SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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GULLEDGE REALTY INVESTORS II, L.P.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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or Item 22(a)(2) of Schedule 14A.
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14a-6(i)(3).
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pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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( )Check box if any part of the fee is offset as provided by Exchange
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DEFINITIVE COPY
August 30, 1996
RE: Gulledge Realty Investors II, L.P.
Dear Limited Partner:
Enclosed you will find the following items regarding the above referenced
limited partnership:
o a "Notice of Vote by Limited Partners"
o a Consent Statement
o a ballot
These items are separate from those you were sent regarding the sale of Colony
Place Apartments. That ballot was approved on August 1, 1996. The information
provided herein requires your immediate attention. Please review this
information and return the enclosed ballot as soon as possible.
If you have any questions regarding the enclosures, please contact Eric Fritsche
at (314) 955-3006. Your cooperation in this matter is appreciated.
Sincerely,
Robert J. Herleth
Vice President
Gull-AGE Properties, Inc.
Enclosures
GULLEDGE REALTY INVESTORS II, L.P.
NOTICE OF VOTE BY LIMITED PARTNERS
WITHOUT A MEETING
To the Limited Partners of Gulledge Realty Investors II, L.P.:
A vote by the Limited Partners of Gulledge Realty Investors II, L.P. (the
"Partnership"), without a meeting, is being conducted by the Partnership. Votes
cast by ballots enclosed herewith and received by the Partnership by midnight
Central Time on September 30, 1996 (unless extended for one or more thirty day
periods by the General Partner), will be counted to determine the outcome of the
vote. The purpose of the vote is to act upon the following proposals (the
"Proposals"):
1. To approve the restructuring of the secondary note for Olympic Housing
Limited Partnership as more fully described herein;
2. To approve the extension of the secondary note for Florence Housing
Associates as more fully described herein;
3. To approve the potential refinancing of the first mortgage and secondary
note of Hawthorn Housing Limited Partnership as more fully described
herein;
4. To approve an amendment to the Agreement and Certificate of Limited
Partnership, as amended and restated (the "Partnership Agreement"),
eliminating the requirement for Limited Partner approval of actions
requiring the consent of the Partnership under the Project Partnership
Agreements as more fully described herein.
The accompanying Statement includes information about the Proposals and
other relevant information. Please study all of this information carefully.
Only Limited Partners of record at the close of business on August 30, 1996, are
entitled to cast a vote.
MANAGEMENT OF THE PARTNERSHIP RECOMMENDS A VOTE IN FAVOR OF THE PROPOSALS.
Please mark your vote, sign, date and return the enclosed ballot in the
postage paid envelope included for your convenience. If a properly signed and
dated ballot is returned without indicating a vote, it will be voted "For" the
Proposals.
By: Managing General Partner
Gull-AGE Properties, Inc.
August 30, 1996
GULLEDGE REALTY INVESTORS II, L.P.
CONSENT STATEMENT
INTRODUCTION
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY. IF YOU WISH TO VOTE ON THE PROPOSALS (AS HEREINAFTER DEFINED), YOU ARE
REQUESTED TO RETURN THE BALLOT ENCLOSED HEREWITH BY MIDNIGHT CENTRAL TIME ON
SEPTEMBER 30, 1996 (UNLESS EXTENDED FOR ONE OR MORE THIRTY DAY PERIODS BY THE
GENERAL PARTNER), SO THAT YOUR VOTE WITH RESPECT TO THE PROPOSALS MAY BE
COUNTED.
A vote of the Limited Partners, as holders of units of limited partnership
interests ("Units") of Gulledge Realty Investor II, L.P. (the "Partnership"),
without a meeting, is being solicited regarding the Proposals.
Voting Units and Procedures
Limited Partners as of August 30, 1996, the record date for voting without
a meeting, will be entitled to vote by ballot. Ballots must be received by
midnight Central Time on September 30, 1996, in order to be counted. However,
the General Partner reserves the right, acting in its sole discretion, to extend
the period for voting on the Proposals for one or more thirty day periods. This
Statement and accompanying material are first being mailed to each Limited
Partner of record on or about August 30, 1996.
Accompanying the Statement is a Ballot Form for each Investor Limited
Partner with respect to his/her Unit ownership in the Partnership. By checking
the appropriate box, each Investor Limited Partner can indicate whether he/she
votes "FOR" or "AGAINST" or "ABSTAINS" as to each Proposal. In order for each
Proposal to be adopted, a majority of the Units must be voted in favor of the
Proposal. According to the Partnership Agreement, Limited Partners are to
return ballots to the General Partner within 30 days after receipt. If a
properly signed and dated ballot is returned without indicating a vote, it will
be deemed to constitute a vote "FOR" each Proposal.
Receipt of written ballots representing a majority of the outstanding Units
shall constitute a quorum. Ballots received by September 30, 1996 (or such
other date if extended by the General Partner) will be counted to determine if a
majority of the outstanding Units have been voted in favor of each Proposal.
Because each Proposal requires the affirmative vote of a majority of the
outstanding Units, an abstention will have the same effect as a vote against a
Proposal. No Units are held in "street name," so there can be no broker non-
votes.
To the best of the General Partner's knowledge, there is no beneficial
owner holding five percent or more of the Units, including the General Partner.
None of the officers or directors of the General Partner owns any Units.
Any Limited Partner who returns a ballot may revoke or replace such ballot
by delivering to the Partnership, c/o Gull-AGE Properties, Inc., Attention:
Corporate Control Department, One North Jefferson, St. Louis, Missouri 63103, a
written notice of such revocation and replacement, if replacement is desired,
prior to such date that a majority of the outstanding Units have been voted in
favor of each Proposal.
At the close of business on the record date, the Partnership had
outstanding 11,458 Limited Partner Units, each of which is entitled to one vote.
On that date there were 1,046 Limited Partners. The General Partner is the
holder of record of 22 Limited Partner Units. First GC Associates, a Virginia
limited partnership, owns a 1.80% interest in the Partnership as a Special
Limited Partner. Similarly, A.G.E. Realty Corp., an indirectly owned subsidiary
of A.G. Edwards, Inc., the ultimate parent company of the General Partner, owns
a .10% interest in the Partnership as a Special Limited Partner. None of the
General Partner, First GC Associates or A.G.E. Realty Corp. will participate in
the vote so the vote will only include Investor Limited Partners.
BUSINESS OF THE PARTNERSHIP
The Partnership is a Virginia limited partnership formed to invest as a limited
partner in other limited partnerships (the "Project Partnerships") that
presently own and operate apartment complexes (the "Projects") that are financed
and/or operated under federal or state housing assistance programs. One of the
objectives of the Partnership is to generate tax losses for investors. As of
June 30, 1996, the Partnership had investments in nine Project Partnerships.
Olympic Housing Limited Partnership, Florence Housing Associates and Hawthorn
Housing Limited Partnership are all Project Partnerships.
The principal executive offices of the Partnership are located at One North
Jefferson Avenue, St. Louis, Missouri 63103 and its telephone number is (314)
955-4188. Through 1988, the business of the Partnership was conducted by the
Gulledge Corporation, as the Partnership has no employees of its own. During
1989, Gull-AGE Properties, Inc. ("GAP") entered into a formal agreement with the
Gulledge Corporation to perform certain duties for the Partnership and, in 1990,
GAP became the sole General Partner.
DISCUSSION OF THE PROPOSALS
PROPOSAL 1: RESTRUCTURE THE SECONDARY NOTE ON OLYMPIC HOUSING
Olympic Housing Limited Partnership ("Olympic"), is an Illinois limited
partnership and is one of the Partnership's nine Project Partnerships. The
Partnership owns a 99% limited partnership interest in Olympic, which it
acquired in 1984. The general partners of Olympic are Eugene Gulledge, who has
a .9% partnership interest in Olympic and the Gulledge Investment Company, which
has a .1% partnership interest in Olympic.
Olympic was formed in 1984 to acquire, own and operate a multi-family
housing development located in Chicago Heights, Illinois, known as Olympic
Village Apartments (the "Olympic Project"). The Olympic Project consists of 31
buildings with a total of 320 apartment units - 161 one bedroom units, 127 two
bedroom units and 32 three bedroom units. The Olympic Project had an average
occupancy rate of 95% during 1995. The 1995 average monthly rental rate per
unit was $797. 128 apartment units currently receive HUD Section 8 rental
assistance and mortgage insurance is provided by the HUD Section 221(d)(4)
program. The Olympic Project was last visited in October, 1995, and found to be
in fair condition. During 1995, major repairs and improvements consisted of air
conditioner replacements, appliance replacements, carpet replacements, gutter
and balcony repairs and aluminum siding installation. The Olympic Project
currently needs the following major repairs or improvements: additional
aluminum siding, gutter and balcony repairs, continued air conditioner
replacements and erosion control surrounding the pond.
The Olympic Project was initially constructed in 1976 and financed with a
7.00% HUD insured forty year mortgage of $5,867,000. The original first
mortgage is still in place. The annual cash distribution to investors is
limited to $56,394 as required by the first mortgage. In addition to the first
mortgage, secondary financing was secured in the form of a promissory note,
dated September 26, 1984, with a principal balance of $2,700,000 and bearing
simple interest at the rate of 12.00% (the "Olympic Secondary Note"). The
Olympic Secondary Note was granted to the sellers (the "Olympic Secondary
Noteholder") of the Olympic Project as partial payment for the acquisition of
the Olympic Project by Olympic. Interest payments under the Olympic Secondary
Note are payable annually from available surplus cash in an amount not to exceed
50% of "Net Cash Flow." The Partnership's ownership interest in Olympic is
pledged as collateral for the Olympic Secondary Note. The Olympic Secondary
Noteholder is not affiliated with Olympic, the Partnership or the General
Partner. The Olympic Secondary Note matured on December 31, 1995. On that
date, the principal balance, plus accrued interest, under the Olympic Secondary
Note was $5,985,000. The total outstanding indebtedness on December 31, 1995,
was approximately $10,775,000.
In order to avoid foreclosure by the Olympic Secondary Noteholder and the
loss of ownership in Olympic, the General Partner, on behalf of the Partnership,
has been negotiating with the Olympic Secondary Noteholder to restructure the
Olympic Secondary Note. Proposed terms for the new note include a 10% interest
rate (lowered from 12%), a five year extension of the due date to December 31,
2000, payment to the Olympic Secondary Noteholder of 100% of the surplus cash of
Olympic after an annual $6,000 preferred distribution to the Partnership from
Olympic and a change in property manager to a Chicago area firm. It should be
noted that due to the limited distribution, no one year's surplus cash is
sufficient to make that year's interest payment, therefore, accrued interest on
the Olympic Secondary Note continues to increase.
Under the terms of Olympic's partnership agreement, the consent of a
majority in interest of Olympic's limited partners is required for the financing
of all or substantially all of its assets. Thus, before Olympic can restructure
the Olympic Secondary Note in accordance with the proposed terms described
above, it must receive the consent of the Partnership. Under the terms of the
Partnership's partnership agreement, the consent of a majority in interest of
Limited Partners is required for the Partnership to give such consent. The
Partnership is now seeking the consent of its Limited Partners, so it can give
its consent as a limited partner of Olympic. The approval of Proposal 1 will
include approval of such restructuring on terms substantially similar to the
proposed terms, together with such other terms as may be consented to by the
General Partner in its reasonable discretion. The General Partner is asking for
broad authority with respect to this Proposal. Such authority, however, will
not be unrestricted. Consistent with the General Partner's fiduciary duty, such
authority will be exercised in the reasonable judgement of the General Partner,
keeping in mind the best interests of the Limited Partners. The Partnership has
received an opinion from its counsel that the Limited Partners' actions of
giving such consent will not result in the loss of limited liability of the
Limited Partners under the Uniform Limited Partnership Act of the Commonwealth
of Virginia.
CONSEQUENCES OF APPROVAL AND DISAPPROVAL OF PROPOSAL 1
If Proposal 1 is approved by the Limited Partners, the due date of the
Olympic Secondary Note would be extended to December 31, 2000. The annual
interest rate would be lowered to 10% from 12% and the Olympic Secondary
Noteholder would receive 100% of the surplus cash of Olympic after a $6,000
preferred distribution to the Partnership instead of the current 50%.
If Proposal 1 is not approved by the Limited Partners, the Olympic
Secondary Noteholder will likely foreclose on the Olympic Secondary Note and
exercise its rights to the collateral. If the Olympic Secondary Noteholder's
action was successful, the Partnership would recognize a gain to the extent of
its negative capital balance in Olympic which would be passed on to the Limited
Partners. Investors who have been able to deduct prior years' passive losses
generated by the Partnership would have a taxable gain from foreclosure of
approximately $3,100 per five units owned and a corresponding tax liability,
based on a combined federal and state tax rate of 33%, of approximately $1,025
per five units owned. Investors who have suspended passive losses would likely
have sufficient losses to offset the gain caused by foreclosure. If your
suspended losses equal or exceed the gain from foreclosure, there would be no
tax liability caused by the foreclosure. You should consult your tax advisor if
you are unsure of the amount of suspended passive losses you have available and
to determine your own tax impact. The General Partner believes that most
investors desire to avoid foreclosure due to the adverse tax consequences that
may result with no cash distribution to offset the tax liability.
THE GENERAL PARTNER RECOMMENDS A VOTE "FOR" PROPOSAL 1.
PROPOSAL 2: EXTEND THE SECONDARY NOTE ON FLORENCE HOUSING
Florence Housing Associates ("Florence"), is a Kentucky limited partnership
and is one of the Partnership's nine Project Partnerships. The Partnership owns
a 99% limited partnership interest in Florence, which it acquired in 1984. The
general partners of Florence are Eugene Gulledge, who has a .9% partnership
interest in Florence and the Gulledge Investment Company, which has a .1%
partnership interest in Florence.
Florence was formed in 1983 to acquire, own and operate a multi-family
housing development located in Florence, Kentucky, known as Carriage House of
Florence Apartments (the "Florence Project"). The Florence Project consists of
23 buildings with a total of 240 apartment units - 96 one bedroom units, 120 two
bedroom units and 24 three bedroom units. The Florence Project had an average
occupancy rate of 94% during 1995. The 1995 average monthly rental rate per
unit was $295. Mortgage insurance is provided by the HUD Section 236 program.
During 1995, major repairs and improvements consisted of HVAC and plumbing
system repairs, appliance replacements, landscaping improvements, roof
replacements and exterior painting. The Florence Project currently needs the
following major repairs or improvements: continued appliance replacements,
asphalt, balcony and door repairs, continued roof repairs and landscape
improvements.
The Florence Project was initially constructed in 1973 and financed with a
7.00% HUD insured forty year mortgage of approximately $4,895,000. The original
first mortgage is still in place. The annual distribution is limited to
$25,711. In addition to the first mortgage, secondary financing was secured in
the form of a promissory note, dated December 8, 1983, with a principal balance
of approximately $1,757,000 and an interest rate of 13.00% (the "Florence
Secondary Note"). The Florence Secondary Note was granted to the sellers (the
"Florence Secondary Noteholder") of the Florence Project as partial payment for
the acquisition of the Florence Project by Florence. Interest payments under
the Florence Secondary Note are payable annually from available surplus cash in
an amount not to exceed $19,500. Florence's ownership interest in the Florence
Project is pledged as collateral for the Florence Secondary Note. The Florence
Secondary Noteholder is not affiliated with Florence, the Partnership or the
General Partner. The Florence Secondary Note matured on December 31, 1995. On
that date, the principal balance, plus accrued interest, under the Florence
Secondary Note was approximately $4,226,000. The total oustanding indebtedness
on December 31, 1995, was approximately $6,809,000.
In order to avoid foreclosure by the Florence Secondary Noteholder and the
loss of ownership in Florence, the General Partner, on behalf of the
Partnership, has negotiated a one year extension of the Florence Secondary Note.
The interest rate during the extensions will be reduced to 12% from 13%. The
extension and its terms are subject to approval by Florence. It should be noted
that due to the limited distribution, no one year's surplus cash is sufficient
to make that year's interest payment, therefore, accrued interest on the
Florence Secondary Note continues to increase.
Under the terms of Florence's partnership agreement, the consent of a
majority in interest of Florence's limited partners is required for the
financing of all or substantially all of its assets. Thus, before Florence can
approve the restructuring of the Florence Secondary Note, it must receive the
consent of the Partnership. Under the terms of the Partnership's partnership
agreement, the consent of a majority in interest of Limited Partners is required
for the Partnership to give such consent. The Partnership is now seeking the
consent of its Limited Partners, so it can give its consent as a limited partner
of Florence. The approval of Proposal 2 will include approval of subsequent
extensions of the Florence Secondary Note in the event such extensions are
agreed to by the Florence Secondary Noteholder and by the General Partner in its
reasonable discretion. There can be no assurance given that any such subsequent
extension will be made. The General Partner is asking for broad authority with
respect to this Proposal. Such authority, however, will not be unrestricted.
Consistent with the General Partner's fiduciary duty, such authority will be
exercised in the reasonable judgement of the General Partner, keeping in mind
the best interests of the Limited Partners. The Partnership has received an
opinion from its counsel that the Limited Partners' actions of giving such
consent will not result in the loss of limited liability of the Limited Partners
under the Uniform Limited Partnership Act of the Commonwealth of Virginia.
CONSEQUENCES OF APPROVAL OR DISAPPROVAL OF PROPOSAL 2
If Proposal 2 is approved by the Limited Partners, the Partnership will
give its approval as the limited partner of Florence, the Florence Secondary
Note will be extended for one year and the interest rate reduced from 13% to
12%. If the Florence Secondary Noteholder agrees to continue extending the
Florence Secondary Note for a series of one year periods, those extensions may
also be approved based on the Limited Partners approval of this Proposal 2.
If Proposal 2 is not approved by the Limited Partners, the Florence
Secondary Noteholder will likely foreclose on the Florence Secondary Note and
exercise his rights to the collateral. The taxable income caused by foreclosure
is estimated to be $1,900 per five units owned. The corresponding tax
liability, based on a combined federal and state tax rate of 33%, would be
approximately $600 per five units owned. Investors who have suspended passive
losses would likely have sufficient losses to offset the gain caused by
foreclosure. If your suspended losses equal or exceed the gain from
foreclosure, there would be no tax liability caused by the foreclosure. You
should consult your tax advisor if you are unsure of the amount of suspended
passive losses you have available and to determine your own tax impact. The
General Partner believes that most investors desire to avoid foreclosure due to
the adverse tax consequences that may result with no cash distribution to offset
the tax liability.
Note that further extensions are at the discretion of the Florence
Secondary Noteholder. If further extensions are not granted by the Florence
Secondary Noteholder, foreclosure consequences similar to those discussed above
would be the most likely outcome.
THE GENERAL PARTNER RECOMMENDS A VOTE "FOR" PROPOSAL 2.
PROPOSAL 3: REFINANCE THE FIRST MORTGAGE OF HAWTHORN HOUSING
Hawthorn Housing ("Hawthorn"), is an Illinois limited partnership and one
of the Partnership's nine Project Partnerships. The Partnership owns a 99%
limited partnership interest in Hawthorn, which it acquired in 1984. The
general partners of Hawthorn are Eugene Gulledge, who has a .99% partnership
interest in Hawthorn and the Gulledge Investment Company, which has a .01%
partnership interest in Hawthorn.
Hawthorn was formed in 1984 to acquire, own and operate a multi-family
housing development located in Woodridge, Illinois, known as Hawthorn Ridge
Apartments (the "Hawthorn Project"). The Hawthorn Project consists of 9
buildings with a total of 176 apartment units - 110 one bedroom units and 66 two
bedroom units. The Hawthorn Project had an average occupancy rate of 98% during
1995. The 1995 average monthly rental rate per unit was $735. 70 apartment
units currently receive HUD Section 8 rental assistance and mortgage insurance
is provided by the HUD Section 221(d)(4) program. The Hawthorn Project was last
visited in October, 1995, and was found to be in satisfactory condition. During
1995, major repairs and improvements consisted of HVAC system installation,
appliance replacements, carpet replacements and alarm system installation. The
Hawthorn Project currently needs the following major repairs or improvements:
bathroom and kitchen renovations, air conditioner replacements, appliance
replacements, entry door replacements and landscape improvements.
The Hawthorn Project was initially constructed in 1975 and financed with a
6.73% HUD insured forty year mortgage of approximately $3,800,000. The original
first mortgage is still in place. In addition to the first mortgage, secondary
financing was secured in the form of a promissory note, dated November 16, 1984,
with a principal balance of $1,600,000 and bearing interest at 11.00% compounded
annually (the "Hawthorn Secondary Note"). The Hawthorn Secondary Note was
granted to the sellers (the "Hawthorn Secondary Noteholder") of the Hawthorn
Project as partial payment for the acquisition of the Hawthorn Project by
Hawthorn. Interest payments under the Hawthorn Secondary Note are payable
annually from available surplus cash in an amount not to exceed $9,278.
Hawthorn's ownership interest in the Hawthorn Project is pledged as collateral
for the Hawthorn Secondary Note. The Hawthorn Secondary Noteholder is not
affiliated with Hawthorn, the Partnership or the General Partner. The Hawthorn
Secondary Note matures on December 31, 1996. As of December 31, 1995, the
principal balance, plus accrued interest, under the Hawthorn Secondary Note was
approximately $4,891,000. The total oustanding indebtedness at December 31,
1995, was approximately $7,935,000.
The General Partner has begun discussions with the Hawthorn Secondary
Noteholder to renegotiate the Hawthorn Secondary Note to avoid foreclosure. The
General Partner is considering refinancing Hawthorn's first mortgage. The
proceeds from the refinancing could be used to make a partial payment to the
Hawthorn Secondary Noteholder in exchange for certain changes in the Hawthorn
Secondary Note such as extension of the due date on the remaining balance of the
Hawthorn Secondary Note. Negotiations are ongoing, and specific details
regarding amounts and terms have not yet been determined. However, it is
anticipated that the Hawthorn Secondary Noteholder will be asked to extend the
remaining balance for 5 to 10 years at a lower interest rate. The Hawthorn
Secondary Noteholder will likely require a large portion of each year's surplus
cash as payment on the Hawthorn Secondary Note.
Under the terms of Hawthorn's partnership agreement, the consent of a
majority in interest of Hawthorn's limited partners is required for the
financing of all or substantially all of its assets. Thus, before Hawthorn can
refinance its mortgage and restructure the Hawthorn Secondary Note, it must
receive the consent of the Partnership. Under the terms of the Partnership's
partnership agreement, the consent of a majority in interest of Limited Partners
is required for the Partnership to give such consent. The Partnership is now
seeking the consent of its Limited Partners, so it can give its consent as a
limited partner of Hawthorn. The approval of this Proposal 3 will include the
approval of the refinancing of Hawthorn's first mortgage and the restructuring
of the Hawthorn Secondary Note on such terms as may be approved by the General
Partner in its reasonable discretion. The General Partner is asking for broad
authority with respect to this Proposal. Such authority, however, will not be
unrestricted. Consistent with the General Partner's fiduciary duty, such
authority will be exercised in the reasonable judgement of the General Partner,
keeping in mind the best interests of the Limited Partners. The Partnership has
received an opinion from its counsel that the Limited Partners' actions of
giving such consent will not result in the loss of limited liability of the
Limited Partners under the Uniform Limited Partnership Act of the Commonwealth
of Virginia.
CONSEQUENCES OF APPROVAL OR DISAPPROVAL OF PROPOSAL 3
If Proposal 3 is approved by the Limited Partners, the General Partner will
continue to attempt to refinance Hawthorn's first mortgage and use the proceeds
to make a partial payment to the Hawthorn Secondary Noteholder and restructure
the remaining balance of the Hawthorn Secondary Note. Currently, Hawthorn is
restricted by HUD regulations to an annual maximum surplus cash distribution of
$25,556. Any surplus cash in excess of this amount must be deposited in a
residual receipts account and can only be withdrawn under specific circumstances
with the approval of HUD. If the first mortgage is refinanced, it is likely
that the distribution restriction will be removed allowing Hawthorn to
distribute 100% of its surplus cash. However, the Hawthorn Secondary Noteholder
will likely require most if not all of each year's surplus cash as part of the
terms for extending the Hawthorn Secondary Note. No assurance can be given that
either Hawthorn's first mortgage or the Hawthorn Secondary Note can successfully
be restructured.
If Proposal 3 is not approved by the Limited Partners, the Hawthorn
Secondary Noteholder will likely foreclose on the Hawthorn Secondary Note on the
due date and seize the Hawthorn Project. The taxable gain to investors upon
foreclosure would be approximately $1,800 per five units owned with a
corresponding tax liability, based on a combined federal and state tax rate of
33%, of approximately $600 per five units owned. Investors who have suspended
passive losses would likely have sufficient losses to offset the gain caused by
foreclosure. If your suspended losses equal or exceed the gain from
foreclosure, there would be no tax liability caused by the foreclosure. You
should consult your tax advisor if you are unsure of the amount of suspended
passive losses you have available and to determine your own tax impact. The
General Partner believes that most investors desire to avoid foreclosure due to
the adverse tax consequences that may result with no cash distribution to offset
the tax liability.
Note that even if Proposal 3 is approved, the General Partner may be
unsuccessful in refinancing the first mortgage or renegotiating the Hawthorn
Secondary Note and the Hawthorn Secondary Noteholder would still foreclose.
THE GENERAL PARTNER RECOMMENDS A VOTE "FOR" PROPOSAL 3.
PROPOSAL 4: AMEND THE PARTNERSHIP AGREEMENT
This Proposal 4 is to amend the Partnership Agreement by deleting Sections
7.03(B)(1) and (2) and renumbering the remaining sub-sections of Section
7.03(B). The relevant part of Section 7.03(B) reads as follows:
"The Consent of a majority in Interest of the Limited Partners shall be
required prior to any action by the General Partners with respect to the
following matters:
(1) The sale, exchange or other disposition of the
Partnership's interests in the Project Partnerships;
(2) Any action requiring the consent of the Partnership
under the Project Partnership Agreements";
Generally, the types of actions that require the consent of the Partnership
under the Project Partnership Agreements include (i) selling, refinancing,
exchanging or other disposition of the assets of the Project Partnership and
(ii) other matters similar to those requiring Investor Limited Partner approval
with respect to the Partnership.
Under the current provisions of the Partnership Agreement the General
Partner must seek Limited Partner approval before refinancing, selling or
otherwise disposing of the assets of the Project Partnerships or its ownership
in the Project Partnerships. The Partnership is registered with the Securities
and Exchange Commission ("SEC") and is required to file various types of reports
with the SEC in addition to the reporting requirements to Limited Partners under
the Partnership Agreement. Under SEC rules, when the Partnership is required
to issue a ballot it must follow precise rules regarding the information to
include with the ballot. The entire package, called a consent statement, must
be submitted to the SEC for its comments before it can be sent to Limited
Partners. If the SEC requires changes to or additional disclosures in the
consent statement, a new draft must be submitted to the SEC for another review.
As you can tell, the process is time consuming and costly. The estimated cost
to undergo a vote of the Limited Partners is approximately $5,000 and can take
three months or more to complete, depending on the extent of comments from the
SEC.
The Partnership owns interests in nine Project Partnerships most of which
have secondary notes in addition to their first mortgages. Many of those
secondary notes have already matured or are close to maturing. As that occurs,
the notes or other financing must be re-negotiated because the Project
Partnerships cannot pay them. As evidenced by the recent consent solicitation
regarding Colony Place (which was approved on August 1) and Proposals 1, 2 and 3
of this consent statement, the General Partner anticipates the need to refinance
many secondary notes, renegotiate first mortgages and sell assets as
opportunities arise. The time and expense involved in conducting a consent
solicitation for such re-financings hinders the Partnership's ability to
negotiate quickly and efficiently with other parties. Further, because a
majority in interest of the Limited Partners (as opposed to a majority of a
quorum) is required to approve these transactions, it is difficult to obtain a
sufficient number of returned ballots on a timely basis for a vote. Although
the recent transactions have only involved actions at the Project Partnership
level, other re-structurings could require dispositions of the Partnership's
interest in a Project Partnership.
The proposed amendment to the Partnership Agreement would grant the General
Partner the authority to refinance mortgages and secondary notes and engage in
asset sales without seeking Limited Partner approval and causing the Partnership
to lose time and potential opportunities conducting costly consent
solicitations. Proposals 1 through 3 are types of refinancings the General
Partner has begun to negotiate.
The refinancing and extending of secondary notes as discussed in the above
Proposals enables the Partnership to avoid foreclosure by Secondary Noteholders
and retain its ownership in the Project Partnerships. The General Partner feels
it is in the best interest of all partners to avoid foreclosure when possible
because loss of a Project Partnership through foreclosure could have significant
adverse tax consequences without any monetary compensation to the Partnership or
the partners. The magnitude of the tax consequences varies with each Project
Partnership.
CONSEQUENCES OF APPROVAL OR DISAPPROVAL OF PROPOSAL 4
If Proposal 4 is approved by the Limited Partners, the Partnership
Agreement would be amended to eliminate the requirement for Limited Partner
approval of actions requiring the consent of the Partnership under Project
Partnership Agreements and disposition of the Partnership's interest in Project
Partnerships. This will allow the General Partner to approve or disapprove
Secondary Note negotiations, mortgage refinancings and asset sales on behalf of
the Partnership without first conducting a ballot of the Limited Partners and
causing the Partnership to lose time and to incur the expense of future consent
solicitations with respect to such matters. The General Partner would take
those actions it feels are reasonable to continue to defer the tax consequences
of foreclosure by Secondary Noteholders. Further, if Proposal 4 is approved,
the General Partner will have the authority to approve the transactions
described in Proposals 1, 2 and 3 even if they are not independently approved by
the Limited Partners. Where deferral is not possible, the General Partner will
attempt to minimize the tax consequences. Also, when attractive opportunities
arise, the General Partner may engage in the sale of the Partnership's
ownership interest in Project Partnerships or approve the sale of Projects
themselves.
The General Partner is asking for broad authority with respect to this
Proposal. Such authority, however, will not be unrestricted. Consistent with
the General Partner's fiduciary duty, such authority will be exercised in the
reasonable judgement of the General Partner, keeping in mind the best interests
of the Limited Partners.
If Proposal 4 is not approved by the Limited Partners, the General Partner
will continue to take the actions described above but will seek Limited Partner
approval before acting on any proposed transactions. Consent statements would
be prepared and costs incurred by the Partnership each time an action requires a
vote of the Limited Partners.
THE GENERAL PARTNER RECOMMENDS A VOTE "FOR" PROPOSAL 4.
SUMMARY OF FINANCIAL IMPACT OF NON-APPROVAL OF PROPOSALS 1 THROUGH 3
The above discussions on Proposals 1, 2 and 3 detail the estimated tax
consequences of non-approval if each Proposal is considered on a stand alone
basis. The following chart summarizes and totals the estimated taxable gain
resulting from foreclosure per five units of ownership IF THE PROPOSALS ARE NOT
APPROVED.
Proposal 1 $3,100
Proposal 2 $1,900
Proposal 3 $1,800
Total Gain
From Foreclosure $6,800
If you have suspended passive losses in an amount equal to or greater than
the gain from foreclosure, you can fully offset the gain and incur no tax
liability. However, if the gain from foreclosure exceeds the amount of your
suspended losses, you must claim the excess amount as taxable income. Consult
your tax advisor if you are unsure of the amount of suspended passive losses you
have available and to determine your own tax impact.
EFFECTUATION OF THE PROPOSALS
Each Proposal will be adopted if Limited Partners holding a majority of the
Units have returned ballots in favor of the Proposal by September 30, 1996 (or
October 31, 1996, if extended). Proposals that do not receive approval of
Limited Partners holding a majority of the Units by the specified date will not
be adopted. If Proposal 4 is approved, the General Partner will execute a
formal amendment to the Partnership Agreement reflecting the changes described
therein.
SOLICITATION OF BALLOTS
Solicitation of ballots for the Partnership is being made by the General
Partner. The General Partner will receive no additional compensation for this
service. The solicitation of ballots is being made primarily by use of the
mails. The cost of this solicitation consisting primarily of legal, printing
and mailing expenses will be borne by the Partnership.
LIMITED PARTNER PROPOSALS
The Partnership does not hold annual or regular meetings. Meetings of
Partners may be called by the General Partner, or by Limited Partners owning 10%
or more of the interests of Limited Partners (excluding, for purposes of this
calculation, any Limited Partner who is also a General Partner or affiliate of
the General Partner) for informational purposes or for any purpose permitted by
the Partnership Agreement. The General Partner shall, not later than 15 days
after a meeting is requested by the Limited Partners as described above, give
all Partners a notice of the meeting and its purpose to be held not less than 15
nor more than 60 days after such notice of the meeting. Meetings shall be held
at the time and place selected by the General Partner that is convenient to the
Investor Limited Partners. Under the proxy rules of the Securities and Exchange
Commission, Limited Partner proposals that meet certain conditions (including
being received a reasonable time before the solicitation is made) may be
included in the Partnership's proxy statement and proxy for a particular
meeting.
AVAILABLE INFORMATION
The Partnership will provide without charge to each person to whom this Consent
Statement is delivered, upon the written or oral request of such person, a copy
of the Partnership's Annual Report on Form 10-K for the year ended December 31,
1995, and a copy of the Partnership's Quarterly Report on Form 10-Q for the
quarterly period ended June 30, 1996 as filed by the Partnership with the
Securities and Exchange Commission pursuant to the Securities Exchange Act of
1934, as amended. Request for such copies should be directed to Gull-AGE
Properties, Inc., Attn.: Corporate Control Department, One North Jefferson
Avenue, St. Louis, Missouri 63103, Telephone (314) 955-3006.
BALLOT
GULLEDGE REALTY INVESTORS II, L.P.
If you wish to vote on the Proposals, you are requested to return this ballot so
that it is received by midnight Central Time on September 30, 1996, (unless
extended by the General Partner to October 31, 1996) so that your vote may be
counted.
THIS BALLOT IS TO BE USED ONLY TO VOTE UNITS OF LIMITED PARTNERSHIP OF GULLEDGE
REALTY INVESTORS II, L.P.
THIS BALLOT IS SOLICITED BY THE MANAGING GENERAL PARTNER OF GULLEDGE REALTY
INVESTORS II, L.P. (THE "PARTNERSHIP") IN CONNECTION WITH THE FOLLOWING
PROPOSALS (THE "PROPOSALS") AS DESCRIBED IN THE ACCOMPANYING NOTICE OF VOTE BY
LIMITED PARTNERS WITHOUT A MEETING DATED AUGUST 30, 1996 AND CONSENT STATEMENT:
Proposal 1: To approve the restructuring of the Secondary Note on Olympic
Housing
__________ For __________ Against __________ Abstain
Proposal 2: To approve the extension of the Secondary Note on Florence Housing
__________ For __________ Against __________ Abstain
Proposal 3: To approve the refinancing of the first mortgage and secondary note
of Hawthorn Housing
__________ For __________ Against __________ Abstain
Proposal 4: To approve an amendment to the Partnership Agreement of the
Partnership, eliminating the requirement for Limited Partner
approval of actions requiring the consent of the Partnership
under the Project Partnership Agreements
__________ For __________ Against __________ Abstain
THE GENERAL PARTNER OF THE PARTNERSHIP RECOMMENDS A VOTE "FOR" PROPOSALS 1
THROUGH 4.
This ballot, when properly executed, will be a vote as designated by the
undersigned Limited Partner.
IF THIS BALLOT IS RETURNED PROPERLY SIGNED AND DATED, BUT WITHOUT A VOTE
INDICATED, THIS BALLOT WILL BE DEEMED TO CONSTITUTE A VOTE "FOR" EACH PROPOSAL.
The undersigned hereby revokes all ballots and proxies previously given by the
undersigned with respect to the Proposals. This ballot may be revoked or
replaced by delivery to the Partnership, c/o Gull-AGE Properties, Inc. at One
North Jefferson, St. Louis, MO 63103, of a written notice of such revocation
and replacement, prior to such date that a majority of the outstanding units
have been voted in favor of the Proposals.
IMPORTANT: PLEASE MARK, DATE AND SIGN THIS BALLOT EXACTLY AS YOUR NAME OR NAMES
APPEAR ABOVE AND RETURN IT IN THE ENCLOSED ENVELOPE. IF UNITS ARE HELD BY MORE
THAN ONE OWNER, EACH MUST SIGN. EXECUTORS, ADMINISTRATORS, TRUSTEES, GUARDIANS,
CORPORATE OFFICERS AND OTHERS SIGNING IN A REPRESENTATIVE CAPACITY SHOULD GIVE
THEIR FULL TITLES.
Number of units owned:
Dated: _________________________ Signature: ______________________________
Signature of
Co-owner
(if applicable): ________________________
