<PAGE> 1
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
____________________
SCHEDULE 14D-1
(Amendment No. 1)
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
____________________
BALCOR PENSION INVESTORS - III
(Name of Subject Company)
WALTON STREET CAPITAL ACQUISITION CO. II, L.L.C.
BEATTIE PLACE LLC
METROPOLITAN ACQUISITION VII, L.L.C.
MAP VII ACQUISITION CORPORATION
INSIGNIA FINANCIAL GROUP, INC.
(Bidders)
LIMITED PARTNERSHIP INTERESTS
(Title of Class of Securities)
NONE
(CUSIP Number of Class of Securities)
____________________
copy to:
Edward J. Schneidman John A. Healy
Mayer, Brown & Platt Jeffrey P. Cohen
190 South LaSalle Street Rogers & Wells
Chicago, Illinois 60603 200 Park Avenue
(312) 782-0600 New York, New York 10166
(212) 872-8000
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
================================================================================
<PAGE> 2
Amendment No.1 to Schedule 14D-1
This Amendment No. 1 to Schedule 14D-1 amends and supplements the Schedule
14D-1 filed by Walton Street Capital Acquisition Co. II, L.L.C., Beattie Place
LLC, Metropolitan Acquisition VII, L.L.C., MAP VII Acquisition Corporation, and
Insignia Financial Group, Inc. with the Securities and Exchange Commission on
May 20, 1996. All capitalized terms used herein but not otherwise defined
shall have the meanings ascribed to such terms in the Offer to Purchase dated
May 20, 1996 (the "Offer to Purchase"), the Supplement to the Offer to Purchase
dated June 14, 1996 (the "Supplement") and the related Letter of Acceptance
(the "Letter of Acceptance," as each may be supplemented, modified or amended
from time to time, which together constitute the "Offer").
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO THE SUBJECT COMPANY'S SECURITIES.
Item 7 is hereby amended to add the following:
The information set forth in Section III of the Supplement, a copy of
which is attached hereto as Exhibit (a)(6), is incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION.
Item 10(e) is hereby amended to add the following:
On May 22, 1996, Tom Chipain, Robert L. Kopman and Dr. Thomas E. Kellie,
who own Interests in four of the ten Partnerships with respect to which the
Purchaser is currently making Offers, filed suit against, among others, the
Purchaser, Insignia and the General Partner of each of the Partnerships. The
plaintiffs purported to being their lawsuit on behalf of themselves and a class
consisting of all Limited Partners of the Partnerships. In their complaint,
the plaintiffs alleged the General Partners and Insignia breached their
fiduciary duties in connection with the Offers, and that the Purchaser had
aided and abetted those breaches. Based on those allegations, the plaintiffs
sought damages and an injunction that would have, among other things, prevented
the Purchaser from purchasing any Interests pursuant to the Offers. On May 31,
1996, the Purchaser and Insignia moved to dismiss the plaintiffs' complaint.
On June 5, 1996, the circuit court dismissed the complaint as to the Purchaser
and Insignia, concluding that the plaintiffs had no standing to raise the
claims that they asserted in the complaint, and that the plaintiffs had not
stated a cause of action against the Purchaser for aiding and abetting an
alleged breach of fiduciary duty. On June 7, 1996, the plaintiffs filed a
motion asking the circuit court to reconsider its decision. On June 10, 1996,
the circuit court ruled that it had correctly dismissed the plaintiffs'
complaint as to the Purchaser and Insignia.
On June 11, 1996, the three original plaintiffs and Solomon Borg,
individually and as representatives of a class of similarly situated persons
and derivatively on behalf of and in the right of Balcor Pension Investors V
and VI and Balcor Equity Pension Investors I, II and III, who are purported
holders of limited partnership interests in Balcor Pension Investors - V,
Balcor Pension Investors - VI, Balcor Equity Pension Investors - I, Balcor
Equity Pension Investors - II, A Real Estate Limited Partnership and Balcor
Equity Pension Investors - III, A Real Estate Limited Partnership, filed an
amended verified class and derivative action complaint in the circuit court of
Cook County, Illinois, against Walton Street Capital Acquisition Co. II, LLC;
Jeffrey L. Goldberg; Metropolitan Acquisition VII, LLC; MAP Acquisition
Corporation; Beattie Place, LLC; FMG Acquisition I, LLC; Insignia Management
Group; Insignia Financial Group, Inc.; Neil G. Bluhm; Balcor Mortgage Advisors;
Balcor Mortgage Advisors - II; Balcor Mortgage Advisors - III; Balcor Mortgage
Advisors - V; Balcor Mortgage Advisors - VI; Balcor Mortgage Advisors - VII;
Balcor Equity Partners - I; Balcor Equity Partners - II; Balcor Equity Partners
- - III; Balcor Equity Partners - IV and Balcor Pension Investors - V, Balcor
Pension Investors - VI, Balcor Equity Pension Investors - I, Balcor Equity
Pension Investors - II, Balcor Equity Pension Investors - III and Balcor Equity
Pension Investors - IV. The complaint alleges, among other things, that (a)
Insignia and its defendant affiliates, acting with the Purchaser and its
defendant affiliates, breached their fiduciary duties in making coercive and
inadequate Offers based upon non-public information obtained as a consequence
of IMG's agency to the Partnerships and through discussions and negotiations
with the General
2
<PAGE> 3
Partners, and that the General Partner breached its fiduciary duties by
divulging confidential information to the Purchaser such as liquidation values
of the Partnerships without taking appropriate steps to prevent the misuse of
such information; (b) the Purchaser and Insignia, and their respective
defendant affiliates, colluded and conspired with the General Partners in their
breaches of fiduciary duties to the class; (c) the Offers to Purchase and the
General Partners' responses thereto and any other documents disseminated in
relation to the Offers were false and misleading; (d) the class members who do
not tender will be damaged as a consequence of the working control which will
be concentrated in the Purchaser; and (d) the class members will be irreparably
harmed as a consequence of the Offers. The action, which has been brought as
both a class action on behalf of Limited Partners, as well as a derivative
action on behalf of certain of the Partnerships (the "Derivative Action
Partnerships"), seeks that the Court (a) award the class and the Derivative
Action Partnerships compensatory damages; (b) preliminarily and permanently
enjoin the Purchaser and Insignia, and their respective defendant affiliates,
from consummating the Offers; (c) order the defendants, particularly the
General Partners, to discharge their fiduciary duties to the Derivative Action
Partnerships and to the class by, among other things: (i) engaging independent
persons to act on a fully informed basis in the best interests of the Limited
Partners and the Partnerships; (ii) shopping the Partnerships and/or the
Properties, and cooperating with all persons, other than defendants or their
affiliates, with anyone having a bona fide interest in any transaction which
would maximize the value of the investments in the Partnerships and the premium
due and owing to the Derivative Action Partnerships; (iii) taking all steps
which would create an active auction for the Interests or the Properties; and
(iv) adequately ensuring that no conflicts of interest exist between
defendants' own interests and their fiduciary obligations or, if such conflicts
exist, to ensure that all such conflicts are resolved in favor of class members
and the Derivative Action Partnerships; (d) order defendants to create an
independent committee to consider other alternatives to the Offers, including
the orderly liquidation of the Properties; (e) awarding plaintiffs, the members
of the class, and the Derivative Action Partnerships their prejudgment
interest, and the costs and expenses of this litigation, including reasonable
attorneys' fees and expenses, and other costs and disbursements; and (f)
awarding the class damages and restitution from the defendant Purchaser for
colluding with Insignia and its defendant affiliates and the General Partners'
breaches of their fiduciary duties. Each of the Purchaser, Beattie Place,
Metropolitan, MAP and Insignia believe that the action is without merit and
intend to vigorously defend the action. A copy of the amended complaint has
been filed as Exhibit (g)(1) to this Amendment No. 1 and is incorporated herein
by reference.
* * * * *
Item 10(f) is hereby amended to add the following:
The information set forth in the Supplement and in the Press Release dated
June 10, 1996, copies of which are attached hereto as Exhibit (a)(6) and
(a)(7), are incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(6) Supplement to the Offer to Purchase dated June 14, 1996
(a)(7) Press Release dated June 10, 1996
(c)(5) Amendment dated June 12, 1996 to Agreement Between Walton Street
Capital Acquisition Co. II, L.L.C. and Beattie Place LLC
dated as of May 16, 1996
(c)(6) Agreement dated June 12, 1996 Among Beattie Place LLC, MAP VI
Acquisition Corporation, Metropolitan Acquisition VII,
L.L.C. and American Real Estate Holdings L.P.
(c)(7) Amended and Restated Operating Agreement of Beattie Place LLC,
dated as of June 12, 1996
(g)(1) Amended Verified Class and Derivative Action Complaint as filed
on June 11, 1996 with the Circuit Court, Cook County,
Illinois
3
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SIGNATURES
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: June 14, 1996. WALTON STREET CAPITAL ACQUISITION
CO. II, L.L.C.
By: /s/ William J. Abrams
-------------------------------------
William J. Abrams
Manager
BEATTIE PLACE LLC
By: MAP VII Acquisition Corporation,
its managing member
By: /s/ Jeffrey L. Goldberg
-------------------------------------
Jeffrey L. Goldberg
Vice President
METROPOLITAN ACQUISITION VII, L.L.C.
By: MAP VII Acquisition Corporation, its
managing member
By: /s/ Jeffrey L. Goldberg
-------------------------------------
Jeffrey L. Goldberg
Vice President
MAP VII ACQUISITION CORPORATION
By: /s/ Jeffrey L. Goldberg
-------------------------------------
Jeffrey L. Goldberg
Vice President
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Frank M. Garrison
-------------------------------------
Frank M. Garrison
Executive Managing Director
<PAGE> 5
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
- -------- -----------
(a)(6) Supplement to the Offer to Purchase dated June 14, 1996
(a)(7) Press Release dated June 10, 1996
(c)(5) Amendment dated June 12, 1996 to Agreement Between Walton Street
Capital Acquisition Co. II, L.L.C. and Beattie Place LLC
dated as of May 16, 1996
(c)(6) Agreement dated June 12, 1996 Among Beattie Place LLC, MAP VII
Acquisition Corporation, Metropolitan Acquisition VII,
L.L.C. and American Real Estate Holdings, L.P.
(c)(7) Amended and Restated Operating Agreement of Beattie Place LLC,
dated as on June 12, 1996
(g)(1) Amended Verified Class and Derivative Action Complaint as filed
on June 11, 1996 with the Circuit Court, Cook County,
Illinois
5
<PAGE> 1
Exhibit 99(a)(6)
Supplement to the Offer to Purchase for Cash
Up To 78,367 Limited Partnership Interests
of
BALCOR PENSION INVESTORS - III
at
$130 NET PER LIMITED PARTNERSHIP INTEREST
by
WALTON STREET CAPITAL ACQUISITION CO. II, L.L.C.
----------------------------------------------------------------------
THE OFFER, PRORATION PERIOD, AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00
P.M., EASTERN TIME, ON JUNE 27, 1996, UNLESS THE OFFER IS FURTHER
EXTENDED.
----------------------------------------------------------------------
The Purchaser hereby supplements, modifies and amends its offer to purchase
up to 33% of the Interests of the Partnership, outstanding as of the Expiration
Date, at $130 in cash, without interest, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated May 20, 1996 (the "Offer to
Purchase"), as supplemented and amended by this Supplement to the Offer to
Purchase (the "Supplement"), and in the related Letter of Acceptance, as each
may be supplemented, modified or amended from time to time (which together
constitute the "Offer"). Unless the context otherwise requires, capitalized
terms used in this Supplement but not defined shall have the meanings ascribed
to them in the Offer to Purchase.
I. EXTENSION OF THE PURCHASER'S OFFER
On June 10, 1996, the Purchaser extended the Offer so that it will now
expire at 5:00 p.m. on Thursday, June 27, 1996.
II. UPDATED INFORMATION RELATING TO THE OFFER
The General Partner, as described below, has obtained certain estimated
valuations per Interest which, based on their respective methodologies, were in
excess of the Purchaser's estimated net asset value per Interest. As of March
31, 1996, the Alex Brown final current liquidation value of the Partnership is
$213-$214 per Interest and the Darby (defined below) valuation is $209 per
Interest. In addition, pursuant to the Early Investment Incentive Fund, the
Partnership repurchased 5,882 Interests during 1995 at an average price of
$242.48.
In the General Partner's letter to you dated May 28, 1996, the General
Partner announced that it "makes no recommendation and is remaining neutral
with respect to this offer and suggests that you consider [certain] factors in
making your decision to accept or reject this offer. . . ." In addition, the
General Partner disclosed the Partnership receives valuations quarterly from
Valuation Group and Darby & Associates ("Darby"). The Darby valuation
represents the value of an Interest based upon the present value of the
Partnership's projected future cash flows and the sale of the Partnership's
assets by the end of 1998. As such, it is not intended to represent the value
for which an Interest could be liquidated today and, therefore, reflects a
different valuation analysis than the analysis utilized by Alex Brown in
arriving at its estimate of value. The repurchase price for Interests
repurchased pursuant to the Early Investment Incentive Fund is equal to 95% of
Darby's most recent valuation.
The Purchaser's estimated net asset value of $194 per Interest was derived
from its analysis of financial information from publicly-available sources, its
review of the 1995 property level financial results and the 1996 property level
budgets provided by Balcor, its inspection of certain of the Properties and its
expertise in the markets in which the Properties are located. The Purchaser
did not derive such value by capitalizing net operating income or by the strict
use of any other formula. The Purchaser believes, however, that neither its
estimated net asset value, the Alex Brown valuation, nor the Darby valuation
represents a fair estimate of the market value of an Interest, primarily due to
the fact that such estimates do not take into account (i) the lack of liquidity
of the Interests, (ii) the inability of the Purchaser to exercise control over
the Properties and the Partnership's operations, (iii) uncertainty as to the
amount and timing of expected cash flow distributions, and (iv) legal and other
expenses that may be incurred in connection with a liquidation of the
Partnership.
<PAGE> 2
III. AMENDMENT TO ASSIGNMENT AGREEMENT
The Assignment Agreement discussed in the Offer to Purchase has been
amended (the "Amendment") by a letter dated June 12, 1996 to increase the
percentage of Interests to be purchased by Beattie Place to 35% of the
Interests tendered and also to increase the percentage of costs associated with
the Offer (the "Tender Costs") borne by Beattie Place to 35% of total Tender
Costs. The purpose of the Amendment is to facilitate the admission of American
Real Estate Holdings L.P. ("AREH") as an additional non-managing member to
Beattie Place. AREH is a limited partnership which is 99% owned by American
Real Estate Partners, L.P. ("AREP"), which is a publicly traded master limited
partnership listed on the New York Stock Exchange. The general partner of both
AREH and AREP is American Property Investors, Inc., which is a corporation
wholly owned by Carl C. Icahn. In the event AREH's interest in Beattie Place
is redeemed prior to Beattie Place purchasing any Interests pursuant to the
Offer, the percentages discussed above will revert to those contained in the
original Assignment Agreement. All other provisions of the Assignment
Agreement remain in full force and effect. A copy of the Amendment has been
filed as Exhibit (c)(5) to Amendment No. 1 to the Purchaser's Tender Offer
Statement on Schedule 14D-1 filed with the Commission on June 14, 1996 (the
"14D-1 Amendment").
Pursuant to an agreement dated June 12, 1996 by and among Beattie Place,
MAP VII, Metropolitan and AREH (the "New- Member Agreement"), AREH has been
admitted as a non-voting member of Beattie Place and owns a membership interest
equal to approximately 71.4% of the total membership interests in Beattie
Place. Pursuant to the terms of the New-Member Agreement, AREH agreed that
neither it nor any of its affiliates will, for a period of ten years, (a) make,
or in any way participate in, directly or indirectly, the calling of any
meeting of Limited Partners of the Partnership or any solicitation of proxies
with respect to the Partnership, or become a participant in any election
contest with respect to the Partnership; or (b) directly or indirectly
terminate, seek to terminate, cause or seek to cause the termination of, or
reduce, seek to reduce or seek to cause the reduction of the compensation then
payable under, or otherwise interfere in any way with any existing and future
contract, between the Partnership on the one hand and Insignia or any affiliate
of Insignia on the other hand; or (c) instigate, encourage or assist any
Limited Partner or any other third party to do any of the foregoing; provided,
however, that from and after a redemption of AREH's entire interest in Beattie
Place, the restrictions described in clauses (a) and (c) of the preceding
sentence shall no longer apply. The New-Member Agreement also provides that in
the event that (a) after a redemption of AREH's interest in Beattie Place, AREH
or any of its affiliates solicits proxies with respect to, or otherwise puts to
a vote of the Limited Partners, a material proposal made by AREH or its
affiliates with respect to the Partnership and such proposal is actively
opposed by Insignia or any of its affiliates or Insignia or any of its
affiliates instigates, encourages or assists any Limited Partner or any other
third party to actively oppose such proposal; (b) Beattie Place, together with
its affiliates, acquires (other than pursuant to the Offer) direct or indirect
economic ownership of or voting or dispository control over more than 2% of the
then outstanding Interests (excluding Interests owned by Insignia and its
affiliates as of the date of the New-Member Agreement); or (c) Insignia or any
of its affiliates shall have engaged in conduct with respect to any contract
between Insignia or any of its affiliates and the Partnership constituting
gross negligence, intentional misconduct or fraud or a material breach of any
such contract which has not been cured within a reasonable period, then none of
the restrictions described in the second sentence of this paragraph will apply.
A copy of the New-Member Agreement has been filed as Exhibit (c)(6) to the
14D-1 Amendment.
* * * * *
LIMITED PARTNERS WHO HAVE PREVIOUSLY TENDERED THEIR INTERESTS PURSUANT TO
THE OFFER AND WHO WISH TO HAVE THEIR INTERESTS PURCHASED PURSUANT TO THE OFFER
NEED NOT TAKE ANY FURTHER ACTION TO TENDER THEIR INTERESTS.
Please call the Information Agent/Depositary for another copy of the Offer
to Purchase. In addition, questions or requests for assistance should be
directed to the Information Agent/Depositary at the address and telephone
number set forth below and on the back cover of the Offer to Purchase.
The Herman Group, Inc.
2121 San Jacinto Street
26th Floor
Dallas, Texas 75201
(800) 747-2979
June 14, 1996
<PAGE> 1
Exhibit 99(a)(7)
WALTON STREET CAPITAL ACQUISITION CO. MAKES ANNOUNCEMENT
SWN 209 FROM SOUTHWEST NEWSWIRE AT 214/871-2940
TO: BUSINESS DESKS
CHICAGO, ILLINOIS, JUNE 10, 1996 -- (SWN) - Walton Street Capital Acquisition
Co. II, L.L.C. ("Walton Street") today announced that it has extended the
expiration date of its tender offers for limited partnership interests
("Interests") in each of Balcor Pension Investors - II ("BPI-II"); Balcor
Pension Investors - III ("BPI-III"); Balcor Pension Investors - IV ("BPI-IV");
Balcor Pension Investors - V ("BPI-V"); Balcor Pension Investors - VI
("BPI-VI"); Balcor Pension Investors - VII ("BPI-VII"); and Balcor Equity
Pension Investors - IV, A Real Estate Limited Partnership ("BEPI- IV") and the
tax-exempt limited partnership interests ("Tax-Exempt Interests") in each of
Balcor Equity Pension Investors - I ("BEPI-I"); Balcor Equity Pension Investors
- - II, A Real Estate Limited Partnership ("BEPI-II"); and Balcor Equity Pension
Investors - III, A Real Estate Limited Partnership (BEPI-III") until 5:00 p.m.,
Eastern Standard Time, on Thursday, June 27, 1996.
As of June 7, 1996, approximately 748 Interests of BPI-II, 1,157 Interests
of BPI-III, 9,334 Interests of BPI-IV, 2,515 Interests of BPI-V, 24,988
Interests of BPI-VI, 1,722 Interests of BPI-VII, 9,523 Tax-Exempt Interests of
BEPI-I, 18,798 Tax-Exempt Interests of BEPI-II, 10,986 Tax-Exempt Interests of
BEPI-III and 1,644 Interests of BEPI-IV had been tendered to the depositary
pursuant to the terms of the tender offers.
Copies of any of the tender offer materials may be obtained from The Herman
Group, Inc., the Information Agent/Depositary for the tender offers, at
800/747-2979.
CONTACT: Ira J. Schulman (312) 915-2843
INDUSTRY; FINANCIAL
<PAGE> 1
Exhibit 99(c)(5)
June 12, 1996
Insignia Financial Group, Inc.
One Insignia Financial Plaza
Greenville, SC 29601
Attention: Jeffrey L. Goldberg
Re: Amendment to Letter Agreement (the "Amendment") dated May 16, 1996
This Amendment will confirm our agreement to amend the letter agreement
dated May 16, 1996 (the "Agreement") among Walton Street Capital Acquisition
Co., II. L.L.C. (the "Purchaser"), Walton Street Capital, L.L.C. ("Walton
Street"), Beattie Place LLC ("Beattie Place") and Insignia Financial Group,
Inc. ("Insignia") whereby the Purchaser assigned to Beattie Place the right to
purchase a portion of the units of limited partnership interest in ten limited
partnerships (the "Target Partnerships") being purchased by the Purchaser
pursuant to ten separate tender offers (the "Offers"). Capitalized terms used
in this letter and not otherwise defined have the same meanings as in the
Agreement.
In the Agreement, the Purchaser agreed to assign to Beattie Place the right
to purchase 16.22% of the units of the Target Partnerships tendered. The
parties now wish to increase the percentage of Units to be assigned to Beattie
Place as provided herein. The Purchaser and Walton Street acknowledge that
they have received an executed copy of the Agreement dated June 12, 1996 (the
"New Member Agreement") among Beattie Place, MAP VII, Metropolitan and American
Real Estate Holdings, L.P. ("AMEH") pursuant to which AMEH has been admitted to
Beattie Place as an additional non-managing member.
1. Assignment. The first sentence of the first paragraph of
"Section III. The Assignment" of the Agreement is revised in its entirety to
read as follows: The Purchaser hereby assigns to Beattie Place the
Purchaser's rights to purchase 35.00% of the Units tendered pursuant to each of
the Offers; provided, however, that with respect to each Offer (each, an
"Incomplete Offer") in respect of which the Purchaser has not accepted all
validly
<PAGE> 2
Jeffrey L. Goldberg
June 12, 1996
Page 2
tendered Units for payment prior to the time that the redemption of AMEH's
interest in Beattie Place is required in accordance with the terms of the New
Member Agreement, the Purchaser assigns to Beattie Place the Purchaser's rights
to purchase 16.22% of the Units tendered.
2. Tender Costs. The first sentence of the second paragraph of
"Section III. The Assignment" of the Agreement is revised in its entirety to
read as follows: The Tender Costs of the Offers will be borne 65.00% by the
Purchaser and 35.00% by Beattie Place whether or not any Units are purchased
pursuant to the Offers; provided, however, that with respect to each Incomplete
Offer, the Tender Costs will be borne 83.78% by the Purchaser and 16.22% by
Beattie Place whether or not any Units are purchased.
The definition of Tender Costs as set forth in the last sentence of the
second paragraph of "Section III. The Assignment" of the Agreement is hereby
revised as follows: the term "Tender Costs" means all out-of-pocket expenses
paid by any Party to unaffiliated third parties in connection with the Offers,
including without limitation, those (i) incurred by any Party after May 16,
1996 in connection with the Offers including legal, solicitation, mailing and
printing expenses, (ii) miscellaneous accountable expenses incurred by any
Party prior to May 16, 1996 which directly relate to the Offers, (iii) legal
expenses incurred by any Party in connection with the preparation and
negotiation of this Agreement, and (iv) the legal fees and expenses of Gordon,
Altman Butowsky Weizen Shalov & Wein ("GABWS&W") incurred by AMEH during the
Applicable Period (as defined in Section 4 of the New Member Agreement) in
connection with the Offers and in connection with the preparation and
negotiation of the New Member Agreement; provided, however, that with respect
to each Incomplete Offer, the Tender Costs relating to such Incomplete Offer
shall be reduced by one-tenth of the fees and expenses of GABWS&W.
3. Additional Matters. Beattie Place and Insignia acknowledge
and agree that (i) they will not assign any of their, or their affiliates,
rights under, or contemplated by, the New Member Agreement, (ii) they will not
amend the New Member Agreement without the consent of the Purchaser and Walton
Street, and (iii) they will enforce all of their, or their affiliates, rights
under, or contemplated by, the New Member Agreement.
<PAGE> 3
Jeffrey L. Goldberg
June 12, 1996
Page 3
Except as otherwise specifically described herein, all other terms and
conditions of the Agreement remain in full force and effect.
If this Agreement is satisfactory to you, please sign in the appropriate place
below.
WALTON STREET CAPITAL ACQUISITION CO.
II, L.L.C.
By:/s/ Jeff Quicksilver
------------------------------------
Managing Principal
WALTON STREET CAPITAL, L.L.C.
By:/s/ Jeff Quicksilver
------------------------------------
Managing Principal
BEATTIE PLACE LLC
By: MAP VII Acquisition Corporation,
its managing member
By:/s/ Jeffrey L. Goldberg
------------------------------------
Title: Vice President
INSIGNIA FINANCIAL GROUP, INC.
By: /s/ Jeffrey L. Goldberg
-----------------------------------
Title: Managing Director
<PAGE> 1
EXHIBIT 99(c)(6)
AGREEMENT
This Agreement (the "Agreement"), dated June 12, 1996, is entered into
by and among BEATTIE PLACE LLC, a Delaware limited liability company
("Beattie"); MAP VII ACQUISITION CORPORATION, a Delaware corporation ("MAP
VII"); METROPOLITAN ACQUISITION VII, L.L.C., a Delaware limited liability
company ("Metropolitan"); and AMERICAN REAL ESTATE HOLDINGS, L.P., a Delaware
limited partnership ("Investor").
WHEREAS, MAP VII is the sole managing member of Beattie, and
Metropolitan is the sole non-managing member of Beattie (and Beattie has no
other members);
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, Beattie, MAP VII, Metropolitan and Investor have entered into a
Subscription and Escrow Instruction Agreement (the "Subscription Agreement"),
dated the same date as this Agreement, and Beattie, MAP VII, Metropolitan,
Investor and IBJ Schroder Bank & Trust Company have entered into an Escrow
Agreement (the "Escrow Agreement"), dated the same date as this Agreement;
WHEREAS, pursuant to the Subscription Agreement and the Escrow
Agreement, (i) Investor has subscribed for and purchased a non-voting
membership interest in Beattie, with the result that Investor has been admitted
as a non-voting member of Beattie and owns a membership interest in Beattie
equal to 71.42857% (the "Investor Percentage") of the total membership
interests in Beattie, and (ii) the purchase price paid by Investor for its
membership interest in Beattie is being held for disbursement by the Escrow
Agent as provided therein;
WHEREAS, contemporaneously with the execution and delivery of this
Agreement, MAP VII, Metropolitan and Investor have entered into an Amended and
Restated Operating Agreement of Beattie (the "Operating Agreement") dated the
same date as this Agreement, which sets forth the relative rights and
obligations of MAP VII, Metropolitan and Investor in and to the profits and
losses of, and distributions by, Beattie;
WHEREAS, Beattie is a party to a Letter Agreement, dated May 16, 1996
(as subsequently amended by letter dated June 12, 1996, the "Letter
Agreement"), with Walton Street Capital Acquisition Co. II, L.L.C. (the
"Purchaser"), Walton Street Capital, L.L.C. ("Walton Street") and Insignia
Financial Group, Inc. ("Insignia"), true and correct copies of which have been
delivered to Investor simultaneously with the execution of the Agreement; and
WHEREAS, pursuant to the Letter Agreement, among other things, (i) the
Purchaser has commenced tender offers (such tender offers being hereinafter
referred to as the "Offers") for units of limited partnership interest (the
"Units") in the ten limited partnerships (the "Partnerships") listed on
Schedule A attached hereto; (ii) the Purchaser assigned to Beattie the
Purchaser's rights to 35% of the Units of each Partnership tendered pursuant to
each of the Offers; and (iii) the parties agreed that the Tender Costs (as
defined in the Letter Agreement) of the Offers will be borne 65% by the
Purchaser and 35% by Beattie;
1
<PAGE> 2
NOW, THEREFORE, in consideration of the premises and the mutual
undertakings contained in this Agreement, the parties hereto agree as follows:
1. Purposes and Permitted Activities of Beattie. Beattie's
activities shall be confined to acquiring, holding and ultimately disposing of
Units, and activities reasonably incidental thereto. Beattie agrees that it
will not assign any of its rights under the Letter Agreement.
2. MAP VII's Authority as Managing Member.
(a) Except as otherwise expressly provided in this Agreement,
MAP VII shall have complete power and authority to manage and direct the
business, operations and affairs of Beattie, and the other members and their
permitted assigns shall have no right to, and shall not, participate in the
management of Beattie; provided, however, the MAP VII shall not be permitted
to admit any additional persons or entities as members of Beattie or accept any
further contributions from any member so as to reduce the participation of
Investor in Beattie below 71.42857%.
(b) Notwithstanding the foregoing, prior to a redemption of
Investor's entire interest in Beattie neither MAP VII nor Beattie (nor, in the
case of clause (iv) below, any of their respective affiliates (as defined in
Section 7)) shall take any action to (i) increase the price per Unit offered
in any of the Offers or extend the scheduled expiration date of any Offer by
more than 90 days from the currently scheduled expiration date; (ii) vote,
grant any proxy with respect to, or otherwise act in the capacity of a holder
of Units to give any consent or other approval or exercise any veto right with
respect to, any Unit, or dispose of any Units; (iii) settle or approve the
settlement of any litigation relating to the Offers (unless such settlement has
no direct or indirect cost to Investor); or (iv) acquire a direct or indirect
controlling interest in any current or future general partner of any of the
Partnerships or become the general partner of any of the Partnerships; without,
in any such case, first giving Investor (x) in the case of an increase in an
Offer price, two business days' prior written notice, or (y) in any other
case, then days' prior written notice (or such lesser amount of notice as
shall be reasonable under the circumstances, but in no event less than two
business days). If prior to the date the action is proposed to be taken
Investor gives MAP VII written notice (an "Objection Notice") that it objects
to the proposed action, neither MAP VII nor Beattie (nor, in the case of clause
(iv), any or their respective affiliates) shall take the proposed action
except as provided in Section 3(a).
3. Redemption of Investor's Interest.
(a) At any time after an Objection Notice has been given, MAP
VII may cause Beattie to redeem Investor's entire interest in Beattie. If the
redemption occurs prior to the time Beattie has acquired any Units, it shall be
effected by returning to Investor the sum of (i) the cash purchase price paid
by Investor for its interest in Beattie plus (ii) all additional capital
contributions made by Investor to Beattie, without interest. If the redemption
occurs after the time Beattie has acquired Units, it shall be effected by
transferring to Investor (i) a number of Units in each Partnership equal to the
total number of Units of the applicable Partnership owned by Beattie at the
time of the redemption multiplied by the Investor Percentage, and (ii)
Investor's pro rata share (71.42857%) of all cash and other assets owned by
Beattie. The redemption will
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be effective upon delivery to Investor of a written notice of redemption
accompanied by, as applicable, either (x) a bank check in the amount of the
cash redemption price or (y) one or more duly executed instruments legally
sufficient to transfer the requisite number of Units to Investor. Following a
redemption to which the preceding clause (y) applies, Beattie shall take all
commercially reasonable actions requested by Investor to enable Investor to
become a substituted limited partner of each applicable Partnership, and if
despite such actions Investor does not become a substituted limited partner of
one or more of the applicable Partnerships, Beattie shall take all commercially
reasonable actions requested by Investor to enable Investor to vote or dispose
of the applicable Units, including without limitation granting Investor proxies
to vote such Units; provided, however, that the foregoing shall not require
Beattie to commence or prosecute litigation or to incur any material expense,
unless (i) Investor would not have standing to commence litigation in respect
of the transferred Units, (ii) Investor requests that Beattie commence such
litigation, and (iii) Investor agrees to fully and unconditionally indemnify
Beattie and its affiliates from and against any and all costs and expenses they
may incur in connection with such litigation and such indemnification agreement
is satisfactory to Beattie. Following any redemption (including a redemption
pursuant to Section 3(d)), Investor shall have no further rights whatsoever in
Beattie or under the Operating Agreement, and MAP VII may take any action,
including any action which was the subject of an Objection Notice.
(b) Prior to the expiration or withdrawal of any Offer with respect to
any particular Partnership, neither Investor nor any of its affiliates shall
make or announce or disclose any intention to make any tender offer for Units,
or acquire, directly or indirectly, in one or more transactions, beneficial
ownership of Units representing more than 2% of the total outstanding Units, of
the applicable Partnership (other than pursuant to the provisions of this
Agreement).
(c) Subject to the terms of this Agreement, including Section 3(d)
below, for a period of ten years from the date hereof, neither Investor nor any
of its affiliates shall (A) make, or in any way participate in, directly or
indirectly, the calling of any meeting of limited partners of any Partnership
or any solicitation of proxies with respect to any Partnership, or become a
participant in any election contest with respect to any Partnership; or (B)
directly or indirectly terminate, seek to terminate, cause or seek to cause
the termination of, or reduce, seek to reduce or seek to cause the reduction of
the compensation than payable under, or otherwise interfere in any way with any
existing or future contract, between any Partnership on the one hand and
Insignia or any affiliate of Insignia on the other hand; or (C) instigate,
encourage or assist any limited partner of any Partnership or any other third
party to do any of the foregoing.
(d) Notwithstanding anything contained in Section 3(c) to the contrary,
(i) from and after the earlier of a redemption of Investor's entire interest in
Beattie or such time as Beattie is required to redeem Investor's entire
interest in Beattie pursuant to the terms of this Agreement, the provisions of
Sections 3(c)(A) and 3(c)(C) (insofar as Section 3(c)(C) relates to Section
3(c)(A)) shall not be binding upon Investor or its affiliates (including without
limitation with respect to any proposal to cause the liquidation of any or all
of the Partnerships, notwithstanding the provisions of Sections 3(c)(B) and
3(c)(C)); and (ii) in the event that (A) Investor or any of its affiliates
solicits proxies with respect to, or otherwise puts to a vote of the limited
partners of a Partnership, a material proposal made by Investor or its
affiliates with
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respect to a Partnership and such proposal is actively opposed by Insignia or
any of its affiliates or Insignia or any of its affiliates instigates,
encourages or assists any limited partner of the Partnership or any other third
party to actively oppose such proposal, or (B) Beattie, together with its
affiliates, acquires (other than pursuant to the Offer) direct or indirect
economic ownership of or voting or dispository control over more than 2% of the
then outstanding Units (excluding Units owned by Insignia and its affiliates as
of the date hereof) of a Partnership, or (C) Insignia or any of its affiliates
shall have engaged in conduct with respect to any contract referred to in
clause (B) of Section 3(c) that constitutes gross negligence, intentional
misconduct or fraud or a material breach of any such contract which has not
been cured within a reasonable period (the applicable Partnership in clause
(A), (B) or (C) being hereinafter referred to as the "Subject Partnership"),
the provisions of Section 3(c) shall not be binding upon Investor or its
affiliates with respect to the Subject Partnership. Beattie covenants and
agrees that in the event the condition described in clause (B) of this Section
3(d) occurs, Beattie will promptly give Investor written notice thereof.
(e) Notwithstanding anything contained in this Agreement to the
contrary, (i) in the event that any of Insignia or any of its affiliates or
Walton Street or any of its affiliates (or any principal of Walton Street or
any of such principal's affiliates) acquires a direct or indirect controlling
interest in any current or future general partner of any of the Partnerships or
becomes the general partner of any of the Partnerships, then upon no less than
five days prior written notice to MAP VII, Investor shall have the right to
require Beattie to redeem Investor's entire interest in Beattie; and (ii)
commencing on the 180th day after the date hereof, and on each 90th day
thereafter (or the next succeeding business day if such 180th or 90th day is
not a business day), upon written notice delivered to MAP VII no less than 20
days prior to such date, Investor shall have the right to require Beattie to
redeem Investor's entire interest in Beattie on such date. The redemption shall
be effected by transferring to Investor (i) a number of Units in each
Partnership equal to the total number of Units owned by Beattie in such
Partnership at the time of the redemption multiplied by the Investor
Percentage, and (ii) Investor's pro rata share (71.42857%) of all cash and
other assets owned by Beattie. Following a redemption pursuant to this Section
3(e), Beattie shall take all commercially reasonable actions requested by
Investor to enable Investor to become a substituted limited partner of each
applicable Partnership, and if despite such actions Investor does not become a
substituted limited partner of one or more of the applicable Partnerships,
Beattie shall take all commercially reasonable actions requested by Investor to
enable Investor to vote or dispose of the applicable Units, including without
limitation granting Investor proxies to vote such Units; provided, however,
that the foregoing shall not require Beattie to commence or prosecute
litigation or to incur any material expense, unless (i) Investor would not have
standing to commence litigation in respect of the transferred Units, (ii)
Investor requests that Beattie commence such litigation, and (iii) Investor
agrees to fully and unconditionally indemnify Beattie and its affiliates from
and against any and all costs and expenses they may incur in connection with
such litigation and such indemnification agreement is satisfactory to Beattie.
4. Tender Costs. With respect to the Tender Costs applicable to any
Offer incurred at any time prior to a redemption of Investor's interest in
Beattie as provided herein, (i) Investor will be responsible for and will pay
or cause to be paid directly to the Purchaser an amount equal to (x) the
Investor Percentage multiplied by (y) the amount of such Tender Costs payable
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by Beattie under the Letter Agreement in respect of such Offer; and (ii)
Beattie shall pay the balance of such Tender Costs; provided, however, that
unless the Condition (as defined below) has occurred, then with respect to each
Offer (each an "Incomplete Offer") in respect of which the Purchaser has not
accepted all validly tendered Units for payment prior to the time that the
redemption of the Investor's interest in Beattie is required to occur, Investor
shall be required to pay only the portion of the Tender Costs relating to such
Incomplete Offer which were incurred during the Applicable Period (as defined
below) constituting one-tenth (the "Applicable Amount") of the fees and
expenses of Roger & Wells in respect of its services rendered in connection
with this Agreement and all matters incidental to the investment by Investor in
Beattie, including without limitation the preparation, review and filing of
amendments to the tender offer materials relating to the Offers, and Beattie
shall pay over to Investor an amount equal to (x) all Tender Costs previously
paid by Investor in respect of such Incomplete Offer, less (y) the Applicable
Amount. All amounts paid by Investor pursuant to this Section 4 shall be deemed
to constitute additional capital contributions by Investor to Beattie. All
amounts to be paid by Beattie hereunder shall be paid from funds provided by
persons other than Investor and Beattie shall, following such payment, continue
to possess funds which, together with the proceeds of Investor's subscription,
are sufficient to fund the purchase of Units as required under the Letter
Agreement. The "Condition" shall be deemed to have occurred if the redemption
referred to in the first sentence of this Section 4 results from the delivery
of an Objection Notice pursuant to Section 2(b)(i) and/or (iii) as a result of
any actions that would result in the cost to be paid for a Unit in any Offer to
increase by less than 10% above the price existing on the date hereof (or, in
the event that a competing tender offer existed at the time of such actions,
less than 10% above the price being offered in such competing offer). The term
"Applicable Period" means the period from and including May 23, 1996 through
and including the date on which Beattie was required to effect the redemption
pursuant to the terms of this Agreement.
5. Distributions. Distributions by Beattie will be made in
accordance with the terms of the Operating Agreement.
6. Access of Information. Upon the request of Investor, Beattie
and MAP VII shall provide Investor such information as is reasonably available
to Beattie and MAP VII with respect to Tender Costs, the Offers, Beattie and
all matters related thereto. Beattie hereby represents and warrants that, to
the best of its knowledge, as of the date hereof the assets of Beattie
(exclusive of those contributed and to be contributed by Investor) are
sufficient to pay 28.571% of the purchase price of all Units if the maximum
number of Units subject to the Offers were tendered and accepted for payment
and to pay all amounts required to be paid by Beattie pursuant to Section 4
above.
7. Affiliates. For purposes of this Agreement, "affiliate" means,
as to any person or entity (a "Person") (i) any other Person (and the
immediate family members of such Person) that controls, is controlled by, or
is under common control with the first Person; and (ii) if the first Person is
a natural person, the immediately family members of that Person. For all
purposes of this Agreement and notwithstanding the foregoing definition of
"affiliate" to the contrary, at any given time (i) each of MAP VII,
Metropolitan, Beattie and Insignia and each of Insignia's then existing
affiliates shall be deemed to be affiliates of one another, and (ii) Investor
and Carl C. Icahn and each of his then existing affiliates shall be deemed to
be affiliates of one another.
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8. Parties Bound. Investor agrees that it will be liable for any and
all damages incurred by Beattie and any of its affiliates as a result of a
breach of any provision of this Agreement by any affiliate of Investor,
regardless of whether such affiliate is controlled by Investor. MAP VII agrees
that it will be liable for any and all damages incurred by Investor and any of
its affiliates as a result of a breach of any provision of this Agreement by an
affiliate of MAP VII, regardless of whether such affiliate is controlled by
MAP VII.
9. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their successors and permitted
assigns. Each party to this Agreement may assign its rights under this
Agreement to any affiliate of such party, but no such assignment shall relieve
any assignor of its obligations hereunder. The rights and obligations of
MAP VII under this Agreement shall be binding upon any successor managing
member of Beattie.
10. Amendment; Waiver. No amendment, modification or waiver of the
provisions of this Agreement shall be effective unless in a writing executed by
the party against whom such amendment or modification is sought to be enforced
(or in the case of a waiver, by the party waiving one or more of its rights
hereunder). In addition, prior to a redemption of Investor's entire interest in
Beattie, Beattie may not amend or waive its rights under the Letter Agreement
without the consent of Investor.
11. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
12. Governing Law. This Agreement shall be governed by, and construed
under, the laws of the State of Delaware (without giving effect to principles
governing conflicts of laws), all rights and remedies being governed by said
laws.
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IN WITNESS WHEREOF, the undersigned, intending to be legally bound,
have caused this Agreement to be duly executed as of the date first
above written.
BEATTIE PLACE LLC
By: MAP VII Acquisition Corporation,
its managing member
By: /s/ JEFFREY L. GOLDBERG
---------------------------------
Jeffrey L. Goldberg
Vice President
MAP VII ACQUISITION CORPORATION
By: /s/ JEFFREY L. GOLDBERG
---------------------------------
Jeffrey L. Goldberg
Vice President
METROPOLITAN ACQUISITION VII,
L.L.C.
By: MAP VII Acquisition Corporation,
its managing member
By: /s/ JEFFREY L. GOLDBERG
---------------------------------
Jeffrey L. Goldberg
Vice President
AMERICAN REAL ESTATE HOLDINGS,
L.P.
By: American Property Investors, Inc.
its sole general partner
By: /s/ MARTIN HIRSCH
---------------------------------
Name: Martin Hirsch
Title: Vice-President
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EXHIBIT 99(c)(7)
AMENDED AND RESTATED OPERATING AGREEMENT
OF
BEATTIE PLACE LLC
This Amended and Restated Operating Agreement of Beattie Place LLC (the
"Company") is entered into and shall be effective as of June 12, 1996 by and
among MAP VII Acquisition Corporation, a Delaware corporation (the "Managing
Member"), Metropolitan Acquisition VII, L.L.C., a Delaware limited liability
company ("MAP VII"), and American Real Estate Holdings, L.P., a Delaware
limited partnership ("American"). MAP VII and American are collectively
referred to as the "Non-Managing Members". The Managing Member, MAP VII and
American are collectively referred to as the "Members" and each is separately
referred to as a "Member".
WHEREAS, MAP VII and the Managing Member formed a limited liability
company pursuant to the Delaware Limited Liability Company Act, 6 Del. C
Section 18-101, et seq., as amended from time to time (the "Act"), by filing a
Certificate of Formation of the Company (the "Certificate") with the offices of
the Secretary of State of Delaware and entering into an Operating Agreement
dated as of May 15, 1996 (the "Original Agreement"); and
WHEREAS, MAP VII, American and the Managing Member wish to amend and
restate the Original Agreement in its entirety;
NOW THEREFORE, in consideration of the mutual covenants and agreements
herein made and intending to be legally bound, the Members hereby agree as
follows:
1. Name. The name of the limited liability company formed by the
Original Agreement and by the filing of the Certificate is Beattie Place LLC.
The business of the Company may be conducted upon compliance with all
applicable laws under any other name designated by the Managing Member. The
Managing Member, as an authorized person within the meaning of the Delaware
Act, executed, delivered and filed the Certificate and shall execute, deliver
and file any and all amendments thereto and restatements thereof.
2. Purpose. The Company's activities shall be confined to
acquiring, holding and ultimately disposing of units of limited partnerships
("Units") in the 10 limited partnerships listed on Schedule A hereto (the
"Target Partnerships"), and activities determined by the Managing Member to be
reasonably incidental thereto.
3. Registered Office. The registered office of the Company in the
State of Delaware is c/o The Prentice Hall Corporation System, Inc., 32
Loockerman Square, Suite L-100, Kent County, Dover, Delaware 19901.
<PAGE> 2
4. Registered Agent. The name and address of the registered agent of
the Company for service of process on the Company in the State of Delaware is
The Prentice Hall Corporation System, Inc., 32 Loockerman Square, Suite L-100,
Kent County, Dover, Delaware 19901.
5. Members. The names and the business, residence or mailing addresses
of the Managing Member and the Non-Managing Members are as follows:
MAP VII Acquisition Corporation
One Insignia Financial Plaza
Greenville, South Carolina 29602
Metropolitan Acquisition VII, L.L.C
One Insignia Financial Plaza
Greenville, South Carolina 29602
American Real Estate Holdings, L.P.
100 S. Bedford Road
Mt. Kisco, New York 10549
6. Powers. The powers of the Managing Member include all powers,
statutory and otherwise, possessed by managing members of limited liability
companies under the laws of the State of Delaware. The Non-Managing Members
shall take no part in the management of the Company and have no right to remove
the Managing Member or to dissolve the Company.
7. Term. The Company shall dissolve, and its affairs shall be wound
up, on March 31, 2016, or at such earlier time as (a) the Managing Member
approves in writing, (b) the retirement, resignation, expulsion, bankruptcy or
dissolution of the Managing Member or (c) an entry of a decree of judicial
dissolution of the Company has occurred under Section 18-802 of the Act. No
action of, or event affecting (including bankruptcy, withdrawal, resignation,
dissolution or incapacity), a Member (other than the Managing Member) shall
dissolve or terminate the Company.
8. Capital Contributions. "Capital Contributions" shall mean, for each
Member, the aggregate amount of such Member's cash contributions to the Company
pursuant to Sections 8.a. and 8.b. of this Agreement through the date of
determination. The total capital of the Company shall consist of the Capital
Contributions made to the Company by the Managing Member as described in
Section 8.a., plus the Capital Contributions made to the Company by the other
Members as described in Section 8.b.
a. The Managing Member has contributed $10 to the capital of
the Company.
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b. MAP VII has contributed $18,447,584 to the capital of
the Company. The Capital Contributions made by the Managing Member and MAP VII
have been deposited into "Holding Account-1" and are under the control of the
Managing Member. American has contributed $46,118,982 to the capital of the
Company. The Capital Contributions made by American have been deposited into
"Holding Account-2". As and when amounts are released from Holding Account-2
into the Company's general bank accounts ("Released Amounts"), in accordance
with the terms of (i) the Subscription and Escrow Instruction Agreement, dated
as of even date herewith, among the Company, the Managing Member, MAP VII and
American, and (ii) the Escrow Agreement, dated as of even date herewith, among
the Company, the Managing Member, MAP VII, American and IBJ Schroder Bank &
Trust Company, as escrow agent, the Managing Member shall cause a portion of
the amounts held in Holding Account-1 to be released into the Company's general
bank accounts, which portion shall equal the product of (x) a fraction, the
numerator of which are the Released Amounts and the denominator of which is
$46,118,982, multiplied by (y) $18,447,594.
9. Capital Accounts. Each Member shall have a capital account, the
initial balance of which equals the amount of its Capital Contribution. Each
member's capital account shall increase by the aggregate amount of profit
allocated to, and the amount of additional capital contributions made by, such
Member, and shall decrease by the aggregate amount of losses allocated, and
distributions made, to such Member in accordance with Treasury Regulations
promulgated under Section 704(b) of the Internal Revenue Code of 1986, as
amended (the "Code").
10. Allocations of Profit and Losses. Except as may otherwise be
determined by the Managing member to be required by or appropriate pursuant to
the Code and the regulations promulgated thereunder, and except as set forth in
Section 11 below, the Company's profits and losses shall be allocated to the
Members in proportion to their respective membership interests, which shall be
as set forth below:
Managing Member - 0.10000%
MAP VII - 28.47143%
American - 71.42857%
11. Holding Account Earnings. Any earnings on Capital Contributions
that are in Holding Account-1 shall be allocated solely to the Managing Member
and MAP VII, pro rata in accordance with their membership interests. Any
earnings on Capital Contributions that are in Holding Account-2 shall be
allocated solely to American.
12. Distributions. Subject to any restrictions or requirements in
any agreement to which the Company is or may become a party, the Managing
Member may from time to time, in its sole discretion, cause the Company to
distribute to the members cash held by the Company that is not reasonably
necessary for the operation of the Company. Any such cash shall be so
distributed to the members in accordance with the allocation provisions set
forth in Section 10 and 11 above; provided, however, that all proceeds derived
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from any disposition of Units in any Target Partnership or as a result of any
distribution or payment received by the Company in respect of Units shall be
distributed to the Members in accordance with the provisions of Section 10
promptly upon receipt by the Company, subject to the right of the Managing
Member at all times to maintain a reserve of $10,000.
13. Exculpation. No Member or affiliate thereof, or any of their
respective stockholders, members, officers, directors, employees, agents or
counsel ("Covered Persons") shall have any liability to the Company and its
members for damages for any action or inaction of such Covered Person; provided
that such exculpation shall not eliminate or limit the liability of such
Covered Person if a judgment or other final adjudication adverse to it
establishes that its acts were in bad faith or involved intentional misconduct
or a knowing violation of law ("Disabling Conduct").
14. Indemnification. The Company shall indemnify and hold harmless,
and advance expenses to, any Covered Persons, from and against any and all
claims, demands, liabilities, losses and expenses (including reasonable
attorneys fees) arising as a result of any threatened, pending or completed
action, suit, or proceeding, whether civil, criminal, administrative, or
investigative, related in whole or in part to the activities of the Company;
provided that such indemnification shall not be available to any Covered Person
if a judgment or other final adjudication adverse to it establishes that it
engaged in Disabling Conduct. The foregoing right of indemnification and
advancement is not exclusive of any other right of indemnification or
advancement that any Covered Person may otherwise have.
15. Transfer of Managing Member's Interest in the Company.
a. The Managing Member may not assign its interest in the Company, in
whole or in part (and no proposed assignee of all or a portion of the Managing
Member's Interest in the Company shall be admitted to the Company as a Managing
Member of the Company), unless the Managing Member obtains the prior written
consent of the Members to such assignment and admission. A sale or pledge of
the stock of the Managing Member shall not be deemed to be an assignment of its
Interest in the Company.
b. Except in connection with an assignment permitted by this Section
15, the Managing Member may not resign or withdraw as the managing member of
the Company or take any action which would cause its resignation or withdrawal
as the managing member of the Company.
c. Any purported assignment of all or a portion of the Managing
Member's interest in the Company that violates subsection a. above shall be
null and void ab initio.
d. Upon the dissolution, bankruptcy or withdrawal of the Managing
Member, which pursuant to the terms of this Agreement and under the laws of the
State of Delaware requires the dissolution of the Company, the Company shall be
dissolved and wound up unless, within a period of 90 days from the date of the
occurrence of such event, the other Members designate an individual or entity
to serve as the new managing member of the
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Company (the "Successor Managing Member"). In such event, the Company shall not
be dissolved and wound up but shall be continued with the Successor Managing
Member being admitted to the Company as its managing member and thereafter
being the Managing Member for all purposes of this Agreement and with the
existing Managing Member thereupon withdrawing as a managing member of the
Company.
e. Notwithstanding the provisions of this Section 15, no assignee
of the Managing Member or other individual or entity shall be admitted as a
managing member of the Company unless and until such individual or entity
executes a counterpart of this Agreement and thereby assumes the rights,
duties, and obligations of the Managing Member pursuant to this Agreement.
16. Transfer of Membership Interests by Members other than the
Managing Member.
a. A Non-Managing Member's interest will not be assignable or
transferable without the prior written consent of the Managing Member and each
other Member, which consent (a) will not be unreasonably withheld in the
event of a proposed assignment or transfer to an Affiliate of the assignor or
transferor and (b) may be granted or withheld in each such Member's sole
discretion in all other instances. No assignee or transferee of a Member shall
be admitted to the Company as a Member in the place of his assignor except in
accordance with the provisions of subsection b. below. The Company shall have
no obligation to recognize, or furnish information or make distributions to, any
assignee or transferee of a Member who does not comply with the provisions of
this Section 16, and such assignee or transferee shall not have any rights
against the Company and shall have rights only against his
assignor/transferor. Any purported assignment or transfer of all or a portion
of any Member's Interest in the Company that violates any of the provisions of
this Section 16 shall be null and void ab initio.
b. No assignee (including, without limitation, any transferee,
heir, legatee, or purchaser) of all or any portion of an Interest in the
Company shall be admitted to the Company as a Member without the prior written
consent of the Managing Member and each other Member, which consent may be
granted or withheld in each such Member's sole discretion.
c. Upon the admission of a new Managing Member or a Substitute
Member to the Company, the Managing Member shall promptly take such steps as may
be necessary or appropriate to prepare, file, and/or record an amendment to
this Agreement and, if necessary or appropriate in the sole discretion of the
Managing Member, to the Certificate, to reflect such admission.
17. Withdrawal. No right is given to any member of the Company to
withdraw from the Company.
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18. Notices.
a. Any notice to a Member shall be sent to the address of such
Member set forth above or to such other mailing address of which such Member
shall advise the Managing Member in writing. Any notice to the Company shall be
sent to the principal office of the Company c/o Insignia Financial Group, Inc.,
One Insignia Financial Plaza, Greenville, South Carolina 29602. The Managing
Member may at any time change the location of such office. Prompt notice of any
such change shall be given to the Members.
b. Any notice shall be deemed to have been duly given if (i) sent
by United States certified or registered mail, return receipt requested, when
received, (ii) personally delivered or delivered by telecopy, when received,
(iii) sent by United States Express Mail or overnight courier, on the second
following business day, or (iv) by telegram or telex on the following business
day.
19. Governing Law. This Agreement shall be governed by, and
construed under, the laws of the State of Delaware (without giving effect to
principles governing conflicts of law), all rights and remedies being governed
by said laws.
20. Amendments. This Agreement may not be modified or amended
other than pursuant to a written instrument signed by all the Members.
21. No Right to Partition. To the extent permitted by law, and
except as otherwise expressly provided in this Agreement, the Members, on
behalf of themselves and their shareholders, members, heirs, executors,
administrators, personal or legal representatives, successors and assigns, if
any, hereby specifically renounce, waive and forfeit all rights, whether
arising under contract or statute or by operation of law, to seek, bring or
maintain any action in any court of law or equity for partition of the Company
or any asset of the Company, or any interest which is considered to be Company
property, regardless of the manner in which title to any such property may
be held.
22. Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument.
23. Tax Matters Partner. Each Member hereby appoints and designates
the Managing Member as the tax matters partner (the "Tax Matters Partner"), as
such term is defined in the Code and the regulations thereunder. The Tax
Matters Partner is authorized to take all action on behalf of the Company and
the Members permitted under the Code. The Tax Matters Partner may engage
accountants or attorneys to assist the Tax Matters Partner in discharging its
duties hereunder. All reasonable expenses incurred by the Tax Matters Partner
in connection with any administrative proceeding before the Internal Revenue
Service and/or judicial review of such proceeding, including reasonable
accountants' and attorneys' fees, shall be deemed an operating expense of the
Company and shall be paid by the Company.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MAP VII ACQUISITION CORPORATION
By: JEFFREY L. GOLDBERG
------------------------------------
Jeffrey L. Goldberg
Vice President
METROPOLITAN ACQUISITION VII, L.L.C.
By: Metropolitan Acquisition Corporation
By: JEFFREY L. GOLDBERG
--------------------------------
Jeffrey L. Goldberg
Vice President
AMERICAN REAL ESTATE HOLDINGS, L.P.
By: American Property Investors, Inc.,
its sole general partner
By: MARTIN HIRSH
--------------------------------
Name: Martin Hirsh
Title: Vice-President
7
<PAGE> 1
Exhibit 99(g)(1)
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
<TABLE>
<S> <C> <C>
TOM CHIPAIN, ROBERT L. KOPMAN, DR. THOMAS E. KELLIE AND SOLOMON )
BORG, individually and as representatives of a class of similarly )
situated persons and derivatively on behalf and in the right of ) 96 CH 5299
BALCOR PENSION INVESTORS V AND VI AND BALCOR EQUITY PENSION )
INVESTORS I, II and III, ) Hon. Michael B. Getty
)
Plaintiffs, )
)
- v. - )
)
WALTON STREET CAPITAL ACQUISITION CO. II, LLC; JEFFREY L. GOLDBERG; )
METROPOLITAN ACQUISITION VII, LLC; MAP ACQUISITION CORPORATION; )
BEATTIE PLACE, LLC; FMG ACQUISITION I, LLC; INSIGNIA MANAGEMENT )
GROUP; INSIGNIA FINANCIAL GROUP, INC.; NEIL G. BLUHM; BALCOR )
MORTGAGE ADVISORS; BALCOR MORTGAGE ADVISORS - II; BALCOR MORTGAGE )
ADVISORS - III; BALCOR MORTGAGE ADVISORS - V; BALCOR MORTGAGE )
ADVISORS - VI; BALCOR MORTGAGE ADVISORS - VII; BALCOR EQUITY )
PARTNERS - I; BALCOR EQUITY PARTNERS - II; BALCOR EQUITY PARTNERS - )
III; BALCOR EQUITY PARTNERS - IV, )
)
Defendants, )
)
-and- )
)
Balcor Pension Investors - V, Balcor Pension Investors - VI, Balcor )
Equity Pension Investors - I, Balcor Equity Pension Investors - II, )
Balcor Equity Pension Investors - III, )
)
Nominal Defendants. )
</TABLE>
AMENDED VERIFIED CLASS AND DERIVATIVE ACTION COMPLAINT
Plaintiffs, by their attorneys, as and for their amended verified
class and derivative action complaint, allege upon personal knowledge as to
themselves and their own acts and upon
<PAGE> 2
information and belief as to all other matters, based upon, inter alia, the
investigation of counsel, which included a review of public documents filed with
the United States Securities and Exchange Commission (the "SEC"), among other
things, as follows:
1. Plaintiff Tom Chipain, is a holder and at all
relevant times has been a holder of limited partnership units in Balcor Pension
Investors - VI; Robert L. Kopman is and at all relevant times has been a holder
of limited partnership units in Balcor Pension Investors - V and VI; Dr. Thomas
E. Kellie is and at all relevant times has been a holder of limited partnership
units in Balcor Equity Pension Investors - II and III; and Solomon Borg is and
at all relevant times has been a holder of limited partnership units in Balcor
Equity Pension Investors - I. Plaintiffs bring this action as a class action
on behalf of all holders of limited partnership interests (hereinafter the
"limited partners") in the following limited partnerships: Balcor Pension
Investors - II, Balcor Pension Investors - III, Balcor Pension Investors - IV,
Balcor Pension Investors - V, Balcor Pension Investors - VI, Balcor Pension
Investors - VII, Balcor Equity Pension Investors - I, Balcor Equity Pension
Investors - II, Balcor Equity Pension Investors - III, Balcor Equity Pension
Investors - IV (together, the "Partnerships,") (Balcor Equity Pension Investors
- - I, II and III, are sometimes referred to as the "Tax Exempt Partnerships"),
to whom inadequate and coercive tender offers (the "Tender Offers") are
presently being made by Walton Street Capital Acquisition Co. II, LLC
("Walton") in conjunction with others,
-2-
<PAGE> 3
including Insignia Financial Group, Inc. ("Insignia") and/or its affiliates.
2. Plaintiffs also bring this action derivatively on
behalf of and in the right of Balcor Pension Investors V and VI and Balcor
Equity Pension Investors I, II and III (which are sometimes collectively
referred to as the "Derivative Action Partnerships") against those of the
Balcor General Partners (defined below) which were the general partners of the
Derivative Action Partnersips and Insignia Defendants (as defined below) for
their breaches of fiduciary duties owed to the Derivative Action Partnerships
and against the Insignia and Walton Defendants for colluding and/or
participating in the General Partners' breach of their fiduciary duties to the
Derivative Action Partnerships, and against Walton for colluding and/or
participating with the Balcor and Insignia Defendants in their breach of their
fiduciary duties to the Derivative Action Partnerships.
JURISDICTION AND VENUE
3. Jurisdiction over the subject matter of this lawsuit
is proper in this Court because plaintiffs seek equitable relief and
certification of this action as a class action. Plaintiffs also assert claims
under the common law of Illinois.
4. Personal jurisdiction over the defendants is proper
in this judicial district because the defendants are either resident here, have
their principle places of business here, or are engaging and have engaged in
substantial activity and business in
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<PAGE> 4
this judicial district. Moreover, the Partnerships are organized in Illinois.
THE PARTIES
5. Plaintiffs are and at all relevant times hereto have
been holders of limited partnership interests in certain of the subject
Partnerships as stated in paragraph 1 above.
6. Defendant Walton Street Capital Acquisition Co. II,
L.L.C. ("Walton" or the "Purchaser") is a Delaware limited liability company,
which was formed for the purpose of making the Tender Offers (defined below),
among other things. By offers to purchase dated May 20, 1996 ("Offers to
Purchase"), Walton has offered to purchase: (a) up to 28,053 Limited
Partnership Interests of Balcor Pension Investors - II or allegedly 33% of the
outstanding units for $249 Net Per Interest for a total offering price of
$6,985,197 (assuming all shares tender) to unitholders; (b) up to 78,367
Limited Partnership Interests of Balcor Pension Investors - III or allegedly
33% of the outstanding units for $130 Net Per Interest for a total offering
price of $10,187,710 (assuming all shares tender) to unitholders; (c) up to
141,770 Limited Partnership Interests of Balcor Pension Investors - IV or
allegedly 33% of the outstanding units for $65 Net Per Interest for a total
offering price of $9,215,050 (assuming all shares tender) to unitholders; (d)
up to 144,971 Limited Partnership Interests of Balcor Pension Investors - V or
allegedly 33% of the outstanding units for $161 Net Per Interest for a total
offering price of $23,340,331 (assuming all shares tender) to unitholders; (e)
up to
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<PAGE> 5
456,245 Limited Partnership Interests of Balcor Pension Investors - VI or
allegedly 33% of the outstanding units for $80 Net Per Interest for a total
offering price of $36,499,600 (assuming all shares tender) to unitholders; (f)
up to 152,285 Limited Partnership Interests of Balcor Pension Investors - VII
or allegedly 33% of the outstanding units for $109 Net Per Interest for a total
offering price of $16,599,065 (assuming all shares tender) to unitholders; (g)
up to 103,081 Tax-Exempt Limited Partnership Interests of Balcor Equity Pension
Investors - I or allegedly 33% of the outstanding units for $200 Net Per
Interest for a total offering price of $20,616,200 (assuming all shares tender)
to unitholders; (h) up to 272,919 Tax-Exempt Limited Partnership Interests of
Balcor Equity Pension Investors - II or allegedly 33% of the outstanding units
for $92 Net Per Interest for a total offering price of $25,108,548 (assuming
all shares tender) to unitholders; (i) up to 209,244 Tax-Exempt Limited
Partnership Interests of Balcor Equity Pension Investors - III or allegedly 33%
of the outstanding units for $120 Net Per Interest for a total offering price
of $25,109,280 (assuming all shares tender) to unitholders; and (j) up to
61,210 Limited Partnership Interests of Balcor Equity Pension Investors - IV or
allegedly 33% of the outstanding units for $95 Net Per Interest for a total
offering price of $5,814,950 (together, the "Tender Offers") to unitholders.
These Tender Offers were to expire on June 17, 1996, but the expiration date
has been extended to June 27, 1996.
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<PAGE> 6
7. Walton's principal executive offices are located in
Chicago, Illinois.
8. Insignia Financial Group, Inc. ("Insignia") is a full
service real estate service organization which performs property management,
asset management, investor services, partnership administration, mortgage
banking real estate brokerage services, and real estate investment banking
services for various ownership entities, including approximately 1,000 limited
partnerships having approximately 400,000 limited partners. The principal
offices of Insignia are located in Greenville, South Carolina.
9. Insignia Management Group, L.P. ("IMG") is an
affiliate of Insignia and provides property management services to the
Partnerships. IMG is controlled by Insignia and is an agent of the
Partnerships.
10. Metropolitan Acquisition VII, L.L.C. ("Metropolitan")
is a Delaware limited liability company, the managing member of which is MAP
VII Acquisition Corporation ("MAP"). Metropolitan is controlled by Insignia
and maintains its principal executive offices in Greenville, South Carolina.
11. MAP owns 6% of Beattie (defined below) and 9.9% in
Metropolitan. MAP is controlled by Insignia.
12. Beattie Place LLC ("Beattie") is a newly formed
Delaware limited liability company organized by Metropolitan for the purpose of
acquiring units in the Partnerships. Beattie has an agreement called the
"Assignment Agreement" with Walton pursuant to
-6-
<PAGE> 7
which it has the right to purchase 16.2% of the interests tendered in the
Tender Offers. Beattie is an affiliate of and controlled by Insignia. MAP has
a 1% interest in Beattie, and Metropolitan has a 99% interest in Beattie.
13. Jeffrey L. Goldberg ("Goldberg") has been Managing
Director of the Investment Banking Department of Insignia since July 1994 and
was Managing Director of Insignia's Asset Management department from January
1991 until July 1994. Since April 1990, Goldberg has been an officer of
Metropolitan Asset Group, Ltd., of which he is currently Executive Vice
President.
14. Insignia, IMG, Metropolitan, MAP, Beattie and
Goldberg are hereinafter referred to as the Insignia Defendants.
15. Neil G. Bluhm ("Bluhm") is Manager of Walton and
Co-Founder and Managing Principal of Walton Street Capital, L.L.C. ("Walton
Street"), an affiliate of Walton since Walton Street's inception on January 1,
1995.
16. Walton and Bluhm are hereinafter referred to as the
Walton Defendants.
17. Balcor Mortgage Advisors is the general partner of
Balcor Pension Investors - II
18. Balcor Mortgage Advisors - II is the general partner
of Balcor Pension Investors - III.
19. Balcor Mortgage Advisors - III is the general partner
of Balcor Pension Investors - IV.
20. Balcor Mortgage Advisors - V is the general partner
of Balcor Pension Investors - V.
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<PAGE> 8
21. Balcor Mortgage Advisors - VI is the general partner
of Balcor Pension Investors - VI.
22. Balcor Mortgage Advisors - VII is the general partner
of Balcor Pension Investors - VII.
23. Balcor Equity Partners - I is the general partner of
Balcor Equity Pension Investors - I.
24. Balcor Equity Partners - II is the general partner of
Balcor Equity Pension Investors - II.
25. Balcor Equity Partners - III is the general partner
of Balcor Equity Pension Investors - III.
26. Balcor Equity Partners - IV is the general partner of
Balcor Equity Pension Investors - IV.
27. Balcor Mortgage Advisors - II through VII and Balcor
Equity Partners - I through IV are collectively referred to herein as the
"Balcor General Partners" or the "General Partners". The Balcor General
Partners and their affiliates are sometimes collectively referred to as
"Balcor".
DEMAND EXCUSED ALLEGATIONS
28. Counts I through III are brought derivatively in the
right of and on behalf of the Derivative Action Partnerships. Plaintiffs have
not made a demand upon the Balcor General Partners of the Derivative Action
Partnerships as such demand would not have been likely to succeed and is,
therefore, futile and excused by reason of the following:
(a) The Balcor General Partners of the Derivative
Action Partnerships are alleged to have breached their fiduciary
-8-
<PAGE> 9
duties to plaintiffs, limited partners of the Derivative Action Partnerships
and the Derivative Action Partnerships by first revealing non-public,
confidential information to Insignia and Walton and then, failing to (i)
prevent these coercive Tender Offers which are based on disclosure of
confidential information, (ii) negotiate with Walton for better prices; (iii)
take any steps to put the subject Partnerships up for auction in order to
obtain the best price for the unitholders, or (iv) notify limited partners of
their improper disclosure of confidential information, among other things.
(b) The Balcor General Partners of the Derivative
Action Partnerships are liable for breaching their fiduciary duties, giving
rise to a substantial basis for liability against them. A demand would, in
essence, require the General Partners of the Derivative Action Partnerships to
sue themselves. Therefore, they could not independently consider a unitholder
demand for action and there is no independent entity, which could impartially
consider a demand for action.
(c) Further, the inaction and conduct of the
Balcor General Partners of the Derivative Action Partnerships in light of the
Tender Offers demonstrate that they would not affirmatively or effectively
respond to a unitholder demand for action. For instance, they have already
disclosed non-public information to the Insignia and Walton Defendants without
requiring them to enter into a standstill or similar agreement, although they
were aware that the unitholders and the Derivative Action Partnerships would be
-9-
<PAGE> 10
damaged by the disclosure of such information. Furthermore, they have not
taken any steps to prevent the Tender Offers, or to negotiate with either the
Insignia or Walton Defendants to attempt to obtain higher prices or auction the
Partnerships. Indeed, the Balcor General Partners of the Derivative Action
Partnerships have already declared that they intend to remain neutral with
respect to the Tender Offers at issue (although, in fact, they have taken steps
to facilitate the coercive Tender Offers, against the best interests of the
limited partners and the Partnerships.
(d) Their actions thus demonstrate that demand
upon the Balcor General Partners of the Derivative Action Partnerships would
not be likely to succeed, would be futile and is thus excused.
CLASS ALLEGATIONS
29. Counts IV and V are brought as a class action claims
on behalf of the named plaintiffs, individually and on behalf of a class
defined as all persons who hold limited partnership interests in the
Partnerships (the "Class").
30. This action is properly brought as a class action for
the following reasons:
(a) The Class consists of thousands of persons
and is so numerous that joinder of all members is impracticable;
(b) There are questions of law or fact common to
the Class which predominate over any questions affecting the individual member,
including:
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<PAGE> 11
(i) whether the Balcor General
Partners and the Insignia Defendants breached their fiduciary duties to the
Class by, in the case of the Insignia Defendants, acting with the Walton
Defendants, in making coercive and inadequate Tender Offers based upon
non-public information obtained as a consequence of IMG's agency to the
Partnerships and through discussions and negotiations with the Balcor General
Partners, and, in the case of the Balcor General Partners, by divulging
confidential information to Walton such as liquidation values of the
Partnerships without taking appropriate steps to prevent the misuse of such
information;
(ii) whether the Walton and Insignia
Defendants colluded and conspired with the Balcor General Partners in their
breaches of fiduciary duties to the Class;
(iii) whether the Offers to Purchase
and the General Partners' responses thereto and any other documents
disseminated in relation to the Tender Offers were false and misleading;
(iv) whether those Class members who
do not tender will be damaged as a consequence of the working control which
will be concentrated in Walton; and
(v) whether the Class members will be
irreparably harmed as a consequence of the Tender Offers.
31. The claims asserted by the plaintiffs are typical of
the claims of members of the Class;
-11-
<PAGE> 12
32. The plaintiffs will fairly and adequately protect the
interests of the Class and have retained counsel experienced in class actions
and complex litigation;
33. A class action is an appropriate method for the fair
and efficient adjudication of this controversy for at least the following
reasons:
(a) given the size of the individual Class
member's claims, few Class members could afford to seek legal redress
individually for the wrongs committed against them, and absent Class members
have no interest in controlling the prosection of the individual actions;
(b) other available means of adjudicating the
claims of plaintiffs and members of the Class, such as thousands of individual
actions brought separately and pursued independently in state or federal courts
across the country, are impracticable and inefficient;
(c) this action will cause an orderly and
expeditious administration of the Class claims, economies of time, effort, and
expense, and will be foster uniformity of decisions;
(d) without a class action, the Class members
will continue to suffer damages and defendants' violations of law will proceed
without remedy, while defendants continue to retain the proceeds of their
wrongful acts;
(e) management of this action as a class action
poses no unusual difficulties that would impede its management by the Court;
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<PAGE> 13
(f) the claims brought by plaintiffs and members
of the Class are not now, nor have they been the subject of another class
action to the best of plaintiffs' knowledge.
BACKGROUND
34. In mid-1994, Allegiance Realty Group, Inc.
("Allegiance"), an affiliate of Balcor was the property management company
performing property management services for each of the Partnerships at a cost
to each of the Partnerships of more than $100,000 per year. The primary asset
of Allegiance was the contractual commitments of each of the Partnerships to
make substantial payments to it in the future for these property management
services.
35. In mid-1994 Balcor placed Allegiance up for sale.
36. Affiliates of Walton and Beattie (Insignia) were
contacted as part of the auction process and received detailed non-public
information, pursuant to a confidentiality agreement concerning the
Partnerships to enable them to bid for Allegiance, which both Walton and
Beattie did. The Balcor General Partners entered into these confidentiality
agreements knowing that the use of non-public information by any prospective
bidder could result in damage to the limited partners and the Partnerships.
37. The Beattie bid of approximately $30 million was
accepted and, in November, 1994, Insignia acquired all of the assets of
Allegiance, including the management contracts governing the Partnerships.
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<PAGE> 14
38. At about the same time, Balcor and Insignia entered
into the "Refunding Agreement," an agreement which required Balcor to refund
portions of the purchase price which Insignia had paid to Balcor for
Allegiance, in the event of a sale of property assets underlying the
Partnerships, or a liquidation of the Partnerships which would result in an end
to the considerable yearly payments to be made to Insignia for the property
management services. This gave Balcor and the Balcor General Partners a
disincentive to act in the best interests of the Partnerships and limited
partners in liquidating or selling the Partnerships' assets at opportune times
and in accordance with the Partnerships' stated objectives, as such sales would
invoke Balcor's refunding obligation.
39. Insignia has managed the Partnerships since November,
1994. By virtue of this position, the Insignia Defendants are privy to inside,
non-public information about the Partnerships, including the true value of the
units of the Partnerships and the assets underlying the Partnerships (the
"Properties").
40. In early 1996, representatives of Walton met with
Balcor and told Balcor that, among other things, it was interested in making
tender offers for the Partnerships, and requested lists of limited partners.
Balcor provided the lists to Walton in mid-March 1996.
41. At these meetings, Balcor disclosed to Walton then
non-public information concerning liquidation valuations of the limited
partnership units which Alex. Brown had prepared for each
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<PAGE> 15
of the Partnerships at a collective cost to the Partnerships in excess of $1
million.
42. In order to induce the Balcor General Partners to
turn over confidential information for their use in making the Tender Offers,
in April, 1996, Walton and Insignia and the Balcor General Partners entered
into agreements with respect to the sale of certain properties underlying the
Partnerships or liquidation of the Partnerships, the precise terms and
consideration to Balcor from these agreements to become known through discovery
proceedings.
43. In early 1996, in anticipation of the Tender Offers
Walton and Insignia entered in the Joint Venture Agreements (the "JV
Agreements"), and Walton entered into an assignment agreement with Beattie (the
" Assignment Agreements").
44. The JV Agreements essentially provide that Walton and
Insignia will make joint tender offers for the Partnerships, pursuant to a
financial arrangement in which Insignia contributes 25% of the capital for any
tender offer, and Walton contributes 75% of the capital. Once Walton, through
these joint tenders, obtains control of a Partnership, as intended through the
Tender Offers here, the JV Agreements provide that Walton will not interfere
with any property management contract between any of the Partnerships and
Insignia.
45. The JV Agreements further provide that Walton shall
not be prohibited from selling any of the Partnerships' properties. The JV
Agreements also state that if any Walton affiliate gains
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<PAGE> 16
control of any of the Partnerships, it will use its reasonable efforts to cause
Insignia to continue as property manager, that Walton affiliates will not seek
to become property managers of any of the Partnerships and that Walton and
Insignia will exercise their control so that only they or the current general
partners will be general partners in the Partnerships.
46. The Assignment Agreement entitles Insignia to obtain
over 16% of any tender made to Walton.
47. The JV and Assignment Agreements essentially allow
Walton and Insignia to make the Tender Offers, once they have obtained control,
to enable Insignia to entrench itself as property manager, retain its lucrative
contracts, and raise and revise its fees and fee schedule, while allowing
Walton to dispose of property (for which Insignia may obtain brokerage fees).
48. Consequently, on May 20, 1996, the ten essentially
identical Tender Offers were made by Walton, in conjunction with Insignia, and
based upon confidential information which Walton and Insignia obtained through,
inter alia, their communications with the Balcor General Partners and through
Insignia's position as property manager of the Partnerships, for up to 33% or
working control of the Partnerships. (Given the number of units which the
Partnerships have repurchased over the years, in some Partnerships Walton may
actually obtain up to 35% of the units.)
49. To effectuate the Tender Offers, on or about May 20,
1996, Walton filed with the SEC ten Offers to Purchase on Schedule 14D-1 for
each of the Tender Offers. The Offers to Purchase are
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<PAGE> 17
false and misleading in that they misstate or fail to state the following
material information:
(a) the true liquidation value of the units;
(b) that some of the Partnerships are presently
ripe for liquidation;
(c) that Balcor received certain undisclosed
consideration in return for turning over confidential information to Walton;
and
(d) with respect to the Tax Exempt Partnerships,
Walton will have most of the tax exempt units, and therefore, will control the
Partnerships in a manner to extend their tax exempt distributions, but which
may not be in the best interests of the remaining non-tax exempt limited
partners.
50. The Tender Offers are coercive and inadequate because
any unitholder who does not tender at the inadequate price presently being
offered, and the Partnerships themselves: (a) will be subject to Walton's
working control as the controlling unitholder and will have no mechanism for
preventing Walton from using its working control for its benefit and that of
Insignia, rather than for the benefit of the public unitholders; (b) will be
hurt by the enormous fees and other benefits which Insignia will undoubtedly
take and continue to take, as a consequence its having been entrenched through
the JV Agreements which effectively ensure that Insignia will remain as
property manager of the Partnerships and be able to raise its fees as it (and
Walton) sees fit; (c) will likely prevent the liquidation (and thus
distribution of the
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<PAGE> 18
proceeds of liquidation) of some or all of the Properties which Walton, through
its control will prevent, and Insignia, in order to maintain its management
fees and other benefits will prevent (despite the fact that many of the
properties underlying the Partnerships are ready to be liquidated); (d) due to
federal income tax requirements, will disable non- tendering unitholders from
transferring or selling their units in an ensuing 12 month period and in the
case of the Tax Exempt Partnerships, consolidate control in the hands of
Walton, which will, because of the high tax exempt distribution inuring to its
units, take steps (such as the continuation of the Partnership) which inure to
its benefit but which conflict with the interests of those unitholders holding
non-tax exempt units.
51. Thus, the JV Agreements and Assignment Agreements
which entrench Insignia once Walton obtains control and place no limitations on
the working control which Walton will obtain in the Tender Offers, are coercive
and: (a) will induce members of the Class into tendering for inadequate
consideration so that they will not be left to the whims of Walton and
Insignia; and (b) damage the Partnerships, as they will effectively enable
Walton and Insignia to run the Partnerships for their own interests, and in
conflict with the interests of the Partnerships.
52. Moreover, the prices being offered in the Tender
Offers are inadequate and unfair as they are far below liquidation value (a
value which the unitholders could obtain in the near
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<PAGE> 19
future as many of the properties underlying the Partnerships are close to
liquidation), and even below secondary market prices.
53. Insignia, as the property manager of the
Partnerships, is an agent of the Partnerships and, as such, owes fiduciary
duties of loyalty, good faith and fair dealing to the Partnerships.
54. The Insignia Defendants have breached their fiduciary
duties to the Partnerships which arise as a consequence of Insignia's agency
relationship with the Partnerships, by disclosing confidential information to
Walton, and effectively jointly making the Tender Offers with Walton. Walton
has intentionally and knowingly participated and colluded in that breach.
55. Through the JV and Assignment Agreements and Walton's
relationship with Insignia as a consequence of these agreements, among other
means, Walton has obtained confidential, non-public information concerning the
true value of the Partnerships, the units and the Property underlying the
Partnerships.
56. The Balcor General Partners have also breached their
fiduciary duties to Class members and the Partnerships by first revealing
non-public, confidential information to Insignia and Walton and then failing to
prevent these coercive Tender Offers, or to take any steps to put the subject
Partnerships up for auction in order to obtain the best prices for the
unitholders, among other things. Pursuant to those agreements, inter alia, the
Balcor
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<PAGE> 20
General Partners provided Walton with the names of each limited partner. The
Balcor General Partners have also failed to notify limited partners that the
sale of units through the Tender Offers would not be in their best interests.
57. Specifically, the Balcor General Partners have
breached their fiduciary duties to the Class and the Partnerships in that
although they knew in advance that the Insignia Defendants and their
affiliates, and the Walton Defendants, were planning upon making tender offers
in hopes of eventually obtaining control of the Partnerships and had
non-public, confidential information about the Partnerships as a consequence of
discussions with them, they:
(a) failed to shop either the Partnerships or the
underlying properties;
(b) failed to take steps to enable the
Partnerships to consider alternatives which might have yielded greater value
for the limited partners, including the sale and/or liquidation of some or all
of the underlying properties;
(c) failed to hire an independent advisor to
advise and negotiate with Walton and/or Insignia and their affiliates in order
to obtain a reasonable price for the limited partners;
(d) failed to take steps to either match the
Tender Offers or make a competing tender offer; and
(e) failed to take steps to prevent the coercive
Tender Offers at inadequate prices.
58. Instead, the Balcor General Partners encouraged the
coercive Tender Offers, i.e., by providing Walton with the limited
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partnership lists and disseminating misleading responses to the Tender Offers
in which the Balcor General Partners fail to adequately disclose their
self-interest in allowing the Tender Offers to go forward by, inter alia:
(a) stating that they are not making a
recommendation and are remaining "neutral," despite acknowledging that the
Tender Offers could adversely affect the limited partners; and
(b) not disclosing the consideration they
received for divulging confidential information.
59. In fact, the General Partners have stated their
position with regard to the Tender Offers in the Schedules 14D-9 they filed in
connection with the Tender Offers. Specifically, in those documents, each
Balcor General Partner misleadingly states that it is "expressing no opinion
and remaining neutral with respect to the [Tender] Offer" at issue.
FIDUCIARY OBLIGATIONS OF DEFENDANTS
60. By reason of their positions as either property
managers and agents of the Partnerships, in the case of Insignia and the
Insignia Defendants, or as general partners, in the case of the Balcor General
Partners, who possess material inside information concerning the Partnerships,
their cash flow and value, the Insignia Defendants and the Balcor General
Partners owed the Partnerships and the limited partners fiduciary obligations
of fidelity, trust, loyalty, due care and candor, and were and are required to
use their utmost ability to control the Partnerships in
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a fair, just and equitable manner, and/or to act in furtherance of the best
interests of the Partnerships and their unitholders so as to benefit all
unitholders proportionately and not in furtherance of their own personal
interests or to benefit themselves and/or their affiliates at the expense of
the Partnerships and the limited partners.
61. To discharge their fiduciary duties, the Balcor
General Partners were required to exercise reasonable and prudent supervision
over the management, policies, practices, controls, and financial affairs of
the Partnerships. By virtue of this obligation of ordinary and reasonable care
and diligence, they were required, among other things:
(a) to manage, conduct, supervise, and direct the
business affairs of the Partnerships in accordance with the Partnerships'
stated objectives, state and federal laws, and the Partnership Agreements,
among other things;
(b) to exercise reasonable control and
supervision over their officers and employees; and
(c) to ensure the prudence and soundness of
policies and practices undertaken or proposed to be undertaken by the
Partnerships, including the refinancing or sale of the various properties or
assets owned by the Partnerships.
62. The Insignia Defendants, as property managers, are
agents of the Partnerships and the limited partners, were under an obligation
of duty, loyalty and obedience to their principals.
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63. Walton was under an obligation not to intentionally
participate, collude or conspire with the Insignia Defendants or Balcor General
Partners in the breaching of their fiduciary duties to the Partnerships and the
limited partners.
COUNT I
BREACH OF FIDUCIARY DUTY
(DERIVATIVELY ON BEHALF OF THE DERIVATIVE ACTION
PARTNERSHIPS AGAINST THE BALCOR GENERAL PARTNERS)
64. Plaintiffs repeat and reallege each and every
allegation set forth above as if fully stated herein.
65. As a consequence of their positions as general
partners of the Partnerships, the Balcor General Partners were fiduciaries of
the Derivative Action Partnerships and owed to the Derivative Action
Partnerships the duties of candor, fair dealing and loyalty.
66. Through their participation and interest in the
Tender Offers, which were based upon confidential information that the general
partners provided to the Insignia and Walton defendants, the General Partners
breached their fiduciary duties to the Derivative Action Partnerships.
67. As a direct and proximate result of the breaches of
fiduciary duties set forth herein, the Derivative Action Partnerships have been
and continue to be irreparably damaged.
68. At all times relevant herein, the Balcor defendants
were able to and have obtained material inside information respecting the
Derivative Action Partnerships, the Derivative
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Action Partnerships' cash flow, and the value of the assets underlying the
Derivative Action Partnerships, owed fiduciary duties of due care, good faith,
fair dealing, loyalty, honesty and candor in their management of the Derivative
Action Partnerships and to the limited partners. They further owed a duty not
to place their own interests above those of either the Derivative Action
Partnerships or the limited partners.
69. By virtue of the their acts preceding and in response
to the Tender Offers, including the disclosure of confidential information and
their failure to recommend against the Tender Offers, and their failure to take
any steps to negotiate a higher price for the Tender Offers, or auction the
Derivative Action Partnerships, the Balcor General Partners have breached their
fiduciary duties to the Derivative Action Partnerships.
70. Had the terms and conditions of the Tender Offers
been negotiated at arms' length, had competing offers been solicited, or had
other alternatives to the Tender Offers such as liquidation, been considered
the sale of control of the Derivative Action Partnerships would occur at a
higher price and on other terms more favorable terms than those presently being
offered.
71. As a direct and proximate result of the breaches of
fiduciary duties set forth herein, the Partnerships have been and will continue
to be irreparably damaged.
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COUNT II
BREACH OF FIDUCIARY DUTY
(DERIVATIVELY ON BEHALF OF THE DERIVATIVE ACTION
PARTNERSHIPS AGAINST THE INSIGNIA DEFENDANTS)
72. Plaintiffs repeat and reallege each and every
allegation set forth above.
73. As a consequence of their positions as property
managers and thus agents of the Derivative Action Partnerships, the Insignia
Defendants are fiduciaries of the Derivative Action Partnerships and owed to
the Derivative Action Partnerships the duties of candor, fair dealing and
loyalty.
74. Through their participation and interest in the
Tender Offers, which were, among other things, based upon non-public
confidential information which the Insignia Defendants obtained from the Balcor
General Partners and as a consequence of their positions as property managers
and agents of the Derivative Action Partnerships, the Insignia Defendants
breached their fiduciary duties to the Derivative Action Partnerships.
75. As a direct and proximate result of the breaches of
fiduciary duties set forth herein, the Derivative Action Partnerships have been
and continue to be irreparably damaged.
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COUNT III
EQUITABLE RELIEF, INCLUDING AN
INJUNCTION OR CONSTRUCTIVE TRUST
(DERIVATIVELY ON BEHALF OF THE DERIVATIVE ACTION
PARTNERSHIPS AGAINST THE WALTON DEFENDANTS)
76. Plaintiffs repeat and reallege each and every
allegation set forth above as if fully set forth herein.
77. Walton had a duty and obligation not to intentionally
participate in or knowingly collude in the breaches of fiduciary duty committed
by the Insignia Defendants and Balcor General Partners by accepting the
benefits of the Insignia Defendants or Balcor defendants' obtained in breach of
their fiduciary duties to the Derivative Action Partnerships. Walton also had
a duty not to induce the Balcor General Partners or Insignia to breach their
fiduciary duties to the Derivative Action Partnerships.
78. In entering into the JV and Assignment Agreements,
intentionally using non-public, confidential information supplied to the Walton
Defendants by the Balcor General Partners and the Insignia Defendants, and in
effectuating the Tender Offers based upon that information with Insignia,
Walton has participated in and colluded with the Balcor General Partners and
the Insignia Defendants by participating in the breaches of their fiduciary
duties to the Derivative Action Partnerships and knowingly accepting the
benefits of those breaches.
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79. In providing consideration to the Balcor General
Partners and Insignia Defendants, Walton has induced their breaches of
fiduciary duty to the Derivative Action Partnerships.
80. As a direct and proximate result of Walton's conduct
the Derivative Action Partnerships have been and continue to be irreparably
damaged.
COUNT IV
BREACH OF FIDUCIARY DUTY
(ON BEHALF OF THE CLASS AGAINST THE
BALCOR GENERAL PARTNERS)
81. Plaintiffs repeat and reallege each and every
allegation set forth above as if fully set forth herein.
82. At all times relevant herein, the Balcor General
Partners were able to and have obtained material inside information respecting
the Partnerships, the Partnerships' cash flow, and the value of the properties
underlying the Partnerships, and owed fiduciary duties of due care, good faith,
fair dealing, loyalty, honesty and candor in their management of the
Partnerships and to the limited partners. They further owed a duty not to
place their own interests above those of either the Partnerships or the limited
partners.
83. By virtue of their acts preceding and in response to
the Tender Offers, including the disclosure of confidential information and
their failure to recommend against the Tender Offers, and their failure to take
any steps to negotiate a higher price for the Tender Offers, or auction the
Partnerships, the
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Balcor General Partners have breached their fiduciary duties to members of the
Class.
84. Had the terms and conditions of the Tender Offers
been negotiated at arms' length, had competing offers been solicited, or had
other alternatives to the Tender Offers such as liquidation, been considered,
or other steps been taken, the limited partners would not now be coerced into
tendering into the inadequate Tender Offers.
85. As a direct and proximate result of the breaches of
fiduciary duties set forth herein, the members of the Class have been and
continue to be irreparably damaged.
COUNT V
EQUITABLE RELIEF, INCLUDING AN
INJUNCTION OR CONSTRUCTIVE TRUST
(ON BEHALF OF THE CLASS AGAINST
THE WALTON AND INSIGNIA DEFENDANTS)
86. Plaintiffs repeat and reallege the allegations set
forth above as if fully set forth herein.
87. The Walton and Insignia Defendants had a duty and
obligation not to participate in or knowingly accept the benefits of the Balcor
General Partners' breaches of their fiduciary duties to the members of the
class nor to induce the Balcor General Partners to breach their fiduciary
duties.
88. In inducing Balcor to turn over confidential
information and in making coercive Tender Offers at inadequate prices, based
upon non-public information, Walton has participated in and induced the Balcor
General Partners' breaches of their
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fiduciary duties, and has accepted the benefits therefrom. Thus, Walton has
participated in and colluded with these defendants in the breaches of their
fiduciary duties.
COUNT VI
CIVIL CONSPIRACY
(ON BEHALF OF THE CLASS AND THE
DERIVATIVE ACTION PARTNERSHIPS
AGAINST WALTON, INSIGNIA AND
BALCOR GENERAL PARTNERS)
89. Plaintiffs repeat and reallege each and every
allegation set forth above as if fully stated herein.
90. Walton, Insignia and the Balcor General Partners have
acted in collusion pursuant to an agreement, combination, or scheme to secure
interests in the limited partnerships at prices far below their true value and
to seize working control of the partnerships.
91. Defendants overtly acted by (1) Insignia's and the
Balcor General Partners' sharing of confidential partnership information with
Walton (in violation of Insignia's and the Balcor General Partners' fiduciary
duties to plaintiffs, the Class and the Derivative Action Partnerships), (2)
entering into the JV and Assignment Agreements, and (3) Walton's presentation
of the coercive Tender Offers based upon the confidential information provided
by Insignia and the Balcor General Partners. Insignia and the Balcor General
Partners thereafer abdicated their fiduciary obligations to plaintiffs, the
Class and the Derivative Action Partnerships by failing to take steps to either
prevent the
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coercive Tender Offers, or warn Class members of the predatory nature and
improper basis of the Tender Offers' formulation.
92. As a direct and proximate result of defendants'
agreement, combination, or scheme, Plaintiffs, all Class members and the
Derivative Action Partnerships have been injured in the manner specified above.
WHEREFORE, plaintiffs, on behalf of themselves, derivatively
on behalf of the Derivative Action Partnerships and on behalf of the Class of
similarly situated persons, pray for judgment as follows:
(a) That the Court adjudge Counts I through III
as proper derivative claims;
(b) That the Court adjudge Counts IV and V as
properly maintained as a class action claims and appoint plaintiffs as
representatives;
(c) That the Court award the Derivative Action
Partnerships and the Class compensatory damages;
(d) That the Court preliminarily and permanently
enjoin the Walton and Insignia Defendants from consummating the Tender Offers;
(e) That the Court order the defendants,
particularly the Balcor General Partners, to discharge their fiduciary duties
to the Derivative Action Partnerships and to the Class by, among other things:
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(i) engaging independent persons to
act on a fully informed basis in the best interests of the limited partners and
the Partnerships;
(ii) shopping the Partnerships and/or
the underlying properties, and cooperating with all persons, other than
defendants or their affiliates, with anyone having a bona fide interest in any
transaction which would maximize the value of investments in the Partnerships
and the premium due and owing to the Derivative Action Partnerships;
(iii) taking all steps which would
create an active auction for the units or the Partnerships' properties; and
(iv) adequately ensuring that no
conflicts of interest exist between defendants' own interests and their
fiduciary obligations or, if such conflicts exist, to ensure that all such
conflicts are resolved in favor of class members and the Derivative Action
Partnerships;
(f) Ordering defendants to create an independent
committee to consider other alternatives to the Tender Offers, including the
orderly liquidation of the properties underlying the Partnerships;
(g) Awarding plaintiffs, the members of the
Class, and the Derivative Action Partnerships their prejudgment interest, and
the costs and expenses of this litigation, including reasonable attorneys' fees
and expenses, and other costs and disbursements;
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(h) Awarding the class damages and restitution
from defendant Walton for colluding with the Insignia Defendants and Balcor
General Partners' breaches of their fiduciary duties; and
(i) Such further and other relief as to this
Court may seem just and reasonable, including, if necessary, imposition of a
constructive trust.
Dated: June 11, 1996
Respectfully submitted,
TOM CHIPAIN, ROBERT L. KOPMAN,
DR. THOMAS A. KELLIE AND
SOLOMON BORG,
By:
-----------------------------------
One of Their Attorneys
MILLER FAUCHER CHERTOW
CAFFERTY & WEXLER
Marvin A. Miller, Esq.
Kenneth A. Wexler, Esq.
30 North LaSalle Street
Suite 3200
Chicago, IL 60602
(312 782-4880
MEMBER OF PLAINTIFFS'
EXECUTIVE COMMITTEE
GOODKIND LABATON RUDOFF &
SUCHAROW, LLP
Joel H. Bernstein, Esq.
Lynda J. Grant, Esq.
Robert N. Cappucci, Esq.
100 Park Avenue
New York, NY 10017-5563
(212) 907-0700
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CHAIR OF PLAINTIFFS' EXECUTIVE
COMMITTEE
CHIMICLES, JACOBSEN & TIKELLIS
Nicholas E. Chimicles, Esq.
Lisa Rodriguez, Esq.
One Haverford Centre
Haverford, PA 19041-0100
(610) 642-8500
MILBERG WEISS BERSHAD
HYNES & LERACH LP
David J. Bershad, Esq.
Robert Walner, Esq.
Ralph Stone, Esq.
One Pennsylvania Plaza
New York, NY 10119-0165
(212) 594-5300
MEMBERS OF PLAINTIFFS' EXECUTIVE
COMMITTEE
MEYERS & GOLDTHWAITE
Gary Meyers, Esq.
35 West Main Street
Suite 106
Denville, NJ 07834
WEISS & YOURMAN
Moshe Balsam, Esq.
319 Fifth Avenue
New York, NY 10016
(212) 532-4171
ATTORNEYS FOR PLAINTIFFS
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