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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
UNDER SECTION 13(E) OF THE SECURITIES EXCHANGE ACT OF 1934
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KRUPP REALTY FUND, LTD. - III
(Name of the Issuer)
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KRF3 ACQUISITION COMPANY, L.L.C.
KRF COMPANY, L.L.C.
THE KRUPP FAMILY LIMITED PARTNERSHIP - 94
(Name of Persons Filing Statement)
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LIMITED PARTNERSHIP UNITS
(Title of Class of Securities)
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501128 10 2
(CUSIP Number of Class of Securities)
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SCOTT D. SPELFOGEL, ESQ.
THE BERKSHIRE GROUP
ONE BEACON STREET
BOSTON, MASSACHUSETTS 02108
(617) 574-8385
(Name, Address and Telephone Number of Person Authorized to Receive
Notices and Communications on Behalf of the Persons Filing Statement)
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WITH COPIES TO:
JAMES M. DUBIN, ESQ.
PAUL, WEISS, RIFKIND, WHARTON & GARRISON
1285 AVENUE OF THE AMERICAS
NEW YORK, NEW YORK 10019-6064
(212) 373-3000
This statement is filed in connection with (check appropriate box):
a. |X| The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. |_| The filing of a registration statement under the Securities Act of
1933.
c. |_| A tender offer.
d. |_| None of the above.
Check the following box if the soliciting materials or information statement
referred to in checking box (a) are preliminary copies: |X|
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CALCULATION OF FILING FEE
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Transaction Valuation: $7,200,480 Amount of filing fee: $1,440.10
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- - Transaction valuation assumes the purchase of 12,000.8 units Krupp Realty
Fund, Ltd.-III at $600 in cash per Unit. The amount of the filing fee,
calculated in accordance with Regulation 240.0-11 of the Securities
Exchange Act of 1934, equals one fiftieth of one percentum of such
transaction value.
|_| CHECK BOX IF ANY PART OF THE FEE IS OFFSET BY RULE 0-11(a)(2) AND IDENTIFY
THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID. IDENTIFY THE
PREVIOUS FILING BY EITHER A REGISTRATION STATEMENT NUMBER, OR THE FORM OR
SCHEDULE AND THE DATE OF ITS FILING.
Amount Previously Paid: ---
Form or Registration No.:
Filing Parties:
Date Filed:
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This Rule 13E-3 Transaction Statement (the "Statement") is being filed
by KRF3 Acquisition Company, L.L.C., a Delaware limited liability company
("KRF3" or the "Purchaser"), KRF Company, L.L.C., a Delaware limited liability
company and KRF3's sole member (the "Parent"), and The Krupp Family Limited
Partnership - 94, a Massachusetts limited partnership and the Parent's sole
member (the "Family Partnership") with respect to the investor limited
partnership interests ("Units") of Krupp Realty Fund, Ltd. - III, a
Massachusetts limited partnership (the "Partnership"), that is subject to a Rule
13e-3 transaction. The general partners of the Partnership are submitting to
Unit holders a proposal to approve (a) a merger agreement under which (1) KRF3
will merge with and into the Partnership and (2) each Unit holder other than
certain Unit holders who have agreed to reinvest their Units in KRF3 will
receive $600 in cash for each outstanding Unit that the Unit holder owns
immediately before the effective time of the merger and (b) an amendment to the
Partnership's partnership agreement allowing the Partnership to enter into the
merger agreement and complete the merger with KRF3 (items (a) and (b) will be
considered one proposal and referred to herein as the "Merger Proposal"). The
Merger Proposal is upon the terms and subject to the conditions set forth in the
Partnership's Preliminary Proxy Statement filed by the general partners of the
Partnership with the Securities and Exchange Commission on January 21, 2000
(including all annexes and exhibits thereto, the "Proxy Statement") for the
Partnership's special meeting scheduled to be held on , 2000.
The information in the Proxy Statement, a copy of which is attached
hereto as Exhibit A, is hereby expressly incorporated by reference in its
entirety and the responses to each item are qualified in their entirety by the
provisions of the Proxy Statement. The Proxy Statement will be completed and, if
appropriate, amended prior to the time it is first sent or given to stockholders
of the Company. This Statement will be amended to reflect such completion or
amendment of the Proxy Statement.
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1. SUMMARY TERM SHEET.
The information set forth under the caption "Summary Term Sheet" in the
Proxy Statement is incorporated herein by reference.
ITEM 2. SUBJECT COMPANY INFORMATION.
(a) The name of the issuer of the Units subject to the Rule 13e-3
transaction is Krupp Realty Fund, Ltd. - III, a limited partnership organized
under the laws of Massachusetts, and the principal executive offices of the
Partnership are located at One Beacon Street, Suite 1500, Boston, Massachusetts
02108.
(b) According to the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1999, as of such date, there were 25,000 Units of the
Partnership outstanding held by approximately 588 holders.
(c) The Units are not listed or traded on any exchange or quoted on the
National Association of Securities Dealers Automated Quotation System. However,
information regarding certain private transactions is set forth in under the
caption "Special Factors--Determination of Merger Price--Recent Unit Sales;
Tender Offer" in the Proxy Statement and is incorporated herein by reference.
(d) The information set forth under the caption "Information About the
Partnership, Its General Partners and Their Affiliates--Distributions" of the
Proxy Statement is incorporated herein by reference.
(e) Not applicable.
(f) The information set forth in under the caption "Information About the
Partnership, Its General Partners and Their Affiliates--Market for the Units" of
the Proxy Statement is incorporated herein by reference.
ITEM 3. IDENTITY AND BACKGROUND OF FILING PERSON.
(a) - (b) The information set forth under the caption "Information
Concerning the Purchaser and its Affiliates" of the Proxy Statement is
incorporated herein by reference.
(c)(1) The information set forth under the caption "Information Concerning
the Partnership, Its General Partners and Their Affiliates--The General
Partners" of the Proxy Statement is incorporated herein by reference.
(c)(2) The information set forth under the caption "Information Concerning
the Partnership, Its General Partners and Their Affiliates--The General
Partners" of the Proxy Statement is incorporated herein by reference.
(c)(3) During the last five years, neither the Purchaser, nor to the best
of the knowledge of the Purchaser, any affiliate of the Purchaser has been
convicted in a criminal proceeding (excluding traffic violations or similar
misdemeanors).
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(c)(4) During the last five years, neither the Purchaser, nor to the best
of the knowledge of the Purchaser, any affiliate of the Purchaser was a party to
any judicial or administrative proceeding (except for matters that were
dismissed without sanction or settlement) that resulted in a judgment, decree or
final order enjoining the person from future violations of, or prohibiting
activities subject to, federal or state securities laws, or a finding of any
violation of federal or state securities laws.
(c)(5) Messrs. Douglas and George Krupp are both United States citizens.
ITEM 4. TERMS OF THE TRANSACTION.
(a)(1) Not applicable.
(a)(2) The information set forth under the captions and "Special
Factors--Effects of the Transaction" and "The Merger Agreement" of the Proxy
Statement is incorporated herein by reference.
(b) Excluded.
(c) The information set forth under the caption "Related Agreements" is
incorporated herein by reference.
(d) None.
(e) None.
(f) Not applicable.
ITEM 5. PAST CONTACTS, TRANSACTIONS, NEGOTIATIONS AND AGREEMENTS.
(a)(1)-(a)(2) The information set forth under the caption "Information
About the Partnership, Its General Partners and Their Affiliates--Related Party
Transactions" of the Proxy Statement is incorporated herein by reference.
(b) The information set forth under the captions "Special
Factors--Background of the Mergers; Purpose of the Transaction" and "The Merger
Agreement" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth under the captions "Special
Factors--Background of the Merger; Purpose of the Transaction" and "Related
Agreements" is incorporated herein by reference.
(d) Excluded.
(e) The information set forth under the captions "Special
Factors--Background of the Merger; Purpose of the Transaction" and "Related
Agreements" is incorporated herein by reference.
ITEM 6. PURPOSES OF THE TRANSACTIONS AND PLANS OR PROPOSALS.
(a) Excluded.
(b) The information set forth under the captions "Special Factors--Effects
of the Transaction," and "The Merger Agreement--The Effects of the Merger" in
the Proxy Statement is incorporated herein by reference.
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(c)(1) - (c)(8) The information set forth under the captions "Summary Term
Sheet," "Special Factors--Effects of the Transaction," "--Financing of the
Merger--Source of Funds," "--Plans or Proposals by Partnership or Affiliates
Following the Merger," "The Merger Agreement--The Surviving Entity" and
"Information About the Partnership, Its General Partners and Their
Affiliates--Distributions" in the Proxy Statement is incorporated herein by
reference.
ITEM 7. PURPOSES, ALTERNATIVES, REASONS AND EFFECTS.
(a) - (c) The information set forth under the captions "Summary Term
Sheet," "Special Factors-- Background of the Merger; Purpose of the
Transaction," "--Alternatives to the Merger," "--Fairness of the Merger,"
"--Disadvantage and Risks Associated with the Merger" and "--Conflicts of
Interest" of the Proxy Statement is incorporated herein by reference.
(d) The information set forth under the captions "Special Factors
- --Background of the Merger; Purpose of the Transaction," "--Book Value,"
"--Effects of the Transaction," "--Plans or Proposals by Partnership or
Affiliates Following the Merger" and "--Material Federal Income Tax
Consequences" of the Proxy Statement is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a) and (b) The information set forth under the caption "Special
Factors--Fairness of the Merger" and "--Liquidation Analysis; Determination of
Merger Price" of the Proxy Statement is incorporated herein by reference.
(c) The information set forth under the caption "The Special Meeting--Votes
Required" of the Proxy Statement is incorporated herein by reference.
(d) No unaffiliated representative has been retained to act solely on
behalf of unaffiliated holders of Units for the purpose of negotiating the terms
of the Merger Proposal and/or preparing a report concerning the fairness of the
Merger Proposal.
(e) The general partners of the Partnership approved the Merger Proposal.
The information set forth under the captions "Special Factors--Conflicts of
Interest" and "Information About the Partnership, Its General Partners and Their
Affiliates--Related Party Transactions" of the Proxy Statement is incorporated
herein by reference.
(f) The information set forth under the captions "Special
Factors--Recent Unit Sales; Tender Offer" of the Proxy Statement is
incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND NEGOTIATIONS.
(a) The Purchaser has not received any report, opinion or Appraisal from an
outside party that is materially related to the Merger Proposal.
(b) and (c) Not applicable.
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ITEM 10. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) The information set forth under the caption "Special Factors--Financing
of the Merger--Source of Funds" of the Proxy Statement is incorporated herein by
reference.
(b) None.
(c) The information set forth under the caption "Special Factors--Financing
of the Merger--Source of Funds" of the Proxy Statement is incorporated herein by
reference.
(d) No loan agreement has yet been entered into.
ITEM 11. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a) and (b) The information set forth under the captions "Information About
the Partnership, Its General Partners and Their Affiliates--Ownership of the
Units," "--Market for the Units" and "Information Concerning the Purchaser and
Its Affiliates--Affiliates of the Purchaser" of the Proxy Statement is
incorporated herein by reference.
ITEM 12. THE SOLICITATION OR RECOMMENDATION.
(a)-(c) Excluded.
(d) The information set forth under the captions "Special
Factors--Financing of the Merger--Source of Funds," "The Special Meeting--Votes
Required" and "Related Agreements" of the Proxy Statement is incorporated herein
by reference.
(e) No.
ITEM 13. FINANCIAL STATEMENTS.
(a) The information set forth under the captions "Selected Financial Data"
and "Index to Consolidated Financial Statements" of the Proxy Statement is
incorporated herein by reference.
(b) Not applicable.
ITEM 14. PERSONS/ASSETS, RETAINED, EMPLOYED, COMPENSATED OR USED.
(a) and (b) The information set forth under the captions "Special
Factors--Financing of the Merger--Costs Associated with the Merger" and "The
Special Meeting--Solicitation Procedures" of the Proxy Statement is incorporated
herein by reference.
ITEM 15. ADDITIONAL INFORMATION.
All of the information set forth in the Proxy Statement is incorporated herein
by reference.
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ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
(a) Preliminary Proxy Statement (Exhibit A).
(b) Not applicable.
(c) Not applicable.
(d)(1) Voting Agreement, dated January 6, 2000 (Exhibit D-1).
(d)(2) Investment Agreement, dated January 6, 2000 (Exhibit D-2).
(e) Excluded.
(f) Not applicable.
(g) Not applicable.
(h) Excluded.
</TABLE>
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SIGNATURE
After due inquiry and to the best of the undersigned's knowledge and
belief, the undersigned certifies that the information set forth in this
Statement is true, complete and correct.
Dated as of: January 28, 2000
KRF3 Acquisition Company, L.L.C.
By: KRF Company, L.L.C.,
its sole member
By: The Krupp Family Limited
Partnership - 94,
its sole member
By: /s/ Douglas Krupp
-------------------------------
Name: Douglas Krupp
Title: General Partner
KRF Company, L.L.C.
By: The Krupp Family Limited
Partnership - 94,
its sole member
By: /s/ Douglas Krupp
--------------------------
Name: Douglas Krupp
Title: General Partner
The Krupp Family Limited Partnership - 94
By: /s/ Douglas Krupp
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Name: Douglas Krupp
Title: General Partner
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION
<S> <C>
(a) Preliminary Proxy Statement (Exhibit A).
(b) Not applicable.
(c) Not applicable.
(d)(1) Voting Agreement, dated January 6, 2000 (Exhibit D-1).
(d)(2) Investment Agreement, dated January 6, 2000 (Exhibit D-2).
(e) Excluded.
(f) Not applicable.
(g) Not applicable.
(h) Excluded.
</TABLE>
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EXHIBIT 99 (A)
As filed with the Securities and Exchange Commission on January 28, 1999
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PRELIMINARY COPY
SCHEDULE 14A
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Filed by the registrant [ ]
Filed by a party other than the registrant [X]
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting Material under Rule 14a-12
Krupp Realty Fund, Ltd. - III
(Name of Registrant as Specified In Its Charter)
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KRF3 Acquisition Company, L.L.C.
KRF Company, L.L.C.
The Krupp Family Limited Partnership - 94
(Name of Persons Filing Proxy Statement, if Other Than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies: Investor Limited Partnership Interests ("Units")
(2) Aggregate number of securities to which transaction applies:
12,000.8 Units
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11: $600
(4) Proposed maximum aggregate value of transaction: $7,200,480
(5) Total fee paid: $1,440.10
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration
statement number, or the form or schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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N&PS
KRUPP REALTY FUND, LTD. - III
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
Dear Limited Partner:
You are cordially invited to attend a special meeting of unitholders of
Krupp Realty Fund, Ltd.-III, to be held on , 2000 at 10:00 a.m. at .
At the special meeting you will be asked to consider and vote upon a
proposed merger, described in the accompanying proxy statement, of Krupp Realty
with and into KRF3 Acquisition Company, L.L.C., a Delaware limited liability
company that is associated with the general partners. Under the terms of the
merger, KRF3 is offering you $600 per unit in cash. The general partners of
Krupp Realty have determined that the merger transaction is fair and in your
interest and therefore recommend that you vote "FOR" the merger and the
amendment.
The proposed transaction will provide you with the opportunity to liquidate
your investment in Krupp Realty for cash at a price and on terms that the
general partners believe is fair to you. Although the merger, the related merger
agreement and the per unit price to be paid to you have not been reviewed
independently, the general partners believe that they are fair to you for the
reasons set forth in this proxy statement.
Unitholders representing a majority of the limited partnership units must
approve the merger and the amendment to Krupp Realty's partnership agreement.
Your vote is important no matter how many units you own. Please date, sign and
promptly return the proxy card in the enclosed envelope or by facsimile as
instructed in this proxy statement. If you plan to attend the special meeting in
person, please check the appropriate box on the proxy card. You may change your
vote in person, even if you have previously sent in a proxy.
This proxy statement explains in detail the terms of the proposed merger
and the related transactions. The date of this proxy statement is and was first
mailed to unitholders of Krupp Realty on.
KRUPP REALTY FUND, LTD. - III
The Krupp Corporation
GENERAL PARTNER
By: ____________________________
Douglas Krupp, CO-CHAIRMAN OF
THE BOARD OF DIRECTORS
Boston, Massachusetts
, 2000
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NEITHER THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THIS TRANSACTION, NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF THE TRANSACTION, NOR UPON THE ACCURACY OR
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ADEQUACY OF THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
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KRUPP REALTY FUND, LTD. - III
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
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NOTICE OF SPECIAL MEETING OF UNITHOLDERS
TO BE HELD , 2000
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To Our Limited Partners:
We are holding a special meeting of the holders of investor limited
partnership units of Krupp Realty Fund, Ltd. - III on , 2000, at , local
time, at , for the following purposes:
o To consider and vote on a proposal to approve a merger agreement under
which KRF3 Acquisition Company, L.L.C., a newly-formed company, will
merge with and into Krupp Realty. Each Krupp Realty unitholder other
than certain unitholders that have agreed to reinvest their units in
KRF3 will receive $600 in cash for each outstanding investor limited
partnership unit that the unitholder owns immediately before the
effective time of the merger. A vote in favor of the merger agreement
will also constitute a vote in favor of an amendment to Krupp Realty's
partnership agreement allowing Krupp Realty to enter into the merger
agreement and complete the merger with KRF3. Copies of the merger
agreement and amendment are attached as Appendices A and B,
respectively, and are described in the accompanying proxy statement.
o To consider and act upon such other matters as may properly come
before the special meeting or any adjournment of the meeting.
Only unitholders of Krupp Realty's investor limited partnership interests
at the close of business on the record date, , 2000, will be entitled to notice
of, and to vote at, the special meeting or any adjournment of the meeting.
KRUPP REALTY FUND, LTD. - III
The Krupp Corporation
GENERAL PARTNER
By:______________________
Scott D. Spelfogel
SECRETARY
Boston, Massachusetts
, 2000
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SUMMARY TERM SHEET
This summary term sheet highlights selected information included in this
proxy statement, and is qualified by reference to the detailed information
appearing elsewhere in this proxy statement and the attached appendices. Please
carefully review all of the information provided in this proxy statement.
PURPOSE OF THE SPECIAL MEETING
o To approve a merger agreement and related amendment to the partnership
agreement of Krupp Realty Fund, Ltd.-III which allows for the merger to
occur.
WHAT YOU WILL RECEIVE IN THE MERGER
o $600 for each unit you own.
o This price is based on the analysis conducted by the proposed purchaser of
the partnership, KRF3 Acquisition Company, L.L.C.
o You will no longer have any interest in the partnership after the merger.
See "Special Factors--Liquidation Analysis; Determination of Merger Price."
PURPOSES OF AND REASONS FOR THE MERGER
o Acquiring all of the outstanding units.
o Providing liquidity to you.
o Eliminating current and future market risk from the partnership's
properties related to competition from newly built and renovated
properties.
o Eliminating uncertainties relating to the price and timing of any
disposition of the properties owned by the partnership.
o Eliminating the annual filing and reporting of tax information by you.
FAIRNESS OF THE MERGER
Based on the liquidation analysis conducted by the purchaser in connection
with the proposed merger, the general partners of the partnership believe
that the merger is fair and in your best interest and recommend that you vote
for the approval of the merger.
See "Special Factors--Fairness of the Merger."
PRIMARY POTENTIAL DISADVANTAGES OF THE MERGER
o You may suffer a potential loss of benefits resulting from any improvements
in economic and market conditions.
o The purchaser established the terms and the per unit merger price based on
the analyses described below, and not as the result of arm's-length
negotiations with the partnership.
o No independent person has evaluated or rendered any opinion with respect to
the fairness of the merger and merger price to you.
See "Special Factors--Disadvantages and Risks Associated with the Merger."
CONFLICTS OF INTEREST
o The general partners of the partnership have economic and other interests
that conflict with your
1
<PAGE>
interests.
o The purchaser is associated with the general partners and desires to pay
you a lower price for your units while you wish to receive a higher price
for your units.
o If the partnership's assets were sold outright, the general partners and
their associates would no longer receive the distributions and fees that
they now receive.
See "Special Factors--Conflicts of Interest."
THE AMENDMENT
o The partnership agreement currently prohibits the general partners of the
partnership from entering into agreements on behalf of the partnership with
associates, or "affiliates," of the general partners, except as expressly
permitted.
o Because the purchaser is associated with the general partners, you are
being asked to consent to an amendment to the partnership agreement to
allow the partnership to enter into the merger agreement.
o If the amendment is not approved, the merger will not be completed even if
you approve the merger; conse- quently, a vote for the merger will
automatically constitute a vote in favor of the amendment.
See "The Amendment to the Partnership Agreement."
VOTE REQUIRED
o Unitholders representing a majority of the units must approve the merger
and the related amendment.
o The purchaser owns and controls approximately 45.9% of the units.
o Other unitholders representing approximately 8.7% of the units have agreed
to vote for the merger and the amendment.
o Consequently, together with these unitholders, the purchaser controls, in
total, approximately, 54.6% of the voting units of the partnership.
See "The Special Meeting--Votes Required."
FINANCING OF THE MERGER
The purchaser expects to finance the merger through capital contributions
from an affiliate and the anticipated refinancing of mortgage indebtedness of
the partnership. See "Special Factors--Financing of the Merger--Source of
Funds."
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Sales of units under the merger will be taxable transactions for federal
income tax purposes. On a sale of units under the merger, you will recognize
gain or loss equal to the difference between:
o your "amount realized" on the sale; and
o your adjusted tax basis in the units sold.
Your "amount realized" will equal the sum of:
o the amount of cash you receive; and
o the amount of partnership liabilities allocable to your units.
Your adjusted tax basis in the units sold will depend upon the facts of your
situation. The character of any gain or loss you recognize may be partially
capital and partially ordinary.
THE PRECISE TAX CONSEQUENCES OF THE MERGER TO YOU WILL DEPEND UPON THE FACTS OF
YOUR SITUATION. YOU SHOULD CONSULT YOUR TAX
2
<PAGE>
ADVISOR.
See "Special Factors--Material Federal Income Tax Consequences."
MARKET INFORMATION
o In December 1999 and January 2000, the purchaser acquired a total of
1,121.2 units from two investment management professionals at a price of
$600 per unit.
o According to The Partnership Spectrum, an independent third-party industry
publication, for the period between October 1, 1999 and November 30, 1999,
ten units traded at $450 per unit.
o In a tender offer completed in June 1999, the purchaser acquired
approximately 41.2% of the outstanding units at $550 per unit, while in
April 1999 a third party had offered $425 per unit.
See "Information About the Partnership, Its General Partners and Their
Affiliates--Market for the Units."
RIGHTS OF APPRAISAL
Neither Massachusetts law nor the partnership agreement grants you
appraisal rights, without regard to how you vote (or abstain) at the special
meeting.
See "The Special Meeting--Appraisal Rights."
INFORMATION ON VOTING
PLEASE READ THIS DOCUMENT IN FULL
o Carefully read and consider the information contained in this document.
o Indicate on your proxy card how you want to vote and mail your signed and
dated proxy cared in the enclosed return envelope as soon as possible.
o You may also fax your completed proxy card to Krupp Funds Group at (617)
423-8919.
IF YOU WANT TO CHANGE YOUR VOTE
Send in a later-dated, signed voting form to Krupp Funds Group before the
special meeting or attend the meeting in person and vote.
IF YOU PLAN TO ATTEND THE SPECIAL MEETING IN PERSON
o You should send in your proxy card in any event.
o You may request a ticket for admission to the special meeting by marking
the appropriate box on the proxy card and returning it no later than ,
2000.
3
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
After reading through this proxy statement, if you have more questions
about the merger, you should contact:
KRUPP FUNDS GROUP
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
Attention: Investor Services
Phone: 1-800-25-KRUPP
(1-800-255-7877)
Fax: (617) 423-8919
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<PAGE>
SPECIAL FACTORS
BACKGROUND OF THE MERGER; PURPOSE OF THE TRANSACTION
The general partners believe that most unitholders have held their
investment in the partnership for longer than their anticipated holding period.
While the partnership currently provides investors with a $31.72 annual
distribution, other investment opportunities may offer a rate of return that is
as good or better than that offered by the partnership.
The units are not listed or traded on an exchange or quoted on the National
Association of Securities Dealers Automated Quotation System, and no active
trading market in the units has developed. Because of the limited trading market
for the units, unitholders who wish to sell units may have difficulty doing so,
and from time to time, the general partners have been asked by unitholders to
provide a means of disposing of their units at a fair price.
On April 21, 1999, Madison Liquidity Investors 104, LLC announced an offer
to purchase up to five percent of the outstanding units for $425 per Unit, less
a $50 transfer fee charged by the partnership and any cash distributions made
after April 21, 1999. The Madison offer, together with uncertainties regarding
the partnership's properties described below, caused affiliates of the general
partners to decide to seek to acquire the units at this time. On May 14, 1999,
the purchaser commenced a tender offer to purchase all of the outstanding units
for $550 per unit, less any cash distributions made after May 14, 1999. The
purchaser chose to make this offer because (a) it was willing to pay a higher
price for the units than that offered by Madison, (b) it could offer unitholders
the opportunity to benefit from immediate liquidity for all units tendered, (c)
it believed it could offer a price that was fair to unitholders and (d) as noted
below, it, through its affiliates, is engaged in the business of utilizing
capital to, among other things, renovate residential real estate properties.
On June 23, 1999, the purchaser completed its tender offer and purchased
units representing approximately 41.2% of the outstanding units. In November
1999, representatives of the purchaser decided to continue to proceed with its
merger proposal in order to acquire the remaining outstanding units. In December
1999 and January 2000, the purchaser purchased an additional 472 and 649.2
units, respectively, from two investment management professionals, increasing
its ownership to approximately 45.9% of the outstanding units.
In November 1999, representatives of the purchaser contacted
representatives of investment funds affiliated with Equity Resources Group,
Inc., the holders of approximately 6.1% of the outstanding units, regarding the
possibility of forming a joint venture to acquire the remaining outstanding
units. Equity Resources was approached because of its considerable experience in
evaluating the benefits and risks associated with continued ownership of the
partnership's properties.
During November and December 1999, representatives of the purchaser and
Equity Resources negotiated the terms of their joint venture, and on January 6,
2000, executed an investment agreement setting forth the terms of their
agreements regarding the merger and the operation of the partnership's
properties following the merger. See "Related Agreements." In connection with
the execution of these agreements, Equity Resources agreed to vote in favor of
the merger and the amendment to the partnership's partnership agreement allowing
the partnership to complete the merger with the purchaser. Equity Resources also
agreed to reinvest their outstanding units as a capital contribution to the
purchaser. The purchaser has contacted other unitholders who are engaged in the
business of real estate management and development regarding their interest in
reinvesting units in the purchaser on the same terms as Equity Resources, but
has reached no understandings or agreements.
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The purpose of the merger is for the purchaser to acquire all of the
outstanding units, while providing unitholders with the opportunity to liquidate
their investment in the partnership for cash at a fair price.
ALTERNATIVES TO THE MERGER
The general partners considered two primary alternatives to the merger: (1)
the continued ownership of the properties by the partnership and (2) the sale of
one or more of the properties by the partnership and the distribution of the net
proceeds of the sales to the unitholders.
CONTINUATION OF THE PARTNERSHIP
The partnership owns and operates the Brookeville apartments in Columbus,
Ohio and the Hannibal Grove apartments and Dorsey's Forge apartments in
Columbia, Maryland. The Brookeville apartments, the Hannibal Grove apartments
and the Dorsey's Forge apartments were constructed in 1972, 1970 and 1970,
respectively, and, except for a partial interior renovation of the Brookeville
apartments completed in 1998, have not undergone significant renovation. For a
description of these properties, see "Information About the Partnership, Its
General Partners and Their Affiliates--Description of the Assets."
The managing agent of the properties, an affiliate of the general
partners and the purchasers, believes that increased competition resulting
from newly constructed or renovated housing entering the markets served by
the properties is expected to continue over the next several years. In
Columbus, Ohio, for example, market research reports state that approximately
10,000 new units are under construction and an additional 16,000 units are
proposed. In Columbia, Maryland, approximately 200 new units have entered the
market in the past year, with approximately 2,300 units currently undergoing
renovation.
In March 1999, the managing agent prepared a five-year capital improvement
plan setting forth capital improvements that it believed a third-party purchaser
of the properties would regard as necessary to maintain the properties' current
occupancy and rent levels, subject to inflationary increases, in light of the
increased competition in the markets served by the partnership. These capital
improvements include interior rehabilitation, replacement of windows, roofs,
appliances, piping and HVAC systems, as well as improvements to parking lots,
fences and exterior painting. The managing agent originally estimated the
aggregate cost of implementing this five-year capital plan to be $10.0 million.
However, after re-evaluating the capital plan and in light of the current market
and economic conditions, the aggregate cost of implementing the five-year
capital plan is currently estimated to be approximately $7.0 million. The
managing agent advised the purchaser that in view of the new or newly renovated
housing alternatives in the areas served by the properties, the current
occupancy rates enjoyed by the partnership might not be sustained unless the
capital plan is implemented, particularly since many of the newer residential
units will have amenities such as fitness centers, tennis courts and swimming
pools that the two Columbia properties do not.
The general partners are presently implementing the capital plan, which
they expect to complete over a five-year period. Implementation of the capital
plan will require the investment of additional equity capital, additional
borrowings and/or the reduction of future cash distributions from the
partnership.
As noted above, the general partners believe that the duration of most
unitholders' investments in the partnership's properties has exceeded their
initial estimated holding periods, and that providing
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a means for unitholders to liquidate their investment is consistent with the
desire of many of the unitholders, particularly in light of the limited and
sporadic secondary market for the units.
SALE OF THE PARTNERSHIP'S PROPERTIES
The general partners believe that a sale of the properties owned by the
partnership through a solicitation of third-party bids or an auction would not
necessarily result in a more favorable transaction for unitholders. A
third-party transaction could require the payment of transaction costs far in
excess of costs incurred by the partnership in the merger, all of which would be
borne by the partnership, and these costs would reduce the amount received by
each unitholder in respect of his or her units. The partnership would likely be
required to retain a portion of the proceeds of a third-party sale to cover the
expenses related to ongoing administration of the partnership and to fund
possible post-closing liabilities to a third-party purchaser. Under the terms of
the proposed merger agreement, the partnership will not make any representations
regarding its properties, and following the completion of the merger,
unitholders' proceeds will not be reduced by claims relating to contingent
liabilities of the properties.
Although the general partners do not believe that the solicitation of
third-party bids would necessarily result in a more favorable transaction for
unitholders, there is no assurance that unitholders would not ultimately receive
more for their units as a result of the sale of the properties to a third party
who was able to consummate this type of a transaction.
TENDER OFFER
From time to time, unitholders have been approached by investors seeking to
acquire units. Based on analyses of the proposals and general market
information, the general partners have concluded that these offers are generally
made at prices that are significantly less than the fair value per unit. For
instance, in the Madison tender offer described above, unitholders were offered
a price of $425 per unit, approximately 41.2% less than the merger price offered
by the purchaser. The general partners recommended that unitholders decline this
offer.
FAIRNESS OF THE MERGER
THE GENERAL PARTNERS RECOMMEND THAT UNITHOLDERS VOTE FOR THE MERGER AND THE
RELATED TRANSACTIONS. Although the amount to be paid to unitholders following
the merger is not the result of arm's-length negotiations between the purchaser
and the partnership and is subject to conflicts of interest, the general
partners believe that the per unit merger price and the other terms of the
merger are fair to unitholders. Therefore, the general partners recommend that
unitholders vote "FOR" the merger. The general partners based their conclusion
on the following:
o The merger price is based on the analyses conducted by the purchaser,
employing varying assumptions that the purchaser believes are
reasonable in light of the general economic conditions, condition of
the partnership's properties and the markets in which the properties
are located.
o Implementation of the capital plan described above will require the
investment of additional equity capital, additional borrowings and/or
the reduction of future cash distributions from the partnership. This
may result in the partnership increasing the amount of debt it
maintains relative to its assets and equity, thereby presenting an
increased financial risk to unitholders that is higher than what they
have assumed previously.
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<PAGE>
o The purchaser's belief that changing market conditions, including as a
result of new construction or renovations to existing properties
competing with the properties, may adversely affect the future cash
flows generated by the properties unless capital improvements are
effected.
o The purchaser recently acquired a total of 1,121.2 units at $600 per
unit from two investment management professionals, which may be an
indication of the current market value of the units.
o The fact that the $600 per unit merger price is $175, or 41.2%, higher
than the $425 per unit price offered by Madison in its April 1999
tender offer. The per unit merger price is also $50 per unit, or nine
percent, higher than the $550 per unit price offered by the purchaser
in its May 1999 tender offer. See "--Recent Unit Sales; Tender Offer."
o The merger will eliminate the uncertainties relating to the amount and
timing of any liquidation of the partnership following the sale of its
properties, which will depend upon the then-current markets for the
properties, as well as upon amounts that would be required to be
reserved to satisfy contingent liabilities associated with these
sales. Furthermore, by transferring their units for cash now,
unitholders will have the opportunity to redeploy investment assets
into alternative and potentially more liquid investments.
o Because there is no formal trading market for the units, they can be
difficult to sell. The merger provides unitholders with the
opportunity to immediately sell their units for what the general
partners believe is a fair price without the commissions or broker's
fee of a secondary market sale and without any transfer fees.
o The merger price will be paid in cash, and will not be reduced by the
amount of any distribution made or declared by the partnership before
completing the merger.
o Because the transaction is structured as a merger, cash proceeds will
be paid directly to unitholders by the purchaser and all of the assets
and liabilities of the partnership will be transferred to the
purchaser immediately upon the merger. As a result, the partnership is
not required to continue operations or to escrow funds to fund
possible post-closing liabilities. A sale of the properties, as
opposed to a merger, would require the partnership to continue
operating for an uncertain time period before distributing the cash
consideration received to the unitholders. Additionally, it would be
difficult to predict with any precision the amount ultimately realized
by unitholders, as the amount of post-closing liabilities is difficult
to determine.
o Although the partnership's properties are in good condition, they are
now more than 27 years old and will require refurbishing in the
future.
o The merger is not subject to a financing contingency, which increases
the likelihood that unitholders who desire to realize liquidity will
be able to do so.
o As a result of the purchaser's affiliation with the general partners,
the purchaser is familiar with the condition of the partnership's
properties and thus is willing to assume all of the assets and
liabilities of the partnership on terms and conditions that would be
extremely uncommon for a third-party purchaser, including the absence
of representations and warranties about the properties, the absence of
any indemnification protection and the lack
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<PAGE>
of any financing contingency. If the partnership were to sell the
properties to a third party, a portion of the proceeds would have to be
retained to fund contingent liabilities, thereby delaying unitholders'
ability to realize the full value of the sale.
In determining the fairness of the merger price to unitholders, and related
terms to unitholders, the general partners did not find it practicable to
quantify or otherwise attach relative weights to the specific factors described
above.
DISADVANTAGES AND RISKS ASSOCIATED WITH THE MERGER
Unitholders should note that the affiliates of the general partners may
benefit from the merger. This is most likely to occur if the properties are
ultimately sold by the purchaser for an amount greater than the per unit price
being offered to unitholders. The general partners considered the following
potential disadvantages and risks to the unitholders if the merger is completed:
o Continued ownership of the units could be more economically beneficial
to unitholders than the merger if the value of the properties were to
increase.
o A more favorable transaction might be available from a third-party
purchaser of the partnership's properties now or in the future.
o No independent committee or entity negotiated, reviewed or evaluated
the merger consideration offered by the purchaser.
o The purchaser already has sufficient voting power to approve the
merger proposal without the consent of any other unitholder.
o Unitholders will not be offered appraisal rights or dissenters' rights
in connection with the merger.
o Unitholders may incur tax liabilities as a result of the merger.
CONFLICTS OF INTEREST
The general partners faced conflicts of interest with respect to the merger
that may be in conflict with the economic interest of the unitholders.
Specifically, there is a conflict between the desire of the purchaser, an
affiliate of the general partners, to pay unaffiliated unitholders a lower price
in exchange for units cancelled in the merger and the desire of unaffiliated
unitholders to receive a higher price in exchange for their units.
The general partners also have an indirect economic interest in completing
the merger, as opposed to a sale or liquidation of the partnership's assets to a
third party, because a third-party sale or liquidation would eliminate (a) the
distributions received by the general partners in respect of their indirect
interests in the partnership's properties and (b) the fees paid to their
affiliates for services provided to the partnership. See "Information About the
Partnership, Its General Partners and Their Affiliates--Related Party
Transactions."
Unitholders were not independently represented in the negotiation of the
merger agreement and no independent person or committee has evaluated or
rendered any opinion with respect to the fairness of the per unit price to be
paid to unitholders.
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LIQUIDATION ANALYSIS; DETERMINATION OF MERGER PRICE
The purchaser determined that the fair value of each unit falls within a
range of $573 to $634 based upon the liquidation analysis described below. The
purchaser calculated this range on the basis of its estimate of the proceeds
that could be realized from the sale of the partnership's properties and the
partnership's other assets, less mortgage debt and other liabilities. To
determine the prices at which the properties could be sold by the partnership,
the purchaser applied capitalization rates between 9.45% and 9.85% to varying
projections of the net cash flow expected to be generated by the properties in
2000, adjusted to reflect factors that a third-party purchaser would consider
relevant in evaluating the purchase of the properties, and then subtracted
amounts related to implement the capital improvements plan discussed above under
"--Alternatives to the Merger--Continuation of the Partnership" and transaction
costs associated with the purchase of the properties.
In deriving the net cash flow attributable to the properties, the
purchaser made the following adjustments to and estimates of cash flow: (a)
an increase to net operating income to reflect varying growth rates between
1.5% and 5.5% per annum over 1999 levels, offset by vacancy at a rate of
7.0%; and (b) adjustments to expenses associated with the properties
following a sale to a third party, including insurance costs, replacement
reserves and management fees. This resulted in estimated aggregate cash flows
for the properties between $3.85 million and $4.0 million, against which the
purchaser applied capitalization rates between 9.45% and 9.85% and deducted
(a) estimated closing costs associated with the sales of 3% and (b) the
estimated cost of capital improvements of approximately $7.0 million to
arrive at an aggregate gross value of the properties between $32.0 million
and $33.47 million. The addition of approximately $1.8 million of cash and
other assets of the partnerships less $18.3 million of mortgage debt,
$330,000 of expected prepayment penalties and $705,000 of other liabilities
associated with the partnership, resulted in a value range for the units
between $573 and $634.
Projections are by their nature speculative and no assurance can be given
that a projection will accurately reflect the rental income actually achieved. A
capitalization rate is a rate of return commonly applied by buyers of real
estate to property income to determine the present value of property income. The
choice of capitalization rate is subjective and based on, among other things, a
buyer's evaluation of a property's location and condition. The lower the
capitalization rate utilized, the higher the value produced, and the higher the
capitalization rate utilized, the lower the value produced. The purchaser
utilized capitalization rates between 9.45% and 9.85% to determine the value of
the partnership's properties. The Madison offer described above utilized a
capitalization rate of 12.43%, which Madison at the time stated was within the
range of capitalization rates employed in the marketplace for apartment
buildings of the properties' age and quality. In connection with a third-party
tender offer in 1996, the general partners estimated the value of a unit at
$661. This valuation was based on market and other conditions at the time, and
did not reflect the current market conditions and the expenditures that would be
required to implement the capital improvements plan.
Although the purchaser believes that the values calculated utilizing the
method described above fairly represent the value of the partnership's
properties and the value of the units, an actual sale of the properties at this
time or in the future might generate a sale price either higher or lower than
the range of values calculated above.
Further, the purchaser believes that the per unit proceeds which would be
realized by unitholders upon a liquidation of the properties would be further
reduced by contingent liabilities associated with the properties. The range of
values estimated above does not take into account timing considerations, market
uncertainties and legal and other expenses that would be incurred in
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connection with a liquidation of the partnership. An actual liquidation of the
partnership now, or in the future, might generate a higher or lower value for
each unit.
The general partners have not yet determined how the partnership would
respond to the market developments described above in the event the proposed
merger and the transactions contemplated by it are not completed. However, in
the event the general partners determine to sell the properties in the future,
the proceeds of a sale would be subject to uncertainties in the real estate and
financing markets at the time, as well as to possible adverse effects upon the
cash flows generated by the properties by the additions to the housing base in
the markets served by the properties.
In view of the developments occurring in the markets described above and
the expenditures required by the capital improvements plan, the purchaser
believes that the liquidation analysis described above is the most appropriate
valuation methodology.
BOOK VALUE
Because the partnership's principal assets, its real estate properties, are
carried on the partnership's balance sheet at their historical cost and have
been depreciated over the sixteen years of the partnership's existence, the net
book value of a unit is a negative number, and therefore the purchaser does not
believe net book value is meaningful in determining the fairness of the merger
price.
RECENT UNIT SALES; TENDER OFFER
The $600 per unit price to be paid to unitholders in the merger is almost
double the $315 per unit tender offer made by Krescent Partners L.L.C. on
November 26, 1996 and $175, or 41.2%, higher than the Madison offer. In
addition, the merger price is $50 per Unit higher than the $550 per unit price
offered by the purchaser in its May 1999 tender offer and to Smithtown Bay,
L.L.C. a professional investor which sold 472 units to the purchaser in December
1999 at the $550 per Unit price. In January 2000, the purchaser bought 649.2
units from Krescent Partners at a price of $600 per unit. In addition, Smithtown
Bay is entitled to receive an additional $50 per unit for the units it
previously sold to the purchaser (the difference between the $600 per unit
merger price and the $550 per unit price Smithtown Bay received for its units).
EFFECTS OF THE TRANSACTION
EFFECT ON THE PARTNERSHIP
If the merger is approved and the remaining conditions to the merger are
met or waived, the merger will be effected by filing certificates of merger with
the Delaware Secretary of State and the Massachusetts Secretary of State. As a
result, the assets and liabilities of the partnership will be transferred to the
purchaser as the surviving entity in the merger and the partnership will cease
to exist. The benefits and risks associated with ownership of the properties
will then rest solely with the purchaser.
Following the merger, the partnership will cease to be a public company and
will not file reports under the Securities Exchange Act of 1934 or be subject to
the rules under it.
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EFFECTS ON THE UNITHOLDERS
As a result of the merger, each unit of the unaffiliated unitholders will
be cancelled in exchange for a $600 cash payment, without interest, payable by
the purchaser to the unitholder upon receipt by the purchaser of the appropriate
forms from the unitholder. Following the completion of the merger, the
unitholders will cease to be owners of the partnership and will no longer have
the potential benefits and risks associated with ownership. Unitholders will
forego the opportunity to continue to participate as investors in the
partnership, including the right to distributions and potential appreciation of
its assets over time.
Unitholders will recognize a gain or loss on the conversion of units into
cash in the merger to the extent of the difference between the amount realized
and the unitholder's adjusted basis in the units sold. See "--Material Federal
Income Tax Consequences."
EFFECTS ON THE GENERAL PARTNERS AND THE PURCHASER
The general partners will not receive any payment in exchange for the
redemption of their general partnership or original limited partnership
interests nor will they receive any fees from the partnership in connection with
the merger. Following the merger, the purchaser will continue to pay management
fees to an affiliate of the general partner as described below under
"Information About the Partnership, Its General Partners and Their
Affiliates--Related Party Transactions." An affiliate of the general partners
will manage and control and have an approximate 89% ownership interest in the
purchaser and thus will benefit from any returns the purchaser receives from its
investment in the partnership's properties, whether from operating the
properties, selling the properties or otherwise.
FAILURE TO APPROVE THE MERGER
If the merger is not approved by unitholders, the general partners will
continue to operate the partnership in accordance with the terms of the
partnership agreement and in fulfillment of their fiduciary duties. The
partnership may (1) continue to hold the partnership's properties, (2) refinance
any or all of the properties and utilize the proceeds of the refinancing to
implement the capital improvements plan, (3) solicit offers from potential
purchasers to acquire any or all of the properties, through bid solicitation,
auction or otherwise or (4) pursue other strategies intended to enhance the
value of the unitholders' investment in the partnership.
PLANS OR PROPOSALS BY PARTNERSHIP OR AFFILIATES FOLLOWING THE MERGER
Following the completion of the merger, the purchaser intends to review the
partnership and its assets, the capital improvements plan, distribution policy,
capitalization, operations, properties, policies, management and personnel and
consider what further changes, if any, would be desirable in light of the
circumstances which then exist. Based on its evaluation, the purchaser may
finance all or a portion of the capital improvements by the following means,
alone or in combination: (a) an equity or capital contribution to the
partnership, (b) a refinancing of the properties or (c) a sale of a portion of
the partnership's assets. The purchaser reserves the right to accelerate, extend
or amend the capital improvements plan, and may elect not to implement the
improvements or any portion of them.
The purchaser's determinations will depend on, among other things, general
economic conditions, the conditions of the real estate markets in which the
properties are located, the physical condition of the partnership's properties
at the time the proposed merger is completed, the properties' vacancy rates at
the time the proposed merger is completed, prepayment penalties
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<PAGE>
associated with each of the respective loan facilities encumbering the
properties and the terms available to the partnership for new financing
arrangements. The purchaser intends to review the partnership's policy with
respect to distributions and may, based on its assessment, reduce or eliminate
the distributions paid by the partnership.
The purchaser does not have any specific plans for the sale or disposition
of the properties or any material change in the business of the partnership
following the merger. The purchaser will, however, evaluate any proposals and
may sell or dispose of its assets if attractive terms are offered. Presently,
there are no arrangements or proposals to do so. Following the completion of the
proposed merger, the purchaser presently intends to conduct the business and
operations of the partnership substantially as they are currently conducted.
Under the agreements entered into in connection with the merger, Equity
Resources, which following the merger will own approximately 11% of the
purchaser, may require the managing members of the purchaser to cause the
purchaser to attempt to sell the partnership's properties at any time during the
six-month period following the fifth anniversary of the completion of the
merger. See "Related Agreements."
FINANCING OF THE MERGER
SOURCE OF FUNDS
The aggregate consideration to be paid to unitholders is approximately $7.2
million. Of this amount, up to $1.0 million will be in the form of a capital
contribution from KRF Company, L.L.C. to the purchaser and the remainder will be
obtained from the anticipated refinancing of existing mortgage indebtedness, to
approximately 75% to 85% leverage, of the partnership. The purchaser has had
discussions with several lenders regarding such mortgage indebtedness, but no
financing commitments have been obtained from any lender. KRF Company has
previously contributed 10,826 units as a capital contribution to the purchaser
while Equity Resources will contribute 1,524 units currently held by them in the
partnership as a capital contribution to the purchaser. KRF Company will finance
its capital contributions to the purchaser through capital contributions from an
affiliate of the general partners which has available sufficient amounts of
liquid capital necessary to fund the obligations of KRF Company to the purchaser
in respect of the merger consideration.
COSTS ASSOCIATED WITH THE MERGER
It is expected that approximately $7.2 million will be required to finance
the merger, and approximately $172,500 will be required to pay related fees and
expenses. The following is an itemized statement of the approximate amount of
all expenses incurred or to be incurred in connection with the merger:
<TABLE>
<S> <C>
Legal fees............................................. $ 50,000
Printing and mailing costs............................. 15,000
Accounting............................................. 10,000
Title, survey and environmental reports................ 27,000
Title insurance........................................ 46,000
Proxy solicitation fees................................ 22,000
</TABLE>
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<TABLE>
<S> <C>
Other, including filing fees........................... 2,500
---------
Total.................................................. $ 172,500
=========
</TABLE>
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following summary is a general discussion of material federal income
tax consequences of a sale of units under the merger 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. This summary is based on the Internal Revenue Code,
applicable Treasury Regulations under it, administrative rulings, practice and
procedures and judicial authority as of the date of this proxy statement. All of
the foregoing are subject to change, and any 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 the
unitholder's specific circumstances or to specific 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. This summary also does not discuss any aspect of state, local,
foreign or other tax laws. Sales of units under the merger 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 ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO THE UNITHOLDER OF SELLING UNITS UNDER THE MERGER.
CONSEQUENCES TO UNITHOLDERS
A unitholder will recognize gain or loss on a sale of units under the
merger equal to the difference between (1) the unitholder's "amount realized" on
the sale and (2) the unitholder's adjusted tax basis in the units sold. The
"amount realized" with respect to units sold under the merger will be a sum
equal to the amount of cash received by the unitholder for the units plus the
amount of partnership liabilities allocable to the units, as determined under
Internal Revenue Code Section 752. A unitholder's adjusted tax basis in units
sold under the merger will vary depending upon the unitholder's particular
circumstances, and will be affected by allocations of partnership income, gain
or loss, and by any cash distributions made by the partnership to a unitholder
with respect to its units. In this regard, unitholders will be allocated a pro
rata share of the partnership's taxable income or loss with respect to units
sold under the merger through the effective date of the sale.
In general, the character, as capital or ordinary, of a unitholder's gain
or loss on a sale of units under the merger will be determined by allocating the
unitholder's amount realized on the sale and the unitholder's adjusted tax basis
in the units sold between "Section 751 items," which are "inventory items" and
"unrealized receivables" (including depreciation recapture) as defined in
Internal Revenue 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. The
difference between the unitholder's remaining amount realized and remaining
adjusted tax basis will be treated as capital gain or loss assuming the units
were held by the unitholder as capital assets.
A unitholder's capital gain or loss, if any, on a sale of units under the
merger will be treated as long-term capital gain or loss if the unitholder's
holding period for the units exceeds one year.
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Under current law, which is subject to change, long-term capital gains of
individuals and other non-corporate taxpayers generally are 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 these 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
generally allowed to carry back excess capital losses to the three preceding
taxable years.
Under Internal Revenue Code Section 469, a non-corporate taxpayer or
personal service corporation can deduct passive activity losses in any year,
other than the year in which the taxpayer's entire interest in the activity is
disposed of, only to the extent of such person's passive activity income for
such year, and closely held corporations may not offset these 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 these losses
against any income or gain recognized by the unitholder on a sale of his units
under the merger.
Gain realized by a foreign unitholder on a sale of a unit under the merger
will be subject to federal income tax. Under Section 1445 of the Internal
Revenue Code, the transferee of a partnership interest held by a foreign person
generally is 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 foreign unitholder from the price payable to the foreign
unitholder. Amounts withheld would be creditable against a foreign unitholder's
federal income tax liability and, if in excess of the liability, a refund could
be obtained from the Internal Revenue Service by filing a U.S. income tax
return.
Unless an exemption applies under applicable law and regulations concerning
"backup withholding" of U.S. federal income tax, the purchaser will be required
to withhold, and will withhold, 31% of the gross proceeds otherwise payable to a
unitholder or other payee pursuant to the merger unless the unitholder or other
payee provides its taxpayer identification number (social security number or
employee identification number) and certifies that this number is correct, or
certifies that it is awaiting a taxpayer identification number. To prevent the
imposition of backup federal income tax withholding on payments made to certain
unitholders with respect to the purchase price of units purchased under the
merger, a tendering unitholder must provide the purchaser with the holder's
correct taxpayer identification number and certify that the unitholder is not
subject to backup federal income tax withholding by completing the Substitute
Form W-9 included in the letter of transmittal.
THE SPECIAL MEETING
SPECIAL MEETING; RECORD DATE
Under Massachusetts partnership law and the partnership agreement, the
merger and the amendment requires approval of a majority of the holders of
outstanding units. A special meeting of the unitholders will be held
on , 2000, at , at local time, to consider and vote upon the merger
and the amendment to the partnership's partnership agreement. In accordance with
the partnership agreement, the close of business on , 2000 has been
established as the record date
15
<PAGE>
for the special meeting. Under the terms of the partnership agreement, only the
unitholders of record on the record date are eligible to vote those units on the
proposals set forth in this proxy statement. A unitholder of record as of the
record date will retain the right to vote on the proposals set forth in this
document even if the unitholder sells or transfers its units after the record
date. As of the record date, the partnership had 25,000 units outstanding and
entitled to vote, held of record by 588 unitholders. A list of the unitholders
entitled to vote at the special meeting will be available for inspection at the
executive offices of the partnership at One Beacon Street, Suite 1500, Boston,
Massachusetts 02108. Under the partnership agreement, valid voting requires a
quorum constituted by a majority in interest of the unitholders voting at the
special meeting in person or by proxy.
Even if a unitholder intends to attend the special meeting in person, they
are requested to complete and return the enclosed proxy card promptly.
PROCEDURES FOR COMPLETING PROXIES
Accompanying this proxy statement is a proxy card solicited by the general
partners for use at the special meeting. When a proxy card is returned, properly
executed, the units represented by it will be voted at the special meeting by
the general partners in the manner specified on the proxy card. It is important
that unitholders mark, sign and date their proxy card and return it either in
the enclosed, postage-prepaid envelope or by facsimile as instructed below to
Krupp Funds Group as soon as possible. When voting a proxy by facsimile, both
sides of the proxy must be transmitted. Delivery of a proxy does not prohibit
unitholders from attending the special meeting. To be properly executed, the
proxy card must be signed by and bear the date of signature of the unitholder
voting the units represented by the card. All questions as to the form of
documents and the validity of consents will be determined by the general
partners, which determinations shall be final and binding. The general partners
reserve the right to waive any defects or irregularities in any proxy.
Each unit entitles the holder thereof to one vote with respect to the
proxies solicited by this document. Only unitholders of record on the record
date may grant a proxy with respect to their units.
IF UNITS STAND OF RECORD IN THE NAMES OF TWO OR MORE PERSONS, ALL PERSONS MUST
SIGN THE PROXY CARD. WHEN SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR,
TRUSTEE OR GUARDIAN, PLEASE GIVE THE FULL TITLE OF THE POSITION HELD. IF A
CORPORATION, THE PROXY SHOULD BE SIGNED BY THE PRESIDENT OR OTHER AUTHORIZED
OFFICER. IF A PARTNERSHIP, PLEASE SIGN IN THE PARTNERSHIP'S NAME BY AN
AUTHORIZED PERSON. IF A UNITHOLDER'S UNITS ARE HELD IN THE NAME OF A BROKERAGE
FIRM, BANK, NOMINEE OR OTHER INSTITUTION, ONLY THIS INSTITUTION CAN SIGN A PROXY
WITH RESPECT TO THE UNITS AND CAN DO SO ONLY AT THE UNITHOLDER'S DIRECTION.
ACCORDINGLY, IF ANY UNITS ARE SO HELD, UNITHOLDERS SHOULD CONTACT THEIR ACCOUNT
REPRESENTATIVE AND GIVE INSTRUCTIONS FOR A PROXY TO BE SIGNED WITH RESPECT TO
THEIR UNITS.
A unitholder in favor of the merger and the amendment to the partnership's
partnership agreement should mark the "for" box on the enclosed proxy card, date
and sign the proxy and either mail it promptly in the enclosed postage-prepaid
envelope or fax a copy to Krupp Funds Group as instructed below. If a proxy card
is executed but no indication is made as to what action is to be taken, it will
be deemed to constitute a vote "for" the merger and "for" the amendment. By
consenting to the merger and the amendment, the unitholders irrevocably appoint
the general partners, or their designee, as their attorney-in-fact to execute
and deliver those documents as are necessary to effect the merger and the
amendment.
16
<PAGE>
Questions and requests for assistance or for additional copies of this
proxy statement and the proxy card may be directed to the partnership's
solicitation agent, Krupp Funds Group, One Beacon Street, Suite 1500, Boston,
Massachusetts 02108, Attention: Investor Services, or by telephone at 1-
800-25-KRUPP or facsimile at 617-423-8919. Unitholders should also use this fax
number for delivery of their completed proxy cards. In addition to soliciting
proxies by mail, proxies may be solicited in person and by telephone or
telegraph. Unitholders may also contact their broker, dealer, commercial bank,
trust company or other nominee for assistance concerning the proxy solicitation.
VOTES REQUIRED
Under the terms of the partnership agreement, the vote of the unitholders
owning a majority of the units is necessary to approve the amendment to the
partnership agreement. Under Massachusetts law, the vote of the unitholders
owning a majority of the units is necessary to approve the merger. Each unit
entitles the holder thereof to one vote on each matter submitted to a vote of
the unitholders. If a majority in interest of the unitholders consent to the
merger and the amendment and certain other conditions are met, the merger will
be completed. If both the merger and the amendment are not approved by the
unitholders owning a majority of the units, the merger will not be completed.
The purchaser owns approximately 45.9% of the outstanding units, while
Equity Resources, which holds approximately 6.1% of the partnership's
outstanding units, has agreed to vote for the approval of the merger and the
amendment to the partnership's partnership agreement. Moreover, because one of
the general partners has entered into agreements with the holders of
approximately 1,265 units which would require them to vote their units in
proportion to the votes of all other unitholders who vote on a matter, the
purchaser together with Equity Resources has voting power over approximately
54.6% of the outstanding units. Units held by Krupp LP, as a limited partner of
the partnership, will not be voted at the special meeting or included in the
determination of whether a quorum exists.
The consent of the unitholders holding a majority in interest of the
outstanding units is necessary to complete the proposed merger and to adopt the
amendment. Failure to return a proxy in a timely manner or to vote at the
special meeting, abstention from voting or a broker non-vote will each have the
same effect as a vote "against" the merger and "against" the amendment.
Therefore, unitholders are asked to please date, sign and promptly return their
proxy cards.
SOLICITATION PROCEDURES
The Partnership has retained Krupp Funds Group to act as solicitation agent
and for advisory services in connection with this proxy statement. In connection
therewith, Krupp Funds Group will be paid reasonable and customary compensation
and will be reimbursed for their reasonable out-of-pocket expenses, as described
above under "Special Factors--Financing of the Merger--Costs Associated with the
Merger." The partnership has also agreed to indemnify Krupp Funds Group against
specified liabilities and expenses including liabilities and expenses under
federal securities laws.
The partnership will not pay any fees or commissions to any broker or
dealer or other person, other than to Krupp Funds Group, for soliciting proxies
in this solicitation. Banks, brokerage houses and other custodians, nominees and
fiduciaries will be requested to forward the solicitation materials to the
customers for whom they hold units, and the partnership will reimburse them for
reasonable mailing and handling expenses incurred by them in forwarding proxy
materials to their customers.
17
<PAGE>
REVOCATION OF PROXIES
A proxy executed and delivered by a unitholder may subsequently be revoked
by submitting written notice of revocation to the partnership. A revocation may
be in any written form, including a later-dated proxy card, validly signed by a
unitholder as long as it clearly states that the unitholder's proxy previously
given is no longer effective. To prevent confusion, the notice of revocation
must be dated. Notices of revocation should be delivered to Krupp Funds Group at
the address or by facsimile as listed above. A unitholder may also revoke its
proxy by attending the special meeting and voting in person. If a unitholder
signs, dates and delivers a proxy to the partnership and, thereafter, on one or
more occasions, signs and delivers a later-dated proxy, the latest-dated proxy
card is controlling as to the instructions indicated in that proxy and
supersedes the unitholder's prior proxy as embodied in any previously submitted
proxy card.
APPRAISAL RIGHTS
Neither the partnership agreement nor Massachusetts law provides rights of
appraisal or similar rights to unitholders whether or not unitholders abstain or
vote for or against the merger. As a result, if unitholders holding a majority
of the units approve the merger and if the merger is completed, the partnership
will be merged with and into the purchaser and all unaffiliated unitholders,
including those who do not approve the merger, will receive the $600 per unit
merger price for each of their units in accordance with the terms of the merger
agreement.
THE MERGER AGREEMENT
The merger agreement between the partnership and the purchaser will be
entered into only if the unitholders approve the amendment to the partnership's
partnership agreement. Under the merger agreement, the merger of the partnership
with and into the purchaser will not take place unless the unitholders approve
the merger. If the merger is approved at the special meeting, the general
partners on behalf of the partnership intend to enter into an agreement
substantially in the form of the merger agreement. The material provisions of
the merger agreement are summarized below. Although complete in all material
respects, this summary is qualified by reference to the full text of the merger
agreement attached to this proxy statement as Annex A. Unitholders are
encouraged to read the merger agreement carefully. If all of the conditions in
the merger agreement are met, principally the approval by the unitholders of the
merger, at the effective time of the merger, the partnership will be merged with
and into the purchaser, with the purchaser continuing as the surviving entity.
The purchaser, as the surviving entity, will succeed to and possess all of the
rights, privileges and powers of the partnership, whose assets shall vest in the
purchaser, and who will then be liable for all of the liabilities and
obligations of or any claims or judgments against the partnership.
CLOSING DATE; EFFECTIVE TIME OF THE MERGER
The merger will become effective at 5:00 p.m. on the date on which the
latter of (1) the filing of the certificate of merger with the Office of the
Secretary of State of Delaware and (2) the filing of the certificate of merger
with the Secretary of State of the Commonwealth of Massachusetts.
EFFECTS OF THE MERGER
At the effective time, by virtue of the merger, and without any further
action on the part of anyone, all partnership interest outstanding immediately
beforehand, including units, general
18
<PAGE>
partnership interests and original limited partnership interests, will be
cancelled. Each unit owned by the unitholders, other than Equity Resources, or
those who are not affiliates of the purchaser or the general partners, will be
automatically converted into a right to receive, in exchange for each unit, $600
in cash, without interest. Immediately before the effective time, 1,524
partnership interests (whether general or limited) will be contributed to the
purchaser for membership interests in the purchaser.
PAYMENT
The merger price will be paid to unaffiliated unitholders by the purchaser
promptly after the effective time. Interest will not accrue on amounts owed to
unaffiliated unitholders. Payments will be made only to the unaffiliated
unitholder in whose name units are registered on the books of the partnership at
the effective time. Neither the purchaser nor any other party will be liable to
any unitholder for any merger consideration or other payments made to a public
official under applicable abandoned property laws. The purchaser will be
entitled to deduct and withhold from the merger consideration paid to a
unitholder any taxes or other amounts required by law, including Sections 3406
and 1445 of the Internal Revenue Code of 1986.
Under federal law, to the extent that amounts are withheld, these amounts
will be treated as having been paid to a unitholder for purposes of the merger
agreement. Beginning at the effective time, there will be no further transfers
of any units on the books of the partnership. Each unitholder whose units were
converted and cancelled will be deemed to have withdrawn as a limited partner of
the partnership. Unitholders will then have no further interest in the
partnership or the purchaser, including any allocations or distributions of
income, property or otherwise, other than the right to receive the merger price
per unit.
Following the effective time, the officers of the purchaser, as the
surviving entity in the merger, will terminate the partnership's reporting
obligations with the Securities and Exchange Commission.
AUTHORITY AND CONSENT OF THE PURCHASER
The purchaser has informed the partnership that the execution, delivery and
performance of the merger agreement by the purchaser and the completion of the
transactions contemplated by it have been duly authorized by the purchaser's
members as necessary.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
The merger agreement contains no representations and warranties.
CONDITIONS TO THE MERGER
Before the merger is completed, the following must occur:
o the holders of a majority of the outstanding units must approve the
amendment in accordance with the partnership agreement;
o the holders of a majority of the outstanding units must approve the
merger agreement in accordance with the partnership agreement and
Massachusetts law; and
o any consent, approval or waiver of any third party required in order
for the purchaser or the partnership to complete the merger must be
obtained.
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<PAGE>
In addition, unless the relevant condition is waived by the purchaser and
the partnership, the merger will not be completed if any of the following occur:
o the enactment, promulgation or enforcement by any governmental entity
of a statute, regulation or injunction which prohibits or restrains
the merger or subjects any party to substantial damage as a result of
the merger; and
o a change or event which has or could be reasonably expected to either
(a) cause a material adverse effect to the business, condition,
financial or otherwise, or result of operations of the partnership or
(b) prevent or cause a material delay in the completion of the merger
or the performance of the merger agreement by the purchaser or the
partnership.
TERMINATION
The merger agreement may be terminated by the mutual agreement of the
purchaser and the general partners at any time before the filing of the
certificates of merger.
AMENDMENT
At any time before the filing of the certificates of merger, the merger
agreement may be amended by the joint determination in writing of the purchaser
and the general partners. No amendment may be made which would change any term
of the certificate of formation or operating agreement of the surviving entity
in the merger.
WAIVER
At any time before the effective time of the merger, whether before or
after this proxy statement is mailed, any party may waive compliance with any of
the agreements of the other party or conditions to its own obligations contained
in the merger agreement.
THE SURVIVING ENTITY
The certificate of formation, operating agreement and managers and officers
of the purchaser will be the certificate of formation, operating agreement and
managers and officers utilized by or employed by the purchaser before the
merger.
RELATED AGREEMENTS
In connection with the merger, the purchaser and its sole member, KRF
Company, have entered into an investment agreement and voting agreement, each
dated as of January 6, 2000, with the investment funds affiliated with Equity
Resources. Under the investment agreement, Equity Resources has agreed to
reinvest their units in the purchaser as a capital contribution. KRF Company, on
the other hand, has previously contributed 10,826 units as a capital
contribution and will make a cash contribution to the purchaser of up to $1.0
million. The purchaser and KRF Company, on the one hand, and Equity Resources,
on the other hand, further agreed to indemnify the other in connection with any
liability arising out of a breach of the investment agreement, while the
purchaser agreed to indemnify the parties in connection with any liabilities
arising out of any unitholder litigation relating to the merger. To the extent
that the indemnification provisions are unenforceable, the parties agreed to
contribute additional amounts in satisfaction of any losses to the extent
legally permissible.
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<PAGE>
The purchaser may terminate the investment agreement at any time. The
investment agreement will terminate automatically if the merger is not completed
by August 1, 2000, or, if the members of the purchaser do not make their capital
contributions before the parties complete the merger.
Under the voting agreement, Equity Resources, which owns approximately 6.1%
of the outstanding units, has agreed that at any meeting of the partners of the
partnership, however called, and in any action by consent of the limited
partners of the partnership, Equity Resources will vote, or cause to be voted,
the units held of record or beneficially owned by it in favor of the merger and
the amendment to the partnership agreement. Equity Resources further agreed that
at any meeting of the partners of the partnership, however called, and in any
action by consent of the limited partners of the partnership, Equity Resources
will vote, or cause to be voted, in person or by proxy, the units held of record
or beneficially owned by it against approval of any proposal made in opposition
to or in competition with the merger.
In addition, Equity Resources further agreed that, without the consent of
the purchaser and KRF Company, Equity Resources would not, either directly or
indirectly, offer or otherwise agree to sell, assign, pledge, transfer, exchange
or dispose of any units or options, warrants or other convertible securities to
acquire or purchase units, whether now or later acquired. Under the terms of the
voting agreement, if Equity Resources acquires any additional units, the voting
agreement will be applicable to the additional units.
In addition, under the terms of the purchaser's organizational documents,
upon the request of Equity Resources, the managing members of the purchaser have
agreed to cause the purchaser to attempt to sell the partnership's properties at
any time during the six-month period following the fifth anniversary of the
completion of the merger.
THE AMENDMENT TO THE PARTNERSHIP AGREEMENT
PURPOSE
The purpose of the amendment is to amend the partnership's partnership
agreement to permit the partnership to enter into the merger agreement with the
purchaser. Except for specifically enumerated transactions, the partnership
agreement prohibits the partnership from selling any property to, or entering
into any agreement or arrangement with, a general partner or an affiliate of a
general partner. Because the purchaser is an affiliate of the general partners
and the merger agreement is an agreement which may be considered to be an
indirect sale of the partnership's properties, these prohibitions prevent the
partnership from entering into the merger agreement with the purchaser.
THE AMENDMENT
The description of the amendment to the partnership agreement summarized
above is qualified in its entirety by reference to the text of the amendment
attached to this proxy statement as Appendix B. Unitholders are encouraged to
read the annexed amendment carefully.
In accordance with the amendment, the parties must enter into the merger
agreement after February 1, 2000 and before August 1, 2000. The amendment adds
the merger agreement to the list of the transactions which the partnership is
permitted to complete with an affiliate of the general partners; otherwise, the
amendment does not alter the partnership agreement.
21
<PAGE>
INFORMATION ABOUT THE PARTNERSHIP,
ITS GENERAL PARTNERS AND THEIR AFFILIATES
THE PARTNERSHIP
The partnership was organized on April 3, 1982 as a limited partnership
under Massachusetts law. The partnership is governed by its partnership
agreement, which vests exclusive management and control over the partnership in
the general partners, subject to the rights of the unitholders to vote on
limited matters. The address of the partnership's principal executive office is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108, and the telephone
number is (617) 523-7722.
The primary business of the partnership is to acquire, operate and
ultimately dispose of its properties. The partnership issued all of its general
partner interests to its two general partners, Krupp Corp and Krupp LP. The
partnership also issued its original limited partner interests to Krupp LP. On
June 4, 1982, the partnership commenced an offering of up to 25,000 units at the
price of $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 GENERAL PARTNERS
The principal business address of each of the general partners is at One
Beacon Street, Suite 1500, Boston, Massachusetts 02108. The principal business
of each of the general partners is to act as a general partner of the
partnership. The directors and principal executive officers of Krupp Corp are
Douglas Krupp, George Krupp and David Quade, and the sole shareholders of Krupp
Corp are Douglas Krupp and George Krupp. The general partners of Krupp LP are
Douglas Krupp, George Krupp and Krupp Corp. Krupp LP owns all of the original
limited partnership interests in the partnership.
Douglas Krupp co-founded and serves as Co-Chairman and Chief Executive
Officer of The Berkshire Companies Limited Partnership, an integrated real
estate financial services firm engaged in real estate acquisitions, mortgage
banking, investment sponsorship, venture capital investing, financial
management, commercial laundry and linen services, and furniture manufacturing
and sales.
Mr. Krupp has held the position of Co-Chairman since The Berkshire
Companies was established as The Krupp Companies in 1969 and he has served as
the Chief Executive Officer since 1992. Mr. Krupp serves as a Director of Krupp
Government Income Trust and Krupp Government Income Trust-II and he is also a
member of the Board of Trustees at Brigham & Women's Hospital. He is a graduate
of Bryant College where he received an honorary Doctor of Science in Business
Administration in 1989 and was elected trustee in 1990. Mr. Krupp's address is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108.
George Krupp is actively involved in the management of The Berkshire
Companies and affiliated entities. Mr. Krupp has been an instructor of history
at the New Jewish High School in Waltham, Massachusetts since September of 1997.
Mr. Krupp attended the University of Pennsylvania and Harvard University and
holds a master's degree in History from Brown University. Mr. Krupp's address is
at One Beacon Street, Suite 1500, Boston, Massachusetts 02108.
David Quade is Executive Vice President and Chief Financial Officer of The
Berkshire Group. Prior to joining The Berkshire Group, Mr. Quade was a principal
and Chief Financial Officer for
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<PAGE>
eighteen years at Leggat McCall Properties. He received a P.A.P. from
Northwestern University Graduate Business School and an M.B.A. and a B.S. from
Central Michigan University.
DESCRIPTION OF THE ASSETS
GENERAL
The partnership currently indirectly owns three multi-family apartment
complexes--the Brookeville apartments, the Dorsey's Forge apartments and the
Hannibal Grove apartments having an aggregate of 990 units. 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 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.
<TABLE>
<CAPTION>
Occupancy
---------
Average Occupancy For
Occupancy as of The Year Ended December 31,
Year Total September 30, -----------------------------------
Acquired Units 1999 1998 1997 1996 1995 1994
-------- ----- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Brookeville apartments;
Columbus, Ohio 1983 424 97% 99% 98% 95% 94% 94%
Hannibal Grove apartments;
Columbia, Maryland 1983 316 98% 100% 100% 94% 93% 94%
Dorsey's Forge apartments;
Columbia, Maryland 1983 250 98% 100% 99% 94% 94% 95%
</TABLE>
Mortgage notes payable collateralized by the partnership's properties
consisted of the following as at September 30, 1999 and December 31, 1998.
MORTGAGE NOTES
<TABLE>
<CAPTION>
Principal
---------
September
30, Interest Maturity
Property 1999 1998 1997 Rate Date
-------- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Brookeville apartments $ 8,371,635 $ 8,428,579 $ 8,499,549 7.75 1-Aug-28
Dorsey's Forge apartments $ 4,250,379 $ 4,363,601 $ 4,502,891 9.25 3-May-00
Hannibal Grove apartments $ 5,780,516 $ 5,934,497 $ 6,123,931 9.25 3-May-00
----------- ----------- -----------
Total $18,402,530 $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. The
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<PAGE>
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 0.5% 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
for Multifamily Housing Projects, dated July 20, 1993 between Brookeville
Apartments Limited Partnership and the Secretary of Housing and Urban
Development as recorded in the Franklin County Recorder Volume 23319, page J05.
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 was approximately $9,446,000 at December 31, 1998.
HANNIBAL GROVE AND DORSEY'S FORGE APARTMENTS
The properties are subject to non-recourse mortgage notes for the Hannibal
Grove apartments and Dorsey's Forge apartments 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 Grove
apartments and $45,833 for the Dorsey's Forge apartments. The notes mature on
May 3, 2000 at which time all unpaid principal, $5,653,175, in the case of the
Hannibal Grove apartments, and $4,156,746, in the case of the Dorsey's Forge
apartments, and any accrued interest are due. The mortgage notes payable are
collateralized by the respective properties and may be prepaid.
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 Grove apartments and Dorsey's Forge apartments, the
fair market value was approximately $6,118,000 and $4,449,000, respectively, at
December 31, 1998.
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.
The partnership is implementing its capital improvements plan in light of
the competition in the markets served by the partnership. See "Special
Factors--Alternatives to the Merger--Continuation of the Partnership."
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<PAGE>
DISTRIBUTIONS
The table below sets forth the distribution made by the partnership to its
partners for the nine months ended September 30, 1999 and during the years ended
December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Year Ended December 31,
Nine Months Ended -----------------------------------------
September 30, 1999 1998 1997
------------------ ------------------ -------------------
Amount Per Unit Amount Per Unit Amount Per Unit
------ -------- ------ -------- ------ --------
<S> <C> <C> <C> <C> <C> <C>
Limited Partners:
Investor Limited Partners
(25,000 Units outstanding) $793,043 $ 31.72 $594,752 $ 23.79 $396,500 $ 15.86
Original Limited Partner 33,391 25,045 16,697
General Partner 8,348 6,261 4,174
-------- -------- --------
TOTAL $834,782 $626,058 $417,371
======== ======== ========
</TABLE>
Future distributions will be at the discretion of the partnership and will
be determined after consideration of a number of factors including, among
others, the partnership's financial condition, cash flows and current and
anticipated cash needs.
OWNERSHIP OF UNITS
The number of unitholders as of September 30, 1999 was approximately 588.
As of January 28, 2000, the purchaser owned 11,475.2 units, or 45.9 % of the
outstanding units.
The Krupp Family Limited Partnership-94, KRF Company, the purchaser and the
general partners are under the common control of Douglas and George Krupp. As a
result of the voting and investment agreements entered into among Equity
Resources, the purchaser, the Krupp Family Limited Partnership, KRF Company,
Douglas Krupp and George Krupp may also be deemed to each beneficially own
indirectly 1,524 units, which is approximately 6.1% of the total number of
units.
The table below sets forth the beneficial ownership interests in the units
held by the investment entities comprising the Equity Resources funds.
25
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS AMOUNT AND NATURE PERCENT
OF OF OF
TITLE OF CLASS BENEFICIAL OWNER BENEFICIAL OWNER CLASS
- -------------- ---------------- ---------------- -----
<S> <C> <C> <C>
Investor Limited Partner Units Equity Resource Fund XIX L.P. 413.00 Units 1.65%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resources Bridge Fund 30.00 Units 0.12%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource General Fund L.P. 40.00 Units 0.16%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource Fund XVI L.P. 916.00 Units 3.66%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource Brattle Fund 30.00 Units 0.12%
14 Story Street
Cambridge, MA 02138
Investor Limited Partner Units Equity Resource Cambridge Fund 95.00 Units 0.38%
14 Story Street
Cambridge, MA 02138
TOTAL 1,524.00 Units 6.1%
</TABLE>
MARKET FOR THE UNITS
The units are not traded on any established trading market and no market of
this type is expected to develop. Thus, limited information is available as to
high and low bid quotations or sales prices. In a tender offer completed in June
1999, the purchaser acquired approximately 41.2% of the outstanding units at
$550 per unit, while in April 1999 a third party had offered $425 per unit. In
December 1999, the purchaser acquired 472 units from Smithtown Bay L.L.C. at the
$550 per unit price and, in January 2000, it acquired 649.2 units from Krescent
Partners L.L.C. at $600 per unit. Smithtown Bay is entitled to receive an
additional $50 per unit for the units it previously sold to the purchaser (the
difference between the $600 per unit merger price and the $550 per unit price
Smithtown Bay received for its units).
According to The Partnership Spectrum, an independent third-party industry
publication, for the period between October 1, 1999 and November 30, 1999, a
total of ten units traded at $450 per unit. Unitholders are advised that 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. In addition, other measures of the value of the
units may be relevant to unitholders.
26
<PAGE>
RELATED PARTY TRANSACTIONS
Pursuant to the partnership's partnership agreement, the general partners
are entitled to cash distributions in respect of their interests in the
partnership. The general partners have received aggregate cash distributions in
respect of these interests of $4,174, $4,174 and $6,261 for the years ended
December 31, 1996, 1997 and 1998, respectively, and $8,348 for the nine months
ended September 30, 1999.
Pursuant to certain management agreements, the managing agent of the
partnership's properties, an affiliate of the general partners, receives
property management fees in return for its management of the properties. The
management agreements provide for the payment of monthly management fees payable
at the rate of up to 5% of rents and other income actually received by the
partnership. In addition, although the general partners and their affiliates do
not receive any fees from the partnership for the partnership administration
services provided to the partnership, the managing agent and other affiliates of
the general partners are reimbursed by the partnership for expenses incurred in
connection with the provision of services including accounting, computer,
insurance, travel, payroll, and legal services and the preparation and mailing
of reports and other communication to unitholders. For the three years ended
December 31, 1996, 1997 and 1998, and for the three months ended September 30,
1999, the partnership paid such affiliate property management fees and
reimbursement of expenses aggregating $499,495, $536,798, $540,461 and $414,678,
respectively.
SELECTED FINANCIAL DATA
The following table sets forth selected financial information regarding the
partnership's results of operations and financial position. This information
should be read in conjunction with the Consolidated Financial Statements and
Notes to those statements and other financial information included or
incorporated by reference in this document. The historical financial data as of
and for the quarters ended September 30, 1999 and 1998 have been derived from
the unaudited financial statements included in the partnership's Quarterly
Report on Form 10-Q for the quarters ended September 30, 1999 and 1998,
respectively. The historical financial data for the years ended December 31,
1998, 1997 , 1996, 1995 and 1994 have been derived from audited financial states
included in the partnership's Annual Report on Form 10-K for the year ended
December 31, 1998. See "Where You Can Find More Information."
<TABLE>
<CAPTION>
NINE MONTHS ENDED,
SEPTEMBER 30 YEAR ENDED DECEMBER 31,
------------------- -----------------------------------------------------------
1999 1998 1998 1997 1996 1995 1994
---- ---- ---- ---- ---- ---- ----
Unaudited
<S> <C> <C> <C> <C> <C> <C> <C>
Total revenues $ 5,872,518 $ 5,674,940 $ 7,608,315 $ 7,280,181 $ 6,628,658 $ 6,352,337 $ 6,215,466
Net income (loss) 439,247 432,967 536,483 (23,224) (446,360) (547,893) (453,031)
Net income (loss) allocated to:
</TABLE>
27
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C> <C>
Investor Limited Partners 417,285 411,318 509,659 (22,063) (424,042) (520,498) (430,380)
Per Unit 16.69 16.45 20.39 (0.88) (16.96) (20.82) (17.22)
Original Limited Partner 17,570 17,319 21,459 (929) 0 0 (18,121)
Net income (loss) allocated to:
General partners 4,392 4,330 5,365 (232) (22,318) (27,395) (4,530)
Total assets 11,148,667 11,789,516 11,982,905 12,354,768 13,224,310 14,384,144 15,702,150
Long-term obligations 8,259,781 18,405,225 18,289,553 18,726,677 19,126,371 19,491,853 19,827,968
DISTRIBUTIONS:
Investor Limited Partners $ 793,043 $ 594,752 $ 594,752 $ 396,500 $ 396,500 $ 297,495 $ 99,132
Per Unit 31.72 23.79 23.79 15.86 15.86 11.90 3.97
Original Limited Partner 33,391 25,045 25,045 16,697 16,697 12,526 4,174
General partners 8,348 6,261 6,261 4,174 4,174 3,132 1,043
</TABLE>
The historical performance of the partnership is not necessarily indicative of
its future operations.
28
<PAGE>
INFORMATION CONCERNING THE PURCHASER
AND ITS AFFILIATES
THE PURCHASER
The purchaser, KRF3 Acquisition Company, L.L.C., is a wholly owned
subsidiary of KRF Company whose principal business is to hold limited
partnership interests in Krupp Realty Fund, Ltd.-III. The purchaser was
initially organized for the purpose of effecting a tender offer for the units of
the partnership. In June 1999, the purchaser completed its tender offer and
purchased units representing approximately 41.2% of the outstanding units. Since
that time, the purchaser has not carried on any activities to date other than
those incident to its formation and the transactions contemplated by the merger
agreement. The purchaser has no assets and liabilities. The principal office and
place of business of the purchaser is One Beacon Street, Suite 1500, Boston,
Massachusetts 02108.
AFFILIATES OF THE PURCHASER
KRF Company was organized to conduct the business and the operations of the
purchaser. The principal office and place of business of KRF Company is One
Beacon Street, Suite 1500, Boston, Massachusetts 02108. The sole member of KRF
Company is The Krupp Family Limited Partnership-94.
The Krupp Family Limited Partnership was formed to hold and manage
investments for its partners. The general partners of The Krupp Family Limited
Partnership are Douglas Krupp and George Krupp. See "Information About The
Partnership, Its General Partners and Their Affiliates--The General Partners."
The Krupp Family Limited Partnership, KRF Company, the purchaser and the
general partners are under the common control of Douglas Krupp and George Krupp.
As a result of the voting and investment agreements entered into among Equity
Resources, the purchaser, KRF Company, The Krupp Family Limited Partnership,
Douglas Krupp and George Krupp may be deemed to each beneficially own indirectly
1,524 units, which is 6.1% of the total number of units.
All information contained in this proxy statement concerning the purchaser
is based upon statements and representations made by the purchaser or its
representatives to the partnership or its representatives.
WHERE YOU CAN FIND MORE INFORMATION
GENERAL
29
<PAGE>
The partnership files reports with the Securities and Exchange Commission
on a regular basis. Unitholders may read or copy any document that the
partnership files with the Commission at the Commission's Public Reference Room
at 450 Fifth Street, N.W., Washington, D.C. 20549. Unitholders may obtain
information about the Public Reference Room by calling the Commission for
further information at 1-800-SEC-0330. The partnership's Commission filings are
also available from the Commission's web site at www.sec.gov.
The following documents previously filed by the partnership with the
Securities and Exchange Commission are incorporated in this proxy statement by
reference:
(a) Annual Report on Form 10-K for the year ended December 31, 1998 as filed on
March 31, 1999; and
(b) Quarterly Report on Form 10-Q for the quarter ended September 30, 1999 as
filed on November 15, 1999.
All documents filed by the partnership pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the date of this document and
before the date of the special meeting or any adjournment or postponement of the
meeting will be deemed to be incorporated by reference and made a part of this
document from the date of the filing of these documents. Any statement contained
in a document incorporated or deemed to be incorporated by reference in this
document will be deemed to be modified or superseded for purposes of this proxy
statement to the extent that a statement contained in this document or in any
other document subsequently filed with the Commission which also is deemed to be
incorporated by reference in this document modified or supersedes the statement.
Any statement so modified or superseded will not be deemed, except as so
modified or superseded, to constitute a part of this proxy statement.
The purchaser, KRF Company and The Krupp Family Limited Partnership are
affiliates of the partnership. Accordingly, they have jointly filed with the
Commission a Schedule 13E-3. This proxy statement does not contain all of the
information contained in the Schedule 13E-3, some of which is omitted as
permitted by Commission rules. Statements made in this proxy statement, while
complete in all material respects, are qualified by reference to documents filed
as exhibits to the Schedule 13E-3. The Schedule 13E-3, including exhibits, is
available for inspection and copying at the Commission as described above.
The purchaser and the general partners are not public companies and are not
required to file reports of any type with the Commission.
INDEPENDENT ACCOUNTS
30
<PAGE>
The consolidated financial statements and financial statement schedule of
the partnership appearing in this proxy statement have been audited by
PricewaterhouseCoopers LLP, independent auditors, as set forth in their report
included in this document. These consolidated financial statements and financial
statement schedule are included in this document and incorporated in this
document by reference. It is expected that representatives of
PricewaterhouseCoopers LLP will be present at the special meeting, both to
respond to appropriate questions of unitholders and to make a statement if they
so desire.
31
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants F-2
Consolidated Balance Sheets for December 31, 1998
and December 31, 1997 F-3
Consolidated Statements of Operations For the Years
Ended December 31, 1998, 1997 and 1996 F-4
Consolidated Statements of Changes in Partners' Deficit
For the Years Ended December 31, 1998, 1997 and 1996 F-5
Consolidated Statements of Cash Flows For the Years Ended
December 31, 1998, 1997 and 1996 F-6
Notes to Consolidated Financial Statements F-7-F-15
Schedule III - Real Estate and Accumulated Depreciation F-16-F-17
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Partners of
Krupp Realty Fund, Ltd.-III and Subsidiary:
In our opinion, the consolidated financial statements and the financial
statement schedule listed in the index on page F-1 present fairly, in all
material respects, the financial position of Krupp Realty Fund, Ltd.-III and its
Subsidiary (the "Partnership") at December 31, 1998 and December 31, 1997, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements and financial statement
schedule are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Boston, Massachusetts
February 10, 1999
F-2
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
December 31, 1998 and 1997
<TABLE>
<CAPTION>
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
Multi-family apartment complexes,
net of accumulated depreciation of
$21,977,268 and $20,216,642,
respectively (Note D) $ 9,784,836 $ 10,519,769
Cash and cash equivalents (Note C) 932,065 552,221
Replacement reserve escrow (Note D) 160,954 177,778
Cash restricted for tenant
security deposits 229,416 202,691
Prepaid expenses and other assets 614,911 595,696
Deferred expenses, net of accumulated
amortization of $258,861 and $212,971,
respectively 260,723 306,613
------------ ------------
Total assets $ 11,982,905 $ 12,354,768
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable (Note D) $ 18,726,677 $ 19,126,371
Accrued expenses and other liabilities
(Note E) 601,319 683,413
Due to affiliates (Note G) 199,500 --
------------ ------------
Total liabilities 19,527,496 19,809,784
============ ============
Commitment (Note F)
Partners' deficit (Note F):
Investor Limited Partners
(25,000 Units outstanding) (6,305,460) (6,220,367)
Original Limited Partner (909,737) (906,151)
General Partners (329,394) (328,498)
------------ ------------
Total Partners' deficit (7,544,591) (7,455,016)
------------ ------------
Total liabilities and Partners'
deficit $ 11,982,905 $ 12,354,768
============ ============
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-3
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenue:
Rental ............................ $ 7,541,280 $ 7,224,085 $ 6,568,309
Other income ...................... 67,035 56,096 60,349
----------- ----------- -----------
Total revenue .............. 7,608,315 7,280,181 6,628,658
----------- ----------- -----------
Expenses:
Operating (Note G) ................ 2,004,219 2,041,820 1,991,923
Maintenance ....................... 591,235 578,869 556,909
Real estate taxes ................. 559,440 539,978 504,867
General and administrative (Note G) 66,012 101,687 93,995
Management fees (Note G) .......... 376,570 357,766 326,363
Depreciation and amortization ..... 1,806,516 1,980,892 1,866,979
Interest (Note D) ................. 1,667,840 1,702,393 1,733,982
----------- ----------- -----------
Total expenses ............. 7,071,832 7,303,405 7,075,018
----------- ----------- -----------
Net income (loss) (Note H) .............. $ 536,483 $ (23,224) $ (446,360)
=========== =========== ===========
Allocation of net income (loss)
(Note F):
Investor Limited Partners
(25,000 Units outstanding) ........ $ 509,659 $ (22,063) $ (424,042)
=========== =========== ===========
Investor Limited Partners
Per Unit ................... $ 20.39 $ (.88) $ (16.96)
=========== =========== ===========
Original Limited Partner .......... $ 21,459 $ (929) $ --
=========== =========== ===========
General Partners .................. $ 5,365 $ (232) $ (22,318)
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-4
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Balance at
December 31, 1995 $(4,981,262) $ (871,828) $ (297,600) $(6,150,690)
Net loss (424,042) -- (22,318) (446,360)
Distributions (396,500) (16,697) (4,174) (417,371)
----------- ----------- ----------- -----------
Balance at
December 31, 1996 (5,801,804) (888,525) (324,092) (7,014,421)
Net loss (22,063) (929) (232) (23,224)
Distributions (396,500) (16,697) (4,174) (417,371)
----------- ----------- ----------- -----------
Balance at
December 31, 1997 (6,220,367) (906,151) (328,498) (7,455,016)
Net income (Note F) 509,659 21,459 5,365 536,483
Distributions (Note F) (594,752) (25,045) (6,261) (626,058)
----------- ----------- ----------- -----------
Balance at
December 31, 1998 $(6,305,460) $ (909,737) $ (329,394) $(7,544,591)
=========== =========== =========== ===========
</TABLE>
The per Unit distribution for the years ended December 31, 1998, 1997 and 1996
were $23.79, $15.86 and $15.86, respectively, none of which represented a return
of capital.
The accompanying notes are an integral
part of the consolidated financial statements.
F-5
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 536,483 $ (23,224) $ (446,360)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation and amortization 1,806,516 1,980,892 1,866,979
Interest earned on replacement reserve
escrow (7,392) (4,889) --
Changes in assets and liabilities:
Decrease (increase) in cash
restricted for tenant security
deposits (26,725) (18,933) 19,192
Decrease (increase) in prepaid
expenses and other assets (19,215) 7,394 (6,836)
Increase (decrease) in due to
affiliates 199,500 -- (10,790)
Increase (decrease) in accrued
expenses and other liabilities (82,094) (54,465) 39,895
----------- ----------- -----------
Net cash provided by
operating activities 2,407,073 1,886,775 1,462,080
=========== =========== ===========
Cash flows from investing activities:
Additions to fixed assets (1,025,693) (949,541) (996,817)
Increase (decrease) in accrued expenses
and other liabilities related to
fixed asset additions -- (9,000) 9,000
Withdrawals from replacement reserve
escrow 86,111 -- 153,250
Deposits to replacement reserve escrow (61,895) (61,895) (61,895)
----------- ----------- -----------
Net cash used in investing
activities (1,001,477) (1,020,436) (896,462)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments on mortgage
notes payable (399,694) (365,482) (334,208)
Distributions (626,058) (417,371) (417,371)
----------- ----------- -----------
Net cash used in
financing activities (1,025,752) (782,853) (751,579)
----------- ----------- -----------
Net increase (decrease) in cash and
cash equivalents 379,844 83,486 (185,961)
Cash and cash equivalents, beginning
of the year 552,221 468,735 654,696
----------- ----------- -----------
Cash and cash equivalents,
end of the year $ 932,065 $ 552,221 $ 468,735
=========== =========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-6
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A. ORGANIZATION
Krupp Realty Fund, Ltd.-III ("KRF-III") was formed on April 23, 1982 by
filing a Certificate of Limited Partnership in The Commonwealth of
Massachusetts. KRF-III terminates on December 31, 2020, unless earlier
terminated upon the sale of the last of KRF-III's properties or the
occurrence of certain other events as set forth in the Partnership
Agreement.
KRF-III issued all of the General Partner Interests to The Krupp Company, a
Massachusetts limited partnership, and The Krupp Corporation, a
Massachusetts corporation, in exchange for capital contributions
aggregating $1,000. Except under certain limited circumstances upon
termination of KRF-III, the General Partners are not required to make any
additional capital contributions. KRF-III also issued all of the Original
Limited Partner Interests to The Krupp Company in exchange for a capital
contribution of $4,000. The Original Limited Partner is not required to
make any additional capital contributions to KRF-III.
On June 4, 1982, KRF-III commenced an offering of up to 25,000 units of
Investor Limited Partner Interests (the "Units") for $1,000 per Unit. As of
September 29, 1982, KRF-III received subscriptions for all 25,000 Units and
therefore, the public offering was successfully completed on that date.
In 1993, the General Partners formed Brookeville Apartments Limited
Partnership ("Brookeville L.P.") as a prerequisite for the refinancing of
Brookeville Apartments ("Brookeville") with the Department of Housing and
Urban Development ("HUD"). At the same time, the General Partners
transferred ownership of Brookeville to Brookeville L.P. The General
Partner of Brookeville L.P. is the Westcop Corporation ("Westcop") and
KRF-III is the Limited Partner in Brookeville L.P. Westcop has beneficially
assigned its interest in Brookeville L.P. to KRF-III. KRF-III and
Brookeville L.P. are collectively known as Krupp Realty Fund, Ltd.-III and
Subsidiary (the "Partnership").
B. SIGNIFICANT ACCOUNTING POLICIES
The Partnership uses the following accounting policies for financial
reporting purposes, which may differ in certain respects from those used
for federal income tax purposes (see Note H).
BASIS OF PRESENTATION
The consolidated financial statements present the consolidated assets,
liabilities and operations of the Partnership. All intercompany
balances and transactions have been eliminated.
RISKS AND UNCERTAINTIES
The Partnership invests its cash primarily in deposits and money
market funds with commercial banks. The Partnership has not
experienced any losses to date on its invested cash.
Continued
F-7
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. SIGNIFICANT ACCOUNTING POLICIES, Continued
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities,
contingent assets and liabilities and revenues and expenses during the
reporting period. Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
The Partnership includes all short-term investments with maturities of
three months or less from the date of acquisition in cash and cash
equivalents. The cash investments are recorded at cost, which approximates
current market values.
RENTAL REVENUES
Leases require the payment of rent monthly in advance. Rental revenues are
recorded on the accrual basis.
DEPRECIATION
Depreciation is provided for by the use of the straight-line method over
estimated useful lives as follows:
<TABLE>
<S> <C>
Buildings and improvements 5 to 25 years
Appliances, carpeting and equipment 3 to 8 years
</TABLE>
IMPAIRMENT OF LONG-LIVED ASSETS
Real estate assets and equipment are stated at depreciated cost. Pursuant
to Statement of Financial Accounting Standards Opinion No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
of", impairment losses are recorded on long-lived assets used in operations on a
property by property basis, when events and circumstances indicate that the
assets might be impaired and the estimated undiscounted cash flows to be
generated by those assets are less than the carrying amount of those assets.
Upon determination that an impairment has occurred, those assets shall be
reduced to fair value.
Continued
F-8
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
B. SIGNIFICANT ACCOUNTING POLICIES, Continued
DEFERRED EXPENSES
Costs of obtaining and recording mortgages are amortized over the life of
the related mortgage notes using the straight-line method which
approximates the effective interest method.
INCOME TAXES
The Partnership is not liable for federal or state income taxes as
Partnership income or loss is allocated to the Partners for income tax
purposes. In the event the Partnership's tax returns are examined by the
Internal Revenue Service or state taxing authority and the examination
results in a change in Partnership taxable income or loss, such change will
be reported to the Partners.
DESCRIPTIVE INFORMATION ABOUT REPORTABLE SEGMENTS
During the fourth quarter of 1998, the Partnership adopted the Financial
Accounting Standards Board's Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related
Information ("Statement No. 131"). Statement No. 131 superseded FASB
Statement No. 14, "Financial Reporting for Segments of a Business
Enterprise". Statement No. 131 establishes standards for the way that
public business enterprises report information regarding reportable
operating segments. The adoption of Statement No. 131 did not affect the
results of operations or financial position of the Partnership.
The Partnership operates and develops apartment communities which generate
rental and other income through the leasing of apartment units. The General
Partners separately evaluate the performance of each of the Partnership's
apartment communities. However, because each of the apartment communities
have similar economic characteristics, facilities, services and tenants,
the apartment communities have been aggregated into a single dominant
apartment communities segment.
All revenues are from external customers and no revenues are generated from
transactions with other segments. There are no tenants which contributed
10% or more of the Partnership's total revenue during 1998, 1997 or 1996.
RECLASSIFICATIONS
Certain prior year balances have been reclassified to conform with current
year consolidated financial statement presentation.
Continued
F-9
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
C. CASH AND CASH EQUIVALENTS
Cash and cash equivalents consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1998 1997
-------- --------
<S> <C> <C>
Cash and money market accounts $682,656 $402,783
Commercial paper 249,409 149,438
-------- --------
$932,065 $552,221
======== ========
</TABLE>
The properties owned by the Partnership are pledged as collateral for the
non-recourse mortgage notes outstanding at December 31, 1998 and 1997.
Mortgage notes payable consisted of the following:
<TABLE>
<CAPTION>
Annual
Principal Interest
Property 1998 1997 Rate Maturity Date
--------------------------- ----------- ----------- ------ --------------
<S> <C> <C> <C> <C>
Brookeville
Apartments $ 8,428,579 $ 8,499,549 7.75% August 1, 2028
Dorsey's Forge
Apartments and
Oakland Meadows
Apartments 4,363,601 4,502,891 9.25% May 3, 2000
Hannibal Grove
Apartments 5,934,497 6,123,931 9.25% May 3, 2000
--------- ---------
Total $18,726,677 $19,126,371
=========== ===========
</TABLE>
Continued
F-10
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. MORTGAGE NOTES PAYABLE
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.
Continued
F-11
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
D. MORTGAGE NOTE PAYABLE, continued
HANNIBAL GROVE APARTMENTS, continued
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.
E. ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities consisted of the following at December
31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Accounts payable $ 1,016 $ --
Accrued real estate taxes 161,258 162,030
Other liabilities 191,934 288,703
Tenant security deposits 219,272 186,065
Prepaid rent 27,839 46,615
-------- --------
$601,319 $683,413
======== ========
</TABLE>
F. PARTNERS' DEFICIT
Under the terms of the Partnership Agreement, profits and losses from operations
are allocated 95% to the Investor Limited Partners, 4% to the Original Limited
Partner and 1% to the General Partners until such time that the Investor Limited
Partners have received a return of their total invested capital plus a 9% per
annum Cumulative Return on Investment thereon and thereafter, 65% to the
Investor Limited Partners, 28% to the Original Limited Partner and 7% to the
General Partners.
Also, under the Partnership Agreement, cash distributions from operations are
generally made on the same basis as the allocations of profits and losses
described above. Net cash proceeds, as determined by the General Partners,
resulting from transactions such as refinancing or sale of a property, are to be
distributed as follows: 1) to the Investor Limited Partners until they have
received a return of their total Invested
Continued
F-12
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
F. PARTNERS' DEFICIT, Continued
Capital; 2) to the Investor Limited Partners until they have received an amount
equal to their Cumulative Return on Investment in respect of all fiscal years of
the Partnership; 3) to the Original Limited Partner and General Partners until
they have received a return of their total Invested Capital; 4) to an
unaffiliated brokerage firm to the extent of any subordinated Financial
Consulting Fee then due, and; 5) any remaining Cash Proceeds shall be
distributed 65% to the Investor Limited Partners, 28% to the Original Limited
Partner and 7% to the General Partners. Notwithstanding anything above, the
General Partners shall, under all circumstances, receive at least 1% of all
distributions of net cash proceeds from a capital transaction.
Per the Partnership Agreement, profits from capital transactions are to be
allocated to the extent of cash distributions described above, first to the
Investor Limited Partners until they have received a return of their total
Invested Capital. Losses from capital transactions are to be allocated to the
extent of cash distributions described above, first to the Investor Limited
Partners until they have received a return of their total Invested Capital plus
their Cumulative Return on Investment. Thereafter, profits and losses from
capital transactions are to be allocated in accordance with the Partnership
Agreement. Notwithstanding anything above, the General Partners shall be
allocated, under all circumstances, at least 1% of all profits and losses from
capital transactions.
For income tax purposes, the allocation of Partnership items is determined
according to the Partnership Agreement, to the extent that each allocation has
"substantial economic effect" pursuant to the Internal Revenue Code, Section
704. In the event that an allocation does not meet these statutory requirements,
Partnership items will be reallocated according to these provisions. For 1996,
reallocation was necessary. The consolidated financial statements presented
herein reflect the allocation of net loss in accordance with the rules of the
Internal Revenue Code for the year ended December 31, 1996.
Continued
F-13
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
F. PARTNERS' DEFICIT, Continued
As of December 31, 1998, the following cumulative partner contributions and
allocations have been made since the inception of the Partnership:
<TABLE>
<CAPTION>
Investor Original
Limited Limited General
Partners Partner Partners Total
-------- ------- -------- -----
<S> <C> <C> <C> <C>
Capital contributions $ 25,000,000 $ 4,000 $ 1,000 $ 25,005,000
Syndication costs (3,486,600) -- -- (3,486,600)
Cash distributions
from operations (10,706,873) (450,813) (112,701) (11,270,387)
Cash distributions from
refinancing proceeds (5,173,000) -- (52,252) (5,225,252)
Net loss from operations (21,341,654) (858,825) (264,417) (22,464,896)
Net income from capital
transaction 9,402,667 395,901 98,976 9,897,544
------------ ------------ ------------ ------------
Balance at
December 31, 1998 $ (6,305,460) $ (909,737) $ (329,394) $ (7,544,591)
============ ============ ============ ============
</TABLE>
G. RELATED PARTY TRANSACTIONS
The Partnership pays property management fees to an affiliate of the
General Partners for management services. Pursuant to the management
agreements, management fees are payable monthly at a rate of 5% of the
gross receipts from the properties under management. The Partnership also
reimburses affiliates of the General Partners for certain expenses incurred
in connection with the operation of the Partnership and its properties,
including administrative expenses.
Amounts paid to the General Partners' affiliates during the years ended
December 31, 1998, 1997 and 1996 were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Property management fees $376,570 $357,766 $326,363
Expense reimbursements 163,891 179,032 173,132
-------- ------- -------
Charged to operations $540,461 $536,798 $499,495
======== ======== ========
</TABLE>
Due to affiliates consisted of expense reimbursements of $199,500 at December
31, 1998.
F-14
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
H. FEDERAL INCOME TAXES
For federal income tax purposes, the Partnership is depreciating property
under the Accelerated Cost Recovery System ("ACRS") and the Modified
Accelerated Cost Recovery System ("MACRS"), depending on which is
applicable.
The reconciliation of the net income (loss) reported in the accompanying
Consolidated Statement of Operations with the net loss reported in the
Partnership's 1998, 1997 and 1996 federal income tax returns is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss) per Consolidated
Statement of Operations $ 536,483 $ (23,224) $ (446,360)
Difference in book to tax
depreciation and amortization 1,164,574 557,885 221,435
---------- ---------- ----------
Net income (loss) for federal
income tax purposes $1,701,057 $ 534,661 $ (224,925)
========== ========== ==========
</TABLE>
The allocation of the net income for federal income tax purposes for the
year ended December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Portfolio Passive
Income Income Total
---------- ---------- ----------
<S> <C> <C> <C>
Investor Limited Partners $ 63,141 $1,552,863 $1,616,004
Original Limited Partner 2,658 65,384 68,042
General Partners 665 16,346 17,011
---------- ---------- ----------
$ 66,464 $1,634,593 $1,701,057
========== ========== ==========
</TABLE>
During the years ended December 31, 1998, 1997 and 1996 the per Unit net
income (loss) to the Investor Limited Partners for federal income tax
purposes was $64.64, $21.17 and $(8.55), respectively.
The basis of the Partnership's assets for financial reporting purposes
exceeds its tax basis by approximately $2,288,000 and $3,451,000 at
December 31, 1998 and 1997, respectively. The tax and book basis of the
Partnership's liabilities are the same.
F-15
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Costs to Partnership Acquisition
---------------------------- -----------
Buildings Buildings
and and Depreciable
Description Encumbrances Land Improvements Improvements Life
----------- ------------ ---- ------------ ------------ ----
<S> <C> <C> <C> <C> <C>
Brookeville
Apartments
Columbus, OH $ 8,428,579 $ 623,126 $ 8,312,134 $ 4,158,128 3 to 25 years
Hannibal Grove
Apartments
Columbia, MD 5,934,497 518,519 6,883,945 4,198,244 3 to 25 years
Dorsey's Forge &
Oakland Meadows
Apartments
Columbia, MD 4,363,601 340,956 4,521,895 2,205,157 3 to 25 years
----------- ----------- ----------- -----------
Total $18,726,677 $ 1,482,601 $19,717,974 $10,561,529
=========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
Gross Amounts Carried At
End of Year
------------------------
Buildings Year
and Accumulated Year Construction
Description Land Improvements Total Depreciation Acquired Completed
- --------------- ---------- ------------ ----------- ------------ -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Brookeville
Apartments
Columbus, OH $ 623,126 $12,470,262 $13,093,388 $ 9,015,376 1983 1975
Hannibal Grove
Apartments
Columbia, MD 518,519 11,082,189 11,600,708 8,213,191 1983 1970
Dorsey's Forge &
Oakland Meadows
Apartments
Columbia, MD 340,956 6,727,052 7,068,008 4,748,701 1983 1970
----------- ----------- ----------- -----------
Total $ 1,482,601 $30,279,503 $31,762,104 $21,977,268
=========== =========== =========== ===========
</TABLE>
Continued
F-16
<PAGE>
KRUPP REALTY FUND, LTD.-III AND SUBSIDIARY
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION, Continued
December 31, 1998
Reconciliation of Real Estate and Accumulated Depreciation for each of the three
years in the period ended December 31, 1998:
<TABLE>
<CAPTION>
REAL ESTATE 1998 1997 1996
----------- ----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $30,736,411 $29,786,870 $28,790,053
Acquisition and improvements 1,025,693 949,541 996,817
----------- ----------- -----------
Balance at end of year $31,762,104 $30,736,411 $29,786,870
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
ACCUMULATED DEPRECIATION 1998 1997 1996
---------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year $20,216,642 $18,281,640 $16,460,550
Depreciation expense 1,760,626 1,935,002 1,821,090
----------- ----------- -----------
Balance at end of year $21,977,268 $20,216,642 $18,281,640
=========== =========== ===========
</TABLE>
Note: The Partnership uses the cost basis for property valuation for both income
tax and financial statement purposes. The aggregate cost for federal income tax
purposes at December 31, 1998 is $31,775,676, and the aggregate accumulated
depreciation for federal income tax purposes is $24,267,669.
F-17
<PAGE>
INDEX TO CONSOLIDATED QUARTERLY (UNAUDITED) FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consolidated Balance Sheets at September 30, 1999 (unaudited) and
December 31, 1998 F-19
Consolidated Statements of Operations (unaudited) for the three months ended
September 30, 1999 and September 30, 1998; and for the nine months ended
September 30, 1999 and September 30, 1998 F-20
Consolidated Statements of Cash Flows (unaudited) for the nine months ended
September 30, 1999 and September 30, 1998 F-21
Notes to Consolidated Financial Statements (unaudited) F-22-23
Management's Discussion and Analysis of Financial
Condition and Results of Operations F-24-F-26
</TABLE>
F-18
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
Multi-family apartment complexes,
net of accumulated depreciation of
$23,243,661 and $21,977,268, respectively $ 9,277,242 $ 9,784,836
Cash and cash equivalents 435,454 932,065
Replacement reserve escrow 211,780 160,954
Cash restricted for tenant security deposits 234,386 229,416
Prepaid expenses and other assets 763,499 614,911
Deferred expenses, net of accumulated
amortization of $293,278 and $258,861,
respectively 226,306 260,723
------------ ------------
Total assets $ 11,148,667 $ 11,982,905
============ ============
LIABILITIES AND PARTNERS' DEFICIT
Liabilities:
Mortgage notes payable $ 18,402,530 $ 18,726,677
Accrued expenses and other liabilities 686,263 601,319
Due to affiliates (Note 3) -- 199,500
------------ ------------
Total liabilities 19,088,793 19,527,496
------------ ------------
Partners' deficit (Note 2):
Investor Limited Partners
(25,000 Units outstanding) (6,681,218) (6,305,460)
Original Limited Partner (925,558) (909,737)
General Partners (333,350) (329,394)
------------ ------------
Total Partners' deficit (7,940,126) (7,544,591)
------------ ------------
Total liabilities and
Partners' deficit 11,148,667 11,982,905
============ ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-19
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
----------------------- -----------------------
1999 1998 1999 1998
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Revenue:
Rental $2,004,789 $1,878,976 $5,828,192 $5,625,386
Other income 12,636 19,141 44,326 49,554
---------- ---------- ---------- ----------
Total revenue 2,017,425 1,898,117 5,872,518 5,674,940
---------- ---------- ---------- ----------
Expenses:
Operating (Note 3) 551,992 479,416 1,604,862 1,493,016
Maintenance 165,240 178,257 475,110 415,508
Real estate taxes 136,443 139,657 421,254 416,842
General and administrative
(Note 3) 19,357 16,649 114,705 52,837
Management fees (Note 3) 97,416 94,529 289,737 281,469
Depreciation and
amortization 444,333 507,842 1,300,811 1,327,983
Interest 406,315 415,868 1,226,792 1,254,318
---------- ---------- ---------- ----------
Total expenses 1,821,096 1,832,218 5,433,271 5,241,973
---------- ---------- ---------- ----------
Net income $ 196,329 $ 65,899 $ 439,247 $ 432,967
========== ========== ========== ==========
Allocation of net income (Note 2):
Investor Limited Partners
(25,000 Units
outstanding) $ 186,513 $ 62,603 $ 417,285 $ 411,318
========== ========== ========== ==========
Investor Limited Partners
Per Unit $ 7.46 $ 2.50 $ 16.69 $ 16.45
========== ========== ========== ==========
Original Limited
Partner $ 7,853 $ 2,636 $ 17,570 $ 17,319
========== ========== ========== ==========
General Partners $ 1,963 $ 660 $ 4,392 $ 4,330
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-20
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
----------------------
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 439,247 $ 432,967
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,300,811 1,327,983
Interest earned on replacement reserve
escrow (4,405) (2,624)
Changes in assets and liabilities:
Increase in cash restricted
for tenant security deposits (4,970) (4,696)
Increase in prepaid expenses and
other assets (148,588) (22,228)
Decrease in due to affiliates (199,500) --
Increase (decrease) in accrued
expenses and other liabilities 84,944 (75,769)
----------- -----------
Net cash provided by operating
activities 1,467,539 1,655,633
----------- -----------
Cash flows from investing activities:
Additions to fixed assets (758,800) (738,948)
Deposits to replacement reserve escrow (46,421) (46,421)
Withdrawals from replacement reserve escrow -- 86,111
----------- -----------
Net cash used in investing
activities (805,221) (699,258)
----------- -----------
Cash flows from financing activities:
Distributions (834,782) (626,058)
Principal payments on mortgage notes payable (324,147) (296,392)
----------- -----------
Net cash used in financing
activities (1,158,929) (922,450)
----------- -----------
Net (decrease)increase in cash and cash
equivalents (496,611) 33,925
Cash and cash equivalents, beginning of period 932,065 552,221
----------- -----------
Cash and cash equivalents, end of period $ 435,454 $ 586,146
=========== ===========
</TABLE>
The accompanying notes are an integral
part of the consolidated financial statements.
F-21
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) ACCOUNTING POLICIES
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted in this report on Form 10-Q
pursuant to the Rules and Regulations of the Securities and Exchange
Commission. In the opinion of the General Partners of Krupp Realty Fund,
Ltd.-III and Subsidiary (the "Partnership"), the disclosures contained in
this report are adequate to make the information presented not misleading.
See Notes to Consolidated Financial Statements included in the
Partnership's Annual Report on Form 10-K for the year ended December 31,
1998 for additional information relevant to significant accounting policies
followed by the Partnership.
In the opinion of the General Partners of the Partnership, the accompanying
unaudited consolidated financial statements reflect all adjustments
(consisting of only normal recurring accruals) necessary to present fairly
the Partnership's consolidated financial position as of September 30,
1999, its results of operations for the three and nine months ended
September 30, 1999 and 1998, and its cash flows for nine months ended
September 30, 1999 and 1998. Certain prior period balances have been
reclassified to conform with current period consolidated financial
statement presentation.
The results of operations for the three and nine months ended September 30,
1999 are not necessarily indicative of the results which may be expected
for the full year. See Management's Discussion and Analysis of Financial
Condition and Results of Operations included in this report.
(2) CHANGES IN PARTNERS' DEFICIT
A summary of changes in Partners' deficit for the nine months ended
September 30, 1999 is as follows:
<TABLE>
<CAPTION>
Investor Original Total
Limited Limited General Partners'
Partners Partner Partners Deficit
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance at
December 31, 1998 $(6,305,460) $ (909,737) $ (329,394) $(7,544,591)
Net income 417,285 17,570 4,392 439,247
Distributions (793,043) (33,391) (8,348) (834,782)
----------- ----------- ----------- -----------
Balance at
September 30, 1999 $(6,681,218) $ (925,558) $ (333,350) $(7,940,126)
=========== =========== =========== ===========
</TABLE>
F-22
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, Continued
(3) RELATED PARTY TRANSACTIONS
The Partnership pays property management fees to an affiliate of the
General Partners for management services. Pursuant to the management
agreements, management fees are payable monthly at a rate of 5% of the
gross receipts from the properties under management. The Partnership also
reimburses affiliates of the General Partners for certain expenses incurred
in connection with the operation of the Partnership and its properties,
including administrative expenses.
Amounts accrued or paid to the General Partners' affiliates were as
follows:
<TABLE>
<CAPTION>
For the Three Months For the Nine Months
Ended September 30, Ended September 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Property management fees $ 97,416 $ 94,529 $289,737 $281,469
Expense reimbursements 40,702 41,522 124,941 102,989
-------- -------- -------- --------
Charged to operations $138,118 $136,051 $414,678 $384,458
======== ======== ======== ========
</TABLE>
Expense reimbursements of $25,580 are included in prepaid expenses and other
assets at September 30, 1999 and $199,500 are included in due to affiliates at
December 31, 1998.
F-23
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains forward-looking statements including those concerning
Management's expectations regarding the future financial performance and future
events. These forward-looking statements involve significant risk and
uncertainties, including those described herein. Actual results may differ
materially from those anticipated by such forward-looking statements.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's ability to generate cash adequate to meet its needs is
dependent primarily upon the operations of its real estate investments. Such
ability is also dependent upon 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, as calculated under Section 8.2(a)
of the Partnership Agreement, will then be available for distribution to the
Partners.
The General Partners, on an ongoing basis, assess the current and future
liquidity needs in determining the levels of working capital reserves the
Partnership should maintain. Adjustments to distributions are made when
appropriate to reflect such assessments. The current annual distribution rate is
$31.72 per Unit, and is paid semiannually in February and August.
In the third quarter of 1999, occupancy rates for the Partnership's properties
("Properties") remained below the historically high levels achieved in 1998 of
between 99% and 100% as of December 31, 1998 with rates of approximately 98% (in
the case of the Hannibal Grove Apartments), 97% (in the case of the Brookeville
Apartments) and 98% (in the case of the Dorsey's Forge Apartments) as of
September 30, 1999.
In March 1999, the Property Manager prepared a five year capital improvement
plan (the "Capital Plan") setting forth capital improvements that it believes a
third party purchaser of the Properties would regard as necessary to maintain
the Properties' current occupancy and rent levels (subject to inflationary
increases), in light of the increased competition in the markets served by the
Partnership. The aggregate cost of implementing the five year Capital Plan is
estimated to be approximately $10,000,000.
The General Partners are in the process of finalizing the Capital Plan, which
may not be practicable for the Partnership to implement promptly and fully
because of the possible need for additional investment of capital, additional
borrowings and/or the discontinuation of future cash distributions from the
Partnership. However, the General Partners believe additional capital
improvements will be needed in the future and may be over and above historical
levels.
F-24
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
YEAR 2000
The General Partners of the Partnership conducted an assessment of the
Partnership's core internal and external computer information systems and have
taken the necessary steps to understand the nature and extent of the work
required to make its systems Year 2000 ready in those situations in which it is
required to do so. The Year 2000 readiness issue concerns the inability of
computerized information systems to accurately calculate, store or use a date
after 1999. This could result in a system failure or miscalculations causing
disruptions of operations. The Year 2000 issue affects virtually all companies
and organizations.
In this regard, the General Partners of the Partnership, along with certain
affiliates, began a computer systems project in 1997 to significantly upgrade
its existing hardware and software. The General Partners completed the testing
and conversion of the financial accounting operating systems in February 1998.
As a result, the General Partners have generated operating efficiencies and
believe their financial accounting operating systems are Year 2000 ready. The
General Partners incurred hardware costs as well as consulting and other
expenses related to the infrastructure and facilities enhancements necessary to
complete the upgrade and prepare for the Year 2000. There are no other
significant internal systems or software that the Partnership is using at the
present time.
The General Partners of the Partnership have evaluated Year 2000 compliance
issues with respect to its non-financial systems, such as computer controlled
elevators, boilers, chillers and other miscellaneous systems. The General
Partners do not anticipate any problems in its non-financial systems.
The General Partners of the Partnership surveyed the Partnership's material
third-party service providers (including but not limited to its banks and
telecommunications providers) and significant vendors and received assurances
that such providers and vendors are to be Year 2000 ready. The General Partners
do not anticipate any problems with such providers and vendors that would
materially impact its results of operations, liquidity or capital resources.
In addition, the Partnership is also subject to external forces that might
generally affect industry and commerce, such as utility and transportation
company Year 2000 readiness failures and related service interruptions. However,
the General Partners do not anticipate these would materially impact its results
of operations, liquidity or capital resources.
To date, the Partnership has not incurred, and does not expect to incur, any
significant cost associated with being Year 2000 ready.
F-25
<PAGE>
KRUPP REALTY FUND, LTD. - III AND SUBSIDIARY
OPERATIONS
Net income increased for the three and nine months ended September 30, 1999, as
compared to the three and nine months ended September 30, 1998, as expenses for
the three months ended September 30, 1999 remained relatively stable while total
revenue for the period increased and the increase in expenses for the nine
months ended September 30, 1999 was less than the increase in total revenue for
the period.
Total revenue increased for the three and nine months ended September 30, 1999,
as compared to the three and nine months ended September 30, 1998, primarily due
to rental rate increases implemented at all the Partnership's properties.
Total expenses remained stable for the three months ended September 30, 1999, as
compared to the same period in 1998 as increases in operating expenses were
offset by decreases in depreciation and amortization. Operating expense
increased in 1999 as a result of an increase in workmen's compensation expense
due to an adjustment to the workmen's compensation reserve in 1998 as well as
increases in utility expenses. Depreciation and amortization expense decreased
as previously purchased fixed assets became fully depreciated.
Total expenses increased for the nine months ended September 30, 1999 as
compared to the same period in 1998 as a result of increases in operating,
general and administration and maintenance expenses. Operating expense increased
in 1999 as a result of an increase in workmen's compensation expense due to an
adjustment to the workmen's compensation reserve in 1998 as well as increases in
payroll and utility expenses. General and administrative expenses increased as a
result of increases in legal costs primarily associated with the Partnership's
response to the tender offer made by Madison Liquidity Investors 104, LLC to
purchase Partnership units during the second quarter. Maintenance increased due
to increases in snow removal expenses at all properties during the first
quarter, increases in landscaping expenses at Dorsey's Forge and Brookeville and
increases in plumbing expenses at Dorsey's Forge and Hannibal Grove.
F-26
<PAGE>
TABLE OF CONTENTS
<TABLE>
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Page
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SUMMARY TERM SHEET ..................................................... 1
Purpose of the special meeting .................................... 1
What you will receive in the merger ............................... 1
Purposes of and reasons for the merger ............................ 1
Fairness of the merger ............................................ 1
Primary potential disadvantages of the merger ..................... 1
Conflicts of Interest ............................................. 1
The amendment...................................................... 2
Vote required ..................................................... 2
Financing of the merger ........................................... 2
Material federal income tax consequences .......................... 2
Market information ................................................ 3
Rights of appraisal ............................................... 3
Information on Voting.............................................. 3
Who can help answer your questions ................................ 4
SPECIAL FACTORS ........................................................ 5
Background of the Merger; Purpose of the Transaction .............. 5
Alternatives to the Merger ........................................ 6
Fairness of the Merger ............................................ 7
Disadvantages and Risks Associated with the Merger ................ 9
Conflicts of Interest ............................................. 9
Liquidation Analysis; Determination of Merger Price ............... 10
Book Value ........................................................ 11
Recent Unit Sales; Tender Offer ................................... 11
Effects of the Transaction ........................................ 11
Failure to Approve the Merger ..................................... 12
Plans or Proposals by Partnership or Affiliates
Following the Merger............................................. 12
Financing of the Merger ........................................... 13
Material Federal Income Tax Consequences .......................... 14
THE SPECIAL MEETING .................................................... 16
Special Meeting; Record Date ...................................... 16
Procedures for Completing Proxies ................................. 16
Votes Required .................................................... 17
Solicitation Procedures ........................................... 17
Revocation of Proxies ............................................. 18
Appraisal Rights .................................................. 18
THE MERGER AGREEMENT ................................................... 18
Closing Date; Effective Time of the Merger ........................ 19
Effects of the Merger ............................................. 19
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Payment ........................................................... 19
Authority and Consent of the Purchaser ............................ 19
Representations And Warranties of the Parties ..................... 20
Conditions to the Merger .......................................... 20
Termination ....................................................... 20
Amendment ......................................................... 20
Waiver ............................................................ 20
The Surviving Entity .............................................. 20
RELATED AGREEMENTS ..................................................... 20
THE AMENDMENT TO THE PARTNERSHIP AGREEMENT ............................. 21
Purpose ........................................................... 21
The Amendment ..................................................... 21
INFORMATION ABOUT THE PARTNERSHIP,
ITS GENERAL PARTNERS AND THEIR AFFILIATES .............................. 22
The Partnership ................................................... 22
The General Partners .............................................. 22
Description of the Assets ......................................... 23
Distributions ..................................................... 25
Ownership of Units ................................................ 25
Market for the Units .............................................. 26
Related Party Transactions ........................................ 27
SELECTED FINANCIAL DATA ................................................ 27
INFORMATION CONCERNING THE PURCHASER
AND ITS AFFILIATES ..................................................... 29
The Purchaser ..................................................... 29
Affiliates of the Purchaser ....................................... 29
WHERE YOU CAN FIND MORE INFORMATION .................................... 29
General............................................................ 29
Independent Accountants............................................ 30
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS ............................. F-1
INDEX TO CONSOLIDATED QUARTERLY (UNAUDITED) FINANCIAL STATEMENTS........ F-18
APPENDIX A - THE MERGER AGREEMENT
APPENDIX B - AMENDMENT NO. 1 TO THE AMENDED AGREEMENT OF LIMITED PARTNERSHIP
OF KRUPP REALTY FUND, LTD. - III
APPENDIX C - FORM OF PROXY CARD
</TABLE>
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") is made
and entered into as of ______________, 2000 by and between KRF3 Acquisition
Company, L.L.C., a Delaware limited liability company (the "Company" or, after
the Effective Time (as defined in Article V hereof), the "Surviving Entity"),
and Krupp Realty Fund, Ltd.-III, a Massachusetts limited partnership (the
"Partnership").
W I T N E S S E T H:
WHEREAS, the Company is a limited liability company duly
formed and validly existing under the laws of the State of Delaware;
WHEREAS, the Partnership is a limited partnership duly formed
and validly existing under the laws of the Commonwealth of Massachusetts;
WHEREAS, the Massachusetts Revised Uniform Limited Partnership
Act, Mass. Gen. Laws Ann. ch. 109, (Section) 1-62 (the "Massachusetts LP Act"),
and the Delaware Limited Liability Company Act, 6 Del. C. (Section)18-101 et
seq. (the "Delaware LLC Act"), each permits a limited partnership formed and
existing under the Massachusetts LP Act to merge with and into a limited
liability company formed and existing under the Delaware LLC Act;
WHEREAS, the members of the Company have authorized and the
general partners and limited partners of the Partnership have duly authorized
the merger of the Partnership with and into the Company pursuant to the terms of
this Agreement; and
WHEREAS, the holders of limited partnership interests of Fund
III have approved an amendment to the Amended Agreement of Limited Partnership,
dated June 1, 1982, authorizing the Partnership to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is agreed that, in
accordance with the applicable statutes of the State of Delaware and the
Commonwealth of Massachusetts, and subject to the conditions precedent contained
herein, the Partnership shall be at the Effective Time, merged with and into the
Company (the "Merger"), with the Company to be the Surviving Entity. The mode of
carrying the Merger into effect shall be as follows:
<PAGE>
I.
MERGER
At the Effective Time, the Partnership shall be merged with
and into the Company, the separate existence of the Partnership shall cease, the
Company shall continue in existence and the Merger shall in all respects have
the effects provided for by the Massachusetts LP Act and the Delaware LLC Act.
Prior to the Effective Time, the Company and the Partnership
shall take all such action as shall be necessary or appropriate in order to
effectuate the Merger. If at any time after the Effective Time, the Company
shall consider or be advised that any further assignments, conveyances or
assurances in law are necessary or desirable to carry out the provisions hereof,
the proper members, managers, officers or other agents of the Company, as
authorized agents and attorneys-in-fact for the Partnership (and acting in the
name of the Company or the Partnership), shall execute and deliver any and all
proper deeds, assignments, and assurances in law, and do all such additional
things necessary or proper to carry out the provisions hereof.
II.
TERMS OF TRANSACTION
At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, (i) the partnership interests in the
Partnership outstanding immediately prior to the Effective Time, held by (a) the
general partners of the Partnership (the "General Partners"), (b) the "Original
Limited Partners" (as defined in the Partnership's Amended Agreement of Limited
Partnership, dated as of June 1, 1982, as amended from time to time (the
"Partnership Agreement")) and (c) the limited partners of the Partnership who
are, at the Effective Time, directly or indirectly controlling, controlled by or
under common control with the Company, Equity Resources Group Incorporated or
the General Partners ("the Affiliate Limited Partners"), shall be canceled and
retired and shall cease to exist, (ii) the partnership interests of limited
partners of the Partnership who are not Affiliate Limited Partners (the
"Unaffiliated Limited Partners") outstanding immediately prior to the Effective
Time shall be canceled and converted into and represent the right to receive in
exchange therefor $[_____] per "Unit" (as defined in the Partnership Agreement),
without interest thereon, payable by the Surviving Entity to the holder of such
Unit (as reflected on the records of the Partnership at the Effective Time) upon
receipt by the Surviving Entity of the Proof of Ownership Form hereto, a
Substitute Form W-9 and any other additional documentation necessary or
desirable to complete the conversion of the Units required which the Surviving
Entity shall reasonably request from the holder, (iii) the limited liability
company interests held by the members of the Company outstanding immediately
prior to the Effective Time shall remain the outstanding limited liability
company interests of such members of the Company, and
<PAGE>
such members shall continue as the members of the Surviving Entity.
Neither the Surviving Entity nor any other party hereto shall
be liable to a holder of Units for any payments made to a public official
pursuant to applicable abandoned property laws. The Surviving Company shall be
entitled to deduct and withhold from the amounts otherwise payable to a holder
of Units pursuant to the Merger any taxes or other amounts as are required by
applicable law, including without limitation Sections 3406 and 1445 of the
Internal Revenue Code of 1986, as amended. To the extent that amounts are so
withheld by the Surviving Entity, they shall be treated for all purposes of this
Agreement as having been paid to the holder of the Units in respect of which
such deduction and withholding was made.
After the Effective Time, the transfer books of the
Partnership shall be closed and there shall be no further registration of
transfers on the records of the Partnership of the Units that were outstanding
immediately prior to the Effective Time. As of the Effective Time, each holder
of a Unit which was converted into the right to receive cash pursuant to Article
II hereof shall be deemed to have withdrawn as a limited partner and shall have
no further interest in the Partnership or the Surviving Entity or any
allocations or distributions of income, property or otherwise, other than the
right to receive the amount as provided in this Article II.
No appraisal rights shall be available to holders of Units in
connection with the Merger.
III.
CERTIFICATE OF FORMATION AND
LIMITED LIABILITY COMPANY AGREEMENT
From and after the Effective Time, and until thereafter
amended as provided by law, the Certificate of Formation and Limited Liability
Company Agreement of the Company as in effect immediately prior to the Effective
Time shall be the Certificate of Formation and Limited Liability Company
Agreement of the Surviving Entity.
IV.
MANAGERS AND OFFICERS
From and after the Effective Time, and until their successors
are duly elected or appointed, or until their earlier death, resignation or
removal, the managers and officers of the Surviving Entity shall be the same as
the managers and officers of
<PAGE>
the Company immediately prior to the Effective Time.
V.
EFFECTIVE TIME
Certificates of merger evidencing the Merger ("Certificates of
Merger") substantially in the form of Exhibit A attached hereto shall be filed
by the General Partners and the Company with the Secretary of State of the State
of Delaware and the Secretary of State of the Commonwealth of Massachusetts
pursuant to the applicable requirements of the Delaware LLC Act and the
Massachusetts LP Act. The Merger shall become effective upon the later of the
filing of the Certificates of Merger with the Secretary of State of the
Commonwealth of Massachusetts and the Secretary of State of the State of
Delaware or such other time as shall be agreed by the parties and set forth in
the Certificates of Merger and in accordance with the Massachusetts LP Act and
the Delaware LLC Act (such time of effectiveness, the "Effective Time").
VI.
TERMINATION
This Agreement may be terminated at any time prior to the
Effective Time:
(i) by mutual written consent of the Company and the General
Partners;
(ii) by either the Company or the General Partners if the
Merger shall not have been consummated by [_______________]; provided, however,
that the right to terminate this Agreement pursuant to this clause (ii) of
Article VI shall not be available to any party whose failure to perform any of
its obligations under this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date.
In the event of a termination of this Agreement by either the
Company or the General Partners, as provided in this Article VI, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of the Company or the General Partners or their respective managers or
officers, except with respect to Article IX and this second paragraph of Article
VI. Nothing herein shall relieve any party of liability with respect to any
fraud or intentional breach by any party hereto of this Agreement.
<PAGE>
VII.
AMENDMENTS
At any time prior to the Effective Time, the Company and the
General Partners may amend, modify or supplement this Agreement in such manner
as they jointly may determine; provided, however, that, such amendment must be
executed in writing by all parties hereto and provided further, that no such
amendment, modification, or supplement shall reduce the amount or change the
type of consideration into which each Unit shall be converted upon consummation
of the Merger or alter or change any term of the Certificate of Formation or
Limited Liability Company Agreement of the Surviving Entity.
VIII.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party hereto to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(i) this Agreement shall have been approved and adopted by the
partners of the Partnership in accordance with the Massachusetts LP Act and the
Partnership Agreement;
(ii) this Agreement shall have been approved and adopted by
the members of the Company in accordance with the Delaware LLC Act and the
Limited Liability Company Agreement of the Company;
(iii) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, promulgated or enforced by any
governmental entity, and no action, suit, claim or legal, administrative or
arbitral proceeding or investigation shall be pending before any governmental
entity which seeks to prohibit, restrain, enjoin or restrict the consummation of
the transactions contemplated by this Agreement or which seeks to subject any
party to substantial damages as a result of the consummation of the transactions
contemplated by this Agreement;
(iv) each of the parties shall have obtained the consent,
approval or waiver of each non-governmental person whose consent, approval or
waiver shall be required in order for such party to consummate the transactions
contemplated by this Agreement;
(v) since June 30, 1999, no change or event shall have
occurred which has had or could reasonably be expected to result in a Material
Adverse Effect. For purposes of this Agreement, "Material Adverse Effect" means
any change, event or effect (a) in, on or relating to the business of the
Partnership that is, or is reasonably
<PAGE>
likely to be, materially adverse to the business, assets (including intangible
assets), liabilities (contingent or otherwise), condition (financial or
otherwise), prospects or results of operations of the Partnership and its
subsidiaries taken as a whole, or (b) that may prevent or materially delay the
performance of this Agreement by the Company or the Partnership or the
consummation of the transactions contemplated hereby.
IX.
GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
X.
MISCELLANEOUS
This Agreement may be executed in counterparts, each of which
when so executed shall be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the day and year first above written.
KRF3 ACQUISITION COMPANY, L.L.C.
By: KRF Company, L.L.C.,
its managing member
By: The Krupp Family Limited Partnership-94,
its sole member
By:
---------------------------------------
Douglas Krupp
General Partner
KRUPP REALTY FUND, LTD.-III
By: The Krupp Corporation,
its general partner
By:
---------------------------------------
Douglas Krupp
Co-Chairman of the Board of Directors
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
MERGING
KRUPP REALTY FUND, LTD. - III
INTO
KRF3 ACQUISITION COMPANY, L.L.C.
The undersigned, being respectively, an authorized person of
KRF3 Acquisition Company, L.L.C., a Delaware limited liability company and the
general partners of Krupp Realty Fund, Ltd. - III, a Massachusetts limited
partnership, do hereby certify for and on behalf of such entities.
FIRST: The name and jurisdiction of formation of each of the
constituent entities in the merger are as follows:
NAME JURISDICTION OF FORMATION
- ---- -------------------------
Krupp Realty Fund, Ltd. - III Massachusetts
KRF3 Acquisition Company, L.L.C. Delaware
SECOND: An Agreement and Plan of Merger between the parties to
the merger has been approved, adopted, certified, executed and/or acknowledged
by each of the constituent entities in accordance with the requirements of
Section 16A of the Massachusetts Revised Uniform Limited Partnership Act and
Section 18-209 of the Delaware Limited Liability Company Act.
THIRD: The name of the surviving limited liability company is
KRF3 Acquisition Company, L.L.C.
FOURTH: The merger shall be effective at 5:00 p.m. on the date
on which the latter of (a) the filing of this Certificate of Merger in the
Office of the Secretary of State of the State of Delaware and (b) the filing of
this Certificate of
<PAGE>
Merger in the Office of the Secretary of State of the Commonwealth of
Massachusetts, occurs.
FIFTH: The executed Agreement and Plan of Merger is on file at
a place of business of the surviving limited liability company. The address of
such place of business is: KRF3 Acquisition Company, L.L.C., One Beacon Street,
Suite 1500, Boston, Massachusetts 02108.
SIXTH: A copy of the Agreement and Plan of Merger will be
furnished by the surviving limited liability company, on request and without
cost, to any partner of the constituent limited partnership and any member of
the constituent limited liability company.
SEVENTH: The surviving limited liability company shall accept
service of process at its offices at One Beacon Street, Suite 1500, Boston,
Massachusetts 02108.
IN WITNESS WHEREOF, the undersigned have duly executed this
Certificate of Merger as of _________________, 2000.
KRF3 ACQUISITION COMPANY, L.L.C.
By:______________________________
Name:
Title:
<PAGE>
APPENDIX B
Amendment No. 1 to the Amended Agreement of
Limited Partnership of Krupp Realty Fund, Ltd. - III
THIS AMENDMENT NO. 1 TO THE AMENDED AGREEMENT OF LIMITED
PARTNERSHIP, dated as of June 1, 1982 (the "Partnership Agreement"), OF KRUPP
REALTY FUND, LTD. - III, a Massachusetts limited partnership (the
"Partnership"), by and among The Krupp Corporation, a Massachusetts corporation,
and The Krupp Company Limited Partnership - II, a Massachusetts limited
partnership, as General Partners (together, the "General Partners"), The Krupp
Company Limited Partnership-II, as the Original Limited Partner, and those
persons admitted to the Partnership as Investor Limited Partners and providing
their Consent hereto is made as of , 2000, in accordance with the procedures of
Section 14(a) of the Partnership Agreement. Capitalized terms used herein and
not otherwise defined shall have the meanings ascribed to them in the
Partnership Agreement.
1. The Partnership Agreement is amended by adding the
following prior to the last sentence of Section 6.2(b) thereof:
"At any time after February 1, 2000, the Partnership may enter
into a merger agreement with an Affiliate of the General Partner substantially
in the form of the agreement attached hereto as Annex A and provided that such
merger agreement is executed prior to August 1, 2000.
2. The Partnership Agreement is supplemented by adding the
attached Annex A as Annex A thereto.
<PAGE>
3. In all other respects the Partnership Agreement shall
remain in full force and effect in accordance with its terms.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed and delivered by their respective duly authorized
persons as of the date first above written.
The Krupp Corporation,
General Partner
By:
-----------------------------
Name: Douglas Krupp
Title: Co-Chairman of the Board
of Directors
The Krupp Company Limited Partnership-II,
General Partner and Original Limited Partner
By: The Krupp Corporation,
General Partner
By:
----------------------------
Name: Douglas Krupp
Title: Co-Chairman of the Board
of Directors
<PAGE>
APPENDIX C
FORM OF PROXY CARD
Krupp Realty Fund, Ltd. - III
One Beacon Street
Suite 1500
Boston, Massachusetts 02108
Solicited by the General Partners for the Special Meeting of Unitholders to be
held on , 2000
The undersigned hereby appoints , or any of them, each with full power
of substitution, as proxies or proxy of the undersigned and hereby authorizes
them to represent and vote as designated below all investor limited partnership
units of Krupp Realty Fund, Ltd. - III Units (the "Partnership") held of record
by the undersigned at the close of business on , 2000 at the Special Meeting of
Unitholders (the "Special Meeting") to be held on , 2000 at the Partnership's
principal executive offices located at One Beacon Street, Suite 1500, Boston,
Massachusetts, 02108, or any adjournment or postponement thereof, and, in their
discretion, upon all matters incident to the conduct of the Special Meeting and
such other matters as may properly be brought before the Special Meeting.
This signed Voting Form revokes all proxies previously given by the
undersigned to vote at the Special Meeting of Unitholders or any adjournment or
postponement thereof. The undersigned hereby acknowledges receipt of the Notice
of Special Meeting of Unitholders and the Proxy Statement/ Prospectus relating
to the Special Meeting.
THE GENERAL PARTNERS RECOMMEND A VOTE FOR THE FOLLOWING PROPOSAL.
To approve the Agreement and Plan of Merger between KRF3 Acquisition
Company, L.L.C. and the Partnership and the amendment to the Partnership's
Amended Agreement of Limited Partnership, dated as of June 1, 1982, allowing the
Partnership to enter into the merger agreement and complete the merger with KRF3
Acquisition Company, L.L.C.
/ / FOR / / AGAINST / / ABSTAIN
WHEN PROPERLY EXECUTED, THIS VOTING FORM WILL BE VOTED AS DIRECTED. IF
NO DIRECTION IS GIVEN, THIS VOTING FORM WILL BE VOTED FOR THE FOREGOING
PROPOSAL.
PLEASE SIGN EXACTLY AS NAME APPEARS BELOW.
Dated 2000
-----------------------------------
--------------------------------------------
Signature
--------------------------------------------
Signature, if held jointly
Please sign exactly as your name appears on
this Voting Form. If units are registered in
more than one name, the signatures of all such
persons are required. A corporation should
sign in its full corporate name by a duly
authorized officer, stating such officer's
title. Trustees, guardians, executors and
administrators should sign in their official
capacity giving their full title as such. A
partnership should sign in the partnership
name by an authorized person, stating such
person's title and relationship to the
partnership.
<PAGE>
PLEASE COMPLETE, DATE, SIGN AND RETURN THIS VOTING FORM PROMPTLY, USING THE
ENCLOSED ENVELOPE. ALTERNATIVELY, PLEASE FORWARD BOTH SIDES OF THE COMPLETED
VOTING FORM BY FACSIMILE TO KRUPP FUNDS GROUP LIMITED PARTNERSHIP AT
617-423-8919.
/ / I HAVE READ THE ABOVE AND WOULD LIKE TO ATTEND THE SPECIAL
MEETING IN PERSON. PLEASE SEND ME A TICKET FOR ADMISSION TO THE MEETING.
<PAGE>
VOTING AGREEMENT
VOTING AGREEMENT, dated as of January 6, 2000 (this
"AGREEMENT"), by and among KRF Company, L.L.C., a Delaware limited liability
company ("BERKSHIRE"), KRF3 Acquisition Company, L.L.C., a Delaware limited
liability company (the "COMPANY"), and certain investment funds affiliated with
Equity Resources Group Incorporated (collectively referred to as "EQUITY
RESOURCES"), listed on Schedule I hereto (each, a "UNITHOLDER" and,
collectively, the "UNITHOLDERS").
WHEREAS, the Company, Berkshire and Equity Resources propose
to enter into an Investment Agreement, dated as of the date hereof (the
"INVESTMENT AGREEMENT") which contemplates, among other things, (i) the
investment by each of Berkshire and Equity Resources in the Company; and (ii)
the merger of the Company with Krupp Realty Fund Ltd.-III with and into the
Company, a Massachusetts limited partnership (the "PARTNERSHIP") (the "MERGER")
pursuant to a Merger Agreement (the "MERGER AGREEMENT") substantially in the
form attached as Exhibit C to the Investment Agreement; and (iii) the amendment
of the Amended Agreement of Limited Partnership of the Partnership, dated as of
June 1, 1982, as amended from time to time (the "FUND III AGREEMENT") to permit
the Company to enter into the Merger Agreement and consummate the transactions
contemplated thereby (the "AMENDMENT").
WHEREAS, as of the date hereof, the Unitholders are holders of
record or Beneficially Own (as defined herein) an aggregate amount of 1,524
limited partnership units of the Partnership listed opposite the name of each
such Unitholder on Schedule I hereto; and
WHEREAS, in order to induce Berkshire and the Company to enter
into the Investment Agreement, each Unitholder has agreed to enter into this
Agreement with respect to all of the investor limited partnership interests of
the Partnership now held of record or Beneficially Owned and which may hereafter
be acquired by such Unitholders (the "UNITS").
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements contained herein, and intending to be legally
bound hereby, the parties hereto hereby agree as follows:
<PAGE>
2
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1 GENERAL. Capitalized terms used and not defined
herein have the respective meanings ascribed to them in the Investment
Agreement.
Section 1.2 BENEFICIAL OWNERSHIP. For purposes of this
Agreement, "BENEFICIALLY OWN" or "BENEFICIAL OWNERSHIP" with respect to any
securities shall mean "beneficial ownership" of such securities (as determined
pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT")), including pursuant to any agreement, arrangement or
understanding, whether or not in writing.
ARTICLE II
Section 2.1 VOTING AGREEMENT. Each of the Unitholders hereby
agrees as follows:
(a) to appear, or cause the holder of record on any
applicable record date with respect to any Units owned by such
Unitholder to appear, in person or by proxy, for the purpose of
obtaining a quorum at any annual or special meeting of the partners of
the Partnership and at any adjournment thereof, at which matters
relating to the Merger, the Amendment or any transaction contemplated
thereby are considered; and
(b) at any meeting of the partners of the
Partnership, however called, and in any action by consent of the
limited partners of the Partnership, to vote, or cause to be voted by
the Unitholders, in person or by proxy, the Units held of record or
Beneficially Owned by such Unitholder in favor of the Merger, the
Merger Agreement (as amended from time to time), the Amendment and the
transactions contemplated by the Merger Agreement; and
(c) at any meeting of the Partners of the
Partnership, however called, and in any action by consent of the
limited partners of the Partnership, to vote, or cause to be voted by
the Unitholders, in person or by proxy, the Units held of record or
Beneficially Owned by such Unitholder against approval of any proposal
made in opposition to or in competition with the Merger or any of the
other transactions contemplated by the Merger Agreement, and any other
action that may reasonably be expected to impede, interfere with,
delay, postpone or attempt to discourage the Merger or the other
transactions contemplated by the Merger Agreement which would
materially and adversely affect the Partnership or its ability to
consummate the transactions contemplated by the Merger Agreement.
Section 2.2 NO OWNERSHIP INTEREST. Nothing contained in this
Voting Agreement shall be deemed to vest in the Company or Berkshire any direct
or indirect ownership or incidence of ownership of or with respect to any Units.
All rights, ownership and economic benefits of and relating to the Units shall
remain and belong to the Unitholders.
<PAGE>
3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE UNITHOLDERS
Each of the Unitholders hereby represents and warrants,
severally and not jointly, to the Company and Berkshire as follows:
Section 3.1 AUTHORITY RELATIVE TO THIS AGREEMENT. Such
Unitholder has all necessary power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. Where such Unitholder is a corporation,
partnership or other entity, the execution and delivery of this Agreement by
such Unitholder and the consummation by such Unitholder of the transactions
contemplated hereby have been duly and validly authorized by the board of
directors or other governing body of such Unitholder, and no other proceedings
on the part of such Unitholder are necessary to authorize this Agreement or to
consummate such transactions. This Agreement has been duly and validly executed
and delivered by such Unitholder and constitutes a legal, valid and binding
obligation of such Unitholder, enforceable against such Unitholder in accordance
with its terms, except to the extent enforceability may be limited by
bankruptcy, insolvency, moratorium or other similar laws affecting creditors'
rights generally or by general principles governing the availability of
equitable remedies.
Section 3.2 NO CONFLICT. (a) The execution and delivery of
this Agreement by such Unitholder does not, and the performance of this
Agreement by such Unitholder shall not, (i) where such Unitholder is a
corporation, partnership or other entity, conflict with or violate the
organizational documents of such Unitholder, (ii) conflict with or violate any
agreement, arrangement, law, rule, regulation, order, judgment or decree to
which such Unitholder is a party or by which such Unitholder (or the Units held
of record or Beneficially Owned by such Unitholder) is bound or affected or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse or time or both would become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, or result
in the creation of a lien or encumbrance on any of the Units held of record or
Beneficially Owned by such Unitholder pursuant to any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which such Unitholder is a party or by which such
Unitholder (or the Units held of record or Beneficially Owned by such
Unitholder) is bound or affected, except, in the case of clauses (ii) and (iii)
of this Section 3.2, for any such conflicts, violations, breaches, defaults or
other occurrences which would not prevent the performance by such Unitholder of
its material obligations under this Agreement.
(b) The execution and delivery of this Agreement
by such Unitholder does not, and the performance of this Agreement by such
Unitholder shall
<PAGE>
4
not, require any consent, approval, authorization or permit of, or filing with
or notification to, any governmental entity except for applicable requirements,
if any, of federal or state securities and antitrust laws and except where the
failure to obtain such consents, approvals, authorizations or permits, or to
make such filings or notifications, would not prevent the performance by such
Unitholder of its material obligations under this Agreement.
Section 3.3 TITLE TO THE UNITS. As of the date hereof, such
Unitholder is the record or Beneficial Owner of the Units listed opposite the
name of such Unitholder on Schedule I hereto. The Units listed opposite the name
of such Unitholder on Schedule I hereto are all the securities of the
Partnership either held of record or Beneficially Owned by such Unitholder. Such
Unitholder has not appointed or granted any proxy, which appointment or grant is
still effective, with respect to the Units held of record or Beneficially Owned
by such Unitholder. The Units listed opposite the name of such Unitholder on
Schedule I hereto are owned free and clear of all security interests, liens,
claims, pledges, options, rights of first refusal, limitations on such
Unitholder's voting rights, charges and other encumbrances of any nature
whatsoever other than liens under applicable law.
ARTICLE IV
COVENANTS OF THE UNITHOLDER
Section 4.1 NO INCONSISTENT AGREEMENTS. Each Unitholder hereby
represents, warrants, covenants and agrees that, except as contemplated by this
Agreement and the Investment Agreement, such Unitholder has not and shall not,
and will use its reasonable best efforts to not permit any Person under such
Unitholder's control to, enter into any voting agreement or grant a proxy or
power of attorney with respect to the Units held of record or Beneficially Owned
by such Unitholder which, in either case, is inconsistent with this Agreement.
Section 4.2 TRANSFER OF TITLE. Each Unitholder hereby
covenants and agrees that such Unitholder will not, prior to the termination of
this Agreement, either directly or indirectly, offer or otherwise agree to sell,
assign, pledge, hypothecate, transfer, exchange, or dispose of any Units or
options, warrants or other convertible securities to acquire or purchase units
of the Partnership or any other securities or rights convertible into or
exchangeable for units of the Partnership, owned either directly or indirectly
by such Unitholder or with respect to which such Unitholder has the power of
disposition, whether now or hereafter acquired, without the prior written
consent of the Company and Berkshire. Each Unitholder hereby agrees and consents
to the entry of stop transfer instructions by the Partnership against the
transfer of any Units inconsistent with the terms of this Section 4.2.
<PAGE>
5
ARTICLE V
MISCELLANEOUS
Section 5.1 TERMINATION. This Agreement shall terminate unless
extended by agreement of each of the parties hereto on August 1, 2000. Upon such
termination, no party shall have any further obligations or liabilities
hereunder; PROVIDED, HOWEVER, that nothing in this Agreement shall relieve any
party from liability for the breach of any of its representations, warranties,
covenants and agreements set forth in this Agreement prior to such termination.
Section 5.2 ADDITIONAL UNITS. If, after the date hereof, a
Unitholder acquires the right to vote any additional partnership interests of
the Partnership (any such partnership interests shall be referred to herein as
"ADDITIONAL UNITS"), the provisions of this Agreement applicable to the Units
shall be applicable to such Additional Units as if such Additional Units had
been Units held by the Unitholders as of the date hereof. The provisions of the
immediately preceding sentence shall be effective with respect to Additional
Units without action by any Person immediately upon the acquisition by a
Unitholder of the right to vote such Additional Units.
Section 5.3 SPECIFIC PERFORMANCE. The parties hereto agree
that irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy at law or in equity.
Section 5.4 ENTIRE AGREEMENT. This Agreement and the
Investment Agreement constitute the entire agreement between Berkshire, the
Company and the Unitholders with respect to the subject matter hereof and
supersedes all prior agreements and understandings, both written and oral,
between Berkshire, the Company and the Unitholders with respect to the subject
matter hereof; PROVIDED that, to the extent not inconsistent with the terms
hereof, the Settlement Agreement and Release, dated as of July 17, 1995, among
Equity Resources and the parties named therein shall continue in full force and
effect.
Section 5.5 AMENDMENT. This Agreement may not be amended
except by an instrument in writing signed by the parties hereto.
Section 5.6 SEVERABILITY. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule or
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless
<PAGE>
6
remain in full force and effect so long as the economic or legal substance of
this Agreement is not affected in any manner materially adverse to any party.
Upon such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereby shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible to the fullest extent permitted by applicable law in a
mutually acceptable manner in order that the terms of this Agreement remain as
originally contemplated.
Section 5.7 NOTICES. All notices and other communications
given or made pursuant hereto shall be in writing and shall be deemed to have
been duly given or made and shall be effective upon receipt, if delivered
personally, upon receipt of a transmission confirmation if sent by facsimile
(with a confirming copy sent by overnight courier) and on the next business day
if sent by Federal Express, United Parcel Service, Express Mail or other
reputable overnight courier to the parties at the following addresses (or at
such other address for a party as shall be specified by notice):
If to a Unitholder:
c/o Equity Resources Group, Inc.
14 Story Street
Cambridge, Massachusetts 02138
Attention: Mr. Eggert Dagbjartsson
with a copy to:
Holland & Knight, LLP
One Beacon Street
Boston, Massachusetts 02108
If to the Company or Berkshire, to:
c/o The Berkshire Group
One Beacon Street, Suite 1500
Boston, Massachusetts 02108
Attention: David Quade
<PAGE>
7
with copies to:
The Berkshire Group
One Beacon Street, Suite 1500
Boston, Massachusetts 02108
Attention: Scott Spelfogel, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James M. Dubin
Section 5.8 GOVERNING LAW. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed entirely within such state without giving
effect to the provisions thereof relating to conflicts of law.
Section 5.9 OBLIGATIONS OF UNITHOLDERS. The obligations of
the Unitholders hereunder shall be "joint and several."
Section 5.10 COUNTERPARTS. This Agreement may be executed in
one or more counterparts, each of which shall be an original and all of which,
when taken together, shall constitute one and the same instrument.
<PAGE>
8
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective duly authorized
persons on the date first above written.
KRF3 ACQUISITION COMPANY, L.L.C.
By: KRF Company, L.L.C.,
its sole member
By: The Krupp Family Limited Partnership-94,
its sole member
By: /s/ Douglas Krupp
-------------------------------------------------------
Douglas Krupp
General Partner
KRF COMPANY, L.L.C.
By: The Krupp Family Limited Partnership-94,
its sole member
By: /s/ Douglas Krupp
-------------------------------------------------------
Douglas Krupp
General Partner
<PAGE>
9
EQUITY RESOURCE BRATTLE FUND LIMITED PARTNERSHIP,
EQUITY RESOURCE CAMBRIDGE FUND LIMITED
PARTNERSHIP
EQUITY RESOURCE GENERAL FUND LIMITED PARTNERSHIP,
EQUITY RESOURCE FUND XVI LIMITED PARTNERSHIP,
EQUITY RESOURCE FUND XIX LIMITED PARTNERSHIP,
EQUITY RESOURCE BRIDGE FUND LIMITED PARTNERSHIP
By: EQUITY RESOURCES GROUP, INCORPORATED,
as general partner of each of the foregoing
/s/ Eggert Dagbjartsson
--------------------------------------------------
By: Eggert Dagbjartsson
Executive Vice President
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Unitholder: Number of Units: Address:
---------- --------------- -------
<S> <C> <C>
Equity Resource Fund 916.00 c/o Equity Resources Group, Inc.
XVI Limited Partnership 14 Story Street
Cambridge, Massachusetts 02138
Attention: Mr. Eggert Dagbjartsson
Equity Resource Fund 413.00 c/o Equity Resources Group, Inc.
XIX Limited Partnership 14 Story Street
Cambridge, Massachusetts 02138
Attention: Mr. Eggert Dagbjartsson
Equity Resource General 40.00 c/o Equity Resources Group, Inc.
Fund Limited Partnership 14 Story Street
Cambridge, Massachusetts 02138
Attention: Mr. Eggert Dagbjartsson
Equity Resource 95.00 c/o Equity Resources Group, Inc.
Cambridge Fund Limited 14 Story Street
Partnership Cambridge, Massachusetts 02138
Attention: Mr. Eggert Dagbjartsson
Equity Resource Brattle 30.00 c/o Equity Resources Group, Inc.
Fund Limited Partnership 14 Story Street
Cambridge, Massachusetts 02138
Attention: Mr. Eggert Dagbjartsson
Equity Resource Bridge 30.00 c/o Equity Resources Group, Inc.
Fund Limited Partnership 14 Story Street
Cambridge, Massachusetts 02138
Attention: Mr. Eggert Dagbjartsson
</TABLE>
<PAGE>
[EXECUTION COPY]
VOTING AGREEMENT
among
EQUITY RESOURCE BRATTLE FUND LIMITED PARTNERSHIP,
EQUITY RESOURCE CAMBRIDGE FUND LIMITED PARTNERSHIP,
EQUITY RESOURCE GENERAL FUND LIMITED PARTNERSHIP,
EQUITY RESOURCE FUND XVI LIMITED PARTNERSHIP,
EQUITY RESOURCE FUND XIX LIMITED PARTNERSHIP
EQUITY RESOURCE BRIDGE FUND LIMITED PARTNERSHIP
KRF COMPANY, L.L.C.,
and
KRF3 ACQUISITION COMPANY, L.L.C.
------------------------------
Dated as of January 6, 2000
------------------------------
<PAGE>
[EXECUTION COPY]
INVESTMENT AGREEMENT
among
EQUITY RESOURCE CAMBRIDGE FUND LIMITED PARTNERSHIP,
EQUITY RESOURCE GENERAL FUND LIMITED PARTNERSHIP,
EQUITY RESOURCE FUND XVI LIMITED PARTNERSHIP,
EQUITY RESOURCE FUND XIX LIMITED PARTNERSHIP,
EQUITY RESOURCE BRATTLE FUND LIMITED PARTNERSHIP
EQUITY RESOURCE BRIDGE FUND LIMITED PARTNERSHIP
KRF COMPANY, L.L.C.,
and
KRF3 ACQUISITION COMPANY, L.L.C.
------------------------------
Dated: January 6, 2000
------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE 1 DEFINITIONS............................................................................2
ARTICLE 2 VOTING AGREEMENT, CLOSING DATE
TRANSACTIONS AND USE OF PROCEEDS.......................................................5
2.1 Voting Agreement.......................................................................5
2.2 Closing Date Transactions..............................................................5
2.2.1 LLC Agreement...................................................................5
2.2.2 Capital Contributions...........................................................5
2.2.3 Issuance of LLC Interests.......................................................5
2.3 Use of Proceeds........................................................................5
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF
THE COMPANY............................................................................5
3.1 Existence and Power....................................................................5
3.2 Authorization; No Contravention........................................................6
3.3 Governmental Authorization; Third Party Consents.......................................6
3.4 Binding Effect.........................................................................6
ARTICLE 4 REPRESENTATIONS AND
WARRANTIES OF THE INVESTORS AND BERKSHIRE..............................................6
4.1 Existence and Power....................................................................6
4.2 Authorization; No Contravention........................................................7
4.3 Governmental Authorization; Third Party Consents.......................................7
4.4 Binding Effect.........................................................................7
4.5 Purchase for Own Account...............................................................7
4.6 Investment Experience; Economic Risk; Accredited Investor..............................7
ARTICLE 5 INDEMNIFICATION........................................................................8
5.1 Indemnification........................................................................8
5.2 Notification...........................................................................8
5.3 Contribution...........................................................................9
ARTICLE 6 CONDITIONS............................................................................10
6.1 Notice of the Closing Date............................................................10
6.2 Merger Agreement Conditions...........................................................10
6.3 Compliance with this Agreement........................................................10
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
ARTICLE 7 TERMINATION...........................................................................10
ARTICLE 8 MISCELLANEOUS.........................................................................10
8.1 Survival of Representations and Warranties............................................10
8.2 Notices...............................................................................11
8.3 Successors and Assigns................................................................11
8.4 Amendment and Waiver..................................................................12
8.5 Counterparts..........................................................................12
8.6 Headings..............................................................................12
8.7 Governing Law; Arbitration............................................................12
8.8 Severability..........................................................................13
8.9 Entire Agreement......................................................................13
8.10 No Third Party Beneficiaries..........................................................13
8.11 Further Assurances....................................................................13
</TABLE>
EXHIBITS
EXHIBIT A Amended and Restated Limited Liability Company
Agreement of KRF3 Acquisition Company, L.L.C.
EXHIBIT B Merger Agreement
ii
<PAGE>
INVESTMENT AGREEMENT
INVESTMENT AGREEMENT, dated as of January 6, 2000 (this
"AGREEMENT"), among Equity Resource Fund XVI Limited Partnership, Equity
Resource Fund XIX Limited Partnership, Equity Resource General Fund Limited
Partnership, Equity Resource Cambridge Fund Limited Partnership, Equity Resource
Brattle Fund Limited Partnership, Equity Resource Bridge Fund Limited
Partnership, all Massachusetts limited partnerships (each, an "INVESTOR" and
collectively, the "INVESTORS"), KRF Company, L.L.C., a Delaware limited
liability company ("BERKSHIRE") and KRF3 Acquisition Company, L.L.C., a Delaware
limited liability company (the "COMPANY");
WHEREAS, subject to the terms and conditions contained herein,
Berkshire and the Investors wish to enter into the Amended and Restated Limited
Liability Company Agreement of the Company in the form attached hereto as
EXHIBIT A (the "LLC AGREEMENT");
WHEREAS, prior to the date hereof, Berkshire has caused to be
contributed to the capital of the Company 10,826 investor limited partnership
interests of Fund III (as defined below) (the "EXISTING BERKSHIRE
CONTRIBUTION");
WHEREAS, Berkshire and the Investors wish to make the capital
contributions to the Company pursuant to Section 3.1 (Capital Contributions) of
the LLC Agreement;
WHEREAS, to evidence such capital contributions, the Company
wishes to issue and sell to the Investors and Berkshire, and the Investors and
Berkshire wish to purchase from the Company, the LLC Interests (as defined
herein), having the terms and conditions set forth in the LLC Agreement.
WHEREAS, the Company intends to utilize the proceeds of the
issuance of the LLC Interests to consummate a merger with Krupp Realty Fund
Ltd.-III, a Massachusetts limited partnership ("FUND III") upon terms and
conditions substantially similar to the terms and conditions set forth in the
form attached hereto as EXHIBIT B (the "MERGER AGREEMENT").
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein and for other good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto agree
as follows:
<PAGE>
2
ARTICLE 1
DEFINITIONS
As used in this Agreement, and unless the context requires a
different meaning, the following terms have the meanings indicated:
"AFFILIATE" shall mean, with respect to any Person, (i) any
other Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person,
(ii) any Person that is an officer of, member of, partner in, or trustee of, or
serves in a similar capacity with respect to, the specified Person or of which
the specified Person is an officer, member, partner or trustee, or with respect
to which the specified Person serves in a similar capacity, (iii) any Person
that, directly or indirectly, is the beneficial owner of 10% or more of any
class of equity securities of, or otherwise has a substantial beneficial
interest in, the specified Person or of which the specified Person is directly
or indirectly the owner of 10% or more of any class of equity securities or in
which the specified Person has a substantial beneficial interest, (iv) any
Immediate Family Member of the specified Person and (v) any Affiliate of a
Person described in subsections (i)-(iv). For the purposes of this definition,
"control" shall mean, as to any Person, the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"AGREEMENT" means this Investment Agreement as the same may be
amended, supplemented or modified in accordance with the terms hereof.
"AMENDMENT" means the amendment to the Fund III Agreement to
permit the Company to enter into the Merger Agreement.
"BERKSHIRE" has the meaning set forth in the preamble to this
Agreement.
"BUSINESS DAY" means any day other than a Saturday, Sunday or
other day on which commercial banks in the State of New York or the Commonwealth
of Massachusetts are authorized or required by law or executive order to close.
"CAPITAL CONTRIBUTION" has the meaning set forth in the LLC
Agreement. In the case of the Investors, the Capital Contribution shall mean all
of the Units owned by them on the Closing Date. In the case of Berkshire, the
Capital Contribution shall mean the sum of (a) the Existing Berkshire
Contribution and (b) $954,810 in cash, subject to increase in the sole
discretion of Berkshire.
"CERTIFICATE OF FORMATION" means the certificate of formation
of the Company, duly filed with the Secretary of State of the State of Delaware.
<PAGE>
3
"CLOSING DATE" means a Business Day following the Meeting Date
designated by the Company as the Closing Date.
"COMMISSION" means the Securities and Exchange Commission or
any similar agency then having jurisdiction to enforce the Securities Act.
"COMPANY" has the meaning set forth in the preamble to this
Agreement.
"CONTRACTUAL OBLIGATIONS" means as to any Person, any
provision of any security issued by such Person or of any agreement,
undertaking, contract, indenture, mortgage, deed of trust or other instrument to
which such Person is a party or by which it or any of its property is bound.
"EXISTING BERKSHIRE CONTRIBUTION" has the meaning set forth in
the preamble to this Agreement.
"FUND III" has the meaning set forth in the preamble to this
Agreement.
"FUND III AGREEMENT" means the Amended Agreement of Limited
Partnership of Fund III, dated as of June 1, 1982, as amended from time to time.
"GOVERNMENTAL AUTHORITY" means the government of any country,
state, city, locality or other political subdivision thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"IMMEDIATE FAMILY MEMBER" means with respect to any person,
such person's spouse, parent, parent-in-law, issue, brother, sister,
brother-in-law, sister-in-law, or child-in-law.
"INDEMNIFIED PARTY" and "INDEMNIFIED PARTIES" have the
meanings set forth in Section 5.2 (Notification).
"INVESTOR" or "INVESTORS" has the meaning set forth in the
preamble to this Agreement.
"INVESTOR REPRESENTATIVE" has the meaning set forth in Section
8.7(b) to this Agreement (Governing Law; Arbitration).
"LIEN" means any mortgage, deed of trust, pledge,
hypothecation, assignment, encumbrance, lien (statutory or other) or preference,
priority, right or other security interest or preferential arrangement of any
kind or nature whatsoever.
"LLC AGREEMENT" has the meaning set forth in the preamble to
this Agreement.
<PAGE>
4
"LLC INTERESTS" means the limited liability company interests
in the Company, having the terms and conditions set forth in the LLC Agreement.
"LOSSES" has the meaning set forth in Section 5.1
(Indemnification).
"MEETING DATE" means the date of the special meeting of the
partners of Fund III at which the Amendment and Merger Agreement and the
transactions contemplated thereby are considered and voted upon.
"MEMBER" has the meaning set forth in Section 1.1
(Definitions) of the LLC Agreement.
"MERGER AGREEMENT" has the meaning set forth in the preamble
to this Agreement.
"PERSON" means any individual, firm, corporation, partnership,
limited liability company, trust, incorporated or unincorporated association,
joint venture, joint stock company, Governmental Authority or other entity of
any kind, and shall include any successor (by merger or otherwise) of such
entity.
"PURCHASED INTERESTS" means the LLC Interests purchased on the
Closing Date pursuant to Article 2 (Voting Agreement, Closing Date Transactions
and Use of Proceeds) of this Agreement.
"REQUIREMENTS OF LAW" means as to any Person, any law, treaty,
rule, regulation, right, privilege, qualification, license or franchise or
determination of an arbitrator or a court or other Governmental Authority, in
each case applicable or binding upon such Person or any of its property or to
which such Person or any of its property is subject or pertaining to any or all
of the transactions contemplated or referred to herein.
"SEC" has the meaning set forth in Section 3.3 of this
Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended
(or any successor statute thereto), and the rules and regulations of the
Commission promulgated thereunder.
"TRANSACTION DOCUMENTS" means collectively, this Agreement,
the LLC Agreement and the Voting Agreement.
<PAGE>
5
"UNITS" has the meaning set forth in the Fund III Agreement.
"VOTING AGREEMENT" means the Voting Agreement, dated the date
hereof, among the parties hereto.
ARTICLE 2
VOTING AGREEMENT, CLOSING DATE
TRANSACTIONS AND USE OF PROCEEDS
2.1 VOTING AGREEMENT. Simultaneously with the execution
hereof, each of the Investors has executed the Voting Agreement relating to the
approval of the Amendment and the merger contemplated by the Merger Agreement
and the consummation of the transactions contemplated thereby.
2.2 CLOSING DATE TRANSACTIONS. Subject to the conditions set
forth in Article 6 (Conditions), the parties hereto covenant and agree that on
the Closing Date the following shall occur simultaneously:
2.2.1 LLC AGREEMENT. Each of the Investors and
Berkshire shall execute and deliver the LLC Agreement;
2.2.2 CAPITAL CONTRIBUTIONS. Each of the Investors
and Berkshire shall make their respective Capital Contributions as provided in
Section 3.1 (Capital Contributions) of the LLC Agreement and Exhibit A thereto;
PROVIDED, that, Berkshire shall not be required to contribute more than $954,810
in addition to the Existing Berkshire Contribution; and
2.2.3 ISSUANCE OF LLC INTERESTS. The Company shall
issue LLC Interests to each Investor and Berkshire in respect of the Capital
Contributions made by it as of such date.
2.3 USE OF PROCEEDS. As soon as practicable following the
Closing Date, the Company shall use the proceeds from the sale of the Purchased
Interests, together with other available funds, to consummate the merger of the
Company and Fund III upon terms and conditions substantially similar to the
terms and conditions set forth in the Merger Agreement, and as otherwise may be
required in connection with the ownership and management of the properties
acquired thereby and for other limited liability company purposes.
<PAGE>
6
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF
THE COMPANY
The Company hereby represents and warrants to the Investors
and Berkshire as follows:
3.1 EXISTENCE AND POWER. The Company (i) is a limited
liability company duly organized, validly existing and in good standing under
the laws of the jurisdiction of its formation and (ii) has the requisite power
and authority to execute, deliver and perform its obligations under this
Agreement and each of the other Transaction Documents to which it is a party.
3.2 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery
and performance by the Company of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the sale, issuance and
delivery of the LLC Interests (a) have been duly authorized by all necessary
action of the Company, (b) do not contravene the terms of the Certificate of
Formation or the LLC Agreement of the Company and (c) do not violate, conflict
with or result in any breach or contravention of or the creation of any Lien
under, any Contractual Obligation of the Company, or any Requirements of Law
applicable to the Company. The Company is not a party to or bound by any
agreement which is currently in effect, granting any rights to any Person which
are inconsistent with the rights to be granted to the Investors or Berkshire by
the Company in the LLC Agreement.
3.3 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Except
for filings to be made with the Securities and Exchange Commission (the "SEC")
and the approval of the Amendment and the merger by the holders of Units of Fund
III, no approval, consent, compliance, exemption, authorization, or other action
by, or notice to, or filing with, any Governmental Authority or any other
Person, and no lapse of a waiting period under any Requirement of Law, is
necessary or required to be obtained by the Company in connection with the
execution, delivery or performance (including, without limitation, the sale,
issuance and delivery of the LLC Interests) by the Company or of any of the
Transaction Documents to which it is a party.
3.4 BINDING EFFECT. This Agreement and each of the other
Transaction Documents to which the Company is a party have been duly executed
and delivered by the Company and constitute the legal, valid and binding
obligations of the Company enforceable against the Company in accordance with
their terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance or transfer, moratorium or
similar laws affecting the enforce ment of creditors' rights generally and by
general principles of equity relating to
<PAGE>
7
enforceability (regardless of whether considered in a proceeding at law or in
equity).
ARTICLE 4
REPRESENTATIONS AND
WARRANTIES OF THE INVESTORS AND BERKSHIRE
Each Investor and Berkshire hereby represents and warrants
(severally as to itself and not jointly) to the Company as follows:
4.1 EXISTENCE AND POWER. Such Person (a) is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
formation and (b) has the requisite power and authority to execute, deliver and
perform its obligations under this Agreement and each of the other Transaction
Documents to which it is a party.
4.2 AUTHORIZATION; NO CONTRAVENTION. The execution, delivery
and performance by such Person of this Agreement and each of the other
Transaction Documents to which it is a party and the transactions contemplated
hereby and thereby, including, without limitation, the purchase of the Purchased
Interests, (a) have been duly authorized by all necessary action by such Person,
(b) do not contravene the terms of the organizational documents of such Person,
and (c) do not violate, conflict with or result in any breach or contravention
of or the creation of any Lien under, any Contractual Obligation of such Person,
or any Requirement of Law applicable to such Person, except for such violation,
conflict, breach, contravention or Lien which would not have a material adverse
effect on the ability of such Person to consummate the transactions contemplated
by the Transaction Documents.
4.3 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Except
for filings to be made with the SEC, no approval, consent, compliance,
exemption, authorization, or other action by, or notice to, or filing with, any
Governmental Authority or any other Person and no lapse of a waiting period
under a Requirement of Law, is necessary or required to be obtained by such
Person in connection with the execution, delivery or performance (including,
without limitation, the purchase of the Purchased Interests) by such Person.
4.4 BINDING EFFECT. This Agreement and each of the other
Transaction Documents to which such Person is a party have been duly executed
and delivered by such Person and constitute the legal, valid and binding
obligations of such Person, enforceable against it in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, fraudulent conveyance or transfer,
moratorium or similar laws affecting the enforce ment of creditors' rights
generally or by equitable principles relating to enforceability (regardless of
whether considered in a proceeding at law or in equity).
<PAGE>
8
4.5 PURCHASE FOR OWN ACCOUNT. The LLC Interests to be acquired
by such Person pursuant to this Agreement are being or will be acquired for its
own account and with no intention of distributing or reselling such LLC
Interests or any part thereof in any transaction that would be in violation of
the securities laws of the United States of America, or any state. Such Person
understands and agrees that any sale or other disposition of LLC Interests may
be made only in compliance with the Securities Act and applicable state
securities laws, as then in effect, and the LLC Agreement.
4.6 INVESTMENT EXPERIENCE; ECONOMIC RISK; ACCREDITED INVESTOR.
Such Person has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and risk of an investment in the
Purchased Interests hereunder. Such Person understands that it must bear the
economic risk of an investment in the Purchased Interests for an indefinite
length of time because the Purchased Interests have not been registered under
the Securities Act or any applicable state securities laws. Such Person further
understands that the purchase of the Purchased Interests involves a high degree
of risk, and that such Person has been given the opportunity to ask questions of
and receive answers from the Company regarding the Purchased Interests.
ARTICLE 5
INDEMNIFICATION
5.1 INDEMNIFICATION. (a) Except as otherwise provided in this
Article 5, Berkshire and the Company, severally and not jointly, agree to
indemnify, defend and hold harmless the Investors and their Affiliates and their
respective offi cers, directors, agents, employees, subsidiaries, partners,
members and controlling persons to the fullest extent permitted by law from and
against any and all claims, losses, liabilities, damages, deficiencies,
judgements, assessments, fines, settlements, costs or expenses (including
interest, penalties and reasonable fees, disbursements and other charges of
counsel) (collectively, "LOSSES") based upon, arising out of or otherwise in
respect of any inaccuracy in or any breach of any representation, warranty,
covenant or agreement of Berkshire or the Company contained in this Agreement.
(b) Except as otherwise provided in this Article
5, each Investor agrees to indemnify, defend and hold harmless the Company,
Berkshire, and their Affiliates and their respective officers, directors,
agents, employees, subsidiaries, partners, members and controlling persons to
the fullest extent permitted by law from and against any Losses based upon,
arising out of or otherwise in respect of any inaccuracy in or any breach of any
representation, warranty, covenant or agreement of such Investor contained in
this Agreement.
(c) Except as otherwise provided in this Article
5, the Company agrees to indemnify, defend and hold harmless Berkshire, the
Investors and
<PAGE>
9
their respective Affiliates, officers, directors, agents, employees,
subsidiaries, partners, members and controlling persons to the fullest extent
permitted by law from and against any Losses based upon or arising out of or
otherwise in respect of any litigation commenced by or on behalf of Unitholders
relating to the Merger and the transactions contemplated thereby; PROVIDED that
the Company shall not have any liability to any of the foregoing parties to the
extent that any such Loss arises out of or is based upon such parties' fraud,
gross negligence, willful malfeasance or conduct that is the subject of a
criminal proceeding (where such party has a reasonable cause to believe that
such conduct was unlawful). Berkshire shall make capital contributions to the
Company in the event the Company is otherwise unable to satisfy such indemnity
obligations, which shall constitute additional Capital Contributions of the
Managing Member pursuant to Section 3.1(b)(i) of the LLC Agreement.
5.2 NOTIFICATION. Each Person entitled to indemnification
under this Article 5 (an "INDEMNIFIED PARTY") shall, promptly after the receipt
of notice of the commencement of any action, investigation, claim or other
proceeding against such Indemnified Party in respect of which indemnity may be
sought from the indemnifying parties under this Article 5 (the "INDEMNIFYING
PARTIES"), notify the Indemnifying Parties in writing of the commencement
thereof. The failure of any Indemnified Party to so notify the Indemnifying
Parties of any such action shall not relieve the Indemnifying Parties from any
liability which it may have to such Indemnified Party (a) other than pursuant to
this Article 5 or (b) under this Article 5 unless, and only to the extent that,
such failure results in the Indemnifying Parties' forfeiture of substantial
rights or defenses. In case any such action, claim or other proceeding shall be
brought against any Indemnified Party, and it shall notify the Indemnifying
Parties of the commencement thereof, the Indemnifying Parties shall be entitled
to assume the defense thereof at their own expense, with counsel reasonably
satisfactory to such Indemnified Party in its reasonable judgment; PROVIDED,
HOWEVER, that any Indemnified Party may, at its own expense, retain separate
counsel to participate in such defense at its own expense. Notwithstanding the
foregoing, in any action, claim or proceeding in which both the Indemnifying
Parties, on the one hand, and an Indemnified Party, on the other hand, are, or
are reasonably likely to become, a party, such Indemnified Party shall have the
right to employ separate counsel at the expense of the Indemnifying Parties and
to control its own defense of such action, claim or proceeding if, in the
reasonable opinion of counsel to such Indemnified Party, a conflict or potential
conflict exists between the Indemnifying Parties, on the one hand, and such
Indemnified Party, on the other hand, that would make such separate
representation advisable; PROVIDED, HOWEVER, that the Indemnifying Parties shall
not be liable for the fees and expenses of more than one counsel to all
Indemnified Parties. Each Indemnifying Party agrees that it will not, without
the prior written consent of the Indemnified Party, settle, compromise or
consent to the entry of any judgment in any pending or threatened claim, action
or proceeding relating to the matters contemplated hereby (if any Indemnified
Party is a party thereto or has been actually threatened to be made a party
thereto) unless such settlement, compromise or consent includes an unconditional
release of the Indemnified Party from all liability arising or that may arise
out of such claim, action or proceeding. The Indemnifying Parties shall not be
liable for any
<PAGE>
10
settlement of any claim, action or proceeding effected against an Indemnified
Party without its written consent. Notwithstanding the foregoing or anything to
the contrary contained in this Agreement, nothing in this Article 5 shall
restrict or limit any rights that any Indemnified Party may have to seek
equitable relief.
5.3 CONTRIBUTION. If and to the extent that the
indemnification provided for in Section 5.1 (Indemnification) is unenforceable
for any reason, each Indemnifying Party shall make the maximum contribution to
the payment and satisfaction of amounts with respect to such Losses that such
Indemnifying Party would otherwise be obligated to provide indemnification for
pursuant to this Article 5 as shall be permissible under applicable laws.
ARTICLE 6
CONDITIONS
The obligations of the parties to perform the obligations set
forth in Sections 2.2 (Closing Date Transactions) and 2.3 (Use of Proceeds) are
subject to the fulfillment prior to or on the Closing Date of the following
conditions:
6.1 NOTICE OF THE CLOSING DATE. The Company shall have
provided at least two (2) Business Days' prior written notice to Berkshire and
the Investors of the Closing Date.
6.2 MERGER AGREEMENT CONDITIONS. The conditions set forth in
Article VIII of the Merger Agreement shall have been fulfilled or waived by the
parties thereto.
6.3 COMPLIANCE WITH THIS AGREEMENT. The Company, the Investors
and Berkshire shall have performed and complied with all of their agreements and
conditions set forth or contemplated herein that are required to be performed or
complied with by the Company, the Investors and Berkshire on or before the
Closing Date.
<PAGE>
11
ARTICLE 7
TERMINATION
Notwithstanding anything to the contrary contained herein, if
the Closing Date shall not have occurred on or prior to August 1, 2000 or
Capital Contributions for each Member, as contemplated by the LLC Agreement, are
not made by each of the Members of the Company by the close of business on the
Closing Date, New York City time, then this Agreement shall terminate and the
parties hereto shall have no further obligations hereunder. This Agreement may
be terminated by the Berkshire at any time. Notwithstanding the foregoing, no
termination of this Agreement shall relieve a party that has breached a
representation, warranty or covenant contained herein from liability therefor or
from any indemnity obligation arising under Article 5 hereof prior to the date
of termination.
ARTICLE 8
MISCELLANEOUS
8.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All of the
representations, warranties and covenants made herein shall survive the
execution and delivery of this Agreement, acceptance of the Purchased Interests
and payment therefor.
8.2 NOTICES. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
telecopier, courier service, overnight mail or personal delivery:
(a) if to an Investor:
c/o Equity Resources Group, Inc.
14 Story Street
Cambridge, Massachusetts 02138
Attention: Eggert Dagbjartsson
with a copy to:
Holland & Knight LLP
One Beacon Place
Boston, Massachusetts 02108
Attention: Benjamin Volinski, Esq.
<PAGE>
12
(b) if to the Company or Berkshire:
c/o The Berkshire Group
One Beacon Street, Suite 1500
Boston, Massachusetts 02108
Attention: David Quade
with copies to:
The Berkshire Group
One Beacon Street, Suite 1500
Boston, Massachusetts 02108
Attention: Scott Spelfogel, Esq.
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James M. Dubin
All such notices and communications shall be deemed to have
been duly given when delivered by hand, if personally delivered; when delivered
by courier or overnight mail, if delivered by commercial courier service or
overnight mail; five (5) Business Days after being deposited in the mail,
postage prepaid, if mailed; and when receipt is mechanically acknowledged, if
telecopied.
8.3 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of the
parties hereto. Neither the Company, Berkshire nor the Investors may assign any
of their respective rights under this Agreement, without the written consent of
the other parties.
8.4 AMENDMENT AND WAIVER.
(a) AMENDMENT. Any amendment, supplement or
modification of or to any provision of this Agreement, any waiver of any
provision of this Agreement, and any consent to any departure by the Company or
the Investors from the terms of any provision of this Agreement, shall be
effective (i) only if it is made or given in writing and signed by the Company,
Berkshire and the Investors, and (ii) only in the specific instance and for the
specific purpose for which made or given. Except where notice is specifically
required by this Agreement, no notice to or demand on the Company in any case
shall entitle the Company to any other or further notice or demand in similar or
other circumstances.
(b) WAIVER. No failure or delay on the part of
the Company or the Investors in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other
<PAGE>
right, power or remedy. The remedies provided for herein are cumulative and
are not exclusive of any remedies that may be available to the Company or the
Investors at law, in equity or otherwise.
8.5 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
8.6 HEADINGS. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
8.7 GOVERNING LAW; ARBITRATION. (a) This Agreement
shall be governed by and construed in accordance with the laws of the State of
Delaware, without regard to the principles of conflicts of law thereof.
(b) Any dispute arising hereunder shall be
settled by arbitration in accordance with the Expedited Procedures of the
Commercial Arbitration Rules of the American Arbitration Association (the "AAA
RULES") by a single arbitrator who is mutually agreeable to Berkshire and the
Investors (who shall be represented by Equity Resources Group, Incorporated (the
"INVESTORS' REPRESENTATIVE"). If Berkshire and the Investors' Representative are
unable to agree upon an arbitrator, an arbitrator shall be selected in
accordance with the AAA Rules. Any judgment upon the award rendered by such
arbitrator may be entered in any court of competent jurisdiction. All
proceedings in any such arbitration shall be conducted in Boston, Massachusetts.
Jurisdiction of such arbitrator shall be exclusive as to disputes between
Berkshire and the Investors relating to this Agreement, and Berkshire and the
Investors agree that this agreement to arbitrate shall be specifically
enforceable under the laws of Delaware. Neither Berkshire nor any Investor
(including the Investors' Representative) shall have the right to appeal the
arbitrator's decision or otherwise to submit a dispute relating to this
Agreement to a court of law. With respect to matters submitted to arbitration,
each of Berkshire and the Investors shall bear its own respective costs, fees
and expenses (including reasonable fees, expenses and disbursements of
attorneys) in connection with such arbitration. Berkshire, on the one hand, and
the Investors, collectively, on the other hand, shall each pay one-half of the
total costs, fees and expenses of the arbitrator.
8.8 SEVERABILITY. If any one or more of the provisions
contained herein, or the application thereof in any circumstance, is held
invalid, illegal or unenforceable in any respect for any reason, the validity,
legality and enforceability of any such provision in every other respect and of
the remaining provisions hereof shall not be in any way impaired, unless the
provisions held invalid, illegal or unenforceable shall substantially impair the
benefits of the remaining provisions hereof.
8.9 ENTIRE AGREEMENT. This Agreement, the LLC Agreement and
the Voting Agreement, together with the exhibits hereto or thereto, are intended
by the
<PAGE>
13
parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
This Agreement, the LLC Agreement and the Voting Agreement together with the
exhibits attached hereto or thereto, supersede all prior agreements and
understandings between the parties with respect to such subject matter.
8.10 NO THIRD PARTY BENEFICIARIES. Nothing contained in this
Agreement (other than the provisions of Article 5 (Indemnification)) express or
implied, is intended to or shall confer upon anyone other than the parties (and
their successors and permitted assigns) any right, benefit or remedy of any
nature whatsoever under or by reason of any Transaction Documents.
8.11 FURTHER ASSURANCES. Each of the parties shall execute
such documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
Remainder of Page Intentionally Left Blank
<PAGE>
14
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and delivered by their respective duly authorized
persons on the date first above written.
KRF3 ACQUISITION COMPANY, L.L.C.
By: KRF Company, L.L.C.,
its managing member
By: The Krupp Family Limited Partnership-94,
its sole member
By: /s/ Douglas Krupp
-------------------------------------------
Douglas Krupp
General Partner
KRF COMPANY, L.L.C.
By: The Krupp Family Limited Partnership-94,
its sole member
By: /s/ Douglas Krupp
-------------------------------------------
Douglas Krupp
General Partner
<PAGE>
15
EQUITY RESOURCE CAMBRIDGE FUND
LIMITED PARTNERSHIP EQUITY RESOURCE
GENERAL FUND LIMITED PARTNERSHIP
EQUITY RESOURCE FUND XVI LIMITED
PARTNERSHIP EQUITY RESOURCE FUND XIX
LIMITED PARTNERSHIP EQUITY RESOURCE
BRATTLE FUND LIMITED PARTNERSHIP
EQUITY RESOURCE BRIDGE FUND LIMITED
PARTNERSHIP
By: EQUITY RESOURCES GROUP,
INCORPORATED,
as general partner of each of the foregoing
By: /s/ Eggert Dagbjartsson
---------------------------------------
Eggert Dagbjartsson
Executive Vice President
<PAGE>
EXHIBIT A
--------------------------------
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
OF
KRF3 ACQUISITION COMPANY, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
DATED AS OF [________], 2000
--------------------------------
<PAGE>
Page
----
KRF3 ACQUISITION COMPANY, L.L.C.
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY AGREEMENT
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 GENERAL PROVISIONS.................................................................1
1.1 Definitions........................................................................1
1.2 Name...............................................................................9
1.3 Principal Office...................................................................9
1.4 Registered Office and Registered Agent.............................................9
1.5 Term...............................................................................9
1.6 Purpose and Power..................................................................9
ARTICLE 2 MANAGEMENT; LIABILITY OF MEMBERS;
EXPENSES..........................................................................10
2.1 Rights and Duties of the Managing Member..........................................10
2.2 Rights and Duties of the Additional Members.......................................12
2.3 Expenses..........................................................................13
2.4 Officers..........................................................................13
ARTICLE 3 CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS;
DISTRIBUTIONS; ALLOCATIONS........................................................13
3.1 Capital Contributions.............................................................13
3.2 Capital Accounts..................................................................15
3.3 Distributions.....................................................................16
3.4 Allocations.......................................................................17
3.5 Special Allocations...............................................................18
3.6 Tax Withholding; Withholding Advances.............................................20
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
ARTICLE 4 LIABILITY; INDEMNIFICATION........................................................21
4.1 Limited Liability of Members......................................................21
4.2 Qualification.....................................................................22
4.3 Liability to Members..............................................................22
4.4 Indemnification...................................................................22
ARTICLE 5 CONSENTS; VOTING; MEETINGS........................................................24
5.1 Method of Giving Consent..........................................................24
5.2 Meetings..........................................................................24
5.3 Quarterly Meetings................................................................24
ARTICLE 6 REPORTS TO MEMBERS; CONFIDENTIALITY...............................................24
6.1 Books of Account..................................................................24
6.2 Reports...........................................................................25
6.3 Accounting Basis..................................................................25
6.4 Tax Matters.......................................................................25
6.5 Confidentiality...................................................................25
ARTICLE 7 ADDITIONAL MEMBERS; TRANSFER;
WITHDRAWAL........................................................................26
7.1 Additional Members................................................................26
7.2 Transfer..........................................................................26
7.3 Death, Incompetence, Bankruptcy or Liquidation of an
Additional Member.................................................................27
7.4 Withdrawals.......................................................................27
7.5 Continuation......................................................................27
ARTICLE 8 DISSOLUTION; WINDING UP; TERMINATION..............................................27
8.1 Dissolution.......................................................................27
8.2 Winding Up and Termination........................................................28
8.3 Assets Reserved and Pending Claims................................................30
ARTICLE 9 AMENDMENTS; WAIVER; POWER OF ATTORNEY.............................................31
9.1 Amendments; Waiver................................................................31
9.2 Power of Attorney.................................................................32
ARTICLE 10 MISCELLANEOUS.....................................................................33
10.1 Investment Representations........................................................33
10.2 Successors and Assigns............................................................34
10.3 No Waiver.........................................................................34
10.4 Survival of Certain Provisions....................................................34
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
Page
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<S> <C> <C>
10.5 Notices...........................................................................34
10.6 Severability......................................................................35
10.7 Counterparts......................................................................35
10.8 Headings, Etc.....................................................................35
10.9 Gender............................................................................35
10.10 No Right to Partition.............................................................35
10.11 No Third Party Rights.............................................................35
10.12 Entire Agreement..................................................................35
10.13 Rule of Construction..............................................................35
10.14 Authority.........................................................................36
10.15 Reliance..........................................................................36
10.16 Applicable Law....................................................................36
</TABLE>
EXHIBITS
Exhibit A Members of KRF3 Acquisition Company, L.L.C.
iii
<PAGE>
EXHIBIT A
KRF3 ACQUISITION COMPANY, L.L.C.
AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENT (the
"AGREEMENT"), dated as of [________], 2000 of KRF3 ACQUISITION COMPANY, L.L.C.
(the "COMPANY") by and among KRF Company, L.L.C., a Delaware limited liability
company, as the managing member of the Company (the "MANAGING MEMBER"), and
those Persons (as defined herein) who have executed this Agreement as additional
members of the Company (each, an "ADDITIONAL MEMBER" and together with the
Managing Member, the "MEMBERS").
WHEREAS, the Company has heretofore been formed as a limited
liability company under the Delaware Act (as defined herein) by the filing by
the Managing Member of a Certificate of Formation on behalf of the Company (the
"CERTIFICATE") with the Secretary of State of the State of Delaware on May 10,
1999;
WHEREAS, the Managing Member entered into a limited liability
company agreement for the Company dated as of May 10, 1999 (the "INITIAL
AGREEMENT"); and
WHEREAS, the Persons listed on Exhibit A hereto under the
heading "Additional Members" will be admitted to the Company as Additional
Members as of the date hereof and the Members wish to amend and restate the
Initial Agreement in its entirety;
NOW, THEREFORE, the Managing Member and the Additional
Members, in consideration of their mutual covenants contained herein and for
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, mutually covenant and agree as follows:
ARTICLE 1
GENERAL PROVISIONS
1.1 DEFINITIONS. For the purpose of this Agreement, the
following terms shall have the following meanings:
"ADDITIONAL CASH DETERMINATION" shall have the meaning set
forth in Section 3.1(b)(ii) (Additional Capital Contributions).
<PAGE>
"ADDITIONAL MEMBERS" shall mean each Person whose name is
listed on Exhibit A hereto under the heading "Additional Members," and any
Additional Members and any substituted Members admitted to the Company in
accordance with Section 7.1 (Additional Members) and 7.2(a) (Conditions to
Transfer).
"AFFILIATE" shall mean, with respect to any Person, (i) any
other Person that directly, or indirectly through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person,
(ii) any Person that is an officer of, member of, partner in, or trustee of, or
serves in a similar capacity with respect to, the specified Person or of which
the specified Person is an officer, member, partner or trustee, or with respect
to which the specified Person serves in a similar capacity, (iii) any Person
that, directly or indirectly, is the beneficial owner of 10% or more of any
class of equity securities of, or otherwise has a substantial beneficial
interest in, the specified Person or of which the specified Person is directly
or indirectly the owner of 10% or more of any class of equity securities or in
which the specified Person has a substantial beneficial interest, (iv) any
Immediate Family Member of the specified Person and (v) any Affiliate of a
Person described in subsections (i)-(iv). For the purposes of this definition,
"control" shall mean, as to any Person, the power to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities, by contract or otherwise.
"AGREEMENT" shall mean this Amended and Restated Limited
Liability Company Agreement, as amended from time to time.
"AVAILABLE CASH" shall mean, for any quarterly period or such
other period for which computation may be appropriate, the excess, if any, of:
(a) the sum of
(i) the amount of all of the cash receipts of the
Company during such period from whatever source; and
(ii) any cash reserves of the Company existing at the
start of such period;
reduced by
(b) the sum of
(i) all cash amounts paid or payable (without
duplication) in such period on account of expenses and capital
expenditures incurred in
2
<PAGE>
connection with the Company's business and approved in accordance with
the provisions of this Agreement (including, without limitation,
general operating expenses, taxes, amortization or interest on any debt
of the Company; and
(ii) such cash reserves as may be required for
capital expenditures, working capital and future needs of the Company
in an amount reasonably determined by the Managing Member.
"BANKRUPTCY" shall mean the occurrence of any event specified
in Section 8.1(g) (Dissolution) with respect to the Managing Member.
"CAPITAL ACCOUNT" shall have the meaning set forth in Section
3.2(a) (Maintenance of Capital Accounts).
"CAPITAL CONTRIBUTION" shall mean, with respect to each
Member, the amount of cash or other property contributed (or deemed to be
contributed) by such Member to the capital of the Company from time to time
pursuant to Section 3.1 (Capital Contributions).
"CERTIFICATE" shall have the meaning set forth in the
recitals.
"CODE" shall mean the Internal Revenue Code of 1986, as
amended from time to time.
"COMPANY" shall mean KRF3 Acquisition Company, L.L.C., a
Delaware limited liability company.
"COMPANY MINIMUM GAIN" shall mean "partnership minimum gain"
as such term is defined in Regulation section 1.704-2(b)(2) and 1.704-2(d).
"CONFIDENTIAL INFORMATION" shall have the meaning set forth in
Section 6.5 (Confidentiality).
"CONSENTING MEMBER" shall have the meaning set forth in
Section 5.1(a) (Written Approval).
"DELAWARE ACT" shall mean the Delaware Limited Liability
Company Act (Del. Code Ann. tit. 6 Section 18-101 ET seq.), as amended from time
to time, and any successor to such Act.
"DEPRECIATION" shall mean, with respect to any Fiscal Year, an
amount equal to the depreciation, amortization or other cost recovery deduction
allowable with
3
<PAGE>
respect to an asset for U.S. federal income tax purposes, except that if the
Gross Asset Value of the asset differs from its adjusted tax basis, Depreciation
shall be determined in accordance with the methods used for U.S. federal income
tax purposes and shall equal the amount that bears the same ratio to the Gross
Asset Value of such asset as the depreciation, amortization or other cost
recovery deduction computed for U.S. federal income tax purposes with respect to
such asset bears to the adjusted U.S. federal income tax basis of such asset;
PROVIDED, HOWEVER, that if any such asset that is depreciable or amortizable has
an adjusted tax basis of zero, the rate of Depreciation shall be as determined
by the Managing Member.
"DISSOLUTION EVENT" shall have the meaning set forth in
Section 8.1 (Dissolution).
"EXISTING MANAGING MEMBER CONTRIBUTION" shall have the meaning
set forth in Section 3.1(a).
"FINANCING" shall mean the loan facilities available to the
Company, obtained by the Managing Member or its Affiliates, in the amount
necessary to finance, together with the Capital Contributions of the Members
hereto, the Merger contemplated by the Merger Agreement and to refinance the
indebtedness of Fund III.
"FISCAL YEAR" shall mean each fiscal year of the Company (or
portion thereof), which shall end on December 31; PROVIDED, HOWEVER, that upon
Termination of the Company, "FISCAL YEAR" shall mean the period from the January
1 immediately preceding such Termination to the date of such Termination.
"FUND III" shall have the meaning set forth in Section 1.6
(Purpose and Power).
"FUND III AGREEMENT" shall mean the Amended Agreement of
Limited Partnership of Fund III, dated as of June 1, 1982, as amended from time
to time.
"GROSS ASSET VALUE" shall mean, with respect to any asset, the
asset's adjusted basis for U.S. federal income tax purposes, except that
(i) the Gross Asset Value of any asset contributed to
the Company shall be its gross fair market value (as determined by the
Managing Member) at the time such asset is contributed or deemed
contributed for purposes of computing Capital Accounts;
(ii) upon a contribution of money or other property
to the Company by a new or existing Member as consideration for an
interest in the
4
<PAGE>
Company and upon a distribution of money or other property to a
retiring or continuing Member as consideration for an interest in the
Company, the Gross Asset Value of all of the assets of the Company
shall be adjusted to equal their respective gross fair market values
(as determined by the Managing Member), to the extent such adjustment
is determined by the Managing Member to be necessary or appropriate to
reflect the Members' relative Interests in the Company;
(iii) the Gross Asset Value of any asset distributed
in kind to any Member shall be the gross fair market value of such
asset (as determined by the Managing Member) on the date of such
distribution; and
(iv) the Gross Asset Value of any asset determined
pursuant to clauses (i) or (ii) above shall thereafter be adjusted from
time to time by the Depreciation taken into account with respect to
such asset for purposes of determining Net Income or Net Loss.
"IMMEDIATE FAMILY MEMBER" means with respect to any person,
such person's spouse, parent, parent-in-law, issue, brother, sister,
brother-in-law, sister-in-law, or child-in-law.
"INITIAL AGREEMENT" shall have the meaning set forth in the
preamble to this Agreement.
"INTEREST" shall mean, with respect to any Member, as of any
date, the fraction, expressed as a percentage, the numerator of which is such
Member's Capital Contributions and the denominator of which is the sum of the
Capital Contributions of all Members.
"INVESTMENT AGREEMENT" shall mean the Investment Agreement
among the Company, Equity Resource Fund XVI Limited Partnership, Equity Resource
Fund XIX Limited Partnership, Equity Resource General Fund Limited Partnership,
Equity Resource Cambridge Fund Limited Partnership, Equity Resource Brattle Fund
Limited Partnership, Equity Resource Bridge Fund Limited Partnership and KRF
Company, L.L.C., dated as of January 6, 2000.
"INVESTOR LIMITED PARTNER" shall have the meaning set forth in
the Fund III Agreement.
"LIABILITIES" shall have the meaning set forth in Section
4.4(a) (Indemnification of Protected Persons).
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"MANAGING MEMBER" shall have the meaning set forth in the
preamble to this Agreement.
"MEMBER NONRECOURSE DEBT" shall mean "partner nonrecourse
debt" as such term is defined in Regulation section 1.704-2(b)(4).
"MEMBER NONRECOURSE DEBT MINIMUM GAIN" shall mean an amount
with respect to each Member Nonrecourse Debt equal to the Company Minimum Gain
that would result if such Member Nonrecourse Debt were treated as a nonrecourse
liability (as defined in Regulation section 1.752-1(a)(2)) determined in
accordance with Regulation section 1.704-2(i)(3).
"MEMBER NONRECOURSE DEDUCTION" shall mean "partner nonrecourse
deduction" as such term is defined in Regulation section 1.704-2(i)(2).
"MEMBERS" shall mean the Managing Member and the Additional
Members, and "Member" shall mean any of the Members.
"MERGER" shall mean the merger of the Company and Fund III
under the Merger Agreement.
"MERGER AGREEMENT" shall mean the Agreement and Plan of Merger
to be executed by the Company and Fund III substantially in the form of Exhibit
C to the Investment Agreement.
"NET INCOME" or "NET LOSS" shall mean, for any Fiscal Year (or
portion thereof), the net income, gain or loss of the Company during such Fiscal
Year (or portion thereof), as determined for United States federal income tax
purposes, with the following adjustments:
(i) Such taxable income or loss shall be increased by
the amount, if any, of tax-exempt income received or accrued by the
Company;
(ii) Such taxable income or loss shall be reduced by
the amount, if any, of all expenditures of the Company described in
Section 705(a)(2)(B) of the Code, including expenditures treated as
described therein under Regulations section 1.704(b)(2)(iv)(i);
(iii) If the Gross Asset Value of any asset is
adjusted pursuant to clause (ii) or (iii) of the definition of Gross
Asset Value, the amount of such adjustment shall be taken into account,
immediately prior to the event giving
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rise to such adjustment, as gain or loss from the disposition of such
asset for purposes of computing Net Income or Net Loss;
(iv) Gain or loss resulting from any disposition of
any asset with respect to which gain or loss is recognized for U.S.
federal income tax purposes shall be computed by reference to the Gross
Asset Value of the asset disposed of, notwithstanding that such Gross
Asset Value differs from the adjusted tax basis of such asset; and
(v) In lieu of the depreciation, amortization, or
other cost recovery deductions taken into account in computing such
taxable income or loss, there shall be taken into account Depreciation
for such Fiscal Year.
"NONRECOURSE DEDUCTIONS" shall have the meaning set forth in
Regulation section 1.704-2(b).
"PERSON" shall mean an individual, a corporation, a company, a
voluntary association, a partnership, a joint venture, a limited liability
company, a trust, an estate, an unincorporated organization, a governmental
authority or other entity.
"PRIME RATE" shall mean the rate of interest published from
time to time in The Wall Street Journal, Eastern Edition and designated as the
prime rate.
"PROPERTIES" means any real estate, buildings, improvements,
fixtures and related personal property acquired by the Company in connection
with the Merger or otherwise.
"PROPERTY MANAGEMENT AGREEMENT" shall mean the Property
Management Agreements in effect on the date hereof between Fund III and BRI OP
Limited Partnership.
"PROPOSED TRANSFER" shall have the meaning set forth in
Section 6.5 (Confidentiality).
"PROTECTED PERSON" shall mean: (i) the Managing Member, any
Additional Member and their respective members, board members and officers; (ii)
any officer, director, partner, member, employee, stockholder or Specified Agent
of the Managing Member or any Additional Member; and (iii) any Person who serves
at the request of the Managing Member hereunder on behalf of the Company as an
officer, director, partner, member or employee of any other Person.
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"RATE OF RETURN"shall mean, with respect to any interest in
the Company held by any Member, a cumulative, semiannually compounded return on
all Capital Contributions made or deemed to have been made by such Member with
respect to such Member's interest in the Company (and accrued but unpaid return
at the specified rate outstanding from time to time) at a rate per annum as
specified. A Member shall be deemed to have received a specified Rate of Return
with respect to such Member's interest in the Company when such Member has
received an amount equal to an annual return on the total Capital Contributions
made from time to time by such Member in respect of such Member's interest in
the Company equal to the specified percentage calculated commencing on the date
such Capital Contributions are made or are deemed to have been made and
compounded semiannually to the extent not paid on a current basis, taking into
account the timing and amounts of all previous distributions by the Company to
such Member. For purposes of computing such Rate of Return, distributed amounts
shall be applied in accordance with Section 3.3(a)(ii) (Distributions --
General).
"REGULATIONS" shall mean the regulations promulgated under the
Code.
"REGULATORY ALLOCATIONS" shall have the meaning set forth in
Section 3.5(g)(i) (Curative Allocations).
"REPRESENTATIVES" shall have the meaning set forth in Section
6.5 (Confidentiality).
"REQUIRED ADDITIONAL MEMBERS" shall mean Additional Members
holding at least 51% of the aggregate Interests held by all Additional Members.
"SECURITIES ACT" shall have the meaning set forth in Section
10.1 (Investment Representations).
"SPECIFIED AGENT" shall mean any agent of any Person that is
designated in writing by the Managing Member as a "Specified Agent" of the
Company entitled to the protection of Sections 4.3 (Liability to Members) and
4.4 (Indemnification).
"TERMINATION" shall mean the date of the cancellation or
withdrawal of the Certificate following the end of the Winding Up Period by the
filing of a Certificate of Cancellation of the Company in the Office of the
Secretary of State of the State of Delaware.
"TRANSFER" shall have the meaning set forth in Section 7.2(a).
"UNITS" shall mean investor limited partnership interests in
Fund III.
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"WINDING UP PERIOD" shall mean the period from the Dissolution
Event to the Termination of the Company.
"WITHHOLDING ADVANCES" shall have the meaning set forth in
Section 3.6(b) (Withholding Advances--General).
1.2 NAME. The name of the Company is "KRF3 Acquisition
Company, L.L.C." The Company's business may be conducted under any other name or
names deemed advisable by the Managing Member; PROVIDED, HOWEVER, that (a) the
words "Limited Liability Company" or the abbreviation "L.L.C." or "LLC" shall be
included in the name where necessary to comply with the laws of any jurisdiction
that so requires and (b) the name shall not contain any word or phrase
indicating or implying that it is organized other than for a purpose stated
herein. The Managing Member shall give prompt notice of any name change to each
Additional Member.
1.3 PRINCIPAL OFFICE. The principal office of the Company is
at One Beacon Street, Suite 1500, Boston, Massachusetts, 02108, or such other
place in the United States as may from time to time be designated by the
Managing Member. The Company shall keep its books and records at its principal
office. The Managing Member shall give prompt notice to each Additional Member
of any change in the location of the Company's principal office.
1.4 REGISTERED OFFICE AND REGISTERED AGENT. The street address
of the registered office of the Company in the State of Delaware is at 1013
Centre Road, Wilmington, Delaware 19805 or such other place in the State of
Delaware as may from time to time be designated by the Managing Member in
accordance with the Delaware Act, and the Company's registered agent at such
address is Corporation Service Company.
1.5 TERM. The Company was formed on May 10, 1999 and shall
continue its regular business activities until the occurrence of a Dissolution
Event as described in Section 8.1 (Dissolution).
1.6 PURPOSE AND POWER.
(a) PURPOSE. The Company is organized for the
purposes of (i) merging with Krupp Realty Fund Ltd.-III, a Massachusetts limited
partnership ("FUND III"); (ii) investing in, maintaining, operating, leasing,
improving, holding, encumbering, selling, managing and otherwise dealing with
the Properties; (iii) sharing the profits and losses therefrom; (iv) engaging in
activities incidental or ancillary thereto; and (v) carrying on any lawful
business, purpose or activity permitted under the Delaware Act. Without the
consent of all the Members, the Company shall not engage in any business other
than those described in clauses (i), (ii), (iii) and (iv) above.
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(b) POWER. The Company shall have the power to do any
and all acts necessary, appropriate, proper, advisable, incidental or convenient
to or for the furtherance of the purposes and business described herein and for
the protection and benefit of the Company, and shall have, without limitation,
any and all of the powers that may be exercised on behalf of the Company by the
Managing Member pursuant to this Agreement, including, without limitation, those
powers set forth in Section 2.1 (Rights and Duties of the Managing Member). The
Company, or the Managing Member on behalf of the Company, may enter into and
perform agreements relating to the organization of the Company, without any
further act, vote or approval of any Additional Member, notwithstanding any
other provision of this Agreement.
ARTICLE 2
MANAGEMENT; LIABILITY OF MEMBERS; EXPENSES
2.1 RIGHTS AND DUTIES OF THE MANAGING MEMBER. Except as
otherwise expressly provided herein, the management and operation of the Company
shall be vested exclusively in the Managing Member, who shall have the power on
behalf of and in the name of the Company to carry out any and all of the
purposes of the Company and to perform all acts and enter into and perform all
contracts and other undertakings that it may deem necessary, appropriate,
proper, advisable, incidental or convenient thereto. Except as otherwise
expressly provided herein, the Managing Member shall have, and shall have full
authority in its discretion to exercise, on behalf of and in the name of the
Company, all rights and powers of a manager of a limited liability company under
the Delaware Act necessary or convenient to carry out the purposes of the
Company. Without limiting the foregoing, and except as otherwise expressly
provided in this Agreement, the Managing Member is hereby authorized and
empowered in the name of and on behalf of the Company:
(a) to acquire, improve, mortgage, hold, sell,
exchange, divide, combine and otherwise transact business with respect to the
Properties and to engage in activities incidental or ancillary to such
transactions; and to execute and deliver in the name of the Company any and all
instruments necessary or desirable to effectuate such transactions;
(b) to make temporary investments of the funds of the
Company in all types of securities, including, without limitation, United States
government and agency securities, interest-bearing deposits in United States
banks, certificates of deposit, securities issued by or on behalf of states,
municipalities and their instrumentalities (the interest from which is exempt
from federal income tax), prime-grade commercial paper,
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repurchase agreements with respect to any of the foregoing, prior to long-term
investment or pending cash distributions to the Members;
(c) to employ, retain or consult, or terminate the
services of, such Persons as it shall deem advisable, including, without
limitation, brokers, attorneys, accountants, actuaries or specialists in any
field of endeavor whatsoever, including, without limitation, engineers,
contractors, appraisers, consultants, advisors, artisans and workmen;
(d) to deposit and withdraw the funds of the Company
in the name of the Company in any bank or trust company and to entrust to such
bank or trust company any of the investments, monies, documents and papers
belonging to or relating to the Company; to deposit in and entrust to any
brokerage firm that is a member of any national securities exchange any of said
funds, investments, monies, documents and papers belonging to or relating to the
Company; or to enter into custodial arrangements with any Person with respect to
the assets of the Company;
(e) to invest, pay, retain and distribute the
Company's funds in a manner consistent with the provisions of this Agreement,
including, without limitation, to make distributions to the Members in cash, in
kind or otherwise;
(f) to borrow monies and incur liabilities on behalf
of the Company to the extent permitted by this Agreement (including, without
limitation, pursuant to 3.1(b) hereof) and in connection therewith to issue,
accept, endorse and execute promissory notes, guarantees, drafts, bills of
exchange, warrants, bonds, debentures and other negotiable or non-negotiable
instruments and evidences of indebted ness, and to secure the payment of any of
the foregoing by pledge, conveyance or assignment in trust of the whole or any
part of the property of the Company whether at the time owned or thereafter
acquired, and to pay or prepay any such obligations;
(g) to set aside funds for reasonable reserves,
reasonably anticipated contingencies and reasonable working capital, including,
without limitation, for normal repairs and replacements related to the
Properties;
(h) to make such elections under the Code and other
relevant tax laws as to the treatment of items of Company income, gain, loss and
deduction, and as to all other relevant matters, as the Managing Member deems
necessary, appropriate or advisable, including, without limitation, elections
referred to in Section 754 of the Code, determination of which items of cash
outlay are to be capitalized or treated as current expenses, and selection of
the method of accounting and bookkeeping procedures to be used by the Company;
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(i) to sue, prosecute, settle or compromise all
claims against third parties, to compromise, settle or accept judgment in
respect of claims against the Company and to execute all documents and make all
representations, admissions and waivers in connection therewith;
(j) to enter into, make and perform all contracts,
agreements, instruments, including the Merger Agreement, and other undertakings
as the Managing Member may determine to be necessary, advisable or incidental to
the carrying out of the foregoing objects and purposes, including, without
limitation, deeds, mortgages, leases and other documents of title or conveyance;
(k) to admit Additional Members to the Company in
accordance with Section 7.1 (Additional Members); and
(l) to take all actions that may be necessary or
appropriate in furtherance of any of the foregoing or for the continuation of
the Company's valid existence as a limited liability company under the Delaware
Act and of each other jurisdiction in which such action is necessary to protect
the limited liability of the Additional Members or to enable the Company to
conduct the business in which it is engaged.
2.2 RIGHTS AND DUTIES OF THE ADDITIONAL MEMBERS.
(a) GENERAL. The Additional Members shall have no
right to, and shall not, take part in the management or control of the Company's
business or act for or bind the Company; PROVIDED, that the Additional Members
shall have all of the rights, powers and privileges granted to the Additional
Members in this Agreement and, where not inconsistent with the terms of this
Agreement, under the Delaware Act.
(b) PROPERTY MANAGEMENT AGREEMENT. The Managing
Member shall not consent to any amendment to the Property Management Agreement
that materially increases the liabilities or obligations of the Company without
the consent of the Required Additional Members.
(c) RIGHT TO FORCE SALE OF PROPERTIES. Upon the
written request of the Required Additional Members delivered to the Managing
Member during the period commencing on the fifth anniversary of the Merger and
ending on the 180th day after such anniversary, the Managing Member shall use
its good faith efforts to sell all of the Properties then owned by the Company
at their fair market value within a reasonable period of time from receipt of
such request Property.
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(d) MERGER AGREEMENT. Notwithstanding any other
provision of this Agreement, the Additional Members are deemed to have consented
to the Merger Agreement by execution of this Agreement or appropriate
supplement.
2.3 EXPENSES. The Company shall pay or reimburse the Managing
Member for its payment of (i) any and all costs and expenses incurred by the
Managing Member, its members and agents in connection with the management of the
Company and its assets, including, but not limited to, an annual fee of
$100,000, payable in advance, for time devoted to the management of the Company
and its assets by employees of the Managing Member or its Affiliates (such fee
to be (A) equitably adjusted in the event the Properties are sold by the Company
and (B) in addition to all amounts payable under the Property Management
Agreement); (ii) a fee equal to 0.25% of the gross amount of any proceeds from
the financing, refinancing or sale of the Properties or similar extraordinary
transaction; (iii) any and all taxes and governmental charges that may be
incurred or payable by the Company; (iv) any and all insurance premiums or
expenses incurred by the Company in connection with the activities of the
Company; (v) any and all expenses (including legal fees and expenses) incurred
to enable the Company to comply with any law or regulation related to the
activities of the Company or incurred in connection with any litigation or
governmental inquiry, investigation or proceeding involving the Company,
including the amount of any judgments, settlements or fines paid in connection
therewith, except, however, to the extent such expenses or amounts have been
determined to be excluded from the indemnification provided for in Section 4.4
(Indemnification); and (vi) any and all expenses related to the Company's
indemnification obligations pursuant to Section 4.4 (Indemnification). Nothing
in this Section 2.3 (Expenses) shall require the Managing Member to make any
payment described above on behalf of the Company.
2.4 OFFICERS. The day-to-day operations of the Company shall
be the responsibility of the officers of the Company, who shall be designated
and appointed by, and shall have the powers delegated to it by, the Managing
Member.
ARTICLE 3
CAPITAL CONTRIBUTIONS; CAPITAL ACCOUNTS;
DISTRIBUTIONS; ALLOCATIONS
3.1 CAPITAL CONTRIBUTIONS.
(a) INITIAL CAPITAL CONTRIBUTION. As of the date
hereof, the Managing Member has caused to be contributed 10,826 Units,
constituting all of the Units owned by the Company (the "Existing Managing
Member Contribution") to the capital of the Company. On the date hereof or such
later date as determined by the Managing
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Member, (i) the Managing Member shall have contributed (or shall have caused to
have been contributed) $954,810 in cash to the capital of the Company, or such
lesser amount, when added to the Financing, the Existing Managing Member
Contribution and the Capital Contributions of the Additional Members, as is
sufficient to consummate the Merger and to refinance the indebtedness of Fund
III, and (ii) the Additional Members shall have contributed to the Company all
of the Units owned by them. In the event that an amount in excess of $954,810 is
necessary to consummate the Merger and to refinance the indebtedness of Fund
III, the Managing Member shall have the right, but shall not be required, to
contribute such additional amount. Set forth on Exhibit A opposite each Member's
name as such Member's initial Capital Contribution is (i) in the case of the
Managing Member, (A) the Existing Managing Member Contribution (the value of
which shall be equal to the product of the number of Units previously
contributed by the Managing Member and the per Unit consideration paid to the
holders in the Merger) and (B) the amount of cash to be contributed by the
Managing Member on the date hereof, and (ii) in the case of each Additional
Member, the number of Units to be contributed by such Additional Member on the
date hereof and the contribution value per Unit, which value shall be equal to
the consideration paid to the holders of Units in the Merger.
(b) ADDITIONAL CAPITAL CONTRIBUTIONS; LOANS.
(i) The Managing Member shall pay any and
all costs and expenses incurred on behalf of the Company in connection
with (A) the organization of the Company and the preparation of this
Agreement and the Investment Agreement, including, without limitation,
fees, costs and expenses payable to attorneys, accountants, consultants
and custodians; (B) the proxy solicitation; (C) the meeting of
Unitholders to consider the Merger and (D) satisfaction of the
Company's indemnification obligations pursuant to Section 4.4(iv). All
such payments shall constitute additional Capital Contributions of the
Managing Member and the Members' Interests shall be adjusted to reflect
the changes in relative Capital Contributions of the Members resulting
from such payments.
(ii) The Members shall not be obligated to
make additional capital contributions to the Company except as provided
in Section 4.1(b) (Return of Previously Distributed Amounts) and, with
respect to the Managing Member, except as also provided in Section
3.1(b)(i). Upon a determination by the Managing Member that additional
cash is required by the Company for capital improvements to, or
rehabilitation of, the Properties (an "ADDITIONAL CASH DETERMINATION"),
the Managing Member shall use good faith efforts to satisfy such cash
requirements utilizing available cash of the Company and/or with the
proceeds from a refinancing of the Properties. In the event such
actions are not reasonably likely to meet the Company's cash
requirements, each
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Member shall have the right to make an additional Capital Contribution
in an amount equal to (but not less than) its proportionate share
(determined by reference to the ratio of such Member's Interests to the
Interests of all Members who actually make such additional Capital
Contribution) of any such additional cash requirement. With respect to
each Additional Cash Determination, if any Member declines to make such
an additional Capital Contribution, (A) the other Members may elect to
make a Capital Contribution equal to the unfunded amount (determined on
a PRO RATA basis) thereof and (B) the Members' Interests shall be
adjusted to reflect the changes in the relative Capital Contributions
of Members resulting from such Capital Contributions.
(iii) With respect to any Additional Cash
Determination not funded pursuant to Section 3.1(b)(ii) above, the
Managing Member may elect to lend funds to the Company in the amount of
such deficiency with the consent of the Required Additional Members
(which consent shall not unreasonably be withheld). Any loans to the
Company pursuant to this Section (b)(iii) shall not constitute a
Capital Contribution to the Company and shall not affect a Member's
Interest in the Company. Any loans to the Company authorized in
accordance with this Section 3.1(b)(iii) shall be evidenced by a
promissory note and shall be payable to the lender at an interest rate
of twelve percent (12%) per annum, compounded quarterly and shall have
such other terms as determined by the Managing Member, in its sole
discretion.
(c) INTERESTS OF THE MEMBERS. The initial Interest of
each Member of the Company shall be the percentage set forth opposite such
Member's name on Exhibit A. Exhibit A shall be promptly amended to reflect
changes of Interests resulting from any additional capital contributions in
accordance with Section 3.1(b) (Additional Capital Contributions) or the
admission or substitution of any Additional Members to the Company in accordance
with Sections 7.1 (Additional Members) and 7.2 (Transfer), respectively.
(d) NO WITHDRAWAL; RETURN OF CONTRIBUTIONS. Except as
otherwise expressly provided in this Agreement, no Member shall have the right
to withdraw capital from the Company, to receive interest on such Member's
Capital Contributions or to receive any distribution or return of such Member's
Capital Contributions.
3.2 CAPITAL ACCOUNTS.
(a) MAINTENANCE OF CAPITAL ACCOUNTS. The Company
shall maintain a "CAPITAL ACCOUNT" for each Member on the books of the Company
in accordance with the following provisions:
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(i) Each Member's Capital Account shall be
increased by the amount of: (A) such Member's Capital Contributions
pursuant to Section 3.1 (Capital Contributions); (B) any Net Income or
other item of income or gain allocated to such Member pursuant to
Section 3.4 (Allocations) or Section 3.5 (Special Allocations); and (C)
Company liabilities, if any, assumed by such Member or secured, in
whole or in part, by any Company assets that are distributed to such
Member.
(ii) Each Member's Capital Account shall be
decreased by the amount of: (A) cash and the fair market value on the
date of distribution of any other Company property distributed to such
Member pursuant to Section 3.3 (Distributions) and Section 8.2 (Winding
Up and Termination); (B) any Net Loss or other item of loss or
deduction allocated to such Member pursuant to Section 3.4
(Allocations) or Section 3.5 (Special Allocations); and (C)
liabilities, if any, of such Member assumed by the Company, other than
liabilities for which the Company is required to reimburse such Member
hereunder or otherwise.
(b) SUCCESSION TO CAPITAL ACCOUNTS. In the event any
Person becomes a substituted Member in accordance with the provisions of Section
7.2(a) (Conditions to Transfer), such substituted Member shall succeed to the
Capital Account of the transferor Member to the extent such Capital Account
relates to the transferred interest (or portion thereof).
3.3 DISTRIBUTIONS.
(a) GENERAL.
(i) Distributions shall be made in cash. The
Managing Member shall establish reserves for working capital,
contingencies or other items and for the satisfaction of liabilities
(including contingent liabilities) of the Company. Subject to such
reserves, distributions of Available Cash (subject to all restrictions
in the definitions of such term) shall be made to the Members by the
Managing Member on behalf of the Company in accordance with clause (ii)
below.
(ii) Available Cash to be distributed to the
Members pursuant to this Section 3.3(a)(ii) (Distributions -- General)
shall be apportioned among the Members in accordance with their
respective Interests. Amounts so apportioned to the Managing Member
shall be distributed to the Managing Member. Amounts so apportioned to
each Additional Member shall be allocated between such Additional
Member and the Managing Member and distributed as follows (and the
calculations described in the following clauses shall be made as
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of the date of each distribution, on a cumulative basis), subject to
the other terms of this Article 3:
(A) First, to such Additional Member
until such Member has received, taking into account the amount
and timing of all prior distributions under this Section
3.3(a)(ii) (Distributions -- General) and all prior Capital
Contributions made pursuant to Section 3.1 (Capital
Contributions) by such Additional Member, a Rate of Return on
its aggregate Capital Contributions compounded semiannually to
the extent not paid on a semiannual basis, equal to twelve
percent (12%) per annum;
(B) Next, to such Additional Member
until such Additional Member has received an amount equal to
its aggregate Capital Contributions; and
(C) Thereafter, twenty percent (20%)
to the Managing Member and eighty percent (80%) to such
Additional Member.
(b) TIMING. Distributions shall be made within 45
days after the completion of the first half of each Fiscal Year. Within 90 days
after the end of each Fiscal Year, the Company's profits/income for the year
shall be determined and after giving effect to the amount of profits/income
previously distributed, the remainder will then be distributed in accordance
with Section 3.3(a) (Distributions -- General) above.
(c) DISTRIBUTIONS TO PERSONS ON COMPANY RECORDS. Any
distribution by the Company pursuant to the terms of this Section 3.3 or Section
8.2 (Winding Up and Termination) to the Person shown on the Company's records as
a Member or to its legal representatives, or to the assignee to the right to
receive such distributions as provided herein, shall acquit the Company and the
Managing Member of all liability to any other Person who may be interested in
such distribution by reason of any other assignment or transfer of such Member's
interest in the Company for any reason (including an assignment or transfer
thereof by reason of death, incompetence, bankruptcy or liquidation of such
Member).
3.4 ALLOCATIONS.
(a) NET INCOME. Net Income for each Fiscal Year (or
portion thereof) shall be allocated among the Members (after giving effect to
the allocations contained in Sections 3.4(c) (Tax Allocations) and 3.5(c) (Gross
Income Allocation) first to the extent Net Loss has been allocated to the
Members pursuant to Section 3.4(b) (Net Loss) and thereafter as nearly as
possible in the manner that distributions would be made pursuant to Section
3.3(a) (Distributions -- General) (other than returns of capital)).
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(b) NET LOSS. The Company shall allocate Net Loss
first to offset previous allocations of Net Income in respect of income that has
not yet been distributed, and then among the Members in accordance with their
respective Interests.
(c) TAX ALLOCATIONS. For United States federal, state
and local income tax purposes, items of income, gain, loss, deduction and credit
shall be allocated to the Members in accordance with the allocations of the
corresponding items for Capital Account purposes under Sections 3.4
(Allocations) and 3.5 (Special Allocations), except that items with respect to
which there is a difference between tax and book basis will be allocated in
accordance with section 704(c) of the Code, the Regulations thereunder and
Regulation section 1.704-1(b)(4)(i).
3.5 SPECIAL ALLOCATIONS.
(a) MINIMUM GAIN CHARGEBACK. Notwithstanding any
other provision of Section 3.4 (Allocations), if there is a net decrease in
Company Minimum Gain or Member Nonrecourse Debt Minimum Gain (determined in
accordance with the principles of Regulation sections 1.704-2(d) and 1.704-2(i))
during any Company taxable year, the Members shall be specially allocated items
of Company income and gain for such year (and, if necessary, subsequent years)
in an amount equal to their respective shares of such net decrease during such
year, determined pursuant to Regulation sections 1.704-2(g) and 1.704-2(i)(5).
The items to be so allocated shall be determined in accordance with Regulation
section 1.704-2(f). This Section 3.5(a) is intended to comply with the minimum
gain chargeback requirements in such Regulation sections and shall be
interpreted consistently therewith; including that no chargeback shall be
required to the extent of the exceptions provided in Regulation sections
1.704-2(f) and 1.704- 2(i)(4).
(b) QUALIFIED INCOME OFFSET. In the event any Member
unexpectedly received any adjustments, allocations, or distributions described
in Regulation section 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Company
income and gain shall be specially allocated to such Member in an amount and
manner sufficient to eliminate the deficit balance in its Capital Account in
excess of the sum of (i) the amount such Member is obligated to restore, if any,
pursuant to any provision of this Agreement, and (ii) the amount such Member is
deemed to be obligated to restore pursuant to the penultimate sentences of
Regulation sections 1.704-2(g)(1) and 1.704-2(i)(5) created by such adjustments,
allocations or distributions as promptly as possible. This Sec tion 3.5(b) is
intended to comply with the "qualified income offset" requirement in such
Regulation section and shall be interpreted consistently therewith.
(c) GROSS INCOME ALLOCATION. In the event any Member
has a deficit Capital Account at the end of any Fiscal Year which is in excess
of the sum of (i) the amount such Member is obligated to restore, if any,
pursuant to any provision of
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this Agreement, and (ii) the amount such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Regulation section
1.704-2(g)(1) and 1.704- 2(i)(5), each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as quickly as
possible, PROVIDED that an allocation pursuant to this Section 3.5(c) shall be
made only if and to the extent that a Member would have a deficit Capital
Account in excess of such sum after all other allocations provided for in
Section 3.4 (Allocations) and this Section 3.5 have been tentatively made as if
Section 3.5(b) (Qualified Income Offset) and this Section 3.5(c) were not in
this Agreement.
(d) NONRECOURSE DEDUCTIONS. Nonrecourse Deductions
shall be allocated to the Members in proportion to their Interests.
(e) MEMBER NONRECOURSE DEDUCTIONS. Member Nonrecourse
Deductions for any taxable period shall be allocated to the Member who bears the
economic risk of loss with respect to the liability to which such Member
Nonrecourse Deductions are attributable in accordance with Regulation section
1.704-2(j).
(f) REGULATORY COMPLIANCE. The provisions of Sections
3.2 (Capital Accounts), 3.3 (Distributions), 3.4 (Allocations), this Section 3.5
and the other provisions of this Agreement relating to the maintenance of
Capital Accounts are intended to comply with Regulation section 1.704-1(b) and
shall be interpreted and applied in a manner consistent with such Regulation.
The Managing Member shall be authorized to make appropriate amendments to the
allocations of items pursuant to Section 3.4 (Allocations) if necessary in order
to comply with Section 704 of the Code or applicable Regulations thereunder;
PROVIDED, that no such change shall have an adverse effect upon the amount
distributable to any Member pursuant to this Agreement.
(g) CURATIVE ALLOCATIONS.
(i) The allocations set forth in Sections
3.5(a) (Minimum Gain Chargeback), 3.5(b) (Qualified Income Offset),
3.5(c) (Gross Income Allocation), 3.5(d) (Nonrecourse Deductions) and
3.5(e) (Member Nonrecourse Deductions) of this Agreement (the
"REGULATORY ALLOCATIONS") are intended to comply with certain
requirements of the Regulations. The Managing Member is authorized to
offset all Regulatory Allocations either with other Regulatory
Allocations or with special allocations of income, gain, loss or
deductions pursuant to this Section 3.5(g) in whatever manner it
determines appropriate so that, after such offsetting allocations are
made, each Member's Capital Account balance is, to the extent possible,
equal to the Capital Account balance such Member would have had if the
Regulatory Allocations were not part of this Agreement and all items of
income, gain, loss or deduction were allocated pursuant to Section 3.4
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(Allocations). In exercising its discretion under this Section 3.5(g),
the Managing Member shall take into account future Regulatory
Allocations under Section 3.5(a) (Minimum Gain Chargeback) that,
although not yet made, are likely to offset other Regulatory
Allocations made under Sections 3.5(d) (Nonrecourse Deductions) and
3.5(e) (Member Nonrecourse Deductions).
(ii) In the event that there are any changes
after the date of this Agreement in applicable tax law, regulations or
interpretation, or any errors, ambiguities, inconsistencies or
omissions in this Agreement with respect to allocations to be made to
Capital Accounts, which would, individually or in the aggregate, cause
the Members not to achieve in any material respect the economic
objectives underlying this Agreement, the Managing Member may in its
discretion make appropriate adjustments to such allocations in order to
achieve or approximate such economic objectives.
(h) ADJUSTMENTS OF CAPITAL ACCOUNTS. The Capital
Accounts of the Members may at the discretion of the Managing Member, be
adjusted in accordance with Regulation section 1.704-1(b)(2)(iv)(f), and
thereafter maintained in accordance with Regulation section
1.704-1(b)(2)(iv)(g), to reflect the fair market value of Company property
whenever an interest in the Company is relinquished to the Company, whenever an
Additional Member is admitted to the Company and the amount of capital
contributed by such Member upon its admission is more than de minimis and
reflects changes in the value of Company assets, and upon a liquidation of the
Company, and shall be adjusted in accordance with Regulation section
1.704-1(b)(2)(iv)(e) in the case of a distribution of more than a de minimis
amount of property (other than cash).
3.6 TAX WITHHOLDING; WITHHOLDING ADVANCES.
(a) TAX WITHHOLDING. If requested by the Managing
Member, each Additional Member shall, if able to do so, deliver to the Company:
(i) an affidavit in form satisfactory to the Managing Member that the applicable
Additional Member is not subject to withholding under the provisions of any
federal, state, local, foreign or other law; (ii) any certificate that the
Managing Member may reasonably request with respect to any such laws; (iii) any
other form or instrument reasonably requested by the Managing Member relating to
any Additional Member's status under such law; and/or (iv) a copy of any tax
return or similar document of the applicable Additional Member that the Managing
Member may reasonably request with respect to any such law. In the event that an
Additional Member fails or is unable to deliver to the Managing Member an
affidavit described in clause (i) of this Section 3.6(a), the Managing Member
may withhold amounts from such Additional Member in accordance with Section
3.6(b) (Withholding Advances -- General).
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(b) WITHHOLDING ADVANCES--GENERAL. To the extent the
Company is required by law to withhold or to make tax payments on behalf of or
with respect to any Member (E.G., backup withholding), the Managing Member may
withhold such amounts and make such tax payments as so required. Tax payments
shall constitute "WITHHOLDING ADVANCES" to the extent such tax payments are not
satisfied from amounts otherwise distributable to such Member at the time such
tax payment is made.
(c) REPAYMENT OF WITHHOLDING ADVANCES. All
Withholding Advances made on behalf of a Member, plus interest thereon (unless
waived by the Managing Member) at a rate equal to the Prime Rate as of the date
of such Withholding Advances plus 2.0% per annum, shall (i) be paid on demand by
the Member on whose behalf such Withholding Advances were made (it being
understood that no such payment shall increase such Member's Capital
Contribution), or (ii) with the consent of the Managing Member, in its
discretion, be repaid by reducing the amount of the current or next succeeding
distribution or distributions which would otherwise have been made to such
Member or, if such distributions are not sufficient for that purpose, by so
reducing the proceeds of liquidation otherwise payable to such Member. Whenever
repayment of a Withholding Advance by a Member is made as described in clause
(ii) above, for all other purposes of this Agreement such Member shall be
treated as having received all distributions (whether before or upon
Termination) unreduced by the amount of such Withholding Advance and interest
thereon.
(d) REIMBURSEMENT OF LIABILITIES. Each Member hereby
agrees to reimburse the Company and the Managing Member for any liability with
respect to Withholding Advances (including interest thereon) required or made on
behalf of or with respect to such Member (including penalties imposed with
respect thereto).
ARTICLE 4
LIABILITY; INDEMNIFICATION
4.1 LIMITED LIABILITY OF MEMBERS.
(a) LIMITED LIABILITY OF MEMBERS. The liability of
the Members shall be limited as provided in the Delaware Act and as set forth in
this Agreement. Neither the Managing Member nor any Additional Member shall be
obligated to restore by way of capital contribution or otherwise any deficits in
its Capital Account or the Capital Account of any other Member (if such deficits
occur).
(b) RETURN OF PREVIOUSLY DISTRIBUTED AMOUNTS. In
accordance with the Delaware Act, a member of a limited liability company may,
under certain
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circumstances, be required to return to such limited liability company, for the
benefit of limited liability company creditors, amounts previously distributed
to such member. To the extent that an Additional Member may be required to
return capital to the Company under the Delaware Act, it is the intent of the
Managing Member that any obligation to return any such distributions pursuant to
Section 3.3 (Distributions) or Article 8 (Dissolution; Winding Up; Termination)
shall be deemed to be compromised by the consent of all Members and the
Additional Member to whom any money or property is distributed shall not be
required to return any such money or property to the Company or any creditor of
the Company. However, if any court of competent jurisdiction or regulatory body
with jurisdiction over the matter holds that, notwithstanding the provisions of
this Agreement, any Additional Member is obligated to return to the Company any
amounts previously distributed to such Additional Member, such obligation shall
be the obligation of such Additional Member and not of the Managing Member.
4.2 QUALIFICATION. The Managing Member shall use its
reasonable efforts to qualify the Company to do business or become licensed in
each jurisdiction where the activities of the Company make such qualification or
licensing necessary or where failure to so qualify or become licensed would have
an adverse effect on the limited liability of the Additional Members.
4.3 LIABILITY TO MEMBERS. No Protected Person shall be liable
to the Company or any Member for any action taken or omitted to be taken by it
or by any other Member or other Person with respect to the Company, including,
without limitation, any negligent act or failure to act, except in the case of a
liability resulting from such Protected Person's own fraud, gross negligence,
willful malfeasance, intentional and material breach of this Agreement or
conduct that is the subject of a criminal proceeding (where such Protected
Person has a reasonable cause to believe that such conduct was unlawful). Any
Protected Person may consult with legal counsel and accountants with respect to
Company affairs (including interpretations of this Agreement) and shall be fully
protected and justified in any action or inaction which is taken or omitted in
good faith, in reliance upon and in accordance with the opinion or advice of
such counsel or accountants. In determining whether a Protected Person acted
with the requisite degree of care, such Protected Person shall be entitled to
rely on written or oral reports, opinions, certificates and other statements of
the directors, officers, employees, consultants, attorneys, accountants and
professional advisors of the Company or the Managing Member selected and
monitored with reasonable care; PROVIDED, that no such Protected Person may rely
upon such statements if it believed that such statements were materially false.
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4.4 INDEMNIFICATION.
(a) INDEMNIFICATION OF PROTECTED PERSONS. To the
fullest extent permitted by law, the Company shall indemnify, hold harmless,
protect and defend each Protected Person against any losses, claims, damages or
liabilities, including without limitation reasonable legal fees or other
expenses incurred in investigating or defending against any such losses, claims,
damages or liabilities, and any amounts expended in settlement of any claims
approved by the Managing Member (collectively, "LIABILITIES"), to which any
Protected Person may become subject:
(i) by reason of any act or omission or
alleged act or omission (even if negligent) performed or omitted to be
performed in connection with the activities of the Company;
(ii) by reason of the fact that it is or was
acting in connection with the activities of the Company in any capacity
or that it is or was serving at the request of the Company as a
partner, stockholder, member, director, officer, employee or Specified
Agent of any Person;
(iii) by reason of any other act or omission
or alleged act or omission (even if negligent) arising out of or in
connection with the activities of the Company; or
(iv) based upon or arising out of any
litigation commenced by or on behalf of Unitholders relating to the
Merger and the transactions contemplated hereby.
unless such Liability results from such Protected Person's own fraud, gross
negligence, willful malfeasance, intentional and material breach of this
Agreement or conduct that is the subject of a criminal proceeding (where such
Protected Person has a reasonable cause to believe that such conduct was
unlawful).
(b) REIMBURSEMENT OF EXPENSES. The Company shall
promptly reimburse (and/or advance to the extent reasonably required) each
Protected Person for reasonable legal or other expenses (as incurred) of each
Protected Person in connection with investigating, preparing to defend or
defending any claim, lawsuit or other proceeding relating to any Liabilities for
which the Protected Person may be indemnified pursuant to this Section 4.4;
PROVIDED, that such Protected Person executes a written undertaking to repay the
Company for such reimbursed or advanced expenses if it is finally judicially
determined that such Protected Person is not entitled to the indemnification
provided by this Section 4.4.
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(c) SURVIVAL OF PROTECTION. The provisions of this
Section 4.4 shall continue to afford protection to each Protected Person
regardless of whether such Protected Person remains in the position or capacity
pursuant to which such Protected Person became entitled to indemnification under
this Section 4.4 and regardless of any subsequent amendment to this Agreement;
PROVIDED, that no such amendment shall reduce or restrict the extent to which
these indemnification provisions apply to actions taken or omissions made prior
to the date of such amendment.
(d) LIMITATION ON RECOVERY. Any indemnification under
this Section 4.4 or otherwise shall be paid out of and to the extent of the
Company's assets only.
ARTICLE 5
CONSENTS; VOTING; MEETINGS
5.1 METHOD OF GIVING CONSENT. Any approval required by this
Agreement may be given as follows:
(a) WRITTEN APPROVAL. By a written approval given by
the Member whose approval is solicited and obtained (the "CONSENTING MEMBER")
prior to or after the doing of the act or thing for which the approval is
solicited; or
(b) APPROVAL AT MEETING. By the affirmative vote of
the Consenting Member to the doing of the act or thing for which the approval is
solicited or obtained at any meeting called and held to consider the doing of
such act or thing; PROVIDED, that, if a proxy is obtained from a Consenting
Member prior to any meeting, such proxy may be revoked at a meeting held to
consider the doing of such act or thing.
5.2 MEETINGS. Any matter requiring the approval of any or all
of the Members pursuant to this Agreement may be considered at a meeting of
Members. Meetings of the Members may be held by telephone or other electronic
device.
5.3 QUARTERLY MEETINGS. Upon the written request of the
Required Additional Members, the Managing Member shall cause a meeting of the
Members to be held, PROVIDED, that no meeting of the Company shall be required
to be held more than once each fiscal quarter.
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ARTICLE 6
REPORTS TO MEMBERS; CONFIDENTIALITY
6.1 BOOKS OF ACCOUNT. Appropriate records and books of account
of the Company shall be kept by the Company at the principal place of business
of the Managing Member of the Company. Such records and books of account shall
be subject to inspection and copying by any Member at the reasonable request,
and at the expense, of such Member during normal business hours, upon reasonable
notice to the Company.
6.2 REPORTS.
(a) REPORTS TO MEMBERS. The Company shall furnish to
each Member financial statements of the Company for each calendar quarter during
the term of the Company, commencing with the first full calendar quarter
following the date hereof.
(b) TAX INFORMATION. Within 120 days after the end of
each Fiscal Year, or as soon as reasonably practicable thereafter, the Managing
Member shall furnish to each Member such information regarding the amount of
such Member's share in the Company's taxable income or loss for such year, in
sufficient detail to enable such Member to prepare its United States federal,
state and other tax returns.
6.3 ACCOUNTING BASIS. The books and records and financial
statements and reports of the Company shall be kept on an accrual basis.
Additional determinations with respect to accounting principles shall be made by
the Managing Member.
6.4 TAX MATTERS. Unless otherwise required by law, the
Managing Member shall be the "tax matters partner" of the Company within the
meaning of Section 6231(a)(7) of the Code. Prompt notice shall be given to the
Members upon receipt of advice that the Internal Revenue Service or other taxing
authority intends to examine any income tax return or record or books of the
Company.
6.5 CONFIDENTIALITY. Each of the Additional Members shall, and
shall direct those of its attorneys, accountants, consultants and advisors (the
"REPRESENTATIVES") who have access to Confidential Information to keep
confidential and not disclose any Confidential Information without the express
consent, in the case of Confidential Information acquired from the Company, of
the Company or, in the case of Confidential Information acquired from another
Additional Member or the Managing Member, such Member, unless (subject in all
cases to any more stringent restrictions imposed on the Company) (a) such
disclosure shall be required by applicable law, governmental rule or regulation,
court order, administrative or arbitral proceeding, (b) such disclosure is
reasonably required in connection with any litigation against or involving the
Company,
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the Managing Member or any Additional Member, or (c) such disclosure is
reasonably required in connection with any proposed assignment, sale or other
disposition of all or any part of an Additional Member's interest or a
participation in the Company (a "PROPOSED TRANSFER"); PROVIDED, that with
respect to the use of any Confidential Information in any Proposed Transfer, the
consent of the Managing Member, in its sole discretion, shall be necessary prior
to such use and the Managing Member may require any Proposed Transferee to enter
into a confidentiality agreement with terms substantially similar to the terms
of this Section 6.5. "CONFIDENTIAL INFORMATION" shall mean information
concerning the Managing Member, its members, board members and officers and any
information, including the identity of any Additional Member, that an Additional
Member may acquire from the Company, or as a consequence of being an Additional
Member of the Company, from another Additional Member other than information
that (i) is already available through publicly available sources of information
(other than as a result of disclosure by such Additional Member), (ii) was
available to an Additional Member on a non-confidential basis prior to its
disclosure to such Additional Member by the Company, or (iii) becomes available
to an Additional Member on a non- confidential basis from a third party,
provided such third party is not known by such Additional Member to be bound by
this Agreement or another confidentiality agreement with the Company.
Notwithstanding the foregoing, the Managing Member may disclose the identity of
the Additional Members to the extent reasonably calculated to advance or protect
the interests of the Company.
ARTICLE 7
ADDITIONAL MEMBERS; TRANSFER; WITHDRAWAL
7.1 ADDITIONAL MEMBERS. The Managing Member, with the consent
of the Required Additional Members (which consent shall not be unreasonably
withheld), may admit Additional Members to the Company; PROVIDED, that each such
Additional Member shall execute such instruments as the Managing Member may
reasonably deem necessary or desirable to admit such party as an Additional
Member, pursuant to which such Additional Member shall agree to be bound by and
comply with all of the terms and provisions hereof.
7.2 TRANSFER.
(a) CONDITIONS TO TRANSFER. No direct or indirect
sale, exchange, transfer, assignment or other disposition (collectively referred
to as a "TRANSFER") of all or any fraction of an Additional Member's interest in
the Company may be made without the prior written consent of the Managing
Member, which consent shall not be unreasonably withheld. A Person shall be
deemed admitted as a Member at the time that
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such Person: (i) executes an amendment, counterpart or supplement to this
Agreement and such other instruments as the Managing Member may reasonably deem
necessary or desirable to evidence such Person's agreement to be bound by and to
comply with the terms and provisions hereof; and (ii) is named on the books and
records of the Company.
(b) NULL AND VOID TRANSFER. Unless waived by the
Managing Member, any purported Transfer by any Additional Member (including
transferees thereof or substituted members therefor) of any interest in the
Company not made strictly in accordance with the provisions of this Section 7.2
or otherwise not permitted by this Agreement shall be entirely null and void.
7.3 DEATH, INCOMPETENCE, BANKRUPTCY OR LIQUIDATION OF AN
ADDITIONAL MEMBER. In the event of the death, incompetence or bankruptcy of an
Additional Member, or the bankruptcy, termination, liquidation or dissolution of
any partnership, trust, corporation or other entity which is an Additional
Member, (a) no Dissolution Event and Winding Up Period of the Company shall be
effected thereby and the Company and its business shall be continued until the
Termination of the Company as provided for in this Agreement, and (b) upon
satisfaction of the conditions of Sections 7.2 (Transfer), the estate or
successor in interest in the Company of such deceased, incompetent, bankrupt,
terminated, liquidated or dissolved Additional Member shall succeed to the
interest of such Additional Member and shall be deemed a Member for any and all
purposes hereunder.
7.4 WITHDRAWALS. Prior to the Termination of the Company,
except in connection with a Transfer permitted by Section 7.2 (Transfer), no
Member may withdraw from the Company. Withdrawals by any Member of its Capital
Account or any portion thereof shall not be permitted.
7.5 CONTINUATION. Notwithstanding the provisions of Sections
8.1(e) and (g) (Dissolution), the Company shall not commence its winding up upon
the dissolution of the Managing Member or the Bankruptcy of the Managing Member
if, within 90 days following such occurrence, the Additional Members shall agree
in writing to the continuation of the Company and to the appointment, effective
as of the date of such occurrence, of a successor to the Managing Member. If
such a successor is appointed prior to or as of such effective date, the
business of the Company shall be continued as a limited liability company,
subject to and upon the terms and conditions set forth in this Agreement and, if
required, any documents necessary to reflect the continued existence of the
Company as a limited liability company shall be executed by the Members.
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ARTICLE 8
DISSOLUTION; WINDING UP; TERMINATION
8.1 DISSOLUTION. The Company shall commence its winding up
upon the first to occur of the following (the "DISSOLUTION EVENT"):
(a) at any time after the tenth anniversary of the
date hereof;
(b) the expiration of 60 days after the assignment,
sale, transfer or other disposition of all or all of the assets, properties and
business of the Company;
(c) at the election of the Managing Member with the
consent of the Required Additional Members at any time;
(d) upon the dissolution of the Managing Member
(unless the Company is continued pursuant to Section 7.5 (Continuation));
(e) within 180 days of the execution of this
Agreement, if the Merger has not been consummated; and
(f) unless the Company is continued pursuant to
Section 7.5 (Continuation), (i) upon the commencement by the Managing Member of
any case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to it or its debts, or (B) seeking
appointment of a receiver, trustee, custodian or other similar official for it
or for all or any substantial part of its assets; (ii) upon the Managing Member
making a general assignment for the benefit of its creditors; (iii) at such time
as any case, proceeding or other action of a nature referred to in clause (i)
above against the Managing Member results in the entry of an order for relief or
any such adjudication or appointment, or remains undismissed, undischarged or
unbonded for a period of 120 days; (iv) at such time as any case, proceeding or
other action seeking issuance of a warrant of attachment, execution or similar
process against all or any substantial part of the Managing Member's assets
results in the entry of an order for any such relief which shall not have been
vacated, discharged, or stayed or bonded pending appeal within 120 days from the
entry thereof; (v) upon the Managing Member's consent to, approval of, or
acquiescence in, any of the acts or relief described in clause (i), (ii), (iii)
or (iv) above; or (vi) upon the Managing Member generally not paying, or being
unable to pay, or admitting in writing its inability to pay, its debts as they
become due.
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The Dissolution Event shall be effective on the day on which such event occurs
and immediately thereafter the Company shall commence the Winding Up Period
during which its affairs shall be wound up in accordance with Sections 8.2
(Winding Up and Termination) and 8.3 (Assets Reserved and Pending Claims).
8.2 WINDING UP AND TERMINATION.
(a) WINDING UP. Upon the occurrence of the
Dissolution Event, the property and business of the Company shall be wound up by
the Managing Member, or, in the event of the unavailability of the Managing
Member, by a Person designated as a liquidating trustee by the Additional
Members. Subject to the requirements of applicable law and the further
provisions of this Section 8.2, the Managing Member (or any other Person
conducting the winding up of the Company's affairs) shall have discretion in
determining whether to sell or otherwise dispose of Company assets, except upon
a Dissolution Event described in Section 8.1(c) (Dissolution), or to distribute
the same in kind and the timing and manner of such disposition or distribution.
While the Company continues to hold assets, the Managing Member shall as a
general matter seek to maximize the value of such assets and may in its
discretion expend funds, acquire additional assets and borrow funds. The
Managing Member may also authorize the payment of fees and expenses reasonably
required in connection with the winding up of the Company.
(b) DISTRIBUTIONS UPON WINDING UP. Within a
reasonable period of time following the occurrence of the Dissolution Event,
after allocating all Net Income, Net Loss and other items of income, gain, loss
or deduction pursuant to Sections 3.4 (Allocation) and 3.5 (Special
Allocations), the Company's assets (except for assets reserved pursuant to
Section 8.3 (Assets Reserved and Pending Claims)) shall be applied and
distributed in the following manner and order of priority:
(i) the claims of all creditors of the
Company (including Members except to the extent not permitted by law)
shall be paid and discharged other than liabilities for which
reasonable provision for payment has been made;
(ii) to the Members in accordance with the
positive balances of their respective Capital Accounts; and
(iii) thereafter, to the Members in
accordance with Section 3.3(a) (Distributions -- General).
Notwithstanding anything to the contrary in this Agreement, liquidating
distributions shall be made no later than the last to occur of (x) 90 days after
the date of disposition (including pursuant to Section 8.3 (Assets Reserved and
Pending Claims)) of the last remaining asset of the Company and (y) the end of
the Company's taxable year in which
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the disposition referred to in clause (x) above shall occur. This Section 8.2(b)
is intended to comply with, and shall be interpreted consistently with, the
requirements of Regulation section 1.704-1(b)(2)(ii)(b)(2).
(c) DISTRIBUTIONS IN KIND. The Managing Member, in
its sole discretion, may allocate securities for distribution in kind to the
Additional Members. Notwithstanding any other provision of this Agreement, the
amount by which the fair market value of any property to be distributed in kind
to the Members (including property distributed in liquidation, and property
distributed pursuant to Section 3.3 (Distributions)) exceeds or is less than the
adjusted basis of such property shall, to the extent not otherwise recognized by
the Company, be taken into account in computing income, gains and losses of the
Company for purposes of crediting or charging the Capital Accounts of, and
distributing proceeds to, the Members, pursuant to this Agreement.
(d) TERMINATION. When the Managing Member or a
liquidating trustee appointed pursuant to Section 8.2(a) (Winding Up) has
completed the winding up described in this Section 8.2, the Managing Member or
the liquidating trustee shall cause the Termination of the Company.
8.3 ASSETS RESERVED AND PENDING CLAIMS.
(a) ASSETS RESERVED. If, upon a Dissolution Event,
there are any assets that, in the judgment of the Managing Member, cannot be
sold or distributed in kind without sacrificing a significant portion of the
value thereof or where such sale or distribution is otherwise impractical at the
time of the Dissolution Event, such assets may be retained by the Company,
except upon a Dissolution Event described in Section 8.1(c) (Dissolution), if
the Managing Member determines that the retention of such assets is in the best
interests of the Additional Members. Upon the sale of such assets or a
determination by the Managing Member that circumstances no longer require their
retention, such assets (at their fair market value) or the proceeds of their
sale shall be taken into account in computing Capital Accounts on winding up and
amounts distributable pursuant to Section 8.2(b) (Distributions Upon Winding
Up), and distributed in accordance with such value.
(b) PENDING CLAIMS. If there are any claims or
potential claims (including potential Company expenses in connection therewith)
against the Company (either directly or indirectly, including potential claims
for which the Company might have an indemnification obligation) for which the
possible loss cannot, in the judgment of the Managing Member, be definitively
ascertained, then such claims shall initially be taken into account in computing
Capital Accounts upon winding up and distributions pursuant to Section 8.2(b)
(Distributions Upon Winding Up) at an amount estimated by the Managing Member to
be sufficient to cover any potential loss or liability on account of
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such claims (including such potential Company expenses), and the Company shall
retain funds (or assets) determined by the Managing Member in its discretion as
a reserve against such potential losses and liabilities, including expenses
associated therewith. The Managing Member may in its discretion obtain insurance
or create escrow accounts or make other similar arrangements with respect to
such losses and liabilities. Upon final settlement of such claims (including
such potential Company expenses) or a determination by the Managing Member that
the probable loss therefrom can be definitively ascertained, such claims
(including such potential Company expenses) shall be taken into account in the
amount at which they were settled or in the amount of the probable loss
therefrom in computing Capital Accounts on winding up and amounts distributable
pursuant to Section 8.2(b) (Distributions Upon Winding Up), and any excess funds
retained shall be distributed.
ARTICLE 9
AMENDMENTS; WAIVER; POWER OF ATTORNEY
9.1 AMENDMENTS; WAIVER.
(a) AMENDMENT OR WAIVER BY MANAGING MEMBER AND
ADDITIONAL MEMBERS. Except as otherwise expressly provided in this Agreement,
any provision of this Agreement (other than this Section 9.1) may be amended or
waived by an instrument in writing executed by the Managing Member and the
Required Additional Members; PROVIDED, HOWEVER, that:
(i) any amendment to or waiver of any
provision of this Agreement that would increase or reduce the Capital
Contributions, the Interests or otherwise increase the liabilities or
obligations of any Additional Member shall require the written consent
of such Additional Member;
(ii) subject to Section 3.5(g) (Curative
Allocations), any amendment to or waiver of any provision that would
alter the allocations to Capital Accounts, or the distributions from
the Company, shall require the written consent of each Additional
Member who would be adversely affected by such amendment; and
(iii) any amendment to or waiver of any
provision which discriminates against any Additional Member in relation
to the other Additional Members shall require the written consent of
such Additional Member.
31
<PAGE>
Notwithstanding the foregoing, the Managing Member, without the consent of any
Additional Member, may amend this Agreement (including Exhibit A hereto) as
necessary to reflect the admission or substitution of Additional Members
admitted to the Company pursuant to Sections 7.1(b) (Additional Members) or 7.2
(Transfer), respectively, or to reflect additional Capital Contributions made
pursuant to Section 3.1(b) (Additional Capital Contributions).
(b) AMENDMENT OR WAIVER BY THE MANAGING MEMBER.
Notwithstanding the foregoing, the Managing Member, without the consent of any
Additional Member, may amend or waive any provision of this Agreement (unless
such amendment or waiver would have a material adverse effect on any of the
Additional Members) to reflect:
(i) a change in the name of the Company or
the location of the principal place of business or the registered
office of the Company;
(ii) a change that is necessary to qualify
the Company as a limited liability company in which the Additional
Members have limited liability under the laws of any jurisdiction or
that is necessary or advisable in the opinion of the Managing Member to
ensure that the Company will not be taxable other than as a partnership
under the Code and Regulations;
(iii) a change that is (x) of an
inconsequential nature or (y) necessary or desirable to satisfy any
requirements, conditions or guidelines contained in any opinion,
directive, order, ruling or regulation of any federal or state agency
or contained in any federal or state statute;
(iv) a change in any provision of this
Agreement that requires any action to be taken by or on behalf of the
Managing Member or the Company pursuant to the requirements of the
Delaware Act if the provisions of the Delaware Act are amended,
modified or revoked so that the taking of such action is no longer
required;
(v) a change to add to the duties or
obligations of the Managing Member;
(vi) a change that, in the reasonable
opinion of the Managing Member, does not adversely affect the rights of
the Additional Members in any material respect; and
(vii) a change clarifying any ambiguity,
defect or inconsistency in this Agreement.
32
<PAGE>
Within a reasonable period after any change or amendment or waiver in accordance
with the preceding sentence, the Managing Member shall send a written notice to
each Additional Member describing such change or amendment or waiver in
reasonable detail.
9.2 POWER OF ATTORNEY.
(a) APPOINTMENT OF POWER OF ATTORNEY. Each Additional
Member by its execution of this Agreement irrevocably makes, constitutes and
appoints the Managing Member as its true and lawful agent and attorney-in-fact,
with full power and authority in its name, place and stead, to make, execute,
sign, acknowledge, swear to, record and file: (i) any amendment or waiver of any
provision of this Agreement that has been adopted or made as herein provided;
(ii) all certificates and other instruments deemed advisable by the Managing
Member to comply with the provisions of this Agreement and applicable law or to
permit the Company to become or to continue as a limited liability company or
other entity wherein the Additional Members have limited liability in each
jurisdiction where the Company may be doing business; (iii) all instruments that
the Managing Member deems appropriate to reflect a change or modification of
this Agreement or the Company in accordance with this Agreement; (iv) all
conveyances and other instruments or papers deemed advisable by the Managing
Member, to effect the dissolution, winding up and termination of the Company
pursuant to the provisions of this Agreement; (v) all fictitious or assumed name
certificates required or permitted to be filed on behalf of the Company; and
(vi) all other instruments or papers not inconsistent with the terms of this
Agreement which may be required by law to be filed on behalf of the Company.
(b) NATURE AND EXERCISE OF POWER OF ATTORNEY. With
respect to each Additional Member, the foregoing power of attorney:
(i) is coupled with an interest, shall be
irrevocable and shall survive the incapacity or bankruptcy of such
Additional Member;
(ii) may be exercised by the Managing Member
either by signing separately as attorney-in-fact for such Additional
Member or, after listing all of the Additional Members executing an
instrument, by a single signature of the Managing Member acting as
attorney-in-fact for all of them; and
(iii) shall survive the delivery of an
assignment by such Additional Member of the whole or any fraction of
its interest; except that, where the assignee of the whole of such
Additional Member's interest has been approved by the Managing Member
for admission to the Company, the power of attorney of the assignor
shall survive the delivery of such assignment for the sole purpose of
33
<PAGE>
enabling the Managing Member to execute, swear to, acknowledge and file
any instrument necessary or appropriate to effect such substitution.
ARTICLE 10
MISCELLANEOUS
10.1 INVESTMENT REPRESENTATIONS. Each Additional Member hereby
represents and warrants to the Company that: (a) the limited liability company
interest of the Additional Member is being acquired for investment purposes only
for its own account and not with a view to or in connection with any
distribution, re-offer, resale, or other disposition not in compliance with the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "SECURITIES ACT") and applicable state securities laws; (b) the Additional
Member possesses such expertise, knowledge, and sophistication in financial and
business matters generally, and in the type of transactions in which the Company
proposes to engage in particular, that it is capable of evaluating the merits
and economic risks of acquiring and holding its limited liability company
interest, and it is able to bear all such economic risks now and in the future;
(c) the Additional Member has had access to all of the information with respect
to its limited liability company interest that it deems necessary to make a
complete evaluation thereof and has had the opportunity to question the Company
concerning such limited liability company interest; (d) the Additional Member's
decision to acquire its limited liability company interest for investment has
been based solely upon the evaluation made by it; (e) the Additional Member is
aware that it must bear the economic risk of its investment in the Company for
an indefinite period of time because limited liability company interests in the
Company (i) have not been registered under the Securities Act or under the
securities laws of various states, and, therefore, cannot be sold unless the
limited liability company interests are subsequently registered under the
Securities Act and any applicable state securities laws or an exemption from
registration is available and (ii) are subject to this Agreement, which
prohibits the transfer of such interests without the consent of the Managing
Member and prohibits the withdrawal of Additional Members; (f) the Additional
Member is aware that the Additional Member's tax liability with respect to such
Additional Member's interest in the Company may exceed any distributions made to
such Additional Member and that the Company is under no obligation to make any
such distributions to such Additional Member to pay any related taxes; and (g)
the Additional Member has not relied upon the Managing Member, or its members,
board members or officers or any other Additional Member or agent or counsel
thereof for any tax or securities law advice with respect to such Additional
Member's interest in the Company.
10.2 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of, and shall be binding upon, the successors and permitted assigns of
the Members.
34
<PAGE>
10.3 NO WAIVER. The failure of any Member to seek redress for
violation, or to insist on strict performance, of any covenant or condition of
this Agreement shall not prevent a subsequent act which would have constituted a
violation from having the effect of an original violation.
10.4 SURVIVAL OF CERTAIN PROVISIONS. Each of the Members
agrees that the covenants and agreements set forth in Sections 4.1 (Liability of
Additional Members), 4.3 (Liability to Members), 4.4 (Indemnification) and 6.5
(Confidentiality) shall survive the Termination of the Company.
10.5 NOTICES. All notices hereunder shall be in writing and
shall be given by personal delivery, mailed by registered or certified mail,
Federal Express, U.S. overnight mail or international air courier service, or
sent by telecopy or other electronic means, and addressed: if to the Company, at
its principal office and, if to a Member, to such Member at its last known
address as disclosed on the records of the Company. Notices shall be deemed to
have been given as of the date delivered (upon confirmed receipt by the delivery
service) or telecopied (upon confirmed receipt). The Company and any Member may
change the address for notices by delivering or mailing as aforesaid, a notice
stating the change and setting forth the changed address.
10.6 SEVERABILITY. In case any provision in this Agreement
shall be deemed to be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions hereof shall not in any way be
affected or impaired hereby.
10.7 COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.
10.8 HEADINGS, ETC. The headings in this Agreement are
inserted for convenience of reference only and shall not affect the
interpretation of this Agreement.
10.9 GENDER. As used herein, masculine pronouns shall include
the feminine and neuter, neuter pronouns shall include the masculine and the
feminine, and the singular shall be deemed to include the plural.
10.10 NO RIGHT TO PARTITION. The Members, on behalf of
themselves and their shareholders, partners, members, successors and assigns, if
any, hereby specifically renounce, waive and forfeit all rights, whether arising
under contract or statute or by operation of law, except as otherwise expressly
provided in this Agreement, to seek, bring or maintain any action in any court
of law or equity for partition of the Company or any asset of the Company, or
any interest which is considered to be Company property, regardless of the
manner in which title to such property may be held.
35
<PAGE>
10.11 NO THIRD PARTY RIGHTS. Except as expressly provided in
this Agreement, this Agreement is intended solely for the benefit of the parties
hereto and is not intended to confer any benefits upon, or create any rights in
favor of, any Person other than the parties hereto.
10.12 ENTIRE AGREEMENT. This Agreement and the Investment
Agreement, together with the exhibits attached hereto or thereto, are intended
by the parties as a final expression of their agreement and intended to be a
complete and exclusive statement of the agreement and understanding of the
parties hereto in respect of the subject matter contained herein and therein.
This Agreement and the Investment Agreement, together with the exhibits attached
hereto or thereto, supersede all prior agreements and understandings between the
parties with respect to such subject matter.
10.13 RULE OF CONSTRUCTION. The general rule of construction
for interpreting a contract, which provides that the provisions of a contract
should be construed against the party preparing the contract, is waived by the
parties hereto. Each party acknowledges that such party was represented by
separate legal counsel in this matter who participated in the preparation of
this Agreement or such party had the opportunity to retain counsel to
participate in the preparation of this Agreement but elected not to do so.
10.14 AUTHORITY. Whenever in this Agreement or elsewhere it is
provided that consent is required of, or a demand shall be made by, or an act or
thing shall be done by or at the direction of, the Company, or whenever any
words of like import are used, all such consents, demands, acts and things are
to be made, given or done by the consent of the Managing Member or Person acting
under the authority of the Managing Member, unless a contrary intention is
expressly indicated.
10.15 RELIANCE. No Person dealing with the Company, or its
assets, whether as lender, assignee, purchaser, lessee, grantee, or otherwise,
shall be required to investigate the authority of the Managing Member in dealing
with the Company or any of its assets, nor shall any Person entering into a
contract with the Company or relying on any such contract or agreement be
required to inquire as to whether such contract or agreement was properly
approved by the Managing Member. Any such Person may conclusively rely on a
certificate of authority signed by the Managing Member and may conclusively rely
on the due authorization of any instrument signed by the Managing Member in the
name and on behalf of the Company or the Managing Member.
10.16 APPLICABLE LAW. (A) THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF DELAWARE, WITHOUT
REGARD TO THE CONFLICT OF LAWS PRINCIPLES THEREOF.
36
<PAGE>
(b) Any dispute arising hereunder shall be settled by
arbitration in accordance with the Expedited Procedures of the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA RULES") by a
single arbitrator who is mutually agreeable to the Managing Member and the
Additional Members (who shall be represented by Equity Resources Group,
Incorporated (the "REPRESENTATIVE"). If the Managing Member and the
Representative are unable to agree upon an arbitrator, an arbitrator shall be
selected in accordance with the AAA Rules. Any judgment upon the award rendered
by such arbitrator may be entered in any court of competent jurisdiction. All
proceedings in any such arbitration shall be conducted in Boston, Massachusetts.
Jurisdiction of such arbitrator shall be exclusive as to disputes between the
Managing Member and the Representative relating to this Agreement, and the
Managing Member and the Investors agree that this agreement to arbitrate shall
be specifically enforceable under the laws of Delaware. Neither the Managing
Member nor any Additional Member (including the Representative) shall have the
right to appeal the arbitration decision or otherwise to submit a dispute
relating to this Agreement to a court of law. With respect to matters submitted
to arbitration, each of the Managing Member and the Additional Members shall
bear its own respective costs, fees and expenses (including reasonable fees,
expenses and disbursements of attorneys) in connection with such arbitration.
The Managing Member, on the one hand, and the Additional Members, collectively,
on the other hand, shall each pay one-half of the total costs, fees and expenses
of the arbitrator.
[Remainder of Page Intentionally Left Blank]
37
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
MANAGING MEMBER:
KRF COMPANY, L.L.C.
By: The Krupp Family Limited Partnership-94,
its sole member
By: ___________________________________________
Douglas Krupp
General Partner
ADDITIONAL MEMBERS:
EQUITY RESOURCE FUND XVI LIMITED
PARTNERSHIP
EQUITY RESOURCE FUND XIX LIMITED
PARTNERSHIP
EQUITY RESOURCE GENERAL FUND LIMITED
PARTNERSHIP
EQUITY RESOURCE CAMBRIDGE FUND LIMITED
PARTNERSHIP
EQUITY RESOURCE BRATTLE FUND LIMITED
PARTNERSHIP
EQUITY RESOURCE BRIDGE FUND LIMITED
PARTNERSHIP
By: EQUITY RESOURCES GROUP, INCORPORATED
as general partner of each of the foregoing
By:____________________________________
Eggert Dagjartsson
Executive Vice President
38
<PAGE>
EXHIBIT A
MEMBERS OF KRF3 ACQUISITION COMPANY, L.L.C.
<TABLE>
<CAPTION>
CAPITAL CONTRIBUTION INTEREST
<S> <C> <C>
MANAGING MEMBER
KRF COMPANY, L.L.C.
Existing Managing Member Contribution 10,826 Units @ $____/Unit
Cash Contribution ($______________)
($______________) ____%
ADDITIONAL MEMBERS
EQUITY RESOURCE CAMBRIDGE FUND 95 Units @ $____/Unit ____%
($______________)
EQUITY RESOURCE BRATTLE FUND 30 Units @ $____/Unit
($______________)
EQUITY RESOURCE GENERAL FUND 40 Units @$____/Unit ____%
($______________)
EQUITY RESOURCE FUND XIX 413 Units @$____/Unit ____%
($______________)
EQUITY RESOURCE FUND XVI 916 Units @$____/Unit
($______________)
EQUITY RESOURCE BRIDGE FUND 30 Units @$____/Unit ____%
($______________)
EQUITY RESOURCE
TOTAL $ 100.00%
================== ======
</TABLE>
<PAGE>
EXHIBIT B
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "AGREEMENT") is made
and entered into as of ______________, 2000 by and between KRF3 Acquisition
Company, L.L.C., a Delaware limited liability company (the "COMPANY" or, after
the Effective Time (as defined in Article V hereof), the "SURVIVING ENTITY"),
and Krupp Realty Fund, Ltd.-III, a Massachusetts limited partnership (the
"PARTNERSHIP").
W I T N E S S E T H:
WHEREAS, the Company is a limited liability company duly
formed and validly existing under the laws of the State of Delaware;
WHEREAS, the Partnership is a limited partnership duly formed
and validly existing under the laws of the Commonwealth of Massachusetts;
WHEREAS, the Massachusetts Revised Uniform Limited Partnership
Act, Mass. Gen. Laws Ann. ch. 109, Sections 1-62 (THE "MASSACHUSETTs LP Act"),
and the Delaware Limited Liability Company Act, 6 DEL. C. Sections 18-101 et
seq. (the "DELAWARE LLC ACT"), each permits a limited partnership formed and
existing under the Massachusetts LP Act to merge with and into a limited
liability company formed and existing under the Delaware LLC Act;
WHEREAS, the members of the Company have authorized and the
general partners and limited partners of the Partnership have duly authorized
the merger of the Partnership with and into the Company pursuant to the terms of
this Agreement; and
WHEREAS, the holders of limited partnership interests of Fund
III have approved an amendment to the Amended Agreement of Limited Partnership,
dated June 1, 1982, authorizing the Partnership to enter into this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, it is agreed that, in
accordance with the applicable statutes of the State of Delaware and the
Commonwealth of Massachusetts, and subject to the conditions precedent contained
herein, the Partnership shall be at the Effective Time, merged with and into the
Company (the "MERGER"), with the Company to be the Surviving Entity. The mode of
carrying the Merger into effect shall be as follows:
<PAGE>
I.
MERGER
At the Effective Time, the Partnership shall be merged with
and into the Company, the separate existence of the Partnership shall cease, the
Company shall continue in existence and the Merger shall in all respects have
the effects provided for by the Massachusetts LP Act and the Delaware LLC Act.
Prior to the Effective Time, the Company and the Partnership
shall take all such action as shall be necessary or appropriate in order to
effectuate the Merger. If at any time after the Effective Time, the Company
shall consider or be advised that any further assignments, conveyances or
assurances in law are necessary or desirable to carry out the provisions hereof,
the proper members, managers, officers or other agents of the Company, as
authorized agents and attorneys-in-fact for the Partnership (and acting in the
name of the Company or the Partnership), shall execute and deliver any and all
proper deeds, assignments, and assurances in law, and do all such additional
things necessary or proper to carry out the provisions hereof.
II.
TERMS OF TRANSACTION
At the Effective Time, by virtue of the Merger and without any
action on the part of the holders thereof, (i) the partnership interests in the
Partnership outstanding immediately prior to the Effective Time, held by (a) the
general partners of the Partnership (the "GENERAL PARTNERS"), (b) the "ORIGINAL
LIMITED PARTNERS" (as defined in the Partnership's Amended Agreement of Limited
Partnership, dated as of June 1, 1982, as amended from time to time (the
"PARTNERSHIP AGREEMENT")) and (c) the limited partners of the Partnership who
are, at the Effective Time, directly or indirectly controlling, controlled by or
under common control with the Company, Equity Resources Group Incorporated or
the General Partners ("the AFFILIATE LIMITED PARTNERS"), shall be canceled and
retired and shall cease to exist, (ii) the partnership interests of limited
partners of the Partnership who are not Affiliate Limited Partners (the
"UNAFFILIATED LIMITED PARTNERS") outstanding immediately prior to the Effective
Time shall be canceled and converted into and represent the right to receive in
exchange therefor $[_____] per "UNIT" (as defined in the Partnership Agreement),
without interest thereon, payable by the Surviving Entity to the holder of such
Unit (as reflected on the records of the Partnership at the Effective Time) upon
receipt by the Surviving Entity of the Proof of Ownership Form hereto, a
Substitute Form W-9 and any other additional documentation necessary or
desirable to complete the conversion of the Units required which the Surviving
Entity shall reasonably request from the holder, (iii) the limited liability
company interests held by the members of the Company outstanding immediately
prior to the Effective Time shall remain the outstanding limited liability
company interests of such members of the Company, and
<PAGE>
such members shall continue as the members of the Surviving Entity.
Neither the Surviving Entity nor any other party hereto shall
be liable to a holder of Units for any payments made to a public official
pursuant to applicable abandoned property laws. The Surviving Company shall be
entitled to deduct and withhold from the amounts otherwise payable to a holder
of Units pursuant to the Merger any taxes or other amounts as are required by
applicable law, including without limitation Sections 3406 and 1445 of the
Internal Revenue Code of 1986, as amended. To the extent that amounts are so
withheld by the Surviving Entity, they shall be treated for all purposes of this
Agreement as having been paid to the holder of the Units in respect of which
such deduction and withholding was made.
After the Effective Time, the transfer books of the
Partnership shall be closed and there shall be no further registration of
transfers on the records of the Partnership of the Units that were outstanding
immediately prior to the Effective Time. As of the Effective Time, each holder
of a Unit which was converted into the right to receive cash pursuant to Article
II hereof shall be deemed to have withdrawn as a limited partner and shall have
no further interest in the Partnership or the Surviving Entity or any
allocations or distributions of income, property or otherwise, other than the
right to receive the amount as provided in this Article II.
No appraisal rights shall be available to holders of Units in
connection with the Merger.
III.
CERTIFICATE OF FORMATION AND
LIMITED LIABILITY COMPANY AGREEMENT
From and after the Effective Time, and until thereafter
amended as provided by law, the Certificate of Formation and Limited Liability
Company Agreement of the Company as in effect immediately prior to the Effective
Time shall be the Certificate of Formation and Limited Liability Company
Agreement of the Surviving Entity.
IV.
MANAGERS AND OFFICERS
From and after the Effective Time, and until their successors
are duly elected or appointed, or until their earlier death, resignation or
removal, the managers and officers of the Surviving Entity shall be the same as
the managers and officers of
<PAGE>
the Company immediately prior to the Effective Time.
V.
EFFECTIVE TIME
Certificates of merger evidencing the Merger ("CERTIFICATES OF
MERGER") substantially in the form of EXHIBIT A attached hereto shall be filed
by the General Partners and the Company with the Secretary of State of the State
of Delaware and the Secretary of State of the Commonwealth of Massachusetts
pursuant to the applicable requirements of the Delaware LLC Act and the
Massachusetts LP Act. The Merger shall become effective upon the later of the
filing of the Certificates of Merger with the Secretary of State of the
Commonwealth of Massachusetts and the Secretary of State of the State of
Delaware or such other time as shall be agreed by the parties and set forth in
the Certificates of Merger and in accordance with the Massachusetts LP Act and
the Delaware LLC Act (such time of effectiveness, the "EFFECTIVE TIME").
VI.
TERMINATION
This Agreement may be terminated at any time prior to the
Effective Time:
(i) by mutual written consent of the Company and the General
Partners;
(ii) by either the Company or the General Partners if the
Merger shall not have been consummated by [_______________]; PROVIDED, HOWEVER,
that the right to terminate this Agreement pursuant to this clause (ii) of
Article VI shall not be available to any party whose failure to perform any of
its obligations under this Agreement has been the cause of, or resulted in, the
failure of the Merger to occur on or before such date.
In the event of a termination of this Agreement by either the
Company or the General Partners, as provided in this Article VI, this Agreement
shall forthwith become void and there shall be no liability or obligation on the
part of the Company or the General Partners or their respective managers or
officers, except with respect to Article IX and this second paragraph of Article
VI. Nothing herein shall relieve any party of liability with respect to any
fraud or intentional breach by any party hereto of this Agreement.
<PAGE>
VII.
AMENDMENTS
At any time prior to the Effective Time, the Company and the
General Partners may amend, modify or supplement this Agreement in such manner
as they jointly may determine; PROVIDED, HOWEVER, that, such amendment must be
executed in writing by all parties hereto and PROVIDED FURTHER, that no such
amendment, modification, or supplement shall reduce the amount or change the
type of consideration into which each Unit shall be converted upon consummation
of the Merger or alter or change any term of the Certificate of Formation or
Limited Liability Company Agreement of the Surviving Entity.
VIII.
CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of each party hereto to effect the
Merger are subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(i) this Agreement shall have been approved and adopted by the
partners of the Partnership in accordance with the Massachusetts LP Act and the
Partnership Agreement;
(ii) this Agreement shall have been approved and adopted by
the members of the Company in accordance with the Delaware LLC Act and the
Limited Liability Company Agreement of the Company;
(iii) no statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, promulgated or enforced by any
governmental entity, and no action, suit, claim or legal, administrative or
arbitral proceeding or investigation shall be pending before any governmental
entity which seeks to prohibit, restrain, enjoin or restrict the consummation of
the transactions contemplated by this Agreement or which seeks to subject any
party to substantial damages as a result of the consummation of the transactions
contemplated by this Agreement;
(iv) each of the parties shall have obtained the consent,
approval or waiver of each non-governmental person whose consent, approval or
waiver shall be required in order for such party to consummate the transactions
contemplated by this Agreement;
(v) since June 30, 1999, no change or event shall have
occurred which has had or could reasonably be expected to result in a Material
Adverse Effect. For purposes of this Agreement, "MATERIAL ADVERSE EFFECT" means
any change, event or effect (a) in, on or relating to the business of the
Partnership that is, or is reasonably
<PAGE>
likely to be, materially adverse to the business, assets (including intangible
assets), liabilities (contingent or otherwise), condition (financial or
otherwise), prospects or results of operations of the Partnership and its
subsidiaries taken as a whole, or (b) that may prevent or materially delay the
performance of this Agreement by the Company or the Partnership or the
consummation of the transactions contemplated hereby.
IX.
GOVERNING LAW
This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of Delaware without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Delaware or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Delaware.
X.
MISCELLANEOUS
This Agreement may be executed in counterparts, each of which
when so executed shall be deemed to be an original, and such counterparts shall
together constitute but one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the undersigned have duly executed this
Agreement as of the day and year first above written.
KRF3 ACQUISITION COMPANY, L.L.C.
By: KRF Company, L.L.C.,
its managing member
By: The Krupp Family Limited Partnership-94,
its sole member
By: ____________________________
Douglas Krupp
General Partner
KRUPP REALTY FUND, LTD.-III
By: The Krupp Corporation,
its general partner
By: ____________________________
Douglas Krupp
Co-Chairman of the Board of Directors
<PAGE>
EXHIBIT A
CERTIFICATE OF MERGER
MERGING
KRUPP REALTY FUND, LTD. - III
INTO
KRF3 ACQUISITION COMPANY, L.L.C.
The undersigned, being respectively, an authorized person of
KRF3 Acquisition Company, L.L.C., a Delaware limited liability company and the
general partners of Krupp Realty Fund, Ltd. - III, a Massachusetts limited
partnership, do hereby certify for and on behalf of such entities.
FIRST: The name and jurisdiction of formation of each of the
constituent entities in the merger are as follows:
NAME JURISDICTION OF FORMATION
- ---- -------------------------
Krupp Realty Fund, Ltd. - III Massachusetts
KRF3 Acquisition Company, L.L.C. Delaware
SECOND: An Agreement and Plan of Merger between the parties to
the merger has been approved, adopted, certified, executed and/or acknowledged
by each of the constituent entities in accordance with the requirements of
Section 16A of the Massachusetts Revised Uniform Limited Partnership Act and
Section 18-209 of the Delaware Limited Liability Company Act.
THIRD: The name of the surviving limited liability company is
KRF3 Acquisition Company, L.L.C.
FOURTH: The merger shall be effective at 5:00 p.m. on the date
on which the latter of (a) the filing of this Certificate of Merger in the
Office of the Secretary of State of the State of Delaware and (b) the filing of
this Certificate of
<PAGE>
Merger in the Office of the Secretary of State of the Commonwealth of
Massachusetts, occurs.
FIFTH: The executed Agreement and Plan of Merger is on file at
a place of business of the surviving limited liability company. The address of
such place of business is: KRF3 Acquisition Company, L.L.C., One Beacon Street,
Suite 1500, Boston, Massachusetts 02108.
SIXTH: A copy of the Agreement and Plan of Merger will be
furnished by the surviving limited liability company, on request and without
cost, to any partner of the constituent limited partnership and any member of
the constituent limited liability company.
SEVENTH: The surviving limited liability company shall accept
service of process at its offices at One Beacon Street, Suite 1500, Boston,
Massachusetts 02108.
IN WITNESS WHEREOF, the undersigned have duly executed this
Certificate of Merger as of _________________, 1999.
KRF3 ACQUISITION COMPANY, L.L.C.
By:______________________________
Name:
Title:
<PAGE>
KRUPP REALTY FUND, LTD. - III
By: The Krupp Corporation,
its general partner
By:_________________________________
Name: Douglas Krupp
Title: Co-chairman of the
Board of Directors
and
By: The Krupp Company Limited Partnership II,
its general partner
By:_________________________________
Name: George Krupp
Title: a general partner
