FORM 10-QSB--QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
(As last amended by 34-32231, eff. 6/3/93.)
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-10256
SHELTER PROPERTIES II LIMITED PARTNERSHIP
(Exact name of small business issuer as specified in its charter)
South Carolina 57-0709233
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip Code)
Issuers's telephone number (803) 239-1000
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X . No .
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a) SHELTER PROPERTIES II LIMITED PARTNERSHIP
BALANCE SHEET
(Unaudited)
<TABLE>
<CAPTION>
September 30, 1995
<S> <C> <C>
Assets
Cash:
Unrestricted $ 486,453
Restricted--tenant security deposits 153,671
Investments 1,788,909
Accounts receivable 19,818
Escrow for taxes 309,711
Restricted escrows 915,096
Other assets 290,969
Investment properties:
Land $ 1,814,055
Buildings and related personal
property 21,928,845
23,742,900
Less accumulated depreciation (13,719,702) 10,023,198
$13,987,825
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ 151,517
Tenant security deposits 150,678
Accrued taxes 274,774
Other liabilities 331,489
Mortgage notes payable 8,952,478
Partners' Capital (Deficit)
General partners $ (111,877)
Limited partners (27,500 units
issued and outstanding) 4,238,766 4,126,889
$13,987,825
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
b) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1995 1994 1995 1994
<S> <C> <C> <C> <C>
Revenues:
Rental income $1,229,228 $1,211,803 $3,731,652 $3,515,324
Other income 105,276 81,795 252,370 218,782
Total revenues 1,334,504 1,293,598 3,984,022 3,734,106
Expenses:
Operating 413,046 409,806 1,221,503 1,238,961
General and administrative 123,650 32,248 298,182 106,767
Property management fees 64,438 62,662 194,952 182,872
Maintenance 199,322 224,250 544,708 594,845
Depreciation 273,496 260,402 806,133 759,603
Interest 206,510 209,866 622,111 631,963
Property taxes 93,535 94,291 269,768 274,223
Total expenses 1,373,997 1,293,525 3,957,357 3,789,234
Casualty gain (loss) 61,246 -- (3,124) --
Income (loss) before
extraordinary item 21,753 73 23,541 (55,128)
Extraordinary item - gain
from condemnation -- -- -- 14,012
Net income (loss) $ 21,753 $ 73 $ 23,541 $ (41,116)
Net income (loss) allocated
to general partners (1%) $ 218 $ 1 $ 235 $ (411)
Net income (loss) allocated
to limited partners (99%) 21,535 72 23,306 (40,705)
$ 21,753 $ 73 $ 23,541 $ (41,116)
Per limited partnership
unit:
Net income (loss) before
extraordinary item $ .78 $ -- $ .85 $ (1.98)
Extraordinary gain -- -- -- .50
Net income (loss) per
limited partnership unit $ .78 $ -- $ .85 $ (1.48)
</TABLE>
,fn>
See Accompanying Notes to Financial Statements
c) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partners Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 27,500 $ 2,000 $27,500,000 $27,502,000
Partners' (deficit) capital
at December 31, 1994 27,500 $(106,112) $ 4,809,460 $ 4,703,348
Distributions paid to partners -- (6,000) (594,000) (600,000)
Net income for the nine months
ended September 30, 1995 -- 235 23,306 23,541
Partners' (deficit) capital
at September 30, 1995 27,500 $(111,877) $ 4,238,766 $ 4,126,889
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
d) SHELTER PROPERTIES II LIMITED PARTNERSHIP
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
1995 1994
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 23,541 $ (41,116)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 806,133 759,603
Amortization of discounts and loan costs 76,219 74,758
Casualty loss 3,124 --
Extraordinary gain on condemnation -- (14,012)
Change in accounts:
Restricted cash (11,698) (7,655)
Accounts receivable (8,550) (677)
Escrows for taxes (206,284) (71,439)
Other assets (6,000) --
Accounts payable 23,325 (93,310)
Tenant security deposit liabilities 5,827 9,888
Accrued taxes 190,342 111,346
Other liabilities 29,456 (18,278)
Net cash provided by operating activities 925,435 709,108
Cash flows from investing activities:
Property improvements and replacements (259,346) (417,924)
Cash invested in short-term investments (6,168,939) (3,522,224)
Cash received from matured investments 6,123,377 3,253,893
Deposits to restricted escrows (49,997) (21,374)
Receipts from restricted escrows 49,232 266,495
Condemnation proceeds -- 14,967
Net cash used in investing activities (305,673) (426,167)
Cash flows from financing activities:
Payments on mortgage notes payable (164,489) (152,488)
Distributions paid (600,000) --
Net cash used in financing activities (764,489) (152,488)
Net (decrease) increase in cash (144,727) 130,453
Cash at beginning of period 631,180 391,045
Cash at end of period $ 486,453 $ 521,498
Supplemental disclosure of cash flow information:
Cash paid for interest $ 545,894 $ 557,895
</TABLE>
[FN]
See Accompanying Notes to Financial Statements
e) SHELTER PROPERTIES II LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information and with the instructions to Form 10-QSB and Item 310(b) of
Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of the Corporate General Partner, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the nine month
period ended September 30, 1995, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 1995. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's annual report on Form 10-KSB for the year ended December 31,
1994.
Certain reclassifications have been made to the 1994 information to conform
to the 1995 presentation.
Note B - Reconciliation of Cash Flows
The following is a reconciliation of the subtotal on the accompanying
statements of cash flows captioned "net cash provided by operating activities"
to "net cash used in operations", as defined in the partnership agreement.
However, "net cash used in operations" should not be considered an alternative
to net income as an indicator of the Partnership's operating performance or to
cash flows as a measure of liquidity.
For the Nine Months Ended
September 30,
1995 1994
Net cash provided by operating activities $ 925,435 $ 709,108
Payments on mortgage notes payable (164,489) (152,488)
Property improvements and replacements (259,346) (417,924)
Changes in reserves for net operating
liabilities (16,418) 70,125
Change in restricted escrows, net (765) 245,121
Additional reserves (485,000) (454,000)
Net cash used in operations $ (583) $ (58)
In 1994, the Corporate General Partner believed it to be in the best interest
of the Partnership to reserve an additional $454,000 to fund continuing capital
improvement needs for the properties to remain competitive and to offset any
adverse effects from the closing of a military training center and hospital
located near Signal Pointe. In 1995, the Corporate General Partner believed it
to be in the best interest of the Partnership to reserve an additional $485,000
to fund painting and siding replacement and repairs at Raintree and foundation
and water and sewer line repairs at Parktown.
Note C Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Corporate General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following transactions with
Insignia Financial Group, Inc. and affiliates were charged to expense in 1995
and 1994:
For the Nine Months Ended
September 30,
1995 1994
Property management fees $194,952 $182,872
Data processing services 18,899 18,899
Marketing services 2,985 2,978
Reimbursement for services of affiliates 53,680 42,669
The Partnership insures its properties under a master policy through an
agency and insurer unaffiliated with the Corporate General Partner. An
affiliate of the Corporate General Partner acquired, in the acquisition of a
business, certain financial obligations from an insurance agency which was later
acquired by the agent who placed the current year's master policy. The current
agent assumed the financial obligations to the affiliate of the Corporate
General Partner, who receives payments on these obligations from the agent.
The amount of the Partnership's insurance premiums accruing to the benefit of
the affiliate of the Corporate General Partner by virtue of the agent's
obligations is not significant.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The Partnership's investment properties consists of three apartment
complexes. The following table sets forth the average occupancy of the
properties for the nine months ended September 30, 1995 and 1994:
Average
Occupancy
Property 1995 1994
Parktown Townhouses
Deer Park, Texas 96% 94%
Raintree Apartments
Anderson, South Carolina 96% 93%
Signal Pointe Apartments
Winter Park, Florida 95% 91%
The three apartment complexes have experienced steady increases in occupancy.
The Corporate General Partner attributes these increases to aggressive
marketing, quality customer service, and the improved appearances of the
properties due to renovations over the last several years.
The Partnership's net income for the nine months ended September 30, 1995,
was $23,541 with the third quarter having income of $21,753. The Partnership
reported a net loss of $41,116 and net income of $73 for the respective
corresponding periods of 1994. The change from net loss to net income is
primarily attributable to an increase in rental income caused by increased
rental rates and occupancy at all of the Partnership's investment properties.
In addition, other income has increased due to additional interest income from
higher interest rates. Stricter enforcement of tenant charges also contributed
to the increase in other income. Partially offsetting the increase in net
income is an increase in general and administrative expenses. Increased legal
fees, associated with the lawsuits disclosed in the Legal Proceedings section
below, as well as increased administrative expenses in connection with the
tender offers were the primary reasons for this increase. In addition, the
Partnership reported an extraordinary gain of $14,012 in 1994 as a result of
proceeds received from condemnation of land at Signal Pointe with no such
gain in 1995. Also, offsetting the change to net income is a casualty loss in
1995 for asbestos removal expenses at Parktown resulting from a fire during the
second quarter of 1995. This fire damaged four units exposing asbestos. The
estimated costs for removing the asbestos as previously reported were much
higher. Due to the potential cost of the previous estimate, the insurance
company contracted a national firm with more experience with asbestos removal
to re-assess the estimate. The second estimate deemed the removal costs to be
substantially lower which resulted in income for the third quarter.
As part of the ongoing business plan of the Partnership, the Corporate
General Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. As part of this plan, the Corporate General Partner attempts to
protect the Partnership from the burden of inflation-related increases in
expenses by increasing rents and maintaining a high overall occupancy level.
However, due to changing market conditions, which can result in the use of
rental concessions and rental reductions to offset softening market conditions,
there is no guarantee that the Corporate General Partner will be able to sustain
such a plan.
At September 30, 1995, the Partnership reported unrestricted cash of $486,453
versus $521,498 for the same period in 1994. Net cash provided by operating
activities increased due to the change from net loss to net income as described
above and due to a change in accounts payable resulting from the timing of
payments primarily relating to the legal costs as discussed above. Also
contributing to this increase was the change in accrued taxes due to the timing
of the payment of real estate taxes. This was offset by the use of tax escrows
to fund these payments. Net cash used in investing activities decreased due to
a decrease in property improvements. In addition, there was a decrease in net
cash invested in short-term investments due to the distribution made in the
first quarter of 1995. Also offsetting the increase is a reduction in receipts
from the restricted escrows due to the fact that a majority of the renovations
required by the refinancings had been completed during the prior two years. Net
cash used in financing activities increased due to the Partnership making a
distribution during the first quarter of 1995.
The sufficiency of existing liquid assets to meet future liquidity and
capital expenditure requirements is directly related to the level of capital
expenditures required at the property to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. The
mortgage indebtedness of $8,952,478, net of discount, is amortized over 257
months with a balloon payment of $7,369,887 due on November 15, 2002, at which
time the properties will either be refinanced or sold. Future cash
distributions will depend on the levels of net cash generated from operations,
property sales and the availability of cash reserves. During the first quarter
of 1995, distributions in the amount of $600,000 were paid. No cash
distributions were made in 1994.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The general partner responsible for management of the Partnership's business
is Shelter Realty II Corporation, a South Carolina corporation (the "Corporate
General Partner"). The only other general partner of the Partnership, N. Barton
Tuck, Jr. is effectively prohibited by the Partnership's partnership agreement
(the "Partnership Agreement") from participating in the management of the
Partnership. The Corporate General Partner is an indirect subsidiary of Insignia
Financial Group, Inc. ("Insignia"). The directors and officers of the Corporate
General Partner also serve as executive officers of Insignia.
The Corporate General Partner owns 100 Limited Partnership Units ("Units").
On May 27, 1995, an affiliate of the Corporate General Partner (the "Affiliated
Purchaser") acquired 6,031 Units at a price of $235.00 per Unit pursuant to a
tender offer (the "Affiliate Offer") described below. The Corporate General
Partner and the Affiliated Purchaser are, therefore, entitled to participate in
cash distributions made by the Partnership to its Unit holders. The Partnership
made a cash distribution of $21.60 per Unit in February, 1995, but had not made
cash distributions to Unit holders during the previous four years. The
Corporate General Partner presently expects that the Partnership will seek to
make further cash distributions beginning in 1996. In addition, the Corporate
General Partner is entitled to certain cash distributions in respect of its
general partner interest, and in February 1995 the Corporate General Partner
received a cash distribution in respect of such interest of $6,000. Prior to
the February 1995 distribution, the Corporate General Partner had not received
a cash distribution in respect of its general partner interest since 1985.
As a result of the Affiliated Purchaser's acquisition of 21.9% of the
outstanding Units, the Affiliated Purchaser, an affiliate of the Corporate
General Partner and Insignia, may be in a position to significantly influence
any vote of the Unit holders. The Partnership has paid Insignia Management
Group, L.P. ("IMG"), an affiliate of the Corporate General Partner, property
management fees equal to 5% of the Partnership's apartment revenues for property
management services in each of the three years in the period ended December 31,
1994, pursuant to property management agreements. Property management fees paid
to IMG amounted to $217,991, $230,326, and $246,904, respectively, for the
three years ended December 31, 1992, 1993, and 1994 and the Partnership paid IMG
property management fees equal to $194,952 during the first three quarters of
fiscal 1995. Insignia and its affiliates do not receive any fees from the
Partnership for the asset management or partnership administration
services they provide, although Insignia and its affiliates are reimbursed by
the Partnership for the expenses they incur in connection with providing those
services. The Partnership Agreement also provides for reimbursement to the
Corporate General Partner and its affiliates for costs incurred in connection
with administration of the Partnership's activities. Pursuant to these
provisions and in addition to the property management fees referred to above,
the Partnership paid the Corporate General Partner and its affiliates (including
the reimbursements to Insignia and its affiliates in connection with asset
management and partnership administration services) an aggregate of $53,220,
$59,868, and $57,810, respectively, for the three years ended December 31, 1992,
1993, and 1994 and $53,680 during the first three quarters of fiscal 1995. In
1992, an affiliate of Insignia assisted an unaffiliated third party engaged by
the Partnership in connection with refinancings of the Partnership's properties,
and received $90,579 from the third party for providing such assistance. In
addition, at various times during the past three fiscal years an affiliate of
Insignia has held a promissory note or preferred stock issued by an
unaffiliated company that provides insurance brokerage services to the
Partnership.
The terms of the Affiliated Purchaser's financing of the Affiliate Offer may
result in future potential conflicts of interest. The Affiliated Purchaser
paid for the Units it purchased pursuant to the Affiliate Offer with funds
provided by Insignia, and Insignia, in turn, obtained these funds from its
working capital. It is possible, however, that in connection with its future
financing activities, Insignia may cause or request the Affiliated Purchaser to
pledge its Units as collateral for loans, or otherwise agree to terms which
provide Insignia and the Affiliated Purchaser with incentives to generate
substantial near-term cash flow from the Affiliated Purchaser's investment in
the Units. In such a situation, the Corporate General Partner may experience
a conflict of interest in seeking to reconcile the best interests of the
Partnership with the need of its affiliates for cash flow from the Partnership's
activities.
On April 27, 1995, the Affiliated Purchaser commenced the Affiliate Offer
for up to 30% of the Units at a price of $235.00 per Unit. The Affiliate Offer
expired on May 26, 1995. On May 27, 1995, an affiliate of the Corporate General
Partner, the Affiliated Purchaser, acquired 6,031 Units at a price of $235.00
per Unit pursuant to the Affiliate Offer. During the Affiliate Offer, Carl C.
Icahn and certain of his associates contacted Insignia about pursuing a variety
of possible transactions on a joint venture basis. During those discussions,
representatives of Insignia advised Mr. Icahn and his representatives that
Insignia did not wish to discourage or prevent any transaction which would
produce additional value for Unit holders. During those conversations, Mr. Icahn
and his representatives expressed a desire to make an equity investment in
the Affiliated Purchaser with a view to sharing in the economic benefits, if
any, to be derived by the Affiliated Purchaser from the Affiliate Offer.
The representatives of Insignia declined to agree to such an arrangement.
Following those discussions, at approximately 6:45 p.m. on Monday, May 22,
1995, the Corporate General Partner received a letter from High River Limited
Partnership ("High River") which stated that High River was commencing, by
public announcement, a cash tender offer for up to approximately 30% of the
outstanding Units at a price of $270.25 per Unit (the "High River Offer").
High River sent similar letters to the Insignia affiliated corporate general
partners of five other limited partnerships. On May 23, 1995, Insignia issued
a press release which announced receipt of the letters.
From 12:00 noon on Tuesday, May 23 through late in the evening of Wednesday,
May 24, the Affiliated Purchaser, Insignia, and High River and their respective
counsel had a series of meetings and telephone conversations to explore a
possible joint venture relationship with respect to various real estate related
investment opportunities, including the Affiliate Offer. Representatives of
High River terminated the discussions. No agreement was reached with respect
to the Affiliated Offer or any other matter.
On the afternoon of Thursday, May 25, 1995, the Corporate General Partner
received a second letter from High River stating that High River had initiated a
tender offer for up to 40% of the outstanding Units at a price of $341.20 per
Unit. High River also issued a press release announcing the High River Offer and
that High River was commencing similar tender offers for units of limited
partnership interest in five other partnerships in which other Insignia
affiliates are the corporate general partners. Upon receiving the letter from
High River, Insignia issued its own press release announcing the terms of the
six High River offers.
Also on May 25, 1995, the Corporate General Partner received a copy of a
Complaint (the "High River Complaint") seeking, among other things, an order
from the United States District Court for the District of Delaware enjoining the
closing of the Affiliate Offer. The High River Complaint related to the
Affiliate Offer and to five other tender offers made by affiliates of Insignia
for units of limited partnership interests in other limited partnerships in
which other affiliates of Insignia are general partners. The High River
Complaint named as defendants the Affiliated Purchaser and each of the Insignia
affiliates making the five other tender offers; the Corporate General Partner
and the five other Insignia-affiliated general partners; and Insignia. The High
River Complaint contained allegations that, among other things, the Affiliated
Purchaser sought to acquire Units at highly inadequate prices, and that the
Affiliate Offer contained numerous false and misleading statements and omissions
of material facts. The alleged misstatements and omissions concerned, among
other things, the true value of the units; the true financial conditions of the
Partnership; the factors affecting the likelihood that properties owned by the
Partnership will be sold or liquidated in the near future; the liquidity and
value of the Units; the limited secondary market for Units; and the true nature
of the market for underlying assets. The High River Complaint also alleged
that the Affiliated Purchaser failed to comply with the requirements of Rule
13e-4 under the Securities Exchange Act of 1934.
On Friday, May 26, 1995, the United States District Court for the District of
Delaware denied High River's motion for a temporary restraining order to
postpone the closing of the Affiliate Offer. On May 26, 1995, Insignia issued a
press release announcing the Court's decision. High River subsequently
voluntarily withdrew the High River Complaint without prejudice.
On May 26, 1995, High River filed a Schedule 14D-1 relating to the High River
Offer and containing an Offer to Purchase and a related Assignment of
Partnership Interest. The Affiliate Offer expired as scheduled at midnight on
May 26, 1995. As filed on May 26, 1995, the High River Offer was conditioned
upon the Affiliate Offer being extended by at least 10 business days. High
River issued a press release, dated May 26, 1995, announcing that the extension
of the Affiliate Offer for 10 business days would be eliminated as a condition
to the High River Offer. Also on May 26, the Chairman and Chief Executive
Officer of Insignia received a letter from Mr. Icahn. In the letter, Mr. Icahn
accused Insignia of disregarding its "fiduciary responsibilities."
On Friday June 2, the High River Offer to Purchase and the related Assignment
of Partnership Interests were mailed to Unit holders. On Monday, June 5, the
Corporate General Partner delivered a letter to High River which requested that
High River cure certain alleged critical omissions, misstatements, and
deficiencies in the High River Offer by June 7, 1995. On June 7, the Corporate
General Partner received a letter from Mr. Icahn stating that High River does
not agree with the positions taken in the Corporate General Partner's June 5
letter.
On June 8, 1995, the Corporate General Partner commenced an action against
High River and Carl C. Icahn in the United States District Court for the
District of South Carolina. The complaint alleged that the High River Offer
misled Unit holders and violated federal securities laws. The Partnership
sought relief from High River's and Mr. Icahn's actions in the form of an
injunction against the High River Offer, a judgment declaring that the untrue
statements in and omissions from the High River Offer constitute violations of
the federal securities laws, and an order requiring High River to make
appropriate disclosures to correct all of the false and misleading statements
in and omissions from the High River Offer.
The Partnership and the Corporate General Partner recommended that the Unit
holders reject the High River Offer and not tender their Units pursuant to the
High River Offer. The Partnership and the Corporate General Partner stated that
they may reconsider their recommendation if High River makes additional
disclosures to the Unit holders as the Corporate General Partner requested. For
further information, see the Partnership's Solicitation/Recommendation Statement
on Schedule 14D-9 which was filed with the Securities and Exchange Commission on
June 9, 1995.
On June 12, 1995, High River filed an amendment to its Schedule 14D-1
containing a Supplement to its Offer to Purchase. The Supplement amended the
High River Offer to increase the number of Units being sought to all of the
outstanding Units and amended certain disclosures in the Offer to Purchase.
Persons claiming to own Units filed a purported class action and derivative
suit in the United States District Court for the District of South Carolina
seeking, among other things, an order enjoining the Affiliate Offer. On
Thursday, May 18, 1995, the Court denied plaintiffs' motion for a temporary
restraining order postponing the closing of the Affiliate Offer, which expired
as scheduled on May 26, 1995. Counsel for the parties are engaged in settlement
discussions and may continue such discussions.
The Complaint applies to the Affiliate Offer and to five other tender offers
being made by affiliates of Insignia for units of limited partnership interests
in other limited partnerships in which other affiliates of Insignia serve as
general partners. The Complaint names as defendants the Affiliated Purchaser
and each of the Insignia affiliates, including the five other tender offerors;
the Corporate General Partner and five other Insignia-affiliated general
partners; and four individuals who are officers and/or directors of Insignia,
the Corporate General Partner and/or the Affiliated Purchaser. The Complaint
contains allegations that, among other things, the defendants have intentionally
mismanaged the Partnership and the five other Partnerships (collectively the
"Partnerships") and acted contrary to the limited partners' best interests in
order to prolong the lives of the Partnerships and thus continue the revenues
derived by Insignia from the Partnerships while at the same time reducing the
demand for the Partnerships' units in the limited resale market for the units
by artificially depressing the trading prices for the units, in order to create
a favorable environment for the Affiliate Offer and the five other tender
offers. In the Complaint the plaintiffs also allege that in the Affiliate
Offer and the five other tender offers, the Affiliated Purchaser will acquire
effective voting control over the Partnerships at highly inadequate prices, and
that the offers to purchase and related tender offer documents contain numerous
false and misleading statements and omissions of material facts. The alleged
misstatements and omissions concern, among other things, the advantages to Unit
holders of tendering Units pursuant to the Affiliate Offer; the
true value of the Units; the true financial condition of the Partnerships; the
factors affecting the likelihood that properties owned by the Partnerships will
be sold or liquidated in the near future; the liquidity and value of the Units;
the limited secondary market for Units; and the true nature of the market for
underlying assets.
On Friday, June 16, plaintiffs filed an amended complaint which contained
allegations that, among other things, the defendants engaged in a plan by which
they misappropriated the Partnerships' assets and fraudulently induced limited
partners to sell units to the defendants at highly inadequate prices by causing
the Partnerships to take actions that artificially depressed the prices
available for units and by knowingly disseminating false and misleading
statements and omissions of material facts. The plaintiffs alleged that the
defendants breached fiduciary duties and violated federal securities law by
closing the Affiliate Offer and the five other tender offers made by affiliates
of Insignia for units in the other Partnerships with the knowledge that the
limited partners were not aware of the High River Offer. The plaintiffs
further alleged that the defendants, since the close of the Affiliate Offer,
had caused the Partnerships to enter into several wasteful transactions that
had no business purpose or benefit to the Partnerships solely in order to
entrench themselves in their positions of control over the Partnerships, with
the effect of impeding and possibly preventing nonaffiliated entities from
making tender offers that offer higher value to unit holders than defendants
paid.
Subsequent to the filing of the lawsuit by the Corporate General Partner
against High River and Carl C. Icahn, the Corporate General Partner and High
River began discussions in an attempt to settle the lawsuit. On Friday, June
16, 1995, High River issued a press release announcing that the expiration date
of the High River Offer was extended until 12:00 midnight, New York City time on
Wednesday, June 28, 1995, and that High River and the Corporate General Partner
were engaged in settlement discussions.
On Saturday, June 17, the Affiliated Purchaser and Insignia entered into an
agreement with Carl C. Icahn and High River (the "Agreement") and the Corporate
General Partner, among others, entered into a letter agreement with High River
(together with the Agreement, the "Agreements"). The Agreements provide
generally that Insignia would not, and will not cause or permit its affiliates
to, actively oppose the High River Offer, but rather would take a neutral stance
with respect to the High River Offer, except in the case of a competing third
party bid made prior to the expiration of the High River Offer or the occurrence
of any event materially adversely affecting High River Offer. The High River
Offer would proceed in accordance with its terms, as amended, and the Corporate
General Partner would cooperate to facilitate the admission of High River as a
substitute limited partner with respect to any Units High River purchases
pursuant to the High River Offer in accordance with the terms of the Partnership
Agreement and applicable law. The Agreements limit High River's ability to
amend or extend the High River Offer. Apart from purchases made by High River
pursuant to the High River Offer, neither High River nor Insignia nor any of
their respective affiliates would purchase any additional Units pursuant to a
tender offer and can only purchase additional Units from time to time under
certain conditions specified in the Agreements. High River would vote on
certain matters concerning the Partnership as directed by Insignia.
In addition, High River and its affiliates are prohibited from soliciting
proxies with respect to the Partnership or otherwise making proposals concerning
the Partnership directly to other Unit holders. High River and Insignia have
certain buy-sell rights with respect to the other's Units which may be exercised
18 months after the effective date of the Agreements and annually thereafter and
at earlier or later dates under other circumstances specified in the Agreements,
including the proposal of certain transactions otherwise protected by the
Agreements. The party selling Units pursuant to the buy-sell transaction must
sell or cause to be sold to the other party all Units beneficially owned by the
first party and its affiliates.
Litigation initiated by the Corporate General Partner concerning the High
River Offer and litigation initiated by High River concerning the Affiliate
Offer was dismissed with prejudice and mutual releases were exchanged. On
June 20, High River issued a press release announcing that the expiration date
of the High River Offer was extended until 12:00 midnight, New York City time on
Monday, July 3, 1995.
On July 20, 1995, the Partnership mailed a letter to limited partners of the
Partnership who tendered limited partnership units to the Affiliated Purchaser
in the recent tender offer. The letter notifies the limited partners that the
Affiliated Purchaser has offered to increase the amount paid to such limited
partners by an additional 45%.
On September 27, 1995, the parties to the purported class action and
derivative suit described above, filed a stipulation to settle the matter. The
principal terms of the stipulation requires supplemental payments to tendering
limited partners aggregating approximately $6 million; waiver by the Corporate
General Partner and five other Insignia affiliated general partners of any right
to certain proceeds from a sale or refinancing of the Partnership's properties;
some restrictions on Insignia's ability to vote the limited partner interest it
acquired; payment of $1.25 million for plaintiffs' attorney fees and expenses
in the litigation; and general releases of all the defendants. Court approval
of the stipulation is required before it may be distributed to the class members
for review. If a certain number of class members opt out, the settlement may be
cancelled and no assurance can be given that this matter will be settled on the
terms set forth above or otherwise.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 27, Financial Data Schedule, is filed as an exhibit to this
report.
b) Reports on Form 8-K filed in the third quarter ended
September 30, 1995:
Current report on Form 8-K dated July 20, 1995, as filed with the
Securities and Exchange Commission on July 25, 1995.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SHELTER PROPERTIES II LIMITED PARTNERSHIP
By: Shelter Realty II Corporation
Corporate General Partner
By:/s/ William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
By:/s/ Ronald Uretta
Ronald Uretta
Treasurer
(Principal Financial Officer
and Principal Accounting Officer)
Date: November 8, 1995
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Shelter
Properties II Limited Partnership 1995 Third Quarter 10-QSB and is qualified in
its entirety by reference to such 10-QSB.
</LEGEND>
<CIK> 0000319723
<NAME> SHELTER PROPERTIES II LIMITED PARTNERSHIP
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 486,453
<SECURITIES> 1,788,909
<RECEIVABLES> 19,181
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 23,742,900
<DEPRECIATION> 13,719,702
<TOTAL-ASSETS> 13,987,825
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 8,952,478
<COMMON> 0
0
0
<OTHER-SE> 4,126,889
<TOTAL-LIABILITY-AND-EQUITY> 13,987,825
<SALES> 0
<TOTAL-REVENUES> 3,984,022
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,957,357
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 622,111
<INCOME-PRETAX> 23,541
<INCOME-TAX> 0
<INCOME-CONTINUING> 23,541
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 23,541
<EPS-PRIMARY> .85
<EPS-DILUTED> 0
<FN>
<F1>
The Registrant has an unclassified balance sheet.
</FN>
</TABLE>
