Code) during a
taxable year, each Partner with a deficit balance in his Capital Account at
the end of the taxable year will be allocated, before any other allocation of
Partnership items is made pursuant to this Agreement, items of income and
gain for the taxable year and, if necessary, subsequent taxable years, in the
amount necessary to eliminate such deficit as quickly as possible. For the
purpose of this Minimum Gain calculation and for purposes of the preceding
paragraph, there will be excluded from the Partner's deficit balance in his
Capital Account (i) any amount the Partner is obligated to restore to his
Capital Account and (ii) any addition to his Capital Account represented by
the Partner's share of Minimum Gain. In addition, for the purpose of
calculating the amount of Minimum Gain, each Partner's Capital Account will
be reduced for items described in Treasury Regulations Section
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
Section 5.3 Determinations of Allocations and Distributions Among
Limited Partners
A. All Distributable Cash distributed to the Limited Partners, as a
class, and all Profits and Losses allocated to the Limited Partners, as a
class, shall be distributed or allocated, as the case may be, to each Limited
Partner in the ratio that the Capital Contribution of such Limited Partner
(or of his predecessor in interest) bears to the total Capital Contribution
of all Limited Partners.
B. All Profits and Losses allocated to the Limited Partners shall be
allocated to the Persons who were Limited Partners as of the last day of the
fiscal quarter for which the allocation is made. If during any Fiscal Year
of the Partnership there is a change in any Partner's Interest in the
Partnership, then allocation of Profits and Losses among the Partners shall
be determined by the use of any method prescribed by Section 706(d)(1) of the
Code and the Treasury Regulations promulgated thereunder. Allocations of
"allocable cash basis items" shall be determined in accordance with the
method prescribed by Section 706(d)(2) of the Code and the Treasury
Regulations promulgated thereunder.
C. All Distributable Cash distributed to the Limited Partners shall be
distributed to the Persons who were Limited Partners as of the last day of
the fiscal quarter preceding the fiscal quarter in which the distribution is
made.
ARTICLE SIX
Transferability of the General
Partner's Interest
Section 6.1 Voluntary Withdrawal or Transfer by the General Partner
A. Except as provided in Section 6.2, the General Partner (including
by definition any successor or additional General Partner) may withdraw as
General Partner at any time, but only upon compliance with all of the
following procedures:
(i) The General Partner shall give Notification to all Limited
Partners that it proposes to withdraw and that there be substituted in
its place a Person designated and described in such Notification.
(ii) Enclosed with the Notification shall be a certificate, duly
executed by or on behalf of such proposed successor General Partner, to
the effect that, (a) it is experienced in performing (or employs
sufficient personnel who are experienced in performing) functions of the
type then being performed by the resigning General Partner; (b) it has a
net worth of at least 10% of the Capital Contributions of the Partners
or will otherwise meet the net worth requirements of statutes, Treasury
Regulations, the Internal Revenue Service or the courts applicable to a
corporate general partner in a limited partnership in order to insure
that the Partnership will not fail to be classified for Federal income
tax purposes as a partnership rather than as an association taxable as a
corporation; and (c) it is willing to become the General Partner under
this Agreement without receiving any compensation for services from the
Partnership in excess of that payable under this Agreement to the
withdrawing General Partner or any interest in the Income or Profits of
the Partnership other than a transfer to the successor General Partner
of some or all of the withdrawing General Partner's Interest in the
Partnership, plus such other compensation as the successor General
Partner may receive from the withdrawing General Partner.
(iii) If the General Partner proposes to withdraw, there shall
be on file at the principal office of the Partnership, prior to such
withdrawal, audited financial statements of the proposed successor
General Partner, as of a date not earlier than 12 months prior to the
date of the Notification required by this Section 6.1A, certified by a
nationally recognized firm of independent auditors, together with a
certificate duly executed by the proposed successor General Partner, or
on its behalf by its principal financial officer, to the effect that no
material adverse change in its financial condition has occurred since
the date of such audited financial statements that has caused its net
worth, apart from the purchase price of its Interest in the Partnership,
to be reduced to less than the amount required under Section
6.1A(ii)(b). Such audited statements and certificates shall be
available for examination by any Limited Partner during normal business
hours.
(iv) The Consent of at least a Majority-in-Interest of the Limited
Partners approving the appointment of any successor General Partner
pursuant to this Section 6.1A is obtained.
(v) The withdrawing General Partner shall cooperate fully with the
successor General Partner so that the responsibilities of the withdrawn
General Partner may be transferred to the successor General Partner with
as little disruption of the Partnership's business and affairs as is
practicable.
B. Except as part of a transfer to a successor General Partner
pursuant to Section 6.1A, the General Partner shall not have the right to
withdraw or to transfer or assign its General Partner Interest, except that
the General Partner may (i) substitute in its stead as General Partner any
entity that has, by merger, consolidation or otherwise, acquired
substantially all of the assets or capital stock of the General Partner and
continued its business, (ii) substitute in its stead any other wholly-owned
subsidiary of its corporate parent, and (iii) pledge or grant an interest in
its right to receive payments and distributions under this Agreement, in
which event the General Partner shall continue to be the general partner of
the Partnership.
C. Subject to the provisions of Section 11.3, each Limited Partner
hereby Consents pursuant to Section 6.1A to the admission as a successor
General Partner of any Person meeting the requirements of Section 6.1A to
whose admission as such at least a Majority-in-Interest of the Limited
Partners has expressly approved, and no further express Consent or approval
shall be required.
D. Notwithstanding anything to the contrary in this Article Six, the
General Partner's Interest shall at all times be subject to any restrictions
on transfer imposed by Federal or state securities laws.
E. Any withdrawal of the General Partner, or transfer or assignment of
the General Partner's entire Interest shall occur immediately after the
admission of a successor General Partner.
Section 6.2 Admission of Successor General Partner
The admission of any successor General Partner pursuant to Section 6.1
shall be effective only if and after the following conditions are satisfied:
(i) this Agreement and the certificate of limited partnership of
the Partnership shall be amended to reflect the admission of such Person
as successor General Partner prior to the withdrawal of the withdrawing
General Partner or the transfer of the withdrawing General Partner's
Interest, pursuant to Section 6.1;
(ii) the Interests of the Limited Partners shall not be affected by
the admission of such successor General Partner;
(iii) any Person designated as successor General Partner
pursuant to Section 6.1 shall have satisfied the requirements of Section
10.2; and
(iv) the withdrawing General Partner shall not have ceased to be
General Partner because of its Incapacity.
Any successor General Partner is hereby authorized to and shall continue
the business of the Partnership.
Section 6.3 Liability of a Withdrawn or Removed General Partner
Any General Partner who shall withdraw or be Removed from the
Partnership shall remain liable for any obligations and liabilities incurred
by it as General Partner prior to the time such withdrawal or Removal shall
have become effective, but it shall be free of any obligation or liability
incurred on account of the activities of the Partnership from and after the
time such withdrawal or Removal shall have become effective.
Section 6.4 Incapacity of the General Partner
In the event of the Incapacity of the General Partner, the Partnership
shall be dissolved.
Upon the Incapacity of the General Partner, the General Partner shall
immediately cease to be General Partner and its General Partner's Interest,
as such, shall continue only for the purpose of determining the amount, if
any, that it is entitled to receive upon dissolution pursuant to Section 8.2.
Any termination or Removal of a General Partner shall not affect any rights
or liabilities of the Incapacitated or Removed General Partner that matured
prior to such Incapacity or Removal.
Section 6.5 Removal of the General Partner
A. Upon the delivery by counsel for the Partnership or counsel
designated by 10% in Interest of the Limited Partners of an opinion to the
effect that the possession and exercise by a Majority-in-Interest of the
Limited Partners of the power to Remove the General Partner will not impair
the liability of the Limited Partners, then the power shall be vested in the
Limited Partners to Remove the General Partner upon the Consent of a
Majority-in-Interest of the Limited Partners, but the exercise of that power
shall be subject to the conditions set forth in Section 11.3. The Removal of
any General Partner pursuant to this Section 6.5 shall be without prejudice
to the rights, if any, the Limited Partners may have against the General
Partner for damages attributable to its negligence or misconduct or other
breach of duty.
B. Upon the delivery by counsel for the Partnership or counsel
designated by 10% in Interest of the Limited Partners of an opinion to the
effect that the possession and exercise by a Majority-in-Interest of the
Limited Partners of the power to designate a successor General Partner will
not impair the limited liability of the Limited Partners, then with the
Consent of a Majority-in-Interest of the Limited Partners to the admission of
a general partner, the Limited Partners may, subject to the provisions of
Section 6.2, at any time designate one or more Persons to be successors to
the General Partner being Removed pursuant to Section 6.5. Any such Removal
shall occur immediately after the admission of the successor General Partner.
C. Upon the Removal of the General Partner (and failure to designate a
successor General Partner) pursuant to Section 6.5A, the Partnership shall be
dissolved.
Section 6.6 Distributions on Withdrawal or Removal of the General
Partner.
In the event the General Partner (i) exercises its right to withdraw
from the Partnership in accordance with Section 6.1A or (ii) is Removed
pursuant to Section 6.5, the withdrawing or Removed General Partner shall
have its then existing Capital Account (to the extent not acquired by any
successor) converted into a capital account of a Limited Partner.
ARTICLE SEVEN
Transferability of a Limited Partner's Interest
Section 7.1 Restrictions on Transfers of Interest
A. Notwithstanding any other provisions of this Section 7.1, a sale,
exchange, transfer or assignment of a Limited Partner's Interest may not be
made if:
(i) such sale, exchange, transfer or assignment, when added to the
total of all other sales, exchanges, transfers or assignments of
Interests within the preceding 12 months, would result in the
Partnership being considered to have terminated within the meaning of
Section 708 of the Code;
(ii) such sale, exchange, transfer or assignment would violate any
U.S. securities laws, or any state securities or "blue sky" laws
(including any investor suitability standards) applicable to the
Partnership or the Interest to be sold, exchanged, transferred or
assigned;
(iii) such sale, exchange, transfer or assignment would cause
the Partnership to lose its status as a partnership for Federal income
tax purposes;
(iv) such sale, exchange, transfer or assignment would cause all or
any portion of the Partnership's property to be deemed "tax-exempt use
property" within the meaning of Section 168(j) of the Code; or
(v) such sale, exchange, transfer or assignment would cause the
Partnership to be classified as a publicly traded partnership within the
meaning of Section 7704(b) of the Code.
B. In no event shall all or any part of an Interest be assigned or
transferred to an Incapacitated Person except by operation of law.
C. Except as provided in Section 7.5B, no transfer or assignment by a
Limited Partner of all or any part of his Interest may be made to any Person
who (i) is not a Partner, (ii) is not a member of the immediate family of a
Limited Partner or (iii) does not meet the requirements to become an
Additional Limited Partner in accordance with the terms of the offering of
Units contained in the Prospectus and this Agreement, as modified by the last
sentence of this Section 7.1C; provided, however, no Limited Partner's
Interest or any fraction thereof may be sold, assigned or transferred without
the consent of the General Partner, which consent may be withheld in the sole
discretion of the General Partner. For purposes of this Section 7.1C, the
members of the immediate family of a Limited Partner consist of persons
within the meaning of such phrase as is used in the definition of "employees'
securities company" in the Investment Company Act of 1940, and include the
Partner's spouse and children, including stepchildren and adopted children.
With respect to the requirements referenced in clause (iii), the requirement
as to compensation from Merrill Lynch & Co., Inc. shall be measured on the
basis of the current annual salary and the bonus with respect to the most
recently completed fiscal year.
D. Subject to Section 7.1C, no purported sale, assignment or transfer
by a transferor of, or after which the transferor and each transferee would
hold, an Interest representing a Capital Contribution of less than $1,000
will be permitted or recognized for any purpose without the consent of the
General Partner, which consent shall be granted only for good cause shown.
E. No purported sale, assignment or transfer by a transferor of, or
after which the transferor and each transferee would hold, an Interest
representing a Capital Contribution of less than $1,000 will be permitted or
recognized for any purpose without the consent of the General Partner, which
consent shall be granted only for good cause shown, except for any sale,
assignment or transfer (i) that consists of the entire Interest of the
transferor or (ii) that occurs by operation of law.
F. Each Limited Partner agrees that he will, upon request of the
General Partner, execute such certificates or other documents and perform
such acts as the General Partner deems appropriate after an assignment of an
Interest by the Limited Partner to preserve the limited liability of the
Limited Partners under the laws of any jurisdiction in which the Partnership
is doing business. For purposes of this Section 7.1F, any transfer of an
Interest, whether voluntary or by operation of law, shall be considered an
assignment.
G. Any sale, assignment or transfer of an Interest to a Person who
makes a market in securities shall be void ab initio unless such Person shall
certify to the General Partner that it has acquired such Interest solely for
investment purposes and not for the purpose of resale.
H. No purported sale, assignment or transfer by a transferor of an
Interest will be recognized unless (1) the transferor shall have represented
that such transfer (a) was effected through a broker-dealer or matching agent
whose procedures with respect to the transfer of Units have been approved by
the General Partner as not being incident to a public trading market and not
through any other broker-dealer or matching agent or (b) otherwise was not
effected through a broker-dealer or matching agent which makes a market in
Interests or which provides a readily available, regular and ongoing
opportunity to Limited Partners to sell or exchange their Interests through a
public means of obtaining or providing information of offers to buy, sell or
exchange Interests and (2) the General Partner determines that such sale,
assignment or transfer would not, by itself or together with any other sales,
transfers or assignments, likely result in, as determined by the General
Partner in its sole discretion, the Partnership's being classified as a
publicly traded partnership.
I. No purported sale, assignment or transfer of a Unit will be
recognized if, after giving effect to such sale, assignment or transfer, the
Partnership would not satisfy at least one of the safe harbors contained in
Treasury regulation 1.7704-1 (the "Final PTP Regulations"). Without limiting
the foregoing, no purported sale, assignment or transfer of a Unit will be
recognized if such sale, assignment or transfer, together with all other such
transfers during the same taxable year of the Partnership would result in
either (i) the transfer of more than 2% of the Units (excluding excludable
transfers and sales completed through a matching service which meets the
requirements of the Final PTP Regulations) or (ii) the transfer and sale of
more than 10% of the Units (excluding excludable transfers) completed through
a matching service which meets the requirements of the Final PTP Regulations.
For purposes of the limitations described in the preceding sentence, the
following transfers ("excludable transfers") will be disregarded: (i)
transfers in which the basis of the Unit in the hands of the transferee is
determined, in whole or in part, by reference to its basis in the hands of
the transferor or is determined under Section 732 of the Code; (ii) transfers
at death, including transfers from an estate or testamentary trust; (iii)
transfers between members of a family (as defined in Section 267(c)(4) of the
Code); (iv) the issuance of Units by or on behalf of the Partnership in
exchange of cash, property or services; (v) distributions from a retirement
plan qualified under Section 401(a) of the Code; and (vi) block transfers;
and for purposes of the 2% limitation, there shall be disregarded transfers
through a matching service subject to the 10% limitation described in the
previous sentence. For purposes of the above limitations, the percentage of
Units transferred during a taxable year shall equal the sum of the monthly
percentage of Units transferred. The monthly percentage of Units
transferred in any month shall be the percentage equal to a fraction the
numerator of which is the number of Units transferred during such month and
the denominator of which is the number of Units outstanding on the last
day of such month, provided that the denominator shall not include Units
owned by the General Partner or any Person related to the General Partner
(within the meaning of Section 267(b) or 707(b)(1) of the Code). The term
"block transfer" means the transfer by a Partner in one or more
transactions during any thirty calendar day period of Units representing in
the aggregate more than 2% of the total Interests in Partnership capital
or profits.
J. Any purported assignment of an Interest which is not made in
compliance with this Agreement is hereby declared to be null and void and of
no force or effect whatsoever.
K. The General Partner may reasonably interpret, and is hereby
authorized to take such action as it deems necessary or desirable to effect,
the foregoing provisions of this Section 7.1. The General Partner may, in
its reasonable discretion, amend the provisions of this Section 7.1 in such
manner as may be necessary or desirable (or eliminate or amend such
provisions to the extent they are no longer necessary or desirable) to
preserve the tax status of the Partnership.
Section 7.2 Incapacity of Limited Partner
If a Limited Partner dies, his executor, administrator or trustee, or,
if he becomes an 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 the estate of such Limited Partner, and such power as
the Incapacitated Limited Partner possessed to assign all or any part of the
Incapacitated Limited Partner's Interest and to join with such assignee in
satisfying conditions precedent to such assignee's becoming a Substituted
Limited Partner. In the event of death of a Limited Partner, but not in the
event of bankruptcy or adjudication of incompetence, the deceased Limited
Partner's Interest may be tendered to the General Partner within 90 days of
receipt of the next Appraisal pursuant to Section 7.5.
Section 7.3 Assignees
A. The Partnership shall not recognize for any purpose any purported
sale, assignment or transfer of all or any fraction of the Interest of a
Limited Partner unless the provisions of Section 7.1A shall have been
complied with and there shall have been filed with the Partnership a written
and dated Notification of such sale, assignment or transfer, in form
satisfactory to the General Partner, executed and acknowledged by both the
seller, assignor or transferor and the purchaser, assignee or transferee, and
such Notification (i) contains the acceptance by the purchaser, assignee or
transferee of all of the terms and provisions of this Agreement, (ii)
represents that such sale, assignment or transfer was made in accordance with
all applicable laws and regulations and (iii) contains the purchaser's,
assignee's or transferee's power of attorney identical to that provided in
Section 12.1. Any sale, assignment or transfer shall be recognized by the
Partnership as effective as of the first day of the fiscal quarter following
the quarter in which such Notification is filed with the Partnership.
B. Any Limited Partner who shall assign all of his Interest shall
cease to be a Limited Partner as of the first day of the fiscal quarter
following the quarter in which such Notification is filed with the General
Partner.
C. A Person who is the assignee of all or any fraction of the Interest
of a Limited Partner, but does not become a Substituted Limited Partner and
desires to make a further assignment of such Interest, shall be subject to
all the provisions of this Article Seven to the same extent and in the same
manner as any Limited Partner desiring to make an assignment of his Interest.
Section 7.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a purchaser,
assignee, transferee, donee, heir, legatee, distributee or other recipient of
all or any portion of such Limited Partner's Interest as a Limited Partner in
his place. Any such purchaser, assignee, transferee, donee, heir,
legatee, distributee or other recipient of an Interest shall be admitted
to the Partnership as a Substituted Limited Partner only with the consent
of the General Partner, which consent shall be granted or withheld in the sole
and absolute discretion of the General Partner and may be arbitrarily withheld,
and, if necessary, by an amendment of this Agreement executed by all
necessary parties and filed or recorded in the proper records of each
jurisdiction in which such filing or recordation is necessary to qualify the
Partnership to conduct business or to preserve the limited liability of the
Limited Partners. The Limited Partners hereby consent to the admission of a
Substituted Limited Partner whose admission has been consented to by the
General Partner. Any such consent by the General Partner and the Limited
Partners may be evidenced, if necessary, by the execution by the General
Partner of an amendment to this Agreement on its behalf and on behalf of all
Limited Partners pursuant to Section 12.1 evidencing the admission of such
Person as a Limited Partner and the making of any filing required by law.
The admission of a Substituted Limited Partner shall be recorded on the books
and records of the Partnership.
B. No Person shall become a Substituted Limited Partner until such
Person shall have satisfied the requirements of Section 10.2; provided,
however, that for the purpose of allocating Profits, Losses and Distributable
Cash, a Person shall be treated as having become, and as appearing in the
books and records of the Partnership as, a Limited Partner on such date as
the sale, assignment or transfer to such Person was recognized by the
Partnership pursuant to Section 7.3A.
C. To the fullest extent permitted by law, each Limited Partner shall
indemnify and hold harmless the Partnership, the General Partner and every
Limited Partner who was or is a party or is threatened to be made a party of
any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative, by reason of or arising
from any actual or alleged misrepresentation or misstatement of facts or
omission to state facts made (or omitted to be made) by such Limited Partner
in connection with any assignment, transfer, encumbrance or other disposition
of all or any part of an Interest, or the admission of a Substituted Limited
Partner to the Partnership, against expenses for which the Partnership or
such other Person has not otherwise been reimbursed (including attorneys'
fees, judgments, fines and amounts paid in settlement) actually and
reasonably incurred by him in connection with such action, suit or
proceeding.
D. (1) Each Limited Partner represents and warrants that the
information set forth on his Subscription Agreement is a true and correct
statement of his total direct and indirect, within the meaning of Section 318
of the Code, holdings of stock of the General Partner or any of its
Affiliates, as defined in Section 1504(a) of the Code. No Person shall be
accepted as a Limited Partner if the admission of such Person would cause the
Limited Partner to own, directly or indirectly, more than 20% of the
outstanding stock of the General Partner or any of its Affiliates as defined
in Section 1504(a) of the Code.
(2) Each Limited Partner further represents and warrants that the
following statements are true: (i) if such Limited Partner is an individual,
he is over 21 years of age; if such Limited Partner is a corporation, it is
authorized and otherwise duly qualified to hold an Interest in the
Partnership; (ii) he has thoroughly read the Prospectus and this Agreement
and understands the nature of the risks involved in the proposed investment;
(iii) he is experienced in investment and business matters; (iv) in the case
of an employee of Merrill Lynch & Co., Inc. or its subsidiaries he has a
current annual salary in an amount which, together with bonus received from
Merrill Lynch & Co., Inc. or its subsidiaries in respect of 1996, equals at
least $100,000 or, if employed for less than a full calendar year, is
employed with an annualized gross income from Merrill Lynch & Co., Inc. or
its subsidiaries of at least $100,000 and the aggregate amount of Units he
will invest in will not exceed an amount that would result in the price of
such Units exceeding 15% of his cash compensation from Merrill Lynch & Co.,
Inc. or its subsidiaries with respect to the most recent calendar year on an
annualized basis unless he either (x) has a net worth, individually or
jointly with his spouse, in excess of $1,000,000 at the time of purchase of
the Units or (y) had an individual income in excess of $200,000 in each of
the two most recent calendar years or joint income with his spouse in excess
of $300,000 in each of those years and has a reasonable expectation of
reaching the same income level in the current calendar year, or in the case
of non-employee directors of Merrill Lynch & Co., Inc., (a) has a net worth
(exclusive of homes, home furnishings, personal automobiles and the amount to
be invested in Units) of not less than $125,000 in excess of the price of the
Units for which such investor has subscribed, or (b) has a net worth
(exclusive of homes, home furnishings, personal automobiles and the amount to
be invested in Units) of not less than $100,000 in excess of the price of the
Units for which such investor has subscribed and expects to have during each
of the current and the next three taxable years, gross income from all
sources in excess of $100,000; (v) he recognizes that the Partnership is
newly organized and has no history of operations or earnings and is subject
to speculative risks; (vi) he understands that the transferability of his
Interest(s) in the Partnership is restricted pursuant to the provisions of
this Agreement and that he cannot expect to be able to liquidate his
investment readily in case of emergency; and (vii) unless otherwise
indicated in his Subscription Agreement, he is the sole party in interest
in his Interest and, as such, is vested with all legal and equitable rights
in such Interests. Investors will be required to represent in writing in the
Subscription Agreement that they meet all applicable requirements and satisfy
any more restrictive suitability requirements imposed by applicable Blue
Sky laws.
Section 7.5 Acquisition of Certain Limited Partners' Interests by the
General Partner or the Partnership
A. The General Partner shall purchase from its own funds for its own
account, or cause to be purchased by the Partnership, from the Partnership's
funds for the Partnership's account, any Limited Partner's Interest tendered
to it pursuant to Section 7.2. The purchase price shall be the value of such
Interest determined at the next annual Valuation Date less any distribution
paid in respect of such Interest subsequent to such Valuation Date.
B. The Partnership may, but is not obliged to, purchase from the
Partnership's funds for the Partnership's account any Interest tendered to
the General Partner pursuant to Section 7.2 if such purchase is in the best
interests of the Partnership.
C. If the General Partner purchases any Interest pursuant to this
Section 7.5 for its own account and not for the account of the Partnership,
the General Partner shall be entitled to the rights of an assignee of such
Interest and be entitled to vote such Interest as if it were a Substituted
Limited Partner or be admitted as a Substituted Limited Partner. The General
Partner may sell any Interest acquired by it under the provisions of this
Section 7.5 on such terms as are acceptable to it, and if the purchaser of
such Interests is not a Partner of this Partnership, he will be entitled to
be admitted to the Partnership as a Substituted Limited Partner with respect
to such Interest. The effective date of any such sale shall be the date on
which payment has been made by the purchaser of such Interest.
ARTICLE EIGHT
Dissolution, Liquidation and
Termination of the Partnership
Section 8.1 Events Causing Dissolution
A. Except as provided in Section 8.1(B), the Partnership shall be
dissolved and its affairs shall be wound up upon the happening of any of the
following events:
(i) the expiration of its term;
(ii) the Incapacity of the General Partner;
(iii) the Removal of the General Partner and the failure to
designate a successor;
(iv) the Sale or other disposition at one time of all or
substantially all of the Partnership's assets;
(v) the election to dissolve the Partnership prior to January 1,
2003 by the General Partner with the Consent of a Majority-in-Interest
of the Limited Partners, which Consent shall be subject to Article
Eleven;
(vi) the election to dissolve the Partnership by the General
Partner at any time after January 1, 2003; or
(vii) the withdrawal of the General Partner without the designation
of a successor General Partner under Section 6.1.
The occurrence of any event described in Sections 17-402(a)(4) or 17-
402(a)(5) of the Act (other than an event that would cause the Incapacity of
the General Partner) shall not cause the General Partner to cease to be a
General Partner of the Partnership or cause the Partnership to dissolve.
B. Upon the happening of an event described in Section 8.1(A)(ii),
(iii) or (vii), the Partnership shall not be dissolved if, at the time of the
occurrence of such event there is at least one other General Partner, or
within ninety (90) days after the occurrence of such an event, all remaining
partners agree to continue the business of the Partnership and to the
appointment, effective as of the date of such event, of one or more successor
General Partners.
C. The Incapacity of any Limited Partner shall not dissolve the
Partnership and the seizure of the Interest of any Partner shall not dissolve
the Partnership. 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 the Partnership's certificate of
limited partnership has been cancelled and the assets of the Partnership have
been distributed as provided in Section 8.2.
Section 8.2 Liquidation
A. Upon dissolution of the Partnership, its liabilities shall be paid
in the order provided herein. The General Partner shall cause Partnership
property to be sold in such manner as it, in its sole discretion, shall
determine in an effort to obtain the best price for such property. In order
for the Partnership to obtain a reasonable price for any Partnership
investments which are illiquid, the General Partner may, to the extent
permitted by applicable law, purchase from the Partnership any Partnership
investments upon which there are significant restrictions as to
transferability or for which a fair market price is not readily obtainable.
Payment of the fair market value of any such investment as established by the
annual Appraisal made in accordance with Section 9.4, adjusted for any
distributions or other significant events subsequent to the Valuation Date,
shall be deemed fair and reasonable and not a violation of any General
Partner's duty to the Partnership. Pending Sale of Partnership property, the
General Partner shall have the right to continue to operate and otherwise
deal with Partnership property. In the event that the General Partner has
been Removed and a successor General Partner has not been designated, the
Limited Partners shall elect, in accordance with the provisions of Article
Eleven, a Person to perform the functions of the General Partner in
liquidating the assets of the Partnership and in winding up its affairs.
B. Profits and Losses arising from Sales upon liquidation shall be
allocated as follows:
(i) Profits shall be allocated (a) first, to the Partners in
amounts equal to the negative balances, if any, in their respective
Capital Accounts, without giving effect to any cash distributions
arising from Sales at liquidation; (b) second, to the General Partner up
to the amount of the Capital Contributions of the General Partner made
to the Partnership during its term under Section 3.1B in excess of 1% of
the Limited Partners' Capital Contributions, but not to exceed the
amount of assets payable to the General Partner under Section 8.2C(ii);
and (c) third, all remaining Profits, 99% to the Limited Partners and 1%
to the General Partner.
(ii) Losses shall be allocated 99% to the Limited Partners and 1%
to the General Partner.
C. In settling accounts after dissolution, the assets of the
Partnership shall be paid out in the following order:
(i) first, to any creditors (including any creditor who is a
Partner), in the order of priority as provided by law or the
establishment of reasonable reserves for the payment of obligations to
creditors;
(ii) second, to each Partner in an amount equivalent to the
positive amount of his Capital Account on the date of distribution,
after giving effect to any allocation of Profits or Losses arising from
Sales on liquidation; and
(iii) third, the balance, 99% to the Limited Partners and 1% to the
General Partner.
D. In the event that following the final dissolution under Section
8.2C, the General Partner has a deficit balance in its Capital Account
balance, the General Partner shall contribute cash to the Partnership
necessary to eliminate said deficit balance.
ARTICLE NINE
Books and Records; Accounting; Appraisal;
Tax Elections; Etc.
Section 9.1 Books and Records
The books and records of the Partnership, including information relating
to the sale by the General Partner or any of its Affiliates of securities,
property, goods or services to the Partnership, and a list of the name,
residence, business or mailing address and Interest of each Limited Partner,
shall be maintained by the General Partner at the office of the Partnership
or of the General Partner and shall, for any purpose, other than commercial
purposes, reasonably related to a Limited Partner's Interest as a limited
partner, be available for examination there by any Limited Partner or his
duly authorized representative at any and all reasonable times. Any Limited
Partner, or his duly authorized representatives, upon paying the costs of
collection, duplication and mailing, for any purpose reasonably related to a
Limited Partner's Interest as a limited partner, shall be entitled to a copy
of the list of name, residence, business or mailing address and Interest of
each Limited Partner. Such information shall be used for Partnership
purposes only. The Partnership may maintain such other books and records and
may provide such financial or other statements as the General Partner in its
discretion deems advisable.
Section 9.2 Accounting Basis for Tax and Reporting Purposes; Fiscal
Year
The books and records, and the financial statements and reports of the
Partnership, both for tax and financial reporting purposes, shall be kept on
an accrual basis. The Fiscal Year of the Partnership for both tax and
financial reporting purposes shall be the calendar year.
Section 9.3 Bank Accounts
The General Partner shall maintain the Partnership Account and
withdrawals shall be made only in the regular course of the Partnership
business on such signature or signatures as the General Partner may
determine. Temporary investments of the type permitted by Section 4.1A(ix)
are deemed activities in the ordinary course of Partnership business.
Section 9.4 Appraisal
Beginning December 31, 1997, and as of December 31, of each succeeding
year thereafter (the "Valuation Date"), the General Partner will make or have
made an appraisal of all of the assets of the Partnership as of the Valuation
Date (the "Appraisal"). The Appraisal of the Partnerships assets may be by
independent third parties appointed by the General Partner and deemed
qualified by the General Partner to render an opinion as to the value of
Partnership assets, using such methods and considering such information
relating to the investments, assets and liabilities of the Partnership as
such Persons may deem appropriate, but in the case of an event subsequent to
the Valuation Date materially affecting the value of any Partnership asset or
investment, the General Partner may revise the Appraisal as it, in its good
faith and sole discretion, deems appropriate. For purposes of the Appraisal
to be made on December 31, 1997, the General Partner may use the purchase
price of Partnership assets as the value of such assets.
Section 9.5 Reports
Within 75 days after the end of each Fiscal Year or as soon as
practicable thereafter, the General Partner shall send to each Person who was
a Limited Partner at any time during the Fiscal Year then ended (i) a
statement (which shall be audited by the Auditors) showing the Distributable
Cash (or assets distributed in kind) distributed in respect of such year;
(ii) such tax information as shall be necessary for the preparation by such
Limited Partner of his Federal and state income tax returns; and (iii) a
report of the investment activities of the Partnership during such year.
Within 120 days after the end of each Fiscal Year, the General Partner shall
send to each Person who was a Limited Partner at any time during the Fiscal
Year then ended Partnership financial statements audited by the Auditors and
a copy of the Appraisal. Within 45 days after the end of each quarter of a
Fiscal Year the General Partner shall send to the Partnership a certificate
itemizing the Partnership expenses it has paid during such quarter. The
General Partner shall not be required to deliver or mail a copy of the
certificate of limited partnership of the Partnership or any amendment
thereof to the Limited Partners.
Section 9.6 Elections
The General Partner may cause the Partnership to make all elections
required or permitted to be made by the Partnership under the Code and not
otherwise expressly provided for in this Agreement, in the manner that the
General Partner believes will be most advantageous to individual taxpayers
who (i) are married and filing joint Federal income tax returns, (ii) are not
"dealers" for Federal income tax purposes, and (iii) have income at least
part of which, without giving effect to any additional tax on preference
items, is subject to Federal income taxation at the then highest marginal tax
rate for persons set forth in (i).
ARTICLE TEN
Amendments
Section 10.1 Proposal and Adoption of Amendments Generally
A. Amendments to this Agreement to reflect the addition or substitution
of a Limited Partner, the admission of a successor General Partner or the
withdrawal of the General Partner, shall be made at the time and in the
manner referred to in Section 10.2. Any other amendment to this Agreement
may be proposed by the General Partner or by 10% in Interest of the Limited
Partners. The Partner or Partners proposing such amendment shall submit (a)
the text of such amendment, (b) a statement of the purpose of such amendment,
and (c) an opinion of counsel obtained by the Partner or Partners proposing
such amendment to the effect that such amendment is permitted by the Act and
the laws of any other jurisdiction where the Partnership is qualified to do
business, will not impair the liability of the Limited Partner and will not
adversely affect the classification of the Partnership as a partnership for
Federal income tax purposes. The General Partner shall, within 20 days after
receipt of any proposal under this Section 10.1A, give Notification to all
Partners of such proposed amendment, of such statement of purpose and of such
opinion of counsel, together, in the case of an amendment proposed by Limited
Partners, with the views, if any, of the General Partner with respect to such
proposed amendment.
B. Amendments of this Agreement shall be adopted if:
(i) in the case of amendments referred to in Sections 10.2A and
10.2B, the conditions specified in Sections 6.1 and 6.2 shall have been
satisfactorily completed;
(ii) in the case of amendments referred to in Section 10.2C, the
conditions specified in Section 7.4 shall have been satisfactorily
completed; or
(iii) in the case of all amendments, subject to the provisions of
Section 11.3, such amendment shall have been Consented to by a
Majority-in-Interest of the Limited Partners; provided, however, that no
such amendment may:
(a) enlarge the obligations of any Partner under this Agreement or
convert the Interest of any Limited Partner into the Interest
of a General Partner or modify the liability of any Limited
Partner without the Consent of such Partner;
(b) modify the method provided in Article Five of determining,
allocating or distributing, as the case may be, Profits and
Losses and Distributable Cash without the Consent of each
Partner adversely affected by such modification;
(c) amend Sections 6.1 or 6.2 without the Consent of the General
Partner;
(d) amend Section 4.3C, this Article Ten or Section 11.3 without
the Consent of all the Partners; or
(e) allow additional contributions of capital by some or all of
the Limited Partners without the Consent of the General
Partner and a Majority-in-Interest of the Limited Partners.
C. Upon the adoption of any amendment to this Agreement, the amendment
shall be executed by the General Partner and the Limited Partners and, if
required by the Act, an amendment to the certificate of limited partnership
of the Partnership shall be filed or recorded in the proper records of the
State and of each jurisdiction in which filing or recordation is necessary
for the Partnership to conduct business or to preserve the limited liability
of the Limited Partners. Each Limited Partner hereby irrevocably appoints
and constitutes the General Partner as his agent and attorney-in-fact to
execute, file, and record any and all such amendments including, without
limitation, amendments to admit Limited Partners and to increase or decrease
the amount of the contribution to the Partnership of any Partner. The power
of attorney given herewith is irrevocable, is coupled with an interest and
shall survive and not be affected by the subsequent Incapacity of any Limited
Partner granting it.
D. Notwithstanding anything to the contrary contained herein, the
General Partner may, without prior notice or Consent of any Limited Partner,
amend any provision of this Agreement if, in its opinion, such amendment does
not have a material adverse effect upon the Limited Partners.
Section 10.2 Amendments on Admission or Withdrawal of Partners
A. If this Agreement shall be amended to reflect the admission of a
General Partner, the amendment to this Agreement and to the certificate of
limited partnership of the Partnership shall be adopted, executed and filed
as required by the Act and this Agreement.
B. If this Agreement shall be amended to reflect the withdrawal or
Removal of the General Partner and the continuation of the business of the
Partnership, the amendment to this Agreement and to the certificate of
limited partnership shall be adopted, executed and filed as required by the
Act and this Agreement.
C. No Person shall become a Partner unless such Person shall have
become a party to, and adopted all of the terms and conditions of, this
Agreement, and except for the Initial Limited Partner or an Additional
Limited Partner, paid any reasonable legal fees of the Partnership and the
General Partner and filing and publication costs in connection with such
Person's becoming a Partner elected to be so charged in the General Partner's
discretion.
ARTICLE ELEVEN
Consents, Voting and Meetings
Section 11.1 Method of Giving Consent
Any Consent required by this Agreement may be given as follows:
(i) by a written Consent given by the approving Partner at or
prior to the date set by the General Partner for the delivery of the
Consent, provided that such Consent shall not have been nullified by
either (a) Notification to the General Partner by the approving Partner
at or prior to the time of, or the negative vote by such approving
Partner at, any meeting held to consider the doing of such act or
thing, or (b) Notification to the General Partner by the approving
Partner prior to the date set by the General Partner for the delivery
of the Consent with respect to actions the doing of which is not subject
to approval at such meeting; or
(ii) by the affirmative vote by the approving Partner to the doing
of the act or thing for which the Consent is solicited at any meeting
called and held pursuant to Section 11.2 to consider the doing of such
act or thing.
Section 11.2 Meetings of Partners
The termination of the Partnership and any other matter requiring the
Consent of all or any of the Limited Partners pursuant to this Agreement may
be considered at a meeting of the Partners held not less than 15 nor more
than 30 days after Notification thereof shall have been given by the General
Partner to all Partners. Such Notification (i) may be given by the General
Partner, in its discretion, at any time and (ii) shall be given by the
General Partner within 15 days after receipt by the General Partner of a
request for such a meeting made by 10% in Interest of the Limited Partners.
Such meeting shall be held within or outside the State at such reasonable
place as shall be specified by the General Partner if Notification of such
meeting is given pursuant to this Section 11.2.
Section 11.3 Limitations on Requirements for Consents
Notwithstanding the provisions of Sections 4.3C, 6.1A(iv), 6.1C, 6.5A,
6.5B, 8.1(v) and 10.1B, as the case may be,
(i) the provision of Section 4.3C(i) requiring the Consent of a
Majority-in-Interest of the Limited Partners to the sale or other
disposition at any one time of all or substantially all of the assets of
the Partnership shall be void and the General Partner shall have
authority to sell or dispose at any one time all or substantially all of
the assets of the Partnership;
(ii) the provisions of Section 4.3C(ii) and 8.1(v) permitting the
General Partner to dissolve the Partnership prior to January 1, 2003
with the Consent of the Majority-in-Interest of the Limited Partners
shall be void and the General Partner shall have the authority to
dissolve the Partnership at any time without the Consent of the Limited
Partners;
(iii) the provisions of Section 4.3C(iii) through (ix) requiring the
Consent of a Majority-in-Interest of the Limited Partners as to the
taking of certain actions by the General Partner shall be void and the
General Partner may take such actions on behalf of the Partnership if
not prohibited by the Investment Company Act of 1940;
(iv) the provisions of Sections 6.1A(iv) and 6.1C permitting the
giving of the Consent of the Limited Partners by the express Consent of
a Majority-in-Interest of the Limited Partners shall be void;
(v) the power granted pursuant to the provisions of Section 6.5A
and 6.5B to Remove the General Partner and designate a successor General
Partner upon the Consent of a Majority-in-Interest of the Limited
Partners may not be exercised; and
(vi) the provisions of Section 10.1B(iii) relating to the amendment
of this Agreement by or upon the Consent of a Majority-in-Interest of
the Limited Partners shall be void;
unless at the time of the giving or withholding of the Consent pursuant to
the provisions of Sections 4.3C, 6.1A(iv), 6.1C, 6.5A, 6.5B, 8.1(v) or 10.1B,
as the case may be, counsel for the Partnership or counsel designated by 10%
in Interest of the Limited Partners shall have delivered to the Partnership
an opinion to the effect that the giving or withholding of the Consent is
permitted by the Act, will not impair the liability of the Limited Partners
and will not adversely affect the classification of the Partnership as a
partnership for Federal income tax purposes.
Section 11.4 Submissions to Limited Partners
The General Partner shall give all the Limited Partners Notification of
any proposal or other matters required by any provisions of this Agreement or
by law to be submitted for the consideration and approval of the Limited
Partners. Such Notification shall include any information required by the
relevant provision of this Agreement or by law.
ARTICLE TWELVE
Miscellaneous Provisions
Section 12.1 Appointment of the General Partner as Attorney-in-Fact
A. Each Limited Partner, by his execution hereof, hereby makes,
constitutes and appoints the General Partner and each of its officers his
true and lawful agent and attorney-in-fact, with full power of substitution
and full power and authority in his name, place and stead to make, execute,
sign, acknowledge, swear to, record and file, on behalf of him and on behalf
of the Partnership, such documents, instruments and conveyances that may be
necessary or appropriate to carry out the provisions or purposes of this
Agreement, including, without limitation:
(i) this Agreement and the certificate of limited partnership of
the Partnership and all amendments to this Agreement and the certificate
of limited partnership of the Partnership required or permitted by law
or the provisions of this Agreement including, without limitation, such
certificates, agreements and amendments thereto relating to the
admission to the Partnership of Partners and the increase or decrease of
the amount of the Capital Contributions of any Partner;
(ii) all certificates and other instruments deemed advisable by the
General Partner to carry out the provisions of this Agreement or to
permit the Partnership to become or to continue as a limited partnership
or partnership wherein the Limited Partners have limited liability in
any jurisdiction where the Partnership may be doing business;
(iii) all instruments that the General Partner deems appropriate to
reflect a change or modification of this Agreement, in accordance with
this Agreement, including, without limitation, the substitution of
assignees as Substituted Limited Partners pursuant to Sections 7.4 and
10.2C and, if required, the filing of certificates to effect the same;
(iv) all conveyances and other instruments or papers deemed
advisable by the General Partner to effect the dissolution and
termination of the Partnership, including a certificate of cancellation;
(v) all fictitious or assumed name certificates required or
permitted to be filed on behalf of the Partnership;
(vi) all instruments or papers required by law to be filed in
connection with the issuance of limited partnership interests senior to
the Units;
(vii) all other instruments or papers which may be required or
permitted by law to be filed on behalf of the Partnership; and
(viii) all instruments and filings required by Section 6111 of the
Code ("Registration of Tax Shelters") and Section 6112 of the Code
relating to maintenance of lists of investors in tax shelters.
B. The foregoing power of attorney:
(i) is coupled with an interest, shall be irrevocable, shall not
be affected by and shall survive the subsequent Incapacity of each
Limited Partner;
(ii) may be exercised by the General Partner either by signing
separately or jointly as attorney-in- fact for each or all Limited
Partner(s) or, with or without listing all of the Limited Partners
executing an instrument, by a single signature of the General Partner
acting as attorney-in-fact for all of them; and
(iii) shall survive the delivery of an assignment by a Limited
Partner of the whole of his Interest; except that, where the assignee of
the whole of such Limited Partner's Interests has been approved by the
General Partner for admission to the Partnership as a Substituted
Limited Partner, the power of attorney of the assignor shall survive the
delivery of such assignment for the sole purpose of enabling the General
Partner to execute, swear to, acknowledge and file any instrument
necessary or appropriate to effect such substitution.
C. Each Limited Partner shall execute and deliver to the General
Partner within five days after receipt of the General Partner's request
therefor such further designations, powers-of-attorney and other instruments
as the General Partner deems necessary or appropriate to carry out the terms
of this Agreement.
Section 12.2 Notification to the Partnership or the General Partner
Any notification to the Partnership or the General Partner shall be sent
to the principal office of the Partnership.
Section 12.3 Binding Provisions
The covenants and agreements contained herein shall be binding upon and
inure to the benefit of the heirs, executors, administrators, permitted
successors and assigns of the respective parties hereto.
Section 12.4 Applicable Law
This Agreement shall be construed and enforced in accordance with the
laws of the State.
Section 12.5 Counterparts
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that not all the parties have signed the same counterpart
except that no counterpart shall be binding unless signed by the General
Partner. The General Partner may execute any document by facsimile signature
of a duly authorized officer.
Section 12.6 Separability of Provisions
If for any reason any provisions hereof that are not material to the
purposes or business of the Partnership or the Limited Partners' Interests
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement that are valid.
Section 12.7 Entire Agreement
This Agreement constitutes the entire agreement among the parties. This
Agreement supersedes any prior agreement or understanding among the parties
and may not be modified or amended in any manner other than as set forth
therein.
Section 12.8 Headings
The headings in this Agreement are for descriptive purposes only and
shall not control or alter the meaning of this Agreement as set forth in the
text.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
KECALP INC.
General Partner
By: ____________________________
Attest:
By: ______________________
Secretary
Withdrawing and Initial Limited
Partner
_______________________________________
Robert F. Tully
LIMITED PARTNERS
All Limited Partners now and
hereafter admitted as limited
partners to the Partnership,
pursuant to Powers of Attorney
now and hereafter executed in
favor of, and delivered to, the
General Partner.
By: KECALP Inc.
By:
______________________________________
EXHIBIT B
SUBSCRIPTION AGREEMENT
MERRILL LYNCH KECALP L.P. 1997
KECALP Inc., General Partner of
Merrill Lynch KECALP L.P. 1997
South Tower
World Financial Center
225 Liberty Street
New York, New York 10080-6123
Gentlemen:
By signing the Limited Partner Signature Page and Power of Attorney
attached hereto, the undersigned hereby applies for the purchase of the
number of limited partner interests (the "Units"), set forth below, in
Merrill Lynch KECALP L.P. 1997, a Delaware limited partnership (the
"Partnership"), at a price of $1,000 per Unit (minimum purchase of five
Units), and authorizes Merrill Lynch, Pierce, Fenner & Smith Incorporated to
debit his securities account in the amount set forth below for such Units.
The undersigned understands that such funds will be held by The Bank of New
York, as Escrow Agent, and will be returned promptly in the event that 40,000
Units of the Units offered by the Prospectus are not subscribed for by the
Offering Termination Date (as defined in the Prospectus). The undersigned
hereby acknowledges receipt of a copy of the Prospectus, as well as the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement") of the Partnership attached to the Prospectus as Exhibit A, and
hereby specifically accepts and adopts each and every provision of, and
executes, the Partnership Agreement and agrees to be bound thereby.
The undersigned hereby represents and warrants to you as follows:
1. The undersigned has carefully read the Prospectus and has relied
solely on the Prospectus and investigation made by the undersigned or his or
her representatives in making the decision to invest in the Partnership.
2. The undersigned is aware that investment in the Units involves
certain risk factors and has carefully read and considered the matters set
forth under the captions "Investment Objective and Policies", "Conflicts of
Interest", "Risk and Other Important Factors" and "Tax Aspects of Investment
in the Partnership" in the Prospectus.
3. The undersigned is 21 years of age or over, has adequate means of
providing for his or her current needs and personal contingencies and has no
need for liquidity in this investment.
4. The undersigned represents that he or she (i) in the case of an
employee of Merrill Lynch & Co., Inc. ("ML & Co.") or its subsidiaries,
receives a current annual salary which, together with bonus received from ML
& Co. or its subsidiaries in respect of 1996, equals at least $100,000; or,
if employed for less than a full calendar year, is employed with an
annualized gross income from ML & Co. or its subsidiaries of at least
$100,000 or (ii) in the case of a non-employee director of ML & Co., (a) has
a net worth (exclusive of homes, home furnishings, personal automobiles and
the amount to be invested in Units) of not less than $125,000 in excess of
the price of the Units for which such investor has subscribed, or (b) has a
net worth (exclusive of homes, home furnishings, personal automobiles and the
amount to be invested in Units) of not less than $100,000 in excess of the
price of the Units for which such investor has subscribed and expects to have
during each of the current and the next three taxable years, gross income
from all sources in excess of $100,000.
5. The undersigned represents that the amount of Units to be purchased
hereby (i) in the case of an employee of ML & Co. or its subsidiaries, does
not exceed an amount that would result in the price of such Units exceeding
either (a) 15% of the employee's cash compensation from ML & Co. or its
subsidiaries received in respect of 1996 on an annualized basis unless the
employee either (x) has a net worth, individually or jointly with the
employee's spouse, in excess of $1,000,000 at the time of purchase of the
Units, or (y) had an individual income in excess of $200,000 in each of
1995 and 1996 or joint income with the employee's spouse in excess of
$300,000 in each of those years and reached or has a reasonable expectation
of reaching the same income level in 1997 or (b) 75% of his compensation
received in respect of 1996 on an annualized basis, provided that the
employee meets the standards of (x) or (y) above; or (ii) in the case of a
non-employee director of ML & Co., does not exceed an amount equal to two
times the director's fees (including committee fees, but not including
reimbursements of expenses) received from ML & Co. during 1996.
6. The undersigned represents and warrants that the statements
contained in Section 7.4D of the Partnership Agreement are true insofar as
they relate to the undersigned:
The undersigned understands and recognizes that:
(a) The subscription may be accepted or rejected in whole or in
part by the General Partner in its sole and absolute discretion, except
that, if this subscription is to be accepted in part only, it shall not
be reduced to an amount less than $5,000.
(b) No Federal or state agency has made any finding or
determination as to the fairness for public investment, nor any
recommendation or endorsement, of the Units.
(c) There are restrictions on the transferability of the Units,
there will be no public market for Units, and accordingly, it may not be
possible for the undersigned readily, if at all, to liquidate his or her
investment in the Partnership in case of an emergency.
(d) Prior to any contrary notification to the General Partner by
the undersigned, the undersigned hereby authorizes all cash
distributions to be made by the Partnership to the undersigned as a
Limited Partner to be credited to the undersigned's securities account
at Merrill Lynch, Pierce, Fenner & Smith Incorporated as specified in
the Signature Page and Power of Attorney attached hereto.
The undersigned hereby acknowledges and agrees that the undersigned is
not entitled to cancel, terminate or revoke this subscription or any
agreements of the undersigned hereunder and that such subscription and
agreements shall survive the disability of the undersigned.
This Subscription Agreement and all rights hereunder shall be governed
by, and interpreted in accordance with, the laws of the State of Delaware.
In Witness Whereof, the undersigned executes and agrees to be bound by
this Subscription Agreement by executing the Limited Partner Signature Page
and Power of Attorney attached hereto on the date therein indicated.
INSTRUCTIONS FOR PURCHASERS OF UNITS
Any person desiring to subscribe for Units should carefully read and
review the Prospectus and, if he or she desires to subscribe for Units in the
Partnership, complete the following steps:
1. Complete, date and execute the Limited Partner Signature Page and
Power of Attorney (sent with Prospectus, on green paper).
2. Use the sample that follows, to assist you in the accurate
completion of the Signature Page.
3. Indicate in the four boxes provided the number of Units you would
like to purchase (minimum 5 Units). If this amount is in excess of 250
Units, your subscription will be entered initially for 250 Units and, if the
offering is not fully subscribed at the offering termination date, you will
receive as many of the Units you have requested as are available on a pro
rata basis based on the amount of Units available subject to the limitations
described in the Prospectus.
4. Direct Investment Services will, upon receipt of the acceptance of
your subscription, enter and execute an order. An execution wire will be
generated to your branch office and a trade confirmation will be made to you.
Settlement date will be five (5) business days following execution.
Your MLPF&S Securities Account will be debited in the amount of $1,000
for each Unit that you purchase.
5. Cancellations and quantity reductions are difficult to handle after
an investor has been accepted and the funds placed in escrow. Nonetheless,
if you wish to cancel, contact Andrew Kaufman at (212) 236-7302.
MERRILL LYNCH KECALP L.P. 1997
LIMITED PARTNER SIGNATURE PAGE AND POWER OF ATTORNEY
The undersigned, desiring to become a Limited Partner of Merrill Lynch
KECALP L.P. 1997 (the "Partnership"), pursuant to Section 3.3 or 7.4 of the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), a form of which is included as Exhibit A to the Prospectus of
the Partnership dated ___________, 1997 (the "Prospectus"), hereby executes,
and agrees to all of the terms of, the Partnership Agreement of the
Partnership and agrees to be bound by the terms and provisions thereof. The
undersigned further, by executing this Limited Partner Signature Page and
Power of Attorney, hereby executes, adopts and agrees to all terms,
conditions and representations of the Subscription Agreement included as
Exhibit B to the Prospectus. The undersigned further irrevocably constitutes
and appoints KECALP Inc., the General Partner of the Partnership, and its
successors and assigns with full power of substitution, the true and lawful
attorney for the undersigned and in the name, place and stead of the
undersigned to make, execute, sign, acknowledge, swear to, deliver, record
and file any documents or instruments which may be considered necessary or
desirable by the General Partner to carry out fully the provisions of the
Partnership Agreement, including, without limitation, the Partnership
Agreement, the certificate of limited partnership of the Partnership and any
amendment or amendments thereto, including, without limitation, amendments
thereof for the purpose of increasing or decreasing the capital contribution
of any partner and adding and deleting the undersigned and others as the
partners in the Partnership, as contemplated by the Partnership Agreement
(which amendment(s) the undersigned hereby joins in and executes, hereby
authorizing his Limited Partner Signature Page and Power of Attorney to be
attached, if required, to any such amendment) and of otherwise amending the
Partnership Agreement from time to time, or cancelling the same. The power of
attorney hereby granted shall be deemed to be coupled with an interest and
shall be irrevocable and survive and not be affected by the subsequent death,
disability, incapacity or insolvency of the undersigned or any delivery by
the undersigned of an assignment of the whole or any portion of the interest
of the undersigned. The place of residence of the undersigned is as shown
below.
ALL INFORMATION MUST BE COMPLETED
Signature of Limited Partner: _______________________
# of Units applied for (whole Units only) /x//x/ x $1,000. = Dollar Amount
to be debited from account listed below
$ /x//x//x//x//x/
Does purchase price of Units applied for exceed 15% of your Merrill Lynch
compensation in respect of 1996? Yes /x/ No / /
If so, do you satisfy either of the exceptions specified under "Maximum
Purchase by Qualified Investors" on page (51) of the Prospectus?
Yes /x/ No / /
Limited Partner Name: /x//x//x//x//x/
Last Name
/x//x//x//x//x/ /x/
First Name MI
Social Security/Indiv. Taxpayer ID ML Account
Number /x//x//x/-/x//x/-/x//x//x//x/ Number /x//x//x/-/x//x//x//x//x/
ML Employee
Number /x//x//x//x//x/
Mailing Address: (As it is to appear on Envelopes)
Name: /x//x//x//x//x/ /x/ /x//x//x//x//x/
Home
Address: /x//x//x/ /x//x//x//x//x//x//x/ /x//x//x//x//x//x/
/x//x//x/ /x//x/ /x//x//x//x//x//x//x//x/ /x//x/
City: /x//x//x/ /x//x//x//x/ State: /x//x/
Zip Code: /x//x//x//x//x/-/x//x//x//x/
Residence State if different from above: / // /
Home
Telephone: /x//x//x/-/x//x//x/-/x//x//x//x/
Office
Telephone: /x//x//x/-/x//x//x/-/x//x//x//x/
Fax: /x//x//x/-/x//x//x/-/x//x//x//x/
Are you an active Financial Consultant? Yes /x/ No / /
Branch Office # / // // / and F.C. # /x//x//x//x//x/
U.S. Citizen? Yes / / No / / If No, What Country or State are you a
Citizen of? / // // // // // // // // // // // // /
Resident alien / / Non-resident alien / /
(If non-resident alien, please submit Form W-8)
(THIS PAGE INTENTIONALLY LEFT BLANK)
TABLE OF CONTENTS
250,000 UNITS OF
LIMITED PARTNERSHIP
Page INTEREST
----
Investor Suitability Standards 2
Summary of the Offering 3
Partnership Expenses 7
Conflicts of Interest 7
Fiduciary Responsibility of the
General Partner 9
Risk and Other Important Factors 9 MERRILL LYNCH
Compensation and Fees 14 KECALP L.P.
The Partnership 14 1997
The General Partner and Its
Affiliates 16
Investment Objective and
Policies 27
Tax Aspects of Investment in the
Partnership 34
Summary of the Partnership
Agreement 47
Offering and Sale of Units 49
Transferability of Units 51
Reports 53
Experts 53
Legal Matters 54
Exemptions from the Investment
Company Act of 1940 54
Additional Information 55
Index to Financial Statements 56
-----------------------------
Form of Amended and Restated
Agreement of Limited
Partnership Ex. A
Subscription Agreement Ex. B MAY , 1997
MERRILL LYNCH & CO.
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Contained in Part A:
See "Index to Financial Statements" in the Prospectus.
Contained in Part B
-- Not Applicable
Contained in Part C
-- None
(2) Exhibits
(a)(i) -- Certificate of Limited Partnership of Merrill Lynch
KECALP L.P. 1997/(1)/
(a)(ii) -- Form of Amended and Restated Agreement of Limited
Partnership of Merrill Lynch KECALP L.P. 1997 is included
as Exhibit A in the Prospectus
(a)(iii) -- Subscription Agreement is included in Exhibit B in the
Prospectus
(b) -- Not Applicable
(c) -- Not Applicable
(d) -- Copies of Instruments Defining the Rights of Unitholders/(2)/
(e) -- Not Applicable
(f) -- Not Applicable
(g) -- Not Applicable
(h) -- Form of Agency Agreement
(i) -- Not Applicable
(j) -- Form of Escrow Deposit Agreement
(k) -- Not Applicable
(l) -- Opinion and Consent of Brown & Wood LLP//
(m) -- Not Applicable
(n)(i) -- Consent of Independent Accountants
(n)(ii) -- Form of opinion of Brown & Wood LLP as to certain tax
matters//
(o) -- Not Applicable
(p) -- Not Applicable
(q) -- Not Applicable
- -----------------
/(1)/ Previously filed.
/(2)/ Reference is made to the Amended and Restated Agreement of Limited
Partnership of Merrill Lynch KECALP L.P. 1997, a form of which is
included as Exhibit A in the Prospectus.
ITEM 25. MARKETING ARRANGEMENTS.
None.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.
Registration fees $ 75,758
National Association of Securities Dealers, Inc. fees 25,500
Printing 150,000
Legal fees and expenses 125,000
Accounting fees and expenses 1,650
Miscellaneous 22,092
------------
Total $400,000
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The General Partner of the Partnership is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
Robert F. Tully, an employee of Merrill Lynch & Co., Inc. purchased a
limited partnership interest in the Partnership for $1.00 in order to become
the Initial Limited Partner and permit the filing of the Agreement and
Certificate of Limited Partnership. This sale was prior to the date of
effectiveness of this Registration Statement, as a "private offering"
pursuant to the exemption contained in Section 4(2) of the Securities Act of
1933. Upon admission of the purchasers of Units to the Partnership as
Limited Partners, Mr. Tully will withdraw from the Partnership and receive a
return of his $1.00.
ITEM 29. INDEMNIFICATION.
Pursuant to Section 4.7 of the Partnership Agreement, neither the
General Partner nor any of its officers, directors or agents shall be liable
to the Partnership or the Limited Partners for any act or omission based upon
errors of judgment or other fault in connection with the business or affairs
of the Partnership so long as the person against whom liability is asserted
acted in good faith and in a manner reasonably believed by such person to be
within the scope of its authority under the Partnership Agreement and in or
not opposed to the best interests of the Partnership, but only if such action
or failure to act does not constitute negligence, misconduct or any other
breach of fiduciary duty. The General Partner and its officers, directors
and agents will be indemnified by the Partnership to the fullest extent
permitted by law for any (a) fees, costs and expenses incurred in connection
with or resulting from any claim, action or demand against the General
Partner, the Partnership or any of their officers, directors and agents that
arises out of or in any way relates to the Partnership, its properties,
business or affairs and (b) such claims, actions and demands and any losses
or damages resulting from such claims, actions and demands, including amounts
paid in settlement or compromise (if recommended by attorneys for the
Partnership) of any such claim, action or demand; provided, however, that
this indemnification shall apply only so long as the person against whom a
claim, action or demand is asserted has acted in good faith and in a manner
reasonably believed by such person to be within the scope of his or its
authority under the Partnership Agreement and in or not opposed to the best
interests of the Partnership, but only if such action or failure to act does
not constitute negligence, misconduct or any other breach of fiduciary duty.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to the General Partner, the Partnership has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against the public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such
liabilities under the Securities Act of 1933 (other than for expenses
incurred in a successful defense) is asserted against the
Partnership by the General Partner under the Partnership Agreement or
otherwise, the Partnership will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification by it
is against public policy as expressed in such Act and will be governed by the
final adjudication of such issue.
Reference is made to Section 8 of the form of Agency Agreement to be
filed as Exhibit (h) hereto, which contains provisions requiring
indemnification of the Partnership's principal underwriter by the General
Partner and of the Partnership and the General Partner by the Partnership's
principal underwriter.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Information concerning the General Partner and biographical information
for each of the directors and executive officers of the General Partner is
contained in Part A of this Registration Statement under the caption "The
General Partner and Its Affiliates."
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Partnership will be maintained at the
office of the Partnership at South Tower, World Financial Center, 225 Liberty
Street, New York, New York 10080-6123.
ITEM 32. MANAGEMENT SERVICES.
Not Applicable.
ITEM 33. UNDERTAKINGS.
(1) Registrant undertakes to suspend offering of the Common Stock
covered hereby until it amends its Prospectus contained herein if (i)
subsequent to the effective date of this Registration Statement, its net
asset value declines more than 10 percent from its net asset value as of the
effective date of this Registration Statement, or (ii) its net asset value
increases to an amount greater than its net proceeds as stated in the
Prospectus contained herein.
(2) Not applicable.
(3) Not applicable.
(4) Registrant undertakes:
(a) to file, during any period in which offers or sales are
being made, a post-effective amendment to the registration
statement:
(1) to include any prospectus required by Section 10(a)(3) of
the 1933 Act (15 U.S.C. 77j(a)(3));
(2) to reflect in the prospect any facts or events after the
effective date of the registration statement (or the most
recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(3) to include any material information with respect to the
plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(b) that, for the purpose of determining any liability under
the 1933 Act, each such post-effective amendment shall be deemed to
be a new registration statement relating to the securities offered
therein, and the offering of those securities at that time shall be
deemed to be the initial bona fide offering thereof; and
(c) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
(5) Registrant undertakes that:
(a) For the purposes of determining any liability under the
Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to
be part of this Registration Statement as of the time it was
declared effective.
(b) For the purpose of determining any liability under the
Act, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(6) Not applicable.
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND THE
INVESTMENT COMPANY ACT OF 1940, THE REGISTRANT HAS DULY CAUSED THIS
REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF NEW YORK AND STATE OF NEW YORK ON
THE 15TH DAY OF MAY, 1997.
Merrill Lynch KECALP L.P. 1997
By KECALP Inc., its General Partner
By /s/ Robert F. Tully
-------------------------------
Robert F. Tully
Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE 15TH DAY OF MAY, 1997.
Signature Title
--------- -----
John L. Steffens* President and Director (Chief
----------------------------------- Executive Officer)
(John L. Steffens) KECALP Inc.
/s/ Robert F. Tully Vice President and Treasurer
----------------------------------- (Chief Financial and
(Robert F. Tully) Accounting Officer)
KECALP Inc.
James V. Caruso* Vice President and Director
----------------------------------- KECALP Inc.
(James V. Caruso)
Rosemary T. Berkery* Vice President and Director
----------------------------------- KECALP Inc.
(Rosemary T. Berkery)
Andrew J. Melnick* Vice President and Director
----------------------------------- KECALP Inc.
(Andrew J. Melnick)
Patrick J. Walsh* Vice President and Director
----------------------------------- KECALP Inc.
(Patrick J. Walsh)
*By: /s/ Robert F. Tully
---------------------------
Robert F. Tully
Attorney-in-fact
EXHIBIT INDEX
Exhibit Page No.
- ------- --------
(h) -- Form of Agency Agreement
(j) -- Form of Escrow Agreement
(l) -- Opinion and Consent of Brown & Wood LLP
(n)(i) -- Consent of Independent Accountants
(n)(ii) -- Form of opinion of Brown & Wood LLP as to certain
matters
Exhibit-(h)
B&W DRAFT 5/15/97
MERRILL LYNCH KECALP L.P. 1997
(A Delaware Limited Partnership)
250,000 Units of Limited Partnership Interest
AGENCY AGREEMENT
----------------
May , 1997
--
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower - 27th floor
World Financial Center
New York, New York 10281-1327
Dear Sirs:
Merrill Lynch KECALP L.P. 1997, a limited partnership (the Partnership")
organized under the Revised Uniform Limited Partnership Act of the State of
Delaware (the "RULPA") by its general partner, KECALP Inc., a Delaware
corporation (the "General Partner"), to invest a substantial portion of the
funds of the Partnership in privately-offered equity investments (the
"Investments") seeking, among other things, capital appreciation, as
described in the Prospectus referred to below, proposes to offer for sale
250,000 units of limited partnership interest ("Units") in the Partnership.
Each prospective investor subscribing to purchase Units (collectively, the
"Subscribers") will be required to execute and deliver a subscription
agreement (a "Subscription Agreement"), including a Limited Partner Signature
Page and Power of Attorney, substantially in the form thereof attached as
Exhibit B to the Prospectus referred to below.
The Partnership has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form N-2 (No. 333-15035) and a
related preliminary prospectus for the registration of the Units under the
Securities Act of 1933, as amended and the registration of the Partnership
under the Investment Company Act of 1940, as amended (the "1933 Act" and the
"1940 Act", respectively). Such registration statement, as amended, at the
time it is declared effective by the Commission is hereinafter referred to as
the "Registration Statement" and the final prospectus included therein is
hereinafter referred to as the "Prospectus", except that (i) if the
Partnership files a post-effective amendment to the Registration Statement,
then the term "Registration Statement" shall, from and after the
declaration of the effectiveness of such post-effective amendment thereto,
refer to the Registration Statement as amended, and the term "Prospectus"
shall refer to the amended prospectus included in the Registration Statement
as amended, and (ii) if any prospectus filed by the Partnership pursuant to
either Rule 497(b) or (d) of the rules and regulations of the Commission
under the 1933 Act (the "Regulations") differs from the prospectus on file at
the time the Registration Statement or any post-effective amendment thereto
becomes effective, the term "Prospectus" shall refer to the Rule 497(b) or
(d) prospectus from and after the time it is mailed to the Commission for
filing.
Section 1. Appointment of Agent. On the basis of the representations,
--------------------
warranties and covenants herein contained, but subject to the terms and
conditions herein set forth, you are hereby appointed the exclusive agent of
the General Partner and the Partnership during the Offering Period herein
specified for the purpose of finding qualified Subscribers for the Units for
the account of the Partnership through the offering herein contemplated. The
Offering Period shall commence on the day that the Prospectus is first made
available to you by the General Partner for delivery in connection with the
offering for sale of the Units and shall continue until such date as you and
the General Partner shall agree upon, such date being hereinafter referred to
as the "Offering Termination Date"); provided, however, that unless 40,000
Units are subscribed for, none will be sold and all payments received will be
refunded with interest. Subject to the performance by the General Partner
and the Partnership of all of their obligations to be performed hereunder,
and to the completeness and accuracy of all of the representations and
warranties contained herein, you hereby accept such agency and agree on the
terms and conditions herein set forth to use your best efforts during the
Offering Period to find qualified Subscribers. Your agency hereunder, which
is coupled with an interest and, therefore, is not terminable by the General
Partner without your permission, except as otherwise expressly so provided in
this Section 1, shall continue until the termination of the Offering Period.
Any termination of your agency or of this Agency Agreement shall be without
obligation on your part or on the part of the General Partner or the
Partnership except as provided in Section 6 hereof, and except that the
indemnification provided in Section 8 hereof shall continue after such
termination of this Agency Agreement.
Section 2. Representations and Warranties of the Partnership and the
---------------------------------------------------------
General Partner. The General Partner and the Partnership each represents,
- ---------------
warrants and agrees with you for your benefit that:
(a) At the time the Registration Statement initially becomes
effective and at the time any post-effective amendment thereto or new
registration statement referred to above becomes effective, the Registration
Statement will comply in all material respects with the requirements of the
1933 Act and the Regulations and the 1940 Act and the regulations thereunder
and will not contain any untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading, and at the time the Registration Statement
becomes effective (unless the term "Prospectus" refers to the Rule 497(b) or
(d) prospectus, in which case at the time it is mailed to the Commission for
filing) and at the Closing Time referred to in Section 4, the Prospectus and
any supplemental sales material supplied to you pursuant to Section 5(i)
hereof (when read in conjunction with the Prospectus) will not contain an
untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided, however,
that the representations and warranties in this subsection shall not apply to
statements in or omissions from the Registration Statement or the Prospectus
made in reliance upon and in conformity with information furnished to the
Partnership or the General Partner in writing by you expressly for use in the
Registration Statement or Prospectus.
(b) The Agreement of Limited Partnership governing the Partnership
(the "Partnership Agreement") provides for the subscription for and sale of
the Units; all action required to be taken by the General Partner and the
Partnership as a condition to the subscription for and sale of the Units to
qualified Subscribers therefor has been or, prior to the Closing Time
referred to below, will have been taken, and, upon payment of the
consideration therefor specified in the Subscription Agreement, the Units
will constitute valid limited partnership interests in the Partnership, and,
on the assumption that the Limited Partners of the Partnership take no part
in the control of the Partnership's business, the liability of each such
Limited Partner will be limited to the capital contributions which such
Limited Partner is obligated to make to the Partnership (subject to the
obligation of a Limited Partner to repay (i) to the Partnership, to the
extent provided under RULPA Section 17-608, for a period of one year after
any rightful return, any part of his capital contribution rightfully returned
to him, but only to the extent necessary to discharge the Partnership's
liabilities to creditors who extended credit to the Partnership during the
period the capital contribution was held by the Partnership, and (ii) any
funds wrongfully returned or distributed to such Limited Partner), and the
Subscribers will be Limited Partners of the Partnership entitled to all the
benefits of Limited Partners
under the Partnership Agreement and the RULPA. There are no provisions in
the Partnership Agreement the inclusion of which, subject to the terms and
conditions therein, shall cause the Limited Partners to be deemed to be
taking part in the control of the Partnership's business.
(c) The Partnership is a limited partnership duly organized
pursuant to the Partnership Agreement and subject to the RULPA and
existing under the laws of the State of Delaware with full power and
authority to invest in the Investments and to conduct the business in
which it is engaged or proposes to engage, as described in the Prospectus.
(d) On the date hereof the General Partner is, and at all times
through the Closing Time referred to below will be, duly and validly
organized, validly existing and in good standing as a corporation under
the laws of the State of Delaware with full power and authority to act as
General Partner of the Partnership, as described in the Prospectus, and at
Closing Time either the General Partner will be qualified to do business as a
foreign corporation in New York and each other jurisdiction in which such
qualification is necessary in order to enable it to act as General Partner of
the Partnership, or the failure so to qualify in any such other jurisdiction
will not affect in any material way the General Partner's ability to so act
as General Partner.
(e) The accountants who certified the balance sheet of the
Partnership included in the Registration Statement are independent public
accountants as required by the 1933 Act and the Regulations.
(f) The balance sheets of the Partnership and the General Partner
included in the Registration Statement present fairly the financial position
of the Partnership and the General Partner as at the dates indicated; said
balance sheets have been prepared in conformity with generally accepted
accounting principles applied on a consistent basis; and since the date of
the most recent balance sheets included in the Registration Statement through
the date hereof there has not been, and through the Closing Time referred to
below there will not have been, any material adverse change in the financial
position of the Partnership or the General Partner.
(g) Since December 31, 1996, (i) there has not been any change in
the condition, financial or otherwise, of the General Partner, or in the
earnings, business affairs or business prospects of the General Partner,
whether or not arising in the ordinary course of business, which could
materially adversely affect the ability of the General Partner to carry out
its obligations to the Partnership and (ii) no action, suit or proceeding
at law or in equity is pending or, to the knowledge of the General
Partner threatened against or affecting the General Partner, before or
by any governmental official, commission, board or other
administrative agency, which could materially adversely affect the
consummation of this Agency Agreement or the transactions contemplated
hereby.
(h) At or prior to the Closing Time referred to below the General
Partner will have a net worth, computed in accordance with the procedures
specified in Revenue Procedure 72-13 and otherwise in accordance with
generally accepted accounting principles, sufficient to meet the requirements
of Revenue Procedure 72-13.
(i) This Agency Agreement has been duly and validly authorized,
executed and delivered by or on behalf of the Partnership and the General
Partner.
(j) The Partnership Agreement has been duly and validly
authorized, executed and delivered by or on behalf of the General Partner.
(k) The execution and delivery of this Agency Agreement, of each
Subscription Agreement accepted by the General Partner and of the Partnership
Agreement, the incurrence of the obligations herein and therein set forth and
the consummation of the transactions described or contemplated herein and
therein and in the Prospectus will not constitute a breach of, or default
under, any instrument by which the General Partner or the Partnership is
bound or any order, rule or regulation applicable to the General Partner or
the Partnership or the proposed operation of the Partnership, as described in
the Prospectus, of any court or any governmental body or administrative
agency having jurisdiction over the General Partner or the Partnership.
(l) The Partnership is duly registered with the Commission under
the 1940 Act as a closed-end, non-diversified, management investment company.
Section 3. Your Representations and Warranties. You represent and
-----------------------------------
warrant that:
(a) In offering the Units for sale you will not offer the Units
for sale, or solicit any offers to buy any Units, or otherwise negotiate with
any person in respect of the Units, on the basis of any communications or
documents relating to the Units or any investment therein or to the
Partnership or investment therein or to the General Partner, other than the
Prospectus, the Exhibits attached thereto and any other document,
and any cover or transmittal letter, satisfactory in form and substance to
the General Partner and counsel for the General Partner.
(b) You will offer the Units for sale, or solicit offers to buy
the Units, or otherwise negotiate with any person with respect to any Units,
only as your counsel advise is in compliance with the securities or "blue
sky" laws of the jurisdictions designated by you in accordance with the
provisions of Section 5 hereof, which advice of your counsel (which shall not
be understood to constitute an opinion of law) may be based upon an
examination of the statutes and regulations, if any, of such jurisdictions as
reported in standard compilations and upon interpretive advice obtained from
representatives of certain securities commissions.
(c) You will offer the Units for sale in compliance with the
requirements as to suitability set forth in Section (b)(2), and as to
disclosure set forth in Section (b)(3), of Conduct Rule 2810 of the National
Association of Securities Dealers, Inc.
Section 4. Offering and Sale of Units; Closing Time.
----------------------------------------
(a) All funds debited from Subscribers' securities accounts
maintained by you will be placed promptly in the escrow account maintained by
The Bank of New York, as Escrow Agent. In the event the offering of the
Units is commenced by you and subscriptions for at least 40,000 Units shall
not have been received by the Offering Termination Date, all funds received
from Subscribers (if any) shall be returned in full and without interest or
deduction of any fee or expenses; and your agency and this Agency Agreement
shall terminate without obligation on your part or on the part of the General
Partner or the Partnership, except as provided in Section 6 hereof and except
that the indemnification provided in Section 8 hereof shall continue after
such termination of this Agency Agreement.
(b) If on or prior to the Offering Termination Date at least
40,000 Units have been subscribed for and the conditions described in Section
7 hereof are satisfied or waived and the General Partner elects to admit the
Subscribers for Units as Limited Partners of the Partnership, then, on the
third full business day (or such longer time as you and the General Partner
may agree upon) after the earlier to occur of (i) the Offering Termination
Date; or (ii) receipt of subscriptions for all 100,000 Units, payment of the
purchase price for the Units for which you have found Subscribers, and
delivery, with respect to each Subscriber for Units, of a copy of the
Subscription Agreement signed by such Subscriber, shall be made at the office
of Brown & Wood LLP, One World Trade Center, New York, New York, or at such
other place as shall be agreed upon between you and the Partnership, at 10:00
A.M., New York time (the "Closing Time"), provided, however, that, without
regard to the date on which the Closing Time occurs, you will provide the
General Partner with the opportunity to review and, in its sole discretion,
to reject each Subscription Agreement not later than 3 days after the date of
such Subscription Agreement.
(c) Units may be offered to any investor who tenders the amount of
the purchase price and who makes the representation that he or she is a
Qualified Investor, as described in the Prospectus.
(d) You shall maintain for five years from the O f f e r i n g
Termination Date a record of any information which may be obtained by you to
indicate that each Subscriber for Units is within a permitted class of
investors under the requirements of Section 4(c).
(e) You recognize and agree that the desirability of the offering
and sale of Units to, and the purchase of Units by, Qualified Investors who
are in your employ is adequate and sufficient compensation for your services.
Section 5. Covenants of the General Partner and the Partnership. The
----------------------------------------------------
General Partner and the Partnership each covenants with you that:
(a) They will notify you immediately of, and confirm in writing
forthwith, (i) the effectiveness of the Registration Statement and any
amendment thereto, (ii) the receipt of any comments from the Commission,
(iii) any request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectus or for additional
information, and (iv) the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or of any
proceedings for that purpose. They will make every reasonable effort to
prevent the issuance of any stop order and, if any such stop order is issued,
to obtain the lifting thereof at the earliest possible moment.
(b) They will not file any amendments to the Registration
Statement or any amendment or supplement to the Prospectus (including a
prospectus filed pursuant to Rule 497(b) or (d) which differs from the
prospectus on file at the time the Registration Statements become effective)
to which you or your counsel shall object.
(c) They will deliver to you as many signed copies of the
Registration Statement as originally filed and of each amendment thereto
(including exhibits) as you may reasonably request and will also deliver to
you such number of conformed copies of the Registration Statement as
originally filed and of each amendment thereto (without exhibits) as you
shall require for the purposes contemplated by the 1933 Act and the 1940 Act.
(d) They will deliver to you from time to time, before the
Registration Statement becomes effective, such number of copies of the
preliminary prospectus as originally filed and any amended preliminary
prospectus, and as soon as the Registration Statement initially becomes
effective and thereafter from time to time during the period when the
Prospectus is required to be delivered under the 1933 Act, such number of
copies of the Prospectus (as amended or supplemented) as you may reasonably
request for the purposes contemplated by the 1933 Act or the Regulations and
the 1940 Act and such number of copies of the Subscription Agreement,
Partnership Agreement and the Certificate of Limited Partnership as you may
reasonably request.
(e) During the period when the Prospectus is required to be
delivered pursuant to the 1933 Act, the Partnership and the General Partner
will comply, so far as they are able, with all requirements imposed upon them
by the 1933 Act, as now and hereafter amended, and by the Regulations, as
from time to time in force, so far as necessary to permit the continuance of
sales of, or dealings in, the Units during such period in accordance with the
provisions hereof and as set forth in the Prospectus.
(f) If any event relating to or affecting the Partnership, the
General Partner, or the proposed operation of the Partnership or Investments
as described in the Prospectus shall occur as a result of which it is
necessary, in the opinion of your counsel, to amend or supplement the
Prospectus in order to make the Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a Subscriber, the
Partnership and the General Partner will forthwith prepare and furnish to you
a reasonable number of copies of an amendment or amendments of or a
supplement or supplements to the Prospectus (in form and substance
satisfactory to your counsel) which will amend or supplement the Prospectus
so that, as amended or supplemented, it will not contain an untrue statement
of a material fact or omit to state a material fact necessary in order to
make the statements therein, in the light of the circumstances existing at
the time the Prospectus is delivered to a Subscriber, not misleading. For
the purposes of this subsection the Partnership and the General Partner will
furnish such information with respect to themselves and the Investments as
you may from time to time reasonably request.
(g) The Partnership and the General Partner will endeavor in good
faith, in cooperation with you, to qualify the sale of the Units for offering
and sale under the applicable securities or "blue sky" laws of such
jurisdictions as they may designate (provided, however, that neither the
General Partner nor the Partnership will be obligated to file any general
consent to service of process or to qualify to do business or to qualify as a
securities dealer in any jurisdiction in which they are not so qualified),
and will maintain such qualifications in effect for as long as may be
required for the distribution of the Units. In each jurisdiction where the
Units shall have been qualified as above provided, the Partnership or the
General Partner will make and file such statements and reports in each year
as are or may be required by the laws of such jurisdiction.
(h) The Partnership and the General Partner will, so long as any
Units remain outstanding, furnish directly to you the following:
(i) As soon as practicable after the end of each fiscal
year, one copy of the Partnership's annual report, including
therein the accountant's report, the balance sheet, the related
statements of profit and loss and changes in financial position,
together with such accountants' comments and notations with respect
thereto in such detail as the Partnership may customarily receive
from such accountants;
(ii) copies of any report, application or documents which
the Partnership shall file with the Commission; and
(iii) as soon as the same shall be sent to holders of Units,
each communication which shall be or is required to be sent to the
holders of Units, including any other annual or interim report of
the Partnership.
(i) They will deliver to you, from time to time, all supplemental
sales material (whether designated solely for broker-dealer use or otherwise)
proposed to be used or delivered by the Partnership in connection with the
offering of Units, prior to the use or delivery to third parties of such
material, and they will not use or deliver any such material to which you
shall object or which shall be disapproved by your counsel; provided,
however, that your failure to object shall in no event be deemed an approval
of any such material.
Section 6. Payment of Expenses and Fees.
----------------------------
(a) Whether the offering of the Units is ever commenced or, if
commenced, whether such offering is terminated for any reason or the sale of
the Units is consummated, (x) the General Partner shall pay your expenses in
connection with the offering and sale of the Units, including, without
limitation, your travel expenses, overhead expenses and direct personnel
costs and the fees of your counsel, up to an amount not in excess of 1% of
the proceeds of the offering; and (y) the General Partner shall pay its
similar expenses in connection with the formulation of the offering of the
Units and the actual offering and sale of the Units and the fees of its
accountants and its counsel and the disbursements of its counsel. The
General Partner shall also pay all of (i) the expenses (including those
incurred by you or your counsel) of preparing, printing and filing the
Registration Statement and the Prospectus and all preliminary drafts thereof
and any amendments thereof or supplements thereto and of the distribution
thereof (including, without limitation, all of your mailing and private
courier expenses in connection with the distribution of the Prospectus and
the delivery or redelivery to you or the General Partner of the Prospectus in
connection with the offer and sale of the Units), (ii) the expenses of
qualifying the offers made in the Prospectus and the sales of the Units
under, or the establishment of the exemption of such offers or sales under,
the securities or "blue sky" laws of the jurisdictions to be designated by
you, including, without limitation, filing fees and the fees and
disbursements of your counsel incurred in connection therewith, (iii) in the
event that you, or you and the General Partner, enter into an escrow deposit
agreement, or similar arrangement, providing for the deposit in escrow of the
purchase price, in whole or in part, of the Units, all of the fees and
expenses in connection therewith, (iv) all accounting and legal fees and
expenses and (v) all other expenses in connection with the offering of the
Units. In the event the sale of the Units is consummated, the General
Partner shall be entitled to reimbursement from the Partnership of the
expenses it has incurred pursuant to this Section 6(a) up to an amount not in
excess of 1% of the proceeds of the offering.
(b) If this Agency Agreement is cancelled by you in accordance
with the provisions of Section 7(h), the General Partner shall reimburse you
for all your out-of-pocket expenses, including the fees, disbursements and
expenses of your counsel, and you shall have no liability to the General
Partner hereunder.
Section 7. Conditions to Your Obligations. Your obligations hereunder
------------------------------
are subject to the accuracy of and compliance with the representations and
warranties of the General Partner and the Partnership; to the performance
by the General Partner and the Partnership of their respective
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall initially become effective
not later than 5:30 P.M., New York City time, not later than two business
days following the date hereof, or, with your consent, at such later time and
date as may be approved by you; at Closing Time no stop order suspending the
effectiveness thereof shall have been issued under the 1933 Act or proceeding
therefor initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction.
(b) At Closing Time you shall receive the opinion of Brown & Wood
LLP, counsel for the General Partner, to the effect that the representations
and warranties of the General Partner and the Partnership in Sections 2(b),
(c), (d), (i), (j) and (l) and, to the best of such counsel's knowledge, 2(k)
are, to the extent that they are statements of law or legal conclusions, true
and correct and to the further effect that:
(i) No authorization, approval or consent of any
governmental authority or agency is necessary in connection with
the offer or sale of the Units, except such as may be required
under state or Federal securities or "blue sky" laws and such as
have already been received;
(ii) The terms and provisions of the Subscription Agreement
and the Partnership Agreement conform in all material respects to
the descriptions thereof contained in the Prospectus;
(iii) The Partnership is duly formed and validly existing as
a limited partnership under the RULPA; and
(iv) Nothing has come to such counsel's attention that would
lead such counsel to believe that the Prospectus or any
supplemental sales material supplied to you pursuant to Section
5(i) hereof (when read in conjunction with the Prospectus) at the
commencement of the Offering Period or at Closing Time contained an
untrue statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not
misleading.
(c) At Closing Time the Partnership shall have received the
opinion of Brown & Wood LLP, special tax counsel, dated as of the Closing
Time, substantially in the form attached as Exhibit 12(b) to the Registration
Statement, together with a letter stating that you may rely upon such opinion
as if it were addressed to you.
(d) At Closing Time you shall receive a survey, addressed to you
and the General Partner and the Partnership, prepared by Brown & Wood LLP and
relating to the securities or "blue sky" laws of the jurisdictions designated
by you in accordance with the provisions of Section 5, indicating that the
appropriate "blue sky" action, if any, was taken in each of such
jurisdictions. Such survey (which shall not be understood to constitute an
opinion of law) may be based upon an examination of the statutes and
regulations, if any, of such jurisdictions as reported in standard
compilations and upon interpretive advice obtained from representatives of
certain securities commissions.
(e) At Closing Time you shall receive the unaudited balance sheet
of the General Partner as of such date showing the net worth of the General
Partner (excluding its interest in any limited partnership, including the
Partnership, and notes and accounts receivable from and payable to any
limited partnership and otherwise prepared in accordance with generally
accepted accounting principles) to be equal to an amount at least equal to
10% of the sum of (i) the Capital Contributions to the Partnership and (ii)
the total capital contributions of all partners in each other limited
partnership of which the General Partner is a general partner, together with
a certificate signed by a financial officer of the General Partner to the
effect that such balance sheet presents fairly the financial position of the
General Partner as at such date and has been prepared in conformity with
generally accepted accounting principles.
(f) At the Closing Time you shall receive a certificate signed by
the President or a Vice President of the General Partner to the effect that
(i) the signer has examined the Prospectus and the supplemental sales
material supplied to you pursuant to Section 5(i) hereof and, in the signer's
opinion, at all times from the commencement of the Offering Period to the
Closing Time the Prospectus and such supplemental sales literature (when read
in conjunction with the Prospectus) did not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; and (ii) the representations and warranties contained
in Section 2 hereof are true and correct at the Closing Time with the same
effect as though expressly made at such Closing Time.
(g) At or prior to the Closing Time your counsel shall have been
furnished with such documents as they may reasonably require for the purpose
of enabling them to pass upon the sale of the Units being sold at the Closing
Time as herein contemplated and related proceedings and in order to evidence
the accuracy or completeness of any of the representations or warranties or
the fulfillment of any of the conditions herein contained; and all actions
taken by the General Partner or its affiliates and the Partnership in
connection with the offering and sale of such Units, as herein contemplated,
shall be satisfactory in form and substance to you and your counsel.
(h) If any of the conditions specified in this Section 7 shall not
have been fulfilled when and as required by this Agency Agreement to be
fulfilled, this Agency Agreement and all your obligations hereunder may be
cancelled by you by notifying the General Partner, in writing or by telegram,
of such cancellation, specifying the conditions which have not been
fulfilled, at any time at or prior to Closing Time, and any such cancellation
shall be without liability of any party to any other party except as
otherwise provided in Section 6 hereof.
Section 8. Indemnification.
---------------
(a) The General Partner agrees to indemnify and hold harmless you,
and each person, if any, who controls you within the meaning of Section 15 of
the 1933 Act, as follows:
(i) against any and all loss, liability, claim, damage and
expense whatsoever arising out of any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or the Prospectus or any supplemental sales material
supplied to you pursuant to Section 5(i) hereof (when read in
conjunction with the Prospectus) or the omission or alleged
omission therefrom of a material fact necessary in order to make
the statements therein, in the light of the circumstances under
which they were made, not misleading, unless such untrue statement
or omission, or alleged untrue statement or omission, was made in
reliance upon and in conformity with written information furnished
to the General Partner by you expressly for use in the Registration
Statement, Prospectus or supplemental sales material;
(ii) against any and all loss, liability, claim, damage and
expense whatsoever to the extent of the aggregate amount paid in
settlement of any litigation or investigation or proceeding by any
governmental agency or body, commenced or threatened, or of any
claim whatsoever based upon any such untrue statement or omission
or any such alleged untrue statement or omission, if such
settlement is effected with the written consent of the General
Partner and the Partnership; and
(iii) against any and all expense whatsoever (including the
fees and disbursements of counsel chosen by you) reasonably
incurred in investigating, preparing or defending against any
litigation or investigation or proceeding by any governmental
agency or body, commenced or threatened, or any claim whatsoever
based upon any such untrue statement or omission, or any such
alleged untrue statement or omission, to the extent that any such
expense is not paid under clause (i) or (ii) above.
The foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any untrue statement, alleged untrue statement,
omission or alleged omission made in a preliminary prospectus or in the
Prospectus or in any supplemental sales material, it shall not inure to your
benefit or to the benefit of any person who controls you if you failed to
send or give a copy of the Prospectus (as amended or supplemented, if the
Partnership shall have furnished any amendment or supplement thereto to you,
which shall correct such untrue statement or omission which is the basis of
the loss, liability, claim, damage or expense for which indemnification is
sought) to the person asserting any such loss, liability, claim, damage or
expense prior to or together with any such supplemental sales material and
the written confirmation of the receipt of a subscription for Units from such
person or at such other time as the Prospectus, as so amended or
supplemented, is required under the 1933 Act to be delivered by you to such
person. The General Partner agrees to notify you within a reasonable time of
the assertion of any claim in connection with the sale of the Units against
it or any of them, any of their officers or directors or any of them, any of
their officers or directors or any person who controls the Partnership or the
General Partner within the meaning of Section 15 of the 1933 Act.
(b) You agree to indemnify and hold harmless the General Partner
and the Partnership and each person who controls either of them within the
meaning of Section 15 of the 1933 Act against any and all loss, liability,
claim, damage and expense described in Section 8(a), but only with respect to
untrue statements or omissions contained in the Registration Statement or
Prospectus or any supplemental sales material supplied to you pursuant to
Section 5(i) (when read in conjunction with the Prospectus) made in reliance
upon and in conformity with written information furnished to the General
Partner by you for use in the Registration Statement, Prospectus or
such supplemental sales literature.
(c) In no case shall an indemnifying party be liable under this
indemnity agreement with respect to any claim made against an indemnified
party unless such indemnifying party shall be notified in writing (as
provided in Section 10) of the nature of the claim within a reasonable time
after the assertion thereof, but failure so to notify such indemnifying party
shall not relieve them from any liability which they may have otherwise than
on account of this indemnity agreement.
Section 9. Representations, Warranties and Agreements to Survive
-----------------------------------------------------
Closing Time. All representations, warranties and agreements contained in
- ------------
this Agency Agreement or contained in certificates of the General Partner or
you submitted pursuant hereto shall remain operative and in full force and
effect, regardless of any investigation made by or on behalf of you or any
person who controls you, or by or on behalf of the General Partner or the
Partnership, and shall survive Closing Time.
Section 10. Effective Date of this Agreement and Termination Thereof.
--------------------------------------------------------
(a) This Agreement shall become effective (i) at 5:30 P.M., New
York City time, on the day on which the Registration Statement initially
became effective, or (ii) at the time of the initial public offering by you,
after the Registration Statement initially becomes effective, of the Units,
whichever shall first occur. The time of the initial public offering shall
mean the time of the release by you, for publication, of the first newspaper
advertisement which is subsequently published, relating to the Units or the
time at which the Units are first generally offered by you to dealers or
Subscribers by letter or telegram, whichever shall first occur.
(b) You shall have the right to terminate this Agreement by giving
the notice indicated below in this Section 10 at any time at or prior to any
Closing Time (i) if there shall have been, since the respective dates of
which information is given in the Registration Statement, the Prospectus and
any supplemental sales material supplied to you pursuant to Section 5(i)
hereof, any change in the condition of the Partnership or the General
Partner, financial or otherwise, or in the earnings, business affairs, or
business prospects of the Partnership or the General Partner, whether or not
arising in the ordinary course of business, which could materially adversely
affect the Partnership or the ability of the General Partner to carry out its
obligations to the Partnership, (ii) if there shall have occurred any
outbreak of hostilities or other national or international calamity or
crisis, the effect of such outbreak, calamity or crisis on the
financial markets of the United States being such as in your judgement
would make the offering or delivery of the Units impracticable, or (iii)
if trading on the New York Stock Exchange shall have been suspended, or
minimum or maximum ranges for prices for trading shall have been fixed,
or maximum ranges for prices for securities shall have been required on
such Exchange, or if a banking moratorium shall have been declared by
either Federal or New York authorities. If you terminate this Agreement
as provided in this Section 10, such termination shall be without liability
of any party to any other party except as otherwise provided in Section 6.
(c) If you elect to terminate this Agency Agreement as provided in
this Section 10, you shall promptly notify the Partnership, by telephone or
telegram, confirmed by letter.
Section 11. Notices and Authority to Act. All communications herein
----------------------------
shall be in writing and, if sent to you, shall be mailed, delivered or
telegraphed and confirmed to you at Merrill Lynch World Headquarters, North
Tower, 27th floor, World Financial Center, New York, New York 10281-1327,
Attention of Mr. John L. Steffens, or, if sent to the General Partner or the
Partnership, shall be delivered or telegraphed and confirmed to either of
them at Merrill Lynch World Headquarters, South Tower, 23rd floor, World
Financial Center, New York, New York 10080-6123, Attention of Mr. James V.
Caruso.
Section 12. Parties. This Agency Agreement shall inure to the benefit
-------
of and be binding upon you and the General Partner and the Partnership and
your and the General Partner's and the Partnership's respective successors,
this Agency Agreement and the conditions and provisions hereof being intended
to be and being for the sole and exclusive benefit of the parties hereto and
their respective successors and controlling persons and for the benefit of no
other person, firm or corporation.
Section 13. Governing Law. This Agreement will be governed by the laws
-------------
of the State of New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement among
you, the General Partner and the Partnership.
Very truly yours,
KECALP INC.
By:
--------------------------
(Authorized Signature)
MERRILL LYNCH KECALP L.P. 1997
By: KECALP INC.,
General Partner
By:
--------------------------
(Authorized Signature)
Confirmed and Accepted
as of the date first
above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:
---------------------------------
(Authorized Signature)
Exhibit-(j)
Draft 5/15/97
ESCROW DEPOSIT AGREEMENT
BETWEEN
THE BANK OF NEW YORK
AS BANK-ESCROWEE
AND
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
AS DEPOSITOR-AGENT
AND
MERRILL LYNCH KECALP L.P. 1997
THE ISSUER-PARTNERSHIP
WHEREAS, Merrill Lynch KECALP L.P. 1997, a limited partnership (the
"Issuer-Partnership") organized under the Delaware Revised Uniform Limited
Partnership Act to invest primarily in privately-offered investments,
proposes to sell up to 250,000 units of limited partnership interest (the
"Units") in the Issuer-Partnership, at a price of $1,000 each to certain
employees and directors of Merrill Lynch and Co. and of its subsidiaries
("Eligible Investors"), all as described in the Registration Statement on
Form N-2 (No. 333-15035) filed with the Securities and Exchange Commission
(the "Registration Statement"), and the prospectus constituting a part
thereof (the "Prospectus");
WHEREAS, in connection with the proposed sale of such Units, Merrill
Lynch, Pierce, Fenner & Smith Incorporated, Merrill Lynch World Headquarters,
North Tower, World Financial Center, New York, New York 10281-1318 (the
"Depositor-Agent"), has been named as the agent for the sale of such Units on
a best efforts basis;
WHEREAS, the Depositor-Agent desires to establish an escrow fund with
The Bank of New York, a New York State banking corporation, 12th Floor West,
101 Barclay Street, New York, New York 10286 (the "Bank-Escrowee") (such
Bank-Escrowee is a bank as defined by Section 3(a)(6) of the Securities
Exchange Act of 1934) to deposit any cash payments received from subscribers
of the Units; and
WHEREAS, the Bank-Escrowee desires to act as escrow agent in connection
with the proposed fund.
NOW, THEREFORE, it is agreed as follows:
The Bank-Escrowee agrees to act as escrow agent in receiving and
disbursing the proceeds from the sale of the Units in accordance with the
following conditions:
(1) The Depositor-Agent will from time to time promptly deposit such
amounts in payment for the Units as they are received in connection with the
sales herein above referred to in an escrow account to be established for
this purpose by the Bank-Escrowee. Concurrent with the making of each such
deposit, the Depositor-Agent shall deliver to the Bank-Escrowee a statement
of the name (and title of ownership, if different) and address of each
subscriber whose payment is then being deposited, the social security number
or tax identification number of each such subscriber, the amount received
from each such subscriber and the number of Units which each such person has
agreed to purchase. The Bank-Escrowee shall input the information provided
pursuant to this paragraph (1) on its computer system within three (3)
business days of delivery, and shall provide a computer print-out of such
information to the Issuer-Partnership and the Depositor-Agent within three
(3) business days thereafter.
(2) From time to time, after the first deposit of any funds pursuant to
paragraph (1) hereof and until such time as all funds being held by the Bank-
Escrowee have been disbursed pursuant to paragraph (4) or (5) hereof, the
Depositor-Agent may, in its sole discretion, instruct the Bank-Escrowee in
writing to, and the Bank-Escrowee thereupon shall, invest such amounts being
then held by the Bank-Escrowee, in such of the following securities, and in
such proportions, and maturing at such times, as the Depositor-Agent shall
specify in its written instructions to the Bank-Escrowee (escrowed funds will
be invested only in investments permissible under SEC Rule 15c2-4):
(i) direct obligations, which mature before the applicable
Closing Time (hereinafter defined), of the United States of America or any
instrumentality thereof for the payment of which the full faith and credit of
the United States of America is pledged; and/or
(ii) certificates of deposit, which mature before the applicable
Closing Time (hereinafter defined), of banks (including the Bank-Escrowee),
organized under the laws of the United States of America or any state
thereof, with an unrestricted surplus of at least $250,000,000; and/or
(iii) bank accounts, and bank money market deposit accounts, the
entire balance of which are insured by the Federal Deposit Insurance
Corporation ("FDIC"), subject to the rules and regulations of the FDIC
requiring aggregation of other deposits for purposes of determining the
extent of federal deposit insurance coverage.
The Bank-Escrowee shall present for redemption any obligation so
purchased or sell such obligation in every case upon the written direction of
the Depositor-Agent. Obligations so purchased as an investment of moneys in
the escrow fund shall be deemed at all times to be a part of such fund, and
the interest accruing thereon shall be credited to such fund for the
account of the subscribers whose funds were thus invested. If the
Depositor-Agent so directs in writing, the Bank-Escrowee shall make any
and all investments permitted by this paragraph through its own
bond or investment department. Except as herein above provided, the
Bank-Escrowee shall not be under any duty to invest funds deposited with
it pursuant to paragraph (1) hereof. Neither the Bank-Escrowee nor the
Issuer-Partnership will be responsible for any loss suffered from any
investment.
(3) Eligible Investors must submit completed subscription documents not
later than July __, 1997, or such other subsequent date, not later than
August __, 1997, as the Depositor-Agent and the Issuer-Partnership may
agree upon. Subsequent to such date, the General Partner will advise
such investor as to whether their subscriptions have been accepted and
thereupon such investor shall transfer funds for payment into the
Partnership's escrow account. The General Partner will also advise
perspective investors of the termination date of the offering (the "Offering
Termination Date"). If payments in the amount of $1,000 for each Unit
subscribed for, shall have been deposited, then if the Depositor-Agent shall
have advised the Bank-Escrowee in writing that all conditions precedent to a
closing by named subscriber(s) have been satisfied, the Depositor-Agent shall
arrange for a closing as to such named subscriber(s) in accordance with the
Prospectus (a "Closing" or "Closing Time"). The Depositor-Agent shall give
verbal notice of each Closing Time to the Bank-Escrowee at least two business
days before such Closing Time, which notice shall be confirmed in writing by
the Depositor-Agent on or before such Closing Time. On the business day
following such notice, the Bank-Escrowee shall present to the Issuer-
Partnership a computer print-out listing all subscribers and the capital
contributions held for their accounts.
(4) At each Closing Time, the Bank-Escrowee shall apply the cash
representing collected funds then being held by the Bank-Escrowee as part of
the escrow fund for the account of the subscriber(s) with respect to whose
purchase of Units such Closing is being held, in accordance with the written
direction of the Depositor-Agent, at which time such amounts so applied shall
no longer be a deposit or deposits under this Agreement. In the event that
funds have been invested on behalf of such subscriber(s) pursuant to
paragraph (2), the Bank-Escrowee shall, within ten days after each Closing
Time, return to the Depositor-Agent, on behalf of such subscribers, the
interest earned thereon less the portion of such interest retained by the
Bank-Escrowee pursuant to paragraph (8), together with a statement as to each
subscriber's pro rata portion (allocated by the Bank-Escrowee as set forth
below) of the interest returned to the Depositor-Agent. Such interest shall
be allocated among the subscribers entitled thereto in proportion to the
amounts of their respective subscription funds and the lengths of time their
subscription amounts were on deposit, provided that, no interest will be
allocated to subscribers whose funds are not received at least two (2)
business days prior to a Closing.
(5) In the event that (a) on or before fifteen business days after the
Offering Termination Date either (i) no Closings contemplated by
paragraphs (3) and (4) above shall have been consummated or (ii) as
to any subscriber, the Bank-Escrowee shall not have been advised in
writing by the Depositor-Agent that all conditions precedent to a Closing
as to such subscriber have been satisfied, or (b) as to any subscriber,
the Issuer-Partnership shall have determined to reduce such
subscriber's subscription, then the Depositor-Agent shall promptly so
advise in writing the Bank-Escrowee and authorize and direct in writing
the Bank- Escrowee to return as promptly as practicable (i) in the case of
the event described in (a)(i), the funds theretofore received pursuant to
paragraph (1) to the Depositor-Agent for the accounts of all of the
subscribers, or (ii) in the case of an event described in (a)(ii), the
funds theretofore received pursuant to paragraph (1) to the Depositor-
Agent for the accounts of such subscribers with respect to whom the
Bank-Escrowee shall not have received such written advice or whose
subscriptions have been reduced, as the case maybe. In each case the
Bank-Escrowee shall so return such funds without interest or deduction,
unless it shall have been instructed to invest such funds on behalf of
such subscribers pursuant to paragraph (2), in which case it shall also
return to the Depositor-Agent on behalf of such subscribers the interest
earned on such funds less the portion of such interest retained by the
Bank-Escrowee pursuant to paragraph (8), together with a statement as to
each subscriber's pro rata portion (allocated by the Bank-Escrowee as
set forth in paragraph (4) above) of the interest returned to the
Depositor- Agent.
(6) In the event that (a) the Closing or Closings in accordance with
paragraphs (3) and (4) above shall have been consummated with respect to all
subscribers, or (b) the amounts paid by or for the account of all named
subscribers to the Depositor-Agent and deposited with the Bank-Escrowee shall
have been repaid to the Depositor-Agent on behalf of such respective persons
without deduction (other than as provided in paragraph (8) below) and with or
without interest by the Bank-Escrowee as provided in paragraph (5) above or
(9) below, then, as to all such named subscribers, the Bank-Escrowee shall be
relieved of all liabilities in connection with the escrow deposits provided
for herein with respect to all such subscribers.
(7) In any event, the obligations and liabilities of the Bank-Escrowee
hereunder will terminate on the date which is fifteen business days after the
Offering Termination Date and as to any amounts remaining in the escrow fund
the Bank-Escrowee shall be entitled to refrain from taking any action until
it has been directed otherwise in writing by the Depositor-Agent, or by a
final judgment of a court of competent jurisdiction.
(8) The Bank-Escrowee shall not receive any fee in connection with its
services rendered under this Agreement, except as follows:
(i) for its services in establishing and maintaining as a
separate fund the escrow fund referred to in this Agreement, the Bank-
Escrowee shall receive a fee of $________ plus out-of-pocket expenses,
including legal fees, in an amount up to, but not exceeding, $________; and
(ii) for its services in investing the funds held in the escrow
fund, pursuant to the instructions of the Depositor-Agent described under
paragraph (2) hereof, the Bank-Escrowee shall receive a fee equal in amount
to 5% of any interest income derived from investment of such funds. Such fee
shall be deducted from such interest income upon distribution of the
remaining 95% of such interest income, as provided under paragraph (4), (5),
(9), as the case may be, of this Agreement.
Payment to be made pursuant to clause (i) shall be made by the
Issuer-Partnership or the Depositor-Agent, as the case may be.
(9) In the event that before the Closing Time with respect to any
subscriber the Bank-Escrowee shall have received written advice from the
Depositor-Agent that such named subscriber has withdrawn his or her
subscription or been rejected by the Issuer-Partnership, or that before such
Closing Time it is determined by the Issuer-Partnership that such named
subscriber does not meet the suitability standards required by the Issuer-
Partnership for investment in the Units, the Bank-Escrowee shall, upon
receipt of the written direction of the Depositor-Agent, return funds
deposited pursuant to paragraph (1) to the Depositor-Agent on behalf of such
subscribers. The Bank-Escrowee shall return such funds without interest or
deduction, unless it shall have been instructed to invest such funds on
behalf of such subscriber pursuant to paragraph (2), in which case it shall
also return to the Depositor-Agent on behalf of such subscriber the interest
earned on such funds as computed and collected to the date upon which such
funds are returned less the portion of such interest retained by the Bank-
Escrowee pursuant to paragraph (8), together with a statement as to such
subscriber's interest returned to the Depositor-Agent.
(10) It is understood and agreed, further, that the Bank-Escrowee shall:
(A) be under no duty to enforce payment of any purchase price that
is to be paid to and held by it hereunder;
(B) be under no duty to accept information from any person other
than the Depositor-Agent and then only to the extent and in the manner
provided in this Agreement;
(C) be protected in acting upon any notice, opinion, request,
certificate, approval, consent, or other paper believed by it to be genuine
and to be signed by the proper party or parties;
(D) be deemed conclusively to have given and delivered any notice
required to be given or delivered hereunder if the same is in writing, signed
by any one of its authorized officers and (i) received by the Depositor-
Agent, by registered or certified mail, postage prepaid, or (ii) delivered by
hand delivery, in a sealed wrapper, manually receipted for by the Depositor-
Agent, addressed to the Depositor-Agent at the following address:
Partnership Analysis & Management
Merrill Lynch, Pierce, Fenner & Smith Incorporated
World Financial Center
South Tower - 23rd Floor
New York, New York 10281-6123
Attention: Mr. Robert F. Tully
With a copy to:
Merrill Lynch KECALP 1997
KECALP, Inc.
World Financial Center
South Tower - 23rd Floor
New York, New York 10281-6123
Attention: Mr. James V. Caruso
(E) be indemnified and held harmless by the Depositor-Agent
against any claim made against it by reason of its acting or failing to act
in connection with any of the transactions contemplated hereby and against
any loss, liability, or expense, including the expense of defending itself
against any claim of liability it may sustain in carrying out the terms of
this Agreement except such claims which are occasioned by its bad faith,
gross negligence, or willful misconduct;
(F) have no liability or duty to inquire into the terms and
conditions of this Agreement, the Registration Statement, or any of the
exhibits thereto, or the Prospectus, and its duties under this Agreement
shall be purely ministerial in nature;
(G) be permitted to consult with counsel of its choice, including
in-house counsel, and shall not be liable for any action taken, suffered or
omitted by it in relation to this Agreement in good faith in accordance with
the advice of such counsel, provided, however, that nothing contained in this
subsection (G), nor any action taken by the Bank-Escrowee, or of any counsel,
shall relieve the Bank-Escrowee from liability for any claims which are
occasioned by its bad faith, gross negligence, or willful misconduct, all as
provided in subsection (E) above;
(H) not be bound by any modification, amendment, termination,
cancellation, rescission, or supersession of this Agreement, unless the same
shall be in writing and signed by the parties hereto;
(I) provided that it shall be uncertain as to its duties and
rights hereunder, be entitled to refrain from taking any action other than to
keep all property held by it in escrow until it shall be directed otherwise
in writing by the Depositor-Agent, or by a final judgment by a court of
competent jurisdiction;
(J) have no liability for following the instructions herein
contained or expressly provided for, or written instructions given by the
Depositor-Agent;
(K) have the right, at any time, to resign hereunder by giving
written notice of its resignation to the Depositor-Agent at its address set
forth above, at least 10 business days before the date specified for such
resignation to take effect, in which case, upon the effective date of such
resignation;
(i) all cash and other payments and all other property then
held by the Bank-Escrowee hereunder shall be delivered by it to such person
as may be designated in writing by the Depositor-Agent, whereupon the Bank-
Escrowee's obligations hereunder shall cease and terminate;
(ii) if no such person has been designated by such date, all
obligations of the Bank-Escrowee hereunder shall, nevertheless, cease and
terminate; and
(iii) the Bank-Escrowee's sole responsibility thereafter
shall be to keep safely all property then held by it and to deliver the same
to a person designated in writing by the Depositor-Agent or in accordance
with the directions of a final order or judgment of a court of competent
jurisdiction, and the provisions of subsections (E), (I) and (L) of this
paragraph (10) shall remain in effect; and
(L) be reimbursed in an amount up to, but not exceeding, $________
by the Depositor-Agent upon its request for reasonable out-of-pocket expenses,
disbursements, and advances (including, but not limited to, legal fees)
incurred or made by it in accordance with any provision of this
Agreement except any such expenses, disbursements, or advances as may be
attributable to its gross negligence, willful misconduct, or bad faith.
(11) In the event the Issuer-Partnership and the Depositor-Agent shall
agree to continue the offering period beyond the close of business on the
Offering Termination Date, the Depositor-Agent shall notify the Bank-Escrowee
of such fact in writing specifying the date and time to which the offering
period shall have been continued.
(12) All requests, notices, advice, or other communications hereunder to
the Bank-Escrowee shall be effective upon receipt by the Bank-Escrowee of
either (i) registered or certified mail, postage prepaid, or (ii) hand
delivery in a sealed envelope, manually receipted for on behalf of the
addressee in each case addressed as follows:
The Bank of New York
12th Floor West
101 Barclay Street
New York, New York 10286
Attention: (Name)
(Title)
With a copy to:
Merrill Lynch KECALP L.P. 1997
KECALP, Inc.
World Financial Center
South Tower - 23rd Floor
New York, New York 10281-6123
Attention: Mr. James V. Caruso
(13) Nothing in this Agreement is intended to or shall confer upon
anyone other than the parties hereto any legal or equitable right, remedy or
claim. This Agreement shall be governed by, and its provisions shall be
construed in accordance with, the laws of the State of New York and may be
modified only in writing.
Dated as of ________ __, 1997
THE BANK OF NEW YORK
Bank-Escrowee
By: ______________________________________________
(Authorized Signatory)
MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED
Depositor-Agent
By: ______________________________________________
(Authorized Signatory)
MERRILL LYNCH KECALP L.P. 1997
Issuer-Partnership
By: KECALP Inc.
General Partner
By: _____________________________________________
Exhibit-(l)
Brown & Wood LLP
One World Trade Center
New York, NY 10048-0557
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
May 16, 1997
Merrill Lynch KECALP L.P. 1997
c/o KECALP Inc.
North Tower
World Financial Center
250 Vesey Street
New York, NY 10281-1327
Re: Sales of 250,000 Units of
Limited Partnership Interest
----------------------------
Dear Sirs:
We have acted as your counsel in connection with the above-referenced
limited partnership interests (the "Units") to be offered and sold by Merrill
Lynch, Pierce, Fenner & Smith Incorporated. The Units are to be offered
pursuant to a Registration Statement on Form N-2 (File No. 333-15035) filed
with the Securities and Exchange Commission on October 29, 1996 (as
thereafter amended at any time to and including the date hereof, the
"Registration Statement").
In rendering this opinion, we have examined such documents and records
as we deemed appropriate. Capitalized terms used herein and not otherwise
defined are defined in the form of Amended and Restated Agreement of Limited
Partnership included as Exhibit A in the Registration Statement (the
"Agreement").
We have assumed the genuineness and authenticity of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof, and the due authorization, execution, delivery and
recordation of all documents where due authorization, execution, delivery and
recordation are a prerequisite to the effectiveness thereof.
On the basis of the foregoing and in reliance thereon, we are of the
opinion that when offered and sold as described in the Registration
Statement, and assuming (i) that the General Partner has taken all corporate
action required to be taken by it to authorize the issuance and sale of Units
to the Limited Partners and to authorize the admission to the Partnership of
the Limited Partners, (ii) the due authorization, execution and delivery of a
subscription agreement, the form of which is set forth as Exhibit B in the
Prospectus (the "Subscription Agreement"), by each subscriber for Units (the
"Subscribers"), (iii) the due acceptance by the General Partner of each
Subscription Agreement and the due acceptance by the General Partner of the
admission of the Subscribers to the Partnership as Limited Partners, (iv) the
payment by each Subscriber of the full consideration due from it for the
number of Units subscribed to by it, (v) the due authorization, execution and
delivery by all parties thereto of the Agreement, (vi) that the books and
records of the Partnership set forth all information required by the
Agreement and the Delaware Revised Uniform Limited Partnership Act (6 Del.C.
------
Section17-101 et seq.) (the "Act"), including all information with respect
------
to all Persons to be admitted as Partners and their Capital Contributions,
(vii) that the Subscribers, as Limited Partners, do not participate in the
control of the business of the Partnership and (viii) that the Units are
offered and sold as described in the Registration Statement and the
Agreement, (a) the Units will represent valid limited partner interests in
the Partnership, and subject to the qualifications set forth herein, as to
which the Subscribers, as limited partners of the Partnership, will have no
liability with respect to the Partnership's affairs in excess of their
respective obligations to make contributions to the Partnership, their
respective obligations to make other payments provided for in the Agreement
and their share of the Partnership's assets and undistributed profits
(subject to the obligation of a Limited Partner to repay any funds wrongfully
distributed to it), and (b) the Subscribers will be Limited Partners of the
Partnership entitled to all of the benefits of Limited Partners to the extent
permitted under the Act.
We consent to the filing of this opinion as Exhibit (1) to the
Registration Statement and to the filing of the form of our opinion as to tax
matters as Exhibit (n)(ii) to the Registration Statement. We also consent to
the references to our firm in the Prospectus included in the Registration
Statement.
Very truly yours,
/s/ Brown & Wood LLP
Exhibit-(n)(i)
CONSENT OF INDEPENDENT AUDITORS
Merrill Lynch KECALP L.P. 1997:
We consent to the use in Pre-Effective Amendment No. 1 to Registration
Statement No. 333-15035 of our opinion dated May 14, 1997 relating to the
balance sheet of Merrill Lynch KECALP L.P. 1997 as of May 12, 1997 appearing
in the Prospectus, which is a part of such Amendment, and to the reference to
us under the heading "Experts" in such Prospectus.
/s/ Deloitte & Touche
DELOITTE & TOUCHE
New York, New York
May 16, 1997
Exhibit-(n)(ii)
(SET FORTH BELOW IS A DRAFT OF THE FORM OF OPINION WHICH BROWN & WOOD
LLP ("TAX COUNSEL") EXPECTS TO DELIVER AT THE CLOSING OF THE SALE OF UNITS
AND TO REAFFIRM AT ANY SUBSEQUENT CLOSING IF THE FACTS AND CIRCUMSTANCES OF
THE FORMATION, ORGANIZATION AND CAPITALIZATION OF THE PARTNERSHIP ARE AS
CONTEMPLATED IN THE PROSPECTUS AND THE PARTNERSHIP AGREEMENT. THE ACTUAL
SUBSTANCE OF THE OPINION OF TAX COUNSEL IS SUBJECT TO THE LAW IN EFFECT AT
THE TIME OF SUCH CLOSING AND SUCH ADDITIONAL FACTS AS MAY BE DISCLOSED UPON
INQUIRY BY TAX COUNSEL.)
________________ __, 1997
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Re: Merrill Lynch KECALP L.P. 1997
------------------------------
Ladies and Gentlemen:
Our opinion has been requested as to certain tax matters, set forth
below, in connection with the transactions contemplated in the prospectus,
dated ______________ ___, 1997 (such prospectus, as supplemented by a
prospectus supplement thereto, as filed with the Securities and Exchange
Commission (the "Commission") for filing pursuant to Rule 497(d) under the
Securities Act of 1933, is hereinafter referred to as the "Prospectus")
relating to Merrill Lynch KECALP L.P. 1997, a Delaware limited partnership
(the "Partnership"), the general partner of which is KECALP Inc., a Delaware
corporation (the "General Partner"). All capitalized terms used and not
otherwise defined herein are intended to have the respective meanings set
forth in the Prospectus.
IDENTIFICATION OF DOCUMENTS REVIEWED AND ASSUMPTIONS MADE
In rendering our opinions, we have examined and relied upon, and have
assumed the truth and accuracy of, the following:
I. The Certificates of Limited Partnership of the Partnership, dated
as of October 28, 1996, as filed with the Secretary of State of the State of
Delaware on October 28, 1996, in accordance with the provisions of the
Delaware Revised Uniform Limited Partnership Act (the "Act");
II. The Amended and Restated Agreement of Limited Partnership of the
Partnership, dated _____________ ___, 1997, duly executed by the General
Partner,
the Initial Limited Partner and each Additional Limited Partner in accordance
with the provisions of the Act (the "Partnership Agreement");
III. The Prospectus;
IV. The letters, dated the date hereof, containing certain covenants
and factual representations of the Partnership and the General Partner
attached hereto as Exhibit A-1, and Merrill Lynch, Pierce, Fenner & Smith
Incorporated, as selling agent for the Partnership, attached hereto as
Exhibit A-2;
V. The form of Subscription Agreement and the Subscription
Qualification and Acceptance Page (including power of attorney) for Units
attached to the prospectus as Exhibit B; and
VI. Such other documents and proceedings as we have deemed necessary in
order to enable us to render this opinion.
OPINIONS RENDERED AND LIMITATIONS ON OPINIONS RENDERED
Our opinions set forth below are also based upon the existing provisions
of the Internal Revenue Code of 1986, as amended (the "Code"), the Treasury
Regulations (including Temporary and Proposed Treasury Regulations)
promulgated under the Code, published Revenue Rulings, Revenue Procedures and
other announcements of the Internal Revenue Service (the "Service") and
existing court decisions, any of which could be changed at any time. Any
such changes may be retroactive with respect to transactions entered into
prior to the date of such changes and could significantly modify the opinions
set forth below.
Based on the foregoing documents, materials, assumptions and
information, and subject to the qualifications and assumptions set forth
below, we are of the opinion that:
1. The Partnership will be classified as a partnership for Federal
income tax purposes and not as an association taxable as a corporation and
will not be classified as a publicly traded partnership within the meaning of
Code Section 7704(b).
2. The allocations of income, gain, loss, deduction, and credit of the
Partnership will be respected for Federal income tax purposes, so long as no
Limited Partner's capital account becomes negative.
3. The tax discussion in the Prospectus under the captions "Tax
Aspects of Investment in the Partnership" and "Risk and Other Important
Factors" fully and fairly sets forth the Federal income tax consequences and
tax risks associated with investment in the Partnership.
The Federal income tax consequences ultimately to be derived by any
Limited Partner will, in addition, depend upon the individual situation of
each Limited Partner, as well as the actual operations of the Partnership.
Further, as noted above, the realization of the anticipated Federal tax
treatment may be materially and adversely affected by future legislation and
administrative and judicial decisions.
Accordingly, it is recommended that each potential Limited Partner
consult with his, her or its own tax advisor as to the tax aspects of a
purchase of a Unit in the Partnership, including Federal taxes and any state
and local, or foreign tax considerations (which are not discussed in this
opinion), as they relate to his, her or its particular tax situation.
In reviewing the opinions set forth above, you should be aware that (i)
our firm has represented the General Partner in this transaction and has
represented, and regularly represents, various affiliates of Merrill Lynch &
Co., Inc., and (ii) the opinions set forth above represent our conclusions as
to the application of existing law to the instant transaction. You should
also be aware that an opinion of counsel represents only counsel's best legal
judgment, and has no binding effect or official status of any kind, and no
assurance can be given that contrary positions may not be taken by the
Service or that a court considering the issues would not hold otherwise.
The opinions expressed herein are limited as described above, and we do
not express an opinion with respect to any other federal or state law or the
law of any other jurisdiction, except as expressly stated herein. This
opinion is rendered as of the date hereof and we undertake no obligation to
update this opinion or advise you of any changes in the event there is any
change in legal authorities, facts, assumptions or documents on which this
opinion is based (including the taking of any action by any party to the
transaction documents pursuant to any opinion of counsel or a waiver), or any
inaccuracy in any of the representations, warranties or assumptions upon
which we have relied in rendering this opinion unless we are specifically
engaged to do so.
You should be aware that there is no assurance that the Service would
not challenge the conclusions set forth above. Our opinion also assumes that
a court considering the question would have all facts and legal issues
properly presented to it.
This opinion is rendered only to those parties to whom it is addressed
and is solely for their benefit. This opinion may not be relied upon by any
other person for any purpose without our prior written consent.
Very truly yours,
EXHIBIT A-1
_________________ ___, 1997
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Re: Merrill Lynch KECALP L.P. 1997
------------------------------
Ladies and Gentlemen:
In order for you to render certain legal opinions regarding various
Federal income tax consequences to Merrill Lynch KECALP L.P. 1997 (the
"Partnership"), and its partners, as described in more detail in the
Registration Statement filed with the Securities and Exchange Commission on
______________ ___, 1997 and thereafter amended (the "Registration
Statement") and the Prospectus included therein (the "Prospectus"), the
Partnership and KECALP Inc., the general partner of the Partnership (the
"General Partner"), hereby certify the accuracy of the facts contained
herein, and make the representations and agreements provided herein. We
understand that, in rendering your opinion, you will rely in part on such
representations made by us and the applicability of your opinion will be
conditioned on compliance with the representations contained herein.
Capitalized terms used and not otherwise defined in this letter shall have
the same meanings as they have in the Registration Statement.
As a basis for your opinion, we hereby represent that:
1. The Partnership has been duly and validly organized as a limited
partnership pursuant of the terms of the Partnership Agreement and the
Delaware Revised Uniform Limited Partnership Act (the "Act");
2. With regard to the Registration Statement, to the best of our
knowledge (i) the information contained in the Registration Statement is
accurate and complete; and (ii) the Registration Statement contains no
omissions of material facts;
3. The Partnership Agreement and all other pertinent agreements
relating to the offering and sale of Units have been duly executed, delivered
and filed;
4. The purchase of Units in the Partnership by a Limited Partner will
not entail either a mandatory or discretionary purchase or option to purchase
any type of security or equity interest in either the General Partner,
Merrill Lynch & Co., Inc. or any of its affiliates;
5. The Partnership will be operated in accordance with the Act, the
Partnership Agreement, and the statements and representations made in the
Prospectus;
6. No creditor who makes a nonrecourse loan to the Partnership will
have or acquire, at any time as a result of making the loan, any direct or
indirect interest in the profits, capital, or property of the Partnership,
other than as a secured creditor or other than as a result of the exercise of
the rights thereof;
7. The General Partner will exercise its best efforts to enforce
Section 7.1A of the Partnership Agreement which provides, among other things,
that the Partnership will not recognize for any purpose any sale, assignment
or transfer of all or any part of a Limited Partner's Units if such sale,
assignment or transfer would cause the Partnership to be classified as either
an association taxable as a corporation for Federal income tax purposes or a
publicly traded partnership within the meaning of Code Section 7704(b);
8. The General Partner will not register Units for trading on any
established securities market or any secondary market as those terms are used
in Section 7704(b) of the Code. Moreover, the General Partner will not make
a market in Units at any time during the existence of the Partnership.
Furthermore, the General Partner will endeavor at all times to prevent any
trading of Units that might be characterized as the substantial equivalent of
trading in a secondary market in any future administrative or judicial
interpretations of Code Section 7704(b);
9. In approving procedures for the transfer of Units through a
matching agent, the General Partner will, unless otherwise advised by counsel
to the Partnership, require the following:
(a) No transfers of Units will be recognized unless the selling Limited
Partner gives formal notice to the matching agent at least 30 days
prior to the earliest next date on which transfers of such Units
are recognized;
(b) Offers to sell by a Partner to be listed in a matching service will
be revocable by such Partner and not binding on any transferee at
any time prior to the quarterly transfer date on which the
Partnership recognizes a transfer of such selling Partner's Units;
(c) No transfers of Units will be effected and no consideration for
sale of a Unit will be transferred or paid to either a selling
Partner, the matching agent or escrow holder at any time other than
on or after the quarterly transfer date on which the selling
Partner is otherwise eligible to transfer part or all of his
interest in the Partnership; and
(d) The matching agent will not quote prices for the sale of Units or
provide information concerning prospective buyers and sellers of
Units to the public in general.
10. The General Partner presently intends to use a matching service
provided by Merrill Lynch, Pierce, Fenner & Smith Incorporated and not to
recognize transfers of Units proposed to be effected through any other
matching agent. The quarterly transfer dates to be followed in the Merrill
Lynch matching service system are no earlier than the first day of each
calendar quarter immediately following the calendar quarter in which a
selling Partner complies with the provisions governing transfers of Units;
and
11. The Partnership will not elect under Section 761(a) of the Code to
be excluded from the application of all or part of subchapter K of the Code,
and will not elect pursuant to Treasury Regulation Section301.7701-3(c) to be
classified for Federal income tax purpose as an association taxable as a
corporation.
Very truly yours,
Merrill Lynch KECALP L.P. 1997
By KECALP Inc., General Partner
By: ____________________________
KECALP Inc.
By: ____________________________
EXHIBIT A-2
_________________ ___, 1997
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Re: Merrill Lynch KECALP L.P. 1997
------------------------------
Ladies and Gentlemen:
The purpose of this letter is to provide you with certain
representations for your use and reliance in preparing your opinion
concerning certain Federal income tax consequences under the Internal Revenue
Code of 1986, as amended, relating to the organization and operation of
Merrill Lynch KECALP L.P. 1997 (the "Partnership") and in preparing the
discussion entitled "Tax Aspects of Investment in the Partnership" appearing
in the Registration Statement and the Prospectus included therein, including
any Prospectus Supplement (the "Prospectus"), concerning the offering for
sale of limited partnership interests in the Partnership (the "Units"). We
understand that, in rendering your opinion, you will rely in part on such
representations made by us and the applicability of your opinion will be
conditioned on our compliance with the representations contained herein.
Capitalized terms used and not otherwise defined in this letter shall have
the meanings as they have in the Prospectus.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
the selling agent for the offering of Units of the Partnership, hereby
represents that in connection with any matching services provided by Merrill
Lynch or any of its affiliates (hereinafter, the term "Merrill Lynch" shall
include any affiliates thereof) for buyers and sellers of Units:
1. Offers to sell or buy Units of the Partnership made through Merrill
Lynch will be revocable by the offeror and not binding on any transferor or
transferee at all times prior to the quarterly transfer date on which the
Partnership recognizes a transfer of such Units.
2. Offers to sell Units will not be matched during a calendar quarter
unless such offers have been received by Merrill Lynch at least 30 days prior
to the quarterly transfer date on which the Partnership recognizes a transfer
of such Units.
3. Employees of Merrill Lynch will not be permitted to solicit sellers
of Units and, if Merrill Lynch becomes aware that an offer to sell Units has
been solicited, it will not match the offer for transfer.
4. No consideration for sale of a Unit will be transferred or paid to
either a selling Partner, Merrill Lynch or escrow holder at any time other
than on or after the quarterly transfer date on which the selling Partner is
otherwise eligible to transfer part or all of his Units.
5. Merrill Lynch will not quote prices for the sale of Units or
provide information concerning prospective buyers or sellers of Units to the
general public.
6. Merrill Lynch has no present intention to purchase Units after the
completion of the offering and will not purchase Units except for occasional
accommodation trades, the terms of which will be subject to the conditions
described in paragraphs 1 through 5 of this letter.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: __________________________________
Title:
