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AMERICA FIRST TAX EXEMPT MORTGAGE FUND
LIMITED PARTNERSHIP
CONSENT SOLICITATION STATEMENT
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AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
PROSPECTUS
This Consent Solicitation Statement/Prospectus is being furnished to the
holders of Beneficial Unit Certificates ("BUCs") representing assigned limited
partnership interests in America First Tax Exempt Mortgage Fund Limited
Partnership (the "Existing Fund") in connection with the solicitation of the
written consents of the BUC holders to a transaction (the "Transaction")
consisting of a merger of the Existing Fund with America First Tax Exempt
Investors, L.P., a newly formed Delaware limited partnership (the "New Fund"),
pursuant to the terms of an Agreement of Merger between the Existing Fund and
the New Fund (the "Merger Agreement"). Upon completion of the Transaction, the
separate existence of the Existing Fund will cease and BUC holders of the
Existing Fund will become BUC holders of the New Fund. Consummation of the
Transaction is subject to various conditions, including approval thereof by a
majority in interest of the BUC holders of the Existing Fund. This Consent
Solicitation Statement/Prospectus also constitutes the Prospectus of the New
Fund with respect to the issuance of 9,979,128 BUCs representing assigned
limited partnership interests in the New Fund to the holders of BUCs in the
Existing Fund in connection with the Transaction.
A consent card is included with this Consent Solicitation
Statement/Prospectus and BUC holders are asked to complete, date and sign the
consent card and return it to Service Data Corporation in the enclosed envelope
as soon as possible. In order to be valid, consents must be received by Service
Data Corporation by 5:00 p.m., Central time, on November 5, 1998. A consent will
be valid only if it is executed by or on behalf of a person who is a beneficial
holder of a BUC as of September 25, 1998 (the "Record Date"). An otherwise valid
consent will be deemed to grant consent to the Transaction if it is not marked
to withhold consent or to abstain. A CONSENT MAY NOT BE REVOKED AFTER THE
CONSENT CARD IS DELIVERED TO SERVICE DATA CORPORATION. No meeting of BUC holders
will be held with respect to the Transaction.
THE TRANSACTION INVOLVES RISKS, ADVERSE CONSEQUENCES AND CONFLICTS OF INTEREST
THAT SHOULD BE CONSIDERED BY BUC HOLDERS. IN PARTICULAR, BUC HOLDERS SHOULD
CONSIDER THE FOLLOWING. FOR A MORE COMPLETE DISCUSSION OF RISK FACTORS THAT
SHOULD BE CONSIDERED IN EVALUATING THE TRANSACTION, SEE "RISK FACTORS" ON PAGE
18.
- The New Fund intends to make additional investments with cash that the
Existing Fund would be required to distribute to BUC holders.
- The New Fund intends to "securitize" its existing tax-exempt bonds by
dividing them into a senior security (a "Senior Interest") and a
subordinate security (a "Subordinate Interest"). The General Partner has
not previously engaged in securitization transactions.
- The New Fund will keep the Subordinate Interests, but will sell the Senior
Interests. If there is not enough cash available to pay all principal or
interest on both the Senior Interest and the Subordinate Interest created
from a particular tax-exempt bond, the holder of the Senior Interest will
be paid before the New Fund is paid on its Subordinate Interest. This may
cause the BUC holders in the New Fund to receive smaller cash
distributions than they receive from the Existing Fund.
- The New Fund intends to issue additional BUCs. This will reduce the
partnership interests of existing BUC holders and could result in less
cash available for distribution per BUC. It may also cause a reduction in
the market price for BUCs.
- The General Partner has not identified any tax-exempt bonds or other
investments for the New Fund to acquire. If the New Fund raises additional
money from the sale of Senior Interests and additional BUCs and is unable
to invest in the kinds of securities it is seeking, its distributions to
BUC holders may be less than distributions from the Existing Fund.
(continued on inside cover page)
This Consent Solicitation Statement/Prospectus and the consent cards are
first being mailed to BUC holders on or about September 30, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED THE
MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
The date of this Consent Solicitation Statement/Prospectus is September 22 ,
1998
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(continued from cover)
- The New Fund may acquire mortgages which generate interest income that is
subject to federal income taxation. The Existing Fund could only acquire
tax-exempt mortgage bonds. Therefore, BUC holders of the New Fund may be
subject to federal income taxation on a portion of their share of the New
Fund's income.
- The operating expenses of the New Fund are expected to be higher than
those of the Existing Fund. The higher expenses may cause the New Fund to
have less cash to distribute to BUC holders than would the Existing Fund.
- The additional tax-exempt bonds that the New Fund will seek to buy will
not be investment grade securities. This means they carry a higher risk of
default than other types of debt securities. If a default happens, the
amount of cash the New Fund will have to distribute will be reduced.
- BUC holders will depend on the General Partner to make all decisions
regarding the additional investments made by the New Fund.
- The General Partner has a conflict of interest in recommending the
Transaction to BUC holders because the General Partner expects to receive
increased amounts of fees and cash distributions as a result of the
Transaction.
- There are alternatives to the Transaction, including (i) continuing the
Existing Fund with its present assets and (ii) liquidating the tax-exempt
bonds held by the Existing Fund and distributing the proceeds to the BUC
holders. The General Partner expects to receive greater fees and cash
distributions if the Transaction is completed than if any of the
alternatives thereto are undertaken. By approving the Transaction, the BUC
holders will effectively preclude the pursuit of any of these
alternatives.
- The General Partner has not obtained an independent fairness opinion or
other evaluation of the Transaction.
- The General Partner will be able to charge the New Fund an annual
administrative fee based on the amount of new tax-exempt bonds acquired by
the New Fund. If the New Fund pays additional fees to the General Partner,
the amount of cash it has to distribute will be reduced.
- The New Fund could pay the General Partner more to manage properties
acquired in foreclosure of tax-exempt bonds than could the Existing Fund.
- Amendments to the New Partnership Agreement that affect the timing or
amounts of cash distributions to BUC holders may be made with the consent
of a majority of BUC holders. The Current Partnership Agreement requires
such amendments to be approved by all BUC holders.
- Under the New Partnership Agreement, the amount for which the General
Partner is entitled to sell its partnership interest to a successor
general partner is calculated in a different manner and this change may
increase the price the General Partner could charge for its partnership
interest. This may make it more difficult to locate a successor general
partner.
- There will not be an active trading market for Subordinate Interests or
many of the additional tax-exempt bonds acquired by the New Fund. This may
prevent the New Fund from selling its assets at the time or prices it
desires, which may affect the amount and timing of distributions to BUC
holders of the New Fund.
- There is no current trading market for the BUCs of the New Fund and there
can be no assurance that one will develop.
- BUC holders voting against the Transaction will not be entitled to any
appraisal or other dissenters' rights under Delaware law and will not be
afforded any by the Existing Fund.
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AVAILABLE INFORMATION
America First Tax Exempt Mortgage Fund Limited Partnership (the "Existing
Fund") is subject to the informational requirements of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and in accordance therewith files
reports and other information with the Securities and Exchange Commission (the
"Commission"). Such reports and other information may be inspected and copied at
the public reference facilities maintained by the Commission at Room 1024, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the Regional Offices of the
Commission located at 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511, and Seven World Trade Center, Suite 1300, New York, New York 10048.
Copies of such material may be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. The Commission maintains a web site on the Internet that contains reports
and other information regarding the Existing Fund. The address of the
Commission's web site is http://www.sec.gov.
This Consent Solicitation Statement/Prospectus omits certain information
contained in the Registration Statement on Form S-4 and exhibits relating
thereto, including any amendments (the "Registration Statement"), of which this
Consent Solicitation Statement/Prospectus is a part and which America First Tax
Exempt Investors, L.P. (the "New Fund") has filed with the Commission under the
Securities Act of 1933, as amended (the "Securities Act"). Reference is made to
such Registration Statement for further information with respect to the New Fund
and the BUCs of the New Fund offered hereby. Statements contained herein or
incorporated herein by reference concerning the provisions of documents are
summaries of such documents, and each such statement is qualified in all
respects by the provisions of such exhibit or other document to which reference
is thereby made for a full statement of the provisions thereof. A copy of the
Registration Statement, with exhibits, may be obtained from the Commission's
offices (at the above addresses) upon payment of the fees prescribed by the
rules and regulations of the Commission, or examined there without charge.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents, previously filed by the Existing Fund (SEC file no.
14314) with the Commission pursuant to the Exchange Act, are incorporated herein
by reference:
- The Existing Fund's Annual Report on Form 10-K for the year ended December
31, 1997.
- The Existing Fund's Quarterly Reports on Form 10-Q for the three months
ended March 31, 1998 and June 30, 1998.
Each additional document filed by the Existing Fund pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act subsequent to the date of this
Consent Solicitation Statement/Prospectus and prior to the last date upon which
consents may be validly returned by BUC holders of the Existing Fund shall be
deemed to be incorporated by reference in this Consent Solicitation
Statement/Prospectus and to be a part hereof from the date of filing of such
documents. Any statement contained herein or in a document incorporated by
reference will be deemed to be modified or superseded for the purpose of this
Consent Solicitation Statement/Prospectus to the extent that such statement
contained therein or in any other subsequently filed document that also is, or
is deemed to be, incorporated by reference modifies or supersedes such
statement. Any such statement so modified or superseded will not be deemed,
except as so modified or superseded, to constitute a part of this Consent
Solicitation Statement/Prospectus.
The Existing Fund has incorporated certain of its reports filed with the
Commission into the Registration Statement. The Existing Fund will provide
without charge to each person, including any beneficial owner of its BUCs, to
whom a copy of this Consent Solicitation Statement/Prospectus has been
delivered, on the written or oral request of any such person, a copy of any or
all reports incorporated by reference in the Registration Statement, other than
exhibits to such documents. Such written or oral request should be directed to
Maurice E. Cox, Jr. at America First Companies L.L.C., Suite 400, 1004 Farnam
Street, Omaha, Nebraska 68102, telephone number (402) 444-1630.
<PAGE>
FORWARD-LOOKING STATEMENTS
This Consent Solicitation Statement/Prospectus and the reports of the
Existing Fund incorporated by reference herein contain certain forward-looking
statements that involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the New Fund
or the Existing Fund to be materially different from results or plans expressed
or implied by such forward-looking statements. Such factors include, among other
things, adverse changes in the real estate or tax-exempt bond markets, risk of
default under the mortgage bonds, interest rate fluctuations, tax treatment of
the New Fund or the Existing Fund and their investments, environmental/safety
requirements, adequacy of insurance coverage, and general and local economic and
business conditions. Although the General Partner believes that the assumptions
underlying the forward-looking statements are reasonable, any of the assumptions
could be inaccurate and, therefore, there can be no assurance that the
forward-looking statements included or incorporated by reference in this Consent
Solicitation Statement/ Prospectus will prove to be accurate. In light of the
significant uncertainties inherent in the forward-looking statements, the
inclusion of such information should not be regarded as a representation by the
General Partner or any other person that the objectives and plans of the New
Fund or the Existing Fund will be achieved.
<PAGE>
TABLE OF CONTENTS
<TABLE>
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SUMMARY.................................................................................................... 1
The Transaction.......................................................................................... 1
Purposes of the Transaction.............................................................................. 1
Background for the Transaction........................................................................... 4
Risk Factors............................................................................................. 5
Consideration of Alternatives............................................................................ 7
Recommendation of the General Partner.................................................................... 8
Fairness Determination of the General Partner............................................................ 8
Consent of BUC Holders................................................................................... 8
Comparison of the New Partnership Agreement and the Current Partnership Agreement........................ 9
Transferability of BUCs.................................................................................. 15
Federal Income Tax Consequences.......................................................................... 16
Accounting Treatment..................................................................................... 16
SUMMARY FINANCIAL INFORMATION.............................................................................. 17
RISK FACTORS............................................................................................... 18
New Fund May Reinvest.................................................................................... 18
Senior Interests Will Have First Right to Cash Flow...................................................... 18
New Fund May Issue Additional BUCs....................................................................... 18
No Additional Tax Exempt Bonds Have Been Identified...................................................... 18
New Fund May Acquire Taxable Mortgages................................................................... 19
New Fund May Incur Higher Expenses....................................................................... 19
Additional Bonds Will Not Be Rated Securities............................................................ 19
Dependence on the General Partner........................................................................ 19
The General Partner Has Not Previously Engaged in Securitizations........................................ 19
Conflicts of Interest.................................................................................... 20
Possible Alternatives to the Transaction Will Not Be Pursued............................................. 20
No Fairness Opinion...................................................................................... 20
Property Management Fees May Be Higher................................................................... 20
New Partnership Agreement May Be Amended More Easily..................................................... 21
General Partner's Interest Will Be Valued on a Different Basis If It Is Removed.......................... 21
Additional Bonds and Subordinate Interests Will Not Be Liquid............................................ 21
Potential Lack of Public Trading Market for BUCs......................................................... 21
No Dissenters' Rights.................................................................................... 21
SOLICITATION OF BUC HOLDER CONSENT......................................................................... 22
Solicitation by the General Partner...................................................................... 22
Communicating With Other BUC Holders..................................................................... 23
THE TRANSACTION............................................................................................ 23
General.................................................................................................. 23
Terms of the Merger Agreement............................................................................ 24
Issuance of BUCs of the New Fund......................................................................... 25
Costs of the Transaction................................................................................. 25
Accounting Treatment..................................................................................... 25
Regulatory Matters....................................................................................... 26
Background and Reasons for the Transaction............................................................... 26
Recommendation of the General Partner.................................................................... 32
Consideration of Alternative Courses of Action........................................................... 32
Fairness Determination of the General Partner............................................................ 33
</TABLE>
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<TABLE>
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INFORMATION RELATING TO THE EXISTING FUND.................................................................. 35
Description of Business.................................................................................. 35
Management............................................................................................... 36
Executive Compensation................................................................................... 37
Properties............................................................................................... 38
Legal Proceedings........................................................................................ 38
Voting Securities and Beneficial Ownership Thereof by Principal BUC Holders, Directors and Officers...... 39
Market for the Existing Fund's BUCs and Related BUC Holder Matters....................................... 39
SELECTED FINANCIAL DATA OF THE EXISTING FUND............................................................... 40
INFORMATION RELATING TO THE NEW FUND....................................................................... 40
Business................................................................................................. 40
Partners of the New Fund................................................................................. 43
Properties............................................................................................... 44
Legal Proceedings........................................................................................ 44
TERMS OF THE NEW PARTNERSHIP AGREEMENT..................................................................... 44
General.................................................................................................. 44
Formation................................................................................................ 44
Issuance of Additional BUCs.............................................................................. 44
Management of the New Fund............................................................................... 44
Allocations and Distributions............................................................................ 45
Other Payments to the General Partner.................................................................... 47
Liability of Partners and BUC Holders.................................................................... 48
Voting Rights............................................................................................ 49
Reports.................................................................................................. 50
Removal or Withdrawal of the General Partner............................................................. 50
Effect of Removal, Bankruptcy, Dissolution or Withdrawal of a General Partner............................ 50
Amendments............................................................................................... 51
Dissolution and Liquidation.............................................................................. 51
Designation of Tax Matters Partner....................................................................... 52
Tax Elections............................................................................................ 52
Books and Records........................................................................................ 52
Accounting Matters....................................................................................... 52
Other Activities......................................................................................... 52
Derivative Actions....................................................................................... 52
DESCRIPTION OF THE BUCS OF THE NEW FUND.................................................................... 53
Beneficial Unit Certificates............................................................................. 53
Transfers................................................................................................ 53
MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION................................................ 54
Partnership Status....................................................................................... 54
Treatment of the New Fund as a Publicly Traded Partnership............................................... 55
Tax Exempt Interest...................................................................................... 55
Consequences of a Merger................................................................................. 55
Nondeductibility of Interest Expense..................................................................... 55
Tax Elections............................................................................................ 55
LEGAL MATTERS.............................................................................................. 56
EXPERTS.................................................................................................... 56
GLOSSARY................................................................................................... 57
</TABLE>
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS AND THE APPENDICES HERETO. THIS
SUMMARY DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF ALL INFORMATION RELATING
TO THE AGREEMENT OF LIMITED PARTNERSHIP (THE "NEW PARTNERSHIP AGREEMENT") OF THE
NEW FUND AND THE AGREEMENT OF MERGER (THE "MERGER AGREEMENT") BETWEEN THE
EXISTING FUND AND THE NEW FUND AND IS SUBJECT TO, AND QUALIFIED IN ITS ENTIRETY
BY, THE MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS CONTAINED OR
INCORPORATED BY REFERENCE IN THIS CONSENT SOLICITATION STATEMENT/PROSPECTUS. THE
FORMS OF THE NEW PARTNERSHIP AGREEMENT AND THE MERGER AGREEMENT ARE ATTACHED AS
APPENDICES A AND B, RESPECTIVELY, TO THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS. BUC HOLDERS SHOULD READ THIS CONSENT SOLICITATION
STATEMENT/ PROSPECTUS IN ITS ENTIRETY PRIOR TO RETURNING THE CONSENT CARD
ENCLOSED HEREWITH. CERTAIN TERMS USED HEREIN ARE DEFINED IN THE "GLOSSARY" ON
PAGE 57.
THE TRANSACTION
The General Partner is seeking the consent of the BUC holders of the
Existing Fund to a transaction (the "Transaction") in which the Existing Fund
will be merged into the New Fund. The New Fund is a newly formed Delaware
limited partnership the business of which is to acquire and hold direct or
indirect interests in tax-exempt mortgage bonds secured by multifamily
residential properties. As a result of the Transaction, the New Fund will
acquire all of the assets and liabilities of the Existing Fund, including the
seven participating tax-exempt mortgage bonds currently held by the Existing
Fund that were issued by various state and municipal issuers to provide
construction and permanent financing of seven multifamily residential
properties.
The New Fund intends to sell securities created from its existing tax-exempt
bonds and use the money to acquire more tax-exempt bonds. The Existing Fund
cannot do this because it is required to distribute any money received from the
sale of its assets. Therefore, the Transaction will result in a fundamental
change in the nature of the BUC holders' investment.
The General Partner and the Initial Limited Partner of the Existing Fund are
also the General Partner and Initial Limited Partner of the New Fund. As a
result of the Transaction, the Initial Limited Partner will assign its limited
partner interest in the New Fund to the BUC holders of the Existing Fund on the
effective date of the Transaction thereby making them BUC holders of the New
Fund. The New Fund will be the surviving entity of the Transaction and the New
Partnership Agreement will control the operations of the New Fund after the
Transaction. Upon completion of the Transaction, the principal executive offices
of the New Fund will remain at Suite 400, 1004 Farnam Street, Omaha, Nebraska
68102, and the telephone number of the New Fund will remain (402) 444-1630. See
"THE TRANSACTION," "INFORMATION RELATING TO THE EXISTING FUND" and "INFORMATION
RELATING TO THE NEW FUND."
PURPOSES OF THE TRANSACTION
The General Partner has proposed the Transaction in order to transfer the
assets of the Existing Fund to the New Fund which will have the ability to
finance the acquisition of additional investments through the issuance of
additional BUCs and the sale of "Senior Interests" (defined below). By acquiring
additional investments the General Partner hopes to (i) increase the amount of
tax-exempt interest available for distribution to BUC holders, (ii) reduce risk
through increased asset diversification and (iii) achieve improved economies of
scale. Utilizing the multi-family housing and tax-exempt expertise of the
General Partner, the New Fund expects to be able to increase the distributions
per BUC through the selective acquisition of additional investments at
attractive spreads over the cost of financing these acquisitions. In general,
the New Fund will seek to acquire additional tax-exempt bonds secured by
multifamily real estate. However, the New Fund may also acquire (i) other types
of tax-exempt securities, provided that they are rated "investment grade" by a
nationally recognized rating agency and (ii) taxable mortgages in connection
with the acquisition of tax-exempt bonds secured by the same property. The New
1
<PAGE>
Partnership Agreement limits the amount of tax-exempt securities that are not
mortgage revenue bonds secured by multifamily real estate to 25% of the New
Fund's assets at the time of acquisition.
Under the Current Partnership Agreement, the only way the Existing Fund
could finance the acquisition of additional investments would be to borrow
money. However, this is not a practical way to finance the acquisition of
tax-exempt bonds because the borrowed money would probably bear interest at a
rate that is higher than the interest rate earned on any additional tax-exempt
bonds. In addition, the interest paid on money borrowed to buy tax-exempt
securities is not deductible for federal income tax purposes.
Under the New Partnership Agreement, the New Fund will have the ability to
finance the acquisition of additional investments through the sale of Senior
Interests and the issuance of additional BUCs. The New Fund may also reinvest
interest income, but the General Partner expects to do so only if necessary to
provide supplemental funds to finance the acquisition of new investments that
are primarily financed by the sale of Senior Interests or BUCs. The New Fund may
use other sources of capital, if any, that are available to it in order to
finance the acquisition of additional investments. However, the General Partner
does not expect to use sources other than additional equity raised from the sale
of BUCs and the reinvestment of the proceeds from the sale of Senior Interests
supplemented by interest income.
The New Fund will initially create Senior Interests from the tax-exempt
bonds it acquires from the Existing Fund. This can be done directly by causing a
bond to be reissued in two classes. It can also be done indirectly by placing
one or more bonds in a trust that has two classes of beneficiaries. Each class
of bond or beneficiary will have a right to receive some of the total principal
and tax-exempt interest paid on the original bond. However, one class of bond or
beneficiary (the "Senior Interest") will have a right to be paid its share of
principal and interest before principal and interest are paid to the other class
(the "Subordinate Interest"). This right helps protect the Senior Interests from
the risk that less than all principal or interest payments are made on the
underlying tax-exempt bonds. Because of this protection, the Senior Interests
are expected to bear interest at current market rates for investment grade
tax-exempt securities. This should be a relatively low rate that should be below
the rate that would be paid on the type of additional investments the New Fund
wants to acquire. The New Fund will keep the Subordinate Interests, but intends
to sell the low interest rate Senior Interests and use the money to buy
additional investments that bear interest at a higher rate. As a result, the
interest income from these new investments, when combined with the interest the
New Fund will continue to receive on the Subordinate Interests, should exceed
the interest income that was earned on the original tax-exempt bonds.
The General Partner will not enter into a transaction creating a Senior
Interest and a Subordinate Interest unless it receives an opinion of counsel
that all interest income to be earned by the New Fund on the Subordinate
Interest will be exempt from federal income tax. The New Fund expects to create
Senior Interests and Subordinate Interests with respect to each of the seven
tax-exempt mortgage bonds acquired from the Existing Fund and also with respect
to additional tax-exempt bonds acquired with the proceeds from the sale of
Senior Interests and the issuance of additional BUCs.
The Existing Fund could not take advantage of this financing technique
because the Current Partnership Agreement would require that proceeds from the
sale of the Senior Interests be distributed to BUC holders rather than
reinvested in additional tax-exempt bonds. In addition, the Current Partnership
Agreement would not allow the Existing Partnership to hold the Subordinate
Interests if the Senior Interests were held by a third party. In contrast, the
New Partnership Agreement allows the New Fund to reinvest the proceeds from the
sale of Senior Interests and to retain Subordinate Interests. The New Fund may
also reinvest interest income to acquire additional tax-exempt bonds rather than
make distributions to BUC holders. The Current Partnership Agreement requires
that all interest income be distributed to BUC holders.
The New Fund will also have the authority to issue BUCs to raise additional
equity capital. The New Fund will be able to invest this additional capital to
acquire additional investments and may create
2
<PAGE>
additional Senior Interests and Subordinate Interests from additional tax-exempt
mortgage bonds as described above. Therefore, the General Partner expects the
New Fund to be able to increase the total amount of interest income it earns by
issuing additional BUCs. In addition, by issuing additional BUCs and acquiring
additional investments with the proceeds, the New Fund will be able to further
diversify its asset base, making it less dependent on the interest income earned
on any particular asset. To the extent the New Fund earns interest income from a
larger number of mortgage bonds, it will be able to reduce the risk that a
default with respect to any single apartment project will have a material affect
on the total interest income earned by the New Fund. Because the New Fund will
hold Subordinate Interests in many cases, the General Partner believes that it
is important that the New Fund be able to mitigate its overall risk through
greater diversification of its assets. In addition, by issuing additional BUCs,
the General Partner hopes to be able to achieve better economies of scale by
spreading the operating expenses of the New Fund among a larger number of BUCs.
The General Partner would expect to cause the New Fund to make a public offering
of additional BUCs after completion of the Transaction. BUCs issued in such an
offering would be sold at a price approximating the then current market price
for New Fund BUCs. The General Partner has conducted preliminary discussions
with potential underwriters regarding such an offering, although no letter of
intent or underwriting agreement has been entered at this time. The Current
Partnership Agreement does not allow the Existing Fund to issue additional BUCs.
The General Partner believes that if it is able to increase the amount of
cash distributions paid to BUC holders in the New Fund over the level of
distributions currently paid to BUC holders of the Existing Fund, the BUCs of
the New Fund may trade at prices above the prevailing prices at which the BUCs
in the Existing Fund currently trade. However, there can be no assurance that
BUCs of the New Fund will trade at higher prevailing prices than BUCs in the
Existing Fund. See "THE TRANSACTION--General" and "--Background and Reasons for
the Transaction" and "INFORMATION RELATING TO THE NEW FUND--Business."
There can be no assurance that the distributions to BUC holders will
increase if the New Fund pursues its business strategy. One reason cash
distributions may not increase is that the New Fund will hold Subordinate
Interests, which will bear a disproportionate share of any losses in the event
of a default on the tax-exempt bonds underlying the Senior Interests and the
Subordinate Interests. The only source of funds to pay interest on the Senior
Interest and Subordinate Interest created from a particular tax-exempt bond is
the operating cash flow from the apartment complex that was financed with the
tax-exempt bond. The operating cash flow from an apartment complex may be
affected by many things, such as the number of tenants, the rental rates,
operating expenses, taxes, competition from other apartment complexes and
mortgage rates for single-family housing. If an apartment complex does not have
enough money to pay all the interest on its tax-exempt bond on any due date,
then the holder of the Senior Interest will first receive the entire amount of
interest it is entitled to receive. In that case, there will not be enough
remaining money to pay the New Fund all the interest it is due on the
Subordinate Interest. Similarly, the only source of funds to repay the principal
on the Senior Interest and Subordinate Interest created from a particular
tax-exempt bond will be the money received from a sale or refinancing of the
apartment complex. If there is not enough money to repay the entire principal of
the underlying bond, the holder of the Senior Interest will first receive all of
the principal payment until it has been repaid in full. The New Fund will
receive the remainder of the principal payment, but it will not be enough to
repay the entire principal of the Subordinate Interest.
Another reason cash distributions may not increase as a result of this
strategy is that the General Partner is unable to reinvest the proceeds from the
sale of Senior Interests or additional BUCs in additional tax-exempt bonds. If
the New Fund sells Senior Interests, it will forego the interest income it would
earn thereon. Unless it can reinvest the proceeds from the sale of the Senior
Interests at a higher interest rate, it will realize less interest income than
it would had it retained the Senior Interests.
The amount of cash available for distribution on a per BUC basis will depend
in part on the number of BUCs outstanding. Therefore, the sale of additional
BUCs may cause distributions per BUC to decline
3
<PAGE>
depending on the price at which additional BUCs are sold or the interest rate
earned on the investments acquired through the investment of the proceeds from
the offering of additional BUCs.
In addition, cash distributions will be affected by the level of operating
expenses incurred by the New Fund. The New Fund will incur legal fees, due
diligence expenses and other costs in connection with creating Senior Interests
and Subordinate Interests, issuing additional BUCs and acquiring additional tax-
exempt bonds. Therefore, during the period of time the New Fund is in the
process of acquiring additional tax-exempt bonds, its operating expenses can be
expected to exceed the expenses that the Existing Fund would have incurred
during the same period. The General Partner is not able to estimate the amount
of such additional expenses at this time, but they could be substantial. The New
Fund may also pay the General Partner an Administrative Fee with respect to
certain investments. The New Fund also expects to incur higher investor
relations and servicing costs if it issues additional BUCs. Therefore, the
General Partner believes that the New Fund's operating expenses are likely to be
higher than those of the Existing Fund. See "RISK FACTORS."
BACKGROUND FOR THE TRANSACTION
As of June 30, 1998, the Existing Fund held seven tax-exempt mortgage bonds
secured by apartment complexes in five states. At that time, five of the
Existing Fund's participating tax-exempt mortgage bonds were classified as
nonperforming loans and the Existing Fund accepted interest payments from the
owners of the properties securing these nonperforming bonds in amounts less than
the full amount of base interest due on these bonds. In addition, while
contingent interest has been paid on one of the two performing bonds, the
General Partner does not believe that any contingent interest will be paid to
the Existing Fund on any of its other bonds. Accordingly, the possibility of the
Existing Fund increasing the amount of tax-exempt interest received by it from
its current portfolio of mortgage bonds is limited to marginal increases in the
operating performance of the properties securing the bonds.
The prospectus relating to the offering of the Existing Fund's BUCs stated
that the Existing Fund's tax-exempt bonds were to be repaid no later than 12
years after they were issued. Upon repayment of the bonds, the Existing Fund
planned to distribute all of its cash and dissolve. Even though the Existing
Fund's tax-exempt bonds have terms of up to 30 years, they provide that the
Existing Fund was to be repaid no later than 12 years after the date of
issuance. Accordingly, principal and accrued interest on six of the bonds became
due and payable on December 1, 1997 and became due and payable on the remaining
bond on July 1, 1998 (the "Repayment Dates"). The terms of the bonds require
that the underlying properties be sold or refinanced on the Repayment Dates and
that the net proceeds of such sale or refinancing be applied to the payment of
principal and accrued interest on the bonds, including any accrued contingent
interest. Each of the bonds is a "nonrecourse" obligation of the property owner
and, therefore, the net proceeds from the sale or refinancing of the property is
the only source of repayment for the bonds. The estimated market value of the
properties at June 30, 1998 was approximately $5,500,000 less than the
outstanding principal balance of the bonds. Therefore, if these properties were
sold or refinanced on the Repayment Dates, it was expected that the net proceeds
from the sale or refinancing would not have been sufficient to repay the
principal balance of these bonds. Accordingly, the General Partner anticipates
that the Existing Fund would have suffered an irretrievable loss of capital of
approximately $5,500,000 (representing approximately 7.7% of the principal
balance of the bonds) if the bonds had been repaid pursuant to their terms on
the Repayment Dates. In addition, it was unlikely that the sale or refinancing
of any of these properties would have produced sufficient net proceeds to allow
for the payment of accrued contingent interest on the bonds as of the Repayment
Dates. Therefore, if the bonds were repaid on the Repayment Dates, the Existing
Fund would not achieve two of its principal investment objectives: (1) the
preservation of investors' capital and (2) an enhanced tax-exempt yield from
contingent interest.
In order to avoid this loss of capital, the General Partner has proposed
that the Existing Fund continue to hold the bonds beyond the respective
Repayment Dates so that the General Partner can continue to work to improve the
economic performance and value of the properties. The General Partner
4
<PAGE>
hopes that this will improve the chances of the bonds being repaid in full. In
order to avoid the interest earned on the bonds from possibly becoming subject
to federal income taxation, the bonds must be reissued by the state or local
housing authorities that originally issued the bonds to the Existing Fund. Upon
such reissuance, the base interest rate on the bond is required to be reset, if
necessary, to a level at which the projected net revenues of the property
financed by the bond will be sufficient to pay the full debt service on the
bond. Furthermore, the maximum amount of contingent interest payable on such
bond would be reduced to a level at which the full amount of contingent interest
would be payable from projected net revenues and net sale proceeds from the
property. Therefore, it is expected that the reissued bonds will bear base
interest at rates that are lower than the 8.5% per annum interest rate in effect
prior to their reissuance. In addition, the maximum interest rate, including
contingent interest, payable on the reissued bonds is expected to be less than
the 16% per annum in effect prior to their reissuance.
The reduction in the stated base and contingent interest rates on the
reissued bonds is not expected to have an immediate effect on the Existing
Fund's interest income because the Existing Fund has been accepting interest
payments for less than the full amount of base interest due on most of the
bonds. However, the reduction in base and contingent interest rates on the
reissued bonds will limit the ability of the Existing Fund to participate in
additional net cash flow generated by any future improvements in the economic
performance of the properties. Accordingly, the Existing Fund is expected to
earn a relatively static amount of interest income in the future. On the other
hand, the General Partner believes it is likely that the administrative expenses
of operating the Existing Fund will continue to escalate over time due to
general price inflation. Accordingly, the General Partner anticipates that the
amount of net cash flow that the Existing Fund will have available for
distribution to the BUC holders will remain static or decline over time.
Therefore, the General Partner is proposing that the assets and liabilities
of the Existing Fund be transferred to the New Fund, which will have the ability
to finance the acquisition of additional tax-exempt bonds with the proceeds from
the sale of Senior Interests and additional BUCs. In addition to new tax-exempt
bonds that may be issued to finance development or rehabilitation of apartment
complexes, a substantial number of existing tax-exempt mortgage bonds are
outstanding that were originated in the late 1980s to finance the construction
of apartment complexes. Because interest rates are significantly lower now than
they were when these bonds were originally issued, the General Partner believes
that many apartment complex owners may be interested in refinancing the mortgage
loans underlying these existing bonds. Such refinancings would result in the
reissuance of the tax-exempt mortgage bonds, making them available for
acquisition by the New Fund.
RISK FACTORS
BUC holders of the Existing Fund should consider the following risk factors
in connection with the Transaction. See "RISK FACTORS" on page 18.
- The New Fund intends to reinvest cash received from the sale of assets and
interest income to acquire additional tax-exempt mortgage bonds secured by
multifamily real estate, rather than distribute these amounts to BUC
holders.
- In order to acquire additional tax-exempt bonds, the New Fund intends to
sell Senior Interests having senior rights with respect to the principal
and interest paid on the New Fund's tax-exempt mortgage bonds. The New
Fund will retain Subordinate Interests relating to the same tax-exempt
bonds. If the principal and interest payments on the underlying tax-exempt
bonds do not generate sufficient amounts to pay principal and interest on
both the Senior Interests and the Subordinate Interests, the holders of
the Senior Interests will be paid the full amount owed to them prior to
any payment to the New Fund with respect to the Subordinate Interests and
this may cause BUC holders in the New Fund to receive smaller cash
distributions than they would receive from the Existing Fund.
5
<PAGE>
- The New Fund intends to issue additional BUCs in order to finance the
acquisition of additional investments. Depending on the price at which new
BUCs are issued and the average yield earned on the capital raised from
the issuance of additional BUCs, the amount of interest income available
to distribute on a per BUC basis may decrease as the result of issuing
additional BUCs. The issuance of additional BUCs will dilute the
partnership interests of existing BUC holders in the New Fund and may
adversely affect the market price of BUCs.
- The General Partner has not identified any additional tax-exempt bonds for
acquisition and there can be no assurance that the New Fund will be able
to invest any amounts raised from the sale of Senior Interests or the
issuance of additional BUCs in additional tax-exempt bonds. The New Fund
may have less cash to distribute to the BUC holders than would the
Existing Fund if the New Fund is unable to invest amounts raised from the
issuance of additional BUCs or the sale of Senior Interests.
- The New Fund may acquire mortgages which generate interest income that is
subject to federal income taxation. The Existing Fund could only acquire
tax-exempt mortgage bonds. Therefore, BUC holders of the New Fund may be
subject to federal income taxation on a portion of their share of the New
Fund's income.
- The New Fund will incur legal fees, due diligence expenses and other costs
in connection with the acquisition of additional tax-exempt bonds, the
creation of Senior Interests and Subordinate Interests and the issuance of
additional BUCs. In addition, the New Fund expects to incur higher
investor relations and servicing costs if it issues additional BUCs.
Therefore, the operating expenses of the New Fund are expected to exceed
the expenses of the Existing Fund. To the extent operating expenses are
higher than those of the Existing Fund, the amount of cash the New Fund
will have available for distribution to BUC holders will be reduced.
- Additional tax-exempt mortgage bonds that are acquired by the New Fund
will not be rated by any nationally recognized rating agency. Therefore,
the acquisition of these additional tax-exempt bonds will entail risks
generally associated with investing in unrated debt securities. If
defaults occur on these tax-exempt bonds, the amount of cash available for
distribution to BUC holders will be reduced.
- BUC holders will be dependent on the General Partner to evaluate the
additional investments acquired by the New Fund and to negotiate the terms
thereof.
- Some of the Senior Interests and Subordinate Interests will be created
through the "securitization" of tax-exempt bonds. The General Partner has
not previously engaged in securitization transactions.
- The General Partner has a conflict of interest in recommending the
Transaction to BUC holders because the General Partner expects to receive
increased amounts of fees and cash distributions as a result of the
Transaction.
- There are alternatives to the Transaction, including (i) continuing the
Existing Fund with its present assets and (ii) liquidating the tax-exempt
bonds held by the Existing Fund and distributing the proceeds to the BUC
holders. The General Partner expects to receive greater fees and cash
distributions if the Transaction is completed than if any of the
alternatives thereto are undertaken. By approving the Transaction, the BUC
holders will effectively preclude the pursuit of any of these
alternatives.
- The General Partner has not obtained an independent fairness opinion or
other evaluation of the Transaction.
- The New Partnership Agreement will allow the General Partner to charge an
Administrative Fee directly to the New Fund with respect to additional
investments acquired by the New Fund that are not held in its Reserve if
an Administrative Fee is not payable by a third party with respect to such
6
<PAGE>
investments. The Current Partnership Agreement allows the General Partner
to charge the Existing Fund an Administrative Fee only with respect to
properties acquired in foreclosure of tax-exempt mortgage bonds. To the
extent the New Fund pays additional fees to the General Partner, the
amount of cash available for distribution will be reduced.
- The New Partnership Agreement will allow the General Partner to charge a
property management fee for properties acquired by the New Fund in
foreclosure that is not limited to the General Partner's cost of providing
property management services. Therefore, the New Fund could pay more for
such services than the Existing Fund if any properties are acquired in
foreclosure.
- Amendments to the New Partnership Agreement that affect the timing or
amounts of cash distributions to BUC holders may be made with the consent
of a majority of BUC holders. The Current Partnership Agreement requires
such amendments to be approved by all BUC holders.
- Under the New Partnership Agreement, the amount for which the General
Partner is entitled to sell its partnership interest to a successor
general partner is calculated in a different manner and this change may
increase the price the General Partner could charge for its partnership
interest. This may make it more difficult to locate a successor general
partner.
- There will not be an active trading market for Subordinate Interests or
many of the additional tax-exempt bonds acquired by the New Fund. This may
prevent the New Fund from selling its assets at the time or prices it
desires, which may affect the amount and timing of distributions to BUC
holders of the New Fund.
- There is no current trading market for the BUCs of the New Fund and there
can be no assurance that one will develop.
- BUC holders voting against the Transaction will not be entitled to any
appraisal or other dissenters' rights under Delaware law and will not be
afforded any by the Existing Fund.
CONSIDERATION OF ALTERNATIVES
In addition to the proposed Transaction, the General Partner considered the
options of (i) causing the bonds to be repaid and dissolving the Existing Fund
or (ii) continuing the Existing Fund with its current portfolio of tax-exempt
bonds. The General Partner has rejected each of the alternatives in favor of the
Transaction. The General Partner has rejected the first option because it
expects that the Existing Fund will not recover the full principal amount of its
existing portfolio of tax-exempt bonds from the immediate sale of the properties
securing these bonds, therefore resulting in a loss of capital to BUC holders.
In addition, it is not expected that any contingent interest will be received if
the bonds are repaid at this time. In contrast, if the Transaction is
consummated, the properties underlying these bonds may appreciate in value,
which may result in a greater return of capital to BUC holders and increase the
possibility of receiving contingent interest.
The General Partner has rejected the second option because it believes the
amount of cash that the Existing Fund has available for distribution will not
increase, and may decline, over time. If the Transaction is consummated, the
General Partner hopes to be able to increase cash available for distribution to
BUC holders.
If the Transaction is not approved, the General Partner anticipates that it
will continue the Existing Fund with its current portfolio of tax-exempt bonds.
See "THE TRANSACTION--Consideration of Alternative Courses of Action."
7
<PAGE>
RECOMMENDATION OF THE GENERAL PARTNER
The General Partner believes that the Transaction is in the best interest of
the Existing Fund and all of its BUC holders and recommends the approval thereof
by the BUC holders. See "THE TRANSACTION--Recommendation of the General
Partner."
FAIRNESS DETERMINATION OF THE GENERAL PARTNER
The General Partner, including the Board of Managers of America First
Companies L.L.C. (the general partner of the General Partner) ("America First"),
believes that the terms of the Transaction are fair to the BUC holders for the
reasons discussed under "THE TRANSACTION--Fairness Determination of the General
Partner." The General Partner has not obtained a fairness opinion or any other
evaluation of the Transaction from an investment banker or other third party.
CONSENT OF BUC HOLDERS
The General Partner will not hold a meeting of the BUC holders to consider
the Transaction, but instead is seeking the written consent of BUC holders as
provided in Section 10.02 of the Current Partnership Agreement. The Transaction
may not be consummated without the consent of the holders of a majority of the
outstanding BUCs of the Existing Fund.
A consent card is included with this Consent Solicitation
Statement/Prospectus and BUC holders are asked to complete, date and sign the
consent card and return it to Service Data Corporation in the enclosed envelope
as soon as possible. In order to be valid, consents must be received by Service
Data Corporation by 5:00 p.m., Central time, on November 5, 1998, unless such
date is extended by the General Partner in its sole discretion. An otherwise
valid consent card will be deemed to grant consent to the Transaction if it is
not marked to withhold consent or to abstain. A BUC HOLDER MAY NOT REVOKE ITS
CONSENT AFTER THE CONSENT CARD IS DELIVERED TO SERVICE DATA CORPORATION. See
"SOLICITATION OF BUC HOLDER CONSENT."
The General Partner has proposed a merger with the New Fund rather than
amending the Current Partnership Agreement. The Current Partnership Agreement
says that no amendment can be made to it that would reduce the amount of, or
delay the timing of, payments received on mortgage loans that are required to be
distributed to any BUC holder without the consent of that BUC holder. The
General Partner felt that this provision could be interpreted to require that
all BUC holders approve an amendment to the Current Partnership Agreement to
allow for the reinvestment of money raised from the sale of the Senior
Interests. As a practical matter, it would be extremely difficult or impossible
to obtain unanimous consent of the BUC holders. Under Delaware law, the merger
of the Existing Fund requires the consent of the holders of a majority of the
BUCs. Therefore, the proposed merger with the New Fund was determined to be the
only practical way to pursue the General Partner's strategy for improving cash
distributions to BUC holders. The General Partner believes that this course of
action is fair to all BUC holders, and is consistent with its fiduciary duties,
because the purpose of the Transaction is to allow the General Partner to pursue
a strategy that it believes will allow it to increase cash distributions to all
BUC holders. Therefore, the Transaction is consistent with the purpose of
protecting distributions to BUC holders that is the reason for the unanimous
consent provision of the Current Partnership Agreement. In addition, because the
Existing Fund cannot create Senior Interests, it would never be able to
distribute cash from the sale of Senior Interests. Therefore, the New Fund will
be reinvesting only moneys that would not have been available for distribution
by the Existing Fund. Accordingly, as a practical matter, the reinvestment of
the proceeds from the sale of Senior Interests will not reduce the amount or
delay the timing of cash distributions to BUC holders.
8
<PAGE>
COMPARISON OF THE NEW PARTNERSHIP AGREEMENT AND THE CURRENT PARTNERSHIP
AGREEMENT
There are some important differences between the New Partnership Agreement
and the Current Partnership Agreement. The following is a list of the material
differences between the New Partnership Agreement and the Current Partnership
Agreement. See "TERMS OF THE NEW PARTNERSHIP AGREEMENT."
- The New Partnership Agreement grants the General Partner the authority to
(i) cause the sale of the Senior Interests to unaffiliated parties without
the consent of the BUC holders and (ii) reinvest the proceeds from the
sale of the Senior Interests (which amounts may be supplemented with
interest income earned by the New Fund) in additional tax-exempt bonds
secured by apartment complexes. The Current Partnership Agreement would
require (i) the consent of the BUC holders to the sale of the Senior
Interests if they represented substantially all of the assets of the
Existing Fund and (ii) that the net proceeds from the sale of the Senior
Interests and all net interest income earned by the Existing Fund be
distributed to BUC holders.
- The Existing Fund is prohibited from holding junior trust deeds or
mortgages. This prohibition has been eliminated in the New Partnership
Agreement so that the New Fund may hold the Subordinate Interests, which
will have rights in the collateral that are junior to those of the Senior
Interests. Accordingly, the New Fund may hold investments that potentially
are riskier than the investments that may be held by the Existing Fund.
- The New Partnership Agreement provides that the General Partner may cause
the New Fund to issue additional BUCs from time to time on such terms and
conditions as it shall determine. The Current Partnership Agreement does
not allow the General partner to cause the Existing Fund to issue
additional BUCs.
- The New Partnership Agreement provides that the New Fund may acquire (i)
mortgages that generate taxable interest income in conjunction with the
acquisition of tax-exempt mortgage bonds and (ii) investment-grade rated
tax-exempt securities that are not secured by real estate. The Current
Partnership Agreement requires that all mortgage bonds acquired by the
Existing Partnership generate income that is exempt from federal income
taxation and that other tax-exempt securities held by the Existing Fund be
held as part of its reserve.
- The New Partnership Agreement will allow the General Partner to charge an
Administrative Fee directly to the New Fund with respect to additional
investments acquired by the New Fund and not held in its Reserve, if an
Administrative Fee is not payable by a third party with respect to such
investments. The Current Partnership Agreement allows the General Partner
to charge the Existing Fund an Administrative Fee only with respect to
properties acquired in foreclosure of tax-exempt mortgage bonds.
- The Current Partnership Agreement provides that the General Partner would
receive 10% of Net Interest Income and 10% of Net Residual Proceeds if BUC
holders received distributions equal to certain benchmarks. The New
Partnership Agreement limits the General Partner's participation in Net
Interest Income to 1% (plus a small amount of contingent interest) no
matter how much Net Interest Income is distributed to the BUC holders.
Likewise, the General Partner's participation in Net Residual Proceeds is
limited to a small amount of contingent interest no matter how much Net
Residual Proceeds are distributed to the BUC holders.
- If the Existing Fund acquires a property in foreclosure of a tax-exempt
bond and the General Partner assumes the management of this property, it
may charge a property management fee only to the extent that the fee does
not exceed its cost of providing property management services. The New
Partnership Agreement will allow the General Partner to charge a property
management fee for such properties that are not limited to the General
Partner's cost of providing property management services. Therefore, the
New Fund could pay more for such services than the Existing Fund if any
properties are acquired in foreclosure.
9
<PAGE>
- The Current Partnership Agreement provides that the price at which a
removed General Partner is entitled to sell its partnership interest to a
successor general partner is based on the share of Net Residual Proceeds
the General Partner would receive in the event the assets of the Existing
Fund were sold at their fair market values. The New Partnership Agreement
provides that the price at which a removed General Partner is entitled to
sell its partnership interest to a successor general partner is based on
the present value of future Administrative Fees and distributions of Net
Interest Income, rather than its interest in the current liquidation value
of the New Fund's assets.
- The Current Partnership Agreement provides that any amendment to the
Current Partnership Agreement that affects cash distributions may be
adopted only by unanimous consent of the BUC holders. The New Partnership
Agreement provides that such an amendment may be adopted with the consent
of the holders of a majority of outstanding BUCs.
- The Existing Fund will terminate no later than December 31, 2015. The New
Partnership Agreement provides that the New Fund will terminate no later
than December 31, 2050.
- The New Fund may make an election under Section 754 of the Code and
intends to do so if it issues additional BUCs. The effect of this election
will be to adjust the New Fund's tax basis in its assets when certain
events occur, including the sale of BUCs by a BUC holder. When that
happens, the person buying BUCs would get a tax basis in the assets of the
New Fund that reflects the price he paid for his BUCs instead of assuming
the seller's basis. This adjustment to the buyer's tax basis will affect
the amount of taxable income the buyer reports when the New Fund sells any
of its assets.
10
<PAGE>
The following table sets forth the fees and cash distributions that the
General Partner and its affiliates currently receive and the fees and cash
distributions that the General Partner and its affiliates will receive after the
Transaction and assuming the New Fund is able to sell Senior Interests or issue
additional BUCs and use the proceeds to acquire additional tax-exempt bonds.
<TABLE>
<CAPTION>
TYPE OF COMPENSATION EXISTING FUND NEW FUND
- --------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
Administrative Fee 0.45% per annum of the original principal Same as Existing Fund with respect to
amount of bonds payable by the owners of the existing tax-exempt bonds. Upon the
properties financed by the tax-exempt bonds acquisition of additional mortgage bonds,
held by the Existing Fund out of available the General Partner expects to become
cash flow after payment of base interest on entitled to an Administrative Fee payable by
the bonds. The General Partner received the owners of the properties underlying the
Administrative Fees of $152,027 during the additional mortgage bonds out of property
year ended December 31, 1997. Unpaid cash flow after the payment of base interest
Administrative Fees accrue and are payable on the additional bonds. If the New Fund
out of the net proceeds of a sale or acquires other investments (other than those
refinancing of a property after repayment of held in its Reserve) for which no
principal and accrued base interest on the Administrative Fee is payable by a property
related bond. owner or other third party, the New Fund
The Administrative Fee becomes payable by will pay the General Partner an
the Existing Fund only with respect to Administrative Fee of 0.45% per annum of
properties that have been foreclosed. remaining balance of such additional
Because the Existing Fund does not hold any investments.
foreclosed properties, it did not pay any If, for example, the New Fund were to
Administrative Fees to the General Partner acquire additional tax-exempt mortgage bonds
during the year ended December 31, 1997. If with an aggregate principal amount of
the Existing Fund were to foreclose on all $50,000,000, the additional annual
bonds that are currently in default, the Administrative Fees earned by the General
Administrative Fees payable by the Existing Partner would equal $225,000. However, the
Fund could be as high as $213,417 per annum. exact amount of additional Administrative
The General Partner was entitled to receive Fees, if any, earned by the General Partner
approximately $359,000 in Administrative of the New Fund cannot be determined at this
Fees from the Existing Fund for the year time because the amount of additional
ended December 31, 1989. The payment of investments, if any, that the New Fund may
these Administrative Fees has been deferred acquire is not known. In addition, the
and is contingent upon the future profits amount of such additional Administrative
realized by the Existing Fund from the sale Fees paid by the Fund as opposed to third
of its assets. parties cannot be determined at this time.
If the New Partnership Agreement were in
effect for the Existing Fund for the year
ended December 31, 1997, the General Partner
would have received no Administrative Fees
from the Existing Fund.
The Existing Fund's liability for previously
deferred Administrative Fees will be assumed
by the New Fund as a result of the
Transaction.
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
TYPE OF COMPENSATION EXISTING FUND NEW FUND
- --------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
Mortgage Placement A Mortgage Placement Fee of .675% of the A Mortgage Placement Fee of up to 1% of the
Fee principal amount of the original bonds was principal amount of additional mortgage
paid to the General Partner by the owners of bonds acquired by the New Fund. Mortgage
the financed properties out of bond Placement Fees, if any, will be paid by the
proceeds. None was paid by the Existing owners of the properties financed by the
Fund. No Mortgage Placement Fees were paid additional mortgage bonds. The actual amount
to the General Partner during the year ended of any Mortgage Placement Fee will be
December 31, 1997. determined by negotiation between the
General Partner and the respective property
owners.
If, for example, the New Fund were to
acquire additional mortgage bonds with an
aggregate principal amount of $50,000,000
and the General Partner was able to
negotiate a Mortgage Placement Fee of 1%
with respect to all such bonds, the Mortgage
Placement Fees earned by the General Partner
would equal $500,000. However, the exact
amount of additional Mortgage Placement
Fees, if any, earned by the General Partner
of the New Fund cannot be determined at this
time because the amount of additional bonds,
if any, that the New Fund may acquire is not
known and it is not known whether the owners
of the properties financed by such
additional bonds will agree to pay a
Mortgage Placement Fee to the General
Partner or the rate of any such Mortgage
Placement Fees.
If the New Partnership Agreement were in
effect for the Existing Fund for the year
ended December 31, 1997, the General Partner
would have received no Mortgage Placement
Fees from the Existing Fund.
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
TYPE OF COMPENSATION EXISTING FUND NEW FUND
- --------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
Property Management Paid by the owners of four properties Paid by owners of properties that engage an
Fees paid to financed by tax-exempt mortgage bonds held affiliate of the General Partner as property
affiliated management by the Existing Fund at negotiated rates. manager at negotiated rates. The amount will
company Property management fees of $270,616 were increase over the level paid by the Existing
earned during the year ended December 31, Fund if the New Fund acquires additional
1997. mortgage bonds and the General Partner's
Paid by the Existing Fund with respect to affiliated property management company
properties acquired in foreclosure of tax- assumes management of the underlying
exempt mortgage bonds. Under the Current properties. The amount of the increase, if
Partnership Agreement, these fees may not any, cannot be estimated because the number
exceed the lesser of (i) 5% of the gross of additional properties, if any, the terms
revenue of the managed property, (ii) the of the fees and the revenues generated by
fees charged by unaffiliated property such properties are not known.
managers in the same geographic area or Paid by New Fund with respect to properties
(iii) the actual cost of providing such acquired in foreclosure of tax- exempt
services. No property management fees were mortgage bonds. Not to exceed the lesser of
paid by the Existing Fund during the year (i) 5% of the gross revenue of the managed
ended December 31, 1997 because it held no property or (ii) the fees charged by
properties acquired in foreclosure. unaffiliated property managers in the same
geographic area. The amount could increase
over the amount that would be paid by the
Existing Fund because fees are no longer
limited to the property manager's cost, but
the amount of any such increase cannot be
estimated at this time.
If the New Partnership Agreement were in
effect for the Existing Fund for the year
ended December 31, 1997, the affiliated
property management company would have
received no property management fees from
the Existing Fund.
</TABLE>
13
<PAGE>
<TABLE>
<CAPTION>
TYPE OF COMPENSATION EXISTING FUND NEW FUND
- --------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
Distributions of Net 1% of Net Interest Income not representing 1% of Net Interest Income not representing
Interest Income contingent interest until BUC holders contingent interest. 25% of Net Interest
receive a cumulative, noncompounded return Income representing contingent interest of
of 11% per annum on Adjusted Capital up to 0.9% per annum of the principal amount
Contributions; 10% of such Net Interest of all mortgage bonds. If the New
Income thereafter. 25% of such Net Interest Partnership Agreement had been in effect for
Income representing contingent interest of the Existing Fund during the year ended
up to 0.9% per annum of the principal amount December 31, 1997, the General Partner would
of all mortgage bonds. Total of $84,658 was have received the same distribution of Net
paid to the General Partner during year Interest Income it did under the Current
ended December 31, 1997. Partnership Agreement.
If additional investments are acquired by
the New Fund that generate additional Net
Interest Income or if greater amounts of
contingent interest are received by the New
Fund, the distributions of Net Interest
Income to the General Partner will increase
above the amount currently distributed by
the Existing Fund. The amount that
distributions of Net Interest Income may
increase, if at all, cannot be estimated
because the amount and terms of any
additional investments that may be acquired
by the New Fund, the amounts of interest
income received in the future on the
existing portfolio of bonds and future
operating expenses of the New Fund are not
known.
</TABLE>
14
<PAGE>
<TABLE>
<CAPTION>
TYPE OF COMPENSATION EXISTING FUND NEW FUND
- --------------------- -------------------------------------------- --------------------------------------------
<S> <C> <C>
Distributions of Net None of the portion representing a return on None, except for 25% of Net Residual
Residual Proceeds principal of tax-exempt bonds. 25% of Net Proceeds representing contingent interest of
Residual Proceeds representing contingent up to 0.9% per annum of the principal amount
interest of up to 0.9% per annum of the of all mortgage bonds (when combined with
principal amount of all mortgage bonds (when prior distributions of Net Interest Income
combined with prior distributions of Net representing contingent interest). If the
Interest Income representing contingent New Partnership Agreement had been in effect
interest). None of the remaining portion for the Existing Fund during the year ended
representing contingent interest until BUC December 31, 1997, the General Partner would
holders receive an amount (when combined have received no distribution of Net
with all prior distributions to BUC holders) Residual Proceeds during such year.
equal to the sum of their initial Adjusted If the New Fund acquires additional
Capital Contributions plus a cumulative, investments and these investments generate
noncompounded annual return of 11% on their additional amounts of contingent interest,
Adjusted Capital Contributions, then 100% of the amount of Net Residual Proceeds payable
Net Residual Proceeds to the extent of 10% to the General Partner will increase from
of all Net Residual Proceeds representing the amount it would expect to receive from
contingent interest distributed to all the existing portfolio of tax-exempt bonds
partners exclusive of the following amounts. held by the Existing Fund. The amount that
Thereafter, 10% of any remaining Net distributions of Net Residual Proceeds may
Residual Proceeds representing contingent increase, if at all, cannot be estimated
interest. because the amount of additional investments
None during year ended December 31, 1997. acquired by the New Fund, if any, whether
such bonds will provide for the payment of
contingent interest and the amount of any
such contingent interest are not known.
</TABLE>
In addition to the foregoing, the General Partner will continue to be
reimbursed for certain expenses it and its affiliates incur in connection with
the business of the New Fund. See "TERMS OF THE NEW PARTNERSHIP AGREEMENT--Other
Payments to the General Partner" and "--Allocations and Distributions." The
General Partner will not receive any fees in connection with the securitization
or reissuance of tax-exempt bonds for purposes of creating the Senior Interests
and Subordinate Interests or in connection with the issuance of additional BUCs.
TRANSFERABILITY OF BUCS
BUCs of the New Fund will be freely transferable, subject to certain
restrictions set forth in the New Partnership Agreement that are identical to
those in the Current Partnership Agreement. The BUCs in the New Fund have been
approved for inclusion on The NASDAQ Stock Market under the symbol "ATAXZ" upon
consummation of the Transaction. See "DESCRIPTION OF THE BUCS OF THE NEW FUND--
Transfers."
15
<PAGE>
FEDERAL INCOME TAX CONSEQUENCES
For federal income tax purposes the New Fund will be treated as a
continuation of the Existing Fund with a change of name and, accordingly, BUC
holders will not recognize any income, gain or loss as a result of the
Transaction. Consummation of the Transaction is conditioned on, among other
things, receipt of an opinion of counsel to this effect.
The New Fund has received an opinion of counsel that it will be treated as a
partnership for federal income tax purposes and BUC holders will be recognized
as partners for federal income tax purposes. See "MATERIAL FEDERAL INCOME TAX
CONSEQUENCES OF THE TRANSACTION."
ACCOUNTING TREATMENT
The Transaction will not result in a change in the New Fund's financial
statement treatment of any asset or liability of the Existing Fund or of the
capital account of any partner or BUC holder. See "THE TRANSACTION--Accounting
Treatment."
16
<PAGE>
SUMMARY FINANCIAL INFORMATION
The following table sets forth certain financial data of the Existing Fund
that has been derived from the audited financial statements of the Existing Fund
as of and for the five-year period ended December 31, 1997. The financial
statements as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997 have been audited by PricewaterhouseCoopers
LLP, independent accountants for the Existing Fund, and are incorporated by
reference in this Consent Solicitation Statement/Prospectus. The unaudited data
presented as of and for the six months ended June 30, 1998 and 1997 have been
derived from the unaudited financial statements of the Existing Fund, which, in
the opinion of the General Partner, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair statement of the results for
such interim periods. The results of operations for the six months ended June
30, 1998 will not necessarily be indicative of the results of operations for the
full year ending December 31, 1998.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
(UNAUDITED) FOR YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Mortgage bond investment income... $3,032,977 $3,081,025 $6,169,500 $6,134,812 $6,159,236 $5,973,373 $5,461,438
Rental income..................... -- -- -- -- -- -- 5,148,252
Interest income on temporary cash
investments..................... 25,692 25,917 53,554 47,247 42,319 24,046 31,700
Contingent interest income........ 49,233 74,883 124,682 154,539 166,940 211,319 192,343
General and administrative
expenses........................ (404,182) (374,731) (678,487) (648,784) (585,926) (478,438) (1,033,708)
Real estate operating expenses.... -- -- -- -- -- -- (2,457,071)
Depreciation...................... -- -- -- -- -- -- (1,205,631)
Interest expense.................. -- -- -- -- -- -- (400,931)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................ $2,703,720 $2,807,094 $5,669,249 $5,687,814 $5,782,569 $5,730,300 $5,736,392
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income, basic and diluted, per
Beneficial Unit Certificate
(BUC)........................... $ .27 $ .28 $ .56 $ .56 $ .57 $ .56 $ .56
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cash distributions paid or
accrued per BUC................. $ .27 $ .27 $ .54 $ .54 $ .54 $ .54 $ .7350
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment in tax-exempt mortgage
bonds at estimated fair value... $71,126,000 $66,026,000 $71,126,000 $66,026,000 $66,026,000 $66,026,000 $66,026,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets...................... $73,108,758 $67,955,972 $73,213,016 $68,014,454 $67,698,916 $67,379,656 $67,137,170
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
17
<PAGE>
RISK FACTORS
THERE ARE CERTAIN DISADVANTAGES, ADVERSE CONSEQUENCES AND RISKS TO THE BUC
HOLDERS THAT MAY RESULT FROM THE CONSUMMATION OF THE PROPOSED TRANSACTION,
INCLUDING THE FOLLOWING. BUC HOLDERS SHOULD READ THIS ENTIRE CONSENT
SOLICITATION STATEMENT/PROSPECTUS AND CONSIDER CAREFULLY THE FOLLOWING RISK
FACTORS BEFORE GRANTING THEIR CONSENT TO THE TRANSACTION.
NEW FUND MAY REINVEST
The Existing Fund must distribute all of its net interest income or the net
proceeds received from the sale or repayment of its tax-exempt mortgage bonds,
except for amounts the General Partner determines to hold in reserves.
Accordingly, the Existing Fund could not reinvest these amounts in order to
acquire additional investments. In contrast, the New Fund intends to use the
proceeds from the sale of Senior Interests or any net interest income to acquire
additional investments, including tax-exempt bonds secured by multifamily real
estate, rather than distribute these amounts to the BUC holders.
SENIOR INTERESTS WILL HAVE FIRST RIGHT TO CASH FLOW
Unlike the Existing Fund, the New Fund is authorized to hold junior or
subordinate mortgages or deeds of trust. This will allow the New Fund to finance
the acquisition of additional investments by selling Senior Interests to
unaffiliated investors and retain the corresponding Subordinate Interests. The
ultimate source of principal and interest payments on both the Senior Interests
and the Subordinate Interests retained by the New Fund will be the net cash flow
generated from the operation or sale of the apartment complexes securing the
Senior Interests and the Subordinate Interests. If this cash flow is not great
enough to pay the full amount of principal and interest due on the Senior
Interests and the Subordinate Interests, the holders of the Senior Interests
will receive the full amount due to them before the New Fund will receive any
amount due to it on the Subordinate Interests. Therefore, if the economic
performance of the apartment complexes securing the New Fund's assets
deteriorates, the New Fund may have less cash to distribute to BUC holders than
would the Existing Fund under the same economic circumstances.
NEW FUND MAY ISSUE ADDITIONAL BUCS
Unlike the Existing Fund, the New Fund will have the authority to issue
additional BUCs. After the completion of the Transaction, the General Partner
expects to cause the New Fund to make one or more public offerings of BUCs in
order to raise additional equity capital that the New Fund can use to acquire
additional tax-exempt bonds secured by multifamily residential properties.
Depending on the price at which new BUCs are issued and the average yield earned
on the capital raised from the issuance of additional BUCs, the amount of
interest income available to distribute on a per BUC basis may decrease as the
result of issuing additional BUCs. The issuance of additional BUCs will dilute
the percentage interests of existing BUC holders in profits, losses and cash
distributions of the New Fund and their voting interests on matters presented to
BUC holders. In addition, the issuance of additional BUCs by the New Fund could
adversely affect the market price of the BUCs.
NO ADDITIONAL TAX EXEMPT BONDS HAVE BEEN IDENTIFIED
The New Fund expects to acquire additional tax-exempt bonds with the
proceeds from the sale of Senior Interests and additional BUCs. However, the
General Partner has not identified any additional tax-exempt bonds or other
investments for acquisition by the New Fund and there can be no assurance that
it will be able to do so. Therefore, the New Fund may not be able to invest any
amounts raised from the sale of Senior Interests or the issuance of additional
BUCs in additional tax-exempt bonds. If the New Fund is unable to invest the
amounts raised from the sale of Senior Interests in additional tax-exempt bonds
or other investments bearing interest at a rate higher than the interest rate on
the Senior Interests, the amount of interest income earned by the New Fund could
be less than the amount of interest income it
18
<PAGE>
earned prior to the sale of the Senior Interests. If this occurs, the New Fund
may have less cash to distribute to BUC holders than would the Existing Fund. If
the New Fund is unable to invest the amounts received from the sale of
additional BUCs in tax-exempt bonds or other investments, the issuance of
additional BUCs could result in a lesser amount of distributable cash per BUC.
NEW FUND MAY ACQUIRE TAXABLE MORTGAGES
The General Partner expects that the New Fund will acquire tax-exempt
mortgage bonds or other investments that generate interest that is exempt from
federal income taxation. However, on occasion it may be necessary in connection
with the acquisition of a tax-exempt mortgage bond secured by a multifamily
property to also acquire an associated taxable mortgage secured by the same
multifamily property. Therefore, BUC holders of the New Fund may be subject to
federal income taxation on a portion of their share of the New Fund's income.
NEW FUND MAY INCUR HIGHER EXPENSES
The New Fund will incur legal fees, due diligence expenses and other costs
in connection with the acquisition of additional tax-exempt bonds, the creation
of Senior Interests and Subordinate Interests and the issuance of additional
BUCs. Therefore, during the period of time the New Fund is in the process of
acquiring additional tax-exempt bonds, its operating expenses can be expected to
exceed the expenses that the Existing Fund would have incurred during the same
period. In addition, the New Fund expects to incur higher investor relations and
servicing costs if it issues additional BUCs. To the extent operating expenses
are higher than those of the Existing Fund, the amount of cash the New Fund will
have available for distribution to BUC holders will be reduced.
ADDITIONAL BONDS WILL NOT BE RATED SECURITIES
Additional tax-exempt mortgage bonds acquired by the New Fund are expected
to be similar to the tax-exempt mortgage bonds owned by the Existing Fund.
Therefore, the General Partner does not expect that any tax-exempt mortgage
bonds acquired by the New Fund will be rated by any nationally recognized rating
agency and will entail risks generally associated with investing in unrated debt
securities. Such risks include the possibility of default in the payment of
principal and interest on such bonds. Such tax-exempt mortgage bonds will not be
personal obligations of the borrowers or the governmental agencies that issue
them. Therefore, the New Fund will be relying solely on the value of the
underlying real estate as security for the payment of principal and interest.
The ability of the underlying property to pay debt service on mortgage bonds may
be affected by a number of factors, many of which are beyond the direct control
of the property owner. Such factors include general and local economic
conditions, the relative supply of apartments and alternative housing in the
market area, interest rates on home mortgage loans, government regulation and
the cost of compliance therewith, taxes and inflation. If there are defaults on
the payment of principal and interest on these additional mortgage bonds, the
amount of cash available for distribution to BUC holders will be reduced.
DEPENDENCE ON THE GENERAL PARTNER
BUC holders will not have an opportunity to review additional investments to
be made by the New Fund prior to the time they decide whether or not to consent
to the Transaction or prior to the time the New Fund acquires such investments.
Accordingly, BUC holders will be dependent on the General Partner to evaluate
additional investments made by the New Fund and to negotiate the terms thereof.
THE GENERAL PARTNER HAS NOT PREVIOUSLY ENGAGED IN SECURITIZATIONS
The creation of some of the Senior Interests and Subordinate Interests is
expected to be accomplished through the "securitization" of tax-exempt bonds.
This process involves the creation of trusts that will
19
<PAGE>
acquire the tax-exempt bonds and issue securities representing the Senior
Interests and the Subordinate Interests. The General Partner has not previously
engaged in the securitization of tax-exempt bonds.
CONFLICTS OF INTEREST
The General Partner has a conflict of interest in recommending the
Transaction to BUC holders because the General Partner expects to receive
increased amounts of fees and cash distributions as a result of the Transaction.
In addition to its current Administrative Fees, the General Partner expects to
receive Administrative Fees of up to 0.45% per annum of the principal amounts of
additional investments acquired by the New Fund. The General Partner also
expects to earn Mortgage Placement Fees of up to 1% of the principal amount of
any additional mortgage bonds acquired by the New Fund. Such additional
Administrative Fees and any Mortgage Placement Fees will be paid by the owners
of the financed properties, rather than the New Fund, but will be a source of
revenue for the General Partner which would not be available to it unless the
Transaction is consummated. The amount of such additional Administrative Fees
and Mortgage Placement Fees cannot be currently estimated. In addition, the New
Partnership Agreement provides for the direct payment of an Administrative Fee
to the General Partner equal to 0.45% per annum of the principal balance of
additional investments acquired by the New Fund (other than those held in its
Reserve) where the General Partner is not entitled to the payment of an
Administrative Fee by a third party. The General Partner will participate in the
cash distributions from the New Fund and, to the extent the acquisition by the
New Fund of additional investments allows it to distribute a greater amount of
cash than does the Existing Fund, the cash distributions to the General Partner
will increase. The amount, if any, of additional cash distributions cannot be
currently estimated. In addition, by virtue of the Transaction, the General
Partner may be able to earn fees and be entitled to expense reimbursements for a
longer period of time than it would if the Existing Fund were liquidated.
Finally, if the General Partner is removed, the value of the General Partner's
interest in the New Fund will reflect the present value of future Administrative
Fees and distributions of Net Interest Income rather than its interest in the
current liquidation value of the New Fund's assets. Accordingly, the General
Partner expects to realize economic benefits if the Transaction is completed
that it will not realize if any of the alternatives to the Transaction are
undertaken.
POSSIBLE ALTERNATIVES TO THE TRANSACTION WILL NOT BE PURSUED
Alternatives to the Transaction include (i) allowing the Existing Fund to
continue to hold a portfolio consisting of the existing tax-exempt bonds and
(ii) dissolution of the Existing Fund and liquidation of its assets. The General
Partner expects to receive greater fees and cash distributions if the
Transaction is completed than if any of the alternatives thereto are undertaken.
By approving the Transaction, the BUC holders will effectively preclude the
pursuit of any of these alternatives.
NO FAIRNESS OPINION
The General Partner has not obtained a fairness opinion or any other
evaluation of the Transaction from an investment banker or other third party.
Accordingly, there is no independent evaluation of the Transaction available to
BUC holders.
PROPERTY MANAGEMENT FEES MAY BE HIGHER
An affiliate of the General Partner manages several properties financed by
the Existing Fund and will continue to manage these properties after the
Transaction. It is possible that this property management affiliate may manage
properties financed by additional mortgage bonds acquired by the New Fund. Fees
for these services are paid by the property owners. However, if the Existing
Fund or the New Fund acquires one of these managed properties due to a
foreclosure of a mortgage bond, the Existing Fund or the New Fund will pay the
property management fee for such property. The Current Partnership Agreement
provides that an affiliate of the General Partner providing such property
management services on a
20
<PAGE>
foreclosed property must do so at the lowest of (i) fees charged by unaffiliated
property management companies in the same geographical area, (ii) 5% of the
gross revenues of the managed property or (iii) the cost of providing such
services. By contrast, under the New Partnership Agreement property management
fees charged by an affiliate of the General Partner on a foreclosed property
will be limited to the lower of (i) fees charged by unaffiliated property
management companies in the same geographical area or (ii) 5% of the gross
revenues of the managed property. Such fees will not be limited to the
affiliate's cost of providing these services. Therefore, it is possible for the
affiliated property management company to earn a profit for managing properties
owned by the New Fund and the New Fund could pay such affiliate more to manage
such property than could the Existing Fund. If the New Fund pays higher property
management fees than the Existing Fund, the New Fund will have less cash to
distribute to BUC holders than the Existing Fund under similar circumstances.
NEW PARTNERSHIP AGREEMENT MAY BE AMENDED MORE EASILY
The New Partnership Agreement eliminates a provision of the Current
Partnership Agreement that provides that no amendment may be adopted that will
have the effect of delaying or reducing the amount of cash distributions to a
BUC holder without the consent of such BUC holder. The effect of this change is
to allow such an amendment to be adopted with the consent of a majority in
interest of the BUC holders rather than the unanimous consent of BUC holders.
GENERAL PARTNER'S INTEREST WILL BE VALUED ON A DIFFERENT BASIS IF IT IS REMOVED
If the General Partner is removed as such, a successor general partner has
the right to buy the General Partner's partnership interest for its fair market
value. The Current Partnership Agreement provides that the value of the General
Partner's interest is based only on the amount of Net Residual Proceeds it would
receive upon an immediate liquidation of the Existing Fund. The New Partnership
Agreement bases this value on the present value of future Administrative Fees,
Net Interest Income and Net Residual Proceeds to be received by the General
Partner. Therefore, a successor general partner may have to pay a higher price
to acquire the partnership interest of the General Partner. This may make it
more difficult to locate a successor general partner if the BUC holders remove
the General Partner.
ADDITIONAL BONDS AND SUBORDINATE INTERESTS WILL NOT BE LIQUID
As with the tax-exempt mortgage bonds held by the Existing Fund, there will
not be a regular trading market for many of the additional bonds acquired by the
New Fund or for the Subordinate Interests it retains. Therefore, the New Fund
may not be able to liquidate its assets at the time or prices it desires. This
inability may affect the amount and timing of distributions to BUC holders.
POTENTIAL LACK OF PUBLIC TRADING MARKET FOR BUCS
BUCs of the New Fund will be newly issued securities, and there can be no
assurance that a public trading market in the New Fund's BUCs will develop or
that the BUCs of the New Fund will trade at or above the prices at which the
Existing Fund's BUCs currently trade or would trade in the future if the
Transaction were not consummated. In addition, the transferability of the New
Fund's BUCs may be limited in certain circumstances similar to those set forth
in the Current Partnership Agreement. See "DESCRIPTION OF THE BUCS OF THE NEW
FUND--Transfers."
NO DISSENTERS' RIGHTS
BUC holders voting against the Transaction will not be entitled to any
appraisal or other dissenters' rights under Delaware law and will not be
afforded any by the Existing Fund.
21
<PAGE>
SOLICITATION OF BUC HOLDER CONSENT
SOLICITATION BY THE GENERAL PARTNER
The General Partner is seeking the consent of the BUC holders of the
Existing Fund to the Transaction consisting of the merger of the Existing Fund
and the New Fund pursuant to the terms of the Merger Agreement and Delaware law.
As a result of the Transaction, all of the assets and liabilities of the
Existing Fund will become assets and liabilities of the New Fund and the
separate existence of the Existing Fund will terminate. Under the terms of the
Current Partnership Agreement, the transfer of all the assets of the Existing
Fund in a single transaction and the dissolution of the Existing Fund require
the consent of the holders of a majority of the outstanding BUCs. Accordingly,
the Transaction may not be consummated without the consent of the holders of a
majority of the outstanding BUCs of the Existing Fund.
THE MATTER TO WHICH THE BUC HOLDERS ARE REQUESTED TO CONSENT IS OF GREAT
IMPORTANCE TO THE EXISTING FUND AND THE BUC HOLDERS. ACCORDINGLY, BUC HOLDERS
ARE URGED TO READ AND CAREFULLY CONSIDER THE INFORMATION PRESENTED IN THIS
CONSENT SOLICITATION STATEMENT/PROSPECTUS AND TO COMPLETE, DATE, SIGN AND
PROMPTLY RETURN THE ENCLOSED CONSENT CARD IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
The General Partner will not hold a meeting of the BUC holders to consider
the Transaction, but instead is seeking the written consent of BUC holders as
provided in Section 10.02 of the Current Partnership Agreement. Each BUC holder
of the Existing Fund is being asked to vote as follows:
YES, I approve of the merger of the Existing Fund and the New Fund.
or
NO, I do not approve of the merger of the Existing Fund and the New Fund.
THE GENERAL PARTNER BELIEVES THAT THE TERMS OF THE TRANSACTION ARE FAIR AND
IN THE BEST INTEREST OF THE EXISTING FUND AND ALL OF ITS BUC HOLDERS AND
RECOMMENDS THE APPROVAL THEREOF BY THE BUC HOLDERS.
Only BUC holders of record at the close of business on the Record Date will
be entitled to receive this notice and to grant or withhold their consent to the
Transaction. Under the terms of the Current Partnership Agreement, BUC holders
are entitled to one vote for each BUC they hold as of the Record Date. As of the
Record Date, there was a total of 9,979,128 BUCs outstanding. Therefore, the
affirmative vote of the holders of 4,989,565 BUCs is required to approve the
Transaction. As of the Record Date, no BUCs were beneficially owned by the
General Partner, America First or any of the officers and managers of America
First.
A consent card is included with this Consent Solicitation
Statement/Prospectus and BUC holders are asked to complete, date and sign the
consent card and return it to Service Data Corporation in the enclosed envelope
as soon as possible. BUC HOLDERS SHOULD NOT SEND THE CERTIFICATES FOR THEIR BUCS
WITH THE CONSENT CARD.
In order to be valid, consents must be received by Service Data Corporation
by 5:00 p.m., Central time, on November 5, 1998, which date may be extended by
the General Partner in its sole discretion. If the General Partner receives
valid consents to the Transaction from the holders of a majority of the
outstanding BUCs prior to such date, it may proceed with the consummation of the
Transaction at such earlier time. Consent cards should be returned in the
enclosed envelope to Service Data Corporation at the following address:
Service Data Corporation
2424 South 130th Circle
Omaha, NE 68144
22
<PAGE>
An otherwise valid consent card will be deemed to grant consent to the
Transaction if it is not marked to withhold consent or to abstain. Abstentions
and broker nonvotes will have the same effect as a vote against the Transaction.
BUC holders who withhold consent or abstain will have no right to require the
Existing Fund to purchase their BUCs or any other rights similar to those
available to dissenting shareholders of corporations under Delaware law. A BUC
HOLDER MAY NOT REVOKE ITS CONSENT AFTER THE CONSENT CARD IS DELIVERED TO SERVICE
DATA CORPORATION.
Consents of the BUC holders will be tabulated by Service Data Corporation of
Omaha, Nebraska. Service Data Corporation currently serves as the transfer agent
and registrar for the Existing Fund and for other public limited partnerships
sponsored by America First Companies L.L.C. (the general partner of the General
Partner) ("America First"), but is not otherwise affiliated with the General
Partner.
The Existing Fund will bear all costs associated with preparing, assembling
and mailing the Consent Solicitation Statement/Prospectus and any supplemental
solicitation materials. Certain officers and employees of America First may
solicit consents without additional compensation therefor other than
reimbursement for actual and reasonable out-of-pocket expenses incurred by such
persons in connection with such solicitation. Brokerage firms, fiduciaries,
nominees and others will be reimbursed for out-of-pocket expenses incurred by
them in connection with forwarding consent materials to beneficial holders of
BUCs held in their names. In addition to the use of the mails, consents may be
solicited by officers and regular employees of America First, who will not be
specifically compensated for such services, by means of personal calls upon or
telephonic communications with BUC holders or their representatives. Moreover,
the General Partner may engage the services of a professional proxy solicitation
firm in connection with the solicitation of consents.
COMMUNICATING WITH OTHER BUC HOLDERS
Under Rule 14a-7 of the Securities Exchange Act of 1934, as amended, the
Existing Fund, upon written request from a BUC holder, will deliver to such BUC
holder (i) a statement of the approximate number of BUC holders of the Existing
Fund and (ii) the estimated cost of mailing proxy materials or similar
communications to the BUC holders of the Existing Fund. In addition, under such
rule, a BUC holder has the right, at his or her option, to have the Existing
Fund (i) mail (at the BUC holder's expense) any such materials that the BUC
holder desires to deliver to the other BUC holders of the Existing Fund in
connection with the Transaction or (ii) deliver, within five business days of
the receipt of the request, a reasonably current list of the names and addresses
of the BUC holders of the Existing Fund as of the Record Date. The Existing Fund
may require a requesting BUC holder to pay the reasonable cost of duplicating
and mailing such BUC holder list. Any such requests should be sent to Mr.
Maurice E. Cox, Jr., America First Companies L.L.C., Suite 400, 1004 Farnam
Street, Omaha, Nebraska 68102.
THE TRANSACTION
GENERAL
The General Partner has proposed a merger between the Existing Fund and the
New Fund pursuant to which (i) the separate existence of the Existing Fund will
cease and the New Fund will be the surviving partnership and will succeed to all
of the assets and liabilities of the Existing Fund, (ii) the New Partnership
Agreement will control the operations of the New Fund after the Transaction and
(iii) BUC holders in the Existing Fund will become BUC holders in the New Fund
and will receive one BUC in the New Fund for each BUC they hold in the Existing
Fund on the effective date of the Transaction. The assets of the Existing Fund
being acquired by the New Fund as a result of the Transaction include seven tax-
exempt bonds that are secured by apartment complexes.
The General Partner has proposed the Transaction in an effort to (i)
increase the amount of tax-exempt interest available for distribution to BUC
holders, (ii) reduce risk through increased asset diversification and (iii)
achieve improved economies of scale by transferring the assets of the Existing
Fund
23
<PAGE>
to the New Fund which will have the ability to finance the acquisition of
additional investments in ways that are not available to the Existing Fund.
Utilizing the multi-family housing and tax-exempt expertise of the General
Partner, the New Fund expects to be able to increase the distributions per BUC
through the selective acquisition of additional investments at attractive
spreads over the cost of financing these acquisitions.
The New Fund and the Existing Fund have entered into the Merger Agreement
and will consummate the Transaction pursuant to the terms thereof promptly after
the receipt of consents from BUC holders owning a majority of the outstanding
BUCs of the Existing Fund. If the consent of a majority in interest of the BUC
holders of the Existing Fund is not received, or all other conditions to the
Transaction are not satisfied, by December 31, 1998 (unless such date is
extended by the General Partner in its sole discretion), the Merger Agreement
will terminate. In addition, the Merger Agreement may be terminated by a
majority of the board of managers of America First before or after the receipt
of consents from BUC holders at any time prior to the closing date of the
Transaction. If the Transaction is not consummated, the General Partner
anticipates that it will continue the Existing Fund with its current portfolio
of tax-exempt bonds.
As a result of the Transaction, the New Fund will acquire all of the assets
of the Existing Fund, including the seven tax-exempt bonds currently held by the
Existing Fund, and will become subject to all of the liabilities of the Existing
Funds.
TERMS OF THE MERGER AGREEMENT
The following is a summary of the material terms of the Merger Agreement.
This summary does not purport to be complete and is subject to, and qualified in
its entirety by, the terms of the Merger Agreement, a copy of which is attached
as Appendix B to this Consent Solicitation Statement/Prospectus and is
incorporated by reference herein.
EFFECT OF THE TRANSACTION. Under the terms of the Merger Agreement (i) the
separate existence of the Existing Fund will cease and the New Fund will be the
surviving partnership and will succeed to all of the assets and liabilities of
the Existing Fund, (ii) the New Partnership Agreement will control the
operations of the New Fund after the Transaction and (iii) BUC holders in the
Existing Fund will become BUC holders of the New Fund and will receive one BUC
in the New Fund for each BUC they hold in the Existing Fund on the effective
date of the Transaction.
The partners of the New Fund prior to the Transaction are the General
Partner and the Limited Partner. The Limited Partner is also the sole limited
partner of the Existing Fund and has assigned its limited partner interest in
the Existing Fund to the BUC holders of the Existing Fund. Upon consummation of
the Transaction, the interests of the General Partner and the Limited Partner in
the Existing Fund will be converted into a general partner interest and limited
partner interest, respectively, in the New Fund and the Limited Partner will
assign its limited partner interest in the New Fund to the BUC holders of the
Existing Fund. As a result, persons holding BUCs in the Existing Fund will
become BUC holders of the New Fund and will receive one BUC in the New Fund for
each BUC they hold in the Existing Fund on the effective date of the
Transaction.
CONDITIONS TO CONSUMMATION OF THE TRANSACTION. The closing for the
Transaction will take place promptly after the General Partner has received the
consent to the Transaction from the holders of a majority of the outstanding
BUCs of the Existing Fund. The receipt of such consent by no later than December
31, 1998 (unless such date is extended by the General Partner in its sole
discretion) is a condition to closing the Transaction and if it is not obtained,
or all other conditions to closing are not satisfied, the Merger Agreement will
terminate. Other conditions to closing are (i) the declaration of effectiveness
of the registration statement for the BUCs of the New Fund under the Securities
Act of 1933, (ii) obtaining appropriate clearance for each state securities or
"blue sky" administrator, (iii) the delivery of a tax opinion acceptable to the
General Partner to the effect that for federal income tax purposes
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holders of BUCs in the Existing Fund will not recognize any income, gain or loss
as a result of the Transaction, and (iv) the approval of the BUCs of the New
Fund for inclusion on The NASDAQ Stock Market.
TERMINATION OF THE MERGER AGREEMENT. The Merger Agreement may be terminated
by a majority of the board of managers of America First before or after the
receipt of consents from BUC holders at any time prior to the effective time of
the certificate of merger filed with the Secretary of State of the State of
Delaware relating to the Transaction.
ISSUANCE OF BUCS OF THE NEW FUND
Service Data Corporation of Omaha, Nebraska acts as registrar and transfer
agent for the Existing Fund and will serve as registrar and transfer agent for
the New Fund. As promptly as practical after the closing of the Transaction,
Service Data Corporation will mail to each BUC holder of the Existing Fund of
record on the effective date of the Transaction a letter of transmittal along
with instructions for the exchange of BUCs of the Existing Fund for BUCs of the
New Fund.
BUC HOLDERS SHOULD NOT SEND THEIR BUCS WITH THE CONSENT CARD. BUCS SHOULD BE
RETURNED ONLY WITH THE LETTER OF TRANSMITTAL FORM FROM SERVICE DATA CORPORATION.
Upon surrender by a BUC holder to Service Data Corporation of the
certificate for his or her BUCs in the Existing Fund together with a properly
executed letter of transmittal and any other required documents, Service Data
Corporation will issue and mail a certificate for the same number of BUCs of the
New Fund to the BUC holder.
Notwithstanding the failure of a BUC holder to surrender his or her Existing
Fund BUCs for BUCs in the New Fund, such BUC holder will be recognized as a BUC
holder in the New Fund for all purposes and will be entitled to all rights
thereof, including the right to receive cash distributions and allocations of
income and expenses. However, there will be no transfers of BUCs in the Existing
Fund recognized after the closing date of the Transaction. If certificates for
Existing Fund BUCs are presented for transfer after the closing date of the
Transaction, they will be returned to the presenter together with a form of
letter of transmittal and exchange instructions.
If a certificate for Existing Fund BUCs has been lost, stolen or destroyed,
Service Data Corporation will issue BUCs in the New Fund only upon receipt of
appropriate evidence as to such loss, theft or destruction, appropriate evidence
as to the ownership of such BUCs by the claimant and appropriate and customary
indemnification, including, when appropriate, the posting of a bond. Neither the
New Fund, the Existing Fund or Service Data Corporation will be liable to any
holder of BUCs in the Existing Fund for any amount properly delivered to any
public official pursuant to applicable abandoned property, escheat or similar
laws.
COSTS OF THE TRANSACTION
The Existing Fund expects to incur approximately $250,000 of expenses in
connection with the Transaction, which include legal and accounting fees,
printing and mailing expenses, registration fees with the Securities and
Exchange Commission and state securities administrators, solicitation costs and
transfer taxes. Such expenses will be paid by the Existing Fund and most will be
incurred whether or not the Transaction is consummated.
ACCOUNTING TREATMENT
The Transaction will not result in a change in the New Fund's financial
statement treatment of any asset or liability of the Existing Fund or of the
capital account of any partner or BUC holder.
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REGULATORY MATTERS
The Transaction will not be subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 and, other than federal
proxy solicitation rules relating to the solicitation of BUC holder consents and
state and federal regulations relating to the offering of the New Fund's BUCs,
no other federal or state regulatory requirements must be complied with and no
approval thereunder must be obtained in connection with the Transaction.
BACKGROUND AND REASONS FOR THE TRANSACTION
The Existing Fund was formed to invest in tax-exempt mortgage bonds that
were issued by state and local housing authorities to provide construction and
permanent financing of apartment complexes. Using the net proceeds from the
public offering of BUCs, the Existing Fund acquired 14 tax-exempt bonds with an
aggregate principal amount of $177,196,000, each of which was secured by a first
mortgage on the apartment complex financed by the bonds. The investment
objectives of the Existing Fund were to provide (i) safety and preservation of
capital, (ii) regular distribution of federally tax-exempt interest from the
payment of base interest on the bonds and (iii) a potential for an enhanced
federally tax-exempt yield from the contingent interest earned through a
participation in the net cash flow from the properties financed by the bonds and
in the net proceeds from the sale or refinancing of such properties.
The overbuilding of apartment complexes in the United States from the time
the Existing Fund invested in these bonds resulted in adverse market conditions
for apartment complexes in many of the markets in which the properties financed
by the Existing Fund were located. Since that time, the resulting competitive
conditions have kept rents at most of these properties below the levels needed
to produce sufficient operating cash flow to allow the owners thereof to pay the
full amount of base interest on the bonds. During the period from 1988 to 1991,
the Existing Fund foreclosed on the apartment complexes securing seven of the
tax-exempt bonds it held as a result of the default by the owners of these
properties to fulfill their obligations under the bonds. In May 1993, the
Existing Fund transferred these seven properties along with related debt, cash
and certain other assets and liabilities to America First REIT, Inc. (the
"REIT") in exchange for all of the common stock of the REIT. The REIT shares
were subsequently distributed pro rata to the BUC holders of the Existing Fund
as of the record date established therefor. On June 29, 1995, the REIT was
merged with and into a subsidiary of Mid-America Apartment Communities, Inc., an
unaffiliated, publicly traded real estate investment trust.
Of the remaining seven tax-exempt bonds held by the Existing Fund, two were
classified as performing loans and five were classified as nonperforming loans
as of June 30, 1998. The Existing Fund currently accepts interest payments from
the owners of the properties securing the nonperforming bonds in amounts less
than the full amount of base interest due on these bonds. The amount of foregone
interest on nonperforming loans equaled $443,456 and $442,725 and $442,279 for
the years ended December 31, 1997, 1996 and 1995, respectively, and $275,204 for
the six months ended June 30, 1998. While contingent interest has been paid on
one of the performing bonds, the amount of contingent interest paid on this bond
decreased significantly over the past several years. Based on the current amount
of net cash flow generated by the properties financed by the other existing
tax-exempt bonds, the General Partner does not believe that any contingent
interest will be paid to the Existing Fund on its other bonds in the foreseeable
future.
The seven bonds held by the Existing Fund have terms expiring at various
times from December 1, 2006 to December 1, 2015. The prospectus relating to the
offering of the Existing Fund's BUCs stated that the Existing Fund's tax-exempt
bonds were to be repaid no later than 12 years after they were issued. Upon
repayment of the bonds, the Existing Fund planned to distribute all of its cash
and dissolve. Even though the Existing Fund's tax-exempt bonds have terms of up
to 30 years, they provide that the Existing Fund was to be repaid no later than
12 years after the date of issuance. Accordingly, each of the bonds stipulates
that principal and accrued interest thereon, including accrued contingent
interest, will be due and payable to the Existing Fund after 12 years. Principal
and accrued interest on six of the Existing Fund's bonds became
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due and payable on December 1, 1997 and became due and payable on the remaining
bond on July 1, 1998 (the "Repayment Dates"). The terms of the bonds require
that the underlying properties be sold or refinanced on the Repayment Dates and
that the net proceeds of such sale or refinancing be applied to the payment of
principal and accrued interest on the bonds, including any accrued contingent
interest. If a property is not sold as of a Repayment Date, the amount of
contingent interest payable to the Existing Fund is to be based on an appraisal
of the property's fair market value. Each of the bonds is a "nonrecourse"
obligation of the property owner and, therefore, the net proceeds from the sale
or refinancing of the property is the only source of repayment for the bonds.
The estimated market value of the properties at June 30, 1998 was $5,500,000
less than the outstanding principal balance of the bonds secured by those
properties. In addition, there could be no assurance that the owner of the
properties would realize net cash proceeds from the sale or refinancing of these
properties in amounts equal to their estimated market values. Therefore, if the
properties were sold or refinanced on the Repayment Dates, it was expected that
the net proceeds from the sale or refinancing would not have been sufficient to
repay the principal balance of these bonds. Accordingly, the General Partner
believes that the Existing Fund would have suffered an irretrievable loss of
capital of approximately $5,500,000 (representing approximately 7.7% of the
principal balance of the bond) if the bonds had been repaid pursuant to their
terms on the Repayment Dates. In addition, it was unlikely that the sale or
refinancing of any of these properties would have produced sufficient net
proceeds to allow for the payment of accrued contingent interest on the bonds as
of the Repayment Dates. Therefore, if the bonds were repaid on the Repayment
Dates, the Existing Fund would not achieve two of its principal investment
objectives: (1) the preservation of investors' capital and (2) an enhanced
tax-exempt yield from contingent interest.
In order to avoid this result, the General Partner determined that the
Existing Fund should retain its interests in the bonds beyond the Repayment
Dates. However, if the Existing Fund were to simply allow the current bonds to
remain outstanding beyond the stated Repayment Date, it had been advised by
legal counsel that continuing to accept interest payments for less than the full
amount of base interest on the nonperforming bonds could cause the interest
received on these bonds to become taxable for federal income tax purposes. In
general, the Existing Fund has been advised by legal counsel that the Internal
Revenue Service could take the position that (i) such continuing forbearance
could cause the bonds to be treated as if they had been exchanged for new,
taxable bonds secured by the same properties or (ii) the Existing Fund had
become the equity owner of these properties for tax purposes and, therefore, was
receiving distributions of net rental income from the properties rather than
interest on the bonds. In either case, cash distributions made by the Existing
Fund to BUC holders representing amounts received from these properties would
become subject to income taxes.
Because the bonds each have terms extending beyond their respective
Repayment Dates, the bonds may be reissued by the local housing authorities that
originally issued the bonds. By having the bonds reissued, the Existing Fund
would be able to retain its interest in the bonds and maintain their status as
tax-exempt bonds. Accordingly, the General Partner intends to have all of the
bonds reissued and is in the process of negotiating the terms of several of the
reissuances at this time.
In general, upon the reissuance of a bond, the base interest rate will be
reset, if necessary, to a level at which the projected net revenues of the
property will be sufficient to pay the full debt service on the bond.
Furthermore, the maximum amount of contingent interest payable on the bond would
be reduced to a level at which the full amount of contingent interest would be
payable from projected net revenues and net sale proceeds from the property.
Based on the current revenue projections of the properties financed with the
existing bonds, it is expected that the reissued bonds will bear base interest
and contingent interest at rates that are less than the rates in effect on the
bonds prior to their reissuance. The General Partner believes that it will be in
the Existing Fund's best interest to agree to these reductions in the stated
base and contingent interest rates because such reductions will preserve the
tax-exempt status of the bonds and are not expected to have an immediate effect
on the Existing Fund's interest income. This is because the
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<PAGE>
Existing Fund has been accepting interest payments for less than the full amount
of base interest due on four of the seven bonds. In addition, only one bond has
ever paid any contingent interest, and the amount paid is well below the maximum
amount of contingent interest payable on such bond. However, the reduction in
base and contingent interest rates on the reissued bonds will limit the ability
of the Existing Fund to participate in additional net cash flow generated by any
future improvements in the economic performance of the properties. Accordingly,
the General Partner expects the Existing Fund will earn a relatively static
amount of interest income in the future.
On the other hand, it is likely that the administrative expenses of
operating the Existing Fund, including investor servicing expenses, custodial
and transfer agent fees, report preparation and distribution expenses and
accounting and legal fees, will continue to escalate over time due to price
inflation. Therefore, the General Partner anticipates that the amount of net
cash flow that the Existing Fund will have available for distribution to the BUC
holders will remain static or decline over time.
One way of potentially increasing the amount of cash available for
distribution to the BUC holders is to acquire additional tax-exempt bonds
secured by apartment complexes. Such tax-exempt housing bonds are issued by
state and local housing authorities in order to finance the development or
rehabilitation of apartment complexes in which a specified percentage of
apartment units must be made available for rent to persons of low and moderate
income. In addition to newly issued bonds, a substantial number of existing
tax-exempt mortgage bonds are outstanding. Many of these existing bonds,
particularly those issued in the late 1980s, bear interest rates that are
substantially higher than currently prevailing tax-exempt interest rates.
Therefore, the owners of the properties financed by these existing tax-exempt
mortgage bonds may be interested in refinancing the mortgages underlying those
bonds. Such refinancings would result in the reissuance of the tax-exempt bonds,
making them available for acquisition. If the interest income generated by
additional bonds exceeds the financing costs incurred to acquire these bonds,
the amount of cash available for distribution to BUC holders could be increased.
At this time the General Partner has not identified any additional bonds for
acquisition and, therefore, does not know the terms upon which they may be
acquired.
The General Partner has proposed the Transaction in order to transfer the
assets of the Existing Fund to the New Fund which will have the ability to
finance the acquisition of additional investments through the issuance of
additional BUCs and the sale of "Senior Interests" (defined below). By acquiring
additional investments the General Partner hopes to (i) increase the amount of
tax-exempt interest available for distribution to BUC holders, (ii) reduce risk
through increased asset diversification and (iii) achieve improved economies of
scale. Utilizing the multi-family housing and tax-exempt expertise of the
General Partner, the New Fund expects to be able to increase the distributions
per BUC through the selective acquisition of additional investments at
attractive spreads over the cost of financing these acquisitions.
The General Partner intends to invest the moneys raised from the issuance of
additional BUCs and the sale of Senior Interests primarily in tax-exempt
mortgage bonds secured by multifamily real estate. As with the tax-exempt bonds
held by the Existing Fund, these additional tax-exempt mortgage bonds would each
represent 100% of the outstanding bonds secured by a particular multifamily
property and would be secured by a first mortgage or deed of trust on the
property. In general, the terms of such mortgage bonds would be set by
negotiations between the New Fund and the owner of the property. See
"INFORMATION RELATING TO THE NEW FUND-Business."
However, the New Fund will also be authorized to acquire other types of
tax-exempt securities as well as taxable mortgages. Under the terms of the New
Partnership Agreement, the New Fund may acquire tax-exempt securities that do
not represent 100% of the tax-exempt bonds secured by a multifamily property.
Such tax-exempt securities may or may not be secured by real estate. However, in
all cases, such tax-exempt securities must be rated in one of the four highest
rating categories by at least one nationally recognized rating agency. Such
securities would generally be traded in secondary markets and, therefore,
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be more easily sold than the tax-exempt mortgage bonds in which the New Fund
will primarily invest. Under the terms of the New Partnership Agreement, no such
tax-exempt security may be acquired by the New Fund if the total book value of
all such tax-exempt securities, after such acquisition, would exceed 25% of the
total assets of the New Fund. It is the General Partner's intention to only
acquire these types of tax-exempt securities if tax-exempt mortgage bonds
secured by multifamily real estate are not available for current acquisition the
New Fund.
The New Fund will also have the authority to acquire mortgages or deeds of
trust securing multifamily real estate but which generate interest that is not
exempt from federal income taxation. However, the New Fund will only acquire
such taxable mortgages in connection with the acquisition of a tax-exempt
mortgage bond secured by the same property. This may occur, for example, if a
multifamily property with existing tax-exempt financing has increased in value
and the New Fund is seeking to have the property owner refinance the property
through a reissuance of the tax-exempt bonds. If such existing bonds are
reissued, the amount of new bonds issued cannot exceed the original amount of
the old bonds. In order to induce the owner of the property to refinance the
tax-exempt bonds on the property and sell them to the New Fund, the New Fund may
agree to finance all or a portion of the difference between the fair market
value of the property and the amount of tax-exempt bonds being reissued by
making a taxable loan to the owner of the property that is secured by the same
multifamily property.
Under the Current Partnership Agreement, the only way the Existing Fund
could finance the acquisition of additional investments would be to borrow
money. However, this is not a practical way to finance the acquisition of
tax-exempt bonds because the borrowed money would probably bear interest at a
rate that is higher than the interest rate earned on any additional tax-exempt
bonds. In addition, the interest paid on money borrowed to buy tax-exempt
securities is not deductible for federal income tax purposes.
Under the New Partnership Agreement, the New Fund will have the ability to
finance the acquisition of additional investments through the sale of Senior
Interests and the issuance of additional BUCs. The New Fund may also reinvest
interest income, but the General Partner expects to do so only if necessary to
provide supplemental funds to finance the acquisition of new investments that
are primarily financed by the sale of Senior Interests or BUCs. The New Fund may
use other sources of capital, if any, that are available to it in order to
finance the acquisition of additional investments. However, the General Partner
does not expect to use sources other than additional equity raised from the sale
of BUCs and the reinvestment of the proceeds from the sale of Senior Interests
supplemented by interest income.
The New Fund will initially create Senior Interests from the tax-exempt
bonds it acquires from the Existing Fund. This can be done directly by causing a
bond to be reissued in two classes. It can also be done indirectly by placing
one or more bonds in a trust that has two classes of beneficiaries. Each class
of bond or beneficiary will have a right to receive some of the total principal
and tax-exempt interest paid on the original bond. However, one class of bond or
beneficiary (the "Senior Interest") will have a right to be paid its share of
principal and interest before principal and interest are paid to the other class
(the "Subordinate Interest"). This right helps protect the Senior Interests from
the risk that less than all principal or interest payments are made on the
underlying tax-exempt bonds. Because of this protection, the Senior Interests
are expected to bear interest at current market rates for investment grade
tax-exempt securities. This should be a relatively low rate that should be below
the rate that would be paid on the type of additional investments the New Fund
wants to acquire. The New Fund will keep the Subordinate Interests, but intends
to sell the low interest rate Senior Interests and use the money to buy
additional investments that bear interest at a higher rate. As a result, the
interest income from these new investments, when combined with the interest the
New Fund will continue to receive on the Subordinate Interests, should exceed
the interest income that was earned on the original tax-exempt bonds.
The General Partner will not enter into a transaction creating a Senior
Interest and a Subordinate Interest unless it receives an opinion of counsel
that all interest income to be earned by the New Fund on
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the Subordinate Interest will be exempt from federal income tax. The New Fund
expects to create Senior Interests and Subordinate Interests with respect to
each of the seven tax-exempt mortgage bonds acquired from the Existing Fund and
also with respect to additional tax-exempt bonds acquired with the proceeds from
the sale of Senior Interests and the issuance of additional BUCs.
The Existing Fund could not take advantage of this financing technique
because the Current Partnership Agreement would require that proceeds from the
sale of the Senior Interests be distributed to BUC holders rather than
reinvested in additional tax-exempt bonds. In addition, the Current Partnership
Agreement would not allow the Existing Partnership to hold the Subordinate
Interests if the Senior Interests were held by a third party. In contrast, the
New Partnership Agreement allows the New Fund to reinvest the proceeds from the
sale of Senior Interests and to retain Subordinate Interests. The New Fund may
also reinvest interest income to acquire additional tax-exempt bonds rather than
make distributions to BUC holders. The Current Partnership Agreement requires
that all interest income be distributed to BUC holders. However, the General
Partner intends to use this authority only if additional cash is needed to
finance a portion of an acquisition that is primarily financed with the proceeds
from the sale of Senior Interests.
The New Fund will also have the authority to issue additional BUCs to raise
additional equity capital. The New Fund will be able to invest this additional
capital to acquire additional investments and may create additional Senior
Interests and Subordinate Interests from these additional investments as
described above. Therefore, the General Partner expects the New Fund to be able
to increase the total amount of interest income it earns by issuing additional
BUCs. In addition, by issuing additional BUCs and acquiring additional
investments with the proceeds, the New Fund will be able to further diversify
its asset base, making it less dependent on the interest income earned on any
particular asset. To the extent the New Fund earns interest income from a larger
number of mortgage bonds, it will be able to reduce the risk that a default with
respect to any single apartment project will have a material affect on the total
interest income earned by the New Fund. Because the New Fund will hold
Subordinate Interests in many cases, the General Partner believes that it is
important that the New Fund be able to mitigate its overall risk through greater
diversification of its assets. In addition, by issuing additional BUCs, the
General Partner hopes to be able to achieve better economies of scale by
spreading the operating expenses of the New Fund among a larger number of BUCs.
The General Partner would expect to cause the New Fund to make a public offering
of additional BUCs after completion of the Transaction. BUCs issued in such an
offering would be sold at a price approximating the then current market price
for New Fund BUCs. The General Partner has conducted preliminary discussions
with potential underwriters regarding such an offering, although no letter of
intent or underwriting agreement has been entered at this time. The Current
Partnership Agreement does not allow the Existing Fund to issue additional BUCs.
The General Partner believes that if it is able to increase the amount of
cash distributions paid to BUC holders in the New Fund over the level of
distributions currently paid to BUC holders of the Existing Fund, the BUCs of
the New Fund may trade at prices above the prevailing prices at which the BUCs
in the Existing Fund currently trade. However, there can be no assurance that
BUCs of the New Fund will trade at higher prevailing prices than BUCs in the
Existing Fund.
There can be no assurance that the distributions to BUC holders will
increase if the New Fund pursues its business strategy. One reason cash
distributions may not increase is that the New Fund will hold Subordinate
Interests, which will bear a disproportionate share of any losses in the event
of a default on the tax-exempt bonds underlying the Senior Interests and the
Subordinate Interests. The only source of funds to pay interest on the Senior
Interest and Subordinate Interest created from a particular tax-exempt bond is
the operating cash flow from the apartment complex that was financed with the
tax-exempt bond. The operating cash flow from an apartment complex may be
affected by many things such as the number of tenants, the rental rates,
operating expenses, taxes, competition from other apartment complexes and
mortgage rates for single-family housing. If an apartment complex does not have
enough money to pay all the interest on its tax-exempt bond on any due date,
then the holder of the Senior Interest will first receive
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the entire amount of interest it is entitled to receive. In that case, there
will not be enough remaining money to pay the New Fund all the interest it is
due on the Subordinate Interest. Similarly, the only source of funds to repay
the principal on the Senior Interest and Subordinate Interest created from a
particular tax-exempt bond will be the money received from a sale or refinancing
of the apartment complex. If there is not enough money to repay the entire
principal of the underlying bond, the holder of the Senior Interest will first
receive all of the principal payment until it has been repaid in full. The New
Fund will receive the remainder of the principal payment, but it will not be
enough to repay the entire principal of the Subordinate Interest.
Another reason cash distributions may not increase as a result of this
strategy is that the General Partner is unable to reinvest the proceeds from the
sale of Senior Interests or additional BUCs in additional tax-exempt bonds. If
the New Fund sells Senior Interests, it will forego the interest income it would
earn thereon. Unless it can reinvest the proceeds from the sale of the Senior
Interests at a higher interest rate, it will realize less interest income than
it would had it retained the Senior Interests.
The amount of cash available for distribution on a per BUC basis will depend
in part on the number of BUCs outstanding. Therefore, the sale of additional
BUCs may cause distributions per BUC to decline depending on the price at which
additional BUCs are sold or the interest rate earned on the investments acquired
through the investment of the proceeds from the offering of additional BUCs.
In addition cash distributions will be affected by the level of operating
expenses incurred by the New Fund. The New Fund will incur legal fees, due
diligence expenses and other costs in connection with creating Senior Interests
and Subordinate Interests, issuing additional BUCs and acquiring additional tax-
exempt bonds. Therefore, during the period of time the New Fund is in the
process of acquiring additional tax-exempt bonds, its operating expenses can be
expected to exceed the expenses that the Existing Fund would have incurred
during the same period. The General Partner is not able to estimate the amount
of such additional expenses at this time, but they could be substantial. The New
Fund may also pay the General Partner an Administrative Fee with respect to
certain investments. The New Fund also expects to incur higher investor
relations and servicing costs if it issues additional BUCs. Therefore, the
General Partner believes that the New Fund's operating expenses are likely to be
higher than those of the Existing Fund. See "RISK FACTORS."
The General Partner has proposed a merger with the New Fund rather than
amending the Current Partnership Agreement. The Current Partnership Agreement
says that no amendment can be made to it that would reduce the amount of, or
delay the timing of, payments received on mortgage loans that are required to be
distributed to any BUC holder without the consent of that BUC holder. The
General Partner felt that this provision could be interpreted to require that
all BUC holders approve an amendment to the Current Partnership Agreement to
allow for the reinvestment of money raised from the sale of the Senior
Interests. As a practical matter, it would be extremely difficult or impossible
to obtain unanimous consent of the BUC holders. Under Delaware law, the merger
of the Existing Fund requires the consent of the holders of a majority of the
BUCs. Therefore, the proposed merger with the New Fund was determined to be the
only practical way to pursue the General Partner's strategy for improving cash
distributions to BUC holders. The General Partner believes that this course of
action is fair to all BUC holders, and is consistent with its fiduciary duties,
because the purpose of the Transaction is to allow the General Partner to pursue
a strategy that it believes will allow it to increase cash distributions to all
BUC holders. Therefore, the Transaction is consistent with the purpose of
protecting distributions to BUC holders that is the reason for the unanimous
consent provision of the Current Partnership Agreement. In addition, because the
Existing Fund cannot create Senior Interests, it would never be able to
distribute cash from the sale of Senior Interests. Therefore, the New Fund will
be reinvesting only moneys that would not have been available for distribution
by the Existing Fund. Accordingly, as a practical matter, the reinvestment of
the proceeds from the sale of Senior Interests will not reduce the amount or
delay the timing of cash distributions to BUC holders.
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RECOMMENDATION OF THE GENERAL PARTNER
For the reasons set forth above, the General Partner believes that the
Transaction is in the best interest of the Existing Fund and its BUC holders and
recommends that the BUC holders grant their consent to the Transaction.
CONSIDERATION OF ALTERNATIVE COURSES OF ACTION
In addition to the proposed Transaction, the General Partner considered the
options of (i) causing the bonds to be repaid and dissolving the Existing Fund
or (ii) continuing the Existing Fund with its current portfolio of tax-exempt
bonds. For the reasons set forth below, the General Partner has rejected each of
the alternatives in favor of the Transaction.
CAUSING THE BONDS TO BE REPAID AND LIQUIDATION OF EXISTING FUND. Each of
the bonds stipulates that principal and accrued interest thereon, including
accrued contingent interest, will be due and payable to the Existing Fund on its
Repayment Date. The Repayment Date for six of the Existing Fund's bonds was
December 1, 1997 and the Repayment Date for the remaining bond was July 1, 1998.
The terms of the bonds require that the underlying properties be sold or
refinanced on the Repayment Dates and that the net proceeds of such sale or
refinancing be applied to the payment of principal and accrued interest on the
bonds, including any accrued contingent interest. The Current Partnership
Agreement provides that upon repayment of all of the bonds, the Existing Fund is
to be dissolved and its remaining assets liquidated and distributed among the
BUC holders and the General Partner.
The General Partner has rejected this alternative because it is inconsistent
with the Existing Fund's investment objectives of preserving its capital and
generating an enhanced tax-exempt yield through the receipt of contingent
interest. The Existing Fund invested a total of $76,626,000 in the seven
tax-exempt bonds that it continues to hold. Because the principal balance of the
bonds does not amortize over their terms, the aggregate principal balance of
these bonds remains $76,626,000. Although the bonds are secured by first deeds
of trust on the financed properties, the only source of funds to repay principal
and interest on the bonds on the Repayment Date is the net proceeds from the
sale or refinancing of the properties. Based on an analysis of the fair market
value of the properties securing the bonds, the General Partner has estimated
the fair market value of the properties securing the bonds as of the initial
Repayment Date to be only $71,126,000. Accordingly, assuming the properties
could be sold for the full amount of their estimated fair market value, the
proceeds of such sales, net of associated costs, were not expected to be
sufficient to repay the full principal balance of the bonds on the Repayment
Date. The Existing Fund has no recourse against the owners of the properties for
any deficiency in the payment of principal or interest on the bonds. Therefore,
the General Partner determined that this course of action would have resulted in
an irretrievable loss of capital to the BUC holders of approximately $5,500,000.
This amount represents approximately 7.7% of the principal balance of the bonds.
In addition, it was unlikely that the sale or refinancing of any of these
properties would have produced sufficient net proceeds to allow for the payment
of accrued contingent interest on the bonds as of the Repayment Dates.
Likewise, the value of the bonds, and the price a third party might be
willing to pay for them, will be affected by the current value of the underlying
properties. Therefore, if the Existing Fund were to sell the bonds at this time,
the General Partner would expect the Existing Fund to receive net proceeds
therefrom that would be less than the full principal amount of the bonds.
The properties owned or financed by the Existing Fund have generally
experienced improvements in operating results over recent years and the General
Partner expects this trend to continue. As operating results for these
properties improve, the value of the properties should also increase and,
therefore, the amount of bond principal received by the Existing Fund upon the
repayment of the bonds or the amount of proceeds from the sale of the bonds
should also increase over time. Because a liquidation of the Existing Fund's
assets at this time would result in a significant loss of original capital to
the BUC holders and would preclude the BUC holders from securing any benefit
from potential increases in the value of the Existing
32
<PAGE>
Fund's assets in the future, the General Partner determined that it would not be
in the best interest of the Existing Fund and the BUC holders to liquidate the
Existing Fund at this time.
CONTINUING EXISTING FUND WITH ITS CURRENT ASSETS. Although the General
Partner determined that it would not be in the best interest of the BUC holders
to cause the bonds to be repaid on the Repayment Dates or sold at this time, it
has rejected the alternative of simply continuing to operate the Existing Fund
with its current portfolio of tax-exempt bonds because the amount of cash
available for distribution to BUC holders is expected to remain static or
decrease over time and to be less than the amounts potentially available if the
Transaction is consummated. During its two most recently completed fiscal years,
the Existing Fund distributed $5,388,729 per year to BUC holders.
Even though the properties financed by the Existing Fund have generally
experienced improvements in operating results over recent years and are expected
to continue to do so, the General Partner does not expect the amount of interest
income generated by the Existing Fund's current portfolio of tax-exempt bonds to
increase substantially over time. This expectation is due, in part, to the lower
base and contingent interest rates that the bonds are expected to bear after the
reissuance of the bonds. On the other hand, the General Partner believes that
the administrative expenses of operating the Existing Fund will continue to
escalate over time due to general price inflation. Accordingly, the General
Partner anticipates that the amount of net cash flow that the Existing Fund will
have available for distribution to the BUC holders will remain static or decline
over time. In contrast, the New Fund will have the ability to acquire additional
interest bearing investments which should allow it to generate more interest
income than the Existing Fund. If the New Fund is able to generate additional
interest income in excess of the increased operating expense it expects to
incur, the New Fund should be able to generate more cash available for
distribution than the Existing Fund. However, there can be no assurance that the
New Fund will have more cash available for distribution to the BUC holders than
the Existing Fund. See "THE TRANSACTION-- Background and Reasons for the
Transaction."
If the Transaction is not approved, the General Partner anticipates that it
will continue the Existing Fund with its current portfolio of tax-exempt bonds.
FAIRNESS DETERMINATION OF THE GENERAL PARTNER
The General Partner has not obtained a fairness opinion or any other
evaluation of the Transaction from an investment banker or other third party.
However, the General Partner, including the Board of Managers of America First,
believes that the terms of the Transaction are fair to the BUC holders. The
General Partner bases this determination on the following:
(a) BUC holders will receive one BUC in the New Fund for each BUC they
hold in the Existing Fund and, accordingly, will have the same interest in
the assets and cash distributions of the New Fund after the Transaction as
they did in the Existing Fund prior to the Transaction.
(b) The interest of the General Partner in the cash distributions of the
New Fund is no greater, and is potentially less, than its interest in cash
distributions of the Existing Fund. While the General Partner expects to
receive greater cash distributions from the New Fund than it currently
receives from the Existing Fund, it will receive greater cash distributions
only if it is able to successfully cause cash distributions to BUC holders
to increase. Under the terms of the New Partnership Agreement, the General
Partner is no longer entitled to receive 10% of cash distributions if cash
distributions to BUC holders exceed specified thresholds.
(c) After the Transaction, the Administrative Fees payable to the
General Partner will be at the same rate as those currently paid to the
General Partner. Unlike the Current Fund, the New Fund will be directly
responsible for paying the Administrative Fee to the General Partner in
connection with those investments for which no third party is obligated to
pay the Administrative Fee. The General Partner believes this is fair
because the New Fund has greater flexibility to invest in certain types of
33
<PAGE>
tax-exempt securities for which no third party, such as a property owner,
would be available to pay the Administrative Fees. In addition, the General
Partner anticipates that most of the additional investments acquired by the
New Fund will consist of tax-exempt mortgage bonds for which it will be able
to negotiate the payment of the Administrative Fee from the property owner.
(d) After the Transaction, the General Partner could earn additional
Mortgage Placement Fees if the New Fund acquires additional mortgage bonds.
Any Mortgage Placement Fees will be paid by the owners of the properties
financed by such mortgage bonds and will be in amounts negotiated between
the General Partner and such owners. The General Partner will seek to
negotiate Mortgage Placement Fees of up to 1% of the principal balance of
the additional mortgage bonds. Although the General Partner may be able to
negotiate a Mortgage Placement Fee which is higher than the .675% Mortgage
Placement Fee charged in connection with the acquisition of the original
tax-exempt bonds by the Existing Fund, the General Partner believes that the
payment of the Mortgage Placement Fee will be fair to the New Fund because
they will be subject to arm's-length negotiation and will be paid by third
parties.
(e) As with the Existing Fund, the fees for providing such property
management services cannot exceed the lesser of (i) 5% of the gross revenues
of the managed property or (ii) the fees charged by unaffiliated property
managers in the same geographic location. However, under the New Partnership
Agreement, the General Partner or its affiliate may charge a property
management fee that exceeds its cost of providing such service. The General
Partner believes that this change will have no material effect on the New
Fund and may, in certain cases, work to the benefit of the New Fund. The
General Partner is not required to assume the management of foreclosed
properties for the Existing Fund and would not be willing to provide
property management services to the Existing Fund if the fees it could
charge would only cover its costs. Therefore, the General Partner does not
expect to provide property management services to the Existing Fund if it
ever forecloses on a property. Accordingly, it is expected that the Existing
Fund will engage an unaffiliated property management company to manage any
foreclosed properties and will pay such company fees equal to the
competitive rate in the relevant market. On the other hand, the General
Partner would be willing to provide such property management services to the
New Fund since the amount of its fees is not limited to its costs. In that
case, the General Partner could never charge the New Fund more than the
competitive market price for such services. Therefore, the amount paid by
the New Fund for such property management services would never be more than
the amount paid by the Existing Fund for such services. In addition, the
General Partner or its affiliates will continue to be limited to charging
property management fees that cannot exceed the lesser of such competitive
rates or 5% of property gross revenues. If a prevailing local market rate
were greater than 5% of property revenues, the General Partner or its
affiliates would be the lower cost alternative for managing foreclosed
properties. Accordingly, it is possible that the New Fund may pay less for
such property management services by engaging the General Partner or its
affiliate than the Existing Fund would have to pay to an unaffiliated
property manager.
(f) The Current Partnership Agreement provides that any amendment to the
Current Partnership Agreement that affects cash distributions may be adopted
only by unanimous written consent of the BUC holders. The New Partnership
Agreement provides that such amendments may be adopted with the consent of
the holders of a majority of the outstanding BUCs. The General Partner
believes that this change is fair because it makes this type of amendment
subject to the same consent requirement as any other proposed amendment to
the New Partnership Agreement. As a practical matter, unanimous consent of
the BUC holders would be impossible to obtain.
34
<PAGE>
INFORMATION RELATING TO THE EXISTING FUND
DESCRIPTION OF BUSINESS
The Existing Fund is a Delaware limited partnership that was formed on
November 11, 1985 for the purpose of acquiring a portfolio of tax-exempt
participating mortgage bonds that were issued to provide construction and
permanent financing for apartment complexes and other commercial or industrial
real estate. The original investment objectives of the Existing Fund were to
provide (i) safety and preservation of the Existing Fund's capital, (ii) regular
distribution of federally tax-exempt interest and (iii) a potential for an
enhanced federally tax-exempt yield as a result of the Existing Fund's
participation in the net cash flow from the properties financed by the
tax-exempt participating mortgage bonds and in the net proceeds from the sale or
refinancing of such properties. The term of the Existing Fund expires on
December 31, 2015.
The Existing Fund issued a total of 9,979,128 BUCs representing assigned
limited partnership interests in a public offering that raised net proceeds of
approximately $185,500,000. The Existing Fund acquired 14 tax-exempt bonds that
were issued by various state and local housing authorities to provide
construction and permanent financing for 14 apartment complexes located in 10
states. The bonds provide for the payment of base interest at a fixed rate and
for contingent interest based on a participation in the net cash flow and the
net sale or refinancing proceeds from the properties financed thereby. The
principal amounts of the bonds do not amortize over their terms but are payable
in full upon the maturity thereof along with any unpaid base and contingent
interest. The bonds had terms ranging from 21 to 30 years, but the Existing Fund
had the right to cause the owners of the financed properties to sell or
refinance the properties from time to time after 10 years and to repay the full
principal amount of the bonds and all unpaid base and contingent interest
accrued at that time. In addition, after 12 years the owners of the financed
properties are required to sell or refinance the properties and repay the full
principal amount of the bonds and all unpaid base and contingent interest
accrued at that time. Because of the contingent interest feature of the bonds,
the return to the Existing Fund from the bonds depended to a substantial degree
upon the economic performance of the properties financed by the bonds.
The Existing Fund acquired seven of the properties securing its bonds
through foreclosure or similar actions as a result of defaults by the property
owners under the terms of the bonds. On May 7, 1993, the Partnership announced
the formation of a subsidiary company called America First REIT, Inc., a real
estate investment trust (the "REIT"). On June 1, 1993, the Existing Fund
transferred the seven real estate properties acquired in settlement of bonds,
along with related debt, cash and certain other assets and liabilities, to the
REIT in exchange for all of the issued and outstanding shares of the REIT's
common stock. Thereafter, the Existing Fund distributed all shares of the REIT
to the BUC holders of the Existing Fund in the ratio of one share of REIT stock
for every four BUCs they held as of the record date for this distribution. As a
result, the Existing Fund no longer has any interest in these bonds or the
properties that had secured these bonds.
As of June 30, 1998, the Existing Fund continued to hold seven tax-exempt
bonds with a carrying value, net of allowance for loan losses, of $71,126,000.
Of these remaining seven bonds, only two have paid all base interest payments as
and when due. The Existing Fund accepts the total net cash flow generated by the
four properties securing the other five bonds as payment of interest on these
bonds. The amount of net cash flow generated by these properties is less than
the full amount of base interest due on the bonds. The amount of foregone
interest on the bonds equaled $443,456 in 1997, $442,725 in 1996 and $442,279 in
1995 and $275,204 for the first six months of 1998. Notwithstanding the interest
shortfalls, the Existing Fund has elected not to foreclose or seek a deed in
lieu of foreclosure in order to continue to receive tax-exempt interest rather
than taxable net rental income from the properties.
35
<PAGE>
The amount of net cash flow generated by these properties is, in part, a
function of rental and occupancy rates and operating expenses. The level of
occupancy and rents that can be charged are directly affected by the supply of,
and demand for, apartments in the market areas in which a property is located.
This, in turn, is affected by several factors such as local or national economic
conditions, the amount of new apartment or warehouse construction and interest
rates on single-family mortgage loans. In addition, factors such as government
regulation (such as zoning laws), inflation, real estate and other taxes, labor
problems and natural disasters can affect the economic operations of a property.
In each city in which the Existing Fund's properties are located, such
properties compete with a substantial number of other income-producing real
estate of the same types. Apartment complexes also compete with single-family
housing that is either owned or leased by potential tenants. The principal
method of competition is to offer competitive rental rates. The Existing Fund's
properties also compete by emphasizing regular maintenance and property
amenities.
The Existing Fund is engaged solely in the business of providing financing
for the acquisition and improvement of real estate and the operation of real
estate acquired in foreclosure. Accordingly, the presentation of information
about industry segments is not applicable and would not be material to an
understanding of the Existing Fund's business taken as a whole.
The General Partner believes that each of the properties financed by the
Existing Fund is in compliance in all material respects with federal, state and
local regulations regarding hazardous waste and other environmental matters and
the General Partner is not aware of any environmental contamination at any of
such properties that would require any material capital expenditure by the
Existing Fund for the remediation thereof.
MANAGEMENT
The Existing Fund has no employees. Certain services are provided to the
Existing Fund by employees of America First and the Existing Fund reimburses
America First for such services at cost. The Existing Fund is not charged, and
does not reimburse, for the services performed by managers and officers of
America First.
The Existing Fund has no directors or officers. Management of the Existing
Fund consists of the General Partner and its general partner, America First. The
following individuals are managers and executive officers of America First and
each serves for a term of one year:
<TABLE>
<CAPTION>
NAME POSITION HELD POSITION HELD SINCE
- -------------------------------------------------------------- ----------------------------- ---------------------
<S> <C> <C>
Michael B. Yanney............................................. Chairman of the Board, 1987
President, Chief Executive
Officer and Manager
Michael Thesing............................................... Vice President, Secretary, 1987
Treasurer and Manager
William S. Carter, M.D........................................ Manager 1994
George Kubat.................................................. Manager 1994
Martin Massengale............................................. Manager 1994
Alan Baer..................................................... Manager 1994
Gail Walling Yanney........................................... Manager 1996
Mariann Byerwalter............................................ Manager 1997
</TABLE>
Michael B. Yanney, 64, is the Chairman and Chief Executive Officer of
various Affiliates of America First that manage public investment funds that
have raised over $1.3 billion since 1984. From 1977 until the organization of
the first such fund in 1984, Mr. Yanney was principally engaged in the ownership
and management of commercial banks. Mr. Yanney also has investments in private
corporations engaged in a variety of businesses. From 1961 to 1977, Mr. Yanney
was employed by Omaha National Bank and Omaha
36
<PAGE>
National Corporation, where he held various positions, including the position of
Executive Vice President and Treasurer of the holding company. Mr. Yanney also
serves as a member of the boards of directors of Burlington Northern Santa Fe
Corporation, Forest Oil Corporation, Level 3 Communications, Inc. and RCN Corp.
Michael Thesing, 43, has been Vice President and Chief Financial Officer of
affiliates of America First since July 1984. From January 1984 until July 1984
he was employed by various companies controlled by Mr. Yanney. He was a
certified public accountant with Coopers & Lybrand (now PricewaterhouseCoopers
LLP) from 1977 through 1983.
William S. Carter, M.D., 71, is a retired physician. Dr. Carter practiced
medicine for 30 years in Omaha, Nebraska, specializing in otolaryngology
(disorders of the ears, nose and throat).
George Kubat, 52, is the President and Chief Executive Officer of Phillips
Manufacturing Co., an Omaha, Nebraska-based manufacturer of drywall and
construction materials. Prior to assuming that position in November 1992, Mr.
Kubat was an accountant with Coopers & Lybrand (now PricewaterhouseCoopers LLP)
in Omaha, Nebraska from 1969. He was the tax partner in charge of the Omaha
office from 1981 to 1992. Mr. Kubat currently serves on the board of directors
of Sitel Corporation, infoUSA, Inc. and G.B. Foods Corporation.
Martin Massengale, 64, is the President Emeritus of the University of
Nebraska. Prior to becoming President of the University of Nebraska in 1991, he
served as interim President from August 1989, as Chancellor of the University of
Nebraska-Lincoln from June 1981 through December 1990 and as Vice Chancellor for
Agriculture and Natural Resources from 1976 to 1981. Prior to that time, he was
a professor and associate dean of the College of Agriculture at the University
of Arizona. Dr. Massengale also serves on the board of directors of Woodmen
Accident & Life Insurance Company and IBP, Inc.
Alan Baer, 75, is presently Chairman of Alan Baer & Associates, Inc., a
management company located in Omaha, Nebraska. He is also Chairman of Lancer
Hockey, Inc., Baer Travel Services, Wessan Telemarketing, Total Security
Systems, Inc. and several other businesses. Mr. Baer is the former Chairman and
Chief Executive Officer of the Brandeis Department Store chain, which, before
its acquisition, was one of the largest retailers in the Midwest. Mr. Baer has
also owned and served on the board of managers of several banks in Nebraska and
Illinois.
Gail Walling Yanney, 62, is a retired physician. Dr. Yanney practiced
anesthesia and was most recently the Executive Director of the Clarkson
Foundation until October of 1995. In addition, she was a director of FirsTier
Bank, N.A., Omaha prior to its merger with First Bank, N.A. Dr. Yanney is the
wife of Michael Yanney.
Mariann Byerwalter, 38, is Vice President of Business Affairs and Chief
Financial Officer of Stanford University. From 1988 to 1996, Ms. Byerwalter was
Executive Vice President of America First Eureka Holdings Inc. ("AFEH"), an
affiliate of the General Partner, and its subsidiary, EurekaBank, a federal
savings bank operating in the San Francisco Bay area. In addition, from 1993 to
1996, she was the Chief Financial Officer and Chief Operating Officer of AFEH
and Chief Financial Officer of EurekaBank. Ms. Byerwalter was an officer of
BankAmerica Corporation from 1984 until 1987, including Vice President and
Executive Assistant to the President of Bank of America and Vice President of
the bank's Corporate Planning and Development Department.
EXECUTIVE COMPENSATION
None of the managers or executive officers of America First receive any
compensation from the Existing Partnership and neither America First nor the
General Partner is reimbursed for any portion of the salaries paid to such
persons.
37
<PAGE>
PROPERTIES
The Existing Fund does not own any real property. However, as of June 30,
1998, the Existing Fund held seven tax-exempt bonds, each of which is secured by
a first deed of trust on a multifamily apartment complex. The following table
sets forth certain information regarding the properties securing the seven tax-
exempt mortgage bonds held by the Existing Fund as of June 30, 1998:
<TABLE>
<CAPTION>
AVERAGE OUTSTANDING
NUMBER SQUARE PRINCIPAL
PROPERTY NAME LOCATION OF UNITS FEET/UNIT BALANCE
- --------------------------------------------------------- ------------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
Woodbridge Apartments of Bloomington III................. Bloomington, IN 280 892 $ 12,600,000
Ashley Point at Eagle Crest.............................. Evansville, IN 150 910 6,700,000
Woodbridge Apartments of Louisville II................... Louisville, KY 190 934 8,976,000
Northwoods Lake Apartments............................... Duluth, GA 492 964 25,250,000
Ashley Square............................................ Des Moines, IA 144 963 6,500,000
Shoals Crossing.......................................... Atlanta, GA 176 926 4,500,000
Arama Apartments......................................... Miami, FL 293 562 12,100,000
-----
1,725
</TABLE>
In the opinion of the General Partner, each of the properties is adequately
covered by insurance.
The average annual occupancy rate and average effective rental rate per unit
for each of the Existing Fund's properties for each of the last five years are
listed in the following table:
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
WOODBRIDGE APTS. OF BLOOMINGTON III
Average Occupancy Rate........................................... 90% 95% 93% 96% 96%
Average Effective Annual Rental Per Unit......................... $ 6,957 $ 7,251 $ 6,848 $ 6,701 $ 6,416
ASHLEY POINT AT EAGLE CREST
Average Occupancy Rate........................................... 99% 96% 96% 93% 94%
Average Effective Annual Rental Per Unit......................... $ 6,423 $ 6,163 $ 6,032 $ 5,686 $ 5,662
WOODBRIDGE APTS. OF LOUISVILLE II
Average Occupancy Rate........................................... 95% 95% 93% 96% 96%
Average Effective Annual Rental Per Unit......................... $ 7,075 $ 6,880 $ 6,451 $ 6,504 $ 6,131
NORTHWOODS LAKE APTS.
Average Occupancy Rate........................................... 94% 94% 97% 98% 97%
Average Effective Annual Rental Per Unit......................... $ 7,263 $ 7,188 $ 7,101 $ 6,806 $ 6,403
ASHLEY SQUARE
Average Occupancy Rate........................................... 96% 97% 98% 98% 98%
Average Effective Annual Rental Per Unit......................... $ 6,792 $ 6,728 $ 6,764 $ 6,574 $ 6,366
SHOALS CROSSING
Average Occupancy Rate........................................... 95% 93% 95% 96% 96%
Average Effective Annual Rental Per Unit......................... $ 4,942 $ 4,712 $ 4,649 $ 4,458 $ 4,428
ARAMA APARTMENTS
Average Occupancy Rate........................................... 98% 99% 99% 99% 99%
Average Effective Annual Rental Per Unit......................... $ 7,467 $ 7,517 $ 7,156 $ 7,355 $ 6,925
</TABLE>
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Existing Fund
is a party or to which any of its assets are subject.
38
<PAGE>
VOTING SECURITIES AND BENEFICIAL OWNERSHIP THEREOF BY PRINCIPAL BUC HOLDERS,
DIRECTORS AND OFFICERS
Only BUC holders of record at the close of business on the Record Date will
be entitled to consent to the Transaction. On the Record Date, a total of
9,979,128 BUCs were issued and outstanding. Each BUC is entitled to one vote
with respect to the matter for which consent is sought hereby.
As of the Record Date, no person was known by the General Partner to own
beneficially more than 5% of the Existing Fund's BUCs. In addition, no partner
of the General Partner (including America First) and no manager or officer of
America First owned any of the Existing Fund's BUCs as of the Record Date.
MARKET FOR THE EXISTING FUND'S BUCS AND RELATED BUC HOLDER MATTERS
MARKET INFORMATION. The BUCs of the Existing Fund trade on The NASDAQ Stock
Market under the trading symbol "AFTXZ." The following table sets forth the high
and low final sale prices for the Existing Fund's BUCs for each quarterly period
from January 1, 1996 through September 21, 1998:
<TABLE>
<CAPTION>
1996 HIGH LOW
- -------------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1st Quarter..................................................................... $ 7 $ 6 1/4
2nd Quarter..................................................................... $ 6 7/8 $ 6 7/8
3rd Quarter..................................................................... $ 7 $ 6 1/4
4th Quarter..................................................................... $ 7 1/4 $ 6 3/8
</TABLE>
<TABLE>
<CAPTION>
1997 HIGH LOW
- ------------------------------------------------------------------------------ --------- ---------
<S> <C> <C>
1st Quarter................................................................... $ 7 3/8 $ 6 11/16
2nd Quarter................................................................... $ 7 3/8 $ 6 11/16
3rd Quarter................................................................... $ 7 3/8 $ 7
4th Quarter................................................................... $ 7 3/4 $ 7 1/16
</TABLE>
<TABLE>
<CAPTION>
1998 HIGH LOW
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1st Quarter.................................................................. $ 8 $ 7 1/4
2nd Quarter.................................................................. $ 8 $ 7 1/16
3rd Quarter (through September 21) $ 7 11/16 $ 7 1/8
</TABLE>
On September 21, 1998, the date prior to the date of the Consent
Solicitation Statement/Prospectus, the high and low sale prices of the Existing
Fund's BUCs were $7 1/8 and $6 5/8 per BUC, respectively.
BUC HOLDERS. The approximate number of holders of the Existing Fund's BUCs
on the date hereof is 5,940.
DISTRIBUTIONS. Cash distributions are being made on a monthly basis. Total
cash distributions of $5,388,729, or $.54 per BUC, were paid or accrued to BUC
holders during each of the fiscal years ended December 31, 1997 and December 31,
1996.
39
<PAGE>
SELECTED FINANCIAL DATA OF THE EXISTING FUND
The following table sets forth certain financial data of the Existing Fund
that have been derived from the audited financial statements of the Existing
Fund as of and for the five-year period ended December 31, 1997. The financial
statements as of December 31, 1997 and 1996 and for each of the three years in
the period ended December 31, 1997 have been audited by PricewaterhouseCoopers
LLP, independent accountants for the Existing Fund, and are incorporated by
reference in this Consent Solicitation Statement/Prospectus. The unaudited data
presented as of and for the six months ended June 30, 1998 and 1997 have been
derived from the unaudited financial statements of the Existing Fund, which, in
the opinion of the General Partner, include all adjustments, consisting of
normal recurring adjustments, necessary for a fair statement of the results for
such interim periods. The results of operations for the six months ended June
30, 1998 will not necessarily be indicative of the results of operations for the
full year ending December 31, 1998.
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
ENDED JUNE 30,
(UNAUDITED) FOR YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ---------- ---------- ----------
Mortgage bond investment income... $3,032,977 $3,081,025 $6,169,500 $6,134,812 $6,159,236 $5,973,373 $5,461,438
Rental income..................... -- -- -- -- -- -- 5,148,252
Interest income on temporary cash
investments..................... 25,692 25,917 53,554 47,247 42,319 24,046 31,700
Contingent interest income........ 49,233 74,883 124,682 154,539 166,940 211,319 192,343
General and administrative
expenses........................ (404,182) (374,731) (678,487) (648,784) (585,926) (478,438) (1,033,708)
Real estate operating expenses.... -- -- -- -- -- -- (2,457,071)
Depreciation...................... -- -- -- -- -- -- (1,205,631)
Interest expense.................. -- -- -- -- -- -- (400,931)
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................ $2,703,720 $2,807,094 $5,669,249 $5,687,814 $5,782,569 $5,730,300 $5,736,392
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income, basic and diluted, per
Beneficial Unit Certificate
(BUC)........................... $ .27 $ .28 $ .56 $ .56 $ .57 $ .56 $ .56
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cash distributions paid or
accrued per BUC................. $ .27 $ .27 $ .54 $ .54 $ .54 $ .54 $ .7350
---------- ---------- ---------- ---------- ---------- ---------- ----------
Investment in tax-exempt mortgage
bonds at estimated fair value... $71,126,000 $66,026,000 $71,126,000 $66,026,000 $66,026,000 $66,026,000 $66,026,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
Total assets...................... $73,108,758 $67,955,972 $73,213,016 $68,014,454 $67,698,916 $67,379,656 $67,137,170
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
INFORMATION RELATING TO THE NEW FUND
BUSINESS
The New Fund is a newly formed Delaware limited partnership that was formed
on April 2, 1998 for the purpose of acquiring, holding, selling and otherwise
dealing with tax-exempt securities, including direct and indirect interests in
tax-exempt bonds secured by multifamily residential properties and interests
therein and associated taxable debt secured by multifamily real estate. The New
Fund will commence operations upon consummation of the Transaction at which time
it will acquire all of the assets and liabilities of the Existing Fund,
including the seven tax-exempt mortgage bonds currently held by the Existing
Fund. There is no presentation of financial statements or other financial
information of the New Fund in this Consent Solicitation Statement/Prospectus
because the New Fund has not been capitalized and has not commenced operations.
The New Fund will have explicit authority to acquire additional investments.
In general, the General Partner intends that such additional investments consist
of tax-exempt bonds secured by a first mortgage or deed of trust on multifamily
residential properties. Such bonds would be similar to the bonds currently held
by the Existing Fund in that they will be issued by various state and local
governments, their agencies
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and authorities to finance the construction of apartments in their
jurisdictions. As with the bonds held by the Existing Fund, the governmental
entities that issue these bonds are under no obligation to make payment of
principal and interest thereon, nor will their taxing power be pledged to do so.
The sole source of funds to pay principal and interest on these types of bonds
is the net cash flow generated by the operation or sale of the financed real
estate. In addition, such bonds are typically structured as "nonrecourse"
obligations that are secured solely by the underlying real estate. Accordingly,
the owners of the real estate will not be liable to the New Fund in the event of
a default under the bonds. The General Partner does not anticipate that any such
bonds will be insured by any governmental or nongovernmental entity or have any
other type of credit enhancement associated with them. Accordingly, the General
Partner does not expect any of the additional bonds that the New Fund may
acquire to be rated by a nationally recognized securities rating organization.
None of the Existing Fund's tax-exempt bonds are rated by such a rating agency.
In general, the New Fund will seek to acquire all of the tax-exempt bonds
secured by a particular multifamily property, but in some cases will consider
buying less than the full amount of such bonds. Such bonds may be either
outstanding bonds available in the secondary markets or newly issued or reissued
bonds. The interest rates on such additional bonds will be detemined by
negotiation between the New Fund and the owners of the multifamily properties
being financed thereby. Accordingly, the interest rates to be earned by the New
Fund on additional mortgage bonds are not known at this time. The additional
bonds may or may not provide for contingent interest or other rights to
participate in the net cash flow generated by the underlying properties.
In order for the interest paid on such bonds to be exempt from federal
income taxation, the owners of the properties financed by the issuance of the
bonds must operate the properties in compliance with the terms of a regulatory
agreement. Among other things, such regulatory agreements require that a
specified percentage of the rental units in the property be occupied (or held
available for occupancy on a continuous basis) by individuals or families with
incomes that are less than 80% of the median gross income levels in the
geographic area. Such limitations are generally imposed for a period of 10
years. If the owner of a property defaults in its obligations under a regulatory
agreement, it may result in the interest on the bonds secured by that property
becoming subject to income tax. Such a failure would also constitute a default
under the related bonds. In that case, the New Fund will be entitled to declare
such bonds due and payable and pursue such other remedies available to it under
the terms of the bonds, including foreclosure on the property. An affiliate of
the General Partner may, in certain cases, be engaged as the manager of a
property underlying a tax-exempt bond held by the New Fund. In such cases, the
General Partner's affiliate would have the responsibility of complying with the
regulatory agreements relating to the managed properties.
The New Fund will also be authorized to acquire other types of tax-exempt
securities as well as taxable mortgages. Under the terms of the New Partnership
Agreement, the New Fund may acquire tax-exempt securities that may or may not be
secured by real estate. However, in all cases, such tax-exempt securities must
be rated in one of the four highest rating categories by at least one nationally
recognized rating agency. Such securities would generally be traded in secondary
markets and, therefore, be more easily sold than the tax-exempt mortgage bonds
in which the New Fund will primarily invest. Under the terms of the New
Partnership Agreement, no such tax-exempt security may be acquired by the New
Fund if the total book value of all such tax-exempt securities, after such
acquisition, would exceed 25% of the total assets of the New Fund. It is the
General Partner's intention to only acquire these types of tax-exempt securities
if tax-exempt mortgage bonds secured by multifamily real estate are not
available for current acquisition by the New Fund.
The New Fund will also have the authority to acquire mortgage loans on
multifamily real estate but which generate interest that is not exempt from
federal income taxation. However, the New Fund will only acquire such taxable
mortgages in connection with the acquisition of a tax-exempt mortgage bond
secured by the same property. This may occur, for example, if a multifamily
property with existing tax-exempt
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financing has increased in value and the New Fund is seeking to have the
property owner refinance the property through a reissuance of the tax-exempt
bonds. If such existing bonds are reissued, the amount of new bonds issued can
not exceed the original amount of the old bonds. In order to induce the owner of
the property to refinance the tax-exempt bonds on the property and sell them to
the New Fund, the New Fund may agree to finance all or a portion of the
difference between the fair market value of the property and the amount of
tax-exempt bonds being reissued by making a taxable loan to the owner of the
property that is secured by the same multifamily property.
In general, the New Fund intends to acquire and hold tax-exempt mortgage
bonds and other investments as long-term investments. Tax-exempt mortgage bonds
acquired by the New Fund would generally be expected to have terms of up to 24
years; however, if the New Fund buys bonds in the secondary market, the
remaining terms of these bonds could be substantially less.
The New Fund intends to finance the acquisition of additional investments
through the issuance of additional BUCs and through the sale of Senior
Interests.
There are two methods by which the New Fund may create Senior Interests from
the tax-exempt mortgage bonds it holds. In each case, the bonds will have been
originally issued by a state or local housing authority to provide construction
and permanent financing for an apartment complex and the New Fund will be the
only holder of the bonds. The first method of creating a Senior Interest is to
cause an existing bond to be reissued in two classes. The New Fund will request
the government authority that originally issued the bond to redeem the original
bond and issue two new bonds in its place. As described under "THE
TRANSACTION-Background and Reasons for the Transaction," the Existing Fund is
currently in the process of causing the seven tax-exempt bonds it holds to be
reissued in order to preserve the tax-exempt nature of the interest payments on
these bonds. The creation of Senior Interests from one or more of these bonds
could be done as part of this process.
Each class of bonds would provide for the payment of tax-exempt interest and
the General Partner will require an opinion of counsel to this effect. However,
one class of bonds (the "Senior Interest") will have a right to be paid its
share of principal and interest before principal and interest are paid to the
other class of bonds (the "Subordinate Interest"). Like the original bond, both
the Senior Interest and Subordinate Interest will be secured by a mortgage on
the apartment complex that was financed by the original bonds. The mortgage
securing the Senior Interest will be a first mortgage, while the mortgage
securing the Subordinate Interest will be a second mortgage. The total principal
amount of the Senior Interest and the Subordinate Interest will be equal to the
outstanding principal balance of the original bond. It is anticipated that
between 50% and 75% of the total principal amount of the original bond will be
allocated to the Senior Interest and the remainder to the Subordinate Interest.
The other method of creating Senior Interests would be for the New Fund to
deposit one or more of its tax-exempt bonds into a trust that would be
administered by an unaffiliated trustee. The trust would have two classes of
beneficial ownership. The trust indenture that creates the trust and controls
its operation will provide that the holder of the one class of beneficial
ownership (the "Senior Interest") will have a right to be paid its share of
principal and interest received by the trust on the bonds before principal and
interest are paid to the other class of beneficial ownership (the "Subordinate
Interest"). It is anticipated that the holder of the Senior Interest in the
trust would be entitled to receive between 50% and 75% of the principal payments
on the bonds held in the trust.
The General Partner expects to use the trust method to create Senior
Interests in most cases. This method will allow the creation of Senior Interests
at any time without having to seek a reissuance of the bonds by a state or local
housing authority. In addition, creating Senior Interests in this manner will
allow for the diversification of risk because the trust will receive principal
and interest payments from more than one tax-exempt bond. However, in order to
preserve the New Fund's exemption from registration under the Investment Company
Act of 1940, the percentage of the New Fund's assets that can represent
interests
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in such trust will be limited. Accordingly, the New Fund will create some Senior
Interests through the creation of two classes of tax-exempt bonds.
In either case, the ultimate and sole source of payment of principal and
interest on both a Senior Interest and a Subordinate Interest will be the cash
generated by the operation and sale of the apartment complex that have been
financed by the underlying tax-exempt bond. Because of its right of prior
payment, the holder of the Senior Interest will be subject to less risk of
nonpayment if the operation or sale of the apartment complex does not generate
enough cash to pay all principal or interest due on both the Senior Interest and
the Subordinate Interest. This stronger protection from the risk of default is
expected to make the Senior Interests eligible to receive "investment grade"
ratings from national securities rating agencies and the New Fund may seek such
a rating in some cases where the General Partner determines it is necessary in
order to sell the Senior Interests to third parties. Because of the lower risk
of default associated with the Senior Interests, they will bear interest at a
lower rate than the Subordinate Interests. The Subordinate Interests may also
include a contingent interest component. It is expected that Senior Interests
will bear interest at current market rates for investment grade tax-exempt
securities. Because this should be a relatively low rate, the General Partner
anticipates that it will be below the rate that would be paid on the type of
unrated tax-exempt mortgage bonds the New Fund intends to acquire. Accordingly,
the New Fund will keep the Subordinate Interest, but intends to sell the low
interest rate Senior Interests to unaffiliated parties and use the money to buy
additional investments that bear interest at a higher rate. As a result, the
interest income from these new investments, when combined with the interest the
New Fund will continue to receive on the Subordinate Interests, should exceed
the interest income that was earned on the original tax-exempt bonds.
The New Fund expects to create Senior Interests and Subordinate Interests
with respect to each of the seven tax-exempt mortgage bonds acquired from the
Existing Fund and also with respect to additional tax-exempt bonds acquired with
the proceeds from the sale of Senior Interests and the issuance of additional
BUCs. It is expected that Senior Interests will be sold in private offerings
that are exempt from registration under the Securities Act.
See "THE TRANSACTION--Background and Reasons for the Transaction."
The New Fund will not acquire additional tax-exempt mortgage bonds or retain
a Subordinate Interest unless it has obtained an opinion of counsel that the
interest thereon will be exempt from federal income taxation. Accordingly, the
New Fund anticipates that it will not generate significant amounts of taxable
income.
The New Fund will be engaged primarily in the business of investing in
tax-exempt bonds secured by multifamily housing projects. Accordingly, the
presentation of information about industry segments is not applicable and would
not be material to an understanding of the New Fund's business taken as a whole.
PARTNERS OF THE NEW FUND
The General Partner of the Existing Fund will be the General Partner of the
New Fund. Accordingly, the persons responsible for the management of the New
Fund will be the same persons who are currently responsible for the management
of the Existing Fund. See "INFORMATION RELATING TO THE EXISTING
FUND--Management."
The Limited Partner of the New Fund will be America First Fiduciary
Corporation Number Five, a Nebraska corporation, which is wholly owned by
America First and is the Limited Partner of the Existing Fund. The Limited
Partner will undertake no business activity other than to serve as the Limited
Partner of the New Fund.
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PROPERTIES
The New Fund currently has no assets but will acquire the seven tax-exempt
bonds currently held by the Existing Fund upon consummation of the Transaction.
For certain information with respect to the properties underlying these bonds,
see "INFORMATION RELATING TO THE EXISTING FUND-- Properties."
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the New Fund is a
party or to which any of its assets are subject.
TERMS OF THE NEW PARTNERSHIP AGREEMENT
GENERAL
The following is a summary of all material terms of the New Partnership
Agreement. This summary does not purport to be complete and is subject to, and
qualified in its entirety by, the terms of the New Partnership Agreement, the
form of which is attached as Appendix A to this Consent Solicitation
Statement/Prospectus and is incorporated by reference herein. In many respects,
the terms of the New Partnership Agreement are the same as those of the Current
Partnership Agreement. There are, however, some important differences that are
noted below.
FORMATION
The New Fund has been formed under the terms of the Delaware Revised Uniform
Limited Partnership Act (the "Delaware Act"). Upon consummation of the
Transaction, the capital accounts of the General Partner and the Limited Partner
in the Existing Fund will be treated as capital contributions to the New Fund
and the interest of the Limited Partner will be assigned to the BUC holders who
will become BUC holders in the New Fund. BUC holders will not be limited
partners of the New Fund and will have no right to be admitted as such.
ISSUANCE OF ADDITIONAL BUCS
The New Partnership Agreement provides that the General Partner may cause
the New Fund to issue additional BUCs from time to time on such terms and
conditions as it shall determine. The Current Partnership Agreement does not
allow the General Partner to cause the Existing Fund to issue additional BUCs.
MANAGEMENT OF THE NEW FUND
Under the terms of the New Partnership Agreement, the General Partner has
full and exclusive authority to manage the business affairs of the New Fund.
Such authority specifically includes the power to cause the New Fund to (i) sell
Senior Interests (whether they represent a senior interest in a trust to which
tax-exempt bonds have been transferred by the New Fund in exchange for a
beneficial interest therein or a senior class in the New Fund's bonds) to
unaffiliated parties and retain Subordinate Interests (whether they represent a
subordinate class of interest in such trust or a subordinate class of bonds)
that provide for a right to receive payments of principal and interest that are
subordinate to the Senior Interests, (ii) issue additional BUCs and (iii) apply
the proceeds from the sale of the Senior Interests or the issuance of additional
BUCs to the acquisition of additional tax-exempt mortgage bonds (and associated
taxable mortgages) and other types of tax-exempt securities. The New Partnership
Agreement imposes certain limitations on the authority of the General Partner,
including restrictions on the ability of the General Partner to dissolve the New
Fund without the consent of a majority in interest of the BUC holders.
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Other than certain limited voting rights discussed under "Voting Rights,"
neither the Limited Partner nor the BUC holders will have any authority to
transact business for, or participate in the management of, the New Fund. The
only recourse available to BUC holders in the event that the General Partner
takes actions with respect to the business of the New Fund with which BUC
holders do not agree is to vote to remove the General Partner and admit a
substitute general partner. See "Removal or Withdrawal of the General Partner"
below.
ALLOCATIONS AND DISTRIBUTIONS
NET INTEREST INCOME. The New Partnership Agreement provides that all Net
Interest Income generated by the New Fund that is not contingent interest will
be distributed 99% to BUC holders and 1% to the General Partner. In contrast,
the Current Partnership Agreement provides that the General Partner will receive
10% of all Net Interest Income that is not contingent interest distributed after
the BUC holders of the Existing Fund have received a cumulative, noncompounded
annual return of 11% on their Adjusted Capital Contributions in the Existing
Fund. Therefore, unlike the Current Partnership Agreement, the New Partnership
Agreement limits the interest of the General Partner to 1% of Net Income that is
not contingent interest regardless of the return paid to BUC holders. To date,
the General Partner has never received more than 1% of such Net Interest Income
during any fiscal year. Distributions of Net Interest Income to the General
Partner during the year ended December 31, 1997 equaled approximately $53,487.
In addition, both the Current Partnership Agreement and the New Partnership
Agreement provide that the General Partner is entitled to 25% of Net Interest
Income representing contingent interest up to a maximum amount equal to 0.9% per
annum of the principal amount of all mortgage bonds held by the Existing Fund or
the New Fund, as the case may be. During the year ended December 31, 1997, the
General Partner received total distributions of Net Interest Income representing
contingent interest equal to $31,171.
Interest Income of the New Fund includes all cash receipts except for (i)
capital contributions, (ii) Residual Proceeds or (iii) the proceeds of any loan
or the refinancing of any loan. "Net Interest Income" of the New Fund means all
Interest Income plus any amount released from the Reserve for distribution less
expenses and debt service payments and any amount deposited in the Reserve or
used or held for the acquisition of additional tax-exempt bonds. This differs
from the concept of "Net Interest Income" used in the Current Partnership
Agreement in that it would allow the General Partner to use Interest Income for
the acquisition of additional tax-exempt bonds. The Current Partnership
Agreement does not allow Interest Income to be used for this purpose.
Notwithstanding this authority, the General Partner expects that it will use
Interest Income to acquire additional bonds only in cases where it is necessary
to supplement amounts available from the sale of Senior Interests in order to
close a particular acquisition.
NET RESIDUAL PROCEEDS. The New Partnership Agreement provides that Net
Residual Proceeds (whether representing a return of principal or contingent
interest) will be distributed 100% to the BUC holders, except that 25% of Net
Residual Proceeds representing contingent interest will be distributed to the
General Partner until it receives a maximum amount per annum (when combined with
all distributions to it of Net Interest Income representing contingent interest
during the year) equal to 0.9% of the principal amount of the New Fund's
mortgage bonds. The Current Partnership Agreement provides that Net Residual
Proceeds representing a return of principal will be distributed 100% to the BUC
holders and that 25% of Net Residual Proceeds representing contingent interest
will be distributed to the General Partner until it receives a maximum amount
per annum (when combined with all distributions of Net Interest Income
representing contingent interest during the year) equal to 0.9% of the principal
amount of the Existing Fund's mortgage bonds. However, the Current Partnership
Agreement provides that remaining Net Residual Proceeds representing contingent
interest will be distributed (i) 100% to the BUC holders until the BUC holders
have received an amount (when combined with all prior distributions to them by
the Existing Fund) equal to the sum of $20 per BUC plus a cumulative,
noncompounded annual
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return of 11% on their "Adjusted Capital Contributions" as existing from time to
time; then (ii) 100% to the General Partner until the General Partner receives
an aggregate amount equal to 10% of the total distributions to all parties
(including, for this purpose, distributions of Net Interest Income); then (iii)
90% to the BUC holders and 10% to the General Partner. Therefore, by adopting
the New Partnership Agreement, the General Partner will no longer have a right
to participate in Net Residual Proceeds representing contingent interest after
it receives a total of 0.9% per annum of the principal amount of the mortgage
bonds held by the New Fund. The Existing Fund has not made any distributions of
Net Residual Proceeds to date.
Under the terms of the New Partnership Agreement, "Residual Proceeds" means
all amounts received by the New Fund upon the sale of any asset or from the
repayment of principal of any bond. "Net Residual Proceeds" means, with respect
to any distribution period, all Residual Proceeds received by the New Fund
during such distribution period, plus any amounts released from the Reserve for
distribution less all expenses that are directly attributable to the sale of an
asset, amounts used to discharge indebtedness and any amount deposited in the
Reserve or used or held for the acquisition of additional tax-exempt bonds. This
differs from the concept of "Net Residual Proceeds" used in the Current
Partnership Agreement in that it would allow the General Partner to use Residual
Proceeds for the acquisition of additional tax-exempt bonds. The Current
Partnership Agreement does not allow Residual Proceeds to be used for this
purpose. Notwithstanding this authority, the General Partner does not intend to
use this authority to acquire additional bonds indefinitely without distributing
Net Residual Proceeds to the BUC holders. Rather, it is designed to afford the
General Partner the ability to increase the income-generating investments of the
New Fund in order to potentially increase the Net Interest Income from, and
value of, the New Fund.
DISTRIBUTIONS UPON LIQUIDATION. The New Fund will have a term expiring on
December 31, 2050 unless terminated earlier as provided in the New Partnership
Agreement. Upon the dissolution of the New Fund, the proceeds from the
liquidation of its assets will be first applied to the payment of the
obligations and liabilities of the New Fund and the establishment of any reserve
therefor as the General Partner determines to be necessary and then distributed
to the General Partner and the BUC holders in proportion to, and to the extent
of, their respective capital account balances and then in the same manner as Net
Residual Proceeds.
TIMING OF CASH DISTRIBUTIONS. The General Partner expects to continue to
make monthly cash distributions to BUC holders after the Transaction. However,
the New Partnership Agreement, like the Current Partnership Agreement, allows
the General Partner to make cash distributions on a quarterly or semiannual
basis. Regardless of the distribution period selected by the General Partner,
cash distributions must be made within 60 days of the end of each such period.
ALLOCATION OF INCOME AND LOSSES. Income and losses of the New Fund will be
allocated among the partners and BUC holders in the same manner as such
allocations are currently made by the Existing Fund. Accordingly, income and
losses from operations will be allocated 99% to the BUC holders and 1% the
General Partner. Income arising from a sale of or liquidation of the New Fund's
assets will be first allocated to the General Partner in an amount equal to the
Net Residual Proceeds or liquidation proceeds distributed to the General Partner
from such transaction and the balance will be distributed to the BUC holders.
Losses from a sale of a property or from a liquidation of the New Fund will be
allocated among the General Partner and the BUC holders in the same manner as
the Net Residual Proceeds or liquidation proceeds from such transaction are
distributed.
ALLOCATION AMONG BUC HOLDERS. Allocations of cash distributions and of
income and losses will be made among BUC holders of the New Fund in the same
manner as such allocations are made among BUC holders of the Existing Fund.
Income and losses will be allocated on a monthly basis to the BUC holders of
record as of the last day of a month. If a BUC holder is recognized as the
record holder of BUCs on such date, such BUC holder will be allocated all income
and losses for such month.
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Cash distributions will be made to the BUC holders of record as of the last
day of each distribution period. If the New Fund recognizes a transfer prior to
the end of a distribution period, the transferee will be deemed to be the holder
for the entire distribution period and will receive the entire cash distribution
for such period. Accordingly, if the General Partner selects a quarterly or
semiannual distribution period, the transferor of BUCs during such a
distribution period may be recognized as the record holder of the BUCs at the
end of one or more months during such period and be allocated income or losses
for such months but not be recognized as the record holder of the BUCs at the
end of the period and, therefore, not be entitled to a cash distribution for
such period.
The General Partner retains the right to change the method by which income
and losses of the New Fund will be allocated between buyers and sellers of BUCs
during a distribution period based on consultation with tax counsel and
accountants. However, no change may be made in the method of allocation of
income or losses without written notice to the BUC holders at least 10 days
prior to the proposed effectiveness of such change unless otherwise required by
law.
REIMBURSEMENT OF EXPENSES. In addition, the New Fund will reimburse the
General Partner or its affiliates on a monthly basis for the actual
out-of-pocket costs of direct telephone and travel expenses incurred by them in
connection with the business of the New Fund, direct out-of-pocket fees,
expenses and charges paid by them to third parties for rendering legal,
auditing, accounting, bookkeeping, computer, printing and public relations
services, expenses of preparing and distributing reports to BUC holders, an
allocable portion of the salaries and fringe benefits of nonofficer employees of
America First, insurance premiums (including premiums for liability insurance
that will cover the New Fund, the General Partner and America First), the cost
of compliance with all state and federal regulatory requirements and NASDAQ
listing fees and charges and other payments to third parties for services
rendered to the New Fund. The General Partner will also be reimbursed for any
expenses it incurs acting as tax matters partner for the New Fund. The New Fund
will not reimburse the General Partner or its affiliates for the travel expenses
of the president of America First or for any items of general overhead,
including, but not limited to, rent, utilities or the use of computers, office
equipment or other capital items owned by the General Partner or its affiliates.
The New Fund will not reimburse the General Partner or America First for any
salaries or fringe benefits of any partner of the General Partner or of the
officers or board of managers of America First regardless of whether such
persons provide services to the New Fund. The New Fund's independent accountants
are required to verify that any reimbursements received by the General Partner
from the New Fund were for expenses incurred by the General Partner or its
affiliates in connection with the conduct of the business and affairs of the New
Fund or the acquisition and management of its assets and were otherwise
permissible reimbursements under the terms of the New Partnership Agreement. The
annual report to BUC holders is required to itemize the amounts reimbursed to
the General Partner and its affiliates.
OTHER PAYMENTS TO THE GENERAL PARTNER
FEES. In addition to its share of Net Interest Income and Net Residual
Proceeds and reimbursement for expenses, the General Partner or its affiliates
will be entitled to the following:
(i) an Administrative Fee in an amount equal to 0.45% per annum of
principal amount of the investments held by the New Fund (other than those
in its Reserve);
(ii) Mortgage Placement Fees in connection with the acquisition of
additional tax-exempt bonds by the New Fund in an amount up to 1% of the
purchase price paid by the New Fund for such bonds; and
(iii) property management fees paid in connection with the management of
certain properties financed by the New Fund.
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In general, the Administrative Fee will be payable by the owners of the
properties financed by the tax-exempt mortgage bonds held by the New Fund but
will be subordinate to the payment of all base interest to the New Fund on the
bonds. Each of the tax-exempt mortgage bonds currently held by the Existing Fund
provides for the payment of this Administrative Fee to the General Partner and
the General Partner will seek to negotiate the payment of the Administrative Fee
in connection with the acquisition of additional tax-exempt mortgage bonds by
the New Fund. As with the Current Partnership Agreement, the New Partnership
Agreement provides that the New Fund will pay the Administrative Fee to the
General Partner with respect to any foreclosed mortgage bonds. However, the New
Partnership Agreement also provides that the Administrative Fee will be paid
directly by the New Fund with respect to any investments (except those held in
its Reserve) for which the Administrative Fee is not payable by a third party.
The amount of any additional Administrative Fees cannot be estimated because the
amount of additional bonds, if any, that the New Fund may acquire is not known.
Likewise, the amount of Administrative Fees payable by the New Fund as opposed
to third parties will not be known until the New Fund has acquired additional
investments.
Mortgage Placement Fees will be paid to the General Partner in connection
with the identification and evaluation of additional investments for acquisition
and the consummation of such acquisitions. All Mortgage Placement Fees will be
paid by the owners of the properties financed by the acquired mortgage bonds out
of bond proceeds. The amount of Mortgage Placement Fees, if any, will be subject
to negotiation between the General Partner and such property owners. The maximum
Mortgage Placement Fee the General Partner will seek is 1% of the principal
amount of the mortgage bonds. However, the amount of any Mortgage Placement Fees
that may be earned by the General Partner cannot be estimated because the amount
of additional mortgage bonds, if any, that the New Fund may acquire is not
known.
America First Properties Management Company, L.L.C. ("Properties
Management") is an affiliate of the General Partner that is engaged in the
management of apartment complexes. Properties Management currently manages four
of the properties financed by the Existing Fund and is expected to continue to
do so after the Transaction. Properties Management may also seek to become the
manager of apartment complexes financed by additional mortgage bonds acquired by
the New Fund, subject to negotiation with the owners of such properties. If the
New Fund acquires ownership of any property through foreclosure of a tax-exempt
mortgage bond, Properties Management may provide property management services
for such property and, in such case, the New Fund will pay Properties Management
its fees for such services. Under the New Partnership Agreement, such fees paid
to Properties Management may not exceed the lesser of (i) the fees charged by
unaffiliated property managers in the same geographic area or (ii) 5% of the
gross revenues of the managed property. In contrast, the Current Partnership
Agreement provides that property management fees paid by the Existing Fund may
not exceed the least of (A) 5% of the gross revenues of such property, (B) the
fees charged by unaffiliated property managers in the same geographic area or
(C) Properties Management's actual cost of providing property management
services for such property. Therefore, it is possible that, if the New Fund
forecloses on a mortgage bond and retains Properties Management to manage the
property securing the bond, the amount of property management fees paid to
Properties Management under the New Partnership Agreement will be greater than
the amount payable under the Current Partnership Agreement. For the year ended
December 31, 1997, Properties Management earned a total of $270,616 for the
management of three properties financed by the Existing Fund, none of which was
paid by the Existing Fund. The amount of property management fees that
Properties Management will earn after the consummation of the Transaction cannot
be estimated at this time since the number of financed properties for which it
undertakes management and the revenues generated by such properties are not
known.
LIABILITY OF PARTNERS AND BUC HOLDERS
Under the Delaware Act and the terms of the New Partnership Agreement, the
General Partner will be liable to third parties for all general obligations of
the New Fund to the extent not paid by the New
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Fund. However, the New Partnership Agreement (in the same manner as the Current
Partnership Agreement) provides that the General Partner has no liability to the
New Fund for any act or omission reasonably believed to be within the scope of
authority conferred by the New Partnership Agreement and in the best interest of
the New Fund, provided that the course of conduct giving rise to the threatened,
pending or completed claim, action or suit did not constitute fraud, bad faith,
negligence, misconduct or a breach of its fiduciary obligations to the BUC
holders. Therefore, BUC holders may have a more limited right of action against
the General Partner than they would have absent those limitations in the New
Partnership Agreement. The New Partnership Agreement also provides for
indemnification of the General Partner and its affiliates by the New Fund for
certain liabilities that the General Partner and its affiliates may incur under
the Securities Act of 1933, as amended, and in dealings with the New Fund and
third parties on behalf of the New Fund. To the extent that the provisions of
the New Partnership Agreement include indemnification for liabilities arising
under the Securities Act of 1933, as amended, such provisions are, in the
opinion of the Securities and Exchange Commission, against public policy and,
therefore, unenforceable.
No BUC holder will be personally liable for the debts, liabilities,
contracts or any other obligations of the New Fund unless, in addition to the
exercise of his rights and powers as a BUC holder, he takes part in the control
of the business of the New Fund. It should be noted, however, that the Delaware
Act prohibits a limited partnership from making a distribution that causes the
liabilities of the limited partnership to exceed the fair value of its assets.
Any limited partner who receives a distribution knowing that the distribution
was made in violation of this provision of the Delaware Act is liable to the
limited partnership for the amount of the distribution. This provision of the
Delaware Act probably applies to BUC holders as well as partners of the New
Fund. In any event, the New Partnership Agreement provides that, to the extent
the Limited Partner is required to return any distributions or repay any amount
by law or pursuant to the New Partnership Agreement, each BUC holder who has
received any portion of such distributions is required to repay his
proportionate share of such distribution to the Limited Partner immediately upon
notice by the Limited Partner to such BUC holder. Furthermore, the New
Partnership Agreement allows the General Partner to withhold future
distributions to BUC holders until the amount so withheld equals the amount
required to be returned by the Limited Partner. Because BUCs are transferable,
it is possible that distributions may be withheld from a BUC holder who did not
receive the distribution required to be returned.
VOTING RIGHTS
The New Partnership Agreement provides that the Limited Partner will vote
its limited partnership interests as directed by the BUC holders. Accordingly,
the BUC holders, by vote of a majority in interest thereof, may:
(i) amend the New Partnership Agreement (provided that the concurrence
of the General Partner is required for any amendment that modifies the
compensation or distributions to which the General Partner is entitled or
that affects the duties of the General Partner);
(ii) dissolve the New Fund;
(iii) remove any General Partner and consent to the admission of a
successor General Partner; or
(iv) terminate an agreement under which the General Partner provides
goods and services to the New Fund.
In addition, without the consent of a majority in interest of the BUC
holders, the General Partner may not, among other things:
(i) sell or otherwise dispose of all or substantially all of the assets
of the New Fund in a single transaction (provided that the General Partner
may sell the last property owned by the New Fund without such consent);
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(ii) elect to dissolve the New Fund; or
(iii) admit an additional General Partner.
The General Partner may at any time call a meeting of the BUC holders, call
for a vote without a meeting of the BUC holders or otherwise solicit the consent
of the BUC holders and is required to call such a meeting or vote or solicit
consents following receipt of a written request therefor signed by 10% or more
in interest of the BUC holders. The New Fund does not intend to hold annual or
other periodic meetings of BUC holders. Although the New Partnership Agreement
permits the consent of the BUC holders to be given after the act is done with
respect to which the consent is solicited, the General Partner does not intend
to act without the prior consent of the BUC holders, in such cases where consent
of the BUC holders is required, except in extraordinary circumstances where
inaction may have a material adverse affect on the interest of the BUC holders.
REPORTS
Within 120 days after the end of the fiscal year, the General Partner will
distribute a report to BUC holders that shall include (i) financial statements
of the New Fund for such year that have been audited by the New Fund's
independent public accountant, (ii) a report of the activities of the New Fund
during such year and (iii) a statement (which need not be audited) showing
distributions of Net Interest Income and Net Residual Proceeds. The annual
report will also include a detailed statement of the amounts of fees and expense
reimbursements paid to the General Partner and its affiliates by the New Fund
during the fiscal year.
Within 60 days after the end of the first three quarters of each fiscal
year, the General Partner will distribute a report that shall include (i)
unaudited financial statements of the New Fund for such quarter, (ii) a report
of the activities of the New Fund during such quarter and (iii) a statement
showing distributions of Net Interest Income and Net Residual Proceeds during
such quarter.
The New Fund will also provide BUC holders with a report on Form K-1 or
other information required for federal and state income tax purposes within 75
days of the end of each year.
REMOVAL OR WITHDRAWAL OF THE GENERAL PARTNER
The BUC holders may, by vote of a majority in interest, remove the General
Partner from the New Fund with or without cause and appoint a successor general
partner.
The General Partner may not withdraw voluntarily from the New Fund or sell,
transfer or assign all or any portion of its interest in the New Fund unless a
substitute General Partner has been admitted in accordance with the terms of the
New Partnership Agreement. With the consent of a majority in interest of the BUC
holders, the General Partner may at any time designate one or more persons as
additional general partners, provided that the interests of the BUC holders in
the New Fund are not reduced thereby. The designation must meet the conditions
set out in the New Partnership Agreement and comply with the provisions of the
Delaware Act with respect to admission of an additional general partner. In
addition to the requirement that the admission of a person as successor or
additional general partner have the consent of the majority in interest of the
BUC holders, the New Partnership Agreement requires, among other things, that
(i) such person agree to and execute the New Partnership Agreement and (ii)
counsel for the Partnership or BUC holders render an opinion that such person's
admission is in accordance with the Delaware Act.
EFFECT OF REMOVAL, BANKRUPTCY, DISSOLUTION OR WITHDRAWAL OF A GENERAL PARTNER
In the event of a removal, bankruptcy, dissolution or withdrawal of the
General Partner, it will cease to be the General Partner but will remain liable
for obligations arising prior to the time it ceases to act in that role. The
former General Partner's interest in the New Fund will be converted into a
limited partner
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interest having the same rights to share in the allocations of income and losses
of the New Fund and distributions of Net Interest Income, Net Residual Proceeds
and cash distributions upon liquidation of the New Fund as it did as General
Partner. Any successor General Partner shall have the option, but not the
obligation, to acquire all or a portion of the interest of the removed General
Partner at its then fair market value. The Current Partnership Agreement
provides that the fair market value of the General Partner's interest for such
purposes is to be based on its share of the proceeds resulting from an immediate
liquidation of the assets of the Existing Fund. Under the Current Partnership
Agreement, the General Partner could receive up to 10% of Net Residual Proceeds,
including such amounts distributed upon liquidation of the Existing Fund.
However, it is not expected that the Existing Fund will generate enough Net
Residual Proceeds upon a liquidation to entitle the General Partner to receive
any distributions of Net Residual Proceeds other than a limited amount of
contingent interest. The New Partnership Agreement provides that the General
Partner will not participate in the distribution of Net Residual Proceeds other
than in a limited amount of contingent interest. Therefore, calculating the fair
market value of the General Partner's interest on the basis of liquidation value
will result in a value that is close to zero. The General Partner believes that
this is not an adequate valuation of the interest it will retain in the New Fund
upon its removal, bankruptcy, dissolution or withdrawal and does not believe
that it should be required to sell its interest to a successor General Partner
at a price that does not reflect the true value of the retained interest. In
order to provide the General Partner with a meaningful value for its interest in
the New Fund in the event it is removed as General Partner, the New Partnership
Agreement bases the fair market value of the General Partner's interest on the
present value of its future Administrative Fees and distributions of Net
Interest Income plus any amount that would be paid to the removed General
Partner upon an immediate liquidation of the New Fund. Any disputes over
valuation would be settled by the successor General Partner and removed General
Partner through arbitration. As a result of this change, the General Partner
would expect to receive substantially more from a successor General Partner for
its interest upon its removal from the New Fund than it would upon its removal
from the Existing Fund. The amendment of this provision affects only the price
that a successor General Partner would pay to a removed General Partner and will
not affect the amount of cash distributions to be received by the removed
General Partner from the New Fund, including the amounts, if any, distributable
to the former General Partner upon dissolution of the New Fund or sale of its
assets.
AMENDMENTS
In addition to amendments to the New Partnership Agreement adopted by a
majority in interest of the BUC holders, the New Partnership Agreement may be
amended by the General Partner, without the consent of the BUC holders, in
certain limited respects if such amendments are not materially adverse to the
interest of the BUC holders. In addition, the General Partner is authorized to
amend the New Partnership Agreement to admit additional, substitute or successor
partners into the New Fund if such admission is effected in accordance with the
terms of the New Partnership Agreement.
DISSOLUTION AND LIQUIDATION
The New Fund will continue in full force and effect until December 31, 2050,
unless terminated earlier as a result of:
(i) the passage of 90 days following the bankruptcy, dissolution,
withdrawal or removal of a General Partner who is at that time the sole
General Partner, unless all of the remaining partners (it being understood
that for purposes of this provision the Limited Partner shall vote as
directed by a majority in interest of the BUC holders) agree in writing to
continue the business of the New Fund and a successor General Partner is
designated within such 90-day period;
(ii) the passage of 180 days after the repayment, sale or other
disposition of all of the New Fund's investments and substantially all its
other assets;
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(iii) the election by a majority in interest of BUC holders or by the
General Partner (subject to the consent of a majority in interest of the BUC
holders) to dissolve the New Fund; or
(iv) any other event causing the dissolution of the New Fund under the
laws of the State of Delaware.
Upon dissolution of the New Fund, its assets will be liquidated and after
the payment of its obligations and the setting up of any reserves for
contingencies that the General Partner considers necessary, any proceeds from
the liquidation will be distributed as set forth under "Allocations and
Distributions-- DISTRIBUTIONS UPON LIQUIDATION" above.
DESIGNATION OF TAX MATTERS PARTNER
The General Partner will designate itself as the New Fund's "tax matters
partner" for purposes of federal income tax audits pursuant to Section 6231 of
the Code and the regulations thereunder. Each BUC holder agrees to execute such
documents as may be necessary or appropriate to evidence such appointment.
TAX ELECTIONS
The New Partnership Agreement provides the General Partner will have the
authority to make or revoke any tax elections on behalf of the New Fund. Unlike
the Current Partnership Agreement, the General Partner is authorized to make an
election under Section 754 of the Code. If an election is made under Section
754, the New Fund's basis in its assets will be adjusted as a result of the
transfer of BUCs. The General Partner intends to cause the New Fund to make an
election under Section 754 in connection with the offering of additional BUCs.
BOOKS AND RECORDS
The books and records of the Partnership shall be maintained at the office
of the New Fund located at Suite 400, 1004 Farnam Street, Omaha, Nebraska 68102,
and shall be available there during ordinary business hours for examination and
copying by any BUC holder or his duly authorized representative. The records of
the New Fund will include a list of the names and addresses of all BUC holders
and BUC holders will have the right to secure, upon written request to the
General Partner and payment of reasonable expenses in connection therewith, a
list of the names and addresses of, and the number of BUCs held by, all BUC
holders.
ACCOUNTING MATTERS
The fiscal year of the New Fund will be the calendar year. The books and
records of the New Fund shall be maintained on an accrual basis in accordance
with generally accepted accounting principles.
OTHER ACTIVITIES
The New Partnership Agreement, like the Current Partnership Agreement,
allows the General Partner and its affiliates to engage generally in other
business ventures and provides that BUC holders will have no rights with respect
thereto by virtue of the New Partnership Agreement. In addition, the New
Partnership Agreement provides that an affiliate of the General Partner may
acquire and hold debt securities or other interests secured by a property that
also secures a mortgage bond held by the New Fund, provided that such mortgage
bond is not junior or subordinate to the interest held by such affiliate.
DERIVATIVE ACTIONS
The New Partnership Agreement provides that a BUC holder may bring a
derivative action on behalf of the New Fund to recover a judgment to the same
extent as a limited partner has such rights under the
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Delaware Act. The Delaware Act provides for the right to bring a derivative
action, although it authorizes only a partner of a partnership to bring such an
action. There is no specific judicial or statutory authority governing the
question of whether an assignee of a partner (such as a BUC holder) has the
right to bring a derivative action where a specific provision exists in the
partnership agreement granting such rights. Furthermore, there is no express
statutory authority for a limited partner's class action in Delaware, and
whether a class action may be brought by BUC holders to recover damages for
breach of the General Partner's fiduciary duties in Delaware state courts is
unclear.
DESCRIPTION OF THE BUCS OF THE NEW FUND
BENEFICIAL UNIT CERTIFICATES
BUCs represent beneficial assignments by the Limited Partner of its limited
partner interest in the New Fund. Although BUC holders will not be limited
partners of the New Fund and have no right to be admitted as limited partners,
they will be bound by the terms of the New Partnership Agreement and will be
entitled to the same economic benefits, including the same share of income,
gains, losses, deductions, credits and cash distributions, as if they were
limited partners of the New Fund.
A majority in interest of the BUC holders (voting through the Limited
Partner), without the concurrence of the General Partner, may, among other
things, (i) amend the New Partnership Agreement (with certain restrictions),
(ii) approve or disapprove the sale of all or substantially all of the New
Fund's assets in a single transaction (other than a transfer necessary to create
or sell Senior Interests), (iii) dissolve the New Fund or (iv) remove the
General Partner and elect a replacement therefor. The General Partner may not
dissolve the New Fund without the consent of a majority in interest of the BUC
holders.
TRANSFERS
The BUCs will be issued in registered form only and, except as noted below,
will be transferable upon consummation of the Transaction. The BUCs have been
accepted for inclusion on The NASDAQ Stock Market upon notice of issuance.
However, there can be no assurance that a public trading market for the BUCs
will develop.
A purchaser of BUCs will be recognized as a BUC holder for all purposes on
the books and records of the New Fund on the day on which the General Partner
(or other transfer agent appointed by the General Partner) receives satisfactory
evidence of the transfer of BUCs. All BUC holder rights, including voting
rights, rights to receive distributions and rights to receive reports, and all
allocations in respect of BUC holders, including allocations of income and
expenses, will vest in, and be allocable to, BUC holders as of the close of
business on such day. Service Data Corporation of Omaha, Nebraska has been
appointed by the General Partner to act as the registrar and transfer agent for
the BUCs.
A transfer or assignment of 50% or more of the outstanding BUCs within a
12-month period may terminate the New Fund for federal income tax purposes,
which may result in adverse tax consequences to BUC holders. In order to protect
against such a termination, the New Partnership Agreement permits the General
Partner to suspend or defer any transfers or assignments of BUCs at any time
after it determines that 45% or more of all BUCs may have been transferred (as
defined by the federal income tax laws) within a 12-month period and that the
resulting termination of the New Fund for tax purposes would adversely affect
the economic interests of the BUC holders. Any deferred transfers will be
effected (in chronological order to the extent practicable) on the first day of
the next succeeding period in which transfers can be effected without causing a
termination of the New Fund for tax purposes or any adverse effects from such
termination, as the case may be.
In addition, the New Partnership Agreement grants the General Partner the
authority to take such action as it deems necessary or appropriate, including
action with respect to the manner in which BUCs
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are being or may be transferred or traded, in order to preserve the status of
the New Fund as a partnership for federal income tax purposes or to ensure that
BUC holders will be treated as limited partners for federal income tax purposes.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
OF THE TRANSACTION
The following is a summary of the material federal income tax considerations
associated with the Transaction. The summary was prepared by Kutak Rock, legal
counsel to the General Partner. This discussion is based upon the provisions of
the Internal Revenue Code of 1986, as amended (the "Code"), and the regulations,
reported rulings and decisions thereunder, as in effect as of the date of this
Consent Solicitation Statement/Prospectus (or, in the case of certain
regulations, proposed as of such date), all of which are subject to change,
retroactively or prospectively, and to possibly differing interpretations. This
discussion does not purport to deal with the federal income or other tax
consequences applicable to all BUC holders in light of their particular
investment circumstances or to all categories of BUC holders, some of whom may
be subject to special rules (including, for example, insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, subchapter S
corporations, recipients of Social Security income, United States branches of
foreign corporations and persons who are not citizens or residents of the United
States). No ruling on the federal, state or local tax considerations relevant to
the Transaction has been or will be requested from the Internal Revenue Service
(the "Service") or from any other tax authority. Moreover, no assurance can be
given that the opinions of counsel expressed herein would be accepted by the
Service or, if challenged by the Service, sustained in court.
As discussed below, Kutak Rock is of the opinion that, based on the
assumptions set forth in the discussion below, the New Fund will be treated for
federal income tax purposes as a partnership and the BUC holders will be subject
to tax as partners. Moreover, Kutak Rock is of the opinion that, based on the
assumptions set forth in the discussion below, the formation of the New Fund and
the merger of the Existing Fund and the New Fund will be nontaxable to the
Existing Fund, the New Fund and the BUC holders.
EACH BUC HOLDER IS ADVISED TO CONSULT HIS OR HER OWN TAX ADVISOR REGARDING
THE SPECIFIC TAX CONSEQUENCES TO HIM OR HER OF THE TRANSACTION AND OF POTENTIAL
CHANGES IN APPLICABLE TAX LAWS.
PARTNERSHIP STATUS
Under the recently adopted "check-the-box" regulations promulgated by the
Service, absent an election to be treated as an association taxable as a
corporation, an entity such as the New Fund will be treated as a partnership for
income tax purposes. The New Fund will be formed as a limited partnership under
Delaware law and it will not file any election with the Service to be treated as
an association taxable as a corporation. Accordingly, Kutak Rock is of the
opinion that the New Fund will be treated as a partnership for federal income
tax purposes. In addition, Kutak Rock is of the opinion that the holders of BUCs
will be subject to tax as partners.
Because the New Fund will be treated as a partnership for income tax
purposes, it will not be liable for any income tax. Rather, all items of the New
Fund's income, gain, loss, deduction or tax credit will be allocated to its
partners and the BUC holders, who will be subject to taxation on their
distributive share thereof. Taxable income allocated by the New Fund to BUC
Holders with respect to a taxable year may exceed the amount of cash distributed
by the New Fund to BUC holders for such year.
The New Fund is not intended to act as a "tax shelter" and will not register
as such with the Service.
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TREATMENT OF THE NEW FUND AS A PUBLICLY TRADED PARTNERSHIP
The listing of the New Fund's BUCs for trading on The NASDAQ Stock Market
will cause the New Fund to be treated as a "publicly traded partnership" under
Section 7704 of the Code, thus continuing the publicly traded partnership status
of the Existing Fund. A publicly traded partnership is generally taxable as a
corporation unless 90% or more of its gross income is "qualifying" income.
Qualifying income includes interest, dividends, real property rents, gain from
the sale or other disposition of real property, gain from the sale or other
disposition of capital assets held for the production of interest or dividends
and certain other items.
Substantially all of the New Fund's gross income will continue to be
tax-exempt interest income on mortgage bonds, all of which constitutes
qualifying income. Kutak Rock is of the opinion that as long as 90% or more of
the New Fund's gross income consists of qualifying income, the New Fund will be
treated as a partnership for federal income tax purposes. If for any reason less
than 90% of the New Fund's gross income constituted qualifying income, the New
Fund would be taxable as a corporation rather than a partnership for federal
income tax purposes, with the consequences described above in "Partnership
Status."
TAX EXEMPT INTEREST
Kutak Rock is of the opinion that (i) the interest paid on the seven
tax-exempt mortgage bonds held by the Existing Fund is exempt from federal
income taxation and (ii) after completion of the Transaction, distributions made
by the New Fund to BUC holders of interest received from these bonds will be
exempt from federal income taxation.
CONSEQUENCES OF A MERGER
Kutak Rock is of the opinion that the merger of the Existing Fund and the
New Fund pursuant to the terms of the Merger Agreement will be treated as a
tax-free continuation of the Existing Fund for federal income tax purposes.
Accordingly, no gain or loss will be recognized by the Existing Fund, the New
Fund or the BUC holders as a result thereof. The adjusted basis of the New Fund
in the assets acquired from the Existing Fund will be equal to the adjusted
basis of the Existing Fund therein as of the effective date of the Transaction.
Since the New Fund will have the same adjusted basis in the transferred assets
as the Existing Fund, the holding period of the New Fund in the transferred
assets will include the holding period of the Existing Fund in such assets.
Likewise, the BUC holders' adjusted basis in the New Fund BUCs will be equal to
their adjusted basis in the Existing Fund BUCs. A BUC holder will include the
holding period of his or her Existing Fund BUCs in his or her holding period for
the New Fund BUCs.
NONDEDUCTIBILITY OF INTEREST EXPENSE
The Code generally prohibits the deduction of interest on indebtedness that
is either incurred or continued for the purpose of either purchasing or carrying
tax-exempt obligations. In the case of a partnership, the partners are required
to take into account their proportionate share of the tax-exempt obligations
held, and the indebtedness incurred, by the partnership in combination with such
obligations held, or any debt incurred, in their individual capacities. While
the New Fund's assets will consist primarily of tax-exempt mortgage bonds, it
does not intend to incur any significant amounts of indebtedness to purchase or
carry tax-exempt mortgage bonds. However, the New Fund is not prohibited from
borrowing and, to the extent that it does, any interest paid by it with respect
to indebtedness may not be deductible by BUC holders.
TAX ELECTIONS
In the event the New Fund issues additional BUCs, the General Partner
intends to cause the New Fund to make an election under Section 754 of the Code.
The effect of such election will be to have the
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basis of the New Fund's assets adjusted in the event of certain transactions,
including a sale by a BUC holder of BUCs. In that case, the person buying BUCs
would acquire a basis adjustment with respect to the assets of the New Fund.
Such basis adjustment would affect the taxable income reported by such BUC
holder upon the disposition of those assets by the New Fund.
LEGAL MATTERS
The validity of the issuance of the BUCs of the New Fund offered pursuant to
this Consent Solicitation Statement/Prospectus will be passed upon for the New
Fund by Kutak Rock, a partnership including professional corporations, Omaha,
Nebraska. In addition, the description of federal income tax consequences under
the caption "MATERIAL FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION" is
based on the opinion of Kutak Rock.
EXPERTS
The Financial Statements of the Existing Fund as of December 31, 1997 and
1996 and for each of the three years in the period ended December 31, 1997 have
been incorporated by reference herein in reliance on the reports of
PricewaterhouseCoopers LLP, independent certified public accountants, and on the
authority of said firm as experts in auditing and accounting. The Financial
Statements of Northwood Lake Apartments as of December 31, 1997 and 1996 and for
each of the three years in the period ended December 31, 1997 have been
incorporated by reference herein in reliance on the reports of Mueller, Prost,
Purk & Willbrand, P.C., independent certified public accountants, and on the
authority of said firm as experts in auditing and accounting.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION NOT CONTAINED IN OR INCORPORATED BY REFERENCE INTO THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED. THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR THE
SOLICITATION OF AN OFFER TO BUY, ANY OF THE SECURITIES OFFERED BY THIS CONSENT
SOLICITATION STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A BUC HOLDER'S
CONSENT, IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION OF AN OFFER OR CONSENT IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS CONSENT SOLICITATION
STATEMENT/PROSPECTUS NOR THE ISSUANCE OR SALE OF ANY SECURITIES HEREUNDER SHALL
UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE INFORMATION SET FORTH OR INCORPORATED HEREIN SINCE THE DATE HEREOF.
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GLOSSARY
Certain terms used in this Consent Solicitation Statement/Prospectus shall
have the following meanings, unless the context requires otherwise:
"ADMINISTRATIVE FEE" means the fee paid to the General Partner for the
administration of the New Fund's assets in an aggregate amount equal to 0.45%
per annum of the principal balance of the investments held by the New Fund
except those held in its Reserve. To the extent not payable by third parties,
the Administrative Fee will be paid by the New Fund on such investments.
"AMERICA FIRST" means America First Companies L.L.C., a Delaware limited
liability company, which is the general partner of the General Partner.
"BASE INTEREST" means the stated rate of interest on a mortgage bond that is
due and payable regardless of the net cash flow generated by the property
financed by such bond.
"BUCS" means beneficial unit certificates representing assignments of the
Limited Partner's limited partner interests in the Existing Fund or the New
Fund, as the case may be.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of succeeding law.
"COMMISSION" means the Securities and Exchange Commission.
"CONTINGENT INTEREST" means interest that is payable on a mortgage bond only
if the property financed by such bond generates net cash flow or net sale
proceeds in sufficient amounts to pay all Base Interest and any other fees
specified in the bond.
"CURRENT PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership,
dated November 11, 1985, of the Existing Fund.
"DELAWARE ACT" means the Delaware Revised Uniform Limited Partnership Act,
which consists of Title 6, Chapter 17 of the Delaware Code Annotated.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXISTING FUND" means America First Tax Exempt Mortgage Fund Limited
Partnership, a Delaware limited partnership.
"GENERAL PARTNER" means America First Capital Associates Limited Partnership
Two, a Delaware limited partnership, which is the General Partner of the
Existing Fund and the New Fund.
"INTEREST INCOME" means all cash receipts of the Existing Fund or the New
Fund except for (i) capital contributions, (ii) amounts received upon the
repayment or sale of a bond or other asset that do not represent accrued
interest thereon other than accrued interest that represents accrued contingent
interest or (iii) the proceeds of any loan.
"LIMITED PARTNER" means America First Fiduciary Corporation Number Five, a
Nebraska corporation, which is the Limited Partner of the Existing Fund and the
New Fund.
"MERGER AGREEMENT" means the Amended Agreement of Merger, dated June 12,
1998, by and between the Existing Fund and the New Fund relating to the
Transaction.
"MORTGAGE PLACEMENT FEE" means the fee payable to the General Partner from
the proceeds of additional tax-exempt mortgage bonds acquired by the New Fund in
an amount up to .1% of the principal balances of such bonds.
"NET INTEREST INCOME" means all Interest Income received by the Existing
Fund or the New Fund plus any amount released from the Reserve for distribution,
less amounts used to pay expenses and/or discharge
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indebtedness, any amount deposited in the Reserve and (in the case of the New
Fund) any amount used or held for the acquisition of additional investments.
"NET RESIDUAL PROCEEDS" means all Residual Proceeds received by the Existing
Fund, plus any amounts released from the Reserve for distribution, less all
expenses that are directly attributable to the sale or refinancing of a
property, amounts used to discharge indebtedness, any amount deposited in the
Reserve and (in the case of the New Fund) any amount used or held for the
acquisition of additional investments.
"NEW FUND" means America First Tax Exempt Investors, L.P., a Delaware
limited partnership.
"NEW PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership of
the New Fund.
"RECORD DATE" means September 25, 1998, the date established by the General
Partner to determine which BUC holders will be entitled to receive notice of,
and to grant or withhold their consent to, the Transaction.
"RESERVE" means those funds withheld from capital contributions, Interest
Income or Residual Proceeds by the General Partner from time to time in order to
provide working capital for the New Fund and that may be used for any purpose
relating to the operation thereof, including the acquisition of additional
investments.
"RESIDUAL PROCEEDS" means all amounts received by the Existing Fund or the
New Fund from the repayment or sale of a bond or other asset except amounts
representing accrued interest on a bond other than accrued contingent interest.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR INTEREST" means a senior interest in a trust that holds tax-exempt
mortgage bonds or a senior class of tax-exempt mortgage bonds.
"SERVICE" means the Internal Revenue Service.
"SUBORDINATE INTEREST" means a junior or residual interest in a trust that
holds tax-exempt mortgage bonds or a junior class of tax-exempt mortgage bonds.
"TAX MATTERS PARTNER" means the partner of the New Fund designated as such
under Section 6231 of the Code by the General Partner. The initial tax matters
partner of the New Fund will be the General Partner.
"TRANSACTION" means the merger of the Existing Fund and the New Fund
pursuant to which (i) the separate existence of the Existing Fund will cease and
the New Fund will be the surviving partnership and will succeed to all of the
assets and liabilities of the Existing Fund, (ii) the New Partnership Agreement
will control the operations of the New Fund after the Transaction and (iii)
persons holding BUCs in the Existing Fund as of the effective date of the
Transaction will become BUC holders of the New Fund and will receive one BUC in
the New Fund for each BUC they hold in the Existing Fund.
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APPENDIX A
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AMERICA FIRST
TAX EXEMPT INVESTORS, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
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TABLE OF CONTENTS
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ARTICLE I
DEFINED TERMS.............................................................................................. 1
ARTICLE II
NAME, PLACE OF BUSINESS, PURPOSE AND TERM
Section 2.01. Name..................................................................................... 6
Section 2.02. Principal Office and Name and Address of Resident Agent.................................. 6
Section 2.03. Purpose.................................................................................. 6
Section 2.04. Term..................................................................................... 6
ARTICLE III
PARTNERS AND CAPITAL
Section 3.01. General Partner.......................................................................... 6
Section 3.02. Limited Partner.......................................................................... 7
Section 3.03. Partnership Capital...................................................................... 7
Section 3.04. Liability of Partners and BUC Holders.................................................... 7
ARTICLE IV
DISTRIBUTIONS OF CASH; ALLOCATIONS OF INCOME AND LOSS
Section 4.01. Distributions of Net Interest Income..................................................... 8
Section 4.02. Distributions of Net Residual Proceeds and of Liquidation Proceeds....................... 8
Section 4.03. Allocation of Income and Loss From Operations............................................ 8
Section 4.04. Allocation of Income and Loss Arising From a Repayment, Sale or Liquidation.............. 9
Section 4.05. Determination of Allocations and Distributions Among Limited Partners and BUC Holders.... 9
Section 4.06. Capital Accounts......................................................................... 10
Section 4.07. Rights to Distributions.................................................................. 10
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS OF THE GENERAL PARTNER
Section 5.01. Management of the Partnership............................................................ 10
Section 5.02. Authority of the General Partner......................................................... 10
Section 5.03. Authority of General Partner and Its Affiliates To Deal With Partnership................. 12
Section 5.04. General Restrictions on Authority of the General Partner................................. 13
Section 5.05. Compensation and Fees.................................................................... 14
Section 5.06. Duties and Obligations of the General Partner............................................ 15
Section 5.07. Delegation of Authority.................................................................. 16
Section 5.08. Other Activities......................................................................... 16
Section 5.09. Limitation on Liability of the General Partner and Initial Limited Partner;
Indemnification.......................................................................... 16
Section 5.10. Special Amendments to the Agreement...................................................... 17
ARTICLE VI
CHANGES IN GENERAL PARTNERS
Section 6.01. Withdrawal of General Partner............................................................ 17
Section 6.02. Admission of a Successor or Additional General Partner................................... 17
Section 6.03. Removal of a General Partner............................................................. 18
Section 6.04. Effect of Incapacity of a General Partner................................................ 18
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ARTICLE VII
TRANSFERABILITY OF BUCS AND LIMITED PARTNERS' INTERESTS
Section 7.01. Free Transferability of BUCs............................................................. 19
Section 7.02. Restrictions on Transfers of BUCs and of Interests of Limited Partners Other Than the
Initial Limited Partner.................................................................. 19
Section 7.03. Assignees of Limited Partners Other Than the Initial Limited Partner..................... 20
Section 7.04. Joint Ownership of Interests............................................................. 21
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
Section 8.01. Events Causing Dissolution............................................................... 21
Section 8.02. Liquidation.............................................................................. 22
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS
Section 9.01. Books and Records........................................................................ 22
Section 9.02. Accounting Basis and Fiscal Year......................................................... 23
Section 9.03. Reports.................................................................................. 23
Section 9.04. Designation of Tax Matters Partner....................................................... 23
Section 9.05. Expenses of Tax Matters Partner.......................................................... 23
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS AND BUC HOLDERS
Section 10.01. Meetings................................................................................. 24
Section 10.02. Voting Rights of Limited Partners and BUC Holders........................................ 25
Section 10.03. Opinion Regarding Effect of Action by Limited Partners and BUC Holders................... 26
Section 10.04. Other Activities......................................................................... 26
ARTICLE XI
ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS TO BUC HOLDERS AND RIGHTS OF BUC HOLDERS
Section 11.01. Assignment of Limited Partnership Interests to BUC Holders............................... 26
Section 11.02. Rights of BUC Holders.................................................................... 27
Section 11.03. Voting by the Initial Limited Partner on Behalf of BUC Holders........................... 27
Section 11.04. Preservation of Tax Status............................................................... 28
ARTICLE XII
MISCELLANEOUS PROVISIONS
Section 12.01. Appointment of the General Partner as Attorney-in-Fact................................... 28
Section 12.02. Signatures............................................................................... 29
Section 12.03. Amendments............................................................................... 29
Section 12.04. Binding Provisions....................................................................... 30
Section 12.05. Applicable Law........................................................................... 30
Section 12.06. Separability of Provisions............................................................... 30
Section 12.07. Captions................................................................................. 30
Section 12.08. Entire Agreement......................................................................... 30
TESTIMONIUM................................................................................................ 31
SCHEDULE A................................................................................................. 32
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AMERICA FIRST TAX EXEMPT INVESTORS, L.P.
AGREEMENT OF LIMITED PARTNERSHIP
This Agreement is made as of [ ], 1998 by and between America First
Capital Associates Limited Partnership Two (the "General Partner") and America
First Fiduciary Corporation Number Five (the "Initial Limited Partner"), who by
joining in this Agreement agree to become partners in a limited partnership
under the laws of the State of Delaware.
ARTICLE I
DEFINED TERMS
The defined terms used in this Agreement shall, unless the context otherwise
requires, have the meanings specified in this Article I. The singular shall
include the plural and the masculine genders shall include the feminine and
neuter gender, and vice versa, as the context requires.
"ACCOUNTANTS" means such nationally recognized firm of independent public
accountants as shall be engaged from time to time by the General Partner on
behalf of the Partnership.
"ACT" means the Delaware Revised Uniform Limited Partnership Act, which
consists of Title 6, Chapter 17 of the Delaware Code Annotated, as it may be
amended or revised from time to time, or any other provision of Delaware law
which may, from time to time, supersede part or all of the Delaware Revised
Uniform Limited Partnership Act.
"ADMINISTRATIVE FEE" means the fee payable to the General Partner that is
described in Section 5.05(a) hereof.
"AFCA" means America First Capital Associates Limited Partnership Two, a
Delaware limited partnership, the General Partner.
"AFFILIATE" means, when used with reference to a specified Person, (i) any
Person who directly or indirectly controls or is controlled by or is under
common control with the specified Person, (ii) any Person who is (or has the
power to designate) an officer of, general partner in or trustee of, or serves
(or has the power to designate a person to serve) in a similar capacity with
respect to, the specified Person, or of which the specified Person is an
officer, general partner or trustee, or with respect to which the specified
Person serves in a similar capacity, and (iii) any Person who, directly or
indirectly, is the beneficial owner of 10% or more of any class of equity
securities of the specified Person or of which the specified Person is directly
or indirectly the owner of 10% or more of any class of equity securities. An
Affiliate of the Partnership or the General Partner does not include any limited
partner of the General Partner if such Person is not otherwise an Affiliate of
the Partnership or the General Partner.
"AGREEMENT" means this Limited Partnership Agreement, as originally executed
and as amended from time to time.
"BANKRUPTCY" or "BANKRUPT" as to any Person means the filing of a petition
for relief by such Person as debtor or bankrupt under the Bankruptcy Code of
1978 or like provision of law or insolvency of such Person as finally determined
by a court proceeding.
"BOND" or "BONDS" means the tax-exempt housing bonds issued by various state
or local authorities in order to provide construction and permanent financing
for apartment complexes and which are held by the Partnership from time to time.
"BUC" means a Limited Partnership Interest which is credited to the Initial
Limited Partner on the books and records of the Partnership and assigned by the
Initial Limited Partner to a BUC Holder.
"BUC HOLDER" means any Person who has been assigned one or more Limited
Partnership Interests by the Initial Limited Partner pursuant to Section 11.01.
A BUC Holder is not a Limited Partner and will have no right to be admitted as a
Limited Partner.
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"BUSINESS DAY" means any day other than a Saturday, Sunday or a day on which
banking institutions in either New York, New York or Omaha, Nebraska are
obligated by law or executive order to be closed.
"CAPITAL ACCOUNT" means the capital account of a Partner or a BUC Holder as
described in Section 4.06 hereof.
"CAPITAL CONTRIBUTION" means the total amount contributed to the capital of
the Partnership by or on behalf of all Partners or any class of Partners or by
any one Partner, as the context may require (or by the predecessor holders of
the Partnership Interests of such Persons) and, with respect to a BUC Holder,
the Capital Contribution of the Initial Limited Partner made on behalf of such
BUC Holder.
"CAUSE" means conduct which constitutes fraud, bad faith, negligence,
misconduct or breach of a fiduciary duty.
"CERTIFICATE" means the certificate of limited partnership filed pursuant to
Section 17-201 of the Act.
"CODE" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision or provisions of succeeding law.
"CONSENT" means either the consent given by a vote at a meeting called and
held in accordance with the provisions of Section 10.01 hereof or the written
consent, as the case may be, of a Person to do the act or thing for which the
consent is solicited, or the act of granting such consent, as the context may
require. Consent given after the act or thing is done with respect to which the
Consent is solicited shall be deemed to relate back to the date such act or
thing was done.
"CONTINGENT INTEREST" means (i) any Interest Income paid from the net cash
flow of a Project (or any Residual Proceeds paid from the proceeds of a Sale or
refinancing of the Project), the payment of either of which is not required
under the terms of the Mortgage Investment unless there is specified cash flow
from a Project or other specified contingencies are satisfied, and (ii) any
amounts received by the Partnership on the sale or other disposition of a
Mortgage Investment other than amounts representing repayment of principal and
amounts constituting Interest Income.
"COUNSEL" means the law firm representing the General Partner in connection
with the operation of the Partnership or the law firm, if any, selected by the
General Partner to represent the Partnership.
"DISTRIBUTION DATE" means a Business Day selected by the General Partner for
the distribution of Net Interest Income or Net Residual Proceeds with respect to
a Distribution Period, which Business Day shall be no later than 60 days
following the last day of the Distribution Period to which such Distribution
Date relates.
"DISTRIBUTION PERIOD" means the period of time selected by the General
Partner for which the distribution of Net Interest Income or Net Residual
Proceeds is made, which period may be no longer than six calendar months.
"GENERAL PARTNER" means AFCA or any Person or Persons who, at the time of
reference thereto, have been admitted as successors to the Partnership Interest
of AFCA or as additional General Partners, in each such Person's capacity as a
General Partner.
"INCAPACITY" or "INCAPACITATED" means, as to any Person, death, the
adjudication of incompetency or insanity, Bankruptcy, dissolution, termination,
withdrawal pursuant to Section 6.01 or removal pursuant to Section 6.03, as the
case may be, of such Person.
"INCOME" means the taxable income of the Partnership as determined in
accordance with the Partnership's method of accounting and computed under
Section 703 of the Code; any item of taxable income required to be separately
stated on the Partnership's federal income tax return pursuant to
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Section 703(a)(1) of the Code; and any income of the Partnership excluded from
the gross income of the Partnership for federal income tax purposes under
Section 103 of the Code.
"INITIAL LIMITED PARTNER" means America First Fiduciary Corporation Number
Five, a Nebraska corporation, or any Person or Persons who, at the time of
reference thereto, have been admitted to the Partnership, with the consent of
the General Partner, as successors to the Limited Partnership Interest of
America First Fiduciary Corporation Number Five.
"INTEREST INCOME" means all cash receipts of the Partnership with respect to
any period except for (i) Capital Contributions, (ii) amounts received by the
Partnership upon a Repayment or upon the sale or other disposition of a Mortgage
Investment, Tax Exempt Investment or other Partnership asset which do not
represent accrued interest on the Mortgage Investment or Tax Exempt Investment
other than accrued interest which represents accrued Contingent Interest, or
(iii) the proceeds of any loan to the Partnership or the refinancing of any
loan, including proceeds received from the reissuance of any Mortgage Investment
or Tax Exempt Investment.
"LIMITED PARTNER" means any Person who is a Limited Partner, including the
Initial Limited Partner, at the time of reference thereto, in such Person's
capacity as a Limited Partner of the Partnership. A BUC Holder is not a Limited
Partner and has no right to be admitted as a Limited Partner.
"LIMITED PARTNERSHIP INTEREST" means the Partnership Interest held by a
Limited Partner, including the Limited Partnership Interests assigned to BUC
Holders.
"LIQUIDATION PROCEEDS" means all cash receipts of the Partnership (other
than Operating Income and Sale Proceeds) arising from the liquidation of the
Partnership's assets in the course of the dissolution of the Partnership.
"LOSS" means taxable losses of the Partnership, as determined in accordance
with the Partnership's method of accounting and computed under Section 703 of
the Code; any item of loss or expense required to be separately stated on the
Partnership's federal income tax return pursuant to Section 703(a)(1) of the
Code; and any expenditures of the Partnership not deductible in computing its
taxable income and not properly treated as a capital expenditure.
"MERGER AGREEMENT" means the Amended Agreement of Merger, dated June 12,
1998, by and between the Partnership and the Prior Partnership pursuant to which
the Partnership and the Prior Partnership will be merged in accordance with the
provisions of the Act with the Partnership being the surviving partnership.
"MERGER DATE" means the effective date of the merger of the Partnership and
the Prior Partnership specified in the Merger Agreement.
"MONTHLY RECORD DATE" means the last day of a calendar month.
"MORTGAGE INVESTMENT" means a direct or indirect interest in a tax-exempt
mortgage revenue bond secured by a Property, including residual interests in one
or more trusts which hold tax-exempt mortgage revenue bonds, and any other loan
(whether or not the interest thereon is exempt from federal income taxation)
secured by a mortgage on a Property on which the Partnership also directly or
indirectly holds a tax-exempt mortgage revenue bond.
"NET INTEREST INCOME" means, with respect to any Distribution Period, all
Interest Income received by the Partnership during such Distribution Period,
plus any amounts previously set aside as Reserves from Interest Income which the
General Partner releases from Reserves as being no longer necessary to hold as
part of Reserves, less (i) expenses of the Partnership (including fees and
reimbursements paid to the General Partner but excluding any expenses of the
Partnership which are directly attributable to the sale of a Mortgage Investment
or Tax Exempt Investment) paid from Interest Income during the Distribution
3
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Period (other than operating expenses paid from previously established
Reserves), (ii) all cash payments made from Interest Income during such
Distribution Period to discharge Partnership indebtedness, and (iii) all amounts
from Interest Income set aside as Reserves or used to acquire additional
Mortgage Investments or Tax Exempt Investments during such Distribution Period.
Net Interest Income will consist of Net Interest Income (Tier 1), Net Interest
Income (Tier 2) and Net Interest Income (Tier 3). During each Distribution
Period the additions and deductions from Interest Income set forth above shall
be first applied against Net Interest Income (Tier 1).
"NET INTEREST INCOME (TIER 1)" means, with respect to any Distribution
Period, all Net Interest Income, other than Contingent Interest, received by the
Partnership during such Distribution Period.
"NET INTEREST INCOME (TIER 2)" means, with respect to any Distribution
Period, all Net Interest Income representing Contingent Interest received by the
Partnership during such Distribution Period up to an amount which, when combined
with all prior amounts of Contingent Interest distributed pursuant to Sections
4.02(b) and 4.03(b), aggregates 0.9% per annum of the principal amount of the
Mortgage Investments during the period such Mortgage Investments are held by the
Partnership or the Predecessor Partnership.
"NET INTEREST INCOME (TIER 3)" means, with respect to any Distribution
Period, all Net Interest Income representing Contingent Interest received by the
Partnership during such Distribution Period in excess of any Contingent Interest
included in Net Interest Income (Tier 2).
"NET RESIDUAL PROCEEDS" means, with respect to any Distribution Period, all
Residual Proceeds received by the Partnership during such Distribution Period,
plus any amounts previously set aside as Reserves from Residual Proceeds which
the General Partner releases from Reserves as being no longer necessary to hold
as part of Reserves, less (i) all expenses of the Partnership which are directly
attributable to a Repayment or sale or other disposition of a Mortgage
Investment or Tax Exempt Investment, (ii) all cash payments made from Residual
Proceeds during such Distribution Period to discharge Partnership indebtedness
and (iii) all amounts from Residual Proceeds set aside as Reserves or used to
acquire additional Mortgage Investments or Tax Exempt Investments during such
Distribution Period or held by the Partnership to acquire additional Mortgage
Investments or Tax Exempt Investments in future Distribution Periods. Net
Residual Income will consist of Net Residual Income (Tier 1), Net Interest
Residual (Tier 2) and Net Residual Income (Tier 3). During each Distribution
Period the additions and deductions from Residual Income set forth above shall
be first applied against Net Residual Income (Tier 1).
"NET RESIDUAL PROCEEDS (TIER 1)" means, with respect to any Distribution
Period, all Net Residual Proceeds received by the Partnership during such
Distribution Period representing the principal amount of a Mortgage Investment
or Tax Exempt Investment which is the subject of a Repayment, sale or other
disposition, plus any amounts previously set aside as Reserves from Residual
proceeds which the General Partner releases from Reserves for distribution.
"NET RESIDUAL PROCEEDS (TIER 2)" means, with respect to any Distribution
Period, all Net Residual Proceeds representing Contingent Interest received by
the Partnership during such Distribution Period up to an amount which, when
combined with all prior amounts of Contingent Interest distributed pursuant to
Sections 4.02(b) and 4.03(b) and the Contingent Interest to be distributed by
the Partnership pursuant to Section 4.02(b) for the current Distribution Period,
aggregates 0.9% per annum of the principal amount of the Mortgage Investments
during the period such Mortgage Investments are held by the Partnership or the
Predecessor Partnership.
"NET RESIDUAL PROCEEDS (TIER 3)" means, with respect to any Distribution
Period, all Net Residual Proceeds representing Contingent Interest received by
the Partnership during such Distribution Period in excess of any Contingent
Interest included in Net Residual Proceeds (Tier 2).
4
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"NOTICE" means a writing, containing the information required by this
Agreement to be communicated to any Person, personally delivered to such Person
or sent by registered, certified or regular mail, postage prepaid, to such
Person at the last known address of such Person.
"PARTNER" means the General Partner or any Limited Partner.
"PARTNERSHIP" means the limited partnership created by this Agreement and
known as the America First Tax Exempt Investors, L.P., as said limited
partnership may from time to time be constituted.
"PARTNERSHIP INTEREST" means the entire ownership interest of a Partner in
the Partnership at any particular time, including the right of such Partner to
any and all benefits to which a Partner may be entitled under this Agreement,
together with the obligations of such Partner to comply with all the terms and
provisions of this Agreement and the Act.
"PERSON" means any individual, partnership, corporation, trust, association
or other legal entity.
"PRIOR PARTNERSHIP" means America First Tax Exempt Mortgage Fund Limited
Partnership, a Delaware limited partnership.
"PRIOR PARTNERSHIP AGREEMENT" means the Agreement of Limited Partnership,
dated November 11, 1985, of the Prior Partnership.
"PROPERTY" or "PROPERTIES" means the real property, including land and the
buildings thereon, which is secured by a mortgage or other similar encumbrance
backing a Mortgage Investment held by the Partnership.
"REPAYMENT" means the payment of the outstanding principal, and Contingent
Interest, if any, upon the maturity of a Mortgage Investment or Tax Exempt
Investment or at such earlier time as the Partnership may require the payment of
outstanding principal.
"REGULATIONS" means the United States Treasury Regulations promulgated or
proposed under the Code.
"RESERVE" means such amount of funds as shall be withheld from Capital
Contributions, Interest Income or Residual Proceeds by the General Partner from
time to time in order to provide working capital for the Partnership and which
may be used for any purpose relating to the operation of the Partnership and its
Mortgage Investments and Tax Exempt Investments, including the acquisition of
additional Mortgage Investments and Tax Exempt Investments.
"RESIDUAL PROCEEDS" means all amounts received by the Partnership upon a
Repayment or upon the sale of or other disposition of a Mortgage Investment or a
Tax Exempt Investment or other Partnership asset except for amounts representing
accrued interest on a Mortgage Investment (other than accrued Contingent
Interest) or Tax Exempt Investment. Amounts representing accrued interest (other
than accrued Contingent Interest) received by the Partnership upon a Repayment
or upon the sale or other disposition of a Mortgage Investment or Tax Exempt
Investment shall be included in Interest Income. Residual Proceeds will not
include any amount received by the Partnership representing proceeds from the
securitization of a Mortgage Investment.
"SCHEDULE A" means the schedule, as amended from time to time, of Partners'
names, addresses and Capital Contributions, which schedule, in its initial form,
is attached to and made a part of this Agreement.
"TAX EXEMPT INVESTMENTS" means any securities, other than Mortgage
Investments, the interest on which is exempt from federal income taxation and
which are rated in one of the four highest rating categories by at least one
nationally recognized rating agency which are acquired by the Partnership and
not held in the Reserve.
5
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"TAX MATTERS PARTNER" means the Partner designated as the Tax Matters
Partner of the Partnership by the General Partner pursuant to Section 9.04.
ARTICLE II
NAME, PLACE OF BUSINESS, PURPOSE
AND TERM
SECTION 2.01. NAME. The Partners have caused the formation a limited
partnership pursuant to the Act under the name of "America First Tax Exempt
Investors, L.P." The Partners and BUC Holders have entered into this Agreement
in order to set forth their respective rights and liabilities as such, subject
to the provisions of the Act unless otherwise provided herein.
SECTION 2.02. PRINCIPAL OFFICE AND NAME AND ADDRESS OF RESIDENT AGENT. The
address of the principal office and place of business of the Partnership, unless
hereafter changed by the General Partner, shall be Suite 400, 1004 Farnam
Street, Omaha, Nebraska 68102. Notification of any change in the Partnership's
principal office and place of business shall be promptly given by the General
Partner to the Limited Partners and BUC Holders. The name and address of the
initial resident agent of the Partnership in the State of Delaware is The
Corporation Trust Company, 1209 Orange Street, Wilmington, Delaware 19801. The
resident agent may be changed by the General Partner.
SECTION 2.03. PURPOSE. The purpose of the Partnership is to acquire, hold,
sell and otherwise deal with tax-exempt mortgage bonds and other tax-exempt
instruments backed by multifamily residential properties. The Partnership will
pursue its purpose in order (i) to preserve and protect the Partnership's
capital, (ii) to provide regular cash distribution to the BUC Holders and (iii)
to provide a potential for an enhanced federally tax-exempt yield from
Contingent Interest payable from the net cash flow from the Properties and from
the net proceeds of a sale or refinancing of the Properties. The Partnership is
authorized to hold Mortgage Investments and Tax Exempt Investments, to foreclose
on Properties secured by Mortgage Investments, to sell all or a portion of its
interest in a Mortgage Investment and to reinvest the proceeds therefrom in
additional Mortgage Investments or Tax Exempt Investment on such terms and
conditions as the General Partner shall determine in its sole discretion and to
engage in any and all acts necessary, appropriate, advisable or incidental to
its purpose and to the conduct of its business.
SECTION 2.04. TERM. The Partnership began on the date of the filing of the
Certificate and shall continue in full force and effect until December 31, 2050
or until sooner dissolved pursuant to the provisions of this Agreement.
ARTICLE III
PARTNERS AND CAPITAL
SECTION 3.01. GENERAL PARTNER.
(a) The name, address and Capital Contribution of the General Partner
(which shall be measured by its capital account in the Prior Partnership on
the Merger Date) are set forth in Schedule A. The General Partner, as such,
shall not be required to make any additional Capital Contribution to the
Partnership, except as provided in paragraph (b) of this Section 3.01.
(b) Upon the dissolution and termination of the Partnership, the General
Partner will contribute to the Partnership an amount equal to the lesser of
(i) any deficit balance in its Capital Account or (ii) the excess of (A)
1.01% of the Capital Contributions of the Limited Partners to the
Partnership (including the Capital Contribution of the Initial Limited
Partner made on behalf of the BUC Holders) over (B) the amount of previous
Capital Contributions made by the General Partner to the Partnership.
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SECTION 3.02. LIMITED PARTNER. The name, address and Capital Contribution
of the Limited Partner (which initially shall be measured by its capital account
in the Prior Partnership on the Merger Date) are as set forth in Schedule A. The
Capital Contribution made by the Initial Limited Partner shall be deemed to have
been made on behalf of, and as trustee for, the BUC Holders. Neither the Initial
Limited Partner nor the BUC Holders shall be required to make any additional
Capital Contribution to the Partnership. Other than to serve as Initial Limited
Partner, the Initial Limited Partner shall have no other business purpose and
shall not engage in any other activity or incur any debts. The Initial Limited
Partner agrees not to amend its articles of incorporation with respect to the
incurrence of debt without the written Consent of a majority in interest of the
BUC Holders.
SECTION 3.03. PARTNERSHIP CAPITAL.
(a) No Partner or BUC Holder shall be paid interest on any Capital
Contribution.
(b) Except as specifically provided in Section 6.03, the Partnership
shall not be required to redeem or repurchase any Partnership Interest or
BUC and no Partner or BUC Holder shall have the right to withdraw, or
receive any return of, his Capital Contribution. Under circumstances
requiring a return of any Capital Contribution, no Limited Partner or BUC
Holder will have the right to receive property other than cash.
(c) No Limited Partner or BUC Holder shall have any priority over any
other Limited Partner or BUC Holder as to the return of his Capital
Contribution or as to distributions.
(d) The General Partner shall have no liability for the repayment of the
Capital Contributions.
SECTION 3.04. LIABILITY OF PARTNERS AND BUC HOLDERS. No Limited Partner or
BUC Holder shall be required to lend any funds to the Partnership or, after his
Capital Contribution has been paid, to make any further Capital Contribution to
the Partnership. The liability of any Limited Partner or BUC Holder for the
losses, debts, liabilities and obligations of the Partnership shall, so long as
the Limited Partner or BUC Holder complies with Section 5.01(b), be limited to
his Capital Contribution and his share of any undistributed Income of the
Partnership. Notwithstanding the foregoing, it is possible that, under
applicable law, a Limited Partner or BUC Holder may be liable to the Partnership
to the extent of previous distributions made to such Limited Partner or BUC
Holder if such distributions have caused the liabilities of the Partnership to
exceed the fair value of its assets. To the extent that the Initial Limited
Partner is required by law to return any distributions or repay any amount, each
BUC Holder who has received any portion of such distributions agrees, by virtue
of accepting such distribution, to pay his proportionate share of such amount to
the Initial Limited Partner immediately upon Notice by the Initial Limited
Partner to such BUC Holder. In lieu of requiring return of such distributions
from BUC Holders, the General Partner may withhold future distributions of Net
Interest Income, Net Residual Proceeds or Liquidation Proceeds until the amount
so withheld equals the amount of the distributions the Initial Limited Partner
is required to repay or return regardless of whether the BUC Holders entitled to
receive such distribution were the same BUC Holders who actually received the
distribution required to be returned. In the event that the Initial Limited
Partner is determined to have unlimited liability for losses, debts, liabilities
and obligations of the Partnership, nothing set forth in this Section shall be
construed to require BUC Holders to assume any portion of such liability.
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ARTICLE IV
DISTRIBUTIONS OF CASH;
ALLOCATIONS OF INCOME AND LOSS
SECTION 4.01. DISTRIBUTIONS OF NET INTEREST INCOME.
(a) On each Distribution Date, all Net Interest Income (Tier 1 and Tier
3) with respect to the related Distribution Period will be distributed 99%
to the Limited Partners and BUC Holders as a class and 1% to the General
Partner.
(b) On each Distribution Date, all Net Interest Income (Tier 2) will be
allocated 75% to the Limited Partners and BUC Holders as a class and 25% to
the General Partner.
SECTION 4.02. DISTRIBUTIONS OF NET RESIDUAL PROCEEDS AND OF LIQUIDATION
PROCEEDS.
(a) On each Distribution Date, all amounts representing Net Residual
Proceeds (Tier 1 and Tier 3) will be distributed 100% to the Limited
Partners and BUC Holders as a class.
(b) On each Distribution Date, all distributions of Net Residual
Proceeds (Tier 2) will be allocated 75% to the Limited Partners and BUC
Holders as a class and 25% to the General Partner.
(c) All Liquidation Proceeds shall be applied and distributed in the
following amounts and order of priority:
(i) to the payment of the amounts and the establishment of the
reserves provided for in Section 8.02(b);
(ii) to the Partners and BUC Holders in accordance with the positive
balances in their respective Capital Accounts until such accounts are
reduced to zero; and
(iii) then to the Partners and BUC Holders giving effect to the
provisions of Section 4.02(a) as if such Liquidation Proceeds constituted
Net Residual Proceeds for purposes of such Section.
SECTION 4.03. ALLOCATION OF INCOME AND LOSS FROM OPERATIONS.
(a) Income and Loss shall be determined in accordance with the
accounting methods followed by the Partnership for federal income tax
purposes and otherwise in accordance with generally accepted accounting
principles. For purposes of determining the Income, Loss, tax credits or any
other items allocable to any period, Income, Loss, tax credits and any such
other items shall be determined on a daily, monthly or other basis, as
determined by the General Partner using any permissible method under Section
706 of the Code and the Regulations thereunder. An allocation to a Partner
of a share of Income or Loss under this Section 4.03 shall be treated as an
allocation to such Partner of the same share of each item of income, gain,
loss, deduction and credit that is taken into account in computing such
Income and Loss.
(b) Subject to the provisions of Sections 4.03(c) and (d) and 5.04(m),
Income and Loss for each Distribution Period not arising from the sale or
other disposition of a Mortgage Investment or Tax Exempt Investments or the
liquidation of the Partnership shall be allocated 1% to the General Partner
and 99% to the Limited Partners and the BUC Holders as a class.
(c) Notwithstanding any provision hereof to the contrary, if a Partner
has a deficit Capital Account balance as of the last day of any fiscal year,
then all items of Income for such fiscal year shall be first allocated to
such Partner in the amount and in the manner necessary to eliminate such
deficit Capital Account balance.
(d) Notwithstanding any other provision of this Agreement, all
allocations of Income and Loss shall be subject to and interpreted in
accordance with Section 704 of the Code to the extent
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applicable. The foregoing allocations are intended to comply with Section
704 of the Code and the Regulations thereunder and shall be interpreted
consistently therewith.
SECTION 4.04. ALLOCATION OF INCOME AND LOSS ARISING FROM A REPAYMENT, SALE
OR LIQUIDATION.
(a) Subject to Section 4.03(c), Income arising from a Repayment or a
sale or other disposition of a Mortgage Investment or Tax Exempt Investments
or from the liquidation of the Partnership assets shall be allocated (i)
first, to the General Partner in an amount equal to the Net Residual
Proceeds distributed to the General Partner from the transaction pursuant to
Section 4.02 and (ii) second, the balance to the Limited Partners and the
BUC Holders as a class.
(b) Loss arising from a Repayment or a sale or other disposition of a
Mortgage Investment or Tax Exempt Investments or from the liquidation of
Partnership assets shall be allocated among the Partners (including the
Initial Limited Partner on behalf of the BUC Holders) in the same manner as
Net Residual Proceeds or Liquidation Proceeds are allocated among the
Partners pursuant to Section 4.02.
SECTION 4.05. DETERMINATION OF ALLOCATIONS AND DISTRIBUTIONS AMONG LIMITED
PARTNERS AND BUC HOLDERS.
(a) As of each Monthly Record Date during the term of the Partnership, a
determination shall be made of the amount of Income and Loss which, under
the Partnership's method of accounting, is properly attributable to the
month to which such Monthly Record Date relates and which was allocable to
the Limited Partners and BUC Holders as a class in accordance with Sections
4.04 and 4.05.
(b) As of the last day of each Distribution Period during the term of
the Partnership, a determination shall be made of the amount of Net Interest
Income and Net Residual Proceeds available to the Partnership during such
Distribution Period which was allocated for distribution to the Limited
Partners and BUC Holders in accordance with Sections 4.01 and 4.02;
provided, however, that the General Partner may elect to make the
determination under this Section 4.05(b) as of each Monthly Record Date.
(c) All allocations to the Limited Partners and the BUC Holders as a
class pursuant to Section 4.03 shall be made on a monthly basis among the
Limited Partners or BUC Holders who held of record a Limited Partnership
Interest or BUC as of the Monthly Record Date in the ratio that (i) the
number of Limited Partnership Interests or BUCs held of record by each such
Limited Partner or BUC Holder as of the Monthly Record Date bears to (ii)
the aggregate number of Limited Partnership Interests and BUCs outstanding
on each such Monthly Record Date.
(d) All allocations to the Limited Partners and the BUC Holders as a
class pursuant to Section 4.04 shall be made among the Limited Partners or
BUC Holders of record on the Monthly Record Date for the month during which
the Income or Expense arose from a Repayment, sale or other liquidation of a
Mortgage Investment or Tax Exempt Investments or liquidation of the
Partnership, in the ratio that (i) the number of Limited Partnership
Interests or BUCs held of record by each such Limited Partner or BUC Holder
on such Monthly Record Date bears to (ii) the number of Limited Partnership
Interests or BUCs outstanding on such Monthly Record Date.
(e) Net Interest Income and Net Residual Proceeds will be allocated to
the Limited Partners or BUC Holders of record on the last day of the
Distribution Period (or, if the General Partner so elects, on each Monthly
Record Date during such Distribution Period) in the ratio that (i) the
number of Limited Partnership Interests or BUCs owned of record by each such
Limited Partner or BUC Holder on each such date bears to (ii) the number of
Limited Partnership Interests or BUCs outstanding on such date.
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SECTION 4.06. CAPITAL ACCOUNTS. A separate Capital Account shall be
maintained and adjusted for each Partner in accordance with the Code and the
Regulations. There shall be credited to each Partner's Capital Account the
amount of such Partner's Capital Contribution and such Partner's share of
Income; and there shall be charged against each Partner's Capital Account the
amount of such Partner's share of Loss and cash distributions. The Initial
Limited Partner's Capital Account shall be subdivided into separate Capital
Accounts to reflect the interest of each BUC Holder. Any items credited or
charged to the BUC Holders shall be reflected in the Capital Account of the
Initial Limited Partner and in the subaccounts reflecting the interest of each
BUC Holder. Any person who acquires a Limited Partnership Interest or a BUC from
a Limited Partner or BUC Holder shall have a Capital Account equal to the
Capital Account of the Limited Partner or BUC Holder from which such Limited
Partnership Interest or BUC was acquired.
SECTION 4.07. RIGHTS TO DISTRIBUTIONS. Each holder of Partnership
Interests and BUCs shall look solely to the assets of the Partnership for all
distributions with respect to the Partnership, his Capital Contributions and his
share of Net Interest Income, Net Residual Proceeds and Liquidation Proceeds
and, except as provided in Section 3.01(b), shall have no recourse therefor,
upon dissolution or otherwise, against the General Partner or the Initial
Limited Partner. No Partner or BUC Holder shall have any right to demand or
receive property other than cash upon dissolution and termination of the
Partnership. All distributions pursuant to this Article IV are subject to the
provisions of Section 3.04.
ARTICLE V
RIGHTS, OBLIGATIONS AND POWERS
OF THE GENERAL PARTNER
SECTION 5.01. MANAGEMENT OF THE PARTNERSHIP.
(a) The General Partner, within the authority granted to it under this
Agreement, shall have full, complete and exclusive discretion to manage and
control the business of the Partnership and to carry out the purposes of the
Partnership. In so doing, the General Partner shall use its best efforts to
take all actions necessary or appropriate to protect the interests of the
Limited Partners and the BUC Holders. All decisions made for and on behalf
of the Partnership by the General Partner shall be binding upon the
Partnership. Except as otherwise provided in this Agreement, the General
Partner shall have all the rights and powers and shall be subject to all the
restrictions and liabilities of a partner in a partnership without limited
partners.
(b) No Limited Partner or BUC Holder shall take part in the management
or control of the business of the Partnership or transact any business in
the name of the Partnership. No Limited Partner or BUC Holder shall have the
power or authority to bind the Partnership or to sign any agreement or
document in the name of the Partnership. No Limited Partner or BUC Holder
shall have any power or authority with respect to the Partnership except
insofar as the vote or Consent of the Limited Partners or BUC Holders shall
be expressly required or permitted by this Agreement.
SECTION 5.02. AUTHORITY OF THE GENERAL PARTNER.
(a) Subject to Sections 5.03 and 5.04, but otherwise without in any way
limiting the power and authority conferred on the General Partner by Section
5.01(a), the General Partner, for and in the name and on behalf of the
Partnership, is hereby authorized, without limitation:
(i) to acquire, hold, refund, reissue, remarket, securitize,
transfer, foreclose upon, sell or otherwise deal with the Mortgage
Investments and Tax Exempt Investments (provided, that the acquisition by
the Partnership of any Tax Exempt Investment may not cause the aggregate
book value of all Tax Exempt Investments then held by the Partnership to
exceed 25% of the total assets of the Partnership) and to negotiate,
enter into, and deliver any and all agreements, documents and instruments
of any nature whatsoever with respect thereto on such terms, and subject
to such conditions, as it determines in its sole discretion;
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(ii) to acquire by purchase, lease, exchange or otherwise any real
or personal property to be used in connection with the business of the
Partnership; provided, however, that no property may be acquired from the
General Partner or its Affiliates except for goods and services provided
subject to the restrictions of Section 5.03;
(iii) to issue additional BUCs and to borrow money and issue
evidences of indebtedness and to secure the same by a pledge, lien,
mortgage or other encumbrance on any assets of the Partnership and to
apply to proceeds of such transactions to the acquisition of Mortgage
Investments and Tax Exempt Investments or such other proper Partnership
purpose as the General Partner shall determine in its sole discretion;
(iv) to employ agents, accountants, attorneys, consultants and other
Persons that are necessary or appropriate to carry out the business and
operations of the Partnership and to pay fees, expenses and other
compensation to such Persons; provided, that if such Persons are
Affiliates of the General Partner, the terms of such employment shall be
subject to the restrictions of Section 5.03;
(v) to pay, extend, renew, modify, adjust, submit to arbitration,
prosecute, defend or compromise, upon such terms as it may determine and
upon such evidence as it may deem sufficient, any obligation, suit,
liability, cause of action or claim, including taxes, either in favor of
or against the Partnership;
(vi) except as otherwise expressly provided herein, to determine the
appropriate accounting method or methods to be used by the Partnership;
(vii) except as prohibited by this Agreement, to cause the
Partnership to make or revoke any of the elections referred to in the
Code or any similar provisions enacted in lieu thereof, including, but
not limited to, those elections provided for in Code Sections 108, 709
and 1017;
(viii) to amend the Certificate or this Agreement to reflect the
addition or substitution of Partners and to amend this Agreement as
provided in Section 12.03;
(ix) to deal with, or otherwise engage in business with, or provide
services to and receive compensation therefor from, any Person who has
provided or may in the future provide any services to, lend money to,
sell property to or purchase property from the General Partner or any of
its Affiliates;
(x) to obtain loans from the General Partner or its Affiliates,
provided that the requirements of Section 5.03(d)(iii) are met;
(xi) to establish and maintain the Reserve in such amounts as it
deems appropriate from time to time and to increase, reduce or eliminate
the Reserve as it deems appropriate from time to time;
(xii) to invest all funds not immediately needed in the operation of
the business including, but not limited to, (A) Capital Contributions,
(B) the Reserves or (C) Net Interest Income and Net Residual Proceeds
prior to their distribution to the Partners and BUC Holders or their
reinvestment in Mortgage Investments and Tax Exempt Investments;
(xiii) to acquire BUCs for the account of the Partnership in the
secondary trading market, provided that the BUCs are listed on The Nasdaq
Stock Market or a national securities exchange and to cause such BUCs to
be cancelled; and
(xiv) to engage in any kind of activity and to enter into, perform
and carry out contracts of any kind necessary or incidental to, or in
connection with, the accomplishment of the purposes of the Partnership.
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(b) With respect to all of its obligations, powers and responsibilities
under this Agreement, the General Partner is authorized to execute and
deliver, for and on behalf of the Partnership, such notes and other
evidences of indebtedness, contracts, trust instruments, agreements,
assignments, deeds, loan agreements, mortgages, deeds of trust, leases and
such other documents as it deems proper, all on such terms and conditions as
it deems proper.
(c) No Person dealing with the General Partner shall be required to
determine the General Partner's authority to enter into any contract,
agreement or undertaking on behalf of the Partnership or to determine any
facts or circumstances bearing upon the existence of such authority. Any
Person dealing with the Partnership or the General Partner may rely upon a
certificate signed by the General Partner as to:
(i) the identity of the General Partner or any BUC Holder or Limited
Partner;
(ii) the existence or nonexistence of any fact or facts which
constitute a condition precedent to acts by the General Partner or are in
any other manner germane to the affairs of the Partnership;
(iii) the Persons who are authorized to execute and deliver any
instrument or document by or on behalf of the Partnership; or
(iv) any act or failure to act by the Partnership or as to any other
matter whatsoever involving the Partnership or any Partner.
SECTION 5.03. AUTHORITY OF GENERAL PARTNER AND ITS AFFILIATES TO DEAL WITH
PARTNERSHIP.
(a) The General Partner and its Affiliates may, and shall have the right
to, provide goods and services to the Partnership (including the right to
act as property manager of a Property or servicer of any Mortgage
Investment), subject to the conditions set forth in Section 5.03(b).
(b) The General Partner and its Affiliates shall not have the right to
contract or otherwise deal with the Partnership for the provision of goods
and services, except for those dealings, contracts or provisions of services
described in this Agreement. The provision of any goods and services by the
General Partner or its Affiliates shall be part of its or their ordinary and
ongoing business in which it or they have previously engaged, independent of
the activities of the Partnership and such goods and services being provided
shall be reasonable for and necessary to the Partnership, shall actually
furnished to the Partnership and (except as provided in Section 5.05(f)
hereof) shall be provided at the lower of the actual cost of such goods or
services or the competitive price charged for such goods or services by
independent parties for comparable goods and services in the same geographic
location and the provision of such goods and services in all other respects
meets the requirements of Section 5.03(c) and (d). The costs of verifying
that the amounts paid to the General Partner or its Affiliates for such
goods and services meet the foregoing standard may be reimbursed to the
General Partner or its Affiliates only to the extent that, when added to the
costs of such goods and services rendered, such sum does not exceed the
competitive rate for such goods and services.
(c) All goods and services provided by the General Partner or any
Affiliates pursuant to Section 5.03(b) shall be rendered pursuant to this
Agreement or a written contract, which contract precisely describes the
services to be rendered and all compensation to be paid and shall contain a
clause allowing termination without penalty on 60 days' Notice to the
General Partner by the vote of the majority in interest of the Limited
Partners and the BUC Holders (the Initial Limited Partner acting according
to direction of the BUC Holders). Any payment made to the General Partner or
any Affiliate for such goods and services shall be fully disclosed to all
Limited Partners and BUC Holders in the reports required under this
Agreement. Neither the General Partner nor any Affiliate shall, by the
making of lump sum payments to any other Person for disbursement by such
other Person, circumvent the provisions of Section 5.03(b), (c) or (d).
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(d) The General Partner is prohibited from entering into any agreements,
contracts or arrangements on behalf of the Partnership with the General
Partner or any Affiliate of the General Partner under which:
(i) the General Partner or any Affiliate shall be given an exclusive
right to sell, or exclusive employment to sell, a Property;
(ii) the Partnership lends money to the General Partner or any
Affiliate of the General Partner; or
(iii) the General Partner or any Affiliate of the General Partner
makes a loan to the Partnership which provides for a prepayment penalty
or provides for an interest rate or other finance charges and fees which
are in excess of the lesser of (A) amounts charged by unrelated banks on
comparable loans to the Partnership or (B) the same rate as the General
Partner or such Affiliate paid to obtain the funds to make the loan to
the Partnership.
(e) Notwithstanding any provisions of this Section 5.03, neither the
General Partner nor any of its Affiliates shall:
(i) receive any rebate or give-up, or participate in any reciprocal
arrangement, which would circumvent the provisions of this Section 5.03;
or
(ii) receive any compensation for providing insurance brokerage
services to the Partnership; or
(iii) charge the Partnership for, or take from any other Person, any
program management, real estate brokerage or mortgage servicing fee with
respect to Partnership property or assets.
(f) Nothing in this Section 5.03 shall prevent an Affiliate of the
General Partner from acquiring and holding debt securities or other
interests secured by a Property, provided that the Mortgage Investment held
by the Partnership that is secured by the same Property may not be junior or
subordinate to the interest held by such Affiliate.
SECTION 5.04. GENERAL RESTRICTIONS ON AUTHORITY OF THE GENERAL PARTNER. In
exercising management authority and control of the Partnership, the General
Partner, on behalf of the Partnership and in furtherance of the business of the
Partnership, shall have the authority to perform all acts which the Partnership
is authorized to perform. However, the General Partner shall not have any
authority to:
(a) perform any act in violation of this Agreement or any applicable law
or regulation thereunder;
(b) do any act required to be approved or ratified by the Limited
Partners under the Act without Consent of the Limited Partners or the BUC
Holders, unless the right to do so is expressly otherwise given in this
Agreement;
(c) sell or otherwise dispose of all or substantially all of the assets
of the Partnership in a single transaction without the Consent of a majority
in interest of the Limited Partners (including the Initial Limited Partner
acting on behalf of the BUC Holders) as provided in Section 10.02(a)(ii);
provided, however, that this subsection (c) shall not apply to (i) the
transfer of Mortgage Investments to a trust in connection with the
securitization thereof or to the sale of any interest in such trust, or (ii)
the sale of Partnership assets in connection with the liquidation thereof
after the dissolution of the Partnership;
(d) borrow money from the Partnership;
(e) dissolve the Partnership without the Consent of a majority in
interest of the Limited Partners (including the Initial Limited Partner
acting on behalf of the BUC Holders) as provided in Section 10.02(a)(iii);
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(f) possess Partnership property, or assign the Partnership's rights in
specific Partnership property, for other than a Partnership purpose;
(g) admit a Person as a General Partner, except as provided in this
Agreement;
(h) admit a Person as a Limited Partner, except as provided in this
Agreement;
(i) sell, lease or lend Partnership assets to the General Partner or any
Affiliate of the General Partner or purchase or lease property from the
General Partner or its Affiliates, except as permitted by Section
5.02(a)(i);
(j) underwrite the securities of other issuers;
(k) do any act which would make it impossible to carry on the ordinary
business of the Partnership;
(l) knowingly perform any act that would subject any Limited Partner or
BUC Holder to liability as a general partner in any jurisdiction;
(m) allocate any Income or Loss (or any item thereof) to any Partner or
BUC Holder if, and only to the extent that, such allocation will cause the
determinations and allocations of Income or Loss (or any item thereof)
provided for in Article IV hereof not to be permitted by Section 704(b) of
the Code and the Regulations promulgated thereunder;
(n) confess a judgment against the Partnership;
(o) issue equity securities with rights and privileges senior to those
of the BUCs;
(p) make loans to the Partnership or accept loans on behalf of the
Partnership from the General Partner or any Affiliates of the General
Partner, except as provided in Section 5.03(d)(iii);
(q) amend this Agreement, except to the extent the right to amend this
Agreement is expressly provided for in other provisions of this Agreement;
or
(r) invest Partnership funds in (i) securities of other issuers, except
for Mortgage Investments, Tax Exempt Investments and temporary investments
pursuant to Section 5.02(a)(xii), (ii) land contracts, or (iii) unimproved
real estate not associated with a Property.
SECTION 5.05. COMPENSATION AND FEES.
(a) The Partnership will pay the General Partner an Administrative Fee
equal to 0.45% per annum of the outstanding principal balance of any
Mortgage Investment or Tax Exempt Investment for which an unaffiliated party
is not obligated to pay an "administrative fee" to the General Partner under
the terms of such Mortgage Investment or Tax Exempt Investment. The
Administrative Fee will be payable in equal monthly installments in arrears
based on the average outstanding principal balance of such Mortgage
Investments or Tax Exempt Investments held by the Partnership during the
previous month.
(b) Subject to Section 5.05(c), the Partnership will reimburse the
General Partner or its Affiliates on a monthly basis for the actual
out-of-pocket costs of direct telephone and travel expenses incurred by them
on Partnership business, direct out-of-pocket fees, expenses and charges
paid by them to third parties for rendering legal, auditing, accounting,
bookkeeping, computer, printing and public relations services, expenses of
preparing and distributing reports to Limited Partners and BUC Holders, an
allocable portion of the salaries and fringe benefits of employees of AFCA
or its Affiliates, insurance premiums (including premiums for liability
insurance which will cover the Partnership, the General Partner and its
general partner), the cost of compliance with all state and federal
regulatory requirements and stock exchange or NASDAQ listing fees and
charges and other payments to third parties for services rendered to the
Partnership.
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(c) The Partnership will not reimburse the General Partner or its
Affiliates for the travel expenses of the president of the general partner
of the General Partner or for any items of general overhead, including, but
not limited to, rent, utilities or the use of computers, office equipment or
other capital items owned by the General Partner or its Affiliates. The
Partnership will not reimburse the General Partner or its general partner
for any salaries or fringe benefits of any partner of the General Partner or
of the officers or board of managers of its general partner regardless of
whether such persons provide services to the Partnership.
(d) The Accountants will verify on the basis of generally accepted
auditing standards that any amounts reimbursed by the Partnership pursuant
to Section 5.05(c) were incurred by the General Partner or its Affiliates in
connection with the conduct of the business and affairs of the Partnership
or the acquisition and management of its assets and were permissible
reimbursements pursuant to Section 5.05(c).
(e) In the event the Partnership becomes the equity owner of a Property,
due to the foreclosure of a Mortgage Investment or otherwise, the
Partnership will pay the General Partner an administrative fee of 0.45% of
the principal amount of the Mortgage Investment relating to such Property
and may pay the General Partner or an Affiliate a reasonable property
management fee in the event the General Partner deems it to be in the best
interest of the Partnership that it take over active management of the
Property. Notwithstanding anything in Section 5.03, the General Partner may
charge a property management fee not to exceed the lesser of (i) the
competitive price charged for multifamily property management services by
independent parties in the same geographic area as the managed Property or
(ii) 5% of the gross revenues of the managed Property, irrespective of the
General Partner's or such Affiliates cost for providing such services.
(f) Except as provided in this Agreement, the General Partner will
receive no compensation from the Partnership.
SECTION 5.06. DUTIES AND OBLIGATIONS OF THE GENERAL PARTNER.
(a) The General Partner shall devote to the affairs of the Partnership
such time as it deems necessary for the proper performance of its duties
under this Agreement, but neither the General Partner, its general partner
nor any officer or manager of its general partners shall be expected to
devote full time to the performance of such duties.
(b) The General Partner shall take such action as may be necessary or
appropriate for the classification of the Partnership as a partnership for
federal income tax purposes and for the continuation of the Partnership's
valid existence under the laws of the State of Delaware and in order to
qualify the Partnership under the laws of any jurisdiction in which the
Partnership is doing business or in which such qualification is necessary or
appropriate to protect the limited liability of the Limited Partners and BUC
Holders or in order to continue in effect such qualification. The General
Partner shall file or cause to be filed for recordation in the office of the
appropriate authorities of the State of Delaware, and in the proper office
or offices in each other jurisdiction in which the Partnership is qualified,
such certificates, including limited partnership and fictitious name
certificates, and other documents as are required by the applicable
statutes, rules or regulations of any such jurisdiction.
(c) The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any federal, state
or local tax returns required to be filed by the Partnership. The General
Partner shall cause the Partnership to pay any taxes payable by the
Partnership.
(d) The General Partner shall have fiduciary responsibility for the
safekeeping and use of all funds and assets of the Partnership, whether or
not in the General Partner's possession or control. The General Partner
shall not employ, or permit another to employ, such funds or assets in any
manner except for the exclusive benefit of the Partnership. The General
Partner shall take all steps necessary
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to insure that the funds of the Partnership are not commingled with the
funds of any other entity. The General Partner owes the same fiduciary duty
to the BUC Holders as the General Partner owes to the Limited Partners.
SECTION 5.07. DELEGATION OF AUTHORITY. Subject to the provisions of this
Article V, the General Partner may delegate all or any of its powers, rights and
obligations under this Agreement and may appoint, employ, contract or otherwise
deal with any Person for the transaction of the business of the Partnership,
which Person may, under supervision of the General Partner, perform any acts or
services for the Partnership as the General Partner may approve. Notwithstanding
any such delegation, the General Partner shall remain liable for any acts or
omissions by such Person under the standards of responsibility for the General
Partner set forth herein.
SECTION 5.08. OTHER ACTIVITIES. The General Partner and its Affiliates may
engage in or possess interests in other business ventures of every kind and
description for their own accounts, including, without limitation, serving as
general partner of other partnerships which own, either directly or through
interests in other partnerships, investments similar in nature to the Mortgage
Investments and Tax Exempt Investments. Neither the Partnership nor the Partners
or BUC Holders shall have any rights by virtue of this Agreement in or to such
other business ventures or to the income or profits derived therefrom, and the
pursuit of such ventures, even if competitive with the business of the
Partnership, shall not be deemed wrongful, improper or a breach of fiduciary
duty.
SECTION 5.09. LIMITATION ON LIABILITY OF THE GENERAL PARTNER AND INITIAL
LIMITED PARTNER; INDEMNIFICATION.
(a) Neither the General Partner, the Initial Limited Partner nor their
Affiliates (including the officers, managers and members of the general
partner of AFCA) shall be liable, responsible or accountable in damages or
otherwise to the Partnership or to any of the Limited Partners or BUC
Holders for any act or omission performed or omitted by such General Partner
or Initial Limited Partner in good faith and in a manner reasonably believed
by it to be within the scope of the authority granted to it by this
Agreement and in the best interests of the Partnership, provided that such
General Partner's or Initial Limited Partner's conduct did not constitute
Cause. The Partnership shall indemnify and hold harmless the General
Partner, the Initial Limited Partner and their Affiliates (including the
officers, managers and members of the general partner of AFCA) against and
for any loss, liability or damage incurred by any of them or the Partnership
by reason of any act performed or omitted to be performed by them in
connection with the business of the Partnership, including all judgments,
costs and attorneys' fees (which attorneys' fees may be paid as incurred,
except as provided in 5.09(b)) and any amounts expended in settlement of any
claims of liability, loss or damage, provided that the indemnified Person's
conduct did not constitute Cause. The satisfaction of any indemnification
obligation shall be from and limited to Partnership assets, and no Limited
Partner or BUC Holder shall have any personal liability on account thereof.
The termination of any action, suit or proceeding, by judgment or
settlement, shall not, of itself, create a presumption that the indemnified
Person did not act in good faith and in a manner which is reasonably
believed to be in or not opposed to the best interest of the Partnership.
Any indemnification under this subsection, unless ordered by a court, shall
be made by the Partnership only upon a determination by independent legal
counsel in a written opinion that indemnification of the indemnified Person
is proper in the circumstances because he has met the applicable standard of
conduct set forth in this Agreement. Notwithstanding any provision of this
subsection to the contrary, the General Partner shall be presumed to be
personally liable to creditors for the debts of the Partnership.
(b) Notwithstanding the provisions of Section 5.09(a), neither the
General Partner, the Initial Limited Partner nor any officer, director,
manager, partner, member, employee, agent, Affiliate, subsidiary or assign
of the General Partner, the Initial Limited Partner or the Partnership shall
be indemnified with regard to any liability, loss or damage incurred by them
in connection with any claim
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or settlement involving allegations that the Securities Act of 1933, as amended,
or any state securities laws were violated by the General Partner or by any such
other Person unless: (i)(A) the General Partner or other Persons seeking
indemnification are successful in defending such action on the merits of each
count involving such violation, (B) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction or (C) a court of
competent jurisdiction approves a settlement of such claims; and (ii) such
indemnification is specifically approved by a court of law which shall have been
advised as to the then current position of the Securities and Exchange
Commission regarding indemnification for violations of securities laws.
SECTION 5.10. SPECIAL AMENDMENTS TO THE AGREEMENT.
(a) Any provision to the contrary herein notwithstanding, the General
Partner may, without the Consent of the Limited Partners or BUC Holders,
amend Sections 4.03, 4.04 and 4.05 of this Agreement on the advice of
Counsel or the Accountants and upon Notice to the Limited Partners and BUC
Holders mailed 10 days prior to the proposed effectiveness of such amendment
(unless earlier effectiveness is required by law) to the extent necessary to
ensure compliance with the Code and Regulations then in effect, provided
that such amendments do not materially adversely affect the interests of the
Limited Partners and BUC Holders in the sole determination of the General
Partner.
(b) New allocations made by the General Partner in reliance upon the
advice of Counsel or the Accountants pursuant to Section 5.10(a) shall be
deemed to be made pursuant to the fiduciary obligation of the General
Partner to the Partnership, the Limited Partners and the BUC Holders, and no
such new allocation shall give rise to any claim or cause of action by any
Limited Partner or BUC Holder.
(c) The General Partner may take such action as it deems necessary or
appropriate, including action with respect to the manner in which BUCs are
being or may be transferred or traded, in order to preserve the status of
the Partnership as a partnership rather than an association taxable as a
corporation for federal income tax purposes or to insure that BUC Holders
will be treated as limited partners for federal income tax purposes.
ARTICLE VI
CHANGES IN GENERAL PARTNERS
SECTION 6.01. WITHDRAWAL OF GENERAL PARTNER. The General Partner shall not
be entitled to voluntarily withdraw from the Partnership or to sell, transfer or
assign all or a portion of its Partnership Interest as General Partner unless a
substitute General Partner has been admitted in accordance with the conditions
of Section 6.02.
SECTION 6.02. ADMISSION OF A SUCCESSOR OR ADDITIONAL GENERAL PARTNER. The
General Partner may at any time designate additional Persons to be General
Partners, whose Partnership Interest in the Partnership shall be such as shall
be agreed upon by the General Partner and such additional General Partners,
provided that the Partnership Interests of the Limited Partners and the BUC
Holders shall not be reduced thereby. A Person shall be admitted as a General
Partner of the Partnership only if each of the following conditions is
satisfied:
(a) The admission of such Person shall have been Consented to by a
majority in interest of the Limited Partners (including the Initial Limited
Partner voting on behalf of the BUC Holders) as a class;
(b) such Person shall have accepted and agreed to be bound by the terms
and provisions of this Agreement by executing a counterpart hereof, and such
documents or instruments as may be required or appropriate in order to
effect the admission of such Person as a General Partner shall have been
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filed for recording, and all other actions required by law in connection
with such admission shall have been performed;
(c) if such Person is a corporation, it shall have provided the
Partnership evidence satisfactory to Counsel of its authority to become a
General Partner and to be bound by the terms and provisions of this
Agreement; and
(d) the Partnership shall have received an opinion of Counsel that the
admission of such Person is in conformity with the Act and that none of the
actions taken in connection with the admission of such Person is in
violation of the Act.
SECTION 6.03. REMOVAL OF A GENERAL PARTNER. Subject to Section 10.02, a
majority in interest of the Limited Partners (including the Initial Limited
Partner voting on behalf of the BUC Holders) acting together as a class, without
the Consent or other action by the General Partner to be removed, may remove any
General Partner and, subject to the provisions of Sections 6.02 and 8.01(a), may
elect a replacement therefor. After the Limited Partners vote to remove a
General Partner pursuant to this Section 6.03, they shall provide the removed
General Partner with Notice thereof, which Notice shall set forth the date upon
which such removal is to become effective, which date shall be no earlier than
the date upon which the General Partner receives such Notice.
SECTION 6.04. EFFECT OF INCAPACITY OF A GENERAL PARTNER.
(a) Upon the Incapacity of a General Partner, such General Partner shall
immediately cease to be a General Partner. If the Incapacitated General
Partner is not the sole General Partner, the business of the Partnership
shall be continued by the remaining General Partner who shall immediately
(i) give Notice to the Limited Partners and BUC Holders of such Incapacity
and (ii) prepare such amendments to this Agreement and execute and file for
recording such amendments or documents or other instruments necessary to
reflect the assignment, transfer, termination or conversion (as the case may
be) of the Partnership Interest of the Incapacitated General Partner. If the
Incapacitated General Partner is the sole General Partner, the provisions of
Section 8.01(a)(i) shall be applicable.
(b) Nothing in this Section 6.04 shall affect any rights, including the
rights to the payment of any fees under this Agreement, of the Incapacitated
General Partner which matured or were earned prior to the Incapacity of such
General Partner. Such Incapacitated General Partner shall remain liable for
all obligations and liabilities incurred by it as General Partner before
such Incapacity shall have become effective, but shall be free from any
obligations or liability as General Partner incurred on account of the
activities of the Partnership from and after the time such Incapacity shall
have become effective.
(c) The Partnership Interest of an Incapacitated General Partner shall
be converted into that of a Limited Partner with the same rights under
Article IV as such Incapacitated General Partner has prior to its Incapacity
to share in Income, Loss, Net Interest Income, Net Residual Proceeds and
Liquidation Proceeds. However, any Incapacitated General Partner which
becomes a Limited Partner pursuant to this paragraph (c) shall not have the
right to participate in the management of the affairs of the Partnership or
to vote on any matter requiring the Consent of the Limited Partners and
shall not be entitled to any portion of the Income, Loss, Net Interest
Income, Net Residual Proceeds or Liquidation Proceeds payable to the class
comprised of Limited Partners and BUC Holders. Notwithstanding the
conversion of a Incapacitated General Partner's Partnership Interest, a
successor or remaining General Partner shall have the right, but not the
obligation, to acquire the Partnership Interest of the Incapacitated General
Partner at the then fair market value of such Partnership Interest The fair
market value of the Incapacitated General Partner's Partnership Interest
shall be the sum of (i) the present value of future administrative fees and
Net Interest Income which would be paid to the Incapacitated General Partner
if the Incapacity had not occurred and (ii) the amount the
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Incapacitated General Partner would receive upon dissolution and termination
of the Partnership, assuming that such dissolution or termination occurred
on the date of the event causing the Incapacity and the assets of the
Partnership were sold for their then fair market value without any
compulsion on the part of the Partnership to sell such assets. The fair
market value of such Partnership Interest shall be determined by agreement
of the Incapacitated General Partner and the successor or remaining General
Partner or, if they cannot agree, by arbitration in accordance with the then
current rules of the American Arbitration Association. The expense of
arbitration shall be borne equally by the Incapacitated General Partner and
the successor or remaining General Partner.
(d) All parties hereto hereby agree to take all actions and to execute
all documents necessary or appropriate to effect the foregoing provisions of
this Section 6.04.
ARTICLE VII
TRANSFERABILITY OF BUCS AND LIMITED PARTNERS' INTERESTS
SECTION 7.01. FREE TRANSFERABILITY OF BUCS.
(a) BUCs shall be issued in registered form only and shall be freely
transferable (subject to compliance with federal or state securities law and
Section 7.02 or 11.04 of this Agreement); provided, however, nothing in this
Agreement shall impose any obligation on the General Partner, the
Partnership or any transfer agent to restrict or place conditions on the
transfer of BUCs.
(b) BUCs may be transferred only on the books and records of the
Partnership.
(c) A Person shall be recognized as a BUC Holder for all purposes on the
books and records of the Partnership as of the day on which the General
Partner (or other transfer agent appointed by the General Partner) receives
evidence of the transfer of a BUC to such Person which is satisfactory to
the General Partner. All BUC Holder rights, including voting rights, rights
to receive distributions and rights to receive reports, and all allocations
in respect of BUC Holders, including allocations of Income and Loss, will
vest in, and be allocable to, each BUC Holder as of the close of business on
such day.
(d) In order to record a transfer of a BUC on the Partnership's books
and records, the General Partner may require such evidence of transfer or
assignment and authority of the transferor or assignor, including signature
guarantees, and such additional documentation as the General Partner may
determine.
(e) The General Partner is hereby authorized to do all things necessary
in order to register the BUCs under the Securities Act of 1933, as amended,
and the Securities Exchange Act of 1934, as amended, pursuant to the rules
and regulations of the Securities and Exchange Commission, to qualify the
BUCs with state securities regulatory authorities or to perfect exemptions
from qualification, to cause the BUCs to be listed on The NASDAQ Stock
Market or a national stock exchange and to any other actions necessary to
allow the resale of BUCs by the BUC Holders.
SECTION 7.02. RESTRICTIONS ON TRANSFERS OF BUCS AND OF INTERESTS OF LIMITED
PARTNERS OTHER THAN THE INITIAL LIMITED PARTNER.
(a) If any sale, assignment, pledge or transfer of a Limited Partnership
Interest, other than by the Initial Limited Partner, or of a BUC, when
considered with all other sales, assignments, pledges or transfers of
Partnership Interests and BUCs within the previous 12-month period, may
result in the transfer (within the meaning of Section 708 of the Code and
Regulations promulgated thereunder) of more than 45% of the Partnership
Interest and BUCs, then the sale, assignment, pledge or transfer of a
Limited Partnership Interest or a BUC may be suspended or deferred by the
General Partner; provided, however, that the General Partner will have no
obligation to suspend or defer any such sale, assignment, pledge or
transfer. The seller, assignor, pledgor or transferor shall be notified of
such
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deferral, and any transaction deferred pursuant to this provision shall be
effected (in chronological order to the extent practicable) as of the first
day of the next succeeding period as of which such transaction can be
effected without either termination of the Partnership for tax purposes or
any material adverse effects from such termination. In the event
transactions are suspended, the General Partner shall give written Notice of
such suspension to all Limited Partners and BUC Holders as soon as
practicable.
(b) A Limited Partner (other than the Initial Limited Partner) may
assign his Limited Partnership Interests only by a duly executed written
instrument of assignment, the terms of which are not in contravention of any
of the provisions of this Agreement. Within 30 days after an assignment of
Limited Partnership Interests (other than by the Initial Limited Partner)
which occurs without a transfer of record ownership of such Limited
Partnership Interests, the assignor shall give Notice of such assignment to
the General Partner.
(c) The provisions of this Section 7.02 and of Section 7.03 shall not
apply to the transfer and assignment by the Initial Limited Partner of
Limited Partnership Interests to BUC Holders in accordance with Section
11.01(a).
SECTION 7.03. ASSIGNEES OF LIMITED PARTNERS OTHER THAN THE INITIAL LIMITED
PARTNER.
(a) If a Limited Partner other than the Initial Limited Partner dies,
his executor, administrator or trustee, or, if he is adjudicated
incompetent, his committee, guardian or conservator, or, if he becomes
Bankrupt, the trustee or receiver of his estate, shall have all the rights
of a Limited Partner for the purpose of settling or managing his estate and
such power as the deceased or incompetent Limited Partner possessed to
assign all or any part of his Limited Partnership Interests and to join with
the assignee thereof in satisfying any conditions precedent to such assignee
becoming a Limited Partner. The Incapacity of a Limited Partner shall not
dissolve the Partnership.
(b) The Partnership need not recognize for any purpose any assignment of
all or any fraction of the Limited Partnership Interests of a Limited
Partner other than the Initial Limited Partner unless there shall have been
filed with the Partnership and recorded on the Partnership's books a duly
executed and acknowledged counterpart of the instrument effecting such
assignment, and unless such instrument evidences the written acceptance by
the assignee of all of the terms and provisions of this Agreement, contains
a representation that such assignment was made in accordance with all
applicable laws and regulations (including any investor suitability
requirements) and in all other respects is satisfactory in form and
substance to the General Partner.
(c) Any Limited Partner other than the Initial Limited Partner who shall
assign all of his Limited Partnership Interests shall cease to be a Limited
Partner of the Partnership, except that unless and until a Limited Partner
is admitted in his place, such assigning Limited Partner shall retain the
statutory rights and liabilities of an assignor of a limited partnership
interest under the Act.
(d) An assignee of Limited Partnership Interests (other than a BUC
Holder) may become a Limited Partner only if each of the following
conditions is satisfied:
(i) the instrument of assignment sets forth the intentions of the
assignor that the assignee succeed to the assignor's Limited Partnership
Interest in his place;
(ii) the assignee shall have fulfilled the requirements of Sections
7.03(b) and 12.03(b);
(iii) the assignee shall have paid all reasonable legal fees and
filing costs incurred by the Partnership in connection with his
substitution as a Limited Partner; and
(iv) the assignee shall have received the Consent of the General
Partner, which Consent the General Partner may withhold in its sole
discretion.
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(e) This Agreement and the Certificate shall be amended as necessary to
recognize the admission of any Limited Partners and shall be submitted in a
timely manner for filing with the Delaware Secretary of State. Assignees of
Limited Partnership Interests (other than a BUC Holder) shall be recognized
as such, to the extent set forth in Section 7.03(b) or 7.03(d), as of the
day on which the Partnership has received the instrument of assignment and
all of the other conditions to the assignment are satisfied.
(f) An assignee of Limited Partnership Interests (other than a BUC
Holder) who does not become a Limited Partner and who desires to make a
further assignment of his Limited Partnership Interests shall be subject to
all of the provisions of this Article VII to the same extent and in the same
manner as a Limited Partner desiring to make an assignment of Limited
Partnership Interests.
SECTION 7.04. JOINT OWNERSHIP OF INTERESTS. Subject to the other
provisions of this Agreement, a Limited Partnership Interest or BUC may be
acquired by two or more Persons, who shall, at the time they acquire such
Limited Partnership Interest or BUC, indicate to the Partnership whether the
Limited Partnership Interest or BUC is being held by them as joint tenants with
the right of survivorship, as tenants-in-common or as community property. In the
absence of any such designation, joint owners shall be presumed to hold such
Limited Partnership Interest or BUC as tenants-in-common. The Consent of such
joint Limited Partners or BUC Holders shall not require the action or vote of
all owners of any such jointly held Limited Partnership Interest or BUC.
ARTICLE VIII
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
SECTION 8.01. EVENTS CAUSING DISSOLUTION.
(a) The Partnership shall dissolve upon the happening of any of the
following events:
(i) ninety days following the Incapacity of a General Partner who is
at that time the sole General Partner, unless all of the remaining
Partners (it being understood that, notwithstanding any other provision
herein to the contrary, for purposes of this provision the Initial
Limited Partner shall act solely in accordance with the direction of a
majority in interest of the BUC Holders) agree in writing to continue the
business of the Partnership and a successor General Partner satisfying
the standards set forth in Section 6.02 is designated within 90 days of
the occurrence of such an Incapacity;
(ii) the passage of 180 days after the repayment, sale or other
disposition of all of the Mortgage Investments and Tax Exempt Investments
and substantially all other assets, if any, held by the Partnership;
(iii) the election by a majority in interest of the Limited Partners
(including the Initial Limited Partner voting on behalf of the BUC
Holders) pursuant to Section 10.02(a)(iii) or the election by the General
Partner to dissolve the Partnership pursuant to Section 5.04(e) with the
Consent of a majority in interest of the Limited Partners thereto;
(iv) the expiration of the term of the Partnership specified in
Section 2.04; or
(v) any other event causing the dissolution of the Partnership under
the laws of the State of Delaware.
(b) Dissolution of the Partnership shall be effective on the day on
which the event occurs giving rise to the dissolution, but the Partnership
shall not terminate until a certificate of cancellation is filed with the
Delaware Secretary of State and the assets of the Partnership are
distributed as provided in Section 8.02. Notwithstanding the dissolution of
the Partnership, prior to the termination of the
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Partnership, the business of the Partnership and the affairs of the Partners
shall continue to be governed by this Agreement.
(c) The obligations imposed on the General Partner by Article IX of the
Agreement will cease upon the termination of the Partnership.
SECTION 8.02. LIQUIDATION.
(a) Upon dissolution of the Partnership, unless all of the Partners
elect to reform the Partnership (it being understood that, notwithstanding
any other provision herein to the contrary, for purposes of this provision
the Initial Limited Partner shall act solely in accordance with the
direction of a majority in interest of the BUC Holders), the General Partner
shall liquidate the assets of the Partnership and shall apply and distribute
the proceeds thereof as contemplated by this Section 8.02 and Article IV and
cause the cancellation of the Certificate in accordance with the Act. If
there is no General Partner, a majority in interest of the Limited Partners
(including the Initial Limited Partner voting on behalf of the BUC Holders)
may elect a liquidator to liquidate the assets of the Partnership and
perform the functions of the General Partner set forth in this Section 8.02.
(b) After payment of the expenses of the liquidation and of liabilities
owing to creditors of the Partnership (including the repayment of any loans
from the General Partner or its Affiliates), the General Partner may set
aside as a reserve such amount as it deems reasonably necessary for any
contingent or unforeseen liabilities or obligations of the Partnership which
may be paid over by the General Partner to a bank, to be held in escrow for
the purpose of paying any such contingent or unforeseen liabilities or
obligations, and, at the expiration of such period as the General Partner
may deem advisable, the amount in such reserve shall be distributed in the
manner set forth in Section 4.02(b) among the Partners and BUC Holders who
would have been entitled to receive such amounts had such amounts not been
placed in such reserves.
(c) Notwithstanding the foregoing, if the General Partner or liquidator
shall determine that an immediate sale of part or all of the Partnership's
assets would cause undue loss to the Partners or the BUC Holders, the
General Partner or liquidator may, after giving Notice to the Limited
Partners and BUC Holders, and to the extent not then prohibited by any
applicable law of any jurisdiction in which the Partnership is then formed
or qualified, defer liquidation and withhold from distribution for a
reasonable time any assets of the Partnership, except those assets necessary
to satisfy the Partnership's debts and obligations.
ARTICLE IX
BOOKS AND RECORDS, ACCOUNTING, REPORTS, TAX ELECTIONS
SECTION 9.01. BOOKS AND RECORDS. The Partnership shall maintain its books
and records at its principal office. The Partnership's books and records shall
be available during ordinary business hours for examination and copying there at
the reasonable request, and at the expense, of any Partner or BUC Holder or his
duly authorized representative, or copies of such books and records may be
requested in writing by any Partner or BUC Holder or his duly authorized
representative, provided that the reasonable costs of fulfilling such request,
including copying expenses, shall be paid by the Partner or BUC Holder making
such request. The Partnership's books and records shall include the following:
(a) a current list of the full name, last known home or business address
and Partnership Interest of each Partner and BUC Holder set forth in
alphabetical order;
(b) a copy of this Agreement and the Certificate, together with executed
copies of any powers of attorney pursuant to which such Certificate, and any
amendments thereto, have been executed;
(c) copies of the Partnership's federal, state and local income tax
returns and reports, if any, for the three most recent years; and
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(d) copies of all financial statements of the Partnership for the three
most recent years.
SECTION 9.02. ACCOUNTING BASIS AND FISCAL YEAR. The books and records of
the Partnership initially shall be kept on the accrual method. The Partnership
will use a fiscal year identical to its taxable year. Unless permission is
granted by the Internal Revenue Service to use a taxable year other than the
calendar year, the Partnership will use a calendar year taxable year.
SECTION 9.03. REPORTS.
(a) Within 60 days after the end of each of the first three quarters of
each fiscal year, the General Partner shall send to each Person who was a
Limited Partner or a BUC Holder during such quarter a balance sheet and
statements of income, changes in Partners' capital and cash flow of the
Partnership (all prepared in accordance with generally accepted accounting
principles but none of which need be audited) and a statement showing
distributions of Net Interest Income and Net Residual Proceeds during such
quarter, which need not be audited, together with a report of the activities
of the Partnership during such quarter.
(b) Within 75 days after the end of each fiscal year, the General
Partner shall send to each Person who was a Limited Partner or a BUC Holder
at any time during the year then ended such tax information relating to the
Partnership as shall be necessary for the preparation by such Limited
Partner or BUC Holder of his federal income tax return and required state
income and other tax returns.
(c) Within 120 days after the end of each fiscal year, the General
Partner shall send to each Person who was a Limited Partner or BUC Holder at
any time during the year then ended a report including (i) the balance sheet
of the Partnership as of the end of such year and statements of income,
changes in Partners' capital and cash flow of the Partnership for such year,
all of which shall be prepared in accordance with generally accepted
accounting principles and accompanied by a report of the Accountants
containing an opinion of the Accountants, (ii) a report of the activities of
the Partnership during such year and (iii) a statement (which need not be
audited) showing cash distributions per Limited Partnership Interest and per
BUC during such year in respect of such year, which statement shall identify
distributions of (a) Net Interest Income and Net Residual Proceeds received
by the Partnership during such year, (b) Net Interest Income and Net
Residual Proceeds received during prior years which had been held in the
Reserve and (c) cash placed in Reserves during such year. The Partnership's
annual report will include a detailed statement of (i) the amount of the
fees, if any, paid to the General Partner pursuant to Section 5.05(e) hereof
and (ii) the amounts actually reimbursed to the General Partner and its
Affiliates pursuant to Section 5.05(b) hereof. The Accountants will certify
that the amounts actually reimbursed to the General Partner pursuant to
Section 5.05(b) were costs incurred by the General Partner in connection
with the conduct of the business and affairs of the Partnership or the
acquisition and management of its assets and were permissible reimbursements
under this Agreement. The methods of verification used by the Accountants
will be in accordance with generally accepted auditing standards and include
such tests of the accounting records and other auditing procedures which the
Accountants consider appropriate.
SECTION 9.04. DESIGNATION OF TAX MATTERS PARTNER. The General Partner is
hereby authorized to designate itself or any other General Partner as Tax
Matters Partner of the Partnership, as provided in Section 6231 of the Code and
the Regulations promulgated thereunder. Each Partner, by execution of this
Agreement, and each BUC Holder, by acceptance of his BUCs, consents to such
designation of the General Partner as the Tax Matters Partner and agrees to
execute, certify, acknowledge, deliver, swear to, file and record at the
appropriate public offices such documents as may be necessary or appropriate to
evidence the appointment of the General Partner as such.
SECTION 9.05. EXPENSES OF TAX MATTERS PARTNER. The Partnership shall
reimburse the Tax Matters Partner for all expenses, including legal and
accounting fees, and shall indemnify him for claims, liabilities,
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losses and damages incurred in connection with any administrative or judicial
proceeding with respect to the tax liability of the Partners and BUC Holders.
The payment of all such expenses and indemnification shall be made before any
distributions are made from Net Interest Income, Net Residual Proceeds or
Liquidation Proceeds. Neither the General Partner, nor any Affiliate, nor any
other Person shall have any obligation to provide funds for such purpose. The
taking of any action and the incurring of any expense by the Tax Matters Partner
in connection with any such proceeding, except to the extent required by law, is
a matter in the sole discretion of the Tax Matters Partner, and the provisions
on limitations of liability of the General Partner and indemnification set forth
in Section 5.09 of this Agreement shall be fully applicable to the Tax Matters
Partner in its capacity as such.
ARTICLE X
MEETINGS AND VOTING RIGHTS OF LIMITED PARTNERS
AND BUC HOLDERS
SECTION 10.01. MEETINGS.
(a) The General Partner may call a meeting of the Limited Partners and
BUC Holders for any purpose or call for a vote of the Limited Partners and
BUC Holders without a meeting or otherwise solicit the consent of the
Limited Partners and BUC Holders at any time and the General Partner shall
call for such a meeting or vote without a meeting or solicit the consents of
the Limited Partners and BUC Holders upon receipt of a written request for
such a meeting, vote or solicitation signed by 10% or more in interest of
the Limited Partners (it being understood that the Initial Limited Partner
will act in accordance with the directions of the BUC Holders). Any such
meeting shall be held not less than 15 days nor more than 60 days after the
receipt of such request. Any such request shall state the purpose of the
proposed meeting and the matters proposed to be acted upon at such meeting,
and no matter may be acted upon at the meeting other than as set forth in
such request or as otherwise permitted by the General Partner. Meetings
shall be held at the principal office of the Partnership or at such other
place as may be designated by the General Partner or, if the meeting is
called upon the request of the Limited Partners (including the Initial
Limited Partner acting on behalf of the BUC Holders), as designated by such
Limited Partners (including the Initial Limited Partner acting on behalf of
the BUC Holders).
(b) Notice of any meeting to be held pursuant to Section 10.01(a) shall
be given (in person or by certified mail) within 10 days of the receipt by
the General Partner of the request for such meeting to each Limited Partner
at his record address, or at such other address which he may have furnished
in writing to the General Partner and to the BUC Holders at the address
shown on the Partnership's books and records kept in accordance with Section
9.01. Such Notice shall state the place, date and hour of the meeting and
shall indicate that the Notice is being issued at the direction of, or by,
the Partner(s) calling the meeting. The Notice shall state the record date
established in Section 10.01(c) and state the purpose of the meeting. If a
meeting is adjourned to another time or place, and if an announcement of the
adjournment of time or place is made at the meeting, it shall not be
necessary to give Notice of the adjourned meeting. The presence in person or
by proxy of a majority in interest of the Limited Partners (including the
Initial Limited Partner acting for and at the direction of the BUC Holders)
considered as a class shall constitute a quorum at all meetings of the
Partners and BUC Holders; provided, however, that if no such quorum is
present, holders of a majority in interest of the Limited Partners
considered as a class (it being understood that the Initial Limited Partner
shall be present at the direction of the BUC Holders and only to the extent
of such direction) so present or so represented may adjourn the meeting from
time to time without further Notice, until a quorum shall have been
obtained. No Notice of the time, place or purpose of any meeting of Limited
Partners and BUC Holders need be given (i) to any Limited Partner or BUC
Holder who attends in person or is represented by proxy, except for a
Partner attending a meeting for the express purpose of objecting at the
beginning of the meeting to the transaction of any business on the ground
that the meeting is
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not lawfully called or convened, or (ii) to any Limited Partner or BUC
Holder entitled to such Notice who, in writing, executed and filed with the
records of the meeting, either before or after the time thereof, waives such
Notice.
(c) For the purpose of determining the Limited Partners entitled to vote
at any meeting of the Limited Partners and BUC Holders, and the BUC Holders
entitled to receive Notice of and direct the voting of the Initial Limited
Partner at any such meeting, or any adjournment thereof, or to act by
written Consent without a meeting, the General Partner or the Limited
Partners or the BUC Holders requesting such meeting or vote pursuant to
Section 11.03(a) may fix, in advance, a date as the record date of any such
determination of Limited Partners and BUC Holders. Such date shall not be
more than 60 days nor less than 15 days before any such meeting or not more
than 60 days prior to the initial solicitation of Consents from the Limited
Partners and BUC Holders.
(d) At each meeting of Limited Partners and BUC Holders, the Limited
Partners and BUC Holders present or represented by proxy shall elect such
officers and adopt such rules for the conduct of such meeting as they shall
deem appropriate.
SECTION 10.02. VOTING RIGHTS OF LIMITED PARTNERS AND BUC HOLDERS.
(a) Subject to Section 10.03, a majority in interest of the Limited
Partners (it being understood that the Initial Limited Partner shall act at
the direction of the BUC Holders), without the concurrence of the General
Partner, may: (i) amend this Agreement, provided that the concurrence of the
General Partner shall be required for any amendment to this Agreement which
modifies the compensation or distributions to which the General Partner is
entitled or which affects the duties of the General Partner; (ii) approve or
disapprove the sale or other disposition of all or substantially all of the
Partnership's assets in a single transaction in the circumstances provided
by Section 5.04(c); (iii) dissolve the Partnership; and (iv) remove any
General Partner and elect a successor therefor, which successor shall become
a General Partner only in accordance with Section 6.02. Amendments to this
Agreement may be proposed at any time by a writing signed by 10% or more in
interest of the Limited Partners (it being understood that the Initial
Limited Partner will act in accordance with the direction of the BUC
Holders).
(b) A Limited Partner shall be entitled to cast one vote for each
Limited Partnership Interest which he owns, and a BUC Holder shall be
entitled to direct the Initial Limited Partner to cast one vote for each BUC
which he owns (it being understood that the Initial Limited Partner will act
at the direction of the BUC Holders) at a meeting, in person, by written
proxy or by a signed writing directing the manner in which he desires that
his vote be cast, which writing must be received by the General Partner
prior to the adjournment SINE DIE of such meeting. In the alternative, BUC
Holders may Consent to actions without a meeting, by a signed writing
identifying the action taken or proposed to be taken. Every proxy must be
signed by the Limited Partner or BUC Holder or his attorney-in-fact. No
proxy shall be valid after the expiration of 12 months from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at
the pleasure of the Limited Partner or the BUC Holder executing it by Notice
to the Person to whom the proxy was given. Written Consents may be
irrevocable if stated in a writing delivered to BUC Holders at the time at
which their Consent is solicited. Only the votes or Consents of Limited
Partners or BUC Holders of record on the record date established pursuant to
Section 10.01(c), whether at a meeting or otherwise, shall be counted. The
General Partner shall not be entitled to vote in its capacity as General
Partner. The laws of the State of Delaware pertaining to the validity and
use of corporate proxies shall govern the validity and use of proxies given
by the Limited Partners and BUC Holders, except to the extent such laws are
inconsistent with this Agreement. The BUC Holders may give proxies only to
the Initial Limited Partner. The Initial Limited Partner will vote in
accordance with the directions of the BUC Holders so that each BUC will be
voted separately.
25
<PAGE>
(c) Reference in this Agreement to a specified percentage in interest of
the Limited Partners and BUC Holders means the Limited Partners and BUC
Holders whose combined Capital Contributions (it being understood that the
BUC Holders' Capital Contributions were made by the Initial Limited Partner)
represent the specified percentage of the Capital Contributions of all
Limited Partners and BUC Holders.
SECTION 10.03. OPINION REGARDING EFFECT OF ACTION BY LIMITED PARTNERS AND
BUC HOLDERS. Prior to any vote or Consent by Limited Partners or BUC Holders
that might (i) materially affect the tax status of the Partnership, (ii) impair
the limited liability of the Limited Partners or BUC Holders, or (iii) result in
the dissolution or termination of the Partnership, the Partnership will provide
Limited Partners and BUC Holders written advice from Counsel as to the possible
and most likely consequences of such vote or Consent with respect thereto.
SECTION 10.04. OTHER ACTIVITIES. The Limited Partners and BUC Holders may
engage in or possess interests in other business ventures of every kind and
description for their own accounts, including without limitation serving as
general or limited partners of other partnerships which own, either directly or
through interests in other partnerships, investments similar in nature to the
Mortgage Investments and Tax Exempt Investments. Neither the Partnership nor any
of the Partners or BUC Holders shall have any rights by virtue of this Agreement
in or to such business ventures or to the income or profits derived therefrom.
ARTICLE XI
ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS TO
BUC HOLDERS AND RIGHTS OF BUC HOLDERS
SECTION 11.01. ASSIGNMENT OF LIMITED PARTNERSHIP INTERESTS TO BUC HOLDERS.
(a) Except as otherwise provided herein, the Initial Limited Partner, by
the execution of this Agreement, irrevocably assigns to the Persons who are
BUC Holders of the Prior Partnership as of the Merger Date, all of the
Initial Limited Partner's rights and interest in its Partnership Interest.
The rights and interest so transferred and assigned shall include, without
limitation, the following:
(i) all rights to receive distributions of Net Interest Income
pursuant to Section 4.01;
(ii) all rights to receive Net Residual Proceeds and Liquidation
Proceeds pursuant to Section 4.02;
(iii) all rights in respect of allocations of Income and Loss
pursuant to Sections 4.03 and 4.04;
(iv) all rights in respect of determinations of allocations and
distributions pursuant to Section 4.05;
(v) all rights to inspect records and to receive reports pursuant to
Article IX;
(vi) all rights to vote on Partnership matters pursuant to Article
X; and
(vii) all rights which Limited Partners have, or may have in the
future, under the Act, except as otherwise provided herein.
Notwithstanding the foregoing, the Partnership may issue additional BUCs
from time to time as determined by the General Partner, in which case the
foregoing assignment will be deemed to include an assignment to the holders
of such additional BUCs and such additional BUCs shall participate in the
rights and interest of the Initial Limited Partner to the same extent as the
BUCs existing on the Merger Date. All Persons becoming BUC Holders shall be
bound by the terms and conditions of, and shall be entitled to all rights
of, Limited Partners under this Agreement.
26
<PAGE>
(b) The Initial Limited Partner shall remain as Initial Limited Partner
on the books and records of the Partnership notwithstanding the assignment
of all of its Limited Partnership Interest until such time as the Initial
Limited Partner transfers its position as Initial Limited Partner to another
Person with the Consent of the General Partner. Other than pursuant to
Section 11.01(a), the Initial Limited Partner may not transfer or assign a
Limited Partnership Interest without the prior written Consent of the
General Partner.
(c) The General Partner, by the execution of this Agreement, irrevocably
Consents to and acknowledges on behalf of itself and the Partnership that
(i) the foregoing assignment pursuant to Section 11.01(a) by the Initial
Limited Partner to the BUC Holders of the Initial Limited Partner's rights
and interest in the Limited Partnership Interests is valid and binding on
the Partnership and the General Partner, and (ii) the BUC Holders are
intended to be third-party beneficiaries of all rights and privileges of the
Initial Limited Partner in respect of the Limited Partnership Interests. The
General Partner covenants and agrees that, in accordance with the foregoing
transfer and assignment, all the Initial Limited Partner's rights and
privileges in respect of the Limited Partnership Interests assigned to the
BUC Holders may be exercised by the BUC Holders, including, without
limitation, those listed in Section 11.01(a).
SECTION 11.02. RIGHTS OF BUC HOLDERS.
(a) Limited Partners (including the Initial Limited Partner but only
with respect to its own Limited Partnership Interests) and BUC Holders shall
share pari passu on the basis of one Limited Partnership Interest for one
BUC, and shall be considered as a single class with respect to all rights to
receive distributions of Net Interest Income, Net Residual Proceeds and
Liquidation Proceeds, allocations of Income and Loss, and other
determinations of allocations and distributions pursuant to this Agreement.
(b) Limited Partners (including the Initial Limited Partner voting on
behalf of the BUC Holders) shall vote on all matters in respect of which
they are entitled to vote (either in person, by proxy or by written
Consent), as a single class with each entitled to one vote.
(c) A BUC Holder is entitled to the same duty (including any fiduciary
duty created by law) from the General Partner as the General Partner owes to
a Limited Partner and may sue the General Partner to enforce the same. A BUC
Holder may bring a derivative action against any Person (including the
General Partner) to enforce any right of the Partnership to recover a
judgment to the same extent as a Limited Partner has such a right under the
Act.
(d) A BUC Holder is not a Limited Partner and has no right to be
admitted to the Partnership as such.
SECTION 11.03. VOTING BY THE INITIAL LIMITED PARTNER ON BEHALF OF BUC
HOLDERS.
(a) Subject to Section 8.01(a)(i), the Initial Limited Partner hereby
agrees that, with respect to any matter on which a vote of the Limited
Partners is taken, the Consent of the Limited Partners is required or any
other action of the Limited Partners is required or permitted, it will not
vote its Limited Partnership Interest or grant such Consent or take such
action (other than solely administrative actions as to which the Initial
Limited Partner has no discretion) except for the sole benefit of, and in
accordance with the written instructions of, the BUC Holders with respect to
their BUCs. The Initial Limited Partner (or the Partnership on behalf of the
Initial Limited Partner) will provide Notice to the BUC Holders containing
information regarding any matters to be voted upon or as to which any
Consent or other action is requested or proposed. The Partnership and the
General Partner hereby agree to permit BUC Holders to attend any meetings of
Partners and the Initial Limited Partner shall, upon the written request of
BUC Holders owning BUCs which represent in the aggregate 10% or more of all
of the outstanding BUCs, request the General Partner to call a meeting of
Partners pursuant to Section 10.01 or to submit a matter to the Initial
Limited Partner without a
27
<PAGE>
meeting pursuant to this Agreement. The General Partner shall give the BUC
Holders Notice of any meeting to be held pursuant to Section 10.01(a) at the
same time and manner as such Notice is required to be given to the Initial
Limited Partner pursuant to Section 10.01(b).
(b) The Initial Limited Partner will exercise its right to vote or
Consent to any action under this Agreement in accordance with the written
instructions of holders of BUCs outstanding as of the relevant record date.
In addition, holders of a majority of the BUCs outstanding may instruct the
Initial Limited Partner to take, and upon receipt of such instruction, the
Initial Limited Partner shall take, the actions permitted by Section 10.02.
(c) The Initial Limited Partner will mail to any BUC Holder (at the
address shown on the Partnership's records kept in accordance with Section
9.01(a)) any report, financial statement or other communication received
from the Partnership or the General Partner with respect to the Limited
Partnership Interests held by the Initial Limited Partner (including,
without limitation, any financial statement or report or tax information
provided pursuant to Section 9.03). In lieu of mailing of any such document
by the Initial Limited Partner, the Initial Limited Partner may, at its
option, request the General Partner to mail any such communications directly
to the BUC Holders, and the Initial Limited Partner shall be deemed to have
satisfied its obligations under this Section 11.03(b) upon its receipt of
written notification from the General Partner that any such communication
has been mailed, postage prepaid, to all of the BUC Holders at the addresses
shown on the Partnership's records.
SECTION 11.04. PRESERVATION OF TAX STATUS. With the Consent of each BUC
Holder so affected, the General Partner may at any time cause such BUC Holder to
become a Limited Partner and may take such other action with respect to the
manner in which BUCs are being or may be transferred or traded as it may deem
necessary or appropriate, in order to preserve the status of the Partnership as
a partnership rather than an association taxable as a corporation for federal
income tax purposes or to insure that BUC Holders will be treated as limited
partners for federal income tax purposes.
ARTICLE XII
MISCELLANEOUS PROVISIONS
SECTION 12.01. APPOINTMENT OF THE GENERAL PARTNER AS ATTORNEY-IN-FACT.
(a) Each Limited Partner by the execution of this Agreement irrevocably
constitutes and appoints, with full power of substitution, the General
Partner as his true and lawful attorney-in-fact with full power and
authority in his name, place and stead to execute, certify, acknowledge,
deliver, swear to, file and record at the appropriate public offices such
documents as may be necessary or appropriate to carry out the provisions of
this Agreement, including, but not limited to:
(i) the Certificate and amendments thereto, and all certificates and
other instruments (including counterparts of this Agreement), and any
amendments thereof, which any such Person deems appropriate to form,
qualify or continue the Partnership as a limited partnership (or a
partnership in which the Limited Partners will have limited liability
comparable to that provided by the Act on the date thereof) in a
jurisdiction in which the Partnership may conduct business or in which
such formation, qualification or continuation is, in the opinion of any
such Person, necessary to protect the limited liability of the Limited
Partners and BUC Holders;
(ii) any other instrument or document which may be required to be
filed by the Partnership under federal law or under the laws of any state
in which any such Person deems it advisable to file;
28
<PAGE>
(iii) all amendments to this Agreement adopted in accordance with the
terms hereof and all instruments which any such Person deems appropriate
to reflect a change or modification of the Partnership in accordance with
the terms of this Agreement; and
(iv) any instrument or document, including amendments to this
Agreement, which may be required to effect the continuation of the
Partnership, the admission of a Limited Partner or an additional or
successor General Partner or the dissolution and termination of the
Partnership (provided such continuation, admission or dissolution and
termination are in accordance with the terms of this Agreement) or to
reflect any reductions in amount of Capital Accounts.
(b) The appointment by each Limited Partner of each of such Persons as
his attorney-in-fact is irrevocable and shall be deemed to be a power
coupled with an interest, in recognition of the fact that each of the
Partners under this Agreement will be relying upon the power of such Persons
to act as contemplated by this Agreement in any filing and other action by
them on behalf of the Partnership, and such power shall survive the
Incapacity of any Person hereby giving such power and the transfer or
assignment of all or any part of the Limited Partnership Interests of such
Person; provided, however, that in the event of a transfer by a Limited
Partner of all or any part of his Limited Partnership Interests, the
foregoing power of attorney shall survive such transfer only until such time
as the transferee is admitted to the Partnership as a Limited Partner and
all required documents and instruments are duly executed, filed and recorded
to effect such substitution.
SECTION 12.02. SIGNATURES. Each Limited Partner and any additional or
successor General Partner shall become a signatory hereto by signing such number
of counterpart signature pages to this Agreement and such other instrument or
instruments in such manner and at such time as the General Partner shall
determine. By so signing, each Limited Partner, successor General Partner or
additional General Partner, as the case may be, shall be deemed to have adopted,
and to have agreed to be bound by, all the provisions of this Agreement, as
amended from time to time; provided, however, that no such counterpart shall be
binding unless and until it has been accepted by the General Partner.
SECTION 12.03. AMENDMENTS.
(a) In addition to any amendments otherwise authorized herein,
amendments may be made to this Agreement or the Certificate from time to
time by the General Partner, without the Consent of the Limited Partners or
the BUC Holders, (i) to add to the representations, duties or obligations of
the General Partner or surrender any right or power granted to the General
Partner in this Agreement; (ii) to cure any ambiguity or correct or
supplement any provision in this Agreement which may be inconsistent with
the manifest intent of this Agreement, if such amendment is not materially
adverse to the interests of Limited Partners and BUC Holders in the sole
judgment of the General Partner; (iii) to delete or add to any provision of
this Agreement required to be deleted or added to based upon comments by the
staff of the Securities and Exchange Commission or other federal agency or
by a state securities commissioner; (iv) to delete, add or revise any
provision of this Agreement that may be necessary or appropriate, in the
General Partner's judgment, to insure that the Partnership will be treated
as a partnership, and that each BUC Holder and each Limited Partner will be
treated as a limited partner, for federal income tax purposes; (v) to
reflect the withdrawal, removal or admission of Partners; and (vi) to
reflect a change in the name or address of the Partnership's registered
agent in the State of Delaware; provided, however, that no amendment shall
be adopted pursuant to this Section 12.03(a) unless the adoption thereof (A)
is consistent with Section 5.01 and is not prohibited by Section 5.04; (B)
does not affect the distribution of Net Interest Income, Net Residual
Proceeds or Liquidation Proceeds or the allocation of Income or Loss (except
as provided in Section 5.10); (C) does not, in the sole judgment of the
General Partner after consultation with Counsel, affect the limited
liability of the Limited Partners or the BUC Holders or cause the
Partnership not to be treated as a partnership for federal income tax
purposes; and (D) does not amend this Section 12.03(a).
29
<PAGE>
(b) If this Agreement shall be amended as a result of substituting a
Limited Partner, the amendment to this Agreement shall be signed by the
General Partner, the Person to be substituted and the assigning Limited
Partner. If this Agreement shall be amended to reflect the designation of an
additional General Partner, such amendment shall be signed by the other
General Partners and by such additional General Partner. If this Agreement
shall be amended to reflect the withdrawal of a General Partner when the
business of the Partnership is being continued, such amendment shall be
signed by the withdrawing General Partner and by the remaining or successor
General Partner. In the event the withdrawing General Partner or the
assigning Limited Partner does not sign such an amendment within 30 days
following its withdrawal or substitution, the remaining or successor General
Partners are hereby appointed by the withdrawing General Partner or the
assigning Limited Partner as its attorney-in-fact for purposes of signing
such amendment.
(c) In making any amendments, there shall be prepared and filed by the
General Partner for recording such documents and certificates as shall be
required to be prepared and filed under the Act and in any other
jurisdictions under the laws of which the Partnership is then qualified.
SECTION 12.04. BINDING PROVISIONS. The covenants and agreements contained
herein shall be binding upon, and inure to the benefit of, the heirs, executors,
administrators, personal representatives, successors and assigns of the
respective parties hereto.
SECTION 12.05. APPLICABLE LAW. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of
Delaware.
SECTION 12.06. SEPARABILITY OF PROVISIONS. Each provision of this
Agreement shall be considered separable and if for any reason any provision or
provisions hereof are determined to be invalid and contrary to any law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement which are valid.
SECTION 12.07. CAPTIONS. Article and Section titles are for descriptive
purposes only and shall not control or alter the meaning of this Agreement as
set forth in the text.
SECTION 12.08. ENTIRE AGREEMENT. This Agreement, together with Schedule A
hereto, sets forth all, and is intended by all parties to be an integration of
all, of the promises, agreements and understandings among the parties hereto
with respect to the Partnership, the Partnership business and the property of
the Partnership, and there are no promises, agreements, or understandings, oral
or written, express or implied, among them other than as set forth, incorporated
or contemplated in this Agreement.
30
<PAGE>
IN WITNESS WHEREOF, the parties have signed this Agreement as of the [ ]
day of [ ], 1998.
<TABLE>
<S> <C> <C>
GENERAL PARTNER:
AMERICA FIRST CAPITAL ASSOCIATES LIMITED
PARTNERSHIP TWO
By America First Companies L.L.C.,
General Partner
By
------------------------------------------
Michael B. Yanney, President
INITIAL LIMITED PARTNER:
AMERICA FIRST FIDUCIARY
CORPORATION NUMBER FIVE
By
------------------------------------------
Michael B. Yanney, President
</TABLE>
31
<PAGE>
SCHEDULE A
<TABLE>
<S> <C>
GENERAL PARTNER:
America First Capital $ []
Associates Limited
Partnership Two
Suite 400
1004 Farnam Street
Omaha, NE 68102
INITIAL LIMITED PARTNER:
America First Fiduciary $ []
Corporation Number Five
Suite 400
1004 Farnam Street
Omaha, NE 68102
</TABLE>
32
<PAGE>
APPENDIX B
AMENDED AGREEMENT OF MERGER
THIS AMENDED AGREEMENT OF MERGER (this "Agreement") is entered into as of
June 12, 1998 by and between AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED
PARTNERSHIP, a Delaware limited partnership (the "the Existing Fund") whose
principal office is located at Suite 400, 1004 Farnam Street, Omaha, Nebraska
68102 and AMERICA FIRST TAX EXEMPT INVESTORS L.P., a Delaware limited
partnership (the New Fund") whose principal office is located at Suite 400, 1004
Farnam Street, Omaha, Nebraska 68102 and supercedes in its entirety the
Agreement of Merger entered into by the same parties on April 10, 1998.
WHEREAS, the Existing Fund is a limited partnership duly formed and existing
under the laws of the State of Delaware, having been formed on November 11,
1985, whose sole general partner is America First Capital Associates Limited
Partnership Two ("AFCA 2") and whose sole limited partner is America First
Fiduciary Corporation Number Five ("AFFC 5"); and
WHEREAS, the New Fund is a limited partnership duly formed and existing
under the laws of the State of Delaware, having been formed on April 2, 1998,
whose sole general partner is AFCA 2 and whose sole limited partner is AFFC 5;
and
WHEREAS, upon the terms and conditions set forth herein, the Existing Fund
and the New Fund agree to merge, with the New Fund as the surviving limited
partnership;
NOW, THEREFORE, in consideration of the premises and the mutual covenants,
representations, warranties and undertakings of the parties set forth below, the
parties agree as follows:
SECTION 1. THE MERGER. At the effective time, the separate existence of
the Existing Fund shall cease and the Existing Fund shall be merged with and
into the New Fund, which shall continue its existence and be the limited
partnership surviving the merger (the "Merger"). Consummation of the Merger
shall be effected by the filing of a Certificate of Merger (the "Merger
Certificate") in the State of Delaware, in substantially the form attached
hereto as Exhibit A.
SECTION 2. GOVERNING LAWS. The laws that shall govern the New Fund as the
surviving limited partnership are the laws of the State of Delaware.
SECTION 3. CERTIFICATE OF LIMITED PARTNERSHIP AND AGREEMENT OF LIMITED
PARTNERSHIP.
(a) The certificate of limited partnership of the New Fund at the
effective time of the Merger shall become and continue to be the certificate
of limited partnership of the New Fund as the surviving limited partnership
until changed as provided therein and by law.
(b) The agreement of limited partnership of the New Fund at the
effective time of the Merger (the "Partnership Agreement") shall become and
continue to be the agreement of limited partnership of the New Fund as the
surviving limited partnership until altered or amended in accordance with
the provisions thereof.
SECTION 4. PARTNERS. AFCA 2 and AFFC 5 shall continue to be the general
partner and initial limited partner, respectively, of the New Fund at the
effective time of the Merger.
SECTION 5. TERMS OF CONVERSION OF BUCS. Upon the effective time of the
Merger, by virtue of the Merger and without any action on the part of the
parties, each beneficial unit certificate representing an assignment of a
beneficial interest in a limited partnership interest in the Existing Fund ("the
Existing Fund BUCs") outstanding immediately prior to the effective time of the
Merger shall be cancelled and extinguished and the Existing Fund shall be merged
with and into the New Fund. Holders of the Existing Fund BUCs shall each receive
one beneficial unit certificate representing an assignment of a beneficial
interest in a limited partnership interest in the New Fund ("the New Fund BUCs")
for each Existing Fund BUC they own immediately prior to the effective date of
the Merger.
<PAGE>
SECTION 6. RIGHTS AND LIABILITIES. At the effective time of the merger,
the New Fund shall succeed to, without other transfer, and shall possess and
enjoy, all the rights, privileges, powers and franchises both of a public and a
private nature and be subject to all the restrictions, disabilities and duties
of the Existing Fund; and all rights, privileges, powers and franchises of the
Existing Fund and all property, real, personal and mixed, and all debts due to
said the Existing Fund on whatever account, for the Existing Fund BUC
subscriptions as well as for all other things in action or belonging to said
limited partnership, shall be vested in the New Fund; and all property, rights,
privileges, powers, franchises and interests shall be thereafter as effectively
the property of the New Fund as they were of the Existing Fund, and the title to
any real estate vested by deed or otherwise in said the Existing Fund shall not
revert or be in any way impaired by reason of the Merger; provided, however,
that all rights of creditors and all liens upon any property of said the
Existing Fund shall be preserved unimpaired, and all debts, liabilities and
duties of said the Existing Fund shall thenceforth attach to the New Fund and
may be enforced against it to the same extent as if said debts, liabilities and
duties had been incurred or contracted by the New Fund.
SECTION 7. CONDITIONS TO MERGER. The obligation of the Existing Fund and
of the New Fund to consummate the transactions contemplated hereby shall be
subject to the satisfaction on or prior to the effective date of the Merger of
each of the following conditions:
(a) The holders of at least a majority of the outstanding Existing Fund
BUCs consent to the Merger by the date established by AFCA 2 as the date
upon which such consent must be received and which shall be no earlier than
60 days after the effective date of the registration statement referred to
in (b) below or such later date as AFCA 2 may subsequently establish in its
sole discretion;
(b) A registration statement on Form S-4 filed under the Securities Act
of 1933, as amended (the "Act"), relating to the distribution of the the New
Fund BUCs pursuant to the Merger has been declared effective under the Act
by the Securities and Exchange Commission;
(c) Appropriate clearance of the distribution of the the New Fund BUCs
pursuant to the Merger has been obtained from each applicable state
securities commission or administrator;
(d) AFCA 2 shall have received, in form and substance acceptable to it,
an opinion to the effect that for federal income tax purposes that holders
of the Existing Fund BUCs as of the record date will not recognize any
income, gain or loss as a result of the Merger; and
(e) The New Fund BUCs have been approved for listing on The NASDAQ Stock
Market (NASDAQ National Market System).
SECTION 8. SIGNATURES. This Agreement shall be signed on behalf of the
Existing Fund and the New Fund by a duly authorized officer of the general
partner of AFCA 2 and attested by the secretary of the general partner of AFCA
2.
SECTION 9. TERMINATION. This Agreement may be terminated by the action of
the board of managers of the general partner of AFCA 2 acting in its capacity as
the general partner of the general partner of the Existing Fund and of the New
Fund before or after the date that holders of a majority in interest of the
Existing Fund BUCs consent to the Merger.
SECTION 10. FURTHER ASSURANCES. The Existing Fund agrees that from time to
time, as and when requested by the New Fund or by its successors or assigns, it
will execute and deliver, or cause to be executed and delivered, all such deeds
and other instruments, and will take or cause to be taken such further or other
action, as the New Fund may deem necessary or desirable in order to more fully
vest in and confirm to the New Fund title to and possession of all said
property, rights, privileges, powers and franchises and otherwise to carry out
the intent and purposes of this Agreement.
2
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly authorized, executed and
delivered by the parties on the date first set forth above.
<TABLE>
<C> <S> <C>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED
PARTNERSHIP, a Delaware limited partnership
By America First Capital Associates Limited
Partnership Two, General Partner
By America First Companies L.L.C., General
Partner
By /s/ MICHAEL YANNEY
------------------------------------------
Michael Yanney, President
Attest:
/s/ MICHAEL THESING
- ------------------------------
Michael Thesing, Secretary
AMERICA FIRST TAX EXEMPT INVESTORS L.P., a
Delaware limited partnership
By America First Capital Associates Limited
Partnership Two, General Partner
By America First Companies L.L.C., General
Partner
By /s/ MICHAEL B. YANNEY
------------------------------------------
Michael B. Yanney, President
Attest:
/s/ MICHAEL THESING
- ------------------------------
Michael Thesing, Secretary
</TABLE>
3
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
OF
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED PARTNERSHIP,
A DELAWARE LIMITED PARTNERSHIP
WITH AND INTO
AMERICA FIRST TAX EXEMPT INVESTORS L.P.,
A DELAWARE LIMITED PARTNERSHIP
This certificate is prepared pursuant to Section 17-211 of the Revised
Uniform Limited Partnership Act of the State of Delaware.
It is hereby certified that:
1. The constituent limited partnerships participating in the merger
herein certified are: (i) America First Tax Exempt Mortgage Fund Limited
Partnership, which is formed under the laws of the State of Delaware ("the
Existing Fund"), and (ii) America First Tax Exempt Investors L.P., which is
formed under the laws of the State of Delaware ("the New Fund").
In accordance with Section 17-211 of the Revised Uniform Limited Partnership
Act of the State of Delaware, an agreement of merger (the "Merger Agreement")
has been duly approved and executed by the Existing Fund and the New Fund.
The name of the surviving limited partnership in the merger herein certified
is America First Tax Exempt Investors L.P., which will continue its existence as
said surviving limited partnership upon the effective time of said merger.
The merger herein certified shall be effective upon the filing of this
Certificate with the Secretary of State of the State of Delaware.
The executed Merger Agreement between the aforesaid constituent limited
partnerships is on file at the principal place of business of the aforesaid
surviving limited partnership, the address of which is Suite 400, 1004 Farnam
Street, Omaha, Nebraska 68102.
A copy of the Merger Agreement will be furnished by the the New Fund, on
request and without cost, to any partner of the Existing Fund or the New Fund or
any person holding a beneficial unit certificate of the Existing Fund at the
effective time of the merger.
<PAGE>
Dated: [ ], 1998.
<TABLE>
<C> <S> <C>
AMERICA FIRST TAX EXEMPT MORTGAGE FUND LIMITED
PARTNERSHIP, a Delaware limited partnership
By America First Capital Associates Limited
Partnership Two, General Partner
By America First Companies L.L.C., General
Partner
By
------------------------------------------
Michael B. Yanney, President
Attest:
- ------------------------------
Michael Thesing, Secretary
AMERICA FIRST TAX EXEMPT INVESTORS L.P.,a
Delaware limited partnership
By America First Capital Associates Limited
Partnership Two, General Partner
By America First Companies L.L.C., General
Partner
By
------------------------------------------
Michael B. Yanney, President
Attest:
- ------------------------------
Michael Thesing, Secretary
</TABLE>
A-2
<PAGE>
STATE OF NEBRASKA )
) SS.
COUNTY OF DOUGLAS )
Before me this [ ] day of [ ], 1998, Michael Yanney, personally
known to me to be the President of America First Companies L.L.C., a Delaware
limited liability company in its capacity as the general partner of America
First Capital Associates Limited Partnership Two which is the general partner of
both the constituent parties to the subject merger, appeared and, being first
duly sworn, did acknowledge the execution of the foregoing instrument on behalf
of such companies.
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Notary Public
A-3
