CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
PRELIMINARY COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [X] Confidential, for
Use of the Commis-
sion Only (as per-
mitted by Rule 14a-
6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
Prudential-Bache/Watson & Taylor, Ltd.-2
(Name of Registrant as Specified in its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies: Units representing ownership interests in
limited partnership interests
(2) Aggregate number of securities to which transaction
applies: 51,300.
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined): The amount on which the
filing fee is calculated was determined pursuant to
Rule 0-11(c)(2) of the Exchange Act by multiplying
1/50th of 1% by $18,000,000, the aggregate amount of
cash to be received by the registrant.
(4) Proposed maximum aggregate value of transaction:
$18,000,000.
(5) Total fee paid: $3,600.
[ ] 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 Sched-
ule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
ONE SEAPORT PLAZA
NEW YORK, NY 10292-0116
July __, 1996
Dear Unitholders:
We are pleased to inform you that on June 13,
1996, Prudential-Bache/Watson & Taylor, Ltd.-2 (the
"Partnership") entered into a contract of sale to sell
(the "Sale") the properties owned by the Partnership (the
"Properties") to Public Storage, Inc. (the "Buyer"). The
purchase price for these eight improved Properties is
$18,000,000.
The Partnership intends to make a cash distribu-
tion to Unitholders representing the bulk of the purchase
price promptly after the closing of the Sale. The Part-
nership would then anticipate being able to make one or
more subsequent distributions within approximately one
year after the closing of the Sale, and thereafter to
liquidate (the "Liquidation"). The Partnership estimates
that these liquidating distributions will aggregate
approximately $xx per unit.
THE SALE AND LIQUIDATION REQUIRES THE CONSENT OF
A MAJORITY OF THE UNITS. YOUR APPROVAL IS VERY IMPOR-
TANT.
PRUDENTIAL-BACHE PROPERTIES, INC., THE MANAGING
GENERAL PARTNER OF THE PARTNERSHIP, AND GEORGE S. WATSON
AND A. STARKE TAYLOR, III, THE INDIVIDUAL GENERAL PART-
NERS OF THE PARTNERSHIP, BELIEVE THAT THE SALE AND LIQUI-
DATION ARE IN THE BEST INTERESTS OF THE PARTNERSHIP AND
RECOMMEND THAT YOU CONSENT TO THE SALE AND LIQUIDATION.
THE GENERAL PARTNERS BASE THEIR RECOMMENDATION ON, AMONG
OTHER THINGS, THE FOLLOWING FACTORS:
(1) Their belief that current market condi-
tions are favorable for the sale of the
Partnership's Properties,
(2) The timing of the sale is consistent with
the anticipated holding period for Units
set forth in the initial offering,
(3) The Sale and Liquidation provides liquid-
ity to Unitholders,
(4) The price and terms negotiated with the
Buyer were the result of a competitive
bidding process and were the most favor-
able of the offers received to acquire the
Properties in the bidding process de-
scribed under "THE TRANSACTION--Background
of the Sale of the Properties" in the
attached Consent Statement,
(5) The purchase price exceeds the aggregate
appraised value of the Properties, as
determined by Cushman & Wakefield, an
independent, third-party appraisal firm
(see "THE TRANSACTION--Fairness Opinion
and Appraisals" in the attached Consent
Statement), and
(6) An opinion from Robert A. Stanger & Co. to
the effect that the consideration to be
received in the Sale is fair from a finan-
cial point of view to the Partnership (see
"THE TRANSACTION--Fairness Opinion and
Appraisals" in the attached Consent State-
ment).
Unitholders should be aware that, if the Sale is
consummated, the Partnership would not receive the bene-
fits of any potential increases in cash flow or the value
of the Properties following the Sale.
The attached Consent Statement contains detailed
information concerning the proposed Sale and Liquidation.
We urge you to read the Consent Statement and enclosed
materials carefully before voting. If you have any
questions please feel free to call our consent solici-
tors, Morrow & Co., Inc. at (800) xxx-xxxx.
Very truly yours,
Thomas F. Lynch, III
President
Prudential-Bache Properties, Inc.
Managing General Partner
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
ONE SEAPORT PLAZA
NEW YORK, NY 10292-0116
______________________
NOTICE OF PROPOSED ACTION BY WRITTEN CONSENT
JULY __, 1996
______________________
To the Unitholders of Prudential-Bache/Watson & Taylor,
Ltd.-2:
NOTICE IS HEREBY GIVEN to the holders (the
"Unitholders") of the limited partnership interests in the
Partnership (the "Units") of Prudential-Bache/Watson &
Taylor, Ltd.-2, a Texas limited partnership (the "Partner-
ship"), that Prudential-Bache Properties, Inc., the Managing
General Partner of the Partnership ("PB Properties"), is
soliciting written consents, in lieu of a meeting of
Unitholders, to approve a single proposal, involving (a) the
sale of substantially all of the assets of the Partnership
as contemplated by the Contract of Sale, dated as of June
13, 1996 (the "Contract of Sale"), by and between the Part-
nership and Public Storage, Inc. and (b) the complete liqui-
dation and dissolution of the Partnership (collectively, the
"Transaction"), all as more fully described in the accompa-
nying Consent Statement. The Transaction must be approved
by the holders of a majority of the Units, which approval
shall constitute the approval of the Partnership.
Only Unitholders of record at the close of busi-
ness on July 1, 1996 are entitled to give their consent to
these actions.
The accompanying Consent Statement describes the
Transaction in detail.
YOUR CONSENT TO THIS PROPOSAL IS IMPORTANT
DEADLINE: 10:00 A.M., NEW YORK TIME, ON JULY __, 1996
TO ENSURE THAT YOUR INTEREST WILL BE REPRESENTED,
PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED CONSENT CARD
AND PROMPTLY MAIL IT IN THE ENCLOSED SELF-ADDRESSED
POSTAGE-PREPAID ENVELOPE.
Your approval is important. Please read the
Consent Statement carefully and then complete, sign and date
the enclosed Consent Card and return it in the self-ad-
dressed postage-prepaid envelope. Any Consent Card which is
signed and returned but does not specifically disapprove the
Transaction will be treated as approving the Transaction.
To be counted, the Consent Card must be received
on or before 10:00 a.m. New York time on July __, 1996
(unless such time is extended). A consent may be revoked by
written notice received on or before the expiration of the
time for responding.
Your prompt response is appreciated.
PRUDENTIAL-BACHE PROPERTIES, INC.,
Managing General Partner
New York, New York
July __, 1996
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
CONSENT STATEMENT
ACTION BY WRITTEN CONSENT
JULY __, 1996
This Consent Statement is being furnished to the
holders ("Unitholders") of the limited partnership interests
(the "Units") in Prudential-Bache/Watson & Taylor, Ltd.-2.,
a Texas limited partnership (the "Partnership"), in connec-
tion with the solicitation of consents by Prudential-Bache
Properties, Inc., the Managing General Partner of the Part-
nership, on behalf of the Partnership. Unitholders are
being asked to consent to a proposal which, if approved and
consummated, would result in the sale (the "Sale") of sub-
stantially all of the Partnership's assets for cash and the
complete liquidation and dissolution of the Partnership
(collectively, the "Transaction"). The Partnership's assets
consist substantially of eight improved properties, five of
which are business center facilities with mini-warehouses
and three of which are solely mini-warehouse facilities (the
"Properties").
The Partnership has entered into a Contract of
Sale (the "Contract of Sale") with Public Storage, Inc. (the
"Buyer"), dated as of June 13, 1996, for the sale of the
Properties to the Buyer for $18,000,000 in cash. Pursuant
to the Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership (the "Partnership
Agreement"), the sale of all or substantially all of the
Partnership's assets, which will result in the dissolution
and ultimate liquidation of the Partnership, must be ap-
proved by Unitholders who are the record holders of a major-
ity of the Units.
No person has been authorized to give any information
or to make any representation other than those contained in
this Consent Statement in connection with the solicitation
of consents made hereunder and, if given or made, such
information or representation must not be relied upon as
having been authorized by the Partnership or any other
person. The delivery of this Consent Statement shall not
under any circumstances create an implication that there has
been no change in the affairs of the Partnership since the
date hereof or that the information herein is correct as of
any time subsequent to its date.
______________________________
THE CONSENT STATEMENT AND FORM OF CONSENT ARE FIRST
BEING MAILED TO UNITHOLDERS ON OR ABOUT JULY __, 1996.
THE DATE OF THIS CONSENT STATEMENT
IS JULY __, 1996
TABLE OF CONTENTS
Page
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . 3
Selected Historical Financial Data . . . . . . . . . .
ACTION BY CONSENT . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . .
Matters to be Considered . . . . . . . . . . . . . . .
Recommendations of the General Partners . . . . . . .
Action by Consent; Record Date . . . . . . . . . . . .
Consents . . . . . . . . . . . . . . . . . . . . . . .
THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . .
Description of the Partnership . . . . . . . . . . . .
Partners in the Partnership . . . . . . . . . . . . .
Background of the Sale of the Properties . . . . . . .
Recommendation of the General Partners . . . . . . . .
Fairness Opinion and Appraisals . . . . . . . . . . .
Certain Income Tax Consequences and Considerations . .
Accounting Treatment . . . . . . . . . . . . . . . . .
Reason for Obtaining Unitholder Approval . . . . . . .
THE CONTRACT OF SALE . . . . . . . . . . . . . . . . . . .
Closing Conditions . . . . . . . . . . . . . . . . .
Inspections . . . . . . . . . . . . . . . . . . . . .
Closing Conditions . . . . . . . . . . . . . . . . . .
Remedies . . . . . . . . . . . . . . . . . . . . . . .
Covenants . . . . . . . . . . . . . . . . . . . . . .
Certain Expenses . . . . . . . . . . . . . . . . . . .
Casualty and Condemnation . . . . . . . . . . . . . .
Termination . . . . . . . . . . . . . . . . . . . . .
FINAL DISTRIBUTIONS AND LIQUIDATION . . . . . . . . . . .
NO APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . .
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF . . . . . .
MARKET PRICES FOR THE PARTNERSHIP'S UNITS AND
DISTRIBUTIONS TO UNITHOLDERS AND THE GENERAL PARTNERS . .
Market Price . . . . . . . . . . . . . . . . . . . . .
Distributions . . . . . . . . . . . . . . . . . . . .
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . .
Contract of Sale . . . . . . . . . . . . . . . . . Annex A
Stanger Fairness Opinion . . . . . . . . . . . . . Annex B
Partnership Annual Report on Form 10-K for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . Annex C
Partnership Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 . . . . . . . . . . . . . . . Annex D
Ernst & Young letter . . . . . . . . . . . . . . . Annex E
[Begin Box]
SUMMARY
The following is a summary of certain information con-
tained elsewhere in this Consent Statement, including the Annexes
hereto, which are a part of this Consent Statement. Reference is
made to, and this summary is qualified in its entirety by, the
more detailed information contained in this Consent Statement.
Unless otherwise defined herein, capitalized terms used in this
summary have the respective meanings ascribed to them elsewhere
in this Consent Statement. Unitholders are urged to read this
Consent Statement in its entirety.
THE PARTNERSHIP
Prudential-Bache/
Watson & Taylor, Ltd.-2
The Partnership owns and operates eight
improved properties, five of which are
business center facilities with mini-ware-
houses and three of which are solely mini-
warehouse facilities (the "Properties").
The offices of the Partnership are located
at One Seaport Plaza, New York, New York
10292-0116.
CONSENT DEADLINE
Deadline for Consents Consents must be received by ______,
July __, 1996, at 10:00 a.m., New York
time (unless such time is extended).
THE TRANSACTION
General . . . . . . . The Transaction to be approved by
Unitholders is a single proposal for the
Sale and Liquidation. The purchase
price for the Properties is $18,000,000.
Final Distributions and
Liquidation . . . As promptly as practicable following the
consummation of the Sale, the Managing
General Partner will determine the
amount of assets that it believes will
be sufficient to provide for the
Partnership's liabilities, including
contingent liabilities, if any. The
remainder of the Partnership's cash will
be distributed in accordance with the
Partnership Agreement, in an initial
liquidating distribution. Once all of
its obligations have been satisfied, the
Partnership will distribute its remain-
ing cash and dissolve. It is expected
that the bulk of the distribution will
be made promptly after the Sale and the
remainder within approximately one year.
The Partnership estimates that these
liquidating distributions will aggregate
approximately $xx per Unit.
Background . . . . . See "THE TRANSACTION -- Background of
the Sale of the Properties."
Recommendation of the
General Partners . PB Properties, George S. Watson and A.
Starke Taylor, III, the general partners
of the Partnership (the "General Part-
ners"), have carefully considered the
Transaction and concluded that the
Transaction is in the best interests of
the Partnership and the Unitholders.
Accordingly, the General Partners have
approved the Transaction and recommend
that Unitholders vote in favor of the
Transaction. See "THE TRANSACTION --
Recommendation of the General Partners."
Opinion of Financial
Advisor Robert A. Stanger & Co. ("Stanger")
acted as financial advisor to the Partner-
ship in connection with the Transaction.
The Partnership has received a fairness
opinion from Stanger to the effect that
the consideration to be received in the
Sale is fair from a financial point of
view to the Partnership. See "THE TRANS-
ACTION -- Fairness Opinion and Apprais-
als."
Independent Appraisals The Partnership received MAI-certified
appraisals of the Properties from an inde-
pendent, third-party appraisal firm,
Cushman & Wakefield, Inc. ("Cushman &
Wakefield"), dated September 1995. The
purchase price exceeds the aggregate ap-
praised value of the Properties. See
"THE TRANSACTION -- Fairness Opinion and
Appraisals."
The Buyer . . . . . . Public Storage, Inc., the Buyer, is an
equity real estate investment trust
("REIT") organized as a corporation
under the laws of the State of Califor-
nia. The Buyer is a fully integrated,
self-administered and self-managed REIT
that acquires, develops, owns and oper-
ates self-service mini-warehouse facili-
ties and also manages similar properties
for third parties. The Buyer is the
largest owner and operator of mini-ware-
houses in the United States. The Buyer
has been the manager of the day-to-day
operations of the Properties since 1988.
The offices of the Buyer are located at
600 North Brand Blvd., Glendale, Cali-
fornia. The Buyer has entered into
contracts with certain other partner-
ships formed by the General Partners
under which such other partnerships
would sell properties to the Buyer. See
"THE TRANSACTION--Background of the Sale
of the Properties."
Security Ownership
and Voting of the
General Partners As of July 1, 1996, none of the General
Partners or any director or officer of any
of the General Partners owned directly or
beneficially any of the Units. Prudential
Securities Incorporated, an affiliate of
PB Properties, beneficially owned 180
Units (.4% of the outstanding Units) as of
July 1, 1996. Prudential Securities In-
corporated intends to vote its Units to
approve the Transaction. George S. Watson
and A. Starke Taylor, III (collectively,
the "Individual General Partners") own 260
"equivalent units." See "VOTING SECURI-
TIES AND PRINCIPAL HOLDERS THEREOF,"
Effective Time of the
Transaction . . . . It is anticipated that the Transaction
will be consummated as promptly as prac-
tical after the requisite Unitholder
approval has been obtained and all other
conditions to the Transaction have been
satisfied or waived.
Conditions to the
Transaction;
Termination of
the Transaction The Transaction is conditioned upon, among
other things, the approval thereof by
Unitholders of record owning a majority of
the Units. The Transaction may be termi-
nated if it is not consummated by March
13, 1997. The Partnership may terminate
the Transaction if the Partnership re-
ceives a more favorable offer for the pur-
chase of the Properties. In the latter
case, a termination fee of $342,000 (plus
expenses up to $15,000) shall be payable
to the Buyer. A termination fee would
also be payable if Unitholder approval is
not obtained and a contract or letter of
intent to sell the properties at a price
exceeding the Purchase Price is entered
into within 180 days of the termination of
the Contract of Sale. See "THE CONTRACT OF
SALE -- Conditions; Termination."
No Appraisal Rights Unitholders do not have appraisal rights
in connection with the Transaction. See
"NO APPRAISAL RIGHTS."
Certain Income Tax
Consequences and
Considerations . . For U.S. Federal income tax purposes,
the Partnership will be required to
report a gain of approximately $6.3 in
connection with the Sale of the Proper-
ties. As a result, each taxable Partner
will recognize a gain of approximately
$118 per Unit, and each nontaxable Part-
ner, $130 per Unit, held by such Part-
ner. See "THE TRANSACTION -- Certain
Income Tax Consequences and Consider-
ations."
Accounting Treatment For financial reporting purposes, the
Sale will be treated as a sale of prop-
erties. See "THE TRANSACTION -- Ac-
counting Treatment."
Regulatory Matters . No Federal or State regulatory require-
ments must be complied with or approvals
obtained in connection with the Transac-
tions.
ACTION BY CONSENT
Record Date; Units
Entitled to Consent Unitholders of record at the close of
business on July 1, 1996, are entitled
to execute an action by written consent.
At such date there were outstanding
51,300 Units, each of which will entitle
the record owner thereof to one vote.
Purpose of the Action Written consents are being solicited to
approve (a) the sale of the Properties,
which comprise substantially all of the
assets of the Partnership (the "Sale")
and (b) the complete liquidation and
dissolution of the Partnership and the
distribution of the assets of the Part-
nership in accordance with the Partner-
ship Agreement, other than such assets
as are set aside to provide for the
payment of all liabilities of the Part-
nership (the "Liquidation," and together
with the Sale, the "Transaction").
Votes Required . . . The approval of the Transaction will
require the written consent of
Unitholders of record holding a majority
of all outstanding Units of the Partner-
ship entitled to consent thereto. Such
approval will constitute the approval of
the Partnership.
PRUDENTIAL BACHE/WATSON & TAYLOR LTD.-2
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for
each of the years in the five-year period ended December 31, 1995
and the quarters ended March 31, 1995 and 1996, has been derived
from the Partnership's financial statements. The selected
financial data set forth below should be read in conjunction with
the financial statements and related notes thereto included in
the Partnership's Annual Report on Form 10-K for the year ended
December 31, 1995 and the unaudited financial statements and
related notes thereto included in the Partnership's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996, copies
of which are attached hereto.
<TABLE>
<CAPTION>
Three Months ended
Year ended December 31, March 31,
-------------------------------------------------------------------- ------------------
1995 1994 1993 1992 1991 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income $ 2,822,490 $ 2,604,144 $ 2,451,667 $ 2,386,306 $ 2,386,973 $ 713,996 $ 677,930
Provision for loss
on
impairment of
assets $ -- $ -- $ -- $ -- $ 1,418,000 $ -- $ --
Net income (loss) $ 489,304 $ 402,785 $ 347,081 $ 355,077 $(1,064,271) $ 232,815 $ 122,114
Net income (loss)
per Unit $ 9.40 $ 7.73 $ 6.66 $ 6.82 $(18.90) $ 4.47 $ 2.34
Total assets $ 14,086,449 $ 14,263,400 $ 15,072,631 $ 15,732,923 $ 16,362,156 $ 14,111,417 $ 14,197,865
Total limited
partner
distributions $ 766,147 $ 1,033,761 $ 878,048 $ 1,066,238 $ 1,235,508 $ 191,284 $ 191,284
Limited partner
distributions per
Unit $ 14.86 $ 20.05 $ 17.03 $ 20.68 $ 23.85 $ 3.71 $ 3.71
</TABLE>
[End Box]
ACTION BY CONSENT
GENERAL
This Consent Statement is being furnished on behalf
of the Partnership to the holders of the ownership interest
in the limited partnership interests of the Partnership in
connection with the solicitation of consents by PB Proper-
ties, as Managing General Partner of the Partnership.
This Consent Statement and accompanying form of
Consent Card is first being mailed to Unitholders on or
about July __, 1996.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve a proposal
involving the sale of the Properties, which comprise sub-
stantially all of the assets of the Partnership, the com-
plete liquidation and dissolution of the Partnership and the
distribution of the assets (which following the Sale will
consist principally of cash and cash equivalents) of the
Partnership, other than such assets as are set aside to
provide for the payment of liabilities of the Partnership.
RECOMMENDATIONS OF THE GENERAL PARTNERS
The General Partners have approved the Sale of the
Properties and the complete liquidation and dissolution of
the Partnership and recommend that Unitholders consent to
the Transaction. See "THE TRANSACTION -- Background of the
Sale of the Properties; Recommendation of the General Part-
ners."
ACTION BY CONSENT; RECORD DATE
July 1, 1996, has been fixed as the record date (the
"Record Date") for the determination of Unitholders entitled
to consent with respect to the Transaction. As of the close
of business on the Record Date, there were 51,300 Units
outstanding and entitled to consent, which Units were held
by approximately 3,502 Unitholders of record. Each
Unitholder of record at the close of business on the Record
Date is entitled to consent on the Transaction and cast one
vote for each Unit held by returning a properly executed
Consent Card.
The consent of Unitholders who are the record holders
of a majority of all outstanding Units entitled to vote
thereon is required to approve the Transaction. Under
applicable law, in tabulating the vote for any matter,
abstentions and broker non-votes will have the same effect
as votes against the Transaction.
CONSENTS
This Consent Statement is being furnished to
Unitholders in connection with the solicitation of consents
by and on behalf of the Partnership.
Any consent given pursuant to this solicitation may
be revoked by the person giving it at any time before 10:00
a.m. New York time on July __, 1996 (unless the time for
responses is extended), by sending a written notice of such
revocation to the Partnership's consent solicitor, Morrow &
Co., Inc., so that such notice arrives before such time.
Any written notice of revocation or subsequent consent
should be sent to Morrow & Co., Inc., ____________, Atten-
tion: ____.
Under applicable law and the Amended and Restated
Certificate and Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement") any matter upon
which the Unitholders are entitled to act may be submitted
to the Unitholders for a vote by written consent without a
meeting.
The Partnership has retained Morrow & Co., Inc. to
aid in the solicitation of consents for a fee of approxi-
mately $____, plus expenses. In addition to solicitation by
use of the mails, officers, directors and employees of PB
Properties or its affiliates may solicit consents in person
or by telephone, telegram or other means of communication.
Such officers, directors and employees will not be addition-
ally compensated, but may be reimbursed for reasonable out-
of-pocket expenses in connection with such solicitation.
All costs and expenses of this solicitation, including the
cost of preparing and mailing this Consent Statement, will
be borne by the Partnership.
UNITHOLDERS SHOULD NOT SEND ANY UNIT CERTIFICATES WITH THEIR
CONSENT CARDS.
THE TRANSACTION
DESCRIPTION OF THE PARTNERSHIP
The Partnership was formed to acquire, develop, own
and operate self-storage and business center facilities. In
October 1984, the Partnership completed an offering through
which it sold 51,300 Units, representing gross proceeds to
the Partnership of approximately $25.6 million. The Part-
nership will terminate on December 31, 2050 unless terminat-
ed sooner under the provisions of the Partnership Agreement.
The Partnership invested in and operates the Proper-
ties, which consist substantially of eight improved proper-
ties, five of which are business center facilities with
mini-warehouses and three of which are solely mini-warehouse
facilities.
GENERAL PARTNERS OF THE PARTNERSHIP
The general partners of the Partnership are PB Prop-
erties, the Managing General Partner, and George S. Watson
and A. Starke Taylor, III, the Individual General Partners
(collectively, the "General Partners").
BACKGROUND OF THE SALE OF THE PROPERTIES
In late 1995, the General Partners of the Partnership
considered seeking bids for the Properties, and, assuming
acceptable bids were received, entering into agreements to
sell the Properties subject to limited partner approval,
obtaining limited partner approval, and, after the sale,
liquidating the Partnership. Stanger was retained to pro-
vide advice with respect thereto. Stanger advised the
General Partners that the market for the sale of self-stor-
age properties was favorable, based on, among other things,
(i) strong performance trends in the self-storage industry,
(ii) bullish expectations among self-storage buyers and
investors, (iii) increasing economic viability of self-
storage development activity in many areas, and the conse-
quent potential future negative impact on occupancies and
rental rates for existing facilities, (iv) a very high level
of availability of equity capital and currently deep pool of
buyers with budgeted acquisition capital targeting self-
storage properties, (v) re-emergence of lending activity and
debt capital to the self-storage market, (vi) favorable
trends in acquisition parameters of major buyers and a
resulting increase in property values and (vii) increased
ability to market properties on favorable terms.
Accordingly, based in part on such information, as
well as, (i) current market conditions appearing favorable
for a sale, (ii) the original business plan for the Partner-
ship envisioning a sale at approximately such time and (iii)
the General Partners ability to evaluate bids before commit-
ting to a sale, the General Partners determined to seek bids
for the Properties.
On December 18, 1995, the Partnership, as well as
Prudential Bache/Watson & Taylor, Ltd.-I, Prudential
Bache/Watson & Taylor, Ltd.-3 and Prudential Bache/Watson &
Taylor, Ltd.-4 (three other partnerships formed by the
General Partners to invest primarily in similar properties)
(the "Other Partnerships") announced that they were solicit-
ing bids for their properties, invited interested parties to
bid on any or all of the properties held by such partner-
ships and announced that, if acceptable bids were received
by a partnership, the partnership would enter into agree-
ments to sell the properties, subject to the approval of its
limited partners. If so approved, the partnership would
liquidate and distribute its net assets to its partners.
The Partnership then retained Stanger as its finan-
cial advisor. The Partnership and its advisors contacted
approximately 100 potential bidders concerning the possible
sale of the Properties, of whom approximately 35 returned
executed confidentiality agreements, and were each sent an
offering package which contained business and financial
information pertinent to the Properties and the properties
of the Other Partnerships.
The Partnership received fourteen bids to purchase
some or all of the Properties. The terms and conditions of
each bid were reviewed based upon certain factors which PB
Properties had instructed bidders were especially important.
Such factors included, but were not limited to, price,
certainty of closing (including the definiteness of financ-
ing and financial capability of the bidder), the existence
of potential downward adjustments to the purchase price in
the bid as a result of due diligence or claims by the Buyer,
including but not limited to reductions in purchase price
for any structural repairs, capital costs and deferred
maintenance items, and the absence of closing contingencies
of the sale relating to the purchase of assets of any of the
Other Partnerships.
As a result of this review and discussions with
bidders, the terms of certain bids were modified. Among the
bids reviewed was a bid from a private company for the
assets of the Partnership and all the assets of the Other
Partnership in which the nominal amount of the offer allo-
cated to the Partnership's Properties, while falling short
of the highest bid under consideration at the time, exceeded
the offer ultimately put forth by the Buyer. The bidder had
not visited the properties, indicated the bid was subject to
potential reductions following a due diligence physical
review of the properties and a review by its accountants of
financial information related to the Properties, and indi-
cated that its bid was contingent on the acquisition of all
the assets of the Other Partnerships as well as the Partner-
ship. In addition, the bidder failed to provide sufficient
evidence of its ability to finance the acquisition. When
informed that its offers for the properties of one of the
Other Partnerships, as well as the Partnership would not be
accepted, the bidder withdrew its bid for the Partnership's
Properties.
Following these reviews and discussions, the Partner-
ship entered into contract negotiations with the bidder
referred to above who had submitted the highest bid under
consideration at such time, as set forth above. During the
course of these negotiations, the bidder revised its bid to
drop certain properties and therefore to a lower offer, and
the Buyer, which had not previously submitted a bid for the
Properties, submitted a bid for the Properties, as well as
bids for substantially all of the properties held by the
Other Partnerships.
Each of these bids was conditioned on the acceptance
of the Buyer's other bids. The Partnership negotiated with
the Buyer regarding price separately from the Other Partner-
ships. Each partnership insisted that the price offered for
its properties by the Buyer be higher than any other bona
fide bid received by such partnership. In addition, each
partnership insisted that the price to be paid for its
properties not be affected by the price to be paid for the
properties of any other partnership. Each partnership also
insisted that, once signed, the contract with it not be
conditioned on the contract entered into by any other part-
nership, and that the termination of one contract would not
have any effect on any other contract. The Contract of Sale
is not conditioned on any contract with any Other Partner-
ship, consistent with the original guidelines provided to
the bidders. The Buyer's proposal was the most favorable
received for the Properties.
The Buyer is an equity real estate investment trust
("REIT") organized as a corporation under the laws of the
State of California. The Buyer is a fully integrated, self-
administered and self-managed REIT that acquires, develops,
owns and operates self-service mini-warehouse facilities.
The Buyer is the largest owner and operator of mini-ware-
houses in the United States. The offices of the Buyer are
located at 600 North Brand Blvd., Glendale, California and
its telephone number is (818) 244-8080.
The Buyer has been the manager of the day-to-day
operations of the Properties, as well as the properties held
by the Other Partnerships, since 1988.
The Buyer has entered into contracts with the Other
Partnerships under which each of the Other Partnerships
would sell its properties to the Buyer (other than, in
certain cases, undeveloped land owned by such partnerships).
RECOMMENDATIONS OF THE GENERAL PARTNERS
The General Partners of the Partnership, believe that
the Sale is fair and reasonable to the Unitholders, and
recommend that the Unitholders approve the Transaction. In
arriving at their determination, the General Partners con-
sidered each of the factors discussed below:
(i) Their belief that current market conditions are
favorable for the sale of the Properties.
(ii) The timing of the Sale is consistent with the
anticipated holding period for Units set forth in
the initial offering.
(iii) The Sale provides liquidity to Unitholders.
(iv) The price and terms agreed to by the Buyer are the
result of a competitive bidding process and are
the most favorable available to the Partnership,
based upon the bidding process described above
under "Background of the Sale of the Properties."
(v) The purchase price exceeds the aggregate appraised
value of properties, as determined by Cushman &
Wakefield, an independent, third-party appraisal
firm. (see "--Fairness Opinion and Appraisals").
(vi) The fairness opinion of Stanger that the consider-
ation to be received in the Sale is fair from a
financial point of view to the Partnership, de-
scribed below under "Fairness Opinion and Apprais-
als."
(vii) The terms and conditions of the Contract of
Sale, described under "THE CONTRACT OF SALE."
In particular, the fact that the Buyer's
obligations are not subject to obtaining
financing. If the Buyer were to terminate
its obligations, it would forfeit the
$1,350,000 Downpayment. Further, the Con-
tract of Sale limits claims that the Buyer
can make against the Partnership. Finally,
the Contract of Sale can be terminated by the
Partnership if the Partnership receives and
accepts an unsolicited better offer for the
Properties, although the Partnership would
then be obligated to return the Downpayment
and pay an additional $342,000 (plus expenses
up to $15,000) to the Buyer. A termination
fee would also be payable if Unitholder ap-
proval is not obtained and a contract or
letter of intent to sell the properties at a
price exceeding the Purchase Price is entered
into within 180 days of the termination of
the Contract of Sale.
Unitholders should be aware that, if the Sale is ap-
proved, the Partnership would not receive the benefits of
any potential increases in cash flow or the value of the
Properties following the Sale.
The General Partners found it impracticable to, and
therefore did not, quantify or otherwise assign specific or
relative weights to the above factors in its consideration
of the Contract of Sale, and instead, considered the various
above factors in their totality.
FAIRNESS OPINION AND APPRAISALS
Fairness Opinion from Stanger
Stanger was engaged by PB Properties on behalf of the
Partnership, in its capacity as Managing General Partner of
the Partnership, to provide financial advisory services and
to render an opinion as to the fairness to the Partnership
from a financial point of view of the consideration to be
received in the Sale. The full text of the Opinion, which
contains descriptions of the assumptions and qualifications
made, matters considered and limitations on the review and
opinion, is set forth in Annex B to this Proxy Statement and
should be read in its entirety. Certain of the material
assumptions, qualifications and limitations to the fairness
opinion are set forth below. The summary set forth below
does not purport to be a complete description of the analy-
sis used by Stanger in rendering the fairness opinion.
Arriving at a fairness opinion is a complex analytical
process not necessarily susceptible to partial analysis or
amenable to summary description.
In connection with its analysis, Stanger made certain
assumptions, described more fully below, which the Partner-
ship advised Stanger it would be reasonable to make. The
Partnership imposed no conditions or limitations on the
scope of Stanger's investigation or with respect to the
methods and procedures to be followed in rendering the
fairness opinion. The Partnership has agreed to indemnify
Stanger against certain liabilities arising out of its
engagement to render financial advisory services and to
prepare and deliver the fairness opinion.
EXPERIENCE OF STANGER - Stanger, founded in 1978, has
provided information, research, investment banking and
consulting services to clients throughout the United States,
including major New York Stock Exchange firms and insurance
companies and over 70 companies engaged in the management
and operation of partnerships and real estate investment
trusts. The investment banking activities of Stanger in-
clude financial advisory services, asset and securities
valuations, asset sale transaction structuring and negotia-
tion, industry and company research and analysis, litigation
support and expert witness services, and due diligence
investigations in connection with both publicly registered
and privately placed securities transactions.
Stanger, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their
securities in connection with mergers, acquisitions, reorga-
nizations and for estate, tax, corporate and other purposes.
In particular, Stanger's valuation practice principally
involves partnerships, partnership securities and the assets
typically owned through partnerships including, but not
limited to, real estate, oil and gas reserves, cable televi-
sion systems and equipment leasing assets.
SUMMARY OF MATERIALS CONSIDERED - In the course of
Stanger's analysis to render its opinion regarding the Sale,
Stanger: (i) reviewed the Contract of Sale and this Consent
Statement, (ii) reviewed the Partnership's annual reports on
Form 10-K for the three years ending December 31, 1993, 1994
and 1995 and the Partnership's quarterly report on Form 10-Q
for the three months ending March 31, 1996, (iii) reviewed
the Appraisals of the Properties prepared by Cushman &
Wakefield ("Cushman & Wakefield"), an independent appraisal
firm, as of September 30, 1995, (iv) reviewed summary his-
torical operating statements for each of the Properties for
1995 and the first quarter of 1996, and budgets for 1996,
(v) performed site inspections of each of the Properties
owned by the Partnership, (vi) reviewed information regard-
ing purchases and sales of self-storage/office-warehouse
properties and other information relating to acquisition
criteria for self-storage/office-warehouse properties, (vii)
discussed with management of the Partnership conditions in
self-storage/office-warehouse property markets, conditions
in the market for sales/acquisitions of properties similar
to those owned by the Partnership, current and projected
operations and performance, and the financial condition of
the Partnership and (viii) conducted such other studies,
analyses, inquiries and investigations as Stanger deemed
appropriate.
SUMMARY OF ANALYSIS - The following is a summary of
certain reviews conducted by Stanger in connection with and
in support of its fairness opinion. The summary of the
Opinion and analysis of Stanger set forth in this Proxy is
qualified in its entirety by reference to the full text of
such Opinion.
Review of Method of Sale. Stanger observed that the
portfolio of Properties owned by the Partnership was offered
for sale pursuant to a competitive bidding process. Poten-
tial purchasers were identified based on a review of certain
real estate industry publications, a review of publicly
traded real estate investment trusts, and industry contacts.
Prospective buyers were identified based on such factors as
type of properties owned or managed, geographical location
of current portfolio, and disclosed acquisition objectives.
Based on this process, approximately 100 prospective pur-
chasers were identified and contacted regarding their inter-
est in the Properties.
A confidential memorandum describing each Property was
prepared, which included a physical description, photo-
graphs, available site plans, location maps, market area
demographics, unit configuration, gross potential income,
historical physical occupancy, and a summary of financial
information. As a result of the process described above, 35
confidential memorandums were distributed to prospective
buyers after receipt of confidentiality agreements. Four-
teen bidders submitted proposals to purchase some or all of
the Properties of the Partnership. Bids were evaluated both
on an individual property basis and on a portfolio basis.
Review of Appraisals and Purchase Price - In preparing
its opinion, Stanger relied in part upon the Appraisals of
the Partnership's portfolio of properties which were pre-
pared as of September 30, 1995 by Cushman & Wakefield.
Stanger observed the Appraisals were certified by a Member
of the Appraisal Institute and were conducted utilizing the
income approach and the sales comparison approach to estab-
lish value. In addition, Stanger observed that in the
course of conducting the Appraisals, Cushman & Wakefield
collected and analyzed local market data, including but not
limited to, rental rates at competing properties and capi-
talization rates and/or prices per unit or square foot paid
in actual sales transaction involving similar type proper-
ties in the general market area of each Property. Stanger
observed the aggregate appraised value of the Properties
owned by the Partnership and to be sold to the Buyer was
$15,200,000.
Stanger observed that the Purchase Price is $18,000,000
and that such amount is $2,800,000 greater than the ap-
praised value of $15,200,000 based on independent appraisals
prepared by Cushman & Wakefield as of September 30, 1995.
The Purchase Price, at $18,000,000, thus represents an 18.4%
premium to the sum of the appraised values.
CONCLUSIONS - Based on the foregoing, Stanger concluded
that, based upon its analysis and assumptions, and as of the
date of the fairness opinion, the consideration to be re-
ceived in the Sale is fair to the Partnership from a finan-
cial point of view.
ASSUMPTIONS - In evaluating the Sale, Stanger relied
upon and assumed, without independent verification, the
accuracy and completeness of all financial and other infor-
mation contained in the Consent Statement or that was fur-
nished or otherwise communicated to Stanger. Stanger did
not perform an independent appraisal of the assets and
liabilities of the Partnership and relied upon and assumed
the accuracy of the Appraisals. Stanger also relied on the
assurances of the Managing General Partner that any finan-
cial statements, projections, budgets, or value estimates
contained in the Consent Statement or otherwise provided to
Stanger were reasonably prepared on a basis consistent with
actual historical experience and reflecting the best cur-
rently available estimates and good faith judgments; that no
material changes have occurred in the appraised value of the
portfolio or the information reviewed between the date of
the Appraisals or the date of other information provided and
the date of the opinion; and that the Managing General
Partner is not aware of any information or facts that would
cause the information supplied to Stanger to be incomplete
or misleading in any material respect.
In connection with preparing the fairness opinion,
Stanger was not engaged to, and consequently did not, pre-
pare any written report or compendium of its analysis for
internal or external use beyond the analysis set forth in
Annex B. Stanger does not intend to deliver any additional
written summary of the analysis.
COMPENSATION; PRIOR RELATIONSHIPS - For rendering
financial advisory services with respect to the sale of the
Partnership's portfolio and preparing the fairness opinion
in connection with the Sale Stanger is being paid a fee of
$358,000 by the Partnership, a substantial portion of which
will be paid upon the closing of the Sale. Stanger will
also receive fees totalling $773,400 for financial advisory
services and preparing fairness opinions in connection with
the sale of assets owned by the Other Partnerships. In
addition, Stanger will be reimbursed for certain out-of-
pocket expenses, including legal fees, and will be indemni-
fied against certain liabilities including certain liabili-
ties under the Federal securities laws. The fee was negoti-
ated with Stanger. During the past two years, Stanger has
rendered certain consulting services to the Partnership and
its affiliates and the Other Partnerships, for which it has
received customary compensation aggregating approximately
$262,918. Stanger has also rendered financial advisory
services to REIT affiliates of the Buyer during the past two
years, for which it has received customary compensation
aggregating approximately $334,086.
LIMITATIONS AND QUALIFICATIONS - Stanger was not re-
quested to, and therefore did not: (i) select the method of
determining the consideration offered in the Sale, (ii) make
any recommendation to Limited Partners whether to approve or
reject the Sale or (iii) express any opinion as to the
business decision to effect the Sale, alternatives to the
Sale or tax factors resulting from the Sale. Stanger's
opinion is based on business, economic, real estate and
securities markets, and other conditions as of the date of
its analysis. Events occurring after that date may materi-
ally affect the assumptions used in preparing the Opinion.
See "--Background of the Sale of the Properties."
Among the factors considered in its selection were
Stanger's experience in connection with self-storage assets
and mergers, acquisitions and reorganizations of real estate
partnerships and its expertise in real estate valuations and
transactions.
Cushman & Wakefield Appraisal Reports. Various subsidiaries
of Cushman & Wakefield, Inc. completed individual appraisal
reports on each Property as of September 30, 1995. The term
Cushman & Wakefield shall mean the particular subsidiary
which prepared the appraisal report. Property inspections
were conducted and included discussions with on-site manag-
ers. Appraisers also conducted market research regarding
local and regional economic conditions, competitive self-
storage/office warehouse/office showroom properties (exist-
ing and potential) and recent comparable sales transactions.
The sum of the individual appraised values of the Properties
in the reports, as of the valuation date of September 30,
1995, was $15,200,000.
In each appraisal, Cushman & Wakefield used the Sales
Comparison Approach and the Income Approach to develop a
market value estimate for each Property. The Cost Approach
was not used due to the difficulty in quantifying the vari-
ous forms of obsolescence and, in addition, because it is
generally recognized that market participants do not rely on
the Cost Approach in making their investment decisions.
Sales Comparison Approach. Cushman & Wakefield utilized the
Sales Comparison Approach as one of two methods to estimate
the market value of each Property. The basic steps involved
in the Sale Comparison Approach are: (i) research recent,
relevant property sales and current offerings throughout the
competitive area; (ii) select and analyze those properties
considered most similar to the property appraised consider-
ing changes in economic conditions that may have occurred
between the sale date and the date of value, and other
physical, functional or locational factors; (iii) identify
sales which include favorable financing and calculate the
cash equivalent price; (iv) reduce the sale prices to
common units of comparison such as the price per square foot
of building area, and the effective gross income multiplier;
(v) make appropriate comparative adjustments to the prices
of the comparable properties to relate them to the property
being appraised; and (vi) interpret the adjusted sales data
and draw a logical value conclusion.
Within each of the eight appraisals, the sales prices
inherent in the comparable sales transactions were reduced
to those common units of comparison used by buyers and
sellers to analyze improved properties. The two primary
units of comparison developed by Cushman & Wakefield were
the sales price per square foot and the effective gross
income multiplier (EGIM) methods of analysis.
Income Approach. Cushman & Wakefield also employed the
Income Approach in developing a market value estimate for
each property. In utilizing the Income Approach, Cushman &
Wakefield developed an unleveraged discounted cash flow
analysis for each property based upon an eleven year cash
flow forecast inclusive of the estimated proceeds from a
hypothetical sale at the end of the tenth year. The esti-
mated proceeds from the hypothetical sale at the end of the
ten year holding period were based upon the eleventh year's
net operating income from the property.
The basis for the growth rates which were applied to
the revenues and expenses of the properties in the portfolio
included the following considerations: Cushman &
Wakefield's analysis of the historical operating performance
of the properties; Cushman & Wakefield's internal database
of revenues and operating expenses for other comparable
properties; and Cushman & Wakefield's analysis of the proba-
ble market conditions which would affect the revenues and
operating expenses for each of the properties.
The basis for the discount rate utilized by Cushman &
Wakefield includes the following: Cushman & Wakefield's
internal database for comparable properties; Cushman &
Wakefield's regular, periodic survey of more than 20 insti-
tutional owners of properties; and publicly available,
published real estate industry statistics. On the basis of
this data and analysis, Cushman & Wakefield utilized a
specific and independently determined discount rate for each
property in the portfolio of 13.5%.
Cushman & Wakefield is a commercial real estate company
which provides a broad array of services to its domestic and
international clients. Cushman & Wakefield and its affili-
ates have offices nationwide covering most of the major real
estate markets, and its business activities include commer-
cial leasing, tenant representations, appraisals and valua-
tions, feasibility studies, sales and financings of income-
producing properties, real estate advisory and consulting
services, property management and market research. Cushman
& Wakefield has, from time to time, provided services to PB
Properties and its affiliates, and may do so in the future.
As compensation for its services in connection with the
appraisals, the Partnership paid the various Cushman &
Wakefield companies which prepared the reports fees total-
ling ___________ and reimbursed them for their out-of-pocket
expenses.
An appraisal is only an estimate of value, as of the
specific date stated in the appraisal, and is subject to the
assumptions and limiting conditions stated in the report.
As an opinion, it is not a measure of realizable value and
may not reflect the amount which would be received if the
property was sold. Reference should be made to the entire
appraisal report.
CERTAIN INCOME TAX CONSEQUENCES AND CONSIDERATIONS
General
The following discussion summarizes generally the
material estimated Federal income tax consequences arising
from the consummation of the Sale and provides a general
overview of certain State income tax considerations. This
summary is not intended to and should not be considered an
opinion respecting the Federal or State income tax conse-
quences. Due to the complexity of the tax issues involved,
Unitholders are urged to consult with their personal tax
advisors regarding their individual circumstances and the
tax reporting consequences of the transaction.
Based upon the description of the Sale contained
in this Consent Statement, the Partnership's independent
accountants have advised the Partnership that THE SALE WILL
RESULT IN A TOTAL GAIN ALLOCABLE TO THE UNITHOLDERS FOR
FEDERAL INCOME TAX PURPOSES IN 1996 OF APPROXIMATELY $6.3
MILLION OR AN AVERAGE OF APPROXIMATELY $118 PER UNIT for
a taxable Unitholder and an average of approximately $130
per Unit for a non-taxable Unitholder. Approximately $6.2
million of such gain (or an average of approximately $117
per Unit for a taxable Unitholder and an average of
approximately $129 per Unit for a non-taxable Unitholder)
will represent Section 1231 Gain (defined below) and
approximately $100,000 (or an average of approximately $1
per Unit for both taxable and non-taxable Unitholders) will
represent Section 1245 Gain (defined below). However, due
to varying admission dates and the operation of the
Partnership Agreement, the amount of recognized gain that
is allocated to a Unit depends upon a Unitholder's
admission date.
The summary is based upon the Internal Revenue
Code of 1986, as amended (the "Code"); existing final,
temporary and proposed Treasury regulations thereunder (the
"Regulations" or "Treas. Reg. SECTION"); published rulings and
practices of the Internal Revenue Service (the "IRS"); and
court decisions, each as currently in effect. There can be
no assurance that the IRS will agree with the conclusions
herein or that future legislation or administrative changes
or court decisions will not significantly modify the Federal
income tax law regarding the matters described herein,
potentially with retroactive effect.
The maximum tax rate imposed on an individual's
net capital gains (the excess of net long-term capital gain
over short- term capital loss) is 28%, while the maximum
marginal tax rate imposed on the ordinary income of
individuals may be up to 39.6%, thereby resulting in a
substantial differential between the maximum capital gain
and maximum ordinary income tax rates.
This summary does not discuss all the Federal
income tax aspects of the Transaction that may be relevant
to a particular Unitholder in light of his personal circum-
stances, or to certain types of Unitholders subject to
special treatment. For example, insurance companies, sub-
chapter S corporations, partnerships, pension and profit-
sharing plans, tax-exempt organizations, non-U.S. taxpayers
and others may be subject to special rules not discussed
below.
Partnership Status
Under current law, a "partnership" is not a tax-
able entity and incurs no Federal income tax liability.
Instead, each partner is required to take into account in
computing his income tax liability his allocable share of
the partnership's items of income, gain, loss, deduction and
credit (hereinafter referred to as "income or loss"). The
distribution of cash attributable to partnership income is
generally not a separate taxable event. This tax treatment,
however, depends entirely upon the Partnership's classifica-
tion as a "partnership" (rather than an "association taxable
as a corporation") for Federal income tax purposes. This
summary assumes, and PB Properties believes, that the Part-
nership has been and will continue to be properly classified
as a "partnership" for Federal income tax purposes, but no
assurance can be given to Limited Partners that this will
continue to be true and no opinion of counsel or of the
Partnership's independent accountants or ruling from the IRS
is currently being sought with respect to this partnership
status issue.
Federal Income Tax Consequences
A sale of the Properties would have certain tax
implications to the Unitholders that should be considered.
Based on its terms, the Sale will result in the
realization of income for Federal income tax purposes, which
in turn will cause the Partnership's partners to recognize
income.
The potential tax consequences to the Unitholders,
assuming the Sale is consummated in 1996.
Generally, the sale or other disposition of a
property for an "amount realized" in excess of the "adjusted
basis" of such property will result in the recognition of
taxable income by the taxpayer. The amount realized is
ordinarily the selling price reduced by the expenses of
sale. The "adjusted basis" of property is its cost (includ-
ing nondeductible capital expenditures made by the taxpayer
at the time of purchase) or other basis in the hands of the
taxpayer with certain additions or subtractions for expendi-
tures, transaction costs or recoveries of capital during
the period of time from acquisition of the property until
the sale or other disposition. To determine the gain or
loss on the sale or other disposition of property the ini-
tial cost basis must be (i) adjusted upward or increased to
include the cost of expenditures for capital expenditures
such as improvements, betterments, commissions and other
nondeductible charges; and (ii) adjusted downward or de-
creased by (a) items that represent a return of capital and
(b) depreciation and amortization.
Under Section 1231 of the Code (which deals with
gains and losses from the sale or exchange of business
property), to the extent that Section 1231 Gains for any
taxable year from all sources exceed such taxpayer's
Section 1231 Losses (defined below) from all sources for
the year, subject to certain exceptions (such as
depreciation recapture discussed below), such net Section
1231 Gain (subject to the 5-year rule stated below) shall
be treated as a long-term capital gain. However, Section
1231 Gain shall be treated as ordinary income to the extent
of prior Section 1231 Losses from any source that were
treated as ordinary in any of the previous five years.
Section 1231 Gains are those gains arising from the sale or
exchange of "Section 1231 Property" which means (i) depre-
ciable assets used in a trade or business, or (ii) real
property used in a trade or business, which are held for
more than one year. Conversely, Section 1231 Losses are
those losses arising from the sale or exchange of Section
1231 Property. If Section 1231 Losses exceed Section 1231
Gains, such losses would be treated as ordinary losses.
Under Sections 1245 and 1250 of the Code (which
deal with depreciation recapture), a portion of the amount
allowed as depreciation expense with respect to Section 1231
Property may be "recaptured" as ordinary income upon sale or
other disposition of personal or real property rather than
as long-term capital gains ("Section 1245 Gain" and "Section
1250 Gain" respectively). The Partnership will have minimal,
if any, Section 1250 Gain as a result of the Sale. Section
1245 Gain is taxed at the marginal ordinary income tax rate
of the taxpayer as opposed to the 28% individual capital
gains rate.
Under Section 702(a)(3) of the Code (which gener-
ally deals with the "pass through" tax items from a partner-
ship to its partners), a partnership is required to sepa-
rately state, and the partners are required to account
separately, for their distributive share of all gains and
losses. Accordingly, each Unitholder's allocable share of
the Section 1231 Gain and depreciation recapture realized by
the Partnership as a result of consummating the Sale in 1996
will be reportable by such Unitholder on his 1996 individual
tax return (subject to the various rules described herein
whereby, based on determinations made at the Unitholder
level as opposed to the Partnership level, such income can
be fully or partially offset by suspended passive losses
from any source, if any). Each Unitholder's allocable share
of Section 1245 Gain, Section 1231 Gain and Partnership net
taxable income or loss will be reflected on his Schedule K-1
for the partnership year ended September 30, 1996.
Net long-term capital gains of individuals, trusts
and estates will be taxed at a maximum rate of 28%, while
ordinary income (such as Section 1245 gain or Section 1250
gain) will be taxed at a maximum rate depending upon that
Unitholder's taxable income, of up to 39.6%. With respect
to net capital losses, the amount of net long-term capital
loss that can be utilized to offset ordinary income will be
limited to the sum of net capital gains from other sources
recognized by the Unitholder during the tax year, plus
$3,000 ($1,500 in the case of a married individual filing a
separate return). The excess amount of such net long-term
capital loss may be carried forward and utilized in subse-
quent years subject to the same limitations. A corporate
Unitholder cannot deduct net capital losses (i.e., it can
only deduct a capital loss to the extent of its capital
gains). A corporation can carry back a capital loss to each
of the three preceding tax years and can carry the loss
forward for five years subject to the same limitations.
While the issue is not free from doubt, the IRS,
pursuant to Section 291(a) of the Code (which generally
causes additional depreciation recapture for corporate
taxpayers), would likely require a corpo- rate Unitholder to
treat 20% of the portion of the gain on the Sale allocated
to such corporate Unitholder that would otherwise be Section
1231 Gain as ordinary income to the extent of depreciation
claimed, and the following discussion and estimates assumes
such treatment. The total potential amount of Section 291(a)
ordinary income recharacterization for a corporate
Unitholder is approximately $14 per Unit.
All Section 1231 and Section 1245 taxable income
and gain allocated to a Unitholder will be treated as income
from a passive activity and as such can be offset by passive
activity losses, if any, of such Unitholder. In addition,
the Sale should constitute a disposition of substantially
all of a passive activity, thereby entitling a Unitholder to
deduct all suspended passive losses attributable to the
Partnership.
The partnership expects to distirute approximately
$__ per Unit from the Sale proceeds. This distribution will
first reduce a Unitholder's Federal income tax basis in his
Unit, and, to the extent the amount of the distribution is
in excess of that basis, such excess will be taxed as a
long-term or short-term capital gain, depending on a
Unitholder's holding period. If upon the subsequent
termination of the Partnership a Unitholder has a basis
remaining for his Unit, the amount of such remaining basis
will give rise, in the year of the termina- tion, to a
long-term or short-term capital loss, depending on a
Unitholder's holding period. Such capital loss can be used
to offset (i) net Section 1231 Gains that have not been
otherwise recharacterized as ordinary income, and (ii) net
capital gains from all other sources that are recognized in
the year of Sale.
Actual gain amounts may vary from the estimates
set forth above.
Certain State Income Tax Considerations
Because each State's tax law varies, it is impos-
sible to predict the tax consequences to the Unitholders in
all the State tax jurisdictions in which they may be subject
to tax. Accordingly, the following is a general summary of
certain common (but not necessarily uniform) principles of
State income taxation. Unitholder's should consult their
own tax advisors regarding the State income tax consequences
of the Transaction.
State tax consequences to each Unitholder will
depend upon the provisions of the State tax laws to which
the Unitholder is subject. The Partnership will generally
be treated as engaged in business in each of the States in
which the Properties are located, and the Unitholders would
generally be treated as doing business in such States and
therefore subject to tax in such State. Most States modify
or adjust the taxpayer's Federal taxable income to arrive at
the amount of income potentially subject to State tax.
Resident individuals generally pay State tax on 100 percent
of such State-modified income, while corporations and other
taxpayers generally pay State tax only on that portion of
State-modified income assigned to the taxing State under the
State's own apportionment and allocation rules.
General
The discussions set forth above are only a summary
of the material Federal income tax consequences of the
Transaction to the Unitholders and of certain State income
tax considerations. They do not address all potential tax
consequences that may be applicable to a Unitholder, and may
not be applicable to certain categories of Unitholders, such
as non-United States persons, tax-exempt entities or finan-
cial institutions. It also does not address the State,
local or foreign tax consequences of the Transaction. AC-
CORDINGLY, UNITHOLDER'S SHOULD CONSULT THEIR OWN TAX ADVI-
SORS REGARDING THE SPECIFIC INCOME TAX CONSEQUENCES OF THE
TRANSACTION TO THEM, INCLUDING THE APPLICABILITY AND EFFECT
OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
For financial reporting purposes, the transaction
will be treated as a sale of properties and the gain from
the sale will be recorded in the Partnership's Statement of
Operations, reduced by all expenses of sale, including
appraisals, fairness opinion and other professional fees
and transfer taxes. Under generally accepted accounting
principles, the Partnership would realize a gain of
approximately $3.8 million on the Sale.
REASON FOR OBTAINING UNITHOLDER APPROVAL
Pursuant to the Partnership Agreement, the sale of
all or substantially all of the Partnership's assets must be
approved by holders of a majority of the outstanding Units.
THE CONTRACT OF SALE
The following is a summary of the material terms
of the Contract of Sale. This summary does not purport to
be complete and reference is made to the Contract of Sale,
which is attached to this Consent Statement as Annex A and
is incorporated herein by reference. Defined terms used but
not defined herein have the same meaning as in the Contract
of Sale.
THE SALE
The Partnership has entered into the Contract of
Sale with the Buyer pursuant to which it has agreed to sell
the Properties to the Buyer for a purchase price of
$18,000,000. The Buyer has made a downpayment of $1,350,000
(the "Downpayment"), which is being held by the Escrow
Agent. The Contract of Sale provides that upon the terms
and subject to the conditions of the Contract of Sale, the
Closing shall take place three business days following
satisfaction of the conditions to closing.
TITLE AND ENVIRONMENTAL DEFECTS
The Contract of Sale provides that the Buyer may,
within 20 days of delivery of certain title reports and
related documents with respect to the Properties, deliver to
the Partnership written notice setting forth its objections
to any matters encumbering title to the Properties other
than the Permitted Exceptions (generally, immaterial title
defects) (collectively "Title Defects") and within the time
frames set forth below, any Environmental Defects (general-
ly, hazardous materials located in, on or under any of the
Properties in violation of environmental laws). The Title
Defects and the Environmental Defects are sometimes re-
ferred to herein as, the "Defects". With respect to Title
Defects the Partnership shall have the option to (i) cure
any or all of the Title Defects prior to Closing, (ii)
remove such Property from the transaction and adjust the
Purchase Price by the allocated value of the affected Prop-
erty, (iii) grant the Buyer a credit against the Purchase
Price equal to the cost to cure such Title Defects or (iv)
terminate the Contract of Sale, in which latter event,
provided that the Buyer is not in default, the Downpayment,
together with any interest thereon, shall be returned to the
Buyer. With respect to any Environmental Defect, the Part-
nership shall have the option to (i) cure any or all of the
Environmental Defects prior to Closing or (ii) grant the
Buyer a credit against the Purchase Price equal to the cost
to cure such Environmental Defects. If the cost to correct
any Environmental Defect exceeds 10% of the allocated value
of the affected Property, the Partnership shall have the
option to remove such affected Property from the transaction
and adjust the Purchase Price by such allocated value.
The Contract of Sale provides that (i) the Part-
nership shall have the right to adjourn the Closing Date for
such reasonable period, not to exceed sixty days, as shall
be necessary to cure any such Defect and (ii) the Partner-
ship shall have the right, subject to the terms and condi-
tions hereof, to cause the Closing to take place with re-
spect to the other Properties and then to cause the Closing
to take place with respect to the affected Property within
such reasonable period, not to exceed thirty days, as shall
be necessary to cure any such Defect.
In order to establish an Environmental Defect, the
Buyer shall be required to deliver to the Partnership on or
prior to 10 days after (i) the Buyer's receipt of the Phase
I environmental site assessment for each Property or (ii) if
applicable, the Buyer's receipt of a final Phase II environ-
mental assessment for any Property, a report reasonably
detailing any Environmental Defect. The Buyer and the
Partnership have agreed to make reasonable efforts to agree
as to the existence of and the cost to cure any Environmen-
tal Defect. If the Buyer and the Partnership do not agree
on the foregoing within 15 days after the Partnership's
receipt of the Buyer's notice described above, then the
parties shall submit the matter to binding arbitration.
Other than the aforementioned Title and Environ-
mental Defects, the Contract of Sale calls for the sale of
the Properties in an "As Is, Where Is" condition, with no
further adjustment to the purchase price for structural
repairs and deferred maintenance items, if any, or other
factors relating to the physical condition of the Proper-
ties, subject to the Casualty and Condemnation provisions
discussed below.
CLOSING CONDITIONS
The obligations of each party to close under the
Contract of Sale are subject to (i) the approval of the Sale
by the holders of a majority of the Units, (ii) there being
no law or court order preventing the Sale or any litigation
by a governmental entity seeking to prevent the Sale, (iii)
the representations and warranties of the other party being
true and correct in all material respects and (iv) the other
party having performed, in all material respects, its cove-
nants in the Contract of Sale.
REMEDIES
If the Buyer shall elect to proceed with the
performance of the Contract of Sale notwithstanding the
failure to be satisfied of any conditions to Closing, the
Buyer shall be deemed to have waived the requirement that
those conditions be satisfied. The Buyer's sole recourse
for the Partnership's failure to consummate the Closing in
accordance with the terms of the Contract of Sale shall be,
at the Buyer's option, (i) if appropriate, to sue for
specific performance, or (ii) to terminate the Contract of
Sale and receive a "Termination Fee" in an amount equal to
the Buyer's reasonable out of pocket attorneys' fees for
outside counsel incurred by the Buyer in connection with the
transactions contemplated by the Contract of Sale but in no
event to exceed $15,000, which Termination Fee shall be in
addition to the return of the Downpayment plus all accrued
interest thereon and, if the Partnership executes a contract
or letter of intent to sell the Properties within 180 days
from termination of the Contract of Sale, to receive an
amount equal to 1.9% of the purchase price as liquidated
damages. In the event that the Managing General Partner of
the Partnership does not recommend or withdraws its recom-
mendation to the limited partners of the Partnership to vote
to grant the Partnership Consent for any reason other than
as is required by its fiduciary obligations to the Partner-
ship due to a change in circumstances after the date of the
Contract of Sale, the Partnership shall pay to the Buyer an
amount equal to 1.9% of the Purchase Price (plus the Buyer's
expenses, not to exceed $15,000) as liquidated damages,
together with a refund of the Downpayment, and the Partner-
ship shall have no further obligation to the Buyer whatsoev-
er.
If the Buyer shall be unable or unwilling to
consummate the Closing in violation of the terms of the
Contract of Sale, the Partnership shall have the right (i)
to terminate the Contract of Sale and retain the Downpayment
and interest thereon as liquidated and agreed upon damages,
and neither the Partnership nor the Buyer shall have any
further rights or obligations hereunder.
The Contract of Sale further provides that except
as expressly set forth therein, none of the representations
and warranties contained in the Contract shall survive the
Closing.
COVENANTS
The Contract of Sale provides that the Partnership
will not initiate, solicit, negotiate with or provide infor-
mation to any person (other than the Buyer) concerning any
merger, sale of substantial assets out of the ordinary
course of business or similar transaction involving the
Properties to be sold to the Buyer, provided that the Part-
nership may negotiate with or furnish information to a third
party if the Managing General Partner of the Partnership
determines, in its sole discretion, that its fiduciary
duties require it to take such actions.
The Contract of Sale also provides that the Part-
nership shall operate the Properties in the ordinary and
usual course, consistent with past practice.
The Contract of Sale further provides that each
party thereto will use all reasonable efforts to perform all
acts required to consummate the transactions contemplated
thereby as promptly as practicable.
CERTAIN EXPENSES
The Contract of Sale provides that the Partner-
ship shall pay for (a) the cost of any Surveys, the premium
for any title insurance and any other costs of closing and
(b) transfer taxes, documentary stamp taxes, recording
charges and other taxes or charges imposed by any governmen-
tal entity in connection with the transfer of the Proper-
ties. The Contract of Sale also provides that the Partner-
ship shall deliver to the Buyer at the Partnership's sole
cost and expense any (i) Phase I environmental site assess-
ments, (ii) Phase II environmental assessments of the Prop-
erties, (iii) pay for any other Phase II environmental
assessments which are reasonably required by the Phase I
environmental site assessments to be conducted at the Prop-
erties. Each of the parties shall otherwise pay for any and
all costs which it may incur in connection with the Contract
of Sale.
CASUALTY AND CONDEMNATION
The Contract of Sale provides that if, prior to
the Closing Date, any of the Properties is damaged due to a
casualty (a "Casualty") and the cost of repairing such
damage, in accordance with the Partnership's insurance
claims, is less than $100,000, then the Partnership shall
repair such Casualty prior to the Closing Date or assign to
the Buyer the proceeds of the Partnership's policy of casu-
alty insurance and pay to the Buyer the amount of any de-
ductible. If the cost of repairing a Casualty to any Prop-
erty, in accordance with the Partnership's insurance claims,
equals or exceeds $100,000, then the Partnership shall have
the option to repair the Casualty to such Property prior to
Closing to the condition it was in prior to the Casualty or
if the Partnership does not repair the Property, the Buyer
shall have the option to remove such Property from the
transaction and adjust the Purchase Price as hereinafter
provided or have the Partnership assign to the Buyer the
insurance proceeds and pay to the Buyer the amount of any
deductible. Notwithstanding anything herein to the con-
trary, (i) the Partnership shall have the right to adjourn
the Closing Date for such reasonable period as shall be
necessary to repair any such Casualty and (ii) the Partner-
ship shall have the right, subject to the terms and condi-
tions hereof, to cause the Closing to take place with re-
spect to the other Properties and then cause the Closing to
take place with respect to the affected Property within such
reasonable period as shall be necessary to repair any such
Casualty.
If, prior to the Closing Date, all or any portion
of any Property is condemned or taken by eminent domain,
then the Contract of Sale shall nevertheless remain in full
force and effect without any abatement of the Purchase
Price. In such event, the Partnership shall convey such
Property to the Buyer at the Closing in its then condition,
and the Buyer shall be entitled to receive all net or con-
demnation awards otherwise payable to the Partnership as a
result of such loss or damage and, in full satisfaction of
any claims by the Buyer against the Partnership, the Part-
nership shall assign to the Buyer, without recourse or
warranty of any nature whatsoever, all of the Partnership's
right, title and interest in and to any claims the Partner-
ship may have to any condemnation awards, as well as all
rights or pending claims of the Partnership with respect to
such condemnation or taking of such Property, and the Part-
nership shall pay to the Buyer all payments theretofore made
by such condemning authorities as a result of such loss
after deducting therefrom the costs of collection thereof.
TERMINATION
The Contract of Sale may be terminated as follows:
(a) By the Partnership, if during the term of the
Contract of Sale the Partnership has received a bona fide
offer from an unrelated third party which the Managing
General Partner of the Partnership has determined is more
favorable to the Partnership and its partners than the terms
hereof (the "Topping Offer"), provided that the Partnership
has provided the Buyer with at least 5 days written notice
of the terms of such offer and the right to match such
offer, and further provided that the Partnership shall pay
to the Buyer, simultaneously with the acceptance of the
Topping Offer (regardless of whether the sale contemplated
by the Topping Offer is consummated), a "Topping Fee" an
amount equal to 1.9% of the Purchase Price plus an amount
equal to the Buyer's reasonable out of pocket attorney's
fees for outside counsel incurred by the Buyer in connection
with the transactions contemplated by the Contract of Sale
but in no event are the attorney's fees to exceed $15,000.
(b) By the Partnership or the Buyer, if a court
of competent jurisdiction issues a binding and final order
permanently preventing the sale of the Properties to the
Buyer.
(c) By the Partnership or the Buyer, if the
Closing does not occur on or before March 13, 1997, provided
that the party seeking to terminate is not in breach of the
Contract of Sale.
(d) By the Partnership or the Buyer, if the
Unitholders vote not to grant the Consent, provided that, if
(i) the Closing does not occur due to a failure to obtain
the Consent and (ii) the Partnership enters into a contract
or a letter of intent within 180 days after the termination
of the Contract of Sale, to sell the Properties at a price
which exceeds the Purchase Price, the Partnership shall pay
to the Buyer the Topping Fee.
FINAL DISTRIBUTIONS AND LIQUIDATION
As promptly as practicable following the consumma-
tion of the Sale, the Managing General Partner will deter-
mine the amount of assets that it believes will be suffi-
cient to provide for the Partnership's contingent liabili-
ties, if any. The remainder of the Partnership's cash will
be distributed to the Unitholders and the General Partners,
in accordance with the Partnership Agreement, in an initial
liquidating distribution. Once all contingent obligations
have been satisfied, the Partnership will distribute its
remaining net assets, if any, and dissolve.
The Partnership estimates that the total
distribution will be approximately $__ per Unit. This
estimate is based on the factors set forth below. THERE CAN
BE NO ASSURANCES AS TO THE ACTUAL AMOUNTS DISTRIBUTED, OR AS
TO THE AMOUNTS SET FORTH BELOW. ACTUAL AMOUNTS MAY VARY
MATERIALLY FROM THESE FIGURES.
Gross Purchase Price $18,000,000
Partnership Working Capital $601,000
Expenses of Sale $1,741,000
Net Distributable Amount $16,860,000
GP Distributions $--
Net LP Distributable Amount $16,860,000
Per Unit $327
The Net LP Distributable Amount includes $84,000
applicable to equivalent units held by the Individual
General Partners.
NO APPRAISAL RIGHTS
If Unitholders owning a majority of the Units on
the Record Date vote in favor of the Transaction, such
approval will bind all Unitholders. The Partnership Agree-
ment and the Texas Revised Limited Partnership Act, under
which the Partnership is governed, do not give rights of
appraisal or similar rights to Unitholders who dissent from
the vote of the majority in approving or disapproving the
Transaction. Accordingly, dissenting Unitholders do not
have the right to have their Units appraised and to have the
value of their Units returned to them because they disap-
prove of the action of a majority of the Unitholders.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 51,300 Units issued
and outstanding and entitled to consent.
According to publicly available information, as of
July 1, 1996, no person or entity beneficially owns more
than 5% of the outstanding Units.
As of the Record Date, none of the General Part-
ners nor any officer or director thereof owned any Units.
Prudential Securities Incorporated, an affiliate of PB
Properties, owned 180 Units as of the Record Date. Messrs.
Watson and Taylor hold an aggregate of approximately 260
"equivalent units," which entitle them to the economic
benefits of Units, but which do not carry the right to vote.
MARKET PRICES FOR THE PARTNERSHIP'S UNITS AND
DISTRIBUTIONS TO UNITHOLDERS AND THE GENERAL PARTNERS
MARKET PRICE
The Units are not listed on any national or re-
gional securities exchange or quoted on the NASDAQ system,
and there is no established public trading market for the
Units. A significant secondary market has not developed,
and it is not expected that one will develop in the future.
DISTRIBUTIONS
Since the inception of the Partnership through
July __, 1996, the Partnership has made distributions of
$9.0 million, or an average of $175 per Unit, to the
Unitholders, including holders of equivalent units, pursuant
to the terms of the Partnership Agreement. The following
table sets forth the amount of such per Unit cash distribu-
tions paid to Unitholders on or about 45 days after the end
of the specified quarter.
1994
First quarter $4.64
Second quarter 5.96
Third quarter 5.00
Fourth quarter 3.71
1995
First quarter 3.71
Second quarter 3.71
Third quarter 3.71
Fourth quarter 3.71
1996
First quarter 3.71
AVAILABLE INFORMATION
This Consent Statement does not purport to be a
complete description of all agreements and matters relating
to the condition of the Partnership, its Properties and the
transactions described herein. Accompanying this Consent
Statement are the Form 10-K for the year ended December 31,
1995, and Form 10-Q for the quarter ended March 31, 1996,
which provide additional information regarding the Partner-
ship. With respect to statements contained in this Consent
Statement as to the content of any contract or other docu-
ment filed as an exhibit to the Form 10-K and Form 10-Q,
each such statement is qualified in all respects by refer-
ence to such exhibit and the schedules thereto which may be
obtained without charge upon written request to the Partner-
ship. If making such a request, please send it to the
Prudential-Bache/Watson & Taylor, Ltd.-2, One Seaport Plaza,
New York, NY 10292-0116.
The information concerning the Buyer contained
herein was supplied by the Buyer. Although the Partnership
does not have any knowledge that any such information is
untrue, neither the Partnership nor any of its partners
takes any responsibility for the accuracy or completeness of
such information.
All documents filed after the date of this Consent
Statement but before action by consent is taken shall be
deemed to be incorporated by reference into this Consent
Statement. Copies of these documents will be available
without charge upon request to Prudential-Bache/Watson &
Taylor, Ltd.-2 One Seaport Plaza, New York, NY 10292-0116.
Any statement contained in a document incorporated or deemed
to be incorporated by reference in this Consent Statement
shall be deemed to be modified or superseded for purposes of
this Consent Statement to the extent that a statement con-
tained in this Consent Statement (or in any other subse-
quently filed document that also is or is deemed to be
incorporated by reference in this Consent Statement) modi-
fies or supersedes such statement. Any statement so modi-
fied or superseded shall not be deemed, except as so modi-
fied or superseded, to constitute a part of this Consent
Statement.
Annex A
Contract of Sale
DRAFT
FORM OF OPINION
Prudential-Bache Properties, Inc.
Managing General Partner
Prudential-Bache/Watson & Taylor, Ltd.-2
One Seaport Plaza, 16th Floor
New York, New York 10292
Gentlemen:
You have advised us that Prudential-Bache/Watson &
Taylor, Ltd.-2 (the "Partnership") is entering into a trans-
action (the "Sale") in which the eight properties owned by
the Partnership (the "Properties") will be sold to Public
Storage, Inc. (the "Buyer"), for an all-cash purchase price
of $18,000,000 (the "Consideration"). The limited partners
of the Partnership will be asked to approve the Sale.
Prudential-Bache Properties, Inc., in its capacity as
the managing general partner of the Partnership, has re-
quested on behalf of the Partnership that Robert A. Stanger
& Co., Inc. ("Stanger") provided its opinion as to the
fairness to the Partnership, from a financial point of view,
of the Consideration to be received in the Sale.
In the course of our review to render this opinion, we
have, among other things:
* Reviewed the Consent Statement related to the Sale
and filed with the Securities and Exchange Commis-
sion ("SEC") on July __, 1996;
* Reviewed the Contract of Sale between the Partner-
ship and the Buyer, dated June 13, 1996;
* Reviewed the Partnership's annual reports filed
with the SEC on Form 10-K for the three fiscal
years ending December 31, 1993, 1994 and 1995 and
the quarterly reports filed with the SEC on Form
10-Q for the three-month period ending March 31,
1996, which reports the Partnership's management
has indicated to be the most current financial
statements available;
* Reviewed the MAI-certified appraisals of the Prop-
erties owned by the Partnership dated September
30, 1995 performed by Cushman & Wakefield, Inc.
(the "Appraisals");
* Reviewed summary historical operating statements
for each of the Properties for 1995 and the first
quarter of 1996 and operating budgets for 1996;
* Performed site inspections of each of the Proper-
ties owned by the Partnership;
* Reviewed information regarding purchases and sales
of self-storage/office-warehouse properties and
other information relating to acquisition criteria
for self-storage/office-warehouse properties;
* Discussed with management of the Partnership con-
ditions in self-storage/office-warehouse property
markets, conditions in the market for
sales/acquisitions of properties similar to those
owned by the Partnership, current and projected
operations and performance, and the financial
condition of the Partnership;
* Conducted other studies, analyses, inquiries and
investigations as Stanger deemed appropriate.
In rendering this fairness opinion, we have relied upon
and assumed, without independent verification, the accuracy
and completeness of all financial and other information
contained in the Proxy Statement or that was furnished or
otherwise communicated to us by the Partnership and the
property manager. We have not performed an independent
appraisal of the assets and liabilities of the Partnership
and have relied upon and assumed the accuracy of the Ap-
praisals. We have also relied on the assurances of the
Managing General Partner that any financial statements,
projections, budgets, or value estimates contained in the
Consent Statement or otherwise provided to us, were reason-
ably prepared on bases consistent with actual historical
experience and reflecting the best currently available
estimates and good faith judgments; that no material changes
have occurred in the appraised value of the properties or
the information reviewed between the date of the Appraisals
or the date of the other information provided and the date
of this letter, and that the Managing General Partner is not
aware of any information or facts that would cause the
information supplied to us to be incomplete or misleading in
any material respect.
We have not been requested to, and therefore did not:
(i) select the method of determining the Consideration
offered in the Sale, (ii) make any recommendation to the
Unitholders of the Partnership with respect to whether to
approve or reject the Sale or (iii) express any opinion as
to the business decision to effect the Sale, alternatives to
the Sale, or tax factors resulting from the Sale. Our
opinion is based on business, economic, real estate and
securities markets, and other conditions as of the date of
our analysis and addresses the Sale in the context of infor-
mation available as of the date of our analysis. Events
occurring after that date may materially affect the assump-
tions used in preparing the opinion.
Based upon and subject to the foregoing, and in reli-
ance thereon, it is our opinion that as of the date of this
letter the Consideration to be received in the Sale is fair
to the Partnership from a financial point of view.
The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial analy-
sis or summary description. We have advised the Partnership
that our entire analysis must be considered as a whole and
that selecting portions of our analysis and the factors
considered by us, without considering all analyses and
facts, could create an incomplete view of the evaluation
process underlying this opinion.
Yours truly
Robert A. Stanger & Co., Inc.
Shrewsbury, NJ
Annex C
1995 10-K
Annex D
March 1996 10-Q
Annex D
E&Y Tax Letter
[FORM OF FRONT OF CARD]
PRUDENTIAL BACHE/WATSON & TAYLOR, LTD.-2
CONSENT CARD
CONSENT IS SOLICITED ON BEHALF OF PRUDENTIAL-BACHE PROPER-
TIES, INC., THE MANAGING GENERAL PARTNER ("PB PROPERTIES")
OF PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2 (THE "PARTNER-
SHIP"). THE GENERAL PARTNERS RECOMMEND CONSENT ON THE
PROPOSAL.
Unitholders should not send any Certificates with this
Consent Card. Unitholders are urged to mark, sign, date and
mail promptly this Consent Card in the envelope provided.
Consent Card must be received by 10:00 a.m. New York time on
July __, 1996, unless the time is extended.
THIS CARD, IF SIGNED AND RETURNED, SHALL BE DEEMED TO
APPROVE THE PROPOSAL IF NOT INDICATED TO THE CONTRARY.
EACH CONSENT CARD MUST BE SIGNED AND DATED.
Sign exactly as addressed to you. Joint owners should each
sign. If signing as executor, administrator, attorney,
trustee, or guardian, give title as such. If a corporation,
sign in full corporate name by authorized officer. If a
partnership, sign in the name of authorized person.
[FORM OF BACK OF CARD]
SALE OF ASSETS AND LIQUIDATION
The undersigned hereby votes all Units beneficially
owned by the undersigned on the proposed Sale of Assets
and Liquidation as follows:
/ / Approve / / Disapprove / / Abstain
the sale of substantially all of the assets of the
Partnership as contemplated by the Contract of Sale by
and between the Partnership and Public Storage, Inc.
and the complete liquidation and dissolution of the
Partnership, all as more fully described in the Consent
Statement dated July __, 1996.
SIGNATURE
Date:
, 1996
PLEASE SIGN, DATE AND RETURN THIS CONSENT CARD USING
THE ENCLOSED ENVELOPE.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended December 31, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-13518
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1933081
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
corporation or organization)
One Seaport Plaza, New York, N.Y. 10292-0116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
Securities registered pursuant to Section 12(b) of the Act:
None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [CK]
DOCUMENTS INCORPORATED BY REFERENCE
Annual Report to Limited Partners for the year ended December 31, 1995 is
incorporated by reference into Parts I, II and IV of this Annual Report on Form
10-K.
Amended and Restated Certificate and Agreement of Limited Partnership,
included as part of the Registration Statement on Form S-11 (File No. 2-88785)
filed with Securities and Exchange Commission pursuant to Rule 424(b) of the
Securities Act of 1933, as amended, is incorporated by reference into Part IV of
this Annual Report on Form 10-K.
Index to exhibits can be found on pages 9 and 10.
<PAGE>
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1 Business......................................................................... 3
Item 2 Properties....................................................................... 4
Item 3 Legal Proceedings................................................................ 5
Item 4 Submission of Matters to a Vote of Limited Partners.............................. 5
PART II
Item 5 Market for the Registrant's Units and Related Limited Partner Matters............ 5
Item 6 Selected Financial Data.......................................................... 6
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations..................................................................... 6
Item 8 Financial Statements and Supplementary Data...................................... 6
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure..................................................................... 6
PART III
Item 10 Directors and Executive Officers of the Registrant............................... 6
Item 11 Executive Compensation........................................................... 8
Item 12 Security Ownership of Certain Beneficial Owners and Management................... 8
Item 13 Certain Relationships and Related Transactions................................... 8
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Financial Statement Schedules........................... 9
Exhibits......................................................................... 9
Reports on Form 8-K.............................................................. 10
SIGNATURES.................................................................................. 15
</TABLE>
2
<PAGE>
PART I
Item 1. Business
General
Prudential-Bache/Watson & Taylor, Ltd.-2 (the ``Registrant''), a Texas
limited partnership, was formed on November 14, 1983 and will terminate on
December 31, 2050 unless terminated sooner under the provisions of the Amended
and Restated Certificate and Agreement of Limited Partnership (the
``Partnership Agreement''). The Registrant was formed for the purpose of
acquiring, developing, owning and operating mini-storage and business center
facilities with the proceeds raised from the initial sale of units of limited
partnership interest (``Units''). The Registrant's fiscal year for book and tax
purposes ends on December 31.
The Registrant operates eight improved properties, five of which are business
center facilities with mini-warehouses and three of which are solely
mini-warehouse facilities. For more information regarding the Registrant's
properties, see Item 2 Properties. For more information regarding the
Registrant's operations, see Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Registrant's Annual Report
to Limited Partners for the year ended December 31, 1995 (``Registrant's Annual
Report'') which is filed as an exhibit hereto. The Registrant is engaged solely
in the business of real estate investment; therefore, presentation of industry
segment information is not applicable.
On December 15, 1995, the Management Committee of the Registrant determined
to seek bids for all of the properties held by the Registrant. As of March 22,
1996, preliminary bids have been received for all properties. If bids for the
properties are deemed acceptable by the Registrant, the Registrant intends to
enter into agreements to sell the properties, subject to the approval of the
limited partners owning a majority of the Units as required by the Partnership
Agreement. If such sales are approved and consummated, the Registrant will
liquidate and distribute its net assets to its partners. There can, of course,
be no assurance that acceptable bids will be received or that any transactions
will be consummated.
General Partners
The general partners of the Registrant are Prudential-Bache Properties, Inc.
(``PBP''), George S. Watson and A. Starke Taylor, Ill (collectively, the
``General Partners''). PBP is the Managing General Partner and is responsible
for the day-to-day operations of the Registrant and its investments. See Note E
of the financial statements in the Registrant's Annual Report which is filed as
an exhibit hereto.
Competition
The General Partners and/or their affiliates have formed, and may continue to
form, various entities to engage in businesses which may be competitive with the
Registrant.
The Registrant competes with national and regional real estate owners and
operators, some of whom have more experience and resources than the Registrant.
Such owners and operators may include insurance companies, mortgage banks,
pension funds, and other real estate investors, including foreign investors,
syndicated partnerships, and real estate investment trusts. The primary factors
affecting a particular property's ability to successfully compete against other
properties include the location of such property, the suitability of its design
to a prospective tenant's needs, the manner in which it is managed and marketed,
and rental rates. The extent to which the Registrant is affected by competition
will depend, in part, on existing market conditions. The property managers,
Public Storage Management, Inc. and Public Storage Commercial Properties Group,
Inc., manage other properties which compete with the Registrant's properties
within the same geographical area.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. The General Partners and/or their
affiliates receive compensation and reimbursement of expenses in connection with
such activities as described in section 11.7 of the Partnership Agreement. See
Note E of the financial statements in the Registrant's Annual Report which is
filed as an exhibit hereto.
3
<PAGE>
Item 2. Properties
As of December 31, 1995 the Registrant owns the following properties:
<TABLE>
<CAPTION>
Average
Occupancy Rates Monthly
for the year Rental Rates
ended Per Unit
December 31, Land Rentable as of December 31,
Property Location 1995(1) (in acres) Units 1995
- -------------------------------- ----------------- ---------- -------- ----------------------
<S> <C> <C> <C> <C>
Arlington (Arlington, Texas)
Mini-warehouse 90.8% 6.25 293 $ 19 - $107
Commercial 81 $ 125 - $950
--------
374
--------
Arapaho (Richardson, Texas)
Mini-warehouse 94.3 6.01 417 $ 19 - $315
Commercial 62 $ 225 - $790
--------
479
--------
South May/I-240 (Oklahoma City,
Oklahoma)
Mini-warehouse 86.4 3.05 379 $ 15 - $ 79
Commercial 15 $ 166 - $1,080
--------
394
--------
Santa Fe/79th St. (Oklahoma
City, Oklahoma)
Mini-warehouse 87.9 3.40 389 $ 24 - $143
--------
South May/44th St. (Oklahoma
City, Oklahoma)
Mini-warehouse 96.6 2.67 500 $ 13 - $63
--------
Timbercrest (Tulsa, Oklahoma)
Mini-warehouse 95.4 6.08 120 $ 34 - $155
Commercial 73 $ 220 - $790
--------
193
--------
Cherry Hill (Cherry Hill, New
Jersey)
Mini-warehouse 89.5 3.17 331 $ 29 - $415
--------
Hampton Park (Capitol Heights,
Maryland)
Mini-warehouse 92.9 5.87 130 $ 29 - $280
Commercial 68 $ 250 - $950
--------
198
--------
2,858
--------
--------
- ------------------------------------------------------------------------------------------------------------
(1) Average occupancy rates are calculated by averaging the monthly occupancies determined by dividing
occupied square footage by available square footage as of each month-end.
</TABLE>
The Managing General Partner believes the Registrant's Properties are
adequately insured.
4
<PAGE>
<PAGE>
For the years ended December 31, 1995, 1994 and 1993, the following
properties' rental revenue exceeded 15% of the Registrant's total revenue:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Arapaho 19% 19% 20%
Arlington 17 18 18
</TABLE>
No single tenant accounted for 10% or more of the total revenue for any of
the three years in the period ended December 31, 1995.
For additional information describing the Registrant's properties, see
Supplementary Schedule III--Real Estate and Accumulated Depreciation on page 13
in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 3. Legal Proceedings
This information is incorporated by reference to Note G of the financial
statements of the Registrant's Annual Report which is filed as an exhibit
hereto.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5.Market for the Registrant's Units and Related Limited Partner Matters
As of March 1, 1996, there were 3,625 holders of record owning 51,818 Units,
inclusive of 258, 130 and 130 equivalent limited partnership units held by PBP
and Messrs. Watson and Taylor, respectively. A significant secondary market for
the Units has not developed, and it is not expected that one will develop in the
future. There are also certain restrictions set forth in Section 17.3 of the
Partnership Agreement limiting the ability of a limited partner to transfer
Units. Consequently, holders of Units may not be able to liquidate their
investments in the event of an emergency or for any other reason.
The following per Unit cash distributions were paid to limited partners on or
about 45 days after the end of the specified quarter.
<TABLE>
<CAPTION>
Quarter Ended 1995 1994
- --------------- ----- -----
<S> <C> <C>
March 31 $3.71 $4.64
June 30 3.71 5.96
September 30 3.71 5.00
December 31 3.71 3.71
</TABLE>
Distributions for the years ended December 31, 1995 and 1994 were made from
current and previously undistributed cash generated by the operations of the
Registrant's properties. Limited partner distributions were approximately
$766,000 and $1,034,000 for the years ended December 31, 1995 and 1994,
respectively. The amount of limited partner distributions that represented a
return of capital on a generally accepted accounting principles (GAAP) basis was
approximately $282,000 and $635,000 for the years ended 1995 and 1994,
respectively (return of capital on a GAAP basis is calculated as limited partner
distributions less net income allocated to limited partners). There are no
material restrictions upon the Registrant's present or future ability to make
distributions in accordance with the provisions of the Partnership Agreement.
The Registrant currently expects that recurring quarterly cash distributions
will continue to be paid in the foreseeable future from property operations. For
discussion of other factors that may affect the amounts of future distributions,
see Management's Discussion and Analysis of Financial Condition and Results of
Operations on pages 10 and 11 of the Registrant's Annual Report which is filed
as an exhibit hereto.
5
<PAGE>
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto on pages 2 through 9 of the Registrant's Annual
Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended December 31,
-------------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- -----------
Total revenues $ 2,841,354 $ 2,615,970 $ 2,461,721 $ 2,400,913 $ 2,436,405
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Provision for loss on
impairment of assets $ -- $ -- $ -- $ -- $ 1,418,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) $ 489,304 $ 402,785 $ 347,081 $ 355,077 $(1,064,271)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited partner income (loss)
per Unit $ 9.40 $ 7.73 $ 6.66 $ 6.82 $ (18.90)
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total assets $14,086,449 $14,263,400 $15,072,631 $15,732,923 $16,362,156
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total distributions $ 773,886 $ 1,044,203 $ 886,930 $ 1,077,008 $ 1,247,987
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited partner distributions
per Unit $ 14.86 $ 20.05 $ 17.03 $ 20.68 $ 23.85
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
- ----------------------------------------------------------------------------------------------------
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 10 and 11 of the
Registrant's Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 9
of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The
Registrant is managed by the Managing General Partner.
The Registrant, the Registrant's General Partners, PBP's directors and
executive officers and any persons holding more than ten percent of the
Registrant's Units are required to report their initial ownership of such Units
and any subsequent changes in that ownership to the Securities and Exchange
Commission on Forms 3, 4 and 5. Such General Partners, executive officers,
directors and other persons who own greater than ten percent of the Registrant's
Units are required by Securities and Exchange Commission regulations to furnish
the Registrant with copies of all Forms 3, 4 or 5 they file. All of these
requirements were satisfied on a timely basis. In making these disclosures, the
Registrant has relied solely on written representations of the General Partners,
PBP's directors and executive officers and other persons who own greater than
ten percent of the Registrant's Units or copies of the reports they have filed
with the Securities and Exchange Commission during and with respect to its most
recent fiscal year.
6
<PAGE>
Prudential-Bache Properties, Inc., Managing General Partner
The directors and executive officers of PBP and their positions with regard
to managing the Registrant are as follows:
<TABLE>
<CAPTION>
Name Position
<S> <C>
Thomas F. Lynch, III President, Chief Executive Officer,
Chairman of the Board of Directors and Director
Barbara J. Brooks Vice President--Finance and Chief Financial Officer
Eugene D. Burak Vice President and Chief Accounting Officer
Chester A. Piskorowski Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
</TABLE>
THOMAS F. LYNCH, III, age 37, is the President, Chief Executive Officer,
Chairman of the Board of Directors and a Director of PBP. He is a Senior Vice
President of Prudential Securities Incorporated (``PSI''), an affiliate of PBP.
Mr. Lynch also serves in various capacities for other affiliated companies. Mr.
Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 47, is the Vice President--Finance and Chief Financial
Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in
various capacities for other affiliated companies. She has held several
positions within PSI since 1983. Ms. Brooks is a certified public accountant.
EUGENE D. BURAK, age 50, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 52, is a Vice President of PBP. He is a Senior
Vice President of PSI and is the Senior Manager of the Specialty Finance Asset
Management area. Mr. Piskorowski has held several positions within PSI since
April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 53, is a Director of PBP. He is a Senior Vice
President of PSI and an Executive Vice President and General Counsel of
Prudential Mutual Fund Management, Inc., an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.
NATHALIE P. MAIO, age 45, is a Director of PBP. She is a Senior Vice
President and Deputy General Counsel of PSI and supervises non-litigation legal
work for PSI. She joined PSI's Law Department in 1983; presently, she also
serves in various capacities for other affiliated companies.
James M. Kelso ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director effective June 30, 1995.
Effective June 30, 1995,Thomas F. Lynch, III was elected President, Chief
Executive Officer, Chairman of the Board of Directors and Director. Robert J.
Alexander ceased to serve as Vice President effective August 25, 1995. Eugene D.
Burak was elected Vice President effective October 9, 1995.
There are no family relationships among any of the foregoing directors or
executive officers. All of the foregoing directors and executive officers have
indefinite terms.
Individual General Partners
George S. Watson, age 55, is a financial specialist and a certified public
accountant. He is also a member of the board of directors of Lyco Energy
Corporation as well as the Advisory Council of the University of Texas Business
School and a member of its Chancellor's Council. Mr. Watson attended the
University of Texas in Austin, graduating summa cum laude in 1963 with a B.B.A.
in accounting and finance. He received his M.B.A. in accounting and finance from
the University of Texas in 1965, graduating first in his class and
7
<PAGE>
summa cum laude. He has received various awards and scholarships and is a member
of many fraternal organizations including Phi Kappa Phi, the honorary scholastic
fraternity.
A. Starke Taylor, III, age 52, holds a bachelor of business administration
degree from Southern Methodist University which was awarded in 1966. He is past
president of the North Dallas Chamber of Commerce. Active in the community, Mr.
Taylor is the chairman of the board of Priority One, an international missionary
organization, the founding chairman of the board of the Park Central Athletic
Association, a member of the Dallas regional board of the Salvation Army, and a
board member of the Dallas Theological Seminary. Mr. Taylor was recognized in
1983 by D Magazine as one of Dallas' 10 most outstanding young business leaders.
There are no family relationships among any of the foregoing individual
General Partners.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to either individual General Partner or to directors and officers
of the Managing General Partner for their services. Certain officers and
directors of the Managing General Partner receive compensation from affiliates
of the Managing General Partner, not from the Registrant, for services performed
for various affiliated entities, which may include services performed for the
Registrant; however, the Managing General Partner believes that any compensation
attributable to services performed for the Registrant is immaterial. See also
Item 13 Certain Relationships and Related Transactions for information regarding
reimbursement to the General Partners for services provided to the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 1, 1996 no individual General Partner or director or officer of
the Managing General Partner owns directly or beneficially any interest in the
voting securities of the Managing General Partner.
As of March 1, 1996, no individual General Partner or director or officer of
the Managing General Partner owns directly or beneficially any of the Units
issued by the Registrant. However, the General Partners have contributed to the
Registrant and, based on such contribution, they received ``equivalent units''
entitling them to participate in the distributions to the limited partners and
in the Registrant's profits and losses in the same proportion that the General
Partners' capital contribution bears to the total capital contributions of the
limited partners. The Managing General Partner has retained its right to receive
funds from the Registrant, such as General Partner distributions and
reimbursement of expenses, but has waived its right to share in any limited
partner cash distributions and allocation of Registrant's profits and losses
based upon such equivalent units.
As of March 1, 1996, no limited partner beneficially owns more than five
percent (5%) of the outstanding Units issued by the Registrant.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
General Partners and their affiliates. However, there were no direct financial
transactions between the Registrant and the individual General Partners or the
directors or officers of the Managing General Partner in 1995.
Reference is made to Notes A and E of the financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto, which identify
the related parties and discuss the services provided by these parties and the
amounts paid or payable for their services.
8
<PAGE>
PART IV
<TABLE>
<CAPTION>
Page
Number
in Annual
Report
---------
<S> <C> <C> <C>
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Report of Independent Auditors--Incorporated by
reference to the Registrant's Annual Report which is filed as an exhibit
hereto
Report of Independent Auditors 2
Financial Statements:
Statements of Financial Condition--December 31, 1995 and 1994 3
Statements of Operations--Three years ended December 31, 1995 4
Statements of Changes in Partners' Capital--Three years ended December 31, 4
1995
Statements of Cash Flows--Three years ended December 31, 1995 5
Notes to Financial Statements 6
2. Financial Statement Schedules and Consent of Independent Auditors
Consent of Independent Auditors
Schedules:
II--Valuation and Qualifying Accounts and Reserves--Three years ended
December 31, 1995
III--Real Estate and Accumulated Depreciation at December 31, 1995
Notes to Schedule III--Real Estate and Accumulated Depreciation
All other schedules have been omitted because they are not applicable or the
required information is included in the financial statements and the notes
thereto.
3. Exhibits
Description:
3.01 Amended and Restated Certificate and Agreement of Limited Partnership
(1)
3.02 Amendment Number 8 to the Amended and Restated Certificate and
Agreement of Limited Partnership (2)
4.01 Revised Form of Certificate of Limited Partnership Interest (3)
10.01 Management Agreement (1)
10.02 Property Management Agreement dated as of November 1, 1988 by and
between the Registrant and Public Storage Commercial Properties Group,
Inc. (3)
10.03 Property Management Agreement dated as of November 1, 1988 by and
between the Registrant and Public Storage Management, Inc. (3)
10.04 Agreement Relating to General Partner Interests (1)
</TABLE>
9
<PAGE>
<TABLE>
<S> <C> <C> <C>
13.01 Annual Report to Limited Partners for the year ended December 31, 1995
(4) (with the exception of the information and data incorporated by
reference in Items 3, 7 and 8 of this Annual Report on Form 10-K, no
other information or data appearing in the Registrant's Annual Report
is to be deemed filed as part of this report.)
27. Financial Data Schedule (4)
(b) Reports on Form 8-K
Registrant's Current Report on Form 8-K dated December 6, 1995, as filed
with the Securities and Exchange Commission on December 6, 1995, relating to
Item 5 regarding the communication of certain information to the limited
partners.
Registrant's Current Report on Form 8-K dated December 15, 1995, as filed
with the Securities and Exchange Commission on December 26, 1995, relating
to Item 5 regarding the intention of the Partnership to solicit bids for the
Partnership's properties.
</TABLE>
- ------------------
(1) Filed as an exhibit to Registration Statement on Form S-11 (No. 2-88785)
and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Form 10-Q for the quarter ended March
31, 1990 and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form 10-K for the year ended December
31, 1988 and incorporated herein by reference.
(4) Filed herewith.
10
<PAGE>
CONSENT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-2
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Prudential-Bache/Watson & Taylor, Ltd.-2 of our report dated February 16,
1996, included in the 1995 Annual Report to Limited Partners of
Prudential-Bache/Watson & Taylor, Ltd.-2.
Our audits also included the financial statement schedules of
Prudential-Bache/Watson & Taylor, Ltd.-2 listed in Item 14(a). These schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion based on our audits. In our opinion, the financial statement
schedules referred to above, when considered in relation to the basic financial
statements taken as a whole, present fairly in all material respects the
information set forth therein.
Ernst & Young LLP
New York, New York
March 29, 1996
11
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
<TABLE>
- -------------------------------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
Deductions - Amounts
Year Ended Balance at Additions - Amounts Written-off During Balance at
December 31, Beginning of Year Reserved During Year Year End of Year
- ------------ ----------------- -------------------- -------------------- -----------
<S> <C> <C> <C> <C>
1993 $ 1,418,000 -- -- $ 1,418,000
1994 $ 1,418,000 -- -- $ 1,418,000
1995 $ 1,418,000 -- -- $ 1,418,000
- -------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
<TABLE>
<CAPTION>
Initial cost to
Registrant Costs Gross amount at which carried at
(Note B) capitalized close of period
----------------------------- subsequent ---------------------------------------------
Description Buildings and to Buildings and Total
(Note A) Land improvements acquisition Land improvements (Note C)
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------- ---------- -------------- ------------ ---------- -------------- -----------
Arlington
(Arlington, Texas) $ 886,569 $1,769,760 $ 1,735,255 $ 886,569 $ 3,505,015 $ 4,391,584
Arapaho
(Richardson, Texas) 664,196 963,980 1,925,005 666,834 2,886,347 3,553,181
South May/I-240
(Oklahoma City, Oklahoma) 428,878 -- 1,623,671 428,878 1,623,671 2,052,549
Sante Fe/79th St.
(Oklahoma City, Oklahoma) 207,497 1,044,865 168,421 207,497 1,213,286 1,420,783
South May/44th St.
(Oklahoma City, Oklahoma) 178,086 995,949 117,902 178,086 1,113,851 1,291,937
Timbercrest
(Tulsa, Oklahoma) 1,443,197 -- 2,744,414 1,443,197 2,744,414 4,187,611
Cherry Hill
(Cherry Hill, New Jersey) 165,570 1,339,597 201,266 165,570 1,540,863 1,706,433
Hampton Park
(Capitol Heights, Maryland) 925,595 -- 3,262,551 926,441 3,261,705 4,188,146
---------- -------------- ------------ ---------- -------------- -----------
$4,899,588 $6,114,151 $11,778,485 $4,903,072 $ 17,889,152 $22,792,224
---------- -------------- ------------ ---------- -------------- -----------
---------- -------------- ------------ ---------- -------------- -----------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Life on
depreciation
in latest
Accumulated Statement of
Description depreciation Date(s) of Date Operations
(Note A) (Note D) construction acquired is computed
<S> <C> <C> <C> <C>
- ----------------------------- ------------- ------------- -------- ------------
Arlington 5 to
(Arlington, Texas) $ 1,751,544 1984 1984 25 years
Arapaho 5 to
(Richardson, Texas) 1,333,300 1984 1984 25 years
South May/I-240 5 to
(Oklahoma City, Oklahoma) 720,560 1984/85 1984 25 years
Sante Fe/79th St. 5 to
(Oklahoma City, Oklahoma) 583,872 1982 1984 25 years
South May/44th St. 5 to
(Oklahoma City, Oklahoma) 537,020 1982 1984 25 years
Timbercrest 5 to
(Tulsa, Oklahoma) 1,275,978 1984/85 1984 25 years
Cherry Hill 5 to
(Cherry Hill, New Jersey) 809,259 1974 1983 25 years
Hampton Park 5 to
(Capitol Heights, Maryland) 1,263,440 1985/86 1984 25 years
-------------
$ 8,274,973
-------------
-------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See notes on the following page
13
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO SCHEDULE III
December 31, 1995
NOTE A--There are no mortgages, deeds of trust or similar encumbrances against
any of the properties.
NOTE B--Initial cost represents the initial purchase price of the properties
including acquisition fees.
<TABLE>
<CAPTION>
NOTE C--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE OWNED
Year ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year.......................... $22,623,910 $22,494,603 $22,357,361
Net additions during the year......................... 168,314 129,307 137,242
----------- ----------- -----------
Balance at close of year.............................. $22,792,224 $22,623,910 $22,494,603
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
An allowance for loss on impairment is provided for the above assets in the
amount of $1,418,000.
The aggregate cost of land, buildings and improvements and furniture and
fixtures for Federal income tax purposes for the tax year ended December 31,
1995 was $22,793,988.
<TABLE>
<CAPTION>
NOTE D--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
Year ended December 31,
-------------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of year.......................... $ 7,511,313 $ 6,778,084 $ 6,062,723
Depreciation during the year charged to expense....... 763,660 733,229 715,361
----------- ----------- -----------
Balance at close of year.............................. $ 8,274,973 $ 7,511,313 $ 6,778,084
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
14
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-2
<TABLE>
<S> <C>
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Eugene D. Burak Date: March 29, 1996
-----------------------------------------------------------------
Eugene D. Burak
Vice President and
Chief Accounting Officer
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partners) and on
the dates indicated.
<TABLE>
<S> <C>
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Thomas F. Lynch, III Date: March 29, 1996
------------------------------------------------------------------
Thomas F. Lynch, III
President, Chief Executive Officer and
Chairman of the Board of Directors
By: /s/ Barbara J. Brooks Date: March 29, 1996
------------------------------------------------------------------
Barbara J. Brooks
Vice President-Finance and
Chief Financial Officer
By: /s/ Eugene D. Burak Date: March 29, 1996
------------------------------------------------------------------
Eugene D. Burak
Vice President
By: /s/ Frank W. Giordano Date: March 29, 1996
------------------------------------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: March 29, 1996
------------------------------------------------------------------
Nathalie P. Maio
Director
</TABLE>
15
<PAGE>
1995 ANNUAL REPORT
<PAGE>
1995
- --------------------------------------------------------------------------------
Prudential-Bache/ Annual
Watson & Taylor, Ltd.-2 Report
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
1995 Annual Report
1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-2
We have audited the accompanying statements of financial condition of
Prudential-Bache/Watson & Taylor, Ltd.-2 as of December 31, 1995 and 1994, and
the related statements of operations, changes in partners' capital, and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial condition of Prudential-Bache/Watson &
Taylor, Ltd.-2 as of December 31, 1995 and 1994, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1995, in conformity with generally accepted accounting principles.
As discussed in Note B to the financial statements, in 1995, the Partnership
changed its method of accounting for the carrying value of real estate by
adopting Statement of Financial Accounting Standards No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
Ernst & Young LLP
New York, New York
February 16, 1996
2
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
<S> <C> <C>
- ----------------------------------------------------------------------------------------------------
ASSETS
Land $ 4,903,072 $ 4,903,072
Buildings and improvements 17,407,397 17,246,589
Furniture, fixtures and equipment 481,755 474,249
Less: Accumulated depreciation (8,274,973 ) (7,511,313 )
Allowance for loss on impairment of assets (1,418,000 ) (1,418,000 )
------------ ------------
Property 13,099,251 13,694,597
Cash and cash equivalents 957,903 547,459
Other assets 29,295 21,344
------------ ------------
Total assets $14,086,449 $14,263,400
------------ ------------
------------ ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 114,004 $ 76,563
Accrued real estate taxes 105,458 99,405
Deposits due to tenants 88,910 62,660
Due to affiliates, net 66,280 24,557
Unearned rental income 46,166 50,002
------------ ------------
Total liabilities 420,818 313,187
------------ ------------
Contingencies
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,729,712 14,011,448
General partners (64,081 ) (61,235 )
------------ ------------
Total partners' capital 13,665,631 13,950,213
------------ ------------
Total liabilities and partners' capital $14,086,449 $14,263,400
------------ ------------
------------ ------------
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 2,822,490 $2,604,144 $2,451,667
Interest 18,864 11,826 10,054
--------------- ---------- ----------
2,841,354 2,615,970 2,461,721
--------------- ---------- ----------
EXPENSES
Property operating 1,039,761 938,587 904,712
Depreciation 763,660 733,229 715,361
General and administrative 298,370 277,636 243,939
Real estate taxes 250,259 263,733 250,628
--------------- ---------- ----------
2,352,050 2,213,185 2,114,640
--------------- ---------- ----------
Net income $ 489,304 $ 402,785 $ 347,081
--------------- ---------- ----------
--------------- ---------- ----------
ALLOCATION OF NET INCOME
Limited partners $ 484,411 $ 398,757 $ 343,610
General partners 4,893 4,028 3,471
--------------- ---------- ----------
$ 489,304 $ 402,785 $ 347,081
--------------- ---------- ----------
--------------- ---------- ----------
Net income per limited partnership unit $ 9.40 $ 7.73 $ 6.66
--------------- ---------- ----------
--------------- ---------- ----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31, 1992 $15,180,890 $(49,410 ) $15,131,480
Net income 343,610 3,471 347,081
Distributions (878,048) (8,882 ) (886,930)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1993 14,646,452 (54,821 ) 14,591,631
Net income 398,757 4,028 402,785
Distributions (1,033,761) (10,442 ) (1,044,203)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1994 14,011,448 (61,235 ) 13,950,213
Net income 484,411 4,893 489,304
Distributions (766,147) (7,739 ) (773,886)
----------- --------- -----------
Partners' capital (deficit)--December 31, 1995 $13,729,712 $(64,081 ) $13,665,631
----------- --------- -----------
----------- --------- -----------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended December 31,
----------------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 2,836,953 $ 2,643,526 $2,388,310
Interest received 18,864 11,826 10,054
General and administrative expenses paid (235,304) (357,496) (240,197)
Property operating expenses paid (1,023,664) (1,000,891) (990,453)
Real estate taxes paid (244,205) (261,994) (267,410)
--------------- ----------- ----------
Net cash provided by operating activities 1,352,644 1,034,971 900,304
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (168,314) (129,307) (137,242)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (773,886) (1,063,610) (878,048)
--------------- ----------- ----------
Net increase (decrease) in cash and cash equivalents 410,444 (157,946) (114,986)
Cash and cash equivalents at beginning of year 547,459 705,405 820,391
--------------- ----------- ----------
Cash and cash equivalents at end of year $ 957,903 $ 547,459 $ 705,405
--------------- ----------- ----------
--------------- ----------- ----------
- ------------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY
OPERATING ACTIVITIES
Net income $ 489,304 $ 402,785 $ 347,081
--------------- ----------- ----------
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 763,660 733,229 715,361
Changes in:
Other assets (7,951) 47,363 (32,813)
Accounts payable and accrued expenses 37,441 (94,526) (145,078)
Accrued real estate taxes 6,053 1,739 (16,782)
Due to affiliates, net 41,723 (47,638) 23,079
Deposits due to tenants 26,250 (1,997) 33,789
Unearned rental income (3,836) (5,984) (24,333)
--------------- ----------- ----------
Total adjustments 863,340 632,186 553,223
--------------- ----------- ----------
Net cash provided by operating activities $ 1,352,644 $ 1,034,971 $ 900,304
--------------- ----------- ----------
--------------- ----------- ----------
- ------------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Distributions to partners $ (773,886) $(1,044,203) $ (886,930)
Increase (decrease) in distribution payable -- (19,407) 8,882
--------------- ----------- ----------
Distributions paid to partners $ (773,886) $(1,063,610) $ (878,048)
--------------- ----------- ----------
--------------- ----------- ----------
- ------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
5
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited Partnership)
NOTES TO FINANCIAL STATEMENTS
A. General
Prudential-Bache/Watson & Taylor, Ltd.-2 (the ``Partnership'') is a Texas
limited partnership formed on November 14, 1983 which will terminate on December
31, 2050 unless terminated sooner under the provisions of the Amended and
Restated Certificate and Agreement of Limited Partnership (the ``Partnership
Agreement''). The Partnership was formed for the purpose of acquiring, owning,
developing and operating mini-storage and business center facilities. The
general partners of the Partnership are Prudential-Bache Properties, Inc.
(``PBP''), a wholly-owned subsidiary of Prudential Securities Group Inc., George
S. Watson, and A. Starke Taylor, III (collectively, the ``General Partners'').
PBP is the Managing General Partner and is responsible for the day-to-day
operations of the Partnership and its investments. At December 31, 1995, the
Partnership owned eight properties.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles. The
preparation of financial statements in conformity with generally accepted
accounting principles requires the General Partners to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Certain balances from prior years have been reclassified to conform with the
current year's financial statement presentation.
Property
Effective December 31, 1995, the Partnership adopted Statement of Financial
Accounting Standards (``SFAS'') No. 121, ``Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of.'' Under SFAS No.
121, impairment of properties to be held and used is determined to exist when
estimated amounts recoverable through future operations on an undiscounted basis
are below the properties' carrying value. If a property is determined to be
impaired, it should be recorded at the lower of its carrying value or its
estimated fair value. For properties that are held for sale, SFAS No. 121 states
that they should be recorded at the lower of carrying amount or estimated fair
value less costs to sell. On December 15, 1995, the Management Committee of the
Partnership determined to seek bids for all of the properties held by the
Partnership. Accordingly, effective December 31, 1995, the Partnership has
reclassified its properties from held for use to held for sale and has ceased
depreciating the properties for financial statement purposes only. The adoption
of SFAS No. 121 had no material effect on the financial position of the
Partnership as of December 31, 1995.
The determination of estimated fair value is based, not only upon future cash
flows, which rely upon estimates and assumptions including expense growth,
occupancy and rental rates, but also upon market capitalization and discount
rates as well as other market indicators. The General Partners believe that the
estimates and assumptions used are appropriate in evaluating the carrying amount
of the Partnership's properties. However, changes in market conditions and
circumstances may occur in the near term which would cause these estimates and
assumptions to change, which, in turn, could cause the amounts ultimately
realized upon the sale or other disposition of the properties to differ
materially from their estimated fair value. Such changes may also require
write-downs in future years.
Prior to December 31, 1995, the Partnership carried its property investments
at the lower of depreciated cost or estimated amounts recoverable through future
operations and ultimate disposition of the property. Property investments were
depreciated or amortized using the straight-line method over their estimated
economic lives which range from 5 to 25 years depending on property type. A
provision for loss on impairment of assets was recorded when estimated amounts
recoverable through future operations and ultimate disposition of the property
on a undiscounted basis were below depreciated cost.
6
<PAGE>
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market value.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
Net income from operations is allocated 99% to the limited partners and 1% to
the General Partners. Net loss from operations is allocated 92% to the limited
partners and 8% to the General Partners.
Cash from operations is being distributed 99% to the limited partners and 1%
to the General Partners. Proceeds from the sale of the properties and
liquidation of the Partnership will be distributed in accordance with the
Partnership Agreement.
Net income per limited partnership unit is based on 51,560 limited and
equivalent units outstanding, which excludes 258 equivalent units held by PBP
(see Note E) for which PBP has waived all of its rights therein. Per unit
amounts for 1993 have been restated to eliminate the equivalent units held by
PBP.
C. Property
The Partnership's property is comprised of the following:
<TABLE>
<CAPTION>
December 31,
---------------------------
<S> <C> <C>
1995 1994
----------- -----------
Arlington-Arlington, Texas $ 2,640,040 $ 2,751,933
Arapaho-Richardson, Texas 2,219,881 2,333,594
South May/I-240-Oklahoma City, Oklahoma 1,331,989 1,392,284
Santa Fe/79th St.-Oklahoma City,
Oklahoma 836,911 845,778
South May/44th St.-Oklahoma City,
Oklahoma 754,917 757,343
Timbercrest-Tulsa, Oklahoma 2,911,633 3,032,380
Cherry Hill-Cherry Hill, New Jersey 897,174 939,270
Hampton Park-Capitol Heights, Maryland 2,924,706 3,060,015
----------- -----------
14,517,251 15,112,597
Less: allowance for loss on
impairment of assets (1,418,000) (1,418,000)
----------- -----------
$13,099,251 $13,694,597
----------- -----------
----------- -----------
</TABLE>
For the years ended December 31, 1995, 1994 and 1993, the following
properties' rental revenue exceeded 15% of the Partnership's total revenue:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Arapaho 19% 19% 20%
Arlington 17 18 18
</TABLE>
No single tenant accounted for 10% or more of the total revenue for any of
the three years in the period ended December 31, 1995.
D. Minimum Future Lease Revenues
The Partnership earns a majority of its rental income from month-to-month and
other short-term leasing arrangements. The Partnership also has certain
noncancellable operating leases on the Partnership's properties. The minimum
future rental revenues receivable under these noncancellable operating leases at
the Partnership's improved properties are approximately $205,000 and $41,000 for
the years ending December 31, 1996 and 1997, respectively.
7
<PAGE>
E. Related Parties
PBP and its affiliates perform services for the Partnership which include,
but are not limited to: accounting and financial management, transfer and
assignment functions, asset management, investor communications, printing and
other administrative services. PBP and its affiliates receive reimbursements for
costs incurred in connection with these services, the amount of which is limited
by the provisions of the Partnership Agreement. The costs and expenses incurred
on behalf of the Partnership which are reimbursable to PBP and its affiliates
for the years ended December 31, 1995, 1994 and 1993 were approximately $104,000
$95,000 and $101,000, respectively.
Affiliates of Messrs. Watson and Taylor, the individual General Partners,
also perform certain administrative and monitoring functions on behalf of the
Partnership. In 1994, the Partnership recorded approximately $31,000 for the
reimbursement of certain prior periods' general, administrative and monitoring
expenses incurred by affiliates of the individual General Partners.
Approximately $24,000 was incurred in 1995.
PBP and the individual General Partners of the Partnership, own 258, 130 and
130 equivalent limited partnership units, respectively. PBP receives funds from
the Partnership, such as General Partner distributions and reimbursement of
expenses, but waived all of its rights resulting from its ownership of
equivalent limited partnership units. Accordingly, limited partner distributions
per Unit and net income per Unit are calculated net of 258 equivalent limited
partnership Units.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 180
limited partnership units at December 31, 1995.
F. Income Taxes
The following is a reconciliation of net income for financial reporting
purposes to net income (loss) for tax reporting purposes for the years ended
December 31, 1995, 1994 and 1993, respectively:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Net income per financial statements $489,304 $ 402,785 $ 347,081
Rent received in advance, net of reversal of prior year amount (3,836) (5,984) (24,333)
Bad debt (recovery) provision for book purposes (25,000) (15,000) 40,000
Tax depreciation and amortization in excess of book amounts (234,947) (357,299) (376,058)
-------- --------- -----------
Tax basis net income (loss) $225,521 $ 24,502 $ (13,310)
-------- --------- -----------
-------- --------- -----------
</TABLE>
The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of the book to tax income
adjustments.
G. Contingencies
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, a number of purported class actions then pending in various federal
district courts were transferred to a single judge of the United States District
Court for the Southern District of New York and consolidated for pretrial
proceedings under the caption In re Prudential Securities Incorporated Limited
Partnerships Litigation (MDL Docket 1005). On June 8, 1994, plaintiffs in the
transferred cases filed a complaint that consolidated the previously filed
complaints and named as defendants, among others, PSI, certain of its present
and former employees and PBP. The Partnership was not named a defendant in the
consolidated complaint, but the name of the Partnership was listed as being
among the limited partnerships at issue in the case.
On August 9, 1995, PBP, PSI and other Prudential defendants entered into a
Stipulation and Agreement of Partial Compromise and Settlement with legal
counsel representing plaintiffs in the consolidated actions. The court
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI.
8
<PAGE>
H. Subsequent Event
In February 1996, distributions of approximately $191,000 and $2,000 were
paid to the limited partners and to the General Partners, respectively, for the
quarter ended December 31, 1995.
9
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership owns and operates five mini-warehouse/business center
facilities and three mini-warehouse facilities. On December 15, 1995, the
Management Committee of the Partnership determined to seek bids for all the
properties held by the Partnership. As of March 22, 1996, preliminary bids have
been received for all properties. If bids for the properties are deemed
acceptable by the Partnership, the Partnership intends to enter into agreements
to sell the properties, subject to the approval of the limited partners owning a
majority of the Units as required by the Partnership Agreement. If such sales
are approved and consummated, the Partnership will liquidate and distribute its
net assets to its partners. There can, of course, be no assurance that
acceptable bids will be received or that any transactions will be consummated.
During the year ended December 31, 1995, the Partnership's cash and cash
equivalents increased by approximately $410,000 due to net cash from property
operations in excess of capital expenditures and distributions to the partners.
Distributions during the year ended December 31, 1995 totaled approximately
$774,000 of which $766,000 was paid to the limited partners and $8,000 to
General Partners. These distributions were funded from property operations.
The Partnership's ability to make future distributions to the partners and
the amount that may be made will be affected not only by the amount of cash
generated by the Partnership from the operations of its properties, but also by
the amount expended for property improvements and the amount set aside for
anticipated property improvements. Property improvements are currently budgeted
at approximately $127,000 for 1996.
Results of Operations
Average occupancy rates for the years ended December 31, 1995, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
December 31,
---------------------------
Property 1995 1994 1993
<S> <C> <C> <C>
--------------------------------------------------------
Arlington 90.8% 91.4% 86.2%
Arapaho 94.3 92.6 92.9
South May/I-240 86.4 87.5 77.9
Santa Fe 87.9 97.5 91.8
South May/44th St. 96.6 94.7 86.8
Timbercrest 95.4 92.7 88.8
Cherry Hill 89.5 87.4 84.2
Hampton Park 92.9 82.2 78.6
--------------------------------------------------------
</TABLE>
(Average occupancy rates are calculated by averaging the monthly occupancies
determined by dividing occupied square footage by available square footage as of
each month-end.)
1995 vs. 1994
Net income increased by approximately $87,000 for the year ended December 31,
1995 as compared to the year ended December 31, 1994 for the reasons discussed
below.
Rental income increased by approximately $218,000 for the year ended December
31, 1995 as compared to the year ended December 31, 1994. Rental income
increased primarily due to improved rental rates at all properties. In addition,
all of the properties except Arlington, South May/I-240 and Santa Fe had an
increase in average occupancies.
Property operating expenses increased by approximately $101,000 for the year
ended December 31, 1995 compared to the year ended December 31, 1994. These
increases were due to higher property level payroll costs at all properties
except Santa Fe, higher utility expense at all properties except South May
/I-240 and Arapaho, and increased insurance expense primarily at Arlington and
Hampton Park. These
10
<PAGE>
increases were partially offset by decreases in repairs and maintenance expense
especially at Arapaho, Timbercrest, South May/I-240 and Cherry Hill. Management
fees also increased because they are based on rental income. In addition,
leasing commissions have increased since more of the commercial units have been
leased.
General and administrative expenses increased by approximately $21,000 for
the year ended December 31, 1995 as compared to the year ended December 31,
1994. The increases are primarily due to increased professional fees and higher
costs associated with administering the Partnership.
1994 vs. 1993
Net income increased by approximately $56,000 for the year ended December 31,
1994 as compared to the year ended December 31, 1993 for the reasons discussed
below.
Rental income increased by approximately $152,000 for the year ended December
31, 1994 as compared to the year ended December 31, 1993. Rental income
increased due to increases in average occupancies at the Cherry Hill, South
May/I-240, Santa Fe, and South May/44th St. properties and an increase in
average rental rates at the Arapaho property. These increases were partially
offset by fluctuating average occupancies and rental rates at the Timbercrest
property. Rental income remained stable at the Arlington property because higher
average occupancy was offset by lower rental rates. The increased rental income
also reflects the impact of a non-recurring write-off of uncollectible
receivables at Hampton Park recorded in 1993.
Property operating expenses increased by approximately $34,000 for the year
ended December 31, 1994 compared to the year ended December 31, 1993 due
primarily to increases in property level payroll costs, insurance rates and
repairs and maintenance expenses at the Hampton Park and Timbercrest properties.
General and administrative expenses increased by approximately $34,000 for
the year ended December 31, 1994 as compared to the the year ended December 31,
1993 due to an accrual in 1994 of current and prior periods' general,
administrative and monitoring expenses owed to affiliates of the individual
General Partners and, to a lesser extent, a refund of legal fees received in
1993.
11
<PAGE>
OTHER INFORMATION
The Partnership's Annual Report on Form 10-K as filed with the Securities
and Exchange Commission is available to limited partners without charge upon
written request to:
Prudential-Bache/Watson & Taylor, Ltd.-2
P.O. Box 2016
Peck Slip Station
New York, New York 10272-2016
12
<PAGE>
Peck Slip Station
BULK RATE
P.O. Box 2016
U.S. POSTAGE
New York, NY 10272-2016
PAID
Automatic Mail
<PAGE>
[ARTICLE] 5
[LEGEND]
The Schedule contains summary financial
information extracted from the financial
statements for P-B Watson & Taylor Ltd 2
and is qualified in its entirety by reference
to such financial statements
[RESTATED]
[CIK] 0000737296
[NAME] P-B Watson & Taylor Ltd 2
[MULTIPLIER] 1
[FISCAL-YEAR-END] Dec-31-1995
[PERIOD-START] Jan-1-1995
[PERIOD-END] Dec-31-1995
[PERIOD-TYPE] 12-Mos
[CASH] 957,903
[SECURITIES] 0
[RECEIVABLES] 29,295
[ALLOWANCES] (1,418,000)
[INVENTORY] 0
[CURRENT-ASSETS] 0
[PP&E] 22,792,224
[DEPRECIATION] (8,274,973)
[TOTAL-ASSETS] 14,086,449
[CURRENT-LIABILITIES] 420,818
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 13,665,631
[TOTAL-LIABILITY-AND-EQUITY] 14,086,449
[SALES] 0
[TOTAL-REVENUES] 2,841,354
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 2,352,050
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 489,304
[INCOME-TAX] 0
[INCOME-CONTINUING] 489,304
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 489,304
[EPS-PRIMARY] 9.40
[EPS-DILUTED] 0
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
OR
/ /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-13518
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-1933081
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Seaport Plaza, New York, N.Y. 10292-0116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check CK whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $13,103,746 $13,099,251
Cash and cash equivalents 993,396 957,903
Other assets 14,275 29,295
----------- ------------
Total assets $14,111,417 $14,086,449
----------- ------------
----------- ------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 179,711 $ 114,004
Deposits due to tenants 90,692 88,910
Unearned rental income 60,780 46,166
Due to affiliates, net 41,317 66,280
Accrued real estate taxes 33,687 105,458
----------- ------------
Total liabilities 406,187 420,818
----------- ------------
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,768,915 13,729,712
General partners (63,685) (64,081 )
----------- ------------
Total partners' capital 13,705,230 13,665,631
----------- ------------
Total liabilities and partners' capital $14,111,417 $14,086,449
----------- ------------
----------- ------------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
---------------------
1996 1995
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
Revenues
Rental income $713,996 $677,930
Interest 5,572 3,607
-------- --------
719,568 681,537
-------- --------
Expenses
Property operating 262,575 253,284
Depreciation -- 186,663
General and administrative 164,399 55,424
Real estate taxes 59,779 64,052
-------- --------
486,753 559,423
-------- --------
Net income $232,815 $122,114
-------- --------
-------- --------
ALLOCATION OF NET INCOME
Limited partners $230,487 $120,893
-------- --------
-------- --------
General partners $ 2,328 $ 1,221
-------- --------
-------- --------
Net income per limited partnership unit $ 4.47 $ 2.34
-------- --------
-------- --------
- --------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Partners' capital (deficit)--December 31,
1995 $13,729,712 $(64,081) $$13,665,631
Net income 230,487 2,328 232,815
Distributions (191,284) (1,932 ) (193,216)
----------- -------- -----------
Partners' capital (deficit)--March 31, 1996 $13,768,915 $(63,685) $13,705,230
----------- -------- -----------
----------- -------- -----------
- -----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three months
ended March 31,
-----------------------
<S> <C> <C>
1996 1995
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 745,412 $ 661,605
Interest received 5,572 3,607
General and administrative expenses paid (132,056) (27,644)
Property operating expenses paid (254,174) (183,835)
Real estate taxes paid (131,550) (132,901)
--------- ---------
Net cash provided by operating activities 233,204 320,832
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (4,495) (16,889)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (193,216) (193,216)
--------- ---------
Net increase in cash and cash equivalents 35,493 110,727
Cash and cash equivalents at beginning of period 957,903 547,459
--------- ---------
Cash and cash equivalents at end of period $ 993,396 $ 658,186
--------- ---------
--------- ---------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 232,815 $ 122,114
--------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation -- 186,663
Changes in:
Other assets 15,020 6,488
Accounts payable and accrued expenses 65,707 80,909
Accrued real estate taxes (71,771) (68,849)
Due to affiliates, net (24,963) 16,320
Unearned rental income 14,614 6
Deposits due to tenants 1,782 (22,819)
--------- ---------
Total adjustments 389 198,718
--------- ---------
Net cash provided by operating activities $ 233,204 $ 320,832
--------- ---------
--------- ---------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential-Bache Properties, Inc. (``Managing General Partner'') (``PBP''),
the financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
Prudential-Bache/Watson & Taylor, Ltd.-2 (the ``Partnership'') as of March 31,
1996 and the results of its operations and its cash flows for the three months
ended March 31, 1996 and 1995. However, the operating results for the interim
periods may not be indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended December 31, 1995.
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all the properties held by the Partnership. The Partnership is
continuing the process of attempting to sell the properties held by the
Partnership. However, there can be no assurances that any transactions will be
consummated. The limited partners will be advised if the Partnership enters into
a definitive agreement to sell the properties. Accordingly, effective December
31, 1995, the Partnership has reclassified its properties to held for sale and
has ceased depreciating the properties for financial statement purposes only.
Properties held for sale are recorded at the lower of the carrying amount or the
estimated fair value less costs to sell.
B. Related Parties
PBP and its affiliates perform services for the Partnership which include,
but are not limited to: accounting and financial management, transfer and
assignment functions, asset management, investor communications, printing and
other administrative services. PBP and its affiliates receive reimbursements for
costs incurred in connection with these services, the amount of which is limited
by the provisions of the Partnership Agreement. The costs and expenses incurred
on behalf of the Partnership which are reimbursable to PBP and its affiliates
for the three months ended March 31, 1996 and 1995 were approximately $30,000
and $20,000, respectively.
Affiliates of Messrs. Watson and Taylor, the individual General Partners,
also perform certain administrative and monitoring functions on behalf of the
Partnership. Relating to the reimbursement of these services, the Partnership
recorded $5,600 and $1,250 for the three months ended March 31, 1996 and 1995,
respectively.
PBP and the individual General Partners of the Partnership own 258, 130 and
130 equivalent limited partnership units, respectively. PBP receives funds from
the Partnership, such as General Partner distributions and reimbursement of
expenses, but has waived all of its rights resulting from its ownership of
equivalent limited partnership units. Accordingly, the 258 units owned by PBP
have been excluded from the calculation of net income per limited partner unit
and distributions per limited partnership unit.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 180
limited partnership units at March 31, 1996.
C. Subsequent Event
In May 1996, distributions of approximately $191,000 and $2,000 were paid to
the limited partners and the General Partners, respectively, for the quarter
ended March 31, 1996.
5
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership owns and operates five mini-warehouse/business center
facilities and three mini-warehouse facilities. On December 15, 1995, the
Management Committee of the Partnership determined to seek bids for all the
properties held by the Partnership. The Partnership is continuing the process of
attempting to sell the properties held by the Partnership. However, there can be
no assurances that any transactions will be consummated. The limited partners
will be advised if the Partnership enters into a definitive agreement to sell
the properties.
During the three months ended March 31, 1996, the Partnership's cash and cash
equivalents increased by approximately $35,000 due to cash flow from property
operations in excess of distributions and capital expenditures. Distributions
made during the three months ended March 31, 1996 totaled approximately $193,000
of which $191,000 and $2,000 were paid to the limited partners and General
Partners, respectively. These distributions were funded from property
operations.
The Partnership's ability to make future distributions to the partners and
the amount that may be made will be affected not only by the amount of cash
generated by the Partnership from the operations of its properties, including
the amount expended for property improvements, but also by the amount from and
the timing of any sale of the Partnership's properties.
Results of Operations
Average occupancy rates for the three months ended March 31, 1996 and 1995
were as follows:
<TABLE>
<CAPTION>
March 31,
--------------
Property 1996 1995
----------------------------------------------------------------------
<S> <C> <C>
Arlington 87.5% 91.8%
Arapaho 93.8 92.8
South May/I-240 77.8 90.4
Santa Fe 80.3 95.4
South May/44th St. 95.0 97.0
Timbercrest 92.2 96.8
Cherry Hill 86.8 89.7
Hampton Park 97.2 86.8
----------------------------------------------------------------------
(Average occupancy rates are calculated by averaging the monthly occu-
pancies determined by dividing occupied square footage by available
square footage as of each month-end.)
</TABLE>
Net income for the three month period ended March 31, 1996, increased by
approximately $111,000 as compared with the corresponding period in 1995
primarily for the reasons discussed below.
Rental income increased by approximately $36,000 for the three months ended
March 31, 1996 as compared to the corresponding period in 1995. This increase
relates primarily to Hampton Park, which had improved rental rates and increased
average occupancy. For most of the other properties, lower average occupancy
rates were, to a great extent, offset by increased rental rates.
General and administrative expenses increased by approximately $109,000 for
the three months ended March 31, 1996 as compared to the corresponding period in
1995. This variance was primarily due to increased professional fees and other
costs relating to the anticipated solicitation of the consent of the limited
partners for the potential sale of the properties.
Property operating expenses increased by approximately $9,000 for the three
months ended March 31, 1996 as compared to the corresponding period in 1995 due
to increases in repairs and maintenance expenses at Cherry Hill and Hampton Park
and advertising and promotion expenses at Timbercrest. These increases were
partially offset by decreases in payroll costs at South May/I-240 and Hampton
Park and decreased utility expense at Arlington.
6
<PAGE>
Depreciation expense decreased by approximately $187,000 for the three months
ended March 31, 1996 as compared to the corresponding period in 1995 due to the
reclassification of the Partnership's properties from held for use to held for
sale as of December 31, 1995. Under generally accepted accounting principles,
such properties are no longer depreciated and therefore no depreciation expense
has been recorded for the three months ended March 31, 1996.
7
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--None
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. (a) Exhibits
Description:
4.01 Revised Certificate of Limited Partnership Interest (filed
as an exhibit to Registrant's Form 10-K for the year ended
December 31, 1988 and incorporated herein by reference)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
8
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-2
By: Prudential-Bache Properties, Inc.
A Delaware corporation
Managing General Partner
By: /s/ Eugene Burak Date: May 15, 1996
----------------------------------------
Eugene Burak
Vice President
Chief Accounting Officer for the
Registrant
9
<PAGE>
[ARTICLE] 5
[LEGEND]
The Schedule contains summary financial
information extracted from the financial
statements for P-B Watson & Taylor Ltd II
and is qualified in its entirety by
reference to such financial statements
[RESTATED]
[CIK] 0000737296
[NAME] P-B Watson & Taylor II
[MULTIPLIER] 1
[FISCAL-YEAR-END] Dec-31-1996
[PERIOD-START] Jan-1-1996
[PERIOD-END] Mar-31-1996
[PERIOD-TYPE] 3-Mos
[CASH] 993,396
[SECURITIES] 0
[RECEIVABLES] 14,275
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 1,007,671
[PP&E] 13,103,746
[DEPRECIATION] 0
[TOTAL-ASSETS] 14,111,417
[CURRENT-LIABILITIES] 406,187
[BONDS] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 13,705,230
[TOTAL-LIABILITY-AND-EQUITY] 14,111,417
[SALES] 719,568
[TOTAL-REVENUES] 719,568
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 486,753
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 0
[INCOME-PRETAX] 0
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 232,815
[EPS-PRIMARY] 4.47
[EPS-DILUTED] 0
CONTRACT OF SALE
THIS CONTRACT, made as of June 10, 1996, by and
between Prudential-Bache/Watson & Taylor, Ltd.-2., a Texas
limited partnership ("SELLER"), and Public Storage Inc., a
California corporation ("BUYER").
W I T N E S S E T H:
WHEREAS, Seller desires to sell and Buyer desires
to purchase (i) all of Seller's right, title and interest in
the real properties and improvements and any fixtures and
personalty, if any, presently existing and located thereon,
more particularly described on EXHIBIT A attached hereto
together with all rights and appurtenances pertaining there-
to and (ii) all of Seller's right, title and interest in
and to all other items set forth on Exhibit A attached
hereto (each individually, a "PROPERTY", and, collectively,
the "Properties"), all upon the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, following such sale, Seller intends to
liquidate and distribute its net assets (including the
proceeds of such sale) to its partners.
NOW, THEREFORE, in consideration of the foregoing,
the sum of $1.00 by each party in hand paid to the other,
and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties
hereto, intending to be legally bound, do hereby mutually
agree as follows:
1. Agreement to Purchase and Sell. Subject to
the terms and conditions hereinafter set forth, Seller
agrees to sell to Buyer and Buyer agrees to purchase from
Seller, free and clear of all liens, claims, encumbrances
and other charges, except the Permitted Exceptions (as
hereinafter defined), all of Seller's right, title and
interest in and to the Properties.
2. Purchase Price. The purchase price ("PUR-
CHASE PRICE") for the Properties, which Buyer agrees to pay,
is the sum of $18,000,000 payable as follows:
(a) $1,350,000 as the downpayment (the
"DOWNPAYMENT"), upon the execution of this Contract by wire
transfer of immediately available federal funds to the
account of Escrow Agent (as hereinafter defined), to be held
by the Escrow Agent in accordance with this Section 2.
(b) The remainder of the Purchase Price
at Closing (as hereinafter defined), by wire transfer of
immediately available federal funds to Escrow Agent's ac-
count pursuant to Seller's instructions.
Chicago Title Insurance Company shall act as
escrow agent (the "ESCROW AGENT") and shall hold the
Downpayment in accordance with the provisions of the agree-
ment annexed hereto as EXHIBIT B, which agreement is being
executed simultaneously with this Contract.
(c) Any other provision hereof to the con-
trary notwithstanding, it is expressly understood and agreed
that, in consideration of the execution of this Contract by
Seller and to support Seller's covenants and agreements in
this Agreement through the Inspection Period (as hereinafter
defined), in the event that Buyer exercises any right to
terminate this Contract as set forth herein, Escrow Agent
shall disburse the sum of One Hundred and No/100 Dollars
($100.00) ("INDEPENDENT CONSIDERATION") from the Downpayment
to Seller before disbursing the balance of the Downpayment
to Buyer. The Independent Consideration is in addition to
and independent of any other consideration or payment pro-
vided for in this Contract, is non-refundable and shall be
paid to Seller notwithstanding any other provision of this
Contract.
Any interest earned on the Downpayment shall be
paid to Buyer. At the Closing, such interest shall be a
credit against the Purchase Price.
3. Evidence of Title. (a) Seller shall convey
to Buyer at Closing (as hereinafter defined) good, valid,
marketable, indefeasible and insurable fee simple title to
the Properties, subject to any and all covenants, condi-
tions, rights of way, restrictions, easements and other
matters affecting title, which do not materially impair the
use or the value of the Property to which they relate (col-
lectively, the "PERMITTED EXCEPTIONS") provided however the
Permitted Exceptions shall expressly exclude any Unpermitted
Exceptions (as hereinafter defined).
(b) As used herein, the term "Unpermitted
Exception" shall mean with respect to any Property (provided
the same is not caused by the actions of Buyer):
(A) Any building encroachment or sign en-
croachment (i) on real estate not owned by Seller, (ii)
on a setback line, or (iii) in violation of a binding
easement burdening the Property, in each case which
materially impairs the use or value of the Property;
(B) Any defect in the Seller's chain of
title which would prevent Seller from being able to
convey title to the Property in fee simple at Closing
under the laws of the State in which the Property is
located, unless the Title Insurer is willing to issue a
policy of title insurance which contains affirmative
coverage for claims arising solely out of such defect;
(C) Any easement which burdens the Property
such that access or use is compromised, in each case
which materially impairs the use, access or value of
the Property;
(D) Any lack of access or easements neces-
sary to operate the Property in the manner which such
Property has been operated by Seller prior to Closing,
in each case which materially impairs the use, access
or value of the Property;
(E) Any liens for the payment of money other
than real estate taxes, association assessments, spe-
cial district taxes and related charges not yet due and
payable; and
(F) Any standard printed exceptions on the
title commitments which can be removed by an affidavit
or delivery to the Title Insurer of an appropriate
Survey (as hereinafter defined);
(G) (i) the failure to be in material confor-
mance with the then applicable local zoning codes or
deed restrictions, (ii) if a Property is not in confor-
mance with the then applicable local zoning codes, the
failure of such Property to have the status equivalent
to a "non-conforming use" and (iii) the existence of a
permanent and final order by the applicable local
jurisdiction which materially impairs the use or value
of the Property.
(c) Seller shall deliver to Buyer,
within twenty days after the date hereof, (i) commitments
for ALTA policies of owners title insurance (the "TITLE
COMMITMENTS") issued by Chicago Title Insurance Company
through Title Associates Inc. 430 Park Avenue New York, New
York 10022, as the Title Insurer's authorized Agent, showing
fee simple title to the Properties as vested in Seller and
to be vested in Buyer, subject to the Permitted Exceptions
and (ii) current surveys prepared by licensed public land
surveyors according to ALTA standards showing the boundaries
of the Properties, the location of any easements, rights-of-
ways, improvements, encroachments thereon, all matters on
the Title Commitments which can be shown and, certifying the
number of acres if possible (to the nearest one thousandth
acre) comprising the Properties (the "Surveys"). Within
twenty days after the delivery of the Title Commitments,
legible copies of all items referenced therein and the
Surveys, Buyer shall deliver to Seller written notice set-
ting forth its objections to any matters encumbering the
Properties including any Unpermitted Exceptions other than
the Permitted Exceptions collectively ("Title Defects") and
within the time frames set forth below any Environmental
Defects (as hereinafter defined). The Title Defects and the
Environmental Defects are sometimes referred to herein as,
the "DEFECTS." With respect to Title Defects Seller shall
have the option to (i) cure any or all of the Title Defects
prior to Closing, (ii) remove such Property from the trans-
action and adjust the Purchase Price as provided hereafter
on Exhibit C (iii) grant Buyer a credit against the Purchase
Price equal to the cost to cure such Title Defects or (iv)
terminate this Contract, in which latter event, provided
that Buyer is not in default hereunder, the Downpayment,
together with any interest thereon, shall be returned to
Buyer. With respect to any Environmental Defect, Seller
shall have the option to (i) cure any or all of the Environ-
mental Defects prior to Closing, or (ii) grant Buyer a
credit against the Purchase Price equal to the cost to cure
such Environmental Defects. If the cost to correct any
Environmental Defect exceeds 10% of the allocated value of
the affected Property as set forth in Exhibit C attached
hereto and made a part hereof, Seller shall have the option
to remove such affected Property from the transaction con-
templated hereby, and adjust the Purchase Price as provided
hereafter on Exhibit C. Notwithstanding anything herein to
the contrary, (i) Seller shall have the right to adjourn the
Closing Date for such reasonable period, not to exceed sixty
days, as shall be necessary to cure any such Defect and (ii)
Seller shall have the right, subject to the terms and condi-
tions hereof, to cause the Closing to take place with re-
spect to the other Properties and then to cause the Closing
to take place with respect to the affected Property within
such reasonable period, not to exceed thirty days, as shall
be necessary to cure any such Defect. The term "Environmen-
tal Defect" shall mean "Hazardous Materials" (hereinafter
defined) located in, on or under any one of the Real Proper-
ties in violation of any Environmental Laws (hereinafter
defined).
In order to establish an Environmental Defect,
Buyer shall be required to deliver to Seller on or prior to
10 days after (i) Buyer's receipt of the Phase I environmen-
tal site assessment for each Property or (ii) if applicable
Buyers receipt of a final Phase II environmental assessment
prepared by LAW (as hereinafter defined) for any Property,
reasonably detailing any Environmental Defect. Buyer and
Seller shall make reasonable efforts to agree as to the
existence of and the cost to cure any Environmental Defect.
If Buyer and Seller do not agree on the foregoing within 15
days after Seller's receipt of Buyer's notice described
above, then the parties shall submit the matter to binding
arbitration in accordance with the terms hereof. As used
herein, "Environmental Laws" means all federal, state and
local statutes, codes, regulations, rules, ordinances,
orders, standards, permits, licenses, policies and require-
ments (including consent decrees, judicial decisions and
administrative orders) relating to the protection, preserva-
tion, remediation or conservation of the environment or
worker health or safety, all as amended or reauthorized, or
as hereafter amended or reauthorized, including without
limitation, the Comprehensive Environmental Response, Com-
pensation and Liability Act ("CERCLA"), 42 U.S.C. Section
9601 et seq., the Resource Conservation and Recovery Act of
1976 ("RCRA"), 42 U.S.C. Section 6901 et seq., the Emergency
Planning and Community Right-to-Know Act ("Right-to-Know
Act"), 42 U.S.C. Section 11001 et seq., the Clean Air Act
("CAA), 42 U.S.C. Section 7401 et seq., the Federal Water
Pollution Control Act ("Clean Water Act"), 33 U.S.C. Section
1251 et seq., the Toxic Substances Control Act ("TSCA"), 15
U.S.C. Section 2601 et seq., the Safe Drinking Water Act
("Safe Drinking Water Act"), 42 U.S. C. Section 300f et
seq., the Atomic Energy Act ("AEA"), 42 U.S.C. Section 2011
et seq., the Occupational Safety and Health Act ("OSHA"), 29
U.S.C. Section 651 et seq., and the Hazardous Materials
Transportation Act (the "Transportation Act"), 49 U.S.C.
Section 1802 et seq. As used herein, "Hazardous Materials"
means: (1) "hazardous substances," as defined by CERCLA; (2)
"hazardous wastes," as defined by RCRA; (3) any radioactive
material including, without limitation, any source, special
nuclear or by-product material, as defined by AEA; (4)
friable asbestos; (5) polychlorinated biphenyls; and (6) any
other material, substance or waste regulated under any
Environmental Laws.
If any dispute between the parties is required by
the terms of this Contract to be submitted to arbitration.
Then such matter shall be submitted to binding arbitration
by the American Arbitration Association (the "Association")
(or any successor organization) (provided that, in the event
of a dispute as to an Environmental Defect, the arbitration
shall be performed by a reputable arbitrator with at least
10 years experience in environmental matters). All arbitra-
tion shall be finally determined in New York City and shall
be governed (except as provided above) in accordance with
the Rules for Commercial Arbitration of the Association (or
any successor thereto) and the judgment or the award ren-
dered may be entered in any court having jurisdiction. Each
party shall pay 50% of the fees and expenses of the Associa-
tion. The Closing Date shall be adjourned with respect to
the Property involved in any dispute (or, at Seller's or
Buyer's option, all of the Properties if the dispute in-
volves three or more Properties) pending resolution of the
matter in dispute. Upon resolution of such dispute Seller
shall take whatever action Seller is required to take pursu-
ant to this Contract or the final determination of an arbi-
trator.
4. Condition of the Properties. Subject only to
Seller's covenants, representations and warranties in this
Contract, Buyer shall purchase the Properties in their "AS
IS" condition at the Closing Date, subject to all latent and
patent defects (whether physical, financial or legal, in-
cluding title defects), based solely on Buyer's own inspec-
tion, analysis and evaluation of the Properties and not in
reliance on any records or other information obtained from
Seller or on Seller's behalf. Buyer acknowledges that it is
not relying on any statement or representation (other than
any representations, warranties, covenants and indemnifica-
tions contained in this Contract) that has been made or that
in the future may be made by Seller or any of Seller's
employees, agents, attorneys or representatives concerning
the condition of the Properties (whether relating to physi-
cal conditions, operating performance, title, or legal
matters). Without limiting the foregoing, any information
disclosed in writing to Buyer in connection with any inves-
tigations, inspections, tests or analyses performed prior to
Closing, shall be deemed acceptable to Buyer, and not viola-
tive of any warranty or representation of Seller, if Buyer
proceeds to Closing hereunder.
5. Closing. Upon the terms and subject to the
conditions of this Contract, the transfer of title and
possession of the Properties (the "CLOSING") shall be held
at the offices of Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York 10022, or as a closing by
mail at the offices of the Escrow Agent, 388 Market Street,
San Francisco, California, Attention: Michelle Viguie,
unless otherwise agreed in writing, at 10:00 a.m., local
time, on the date which is 3 business days after all of the
conditions to Closing as set forth in Sections 6, 7 and 8
hereof have been satisfied. The date on which the Closing
occurs is herein called the "Closing Date".
6. Conditions to Seller's and Buyer's Obligation
to Close. The obligations of Seller and Buyer to close
under this Contract are subject to the fulfillment, prior to
or at Closing, of each of the following:
(a) Seller shall have obtained consents
to the sale of the Properties (the "PARTNERSHIP CONSENT") as
provided by the terms of that certain Amended and Restated
Certificate and Agreement of Limited Partnership of Seller
dated as of February 28, 1984 (including any amendments, the
"PARTNERSHIP AGREEMENT") and applicable law.
(b) There shall not be in effect any
statute, regulation, order, decree or judgment of any gov-
ernmental entity having jurisdiction which renders illegal
or enjoins or prevents in any material respect the sale of
the Properties to Buyer.
7. Conditions to Seller's Obligation to Close.
The obligations of Seller to close under this Contract are
subject to the fulfillment, prior to or at Closing, of each
of the following:
(a) The representations and warranties
of Buyer shall have been true and correct in all material
respects when made and shall be true and correct in all
material respects as of the Closing Date, as if made at and
as of such date except as otherwise expressly provided
herein.
(b) On and as of the Closing Date,
Buyer shall have performed and complied with, in all materi-
al respects, all agreements and covenants required by this
Contract to be performed or complied with prior to or on the
Closing Date.
8. Conditions to Buyer's Obligation to Close.
The obligations of Buyer to close under this Contract are
subject to the fulfillment, prior to or at Closing, of each
of the following:
(a) The representations and warranties of
Seller shall have been true and correct in all material
respects when made and shall be true and correct in all
material respects as of the Closing Date, as if made at and
as of such date except as otherwise expressly provided
herein.
(b) On and as of the Closing Date, Seller
shall have performed and complied with, in all material
respects, all agreements and covenants required by this
Contract to be performed or complied with prior to or on the
Closing Date.
9. Deliveries.
(a) Seller's Deliveries. Upon the terms and
subject to the conditions of this Contract, on the Closing
Date (or such other date may be expressly provided), Seller
shall convey each Property and its related interests to
Buyer by delivery of the following documents which documents
shall be in form and substance reasonably acceptable to both
Buyer and Seller:
(i) quit claim deed or deed without
covenants if a quit claim deed can not be utilized in a
jurisdiction where a Property is located; so long as the
Title Insurer is willing to issue a policy of title insur-
ance which is customary in the applicable jurisdiction
containing no exceptions from coverage solely out of the
delivery by Seller of a quit claim deed or deed without
covenants);
(ii) bill of sale for each Property
conveying the fixtures and personalty owned by Seller, in
the form of Exhibit D attached hereto;
(iii) non-recourse assignment of
Seller's interest, as lessor, in any leases of space at the
Property including any security deposits thereunder (the
"LEASES") in the form of Exhibit D attached hereto;
(iv) non-recourse assignment, to the
extent assignable, of Seller's rights under any service or
maintenance contracts (including, without limitation, yellow
pages, landscaping, security and refuse removal contracts)
relating to the Property (the "SERVICE CONTRACTS") in the
form of Exhibit D attached hereto;
(v) non-recourse assignment, to
the extent assignable, of any licenses, permits and unex-
pired warranties and guarantees, if any, pertaining to the
Property;
(vi) certificates and resolutions
as may be reasonably requested by the Buyer and Title Insur-
er demonstrating the authority of the persons executing
documents at Closing.
(vii) non-recourse assignment of all
of Sellers's interest in and to any Phase I and Phase II
environment site assessment which Seller makes available to
Buyer;
(viii) non-foreign affidavit;
(ix) all documents and instruments
reasonably required by the Title Insurer to issue the title
policies;
(x) possession of the Properties to
Buyer;
(xi) notice to the tenants of each
Property prepared by Buyer notifying such tenants of the
transfer of title and assumption by Buyer of the landlord's
obligations under the Leases and the obligation to refund
the security deposits;
(xii) copies of current real Proper-
ty tax bills and utility statements with respect to any
unimproved property; and
(xiii) a certificate of the managing
general partner of Seller to the effect that all of the
representations and warranties of Seller are true and cor-
rect in all material respects at Closing;
(xiv) an Owner's Policy of Title
Insurance for each Property in an amount equal to the value
set forth on Exhibit C for such Property insuring Buyer's
title subject only to the Permitted Exceptions and otherwise
in form acceptable to Buyer and containing such endorsements
as may be reasonably requested by Buyer.
(b) Buyer's Deliveries. Upon the terms and
subject to the conditions of this Contract, on the Closing
Date, Buyer shall deliver the following:
(i) assumption of the Leases and Ser-
vice Contracts, substantially in the form of the instrument
annexed hereto as EXHIBIT D annexed hereto and made a part
hereof.
(ii) certificates and resolutions as may
be requested by Seller and Title Insurer demonstrating the
authority of the persons executing documents at Closing.
(iii) balance of the Purchase Price
by wire transfer.
10. Proration Items. The following shall be
apportioned on a per diem basis as of midnight of the day
preceding the Closing Date ("ADJUSTMENT DATE") and adjusted
between the parties on the basis of a thirty day month:
(a) Real estate and other taxes, assessments
and charges, and other municipal and state charges, license
and permit fees, water and sewer rents and charges, if any,
on the basis of the fiscal period for which assessed or
charged;
(b) Water, electric, gas, steam and other
utility charges for service furnished to the Properties;
(c) Fuel, if any, and all taxes thereon, on
the basis of a reading taken as close as possible to the
Adjustment Date;
(d) Base rents and any other rental payments
(including, without limitation, any percentage rent, escala-
tion charges for real estate taxes and operating expenses,
cost-of-living adjustments, parking rent) (the "RENTS") paid
or payable under the terms of the Leases for the month of
Closing. Where the Leases contain tenant obligations for
taxes, common area expenses, operating expenses or addition-
al charges of any nature ("CAM Charges"), and where Seller
shall have collected any portion thereof in excess of
amounts incurred by Seller for such items for the period
prior to the Closing Date, then there shall be an adjustment
and credit given to Buyer on the Closing Date for such
excess amounts collected. Buyer shall apply all such excess
amounts to the charges owed by Buyer for such items for the
period after the Closing Date and, if required by the Leas-
es, shall rebate or credit tenants with any remainder. If
it is determined at any time after Closing that the amount
collected during Seller's ownership period exceeded expenses
incurred during the same period by more than the amount
previously credited to Buyer at Closing, then Seller shall
promptly pay to Buyer the deficiency. Also, if it is deter-
mined after Closing that the amount collected during
Seller's ownership period is less than the expenses incurred
during the same period, then Buyer shall promptly pay to
Seller the deficiency, but only to the extent such deficien-
cy is actually collected by Buyer from the tenants under the
Leases.
(e) Any amounts paid or payable under any
Service Contracts being assigned to Buyer; and
(f) All costs associated with telephone
directory listings and any other prepaid advertising;
(g) Any other customary adjustments made in
connection with the sale of similar type buildings.
Seller will not assign to Buyer any of the hazard
insurance policies affecting the Properties then in force.
There will therefore be no proration of insurance costs at
Closing. Except as may be otherwise provided herein, all
other expenses which are attributable to the period prior to
the Closing Date shall be the obligation of Seller and those
which are attributable to the period from and after the
Closing Date shall be the obligation of Buyer.
For purposes of the foregoing apportionments and
adjustments, the following procedures shall govern:
(i) If the Closing Date shall occur
before the real estate tax rate is fixed, the apportionment
of such taxes shall be made upon the real estate taxes for
the immediately preceding year.
(ii) If there are water meters on the
Properties, Seller shall furnish meter readings to a date
not more than thirty days prior to the Adjustment Date; and
the unfixed meter charges for the intervening time to the
Adjustment Date shall be apportioned on the basis of such
meter readings, and any such meter charges for the period
subsequent to the Adjustment Date shall be paid by Buyer.
(iii) The apportionment of utility
charges shall be made upon the basis of charges shown on the
latest available bills for such utilities. The charges
shown on such available bills for periods prior to the
Adjustment Date shall be paid by Seller, and for the period
from the date of each such last available utility bill to
the Adjustment Date an apportionment shall be made based on
the amount charged for the period covered by such last
available bill.
(iv) All taxes, water and sewer charges
and assessments for public improvements which are liens upon
the Properties as of the Closing Date, will be allowed to
Buyer as a credit against the Purchase Price, subject to
apportionment as herein provided, and the existence of any
such lien shall not constitute an objection to title.
(v) If any tenants are required to pay
Rents which are collected by Buyer after the Closing Date
and which are attributable in whole or in part to any period
before to the Closing Date, the Buyer shall promptly pay to
Seller, Seller's proportionate share thereof.
(vi) If any tenant is in arrears in the
payment of Rents on the Closing Date, Rents received from
such tenant after the Closing Date shall be applied in the
following order of priority: (a) first to any months preced-
ing the month in which the Closing occurred; (b) then to the
month in which the Closing occurred; and (c) then to any
months following the month in which the Closing occurred.
If Rents or any portion thereof received by Seller or Buyer
after the Closing Date are payable to the other party by
reason of this allocation, the appropriate sum shall be
promptly paid to the other party.
Buyer and Seller agree that the provisions to this
Section 10 shall survive the Closing for a period of ninety
(90) days after the Closing Date, during which period Buyer
and Seller shall agree on a reconciliation of the prorations
described herein. If the parties cannot agree on a recon-
ciliation within such ninety (90) day period then such
matter shall be submitted to arbitration.
11. Surveys, Transfer Taxes and Other Costs.
Seller shall pay for (a) the cost of any Surveys, the premi-
um for any title insurance and any other costs of closing
and (b) transfer taxes, documentary stamp taxes, recording
charges and other taxes or charges imposed by any governmen-
tal entity in connection with the transfer of the Proper-
ties. Seller shall deliver to Buyer at Seller's sole cost
and expense any (i) Phase I environmental site assessments,
(ii) Phase II environmental assessments of the Properties
conducted by Law Engineering and Environmental Services
("LAW"), (iii) pay for any other Phase II environmental
assessments which are reasonably required by the Phase I
environmental site assessments to be conducted at the Prop-
erties and shall use reasonable efforts to obtain a letter
from LAW in the form attached hereto as Exhibit D. Other
than as expressly provided herein, each of the parties shall
pay for any and all costs which it may incur in connection
with the transactions contemplated herein.
The provisions of this Section 11 shall survive
the Closing.
12. Representations and Warranties of Sell-
er. As an inducement for Buyer to purchase the Properties
from Seller, Seller represents and warrants to Buyer the
following:
(a) Title to Real Estate. Seller has
good, valid, marketable, indefeasible and insurable title to
the Properties including the improvements and the personal-
ty, situated thereon which are owned by Seller subject to
the Permitted Exceptions.
(b) Organization and Authority.
(i) Seller is duly organized and valid-
ly existing under the laws of the State of Texas, has full
partnership power and authority to carry on its business as
it is being conducted and shall have upon receipt of the
Partnership Consent full partnership power and authority to
consummate the transaction.
(ii) Seller and the managing general
partner of Seller have the requisite partnership and corpo-
rate power and authority to execute, deliver and perform
this Contract. The execution, delivery and performance of
this Contract and the consummation of the transactions
contemplated hereby have been duly authorized by all neces-
sary partnership and corporate action on the part of Seller
and the managing general partner (subject to obtaining the
Partnership Consent). This Contract is a valid and binding
obligation of Seller, enforceable against Seller in accor-
dance with its terms.
(iii) Neither the execution and
delivery of this Contract nor the consummation of the trans-
actions contemplated hereby in the manner herein provided
nor the fulfillment of or compliance with the terms and
conditions hereof shall:
A. contravene any material provi-
sion of the Partnership Agreement; or
B. violate, be in conflict with,
constitute a default under, cause the acceleration of any
payments pursuant to, or otherwise impair the good standing,
validity, or effectiveness of any agreement, contract,
indenture, lease, or mortgage, or subject any properties or
assets of Seller to any indenture, mortgage, contract,
commitment, or agreement other than this Contract to which
Seller is a party or by which Seller is bound, which in the
aggregate would have a material adverse effect on the Prop-
erties or Seller's ability to perform all of its obligations
hereunder
(c) Pending Actions. No litigation actions
are pending or, to Seller's knowledge, threatened against
any of the Properties or Seller which would materially
adversely affect either the Properties or the Seller or
which challenge the execution, delivery or performance of
this Contract.
13. Representations and Warranties of Buyer. As
an inducement for Seller to sell the Properties to Buyer,
Buyer represents to Seller the following:
(a) Organization and Authority.
(i) Buyer is a corporation duly orga-
nized and validly existing under the laws of the State of
California and has full corporate power and authority to
carry on its business as it is now being conducted.
(ii) Buyer has the requisite corporate
power and authority to execute, deliver and perform this
Contract. The execution, delivery and performance of this
Contract and the consummation of the transactions contem-
plated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Contract is a
valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms.
(iii) Neither the execution and
delivery of this Contract nor the consummation of the trans-
actions contemplated hereby in the manner herein provided
nor the fulfillment of or compliance with the terms and
conditions hereof shall:
A. contravene any material provi-
sion of the Articles of Incorporation or Bylaws of Buyer; or
B. violate, be in conflict with,
constitute a default under, cause the acceleration of any
payments pursuant to, or otherwise impair the good standing,
validity, or effectiveness of any agreement, contract,
indenture, lease, or mortgage, or subject any properties or
assets of Buyer to any indenture, mortgage, contract, com-
mitment, or agreement to which Buyer is a party or by which
Buyer is bound which, in the aggregate, would have a materi-
al adverse effect on Buyer's ability to perform all of its
obligations hereunder.
(b) Adequate Funds. Buyer has adequate
funds or available credit resources to pay the Purchase
Price at the Closing as provided hereunder.
14. Default and Damages.
(a) Buyer's Remedies. If Buyer shall
elect to proceed with the performance of this Contract
notwithstanding the failure to be satisfied of any condi-
tions to Closing, Buyer shall be deemed to have waived the
requirement that those conditions be satisfied. Buyer's
sole recourse for Seller's failure to consummate the Closing
if required by the terms of this Contract shall be, at
Buyer's option, (i) if appropriate, to sue for specific
performance hereunder, or (ii) to terminate this Contract
and receive a "Termination Fee" in an amount equal to
Buyer's reasonable out of pocket attorneys' fees for outside
counsel incurred by Buyer in connection with the transac-
tions contemplated by this Contract but in no event to
exceed $15,000, which Termination Fee shall be in addition
to the return of the Downpayment plus all accrued interest
thereon and if Seller executes a contract or a letter of
intent to sell the Properties within 180 days from the
termination of this Contract to receive an amount equal to
$342,000 of the Purchase Price, as liquidated damages.
Notwithstanding anything to the contrary contained in this
Section 14 (a), Buyer shall be entitled to receive the
Topping Fee (as hereinafter defined) to the extent provided
under Section 22 (a) and (e) of this Contract. In the event
that the managing general partner of Seller does not recom-
mend or withdraws its recommendation to the limited partners
of Seller to vote to grant the Partnership Consent for any
reason other than as is required by its fiduciary obliga-
tions to Seller due to a change in circumstances after the
date hereof, Seller shall pay to Buyer an amount equal to
$342,000 of the Purchase Price plus an amount equal to
Buyer's out-of-pocket attorney's fees for outside counsel
incurred by Buyer in connection with the transactions con-
templated by this Contract but in no event to exceed
$15,000.00, as liquidated damages, together with a refund of
the Downpayment and Seller shall have no further obligation
to Buyer whatsoever.
(b) Seller's Remedies. If Buyer shall be
unable or unwilling to consummate the Closing hereunder in
violation of the terms hereof, Seller shall have the right
(i) to terminate this Contract and retain the Downpayment as
liquidated and agreed upon damages, whereupon this Contract
shall be and become null and void, and neither Seller nor
Buyer nor any of their respective Representatives shall have
any further rights or obligations hereunder.
15. Brokers. Seller and Buyer hereby agree
to defend and hold the other harmless from any claim by a
broker or finder for a fee or expense which is based in any
way on an agreement or understanding made or alleged to have
been made by such broker or finder relating to the transac-
tion contemplated by this Contract.
The provisions of this Section 15 shall survive
the Closing.
16. Indemnification of Seller. Buyer agrees
to indemnify and hold harmless Seller and its general part-
ners and limited partners, their affiliates, their and their
affiliates' representatives, attorneys, accountants, agents
and employees and their and their affiliates' heirs, succes-
sors and assigns, from and against any claims or demands
for any expense, obligation, loss, cost, damage or injury
arising out of (a) the Buyer's inspection of the Properties
prior to or on the Closing Date and (b) the Buyer's opera-
tion and maintenance of the Properties from and after the
Closing Date.
The provisions of this Section 16 shall survive
the Closing.
17. Survival of Representations, Warranties
and Indemnifications. Except as otherwise expressly set
forth herein, none of the representations, warranties and
indemnifications contained in this Contract shall survive
the Closing.
18. Third Party Offers; Fiduciary Duties of
Seller. Anything herein to the contrary notwithstanding,
Seller will not initiate, solicit, negotiate with or provide
information to any person (other than Buyer) concerning any
merger, sale of substantial assets out of the ordinary
course of business or similar transaction involving the
Properties to be sold to Buyer hereunder, provided that
Seller may negotiate with or furnish information to a third
party if the undersigned managing general partner of Seller
determines, in its sole discretion, that its fiduciary
duties require it to take such actions.
19. Reasonable Efforts; Public Announcements.
Each party hereto will use all reasonable efforts to perform
all acts required to consummate the transactions contemplat-
ed hereby as promptly as practicable. Such acts shall
include, without limitation, the provision of any informa-
tion to and submission of any filing with any governmental
entity having jurisdiction. The foregoing notwithstanding,
except as may be required to comply with the requirements of
any applicable laws and the rules and regulations of each
stock exchange upon which the securities of either of the
parties is listed, no press release or similar public an-
nouncement or communication shall, if prior to the Closing,
be made or caused to be made concerning this Contract or the
transactions contemplated hereby, unless the parties shall
have consulted in advance with respect thereto. Seller
shall provide Buyer with reasonable access to the Properties
and all information in its possession reasonably relating to
the Properties. Buyer shall keep such information confiden-
tial and shall not disclose such information to anyone other
than its agents, attorney, consultant or directors unless
such information: (i) is or becomes generally known on a
nonconfidential basis from a source other than as a result
of a disclosure by or through the representatives, employees
or agents of Buyer or (ii) becomes known by Buyer on a
nonconfidential basis from a source which is not prohibited
from disclosing such information by a legal, contractual,
fiduciary or other obligation, or (iii) Buyer is required to
disclose such information under applicable law or by a court
of competent jurisdiction.
20. Partnership Consent. Seller shall
within 20 days after the date hereof file preliminary proxy
materials relating to the transactions contemplated hereby
with the Securities and Exchange Commission (the "SEC") and
diligently pursue clearance by the SEC and upon clearance of
such proxy materials by the SEC shall promptly call a meet-
ing, or solicit consents, of its limited partners to consid-
er such matters. Seller shall, subject to the fiduciary
duties of its managing general partner, make reasonable
efforts to secure the Partnership Consent as promptly as
practicable. Buyer will supply Seller with such information
and reasonable assistance as Seller may request in connec-
tion therewith. Buyer shall promptly deliver to the Seller
or the SEC any information or materials requested by Seller
or the SEC in connection with the transactions contemplated
hereby.
21. Casualty/Condemnation to the Properties.
(a) If, prior to the Closing Date, any of the Properties is
damaged due to a casualty (a "CASUALTY") and the cost of
repairing such damage, in accordance with Seller's insurance
claims, is less than $100,000, then Seller shall repair such
Casualty prior to the Closing Date or assign to Buyer the
proceeds of Seller's policy of casualty insurance and pay
to Buyer the amount of any deductible. If the cost of
repairing a Casualty to any Property, in accordance with
Seller's insurance claims, equals or exceeds $100,000, then
Seller shall have the option to repair the Casualty to such
Property prior to Closing to the condition it was in prior
to Closing or if Seller does not repair the Property, Buyer
shall have the option to remove such Property from the
transaction and adjust the Purchase Price as hereinafter
provided or have Seller assign to Buyer the insurance pro-
ceeds and pay to Buyer the amount of any deductible. Not-
withstanding anything herein to the contrary, (i) Seller
shall have the right to adjourn the Closing Date for such
reasonable period as shall be necessary to repair any such
Casualty and (ii) Seller shall have the right, subject to
the terms and conditions hereof, to cause the Closing to
take place with respect to the other Properties and then
cause the Closing to take place with respect to the affected
Property within such reasonable period as shall be necessary
to repair any such Casualty.
(b) If, prior to the Closing Date, all
or any portion of any Property is condemned or taken by
eminent domain, then this Contract shall nevertheless remain
in full force and effect without any abatement of the Pur-
chase Price. In such event, Seller shall convey such Prop-
erty to Buyer at the Closing in its then condition, and
Buyer shall be entitled to receive all net or condemnation
awards otherwise payable to Seller as a result of such loss
or damage and, in full satisfaction of any claims by Buyer
against Seller, Seller shall assign to Buyer, without re-
course or warranty of any nature whatsoever, all of Seller's
right, title and interest in and to any claims Seller may
have to any condemnation awards, as well as all rights or
pending claims of Seller with respect to such condemnation
or taking of such Property, and Seller shall pay to Buyer
all payments theretofore made by such condemning authorities
as a result of such loss after deducting therefrom the costs
of collection thereof.
(c) Notwithstanding anything contained
herein to the contrary, if Seller delivers notice for con-
demnation or eminent domain proceedings which are initiated
or threatened between the date of this Contract and the
Closing Date, Buyer shall have the right to participate in
any and all settlement discussions and other conferences
relating thereto, and Seller shall not accept any settlement
without Buyer's consent which shall not be unreasonably
withheld or delayed.
22. Termination. Notwithstanding anything con-
tained herein, this Contract may be terminated as follows:
(a) By Seller, if during the term of this
Contract Seller has received a bona fide offer from an
unrelated third party which the undersigned managing general
partner of Seller has determined is more favorable to
Seller and its partners than the terms hereof (the "TOPPING
OFFER"), provided that Seller has provided Buyer with at
least 5 days written notice of the terms of such offer and
the right to match the terms of such offer, and further
provided that Seller shall pay to Buyer, simultaneously with
the acceptance of the Topping Offer (regardless of whether
the sale contemplated by the Topping Offer is consummated),
an amount equal to $342,000 of the Purchase Price plus an
amount equal to Buyer's reasonable out of pocket attorney's
fees for outside counsel incurred by Buyer in connection
with the transactions contemplated by this Contract but in
no event to exceed $15,000 (the "Topping Fee").
(b) By Seller in accordance with Section 3
and 14(b) hereof or by Buyer in accordance with Sections
14(a) hereof.
(c) By Seller or Buyer, if a court of compe-
tent jurisdiction issues a binding and final order perma-
nently preventing the sale of the Properties to Buyer.
(d) By Seller or Buyer, if the Closing does
not occur on or before nine months from the execution here-
of, provided that the party seeking to terminate is not in
breach of this Contract.
(e) By Seller or Buyer, if the partners of
Seller vote not to grant the Partnership Consent, provided
that, if (i) the Closing hereunder does not occur due to a
failure to obtain the Partnership Consent and (ii) the
Seller enters into a contract or a letter of intent within
180 days after the termination of this Contract, to sell the
Properties at a price which exceeds the Purchase Price,
Seller shall pay to Buyer the Topping Fee, simultaneously
with the execution of such contract or letter of intent,
regardless of whether the sale contemplated by the Topping
Offer is consummated.
In the event this Contract is terminated pursuant
to any of the foregoing provisions, this Contract shall
thereupon become null and void and neither Seller nor Buyer
nor any of their respective representatives shall have any
further rights or obligations hereunder except as set forth
above.
23. Payment of Termination Fee, Topping Fee or
Liquidated Damages.
(a) In the event that Seller is obligated to
pay Buyer the Termination Fee, the Topping Fee or any other
amount as liquidated damages (the "Buyer Payment Amounts"),
pursuant to this Contract Seller shall deposit into escrow,
at Buyer's direction, an amount equal to the Buyer Payment
Amounts and, subject to the terms of the escrow agreement
set forth below, Buyer shall be paid out of the escrow an
amount equal to the lesser of (i) the Buyer Payment Amounts
or (ii) the sum of (1) the maximum amount that can be paid
to Buyer without causing Buyer to fail to meet the require-
ments of Sections 856(c)(2) and (3) of the Internal Revenue
Code of 1986, as amended (the "Code") determined as if the
payment of such amount did not constitute income described
in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(1) of the Code
("Qualifying Income"), as determined by Buyer's certified
public accountants, plus (2) in the event Buyer received
either (A) a letter from Buyer's counsel indicating that
Buyer has received a ruling from the Internal Revenue Ser-
vice (the "IRS") described in Section 23 (b)(ii) an amount
equal to the Buyer Payment Amounts less the amount payable
under clause (1) above.
(b) The escrow agreement shall provide that
the Buyer Payment Amounts in escrow or any portion thereof
shall not be released to Buyer unless the escrow agent
receives any one or combination of the following: (i) a
letter from Buyer's certified public accountants indicating
the maximum amount that can be paid by the escrow agent to
Buyer without causing Buyer to fail to meet the requirements
of Sections 856(c)(2) and (3) of the Code determined as if
the payment of such amount did not constitute Qualifying
Income or a subsequent letter from Buyer's accountants
revising that amount, in which case the escrow agent shall
release such amount to Buyer, or (ii) a letter from Buyer's
counsel indicating that Buyer received a ruling from the IRS
holding that the receipt by Buyer of the Buyer Payment
Amounts would either constitute Qualifying Income or would
be excluded from gross income within the meaning of Sections
856(c)(2) and (3) of the Code (or alternatively, Buyer's
legal counsel has rendered a legal opinion to the effect
that the receipt by Buyer of the Buyer Payment Amounts would
either constitute Qualifying Income or would be excluded
from gross income within the meaning of Sections 856(c)(2)
and (3) of the Code), in which case the escrow agent shall
release the remainder of the Buyer Payment Amounts to Buyer.
Seller agrees to amend this Section 23 at the request of
Buyer in order to (A) maximize the portion of the Buyer
Payment Amounts that may be distributed to Buyer hereunder
without causing Buyer to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code, (B) improve Buyer's
chances of securing a favorable ruling described in this
Section 23(b)or (C) assist Buyer in obtaining a favorable
legal opinion from its counsel as described in this Section
23(b); provided that Buyer's legal counsel has rendered a
legal opinion to Buyer to the effect that such amendment
would not cause Buyer to fail to meet the requirements of
Section 856(c)(2) or (3) of the Code. The escrow agreement
shall also provide that any portion of the Buyer Payment
Amounts held in escrow for five years shall be released by
the escrow agent to the Seller. The Seller shall not be a
party to such escrow agreement and shall not bear any cost
of or have any liability resulting from the escrow agreement
or the terms and provisions of this Section 23 so long as
Seller disburses any amount due under this Contract to Buyer
or to any escrow agent.
24. Notices. Any notice which may be required or
may be desired to be given pursuant to this Contract shall
be in writing and shall be deemed delivered and effective
upon actual receipt at the following addresses or such other
addresses as the parties may notify each other by similar
notice:
If to Seller, to:
Prudential-Bache/Watson & Taylor, Ltd.-2
c/o Prudential-Bache Properties, Inc.
One Seaport Plaza
199 Water Street - 16th Floor
New York, New York 10292 - 0116
Attn: Brian Martin
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: James Freund
If to Buyer, to:
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Attn: Harvey Lenkin
With a copy to:
Andrews & Kurth LLP
4200 Texas Commence Tower
Houston, TX 77002
Attn: David G. Runnels
25. General.
(a) Interpretation of Words. A mascu-
line pronoun wherever used herein shall be construed to
include the feminine or neuter where appropriate. The
singular form wherever used herein shall be construed to
include the plural where appropriate.
(b) Assignment; Successors and Assigns;
Third Party Beneficiaries.
(i) Neither of the parties hereto may
assign its respective rights under this Contract without the
consent of the other party. The foregoing notwithstanding,
Buyer shall be permitted, upon five days notice to Seller,
to assign its rights under this Contract to a subsidiary of
Buyer that is at least 90% owned by Buyer. Such assignment,
however, shall not relieve Buyer of, and Buyer shall remain
liable for, all of its obligations contained in this Con-
tract.
(ii) Except as otherwise provided here-
by, the provisions of this Contract shall be binding upon
and inure to the benefit of the parties hereto and their
respective legal representatives and successors in interest.
(iii) This Contract is not intended,
nor shall it be construed, to confer upon any party except
the parties hereto and their heirs, successors and permitted
assigns any rights or remedies under or by reason of this
Contract.
(c) Time of the Essence. Time shall be of
the essence with respect to the performance of all of the
obligations hereunder.
(d) Entire Contract. Subject to the terms
and conditions of the Confidentiality Agreement, this Con-
tract represents the entire understanding between the par-
ties with respect to the subject matter hereof, superseding
all prior or contemporaneous understandings or communica-
tions of any kind, whether written or oral. This Contract
may only be modified by a written agreement signed by both
parties hereto.
(e) Captions. The headings of the para-
graphs herein are for convenience only; they form no part of
this Contract and shall not affect its interpretation.
(f) Governing Law. The provisions of
this Contract shall be governed by and construed in accor-
dance with the laws of the State of New York applicable to
agreements entered into and to be performed wholly therein.
(g) Counterparts. This Contract may be
executed in several counterparts, each of which shall be
deemed an original. Such counterparts constitute but one
and the same instrument, which may be sufficiently evidenced
by one counterpart.
(h) Further Assurances. Each of the
parties hereto shall, at the request of the other party,
execute, acknowledge and deliver any further instruments,
and take such further actions, as the requesting party may
reasonably request, to carry out effectively the intent of
this Contract.
IN WITNESS WHEREOF, the parties hereto have executed
this Contract as of the day and year first above written.
Seller:
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
By: PRUDENTIAL-BACHE PROPERTIES,
INC.
Its Managing General Partner
By:
Name:
Title:
Buyer:
PUBLIC STORAGE, INC.
By:
Name:
Title:
EXHIBITS
Exhibit A - Property Description
Exhibit B - Escrow Agreement
Exhibit C - Property Value Allocations
Exhibit D - Instrument of Assumption
Exhibit E - Letter from LAW Engineering and Environmental
Services
(W&T, Ltd-2)
EXHIBIT A
PROPERTIES
NAME LOCATION
Cherry Hill 1861 Old Cuthbert Road
Cherry Hill Township, New Jersey
South May/I-240 2809 West I-240
Oklahoma City, Oklahoma
South Santa Fe 8012 S. Sante Fe Avenue
Oklahoma City, Oklahoma
South May 4105 South May Avenue
Oklahoma City, Oklahoma
Broken Arrow 1901 W. Concord Circle
Broken Arrow, Oklahoma
Arlington 175 S. Watson Road
Arlington, Texas
East Arapaho 500 East Arapaho Road
Richardson, Texas
Hampton Park 9244 East Hampton Drive
Capitol Heights, Maryland
The Properties include:
(A) All buildings and improvements located on the
Properties;
(B) All rights-of-way, alleys, waters, privileges,
easements, covenants and appurtenances which are on or
benefit the Properties;
(C) All right, title and interest of Seller in and to
any land lying in the bed of any public or private street,
road, avenue, alley or highway, opened, closed or proposed,
in front of or adjoining the Properties to the center line
thereof in each case which are appurtenances to such proper-
ties;
(D) All right, title and interest of Seller to any
unpaid award to which Seller may be entitled (1) due to the
taking, by condemnation or eminent domain of any right,
title or interest of Seller in the Properties, and (2) for
any damage to the Properties due to the change of grade of
any street or highway;
(E) All right, title and interest of Seller to any
assignable licenses, permits, contract, leases, sales agree-
ments, construction agreements, maintenance agreements,
service agreements, guaranties, warranties, telephone ex-
changes, advertising materials and trade names with respect
to the Properties except for the name "Prudential" "Bache"
or "Watson & Taylor" or any combination thereof and;
(F) All Leases and security deposits with respect to
any of the Properties in which Seller holds an interest as a
landlord for the use and occupancy of all or any part of the
Properties.
EXHIBIT B
ESCROW AGREEMENT
Agreement made this day of 1996 by and among
Public Storage, Inc. Storage Corporation, ("PURCHASER"),
Prudential-Bache/Watson & Taylor, Ltd.-2 ("SELLER"), and
Chicago Title Insurance Company, Inc., as escrow agent
("ESCROW AGENT").
(i) The Parties hereto agree that the sum of
$1,350,000 (the "ESCROW AMOUNT"), to be held pursuant to a
Contract of Sale between Seller and Purchaser of even date
herewith (the "CONTRACT"), shall be held in escrow by the
Escrow Agent upon the terms and conditions set forth herein.
(ii) (A) The Escrow Agent shall deliver the
Escrow Amount then in its possession in accordance with
Paragraph 3 hereof to Seller (i) upon the Closing, as that
term is used in and in accordance with the Contract or (ii)
in the event that Seller makes a written demand therefor
stating that Purchaser has failed to perform Purchaser's
obligations under the Contract.
(B) Escrow Agent shall return the Escrow
Amount then in its possession in accordance with Paragraph 3
hereof to Purchaser in the event that Purchaser makes a
written demand therefor stating (i) that Seller has failed
to perform Seller's obligations under the Contract or (ii)
that Purchaser is otherwise entitled to the return of the
Escrow Amount in accordance with the terms of the Contract.
(C) In the event that Escrow Agent intends to
release the Escrow Amount and any interest earned thereon in
accordance with Paragraph 3 hereof to either party pursuant
to Paragraph 2(a)(ii) or 2(b) hereof, then Escrow Agent
shall give to the other party not less than ten days prior
written notice of such fact and, if Escrow Agent actually
receives written notice during such ten day period that such
other party objects to the release, then Escrow Agent shall
not release the Escrow Amount and any such dispute shall be
resolved as provided herein.
(D) In the event that a dispute shall arise
as to the disposition of the Escrow Amount or any other
funds held hereunder in escrow, Escrow Agent shall have the
right, at its option, to either hold the same or deposit the
same with a court of competent jurisdiction pending decision
of such court, and Escrow Agent shall be entitled to rely
upon the decision of such court.
(E) Escrow Agent may commingle the Escrow
Amount with other funds held in its "trustees account".
(F) Escrow Agent shall hold the Escrow Amount
in a savings bank account or a liquid assets account in the
City of San Francisco bearing interest at such rate as may
from time to time be paid or invest the Escrow Amount in
U.S. Treasury Bills or other securities guaranteed by the
Government of the United States of America. The rate of
interest or yield need not be the maximum available and
deposits, withdrawals, purchases and sales shall be made in
the sole discretion of Escrow Agent, which shall have no
liability whatsoever therefor except for its gross negli-
gence or willful misconduct. Discounts earned shall be
deemed interest for the purposes hereof.
(G) Escrow Agent shall have no liability
whatsoever arising out of or in connection with its activity
as Escrow Agent except for its gross negligence or willful
misconduct. Seller and Purchaser jointly and severally
agree to indemnify and hold harmless Escrow Agent from and
against any and all loss, cost, claim, cause of action,
damage, liability and expense (including attorneys' fees and
court costs) which may be incurred by reason of its acting
as Escrow Agent.
(H) Escrow Agent shall be entitled to rely
upon any judgment, certification, demand or other writing
delivered to it hereunder without being required to deter-
mine the authenticity or the correctness of any fact stated
therein, the propriety or validity thereof, or the jurisdic-
tion of a court issuing any such judgment. Escrow Agent may
act in reliance upon (i) any instrument or signature be-
lieved to be genuine and duly authorized, and (ii) advice of
counsel in reference to any matter or matters connected
herewith.
(I) Any notice, demand or other communication
to Escrow Agent hereunder shall be in writing and delivered
in person or sent by certified mail, return receipt request-
ed, postage prepaid, addressed to Escrow Agent as follows:
Chicago Title Insurance Company
388 Market Street
San Francisco, California
Attention: Michelle Viguie
The same shall be deemed given on the date delivered, if
delivered in person, or on the third business day following
the date of mailing the same, if mailed.
(iii) The interest, if any, earned on the Escrow
Amount shall be for the account of Buyer. At the Closing, such
interest shall be a credit against the Purchase Price.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
Purchaser:
Public Storage, Inc.
By:______________________________
Name:
Title:
Seller:
Prudential-Bache/Watson & Taylor, Ltd.-2
By: Prudential-Bache Properties, Inc.,
its managing general partner
By:______________________________
Name:
Title:
Chicago Title Insurance Company, Inc., as Escrow Agent
By:_____________________________
Name:
Title:
(W&T, Ltd-2)
EXHIBIT C
ALLOCATED VALUES
PROPERTY PURCHASE PRICE
Cherry Hill $2,150,000
South May/I-240 $1,250,000
South Santa Fe $1,200,000
South May $1,200,000
Broken Arrow $2,800,000
Arlington $3,100,000
East Arapaho $4,300,000
Hampton Park $2,000,000
EXHIBIT D
OMNIBUS INSTRUMENT OF ASSUMPTION
FOR GOOD AND VALUABLE CONSIDERATION, the receipt
of which is hereby acknowledged, and in consideration of
the assignment by Prudential-Bache/Watson & Taylor, Ltd.-
2, a Texas limited partnership ("Seller"), to Public Stor-
age Inc. a California corporation ("Buyer"), of all of
Seller's right, title and interest in and to each and
every one of the following:
(i) all leases (the "Leases") of space located
at the real properties more particularly described on
Schedule I hereto (the "Premises") and any related securi-
ty deposits Set forth on Schedule I (the "Security Depos-
its") in the;
(ii) all fixtures, machinery, equipment and
other personal property (the "Personalty") attached or
appurtenant to the Premises;
(iii) all service and maintenance contracts,
construction contracts relating to the Premises (the "Ser-
vice Contracts"); and
(iv) all licenses, permits, consents, waiver,
variances and unexpired warranties and guarantees, if any,
telephone exchanges, advertisements, reports, surveys,
architectural plans relating to the Premises (collectively
with the Leases, Security Deposits, Personalty and Service
Contracts, the "Property").
Buyer hereby agrees to accept the foregoing
assignment by Seller of the Property and assumes all lia-
bilities and obligations whether of Seller or otherwise in
connection therewith arising on or after the date hereof.
Buyer and Seller shall, at the request of the
other party, execute, acknowledge and deliver any further
instruments, and take such further actions, as may reason-
ably be requested, to carry out effectively the intent of
this Instrument.
This Instrument shall be binding upon and shall
inure to the benefit of Seller and Buyer and their succes-
sors and assigns.
IN WITNESS WHEREOF, the undersigned has executed
this Instrument as of the 10th day of June, 1996.
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
By:______________________________
Name:
Title:
PUBLIC STORAGE, INC.
By:______________________________
Name:
Title:
(W&T, Ltd-2)
SCHEDULE I
PROPERTIES
NAME LOCATION
Cherry Hill 1861 Old Cuthbert Road
Cherry Hill Township, New Jersey
South May/I-240 2809 West I-240
Oklahoma City, Oklahoma
South Santa Fe 8012 S. Sante Fe Avenue
Oklahoma City, Oklahoma
South May 4105 South May Avenue
Oklahoma City, Oklahoma
Broken Arrow 1901 W. Concord Circle
Broken Arrow, Oklahoma
Arlington 175 S. Watson Road
Arlington, Texas
East Arapaho 500 East Arapaho Road
Richardson, Texas
Hampton Park 9244 East Hampton Drive
Capitol Heights, Maryland
EXHIBIT E
LETTER OF ENVIRONMENTAL CONSULTANT
SECONDARY CLIENT AGREEMENT
This Agreement between _____________ and Law Environmental
Consultants, Inc. is being entered in consideration of $200.00,
the promise and obligations herein and other good and valuable
consideration, the adequacy of which is hereby acknowledged by
the parties. At the express request of __________ ("Client")
and with full disclosure to and approval from same, Law Envi-
ronmental Consultants, Inc. ("Law") through its subsidiaries,
affiliates, branches, or divisions, as an independent consul-
tant, agrees to provide _________________, its corporate
successors and assigns (collectively "Secondary Client") for
its additional benefit and use, copies of certain final reports
(specify reports) prepared for Client by Law. Secondary Client
may rely on the contents of those reports as if those reports
were expressly prepared for Secondary Client subject to any
limitation placed on the scope, nature and type of Law's
services as stated in Law's proposal [specify] and/or report
and subject to these terms and conditions contained herein.
The services provided have been performed for Client and our
report may or may not be suitable for all purposes of Secondary
Client.
STANDARD OF CARE AND WARRANTY. Law warrants that it has
performed its services with that degree of skill and care
ordinarily exercised by reputable members of the environmental
engineering and scientific profession of Law or similar locali-
ty. NO OTHER WARRANTY, EXPRESSED OR IMPLIED, IS MADE OR
INTENDED, except as set forth in the Reports.
DOCUMENTS. Secondary Client agrees that Law's report is
intended for Client and Secondary Client's exclusive reliance
and internal use, and is not for the general distribution or
publication. Without the prior consent of Law, any unautho-
rized use or further distribution by Secondary Client shall be
at Secondary Client's and recipient's sole risk and without
liability to Law.
CONFLICT OF INTEREST. By request and use of the referenced
report, Secondary Client expressly agrees to waive all claims
of existing or potential conflicts of interest
that may now exist or hereafter arise by Law's providing the
requested report should any dispute arise between Client and
Secondary Client.
LAW ENVIRONMENTAL CONSULTANTS, INC. ____________________
Signed: ___________________ Signed: ___________________
Title: ___________________ Title: ___________________
Date: ___________________ Date: ___________________
