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SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement [ ] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] 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).
[ ] 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.
[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
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<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
ONE SEAPORT PLAZA
NEW YORK, NY 10292-0116
September 17, 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 distribution to Unitholders
representing the bulk of the purchase price promptly after the closing of the
Sale. The Partnership 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 $327 per unit,
subject to potential reduction for title and environmental issues.
THE SALE AND LIQUIDATION REQUIRES THE CONSENT OF A MAJORITY OF THE UNITS.
YOUR APPROVAL IS VERY IMPORTANT.
PRUDENTIAL-BACHE PROPERTIES, INC., THE MANAGING GENERAL PARTNER OF THE
PARTNERSHIP, AND GEORGE S. WATSON AND A. STARKE TAYLOR, III, THE INDIVIDUAL
GENERAL PARTNERS OF THE PARTNERSHIP, BELIEVE THAT THE SALE AND LIQUIDATION 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 conditions 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 liquidity to Unitholders,
(4) The price and terms negotiated with the buyer were the result of a
competitive bidding process and were the most favorable of the offers
received to acquire the properties in the bidding process described
under "THE TRANSACTION--Background of the Sale of the Properties"
in the attached Consent Statement,
<PAGE>
(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 financial
point of view to the Partnership (see "THE TRANSACTION--Fairness
Opinion and Appraisals" in the attached Consent Statement).
(7) The terms and conditions of the Contract of Sale, as described under
"THE CONTRACT OF SALE."
Unitholders should be aware that, if the Sale is consummated, the
Partnership would not receive the benefits of any potential increases in cash
flow or values 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 solicitors, Morrow & Co., Inc. at (800) 566-9061.
Very truly yours,
Thomas F. Lynch, III
President
Prudential-Bache Properties, Inc.
Managing General Partner
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
ONE SEAPORT PLAZA
NEW YORK, NY 10292-0116
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NOTICE OF PROPOSED ACTION BY WRITTEN CONSENT
SEPTEMBER 17, 1996
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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
"Partnership"), 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 Partnership and Public Storage, Inc. and (b) the complete
liquidation and dissolution of the Partnership (collectively, the
"Transaction"), all as more fully described in the accompanying 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 business on September 1, 1996
are entitled to give their consent to these actions.
The accompanying Consent Statement describes the Transaction in detail.
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YOUR CONSENT TO THIS PROPOSAL IS IMPORTANT
DEADLINE: 10:00 A.M., NEW YORK TIME, ON FRIDAY, OCTOBER 18, 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.
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<PAGE>
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-addressed 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 Friday, October 18, 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
September 17, 1996
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
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CONSENT STATEMENT
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ACTION BY WRITTEN CONSENT
SEPTEMBER 17, 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 connection
with the solicitation of consents by Prudential-Bache Properties, Inc., the
Managing General Partner of the Partnership, 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 substantially 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 approved by Unitholders who are the
record holders of a majority 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.
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THE CONSENT STATEMENT AND FORM OF CONSENT ARE FIRST
BEING MAILED TO UNITHOLDERS ON OR ABOUT SEPTEMBER 18, 1996.
THE DATE OF THIS CONSENT STATEMENT
IS SEPTEMBER 17, 1996
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY .................................................................... 3
Selected Historical Financial Data .................................... 7
ACTION BY CONSENT .......................................................... 8
General ............................................................... 8
Matters to be Considered .............................................. 8
Recommendations of the General Partners ............................... 8
Action by Consent; Record Date ........................................ 8
Consents .............................................................. 9
THE TRANSACTION ............................................................ 9
Description of the Partnership ........................................ 9
General Partners of the Partnership ................................... 10
Background of the Sale of the Properties .............................. 10
Recommendations of the General Partners ............................... 12
Fairness Opinion and Appraisals ....................................... 13
Certain Income Tax Consequences and Considerations .................... 18
Accounting Treatment .................................................. 22
Reason for Obtaining Unitholder Approval .............................. 22
THE CONTRACT OF SALE ....................................................... 22
The Sale .............................................................. 22
Title and Environmental Defects ....................................... 23
Closing Conditions .................................................... 24
Remedies .............................................................. 24
Covenants ............................................................. 25
Certain Expenses ...................................................... 25
Casualty and Condemnation ............................................. 25
Termination ........................................................... 26
FINAL DISTRIBUTIONS AND LIQUIDATION ....................................... 27
NO APPRAISAL RIGHTS ........................................................ 28
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF ............................ 28
MARKET PRICES FOR THE PARTNERSHIP'S UNITS AND DISTRIBUTIONS TO
UNITHOLDERS AND THE GENERAL PARTNERS ..................................... 29
Market Price .......................................................... 29
Distributions ......................................................... 29
AVAILABLE INFORMATION ...................................................... 29
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
June 30, 1996 ....................................................... Annex D
Ernst & Young Tax Letter .............................................. Annex E
2
<PAGE>
SUMMARY
The following is a summary of certain information contained 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-warehouses 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 Friday,
October 18, 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
remaining 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
$327 per Unit, subject to potential
reduction for title and environmental
issues. See "FINAL DISTRIBUTIONS AND
LIQUIDATION."
3
<PAGE>
Background........................ See "THE TRANSACTION -- Background of the
Sale of the Properties."
Recommendations of the
General Partners................ PB Properties, George S. Watson and A.
Starke Taylor, III, the general partners of
the Partnership (the "General Partners"),
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 Partnership 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 TRANSACTION --
Fairness Opinion and Appraisals." For
rendering financial advisory services with
respect to the Partnership's portfolio and
preparing a fairness opinion in connection
with the Sale, Stanger is being paid a fee
of $358,000 by the Partnership, a
substantial portion of which is contingent
upon the closing of the Sale. Stanger is
also receiving fees from the other
Partnerships in connection with the sale of
their properties.
Independent Appraisals............ The Partnership received MAI-certified
appraisals of the Properties from an
independent, third-party appraisal firm,
Cushman & Wakefield of Texas, Inc. ("Cushman
& Wakefield"), dated September 1995. The
purchase price exceeds the aggregate
appraised 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 California. The Buyer is a
fully integrated, self-administered and
self-managed REIT that acquires, develops,
owns and operates self-service
mini-warehouse facilities and also manages
similar properties for third parties. The
Buyer is the largest owner and operator of
mini-warehouses in the United States. The
Buyer (or a predecessor) has been the
manager of the day-to-day operations of the
Properties since 1988. The offices of the
Buyer are located at 701 Western Avenue,
Glendale, California. The Buyer has entered
into contracts with certain other
partnerships formed by the General Partners
under which such other partnerships would
sell substantially all of their properties
to the Buyer. See "THE
TRANSACTION--Background of the Sale of the
Properties."
4
<PAGE>
Security Ownership and Voting of
the General Partners ............ As of September 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. Ralph DeFeo,
president of Watson & Taylor Management,
Inc., directly owns 20 Units. Prudential
Securities Incorporated, an affiliate of PB
Properties, beneficially owned 180 Units
(approximately 0.4% of the outstanding
Units) as of September 1, 1996. Prudential
Securities Incorporated intends to vote its
Units to approve the Transaction. George S.
Watson and A. Starke Taylor, III
(collectively, the "Individual General
Partners") own approximately 260 non-voting
"equivalent units." See "VOTING SECURITIES
AND PRINCIPAL HOLDERS THEREOF."
Effective Time of the
Transaction...................... It is anticipated that the Transaction will
be consummated as promptly as practicable
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 terminated
if it is not consummated by March 13, 1997.
The Partnership may terminate the
Transaction if the Partnership receives a
more favorable offer for the purchase 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 allocable to the Unitholders of
approximately $6.3 million in connection
with the sale of the Properties. As a
result, each taxable Unitholder will
recognize a gain of approximately $118 per
Unit, and each tax-exempt Unitholder will
recognize a gain of approximately $130 per
Unit. See "THE TRANSACTION -- Certain Income
Tax Consequences and Considerations."
5
<PAGE>
Accounting Treatment.............. For financial reporting purposes, the Sale
will be treated as a sale of properties. See
"THE TRANSACTION -- Accounting Treatment."
Regulatory Matters................ No Federal or State regulatory requirements
must be complied with or approvals obtained
in connection with the Transactions.
ACTION BY CONSENT
Record Date; Units
Entitled to Consent.............. Unitholders of record at the close of
business on September 1, 1996, are entitled
to execute an action by written consent. At
such date, there were 51,300 Units
outstanding, 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 Partnership in accordance
with the Partnership Agreement, other than
such assets as are set aside to provide for
the payment of all liabilities of the
Partnership (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 Partnership entitled to consent
thereto. Such approval will constitute the
approval of the Partnership.
6
<PAGE>
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 six months ended June 30,
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 June 30, 1996,
copies of which are attached hereto.
<TABLE>
<CAPTION>
Six Months ended
Year ended December 31, June 30,
------------------------------------------------------------------ --------------------------
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 $ 1,439,989 $ 1,406,217
Provision
for loss on
impairment
of assets $ -- $ -- $ -- $ -- $ 1,418,000 $ -- $ --
Net income
(loss) $ 489,304 $ 402,785 $ 347,081 $ 355,077 $(1,064,271) $ 412,276 $ 278,046
Net income
(loss)
per Unit $ 9.40 $ 7.73 $ 6.66 $ 6.82 $ (18.90) $ 7.92 $ 5.34
Total assets $14,086,449 $14,263,400 $15,072,631 $15,732,923 $16,362,156 $14,312,542 $14,179,439
Total
limited
partner
distributions $ 766,147 $ 1,033,761 $ 878,048 $ 1,066,238 $ 1,235,508 $ 382,567 $ 382,567
Limited
partner
distributions
paid per
Unit $ 14.86 $ 20.05 $ 17.03 $ 20.68 $ 23.85 $ 7.42 $ 7.42
</TABLE>
7
<PAGE>
ACTION BY CONSENT
GENERAL
This Consent Statement is being furnished on behalf of the Partnership to
the holders of the limited partnership interests of the Partnership in
connection with the solicitation of consents by PB Properties, 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 September 18, 1996.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve a proposal involving the sale of
the Properties, which comprise substantially all of the assets of the
Partnership, the complete 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 Partners."
ACTION BY CONSENT; RECORD DATE
The record date has been fixed as September 1, 1996, (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 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.
8
<PAGE>
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 Friday,
October 18, 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., 909 Third
Avenue, 20th Floor, New York, New York 10022.
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 approximately $3,500, 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 additionally 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 Partnership will
terminate on December 31, 2050 unless terminated sooner under the provisions of
the Partnership Agreement.
The Partnership invested in and owns and operates the Properties, which
consist of eight improved properties, five of which are business center
facilities with mini-warehouses and three of which are solely mini-warehouse
facilities.
9
<PAGE>
GENERAL PARTNERS OF THE PARTNERSHIP
The general partners of the Partnership are PB Properties, 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. At such time Messrs. Watson and Taylor reiterated their view as had
previously been expressed to the Managing General Partner that Watson & Taylor
Management, Inc. could achieve better results managing the Properties than those
achieved by the Buyer, leading to higher cash flow for the Partnership.
Therefore, Messrs. Watson and Taylor believed that it would be in the best
interests of the Partnership that management of the Properties be transferred to
their management company and, after results improved, to then sell the
Properties. The Managing General Partner did not agree with these views and
believed that, for the reasons stated in the next paragraph, this was an
excellent time to sell the Properties. The Managing General Partner informed
Watson and Taylor that it would not agree to transfer management of the
Properties to Watson & Taylor Managing, Inc. Based on the Managing General
Partner's position, Watson and Taylor concluded that the best interests of the
Partnership would be served by proceeding with a sale of the Properties if fair
prices could be obtained.
The Partnership then retained Stanger to provide advice with respect to a
possible sale of the Properties and liquidation of the Partnership. Stanger
advised the General Partners that the market for the sale of self-storage
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 consequent 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 Partnership being consistent with a sale at approximately such time
and (iii) the General Partners ability to evaluate bids before committing 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 soliciting bids for their properties,
invited interested parties to bid on any or all of the properties held by such
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partnerships and announced that, if acceptable bids were received by a
partnership, the partnership would enter into agreements 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 financial advisor. The
Partnership and its advisor 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 financing 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
Partnerships in which the nominal amount of the offer allocated 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 indicated that its bid was contingent on the acquisition of all
the assets of the Other Partnerships as well as the Partnership. 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 Partnership 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 remove certain
properties and consequently lower its offer. Subsequently, 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 Partnerships. 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
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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 partnership, and that the termination of one contract
would not have any affect on any other contract. The Contract of Sale is not
conditioned on any contract with any Other Partnership, 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-warehouses in the United States. The offices
of the Buyer are located at 701 Western Avenue, Glendale, CA 91203 and its
telephone number is (818) 244-8080.
The Buyer (or a predecessor) has been the manager of the day-to-day
operations of the Properties, as well as certain 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 considered
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 and liquidation 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 the
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 consideration to be received
in the Sale is fair from a financial point of view to the
Partnership, described below under "--Fairness Opinion and
Appraisals."
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(vii) The terms and conditions of the Contract of Sale, as 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 Contract 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 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.
Unitholders should be aware that, if the Sale is consummated, the
Partnership would not receive the benefits of any potential increases in cash
flow or values 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 analysis 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 Partnership 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,
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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 include
financial advisory services, asset and securities valuations, asset sale
transaction structuring and negotiation, 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, reorganizations 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
television 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 years ending December 31, 1993, 1994 and 1995 and the
Partnership's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1996 and June 30, 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 historical operating statements
for each of the Properties for 1995 and the first six months of 1996 and budgets
for 1996, (v) performed site inspections of each of the Properties owned by the
Partnership, (vi) 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, (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. Potential 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 purchasers were identified and contacted regarding
their interest in the Properties.
A confidential memorandum describing each Property was prepared, which
included a physical description, photographs, available site plans, location
maps, market area demo-
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graphics, 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. Fourteen 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 prepared 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 establish 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 capitalization rates and/or prices per unit or square foot paid in actual
sales transactions involving similar type properties 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 appraised 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 received in the Sale is fair to the Partnership from a
financial 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 information contained in the Consent Statement or that was furnished
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 financial 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 currently 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, prepare 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.
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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 is contingent upon
the closing of the Sale. Stanger will also receive fees from the Other
Partnerships totalling $773,400 for financial advisory services and preparing
fairness opinions in connection with the sale of their assets. In addition,
Stanger will be reimbursed for certain out-of-pocket expenses, including legal
fees, and will be indemnified against certain liabilities including certain
liabilities under the Federal securities laws. 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 $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 $334,086.
LIMITATIONS AND QUALIFICATIONS - Stanger was not requested 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 materially 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 managers. Appraisers also conducted market research regarding local and
regional economic conditions, competitive self-storage/office warehouse/office
showroom properties (existing 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 various
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
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properties considered most similar to the property appraised considering 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.
For each of the eight appraisals which utilized the Sales Comparison
Approach, 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 estimated 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 probable 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
institutional owners of properties; and publicly available, published real
estate industry statistics.
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 affiliates have offices nationwide covering most of the major
real estate markets, and its business activities include commercial leasing,
tenant representations, appraisals and valuations, 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 totalling $30,000 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
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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. Copies may be obtained at the reasonable cost of
document reproduction upon written request to Prudential-Bache/Watson & Taylor,
Ltd.-2, Property Appraisals, One Seaport Plaza, New York, New York 10292-0116.
CERTAIN INCOME TAX CONSEQUENCES AND CONSIDERATIONS
General
The following discussion summarizes the general 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 consequences to a particular Unitholder. 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,
and assuming the Sale is consummated on September 30, 1996, 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
TAX-EXEMPT UNITHOLDER. (All per Unit calculations for Federal income tax
purposes were based upon 51,560 Units which included the "equivalent units" held
by the Individual General Partners.) 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 tax-exempt Unitholder) will
represent Section 1231 Gain (defined below) and approximately $100,000 (or an
average of approximately $1 per Unit for both taxable and tax-exempt
Unitholders) will represent Section 1245 Gain (defined below). However, due to
varying admission dates and the operation of the Partnership Agreement, the
actual amount of recognized gain that is allocated to a Unit will depend upon a
Unitholder's admission date. The total potential amount of Section 291(a)
ordinary income recharacterization for a corporate Unitholder is approximately
$14 per Unit (see discussion below).
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. ss."); 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
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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 and material to a particular Unitholder in
light of the Unitholder's personal circumstances, or to certain types of
Unitholders subject to special treatment. For example, insurance companies,
subchapter 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 taxable entity and incurs no
Federal income tax liability. Instead, each partner is required to take into
account in computing their own income tax liability their own 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 classification 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 Partnership 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 Partnership's recognition
of income for Federal income tax purposes, which in turn will cause the
Partnership's partners to be allocated such income.
The potential tax consequences to the Unitholders, assuming the Sale is
consummated on September 30, 1996, are discussed below.
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 (including 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 expenditures, 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 initial 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
nonde-
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ductible charges; and (ii) adjusted downward or decreased 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 a taxpayer's 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) depreciable 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). Section 1245
and 1250 Gains are taxed at the marginal ordinary income tax rate of the
taxpayer as opposed to the 28% individual capital gains rate. The Partnership
will have minimal, if any, Section 1250 Gain as a result of the Sale.
Under Section 702(a)(3) of the Code (which generally deals with the "pass
through" tax items from a partnership to its partners), a partnership is
required to separately state, and the partners are required to account
separately, for their distributive share of all gains and losses. Each
Unitholder's allocable share of Section 1231 Gain, Section 1245 Gain, Section
1250 Gain and Partnership net taxable income or loss will be reflected on
their own 1996 Schedule K-1.
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
subsequent 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 corporate Unitholder to treat 20%
of the portion of the gain on the Sale
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allocated to such corporate Unitholder that would otherwise be Section 1231 Gain
as ordinary income to the extent of depreciation claimed with respect to real
property, and the following discussion and estimates assume such treatment.
All Section 1231, Section 1245 and Section 1250 taxable income and gain
allocated to a Unitholder will be subject to the passive activity loss rules.
Please consult your tax advisor regarding the effect that the passive activity
loss rules will have upon your tax situation.
The Partnership expects to make distributions from the Sale proceeds. See
"Market Prices and Distributions--Distributions." This distribution will first
reduce a Unitholder's Federal income tax basis in their own 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 their own Unit, the amount of
such remaining basis will give rise, in the year of the termination, 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 foregoing estimates set forth above.
The foregoing estimate does not take into account the effects, if any, of any
costs associated with Environmental Defects or Title Defects. See "THE CONTRACT
OF SALE -- Title and Environmental Defects." The foregoing estimate was prepared
assuming a September 30, 1996 closing, although a later closing in 1996 is not
expected to result in material differences.
Certain State Income Tax Considerations
Because each State's tax law varies, it is impossible 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.
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Other
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 financial institutions. It also does not address the
State, local or foreign tax consequences of the Transaction. ACCORDINGLY,
UNITHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS 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 the Closing.
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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
(generally, 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 referred 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
Property, (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 Partnership 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 Partnership 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 Partnership
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 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 environmental 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 Environmental 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 Environmental 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 Properties, subject to the Casualty and Condemnation provisions
discussed below.
The Buyer has raised certain objections regarding title or survey
issues with respect to the Properties. Based upon, among other things, a review
of title
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commitments with respect to the Properties, the Managing General Partner does
not anticipate that these objections will have any material effect on the
Partnership's ability to sell the Properties to the Buyer or on the purchase
price to be received although there can be no assurances in this regard.
In preparing the Properties for sale the Partnership had an environmental
site assessment performed by the Partnership's environmental consultants, a
qualified engineering firm, for each of the Partnership's properties. Two of the
Partnership's properties, South May/I-240, Oklahoma and Hampton Park, Maryland,
evidenced certain concentrations of environmental contaminants. The Managing
General Partner has reported the findings of the environmental assessment to the
appropriate State environmental regulatory departments. The environmental
consultant will continue to assist the Managing General Partner in its
discussions with the State and will help in evaluating the extent of what
remediation, if any, the State may require. Depending on the State's response to
the reports, the cost associated with the remediation at Hampton Park may be
material. However, it is uncertain at this time what the cost of any such
remediation, or potential remediation at the Oklahoma site, or their impact on
the sale of these Properties, may be.
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 covenants 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 the
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 recommendation 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
Partnership 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 Partnership shall
have no further obligation to the Buyer whatsoever.
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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 information 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 Partnership 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 Partnership 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 Partnership 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 governmental entity in connection with the
transfer of the Properties. The Contract of Sale also provides that the
Partnership shall deliver to the Buyer at the Partnership's sole cost and
expense any (i) Phase I environmental site assessments, (ii) Phase II
environmental assessments of the Properties, (iii) other Phase II environmental
assessments which are reasonably required by the Phase I environmental site
assessments to be conducted at the Properties. Each of the parties shall
otherwise pay for any and all other 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
casualty insurance and pay to the Buyer the amount of any deductible. If the
cost of repairing a Casualty to any Property, in accordance with the
Partnership's insurance claims, equals or exceeds $100,000, then the Partnership
shall have
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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 provided in accordance with the
Contract of Sale 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 contrary, (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 Partnership 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.
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 existing condition, and the Buyer shall be
entitled to receive all net condemnation 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 Partnership 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 Partnership 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 Partnership 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" in 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.
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(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 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 contingent liabilities, 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
$327 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 577,000
-----------
Subtotal $18,577,000
Expenses of Sale and Liquidation 1,717,000
-----------
Net Distributable Amount $16,860,000
GP Distributions $-0-
Net LP Distributable Amount
(including certain "equivalent
units") $16,860,000
===========
Total LP Distributions Per Unit $327
====
The Net LP Distributable Amount includes approximately $85,000
distributable to the Individual General Partners for approximately 260
"equivalent units."
The foregoing estimate does not take into account the effects, if any, of
any costs associated with Environmental Defects or Title Defects. See "THE
CONTRACT OF SALE - Title and Environmental Defects." The foregoing estimate was
prepared assuming a
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September 30, 1996 closing, although a later closing is not expected to result
in material differences.
Transfers of Units are effected on the books of the Partnership quarterly
on the first day of the calendar quarter subsequent to the assignment. If the
Sale is, as expected, closed, and the initial liquidating distribution is made,
prior to December 31, 1996, only holders of record as of October 1, 1996 will be
entitled to such distribution.
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 Agreement 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 disapprove 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 September 1, 1996, no
person or entity beneficially owns more than 5% of the outstanding Units.
As of the Record Date, none of the General Partners nor any officer or
director thereof owned any Units. Ralph DeFeo, president of Watson & Taylor
Management, Inc., owned 20 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. PB Properties holds approximately 258 "equivalent units" which do
not carry the right to vote and for which it has waived its right to share in
any Partnership allocations of income or loss and in any limited partnership
cash distributions.
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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 regional 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 August 15, 1996, the
Partnership has made distributions of approximately $9.2 million, or an average
of approximately $179 per Unit, to the Unitholders, including holders of
"equivalent units", as applicable, pursuant to the terms of the Partnership
Agreement. The following table sets forth the amount of such per Unit cash
distributions 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
Second 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 Annual Report on Form 10-K for the year ended December 31,
1995, and the Quarterly Report on Form 10-Q for the quarter ended June 30, 1996,
which provide additional information regarding the Partnership. With respect to
statements contained in this Consent Statement as to the content of any contract
or other document filed as an exhibit to the Form 10-K and Form 10-Q, each such
statement is qualified in all respects by reference to such exhibit and the
schedules thereto which may be obtained without charge upon written request to
the Partnership. If
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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 at the
reasonable cost of document reproduction 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 contained in
this Consent Statement (or in any other subsequently filed document that also is
or is deemed to be incorporated by reference in this Consent Statement) modifies
or supersedes such statement. Any statement so modified or superseded shall not
be deemed, except as so modified or superseded, to constitute a part of this
Consent Statement.
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ANNEX A
CONTRACT OF SALE
THIS CONTRACT, made as of June 10, 1996, by and between
PrudentialBache/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 thereto 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 ("Purchase 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 account pursuant to Seller's instructions.
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Chicago Title Insurance Company shall act as escrow agent (the "Escrow
Agent") and shall hold the Downpayment in accordance with the provisions of the
agreement annexed hereto as Exhibit B, which agreement is being executed
simultaneously with this Contract.
(c) Any other provision hereof to the contrary 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 provided 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, conditions,
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 (collectively, 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 encroachment (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;
A-2
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(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 necessary 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, special 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 conformance with the then
applicable local zoning codes or deed restrictions, (ii) if a Property
is not in conformance 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
setting 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
A-3
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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 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 Environmental 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 contemplated 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 conditions hereof, to cause the Closing to take place with respect 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 "Environmental Defect"
shall mean "Hazardous Materials" (hereinafter defined) located in, on or under
any one of the Real Properties 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 environmental 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 requirements
(including consent decrees, judicial decisions and administrative orders)
relating to the protection, preservation, 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, Compensation 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
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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 byproduct 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
arbitration 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 rendered may be entered in any court having jurisdiction. Each party
shall pay 50% of the fees and expenses of the Association. 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 involves 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
pursuant to this Contract or the final determination of an arbitrator.
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, including title
defects), based solely on Buyer's own inspection, 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 indemnifications 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 physical conditions, operating performance, title, or legal
matters). Without limiting the foregoing, any information disclosed in writing
to Buyer in connection with any investigations, inspections, tests or analyses
performed prior to Closing, shall be deemed
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acceptable to Buyer, and not violative 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 governmental 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 material respects, all agreements and covenants required
by this Contract to be performed or complied with prior to or on the Closing
Date.
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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 insurance 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;
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(v) non-recourse assignment, to the extent assignable, of any
licenses, permits and unexpired warranties and guarantees, if any, pertaining to
the Property;
(vi) certificates and resolutions as may be reasonably requested
by the Buyer and Title Insurer 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 Property 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
correct 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:
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(i) assumption of the Leases and Service 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, escalation 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 additional 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 Leases, 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 determined after Closing that the
amount collected during Seller's ownership period is less than the expenses
incurred during the same period, then
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Buyer shall promptly pay to Seller the deficiency, but only to the extent such
deficiency 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.
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(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 preceding
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 reconciliation 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 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 governmental entity in connection with the
transfer of the Properties. 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 Properties 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.
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The provisions of this Section 11 shall survive the Closing.
12. Representations and Warranties of Seller. 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 personalty, situated thereon which are owned by Seller subject to the
Permitted Exceptions.
(b) Organization and Authority.
(i) Seller is duly organized and validly 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 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 contemplated hereby have been duly
authorized by all necessary 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 accordance with its terms.
(iii) Neither the execution and delivery of this Contract nor the
consummation of the transactions contemplated hereby in the manner herein
provided nor the fulfillment of or compliance with the terms and conditions
hereof shall:
A. contravene any material provision 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 Properties or Seller's ability to
perform all of its obligations hereunder
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(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 organized 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
contemplated 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 transactions contemplated hereby in the manner herein
provided nor the fulfillment of or compliance with the terms and conditions
hereof shall:
A. contravene any material provision 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, commitment, or agreement to which Buyer is a
party or by which Buyer is bound which, in the aggregate, would have a material
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.
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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
conditions 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 transactions 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 recommend 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
obligations 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 contemplated 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 transaction contemplated by this
Contract.
The provisions of this Section 15 shall survive the Closing.
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16. Indemnification of Seller. Buyer agrees to indemnify and hold harmless
Seller and its general partners and limited partners, their affiliates, their
and their affiliates' representatives, attorneys, accountants, agents and
employees and their and their affiliates' heirs, successors 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 operation 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 contemplated hereby as promptly as practicable. Such acts shall
include, without limitation, the provision of any information 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 announcement 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 confidential 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
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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 meeting, or solicit consents, of its limited partners
to consider 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 connection
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 proceeds and pay to Buyer
the amount of any deductible. Notwithstanding 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 Purchase Price. In
such event, Seller shall convey such Property 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 recourse or warranty of any nature whatsoever, all of Seller's
right, title and interest in and to any claims Seller may have
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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 condemnation 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 contained 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 competent jurisdiction issues a
binding and final order permanently 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 hereof, 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-17
<PAGE>
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 requirements 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 Service (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
A-18
<PAGE>
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
A-19
<PAGE>
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 masculine 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
Contract.
(ii) Except as otherwise provided hereby, 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.
A-20
<PAGE>
(d) Entire Contract. Subject to the terms and conditions of the
Confidentiality Agreement, this Contract represents the entire understanding
between the parties with respect to the subject matter hereof, superseding all
prior or contemporaneous understandings or communications 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 paragraphs 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 accordance 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.
A-21
<PAGE>
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:
A-22
<PAGE>
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
A-23
<PAGE>
(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
A-24
<PAGE>
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 properties;
(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 agreements, construction agreements,
maintenance agreements, service agreements, guaranties, warranties, telephone
exchanges, 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.
A-25
<PAGE>
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.
A-26
<PAGE>
(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 negligence 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 determine the authenticity or the correctness of any fact stated
therein, the propriety or validity thereof, or the jurisdiction of a court
issuing any such judgment. Escrow Agent may act in reliance upon (i) any
instrument or signature believed 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 requested, 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.
A-27
<PAGE>
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:
A-28
<PAGE>
(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
A-29
<PAGE>
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 Storage 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
security deposits Set forth on Schedule I (the "Security Deposits") 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 "Service 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 liabilities 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 reasonably 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 successors and assigns.
A-30
<PAGE>
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:
A-31
<PAGE>
(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
A-32
<PAGE>
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 Environmental Consultants,
Inc. ("Law") through its subsidiaries, affiliates, branches, or divisions, as an
independent consultant, 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
locality. 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
unauthorized 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
A-33
<PAGE>
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: ___________________
A-34
<PAGE>
- -------------------------------------------------------------------------------
1129 Broad Street
Shrewsbury, NJ 07702-4314
ROBERT A. STANGER & CO., INC. (908) 389-3600
FINANCIAL AND MANAGEMENT CONSULTANTS FAX: (908) 389-1751
(908) 544-0779
===============================================================================
ANNEX B
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 transaction (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 requested on behalf of the Partnership that
Robert A. Stanger & Co., Inc. ("Stanger") provide 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:
o Reviewed the Consent Statement related to the Sale and filed with the
Securities and Exchange Commission ("SEC") on September 17, 1996;
o Reviewed the Contract of Sale between the Partnership and the Buyer,
dated June 13, 1996;
o Reviewed the Partnership's annual reports filed with the SEC on Form
10-K for the 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 June 30, 1996, which reports the Partnership's
management has indicated to be the most current financial statements
available;
B-1
<PAGE>
o Reviewed the MAI-certified appraisals of the Properties owned by the
Partnership dated September 30, 1995 performed by Cushman & Wakefield,
Inc. (the "Appraisals");
o Reviewed summary historical operating statements for each of the
Properties for 1995 and operating budgets for 1996;
o Performed site inspections of each of the Properties owned by the
Partnership;
o 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;
o 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;
o Conducted such 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 Appraisals. 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 reasonably 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
B-2
<PAGE>
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 information available as of the date of our
analysis. Events occurring after that date may materially affect the assumptions
used in preparing the opinion.
Based upon and subject to the foregoing, and in reliance 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 analysis 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.
-----------------------------
Robert A. Stanger & Co., Inc.
Shrewsbury, NJ
September 16, 1996
B-3
<PAGE>
ANNEX C
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.)
incorporation 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 [check mark] 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. [check mark]
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.
C-1
<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>
C-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, III (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.
C-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.
C-4
<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.
C-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.
C-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
C-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.
C-8
<PAGE>
PART IV
<TABLE>
<CAPTION>
Page
Number
in Annual
Report
---------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
<S> <C> <C> <C>
(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, 1995 4
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>
C-9
<PAGE>
<TABLE>
<S> <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.
C-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
C-11
<PAGE>
<TABLE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- -------------------------------------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
<CAPTION>
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>
C-12
<PAGE>
<TABLE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1995
<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
which
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
C-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.
NOTE C--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE OWNED
<TABLE>
<CAPTION>
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.
NOTE D--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
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>
C-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>
C-15
<PAGE>
1995
- --------------------------------------------------------------------------------
Prudential-Bache/ Annual
Watson & Taylor, Ltd.-2 Report
C-16
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
1995 Annual Report
May 1996
Enclosed are the financial statements and Management's Discussion and
Analysis of Financial Condition and Results of Operations of
Prudential-Bache/Watson & Taylor, Ltd.-2 for the year ended December 31, 1995.
As set forth in the accompanying Annual Report, 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.
The Partnership's net income increased by approximately $87,000 in 1995 as
compared to 1994. Rental income increased by approximately $218,000 in 1995 as
compared to 1994 due to improved rental rates at all of the properties. In
addition, all of the properties except Arlington, South May/l-240 and Santa Fe
had an increase in average occupancies.
Property operating expenses increased by approximately $101,000 in 1995 as
compared to 1994 primarily due to increases in property level payroll costs at
all of the properties except Santa Fe, higher utility expense at all of the
properites except South May/l-240 and Arapaho, and increased insurance expense
primarily at Arlington and Hampton Park. General and administrative expenses
increased by approximately $21,000 in 1995 as compared to 1994 primarily due to
increased professional fees and higher costs associated with administering the
Partnership.
A distribution of $3.71 per $500 unit for the quarter ended December 31,
1995 was paid in February 1996. This distribution was funded from cash generated
from property operations for the fourth quarter 1995. Your Prudential Securities
account was credited with your distribution unless you previously instructed
otherwise.
We encourage you to read the attached report for a more complete discussion
of the Partnership's results of operations. Should you have any questions
concerning your investment or your account status, please contact the Client
Services Department at 1-800-535-2077.
C-17
<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
C-18
<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>
C-19
<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>
C-20
<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>
C-21
<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.
C-22
<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,
---------------------------
1995 1994
----------- -----------
<S> <C> <C>
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.
C-23
<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.
C-24
<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.
C-25
<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
C-26
<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.
C-27
<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
C-28
<PAGE>
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 June 30, 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 of incorporation (I.R.S. Employer
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 [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 [check mark] No __
D-1
<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>
June 30, December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Property held for sale $13,114,814 $13,099,251
Cash and cash equivalents 1,155,015 957,903
Other assets 42,713 29,295
----------- -----------
Total assets $14,312,542 $14,086,449
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Accounts payable and accrued expenses $ 265,456 $ 114,004
Deposits due to tenants 97,650 88,910
Due to affiliates, net 117,216 66,280
Accrued real estate taxes 81,642 105,458
Unearned rental income 59,102 46,166
----------- -----------
Total liabilities 621,066 420,818
----------- -----------
Partners' capital
Limited partners (51,818 limited and equivalent units issued and
outstanding) 13,755,298 13,729,712
General partners (63,822) (64,081)
----------- -----------
Total partners' capital 13,691,476 13,665,631
----------- -----------
Total liabilities and partners' capital $14,312,542 $14,086,449
=========== ===========
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
D-2
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Three Months
Ended June 30, Ended June 30,
------------------------- -----------------------
1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues
Rental income $1,439,989 $1,406,217 $ 725,993 $728,287
Interest 11,454 7,746 5,882 4,139
---------- ---------- ---------- --------
1,451,443 1,413,963 731,875 732,426
---------- ---------- ---------- --------
Expenses
Property operating 500,538 506,856 237,963 253,572
General and administrative 419,285 125,760 254,886 70,336
Real estate taxes 119,344 127,467 59,565 63,415
Depreciation -- 375,834 -- 189,171
---------- ---------- ---------- --------
1,039,167 1,135,917 552,414 576,494
---------- ---------- ---------- --------
Net income $ 412,276 $ 278,046 $ 179,461 $155,932
========== ========== ========== ========
ALLOCATION OF NET INCOME
Limited partners $ 408,153 $ 275,266 $ 177,666 $154,373
========== ========== ========== ========
General partners $ 4,123 $ 2,780 $ 1,795 $ 1,559
========== ========== ========== ========
Net income per limited partnership unit $ 7.92 $ 5.34 $ 3.45 $ 2.99
========== ========== ========== ========
- -----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Partners' capital (deficit)--December 31, 1995 $13,729,712 $(64,081) $13,665,631
Net income 408,153 4,123 412,276
Distributions (382,567) (3,864) (386,431)
----------- -------- -----------
Partners' capital (deficit)--June 30, 1996 $13,755,298 $(63,822) $13,691,476
=========== ======== ===========
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
D-3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months
ended June 30,
-------------------------
1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $1,448,247 $1,436,085
Interest received 11,454 7,746
General and administrative expenses paid (199,543) (107,355)
Property operating expenses paid (517,892) (511,690)
Real estate taxes paid (143,160) (144,346)
---------- ----------
Net cash provided by operating activities 599,106 680,440
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (15,563) (113,757)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (386,431) (386,431)
---------- ----------
Net increase in cash and cash equivalents 197,112 180,252
Cash and cash equivalents at beginning of period 957,903 547,459
---------- ----------
Cash and cash equivalents at end of period $1,155,015 $ 727,711
========== ==========
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH PROVIDED BY OPERATING ACTIVITIES
Net income $ 412,276 $ 278,046
---------- ----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation -- 375,834
Changes in:
Other assets (13,418) 2,136
Accounts payable and accrued expenses 151,452 (148)
Accrued real estate taxes (23,816) (16,879)
Due to affiliates, net 50,936 13,719
Unearned rental income 12,936 8,733
Deposits due to tenants 8,740 18,999
---------- ----------
Total adjustments 186,830 402,394
---------- ----------
Net cash provided by operating activities $ 599,106 $ 680,440
========== ==========
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
D-4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 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 June 30, 1996
and the results of its operations and its cash flows for the six and three
months ended June 30, 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. On June 10, 1996,
the Partnership entered into a contract with Public Storage, Inc., the current
property manager of the Partnership's properties, for the sale of all the
Partnership's properties for an aggregate sales price of $18,000,000. This sale
is subject to the approval by the limited partners holding a majority of the
limited partnership units and certain other conditions and potential price
adjustments, including the cost to remedy any potential environmental issues. In
preparing the properties for sale, the Partnership had an environmental site
assessment performed by a qualified engineering firm for each of the
Partnership's properties. Two of the Partnership's properties evidenced certain
levels of hazardous materials. The Managing General Partner is working with the
engineering firm to determine the extent of the contamination. It is uncertain
at this time what the cost of remediation or the impact on the sale of the
affected properties may be. The Partnership is exploring its alternatives in
addressing this issue.
The Partnership anticipates sending proxy statements in August 1996 or as
soon thereafter as practicable for the purpose of advising limited partners of
the terms of the agreement and to solicit their consent of the proposed sale. It
is expected that, if approved, the sale will close before December 31, 1996.
Following the closing, the Partnership will make one or more cash distributions
to the limited partners. The bulk of the distributions are expected to occur
shortly after the closing with the remainder expected to be distributed within
twelve months after the closing, at which time the Partnership would then be
liquidated.
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 six months ended June 30, 1996 and 1995 were approximately $95,000 and
$40,000, respectively, and for the three months ended June 30, 1996 and 1995,
were approximately $59,000 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 approximately $19,000 and $3,000 for the six months ended June 30, 1996
and 1995, respectively and for the three months ended June 30, 1996 and 1995
recorded approximately $11,000 and $1,000, respectively.
PBP and the two 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 distribu-
D-5
<PAGE>
tions 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 partnership unit and distributions per limited partnership unit.
Prudential Securities Incorporated ("PSI"), an affiliate of PBP, owns 180
limited partnership units at June 30, 1996.
C. Subsequent Event
In August 1996, distributions of approximately $191,000 and $2,000 were paid
to the limited partners and the General Partners, respectively, for the quarter
ended June 30, 1996.
D-6
<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. On June 10, 1996, the Partnership entered
into a contract with Public Storage, Inc., the current property manager of the
Partnership's properties, for the sale of all the Partnership's properties for
an aggregate sales price of $18,000,000. This sale is subject to the approval by
the limited partners holding a majority of the limited partnership units and
certain other conditions and potential price adjustments, including the cost to
remedy any potential environmental issues. In preparing the properties for sale,
the Partnership had an environmental site assessment performed by a qualified
engineering firm for each of the Partnership's properties. Two of the
Partnership's properties evidenced certain levels of hazardous materials. The
Managing General Partner is working with the engineering firm to determine the
extent of the contamination. It is uncertain at this time what the cost of
remediation or the impact on the sale of the affected properties may be. The
Partnership is exploring its alternatives in addressing this issue.
The Partnership anticipates sending proxy statements in August 1996 or as
soon thereafter as practicable for the purpose of advising limited partners of
the terms of the agreement and to solicit their consent of the proposed sale. It
is expected that, if approved, the sale will close before December 31, 1996.
Following the closing, the Partnership will make one or more cash distributions
to the limited partners. The bulk of the distributions are expected to occur
shortly after the closing with the remainder expected to be distributed within
twelve months after the closing, at which time the Partnership would then be
liquidated.
During the six months ended June 30, 1996, the Partnership's cash and cash
equivalents increased by approximately $197,000 due to cash flow from property
operations in excess of distributions and capital expenditures. Distributions
made during the three months ended June 30, 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 six months ended June 30, 1996 and 1995 were
as follows:
June 30,
--------------
Property 1996 1995
- -------------------------------------------------------------------------------
Arlington 89.5% 91.6%
Arapaho 95.2 94.0
South May/I-240 80.4 89.1
Santa Fe 82.5 92.7
South May/44th St. 95.4 97.2
Timbercrest 93.5 96.8
Cherry Hill 88.5 90.9
Hampton Park 95.7 89.7
- -------------------------------------------------------------------------------
(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.)
Net income increased by approximately $134,000 and $24,000 for the six and
three months ended June 30, 1996 as compared with the same periods in 1995 for
the reasons discussed below.
D-7
<PAGE>
Rental income increased by approximately $34,000 for the six months ended
June 30, 1996 as compared to the corresponding period in 1995. This increase
relates primarily to the properties at Arapaho and Hampton Park. The increase at
Arapaho was due to increased occupancy and rental rates, whereas the increase at
Hampton Park was mainly due to increased occupancy rates. However, this increase
was partially offset by the lower occupancy rates at all the other properties.
Property operating expenses decreased by approximately $6,000 and $16,000 for
the six and three months ended June 30, 1996 as compared to the corresponding
periods in 1995. The six month decrease was due primarily to a reduction in
payroll and utility expenses at most of the properties and significantly lower
insurance costs at the Arlington and Hampton Park properties. These decreases
were partially offset by an increase in security and alarm expense at the
Hampton Park property. Similar trends occurred between the three month
comparable periods in addition to a decrease of approximately $9,000 in repairs
and maintenance expense.
General and administrative expenses increased by approximately $294,000 and
$185,000 for the six and three months ended June 30, 1996 as compared to the
corresponding periods in 1995. This variance was primarily due to the accrual of
professional fees and other costs relating to the anticipated solicitation of
the consent of the limited partners for the sale of the properties.
Depreciation expense decreased by approximately $376,000 and $189,000 for the
six and three months ended June 30, 1996 as compared to the corresponding
periods 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 six and three months ended
June 30, 1996.
D-8
<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
Registrant's Current Report on Form 8-K dated June 14, 1996, as filed
with the Securities and Exchange Commission on June 20, 1996, relating
to Item 5 regarding the Registrant's entering into a contract of sale
for all of the Registrant's properties.
D-9
<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 D. BURAK Date: August 14, 1996
----------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the
Registrant
D-10
<PAGE>
Annex E
Ernst & Young Tax Letter
To the Partners of Prudential-Bache/Watson & Taylor, Ltd.-2
New York, New York
At your request, we have determined the estimated gain for federal income tax
purposes resulting from the sale of the assets of Prudential-Bache/Watson &
Taylor, Ltd.-2 ("the Partnership"). In determining such estimated gain we have
considered the following:
1. Contract of Sale
2. Partnership Agreement as we understand it to be in effect
3. Prior years' federal income tax returns and related supporting
analyses
4. Estimated Expenses of Sale
5. The Partnership's assumptions made with respect to 1996 results of
operations and asset additions and disposals.
Based upon our consideration of such information provided by the Partnership and
discussions related thereto, the total gain on the sale of the assets of the
Partnership allocable to the unitholders will approximate $6.3 million or an
average gain of $118 per taxable unit and $130 per nontaxable unit. This
estimate is based upon the Internal Revenue Code of 1986, as amended, existing
final, temporary and proposed Treasury regulations thereunder, published rulings
and practices of the Internal Revenue Service, and court decisions, all as
currently in effect. There can be no assurance that further legislation or
administrative changes or court decisions will not significantly modify the
federal income tax law regarding the determination of the estimated gain,
potentially with retroactive effect.
September 17, 1996
E-1
<PAGE>
[FORM OF FRONT OF CARD]
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-2
CONSENT CARD
CONSENT IS SOLICITED ON BEHALF OF PRUDENTIAL-BACHE PROPERTIES, INC. AS
THE MANAGING GENERAL PARTNER ("PB PROPERTIES") OF PRUDENTIAL-
BACHE/WATSON & TAYLOR, LTD.-2 (THE "PARTNERSHIP"). 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
Friday, October 18, 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.
<PAGE>
[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 September 17, 1996.
SIGNATURE
__________________________
__________________________
Date: _____________ , 1996
PLEASE SIGN, DATE AND RETURN THIS CONSENT CARD USING THE ENCLOSED ENVELOPE.
