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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
-----------------------
MRI BUSINESS PROPERTIES FUND, LTD. II
(Name of Subject Company)
DEFOREST VENTURES I L.P.
(Bidder)
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class
of Securities)
NONE
(CUSIP Number of Class
of Securities)
-----------------------
Michael L. Ashner Copy to:
DeForest Capital I Corporation Mark I. Fisher
100 Jericho Quadrangle Rosenman & Colin
Suite 214 575 Madison Avenue
Jericho, New York 11735-2717 New York, New York 10022-2585
(516) 822-0022 (212) 940-8877
(Name, Address and Telephone Number of
Person Authorized to Receive Notices and
Communications on Behalf of Bidder)
Calculation of Filing Fee
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Transaction Amount of
Valuation* Filing Fee
---------- ----------
$4,801,126.70 $960.23
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*For purposes of calculating the filing fee only. This amount assumes the
purchase of 18,772 units of limited partnership interest ("Units") of the
subject company for $255.76 per Unit in cash.
|_| Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee
was previously paid. Identify the previous filing by registration
statement number, or the Form or Schedule and date of its filing.
- --------------------------
CUSIP No. None
---------
- --------------------------
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1. Name of Reporting Person
S.S. or I.R.S. Identification No. of Above Person
DeForest Ventures I L.P.
I.R.S. I.D. No. 11-3230287
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2. Check the Appropriate Box if a Member of a Group
(See Instructions)
(a) |_|
(b) |_|
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3. SEC Use Only
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4. Sources of Funds (See Instructions)
WC; OO
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5. Check Box if Disclosure of Legal Proceedings is
Required Pursuant to Items 2(e) of 2(f)
|-|
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6. Citizenship or Place of Organization
Delaware
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7. Aggregate Amount Beneficially Owned by Each Reporting
Person
26,333 Units
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8. Check Box if the Aggregate Amount in Row (7) Excludes
Certain Shares (See Instructions)
|-|
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9. Percent of Class Represented by Amount in Row (7)
28.91%
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10. Type of Reporting Person (See Instructions)
PN
2
Item 1. Security and Subject Company.
(a) The name of the subject company is MRI Business Properties Fund,
Ltd. II, a California limited partnership (the "Partnership"), which has its
principal executive offices at 5665 Northside Drive, N.W., Suite 370, Atlanta,
Georgia 30328.
(b) This Schedule relates to the offer by DeForest Ventures I L.P., a
Delaware limited partnership (the "Purchaser"), to purchase up to 18,772
outstanding units of limited partnership interest ("Units") of the Partnership
at $255.76 per Unit, net to the seller in cash, upon the terms and subject to
the conditions set forth in the Offer to Purchase dated June 2, 1995 (the "Offer
to Purchase") and the related Letter of Transmittal, copies of which are
attached hereto as Exhibits (a)(1) and (a)(2), respectively. The number of Units
outstanding is set forth under "INTRODUCTION" in the Offer to Purchase and is
incorporated herein by reference.
(c) The information set forth under "THE TENDER OFFER -- Section 13.
Background of the Offer" of the Offer to Purchase is incorporated herein by
reference.
Item 2. Identity and Background.
(a)-(d) The information set forth under "INTRODUCTION", "THE TENDER
OFFER -- Section 11. Certain Information Concerning the Purchaser" and Schedule
1 of the Offer to Purchase is incorporated herein by reference.
3
(e)-(f) During the last five years, neither the Purchaser, the General
Partner nor, to the best of its knowledge, any of the persons listed in Schedule
1 of the Offer to Purchase (i) has been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) were a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding were or are subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, Federal or state securities laws or finding any violation of such laws.
(g) The information set forth in Schedule 1 of the Offer to Purchase is
incorporated herein by reference.
Item 3. Past Contracts, Transactions or Negotiations with the
Subject Company.
(a) The information set forth in "THE TENDER OFFER -- Section 10.
Conflicts of Interest and Transactions with Affiliates" and "THE TENDER OFFER --
Section 13. Background of the Offer" of the Offer to Purchase is incorporated
herein by reference. In addition, the information set forth in Note 2 to the
financial statements of the Partnership included in the Form 10-K of the
Partnership for the fiscal year ended September 30, 1994 (such Note being
referred to as the "Form 10-K Note"), a copy of which is attached hereto as
Exhibit (g)(i), Note 2 to the financial statements of the Partnership included
in the Form 10-Q of the Partnership for the six months ended March 31, 1995
(such Note being referred to as the "Form 10-Q Note"), a copy of which is
attached hereto as Exhibit (g)(ii), and Item 1. "Business -- Subsequent Events"
4
of Form 10 of the Partnership for the fiscal year ended September 30, 1994 (the
"1994 Form 10-K"), a copy of which is attached hereto as Exhibit (g)(iii), is
incorporated herein by reference.
(b) The information set forth in "THE TENDER OFFER -- Section 13.
Background of the Offer" of the Offer to Purchase is incorporated herein by
reference. In addition, the information set forth in the Form 10-K Note, the
Form 10-Q Note and Item 1 of the 1994 Form 10-K is incorporated herein by
reference. Item 4. Source and Amount of Funds or Other Consideration.
(a)-(b) The information set forth in "THE TENDER OFFER -- Section 10.
Conflicts of Interest and Transactions with Affiliates" and "THE TENDER OFFER --
Section 12. Source of Funds" of the Offer to Purchase is incorporated herein by
reference.
(c) Not applicable.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the
Bidder.
(a)-(b) The information set forth in "THE TENDER OFFER -- Section 8.
Future Plans" and "THE TENDER OFFER -- Section 13. Background of the Offer" of
the Offer to Purchase is incorporated herein by reference.
(c) Not applicable.
5
(d) The information set forth in "THE TENDER OFFER -- Section 8. Future
Plans" of the Offer to Purchase is incorporated herein by reference.
(e)-(g) Not applicable.
Item 6. Interest in Securities of the Subject Company.
(a) The information set forth in "INTRODUCTION" and "THE TENDER OFFER
- -- Section 11. Certain Information Concerning the Purchaser" of the Offer to
Purchase is incorporated herein by reference.
(b) None.
Item 7. Contracts, Arrangements, Understandings or Relationships
with Respect to the Subject Company's Securities.
The information set forth in "THE TENDER OFFER -- Section 11. Certain
Information Concerning the Purchaser" and "THE TENDER OFFER -- Section 12.
Source of Funds" of the Offer to Purchase is incorporated herein by reference.
Item 8. Persons Retained, Employed or to be Compensated.
None.
Item 9. Financial Statements of Certain Bidders.
The information set forth in "THE TENDER OFFER -- Section 11. Certain
Information Concerning the Purchaser" and Schedule 2 of the Offer to Purchase is
incorporated herein by reference.
Item 10. Additional Information.
6
(a) None.
(b)-(d) The information set forth in "THE TENDER OFFER -- Section 15.
Certain Legal Matters" of the Offer to Purchase is incorporated herein by
reference.
(e) None.
(f) Reference is hereby made to the Offer to Purchase and the related
Letter of Transmittal, copies of which are attached hereto as Exhibits (a)(1)
and (a)(2), respectively, and which are incorporated herein in their entirety by
reference.
Item 11. Material to be Filed as Exhibits.
(a)(1) Offer to Purchase dated June 2, 1995.
(a)(2) Letter of Transmittal.
(a)(3) Form of Cover Letter, dated June 2, 1995, from DeForest
Ventures I L.P. to Unitholders.
(b)(1) Master Agreement, dated as of November 21, 1994, among
DeForest Capital II Corporation, DeForest Ventures II L.P.,
NPI-AP Management, L.P., National Property Investors, Inc. and
Kidder Peabody Mortgage Capital Corporation.
(b)(2) Letter Agreement supplementing the Master Agreement, dated
November 30, 1994, among DeForest Capital II Corporation,
DeForest Ventures II L.P., NPI-AP Management, L.P., National
Property Investors, Inc., DeForest Capital I Corporation,
DeForest Ventures I L.P. and Kidder Peabody Mortgage Capital
Corporation.
(b)(3) Amendment No. 2 to the Master Agreement, dated as of May 5,
1995, among DeForest Capital I Corporation, DeForest Ventures
I L.P., DeForest Capital II Corporation, DeForest Ventures II
L.P., NPI-AP Management, L.P., National Property Investors,
Inc. and PaineWebber Real Estate Securities Inc.
7
(b)(4) Loan Agreement, dated as of November 30, 1994, between
DeForest Capital I Corporation, DeForest Ventures I L.P. and
Kidder Peabody Mortgage Capital Corporation.
(b)(5) Amendment No. 1 to the Loan Agreement, dated as of May 5,
1995, among DeForest Ventures I L.P. and PaineWebber Real
Estate Securities Inc.
(c)(1) Agreement, dated December 1, 1994, by and between Lisle W.
Payne and Ventures I relating to certain distributions which
may be received by Ventures I.
(c)(2) Agreement, dated December 1, 1994, by and between Janet E.
Larson, individually and as Trustee of the Larson Family
Revocable Trust and Ventures I relating to certain
distributions which may be received by Ventures I.
(d) None.
(e)-(f) Not applicable.
(g)(i) Note 2 to the financial statements of MRI Business Properties
Fund, Ltd. II included in the Form 10-K of MRI Business
Properties Fund, Ltd. II for the fiscal year ended September
30, 1994.
(g)(ii) Note 2 to the financial statements of MRI Business Properties
Fund, Ltd. II included in the Form 10-Q of MRI Business
Properties Fund, Ltd. II for the six months ended March 31,
1995.
(g)(iii) Item 1. "Business - Subsequent Events" of the Form 10-K of MRI
Business Properties Fund, Ltd. II for the fiscal year ended
September 30, 1994.
8
Signatures
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and correct.
Dated: June 2, 1995
DEFOREST VENTURES I L.P.
By: DeForest Capital I Corporation,
its General Partner
By: /s/ Michael L. Ashner
------------------------------
Name: Michael L. Ashner
Title: President
9
Exhibit Index
Sequentially
Exhibit No. Description Numbered Page
- ----------- ----------- -------------
(a)(1) Offer to Purchase dated June 2, 1995. . . . . . .
(a)(2) Letter of Transmittal . . . . . . . . . . . . . .
(a)(3) Form of Cover Letter, dated June 2, 1995,
from DeForest Ventures I L.P. to
Unitholders . . . . . . . . . . . . . . . . . . .
(b)(1) Master Agreement, dated as of November
21, 1994, among DeForest Capital II
Corporation, DeForest Ventures II L.P.,
NPI-AP Management, L.P., National Property
Investors, Inc. and Kidder Peabody Mortgage
Capital Corporation. . . . . . . . . . . . . . . *
(b)(2) Letter Agreement supplementing the Master
Agreement, dated November 30, 1994, among
DeForest Capital II Corporation, DeForest
Ventures II L.P., NPI-AP Management, L.P.,
National Property Investors, Inc., DeForest
Capital I Corporation DeForest Ventures I
L.P. and Kidder Peabody Mortgage Capital
Corporation. . . . . . . . . . . . . . . . . . .*
(b)(3) Amendment No. 2 to the Master Agreement,
dated as of May 5, 1995, among DeForest
Capital I Corporation, DeForest Ventures I
L.P., DeForest Capital II Corporation,
DeForest Ventures II L.P., NPI-AP Management,
L.P., National Property Investors, Inc. and
PaineWebber Real Estate Securities Inc. . . . .**
(b)(4) Loan Agreement, dated as of November 30, 1994,
between DeForest Capital I Corporation,
DeForest Ventures I L.P. and Kidder Peabody
Mortgage Capital Corporation. . . . . . . . . . *
(b)(5) Amendment No. 1 to the Loan Agreement, dated
as of May 5, 1995, among DeForest Ventures I
L.P. and PaineWebber Real Estate Securities
Inc. . . . . . . . . . . . . . . . . . . . . . . **
(c)(1) Agreement, dated December 1, 1994, by and
between Lisle W. Payne and Ventures I
relating to certain distributions which
may be received by Ventures I . . . . . . . . .**
(c)(2) Agreement, dated December 1, 1994, by and
between Janet E. Larson, individually and
as Trustee of the Larson Family Revocable
10
Trust and Ventures I relating to certain
distributions which may be received by
Ventures I. . . . . . . . . . . . . . . . . . .**
(d) None.
(e)-(f) Not applicable.
(g)(i) Note 2 to the financial statements of MRI
Business Properties Fund, Ltd. II included
in the Form 10-K of MRI Business Properties
Fund, Ltd. II for the fiscal year ended
September 30, 1994. . . . . . . . . . . . . . . .
(g)(ii) Note 2 to the financial statements of MRI
Business Properties Fund, Ltd. II included
in the Form 10-K of MRI Business Properties
Fund, Ltd. II for the fiscal year ended
September 30, 1994. . . . . . . . . . . . . . . .
(g)(iii) Item 1. "Business" - Subsequent Events" of
the Form 10-K of MRI Business Properties
Fund, Ltd. II for the fiscsal year ended
September 30, 1994. . . . . . . . . . . . . . . .
* Incorporated by reference to the Purchaser's Amendment No. 2 to Schedule 14D-1
(Final Amendment) filed November 30, 1994 in respect of the Purchaser's offer to
purchase Units of Limited Partnership Interest of Century Properties Fund XII.
** Incorporated by reference to the Purchaser's Schedule 14D-1 filed on June 2,
1995 in respect of the Purchaser's offer to purchase Units of Limited
Partnership Interest of Century
Properties Fund XII.
11
Offer to Purchase
Up to 18,772 Units of Limited Partnership Interest
of
MRI BUSINESS PROPERTIES FUND, LTD. II
for
$255.76 Per Unit
by
DEFOREST VENTURES I L.P.
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THE OFFER, WITHDRAWAL RIGHTS AND THE PRORATION PERIOD WILL EXPIRE AT 12:00
MIDNIGHT, NEW YORK CITY TIME, ON JUNE 30, 1995, UNLESS EXTENDED.
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This offer is being made pursuant to the terms of the settlement of a
class action litigation described below. DeForest Ventures I L.P., a Delaware
limited partnership (the "Purchaser"), hereby offers to purchase up to 18,772 of
the outstanding Units of Limited Partnership Interest (the "Units") of MRI
Business Properties Fund, Ltd. II, a California limited partnership (the
"Partnership"), for $255.76 per Unit, upon the terms and subject to the
conditions set forth in this Offer to Purchase (the "Offer to Purchase") and in
the related Letter of Transmittal as each may be supplemented or amended from
time to time (which together constitute the "Offer"). The 18,772 Units sought
pursuant to the Offer represent approximately 21% of the total Units outstanding
as of June 2, 1995.
In order to avoid a termination of the Partnership for federal income
tax purposes, the Purchaser will not purchase Units pursuant to the Offer if,
after giving effect such purchase, 50% or more of the outstanding interests in
the Partnership would have been transferred in the 12-month period preceding the
consummation of the Offer. In order to avoid such a tax termination while at the
same time providing to each tendering Unitholder upon consummation of the Offer
$255.76 (the "Cash Consideration") for each Unit tendered, the Purchaser has
structured the Offer to include a non-recourse loan in the event that more than
16,154 of the outstanding Units (the "Transfer Limitation") are tendered.
Accordingly, if more than 16,154 of the outstanding Units are tendered, the
aggregate Cash Consideration paid to each tendering Unitholder will represent
(i) the Cash Consideration per Unit payable to purchase the number of Units
tendered by such Unitholder which under the Transfer Limitation the Purchaser is
permitted to purchase ("Purchase Proceeds"), and (ii) the proceeds of a
non-recourse loan ("Loan Proceeds") to such Unitholder (a "Loan") equal to the
Cash Consideration per Unit payable in respect of the Units tendered by such
Unitholder which under the Transfer Limitation the Purchaser is not permitted to
purchase (the "Retained Units"). The Loan will be secured only by the Retained
Units. The acceptance of a Loan will not impose any personal liability on a
tendering Unitholder for the payment of any principal or interest in respect of
such Loan.
The Offer is being made pursuant to the terms of a court approved
Settlement Agreement (the "Settlement Agreement") which governs the terms and
conditions of a settlement (the "Settlement") of the class action litigation
(the "Action") entitled In Re DeForest Tender Offer Securities Litigation (Civil
Action No. 1:94-CV-2983-JEC) filed in the United States District Court for the
Northern District of Georgia, Atlanta Division, (the "Court").
THE PARTNERSHIP IS RECOMMENDING THAT, FOR THE FOLLOWING REASONS,
UNITHOLDERS NOT TENDER THEIR UNITS. As described in Section 9 of this Offer to
Purchase, the Partnership has entered into a contract for the sale of one of its
properties and a non-binding letter of intent for the sale of another property.
It is anticipated that, if such sales close on the terms set forth in Section 9,
the Partnership would distribute in excess of $350 per Unit in the aggregate to
Unitholders from the net proceeds of such sales. Such amount is greater than the
$255.76 per Unit Cash Consideration which will be paid to Unitholders who tender
their Units pursuant to the Offer. In addition, the Partnership is currently
marketing its remaining two properties. If all of the Partnership's properties
are sold, the Partnership would be liquidated resulting in additional
distributions to Unitholders. However, Unitholders who tender their Units will
not be entitled to receive any distributions from the Partnership.
The Offer is not conditioned upon any minimum number of Units being
tendered. If more than 18,772 Units are validly tendered and not withdrawn,
subject to the Transfer Limitation and the delivery of Loan Proceeds (as
hereinafter defined), the Purchaser will accept for purchase on a pro rata basis
18,772 Units, subject to the terms and conditions herein.
A Unitholder must tender all Units owned by such Unitholder in order
for the tender to be valid.
If necessary to effect the terms of the Settlement, and subject to
obtaining the approval of the Court and/or counsel for the settling plaintiffs
in the Action, the Purchaser may amend the Offer or extend the period of time
during which the Offer is open and thereby delay acceptance for payment of, and
the payment for, any Units. Any such extension will be followed by a press
release or public announcement which will be issued no later than 9:00 a.m., New
York City time, on the next business day after the scheduled Expiration Date, in
accordance with Rule 14e-1(d) under the Securities Exchange Act of 1934 (the
"Exchange Act").
-----------------------------
If you have any questions or need additional information, you may
contact the Purchaser at:
DeForest Ventures I L.P.
(404) 916-9055 or (404) 850-9640
June 2, 1995
TABLE OF CONTENTS
Page
----
INTRODUCTION............................................................... 1
THE TENDER OFFER........................................................... 4
Section 1. Terms of the Offer........................................ 4
Section 2. Proration; Acceptance for Payment and Payment for Units... 5
Section 3. Procedures for Tendering Units............................ 5
Section 4. Withdrawal Rights......................................... 7
Section 5. Extension of Tender Period; Termination; Amendment........ 7
Section 6. Certain Federal Income Tax Consequences................... 8
Section 7. Effects of the Offer...................................... 11
Section 8. Future Plans.............................................. 12
Section 9. Certain Information Concerning the Partnership............ 12
Section 10. Conflicts of Interest and Transactions with Affiliates.... 13
Section 11. Certain Information Concerning the Purchaser.............. 14
Section 12. Source of Funds........................................... 15
Section 13. Background of the Offer................................... 17
Section 14. Conditions of the Offer................................... 22
Section 15. Certain Legal Matters..................................... 23
Section 16. Fees and Expenses......................................... 23
Section 17. Miscellaneous............................................. 23
Exhibit A Form of Note and Security Agreement
Schedule 1 Information with respect to Directors and Executive
Officers of DeForest Capital
Schedule 2 Financial Statements of the Purchaser and DeForest Capital
Schedule 3 Subject Partnerships
To the Holders of Units of
Limited Partnership Interest
of MRI Business Properties Fund, Ltd. II
INTRODUCTION
This offer is being made pursuant to the terms of the settlement of a
class action litigation described below. DeForest Ventures I L.P., a Delaware
limited partnership (the "Purchaser"), hereby offers to purchase up to 18,772 of
the outstanding Units of Limited Partnership Interest (the "Units") of MRI
Business Properties Fund, Ltd. II, a California limited partnership (the
"Partnership"), for $255.76 per Unit, upon the terms and subject to the
conditions set forth in this Offer to Purchase (the "Offer to Purchase") and in
the related Letter of Transmittal as each may be supplemented or amended from
time to time (which together constitute the "Offer"). Holders of Units
("Unitholders") who tender their Units will not be obligated to pay any
commissions or partnership transfer fees, which commissions and fees will be
borne by the Purchaser. A Unitholder must tender all Units owned by such
Unitholder in order for the tender to be valid.
In order to avoid a termination of the Partnership for federal income
tax purposes (see "THE TENDER OFFER - Section 6. Certain Federal Income Tax
Consequences" for a discussion of the effects of such a termination), the
Purchaser will not purchase Units pursuant to the Offer if, after giving effect
to such purchase, 50% or more of the outstanding interests in the Partnership
would have been transferred in the 12-month period preceding the consummation of
the Offer. In order to avoid such a tax termination while at the same time
providing to each tendering Unitholder upon consummation of the Offer $255.76
for each Unit tendered (the "Cash Consideration"), the Purchaser has structured
the Offer to include a non-recourse loan in the event that more than 16,154 of
the outstanding Units (the "Transfer Limitation") are tendered. Accordingly, if
more than 16,154 of the outstanding Units are tendered, the aggregate Cash
Consideration paid to each tendering Unitholder will represent (i) the Cash
Consideration per Unit payable to purchase the number of Units tendered by such
Unitholder which under the Transfer Limitation the Purchaser is permitted to
purchase ("Purchase Proceeds"), and (ii) the proceeds of a non-recourse loan
("Loan Proceeds") to such Unitholder (a "Loan") equal to the Cash Consideration
per Unit payable in respect of the Units tendered by such Unitholder which under
the Transfer Limitation the Purchaser is not permitted to purchase (the
"Retained Units"). The Loan will be secured only by the Retained Units. (See
"THE TENDER OFFER - SECTION 1. Terms of the Offer" for further information
relating to the Loans.) The acceptance of a Loan will not impose any personal
liability on a tendering Unitholder for the payment of any principal or interest
in respect of its Loan. Each Loan may be satisfied, at its maturity, by
surrendering to the Purchaser the Retained Units or, at the sole option of the
tendering Unitholder, by a payment in cash equal to the then outstanding balance
of principal and accrued interest in respect of such Loan. In establishing the
number of Units constituting the Transfer Limitation, the Purchaser took into
account the historical transfer volume for Units, as well as the number of Units
acquired by the Purchaser in the Original Tender Offer (as defined below) for
Units, in order to continue to permit the historical level of transfers after
the consummation of the Offer.
The Offer is being made pursuant to the terms of a court approved
Settlement Agreement (the "Settlement Agreement") which governs the terms and
conditions of a settlement (the "Settlement") of the class action litigation
(the "Action") entitled In Re DeForest Tender Offer Securities Litigation (Civil
Action No. 1:94- CV-2983-JEC) filed in the United States District Court for the
Northern District of Georgia, Atlanta Division, (the "Court"). Pursuant to the
Settlement Agreement, Unitholders who tender their Units may also be entitled to
an additional cash payment (the "Residual Settlement Premium"). The per Unit
amount of the Residual Settlement Premium, which is not expected to be material,
is dependent on the amount of attorney's fees awarded by the Court following
expiration of the Offer and will be determined in accordance with the terms of
the Settlement Agreement. (See "THE TENDER OFFER - Section 13. Background of the
Offer".)
The subject matter of the Action relates to tender offers for units of
limited partnership interests in the Partnership and 18 other limited
partnerships (collectively, the "Subject Partnerships") commenced by the
Purchaser and an affiliated purchaser in October 1994 (the "Original Tender
Offers"). (See "THE TENDER OFFER - Section 13. Background of the Offer").
Schedule 3 to this Offer to Purchase sets forth the names of the Subject
Partnerships. As described in the Notice of Class Action and Hearing of Proposed
Settlement previously delivered to Unitholders in connection with the Action
(the "Settlement Notice"), the Settlement, among other things, provides (i)
Unitholders who did not tender their Units in the Original Tender Offer for
Units with the opportunity to sell their Units pursuant to the Offer at a price
equal to the price offered in the Original Tender Offer for Units plus $23.76
(the "Settlement Premium") and (ii) for payment of the Settlement Premium to
each person who tendered Units in the Original Tender Offer for Units.
THE PARTNERSHIP IS RECOMMENDING THAT, FOR THE FOLLOWING REASONS,
UNITHOLDERS NOT TENDER THEIR UNITS. As described in Section 9 of this Offer to
Purchase, the Partnership has entered into a contract for the sale of one of its
properties and a non-binding letter of intent for the sale of another property.
It is anticipated that, if such sales close on the terms set forth in Section 9,
the Partnership would distribute in excess of $350 per Unit in the aggregate to
Unitholders from the net proceeds of such sales. Such amount is greater than the
$255.76 per Unit Cash Consideration which will be paid to Unitholders who tender
their Units pursuant to the Offer. In addition, the Partnership is currently
marketing its remaining two properties. If all of the Partnership's properties
are sold, the Partnership would be liquidated resulting in additional
distributions to Unitholders. However, Unitholders who tender their Units will
not be entitled to receive any distributions from the Partnership.
The Offer is not conditioned upon any minimum number of Units being
tendered. If more than 18,772 Units are validly tendered and not withdrawn,
subject to the Transfer Limitation and the delivery of Loan Proceeds, the
Purchaser will accept for purchase on a pro rata basis 18,772 Units, subject to
the terms and conditions herein.
As discussed herein, the Purchaser is affiliated with the general
partners of the Partnership and, accordingly, the general partners of the
Partnership have certain conflicts of interest with respect to the Offer. The
Partnership has indicated in its statement on Schedule 14D-9 filed with the
Securities and Exchange Commission (the "Commission") that, because of the
greater amount per Unit which may be distributed to Unitholders in respect of
the properties under contract for sale discussed in Section 9 (in excess of $350
per Unit as compared to the $255.76 Cash Consideration) and the possibility of
additional distributions to Unitholders resulting from a potential subsequent
liquidation of the Partnership, it is recommending that Unitholders not tender
their Units pursuant to the Offer. (See "THE TENDER OFFER - Section 9. Certain
Information Concerning the Partnership".)
The general partner of the Purchaser is DeForest Capital I Corporation,
a Delaware corporation ("DeForest Capital") which is affiliated with NPI Equity
Investments II, Inc. ("NPI Equity"), the entity which, on December 6, 1993,
assumed management and obtained control of Montgomery Realty Company-84 and MRI
Associates, Ltd. II, the general partners of the Partnership (together, the
"General Partner"). (See "THE TENDER OFFER - Section 13. Background of the
Offer".)
Unitholders who desire liquidity may wish to consider the Offer.
However, each Unitholder must make his or her own decision based upon such
Unitholder's particular circumstances, including the Unitholder's own financial
needs, other investment opportunities and tax position. Each Unitholder should
consult with his or her own advisors, tax, financial or otherwise, in evaluating
the terms of and whether to tender Units pursuant to the Offer.
The $232 purchase price in the Original Tender Offer for Units (the
"Original Purchase Price") was determined as a result of the Purchaser's own
independent analysis. The Settlement Premium was determined and agreed to as
part of the Settlement. No independent person has been retained to evaluate or
render any opinion with respect to the fairness of the Cash Consideration.
Unitholders are urged to consider carefully all of the information contained
herein before accepting the Offer. (See "THE TENDER OFFER - Section 13.
Background of the Offer".)
2
According to information supplied by the Partnership, of the 91,038
Units issued and outstanding, 64,750 of such Units are held by 5,243 Unitholders
who are not affiliated with the Purchaser. The Purchaser and its affiliates own
26,333 Units, constituting approximately 29% of the Units outstanding.
Certain information contained in this Offer to Purchase which relates
to the Partnership, or represents statements made by the General Partner, has
been derived from information provided to the Purchaser by the General Partner.
Unitholders are urged to read this Offer to Purchase, the accompanying
Letter of Transmittal and the Note and Security Agreement annexed hereto as
Exhibit A carefully before deciding whether to tender their Units.
3
THE TENDER OFFER
Section 1. Terms of the Offer. Upon the terms of the Offer, and subject
to the Transfer Limitation, the Purchaser will pay for Units validly tendered on
or prior to the Expiration Date and not withdrawn in accordance with Section 4
of this Offer to Purchase. The term "Expiration Date" shall mean 12:00 Midnight,
New York City time, on June 30, 1995, unless, in order to effect the Settlement,
and subject to obtaining the approval of the Court and/or counsel for the
settling plaintiffs in the Action, the Purchaser extends the period of time
during which the Offer is open. In the event the Offer is so extended, the term
"Expiration Date" shall mean the latest time and date on which the Offer, as
extended by the Purchaser, shall expire.
If, prior to the Expiration Date, the Purchaser shall increase the
consideration offered to Unitholders pursuant to the Offer, such increased
consideration shall be paid for all Units accepted for payment pursuant to the
Offer, whether or not such Units were tendered prior to such increase.
The Offer is conditioned on satisfaction of certain conditions. See
Section 14, which sets forth in full the conditions of the Offer. The Purchaser
reserves the right (but shall not be obligated), in its sole discretion, to
waive any or all of such conditions. If, on or prior to the Expiration Date, any
or all of such conditions have not been satisfied or waived, the Purchaser may
(i) decline to purchase any of the Units tendered, terminate the Offer and
return all tendered Units to tendering Unitholders, (ii) waive all the
unsatisfied conditions and, subject to complying with applicable rules and
regulations of the Commission, purchase, or make a Loan with respect to, all
Units validly tendered, or (iii) subject to obtaining the approval of the Court
and/or counsel for the settling plaintiffs in the Action, extend the Offer and,
subject to the right of Unitholders to withdraw Units until the Expiration Date,
retain the Units that have been tendered during the period or periods for which
the Offer is extended.
If up to 16,154 Units are validly tendered and not withdrawn, upon
consummation of the Offer, all Units tendered will be purchased for $255.76 per
Unit. Subject to the proration requirements of Section 2, if more than 16,154
Units are validly tendered and not withdrawn, each tendering Unitholder will
receive $255.76 for each Unit tendered in a combination of Purchase Proceeds and
Loan Proceeds. The number of Units with respect to which a Unitholder will
receive Purchase Proceeds will be determined by multiplying the number of Units
tendered by such Unitholder by a fraction the numerator of which is 16,154 and
the denominator of which is the total number of Units tendered pursuant to the
Offer and not withdrawn. The balance payable to such Unitholder will be paid as
Loan Proceeds.
Each Loan will bear interest at the rate of 9% per annum. Interest and
principal will not be due and payable prior to the scheduled maturity date of
the Loan, except that the Loan shall become due upon certain bankruptcy events
of the Unitholder and, in certain circumstances, on the demand of the Purchaser.
Any distributions in respect of the Retained Units are required to be applied to
pay outstanding amounts of interest and principal. Each Loan will mature by its
terms on January 2, 1996, and will be payable by payment of cash in the
principal amount of the Loan plus accrued interest thereon. If the Purchaser
does not receive a cash payment in repayment of a Loan within 15 days from the
date the Loan is due, the Purchaser will apply the Retained Units held in
respect of such Loan against the amount due in full satisfaction of the Loan.
EXCEPT THROUGH THE APPLICATION OF ANY DISTRIBUTIONS IN RESPECT OF RETAINED UNITS
(AS DISCUSSED BELOW), THE LOANS WILL NOT BE PREPAYABLE. THE ACCEPTANCE OF A LOAN
WILL NOT IMPOSE ANY PERSONAL LIABILITY ON A TENDERING UNITHOLDER FOR THE PAYMENT
OF ANY PRINCIPAL OR INTEREST IN RESPECT OF ITS LOAN. EACH LOAN MAY BE SATISFIED,
AT ITS MATURITY, BY SURRENDERING TO THE PURCHASER THE RETAINED UNITS OR, AT THE
SOLE OPTION OF THE TENDERING UNITHOLDER, BY A PAYMENT IN CASH EQUAL TO THE THEN
OUTSTANDING BALANCE OF PRINCIPAL AND ACCRUED INTEREST IN RESPECT OF SUCH LOAN.
Any distribution payable to a Unitholder in respect of the Retained
Units will be applied at the time such distribution is made first to accrued
interest on the Loan and then to the principal amount of the Loan and
4
any amounts remaining after such application will be remitted to the Unitholder.
Each Unitholder will agree not to exercise its voting rights with respect to the
Retained Units in favor of a dissolution of the Partnership or in any manner
inconsistent with the terms of the Loan. Each Unitholder who tenders Units in
accordance with the Offer, and does not withdraw such tender in accordance with
the terms of Section 4, shall have irrevocably elected to receive the proceeds
of the Loan if more than 16,154 Units are validly tendered and not withdrawn,
and to be bound by the terms of the Loan, including the repayment thereof, the
pledge of the Unitholder's Retained Units to secure such repayment, the
application of distributions made in respect of the Retained Units and the
limitation on voting rights as described above.
The terms and conditions of the Loan are set forth in the form of Note
and Security Agreement attached hereto as Exhibit A, which Exhibit is
incorporated by reference herein in its entirety.
Section 2. Proration; Acceptance for Payment and Payment for Units. If
the number of Units validly tendered on or prior to the Expiration Date and not
withdrawn is 18,772 or less, subject to the Transfer Limitation and the delivery
of Loan Proceeds, the Purchaser will accept for payment, subject to the terms
and conditions of the Offer, all Units so tendered.
If the number of Units validly tendered on or prior to the Expiration
Date and not withdrawn exceeds 18,772, subject to the Transfer Limitation and
the delivery of Loan Proceeds, the Purchaser will accept for payment, subject to
the terms and conditions of the Offer, Units so tendered on a pro rata basis
(with such adjustments to avoid purchase of fractional Units).
The Purchaser will deliver the Cash Consideration for Units validly
tendered and not withdrawn in accordance with Section 4 as promptly as
practicable following the Expiration Date. In all cases, Cash Consideration will
be delivered only after timely receipt by Purchaser of a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), duly executed
signature page for the Note and Security Agreement and any other documents
required by the Letter of Transmittal. (See "Section 3. Procedures for Tendering
Units".) Under no circumstances will interest be paid on the Cash Consideration
by reason of any delay in making such payment.
If any tendered Units are not purchased for any reason, the Letter of
Transmittal with respect to such Units will be destroyed by the Purchaser.
However, Retained Units will be held by the Purchaser subject to the terms of a
Unitholder's Loan. If for any reason acceptance for payment of, or payment for,
any Units tendered pursuant to the Offer is delayed or the Purchaser is unable
to accept for payment, purchase or pay for Units tendered pursuant to the Offer,
then, without prejudice to the Purchaser's rights under Section 14, the
Purchaser may retain tendered Units and such Units may not be withdrawn except
to the extent that the tendering Unitholders are entitled to withdrawal rights
as described in Section 4; provided, however, that the Purchaser is required,
pursuant to Rule 14e-1(c) under the Exchange Act, to pay Unitholders the Cash
Consideration in respect of Units tendered or return such Units promptly after
termination or withdrawal of the Offer.
Section 3. Procedures for Tendering Units.
Valid Tender. To validly tender Units, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), duly executed signature
page for the Note and Security Agreement and any other documents required by the
Letter of Transmittal, must be received by the Purchaser on or prior to the
Expiration Date. A Unitholder must tender all Units owned by such Unitholder in
order for the tender to be valid.
Signature Requirements. If the Letter of Transmittal and signature page
for the Note and Security Agreement is signed by the registered holder of the
Units and payment is to be made directly to that holder, then no notarization or
signature guarantee is required on the Letter of Transmittal. Similarly, if the
Units are tendered for the account of a member firm of a registered national
securities exchange, a member of the National Association of Securities Dealers,
Inc. or a commercial bank, savings bank, credit union, savings and loan
association or trust company having an office, branch or agency in the United
States (each an "Eligible Institution"), no notarization or signature guarantee
5
is required on the Letter of Transmittal. However, in all other cases, all
signatures on the Letter of Transmittal and signature page for the Note and
Security Agreement must either be notarized or guaranteed by an Eligible
Institution.
In order for a tendering Unitholder to participate in the Offer, Units
must be validly tendered and not withdrawn on or prior to the Expiration Date,
which is 12:00 Midnight, New York City time, on June 30, 1995.
The method of delivery of the Letter of Transmittal, signature page for
the Note and Security Agreement and all other required documents is at the
option and risk of the tendering Unitholder and delivery will be deemed made
only when actually received by the Purchaser.
A tendering Unitholder will be notified after the Expiration Date as to
the number of such Unitholder's Units, if any, which were not purchased but
which are being held by the Purchaser as Retained Units for a Loan to such
Unitholder. Such notice will also provide the principal amount of any such Loan.
Backup Federal Income Tax Withholding. To prevent the possible
application of backup federal income tax withholding with respect to payment of
the Cash Consideration and the Residual Settlement Premium, a tendering
Unitholder must provide the Purchaser with such Unitholder's correct taxpayer
identification number by completing the Substitute Form W-9 included in the
Letter of Transmittal. (See the Instructions to the Letter of Transmittal and
"Section 6. Certain Federal Income Tax Consequences".)
FIRPTA Withholding. To prevent the withholding of federal income tax in
an amount equal to 10% of the sum of the Cash Consideration plus the Residual
Settlement Premium, plus the amount of Partnership liabilities allocable to each
Unit tendered, each Unitholder must complete the FIRPTA Affidavit included in
the Letter of Transmittal certifying such Unitholder's taxpayer identification
number and address and that the Unitholder is not a foreign person. (See the
Instructions to the Letter of Transmittal and "Section 6. Certain Federal Income
Tax Consequences".)
Other Requirements. By executing a Letter of Transmittal, a tendering
Unitholder irrevocably appoints the designees of the Purchaser as such
Unitholder's proxies, in the manner set forth in the Letter of Transmittal, each
with full power of substitution, to the full extent of such Unitholder's rights
with respect to the Units tendered by such Unitholder and accepted for payment
by the Purchaser. Such appointment will be effective when, and only to the
extent that, the Purchaser accepts such Units for payment. Upon such acceptance
for payment, all prior proxies given by such Unitholder with respect to such
Units will, without further action, be revoked, and no subsequent proxies may be
given (and if given will not be effective). The designees of the Purchaser will,
as to such Units, be empowered to exercise all voting and other rights of such
Unitholder as they in their sole discretion may deem proper at any meeting of
Unitholders, by written consent or otherwise. The Purchaser reserves the right
to require that, in order for Units to be deemed validly tendered, immediately
upon the Purchaser's acceptance for payment of such Units, the Purchaser must be
able to exercise full voting rights with respect to such Units, including voting
at any meeting of Unitholders then scheduled. In addition, by executing a Letter
of Transmittal, a Unitholder also assigns to the Purchaser all of the
Unitholder's rights to receive distributions from the Partnership with respect
to Units which are purchased pursuant to the Offer. (See "Section 6. Certain
Federal Income Tax Consequences" and "Section 9. Certain Information Concerning
the Partnership".)
By executing a Letter of Transmittal, a Unitholder irrevocably agrees
to accept the proceeds of a Loan in respect of its Retained Units on the terms
and conditions set forth in the Note and Security Agreement. Such Unitholder
also directs the Partnership to deliver any and all distributions payable on the
Retained Units to the Purchaser for credit against amounts outstanding in
respect of the Loan, and the Purchaser may, in the name and behalf of such
Unitholder, execute and deliver to the Partnership a written confirmation of
such direction. In addition, by executing a Letter of Transmittal, a Unitholder
appoints the designees of the Purchaser as its attorney-in-fact (such
appointment being coupled with an interest, and irrevocable) to execute and
cause to be filed and recorded any and all documents on behalf of the Unitholder
6
and to take any and all other actions reasonably deemed necessary by the
Purchaser to perfect or continue the perfection of the security interest in the
Retained Units that secures any Loan made to such Unitholder. FURTHERMORE, BY
EXECUTING A LETTER OF TRANSMITTAL, A UNITHOLDER WHO HAS PREVIOUSLY REQUESTED
EXCLUSION FROM THE SETTLEMENT WILL BE DEEMED TO HAVE REVOKED SUCH REQUEST AND
THEREUPON BE BOUND BY THE SETTLEMENT AND ALL ORDERS AND FINAL JUDGMENTS RENDERED
IN THE ACTION.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Units pursuant to the procedures described above will be determined by the
Purchaser, in its sole discretion, which determination shall be final and
binding. The Purchaser reserves the absolute right to reject any or all tenders
if not in proper form (including, without limitation, the proper execution of
the Note and Security Agreement) or if the acceptance of, or payment for, the
Units tendered may, in the opinion of the Purchaser's counsel, be unlawful. The
Purchaser also reserves the right to waive any defect or irregularity in any
tender with respect to any particular Units of any particular Unitholder, and
the Purchaser's interpretation of the terms and conditions of the Offer
(including the Letter of Transmittal and the Instructions thereto) will be final
and binding. Neither the Purchaser nor any other person will be under any duty
to give notification of any defects or irregularities in the tender of any Units
or will incur any liability for failure to give any such notification.
A tender of Units pursuant to any of the procedures described above
will constitute a binding agreement between the tendering Unitholder and the
Purchaser on the terms set forth in the Offer.
Section 4. Withdrawal Rights. Except as otherwise provided in this
Section 4, all tenders of Units pursuant to the Offer are irrevocable, provided
that Units tendered pursuant to the Offer may be withdrawn at any time prior to
the Expiration Date and, unless already accepted for payment as provided in this
Offer to Purchase, may also be withdrawn at any time after June 30, 1995.
For withdrawal to be effective, a written or facsimile transmission
notice of withdrawal must be timely received by the Purchaser at the address set
forth on the back cover of this Offer to Purchase. Any such notice of withdrawal
must specify the name of the person who tendered the Units to be withdrawn and
must be signed by the person(s) who signed the Letter of Transmittal in the same
manner as the Letter of Transmittal was signed.
If purchase of, or payment for, Units is delayed for any reason or if
the Purchaser is unable to purchase or pay for Units for any reason, then,
without prejudice to the Purchaser's rights under the Offer, tendered Units may
be retained by the Purchaser and may not be withdrawn except to the extent that
tendering Unitholders are entitled to withdrawal rights as set forth in this
Section 4; provided, however, that the Purchaser is required, pursuant to Rule
14e-1(c) under the Exchange Act, to pay Unitholders the Cash Consideration in
respect of Units tendered or return such Units promptly after termination or
withdrawal of the Offer.
Any Units properly withdrawn will be deemed not to be validly tendered
for purposes of the Offer. Withdrawn Units may be re-tendered, however, by
following any of the procedures described in Section 3 at any time prior to the
Expiration Date.
Section 5. Extension of Tender Period; Termination; Amendment. If
necessary to effect the terms of the Settlement, and subject to obtaining the
approval of the Court and/or counsel for the settling plaintiffs in the Action,
the Purchaser may amend the Offer or extend the period of time during which the
Offer is open and thereby delay acceptance for payment of, and the payment for,
any Units. Any such extension will be followed by a press release or public
announcement which will be issued no later than 9:00 a.m., New York City time,
on the next business day after the scheduled Expiration Date, in accordance with
Rule 14e-1(d) under the Exchange Act.
7
If the Purchaser extends the Offer, or if the Purchaser (whether before
or after its acceptance for payment of Units) is delayed in its payment for
Units or is unable to pay for Units pursuant to the Offer for any reason, then,
without prejudice to the Purchaser's rights under the Offer, the Purchaser may
retain tendered Units and such Units may not be withdrawn except to the extent
tendering Unitholders are entitled to withdrawal rights as described in Section
4; provided, however, that the Purchaser is required, pursuant to Rule 14e-1(c)
under the Exchange Act, to pay Unitholders the Cash Consideration in respect of
Units tendered or return such Units promptly after termination or withdrawal of
the Offer.
If the Purchaser makes a material change in the terms of the Offer
(which change may only be made with approval of the Court and/or counsel for the
settling plaintiffs in the Action) or if there is a material change in the
information concerning the Offer, the Purchaser will extend the Offer and
disseminate additional tender offer materials to the extent required by Rules
14d-4(c) and 14d-6(d) under the Exchange Act. The minimum period during which an
offer must remain open following a material change in the terms of the offer or
information concerning the offer will depend upon the facts and circumstances,
including the relative materiality of the change in the terms or information. In
the Commission's view, an offer should remain open for a minimum of five
business days from the date the material change is first published, sent or
given to securityholders, and if material changes are made with respect to
information that approaches the significance of price or the percentage of
securities sought, a minimum of ten business days may be required to allow for
adequate dissemination to securityholders and for investor response. As used in
this Offer to Purchase, "business day" means any day other than a Saturday,
Sunday or a federal holiday, and consists of the time period from 12:01 a.m.
through 12:00 Midnight, New York City time.
Section 6. Certain Federal Income Tax Consequences. The following
summary is a general discussion of certain federal income tax consequences of a
sale of Units pursuant to the Offer. This summary is based on the Internal
Revenue Code of 1986, as amended (the "Code"), applicable Treasury regulations
thereunder, administrative rulings, practice and procedures and judicial
authority as of the date of the Offer. All of the foregoing are subject to
change, and any such change could affect the continuing accuracy of this
summary. This summary does not discuss all aspects of federal income taxation
that may be relevant to a particular Unitholder in light of such Unitholder's
specific circumstances or to certain types of Unitholders subject to special
treatment under the federal income tax laws (for example, foreign persons,
dealers in securities, banks, insurance companies and tax-exempt organizations),
nor does it discuss any aspect of state, local, foreign or other tax laws. Sales
of Units pursuant to the Offer will be taxable transactions for federal income
tax purposes, and may also be taxable transactions under applicable state,
local, foreign and other tax laws. EACH UNITHOLDER SHOULD CONSULT HIS OR ITS TAX
ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO SUCH UNITHOLDER OF SELLING
UNITS AND RECEIVING A LOAN PURSUANT TO THE OFFER.
A taxable Unitholder will recognize gain or loss on a sale of Units
pursuant to the Offer equal to the difference between (i) the Unitholder's
"amount realized" on the sale and (ii) the Unitholder's adjusted tax basis in
the Units sold. The amount of a Unitholder's adjusted tax basis in Units sold
pursuant to the Offer will vary depending upon the Unitholder's particular
circumstances, and will be affected by both allocations of Partnership income,
gain or loss and any cash distributions made to a Unitholder for 1995 with
respect to such Units. The "amount realized" with respect to a Unit sold
pursuant to the Offer will be a sum equal to the amount of cash received by the
Unitholder for the Unit plus the amount of Partnership liabilities allocable to
the Unit (as determined under Code Section 752). If a Unitholder receives a Loan
pursuant to the Offer and later transfers ownership of the Retained Units to the
Purchaser in satisfaction of the Loan, the unpaid balance (including accrued and
unpaid interest) of such Loan would be includible in the Unitholder's amount
realized on such subsequent sale, but interest accrued on the Loan may be
non-deductible as personal interest. (See the discussion of certain tax aspects
of the Loan below.) However, assuming no principal payments are made on a Loan
prior to maturity, the amount of interest is anticipated to be only
approximately $53 per $1,000 loaned.
Based on the results of Partnership operations through December 31,
1994, and without giving effect to Partnership operations or transactions since
that time, it is estimated that, depending on the Unitholder's date of entry
into the Partnership, a taxable Unitholder who or which sells Units pursuant to
the Offer that were acquired by such Unitholder at the time of the Partnership's
8
original offering of Units will recognize a loss for federal income tax purposes
of between $273.84 per Unit for those admitted in November 1984 and $332.54 per
Unit for those admitted in June 1985 less, in each case, the amount of the
Residual Settlement Premium. It also is estimated that such Unitholder has
"suspended" passive activity losses (i.e., post-1986 net taxable losses in
excess of statutorily provided "phase-in" amounts) from the Partnership of $176
per Unit (subject to reduction to the extent such Unitholder utilized any of
such losses to offset passive activity income from other investments). Once the
Unitholder sells all his Units, such losses should no longer be subject to the
passive activity loss limitation, and therefore should be deductible by such
Unitholder from his other income subject to any other applicable limitations.
However, if a Unitholder is unable to sell all of his Units pursuant to the
Offer, such losses will not be deductible (except to the extent of the
Unitholder's passive activity income from other sources) until the Retained
Units are transferred to the Purchaser upon maturity of the Unitholder's Loan in
1996 or are otherwise sold. (See the discussion of the passive activity loss
limitation below and "Section 7. Effects of the Offer".) Tendering Unitholders
will be allocated a pro rata share of the Partnership's taxable income or loss
with respect to Units sold pursuant to the Offer through the effective date of
the sale, even though such Unitholders will assign to the Purchaser their right
to receive cash distributions with respect to such Units.
The foregoing estimates do not reflect the estimated gain, which will
be passive activity income, of $153 per Unit that will be allocated to
Unitholders, including tendering Unitholders, for 1995 if the sales of the
properties under contract discussed in Section 9 of this Offer to Purchase are
consummated prior to the Expiration Date. As indicated, such allocations will be
made to tendering Unitholders with respect to Units sold pursuant to the Offer
even though the Purchaser will receive any related cash distributions.
The gain or loss recognized by a Unitholder on a sale of a Unit
pursuant to the Offer generally will be treated as a capital gain or loss if the
Unit was held by the Unitholder as a capital asset. Such capital gain or loss
will be treated as long-term capital gain or loss if the tendering Unitholder's
holding period for the Unit exceeds one year. Under current law, long-term
capital gains of individuals and other non-corporate taxpayers are taxed at a
maximum marginal federal income tax rate of 28%, whereas the maximum marginal
federal income tax rate for other income of such persons is 39.6%. Capital
losses are deductible only to the extent of capital gains, except that
non-corporate taxpayers may deduct up to $3,000 of capital losses in excess of
the amount of their capital gains against ordinary income. Excess capital losses
generally can be carried forward to succeeding years (a corporation's
carryforward period is five years and a non-corporate taxpayer can carry forward
such losses indefinitely); in addition, corporations, but not non-corporate
taxpayers, are allowed to carry back excess capital losses to the three
preceding taxable years.
If any portion of the amount realized by a Unitholder is attributable
to "unrealized receivables" (which includes depreciation recapture) or
"substantially appreciated inventory" as defined in Code Section 751, then a
portion of the Unitholder's gain or loss may be ordinary rather than capital. It
is possible that the basis allocation rules of Code Section 751 may result in a
Unitholder's recognizing ordinary income with respect to such items while
recognizing a larger capital loss with respect to the remainder of the Unit,
even though such Unitholder has an overall loss on the sale.
The portion of the Residual Settlement Premium that is received by a
Unitholder with respect to the Retained Units, if any, will be taxable to a
Unitholder as ordinary income even if the Unitholder later transfers the
Retained Units in satisfaction of the Loan and even if such transfer results in
the Unitholder's recognition of a capital loss.
If tendering Unitholders receive Loans, they will be allocated a pro
rata share of the Partnership's taxable income or loss for all of 1995 with
respect to the Retained Units even though any cash distributions with respect to
such Units will be applied against the Loans. Amounts so applied might not be
deductible, and, if the Retained Units are transferred to Purchaser in 1996 at a
loss, such loss would not offset the taxable income (if any) allocated to a
Unitholder in 1995 on account of the Retained Units. (See the discussion of
certain tax aspects of the Loans below.)
9
Under Code Section 469, a non-corporate taxpayer or personal service
corporation can deduct passive activity losses in any year only to the extent of
such person's passive activity income for such year, and closely held
corporations may not offset such losses against so-called "portfolio" income. A
loss recognized by a Unitholder upon a sale of a Unit pursuant to the Offer can
be currently deducted (subject to other applicable limitations) to the extent of
such Unitholder's taxable income from the Partnership for that year, and gain
recognized by a Unitholder upon such sale can be offset by such Unitholder's
passive activity losses (if any) from the Partnership. If a Unitholder disposes
of all his Units pursuant to the Offer, such Unitholder generally will be able
to deduct his remaining passive activity losses (if any) from the Partnership
that could not previously be deducted by such Unitholder due to the foregoing
limitation. However, if more than 16,154 Units are tendered pursuant to the
Offer, a tendering Unitholder will be unable to sell all of his Units in 1995
upon consummation of the Offer. In that event, a tendering Unitholder with
"suspended" passive activity losses from the Partnership will be unable to
deduct such losses until the Retained Units are transferred to the Purchaser in
satisfaction of the Unitholder's Loan in 1996, or are otherwise sold.
A taxable Unitholder (other than corporations and certain foreign
individuals) who tenders Units may be subject to 31% backup withholding unless
the Unitholder provides a taxpayer identification number ("TIN") and certifies
that the TIN is correct or properly certifies that he is awaiting a TIN. A
Unitholder may avoid backup withholding by properly completing and signing the
Substitute Form W-9 included as part of the Letter of Transmittal. If a
Unitholder who is subject to backup withholding does not properly complete and
sign the Substitute Form W-9, the Purchaser will withhold 31% from payments to
such Unitholder.
Gain realized by a foreign Unitholder on a sale of a Unit pursuant to
the Offer will be subject to federal income tax. Under Section 1445 of the Code,
the transferee of a partnership interest held by a foreign person is generally
required to deduct and withhold a tax equal to 10% of the amount realized on the
disposition. The Purchaser will withhold 10% of the amount realized by a
tendering Unitholder unless the Unitholder properly completes and signs the
FIRPTA Affidavit included as part of the Letter of Transmittal certifying the
Unitholder's TIN, that such Unitholder is not a foreign person and the
Unitholder's address. Amounts withheld would be creditable against a foreign
Unitholder's federal income tax liability and, if in excess thereof, a refund
could be obtained from the Internal Revenue Service by filing a U.S. income tax
return.
If Loans are made to Unitholders, amounts withheld by the Purchaser
from payments to a Unitholder with respect to the Retained Units will be applied
against the principal balance of the Unitholder's Loan, and, if such Loan is
later satisfied by the Unitholder's transfer of the Retained Units, will be paid
by the Purchaser to the Internal Revenue Service at that time.
If more than 16,154 Units are validly tendered and not withdrawn, only
a pro rata portion of the tendered Units will be treated by the Purchaser as
purchased pursuant to the Offer. The excess of the Cash Consideration paid to
each tendering Limited Partner over the amounts attributable to the purchased
Units will be received as the proceeds of nonrecourse Loans secured by a pledge
of the Retained Units. The Purchaser intends to treat the Loans as debt
instruments for federal income tax purposes. Nevertheless, a taxing authority
may assert that 100% of the tendered Units must be treated as sold pursuant to
the Offer. If such an assertion were to prevail, all Units tendered would be
treated for income tax purposes as having been sold in 1995, and the Partnership
would be treated as having terminated for income tax purposes when the Loans
were made. The effect of a tax termination on the Partnership and, therefore, on
non-tendering Unitholders and tendering Unitholders as to the Retained Units,
would include a reduction in the Partnership's depreciable tax basis in its
properties and a lengthening of the period of time over which the Partnership
recognizes depreciation deductions for tax purposes. A termination of the
Partnership for income tax purposes also could have the adverse effect on
Unitholders whose tax year differs from the calendar year of the inclusion of
more than one year of the Partnership's tax items in one tax return of such
Unitholders. In addition, a tax termination could have the adverse effect on
Unitholders who subsequently dispose of their Units at a gain of requiring them
to treat a greater portion of such gain as ordinary income (due to the
application of Code Section 735) than would be required under Code Section 751
(discussed above).
10
Assuming that the Loans are respected as debt for tax purposes, it is
unclear whether a Unitholder will be entitled to deduct interest accruing
thereon before such interest is paid, which would be at maturity of the Loan or
in the event cash distributions are made with respect to the Retained Units. The
deductibility of interest paid by a Unitholder will depend on how the Unitholder
uses the Loan proceeds (i.e., whether the Unitholder uses the Loan proceeds to
pay personal expenses or make additional investments, and, if the latter,
whether such investments are "passive activity" or "portfolio" investments).
Personal interest is generally nondeductible, and there are limitations on the
deductibility of investment interest and interest allocable to passive
activities. Unitholders should consult their tax advisors concerning the
application of these rules and limitations to their particular circumstances.
If a Loan is treated as indebtedness incurred by a tax-exempt Limited
Partner to acquire or improve property, income from such property will be
taxable to the tax-exempt Unitholder as unrelated debt-financed income within
the meaning of Code Section 514. Tax-exempt Unitholders should consult their tax
advisors with respect to the tax consequences of tendering Units pursuant to the
Offer.
A taxable Unitholder who satisfies a Loan by transferring the Retained
Units to the Purchaser will recognize gain or loss upon such transfer under the
rules discussed above, with the then outstanding Loan balance (including any
accrued and unpaid interest) being treated as an amount realized by the
Unitholder on the transfer of the Retained Units.
Section 7. Effects of the Offer.
Limitations on Resales. Pursuant to authority contained in the
Partnership Agreement, the General Partner restricts transfers of Units if a
transfer, when considered with all other transfers during the same applicable
twelve-month period, would cause a termination of the Partnership for federal or
applicable state income tax purposes (which termination may occur when 50% or
more of the Units are transferred in a twelve-month period). If the secondary
market in private transactions were to become more active, sales of Units on the
secondary market for the twelve-month period following completion of the Offer
may be limited. The Partnership will not process any requests for recognition of
substitution of Unitholders upon a transfer of Units during such twelve-month
period which the General Partner believes may cause a tax termination. In
determining the Transfer Limitation, the Purchaser took this restriction into
account so as to permit transfers of up to 910 of the outstanding Units to occur
prior to January 1996 without violating this restriction.
Effect on Trading Market. There is no established public trading market
for the Units and, therefore, a reduction in the number of Unitholders should
not materially further restrict the Unitholders' ability to find purchasers for
their Units.
Control of all Unitholder Voting Decisions by Purchaser; Effect of
Affiliation with General Partner. Like Units acquired in the Original Tender
Offer for Units, the Purchaser will have the right to vote each Unit purchased
pursuant to the Offer. As a result of the Original Tender Offer for Units, the
Purchaser is in a position to significantly influence all voting decisions with
respect to the Partnership. Consummation of the Offer may further enhance such
voting influence. Accordingly, the Purchaser could (i) prevent non-tendering
Unitholders from taking action they desire but that the Purchaser opposes and
(ii) take action desired by the Purchaser but opposed by non-tendering
Unitholders. Under the Partnership Agreement, Unitholders holding a majority of
the Units are entitled to take action with respect to a variety of matters. When
voting on such matters, the Purchaser will vote Units owned and acquired by it
in its interest, which, because of its affiliation with the General Partner,
will also likely be in the interest of the General Partner. However, in
connection with the Original Tender Offers, the Purchaser has agreed for the
benefit of non-tendering Unitholders, and the Purchaser hereby reaffirms such
agreement, that (i) it will vote its Units against any proposal (including a
proposal by the Purchaser, the General Partner and any affiliates thereof) to
increase the existing fees and other compensation presently received by the
General Partner and any of its affiliates from the Partnership, and (ii) with
respect to any other matter proposed by the Purchaser, the General Partner or
any of their affiliates, the Purchaser will vote its Units in proportion to the
votes cast by other Unitholders. Except for the foregoing, no
11
other limitations are imposed on the Purchaser's right to vote each Unit
purchased, including any vote on the removal of the General Partner.
The Units are registered under the Exchange Act, which requires, among
other things, that the Partnership furnish certain information to its
Unitholders and to the Commission and comply with the Commission's proxy rules
in connection with meetings of, and solicitation of consents from, Unitholders.
Purchase of Units pursuant to the Offer will not result in the Units becoming
eligible for deregistration under the Exchange Act.
Section 8. Future Plans. The Purchaser is acquiring the Units pursuant
to the Offer in connection with the Settlement and otherwise for investment
purposes. Subject to the limitation on resales discussed in Section 7, following
the completion of the Offer, the Purchaser may acquire additional Units. Any
such acquisition may be made through private purchases or by any other means
deemed advisable; provided, however, as part of the Settlement, the Purchaser
has agreed not to initiate or participate (as a member of any group or as an
investor or creditor of the tender offer(s)) in any tender offer for Units for a
period of 24 months following the Expiration Date, except in response to a
tender offer by a party who is not an affiliate of the Purchaser. Any such
acquisition may be at a price higher or lower than the price to be paid for the
Units purchased pursuant to the Offer. Except as set forth in Section 9, neither
the Purchaser nor the General Partner has any present plans or intentions with
respect to a liquidation, sale of assets or refinancing of any of the
Partnership's properties. However, the Purchaser believes that consistent with
its fiduciary obligations the General Partner will continue to review any
opportunities such as sales or refinancings and will seek to maximize returns to
investors in the Units. The General Partner's stated intentions are to manage
the Partnership's assets to maximize capital appreciation, improve property
operations and reduce Partnership debt. See "Section 10. Conflicts of Interest
and Transactions with Affiliates" for certain information concerning the General
Partner's potential conflict of interest with respect to sales or refinancings.
Section 9. Certain Information Concerning the Partnership. The
Partnership was organized on June 28, 1984, under the laws of the State of
California. Its principal executive offices are located at 5665 Northside Drive,
N.W., Suite 370, Atlanta, Georgia 30328. Its telephone number is (404) 916-9050.
The Partnership's primary business is real estate related operations.
Unitholders are referred to the financial and other information
included in the Partnership's Annual Report on Form 10-K for the fiscal year
ended September 30, 1994, and the Partnership's Quarterly Report on Form 10-Q
for the six months ended March 31, 1995. Such reports and other documents may be
examined and copies may be obtained from the offices of the Commission at 450
Fifth Street, N.W., Washington, D.C 20549, and at the regional offices of the
Commission located in the Northwestern Atrium Center, 500 Madison Street, Suite
1400, Chicago, Illinois 60661, and 7 World Trade Center, New York, New York
10048. Copies should be available by mail upon payment of the Commission's
customary charges by writing to the Commission's principal offices at 450 Fifth
Street, N.W., Washington, D.C. 20549.
The Partnership's Marriott Riverwalk property is currently under
contract for sale to an unaffiliated third party. The purchase price for the
property is $49,600,000 with anticipated net proceeds to the Partnership of
approximately $30,000,000. The Marriott Riverwalk sale, which is expected to
occur no later than June 30, 1995, is subject to customary closing conditions
including, title, survey and environmental review. The Partnership has also
entered into a non-binding letter of intent for the sale of its Marriott
Somerset property. The purchase price for this property is $25,000,000 with
anticipated net proceeds to the Partnership of approximately $2,500,000. The
Marriott Somerset sale will be subject to satisfactory completion of the buyer's
due diligence reivew. In addition, the Partnership is currently marketing for
sale its interests in the Holiday Inn Crowne Plaza property and the Radisson
South property. The Partnership is not currently party to a letter of intent or
sales agreement with respect to such interests and there can be no assurance
that either of these interests will be sold. The Partnership's interests in each
such property, however, has been offered to the Partnership's unaffiliated joint
venture partner in such property pursuant to such partner's right of first offer
on terms which would in each case provide the Partnership with net proceeds of
12
approximately $2,500,000. The Purchaser has been advised that, if the foregoing
sales are consummated, the Partnership intends to distribute the net proceeds
from such consummated sales to the partners of the Partnership pursuant to the
terms of the Partnership Agreement. Assuming that all of the sales referred to
above are consummated on the terms indicated above, the distribution amount per
Unit would be approximately $569 in the aggregate (representing $329, $27, $27
and $186 per Unit in respect of the Marriott Riverwalk, Marriott Somerset,
Holiday Inn Crowne Plaza and Radisson South properties, respectively). However,
Unitholders who tender their Units will not be entitled to receive any
distributions from the Partnership.
Section 10. Conflicts of Interest and Transactions with Affiliates. The
General Partner, the Purchaser and their affiliates have conflicts of interest
with respect to the Offer as set forth below.
Conflicts of Interest With Respect to the Offer. The General Partner
has a conflict of interest with respect to the Offer, including as a result of
its affiliation with the Purchaser. (See "Section 13. Background of the Offer".)
Voting by the Purchaser. As a result of the Original Tender Offers, the
Purchaser is in a position to significantly influence all Partnership decisions
on which Unitholders may vote. Consummation of the Offer may further enhance
such voting influence. However, the Purchaser has agreed, for the benefit of
non-tendering Unitholders that (i) it will vote its Units against any proposal
(including a proposal by the Purchaser, the General Partner and any affiliates
thereof) to increase the existing fees and other compensation presently received
by the General Partner and any of its affiliates from the Partnership, and (ii)
with respect to any other matter proposed by the Purchaser, the General Partner
or any of their affiliates, the Purchaser will vote its Units in proportion to
the votes cast by other Unitholders. Except for the foregoing, no other
limitations are imposed on the Purchaser's right to vote each Unit purchased,
including any vote on the removal of the General Partner. (See "Section 7.
Effects of the Offer".)
Repayment of Tender Offer Loan. A loan (the "Original DeForest Loan")
was obtained by the Purchaser in connection with the Original Tender Offers.
(See "Section 13. Background of the Offer".) On May 8, 1995, following the
expiration of the draw down period for the Original Deforest Loan, the agreement
governing the Original DeForest Loan (the "Original Loan Agreement") was amended
(as amended, the "Amended Loan Agreement") to provide for additional debt
financing (such additional debt financing together with the Original DeForest
Loan being referred to herein as, the "Amended DeForest Loan") for the purchase
of units by the Purchaser in the Settlement Tender Offers (as defined in Section
13). The Purchaser services the Amended DeForest Loan with Purchaser Cash Flow
and Tender Cash Flow (as defined in Section 12). One of several possible sources
of Tender Cash Flow is the Purchaser's distributable portion of the proceeds of
any sales or refinancings of Partnership properties attributable to Units owned
by the Purchaser. Consequently, a conflict of interest may exist for the General
Partner in determining whether and when to sell and/or refinance the
Partnership's properties. Any such conflict, however, may be mitigated by the
fact that (i) proceeds from the sale or refinancing of properties owned by other
Subject Partnerships may be available to the Purchaser (see "Section 12. Source
of Funds."), (ii) there exist other repayment sources, including capital
contributions from the Purchaser's partners, (iii) certain of the Purchaser's
partners have agreed to advance funds to the Purchaser in order to enable the
Purchaser to make timely interest payments, and (iv) the Purchaser may be able
to refinance all or a portion of the Amended DeForest Loan. (See "Section 9.
Certain Information Concerning the Partnership" for a description of certain
pending property sales and other transactions under consideration by the
Partnership.)
Distributions upon Sales or Refinancings. As mentioned above, one
source of Tender Cash Flow is the Purchaser's distributable portion of the
proceeds of any sales or refinancings of Partnership properties attributable to
Units owned by the Purchaser. The Amended Loan Agreement provides that the
Purchaser is required to make a prepayment on the Amended DeForest Loan of an
amount equal to 75% (100% in the case of a refinancing) of the Purchaser's
distributable portion of the proceeds of such sale or refinancing, whether or
not distributed by the Partnership. Consequently, unless the Purchaser otherwise
has funds available to make
13
such a required prepayment, a conflict of interest may exist for the General
Partner in determining whether and when to cause the Partnership to distribute
the proceeds of any such sale or refinancing to the Partnership's partners. (See
"Section 9. Certain Information Concerning the Partnership" for a description of
certain pending property sales and other transactions under consideration by the
Partnership.)
Transactions with Affiliates. The General Partner of the Partnership,
an affiliate of the Purchaser, owns a 2% interest in the Partnership and thus
receives, as a continuing interest in the Partnership, an amount equal to a 2%
allocation of the Partnership's profits and losses, and 2% of distributions. The
General Partner and its affiliates are also entitled to be reimbursed for
certain expenses and to receive certain fees pursuant to the terms of the
Partnership Agreement; however, as a result of the Settlement, the General
Partners and their affiliates will no longer be entitled to receive a portion of
such expense reimbursements to the extent such expenses exceed the amount
reimbursed during the 1994 fiscal year, subject to increases for inflation. (See
"Section 13. Background of the Offer" for a discussion of the material terms of
the Settlement.)
For information as to the amounts paid to the General Partner and its
affiliates during the last three fiscal years and the six months ended March 31,
1995, see Note 2 to the Financial Statements of the Partnership in the Form 10-K
of the Partnership for the fiscal year ended September 30, 1994 and Note 2 to
the Financial Statements of the Partnership in the Form 10-Q of the Partnership
for the six months ended March 31, 1995.
As part of the Settlement, the General Partners have agreed to provide
the Partnership with a credit line of $150,000 for each property directly or
indirectly owned by the Partnership (currently $600,000 subject to reduction if
the transactions discussed in Section 9 are consummated). (See "Section 13.
Background of the Offer" for a discussion of the material terms of the
Settlement.)
Section 11. Certain Information Concerning the Purchaser. The Purchaser
was organized for the purpose of acquiring the Units in the Original Tender
Offers. The principal executive office of the Purchaser and DeForest Capital is
at 5665 Northside Drive, N.W., Suite 370, Atlanta, Georgia 30328. DeForest
Capital was organized for the purpose of acting as the general partner of the
Purchaser.
For certain information concerning the directors and executive officers
of DeForest Capital, the general partner of the Purchaser, see Schedule 1 to
this Offer to Purchase.
For certain financial information concerning the Purchaser and DeForest
Capital, see Schedule 2 to this Offer to Purchase.
The Purchaser has entered into agreements with Lisle Payne and Janet
Larson (the "Former Affiliates"), two former affiliates of Fox Realty Investors
("FRI"), an affiliate of the General Partner, pursuant to which the Purchaser
has agreed to pay to the Former Affiliates the portion of any distribution
received by the Purchaser or its affiliates on account of the Units owned by the
Purchaser or its affiliates which are attributable to capital contributions by
such Former Affiliates to restore the deficit in a general partner's capital
account. (See "Section 13. Background of the Offer" for a discussion of the
General Partner's capital account restoration obligations.) Pursuant to each
such agreement, the Purchaser will receive approximately $60,000 per year from
each Former Affiliate until February 1998.
Except as otherwise set forth herein, (i) neither the Purchaser,
DeForest Capital, to the best of Purchaser's knowledge, the persons listed on
Schedule 1 nor any affiliate of the foregoing beneficially owns or has a right
to acquire any Units, (ii) neither the Purchaser, DeForest Capital, to the best
of Purchaser's knowledge, the persons listed on Schedule 1, nor any affiliate
thereof or director, executive officer or subsidiary of DeForest Capital has
effected any transaction in the Units within the past 60 days, (iii) neither the
Purchaser, DeForest Capital, to the best of Purchaser's knowledge, any of the
persons listed on Schedule 1, nor any director or executive officer of DeForest
Capital has any contract, arrangement, understanding or relationship with any
other person with respect to any securities of the Partnership, including, but
not limited to, contracts, arrangements, understandings or relationships
concerning the transfer or voting thereof, joint ventures, loan or option
14
arrangements, puts or calls, guarantees of loans, guarantees against loss or the
giving or withholding of proxies, (iv) there have been no transactions or
business relationships which would be required to be disclosed under the rules
and regulations of the Commission between any of the Purchaser, DeForest Capital
or, to the best of Purchaser's knowledge, the persons listed on Schedule 1, on
the one hand, and the Partnership or its affiliates, on the other hand, and (v)
there have been no contracts, negotiations or transactions between the
Purchaser, DeForest Capital or, to the best of Purchaser's knowledge, the
persons listed on Schedule 1, on the one hand, and the Partnership or its
affiliates, on the other hand, concerning a merger, consolidation or
acquisition, tender offer or other acquisition of securities, an election of
directors or a sale or other transfer of a material amount of assets.
QAL Associates and QALA II Associates, each an affiliate of the
Purchaser with an address at 100 Jericho Quadrangle, Suite 214, Jericho, New
York 11753, own 17 and 40 Units, respectively.
Section 12. Source of Funds. As described in Section 13, in connection
with the Original Tender Offers, the Purchaser obtained the Original DeForest
Loan in the original principal amount of $21,223,858, and DeForest II (as
defined in Section 13) obtained a loan (the "Original NPI Loan", and together
with the Original DeForest Loan, the "Original Loans") in the original principal
amount of $13,250,690, in each case from Kidder Peabody Mortgage Capital
Corporation ("Kidder"). Kidder subsequently assigned the Original Loans to
PaineWebber Real Estate Securities Inc. (the "Lender"), the successor in
interest to Kidder. On May 8, 1995, following the expiration of the draw down
period for the Original Loans, the Original Loans were amended to provide for
additional debt financing to be used in connection with consummation of the
Settlement, including consummation of the Settlement Tender Offers. The
aggregate principal amount of the Amended DeForest Loan and the "Amended NPI
Loan" (defined as the Original NPI Loan as increased by the additional debt
financing allocated to DeForest II) may not exceed $55 million. Subject to such
limitation and to reduction by the amount of additional debt financing allocated
to DeForest II in connection with consummation of the Settlement by DeForest II,
the maximum increase in the principal amount of the Original DeForest Loan will
be approximately $19,019,000, of which approximately $14,655,000 is available
for the Settlement Tender Offers.
Approximately $4,801,127 in the aggregate would be required by the
Purchaser to purchase or make a Loan with respect to the 18,772 Units sought
pursuant to the Offer, if tendered. The Purchaser may obtain up to approximately
$4,131,547 of such aggregate amount from the additional debt financing subject
to reduction dependent upon the amount of the additional debt financing
allocated to DeForest II to consummate the other Settlement Tender Offers and
the success of the Purchaser in the other Settlement Tender Offers. Any funds
required by the Purchaser to consummate the Offer and the other Settlement
Tender Offers in excess of the amount available to it from the additional debt
financing will be obtained from the Purchaser's partners.
The Amended DeForest Loan and the Amended NPI Loan (together, the
"Amended Loans") are governed by the terms of the Amended Loan Agreement. Except
as indicated below, the terms of the Amended Loans, including the covenants of
the respective borrowers and the terms relating to interest and maturity, are
not materially different from the terms which governed the Original Loans prior
to execution of the Amended Loan Agreement. Any changes in such terms are
generally reflective of the increased principal amount of the Amended Loans as
well as the additional collateral for the Amended Loans to be acquired by the
respective borrowers in the Settlement Tender Offers and to be pledged to the
Lender.
The Amended DeForest Loan and the Amended NPI Loan are cross-defaulted
and cross-collateralized. The Amended DeForest Loan and the Amended NPI Loan are
each due and payable on November 21, 1995. However, the respective borrowers
have the right to extend the Amended Loans for two consecutive one-year periods
provided that the Amended Loans are not in default. Interest on each Amended
Loan accrues monthly and is payable in arrears at a rate per annum equal to 250
basis points over LIBOR through November 21, 1995, 350 basis points over LIBOR
through November 21, 1996 (if extended through such date) and 450 basis points
over LIBOR through November 21, 1997 (if extended through such date). As of May
16, 1995 the LIBOR rate was 6.0625% per annum.
15
The Lender is also entitled to additional interest on the Amended Loans
in the form of a residual fee. Payment of the Lender's additional interest,
however, is subordinate to the prior return of the aggregate capital
contributions received by the Purchaser and DeForest II, together with a 15% per
annum return thereon. The residual fee consists of the greater of 20% or a
specified percentage of Tender Cash Flow until the Lender has received a 17% per
annum rate of return. The specified percentage to be received by the Lender will
be based upon the actual monthly outstanding balance of the Amended Loans and
the period of time during which the Amended Loans were outstanding, and will
continue to be paid to the Lender after its receipt of a 17% per annum rate of
return. "Tender Cash Flow" is the amount to be received by the Purchaser with
respect to the units of limited partnership interest acquired in the Original
Fox Tender Offers and acquired or held by the Purchaser in connection with the
Settlement Tender Offers (together with the units of limited partnership
interest acquired by DeForest II in the Original NPI Tender Offers and the
Settlement Tender Offers, the "Tendered Units"), whether in the form of
distributions from the NPI Partnerships or as proceeds from the sale or other
disposition of such Tendered Units.
Although the Amended Loans are prepayable at any time without premium
or penalty, a prepayment is required upon the occurrence of certain events. The
Purchaser is required to prepay the outstanding principal amount of the Amended
DeForest Loan utilizing Purchaser Cash Flow (as defined herein), if any,
remaining after its application to the payment of interest on the Amended Loans.
Further, whether or not distributed to the Purchaser, 75% (increased from 60% in
connection with entering into the Amended Loan Agreement) of the Purchaser's
distributable portion of the net proceeds of a sale (and 100% of the net
proceeds of a refinancing) of a property owned by a Fox Partnership is required
to be applied in prepayment of the Amended DeForest Loan. (See "Section 10.
Conflicts of Interest and Transactions With Affiliates" for a discussion of
certain potential conflicts of interest resulting from the Purchaser's
obligation to prepay the Amended DeForest Loan with the proceeds of sales or
refinancings of Partnership properties.) "Purchaser Cash Flow" means the cash
revenues, with certain exceptions, to be received by NPI-AP Management, L.P.
("NPI-AP Management"), an affiliate of the Purchaser, and by certain other
entities affiliated with NPI less allowable operating expenses.
Each of NPI-AP and NPI have guaranteed the Amended Loans.
As collateral security for the Amended Loans, among other things, the
Purchaser and DeForest II have pledged and collaterally assigned the Tendered
Units (or upon acquisition thereof pursuant to the Settlement Tender Offers will
pledge and collaterally assign Tendered Units) to the Lender, and their
respective partners have pledged all partnership interests in the borrowers. As
additional collateral security, all outstanding shares of the common stock of
NPI Equity (and its parent NPI) and all partnership interests in NPI-AP
Management have been pledged to the Lender by the holders thereof.
The Amended Loan Agreement contains customary affirmative and negative
reporting and operational covenants. The Amended Loan Agreement also provides
that certain actions (i.e., bankruptcy or insolvency and default under mortgage
indebtedness) by Subject Partnerships having in the aggregate an Attributed Net
Value (as defined below) of more than 20% of the Attributed Net Value of all
Subject Partnerships constitute a default under the Amended Loans. "Attributed
Net Value" of any Subject Partnership represents the purchase price actually
paid by the Purchaser or DeForest II for Tendered Units of a Subject Partnership
multiplied by the number of Tendered Units actually acquired at such price.
The Purchaser and DeForest II have timely made all required payments of
principal and interest on the Original Loans. The Purchaser anticipates that,
over the remaining course of the Amended Loans or any refinancing thereof, the
allocable share of sale or refinancing proceeds to be received by it or by
DeForest II on account of Tendered Units, together with the Purchaser Cash Flow
available to service the Amended Loans, will continue to be sufficient to retire
the principal balance of the Amended Loans or any replacement loans. However, it
is the Purchaser's belief that unless properties owned by one or more of the
Subject Partnerships are sold or refinanced, repayment of the Amended Loans will
be dependent upon the ability of the Purchaser or DeForest II to obtain
replacement financing. (See "Section 10. Conflicts of Interest and Transactions
with Affiliates" for a discussion of certain potential conflicts of interest
resulting from consummation of the Original DeForest Loan.) There are 84
individual properties owned by the Subject Partnerships. Neither the General
16
Partner nor the Purchaser is aware of any property owned by a Subject
Partnership which is contemplated for current sale other than the following:
(i) Century Properties Fund XIV has entered into contracts for
the sale of its Greenbriar Plaza and Duck Creek properties for purchase
prices of $1,060,000 and $2,240,000 respectively. The anticipated net
proceeds to the partnership from these sales is expected to be
approximately $925,000 from the Greenbriar Plaza sale and 1,950,000
from the Duck Creek sale. The sales are subject to customary closing
conditions, including title, survey and environmental review;
(ii) Century Properties Growth Fund XXII has entered into a
contract for the sale of its Monterey Village property for a purchase
price of $10,500,000 with anticipated net proceeds to the partnership
of approximately $3,200,000. The sale is contingent upon the buyer's
satisfactory completion of its due diligence review;
(iii) As discussed in Section 9, the Partnership has entered
into a contract for the sale of its Marriott Riverwalk property for a
purchase price of $49,600,000 with anticipated net proceeds to the
Partnership of approximately $30,000,000, and has entered into a
non-binding letter of intent for the sale of its Marriott Somerset
property for $25,000,000 with anticipated net proceeds to the
partnership of approximately $2,500,000. The sale of the Marriott
Riverwalk is subject to customary closing conditions, and the sale of
the Marriott Somerset will be contingent upon the buyer's satisfactory
completion of its due diligence review. The Partnership is also
currently marketing its interests in both its Holiday Inn Crowne Plaza
property and its Radisson South property; and
(iv) MRI Business Properties Fund, Ltd. III ("MRI III") has
entered into a contract for the sale of its Embassy Suites property for
a purchase price of $19,600,000 with anticipated net proceeds to the
partnership of approximately $19,500,000. The sale is contingent upon
the buyer's satisfactory completion of its due diligence review. MRI
III is also currently marketing its interest in its Holiday Inn Crowne
Plaza property.
In addition, neither the Purchaser nor Deforest II has made any plans
or arrangements to refinance the Amended Loans. Assuming all of the foregoing
properties which are under contract or subject to letters of intent are sold for
the purchase prices indicated and the proceeds of such sales are distributed by
the respective partnerships, the Purchaser's share of such proceeds on account
of units currently owned in such partnerships, together with the Purchaser's
share of the proceeds from the April 1995 sale of Plumtree Apartments by Century
Properties Fund XV, would aggregate approximately $17,950,000 .
Section 13. Background of the Offer.
Acquisition of Control. On December 6, 1993, NPI Equity, a wholly-owned
subsidiary of NPI, an affiliate of the Purchaser, assumed management and
obtained control of the General Partner of the Partnership, the respective
general partners of the other Subject Partnerships set forth on Schedule 3 under
the heading "Fox Partnerships" (together with the Partnership, the "Fox
Partnerships"), and certain other affiliated partnerships, by being appointed as
substitute managing partner of FRI, a partner of the General Partner and the
direct or indirect general partner of certain of the other Fox Partnerships and
such other affiliated partnerships, and by entering into a voting trust
agreement with the beneficial owners of the outstanding shares of stock of Fox
Capital Management Corporation ("FCMC"), another direct or indirect general
partner of certain of the other Fox Partnerships and such other affiliated
partnerships. Three of the eleven former individual general partners of FRI are
limited partners of the Purchaser.
In connection with the acquisition by NPI Equity of management and
control of the Fox Partnerships and such other affiliated partnerships, NPI
Realty Advisors, Inc. ("NPI Realty"), an affiliate of NPI Equity, acquired for
cash and notes an aggregate of approximately $10,800,000 of loans made by FRI
and/or FCMC to the Fox Partnerships and such other affiliated partnerships (the
"Partnership Advances") for the outstanding balance of such loans. All of the
17
Partnership Advances have since been repaid by the borrower thereof from, among
other sources, the proceeds of the sales of certain properties of the Fox
Partnerships and such other affiliated partnerships.
On October 12, 1994, NPI sold one-third of its stock to an affiliate of
Apollo Real Estate Advisors, L.P. ("Apollo"). (See Item 1. "Business -
Subsequent Events" of the Partnership's Form 10-K for the fiscal year ended
September 30, 1994 for additional information with respect to this transaction.)
Certain individual beneficial owners of NPI and an entity affiliated with Apollo
formed both the Purchaser and DeForest Capital on September 30, 1994 for the
purpose of making the Original Tender Offers.
The Original Tender Offers. On October 17, 1994, the Purchaser
commenced the Original Tender Offers for units of limited partnership interest
in the Fox Partnerships (the "Original Fox Tender Offers"), and the Purchaser's
affiliate, DeForest Ventures II L.P. ("DeForest II"), commenced the Original
Tender Offers (the "Original NPI Tender Offers") for units of limited
partnership interest in the Subject Partnerships set forth on Schedule 3 under
the heading "NPI Partnerships" (the "NPI Partnerships"). The Original NPI Tender
Offers and the Original Fox Tender Offers were consummated on November 18, 1994
and November 29, 1994, respectively.
Original Tender Offer Financing. The Purchaser purchased the Units
tendered in the Original Tender Offer for Units as well as the units of limited
partnership interest tendered in the other Original Fox Tender Offers, in part,
with the proceeds of the $21,223,858 Original DeForest Loan. The balance of the
purchase price for such units was obtained through capital contributions from
the Purchaser's partners. The Lender also provided the $13,250,690 Original NPI
Loan to DeForest II in connection with DeForest II's purchase of units in the
Original NPI Tender Offers. As of May 8, 1995, the outstanding principal balance
of the Original DeForest Loan and the Original NPI Loan, was $21,223,858 and
$12,403,079, respectively. As discussed in Section 12, prior to execution of the
Amended Loan Agreement, the Original Loans were governed by terms not materially
different from the terms governing the Amended Loans (see "Section 12. Source of
Funds" for a discussion of the terms of the Amended Loans.)
The Action. The Action consolidates two of the litigations filed in
response to the Original Tender Offers. The following sets forth certain
background information relating to such litigations:
The Ruben Action. On November 7, 1994, Plaintiffs Bonnie L.
Ruben and Sidney Finkel (the "Original Ruben Plaintiffs") filed their original
complaint (the "Ruben Action") with the Court entitled Bonnie L. Ruben, et. al.
v. DeForest Ventures I L.P., et. al. (Civil Action No 1:94CV-2983-JEC), alleging
claims relating to the Original Fox Tender Offers on behalf of the limited
partners in the Fox Partnerships. The complaint included claims for violation of
Section 14(e) of the Securities Exchange Act of 1934 against the tender
offerors, for breach of fiduciary duties by the General Partners of the Fox
Partnerships, for breach of the Partnership Agreements of the Fox Partnerships,
and for aiding and abetting such breaches. The Original Ruben Plaintiffs moved
for a temporary restraining order and a preliminary injunction to enjoin the
Original Fox Tender Offers. On November 18, 1994, following a hearing, the Court
denied the Original Ruben Plaintiffs' motion for a temporary restraining order
enjoining the Original Fox Tender Offers and other matters, and scheduled a
hearing on the Original Ruben Plaintiffs' preliminary injunction motion for
November 28, 1994. On November 22, 1994, the Original Ruben Plaintiffs withdrew
their motion for a preliminary injunction. On December 29, 1994, the Original
Ruben Plaintiffs, joined by Plaintiff Robert Lewis (collectively, the "Ruben
Plaintiffs"), filed their First Amended Complaint, alleging claims related both
to the Original Fox Tender Offers and the Original NPI Tender Offers, on behalf
of limited partners in the Fox Partnerships and the NPI Partnerships,
respectively.
The Andrews Action. On December 16, 1994, a complaint (the
"Andrews Action") was filed in the Court by Plaintiff James Andrews and others
(the "Andrew Plaintiffs") with the Court entitled James Andrews, et. al. v. Fox
Capital Management Corp., et al., (Civil Action No 1:94CV-3351-JEC), alleging
similar claims to those alleged in the Ruben Action.
18
By order of the Court, dated February 23, 1995, the Ruben Action and
the Andrews Action were consolidated.
The Settlement also settles the two other class actions which were
filed in response to the Original Tender Offers. The following sets forth
certain background information relating to such litigations:
The Whiteside Action. On November 3, 1994, a complaint (the
"Whiteside Action") was filed in the Superior Court of the State of California
in and for the County of San Mateo entitled Whiteside, et al. v. Fox Capital
Management Corp. (Case No. 390018), alleging claims under California state law
in connection with the Original Fox Tender Offers on behalf of certain limited
partners in the Fox Partnerships, and an amended complaint was filed in that
action on December 28, 1994, alleging claims related both to the Original Fox
Tender Offers and to the Original NPI Tender Offers, on behalf of certain
limited partners of the Fox Partnerships and the NPI Partnerships, respectively.
The court in the Whiteside Action denied plaintiff's motions for a temporary
restraining order and a preliminary injunction to enjoin the Original Fox Tender
Offers.
The Vernon Action. On November 22, 1994, a complaint (the
"Vernon Action") was filed in the Illinois Circuit Court entitled Vernon v.
DeForest Ventures I L.P., et. al. (No. 94 CH 0150592) containing allegations
similar to those contained in the Action.
Each defendant in the Action has at all times denied the allegations of
wrongdoing and the merits of any and all claims asserted in the Action and in
the Whiteside and Vernon Actions.
The Settlement. After extensive arm's-length negotiations between
counsel for the Plaintiffs in the various litigations and counsel for the
Defendants, the parties to the litigations entered into an Amended Stipulation
of Settlement dated as of March 14, 1995. As described in the Settlement Notice,
the Settlement provides that in full and final disposition of all claims with
respect to any transaction or occurrence constituting the subject matter of the
Action, the following consideration was provided with respect to the Fox
Partnerships:
Monetary Payment to Class Members who tendered in the Original Tender
Offers. Each unitholder who tendered units of limited partnership interest in
the Original Fox Tender Offers will receive a payment equal to the sum of the
Settlement Premium plus the Residual Settlement Premium in the Settlement Tender
Offer applicable to such unitholder's Fox Partnership. Accordingly, unitholders
who tendered units in the Original Fox Tender Offers, and unitholders who tender
units in the Settlement Tender Offers relating to the same Fox Partnership, will
have received the same consideration with respect to tendered units which are
purchased pursuant to such Offers.
Settlement Tender Offers. The Purchaser was required to make the Offer,
and similar tender offers (together with the Offer, the "Settlement Tender
Offers") were required to be made with respect to the other Subject
Partnerships.
Establishment of Credit Line. The respective general partners of the
Fox Partnerships, or their affiliates, will provide a credit line to each Fox
Partnership in an amount determined by multiplying $150,000 by the number of
properties owned directly or indirectly by such Fox Partnership, with interest
at the lesser of the prime rate plus 1% or the interest rate permitted under the
respective partnership agreement of the Fox Partnerships for short term loans to
such Fox Partnership by its general partners. The principal amount of such loans
will be payable on the earliest to occur of either the sale or refinancing of
any property owned by the applicable Fox Partnership or upon liquidation of such
Fox Partnership. Interest on such loans will be payable out of first available
cash flow or upon sale or refinancing of any property owned by the applicable
Fox Partnership.
Limitation on Expense Reimbursement. The annual amount of general and
administrative expenses (other than that portion attributable to outside legal
and accounting fees) which is reimbursable to the respective general partners of
each Fox Partnership from such Fox Partnership may not exceed the amount
reimbursed to such general partners during the 1994 fiscal year, subject to
increases for inflation.
19
Prohibition on Roll-up Transactions. The respective general partners of
the Fox Partnerships will adopt a policy of prohibiting the Fox Partnerships
from entering into a Roll-up Transaction in which such general partners or their
affiliates are a party prior to December 31, 1999, unless such transaction is
approved by a majority of the limited partnership interests held by
non-affiliates of such general partners. A Roll-up Transaction is defined to
mean (i) any merger or consolidation of a Fox Partnership with any other entity
if as a result thereof limited partners of such partnership will be issued
securities in any other entity in exchange for, or as a distribution with
respect to, the units of such partnership; or (ii) any sale of all or
substantially all of the assets of a Fox Partnership to another entity if as a
result thereof limited partners of such partnership will be issued securities in
any other entity in exchange for, or as a distribution with respect to, the
units of such partnership; or (iii) any transaction involving an exchange of
units of a Fox Partnership for securities in any other entity whether through a
voluntary exchange or otherwise; or (iv) any other similar transaction or series
of transactions, if, as a result of a transaction or any series of related
transactions, any of the limited partners of such partnership will be issued
securities in any other entity in exchange for, or as a distribution with
respect to, the units in such partnership; or (v) any sale of all or
substantially all of the assets of a Fox Partnership or termination and
dissolution of a Fox Partnership, if in either case, the general partner of such
partnership or any of its affiliates has a material financial interest in such
transaction (other than in its capacity as a general or limited partner in such
partnership).
Elimination of Fees. The respective general partners of the Fox
Partnerships and their affiliates will not be entitled to any subordinated
incentive fees otherwise payable pursuant to the respective partnership
agreements of the Fox Partnerships.
No Additional Tender Offers. Neither the Purchaser nor any of its
affiliates will initiate or participate in (as a member of any group or as an
investor in or creditor of the tender offeror(s)) any tender offer for the
outstanding units of one or more of the Subject Partnerships after completion of
the Settlement Tender Offers for a period of 24 months following the completion
of the Settlement Tender Offers, except in response to a tender offer by a party
who is not an affiliate of the Purchaser.
At a May 19, 1995 hearing on the Settlement, the Court approved the
Settlement and entered an order (the "Order") determining that the terms of the
Settlement were fair, reasonable and adequate and dismissing the Action with
prejudice. Unless an appeal is filed, the Court's order will become final,
binding and non-appealable on June 19, 1995.
Payment of Settlement Expenses. Depending on the number of units
tendered in the Settlement Tender Offers, the Subject Partnerships will be
obligated to pay a portion of Class Members' counsel's fees. In the case of the
Partnership, such payment will not exceed $11,700.
Establishment of Cash Consideration. The Purchaser has set the Cash
Consideration at $255.76 per Unit as compared to the Original Purchase Price of
$232 per Unit in the Original Tender Offer for Units. As discussed above, the
Cash Consideration was determined in connection with the Settlement and
represents the price offered in the Original Tender Offer increased by the
Settlement Premium. (See "Section 13. Background of the Offer".)
As discussed in the Offer to Purchase relating to the Original Tender
Offer for Units, the Original Purchase Price was established by analyzing a
number of both quantitative and qualitative factors which existed at the time of
the Original Tender Offers, including: (i) secondary market activity with
respect to the Units; (ii) the lack of liquidity of, and lack of current income
derived from, an investment in the Partnership; (iii) an estimate of the
underlying value of the Partnership's assets; (iv) the costs to the Purchaser
associated with acquiring the Units in the Original Tender Offer; and (v) the
administrative costs of continuing to own the Partnership's assets through a
publicly registered limited partnership.
20
Secondary sales activity has been very limited and sporadic. Since the
Original Tender Offers, according to information obtained from trade
publications that report on public real estate limited partnerships, Units that
were transferred in the secondary market were sold at prices approximating the
Original Purchase Price.
Set forth below is updated information with respect to the underlying
value of the Partnership's assets.
The Purchaser is offering to purchase Units which are a relatively
illiquid investment and which do not presently generate current income and is
not offering to purchase the Partnership's underlying assets. The Purchaser,
however, derived an estimated net value (the "Derived Value") for the
Partnership's assets. In determining the Derived Value, the Purchaser first
calculated the "Adjusted Value" of each of the Partnership's properties. The
Adjusted Values for each of the properties represents either the gross contract
sales price for the property (Marriott Riverwalk and Marriott Somerset) or the
price at which the property was offered to the Partnership's unaffiliated joint
venture partner pursuant to such partner's right of first offer (Holiday Inn
Crowne Plaza and Radisson South). In addition, the Adjusted Value for the
Holiday Inn Crowne Plaza represents 25% (the Partnership's ownership interest in
the property) of the price at which the property was offered to the
Partnership's unaffiliated joint venture partner pursuant to such partner's
right of first offer.
The following table applies the method used by the Purchaser to
determine the Adjusted Value.
- --------------------------------------------------------------------------------
Property Year Built Adjusted Value
- --------------------------------------------------------------------------------
Holiday Inn Crowne Plaza 1986 $11,000,000
- --------------------------------------------------------------------------------
Marriott Somerset 1978 $25,000,000
- --------------------------------------------------------------------------------
Radisson South 1970 $33,200,000
- --------------------------------------------------------------------------------
Marriott Riverwalk Hotel 1979 $49,600,000
- --------------------------------------------------------------------------------
To determine the Derived Value of the Partnership's assets, the
Purchaser then added to the aggregate Adjusted Value the net amount of all cash
and cash equivalents of the Partnership at March 31, 1995, which net amount
equaled $6,772,000. Finally, the Adjusted Value was reduced by subtracting
approximately $73,080,000 of long term debt of the Partnership outstanding at
March 31, 1995. The resulting Derived Value of the Partnership's assets was
approximately $52,492,000 or $565 per Unit (based upon the percentage of capital
distributions to which Unitholders are entitled). The disparity between the
Derived Value per Unit determined herein and the Derived Value of $347 per Unit
set forth in the Offer to Purchase for the Original Tender Offer for Units
results from the potential sales referred to above.
No deduction was made in calculating the Derived Value on account of
closing costs which would be incurred upon the sale by the Partnership of its
properties, including brokerage commissions, title costs, legal fees and
transfer taxes.
Unitholders should also be aware that, in connection with Apollo's
decision to make an investment in the Purchaser and its affiliates, Apollo
retained an independent third party to conduct an equity analysis of, among
other entities, the Partnership as of June 30, 1994. The foregoing analysis
estimated the equity value of the Partnership at an amount equivalent to $429
per Unit. However, Unitholders are advised that this valuation was not prepared
with a view toward public disclosure (including disclosure in this Offer) and
that Apollo does not as a matter of course make public its internal valuations.
The fact that Apollo commissioned this evaluation of the Partnership in
connection with its decision to make an investment in the Purchaser and its
affiliates should not be considered as an indication that either Apollo or the
Purchaser considers this valuation as an accurate indicator of the net amount
the Partnership could realize for its assets.
21
The Partnership Agreement provides, among other things, that upon
dissolution of the Partnership subsequent to the sale of all of the
Partnership's properties, the General Partner is required to contribute capital
to the Partnership in an amount equal to any deficit then existing in its
capital account. Through ownership of Units by the Purchaser, an affiliate of
the General Partner, the potential liability of the General Partner and its
affiliates is effectively reduced. Although there was a deficit in the capital
account of the General Partner of $283,232 as of the end of the Partnership's
last fiscal year (equal to $3.11 per Unit), such amount is subject to future
reduction through allocation of a portion of the taxable gain, if any, that
results from the sale by the Partnership of its properties under the Partnership
Agreement. Consequently, the ultimate amount, if any, of the deficit and the
date on which it would be paid are indeterminable. Accordingly, the Purchaser
has attributed no value to this obligation in establishing the Cash
Consideration.
Pursuant to the Settlement Agreement, it was agreed that the Cash
Consideration would be $255.76 reflecting the price offered in the Original
Tender Offer increased by the Settlement Premium. The Cash Consideration
represents the price at which the Purchaser is willing to purchase Units. No
independent person has been retained to evaluate or render any opinion with
respect to the fairness of the Cash Consideration and no representation is made
by the Purchaser or any affiliate of the Purchaser as to such fairness. The
Purchaser did not attempt to obtain current independent valuations or appraisals
of the underlying properties and other assets owned by the Partnership; however,
the Purchaser is aware of the equity analysis referred to above. As indicated
above, the Purchaser does not believe that such valuations or appraisals should
be determinative as to the Purchaser's establishment of the Cash Consideration.
Other measures of the value of the Units may be relevant to Unitholders.
Unitholders are urged to consider carefully all of the information contained
herein and consult with their own advisors, tax, financial or otherwise, in
evaluating the terms of the Offer before deciding whether to tender Units.
Partnership Recommendation. The Partnership has indicated in its
Statement on Schedule 14D-9 filed with the Commission that, because of the
greater amount per Unit which may be distributed to Unitholders in respect of
the properties under contract for sale discussed in Section 9 of this Offer to
Purchase (in excess of $350 per Unit as compared to the $255.76 Cash
Consideration) and the possibility of additional distributions to Unitholders
resulting from a potential subsequent liquidation of the Partnership, IT IS
RECOMMENDING THAT UNITHOLDERS NOT TENDER THEIR UNITS PURSUANT TO THE OFFER.
Section 14. Conditions of the Offer. Notwithstanding any other term of
the Offer, the Purchaser shall not be required to accept for payment or to pay
for any Units tendered if all authorizations, consents, orders or approvals of,
or declarations or filings with, or expirations of waiting periods imposed by,
any court, administrative agency or commission or other governmental authority
or instrumentality, domestic or foreign, necessary for the consummation of the
transactions contemplated by the Offer shall not have been filed, occurred or
been obtained. Furthermore, notwithstanding any other term of the Offer, the
Purchaser shall not be required to accept for payment or pay for any Units not
theretofore accepted for payment or paid for and may terminate or amend the
Offer as to such Units if, at any time on or after the date of the Offer and
before the acceptance of such Units for payment or the payment therefor, any of
the following conditions exists:
(a) a preliminary or permanent injunction or other order of
any federal or state court, government or governmental authority or
agency shall have been issued and shall remain in effect which (i)
makes illegal, delays or otherwise directly or indirectly restrains or
prohibits the making of the Offer or the acceptance for payment of or
payment for any Units by the Purchaser, (ii) imposes or confirms
limitations on the ability of the Purchaser effectively to exercise
full rights of ownership of any Units, including, without limitation,
the right to vote any Units acquired by the Purchaser pursuant to the
Offer or otherwise on all matters properly presented to the
Partnership's Unitholders, or (iii) requires divestiture by the
Purchaser of any Units;
(b) there shall be any action taken, or any statute, rule,
regulation or order proposed, enacted, enforced, promulgated, issued or
deemed applicable to the Offer by any federal or state court,
22
government or governmental authority or agency, which might, directly
or indirectly, result in any of the consequences referred to in clauses
(i) through (iii) of paragraph (a) above; or
(c) the Order shall not have become final, binding and
non-appealable.
The foregoing conditions are for the sole benefit of the Purchaser and
may be asserted by the Purchaser regardless of the circumstances giving rise to
such conditions or may be waived by the Purchaser in whole or in part at any
time and from time to time in its sole discretion. Any determination by the
Purchaser concerning the events described above will be final and binding upon
all parties.
Section 15. Certain Legal Matters.
General. Except as set forth in this Section 15, the Purchaser is not
aware of any filings, approvals or other actions by any domestic or foreign
governmental or administrative agency that would be required prior to the
acquisition of Units by the Purchaser pursuant to the Offer. Should any such
approval or other action be required, it is the Purchaser's present intention
that such additional approval or action would be sought. While there is no
present intent to delay the purchase of Units tendered pursuant to the Offer
pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or action,
if needed, would be obtained without substantial conditions or that adverse
consequences might not result to the Partnership's business, or that certain
parts of the Partnership's business might not have to be disposed of or held
separate or other substantial conditions complied with in order to obtain such
approval or action, any of which could cause the Purchaser to elect to terminate
the Offer without purchasing Units thereunder. The Purchaser's obligation to
purchase and pay for Units is subject to certain conditions, including
conditions related to the legal matters discussed in this Section 15.
Antitrust. The Purchaser does not believe that the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, is applicable to the acquisition
of Units contemplated by the Offer.
Margin Requirements. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, such regulations are not applicable to the Offer.
State Takeover Laws. A number of states have adopted anti-takeover laws
which purport, to varying degrees, to be applicable to attempts to acquire
securities of corporations which are incorporated in such states or which have
substantial assets, securityholders, principal executive offices or principal
places of business therein. Although the Purchaser has not attempted to comply
with any state anti-takeover statutes in connection with the Offer, the
Purchaser reserves the right to challenge the validity or applicability of any
state law allegedly applicable to the Offer and nothing in this Offer to
Purchase nor any action taken in connection herewith is intended as a waiver of
such right. If any state anti-takeover statute is applicable to the Offer, the
Purchaser might be unable to accept for payment or purchase Units tendered
pursuant to the Offer or be delayed in continuing or consummating the Offer. In
such case, the Purchaser may not be obligated to accept for purchase or pay for
any Units tendered.
Section 16. Fees and Expenses. The Purchaser will not pay any fees or
commissions to any broker, dealer or other person for soliciting tenders of
Units pursuant to the Offer. The Purchaser will pay all costs and expenses of
printing and mailing the Offer.
Section 17. Miscellaneous. The Purchaser is not aware of any
jurisdiction in which the making of the Offer is not in compliance with
applicable law. If the Purchaser becomes aware of any jurisdiction in which the
making of the Offer would not be in compliance with applicable law, the
Purchaser will make a good faith effort to comply with any such law. If, after
such good faith effort, the Purchaser cannot comply with any such law, the Offer
will not be made to (nor will tenders be accepted from or on behalf of) the
holders of Units residing in such jurisdiction.
23
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser not contained herein or in the Letter
of Transmittal and, if given or made, such information or representation must
not be relied upon as having been authorized.
The Purchaser has filed with the Commission a Schedule 14D-1, pursuant
to Rule 14d-3 under the Exchange Act, furnishing certain additional information
with respect to the Offer, and may file amendments thereto. The Schedule 14D-1
and any amendments thereto, including exhibits, may be inspected and copies may
be obtained at the same places and in the same manner as set forth in Section 9
hereof (except that they will not be available at the regional offices of the
Commission).
DEFOREST VENTURES I L.P.
June 2, 1995
24
Exhibit A
NOTE AND SECURITY AGREEMENT
, 1995
Loan # [ ]
The undersigned borrower (the "Borrower"), for value received, promises to
pay to DeForest Ventures I L.P., a Delaware limited partnership (the "Lender"),
the Principal Amount of this Note as determined pursuant to Section 1 below, and
accrued interest thereon, on the terms and conditions herein set forth.
This Note evidences a non-recourse loan (the "Loan") made by the Lender to
the Borrower in connection with the offer to purchase (the "Offer") units of
limited partnership interest ("Units") of MRI Business Properties Fund, Ltd. II,
a California limited partnership (the "Partnership"), made by the Lender
pursuant to that certain Offer to Purchase dated June 2, 1995 and the
accompanying Letter of Transmittal. The Borrower tendered Units in the Offer,
certain of which, after application of the proration provisions of the Offer
(the "Proration Provisions"), were accepted for purchase (the "Purchased Units")
and certain of which (the "Retained Units"), after application of the Proration
Provisions, were not accepted for purchase and are pledged hereby as collateral
for the Loan evidenced by this Note.
1. Principal Amount. The principal amount (the "Principal Amount") of this
Note shall be that amount which is equal to the number of Retained Units
multiplied by $255.76. The Principal Amount of this Note shall be due and
payable on January 2, 1996 (the "Maturity Date"), and shall not be prepayable
except through the application of "Distributions" (as defined below) in
accordance with Section 7 of this Note.
2. Interest. This Note shall bear interest at a rate per annum of 9%.
Interest on this Note shall accrue from the date of this Note (which shall be
the date which is two days after the Expiration Date (as defined in the Offer)
of the Offer) and shall be payable in arrears on the Maturity Date. Interest
shall not be prepayable except through the application of Distributions in
accordance with Section 7 of this Note. Interest will be computed on the basis
of a 365-day year and the actual number of days elapsed.
3. Payment of Principal and Interest. The Principal Amount of this Note,
and accrued interest thereon, may be paid, at the election of the Borrower,
EITHER (i) by delivery to the Lender on or after the Maturity Date but not later
than January 17, 1996 of a certified check made payable to the Lender in an
amount (the "Cash Payment Amount") equal to the sum of (x) the Principal Amount,
plus (y) the amount of accrued interest on the Principal Amount through the date
of payment, minus (z) the amount of all Distributions applied on or prior to the
date of payment in accordance with Section 7 of this Note, OR (ii) by
transferring ownership of the Retained Units to the Lender. In order for the
Borrower to elect to make payment pursuant to the preceding clause (i), the
Lender must receive the Cash Payment Amount on or prior to January 17, 1996. If
the Cash Payment Amount is not so received by the Lender on or prior to such
date, the Borrower shall be deemed to have elected the payment option set forth
in clause (ii) above.
4. Non-recourse. Anything contained herein to the contrary notwithstanding,
no recourse shall be had for the payment of the Loan evidenced by this Note or
for any claim based thereon or otherwise in respect thereof or for the payment
or performance of any other obligation based on or in respect of the Loan, and
no personal liability shall be asserted or enforceable, against (i) the Borrower
or (ii) any officer, director, partner, shareholder or affiliate of the
Borrower, and the enforcement of any judgment for breach by the Borrower of its
obligations hereunder shall be made only against the Collateral. The foregoing
provisions of this Section shall not prevent recourse to the Collateral or
constitute a waiver, release or discharge of the Loan evidenced by this Note or
impair in any manner any right, remedy or recourse the Lender may have against
Borrower for actual fraud.
5. Security Interest. In order to secure the due and punctual payment of
all amounts due hereunder and performance of all other obligations of the
Borrower under this Note, the Borrower hereby grants to the Lender a first
priority security interest in all of the Borrower's right, title and interest in
and to the Retained Units and all proceeds thereof (together, the "Collateral").
The Borrower represents and warrants that it owns and has full power and
authority to pledge the Collateral and that, other than this pledge, the
Collateral is free and clear of all liens, restrictions, charges, encumbrances,
conditional sales agreements or other obligations relating to the sale or
transfer thereof and is not subject to any adverse claims. The Lender will have
all the rights of a secured party under the Uniform Commercial Code (as in
effect in all applicable jurisdictions) with respect to the Collateral. The
Borrower irrevocably appoints the designees of the Lender as the Borrower's
attorney-in-fact to execute and cause to be filed or recorded any and all
documents on behalf of the Borrower as may be necessary to perfect or continue
the perfection of the security interest herein granted, including, without
limitation, filing Uniform Commercial Code financing statements with respect to
the Collateral on behalf of the Borrower, or without the signature of the
Borrower, to the extent permitted by law.
6. Delivery and Transfer of Collateral. Letters of Trans- mittal regarding
the tendered Units have heretofore been delivered to the Lender. The Lender
shall have the right at any time upon the occurrence of a failure by Borrower to
make any payments hereunder when due (a "Default"), to endorse, assign or
2
otherwise transfer to or register in the name of the Lender any or all of the
Collateral. If the Lender has not timely received the Cash Payment Amount from
the Borrower as provided in Section 3 of this Note then the Lender may endorse,
assign or otherwise transfer the Retained Units to the Lender and cause the
Retained Units to be registered in the name of the Lender. The Borrower hereby
agrees with the Lender that the Partnership shall make an appropriate notation
on the Partnership's Unit register which evidences the delivery and, when
applicable, the transfer of the Collateral. If requested by the Lender, the
Borrower will execute and deliver any assignment or other instrument reasonably
requested by the Lender to confirm the validity of any action taken by the
Lender pursuant to the provisions of this Section 6. The Borrower hereby agrees
promptly to notify the Lender in writing prior to changing its address,
principal place of business or chief executive office or name.
7. Distributions. The Borrower agrees that all distributions, income,
profits or proceeds paid or payable to the Borrower in respect of the Collateral
("Distributions") shall be applied by the Lender first to reduce the amounts
owing hereunder in respect of accrued interest hereon and second, if any
Distributions remain unapplied, to reduce the Principal Amount hereof. The
Lender shall remit all amounts remaining after such applications to the
Borrower.
8. Voting Rights. So long as no Default has occurred hereunder, the
Borrower shall be entitled to exercise any and all voting and other consensual
rights pertaining the Collateral for any purpose not inconsistent with the terms
or purpose of this Note; provided, however, that the Borrower shall not in any
way exercise such rights in favor of a dissolution of the Partnership or in any
manner which may have an adverse affect on the value of the Collateral or on the
Lender's rights hereunder.
9. Default; Acceleration. Upon the occurrence of a Default, all rights of
the Borrower to exercise voting and other consensual rights shall cease without
any action or the giving of any notice and such rights shall thereupon be vested
in the Lender. Upon the commencement of any bankruptcy or similar proceeding
(whether voluntary or involuntary) with respect to the Borrower, the insolvency
of the Borrower or any assignment by the Borrower for the benefit of its
creditors, the Principal Amount and all accrued interest hereon shall
automatically and immediately become due and payable by the Borrower.
10. Prepayment. Other than through the application of Distributions, this
Note may not be prepaid in whole or in part.
11. Joint and Several Liability. If this Note is signed by more than one
Borrower, the obligations of each such Borrower hereunder shall be joint and
several obligations of each such Borrower.
3
12. Notices. Except as otherwise expressly provided herein, all notices and
other communications provided for hereunder shall be in writing and shall be
delivered personally, by telecopier or by express courier service by registered
or certified mail, return receipt requested, postage prepaid, as follows:
(a) If to the Lender:
DeForest Ventures I L.P.
5665 Northside Drive, N.W.
Suite 370
Atlanta, Georgia 30328-5805
(b) If to the Borrower, to the same address to which copies of the Offer
were sent, unless another address is specified in a notice delivered to the
Lender pursuant to Section 6 of this Note.
All such notices and communications shall, when mailed or personally
delivered, be effective upon receipt, or when telegraphed, telexed, or cabled,
be effective upon confirmation of receipt by addressee or when sent by overnight
courier, be effective one day after delivery to such courier, except that
notices and communications to the Lender shall not be effective until received
by the Lender.
13. Miscellaneous.
(a) The Borrower hereby waives diligence, presentment, demand, protest,
notice of the acceptance of this Note and all other notices of any kind relating
to the enforcement of this Note. No delay or omission on the part of the Lender
in exercising any right hereunder shall operate as a waiver of any such right or
of any other right hereunder and a waiver of any such right on any one occasion
shall not be construed as a bar to or waiver of any such right on any future
occasion.
(b) The Borrower agrees to pay on demand all costs and expenses (including
legal costs and attorneys' fees) incurred or paid by the Lender in enforcing
this Note.
(c) This Note shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the conflict of laws
provisions thereof.
(d) If any one or more of the provisions contained in this Note shall be
invalid, illegal or unenforceable in any respect under any applicable law, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired.
(e) The provisions of this Note may, from time to time, be amended, or
compliance with any agreement or condition contained herein waived, with the
4
written consent of the Lender and the Borrower.
(f) This Note shall inure to the benefit of any successor or assign of the
Lender and any other holder of this Note.
(g) Upon request of the Lender, the Borrower shall execute and deliver any
and all documents and instruments as the Lender may deem necessary to effectuate
the terms of, and to carry out the intent of, this Note.
(h) This Note may be executed in any number of counterparts, each of which
together shall constitute a single instrument.
(i) Nothing set forth in this Note shall be construed as a commitment by
the Lender to make any advance or loan to or for the benefit of the Borrower
other than the Loan to be made with respect to the Retained Units upon
consummation of the Offer.
5
NOTE AND SECURITY AGREEMENT SIGNATURE PAGE
WITNESSETH, the undersigned hereby executes this Note and Security
Agreement as of the date first above written.
BORROWER(1)
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
-------------------------------------
- --------
(1) Each Borrower must sign exactly as such Borrower's name appears on the face
of the Letter of Transmittal.
6
Schedule 1
DIRECTORS AND EXECUTIVE OFFICERS
Set forth below is the name, current business address, present
principal occupation, and employment history for at least the past five years of
each director and executive officer of DeForest Capital. Except for Mr.
Koenigsberger, who is a citizen of Guatemala, each person listed below is a
citizen of the United States.
Present Principal Occupation or Employment;
Material Occupation, Position, Office
or Employment for the Past Five Years
Michael L. Ashner. Since October 1994, Mr. Ashner has been a Director,
President and Co-Chairman of DeForest Capital and DeForest Capital II
Corporation ("DeForest Capital II"), the general partner of the NPI Purchaser.
Since June 1994, Mr. Ashner has been a Director, President and Co-Chairman of
NPI, and since December 1984 has been a Director and President of NPI Equity.
Mr. Ashner has also been a Director and executive officer of NPI Property
Management Corporation ("NPI Management"), the general partner of NPI-AP
Management, L.P., since April 1984, and is currently NPI Management's Chairman.
Since 1981, Mr. Ashner has also served as President of Exeter Capital
Corporation, a firm which has organized and administered real estate limited
partnerships. Mr. Ashner's business address is 100 Jericho Quadrangle, Suite
214, Jericho, New York 11753.
Martin Lifton. Since October 1994, Mr. Lifton has been a Director and
Chairman of DeForest Capital and DeForest Capital II, and since June 1994 has
been a Director and Chairman of NPI. Since November 1991, Mr. Lifton has been a
Director and executive officer of NPI Equity, and is currently NPI Equity's
Chairman. Mr. Lifton has also been a Director and/or executive officer of NPI
Management since November 1991, and is currently a Director and NPI Management's
Co-Chairman. Mr. Lifton has also served as Chairman and President of The Lifton
Company, a real estate investment firm, since January 1985, and as Chairman of
The Bank of Great Neck, a Great Neck, New York bank, since March 1986. Mr.
Lifton's business address is 100 Jericho Quadrangle, Suite 214, Jericho, New
York 11753.
W. Edward Scheetz. Mr. Scheetz has been a Director of DeForest Capital,
DeForest Capital II, NPI and NPI Equity since October 1994. Since May 1993, Mr.
Scheetz has been a limited partner of Apollo Real Estate Advisors, L.P.
("Apollo"), the managing general partner of Apollo Real Estate Investment Fund,
L.P., a private investment fund. Mr. Scheetz has also served as a Director of
Roland International, Inc. ("Roland"), a real estate investment company, since
January 1994, as a Director of Capital Apartment Properties, Inc. ("CAP"), a
multi-family residential real estate investment trust, since January 1994 and as
a Director of Southwest Realty Corp. ("SRC"), an office portfolio real estate
investment trust since January 1995. From 1989, to May 1993, Mr. Scheetz was a
principal of Trammell Crow Ventures, a national real estate investment firm. Mr.
Scheetz' business address is 1301 Avenue of the Americas, 38th floor, New York,
New York 10019.
Ricardo Koenigsberger. Mr. Koenigsberger has been a Director of
DeForest Capital, DeForest Capital II, NPI and NPI Equity since October 1994.
Since October 1990, Mr. Koenigsberger has been an associate of Apollo and of
Lion Advisors, L.P., which acts as financial advisor to and representative for
certain institutional investors with respect to securities investments. For more
than one year prior thereto, Mr. Koenigsberger was an associate with Drexel
Burnham Lambert Incorporated. Mr. Koenigsberger's business address is 1301
Avenue of the Americas, 38th floor, New York, New York 10019.
1
Arthur N. Queler. Mr. Queler has been a Director, Executive Vice
President, Secretary and Treasurer of DeForest Capital and DeForest Capital II
since October 1994, and of NPI since June 1994. Mr. Queler has been a Director
and executive officer of NPI Equity and NPI Management since December 1984 and
April 1984, respectively. Mr. Queler has also served as President of ANQ
Securities, Inc., a NASD registered broker-dealer firm which has been
responsible for supervision of licensed brokers and coordination with a
nationwide broker- dealer network for the marketing of NPI investment programs,
since 1983. Mr. Queler's business address is 5665 Northside Drive, N.W., Suite
370, Atlanta, Georgia 30328.
Lee S. Neibart. Mr. Neibart has been a Director of DeForest Capital,
DeForest Capital II, NPI and NPI Equity since October 1994. Mr. Neibart has
directed portfolio management for Apollo since 1993. From 1989 to 1993, Mr.
Neibart also served as Executive Vice President and Chief Operating Officer of
the Robert Martin Company, a private real estate development and management firm
based in Westchester County, New York, and from 1982 to 1985 Mr. Neibart served
as President of the New York Chapter of the National Association of Industrial
Office Parks, a professional real estate organization. Mr. Neibart is also a
Director of Roland, a Director of CAP and a Director of SRC. Mr. Neibart's
business address is 1301 Avenue of the Americas, 38th floor, New York, New York
10019.
G. Bruce Lifton. Since October 1994, Mr. Lifton has been a Director and
Vice President of DeForest Capital and DeForest Capital II. Mr. Lifton has also
been Vice President of NPI and NPI Equity since January 1991 and November 1991,
respectively, and a Director and Vice President of NPI Management since June
1994. Mr. Lifton has also served as Vice President of The Lifton Company since
September 1986. Mr. Lifton is a son of Martin Lifton and the brother of Steven
Lifton. Mr. Lifton's business address is 5665 Northside Drive, N.W., Suite 370,
Atlanta, Georgia 30328.
Steven Lifton. Mr. Lifton has been a Vice President of DeForest Capital
and DeForest Capital II since October 1994 and of NPI Management since June
1994. Since June 1994, Mr. Lifton has been a Director and Vice President of NPI.
Mr. Lifton has been Vice President of NPI Equity since November 1991 and a
Director since October 1994. Mr. Lifton has also served as Senior Vice President
of The Lifton Company since September 1984 and as a Director of The Bank of
Great Neck since March 1986. Steven Lifton is a son of Martin Lifton and the
brother of G. Bruce Lifton. Mr. Lifton's business address is 100 Jericho
Quadrangle, Suite 214, Jericho, New York 11753.
2
Schedule 2
FINANCIAL STATEMENTS OF THE PURCHASER AND DEFOREST CAPITAL
INDEPENDENT AUDITORS' REPORT
The Partners
DeForest Ventures I L.P.
We have audited the accompanying balance sheet of DeForest Ventures
I L.P., as of May 15, 1995, and the statements of income, changes
in partners' capital and of cash flows for the periods from
September 30, 1994 (inception) to December 31, 1994 and January 1,
1995 to May 15, 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 position of
DeForest Ventures I L.P., as of May 15, 1995, and the results of
its operations and its cash flows for the periods September 30,
1994 (inception) to December 31, 1994 and January 1, 1995 to May
15, 1995, in conformity with generally accepted accounting
principles.
Tauber & Balser, P.C.
Atlanta, Georgia
May 26, 1995
F-1
DEFOREST VENTURES I L.P.
BALANCE SHEET
MAY 15, 1995
ASSETS
Investments in limited partnerships . . . . . . . . . . . $ 36,425,000
Cash. . . . . . . . . . . . . . . . . . . . . . . . . . . 407,000
Other assets. . . . . . . . . . . . . . . . . . . . . . . 818,000
Restricted cash . . . . . . . . . . . . . . . . . . . . . 4,364,000
------------
$ 42,014,000
============
LIABILITIES AND PARTNERS' EQUITY
Note payable. . . . . . . . . . . . . . . . . . . . . . . $ 25,689,000
Accounts payable and accrued expenses . . . . . . . . . . 1,183,000
Accrued litigation settlement . . . . . . . . . . . . . . 4,350,000
Other liability . . . . . . . . . . . . . . . . . . . . . 123,000
Partners' equity. . . . . . . . . . . . . . . . . . . . . 10,669,000
------------
$ 42,014,000
============
SEE NOTES TO FINANCIAL STATEMENTS
F-2
DEFOREST VENTURES I L.P.
STATEMENTS OF INCOME
JANUARY 1, 1995 TO MAY 15, 1995 AND
SEPTEMBER 30, 1994 (INCEPTION) TO DECEMBER 31, 1994
1995 1994
---- ----
REVENUES:
Income from investments
in partnerships . . . . . . . . . $ 100,000 $ 405,000
Interest. . . . . . . . . . . . . . 23,000 117,000
----------- ---------
123,000 522,000
EXPENSES:
Interest . . . . . . . . . . . . . . 1,371,000 306,000
General, administrative,
and other. . . . . . . . . . . . . 389,000 106,000
----------- ---------
1,760,000 412,000
----------- ---------
NET INCOME (LOSS) . . . . . . . . . . $(1,637,000) $ 110,000
=========== =========
- --------------------------------------------------------------------------------
DEFOREST VENTURES I L.P.
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
JANUARY 1,1995 TO MAY 15, 1995 AND
SEPTEMBER 30, 1994 (INCEPTION) TO DECEMBER 31, 1994
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- -----
PARTNERS' CAPITAL, BEGINNING . . $ - $ - $ -
CAPITAL CONTRIBUTED. . . . . . . 119,000 11,781,000 11,900,000
NET INCOME . . . . . . . . . . . 1,000 109,000 110,000
-------- ----------- -----------
PARTNERS' CAPITAL,
DECEMBER 31, 1994. . . . . . . 120,000 11,890,000 12,010,000
CAPITAL CONTRIBUTED. . . . . . . - 296,000 296,000
NET INCOME . . . . . . . . . . . (16,000) (1,621,000) (1,637,000)
-------- ----------- -----------
PARTNERS' CAPITAL,
MAY 15, 1995 $104,000 $10,565,000 $10,669,000
======== =========== ===========
SEE NOTES TO FINANCIAL STATEMENTS
F-3
DEFOREST VENTURES I L.P.
STATEMENTS OF CASH FLOWS
JANUARY 1, 1995 TO MAY 15, 1995 AND
SEPTEMBER 30, 1994 (INCEPTION) TO DECEMBER 31, 1994
1995 1994
---- ----
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . $(1,637,000) $ 110,000
----------- -----------
Adjustments:
Undistributed earnings from partnership
investments . . . . . . . . . . . . . . . (100,000) (404,000)
Amortization . . . . . . . . . . . . . . . 101,000 29,000
Changes in:
Other assets . . . . . . . . . . . . . . (5,000) -
Accounts payable and other liabilities . 999,000 306,000
----------- -----------
Total adjustments. . . . . . . . . . . . . 995,000 (69,000)
----------- -----------
Net cash provided (used) by operating
activities. . . . . . . . . . . . . . . . (642,000) 41,000
----------- -----------
Cash flows from investing activities:
Cash payments for investments
in partnerships. . . . . . . . . . . . . (606,000) (30,963,000)
Cash payments for organizational costs . . - (200,000)
Cash restricted for investments. . . . . . (4,364,000) -
----------- -----------
Net cash used in investing activities. . . . (4,970,000) (31,163,000)
----------- -----------
Cash flows from financing activities:
Proceeds from notes payable. . . . . . . . 4,466,000 21,224,000
Proceeds from capital contributions. . . . 296,000 11,900,000
Cash payments for loan fees. . . . . . . . (44,000) (701,000)
----------- -----------
Net cash provided from financing
activities. . . . . . . . . . . . . . . . . 4,718,000 32,423,000
----------- -----------
Net increase (decrease) in cash
and equivalents . . . . . . . . . . . . . . (894,000) 1,301,000
Cash, beginning. . . . . . . . . . . . . . . 1,301,000 -
----------- -----------
Cash, ending . . . . . . . . . . . . . . . . $ 407,000 $ 1,301,000
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for interest. . . $ 554,000 $ 151,000
=========== ============
Non-cash financing and investing activities:
In 1995, accrued litigation settlement of $4,350,000 increased
investments in limited partnerships.
SEE NOTES TO FINANCIAL STATEMENTS
F-4
DEFOREST VENTURES I L.P.
NOTES TO FINANCIAL STATEMENTS
MAY 15, 1995
NOTE 1 - ORGANIZATION
DeForest Ventures I L.P., a Delaware Limited Partnership
("DeForest"), was formed on September 30, 1994 for the purpose of
acquiring limited partnership units in various affiliated limited
partnerships (the "Limited Partnerships"). The general partner of
DeForest is DeForest Capital I Corporation ("DeForest Capital").
Concurrently with this transaction, DeForest Ventures II L.P.
("DeForest II"), a Delaware Limited Partnership, was formed for the
purpose of acquiring limited partnership units in various other
affiliated limited partnerships.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Investment in Limited Partnerships:
Investment in limited partnership units are carried at the sum of
the per unit purchase price plus acquisition costs adjusted for
DeForest's share of earnings or losses.
Income recognition:
Income or loss on the limited partnership units owned are
recognized quarterly based on the reported income or loss of the
respective Limited Partnerships.
NOTE 3 - INVESTMENT IN LIMITED PARTNERSHIPS
DeForest holds limited partner units in various Limited
Partnerships that are accounted for on the equity method.
DeForest's cost was approximately equal to its share of the net
assets.
F-5
DEFOREST VENTURES I L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 15, 1995
NOTE 3 - INVESTMENT IN LIMITED PARTNERSHIPS (CONTINUED)
Summary financial information of the Limited Partnerships as of the
quarter ended March 31, 1995 are as follows (000's omitted):
Land and buildings . . . . . . . . . . . . . $ 444,037
Other assets . . . . . . . . . . . . . . . . 48,905
Notes payable - real estate. . . . . . . . . (347,554)
Other liabilities. . . . . . . . . . . . . . (17,874)
---------
Net assets . . . . . . . . . . . . . . . . . $ 127,514
=========
DeForest share of net assets . . . . . . . . $ 36,425
=========
Net income for period. . . . . . . . . . . . $ 974
=========
DeForest share of net income . . . . . . . . $ 100
=========
The limited partnerships are:
Percentage Carrying
owned value
---------- --------
Century Properties Fund XII . . . . . . . 34% $ 1,955,000
Century Properties Fund XIII. . . . . . . 38 4,132,000
Century Properties Fund XIV . . . . . . . 37 3,484,000
Century Properties Fund XV. . . . . . . . 38 5,128,000
Century Properties Fund XVI . . . . . . . 31 689,000
Century Properties Fund XVII. . . . . . . 29 2,062,000
Century Properties Fund XVIII . . . . . . 24 461,000
Century Properties Fund XIX . . . . . . . 23 1,371,000
Century Properties Fund XXII. . . . . . . 18 1,357,000
MRI Business Properties Fund, Ltd. . . . 27 4,503,000
MRI Business Properties Fund, Ltd. II . . 29 7,526,000
MRI Business Properties Fund, Ltd. III. . 25 4,757,000
-----------
$36,425,000
The limited partnerships are engaged in the business of owning and
operating commercial and residential real estate.
F-6
DEFOREST VENTURES I L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 15, 1995
NOTE 4 - RESTRICTED CASH
Under the terms of the loan agreement, funds advanced are deposited
to a restricted account and are used only for the acquisition of
limited partnership units and associated costs. The balance at May
15, 1995 represents the expected outlay necessary to comply with
the settlement of the litigation described in Note 7.
The restricted cash is invested in short-term highly liquid
investments, consisting of U.S. Government securities. The
carrying amount approximates fair value because of the short-term
maturity of these investments.
NOTE 5 - NOTE PAYABLE
DeForest and DeForest II obtained loans of $21,224,000 and
$13,251,000, respectively, which were used to fund the acquisition
of units in the Limited Partnerships. Under the terms of the
loans, interest at a rate per annum of 250 basis points over LIBOR
is payable monthly. As of May 15, 1995 the LIBOR rate was 6.0625%.
The lender is also entitled to additional interest on the amended
loans in the form of a residual fee. Payment of the residual fee
is subordinate to the return of capital contributions together with
a 15% return thereon. The additional interest is calculated on a
formula basis and has been accrued to achieve a minimum 17% per
annum effective rate of return. The formula could result in
additional interest greater than a 17% per annum return.
Principal is payable upon receipt of proceeds from sales of
properties in the Limited Partnerships. The loans are cross
defaulted and cross-collateralized with all the tendered limited
partnership units. The obligation of DeForest II at May 15, 1995
was $13,709,000. All outstanding common stock and partnership
interests of certain affiliates are pledged as additional
collateral. The loans are due November 21, 1995, with a right to
extend for two consecutive one-year periods. The basis points over
LIBOR increase 100 points with each extension.
On May 8, 1995, the loans were amended to provide for the
additional debt financing to be used in connection with the
consummation of the settlement of the litigation described in Note
7. As amended, the lender has agreed to provide up to an aggregate
of an additional $20,525,452 of financing to DeForest and DeForest
II.
F-7
DEFOREST VENTURES I L.P.
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MAY 15, 1995
NOTE 6 - RELATED PARTIES
Shareholders who control DeForest Capital also control the managing
general partner of all of the Limited Partnerships.
NOTE 7 - LITIGATION
On May 19, 1995, a settlement was approved by the U.S. District
Court for the Northern District of Georgia for a class action for
claims relating to tender offers made for the purchase of limited
partnership units in the Limited Partnerships. Pursuant to the
terms of the settlement, in consideration for dismissal and release
of all claims made in the class action, among other things,
DeForest will pay additional amounts to each unit holder who
tendered their units of the Limited Partnerships. Total payments
to be made under the settlement are approximately $4,350,000, which
has been accrued by DeForest. In addition, a second tender offer
will be made to all holders of limited partnership units in the
Limited Partnerships who had not previously sold their shares at
prices in excess of the initial tender price. Unless an appeal is
filed, the Court's order will become final, binding, and non-appealable
on June 19, 1995.
F-8
Independent Auditors' Report
Board of Directors
DeForest Capital I Corporation
We have audited the accompanying balance sheet of DeForest Capital
I Corporation, as of May 15, 1995. This financial statement is the
responsibility of the Company's management. Our responsibility is
to express an opinion on this financial statement based on our
audit.
We conducted our audit 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 statement is 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 audit
provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above present
fairly, in all material respects, the financial position of
DeForest Capital I Corporation, as of May 15, 1995, in conformity
with generally accepted accounting principles.
Tauber & Balser, P.C.
Atlanta, Georgia
May 26, 1995
F-9
DEFOREST CAPITAL I CORPORATION
BALANCE SHEET
MAY 15, 1995
ASSET
Investment in DeForest Ventures I L.P. . . . . . . $ 104,000
===========
STOCKHOLDERS' EQUITY
Capital stock, par value $.01,
7,500 shares authorized, 600
issued and outstanding . . . . . . . . . . . . . $ 6
Additional paid in capital . . . . . . . . . . . . 1,118,994
Notes receivable from stockholders. . . . . . . . . (1,000,000)
Deficit . . . . . . . . . . . . . . . . . . . . . . (15,000)
-----------
$ 104,000
===========
- --------------------------------------------------------------------------------
DEFOREST CAPITAL I CORPORATION
NOTES TO FINANCIAL STATEMENT
MAY 15, 1995
NOTE 1 - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICY
DeForest Capital I Corporation ("DeForest Capital I"), a Delaware
Corporation, was incorporated on September 30, 1994 and serves as
the general partner of DeForest Ventures I L.P. ("DeForest").
DeForest was formed for the purpose of acquiring limited
partnership units in various limited partnerships (the "Limited
Partnerships").
NOTE 2 - STOCKHOLDERS' EQUITY
Shareholders of DeForest Capital I have contributed $119,000 in
cash and $1,000,000 in negotiable demand promissory notes.
NOTE 3 - RELATED PARTIES
Shareholders who control DeForest Capital I also control the
general partners of all of the Limited Partnerships.
F-10
NOTE 4 - INVESTMENT IN DEFOREST I
DeForest has a 1% investment as the general partner in DeForest I
that is accounted for on the equity method. The investment is
carried at cost, adjusted for its share or earnings or losses.
Summary financial information of DeForest I as of May 15, 1995 is
as follows (000's omitted):
Investment in limited partnerships . . . $ 37,813
Cash . . . . . . . . . . . . . . . . . . 407
Cash, restricted for investments . . . . 4,364
Other assets . . . . . . . . . . . . . . 818
Note payable . . . . . . . . . . . . . . (25,689)
Accrued litigation settlement. . . . . . (4,350)
Other liabilities. . . . . . . . . . . . (1,306)
--------
Net assets . . . . . . . . . . . . . . . $ 10,669
========
NOTE 5 - LITIGATION
On May 19, 1995, a settlement was approved by the U.S. District
Court for the Northern District of Georgia for a class action for
claims relating to tender offers made for the purchase of limited
partnership units in the Limited Partnerships. Pursuant to the
terms of the settlement, in consideration for dismissal and release
of all claims made in the class action, among other things,
DeForest will pay additional amounts to each unit holder who
tendered their units of the Limited Partnerships. In addition, a
second tender offer will be made to all holders of limited
partnership units in the Limited Partnerships who had not
previously sold their shares at prices in excess of the initial
tender price. Unless an appeal is filed, the Court's order will
become final, binding, and non-appealable on June 19, 1995.
F-11
Schedule 3
Subject Partnerships
NPI PARTNERSHIPS
National Property Investors II
National Property Investors III
National Property Investors 4
National Property Investors 5
National Property Investors 6
National Property Investors 7
National Property Investors 8
FOX PARTNERSHIPS
Century Properties Fund XII
Century Properties Fund XIII
Century Properties Fund XIV
Century Properties Fund XV
Century Properties Fund XVI
Century Properties Fund XVII
Century Properties Fund XVIII
Century Properties Fund XIX
Century Properties Growth Fund XXII
MRI Business Properties Fund, Ltd.
MRI Business Properties Fund, Ltd. II
MRI Business Properties Fund, Ltd. III
The Letter of Transmittal, signature page for the Note and Security
Agreement and any other required documents should be sent or delivered by each
Unitholder or his broker, dealer, commercial bank, trust company or other
nominee to the Purchaser at its address set forth below:
DEFOREST VENTURES I L.P.
By Hand, Mail (insured or registered
recommended) or Overnight Delivery:
DeForest Ventures I L.P.
c/o Gemisys
7103 South Revere Parkway
Englewood, CO 80112
For Telephone Information:
(404) 916-9055 or (404) 850-9640
Any questions or requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and other tender offer materials
may be directed to the Purchaser at the telephone number and address listed
above. You may also contact your broker for assistance concerning the Offer. To
confirm delivery of your Letter of Transmittal and related documents, please
contact the Purchaser.
MRI BUSINESS PROPERTIES FUND, LTD. II
LETTER OF TRANSMITTAL
Taxpayer Identification Number
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION
PERIOD WILL EXPIRE AT 12:00 MIDNIGHT, NEW
YORK CITY TIME, ON JUNE 30, 1995 (the
"Expiration Date") UNLESS EXTENDED.
Deliver to: DeForest Ventures I L.P.
c/o Gemisys
7103 South Revere Parkway
Englewood, CO 80112
For assistance (404) 916-9055 or
call: (404) 850-9640
To participate in the Offer, a duly executed copy of this Letter of
Transmittal, the attached signature page to the Note and Security Agreement and
any other documents required by this Letter of Transmittal must be received by
the Purchaser on or prior to the Expiration Date. Delivery of this Letter of
Transmittal or any other required documents to an address other than as set
forth above does not constitute valid delivery. The method of delivery of all
documents is at the election and risk of the tendering Unitholder. Please use
the pre-addressed, postage-paid envelope provided.
This Letter of Transmittal is to be completed by Unitholders of MRI
Business Properties Fund, Ltd. II, a California limited partnership (the
"Partnership"), pursuant to the procedures set forth in the Offer to Purchase
(as defined below). Capitalized terms used herein and not defined herein have
the meanings ascribed to such terms in the Offer to Purchase.
PLEASE CAREFULLY READ THE ACCOMPANYING INSTRUCTIONS
Gentlemen:
The undersigned hereby tenders to DeForest Ventures I L.P., a Delaware
limited partnership (the "Purchaser"), the number of units ("Units") of limited
partnership interest in the Partnership set forth above at $255.76 per Unit upon
the terms and subject to the conditions set forth in the Offer to Purchase,
dated June 2, 1995 (the "Offer to Purchase"), and this Letter of Transmittal
(which together constitute the "Offer"). Receipt of the Offer to Purchase is
hereby acknowledged. By executing this Letter of Transmittal, the undersigned
hereby revokes all previous requests, if any, for exclusion from the Settlement
and acknowledges that the undersigned shall be bound by the Settlement and all
orders and final judgments rendered in the Action.
The undersigned recognizes that, if more than 18,772 Units are validly
tendered prior to or on the Expiration Date and not properly withdrawn, the
Purchaser will, upon the terms of the Offer and subject to the delivery of Loan
Proceeds, accept for payment from among those Units tendered prior to or on the
Expiration Date 18,772 Units on a pro rata basis, with adjustments to avoid
purchases of certain fractional Units, based upon the number of Units validly
tendered prior to the Expiration Date and not withdrawn. The undersigned agrees
that, if more than 16,154 Units are validly tendered prior to or on the
Expiration Date and not properly withdrawn, subject to the proration
requirements and other terms of the Offer, the undersigned will receive from the
Purchaser, $255.76 for each Unit tendered in a combination of Purchase Proceeds
and Loan Proceeds, all as described in the Offer to Purchase.
Subject to and effective upon acceptance for payment of any of the
Units tendered hereby, the undersigned hereby sells, assigns and transfers to,
or upon the order of, Purchaser all right, title and interest in and to such
Units which are purchased pursuant to the Offer. The undersigned hereby
irrevocably constitutes and appoints the Purchaser as the true and lawful agent
and attorney-in-fact of the undersigned with respect to such Units, with full
power of substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest), to deliver such Units and transfer ownership of
such Units on the books of the Partnership, together with all accompanying
evidences of transfer and authenticity, to or upon the order of the Purchaser
and, upon payment of the purchase price in respect of such Units by the
Purchaser, to receive all benefits and otherwise exercise all rights of
beneficial ownership of such Units all in accordance with the terms of the
Offer. Subject to and effective upon the purchase of any Units tendered hereby,
the undersigned hereby requests that the Purchaser be admitted to the
Partnership as a "substitute Limited Partner" under the terms of the Partnership
Agreement of the Partnership. Upon the purchase of Units pursuant to the Offer,
all prior proxies and consents given by the undersigned with respect to such
Units will be revoked and no subsequent proxies or consents may be given (and if
given will not be deemed effective). In addition, by executing this Letter of
Transmittal, the undersigned assigns to the Purchaser all of the undersigned's
rights to receive distributions from the Partnership with respect to Units which
are purchased pursuant to the Offer.
By validly tendering Units hereby, the undersigned agrees to receive a
Loan in respect of Retained Units if more than 16,154 Units are validly tendered
prior to or on the Expiration Date and not properly withdrawn and the Offer is
consummated. The undersigned agrees to be bound by the terms of any such Loan,
including the terms of repayment and the pledge of the Retained Units to secure
repayment of the Loan. The undersigned acknowledges that the complete terms of
the Note and Security Agreement are set forth in Exhibit A to the Offer to
Purchase. The undersigned directs the Partnership to deliver any and all
distributions payable on the Retained Units to the Purchaser for credit against
amounts outstanding in respect of the Loan and the Purchaser may, in the name
and on behalf of the undersigned, execute and deliver to the Partnership a
written confirmation of such direction. In addition, by executing this Letter of
Transmittal, the undersigned appoints the designees of the Purchaser as its
attorney-in-fact (such appointment being coupled with an interest, and
irrevocable) to execute and cause to be filed and recorded any and all documents
on behalf of the undersigned and to take any and all other actions reasonably
deemed necessary by the Purchaser to perfect or continue the perfection of the
security interest in the Retained Units that secures any Loan made to the
undersigned.
The undersigned hereby represents and warrants that the undersigned
owns the Units tendered hereby within the meaning of Rule 13d-3 under the
Securities Exchange Act of 1934, as amended, and has full power and authority to
validly tender, sell, assign and transfer the Units tendered hereby, and that
when any such Units are purchased by the Purchaser, the Purchaser will acquire
good, marketable and unencumbered title thereto, free and clear of all liens,
restrictions, charges, encumbrances, conditional sales agreements or other
obligations relating to the sale or transfer thereof, and such Units will not be
subject to any adverse claim. The undersigned further represents and warrants
that any Retained Units will, when pledged to secure a Loan to the undersigned,
be free and clear of all liens, restrictions, charges, encumbrances, conditional
sales agreements or other obligations relating to the sale or transfer thereof,
and such Retained Units will not be subject to any adverse claim, other than the
pledge to secure the Loan. Upon request, the undersigned will execute and
deliver any additional documents deemed by the Purchaser to be necessary or
desirable to complete the assignment, transfer, purchase or pledge of Units
tendered hereby.
The undersigned understands that a tender of Units to the Purchaser
will constitute a binding agreement between the undersigned and the Purchaser
upon the terms and subject to the conditions of the Offer. The undersigned
recognizes that under certain circumstances set forth in the Offer to Purchase,
the Purchaser may not be required to accept for payment any of the Units
tendered hereby. In such event, the undersigned understands that any Letter of
Transmittal for Units not accepted for payment will be destroyed by the
Purchaser. All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any obligations of the
undersigned shall be binding upon the heirs, personal representatives,
successors and assigns of the undersigned. Except as stated in the Offer to
Purchase, this tender is irrevocable.
TO TENDER UNITS, SIGN AT THE "X" BELOW IN BOX A AND SIGN THE
ATTACHED NOTE AND SECURITY AGREEMENT SIGNATURE PAGE. TO
AVOID WITHHOLDING ON AMOUNTS PAYABLE WITH RESPECT TO UNITS,
COMPLETE BOXES B, C AND D, AS APPLICABLE (SEE INSTRUCTIONS
3A, 3B AND 4, RESPECTIVELY).
DO NOT RETURN CERTIFICATES WITH THIS LETTER OF TRANSMITTAL
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BOX A
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SIGN HERE TO TENDER
Certification - Under penalties of perjury, the undersigned hereby certifies the
following:
(1) The TIN shown in the Substitute Form W-9 (Box B) is the correct TIN of
the Unitholder who is submitting this Letter of Transmittal (and who is required
by law to provide such TIN), or such Unitholder is waiting for a TIN to be
issued and either (a) has mailed or delivered an application to receive a TIN to
the appropriate IRS Center or Social Security Administration Office or (b)
intends to mail or deliver an application in the near future (it being
understood that if such Unitholder does not provide a TIN to the Purchaser
within sixty (60) days, 31% of all reportable payments made to the Unitholder
thereafter will be withheld until a TIN is provided to the Purchaser); and
(2) The Unitholder who is submitting this Letter of Transmittal and who is
required by law to provide such TIN is not subject to backup withholding either
because such Unitholder (a) is exempt from backup withholding, or (b) has not
been notified by the IRS that such Unitholder is subject to backup withholding
as a result of a failure to report all interest or dividends or (c) the IRS has
notified such Unitholder that such Unitholder is no longer subject to backup
withholding. (See Instruction 3(A))
If the undersigned is unable to certify that the Unitholder submitting this
Letter of Transmittal is not subject to backup withholding, such Unitholder
should so indicate by striking through certification (2) above.
(3) The undersigned has completed the FIRPTA Affidavit (Box C) or the
Substitute Form W-8 (Box D), as applicable, and the information provided by the
undersigned therein is true and accurate. (See Instructions 3(B) and 4)
SIGNATURE(S) OF UNITHOLDER(S)
All registered Unitholders must sign exactly as name(s) appear(s) above. (Attach
additional sheets, if necessary)
(Signature)__X______________________________________________
(Signature)__X______________________________________________ Date_________, 1995
If signing as a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a fiduciary
or representative capacity, please provide the following information and see
Instruction 1.
Name(s) and Capacity____________________________________________________________
Address_________________________________________________________________________
Area Code and Telephone No._____________________________________________________
Notarization of Signature
(If required. See Instruction 1)
STATE OF______________________________________)
) ss.:
COUNTY OF ____________________________________)
On this_____day of_______________, 1995, before me came personally
_____________________________ ______________________________, to me known to be
the person who executed the foregoing Letter of Transmittal.
--------------------------------
Notary Public
OR
Signature Guarantee
(If required. See Instruction 1)
Name and Address of Eligible Institution________________________________________
Authorized Signature____________ Name___________ Title_________ Date______, 1995
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BOX B
- --------------------------------------------------------------------------------
SUBSTITUTE FORM W-9
(Attach additional copies for joint Unitholders)
(See Instruction 3(A))
Please provide the TIN of the Unitholder submitting this Letter of Transmittal
or, if such Unitholder is awaiting a TIN, check the "Awaiting TIN" box.
Social Security Number or
Employer Identification Number______________________________________
Awaiting TIN [ ]
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BOX C
- --------------------------------------------------------------------------------
FIRPTA AFFIDAVIT (For U.S. Persons)
(Attach additional copies for joint Unitholders)
(See Instruction 3(B))
Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg.
1.I445-11T(d), a transferee must withhold tax equal to 10% of the amount
realized with respect to certain transfers of an interest in a partnership in
which 50% or more of the value of the gross assets consists of U.S. real
property interests and 90% or more of the value of the gross assets consist of
U.S. real property interests plus cash or cash equivalents, if the holder of the
partnership interest is a foreign person. To inform the Purchaser that no
withholding is required with respect to the Unitholder's interest in the
Partnership, the person signing this Letter of Transmittal hereby certifies the
following under penalties of perjury:
(1) The Unitholder, if an individual, is not a nonresident alien for
purposes of U.S. income taxation, and if not an individual, is not a foreign
corporation, foreign partnership, foreign trust, or foreign estate (as those
terms are defined in the Internal Revenue Code and Income Tax Regulations);
(2) The Unitholder's U.S. social security number (for individuals) or
employer identification number (for non-individuals) is
__________________________________________;
(3) The Unitholder's home address (for individuals), or office address and
(if applicable) place of incorporation (for non-individuals)
is___________________________________________________________________________
_____________________________________________________________________________.
The person submitting this Letter of Transmittal understands that this
certification may be disclosed to the IRS by the Purchaser and that any false
statements contained herein could be punished by fine, imprisonment, or both.
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BOX D
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SUBSTITUTE FORM W-8
(Attach additional copies for joint Unitholders)
(See Instruction 4)
By checking this box [ ], the person submitting this Letter of Transmittal
certifies that the Unitholder is an "exempt foreign person" for purposes of the
backup withholding rules under the U.S. federal income tax laws, because the
Unitholder:
(1) Is a nonresident alien individual or a foreign corporation,
partnership, estate or trust;
(2) If an individual, has not been and plans not to be present in the U.S.
for a total of 183 days or more during the calendar year; and
(3) Neither engages, nor plans to engage, in a U.S. trade or business that
has effectively connected gains from transactions with a broker or barter
exchange.
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INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. Tender, Signature Requirements; Delivery. After carefully reading and
completing this Letter of Transmittal, in order to tender Units a Unitholder
must sign at the "X" in Box A of this Letter of Transmittal. The signature must
correspond exactly with the name printed on the front of this Letter of
Transmittal without any change whatsoever. If this Letter of Transmittal is
signed by the registered Unitholder of the Units, no notarization or signature
guarantee on this Letter of Transmittal is required. Similarly, if Units are
tendered for the account of a member firm of a registered national security
exchange, a member firm of the National Association of Securities Dealers, Inc.
or a commercial bank, savings bank, credit union, savings and loan association
or trust company having an office, branch or agency in the United States (each
an "Eligible Institution"), no notarization or signature guarantee is required.
In all other cases, signatures on this Letter of Transmittal must either be
notarized or guaranteed by an Eligible Institution, by completing the
Notarization or Signature Guarantee set forth in BOX A of this Letter of
Transmittal. If any tendered Units are registered in the names of two or more
joint holders, all such holders must sign this Letter of Transmittal. If this
Letter of Transmittal is signed by trustees, administrators, guardians,
attorneys-in-fact, officers of corporations, or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing and must
submit proper evidence satisfactory to the Purchaser of their authority to so
act. For Units to be validly tendered, a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), together with any required
notarizations or signature guarantees in BOX A, the attached signature page to
the Note and Security Agreement and any other documents required by this Letter
of Transmittal, must be received by the Purchaser prior to or on the Expiration
Date at its address set forth on the front of this Letter of Transmittal. No
alternative, conditional or contingent tenders will be accepted. All tendering
Unitholders by execution of this Letter of Transmittal waive any right to
receive any notice of the acceptance of their tender.
2. Transfer Taxes. The Purchaser will pay or cause to be paid all transfer
taxes, if any, payable in respect of Units accepted for payment pursuant to the
Offer.
3. U.S. Persons. A Unitholder who or which is a United States citizen or
resident alien individual, a domestic corporation, a domestic partnership, a
domestic trust or a domestic estate (collectively, "United States persons") as
those terms are defined in the Internal Revenue Code and Income Tax Regulations,
should complete the following:
(A) Substitute Form W-9. In order to avoid 31% federal income tax backup
withholding on payments to the Unitholder, the tendering Unitholder must provide
to the Purchaser the Unitholder's correct Taxpayer Identification Number ("TIN")
by completing the Substitute Form W-9 set forth in BOX B of this Letter of
Transmittal, and, by signing in Box A, must certify under penalties of perjury,
that such Unitholder is not subject to such backup withholding. If a correct TIN
is not provided, penalties may be imposed by the Internal Revenue Service
("IRS") in addition to the Unitholder being subject to backup withholding.
Certain Unitholders (including, among others, all corporations) are not subject
to backup withholding. Backup withholding is not an additional tax. If
withholding results in an overpayment of taxes, a refund may be obtained from
the IRS.
The TIN that must be provided on the Substitute Form W-9 is that of the
registered Unitholder indicated on the front of this Letter of Transmittal. If
the tendering Unitholder has applied for but has not been issued a TIN or
intends to apply for a TIN in the near future, the Unitholder should check the
"Applied For" box in Box B of this Letter of Transmittal. If the "Applied For"
box is checked in the Substitute Form W-9 and the Purchaser is not provided with
the Unitholder's TIN within 60 days, the Purchaser will withhold 31% of all
subsequent payments, if any, to the Unitholder until such TIN is provided to the
Purchaser.
(B) FIRPTA Affidavit. To avoid potential withholding of tax pursuant to
Section 1445 of the Internal Revenue Code in an amount equal to 10% of the
amounts payable to the Unitholder plus the amount of any liabilities of the
Partnership allocable to each Unit tendered, a Unitholder who or which is a
United States person must complete the FIRPTA Affidavit contained in BOX C of
this Letter of Transmittal stating, under penalties of perjury, such
Unitholder's TIN and address, and that such Unitholder is not a foreign person.
Tax withheld under Section 1445 of the Internal Revenue Code is not an
additional tax.
If withholding results in an overpayment of tax, a refund may be obtained from
the IRS.
4. Foreign Persons. In order for a Unitholder who or which is a foreign person
(i.e., a person who is not a United States person as defined in 3 above) to
qualify as exempt from 31% backup withholding, such foreign Unitholder must
certify, under penalties of perjury, the statement in BOX D of this Letter of
Transmittal attesting to that foreign person's status by checking the box
preceding such statement. In any event, the Purchaser intends to withhold from a
foreign Unitholder 10% of the amounts payable to the Unitholder plus the amount
of liabilities of the Partnership allocable to each Unit tendered, pursuant to
Section 1445 of the Internal Revenue Code. Backup withholding and tax withheld
under Section 1445 of the Internal Revenue Code are not additional taxes. If
withholding results in an overpayment of tax, a refund may be obtained from the
IRS.
5. Additional Copies of Offer to Purchase and Letter of Transmittal. Requests
for assistance or additional copies of the Offer to Purchase and this Letter of
Transmittal may be obtained from the Purchaser by calling (404) 916-9055 or
(404) 850-9640.
NOTE AND SECURITY AGREEMENT SIGNATURE PAGE
WITNESSETH, the undersigned hereby executes this Note and Security
Agreement as of the date first above written.
BORROWER(1)
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(1) Each Borrower must sign exactly as such Borrower's name appears on the face
of the Letter of Transmittal.
DEFOREST VENTURES I L.P.
5665 NORTHSIDE DRIVE, N.W., SUITE 370
ATLANTA, GEORGIA 30328
June 2, 1995
Dear Limited Partner:
As described in the enclosed Offer to Purchase and related Letter of
Transmittal (the "Offer"), DeForest Ventures I L.P. is offering to purchase
Units of Limited Partnership Interest of the Partnership identified in the
Offer.
The Offer is being made in accordance with the settlement of a class
action lawsuit brought against, among others, DeForest Ventures I L.P. We
suggest that you review the enclosed Offer to Purchase for information
pertaining to the settlement of the class action.
PLEASE NOTE THAT THE PARTNERSHIP HAS RECOMMENDED THAT YOU NOT TENDER
YOUR UNITS.
Please note that in order to tender any of your Units in the
Partnership, you must tender all of your Units in the Partnership - no partial
tenders will be accepted.
We suggest that you review the enclosed Offer with your personal
financial and tax advisor. After carefully reading the enclosed Offer, if you
elect to tender your Units, mail (using the enclosed pre-addressed, postage-paid
envelope) a duly completed and executed copy of the Letter or Transmittal, the
Note and Security Agreement signature page and any documents required by the
Letter of Transmittal to:
DeForest Ventures I L.P.
c/o Gemisys
7103 South Revere Parkway
Englewood, Colorado 80112
If you have any questions, please call DeForest Ventures I L.P. at the
number set forth in the Offer.
DEFOREST VENTURES I L.P.
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTE 2 TO
CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
2. TRANSACTIONS WITH THE GENERAL PARTNER AND AFFILIATES
In accordance with the Partnership Agreement, the Partnership may be
charged by the general partner and affiliates for services provided to the
Partnership. From March 1988 to December 1992 such services were assigned
pursuant to a services agreement by the general partner and affiliates to Metric
Realty Services, L.P., which performed partnership management and other services
for the Partnership. On January 1, 1993, Metric Management, Inc., a company
which is not affiliated with the General Partner, commenced providing certain
property and portfolio management services to the Partnership under a new
services agreement. As provided in the new services agreement effective January
1, 1993, no reimbursements were made to the general partner and affiliates after
December 31, 1992. Subsequent to December 31, 1992, reimbursements were made to
Metric Management, Inc. On December 16, 1993, the services agreement with Metric
Management, Inc. was modified and, as a result thereof, the Partnership's
general partner assumed responsibility for various partnership services between
December 23, 1993 and April 1, 1994. Related party expenses for the years ended
September 30, 1994, 1993 and 1992 are as follows:
1994 1993 1992
-------- -------- --------
Reimbursement of expenses:
Partnership accounting and
investor services $ 76,000 $ 39,000 $160,000
Professional services 11,000 7,000 30,000
-------- -------- --------
Total $ 87,000 $ 46,000 $190,000
======== ======== ========
In accordance with the Partnership Agreement, the general partner receives
cash distributions as follows: (1) a Partnership management incentive equal to
ten percent, determined on a cumulative non-compounded basis of cash available
for distribution (as defined in the Partnership Agreement) distributed to
partners, and (2) a continuing interest representing a two percent share of cash
available for distribution distributed to partners remaining after the
allocation of the Partnership management incentive. The Partnership management
incentive is subordinated to certain cash distributions to the limited partners.
There were no cash distributions to the general partner for the years ended
September 30, 1994, 1993 and 1992.
In accordance with the Partnership Agreement, the general partner was also
allocated its continuing interest representing a two percent share of the
Partnership's net income (loss) and taxable income (loss).
2
MRI BUSINESS PROPERTIES FUND, LTD. II
NOTE 2 TO
CONSOLIDATED FINANCIAL STATEMENTS
FORM 10-Q - MARCH 31, 1995
2. Transactions with Related Parties
Affiliates of MGP received reimbursement of administrative expenses
amounting to $54,000 and $18,000 during the periods ending March 31, 1995 and
1994, respectively. These reimbursements are included in general and
administrative expenses.
Pursuant to a revised management agreement between the Partnership and
Marriott Hotel Services, Inc., the Partnership has increased its replacement
reserve escrow (from 5% of gross revenues) to 10% of gross revenues in 1995 and
1996, 9% of gross revenues in 1997, 7% of gross revenues in 1998 and 5%
thereafter to be used for renovation costs.
MRI BUSINESS PROPERTIES FUND, LTD. II
(A limited partnership)
PART I
Item 1. Business.
Subsequent Events
On October 12, 1994, NPI sold one-third of the stock of NPI to an affiliate
("Apollo") of Apollo Real Estate Advisors, L.P., for $325,000. Apollo is
entitled to designate three of the seven directors of NPI Equity II. In
addition, the approval of certain major actions on behalf of Registrant requires
the affirmative vote of at least five directors of NPI Equity II.
On October 12, 1994, affiliates of Apollo acquired for aggregate
consideration of approximately $14,800,000 (i) one-third of the stock of the
respective general partners of DeForest Ventures I L.P. ("DeForest I") and
DeForest Ventures II L.P. ("DeForest II") and (ii) an additional equity interest
in NPI-AP Management, L.P. ("NPI-AP"), an affiliate of NPI (bringing its total
equity interest in such entity to one-third). NPI-AP is the sole limited partner
of DeForest II and one of the limited partners of DeForest I. DeForest I was
formed for the purpose of making tender offers (the "Tender Offers") for limited
partnership interests in Registrant as well as 11 affiliated limited
partnerships. DeForest II has been formed for the purpose of making tender
offers for limited partnership interest in 7 affiliated limited partnerships.
