As filed with the Securities and Exchange Commission on September 2, 1998
Securities Act File No. 333-59143
Investment Company Act File No. 811-08881
================================================================================
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
FORM N-2
|X| REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
|X| Pre-Effective Amendment No. 2
| | Post-Effective Amendment No.
and/or
|X| REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
|X| Amendment No. 2
------------------------------
MERRILL LYNCH KECALP L.P. 1999
(Exact name of registrant as specified in charter)
------------------------------
World Financial Center - South Tower
225 Liberty Street
New York, New York 10080-6123
(Address of principal executive offices)
Registrant Telephone Number, including Area Code: (212) 236-7302
KECALP INC.
World Financial Center - North Tower
250 Vesey Street
New York, New York 10281-1334
Attn: Mark B. Goldfus
(Name and address of agent for service)
----------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As
soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, other than securities offered only in connection with
dividend or interest reinvestment plans, check the following box. | |
<TABLE>
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- ------------------------------------------------- ----------------- ------------------ ----------------- -------------------
Proposed Proposed
Maximum Maximum
Amount Offering Aggregate Amount of
Being Price Per Offering Registration
Title of Securities Being Registered Registered Unit Price Fee
- ------------------------------------------------- ----------------- ------------------ ----------------- -------------------
Limited Partnership Interest................. 500,000 Units $1,000.00 $500,000,000 $147,500(1)
- ------------------------------------------------- ----------------- ------------------ ----------------- -------------------
(1) $22,125 of the $147,500 fee was previously paid.
</TABLE>
The registrant hereby amends this registration statement on such date
or dates as may be necessary to delay its effective date until the registrant
files a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
================================================================================
<PAGE>
CROSS REFERENCE SHEET
Between Items of Registration Statement (Form N-2)
and Prospectus
Pursuant to Rule 404 (c)
PARTS A and B
<TABLE>
<CAPTION>
<S> <C> <C>
Item
No. Caption Location in Prospectus
- ---- ------- ----------------------
1. Outside Front Cover......................... Outside Front Cover
2. Inside Front and Outside
Back Cover Page............................. Inside Front and Outside Back Cover Page
3. Fee Table and Synopsis...................... Prospectus Summary
4. Financial Highlights........................ Not Applicable
5. Plan of Distribution........................ Outside Front Cover; Offering and Sale of Units
6. Selling Shareholders........................ Not Applicable
7. Use of Proceeds............................. The Partnership; Investment Objective and Policies
8. General Description of the Registrant....... Cover Page of Prospectus; The Partnership; Risk
and Other Important Factors; Investment Objective
and Policies; Summary of the Partnership Agreement
9. Management.................................. The General Partner and Its Affiliates; Summary of
the Partnership Agreement
10. Capital Stock, Long-Term Debt, and
Other Securities......................... Summary of the Partnership Agreement;
Transferability of the Units
11. Defaults and Arrears on Senior Securities... Not Applicable
12. Legal Proceedings........................... Not Applicable
13. Table of Contents of the
Statement of Additional..................... Not Applicable
14. Cover Page.................................. Not Applicable
15. Table of Contents........................... Not Applicable
16. General Information and History............ Not Applicable
17. Investment Objective and Policies........... Investment Objective and Policies
18. Management.................................. The General Partner and Its Affiliates; Summary of
the Partnership Agreement
19. Control Persons and
Principal Holders of Securities.......... Cover Page; The General Partner and Its Affiliates
20. Investment Advisory and Other Services...... The General Partner and Its Affiliates
21. Brokerage Allocation and Other Practices.... Not Applicable
22. Tax Status.................................. Tax Aspects of Investment in the Partnership
23. Financial Statements........................ Financial Statements
</TABLE>
PART C
Information required to be included in Part C is set forth under the
appropriate item, so numbered, in Part C to this Registration Statement.
<PAGE>
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such state.
Subject to Completion
Preliminary Prospectus dated September 2, 1998
$500,000,000
500,000 Units of Limited Partnership Interest
Merrill Lynch KECALP L.P. 1999
$1,000 Per Unit Minimum Investment--5 Units ($5,000)
Merrill Lynch KECALP L.P. 1999 (the "Partnership") hereby offers
500,000 units of limited partnership interest (the "Units") in the Partnership
to certain employees of Merrill Lynch & Co., Inc. ("ML & Co.") and its
subsidiaries, to non-employee directors of ML & Co. and to members of the
Advisory Committee of the General Partner, as defined below ("Eligible
Investors"). Units are also being offered to ML & Co. for purchase in connection
with a deferred compensation program of ML & Co. for certain of its key
employees. The Partnership's principal offices are at South Tower, World
Financial Center, 225 Liberty Street, New York, New York 10080-6123. Its
telephone number is (212) 236-7302. KECALP Inc., a wholly-owned subsidiary of ML
& Co., is the general partner (the "General Partner") of the Partnership. The
Partnership will operate as a closed-end investment company of the management
type. The General Partner has obtained an order from the Securities and Exchange
Commission exempting the Partnership, as an "employees' securities company",
from certain provisions of the Investment Company Act of 1940. See "Exemptions
from the Investment Company Act of 1940".
The principal investment objective of the Partnership is long-term
capital appreciation. It is expected that a significant portion of the proceeds
of this offering will be invested in privately-offered equity investments in
U.S. and non-U.S. issuers. The Partnership's investments may include securities
issued in leveraged buyout transactions, financings of companies in an early
stage of development, investments in growth equities and transactions involving
financial restructurings or recapitalizations of operating companies, as
described herein. Investments may also be made in real estate opportunities.
Investments in non-U.S. issuers may include opportunities in both emerging
markets and developed countries. The Partnership's investments may be made
directly or through the purchase of interests in other funds. The Partnership
may make other investments in equity and fixed income securities that the
General Partner considers appropriate in terms of their potential for long-term
capital appreciation and/or income generation. The Partnership's investment
policies involve a very high degree of risk. See "Investor Suitability
Standards", "Conflicts of Interest", "Risk and Other Important Factors" and
"Investment Objective and Policies". The Partnership may borrow funds for
investment in securities, which would have the effect of leveraging the Units.
See "Investment Objective and Policies--Leverage".
The Units are being offered by Merrill Lynch, Pierce, Fenner & Smith
Incorporated ("MLPF&S") on a "best efforts" basis. Eligible Investors must
submit completed subscription documents not later than November 1, 1998, or such
other subsequent date, not later than February 5, 1999, as MLPF&S and the
General Partner may agree upon. Subsequent to such date, the General Partner
will advise such investors as to whether their subscriptions have been accepted
and thereupon MLPF&S shall promptly debit funds from accepted investors'
accounts for payment into the Partnership's escrow account. The General Partner
will also advise prospective investors of the termination date of the offering
(the "Offering Termination Date"). If subscriptions (including subscriptions of
ML & Co.) for 75,000 Units have not been received by the Offering Termination
Date, no Units will be sold. Funds paid by subscribers will be deposited in a
bank escrow account, and, if the required minimum is not obtained or other
conditions not satisfied, will be refunded promptly with interest, if any.
Subscriptions deposited in the escrow account may not be terminated or withdrawn
by subscribers. See "Offering and Sale of Units".
--------------------------
This Prospectus sets forth concisely information about the Partnership
that a prospective investor ought to know before investing. Investors are
advised to read this Prospectus and retain it for future reference.
--------------------------
THE UNITS ARE A SPECULATIVE INVESTMENT AND THIS OFFERING INVOLVES
VARIOUS SUBSTANTIAL RISKS AS DESCRIBED IN THIS PROSPECTUS.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
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<S> <C> <C> <C>
- ----------------------------------- ----------------------- -------------------------- ---------------------------------
Price to Public Sales Load(1) Proceeds to Partnership(2)
- ----------------------------------- ----------------------- -------------------------- ---------------------------------
Per Unit.......................... $1,000 -- $1,000
Total Minimum..................... $75,000,000 -- $75,000,000
Total Maximum..................... $500,000,000 -- $500,000,000
- ----------------------------------- ----------------------- -------------------------- ---------------------------------
(footnotes on next page)
</TABLE>
Merrill Lynch & Co.
----------------------
The date of this Prospectus is September ___, 1998.
<PAGE>
(Continued from cover page)
(1) No sales commission will be charged purchasers of Units. The General
Partner has agreed to indemnify MLPF&S against certain liabilities,
including liabilities under the Securities Act of 1933. See "Offering
and Sale of Units".
(2) Before deducting organizational and offering expenses payable by the
Partnership, estimated at $500,000 but not exceeding 1.5% of the
proceeds of the offering. The General Partner will bear the remaining
costs, if any, of forming the Partnership and registering the Units
under the Securities Act of 1933 and the securities laws of various
states.
NO DEALER, SALESMAN OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION AND REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY IN ANY
STATE TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER.
UNTIL FEBRUARY 5, 1999, ALL DEALERS EFFECTING TRANSACTIONS IN THE
UNITS, WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO
DELIVER A CURRENT COPY OF THIS PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION
OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS.
INVESTOR SUITABILITY STANDARDS
Only employees of ML & Co. and its subsidiaries, non-employee directors
of ML & Co. and members of the Advisory Committee of the General Partner, who
meet the suitability standards described below ("Eligible Investors"), together
with ML & Co., will be eligible to purchase Units. THE PURCHASE OF UNITS
INVOLVES SIGNIFICANT RISKS AND UNITS ARE NOT A SUITABLE INVESTMENT FOR ALL
QUALIFIED INVESTORS. See "Risk and Other Important Factors".
1. Substantial Means and Net Worth. The purchase of Units is suitable
only for those persons who have no need for liquidity in this investment and who
have adequate means of providing for their current needs and contingencies.
Accordingly, no Units will be sold to an employee of ML & Co. or its
subsidiaries, a non-employee director of ML & Co., or a member of the Advisory
Committee of the General Partner, unless such investor (i) in the case of
employees of ML & Co. or its subsidiaries, had an annual salary in an amount
which, together with bonus received from ML & Co. or its subsidiaries in respect
of 1997, equaled at least $100,000 or, if employed for less than a full calendar
year, is employed with an annualized gross income from ML & Co. or its
subsidiaries of at least $100,000, or (ii) in the case of non-employee directors
of ML & Co. and members of the Advisory Committee, (a) has a net worth
(exclusive of homes, home furnishings, personal automobiles and the amount to be
invested in Units) of not less than $125,000 in excess of the price of the Units
for which such investor has subscribed, or (b) has a net worth (exclusive of
homes, home furnishings, personal automobiles and the amount to be invested in
Units) of not less than $100,000 in excess of the price of the Units for which
such investor has subscribed and expects to have during each of the current and
the next three taxable years, gross income from all sources in excess of
$100,000. Investors will be required to represent in writing in the Subscription
Agreement that they meet the applicable requirements. Investors who can make
such representation, together with ML & Co., are hereinafter referred to as
"Qualified Investors".
2. Ability and Willingness to Accept Risks. The economic benefit from
an investment in the Partnership depends on many factors beyond the control of
the General Partner, including general economic conditions, changes in
governmental regulation, inflation, tax treatment of portfolio investments and
resale value of such investments. Accordingly, the suitability for any Qualified
Investor of a purchase of Units will depend on, among other things, such
investor's investment objectives and such investor's ability to accept
speculative risks. See "Risk and Other Important Factors".
3. Ability to Accept Limitations on Transferability. PURCHASERS OF
UNITS SHOULD VIEW THEIR INTEREST IN THE PARTNERSHIP AS A LONG-TERM, ILLIQUID
INVESTMENT. Limited partners may not be able to liquidate their investment in
the event of emergency or for any other reason because there is not any public
market for Partnership Units and there are restrictions contained in the Amended
and Restated Agreement of Limited Partnership (the "Partnership Agreement"), the
form of which is attached as Exhibit A to this Prospectus, which are intended to
prevent the development of a public market for Units. Moreover, the
transferability of Units is subject to certain restrictions in the Partnership
Agreement and may be affected by restrictions on resales imposed by the laws of
some states. See "Transferability of Units".
<PAGE>
SUMMARY OF THE OFFERING
The summary information below should be read in conjunction with the
detailed information provided elsewhere in this Prospectus.
THE OFFERING: 500,000 Units of limited partnership interest
in the Partnership, each representing a
capital contribution of $1,000. MLPF&S is
acting as selling agent for the Partnership
and the General Partner. The minimum
investment is five Units ($5,000) and
additional Units may be purchased in
increments of $1,000. Eligible Investors must
submit completed subscription documents not
later than November 1, 1998, or such
subsequent date, not later than February 5,
1999, as the General Partner and MLPF&S may
determine. Subsequent to such date, the
General Partner will advise such investors as
to whether their subscriptions have been
accepted and thereupon MLPF&S shall promptly
debit funds from accepted investors' accounts
for payment into the Partnership's escrow
account.
The Partnership is also offering Units to ML
& Co. for purchase by it in connection with
its obligations under deferred compensation
plans offered by ML & Co. to certain of its
key employees. Such employees will not,
themselves, be Limited Partners of the
Partnership by virtue of their participation
in such plan. ML & Co. has advised the
Partnership that it may purchase up to
425,000 Units as a result of participation by
eligible employees in such deferred
compensation plan. See "Offering and Sale of
Units--Purchase of Units by ML & Co."
The General Partner will advise investors of
the termination date of the offering (the
"Offering Termination Date"). If
subscriptions (including subscriptions of ML
& Co.) for 75,000 Units are not received by
the Offering Termination Date, the offering
will be terminated, and all funds received
will be refunded with interest, if any,
actually earned thereon. If subscriptions for
more than 500,000 Units are received, the
General Partner may reject any subscription
in whole or part. Funds paid for any
subscription for Units that is rejected will
be refunded promptly. Certain maximum
purchase restrictions will be imposed on
Qualified Investors (see "Offering and Sale
of Units--Maximum Purchase by Qualified
Investor"). Qualified Investors admitted as
limited partners are hereinafter referred to,
together with the initial limited partner and
any substituted limited partners, as the
"Limited Partners". See "Offering and Sale of
Units".
THE PARTNERSHIP: A Delaware limited partnership formed on July
10, 1998. Its address is South Tower, World
Financial Center, 225 Liberty Street, New
York, New York 10080-6123 (telephone: (212)
236-7302). The Partnership will operate as a
closed-end investment company of the
management type under the Investment Company
Act of 1940. An order has been obtained from
the Securities and Exchange Commission (the
"SEC") exempting the Partnership from certain
provisions of such Act. The functions and
responsibilities of the General Partner and
the rights of the Limited Partners are
authorized by or specified in the Partnership
Agreement. See "The Partnership", "Summary of
the Partnership Agreement" and "Exemptions
from the Investment Company Act of 1940".
THE GENERAL PARTNER: KECALP Inc. (the "General Partner"), an
indirect subsidiary of ML & Co., is located
at South Tower, World Financial Center, 225
Liberty Street, New York, New York 10080-6123
(telephone: (212) 236-7302). The General
Partner will manage and make investment
decisions for the Partnership. KECALP Inc.
has served as the general partner of eight
limited partnerships, which have been
established since 1983, for investment by
qualifying employees of ML & Co.
(collectively, the "KECALP Partnerships"),
and it is contemplated that in the future it
will serve in the same capacity for similar
partnerships that may be offered. See "The
General Partner and Its Affiliates".
The General Partner has also been designated
to serve as Tax Matters Partner for the
Partnership with respect to all
administrative and judicial proceedings
relating to an audit of the Partnership's
U.S. Federal income tax information return.
See "Tax Aspects of Investment in the
Partnership".
INVESTMENT OBJECTIVE: The principal investment objective of the
Partnership is long-term capital
appreciation. It is expected that a
significant portion of its assets will be
invested in privately-offered equity
investments in U.S. and non-U.S. issuers. The
Partnership's investments may include
securities issued in leveraged buyout
transactions, financings of companies in an
early stage of development, investments in
growth equities and transactions involving
financial restructurings or recapitalizations
of operating companies, as described below.
Investments may also be made in real estate
opportunities. Investments in non-U.S.
issuers may include opportunities in both
emerging markets and developed countries. The
Partnership's investments may be made
directly in portfolio companies or through
the purchase of interests in other investment
funds, including hedge funds. The Partnership
may make other investments in equity and
fixed income securities that the General
Partner considers appropriate in terms of
potential for capital appreciation and/or
income generation. There can be no assurance
that the Partnership's investment objective
will be attained. See "Investment Objective
and Policies".
The Partnership anticipates that many of its
investments will be made available to it by
ML & Co. or its affiliates. Information
concerning potential sources of investments,
including potential co-investment
opportunities, is set forth under "Investment
Objective and Policies--Sources of Investment
Opportunities".
LEVERAGE: The Partnership is authorized to borrow funds
when it believes such action is desirable to
enable the Partnership to make new
investments or follow-on investments. Such
use of leverage would exaggerate increases or
decreases in the Partnership's net assets.
See "Investment Objective and
Policies--Leverage".
REINVESTMENT POLICY: The General Partner has the discretion to
reinvest all Partnership revenues. To the
extent portfolio investments are disposed of
within two years after the closing of the
sale of Units, the General Partner will
consider reinvesting all or a substantial
portion of the proceeds realized by the
Partnership. However, the General Partner
does not expect to reinvest proceeds from the
liquidation of portfolio investments (other
than temporary investments) occurring more
than two years after the closing of the sale
of Units, except in connection with follow-on
investments made in existing portfolio
companies. The General Partner may also cause
the Partnership to maintain reserves for
follow-on investments or to apply cash
received from investments to the prepayment
of any borrowings made by the Partnership. To
the extent that cash received by the
Partnership is not required for such purposes
or to reimburse the General Partner for any
expenses incurred, it will be distributed to
the Partners at least annually. See
"Investment Objective and Policies".
PARTNERSHIP DISTRIBUTIONS
AND ALLOCATIONS: If the Partnership receives the exemptive
order described under "Partnership Expenses",
items of income, gain, deduction, loss and
credit will generally be allocated to the
Partners in proportion to their capital
contributions. If the Partnership does not
receive such order, such items will generally
be allocated 99% to the Limited Partners and
1% to the General Partner; the General
Partner will not contribute any cash to the
Partnership in exchange for such 1% interest
beyond the $99.00 it contributed on formation
of the Partnership. Cash distributions will
be made in the same manner. The General
Partner may make distributions of Partnership
assets in kind, in addition to cash
distributions. See "Partnership Allocations
and Distributions".
In computing his federal tax liability, each
Limited Partner will be required to take into
account in computing his Federal income tax
liability his allocable share of the
Partnership's income, gain, loss, deductions,
credits and items of tax preference for any
taxable year of the Partnership ending within
or with the taxable year of such Limited
Partner, without regard to whether he has
received or will receive any distribution
from the Partnership. The Partnership has
adopted a calendar year for tax reporting
purposes. TO THE EXTENT THE PARTNERSHIP
INVESTS IN OTHER INVESTMENT FUNDS, IT MAY
EXPERIENCE DELAYS IN OBTAINING ANNUAL TAX
INFORMATION, WHICH MAY REQUIRE LIMITED
PARTNERS TO OBTAIN EXTENSIONS FOR FILING
INCOME TAX RETURNS. See "The Partnership" and
"Tax Aspects of Investment in the
Partnership".
DISSOLUTION: The Partnership term extends to December 31,
2039. However, pursuant to the Partnership
Agreement, the General Partner may dissolve
the Partnership, without the consent of the
Limited Partners, at any time after January
1, 2005. It is not the General Partner's
intention to dissolve the Partnership prior
to the time when the Partnership's equity
investments have matured and disposition of
its other portfolio investments can be
effected. See "Summary of the Partnership
Agreement".
COMPENSATION AND FEES: The Partnership will pay its organizational
and offering expenses in an amount of up to
1.5% of the proceeds of the offering. Under
the terms of an exemptive order requested
from the Securities and Exchange Commission
(the "SEC"), the Partnership will pay its
operating expenses and reimburse the General
Partner for its personnel, overhead and
administrative expenses attributable to the
Partnership, subject to an annual limit on
such expense payments and reimbursements of
1.5% of Limited Partners' capital
contributions. Under this exemptive order,
the Partnership will also pay commissions and
other fees and expenses relating to portfolio
investment transactions (including
non-completed transactions).
If the Partnership does not obtain the
exemptive order it has requested, the General
Partner will pay all expenses, fees,
commissions and other expenditures on behalf
of the Partnership. The General Partner will
be entitled to receive annual reimbursement
from the Partnership for operating expenses
incurred by the General Partner with respect
to the Partnership, in amounts up to 1% of
Limited Partners' capital contributions. The
Partnership will also reimburse the General
Partner for out-of-pocket transaction
expenses. Unreimbursed expenses paid by the
General Partner shall be deemed a
contribution to capital and be reflected in
the General Partner's capital account. Since
repayment of any positive amount in a
Partner's capital account is a priority item
upon dissolution, the General Partner may,
upon dissolution, recoup expenditures made on
behalf of the Partnership in addition to its
1% interest. See "Partnership Expenses" and
"Partnership Allocations and Distributions."
RISKS: The purchase of Units involves a number of
significant risk factors. See "Risk and Other
Important Factors".
HOW TO SUBSCRIBE: (a) The Qualified Investor completes, dates,
executes and delivers to KECALP Inc., a copy
of the Limited Partner Signature Page and
Power of Attorney attached as part of the
Subscription Agreement, a form of which is
attached as Exhibit B to this Prospectus.
(b) The Qualified Investor's MLPF&S
securities account will be debited in the
amount of $1,000 for each Unit (minimum
purchase of five Units) that he desires to
purchase. A securities account will be opened
by MLPF&S for any Qualified Investor who does
not have such an account.
<PAGE>
PARTNERSHIP EXPENSES
The Partnership will pay its organizational and offering expenses in an
amount of up to 1.5% of the proceeds of the offering. The Partnership will also
pay the expenses described below.
The General Partner has requested an exemptive order from the SEC
governing the expenses to be paid by the Partnership and similar partnerships
organized in the future. Under the terms of this order, the Partnership will pay
its operating expenses and reimburse the General Partner for its personnel,
overhead and administrative expenses attributable to the Partnership, subject to
an annual limit on such expense payments and reimbursements of 1.5% of Limited
Partners' capital commitments. Under such order, the Partnership will also pay
commissions and other fees and expenses relating to the acquisition, monitoring
and disposition of portfolio investments, including fees payable to MLPF&S,
expenses relating to evaluation and negotiation of prospective investments, and
litigation and similar expenses that are not subject to the annual limit on
operating expenses.
If the Partnership does not obtain the exemptive order it has
requested, the General Partner will pay all expenses, fees, commissions and
other expenditures on behalf of the Partnership, but will not be obligated to
pay debt service on interest charges incurred in connection with Partnership
investments. The General Partner will be entitled to receive annual
reimbursements from the Partnership, in amounts of up to 1.0% of the Limited
Partners' capital contributions, of operating expenses incurred by the General
Partner with respect to the Partnership. The Partnership will also reimburse the
General Partner for out-of-pocket transaction expenses relating to the
acquisition, monitoring and disposition of portfolio investments and the
evaluation and negotiation of prospective investments.. Unreimbursed expenses
paid by the General Partner shall be deemed a contribution to capital and be
reflected in the General Partner's capital account. Since repayment of any
positive amount in a Partner's capital account is a priority item upon
dissolution, the General Partner may, upon dissolution, recoup expenditures made
on behalf of the Partnership in addition to its 1% interest.
The following table is intended to assist potential investors in
understanding the operating expenses associated with investing in the
Partnership and assumes that the Partnership obtains the relief requested in the
SEC exemptive order application referred to above.
Limited Partner Transaction Expenses
Sales Load (as a percentage of offering price)......... None
Annual Expenses (as a percentage of net assets)
Management Fee......................................... (1)
Operating expenses and reimbursements to the
General Partner(2)(3)(4)..................... ....... 1.5%
----
Total Annual Expenses.................................. 1.5%
====
----------
(1) Although the Partnership does not pay a management fee to the
General Partner based upon a percentage of the assets or
profits of the Partnership, the Partnership will reimburse the
General Partner for its personnel, overhead and administrative
expenses attributable to the Partnership, subject to an annual
limit on such reimbursements (together with Fund operating
expenses) of 1.5% of Limited Partner's capital commitments.
The Partnership will also pay other expenses as described
above, including those relating to the acquisition, monitoring
and disposition of portfolio investments and the evaluation
and negotiation of prospective investments. The Partnership
currently anticipates that its total annual expenses will not
exceed the foregoing 1.5% amount, although there can be no
assurance that expenses will not exceed such amount.
(2) Does not include portfolio transaction expenses incurred by
the Partnership, management fees that may be payable by the
Partnership to managers of any investment funds in which the
Partnership invests, which will be accounted for as an item of
Partnership expense, or expenses incurred by entities in which
the Partnership invests.
(3) Operating expenses and reimbursements to the General Partner have
been estimated for the current year and assume Limited Partners'
capital contributions of $75 million, the minimum for the
Partnership's offering.
(4) The Partnership will incur a one-time interest expense in respect
of a borrowing incurred by the Partnership in August 1998 to
acquire a $5,625,000 investment in Orbital Imaging Corporation.
The borrowing accrues interest at a variable rate equal to
MLPF&S's cost of funds (currently 5.62%). The borrowing, which is
not included in the estimated operating expenses and
reimbursements to the General Partner, will be repaid in full out
of the proceeds of the offering.
Example
An investor would pay the following cumulative expenses on a
hypothetical $1,000 investment in the Partnership, assuming a 5% annual return:
One Year Three Years Five Years Ten Years
- -------- ----------- ---------- ---------
$15 $45 $75 $150
This "Example" assumes that all distributions are reinvested at net
asset value and that the percentage amounts listed under Annual Expenses remain
the same in the years shown. However, Limited Partners will not be able to
reinvest distributions of the Partnership. The above tables and the assumption
in the Example of a 5% annual return are required by regulations of the
Securities and Exchange Commission applicable to all investment companies. THE
ASSUMED 5% ANNUAL RETURN AND ANNUAL EXPENSES SHOULD NOT BE CONSIDERED A
REPRESENTATION OF ACTUAL OR EXPECTED PARTNERSHIP PERFORMANCE OR EXPENSES, BOTH
OF WHICH MAY VARY.
RISK AND OTHER IMPORTANT FACTORS
The purchase of Units offered hereby involves a number of significant
risk factors. In addition to risk factors set forth elsewhere in this
Prospectus, prospective purchasers should consider the following:
A. GENERAL RISKS
1. Risk of Unspecified and Unprofitable Investments. The proceeds of
this offering are intended to be invested primarily in speculative growth
securities most of which have not yet been selected by the General Partner.
Therefore, persons who purchase Units will not have an opportunity to evaluate
for themselves the specific investments in which funds of the Partnership will
be invested or the terms of any such investments. In addition, there can be no
assurance that the Partnership's investments will prove to be profitable. The
purchasers of Units must depend solely on the ability of the General Partner
with respect to the selection and timing of investments. See "The General
Partner and Its Affiliates" and "Investment Objective and Policies--Sources of
Investment Opportunities".
2. Availability of and Competition for Investments. The success of the
Partnership depends upon the availability of appropriate investment
opportunities. The availability of investment opportunities generally will be
subject to market conditions. It may be expected that the Partnership will
encounter substantial competition for certain investments, particularly from
other entities having similar investment objectives. There can be no assurance
that the Partnership will be successful in obtaining suitable investment
opportunities or that a desirable mix of investments will be achieved.
3. Delay in Partnership Investments. Although the General Partner will
use its best efforts to commit Partnership funds as promptly as practicable, it
is anticipated that there may be a significant period of time (up to three to
four years) before the proceeds from the offering will be fully committed. In
addition, investment funds in which the Partnership invests may not draw down on
the Partnership's commitment (i.e., require the Partnership to contribute the
funds it has previously committed) for an additional period of up to four to
five years. Such investment funds also may re-invest capital returned to them
from portfolio investments during an initial period. These delays in the
Partnership's investments will detract from the average annual return of an
investment in the Partnership.
4. Investment Risks. The Partnership is authorized to make equity
investments offering the potential for long-term capital appreciation in U.S.
and non-U.S. issuers. These investments may include equity investments in:
leveraged buyout transactions, companies in an early stage of development,
growth equities, and financial restructurings or recapitalizations of operating
companies, real estate opportunities and venture capital transactions.
These investments involve a high degree of business and financial risk
that can result in substantial losses. Among these are the risks associated with
investment in companies with little or no operating history and companies
operating at a loss or with substantial variations in operating results from
period to period. These companies may encounter intense competition from
established companies with greater resources. In addition, companies in
high-technology fields face special risks of product obsolescence. Leveraged
buyout investments typically involve a high degree of debt financing and the
highly leveraged financial structure of these transactions introduces
substantial additional risks. Investments in companies that undertake financial
recapitalization or restructuring transactions involve the risk, among others,
that the transaction may not resolve financial or operational conditions that
led to the recapitalization or restructuring; in addition, to the extent that a
company remains leveraged following the completion of such a transaction, an
equity investment in the company may involve risks similar to an equity
investment in a leveraged buyout transaction. Companies in which the Partnership
makes private equity investments frequently require additional capital.
Real estate investments are subject to a number of risks, including
uncertainty of cash flow to meet fixed obligations, adverse changes in local
market conditions and neighborhoods, changes in interest rates, the need for
unanticipated renovation, changes in real estate taxes and increases in other
operating expenses. Real estate investments may be illiquid. Investments in real
estate of the type contemplated by the Partnership are usually long term and can
be as long as fifteen years. Real estate investment cycles typically have lasted
three to five years, but recently have been longer.
The Partnership is authorized to make investments in high yield
corporate debt securities (also referred to as "junk bonds") offering the
potential for long-term capital appreciation. High yield debt securities are
predominantly speculative with respect to the capacity to pay interest and repay
principal in accordance with the terms of the security and generally involve a
greater volatility of price than securities in higher rating categories.
5. Use of Leverage. The Partnership has authority to utilize leverage
(i.e., borrowed funds or senior securities) in making investments as will many
of the entities in which the Partnership will make its investments. The use of
leverage, either by the Partnership or by the entities in which it invests,
would exaggerate increases or decreases in the Partnership's net assets and,
because of required debt service obligations, may result in delays in the
distribution of cash to Limited Partners. The Partnership Agreement does not
limit the amount of indebtedness that the Partnership may incur. The Investment
Company Act of 1940 (the "Investment Company Act") generally limits the amount
of indebtedness the Partnership may incur to 33-1/3% of its gross assets.
6. Illiquid Investments. Investments of the types to be made by the
Partnership are generally illiquid. Leveraged buyout and venture capital
investments may typically take from four to seven years to reach a state of
maturity where disposition can be considered. Investments in corporate
restructurings and recapitalization transactions may also require a substantial
time period before dispositions can be effected. In addition, investments
acquired by the Partnership in private transactions will generally be subject to
restrictions imposed by the Federal securities laws, including the Investment
Company Act, on resale by the Partnership. Investments made by the Partnership
in issuers in which ML & Co. or its affiliates have significant investment
positions may be subject to further limitations imposed by the Federal
securities laws which may delay the disposition of publicly-traded securities
owned by the Partnership.
7. Need for Investment Company Act Exemptions. In addition to the
restrictions described above, the Investment Company Act contains restrictions
on co-investments by a registered investment company (such as the Partnership)
and affiliates of its sponsor and on purchases of securities by a registered
investment company from affiliates of its sponsor. Exemptions under the
Investment Company Act may be required before the Partnership can make
investments in transactions where ML & Co. or its affiliates are co-investors or
where ML & Co. or its affiliates seek to sell an investment to the Partnership.
In this regard, the General Partner has obtained blanket exemptive relief from
the SEC permitting co-investments and other transactions with ML & Co. and its
affiliates in leveraged buyout and other equity investments. There can be no
assurance that the Partnership will be able to obtain similar exemptions in the
future with respect to proposed purchases and sales of portfolio securities in
transactions in which affiliates of the Partnership are participants and which
do not qualify under the terms of existing exemptions or those currently
pending. See "Investment Objective and Policies--Sources of Investment
Opportunities".
8. Reliance on the General Partner and Others. All decisions with
respect to the management of the Partnership will be made exclusively by the
General Partner. Limited Partners have no right or power to take part in the
management or control of the business of the Partnership. Accordingly, no person
should purchase Units unless such person is willing to entrust all aspects of
the management of the Partnership to the General Partner. There are limitations
imposed in the Partnership Agreement on the Limited Partners' ability to remove
the General Partner as general partner. As a minority interest investor, the
Partnership will make equity investments in corporations, general partnerships,
limited partnerships, grantor trusts or management programs where it is
permitted at most a limited role in influencing decisions of such ventures. See
"Summary of the Partnership Agreement".
9. Absence of Operating History and Management Experience. The
Partnership has been recently formed and has no operating history upon which
purchasers of Units may base an evaluation of its likely performance. While the
composition of its officers and directors has changed over the years since the
General Partner's formation, the General Partner has managed similar
partnerships for more than eleven years. See "The General Partner and Its
Affiliates".
B. INTERNATIONAL INVESTMENT RISKS
1. General. International investments involve certain additional risks,
including fluctuations in foreign exchange rates, different legal systems and
the existence or possible imposition of exchange controls or other foreign or
U.S. government laws or restrictions applicable to such investments. Investments
in different countries are subject to different economic, financial, political
and social factors. Because the Partnership may invest in securities denominated
in currencies other than the U.S. dollar, changes in foreign currency exchange
rates may affect the value of securities owned by the Partnership. With respect
to certain countries, there may be the possibility of expropriation of assets,
confiscatory taxation, high rates of inflation, political or social instability,
changes in laws and rules or in interpretations thereof, or diplomatic
developments which could adversely affect investments, or result in a total loss
of investments, in issuers in those countries. These risks may be heightened in
developing economies, including countries located in the Far East, the Indian
subcontinent, Eastern Europe and Latin America. In addition, certain foreign
investments may be subject to foreign withholding taxes. Further, satisfactory
custodial services for investment securities may not be available in certain
countries.
2. Regulatory Considerations. There will likely be less publicly
available information about a foreign company than about a U.S. company, and
foreign companies may not be subject to accounting, auditing and financial
reporting standards and requirements comparable to those to which U.S. companies
are subject. In addition, certain countries in which the Partnership may invest
may not have a comprehensive system of laws protecting the rights and interests
of investors (particularly foreign investors), and the enforcement of existing
laws may be inconsistent. The profitability of foreign investments may also be
impacted by regulatory burdens, such as lengthy regulatory approval processes
and strict environmental regulation. Some countries prohibit or impose
substantial restrictions on investments in their countries by foreign entities
such as the Partnership. Certain countries may also limit the ability of the
Partnership to dispose of investments by requiring regulatory approvals prior to
such disposition or by other means, including limiting the ability to convert
local currencies.
C. INVESTMENT FUND CONSIDERATIONS
1. General. Investments by the Partnership in investment funds involve
considerations or risks not otherwise present in direct investments. The
managers of investment funds are usually compensated from the assets of the
funds based upon a fixed percentage of assets or capital, and usually receive an
incentive performance component such as a carried interest in the profits
generated by the funds. These fees will be paid by the Partnership and will not
be counted toward the limitation on the annual expenses of the Partnership.
Further, to the extent the Partnership invests in investment funds, it will
surrender control over the underlying investment. In addition, investment funds
incur certain administrative and other expenses. As a result, the Partnership
may incur additional, indirect expenses with respect to investments in such
funds in the form of management compensation paid to such managers and other
expenses incurred by such funds. Furthermore, such funds may adopt time horizons
for their underlying investments that differ from that of the Partnership.
Investments in such funds may cause the expected term of the Partnership to
continue beyond the date the Partnership would otherwise have terminated and may
have a negative impact on investors' rate of return.
It is possible that the Partnership's allocable share of earnings from
an investment fund or a hedge fund for a taxable year could exceed the amount of
cash distributed to the Partnership by the investment fund for such year. As a
result, Limited Partners may receive allocations of income or gain during a
taxable year without a corresponding distribution of cash from the Partnership
to pay the related tax.
2. Delays in Preparation of Tax Information. It is expected that annual
tax information from investment funds in which the Partnership invests may not
be received in sufficient time to permit the Partnership to incorporate such
information into its annual tax information and distribute such information to
Limited Partners prior to April 15 of each year. As a result, Limited Partners
may be required to obtain extensions for filing Federal, state and local income
tax returns each year. Limited Partners anticipating tax refunds in respect of
such year will not be able to file their tax return requesting such refund until
receipt of the annual tax information from the Partnership. To the extent
practicable, the Partnership anticipates that it will provide estimated annual
tax information in a timely manner in order to assist Limited Partners in
estimating their tax liabilities. The Partnership's ability to make such
estimates will be dependent upon its ability to obtain estimated annual tax
information from the investment funds.
3. Investments in Hedge Funds. The Partnership may invest in hedge
funds which, for purposes of the Partnership's policy, consist of private
investment funds seeking to maximize total return through use of various trading
strategies. Investments in hedge funds are speculative and involve substantial
risks, including risks related to implementation of the funds' trading
strategies, leverage and investments in derivative instruments.
D. INCOME TAX RISKS
1. Fringe Benefits. The General Partner will incur various expenses in
connection with the organization and operation of the Partnership. Since Units
are being offered to ML & Co. employees and non-employee directors, it is
possible that the IRS would view the General Partner's payment of such expenses
as an indirect method of compensating the employee-Limited Partner (i.e., as a
fringe benefit). If the IRS were successful in such characterization, an amount
equal to the fair market value of the underlying goods and services provided by
the General Partner in connection with the Partnership might be includable in
the Limited Partner's gross income as additional compensation. The Limited
Partner may not, however, be allocated a Partnership deduction in an amount
corresponding to such income inclusion because some of such fees and expenses
incurred by the General Partner on behalf of the Partnership would be
attributable to nondeductible syndication expenses, or investment expenses
subject to the limitations on deductibility of itemized miscellaneous expenses,
or treated as part of the capitalized cost of the Partnership's portfolio
assets. See "Fringe Benefits" under "Tax Aspects of Investment in the
Partnership--Other Tax Considerations".
2. Possible Changes in Law. The rules dealing with Federal income
taxation are under continual review by Congress and the IRS, resulting in
frequent revisions of the Federal tax laws and regulations promulgated
thereunder and revised interpretations of established concepts. No assurance can
be given that, during the term of the Partnership, applicable Federal income tax
laws or the interpretations thereof will not be changed in a manner that would
have a material adverse effect on an investment in the Partnership.
E. CONFLICTS OF INTEREST
1. Conflicts with Respect to Investment Opportunities. Affiliates of
the General Partner may in the future perform investment advisory services for
other investment entities with investment objectives and policies similar to
those of the Partnership and such entities may compete with the Partnership for
investment opportunities. Conflicts may exist concerning allocations of
investments to the Partnership or other investment vehicles or programs (the
"Offshore KECALP Funds") that are offered to employees of subsidiaries of ML &
Co. located outside of the United States, including investment vehicles expected
to be offered concurrently with the offering by the Partnership. It is
anticipated that, to the extent permitted by the Investment Company Act or
exemptions, the Offshore KECALP Funds will co-invest with the Partnership in
making portfolio investments, except where such investments would not be
advisable for such vehicles due to tax or other considerations. Furthermore, ML
& Co. and its affiliates may invest directly in investments that would be
appropriate investments for the Partnership but are not made available to the
Partnership.
Subject to the provisions of the Investment Company Act or applicable
exemptions, the Partnership may invest in companies in which ML & Co. and its
affiliates (including other KECALP Partnerships (as defined below)) have an
existing investment. The General Partner will endeavor to resolve conflicts with
respect to investment opportunities in a manner deemed equitable to all to the
extent possible under the prevailing facts and circumstances. Because of
different objectives or other factors, a particular investment may be bought by
the Partnership, the General Partner or its affiliates or one of their clients
at a time when one of such entities is selling such investment. In addition,
affiliates of the General Partner, including its officers and directors, may
benefit to the extent the Partnership invests in securities offered to other
investors by MLPF&S in public offerings or private placements.
2. Relations with Issuers of Portfolio Investments. Affiliates of the
General Partner may receive management, investment banking or lending fees from
companies or investment funds or other entities in which the Partnership
invests. Affiliates of the General Partner, including MLPF&S, may also perform
financial services for issuers of securities held by the Partnership or for
affiliates of such issuers. These relationships could influence the General
Partner to take actions, or forbear from taking actions, that an independent
general partner might not take or forbear from taking.
3. Purchases of Securities Offered by Affiliates. Affiliates of ML &
Co. are involved in the origination of investments that may be acquired by the
Partnership. Purchases of such securities by the Partnership may increase sales
fees received by such affiliates and increase compensation of their employees
(who may include certain members of the Advisory Committee of the General
Partner).
4. Participation by an Affiliate as Underwriter. As an affiliate of the
General Partner, MLPF&S may experience a conflict of interest in performing its
due diligence in connection with the public offering of the Units. Although
MLPF&S believes that its investigation of the General Partner, the Partnership
and their affairs for purposes of this offering has in fact been as complete as
would be the case in dealing with nonaffiliated persons, the review performed by
MLPF&S cannot be considered independent.
5. Conflicts Resulting from ML & Co.'s Ownership of Units and the 1999
Deferred Compensation Plan. Conflicts may arise in the selection of investments
for the Partnership as a result of ML & Co.'s ownership of Units and the
participation in the 1999 deferred compensation plan by certain employees
involved with the Partnership. Employee participants in the 1999 deferred
compensation plan (including certain directors and officers of the General
Partner and members of the Advisory Committee of the General Partner who are
expected to participate through such plan and may participate on an economically
leveraged basis) will have an interest in seeking to maximize total return
(including the receipt of ordinary income) as opposed to capital gains.
Participants in such plan who are not Limited Partners of the Partnership would
receive no advantageous tax treatment for capital gains in respect of their
participation in such plan, while Limited Partners would receive such
advantageous treatment for capital gains. In addition, ML & Co., in light of its
anticipated significant holdings as a Limited Partner in the Partnership, would
have the ability to determine matters submitted to the vote of Limited Partners.
However, ML & Co. will agree to vote its Units in the same proportion as other
Limited Partners in respect of any matter submitted to the vote of Limited
Partners.
6. Lack of Separate Representation. The Partnership, the General
Partner and MLPF&S are represented by the same legal counsel and auditors.
However, should a dispute arise between the Partnership and either the General
Partner or any affiliate, the General Partner anticipates that it will retain
separate counsel or auditors as required for the Partnership for such matter.
7. Conflicts with Respect to Dissolution. The General Partner has the
authority to dissolve the Partnership, without the consent of the Limited
Partners, at any time after January 1, 2005. The General Partner does not intend
to dissolve the Partnership until its equity investments have reached a level of
maturity where their disposition can be considered and the Partnership can
dispose of its portfolio securities. However, the General Partner may dissolve
the Partnership, for its administrative convenience, at a time when some Limited
Partners might prefer to have the Partnership continue its operations.
F. PARTNERSHIP AND CONTRACTUAL RISKS
1. Funds Available from Offering. The potential profitability of the
Partnership and the risks associated therewith could be affected by the amount
of funds at its disposal. In the event the Partnership receives significantly
less than the maximum proceeds, its ability to invest in a diversity of
investments and obtain a spreading of risk will be lessened and thus the risks
associated with the investment may be increased.
See "Investment Objective and Policies".
2. Possible Loss of Limited Liability. The Partnership Agreement
provides certain rights for the Limited Partners by vote of a
majority-in-interest of the Limited Partners to, among other things, remove and
replace the General Partner, amend the Partnership Agreement, dissolve the
Partnership, approve or consent to certain actions of the General Partner and
approve the sale of all or substantially all of the Partnership's assets. (As
used in this Prospectus, "majority-in-interest" means the Limited Partners whose
aggregate capital contributions represent over 50% of the aggregate capital
contributions of all Limited Partners.) Although under current law in Delaware,
the jurisdiction of the Partnership's organization, such rights are permitted
without resulting in a loss of limited liability of Limited Partners, in some
jurisdictions there may be uncertainty as to whether the exercise of these
rights under certain circumstances could cause the Limited Partners to be deemed
general partners of the Partnership under applicable laws with a resulting loss
of limited liability. If the Limited Partners were deemed to be general partners
of the Partnership, they would be generally liable for Partnership obligations
(other than non-recourse obligations), which could be satisfied out of their
personal assets.
In order to minimize the risk of general liability, the exercise of
these rights by the Limited Partners is subject under the Partnership Agreement
to the prior receipt of an opinion of counsel to the effect that the existence
and exercise of such rights will not adversely affect the status of the Limited
Partners as limited partners of the Partnership. See "Summary of the Partnership
Agreement--Voting Rights". It should be noted that due to present and possible
future uncertainties in this area of partnership law, it may be difficult or
impossible to obtain an opinion of counsel to the effect that the Limited
Partners may exercise certain of their rights without jeopardizing their status
as Limited Partners.
3. Repayment of Certain Distributions. In the event that the
Partnership is unable otherwise to meet its obligations, its Limited Partners
may be required to pay to the Partnership or to pay to creditors of the
Partnership distributions previously received by them to the extent such
distributions are deemed to have been wrongfully paid to them. In addition,
Limited Partners may be required to repay to the Partnership any amounts
distributed which are required to be withheld by the Partnership for tax
purposes.
4. Absence of Market for Partnership Units. Purchasers of Units should
view their interest in the Partnership as a long-term, illiquid investment.
There is not now any market for Partnership Units and no market is expected to
develop. See "Transferability of Units". In addition, Units will not be
redeemable, except that the estate of any deceased Limited Partner will be able
to elect to have the Limited Partner's Units repurchased by the General Partner
or the Partnership for a price equal to the value of the Limited Partner's
interest determined at the next succeeding annual appraisal date, which will
generally occur as of the last day of the fiscal year. To have Units
repurchased, the estate of a Limited Partner must notify the General Partner of
its election to have the Units repurchased within 30 days after the date the
annual appraisal is sent to Limited Partners.
5. Reinvestment. The General Partner has the discretion to reinvest all
Partnership revenues. See "Summary of the Offering--Reinvestment Policy".
6. Dissolution. The General Partner has the right to dissolve the
Partnership without the consent of the Limited Partners at any time after
January 1, 2005. See "Summary of the Offering--Dissolution".
THE PARTNERSHIP
The Partnership was formed on July 10, 1998, as a limited partnership
under Delaware law. The Partnership has registered under the Investment Company
Act as a non-diversified, closed-end investment company. See "Exemptions from
the Investment Company Act of 1940" for a summary of certain exemptions from the
Investment Company Act applicable to the Partnership.
FINANCIAL STATUS OF THE PARTNERSHIP
The Partnership was formed with a minimal capitalization of $100.00,
consisting of capital contributions of $99.00 by the General Partner and $1.00
by the Initial Limited Partner. The Partnership has not commenced operations,
other than to borrow funds from an affiliate of the General Partner to complete
an investment in Orbital Imaging Corporation and invest its start-up monies in a
money market fund sponsored by a subsidiary of ML & Co. The Partnership has
adopted a calendar year for tax reporting purposes.
USE OF PROCEEDS
All of the proceeds of the offering of Units will be contributed to the
Partnership as capital contributions of the Limited Partners. After payment by
the Partnership of organizational and offering expenses, estimated at $500,000,
but not exceeding 1.5% of Limited Partners' capital contribution, the net
proceeds will be available for investment.
The Partnership will expend substantially all of its funds for
Partnership investments as soon as practicable. Pending selection of long-term
investments, Partnership funds will be temporarily invested in money market
instruments, securities issued by other investment companies and other
marketable securities. The Partnership may maintain reserves for follow-on
investments and other investment contingencies and, to the extent necessary, to
reimburse the General Partner for expenses it has incurred relating to the
Partnership.
INVESTMENT OBJECTIVE AND POLICIES
GENERAL
The principal investment objective of the Partnership is to seek
long-term capital appreciation. It is expected that a significant portion of the
Partnership's assets will be invested in privately-offered equity investments in
U.S. and non-U.S. issuers. The Partnership's investments may include securities
issued in leveraged buyout transactions, financings of companies in an early
stage of development, investments in growth equities and transactions involving
financial restructurings or recapitalizations of operating companies, as
described below. Investments may also be made in real estate opportunities.
Investments in non-U.S. issuers may include opportunities in both the emerging
markets and developed countries. The Partnership's investments may be made
directly in portfolio companies or through the purchase of interests in other
investment funds, including hedge funds. The Partnership may make other
investments in equity and fixed income securities that the General Partner
considers appropriate in terms of their potential for capital appreciation
and/or income generation. There can be no assurance that the investment
objective of the Partnership will be attained.
While privately-offered equity investments of the types expected to be
acquired by the Partnership generally have the potential for achieving greater
appreciation than investments in publicly-traded securities of established
companies, these investments are highly speculative and involve substantial
risks which are increased by the long-term nature and limited liquidity of such
investments. It is anticipated that the proceeds of the offering will be
invested, or committed for investment, within three to four years after the date
the Partnership commences operations. To the extent portfolio investments are
disposed of within two years after the closing of the sale of Units, the General
Partner will consider reinvesting all or a substantial portion of the proceeds
realized by the Partnership. However, the General Partner does not expect to
reinvest proceeds from the liquidation of portfolio investments (other than
temporary investments) occurring more than two years after the closing of the
sale of Units, except in connection with follow-on investments made in existing
portfolio companies.
The Partnership may invest, without limit, in the securities of
non-U.S. corporations and other issuers. While there are no prescribed limits on
the geographic allocation of the Partnership's international investments, the
Partnership expects that a substantial portion of these investments may be made
in developing countries, including developing countries located in the Far East,
the Indian subcontinent, Eastern Europe (including the former Soviet Union) and
Latin America. The General Partner believes that private equity investments in
growing companies in developing countries are consistent with the Partnership's
investment objective and can provide attractive opportunities.
In addition to its direct investments, the Partnership may invest in
U.S. or non-U.S. investment funds offering opportunities consistent with its
investment objective. The Partnership expects that investments in investment
funds organized or operating outside the United States will be made to
facilitate the Partnership's investments in selected regions or industries. In
addition, such investments may be made when it is considered more efficient to
invest in a particular market on an indirect basis rather than through direct
investments in non-U.S. issuers. The Partnership expects that domestic
investment funds in which it invests may have access to certain investment
opportunities that will not otherwise be available to the Partnership. In
addition, managers of investment funds may have specialized investment skills
regarding certain industries, types of investments or regions. The Partnership
may also invest in hedge funds as described below.
The Partnership may not change its investment objective unless
authorized by the vote of a majority-in-interest of the Limited Partners of the
Partnership.
SOURCES OF INVESTMENT OPPORTUNITIES
The Partnership expects to locate suitable investments from a variety
of sources, including affiliates of the General Partner and third parties.
Although the Partnership cannot predict what percentage of its investments will
be in opportunities presented by affiliates of the General Partner or by third
parties, it expects that a significant portion will be invested in opportunities
presented by affiliates of the General Partner. See "The General Partner and Its
Affiliates--Significant Affiliates of the General Partner".
INVESTMENT FACTORS
Prospective investments will be evaluated by the General Partner upon
selection factors established by the General Partner from time to time. The
following are typical of the factors which may be considered by the General
Partner:
(1) the potential return that may be earned from the
investment in relation to the degree and nature of
the risks associated with such investment (e.g.,
industry risks or risks related to the structure of
the investment opportunity);
(2) the degree of diversification in the Partnership's
investment portfolio;
(3) the financial stability, creditworthiness and
reputation of any proposed partners or joint
venturers;
(4) in the case of indirect investments made through
third parties, the background, experience and, where
applicable, prior performance of the issuer of the
constituent securities;
(5) the potential return available in alternative
investments; and
(6) other considerations relative to a specific
investment being considered.
TYPES OF INVESTMENTS
Leveraged buyout transactions typically involve the purchase of public
or privately-held corporations, or divisions or subsidiaries of such
corporations, through financing provided by equity investors and debt financing.
The transactions generally involve a significant degree of debt financing and
the highly leveraged financial structure of these investments may introduce
substantial risks to equity investors apart from those directly related to a
company's operations. The Partnership anticipates that it may seek to co-invest
in a number of these investments with ML & Co. or its affiliates.
The Partnership also expects that it will make investments in venture
capital transactions offering investment potential consistent with the
Partnership's objective of seeking long-term capital appreciation. To the extent
the Partnership makes such investments, it expects that these investments will
generally consist of investments in a limited number of new companies or
companies in an early stage of development that the General Partner believes
have significant appreciation and profit potential. Typically venture capital
investments may take from four to seven years to reach a state of maturity where
disposition can be considered.
The Partnership anticipates that it will also invest in "growth
equities". These investments are equity investments in mid- to later-stage
companies seeking to expand current operations or enter new types of business.
The Partnership anticipates that it may also make equity investments in
transactions involving financial restructurings or recapitalizations of
operating companies. It is expected that these investments would be made in
connection with the restructuring or recapitalization of a leveraged company
pursuant to which a portion of its outstanding capitalization is to be exchanged
for, or repaid from the proceeds of the issuance of, one or more classes of new
securities. A company will generally undertake a financial restructuring or
recapitalization transaction because its financial structure is overly leveraged
in light of its current or anticipated operations. These companies may also be
encountering difficulties in meeting current debt service payments. The
Partnership anticipates that it will seek to co-invest in financial
restructuring or recapitalization transactions with ML & Co. or its affiliates.
The Partnership may also invest a portion of its assets in real estate
investments.
In considering international investments, the Partnership may seek
investments particularly in emerging markets, where there is generally more
limited access to capital than in developed countries. Such international
investments may include companies in a variety of sectors, including
manufacturing, telecommunications, infrastructure, and financial and other
services. In reviewing international investment opportunities, the General
Partner will consider factors such as whether companies have an established
record of profitability, proven management capability, the potential for above
average rates of growth, a significant market share and competitive advantages
in their markets (such as barriers to entry). The General Partner will also
review the potential exit strategies with respect to international investments,
and factors particular to the location of a company such as the availability of
trained labor, political, economic and social conditions and tax and regulatory
considerations.
The investment funds in which the Partnership may invest include
investment vehicles that are deemed to be "investment companies" under the
Investment Company Act and similarly managed investment vehicles organized
outside the United States that are outside the scope of such Act. The Investment
Company Act contains limitations on the ability of the Partnership to invest in
entities that are considered "investment companies" for purposes of such Act,
although this limitation does not apply to the Partnership's investments in
U.S.-organized private investment funds. Pursuant to the Investment Company Act,
the Partnership may invest generally no more than 10% of its total assets in
interests in other investment companies (as defined in such Act) and no more
than 5% of its total assets in any one investment company. To the extent the
Partnership and its "affiliated persons" (as defined in the Investment Company
Act) own no more than 3% of the outstanding interest in an investment company,
the Partnership's ownership of the securities of such investment company is not
subject to the foregoing 5% and 10% limitations.
The Partnership may invest in hedge funds. These funds, for purposes of
the Partnership's policy, consist of private investment partnerships or other
private investment funds seeking to maximize total return through use of various
trading strategies. The Partnership anticipates that the hedge funds in which it
may invest will typically operate on a leveraged basis and may reserve authority
to maintain long and short positions in equity and debt securities and to invest
in a variety of financial instruments, including derivative instruments,
warrants, swap agreements and currency-related obligations, and commodities. The
Partnership expects that it will typically re-invest income or gains generated
by investments in hedge funds until such time as the Partnership disposes of its
investments in a particular fund.
The Partnership may make direct investments in high yield
non-convertible corporate debt securities that the General Partner believes have
significant potential for capital appreciation and/or income generation. These
securities may be acquired in restructuring or reorganization transactions in
which ML & Co. or its affiliates are participating as financial adviser or in
other capacities. High yield debt securities, also referred to as "junk bonds",
are regarded as predominantly speculative as to the issuer's ability to make
payments of principal and interest. The Fund also may make investments in funds
that invest in high yield corporate debt securities. The Fund will not invest
more than 30% of its total assets in the aggregate in hedge funds and high yield
non-convertible high yield bonds. See "Risk and Other Important Factors".
After an initial equity investment in transactions described above, the
Partnership anticipates that it may, at times, provide additional or follow-on
funds to the issuer. Follow-on investments may be made pursuant to rights to
acquire additional securities, or otherwise, in order to increase the
Partnership's position in a successful or promising portfolio company. The
Partnership may also be called on to provide follow-on investments for a number
of other reasons including providing additional capital to a company to fully
implement its business plans, to develop a new line of business or to recover
from unexpected business problems.
The Partnership will not invest more than 15% of its assets in any one
portfolio company. For purposes of this limitation, to the extent the
Partnership invests in an investment fund or other pooled investment vehicle,
the 15% limit will be applicable to the underlying investments owned by such
investment vehicle rather than to the Partnership's investment in the investment
vehicle. The equity investments made by the Partnership in portfolio companies
will typically be structured in negotiated private transactions and will
generally be restricted as to the manner of resale or disposition. The
securities acquired by the Partnership will primarily consist of common stocks
and securities convertible into common stocks, but may also consist of a
combination of equity and debt securities and warrants, options and other rights
to obtain such securities or, in the case of high yield debt securities, the
debt securities themselves.
PROPOSED INITIAL INVESTMENTS
As of the date of this Prospectus, the General Partner has approved the
purchase by the Partnership of 14 investments, the details of which are set
forth below. With the exception of the investment in Orbital Imaging
Corporation, which the Partnership has completed with funds borrowed from an
affiliate of the General Partner, the Partnership expects that these investments
will be acquired following the closing of its offering. It is anticipated that,
to the extent permitted by the Investment Company Act or exemptions therefrom,
each of the investments that are deemed suitable investments for the Offshore
KECALP Funds will be allocated proportionately among the Partnership and the
Offshore KECALP Funds based upon uncommitted capital (or, prior to the closings
of the Offshore KECALP Funds, based upon the estimated uncommitted capital of
such funds), although such investments may be allocated in a different manner at
the discretion of the General Partner. The Offshore KECALP Funds may refrain
from investing in one or more of the investments due to tax or other
considerations. The cost of the investments that the General Partner has
approved for investment by the Partnership and, to the extent suitable, the
Offshore KECALP Funds, aggregates approximately $125 million ($142 million
pending determination of final investment terms). There can be no assurance that
the Partnership will acquire each of the following investments, or that the
Partnership will acquire such investments in the amounts indicated.
THE ADVENT CENTRAL & EASTERN EUROPE II L.P.
- -------------------------------------------
The Advent International Corporation formed the $200 million Advent
Central & Eastern Europe II Limited Partnership ("Advent") the successor to the
Advent Private Equity Fund-Central Europe LP ("APEF-CE"). It will own a
diversified portfolio of investments in companies mainly in Hungary, Poland, the
Czech Republic and Slovakia, continuing the investment program Advent
established in Central Europe, but extending the investment region to cover
Romania and Croatia. The General Partner has approved an investment of $5.0
million in Advent.
AMERICAN CELLULAR CORPORATION
- -----------------------------
American Cellular Corporation ("AmCell") was formed through a leveraged
buyout of PriCellular Corporation ("PriCellular"), a company originally taken
public in December, 1994, whose shares were quoted on the NASDAQ. Spectrum
Equity Investors L.P. II ("Spectrum") and MLC Industries ("MLC") formed the
buyer group and restructured PriCellular's management with individuals from MLC.
AmCell owns and operates FCC-licensed cellular systems primarily in rural areas
of the middle and eastern U.S. The company sells and markets its products and
services principally under the CELLULARONE brand name. The General Partner has
approved an investment of $4.5 million in AmCell.
THE BEACON GROUP ENERGY INVESTMENT FUND II, L.P.
- ------------------------------------------------
The Beacon Group Energy Investment Fund II, L.P. ("Beacon") is a $1
billion limited partnership fund managed by the Beacon Group, L.L.C., making
equity and/or equity-related investments in energy companies and energy-related
assets across the entire "energy chain" from extraction through transportation
and processing to end use. Beacon manages its risk exposure to the volatility of
energy prices through the use of strategic hedging techniques to minimize
commodity-pricing risk. The General Partner has approved an investment of $15.0
million in Beacon.
COLONY INVESTORS III, L.P.
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Colony Investors III, L.P. ("Colony") is a $1 billion limited
partnership fund managed by Colony Capital, Inc. investing in real estate
related businesses. Three themes define Colony's strategic approach: (i)
investing ahead of the general market by early identification of capital
misalignment and anticipation of areas of cyclical recovery, (ii) capitalizing
on significant complexity, information advantages and proprietary transaction
sourcing to secure investments with limited competitive pressures and (iii)
early identification of optimal exit strategies and intensive management aimed
at maximizing values. The General Partner has approved an investment of $15.0
million in Colony.
CREST COMMUNICATIONS PARTNERS L.P.
- ----------------------------------
Crest Communications Partners L.P. ("Crest") is a limited partnership
fund seeking to raise $200 million. It is managed by Crest International
Holdings LLC. Crest intends to make majority and significant minority
investments in private equity and equity-related securities of companies in the
telecommunications, media and information-based industries. Crest believes it
has a compelling combination of key strategic relationships, industry knowledge
and private equity investing experience to capitalize on the industry's demand
for private equity engendered by the introduction of new technologies,
decreasing regulation and increasing worldwide demand for telecommunication
products. The General Partner has approved an investment of $5.0 million in
Crest.
DOLPHIN COMMUNICATIONS FUND, L.P.
- ---------------------------------
Dolphin Communications Fund, L.P. ("Dolphin") is a limited partnership
fund, managed by Dolphin Communications, L.P., seeking to raise $150 million.
Dolphin intends to make equity and equity-related investments, mainly in private
communications companies throughout the United States. Dolphin's objective is to
invest primarily in expansion stage companies with a strong industry and
business franchise, experienced management and potential for substantial capital
appreciation. The General Partner has approved an investment of $5.0 million in
Dolphin.
INNOVA/98, L.P.
- ---------------
Innova/98, L.P. ("Innova") is a $125 million limited partnership
organized to make equity and equity linked investments in Central European
countries. Innova will have an anchor presence in Poland, with investments in
Hungary, Romania, and the Czech Republic. The Fund is being organized by Innova
Capital, LLC and is the successor to Poland Partners, L.P., a limited
partnership focused on investing in Poland. The General Partner has approved an
investment of $5.0 million in Innova.
INSURANCE PARTNERS II, L.P.
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Insurance Partners II, L.P. ("Insurance Partners") is projected to be a
$1.5 billion limited partnership fund managed by Capital Z Partners, L.P. It
will make investments in a diversified global portfolio of insurance, financial
services and healthcare services companies and other related businesses.
Insurance Partners will focus primarily on opportunities within the United
States and Western Europe and, to a lesser extent, the emerging markets of Asia,
Latin America and Eastern Europe. The Zurich Group, a leading global financial
services and insurance organization, has committed $750 million. The General
Partner has approved an investment of $20.0 million in Insurance Partners.
JERUSALEM VENTURE PARTNERS, L.P.
- --------------------------------
Jerusalem Venture Partners, L.P. ("Jerusalem Ventures") is a $75
million limited partnership fund managed by Oxton Israel Capital Ltd. Jerusalem
Ventures invests in venture capital opportunities to expand Israeli-based
technology companies through international growth and expansion. The portfolio
companies will be selected for their international growth potential due to a
demonstrable competitive advantage typically resulting from superior product
development capabilities, and the ability to attract strong management teams
capable of establishing leading positions among international players. The
General Partner has approved an investment of $2.0 million in Jerusalem
Ventures.
KINGSBURY CAPITAL PARTNERS, L.P. III
- ------------------------------------
Kingsbury Capital Partners, L.P. III ("Kingsbury") is a $30 million
California-based limited partnership seeking to maximize long term capital
appreciation by investing in U.S. companies with products and services in human
health care. Kingsbury plans to invest in start-up companies, development stage
companies and companies in the portfolios of the predecessor funds, Kingsbury
Capital Partners, L.P. I and II. Kingsbury is managed by Kingsbury Associates,
L.P. The General Partner has approved an investment of $10.0 million in
Kingsbury.
ORBITAL IMAGING CORPORATION
- ---------------------------
Orbital Imaging Corporation ("Orbimage") is a satellite operator in the
global space-based imagery industry. Orbimage develops and operates a fleet of
small, low-cost, low-altitude-orbit, earth observation satellites to collect,
process and distribute digital imagery of land areas, oceans and weather.
Satellite-provided digital imagery can produce spatial and spectral information,
for forestry, crop health, urban growth and development, the locations and
movements of military assets, land and ocean-based natural resources, weather
patterns and wind conditions. The General Partner has approved an investment of
$7.5 million in Orbimage.
QUAD-C PARTNERS V, L.P.
- -----------------------
Quad-C Partners V, L.P. ("Quad-C") is a limited partnership which is
managed by Quad-C Advisors V, L.L.C. Quad-C will focus primarily on taking
majority ownership positions, in conjunction with existing management teams, in
leveraged acquisitions and recapitalizations of middle-market companies with
enterprise values ranging from $50 million to $250 million. Quad-C believes its
consistent, disciplined, team-oriented approach and substantial network of
proprietary contacts is a competitive advantage. The General Partner has
approved an investment of $10.8 million in Quad-C.
VOYAGER CAPITAL FUND I, L.P.
- ----------------------------
Voyager Capital Fund I, L.P. ("Voyager") is a limited partnership fund,
managed by Voyager Capital, L.L.C. seeking to raise $50 million. Voyager invests
in private information technology companies located primarily in the Pacific
Northwest, a region rich in emerging opportunities spawned by first generation
companies such as Microsoft, Adobe, AT&T Wireless and others but underserved by
venture capital. The General Partner has approved an investment of $5.0 million
in Voyager.
WINDWARD CAPITAL PARTNERS II, L.P.
- ----------------------------------
Windward Capital Partners II, L.P. ("Windward") is a $500 million
limited partnership fund which will be managed by Windward Capital Partners,
L.P. Windward will make control investments in leveraged buyouts and
recapitalizations primarily of U.S. based industrial companies. Windward
differentiates itself through its extensive network of operating executives who
help source and complete transactions, serve as Board members and/or manage
operations of investee companies. The General Partner has approved an investment
of $15.0 million in Windward.
TEMPORARY INVESTMENTS
Prior to the expenditure of the capital contributions of the Limited
Partners, and pending distributions of available cash, the Partnership will
invest funds in various types of marketable securities. Reserves maintained for
follow-on investments or to reimburse the General Partner for expenses it has
incurred will also be invested in marketable securities. These securities
include money market instruments and securities issued by taxable or tax-exempt
money market funds (including funds sponsored by affiliates of the General
Partner). An exemptive order obtained from the Securities and Exchange
Commission permits the Partnership to purchase money market instruments, shares
of money market funds and certain other securities from affiliates of ML & Co.
in principal transactions.
REINVESTMENT POLICY
The General Partner has the discretion to reinvest all Partnership
revenues. To the extent portfolio investments are disposed of within two years
after the closing of the sale of Units, the General Partner will consider
reinvesting all or a substantial portion of the proceeds realized by the
Partnership. However, the General Partner does not expect to reinvest proceeds
from the liquidation of portfolio investments (other than temporary investments)
occurring more than two years after the closing of the sale of Units, except in
connection with follow-on investments made in existing portfolio companies. To
the extent that cash received by the Partnership is not required for such
purposes or to reimburse the General Partner for expenses incurred by it, such
cash will be distributed to the Partners at least annually.
LEVERAGE
The Partnership Agreement permits the General Partner to borrow funds
on behalf of or lend funds to the Partnership. The General Partner will obtain
funds for making Partnership investments when it believes such action is
desirable. The Partnership may also borrow funds to enable it to make follow-on
investments with respect to any direct investments it might make in portfolio
companies. However, it is expected that the Partnership would not otherwise
incur substantial debt with respect to other types of investments. The
Investment Company Act generally limits the amount of indebtedness the
Partnership may incur to 33-1/3% of its gross assets. However, the General
Partner has obtained an order from the Securities and Exchange Commission
applicable to the Partnership which permits the Partnership to enter into
non-recourse loans relating to investments other than securities without regard
to such limitation.
The use of leverage would exaggerate increases or decreases in the
Partnership's net assets. To the extent that Partnership revenues are required
to meet debt service obligations, the Partners may be allocated income (and
therefore tax liability) in excess of cash available for distribution.
LIQUIDATION OF INVESTMENTS
The Partnership intends to liquidate its portfolio investments prior to
dissolution. Leveraged buyout and venture capital investments typically require
from four to seven years to reach a state of maturity before disposition can be
considered. Investments in corporate restructuring and recapitalization
transactions may also require a substantial holding period. Investments in
partnerships involved in real estate investments may also be illiquid for
significant periods, including periods extending for the term of the underlying
investment vehicle. As a result, the Partnership's investments will generally be
held for a significant time period until disposition can be considered through
negotiated private sales or sales made in the public market pursuant to
exemptions from registration under the Federal securities laws. The Partnership
expects to utilize the services of MLPF&S, to the extent permitted by the
Investment Company Act, in executing transactions for the sale of its
investments. In the absence of a specific exemption, the Partnership is
generally precluded by the Investment Company Act from selling portfolio
securities, including high yield debt securities, to MLPF&S on a principal
basis.
INVESTMENT RESTRICTIONS
The Partnership has adopted the following investment restrictions which
may not be changed unless authorized by an amendment of the Partnership
Agreement by the vote of a majority-in-interest of the Limited Partners of the
Partnership. These restrictions provide that the Partnership may not (i) issue
senior securities other than in connection with borrowings described in (iii)
below, (ii) make short sales of securities, purchase securities on margin,
except for use of short-term credit necessary for the clearance of transactions,
or write put or call options, (iii) borrow amounts in excess of 33-1/3% of its
gross assets, except that the Partnership may enter into non-recourse loans
relating to investments other than securities without regard to such limitation,
(iv) underwrite securities of other issuers, except insofar as the Partnership
may be deemed an underwriter under the Securities Act of 1933 in selling
portfolio securities, (v) invest more than 25% of its Partners' capital
contributions in the securities of issuers in any particular industry, except
for temporary investments in United States Government and Government agency
securities, domestic bank money market instruments and money market funds, or
(vi) make loans to other persons in excess of 33-1/3% of its gross assets,
provided that investments in privately offered debt securities issued by
entities in which the Partnership has an equity participation or with which the
Partnership has contracted to acquire an equity participation are not considered
loans for purposes of this restriction. In addition, the Partnership will not
invest any of its assets in the securities of other registered investment
companies or investment companies organized outside of the United States, except
to the extent permitted by the Investment Company Act.
THE GENERAL PARTNER AND ITS AFFILIATES
KECALP Inc., an indirect wholly-owned subsidiary of ML & Co., is the
General Partner of the Partnership and as such will manage and control the
business and affairs of the Partnership and invest Partnership funds. The
General Partner is a Delaware corporation formed in June 1981 for the purpose of
serving as general partner of employee benefit partnerships such as the
Partnership, and has its business and executive offices at South Tower, World
Financial Center, 225 Liberty Street, New York, New York 10080-6123 (telephone:
(212) 236-7302). Although most of the officers and directors of the General
Partner have been employed in the financial community for many years, the
experience of the General Partner in managing portfolios of investments has been
limited to the management of eight partnerships similar to the Partnership. Two
of the partnerships have recently been dissolved, having distributed all of the
net proceeds of their investment portfolios. Certain of the officers and
directors of the General Partner and members of the Advisory Committee (as
defined below) are expected to participate in the 1999 deferred compensation
plan or purchase Units directly and may participate on an economically leveraged
basis. The directors and principal officers of the General Partner and their
business experience for the past five years are:
John L. Steffens Chairman of the Board and Director
Matthias B. Bowman President, Chief Investment Officer and
Director
Rosemary T. Berkery Vice President and Director
James V. Caruso Vice President and Director
Mark B. Goldfus Vice President and Director
Andrew J. Melnick Vice President and Director
Mary E. Taylor Vice President and Director
Edward J. Higgins Vice President
Margaret T. Monaco Vice President and Chief Administrative
Officer
Robert F. Tully Vice President and Treasurer
Margaret E. Nelson Secretary and Counsel
John L. Steffens, age 56, Chairman of the Board and Director. Mr.
Steffens has served the General Partner as a member of the Board of Directors
since 1981. Mr. Steffens is Vice Chairman and Head of the Domestic Private
Client Group of ML & Co. From 1990-1996, Mr. Steffens was Executive Vice
President and Head of the Private Client Group of ML & Co. Prior to that, from
July 1985, he was President of the Consumer Markets Sector of ML & Co.
Matthias B. Bowman, age 50, President, Chief Investment Officer and
Director. Mr. Bowman has served the General Partner in various capacities since
1981. Previously, Mr. Bowman managed a department within the Investment Banking
Group that had responsibility for certain of the Group's principal investments.
Mr. Bowman has been a Managing Director in the Investment Banking Group of ML &
Co. since 1978 and a Vice Chairman since 1993.
Rosemary T. Berkery, age 44, Vice President and Director. Ms. Berkery
has been associated with the General Partner since 1993. Ms. Berkery is a Senior
Vice President of ML & Co. and Co-head of Global Securities Research and
Economics. From 1993 until 1997, Ms. Berkery served as General Counsel of the
Corporate Law Department. From 1988 until 1993, Ms. Berkery was Assistant
General Counsel of MLPF&S and General Counsel to the Investment Banking Group.
James V. Caruso, age 47, Vice President and Director. Mr. Caruso has
served the General Partner in various capacities since 1981 and as a member of
the Board of Directors since 1986. Mr. Caruso is a Director in the Investment
Banking Group of ML & Co., managing the Investment Banking Group Corporate
Accounting Department and the Controller's area of the Partnership Analysis and
Finance Group. He also serves as the chief administrative officer for certain of
ML & Co.'s key employee investment partnerships and is also an officer and
Director of other ML & Co. subsidiaries which serve as general partners or
managers for certain ML & Co. partnerships and other entities.
Mark B. Goldfus, age 51, Vice President and Director. Mr. Goldfus was
elected to the Board of Directors of the General Partner in 1997. Mr. Goldfus is
General Counsel of the Corporate Law Department of ML & Co. and a Senior Vice
President of MLPF&S. From January 1985 until April 1997, Mr. Goldfus was Vice
President of Merrill Lynch Asset Management.
Andrew J. Melnick, CFA, age 56, Vice President and Director. Mr.
Melnick has served the General Partner as a member of the Board of Directors
since 1990. Mr. Melnick is a Senior Vice President of MLPF&S and co-head of
Global Research & Economics at ML & Co. From 1988 to March 1997, Mr. Melnick was
Director of the Global Fundamental Equity Research Department.
Mary E. Taylor, age 37, Vice President and Director. Ms. Taylor was
elected to the Board of Directors of the General Partner in February 1998. Ms.
Taylor is a Senior Vice President, Human Resources of ML & Co. From 1989 until
1998, Ms. Taylor served in the Investment Banking Group of ML & Co., most
recently as a Managing Director and relationship manager for major healthcare
services companies.
Edward J. Higgins, age 46, Managing Director and Investment Officer of
KECALP. Mr. Higgins joined the Investment Advisor in 1998. Mr. Higgins
previously has been a Managing Director in the Investment Banking Group of ML &
Co. From 1990 to 1998, he was responsible for a number of the firm's major
global corporate clients in the manufacturing, natural resources,
telecommunication and transportation. He has directed ML's efforts as global
coordinator for the privatization of Indonesia's international and domestic
telecommunications providers and has been responsible for various aspects of the
firm's world-wide privatization activities.
Margaret T. Monaco, age 50. Ms. Monaco has served the General Partner
as Vice President and Chief Administrative Officer since 1998. Ms. Monaco was
the Principal of Probus Advisors, a financial and management consulting
business, from 1993 until joining KECALP Inc. Previously, she was Vice President
and Treasurer of The Limited, Inc. She is a director of Barnes & Noble, Inc.
Robert F. Tully, age 50, Vice President and Treasurer. Mr. Tully has
served the General Partner as a Vice President and Treasurer since 1993. Mr.
Tully has been a Vice President in the Investment Banking Group of ML & Co.
since 1989.
Margaret E. Nelson, age 48, Secretary and Counsel. Ms. Nelson has
served the General Partner as Counsel and Corporate Secretary since 1993. Ms.
Nelson is a Director and Senior Counsel in the Corporate Law Department of the
General Counsel's Office of ML & Co.
In addition, the General Partner has an advisory committee (the
"Advisory Committee") to assist the directors and principal officers of the
General Partner in evaluating investment opportunities presented to the
Partnership. The members of the Advisory Committee and their business experience
for the past five years are:
Kevin K. Albert
James J. Burke, Jr.
Kevin M. Cox
Paul R. Galietto
Alain Lebec
G. Kelly Martin
Alison J. Mass
Steven M. Milunovich
Daniel T. Napoli
Stephen I. Silverman
Charles K. Sweeney
Nathan C. Thorne
Daniel P. Tully
Kevin K. Albert, age 45. Mr. Albert was appointed to the Advisory
Committee in April 1997. Mr. Albert is head of the Private Equity Group of ML &
Co. Mr. Albert has also served as a Managing Director in the Investment Banking
Group since 1988 and as a Vice President in such group from 1983 to 1988.
James J. Burke, Jr., age 47. Mr. Burke has served the General Partner
in various capacities since 1987. Mr. Burke is a Partner and Director of
Stonington Partners, Inc., a private investment firm, a position that he has
held since 1993. He has also been a member of the Board of Directors of MLCP
since 1987. He was the Managing Partner of MLCP from 1993 to July 1994 and
President of MLCP from 1987 to 1994. Mr. Burke was also a Managing Director of
the Investment Banking Division of MLPF&S from 1985 to 1994.
Kevin M. Cox, age 45. Mr. Cox has served the General Partner as a
member of the Advisory Committee since 1990. Mr. Cox is a Managing Director and
head of Capital Commitment Management in Debt Markets. Prior to that he was head
of the Leveraged Finance Group in New York and of MLPF&S's Investment Banking
office in Tokyo. Mr. Cox, who has been with ML & Co. since 1984, has also held
various positions in the Merchant Banking, High Yield and Treasury/Finance
departments.
Paul R. Galietto, age 41. Mr. Galietto was appointed to the Advisory
Committee in July 1998. Mr. Galietto is a Managing Director of ML & Co.'s
International Equities Group (U.S.) which is responsible for the delivery of
non-U.S. equity research and capital markets products to U.S.-based
institutional investors. He also has responsibility for non-dollar trading in
the U.S. Mr. Galietto has more than 15 years experience in institutional equity
sales and management including both U.S. domestic and international equity
products.
Alain Lebec, age 48. Mr. Lebec has served the General Partner in
various capacities since 1987. Mr. Lebec is a Vice Chairman of the Investment
Banking Group of ML & Co. Mr. Lebec joined ML & Co. as a Managing Director in
the Investment Banking Group, and has been co-head of its Mergers and
Acquisitions Department from 1988 to 1993 and head or co-head of its
Telecommunications, Media and Technology Department from 1993 to 1996 before
being named a Vice Chairman of Investment Banking in 1996.
G. Kelly Martin, age 39. Mr. Martin was appointed to the Advisory
Committee in April 1997. Mr. Martin is Chief Operating Officer of ML & Co.'s
Corporate and Institutional Client Group, a position he has held since 1993, and
serves as CICG's Chief Technology Officer.
Alison J. Mass, age 39. Ms. Mass has served the General Partner as a
member of the Advisory Committee since 1994. Ms. Mass is a Managing Director in
the Institutional Client Division of ML & Co. She has responsibility for the New
York Institutional Equity Sales Group. Ms. Mass joined ML & Co. in 1990.
Steven M. Milunovich, age 37. Mr. Milunovich was appointed to the
Advisory Committee in July, 1998. Mr. Milunovich has been a Managing Director in
ML & Co.'s Global Securities Research & Economics Group and coordinator of
global technology research since 1997. Previously, he was a Managing Director
with Morgan Stanley. Since 1989, Mr. Milunovich has ranked first on the
Institutional Investor All-America Research Team for his research on large
computers; he has been a team member since 1986.
Daniel T. Napoli, age 49. Mr. Napoli was appointed to the Advisory
Committee in July 1998. Mr. Napoli is a Senior Vice President of ML & Co. and a
member of the Executive Management Committee. Mr. Napoli is Chairman of the ML &
Co. Risk Council, which reviews all risk and institutional market controls, and
he is head of Global Risk Management, a position he has held since 1987.
Stephen I. Silverman, age 47. Mr. Silverman was appointed to the
Advisory Committee in April 1997. Mr. Silverman is a Portfolio Manager of the
Merrill Lynch Pacific Fund, a position he has held since 1983, and the Portfolio
Manager of Merrill Lynch Global Value Fund.
Howard P. Sorgen, age 60. Mr. Sorgen was appointed to the Advisory
Committee in August 1998. Mr. Sorgen serves as the Chief Technology Officer for
ML & Co's U.S. and International Private Client Groups, a position he has held
since 1994. Previously, he was Officer in charge of Global Information Services.
Mr. Sorgen joined ML & Co. in 1988.
Charles K. Sweeney, age 56. Mr. Sweeney has served the General Partner
as a member of the Advisory Committee since 1993. Mr. Sweeney joined MLPF&S in
1965 as a member of the Junior Executive Training Program. Since 1966, he has
continued to work as a Financial Consultant within both the Private Client and
Capital Markets Groups of the firm. He was elected a Senior Vice President
Investments in 1989.
Nathan C. Thorne, age 44. Mr. Thorne has served the General Partner as
a member of the Advisory Committee since 1995. Mr. Thorne has been a Managing
Director in the Investment Banking Group of ML & Co. since 1986. Mr. Thorne has
managed many different departments within MLPF&S's Investment Banking Group
including the High Yield Finance and Restructuring Group and is presently head
of a department within the Investment Banking Group that has responsibility for
certain of the Group's principal investments.
Daniel P. Tully, age 66. Mr. Tully was appointed to the Advisory
Committee in 1998. Prior to April 15, 1997 when he retired from ML & Co., Mr.
Tully was Chairman of the Board of ML & Co. Mr. Tully was Chief Executive
Officer of ML & Co. from May 1992 until December 1996. He became Chairman of the
Board and CEO in June 1993. Mr. Tully was President and Chief Operating Officer
of ML & Co. from 1985 until 1992.
AUTHORITY OF THE GENERAL PARTNER
The General Partner will have the authority to make all decisions
regarding the acquisition, financing, operation, management and ultimate
disposition of Partnership investments, assets and properties. The General
Partner will also be responsible for the general supervision and administration
of Partnership activities. In investing the Partnership's capital, the General
Partner will consider those investments proposed by unrelated third parties as
well as opportunities presented to the Partnership by affiliates of the General
Partner. All investments chosen by the General Partner for the Partnership,
whether from third parties or from other opportunities presented to the
Partnership by affiliates, will be evaluated independently of each other and
chosen only if the General Partner believes they are suitable for and in the
best interest of the Partnership. The General Partner is unable to predict to
what extent Partnership investments will be made in affiliate-proposed
investments or investment opportunities proposed by unrelated third parties. The
General Partner will execute or cause to be executed any and all agreements,
purchase orders, debt agreements, documents, certificates and other instruments
necessary for the purchase of, and investment in, assets by the Partnership.
FINANCIAL STATUS OF THE GENERAL PARTNER
The General Partner was formed with minimal capitalization. The General
Partner has agreed to use its best efforts at all times to maintain its net
worth at a level necessary to meet any present or future requirements of the
Federal income tax law regarding the net worth of a general partner of a limited
partnership. ML & Co. will issue a demand promissory note to the General Partner
in an amount necessary to meet current requirements and provide the General
Partner with such funds as are necessary to meet its other obligations under the
Partnership Agreement. See "Financial Statements".
SIGNIFICANT AFFILIATES OF THE GENERAL PARTNER
MLPF&S and the General Partner are both wholly-owned subsidiaries of ML
& Co. It is anticipated that ML & Co. and the Investment Banking Group within
MLPF&S will be important sources of Partnership investments, and that other
groups within MLPF&S and other subsidiaries of ML & Co. may also be sources of
investments. Any one of these sources, from time to time, may also be
co-investors with the Partnership. See "Risk and Other Important Factors".
PRIOR PARTNERSHIPS
The General Partner also acts as the general partner or investment
adviser for Merrill Lynch KECALP L.P. 1997, Merrill Lynch KECALP International
L.P. 1997 (together, the "1997 Partnerships"), Merrill Lynch KECALP L.P. 1994
(the "1994 Partnership"), Merrill Lynch KECALP L.P. 1991 (the "1991
Partnership"), Merrill Lynch KECALP L.P. 1989 (the "1989 Partnership"), Merrill
Lynch KECALP L.P. 1987 (the "1987 Partnership") and Merrill Lynch KECALP L.P.
1986 (the "1986 Partnership" and, together with the other partnerships, the
"KECALP Partnerships"). The General Partner also acted as the general partner
for Merrill Lynch KECALP L.P. 1984 (the "1984 Partnership") and Merrill Lynch
KECALP Growth Investments Limited Partnership 1983 (the "1983 Partnership"),
which were liquidated during 1997 following the disposition of their remaining
investments. The limited partnership interests in these partnerships were
offered only to certain employees and directors of ML & Co. and its
subsidiaries. Set forth in the Appendix is information concerning these
investments by the partnerships. This information should not be construed to
indicate that the Partnership will or could make investments that will produce
results comparable to those of the investments made by the earlier partnerships.
Investors should note that the average annual return of an investment in the
KECALP Partnerships may be adversely affected by delays in the making and
realizing of investments. The Partnership expects that the types of investments
it will make will more closely resemble those of the 1997 Partnerships than the
earlier partnerships and that, like the 1997 Partnerships, it may invest in
international investments and investment funds to a greater extent than have
other KECALP Partnerships.
TAX ASPECTS OF INVESTMENT IN THE PARTNERSHIP
EACH PROSPECTIVE LIMITED PARTNER IS URGED TO CONSULT A PERSONAL TAX ADVISOR WITH
RESPECT TO THE MATTERS DISCUSSED BELOW AS THEY RELATE TO SUCH PROSPECTIVE
LIMITED PARTNER'S CIRCUMSTANCES. THE FOLLOWING ANALYSIS SHOULD NOT BE USED AS A
SUBSTITUTE FOR CAREFUL TAX PLANNING.
SCOPE AND LIMITATION
The following discussion of the Federal income tax consequences of an
investment in the Partnership is applicable only to U.S. citizens and residents
and is based upon the existing provisions of the Internal Revenue Code of 1986,
as amended to date (the "Code") and existing interpretations thereof. The Code
or the interpretation of its provisions by the IRS or courts could change. Any
such changes may be retroactive and could significantly modify the disclosure
below. In addition, the following discussion does not address the federal gift
or estate tax consequences of the sale, transfer or assignment of an investment
in the Partnership.
The Code provides that a partnership is not itself subject to Federal
income taxation. Rather, each Limited Partner is required to take into account
in computing his or her Federal income tax liability his or her allocable share
of the Partnership's capital gains and losses and other income, losses,
deductions, credits and items of tax preference for any taxable year of the
Partnership ending within or with the taxable year of such Limited Partner,
without regard to whether he or she has received or will receive any
distribution from the Partnership. Partnership revenues may be retained by the
Partnership to be applied to working capital reserves, or used to reduce
outstanding debts or borrowings or Partnership expenses. In addition, some of
the investment funds in which the Partnership may invest, including hedge funds,
may re-invest all or a portion of realized capital gains or other income rather
than making cash distributions. Also, certain of the temporary investments which
may be made by the Partnership or any investment partnership in which the
Partnership invests include zero coupon bonds or other obligations having
original issue discount. For Federal income tax purposes, accrual of original
issue discount will be attributable to Partners as interest income even though
the Partnership does not realize any cash flow as a result of such accrual.
PUBLICLY TRADED PARTNERSHIP STATUS. A partnership whose interests are
considered readily tradable (a "publicly traded partnership" or "PTP") is taxed
as a corporation for Federal income tax purposes. The IRS has issued regulations
that set forth certain safe harbors for transfers that will not be considered to
cause a partnership's interests to be readily tradable. The Partnership
Agreement provides that the Partnership will satisfy one of the safe harbors
provisions in such regulations. The Partnership Agreement also provides that any
transfer of Units to a market maker will be null and void unless the market
maker certifies that it is holding such Units for investment purposes. The
General Partner intends to exercise its discretion regarding transfers in a
manner designed to prevent the Partnership from becoming a PTP, which could
delay, perhaps substantially, a Limited Partner's transfer of his or her Units.
Accordingly, it is not anticipated that the Partnership will be a PTP. However,
the General Partner must rely on certain representations of Limited Partners
with respect to transfers and there can be no assurance that the General Partner
will be successful in its efforts.
The Partnership would be taxable on its income if it were treated as a
corporation. In addition, capital gains and losses and other income and
deductions of the Partnership would not be passed through to the Limited
Partners, and the Limited Partners would be treated as shareholders for tax
purposes. Any distributions by the Partnership to each Limited Partner would be
taxable to that Limited Partner as a dividend, to the extent of the
Partnership's current and accumulated earnings and profits, and treated as gain
from the sale of a Partnership interest to the extent it exceeded both the
current and accumulated earnings and profits of the Partnership and the Limited
Partner's tax basis for his or her interest.
---------------------
In the opinion of counsel, the Partnership will be treated as a
partnership for Federal income tax purposes assuming compliance with the
operative documents and the accuracy of any required representations provided
for in such documents. The remainder of the discussion under "Tax Aspects of
Investment in the Partnership" is based on the assumption that the Partnership
will be classified as a partnership for Federal income tax purposes and is
generally limited to the Federal income tax aspects of investment in the
Partnership.
GENERAL PRINCIPLES OF PARTNERSHIP TAXATION
A Partner's share of items of Partnership income are included directly
in the computations of the Partner's adjusted gross income and taxable income.
The Partner's share of any Partnership deductions or losses may, subject to
certain exceptions discussed below offset the Partner's allocable share of
Partnership income and, if sufficient in amount, a Partner's income from other
sources. See "Basis of Partnership Interest"; "`At Risk' Limitation on Deducting
Losses"; "Passive Activity Loss Limitation"; "Deductibility of Operating
Expenses"; and "Limitations on the Deductibility of Interest".
As a general rule, any cash distributions or constructive distributions
(e.g., a decrease in the Partner's share of Partnership liabilities) by the
Partnership will be taxable to a Partner only to the extent that such
distributions exceed the tax basis of the recipient Partner in the year of
receipt or are received in exchange for the recipient Partner's interest in
"unrealized receivables" or substantially appreciated "inventory items" under
Section 751 of the Code. Conversely, the mere absence of cash or constructive
distributions will not, of itself, limit or affect the recognition of taxable
income by Partners. See "Basis of Partnership Interest" and "Transfer of a
Partnership Interest" below.
BASIS OF PARTNERSHIP INTEREST. A partner's basis for his or her
partnership interest represents a measure of the partner's "investment" in the
partnership at any given time for Federal income tax purposes. A Limited
Partner's basis in his or her interest in the Partnership will initially be the
amount of such Partner's cash contribution to the capital of the Partnership,
plus such Partner's share, as discussed below, of any Partnership liabilities.
Such basis will be increased by (i) the Partner's share of Partnership income
(including capital gain and tax-exempt income) and (ii) any increase in the
Partner's share of Partnership liabilities. A Partner's basis will be decreased
(but not below zero) by (i) the Partner's share of cash distributions, (ii) the
Partner's share of Partnership losses and deductions, (iii) any decrease in the
Partner's share of Partnership liabilities, and (iv) the Partner's share of
Partnership expenditures that cannot be deducted or capitalized. Distributions
of property other than cash will also reduce a Partner's basis in the
Partnership, although the reduction can be affected by the Partnership's own tax
basis in such property, and the Partnership does not anticipate making
distributions to Partners of any property other than cash.
Debt financing is expected to be used by investment funds in which the
Partnership will acquire interests. Such borrowings will usually be nonrecourse
liabilities by their terms secured solely by the assets of such other investment
funds and for which no Partner will have any personal liability. Each Limited
Partner will be permitted (with certain restrictions) to include his or her
allocable share of any such nonrecourse liabilities in the basis of his or her
Partnership interest. However, such borrowings generally will not increase the
amount the Limited Partner is considered "at risk" for purpose of the
deductibility of Partnership losses. See "`At Risk' Limitation on Deducting
Losses".
If an allocation of a loss to a Partner would reduce the tax basis of
the Partner's interest in the Partnership below zero, the recognition of such
loss is deferred until such time as the recognition of such loss would not
reduce the Partner's basis below zero. To the extent that Partnership cash
distributions, or any decrease in a Partner's share of the nonrecourse
liabilities of the Partnership (which is considered a constructive cash
distribution to the Partners), would reduce a Partner's basis below zero, such
distributions are treated as gain from the sale of the Partnership Interest. As
discussed below, the character of the gain can be affected by the Partnership's
assets and the length of time the Partner has held his or her interest.
`AT RISK' LIMITATION ON DEDUCTING LOSSES. Individuals and certain
closely held corporations can only deduct their share of partnership losses to
the extent of the amount they are considered "at risk" with respect to the
partnership investment or activity generating the loss at the end of the taxable
year. The "at risk" rules are complex, but, in general, limit the losses and
deductions that a partner can claim from an investment or activity to the amount
the partner could actually lose from such investment or activity. As part of its
annual tax reporting, the Partnership will disclose to each Limited Partner the
amount of any of its losses allocated to such Partner that are subject to the
"at risk" rules. Prospective Limited Partners should consider the effect of the
"at risk" rules in arranging any financing for a purchase of Units.
PASSIVE ACTIVITY LOSS LIMITATION. Under the passive activity loss
provisions of the Code, losses and credits from trade or business activities in
which a Limited Partner does not materially participate (i.e., "passive
activities") are treated as passive activity losses. Generally such losses and
credits cannot be used to offset salary or other earned income, active business
income or "portfolio income" (such as dividends, interest, royalties and
nonbusiness capital gains) of the Limited Partner. Losses and credits suspended
under this limitation can be carried forward indefinitely and used in later
years against income from passive activities and, in certain limited
circumstances, against income from other sources. The passive activity loss
limitation applies to individuals, estates, trusts, and most personal service
corporations. A modified form of the rule also applies to closely held
corporations.
The primary activity of the Partnership will be the investment in and
holding and eventual disposition of privately offered securities acquired in
connection with direct equity investments. Prior to the commitment of
Partnership funds to such investments, and pending distributions of available
cash to the Partners, the Partnership will temporarily invest funds in various
types of marketable securities. Any ordinary income (such as interest or
dividend income) derived from either of such investment activities, or capital
gains realized upon disposition of such investments, will be treated as
portfolio income. Portfolio income is not considered passive income and, thus,
cannot be offset by a Partner's passive losses from other activities of the
Partnership (such as investment in certain other investment funds) or other
sources. Accordingly, a prospective Limited Partner should not invest in the
Partnership with the expectation of using his or her proportionate share of
portfolio income and capital gain from the Partnership to offset losses from his
or her interest in passive activities. However, a Limited Partner's share of any
capital loss from portfolio investments or any ordinary expense (including any
interest expense) allocable to portfolio investments will not be subject to the
passive loss limitation rules.
ALLOCATIONS AND DISTRIBUTIONS. A Limited Partner's share of the income,
gain, loss and deduction for Federal income tax purposes is generally that
specified in the partnership agreement, assuming the partnership agreement
satisfies certain mechanical requirements. However, the IRS has the ability to
disregard certain allocations that would cause a Limited Partner's share of
income or loss for tax purpose to differ from a partner's actual economic
interest in the partnership's income or loss. Because the Partnership Agreement
of the Partnership satisfies the mechanical requirements of allocations to be
respected and the allocations are intended to be consistent with each Partner's
economic interest, the allocations of income contained in the Partnership
Agreement should be respected by the IRS. However, any determination by the IRS
that a different allocation is required would not alter the distribution of cash
flow under the Partnership Agreement.
Generally, retroactive allocations of income, gain, deductions, losses
and credits are not permitted under the Federal income tax laws. Accordingly,
under the Partnership Agreement, items of income, gain, deduction, loss or
credit will be allocable to Partners only for the quarterly periods of the tax
year in which they are members of the Partnership. When the Partnership
recognizes a transfer of an interest by a Limited Partner the distributive share
of any Partnership income, gain, loss, deduction or credit for the taxable year
will be allocated between the transferor Partner and the transferee based upon
the quarterly periods during the taxable year that each owned such Partnership
interest.
DEDUCTIBILITY OF OPERATING EXPENSES. The Code allows individual
investors a deduction for itemized expenses incurred for the production of
income only to the extent such expenses, combined with certain other itemized
deductions, in the aggregate exceed 2% of adjusted gross income. In addition,
such expenses are not deductible for purposes of calculating an individual's
alternative minimum taxable income. Accordingly, to the extent certain
Partnership expenses are deductible not as trade or business expenses, but
rather as investment expenses, a Limited Partner might not be able to fully
claim their proportionate shares of these expenses as an itemized deduction on
their individual income tax returns, causing such Partner to recognize more
income. However, the effect of this limitation will to some extent be mitigated
by the fact that the General Partner is responsible for paying Partnership
certain operating expenses. Moreover, the General Partner may attempt to
minimize the effect of the investment expense limitation provision by investing
funds not invested in equity investments in short term tax exempt securities.
The Partnership's distributive share of investment expenses incurred by any
investment fund in which the Partnership invests will pass through to individual
Partners as investment expenses subject to this deduction limitation.
ORGANIZATION AND SYNDICATION EXPENSES. For Federal income tax purposes,
a partnership must capitalize organizational or syndication expenses. Expenses
incurred in selling or promoting the sale of interests in the partnership (such
as most of the printing costs and professional fees incurred in connection with
preparation and registration of this Prospectus), can only be deducted at the
termination of the Partnership. However, a partnership can amortize amounts paid
or incurred to organize the partnership over a period of 60 months and claim a
deduction for such amortization amount. Organizational expenses of a partnership
include legal fees for negotiation and preparation of the partnership agreement;
accounting fees for establishing a partnership accounting system; and necessary
filing fees.
The Partnership will pay expenses in connection with its organization
and the sale of Units in an amount up to 1.5% of the proceeds of this offering.
The General Partner will allocate expenses between organizational expenses and
syndication expenses. However, there can be no assurance that the IRS would not
challenge such allocation, attributing a greater amount of such expenditures to
nondeductible syndication costs.
TRANSFER OF A PARTNERSHIP INTEREST. The amount of gain recognized on
the sale by a Limited Partner of his or her interest in the Partnership
generally will be the excess of the sales price received over his or her
adjusted basis in such interest. Generally, the gain or loss from the sale of a
partnership interest is treated as gain or loss from a capital asset. However,
to the extent the proceeds of sale are attributable to ordinary gains inside the
Partnership or to assets the sale of which would cause the Partnership to
recognize ordinary income or loss, that portion of the sale is not treated as
the sale of a capital asset and any gain attributable to the proceeds will be
treated as ordinary income. With respect to the allocation of tax items between
the transferor and the transferee in the year in which an interest is
transferred, see "Allocations and Distributions" above.
Section 754 of the Code permits a partnership to make an election to
adjust the basis of the partnership's assets in the event of a distribution of
partnership property to a partner or transfer of a partnership interest.
Depending upon particular facts at the time of any such event, such an election
could increase the value of a partnership interest to the transferee (because
the election would increase the basis of the partnership's assets for the
purpose of computing the transferee's allocable share of partnership tax items)
or decrease the value of a partnership interest to the transferee (because the
election would decrease the basis of the partnership's assets for that purpose).
Because an election under Section 754, once made, cannot be revoked without
obtaining the consent of the IRS, because such an election may not necessarily
be advantageous to all the Limited Partners, and because of the accounting
complexities that can result from having such an election in effect, it is
unlikely that the General Partner would make such an election on behalf of the
Partnership. The General Partner will advise the Limited Partners prior to any
election under Section 754.
LIQUIDATION OF THE PARTNERSHIP. It is expected that Partners will only
receive cash upon the liquidation of the Partnership, and accordingly, a Partner
generally will not recognize gain or loss from the distribution of cash. Rather,
the Limited Partner will recognize gain or loss only upon the sale by the
Partnership of its assets. If the Partnership were to distribute assets in kind
to the Partners, such distributions could result in the deferral of built-in
gain or loss into such assets so distributed. However, under certain
circumstances a portion of such gain or loss could be realized by the Limited
Partners receiving such in kind distribution. Accordingly, any Limited Partner
receiving a distribution of property other than cash in liquidation of his or
her interest should consult with his or her tax advisor to determine the tax
consequences to such Partner from the distribution.
TAX RETURNS AND INFORMATION; AUDITS. The Partnership will use the
calendar year as its tax year and an accrual method of accounting for Federal
income tax purposes. The Partnership is required to (i) file annually an
information return on Form 1065 and (ii) provide to each Partner, following the
close of the Partnership's taxable years, a Schedule K-1 indicating such
Partner's allocable share of the Partnership's income, gain, losses, deductions,
credits, and items of tax preference and such additional information as is
reasonably necessary to permit the Limited Partners to prepare their own
Federal, state and local tax returns as soon as practical after the close of
each year. Assignees of Limited Partners who are not admitted to the Partnership
will not receive any tax information from the Partnership.
However, it is expected that the Partnership will not receive all the
annual tax information from investment funds in which the Partnership invests in
sufficient time to permit the Partnership to incorporate such information into
its annual tax information and distribute such information to Limited Partners
prior to April 15 of each year. As a result, Limited Partners may be required to
obtain extensions for filing Federal, state and local income tax returns each
year. Limited Partners anticipating tax refunds in respect of such year will not
be able to file their tax return requesting such refund until receipt of the
annual tax information from the Partnership. To the extent practicable, the
Partnership anticipates that it will provide estimated annual tax information in
a timely manner in order to assist Limited Partners in estimating their tax
liabilities. The Partnership's ability to make such estimates will be dependent
upon its ability to obtain estimated annual tax information from the investment
funds. Employees who participate in the1999 deferred compensation plan will not,
themselves, be Limited Partners by virtue of their participation in such plan.
The Code provides for a single unified audit of partnerships at the
partnership level rather than separate audits of individual partners. Generally,
the final result of a Partnership audit will be binding on all Partners. In
limited circumstances, certain partners may be permitted to separately contest
any audit of the Partnership.
OTHER TAX CONSIDERATIONS
FOREIGN SOURCE INCOME, FOREIGN TAX CREDITS AND INVESTMENTS IN PASSIVE
FOREIGN INVESTMENT COMPANIES. Dividends and interest received by the Partnership
from foreign investments generally will be considered foreign source income and
may be subject to foreign withholding taxes. Each Limited Partner may be
entitled to credit his or her respective portion of any such taxes against his
or her U.S. federal income taxes or to deduct such taxes from his or her U.S.
taxable income. The amount of foreign withholding taxes that may be credited
against a Limited Partner's U.S. federal income tax liability in any particular
year will be limited, as a general rule, to an amount equal to the Limited
Partner's U.S. federal income tax rate multiplied by such Limited Partner's
foreign source taxable income. This limitation must be applied separately to
certain categories of foreign source income, one category of which is foreign
source "passive income". For this purpose, foreign source "passive income"
includes dividends and interest. As a consequence, although certain Limited
Partners may be able to carry back or carry forward their unused foreign tax
credits, certain Limited Partners may not be able to claim a foreign tax credit
for the full amount of their proportionate share of foreign taxes paid by the
Partnership. Any gain or loss recognized on the sale or exchange of a foreign
investment generally will be considered United States source income.
Accordingly, if a foreign jurisdiction were to impose a tax on such gain,
Limited Partners may not be able to derive effective U.S. foreign tax benefits
in respect of such tax.
The Partnership may invest directly or indirectly in equity interests
of an investment company organized under foreign law that is treated as a
passive foreign investment company ("PFIC"). Generally, income from a PFIC in
excess of a certain average amount and any gain on sale or exchange of an
interest in a PFIC is subject to an additional level of tax calculated in a
manner that could substantially reduce, eliminate, or even exceed such income or
gain. Such income or gain earned by the Partnership is treated as earned by the
Limited Partners and a Limited Partner that sells or exchanges an interest in
the Partnership is deemed to have sold or exchanged his or her pro rata share of
any PFIC stock held directly or indirectly by the Partnership. An election (the
"QEF Election") can be made by a U.S. shareholder of a PFIC that would eliminate
such additional tax but would require a current inclusion by such shareholder of
its share of the earnings of the PFIC, whether or not such earnings are
distributed by the PFIC. The QEF Election is permitted only if the PFIC makes
certain information available to shareholders. It is uncertain whether any PFIC
in which the Partnership acquires an interest will provide such information. It
should be noted, however, that only the first U.S. person that owns stock in a
PFIC may make the QEF election. Accordingly, Limited Partners cannot make such
election individually with respect to shares owned by the Partnership, and if
the Partnership owns its interest in a PFIC through another U.S. partnership,
the election can only be made by that other partnership. Any such election by
the first U.S. shareholder would bind all direct and indirect partners of such
partnership. To the extent that the Partnership is eligible to make a QEF
Election with respect to a particular PFIC, the Partnership intends to make such
an election.
LIMITATIONS ON THE DEDUCTIBILITY OF INTEREST. "Investment interest"
generally is deductible by a Limited Partner only to the extent of "net
investment income" with the excess, subject to certain limitations, carried
forward and deductible in subsequent taxable years. Investment interest is
broadly defined as interest which is paid or accrued on indebtedness incurred or
continued to purchase or carry property held for investment including generally
the purchase by Limited Partners of Units. Interest taken into account in
determining a Limited Partner's passive losses, including generally any interest
incurred or continued by a Limited Partner to purchase or carry an interest in a
partnership to which the passive loss rules apply, is not considered investment
interest for purposes of the investment interest limitations. In addition to the
"investment interest" limitation described above, interest paid by a Limited
Partner or a related person on indebtedness incurred or continued to purchase or
carry tax exempt obligations cannot be deducted.
FRINGE BENEFITS. Employee "fringe benefits" generally are includable in
gross income. Under the Partnership Agreement, the General Partner may be
responsible for the payment of certain expenses. Since Units are being offered
solely to ML & Co. and its employees and non-employee directors, it is possible
that the IRS would view the General Partner's payment of such expenses as an
indirect method of compensating employee Limited Partners (i.e., a fringe
benefit). If the IRS were successful in such characterization, a Limited
Partner's pro rata share of such expenses (equal to the fair market value of the
underlying goods and services rendered the Limited Partner) might be includable
in the Limited Partner's gross income as additional compensation. The Limited
Partner may not, however, be allocated a deduction for such expenses in an
amount corresponding to such income inclusion because some of such expenses
would be attributable to syndication expenses, or investment expenses subject to
the limitation on the deductibility of itemized miscellaneous expenses, or
treated as part of the capitalized cost of the Partnerships portfolio assets.
See "General Principles of Partnership Taxation--Deductibility of Operating
Expenses; Organization and Syndication Expenses" above.
STATE AND LOCAL TAXES. State and local laws often differ from Federal
income tax law with respect to the treatment of specific items of income, gain,
loss, deductions and credit. A Limited Partner's distributive share of the
taxable income or loss of the Partnership generally will be required to be
included in determining his or her reportable income for state and local tax
purposes in the jurisdiction in which he or she is a resident. In addition, a
number of other states in which the Partnership may do business or own
properties may impose a tax on nonresident Limited Partners determined with
reference to their allocable shares of Partnership income derived by the
Partnership from such state. Partners may be subject to tax return filing
obligations and income, franchise, estate, inheritance or other taxes in other
jurisdictions in which the Partnership does business, as well as in their own
states or localities of residence or domicile. Also, any tax losses derived
through the Partnership from operations in such states may be available to
offset only income from other sources within the same state. To the extent that
a nonresident Limited Partner pays tax to a state by virtue of Partnership
operations within that state, he or she may be entitled to a deduction or credit
against tax owed to his or her state of residence with respect to the same
income. In addition, estate or inheritance taxes might be payable in a
jurisdiction in which the Partnership owns property upon the death of a Limited
Partner. Prospective Limited Partners are urged to consult their tax advisors
with respect to possible state and local income and death tax consequences of an
investment in the Partnership.
BACKUP WITHHOLDING. When a Unit is sold through a broker, the proceeds
of the sale may constitute a "reportable payment" under the Federal income tax
rules regarding backup withholding. Backup withholding, however, would apply
only if the Limited Partner (i) failed to furnish and certify his or her Social
Security number or other taxpayer identification number to the person subject to
the backup withholding requirement (e.g., the broker) or (ii) furnished an
incorrect Social Security number or taxpayer identification number. If backup
withholding were applicable to a Limited Partner, the person subject to the
backup withholding requirement would be required to withhold 31% of each
distribution to such Partner and to pay such amount to the IRS on behalf of such
Partner.
PARTNERSHIP ALLOCATIONS AND DISTRIBUTIONS
As discussed under "Partnership Expenses" above, the Partnership has
requested an exemptive order from the SEC governing the expenses to be paid by
the Partnership. If such order is issued, all items of Partnership income, gain,
deduction, loss or credit will be allocated to the Partners in proportion to
their capital contributions. If the SEC does not issue this exemptive order, the
General Partner will receive a 1% interest in all items of Partnership income,
gain, deduction, loss and credit, for which it will make no cash capital
contribution beyond the $99.00 it contributed upon formation of the Partnership.
In this case, during the term of the Partnership, all items of Partnership
income, gain, deduction, loss or credit will generally be allocated 1% to the
General Partner and 99% to the Limited Partners (except that (i) profits will be
allocated to the General Partner to the extent necessary for its capital account
balance to equal 1% of all Partners' capital account balances and (ii) losses
will be allocated to the General Partner to the extent the Limited Partners'
capital accounts equal zero and the General Partner's capital account is
positive due to its payment of organizational expenses of the Partnership in
excess of 1.5% of the Limited Partners' capital contributions and annual
operating expenses in excess of 1% of Limited Partners' capital contributions).
If the SEC order is issued, upon liquidation of the Partnership, gross
income from the sale of the Partnership's assets will be allocated to the
Partners in the amount of their negative capital account balances and thereafter
in proportion to their capital contributions. If the order is not issued and the
General Partner has a 1% interest in the Partnership, upon liquidation, gross
income from the sale of the Partnership's assets will be allocated to the
Partners in the amount of their negative capital account balances, then to the
General Partner to the extent the amount of the capital contribution made by it
to the Partnership is in excess of 1% of the Limited Partners' capital
contributions, and thereafter 99% to the Limited Partners and 1% to the General
Partner. These items will be allocated among the Limited Partners in the ratio
the capital contribution of each Limited Partner (or the capital contribution
attributable to the interest held by a transferee Limited Partner) bears to the
total capital contributions of all Limited Partners.
Distributable Cash, as defined in the Partnership Agreement, will be
distributed in proportion to the Partners' capital contributions if the
exemptive order is issued or, if the order is not issued, 99% to the Limited
Partners and 1% to the General Partner. The General Partner may also make
distributions in kind of securities or assets held by the Partnership,
including, in the discretion of the General Partner, distributions in which
certain Limited Partners receive cash while other Limited Partners receive
marketable securities of an equivalent value. Cash distributions will be
credited to the Limited Partner's MLPF&S securities account specified in his
Signature Page and Power of Attorney unless the General Partner is instructed
otherwise by a Limited Partner.
Allocations among the transferor and transferee of a Partnership
interest are described under "Transferability of Units".
SUMMARY OF THE PARTNERSHIP AGREEMENT
The form of the Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement") is included as Exhibit A to this Prospectus. It is
recommended that each prospective purchaser read it in its entirety.
Certain provisions of the Partnership Agreement have been described
elsewhere in this Prospectus. With regard to various transactions and
relationships of the Partnership with the General Partner and its affiliates,
see "Risk and Other Important Factors", with regard to the management of the
Partnership, see "The Partnership" and "The General Partner and Its Affiliates",
with regard to the transfer of Limited Partners' Units, see "Transferability of
Units", and with regard to reports to be made to the Limited Partners, see
"Reports".
The following briefly summarizes certain provisions of the Partnership
Agreement which are not described elsewhere in this Prospectus. All statements
made below and elsewhere in this Prospectus relating to the Partnership
Agreement are hereby qualified in their entirety by reference to the Partnership
Agreement. Capitalized terms used in this summary have the meanings ascribed to
them in the Partnership Agreement.
TERM
The Partnership shall continue in full force and effect until December
31, 2039, or until dissolution prior thereto.
PARTNERSHIP CAPITAL
No Partner shall be entitled to interest on any Capital Contribution to
the Partnership or on such Partner's Capital Account. No Partner, other than the
Initial Limited Partner, has the right to withdraw, or to receive any return of,
his or her Capital Contribution. However, upon the death of a Limited Partner,
the legal representative of such Partner may cause the interest of such Partner
to be purchased as described under "Transferability of Units". No Partner has
the right to receive property other than cash in return for his or her Capital
Contribution.
ANNUAL APPRAISAL
The Partnership Agreement provides that, beginning December 31, 1999
and each succeeding December 31 (the "Valuation Date"), the General Partner will
make an Appraisal or have an Appraisal made of all of the assets of the
Partnership as of such date. The Appraisal, which may be made by independent
third parties appointed by the General Partner, is to be based on such methods
relating to the valuation of the Partnership's assets and liabilities as are
deemed appropriate by the General Partner or an independent third party. The
Appraisal will be incorporated in the annual financial statement and will be
sent to the Limited Partners within 180 days, or as soon as practicable, after
the end of the Partnership's fiscal year, which ends December 31. See "Reports"
for information as to the valuation procedures expected to be utilized with
respect to private equity investments.
LIABILITY OF THE GENERAL PARTNER; INDEMNIFICATION
The Partnership Agreement provides that neither the General Partner nor
any of its officers, directors, stockholders, employees, or agents shall be
liable to the Partnership or the Limited Partners for any act or omission based
on errors of judgment or other fault in connection with the business or affairs
of the Partnership so long as the person against whom liability is asserted
acted in good faith on behalf of the Partnership and in a manner reasonably
believed by such person to be within the scope of his or its authority under the
Partnership Agreement and in or not opposed to the best interests of the
Partnership, but only if such action or failure to act does not constitute gross
negligence or willful misfeasance, and, with respect to any criminal proceeding,
such person had no reasonable cause to believe his or its conduct was unlawful.
The General Partner and its officers, directors, stockholders, employees, and
agents will be indemnified by the Partnership to the fullest extent permitted by
law. In the absence of a court determination that the General Partner or
officers or directors of the General Partner were not liable on the merits or
guilty of disabling conduct within the meaning of Section 17(h) of the
Investment Company Act, the decision by the Partnership to indemnify the General
Partner or any such person must be based on the reasonable determination of
independent counsel, after review of the facts, that such disabling conduct did
not occur.
VOTING RIGHTS
Under the Partnership Agreement, either the General Partner or 10% or
more in Interest of the Limited Partners may propose any act or other matter to
which the Consent of any Partner is required. Within 20 days of the making of
any such proposal, the General Partner must give all Partners Notification of
such proposal (including the text of any amendment or document, a statement of
its purposes and a favorable opinion of counsel, pursuant to Section 10.1A of
the Partnership Agreement).
Among other matters subject to approval by the Limited Partners are
admission of a successor General Partner, Removal of the General Partner, Sale
of all or substantially all of the assets of the Partnership, certain amendments
to the Partnership Agreement, and dissolution of the Partnership prior to
January 1, 2005. However, as provided in detail in Section 11.3 of the
Partnership Agreement, unless, at the time of the giving or withholding of
Consent for certain actions by the Limited Partners, counsel retained by the
Partnership at such time is of the opinion that the giving or withholding of
Consent for such action is permitted by the Delaware Revised Uniform Limited
Partnership Act, does not impair the limited liability of the Limited Partners
and does not adversely affect the tax status of the Partnership, certain voting
rights of the Limited Partners may be restricted.
In light of its anticipated significant holdings in the Partnership, ML
& Co. will agree to vote its Units in the same proportion as other Limited
Partners in respect of any matter submitted to the vote of Limited Partners.
LIABILITY OF PARTNERS TO THIRD PARTIES
The General Partner will be generally liable for all obligations of the
Partnership.
The Partnership Agreement provides that no Limited Partner shall be
personally liable for the debts of the Partnership beyond the amount committed
by such Limited Partner to the capital of the Partnership and such Limited
Partner's share of the Partnership's assets and undistributed profits. In the
event the Partnership is unable otherwise to meet its obligations, the Limited
Partners might, under applicable law, be obligated under some circumstances to
return distributions previously received by them. See "Risk and Other Important
Factors--Possible Loss of Limited Liability; --Repayment of Certain
Distributions".
DISSOLUTION
The Partnership shall be dissolved upon: the expiration of its term;
the Incapacity, Removal or withdrawal of the General Partner and failure to
designate a successor; the Sale or other disposition of all or substantially all
of the assets of the Partnership; an election prior to January 1, 2005 to
dissolve by the General Partner with the Consent of a Majority-in-interest of
the Limited Partners; the failure of the Limited Partners to approve, by Consent
of a Majority-in-Interest, the admission of a successor General Partner to the
General Partner pursuant to Section 6.1A of the Partnership Agreement; after
January 1, 2005, the General Partner's election to dissolve the Partnership; or
the occurrence of any other event causing dissolution of the Partnership under
the laws of the State of Delaware.
In settling accounts after the sale of all Partnership property upon
liquidation, the assets of the Partnership shall be paid out (i) to creditors
(including any creditor who is a Partner), in the order of priority as provided
by law; (ii) to each Partner in an amount equivalent to the positive amount of
his capital account on the date of distribution, after giving effect to any
allocation of profits or losses arising from sales on liquidation; and (iii) the
balance, to Partners in accordance with the Partnership Agreement. Upon
liquidation, the General Partner may distribute Partnership assets in kind.
AMENDMENT
Subject to the provisions of Section 10.1 thereof, the Partnership
Agreement may be amended by action of a Majority-in-interest of the Limited
Partners. However, without the Consent of all Partners, Section 4.3C of the
Partnership Agreement (relating to certain restrictions on the General Partner's
authority), Article Ten (relating to amendment of the Partnership Agreement) and
Section 11.3 (relating to certain limitations on Limited Partners' voting
rights) may not be amended. Also, without the Consent of each Partner who may be
adversely affected, the Partnership Agreement may not be amended to (i) enlarge
the obligation of any Partner under the Partnership Agreement or convert a
Limited Partner's Interest into a General Partner's Interest; (ii) modify the
limited liability of a Limited Partner; or (iii) alter the provisions of the
Partnership Agreement relating to distributions of Distributable Cash and
allocations of Profits and Losses. In addition, Sections 6.1 and 6.2 (relating
to successors to the General Partner) may not be amended without the Consent of
the General Partner. However, in accordance with Section 10.1 of the Partnership
Agreement, under certain circumstances the General Partner, without the Consent
of a Majority-in-interest of the Limited Partners, may amend the Partnership
Agreement if, in its opinion, such amendment does not have a material adverse
effect on the Limited Partners or the Partnership.
ELECTIONS
All elections required or permitted to be made by the Partnership under
the Code may be made by the General Partner in such manner as it deems most
advantageous to individual Limited Partners who are (i) married and filing joint
returns, (ii) not "dealers" for Federal income tax purposes, and (iii) in the
highest marginal Federal income tax bracket.
APPOINTMENT OF GENERAL PARTNER AS ATTORNEY-IN-FACT
Each Limited Partner irrevocably constitutes and appoints the General
Partner such Limited Partner's true and lawful attorney-in-fact, with full power
and authority in such Limited Partner's name, place and stead to make, execute,
acknowledge and file such documents, instruments and conveyances as may be
necessary or appropriate to carry out the provisions of the Partnership
Agreement.
PRINCIPAL OFFICE OF THE PARTNERSHIP
The principal business office of the Partnership shall be at South
Tower, World Financial Center, 225 Liberty Street, New York, New York
10080-6123, unless changed by the General Partner. The business of the
Partnership may also be conducted at such additional places as the General
Partner may determine.
APPLICABLE LAW
The Partnership Agreement will be construed and enforced in accordance
with the laws of the State of Delaware.
OFFERING AND SALE OF UNITS
OFFERING OF UNITS
MLPF&S has entered into an Agency Agreement with the Partnership and
the General Partner pursuant to which MLPF&S has agreed to act as selling agent
for the Partnership and the General Partner to assist in the sale of the Units
to Qualified Investors on a "best efforts" basis. MLPF&S and its affiliates will
not receive, directly or indirectly, any payments or compensation in connection
with the offering and sale of Units.
The Agency Agreement contains cross-indemnification clauses with
respect to certain liabilities under the Securities Act of 1933.
Eligible Investors must submit completed subscription documents not
later than November 1, 1998, or such subsequent date, not later than February 5,
1999, as the General Partner and MLPF&S may determine. Subsequent to such date,
the General Partner will advise such investors as to whether their subscriptions
have been accepted and thereupon MLPF&S shall promptly debit funds from accepted
investors' accounts for payment into the Partnership's escrow account. The
General Partner will also advise such investors of the Offering Termination
Date. If subscriptions (including subscriptions of ML & Co.) for 75,000 Units
are not received by the Offering Termination Date, the offering will be
terminated, and all funds received will be refunded with interest, if any,
actually earned thereon.
If subscriptions for more than 500,000 Units are received, the General
Partner may, in its sole discretion, reject, in whole or in part, any Limited
Partner's subscription.
INVESTOR SUITABILITY STANDARDS
Only Qualified Investors will be eligible to purchase Units. See
"Investor Suitability Standards" on page 2.
MAXIMUM PURCHASE BY QUALIFIED INVESTORS
The Partnership has imposed restrictions on the maximum amount of Units
which may be purchased by any Qualified Investor. An employee of ML & Co. or its
subsidiaries may only purchase Units in an amount which does not exceed 15% of
such employee's cash compensation from ML & Co. or its subsidiaries received
with respect to 1997 or, if employed for less than a full calendar year, does
not exceed 15% of such compensation on an annualized basis unless the employee
either (x) has a net worth, individually or jointly with the employee's spouse,
in excess of $1,000,000 at the time of purchase of the Units, or (y) had an
individual income in excess of $200,000 in each of 1996 and 1997 or joint income
with the employee's spouse in excess of $300,000 in each of those years and
reached or has a reasonable expectation of reaching the same level in 1998. An
employee of ML & Co. who meets the requirements of clause (x) or (y) above may
purchase Units in an amount which does not exceed 75% of the employee's
compensation in respect of 1997 on an annualized basis, unless otherwise
approved by the General Partner. A non-employee director of ML & Co. may only
purchase Units in an amount which does not exceed ten times the director's
compensation (including committee fees, but not including reimbursement of
expenses) received from ML & Co. during 1997. Notwithstanding the foregoing, a
Qualified Investor (other than ML & Co.) will only be permitted to purchase
Units in the Partnership in an aggregate amount in excess of $250,000 if the
offering is not fully subscribed, unless otherwise approved by the General
Partner. In the event that the offering is not fully subscribed, Qualified
Investors will be permitted to invest up to the specified percentage of their
1997 compensation (or directors fees, as applicable), provided that such amount
is equal to less than 10% of the outstanding limited partnership interests of
the Partnership.
PURCHASE OF UNITS BY ML & CO.
The Partnership is also offering Units to ML & Co. ML & Co. has advised
the Partnership that it intends to offer a deferred compensation plan to certain
key employees of ML & Co. and its subsidiaries pursuant to which such employees
will be permitted to defer compensation earned during 1998 and to elect to
receive a return from ML & Co. determined by reference to the performance of the
Partnership. ML & Co. intends to acquire Units having a purchase price
approximately equivalent to the aggregate amount of compensation deferred under
its plan. ML & Co. will acquire such Units at the Closing for a purchase price
of $1,000 per Unit. Participants in the plan will not be Limited Partners in the
Partnership by virtue of their participation in such plan and will not acquire
any ownership interest in the Units purchased by ML & Co.
SUBSCRIPTION TO PURCHASE UNITS
Each Qualified Investor who desires to purchase any Units must:
(a) subscribe to purchase five or more Units;
(b) complete, date, execute and deliver to KECALP Inc., South Tower,
World Financial Center, 225 Liberty Street, New York, NY 10080-6123, one copy of
the Signature Page and Power of Attorney, a form of which is attached as part of
the Subscription Agreement attached to this Prospectus as Exhibit B; and
(c) authorize an amount equal to $1,000 for each Unit that the
prospective purchaser desires to purchase to be debited from his MLPF&S
securities account.
The General Partner will not, under any circumstances, accept
subscriptions for a fractional interest in a Unit.
PAYMENT FOR UNITS
Each Qualified Investor who subscribes to purchase Units will, by
execution of the Subscription Agreement, agree to make a capital contribution of
$1,000 for each Unit subscribed for and authorize that amount to be debited from
his MLPF&S securities account specified on his Signature Page and Power of
Attorney. If sufficient funds are not already available in the Qualified
Investor's MLPF&S securities account, the Qualified Investor must deposit
additional funds so that the full amount of the capital contribution for the
Units for which the investor has subscribed will be available in such account.
MLPF&S will advise investors as to whether their subscriptions have
been accepted and thereupon promptly debit subscription amounts from
subscribers' MLPF&S securities accounts and deposit such funds in an escrow
account with The Bank of New York, for the benefit of investors. The bank escrow
agent for such account may, at the direction of MLPF&S, invest such payment in
U.S. government securities, bank time deposits, certificates of deposit of a
domestic bank which mature prior to the Closing of the purchase of Units or bank
money market accounts. The Qualified Investors' funds in such account, but not
the interest earned thereon, will be released to the Partnership only if each of
the following conditions has been satisfied:
(a) on the date of Closing, the Partnership has received subscriptions
for at least 75,000 Units;
(b) on the date of Closing, the escrow agent has received the full
payment of the capital contributions for the Units which the Partnership will
issue and sell at such Closing; and
(c) on the date of Closing, Brown & Wood LLP has delivered its opinion
that the Partnership will be treated as a partnership for Federal income tax
purposes and will not be treated as a publicly traded partnership within the
meaning of Section 7704(b) of the Internal Revenue Code of 1986, as amended.
If such conditions are not timely satisfied, all the investors' funds
so held in such account will be returned to the investors. If all of such
conditions are timely satisfied, each investor who has subscribed to purchase
Units to be issued and sold at such Closing will become a Limited Partner and
thereafter (but only thereafter) such investor's capital contributions will be
paid to the Partnership, to be applied by it as described in this Prospectus.
Any interest earned on funds held in escrow will be paid to subscribers in
proportion to their respective subscription amounts and the length of time their
subscription amounts were on deposit.
Each Limited Partner will be entitled to the distributive share of
items of income, gain, deduction, loss or credit and cash distributions
allocable to such Limited Partners interest in the Partnership, as provided in
the Partnership Agreement, without regard to the dates on which any Limited
Partners may have subscribed to purchase Units.
TRANSFERABILITY OF UNITS
RESTRICTIONS
The Partnership is designed as an investment vehicle for Qualified
Investors only. The Partnership has obtained exemptions from certain provisions
of the Investment Company Act on the basis that, with certain exceptions, only
Qualified Investors will become Limited Partners. PURCHASERS OF UNITS SHOULD
VIEW THEIR INTEREST IN THE PARTNERSHIP AS A LONG-TERM, ILLIQUID INVESTMENT.
No transfer or assignment by a Limited Partner of his or her interest
in the Partnership shall be effective unless made in accordance with the
provisions of the Partnership Agreement. The Partnership Agreement prohibits
transfer or assignment by a Limited Partner of his or her interest in the
Partnership to any person who is not a Qualified Investor, except transfers to a
member of his or her immediate family or transfers resulting by operation of
law. (For this purpose, the members of a Limited Partner's immediate family
consist of the partner's spouse and children.) No transfer of a Limited
Partner's interest may be made without the consent of the General Partner, which
consent may be withheld in the sole discretion of the General Partner. No sale,
assignment or transfer of, or after which the transferor and transferee would
each hold, an interest representing a capital contribution of less than $1,000
will be permitted or recognized for any purpose without the consent of the
General Partner, which consent will be granted only for good cause shown.
The sale or transfer of a Partnership interest may result in adverse
income tax consequences to the transferor. Limited Partners are advised to
consult their tax advisors prior to any such transfer. See "Tax Aspects of
Investment in the Partnership--Transfer of a Partnership Interest".
No transfer, assignment or negotiation of an interest in the
Partnership will be recognized or effective if such transfer or assignment,
together with all other such transfers on the books of the Partnership during
the immediately preceding 12 months, would result in the transfer of 50% or more
of the Units. See "Tax Aspects of Investment in the Partnership--General
Principles of Partnership Taxation--Termination of the Partnership for Tax
Purposes". In addition, pursuant to the Partnership Agreement, the Partnership
will satisfy one or more safe harbor limitations from classification as a
publicly traded partnership which would impose more restrictive numerical
limitations on the number of Units transferred. One safe harbor under current
law would restrict transfers (except for certain exempt transfers) of 2% or more
Units during the same taxable year. Transfers, assignments or negotiations, the
recognition and effectiveness of which are so suspended and deferred, will be
recognized (in chronological order to the extent practicable) when, and to the
extent that, such recognition will not result in there having been transfers of
Units in excess of the limitations referred to above.
The General Partner has the authority to amend the transferability
provisions of the Partnership Agreement in such manner as may be necessary or
desirable to preserve the tax status of the Partnership.
Further, no sale, exchange, transfer or assignment of a Limited
Partner's interest may be made if the sale of such interest would, in the
opinion of counsel for the Partnership, result in a termination of the
Partnership for purposes of Section 708 of the Code, violate any applicable
Federal or state securities laws, cause the Partnership to be treated as an
association taxable as a corporation for Federal income tax purposes, cause the
Partnership to be classified as a publicly traded partnership and taxable as a
corporation for Federal income tax purposes, or cause all or a portion of the
Partnership's assets to be treated as "tax-exempt use property" under Section
168(j) of the Code.
ACQUISITION OF CERTAIN LIMITED PARTNERS' INTERESTS BY THE GENERAL PARTNER OR
THE PARTNERSHIP
Upon the death of a Limited Partner, the legal representative(s) of
such Limited Partner may tender, and the General Partner shall purchase the
interest in the Partnership held by such Limited Partner at a purchase price
equal to the value of the interest determined at the next annual Valuation Date.
To have Units repurchased, the estate of a Limited Partner must notify the
General Partner of its election to have the Units repurchased within 30 days
after the date the appraisal is sent to the Limited Partners. The Partnership,
rather than the General Partner, may purchase such interest if it is determined
the purchase is in the best interests of the Partnership. If the General Partner
purchases any such interest for its own account pursuant to this provision, it
shall be entitled to the rights of an assignee of such interest, including the
right to vote as if it were a Substituted Limited Partner, and it may become a
Substituted Limited Partner. The General Partner may sell any interest acquired
pursuant to this provision and the purchaser will be entitled to be admitted as
a Substituted Limited Partner effective as of the date of payment to the General
Partner for such interest.
ASSIGNEES
An assignee of a Limited Partner does not automatically become a
Substituted Limited Partner, but has the right to receive the same share of
profits, losses and distributable cash of the Partnership to which the assignor
Limited Partner would have been entitled. A Limited Partner who assigns all of
his Partnership interest ceases to be a Limited Partner, and shall not retain
any statutory rights as a Limited Partner. The assignee of a Partnership
interest who does not become a Substituted Limited Partner and desires to make
further assignment of such interest is subject to all of the restrictions on
transferability of Partnership interests described in this Prospectus and the
Partnership Agreement.
In the event of the death, incapacity or bankruptcy of a Limited
Partner, his or her legal representatives will have all the rights of a Limited
Partner for the purpose of settling or managing his or her estate and such power
as the decedent, incompetent or bankrupt Limited Partner possessed to assign all
or any part of his interest in the Partnership, and to join with such assignee
in satisfying conditions precedent to such assignees becoming a Substituted
Limited Partner. In the event of the death of a Limited Partner, but not in the
event of adjudication of incompetence or bankruptcy, the deceased Limited
Partner's interest may be distributed as part of the estate, transferred by
operation of law, tendered to the General Partner as described above, or
assigned to another Qualified Investor.
A purported sale, assignment or transfer of a Limited Partner's
interest will be recognized by the Partnership on the first day of the fiscal
quarter following the quarter in which the Partnership has received written
notice of such sale, assignment or transfer in form satisfactory to the General
Partner, signed by both parties, containing the purchaser's, assignee's or
transferee's acceptance of the terms of the Partnership Agreement and a
representation by the parties that the sale or assignment was made in accordance
with all applicable laws and regulations.
SUBSTITUTED LIMITED PARTNERS
No Limited Partner has the right to substitute an assignee as a Limited
Partner in his or her place. The General Partner, however, has the right in its
sole and absolute discretion, to permit such assignee to become a Substituted
Limited Partner and any such permission by the General Partner is binding and
conclusive without the consent or approval of any Limited Partner. Any
Substituted Limited Partner must, as a condition to receiving any interest in
the Partnership, sign a Signature Page and Power of Attorney, pay the reasonable
legal fees and filing and publication costs of the Partnership and the General
Partner in connection with his or her substitution as a Limited Partner and
satisfy the other conditions specified in Section 10.2 of the Partnership
Agreement. Notwithstanding the actual time of the admission of a Substituted
Limited Partner, for purposes of allocating profits, losses and distributable
cash (as those terms are defined in the Partnership Agreement), a person will be
treated as having become a Limited Partner as of the date on which the sale,
assignment or transfer of such persons interest was recognized by the
Partnership, as described above, even if that person does not in fact become a
Substituted Limited Partner.
YEAR 2000
The Year 2000 issue is the result of computer programs being written
using two digits rather than four to define the applicable year. As a
consequence, computer programs that have time-sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in normal business activities.
ML & Co. has undertaken a comprehensive review of the impact of the
Year 2000 issue on its operations and the operations of its subsidiaries.
However, there can be no assurance that the systems of companies in which the
Partnership invests, particularly emerging market companies, will be timely
converted or that the value of such investments will not be adversely affected
by the Year 2000 issue.
REPORTS
Financial information contained in all reports to the Limited Partners
will be prepared on an accrual basis of accounting in accordance with generally
accepted accounting principles and will include, where applicable, a
reconciliation to information furnished to the Limited Partners for income tax
purposes. Federal and state tax information will be provided to the Limited
Partners within 75 days following the close of each calendar year or as soon as
practicable thereafter. (As described under "Risk and Other Important Factors",
to the extent the Partnership invests in other investment funds, it may
experience delays in obtaining annual tax information, which may require Limited
Partners to obtain extensions for filing income tax returns.) Financial
statements, which will be prepared annually, will be certified by independent
auditors and will be furnished within 180 days (or as soon as practicable
thereafter) following the close of the calendar year. A statement of appraisal
of the value of Partnership assets will be provided with the financial
statements. Limited Partners also have the right under applicable law to obtain
other information about the Partnership and may, at their expense, obtain a list
of the names and addresses of all of the Limited Partners for any proper
purpose.
In connection with the appraisal of the value of the Partnership's
investments that are not publicly traded, there is a range of values which is
reasonable for such investments at any particular time. The General Partner
presently expects that the following procedures will be utilized with respect to
these investments. In the early stages of development, these investments will
typically be valued based on their original cost to the Partnership (the "cost
method"). The cost method will be utilized until significant developments
affecting the portfolio company provide a basis for use of an appraisal
valuation (the "appraisal method"). The appraisal method will be based on such
factors affecting the portfolio company as earnings and net worth, the market
prices for similar securities of comparable companies and an assessment of the
company's future prospects. In the case of unsuccessful operations, the
appraisal may be based on liquidation value. Valuations based on the appraisal
method are necessarily subjective. The General Partner may also use third party
transactions (actual or proposed) in the portfolio company's securities as the
basis of valuation (the "private market method"). The private market method will
be used only with respect to actual transactions or actual firm offers by
sophisticated, independent investors. The valuation of debt securities that are
not publicly traded will be determined by or under the direction of the General
Partner. The General Partner expects that the private market method of valuation
will be the primary method utilized with respect to these securities. Securities
with legal, contractual or practical restrictions on transfer may be valued at a
discount from their value determined by the foregoing methods to reflect the
effect of such restrictions.
EXPERTS
The financial statements included in this Prospectus have been examined
by Deloitte & Touche llp, independent auditors, as indicated in their opinions
with respect thereto, and are included herein in reliance upon the authority of
that firm as experts in accounting and auditing.
LEGAL MATTERS
The legality of the securities offered hereby will be passed upon by
Brown & Wood LLP, One World Trade Center, New York, New York 10048, as counsel
to the Partnership and the General Partner, who may rely as to matters of
Delaware law upon the opinion of Richards, Layton & Finger, One Rodney Square,
Wilmington, Delaware 19801.
The statements under the heading "Tax Aspects of Investment in the
Partnership" have been reviewed by Brown & Wood LLP.
EXEMPTIONS FROM THE INVESTMENT COMPANY ACT OF 1940
The Partnership will operate as a closed-end, management investment
company registered with the Securities and Exchange Commission (the
"Commission") under the Investment Company Act. However, an exemptive order was
obtained from the Commission in 1982 pursuant to Section 6(b) of the Act that
exempts the Partnership, as an "employees securities company" within the meaning
of the Investment Company Act, from certain provisions of such Act. The
exemptive order relates to the following provisions of the Investment Company
Act and the rules and regulations promulgated thereunder:
Section 8(b) to exempt the Partnership from filing annual amendments to
its Registration Statement under the Investment Company Act;
Section 10(a) to permit the Partnership to include the General Partner
as the sole general partner and to permit all of the directors and officers of
the General Partner to be persons who are employees of ML & Co. or its
affiliates;
Section 10(b) to permit the Partnership to employ subsidiaries of ML &
Co. to act as broker and principal underwriter for the Partnership;
Section 10(f) to permit the Partnership to purchase securities in
underwritten offerings, a principal underwriter of which may be an affiliate of
the General Partner;
Section 14(a) to permit the Partnership to offer Units to Qualified
Investors prior to the time the Partnership has a net worth of $100,000;
Section 15(a) to permit the General Partner to act from time to time as
investment adviser to the Partnership without a written contract and without the
approval of the Limited Partners;
Section 16(a) to permit ML & Co. to appoint and replace the directors
of the General Partner in accordance with the Partnership Agreement;
Section 17(a) to permit ML & Co. and its subsidiaries to engage in
certain transactions as principal with the Partnership in addition to
transactions as agent, including transactions involving money market securities
and real estate, and, under limited circumstances and subject to certain
conditions, the acquisition of investments from the General Partner (or an
affiliate thereof) that were purchased for the Partnership prior to the closing
of its offering;
Section 17(d) to permit the Partnership to engage in transactions in
which certain affiliated persons of the Partnership may also be participants;
Section 17(f) to permit ML & Co. or one of its subsidiaries to act as
custodian without a written contract;
Section 17(g) to permit the Partnership to comply with requirements
applicable to fidelity bonds without the necessity of having a majority of the
Board of Directors of the General Partner which are not "interested persons"
take such action and make such approvals as are set forth in Rule 17g1 under the
Investment Company Act;
Section 18(a)(1) to exempt the Partnership from certain limitations on
borrowings so that the Partnership may enter into non-recourse loans relating to
investments other than securities without regard to the restrictions on "asset
coverage" contained in the Investment Company Act;
Section 18(i) to permit the Limited Partners to have only those rights
with respect to the management of the Partnership as are set forth in the
Partnership Agreement;
Section 19(b) to permit the Partnership to distribute long-term capital
gains more frequently than annually;
Section 20(a) to exempt the Partnership from the proxy requirements set
forth in the rules under the Investment Company Act;
Section 23(c) to permit the Partnership to repurchase Partnership
interests pursuant to the terms of the Partnership Agreement;
Section 30(a), (b) and (d) to exempt the Partnership from filing annual
and quarterly reports with the Commission and from sending semiannual reports to
Limited Partners; and
Section 32(a) to permit the General Partner to select independent
certified public accountants for the Partnership without submitting their
selection to the Limited Partners for ratification or rejection.
In 1991, the Commission issued an order amending the order described
above to expand the categories of investments in which the Partnership and other
partnerships managed by the General Partner may participate with ML & Co. and
its affiliates. The transactions in which such joint investments may be made
relate generally to equity and equity-related investments in buyout transactions
and other transactions structured by ML & Co. or its affiliates or in which ML &
Co. or its affiliates have an equity or equity-related investment. The order
requires, among other things, that the General Partner make specified findings
before the Partnership participates in such investments and that the General
Partner, at least annually, provide to the Limited Partners a list of such
investments in which the Partnership has invested with ML & Co. or its
affiliates.
ADDITIONAL INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement that the Partnership has filed with the Securities and
Exchange Commission, Washington, D.C., under the Securities Act of 1933 and the
Investment Company Act. For further information pertaining to the securities
offered hereby, reference is made to the Registration Statement including the
exhibits filed as a part thereof.
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Merrill Lynch KECALP L.P. 1999
Independent Auditors' Report................................. 42
Balance Sheet, July 31, 1998................................. 43
Statement of Operations for the period
July 10, 1998 (DATE OF FORMATION) to July 31, 1998....... 44
Statement of Cash Flows for the period
July 10 to July 31, 1998................................. 45
Statement of Changes in Net Assets for the
period July 10 to July 31, 1998.......................... 46
Statement of Changes in Partners' Capital (Deficit)
for the period July 10 to July 31, 1998.................. 47
Notes to Financial Statements................................ 48
KECALP Inc. (Unaudited)
Balance Sheet, December 26, 1997............................. 49
Notes to Balance Sheet....................................... 50
<PAGE>
INDEPENDENT AUDITORS' REPORT
Merrill Lynch KECALP L.P. 1999:
We have audited the accompanying balance sheet of Merrill Lynch KECALP L.P. 1999
(the "Partnership") as of July 31, 1998, and the related statements of
operations, cash flows, changes in net assets, and changes in partners' capital
(deficit) for the period July 10, 1998 (date of formation) to July 31, 1998.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Merrill Lynch KECALP L.P. 1999 at July 31,
1998 the results of its operations, its cash flows, the changes in net assets
and the changes in partners' capital for the period July 10, 1998 (date of
formation) to July 31, 1998 in conformity with generally accepted accounting
principles.
August 21, 1998
<PAGE>
MERRILL LYNCH KECALP L.P. 1999
BALANCE SHEET
JULY 31, 1998
ASSETS
Portfolio Investment - Note 3................................. $ 5,624,760
Cash.......................................................... 100
-----------
TOTAL ASSETS $ 5,624,860
===========
LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) ACCOUNT
Liabilities $ 5,624,760
Accounts payable - KECALP Inc - Note 4........................ 200,000
-----------
Accrued organization cost and offering expenses............... $ 5,824,760
-----------
TOTAL LIABILITIES $ 5,824,760
-----------
Partners Capital (Deficit):
General Partner............................................. (1,999)
Initial Limited Partner..................................... (197,901)
-----------
Total Partners Capital (Deficit).............................. (199,900)
-----------
TOTAL LIABILITIES AND PARTNERS' CAPITAL (DEFICIT) $5,624,850
==========
See notes to financial statements.
<PAGE>
MERRILL LYNCH KECALP L.P. 1999
- ------------------------------
STATEMENT OF OPERATIONS
FOR THE PERIOD JULY 10, 1998 (DATE OF FORMATION) TO JULY 31, 1998
- --------------------------------------------------------------------------------
EXPENSES: $ 80,000
Organizational costs:
----------
NET OPERATING LOSS:
(allocable to Partners)--Note 2 (80,000)
==========
See notes to financial statements.
<PAGE>
MERRILL LYNCH KECALP L.P. 1999
- ------------------------------
STATEMENT OF CASH FLOWS
FOR THE PERIOD JULY 10, 1998 (DATE OF FORMATION) TO JULY 31, 1998
- --------------------------------------------------------------------------------
CASH FLOWS (USED FOR) OPERATING ACTIVITIES:
Net operating loss $ (80,000)
Add: Net cash expense 80,000
------------
Net cash used for operating activities 0
------------
CASH FLOWS FROM FINANCIAL ACTIVITIES:
Capital Contributions:
General Partner 99
Initial Limited Partner 1
------------
Net cash from financing activities 100
------------
INCREASE IN CASH AND CASH EQUIVALENTS 100
CASH AND CASH EQUIVALENTS BALANCE
AT BEGINNING OF PERIOD --
------------
CASH AND CASH EQUIVALENTS BALANCE
AT END OF PERIOD $ 100
============
NON CASH ITEMS:
Accounts and Accrued Expenses Payable for
Securities Purchases and Organizational and Offering Expenses $ 5,824,760
============
See notes to financial statements.
<PAGE>
MERRILL LYNCH KECALP L.P. 1999
- ------------------------------
STATEMENT OF CHANGES IN NET ASSETS
FOR THE PERIOD JULY 10, 1998 (DATE OF FORMATION) TO JULY 31, 1998
- --------------------------------------------------------------------------------
Net operating loss from operations $ (80,000)
Partners' capital contributions 100
Less offering expenses (120,000)
-------------
DECREASE IN NET ASSETS (199,900)
NET ASSETS AT BEGINNING OF PERIOD 0
-------------
NET ASSETS AT END OF PERIOD $ (199,900)
=============
See notes to financial statements.
<PAGE>
MERRILL LYNCH KECALP L.P. 1999
- ------------------------------
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
FOR THE PERIOD JULY 10, 1998 (DATE OF FORMATION) TO JULY 31, 1998
- --------------------------------------------------------------------------------
INITIAL
GENERAL LIMITED
PARTNER PARTNER TOTAL
------- ------- -----
Capital contributions $ 99 $ 1 $ 100
Less:
Offering expenses (1,298) (118,702) (120,000)
------ -------- --------
Net proceeds (1,199) (118,701) (119,900)
Allocation of net
operating loss (800) (79,200) (80,000)
---- ------- -------
Balance at July 31, 1998 $ (1,999) $ (197,901) $ (199,900)
=========== =========== ============
See notes to financial statements.
<PAGE>
MERRILL LYNCH KECALP L.P. 1999
- ------------------------------
NOTES TO FINANCIAL STATEMENTS
FOR THE PERIOD JULY 10, 1998 (DATE OF FORMATION) TO JULY 31, 1998
- --------------------------------------------------------------------------------
1. Organization and Purpose
Merrill Lynch KECALP L.P. 1999 (the "Partnership") was formed as of
July 10, 1998 and the Certificate of Limited Partnership was filed under the
Delaware Revised Uniform Limited Partnership Act of July 15, 1998. KECALP Inc.
("KECALP" or the "General Partner") has made a capital contribution of $99. The
Initial Limited Partner has made a contribution of $1 to permit the formation of
the Partnership. KECALP is a Delaware corporation, formed in June 1981 and an
indirect wholly-owned subsidiary of Merrill Lynch & Co., Inc. The General
Partner is authorized to admit additional limited partners to the Partnership
if, after the admission of such additional limited partners, the capital
contributions of all additional limited partners would not be less than
$75,000,000. The Partnership is an "employees securities company" under the
Investment Company Act of 1940. KECALP will pay the organizational expenses of
the Partnership incurred prior to the commencement of the offering of the
Partnership's units. The Partnership has agreed to reimburse KECALP for such
costs.
The Partnership intends to seek long-term capital appreciation. The Partnership
will invest in various speculative and non-speculative investments. The
Partnership shall not engage in any other business activity. The Partnerships
term extends to December 31, 2039. However, pursuant to the Partnership
Agreement, the General Partners may dissolve the Partnership, without the
consent of the Limited Partners, at any time after January 1, 2005.
2. Significant Accounting Policies
Valuation of Investments -- Investments are valued as follows:
------------------------
Portfolio investments, other than investments in partnerships, are
carried at cost until significant developments affecting an investment provide a
basis for valuation. Thereafter, portfolio investments are carried at fair
market value as determined by the General Partner upon guidelines approved by
its Board of Directors. The portfolio investments held by the Partnership
involve a high degree of business and financial risk that can result in
substantial losses. Money market investments are carried at amortized cost which
approximates market.
Use of Estimates -- The preparation of financial statements in
----------------
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Partnership Distributions and Allocations -- All items of income,
--------------------------------------------
expense, gain and loss, except for certain expenses paid directly by the General
Partner, are allocated to Partners pursuant to the Limited Partnership
Agreement. Cash distributions will be made in the same manner.
Federal Income Taxes -- The Partnership is not a taxable entity for
---------------------
Federal income tax purposes. Such taxes are the liabilities of the individual
partners and the amounts thereof will vary depending on the individual situation
of each partner. Accordingly, there is no provision for Federal income taxes in
the accompanying financial statements.
3. Portfolio Investment
On August 4, 1998, the Partnership, purchased 46,873 shares of Orbital
Imaging Corporation Series A Cumulative Convertible Preferred Stock ("Orbimage")
for $5,624,760. Such investment is carried at cost, which approximates fair
value.
4. Accounts Payable
The Partnership borrowed $5,624,760 from KECALP to finance the
investment in Orbimage. The Partnership will be charged at KECALP's costs to
borrow funds.
5. Fiscal Year
The fiscal year of the Partnership will end on December 31 of each
year.
KECALP INC.
BALANCE SHEET (UNAUDITED)
DECEMBER 26, 1997
ASSETS
Cash 37,443
Other Receivables 12,718,131
Investment in limited partnership 3,252,606
----------
TOTAL 16,008,180
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Due to ML & Co. 12,594,417
Deferred federal and state income taxes 32,288
Accrued expenses 58,515
----------
TOTAL LIABILITIES 12,685,220
----------
STOCKHOLDERS' EQUITY
1,000
Common stock - $1 par value; authorized and
outstanding 1,000 shares
Additional paid-in-capital 12,435,555
Capital Contribution Receivable (11,100,000)
Retained Earnings 1,986,405
----------
TOTAL STOCKHOLDERS' EQUITY 3,322,960
----------
TOTAL 16,008,180
==========
<PAGE>
KECALP INC
NOTES TO BALANCE SHEET
(UNAUDITED)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
KECALP Inc ("KECALP"), a Delaware corporation, is a wholly-owned
subsidiary of Merrill Lynch Group Inc.("ML Group"). ML Group is a wholly-owned
subsidiary of Merrill Lynch & Co., Inc. ("ML & CO."). KECALP is a General
Partner of six Delaware limited partnerships, Merrill Lynch KECALP, L.P. 1986
(the "1986 Partnership"), Merrill Lynch KECALP L.P. 1987 (the "1987
Partnership"), Merrill Lynch KECALP L.P. 1989 (the "1989 Partnership"), Merrill
Lynch KECALP L.P. 1991 (the "1991 Partnership"), Merrill Lynch KECALP 1994 (the
"1994 Partnership"), and Merrill Lynch KECALP L.P. 1997 (the "1997
Partnership"), collectively referred to as the "Partnerships". As General
Partner, KECALP manages the Partnerships, pays certain of their expenses and
maintains a 1% ownership interest in each of the Partnerships. KECALP is also
the Investment Adviser to Merrill Lynch KECALP International L.P.1997 (the "1997
International Partnership") that co-invest with the 1997 Partnership.
The investment objectives of the 1986 Partnership, 1987 Partnership,
1989 Partnership, 1991 Partnership, 1994 Partnership, 1997 Partnership and the
1997 International Partnership are to seek long-term capital appreciation with a
substantial portion of its total proceeds invested in venture capital and
leveraged buyout investments. The Partnerships may purchase other investments
that KECALP deems appropriate. Current income will not be a significant factor
in the selection of investments. The Partnerships shall not engage in any other
business or activity.
Investment in Partnerships -- The investment in the Partnerships is
accounted for using the cost method.
Capital Requirements -- As a condition to the closing of the sales
of units of limited partnership interest, KECALP has agreed to maintain a net
worth as required in accordance with applicable U.S. income tax regulations and
rulings of the Internal Revenue Service. ML & Co. provides capital to KECALP by
a demand promissory note or other investment to satisfy the requirement that
KECALP have such net worth (see Note 2).
2. CAPITAL CONTRIBUTION RECEIVABLE
The Capital Contribution receivable represents promissory notes from ML
& Co. The notes are due on demand and bear interest at the daily brokers call
rate. Intercompany interest and taxes are not paid, but KECALP's obligations
have been settled through an adjustment of the intercompany receivable account.
3. RELATED PARTY TRANSACTIONS
KECALP is obligated to pay certain expenses, fees, sales or brokerage
commissions, and other expenditures (except for debt service and interest
expense) of the Partnerships.
KECALP is required to maintain an investment in the Partnerships of
approximately 1% of the Partnerships' net assets less (plus) unallocated net
unrealized appreciation (depreciation) of investments.
4. DUE FROM MERRILL LYNCH & CO.
The Corporation has been authorized to transfer funds, as required by
policy, to ML & Co. ML & Co. is to repay this loan with interest based on the
daily brokers call rate.
5. INCOME TAXES
The results of operations of KECALP are included in the consolidated
Federal income tax returns of ML & Co., Inc. It is the policy of ML & Co., Inc.
to allocate to KECALP the Federal and state tax expense associated with such
operating results in its consolidated tax return, including the recognition of
deferred tax assets.
<PAGE>
APPENDIX
Set forth below is information concerning investments made by prior
KECALP Partnerships:
1997 PARTNERSHIP
The 1997 Partnership closed its subscription offering on October 15,
1997, at which time it sold 277,948 units of limited partnership interest to
1,309 investors for $277,948,000. As of July 31, 1998, the 1997 Partnership has
invested or committed approximately $239,000,000 to 49 portfolio investments
consisting of 8 leveraged buy-out transactions (with an aggregate cost of $47.2
million), 3 real estate transactions (with an aggregate cost of $25.0 million),
13 venture capital investments (with an aggregate cost of $55.2 million), 20
growth equity investments with an aggregate cost of $80.0 million), and 5
"other" investments (with an aggregate cost of $31.6 million). As a result, at
such date, approximately $39.0 million of its initial assets remained to be
invested or committed.
INVESTMENTS HELD AS OF 7/31/98
- ------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Date of
Classification Company/Fund Commitment/Purchase Cost
- -------------- ------------ ------------------- ----
Growth Equity Fleming US Discovery Fund III, L.P. 11/97 $852,000
Growth Equity PT Keramika Indonesia Assosiasi 11/97 387,000
Growth Equity PT Keramika Indonesia Assosiasi 11/97 580,000
Growth Equity Procomp Amazonia Industria Electrica LTD 11/97 3,509,000
Growth Equity Wendeng Tianrun Crankshaft Co. Ltd 11/97 765,000
Growth Equity Sun Capital Partners, L.P. 11/97 8,589,000
Growth Equity Mercapital Spanish Private Equity Fund 12/97 4,200,000
Growth Equity PSi Technologies, Inc. 12/97 1,195,000
Growth Equity Termo Teknik Ticaret, ve Sanayi A.S. 12/97 1,960,000
Growth Equity Ukraine Growth Fund III, L.P. 12/97 5,040,000
Growth Equity Wolfgang Puck Food Company, Inc. 1/98 3,276,000
Growth Equity The Lightspan Partnership, Inc. 3/98 4,200,000
Growth Equity Financial Pacific Company 3/98 4,260,000
Growth Equity Nebraska Book Company 3/98 1,575,000
Growth Equity Spectrum Equity Investors II, L.P. 11/97 2,304,000
Growth Equity Jekyll and Hyde Entertainment L.L.C. 11/97 9,000,000
Growth Equity First International Oil Corporation 2/98 10,080,000
Growth Equity American Cellular 3/98 7,700,000
Growth Equity HK Systems 4/98 1,979,000
Growth Equity Poland Partners L.P. 5/98 2,501,000
Growth Equity OptiMark Technologies, Inc. 6/98 5,625,000
Leveraged Buyouts Packard BioScience Company 11/97 884,000
Leveraged Buyouts TPG Partners II, L.P. 11/97 10,028,000
Leveraged Buyouts Charterhouse Equity Partners III, L.P. 11/97 4,250,000
Leveraged Buyouts HWH Camouflage, L.P. 11/97 1,630,000
Leveraged Buyouts North Castle Partners I, L.L.C. 11/97 11,938,000
Leveraged Buyouts Fisher Scientific International Incorporated 1/98 9,393,000
Leveraged Buyouts Multicare Companies, Inc. 11/97 575,000
Leveraged Buyouts Warburg Pincus Ventures International, L.P. 11/97 8,508,000
Real Estate ZML Partners Limited Partnership IV 11/97 2,536,000
Real Estate Colony Investors III, L.P. 3/98 15,000,000
Real Estate Blackacre Capital Partners 4/98 7,500,000
Venture Capital Jerusalem Venture Partners, L.P. 11/97 855,000
Venture Capital Acuity Corp. 11/97 1,700,000
Venture Capital Orbital Imaging Corporation 11/97 6,125,000
Venture Capital Candescent Technologies Corporation 11/97 4,359,000
Venture Capital Candescent Technologies Corporation 11/97 728,000
Venture Capital Captura Software, Inc. 11/97 1,083,000
Venture Capital Captura Software, Inc. 10/97 440,000
Venture Capital Wave International, Inc. (VenInfo Tel) 11/97 4,961,000
Venture Capital Prospect Venture Partners, L.P. 11/97 8,800,000
Venture Capital Whistle Communications, Inc. 11/97 2,141,000
Venture Capital Cohera Corporation 10/97 250,000
Venture Capital FluidSense Corporation 11/97 1,954,000
Venture Capital Global Village Telecom N.V. 4/98 7,500,000
Venture Capital Taitai Pharmaceutical Industry Co. Ltd. 12/97 5,602,000
Venture Capital Orbital Imaging Corporation 2/98 5,884,000
Venture Capital Orbital Imaging Corporation 6/98 1,575,000
Venture Capital XaQti Corporation 6/98 1,200,000
Other MD Sass Corporate Resurgence Partners 11/97 4,502,000
Other APAM High Performance Capital Partners 11/97 8,852,000
Other Termo Teknik Ticaret, ve Sanayi A.S. (Debt) 12/97 1,680,000
Other Global Convergence Fund 3/98 8,400,000
Other ML Collateralized Loan Obligation Series 19 6/98 8,200,000
</TABLE>
1994 PARTNERSHIP
The 1994 Partnership closed its subscription offering on September 21,
1994, at which time it sold 40,384 units of partnership interest to 1,401
investors for $40,384,000. As of May 15, 1997, the 1994 Partnership had fully
invested or committed approximately $43.1 million to 24 portfolio investments
consisting of 11 leveraged buyout transactions (with an aggregate cost of $18.8
million), one real estate related transaction (with an aggregate cost of $2.0
million), five venture capital investments (with aggregate costs of $8.3
million) and seven growth equity investments (with aggregate costs of $14.0
million).
Set forth below is a chart showing the results, as of July 31, 1998, of
completed equity transactions with respect to the 1994 Partnership's
investments. The dates of purchase refer to the dates on which investments were
acquired by the 1994 Partnership.
COMPLETED TRANSACTIONS
- ----------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date of
Classification Company Purchase Sale Cost Proceeds
- -------------- ------- -------- ---- ---- --------
Growth Equity Franchise Investors LLC 9/95 4/98 $1,451,600 $3,403,781
Leveraged Buyout Mail-Well, Inc. 7/95 3/96 263,089 636,875
Leveraged Buyout Mail-Well, Inc. 7/95 6/96 704,456 1,592,857
Leveraged Buyout Mail-Well, Inc. 12/94 6/97 239,536 1,031,387
Leveraged Buyout Mail-Well, Inc. 12/94 12/96 304,976 1,240,274
Leveraged Buyout Westlink Holdings, Inc. 7/95 5/96 2,114,825 4,672,000
Leveraged Buyout Revere Holding Corporation 1/95 12/96 1,800,000 4,890,600
----------- -----------
Total $ 6,878,482 $17,467,774
=========== ===========
NET PROFIT REALIZED $10,589,292
===========
</TABLE>
INVESTMENTS HELD AS OF 7/31/98
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Date of
Classification Company/Fund Commitment/Purchase Cost
- -------------- ------------ ------------------- ----
Growth Equity Best Friends Pet Care, Inc. 12/96 $2,750,000
Growth Equity Fleming US Discovery Fund III, L.P. 6/97 2,500,000
Growth Equity GP Capital Partners II, L.P. 5/97 3,000,000
Growth Equity ML Americas Ltd 11/97 1,032,135
Growth Equity Spectrum Equity Investors II, L.P. 3/97 2,500,000
Growth Equity PT Keramika Indonesia Assosiassi 8/97 785,151
Venture Capital Candescent Technologies Corp. 5/96 2,502,500
Venture Capital Captura Software, Inc. 7/97 1,250,000
Venture Capital Captura Software, Inc. 10/97 500,000
Venture Capital Jerusalem Venture Partners L.P. 5/97 1,000,000
Venture Capital Real Networks, Inc. 1/97 1,000,398
Venture Capital Verisign, Inc. 12/96 2,000,000
Leveraged Buyout Dictaphone Corporation 8/95 1,500,000
Leveraged Buyout Gemini Holdings, Inc. 7/95 892,143
Leveraged Buyout Goss Graphic Systems, Inc. 10/96 1,000,000
Leveraged Buyout HWH Einstein 12/96 2,187,500
Leveraged Buyout North Castle Partners I, L.P.. 5/97 750,000
Leveraged Buyout Packard BioScience Company 3/97 1,499,984
Leveraged Buyout Petrie Acquisition Corporation 12/94 4,558,140
Leveraged Buyout US Foodservice 10/94 1,000,000
Real Estate ZML Partners Limited Partnership III 7/95 2,000,000
</TABLE>
1991 PARTNERSHIP
The 1991 Partnership closed its subscription offering on September 11,
1991, at which time it sold 20,799 units of limited partnership interest to 964
investors for $20,799,000. By July 20, 1995, the 1991 Partnership was fully
invested in 19 investments with an aggregate purchase price of $21.8 million.
Seventeen were leveraged buyouts ($19.5 million), one was a growth equity
investment ($1.0 million) and one was real estate ($1.3 million).
Set forth below is a chart showing the results, as of July 31, 1998, of
completed equity transactions with respect to the 1991 Partnership's
investments. The dates of purchase refer to the dates on which investments were
acquired by the 1991 Partnership.
COMPLETED TRANSACTIONS
- ----------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
- -------------- ------- -------- ------- ---- --------
Leveraged Buyout First USA, Inc. 9/91 2/93 $ 52,913 $ 162,037
Leveraged Buyout First USA, Inc. 9/91 3/93 3,052 9,345
Leveraged Buyout First USA, Inc. 9/91 8/93 68,808 390,261
Leveraged Buyout First USA, Inc. 9/91 3/94 62,649 451,075
Leveraged Buyout First USA, Inc. 9/91 1/95 12,750 103,674
Leveraged Buyout First USA, Inc. 9/91 3/95 139,880 1,327,052
Leveraged Buyout Hospitality Franchise Systems, Inc. 1/92 7/93 345,751 1,009,411
Leveraged Buyout Hospitality Franchise Systems, Inc. 1/92 11/93 315,159 1,244,700
Leveraged Buyout Hospitality Franchise Systems, Inc. 1/92 2/94 339,090 1,726,943
Leveraged Buyout Triarc Companies, Inc 4/93 7/95 1,500,000 1,963,158
Leveraged Buyout Mail-Well, Inc. 2/94 3/96 244,723 636,875
Leveraged Buyout Mail-Well, Inc. 2/94 6/96 655,277 1,592,857
Leveraged Buyout Mail-Well, Inc. 12/94 12/96 304,976 1,240,274
Leveraged Buyout Mail-Well, Inc. 12/94 6/97 239,536 1,031,387
Leveraged Buyout American Re Corporation 9/92 3/96 1,500,000 5,967,188
Leveraged Buyout Westlink Holdings, Inc. 7/94 5/96 1,000,000 2,336,000
Growth Equity ACE Limited 9/93 11/96 1,000,000 1,862,789
Leveraged Buyout Blue Bird Corporation 4/92 11/96 1,500,000 3,300,000
Leveraged Buyout WEI Holdings, Inc. 7/92 1/97 999,988 0
Leveraged Buyout Beatrice Holdings 12/91 11/97 1,499,999 0
Leveraged Buyout Bestform Group, Inc. 12/92 1/98 1,364,000 1,393,624
----------- -----------
Total $13,148,551 $27,748,650
----------- -----------
NET PROFIT REALIZED $14,600,099
===========
</TABLE>
INVESTMENTS HELD AS OF 7/31/98
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Date of
Classification Company/Fund Commitment/Purchase Cost
- -------------- ------------ ------------------- ----
Leveraged Buyout Blue Bird Corporation 4/92 $ 0
Leveraged Buyout Columbia National Holdings, Inc. 6/93 1,000,000
Leveraged Buyout Gemini Holdings, Inc. 1/94 1,190,000
Leveraged Buyout RI Holdings Inc. 3/92 545,750
Leveraged Buyout SMG-II Holdings Corporation 9/91 802,691
Leveraged Buyout United Artists Theatre Company 6/92 1,500,000
Leveraged Buyout CMI Industries, Inc. 3/92 372,103
Leveraged Buyout JP Foodservice, Inc. 10/92 1,999,998
Real Estate Merrill Lynch ZML Limited Partnership II 7/92 1,271,539
</TABLE>
1989 PARTNERSHIP
The 1989 Partnership closed its subscription offering on May 16, 1989,
at which time it sold 21,096 units of limited partnership interest to 843
investors for $21,096,000. By May 1, 1992, the 1989 Partnership was fully
invested in 22 investments with an aggregate purchase price of $23.1 million. Of
the 22 investments, 21 were leveraged buyouts ($22.6 million) and one was
venture capital ($500,000).
Set forth below is a chart showing the results, as of July 31, 1998, of
completed equity transactions with respect to the 1989 Partnership. The dates of
purchase refer to the dates on which investments were acquired by the 1989
Partnership.
COMPLETED TRANSACTIONS
- ----------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date of Date of Cost Proceeds
Classification Company Purchase Sale Cost Proceeds
- -------------- ------- -------- ------- ---- --------
Leveraged Buyout RJR Nabisco Holding Corp. 5/91 9/92 $ 5,071 $2,407,194
Leveraged Buyout RJR Nabisco Holding Corp. 5/91 12/92 2,535,044 3,621,389
Leveraged Buyout First USA, Inc. 5/91 2/93 83,961 379,830
Leveraged Buyout First USA, Inc. 8/91 2/93 316,370 968,837
Leveraged Buyout First USA, Inc. 5/91 3/93 17,193 77,778
Leveraged Buyout First USA, Inc. 5/91 8/93 376,132 3,151,488
Leveraged Buyout First USA, Inc. 5/91 8/93 17,463 146,317
Leveraged Buyout First USA, Inc. 5/91 3/94 358,358 3,811,597
Leveraged Buyout First USA, Inc. 5/91 1/95 74,801 898,508
Leveraged Buyout First USA, Inc. 5/91 3/95 798,261 11,187,510
Leveraged Buyout Eckerd Corporation 5/91 5/94 270,427 517,378
Leveraged Buyout Eckerd Corporation 5/91 8/95 313,539 1,018,839
Leveraged Buyout Eckerd Corporation 5/91 12/95 557,558 2,362,673
Leveraged Buyout Eckerd Corporation 5/91 12/96 81,763 600,320
Leveraged Buyout Eckerd Corporation 5/91 5/97 52,875 361,672
Leveraged Buyout Ann Taylor Stores Corporation 5/91 5/94 895,676 3,370,105
Leveraged Buyout Ann Taylor Stores Corporation 5/91 12/94 297,510 1,423,450
Leveraged Buyout Ann Taylor Stores Corporation 5./91 6/98 215,850 532,487
Leveraged Buyout CMI Acquisition Corporation 5/91 8/94 252,581 0
Leveraged Buyout Del Monte Foods Company 5/91 4/97 1,304,145 1,025,771
Leveraged Buyout Federated Investors, Inc. 5/91 2/96 36,147 237,500
Leveraged Buyout Federated Investors, Inc. 5/91 5/98 172,875 6,383,896
Leveraged Buyout Flemings Companies, Inc. 8/94 6/97 82,600 53,997
Leveraged Buyout Flemings Companies, Inc. 8/94 8/97 148,444 90,586
Leveraged Buyout Kash n' Karry Food Stores, Inc. 5/91 12/94 253,050 0
Leveraged Buyout Houlihan's Restaurant Group, Inc. 5/91 8/95 1 69,660
Leveraged Buyout Esstar Incorporated 5/91 9/95 1,601,960 324,415
Leveraged Buyout London Fog Industries 5/91 5/95 2,259,221 0
Leveraged Buyout Caterair Holdings Corporation 5/91 11/95 138,817 0
Leveraged Buyout Caterair Holdings Corporation 5/91 12/95 788,769 26,008
Venture Capital TranSwitch Corporation 7/89 12/95 183,232 748,173
Venture Capital TranSwitch Corporation 7/89 1/96 297,461 899,338
Leveraged Buyout EI Holdings, Inc. 5/91 1/96 323,074 318,887 (A)
Leveraged Buyout Simmons Company 5/91 3/96 744,130 2,757,345
Leveraged Buyout Loehmann's Holdings 5/91 5/96 61,609 213,245
Leveraged Buyout Loehmann's Holdings 5/91 6/96 183,393 301,325
Leveraged Buyout Loehmann's Holdings 5/91 11/96 202,555 1,136,384
Leveraged Buyout Blue Bird Corporation 4/92 11/96 425,000 935,000
----------- -----------
Total $16,726,917 $52,358,902
----------- -----------
NET PROFIT REALIZED $35,631,985
===========
</TABLE>
INVESTMENTS HELD AS OF 7/31/98
- ------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Date of
Classification Company/Fund Commitment/Purchase Cost
- -------------- ------------ ------------------- ----
Leveraged Buyout Amerifoods Companies, Inc. 5/91 $1,700,000
Leveraged Buyout Amstar Property Rights LLC. 9/95 4,481
Leveraged Buyout Blue Bird Corporation 4/92 0
Leveraged Buyout London Fog Industries 5/95 1,486
Leveraged Buyout Northbrook Corporation 11/90 7,450
Leveraged Buyout RI Holdings, Inc. 5/91 1,312,260
Leveraged Buyout SMG-II Holdings Corporation 5/91 1,418,089
Leveraged Buyout WSR Acquisition Corporation 5/91 534,517
Leveraged Buyout AnnTaylorStores Corporation 5/91 1,112,767
Leveraged Buyout CMI Industries, Inc. 3/92 372,103
Leveraged Buyout Federated Investors, Inc. 5/91 224,737
- -------------------
(A) Received shares of EI Holdings as part of sale of Esstar Incorporated.
</TABLE>
1987 PARTNERSHIP
The 1987 Partnership closed its subscription offering on May 28, 1987,
at which time it sold 13,549 units of limited partnership interest to 895
investors for $13,549,000. By May 23, 1991, the 1987 Partnership was fully
invested in 27 investments with an aggregate purchase price of $15.3 million. Of
the 27 investments, 19 were leveraged buyouts ($10.6 million), six were venture
capital ($2.3 million), one was a growth equity investment ($400,000) and one
was real estate ($2.0 million).
Set forth below is a chart showing the results, as of July 31, 1998, of
completed equity transactions with respect to the 1987 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by the 1987 Partnership.
COMPLETED TRANSACTIONS
- ----------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
- -------------- ------- -------- ------- ---- --------
Leveraged Buyout Mueller Holdings, Inc. 11/88 11/88 $ 62,507 $ 169,124
Leveraged Buyout Apparel Marketing Industries, Inc. 5/89 5/89 158,872 1,124,950
Leveraged Buyout Apparel Marketing Industries, Inc. 5/89 12/95 0 179,079
Leveraged Buyout GU Acquisition Corporation 7/89 7/89 1,373,836 3,088,851
Venture Capital Telecom USA 6/89 7/89 440,616 649,625
Venture Capital Magnesys 9/88 12/89 253,073 0
Venture Capital TCOM Systems, Inc. 12/87 3/91 581,791 0
Venture Capital Meteor Message Corporation 9/88 9/91 308,086 0
Leveraged Buyout GND Holdings Corporation 7/89 6/92 591,612 1,215,869
Leveraged Buyout Peter J. Schmitt Co., Inc. 5/91 6/92 190,580 0
Venture Capital IDEC Pharmaceuticals Corporation 6/89 7/92 16,304 88,244
Venture Capital IDEC Pharmaceuticals Corporation 3/95 4/97 305,516 578,670
Venture Capital IDEC Pharmaceuticals Corporation 3/95 10/97 10,025 407,652
Leveraged Buyout RJR Nabisco Holdings Corporation 5/91 9/92 2,901 1,374,093
Leveraged Buyout RJR Nabisco Holdings Corporation 5/91 12/92 1,450,665 2,066,766
Leveraged Buyout John Alden Financial Group 5/91 10/92 248,476 230,257
Leveraged Buyout John Alden Financial Group 5/89 11/93 20,705 645,439
Leveraged Buyout John Alden Financial Group 5/89 6/94 2,797 116,223
Leveraged Buyout John Alden Financial Group 5/89 8/94 25,438 945,182
Leveraged Buyout John Alden Financial Group 5/89 1/95 24,702 789,447
Venture Capital Bolt, Barenek & Newman 3/89 11/92 554,128 19,956(A)
Leveraged Buyout General Felt Industries 5/91 3/93 237,846 359,023
Leveraged Buyout Servam Corporation 5/91 12/93 26,048 0
Leveraged Buyout Ann Taylor Stores Corporation 5/91 5/94 42,456 159,748
Leveraged Buyout Ann Taylor Stores Corporation 5/91 12/94 16,257 78,620
Leveraged Buyout Ann Taylor Stores Corporation 5/91 6/98 9,884 24,588
Leveraged Buyout Borg-Warner Automotive, Inc. 9/88 10/94 118,836 476,350
Leveraged Buyout Borg-Warner Automotive, Inc. 9/88 11/94 1,429 5,728
Leveraged Buyout Borg-Warner Automotive, Inc. 9/88 8/96 419,400 2,513,242
Leveraged Buyout Borg-Warner Automotive, Inc. 9/88 2-3/97 547,033 3,855,967
Leveraged Buyout Kash `N Karry Food Stores, Inc. 5/91 12/94 96,951 0
Venture Capital TranSwitch Corporation 12/88 12/95 72,800 406,300
Venture Capital TranSwitch Corporation 12/88 1/96 127,200 524,100
Leveraged Buyout EI Holdings, Inc. 5/91 1/96 1,181,250 235,139(B)
Leveraged Buyout Simmons Company 5/91 3/96 858,253 3,180,222
Leveraged Buyout Loehmann's Holdings 5/91 5/96 61,609 213,245
Leveraged Buyout Loehmann's Holdings 5/91 6/96 183,393 301,325
Leveraged Buyout Loehmann's Holdings 5/91 11/96 202,555 1,136,384
----------- -----------
Total $10,825,830 $27,159,408
----------- -----------
NET PROFIT REALIZED $16,333,578
===========
</TABLE>
INVESTMENTS HELD AS OF 7/31/98
- ------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Date of
Classification Company/Fund Commitment/Purchase Cost
- -------------- ------------ ------------------- ----
Leveraged Buyout Amerifoods Companies, Inc. 5/91 $500,000
Leveraged Buyout Amstar Property Rights LLC. 9/95 3,304
Leveraged Buyout Gemini Industries 5/91 348,918
Leveraged Buyout Supermarkets General Holding Corp. 9/88 789,202
Leveraged Buyout AnnTaylor Stores Corporation 5/91 50,942
Leveraged Buyout Borg-Warner Security Corporation 9/88 1,086,699
Leveraged Buyout US Foodservice 5/91 356,118
Real Estate Merrill Lynch ZML Limited Partnership 10/88 2,000,000
- ------------------
(A) Received shares of Bolt, Barenek & Newman as part of dissolution of
partnership.
(B) Received shares of EI Holdings as part of the sale of Esstar
Incorporated.
</TABLE>
1986 PARTNERSHIP
The 1986 Partnership closed its subscription offering on April 15,
1986, at which time it sold 7,234 units of limited partnership interest to
approximately 500 investors for $7,234,000. By May 10, 1991, the Partnership was
fully invested in 26 investments with an aggregate purchase price of $8.3
million. Of the 26 investments, 15 were venture capital ($3.3 million), nine
were leveraged buyouts ($3.1 million), one was a growth equity investment ($1.1
million) and one "other" transaction ($759,000).
Set forth below is a chart showing the results, as of July 31, 1998, of
completed equity transactions with respect to the 1986 Partnership's
investments. The dates of purchase indicated refer to the dates on which
investments were acquired by the 1986 Partnership.
COMPLETED TRANSACTIONS
- ----------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
Date of Date of
Classification Company Purchase Sale Cost Proceeds
- -------------- ------- -------- ------- ---- --------
Growth Equity FGIC Corporation 6/86 3/88 $1,084,447 $1,889,415
Venture Capital Dallas Semiconductor Corp. 4/86 5/88 203,867 470,412
Venture Capital Data Recording Systems, Inc. 2/88 6/88 202,450 0
Venture Capital Alliant Computer Systems Corp. 6/86 7/88 158,529 95,375
Leveraged Buyout CMI Holdings, Inc. 1/88 4/89 45,349 153,451
Other Varity 4/89 4/89 758,842 1,906,283
Leveraged Buyout Printing Holdings, L.P. 4/89 4/89 649,949 2,135,285
Leveraged Buyout Amstar Corporation 1/88 7/89 354,728 1,303,520
Venture Capital Intek Diagnostics, Inc. 8/86 9/89 104,534 0
Leveraged Buyout Education Management Corp. 4/89 10/89 192,432 643,824
Leveraged Buyout Education Management Corp. 10/89 11/96 24,649 133,278
Leveraged Buyout Education Management Corp. 10/89 3/98 41,883 518,954
Venture Capital Qume Corporation 8/86 4/90 211,193 485,625
Venture Capital Computer-Aided Design Group 1/88 9/90 117,183 0
Venture Capital Computer-Aided Design Group 1/88 9/91 39,061 0
Venture Capital International Power Technology, Inc. 2/87 9/90 208,592 61,466
Venture Capital Robert Wooldridge & Co. 7/87 9/90 205,882 0
Venture Capital Shared Resource Exchange, Inc. 2/87 9/90 262,501 0
Venture Capital Shared Resource Exchange, Inc. 2/87 12/95 87,500 1
Leveraged Buyout Prince Holdings, Inc. 5/89 10/90 147,601 1,400,807
Venture Capital IDEXX Corporation 2/87 6/91 33,583 66,388
Venture Capital IDEXX Corporation 2/87 1/92 178,312 580,571
Venture Capital ViewLogic Systems, Inc. 6/86 12/91 212,874 1,474,388
Venture Capital Enhance Financial Svcs. Group Inc. 4/89 2/92 238,366 332,558
Venture Capital Enhance Financial Svcs. Group Inc. 4/89 8/92 251,042 369,949
Leveraged Buyout ALLTEL Corporation 2/87 7/92 11,589 163,649
Leveraged Buyout ALLTEL Corporation 2/87 3/93 24,277 428,451
Leveraged Buyout ALLTEL Corporation 2/87 8/93 25,480 483,124
Leveraged Buyout ALLTEL Corporation 2/87 11/93 12,071 240,807
Venture Capital Zentec Corporation 12/86 9/92 277,500 0
Venture Capital BehaviorTech, Inc. 8/86 7/93 105,669 9,900
Leveraged Buyout Eckerd Corporation 4/89 5/94 154,831 381,088
Leveraged Buyout Eckerd Corporation 4/89 12/94 29,643 110,000
Leveraged Buyout Eckerd Corporation 4/89 4/95 29,643 114,711
Leveraged Buyout Eckerd Corporation 4/89 8/95 161,034 673,195
Leveraged Buyout Eckerd Corporation 4/89 12/95 286,372 1,561,177
Leveraged Buyout Eckerd Corporation 4/89 12/96 41,993 396,655
Leveraged Buyout Eckerd Corporation 4/89 5/97 27,156 238,975
Leveraged Buyout Borg-Warner Automotive, Inc. 9/88 11/94 24,076 96,419
Leveraged Buyout Borg-Warner Automotive, Inc. 9/88 8/96 83,960 502,661
Leveraged Buyout Borg-Warner Automotive, Inc. 9/88 2/97 95,147 670,059
Leveraged Buyout Borg-Warner Automotive, Inc. 9/88 3/97 14,358 101,112
Leveraged Buyout World Color Press, Inc. 4/89 1/96 480,806 922,012
---------- -----------
Total $7,900,954 $21,115,545
---------- -----------
NET PROFIT REALIZED $13,214,591
===========
</TABLE>
INVESTMENTS HELD AS OF 7/31/98
- ------------------------------
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Date of
Classification Company/Fund Commitment/Purchase Cost
- -------------- ------------ ------------------- ----
Leveraged Buyout Borg-Warner Security Corporation 9/88 $217,541
Leveraged Buyout CMI Holding, Inc. 1/88 31,273
Leveraged Buyout LSW, Inc. 10/86 252,200
</TABLE>
1983 AND 1984 PARTNERSHIPS
Both the 1983 and the 1984 Partnerships had investment objectives that
focused on tax advantaged investments, not long-term capital gains, the
investment objective of all subsequent Partnerships. As of December 23, 1997,
both Partnerships had distributed 100% of proceeds to their limited partners.
The Partnerships were subsequently dissolved in 1998.
Without taking into account any tax benefits arising from the
investments, performance results are presented in summary form as follows:
1983 PARTNERSHIP 1984 PARTNERSHIP
Original Cost: $ 6,984,848 $ 3,784,848
Cumulative Cash 13,717,265 12,091,607
Distributed
Realized Gain: $ 6,732,417 $ 8,306,759
=========== ===========
<PAGE>
EXHIBIT A
================================================================================
MERRILL LYNCH KECALP L.P. 1999
(A Delaware Limited Partnership)
FORM OF
AMENDED AND RESTATED AGREEMENT
OF
LIMITED PARTNERSHIP
================================================================================
<PAGE>
TABLE OF CONTENTS
Caption Page
- ------- ----
ARTICLE ONE
DEFINED TERMS................................................................A-1
ARTICLE TWO
ORGANIZATION.................................................................A-4
Section 2.1 Governance..................................................A-4
Section 2.2 Name, Place of Business and Office; Registered Agent........A-4
Section 2.3 Purpose.....................................................A-4
Section 2.4 Term........................................................A-4
ARTICLE THREE
PARTNERS AND CAPITAL.........................................................A-4
Section 3.1 General Partner.............................................A-4
Section 3.2 Initial Limited Partner.....................................A-5
Section 3.3 Additional Limited Partners.................................A-5
Section 3.4 Partnership Capital.........................................A-5
Section 3.5 Liability of Partners.......................................A-5
Section 3.6 Lender as Partner...........................................A-6
ARTICLE FOUR
MANAGEMENT...................................................................A-6
Section 4.1 Powers of the General Partner...............................A-6
Section 4.2 Prohibited Transactions.....................................A-7
Section 4.3 Restrictions on the Authority of the General Partner........A-8
Section 4.4 Expenses of the Partnership.................................A-9
Section 4.5 Duties and Obligations of the General Partner...............A-9
Section 4.6 Compensation and Reimbursement of the General Partner......A-10
Section 4.7 Other Businesses of Partners...............................A-11
Section 4.8 Indemnification............................................A-11
Section 4.9 Management by Limited Partners.............................A-11
ARTICLE FIVE
DISTRIBUTIONS OF PARTNERSHIP FUNDS; ALLOCATIONS OF PROFITS AND LOSSES.......A-12
Section 5.1 Distributions of Partnership Funds.........................A-12
Section 5.2 Allocations of Profits and Losses..........................A-12
Section 5.3 Determinations of Allocations and Distributions
Among Limited Partners................ ....................A-13
ARTICLE SIX
TRANSFERABILITY OF THE GENERAL PARTNER'S INTEREST...........................A-13
Section 6.1 Voluntary Withdrawal or Transfer by the General Partner....A-13
Section 6.2 Admission of Successor General Partner.....................A-14
Section 6.3 Liability of a Withdrawn or Removed General Partner........A-15
Section 6.4 Incapacity of the General Partner..........................A-15
Section 6.5 Removal of the General Partner.............................A-15
Section 6.6 Distributions on Withdrawal or Removal of the
General Partner......................... ..................A-16
ARTICLE SEVEN
TRANSFERABILITY OF A LIMITED PARTNER'S INTEREST.............................A-16
Section 7.1 Restrictions on Transfers of Interest......................A-16
Section 7.2 Incapacity of Limited Partner..............................A-18
Section 7.3 Assignees..................................................A-18
Section 7.4 Substituted Limited Partners...............................A-18
Section 7.5 Acquisition of Certain Limited Partners' Interests by
the General Partner or the Partnership.....................A-19
ARTICLE EIGHT
DISSOLUTION, LIQUIDATION AND TERMINATION OF THE PARTNERSHIP.................A-20
Section 8.1 Events Causing Dissolution.................................A-20
Section 8.2 Liquidation................................................A-21
ARTICLE NINE
BOOKS AND RECORDS; ACCOUNTING; APPRAISAL; TAX ELECTIONS; ETC................A-22
Section 9.1 Books and Records.........................................A-22
Section 9.2 Accounting Basis for Tax and Reporting Purposes;
Fiscal Year.......................... ....................A-22
Section 9.3 Bank Accounts.............................................A-22
Section 9.4 Appraisal.................................................A-22
Section 9.5 Reports...................................................A-22
Section 9.6 Elections.................................................A-23
ARTICLE TEN
AMENDMENTS..................................................................A-23
Section 10.1 Proposal and Adoption of Amendments Generally.............A-23
Section 10.2 Amendments on Admission or Withdrawal of Partners.........A-24
ARTICLE ELEVEN
CONSENTS, VOTING AND MEETINGS...............................................A-24
Section 11.1 Method of Giving Consent..................................A-24
Section 11.2 Meetings of Partners......................................A-25
Section 11.3 Limitations on Requirements for Consents..................A-25
Section 11.4 Submissions to Limited Partners...........................A-25
ARTICLE TWELVE
MISCELLANEOUS PROVISIONS....................................................A-26
Section 12.1 Appointment of the General Partner as Attorney-in-Fact....A-26
Section 12.2 Notification to the Partnership or the General Partner....A-27
Section 12.3 Binding Provisions........................................A-27
Section 12.4 Applicable Law............................................A-27
Section 12.5 Counterparts..............................................A-27
Section 12.6 Separability of Provisions................................A-27
Section 12.7 Entire Agreement..........................................A-27
Section 12.8 Headings..................................................A-27
<PAGE>
AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF MERRILL LYNCH KECALP L.P. 1999
Amended and Restated Agreement of Limited Partnership of Merrill Lynch
KECALP L.P. 1999 (the "Partnership") dated _________, 1998, among KECALP Inc., a
Delaware corporation, as General Partner, Robert F. Tully, the Initial Limited
Partner, and those Persons who shall be admitted as Additional Limited Partners
and as Substituted Limited Partners.
Whereas, pursuant to a Certificate of Limited Partnership dated as of
July 10, 1998, and filed with the Delaware Secretary of State on July 10, 1998,
and an Agreement of Limited Partnership, dated July 9, 1998 ("Original
Agreement"), KECALP Inc. and Robert F. Tully have heretofore formed the
Partnership under the Delaware Revised Uniform Limited Partnership Act;
Whereas, KECALP Inc., the Initial Limited Partner, and the Additional
Limited Partners, as defined herein, desire to amend and restate in its entirety
the terms and provisions of the Original Agreement governing the Partnership;
Now, Therefore, in consideration of the mutual promises made herein,
the parties, intending to be legally bound, hereby agree as follows:
ARTICLE ONE
Defined Terms
The defined terms used in this Agreement shall, unless the context
otherwise requires, have the meanings specified in this Article One. The
singular shall include the plural and the masculine gender shall include the
feminine, and vice versa, as the context requires.
"Act" means the Delaware Revised Uniform Limited Partnership Act (6
Del. C.17-101 et seq.), as amended from time to time and any successor to the
said Act.
"Additional Limited Partners" means those Persons admitted to the
Partnership pursuant to Section 3.3 and shown as limited partners of the
Partnership on the books and records of the Partnership.
"Affiliate" means when used with reference to a specified Person, (i)
any Person that, directly or indirectly through one or more intermediaries,
controls or is controlled by or is under common control with the specified
Person, (ii) any Person that is an officer, partner (excluding unrelated third
parties who are joint venturers or participants in joint ventures electing to be
taxed as partners for Federal income tax purposes) or trustee of, or serves in a
similar capacity with respect to, the specified Person or of which the specified
Person is an officer, partner or trustee, or with respect to which the specified
Person serves in a similar capacity, (iii) any Person that, directly or
indirectly, is the beneficial owner of 5% or more of any class of equity
securities of the specified Person or of which the specified Person is directly
or indirectly the owner of 5% or more of any class of equity securities and (iv)
any member of the immediate family of the specified Person or his or her spouse.
"Agreement" means this Amended and Restated Agreement of Limited
Partnership, as originally executed and as amended and restated from time to
time, as the context requires.
"Appraisal" means the statement of valuation of the assets of the
Partnership as described in Section 9.4.
"Auditors" means Deloitte & Touche LLP or such other nationally or
regionally recognized firm of independent auditors as shall be engaged by the
Partnership.
"Capital Account", as to any Partner, means the sum of a Partner's
Capital Contributions, increased by his share of any Profits, and decreased by
his share of any Losses and by his share of any Partnership Distributable Cash
reasonably expected to be distributed to such Partner and other assets
distributed to such Partner or on behalf of such Partner in payment of any taxes
or other expenses allocable to such Partner and as otherwise increased or
decreased in accordance with the tax accounting principles set forth in Treasury
Regulation Section 1.704-1(b)(2)(iv) of the Code.
"Capital Contribution" means the total amount of money contributed to
the Partnership by all Partners or any class of Partners or any one Partner (or
the predecessor holders of the Interests of such Partners or Partner), as the
context requires, upon the formation of the Partnership or the admission of such
Partner to the Partnership, or as that money is contributed to the Partnership.
"Code" means the Internal Revenue Code of 1986, as amended (or any
corresponding provision of succeeding law).
"Consent" means the approval of a Person, given as provided in Section
11.1, to do the act or thing for which the approval is solicited, or the act of
granting such approval, as the context may require. Reference to the Consent of
a specified percentage in Interest of the Limited Partners means the Consent of
Limited Partners whose combined Capital Contributions represent, at the time in
question, at least such specified percentage of the Capital Contributions of all
the then Limited Partners.
"Distributable Cash" means, with respect to any fiscal period of the
Partnership, the cash assets of the Partnership on hand at the end of such
fiscal period (but not including the Capital Contribution to the Partnership)
less amounts required to be retained out of such cash assets in the sole
judgment of the General Partner to pay the Partnership's liabilities whether
accrued or anticipated to accrue in the future or to make permissible
investments.
"Fiscal Year" means the calendar year.
"General Partner" means KECALP Inc., a Delaware corporation whose
business address is South Tower, World Financial Center, 225 Liberty Street, New
York, New York 10080-6123, and any successor to it in its capacity as general
partner of the Partnership.
"Incapacity" or "Incapacitated" means the entry of an order for relief
in a case under Title 11 of the United States Code (the "Bankruptcy Code")
("bankruptcy") (except that, in the case of the General Partner, the term
"bankruptcy" shall mean only the being subject to Chapter 7 of the Bankruptcy
Code) or the incompetence, insanity, interdiction, death, incapacity,
disability, dissolution or termination (other than by merger or consolidation),
as the case may be, of any Person.
"Income" means the gross income of the Partnership as determined for
Federal income tax purposes including capital gains and Code Section 1231 gains
(but not losses).
"Initial Limited Partner" means Robert F. Tully.
"Interest" means the entire ownership interest of a Partner in the
Partnership at any particular time, including the right of such Partner to any
and all benefits to which a Partner may be entitled as provided in this
Agreement, together with the obligations of such Partner to comply with all the
terms and provisions of this Agreement. Reference to a specified percentage in
Interest of the Limited Partners shall mean Limited Partners whose Capital
Contributions represent, at the time in question, at least such specified
percentage of the Capital Contributions of all the then Limited Partners.
"Limited Partner" means any Person who is a limited partner of the
Partnership as shown on the books and records of the Partnership (whether the
Initial Limited Partner, an Additional Limited Partner or a Substituted Limited
Partner) at the time of reference thereto, in such Person's capacity as a
limited partner of the Partnership.
"Majority-in-interest" means the Limited Partners whose aggregate
Capital Contributions represent over 50% of the aggregate Capital Contributions
of all Limited Partners.
"Notification" means a writing, containing the information required by
this Agreement to be communicated to any Person, sent by first class mail,
postage prepaid, to such Person at the last known address of such Person, five
days after the mailing thereof being deemed the date of the giving of
Notification; provided however, that any communication containing the
information sent to the Person and actually received by the Person shall
constitute Notification for all purposes of this Agreement.
"Operating Expenses" consist of the following items incurred with respect
to the operation of the Partnership: Auditors' fees, legal fees in the operation
of the Partnership, postage, printing costs, Appraisal costs, and general and
administrative costs. The term does not include, among other items, (i)
commissions, selling agents' fees and other fees and investment expenses
(including legal fees) otherwise payable by the Partnership relating to the
acquisition, monitoring and disposition of portfolio investments, (ii)
transaction expenses incurred by the General Partner in the evaluation or
negotiation of prospective investments for the Partnership, (iii) taxes, and
(iv) litigation and other extraordinary expenses.
"Order" means the exemptive order under the Investment Company Act of
1940 governing the payment of expenses by the Partnership requested from the
Securities and Exchange Commission by the General Partner in an initial
application dated April 9, 1998.
"Partner" means the General Partner or a Limited Partner.
"Partnership" means the limited partnership governed hereby, as said
limited partnership may from time to time be constituted.
"Partnership Account" means the bank account or bank accounts to be
maintained by the General Partner on behalf of the Partnership with any bank in
the United States having assets in excess of $100,000,000.
"Person" means any individual, partnership, corporation, trust or other
entity.
"Profits" or "Losses" means the profits or losses of the Partnership
for Federal income tax purposes including, without limitation, each item of
Partnership Income, gain, loss, deduction or credit.
"Prospectus" means the prospectus contained in the registration
statement filed by the Partnership on Form N-2 at the time such registration
statement was declared effective by the Securities and Exchange Commission;
except that if a prospectus filed by the Partnership pursuant to Rule 497(b) or
497(d) under the Securities Act of 1933 differs from the prospectus contained in
the registration statement, as aforesaid, then the term "Prospectus" refers to
the Rule 497(b) or 497(d) prospectus from and after the time it is mailed to the
Securities and Exchange Commission for filing.
"Remove", "Removed" or "Removal" when used in reference to the removal
of the General Partner means the termination of all management powers, duties
and responsibilities of the General Partner pursuant to Section 6.5, but not the
elimination of the General Partner as a Partner.
"Sale" means any event, action or transaction that is, for Federal
income tax purposes, considered a sale, exchange or abandonment by the
Partnership of any Partnership property.
"State" means the State of Delaware.
"Substituted Limited Partner" means any Person admitted to the
Partnership as a Limited Partner pursuant to the provisions of Section 7.4 and
who is shown on the books and records of the Partnership as a limited partner of
the Partnership.
"Unit" means an Interest in the Partnership attributable to an
aggregate payment of $1,000 to the Partnership by, or on behalf of, the Limited
Partner who originally acquired the Interest.
"Valuation Date" means each of the dates described in Section 9.4.
ARTICLE TWO
Organization
Section 2.1 Governance
The undersigned parties hereto hereby agree that the rights and
liabilities of the Partners shall be as provided in the Act except as herein
otherwise expressly provided.
Section 2.2 Name, Place of Business and Office; Registered Agent
The name of the limited partnership heretofore formed and hereby
continued shall be Merrill Lynch KECALP L.P. 1999. The business of the
Partnership may be conducted under any other name deemed necessary or desirable
by the General Partner in order to comply with local law. The Partnership shall
maintain a registered office in the State c/o RL&F Service Corp., One Rodney
Square, Wilmington, New Castle County, Delaware 19801. The Partnership shall
maintain its principal office at South Tower, World Financial Center, 225
Liberty Street, New York, New York 10080-6123. The General Partner may at any
time change the location of the Partnership's offices and may establish
additional offices, if it deems it advisable. The name and address of the
Partnership's registered agent for service of process in the State is RL&F
Service Corp., One Rodney Square, Wilmington, New Castle County, Delaware 19801.
The General Partner has filed the certificate of limited partnership of the
Partnership and shall file any amendment to the certificate of limited
partnership of the Partnership as required by the Act in the proper office in
the State and shall take such steps as are necessary to qualify the Partnership
to conduct business in other jurisdictions in which it owns properties or
conducts business and otherwise to insure that the Limited Partners will have
limited liability with respect to the activities of the Partnership in such
other jurisdictions.
Section 2.3 Purpose
The purpose and character of the business of the Partnership is to
invest the funds of the Partnership in various speculative and non-speculative
investments, seeking, among other things, long-term capital appreciation, and to
engage in any and all activities necessary or incidental thereto.
Section 2.4 Term
The Partnership term commenced on July 10, 1998, and shall continue in
full force and effect until December 31, 2039, or until dissolution prior
thereto pursuant to the provisions hereof.
ARTICLE THREE
Partners and Capital
Section 3.1 General Partner
A. The name, residence, business or mailing address and Capital
Contribution of the General Partner are set forth in the books and records of
the Partnership, as amended from time to time, and are incorporated herein by
reference.
B. If the Order is not issued, the General Partner, as general partner
of the Partnership, shall be deemed to have made additional Capital
Contributions to the Partnership to the extent it pays expenses of the
Partnership pursuant to this Agreement which are not reimbursed to it by either
the Partnership or an Affiliate of the General Partner.
Section 3.2 Initial Limited Partner
A. The name, business address and Capital Contribution of the Initial
Limited Partner are Robert F. Tully, South Tower, World Financial Center, 225
Liberty Street, New York, New York 10080-6123 and his Capital Contribution is
$1.00.
B. Upon the admission of Additional Limited Partners pursuant to
Section 3.3, the Initial Limited Partner shall withdraw from the Partnership and
receive forthwith the return of his Capital Contribution without interest or
deduction.
Section 3.3 Additional Limited Partners
A. The General Partner is authorized to admit Additional Limited
Partners to the Partnership pursuant to the terms contained in the Prospectus
and this Agreement. The manner of the offering of Additional Limited Partners
Units, the terms and conditions under which subscriptions for such Units will be
accepted, and the manner of and conditions to the sale of Units to subscribers
therefor and the admission of such subscribers as Additional Limited Partners
will be as provided in the Prospectus and subject to any provisions thereof.
B. The name, residence, business or mailing address and Capital
Contribution of each Additional Limited Partner shall be set forth in the books
and records of the Partnership, as amended from time to time.
C. No Limited Partner shall be required to make any additional
contributions to the capital of the Partnership.
Section 3.4 Partnership Capital
A. No Partner shall be paid interest on any Capital Contribution to the
Partnership.
B. No Partner, other than the Initial Limited Partner pursuant to
Section 3.2, shall have the right to withdraw any part of his Capital
Contribution or to receive any return of any portion of his Capital Contribution
except as otherwise provided herein.
C. Under circumstances involving a return of any Capital Contribution,
no Partner shall have the right to receive property other than cash, except as
may be specifically provided in this Agreement.
D. If the Order is not issued, the General Partner shall make
additional contributions to the capital of the Partnership in an amount
sufficient to pay for Partnership expenses allocable to it pursuant to Section
4.4A.
Section 3.5 Liability of Partners
A. No Limited Partner shall be liable for the debts, liabilities,
contracts or any other obligations of the Partnership, except to the extent of
his Capital Contribution and his share of the Partnership's assets and
undistributed profits, or for the debts or liabilities of any other Partner. To
the extent provided by law, a Limited Partner may, under certain circumstances,
be required to return, for the benefit of Partnership creditors, amounts
previously distributed to such Limited Partner.
B. A Limited Partner shall be liable only to make the payment of his
Capital Contribution as set forth in Sections 3.2A and 3.3B.
C. No Limited Partner shall be required to lend funds to the
Partnership or make any further contribution to the capital of the Partnership.
D. The General Partner shall not be required to contribute to the
capital of, or loan, the Partnership any funds other than the General Partner's
Capital Contributions to the capital of the Partnership as set forth in Sections
3.1 and 3.4D. Neither the General Partner nor any of its Affiliates shall have
(i) any personal liability for the return or repayment of the Capital
Contribution of any Limited Partner or (ii) to repay to the Partnership any
portion or all of any negative amount of the General Partner's Capital Account,
except as otherwise provided in Section 8.2D.
Section 3.6 Lender as Partner
No creditor who makes a non-recourse loan to the Partnership shall have
or acquire, at any time as a result of making the loan, any direct interest in
the profits, capital or property of the Partnership, other than as a secured
creditor.
ARTICLE FOUR
Management
Section 4.1 Powers of the General Partner
A. The General Partner shall manage the affairs of, and shall control
the business of, the Partnership and shall have all powers necessary to manage
and control the Partnership's affairs and business and fulfill the purposes of
the Partnership, including, by way of illustration and not by way of limitation:
(i) The power and duty to invest the balance (after the setting
aside of suitable reserves) of the Capital Contributions of the
Partners and reinvest revenues of the Partnership in accordance with
the purpose of the Partnership and in keeping with its investment
objectives as stated in the Prospectus.
(ii) The power to acquire securities or property of all types on
behalf of the Partnership, including, without limitation, stocks,
bonds, debentures, notes, shares in investment companies, general and
limited partnership interests, investment contracts and interests in
trusts.
(iii) The power to enter into transactions and make investments
with or through Affiliates of the General Partner and to participate in
investment transactions sponsored or underwritten (either on a best
efforts or firm commitment basis) by Affiliates of the General Partner
or in entities as to which Affiliates of the General Partner serve as
investment adviser or placement agent.
(iv) The power to purchase interests in entities sponsored by
Affiliates of the General Partner or in which Affiliates of the General
Partner have an interest, including, but not limited to, limited
partnership interests in limited partnerships in which such Affiliates
serve as general partner.
(v) The power to cause securities owned by the Partnership to be
registered in the Partnership name or in the name of a nominee or to be
held in street name, as it shall elect.
(vi) The power and duty to maintain the books and records of the
Partnership in accordance with the provisions of Section 9.1.
(vii) The power to reserve funds out of Partnership Income or
borrow money in the name of the Partnership from any bank or other
lending institution in the United States or from an Affiliate of the
General Partner for the purpose of leveraging investments of the
Partnership, paying assessments levied on Partnership investments or
paying other costs of the Partnership (other than costs that the
General Partner is obligated to pay) and in connection with any
borrowing, to mortgage, pledge, encumber, and hypothecate the assets of
the Partnership.
(viii) The power to lend money to the Partnership on commercially
reasonable terms.
(ix) The power to make temporary investments of Partnership
capital in all types of securities, including, without limitation,
short-term U.S. Government and Government agency securities,
certificates of deposit, interest-bearing deposits in U.S. banks,
securities issued by or on behalf of states, municipalities and their
instrumentalities, the interest from which is exempt from Federal
income tax, securities issued by other investment companies (including
unit investment trusts and taxable and tax-exempt money market funds
sponsored and/or advised by Affiliates of the General Partner) prior to
long-term investment or pending cash distributions to the Partners.
(x) The power to seek exemptions from provisions of the
Investment Company Act of 1940 from the Securities and Exchange
Commission.
(xi) The power to enter into a sales agency agreement relating to
the offering and sale of Units by the Partnership with Merrill Lynch,
Pierce, Fenner & Smith Incorporated, or any other Affiliate of the
General Partner.
(xii) In addition to and not in limitation of any rights and
powers conferred by law or other provisions of this Agreement, and
except as limited, restricted or prohibited by the express provisions
of this Agreement, the General Partner shall have and may exercise on
behalf of the Partnership all powers and rights necessary, proper,
convenient or advisable to effectuate and carry out the purpose,
business and objectives of the Partnership including the power to have
investment opportunities evaluated by an advisory committee selected by
the General Partner.
B. In order to expedite the handling of the Partnership's business, it
is understood and agreed that any document executed by the General Partner while
acting in the name and on behalf of the Partnership shall be deemed to be the
action of the Partnership vis-a-vis any third parties (including the Limited
Partners as third parties for such purpose).
C. In the event the original General Partner withdraws as provided in
Article Six, is Incapacitated or is Removed, any additional or successor General
Partner or General Partners shall possess all the power and authority of the
original General Partner. Any remaining and any additional and successor General
Partner is authorized to and shall continue the business of the Partnership. The
General Partner may admit an additional or successor General Partner provided
that if it subsequently wishes to withdraw or transfer its interest, Sections
6.1 and 6.2 shall be complied with as to the additional or successor General
Partner prior to its becoming a sole General Partner, and provided that the
following conditions are satisfied:
(i) appropriate filings are made under the Act and in such other
jurisdictions as the Partnership's business requires;
(ii) the Interest of Limited Partners will not be adversely
affected; and
(iii) the sole General Partner shall not be Incapacitated.
In the event an additional or successor General Partner is admitted,
the term "General Partner" as used in this Agreement shall include the
additional or successor General Partner.
Section 4.2 Prohibited Transactions
Notwithstanding anything to the contrary contained herein, the
following transactions are specifically prohibited to the Partnership:
(i) The Partnership shall not make any loans to the General
Partner or any of its Affiliates unless permitted by the Investment
Company Act of 1940 or an order of exemption therefrom;
(ii) The Partnership shall not sell or lease any property to the
General Partner or any of its Affiliates except on terms at least as
favorable as those obtainable from unaffiliated third parties and
except that this provision shall not prohibit any transaction
contemplated by Section 8.2 or permitted by the terms of any
partnership agreement or investment contract into which the Partnership
may enter by virtue of its investment as a general or limited partner,
where an Affiliate of the General Partner also acts as general partner
of such partnership;
(iii) No funds of the Partnership shall be kept in any account
other than a Partnership Account, and funds shall not be commingled
with the funds of any other Person, and the General Partner shall not
employ, or permit any other Person to employ, such funds in any manner
except for the benefit of the Partnership; it being understood that the
General Partner may invest temporarily Partnership funds in accordance
with the provisions of Section 4.1 A (ix); and
(iv) No expense of the Partnership shall be billed except
directly to the Partnership (but shall be paid pursuant to the terms of
this Agreement), and no reimbursements shall be made therefor to the
General Partner or any of its Affiliates except as permitted by Section
4.6.
Section 4.3 Restrictions on the Authority of the General Partner
A. The General Partner shall not have the authority to:
(i) do any act in contravention of the Investment Company Act of
1940, as applied to the Partnership; or
(ii) do any act that would make it impossible to carry on the
ordinary business of the Partnership.
B. The General Partner shall not perform any act that would subject any
Limited Partner to liability as a general partner in any jurisdiction.
C. Without the Consent of a Majority-in-interest of the Limited
Partners, the General Partner shall not have the authority to:
(i) lease, sell, or otherwise dispose of at any one time all or
substantially all of the assets of the Partnership;
(ii) elect to dissolve the Partnership prior to January 1, 2005;
(iii) issue senior securities other than in connection with the
borrowings described in (v) below;
(iv) make short sales of securities, purchase securities on
margin, except for use of short-terms credit necessary for the
clearance of transactions, or write put or call options;
(v) borrow amounts in excess of 33 1/3% of the Partnership's
gross assets, or otherwise as permitted under the Investment Company
Act of 1940, except that the Partnership may enter into non-recourse
loans relating to investments other than securities without regard to
such limitation;
(vi) underwrite securities of other issuers, except insofar as
the Partnership may be deemed an underwriter under the Securities Act
of 1933 in selling portfolio securities;
(vii) invest more than 25% of its Partners' Capital Contributions
in the securities of issuers in any particular industry, except for
real estate investments and for temporary investments in U.S.
Government and Government agency securities, domestic bank money market
instruments and money market funds;
(viii) make loans to other Persons in excess of 33 1/3% of the
Partnership's gross assets, provided that investments in
privately-offered debt securities issued by entities in which the
Partnership has an equity participation or with which the Partnership
has contracted to acquire an equity participation shall not be
considered loans for purposes of this paragraph; or
(ix) alter the investment objective and business purpose of the
Partnership.
D. The General Partner shall not borrow funds on behalf of the
Partnership except in accordance with Section 4.1A (vii) and (xii).
E. The General Partner shall not cause the Partnership to consent to,
or join in, any waiver, amendment, or modification of the terms of any
partnership agreement, limited partnership agreement, management agreement or
investment contract to which it is a party unless, in the good faith judgment of
the General Partner, such waiver, amendment, or modification would be in the
best interest of the Partnership.
Section 4.4 Expenses of the Partnership
A. If the Order is not issued, the General Partner will pay (i) all
Operating Expenses of the Partnership, (ii) commissions, selling agents' fees
and other fees and investment expenses (including legal fees) otherwise payable
by the Partnership relating to the acquisition, monitoring and disposition of
portfolio investments, (iii) transaction expenses incurred by the General
Partner in the evaluation or negotiation of prospective investments for the
Partnership and (iv) litigation and other extraordinary expenses. The General
Partner will be entitled to reimbursements as provided in Section 4.6.
B. If the Order is issued, the Partnership will be responsible for the
payment of its organizational and offering expenses and the expenses described
in Section 4.4A, and will make reimbursements to the General Partner, subject to
the limitations in Section 4.6C.
Section 4.5 Duties and Obligations of the General Partner
A. If the Order is not issued, the General Partner shall pay expenses
of the Partnership in accordance with Section 4.4A. The General Partner is not
obligated to pay from its own funds, taxes, debt service or other interest
charges incurred in connection with the making of Partnership investments, or
management fees or other expenses payable by investment funds in which the
Partnership has invested, and is entitled to indemnification in accordance with
Section 4.8. If the Order is issued, in any year in which the Partnership has
paid Operating Expenses and made reimbursements to the General Partner pursuant
to Section 4.6C that in the aggregate equal 1.5% of Limited Partners' Capital
Contributions, the General Partner will pay remaining Operating Expenses for
that year and expenses otherwise reimbursable to it pursuant to Section 4.6C and
the Partnership will be responsible for its remaining expenses for that year.
B. The General Partner shall take all action that may be necessary or
appropriate for the continuation of the Partnership's valid existence as a
limited partnership under the laws of the State, and for the acquisition,
holding and disposition, in accordance with the provisions of this Agreement and
applicable laws and regulations, of the investments of the Partnership.
C. The General Partner shall devote to the Partnership the time that it
deems to be necessary to conduct the Partnership business and affairs in the
best interests of the Partnership and use its best efforts to obtain a suitable
investment portfolio for the Partnership.
D. The General Partner shall be under an obligation to conduct the
affairs of the Partnership in the best interest (or not opposed to the best
interest) of the Partnership, including the safekeeping and use of all
Partnership funds and assets (whether or not in the immediate possession or
control of the General Partner) and the use thereof for the benefit of the
Partnership. Notwithstanding the foregoing, the General Partner may, in its sole
and absolute discretion, elect to dissolve the Partnership at any time after
January 1, 2005, and, upon liquidation, to purchase Partnership assets in
accordance with Section 8.2. The General Partner shall at all times act with
integrity and good faith and exercise due diligence in all activities relating
to the conduct of the business of the Partnership and in resolving conflicts of
interest.
E. The General Partner will use its best efforts at all times to
maintain its net worth at a level that is sufficient to meet all present and
future requirements set by statute, Treasury Regulations, the Internal Revenue
Service or the courts applicable to a corporate general partner in a limited
partnership to insure that the Partnership will not fail to be classified for
Federal income tax purposes as a partnership, rather than as an association
taxable as a corporation, on account of the net worth of the General Partner.
F. The General Partner shall prepare or cause to be prepared and shall
file on or before the due date (or any extension thereof) any Federal, state or
local tax returns required to be filed by the Partnership. The General Partner
shall cause the Partnership to pay, from Partnership funds, any taxes payable by
the Partnership.
G. The General Partner shall, from time to time, submit to any
appropriate Federal or state securities administrator, or any other regulatory
authorities having jurisdiction, all documents, papers, statistics and reports
required to be filed with or submitted to such authority.
H. The General Partner shall use its best efforts to cause the
Partnership to be formed, reformed, qualified to do business, or registered
under any applicable assumed or fictitious name statute or similar law in any
jurisdiction in which the Partnership then owns property or transacts business,
if such formation, reformation, qualification or registration is necessary in
order to protect the limited liability of the Limited Partners or to permit the
Partnership lawfully to own property or transact business.
I. The General Partner shall, from time to time, prepare and file all
amendments to this Agreement, the certificate of limited partnership of the
Partnership and other similar documents that are required by law to be filed and
recorded for any reason, in the office or offices that are required under the
laws of the State or any other jurisdiction in which the Partnership is then
qualified or formed. The General Partner shall do all other acts and things
(including making publications or periodic filings of this Agreement or
amendments thereto or other similar documents) that may now or hereafter be
required, or deemed by the General Partner to be necessary, (i) for the
perfection and continued maintenance of the Partnership as a limited partnership
under the laws of the State and each other state in which the Partnership is
then qualified or formed, (ii) to protect the limited liability of the Limited
Partners under the laws of the State and each other state in which the
Partnership is then qualified or formed, and (iii) to cause such certificates or
other documents to reflect accurately the agreement of the Partners, the
identity of the Limited Partners and the General Partner and the amounts of
their respective Capital Contributions as may be required by such laws.
J. The General Partner shall monitor the activities of entities
invested in by the Partnership and keep the Limited Partners informed of such
activities in the manner provided in this Agreement.
K. The General Partner shall inform each Limited Partner of all
administrative and judicial proceedings for an adjustment at the Partnership
level for Partnership tax items and forward to each Limited Partner within 30
days of receipt all notices received from the Internal Revenue Service regarding
the commencement of a partnership level audit or a final partnership
administrative adjustment and will perform all other duties imposed by Sections
6221 through 6232 of the Code on the General Partner as "tax matters partner" of
the Partnership, including (but not limited to) the following: (a) the power to
conduct all audits and other administrative proceedings (including windfall
profit tax audits) with respect to Partnership tax items; (b) the power to
extend the statute of limitations for all Partners with respect to Partnership
tax items; and (c) the power to file a petition with an appropriate Federal
court for review of a final partnership administrative adjustment. The General
Partner shall be the "tax matters partner" of the Partnership.
Section 4.6 Compensation and Reimbursement of the General Partner
A. Except as provided in Sections 4.4, 4.5, this Section 4.6 and
Article Five, the General Partner shall not receive any salary, fees or Profits
from the Partnership.
B. If the Order is not issued, the General Partner shall be entitled to
reimbursement from the Partnership (i) in an amount of up to 1.5% of the Limited
Partners' Capital Contributions for expenses it incurs in connection with the
organization of the Partnership and the offering of the Units and (ii)
commencing in 1999 and annually in each calendar year thereafter, in an annual
amount of up to 1.0% of the Limited Partners' Capital Contributions for
Operating Expenses incurred by the General Partner. The General Partner shall
also be entitled to reimbursement from the Partnership for out-of-pocket
transaction expenses incurred by the General Partner with respect to the
acquisition, monitoring and disposition of portfolio investments and the
evaluation and negotiation of prospective investments. Except as provided in
this Article Four and Article Eight, neither the General Partner nor its
Affiliates shall be reimbursed out of Partnership funds for expenses incurred by
them on behalf of the Partnership.
C. If the Order is issued, the Partnership will reimburse the General
Partner on a quarterly basis for its personnel, overhead and administrative
expenses attributable to the Partnership, subject to an annual limit under which
such reimbursements and payment of Operating Expenses by the Partnership will
not, in the aggregate, exceed 1.5% of Limited Partners' Capital Contributions.
Section 4.7 Other Businesses of Partners
Subject to Section 4.5C, any Partner, and any Affiliate of any Partner
may engage in or possess any interest in other business ventures of any kind,
nature or description, independently or with others, for his, her or its own
account or for the account of others. Neither the Partnership nor any Partner as
a result of this Agreement shall have any rights or obligations in or to such
independent ventures or the income or profits or losses derived therefrom.
Section 4.8 Indemnification
Neither the General Partner nor any of its officers, directors,
stockholders, employees, or agents shall be liable to the Partnership or the
Limited Partners for any act or omission based on errors of judgment, or other
fault in connection with the business or affairs of the Partnership so long as
the Person against whom liability is asserted acted in good faith on behalf of
the Partnership and in a manner reasonably believed by such Person to be within
the scope of its authority under this Agreement and in or not opposed to the
best interests of the Partnership, but only if such action or failure to act
does not constitute gross negligence or willful misfeasance, and, with respect
to any criminal proceeding, such Person had no reasonable cause to believe its
conduct was unlawful. The General Partner and its officers, directors,
stockholders, employees, and agents will be indemnified by the Partnership to
the fullest extent permitted by law for any (a) fees (including, without
limitation, legal fees), costs and expenses incurred in connection with or
resulting from any claim, action or demand, or threatened claim, action or
demand, against the General Partner, the Partnership or any of their officers,
directors, stockholders, employees, or agents that arises out of or in any way
relates to the Partnership, its properties, business or affairs and (b) losses
or damages resulting from such claims, actions and demands, or threatened
claims, actions or demands, including amounts paid in settlement or compromise
(if recommended by attorneys for the Partnership) of any such claim, action or
demand or threatened claims, actions or demands; provided, however, that this
indemnification shall apply only so long as the Person against whom a claim,
action or demand is asserted or threatened to be asserted has acted in good
faith on behalf of the Partnership and in a manner reasonably believed by such
Person to be within the scope of his or its authority under this Agreement and
in or not opposed to the best interests of the Partnership, but only if such
action or failure to act does not constitute gross negligence or willful
misfeasance. Absent a court determination that the General Partner or officers
or directors of the General Partner were not liable on the merits or guilty of
disabling conduct within the meaning of Section 17(h) of the Investment Company
Act of 1940, the decision by the Partnership to indemnify the General Partner or
any such Person must be based upon the reasonable determination of independent
counsel, after review of the facts, that such disabling conduct did not occur.
The rights set forth above shall continue as to the General Partner and its
officers, directors, stockholders, employees or agents who have ceased to serve
in such capacities and shall inure to the benefit of their heirs, successors,
assigns and administrators.
Section 4.9 Management by Limited Partners
No Limited Partner shall participate in the management or in the
control of the business of the Partnership or use his name in the Partnership's
business or perform any actions prohibited to limited partners under the laws of
the State or the laws of any other jurisdiction where the Partnership is
qualified or formed to conduct business. Limited Partners hereby consent to the
exercise by the General Partner of the powers conferred on it by this Agreement.
ARTICLE FIVE
Distributions of Partnership Funds;
Allocations of Profits and Losses
Section 5.1 Distributions of Partnership Funds
Distributable Cash of the Partnership shall be distributed at least
annually, within 30 days after the end of the Fiscal Year, and distributions may
be made at such other times as the General Partner deems advisable. If the Order
is not issued and the General Partner has a 1% interest in Profits and Losses,
each such distribution shall be made 99% to the Limited Partners and 1% to the
General Partner to the extent of Profits previously allocated to such Partners
(reduced by allocations of Losses and prior Distributions) and then 100% to the
Limited Partners; otherwise each such distribution will be based on the basis of
Partners' Capital Contributions. If the General Partner deems it advisable,
distributions of Partnership assets may be made in kind, in the same manner and
to the same Persons as Distributable Cash is then being distributed. Cash
distributions to Limited Partners will be credited to each Limited Partner's
securities account with Merrill Lynch, Pierce, Fenner & Smith Incorporated or as
otherwise instructed to the General Partner by a Limited Partner.
Section 5.2 Allocations of Profits and Losses
A. The Profits and Losses of the Partnership shall be determined and
allocated with respect to each Fiscal Year of the Partnership as of the end of,
and within 75 days after the end of, such Fiscal Year or as soon as practicable
thereafter.
B. Profits and Losses of the Partnership, other than arising from Sales
upon liquidation pursuant to Section 8.2, shall be allocated among and credited
to or charged against each Partner's Capital Account as follows:
(i) First, the General Partner shall be allocated an amount of
Losses equal to 100% of the amount of expenses it incurs on behalf of
the Partnership for which it is not entitled to reimbursement, pursuant
to Section 4.6;
(ii) Second, if the Order is not issued, with respect to Losses,
(a) 99% to the Limited Partners and 1% to the General Partner until the
Limited Partners' Capital Accounts equal zero; (b) thereafter, 100% to
the General Partner except in the case of Losses that would be
characterized as nonrecourse losses under Treasury Regulation Section
1.704-2, such Losses shall be allocated 99% to the Limited Partners and
1% to the General Partner;
(iii) If the Order is not issued, with respect to Profits, first
100% to the General Partner to the extent that it was allocated more
than 1% of the Losses pursuant to clause (ii), and then 99% to the
Limited Partners and 1% to the General Partner; and
(iv) If the Order is issued, Profits and Losses shall be
allocated to each Partner's Capital Account proportionately based upon
Partners' respective Capital Contributions.
C. For purposes of determining the Capital Account balance of any
Limited Partner as of the end of any Fiscal Year under this Section 5.2, any
such Partner's Capital Account shall be reduced by:
(i) Allocations of Loss (or any item thereof) as of the end of
such Fiscal Year, which reasonably are expected to be made to such
Partner pursuant to Code Sections 704, 706, and 752 and Treasury
Regulations promulgated thereunder; and
(ii) Distributions that, as of the end of such Fiscal Year,
reasonably are expected to be made to such Partner to the extent they
exceed offsetting increases to such Partner's Capital Account that
reasonably are expected to occur during (or prior to) the Partnership's
Fiscal Year in which such distributions reasonably are expected to be
made.
D. Notwithstanding any provision of this Agreement to the contrary, if
a Partner receives an unexpected adjustment, allocation or distribution
described in Treasury Regulations Section 1.7041(b)(2)(ii)(d)(4), (5) or (6)
which creates or increases a deficit balance in the Partner's Capital Account,
items of income and gain shall be allocated to such Partner in an amount and
manner sufficient to eliminate the Partner's Capital Account deficit as quickly
as possible. If any allocations are made pursuant to the previous sentence, then
future allocations of income or gain to such Partner will be reduced by an
amount of income or gain equal to the amount previously allocated to the Partner
under the previous sentence.
E. If there is a net decrease in the Partnership's Minimum Gain (as
defined in Treasury Regulations under Section 704(b) of the Code) during a
taxable year, each Partner with a deficit balance in his Capital Account at the
end of the taxable year will be allocated, before any other allocation of
Partnership items is made pursuant to this Agreement, items of income and gain
for the taxable year and, if necessary, subsequent taxable years, in the amount
necessary to eliminate such deficit as quickly as possible. For the purpose of
this Minimum Gain calculation and for purposes of the preceding paragraph, there
will be excluded from the Partner's deficit balance in his Capital Account (i)
any amount the Partner is obligated to restore to his Capital Account and (ii)
any addition to his Capital Account represented by the Partner's share of
Minimum Gain. In addition, for the purpose of calculating the amount of Minimum
Gain, each Partner's Capital Account will be reduced for items described in
Treasury Regulations Section 1.704-1(b)(2)(ii)(d)(4), (5) and (6).
Section 5.3 Determinations of Allocations and Distributions Among
Limited Partners
A. All Distributable Cash distributed to the Limited Partners, as a
class, and all Profits and Losses allocated to the Limited Partners, as a class,
shall be distributed or allocated, as the case may be, to each Limited Partner
in the ratio that the Capital Contribution of such Limited Partner (or of his
predecessor in interest) bears to the total Capital Contribution of all Limited
Partners.
B. All Profits and Losses allocated to the Limited Partners shall be
allocated to the Persons who were Limited Partners as of the last day of the
fiscal quarter for which the allocation is made. If during any Fiscal Year of
the Partnership there is a change in any Partner's Interest in the Partnership,
then allocation of Profits and Losses among the Partners shall be determined by
the use of any method prescribed by Section 706(d)(1) of the Code and the
Treasury Regulations promulgated thereunder. Allocations of "allocable cash
basis items" shall be determined in accordance with the method prescribed by
Section 706(d)(2) of the Code and the Treasury Regulations promulgated
thereunder.
C. All Distributable Cash distributed to the Limited Partners shall be
distributed to the Persons who were Limited Partners as of the last day of the
fiscal quarter preceding the fiscal quarter in which the distribution is made.
ARTICLE SIX
Transferability of the General
Partner's Interest
Section 6.1 Voluntary Withdrawal or Transfer by the General Partner
A. Except as provided in Section 6.2, the General Partner (including by
definition any successor or additional General Partner) may withdraw as General
Partner at any time, but only upon compliance with all of the following
procedures:
(i) The General Partner shall give Notification to all Limited
Partners that it proposes to withdraw and that there be substituted in
its place a Person designated and described in such Notification.
(ii) Enclosed with the Notification shall be a certificate, duly
executed by or on behalf of such proposed successor General Partner, to
the effect that, (a) it is experienced in performing (or employs
sufficient personnel who are experienced in performing) functions of
the type then being performed by the resigning General Partner; (b) it
has a net worth of at least 10% of the Capital Contributions of the
Partners or will otherwise meet the net worth requirements of statutes,
Treasury Regulations, the Internal Revenue Service or the courts
applicable to a corporate general partner in a limited partnership in
order to insure that the Partnership will not fail to be classified for
Federal income tax purposes as a partnership rather than as an
association taxable as a corporation; and (c) it is willing to become
the General Partner under this Agreement without receiving any
compensation for services from the Partnership in excess of that
payable under this Agreement to the withdrawing General Partner or any
interest in the Income or Profits of the Partnership other than a
transfer to the successor General Partner of some or all of the
withdrawing General Partner's Interest in the Partnership, plus such
other compensation as the successor General Partner may receive from
the withdrawing General Partner.
(iii) If the General Partner proposes to withdraw, there shall be
on file at the principal office of the Partnership, prior to such
withdrawal, audited financial statements of the proposed successor
General Partner, as of a date not earlier than 12 months prior to the
date of the Notification required by this Section 6.1A, certified by a
nationally recognized firm of independent auditors, together with a
certificate duly executed by the proposed successor General Partner, or
on its behalf by its principal financial officer, to the effect that no
material adverse change in its financial condition has occurred since
the date of such audited financial statements that has caused its net
worth, apart from the purchase price of its Interest in the
Partnership, to be reduced to less than the amount required under
Section 6.1A(ii)(b). Such audited statements and certificates shall be
available for examination by any Limited Partner during normal business
hours.
(iv) The Consent of at least a Majority-in-interest of the
Limited Partners approving the appointment of any successor General
Partner pursuant to this Section 6.1A is obtained.
(v) The withdrawing General Partner shall cooperate fully with
the successor General Partner so that the responsibilities of the
withdrawn General Partner may be transferred to the successor General
Partner with as little disruption of the Partnership's business and
affairs as is practicable.
B. Except as part of a transfer to a successor General Partner pursuant
to Section 6.1A, the General Partner shall not have the right to withdraw or to
transfer or assign its General Partner Interest, except that the General Partner
may (i) substitute in its stead as General Partner any entity that has, by
merger, consolidation or otherwise, acquired substantially all of the assets or
capital stock of the General Partner and continued its business, (ii) substitute
in its stead any other wholly-owned subsidiary of its corporate parent, and
(iii) pledge or grant an interest in its right to receive payments and
distributions under this Agreement, in which event the General Partner shall
continue to be the general partner of the Partnership.
C. Subject to the provisions of Section 11.3, each Limited Partner
hereby Consents pursuant to Section 6.1A to the admission as a successor General
Partner of any Person meeting the requirements of Section 6.1A to whose
admission as such at least a Majority-in-interest of the Limited Partners has
expressly approved, and no further express Consent or approval shall be
required.
D. Notwithstanding anything to the contrary in this Article Six, the
General Partner's Interest shall at all times be subject to any restrictions on
transfer imposed by Federal or state securities laws.
E. Any withdrawal of the General Partner, or transfer or assignment of
the General Partner's entire Interest shall occur immediately after the
admission of a successor General Partner.
Section 6.2 Admission of Successor General Partner
The admission of any successor General Partner pursuant to Section 6.1
shall be effective only if and after the following conditions are satisfied:
(i) this Agreement and the certificate of limited partnership of
the Partnership shall be amended to reflect the admission of such
Person as successor General Partner prior to the withdrawal of the
withdrawing General Partner or the transfer of the withdrawing General
Partner's Interest, pursuant to Section 6.1;
(ii) the Interests of the Limited Partners shall not be affected
by the admission of such successor General Partner;
(iii) any Person designated as successor General Partner pursuant
to Section 6.1 shall have satisfied the requirements of Section 10.2;
and
(iv) the withdrawing General Partner shall not have ceased to be
General Partner because of its Incapacity.
Any successor General Partner is hereby authorized to and shall
continue the business of the Partnership.
Section 6.3 Liability of a Withdrawn or Removed General Partner
Any General Partner who shall withdraw or be Removed from the
Partnership shall remain liable for any obligations and liabilities incurred by
it as General Partner prior to the time such withdrawal or Removal shall have
become effective, but it shall be free of any obligation or liability incurred
on account of the activities of the Partnership from and after the time such
withdrawal or Removal shall have become effective.
Section 6.4 Incapacity of the General Partner
In the event of the Incapacity of the General Partner, the Partnership
shall be dissolved.
Upon the Incapacity of the General Partner, the General Partner shall
immediately cease to be General Partner and its General Partner's Interest, as
such, shall continue only for the purpose of determining the amount, if any,
that it is entitled to receive upon dissolution pursuant to Section 8.2. Any
termination or Removal of a General Partner shall not affect any rights or
liabilities of the Incapacitated or Removed General Partner that matured prior
to such Incapacity or Removal.
Section 6.5 Removal of the General Partner
A. Upon the delivery by counsel for the Partnership or counsel
designated by 10% in Interest of the Limited Partners of an opinion to the
effect that the possession and exercise by a Majority-in-interest of the Limited
Partners of the power to Remove the General Partner will not impair the
liability of the Limited Partners, then the power shall be vested in the Limited
Partners to Remove the General Partner upon the Consent of a
Majority-in-interest of the Limited Partners, but the exercise of that power
shall be subject to the conditions set forth in Section 11.3. The Removal of any
General Partner pursuant to this Section 6.5 shall be without prejudice to the
rights, if any, the Limited Partners may have against the General Partner for
damages attributable to its negligence or misconduct or other breach of duty.
B. Upon the delivery by counsel for the Partnership or counsel
designated by 10% in Interest of the Limited Partners of an opinion to the
effect that the possession and exercise by a Majority-in-interest of the Limited
Partners of the power to designate a successor General Partner will not impair
the limited liability of the Limited Partners, then with the Consent of a
Majority-in-interest of the Limited Partners to the admission of a general
partner, the Limited Partners may, subject to the provisions of Section 6.2, at
any time designate one or more Persons to be successors to the General Partner
being Removed pursuant to Section 6.5. Any such Removal shall occur immediately
after the admission of the successor General Partner.
C. Upon the Removal of the General Partner (and failure to designate a
successor General Partner) pursuant to Section 6.5A, the Partnership shall be
dissolved.
Section 6.6 Distributions on Withdrawal or Removal of the
General Partner
In the event the General Partner (i) exercises its right to withdraw
from the Partnership in accordance with Section 6.1A or (ii) is Removed pursuant
to Section 6.5, the withdrawing or Removed General Partner shall have its then
existing Capital Account (to the extent not acquired by any successor) converted
into a capital account of a Limited Partner.
ARTICLE SEVEN
Transferability of a Limited Partner's Interest
Section 7.1 Restrictions on Transfers of Interest
A. Notwithstanding any other provisions of this Section 7.1, a sale,
exchange, transfer or assignment of a Limited Partner's Interest may not be made
if:
(i) such sale, exchange, transfer or assignment, when added to
the total of all other sales, exchanges, transfers or assignments of
Interests within the preceding 12 months, would result in the
Partnership being considered to have terminated within the meaning of
Section 708 of the Code;
(ii) such sale, exchange, transfer or assignment would violate
any U.S. securities laws, or any state securities or "blue sky" laws
(including any investor suitability standards) applicable to the
Partnership or the Interest to be sold, exchanged, transferred or
assigned;
(iii) such sale, exchange, transfer or assignment would cause the
Partnership to lose its status as a partnership for Federal income tax
purposes;
(iv) such sale, exchange, transfer or assignment would cause all
or any portion of the Partnership's property to be deemed "tax-exempt
use property" within the meaning of Section 168(j) of the Code; or
(v) such sale, exchange, transfer or assignment would cause the
Partnership to be classified as a publicly traded partnership within
the meaning of Section 7704(b) of the Code.
B. In no event shall all or any part of an Interest be assigned or
transferred to an Incapacitated Person except by operation of law.
C. Except as provided in Section 7.5B, no transfer or assignment by a
Limited Partner of all or any part of his Interest may be made to any Person who
(i) is not a Partner, (ii) is not a member of the immediate family of a Limited
Partner or (iii) does not meet the requirements to become an Additional Limited
Partner in accordance with the terms of the offering of Units contained in the
Prospectus and this Agreement, as modified by the last sentence of this Section
7.1C; provided, however, no Limited Partner's Interest or any fraction thereof
may be sold, assigned or transferred without the consent of the General Partner,
which consent may be withheld in the sole discretion of the General Partner. For
purposes of this Section 7.1C, the members of the immediate family of a Limited
Partner consist of persons within the meaning of such phrase as is used in the
definition of "employees' securities company" in the Investment Company Act of
1940, and include the Partner's spouse and children, including stepchildren and
adopted children. With respect to the requirements referenced in clause (iii),
the requirement as to compensation from Merrill Lynch & Co., Inc. shall be
measured on the basis of the current annual salary and the bonus with respect to
the most recently completed fiscal year.
D. Subject to Section 7.1C, no purported sale, assignment or transfer
by a transferor of, or after which the transferor and each transferee would
hold, an Interest representing a Capital Contribution of less than $1,000 will
be permitted or recognized for any purpose without the consent of the General
Partner, which consent shall be granted only for good cause shown.
E. No purported sale, assignment or transfer by a transferor of, or
after which the transferor and each transferee would hold, an Interest
representing a Capital Contribution of less than $1,000 will be permitted or
recognized for any purpose without the consent of the General Partner, which
consent shall be granted only for good cause shown, except for any sale,
assignment or transfer (i) that consists of the entire Interest of the
transferor or (ii) that occurs by operation of law.
F. Each Limited Partner agrees that he will, upon request of the
General Partner, execute such certificates or other documents and perform such
acts as the General Partner deems appropriate after an assignment of an Interest
by the Limited Partner to preserve the limited liability of the Limited Partners
under the laws of any jurisdiction in which the Partnership is doing business.
For purposes of this Section 7.1F, any transfer of an Interest, whether
voluntary or by operation of law, shall be considered an assignment.
G. Any sale, assignment or transfer of an Interest to a Person who
makes a market in securities shall be void ab initio unless such Person shall
certify to the General Partner that it has acquired such Interest solely for
investment purposes and not for the purpose of resale.
H. No purported sale, assignment or transfer by a transferor of an
Interest will be recognized unless (1) the transferor shall have represented
that such transfer (a) was effected through a broker-dealer or matching agent
whose procedures with respect to the transfer of Units have been approved by the
General Partner as not being incident to a public trading market and not through
any other broker-dealer or matching agent or (b) otherwise was not effected
through a broker-dealer or matching agent which makes a market in Interests or
which provides a readily available, regular and ongoing opportunity to Limited
Partners to sell or exchange their Interests through a public means of obtaining
or providing information of offers to buy, sell or exchange Interests and (2)
the General Partner determines that such sale, assignment or transfer would not,
by itself or together with any other sales, transfers or assignments, likely
result in, as determined by the General Partner in its sole discretion, the
Partnership's being classified as a publicly traded partnership.
I. No purported sale, assignment or transfer of a Unit will be
recognized if, after giving effect to such sale, assignment or transfer, the
Partnership would not satisfy at least one of the safe harbors contained in
Treasury regulation 1.7704-1 (the "Final PTP Regulations"). Without limiting the
foregoing, no purported sale, assignment or transfer of a Unit will be
recognized if such sale, assignment or transfer, together with all other such
transfers during the same taxable year of the Partnership would result in either
(i) the transfer of more than 2% of the Units (excluding excludable transfers
and sales completed through a matching service which meets the requirements of
the Final PTP Regulations) or (ii) the transfer and sale of more than 10% of the
Units (excluding excludable transfers) completed through a matching service
which meets the requirements of the Final PTP Regulations. For purposes of the
limitations described in the preceding sentence, the following transfers
("excludable transfers") will be disregarded: (i) transfers in which the basis
of the Unit in the hands of the transferee is determined, in whole or in part,
by reference to its basis in the hands of the transferor or is determined under
Section 732 of the Code; (ii) transfers at death, including transfers from an
estate or testamentary trust; (iii) transfers between members of a family (as
defined in Section 267(c)(4) of the Code); (iv) the issuance of Units by or on
behalf of the Partnership in exchange of cash, property or services; (v)
distributions from a retirement plan qualified under Section 401(a) of the Code;
and (vi) block transfers; and for purposes of the 2% limitation, there shall be
disregarded transfers through a matching service subject to the 10% limitation
described in the previous sentence. For purposes of the above limitations, the
percentage of Units transferred during a taxable year shall equal the sum of the
monthly percentage of Units transferred. The monthly percentage of Units
transferred in any month shall be the percentage equal to a fraction the
numerator of which is the number of Units transferred during such month and the
denominator of which is the number of Units outstanding on the last day of such
month, provided that the denominator shall not include Units owned by the
General Partner or any Person related to the General Partner (within the meaning
of Section 267(b) or 707(b)(1) of the Code). The term "block transfer" means the
transfer by a Partner in one or more transactions during any thirty calendar day
period of Units representing in the aggregate more than 2% of the total
Interests in Partnership capital or profits.
J. Any purported assignment of an Interest which is not made in
compliance with this Agreement is hereby declared to be null and void and of no
force or effect whatsoever.
K. The General Partner may reasonably interpret, and is hereby
authorized to take such action as it deems necessary or desirable to effect, the
foregoing provisions of this Section 7.1. The General Partner may, in its
reasonable discretion, amend the provisions of this Section 7.1 in such manner
as may be necessary or desirable (or eliminate or amend such provisions to the
extent they are no longer necessary or desirable) to preserve the tax status of
the Partnership.
Section 7.2 Incapacity of Limited Partner
If a Limited Partner dies, his executor, administrator or trustee, or,
if he becomes an adjudicated incompetent, his committee, guardian or
conservator, or, if he becomes bankrupt, the trustee or receiver of his estate,
shall have all the rights of a Limited Partner for the purpose of settling or
managing the estate of such Limited Partner, and such power as the Incapacitated
Limited Partner possessed to assign all or any part of the Incapacitated Limited
Partner's Interest and to join with such assignee in satisfying conditions
precedent to such assignee's becoming a Substituted Limited Partner. In the
event of death of a Limited Partner, but not in the event of bankruptcy or
adjudication of incompetence, the deceased Limited Partner's Interest may be
tendered to the General Partner within 90 days of receipt of the next Appraisal
pursuant to Section 7.5.
Section 7.3 Assignees
A. The Partnership shall not recognize for any purpose any purported
sale, assignment or transfer of all or any fraction of the Interest of a Limited
Partner unless the provisions of Section 7.1A shall have been complied with and
there shall have been filed with the Partnership a written and dated
Notification of such sale, assignment or transfer, in form satisfactory to the
General Partner, executed and acknowledged by both the seller, assignor or
transferor and the purchaser, assignee or transferee, and such Notification (i)
contains the acceptance by the purchaser, assignee or transferee of all of the
terms and provisions of this Agreement, (ii) represents that such sale,
assignment or transfer was made in accordance with all applicable laws and
regulations and (iii) contains the purchaser's, assignee's or transferee's power
of attorney identical to that provided in Section 12.1. Any sale, assignment or
transfer shall be recognized by the Partnership as effective as of the first day
of the fiscal quarter following the quarter in which such Notification is filed
with the Partnership.
B. Any Limited Partner who shall assign all of his Interest shall cease
to be a Limited Partner as of the first day of the fiscal quarter following the
quarter in which such Notification is filed with the General Partner.
C. A Person who is the assignee of all or any fraction of the Interest
of a Limited Partner, but does not become a Substituted Limited Partner and
desires to make a further assignment of such Interest, shall be subject to all
the provisions of this Article Seven to the same extent and in the same manner
as any Limited Partner desiring to make an assignment of his Interest.
Section 7.4 Substituted Limited Partners
A. No Limited Partner shall have the right to substitute a purchaser,
assignee, transferee, donee, heir, legatee, distributee or other recipient of
all or any portion of such Limited Partner's Interest as a Limited Partner in
his place. Any such purchaser, assignee, transferee, donee, heir, legatee,
distributee or other recipient of an Interest shall be admitted to the
Partnership as a Substituted Limited Partner only with the consent of the
General Partner, which consent shall be granted or withheld in the sole and
absolute discretion of the General Partner and may be arbitrarily withheld, and,
if necessary, by an amendment of this Agreement executed by all necessary
parties and filed or recorded in the proper records of each jurisdiction in
which such filing or recordation is necessary to qualify the Partnership to
conduct business or to preserve the limited liability of the Limited Partners.
The Limited Partners hereby consent to the admission of a Substituted Limited
Partner whose admission has been consented to by the General Partner. Any such
consent by the General Partner and the Limited Partners may be evidenced, if
necessary, by the execution by the General Partner of an amendment to this
Agreement on its behalf and on behalf of all Limited Partners pursuant to
Section 12.1 evidencing the admission of such Person as a Limited Partner and
the making of any filing required by law. The admission of a Substituted Limited
Partner shall be recorded on the books and records of the Partnership.
B. No Person shall become a Substituted Limited Partner until such
Person shall have satisfied the requirements of Section 10.2; provided, however,
that for the purpose of allocating Profits, Losses and Distributable Cash, a
Person shall be treated as having become, and as appearing in the books and
records of the Partnership as, a Limited Partner on such date as the sale,
assignment or transfer to such Person was recognized by the Partnership pursuant
to Section 7.3A.
C. To the fullest extent permitted by law, each Limited Partner shall
indemnify and hold harmless the Partnership, the General Partner and every
Limited Partner who was or is a party or is threatened to be made a party of any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, by reason of or arising from any
actual or alleged misrepresentation or misstatement of facts or omission to
state facts made (or omitted to be made) by such Limited Partner in connection
with any assignment, transfer, encumbrance or other disposition of all or any
part of an Interest, or the admission of a Substituted Limited Partner to the
Partnership, against expenses for which the Partnership or such other Person has
not otherwise been reimbursed (including attorneys' fees, judgments, fines and
amounts paid in settlement) actually and reasonably incurred by him in
connection with such action, suit or proceeding.
D. (1) Each Limited Partner represents and warrants that the
information set forth on his Subscription Agreement is a true and correct
statement of his total direct and indirect, within the meaning of Section 318 of
the Code, holdings of stock of the General Partner or any of its Affiliates, as
defined in Section 1504(a) of the Code. No Person shall be accepted as a Limited
Partner if the admission of such Person would cause the Limited Partners to own,
directly or indirectly, more than 20% of the outstanding stock of the General
Partner or any of its Affiliates as defined in Section 1504(a) of the Code.
(2) Each Limited Partner further represents and warrants that the
following statements are true: (i) if such Limited Partner is an individual, he
is over 21 years of age; if such Limited Partner is a corporation, it is
authorized and otherwise duly qualified to hold an Interest in the Partnership;
(ii) he has thoroughly read the Prospectus and this Agreement and understands
the nature of the risks involved in the proposed investment; (iii) he is
experienced in investment and business matters; (iv) in the case of an employee
of Merrill Lynch & Co., Inc. or its subsidiaries he has a current annual salary
in an amount which, together with bonus received from Merrill Lynch & Co., Inc.
or its subsidiaries in respect of 1997, equaled at least $100,000 or, if
employed for less than a full calendar year, is employed with an annualized
gross income from Merrill Lynch & Co., Inc. or its subsidiaries of at least
$100,000 and the aggregate amount of Units he will invest in will not exceed an
amount that would result in the price of such Units exceeding 15% of his cash
compensation from Merrill Lynch & Co., Inc. or its subsidiaries with respect to
the most recent calendar year on an annualized basis unless he either (x) has a
net worth, individually or jointly with his spouse, in excess of $1,000,000 at
the time of purchase of the Units or (y) had an individual income in excess of
$200,000 in each of the two most recent calendar years or joint income with his
spouse in excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current calendar year, or
in the case of non-employee directors of Merrill Lynch & Co., Inc., (a) has a
net worth (exclusive of homes, home furnishings, personal automobiles and the
amount to be invested in Units) of not less than $125,000 in excess of the price
of the Units for which such investor has subscribed, or (b) has a net worth
(exclusive of homes, home furnishings, personal automobiles and the amount to be
invested in Units) of not less than $100,000 in excess of the price of the Units
for which such investor has subscribed and expects to have during each of the
current and the next three taxable years, gross income from all sources in
excess of $100,000; (v) he recognizes that the Partnership is newly organized
and has no history of operations or earnings and is subject to speculative
risks; (vi) he understands that the transferability of his Interest(s) in the
Partnership is restricted pursuant to the provisions of this Agreement and that
he cannot expect to be able to liquidate his investment readily in case of
emergency; and (vii) unless otherwise indicated in his Subscription Agreement,
he is the sole party in interest in his Interest and, as such, is vested with
all legal and equitable rights in such Interests. Investors will be required to
represent in writing in the Subscription Agreement that they meet all applicable
requirements and satisfy any more restrictive suitability requirements imposed
by applicable Blue Sky laws.
Section 7.5 Acquisition of Certain Limited Partners' Interests
by the General Partner or the Partnership
A. The General Partner shall purchase from its own funds for its own
account, or cause to be purchased by the Partnership, from the Partnership's
funds for the Partnership's account, any Limited Partner's Interest tendered to
it pursuant to Section 7.2. The purchase price shall be the value of such
Interest determined at the next annual Valuation Date less any distribution paid
in respect of such Interest subsequent to such Valuation Date.
B. The Partnership may, but is not obliged to, purchase from the
Partnership's funds for the Partnership's account any Interest tendered to the
General Partner pursuant to Section 7.2 if such purchase is in the best
interests of the Partnership.
C. If the General Partner purchases any Interest pursuant to this
Section 7.5 for its own account and not for the account of the Partnership, the
General Partner shall be entitled to the rights of an assignee of such Interest
and be entitled to vote such Interest as if it were a Substituted Limited
Partner or be admitted as a Substituted Limited Partner. The General Partner may
sell any Interest acquired by it under the provisions of this Section 7.5 on
such terms as are acceptable to it, and if the purchaser of such Interests is
not a Partner of this Partnership, he will be entitled to be admitted to the
Partnership as a Substituted Limited Partner with respect to such Interest. The
effective date of any such sale shall be the date on which payment has been made
by the purchaser of such Interest.
ARTICLE EIGHT
Dissolution, Liquidation and
Termination of the Partnership
Section 8.1 Events Causing Dissolution
A. Except as provided in Section 8.1(B), the Partnership shall be
dissolved and its affairs shall be wound up upon the happening of any of the
following events:
(i) the expiration of its term;
(ii) the Incapacity of the General Partner;
(iii) the Removal of the General Partner and the failure to
designate a successor;
(iv) the Sale or other disposition at one time of all or
substantially all of the Partnership's assets;
(v) the election to dissolve the Partnership prior to January 1,
2005 by the General Partner with the Consent of a Majority-in-interest
of the Limited Partners, which Consent shall be subject to Article
Eleven;
(vi) the election to dissolve the Partnership by the General
Partner at any time after January 1, 2005; or
(vii) the withdrawal of the General Partner without the
designation of a successor General Partner under Section 6.1.
The occurrence of any event described in Sections 17-402(a)(4) or
17-402(a)(5) of the Act (other than an event that would cause the Incapacity of
the General Partner) shall not cause the General Partner to cease to be a
General Partner of the Partnership or cause the Partnership to dissolve.
B. Upon the happening of an event described in Section 8.1A(ii), (iii)
or (vii), the Partnership shall not be dissolved if, at the time of the
occurrence of such event there is at least one other General Partner, or within
ninety (90) days after the occurrence of such an event, all remaining partners
agree to continue the business of the Partnership and to the appointment,
effective as of the date of such event, of one or more successor General
Partners.
C. The Incapacity of any Limited Partner shall not dissolve the
Partnership and the seizure of the Interest of any Partner shall not dissolve
the Partnership. Dissolution of the Partnership shall be effective on the day on
which the event occurs giving rise to the dissolution, but the Partnership shall
not terminate until the Partnership's certificate of limited partnership has
been cancelled and the assets of the Partnership have been distributed as
provided in Section 8.2.
Section 8.2 Liquidation
A. Upon dissolution of the Partnership, its liabilities shall be paid
in the order provided herein. The General Partner shall cause Partnership
property to be sold in such manner as it, in its sole discretion, shall
determine in an effort to obtain the best price for such property. In order for
the Partnership to obtain a reasonable price for any Partnership investments
which are illiquid, the General Partner may, to the extent permitted by
applicable law, purchase from the Partnership any Partnership investments upon
which there are significant restrictions as to transferability or for which a
fair market price is not readily obtainable. Payment of the fair market value of
any such investment as established by the annual Appraisal made in accordance
with Section 9.4, adjusted for any distributions or other significant events
subsequent to the Valuation Date, shall be deemed fair and reasonable and not a
violation of any General Partner's duty to the Partnership. Pending Sale of
Partnership property, the General Partner shall have the right to continue to
operate and otherwise deal with Partnership property. In the event that the
General Partner has been Removed and a successor General Partner has not been
designated, the Limited Partners shall elect, in accordance with the provisions
of Article Eleven, a Person to perform the functions of the General Partner in
liquidating the assets of the Partnership and in winding up its affairs.
B. Profits and Losses arising from Sales upon liquidation shall be
allocated as follows:
(i) If the Order is not issued, Profits shall be allocated (a)
first, to the Partners in amounts equal to the negative balances, if
any, in their respective Capital Accounts, without giving effect to any
cash distributions arising from Sales at liquidation; (b) second, to
the General Partner up to the amount of the Capital Contributions of
the General Partner made to the Partnership during its term under
Section 3.1B in excess of 1% of the Limited Partners' Capital
Contributions; and (c) third, all remaining Profits, 99% to the Limited
Partners and 1% to the General Partner.
(ii) If the Order is not issued, Losses shall be allocated 99% to
the Limited Partners and 1% to the General Partner.
(iii) If the Order is issued, Profits and Losses shall be
allocated to each Partner's Capital Account proportionately based upon
Partners' respective Capital Contributions.
C. In settling accounts after dissolution, the assets of the
Partnership shall be paid out in the following order:
(i) first, to any creditors (including any creditor who is a
Partner), in the order of priority as provided by law or the
establishment of reasonable reserves for the payment of obligations to
creditors; and
(ii) second, to each Partner in an amount equivalent to the
positive amount of his Capital Account on the date of distribution,
after giving effect to any allocation of Profits or Losses arising from
Sales on liquidation.
D. In the event that following the final dissolution under Section
8.2C, the General Partner has a deficit balance in its Capital Account balance,
the General Partner shall contribute cash to the Partnership necessary to
eliminate said deficit balance.
ARTICLE NINE
Books and Records; Accounting; Appraisal;
Tax Elections; Etc.
Section 9.1 Books and Records
The books and records of the Partnership, including information
relating to the sale by the General Partner or any of its Affiliates of
securities, property, goods or services to the Partnership, and a list of the
name, residence, business or mailing address and Interest of each Limited
Partner, shall be maintained by the General Partner at the office of the
Partnership or of the General Partner and shall, for any purpose, other than
commercial purposes, reasonably related to a Limited Partner's Interest as a
limited partner, be available for examination there by any Limited Partner or
his duly authorized representative at any and all reasonable times. Any Limited
Partner, or his duly authorized representatives, upon paying the costs of
collection, duplication and mailing, for any purpose reasonably related to a
Limited Partner's Interest as a limited partner, shall be entitled to a copy of
the list of the name, residence, business or mailing address and Interest of
each Limited Partner. Such information shall be used for Partnership purposes
only. The Partnership may maintain such other books and records and may provide
such financial or other statements as the General Partner in its discretion
deems advisable.
Section 9.2 Accounting Basis for Tax and Reporting Purposes;
Fiscal Year
The books and records, and the financial statements and reports of the
Partnership, both for tax and financial reporting purposes, shall be kept on an
accrual basis. The Fiscal Year of the Partnership for both tax and financial
reporting purposes shall be the calendar year.
Section 9.3 Bank Accounts
The General Partner shall maintain the Partnership Account and
withdrawals shall be made only in the regular course of the Partnership business
on such signature or signatures as the General Partner may determine. Temporary
investments of the type permitted by Section 4.1A(ix) are deemed activities in
the ordinary course of Partnership business.
Section 9.4 Appraisal
Beginning December 31, 1999, and as of December 31, of each succeeding
year thereafter (the "Valuation Date"), the General Partner will make or have
made an appraisal of all of the assets of the Partnership as of the Valuation
Date (the "Appraisal"). The Appraisal of the Partnership's assets may be by
independent third parties appointed by the General Partner and deemed qualified
by the General Partner to render an opinion as to the value of Partnership
assets, using such methods and considering such information relating to the
investments, assets and liabilities of the Partnership as such Persons may deem
appropriate, but in the case of an event subsequent to the Valuation Date
materially affecting the value of any Partnership asset or investment, the
General Partner may revise the Appraisal as it, in its good faith and sole
discretion, deems appropriate. For purposes of the Appraisal to be made on
December 31, 1999, the General Partner may use the purchase price of Partnership
assets as the value of such assets.
Section 9.5 Reports
Within 75 days after the end of each Fiscal Year or as soon as
practicable thereafter, the General Partner shall send to each Person who was a
Limited Partner at any time during the Fiscal Year then ended (i) a statement
(which shall be audited by the Auditors) showing the Distributable Cash (or
assets distributed in kind) distributed in respect of such year; (ii) such tax
information as shall be necessary for the preparation by such Limited Partner of
his Federal and state income tax returns; and (iii) a report of the investment
activities of the Partnership during such year. Within 180 days after the end of
each Fiscal Year, or as soon thereafter as practicable, the General Partner
shall send to each Person who was a Limited Partner at any time during the
Fiscal Year then ended Partnership financial statements audited by the Auditors
and a copy of the Appraisal. The General Partner shall not be required to
deliver or mail a copy of the certificate of limited partnership of the
Partnership or any amendment thereof to the Limited Partners.
Section 9.6 Elections
The General Partner may cause the Partnership to make all elections
required or permitted to be made by the Partnership under the Code and not
otherwise expressly provided for in this Agreement, in the manner that the
General Partner believes will be most advantageous to individual Limited
Partners who (i) are married and filing joint Federal income tax returns, (ii)
are not "dealers" for Federal income tax purposes, and (iii) have income at
least part of which, without giving effect to any additional tax on preference
items, is subject to Federal income taxation at the then highest marginal tax
rate for persons set forth in (i).
ARTICLE TEN
Amendments
Section 10.1 Proposal and Adoption of Amendments Generally
A. Amendments to this Agreement to reflect the addition or substitution
of a Limited Partner, the admission of a successor General Partner or the
withdrawal of the General Partner, shall be made at the time and in the manner
referred to in Section 10.2. Any other amendment to this Agreement may be
proposed by the General Partner or by 10% in Interest of the Limited Partners.
The Partner or Partners proposing such amendment shall submit (a) the text of
such amendment, (b) a statement of the purpose of such amendment, and (c) an
opinion of counsel obtained by the Partner or Partners proposing such amendment
to the effect that such amendment is permitted by the Act and the laws of any
other jurisdiction where the Partnership is qualified to do business, will not
impair the liability of the Limited Partner and will not adversely affect the
classification of the Partnership as a partnership for Federal income tax
purposes. The General Partner shall, within 20 days after receipt of any
proposal under this Section 10.1A, give Notification to all Partners of such
proposed amendment, of such statement of purpose and of such opinion of counsel,
together, in the case of an amendment proposed by Limited Partners, with the
views, if any, of the General Partner with respect to such proposed amendment.
B. Amendments of this Agreement shall be adopted if:
(i) in the case of amendments referred to in Sections 10.2A and
10.2B, the conditions specified in Sections 6.1 and 6.2 shall have been
satisfactorily completed;
(ii) in the case of amendments referred to in Section 10.2C, the
conditions specified in Section 7.4 shall have been satisfactorily
completed; or
(iii) in the case of all amendments, subject to the provisions of
Section 11.3, such amendment shall have been Consented to by a
Majority-in-interest of the Limited Partners; provided, however, that
no such amendment may:
(a) enlarge the obligations of any Partner under this Agreement
or convert the Interest of any Limited Partner into the
Interest of a General Partner or modify the liability of any
Limited Partner without the Consent of such Partner;
(b) modify the method provided in Article Five of determining,
allocating or distributing, as the case may be, Profits and
Losses and Distributable Cash without the Consent of each
Partner adversely affected by such modification;
(c) amend Sections 6.1 or 6.2 without the Consent of the General
Partner;
(d) amend Section 4.3C, this Article Ten or Section 11.3 without
the Consent of all the Partners; or
(e) allow additional contributions of capital by some or all of
the Limited Partners without the Consent of the General
Partner and a Majority-in-interest of the Limited Partners.
C. Upon the adoption of any amendment to this Agreement, the amendment
shall be executed by the General Partner and the Limited Partners and, if
required by the Act, an amendment to the certificate of limited partnership of
the Partnership shall be filed or recorded in the proper records of the State
and of each jurisdiction in which filing or recordation is necessary for the
Partnership to conduct business or to preserve the limited liability of the
Limited Partners. Each Limited Partner hereby irrevocably appoints and
constitutes the General Partner as his agent and attorney-in-fact to execute,
file, and record any and all such amendments including, without limitation,
amendments to admit Limited Partners and to increase or decrease the amount of
the contribution to the Partnership of any Partner. The power of attorney given
herewith is irrevocable, is coupled with an interest and shall survive and not
be affected by the subsequent Incapacity of any Limited Partner granting it.
D. Notwithstanding anything to the contrary contained herein, the
General Partner may, without prior notice or Consent of any Limited Partner,
amend any provision of this Agreement if, in its opinion, such amendment does
not have a material adverse effect upon the Limited Partners.
Section 10.2 Amendments on Admission or Withdrawal of Partners
A. If this Agreement shall be amended to reflect the admission of a
General Partner, the amendment to this Agreement and to the certificate of
limited partnership of the Partnership shall be adopted, executed and filed as
required by the Act and this Agreement.
B. If this Agreement shall be amended to reflect the withdrawal or
Removal of the General Partner and the continuation of the business of the
Partnership, the amendment to this Agreement and to the certificate of limited
partnership shall be adopted, executed and filed as required by the Act and this
Agreement.
C. No Person shall become a Partner unless such Person shall have
become a party to, and adopted all of the terms and conditions of, this
Agreement, and except for the Initial Limited Partner or an Additional Limited
Partner, paid any reasonable legal fees of the Partnership and the General
Partner and filing and publication costs in connection with such Person's
becoming a Partner elected to be so charged in the General Partner's discretion.
ARTICLE ELEVEN
Consents, Voting and Meetings
Section 11.1 Method of Giving Consent
Any Consent required by this Agreement may be given as follows:
(i) by a written Consent given by the approving Partner at or
prior to the date set by the General Partner for the delivery of the
Consent, provided that such Consent shall not have been nullified by
either (a) Notification to the General Partner by the approving Partner
at or prior to the time of, or the negative vote by such approving
Partner at, any meeting held to consider the doing of such act or
thing, or (b) Notification to the General Partner by the approving
Partner prior to the date set by the General Partner for the delivery
of the Consent with respect to actions the doing of which is not
subject to approval at such meeting; or
(ii) by the affirmative vote by the approving Partner to the
doing of the act or thing for which the Consent is solicited at any
meeting called and held pursuant to Section 11.2 to consider the doing
of such act or thing.
Section 11.2 Meetings of Partners
The termination of the Partnership and any other matter requiring the
Consent of all or any of the Limited Partners pursuant to this Agreement may be
considered at a meeting of the Partners held not less than 15 nor more than 30
days after Notification thereof shall have been given by the General Partner to
all Partners. Such Notification (i) may be given by the General Partner, in its
discretion, at any time and (ii) shall be given by the General Partner within 15
days after receipt by the General Partner of a request for such a meeting made
by 10% in Interest of the Limited Partners. Such meeting shall be held within or
outside the State at such reasonable place as shall be specified by the General
Partner if Notification of such meeting is given pursuant to this Section 11.2.
Section 11.3 Limitations on Requirements for Consents
Notwithstanding the provisions of Sections 4.3C, 6.1A(iv), 6.1C, 6.5A,
6.5B, 8.1(v) and 10.1B, as the case may be,
(i) the provision of Section 4.3C(i) requiring the Consent of a
Majority-in-interest of the Limited Partners to the sale or other
disposition at any one time of all or substantially all of the assets
of the Partnership shall be void and the General Partner shall have
authority to sell or dispose at any one time all or substantially all
of the assets of the Partnership;
(ii) the provisions of Section 4.3C(ii) and 8.1(v) permitting the
General Partner to dissolve the Partnership prior to January 1, 2005
with the Consent of the Majority-in-interest of the Limited Partners
shall be void and the General Partner shall have the authority to
dissolve the Partnership at any time without the Consent of the Limited
Partners;
(iii) the provisions of Section 4.3C(iii) through (ix) requiring
the Consent of a Majority-in-interest of the Limited Partners as to the
taking of certain actions by the General Partner shall be void and the
General Partner may take such actions on behalf of the Partnership if
not prohibited by the Investment Company Act of 1940;
(iv) the provisions of Sections 6.1A(iv) and 6.1C permitting the
giving of the Consent of the Limited Partners by the express Consent of
a Majority-in-interest of the Limited Partners shall be void;
(v) the power granted pursuant to the provisions of Section 6.5A
and 6.5B to Remove the General Partner and designate a successor
General Partner upon the Consent of a Majority-in-interest of the
Limited Partners may not be exercised; and
(vi) the provisions of Section 10.1B(iii) relating to the
amendment of this Agreement by or upon the Consent of a
Majority-in-interest of the Limited Partners shall be void;
unless at the time of the giving or withholding of the Consent pursuant to the
provisions of Sections 4.3C, 6.1A(iv), 6.1C, 6.5A, 6.5B, 8.1(v) or 10.1B, as the
case may be, counsel for the Partnership or counsel designated by 10% in
Interest of the Limited Partners shall have delivered to the Partnership an
opinion to the effect that the giving or withholding of the Consent is permitted
by the Act, will not impair the limited liability of the Limited Partners and
will not adversely affect the classification of the Partnership as a partnership
for Federal income tax purposes.
Section 11.4 Submissions to Limited Partners
The General Partner shall give all the Limited Partners Notification of
any proposal or other matters required by any provisions of this Agreement or by
law to be submitted for the consideration and approval of the Limited Partners.
Such Notification shall include any information required by the relevant
provision of this Agreement or by law.
ARTICLE TWELVE
Miscellaneous Provisions
Section 12.1 Appointment of the General Partner as Attorney-in-Fact
A. Each Limited Partner, by his execution hereof, hereby makes,
constitutes and appoints the General Partner and each of its officers his true
and lawful agent and attorney-in-fact, with full power of substitution and full
power and authority in his name, place and stead to make, execute, sign,
acknowledge, swear to, record and file, on behalf of him and on behalf of the
Partnership, such documents, instruments and conveyances that may be necessary
or appropriate to carry out the provisions or purposes of this Agreement,
including, without limitation:
(i) this Agreement and the certificate of limited partnership of
the Partnership and all amendments to this Agreement and the
certificate of limited partnership of the Partnership required or
permitted by law or the provisions of this Agreement including, without
limitation, such certificates, agreements and amendments thereto
relating to the admission to the Partnership of Partners and the
increase or decrease of the amount of the Capital Contributions of any
Partner;
(ii) all certificates and other instruments deemed advisable by
the General Partner to carry out the provisions of this Agreement or to
permit the Partnership to become or to continue as a limited
partnership or partnership wherein the Limited Partners have limited
liability in any jurisdiction where the Partnership may be doing
business;
(iii) all instruments that the General Partner deems appropriate
to reflect a change or modification of this Agreement, in accordance
with this Agreement, including, without limitation, the substitution of
assignees as Substituted Limited Partners pursuant to Sections 7.4 and
10.2C and, if required, the filing of certificates to effect the same;
(iv) all conveyances and other instruments or papers deemed
advisable by the General Partner to effect the dissolution and
termination of the Partnership, including a certificate of
cancellation;
(v) all fictitious or assumed name certificates required or
permitted to be filed on behalf of the Partnership;
(vi) all instruments or papers required by law to be filed in
connection with the issuance of limited partnership interests senior to
the Units;
(vii) all other instruments or papers which may be required or
permitted by law to be filed on behalf of the Partnership; and
(viii) all instruments and filings required by Section 6111 of
the Code ("Registration of Tax Shelters") and Section 6112 of the Code
relating to maintenance of lists of investors in tax shelters.
B. The foregoing power of attorney:
(i) is coupled with an interest, shall be irrevocable, shall not
be affected by and shall survive the subsequent Incapacity of each
Limited Partner;
(ii) may be exercised by the General Partner either by signing
separately or jointly as attorney-in-fact for each or all Limited
Partner(s) or, with or without listing all of the Limited Partners
executing an instrument, by a single signature of the General Partner
acting as attorney-in-fact for all of them; and
(iii) shall survive the delivery of an assignment by a Limited
Partner of the whole of his Interest; except that, where the assignee
of the whole of such Limited Partner's Interests has been approved by
the General Partner for admission to the Partnership as a Substituted
Limited Partner, the power of attorney of the assignor shall survive
the delivery of such assignment for the sole purpose of enabling the
General Partner to execute, swear to, acknowledge and file any
instrument necessary or appropriate to effect such substitution.
C. Each Limited Partner shall execute and deliver to the General
Partner within five days after receipt of the General Partner's request therefor
such further designations, powers-of-attorney and other instruments as the
General Partner deems necessary or appropriate to carry out the terms of this
Agreement.
Section 12.2 Notification to the Partnership or the General Partner
Any notification to the Partnership or the General Partner shall be
sent to the principal office of the Partnership.
Section 12.3 Binding Provisions
The covenants and agreements contained herein shall be binding upon and
inure to the benefit of the heirs, executors, administrators, permitted
successors and assigns of the respective parties hereto.
Section 12.4 Applicable Law
This Agreement shall be construed and enforced in accordance with the
laws of the State.
Section 12.5 Counterparts
This Agreement may be executed in several counterparts, all of which
together shall constitute one agreement binding on all parties hereto,
notwithstanding that not all the parties have signed the same counterpart except
that no counterpart shall be binding unless signed by the General Partner. The
General Partner may execute any document by facsimile signature of a duly
authorized officer.
Section 12.6 Separability of Provisions
If for any reason any provisions hereof that are not material to the
purposes or business of the Partnership or the Limited Partners' Interests are
determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation of or affect those portions of this
Agreement that are valid.
Section 12.7 Entire Agreement
This Agreement constitutes the entire agreement among the parties. This
Agreement supersedes any prior agreement or understanding among the parties and
may not be modified or amended in any manner other than as set forth therein.
Section 12.8 Headings
The headings in this Agreement are for descriptive purposes only and
shall not control or alter the meaning of this Agreement as set forth in the
text.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
KECALP INC.
General Partner
By: _____________________________
Attest:
By: ____________________________
Secretary
Withdrawing and Initial Limited Partner
---------------------------------------
Robert F. Tully
LIMITED PARTNERS
All Limited Partners now and hereafter
admitted as limited partners to the
Partnership, pursuant to Powers of
Attorney now and hereafter executed
in favor of, and delivered to, the
General Partner.
By: KECALP Inc.
By: ______________________________________
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
EXHIBIT B
SUBSCRIPTION AGREEMENT
MERRILL LYNCH KECALP L.P. 1999
KECALP Inc., General Partner of
Merrill Lynch KECALP L.P. 1999
South Tower
World Financial Center
225 Liberty Street
New York, New York 10080-6123
Gentlemen:
By signing the Limited Partner Signature Page and Power of Attorney
attached hereto, the undersigned hereby applies for the purchase of the number
of limited partner interests (the "Units"), set forth below, in Merrill Lynch
KECALP L.P. 1999, a Delaware limited partnership (the "Partnership"), at a price
of $1,000 per Unit (minimum purchase of five Units), and authorizes Merrill
Lynch, Pierce, Fenner & Smith Incorporated to debit his securities account in
the amount set forth below for such Units. The undersigned understands that such
funds will be held by The Bank of New York, as Escrow Agent, and will be
returned promptly in the event that 75,000 Units of the Units offered by the
Prospectus are not subscribed for by the Offering Termination Date (as defined
in the Prospectus). The undersigned hereby acknowledges receipt of a copy of the
Prospectus, as well as the Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement") of the Partnership attached to the Prospectus as
Exhibit A, and hereby specifically accepts and adopts each and every provision
of, and executes, the Partnership Agreement and agrees to be bound thereby.
The undersigned hereby represents and warrants to you as follows:
1. The undersigned has carefully read the Prospectus and has relied
solely on the Prospectus and investigation made by the undersigned or his or her
representatives in making the decision to invest in the Partnership.
2. The undersigned is aware that investment in the Units involves
certain risk factors and has carefully read and considered the matters set forth
under the captions "Investment Objective and Policies", "Risk and Other
Important Factors" and "Tax Aspects of Investment in the Partnership" in the
Prospectus.
3. The undersigned is 21 years of age or over, has adequate means of
providing for his or her current needs and personal contingencies and has no
need for liquidity in this investment.
4. The undersigned represents that he or she (i) in the case of an
employee of Merrill Lynch & Co., Inc. ("ML & Co.") or its subsidiaries, had an
annual salary which, together with bonus received from ML & Co. or its
subsidiaries in respect of 1997, equaled at least $100,000; or, if employed for
less than a full calendar year, is employed with an annualized gross income from
ML & Co. or its subsidiaries of at least $100,000 or (ii) in the case of a
non-employee director of ML & Co., (a) has a net worth (exclusive of homes, home
furnishings, personal automobiles and the amount to be invested in Units) of not
less than $125,000 in excess of the price of the Units for which such investor
has subscribed, or (b) has a net worth (exclusive of homes, home furnishings,
personal automobiles and the amount to be invested in Units) of not less than
$100,000 in excess of the price of the Units for which such investor has
subscribed and expects to have during each of the current and the next three
taxable years, gross income from all sources in excess of $100,000.
5. The undersigned represents that the amount of Units to be purchased
hereby (i) in the case of an employee of ML & Co. or its subsidiaries, does not
exceed an amount that would result in the price of such Units exceeding either
(a) 15% of the employee's cash compensation from ML & Co. or its subsidiaries
received in respect of 1997 unless the employee either (x) has a net worth,
individually or jointly with the employee's spouse, in excess of $1,000,000 at
the time of purchase of the Units, or (y) had an individual income in excess of
$200,000 in each of 1996 and 1997 or joint income with the employee's spouse in
excess of $300,000 in each of those years and reached or has a reasonable
expectation of reaching the same income level in 1998 or (b) 75% of his
compensation received in respect of 1997 on an annualized basis, provided that
the employee meets the standards of (x) or (y) above; or (ii) in the case of a
non-employee director of ML & Co., does not exceed an amount equal to two times
the director's fees (including committee fees, but not including reimbursements
of expenses) received from ML & Co. during 1997.
6. The undersigned represents and warrants that the statements
contained in Section 7.4D of the Partnership Agreement are true insofar as they
relate to the undersigned:
The undersigned understands and recognizes that:
(a) The subscription may be accepted or rejected in whole or
in part by the General Partner in its sole and absolute discretion,
except that, if this subscription is to be accepted in part only, it
shall not be reduced to an amount less than $5,000.
(b) No Federal or state agency has made any finding or
determination as to the fairness for public investment, nor any
recommendation or endorsement, of the Units.
(c) There are restrictions on the transferability of the
Units, there will be no public market for Units, and accordingly, it
may not be possible for the undersigned readily, if at all, to
liquidate his or her investment in the Partnership in case of an
emergency.
(d) Prior to any contrary notification to the General Partner
by the undersigned, the undersigned hereby authorizes all cash
distributions to be made by the Partnership to the undersigned as a
Limited Partner to be credited to the undersigned's securities account
at Merrill Lynch, Pierce, Fenner & Smith Incorporated as specified in
the Signature Page and Power of Attorney attached hereto.
The undersigned hereby acknowledges and agrees that the undersigned is
not entitled to cancel, terminate or revoke this subscription or any agreements
of the undersigned hereunder and that such subscription and agreements shall
survive the disability of the undersigned.
This Subscription Agreement and all rights hereunder shall be governed
by, and interpreted in accordance with, the laws of the State of Delaware.
In Witness Whereof, the undersigned executes and agrees to be bound by
this Subscription Agreement by executing the Limited Partner Signature Page and
Power of Attorney attached hereto on the date therein indicated.
<PAGE>
INSTRUCTIONS FOR PURCHASERS OF UNITS
Any person desiring to subscribe for Units should carefully read and
review the Prospectus and, if he or she desires to subscribe for Units in the
Partnership, complete the following steps:
1. Complete, date and execute the Limited Partner Signature Page and
Power of Attorney (sent with Prospectus, on green paper).
2. Use the sample that follows, to assist you in the accurate
completion of the Signature Page.
3. Indicate in the four boxes provided the number of Units you would
like to purchase (minimum 5 Units). If this amount is in excess of 250 Units,
your subscription will be entered initially for 250 Units and, if the offering
is not fully subscribed at the offering termination date, you will receive as
many of the Units you have requested as are available on a pro rata basis based
on the amount of Units available subject to the limitations described in the
Prospectus.
4. Direct Investment Services will, if your subscription is accepted by
the Partnership (which will not occur prior to November 1, 1998), enter and
execute an order. An execution wire will be generated to your branch office and
a trade confirmation will be made to you. Settlement date will be three (3)
business days following execution.
Your MLPF&S Securities Account will be debited in the amount of $1,000
for each Unit that you purchase.
5. Cancellations and quantity reductions are difficult to handle after
an investor has been accepted and the funds placed in escrow. Nonetheless, if
you wish to cancel, contact Andrew Kaufman at (212) 236-7302 or fax him at (212)
236-7360.
<PAGE>
MERRILL LYNCH KECALP L.P. 1999
LIMITED PARTNER SIGNATURE PAGE AND POWER OF ATTORNEY
The undersigned, desiring to become a Limited Partner of Merrill Lynch
KECALP L.P. 1999 (the "Partnership"), pursuant to Section 3.3 or 7.4 of the
Amended and Restated Agreement of Limited Partnership (the "Partnership
Agreement"), a form of which is included as Exhibit A to the Prospectus of the
Partnership dated September __, 1998 (the "Prospectus"), hereby executes, and
agrees to all of the terms of, the Partnership Agreement of the Partnership and
agrees to be bound by the terms and provisions thereof. The undersigned further,
by executing this Limited Partner Signature Page and Power of Attorney, hereby
executes, adopts and agrees to all terms, conditions and representations of the
Subscription Agreement included as Exhibit B to the Prospectus. The undersigned
further irrevocably constitutes and appoints KECALP Inc., the General Partner of
the Partnership, and its successors and assigns with full power of substitution,
the true and lawful attorney for the undersigned and in the name, place and
stead of the undersigned to make, execute, sign, acknowledge, swear to, deliver,
record and file any documents or instruments which may be considered necessary
or desirable by the General Partner to carry out fully the provisions of the
Partnership Agreement, including, without limitation, the Partnership Agreement,
the certificate of limited partnership of the Partnership and any amendment or
amendments thereto, including, without limitation, amendments thereof for the
purpose of increasing or decreasing the capital contribution of any partner and
adding and deleting the undersigned and others as the partners in the
Partnership, as contemplated by the Partnership Agreement (which amendment(s)
the undersigned hereby joins in and executes, hereby authorizing his Limited
Partner Signature Page and Power of Attorney to be attached, if required, to any
such amendment) and of otherwise amending the Partnership Agreement from time to
time, or canceling the same. The power of attorney hereby granted shall be
deemed to be coupled with an interest and shall be irrevocable and survive and
not be affected by the subsequent death, disability, incapacity or insolvency of
the undersigned or any delivery by the undersigned of an assignment of the whole
or any portion of the interest of the undersigned. The place of residence of the
undersigned is as shown below.
ALL INFORMATION MUST BE COMPLETED
Signature of Limited Partner:__________________________
# of Units applied for (whole Units only) 25 x $1,000. = Dollar Amount to
--------
be debited from account listed below
$ 25,000
--------
Does purchase price of Units applied for exceed 15% of your Merrill Lynch
compensation in respect of 1997? Yes ( ) No ( )
If so, do you satisfy either of the exceptions specified under "Maximum Purchase
by Qualified Investors" on page 50 of the Prospectus? Yes ( ) No ( )
Limited Partner Name: SMITH JAMES Q
-----------------------------------------------------
(Please Print or Type) Last Name First Name MI
Social Security/Indiv. Taxpayer ML Account ML Employee
ID Number 123-45-6789 Number 100-99200 Number 98765
----------- --------- -----
Name: JAMES Q. SMITH
--------------------------------------------------------------------------
Home Address: 225 LIBERTY STREET
----------------------------------------------------------------
APT. 2F BUILDING #4
-------------------------------------------------
City: NEW YORK State: NY Zip Code: 10080-6123
---------------- -------- ------------
Mailing Address: (If different from home address)
Address:
----------------------------------------------------------------------
----------------------------------------------------------------------
City: State: Zip Code:
--------------------- ------- ------------
Residence State if different from above: ____________
Home Telephone: 212-236-7323 Office Telephone: 212-236-7303
-------------- ----------------
Home Fax: 212-236-7364 Office Fax:
------------- ----------------
Are you an active Financial Consultant? Yes ( ) No ( )
Branch Office # 000 and F.C. # 00000
--------- ----------
U.S. Citizen? Yes ( ) No ( ) If No, What Country or State are
you a Citizen of?
Resident alien ( ) Non-resident alien ( )
(If non-resident alien, please submit Form W-8)
<PAGE>
[THIS PAGE INTENTONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
============================================================= ============================================================
TABLE OF CONTENTS
500,000 Units of
Limited Partnership
Interest
Page
----
Investor Suitability Standards..........................2
Summary of the Offering.................................3
Partnership Expenses....................................7
Risk and Other Important Factors........................8
The Partnership........................................13
Investment Objective and Policies......................14
The General Partner and Its Affiliates.................20
Tax Aspects of Investment Merrill Lynch KECALP L.P. 1999
in the Partnership..................................25
Partnership Allocations and Distributions..............30
Summary of the Partnership Agreement...................31
Offering and Sale of Units.............................34
Transferability of Units...............................36
Year 2000..............................................37
Reports................................................38
Experts................................................38
Legal Matters..........................................38
Exemptions from the Investment
Company Act of 1940..................................38
Additional Information.................................40
Index to Financial Statements..........................41
Appendix...............................................51
----------------------------
Form of Amended and Restated Agreement
of Limited Partnership............................Ex. A September ___, 1999
Subscription Agreement..............................Ex. B
Merrill Lynch & Co.
============================================================= ============================================================
</TABLE>
<PAGE>
PART C
OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(1) Financial Statements
Contained in Part A:
-- See "Index to Financial Statements" in the Prospectus.
Contained in Part B:
-- Not Applicable
Contained in Part C:
-- None
(2) Exhibits
(a)(i) -- Certificate of Limited Partnership of Merrill Lynch
KECALP L.P. 1999*
(a)(ii) -- Form of Amended and Restated Agreement of Limited
Partnership of Merrill Lynch KECALP L.P. 1999 is included
as Exhibit A in the Prospectus
(a)(iii) -- Subscription Agreement is included in Exhibit B in
the Prospectus
(b) -- Not Applicable
(c) -- Not Applicable
(d) -- Copies of Instruments Defining the Rights of Unitholders**
(e) -- Not Applicable
(f) -- Not Applicable
(g) -- Not Applicable
(h) -- Form of Agency Agreement
(i) -- Not Applicable
(j) -- Form of Escrow Deposit Agreement
(k) -- Not Applicable
(l) -- Opinion and Consent of Brown & Wood LLP
(m) -- Not Applicable
(n)(i) -- Consent of Independent Accountants
(n)(ii) -- Form of opinion of Brown & Wood LLP as to certain
tax matters
(o) -- Not Applicable
(p) -- Not Applicable
(q) -- Not Applicable
- ----------------
* Previously filed
** Reference is made to the Amended and Restated Agreement of Limited
Partnership of Merrill Lynch KECALP L.P. 1999, a form of which is
included as Exhibit A in the Prospectus.
<PAGE>
Item 25. Marketing Arrangements.
None.
ITEM 26. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the estimated expenses to be incurred in
connection with the offering described in this Registration Statement.
Registration fees.........................................$ 147,500
-------------
National Association of Securities Dealers, Inc. fees..... 30,500
-------------
Printing.................................................. 75,000
-------------
Fees and expenses of qualifications under state
securities laws (including fees of counsel)........... 40,000
-------------
Legal fees and expenses................................... 125,000
-------------
Accounting fees and expenses.............................. 3,500
-------------
Miscellaneous............................................. 78,500
-------------
Total...................................$ 500,000
=============
ITEM 27. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT.
The General Partner of the Partnership is a wholly-owned subsidiary of
Merrill Lynch & Co., Inc.
ITEM 28. NUMBER OF HOLDERS OF SECURITIES.
Robert F. Tully, an employee of Merrill Lynch & Co., Inc., purchased a
limited partnership interest in the Partnership for $1.00 in order to become the
Initial Limited Partner and permit the filing of the Agreement and Certificate
of Limited Partnership. This sale was prior to the date of effectiveness of this
Registration Statement, as a "private offering" pursuant to the exemption
contained in Section 4(2) of the Securities Act of 1933. Upon admission of the
purchasers of Units to the Partnership as Limited Partners, Mr. Tully will
withdraw from the Partnership and receive a return of his $1.00.
ITEM 29. INDEMNIFICATION.
Pursuant to Section 4.7 of the Partnership Agreement, neither the
General Partner nor any of its officers, directors or agents shall be liable to
the Partnership or the Limited Partners for any act or omission based upon
errors of judgment or other fault in connection with the business or affairs of
the Partnership so long as the person against whom liability is asserted acted
in good faith and in a manner reasonably believed by such person to be within
the scope of its authority under the Partnership Agreement and in or not opposed
to the best interests of the Partnership, but only if such action or failure to
act does not constitute negligence, misconduct or any other breach of fiduciary
duty. The General Partner and its officers, directors and agents will be
indemnified by the Partnership to the fullest extent permitted by law for any
(a) fees, costs and expenses incurred in connection with or resulting from any
claim, action or demand against the General Partner, the Partnership or any of
their officers, directors and agents that arises out of or in any way relates to
the Partnership, its properties, business or affairs and (b) such claims,
actions and demands and any losses or damages resulting from such claims,
actions and demands, including amounts paid in settlement or compromise (if
recommended by attorneys for the Partnership) of any such claim, action or
demand; provided, however, that this indemnification shall apply only so long as
the person against whom a claim, action or demand is asserted has acted in good
faith and in a manner reasonably believed by such person to be within the scope
of his or its authority under the Partnership Agreement and in or not opposed to
the best interests of the Partnership, but only if such action or failure to act
does not constitute negligence, misconduct or any other breach of fiduciary
duty.
Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to the General Partner, the Partnership has been advised
that in the opinion of the Securities and Exchange Commission such
indemnification is against the public policy as expressed in such Act and is
therefore unenforceable. If a claim for indemnification against such liabilities
under the Securities Act of 1933 (other than for expenses incurred in a
successful defense) is asserted against the Partnership by the General Partner
under the Partnership Agreement or otherwise, the Partnership will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in such Act and will
be governed by the final adjudication of such issue.
Reference is made to Section 8 of the form of Agency Agreement to be
filed as Exhibit (h) hereto, which contains provisions requiring indemnification
of the Partnership's principal underwriter by the General Partner and of the
Partnership and the General Partner by the Partnership's principal underwriter.
ITEM 30. BUSINESS AND OTHER CONNECTIONS OF THE INVESTMENT ADVISER.
Information concerning the General Partner and biographical information
for each of the directors and executive officers of the General Partner is
contained in Part A of this Registration Statement under the caption "The
General Partner and Its Affiliates."
ITEM 31. LOCATION OF ACCOUNTS AND RECORDS.
The accounts and records of the Partnership will be maintained at the
office of the Partnership at South Tower, World Financial Center, 225 Liberty
Street, New York, New York 10080-6123.
ITEM 32. MANAGEMENT SERVICES.
Not Applicable.
ITEM 33. UNDERTAKINGS.
(1) Registrant undertakes to suspend offering of the Units covered
hereby until it amends its Prospectus contained herein if (i) subsequent to the
effective date of this Registration Statement, its net asset value declines more
than 10 percent from its net asset value as of the effective date of this
Registration Statement, or (ii) its net asset value increases to an amount
greater than its net proceeds as stated in the Prospectus contained herein.
(2) Not applicable.
(3) Not applicable.
(4) Registrant undertakes:
(a) to file, during any period in which offers or
sales are being made, a post-effective amendment to the
registration statement:
(1) to include any prospectus required by Section
10(a)(3) of the 1933 Act [15 U.S.C. 77j(a)(3)];
(2) to reflect in the prospectus any facts or events
after the effective date of the registration statement (or the
most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set forth in the registration
statement; and
(3) to include any material information with respect
to the plan of distribution not previously disclosed in the
registration statement or any material change to such
information in the registration statement;
(b) that, for the purpose of determining any
liability under the 1933 Act, each such post-effective
amendment shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering
of those securities at that time shall be deemed to be the
initial bona fide offering thereof; and
(c) to remove from registration by means of a
post-effective amendment any of the securities being
registered which remain unsold at the termination of the
offering.
(5) Registrant undertakes that:
(a) For the purposes of determining any liability
under the Act, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of prospectus
filed by the registrant pursuant to Rule 424(b)(1) or (4) or
497(h) under the Act shall be deemed to be part of this
Registration Statement as of the time it was declared
effective.
(b) For the purpose of determining any liability
under the Act, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration
statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(6) Not applicable.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of New York and State of New York on the 2nd day of
September 1998.
Merrill Lynch KECALP L.P. 1999
By KECALP Inc., its General Partner
By /s/ Margaret T. Monaco
-------------------------------
Margaret T. Monaco
Vice President
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED AND ON THE 2ND DAY OF SEPTEMBER 1998.
Signature Title
--------- -----
John L. Steffens* Chairman of the Board and Director
- --------------------------------------- (Chief Executive Officer)
(John L. Steffens) KECALP Inc.
Matthias B. Bowman* President and Director (Chief
- --------------------------------------- Investment Officer)
(Matthias B. Bowman)
/s/ Robert F. Tully Vice President and Treasurer
- --------------------------------------- (Chief Financial and Accounting
(Robert F. Tully) Officer) KECALP Inc.
Rosemary T. Berkery* Vice President and Director
- --------------------------------------- KECALP Inc.
(Rosemary T. Berkery)
James V. Caruso* Vice President and Director
- --------------------------------------- KECALP Inc.
(James V. Caruso)
Mark B. Goldfus* Vice President and Director
- --------------------------------------- KECALP Inc.
(Mark B. Goldfus)
Andrew J. Melnick* Vice President and Director
- --------------------------------------- KECALP Inc.
(Andrew J. Melnick)
Mary E. Taylor* Vice President and Director
- --------------------------------------- KECALP Inc.
(Mary E. Taylor)
*By: /s/ Margaret T. Monaco
---------------------------------------
(Margaret T. Monaco, Attorney-in-Fact)
<PAGE>
Exhibit Index
Exhibit Page No.
- ------- --------
(h) -- Form of Agency Agreement
(j) -- Form of Escrow Deposit Agreement
(l) -- Opinion and Consent of Brown & Wood LLP
(n)(i) -- Consent of Independent Accountants
(n)(ii) -- Form of opinion of Brown & Wood LLP as to certain tax matters
MERRILL LYNCH KECALP L.P. 1999
(A Delaware Limited Partnership)
500,000 Units of Limited Partnership Interest
AGENCY AGREEMENT
September __, 1998
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
North Tower - 27th floor
World Financial Center
New York, New York 10281-1327
Dear Sirs:
Merrill Lynch KECALP L.P. 1999, a limited partnership (the
"Partnership") organized under the Revised Uniform Limited Partnership Act of
the State of Delaware (the "RULPA") by its general partner, KECALP Inc., a
Delaware corporation (the "General Partner"), to invest a substantial portion of
the funds of the Partnership in privately-offered equity investments (the
"Investments") seeking, among other things, capital appreciation, as described
in the Prospectus referred to below, proposes to offer for sale 500,000 units of
limited partnership interest ("Units") in the Partnership. Each prospective
investor subscribing to purchase Units (collectively, the "Subscribers") will be
required to execute and deliver a subscription agreement (a "Subscription
Agreement"), including a Limited Partner Signature Page and Power of Attorney,
substantially in the form thereof attached as Exhibit B to the Prospectus
referred to below.
The Partnership has filed with the Securities and Exchange Commission
(the "Commission") a registration statement on Form N-2 (No. 333-59143) and a
related preliminary prospectus for the registration of the Units under the
Securities Act of 1933, as amended and the registration of the Partnership under
the Investment Company Act of 1940, as amended (the "1933 Act" and the "1940
Act", respectively). Such registration statement, as amended, at the time it is
declared effective by the Commission is hereinafter referred to as the
"Registration Statement" and the final prospectus included therein is
hereinafter referred to as the "Prospectus", except that (i) if the Partnership
files a post-effective amendment to the Registration Statement, then the term
"Registration Statement" shall, from and after the declaration of the
effectiveness of such post-effective amendment thereto, refer to the
Registration Statement as amended, and the term "Prospectus" shall refer to the
amended prospectus included in the Registration Statement as amended, and (ii)
if any prospectus filed by the Partnership pursuant to either Rule 497(b) or (d)
of the rules and regulations of the Commission under the 1933 Act (the
"Regulations") differs from the prospectus on file at the time the Registration
Statement or any post-effective amendment thereto becomes effective, the term
"Prospectus" shall refer to the Rule 497(b) or (d) prospectus from and after the
time it is mailed to the Commission for filing. If the Partnership files a
registration statement to register a portion of the Units and relies on Rule
462(b) for such registration statement to become effective upon filing with the
Commission (the "Rule 462 Registration Statement"), then any reference to
"Registration Statement" herein shall be deemed to be to the registration
statements referred to above and the Rule 462 Registration Statement, as each
such registration statement may be amended pursuant to the 1933 Act, and from
and after the filing of any such Registration Statement pursuant to Rule 462,
the term "Units" herein shall include units of limited partner interest of the
Partnership registered pursuant to such Registration Statement.
Section 1. Appointment of Agent. On the basis of the representations,
--------------------
warranties and covenants herein contained, but subject to the terms and
conditions herein set forth, you are hereby appointed the exclusive agent of the
General Partner and the Partnership during the Offering Period herein specified
for the purpose of finding qualified Subscribers for the Units for the account
of the Partnership through the offering herein contemplated. The Offering Period
shall commence on the day that the Prospectus is first made available to you by
the General Partner for delivery in connection with the offering for sale of the
Units and shall continue until such date as you and the General Partner shall
agree upon (such date being hereinafter referred to as the "Offering Termination
Date"); provided, however, that unless 75,000 Units are subscribed for, none
will be sold and all payments received will be refunded with interest. Subject
to the performance by the General Partner and the Partnership of all of their
obligations to be performed hereunder, and to the completeness and accuracy of
all of the representations and warranties contained herein, you hereby accept
such agency and agree on the terms and conditions herein set forth to use your
best efforts during the Offering Period to find qualified Subscribers. Your
agency hereunder, which is coupled with an interest and, therefore, is not
terminable by the General Partner without your permission, except as otherwise
expressly so provided in this Section 1, shall continue until the termination of
the Offering Period. Any termination of your agency or of this Agency Agreement
shall be without obligation on your part or on the part of the General Partner
or the Partnership except as provided in Section 6 hereof, and except that the
indemnification provided in Section 8 hereof shall continue after such
termination of this Agency Agreement.
Section 2. Representations and Warranties of the Partnership and the
-----------------------------------------------------------
General Partner. The General Partner and the Partnership each represents,
- ----------------
warrants and agrees with you for your benefit that:
(a) At the time the Registration Statement initially becomes
effective and at the time any post-effective amendment thereto or new
registration statement referred to above becomes effective, the Registration
Statement will comply in all material respects with the requirements of the 1933
Act and the Regulations and the 1940 Act and the regulations thereunder and will
not contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and at the time the Registration Statement becomes effective
(unless the term "Prospectus" refers to the Rule 497(b) or (d) prospectus, in
which case at the time it is mailed to the Commission for filing) and at the
Closing Time referred to in Section 4, the Prospectus and any supplemental sales
material supplied to you pursuant to Section 5(i) hereof (when read in
conjunction with the Prospectus) will not contain an untrue statement of a
material fact or omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that the representations and warranties
in this subsection shall not apply to statements in or omissions from the
Registration Statement or the Prospectus made in reliance upon and in conformity
with information furnished to the Partnership or the General Partner in writing
by you expressly for use in the Registration Statement or Prospectus.
(b) The Agreement of Limited Partnership governing the
Partnership (the "Partnership Agreement") provides for the subscription for and
sale of the Units; all action required to be taken by the General Partner and
the Partnership as a condition to the subscription for and sale of the Units to
qualified Subscribers therefor has been or, prior to the Closing Time referred
to below, will have been taken, and, upon payment of the consideration therefor
specified in the Subscription Agreement, the Units will constitute valid limited
partnership interests in the Partnership, and, on the assumption that the
Limited Partners of the Partnership take no part in the control of the
Partnership's business, the liability of each such Limited Partner will be
limited to the capital contributions which such Limited Partner is obligated to
make to the Partnership (subject to the obligation of a Limited Partner to repay
(i) to the Partnership, to the extent provided under RULPA Section 17-608, for a
period of one year after any rightful return, any part of his capital
contribution rightfully returned to him, but only to the extent necessary to
discharge the Partnership's liabilities to creditors who extended credit to the
Partnership during the period the capital contribution was held by the
Partnership, and (ii) any funds wrongfully returned or distributed to such
Limited Partner), and the Subscribers will be Limited Partners of the
Partnership entitled to all the benefits of Limited Partners under the
Partnership Agreement and the RULPA. There are no provisions in the Partnership
Agreement the inclusion of which, subject to the terms and conditions therein,
shall cause the Limited Partners to be deemed to be taking part in the control
of the Partnership's business.
(c) The Partnership is a limited partnership duly organized
pursuant to the Partnership Agreement and subject to the RULPA and existing
under the laws of the State of Delaware with full power and authority to invest
in the Investments and to conduct the business in which it is engaged or
proposes to engage, as described in the Prospectus.
(d) On the date hereof the General Partner is, and at all times
through the Closing Time referred to below will be, duly and validly organized,
validly existing and in good standing as a corporation under the laws of the
State of Delaware with full power and authority to act as General Partner of the
Partnership, as described in the Prospectus, and at Closing Time either the
General Partner will be qualified to do business as a foreign corporation in New
York and each other jurisdiction in which such qualification is necessary in
order to enable it to act as General Partner of the Partnership, or the failure
so to qualify in any such other jurisdiction will not affect in any material way
the General Partner's ability to so act as General Partner.
(e) The accountants who certified the financial statements of the
Partnership included in the Registration Statement are independent public
accountants as required by the 1933 Act and the Regulations.
(f) The financial statements of the Partnership and the General
Partner included in the Registration Statement present fairly the financial
position of the Partnership and the General Partner as at the dates indicated;
said financial statements have been prepared in conformity with generally
accepted accounting principles applied on a consistent basis; and since the date
of the most recent balance sheets included in the Registration Statement through
the date hereof there has not been, and through the Closing Time referred to
below there will not have been, any material adverse change in the financial
position of the Partnership or the General Partner.
(g) Since December 31, 1997, (i) there has not been any change in
the condition, financial or otherwise, of the General Partner, or in the
earnings, business affairs or business prospects of the General Partner, whether
or not arising in the ordinary course of business, which could materially
adversely affect the ability of the General Partner to carry out its obligations
to the Partnership and (ii) no action, suit or proceeding at law or in equity is
pending or, to the knowledge of the General Partner threatened against or
affecting the General Partner, before or by any governmental official,
commission, board or other administrative agency, which could materially
adversely affect the consummation of this Agency Agreement or the transactions
contemplated hereby.
(h) This Agency Agreement has been duly and validly authorized,
executed and delivered by or on behalf of the Partnership and the General
Partner.
(i) The Partnership Agreement has been duly and validly
authorized, executed and delivered by or on behalf of the General Partner.
(j) The execution and delivery of this Agency Agreement, of each
Subscription Agreement accepted by the General Partner and of the Partnership
Agreement, the incurrence of the obligations herein and therein set forth and
the consummation of the transactions described or contemplated herein and
therein and in the Prospectus will not constitute a breach of, or default under,
any instrument by which the General Partner or the Partnership is bound or any
order, rule or regulation applicable to the General Partner or the Partnership
or the proposed operation of the Partnership, as described in the Prospectus, of
any court or any governmental body or administrative agency having jurisdiction
over the General Partner or the Partnership.
(k) The Partnership is duly registered with the Commission under
the 1940 Act as a closed-end, non-diversified, management investment company.
Section 3. Your Representations and Warranties. You represent and
--------------------------------------
warrant that:
(a) In offering the Units for sale you will not offer the Units
for sale, or solicit any offers to buy any Units, or otherwise negotiate with
any person in respect of the Units, on the basis of any communications or
documents relating to the Units or any investment therein or to the Partnership
or investment therein or to the General Partner, other than the Prospectus, the
Exhibits attached thereto and any other document, and any cover or transmittal
letter, satisfactory in form and substance to the General Partner and counsel
for the General Partner.
(b) You will offer the Units for sale, or solicit offers to buy
the Units, or otherwise negotiate with any person with respect to any Units,
only as your counsel advise is in compliance with the securities or "blue sky"
laws of the jurisdictions designated by you in accordance with the provisions of
Section 5 hereof, which advice of your counsel (which shall not be understood to
constitute an opinion of law) may be based upon an examination of the statutes
and regulations, if any, of such jurisdictions as reported in standard
compilations and upon interpretive advice obtained from representatives of
certain securities commissions.
(c) You will offer the Units for sale in compliance with the
requirements as to suitability set forth in Section (b)(2), and as to disclosure
set forth in Section (b)(3), of Conduct Rule 2810 of the National Association of
Securities Dealers, Inc.
Section 4. Offering and Sale of Units; Closing Time.
----------------------------------------
(a) All funds debited from Subscribers' securities accounts
maintained by you will be placed promptly in the escrow account maintained by
The Bank of New York, as Escrow Agent. In the event the offering of the Units is
commenced by you and subscriptions for at least 75,000 Units shall not have been
received by the Offering Termination Date, all funds received from Subscribers
(if any) shall be returned in full and without interest or deduction of any fee
or expenses; and your agency and this Agency Agreement shall terminate without
obligation on your part or on the part of the General Partner or the
Partnership, except as provided in Section 6 hereof and except that the
indemnification provided in Section 8 hereof shall continue after such
termination of this Agency Agreement.
(b) If on or prior to the Offering Termination Date at least
75,000 Units have been subscribed for and the conditions described in Section 7
hereof are satisfied or waived and the General Partner elects to admit the
Subscribers for Units as Limited Partners of the Partnership, then, on the third
full business day (or such longer time as you and the General Partner may agree
upon) after the earlier to occur of (i) the Offering Termination Date; or (ii)
receipt of subscriptions for all 500,000 Units, payment of the purchase price
for the Units for which you have found Subscribers, and delivery, with respect
to each Subscriber for Units, of a copy of the Subscription Agreement signed by
such Subscriber, shall be made at the office of Brown & Wood LLP, One World
Trade Center, New York, New York, or at such other place as shall be agreed upon
between you and the Partnership, at 10:00 A.M., New York time (the "Closing
Time"), provided, however, that, without regard to the date on which the Closing
Time occurs, you will provide the General Partner with the opportunity to review
and, in its sole discretion, to reject each Subscription Agreement not later
than 3 days after the date of such Subscription Agreement.
(c) Units may be offered to any investor who tenders the amount
of the purchase price and who makes the representation that he or she is a
Qualified Investor, as described in the Prospectus.
(d) You shall maintain for five years from the offering
Termination Date a record of any information which may be obtained by you to
indicate that each Subscriber for Units is within a permitted class of investors
under the requirements of Section 4(c).
(e) You recognize and agree that the desirability of the offering
and sale of Units to, and the purchase of Units by, Qualified Investors who are
in your employ is adequate and sufficient compensation for your services.
Section 5. Covenants of the General Partner and the Partnership. The
------------------------------------------------------
General Partner and the Partnership each covenants with you that:
(a) They will notify you immediately of, and confirm in writing
forthwith, (i) the effectiveness of the Registration Statement and any amendment
thereto, (ii) the receipt of any comments from the Commission, (iii) any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information, and
(iv) the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or of any proceedings for that
purpose. They will make every reasonable effort to prevent the issuance of any
stop order and, if any such stop order is issued, to obtain the lifting thereof
at the earliest possible moment.
(b) They will not file any amendments to the Registration
Statement or any amendment or supplement to the Prospectus (including a
prospectus filed pursuant to Rule 497(b) or (d) which differs from the
prospectus on file at the time the Registration Statements become effective) to
which you or your counsel shall object.
(c) They will deliver to you as many signed copies of the
Registration Statement as originally filed and of each amendment thereto
(including exhibits) as you may reasonably request and will also deliver to you
such number of conformed copies of the Registration Statement as originally
filed and of each amendment thereto (without exhibits) as you shall require for
the purposes contemplated by the 1933 Act and the 1940 Act.
(d) They will deliver to you from time to time, before the
Registration Statement becomes effective, such number of copies of the
preliminary prospectus as originally filed and any amended preliminary
prospectus, and as soon as the Registration Statement initially becomes
effective and thereafter from time to time during the period when the Prospectus
is required to be delivered under the 1933 Act, such number of copies of the
Prospectus (as amended or supplemented) as you may reasonably request for the
purposes contemplated by the 1933 Act or the Regulations and the 1940 Act and
such number of copies of the Subscription Agreement, Partnership Agreement and
the Certificate of Limited Partnership as you may reasonably request.
(e) During the period when the Prospectus is required to be
delivered pursuant to the 1933 Act, the Partnership and the General Partner will
comply, so far as they are able, with all requirements imposed upon them by the
1933 Act, as now and hereafter amended, and by the Regulations, as from time to
time in force, so far as necessary to permit the continuance of sales of, or
dealings in, the Units during such period in accordance with the provisions
hereof and as set forth in the Prospectus.
(f) If any event relating to or affecting the Partnership, the
General Partner, or the proposed operation of the Partnership or Investments as
described in the Prospectus shall occur as a result of which it is necessary, in
the opinion of your counsel, to amend or supplement the Prospectus in order to
make the Prospectus not misleading in the light of the circumstances existing at
the time it is delivered to a Subscriber, the Partnership and the General
Partner will forthwith prepare and furnish to you a reasonable number of copies
of an amendment or amendments of or a supplement or supplements to the
Prospectus (in form and substance satisfactory to your counsel) which will amend
or supplement the Prospectus so that, as amended or supplemented, it will not
contain an untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light of the
circumstances existing at the time the Prospectus is delivered to a Subscriber,
not misleading. For the purposes of this subsection the Partnership and the
General Partner will furnish such information with respect to themselves and the
Investments as you may from time to time reasonably request.
(g) The Partnership and the General Partner will endeavor in good
faith, in cooperation with you, to qualify the sale of the Units for offering
and sale under the applicable securities or "blue sky" laws of such
jurisdictions as they may designate (provided, however, that neither the General
Partner nor the Partnership will be obligated to file any general consent to
service of process or to qualify to do business or to qualify as a securities
dealer in any jurisdiction in which they are not so qualified), and will
maintain such qualifications in effect for as long as may be required for the
distribution of the Units. In each jurisdiction where the Units shall have been
qualified as above provided, the Partnership or the General Partner will make
and file such statements and reports in each year as are or may be required by
the laws of such jurisdiction.
(h) The Partnership and the General Partner will, so long as any
Units remain outstanding, furnish directly to you the following:
(i) As soon as practicable after the end of each fiscal
year, one copy of the Partnership's annual report, including
therein the accountant's report, the balance sheet, the
related statements of profit and loss and changes in
financial position, together with such accountants' comments
and notations with respect thereto in such detail as the
Partnership may customarily receive from such accountants;
(ii) copies of any report, application or documents
which the Partnership shall file with the Commission; and
(iii) as soon as the same shall be sent to holders of
Units, each communication which shall be or is required to
be sent to the holders of Units, including any other annual
or interim report of the Partnership.
(i) They will deliver to you, from time to time, all supplemental
sales material (whether designated solely for broker-dealer use or otherwise)
proposed to be used or delivered by the Partnership in connection with the
offering of Units, prior to the use or delivery to third parties of such
material, and they will not use or deliver any such material to which you shall
object or which shall be disapproved by your counsel; provided, however, that
your failure to object shall in no event be deemed an approval of any such
material.
Section 6. Payment of Expenses and Fees.
----------------------------
(a) Whether the offering of the Units is ever commenced or, if
commenced, whether such offering is terminated for any reason or the sale of the
Units is consummated (x) the Partnership shall pay your expenses in connection
with the offering and sale of the Units, including, without limitation, your
travel expenses, overhead expenses and direct personnel costs and the fees of
your counsel; and (y) the Partnership will pay its similar expenses in
connection with the offering and sale of Units and the fees and disbursements of
its counsel and accountants. The Partnership will also pay all of (i) the
expenses (including those incurred by you or your counsel) of preparing,
printing and filing the Registration Statement and the Prospectus and all
preliminary drafts thereof and any amendments thereof or supplements thereto and
of the distribution thereof (including, without limitation, all of your mailing
and private courier expenses in connection with the distribution of the
Prospectus and the delivery or redelivery to you or the General Partner of the
Prospectus in connection with the offer and sale of the Units), (ii) the
expenses of qualifying the offers made in the Prospectus and the sales of the
Units under, or the establishment of the exemption of such offers or sales
under, the securities or "blue sky" laws of the jurisdictions to be designated
by you, including, without limitation, filing fees and the fees and
disbursements of your counsel incurred in connection therewith, (iii) in the
event that you, or you and the General Partner, enter into an escrow deposit
agreement, or similar arrangement, providing for the deposit in escrow of the
purchase price, in whole or in part, of the Units, all of the fees and expenses
in connection therewith, (iv) all accounting and legal fees and expenses and (v)
all other expenses in connection with the offering of the Units. In the event
that the organizational and offering expenses payable by the Partnership exceeds
1.5% of the proceeds of the offering, the General Partner will bear all expenses
in excess of 1.5% of such proceeds.
(b) If this Agency Agreement is cancelled by you in accordance
with the provisions of Section 7(h), the General Partner shall reimburse you for
all your out-of-pocket expenses, including the fees, disbursements and expenses
of your counsel, and you shall have no liability to the General Partner
hereunder.
Section 7. Conditions to Your Obligations. Your obligations hereunder
------------------------------
are subject to the accuracy of and compliance with the representations and
warranties of the General Partner and the Partnership; to the performance by the
General Partner and the Partnership of their respective obligations hereunder;
and to the following further conditions:
(a) The Registration Statement shall initially become effective
not later than 5:30 P.M., New York City time, not later than two business days
following the date hereof, or, with your consent, at such later time and date as
may be approved by you; at Closing Time no stop order suspending the
effectiveness thereof shall have been issued under the 1933 Act or proceeding
therefor initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been complied
with to your reasonable satisfaction.
(b) At Closing Time you shall receive the opinion of Brown & Wood
LLP, counsel for the General Partner, to the effect that the representations and
warranties of the General Partner and the Partnership in Sections 2(b), (c),
(d), (h), (i) and (k) and, to the best of such counsel's knowledge, 2(k) are, to
the extent that they are statements of law or legal conclusions, true and
correct and to the further effect that:
(i) No authorization, approval or consent of any
governmental authority or agency is necessary in connection
with the offer or sale of the Units, except such as may be
required under state or Federal securities or "blue sky"
laws and such as have already been received;
(ii) The terms and provisions of the Subscription
Agreement and the Partnership Agreement conform in all
material respects to the descriptions thereof contained in
the Prospectus;
(iii) The Partnership is duly formed and validly
existing as a limited partnership under the RULPA; and
(iv) Nothing has come to such counsel's attention that
would lead such counsel to believe that the Prospectus or
any supplemental sales material supplied to you pursuant to
Section 5(i) hereof (when read in conjunction with the
Prospectus) at the commencement of the Offering Period or at
Closing Time contained an untrue statement of a material
fact or omitted to state a material fact necessary in order
to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(c) At Closing Time the Partnership shall have received the
opinion of Brown & Wood LLP, special tax counsel, dated as of the Closing Time,
substantially in the form attached as Exhibit (n)(ii) to the Registration
Statement, together with a letter stating that you may rely upon such opinion as
if it were addressed to you.
(d) At Closing Time you shall receive a survey, addressed to you
and the General Partner and the Partnership, prepared by Brown & Wood LLP and
relating to the securities or "blue sky" laws of the jurisdictions designated by
you in accordance with the provisions of Section 5, indicating that the
appropriate "blue sky" action, if any, was taken in each of such jurisdictions.
Such survey (which shall not be understood to constitute an opinion of law) may
be based upon an examination of the statutes and regulations, if any, of such
jurisdictions as reported in standard compilations and upon interpretive advice
obtained from representatives of certain securities commissions.
(e) At the Closing Time you shall receive a certificate signed by
the President or a Vice President of the General Partner to the effect that (i)
the signer has examined the Prospectus and the supplemental sales material
supplied to you pursuant to Section 5(i) hereof and, in the signer's opinion, at
all times from the commencement of the offering Period to the Closing Time the
Prospectus and such supplemental sales literature (when read in conjunction with
the Prospectus) did not contain an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
(ii) the representations and warranties contained in Section 2 hereof are true
and correct at the Closing Time with the same effect as though expressly made at
such Closing Time.
(f) At or prior to the Closing Time your counsel shall have been
furnished with such documents as they may reasonably require for the purpose of
enabling them to pass upon the sale of the Units being sold at the Closing Time
as herein contemplated and related proceedings and in order to evidence the
accuracy or completeness of any of the representations or warranties or the
fulfillment of any of the conditions herein contained; and all actions taken by
the General Partner or its affiliates and the Partnership in connection with the
offering and sale of such Units, as herein contemplated, shall be satisfactory
in form and substance to you and your counsel.
(g) If any of the conditions specified in this Section 7 shall
not have been fulfilled when and as required by this Agency Agreement to be
fulfilled, this Agency Agreement and all your obligations hereunder may be
cancelled by you by notifying the General Partner, in writing or by telegram, of
such cancellation, specifying the conditions which have not been fulfilled, at
any time at or prior to Closing Time, and any such cancellation shall be without
liability of any party to any other party except as otherwise provided in
Section 6 hereof.
Section 8. Indemnification.
---------------
(a) The General Partner agrees to indemnify and hold harmless
you, and each person, if any, who controls you within the meaning of Section 15
of the 1933 Act, as follows:
(i) against any and all loss, liability, claim, damage
and expense whatsoever arising out of any untrue statement
or alleged untrue statement of a material fact contained in
the Registration Statement or the Prospectus or any
supplemental sales material supplied to you pursuant to
Section 5(i) hereof (when read in conjunction with the
Prospectus) or the omission or alleged omission therefrom of
a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they
were made, not misleading, unless such untrue statement or
omission, or alleged untrue statement or omission, was made
in reliance upon and in conformity with written information
furnished to the General Partner by you expressly for use in
the Registration Statement, Prospectus or supplemental sales
material;
(ii) against any and all loss, liability, claim, damage
and expense whatsoever to the extent of the aggregate amount
paid in settlement of any litigation or investigation or
proceeding by any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any such
untrue statement or omission or any such alleged untrue
statement or omission, if such settlement is effected with
the written consent of the General Partner and the
Partnership; and
(iii) against any and all expense whatsoever (including
the fees and disbursements of counsel chosen by you)
reasonably incurred in investigating, preparing or defending
against any litigation or investigation or proceeding by any
governmental agency or body, commenced or threatened, or any
claim whatsoever based upon any such untrue statement or
omission, or any such alleged untrue statement or omission,
to the extent that any such expense is not paid under clause
(i) or (ii) above. The foregoing indemnity agreement is
subject to the condition that, insofar as it relates to any
untrue statement, alleged untrue statement, omission or
alleged omission made in a preliminary prospectus or in the
Prospectus or in any supplemental sales material, it shall
not inure to your benefit or to the benefit of any person
who controls you if you failed to send or give a copy of the
Prospectus (as amended or supplemented, if the Partnership
shall have furnished any amendment or supplement thereto to
you, which shall correct such untrue statement or omission
which is the basis of the loss, liability, claim, damage or
expense for which indemnification is sought) to the person
asserting any such loss, liability, claim, damage or expense
prior to or together with any such supplemental sales
material and the written confirmation of the receipt of a
subscription for Units from such person or at such other
time as the Prospectus, as so amended or supplemented, is
required under the 1933 Act to be delivered by you to such
person. The General Partner agrees to notify you within a
reasonable time of the assertion of any claim in connection
with the sale of the Units against it or any of them, any of
their officers or directors or any of them, any of their
officers or directors or any person who controls the
Partnership or the General Partner within the meaning of
Section 15 of the 1933 Act.
(b) You agree to indemnify and hold harmless the General Partner
and the Partnership and each person who controls either of them within the
meaning of Section 15 of the 1933 Act against any and all loss, liability,
claim, damage and expense described in Section 8(a), but only with respect to
untrue statements or omissions contained in the Registration Statement or
Prospectus or any supplemental sales material supplied to you pursuant to
Section 5(i) (when read in conjunction with the Prospectus) made in reliance
upon and in conformity with written information furnished to the General Partner
by you for use in the Registration Statement, Prospectus or such supplemental
sales literature.
(c) In no case shall an indemnifying party be liable under this
indemnity agreement with respect to any claim made against an indemnified party
unless such indemnifying party shall be notified in writing (as provided in
Section 10) of the nature of the claim within a reasonable time after the
assertion thereof, but failure so to notify such indemnifying party shall not
relieve them from any liability which they may have otherwise than on account of
this indemnity agreement.
Section 9. Representations, Warranties and Agreements to Survive
----------------------------------------------------------
Closing Time. All representations, warranties and agreements contained in this
- ------------
Agency Agreement or contained in certificates of the General Partner or you
submitted pursuant hereto shall remain operative and in full force and effect,
regardless of any investigation made by or on behalf of you or any person who
controls you, or by or on behalf of the General Partner or the Partnership, and
shall survive Closing Time.
Section 10. Effective Date of this Agreement and Termination Thereof.
--------------------------------------------------------
(a) This Agreement shall become effective (i) at 5:30 P.M., New
York City time, on the day on which the Registration Statement initially became
effective, or (ii) at the time of the initial public offering by you, after the
Registration Statement initially becomes effective, of the Units, whichever
shall first occur. The time of the initial public offering shall mean the time
of the release by you, for publication, of the first newspaper advertisement
which is subsequently published, relating to the Units or the time at which the
Units are first generally offered by you to dealers or Subscribers by letter or
telegram, whichever shall first occur.
(b) You shall have the right to terminate this Agreement by
giving the notice indicated below in this Section 10 at any time at or prior to
any Closing Time (i) if there shall have been, since the respective dates of
which information is given in the Registration Statement, the Prospectus and any
supplemental sales material supplied to you pursuant to Section 5(i) hereof, any
change in the condition of the Partnership or the General Partner, financial or
otherwise, or in the earnings, business affairs, or business prospects of the
Partnership or the General Partner, whether or not arising in the ordinary
course of business, which could materially adversely affect the Partnership or
the ability of the General Partner to carry out its obligations to the
Partnership, (ii) if there shall have occurred any outbreak of hostilities or
other national or international calamity or crisis, the effect of such outbreak,
calamity or crisis on the financial markets of the United States being such as
in your judgement would make the offering or delivery of the Units
impracticable, or (iii) if trading on the New York Stock Exchange shall have
been suspended, or minimum or maximum ranges for prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been required
on such Exchange, or if a banking moratorium shall have been declared by either
Federal or New York authorities. If you terminate this Agreement as provided in
this Section 10, such termination shall be without liability of any party to any
other party except as otherwise provided in Section 6.
(c) If you elect to terminate this Agency Agreement as provided
in this Section 10, you shall promptly notify the Partnership, by telephone or
telegram, confirmed by letter.
Section 11. Notices and Authority to Act. All communications herein
-----------------------------
shall be in writing and, if sent to you, shall be mailed, delivered or
telegraphed and confirmed to you at Merrill Lynch World Headquarters, North
Tower, 27th floor, World Financial Center, New York, New York 10281-1327,
Attention of Mr. John L. Steffens, or, if sent to the General Partner or the
Partnership, shall be delivered or telegraphed and confirmed to either of them
at Merrill Lynch World Headquarters, South Tower, 23rd floor, World Financial
Center, New York, New York 10080-6123, Attention of Mr. Robert F. Tully.
Section 12. Parties. This Agency Agreement shall inure to the benefit
-------
of and be binding upon you and the General Partner and the Partnership and your
and the General Partner's and the Partnership's respective successors, this
Agency Agreement and the conditions and provisions hereof being intended to be
and being for the sole and exclusive benefit of the parties hereto and their
respective successors and controlling persons and for the benefit of no other
person, firm or corporation.
Section 13. Governing Law. This Agreement will be governed by the laws
-------------
of the State of New York.
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us a counterpart hereof, whereupon this
instrument along with all counterparts will become a binding agreement among
you, the General Partner and the Partnership.
Very truly yours,
KECALP INC.
By:__________________________________________
(Authorized Signature)
MERRILL LYNCH KECALP L.P. 1999
By: KECALP INC.
General Partner
By:__________________________________________
(Authorized Signature)
Confirmed and Accepted
as of the date first above written:
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By:________________________________________
(Authorized Signature)
- --------------------------------------------------------------------------------
ESCROW AGREEMENT
among
Merrill Lynch, Pierce, Fenner & Smith Incorporated
as Depositor-Agent
and
Merrill Lynch KECALP L.P. 1999
the Issuer-Partnership
and
THE BANK OF NEW YORK
as Escrow Agent
Dated as of ____________, 1998
ACCOUNT NUMBER(S) ________
SHORT TITLE OF ACCOUNT Merrill Lynch KECALP L.P. 1999
------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ESCROW AGREEMENT made this ___ day of ________, 1998 by and among THE
BANK OF NEW YORK ("Escrow Agent") and Merrill Lynch, Pierce, Fenner & Smith
Incorporated (the "Depositor-Agent") and Merrill Lynch KECALP L.P. 1999 (the
"Issuer Partnership").
The Depositor-Agent and Escrow Agent hereby agree that, in
consideration of the mutual promises and covenants contained herein Escrow Agent
shall hold in escrow and shall distribute Escrow Property (as defined herein) in
accordance with and subject to the following Instructions and Terms and
Conditions:
I. INSTRUCTIONS
1. ESCROW PROPERTY
The property and/or funds deposited or to be deposited with Escrow
Agent by the Depositor-Agent shall be as follows:
Cash payments received from subscribers of up to 500,000 units of
limited partnership interest (the "Units") in Merrill Lynch KECALP L.P.
1999 (the "Issuer-Partnership") at a price of $1,000 each to certain
employees and directors of Merrill Lynch and Co., Inc. and of its
subsidiaries. (Subscribers' checks will be made payable to Escrow
Agent, and broker/dealers will transmit such checks directly to Escrow
Agent by 12:00 noon of the next business day after receipt.)
The foregoing property and/or funds, plus all interest, dividends and
other distributions and payments thereon (collectively the
"Distributions") received by Escrow Agent, less any property and/or
funds distributed or paid in accordance with this Escrow Agreement, are
collectively referred to herein as "Escrow Property."
2. INVESTMENT OF ESCROW PROPERTY
The Depositor-Agent is to select one of the following options, initial
the option selected and, if "(b)" is selected, insert the appropriate
information.
(a) Escrow Agent shall have no obligation to pay interest on
or to invest or reinvest any Escrow Property deposited or
received hereunder.
(b) Escrow Agent shall invest or reinvest Escrow Property,
without distinction between principal and income, in
accordance with the following (escrowed funds will be invested
only in investments permissible under SEC Rule 15c2-4):
The Bank of New York's Depository Reserve, until further
instruction.
Escrow Agent shall have no liability for any loss arising from
or related to any such investment other than in accordance
with paragraph 4 of the Terms and Conditions.
3. DISTRIBUTION OF ESCROW PROPERTY
Escrow Agent is directed to hold and distribute the Escrow Property in
the following manner:
At the closing time of the offering ("Closing Time"), Escrow Agent
shall apply the cash representing collected funds then being held by
Escrow Agent as part of the escrow fund for the account of the
subscribers with respect to whose purchase of Units such Closing is
being held, in accordance with the written direction of the
Depositor-Agent, at which time such amounts so applied shall no longer
be a deposit under this Agreement. In the event that funds have been
invested on behalf of such subscribers pursuant to paragraph (2),
Escrow Agent shall, within ten days after each Closing Time, return to
the Depositor-Agent, on behalf of such subscribers, the interest earned
thereon.
4. ADDRESSES
Notices, instructions and other communications shall be sent to Escrow
Agent, Corporate Trust Department, 101 Barclay Street - 12th Floor, New
York, New York 10286, and to Depositor-Agent as follows:
Merrill Lynch KECALP L.P. 1999
c/o KECALP, Inc.
World Financial Center
South Tower- 23rd Floor
New York, New York 10080-6123
Attention: Mr. Robert F. Tully
5. Distribution of Escrow Property Upon Termination
Upon termination of this Escrow Agreement, Escrow Property then held
hereunder shall be distributed as follows:
In the event that (a) on or before March 1, 1999 either (i) no Closing
contemplated by paragraph (3) shall have been consummated or (ii) as to
any subscriber, Escrow Agent shall have been advised in writing by the
Depositor-Agent that all conditions precedent to a Closing as to such
subscriber have not been satisfied, or (b) as to any subscriber, the
Issuer-Partnership shall have determined to reduce such subscriber's
subscription, then the Depositor-Agent shall promptly so advise in
writing Escrow Agent and authorize and direct in writing Escrow Agent
to return as promptly as practicable (i) in the case of the event
described in (a)(i), the Escrow Property to the Depositor-Agent for the
accounts of all of the subscribers, or (ii) in the case of an event
described in (a)(ii), the Escrow Property to the Depositor-Agent for
the accounts of such subscribers with respect to whom Escrow Agent
shall have received such written advice or whose subscriptions have
been reduced, as the case may be. In each case Escrow Agent shall so
return such funds with the interest earned on such funds.
In the event that (a) the Closing or Closings in accordance with
paragraph (3) above shall have been consummated with respect to all
subscribers, or (b) the amounts paid by or for the account of all named
subscribers to the Depositor-Agent and deposited with Escrow Agent
shall have been repaid to the Depositor-Agent on behalf of such
respective persons without deduction (other than as provided in
paragraph (6) below) and with or without interest by Escrow Agent as
provided in this paragraph, then, as to all such named subscribers,
Escrow Agent shall be relieved of all liabilities in connection with
the escrow deposits provided for herein with respect to all such
subscribers.
In any event, the obligations and liabilities of Escrow Agent hereunder
will terminate on the date which is fifteen business days after the
Closing Date and as to any amounts remaining in the escrow fund Escrow
Agent shall be entitled to refrain from taking any action until it has
been directed otherwise in writing by the Depositor-Agent, or by a
final judgment of a court of competent jurisdiction.
6. COMPENSATION
(a) At the time of execution of this Escrow Agreement, the
Depositor-Agent shall pay Escrow Agent an acceptance fee of $_______
plus 5% of the income earned while the account is in escrow.
(b) The Depositor-Agent shall pay an investment transaction fee of
$25.00 for each purchase or sale of a security (other than money market
securities) made by Escrow Agent hereunder.
(c) The Depositor-Agent shall be responsible for and shall reimburse
Escrow Agent upon demand for all expenses, disbursements and advances
incurred or made by Escrow Agent in connection with this Agreement.
II. TERMS AND CONDITIONS
1. The duties, responsibilities and obligations of Escrow Agent shall be
limited to those expressly set forth herein and no duties,
responsibilities or obligations shall be inferred or implied. Escrow
Agent shall not be subject to, nor required to comply with, any other
agreement to which any Depositor-Agent is a party, even though
reference thereto may be made herein, or to comply with any direction
or instruction (other than those contained herein or delivered in
accordance with this Escrow Agreement) from the Depositor-Agent or any
entity acting on its behalf. Escrow Agent shall not be required to, and
shall not, expend or risk any of its own funds or otherwise incur any
financial liability in the performance of any of its duties hereunder.
2. This Agreement is for the exclusive benefit of the parties hereto and
their respective successors hereunder, and shall not be deemed to give,
either express or implied, any legal or equitable right, remedy, or
claim to any other entity or person whatsoever.
3. If at any time Escrow Agent is served with any judicial or
administrative order, judgment, decree, writ or other form of judicial
or administrative process which in any way affects Escrow Property
(including but not limited to orders of attachment or garnishment or
other forms of levies or injunctions or stays relating to the transfer
of Escrow Property), Escrow Agent is authorized to comply therewith in
any manner as it or its legal counsel of its own choosing deems
appropriate; and if Escrow Agent complies with any such judicial or
administrative order, judgment, decree, writ or other form of judicial
or administrative process, Escrow Agent shall not be liable to any of
the parties hereto or to any other person or entity even though such
order, judgment, decree, writ or process may be subsequently modified
or vacated or otherwise determined to have been without legal force or
effect.
4. (a) Escrow Agent shall not be liable for any action taken or omitted or
for any loss or injury resulting from its actions or its performance or
lack of performance of its duties hereunder in the absence of gross
negligence or willful misconduct on its part. In no event shall Escrow
Agent be liable (i) for acting in accordance with or relying upon any
instruction, notice, demand, certificate or document from the
Depositor-Agent or any entity acting on behalf of the Depositor-Agent,
(ii) for any consequential, punitive or special damages, (iii) for the
acts or omissions of its nominees, correspondents, designees, subagents
or subcustodians, or (iv) for an amount in excess of the value of the
Escrow Property, valued as of the date of deposit.
(b) If any fees, expenses or costs incurred by, or any obligations owed
to, Escrow Agent hereunder are not promptly paid when due, Escrow Agent
may reimburse itself therefor from the Escrow Property and may sell,
convey or otherwise dispose of any Escrow Property for such purpose.
(c) As security for the due and punctual performance of any and all of
Depositor-Agent's obligations to Escrow Agent hereunder, now or
hereafter arising, Depositor-Agent hereby pledges, assigns and grants
to Escrow Agent a continuing security interest in and a lien on, the
Escrow Property and all Distributions thereon or additions thereto
(whether such additions are the result of deposits by Depositor-Agent
or the investment of Escrow Property). The security interest of Escrow
Agent shall at all times be valid, perfected and enforceable by Escrow
Agent against Depositor-Agent and all third parties in accordance with
the terms of this Escrow Agreement.
(d) Escrow Agent may consult with legal counsel at the expense of the
Depositor-Agent as to any matter relating to this Escrow Agreement, and
Escrow Agent shall not incur any liability in acting in good faith in
accordance with any advice from such counsel.
(e) Escrow Agent shall not incur any liability for not performing any
act or fulfilling any duty, obligation or responsibility hereunder by
reason of any occurrence beyond the control of Escrow Agent (including
but not limited to any act or provision of any present or future law or
regulation or governmental authority, any act of God or war, or the
unavailability of the Federal Reserve Bank wire or telex or other wire
or communication facility).
5. Unless otherwise specifically set forth herein, Escrow Agent shall
proceed as soon as practicable to collect any checks or other
collection items at any time deposited hereunder. All such collections
shall be subject to Escrow Agent's usual collection practices or terms
regarding items received by Escrow Agent for deposit or collection.
Escrow Agent shall not be required, or have any duty, to notify anyone
of any payment or maturity under the terms of any instrument deposited
hereunder, nor to take any legal action to enforce payment of any
check, note or security deposited hereunder or to exercise any right or
privilege which may be afforded to the holder of any such security.
6. Escrow Agent shall provide to the Depositor-Agent monthly statements
identifying transactions, transfers or holdings of Escrow Property and
each such statement shall be deemed to be correct and final upon
receipt thereof by the Depositor-Agent unless Escrow Agent is notified
in writing to the contrary within thirty (30) business days of the date
of such statement.
7. Escrow Agent shall not be responsible in any respect for the form,
execution, validity, value or genuineness of documents or securities
deposited hereunder, or for any description therein, or for the
identity, authority or rights of persons executing or delivering or
purporting to execute or deliver any such document, security or
endorsement.
8. Notices, instructions or other communications shall be in writing and
shall be given to the address set forth in the "Addresses" provision
herein (or to such other address as may be substituted therefor by
written notification to Escrow Agent or the Depositor-Agent). Notices
to Escrow Agent shall be deemed to be given when actually received by
Escrow Agent's Corporate Trust Department. Escrow Agent is authorized
to comply with and rely upon any notices, instructions or other
communications believed by it to have been sent or given by the
Depositor-Agent or by a person or persons authorized by the
Depositor-Agent. Whenever under the terms hereof the time for giving a
notice or performing an act falls upon a Saturday, Sunday, or banking
holiday, such time shall be extended to the next day on which Escrow
Agent is open for business.
9. The Depositor-Agent shall be liable for and shall reimburse and
indemnify Escrow Agent and hold Escrow Agent harmless from and against
any and all claims, losses, liabilities, costs, damages or expenses
(including reasonable attorneys' fees and expenses) (collectively,
"Losses" ) arising from or in connection with or related to this Escrow
Agreement or being Escrow Agent hereunder (including but not limited to
Losses incurred by Escrow Agent in connection with its successful
defense, in whole or in part, of any claim of gross negligence of
willful misconduct on its part), provided, however, that nothing
-------- -------
contained herein shall require Escrow Agent to be indemnified for
Losses caused by its gross negligence or willful misconduct.
10. (a) The Depositor-Agent may remove Escrow Agent at any time by giving
to Escrow Agent thirty (30) calendar days prior notice in writing
signed by the Depositor-Agent. Escrow Agent may resign at any time by
giving to the Depositor-Agent fifteen (15) calendar days prior written
notice thereof.
(b) Within ten (10) calendar days after giving the foregoing notice of
removal to Escrow Agent or receiving the foregoing notice of
resignation from Escrow Agent, the Depositor-Agent shall appoint a
successor Escrow Agent. If a successor Escrow Agent has not accepted
such appointment by the end of such 10-day period, Escrow Agent may, in
its sole discretion, deliver the Escrow Property to the Depositor-Agent
at the address provided herein or may apply to a court of competent
jurisdiction for the appointment of a successor Escrow Agent or for
other appropriate relief. The costs and expenses (including reasonable
attorneys' fees and expenses) incurred by Escrow Agent in connection
with such proceeding shall be paid by, and be deemed an obligation of,
the Depositor-Agent.
(c) Upon receipt of the identity of the successor Escrow Agent, Escrow
Agent shall either deliver the Escrow Property then held hereunder to
the successor Escrow Agent, less Escrow Agent's fees, costs and
expenses or other obligations owed to Escrow Agent, or hold such Escrow
Property (or any portion thereof), pending distribution, until all such
fees, costs and expenses or other obligations are paid.
(d) Upon delivery of the Escrow Property to successor Escrow Agent,
Escrow Agent shall have no further duties, responsibilities or
obligations hereunder.
11. (a) In the event of any ambiguity or uncertainty hereunder or in any
notice, instruction or other communication received by Escrow Agent
hereunder, Escrow Agent may, in its sole discretion, refrain from
taking any action other than retain possession of the Escrow Property,
unless Escrow Agent receives written instructions, signed by the
Depositor-Agent, which eliminates such ambiguity or uncertainty.
(b) In the event of any dispute between or conflicting claims between
the Depositor-Agent and the Issuer-Partnership and/or any other person
or entity with respect to any Escrow Property, Escrow Agent shall be
entitled, in its sole discretion, to refuse to comply with any and all
claims, demands or instructions with respect to such Escrow Property so
long as such dispute or conflict shall continue, and Escrow Agent shall
not be or become liable in any way to the Depositor-Agent for failure
or refusal to comply with such conflicting claims, demands or
instructions. Escrow Agent shall be entitled to refuse to act until, in
its sole discretion, either (i) such conflicting or adverse claims or
demands shall have been determined by a final order, judgment or decree
of a court of competent jurisdiction, which order, judgment or decree
is not subject to appeal, or settled by agreement between the
conflicting parties as evidenced in a writing satisfactory to Escrow
Agent or (ii) Escrow Agent shall have received security or an indemnity
satisfactory to it sufficient to hold it harmless from and against any
and all Losses which it may incur by reason of so acting. Escrow Agent
may, in addition, elect, in its sole discretion, to commence an
interpleader action or seek other judicial relief or orders as it may
deem in its sole discretion necessary. The costs and expenses
(including reasonable attorneys' fees and expenses) incurred in
connection with such proceeding shall be paid by, and shall be deemed
an obligation of, the Depositor-Agent.
12. This Agreement shall be interpreted, construed, enforced and
administered in accordance with the internal substantive laws (and not
the choice of law rules) of the State of New York. The Depositor-Agent
hereby submits to the personal jurisdiction of and agrees that all
proceedings relating hereto shall be brought in courts located within
the City and State of New York or elsewhere as Escrow Agent may select.
The Depositor-Agent hereby waives the right to trial by jury and to
assert counterclaims in any such proceedings. To the extent that in any
jurisdiction the Depositor-Agent may be entitled to claim, for itself
or its assets, immunity from suit, execution, attachment (whether
before or after judgment) or other legal process, each hereby
irrevocably agrees not to claim, and hereby waives, such immunity. The
Depositor-Agent waives personal service of process and consents to
service of process by certified or registered mail, return receipt
requested, directed to it at the address last specified for notices
hereunder, and such service shall be deemed completed ten (10) calendar
days after the same is so mailed.
13. Except as otherwise permitted herein, this Escrow Agreement may be
modified only by a written amendment signed by all the parties hereto,
and no waiver of any provision hereof shall be effective unless
expressed in a writing signed by the party to be charged.
14. The rights and remedies conferred upon the parties hereto shall be
cumulative, and the exercise or waiver of any such right or remedy
shall not preclude or inhibit the exercise of any additional rights or
remedies. The waiver of any right or remedy hereunder shall not
preclude the subsequent exercise of such right or remedy.
15. The Depositor-Agent hereby represents and warrants (a) that this Escrow
Agreement has been duly authorized, executed and delivered on its
behalf and constitutes a legal, valid and binding obligation and (b)
that the execution, delivery and performance of this Escrow Agreement
by the Depositor-Agent do not and will not violate any applicable law
or regulation.
16. The invalidity, illegality or unenforceability of any provision of this
Agreement shall in no way affect the validity, legality or
enforceability or any other provision; and if any provision is held to
be enforceable as a matter of law, the other provisions shall not be
affected thereby and shall remain in full force and effect.
17. This Agreement shall constitute the entire agreement of the parties
with respect to the subject matter and supersedes all prior oral or
written agreements in regard thereto.
18. This Agreement shall terminate upon the distribution of all Escrow
Property from the Account. The provisions of these Terms and Conditions
shall survive termination of this Escrow Agreement and/or the
resignation or removal of Escrow Agent.
19. No printed or other material in any language, including prospectuses,
notices, reports, and promotional material which mentions "The Bank of
New York" by name or the rights, powers, or duties of Escrow Agent
under this Agreement shall be issued by any other parties hereto, or on
such party's behalf, without the prior written consent of Escrow Agent.
20. The headings contained in this Agreement are for convenience of
reference only and shall have no effect on the interpretation or
operation hereof.
21. This Escrow Agreement may be executed by each of the parties hereto in
any number of counterparts, each of which counterpart, when so executed
and delivered shall be deemed to be an original and all such
counterparts shall together constitute one and the same agreement.
22. This Escrow Agreement expressly sets forth all the duties of Escrow
Agent with respect to any and all matters pertinent hereto. No implied
duties or obligations shall be read into this Agreement against Escrow
Agent. Escrow Agent shall not be bound by the provisions of any
agreement among the other parties hereto except this Escrow Agreement.
23. Escrow Agent does not have any interest in the Escrow Property
deposited hereunder but is serving as escrow holder only and having
only possession thereof. The Issuer-Partnership shall pay or reimburse
Escrow Agent upon request for any transfer taxes or other taxes
relating to the Escrow Property incurred in connection herewith and
shall indemnify and hold harmless Escrow Agent any amounts that it is
obligated to pay in the way of such taxes. Any payments of income from
this Escrow Account shall be subject to withholding regulations then in
force with respect to United States taxes. The parties hereto will
provide Escrow Agent with appropriate W-9 forms for tax I.D. number
certifications, or W-8 forms for non-resident alien certifications. It
is understood that Escrow Agent shall be responsible for income
reporting only with respect to income earned or investment of funds
which are a part of the Escrow Property and is not responsible for any
other reporting. This paragraph and paragraph (9) shall survive
notwithstanding any termination of this Escrow Agreement or the
resignation of Escrow Agent.
IN WITNESS WHEREOF, each of the parties has caused this Escrow
Agreement to be executed by a duly authorized officer as of the day and year
first written above.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: _______________________________
(Authorized Signatory)
MERRILL LYNCH KECALP L.P. 1999
By: ________________________________
(Authorized Signatory)
THE BANK OF NEW YORK, as Escrow Agent
By: ________________________________
(Authorized Signatory)
Brown & Wood LLP
One World Trade Center
New York, NY 10048-0557
Telephone: (212) 839-5300
Facsimile: (212) 839-5599
September 2, 1998
Merrill Lynch KECALP L.P. 1999
c/o KECALP Inc.
North Tower
World Financial Center
250 Vesey Street
New York, NY 10281-1327
Re: Sale of 500,000 Units of
Limited Partnership Interest
----------------------------
Dear Sirs:
We have acted as your counsel in connection with the above-referenced
limited partnership interests (the "Units") to be offered and sold by Merrill
Lynch, Pierce, Fenner & Smith Incorporated. The Units are to be offered pursuant
to a Registration Statement on Form N-2 (File No. 333-59143) originally filed
with the Securities and Exchange Commission on July 15, 1998 (as thereafter
amended at any time to and including the date hereof, the "Registration
Statement").
In rendering this opinion, we have examined such documents and records
as we deemed appropriate. Capitalized terms used herein and not otherwise
defined are defined in the form of Amended and Restated Agreement of Limited
Partnership included as Exhibit A in the Registration Statement (the
"Agreement").
We have assumed the genuineness and authenticity of all signatures on
original documents, the authenticity of all documents submitted to us as
originals, the conformity to originals of all documents submitted to us as
copies thereof, and the due authorization, execution, delivery and recordation
of all documents where due authorization, execution, delivery and recordation
are a prerequisite to the effectiveness thereof.
On the basis of the foregoing and in reliance thereon, we are of the
opinion that when offered and sold as described in the Registration Statement,
and assuming (i) that the General Partner has taken all corporate action
required to be taken by it to authorize the issuance and sale of Units to the
Limited Partners and to authorize the admission to the Partnership of the
Limited Partners, (ii) the due authorization, execution and delivery of a
subscription agreement, the form of which is set forth as Exhibit B in the
Prospectus (the "Subscription Agreement"), by each subscriber for Units (the
"Subscribers"), (iii) the due acceptance by the General Partner of each
Subscription Agreement and the due acceptance by the General Partner of the
admission of the Subscribers to the Partnership as Limited Partners, (iv) the
payment by each Subscriber of the full consideration due from it for the number
of Units subscribed to by it, (v) the due authorization, execution and delivery
by all parties thereto of the Agreement, (vi) that the books and records of the
Partnership set forth all information required by the Agreement and the Delaware
Revised Uniform Limited Partnership Act (6 Del.C. ss.17-101 et seq.) (the
"Act"), including all information with respect to all Persons to be admitted as
Partners and their Capital Contributions, (vii) that the Subscribers, as Limited
Partners, do not participate in the control of the business of the Partnership
and (viii) that the Units are offered and sold as described in the Registration
Statement and the Agreement, (a) the Units will represent valid limited partner
interests in the Partnership, and subject to the qualifications set forth
herein, as to which the Subscribers, as limited partners of the Partnership,
will have no liability with respect to the Partnership's affairs in excess of
their respective obligations to make contributions to the Partnership, their
respective obligations to make other payments provided for in the Agreement and
their share of the Partnership's assets and undistributed profits (subject to
the obligation of a Limited Partner to repay any funds wrongfully distributed to
it), and (b) the Subscribers will be Limited Partners of the Partnership
entitled to all of the benefits of Limited Partners to the extent permitted
under the Act.
We consent to the filing of this opinion as Exhibit (1) to the
Registration Statement and to the filing of the form of our opinion as to tax
matters as Exhibit (n)(ii) to the Registration Statement. We also consent to the
references to our firm in the Prospectus included in the Registration Statement.
Very truly yours,
/s/ Brown & Wood LLP
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement No. 333-59143 of our report
dated August 21, 1998 relating to the financial statements of Merrill Lynch
KECALP L.P. 1998 as of July 31, 1998 appearing in the Prospectus, which is part
of this Registration Statement, and to the reference to us under the heading
"Experts" in such Prospectus.
/s/ Deloitte & Touche LLP
New York, New York
September 2, 1998
[SET FORTH BELOW IS A DRAFT OF THE FORM OF OPINION WHICH BROWN & WOOD
LLP ("TAX COUNSEL") EXPECTS TO DELIVER AT THE CLOSING OF THE SALE OF UNITS AND
TO REAFFIRM AT ANY SUBSEQUENT CLOSING IF THE FACTS AND CIRCUMSTANCES OF THE
FORMATION, ORGANIZATION AND CAPITALIZATION OF THE PARTNERSHIP ARE AS
CONTEMPLATED IN THE PROSPECTUS AND THE PARTNERSHIP AGREEMENT. THE ACTUAL
SUBSTANCE OF THE OPINION OF TAX COUNSEL IS SUBJECT TO THE LAW IN EFFECT AT THE
TIME OF SUCH CLOSING AND SUCH ADDITIONAL FACTS AS MAY BE DISCLOSED UPON INQUIRY
BY TAX COUNSEL.]
________________ ___, 1999
Merrill Lynch, Pierce, Fenner & Smith
Incorporated
Merrill Lynch World Headquarters
World Financial Center
North Tower
New York, New York 10281-1201
Re: Merrill Lynch KECALP L.P. 1999
------------------------------
Ladies and Gentlemen:
Our opinion has been requested as to certain tax matters, set forth
below, in connection with the transactions contemplated in the prospectus, dated
September ___, 1998 (such prospectus, as supplemented by a prospectus supplement
thereto, as filed with the Securities and Exchange Commission (the "Commission")
for filing pursuant to Rule 497(d) under the Securities Act of 1933, is
hereinafter referred to as the "Prospectus") relating to Merrill Lynch KECALP
L.P. 1999, a Delaware limited partnership (the "Partnership"), the general
partner of which is KECALP Inc., a Delaware corporation (the "General Partner").
All capitalized terms used and not otherwise defined herein are intended to have
the respective meanings set forth in the Prospectus.
IDENTIFICATION OF DOCUMENTS REVIEWED AND ASSUMPTIONS MADE
In rendering our opinions, we have examined and relied upon, and have
assumed the truth and accuracy of, the following:
I. The Certificates of Limited Partnership of the Partnership, dated as
of July 10, 1998, as filed with the Secretary of State of the State of Delaware
on July 10, 1998, in accordance with the provisions of the Delaware Revised
Uniform Limited Partnership Act (the "Act");
II. The Amended and Restated Agreement of Limited Partnership of the
Partnership, dated September ___, 1998, duly executed by the General Partner,
the Initial Limited Partner and each Additional Limited Partner in accordance
with the provisions of the Act (the "Partnership Agreement");
III. The Prospectus;
IV. The letters, dated the date hereof, containing certain covenants
and factual representations of the Partnership and the General Partner attached
hereto as Exhibit A-1, and Merrill Lynch, Pierce, Fenner & Smith Incorporated,
as selling agent for the Partnership, attached hereto as Exhibit A-2;
V. The form of Subscription Agreement and the Subscription
Qualification and Acceptance Page (including power of attorney) for Units
attached to the prospectus as Exhibit B; and
VI. Such other documents and proceedings as we have deemed necessary in
order to enable us to render this opinion.
OPINIONS RENDERED AND LIMITATIONS ON OPINIONS RENDERED
Our opinions set forth below are also based upon the existing
provisions of the Internal Revenue Code of 1986, as amended (the "Code"), the
Treasury Regulations (including Temporary and Proposed Treasury Regulations)
promulgated under the Code, published Revenue Rulings, Revenue Procedures and
other announcements of the Internal Revenue Service (the "Service") and existing
court decisions, any of which could be changed at any time. Any such changes may
be retroactive with respect to transactions entered into prior to the date of
such changes and could significantly modify the opinions set forth below.
Based on the foregoing documents, materials, assumptions and
information, and subject to the qualifications and assumptions set forth below,
we are of the opinion that:
1. The Partnership will be classified as a partnership for Federal
income tax purposes and not as an association taxable as a corporation and will
not be classified as a publicly traded partnership within the meaning of Code
Section 7704(b).
2. The allocations of income, gain, loss, deduction, and credit of the
Partnership will be respected for Federal income tax purposes, so long as no
Limited Partner's capital account becomes negative.
3. The tax discussion in the Prospectus under the captions "Tax Aspects
of Investment in the Partnership" and "Risk and Other Important Factors" fully
and fairly sets forth the Federal income tax consequences and tax risks
associated with investment in the Partnership.
The Federal income tax consequences ultimately to be derived by any
Limited Partner will, in addition, depend upon the individual situation of each
Limited Partner, as well as the actual operations of the Partnership. Further,
as noted above, the realization of the anticipated Federal tax treatment may be
materially and adversely affected by future legislation and administrative and
judicial decisions.
Accordingly, it is recommended that each potential Limited Partner
consult with his, her or its own tax advisor as to the tax aspects of a purchase
of a Unit in the Partnership, including Federal taxes and any state and local,
or foreign tax considerations (which are not discussed in this opinion), as they
relate to his, her or its particular tax situation.
In reviewing the opinions set forth above, you should be aware that (i)
our firm has represented the General Partner in this transaction and has
represented, and regularly represents, various affiliates of Merrill Lynch &
Co., Inc., and (ii) the opinions set forth above represent our conclusions as to
the application of existing law to the instant transaction. You should also be
aware that an opinion of counsel represents only counsel's best legal judgment,
and has no binding effect or official status of any kind, and no assurance can
be given that contrary positions may not be taken by the Service or that a court
considering the issues would not hold otherwise.
The opinions expressed herein are limited as described above, and we do
not express an opinion with respect to any other federal or state law or the law
of any other jurisdiction, except as expressly stated herein. This opinion is
rendered as of the date hereof and we undertake no obligation to update this
opinion or advise you of any changes in the event there is any change in legal
authorities, facts, assumptions or documents on which this opinion is based
(including the taking of any action by any party to the transaction documents
pursuant to any opinion of counsel or a waiver), or any inaccuracy in any of the
representations, warranties or assumptions upon which we have relied in
rendering this opinion unless we are specifically engaged to do so.
You should be aware that there is no assurance that the Service would
not challenge the conclusions set forth above. Our opinion also assumes that a
court considering the question would have all facts and legal issues properly
presented to it.
This opinion is rendered only to those parties to whom it is addressed
and is solely for their benefit. This opinion may not be relied upon by any
other person for any purpose without our prior written consent.
Very truly yours,
<PAGE>
EXHIBIT A-1
_________________ ___, 1999
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Re: Merrill Lynch KECALP L.P. 1999
------------------------------
Ladies and Gentlemen:
In order for you to render certain legal opinions regarding various
Federal income tax consequences to Merrill Lynch KECALP L.P. 1999 (the
"Partnership"), and its partners, as described in more detail in the
Registration Statement filed with the Securities and Exchange Commission on July
15 ___, 1998 and thereafter amended (the "Registration Statement") and the
Prospectus included therein (the "Prospectus"), the Partnership and KECALP Inc.,
the general partner of the Partnership (the "General Partner"), hereby certify
the accuracy of the facts contained herein, and make the representations and
agreements provided herein. We understand that, in rendering your opinion, you
will rely in part on such representations made by us and the applicability of
your opinion will be conditioned on compliance with the representations
contained herein. Capitalized terms used and not otherwise defined in this
letter shall have the same meanings as they have in the Registration Statement.
As a basis for your opinion, we hereby represent that:
1. The Partnership has been duly and validly organized as a limited
partnership pursuant of the terms of the Partnership Agreement and the Delaware
Revised Uniform Limited Partnership Act (the "Act");
2. With regard to the Registration Statement, to the best of our
knowledge (i) the information contained in the Registration Statement is
accurate and complete; and (ii) the Registration Statement contains no omissions
of material facts;
3. The Partnership Agreement and all other pertinent agreements
relating to the offering and sale of Units have been duly executed, delivered
and filed;
4. The purchase of Units in the Partnership by a Limited Partner will
not entail either a mandatory or discretionary purchase or option to purchase
any type of security or equity interest in either the General Partner, Merrill
Lynch & Co., Inc. or any of its affiliates;
5. The Partnership will be operated in accordance with the Act, the
Partnership Agreement, and the statements and representations made in the
Prospectus;
6. No creditor who makes a nonrecourse loan to the Partnership will
have or acquire, at any time as a result of making the loan, any direct or
indirect interest in the profits, capital, or property of the Partnership, other
than as a secured creditor or other than as a result of the exercise of the
rights thereof;
7. The General Partner will exercise its best efforts to enforce
Section 7.1A of the Partnership Agreement which provides, among other things,
that the Partnership will not recognize for any purpose any sale, assignment or
transfer of all or any part of a Limited Partner's Units if such sale,
assignment or transfer would cause the Partnership to be classified as either an
association taxable as a corporation for Federal income tax purposes or a
publicly traded partnership within the meaning of Code Section 7704(b);
8. The General Partner will not register Units for trading on any
established securities market or any secondary market as those terms are used in
Section 7704(b) of the Code. Moreover, the General Partner will not make a
market in Units at any time during the existence of the Partnership.
Furthermore, the General Partner will endeavor at all times to prevent any
trading of Units that might be characterized as the substantial equivalent of
trading in a secondary market in any future administrative or judicial
interpretations of Code Section 7704(b);
9. In approving procedures for the transfer of Units through a matching
agent, the General Partner will, unless otherwise advised by counsel to the
Partnership, require the following:
(a) No transfers of Units will be recognized unless the selling Limited
Partner gives formal notice to the matching agent at least 30 days
prior to the earliest next date on which transfers of such Units are
recognized;
(b) Offers to sell by a Partner to be listed in a matching service will
be revocable by such Partner and not binding on any transferee at any
time prior to the quarterly transfer date on which the Partnership
recognizes a transfer of such selling Partner's Units;
(c) No transfers of Units will be effected and no consideration for
sale of a Unit will be transferred or paid to either a selling Partner,
the matching agent or escrow holder at any time other than on or after
the quarterly transfer date on which the selling Partner is otherwise
eligible to transfer part or all of his interest in the Partnership;
and
(d) The matching agent will not quote prices for the sale of Units or
provide information concerning prospective buyers and sellers of Units
to the public in general.
10. The General Partner presently intends to use a matching service
provided by Merrill Lynch, Pierce, Fenner & Smith Incorporated and not to
recognize transfers of Units proposed to be effected through any other
matching agent. The quarterly transfer dates to be followed in the Merrill
Lynch matching service system are no earlier than the first day of each
calendar quarter immediately following the calendar quarter in which a selling
Partner complies with the provisions governing transfers of Units; and
11. The Partnership will not elect under Section 761(a) of the Code to
be excluded from the application of all or part of subchapter K of the Code, and
will not elect pursuant to Treasury Regulation ss.301.7701-3(c) to be classified
for Federal income tax purpose as an association taxable as a corporation.
Very truly yours,
Merrill Lynch KECALP L.P. 1999
By KECALP Inc., its General Partner
By: ____________________________
KECALP Inc.
By: ____________________________
<PAGE>
EXHIBIT A-2
_________________ ___, 1999
Brown & Wood LLP
One World Trade Center
New York, New York 10048
Re: Merrill Lynch KECALP L.P. 1999
------------------------------
Ladies and Gentlemen:
The purpose of this letter is to provide you with certain
representations for your use and reliance in preparing your opinion concerning
certain Federal income tax consequences under the Internal Revenue Code of 1986,
as amended, relating to the organization and operation of Merrill Lynch KECALP
L.P. 1999 (the "Partnership") and in preparing the discussion entitled "Tax
Aspects of Investment in the Partnership" appearing in the Registration
Statement and the Prospectus included therein, including any Prospectus
Supplement (the "Prospectus"), concerning the offering for sale of limited
partnership interests in the Partnership (the "Units"). We understand that, in
rendering your opinion, you will rely in part on such representations made by us
and the applicability of your opinion will be conditioned on our compliance with
the representations contained herein. Capitalized terms used and not otherwise
defined in this letter shall have the meanings as they have in the Prospectus.
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"),
the selling agent for the offering of Units of the Partnership, hereby
represents that in connection with any matching services provided by Merrill
Lynch or any of its affiliates (hereinafter, the term "Merrill Lynch" shall
include any affiliates thereof) for buyers and sellers of Units:
1. Offers to sell or buy Units of the Partnership made through Merrill
Lynch will be revocable by the offeror and not binding on any transferor or
transferee at all times prior to the quarterly transfer date on which the
Partnership recognizes a transfer of such Units.
2. Offers to sell Units will not be matched during a calendar quarter
unless such offers have been received by Merrill Lynch at least 30 days prior to
the quarterly transfer date on which the Partnership recognizes a transfer of
such Units.
3. Employees of Merrill Lynch will not be permitted to solicit sellers
of Units and, if Merrill Lynch becomes aware that an offer to sell Units has
been solicited, it will not match the offer for transfer.
4. No consideration for sale of a Unit will be transferred or paid to
either a selling Partner, Merrill Lynch or escrow holder at any time other than
on or after the quarterly transfer date on which the selling Partner is
otherwise eligible to transfer part or all of his Units.
5. Merrill Lynch will not quote prices for the sale of Units or provide
information concerning prospective buyers or sellers of Units to the general
public.
6. Merrill Lynch has no present intention to purchase Units after the
completion of the offering and will not purchase Units except for occasional
accommodation trades, the terms of which will be subject to the conditions
described in paragraphs 1 through 5 of this letter.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
By: __________________________________
