SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
------------------------------
Krupp Realty Fund, Ltd. - III
(Name of Subject Company)
Madison Liquidity Investors 104, LLC
Madison/OHI Liquidity Investors, LLC
(Bidders)
UNITS OF LIMITED PARTNERSHIP INTERESTS
(Title of Class of Securities)
501128 10 2
(CUSIP Number of Class of Securities)
------------------------------
Ronald M. Dickerman
Madison Liquidity Investors 104, LLC
Madison/OHI Liquidity Investors, LLC
P.O. Box 7461
Incline Village, Nevada 89452
(212) 687-0251
Copy to:
Jonathan N. Baum
Baum & Associates
39 Hollenbeck Avenue
Great Barrington, Massachusetts 01230
(413) 528-7980
(Name, Address and Telephone Number of
Person Authorized to Receive Notices and
Communications on Behalf of Bidders)
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Calculation of Filing Fee
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Transaction Amount of
Valuation* Filing Fee
______________ ______________
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$532,100.00 $106.42
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* For purposes of calculating the filing fee only. This amount
assumes the purchase of 1,252 Units of Investor Limited Partnership
Interests ("Units") of the subject company at $425.00 in cash per Unit.
[ ] Check box if any part of the fee is offset as provided by
Rule 0-11(a)(2) and identify the filing with which the offsetting
fee was previously paid. Identify the previous filing by
registration statement number, or the Form or Schedule and the date
of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration Number: N/A Date Filed: N/A
- -----------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification Nos. of Above Person
Madison Liquidity Investors 104, LLC
134022656
- -----------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group (See
Instructions)
(a) [ ]
(b) [X]
- -----------------------------------------------------------------------
3. SEC Use Only
- -----------------------------------------------------------------------
4. Sources of Funds (See Instructions)
AF
- -----------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(e) or 2(f)
[ ]
- -----------------------------------------------------------------------
6. Citizenship or Place of Organization
Delaware
- -----------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
1,219 Madison Partnership Liquidity Investors 44, LLC
18 Gramercy Park Investments, LP
10 ISA Partnership Liquidity Investors, LP
_____
1,247
- -----------------------------------------------------------------------
8. Check if the Aggregate in Row (7) Excludes Certain Shares
(See Instructions)
[ ]
- -----------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row (7)
4.99
- -----------------------------------------------------------------------
10. Type of Reporting Person (See Instructions)
OO
- -----------------------------------------------------------------------
1. Name of Reporting Person
S.S. or I.R.S. Identification Nos. of Above Person
Madison/OHI Liquidity Investors, LLC
137167955
- ------------------------------------------------------------------------
2. Check the Appropriate Box if a Member of a Group
(See Instructions)
(a) [ ]
(b) [X]
- ------------------------------------------------------------------------
3. SEC Use Only
- ------------------------------------------------------------------------
4. Sources of Funds (See Instructions)
OO
- ------------------------------------------------------------------------
5. Check if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(e) or 2(f)
[ ]
- ------------------------------------------------------------------------
6. Citizenship or Place of Organization
Delaware
- ------------------------------------------------------------------------
7. Aggregate Amount Beneficially Owned by Each Reporting Person
1,219 Madison Partnership Liquidity Investors 44, LLC
18 Gramercy Park Investments, LP
10 ISA Partnership Liquidity Investors, LP
-----
1,247
- ------------------------------------------------------------------------
8. Check if the Aggregate in Row (7) Excludes Certain Shares
(See Instructions)
[ ]
- ------------------------------------------------------------------------
9. Percent of Class Represented by Amount in Row (7)
4.99
- ------------------------------------------------------------------------
10. Type of Reporting Person (See Instructions)
OO
ITIM 1. SECURITY AND SUBJECT COMPANY.
(a) This Schedule relates to units of limited partnership
interests (the "Units") of Krupp Realty Fund, Ltd. - III (the
"Issuer"), the subject company. The address of the Issuer's
principal executive offices is: c/o Berkshire Realty Affiliates,
470 Atlantic Avenue, Boston, MA 02210.
(b) This Schedule 14D-1 relates to the offer by Madison
Liquidity Investors 104, LLC (the "Purchaser"), to purchase up to
1,252 Units for cash at a price equal to $425.00 per Unit less the
amount of any cash distributions made on or after April 21, 1999,
without any interest thereon, upon the terms and subject to the
conditions set forth in the Offer to Purchase dated April 21, 1999
(the "Offer to Purchase") and the related Agreement of Assignment
and Transfer, copies of which are attached hereto as Exhibits
(a)(1) and (a)(2), respectively. The Issuer had 25,000 Units
outstanding as of March 31, 1999, according to its Form 10-K. The
Purchaser s sole member and funding source, Madison/OHI Liquidity
Investors, LLC (Madison/OHI ), may be deemed a co-bidder with
respect to the offer described herein. As such, references in this
Schedule to the Purchasers shall be deemed to include
Madison/OHI. However, the purchaser of the Units will be Madison
Liquidity Investors 104, LLC.
(c) The information set forth under the captions "Introduction
- - Establishment of the Offer Price" and "Effects of the Offer" in
the Offer to Purchase is incorporated herein by reference.
Item 2. IDENTITY AND BACKGROUND.
(a)-(d) The information set forth in "Introduction," "Certain
Information Concerning the Purchasers" and in Schedule I of the
Offer to Purchase is incorporated herein by reference.
(e)-(g) The information set forth in "Certain Information
Concerning the Purchasers" and Schedule I in the Offer to Purchase
is incorporated herein by reference. During the last five years,
neither the Purchasers nor, to the best of the knowledge of the
Purchasers, any person named on Schedule I to the Offer to Purchase
nor any affiliate of the Purchasers (i) has been convicted in a
criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a
result of such proceeding were or are subject to a judgment, decree
or final order enjoining future violations of, or prohibiting
activities subject to, Federal or State securities laws or finding
any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS OR NEGOTIATIONS WITH THE
SUBJECT COMPANY.
(a) Not applicable.
(b) The information set forth in Section 14 "Background of
the Offer" in the Offer to Purchase is incorporated herein by
reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth under the caption "Source of
Funds" of the Offer to Purchase is incorporated herein by
reference.
(b)-(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF
THE BIDDER.
(a)-(e) and (g) The information set forth under the caption
"Future Plans" in the Offer to Purchase is incorporated herein by
reference.
(f) Not applicable.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth in "Certain Information
Concerning the Purchaser" of the Offer to Purchase is incorporated
herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS
WITH RESPECT TO THE SUBJECT COMPANY'S SECURITIES.
The information set forth in "Certain Information Concerning
the Purchaser of the Offer to Purchase is incorporated herein by
reference.
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
None.
ITEM 9. FINANCIAL STATEMENTS OF CERTAIN BIDDERS.
Not applicable.
ITEM 10. ADDITIONAL INFORMATION.
(a) None.
(b)-(c) The information set forth in "Certain Legal Matters"
of the Offer to Purchase is incorporated herein by reference.
(d) None.
(e) None.
(f) Reference is hereby made to the Offer to Purchase and the
related Agreement of Assignment and Transfer, copies of which are
attached hereto as Exhibits (a)(1) and (a)(2), respectively, and
which are incorporated herein in their entirety by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase dated April 21, 1999
(a)(2) Agreement of Assignment and Transfer
(a)(3) Form of Letter to Unitholders dated April 21, 1999
(a)(4) None.
(b)(1) Loan Agreement between Madison/OHI Liquidity
Investors, LLC and Omega Healthcare Investors, Inc.
dated as of October 2, 1998.
(c)(1) Agreement between The Krupp Corporation and
Gramercy Park Investments LP, dated as of May 22,
1997 (the "May 22, 1999 Agreement").
(c)(2) Letter, dated March 26, 1999, from counsel to
Gramercy Park Investments LP to The Krupp Corporation,
supplementing the May 22, 1997 Agreement.
(d) None.
(e) Not applicable.
(f) None.
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: April 21, 1999
Madison Liquidity Investors 104, LLC
By Ronald M. Dickerman, Managing Director
By: /s/ Ronald M. Dickerman
---------------------------
Name: Ronald M. Dickerman
Title: Managing Director
Madison/OHI Liquidity Investors, LLC
By Ronald M. Dickerman, Managing Director
By: /s/ Ronald M. Dickerman
---------------------------
Name: Ronald M. Dickerman
Title: Managing Director
EXHIBIT INDEX
Exhibit Description
Page
(a)(1) Offer to Purchase dated April 21, 1999
(a)(2) Agreement of Assignment and Transfer
(a)(3) Form of Letter to Unitholders dated April 21, 1999
(a)(4) None.
(b)(1) Loan Agreement between Madison/OHI Liquidity Investors, LLC and
Omega Healthcare Investors, Inc. dated as of October 2, 1998.
(c)(1) Agreement between The Krupp Corporation and Gramercy Park
Investments LP, dated as of May 22, 1997.
(c)(2) Letter, dated March 26, 1999, from counsel to Gramercy Park
Investments LP to The Krupp Corporation, supplementing the
May 22, 1997 Agreement.
(d) None.
(e) Not applicable.
(f) None.
EXHIBIT (a)(1)
OFFER TO PURCHASE FOR CASH
UNITS OF INVESTOR LIMITED PARTNERSHIP INTERESTS
of
KRUPP REALTY FUND, LTD - III
a Massachusetts Limited Partnership
at
$425.00 PER UNIT
by
MADISON LIQUIDITY INVESTORS 104, LLC
(the "Purchaser")
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT 5:00 P.M.,
EASTERN STANDARD TIME, ON MAY 24, 1999, UNLESS EXTENDED.
Madison Liquidity Investors 104, LLC (the "Purchaser") hereby
seeks to acquire investor limited partnership interests (the
"Units") in Krupp Realty Fund, Ltd. - III, a Massachusetts
limited partnership (the "Partnership"). The Purchaser hereby
offers to purchase up to 1,252 Units at $425.00 per Unit (the
"Offer Price"), in cash, reduced by (i) the $50.00 transfer fee
(per transfer, not per Unit) charged by the Partnership and (ii)
any cash distributions made on or after April 21, 1999 (the
"Offer Date"), without interest, upon the terms and subject to
the conditions set forth in this Offer to Purchase (the "Offer to
Purchase") and in the related Agreement of Assignment and
Transfer and accompanying documents, as each may be supplemented
or amended from time to time (which together constitute the
"Offer"). The Offer will expire at 5:00 p.m., Eastern Standard
Time, on May 24, 1999 or such other date to which this Offer may
be extended (the "Expiration Date"). The Units sought pursuant to
the Offer represent 5.01% of the Units outstanding as of
December 31, 1998. None of The Krupp Company, The Krupp
Corporation (collectively the "General Partner"), Krupp Realty
Fund, Ltd. - III, or their respective affiliates or subsidiaries
are parties to this Offer.
Unitholders are urged to consider the following factors:
- - Unitholders who tender their Units will give up the
opportunity to participate in any future benefits from the
ownership of Units, including potential future distributions by
the Partnership. The Offer Price per Unit payable to a
tendering Unitholder by the Purchaser may be less than the
total amount which might otherwise be received by the
Unitholder with respect to the Units over the remaining
term of the Partnership.
- - A Unitholder who acquired Units pursuant to the original
offering of Units by the Partnership is expected to recognize a
taxable gain on a sale of Units pursuant to the Offer. The
amount of the taxable gain is expected to exceed the amount of
cash to be received by the Unitholder.
- - The Purchaser is making the Offer for investment purposes and
with the intention of making a profit from the ownership of the
Units. In establishing the Offer Price of $425.00 per Unit, the
Purchaser is motivated to establish the lowest price that might
be acceptable to Unitholders consistent with the Purchaser's
objectives. Such objectives and motivations may conflict with
the interests of the Unitholders in receiving the highest price
for their Units. Upon the liquidation of the Partnership, the
Purchaser will benefit to the extent, if any, that the amount per
Unit it receives in the liquidation exceeds the Offer Price, if
any. Therefore, Unitholders might receive more value if they hold
their Units, rather than tender, and receive proceeds from the
liquidation of the Partnership. Alternatively, Unitholders may
prefer to receive the Offer Price now rather than wait for
uncertain future net liquidation proceeds. No independent person
has been retained to evaluate or render any opinion with respect
to the fairness of the Offer Price and no representation is made
by the Purchaser or any affiliate of the Purchaser as to such
fairness. When the assets of the Partnership are ultimately
sold, the return to Unitholders could by higher or lower than the
Offer Price. Unitholders are urged to consider carefully all the
information contained herein before accepting the Offer.
- - The net asset value of the Units, as disseminated by the
General Partner, is $661.00 per Unit, which is more than the
Offer Price. However, the Purchaser believes that the net asset
value does not necessarily reflect the fair market value of a
Unit, which may be higher or lower than the net asset value
depending on several factors. The General Partner estimates net
asset value based upon a hypothetical sale of all of the
Partnership's assets, as of a hypothetical date, and the
distribution to the Limited Partners and the General Partner of
the gross proceeds of such sales, net of related indebtedness.
Additionally, the net asset value estimate prepared by the
General Partner does not take into account (i) future changes in
market conditions, (ii) timing considerations or (iii)
unforeseeable costs associated with winding up the Partnership.
- - Although not necessarily an indication of value, the $425.00
Offer Price per Unit is approximately 2.2% lower than the $434.49
weighted average selling price for the Units (as adjusted for
typical commissions), as reported by The Partnership Spectrum, an
independent, third-party source. As further reported by The
Partnership Spectrum during the two month period ended January
1999, there were 4 trades conducted representing an aggregate of
55 Units sold or transferred. Because the gross sales prices
reported by The Partnership Spectrum do not necessarily reflect
the net sales proceeds received by sellers of Units, which
typically are reduced by commissions and other secondary market
transaction costs to amounts less than the reported prices, the
Purchaser cannot, and does not, know whether the information
compiled by The Partnership Spectrum is accurate or complete.
- - Our offer price of $425.00 per Unit is higher than the
recent offer from Smithtown Bay LLC of $415.00 per Unit.
- - In the event a total of more than 1,252 Units are tendered,
the Purchasers may accept only a portion of the Units tendered by
a Unitholder on a pro rata basis.
- - The eventual transfer of all tendered Units is subject to
the final approval of the Partnership or General Partner and is
subject to their discretion.
THE OFFER TO PURCHASE IS NOT CONDITIONED UPON ANY MINIMUM NUMBER
OF UNITS BEING TENDERED. A UNITHOLDER MAY TENDER ANY OR ALL UNITS
OWNED BY SUCH UNITHOLDER.
The Purchaser expressly reserves the right, in its sole discretion,
at any time and from time to time, (i) to extend the period of time
during which the Offer is open and thereby delay acceptance for
payment of, and the payment for, any Units, (ii) upon the occurrence
of any of the conditions specified in Section 15 of this Offer to
Purchase, to terminate the Offer and not accept for payment any
Units not theretofore accepted for payment or paid for, or to delay
the acceptance for payment of, or payment for, any Units not
theretofore accepted for payment or paid for, and (iii) to amend
the Offer in any respect. Notice of any such extension, termination
or amendment will promptly be disseminated to Unitholders in a manner
reasonably designed to inform Unitholders of such change in compliance
with Rule 14d-4(c) under the Securities Exchange Act of 1934 (the
"Exchange Act"). In the case of an extension of the Offer, such
extension will be followed by a press release or public announcement
which will be issued no later than 9:00 a.m., Eastern Standard Time,
on the next business day after the scheduled Expiration Date, in
accordance with Rule 14e-1(d) under the Exchange Act.
April 21, 1999
IMPORTANT
Any Unitholder desiring to tender any Units should complete and
sign the Agreement of Assignment and Transfer (a copy of which is
printed on yellow paper and enclosed with this Offer to Purchase)
in accordance with the instructions to the Agreement of
Assignment and Transfer (see Instructions to Complete the
Agreement of Assignment and Transfer) and mail or deliver an
executed Agreement of Assignment and Transfer and any other
required documents to Madison Liquidity Investors 104, LLC at the
addresses set forth below.
For deliveries by Federal Express or other private overnight
couriers:
MADISON LIQUIDITY INVESTORS 104, LLC
4643 South Ulster Street
Suite 800
Denver, Colorado 80237
For deliveries by mail:
MADISON LIQUIDITY INVESTORS 104, LLC
P.O. Box 4757
Englewood, Colorado 80155
Telephone: (303) 858-0000
Facsimile: (303) 858-0001 (No Agreements of Assignment and
Transfer will be accepted by fax)
Questions or requests for assistance or additional copies of this
Offer to Purchase or the Agreement of Assignment and Transfer may
be directed to Madison Liquidity Investors 104, at (303)
858-0000.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION OR ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR TO PROVIDE ANY
INFORMATION OTHER THAN AS CONTAINED HEREIN OR IN THE AGREEMENT OF
ASSIGNMENT AND TRANSFER. NO SUCH RECOMMENDATION, INFORMATION OR
REPRESENTATION MAY BE RELIED UPON AS HAVING BEEN AUTHORIZED.
The Partnership is subject to the information and reporting
requirements of the Exchange Act and in accordance therewith is
required to file reports and other information with the
Securities and Exchange Commission (the "SEC" or omission")
relating to its business, financial condition and other matters.
Such reports and other information are available on the
Commission's electronic data gathering and retrieval (EDGAR)
system, at its internet web site at www.sec.gov, may be inspected
at the public reference facilities maintained by the Commission
at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and are available for inspection and
copying at the regional offices of the Commission located in
Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and at 7 World Trade Center, 13th Floor,
New York, New York 10048. Copies of such material can also be
obtained from the Public Reference Room of the Commission in
Washington, D.C. at prescribed rates.
The Purchaser has or will be filing with the Commission a Tender
Offer Statement on Schedule 14D-1 (including exhibits) pursuant
to Rule 14d-3 of the General Rules and Regulations under the
Exchange Act, furnishing certain additional information with
respect to the Offer. Such statement and any amendments thereto,
including exhibits, may be inspected and copies may be obtained
from the offices of the Commission in the manner specified above.
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TABLE OF CONTENTS
Page
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INTRODUCTION 1
TENDER OFFER
Section 1. Terms of the Offer 2
Section 2. Procedures for Tendering Units 2
Section 3. Acceptance for Payment and Payment for Units 3
Section 4. Proration 3
Section 5. Withdrawal Rights 3
Section 6. Extension of Tender Period; Termination;
Amendment 3
Section 7. Certain Federal Income Tax Consequences 4
Section 8. Effects of the Offer 4
Section 9. Future Plans 5
Section 10. The Business of the Partnership 5
Section 11. Conflicts of Interest 6
Section 12. Certain Information Concerning the Purchaser 6
Section 13 Source of Funds 7
Section 14. Background of the Offer 7
Section 15. Conditions of the Offer 7
Section 16. Certain Legal Matters 8
Section 17. Fees and Expenses 8
Section 18. Miscellaneous 8
Schedule I - The Purchasers and their Respective Principals 9
</TABLE>
To the Unitholders of Krupp Realty Fund, Ltd. - III:
INTRODUCTION
The Purchaser hereby offers to purchase up to 1,252 of the
outstanding Units of Investor Limited Partnership Interest
("Units"), representing approximately 5.01% of the Units
outstanding, in Krupp Realty Fund, Ltd. - III (the "Partnership")
at an Offer Price of $425.00 per Unit, in cash, without interest,
reduced by (i) the $50.00 transfer fee (per transfer, not per
Unit) charged by the Partnership and (ii) any cash distributions
made on or after April 21, 1999 (the "Offer Date"), upon the
terms and subject to the conditions set forth in the Offer. The
Offer will expire at 5:00 p.m., Eastern Standard Time, on May 24,
1999, or such other date to which this Offer may be extended (the
"Expiration Date"). The Offer is not conditioned on any aggregate
minimum number of Units being tendered. The transfer of all
tendered Units is subject to the approval of the Partnership
and/or the General Partner. Unitholders who tender their Units
will not be obligated to pay any brokerage commissions in
connection with the tender of Units.
For further information concerning the Purchaser, see Section 12
below and Schedule "I".
Establishment of the Offer Price
The Purchaser has set the Offer Price at $425.00 per Unit, in
cash, without interest, reduced by (i) the $50.00 transfer fee
(per transfer, not per Unit) charged by the Partnership and (ii)
any cash distributions made on or after April 21, 1999.
The Purchaser established the Offer Price based on the
Purchaser's analysis that concluded the value of the Partnership
Units to be $624.90. The Purchaser conducted internal analysis
on the Partnership based the Annual Report filed on Form 10-K for
the year ended December 31, 1998. The Purchaser estimated the
1998 cash flow of the Partnership's properties at $4,188,386 and
applied a capitalization rate of 12.43% which yielded a value of
$33,695,784 for the Partnership's properties. The Purchaser then
added the net cash of the Partnership as of December 31, 1998,
subtracted the mortgage debt on the properties as of December 31,
1998, and subtracted the General Partner's 5% share of sales and
refinancing proceeds to arrive at a total value of $15,622,465 or
$624.90 per Partnership Unit. The Purchaser believes that the
capitalization rate utilized by it is within a range of
capitalization rates currently employed in the marketplace for
apartment buildings of this age and quality. Therefore, based on
the Purchaser's own internal analysis, the Purchaser concluded
the net asset value of the Partnership to be $624.90
per Unit.
The Purchaser's Offer Price represents a discount of 31.9% to the
Purchaser's estimated net asset value of $624.90 per Unit. The
Purchaser chose the Offer Price based primarily on the motivation
to establish the lowest price that might be acceptable to
Unitholders consistent with the Purchaser's objectives. In
addition, the Purchaser took into account the lack of liquidity,
lack of control over the Partnership and certain tax
considerations in establishing the Offer Price.
The net asset value of the Units, as disseminated by the General
Partner, is $661.00 per Unit.
The Purchaser's Offer Price represents a discount of 35.7% to the
General Partner's net asset value. However, the Purchaser
believes that the General Partner's net asset value does not
necessarily reflect the fair market value of a Unit, which may be
higher or lower than the net asset value depending on several
factors. The Purchaser does not propose or represent that the
Offer Price represents the fair market value of the Units.
As the Purchaser has had no access to the books and records of
the Partnership, it has based its analysis upon publicly
available information and its own investigation and analysis.
The Offer Price is not the result of arm's length negotiations
between the Purchaser and the Partnership.
The Offer Price represents the price at which the Purchaser is
willing to purchase Units. No independent person has been
retained to evaluate or render any opinion with respect to the
fairness of the Offer Price and no representation is made by the
Purchaser or any affiliate of the Purchaser as to such fairness.
Other measures of the value of the Units may be relevant to
Unitholders.
Unitholders are urged to consider carefully all of the
information contained herein and consult with their own advisors,
tax, financial or otherwise, in evaluating the terms of the Offer
before deciding whether to tender Units.
Additional Factors to Consider When Tendering.
The Purchaser believes that the following are potentially
beneficial aspects of the Offer that should be considered when
deciding whether or not to tender Units.
- - The Partnership's ability to generate cash adequate to meet
its needs is dependent primarily upon the operations of its real
estate investments and the future availability of bank borrowings
and the potential refinancing and sale of the Partnership's
remaining real estate investments. These sources of liquidity
will be used by the Partnership for payment of expenses related
to real estate operations, capital expenditures, debt service and
expenses. Cash flow, if any, will then be available for
distribution to the Partners.
- - For Unitholders who sell their Units in accordance with this
Offer, 1999 will be the final year for which you receive a K-1
Tax Form from the Partnership assuming that the transfer of your
Units is effectuated by the General Partner in 1999. Many
investors who have tax professionals prepare their taxes find the
cost of filing K-1s to be burdensome, particularly if more than
one limited partnership is owned.
- - The decision to accept the Offer eliminates the potential
uncertainty related to waiting for future distributions of sales
and final liquidation proceeds. Furthermore, by selling the
Units for cash now, the Unitholder would enjoy the ability to
redeploy investment assets into alternative and potentially more
liquid investments.
General Background Information
Certain information contained in this Offer to Purchase that
relates to, or represents, statements made by the Partnership or
the General Partner, has been derived from information provided
in reports filed by the Partnership with the Securities and
Exchange Commission. The Purchaser expressly disclaims any
responsibility for the information included in these filed
reports and extracted in this discussion.
According to publicly available information, as of December 31,
1998, there was an average of 25,000 Units issued and
outstanding. As of the Partnership's most recent filing on Form
10-K for the year ended December 31, 1998 these outstanding Units
were held by approximately 1,500 Unitholders.
Certain affiliates of the Purchaser currently beneficially own an
aggregate of 1,247 Units or approximately 4.98% of the
outstanding Units. (see Section 12 of the Tender Offer - "Certain
Information Concerning the Purchaser" below).
Tendering Unitholders will not be obligated to pay brokerage fees
or commissions on the sale of the Units to the Purchaser pursuant
to the Offer. The Purchaser will pay all charges and expenses
incurred in connection with the Offer with the exception of the
transfer fees that will be paid by the Unitholder via a reduction
in the proceeds from the sale of the Units. The Purchaser desires
to purchase all of the Units tendered by each Unitholder, up to
5.01% of the total outstanding Units and subject to Proration,
when applicable, except where otherwise prohibited. (See Section
4 to the Tender Offer-"Proration" below).
If, prior to the Expiration Date, the Purchaser increases the
consideration offered to Unitholders pursuant to the Offer, such
increased consideration will be paid with respect to all Units
that are purchased pursuant to the Offer, whether or not such
Units were tendered prior to such increase in consideration.
Unitholders are urged to read this Offer to Purchase and the
accompanying Agreement of Assignment and Transfer carefully
before deciding whether to tender their Units.
TENDER OFFER
Section 1. Terms of the Offer.
Upon the terms and subject to the conditions of the Offer, the
Purchaser will accept for payment and pay for Units validly
tendered on or prior to the Expiration Date and not withdrawn in
accordance with Section 5 of this Offer to Purchase. The term
"Expiration Date" shall mean 5:00 p.m., Eastern Standard Time, on
May 24, 1999, unless and until the Purchaser shall have extended
the period of time for which the Offer is open, in which event
the term "Expiration Date" shall mean the latest time and date on
which the Offer, as so extended by the Purchaser, shall expire.
The Offer is conditioned on satisfaction of certain conditions.
(See Section 15, which sets forth in full the conditions of the
Offer.) The Purchaser reserves the right (but shall not be
obligated), in its sole discretion and for any reason, to waive
any or all of such conditions. If, by the Expiration Date, any
or all of such conditions have not been satisfied or waived, the
Purchaser reserves the right (but shall not be obligated) to (i)
decline to purchase any of the Units tendered, terminate the
Offer and return all tendered Units to tendering Unitholders,
(ii) waive all the unsatisfied conditions and, subject to
complying with the applicable rules and regulations of the
Commission, purchase all Units validly tendered, (iii) extend the
Offer and, subject to the right of Unitholders to withdraw Units
until the Expiration Date, retain the Units that have been
tendered during the period or periods for which the Offer is
extended or (iv) amend the Offer. The rights reserved by the
Purchaser in this paragraph are in addition to the Purchaser's
right to terminate the Offer at any time prior to the acceptance
of tendered Units for payment.
Section 2. Procedures for Tendering Units.
Valid Tender. For Units to be validly tendered pursuant to the
Offer, a properly completed and duly executed Agreement of
Assignment and Transfer (a copy of which is enclosed and printed
on yellow paper) with any other documents required by the
Agreement of Assignment and Transfer, or instructions thereto,
must be received on or prior to the Expiration Date by the
Purchaser at the following addresses: for deliveries by Federal
Express or other private overnight couriers, 4643 South Ulster
Street, Suite 800, Denver, Colorado 80237 or, for deliveries by
mail, P.O. Box 4757, Englewood, Colorado 80155. A Unitholder may
tender any or all Units owned by such Unitholder.
In order for a tendering Unitholder to participate in the Offer,
the Unitholder must complete, in its entirety, the following
documents that accompany this Offer to Purchase:
(1) The Agreement of Assignment and Transfer; and
(2 Any other applicable documents included herewith or in the
Instructions to Complete the Agreement of Assignment and
Transfer.
In order for a tendering Unitholder to participate in the Offer,
Units must be validly tendered and not withdrawn prior to the
Expiration Date, which is 5:00 p.m., Eastern Standard Time, on
May 24, 1999, or such date to which the Offer may be extended.
The method of delivery of the Agreement of Assignment and
Transfer and all other required documents is at the option and
risk of the tendering Unitholder and delivery will be deemed made
only when actually received by the Purchaser. If delivery is by
mail, registered mail with return receipt requested is
recommended. In all cases, sufficient time should be allowed to
ensure timely delivery.
SIGNATURE GUARANTEES. The signatures on the Agreement of
Assignment and Transfer must be medallion guaranteed by a
commercial bank, savings bank, credit union, savings and loan
association or trust company having any office, branch or agency
in the United States, a brokerage firm that is a member firm of a
registered national securities exchange or a member of the
National Association of Securities Dealers, Inc. (the "NASD").
Backup Federal Income Tax Withholding. To prevent the possible
application of 31% backup federal income tax withholding with
respect to payment of the Offer Price for Units purchased
pursuant to the Offer, a tendering Unitholder must provide the
Purchaser with such Unitholder's correct taxpayer identification
number ("TIN") or Social Security Number and make certain
certifications that such Unitholder is not subject to backup
federal income tax withholding. Each tendering Unitholder must
insert in the Agreement of Assignment and Transfer the
Unitholder's taxpayer identification number or social security
number in the space provided on the signature page to the
Agreement of Assignment and Transfer. The Agreement of
Assignment and Transfer also includes a substitute Form W-9,
which contains the certifications referred to above. (See the
instructions to the Agreement of Assignment and Transfer and the
accompanying Tax Certification page).
FIRPTA Withholding. To prevent the withholding of federal income
tax in an amount equal to 10% of the sum of the Offer Price plus
the amount of Partnership liabilities allocable to each Unit
tendered, each Unitholder must complete the FIRPTA Affidavit
included in the Agreement of Assignment and Transfer certifying
such Unitholder's TIN or Social Security Number and address and
that the Unitholder is not a foreign person. (See the
Instructions to the Agreement of Assignment and Transfer and
Section 7- "Certain Federal Income Tax Consequences".)
Appointment as Attorney-in-Fact and Proxy. By executing an
Agreement of Assignment and Transfer as set forth above, a
tendering Unitholder irrevocably appoints the designees of the
Purchaser as such Unitholder's attorney-in-fact and proxy, in
the manner set forth in the Agreement of Assignment and Transfer,
each with full power of substitution, to the full extent of such
Unitholder's rights with respect to the Units tendered by such
Unitholder and accepted for payment by the Purchaser. Such
appointment will be effective upon receipt by the Purchaser of
the Agreement of Assignment and Transfer. Upon such receipt, all
prior proxies given by such Unitholder with respect to such Units
will, without further action, be revoked, and no subsequent
proxies may be given (and if given will not be effective). The
designees of the Purchaser will, with respect to such Units, be
empowered to exercise all voting and other rights of such
Unitholder as they in their sole discretion may deem proper at
any meeting of Unitholders, by written consent or otherwise.
Madison and its designees agree to exercise the proxy and power
of attorney granted hereby in a manner consistent with the terms
of the Agreement, dated May 22, 1997, between The Krupp
Corporation (a general partner of the Partnership) and Gramercy
Park Investments, L.P. (an affiliate of Madison). See " Section
14 - Background of the Offer," below.
Assignment of Entire Interest in the Partnership. By executing
and delivering the Agreement of Assignment and Transfer, a
tendering Unitholder irrevocably sells, assigns, transfers,
conveys and delivers to Madison, all of his right, title and
interest in and to the Units tendered thereby and accepted for
payment pursuant to the Offer and any and all non-cash
distributions, other Units or other securities issued or issuable
in respect thereof on or after April 21, 1999, including, without
limitation, to the extent that they exist, all rights in, and
claims to, any Partnership profits and losses, cash
distributions, voting rights and other benefits of any nature
whatsoever and whenever distributable or allocable to the Units
under the Partnership's limited partnership agreement (the
"Partnership Agreement"), (i) unconditionally to the extent that
the rights appurtenant to the Units may be transferred and
conveyed without the consent of the general partner of the
Partnership (the "General Partner"), and (ii) in the event that
Madison elects to become a substituted limited partner of the
Partnership, subject to the consent of the General Partner to the
extent such consent may be required in order for Madison to
become a substituted limited partner of the Partnership. In
addition, by executing an Agreement of Assignment and Transfer,
and not otherwise timely withdrawing pursuant to the provisions
of Section 5 herein, a Unitholder also assigns to the Purchaser
all of the Unitholder's rights to receive distributions from the
Partnership with respect to the Units which are accepted for
payment and purchased pursuant to the Offer, including those cash
distributions made on or after the Offer Date - April 21, 1999.
Determination of Validity; Rejection of Units; Waiver of Defects;
No Obligation to Give Notice of Defects. All questions as to the
validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of Units pursuant to the
procedures described above will be determined by the Purchaser,
in its sole discretion, which determination shall be final and
binding. The Purchaser reserves the absolute right to reject any
or all tenders if not in proper form or if the acceptance of, or
payment for, the Units tendered may, in the opinion of the
Purchaser's counsel, be unlawful. The Purchaser also reserves
the right to waive any defect or irregularity in any tender with
respect to any particular Units of any particular Unitholder, and
the Purchaser's interpretation of the terms and conditions of the
Offer (including the Agreement of Assignment and Transfer and the
Instructions thereto) will be final and binding. Neither the
Purchaser nor any other person will be under any duty to give
notification of any defects or irregularities in the tender of
any Units or will incur any liability for failure to give any
such notification.
A tender of Units pursuant to any of the procedures described
above will constitute a binding agreement between the tendering
Unitholder and the Purchaser upon the terms and subject to the
conditions of the Offer, including the tendering Unitholder's
representation and warranty that (i) such Unitholder owns the
Units being tendered within the meaning of Rule 14e-4 under the
Exchange Act and (ii) the tender of such Units complies with Rule
14e-4. Rule 14e-4 requires, in general, that a tendering
security holder will actually be able to deliver the security
subject to the tender offer, and is of concern particularly to
any Unitholders who have granted options to sell or purchase the
Units, hold option rights to acquire such securities, maintain
"short" positions in the Units (i.e., have borrowed the Units) or
have loaned the Units to a short seller. Because of the nature
of limited partnership interests, the Purchaser believes it is
unlikely that any option trading or short selling activity exists
with respect to the Units. In any event, a Unitholder will be
deemed to tender Units in compliance with Rule 14e-4 and the
Offer if the holder is the record owner of the Units and the
holder (i) delivers the Units pursuant to the terms of the Offer,
(ii) causes such delivery to be made, (iii) guarantees such
delivery, (iv) causes a guaranty of such delivery, or (v) uses
any other method permitted in the Offer (such as a facsimile
delivery of the Agreement of Assignment and Transfer).
Section 3. Acceptance for Payment and Payment for Units.
Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and
conditions of any extension or amendment), the Purchaser will
accept for payment, and will pay for, Units validly tendered and
not withdrawn in accordance with Section 5, as promptly as
practicable following the Expiration Date. The tendering
Unitholders will be paid promptly following (i) receipt of a
valid, properly and fully executed Agreement of Assignment and
Transfer and (ii) receipt by the Purchaser of the Partnership's
confirmation that the transfer of Units have been effectuated,
subject to Section 4 ("Proration") of this Offer to Purchase.
The Purchaser will issue payment only to the Unitholder of record
and payment will be forwarded only to the address listed on the
Agreement of Assignment and Transfer.
For purposes of the Offer, the Purchaser shall be deemed to have
been accepted for payment (and thereby purchased tendered Units)
when the Purchaser is in receipt of the Partnership's
confirmation that the transfer of Units has been effectuated.
Upon the terms and subject to the conditions of the Offer,
payment for the Units purchased pursuant to the Offer will in all
cases be made by the Purchaser.
Under no circumstances will interest be paid on the Offer Price
by reason of any delay in making such payment.
If any tendered Units are not purchased for any reason, the
Agreement of Assignment and Transfer with respect to such Units
not purchased will be of no force or effect. If, for any reason
whatsoever, acceptance for payment of, or payment for, any Units
tendered pursuant to the Offer is delayed or the Purchaser is
unable to accept for payment, purchase or pay for the Units
tendered pursuant to the Offer, then without prejudice to the
Purchaser's rights under Section 15 (but subject to compliance
with Rule 14e-1(c) under the Exchange Act), the Purchaser may,
nevertheless, on behalf of the Purchaser, retain tendered Units,
subject to any limitations of applicable law, and such Units may
not be withdrawn except to the extent that the tendering
Unitholders are entitled to withdrawal rights as described in
Section 5.
If, prior to the Expiration Date, the Purchaser shall increase
the consideration offered to Unitholders pursuant to the Offer,
such increased consideration shall be paid for all Units accepted
for payment pursuant to the Offer, whether or not such Units were
tendered prior to such increase.
Unless otherwise prohibited, the Purchaser reserves the right to
transfer or assign, in whole or from time to time in part, the
right to purchase Units tendered pursuant to the Offer, but any
such transfer or assignment will not relieve the Purchaser of its
obligations under the Offer or prejudice the rights of tendering
Unitholders to receive payment for Units validly tendered and
accepted for payment pursuant to the Offer.
Section 4. Proration.
If not more than 1,252 Units are validly tendered and not
properly withdrawn prior to the Expiration Date, the Purchaser,
upon the terms and conditions of the Offer and subject to the
approval of the Partnership and/or the General Partner, will
accept for payment all such Units so tendered.
If more than 1,252 Units are validly tendered and not properly
withdrawn on or prior to the Expiration Date, the Purchaser, upon
the terms and conditions of the Offer and subject to the approval
of the Partnership and/or the General Partner, will accept for
payment and pay for an aggregate of 1,252 Units so tendered, pro
rata according to the number of Units validly tendered by each
Limited Partner and not properly withdrawn on or prior to the
Expiration Date, on a pro rata basis, with appropriate
adjustments to avoid tenders of fractional Units and purchases
that may otherwise violate the Partnership's Limited Partnership
Agreement, where applicable.
In the event that proration is required, the Purchaser will
determine the precise number of Units to be accepted and will
forward payment together with a notice explaining the final
results of the proration as soon as practicable. The Purchaser
will not pay for any Units tendered until after the final
proration factor has been determined.
In the event that proration of tendered Units is required, and
because of the difficulty of determining the proration results,
the Purchaser may not be able to announce the final results of
such proration until at least approximately seven business days
after the Expiration Date. Subject to the Purchaser's obligation
under Rule 14e-1(c) under the Exchange Act, to pay Unitholders the
Offer Price in respect of units tendered or to return those Units
promptly after the termination or withdrawal of the Offer, the
Purchaser does not intend to pay for any Units accepted for payment
pursuant to the Offer until the final proration results are known.
Section 5. Withdrawal Rights.
Except as otherwise provided in this Section 5, all tenders of
Units pursuant to the Offer are irrevocable, provided that Units
tendered pursuant to the Offer may be withdrawn at any time prior
to the Expiration Date.
For withdrawal to be effective, a written notice of withdrawal
must be timely received by the Purchaser (i.e. a valid notice of
withdrawal must be received after April 21, 1999 but on or before
May 24, 1999, or such other date to which this Offer may be
extended) at the address set forth in the attached Agreement of
Assignment and Transfer. Any such notice of withdrawal must
specify the name of the person who tendered the Units to be
withdrawn and must be signed by the person(s) who signed the
Agreement of Assignment and Transfer and must also contain a
Medallion Signature Guarantee.
If purchase of, or payment for, Units is delayed for any reason,
or if the Purchaser is unable to purchase or pay for Units for
any reason, then, without prejudice to the Purchaser's rights
under the Offer, tendered Units may be retained by the Purchaser
and may not be withdrawn except to the extent that tendering
Unitholders are entitled to withdrawal rights as set forth in
this Section 5, subject to Rule 14e-1(c) under the Exchange Act,
which provides, in part, that no person who makes a tender offer
shall fail to pay the consideration offered or return the
securities (i.e. Units) deposited by or on behalf of security
holders promptly after the termination or withdrawal of the
tender offer.
All questions as to the form and validity (including time of
receipt) of notices of withdrawal will be determined by the
Purchaser, in its sole discretion, which determination shall be
final and binding. Neither the Purchaser nor any other person
will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or will incur any
liability for failure to give any such notification.
Any Units properly withdrawn will be deemed not to be validly
tendered for purposes of the Offer. Withdrawn Units may be
re-tendered, however, by following the procedures described in
Section 2 at any time prior to the Expiration Date.
Section 6. Extension of Tender Period; Termination; Amendment.
The Purchaser expressly reserves the right, in its sole
discretion and regardless of whether any of the conditions set
forth in Section 15 ("Conditions of the Offer") shall have been
satisfied, at any time and from time to time, (i) to extend the
period of time during which the Offer is open and thereby delay
acceptance for payment of, and the payment for, validly tendered
Units, (ii) upon the occurrence or failure to occur of any of the
conditions specified in Section 15, to delay the acceptance for
payment of, or payment for, any Units not heretofore accepted for
payment or paid for, or to terminate the Offer and not accept for
payment any Units not theretofore accepted for payment or paid
for, by giving written notice, of such termination to the
Purchaser, and (iii) to amend the Offer in any respect
(including, without limitation, by increasing or decreasing the
consideration offered or the number of Units being sought in the
Offer or both or changing the type of consideration. Any
extension, termination or amendment will be followed as promptly
as practicable by public announcement, the announcement in the
case of an extension to be issued no later than 9:00 a.m.,
Eastern Standard Time, on the next business day after the
previously scheduled Expiration Date, in accordance with the
public announcement requirement of Rule 14d-4(c) under the
Exchange Act. Without limiting the manner in which the Purchaser
may choose to make any public announcement, except as provided by
applicable law (including Rule 14d-4(c) under the Exchange Act),
the Purchaser will have no obligation to publish, advertise or
otherwise communicate any such public announcement, other than by
issuing a release to the Dow Jones News Service. The Purchaser
may also be required by applicable law to disseminate to
Unitholders certain information concerning the extensions of the
Offer or any other material changes in the terms of the Offer.
If the Purchaser extends the Offer, or if the Purchaser (whether
before or after its acceptance for payment of Units) is delayed
in its payment for Units or is unable to pay for Units pursuant
to the Offer for any reason, then, without prejudice to the
Purchaser's rights under the Offer, the Purchaser may retain
tendered Units on behalf of the Purchaser, and such Units may not
be withdrawn except to the extent tendering Unitholders are
entitled to withdrawal rights as described in Section 5.
However, the ability of the Purchaser to delay payment for Units
that the Purchaser has accepted for payment is limited by Rule
14e-1 under the Exchange Act, which requires that the Purchaser
pay the consideration offered or return the securities deposited
by or on behalf of holders of securities promptly after the
termination or withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the
Offer or the information concerning the Offer or waives a
material condition of the Offer, the Purchaser will extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and
14e-1 under the Exchange Act. The minimum period during which an
offer must remain open following a material change in the terms
of the Offer or information concerning the Offer, other than a
change in price or a change in percentage of securities sought,
will depend upon the facts and circumstances, including the
relative materiality of the change in the terms or information.
With respect to a change in price or a change in percentage of
securities sought (other than an increase of not more than 2% of
the securities sought), however, a minimum ten business day
period is generally required to allow for adequate dissemination
to security holders and for investor response. As used in this
Offer to Purchase, "business day" means any day other than a
Saturday, Sunday or a federal holiday, and consists of the time
period from 12:01 a.m. through 12:00 midnight, Eastern Standard
Time.
Section 7. Certain Federal Income Tax Consequences.
The following summary is a general discussion of certain federal
income tax consequences of a sale of Units pursuant to the Offer
assuming that the Partnership is a partnership for federal income
tax purposes and that it is not a "publicly traded partnership"
as defined in Section 7704 of the Internal Revenue Code of 1986,
as amended (the "Code"). This summary is based on the Code,
applicable Treasury Regulations thereunder, administrative
rulings, practice and procedures and judicial authority as of the
date of the Offer. All of the foregoing are subject to change,
and any such change could affect the continuing accuracy of this
summary. This summary does not discuss all aspects of federal
income taxation that may be relevant to a particular Unitholder
in light of such Unitholder's specific circumstances or to
certain types of Unitholders subject to special treatment under
the federal income tax laws (for example, foreign persons,
dealers in securities, banks, insurance companies and tax-exempt
organizations), nor does it discuss any aspect of state, local,
foreign or other tax laws. Sales of Units pursuant to the Offer
will be taxable transactions for federal income tax purposes, and
may also be taxable transactions under applicable state, local,
foreign and other tax laws.
EACH UNITHOLDER SHOULD CONSULT HIS OR ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH UNITHOLDER OF SELLING UNITS
PURSUANT TO THE OFFER.
CONSEQUENCES TO TENDERING UNITHOLDER. A Unitholder will
recognize gain or loss on a sale of Units pursuant to the Offer
equal to the difference between (i) the Unitholder's "amount
realized" on the sale and (ii) the Unitholder's adjusted tax
basis in the Units sold. The "amount realized" with respect to a
Unit sold pursuant to the Offer will be a sum equal to the amount
of cash received by the Unitholder for the Unit plus the amount
of Partnership liabilities allocable to the Unit (as determined
under Code Section 752). The amount of a Unitholder's adjusted
tax basis in Units sold pursuant to the Offer will vary depending
upon the Unitholder's particular circumstances, and will be
affected by both allocations of Partnership income, gain or loss,
and any cash distributions made by the Partnership to a
Unitholder with respect to such Units. In this regard, tendering
Unitholders will be allocated a pro rata share of the
Partnership's taxable income or loss with respect to Units sold
pursuant to the Offer through the effective date of the sale.
A Unitholder who acquired Units pursuant to the original offering
of Units by the Partnership is expected to recognize a taxable
gain on a sale of Units pursuant to the Offer. The amount of the
taxable gain is expected to exceed the amount of cash to be
received by the Unitholder.
In general, the character (as capital or ordinary) of
Unitholder's gain or loss on a sale of a Unit pursuant to the
Offer will be determined by allocating the Unitholder's amount
realized on the sale and his adjusted tax basis in the Units sold
between "Section 751 items," which are "inventory items" and
"unrealized receivables" (including depreciation recapture) as
defined in Code Section 751, and non-Section 751 items. The
difference between the portion of the Unitholder's amount
realized that is allocable to Section 751 items and the portion
of the Unitholder's adjusted tax basis in the Units sold that is
so allocable will be treated as ordinary income or loss, and the
difference between the Unitholder's remaining amount realized and
adjusted tax basis will be treated as capital gain or loss
assuming the Units were held by the Unitholder as a capital
asset. The Purchaser believes that substantially all of any tax
gain realized on a sale of Units pursuant to the Offer will be
treated as a capital gain under these rules.
A Unitholder's capital gain (if any) or loss on a sale of Units
pursuant to the Offer will be treated as long-term capital gain
or loss if the Unitholder's holding period for the Units exceeds
one year. Under current law (which is subject to change),
long-term capital gains of individuals and other non-corporate
taxpayers are generally taxed at a maximum marginal federal
income tax rate of 20% (or 25% on recapture of the amount of
accelerated depreciation on real property), whereas the maximum
marginal federal income tax rate for other income of such persons
is 39.6%. Capital losses are deductible only to the extent of
capital gains, except that non-corporate taxpayers may deduct up
to $3,000 of capital losses in excess of the amount of their
capital gains against ordinary income. Excess capital losses
generally can be carried forward to succeeding years (a
corporation's carryforward period is five years and a
non-corporate taxpayer can carry forward such losses
indefinitely); in addition, corporations, but not non-corporate
taxpayers, are allowed to carry back excess capital losses to the
three preceding taxable years.
Under Code Section 469, a non-corporate taxpayer or personal
service corporation can deduct passive activity losses in any
year only to the extent of such person's passive activity income
for such year, and closely held corporations may not offset such
losses against so-called "portfolio" income. A Unitholder with
"suspended" passive activity losses (i.e., net tax losses in
excess of statutorily provided "phase-in" amounts) from the
Partnership generally will be entitled to offset such losses
against any income or gain recognized by the Unitholder on a sale
of his Units pursuant to the Offer. If a Unitholder is unable to
sell all his Units, the deductibility of any unused losses would
continue to be subject to the passive activity loss limitation
until the Unitholder sells his remaining Units. See Section 8
("Effects of the Offer"). A Unitholder (other than corporations
and certain foreign individuals) who tenders Units may be subject
to 31% backup withholding unless the Unitholder provides a
taxpayer identification number ("TIN") and certifies that the TIN
is correct or properly certifies that he is awaiting a TIN. A
Unitholder may avoid backup withholding by properly completing
and signing the Substitute Form W-9 included as part of the
Agreement of Assignment and Transfer.
IF A UNITHOLDER WHO IS SUBJECT TO BACKUP WITHHOLDING DOES NOT
PROPERLY COMPLETE AND SIGN THE SUBSTITUTE FORM W- 9, THE
PURCHASER WILL WITHHOLD 31% FROM PAYMENTS TO SUCH UNITHOLDER.
SEE INSTRUCTION 3 TO THE AGREEMENT OF ASSIGNMENT AND TRANSFER.
Gain realized by a foreign Unitholder on a sale of a Unit
pursuant to the Offer will be subject to federal income tax.
Under Section 1445 of the Code, the transferee of a partnership
interest held by a foreign person is generally required to deduct
and withhold a tax equal to 10% of the amount realized on the
disposition. The Purchaser will withhold 10% of the amount
realized by a tendering Unitholder from the Purchase Price
payable to such Unitholder unless the Unitholder properly
completes and signs the FIRPTA Affidavit included as part of the
Agreement of Assignment and Transfer certifying the Unitholder's
TIN, that such Unitholder is not a foreign person and the
Unitholder's address. Amounts withheld would be creditable
against a foreign Unitholder's federal income tax liability and,
if in excess thereof, a refund could be obtained from the
Internal Revenue Service by filing a U.S. income tax return.
CONSEQUENCES TO A NON-TENDERING UNITHOLDER. The Purchaser does
not anticipate that a Unitholder who does not tender his or its
Units will realize any material tax consequences as a result of
the election not to tender. However, if as a result of the Offer
there is a sale or exchange of 50% or more of the total Units in
Partnership capital and profits within a 12-month period, a
termination of the Partnership for federal income tax purposes
would occur, and the taxable year of the Partnership would close.
In the case of such a sale or exchange, the Properties (subject
to related debt) of the Partnership would be treated as
contributed to a new partnership (or an association taxable as a
corporation). The Partnership will then be deemed to distribute
to its Unitholders interests in the new partnership in a deemed
liquidation of the Partnership. The Purchaser has not, however,
had access to complete information concerning assignments of
Units and cannot, therefore, be certain that the Partnership will
not terminate for tax purposes as a result of sales pursuant to
the Offer. The consequences of a termination of the Partnership
could include changes in the methods of depreciation available to
the Partnership for tax purposes and possibly other consequences
the extent of which cannot be determined by the Purchaser without
access to the books and records of the Partnership. In addition,
a termination of the Partnership could cause the Partnership or
its assets to become subject to unfavorable statutory or
regulatory changes enacted or issued prior to the termination but
previously not applicable to the Partnership or its assets
because of protective "transitional" rules. The Purchaser has
reserved the right not to purchase Units to the extent such
purchase would cause a termination of the Partnership for federal
income tax purposes.
CONSEQUENCES TO A TAX-EXEMPT UNITHOLDER. Although certain
entities are generally exempt from federal income taxation, such
tax-exempt entities (including Individual Retirement Accounts
(each an "IRA")) are subject to federal income tax on any
"unrelated business taxable income" ("UBTI"). UBTI generally
includes, among other things, income (other than, in the case of
property which is not "debt-financed property", interest,
dividends, real property rents not dependent upon income or
profits, and gain from disposition of non-inventory property)
derived by certain trusts (including IRAs) from a trade or
business or by certain other tax-exempt organizations from a
trade or business, the conduct of which is not substantially
related to the exercise of such organization's charitable,
educational or other exempt purpose and income to the extent
derived from debt-financed property. Subject to certain
exceptions, "debt-financed property" is generally any property
which is held to produce income and with respect to which there
is an "acquisition indebtedness" at any time during the taxable
year. Acquisition indebtedness is generally indebtedness
incurred by a tax-exempt entity directly or through a
partnership: (i) in acquiring or improving a property; (ii)
before acquiring or improving a property if the indebtedness
would not have been incurred but for such acquisition or
improvement; or (iii) after acquiring or improving a property if
the indebtedness would not have been incurred but for such
acquisition or improvement and the incurrence of such
indebtedness was reasonably foreseeable at the time of the
acquisition or improvement.
To the extent the Partnership holds debt financed property or
inventory or other assets as a dealer, a tax-exempt Unitholder
(including an IRA) could realize UBTI on the sale of a Unit. In
addition, a tax-exempt Unitholder will realize UBTI upon the sale
of a Unit, if such Unitholder held its Units as inventory or
otherwise as dealer property, or acquired its Units with
acquisition indebtedness. However, any UBTI recognized by a
tax-exempt Unitholder as a result of a sale of a Unit, in
general, may be offset by such Unitholder's net operating loss
carryover (determined without taking into account any amount of
income or deduction which is excluded in computing UBTI), subject
to applicable limitations.
EACH TAX-EXEMPT UNITHOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO SUCH UNITHOLDER OF SELLING OR
NOT SELLING UNITS PURSUANT TO THE OFFER.
Section 8. Effects of the Offer.
CERTAIN RESTRICTIONS ON TRANSFER OF INTERESTS. The Partnership
Agreement restricts transfers of Units if, among other things, in
the opinion of counsel to the Partnership a transfer would cause
a termination of the Partnership for federal income tax purposes
(which termination will occur when Units representing 50% or more
of the total Partnership capital and profits are transferred
within a twelve-month period). Consequently, sales of Units in
the secondary market and in private transactions during the
twelve-month period following completion of the Offer may be
restricted, and the Partnership may not process any requests for
recognition of transfers or Units during such twelve- month
period which the General Partners believe may cause a tax
termination. The Purchaser does not intend to purchase Units to
the extent such purchase would cause a termination of the
Partnership. See Section 15 ("Conditions of the Offer").
Effect on Trading Market. There is no established public trading
market for the Units and, therefore, a reduction in the number of
Unitholders should not materially further restrict the
Unitholders' ability to find purchasers for their Units on any
secondary market.
Voting Power of Purchaser. Depending on the number of Units
acquired by the Purchaser pursuant to the Offer, the Purchaser
may have the ability to exert certain influence on matters
subject to the vote of Unitholders, unless otherwise prohibited.
Pursuant to the Standstill Agreement, the Purchaser is required
to vote its interest in the Partnership in proportion to the
votes of all other Unitholders who vote. (See Section 14.
"Background of the Offer.")
The Units are registered under the Exchange Act, which requires,
among other things that the Partnership furnish certain
information to its Unitholders and to the Commission and comply
with the Commission's proxy rules in connection with meetings of,
and solicitation of consents from, Unitholders.
Section 9. Future Plans.
Following the completion of the Offer and subject to the terms of
the Standstill Agreement (see Section 14 "Background of the
Offer"), the Purchaser, or its affiliates, may acquire additional
Units. Any such acquisitions may be made through private
purchases, one or more future tender offers or by any other means
deemed advisable or appropriate. Any such acquisitions may be at
a consideration higher or lower than the consideration to be paid
for the Units purchased pursuant to the Offer.
The Purchaser is acquiring the Units pursuant to the Offer solely
for investment purposes. Although the Purchaser has no present
intention to seek control of the Partnership or to change the
management or operations of the Partnership, the Purchaser
reserves the right, at an appropriate time, to exercise its
rights as a limited partner, unless otherwise prohibited, to vote
on matters subject to a limited partner vote, including a vote to
cause the sale of the Partnership's remaining property and the
liquidation and dissolution of the Partnership.
Section 10. The Business of the Partnership.
Information included herein concerning the Partnership is derived
from the Partnership's publicly-filed reports. Additional
financial and other information concerning the Partnership is
contained in the Partnership's Annual Reports on Form 10-K,
Quarterly Reports on Form 10-Q and other filings with the
Commission. Such reports and other documents may be examined and
copies may be obtained from the offices of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's Web site at http://www.sec.gov. Copies should be
available by mail upon payment of the Commission's customary
charges by writing to the Commission's principal offices at 450
Fifth Street, N.W., Washington, D.C. 20549. The Purchaser
disclaims any responsibility for the information included in such
reports and extracted in this Offer to Purchase.
General Background on the Partnership
The primary business of Krupp Realty Fund, Ltd. - III (the
"Partnership") is to acquire, operate, and ultimately dispose of
the assets of the Partnership. The Partnership was formed on
April 3, 1982 by filing a Certificate of Limited Partnership in
The Commonwealth of Massachusetts. The Partnership issued all of
the General Partner Interest to two General Partners, The Krupp
Company, a Massachusetts limited partnership, and The Krupp
Corporation, a Massachusetts corporation. The Partnership also
issued all of the Original Limited Partner Interests to The Krupp
Company. On June 4 1982, the Partnership commenced an offering
of up to 25,000 units of Investor Limited Partner Interests for
$1,000 per unit. As of September 29, 1982, the Partnership
received subscriptions for all 25,000 Units and therefore, the
public offering was successfully completed on that date.
The principal executive offices of the Partnership, and the
General Partner are located at 470 Atlantic Avenue, Boston,
Massachusetts 02210, and their telephone number is (617)
423-2233.
The Partnership's Properties Assets and Business
The Partnership currently owns three multi-family apartment
complexes (Brookeville Apartments, Columbus, Ohio; Dorsey's Forge
Apartments and Oakland Meadows, Columbia, Maryland; and Hannibal
Grove Apartments, Columbia, Maryland). The Partnership
considers itself to be engaged only in the industry segment of
investment in real estate. The Partnership's real estate
investments are subject to some seasonal fluctuations due to
changes in utility consumption and seasonal maintenance
expenditures. However, the future performance of the Partnership
will depend upon factors that cannot be predicted.
A summary of the Partnership's real estate investments is
presented below.
As of December 31, 1998, the Partnership had leveraged investments
in three apartment complexes having an aggregate of 990 units.
<TABLE>
<CAPTION>
Average Occupancy For
The Year Ended December 31,
Year Total
Description Acquired Units 1998 1997 1996 1995 1994
- ---------- -------- ----- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C>
Brookeville Apartments
Columbus, Ohio 1983 424 99% 98% 95% 94% 94%
Hannibal Grove Apartments
Columbia, Maryland 1983 316 100% 100% 94% 93% 94%
Dorsey's Forge and Oakland
Meadows Apartments
Columbia, Maryland 1983 250 100% 99% 94% 94% 95%
</TABLE>
Mortgage notes payable collateralized by the Partnership properties
consisted of the following as at December 31, 1998.
<TABLE>
<CAPTION>
Principal Interest Maturity
Property 1998 1997 Rate Date
- ---------------------- ------------------ -------- --------
<S> <C> <C> <C> <C>
Brookeville Apartments
Columbus, Ohio $8,428,579 $8,499,549 7.75 1-Aug-28
Dorsey's Forge/Oakland
Meadows Apartments
Columbia, Maryland $4,363,601 $4,502,891 9.25 3-May-00
Hannibal Grove Apartments
Columbia, Maryland $5,934,497 $6,123,931 9.25 3-May-00
----------- -----------
Total $18,726,677 $19,126,371
</TABLE>
Brookeville Apartments
The property is subject to a non-recourse mortgage note in the
original amount of $8,755,000, payable to the Department of
Housing and Urban Development ("HUD"). The mortgage note
requires monthly payments of $60,600 consisting of principal and
interest at the rate of 7.75% per annum. In addition, the
Partnership is required to fund a monthly deposit of $5,158 to an
escrow account to be used for future property replacements and
improvements and a mortgage insurance premium deposit equal to
.5% per annum of the outstanding principal balance. The note
matures on August 1, 2028. In accordance with HUD regulations,
distributions are limited to the extent of Surplus Cash, as
defined by the Regulatory Agreement. The mortgage note payable
is collateralized by the property and may be prepaid during the
five years beginning August 1, 1998, subject to an annual
declining prepayment penalty of 5% to 1%, respectively. After
August 1, 2003, there is no prepayment penalty.
Based on the borrowing rates currently available to the
Partnership for bank loans with similar terms and average
maturities, the fair value of long-term debt is approximately
$9,446,000 at December 31, 1998. At December 31, 1997, the fair
market value could not be determined since the mortgage note
could not be prepaid.
Hannibal Grove Apartments ("Hannibal") and Dorsey's Forge and
Oakland Meadows Apartments ("Dorsey's").
The properties are subject to non-recourse mortgage notes for
Hannibal and Dorsey's in the original amounts of $6,800,000 and
$5,000,000, respectively, payable at a rate of 9.25% per annum.
Monthly principal and interest payments are $62,333 for Hannibal
and $45,833 for Dorsey's. The notes mature on May 3, 2000 at
which time all unpaid principal, $5,653,175 (Hannibal) and
$4,156,746 (Dorsey's), and any accrued interest are due. The
mortgage notes payable are collateralized by the respective
properties and may be prepaid subject to a prepayment penalty.
The prepayment penalty will be the greater of 1) the principal
balance multiplied by the difference between 9.4301% and the
yield rate on publicly traded U.S. Treasury Securities having the
closest matching maturity date as reported in the Wall Street
Journal, or 2) one percent of the then outstanding principal.
Based on the borrowing rates currently available to the
Partnership for bank loans with similar terms and average
maturities, the fair value of long-term debt for Hannibal and
Dorsey's is approximately $6,118,000 and $4,449,000, respectively
at December 31, 1998. At December 31, 1997, the fair market
value could not be determined since the mortgage notes could not
be prepaid.
Due to restrictions on transfers and prepayment, the Partnership
may be unable to refinance certain mortgage notes payable at such
calculated fair value.
The aggregate scheduled principal amounts of long-term borrowings
due during the five years ending December 31, 2003 are $437,124,
$10,020,473, $89,480, $96,667 and $104,430.
During 1998, 1997 and 1996 the Partnership paid $1,625,506,
$1,659,719 and $1,690,992 of interest, respectively, on its
mortgage notes.
Selected Financial Data.
Set forth below is a summary of certain financial data for the
Partnership that has been excerpted from the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1998. The
financial information set forth below is qualified in its
entirety by reference to such reports and documents filed with
the Commission and the financial statements and related notes
contained therein. The Purchaser expressly disclaims any
responsibility for the information contained in these filed
reports and extracted in this discussion.
The following table sets forth in comparative tabular form a
summary of selected financial data for each of the Partnership's
last five full years:
<TABLE>
<CAPTION>
For the Years Ended December 31
(Dollars)
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Total revenue 7,608,315 7,280,181 6,628,658 6,352,337 6,215,466
Net income
(loss) 536,483 (23,224) (446,360) (547,893) (453,031)
Net income
(loss) allocated to:
Investor Limited
Partners 509,659 (22,063) (424,042) (520,498) (430,380)
Per Unit 20.39 (0.88) (16.96) (20.82) (17.22)
Original Limited
Partner 21,459 (929) - - (18,121)
General
Partners 5,365 (232) (22,318) (27,395) (4,530)
Total assets
at 12/31 11,982,905 12,354,768 13,224,310 14,384,144 15,702,150
Long-term obligations
at 12/31 18,289,553 18,726,677 19,126,371 19,491,853 19,827,968
Distributions:
Investor Limited
Partners 94,752 396,500 396,500 297,495 99,132
Per Unit 23.79 15.86 15.86 11.90 3.97
Original Limited
Partner 25,045 16,697 16,697 12,526 4,174
General Partners 6,261 4,174 4,174 3,132 1,043
</TABLE>
For additional information, please see the discussion above under
Introduction - "Establishment of the Offer Price."
Section 11. Conflicts of Interest.
It is the Purchaser's belief that other than the 1,247 Units owned by
certain affiliates of the Purchaser, there is no conflict of interest
between the Purchaser and the Partnership or the General Partner.
Section 12. Certain Information Concerning the Purchaser.
The Purchaser is Madison Liquidity Investors 104, LLC, a limited
liability company organized under the laws of the State of Delaware.
For information concerning the Purchaser and its principals, please
refer to Schedule "I" attached hereto. The principal business of
the Purchaser is investment in securities, particularly limited
partnership securities. The principal business address of the
Purchaser is P.O. Box 7461, Incline Village, Nevada 89452.
The Purchaser has made binding commitments to contribute and has
available sufficient amounts of liquid capital necessary to fund
the acquisition of all Units subject to the Offer, the expenses
to be incurred in connection with the Offer, and all other
anticipated costs of the Purchaser. The Purchaser is not a
public company and has not prepared audited financial statements.
The Purchaser, its principals, owners and members have an
aggregate net worth in excess of $5 million, including net liquid
assets of more than $1 million.
As of the date of this Offer, Madison Partnership Liquidity
Investors 44 LLC, an affiliate of the Purchaser, owned 1,219
Units, Gramercy Park Investments LP, also an affiliate of the
Purchaser, owned 18 Units and ISA Partnership Liquidity Investors
LP, also an affiliate of the Purchaser owned 10 Units or
collectively, approximately 4.98% of the outstanding Units of the
Partnership. These Units were acquired during 1997 and 1998
through unregistered tender offers and secondary market
transactions, at prices ranging from $325.00 to $350.00 per
Unit. In consideration of the limited and inefficient nature of
the market for the Units, the Purchaser does not believe that the
prices paid for previously acquired Units should be relied upon
as a complete and accurate representation as to the current fair
market value of the Units.
Except as otherwise set forth herein, (i) neither the Purchaser
nor, to the best knowledge of the Purchaser, the persons listed
on Schedule "I" nor any affiliate of the Purchaser, beneficially
owns or has a right to acquire any Units, (ii) neither the
Purchaser nor, to the best knowledge of the Purchaser, the
persons listed on Schedule "I" nor any affiliate of the
Purchaser, or any director, executive officer or subsidiary of
any of the foregoing has effected any transaction in the Units
within the past 60 days, (iii) except for the Standstill
Agreement described in Section 14 "Background of the Offer"
below, and (iv) neither the Purchaser nor, to the best knowledge
of the Purchaser, the persons listed on Schedule "I" nor any
affiliate of the Purchaser have any contract, arrangement,
understanding or relationship with any other person with respect
to any securities of the Partnership, including but not limited
to, contracts, arrangements, understandings or relationships
concerning the transfer or voting thereof, joint ventures,
loan or option arrangements, puts or calls, guarantees of loans,
guarantees against loss or the giving or withholding of proxies,
consents or authorizations, (iv) there have been no transactions
or business relationships which would be required to be disclosed
under the rules and regulations of the Commission between the
Purchaser or, to the best knowledge of the Purchaser, the persons
listed on Schedule "I", or any affiliate of the Purchaser on the
one hand, and the Partnership or its affiliates, on the other hand,
and (v) there have been no contracts, negotiations or transactions
between the Purchaser, or to the best knowledge of the Purchaser
any affiliate of the Purchaser, on the one hand, the persons listed
on Schedule "I", and the Partnership or its affiliates, on the
other hand, concerning a merger, consolidation or acquisition,
tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
Set forth below is certain unaudited financial information with
respect to the Purchaser's sole member and funding source,
Madison/OHI Liquidity Investors, LLC ("Madison/OHI").
<TABLE>
<CAPTION>
Consolidated Balance Sheet
November 30, 1998
Assets
<S> <C>
Cash $ 459,290
Investment in limited partnerships 2,092,152
Other Assets 29,004
---------
Total Assets $2,580,446
Liabilities and Members' Equity
Liabilities:
Accounts payable and accrued expenses $ 227,859
Notes payable 1,048,825
Advances from affiliates 1,149,201
---------
Total Liabilities $2,425,885
Members' Equity 154,561
---------
Total Liabilities and Members' Equity $2,580,446
</TABLE>
Please see Section 13 "Source of Funds" for a description of certain
financing arrangements of OHI.
Section 13. Source of Funds.
The Purchaser expects that approximately $532,100 would be
required to purchase up to the 1,252 Unit maximum of the
outstanding Units, if tendered, and approximately an additional
$100,000.00 may be required to pay related fees and expenses.
The Purchaser anticipates funding all of the Offer Price and
related expenses through existing equity sources and/or borrowing
facilities. It is expected that the Purchaser will obtain its
funding from its Member, Madison/OHI Liquidity Investors, LLC
("Madison/OHI"), which in turn has represented that it intends to utilize
its existing capital sources and borrowings from its credit
facility. The Offer is not contingent on obtaining financing.
The following is a summary description of the existing credit
facility (the "Facility") provided for the benefit of Madison/OHI,
pursuant to the Loan Agreement, dated as of October 2, 1998
(the "Loan Agreement"), between Madison/OHI, as borrower, and
Omega Healthcare Investors, Inc. as the lender (the "Lender").
This summary description does not purport to be complete and is
qualified in its entirety by reference to the Loan Agreement, a
copy of which has been filed as an exhibit to the Purchaser's
Tender Offer Statement on Schedule 14D-1 filed with the Commission.
Pursuant to the Loan Agreement, the Lender has made available to
Madison/OHI a revolving credit facility of up to $30 million at
any one time outstanding, which amount is reduced to $25 million
after the fifth (5th) anniversary of the first funding date,
October 20, 2003. Loans under the Facility (the "Loans") may be
utilized to finance certain permitted investments. The Facility
matures on the earlier of the seventh (7th) anniversary of the
first funding date, October 20, 2005, or the date upon which the
Lender duly accelerates the due date of all unpaid principal and
interest owed by Madison/OHI to the Lender.
Loans bear interest, at rates ranging from 9% per annum to 16%
per annum, based on various classifications made under the Loan
Agreement. As of the date hereof, Madison/OHI currently has
made draw downs aggregating $5.4 million under the Facility.
Madison/OHI has no plans or arrangements to refinance or repay
such borrowings.
Madison/OHI is obligated to pay a fee on the unused portion of
the Facility. Such fee is payable quarterly in arrears and
calculated based on the actual number of days elapsed over a
365 day period. The quarterly fee is required to be paid in an
amount equal to twenty-five percent (25%) of the product obtained
by multiplying (a) one-eighth (1/8) of one (1) percent (i.e.
12-1/2 basis points) by (b) the amount by which $30 million
exceeds the average outstanding principal balance of the Loan
during the three (3) month period beginning December 1, 1998 and
ending February 28, 1999, and each successive quarter thereafter
until the Lender is no longer obligated to make advances on the
Loan pursuant to the Loan Agreement.
The Loans are subject to mandatory prepayment only to the extent
that the aggregate outstanding principal amount of the Loans on
any day exceeds the amount of the Facility then in effect.
Voluntary prepayments of the Loans and voluntary reductions of
the Facility are permitted, in whole or in part, at the option of
Madison/OHI in minimum principal amounts, without premium or
penalty, subject to reimbursement of certain of the Lender's
costs under certain conditions.
Madison/OHI's obligations under the Facility have been guaranteed
by limited personal guarantees of the managing directors of
Madison/OHI, Bryan E. Gordon and Ronald M. Dickerman.
The Facility contains representations and warranties, conditions
precedent, covenants, events of default and other provisions
customarily found in similar transactions.
Section 14. Background of the Offer.
In early 1997, Gramercy Park Investments LP (an affiliate of the
Purchaser, "Gramercy") commenced an action in the Superior Court
Department of the Trial Court for Suffolk County, Massachusetts
seeking, among other things, declaratory and injunctive relief
and money damages against The Krupp Corporation (a general
partner of the Partnership, "Krupp"), certain investment
partnerships sponsored by Krupp or its affiliates as well as
certain general partners of such investment partnerships (the
"Litigation"). As a means of resolving and settling the dispute
among them and the Litigation, Gramercy and Krupp entered into an
Agreement dated May 22, 1997, as supplemented by a letter dated
March 26, 1999, (collectively, the "Standstill Agreement")
(copies of which have been filed as Exhibits (c)(1) and (c)(2)to
the Purchaser's Tender Offer Statement on Schedule 14D-1 filed
with the Commission on April 21, 1999).
In the Standstill Agreement, Gramercy agreed, among other things,
that, except as set forth below, prior to May 21, 2002, none of
it nor any of its affiliates (including the Purchaser) will (i)
acquire, attempt to acquire or make a proposal to acquire,
directly or indirectly, more than 10% of the outstanding Units,
(ii) vote its interest in the Partnership on any issue other than
in proportion to the votes of all other interest holders who vote
on such issue, (iii) propose or propose to enter into, directly
or indirectly, any merger, consolidation, business combination,
sale or acquisition of assets, liquidation or other similar
transaction involving the Partnership, (iv) form, join or
otherwise participate in a "group" (within the meaning of Section
13(d)(3) of the Exchange Act) with respect to any voting
securities of the Partnership, provided, however, that Gramercy
and those of its affiliates bound by the Standstill Agreement
will not be deemed to be acting in a "group" in violation of it
solely by virtue of voting in compliance with the Standstill
Agreement, (v) make, or in any way participate, directly or
indirectly, in any solicitation of "proxies" or "consents" (as
such terms are used in the proxy rules of the Commission) to
vote, or seek to advise or influence any person with respect to
the voting of any voting securities of the Partnership, (vi)
prior to November 21, 1999, sell, transfer or assign any Units to
any person or entity not bound by the terms and conditions of the
Standstill Agreement, (vii) disclose any intention, plan or
arrangement inconsistent with the terms of the Standstill
Agreement, or (viii) loan money to, advise, assist or encourage
any person in connection with any action restricted or prohibited
by the terms of the Standstill Agreement.
Section 15. Conditions of the Offer.
Notwithstanding any other terms of the Offer, the Purchaser shall
not be required to accept for payment or to pay for any Units
tendered if all authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations of waiting
periods imposed by, any court, administrative agency or
commission or other governmental authority or instrumentality,
domestic or foreign, necessary for the consummation of the
transactions contemplated by the Offer shall not have been filed,
occurred or been obtained on or before the Expiration Date.
The Purchaser shall not be required to accept for payment or pay
for any Units not theretofore accepted for payment or paid for
and may terminate or amend the Offer as to such Units if, at any
time on or after the date of the Offer and before the Expiration
Date, the Purchaser determines, in its sole discretion, that any
of the following conditions exist:
(a) a preliminary or permanent injunction or other order of any
federal or state court, government or governmental authority or
agency shall have been issued and shall remain in effect which ,
in the view of the Purchaser, (i) makes illegal, delays or
otherwise directly or indirectly restrains or prohibits the
making of the Offer or the acceptance for payment of or payment
for any Units by the Purchaser, (ii) imposes or confirms
limitations on the ability of the Purchaser effectively to
exercise full rights of ownership of any Units, including,
without limitation, the right to vote any Units acquired by the
Purchaser pursuant to the Offer or otherwise on all matters
properly presented to the Partnership's Unitholders, (iii)
requires divestiture by the Purchaser of any Units, (iv) causes
any material diminution of the benefits to be derived by the
Purchaser as a result of the transactions contemplated by the
Offer or (v) might materially adversely affect the business,
properties, assets, liabilities, financial condition, tax status,
operations, results of operations or prospects of the Purchaser
or the Partnership;
(b) there shall be any action taken, or any statute, rule,
regulation or order proposed, enacted, enforced, promulgated,
issued or deemed applicable to the Offer by any federal or state
court, government or governmental authority or agency, other than
the application of the waiting period provisions of the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended,
which might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (v) of paragraph
(a) above;
(c) any change or development shall have occurred or
been threatened since the date hereof, in the business, properties,
assets, liabilities, financial condition, tax status, operations,
results of operations or prospects of the Partnership, which, in
the reasonable judgment of the Purchaser, is or may be materially
adverse to the Partnership, or the Purchaser shall have become
aware of any fact that, in the reasonable judgment of the Purchaser,
does or may have a material adverse effect on the value of the Units;
(d) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on any
national securities exchange or in the over-the-counter market in
the United States, (ii) a declaration of a banking moratorium or
any suspension of payments in respect of banks in the United
States, (iii) any limitation by any governmental authority on, or
other event which might affect, the extension of credit by
lending institutions or result in any imposition of currency
controls in the United States, (iv) a commencement of a war or
armed hostilities or other national or international calamity
directly or indirectly involving the United States, (v) a
material change in United States or other currency exchange rates
or a suspension of a limitation on the markets thereof, or (vi)
in the case of any of the foregoing existing at the time of the
commencement of the Offer a material acceleration or worsening
thereof;
(e) it shall have been publicly disclosed or the Purchaser shall
have otherwise learned that (i) more than fifty percent of the
outstanding Units have been or are proposed to be acquired by
another person (including a "group" within the meaning of Section
13(d)(3) of the Exchange Act), or (ii) any person or group that
prior to such date had filed a Statement with the Commission
pursuant to Section 13(d) or (g) of the Exchange Act has increased
or proposes to increase the number of Units beneficially owned by
such person or group as disclosed in such Statement by two percent
or more of the outstanding Units; or
(f) any developments that would substantially impair or encumber
those benefits that the Purchaser is attempting to achieve in
this Tender Offer.
The foregoing conditions are for the sole benefit of the Purchaser
and may be asserted by the Purchaser regardless of the circumstances
giving rise to such conditions or may be waived by the Purchaser
in whole or in part at any time and from time to time in its sole
discretion. Any termination by the Purchaser concerning the events
described above will be final and binding upon all parties.
Section 16. Certain Legal Matters.
General. Except as set forth in this Section 16, the Purchaser
is not aware of any filings, approvals or other actions by any
domestic or foreign governmental or administrative agency that
would be required prior to the acquisition of Units by the
Purchaser pursuant to the Offer. Should any such approval or
other action be required, it is the Purchaser's present intention
that such additional approval or action would be sought. While
there is no present intent to delay the purchase of Units
tendered pursuant to the Offer pending receipt of any such
additional approval or the taking of any such action, there can
be no assurance that any such additional approval or action, if
needed, would be obtained without substantial conditions or that
adverse consequences might not result to the Partnership's
business, or that certain parts of the Partnership's business
might not have to be disposed of or held separate or other
substantial conditions complied with in order to obtain such
approval or action, any of which could cause the Purchaser to
elect to terminate the Offer without purchasing Units thereunder.
The Purchaser's obligation to purchase and pay for Units is
subject to certain conditions, including conditions related to
the legal matters discussed in this Section 16.
In its annual filing on Form 10-K for the year ended December 31,
1998, the Partnership has disclosed that there are no material
pending legal proceedings to which the Partnership is a party or
of which any of its property is the subject.
Antitrust. The Purchaser does not believe that the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
is applicable to the acquisition of Units pursuant to the Offer.
Margin Requirements. The units are not "margin securities" under
the regulations of the Board of Governors of the Federal Reserve
System and, accordingly, such regulations are not applicable to
the Offer.
Appraisal Rights. Unitholders will not have appraisal rights as
a result of the Offer.
State Takeover Laws. A number of states have adopted
anti-takeover laws which purport, to varying degrees, to be
applicable to attempts to acquire securities of corporations or
other entities which are incorporated or organized in such states
or which have substantial assets, security holders, principal
executive officers or principal places of business therein.
Although the Purchaser has not attempted to comply with any state
anti-takeover statutes in connection with the Offer, the
Purchaser reserves the right to challenge the validity or
applicability or any state law allegedly applicable to the Offer
and nothing in this Offer to Purchase nor any action taken in
connection therewith is intended as a waiver of such right. If
any state anti-takeover statute is applicable to the Offer, the
Purchaser might be unable to accept for payment or purchase Units
tendered pursuant to the Offer or be delayed in continuing or
consummating the Offer. In such case, the Purchaser may not be
obliged to accept for purchase or pay for any Units tendered.
Section 17. Fees and Expenses.
Except as otherwise set forth herein, the Purchaser will pay all
costs and expenses of printing, publishing and mailing the Offer.
Section 18. Miscellaneous.
THE OFFER IS NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM
OR ON BEHALF OF) UNITHOLDERS IN ANY JURISDICTION IN WHICH THE
MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN
COMPLIANCE WITH THE LAWS OF SUCH JURISDICTION. THE PURCHASER IS
NOT AWARE OF ANY JURISDICTION WITHIN THE UNITED STATES IN WHICH
THE MAKING OF THE OFFER OR THE ACCEPTANCE THEREOF WOULD BE ILLEGAL.
No person has been authorized to give any information or to make
any representation on behalf of the Purchaser not contained
herein or in the Agreement of Assignment and Transfer and, if
given or made, such information or representation must not be
relied upon as having been authorized.
April 21, 1999
MADISON LIQUIDITY INVESTORS 104, LLC
MADISON/OHI LIQUIDITY INVESTORS, LLC
SCHEDULE I
THE PURCHASER AND ITS RESPECTIVE PRINCIPALS
Madison Liquidity Investors 104, LLC is a Delaware limited liability
company founded by Bryan E. Gordon and Ronald M. Dickerman that was
organized for the purpose of acquiring Units in the Partnership as
well as Units in certain other partnerships, some of which are also
sponsored by the Partnership's General Partners. The Purchaser's sole
member is Madison/OHI which is an affiliate of The Madison Avenue
Capital Group LLC (all three entities may collectively be referred
to as "Madison"). The names of the managing directors of the Purchaser,
Madison/OHI and The Madison Avenue Capital Group, LLC and their
principal occupations and five-year employment histories are set forth
below. Each individual is a citizen of the United States. The business
address of Madison is P.O. Box 7461, Incline Village, Nevada 89452.
Madison/OHI Liquidity Investors, LLC is a Delaware limited liability
company founded by Bryan E. Gordon and Ronald M. Dickerman, both of whom
are managing directors of the limited liability company. Madison/OHI
is the sole member of the Purchaser and, as further described in
Section 13 to this Offer to Purchase, is the primary funding source for
the Offer. The business address of Madison is P.O. Box 7461, Incline
Village, Nevada 89452.
The Madison Avenue Capital Group, LLC is a Delaware limited liability
company founded by Bryan E. Gordon and Ronald M. Dickerman. Madison is
an investment management boutique with a value investing philosophy.
Madison invests in limited partnership units, common stock and other
securities issued by companies which own diversified portfolios of real
estate, cable television systems, transportation and other leased
equipment, film portfolios, LBO/venture investment portfolios and other
cash flow producing assets. Madison and its affiliates have over $270
million in committed capital. To date, over 45,000 limited partners
nationwide in over 250 limited partnerships have sold their units to
Madison and its affiliates. The business address of Madison is
P.O. Box 7461, Incline Village, Nevada 89452.
Bryan E. Gordon is a Managing Director of the Purchaser as well
as being a Managing Director of The Madison Avenue Capital Group,
LLC. Prior to co-founding predecessor entities to The Madison
Avenue Capital Group, LLC in January 1995, Mr. Gordon had 13
years of experience in the investment banking and management
consulting fields, with an emphasis on real estate and corporate
finance. Mr. Gordon has extensive experience with equity and
debt financings, mergers and acquisitions, roll-up and formation
transactions, and restructurings of limited partnerships, REITs,
corporations and joint ventures. Mr. Gordon's experience
includes: seven years in the Real Estate and Partnership Finance
Groups at Smith Barney, Inc.; two years in the Investment Banking
Division of Bear, Stearns & Co. Inc.; one year in the Real Estate
and Partnership Finance Group at EF Hutton & Company; and three
years in management consulting with Tillinghast/Towers, Perrin,
Foster & Crosby. Mr. Gordon earned an MBA from Columbia
University's Graduate School of Business and a BSE from the
Wharton School of the University of Pennsylvania.
Ronald M. Dickerman is a Managing Director of the Purchaser as
well as being a Managing Director of The Madison Avenue Capital
Group, LLC. Prior to co-founding predecessor entities to The
Madison Avenue Capital Group, LLC in January 1995, Mr. Dickerman
had 14 years of experience in the analysis, acquisition,
financing, management, and disposition of income-producing real
estate. In 1991, Mr. Dickerman founded First Equity Realty
Corp., a real estate investment firm specializing in the
acquisition of multi-family properties from financial
institutions, utilizing a value-added approach. From 1987-1991,
Mr. Dickerman was an investment banker in the Partnership Finance
Group of Smith Barney, Harris, Upham & Co., Inc. His responsibilities
included the origination, analysis, structuring, acquisition, asset
management, disposition and marketing of real estate and other limited
partnerships. Mr. Dickerman earned an MBA from Columbia University's
Graduate School of Business and a BA from Tufts University.
For purposes of the applicable securities law, the Purchaser's
sole member and funding source, Madison/OHI Liquidity Investors, LLC
("Madison/OHI"), is a co-bidder to this Offer. As such, references
in this Offer to the "bidder" may be deemed to include Madison/OHI.
However, the purchaser of the Units will be Madison Liquidity
Investors 104, LLC.
EXHIBIT (a)(2)
AGREEMENT of ASSIGNMENT and TRANSFER
For Units of Investor Limited Partnership Interests in
Krupp Realty Fund, Ltd. - III
Please make any corrections to name/mailing address in space above.
I hereby tender to Madison Liquidity Investors 104, LLC, a Delaware
limited liability company ("Madison"), the number of Units of
Investor Limited Partnership Interests set forth above (including
any and all other Units or other securities issued or issuable in
respect of such Unit on or after the date hereof) (collectively,
the "Units") in Krupp Realty Fund, Ltd. - III, a Massachusetts
limited partnership (the "Partnership"), for $425.00 per Unit in
cash, without any interest thereon, (reduced by the amount of (i)
any transfer fee payable to the Partnership in respect of the Units
tendered hereby and (ii) any cash distributions made to me by the
Partnership on or after April 21, 1999) in accordance with the
terms and subject to the conditions of Madison's Offer to Purchase
attached as Exhibit (a)(1) to Schedule 14D-1 dated April 21, 1999
(the "Offer to Purchase") and this Agreement of Assignment and
Transfer (which, together with the Offer to Purchase and any
supplements or amendments, constitutes the "Offer"). I acknowledge
that I have received the Offer to Purchase. The Offer, proration
period (described further in Section 4 of the Offer to Purchase)
and the withdrawal rights (described further in Section 5 of the
Offer to Purchase) will remain open until 5:00 p.m. Eastern
Standard Time on May 24, 1999, subject to extension at the
discretion of Madison. It is understood that payment for the Units
tendered hereby will be made by check mailed to me at the address
above promptly after the date of the Partnership's confirmation
that the transfer of the Units to Madison is effective, subject to
Section 4 (Proration) and Section 5 (Withdrawal Rights) of the
Offer to Purchase. The Offer is subject to Section 15 (Conditions
of the Offer) of the Offer to Purchase.
Subject to, and effective upon, acceptance of this Agreement of
Assignment and Transfer and payment for the Units tendered hereby
in accordance with the terms and subject to the conditions of the
Offer, I hereby sell, assign, transfer, convey and deliver (the
"Transfer") to Madison, all of my right, title and interest in and
to the Units tendered hereby and accepted for payment pursuant to
the Offer and any and all non-cash distributions, other Units or
other securities issued or issuable in respect thereof on or after
April 21, 1999, including, without limitation, to the extent that
they exist, all rights in, and claims to, any Partnership profits
and losses, cash distributions, voting rights and other benefits of
any nature whatsoever and whenever distributable or allocable to
the Units under the Partnership's limited partnership agreement
(the "Partnership Agreement"), (i) unconditionally to the extent
that the rights appurtenant to the Units may be transferred and
conveyed without the consent of the general partner of the
Partnership (the "General Partner"), and (ii) in the event that
Madison elects to become a substituted limited partner of the
Partnership, subject to the consent of the General Partner to the
extent such consent may be required in order for Madison to become
a substituted limited partner of the Partnership.
It is my intention that Madison and its designees, if any of them
so elects, succeed to my interest as a Substitute Limited Partner,
as defined in the Partnership Agreement, in my place with respect
to the transferred Units. It is my understanding, and I hereby
acknowledge and agree, that Madison and its designees shall be
entitled to receive all distributions of cash or other property
from the Partnership attributable to the transferred Units that are
made on or after April 21, 1999, including, without limitation, all
distributions of distributable cash flow and net cash proceeds,
without regard to whether the cash or other property that is
included in any such distribution was received by the Partnership
before or after the Transfer and without regard to whether the
applicable sale, financing, refinancing or other disposition took
place before or after the Transfer. It is my further
understanding, and I further acknowledge and agree, that the
taxable income and taxable loss attributable to the transferred
Units with respect to the taxable period in which the Transfer
occurs shall be divided among and allocated between me and Madison
and its designees as provided in the Partnership Agreement, or in
accordance with such other lawful allocation methodology as may be
agreed upon by the Partnership and Madison. I represent and
warrant that I have the full right, power and authority to transfer
the subject Units and to execute this Agreement of Assignment and
Transfer and all other documents executed in connection herewith
without the joinder of any other person or party, and if I am
executing this Agreement of Assignment and Transfer or any other
document in connection herewith on behalf of a business or other
entity other than an individual person, I have the right, power and
authority to execute such documents on behalf of such entity
without the joinder of any other person or party.
Subject to Section 5 (Withdrawal Rights) of the Offer to Purchase,
I hereby irrevocably constitute and appoint Madison and its
designees as my true and lawful agent and attorneys-in-fact and
proxies with respect to the Units (and with respect to any and all
other Units or other securities issued or issuable in respect of
such Unit on or after the date hereof), each with full power of
substitution (such power of attorney being deemed to be an
irrevocable power coupled with an interest), to (i) exercise all
my voting and other rights as any such attorney-in-fact in their
sole discretion may deem proper at any meeting of Unitholders or
any adjournment or postponement thereof, by written consent in lieu
of any such meeting or otherwise; (ii) act in manner as any such
attorney-in-fact shall, in its sole discretion, deem proper with
respect to the Units; (iii) deliver the Units and transfer
ownership of the Units on the Partnership's books maintained by the
General Partner; (iv) endorse, on my behalf, any and all payments
received by Madison from the Partnership that are made on or after
April 21, 1999, which are made payable to me, in favor of Madison
or any other payee Madison otherwise designates; (v) execute a Loss
and Indemnity Agreement relating to the Units on my behalf if I
fail to include my original certificate(s) (if any) representing
the Units with this Agreement; (vi) execute on my behalf any
applications for transfer and any distribution allocation
agreements required by National Association of Securities Dealers
Notice to Members 96-14 to give effect to the transactions
contemplated by this Agreement; (vii) receive all benefits and cash
distributions and otherwise exercise all rights of beneficial
ownership of the Units; and (viii) direct the General Partner to
immediately change the address of record of the registered owner of
the transferred Units to that of Madison, as my attorney-in-fact.
Madison and its designees are further authorized, as part of their
powers as my attorneys-in-fact with respect to the Units, to
commence any litigation that Madison and its designees, in their
sole discretion, deem necessary to enforce any exercise of
Madison's or such designees powers as my attorneys-in-fact as set
forth herein. Madison or its designees shall not be required to
post bond of any nature in connection with this power of attorney.
I hereby direct the Partnership and the General Partner to remit to
Madison and its designees any distributions made by the Partnership
with respect to the Units on or after April 21, 1999. To the
extent that any distributions are made by the Partnership with
respect to the Units on or after April 21, 1999, which are received
by me, I agree to promptly pay over such distributions to Madison.
I further agree to pay any costs incurred by Madison and its
designees in connection with the enforcement of any of my
obligations hereunder or my breach of any of the agreements,
representations and warranties made by me herein. All prior powers
of attorney and proxies granted by me with respect to the Units
(and such other Units or securities) are, without further action,
hereby revoked and no subsequent powers of attorney or proxies may
be given and no subsequent consent may be executed (and if given or
executed, will not be deemed effective.) Madison and its
designees agree to exercise the proxy and power of attorney granted
hereby in a manner consistent with the terms of the Agreement,
dated May 22, 1997, between The Krupp Corporation (an affiliate of
the general partner of the Partnership) and Gramercy Park
Investments, L.P. (an affiliate of Madison). See Section 14
"Background of the Offer" in the Offer to Purchase.
I hereby direct the General Partner to immediately change my
address of record as the registered owner of the Units to be
transferred herein to that of Madison or its designees, conditional
solely upon Madison's execution of this Agreement.
If legal title to the Units is held through an IRA or KEOGH or
similar account, I understand that this Agreement must be signed by
the custodian of such IRA or KEOGH account. Furthermore, I hereby
authorize and direct the custodian of such IRA or KEOGH to confirm
this Agreement.
I hereby represent and warrant to Madison that I (i) have received
and reviewed the Offer to Purchase and (ii) own the Units and have
full power and authority to validly sell, assign, transfer, convey
and deliver to Madison and its designees the Units, and that
effective when the Units are accepted for payment by Madison and
its designees, I hereby convey to Madison and its designees, and
Madison and its designees will hereby acquire good, marketable and
unencumbered title thereto, free and clear of all options, liens,
restrictions, charges, encumbrances, conditional sales agreements
or other obligations relating to the sale or transfer thereof, and
the Units will not be subject to any adverse claim. I further
represent and warrant that I am a "United States person," as
defined in Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended.
I hereby release and discharge the General Partner and its
officers, shareholders, directors, employees and agents from all
actions, causes of action, claims or demands I have, or may have,
against the General Partner that result from the General Partner's
reliance on this Agreement of Assignment and Transfer or any of the
terms and conditions contained herein. I hereby indemnify and hold
harmless the Partnership from and against all claims, demands,
damages, losses, obligations and responsibilities arising, directly
or indirectly, out of a breach of any one or more representations
and warranties set forth herein.
All authority herein conferred or agreed to be conferred shall
survive my death or incapacity and all of my obligations shall be
binding upon the heirs, personal representatives, successors and
assigns of the undersigned. In addition, I hereby agree not to
offer, sell or accept any offer to purchase any or all of the Units
to or from any third party while the Offer remains open. Upon
request, I will execute and deliver any additional documents deemed
by Madison and its designees to be necessary or desirable to
complete the assignment, transfer and purchase of the Units.
I hereby certify, under penalties of perjury, that the statements
in Box A, Box C, Box D and, if applicable, Box E below are true and
correct.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware. I waive any claim that any
State or Federal court located in the State of Delaware is an
inconvenient forum, and waive any right to trial by jury.
PLEASE COMPLETE ALL SHADED AREAS
SIGN HERE TO TENDER YOUR UNITS
BOX A
(See Instructions to Complete Agreement of Assignment and Transfer - Box A)
- ---------------------------------------------------------------------------
All
Date:____________________, 1999 ___________________________________________
(If you desire to sell less than all of your
Units, strike "All" and indicate the number
of Units to be sold)
_______________________ ______________________ ______________________
Your Social Security or Your Telephone Number Signature of Co-Seller
Taxpayer Identification and Medallion Signature
Number Guarantee (If
applicable)
________________________________________________________________________
Your Signature and Medallion Signature Guarantee
_________________________________________________________________________
Custodian Signature and Medallion Signature Guarantee (Required if Units
held in IRA/KEOGH)
Please note: A Medallion Signature Guarantee is similar to a notary, but
is provided by your bank or brokerage house where you have an account.
- -------------------------------------------------------------------------------
BOX B
MEDALLION SIGNATURE GUARANTEE
(Required for all Sellers)
(See Instructions to Complete Agreement of Assignment and Transfer - Box B)
Name and Address of Bank or Brokerage House:___________________________________
Authorized Signature of Bank or
Brokerage House Representative:_________________________ Title:________________
Name:______________________________ Date:_________ , 1999
Please note: A Medallion Signature Guarantee is similar to a notary, but
is provided by your bank or brokerage house where you have an account.
_______________________________________________________________________________
BOX C
SUBSTITUTE FORM W-9
(See Instructions to Complete Agreement of Assignment and Transfer - Box C)
The person signing this Agreement of Assignment and Transfer hereby
certifies the following to the Purchaser under penalties of perjury:
(i) The TIN set forth in the signature box in Box A of this
Agreement of Assignment and Transfer is the correct TIN of the Unitholder,
or if this box [ ] is checked, the Unitholder has applied for a TIN. If
the Unitholder has applied for a TIN, a TIN has not been issued to the
Unitholder, and either: (a) the Unitholder has mailed or delivered an
application to receive a TIN to the appropriate IRS Center or Social
Security Administration Office, or (b) the Unitholder intends to mail or
deliver an application in the near future (it being understood that if the
Unitholder does not provide a TIN to the Purchaser within sixty (60) days,
31% of all reportable payments made to the Unitholder thereafter will be
withheld until a TIN is provided to the Purchaser); and
(ii) Unless this box [ ] is checked, the Unitholder is not
subject to backup withholding either because the Unitholder: (a) is exempt
from backup withholding, (b) has not been notified by the IRS that the
Unitholder is subject to backup withholding as a result of a failure to
report all interest or dividends, or (c) has been notified by the IRS that
such Unitholder is no longer subject to backup withholding.
Note: Place an "X" in the box in (ii) if you are unable to certify
that the Unitholder is not subject to backup withholding.
________________________________________________________________________________
BOX D
FIRPTA AFFIDAVIT
(See Instructions to Complete Agreement of Assignment and Transfer - Box D)
Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg.
1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount
realized with respect to certain transfers of an interest in a partnership
if 50% or more of the value of its gross assets consists of U.S. real
property interests and 90% or more of the value of its gross assets
consists of U.S. real property interests plus cash equivalents, and the
holder of the partnership interest is a foreign person. To inform the
Purchaser that no withholding is required with respect to the Unitholder s
interest in the Partnership, the person signing this Agreement of
Assignment and Transfer hereby certifies the following under penalties of
perjury:
(i) Unless this box [ ] is checked, the Unitholder, if an
individual, is a U.S. citizen or a resident alien for purposes of U.S.
income taxation, and if other than an individual, is not a foreign
corporation, foreign partnership, foreign estate or foreign trust (as those
terms are defined in the Internal Revenue Code and Income Tax Regulations);
(ii) the Unitholder s U.S. social security number (for individuals) or
employer identification number (for non-individuals) is correctly printed
in the signature box in Box A of this Agreement of Assignment and Transfer;
and (iii) the Unitholder s home address (for individuals) or office address
(for non-individuals), is correctly printed (or corrected) on the top of
this Agreement of Assignment and Transfer. If a corporation, the
jurisdiction of incorporation is ________________________.
The person signing this Agreement of Assignment and Transfer
understands that this certification may be disclosed to the IRS by the
Purchaser and that any false statements contained herein could be punished
by fine, imprisonment, or both.
________________________________________________________________________________
BOX E
SUBSTITUTE FORM W-8
(See Instructions to Complete Agreement of Assignment and Transfer - Box E)
By checking this box [ ], the person signing this Agreement of
Assignment and Transfer hereby certifies under penalties of perjury that
the Unitholder is an "exempt foreign person" for purposes of the backup
withholding rules under the U.S. federal income tax laws, because the
Unitholder:
(i) Is a nonresident alien individual or a foreign corporation,
partnership, estate or trust;
(ii) If an individual, has not been and plans not to be present
in the U.S. for a total of 183 days or more during the calendar year; and
(iii) Neither engages, nor plans to engage, in a U.S. trade or
business that has effectively connected gains from transactions with a
broker.
________________________________________________________________________________
AGREED TO AND ACCEPTED:
Madison Liquidity Investors 104, LLC
By:_______________________________________________________
Madison Liquidity Investors 104, LLC, 4643 South Ulster Street, Suite 800,
Denver, Colorado, 80237 Tel: (303) 858-0000 Fax: (303) 858-0001
EXHIBIT (a)(3)
April 21, 1999
To Unitholders in Krupp Realty Fund, Ltd. - III
RE: Offer to Purchase Limited Partnership Interests
Dear Fellow Investor:
Madison Liquidity Investors 104, LLC ( Madison ) is seeking to
buy your Limited Partnership Interests (the Units ) in Krupp
Realty Fund, Ltd. - III (the Partnership ) for $425.00 per Unit
in cash (the "Offer Price"). This amount will be reduced by the
$50.00 transfer fee (per transfer, not per Unit) charged by the
Partnership and any cash distributions made by the Partnership on
or after April 21, 1999.
We are an investment firm which buys units in dozens of
underperforming limited partnerships and are not affiliated with
the Partnership or the General Partners. We are principals
seeking to acquire Units for our investment portfolio only (we
are not a matching service or professional broker who resells
units). Madison and its affiliates have over $270 million in
capital that is committed to paying limited partners for their
units. To date, over 45,000 limited partners nationwide in over
250 limited partnerships have chosen to sell their units to us.
This has made Madison a leading and reliable choice for limited
partnership investors seeking a time and cost efficient liquidity
option.
Please consider the following points in evaluating our offer:
* FASTER, COMMISSION-FREE SALE. Our offer provides you with
the opportunity to immediately sell your Units without the
commission costs (generally, up to 10% of the sales price,
subject to a $150-$200 minimum commission per trade) paid by the
seller in typical secondary market sales. Remember, with
secondary market matching services, the process to sell your
Units will not even begin until an interested buyer can be
found, which cannot be assured and can take days, weeks or even
months. In contrast, by agreeing to sell to Madison, you are
assuring a sale of your Units, subject to proration rights and
other conditions having been met, all as set forth in the Offer
to Purchase.
* HISTORICAL PARTNERSHIP PERFORMANCE. The Partnership was
closed 16 years ago. You invested $1,000.00 per Unit and to
date an original investor has received total cash distributions
of approximately $604.00 per Unit from the Partnership. When
combined with the remaining net asset value (as estimated by the
General Partner) this would represent an annual return on your
investment of 1.6%.
* HIGHER PRICE THAN RECENT SALES. Our Offer Price of $425.00
per Unit is higher than the recent tender offer from Smithtown
Bay, LLC of $415.00 per Unit.
* ILLIQUID UNITS. The relative illiquidity of the Units
resulting from the absence of a formal trading market means the
Units are difficult to sell. In fact, there were only four sales
during the months of December 1998 and January 1999 (the most
recent period for which information is available) according to
the January/February 1999 issue of The Partnership Spectrum.
* ELIMINATE K-1 TAX FILING. If you sell your Units now, 1999 will
be the final year for which you receive a K-1 tax form from the
Partnership, assuming the transfer of your Units is completed by
year end. Many investors who have tax professionals prepare
their taxes find the cost of filing K-1s to be burdensome,
particularly if more than one limited partnership is owned.
* ABILITY TO REDEPLOY SALE PROCEEDS INTO OTHER INVESTMENTS.
The decision to sell your Units for cash now would provide you
with the ability to redeploy your investment assets into
potentially stronger and liquid investments. This could,
depending on your individual investment decisions, provide
current income and capital appreciation potential, as well as
liquidity if needed.
* LIMINATION OF ADDITIONAL RETIREMENT ACCOUNT FEES. If you
sell your Units now, 1999 could be the final year in which you
incur additional fees, if any as a result of holding Units in
your IRA or retirement account. Due to the lackluster
performance and declining value of limited partnership units
generally, many custodians will not allow the transfer of limited
partnership units into new retirement accounts. While many
investors have consolidated their retirement accounts and taken
advantage of custodial services offered through discount
brokerage firms, they may have had to maintain separate
retirement accounts for limited partnership units, because of
custodian restrictions on the transfer of such units. Once our
cash payment is sent directly to your retirement account, you are
free to consolidate your retirement accounts or transfer the
funds to a custodian that offers lower fees.
* UNCERTAIN TIMING OF FINAL PARTNERSHIP LIQUIDATION. While
Madison is not aware of any planned or pending sales of any of
the Partnership's properties, it should be noted that, if a sale
of all of the assets of the Partnership were announced, such sale
would be no guarantee that full liquidation will occur
immediately after such sale or shortly thereafter. As stated in
the July/August 1998 issue of The Partnership Spectrum, "Long
suffering partnership investors rejoicing over the sale of their
partnership's assets typically don't realize that it could be
months or even years before their partnership is formally
dissolved and the final K-1 is mailed out. While warranties and
representations made to buyers in connection with asset sales
often keep a partnership from dissolving for six to twelve months
after the last property has been sold, a lawsuit can require a
partnership to stay open for years." Accordingly, to the extent
that the Partnership continues to exist after its final asset
sale, you will continue to receive a K-1 in each year in which
the Partnership continues to exist and there can be no assurance
that the Partnership will make cash distributions in each of such
years.
A. YOU WILL FOREGO FUTURE BENEFITS OF OWNING UNITS. Unitholders
who tender their Units will give up the opportunity to
participate in any future benefits from the ownership of Units,
including potential future distributions by the Partnership, and
the purchase price per Unit payable to a tendering Unitholder by
Madison may be less than the total amount which might otherwise
be received by the Unitholder with respect to the Units over the
remaining term of the Partnership.
B. MADISON IS SEEKING TO MAKE A PROFIT ON THE PURCHASE OF UNITS.
Madison is making the Offer for investment purposes and with the
intention of making a profit from the ownership of the Units. In
establishing the purchase price of $425.00 per Unit, Madison is
motivated to establish the lowest price which might be acceptable
to Unitholders consistent with Madison's objectives. Such
objectives and motivations conflict with the interests of the
Unitholders in receiving the highest price for their Units. Upon
the liquidation of the Partnership, Madison will benefit to the
extent, if any, that the amount per Unit it receives in the
liquidation exceeds the Offer Price, if any. Therefore,
Unitholders might receive more value if they hold their Units,
rather than tender, and receive proceeds from the liquidation of
the Partnership. Alternatively, Unitholders may prefer to
receive the Offer Price now rather than wait for uncertain future
net liquidation proceeds. No independent person has been
retained to evaluate or render any opinion with respect to the
fairness of the Offer Price and no representation is made by
Madison or any affiliate of Madison as to such fairness. When
the assets of the Partnership are ultimately sold, the return to
Unitholders could by higher or lower than the Offer Price. We
believe that the value of the Units will ultimately be more than
the price offered hereby. However, there are numerous risks and
uncertainties that may cause our belief to be wrong. If you wish
to have us bear those risks and uncertainties, you should
consider selling your Units to us. Unitholders are urged to
consider carefully all the information contained herein before
accepting the Offer.
C. CONDITIONS OF SALE. Madison's obligation to purchase
Units is subject to its right to prorate among tendering
Unitholders the number of Units Madison will purchase from a
Unitholder as well as other conditions set forth in the Offer to
Purchase. Furthermore, the eventual transfer of all tendered
Units is subject to the final approval of the Partnership or
General Partners and is subject to their discretion.
D. UNITHOLDERS MAY ATTEMPT TO SELL UNITS IN THE SECONDARY
MARKET. The price offered hereby may be more or less than prices
recently quoted by secondary market matching market services. We
believe that transactions through these secondary market services
are costly and time consuming, and that the quoted prices often
differ from the price a seller actually receives. Therefore, you
may prefer to sell to us even at a lower price than otherwise so
quoted. Because the gross sales prices reported by The
Partnership Spectrum do not necessarily reflect the net sales
proceeds received by sellers of Units, which typically are
reduced by commissions and other secondary market transaction
costs to amounts less than the reported prices, Madison cannot,
and does not, know whether the information compiled by The
Partnership Spectrum is accurate or complete.
Madison will purchase a maximum of 5.01% of the outstanding
Units pursuant to this offer. If more Units are offered to us,
we will prorate our purchase ratably to all sellers. You will be
paid promptly following (i) receipt of a valid, properly executed
Agreement of Assignment and Transfer (see the yellow document
enclosed) and (ii) receipt by Madison of the Partnership's
confirmation that the transfer of Units has been effectuated,
subject to Section 4 (Proration) of the Offer to Purchase. All
sales of Units will be irrevocable by you, subject to Section 5
(Withdrawal Rights) of the Offer to Purchase.
A comprehensive discussion of the terms of the offer can be found
in the Offer to Purchase, Exhibit (a)(1) to the Schedule 14D-1.
If you wish to accept our offer, please complete and Medallion
Signature Guarantee (this must be done by your broker or a bank
where you have an account) the enclosed yellow Agreement of
Assignment and Transfer and return it in the enclosed envelope,
along with your limited partnership certificate (if one was
issued to you and is available).
Our offer will expire at 5:00 p.m., Eastern Standard Time, on May
24, 1999, unless the offer is extended. We encourage you to act
promptly.
Please call us at (303) 858-0000, or send a fax to (303) 858-
0001, if you have any questions. Thank you for your
consideration of our offer.
Very truly yours,
Madison Liquidity Investors 104, LLC<PAGE>
COMMONLY ASKED QUESTIONS AND ANSWERS
WHY WOULD I WANT TO SELL MY UNITS TO MADISON? Have your original
objectives for this investment been met? Are your pleased with
the way this investment has performed to date? We have found
that most investors are disappointed with the performance of
their limited partnership investments. Many investors have been
in these investments far longer than originally anticipated and
their returns have been disappointing. In addition, the tax
reporting requirements for limited partnerships are burdensome
and costly, often requiring an accountant to prepare your taxes.
Requirements by certain states also increase this burden by
requiring limited partners to file state income tax returns, and
potentially to pay taxes, in states where a partnership owns
properties, regardless of the overall profitability of the
partnership. Many investors feel that selling their limited
partnership units will free up funds to pursue more attractive
investment options. And unlike limited partnerships, most other
investments provide immediate liquidity in the event an investor
needs access to his/her funds. While emotionally difficult to
accept, many investors are realizing that not only will original
projections never be met on many of these limited partnerships,
but, in some cases, original investment capital will never be
fully recovered. Thus, a readily available purchase offer for an
underperforming investment with an uncertain termination date may
be an opportunity worthy of your consideration.
WHY DOES MADISON WANT TO BUY MY UNITS? Madison purchases units
in dozens of underperforming limited partnerships for its own
investment portfolio... not for the purposes of reselling the
units or matching buyers and sellers, as is the case with
secondary market matching services. By agreeing to sell to
Madison, you are assuring a sale of your Units, subject to
proration rights and other conditions having been met. A
secondary market firm cannot assure a sale unless it can locate a
buyer who is interested in purchasing your particular Units.
Most individual investors are not interested in purchasing
limited partnership units for their investment portfolios, so
Madison is providing you with a liquidity option that is
generally not otherwise readily available. Unlike other firms
that purchase limited partnership units, Madison is typically not
interested in acquiring controlling interests in limited
partnerships. Furthermore, buying units in a broad portfolio of
limited partnerships allows us to diversify our investment
portfolio, thus mitigating our risk of purchasing such
underperforming investments.
WHAT OTHER OPTIONS ARE AVAILABLE TO ME TO SELL MY UNITS? Not
many! Unlike Madison, secondary market firms will only match
buyers and sellers. They do not provide a firm bid. So the only
way you can sell your Units through this market is if they can
locate an interested buyer. Furthermore, Madison charges no
commissions (secondary market firms generally charge up to 10%,
subject to a $150 - $200 minimum commission per trade) and our
Offer Price is often higher than recent secondary market prices!
HOW DO I SUBSCRIBE TO MADISON'S OFFER AND WHEN WILL I BE PAID?
The purchase process involves several steps. By carefully
following the instructions on the enclosed checklist, you are
ensuring the fastest possible turnaround time for the sale of
your Units. Properly completed Agreements of Assignment and
Transfer are forwarded by Madison to the General Partner on a
weekly basis following the completion of the offer. Most general
partners will take approximately four weeks thereafter to confirm
the number of Units you own and provide Madison with the
effective transfer date. IRA investors should add approximately
two weeks because of the additional signatures required from your
custodian. Thereafter, you will be promptly paid by Madison.
HOW DID MADISON GET MY NAME? In every limited partnership in
which Madison conducts a tender offer, one of its affiliates is a
limited partner, and as such, we are entitled to receive a list
of the names and addresses of all of our fellow limited partners
or have the General Partner forward this correspondence to you.
WHAT HAPPENS IF I DON'T SELL MY UNITS? Nothing. If you choose to
retain your investment in the Partnership, you will be a limited
partner until all its assets and the Partnership have been
liquidated. Remember, however, that even if the Partnership had
an original anticipated holding period of five, seven or ten
years, there is usually nothing requiring liquidation within this
time frame. In fact, most limited partnerships can legally
continue for up to twenty or thirty years, or longer, from
inception.
If you have any additional questions, please call:
Madison Liquidity Investors 104, LLC
(303) 858-0000<PAGE>
INSTRUCTIONS TO COMPLETE AGREEMENT OF ASSIGNMENT AND TRANSFER
Forming Part of the Terms and Conditions of the Offer
By checking-off below all of the items that pertain to your form
of ownership, you are guaranteeing the fastest turnaround time
for payment for your Units. Refer to the "Other Common
Oversights" section below to make sure you are not forgetting
anything that may delay processing.
Upon our receipt of your Agreement of Assignment and Transfer,
Madison will evaluate it to determine if it is complete by the
General Partner's standards. If your Agreement is incomplete,
you will receive a deficiency letter from us that will let you
know the additional information that we need to process your
sale. Please respond promptly to such request for additional
information. Your failure to provide this additional information
can add weeks to the processing time.
1. BOX A
- Individual Owner/Joint Owners of Record
[ ] Sign Agreement (both owners must sign if joint
account).
[ ] Provide a Medallion Signature Guarantee.
[ ] Enclose your original limited partnership
certificate, if available.
[ ] Return Agreement to Madison in pre-paid/pre-
addressed envelope provided.
- IRA Investors
[ ] Beneficial owner should sign Agreement.
Madison will work directly with your Custodian to
get the necessary custodial signature/medallion
guarantee and we will then forward your check
directly to your IRA account.
- Trust, Profit Sharing and Pension Plans
[ ] Authorized signatory should sign Agreement.
[ ] Enclose first, last and other applicable pages of
Trust or Plan Agreement showing that signor(s) is
authorized signatory.
- Corporations
[ ] Authorized signatory should sign Agreement.
[ ] Include Corporate Resolution showing that
signor(s) is authorized signatory.
- Other Common Oversights
[ ] Death Certificates: If the owner of the Units has
died, please enclose a copy of the Death
Certificate and evidence of your signature
authority.
[ ] Letters Testamentary: If you have inherited the
Units, include a copy of the original owner's
Death Certificate and a copy of the Letters
Testamentary or Will showing that you are the
legal owner of the Units.
2. BOX B - MEDALLION SIGNATURE GUARANTEE.
Required to be signed by your bank or brokerage house only.
3. BOX C - SUBSTITUTE FORM W-9.
Please check the shaded box in Box C(i) if you do not have a
Taxpayer Identification Number or Social Security Number
("TIN") but have already applied for a TIN. Please check
the shaded box in Box C(ii) if you are subject to the 31%
federal tax backup withholding.
4. BOX D - FIRPTA AFFIDAVIT.
Please check the shaded box in Box D(i) if you are not a
U.S. citizen or a resident alien for purposes of U.S. income
taxation, or are a foreign corporation, foreign
partnership, foreign estate or foreign trust. If the
Unitholder is a corporation, please indicate the state of
incorporation in the shaded area in Box D(iii).
5. BOX E - FOREIGN PERSONS.
Please check the shaded box in Box E if you are an exempt
foreign person for purposes of the backup withholding rules
under the federal income tax laws.
Please note: A Medallion Signature Guarantee is similar to a
notary, but is provided by your bank or brokerage house where you
have an account.
If you have any additional questions, please call:
Madison Liquidity Investors 104, LLC
(303) 858-0000
EXHIBIT (b)(1)
LOAN AGREEMENT
$30 Million Credit Facility Between
Omega Healthcare Investors, Inc.
and
Madison/OHI Liquidity Investors, LLC
October 2, 1998
Table of Contents
Page
Section 1 - Definitions.......................................................I
Section 2 - Warranties and Representations....................................8
Section 3 - The Loan.........................................................11
Section 4 - Interest Rate; Advance Procedures................................16
Section 5 - Security and Release of Collateral...............................19
Section 6 - Affirmative Covenants............................................22
Section 7 - Negative Covenants...............................................27
Section 8 - Application of Proceeds..........................................28
Section 9 - Events of Default and Remedies...................................28
Section 10 - Conditions Precedent to Advances of the Loan....................30
Section 11- Limitation on Loan Advances......................................31
Section 12 - Option to Restructure Investments...............................32
Section 13 - Acceptance of Proceeds..........................................32
Section 14 - Confidentiality.................................................32
Section 15 - Indemnification.................................................33
Section 16 - Miscellaneous...................................................34
LOAN AGREEMENT
This Loan Agreement is made as of October 2, 1998, between OMEGA HEALTHCARE
INVESTORS, INC., a Maryland corporation (the "Lender"), 900 Victors Way, Suite
350, Ann Arbor, Michigan 48108, and MADISON/OHI- LIQUIDITY INVESTORS, LLC, a
Delaware limited liability company (the "Borrower"), P. 0. Box 7461, Incline
Village, Nevada 89452.
RECITALS:
A. The Borrower has requested the Lender to extend the credit facility
described below, the proceeds of which will be used by the Borrower in its
business as set forth in this Agreement.
B. The Lender is willing to extend the credit facility on the terms and
subject to the conditions set forth in this Agreement.
The parties agree as follows:
Section 1 - Definitions
In addition to the terms defined elsewhere in this Agreement, the
following, definitions shall apply for purposes of this Agreement:
1.1 "Acquisition Cost" means the cash price paid by the Borrower for its
acquisition of an Investment Position, including reasonable incidental costs
paid to third-parties directly relating to such acquisitions. Acquisition Costs
shall also include payments or accruals to Affiliates of equitably allocated
general and administrative costs and reimbursements to Affiliates of expenses
initially defrayed by Affiliates in respect of the acquisition of Investment
Positions.
1.2 "Affiliate" means (a) First Equity Realty, (b) the Harmony Group, or
(c) MACG.
1.3 "Agreement" means this Loan Agreement, as this Agreement hereafter may
be amended.
1.4 "Borrower" means Madison/OHI Liquidity Investors, LLC, a Delaware
limited liability company.
1.5 "Borrower's Due Diligence Documents" has the meaning given such term in
Section 4.7 of this Agreement.
1.6 "Business Day" has the meaning given such term in the Note.
1.7 "Carrying Value of the Investment Position" means the amount, in cash,
that the Borrower reasonably expects to receive upon the Sale or Liquidation of
the Investment Position, as determined by the Borrower at the time of its
acquisition of the Investment Position.
1.8 "Cash Collateral Account" means a cash deposit account established and
maintained by the Borrower with the Collateral Agent for the benefit of the
Lender; the Cash Collateral Account shall be pledged to the Lender as security
for payment of the Borrower's indebtedness to the Lender.
1.9 "Collateral" means all of the real property and tangible and intangible
personal property now or hereafter serving as security for the obligations of
the Borrower to the Lender, including but not necessarily limited to that
described in Section 5 of this Agreement. Collateral shall not include any
Investment Position consisting of a limited partnership interest or a membership
interest in a limited liability company in which the constituent documents of
the issuer of such interest prohibit the granting of a security interest therein
(unless the requisite consents for the granting of such security interest to the
Lender have been obtained); provided, however, that if any such requisite
consents have not been obtained, the economic interest in the limited
partnership or limited liability company represented by such limited partnership
or membership interest shall constitute Collateral as if the holder thereof were
an assignee of such interest rather than a substitute limited partner or member,
as the case may be.
1.10 "Collateral Agent" means a "broker" as defined in ss. 8-303 of the UCC
in effect in the State of Michigan who constitutes a "financial intermediary" as
defined in ss. 8-313 of the UCC in effect in the State of Michigan which shall
be E-Trade or such other broker as is approved by the Lender (such approval not
to be unreasonably withheld).
1.11 "Combined Balance of the Loan" means, at any time, the sum of (a) the
Premium Rate Balance of the Loan then outstanding plus (b) the Standard Rate
Balance of the Loan then outstanding.
1.12 "Confidential Information" has the meaning given such term in Section
14.1 of this Agreement.
1.13 "Contamination" or "Contaminated" means, when used with reference to
any real or personal property, that a Hazardous Substance is present on or in
the property in any amount or level.
1.14 "Disability", when used in connection with Bryan E. Gordon, means any
physical or mental incapacity which prevents Bryan E. Gordon from working for
the Borrower and its Affiliates in his present capacity in the Ordinary Course
for a period of 120 consecutive days or more.
1.15 "Disclosing Party" has the meaning given such term in Section 14.1 of
this Agreement.
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1.16 "Draw Fee Advance" has the meaning given such term in Section 4.2 of
this Agreement.
1.17 "Environmental Laws" means all applicable laws, ordinances, rules,
regulations, and orders that regulate or are intended to protect public health
or the environment, or that establish liability for the investigation, removal,
or clean up of, or damage caused by any Contamination including, without
limitation, any law, ordinance, rule, regulation, or order that regulates, or
prescribes requirements for, air quality, water quality, or the disposition,
transportation, or management of waste materials or toxic substances.
1.18 "ERISA" has the meaning given such term in Section 2.17 of this
Agreement.
1.19 "Event of Default" has the meaning given such term in Section 9.1 of
this Agreement.
1.20 "First Equity Realty" means First Equity Realty, LLC, a New York
limited liability company.
1.21 "Funding Date" means a Business Day on which an advance of Loan
proceeds is made.
1.22 "GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U. S.
accounting profession), which are applicable to the circumstances as of the date
of determination.
1.23 "Guarantor" means Bryan E. Gordon or Ronald M. Dickerman; "Guarantors"
means Bryan E. Gordon and Ronald M. Dickerman.
1.24 "Guarantee" means each Limited Personal Guarantee dated the date of
this Agreement, executed and delivered by a Guarantor to the Lender, together
with any renewals, extensions, modifications or replacements of any such
Guarantee.
1.25 "Harmony Group" means The Harmony Group II, LLC, a Delaware limited
liability company.
1.26 "Hazardous Substance" means any substance or waste which is (a)
included in the definition of "hazardous substance" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 USC Sec.
9601, et seq.; (b) included in the definition of "hazardous substance" in the
Michigan Environmental Response Act, MCLA Sec. 299.6901, et seq.; (c) included
in the definition of "hazardous waste" in the Resource
- 3 -
Conservation and Recovery Act, 42 USC Sec. 6901, et seq.; or (d) included in the
definition of the same or any similar term found within any applicable local,
state or federal law, statute, rule, or regulation, including, without
limitation, asbestos and polychlorinated biphenyls.
1.27 "Indebtedness" means indebtedness for borrowed money, indebtedness
representing the deferred purchase price of property or services (excluding
indebtedness under normal trade credit for property or services purchased in the
normal course of operations), obligations under notes payable or drafts accepted
representing extensions of credit, indebtedness (whether or not assumed) secured
by mortgages, security interests, or other liens on property owned by the
Borrower, and any obligation of the Borrower to pay future rentals under a lease
which, in accordance with GAAP, is required to be shown as a liability on the
balance sheet of the Borrower.
1.28 "Interest Calculation Date" means each March 1, June 1, September 1,
and December 1 during the period that (a) starts on the date of this Agreement
and (b) ends on the date upon which all of the Borrower's indebtedness to the
Lender (including but not necessarily limited to that arising under this
Agreement) has been paid in full.
1.29 "Interest Payment Advance" has the meaning given such term in Section
4.2 of this Agreement.
l.30 "IRC" means the Internal Revenue Code of 1986, as amended.
1.31 "IRS" means the Internal Revenue Service of the United States of
America.
1.32 "Investment Position" means any economic interest or right acquired
using the proceeds of the Loan to fund all or any portion of the Acquisition
Cost. Subject to the terms and conditions of this Agreement, the Borrower may
acquire an Investment Position: (a) in debt or equity securities issued by any
corporation, partnership, limited partnership, limited liability company, or
other legal entity; or (b) by direct acquisition of real property or tangible
personal property; or (c) by acquisition at a discount of a participation in a
future income stream.
1.33 "Lender" means Omega Healthcare Investors, Inc., a Maryland
corporation.
1.34 "Loan" means the revolving line of credit loan described in Section 3
of this Agreement.
l.35 "Loan Documents" means this Agreement, the Guarantee, the Note, the
Pledge Agreement, each and every Real Estate Mortgage or Security Agreement
pursuant to which the Lender holds a lien or security interest for the
Borrower's indebtedness to the Lender, all assignments of rents, leases and
profits securing the Borrower's indebtedness to the Lender, and each and every
other document evidencing, securing or otherwise relating to the Borrower's
indebtedness to the Lender (whether arising under this Agreement or otherwise),
and all
- 4 -
renewals, extensions, amendments, modifications or replacements of any of the
foregoing.
1.36 "Loan Documentation and Closing Costs" has the meaning given such term
in Section 16.1 of this Agreement.
1.37 "MACG" means The Madison Avenue Capital Group, LLC, a Delaware limited
liability company.
1.38 "Madison Liquidity Investors 104" means and refers to Madison
Liquidity Investors 104, LLC, a Delaware limited liability company.
1.39 "Material Adverse Effect" means any material adverse effect whatsoever
upon (a) the validity, performance, or enforceability of any Loan Document, (b)
the properties, contracts, business operations, profits, or condition (financial
or otherwise) of the Borrower, any Affiliate or a Guarantor, or (c) the ability
of the Borrower or a Guarantor to fulfill their respective obligations under the
Loan Documents.
1.40 "Non-Qualified REIT Investment" means any Investment Position which,
if owned by the Lender, would not qualify as "real estate asset" as defined
under Section 856(c)(6)(B) and Section 856(c)(6)(C) of the IRC.
1.41 "Note" means any form of promissory note executed and delivered by the
Borrower pursuant to this Agreement, together with all renewals, extensions,
amendments, modifications or replacements thereof, including without limitation
the form of Promissory Note attached hereto as Exhibit A.
1.42 "Notice of Requested Borrowing" has the meaning given such term in
Section 4.6 of this Agreement.
1.43 "Ordinary Course" means, when used with respect to the Borrower, any
activity performed in accordance with the historical or customary practices of
the Borrower.
1.44 "Payment Rate" means the rate defined as such in Section 4.1 of this
Agreement.
1.45 "Permitted Investments" means (i) cash; (ii) investments in U.S.
Government obligations maturing within 365 days of the date of acquisition
thereof; (iii) investments in demand deposits, certificates of deposit,
Eurodollar deposits, bank promissory notes and bankers' acceptances maturing
within 365 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States or any state
thereof and which has a combined capital and surplus of at least US$500 million
and is rated at least A- by S&P and at least A3 by Moody's; (iv) investments in
repurchase agreements involving Permitted Investments maturing within 365 days
of the date of acquisition thereof, entered into with any bank, trust company or
investment bank rated at least A- and A- 1 by S&P
- 5 -
and at least A3 and PI by Moody's; (v) investments in money market funds or
accounts at least 75% of whose assets consist of Permitted Investments; (vi)
commercial paper of a United States issuer maturing no more than 270 days from
the creation thereof and currently having the highest rating available from S&P
or Moody's; and (vii) investments in interest rate and foreign currency hedging
transactions entered into with respect to the obligations of the Borrower.
1.46 "Permitted Liens" means (a) security interests, mortgages, and liens
in favor of the Lender; (b) liens for taxes not delinquent or, in a jurisdiction
where payment of taxes is deferred during the period of any contest, being
contested in good faith by appropriate proceedings as prescribed by law, with
adequate reserves therefor being set aside on the Borrower's books; (c) inchoate
materialmens', mechanics', workmens', repairmens', or other like liens arising
in the Ordinary Course and, in each case, not delinquent, (d) liens securing
brokerage commissions and incidental costs relating to the Borrower's
acquisition of Investment Positions, and (e) restrictions in contracts entered
into in the Ordinary Course placing limitations on free exercise of property
rights (e.g., stand still or voting arrangements in respect of limited
partnerships in which opportunities to acquire Investment Positions present
themselves).
1.47 "Permitted Use" has the meaning given such term in Section 14.3 of
this Agreement.
1.48 "Pledge Agreement" means the Pledge Agreement dated the date of this
Agreement by Harmony Group and First Equity Realty, as pledgers, to and in favor
of the Lender, as secured party, and all renewals, extensions, amendments,
modifications or replacements thereof.
1.49 "Pre-Funding Acquisition Advance" has the meaning given such term in
Section 4.2 of this Agreement.
1.50 "Pre-Funding Acquisition Costs" has the meaning given such term in
Section 11.3 of this Agreement.
1.51 "Premium Accrual Rate" means the rate defined as such in Section 4.1
of this Agreement.
1.52 "Premium Rate Advance" has the meaning given such term in Section 4.2
of this Agreement.
1.53 "Premium Rate Balance of the Loan" means that portion of the
outstanding principal balance of the Loan from time to time defined as Such in
Section 4.1 of this Agreement.
1.54 "Premium Rate Investment Position" has the meaning given such term in
Section 4.2 of this Agreement.
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1.55 "Receiving Party" has the meaning given such term in Section 14.1 of
this Agreement.
1.56 "Required Release Price" means the amount that must be paid to the
Lender upon Sale or Liquidation of an Investment Position in order to obtain the
release and discharge the Lender's security interest therein, calculated in
accordance with the paragraphs captioned "Payments" and "Cash Collateral
Account" Section 3.1 of this Agreement, below.
1.57 "Request for Release of Collateral" means the written request that
must be made by the Borrower and delivered to the Collateral Agent, in the case
of Collateral constituting certificated securities, or to the Lender, in the
case of any Collateral other than certificated securities.
1.58 "Rents from Real Property" has the meaning given such term in Section
856(d) of the IRC.
1.59 "Sale or Liquidation" means, when used with respect to an Investment
Position, any: (a) sale, lease, transfer or other disposition (including but not
limited to sale-lease backs, transfers that are the equivalent of a mortgage or
pledge, and transfers by operation of law) by the Borrower of legal or
beneficial title to the Investment Position (except transfers from the Borrower
to an entity which controls, or is controlled by, or is under common control
with the Borrower), whether for cash or other consideration, and whether or not
in the Ordinary Course; and (b) any other event upon the occurrence of which the
Borrower receives consideration in exchange for an Investment Position,
including but not limited to the dissolution and liquidation of any entity in
which the Borrower holds an Investment Position.
1.60 "Securities Collateral Account" means a securities account established
and maintained by the Borrower with the Collateral Agent for the benefit of the
Lender, and which shall be pledged to the Lender as security for payment of the
Borrower's indebtedness to the Lender.
1.61 "Standard Accrual Rate" means the rate defined as Such in Section 4.1
of this Agreement.
1.62 "Standard Rate Advance" has the meaning given such term in Section 4.2
of this Agreement.
1.63 "Standard Rate Balance of the Loan" means that portion of the
outstanding principal balance of the Loan from time to time defined as such in
Section 4.1 of this Agreement.
1.64 "Stub Period" has the meaning given such term in the paragraph of
Section 3.1 of this Agreement captioned " Unused Fee", below.
- 7 -
1.65 "Supplemental Security Documents" has the meaning given such term in
Section 4.8 of this Agreement.
1.66 "To the Borrower's Knowledge" means the actual knowledge, after
reasonable inquiry, of Bryan E. Gordon or Ronald M. Dickerman, such inquiry to
be consistent with normal practice substantially as reflected in the description
of Borrower's Due Diligence Documents as defined in Section 4.7.
1.67 "Unused Fee Advance" has the meaning given such term in Section 4.2 of
this Agreement.
1.68 "UCC" means the Uniform Commercial Code.
1.69 "Value of the Borrower's Investment Portfolio" means the sum of the
Carrying Value of the Investment Position for all Investment Positions owned by
the Borrower.
1.70 "Value of the Lender's Total Assets" means the sum of: (a) the product
obtained by multiplying (i) the total number of shares of the Lender's common
stock outstanding by (ii) the price per share of such stock, as quoted on the
New York Stock Exchange; plus (b) the aggregate market value of all series of
the Lender's preferred stock outstanding, as quoted on the New York Stock
Exchange; plus (c) the Lender's total debt. For purposes of this Agreement, the
Value of the Lender's Total Assets shall be determined as of the last day of the
Lender's fiscal quarter in which the event with respect to which the
determination is to be made occurred.
Section 2 - Warranties and Representations
To induce the Lender to enter into this Agreement and to make the Loan, the
Borrower represents and warrants to the Lender that the following statements are
true, correct and accurate both before and after giving effect to the
transactions contemplated by the Loan Documents:
2.1 The Borrower is a limited liability company duty organized, validly
existing and in good standing under the laws of the State of Delaware. The
Borrower is duly qualified and authorized to do business, and is in good
standing as a foreign limited liability company, in all jurisdictions in which
(a) the Borrower owns interests in real estate, or (b) tangible personal
property in which the Borrower has an interest is located, or (c) the Borrower
maintains offices or employees.
2.2 Bryan E. Gordon is the general partner of a limited partnership which,
together with a family trust as limited partner, owns legal and beneficial title
to 100% of the outstanding equity interests in Harmony Group. Harmony Group owns
legal and beneficial title to 50% of MACG. Ronald M. Dickerman is the general
partner of a limited partnership which, together with a family trust as limited
partner, owns legal and beneficial title to 100% of the outstanding equity
interests in First Equity Realty. First Equity Realty owns legal and beneficial
title to 50%
- 8 -
of MACG.
2.3 Bryan E. Gordon is the general partner of a limited partnership which,
together with a family trust as limited partner, owns legal and beneficial title
to 100% of the outstanding equity interest in the Harmony Group; the Harmony
Group owns legal and beneficial title to 75% of the outstanding equity interests
in the Borrower.
2.4 Ronald M. Dickerman is the general partner of a limited partnership
which, together with a family trust as limited partner, owns legal and
beneficial title to 100% of the outstanding equity interests in First Equity
Realty; First Equity Realty owns legal and beneficial title to 25% of the
outstanding equity interests in the Borrower.
2.5 Madison Liquidity Investors 104 is a wholly-owned subsidiary of the
Borrower.
2.6 The Borrower and its Affiliates have all requisite legal power and
authority and all necessary licenses and permits, the absence of which would
have a Material Adverse Effect, to own and operate their respective properties
and to carry on their respective businesses as now conducted and as Bryan E.
Gordon and Ronald M. Dickerman contemplate that such businesses will be
conducted in the future. The Borrower and its Affiliates are in compliance with
all laws, rules, and regulations, the non-compliance with which would have a
Material Adverse Effect.
2.7 All financial statements of the Borrower, any of its Affiliates or the
Guarantors that have been delivered to the Lender and present fairly the
financial position of the subjects thereof as of the dates indicated, and the
results of operations of such persons or entities for the periods indicated. No
changes having a Material Adverse Effect have occurred since the date of the
most recent of such financial statements. Except as expressly set forth in such
financial statements, neither the Borrower nor any Affiliate nor any Guarantor
has any material contingent liability or liability for taxes.
2.8 Neither this Agreement nor the financial statements referred to in
Section 2.7 above, nor any other written statement furnished by or on behalf of
the Borrower or any Affiliate to the Lender in connection with the negotiation
of the Loan contains any untrue statement of a material fact or omits a material
fact necessary to make the statements contained therein or herein not
misleading. To the Borrower's Knowledge, there is no fact that the Borrower has
not disclosed to the Lender that has, or in the future is likely to have, a
Material Adverse Effect.
2.9 Except as set forth in Schedule 2.9, there are no proceedings pending,
or to the Borrower's Knowledge threatened, before any court, governmental
authority, or arbitration board or tribunal, against or affecting the Borrower,
any Affiliate or a Guarantor, which might have a Material Adverse Effect.
Neither the Borrower, any Affiliate nor any Guarantor is in default with respect
to any order, judgment, or decree of any court, governmental authority, or
arbitration board or tribunal.
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2.10 All of the equity interests of the Borrower are validly issued, fully
paid and nonassessable.
2.11 The Borrower has good and marketable title to all of the assets that
it purports to own, including the assets described in the financial statements
referred to in Section 2.7 hereof, free and clear of all liens, encumbrances,
security interests, claims, charges, and restrictions whatever, except Permitted
Liens. The Borrower owns no interest (whether in fee, leasehold or other) in
real property other than any Investment Positions that may be acquired by the
Borrower after the date of this Agreement and which constitute Collateral.
2.12 The Borrower has full power and authority to execute, deliver, and
perform the Loan Documents; the execution, delivery, and performance of the Loan
Documents required to be given hereunder by the Borrower have been duly
authorized by appropriate action of the members and managers of the Borrower and
will not violate the provisions of the articles of organization or operating
agreement of the Borrower or of any law, rule, judgment, order, agreement, or
instrument to which the Borrower is a party or by which it is bound, or to which
any of its assets are subject, nor do the same require any approval or consent
of any public authority or other third party; and the Loan Documents have been
duly executed and delivered by, and are the valid and binding obligations of,
the parties thereto, enforceable in accordance with their terms.
2.13 All tax returns required to be filed by the Borrower and each
Affiliate in any jurisdiction have been filed, and all taxes, assessments, fees,
and other governmental charges upon the Borrower and each Affiliate, or upon
their respective assets, income, or franchises, have been paid before the time
that those taxes became delinquent. To the Borrower's Knowledge, there are no
proposed additional tax assessments against the Borrower or any Affiliate which
would have a Material Adverse Effect.
2.14 Neither the Borrower nor any Affiliate maintains, or has ever
maintained, any employee benefit pension plan with respect to which the Borrower
or an Affiliate is or was an "employer" or "party in interest", as those terms
are defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2.15 To the Borrower's Knowledge, unless otherwise disclosed by written
notice from the Borrower to the Lender, all of the entities in which the
Borrower holds an Investment Position are in compliance with all Environmental
Laws; and to the Borrower's Knowledge there is no reasonable basis to believe
that the Carrying Value of any such Investment Positions will be materially
adversely affected because any such entities: (a) hold assets that are
Contaminated by, or that are the site of, the disposal or release of any
Hazardous Substance; (b) hold assets that are the source of any Contamination of
any adjacent property or of any groundwater or surface water; or (c) hold assets
that are the source of any air emissions in excess of any legal limit now or
hereafter in effect. To the Borrower's Knowledge, there is no civil, criminal or
administrative action, suit, demand, claim, hearing, notice of violation or
deficiency,
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investigation, proceeding, notice or demand letter pending or threatened against
any entity in which the Borrower holds an Investment Position under any
Environmental Law which could reasonably be expected to result in a material
fine, penalty or other cost or expense. To the Borrower's Knowledge, unless
otherwise disclosed by written notice from the Borrower to the Lender, all of
the Collateral constituting tangible real or personal property is in compliance
with all Environmental Laws; and to the Borrower's Knowledge there is no
reasonable basis to believe that the Carrying Value of any Investment Positions
in such tangible real or personal property will be materially adversely affected
because such property: (a) is Contaminated by, or is the site of, the disposal
or release of any Hazardous Substance; (b) is the source of any Contamination of
any adjacent property or of any groundwater or surface water; or (c) is the
Source of any air emissions in excess of any legal limit now or hereafter in
effect.
2.16 The execution, delivery and performance by the Borrower of each Loan
Document, the issuance, delivery and performance of the Note, and the
consummation of the transactions contemplated hereby or related hereto do not
and will not (a) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any contractual obligation of
the Borrower or an Affiliate, (b) result in or require the creation or
imposition of any lien (other than liens in favor of the Lender) upon any
properties or assets of the Borrower or an Affiliate, or (c) require any
approval or consent of governmental authority or other person or entity that, as
of the date of this Agreement, has not been obtained in writing and delivered to
the Lender.
2.17 Neither the Borrower nor any Affiliate is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any actual or purported contractual obligation of the
Borrower or Affiliate, and no condition exists that, with the giving of notice
or the lapse of time, or both, would constitute such a default.
Section 3 - The Loan
3.1 The Loan shall be advanced subject to and in conformity with the
following terms and conditions:
Loan Maximum The lesser of (a) $30 million ($25 million on and
after the fifth (5th) anniversary of the first
Funding Date); or (b) an amount equal to 4.5% of
the Value of the Lender's Total Assets as of the
date of the Notice of Requested Borrowing; or (c)
the amount set forth under the paragraph of this
Section 3.1 captioned "Availability", below.
Minimum Draw $100,000.
Maximum Draw Unless otherwise agreed in writing by the Lender,
the lesser per Investment of of: (a) $2.5 million;
or (b) 75% of the Carrying Value of the
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Position (See
Section 3.2 of
this Agreement) Investment Position (except that the maximum draw
for Investment Positions that constitute "margin
stock", as defined in Regulation G of the Board of
Governors of the Federal Reserve System, shall be
the maximum amount that the Lender is then
permitted under such Regulation to advance, but in
no event more than 75% of the Carrying Value Of
the Investment Position).
Availability At no time shall the outstanding balance of the
Loan exceed the lesser of: (a) the Loan Maximum;
or (b) 70% of the Value of the Borrower's
Investment Portfolio. The availability of Loan
advances is also subject to the limitations set
forth in Section 11 of this Agreement.
Payments Accrued interest on the Combined Balance of the
Loan shall be calculated by the Borrower at the
Payment Rate as of each March 1, June 1, September
1, and December 1 for the preceding quarter (each
such date is referred to as an "Interest
Calculation Date"). Within ten (10) Business Days
after each Interest Calculation Date, the Borrower
shall pay to the Lender the amount calculated in
good faith by the Borrower to be the accrued
interest at the Payment Rate on the Combined
Balance of the Loan as of the most recent Interest
Calculation Date, and with such payment the
Borrower shall deliver to the Lender the
Borrower's written calculation of the amount of
such payment and the amount of the Unused Fee due
in accordance with the paragraph of this Section
3.1 captioned "Unused Fee", below. If the Lender
disagrees with any of the Borrower's calculations,
the Borrower shall pay any additional interest or
fee that the Lender determines to be due within
ten (10) days after receipt of the Lender's
written determination of the additional amount
due.
In addition to such quarterly payments of interest
at the Payment Rate, the following payments shall
be made upon the Sale or Liquidation of an
Investment Position: (a) an amount equal to the
principal amount advanced by the Lender to fund
the Acquisition Cost of the Investment Position
that is the subject of the Sale or Liquidation,
which shall be applied, in the case of repayment
of a Premium Rate Advance, toward reduction of the
Premium Rate Balance of the Loan, and in the case
of repayment of a Standard Rate Advance, toward
reduction of the Standard Rate Balance of the
Loan; plus (b)
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in the case of repayment of a Premium Rate
Advance, an amount equal to the difference between
the Premium Accrual Rate and the Payment Rate,
computed on the amount of the principal repayment,
and in the case of repayment of a Standard Rate
Advance, an amount equal to the difference between
the Standard Accrual Rate and the Payment Rate,
computed on the amount of the principal repayment.
The sum of the payments required by this paragraph
and the payments, if any, required under the
paragraph of this Section 3.1 captioned "Cash
Collateral Account", below, is referred to in this
Agreement as the "Required Release Price".
The Combined Balance of the Loan shall be reduced
to not more than $25 million on the fifth (5th)
anniversary of the first Funding Date.
The principal amount of all Pre-Funding
Acquisition Advances shall be repaid within ten
(10) Business Days after the end of the quarter in
which the Borrower abandons its intention to make
the potential acquisition(s) with respect to which
such Pre-Funding Acquisition Advances were
incurred.
On the Maturity Date, the Premium Rate Balance of
the Loan then outstanding, together all accrued
and unpaid interest thereon, and the Standard Rate
Balance of the Loan then outstanding, together
with all accrued and unpaid interest thereon,
shall be due and payable in full.
Maturity Date The earlier of: (a) the seventh (7th) anniversary
of the first Funding Date; (b) September 30, 2005;
or (c) the date upon which the Lender duly
accelerates the due date of all unpaid principal
and interest owed by the Borrower to the Lender.
Cash Collateral
Account If the aggregate principal amount deposited by the
Borrower into the Cash Collateral Account is not
equal to at least ten percent (10%) of the
Combined Balance of the Loan outstanding after a
repayment of principal has been made, the Borrower
shall use the proceeds of Sale or Liquidation of
an Investment Position first to make the payments
required under the paragraph of this Section
captioned "Payments", above, in the order of
priority set forth therein, then to payment of the
federal, state and municipal income tax liability
of the ultimate beneficial owners for income tax
purposes (taking
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into account all tiering arrangements) arising in
connection with the Sale or Liquidation of, or
other distribution from, an Investment Position,
and then to bringing the principal balance of the
Cash Collateral Account to an amount equal to ten
percent (10%) of the Combined Balance of the Loan
outstanding, after such principal reduction.
Interest Rate As set forth in Section 4 of this Agreement.
Unused Fee The Borrower shall pay the Lender a quarterly fee
in an amount equal to twenty-five percent (25%) of
the product obtained by multiplying (a) one-eighth
(1/8) of one (1) percent (i.e., 12-1/2 basis
points) by (b) the amount by which $30 million
($25 million on and after the fifth (5th)
anniversary of the first Funding Date) exceeds the
average outstanding principal balance of the Loan
during the three (3) month period beginning
December 1, 1998, and ending February 28, 1999,
and each successive quarter thereafter until the
Lender is no longer obligated to make advances of
the Loan pursuant to this Agreement. For the
period beginning on the date of this Agreement and
ending November 30, 1998, and for any other period
of less than three (3) full calendar months (each
such period is referred to as a "Stub Period"),
the Borrower shall pay the Lender a fee in an
amount equal to (a) the product obtained by
multiplying one-eighth (1/8) of one (1) percentage
point (i.e., 12-1/2 basis points) by the amount by
which $30 million ($25 million on and after the
fifth (5th) anniversary of the first Funding Date)
exceeds the average outstanding principal balance
of the Loan during the relevant Stub Period
multiplied by (b) a fraction, the numerator of
which shall be equal to the number of days in the
relevant Stub Period and the denominator of which
shall be 365. The Borrower shall calculate and pay
the amount required by this paragraph
simultaneously with making the calculation and
payment of accrued interest at the Payment Rate
required under the paragraph of this Section 3.1
captioned "Payments", above.
Disagreements If the Lender and the Borrower cannot resolve any
disagreements that may arise between them
concerning the calculation of the amount of any
payment required to be made by the Borrower to the
Lender pursuant to this Agreement, they shall
submit the unresolved question(s) to their
respective
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outside independent certified public accountants
for resolution. If such accountants fail to reach
agreement within 45 days after the question(s)
have been submitted to them for resolution, the
accountants shall select a third certified public
accounting firm, having no prior relationship to
the Lender or the Borrower, to resolve the
question(s). The determination of such third
accounting firm shall be final and binding upon
the Lender and the Borrower, and judgment may be
rendered on such determination by a court of
competent jurisdiction. If, within 15 days after
the independent accounting firms for the Lender
and the Borrower have reached impasse on the
unresolved question(s), they cannot agree on a
third accounting firm to which the unresolved
question(s) shall be submitted, the Lender and the
Borrower shall be free to take such action as may
be available at law or in equity, including but
not limited to seeking a declaratory judgment.
Draw Fee Concurrently with each advance of the Loan
proceeds, the Borrower shall pay the Lender a draw
fee in an amount equal to one percent (1%) of the
principal amount of the advance requested in the
Notice of Requested Borrowing. The Lender is
irrevocably authorized to add the draw fee to the
principal amount of the Borrower's indebtedness to
the Lender under this Agreement, and to retain the
draw fee for the Lender's account, at the time the
Lender makes any advance of the Loan proceeds to
the Borrower in accordance with this Agreement.
Purpose Subject to the provisions of this Agreement, to:
(a) fund up to ninety-eight percent (98%) of the
Acquisition Cost of each Investment Position
acquired by the Borrower; (b) pay accrued interest
at the Payment Rate on that portion of the
Combined Balance of the Loan that constitutes the
Premium Rate Balance of the Loan; (c) pay the
Unused Fee in accordance with the paragraph of
this Section 3.1 captioned "Unused Fee", above,
(d) pay the Draw Fee in accordance with the
provisions of this Section 3.1 captioned "Draw
Fee" above, and (e) pay Pre-Funding Acquisition
Costs in accordance with the provisions of Section
11.3 of this Agreement.
3.2 In determining the Maximum Draw per Investment Position, the following
Investments Positions shall be aggregated and treated as one: (a) all Investment
Positions in the
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same legal entity; and (b) concurrent Investment Positions in the same parcel of
real estate or item of personal property, or in parcels of real estate that are
contiguous to a parcel of real estate in which the Borrower holds an Investment
Position.
3.3 Subject to the terms and conditions of this Agreement and the other
Loan Documents, the Lender shall be obligated from time to time to make advances
of the Loan to the Borrower subject to and in accordance with the terms and
conditions contained in this Agreement and all of the other Loan Documents.
3.4 The Borrower may terminate this credit facility upon six months' prior
written notice to the Lender. Upon the expiration of six months after delivery
of such notice to the Lender: (a) the Lender shall have no further obligation to
make any further advances of Loan proceeds, and (b) the Borrower shall have no
further obligation to pay any portion of the Unused Fee (referred to in Section
3.1 above) thereafter accruing. If the outstanding principal balance of the Loan
is zero for a period of six consecutive months, or more, the Lender may, at its
option (exercisable by written notice to the Borrower), terminate this credit
facility, with such termination to be effective 15 days after the date of
delivery of such notice to the Borrower. Upon termination of this credit
facility by the Lender: (a) the Lender shall have no further obligation to make
any further advances of Loan proceeds, and 9b) the Borrower shall have no
further obligation to pay any portion of the Unused Fee (referred to in Section
3.1 above) thereafter accruing. Except as expressly provided in this Section,
termination of the credit facility by the Borrower or the Lender pursuant to
this Section shall not modify or otherwise affect the rights or obligations of
the parties under any of the Loan Documents as then in effect.
Section 4 - Interest Rate; Advance Procedures
4.1 Interest shall accrue at the rate of sixteen percent (16%) per year, at
simple interest (the "Premium Accrual Rate"), on that portion of the outstanding
principal balance of the Loan from time to time that constitutes: (a) a Premium
Rate Advance; or (b) an Interest Payment Advance; or (c) an Unused Fee Advance;
or (d) a Draw Fee Advance; or (e) a Pre-Funding Acquisition Advance (that
portion of the Combined Balance of the Loan with respect to which the Premium
Accrual Rate applies is referred to in this Agreement as the "Premium Rate
Balance of the Loan"). Interest shall accrue at the rate of fifteen percent
(15%) per year, at simple interest (the "Standard Accrual Rate"), on the
remainder of the outstanding principal balance of the Loan from time to time
(the "Standard Rate Balance of the Loan"). Accrued interest on the Combined
Balance of the Loan shall be paid quarterly at the rate of nine percent (9%) per
year, at simple interest (the "Payment Rate"), in accordance with the provisions
of Section 3.1 captioned "Payments", above.
4.2 Within ten (10) Business Days after the end of each quarter, beginning
with the quarter ended November 30, 1998 (or at such earlier time as may be
required in order to make the interest payment required upon Sale or Liquidation
of an Investment Position), the Borrower shall give the Lender written notice of
all Investment Positions acquired during the preceding
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quarter that the Borrower does not expect to generate annual income of nine
percent (9%) or more prior to Sale or Liquidation (any such Investment Position
is referred to in this Agreement as a "Premium Rate Investment Position"). An
advance of Loan proceeds for the purpose of acquiring a Premium Rate Investment
Position is referred to in this Agreement as a "Premium Rate Advance". The
Borrower may request an advance of Loan proceeds for the purpose of paying
interest at the Payment Rate on that portion of the Combined Balance of the Loan
that constitutes the Premium Rate Balance of the Loan. An advance of Loan
proceeds for the purpose of paying interest at the Payment Rate on that portion
of the Combined Balance of the Loan that constitutes the Premium Rate Balance of
the Loan is referred to in this Agreement as an "Interest Payment Advance". An
advance of Loan proceeds for the purpose of acquiring an Investment Position
that the Borrower does not designate as a Premium Rate Investment Position is
referred to in this Agreement as a "Standard Rate Advance". The Borrower shall
have no right to advances of Loan proceeds for the purpose of paying interest at
the Payment Rate on that portion of the Combined Balance of the Loan that
Constitutes the Standard Rate Balance of the Loan. An advance of Loan proceeds
for the purpose of paying Pre-Funding Acquisition Costs is referred to in this
Agreement as a "Pre-Funding Acquisition Advance".
An advance of Loan proceeds for the purpose of paying the Draw Fee in accordance
with that paragraph of Section 3.1 above that is captioned "Draw Fee" is
referred to in this Agreement as a "Draw Fee Advance". An advance of Loan
proceeds for the purpose of paying the Unused Fee in accordance with that
paragraph of Section 3.1 above that is captioned "Unused Fee" is referred to in
this Agreement as an "Unused Fee Advance".
4.3 Within ten (10) Business Days after each March 1, the Borrower shall
have the right to reclassify any Investment Position previously designated as a
Premium Rate Investment Position to an Investment Position that is not a Premium
Rate Investment Position, and to designate any Investment Position not
previously designated as a Premium Rate Investment Position to a Premium Rate
Investment Position. No such reclassification shall be effective unless written
notice thereof is delivered to the Lender within the period specified in the
immediately preceding sentence, and such reclassification shall be deemed
effective as of the March 1 immediately preceding the Lender's receipt of notice
of the reclassification. Any notice of reclassification of an Investment
Position to an Investment Position that is not a Premium Rate Investment
Position shall be accompanied by copies of the Borrower's analysis of the basis
for such reclassification and the supporting documentation for such analysis.
4.4 Notwithstanding anything to the contrary contained in the Loan
Documents, following the Maturity Date: (a) the outstanding Premium Rate Balance
of the Loan shall bear interest at the rate of interest that is 300 basis points
above the Premium Accrual Rate; and (b) the Outstanding Standard Rate Balance of
the Loan shall bear interest at the rate of interest that is 300 basis points
above the Standard Accrual Rate.
4.5 Interest on advances shall be computed on the basis of a 365-day year
and the actual number of days elapsed in the period during which it accrues. In
computing interest on
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any advance, the date of the making of the advance shall be included and the
date payment is received shall be excluded; provided that if an advance is
repaid on the same day on which it is made, one day's interest shall be paid on
that advance.
4.6 The Borrower shall give the Lender notice of its request for each Loan
advance (each a "Notice of Requested Borrowing") not later than 12:00 noon, Ann
Arbor, Michigan time, at least two (2) Business Days before the date upon which
such advance is requested to be made; provided, however, that in no event shall
the Lender be obligated to advance any Loan proceeds until the fifth (5th)
Business Day after the Lender's receipt of the Borrower's Due Diligence
Documents referred to in Section 4.7 of this Agreement and the Supplemental
Security Documents referred to in Section 4.8 of this Agreement. Subject to the
terms and conditions of this Agreement, the proceeds of each such requested
advance shall be made available to the Borrower by wire transfer of funds to the
Borrower's account specified in the Notice of Requested Borrowing.
4.7 Prior to the Borrower's acquisition of any Investment Position, the
Borrower shall deliver to the Lender complete copies of the following documents
and items (collectively the"Borrower's Due Diligence Documents"): (a) all
initial forms of offering documents, if any, that the Borrower proposes to use
in connection with its acquisition of the Investment Position;
(b)profiles/research reports, if any, with respect to the issuer of the
Investment Position; (c) financial analyses, including a written description of
the valuation assumptions, methods and procedures employed by the Borrower in
determining the Carrying Value of the Investment Position; (d) property
reports/photos, if any; (e) report on legal due diligence, if any; (f)
litigation memorandum, if any; (g) tax analysis, if any, with respect to the
Investment Position; (h) reports on Form 10-K, 10-Q and 8-K with respect to the
issuer of the Investment Position, to the extent available; and (i) any
partnership agreement, partnership certificate, operating agreement, articles of
organization, or other constituent documents for the issuer of the Investment
Position, if available. If the amount requested in the Notice of Requested
Borrowing is more than $500,000, the Lender shall have the right, for any reason
or no reason, to refuse to advance any Loan proceeds (regardless of whether the
Borrower subsequently reduces the amount of the requested Loan advance to
$500,000 or less), by giving the Borrower notice of the Lender's decision not to
advance Loan proceeds at any time prior to the expiration of four (4) Business
Days after the Lender's receipt of the Borrower's Due Diligence Documents. The
Lender also shall have the right, without regard to the amount requested in the
Notice of Requested Borrowing, to refuse to advance Loan proceeds to be used in
whole or in part to finance the acquisition of limited partnership interests or
membership interests in limited liability companies if, in the opinion of the
Lender's counsel, the constituent documents of the issuer of such interest
prohibit the granting of a security interest therein and in the economic
interest represented thereby.
4.8 Prior to the Borrower's use of Loan proceeds to fund any part of the
Acquisition Cost of an Investment Position that, in the opinion of Lender's
legal counsel, the then-existing security documents do not cover or do not cover
with legally sufficient specificity, the Borrower
- 18 -
shall deliver to the Lender such documents as the Lender may reasonably require
to create or perfect a valid first priority security interest in the Investment
Position to be acquired, or to continue or supplement an existing security
document or perfected security interest (collectively the "Supplemental Security
Documents"). The Supplemental Security Documents shall include, but shall not
necessarily be limited to, such new mortgages, deeds of trust, assignments of
rents, leases and profits, security agreements, pledge agreements, financing
statements and other security documents as the Lender may require to create and
perfect a valid first priority security interest in the Investment Position.
4.9 The Borrower may prepay any part of the principal balance of the Loan
at any time, without prior notice to the Lender and without prepayment penalty
or premium.
4.10 Subject to the terms and conditions of this Agreement, amounts
borrowed under the Loan may be repaid and re-borrowed.
4.11 Unless the Lender agrees in writing, the Borrower shall not acquire
any Investment Position: (a) in any real estate that is to the Borrower's
Knowledge Contaminated by, or that is the, site of, the disposal or release of
any Hazardous Substance, or that to the Borrower's Knowledge is the source of
any Contamination of any adjacent property or of any groundwater or surface
water; or that to the Borrower's Knowledge is the source of any air emissions in
excess of any legal limit now or hereafter in effect; or (b) in any item of
personal property that is Contaminated; or (c) in any legal entity that, to the
Borrower's Knowledge, owns any real estate having any of the characteristics
described in clause (a) of this Section 4.11, or any item of personal property
having any of the characteristics described in clause (b) of this Section 4.11.
Section 5 - Security and Release of Collateral
5.1 Without limiting the terms and conditions of any of the Loan Documents,
to secure payment of all obligations and indebtedness of the Borrower to the
Lender under this Agreement and all other indebtedness and obligations now and
hereafter owing by the Borrower to the Lender, the Borrower shall execute and
deliver to the Lender (or, in the case of documents to be executed and delivered
by others, shall cause such documents to be executed and delivered to the
Lender):
(a) a promissory note, substantially in the form of Exhibit A;
(b) security agreement(s), substantially in the form of Exhibit B,
granting to the Lender valid first priority security interests in all
assets of the Borrower and of Madison Liquidity Investors 104, and all
additions thereto and substitutions, increments, proceeds and products
thereof;
(c) pledge agreement(s), substantially in the form of Exhibit C,
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granting to the Lender a valid first priority security interest in
100% of the Borrower's outstanding equity interests;
(d) a pledge agreement, substantially in the form of Exhibit D, granting
to the Lender a valid first priority security interest in all cash and
cash equivalents now or hereafter on deposit in the Cash Collateral
Account;
(e) a pledge agreement, substantially in the form of Exhibit E, granting
to the Lender a valid first priority security interest in all
certificated securities now or hereafter on deposit in the Securities
Collateral Account;
(f) within 45 days after the date of this Agreement, an account control
agreement(s), substantially in the form of Exhibit F, granting to the
Lender control over the Securities Collateral Account and the Cash
Collateral Account;
(g) a cross-default agreement, substantially in the form of Exhibit G;
(h) within 45 days after the date of this Agreement, an assignment of a
policy of life insurance on the life of Bryan E. Gordon in the amount
of $2.5 million (such life insurance policy shall be acceptable in
form and substance to the Lender and shall be issued by Sun Life of
Canada or another life insurance company approved by the Lender, which
approval shall not be unreasonably withheld);
(i) within 45 days after the date of this Agreement, an assignment of a
policy of life insurance on the life of Ronald M. Dickerman in the
amount of $2.5 million (such life insurance policy shall be acceptable
in form and substance to the Lender and shall be issued by John
Hancock Mutual Insurance Company or another life insurance company
approved by the Lender, which approval shall not be unreasonably
withheld);
(j) the Guarantee;
(k) all financing statements, assignments, document of title, and other
documents, agreements, and instruments as the Lender may reasonably
request in connection with the creation, perfection and priority of
any security described above; and
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(l) all of the Supplemental Security Documents.
5.2 All Investment Positions which, in the opinion of Counsel for the
Lender, constitute certificated securities (as defined by UCC Section 8 in
effect in the state of organization of the issuer) shall be deposited and
maintained in the Securities Collateral Account and shall be released therefrom
only upon arrangement for payment to the Collateral Agent, for the benefit of
the Lender, of the Required Release Price. The Required Release Price shall be
calculated by the Borrower, in accordance with the applicable provisions of this
Agreement, at the time the Borrower submits a Request for Release of Collateral
to the Collateral Agent. Upon receipt by the Collateral Agent of a Request for
Release of Collateral, the Collateral Agent shall forward a copy thereof, by
facsimile and U. S. mail, and by a nationally recognized overnight courier
service (such as Federal Express, UPS, Purolator, or the like) to the Lender for
delivery on the next Business Day. The Collateral Agent shall be authorized to
release the Collateral described in the Request for Release of Collateral upon
receipt of evidence of arrangement for payment of funds to the Collateral Agent,
for the account of the Lender, in the amount of the Required Release Price
specified in the Request for Release of Collateral. The Collateral Agent shall,
immediately upon receipt thereof, remit to the Lender all sums tendered to the
Collateral Agent by the Borrower by wire transfer of collected funds to the
account specified by written notice from Lender to Collateral Agent. The
Borrower shall not be entitled to the release of any Collateral from the
Securities Collateral Account any time after the Lender declares, by written
notice to the Collateral Agent and the Borrower, the existence of an Event of
Default.
5.3 All documents evidencing or otherwise relating to Investment Positions
other than certificated securities shall be held by the Borrower until the
Lender makes written demand therefor following the occurrence of an Event of
Default; subject, however, to a perfected first security interest therein in
favor of the Lender. Except as otherwise provided in this Agreement, the
Borrower shall be entitled to sell or otherwise dispose of any such Investment
Position only upon (a) delivery to the Lender of a Request for Release of
Collateral, which shall include the Borrower's calculation of the Required
Release Price therefor, determined by the Borrower in accordance with the
applicable provisions of this Agreement, and (b) arrangement for payment to the
Lender, by wire transfer of collected funds to an account specified by the
Lender, of the Required Release Price specified in the Request for Release of
Collateral or such other amount the Lender may determine to be required by this
Agreement. The Borrower shall not be entitled to release of any Collateral in
its possession at any time after the Lender declares, by written notice to the
Borrower, the existence of an Event of Default.
5.4 The Borrower shall request a release and discharge of the Lender's
security interest in Investment Positions which, in the opinion of counsel for
the Lender, constitute direct interests in real property or tangible personal
property by (a) delivering to the Lender a Request for Release of Collateral,
which shall include the Borrower's calculation of the Required Release Price
therefor, determined by the Borrower in accordance with the applicable
provisions of this Agreement, and (b) tendering payment to the Lender, by wire
transfer of collected funds to an
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account specified by the Lender, of the Required Release Price specified in the
Request for Release of Collateral or such other amount as the Lender may
determine to be required by this Agreement. The Lender shall be obligated to
release and discharge its security interest in any Collateral of the type
described in this Section 5.4 on the fifth (5th) Business Day after its receipt
of the Request for Release of Collateral (provided the Lender has then received
the Required Release Price and the Lender has not then declared, by written
notice to the Borrower, the existence of an Event of Default).
5.5 Upon Sale or Liquidation of each Investment Position, the Borrower
shall apply the proceeds of Sale or Liquidation first to making the payments
required under the paragraph of Section 3.1 captioned "Payments", above. The
Borrower thereafter shall be entitled to deduct from the remaining proceeds of
Sale or Liquidation the amount required to pay the Federal, State and Municipal
income tax liability of the ultimate beneficial owners for income tax purposes
(taking into account all tiering arrangements) of the Borrower arising in
connection with the Sale or Liquidation of or other distribution from an
Investment Position. The Borrower shall apply 100% of the balance of the
proceeds of Sale or Liquidation to funding the Cash Collateral Account until
such time as the principal amount on deposit therein is equal to ten percent
(10%) of the Combined Balance of the Loan. The amount on deposit in such Cash
Collateral Account shall be invested in such Permitted Investments as may be
designated by the Borrower. All amounts in excess of ten percent (10%) of the
Combined Balance of the Loan may be paid out by the Borrower at any time prior
to the Lender making a written demand on the Collateral Agent following the
occurrence of an Event of Default. The Borrower shall be entitled to all
interest earnings on such funds unless and until the Lender makes written demand
therefor on the Collateral Agent following the occurrence of an Event of
Default.
5.6 The proceeds of the policies of the life insurance policies referred to
in Sections 5.1(e) and 5.1(f) above shall, upon receipt by the Lender, be
applied toward reduction of the Combined Balance of the Loan, with application
first to the Premium Rate Balance and then to the Standard Rate Balance. Any
remaining proceeds after such application shall be promptly remitted to the
Borrower.
5.7 To further secure payment of the Loan and all of the Borrower's
liabilities and obligations to the Lender, the Borrower grants to the Lender a
continuing security interest in any and all securities and other property of the
Borrower in the custody, possession or control of the Lender. The Lender shall
have the right at any time after an Event of Default to apply its own debt or
liability to the Borrower in whole or partial payment of the Loan and any other
present or future indebtedness of the Borrower to the Lender, without any
requirement of mutual maturity.
5.8 Any of the Borrower's other property in which the Lender has a security
interest to secure payment of any other debt, whether absolute, contingent,
direct or indirect, including the Borrower's guaranties of the debts of others,
shall also secure payment of and be part of the collateral for the Loan and any
other present or future indebtedness of the Borrower to the
- 22 -
Lender (whether or not arising under this Agreement).
Section 6 - Affirmative Covenants
Beginning on the date of this Agreement and continuing until the Lender has
no further obligation to make advances of the Loan to the Borrower pursuant to
this Agreement and the Loan and all other indebtedness of the Borrower to the
Lender has been repaid in full, the Borrower shall:
6.1 Furnish to the Lender:
(a) within 120 days after the end of each of the Borrower's fiscal years,
beginning with its fiscal year ending December 1, 1998, an audited
financial report prepared in accordance with GAAP by Sax, Macy, Fromm
& Co. or replacement independent certified public accountants
satisfactory to the Lender, containing the Borrower's balance sheet as
of the end of that year, its related profit and loss, and a statement
of shareholder's equity for that year, its statement of cash flows for
that year, together, with any management letter prepared by those
certified public accountants, and such comments and financial details
as are customarily included in reports of like character and the
unqualified opinion of the certified public accountants as to the
fairness of the statements therein and together with such written
assurances as the Lender may reasonably request from the Borrower's
independent certified public accountants to confirm the Lender's
entitlement to rely upon such audited financial report and
accompanying materials;
(b) within 45 days after the end of each calendar quarter, beginning with
the calendar quarter ended December 31, 1998, a written report
summarizing all acquisitions of Investment Positions by the Borrower
for the preceding quarter and the results of the Sale or Liquidation
of each Investment Position for the preceding quarter;
(c) within 5 days after the end of each week, a written report summarizing
all Investment Positions that the Borrower acquired or offered to
acquire during the preceding week, and the status of all then
outstanding offers by the Borrower to acquire Investment Positions,
whether such offers were made in the preceding week or earlier;
(d) such other information, books, and records the Lender may reasonably
request, in such form and at such time and place as the Lender may
reasonably request, concerning the Borrower's activities and plans
that are prepared by or for the Borrower in the Ordinary Course; and
- 23 -
(e) within 120 days after the end of each of the Borrower's fiscal years,
an update of the Borrower's estimated value of each Investment
Position then owned, taking into account all relevant realized events
that occurred during the preceding year.
6.2 Promptly in form the Lender of the occurrence of any Event of Default,
or of any occurrence that, with the giving of notice or the lapse of time, or
both, would be an Event of Default, and of any other occurrence which has a
Material Adverse Effect; grant to the Lender or its representatives the right to
examine the Borrower's books and records and the Collateral at any reasonable
time or times on reasonable notice; maintain complete and accurate books and
records of its transactions in accordance with good accounting practices; and
furnish to the Lender any information that it may reasonably request concerning
the Borrower's financial affairs that is prepared by or for the Borrower in the
Ordinary Course within 10 business days after receipt of a request for that
information.
6.3 Maintain insurance, including, but not limited to, fire and extended
coverage in insurance, workers' compensation insurance, and casualty and
liability insurance with responsible insurance companies on such of its
properties and against such risks and in such amounts as is customarily
maintained by similar businesses; furnish to the Lender upon its request the
details with respect to that insurance and satisfactory evidence of that
insurance coverage. Each insurance policy required under this Section 6.3 shall
be, to the extent practicable, written or endorsed so as to make losses, if any,
payable to the Borrower and the Lender as their respective interests may appear,
and shall include, where appropriate, a mortgage clause or endorsement in favor
of the Lender in form and substance satisfactory to the Lender.
6.4 Pay and discharge, as often as the same may become due and payable, all
taxes, assessments and other governmental monetary obligations, of whatever
nature, that may be levied or assessed against it or any of its properties,
unless and to the extent only that in a jurisdiction where payment of taxes and
assessments is abated during the period of any contest, those taxes or
assessments shall be contested in good faith by appropriate proceedings and that
the Borrower shall have set aside on its books adequate reserves with respect to
those taxes and assessments.
6.5 Pay and perform at the time such payment or performance is due, all
indebtedness and obligations owing by it, and pay all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable, except any indebtedness, obligation or claim being
contested in good faith by appropriate proceedings and for which the Borrower
shall have set aside on its books adequate reserves with respect to such
indebtedness, obligation or claim.
6.6 Maintain its existence as a limited liability company in good standing
in the State of Delaware and its qualification in good standing in every other
jurisdiction in which the failure to be so qualified or authorized to do
business would have a Material Adverse Effect; continue
- 24 -
to conduct and operate its business substantially as contemplated to be
conducted and operated and as MACG has conducted and operated its business in
the past; and comply with all governmental laws, rules, regulations, and orders
applicable to it, the failure to comply with which would or may have a Material
Adverse Effect.
6.7 Act prudently and in accordance with customary industry standards in
managing or operating its assets, properties, business, and investments; and
keep in good working order and condition, ordinary wear and tear excepted, all
of its assets and properties that are necessary to the conduct of its business.
6.8 Notify the Lender in writing within 30 days after receipt whenever the
Borrower receives written notice of (a) the commencement or threatened
commencement of formal proceedings or any investigation by a federal or state
environmental agency against the Borrower, or any property owned by the
Borrower, or by any entity in which the Borrower holds an Investment Position,
or regarding compliance by the Borrower with Environmental Laws, or (b) any
other judicial or administrative proceeding or litigation commenced against the
Borrower, except those occurring in the Ordinary Course that would not have a
Material Adverse Effect. The Borrower shall, promptly upon request, deliver to
the Lender copies of such pleadings, documents and other information concerning
such pending or threatened claim or proceeding as the Lender may reasonably
request.
6.9 Promptly provide to the Lender copies of any correspondence received by
the Borrower or an Affiliate from any governmental authority regarding any
alleged violation of law by the Borrower or any Affiliate that could have a
Material Adverse Effect.
6.10 Comply with all applicable laws, including but not limited to federal
and state securities laws, applicable to the Borrower's acquisition, or offer to
acquire, an Investment Position, and to furnish to the Lender, promptly upon
written request, the Borrower's due diligence legal review with respect to such
Investment Position.
6.11 At all times preserve, renew and keep in full force and effect the
rights, licenses, permits, franchises, agency agreements, trade names, patents,
trademarks, copyrights, licenses and service marks, the loss of which could have
a Material Adverse Effect.
6.12 Permit representatives of the Lender, on reasonable notice, during the
Borrower's normal business hours, to enter the Borrower's premises, review the
Borrower's business records, and interview the Borrower's employees as
reasonably required by the Lender to conduct periodic audits of the Borrower's
business and the Borrower's compliance with its obligations under this
Agreement.
6.13 Refer to the Lender any opportunities to purchase or otherwise acquire
nursing home facilities, assisted living facilities and the like of which the
Borrower or its Affiliates acquire knowledge; it being further agreed that the
Lender will, to the extent it is permitted to do
- 25 -
so by the terms of the Opportunity Agreement dated April 2, 1998 with Omega
Worldwide, Inc., refer to the Borrower all opportunities to acquire interests in
limited partnerships, limited liability companies and other limited liability
vehicles, or to acquire at discount future income streams, of which Lender
acquires knowledge. Neither party shall be required by this Section to divulge
information that it acquired in confidence, and any information that may be
furnished to a party pursuant to this Section shall be furnished without any
representation or warranty whatever. Neither party shall be liable to the other
for money damages for breach of this Section 6.14, or for any loss, cost or
damage incurred by a party as a result of its acts or omissions in response to
information furnished pursuant to this Section 6.14.
6.14 Cooperate with Lender by all reasonable means to do such things as the
Lender may reasonably request in writing to preserve the Lender's status as a
"real estate investment trust" under the IRC, including but not limited to
divesting one or more Investment Positions in which the Lender holds a security
interest if, in the written opinion of outside counsel to the Lender, it is more
probable than not that retention by the Lender of such security interest, or
ownership of such Investment Position(s) following foreclosure or other
realization upon such security interest, would jeopardize the Lender's status as
a "real estate investment trust" under the IRC if such issue were to be raised
in an administrative or judicial proceeding. Payment of the Required Release
Price shall be made after the Lender makes written demand upon the Borrower and
delivers to the Borrower, wine such written demand, a copy or written summary of
the opinion of the Lender's said outside counsel upon which the demand is based,
within thirty (30) days after the effective date of the divestiture.
6.15 In order to preserve and ensure the Borrower's separate and distinct
identity:
(a) establish and maintain a post office address that is separate and
apart from that of any Affiliate;
(b) maintain separate records and books of account from those of any
Affiliate;
(c) not commingle assets, funds or accounts with those of any Affiliate
(except that the Borrower may, without breaching this Section 6.15(c),
periodically deposit funds of the Borrower and its Affiliates with a
service agent to enable such agent to remit such funds, on behalf of
the Borrower and its Affiliates, to employees and independent
contractors of the Borrower and its Affiliates or to investors from
whom the Borrower or its Affiliates buy Investment Positions);
(d) conduct its own business in its own name (except that the Borrower
may, without breaching this Section 6.15(d), make offers to acquire
Investment Positions, and may consummate
- 26 -
acquisitions of Investments Positions, for its own account through and
in the name of its wholly-owned subsidiary, Madison Liquidity
Investors 104 or, upon the expiration of not less than 10 Business
Days after delivering such supplemental security documents and
financing statements as the Lender may require, in the name of any
other majority owned subsidiary of the Borrower;
(e) maintain financial statements separate from any Affiliate;
(f) pay any liabilities out of its own funds, including salaries of any
employees (except as otherwise permitted in Section 6.16(c) above);
(g) Maintain relationships with its Affiliates that are not inequitable as
to the Lender or other third-parties who are justifiably relying upon
the separateness of the Borrower from its Affiliates;
(h) Not guarantee or become obligated for the debts of any other entity,
including any Affiliate, except for the endorsement of negotiable
instruments for deposit or collection in the Ordinary Course, or hold
out its credit as being available to satisfy the obligations of
others;
(i) Use stationery, invoices and checks separate from any Affiliate;
(j) Not pledge its assets for the benefit of any other entity, including
any Affiliate; and
(k) At all times have a class of managers whose unanimous vote will be
required to approve the filing of a petition in bankruptcy, an
assignment for the benefit of creditors or any similar federal or
state authorized procedure for debt or relief, of which at least one
manager may be designated by the Lender at anytime.
Section 7 - Negative Covenants
Beginning on the date of this Agreement and continuing until the Lender has
no further obligation to make advances of the Loan to the Borrower pursuant to
this Agreement and the Loan and all other indebtedness of the Borrower to the
Lender has been repaid in full, the Borrower shall not, without the prior
written consent of the Lender:
7.1 Create or permit to exist any lien, mortgage, pledge, attachment,
garnishment, execution, or other legal process, or encumbrance on any of the
Collateral, except Permitted
- 27 -
Liens.
7.2 Guarantee, endorse, assume, or otherwise incur or suffer to exist any
contingent liability in respect of, any obligation of any other person, firm, or
corporation, except by the endorsement of negotiable instruments for deposit or
collection in the Ordinary Course.
7.3 Purchase or otherwise acquire all, or substantially all, of the assets,
obligations, or capital stock or equity interests in any other person or legal
entity.
7.4 Purchase, retire, redeem, or otherwise acquire any of its outstanding
equity interests or declare or pay dividends or make any other distribution of
its assets, by reduction of capital or otherwise, other than (a) as permitted by
Section 5.5 and (b) in connection with the organization of subsidiaries or other
affiliates to facilitate the operation of its business.
7.5 Subordinate any indebtedness owing to the Borrower by any person, firm,
or corporation to indebtedness of that person, firm, or corporation owing to any
other person, firm, or corporation.
7.6 Engage, directly or indirectly, in any line of business other than the
acquisition of Investment Positions.
7.7 Issue, incur, assume, or permit to remain outstanding any Indebtedness,
other than Indebtedness owing to the Lender.
7.8 Change its fiscal year or method of accounting except as required by
GAAP.
7.9 Change its name or the name of Madison Liquidity Investors 104 without
prior written approval from the Lender; except that the Borrower may change its
name or the name of Madison Liquidity Investors 104 if the Borrower has given 60
days' prior written notice of the name change and has taken such action as the
Lender deems necessary to continue the perfection of the security interests and
liens granted to the Lender under the Loan Documents.
7.10 Establish, maintain or participate in an employee benefit pension plan
with respect to which the Borrower is an "employer" or "party in interest", as
those terms are defined in ERISA.
7.11 Name or otherwise identify the Lender in any documents used by the
Borrower in connection with its acquisition of any Investment Positions, or in
connection with any offer to acquire any Investment Positions.
7.12 Use Loan proceeds to acquire any "margin stock", within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System, without
prior written notice to the Lender.
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Section 8 - Application of Proceeds
The proceeds of the Loan shall be used by the Borrower solely for the
purpose set forth in Section 3, and for no other purpose.
Section 9 - Events of Default and Remedies
9.1 The following events shall constitute an "Event of Default" under this
Agreement, the occurrence of which shall entitle the Lender to pursue any and
all rights and remedies, legal and equitable, available to it under any Loan
Document or otherwise. The Occurrence of an Event Default under this Agreement
shall constitute a default under each and every other Loan Document. The
Lender's rights and remedies are cumulative and may be exercised concurrently or
successively from time to time. Any action by the Lender against any property or
party shall not serve to release or discharge any other security, property or
party in connection with this transaction. The Events of Default are as follows:
(a) Failure to pay the principal or interest on the Borrower's present or
future indebtedness to the Lender, whether or not arising pursuant to
this Agreement, when and as the same shall be due and payable, whether
by acceleration or otherwise; provided that such default has not been
cured prior to the expiration of ten (10) days following the date upon
which the Lender gives the Borrower written Notice of Default. In this
Section 9, Notice of Default shall be deemed to have been given (i) on
the date of personal delivery of such written notice to a Guarantor,
or (ii) on the date on which a duly authorized representative of the
Borrower acknowledges receipt of such written notice, or (iii) on the
day after sending such written notice to the Borrower by a commonly
recognized overnight courier service, such as Federal Express,
Purolator, UPS or the like, or (iv) on the third day after sending
such written notice to the Borrower by facsimile (to both numbers set
forth in Section 16.7) or by depositing the same in the United States
mail, postage prepaid, for delivery to the Borrower.
(b) Failure to observe, perform and comply with any of the obligations
evidenced or secured by a Loan Document, other than as provided in
Sections 9.1(a) above; provided that such default has not been cured
prior to the expiration of thirty (30) days following the date upon
which the Lender gives the Borrower written Notice of Default.
(c) Failure to duly and punctually pay, observe and discharge all
Indebtedness and other obligations of the Borrower to any third party,
unless the same is being contested in good faith by appropriate
proceedings and the Borrower has set aside on its books adequate
- 29 -
reserves with respect to such Indebtedness or other obligations.
(d) The discovery by the Lender of any material inaccuracy in any
statement, assurance, representation, covenant, warranty, term or
condition by the Borrower contained in this Agreement or in any
document delivered or to be delivered by or on behalf of the Borrower
pursuant to this Agreement, which inaccuracy would result in a
Material Adverse Effect (except that inaccuracies in the Borrower's
Due Diligence Documents attributable to the fault or neglect of
third-parties shall not constitute a breach of this Section 9.1(d)),
or in any other Loan Document, or in any other agreement between the
Borrower and the Lender.
(e) The filing of a petition by or against the Borrower or any Affiliate
seeking relief under the Federal Bankruptcy Code, 11 U.S.C. ss. 101,
et seq., and any amendments thereto, or any similar law or regulation,
whether federal, state or local, not dismissed within 30 days.
(f) The commencement of a proceeding by or against the Borrower or any
Affiliate under any statute or other law providing for an assignment
for the benefit of creditors, the appointment of a receiver, or any
other similar law or regulation, whether federal, state or local, not
dismissed within 30 days.
(g) The garnishment, attachment, levy or other similar action taken by or
on behalf of any creditor of the Borrower, any Affiliate, or any of
their respective properties which could have a Material Adverse
Effect.
(h) Any change in control of the Borrower, Madison Liquidity Investors
104, MACG from that disclosed in Section 2 of this Agreement.
9.2 The Lender may, at its option, terminate its obligation to make
advances of the Loan, without notice to the Borrower: (a) upon the occurrence
and continuance of any Event of Default set forth in subsections 9.1(a) through
9.1(h) above; or (b) upon the occurrence and continuance of any event which,
with the giving of notice or the lapse of time, or both, would constitute an
Event of Default or (C) upon the death or disability of Bryan E. Gordon.
9.3 Upon the occurrence and continuance of any Event of Default set forth
in subsections 9.1(a) through 9.1(h) above, the Lender shall have the right (a)
to declare all outstanding principal and accrued interest on the Loan, and on
any other indebtedness of the Borrower to the Lender (whether or not arising
under this Agreement) to be immediately due and payable, without presentment,
demand, or notice of any kind, all of which are hereby expressly waived by the
Borrower, and (b) to exercise any and all remedies that it may have for default
under any Loan Document or at law or in equity, and such remedies may be
exercised
- 30 -
concurrently or separately until all of the Borrower's indebtedness to the
Lender (whether or not arising under this Agreement) and each and every one of
the Borrower's obligations to the Lender (whether or not arising under the Loan
Documents) have been fully satisfied. In connection with the enforcement of any
such remedies of the Lender, the Lender and its employees, attorneys, agents,
and other persons and entities designated by the Lender, shall have the right,
without notice, to enter the Borrower's places of business for such purposes as
may be reasonably required to permit the Lender to preserve, protect, take
possession of and/or sell or otherwise dispose of any Collateral, and to store
the Collateral at the Borrower's places of business, without charge, for such
periods as may be determined by the Lender.
9.4 Upon the expiration of 180 days after the death or Disability of Bryan
E. Gordon, the Lender shall have the right to declare all outstanding principal
and accrued interest on the Loan, and on any other indebtedness of the Borrower
to the Lender (whether or not arising under this Agreement) to be immediately
due and payable, without presentment, demand, or notice of any kind, all of
which are hereby expressly waived by the Borrower, and the Lender thereafter
shall have all of the rights, and the Borrower shall have all of the
obligations, provided for in Section 9.3 above.
Section 10 - Conditions Precedent to Advances of the Loan
In addition to the other conditions Precedent to advances described in this
Agreement, each Loan advance requested under this Agreement shall be subject to
prior satisfaction of the following conditions:
10.1 The representations and warranties contained herein and in the other
Loan Documents shall be true, correct and accurate in all material respects on
and as of the Funding Date of such requested advance, except for those relating
to specific dates or time periods and as changed as permitted by this Agreement.
10.2 The Borrower shall have performed in all material respects all
agreements and satisfied all conditions that this Agreement and each of the
other Loan Documents provides shall be performed by the Borrower on or before
such Funding Date.
10.3 No order, judgment or decree of any court, arbitrator, or governmental
authority, shall purport to enjoin or restrain the Lender from making such an
advance.
10.4 There shall not be pending or, to the Borrower's Knowledge threatened:
(a) any action, suit, proceeding, governmental investigation or arbitration
against or affecting the Borrower or an Affiliate, or any property of the
Borrower or an Affiliate, that, in the opinion of the Lender, could reasonably
be expected to have a Material Adverse Effect upon the Borrower or an Affiliate;
and (b) there shall have occurred no development in any action, suit,
proceeding, governmental investigation or arbitration previously disclosed to
the Lender pursuant to this Agreement, that, in the opinion of the Lender, could
reasonably be expected to have a Material
- 31 -
Adverse Effect upon the Borrower or an Affiliate. No injunction or other
restraining order shall have been issued and no hearing to cause an injunction
or other restraining order shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, this
Agreement or the making of the Loan hereunder.
10.5 Since the date of the most recent Borrower and Affiliate financial
statements submitted to the Lender, pursuant to Section 2.7, nothing shall have
occurred or become known which the Lender shall have determined has a Material
Adverse Effect upon the Borrower or an Affiliate.
10.6 The Lender shall have received a Notice of Requested Borrowing at the
time and in form required by Section 4.6 above. The furnishing by the Borrower
of a Notice of Requested Borrowing shall be deemed to constitute a
representation and warranty of the Borrower to the effect that all the
conditions set forth in this Agreement for the requested advance are satisfied
as of the date of delivery and will be satisfied on the applicable Funding Date.
Section 11 - Limitation on Loan Advances
11.1 Notwithstanding anything to the contrary contained herein or in any of
the other Loan Documents, the principal amount of the Loan that may be used by
the Borrower to make Non-Qualified REIT Investments shall not exceed 4.5% of the
Value of the Lender's Total Assets.
11.2 The Lender shall not be required to make any advance of the Loan
proceeds unless, simultaneously with the Lender making an advance of the Loan
proceeds, the Borrower pays cash in an amount equal to at least two percent (2%)
of Acquisition Cost of such Investment Position. The Borrower shall, upon
request by the Lender, demonstrate to the Lender that the Borrower has the
requisite cash available for and irrevocably committed to such purpose, and that
such cash was in fact so applied by the Borrower.
11.3 The Borrower expects from time to time to incur due diligence expenses
and other expenses in connection with its evaluation of potential Investment
Positions that the Borrower ultimately decides not to acquire (such costs are
referred to in this Agreement as "Pre-Funding Acquisition Costs"). The Borrower
shall be entitled to request advances of Loan proceeds to pay such Pre-Funding
Acquisition Costs provided that they do not exceed, as to any Investment
Position, $50,000 or 75% of the anticipated Carrying Cost of the Investment
Position, whichever is less.
Section 12 - Option to Restructure Investments
The Lender may apply to the IRS for a ruling as to whether "look-through
treatment"
- 32 -
will be accorded Investment Positions acquired by the Borrower using proceeds of
the Loan. For purposes of this Agreement, "look-through treatment" would be
deemed to be so accorded if the IRS were to rule that, for purposes of
determining whether, as to the Lender, such Investment Positions constitute
"real estate assets" within the meaning of IRC Section 856(c)(5)(B) and Treasury
Regulation 1.856-3(g), the Lender will be deemed to be the owner of such
Investment Positions. If, within six months after the date of this Agreement,
the IRS rules that "look-through treatment" will not be accorded such Investment
Positions, or the Lender withdraws, under any circumstances, its application
prior to the issuance by the IRS of its ruling, the Lender and the Borrower
agree that it will be in their mutual interest to restructure the
debtor-creditor relationship established pursuant to this Agreement with respect
to the real estate portion of the Borrower's Investment Position portfolio as
necessary to convert the revenue stream to be derived by the Lender on account
of such Investment Positions from "interest income" to "rents from real
property" as defined in IRC Section 856(d)(i) for federal income tax purposes.
The Borrower shall use good faith efforts to assist the Lender in accomplishing
such objective within three months after being requested to do so in writing by
the Lender. All reasonable expenses incurred in connection with restructuring
the debtor-creditor relationship in the manner specified in this Section shall
be borne 50% by the Lender and 50% by the Borrower.
Section 13 - Acceptance of Proceeds
The acceptance of the proceeds of the Loan shall constitute the
representation and warranty by the Borrower to the Lender that all of the
applicable conditions specified herein have been satisfied as of that time,
except for such conditions that have been expressly waived in writing hereunder
by the Lender.
Section 14 - Confidentiality
14.1 The Borrower and the Lender acknowledge that in the course of the
business relationship reflected in this Agreement, the Borrower and/or its
Affiliates will or may disclose to the Lender proprietary or confidential
information ("Confidential Information"), including, without limitation, client
lists, business plans and strategies and the forms of documents employed by
Borrower or its Affiliates. (A party who discloses such Confidential Information
is referred to hereafter as a "Disclosing Party" and the party who receives such
information is referred to hereafter as a "Receiving Party".) A Receiving Party
shall not at any time during the term of the Loan Agreement or thereafter
disclose or use in any manner other than for a Permitted Use (as defined below)
any Confidential Information received by it, except to the extent required by a
court order or other legal process, in which event the Receiving Party shall
provide the Disclosing Party with timely notice of such order or process and
cooperate with the Disclosing Party (at the expense of the Disclosing Party) in
any attempts to stay or limit required disclosure. Except as described in the
definition of "Permitted Use" below, Confidential Information shall not include
(a) information (other than the form of documents employed by the Borrower
and/or its Affiliates) which is now, or subsequently becomes, in the public
- 33 -
domain, other than through a violation of the Receiving Party's obligations
hereunder, (b) information that was available to the Receiving Party on a
nonconfidential basis from a source other than the Disclosing Party prior to its
disclosure by the Disclosing Party, (c) information that becomes available to
the Receiving Party on a nonconfidential basis from a Source other than the
Disclosing Party, which source is not otherwise bound by a confidentiality
agreement, or other obligations of secrecy to, the Disclosing Party or (d)
information that was independently developed or discovered by the Receiving
Party.
14.2 The Disclosing Party shall be entitled to injunction and other
equitable relief without the necessity of posting a bond in the event of any
failure by a Receiving Party to comply with the provisions of this Section 14,
and to recovery from the Receiving Party of the Disclosing Party's reasonable
attorneys' fees and expenses incurred in obtaining such relief. A Receiving
Party shall indemnify the Disclosing Party and hold it harmless from and against
any and all loss, damage, liability, cost or expense (including reasonable
attorneys' and experts' fees) incurred by the Disclosing Party as a result of
the breach by such Receiving Party of any obligation under this Section 14. The
provisions of this Section 14.2 in respect of equitable relief shall in no way
be deemed to limit the remedies of a Disclosing Party.
14.3 "Permitted Use" of Confidential Information by a Receiving Party shall
be limited to the use of such information for the sole purpose of carrying out
its obligations, availing itself of its remedies and administering the loans
made pursuant to this Loan Agreement. Confidential Information may be disclosed
on a need to know basis to advisors to the Lender (including, without
limitation, Counsel and tax advisors), it being understood, however, that such
advisors shall be informed by the Lender of the confidential nature of the
Confidential Information and shall agree to be bound by the provisions of this
Section 14. The parties understand and agree that the Lender may be required to
file reports or respond to inquiries by regulatory agencies, which reports and
responses shall be deemed a Permitted Use, it being agreed, however, that every
effort will be made by Lender to limit the amount of Confidential Information
included in any such report or response and that Lender will include in any such
report or response only so much of the Confidential Information as Lender is
advised by written opinion of its outside counsel is required.
- 34 -
Section 15 - Indemnification
15.1 The Lender shall indemnify and hold harmless the Borrower, Madison
Liquidity Investors 104, and any of their respective officers and employees,
members, managers or directors (each an "Indemnified Party" and collectively
"Indemnified Parties") from and against any and all loss, liability, claim and
expense arising under the federal or state securities laws and resulting
directly and solely from the Lender's failure to fund a Loan advance pursuant to
this Agreement if: (a) such failure to fund constitutes a breach by the Lender
of its obligations under this Agreement and (b) such breach continues for a
period in excess of five (5) Business Days after the date specified by the
Borrower as the date upon which the advance was to be made.
15.2 The Borrower shall indemnify and hold harmless the Lender and any of
its officers, employees, managers or directors (each an "Indemnified Party" and
collectively "Indemnified Parties") from and against any and all loss,
liability, claim and expense, arising as a result of a violation of the federal
or state securities laws in connection with an offer to acquire, or the
acquisition of, an Investment Position.
15.3 This indemnification shall apply to any Indemnified Party who is a
party or subject of any pending or completed action, suit or proceeding, whether
civil or administrative in circumstances governed by Section 15.1 or 15.2.
15.4 All reasonable expenses and costs of the Indemnified Parties
(including, without limitation, attorneys and experts fees) in defending,
investigating or appealing any action, suit or proceeding shall be paid by the
Lender, with respect to its obligations under Section 15.1, or the Borrower,
with respect to its obligations under Section 15.2 (in each case, the
"Indemnifying Party"), within ten (10) Business Days of submission by an
Indemnified Party of a request for such reimbursement, together with reasonable
substantiation of the expenses and costs involved. The Indemnifying Party shall
have the right to approve the Indemnified Parties' counsel and such counsel may,
at the option of the Indemnifying Party, represent more than one of the
Indemnified Parties so long as no conflict of interest exists which would
preclude such counsel from representing one or more of the Indemnified Parties.
In the event there is a good faith dispute between the Indemnified Parties and
the Indemnifying Party as to whether this Section 15 applies to such action,
suit or proceeding, the Indemnifying Party shall not be obligated to make any
advance for expenses and costs under this Section 15.4 pending a determination
by a court of competent jurisdiction of the applicability of this Section 15.
Any offer of settlement or compromise of a claim shall be promptly communicated
to the Indemnifying Party and shall not be accepted unless agreed upon in
writing by the Indemnified Parties and the Indemnifying Party. If the
Indemnified Party declines to accept a bona fide offer of settlement which is
recommended by the Indemnifying Party, the maximum liability of the Indemnifying
Party shall not exceed that amount which it would have been liable for had such
settlement been accepted. If the Indemnifying Party declines to accept a bona
fide offer of settlement recommended by the Indemnified Parties, the
Indemnifying Party shall be liable for whatever outcome results from such
third-party claim.
- 35 -
15.5 The indemnification and reimbursement of expenses and costs pursuant
to this Section 15 shall be the Indemnified Parties' exclusive remedy (a) with
respect to the Lender for matters covered by Section 15.1 and (b) with respect
to the Borrower for matters covered by Section 15.2.
Section 16 - Miscellaneous
16.1 The Borrower and the Lender shall, within 45 days after the date of
this Agreement, exchange a written accounting of the reasonable and customary
out-of-pocket costs each incurred in connection with the negotiation of the Loan
Documents and the closing of the Loan (the "Loan Documentation and Closing
Costs"). The Loan Documentation and Closing Costs incurred by the Lender shall
be added to the Loan Documentation and Closing Costs incurred by the Borrower,
and each party shall pay 50% of the grand total of the Loan Documentation and
Closing Costs. Any payment that one party is required to pay to the other to
equalize the Loan Documentation and Closing Costs borne by each shall be paid,
in cash, within 60 days after the date of this Agreement. Only those reasonable
and customary out-of-pocket costs properly appearing on the written accounting
referred to in the first sentence of this Section shall be allocated between the
parties pursuant to this Section; none of the costs referred to in Section 16.2
of this Agreement shall be allocated between the parties pursuant to this
Section 16.1.
16.2 The Borrower shall reimburse the Lender for all reasonable costs
(including but not limited to reasonable fees and expenses for appraisers,
attorneys, architects, accountants, brokers, copy services, court reporters,
engineers, expert witnesses, overnight couriers, recording fees and taxes, title
and lien searches, and surveyors) incurred by the Lender in: (a) creating and
perfecting a first priority security interest in the Collateral; (b) preserving
and protecting the Collateral; (c) enforcing any provision of any of the Loan
Documents; (d) collecting the Loan or any other present or future Indebtedness
of the Borrower to the Lender, whether or not arising under this Agreement; and
(e) foreclosing any lien or security interest in any of the Collateral, or in
taking action in lieu of foreclosure.
16.3 The Borrower acknowledges that the Lender shall have the right, upon
an Event of Default, or any event which with the giving of notice or lapse of
time, or both, would constitute an Event of Default, to set off any indebtedness
from time to time owing to the Borrower by the Lender against any indebtedness
that shall at any time be due and payable by the Borrower to the Lender.
16.4 Each and every right granted to the Lender hereunder or under any
other Loan Document, or allowed it by law or equity, shall be cumulative and may
be exercised from time to time. No failure on the part of the Lender to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof or as a waiver of any other right. No single or partial exercise by the
Lender of any right or remedy shall preclude any other future exercise of it or
the exercise of any other right or remedy. No waiver or indulgence by the Lender
of any default shall be
- 36 -
effective unless in writing and signed by the Lender, nor shall a waiver on one
occasion be construed as a bar to or waiver of that right on any future
occasion. This Agreement may not be amended except by a writing signed by all
the parties hereto.
16.5 The relationship between the Borrower and the Lender is solely that of
borrower and lender. The Lender has no fiduciary responsibilities to the
Borrower as a result of this Loan Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby. The Lender does
not undertake any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the Borrower's business
or operations. The Borrower shall rely entirely upon its own judgment with
respect to its business, and any review, inspection, supervision, or information
supplied to the Borrower by the Lender is for the protection of the Lender and
neither the Borrower nor any third party is entitled to rely thereon. Neither
the Borrower nor the Guarantors have any fiduciary responsibility toward the
Lender as the result of this Loan Agreement, the other Loan Documents and the
consummation of the transactions contemplated hereby or thereby. Without
limiting the generality of the foregoing, neither the Borrower nor the
Guarantors is acting as an investment advisor, investment manager, financial
planner, financial consultant or supplier of financial services to the Lender,
within the meaning of any federal or state regulatory pattern or otherwise.
16.6 This Agreement is made in the State of Michigan. The validity of this
Agreement, and the validity of any documents incorporated herein or executed in
connection herewith, and the construction, interpretation and enforcement
thereof, and the rights of the parties thereto, shall be determined under and
construed in accordance with the internal laws of the State of Michigan, without
regard to principles of conflicts of law.
16.7 Any and all notices or other communications required or permitted
under this Agreement shall be in writing, and shall be served either personally
or by certified United States mail with postage thereon full prepaid addressed
to the Borrower as:
Madison/OHI Liquidity Investors, LLC
For Federal Express: 592 Fallen Leaf Way
Incline Village, NV 89451
For Regular Mail: P.O. Box 7461
Incline Village, Nevada 89452
Attention: Bryan E. Gordon, Managing Director
Fax Numbers: (702) 832-9027 and (212) 687-2335
with copies to each Guarantor at his address set forth in the Guarantee, or such
other place or places as a Guarantor shall designate by written notice served
upon the Lender and the Borrower.
- 37 -
and to the Lender as:
Omega Healthcare Investors, Inc.
900 Victors Way, Suite 350
Ann Arbor, MI 48108
Attention: F. Scott Kellman, Chief Operating Officer
or such other place or places as any party shall designate by written notice
served upon other parties.
16.8 this Agreement shall be binding upon and shall inure to the benefit of
the Borrower may and the Lender and their respective successors and assigns;
provided, however, that the Borrower may, with the prior written consent of the
Lender (which shall not be unreasonably withheld), assign its rights and
obligations under this Agreement to an entity that is controlled the Guarantors.
The Lender may condition its consent to any such assignment upon, among other
things: (a) payment by the Borrower of all reasonable costs incurred by the
Lender in connection with evaluating the Borrower's request and preparing the
documents required in the opinion of the Lender's counsel to document the
requested assignment; (b) requiring the assignee to assume and agree to observe
and perform all of the Borrower's obligations under this Agreement and the other
Loan Documents; (c) obtaining consents to such assignment, satisfactory in form
and substance to the Lender, from the Guarantors; and (d) obtaining such
amendments to or replacements of the Loan Documents, and the filing of
supplemental financing statements, as the Lender may reasonably request. The
Borrower shall not otherwise have any right to assign, transfer, hypothecate or
otherwise transfer or dispose of any of its rights or obligations under this
Agreement or the other Loan Documents (voluntarily, by operation of law, as
security, by gift or otherwise) without the Lender's consent, which consent may
be withheld in the sole discretion of the Lender. The Lender may, with the
consent of the Borrower (which consent shall not unreasonably be withheld),
assign, negotiate, pledge or otherwise hypothecate all or any portion of this
Agreement, or grant participations herein and in the Loan Documents, or in any
of its rights or security hereunder or thereunder, including, without
limitation, the instruments securing the Borrower's obligations hereunder;
provided, however, that the Lender promptly will inform the Borrower of any such
assignment, negotiation, pledge or other hypothecation and of the parties
involved therewith and, provided further, that no such assignment, negotiation,
pledge or other hypothecation by the Lender will relieve the Lender of its
obligation under this Agreement. In connection with any assignment or
participation, the Lender may disclose to the proposed assignee or participant
any information that the Borrower is required to deliver to the Lender pursuant
to this Agreement (including but not limited to Confidential Information, as
defined in Section 14.1 above).
16.9 The Borrower waives and releases any and all right that it may have to
require that the Lender marshal any of the Collateral. The Borrower shall upon
the request of the Lender promptly execute and deliver to the Lender a written
statement, in form and substance reasonably satisfactory to the Lender,
identifying all of the Collateral in which the Lender holds
- 38 -
an interest as security for the Loan made pursuant to this Agreement. The Lender
may file or record such written statements in the appropriate public records as
determined by the Lender in its sole and absolute discretion.
16.10 Should any part, term or provision of this Agreement, or of any
documents incorporated herein or executed in connection herewith, be determined
by the courts to be illegal, unenforceable or in conflict with any law of the
State of Michigan, federal law or any other applicable law, the validity and
enforceability of the remaining portions or provisions of such document(s) shall
not be affected thereby.
16.11 The Borrower shall execute any and all additional or supplemental
documentation as the Lender may reasonably require to give full effect to the
terms and conditions of this Agreement. The Borrower grants the Lender power of
attorney to execute (on behalf of the Borrower and Madison Liquidity Investors
104) and file financing statements and continuation statements provided,
however, that the Lender shall take no action for or on behalf of the Borrower
pursuant to this Section 16.11 unless the Borrower has failed or neglected to
take specific action within 10 days after being requested in writing by the
Lender. The power of attorney hereby granted by the Borrower to the Lender is
coupled with an interest and may be revoked only after the Lender is no longer
obligated to make advances of the Loan to the Borrower pursuant to this
Agreement and the Loan and all of the Borrower's other present or future
indebtedness, if any, to the Lender, has been fully repaid.
16.12 Time is of the essence with respect to all provisions of this
Agreement.
16.13 The headings in this Agreement have been inserted for convenience
only and shall not affect the meaning or interpretation of this Agreement.
16.14 This Agreement may be executed in one or more counterparts, each of
which shall be considered an original and all of which shall constitute the same
instrument.
16.15 This Agreement contains the entire agreement of the parties hereto
with respect to the subject matter hereof. The parties hereto shall not be bound
by any other different, additional or further agreements or understandings
except as consented to in writing by them.
16.16 The Recitals are incorporated into and form a part of this Agreement.
16.17 The Lender and the Borrower, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any litigation
based upon or arising out of this Agreement or any related instrument or
agreement or any of the transactions contemplated by this Agreement or any
course of conduct, dealing, statements (whether oral or written), or actions of
either of them. Neither the Lender nor the Borrower shall seek to consolidate,
by counterclaim or otherwise, any such action in which a jury trial has been
waived with any other action in which a jury trial
- 39 -
cannot be or has not been waived. These provisions shall not be deemed to have
been modified in any respect or relinquished by either the Lender or Borrower
except by a written instrument executed by both of them.
16.18 There are no third party beneficiaries of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
- 40 -
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of the
day and year first above written.
WITNESSES:
MADISON/OHI LIQUIDITY INVESTORS, LLC
By: ___________________________________________
Bryan E. Gordon, Managing Director
OMEGA HEALTHCARE INVESTORS, INC.
By: _____________________________________________
Essel W. Bailey, Jr., Chief Executive Officer
STATE OF MICHIGAN )
) ss.
COUNTY OF WASHTENAW )
The foregoing instrument was acknowledged before me this 2nd day of
October, 1998, by Bryan E. Gordon, who is a Managing Director of MADISON/OHI
LIQUIDITY INVESTORS, LLC, a Delaware limited liability company, on behalf of the
limited liability company.
_________________________________________________
Notary Public, ________________ County, Michigan
My commission expires: __________________________
- 41 -
STATE OF MICHIGAN )
) ss.
COUNTY OF WASHTENA )
The foregoing instrument was acknowledged before me this 2nd day of
October, 1998 by Essel W. Bailey, Jr., who is the Chief Executive Officer of
OMEGA HEALTHCARE INVESTORS, INC., a Maryland corporation, on behalf of the
corporation.
_________________________________________________
Notary Public, ________________ County, Michigan
My commission expires: __________________________
- 42 -
SCHEDULE 2.9
Nolan Brothers of Texas Inc. instituted an action against, amongst others, Bryan
E. Gordon and The Harmony Group, in the United States Court for the Northern
District of Texas, Dallas Division (Civil Action No. 3-97 CV 1498-R), arising
out of an attempt by Nolan Brothers of Texas, Inc., to buy McNeil Real Estate
Fund XXVII, L.P. Plaintiff failed in its attempt to buy the target in
circumstances in which an entity (other than the Borrower, 104 or the Harmony
Group) connected to Bryan E. Gordon, The Harmony Group and others sold 4.9% of
the target owned by it to the sponsors of the target, who opposed the takeover
by Nolan Brothers of Texas, Inc. The complaint alleges, among other things,
conspiracy to interfere with prospective contractual relationships. Wolf,
Haldenstein, Adler Freeman & Herz LLP, who are defending the action, have
advised that the defendants have a meritorious defense.
- 43 -
$30 Million Credit Facility between
Omega Healthcare Investors, Inc., a Maryland corporation and
Madison/OHI Liquidity Investors, LLC, a Delaware limited liability company
October 2, 1998
1. Loan Agreement (including Schedule 2.9)
2. $30,000,000.00 Promissory Note (copy - original delivered to Omega on
October 2, 1998)
3. Security Agreement
a. Madison/OHI Liquidity Investors, LLC
b. Madison Liquidity Investors 104, LLC
4. Pledge Agreement re Madison/OHI Liquidity Investors, LLC (including
executed Assignment in Blank)
a. First Equity Realty, LLC
b. The Harmony Group II, LLC
5. Limited Personal Guaranties
a. Ronald M. Dickerman
b. Bryan E. Gordon
6. Assignment of Life Insurance Policies
a. Ronald M. Dickerman
b. Bryan E. Gordon
7. Cross-Default Agreement
8. Due Authorization, Delivery and Perfection Opinion Letter
9. Non-consolidation Opinion Letter
a. Opinion Letter
b. Members' Certificate
10. Agreement
11. UCC Financing Statements - Central Filings
a. Madison/OHI Liquidity Investors, LLC (Delaware, New York, Nevada)
b. Madison Liquidity Investors 104, LLC (Delaware, New York, Nevada)
c. The Harmony Group II, LLC (Delaware, New York, Nevada)
d. First Equity Realty, LLC (Connecticut, New York)
- 44 -
12. Madison/OHI Liquidity Investors, LLC
a. Articles of Organization
b. Certificate of Good Standing
c. Operating Agreement
d. Incumbency Certificate
e. Authorizing Resolution
13. Madison Liquidity Investors 104, LLC
a. Articles of Organization
b. Certificate of Good Standing
c. Operating Agreement
d. Incumbency Certificate
e. Authorizing Resolution
14 First Equity Realty, LLC
a. Articles of Organization
b. Certificate of Good Standing
c. Operating Agreement
d. Incumbency Certificate
e. Authorizing Resolution
15. The Harmony Group II, LLC
a. Articles of Organization
b. Certificate of Good Standing
c. Operating Agreement
d. Incumbency Certificate
e. Authorizing Resolution
16. Certificate of Authority to Conduct Business
a. Madison/OHI Liquidity Investors, LLC (New York, Michigan, Nevada)
b. Madison Liquidity Investors 104, LLC (New York, Michigan, Nevada)
17. Pledge Agreement re Securities Accounts
a. Cash Deposit Account
b. Securities Account
18. Brokerage Account Control Agreement
a. Cash Deposit Account
b. Securities Account
19. Article 8 Opinion of Counsel
- 45 -
AGREEMENT
This Agreement (the "Agreement") is made and entered into as
of the 22nd day of May, 1997, by and between The Krupp Corporation
("Krupp"), a Massachusetts corporation with a principal place of
business at 470 Atlantic Avenue, Boston, Massachusetts 02210, and
Gramercy Park Investments, LP ("Gramercy"), a Delaware limited
partnership wit:h a principal place of business at 400 Madison
Avenue, Suite 804, New York, New York, 10017.
WITNESSETH:
WHEREAS, Gramercy is engaged in the business of investing
in, among other things, real estate limited partnerships;
WHEREAS, Krupp and certain of its Affiliates (as defined in
Section 12) sponsored and are engaged in the business of
managing, among other things, the funds listed on Schedules I and
II hereto and other funds (individually a "Krupp Fund" and
collectively, the "Krupp Funds");
WHEREAS, Gramercy has sought to obtain from Krupp lists of
the Investors in certain of the Krupp Funds for the stated
purpose of contacting such investors in order to attempt to
acquire their units in the Krupp Funds;
WHEREAS, Krupp has refused to provide lists of the investors
to Gramercy, alleging that. they are not entitled to obtain such
lists;
WHEREAS, Gramercy instituted suit in the Superior Court
Department of the Trial Court for Suffolk County, Massachusetts
captioned Gramercy Park Investments LP, v. The Krupp Realty Fund,
Ltd. - III, et al. Docket No 97-1612 (the "Litigation") seeking,
among other things, declaratory and injunctive relief and money
damages against Krupp, certain of the Krupp Funds, and certain
general partners of the Krupp Funds; and
WHEREAS, the parties have conferred through their respective
counsel and are desirous of resolving and settling the dispute
between them and the Litigation, upon the terms and conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the
mutual representations, warranties, covenants and agreements
contained herein and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
1. Delivery of Lists: From time to time during the twelve
month period commencing on the date hereof and expiring on the
first anniversary date of this Agreement, Krupp will, upon
written request from Gramercy, deliver to Gramercy or its
designee within 10 business days of receipt of such written
request, current or updated lists of investors (including the
names of beneficial owners of retirement accounts) in any Krupp
Fund listed on Schedule I or Schedule II, in which Gramercy or an
Affiliate of Gramercy is a limited partner, unitholder,
shareholder or otherwise an equity investor (as the case may be)
provided such request includes an undertaking by Gramercy to pay
the cost of reproducing and delivering such list within ten
business days after receipt of such lists. The lists will be
sorted alphabetically and delivered in both paper format and on
3.5" IBM Compatible computer diskette in ASCII comma delimited
format.
2. Payment for Lists: Gramercy will pay Krupp $300 for
each list provided pursuant to section 1, representing the
estimated cost of reproducing and delivering each such list.
3. Restrictions On Activities: For a period commencing on
the date hereof and continuing for 60 months with respect to
those Krupp Funds listed on Schedule I and 120 months with
respect to those Krupp Funds listed on Schedule II from the last
date an investor list in a Krupp Fund is delivered to Gramercy in
response to Gramercy's request, Gramercy and its Affiliates shall
not, without the prior written consent of Krupp, which may be
granted or withheld in Krupp's sole and exclusive discretion and
for any reason, or no reason:
(i) in any manner acquire, attempt to acquire, or make
a proposal to acquire, directly or indirectly, more that 5% of
the voting securities of any Krupp Fund (except with respect to
the Krupp Funds listed on Schedule I insofar as Gramercy and its
Affiliates are permitted under Section 24(d)(8)(A) of the
Securities Exchange Act of 1934 to make a tender offer for up to
2% of such securities during a 12-month period, to which Gramercy
contends the provisions of Section 14(d) do not otherwise apply,
provided further that in no event shall Gramercy and its
Affiliates acquire, attempt to acquire, or make a proposal to
acquire, directly or indirectly, more than 10% of the voting
Securities of any Krupp Fund listed on Schedule I);
(ii) vote its interest in any Krupp Fund on any issue
other than in proportion to the votes of all other interest
holders who vote on such issue;
(iii) propose, or propose to enter into, directly or
indirectly, any merger consolidation, business combination, sale
or acquisition of assets, liquidation or other similar
transaction involving any Krupp Fund;
(iv) form, join or otherwise participate in a "group"
within the meaning of Section 13 (d) (3) of the Securities
Exchange Act of 1934, as amended, with respect to any voting
securities of any Krupp Fund; provided, however, that Gramercy
and its Affiliates shall not be deemed to be acting in a "group"
in violation of this Section 3(iv) solely by virtue of their
voting their interest in compliance with Section 3(ii) of this
Agreement;
(v) make or participate in any way, directly or
indirectly, in any solicitation of "proxies" or "consents" (as
such terms are used in the proxy rules of the Securities and
Exchange Commission to vote, or seek to advise or influence any
person with respect to the voting of any voting securities of any
Krupp Fund;
(vi) sell, transfer or assign any interests in any
Krupp Fund to any person or entity not bound by the terms and
conditions of this Agreement (except that with respect to the
Krupp Funds listed on Schedule I this provision is limited to a
period of 30 months);
(vii) disclose any intention, plan or arrangement
relating to any Krupp Fund which is inconsistent with the terms
of this Agreement; or
(viii) loan money to, advise, assist or encourage any
person in connection with any of the actions restricted or
prohibited by this Agreement with respect to any Krupp Fund.
Notwithstanding anything contained in Section 3(vi) of this
Agreement to the contrary, Gramercy or its Affiliates shall not
be prohibited from selling, transferring or assigning:
(a) during any consecutive six-month period, an amount of
voting securities or other interests in any Krupp Fund which does
not exceed two percent of the outstanding voting securities or
other interests in any such Krupp Fund; and
(b) following the announcement of any proposed capital
transaction involving a sale or transfer of some or all of the
assets or interests of a Krupp Fund to any affiliate of Krupp,
any amount of voting securities or other interest in such Krupp
Fund owned by Gramercy provided in the case of either (a) or (b)
that the purpose of such sales, transfers or assignments is not
to evade or circumvent the general intent of this Agreement and
provided further that such sale of transfers or assignments do
not have the effect of evading or circumventing the general
intent of this Agreement. Krupp covenants and agrees to provide
notice to Gramercy of any proposed transaction contemporaneously
with the public announcement of such transaction.
4. Use of Lists, Prohibition on Furnishing to Others:
Subject to compliance with Section 3 of this Agreement, any
investor list obtained by Gramercy or any Affiliate of Gramercy
relative to any Krupp Fund will be utilized only for the purpose
of contacting investors to (i) inquire as to whether they wish to
sell their units in such Krupp Fund to Gramercy or any Affiliate
of Gramercy; or (ii) to state its recommendations and reasons
therefor with respect to any proposal submitted to the investors
in such Krupp Fund by a person or entity other than Gramercy and
its Affiliates, and for no other purpose. The lists will not be
furnished by Gramercy or any Affiliate of Gramercy to any other
person or entity (other than agents and representatives of and
advisors to Gramercy and its Affiliates) without the consent of
Krupp. Gramercy covenants and agrees that it will not telephone
or otherwise directly contact any investor in any Krupp Fund
listed on Schedule II, except by mail, unless any such investor
first initiates contact with Gramercy.
5. Compliance with Securities Laws: Gramercy acknowledges
its obligations under the securities laws and the Rules of the
Securities and Exchange Commission.
6. Provision of Copies of All Communications: Gramercy
covenants and agrees that it will deliver to Krupp, at least
five days before mailing or otherwise disseminating to investors
in any Krupp Fund any communication to be given to one or more
investors in any Krupp Fund by or on behalf of Gramercy or any
Affiliate of Gramercy. Krupp covenants and agrees that it will
not mail any communication to such Investors until the seventh
business day after delivery of such materials to it by Gramercy,
unless such materials were sent by Gramercy pursuant to clause
(ii) of Section 4 of this Agreement, in which case Krupp will not
mail any communication to such investors until the fifth business
day after delivery of such materials to it by Gramercy.
7. Fiduciary Duties of Krupp; Safe Harbor Provision,
Protection of Partnership Status: Gramercy acknowledges that:
(a) Krupp and its Affiliates have significant fiduciary
obligations to the investors in the Krupp Funds, and has stated
that it is entering into this Agreement, among other reasons, to
fulfill those fiduciary obligations;
(b) Krupp and its Affiliates believe that they may need to
take certain further action to meet its fiduciary obligations,
including, without limitation, suspending the acceptance of
transfer paperwork in one or more Krupp Funds in order to (i)
avoid the termination of such Krupp Fund's status as a
partnership under the Internal Revenue Code of 1986, as amended
(the "Code"); (ii) avoid the treatment of such Krupp Fund as a
"publicly traded partnership" under the code; or (iii) prevent
such Krupp Fund from following outside any so-called "safe
harbor" provision relating to taxation or tax status, including
provisions relating to publicly traded partnerships; and
(c) The suspension of the acceptance of transfer paperwork
by Krupp or its Affiliates would mean that notwithstanding the
presentment of valid transfer paperwork and the terms of this
Agreement, transfers requested by Gramercy or an Affiliate of
Gramercy would not be processed or reflected on the books and
records of the applicable Krupp Fund.
8. Form of Transfer Agreements: Krupp acknowledges that:
(a) the form of transfer agreement attached as Exhibit A,
if fully and properly completed, is sufficient to satisfy the
transfer paperwork requirements of the Krupp Funds in connection
with the acquisition of units or shares by Gramercy and its
Affiliates;
(b) it will honor the form of power of attorney contained
in the transfer agreement attached as Exhibit A; and,
(c) the form of transfer agreement attached as Exhibit 8,
if fully and properly completed, is sufficient to satisfy the
transfer paperwork requirements of the Krupp Funds in connection
with the sale of units or shares by Gramercy and its Affiliates.
9. Dismissal of the Litigation: The parties, by and
through counsel, shall within 15 days from the date of this
Agreement file a stipulation of Dismissal with prejudice and take
all other steps necessary to cause the Litigation to be dismissed
with prejudice, with each side to bear its own costs.
10. Release: For and in consideration of the agreements
herein made, Gramercy does hereby remise, release and acquit
Krupp and all of its Affiliates, predecessors, successors and
assigns and each of the respective Affiliates, predecessors,
successors and assigns of the foregoing from and against any and
all claims, damages, costs, expenses, actions and causes of
action which Gramercy or any Affiliate of Gramercy (including
their respective Affiliates, predecessors, successors and
assigns) had in the past, now has, or may in the future have
arising from the failure or related to the failure to produce an
investor list of any Krupp Fund, including those claims which
were or could have been asserted in the Litigation, except for
such a failure or refusal in violation of the provisions of this
Agreement.
11. Notices: Any and all notices required or permitted
hereunder shall be in writing and shall bp deemed given or
served, as the case may be, upon actual delivery to the parties
at the following addresses:
If to Gramercy: Bryan E. Gordon
Gramercy Park Investments, LP
555 Fifth Avenue-9th Floor
New York, New York 10017
with a copy to: Lawrence P. Kolker, Esq.
Wolf, Haldenstein Adler
Freeman & Herz LLP
270 Madison Avenue
New York, New York 10016
If to Krupp: The Krupp Corporation
470 Atlantic Avenue
Boston, Massachusetts 02210
Attention: Laurence Gerber
with a copy to: Scott D. Spelfogel, Esq.
Senior Vice President and
General Counsel
The Berkshire Group
470 Atlantic Avenue
Boston, Massachusetts 02210
12. Affiliates: For purposes of this Agreement, the term
"Affiliate" shall mean with respect to any person or entity, (i)
any other person or entity which controls, is controlled by or is
under control with such person or entity (ii) the officers,
directors and partners of such entity, and (iii) the immediate
family members of such person or of any person described in
clause (i) or (ii).
13. No Admissions; Confidentiality: The parties agree that
this Agreement is being entered into solely to settle a dispute
between them, and nothing herein shall be deemed to constitute an
admission or liability on the part of Krupp, all such liability
being expressly contested. All requests for investor lists made
under this Agreement, and the furnishing of such lists, shall be
kept strictly confidential by the parties hereto, except to the
extent that disclosure of any such request or the furnishing of
any such list is required by applicable law or regulation or by
court order.
14. Enforcement: The parties agree that each shall be
entitled to equitable relief, including injunctive relief and
specific performance, in the event of any breach of the
provisions of this Agreement, in addition to all other remedies
available at law or in equity. In the event either party must
refer this agreement to an attorney for enforcement the
prevailing party shall be entitled to all costs of enforcement,
including attorneys' fees.
15. Governing Law; Venue and Jurisdiction: This Agreement
shall be governed by the laws of the Commonwealth of
Massachusetts without regard to principles of conflict of law
thereof. The parties agree that the federal and state courts
located within the Commonwealth of Massachusetts shall have
exclusive jurisdiction over disputes arising hereunder, and the
parties hereby consent to such venue and submit to the
jurisdiction of such courts. If the federal courts have subject
matter jurisdiction of a dispute arising hereunder, the parties
agree to litigate such dispute in the federal courts.
16. Captions: Captions and section headings used herein
are for convenience of reference only, are not part of this
Agreement and are not to affect the construction of, or to be
taken into consideration in interpreting, this Agreement.
17. Amendments: This Agreement may be amended, changed,
modified, altered or terminated only by a written instrument or
written instruments signed by all of the parties hereto.
18. Severability: In the event any provision of this
Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, such Holding shall not invalidate or
render unenforceable any other provision hereof.
19. Counterparts: This Agreement may he executed in
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, each of the parties hereto, intending to
be legally bound, has caused this Agreement to be duly executed
on its behalf as of the date first above written.
Gramercy Park Investments LP
By: /s/ Bryan E. Gordon
Bryan E. Gordon
Managing Director
THE KRUPP CORPORATION
By /s/ Laurence Gerber
Laurence Gerber
President
SCHEDULE I
Krupp Cash Plus Limited Partnership
Krupp Cash Plus-II Limited Partnership
Krupp Cash Plus-V Limited Partnership
Krupp Insured Plus Limited Partnership
Krupp Insured Plus-II Limited Partnership
Krupp Insured Plus-III Limited Partnership
Krupp Insured Mortgage Limited Partnership
Krupp Associates 1980-1
Krupp Realty Fund, LTD-III
Krupp Realty Limited Partnership-IV
Krupp Realty Limited Partnership-V
Krupp Realty Limited Partnership-VII
Krupp Institutional Mortgage Fund Limited Partnership
SCHEDULE II
Krupp Government Income Trust
Krupp Government Income Trust II
Exhibit A
AGREEMENT of ASSIGNMENT and TRANSFER
For Limited Partnership Interests in
DEAN WITTER REALTY YIELD PLUS, L.P.
Please make any corrections to
name/mailing address in the space to the left.
I hereby tender to Madison Liquidity Investors VII, LLC, a
Delaware limited liability company ("Madison"), the above-
described limited partnership interests (the "Units") in Dean
Witter Realty Yield Plus, L.P., a Delaware limited partnership
(the "Partnership"), for $5.75 per Unit in cash (reduced by the
amount of (i) any transfer fee payable to the Partnership in
respect of the Units tendered hereby and (ii) any cash
distributions made to me by the Partnership on or after October
3, 1996) in accordance with the terms and subject to the
conditions of Madison's Offer to Purchase as Exhibit (a)(1) to
Schedule 14D-1 dated October 3, 1996 (the "Offer to Purchase")
and this Agreement of Assignment and Transfer (which, together
with the Offer to Purchase and any supplements or amendments,
constitutes the "Offer"). I acknowledge that I have received the
Offer to Purchase. The Offer will remain open until November 8,
1996, subject to sooner expiration upon reaching the maximum
43,658 accepted Units, and subject to extension or earlier
termination at the discretion of Madison. It is understood that
payment for the Units tendered hereby will be made by check
mailed to me at the address above promptly after the date of the
Partnership's confirmation that the transfer of the Units to
Madison is effective, subject to Section 4 (Proration) and
Section 5 (Withdrawal Rights) of the Offer to Purchase. The
Offer is subject to Section 14 (Conditions of the Offer) of the
Offer to Purchase.
Subject to, and effective upon, acceptance of this Agreement of
Assignment and Transfer and payment for the Units tendered hereby
in accordance with the terms and subject to the conditions of the
Offer, I hereby sell, assign, transfer, convey and deliver (the
"Transfer") to Madison, all of my right, title and interest in
and to the Units tendered hereby and accepted for payment
pursuant to the Offer and any and all non-cash distributions,
other Units or other securities issued or issuable in respect
thereof on or after October 3, 1996, including, without
limitation, to the extent that they exist, all rights in, and
claims to, any Partnership profits and losses, cash
distributions, voting rights and other benefits of any nature
whatsoever distributable or allocable to the Units under the
Partnership's limited partnership agreement (the "Partnership
Agreement"), (i) unconditionally to the extent that the rights
appurtenant to the Units may be transferred and conveyed without
the consent of the general partner of the Partnership (the
"General Partner"), and (ii) in the event that Madison elects to
become a substituted limited partner of the Partnership, subject
to the consent of the General Partner to the extent such consent
may be required in order for Madison to become a substituted
limited partner of the Partnership.
It is my intention that Madison, if it so elects, succeed to my
interest as a Substitute Limited Partner, as defined in the
Partnership Agreement, in my place with respect to the
transferred Units. It is my understanding, and I hereby
acknowledge and agree, that Madison shall be entitled to receive
all distributions of cash or other property from the Partnership
attributable to the transferred Units that are made on or after
October 3, 1996, including, without limitation, all distributions
of Distributable Cash Flow and Net Cash Proceeds, without regard
to whether the cash or other property that is included in any
such distribution was received by the Partnership before or after
the Transfer and without regard to whether the applicable sale,
financing, refinancing or other disposition took place before or
after the Transfer. It is my further understanding, and I
further acknowledge and agree, that the taxable income and
taxable loss attributable to the transferred Units with respect
to the taxable period in which the Transfer occurs shall be
divided among and allocated between me and Madison as provided in
the Partnership Agreement, or in accordance with such other
lawful allocation methodology as may be agreed upon by the
Partnership and Madison. I represent and warrant that I have the
full right, power and authority to transfer the subject Units and
to execute this Agreement of Assignment and Transfer and all
other documents executed in connection herewith without the
joinder of any other person or party, and if I am executing this
Agreement of Assignment and Transfer or any other document in
connection herewith on behalf of a business or other entity other
than an individual person, I have the right, power and authority
to execute such documents on behalf of such entity without the
joinder of any other person or party.
Subject to Section 5 (Withdrawal Rights) of the Offer to
Purchase, I hereby irrevocably constitute and appoint Madison as
my true and lawful agent and attorney-in-fact with respect to the
Units, with full power of substitution (such power of attorney
being deemed to be an irrevocable power coupled with an
interest), to (i) vote or act in such manner as any such
attorney-in-fact shall, in its sole discretion, deem proper with
respect to the Units; (ii) deliver the Units and transfer
ownership of the Units on the Partnership's books maintained by
the General Partner; (iii) endorse, on my behalf, any and all
payments received by Madison from the Partnership that are made
on or after October 3, 1996, which are made payable to me, in
favor of Madison or any other payee Madison otherwise designates;
(iv) execute a Loss and Indemnity Agreement relating to the Units
on my behalf if I fail to include my original certificate(s) (if
any) representing the Units with this Agreement; (v) execute on
my behalf any applications for transfer and any distribution
allocation agreements required by National Association of
Securities Dealers Notice to Members 96-14 to give effect to the
transactions contemplated by this Agreement; (vi) receive all
benefits and cash distributions and otherwise exercise all rights
of beneficial ownership of the Units; and (vii) direct the
General Partner to immediately change the address of record of
the registered owner of the transferred Units to that of Madison,
as my attorney-in-fact. Madison is further authorized, as part
of its powers as my attorney-in-fact with respect to the Units,
to commence any litigation that Madison, in its sole discretion,
deems necessary to enforce any exercise of Madison's powers as my
attorney-in-fact as set forth herein. Madison shall not be
required to post bond of any nature in connection with this power
of attorney. I hereby direct the Partnership and the General
Partner to remit to Madison any distributions made by the
Partnership with respect to the Units on or after October 3,
1996. To the extent that any distributions are made by the
Partnership with respect to the Units on or after October 3,
1996, that are received by me, I agree to promptly pay over such
distributions to Madison. I further agree to pay any costs
incurred by Madison in connection with the enforcement of any of
my obligations hereunder or my breach of any of the agreements,
representations and warranties made by me herein.
I hereby direct the General Partner to immediately change my
address of record as the registered owner of the Units to be
transferred herein to that of Madison, conditional solely upon
Madison's execution of this Agreement.
If legal title to the Units is held through an IRA or KEOGH or
similar account, I understand that this Agreement must be signed
by the custodian of such IRA or KEOGH account. Furthermore, I
hereby authorize and direct the custodian of such IRA or KEOGH to
confirm this Agreement.
I hereby represent and warrant to Madison that I (i) have
received and reviewed the Offer to Purchase and (ii) own the
Units and have full power and authority to validly sell, assign,
transfer, convey and deliver to Madison the Units, and that
effective when the Units are accepted for payment by Madison, I
hereby convey to Madison, and Madison will hereby acquire good,
marketable and unencumbered title thereto, free and clear of all
options, liens, restrictions, charges, encumbrances, conditional
sales agreements or other obligations relating to the sale or
transfer thereof, and the Units will not be subject to any
adverse claim. I further represent and warrant that I am a
"United States person," as defined in Section 7701(a)(30) of the
Internal Revenue Code of 1986, as amended.
I hereby release and discharge the General Partner and its
officers, shareholders, directors, employees and agents from all
actions, causes of action, claims or demands I have, or may have,
against the General Partner that result from the General
Partner's reliance on this Agreement of Assignment and Transfer
or any of the terms and conditions contained herein. I hereby
indemnify and hold harmless the Partnership from and against all
claims, demands, damages, losses, obligations and
responsibilities arising, directly or indirectly, out of a breach
of any one or more representations and warranties set forth
herein.
All authority herein conferred or agreed to be conferred shall
survive my death or incapacity and all of my obligations shall be
binding upon the heirs, personal representatives, successors and
assigns of the undersigned. In addition, I hereby agree not to
offer, sell or accept any offer to purchase any or all of the
Units to or from any third party while the Offer remains open.
Upon request, I will execute and deliver any additional documents
deemed by Madison to be necessary or desirable to complete the
assignment, transfer and purchase of the Units.
I hereby certify, under penalties of perjury, that the statements
in Box A, Box C, Box D and, if applicable, Box E below are true
and correct.
This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware. I waive any claim that
any State or Federal court located in the State of Delaware is an
inconvenient forum, and waive any right to trial by jury.
PLEASE COMPLETE ALL SHADED AREAS
SIGN HERE TO TENDER YOUR UNITS
BOX A
(See Instructions to Complete Agreement of Assignment and Transfer - Box A)
All
Date:__________, 1996 ______________________________________________
(If you desire to sell less than all of your
Units, strike "All" and indicate the number of
Units to be sold)
__________________________________________________________________________
Your Social Security Your Telephone Number Signature of Co-Seller
or Taxpayer Identification Number and Medallion Signature
Guarantee (If applicable)
________________________________________________________________________
Your Signature and Medallion Signature Guarantee
__________________________________________________________________________
Custodian Signature and Medallion Signature Guarantee (Required if Units
held in IRA/KEOGH)
Please note: A Medallion Signature Guarantee is similar to a notary, but
is provided by your bank or brokerage house where you have an account.
BOX B
MEDALLION SIGNATURE GUARANTEE
(Required for all Sellers)
(See Instructions to Complete Agreement of Assignment and Transfer - Box B)
Name and Address of Bank or Brokerage House:
Authorized Signature of Bank
or Brokerage House Representative: Title:
Name: Date: , 199
Please note: A Medallion Signature Guarantee is similar to a notary, but
is provided by your bank or brokerage house where you have an account.
BOX C
SUBSTITUTE FORM W-9
(See Instructions to Complete Agreement of Assignment and Transfer - Box C)
The person signing this Agreement hereby certifies the following to the
Purchaser under penalties of perjury:
(i) The TIN set forth in the signature box in Box A of this Agreement of
Assignment and Transfer is the correct TIN of the Unitholder, or if this
box [ ] is checked, the Unitholder has applied for a TIN. If the
Unitholder has applied for a TIN, a TIN has not been issued to the
Unitholder, and either: (a) the Unitholder has mailed or delivered an
application to receive a TIN to the appropriate IRS Center or Social
Security Administration Office, or (b) the Unitholder intends to mail or
deliver an application in the near future (it being understood that if the
Unitholder does not provide a TIN to the Purchaser within sixty (60) days,
31% of all reportable payments made to the Unitholder thereafter will be
withheld until a TIN is provided to the Purchaser); and
(ii) Unless this box [ ] is checked, the Unitholder is not subject to
backup withholding either because the Unitholder: (a) is exempt from backup
withholding, (b) has not been notified by the IRS that the Unitholder is
subject to backup withholding as a result of a failure to report all
interest or dividends, or (c) has been notified by the IRS that such
Unitholder is no longer subject to backup withholding.
Note: Place an "X" in the box in (ii) if you are unable to certify that
the Unitholder is not subject to backup withholding.
BOX D
FIRPTA AFFIDAVIT
(See Instructions to Complete Agreement of Assignment and Transfer - Box D)
Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg.
1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount
realized with respect to certain transfers of an interest in a partnership
if 50% or more of the value of its gross assets consists of U.S. real
property interests and 90% or more of the value of its gross assets
consists of U.S. real property interests plus cash equivalents, and the
holder of the partnership interest is a foreign person. To inform the
Purchaser that no withholding is required with respect to the Unitholder s
interest in the Partnership, the person signing this Agreement of
Assignment and Transfer hereby certifies the following under penalties of
perjury:
(i) Unless this box [ ] is checked, the Unitholder, if an
individual, is a U.S. citizen or a resident alien for purposes of U.S.
income taxation, and if other than an individual, is not a foreign
corporation, foreign partnership, foreign estate or foreign trust (as those
terms are defined in the Internal Revenue Code and Income Tax Regulations);
(ii) the Unitholder s U.S. social security number (for individuals) or
employer identification number (for non-individuals) is correctly printed
in the signature box in Box A of this Agreement of Assignment and Transfer;
and (iii) the Unitholder s home address (for individuals) or office address
(for non-individuals), is correctly printed (or corrected) on the top of
this Agreement of Assignment and Transfer. If a corporation, the
jurisdiction of incorporation is ________________________.
The person signing this Agreement of Assignment and Transfer
understands that this certification may be disclosed to the IRS by the
Purchaser and that any false statements contained herein could be punished
by fine, imprisonment, or both.
BOX E
SUBSTITUTE FORM W-8
(See Instructions to Complete Agreement of Assignment and Transfer - Box E)
By checking this box [ ], the person signing this Agreement of Assignment
and Transfer hereby certifies under penalties of perjury that the
Unitholder is an "exempt foreign person" for purposes of the backup
withholding rules under the U.S. federal income tax laws, because the
Unitholder:
(i) Is a nonresident alien individual or a foreign corporation,
partnership, estate or trust;
(ii) If an individual, has not been and plans not to be present in the
U.S. for a total of 183 days or more during the calendar year; and
(iii) Neither engages, nor plans to engage, in a U.S. trade or business
that has effectively connected gains from transactions with a broker.
AGREED TO AND ACCEPTED:
Madison Liquidity Investors VII, LLC
By:_______________________________________________________
WOLF HALDENSTEIN ADLER FREEMAN & HERZ LLP
Founded 1888
270 Madison Avenue
New York, NY 10016
212-545-4600
Facsimile
212-545-4677
March 26, 1999
Writer's Direct Dial
(212) 546-4472
[email protected]
BY FACSIMILE (617 556-1408)
Scott Spelfogel, Esq.
General Counsel
The Krupp Corporation
The Berkshire Group
470 Atlantic Avenue
Boston, MA 02210
Re: May 22, 1997 Agreement Between the Krupp
Corporation (Krupp") and Gramercy Park Investments, LP
(Gramercy")
Dear Scott:
I am writing to set forth a supplement to the above-referenced
agreement (the "Agreement"). The parties, through their
undersigned counsel, hereby agree as follows:
1. Delivery of Lists: The term of paragraph 1 of the
Agreement, governing delivery of lists, shall be extended for a
period beginning on the date of this Supplemental Agreement and
expiring two years from that date. With respect to the list
request made by letter from Lawrence P. Kolker to Scott Spelfogel
dated March 26, 1999 regarding Krupp Realty Fund III, such list
shall be provided within two business days of this date.
2. Berkshire Realty Col, Inc.: Neither Gramercy nor its
affiliates shall request an investor list for Berkshire Realty
Co., Inc. The request for such a list from Ronald M. Dickerman
dated March 18, 1999 is hereby withdrawn.
If the above accurately reflects the parties Agreement, please
countersign on the space indicated and return same by telecopy
directed to me.
Sincerely,
/s/ Lawrence P. Kolker
Scott Spelfogel, Esq.
