August 30, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Winthrop Financial Associates,
A Limited Partnership
Schedule 14C filed June 19, 1996
File no. 0-14568
Ladies and Gentlemen:
In accordance with the terms of a Stipulation
of Settlement entered into as of March 20, 1996, in the
matter of Albert Friedman, individually and as
representative of a class of similarly situated persons,
v. Linnaeus Associates Limited Partnership et al.,
Winthrop Financial Associates, A Limited Partnership, a
Maryland limited partnership (the "Partnership"), and
Londonderry Acquisition Limited Partnership, a Delaware
limited partnership ("Londonderry"), intend to effect the
merger (the "Merger") of Londonderry with and into the
Partnership pursuant to an Agreement and Plan of Merger,
dated June 17, 1996 (the "Merger Agreement"), by and
between the Partnership and Londonderry. Pursuant to the
Merger: (i) each issued and outstanding Assignee Limited
Partnership Unit ("Assignee Unit") sold to the public
pursuant to an offering registered with the Securities
and Exchange Commission on Form S-11 (the "Public
Units"), other than those held by Londonderry and other
than Public Units ("Dissenting Units") held by holders
("Dissenting Unitholders") desiring to exercise their
appraisal rights under the Maryland General Corporate Law
(the "MGCL"), will be converted into the right to receive
$10.50 in cash, without interest; (ii) each issued and
outstanding Public Unit, other than Dissenting Units,
shall cease to be outstanding and shall automatically be
cancelled and retired and shall cease to exist; (iii)
Londonderry Holdings LLC, the current holder of the
entire limited partnership interest of Londonderry, will
be issued 1,000 Assignee Units of the Partnership in
consideration of the transfer of Londonderry's assets to
the Partnership and the cancellation of such limited
partnership interest; (iv) Londonderry, shall cease to
exist; and (v) all Dissenting Units shall not be
converted into the right to receive $10.50 in cash. Each
Dissenting Unitholder shall be entitled to receive
payment of the appraised value of his or her Dissenting
Units in accordance with the provisions of Section 3-202
of the MGCL, except that any Dissenting Units held by a
holder who shall thereafter withdraw his or her demand
for appraisal of such Dissenting Units as provided in
Section 3-205 of the MGCL or lose his or her right to
such payment as provided in Sections 3-203 and 3-205 of
the MGCL shall be deemed converted, as of the effective
time of the Merger, into the amount of cash such holder
would otherwise have been entitled to receive as a result
of the Merger. On June 17, 1996, Linnaeus Associates
Limited Partnership, a Maryland limited partnership
("Linnaeus"), in its capacity as the sole general partner
of the Partnership, and Linnaeus and Londonderry, as
limited partners of the Partnership holding a majority in
interest of the Assignee Units, signed a written consent
adopting the Merger Agreement and approving the Merger.
On June 17, 1996, LDY-GP Partners, L.P., in its capacity
as the sole general partner of Londonderry, and Apollo
Real Estate Investment Fund, L.P., in its capacity as the
sole limited partner of Londonderry, signed written
approvals adopting the Merger Agreement and approving the
Merger.
On June 19, 1996, the Partnership and
Londonderry filed a Rule 13e-3 Transaction Statement with
the Securities and Exchange Commission (the
"Commission"). Also on such date, the Partnership filed
preliminary information statement materials with the
Commission.
On August 6, 1996, the Partnership, Londonderry
and Linnaeus filed Amendment No. 1 to the Rule 13E-3
Transaction Statement with the Commission. Also on such
date, the Partnership filed revised preliminary
information statement materials with the Commission.
In connection with the Merger, on behalf of the
Partnership, Linnaeus and Londonderry, enclosed for
filing with the Commission please find:
Pursuant to Rule 101(a) of the Commission's
Regulation S-T, revised preliminary information statement
materials, including a letter to holders of Assignee
Units and an information statement, notice of action
taken without a meeting and notice of appraisal rights
with respect to the Merger, marked to show the changes
thereto from the preliminary information statement
materials filed on August 6, 1996.
It is contemplated that the definitive
information materials of the Partnership relating to the
Merger will be mailed to holders of Assignee Units in the
second week of September 1996. Accordingly, we
respectfully request that any Staff comments relating to
the enclosed material be given in time to permit the
Partnership to meet this mailing schedule. Londonderry
and the Partnership are aware of and will comply with the
20 day waiting period set forth in Rule 14c-2 and Rule
13e-3(f)(i).
We would appreciate your calling the
undersigned at (212) 735-2274 or David Jacoby at (212)
735-3157 in the first instance with any questions or oral
comments regarding the enclosed materials.
Kindly stamp and return to our messenger the
enclosed copy of this letter to acknowledge receipt.
Very truly yours,
/s/ Patrick J. Foye
________________________
Patrick J. Foye
August 23, 1996
Mail Stop 7-2
Mr. Richard J. McCready
Chief Operating Officer
Winthrop Financial Associates,
A Limited Partnership
One International Place
Boston, Massachusetts 02110
Re: Winthrop Financial Associates,
A Limited Partnership
Revised Schedule 13E-3
Filed August 6, 1996
File no. 5-37467
Dear Mr. McCready:
The staff has reviewed the above referenced filing
and has the following comments.
GENERAL
1. The Schedule 14C information must be filed sparately
even though it is an exhibit to the Schedule 14E-3.
Please file accordingly.
DOCUMENTS INCORPORATED BY REFERENCE
2. Please specifically incorporate by reference the
Company's Form 10-Q for the quarter ended June 30, 1996.
SPECIAL FACTORS
POSITION OF LONDONDERRY REGARDING FAIRNESS OF THE
MERGER, PAGE 22
3. We note that Londonderry relied upon the factors
considered by the General Partner and the General
Partner's determination that the Merger is fair.
Londonderry should provide its own Item 8(b) analysis or
adopt the analyses of the General Partner and Bear
Stearns as its own.
OPINION OF FINANCIAL ADVISOR, PAGE 23
4. Clarify the sentence regarding the availability of
any limitation of liability. Specifically, disclose that
the availability of any limitation of liability under
state law will be resolved by a court of competent
jurisdiction, and that the availability of such a state-
law defense to Bear Stearns would have no effect on the
rights and responsibilities of Bear Stearns under the
federal securities laws.
OPINION OF INDEPENDENT ADVISOR, PAGE 33
5. Clarify the sentence regarding the availability of
any limitation of liability. Specifically, disclose
that the availability of any limitation of liability
under state law will be resolved by a court of competent
jurisdiction, and that the availability of such a state-
law defense to Valuation Research would have no effect on
the rights and responsibilities of Valuation Research
under the federal securities laws.
OPINION OF FINANCIAL ADVISOR, PAGES 23-28
6. The staff notes the response to Comment 11. Delete
the word "certain" in the second full paragraph on page
24 and disclose that the summary of the analyses
conducted by Bear Stearns is complete in all material
respects.
7. The staff notes the responses to Comments 12 and 16.
Disclose in the Information Statement that Bear Stearns
has consented to the inclusion of its opinion and the
reference to it therein.
8. The staff notes the responses to Comments 12 and
[19]. The consent of Valuation Research Corporation is
not unconditional because it includes the phrase "subject
to VRC's final review and approval of such specific
reference." Revise appropriately.
9. Disclose in the Information Statement that Valuation
Research Corporation has consented to the inclusion of
its opinion and the reference to it therein.
GENERAL
A revised Schedule 13E-3 and Schedule 14C should be
filed in response to these comments. We may have
additional comments upon receipt of such material. A
cover letter should be furnished which keys the
registrant's responses to the above comments and which
provides any supplemental information requested by the
staff. In the event that the registrant believes that
compliance with any of the above comments is
inappropriate, the basis therefor should be provided to
the staff in the letter.
Questions regarding the accounting comments may be
directed to Donna Di Silvio at (202) 942-1852 or Hugh
Miller, the Assistant Chief Accountant at (202) 942-1962
and questions on other disclosure issues may be directed
to Josh Wechsler, Staff Attorney, at (202) 942-1878. In
this regard, please do not hesitate to contact the
undersigned or Paula Dubberly, the Assistant Director,
both at (202) 942-1960, each of whom supervised the
review of your filing.
Also, members of the Division's senior management
are always available to discuss issues relating to your
filing in the event you would like to request further
consideration. Please do not hesitate to contact Wayne
Carnall, Associate Director (Accounting Operations) at
(202) 942-2860, Howard Morin, Associate Director
(Operations) at (202) 942-2830 and Abbie Arms, Senior
Associate Director at (202) 942-2890.
Sincerely,
Edward Kelly
cc: Patrick J. Foye, Esq.
August 30, 1996
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, DC 20549
Attention: Mr. Edward Kelly
Re: Winthrop Financial Associates,
A Limited Partnership
Revised Schedule 13E-3 filed August
6, 1996 File no. 5-37467 (the
"Schedule 13E-3")
Schedule 14C filed August 6, 1996,
File no. 0-14568 (the "Prelimi-
nary Schedule 14C")
Dear Mr. Kelly:
Set forth below are the responses of
Winthrop Financial Associates, A Limited Partnership (the
"Partnership") and Londonderry Acquisition Limited
Partnership ("Londonderry") to the comments of the staff
of the Securities and Exchange Commission (the "Staff")
contained in the letter to Mr. Richard McCready, the
Chief Operating Officer of the Partnership, dated August
23, 1996 (the "Comment Letter"), with respect to the
Schedule 13E-3 and the Schedule 14C. Enclosed herewith
is a copy of Amendment No. 2 to the Schedule 13E-3 and a
revised Preliminary Schedule 14C (the "Revised
Preliminary Schedule 14C"). The Revised Preliminary
Schedule 14C has been marked to indicate the changes from
the Schedule 14C filed on August 6, 1996.
The paragraph numbers set forth below
correspond to the paragraph numbers set forth in the
enclosed copy of the Comment Letter. Capitalized terms
used but not otherwise defined herein shall have the
meanings ascribed in the Revised Preliminary Schedule
14C. Page numbers referenced herein refer to the Revised
Preliminary Schedule 14C.
GENERAL
1. The Schedule 14C information has been filed
separately.
DOCUMENTS INCORPORATED BY REFERENCE
2. The Partnership's Form 10-Q for the quarter ended
June 30, 1996, has been specifically incorporated by
reference under the caption "Documents Incorporated
by Reference."
SPECIAL FACTORS
POSITION OF LONDONDERRY REGARDING FAIRNESS OF THE
MERGER
3. The disclosure on page 23 has been revised to
indicate that Londonderry has adopted the analyses
of the General Partner as its own.
OPINION OF FINANCIAL ADVISOR
4. The sentence regarding the availability of any
limitation of liability on page 28 has been revised
to clarify that the availability of any limitation
of liability under state law will be resolved by a
court of competent jurisdiction, and that the
availability of such a state-law defense to Bear
Stearns would have no effect on the rights and
responsibilities of Bear Stearns under the federal
securities laws.
OPINION OF INDEPENDENT ADVISOR
5. The sentence regarding the availability of any
limitation of liability on page 36 has been revised
to clarify that the availability of any limitation
of liability under state law will be resolved by a
court of competent jurisdiction, and that the
availability of such a state-law defense to
Valuation Research would have no effect on the
rights and responsibilities of Valuation Research
under the federal securities laws.
OPINION OF FINANCIAL ADVISOR
6. The word "certain" has been deleted from the final
paragraph on page 24 and such paragraph has been
revised to indicate that the summary of the analyses
conducted by Bear Stearns is complete in all
material respects.
7. The disclosure on page 23 has been revised to
disclose that Bear Stearns has consented to the
inclusion of its opinion and the reference to it
therein.
8. A revised consent of Valuation Research is being
filed herewith as a supplemental submission. Such
revised consent omits the phrase "subject to VRC's
final review and approval of such specific
reference."
9. The disclosure on page 33 has been revised to
disclose that Valuation Research has consented to
the inclusion of its opinion and the reference to it
therein.
Please do not hesitate to contact the
undersigned at (212) 735-2274 or David Jacoby at (212)
735-3157 with any questions or comments regarding any of
the foregoing.
Very truly yours,
/s/ Patrick J. Foye
Patrick J. Foye
cc: Josh Wechsler, Esq.
Richard McCready, Esq.
CONSENT OF VALUATION RESEARCH CORPORATION
Valuation Research Corporation ("VRC"), an independent
appraisal firm, hereby consents to the reference to VRC
and the opinion of VRC with respect to the value of the
Residual Certificates to be contained in the:
Winthrop Financial Associates
A Limited Partnership
Schedule 13E-3 Filed August 30, 1996
Schedule 14c Filed August 30, 1996
File No: 0-14568
VALUATION RESEARCH CORPORATION
By: /s/ Dennis Valerio
August 27, 1996
SCHEDULE 14C INFORMATION
Information Statement Pursuant to Section 14(c)
of the Securities Exchange Act of 1934
<TABLE>
<CAPTION>
Check the appropriate box:
<S> <C>
(X) Preliminary information statement ( ) Confidential, for Use of the Commission
(as permitted by Rule 14-c-5(d)(2))
( ) Definitive information statement
WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP
(Name of Registrant as Specified in Charter)
Payment of Filing Fee (Check the appropriate box):
( ) $125 per Exchange Act Rules 0-11(c)(1)(ii), or 14c-5(g).
(X) Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies:
Assignee Limited Partnership Units
(2) Aggregate number of securities to which transaction applies:
1,354,837
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
$10.50 in cash per Assignee Limited Partnership Unit
(4) Proposed maximum aggregate value of transaction:
$ 14,255,788.50
(5) Total fee paid:
$ 2,845.16
( ) Fee paid previously with preliminary materials.
(X) Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which the
offsetting fee was paid previously. Identify the previous filing by
registration statement number, or the Form or Schedule and the date of
its filing.
(1) Amount Previously Paid:
$ 2,845.16
(2) Form, Schedule or Registration Statement No.:
5-37467
(3) Filing Parties:
Winthrop Financial Associates, A Limited Partnership and
Londonderry Acquisition Limited Partnership
(4) Date Filed:
June 19, 1996
</TABLE>
PRELIMINARY MATERIAL
WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP
One International Place
Boston, Massachusetts 02110
(617) 330-8600
September __, 1996
Dear Unitholder:
On behalf of the General Partner of Winthrop Financial
Associates, A Limited Partnership (the "Partnership"), enclosed
is an Information Statement, Notice of Action Taken Without a
Meeting and Notice of Appraisal Rights ("Information Statement")
concerning the upcoming merger of Londonderry Acquisition Limited
Partnership ("Londonderry") with and into the Partnership. In
the merger, each outstanding Public Unit (as defined in the
Information Statement enclosed herein) of the Partnership (other
than Public Units owned by Londonderry and those Public
Unitholders who perfect their statutory appraisal rights) will be
converted into the right to receive $10.50 in cash.
The merger is being undertaken in accordance with the terms
of the settlement of a lawsuit initiated by a Public Unitholder
as a class action suit against, among others, Linnaeus Associates
Limited Partnership, the general partner of the Partnership (the
"General Partner"), and certain former and current members of the
Partnership's management. Notice of the settlement was mailed to
Public Unitholders on or about April 5, 1996. At a hearing held
on May 23, 1996, the settlement received final approval from the
Circuit Court of Cook County, Illinois County Department,
Chancery Division. At the hearing, the Circuit Court of Cook
County determined that the terms and conditions of the proposed
settlement, taken as a whole, are fair, reasonable and adequate
(including the requirements that the merger consideration paid to
Public Unitholders would not be less than $10.50 per Public Unit
and that the proposed merger consideration must be opined upon as
fair, from a financial point of view, by an independent,
nationally-recognized investment banking firm). Since the price
of $10.50 per Public Unit, ultimately established as the merger
consideration by Londonderry and the General Partner, had not
been determined at the time of the hearing, the court was not
asked to specifically determine that this price was fair or
adequate as consideration for the public units.
Apollo Real Estate Advisors, L.P., through its affiliates,
including Londonderry, controls the entire general partnership
interest in the Partnership and an aggregate 91.13% of the
assignee limited partnership units of the Partnership.
Accordingly, on June 17, 1996, the General Partner, in its
capacity as the sole general partner of the Partnership, and the
General Partner and Londonderry, as limited partners holding a
majority in interest of the limited partnership interest of the
Partnership, signed a written consent adopting the merger
agreement between the Partnership and Londonderry and approving
the merger, as permitted by applicable law and the partnership
agreement of the Partnership. NO MEETING OF PUBLIC UNITHOLDERS
WILL BE CALLED AND NO PROXIES WILL BE SOLICITED IN CONNECTION
WITH THE MERGER.
The enclosed Information Statement contains important
information concerning the background of the merger, the reasons
why the General Partner approved it, the provisions of the
agreement with Londonderry and other matters, including a
detailed description of statutory appraisal rights available to
Public Unitholders. The Information Statement constitutes notice
to Public Unitholders of appraisal rights pursuant to Title 3,
Subtitle 2 of the Maryland General Corporation Law.
The General Partner has determined that the merger is fair
to, and in the best interests of, the Partnership and its Public
Unitholders. In approving the merger, the General Partner gave
careful consideration to a number of factors described in this
Information Statement, including the opinion of Bear Stearns &
Co. Inc. that, as of June 13, 1996, subject to the assumptions
set forth therein, $10.50 in cash per Public Unit is fair from a
financial point of view as consideration for Public Units held by
holders other than Londonderry, and the availability of appraisal
rights under the Maryland General Corporation Law. The full text
of the opinion of Bear Stearns & Co. Inc. is attached as Annex D
to the Information Statement. Public Unitholders are urged to,
and should, read the opinion of Bear Stearns & Co. Inc. carefully
in its entirety in conjunction with the Information Statement for
the assumptions made, the matters considered and the limits of
the review of Bear Stearns & Co. Inc.
In connection with the Merger, the Partnership will, on
September __, 1996, redeem all of the residual certificates,
issued by the Partnership from 1987 to 1992, evidencing a
participation in the Partnership's interest in residual proceeds,
if any, from certain limited partnerships previously syndicated
by the Partnership.
WE URGE YOU TO GIVE THE INFORMATION STATEMENT YOUR PROMPT
AND CAREFUL CONSIDERATION. PLEASE DO NOT SEND US ANY DOCUMENTS
AT THIS TIME. ONCE THE MERGER BECOMES EFFECTIVE, YOU WILL BE
ADVISED OF THE PROCEDURE FOR RECEIVING THE $10.50 IN CASH PER
PUBLIC UNIT, WITHOUT INTEREST.
If you have any questions, you may call Beverly L. Bergman
at (617) 330-8600.
LINNAEUS ASSOCIATES
LIMITED
PARTNERSHIP
By:
[________________]
WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP
ONE INTERNATIONAL PLACE
BOSTON, MASSACHUSETTS 02110
(617) 330-8600
_______________________
INFORMATION STATEMENT
NOTICE OF ACTION TAKEN WITHOUT A MEETING
AND
NOTICE OF APPRAISAL RIGHTS
_______________________
INTRODUCTION
This Information Statement, Notice of Action Taken Without a
Meeting and Notice of Appraisal Rights (collectively, the
"Information Statement") is being furnished to holders
("Unitholders") of record of the outstanding Assignee Units (as
herein defined) in Winthrop Financial Associates, A Limited
Partnership, a Maryland limited partnership (the "Partnership").
This Information Statement is being furnished in connection with
the proposed merger of Londonderry Acquisition Limited
Partnership, a Delaware limited partnership ("Londonderry") with
and into the Partnership (the "Merger") pursuant to the terms and
provisions of the Agreement and Plan of Merger dated as of June
17, 1996 (the "Merger Agreement") by and between Londonderry and
the Partnership. A COPY OF THE MERGER AGREEMENT IS ATTACHED
HERETO AS ANNEX A.
The Merger Agreement provides that, among other things, as
soon as practicable, Londonderry will be merged with and into the
Partnership, with the Partnership continuing as the surviving
partnership. At the effective time of the Merger (the "Effective
Time"), (i) each issued and outstanding Public Unit, other than
those held by Londonderry and other than Public Units
("Dissenting Units") held by Public Unitholders desiring to
exercise their appraisal rights under the Maryland General
Corporate Law ("Dissenting Unitholders"), will be converted into
the right to receive $10.50 in cash, without interest, (ii) each
issued and outstanding Public Unit, other than Dissenting Units,
shall cease to be outstanding and shall automatically be
cancelled and retired and shall cease to exist, (iii) Londonderry
Holdings LLC, the current holder of the entire limited
partnership interest of Londonderry, will be issued 1,000
Assignee Limited Partnership Units of the Partnership in
consideration of the transfer of Londonderry's assets to the
Partnership and the cancellation of such limited partnership
interest, (iv) Londonderry shall cease to exist and (v) all
Dissenting Units shall not be converted into the right to receive
$10.50 in cash. Each Dissenting Unitholder shall be entitled to
receive payment of the appraised value of his or her Dissenting
Units in accordance with the provisions of Section 3-202 of the
MGCL, except that any Dissenting Unitholder who shall thereafter
withdraw his or her demand for appraisal of such Dissenting Units
as provided in Section 3-205 of the MGCL or lose his or her right
to such payment as provided in Sections 3-203 and 3-205 of the
MGCL shall be deemed converted, as of the Effective Time, into
the amount of cash such holder would otherwise have been entitled
to receive as a result of the Merger. See "The Merger Agreement"
for a description of the Merger and the Merger Agreement. The
Partnership and Londonderry currently anticipate that the
Effective Time will occur on September ___, 1996.
As of the date of this Information Statement, the
Partnership has issued 15,284,243 Assignee Limited Partnership
Units (the "Assignee Units"). Linnaeus Associates Limited
Partnership, a Maryland limited partnership that serves as the
general partner of the Partnership ("Linnaeus" or the "General
Partner"), controls the entire general partnership interest in
the partnership, representing approximately a 13.01% ownership
interest in the Partnership, and also owns 12,571,429 Assignee
Units, representing approximately 82.25% of the Assignee Units
and a 71.55% ownership interest in the Partnership. The
remaining 2,712,814 Assignee Units were sold to the public
pursuant to an offering registered with the Securities and
Exchange Commission on Form S-11 (the "Public Units"). As of the
date of this Information Statement, 825 of the Public Units have
been abandoned by the holders thereof and have been cancelled and
retired by the Partnership and are no longer outstanding. The
Public Units represent approximately 17.75% of the Assignee Units
and a 15.44% ownership interest in the Partnership. As of the
date of this Information Statement, there are 2,711,989 issued
and outstanding Public Units, 1,357,152 of which are owned by
Londonderry (representing 50.04% of the total Public Units
outstanding). See "Special Factors Background of the Merger
December 1994 Tender Offer" and "Special Factors Background of
the Merger Londonderry Transaction." Therefore, Londonderry
and Linnaeus collectively own approximately 91.13% of the
Assignee Units and an approximate 92.28% ownership interest in
the Partnership and, accordingly, have the voting power to
determine the outcome of each matter submitted to a vote of
holders of Assignee Units.
This Information Statement is first being mailed to holders
of Public Units ("Public Unitholders") of the Partnership on
September ___, 1996 and constitutes notice to Public Unitholders
of appraisal rights pursuant to Title 10, Subtitle 2 of the
Maryland Revised Uniform Limited Partnership Act (the "MRULPA")
and Title 3, Subtitle 2 of the MGCL. See "Appraisal Rights of
Public Unitholders."
PUBLIC UNITHOLDERS OF THE PARTNERSHIP WHO DEMAND APPRAISAL
OF THEIR PUBLIC UNITS MAY BE ENTITLED TO HAVE THE "FAIR VALUE" OF
THEIR PUBLIC UNITS JUDICIALLY DETERMINED AND PAID TO THEM IN
CASH. THE TEXT OF MGCL TITLE 3, SUBTITLE 2 IS ATTACHED HERETO AS
ANNEX D. THE PROCEDURES SET FORTH IN MGCL TITLE 3, SUBTITLE 2,
MUST BE FOLLOWED CAREFULLY TO PERFECT APPRAISAL RIGHTS. SEE
"APPRAISAL RIGHTS OF PUBLIC UNITHOLDERS."
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED
UPON THE FAIRNESS OR MERITS OF SUCH TRANSACTION NOR UPON THE
ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED IN THIS
INFORMATION STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
WE ARE NOT ASKING YOU FOR A PROXY OR CONSENT AND YOU ARE
REQUESTED NOT TO SEND US A PROXY OR CONSENT.
AVAILABLE INFORMATION
The Partnership is subject to the informational reporting
requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and, in accordance therewith, files
reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements and other information may be inspected
and copied at the Commission's office at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and at the Commission's regional offices
located at 7 World Trade Center, Suite 1300, New York, New York
10048 and at Northwestern Atrium Center, Suite 1400, 500 West
Madison Street, Chicago, Illinois 60661. Copies of this
material may also be obtained by mail, upon payment of the
Commission's customary fees, from the Commission's principal
offices at 450 Fifth Street, N.W., Washington, D.C. 20549.
The Partnership, Linnaeus and Londonderry have jointly filed
with the Commission a Schedule 13E-3 Transaction Statement (the
"Schedule 13E-3") and Amendments No. 1 and No. 2 thereto pursuant
to the Exchange Act, furnishing certain information with respect
to the Merger, in addition to the information contained in this
Information Statement, and they may file further amendments to
the Schedule 13E-3. As permitted by the rules and regulations of
the Commission, this Information Statement omits certain
information contained in the Schedule 13E-3. For further
information pertaining to the Partnership, Linnaeus and
Londonderry reference is made to the Schedule 13E-3 and the
exhibits and amendments thereto. Statements contained herein
concerning such documents are not necessarily complete and, in
each instance, reference is made to the copy of such documents
filed as an exhibit to the Schedule 13E-3. Each such statement
is qualified in its entirety by such reference.
The Schedule 13E-3 and any such further amendments,
including exhibits, may be inspected and copies may be obtained
in the same manner as set forth in the preceding paragraph except
that they will not be available at the regional offices of the
Commission. The Schedule 13E-3, the Partnership's Annual Report
on Form 10-K for the year ended December 31, 1995, the
Partnership's Quarterly Report on Form 10-Q for the quarters
ended March 31 and June 30, 1996, in each case including the
exhibits thereto, as filed with the Commission pursuant to the
Exchange Act, are hereby incorporated by reference as if set
forth herein.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents filed by the Partnership with the
Commission pursuant to the Exchange Act (Commission File No. 0-
14568) are incorporated by reference herein:
1. Annual Report on Form 10-K for the year ended
December 31, 1995.
2. Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996.
3. Quarterly Report on Form 10-Q for the quarter
ended June 30, 1996.
THIS INFORMATION STATEMENT INCORPORATES BY REFERENCE
DOCUMENTS RELATING TO THE PARTNERSHIP WHICH ARE NOT PRESENTED
HEREIN OR DELIVERED HEREWITH. DOCUMENTS RELATING TO THE
PARTNERSHIP (OTHER THAN EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE) ARE
AVAILABLE TO ANY PERSON, INCLUDING ANY BENEFICIAL OWNER, TO WHOM
THIS INFORMATION STATEMENT IS DELIVERED, ON WRITTEN OR ORAL
REQUEST, WITHOUT CHARGE, FROM WINTHROP FINANCIAL ASSOCIATES, A
LIMITED PARTNERSHIP, ONE INTERNATIONAL PLACE, BOSTON,
MASSACHUSETTS 02110, ATTENTION: BEVERLY L. BERGMAN, TELEPHONE:
(617) 330-8600. COPIES OF DOCUMENTS SO REQUESTED WILL BE SENT BY
FIRST CLASS MAIL, POSTAGE PAID, WITHIN ONE BUSINESS DAY OF THE
RECEIPT OF SUCH REQUEST.
All documents filed by the Partnership with the Commission
pursuant to Sections 13(a), 13(c), 14 and 15(d) of the Exchange
Act after the date hereof and prior to the date of the Merger
shall be deemed to be incorporated by reference herein and shall
be a part hereof from the date of filing such documents. Any
statements contained in a document incorporated by reference
herein or contained in this Information Statement shall be deemed
to be modified or superseded for purposes hereof to the extent
that a statement contained herein (or in any other subsequently
filed document which also is incorporated by reference herein)
modifies or supersedes such statement. Any statement so modified
or superseded shall not be deemed to constitute a part hereof
except as so modified or superseded.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE
ANY REPRESENTATION NOT CONTAINED IN THIS INFORMATION STATEMENT
AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION SHOULD
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED.
TABLE OF CONTENTS
Page
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
The Merger . . . . . . . . . . . . . . . . . . . . . . . 1
The Parties . . . . . . . . . . . . . . . . . . . . . . 2
Approval of the Merger . . . . . . . . . . . . . . . . . 5
Effective Time of the Merger . . . . . . . . . . . . . . 5
Opinion of Financial Advisor . . . . . . . . . . . . . . 6
Appraisal Rights of Dissenting Unitholders . . . . . . . 6
Effects of the Merger . . . . . . . . . . . . . . . . . 6
Residual Certificates . . . . . . . . . . . . . . . . . 7
Sources of Funds; Financing of the Merger . . . . . . . 7
Interests of Certain Persons in the Merger; Conflicts
of Interest . . . . . . . . . . . . . . . . . . . . 7
Conditions to the Merger; Termination . . . . . . . . . 7
Summary of Federal Income Tax
Consequences of the Merger . . . . . . . . . . . . . . . 8
Accounting Treatment of the Merger . . . . . . . . . . . 8
SPECIAL FACTORS . . . . . . . . . . . . . . . . . . . . . . . 9
Background of the Merger . . . . . . . . . . . . . . . . 9
Fairness of the Merger . . . . . . . . . . . . . . . . . 19
Position of Londonderry Regarding Fairness of the
Merger . . . . . . . . . . . . . . . . . . . . . . 23
Opinion of Financial Advisor . . . . . . . . . . . . . . 23
Purpose and Structure of the Merger . . . . . . . . . . 29
Interests of Certain Persons in the Merger; Conflicts
of Interest . . . . . . . . . . . . . . . . . . . . 30
Relationships between the Parties . . . . . . . . . . . 31
Plans for the Partnership after the Merger . . . . . . . 31
Certain Effects of the Merger . . . . . . . . . . . . . 32
Residual Certificates . . . . . . . . . . . . . . . . . 32
Opinion of Independent Appraiser . . . . . . . . . . . . 34
Income Tax Consequences . . . . . . . . . . . . . . . . 36
Accounting Treatment of the Merger . . . . . . . . . . . 38
Regulatory Approvals and Filings . . . . . . . . . . . . 38
CERTAIN PROJECTIONS OF THE PARTNERSHIP . . . . . . . . . . . 39
APPRAISAL RIGHTS OF PUBLIC UNITHOLDERS . . . . . . . . . . . 43
THE MERGER AGREEMENT . . . . . . . . . . . . . . . . . . . . 45
General . . . . . . . . . . . . . . . . . . . . . . . . 45
Effective Time . . . . . . . . . . . . . . . . . . . . . 46
Payment for Public Units . . . . . . . . . . . . . . . . 46
Conditions to the Merger . . . . . . . . . . . . . . . . 47
Termination . . . . . . . . . . . . . . . . . . . . . . 47
FINANCING OF THE TRANSACTION . . . . . . . . . . . . . . . . 47
BUSINESS OF THE PARTNERSHIP . . . . . . . . . . . . . . . . . 49
General . . . . . . . . . . . . . . . . . . . . . . . . 49
Description of Business . . . . . . . . . . . . . . . . 51
Properties . . . . . . . . . . . . . . . . . . . . . . . 56
Litigation . . . . . . . . . . . . . . . . . . . . . . . 56
SUMMARY FINANCIAL DATA . . . . . . . . . . . . . . . . . . . 60
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION . . . . . . . . . . . . . . . . . . . . . 63
Liquidity and Capital Resources . . . . . . . . . . . . 63
Results of Operations . . . . . . . . . . . . . . . . . 64
Page
DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . 69
BENEFICIAL OWNERSHIP OF ASSIGNEE AND PUBLIC UNITS AND
TRANSACTIONS IN ASSIGNEE AND PUBLIC UNITS BY CERTAIN PERSONS 71
Beneficial Ownership of Assignee and Public Units . . . 71
EXPENSES OF THE MERGER . . . . . . . . . . . . . . . . . . . 73
SCHEDULE 1
SUMMARY
The following is a summary of certain information contained
elsewhere in this Information Statement. This summary is
qualified in its entirety by the more detailed information
contained, or incorporated by reference, in this Information
Statement and the Annexes hereto. Public Unitholders are urged
to read this Information Statement and the Annexes hereto in
their entirety. Unless otherwise defined herein, capitalized
terms used in this summary have the respective meanings ascribed
to them elsewhere in this Information Statement. The information
in this Information Statement concerning the Partnership has been
provided by the Partnership and the information concerning
Londonderry has been provided by Londonderry.
THE MERGER
The Merger is being undertaken in accordance with the terms
of a Stipulation of Settlement (the "Friedman Settlement")
entered into as of March 20, 1996, in the matter of Albert
Friedman, individually and as representative of a class of
similarly situated persons, v. Linnaeus Associates Limited
Partnership, et al., No. 94 CH 11524, Cir. Ct. of Cook County,
Ill. (the "Friedman Action"). A copy of the Friedman Settlement
is attached hereto as Annex B. The Friedman Action was a lawsuit
initiated by a Public Unitholder as a class action suit against,
among others, the General Partner and certain former and current
members of the Partnership's management. See "Business of the
Partnership Litigation." The Friedman Settlement releases the
General Partner and the other defendants, including certain
current members of the Partnership's management, from liability
in the Friedman Action in consideration of the agreement of an
affiliate of the General Partner to provide liquidity to the
Public Unitholders through the Merger. The Friedman Settlement
provides, among other things, (a) that Londonderry will undertake
to liquidate the investment of the Public Unitholders by
effecting a merger of the Partnership and Londonderry or an
affiliate in which each Public Unit is acquired for no less than
$10.50 per Public Unit (the "Merger Consideration"), (b) the
fairness of the Merger Consideration from a financial point of
view will be opined upon by a nationally recognized independent
investment banking firm as fair, from a financial point of view
and (c) each Public Unitholder, as an alternative to accepting
the Merger Consideration, will have the option of seeking
appraisal of the fair value of his or her Public Units pursuant
to Maryland law. The Friedman Settlement received final approval
from the Circuit Court of Cook County, Illinois County
Department, Chancery Division (the "Cook County Circuit Court")
at a hearing held on May 23, 1996. A copy of the Final Order and
Judgment issued by the Cook County Circuit Court is attached
hereto as Annex C. At the hearing, the Circuit Court of Cook
County determined that the terms and conditions of the proposed
settlement, taken as a whole, are fair, reasonable and adequate
(including the requirements that the merger consideration paid to
Public Unitholders would not be less than $10.50 per Public Unit
and that the proposed merger consideration must be opined upon as
fair, from a financial point of view, by an independent,
nationally-recognized investment banking firm). Since the price
of $10.50 per Public Unit, ultimately established as the merger
consideration by Londonderry and the General Partner, had not
been determined at the time of the hearing, the court was not
asked to specifically determine that this price was fair or
adequate as consideration for the public units.
THE PARTIES
The parties to the Merger are the Partnership and
Londonderry. The Partnership is a real estate investment and
management firm. As a limited partnership, the actions and
determinations of the Partnership are made on behalf of the
Partnership by Linnaeus, in its capacity as the sole general
partner of the Partnership. Linnaeus is solely engaged in the
management of the Partnership. The principal office of the
Partnership and the General Partner is located at One
International Place, Boston, Massachusetts 02110, and their
telephone number is (617) 330-8600.
W.L. Realty, L.P., a Delaware limited partnership ("WLR") is
the sole general partner of Linnaeus. WLR is solely engaged in
the management of Linnaeus. The Partnership has a limited
partnership interest in WLR that represents a 35% ownership
interest therein. Londonderry Acquisition II Limited
Partnership, a Delaware limited partnership ("Londonderry II"),
is the sole general partner of WLR. Londonderry II is solely
engaged in the management of WLR. The general partner of
Londonderry II is LDY-GP Partners II, L.P, a Delaware limited
partnership ("LDY-GP II"). LDY-GP II is solely engaged in the
management of Londonderry II. The general partner of LDY-GP II
is Londonderry Acquisition Corporation II, Inc., a Delaware
corporation ("LAC II General Partner"). LAC II General Partner
is solely engaged in the management of LDY-GP II.
LAC II General Partner is wholly owned by Apollo Real Estate
Advisors, L.P. ("Apollo"), a Delaware limited partnership.
Apollo is the general partner of Apollo Real Estate Investment
Fund, L.P. ("AREIF"), the limited partner of Londonderry II and,
prior to June 28, 1996, the limited partner of Londonderry. The
managing general partner of Apollo is Apollo Real Estate
Management, Inc., a Delaware corporation ("AREM"). Attached as
Schedule 1 is information concerning the directors and executive
officers of AREM and its affiliates.
Londonderry is a Delaware limited partnership engaged in the
business of acquiring investment interests in limited
partnerships involved in the ownership or management of real
estate. The general partner of Londonderry is LDY-GP Partners,
L.P., a Delaware limited partnership ("LDY-GP"). LDY-GP is
solely engaged in the management of Londonderry. The general
partner of LDY-GP is Londonderry Acquisition Corporation, Inc., a
Delaware corporation ("LAC General Partner"). LAC General
Partner is solely engaged in the management of LDY-GP. LAC
General Partner is wholly-owned by Apollo. On June 28, 1996,
Londonderry Holdings LLC, a Delaware limited liability company
("Londonderry Holdings") was formed and acquired the limited
partnership interest of AREIF in Londonderry. See "Special
Factors Background of the Merger."
The principal business address of WLR is One International
Place, Boston, Massachusetts 02110, and its telephone number is
(617) 330-8600. The principal business address of Londonderry
II, LDY-GP II, LAC II General Partner, Londonderry, LDY-GP, LAC
General Partner and AREM is 2 Manhattanville Road, Purchase, New
York 10577. The principal office of Apollo is located at 1301
Avenue of the Americas, New York, New York 10019.
Set forth below is a chart which illustrates the
organizational structure of Apollo and its affiliates including
Londonderry, Londonderry II, Linnaeus, WLR and the Partnership.
Apollo Real Estate Management, Inc.
|
General Partner
|
Apollo Real Estate Advisors, L.P.
|
------------------------------------------------------
| |
100% Shareholder |
| |
Londonderry Acquisistion 100% Shareholder
Corporation II, Inc. |
| |
General Partner |
| |
LDY-GP Partners II, L.P. |
| |
General Partner |
| |
Londonderry Acquisiiton II, Londonderry Acquisition
Limited Partnership Corporation, Inc.
| |
General Partner General Partner
| |
W. L. Realty, L.P. LDY-GP Partners, L.P.
| |
General Partner General Partner
| |
Linnaeus Associates Public Unitholders Londonderry Acquisition
Limited Partnership other than Londonderry Limited Partnership
| | |
-----------------7.72% as Limited Partner--------------
13.01% as General Partner | 7.72% as Limited Partner
71.55% as Limited Partner |
|
Winthrop Financial Associates,
A Limited Partnership
APPROVAL OF THE MERGER
On June 17, 1996, Linnaeus, in its capacity as the sole
general partner of the Partnership and Linnaeus and Londonderry,
as limited partners of the Partnership holding a majority in
interest of the Assignee Units, signed a written consent adopting
the Merger Agreement and approving the Merger, as permitted by
the MRULPA and the Partnership's Agreement and Certificate of
Limited Partnership, as amended (the "Partnership Agreement").
On June 17, 1996, LDY-GP, in its capacity as the sole general
partner of Londonderry, and AREIF, the sole limited partner of
Londonderry at the time, signed written approvals adopting the
Merger Agreement and approving the Merger pursuant to Section 17-
211 of the Delaware Revised Uniform Limited Partnership Act, as
amended. The written consent of Linnaeus and Londonderry and the
written approvals of LDY-GP and AREIF direct the officers of the
Partnership and Londonderry, respectively, to record articles of
merger with the State Department of Assessments and Taxation of
the State of Maryland (the "Department") and to file a
certificate of merger with the Secretary of State of the State of
Delaware, and thereby consummate the Merger, as soon as
practicable after satisfaction or, if permissible, waiver of all
conditions to the Merger set forth in the Merger Agreement. See
"The Merger Agreement Effective Time; Conditions to the
Merger."
EFFECTIVE TIME OF THE MERGER
The Merger Agreement provides that, among other things, as
soon as practicable, Londonderry will be merged with and into the
Partnership, with the Partnership continuing as the surviving
partnership. At the Effective Time, (i) each issued and
outstanding Public Unit, other than Public Units held by
Londonderry and Dissenting Units held by Dissenting Unitholders
(as defined under the caption "Appraisal Rights of Dissenting
Unitholders"), will be converted into the right to receive $10.50
in cash, without interest, (ii) each issued and outstanding
Public Unit, other than Dissenting Units, shall cease to be
outstanding and shall automatically be cancelled and retired and
shall cease to exist, (iii) Londonderry Holdings will be issued
1,000 Assignee Limited Partnership Units of the Partnership in
consideration of the transfer of Londonderry's assets to the
Partnership and the cancellation of such limited partnership
interest, (iv) Londonderry shall cease to exist and (v) all
Dissenting Units shall not be converted into the right to receive
$10.50 in cash. Each Dissenting Unitholder shall be entitled to
receive payment of the appraised value of such Dissenting Units
in accordance with the provisions of Section 3-202 of the MGCL,
except that any Dissenting Units held by a Public Unitholder who
shall thereafter withdraw his or her demand for appraisal of his
or her Dissenting Units as provided in Section 3-205 of the MGCL
or lose his or her right to such payment as provided in Sections
3-203 and 3-205 of the MGCL shall be deemed converted, as of the
Effective Time, into the amount of cash such Public Unitholder
would otherwise have been entitled to receive as a result of the
Merger. See "The Merger Agreement" for a description of the
Merger and the Merger Agreement. The Partnership and Londonderry
currently anticipate that the Effective Time will occur on
September __, 1996. Accordingly, this Information Statement is
being furnished to all Public Unitholders of record to provide
information with respect to the Merger and such Public
Unitholders' appraisal rights. On June 17, 1996, the date of the
written consents of Linnaeus and Londonderry, 2,711,989 Public
Units were outstanding, and there were approximately 1,407
holders of record, excluding Londonderry. No further notice of
the occurrence of the Effective Time will be given to Public
Unitholders before the Effective Time.
OPINION OF FINANCIAL ADVISOR
Bear Stearns & Co. Inc. ("Bear Stearns"), a nationally
recognized investment banking firm, has rendered its written
opinion that, as of June 13, 1996, subject to the assumptions set
forth therein, $10.50 in cash per Public Unit is fair from a
financial point of view as consideration for Public Units held by
Public Unitholders other than Londonderry. The full text of the
opinion of Bear Stearns is attached as Annex D to this
Information Statement. Public Unitholders are urged to, and
should, read the opinion of Bear Stearns carefully in its
entirety in conjunction with this Information Statement for the
assumptions made, the matters considered and the limits of the
review of Bear Stearns. See "Opinion of Financial Advisor."
APPRAISAL RIGHTS OF DISSENTING UNITHOLDERS
Dissenting Unitholders who properly perfect appraisal rights
under the MGCL will be entitled to receive fair value for their
Public Units as determined under the MGCL. In order to comply
with the requirements of the MGCL, among other things, a Public
Unitholder must (i) prior to or on the date of the Effective
Time, file with the Partnership a written objection to the
Merger, (ii) not vote in favor of the Merger (no vote of Public
Unitholders is being taken in connection with the Merger) and
(iii) within 20 days after Articles of Merger have been accepted
for recordation by the Department, make a written demand on the
Partnership for payment of his Public Units, stating the number
of Public Units for which payment is demanded. In addition,
within 50 days after acceptance of the Articles of Merger for
recordation by the Department and the filing of the certificate
of merger with the Secretary of State of Delaware, either the
Partnership or any Dissenting Unitholder who has not received
payment for his Public Units may petition a court of equity in
the Circuit Court for the City of Baltimore, Maryland, for an
appraisal to determine the fair value of such Public Units. The
Partnership has no present intention to file such a petition.
Accordingly, it is the obligation of the Public Unitholders to
initiate all necessary action to perfect their dissenters'
appraisal rights within the time prescribed by the MGCL. Any
Public Unitholder who fails to comply with the requirements of
the MGCL will be bound by the terms of the Merger. See
"Appraisal Rights of Dissenting Unitholders." Title 3, Subtitle
2, of the MGCL relating to appraisal rights is reproduced in its
entirety as Annex F to this Information Statement.
EFFECTS OF THE MERGER
Upon consummation of the Merger, Linnaeus and Londonderry
Holdings will hold the entire limited partnership interest of the
Partnership and will not have any rights to the Public Unitholder
Priority or the Capital Priority (each as defined under the
caption "Distributions"). The Public Unitholders will have no
ownership interest in or control over the Partnership. In
addition, the Partnership's registration of the Public Units
under the Exchange Act will be terminated and the Partnership
will not be required to continue its periodic reporting
requirements under the Exchange Act. See "Special Factors
Certain Effects of the Merger" and "Distributions."
RESIDUAL CERTIFICATES
From 1987 to 1992, the Partnership, unilaterally and for no
consideration, issued to the Public Unitholders certificates (the
"Residual Certificates") evidencing a participation in the
Partnership's interest in residual proceeds, if any, from certain
limited partnerships previously syndicated by the Partnership
(the "Residual Interests"). Residual Certificates with respect
to 19 partnerships have been distributed to the Public
Unitholders. In connection with the Merger, the Partnership
will, on September __, 1996, redeem all of the Residual
Certificates. Valuation Research Corporation ("Valuation
Research"), a nationally recognized independent appraisal firm
has furnished its opinion to the Partnership that the Residual
Certificates have no value. Accordingly, the Residual
Certificates are being redeemed by the Partnership for no
consideration.
SOURCES OF FUNDS; FINANCING OF THE MERGER
Approximately $15.5 million will be required to consummate
the Merger and to pay related fees and expenses. The necessary
funds are expected to be provided by Londonderry. Such funds
will be advanced to Londonderry from general funds of Apollo or
from the proceeds of borrowings by Apollo or one of its
affiliates. See "Financing of the Transaction" and "Expenses of
the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
The General Partner and the senior management of the
Partnership have certain interests that may present them with
actual or potential conflicts of interest. Among these are that
(i) the Merger is being undertaken in accordance with and as
consideration for the settlement of the Friedman Action, a
lawsuit in which the General Partner and certain of the
Partnership's senior management were named defendants, (ii) the
General Partner is controlled by Londonderry II, an affiliate of
Londonderry, (iii) the current General Partner is expected to
remain in its current role subsequent to the Merger and (iv) the
current senior management of the Partnership and the General
Partner are expected to remain in their positions following the
Merger. See "Special Factors Interests of Certain Persons in
the Merger; Conflicts of Interest." The Partnership, the General
Partner and Londonderry did not have independent legal counsel in
connection with the Merger.
CONDITIONS TO THE MERGER; TERMINATION
Closing of the Merger is subject to: (i) no statute, rule,
regulation, executive order, decree or injunction having been
enacted, entered, promulgated or enforced by any court or
governmental authority which prohibits, restrains, enjoins or
restricts the consummation or the Merger; and (ii) no filing of a
proceeding that seeks to enjoin or restrict the Merger having
been made.
SUMMARY OF FEDERAL INCOME TAX
CONSEQUENCES OF THE MERGER
The receipt of cash in exchange for Public Units pursuant to
the Merger, and the receipt of cash by Public Unitholders who
exercise statutory appraisal rights, will be a taxable
transaction for federal income tax purposes and may also be a
taxable transaction under applicable state, local and foreign tax
laws. Accordingly, a Public Unitholder will recognize gain or
loss on the conversion of Public Units in the Merger to the
extent of the difference between the amount realized and his or
her adjusted tax basis in the Public Units sold. In addition,
upon the sale by a Public Unitholder of all his or her Public
Units in the Merger, any net losses of the Partnership that were
suspended under the passive loss rules of the Internal Revenue
Code of 1986, as amended, may be used to offset income and gain
on such sale.
The foregoing summary is for general information of Public
Unitholders only as to their tax consequences and does not
purport to be complete. For a more extensive discussion of
Federal income tax consequences, see "Special Factors Federal
Income Tax Consequences" below. The consequences to any
particular Public Unitholder may differ depending upon that
Public Unitholder's own circumstances and tax position. Certain
types of Public Unitholders (including, but not necessarily
limited to, financial institutions, tax-exempt organizations and
foreign persons) may be subject to special rules. This
discussion does not consider the effect of any applicable
foreign, state or local tax laws. Each Public Unitholder is
urged to consult his tax advisor as to the particular tax
consequences of the Merger or the exercise of statutory appraisal
rights to such Public Unitholder, including the application of
state, local and foreign tax laws. For purposes of this summary,
Public Unitholders are assumed to hold their Public Units as
capital assets (generally, property held for investment).
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for similar to a pooling of
interests, since Londonderry and the Partnership are under common
control. The acquisition by Londonderry of the Public Units will
be accounted for under the "purchase method of accounting."
Accordingly, a determination of the fair value of the
Partnership's assets and liabilities has been made in order to
allocate the purchase price to the assets acquired and the
liabilities assumed.
SPECIAL FACTORS
BACKGROUND OF THE MERGER
Formation of the Partnership. The Partnership was formed in
1985 as the successor to First Winthrop Corporation, a Delaware
corporation ("FWC"), for the purpose of continuing FWC's real
estate syndication business. At that time, the Partnership's
revenues consisted primarily of fees paid by partnerships
previously organized by the Partnership and entities controlled
or managed by the Partnership (the "Affiliated Partnerships") for
various services rendered at the time of the formation of such
Affiliated Partnerships.
During 1985, the Partnership conducted a public offering in
which it raised approximately $68 million from the sale to the
public of Public Units. The investment objectives presented to
the Public Unitholders were (i) to build additional equity
through the development of the business of the Partnership and
through continuing investments in syndicating partnerships, (ii)
to provide quarterly cash distributions and (iii) to recognize
deductions which might be used to offset a portion of the
Partnership's taxable income.
The proceeds of the public offering were intended to be, and
have been, used to provide "inventory capital" for the
Partnership's real estate limited partnership syndication
activities (inventory capital is invested in real estate, and
recovered at such time as the syndication of such real estate is
completed). The capital raised by the Partnership has been
turned over in this way many times since 1985.
In the years 1987 through 1990 inclusive, the Partnership
made aggregate cash distributions of approximately $27.2 million
to the Public Unitholders. The Partnership was, however,
affected by the recession felt by the United States real estate
industry during the late 1980's and early 1990's. This real
estate recession was caused by such factors as the general
economic recession which occurred in the United States during
this period, the overbuilding of real estate which took place
during the 1980's, changes in federal income tax law and the real
estate credit crunch. All of these factors contributed to a
reduction of demand for rental real estate, a broad and
significant decline in rental rates and an even greater decline
in the values of real property. The Partnership was not immune
to these effects and recognized, during 1991 and 1992, aggregate
pre-tax losses of approximately $70 million. These losses had
the effect of reducing the Partnership's net worth, as of the end
of 1992, to approximately $32 million, reducing the likelihood
that distributions to Public Unitholders would be resumed.
Efforts to Raise Additional Capital; Alternative Liquidity
Options Considered. Beginning in 1993, the Partnership
discontinued its syndication activities and began making
leveraged investments in multi-family apartment properties for
its own account. In order to raise additional investment capital
for this purpose, the prior management of the Partnership
explored the desirability of converting the Partnership to a
publicly-traded real estate investment trust. By June 1993,
prior management of the Partnership had retained an investment
banker and believed that such a conversion was both desirable and
feasible. They, along with their investment banker, developed a
plan (the "REIT Plan") to implement a series of transactions that
was intended to culminate in an initial public offering of public
stock in a newly formed real estate investment trust that would
hold the Partnership's real estate interests. It was
contemplated that Public Unitholders would exchange their Public
Units for interests in the real estate investment trust which was
to have been listed on a national securities exchange.
In the first half of 1994, the confidence of the
Partnership's prior management in the feasibility of consummating
the REIT Plan declined, largely as a result of the time and
complexity involved in organizing the proposed REIT at the time
of a weakening market for initial public offerings of REIT
securities. Prior management then began to explore opportunities
to raise capital from private sources, through asset sales and
other transactions. During the second quarter of 1994, prior
management concluded that the Partnership should direct its
efforts primarily to raising private capital, and therefore,
suspended the REIT Plan. Accordingly, commencing in April 1994,
and continuing through October 1994 the Partnership sought to
raise capital from private sources.
During April through July of 1994, the Partnership's prior
management held conversations with MC Group. Prior management
proposed a purchase of a substantial portion of Linnaeus'
interest in the Partnership for a price in excess of $22 million,
and the investment by MC Group of an additional $20 million in
the Partnership, of which $16 million was to be distributed to
the Public Unitholders ($5.90 per Public Unit). MC Group
conducted limited due diligence and negotiations for a short
period of time but eventually they were discontinued.
In May, June and July of 1994, the prior management of the
Partnership held discussions with Lincoln Property Company
("Lincoln Properties"), and developed a plan to merge the
residential property management division of the Partnership with
Lincoln Properties' residential operations for the eastern region
of the United States. The merger was to be simultaneous with,
and contingent on, an initial public offering of common shares of
a real estate investment trust which would own the combined
operations. The consideration to the Partnership was to be
securities in the amount of $125 million (subject to adjustment
if dividend yield requirements in the combined public offering
exceeded 7.5%). This would have resulted in the receipt by
Public Unitholders of securities estimated to be equal in value
to the redemption price of their Public Units ($31.00 per Public
Unit at December 31, 1994). The securities would have been
subject to a one year lock-up during which holders would not be
able to sell such securities. After substantial discussions, due
diligence and the preparation of an initial draft of a
registration statement, the arrangement was terminated by Lincoln
Properties. Lincoln Properties informed the prior management of
the Partnership that such termination was a result of delays
anticipated by the combined offering in comparison to Lincoln
Properties' schedule for conducting a Lincoln-only initial public
offering.
During July through October of 1994, the prior management of
the Partnership held conversations with Kidder, Peabody Mortgage
Capital Corporation ("Kidder, Peabody") concerning their
interest, as principal, in the Partnership. During this time,
the prior management of the Partnership became aware of Kidder,
Peabody's internal valuation of the Partnership's assets at $74
million. Kidder, Peabody made an offer (subject to various
conditions) to purchase Linnaeus' interest in the Partnership.
The Kidder, Peabody offer contemplated various consulting
payments to the prior management of the Partnership and the LALP
Redeeming Limited Partners of Linnaeus (a class of limited
partnership interest of Linnaeus) in an aggregate amount
exceeding $33 million. Its offer also contemplated an
approximately $16 million distribution to the Public Unitholders
($5.90 per Public Unit). Kidder, Peabody withdrew its offer
shortly before the announced sale of Kidder, Peabody to Paine
Webber Incorporated.
Offers for Public Units. In early August 1994, Apollo
became aware through industry sources that the Partnership was
seeking to raise investor capital and contacted the Partnership's
Chairman at the time, Arthur J. Halleran, Jr., to inquire about
the terms of a proposed investment. On or about August 11, 1994,
Mr. Halleran met with a representative of Apollo and provided
Apollo with a copy of the Partnership's written proposal seeking
capital to recapitalize the Partnership and Linnaeus. At this
meeting and on subsequent occasions, Apollo's representatives
requested certain additional information regarding the
businesses, financial condition and operations of the Partnership
and Linnaeus. As a precondition to the receipt of such
information, the Partnership requested that Apollo enter into a
confidentiality agreement (the "Confidentiality Agreement") with
the Partnership. The Confidentiality Agreement executed by
Apollo prohibited Apollo and its affiliates from, among other
things, purchasing any securities or assets of the Partnership
and its affiliates or seeking to influence or control the
management of the Partnership or its affiliates (collectively,
the "Standstill Restrictions") until February 12, 1996, without
the prior written consent of the Partnership.
Beginning in late August 1994, Apollo began conducting legal
and financial due diligence with respect to the Partnership and
its subsidiaries and affiliates (including Linnaeus).
Concurrently with the commencement of this due diligence review,
representatives of Apollo and its affiliates, Mr. Halleran and
the Partnership's Vice Chairman, Jonathan W. Wexler, commenced a
dialogue regarding the structure of a potential investment by
Apollo in the Partnership and Linnaeus. On August 24, 1994, the
prior management of the Partnership distributed a term sheet that
described in general a potential Apollo investment in Linnaeus.
Beginning in mid-September 1994, Apollo and Mr. Halleran
commenced negotiations regarding the terms of the proposed
investment by Apollo in Linnaeus.
In October 1994, Gerschel & Co. made an offer, conditioned
on its satisfactory due diligence review of the Partnership's
capital structure, assets, liabilities and business operations,
to purchase Linnaeus' interest in the Partnership and acquire
control of several Partnership related entities in exchange for
$20 million (subject to increase to a maximum of $30 million
based on a formula). This initial offer made no explicit
provision for distributions to Public Unitholders. Conversations
with Gerschel & Co. were indefinitely suspended following the
commencement of the Claremont-Beal Tender Offer (as defined
below).
Negotiations between Apollo and the Partnership continued
periodically from mid-September 1994 until October 19, 1994.
Following the announcement of a tender offer for 90% of the
Public Units at a purchase price of $6.00 per Public Unit by
Claremont-Beal Acquisition Limited Partnership (the "Claremont-
Beal Tender Offer"), Apollo and Linnaeus suspended further
negotiations pending an evaluation of the impact of the
Claremont-Beal Tender Offer on any proposed transaction between
them.
On October 25, 1994, representatives of Apollo, its
affiliates and their legal representatives met with Mr. Halleran,
certain other representatives of the Partnership and the
Partnership's legal representatives. At this meeting, Apollo
advised the Partnership that it was considering making a
competing tender offer for the Public Units. In addition, at
this meeting Apollo requested that the Partnership release Apollo
and its affiliates from the Standstill Restrictions and certain
other restrictions in the Confidentiality Agreement in order to
permit Apollo to commence a tender offer, if Apollo were to
determine to do so. At that meeting, the Partnership confirmed
to Apollo that negotiations had ceased and agreed in principal to
a partial release of Apollo from the Standstill Restrictions and
certain other restrictions included in the Confidentiality
Agreement. In a letter to Apollo dated October 31, 1994 (the
"Release Letter"), the Partnership confirmed its agreement to
release Apollo and its affiliates from the Standstill
Restrictions and certain other restrictions included in the
Confidentiality Agreement in order to permit Apollo to commence a
tender offer for the Public Units. The Partnership also offered
to provide similar release letters to other parties who had
executed similar confidentiality and "standstill" letters with
the Partnership.
On November 9, 1994, Londonderry was organized by Apollo and
commenced a tender offer for all of the outstanding Public Units,
at a price of $10.00 per Public Unit, net to the seller in cash
without interest thereon (the "Londonderry Tender Offer"). The
Londonderry Tender Offer price represented an increase of $4.00
per Public Unit (66 %) over the price offered in the Claremont-
Beal Tender Offer. The Londonderry Tender Offer was to remain
open until 12:00 midnight, Eastern Standard time, on Thursday,
December 8, 1994 (the "Expiration Date"). The Londonderry Tender
Offer was conditioned, among other things, on Londonderry
receiving valid tenders for a majority of the Public Units before
the Expiration Date (the "Londonderry Tender Offer Minimum
Condition"). On November 28, 1994, Claremont-Beal Acquisition
Limited Partnership terminated the Claremont-Beal Tender Offer in
the face of Londonderry's higher tender offer price.
On December 8, 1994 (the day following public announcement
of the Nomura transaction described below), Londonderry extended
the Londonderry Tender Offer, until midnight, Wednesday, December
14, 1994. In addition, on December 8, 1994, Londonderry waived
the Londonderry Tender Offer Minimum Condition, agreeing to
purchase every Public Unit duly tendered at $10.00 per Public
Unit. Pursuant to the Londonderry Tender Offer, Londonderry
purchased 1,108,468 Public Units, representing approximately
7.25% of the outstanding Assignee Units.
Nomura Transaction. As of December 3, 1994, Nomura Asset
Capital Corporation, a Delaware corporation ("Nomura"), entered
into an Investment Agreement (the "Investment Agreement") with
Linnaeus, Arthur J. Halleran, Jr., who controlled the Partnership
through his control of Linnaeus, Jonathan Wexler, Jeffrey Furber,
F.X. Jacoby, Stephen Kasnet and Richard McCready who comprised
the senior management of the Partnership (collectively, the
"Management Investors"). The agreement between Nomura and the
Management Investors was announced on December 7, 1994.
The Investment Agreement contemplated the formation of a new
limited partnership, WLR, to acquire all of the general
partnership and substantially all of the limited partnership
interests in Linnaeus, which were then owned by former officers
and employees of the Partnership. The Investment Agreement also
contemplated further investment by Nomura in the Partnership and
that certain investment opportunities would be made available by
Nomura and its affiliates to the Partnership. The Investment
Agreement provided that if Nomura or its affiliates entered into
certain financing or acquisition transactions involving entities
in which the Partnership had a direct or indirect controlling
interest, the Partnership would be entitled to receive 25% of the
residual equity value deriving directly from such transaction
(after recoupment of invested capital of Nomura and its
affiliates with an assumed interest factor and after recoupment
of all transaction costs).
On December 22, 1994, substantially all the acquisition
transactions contemplated by the Investment Agreement were
consummated. On that date, all of the general partnership
interests and substantially all of the limited partnership
interests in Linnaeus were transferred to WLR. The general
partner of WLR was A.I. Realty Company, LLC, a newly organized
New York limited liability company controlled by Nomura ("A.I.
Realty"). The limited partners of WLR were Nomura and the
Management Investors. Under the Investment Agreement, among
other things, (i) in consideration of $10,115,260, Mr. Halleran
transferred to WLR his general partnership interest and certain
classes of his limited partnership interest in Linnaeus and
agreed to transfer to Nomura voting and control rights in certain
entities affiliated with the Partnership, (ii) in consideration
of $1,273,615, Mr. Wexler transferred to WLR his redeeming
limited partnership interest in WLR and agreed to transfer to
Nomura voting and control rights in certain entities affiliated
with the Partnership and (iii) Nomura and the Management
Investors agreed to the employment of the Management Investors by
the Partnership.
The partnership interests of WLR were initially divided into
a 1% general partnership interest held by A.I. Realty, a 64%
limited partnership interest held by Nomura and a 35% limited
partnership interest, in the aggregate, held by the Management
Investors.
On December 22, 1994, the Friedman Action was commenced.
See "Business of the Partnership Litigation."
One Houston Settlement. Less than two months after
consummation of the Nomura transaction, the Partnership suffered
an unfavorable verdict in a court action resulting in an award of
damages in excess of $30 million. On February 1, 1995, the
verdict was entered in a Texas state court against a number of
parties, including FWC, the Partnership and Messrs. Halleran and
Wexler. The plaintiffs were the investor limited partners in One
Houston Limited Partnership ("One Houston"), an investment
partnership organized by FWC in 1981. On March 3, 1995, the
Partnership and FWC agreed to settle the case by paying the
plaintiffs the sum of $17.0 million on or before June 1, 1995.
As a result, as of March 31, 1995, the Partnership's current
liabilities exceeded its current assets by approximately $34.8
million. The settlement was approved by the State District Court
of Harris County, Texas on May 12, 1995. To pay the settlement,
the Partnership borrowed $17.8 million from Nomura and issued an
unsecured promissory note to Nomura in the amount of $17.8
million. On July 14, 1996, Nomura contributed the note to
Winthrop Southwest Holdings Limited Partnership, a newly-formed
limited partnership ("Winthrop Southwest"), in exchange for
preferred equity (the "Nomura Preferred Equity Interest") in
Winthrop Southwest, which provides Nomura with certain
preferences of cash flow from the revenues from the properties
owned by Winthrop Southwest. Payment of the settlement amount
increased the Partnership's indebtedness, decreased its liquidity
and decreased the value of the partners' capital of the
Partnership. See "Business of the Partnership Litigation."
Londonderry Transaction. In February 1995, Apollo became
aware of Nomura's interest in selling its equity interest in WLR.
In February and March 1995, Nomura held discussions with Apollo
and other third parties concerning the acquisition of an interest
in the Partnership or investment of debt or equity capital in the
Partnership or one or more of its assets or subsidiaries.
On March 31, 1995, Apollo, Londonderry and the Management
Investors entered into an agreement (the "Apollo/WFA Management
Agreement") which, subject to consummation of the transactions
set forth in the Summary of Terms (as defined below) and certain
other conditions, contemplated, among other things, the sale of
the Management Investors' equity interests in WLR and its
affiliates to Apollo or its designee. The consummation of the
transactions contemplated in the Apollo/WFA Management Agreement
was subject, among other things, to Apollo's purchase of the
interests of Nomura and A.I. Realty in WLR.
On April 20, 1995, Apollo executed a summary of terms
("Summary of Terms") with Nomura. The Summary of Terms
contemplated, among other things, the purchase by Apollo of the
entire equity interest in WLR owned by Nomura and A.I. Realty
pursuant to a definitive agreement to be negotiated with Nomura.
On July 14, 1995, Londonderry II, a newly formed limited
partnership, executed a purchase agreement (the "Purchase
Agreement") with Nomura and its affiliates A.I. Realty,
Partnership Acquisition Trust I, a Delaware business trust, and
Property Acquisition Trust I, a Delaware business trust.
Pursuant to the Purchase Agreement, Londonderry II purchased for
total consideration of $32 million (i) Nomura's sixty-four
percent (64%) limited partnership interest in WLR, (ii) A.I.
Realty's one percent (1%) general partnership interest in WLR,
(iii) all of Nomura's right, title and interest in and to, and
the indebtedness evidenced by, that certain acquisition loan
agreement, dated as of December 22, 1994, with WLR, as borrower,
pursuant to which Nomura made loans to WLR to finance WLR's
acquisition of general and limited partnership interests in
Linnaeus, (iv) all of Nomura's right, title and interest pursuant
to the Investment Agreement and (v) certain indebtedness owed to
Nomura by other partnerships affiliated with the Partnership and
certain interests owned by Nomura in other partnerships
affiliated with the Partnership (collectively, the "Nomura
Transaction"). Londonderry II paid to Nomura and its affiliates
$10 million in cash and issued a $22 million non-recourse
purchase money note, $18 million of which is due in 1998 and the
balance of which is due in 2010 (the "Londonderry II Note"). The
purchase money note is secured by, among other things, (i) a
pledge of Londonderry II's interests in WLR, (ii) a pledge by
Londonderry of its Public Units and (iii) a pledge of the WLR
partnership interests in Linnaeus (the "Londonderry II Note
Security"). Londonderry II also indemnified Nomura against
certain liabilities, including those arising out of the Friedman
Action. The parties allocated $8 million of the total
consideration of $32 million to the purchase of limited
partnership units in Springhill Lake Limited Partnership. See
"Business of the Partnership Litigation." As a result of the
acquisition of WLR, Londonderry II acquired a majority interest
in the general partnership interest of WLR, the sole general
partner of Linnaeus and thus acquired control of the Partnership.
Pursuant to the Apollo/WFA Management Agreement, dated as of
July 14, 1995, Apollo, Londonderry, the Partnership and the
Management Investors executed an agreement (the "Management
Agreement") which, for an aggregate consideration of
approximately $10 million in cash effected (i) the sale to the
Partnership of the equity interests in WLR and certain of its
affiliates held by the members of the Management Investors, (ii)
the release of the Management Investors by Londonderry, Apollo
and the Partnership from all claims other than those arising out
of the Management Agreement and the indemnification of the
Management Investors as to any such claims, (iii) the release of
Londonderry, Apollo and the Partnership by the Management
Investors from all claims other than those arising out of the
Management Agreement and (iv) certain matters with respect to the
employment of the Management Investors, including the resignation
of Messrs. Halleran and Wexler from all of their positions as
officers, employees and directors of the Partnership and its
affiliates and affirmation of certain non-solicitation covenants
and other non-compete restrictions.
In consideration of the sale of their partnership interests
in WLR, Messrs. Halleran, Wexler, Furber, Jacoby, Kasnet and
McCready received $3,351,358, $852,202, $10,000, $10,000, $10,000
and $10,000, respectively. As part of the overall transaction in
which their partnership interests were purchased, Messrs. Furber,
Kasnet, Jacoby and McCready received $782,836, $719,638, $478,341
and $478,341 as inducement bonuses to continue their employment
with the Partnership and affirm certain non-solicitation
covenants and other non-compete restrictions and in consideration
of release of their respective rights to terminate their
employment agreements as a result of the purchase of WLR by
Londonderry II. Such members of the Partnership's management
agreed that their employment agreements would be extended and
would include confidentiality, no-solicitation and standstill
provisions, which provisions, at the time, had durations ranging
from one to five years. As part of the same transaction, Messrs.
Halleran and Wexler received (i) $250,000 and $2,068,537,
respectively, in consideration of the termination of their
employment with the Partnership and each of its affiliates and
(ii) $1,049,764 and $262,441, respectively, in consideration of
the release of certain claims and rights with respect to Nomura
and Linnaeus, and their affiliates.
Other Purchases of Public Units. In an amendment to its
Schedule 13D, filed on July 28, 1995, Londonderry disclosed that
it and Londonderry II may consider, among other things, a tender
offer, a merger of a subsidiary partnership with and into the
Partnership, an exchange offer, open market purchases of Public
Units and one or more other transactions, although there could be
no assurance that any such transaction would be proposed or, if
proposed, consummated. In this regard, from time to time
following these transactions, Londonderry and its affiliates have
received unsolicited offers from Public Unitholders interested in
selling their Public Units at prices ranging from $8.50 to $10.50
per Public Unit and have purchased an additional 247,284 Public
Units at prices ranging from $8.50 to $10.50 per Public Unit. In
one such transaction, Londonderry acquired 200,000 Public Units
representing approximately 1.31% of the outstanding Assignee
Units and approximately 7.37% of the outstanding Public Units
(including those held by Londonderry). The individual investor
(the "Seller") that owned these Public Units contacted the
Partnership in February 1996, and expressed his desire to sell
his Public Units and all of his interests and the interests held
by his family and certain of his affiliates in various limited
partnerships affiliated with the Partnership. The Partnership
informed Londonderry of the Seller's desire to sell such limited
partnership interests. After discussions held over the course of
several weeks, (i) the Seller sold to Londonderry his 200,000
Public Units for $10.00 per Public Unit, (ii) the Seller and
certain of his affiliated entities sold, for $200,000, each of
their limited partnership interests in various limited
partnerships affiliated with the Partnership to Londonderry/WFA
Joint Venture, a newly organized joint venture between
Londonderry and the Partnership and (iii) the Seller and certain
of his affiliated entities released the Partnership and its
affiliates from all claims that the Seller or his affiliated
entities may have or ever had against the Partnership or any of
its affiliates, in consideration of the payment by the
Partnership of $400,000 in cash.
As a result of the consummation of the Londonderry Tender
Offer, the Nomura Transaction and the subsequent Public Unit
purchases, Londonderry II indirectly acquired control of the
entire general partnership interest in the Partnership,
representing a 13.01% ownership interest in the Partnership, and
Londonderry and Londonderry II collectively acquired direct and
indirect control of 91.13% of the Assignee Units, representing an
additional 79.27% ownership interest in the Partnership.
Friedman Settlement. During the time period from July 1995
to March 1996, the General Partner periodically engaged in
settlement discussions with class counsel in the Friedman Action.
In the course of these settlement discussions, the General
Partner proposed the merger transaction as a means of settling
the Friedman Action and providing liquidity to the Public
Unitholders other than Londonderry. The parties reached an
agreement as of March 20, 1996 and executed the Friedman
Settlement. On April 4, 1996, the Cook County Circuit Court
issued a preliminary approval order with respect to the Friedman
Settlement. On or about April 5, 1996, notice of the Friedman
Settlement was sent to all Public Unitholders. The Friedman
Settlement provides, among other things, (a) that Londonderry
will undertake to liquidate the investment of the Public
Unitholders by effecting a merger of the Partnership and
Londonderry or an affiliate in which each Public Unit is acquired
for no less than the Merger Consideration, (b) the fairness of
the Merger Consideration from a financial point of view will be
opined upon by a nationally recognized independent investment banking
firm and (c) each Public Unitholder, as an alternative to accepting
the Merger Consideration, will have the option of seeking
appraisal of the fair value of his or her Public Units pursuant
to Maryland law. The Friedman Settlement received final approval
from the Cook County Circuit Court at a hearing held on May 23,
1996. At the hearing, the Circuit Court of Cook County
determined that the terms and conditions of the proposed
settlement, taken as a whole, are fair, reasonable and adequate
(including the requirements that the merger consideration paid to
Public Unitholders would not be less than $10.50 per Public Unit
and that the proposed merger consideration must be opined upon as
fair, from a financial point of view, by an independent,
nationally-recognized investment banking firm). Since the price
of $10.50 per Public Unit, ultimately established as the merger
consideration by Londonderry and the General Partner, had not
been determined at the time of the hearing, the court was not
asked to specifically determine that this price was fair or
adequate as consideration for the public units. See "Business of
the Partnership Litigation."
On June 13, 1996, in accordance with the requirements of the
Friedman Settlement, the General Partner and Londonderry
determined the consideration of $10.50 per Public Unit. On June
13, 1996, Bear Stearns delivered its opinion that, as of such
date, subject to the assumptions set forth therein, $10.50 in
cash per Public Unit is fair from a financial point of view as
consideration for Public Units held by Public Unitholders other
than Londonderry. See " Opinion of Financial Advisor." The
full text of the opinion of Bear Stearns is attached as Annex D
to the Information Statement. Public Unitholders are urged to,
and should read the opinion of Bear Stearns carefully in its
entirety in conjunction with the Information Statement for the
assumptions made, the matters considered and the limits of the
review of Bear Stearns.
On June 17, 1996, the General Partner in its capacity as the
sole general partner of the Partnership and Linnaeus and
Londonderry, as limited partners of the Partnership holding a
majority in interest of the Assignee Units, signed a written
consent adopting the Merger Agreement and approving the Merger.
Recent Developments. On June 28, 1996, AREIF assigned its
limited partnership interest in Londonderry to Londonderry
Holdings in consideration of a member interest in Londonderry
Holdings. The managing member of Londonderry Holdings is LDY-GP.
In July 1996, Londonderry II and Nomura executed an
agreement (the "Modification Agreement") that contemplates the
restructuring of the payments and a possible reduction of the
principal amount due under the Londonderry II Note, and the
purchase by Londonderry II of the Nomura Preferred Equity
Interest. As of July 1, 1996, the principal balance of the
Londonderry II Note was $22,000,000. Upon the execution of the
Modification Agreement, Londonderry II paid $1,000,000 to Nomura
(the "Initial Payment") which was applied to the principal amount
due under the Londonderry II Note. On August 19, 1996,
Londonderry II paid an additional $1,000,000 to Nomura that was
applied to the principal amount under the Londonderry II Note.
Pursuant to the Modification Agreement, as modified, on September
15, 1996, Londonderry II is obligated to pay approximately $18.3
million, together with interest thereon from July 1, 1996 (the
"Additional Payment"), to Nomura to be applied against the
balance of the Londonderry II Note. On or before November 30,
1996, Londonderry II shall purchase from Nomura the Nomura
Preferred Equity Interest for an amount equal to Nomura's
unrecouped equity investment plus any preferred equity
distributions which, under the terms of the Winthrop Southwest
partnership agreement, Nomura would be entitled to receive prior
to the date of the purchase (the "Final Equity Payment"). As of
July 1, 1996, Nomura's unrecouped preferred equity contribution
aggregated approximately $16.5 million. In the event that the
Final Equity Payment is timely made, then, simultaneously with
the Final Equity Payment, all amounts remaining under the
Londonderry II Note shall be deemed satisfied, Nomura shall
release its liens on the Londonderry II Note Security and Nomura
shall assign the Nomura Preferred Equity Interest to Londonderry
II. There can be no assurance that the transactions contemplated
by the Modification Agreement will be consummated.
Pursuant to a Commitment Letter dated August 8, 1996, and
subject to certain conditions (including the consummation of the
Merger), The First National Bank of Boston has committed to lend
(a) up to $13 million to Winthrop Management GP, a Massachusetts
general partnership that is a wholly owned subsidiary of the
Partnership and (b) up to $14 million to an entity to be formed
by the Partnership to purchase the Nomura Preferred Equity
Interest ("Newco") pursuant to the terms of the modification
agreement. It is contemplated that Newco will contribute at
least $2 million to purchase the Nomura Preferred Equity Interest
and that Newco will pledge all of its interest in Winthrop
Southwest to secure the loan. The Commitment Letter is filed as
an exhibit to Amendment No. 2 of the Schedule 13E-3 and is
available for inspection and copying by any Public Unitholder or
representative of such person who has been so designated in
writing, at the principal executive offices of the Partnership.
The definitive loan agreement has not yet been fully negotiated
and may contain more or less restrictive provisions than are
contained in the Commitment Letter. For a summary of the loan to
Winthrop Management GP, see "Financing of the Transaction."
In July 1996, FWC and class counsel in Gray, et al. v. First
Winthrop Corporation, et al., (No. C-90-2600-JPV), filed on
September 10, 1990 (the "Gray Action"), reached an agreement to
settle the Gray Action for a payment of approximately $1.85
million to the plaintiffs in the Gray litigation (the "Gray
Settlement"). In order for the Gray Settlement to be
implemented, FWC and class counsel in the Gray Action must enter
into and file a stipulation of settlement with the United States
District Court, Northern District of California, the federal
district court involved in the litigation (the "U.S. District
Court"). If the U.S. District Court preliminarily approves the
stipulation of settlement, FWC and class counsel must send a
notice of settlement to the class involved in the Gray Action,
which notice is also subject to the approval of the U.S. District
Court. After the class members have had not less than 30 days to
review the notice of settlement and object to the terms of the
settlement, there shall be a final hearing at which the U.S.
District Court will finally approve or reject the stipulation of
settlement. If there are plaintiffs who object to the
settlement, they will have an opportunity to be heard by the U.S.
District Court at this time. Subsequent to such final hearing,
if the settlement is finally approved, there is a 30 day appeal
period during which class members may appeal such final approval,
provided that they had previously objected to the terms of the
settlement. The stipulation of settlement setting forth all the
terms and conditions of the Gray Settlement has not yet been
prepared. Therefore, a final resolution of the Gray Action is
not expected to occur, if at all, earlier than 90 days from the
date of this Information Statement. There is no assurance that
the settlement approved by class counsel will be approved by the
U.S. District Court or the class members. See "Business of the
Partnership Litigation."
The General Partner believes that neither of the
transactions contemplated by the Modification Agreement nor the
settlement of the Gray Action, if consummated, will have a
material effect upon the current financial condition, results of
operations or financial prospects of the Partnership.
FAIRNESS OF THE MERGER
THE GENERAL PARTNER BELIEVES THAT THE MERGER IS FAIR TO THE
PUBLIC UNITHOLDERS. THE GENERAL PARTNER IS NOT SOLICITING PROXIES
OR CONSENTS IN RESPECT OF THE MERGER. IN ADDITION, THE GENERAL
PARTNER MAKES NO RECOMMENDATION TO ANY PUBLIC UNITHOLDER AS TO
WHETHER TO ACCEPT THE MERGER CONSIDERATION OR SEEK AN APPRAISAL
UNDER THE MGCL. EACH PUBLIC UNITHOLDER SHOULD MAKE HIS OR HER
OWN DECISION WHETHER TO ACCEPT THE MERGER CONSIDERATION OR SEEK
AN APPRAISAL UNDER THE MGCL, AFTER READING THIS INFORMATION
STATEMENT AND CONSULTING WITH HIS OR HER ADVISORS.
In reaching its determination that the Merger is fair to the
Public Unitholders, the General Partner considered a number of
factors, including the following:
(i) the Merger is being undertaken in accordance with
the terms of the Friedman Settlement. The Friedman
Settlement received final approval from the Cook County
Circuit Court at a hearing held on May 23, 1996. At the
hearing, the Circuit Court of Cook County determined that
the terms and conditions of the proposed settlement, taken
as a whole, are fair, reasonable and adequate (including the
requirements that the merger consideration paid to Public
Unitholders would not be less than $10.50 per Public Unit
and that the proposed merger consideration must be opined
upon as fair, from a financial point of view, by an
independent, nationally-recognized investment banking firm).
Since the price of $10.50 per Public Unit, ultimately
established as the merger consideration by Londonderry and
the General Partner, had not been determined at the time of
the hearing, the court was not asked to specifically
determine that this price was fair or adequate as
consideration for the public units; See "Business of the
Partnership Litigation;"
(ii) the opinion furnished by Bear Stearns to the
General Partner that, as of June 13, 1996, subject to the
assumptions set forth therein, $10.50 in cash per Public
Unit is fair from a financial point of view as consideration
for Public Units held by Public Unitholders other than
Londonderry. The full text of the opinion of Bear Stearns &
Co. Inc. is attached as Annex D to this Information
Statement. Public Unitholders are urged to, and should,
read the opinion of Bear Stearns & Co. Inc. carefully in its
entirety in conjunction with this Information Statement for
the assumptions made, the matters considered and the limits
of the review of Bear Stearns; See " Opinion of Financial
Advisor;"
(iii) Public Unitholders are entitled to pursue
appraisal rights in connection with the Merger;
(iv) the opportunity the Merger offers the Public
Unitholders to liquidate their holdings in the Partnership;
(v) the Partnership's prior attempts to consummate
transactions which would have resulted in liquidity for the
Public Unitholders;
(vi) the business, financial condition, results of
operations, current business strategy, competitive position
in its industry and prospects of the Partnership and general
economic conditions;
(vii) the Partnership's high level of indebtedness
($196.3 million at March 31, 1996) and relatively low level
of partners' capital ($5.7 million at March 31, 1996) which
increase the risk in the Partnership's business and decrease
its financial and operating flexibility;
(viii) the Partnership has incurred net losses
giving effect to losses from discontinued operations in each
year from 1991 through 1995, inclusive;
(ix) the lack of an established public trading market
for the Public Units;
(x) the Partnership's existing equity capital
structure, including (a) a capital priority which causes all
capital distributions to the Partnership to be received by
the Public Unitholders until they have received a return of
the capital they originally invested in the Partnership and
(b) an operating priority which causes all operating
distributions to be received by the Public Unitholders until
they have received, in respect of each calendar year, a base
amount of operating distributions equal to 6% of the capital
priority outstanding for such year; as of December 31, 1995,
the accrued aggregate operating priority amounted to
approximately $20.3 million, or $7.50 per Public Unit. See
"Distributions;"
(xi) the all-cash nature of the $10.50 per Public Unit
consideration;
(xii) the fact that Londonderry purchased 1,108,468
Public Units, representing approximately 7.25% of the
outstanding Assignee Units and approximately 41% of the
Public Units, at $10.00 per Public Unit in December 1994,
pursuant to the Londonderry Tender Offer;
(xiii) the Partnership's contingent liabilities,
including certain litigation claims brought against the
Partnership and certain of its affiliates, which if decided
against the Partnership and its affiliates could have a
material adverse impact on the financial condition of the
Partnership (see "Business of the Partnership -
Litigation");
(xiv) that no vote of unaffiliated Public
Unitholders is required in connection with the Merger and no
vote or proxy is being solicited, therefore, the Partnership
did not structure the Merger to require approval of a
majority of unaffiliated Public Unitholders;
(xv) the possible alternatives to the Merger, including
the prospects of continuing to operate as an independent
entity and the possible values to the Public Unitholders of
such alternatives;
(xvi) the determinations by Londonderry and
Londonderry II, which collectively control 91.13% of the
Assignee Units (and thus have the ability to determine each
matter submitted to a vote of limited partners) that a
partial or total liquidation of the Partnership in the
foreseeable future would neither maximize the value of the
assets of the Partnership nor their investment in the
Partnership's securities and that they intend to vote the
Assignee Units controlled by them against any proposal to
liquidate the assets of the Partnership made in the
foreseeable future;
(xvii) the absence of any contractual obligation on
the part of the General Partner to distribute cash flow, the
lack of cash distributions to Public Unitholders since
December 1990, and the possibility that Public Unitholders
may not receive any distributions of operating cash flow in
the future;
(xviii) the opportunity for Public Unitholders to
transfer Public Units without the cost and commissions
normally associated with a transfer;
(xix) the elimination of the costs to the
Partnership of being a Public Partnership, including the
Partnership's reporting obligations as a reporting entity
under the Exchange Act and the costs and potential
liabilities associated therewith which are not justified by
the benefits to the Partnership or its Public Unitholders;
(xx) general disenchantment with long-term real estate
investments, particularly long-term investments in limited
partnerships that do not provide current distributions to
limited partners or a liquid trading market for investments;
(xxi) the terms and conditions of the Merger
Agreement, taken as a whole; and
(xxii) the lack of independent legal representation
of the Partnership, the General Partner and Londonderry in
connection with the Merger.
In view of the wide variety of factors considered in
connection with its evaluation of the Merger, the General Partner
has not found it practicable to, and did not, quantify or
otherwise attempt to assign relative weights to the specific
factors it considered in reaching its determinations, although
the General Partner did place special emphasis on the judicially
approved Friedman Settlement and the fairness opinion of Bear
Stearns. The General Partner believes that, other than the
factors described in (xiv) and (xxii) above, the factors
described above are favorable to its determination of fairness.
The General Partner views the factors described in (xiv) and
(xxii) as negative to its determination of fairness. Because of
the engagement of Bear Stearns to deliver an opinion with respect
to the fairness from a financial point of view of the
consideration for Public Units held by Public Unitholders other
than Londonderry, and the availability of appraisal rights under
the MGCL, the General Partner did not consider it necessary to
retain representatives to act on behalf of the Public Unitholders
for the purpose of negotiating the terms of the Merger.
As stated above, the Merger is not structured to require the
approval of a majority of unaffiliated Public Unitholders. While
this factor could be viewed as unfavorable to a determination of
fairness, the Partnership believes, notwithstanding this factor,
that the terms of the Merger are fair to the Public Unitholders
other than Londonderry because the consideration of $10.50 per
Public Unit pursuant to the Merger is higher than the $10.00 per
Public Unit accepted in the Londonderry Tender Offer by the
holders of approximately 41% of the Public Units and, since the
Londonderry Tender Offer, Londonderry and its affiliates have
received, from time to time, unsolicited offers from Public
Unitholders interested in selling their Public Units at prices
ranging from $8.50 to $10.50 per Public Unit.
As of March 31, 1996, the book value of the Partnership was
$5,751,000 which, if allocated entirely to the Public Units,
yields a book value per Public Unit of approximately $2.12. The
General Partner does not believe that the current net book value
per Public Unit is an accurate indication of value. The General
Partner does not consider liquidation value to be relevant to its
determination of fairness because the Partnership intends to
continue to operate the business currently conducted by the
Partnership as a going concern. The Partnership has been
informed by Londonderry and Londonderry II, which collectively
control 91.13% of the Assignee Units (and thus have the ability
to determine each matter submitted to a vote of limited partners)
that they intend to vote the Assignee Units controlled by them
against any proposal to liquidate the assets of the Partnership
made in the foreseeable future. Therefore the General Partner
evaluated the Partnership on a going concern basis, although the
General Partner believed that estimates of future net revenue,
information concerning historical operations, current operations
and the future prospects of the investment properties held by the
Partnership (the "Properties") and general economic and market
conditions, which were given considerable weight by it in its
determination of fairness, would also be taken into account in
determining liquidation value. A liquidation of the Partnership
requires the approval of the affirmative vote of the holders of a
majority of the Assignee Units.
POSITION OF LONDONDERRY REGARDING FAIRNESS OF THE MERGER
Londonderry has concluded that the Merger is fair to the
Public Unitholders based on the factors set forth in "Fairness of
the Merger" and the General Partner's determination that the
Merger is fair to the Public Unitholders. Londonderry has
adopted the analyses of the General Partner as its own. Although
Londonderry has not quantified, or assigned specific relative
weights to any of the factors considered by the General Partner,
Londonderry did place special emphasis on the consideration of
$10.50 per Public Unit pursuant to the Merger being higher than
the $10.00 per Public Unit accepted in the Londonderry Tender
Offer by the holders of approximately 41% of the Public Units and
the unsolicited offers that Londonderry and its affiliates have
received, from time to time since the Londonderry Tender Offer,
from Public Unitholders interested in selling their Public Units
at prices ranging from $8.50 to $10.50 per Public Unit.
OPINION OF FINANCIAL ADVISOR
On June 13, 1996, at the request of the General Partner,
Bear Stearns delivered its written opinion to the General Partner
to the effect that, as of such date, $10.50 in cash per Public
Unit was fair from a financial point of view as consideration for
Public Units held by Public Unitholders other than Londonderry
(the "Bear Stearns Opinion").
THE FULL TEXT OF THE BEAR STEARNS OPINION IS ATTACHED AS
ANNEX D TO THIS INFORMATION STATEMENT. PUBLIC UNITHOLDERS ARE
URGED TO, AND SHOULD, READ THE BEAR STEARNS OPINION CAREFULLY IN
ITS ENTIRETY IN CONJUNCTION WITH THIS INFORMATION STATEMENT FOR
THE ASSUMPTIONS MADE, THE MATTERS CONSIDERED AND THE LIMITS OF
THE REVIEW OF BEAR STEARNS.
The Bear Stearns Opinion addresses only the fairness from a
financial point of view of $10.50 in cash per Public Unit as
consideration for Public Units held by Public Unitholders other
than Londonderry. It does not constitute a recommendation to any
Public Unitholder as to whether such Public Unitholder should
accept $10.50 in cash per Public Unit as consideration for their
Public Units or seek an appraisal under the MRULPA and the MGCL.
The summary of the Bear Stearns Opinion set forth in this
Information Statement is qualified in its entirety by reference
to the full text of such opinion. Bear Stearns has consented to
the inclusion of its opinion and the references to it herein.
Bear Stearns was not requested to solicit and did not solicit
indications of interest from third parties with respect to offers
for the acquisition of the Partnership.
In rendering the Bear Stearns Opinion, Bear Stearns, among
other things: (i) reviewed drafts of the Merger Agreement and
the Information Statement in substantially final form; (ii)
reviewed the Partnership's Annual Report on Form 10-K for the
fiscal year ended December 31, 1995, and its Quarterly Report on
Form 10-Q for the period ended March 31, 1996; (iii) reviewed the
Partnership Agreement; (iv) reviewed certain operating and
financial information provided to Bear Stearns by the
Partnership relating to the Partnership's business and prospects
including projections described in "Certain Projections of the
Partnership"; (v) met with certain members of the General
Partner's senior management to discuss the Partnership's
operations, historical financial statements and future prospects;
(vi) reviewed the historical prices at and amounts in which
Public Units have been traded, as reported by the Chicago
Partnership Board, and purchased by Londonderry and its
affiliates since December 1994; (vii) reviewed the substantially
final form of the opinion of Maryland counsel to be delivered to
the General Partner; and (viii) conducted such other studies,
analyses, inquiries and investigations as Bear Stearns deemed
appropriate. In connection with its activities on behalf of the
General Partner, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the
financial and other information provided to it by the
Partnership. With respect to the Partnership's projected
financial results, Bear Stearns assumed that they were reasonably
prepared on bases reflecting the best currently available
estimates and judgments of the General Partner and its management
as to the expected future performance of the Partnership. Bear
Stearns did not assume any responsibility for the information and
projections provided to it and further relied upon the assurances
of the General Partner and its management that they were unaware
of any facts that would make the information and projections
provided to Bear Stearns incomplete or misleading. The Bear
Stearns Opinion does not relate to, and Bear Stearns did not
attempt to value, the Residual Certificates.
In arriving at its opinion, Bear Stearns did not perform or
obtain any independent appraisal of the assets or liabilities
(contingent or otherwise) of the Partnership. Bear Stearns
assumed that all material liabilities (contingent or otherwise)
were as set forth on the consolidated financial statements of the
Partnership or as estimated by the Partnership and disclosed in
the draft of the Information Statement provided to Bear Stearns.
Bear Stearns did not undertake any independent legal analysis of
the Merger, any related transactions, the Partnership Agreement
or any legal or regulatory proceedings pending or threatened
relating to the Partnership. Bear Stearns noted its understanding
that, prior to the expiration of the term of the Partnership
Agreement, the assets of the Partnership cannot be liquidated
without action by the majority in interest of the holders of
Assignee Units. Bear Stearns also noted its understanding that
the Partnership has been informed that Londonderry and
Londonderry II, which collectively control 91.13% of the Assignee
Units (and thus have the ability to determine each matter
submitted to a vote of limited partners), intend to vote the
Assignee Units controlled by them against any proposal to
liquidate the assets of the Partnership made in the foreseeable
future. Therefore, Bear Stearns stated that it assumed that such
a liquidation will not occur in the foreseeable future, and
accordingly, did not give weight in formulating its opinion to
the value of the Public Units in the event of an immediate
liquidation and distribution of the assets of the Partnership.
Finally, the Bear Stearns Opinion was based on economic, market
and other conditions, and the information made available to it,
as of June 13, 1996.
The following is a brief summary, complete in all material
respects, of the financial analyses used by Bear Stearns in
connection with providing its opinion to the General Partner.
Bear Stearns noted that the Partnership has not made cash
distributions since 1990 and that, based upon the Partnership's
projected cash flows, such distributions would not be anticipated
prior to 2000. In general, Bear Stearns viewed the market for
the Public Units as highly illiquid. Bear Stearns found that the
Chicago Partnership Board, the principal secondary market for
limited partnership units, reported only two trades of Public
Units for a total of 1,200 Public Units from the Chicago
Partnership Board's founding in 1988 to December 31, 1995. Both
of these trades, one in October 1994 and one in October 1995,
were at $8.00 per Public Unit. Bear Stearns also noted that
since December 1994, Londonderry has acquired 1,357,152 Public
Units (approximately 50% of all Public Units) at prices ranging
from $8.50 to $10.50 per Public Unit, including 1,108,468 Public
Units acquired by Londonderry pursuant to the Londonderry Tender
Offer. Furthermore, Bear Stearns' analysis took into account the
distribution provisions of the Partnership Agreement, including
the accrued and unpaid Public Unitholder Priority (as defined in
"Distributions") to the date of the analysis. In its analysis,
Bear Stearns did not apply a minority discount to the value of
the Public Units to reflect the fact that they represent a
minority of the Assignee Units.
Going Concern Valuation. The principal basis of the Bear
Stearns Opinion was Bear Stearns' analysis of the going concern
value of the Public Units. Bear Stearns reviewed the
Partnership's projected cash flows for 20 years, 1996 through
2015. See "Certain Projections of the Partnership." To
determine the Public Units' going concern value, all cash flow
available for distribution during the 20 year period was assumed
to be distributed to the partners in accordance with the
Partnership Agreement. For valuation purposes, a residual value
was calculated at the end of the twentieth year based upon an
assumed liquidation. The proceeds from the liquidation were also
assumed to be distributed to the partners in accordance with the
terms of the Partnership Agreement.
The present value of the total cash flow projected to be
received by the Public Unitholders over the 20 year holding
period, including the Public Unitholders' share of such
liquidation proceeds, was calculated to determine the going
concern value of the Public Units. Bear Stearns determined that
a 15.2% discount rate was appropriate given the investment
characteristics of the Public Units and the overall leverage of
the Partnership, which was estimated by the Partnership to be
78.6% of gross asset value at December 31, 1995, including the
Nomura Preferred Equity Interest.
In order to arrive at an appropriate discount rate to be
used in its going concern valuation, Bear Stearns first
considered what the appropriate unleveraged internal rate of
return ("IRR") would be for an investment in multi-family
properties of age and quality comparable to those in the
Partnership's portfolio. Bear Stearns used IRRs for multi-family
properties because such properties represent the primary assets
of the Partnership. Based on its review of the market, Bear
Stearns concluded that such rate was 12% to 13%. This range
corresponds to investment rate trends for discount rates as
reported by CB Commercial National Investment Survey. For the
first quarter of 1996, this source reported discount rates as
ranging from 11% to 16% with an average of 12.6% for class B
properties (defined by the survey as "average quality,
noninstitutional-grade property"). Such rates were reported to
range from 13% to 17% with an average of 14% for class C
properties (defined as "low quality, developer/speculator type
property"). Bear Stearns noted the belief of the General Partner
that the Partnership's portfolio would be classified as B- or C+.
In light of such ranges, Bear Stearns used a 12.75%
unleveraged IRR to determine the appropriate leveraged IRR for
the Partnership. Bear Stearns arrived at a leveraged IRR for the
Partnership by calculating the impact of the Partnership's
leverage (estimated at 78.6% of gross asset value at December 31,
1995) on an unleveraged investment with a 12.75% IRR over a 20
year holding period. Such calculation assumed a 9.75% return on
equity (the same as the capitalization rate discussed below), a
3% growth rate (as used in the Partnership's cash flow
projections) and estimated market terms for first mortgage debt
including an interest rate of 9.09% per annum and a 25 year
amortization schedule. Based upon the foregoing, Bear Stearns
determined that an appropriate leveraged IRR would be 15.2%.
Applying such discount rate to the cash flow and liquidation
amounts projected by the Partnership in accordance with the
foregoing yielded a going concern value of $8.66 per Public Unit.
Market Valuation. Another basis of the Bear Stearns Opinion
was Bear Stearns' estimate of the market value of the Public
Units. To estimate the market value of the Public Units, Bear
Stearns assessed the secondary market for public real estate
limited partnership units. Bear Stearns noted that this market
is established although not highly liquid but that such units
generally trade at a substantial discount to value upon a
liquidation of assets.
For the purpose of estimating the market value of the Public
Units, Bear Stearns considered the value of the Public Units upon
a liquidation of the assets of the Partnership based upon
information as to the Partnership's assets and liabilities
provided to it by the Partnership. The principal asset
considered was the Partnership's portfolio of multi-family
properties, which was valued by capitalizing 1995 net operating
income after deduction for replacement reserves as estimated by
the Partnership using a capitalization rate of 9.75%. Bear
Stearns noted that this rate was consistent with rates implied by
sales of multi-family properties in the Texas and Arizona
markets, where a significant portion of the Partnership's
properties are located. Bear Stearns examined prices in over 50
such sales during 1995 which indicated weighted average
capitalization rates of 10.10% for Texas and 9.72% for Arizona.
This rate was also consistent with capitalization rates reported
by CB Commercial National Investment Survey for apartment
properties in the first quarter of 1996. Such rates were
reported to range from 9% to 14% with an average of 9.8% for
class B properties and from 9.5% to 14% with an average of 10.9%
for class C properties.
Bear Stearns also considered the value of the Partnership's
real estate management operations, taking into account the
Partnership's analysis of the likelihood of termination of such
contracts. In considering the value of the Public Units upon a
liquidation of the assets of the Partnership, contracts for
management of the Partnership's wholly-owned multi-family
properties were not considered because the analysis assumed that
such a portfolio would be sold free of management contracts.
Contracts that the Partnership considered likely to remain in
place indefinitely were valued based on a multiple of cash flow.
Contracts which the Partnership considered to have a low,
moderate or high likelihood of termination were valued based on
fees projected by the Partnership to be received prior to
termination, discounted to present value and multiplied by
historical profit margins. In addition, Bear Stearns considered
the value of fees receivable by the Partnership, based on the
present value of the fees projected by the Partnership to be
received. Bear Stearns also considered the value of other assets
identified by the Partnership by capitalizing such assets' 1995
cash flow. Bear Stearns subtracted from the gross value of the
Partnership's assets the Partnership's estimate of its
obligations in a liquidation, consisting primarily of its
outstanding debt and the Nomura Preferred Equity Interest. Bear
Stearns also subtracted the Partnership's estimate of its
contingent liabilities in a liquidation in respect of guarantees,
indemnities and litigation, resolution of contractual and lease
obligations, employee severance payments and legal and accounting
costs associated with winding up the business of the Partnership;
the Partnership's estimate of such contingent liabilities
aggregated less than 10% of the total assets of the Partnership,
as set forth on the consolidated balance sheet of the Partnership
as of December 31, 1995. Bear Stearns' analysis resulted in an
estimated value available for distribution to the Public
Unitholders upon a liquidation of the assets of the Partnership
of $10.68 per Public Unit.
Bear Stearns noted that the extent of the discount from
value upon a liquidation of assets at which public real estate
partnership units trade generally corresponds to several factors,
the most important being whether the partnership currently pays
cash distributions. Additional relevant factors are the amount
of leverage, whether the partnerships hold equity or mortgage
interests and the type of real estate assets. Bear Stearns noted
that a report of Partnership Profiles, Inc., a leading source of
market information concerning the secondary market for real
estate partnership units, dated May/June 1995, indicated that the
applicable discount from such value for a limited partnership
unit in a partnership with equity interests which was not making
distributions was 64%; the corresponding discount for such a
partnership which did make distributions was 41%. Application of
these discounts to the estimated value of the Public Units upon a
liquidation of assets of the Partnership described above yielded
estimated market values ranging from $3.84 (using a 64% discount)
to $6.30 (using a 41% discount) per Public Unit. Given the
characteristics of the Public Units, Bear Stearns determined that
a 64% discount was more appropriate. Bear Stearns also noted
that the Partnership Profiles, Inc. report indicated that units
of limited partnerships with moderate to high debt and
residential properties generally trade at a discount of 49% from
value upon a liquidation of assets.
The preparation of a fairness opinion is a complex process
and is not necessarily susceptible to partial analysis or summary
description. Selecting portions of the analyses or of the
summary set forth above, without considering the analyses as a
whole, could create an incomplete view of the processes
underlying Bear Stearns' opinion. In arriving at its opinion,
Bear Stearns considered the results of all such analyses. The
analyses were prepared solely for purposes of providing its
opinion as to the fairness from a financial point of view of
$10.50 in cash per Public Unit as consideration for Public Units
held by Public Unitholders other than Londonderry and do not
purport to be appraisals or necessarily reflect the price at
which businesses or securities actually may be sold. Analyses
based upon forecasts of future results are not necessarily
indicative of actual future results, which may be significantly
more or less favorable than suggested by such analyses. As
described above, the Bear Stearns Opinion was one of many factors
taken into consideration by the General Partner in making its
determination that the Merger is fair to, and in the best
interests of, the Partnership and its Public Unitholders. The
foregoing is a summary and does not purport to be a complete
description of the analysis performed by Bear Stearns.
The General Partner selected Bear Stearns as the General
Partner's financial advisor in connection with the Merger and to
render its opinion in connection with the Merger. The General
Partner selected Bear Stearns based on Bear Stearns'
qualifications, expertise, and reputation in providing advice to
companies in the real estate syndication business and its
familiarity with the Partnership as a result of its engagement in
connection with the REIT plan, as well as Bear Stearns'
reputation as an internationally recognized investment banking
firm and its reputation and experience in rendering fairness
opinions.
Pursuant to a letter agreement dated September 12, 1995, as
amended, the Partnership has paid Bear Stearns an aggregate cash
fee of $350,000 for rendering its opinion in connection with the
Merger. The General Partner has also agreed to reimburse Bear
Stearns for reasonable out-of-pocket expenses incurred by Bear
Stearns, including the reasonable fees and expenses of counsel
and other consultants and advisors retained by Bear Stearns, and
to indemnify Bear Stearns and certain related persons against
certain liabilities in connection with the engagement of Bear
Stearns, including certain liabilities under the federal
securities laws. In 1993, Bear Stearns was engaged to provide a
fairness opinion in connection with the REIT plan. Subsequent to
such engagement, the Partnership determined that it would not
proceed with the REIT plan and consequently, Bear Stearns was not
asked to deliver an opinion. Bear Stearns provides and is
expected to continue to provide a wide range of financial
services to Apollo and its affiliates from time to time at its
customary fees. During the last two years these services have
included acting as underwriter for public offerings of debt and
equity securities and acting as financial advisor and exclusive
sales agent in connection with certain of Apollo's acquisitions
and dispositions of companies and securities, including issuing
fairness opinions in connection with such transactions. Bear
Stearns has invested in a real estate investment fund sponsored
by an affiliate of Apollo on the same terms as other investors
unaffiliated with Apollo. While such real estate investment fund
has not been requested to provide a financing commitment for
the Merger, such real estate investment fund may provide such
financing. In such event, Bear Stearns will not have an
economic interest in such financing.
Consistent with the letter agreement engaging Bear Stearns
to render an opinion to the General Partner, which provides that
Bear Stearns will not have any duties or liabilities to the
equity holders of the Partnership, the Bear Stearns Opinion
states that it is for the benefit and use of the General Partner
and may not be used for any other purpose or relied upon by any
other person without Bear Stearns' written consent. The
availability of any limitation of liability of Bear Stearns would
be a matter of state law, to be resolved by a court of competent
jurisdiction, and, as to duties under the federal securities
laws, federal law, to be resolved by a court of competent
jurisdiction. The General Partner believes that the availability
of any limitation of liability of Bear Stearns under state law
would have no effect on the rights and responsibilities of Bear
Stearns under the federal securities laws. The General Partner
believes that the resolution of the question of the availability
of such a limitation on liability would have no effect on the
responsibilities of the General Partner under state law or
federal securities law.
PURPOSE AND STRUCTURE OF THE MERGER
The Merger is being undertaken in accordance with the terms
of the Friedman Settlement of the Friedman Action. The Friedman
Settlement received final approval from the Cook County Circuit
Court at a hearing held on May 23, 1996. At the hearing, the
Circuit Court of Cook County determined that the terms and
conditions of the proposed settlement, taken as a whole, are
fair, reasonable and adequate (including the requirements that
the merger consideration paid to Public Unitholders would not be
less than $10.50 per Public Unit and that the proposed merger
consideration must be opined upon as fair, from a financial point
of view, by an independent, nationally-recognized investment
banking firm). Since the price of $10.50 per Public Unit,
ultimately established as the merger consideration by Londonderry
and the General Partner, had not been determined at the time of
the hearing, the court was not asked to specifically determine
that this price was fair or adequate as consideration for the
public units. The Friedman Settlement provides, among other
things, (a) that Londonderry will undertake to liquidate the
investment of the Public Unitholders by effecting a merger of the
Partnership and Londonderry or an affiliate in which each Public
Unit is acquired for no less than the Merger Consideration, (b)
the fairness of the Merger Consideration from a financial point
of view will be opined upon by a nationally recognized
independent investment banking firm and (c) each Public
Unitholder, as an alternative to accepting the Merger
Consideration, will have the option of seeking appraisal of the
fair value of his or her Public Units pursuant to Maryland law.
The holders of the equity interest of Londonderry have
agreed to approve the Merger because, after the Merger,
affiliates of Londonderry will own all of the equity interest of
the Partnership.
At the Effective Time, (i) each issued and outstanding
Public Unit, other than those held by Londonderry and Dissenting
Units, will be converted into the right to receive $10.50 in
cash, without interest, (ii) each issued and outstanding Public
Unit, other than Dissenting Units, shall cease to be outstanding
and shall automatically be cancelled and retired and shall cease
to exist, (iii) Londonderry Holdings will be issued 1,000
Assignee Limited Partnership Units of the Partnership in
consideration of the transfer of Londonderry's assets to the
Partnership and the cancellation of such limited partnership
interest, (iv) Londonderry shall cease to exist and (v) all
Dissenting Units shall not be converted into the right to receive
$10.50 in cash. Each Dissenting Unitholder shall be entitled to
receive payment of the appraised value of his or her Dissenting
Units in accordance with the provisions of Section 3-202 of the
MGCL, except that any Dissenting Units held by a Public
Unitholder who shall thereafter withdraw his or her demand for
appraisal of such Dissenting Units as provided in Section 3-205
of the MGCL or lose his or her right to such payment as provided
in Sections 3-203 and 3-205 of the MGCL shall be deemed
converted, as of the Effective Time, into the amount of cash such
Public Unitholder would otherwise have been entitled to receive
as a result of the Merger. The Partnership has been informed by
Londonderry II that, following the Merger, it intends to retain
the Partnership's current management and continue to manage the
Partnership as an ongoing business in the same general manner as
it is now being conducted.
Without the solicitation of votes or consents from any
unaffiliated Public Unitholders of the Partnership, Linnaeus, in
its capacity as the sole general partner of the Partnership and
Linnaeus and Londonderry, as limited partners of the Partnership
holding a majority in interest of the Assignee Units, signed a
written consent adopting the Merger Agreement and approving the
Merger, as permitted by the MRULPA and the Partnership Agreement.
The purpose of such consent is to assure the consummation of the
Merger in the most expeditious manner. Under applicable federal
securities laws, the Merger cannot be effected until at least 20
calendar days after this Information Statement has been sent or
given to Public Unitholders. The Partnership expects that the
Merger will be consummated on September __, 1996, or as promptly
as practicable thereafter, assuming that the conditions to the
Merger set forth in the Merger Agreement have been satisfied or,
if permissible, waived. See "The Merger Agreement Conditions
to the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER; CONFLICTS OF INTEREST
Public Unitholders should be aware that management and
certain persons associated with the General Partner have certain
interests which may present them with actual or potential
conflicts of interest in connection with the Merger. Certain
current members of the Partnership's senior management, as well
as the General Partner, are defendants in the Friedman Action.
In consideration of Londonderry providing liquidity through the
Merger in accordance with the Friedman Settlement, the defendants
have been released from liability with respect to the claims
asserted in the Friedman Action.
The Partnership and Londonderry are each indirectly
controlled by Apollo and, although the Merger is being completed
in accordance with the terms of the Friedman Settlement and Bear
Stearns has rendered its opinion that, as of June 13, 1996,
subject to the assumptions set forth therein, $10.50 in cash per
Public Unit as consideration for Public Units held by Public
Unitholders other than Londonderry is fair from a financial point
of view, the terms of the Merger are not the result of an arms-
length negotiation between the Partnership and Londonderry. The
full text of the opinion of Bear Stearns is attached as Annex D
to the Information Statement. Public Unitholders are urged to,
and should, read the opinion of Bear Stearns carefully in its
entirety in conjunction with the Information Statement for the
assumptions made, the matters considered and the limits of the
review of Bear Stearns. See " Opinion of Financial Advisor."
It is expected that certain of the current officers and key
employees of the Partnership will continue as officers and
employees of the Partnership after the Merger. None of the
current officers and key employees of the Partnership
beneficially own any Public Units. No executive officer or key
employee of the Partnership owns any equity interest in Apollo or
Londonderry.
The Partnership, the General Partner and Londonderry did not
have independent legal representation in connection with the
Merger.
RELATIONSHIPS BETWEEN THE PARTIES
Except as set forth in this Information Statement there are
no past, present or proposed material contracts, arrangements,
understandings, relationships, negotiations or transactions
between the Partnership, on the one hand, and Londonderry and its
affiliates on the other hand, concerning a merger, consolidation
or acquisition, a tender offer or other acquisition of
securities, or sale or other transfer of a material amount of
assets of the Partnership. However, in the future, the
Partnership's management may review additional information about
the Partnership and, upon completion of any such review, may
propose or develop additional or new plans or proposals or may
propose the acquisition, disposition or refinancing of assets or
other changes in the Partnership's business, structure,
capitalization, management or distribution policy which they
consider to be in the best interests of the Partnership and its
partners.
PLANS FOR THE PARTNERSHIP AFTER THE MERGER
The Partnership has been informed by Londonderry II that,
following the Merger, Londonderry II intends to cause the
business and operations of the Partnership to continue to be
conducted by the Partnership substantially as they are currently
being conducted. Londonderry II will, however, continue to
evaluate the business and operations of the Partnership after the
consummation of the Merger and will continue to take such actions
as are deemed appropriate by Londonderry II, under the
circumstances then existing, to maximize the profitability of the
Partnership. The Partnership has also been informed by
Londonderry and Londonderry II, which collectively control 91.13%
of the Assignee Units (and thus have the ability to determine
each matter submitted to a vote of limited partners) that they
intend to vote the Assignee Units controlled by them against any
proposal to liquidate the assets of the Partnership made in the
foreseeable future.
Except for the Merger and as otherwise described in this
Information Statement, Londonderry II has informed the
Partnership that it does not have any present plans or proposals
which relate to or would result in an extraordinary transaction,
such as a merger, reorganization, liquidation, relocation of any
operations of the Partnership or sale or transfer of a material
amount of assets involving the Partnership or any other change in
the Partnership's structure or business or the composition of its
management. However, in the future, Londonderry II, Linnaeus and
the Partnership's management will continually review additional
information about the Partnership and, upon completion of any
such review, may propose or develop additional or new plans or
proposals or may propose the acquisition, disposition or
refinancing of assets (including, without limitation, general or
limited partnership interests in one or more partnership
subsidiaries of the Partnership, real estate assets held by one
or more of such partnership subsidiaries and property management
or asset management and related contracts in respect of
properties controlled by the Partnership, one of its partnership
subsidiaries or an affiliate of the Partnership) or other changes
in the Partnership's business, structure, capitalization,
management or distribution policy which they consider to be in
the best interests of the Partnership and its partners.
CERTAIN EFFECTS OF THE MERGER
In the Merger, all of the Public Units outstanding
immediately prior to the Effective Time (other than Public Units
held by Londonderry and Dissenting Units) will be converted into
the right to receive $10.50 in cash per Public Unit and the
Public Unitholders will cease to have any interest in the
Partnership and will therefore not share in future earnings and
growth of the Partnership, if any. As a result of the Merger,
Linnaeus and Londonderry Holdings will hold the entire equity
interest in the Partnership, including the entire interest in the
Partnership's net earnings and book value, except with respect to
earnings and equity interests associated with the Nomura
Preferred Equity Interest.
The Public Units are currently registered under the Exchange
Act. Registration of the Public Units under the Exchange Act may
be terminated upon application of the Partnership to the
Commission if the Public Units are neither listed on a national
securities exchange nor held by more than 300 holders of record.
Termination of registration of the Public Units under the
Exchange Act would substantially reduce the information required
to be furnished by the Partnership to Public Unitholders and to
the Commission and would make certain provisions of the Exchange
Act, such as the short-swing profit recovery provisions of
Section 16(b), the requirement of furnishing a proxy statement
pursuant to Section 14(a) in connection with annual and special
meetings and the related requirement of an annual report to
Public Unitholders and the requirements of Rule 13e-3 under the
Exchange Act with respect to "going private" transactions, no
longer applicable to the Partnership. Furthermore, the ability
of "affiliates" of the Partnership and persons holding
"restricted securities" of the Partnership to dispose of such
securities pursuant to Rule 144 under the Securities Act of 1933,
as amended, may be impaired or eliminated. Londonderry II
presently intends to cause the Partnership to apply for
termination of registration of the Public Units under the
Exchange Act as soon as the requirements for such termination are
met and to take all permitted actions to make the Partnership
eligible for such termination.
RESIDUAL CERTIFICATES
From 1987 to 1992, the Partnership, unilaterally and for no
consideration, issued to the Public Unitholders the Residual
Certificates evidencing the Residual Interests. Residual
Certificates with respect to 19 partnerships (the "Investment
Partnerships") have been distributed to the Public Unitholders.
Each Residual Certificate entitles its holder, in the event
that all the Public Units owned by such holder are redeemed
pursuant to the Partnership Agreement, to his Percentage Interest
(as defined below) of any Net Proceeds (as defined below)
received by the Partnership directly from the Investment
Partnership associated with such Residual Certificate. Each of
the partnership agreements of the Investment Partnerships
contains provisions granting such Investment Partnership's
limited partners a priority return of their capital. The
Partnership's equity interest in each Investment Partnership is
generally 1% until such Investment Partnership's limited partners
receive distributions equal to their entire capital contribution
plus a specified return on such contribution. Consequently, the
Residual Interests represent deeply subordinated interests in the
Investment Partnerships.
With respect to the Residual Interests: (a) "Percentage
Interest" means the product of the number of Public Units owned
by a Public Unitholder multiplied by .0000057%; and (b) "Net
Proceeds" means any cash distribution received by the Partnership
directly from the Investment Partnership associated with such
Residual Interest solely in respect of the Partnership's general
partnership interest therein, which proceeds are attributable to
a sale or refinancing of the real property owned or invested by
such Residual Partnership less the aggregate of (i) all expenses
and liabilities incurred by the Partnership directly or
indirectly in connection with such distribution and all events
and transactions related thereto or to which such distribution is
attributable, (ii) the then outstanding balance of all loans made
by the Partnership or any of its affiliates to such Investment
Partnership or its subsidiary partnerships, plus all accrued and
unpaid interest thereon and any expenses incurred in connection
therewith, (iii) all outstanding fees or other accounts payable
to the Partnership or any of its affiliates, (iv) the aggregate
amount of all equity invested in such Investment Partnership or
any of is subsidiary partnerships by the Partnership or any of
its affiliates plus a return thereon at the annual compounded
rate of 10%, to the extent not received by the Partnership from
previous cash distributions attributable to sales or refinancings
and (v) amounts payable to the Partnership's employees from cash
distributions pursuant to any employee benefits program then in
existence, including without limitation, the Partnership's
employee residual program put into effect in 1987.
Pursuant to the terms and conditions of each Residual
Certificate, the Partnership may, at the election of the General
Partner exercisable in the General Partner's sole and absolute
discretion, purchase the Residual Interest evidenced by such
Residual Certificate at a price equal to the fair market value
thereof determined by an independent appraiser or investment
banking firm selected by the General Partner in its sole
discretion. The Partnership engaged Valuation Research to
furnish its opinion as to the fair market value of the Residual
Certificates. Pursuant to such engagement, Valuation Research
issued its opinion, dated June 17, 1996, that the Residual
Interests have no Fair Market Value (as defined in "Opinion of
Independent Appraiser"). See "Opinion of Independent Appraiser."
THE FULL TEXT OF THE OPINION OF VALUATION RESEARCH, DATED JUNE
17, 1996, IS ATTACHED AS ANNEX E TO THE INFORMATION STATEMENT.
PUBLIC UNITHOLDERS ARE URGED TO, AND SHOULD, READ THE VALUATION
RESEARCH OPINION IN ITS ENTIRETY FOR THE ASSUMPTIONS MADE, THE
MATTERS CONSIDERED AND THE LIMITS OF THE REVIEW OF VALUATION
RESEARCH. Valuation Research has consented to the inclusion of
its opinion and the references to it herein.
In accordance with the opinion of Valuation Research that
the Residual Interests have no Fair Market Value, the Partnership
will redeem the Residual Interests for no consideration on
September __, 1996. As a result of such redemption, (i) the
Public Unitholders will have no interest in the Residual
Interests in the Investment Partnerships, (ii) the Residual
Interests will, without further action, be automatically
cancelled and retired and shall cease to exist and (iii) the
Residual Certificates will not evidence the Residual Interests.
OPINION OF INDEPENDENT APPRAISER
Valuation Research has provided its opinion to the
Partnership (the "Valuation Research Opinion") that as of June
17, 1996, the Residual Certificates have no Fair Market Value.
For purposes of its opinion, Valuation Research defined Fair
Market Value as the most probable amount that may be equitably
realized if the subject Residual Certificates were sold with
reasonable promptness, in an arms' length transaction to an
interested purchaser aware of relevant information, by a seller
equally informed and interested in disposing of the subject
Residual Certificates.
The basis of Valuation Research's opinion that the Residual
Certificates have no Fair Market Value is that no cash
distribution would flow to a Public Unitholder upon the sale or
refinancing of the real property owned or invested in by the
Investment Partnerships (the "Subject Properties").
To determine the value of the Subject Properties, an income
capitalization appraisal technique known as the direct
capitalization income approach was used. The basic premise of
the direct capitalization income approach is that the earning
power of a real estate investment is the critical element
affecting its value, and value is often defined as the present
worth of anticipated future income.
The first step in the direct capitalization income approach
is the determination of a proper rental or revenue value that one
would expect to be able to obtain for each Subject Property based
on actual historical operations and a study of comparable leased
properties. A similar analysis of typical operating expenses
along with expected vacancy and collection losses aids in
constructing an operating statement that results in a net
operating income ("NOI") for the first year. This estimated
first year NOI can then be converted into an indicated property
value through the overall direct capitalization process.
First, Valuation Research estimated each Subject Property's
market rent potential based on an analysis of comparable
properties which have recently been leased and an analysis of the
actual leases in place with each Subject Property. Using this
information, a potential gross income estimate was made.
Second, Valuation Research allowed for vacancy and
collection losses based on market surveys in each Subject
Property's area and actual historical performance of each Subject
Property.
The result of subtracting the vacancy and collection loss
estimate from the estimated gross income is the effective gross
income. It is this effective gross income that is used to pay
for any operating expenses associated with the operation of the
Subject Property.
The estimate of the operating expenses was based on a
combination of historical expenses of each Subject Property and
published market surveys. In addition to the normal operating
expenses, an estimate of the cost and timing of major capital
improvements was made and a sinking fund factor was determined
and used as an added expense.
The NOI is the cash flow which accrues to the owner of a
Subject Property after deductions for the above expenditures and
allowances. It is this NOI that was converted into an estimate
of value.
The relationship between NOI and value is expressed in the
overall rate of return, or capitalization rate. The
capitalization rates used in this analysis were abstracted from
market surveys conducted by reputable national firms and in
surveys of local bankers and real estate investors in each
Subject Property's market.
Using the data compiled above, the market value for each of
the Subject Properties, which constitute the underlying assets of
the various Investment Partnerships, was determined. This in
turn served as the basis for the valuation of the Residual
Certificates associated with these partnerships.
Finally, the potential cash distribution to a holder of a
Residual Certificate was determined based on the market value of
the real estate and the terms of the limited partnership
agreements and Residual Certificates associated with each
respective Investment Partnership.
The General Partner selected Valuation Research to provide
an appraisal of the fair market value of the Residual Interests
based on Valuation Research's qualifications as a nationally-
recognized independent valuation specialist and its reputation
and expertise in providing appraisals and valuations of real
estate and securities, particularly in the context of mergers,
acquisitions and divestitures.
Pursuant to a letter agreement dated June 10, 1996, the
Partnership has paid Valuation Research an aggregate cash fee of
$35,000 for rendering its opinion as to the value of the Residual
Certificates. The Partnership has also agreed to reimburse
Valuation Research for reasonable out-of-pocket expenses incurred
by Valuation Research, and to indemnify Valuation Research
against certain liabilities in connection with the engagement of
Valuation Research. Valuation Research has no affiliation with
the Partnership, the General Partner, Londonderry or their
respective affiliates. Valuation Research has not been
previously engaged by the Partnership to perform services for it
or its affiliates.
The Valuation Research Opinion states that it is solely for
the information of, and assistance to, the parties to whom it is
addressed and may not be used for any other purpose without the
written consent of Valuation Research. The availability of any
limitation of liability of Valuation Research would be a matter
of state law, to be resolved by a court of competent
jurisdiction, and, as to duties under the federal securities
laws, federal law, to be resolved by a court of competent
jurisdiction. The availability of any limitation of liability of
Valuation Research under state law would have no effect on the
rights and responsibilities of Valuation Research under the
federal securities laws. The General Partner believes that the
resolution of the question of the availability of such a
limitation on liability would have no effect on the
responsibilities of the General Partner under state law or
federal securities law.
INCOME TAX CONSEQUENCES
The following is a brief summary of the material federal
income tax rules applicable to a sale of Public Units in the
Merger and the redemption of the Residual Certificates. The
summary is for general information only and does not discuss all
of the federal income tax consequences that may be relevant to a
particular Public Unitholder or to certain Public Unitholders
subject to special treatment under the federal income tax laws
(for example, foreign persons, tax-exempt entities, life
insurance companies or S corporations). The discussion set forth
below is based upon the Internal Revenue Code of 1986, as amended
(the "Code"), regulations and announcements promulgated
thereunder and published rulings and court decisions, all as in
effect on the date hereof and without giving effect to changes to
the federal tax laws, if any, enacted after the date hereof. DUE
TO THE INDIVIDUAL NATURE OF TAX CONSEQUENCES, EACH PUBLIC
UNITHOLDER IS URGED TO CONSULT HIS OR HER OWN TAX ADVISOR TO
DETERMINE THE SPECIFIC FEDERAL INCOME TAX CONSEQUENCES OF SELLING
PUBLIC UNITS IN THE MERGER, AS WELL AS THE EFFECTS OF STATE,
LOCAL, FOREIGN AND OTHER TAX LAWS.
Gain or Loss. A Public Unitholder will recognize gain or
loss on the sale of Public Units in the Merger to the extent of
the difference between the amount realized and his or her
adjusted tax basis in the Public Units sold. The amount realized
will equal the amount of cash received plus the Public
Unitholder's share of the Partnership's liabilities (including
the Partnership's share of the liabilities of partnerships in
which the Partnership is a partner) (determined under Section 752
of the Code and the regulations promulgated thereunder).
Generally, the adjusted tax basis of a Public Unitholder's Public
Units will be equal to the cost of the Public Units to such
Public Unitholder, decreased by the Public Unitholder's share of
Partnership distributions and losses, and increased by the Public
Unitholder's share of Partnership income and Partnership
liabilities (including the Partnership's share of the liabilities
of partnerships in which the Partnership is a partner) (as
determined under Section 752 of the Code and the regulations
promulgated thereunder). Set forth below is a summary of certain
information provided to Public Unitholders by the Partnership
that is relevant to the calculation of a Public Unitholder's
adjusted tax basis in its Public Units. THIS SUMMARY IS PROVIDED
FOR GENERAL INFORMATION ONLY, AND IS NOT A SUBSTITUTE FOR
INDIVIDUAL TAX ADVICE. ACCORDINGLY, PUBLIC UNITHOLDERS ARE URGED
TO CONSULT THEIR OWN TAX ADVISORS AS TO THE CORRECT DETERMINATION
OF THE ADJUSTED TAX BASIS OF THEIR PUBLIC UNITS.
Summary of Income (Loss) and
Distributions Per Public Unit 1985-1995
Income (Loss) Distributions
Per Public Unit Per Public Unit
1985 $ (2.95) $ 0
1986 $ ( .16) $ 0
1987 $ .03 $ 4.37
1988 $ ( .30) $ 1.80
1989 $ ( .50) $ 1.90
1990 $ ( .03) $ 1.96
1991 $ ( .09) $ 0
1992 $ ( .68) $ 0
1993 $ .04 $ 0
1994 $ ( .55) $ 0
1995 $ ( .91) $ 0
If a Public Unitholder's adjusted tax basis for his Public Units
(inclusive of his share of the Partnership's liabilities) is less
than his share of the Partnership's liabilities, such Public
Unitholder's gain realized (and, in certain cases, the taxes
payable with respect to such gain) would exceed the cash proceeds
received upon a sale of Public Units in the Merger. Assuming
that a Public Unitholder takes the position that the Residual
Certificates were received in a tax free distribution and have no
tax basis independent of the Public Unitholder's basis in his
Public Units, the redemption of the Residual Certificates for no
consideration should not have any additional tax consequences to
a selling Public Unitholder.
Except as described below, gain or loss realized by a Public
Unitholder who has held the Public Units as capital assets will
be capital gain or loss and will be long-term capital gain or
loss if such Public Units have been held for more than one year.
Capital losses generally are deductible only to the extent of
capital gains plus, in the case of non-corporate Public
Unitholders, up to $3,000 of ordinary income. Capital losses
realized upon the sale of Public Units may be utilized to offset
capital gains from other sources and may be carried forward,
subject to applicable limitations.
Notwithstanding the foregoing, under Section 751 of the
Code, Public Unitholders will recognize ordinary income to the
extent that the amount realized on the sale of the Public Units
attributable to a Public Unitholder's share of certain
partnership items, including unpaid fees earned by the
Partnership and recapture of certain depreciation ("Section 751
Property"), exceeds the Public Unitholder's allocable share of
the Partnership's basis in the Section 751 Property. Under the
Code's partnership rules, if ordinary income attributable to
Section 751 Property were to exceed the gain realized upon the
sale of Public Units, the Public Unitholder would recognize an
offsetting capital loss in an amount equal to such excess.
Effect of Passive Loss Rules. Upon the sale by a Public
Unitholder of all his Public Units in the Merger, any net losses
of the Partnership that were suspended under the passive loss
rules of Section 469 of the Code may be used to offset income and
gain on such sale. If a Public Unitholder's suspended
Partnership losses exceed the gain on the sale of Public Units,
such loss may be applied against any income or gain of the
Partnership for the current year and thereafter may be applied
against any other passive activity income of such Public
Unitholder in the current year. Thereafter, any excess suspended
losses from prior years will be available to offset income and
gain from any other sources.
In the absence of a complete disposition of all the Public
Units by a Public Unitholder, suspended losses of such Public
Unitholder generally will not be deductible. However, such
suspended losses will be allowed to the extent that any gain
recognized on the transaction, together with other income from
Partnership activities for the Public Unitholder's taxable year,
exceeds losses from the Partnership's activities for such year.
ACCOUNTING TREATMENT OF THE MERGER
The Merger will be accounted for similar to a pooling of
interests, since Londonderry and the partnership are under common
control. The acquisition by Londonderry of the Public Units will
be accounted for under the "purchase" method of accounting.
Accordingly, a determination of the fair value of the
Partnership's assets and liabilities will be made in order to
allocate the purchase price to the assets acquired and the
liabilities assumed.
REGULATORY APPROVALS AND FILINGS
Except as set forth in this Information Statement, the
Partnership is not aware of any licenses or regulatory permits
that would be material to the business of the Partnership, taken
as a whole, and that might be adversely affected by the Merger as
contemplated herein, or any filings, approvals or other actions
by or with any domestic (federal or state), foreign governmental,
administrative or regulatory agency that would be required prior
to the Merger as contemplated herein. Should any such approval
or other action be required, it is the Partnership's present
intention to seek such approval or action. The Partnership does
not presently intend, however, to delay the Merger pending the
outcome of any such action or the receipt of such approval
(subject to the conditions in "The Merger Agreement Conditions
to the Merger"). 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 or in the event that such
approvals were not obtained or such actions were not taken, any
of which would cause Londonderry to elect to terminate the
Merger, without conversion of the Public Units thereunder.
State Takeover Laws. Certain states, including Maryland,
where the Partnership is organized, and Massachusetts, where the
Partnership maintains its principal executive offices, have
adopted statutes and regulations applicable to attempts to
acquire securities of entities which are organized in such states
or which have assets, security holders, principal executive
offices, or principal places of business therein ("anti-takeover"
statutes). The Partnership believes that, to the extent the
Maryland anti-takeover statutes and the Massachusetts anti-
takeover statutes apply to the Merger or purport to apply to the
Merger, the statutes are either invalid or have no material
impact on the Merger and there are no current statutory
requirements with which Londonderry or the Partnership must
comply.
Neither Londonderry nor the Partnership have attempted to
comply with any state anti-takeover statutes in connection with
the Merger. Londonderry and the Partnership reserve the right to
challenge the validity or applicability of any state statute
allegedly applicable to the Merger and nothing in the Merger, nor
any action taken in connection herewith, is intended as a waiver
of that right. In the event that any state anti-takeover statute
is found applicable to the Merger, the Merger may be terminated
or delayed. Should any person seek to apply any state anti-
takeover statute to the Merger, Londonderry and the Partnership
will take such action as then appears desirable, which may
include contesting the validity of such statute in appropriate
court proceedings. If it is asserted that one or more state
anti-takeover statute applies to the Merger, Londonderry and the
Partnership might be required to file certain information with,
or receive approvals from, the relevant state authorities. In
addition, if enjoined, the Merger may be terminated or delayed.
Regulatory Filings. The Partnership and Londonderry have
filed with the Commission a Schedule 13E-3 and Amendments No. 1
and No. 2 thereto pursuant to the Exchange Act, furnishing
certain information with respect to the Merger, in addition to
the information contained in this Information Statement, and they
may file further amendments to the Schedule 13E-3. As permitted
by the rules and regulations of the Commission, this Information
Statement omits certain information contained in the Schedule
13E-3. For further information pertaining to the Partnership,
reference is made to the Schedule 13E-3 and the exhibits and
amendments thereto. See "Available Information."
CERTAIN PROJECTIONS
OF THE PARTNERSHIP
The Partnership provided Bear Stearns with certain projected
financial data for the years 1995 through 2015, inclusive. The
projected financial data were not prepared with a view to public
disclosure or compliance with published guidelines of the
Commission or the guidelines established by the American
Institute of Certified Public Accountants regarding projections
and is included in this Information Statement only because it is
available to Bear Stearns, the Partnership, the General Partner,
Londonderry and their affiliates. Neither Bear Stearns',
Apollo's, Londonderry's, the General Partner's nor the
Partnership's independent auditors examined, compiled or applied
any procedures with respect to the projected financial data and
express no opinion or any kind of assurance thereon. Neither
Bear Stearns, Apollo, the Partnership, the General Partner,
Londonderry nor any of their respective affiliates or advisors
assumes any responsibility for the validity, reasonableness,
accuracy or completeness of the projected financial data. While
presented with numerical specificity, the projected financial
data are based on a variety of assumptions relating to the
business of the Partnership (some of which are listed below)
that, although considered appropriate by the Partnership at one
time, may not be realized. Moreover, the projected financial
data, and the assumptions upon which they are based, are subject
to significant uncertainties and contingencies, many of which are
beyond the control of the Partnership. Consequently, the
projected financial data and the underlying assumptions are
necessarily speculative in nature and inherently imprecise, and
there can be no assurance that projected financial results will
be realized. It is expected that there will be differences
between actual and projected results and actual results may vary
materially from those shown. Neither Bear Stearns, Apollo, the
Partnership, the General Partner, Londonderry nor any of their
respective affiliates or advisors intends to update or otherwise
revise the projected financial data. The inclusion of the
projected financial data herein should not be regarded as an
indication that Bear Stearns, Apollo, the Partnership, the
General Partner, Londonderry or any of their respective
affiliates or advisors considers it an accurate prediction of
future results. Public Unitholders are cautioned not to place
undue reliance on the projections, which should be read together
with the information relating to the business, assets and
financial condition of the Partnership, included herein. See
"Business of the Partnership," "Summary Financial Data,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Index to Financial Statements."
Set forth below is a summary of the projected financial data
prepared by the Partnership and provided to Bear Stearns.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
($'s in 000, except for per Public Unit amount)
Wholly Owned Multi-family Portfolio
Revenues 49,033 50,504 52,020 53,580 55,188 56,843 58,548 60,305 62,114 63,978
Operating Business Revenues 15,159 14,718 15,160 13,288 13,687 10,492 10,807 11,131 11,465 11,809
Total Revenues 66,811 69,337 71,962 71,735 73,919 72,455 74,514 77,735 79,919 82,168
Total Expenses 64,187 64,273 66,848 66,561 68,504 67,419 68,791 67,200 66,288 67,763
Operating Income Before Extraordinary
Items and Capital Expenditures 2,624 5,064 5,114 5,174 5,415 5,036 5,723 10,535 13,631 14,405
Capital Expenditures and Extraordinary
Income/(Expense) (1,369) (4,615) (4,554) (3,629) (3,723) 3,421 3,446 7,692 7,923 3,765
Cash Flow From Operations 1,255 449 560 1,545 1,692 1,616 2,277 2,843 5,708 10,639
Additions to Working Capital 1,255 449 560 1,545 944 0 35 0 0 0
Cash Flow Available for Distribution 0 0 0 0 748 1,616 2,241 2,843 5,708 10,639
Cash Flow Available for Distribution
per Public Unit 0 0 0 0 .26 .60 .83 1.05 2.10 3.92
Net Working Capital
Beginning Balance 3,691 4,946 5,396 5,956 7,501 8,446 8,446 8,481 8,481 8,481
Additions from Operations 1,255 449 560 1,545 944 0 35 0 0 0
Ending Balance 4,946 5,396 5,956 7,501 8,446 8,446 8,481 8,481 8,481 8,481
Target Net Working Capital 7,913 7,924 8,242 8,206 8,446 8,312 8,481 8,285 8,172 8,354
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
---- ---- ---- ---- ---- ---- ---- ---- ---- ----
($'s in 000, except for per Public Unit amount)
Wholly Owned Multi-family Portfolio
Revenues 65,897 67,874 69,910 72,007 74,167 76,393 78,684 81,045 83,476 85,980
Operating Business Revenues 12,163 12,528 12,904 13,291 13,690 14,100 14,523 14,959 15,408 15,870
Total Revenues 84,544 87,802 89,667 91,988 94,982 97,709 97,922 100,134 103,113 106,182
Total Expenses 68,888 70,442 72,042 73,690 75,388 77,137 78,933 80,776 82,687 84,656
Operating Income Before Extraordinary
Items and Capital Expenditures 15,656 17,361 17,625 18,298 19,594 20,572 18,989 19,358 20,426 21,527
Capital Expenditures and Extraordinary
Income/(Expense) 3,878 3,995 4,115 4,238 4,365 4,496 9,819 10,114 4,913 5,060
Cash Flow From Operations 11,778 13,366 13,511 14,060 15,228 16,076 9,170 9,244 15,513 16,466
Additions to Working Capital 12 192 197 203 209 216 221 227 236 243
Cash Flow Available for Distribution 11,766 13,174 13,313 13,857 15,019 15,860 8,948 9,017 15,277 16,223
Cash Flow Available for Distribution
per Public Unit 4.34 4.86 4.91 5.11 5.54 5.85 3.30 3.32 5.63 5.98
Net Working Capital
Beginning Balance 8,481 8,493 8,685 8,882 9,085 9,294 9,510 9,731 9,959 10,194
Additions from Operations 12 192 197 203 209 216 221 227 236 243
Ending Balance 8,493 8,685 8,882 9,085 9,294 9,510 9,731 9,959 10,194 10,437
Target Net Working Capital 8,493 8,685 8,882 9,085 9,294 9,510 9,731 9,959 10,194 10,437
</TABLE>
Outlined below is a description of the assumptions used in the
Partnership's projections for each business and the assumptions
and methodology used for the residual valuation in year 20.
1. Wholly Owned Multifamily Portfolio - The portfolio's 1995
actual operating results were the basis for the projection. The
1995 revenues and expenses were escalated by a 3% growth rate
throughout the projection period. The 1995 vacancy rate for the
portfolio of 6.6% was assumed to remain constant over the
projection period. A management fee of 4% of total income was
assumed to reflect a market management fee. Capital expenditures
were also escalated at a 3% growth rate.
2. Operating Businesses - The projections for the residential,
commercial and asset management divisions were based on each
division's actual 1995 revenues and expenses and a risk
categorization of the contracts within each division. The
contracts in each division were categorized into four risk
classes based on the likelihood of termination. In addition,
adjustments were made to reflect contracts that have terminated
or are known to be terminating. The following chart summarizes
the assumptions pertaining to each risk class.
Risk Likelihood No. Years in Growth
Class of Termination Projection Rate
1 Stable 20 3%
2 Low 5 3%
3 Moderate 3 3%
4 High 1 3%
Expenses throughout the projection are based on the 1995 profit
margins and fluctuate with the level of revenues. As revenues
decline over the projection period as a result of contracts
terminating, so do expenses. The 1995 profit margins for the
three divisions are as follows: residential 38.6%, commercial
7.8% and asset management 44.5%.
3. Fees Receivable - The projection of contractual and residual
receipts was based on deferred fee agreements between the
Partnership and certain syndicated investment partnerships. The
projected contractual receipts are expected to be paid from
rental revenue under the existing leases in place. The residual
receipts are contingent upon the releasing or sale of the
property. For purposes of the projections, the residual receipts
are assumed to be paid pursuant to the deferred fee agreements.
4. Equity Interest in Affiliated Partnerships - The 1995 cash
distributions from the partnerships are assumed to escalate at a
3% growth rate throughout the projection period.
5. Corporate Assumptions - The Partnership's net working capital
was $3.7 million as of December 31, 1995. The Partnership
believes that its existing level of net working capital is low
and has targeted a net working capital balance of one and half
months of total expenses, which based on 1995 expenses would be
$8 million. For purposes of the projections, all cash flow from
operations will first go to build up the Partnership's net
working capital balance and then is assumed to be distributed
pursuant to the partnership agreement. The Partnership has
assumed that it will earn 4% interest on its cash balances.
6. Refinancing of Debt - The projections assume that the debt of
the Partnership will be refinanced at 9% interest per annum, will
involve a 2.5% refinancing cost and a 25 year amortization
schedule.
The Partnership's 1995 corporate overhead totaled $14.7
million, which included $7.4 million of non-recurring expenses.
For projection purposes, the Partnership's 1995 corporate
overhead less the non-recurring expenses is assumed to escalate
at a 3% growth rate.
APPRAISAL RIGHTS OF PUBLIC UNITHOLDERS
The following is a summary of the provisions of Title 3,
Subtitle 2 of the MGCL relating to appraisal rights. Title 3,
Subtitle 2 of the MGCL is reproduced in its entirety as Annex F
to this Information Statement and this summary is qualified in
its entirety by reference to Annex F. PUBLIC UNITHOLDERS SHOULD
READ CAREFULLY ANNEX F AND, IF THEY WISH TO EXERCISE THEIR RIGHTS
TO APPRAISAL, FOLLOW CAREFULLY THE PROCEDURES SET FORTH THEREIN.
ANY PUBLIC UNITHOLDER CONSIDERING DEMANDING HIS OR HER APPRAISAL
RIGHTS IS ADVISED TO CONSULT LEGAL COUNSEL.
Under Title 3, Subtitle 2 of the MGCL, which pursuant to the
MRULPA governs the appraisal rights of holders of limited
partnership units, holders of record of Public Units who do not
wish to accept $10.50 in cash per Public Unit have the right to
seek an appraisal of the fair value of their Public Units in a
court of equity in the Circuit Court for the City of Baltimore,
Maryland. Each Public Unitholder is urged to read carefully this
Information Statement and the materials incorporated herein in
making a determination whether to accept $10.50 in cash per
Public Unit or to seek an appraisal pursuant to the MGCL.
Under the MGCL, each Public Unitholder will be entitled to
demand and receive payment of the fair value of his Public Units
in cash, if he (i) prior to or on the date of the Effective Time,
files with the Partnership a written objection to the Merger,
(ii) does not vote in favor of the Merger (no vote of Public
Unitholders is being taken in connection with the Merger) and
(iii) within 20 days after Articles of Merger have been accepted
for recordation by the Department, makes a written demand on the
Partnership for payment of his Public Units, stating the number
of Public Units for which payment is demanded. All
correspondence pursuant to the above should be sent to the
Partnership at One International Place, Boston, Massachusetts
02110, Attention: Richard J. McCready, Chief Operating Officer.
A written demand for payment should be sent to the Partnership at
One International Place, Boston, Massachusetts 02110, Attention:
Richard J. McCready, Chief Operating Officer. Any Public
Unitholder who fails to comply with the requirements described
above will be bound by the terms of the Merger. A demand for
payment may be withdrawn only with the consent of the
Partnership. Fair value will be determined as of the close of
business on June 17, 1996, the date on which Linnaeus, in its
capacity as the sole general partner of the Partnership and
Linnaeus and Londonderry, as limited partners of the Partnership
holding a majority in interest of the Assignee Units, signed a
written consent adopting the Merger Agreement and approving the
Merger.
The Partnership will promptly deliver or mail to each
Dissenting Unitholder written notice of the date of acceptance of
the Articles of Merger for recordation by the Department and the
filing of the certificate of merger with the Secretary of State
of Delaware. The Partnership may also deliver or mail to each
Dissenting Unitholder a written offer to pay for his Public Units
at a price deemed by the Partnership to be the fair value
thereof. Within 50 days after acceptance of the Articles of
Merger for recordation by the Department and the filing of the
certificate of merger with the Secretary of State of Delaware,
either the Partnership or any Dissenting Unitholder who has not
received payment for his Public Units may petition a court of
equity in the Circuit Court for the City of Baltimore, Maryland,
for an appraisal to determine the fair value of such Public
Units. If the court finds that a Dissenting Unitholder is
entitled to appraisal of his Public Units, the court will appoint
three disinterested appraisers to determine the fair value of
such Public Units on terms and conditions the court determines
proper and the appraisers will, within 60 days after appointment
(or such longer period as the court may direct) file with the
court and mail to each party to the proceeding their report
stating their conclusion as to the fair value of the Public
Units. Within 15 days after the filing of the report, any party
may object to the report and request a hearing thereon. The
court will, upon motion of any party, enter an order either
confirming, modifying or rejecting the report and, if confirmed
or modified enter judgment directing the time within which
payment must be made. If the appraisers' report is rejected, the
court may determine the fair value of the Public Units of the
Dissenting Unitholder or may remit the proceeding to the same or
other appraisers. Any judgment entered pursuant to a court
proceeding will include interest from the date of the consent to
the Merger by holders of a majority in interest of the Assignee
Units, unless the court finds that the Dissenting Unitholder's
refusal to accept a written offer made by the Partnership to
purchase the Public Units as described above to be arbitrary and
vexatious or not in good faith. Costs of the proceeding (not
including attorneys' fees) will be determined by the court and
will be assessed against the Partnership or, if the court
determines that the Dissenting Unitholder's refusal to accept the
Partnership's written offer as described above to be arbitrary
and vexatious or not in good faith, against a Dissenting
Unitholder.
At any time after the filing of a petition for appraisal,
the court may require any Dissenting Unitholder to submit his
Public Units to the clerk of the court of notation during the
pendency of the appraisal proceedings. In order to receive
payment, whether by agreement with the Partnership or pursuant to
a judgment, the Dissenting Unitholder must surrender the Public
Unit certificates indorsed in blank and in proper form for
transfer or, alternatively, a book-entry confirmation. A
Dissenting Unitholder demanding payment for Public Units will not
have the right to receive any distributions payable to Public
Unitholders of record after the close of business on June 17,
1996, the date on which Linnaeus, in its capacity as the sole
general partner of the Partnership and Linnaeus and Londonderry,
as limited partners of the Partnership holding a majority in
interest of the Assignee Units, signed a written consent adopting
the Merger Agreement and approving the Merger and shall cease to
have any rights as a Public Unitholder with respect to the Public
Units except the right to receive payment of the fair value
thereof. The Dissenting Unitholders' rights may be restored only
upon the withdrawal, with the consent of the Partnership, of the
demand for payment, failure of either party to file a petition
for appraisal within the time required, a determination of the
court that the Dissenting Unitholder is not entitled to an
appraisal or the abandonment or rescission of the Merger.
The foregoing summary of the rights of Dissenting
Unitholders does not purport to be a complete statement of the
procedures to be followed by Public Unitholders desiring to
exercise their dissenters' rights. The preservation and exercise
of dissenters' rights are conditioned on strict adherence to the
applicable provisions of the MRULPA and MGCL. Each Public
Unitholder desiring to exercise dissenters' rights should refer
to Title 10 of the MRULPA, entitled "Rights of Objector" and
Title 3, Subtitle 2 of the MGCL, entitled "Rights of Objecting
Stockholders," a copy of which is attached as Annex F to this
Information Statement, for a complete statement of the Public
Unitholders' rights and the steps which must be followed in
connection with the exercise of those rights.
THE MERGER AGREEMENT
The following is a summary of certain provisions of the
Merger Agreement, which is attached as Annex A to this
Information Statement. Such summary is qualified in its entirety
by reference to the Merger Agreement.
GENERAL
The Merger Agreement provides that, at the Effective Time
and subject to the satisfaction of certain other conditions,
Londonderry will be merged with and into the Partnership.
Following the Merger, the Partnership will continue as the
surviving partnership and the separate existence of Londonderry
shall cease. In the Merger, (i) each issued and outstanding
Public Unit, other than those held by Londonderry and Dissenting
Units, will be converted into the right to receive $10.50 in
cash, without interest, (ii) each issued and outstanding Public
Unit, other than Dissenting Units, shall cease to be outstanding
and shall automatically be cancelled and retired and shall cease
to exist, (iii) Londonderry Holdings will be issued 1,000
Assignee Units of the Partnership in consideration of the
transfer of Londonderry's assets to the Partnership and the
cancellation of such limited partnership interest, (iv)
Londonderry shall cease to exist and (v) all Dissenting Units
shall not be converted into the right to receive $10.50 in cash.
Each Dissenting Unitholder shall be entitled to receive payment
of the appraised value of his or her Dissenting Units in
accordance with the provisions of Section 3-202 of the MGCL,
except that any Dissenting Units held by a Public Unitholder who
shall thereafter withdraw his or her demand for appraisal of such
Dissenting Units as provided in Section 3-205 of the MGCL or lose
his or her right to such payment as provided in Sections 3-203
and 3-205 of the MGCL shall be deemed converted, as of the
Effective Time, into the amount of cash such Unitholder would
otherwise have been entitled to receive as a result of the
Merger.
EFFECTIVE TIME
The Merger will become effective at the time of the filing
by the Partnership with the Secretary of State of the State of
Delaware of a certificate of merger in accordance with the
Delaware Revised Uniform Limited Partnership Act and the
acceptance for record by the Department of articles of merger
with respect to the merger in accordance with the relevant
provisions of the MRULPA and MGCL. It is presently anticipated
that such filings will be made on September __, 1996. Such
filings will be made, however, only upon satisfaction or waiver,
where permissible, of the conditions set forth in the Merger
Agreement. See " Conditions to the Merger."
PAYMENT FOR PUBLIC UNITS
At or prior to the Effective Time, Londonderry will deposit
or cause to be deposited in trust with (the "Paying
Agent"), as agent for each holder of record of Public Units, the
cash to which such holders will be entitled at the Effective
Time. As soon as practicable after the Effective Time, the
Paying Agent will mail to each such holder of record a letter of
transmittal (which will specify that delivery shall be effected,
and risk of loss and title to the Public Units shall pass, only
upon receipt by the Paying Agent of confirmation of a book-entry
transfer of Public Units into the Paying Agent's account at The
Depository Trust Company of New York) to be returned to the
Paying Agent and instructions for effecting the surrender of
Public Units in exchange for $10.50 in cash per Public Unit
(without interest). All Public Units so surrendered will be
cancelled.
Upon surrender of a duly executed letter of transmittal, the
holder thereof will receive $10.50 in cash per Public Unit
(without interest) in exchange for each Public Unit. Any cash
held by the Paying Agent that remains unclaimed by Public
Unitholders six months after the Effective Time will be delivered
to the Partnership, after which time persons entitled thereto may
look, subject to applicable escheat and other similar laws, only
to the Partnership for payment thereof.
CONDITIONS TO THE MERGER
The respective obligations of the Partnership and
Londonderry to effect the Merger are subject to the satisfaction
at or prior to the Effective Time of the following conditions:
(i) no statute, rule, regulation, executive order, decree or
injunction having been enacted, entered, promulgated or enforced
by any court or governmental authority which prohibits,
restrains, enjoins or restricts the consummation of the Merger;
and (ii) no filing of a proceeding that seeks to enjoin or
restrict the Merger having been made.
TERMINATION
The Merger Agreement may be terminated and the Merger may be
abandoned notwithstanding approval thereof by the General Partner
and holders of a majority in interest of the limited partnership
interest in the Partnership, at any time prior to the Effective
Time if any court of competent jurisdiction in the United States
or other United States governmental body shall have issued an
order, decree or ruling or taken any other action restraining,
enjoining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and
nonappealable.
FINANCING OF THE TRANSACTION
Approximately $15.5 million will be required to consummate
the Merger and to pay related fees and expenses (see "Expenses Of
The Merger"). The necessary funds are expected to be provided by
Londonderry. Such funds will be advanced to Londonderry from
general funds of Apollo or from the proceeds of borrowings by
Apollo or one of its affiliates.
Pursuant to a commitment letter, dated August 8, 1996 (the
"Commitment Letter"), and subject to certain conditions
(including consummation the Merger), The First National Bank of
Boston (the "Lender") has committed to lend to Winthrop
Management GP, a Massachusetts general partnership that is a
wholly owned subsidiary of the Partnership ("Winthrop
Management"), up to $13,000,000 following the consummation of the
Merger (the "Loan"). Under certain circumstances, the Lender may
require that additional parties be named as borrowers of the
Loan. The Commitment Letter is filed as an exhibit to Amendment
No. 2 of the Schedule 13E-3 and is available for inspection and
copying by any Public Unitholder or representative of such person
who has been so designated in writing, at the principal executive
offices of the Partnership. The definitive Loan Agreement (the
"Loan Agreement") has not yet been fully negotiated and may
contain more or less restrictive provisions than are contained in
the Commitment Letter.
Interest on the Loan shall be a floating rate either equal
to (i) the Lender's base rate of interest plus 1% or (ii) the
Euro-dollar rate plus 3%, paid monthly in arrears. The
Commitment Letter provides for a commitment fee of 1% of the
Loan. One-half of the commitment fee ($65,000) was paid on
August , 1996, and the other half of the commitment fee is
expected to be paid at the time that the Loan is made. Winthrop
Management will be required to make quarterly amortization
payments in arrears ($450,000 based on a $9,000,000 term loan),
with a payment equal to the difference between the aggregate
amount of the Loan and $9,000,000 due at the end of the five year
term.
Pursuant to the Commitment Letter, the Partnership, FWC and
Three Winthrop Properties Limited Partnership, a wholly owned
subsidiary of the Partnership ("3WP"), shall provide a guaranty
of full payment of the Loan. Under certain circumstances, the
Lender may require that additional parties provide a guaranty of
the Loan. The Loan will have a 5 year term and will be secured
by: (i) a perfected, first priority security interest in all of
FWC's, Winthrop Management's and 3WP's assets and, with respect
to certain assets that FWC is contractually restricted from
pledging, a pledge from FWC not to further pledge such assets to
a party other than the Lender; (ii) a perfected, first priority
interest in all management fees paid to and controlled by the
Partnership and its subsidiaries or affiliates, including,
property management fees, asset management, overhead
reimbursements, incentive management and investor service fees,
and allocated expense recoveries associated therewith; (iii) if
not restricted in the underlying partnership agreements, a
perfected, first priority pledge of 100% of the ownership
interests of all borrowers and guarantors with respect to the
Loan and any rights to distributions and payments that are
derivative of such ownership interests; and (iv) a negative
pledge by Londonderry II (subject to Nomura's existing pledge)
relating to its indirect controlling ownership interest in the
Partnership.
The Commitment Letter conditions the Loan upon, among other
things, (i) the lack of a material adverse change in the
business, assets or financial condition of the Partnership, (ii)
the execution and delivery of definitive loan agreements
consistent with the Commitment Letter, (iii) receipt by the
Lender of certain opinions, certificates, documents, government
and regulatory approvals, financial statements and other
information and (iv) the Lender's satisfaction with respect to
operating costs and revenues of the Partnership and its
subsidiaries.
The Commitment Letter provides for certain customary
affirmative and negative covenants to be included in the
definitive loan documentation, including but not limited to
covenants regarding the Partnership's consolidated interest
coverage, debt coverage, loss variance, distributions, other
indebtedness, net worth, contingent liabilities and liquidity.
The Commitment Letter also contains covenants restricting a
modification of the Partnership's business lines and a change in
control of the Partnership or the Partnership's subsidiaries.
BUSINESS OF THE PARTNERSHIP
GENERAL
The Partnership was organized as a Maryland limited
partnership under the MRULPA on December 4, 1984. The
Partnership is a real estate investment and management firm,
primarily engaged, through entities which it controls, in the
acquisition and operation of real estate for its own account and
in the business of providing property management, asset
management and investor services to affiliated investment
partnerships and unaffiliated owners of developed real estate.
At the time of its formation, the Partnership's principal
business and revenue source was its real estate syndication
operation. This operation was the mechanism by which the
Partnership increased the portfolio of real estate assets under
its control and management. By the end of 1993, the Partnership
decided to discontinue financing its investment activities
through the syndication process. The Partnership continues to
provide asset management, investor services and, in many
instances, property management services to investment
partnerships previously syndicated by the Partnership, or
currently controlled by the Partnership or its affiliates.
The Partnership's business has recently been focused on
strategic investment acquisitions of improved real estate for its
own account and the growth of its asset and property management-
related service operations. The following is a list of the
apartment units owned by the Partnership and/or its wholly owned
subsidiaries, the acquisition costs associated with such
properties, the cost capitalized subsequent to acquisition of the
properties, the gross balance of land and buildings and
improvements at December 31, 1995, the accumulated depreciation
of the properties, the date of construction of the properties and
their date of acquisition.
<TABLE>
<CAPTION>
Cost capitalized subsequent to
Acquisition Cost acquisition
---------------------------------------- ----------------------------------
Apart-
Real ment Buildings & Buildings &
Property Units Land Improvement Land Improvement
- ---------------------------------------- --------- ----------------- ------------------- --------------- ------------------
<S> <C> <C> <C> <C> <C>
Beacon Hill Apts, Chambles, GA 120 655,108 3,520,283 0 214,888
Blossomtree Apts, Scottsdale, AZ 125 362,134 1,964,236 0 232,527
Ferntree III Apts, Phoenix, AZ 197 445,946 2,397,000 0 214,729
Foothills Apts, Tucson, AZ 270 804,081 6,296,430 0 62,375
Fox Bay Apartments, Tucson, AZ 232 724,139 3,638,748 0 152,250
Foxtree Apts, Tempe, AZ 487 950,671 5,113,536 0 788,892
Grovetree Apartments, Tempe, AZ 200 621,544 3,324,781 0 125,285
Hazeltree Apts, Phoenix, AZ 310 181,804 1,002,426 0 361,241
Hiddentree Apts, E. Lansing, MI 261 567,852 4,998,541 0 979,445
Islandtree Apts, Savannah, GA 216 1,097,172 5,852,607 0 110,844
Orchidtree Apts, Scottsdale, AZ 278 1,441,057 7,709,577 0 467,745
Pine Creek Apts, Pine Creek, MI 233 329,332 1,823,779 0 466,855
Polo Park Apts, Midland, TX 184 447,980 2,979,650 0 106,427
Quailtree Apts, Phoenix, AZ 184 441,855 2,373,552 0 215,026
Rivercrest Apts, Tucson, AZ 210 576,873 2,267,180 0 73,871
Sand Pebble Apts, El Paso, TX 208 754,565 5,015,097 0 123,993
Shadetree Apts, Tempe, AZ 123 287,774 1,549,185 0 153,922
Silktree Apts, Phoenix, AZ 86 205,395 1,104,863 0 71,132
Timbertree Apts, Phoenix, AZ 387 1,263,962 6,752,145 0 491,336
Twinbridge Apts, Tucson, AZ 104 124,654 625,458 0 36,133
Village Park Apts, North Miami, FL 871 2,325,130 14,371,343 0 961,808
Wickertree Apts, Phoenix, AZ 226 590,218 2,959,563 0 173,049
Wildflower Apts, Midland, TX 264 363,341 2,642,526 0 223,840
Wydewood Apts, Midland, TX 218 323,230 2,149,165 0 79,680
Yorktree Apts, Carol Stream, IL 293 605,045 7,820,340 (200,153) 2,110,395
Brant Rock Apts, Houston, TX 84 169,000 1,606,000 0 253,820
Freedom Place Apts, Jacksonville, FL 352 1,443,278 11,181,721 0 83,385
Olmos Club Apts, San Antonio, TX 134 304,425 2,170,575 0 38,107
Sandcastles Apts, League City, TX 138 624,000 4,576,000 0 75,305
Shadow Lake Apts, Greensboro, NC 136 850,000 4,130,000 0 118,607
Surrey Oaks Apts, Bedford, TX 152 574,000 3,426,000 0 110,226
Tall Timbers Apts, Houston, TX 256 1,299,300 4,800,700 23,434 844,641
Windsor Landing Apts, Morrow, GA 200 1,660,000 6,291,000 0 59,808
Woodhollow Apts, Austin, TX 450 972,000 2,403,000 (3,744) 190,153
Benjamin Franklin Land, Phil, PA N/A 1,712,365 0 0 0
Marlboro Unimp Land, Various Loc. N/A 89,743 0 0 0
Northwood Land, Various Locations N/A 1,457,504 0 0 0
Linnaeus Unimp Land, Manchester, CT N/A 160,000 0 0 0
Linnaeus Building, Manchester, CT N/A 0 642,329 0 0
Clarendon Land, Irving, CA N/A 302,411 0 0 0
The Hills Apts, Austin, TX 336 2,798,623 8,307,025 0 113,243
Totals 30,907,511 149,786,361 (180,463) 10,884,983
</TABLE>
<TABLE>
<CAPTION>
Gross Balance at 12/31/95
---------------------------------------------------
Real Buildings & Accumulated Date of Date
Property Land Improvement Total Appreciation Construction Acquired
- ---------------------------------------- -------------- ------------------ ------------ --------------- --------------- --------
<S> <C> <C> <C> <C> <C> <C>
Beacon Hill Apts, Chambles, GA 655,108 3,735,171 4,390,279 317,019 1978 1993
Blossomtree Apts, Scottsdale, AZ 362,134 2,196,763 2,558,897 192,498 1970 1993
Ferntree III Apts, Phoenix, AZ 445,946 2,611,729 3,057,675 221,632 1973 1993
Foothills Apts, Tucson, AZ 804,081 6,358,805 7,162,886 496,052 1982 1993
Fox Bay Apartments, Tucson, AZ 724,139 3,790,998 4,515,137 493,986 1983 1993
Foxtree Apts, Tempe, AZ 950,671 5,902,428 6,853,099 331,974 1972 1993
Grovetree Apartments, Tempe, AZ 621,544 3,450,066 4,071,610 279,098 1959 1993
Hazeltree Apts, Phoenix, AZ 181,804 1,363,667 1,545,471 135,509 1959 1993
Hiddentree Apts, E. Lansing, MI 567,852 5,977,986 6,545,838 554,382 1969 1993
Islandtree Apts, Savannah, GA 1,097,172 5,963,451 7,060,623 468,724 1985 1993
Orchidtree Apts, Scottsdale, AZ 1,441,057 8,177,322 9,618,379 655,368 1972 1993
Pine Creek Apts, Pine Creek, MI 329,332 2,290,634 2,619,966 221,041 1976 1993
Polo Park Apts, Midland, TX 447,980 3,086,077 3,534,057 249,021 1982 1993
Quailtree Apts, Phoenix, AZ 441,855 2,588,578 3,030,433 213,327 1976 1993
Rivercrest Apts, Tucson, AZ 576,873 2,341,051 2,917,924 191,966 1984 1993
Sand Pebble Apts, El Paso, TX 754,565 5,139,090 5,893,655 407,374 1983 1993
Shadetree Apts, Tempe, AZ 287,774 1,703,107 1,990,881 144,656 1965 1993
Silktree Apts, Phoenix, AZ 205,395 1,175,995 1,381,390 98,791 1980 1993
Timbertree Apts, Phoenix, AZ 1,263,962 7,243,481 8,507,443 577,426 1980 1993
Twinbridge Apts, Tucson, AZ 124,654 661,591 786,245 55,997 1982 1993
Village Park Apts, North Miami, FL 2,325,130 15,333,151 17,658,281 1,296,400 1974-1981 1993
Wickertree Apts, Phoenix, AZ 590,218 3,132,612 3,722,830 254,985 1983 1993
Wildflower Apts, Midland, TX 363,341 2,866,366 3,229,707 240,175 1982 1993
Wydewood Apts, Midland, TX 323,230 2,228,845 2,552,075 178,651 1981 1993
Yorktree Apts, Carol Stream, IL 404,892 9,930,735 10,335,627 808,188 1970 1993
Brant Rock Apts, Houston, TX 169,000 1,859,820 2,028,820 208,998 1983 1993
Freedom Place Apts, Jacksonville, FL 1,443,278 11,265,106 12,708,384 490,785 1989 1994
Olmos Club Apts, San Antonio, TX 304,425 2,208,682 2,513,107 91,315 1983 1994
Sandcastles Apts, League City, TX 624,000 4,651,305 5,275,305 193,174 1987 1994
Shadow Lake Apts, Greensboro, NC 850,000 4,248,607 5,098,607 385,723 1986 1993
Surrey Oaks Apts, Bedford, TX 574,000 3,536,226 4,110,226 330,050 1984 1993
Tall Timbers Apts, Houston, TX 1,322,734 5,645,341 6,968,075 508,004 1983 1993
Windsor Landing Apts, Morrow, GA 1,660,000 6,350,808 8,010,808 543,018 1990 1993
Woodhollow Apts, Austin, TX 968,256 2,593,153 3,561,409 260,286 1974 1993
Benjamin Franklin Land, Phil, PA 1,712,365 0 1,712,365 0 n/a 1985
Marlboro Unimp Land, Various Loc. 89,743 0 89,743 0 n/a 1994
Northwood Land, Various Locations 1,457,504 0 1,457,504 0 n/a 1977
Linnaeus Unimp Land, Manchester, CT 160,000 0 160,000 0 n/a 1994
Linnaeus Building, Manchester, CT 0 642,329 642,329 208,017 1976 1994
Clarendon Land, Irving, CA 302,411 0 302,411 0 n/a 1994
The Hills Apts, Austin, TX 2,798,623 8,420,268 11,218,891 307,792 1980-1982 1995
Totals 30,727,048 160,671,344 191,398,392 12,611,402
</TABLE>
DESCRIPTION OF BUSINESS
Investment Acquisitions
During 1993, 1994 and 1995 the Partnership and its
affiliates acquired the fee interest in 35 apartment properties.
As of December 31, 1995, the Partnership and its affiliates owned
a total of 35 apartment properties with a total of 8,176
apartment units. Rental income derived from the Partnership's
wholly-owned real estate represents approximately 66% of the
company's total revenue for 1995. The Partnership has no current
intention to syndicate its wholly-owned apartment properties and
is presently holding these properties for investment purposes.
Significant property acquisitions and financing activities
completed in 1995, 1994 and 1993 are summarized below.
Springhill Lake Limited Partnership ("Springhill Lake"). On
February 1, 1995, Aquarius Acquisition, L.P., a Delaware limited
partnership, the general partner of which is Londonderry II and
the limited partner of which is the Partnership ("Aquarius"),
offered to purchase outstanding limited partner interests
("Springhill Units") in Springhill Lake. Springhill Lake was
organized in 1984 to invest in ten operating partnerships formed
to own and operate a garden apartment complex containing 2,899
apartment units located in Greenbelt, Maryland (the "Project").
On March 21, 1995, Aquarius' offer to purchase Springhill Units
for cash consideration of $36,400 concluded. Aquarius purchased
216.65 Springhill Units (approximately 33.4% of the total
Springhill Units outstanding). Subsequently, a number of limited
partners in Springhill Lake requested that Aquarius purchase
their units for the price specified in the tender offer. As of
March 1, 1996, Aquarius owns a total of 234.65 Springhill Units
(approximately 36.16% of the total Springhill Units outstanding).
The tender offer was commenced shortly following the mailing
on January 19, 1995, of a consent solicitation to the limited
partners of Springhill Lake by Greenbelt Residential Limited
Partnership ("Greenbelt"), an affiliate of Theodore N. Lerner
("Lerner"). Lerner negotiated the purchase of Springhill Lake's
90% interest in the Project in the mid-1980's and holds a 10%
limited partnership interest in each of the ten operating
partnerships. An affiliate of Lerner ("Lerner Management") had
performed property management services at the Project for the 10
years prior to May 1995. In October 1994, Springhill Lake
notified Lerner Management of its intention to terminate the
property management contract with Lerner Management. Greenbelt
thereafter made an offer to purchase the Project and
approximately six weeks later began soliciting the consent of a
majority in interest of the limited partners of Springhill Lake
to a dissolution of Springhill Lake, with the stated goal of
forcing a sale of the Project. The termination of Lerner
Management as property manager, the engagement of Winthrop
Management as the new property manager and the tender offer have
given rise to a series of lawsuits. See " Litigation."
Effective May 1, 1995, Winthrop Management executed a property
management agreement and assumed responsibility for on-site
management of the Project.
Winthrop-Austin Holdings, LP ("Winthrop-Austin"). Winthrop-
Austin, a Delaware limited partnership, was formed in 1995 for
the purpose of acquiring in April 1995 the fee interest in a 329
unit garden style apartment complex located in Austin, Texas,
known as "The Hills" and "The Hills West." Fifteen Winthrop
Properties, Inc. is the sole general partner of Winthrop-Austin
and the Partnership's the sole limited partner of Winthrop-
Austin. Winthrop-Austin acquired The Hills for a total purchase
price of $11,050,000 (approximately $33,587 per apartment unit)
of which $1,000,000 was provided in seller financing and
$8,470,000 was provided through a mortgage loan from Nomura. At
the time of acquisition, Winthrop Management assumed property
management and asset management functions.
Southwestern Properties. In July 1993, two wholly-owned
subsidiaries of the Partnership acquired a general partnership
interest and approximately 11% of the total equity interest in a
portfolio of 25 apartment properties (containing 6,287 units)
located primarily in Texas and Arizona (the "Southwestern
Properties"). The Partnership paid approximately $5.2 million
(excluding brokerage fees) for these interests and the management
rights associated with these properties. In January 1994, the
Partnership acquired the balance of the general partnership
interest and control of the partnerships owning these properties,
together with a 30% equity interest held by affiliates of an
investment banking firm which had arranged debt financing for the
properties, for approximately $3.9 million. On May 31, 1994, the
Partnership acquired the balance of the equity interests held by
the seller and its affiliates for approximately $10.4 million.
As part of the transaction in which the Partnership acquired
its general partnership interest in the Southwestern Properties,
the partnerships owning these properties incurred an aggregate of
$106.3 million of non-recourse mortgage financing. The loans are
generally payable, interest only at 9% per annum until July 2000.
A senior portion of the debt, in the approximate amount of $93
million, matures in July 2000. A junior portion of the debt, in
the approximate amount of $13.3 million, matures in July 2018,
but the annual rate of interest payable on the principal balance
and accrued interest after July 2000, is 11%.
In July 1995, the Partnership contributed to Winthrop
Southwest all of its right, title and interest in and to the
Southwestern Properties and Nomura contributed to Winthrop
Southwest a $17,800,000 note receivable from the Partnership and
FWC. Pursuant to the terms of Winthrop Southwest's partnership
agreement, Nomura is entitled to receive the first $17,800,000 in
distributions from such partnership together with a priority
return of LIBOR plus 6.5% on such contribution. The $17,800,000
note was the note made in connection with the settlement of Fred
Rosen, et al. v. First Winthrop Corporation, et al. See "
Litigation."
Winthrop Florida Apartments Limited Partnership ("Winthrop
Florida"). Winthrop Florida is a Maryland limited partnership
which owns nine apartment complexes (the "Winthrop Florida
Properties") consisting of 1,560 units in the aggregate. The
general partner of Winthrop Florida is Fourteen Winthrop
Properties, Inc. ("14 Winthrop") and the Partnership is the
limited partner. The properties owned by Winthrop Florida are
all managed by Winthrop Management.
Of the nine properties, two garden style apartment complexes
containing 486 units were acquired in 1994. These properties are
located in Jacksonville, Florida and San Antonio, Texas. The
aggregate acquisition price for these properties was $15.1
million (averaging approximately $31,100 per apartment unit)
which was originally funded from advances from the Partnership's
cash resources, advances under the Partnership's credit
facilities and the assumption of $9.4 million of mortgage debt.
The average age of these properties is 8 years.
In connection with the refinancing of the Winthrop Florida
Properties described below:
(i) Sandcastles Associates Limited Partnership
("Sandcastles"), a limited partnership, the general partner of
which was 14 Winthrop and the limited partner of which was the
Partnership, transferred its interest in its 138 unit garden
style apartment complex located in Houston, Texas which it had
acquired in 1994. Sandcastles acquisition price for this
property was $5.2 million (approximately $37,700 per apartment
unit) which was originally funded from advances from the
Partnership's cash resources, advances under the Partnership's
credit facilities and the assumption of $3.9 million of mortgage
debt. The age of the property is 8 years; and
(ii) Winthrop Multi-Family Limited Partnership transferred
its interest in six properties containing 936 units in the
aggregate. Of the six properties, two are located in Houston,
Texas, and one property is located in each of Morrow, Georgia,
Greensboro, North Carolina, Bedford, Texas and Austin, Texas.
These properties were encumbered by $15,000,000 of first mortgage
debt.
In July 1995, Winthrop Florida obtained a loan from a third
party lender in order to refinance the existing mortgages on all
of the Winthrop Florida Properties. The principal amount of the
mortgage loan was $42,000,000. It bears interest at LIBOR plus
3%, with an overall interest rate cap of 10.19%, and matures on
June 30, 1998.
Service Business
Approximately 27% of the Partnership's revenue in 1995 was
derived from its property management-related service operations.
The Partnership, through its subsidiary partnerships, performs
on-site property management, leasing, asset management, insurance
brokerage and certain tenant-related services (collectively, the
"Service Business"). During 1995 and the first quarter of 1996,
management determined to outsource certain services which it had
historically performed such as building security and cleaning
services. The Service Business provides management and related
services to many of the investment partnerships organized or
controlled by the Partnership. Most of the revenue earned by the
Partnership's Service Business is derived from contractual
relationships with investment partnerships organized by the
Partnership.
The Partnership's Service Business is conducted primarily
through Winthrop Management, a general partnership consisting of
wholly-owned corporate subsidiaries of the Partnership. The
Service Business is organized functionally into three principal
divisions which are described below.
Apartment Division. The Apartment Division of Winthrop
Management is responsible for property management (as well as
acquisitions) with respect to the portion of the Partnership's
portfolio comprised of multi-family apartment properties. This
division also provides strategic direction, performance
evaluation and advisory services to certain investment
partnerships organized or controlled by the Partnership which own
apartment properties. This division employs a total of
approximately 912 people, which total includes acquisitions
officers, national property management staff (including
accounting functions), regional property management staff and on-
site management personnel. The division maintains its
headquarters in Boston and maintains regional offices at property
locations throughout the United States. As of January 1, 1996,
the division managed a total of approximately 30,287 apartment
units, making the Partnership the 19th largest apartment manager
in the U.S., based on a ranking compiled by the National Multi-
Housing Council as of January 1, 1996. All but one of the
apartment properties under management at December 31, 1995, were
owned either by investment partnerships organized by the
Partnership or by partnerships in which a subsidiary of the
Partnership has acquired control through purchase of the general
partnership interest.
In addition to the new management assignments described in
" Description of Business-Investment Acquisitions," during the
second quarter of 1995 the Apartment Division assumed management
of an apartment complex owned by a third party consisting of 643
units.
Commercial Division. During 1995 the Commercial Division
provided property management, leasing, consulting and tenant
services to commercial office, retail and industrial facilities
owned by both Winthrop-syndicated partnerships and unaffiliated
third parties. Revenues for 1995 earned under contracts with
non-affiliates represented approximately 23.8% of the total
revenues earned for 1995 from the operations of the Commercial
Division. The decline in revenues derived from non-affiliates
compared to prior years is principally attributable to the
termination in August 1995, of Winthrop Management's management
and leasing assignment at One Federal Street, a 1.1 million
square foot office tower located in Boston, Massachusetts.
Following the loss of the One Federal Street assignment, the
Partnership evaluated the staffing requirements and profitability
of its remaining third party management and advisory service
assignments and its tenant services business, as well. As a
result of this evaluation, the Partnership made the decision to
downsize its Commercial Division and to terminate the remainder
of its existing third party assignments. In the first quarter of
1996, the Partnership outsourced to third party operators all of
its tenant service functions, including construction services and
building cleaning and security. In addition, in connection with
the sale by the holder of the debt encumbering the properties
owned by Nineteen New York Properties Limited Partnership, an
affiliate of the Partnership, the Partnership and its affiliates
no longer provide property management or leasing services for
these properties.
Until December 1995, the Commercial Division also provided
advisory services to Pioneer Winthrop Real Estate Investment Fund
(the "Fund"), an open-ended mutual fund which is a member of the
Pioneer Group of Funds. The Fund was organized in 1993 to invest
in securities of real estate investment trusts and other real
estate-related companies. A registered Investment Advisor, which
is wholly-owned by the Partnership, had been engaged to provide
advisory services to the Fund's manager, including evaluating and
selecting securities of real estate investment trusts and other
real estate-related companies for the Fund.
As a result of the placement of a number of services
previously performed by the Commercial Division with third
parties, the number of employees employed by the Commercial
Division has been reduced from approximately 414 people in 1994
to 97 people at April 1, 1996. The Commercial Division employees
are located either in the Boston headquarters office or at the
individual properties.
As of March 1, 1996, Winthrop Management continues to
provide management, consulting, leasing, construction and
supervisory services to three office towers, five industrial
properties and one mixed-use property, consisting principally of
retail shops. The division currently manages and/or leases
approximately 3.4 million square feet of commercial space, all of
which is owned by investment partnerships organized or
controlled, directly or indirectly, by the Partnership, of which
2,726,000 square feet consists of office space, 546,000 square
feet consists of industrial space and 143,000 square feet
consists of retail shops.
Revenue from the operations of the Commercial Division
represented 3.7% of the Partnership's annual revenue for 1995.
As a result of the significant changes made in the Commercial
Division during 1995 and the first quarter of 1996, it is
expected that the percentage of the Partnership's total revenues
earned from the activities of the Commercial Division will be
substantially less in 1996. Similarly, the expenses attributable
to the Commercial Division are expected to be substantially
reduced.
Asset Management Division. This division provides strategic
direction, performance evaluation and advisory services
principally to 226 existing investment partnerships sponsored by
the Partnership and its affiliates. The division also handles
relations and communications with investor limited partners in
these partnerships. These investors consist of approximately
40,000 individuals and fiduciaries.
Hotel Division. In July 1994, the Partnership sold its
hotel management operations to an unaffiliated party for $1.5
million. The Partnership and its affiliates, however, retain
their ownership interests in the related hotel properties. See
"Management's Discussion and Analysis of Results of Operations
and Financial Condition."
Employees. As of March 1, 1996, the Partnership and its
affiliates employed approximately 1,050 individuals down from
1,245 at March 21, 1995, with approximately 1,010 employed in the
investment acquisition and Service Business and approximately 40
employed in corporate administration and support functions.
Competition. The performance of the Partnership's wholly-
owned apartment properties is impacted by a number of competitive
factors, including (i) the relative age and quality of the
Partnership's properties in comparison to other apartment
properties in the same market, (ii) rental concessions offered at
properties of similar quality in similar locations in response to
fluctuations in consumer demand and (iii) the types and quality
of amenities and services provided by properties in the markets
in which the Partnership's properties are located.
Competition for property management-related service
contracts tends to be dominated by regionally-based firms. The
Partnership possesses industry knowledge, relationships and
operating efficiencies that come from being a large, well-
established organization. Because the company's operational
activities are conducted through a network of regional and local
operating offices, the Partnership has first-hand knowledge about
the various economic, governmental and other important factors
affecting its markets.
Both the Commercial Division and the Apartment Division
provide services primarily to properties which are either wholly-
owned by, or controlled by, the Partnership and its affiliates
and is therefore not at significant risk of losing property
management-related business to competitors.
Environmental Regulations. Under various Federal and state
environmental laws and regulations, a current or previous owner
or operator of real estate may be required to investigate and
clean up certain hazardous or toxic substances or petroleum
product releases at a property, and may be held liable to a
governmental entity or to third parties for property damage and
for investigation and cleanup costs incurred by such parties in
connection with contamination. The owner or operator of a site
may be liable under common law to third parties for damages and
injuries resulting from environmental contamination emanating
from the site. Management is not currently aware of any
environmental liabilities which are expected to have a material
adverse effect on the Partnership's operations or financial
condition.
PROPERTIES
The Partnership currently rents its principal executive
offices consisting of (i) approximately 31,450 square feet in
Boston, Massachusetts, and (ii) approximately 4,800 square feet
in Jericho, New York of which approximately 3,000 square feet is
subleased to non-affiliated third parties.
In addition to the apartment properties referenced above
under "Investment Acquisitions," the Partnership and its
affiliates also own (i) certain retail properties containing
17,240 square feet and other real estate assets on the island of
Nantucket, Massachusetts, and (ii) six parcels of land subject to
long-term ground leases to investment partnerships organized by
the Partnership.
LITIGATION
The Partnership, its affiliates and subsidiaries are parties
to routine litigation arising in the ordinary course of business,
in respect of which any liability is expected to be covered by
liability insurance. In addition, the Partnership, certain of
its affiliates and subsidiaries and various former and current
officers of the Partnership are or were defendants in the
following legal proceedings:
In the matter of Albert Friedman, Individually and as
representative of a class of similarly situated persons, v.
Linnaeus Associates Limited Partnership, et al., No. 94 CH 11524,
Cir. Ct. of Cook County, Ill., a Public Unitholder brought a
lawsuit initiated as a class action suit in December 1994, on
behalf of all holders of Public Units against Linnaeus, certain
former and current members of the Partnership's management and
Nomura.
In the Friedman Litigation, the complaint, as amended,
alleged that the defendants' actions in connection with the
Nomura agreement constituted a breach of fiduciary duty,
participation in a breach of fiduciary duty, an improper taking
of a partnership opportunity and inequity. The complaint was
filed on behalf of the class comprised of the Public Unitholders
of the Partnership (other than Londonderry) and did not assert
any derivative claims on behalf of the Partnership. The
plaintiff in the Friedman Action sought certain equitable relief;
an unspecified amount in damages and such other relief as the
Cook County Circuit Court may deem just and proper. While the
Partnership is not a defendant in the Friedman Litigation, the
Partnership could have been contingently liable to some or all of
the defendants in the Friedman Litigation based on contractual
obligations of the Partnership to indemnify the defendants
against certain liabilities.
Following periodic settlement discussions, on March 20,
1996, the parties entered into the Friedman Settlement. On April
4, 1996, the Cook County Circuit Court issued a preliminary
approval order with respect to the Friedman Settlement. On or
about April 5, 1996, notice of the Friedman Settlement was sent
to Public Unitholders. The Friedman Settlement provides, among
other things, (a) that Londonderry will undertake to liquidate
the investment of the Public Unitholders by effecting a merger of
the Partnership and Londonderry or an affiliate in which each
Public Unit is acquired for no less than the Merger
Consideration, (b) the fairness of the Merger Consideration from
a financial point of view will be opined upon by a nationally
recognized independent investment banking firm and (c) each
Public Unitholder, as an alternative to accepting the Merger
Consideration, will have the option of seeking appraisal of the
fair value of his or her Public Units pursuant to Maryland law.
The Friedman Settlement also released the defendants in the
Friedman Action from the claims asserted in the case. The
Friedman Settlement received final approval from the Cook County
Circuit Court at a hearing held on May 23, 1996. At the hearing,
the Circuit Court of Cook County determined that the terms and
conditions of the proposed settlement, taken as a whole, are
fair, reasonable and adequate (including the requirements that
the merger consideration paid to Public Unitholders would not be
less than $10.50 per Public Unit and that the proposed merger
consideration must be opined upon as fair, from a financial point
of view, by an independent, nationally-recognized investment
banking firm). Since the price of $10.50 per Public Unit,
ultimately established as the merger consideration by Londonderry
and the General Partner, had not been determined at the time of
the hearing, the court was not asked to specifically determine
that this price was fair or adequate as consideration for the
public units.
On February 2, 1995, in Fred Rosen, et al. v. First Winthrop
Corporation, et al., filed in December 1988 in the State District
Court of Harris County, Texas (the "One Houston Litigation"), a
jury returned a verdict for the plaintiffs against FWC, the
Partnership and Messrs. Halleran and Wexler and awarded damages
of at least $30 million. The plaintiffs in the One Houston
Litigation were the investor limited partners in One Houston
Associates Limited Partnership ("One Houston"). The complaint
alleged gross negligence and breach of fiduciary duties.
On March 3, 1995, the Partnership and FWC entered into a
memorandum of agreement with One Houston in which the Partnership
and FWC agreed to settle the case by paying them the sum of $17.0
million on or before June 1, 1995. The settlement was approved
by the court on May 12, 1995, and payment was made by the
Partnership to the plaintiffs in June 1995. To pay the
settlement, the Partnership conveyed a note to Nomura in the
amount of $17.8 million. On July 14, 1995, Nomura contributed
the note to Winthrop Southwest in exchange for the Nomura
Preferred Equity Interest, which provides Nomura with certain
preferences of cash flow from the revenues from the properties
owned by Winthrop Southwest.
Gray, et al. v. First Winthrop Corporation, et al., (No. C-
90-2600-JPV), filed on September 10, 1990 (the "Gray Action"), in
the United States District Court, Northern District of California
(the "U.S. District Court") was brought by a class of limited
partners in 353 San Francisco Associates Limited Partnership
("353"), a real estate investment partnership organized in 1984.
353 owned an office building in San Francisco which was
foreclosed upon by the first mortgage lender in April 1990. The
plaintiffs allege violations of common law and securities law
fraud in the conduct of the original offering of investment
interests and seek rescission of their investment, totaling $28
million, together with interest thereon from the date of their
investment.
In September 1994, summary judgment was entered against the
plaintiffs and in favor of FWC on all claims asserted by the
plaintiffs. The plaintiffs appealed to the United States Court
of Appeals for the Ninth Circuit (the "Court of Appeals") and
oral arguments were heard on January 6, 1996. On May 2, 1996,
the Partnership was informed that the summary judgment granted by
the District Court had been reversed by the Court of Appeals and
that the case was remanded for trial. An unfavorable decision at
trial would have a significant adverse impact on the
Partnership's ability to continue its operations. In July 1996,
subsequent to periodic discussions with counsel to the plaintiffs
in the Gray Action regarding a negotiated settlement of the
action, FWC and class counsel to the plaintiffs in the Gray
Action reached an agreement to settle the Gray Action for a
payment of approximately $1.85 million to the plaintiffs in the
Gray litigation (the "Gray Settlement"). In order for the Gray
Settlement to be implemented, the FWC and class counsel in the
Gray Action must enter into and file a stipulation of settlement
with the United States District Court, Northern District of
California, the federal district court involved in the litigation
(the "U.S. District Court"). If the U.S. District Court
preliminarily approves the stipulation of settlement, FWC and
class counsel must send a notice of settlement to the class
involved in the Gray Action, which notice is also subject to the
approval of the U.S. District Court. After the class members
have had not less than 30 days to review the notice of settlement
and object to the terms of the settlement, there shall be a final
hearing at which the U.S. District Court will finally approve or
reject the stipulation of settlement. If there are plaintiffs
who object to the settlement, they will have an opportunity to be
heard by the U.S. District Court at this time. Subsequent to
such final hearing, if the settlement is finally approved, there
is a 30 day appeal period during which class members may appeal
such final approval, provided that they had previously objected
to the terms of the settlement. The stipulation of settlement
setting forth all the terms and conditions of the Gray Settlement
has not yet been prepared. Therefore, a final resolution of the
Gray Action is not expected to occur, if at all, earlier than 90
days from the date of this Information Statement. There is no
assurance that the settlement approved by class counsel will be
approved by the U.S. District Court or the class members.
In connection with the tender offer made by Aquarius for
units of the limited partnership interest in Springhill Lake and
the termination of Lerner Management and the appointment of
Winthrop Management as the property manager at the Springhill
Lake property, a number of lawsuits were commenced against Three
Winthrop Properties, Inc., the managing general partner of
Springhill Lake, Nomura and certain of their affiliates. These
lawsuits, to the extent they involve damage claims against the
Partnership, its subsidiaries and affiliates are described below.
Theodore N. Lerner v. Three Winthrop Properties, Inc., (Case
No. DKC-3601) was filed on December 27, 1994, in United States
District Court for the District of Maryland, Southern District.
The plaintiff (Lerner) is a limited partner in the Springhill
Operating Partnerships. The claims against Three Winthrop are
for an accounting and breach of fiduciary duty. The plaintiff
contends that Three Winthrop as managing general partner of the
general partner of the Springhill Operating Partnerships has
failed to make certain distributions to which he claims an
entitlement. Plaintiff has not specified a particular monetary
amount which he seeks, but does claim that more than $50,000 is
involved. Three Winthrop acknowledges that the plaintiff is
entitled to approximately $200,000 in distributions for the 1994
calendar year, but has denied that he is owed any other amount.
Discovery is ongoing and it is not possible to predict the likely
outcome of the litigation at this time.
Mitchell R. Montgomery, et al. v. Three Winthrop Properties,
Inc. (Case No. 132222-V) was filed on February 7, 1995, in
Circuit Court of Montgomery County, Maryland. The plaintiffs are
two limited partners in Springhill Lake and the limited partner
in the Springhill Operating Partnerships (Lerner). Plaintiffs
allege that Three Winthrop has breached its fiduciary duty by
attempting to discharge the current property management agent for
the project and replace it with an affiliate of Three Winthrop.
Plaintiffs seek equitable relief and damages in an unspecified
amount. During the pendency of the Montgomery Action, one of the
plaintiffs sold his interest in Springhill Lake and ceased to be
a plaintiff. On January 22, 1996, the court granted the
defendant's motion for partial summary judgment on all individual
claims as well as the claims of another of the plaintiffs. A
bench trial was held in June 1996 and the judge entered a
directed finding in favor of Three Winthrop on all remaining
claims.
LER 8 v. Three Winthrop Properties, Inc., et al. (Case No.
DKC-95-555) was filed in United States District Court for the
District of Maryland, Southern District, on February 27, 1995. A
limited partner filed the lawsuit on its own behalf and
derivatively on behalf of Springhill Lake, alleging that Three
Winthrop is in violation of Rule 13e-3 promulgated under the
Securities Exchange Act of 1934 and that Three Winthrop has
breached its fiduciary duty to limited partners. LER 8 also
moved to preliminarily enjoin the tender offer commenced by
Aquarius. Plaintiff has not articulated a claim for any damages.
On February 27, 1995, Greenbelt Residential Limited Partnership
("Greenbelt"), an affiliate of Lerner, filed a motion to
intervene as a plaintiff in the above action. On March 7, 1995,
the court held a hearing on a motion to preliminarily enjoin the
tender offer of Aquarius. Counsel for LER 8 and Greenbelt
appeared and argued in support of the preliminary injunction. At
the conclusion of the hearing, the court denied the motion for
the preliminary injunction, as well as an application for a
temporary restraining order pursuant to an amended complaint
filed the day of the hearing. The Court based its decision on
the grounds that no irreparable injury would be suffered by
limited partners of Springhill Lake if Aquarius' offer to
purchase limited partner interests were allowed to proceed.
Other Developments. A significant amount of revenue of the
Partnership and its affiliates is derived from management fees
collected from real estate portfolio partnerships with which they
are affiliated (the "Partnership Portfolio Partnerships"). Since
January 1995, there have been four consent and proxy
solicitations initiated by third parties against the Partnership
and its affiliates seeking to remove the Partnership as general
partner of four of the Partnership Portfolio Partnerships. While
none of these hostile solicitations have been successful to date,
the Partnership Portfolio Partnerships have paid in excess of an
aggregate of $1,500,000 to defend the Partnership's interests.
In the event additional consent and proxy solicitations were to
be launched against the Partnership Portfolio Partnerships and
were successful, management fee contracts with the Partnership
and its affiliates would likely be terminated and the loss of
such management fees could have a material adverse effect upon
the revenues of the Partnership and its affiliates.
SUMMARY FINANCIAL DATA
Set forth below is a summary of certain combined financial
information with respect to the Partnership, excerpted from the
information in the Partnership's Annual Reports on Form 10-K for
the years ended December 31, 1994 and December 31, 1995 and the
Partnership's Quarterly Reports on Form 10-Q for the quarters
ended June 30, 1995 and June 30, 1996. More comprehensive
financial information is included in such reports and other
documents filed by the Partnership with the Commission and the
following summary is qualified in its entirety by reference to
such reports and other documents and all of the financial
information (including any related notes) contained therein.
These reports and other documents should be available for
inspection at the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549 and also should be available
for inspection and copying at the regional offices of the
Commission located at 7 World Trade Center, 13th Floor, New York,
NY 10048 and Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. Copies of the material may
also be obtained by mail, upon payment of the Commission's
customary fees, from the Commission's principal office.
WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP
Summary Consolidated Financial Data
(Dollars in thousands, except per Public Unit Amounts)
Six Months ended Year ended December 31,
June 30,
(unaudited)
1996(1) 1995(2) 1995(3) 1994(4)
BALANCE SHEET DATA
Total Assets $236,222 $235,294 $230,901 $231,204
Total Current
Liabilities 17,552 57,639 15,637 64,339
Total Long Term
Liabilities 196,423 159,012 193,752 148,990
Partners' Capital 5,713 18,643 4,661 17,815
INCOME STATEMENT
DATA
Total Revenues 37,576 35,332 71,471 71,007
Net Income (Loss) 1,052 828 (8,352) (13,265)
Public Unitholders
net income
(loss) per
Public Unit .39 $ .31 (.48) $ (.75)
MISCELLANEOUS
Ratio of Earnings
to Fixed Charges 1.30 1.17 .73 (.06)
Book Value Per
Public Unit(5) $ 2.11 $ 6.87 $ 1.72 $ 6.52
1 Cumulative unpaid preferred distribution, assuming 2,711,989
Public Units outstanding, was $22,374,000, $8.25 per Public
Unit.
2 Cumulative unpaid preferred distribution, assuming 2,711,989
Public Units outstanding, was $17,628,000, $6.75 per Public
Unit.
3 Cumulative unpaid preferred distribution, assuming 2,711,989
Public Units outstanding, was $20,340,000, $7.50 per Public
Unit.
4 Cumulative unpaid preferred distribution, assuming 2,711,989
Public Units outstanding, was $16,272,000, $6.00 per Public
Unit.
5 Assuming allocation of entire book value of the Partnership
to the Public Units.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The following discussion should be read in conjunction with
the other financial information contained in this Information
Statement. The Partnership and its consolidated subsidiaries
(including, but not limited to, FWC and Winthrop Management) are
sometimes referred to herein together as the "Partnership."
LIQUIDITY AND CAPITAL RESOURCES
The Partnership generates substantially all of its income
from rental revenues received at its properties and management
fees and tenant service fees received by its apartment,
commercial and asset management divisions and is responsible for
costs associated with the ownership and maintenance of its assets
as well as general and administrative costs. At June 30, 1996,
the Partnership had cash resources available to it of $23,558,000
of which $14,000,000 was unrestricted as compared to $12,362,000
of cash at December 31, 1995 of which $3,834,000 was
unrestricted. The Partnership invests its working capital in
money market accounts or repurchase agreements secured by United
States Treasury obligations.
The Partnership generated $9,615,000 of cash from
operating activities and $3,227,000 of cash from investing
activities while utilizing $1,646,000 in financing activities
during the six months ended June 30, 1996 The significant cash
provided from operations is primarily the result of a collection
of significant amounts previously advanced to partnerships and
fees receivable.
The Partnership used $16,782,000 in operating activities and
$5,807,000 in investing activities during 1995 which exceeded the
Partnership's cash flow from financing activities of $16,053,000
during 1995. The shortfall is principally attributable to the
payment of the One Houston settlement and the associated legal
costs. See "Business of the Partnership Litigation" The
$16,053,000 of cash flow from financing activities is net of
$4,244,000 used in connection with the purchase of the Management
Investor's equity interests in WLR. The cash requirements of the
Partnership were satisfied by: (i) approximately $6,536,000 of
the Partnership's reserves and (ii) the proceeds from a series of
financing transactions consummated in the second and third
quarters, described below.
In July 1995, the Partnership entered into a financing
arrangement, whereby the Partnership borrowed approximately
$42,000,000. The loan accrues interest at LIBOR plus 3%, with an
overall interest rate cap of 10.19% and matures in 1998. The
proceeds of this loan were used to: (i) fund severance and
equity repurchase costs associated with the change in control of
the general partner of the Partnership; (ii) repay approximately
$9,400,000 of mortgage indebtedness due August 15, 1995, which
was secured by a Partnership owned apartment property; (iii)
repay approximately $3,400,000 of mortgage indebtedness due
October 31, 1996, secured by certain Partnership owned
properties; (iv) repay approximately $15,000,000 of mortgage
indebtedness secured by certain Partnership owned properties and
was classified as a current liability due to a breach of certain
financial covenants provided for in the loan documents; and (iv)
repay $6,382,000 relating a revolving credit facility.
In July 1995, the Partnership contributed the Southwestern
Properties to Winthrop Southwest and Nomura contributed to
Winthrop Southwest a $17,800,000 note receivable from the
Partnership and FWC in exchange for preferred equity, which
provides Nomura with certain preferences of cash flow from
operations. The proceeds of the $17,800,000 note were used to
fund the settlement of the Rosen litigation referred to above and
to pay expenses associated with the litigation and the loan
transactions.
In April 1995, the Partnership obtained approximately
$9,470,000 in financing in connection with the acquisition of a
329 unit apartment complex.
In February 1996, the Partnership contributed approximately
$36.6 million of receivables to Nineteen New York Properties
Limited Partnership ("19NY") in connection with a loan
restructuring transaction pursuant to which an affiliate of
Apollo acquired the existing debt on certain of 19NY's
properties. The remaining $10 million of receivables owed by
19NY and 1626 New York Associates Limited Partnership, a general
partner of 19NY, were evidenced by a promissory note which the
Partnership sold to an affiliate of Apollo for $6,000,000.
At this time, the Partnership believes that its cash
reserves and cash flow from operations will be sufficient to
satisfy future working capital requirements. It appears,
however, that the original investment objectives of capital
growth and quarterly distributions will not be attained in the
foreseeable future and that limited partners are unlikely to
receive a return of all of their invested capital. During 1995,
distributions to the Partnership's partners remained suspended
and it is anticipated that distributions will continue to be
suspended for the foreseeable future.
In March 1995, the FASB issued SFAS No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of." SFAS No. 121 is effective for financial
statements issued for fiscal years beginning after December 15,
1995, with earlier application permitted. SFAS No. 121 addresses
the intangibles to be held and used by an entity to be reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be
recoverable. The Partnership has adopted SFAS No. 121 on January
1, 1996, as required. Adopting SFAS No. 121 did not have a
significant effect on the Partnership's consolidated financial
statements.
RESULTS OF OPERATIONS
Six Months Ended June 30, 1995 and 1996.
Operating income improved by $3,038,000 and $1,021,000 for
the six months and three months ended June 30, 1996 as compared
to the same periods in 1995, due to an increase in revenues of
$2,244,000 and $421,000, respectively, as well as a decrease in
expenses of $794,000 and $600,000 respectively.
The increase in revenues for the six months ended June 30,
1996 as compared to 1995 is due to increases in rental revenue of
$1,818,000, management fees of $611,000, interest income of
$694,000 and other income of $2,160,000. These increases were
partially offset by decreases in leasing commissions of $530,000,
investment services revenue of $553,000 and tenant service
revenue of $1,956,000. Revenues for the three month period
ended June 30, 1996 were $19,120,000 compared to $18,699,000 or
a 2.2% increase from the three month period in 1995.
The increase in rental revenue is primarily attributable to
the acquisition in April 1995 of a 329 unit apartment complex
located in Austin, Texas and overall improved operations at the
Partnership's properties. The increase in management fees was
primarily attributable to the improved revenues at the
properties the Partnership manages which were partially offset by
lost contract charges and the elimination of construction
management fees due to the outsourcing of these services.
Interest income increased as a result of higher cash balances and
the increase in other income is attributable to non-recurring
recoveries of previously reserved fees receivable, cash
distributions received from investment programs and fees received
for arranging financings.
Tenant service revenue decreased due to the outsourcing of
building cleaning, security and construction services. The
decrease in leasing commissions is attributable to both timing
and the outsourcing of leasing functions at certain of the
Partnership's properties.
Operating expenses decreased by 2.4% for the six month
period ended June 30, 1996 when compared to the six month period
ended June 30, 1995 due to a decrease in tenant service expense
of $2,121,000 which was partially offset by increases in
management, general and administrative expense of $375,000,
rental expense of $415,000, depreciation and amortization of
$409,000 and interest expense of $128,000. Operating expenses
decreased by 3.4% for the quarter ended June 30, 1996 compared to
the quarter ended June 30, 1995. Savings were recognized in
tenant service expense, interest expense and rental property
expense which were offset by increases in management, general &
administrative and depreciation and amortization expense.
The increase in management, general and administrative
expenses is attributable to an increase in legal and
professional fees partially offset by savings due to a reduction
in the number of employees of the Partnership as well as other
cost cutting measures. The decrease in tenant service expense is
the result of the outsourcing of these functions. The increases
for the six month period ended June 30, 1996 in rental expense,
depreciation and amortization are primarily attributable to the
acquisition of the Austin, property. The increase in interest
expense for the six month period ended June 30, 1996 is
attributed to the additional $42 million financing secured by
certain of the Partnership's residential apartment properties
which closed in July 1995.
The legal settlement expense of $1,850,000 relates to the
proposed settlement of the Gray Action.
Year Ended December 31, 1995 Compared to Year Ended December
31, 1994. The Partnership's operating income for 1995 and 1994
was $1,689,000 and $3,471,000, respectively. The decrease is, as
explained in more detail below, principally the result of non-
recurring recoveries of previously reserved for accounts
receivable recognized in 1994. Operating income generated in
1995 by the Partnership's service business and the Partnership's
property investments remained consistent with 1994. The
Partnership's total net loss for 1995 and 1994 was $8,352,000 and
$13,765,000, respectively. The decreased total net loss is
attributable to the accrual in 1994 of a $17,500,000 legal
settlement discussed below.
A principal component of the Partnership's revenues in 1995
was rental revenue which constitutes approximately 66% of the
Partnership's total revenues. The Partnership earns rental
revenue primarily from the residential properties it owns.
Rental revenue in 1995 was $47,388,000, representing a $5,017,000
or 11.8% increase over 1994. This increase is attributable to:
(i) the April 1995, acquisition of a 329 unit apartment complex
located in Austin, Texas; (ii) a full year of operations
recognized for three apartment complexes acquired during 1994
containing 624 apartment units; and (iii) improved operations at
properties acquired previously. Correspondingly, these
acquisitions resulted in increased rental operating expense,
depreciation and amortization expense and interest expense.
Revenue from the Partnership's service business is comprised
of property and asset management fees and fees earned in
connection with tenant services, leasing and property
acquisition. Management fees, the largest component of the
service business revenue, decreased by $345,000 (2.4%) compared
to 1994. Management fees represent fees earned in connection
with property management, asset management and administrative
services provided primarily to investment programs the
Partnership has sponsored or controls. In July 1994, the
Partnership, in its effort to focus the service business on
apartment and commercial properties, sold its hotel division.
The sale resulted in a $1,188,000 reduction of management fees
from 1994. Accordingly, as discussed below, this transaction
resulted in decreased management, general and administrative
expenses. The reduction in the Partnership's management fee
revenue from the sale was offset by: (i) an increase in apartment
division management fees of approximately $432,000 attributable
to an additional property management contract for an apartment
property containing 2,899 apartment units, along with improved
operations at existing apartment properties under management and
(ii) an increase of approximately $320,000 recorded by the
Partnership's asset management division relating primarily to
prior years' services. Property management fees earned in 1995
by the Partnership's commercial division increased by $52,000 or
(2%) over 1994. Other fees associated with administrative
services increased by approximately $39,000.
The Partnership earned tenant service revenue for providing
commercial cleaning, building security and construction
management to properties and to the tenants of properties it
manages. Tenant service revenue decreased by $80,000 or (1.9%)
over 1994 as the result of a $55,000 decrease in cleaning
revenues and a $19,000 decrease in security revenues. A $450,000
reduction in the Partnership's tenant service expense was
recognized in 1995 as a result of management's efforts to control
costs. The Partnership elected to cease providing such services
during 1996.
The Partnership earns leasing commissions from certain of
the properties it manages for brokering or co-brokering leases
for space therein. Leasing commissions fluctuate in any given
period depending on market conditions in the geographical areas
where the property operates and the amount of space available to
rent at the properties. Leasing commissions decreased by
$1,230,000 or (55%) in 1995. This is primarily attributable to a
$1,100,000 non-recurring 1994 leasing commission earned by the
Partnership in connection with the lease renewal of a major
tenant at One Federal Street, Boston, Massachusetts.
Property acquisition and related fee income represents
transactional fees earned through structuring net lease
arrangements and the institutional placement of debt and equity
associated with such arrangements. Fees earned from these
transactions were $670,000 in 1995, representing a $311,000
decline over 1994.
Interest income is generated on the Partnership's cash
equivalents and long-term accounts receivable. Interest income
decreased by $27,000 in 1995 over 1994 as the result of lower
cash reserves held by the Partnership.
Other income for 1995 was $1,442,000, which represents a
$2,560,000 decrease from 1994. This decrease is attributable to
approximately $2,619,000 of non-recurring recoveries of
previously recorded accounts receivable recognized in 1994.
The principal component of management, general and
administrative expense is operating overhead costs relating to
the Partnership's service business (excluding tenant service),
such as payroll, rent and other related costs. Management,
general and administrative expense decreased by $1,603,000 or
8.33% in 1995 as compared to 1994. This is due largely to the
1994 sale of the hotel division as well as management's efforts
to reduce overhead costs.
Rental operating expenses reflect costs incurred in
connection with the operation of the Partnership's property
investments, such as repairs and maintenance, leasing, and
payroll. As noted above, these costs and depreciation and
amortization increased in 1995 as compared to 1994, by $1,432,000
(6.5%) and $1,531,000 (20.6%), respectively, as a result of the
acquisition of a 329 unit apartment complex located in Austin,
Texas, and a full year of operations recognized for three
apartment complexes acquired during 1994.
Interest expense increased by $1,336,000 or 9.2% as compared
to 1994. This increase is primarily the result of additional
financing obtained during 1995 in connection with the acquisition
of the property investments discussed above and additional
financing obtained by the Partnership during 1995 which is
secured by certain of the Partnership's apartment projects.
The 1994 legal settlement expense represents an accrued
settlement and associated legal costs resulting from the
settlement of a lawsuit. The settlement was paid in 1995.
Non-recurring organizational costs of $7,355,000 incurred in
1995 are principally related to: (i) severance and costs
associated with the change in control of the Partnership and (ii)
the costs associated with several proxy solicitations and the
settlement of related legal costs with The Alternative Group
which had sought to replace the Partnership as the general
partner of certain investment partnerships. Non-recurring
organizational costs incurred in 1994 are ascribed to the
Partnership's decision to postpone the formation of a real estate
investment trust.
Minority interest expense represents Nomura's preferred
equity in the Southwest Properties.
Year Ended December 31, 1994 Compared to Year Ended December
31, 1993. The Partnership's revenues and expenses for the year
ended December 31, 1994, increased by more than 100% over the
revenues and expenses recognized in 1993 and 1992. This is
attributable to the significant change in the contributing
components of the Partnership's revenues and expenses in 1994, as
compared to prior years, resulting from the continued shift in
the direction of the Partnership's operations away from
transactional syndication activities to recurring revenues
derived from the Partnership's property investments and service
business.
A principal component of the Partnership's revenues in 1994
is rental revenue. Rental revenue constituted approximately 60%
of the Partnership's revenue for 1994 compared to approximately
9% in 1993. This increase is attributable to the Partnership's
acquisition of 34 apartment properties (containing 7,847 units)
during 1993 and 1994 for its own account. This substantial
increase in the Partnership's wholly-owned portfolio of real
property has correspondingly resulted in significant increases in
depreciation and amortization expense, rental operating expense
and interest expense. In 1994 these wholly-owned properties
generated approximately $40,587,000 of rental revenue,
$20,024,000 of rental operating expenses, approximately $810,000
of additional management, general, and administrative expenses,
$5,814,000 of depreciation and amortization and $12,949,000 of
interest expense (yielding $990,000 of operating income). The
corresponding operating income for 1993 was $163,000.
Through these property acquisitions, the Partnership has
expanded its apartment property management operations in a number
of regional markets in the southeast and southwest regions of the
country. However, because of the 1994 consolidation of the
Southwestern Properties which requires an elimination of inter-
company revenues and expenses (under Generally Accepted
Accounting Principles), the management fees reported by the
Partnership relating to these properties decreased by $638,000
over 1993. Offsetting this decrease was an increase of
approximately $350,000 resulting from additional management
contracts and improved operations at existing properties under
management.
In 1994, the Partnership's commercial division property
management fees decreased by approximately $800,000 (or 21.4%)
compared to 1993. This decrease was due to: (i) a $600,000
decrease in the amount of fees that the Partnership accrues with
respect to one investment partnership owning commercial property
in New York City (see Note 4 to the accompanying Consolidated
Financial Statements); (ii) a $225,000 reduction in incentive
management fees earned by the Partnership with respect to One
Federal Street, and (iii) a $100,000 reduction in fees resulting
from the foreclosure of one property. These reductions in fees
earned were offset in some part by additional third-party
management and consulting engagements obtained by the commercial
division during 1994.
Leasing commissions earned by the Partnership's commercial
division in 1994 increased by $577,000 (or 34.8%) over 1993, due
to an approximately $1,100,000 commission earned with respect to
a 580,000 square foot lease extension agreement executed at One
Federal Street. Tenant service revenue increased by $1,115,000
(or 37.1%) in 1994 over 1993, as a result of obtaining additional
third-party security service agreements and entering into a
contract to provide security services to an office building
located in Miami, Florida, which is owned by an affiliated
investment partnership. The corresponding tenant service expense
increased by $1,537,000 (or 55.9%) in 1994 over 1993, due to the
additional payroll costs incurred in connection with these new
contracts.
Asset management fees earned by the Partnership increased by
approximately $600,000 (or 18.8%) in 1994 over 1993, primarily as
a result of the acquisition of general partnership interests in
two investment partnerships owning apartment complexes. Under
the terms of these partnership agreements the general partner
earns asset management fees equal to 1% of the assets (as
defined). These fees amounted to $589,000 for 1994.
In early 1994, the Partnership decided to focus its service
business on apartment and commercial properties. Accordingly, in
July 1994, the Partnership sold its hotel division for $1,500,000
to an unaffiliated party. In conjunction with this sale, the
Partnership incurred $844,000 of severance and other non-
recurring costs during 1994. The sale price, net of the costs
incurred, are treated as deferred income, as portions of these
proceeds are refundable in the event of termination prior to the
sixth anniversary of the sale. The deferred income will be
recognized over such six year period. The Partnership and its
affiliates, however, retain their ownership interests in the
related hotel properties. The hotel management fees recognized
in 1994 were $1,188,000, representing a $201,000 decrease over
the full year 1993 revenues of $1,389,000.
Property acquisition and related fee income continued to
decline in 1994 due to the discontinuation of the Partnership's
syndication activities. The Partnership recorded $981,000 of
revenue in this category, only $124,000 (12.6%) of which was
earned in connection with syndicated investment partnerships.
The remainder was attributable to fees earned through structuring
net lease arrangements.
Other income for 1994 was $4,002,000, which represents a
$2,916,000 increase over 1993. The predominant elements of this
increase are: (i) approximately $2,619,000 of recoveries of
previously reserved receivables and (ii) $131,650 in insurance
commissions resulting from the additional apartment properties
under management.
Interest income decreased by $2,972 000 or 49.5% over 1993.
This is due principally to a non-recurring 1993 prepayment of
accrued interest on a deferred fee paid in connection with the
sale of a property owned by an investment partnership previously
organized by the Partnership. The remainder of the decrease is
the result of lower cash reserves held by the Partnership.
Management, general and administrative expenses increased by
$1,545,000 or 8.7%. This is due largely to increased management
costs resulting from the property acquisitions described above.
The Partnership estimates that approximately $500,000 of
additional costs were incurred during 1994 in connection with the
management of these properties. In addition to these costs, the
Partnership expended approximately $1,000,000 relating to the
restructuring and refocusing of the Partnership's business
(primarily severance costs and consulting fees).
Interest expense increased by $11,395,000 or 357% over 1993.
This increase is due to debt incurred or assumed in connection
with the acquisition of apartment properties. These obligations
are described in Note 9 to the accompanying Consolidated
Financial Statements.
Equity in loss of investment partnerships decreased by
$582,000 (41.6%) as the result of a decreased loss in one
investment partnership.
DISTRIBUTIONS
The Partnership does not pay dividends. Instead, if and to
the extent the Partnership has cash available, the Partnership
may, in its sole and absolute discretion, make distributions of
such cash to the Partnership's partners. Under the terms of the
Twelfth Amendment to the Partnership Agreement, adopted in
September 1986 (the "Twelfth Amendment"), the Public Unitholders
have a preferential right each year to the first cash available
from any non-liquidating distributions. If the non-liquidating
distribution is treated as an "Operating Distribution" under the
terms of the Partnership Agreement, the Public Unitholders are
entitled to a preferential right to distributions equal to 6% of
the adjusted purchase price per Public Unit (the original
purchase price of $25.00 per Public Unit reduced by any prior
Capital Distributions received by the holder of such Public Unit)
(the "Public Unitholder Priority"). To the extent the entire
Public Unitholder Priority is not distributed in any year, the
shortfall amount is added to the preferential Public Unitholder
Priority to which the Public Unitholders are entitled in the
following year. Any Operating Distributions in excess of the
Public Unitholder Priority are distributed in proportion to the
General Partner's and Unitholders' percentage interests in the
Partnership (currently approximately 92.28% to the General
Partner and Londonderry and 7.72% to the Public Unitholders other
than Londonderry). If the non-liquidating distribution is
treated as a "Capital Distribution" under the terms of the
Partnership Agreement, the Public Unitholders are entitled to a
preferential right to distributions equal to the original
purchase price of $25.00 per Public Unit until the entire
original purchase price is repaid (the "Capital Priority"). Any
Capital Distributions in excess of the Capital Priority are
distributed in proportion to the General Partner's and
Unitholders' percentage interests in the Partnership (currently
approximately 92.28% to Linnaeus and its affiliates and 7.72% to
the Public Unitholders other than Londonderry). Upon liquidation
of the Partnership while the Public Unitholders are not entitled
to a preferential right to liquidating distributions, the
Partnership believes that the provisions of the Partnership
Agreement which control the distribution of net liquidation
proceeds would result in the Public Unitholders receiving either
(i) any unpaid preference amounts (i.e., an amount equal to the
unpaid Public Unitholder Priority plus the unpaid Capital
Priority) or (ii) the total net liquidation proceeds if such
proceeds are less than the amount in clause (i).
There is no established public trading market for the Public
Units. The Public Units are not listed on any securities
exchange and are not quoted on the National Association of
Securities Dealers Automated Quotation System. Any transfer of
the Public Units is subject to the approval of the General
Partner.
From 1987 to 1990, the Partnership distributed, in the
aggregate, $10.03 per Public Unit to the Public Unitholders.
Such distribution amounts were treated as distributions from
operations and not as a return of Public Unitholders' capital.
The Partnership has failed to pay current Public Unitholders any
Operating Distributions since 1990. The unpaid Public Unitholder
Priority amounted to an aggregate of approximately $[22,374,000],
$[8.25] per Public Unit held by a Public Unitholder ($1.50 per
Public Unit per year) at June 30, 1996. There are no legal or
contractual restrictions on the Partnership's present or future
ability to make cash distributions. It is unclear, however, if
and when another cash distribution will be made.
No Capital Distributions have been made to Public
Unitholders. Thus, as of the date of this Information Statement,
the entire Capital Priority ($25.00 per Public Unit held by
Public Unitholders) remains unpaid.
The Partnership Agreement contains provisions which permit
the redemption of the Public Units in the discretion of the
General Partner. The Public Units are subject to redemption by
the Partnership at a price equal to the Public Unitholder
Priority, which will be approximately (i) $20.3 million
(approximately $7.50 per Public Unit) as of December 31, 1995,
plus (ii) the greater of unreturned capital or the Public Units'
fair market value reduced by all prior capital distributions.
From 1987 to 1992, the Partnership issued without
consideration the Residual Interests to the Public Unitholders.
See "Special Factors Residual Interests."
BENEFICIAL OWNERSHIP OF ASSIGNEE AND PUBLIC UNITS AND
TRANSACTIONS IN ASSIGNEE AND PUBLIC UNITS BY CERTAIN PERSONS
BENEFICIAL OWNERSHIP OF ASSIGNEE AND PUBLIC UNITS
The Public Units represent a derivative interest in the
limited partnership interest in the Partnership. Under the
Partnership Agreement, as amended, there is only one limited
partner, WFA Nominee Co., Inc., that acquired 15,284,243 Assignee
Units, all of which Assignee Units were transferred to all
Unitholders (before abandonment of 825 units). See "Special
Factors Background of the Merger" for additional information.
The following table sets forth information as of June 30,
1996, regarding ownership of Assignee Units by each person who is
known by the Partnership to own beneficially more than 5% of the
Assignee Units and Public Units.
NAME AND ADDRESS AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL OWNER OF BENEFICIAL INTEREST LIMITED
INTEREST1 GEN. PARTNER
PARTNER1
Linnaeus Associates General Partner 13.01%
Limited Partnership Interest 71.55%
One International 12,571,429
Place Assignee Units
Boston, MA 02110
Apollo Real Estate General Partner 13.01%
Advisors, L.P. (2) Interest 71.55%
1301 Avenue of the 12,571,429 7.72%
Americas Assignee Units
New York, NY 10019 1,357,152 Public
Units
W.L. Realty, L.P. (3) General Partner 13.01%
One International Interest 71.55%
Place 12,571,429
Boston, MA 02110 Assignee Units
Londonderry General Partner 13.01%
Acquisition II (4) Interest 71.55%
Limited Partnership 12,571,429
2 Manhattanville Road Assignee Units
Purchase, NY 10577
Londonderry General Partner
Acquisition Interest
Limited Partnership 1,357,152 Public 7.72%
2 Manhattanville Road Units
Purchase, NY 10577
1 Each of the entities listed has shared voting investment and
voting power with respect to the Assignee Units listed.
2 As the sole shareholder of Londonderry Acquisition
Corporation II, Inc., the sole general partner of LDY-GP
Partners II, L.P., which in turn is the sole general partner
of Londonderry II, Apollo beneficially owns the 12,571,429
Assignee Units beneficially owned by Londonderry II. In
addition, as the sole shareholder of Londonderry Acquisition
Corporation, Inc., the sole general partner of LDY-GP
Partners II, L.P., which in turn is the sole general partner
of Londonderry, Apollo beneficially owns the 1,357,152
Public Units beneficially owned by Londonderry.
3 W.L. Realty, L.P. beneficially owns its Assignee Units as
the sole general partner of the General Partner.
4 Londonderry II beneficially owns its Assignee Units as the
sole general partner of W.L. Realty, L.P., which is the sole
general partner of the General Partner.
The Partnership has no board of directors. The
Partnership's senior management, who serve as officers appointed
by the General Partner consists of individuals who are appointed
by Londonderry II, the general partner of WLR.
EXPENSES OF THE MERGER
It is estimated that the expenses incurred in connection
with the Merger will be approximately as set forth below:
Financing fees and expenses (1) . . . $
Investment banking fees and expenses (2) 420,000
Legal fees and expenses (3) . . . . .
Accounting fees and expenses . . . . .
Filing fees . . . . . . . . . . . . .
Printing and mailing fees . . . . . .
Miscellaneous . . . . . . . . . . . .
Appraisal fees and expenses(4) . . . . 35,000
$
__________
(1) Represents the commitment fee payable to ____________. See
"Financing Of The Transaction."
(2) Includes the fees and estimated expenses of Bear Stearns
(see "Special Factors Opinion of Financial Advisor").
(3) Includes the fees and estimated expenses of counsel to the
General Partner (see "Special Factors Background of the
Merger") and counsel to Londonderry. Does not include fees
and disbursements in connection with ongoing services which
one of the firms that acts as counsel to the General Partner
is continuing to perform as general outside counsel to the
Partnership.
(4) Includes the fees and estimated expenses of Valuation
Research (see "Special Factors Residual Certificates").
Except as otherwise provided in the Merger Agreement with
respect to indemnification, each party thereto has agreed to bear
its own expenses in connection with the Merger Agreement and the
transactions contemplated thereby and none of the expenses of the
other parties to the Merger Agreement is expected to be paid by
the Partnership (although, Londonderry II and its other
affiliates are in a position to recover their transaction
expenses from the funds of the Partnership). See "The Merger
Agreement."
SCHEDULE 1
Directors and Executive Officers of Londonderry
Acquisition Corporation, Inc., Londonderry Acquisition
Corporation II, Inc. and Apollo Real Estate Management, Inc.
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
Londonderry Acquisition Corporation, Inc. ("LAC General
Partner"), Londonderry Acquisition Corporation II, Inc. ("LAC II
General Partner") and Apollo Real Estate Management, Inc.
("AREM") all of whom are citizens of the United States.
LAC General Partner and LAC II General Partner
The following listed persons are the officers of LAC General
Partner and LAC II General Partner since November 1994. In
addition to being officers of LAC General Partner and LAC II
General Partner, Mr. W. Edward Scheetz and Mr. Michael D. Weiner
are directors of such corporations.
LEE S. NEIBART. Since 1993, Mr. Neibart has been an associate of
Apollo Real Estate Advisors, L.P. ("Apollo"), which acts as
managing general partner of Apollo Real Estate Investment Fund,
L.P. (the "Apollo Fund"), a private investment fund with
investment parameters ranging from direct and indirect real
property interests, to public and private debt securities and
bank and mortgage debt to public and private equity investments.
Prior to 1993, Mr. Neibart was 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. Mr. Neibart received his MBA from New York
University. Mr. Neibart is a director of Roland International,
Inc. and Capital Apartment Properties, Inc., and a past
President of the NAIOP in New York. Mr. Neibart's business
address is 1301 Avenue of the Americas, New York, New York
10019.
W. EDWARD SCHEETZ. Since May 1993, Mr. Scheetz has been a
limited partner of Apollo. Since that time, he has directed the
investment activities of the Apollo Fund. Prior to May 1993, Mr.
Scheetz was a principal of Trammel Crow Ventures, a national real
estate investment firm. Mr. Scheetz is a director of Roland
International, Inc., and Capital Apartment Properties, Inc.
Mr. Scheetz' business address is 1301 Avenue of the Americas,
38th floor, New York, New York 10019.
MICHAEL D. WEINER. Mr. Weiner has been an officer since 1992 of
Apollo Capital Management, Inc. which acts as general partner of
Apollo Advisors, L.P., the managing general partner of each of
Apollo Investment Fund, L.P., AIF II, L.P. and Apollo Investment
Fund III, L.P., private securities investment funds. In
addition, Mr. Weiner has been an officer since 1993 of AREM,
which acts as general partner of Apollo. From 1987 to 1992, Mr.
Weiner was a partner of the national law firm of Morgan, Lewis &
Bockius focusing on securities transactions, corporate and real
estate financings, acquisitions and restructurings. Mr. Weiner
is a director of Continental Graphics Holdings, Inc., Converse,
Inc., The Florsheim Shoe Company, Inc., Furniture Brands
International, Inc. and Capital Apartment Properties, Inc. Mr.
Weiner's business address is 1999 Avenue of the Stars, Los
Angeles, California 90067-6048.
Apollo Real Estate Management, Inc.
AREM acts as the general partner of Apollo. The following
individuals are the directors of AREM.
LEON D. BLACK - Mr. Black is one of the founding principals of
(i) Apollo Advisors, L.P., which acts as the managing general
partner of each of Apollo Investment Fund, L.P. AIF II. L.P. and
Apollo Investment Fund III, L.P., private securities investment
funds, (ii) Apollo and (iii) of Leon Advisors, L.P., which
provides advisory services with respect to securities
investments. Mr. Black is a director of Big Flower Press, Inc.,
Converse, Inc., Culligan Water Technologies, Inc., Furniture
Brands International, Inc., Gillett Holdings, Inc., Samsonite
Corporation and Telemundo Group, Inc. Mr. Black's business
address is 1301 Avenue of the Americas, 38th floor, New York, New
York 10019.
JOHN J. HANNAN - Mr. Hannan is one of the founding principals of
Apollo Advisors, L.P., which acts as the managing general partner
of Apollo Investment Fund, L.P., AIF II, L.P. and Apollo
Investment Fund III, L.P., private securities investment funds.
Mr. Hannan is a director of Aris Industries, Inc., Converse,
Inc., The Florsheim Shoe Company, Inc. and Furniture Brands
International, Inc. Mr. Hannan's business address is 1301 Avenue
of the Americas, 38th floor, New York, New York 10019.
INDEX TO FINANCIAL STATEMENTS
WINTHROP FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP
Consent of Independent Public Accountants
FISCAL YEARS 1995 AND 1994
Report of Independent Public Accountants
Consolidated Balance Sheets as of December 31, 1995
and 1994
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993
Consolidated Statements of Partners' Capital as of
December 31, 1995, 1994 and 1993
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
SIX MONTHS ENDED JUNE 30, 1996 (unaudited)
Consolidated Statements of Operations for the six
months ended June 30, 1996 and 1995
Consolidated Balance Sheets as of June 30, 1996 and
December 31, 1995
Consolidated Statements of Cash Flows for the six
months ended June 30, 1996 and 1995
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULES
Schedule II - Valuation and Qualifying Accounts
Schedule III - Real Estate Owned
ARTHUR
ANDERSON
[logo]
Arthur Anderson LLP
One International Place
Boston, MA 02110-2604
617 330 4000
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in this Information Statement, Notice
of Action Taken Without a Meeting and Notice of Appraisal Rights
of our report dated March 29, 1996, included in Winthrop Finan-
cial Associates, a Limited Partnership's Form 10-K for the year
ended December 31, 1995 and to all references to our Firm in-
cluded in this statement.
/s/ Arthur Anderson LLP
Boston, Massachusetts
June 17, 1996
WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP
FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1995 AND 1994
TOGETHER WITH AUDITORS' REPORT
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Winthrop Financial Associates, A Limited Partnership:
We have audited the accompanying consolidated balance sheets of
Winthrop Financial Associates, A Limited Partnership (a Maryland limited
partnership) and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, partners' capital and cash
flows for each of the three years in the period ended December 31, 1995.
These consolidated financial statements and the schedules referred to
below are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these consolidated financial
statements and schedules 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 signi- ficant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a rea- sonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Win-
throp Financial Associates, A Limited Partnership, and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and their
cash flows for each of the three years in the period ended December 31,
1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
consolidated financial statements taken as a whole. Schedules II and III
are presented for purposes of complying with the Securities and Exchange
Commission's rules and are not part of the basic con- solidated financial
statements. These schedules have been subjected to the auditing procedures
applied in the audits of the basic consolidated finan- cial statements and,
in our opinion, fairly state, in all material respects, the financial data
required to be set forth therein, in relation to the basic consolidated
financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
March 29, 1996
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
December 31,
1995 1994
CURRENT ASSETS:
<S> <C> <C>
Cash and cash equivalents (of which $3,484 and $7,726
is unrestricted at December 31, 1995 and 1994, respectively) $ 12,362 $ 18,898
Current portion of receivables-
Fees, commissions and reimbursements, including accrued interest 5,488 5,575
Related party receivables (Note 6) 234 -
Loans - 310
Earnest money deposit - 2,300
Other current assets 1,244 279
--------------- ---------------
Total current assets 19,328 27,362
--------------- ---------------
LONG-TERM RECEIVABLES (Notes 3 and 4):
Fees, net of reserves of $16,879 and $16,639 at
December 31, 1995 and 1994, respectively 9,678 8,921
Loans, net of reserves of $16,888 and $16,908 at
December 31, 1995 and 1994, respectively 3,200 3,050
--------------- ---------------
Total long-term receivables 12,878 11,971
--------------- ---------------
REAL ESTATE, AT COST:
Buildings (net of accumulated depreciation of $12,611 and
$6,930 at December 31, 1995 and 1994, respectively) 148,307 141,661
Land 30,727 28,061
Furniture, fixtures and equipment (net of accumulated depreciation of
$4,065 and $2,961 at December 31, 1995 and 1994, respectively) 3,190 3,559
--------------- ---------------
Total real estate 182,224 173,281
--------------- ---------------
OTHER ASSETS:
Equity interests in and advances to investment programs,
net (Notes 4 and 12) 4,973 5,933
Deferred costs (net of accumulated amortization of $3,837
and $2,869 at December 31, 1995 and 1994, respectively) 11,317 11,343
Other 181 1,314
--------------- ---------------
Total other assets 16,471 18,590
--------------- ---------------
$ 230,901 $ 231,204
============ ============
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Notes payable (Note 9) $ 2,059 $ 32,708
Accounts payable 2,819 2,989
Other (Note 12) 10,759 28,702
--------------- ---------------
Total current liabilities 15,637 64,399
--------------- ---------------
LONG-TERM LIABILITIES:
<S> <C> <C>
Notes payable (Notes 7 and 9) 175,521 130,615
Deferred taxes, net (Note 10) 13,372 11,926
Other (Note 12) 4,859 6,449
--------------- ---------------
Total long-term liabilities 193,752 148,990
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 12)
MINORITY INTEREST (Notes 2 and 3) 16,851 -
PARTNERS' CAPITAL:
Limited Partners, $25 stated value per unit-
Authorized--21,249,942 units
Issued and outstanding--15,284,243 units-
Public unitholders--2,712,814 units with preferential rights 40,906 42,282
General Partners--12,571,429 units without preferential rights (26,636) (20,262)
General Partner (5,365) (4,205)
Investment in W.L. Realty Limited Partnership (4,244) -
--------------- ---------------
Total partners' capital 4,661 17,815
--------------- ---------------
$ 230,901 $ 231,204
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT UNIT DATA)
For the Years Ended December 31,
1995 1994 1993
REVENUES:
<S> <C> <C> <C>
Rent $ 47,388 $ 42,371 $ 3,190
Management fees 13,924 14,269 14,949
Property acquisition and related fee income 670 981 3,348
Leasing commissions 1,007 2,237 1,660
Tenant service revenue 4,038 4,118 3,003
Interest 3,002 3,029 6,001
Other 1,442 4,002 1,086
------------- ------------ -------------
Total revenues 71,471 71,007 33,237
------------- ------------ -------------
EXPENSES:
Management, general and administrative 17,630 19,233 17,688
Depreciation and amortization 8,974 7,443 1,503
Tenant service expense 3,839 4,289 2,752
Interest (Notes 7 and 9) 15,918 14,582 3,187
Rental operating expenses 23,421 21,989 1,481
------------- ------------ -------------
Total expenses 69,782 67,536 26,611
------------- ------------ -------------
1,689 3,471 6,626
EQUITY IN LOSS OF INVESTMENT PROGRAMS (Note 7) (22) (816) (1,398)
NONRECURRING ORGANIZATIONAL COSTS (Note 5) (7,355) (6,643) -
LEGAL SETTLEMENT EXPENSE (Note 2) - (17,500) -
------------- ------------ -------------
(Loss) income from continuing operations before minority
interest and provision (credit) for income taxes (5,688) (21,488) 5,228
MINORITY INTEREST EXPENSE 1,134 92 -
PROVISION (CREDIT) FOR INCOME TAXES (Note 10) 1,530 (8,315) 2,609
------------- ------------ -------------
Net (loss) income from continuing operations (8,352) (13,265) 2,619
LOSS FROM OPERATIONS OF DISCONTINUED BUSINESS SEGMENTS (NET OF APPLICABLE INCOME
TAX BENEFITS OF $0, $0 AND $742 FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND
1993, RESPECTIVELY) (Note 8)
- - (2,206)
LOSS FROM DISPOSAL OF DISCONTINUED BUSINESS SEGMENTS (NET OF INCOME TAX BENEFITS
OF $0, $0 AND $424 AT DECEMBER 31, 1995, 1994 AND 1993,
RESPECTIVELY) (Note 8) - - (1,403)
------------- ------------ -------------
Net loss from discontinued operations - - (3,609)
------------- ------------ -------------
Net loss $ (8,352) $ (13,265) $ (990)
============= ============ ==========
NET (LOSS) INCOME ALLOCATED TO:
General Partner (Note 6)-
Continuing operations $ (1,087) $ (1,726) $ 341
============= ============ ==========
Discontinued operations $ - $ - $ (470)
============= ============ ==========
Unitholders-
General Partner (Note 6)-
Continuing operations $ (5,975) $ (9,491) $ 1,874
============= ============ ==========
Discontinued operations $ - $ - $ (2,582)
============= ============ ==========
Public Unitholders-
Continuing operations $ (1,290) $ (2,048) $ 404
============= ============ ==========
Discontinued operations $ - $ - $ (557)
============= ============ ==========
PUBLIC UNITHOLDERS NET (LOSS) INCOME PER UNIT BASED UPON 2,712,814 WEIGHTED
AVERAGE UNITS OUTSTANDING:
Continuing operations $ (.48) $ (.75) $ .15
======= ======= =======
Discontinued operations $ - $ - $ (.21)
======= ======== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL
(AMOUNTS IN THOUSANDS)
Investment Limited Partnership Units General Total
in W.L. Public General Partners' Partners'
Realty L.P. Units Partner Deficit Capital
(Note 1)
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1992 $ - $ 44,483 $ (10,063) $ (2,350) $ 32,070
Net loss - (153) (708) (129) (990)
----------- ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1993 - 44,330 (10,771) (2,479) 31,080
Net loss - (2,048) (9,491) (1,726) (13,265)
----------- ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1994 - 42,282 (20,262) (4,205) 17,815
Purchase of WFA units (Note 1) (4,244) - - - (4,244)
Costs associated with preferred capital - (86) (399) (73) (558)
Net loss - (1,290) (5,975) (1,087) (8,352)
----------- ----------- ------------ ---------- ------------
BALANCE, DECEMBER 31, 1995 $ (4,244) $ 40,906 $ (26,636) $ (5,365) $ 4,661
========== =========== ============ ========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995 AND 1994
(AMOUNTS IN THOUSANDS)
For the Years Ended December 31,
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C> <C>
Net loss $ (8,352) $ (13,265) $ (990)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities-
Noncash portion of nonrecurring organizational costs - 4,848 -
Loss from discontinued operations - - 3,609
Cash flow from discontinued operations - - (3,678)
Depreciation and amortization 8,974 7,443 1,503
Minority interest expense 1,134 92 -
Equity in loss of investment programs 22 816 1,398
Deferred interest added to notes payable 727 - 81
Increase (decrease) in cash as a result of changes in
operating assets and liabilities-
Fees receivable (87) 7,060 (8,494)
Long-term fees receivable (757) - -
Tax refund receivable - - 977
Other current assets (462) 7,867 597
Other noncurrent assets 886 - -
Accounts payable (170) (6,736) 3,441
Accrued expenses (including accrued legal
settlement expense) - 23,266 (2,661)
Other current liabilities (17,826) - -
Deferred taxes 1,446 (7,789) 1,571
Accrued contingencies - - 698
Other long-term liabilities (2,317) (2,206) -
------------- ------------- -------------
Net cash provided by (used in) operating activities (16,782) 21,396 (1,948)
------------- ------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of real estate and other capital expenditures,
net of cash acquired (8,456) (40,177) (34,782)
Contributions to investment programs - (150) (1,266)
Distributions from investment programs 423 - 457
Decrease in advances to investment programs - 3,253 2,202
Advances to a related party (234) - -
(Increase) decrease in other assets 2,300 (1,947) 1,946
(Increase) decrease in loans receivable 160 (1,007) (46)
------------- ------------- -------------
Net cash used in investing activities (5,807) (40,028) (31,489)
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings of notes payable 41,959 19,759 19,604
Proceeds of NACC financing 17,800 - -
Repayments of notes payable (28,587) (421) (5,900)
Net borrowings (repayments) under line of credit (6,382) (7,251) 13,618
(Increase) decrease in deferred costs (1,852) (563) (14,058)
Distributions to minority interest (2,083) - -
Purchase of treasury stock (4,244) - -
Costs associated with NACC preferred equity (558) - -
------------- ------------- -------------
Net cash provided by financing activities 16,053 11,524 13,264
------------- ------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (6,536) (7,108) (20,173)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 18,898 26,006 46,179
------------- ------------- -------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 12,362 $ 18,898 $ 26,006
============= =========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
On January 13, 1994, a subsidiary of WFA acquired the controlling interest
in partnerships that wholly own certain real estate properties. The assets
and liabilities acquired consisted primarily of real estate assets of
approximately $105 million and related mortgage notes payable of
approximately $106 million, as well as several operating assets and
liabilities.
In conjunction with the Company's 1994 purchase of a real estate asset, a
note in the amount of $604,000 was assumed by the Company. The principal
balance was paid in full during 1995.
In April 1995, the Company purchased, from an unaffiliated party, an
apartment complex (the Hills Apartments) in Austin, Texas. In con- junction
therewith, the Company obtained $1,000,000 in seller financing and a
mortgage loan from a related party of $8,470,000.
In July 1995, Nomura Asset Capital Corp. (NACC) contributed $17.7 million
of notes payable by the Company in exchange for a preferred equity interest
(see Note 2).
In October 1995, $2,108,000 in debt of a wholly owned property was forgiven
in exchange for real estate of approximately the same amount.
During 1995, the Company obtained debt from an affiliate and purchased
$8,000,000 of units in a limited partnership which had been previously
syndicated by the Company.
The accompanying notes are an integral part of these consolidated
financial statements.
WINTHROP FINANCIAL ASSOCIATES
A LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(1) ORGANIZATION
Winthrop Financial Associates, A Limited Partnership (WFA), is
organized under the Revised Uniform Limited Partnership Act of
the State of Maryland. The primary operating companies in the WFA
consolidated group (the Company) are First Winthrop Corporation
(First Winthrop) and Winthrop Management. Also included in the
financial statements are the assets, liabilities and operating
results of 35 majority-owned real estate properties. (See Note
8 for discussion of discontinuance of the operations of Winthrop
Securities.)
The general partner of WFA is Linnaeus Associates Limited
Partnership (Linnaeus), a Maryland limited partnership. Prior to
December 22, 1994, Mr. Arthur J. Halleran, Jr., was the sole general
partner of Linnaeus. On December 22, 1994, pursuant to an Investment
Agreement (the Investment Agreement) entered into among Nomura Asset
Capital Corporation (NACC), a Delaware corporation, Mr. Halleran
and certain other individuals who comprised the senior management
of WFA, the general partnership interest in Linnaeus was transferred
to W.L. Realty, L.P. (W.L. Realty). NACC is a subsidiary of Nomura
America Holding Inc., a Delaware corporation, which is a wholly
owned subsidiary of Nomura Securities Company, Ltd., a Japanese
corporation with worldwide investment banking, securities and
commodities operations. W.L. Realty is a Delaware limited
partnership, the general partner of which was A.I. Realty Company,
LLC (Realtyco), a New York limited liability company, prior to
July 14, 1995.
On July 18, 1995, Londonderry Acquisition II Limited
Partnership (Londonderry II), a Delaware limited partnership and af-
filiate of Apollo Real Estate Advisors, L.P. (Apollo), a Delaware
limited partnership, executed a purchase agreement, dated as of
July 14, 1995 (Purchase Agreement), by and among Londonderry II,
NACC, Realtyco, Partnership Acquisition Trust I (PATI), a Delaware
business trust, and Property Acquisition Trust I (PAT), a Dela-
ware business trust. Pursuant to the Purchase Agreement, London-
derry II purchased NACC's and Realtyco's interests in W.L.
Realty, and as a result, Londonderry II is the sole general part-
ner of W.L. Realty which is the sole general partner of
Linnaeus, and which in turn is the sole general partner of WFA.
In addition to the foregoing, Apollo and its affiliates, WFA and
certain executives of WFA (the Management Investors) executed
an agreement whereby the Management Investors sold to WFA their
respective equity interests in W.L. Realty, and certain executives
resigned. The Company has recorded the purchase of the interests
in W.L. Realty as a treasury stock transaction and, thus, has
reduced equity by the purchase price ($4,244,000). In addition,
the Company has recorded a provision for Nonrecurring Organiza-
tional Costs in 1995 in the amount of $5,689,000 related to the
settlement of certain employment contracts and other
transaction-related costs (see Note 6 for further discussion).
The Partnership Agreement of the Company provides that interests
of Public Unitholders are redeemable by the Company at the option
of the General Partner and that Unitholders are entitled to a 6%
cumulative noncompounded preferred priority return payable from
cash flow (as defined in the Partnership Agreement) on the Public
Unitholders' original investment, reduced from time to time by any
capital distributions, and priority allocation from all nonoperating
distributions.
The Company made no distributions to its Partners during 1995, 1994 or
1993. The cumulative unpaid preferred priority is $20,346,000, or
17.50 perunit, at December 31, 1995.
On March 4, 1995, an Information Statement was mailed to the
Public Unitholders by the General Partner in connection with
a proposed amendment (the Amendment) to WFA's Partnership Agreement.
The Amendment modified the previous prohibition against the General
Partner entering into certain agreements, contracts or arrangements
on behalf of WFA with the General Partner, partners of the General
Partner or an affiliate of the General Partner. Under the Amend-
ment, the General Partner is authorized to enter into transactions
with affiliates provided that the transactions are of the nature
contemplated under the Investment Agreement or the General Partner
reasonably believes that the transaction is on terms no less favor-
able to WFA than those which could be obtained from an unaffiliated
third party. The Amendment was filed April 4, 1995, and was operative,
by its terms, as of December 22, 1994.
See Note 13, for discussion of a proposed settlement related
to interests of the Public Unitholders.
(2) FINANCIAL CONDITION
In 1988, the investor limited partners of One Houston Associates
Limited Partnership (One Houston), an investment program organ-
ized by the Company, brought suit against WFA, First Winthrop,
Linnaeus-Hawthorne Associates (the general partner of One Houston),
Arthur J. Halleran, Jr., Jonathan W. Wexler, George J. Carter, David
C. Hewitt, John V. McMannon, Jr., and John M. Nelson, IV (each
general partners of Linnaeus-Hawthorne Associates). The case was
tried to a jury, and on February 2, 1995, the jury returned a
verdict for the plaintiffs against First Winthrop Corporation
and found damages of at least $30 million.
On March 3, 1995, WFA and First Winthrop entered into a memorandum
of agreement with the plaintiffs in which WFA and First Winthrop
agreed to settle the case by paying One Houston the sum of $17
million.
A trial court hearing announcing the terms of the proposed
settlement was held on March 13, 1995. At the hearing, the parties
filed a conditional agreed judgment for $20 million, plus
postjudgment interest and costs, which was to only become effective
if First Winthrop defaulted on its undertaking to fund the
settlement payment of $17 million by June 1, 1995. The Company
funded this settlement with interim financing provided by NACC and,
upon payment, was released from any prior or future claims related
to this lawsuit.
In July 1995, the Company contributed certain assets and liabilities
to a newly formed partnership owned by the Company (WSWH), and NACC
contributed its $17,800,000 note receivable (the interim financing
provided by NACC to the Company in order to settle the legal matter
discussed above) to WSWH in exchange for preferred equity which
provides NACC with certain preferences of cash flow from WSWH.
NACC's equity in WSWH has been recorded in the accompanying
financial statements as a Minority Interest Liability. In addition,
NACC receives a return on its equity, as defined, of LIBOR plus
6.5%. Such amounts have been recorded as Minority Interest Expense
in the accompanying consolidated statements of operations.
Given the above transactions, as well as the financing arrangement
with General Electric Capital Corp. entered into July 1995 (see Note
9), management believes the Company has sufficient working capital
which, when combined with cash flow from operations, will permit the
Company to continue its current operations for the foreseeable
future.
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Consolidation
The accompanying consolidated financial statements reflect the
accounts of WFA and its controlled subsidiaries (the Company). All
significant intercompany accounts and transactions have been
eliminated in consolidation.
Loans Receivable
The Company has made loans to certain investment programs it has
organized in order to provide the investment programs with working
capital to fund operations and other cash requirements. Such loans
are generally to be repaid from future operating cash flow of the
programs.
Land, Buildings, Furniture, Fixtures and Equipment and Depreciation
Land and buildings, furniture, fixtures and equipment are carried at
cost. Expenditures for replacements are capitalized; repairs and
maintenance are charged to operations, as incurred.
The Company provides for depreciation of buildings and furniture,
fixtures and equipment on the straight-line method using the assets'
estimated useful lives, ranging from 5 to 27.5 years.
Equity Interests in and Advances to Investment Programs
As of December 31, 1995, the Company had sponsored a total of 266
publicly and privately placed investment programs organized to own
various types of real estate projects, federally insured mortgages
or agricultural enterprises.
The Company acts as a general or limited partner in the majority of
investment programs that it has organized. The Company accounts for
its interests in investment programs in which it exercises
significant influence on the equity method. The Company accounts for
all of its other interests in investment programs on the cost
method.
The Company has made both interest and noninterest-bearing advances
to certain investment programs, generally for operating purposes,
debt negotiation requirements or to satisfy partnership agreements.
Such advances are to be repaid from future sales of assets or equity
interests.
Long-term Fees Receivable
Long-term fees receivable consist primarily of the long-term portion
of fees due from 10 investment programs in fixed annual or
semiannual installments which began in 1995.
Deferred Costs
Deferred costs consist of expenses incurred in connection with the
acquisition of management contracts, properties and financings.
These costs are amortized over their estimated useful lives.
Amortization related to these costs was $1,888,000, $1,687,000 and
$765,000 for the years ended December 31, 1995, 1994 and 1993,
respectively (see Note 5 for further discussion).
Minority Interest
Minority interest included in the accompanying balance sheet
represents NACC's preferred equity in WSWH of $17,800,000 as
increased by LIBOR plus 6.5% per annum, and reduced by any payments.
Property Acquisition and Related Fee Income
For accounting purposes, the Company's property acquisition and
related fee income includes acquisition fees and certain interest
guarantee fees, which are considered to be components of the
Company's fees for providing financial services to the investment
programs organized by the Company.
The primary source of the Company's revenues in this category was
comprised of fees associated with the structuring of net lease
arrangements and the institutional placement of debt and equity
associated with such transactions.
Leasing Commissions
The Company earns leasing commissions from certain of the properties
it manages for brokering or co-brokering leases for space therein.
Leasing commissions fluctuate in any given period depending on
market conditions in the geographical areas where the Company
operates and the amount of space available to rent at the
properties. Historically, a substantial portion of the leasing
commission revenue has been earned from one investment partnership
sponsored by the Company. As discussed further in Note 4, the
Company will no longer provide lease brokerage services to this
partnership.
Tenant Service Revenue
The Company earns tenant service revenue for providing commercial
cleaning, building security, construction management and other
related services to properties and to the tenants of properties it
manages. The fees are paid out of the properties' operating cash
flow or directly by the tenants and are recognized by the Company in
the period the services are performed. The Company has ceased
providing such services in 1996.
Management Fees
The Company earns management fees from most of the investment
programs it has organized, as well as from third parties. The
Company provides general property management, asset management,
consulting and administrative services for these investment programs
and third parties.
Interest Income
Interest income is generated on the Company's cash equivalents and
long-term receivables.
Rental Revenue
The Company earns rental revenue from the various commercial and
residential properties it owns. The leases are generally for a term
of one year and are accounted for as operating leases in accordance
with Statement of Financial Accounting Standards (SFAS) No. 13,
Accounting for Leases.
Income Taxes
Taxes with respect to the portion of the net income or loss of the
Company attributable to its corporate subsidiaries are reflected in
the consolidated financial statements of the Company. The balance of
the net income or net loss is reflected on the tax returns of the
partners of WFA. The Company adopted SFAS No. 109, Accounting for
Income Taxes, in the first quarter of 1993. The adoption did not
have a material impact on reported results of operations.
Allocation of Income (Loss) to Partners
Allocations of income (loss) among the Partners for financial
statement and tax reporting purposes are made in accordance with
WFA's Partnership Agreement, assuming the continuing operations of
the Partnership. Thus, the related Partners' capital accounts do not
represent amounts that would be received upon liquidation of the
Partnership.
Consolidated Statements of Cash Flows
For purposes of the consolidated statements of cash flows, cash
equivalents are defined by the Company as investments consisting of
certificates of deposit, money market funds, commercial paper and
other instruments with original maturities of less than 90 days. The
Company made interest and income tax payments (receipts) during the
three years in the period ended December 31 as follows:
Interest Taxes
(Amounts in thousands)
Year Ended
1993 $ 2,202 $ (4,710)
1994 13,870 412
1995 14,818 83
Financial Instruments
SFAS No. 105, Disclosure of Information about Financial Instruments,
requires disclosure of the off-balance-sheet credit risk and
concentrations of credit risk associated with financial instruments.
The Company satisfies the disclosure requirements related to its
financial instruments with off-balance-sheet credit risk in Note 12.
The Company's receivables are predominantly from real estate
investment programs organized by the Company, and as such, the
Company's receivables may be exposed to the inherent risks
associated with the ownership and operation of real estate (see Note
4). The viability of certain investment programs is contingent on
receipt of rents from one major national retail chain. The Company
has no other significant concentration of credit risk.
Reclassification
Certain reclassifications have been made to the prior years'
financial statements to conform to the 1995 presentation.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Impairment of Long-Lived Assets
In March 1995, the Financial Accounting Standards Board issued SFAS
No. 121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of, which requires impairment
losses to be recorded on long-lived assets used in operations when
indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets'
carrying amount. SFAS No. 121 also addresses the accounting for
long-lived assets and identifiable intangibles that are expected to
be disposed of. The Company intends to adopt SFAS No. 121 in the
first quarter of 1996, as required. Management does not expect that
the effects of SFAS No. 121 will have a material impact on its
financial position.
Fair Value of Financial Instruments
SFAS No. 107, Disclosures About the Fair Value of Financial
Instruments, which was adopted by the Company effective January 1,
1995, requires that the Company disclose estimates of the fair value
of all classes of financial instruments.
The carrying amounts reported on the consolidated balance sheets for
cash, receivables, other current assets, accounts payable, accrued
expenses and current notes payable approximate fair value, due to
the short-term nature of these investments. All long-term
receivables are recorded net, at realizable value, which management
believes approximates fair value at December 31, 1995. Based on
current market conditions, management believes that the carrying
value of its debt approximates fair value at December 31, 1995.
(4) 1626 NEW YORK ASSOCIATES LIMITED PARTNERSHIP
1626 New York Associates Limited Partnership (1626) is an investment
program sponsored by the Company in 1984 which owns a portfolio of
office buildings in New York City. 1626 had defaulted on certain
receivables payable to the Company, and in 1991, the Company wrote
down the receivables from 1626, which totaled $29,000,000. 1626's
only source of funds to pay the Company's receivables was the net
proceeds from the future distributable cash flow, sales or
refinancing of the investment program's properties.
During 1991 and 1992, Nineteen New York Properties Limited
Partnership (19NY), a subsidiary of 1626, defaulted on certain of
its mortgage loans. During the third quarter of 1992 through the
first quarter of 1993, the Company, 19NY and 19NY's lenders executed
agreements to restructure certain of the lenders' mortgage notes.
Pursuant to the restructuring agreements, the terms of the mortgages
were modified to include a reduction in the original principal due
from 19NY, extensions of maturity dates and reduction in the pay
rates.
The agreements required the Company to provide, in September 1992,
to 19NY, a $10,800,000 loan and, in January 1993, a $1,500,000 loan,
both of which accrued interest at prime plus .75%. Collection of
these loans and accrued interest was payable from proceeds available
to 19NY from future distributable cash flow, property sales and
refinancings. During 1993, 1994 and 1995, the Company advanced
additional funds and deferred certain fees payable to the Company by
1626. This enabled 1626 to pay certain interest and fees and comply
with the loan restructuring in 1992, and 1993. On February 28, 1996,
an affiliate of Apollo purchased the 19NY lenders' mortgage notes
and, WFA and certain of its affiliates entered into an agreement
with 1626, 19NY and the Apollo affiliate (the Agreement).
In conjunction with the Agreement, WFA and its affiliates
contributed approximately $36.6 million of receivables to 19NY
(which included deferred syndication, property management and tenant
service fees; such amounts had been previously reserved, for
financial reporting purposes). In addition, WFA sold its remaining
$10 million note to an affiliate of Apollo in exchange for $6
million in cash, which management believes represented the fair
value of the note. This amount was greater than the net carrying
value of the Company's assets related to 1626 and 19NY included in
the accompanying balance sheet at December 31, 1995. Subsequent to
execution of the Agreement, the Company will not hold receivables or
other assets related to 1626 or 19NY.
In addition, the Agreement provided for a change in the property
manager of the 19NY properties and thus, beginning in 1996, the
Company will no longer provide property management services,
including leasing brokerage services, to 19NY.
As a result of a legal case settlement in 1994, the Company forgave
$10 million plus interest accrued from December 1, 1992 through
August 2, 1994. For financial reporting purposes, this amount was
previously reserved. The Company also subordinated the collection of
an additional $10 million (sold in 1996 to an Apollo affiliate),
plus interest accrued thereon since December 1, 1992 until the
Limited Partners of 1626 receive a distribution equal to a stated
amount.
(5) NONRECURRING ORGANIZATIONAL COSTS
During the first quarter of 1993, the Company began to explore the
desirability of converting WFA to a publicly traded real estate
investment trust. By June 1993, the Company had retained an
investment banker and decided that such a conversion was both
desirable and feasible. The Company developed a plan (the REIT Plan)
to implement a series of transactions expected to culminate in an
initial public offering of common stock in a newly formed real
estate investment trust.
In the first half of 1994, the Company's confidence in the
feasibility of the REIT Plan declined, and during the third quarter
of 1994, the Company concluded that WFA should primarily direct its
efforts to finding private capital, and that WFA should postpone the
REIT Plan. In accordance with this decision, WFA's financial
statements reflect a pretax provision of $6,643,000 to write off
costs related to the REIT Plan.
See the Company's November 2, 1994 filing on Form 14D-9 for further
information concerning Management's capital-raising activities.
In conjunction with the organizational restructurings, certain
departments were eliminated and employees were severed, resulting in
severance costs of $519,500 for the year ended December 31, 1995.
WFA with certain affiliates and The Alternative Group Limited
Partnership (TAG), Beal Investment Group, Inc., Beal Companies,
Steven R. Bodi, Bruce A. Beal, Robert L. Beal and George L.
McGoldrick, Jr. agreed on December 28, 1995 to settle all existing
disputes between them. Each of the disputes arose out of a consent
solicitation initiated by TAG to unseat WFA or its affiliates as the
general partner of an investment limited partnership. TAG was not
successful in any of those solicitations, and the parties agreed to
resolve their disputes arising in connection with the solicitations.
The Company has included the proxy solicitation, legal and
settlement costs related to these disputes as a component of its
1995 Nonrecurring Organizational Costs.
See Note 6 for a discussion of the additional 1995 provision related
to Nonrecurring Organizational Costs.
(6) CONFLICTS OF INTEREST AND TRANSACTIONS WITH RELATED PARTIES
On December 22, 1994, all the general partnership interests and
substantially all of the limited partnership interests in the
General Partner were transferred to W.L. Realty pursuant to the
Investment Agreement dated as of December 3, 1994. The general
partner of W.L. Realty prior to July 14, 1995 was Realtyco which
held a 1% interest in W.L. Realty. The partners of W.L. Realty prior
to July 14, 1995 in addition to Realtyco, were (i) NACC, which held
a 64% limited partnership interest and (ii) each of the following
individuals (who held limited partnership interests in the specified
percentages): Arthur J. Halleran, Jr. (17.5%), Jonathan W. Wexler
(4.45%), Jeffrey Furber (4.14%), Stephen G. Kasnet (3.81%), F.X.
Jacoby (2.55%) and Richard J. McCready (2.55%) (collectively
referred to as the Management Investors). Under the limited
partnership agreement of W.L. Realty, NACC and Realtyco had the
right, at the election of either of them, to purchase at any time
all (but not less than all) of the limited partnership interests
held by the Management Investors for a price equal to the greater of
(i) the fair market value of such interests, as determined by
specified appraisal procedures, or (ii) $8,000,000, if the purchase
occurred on or before December 22, 1995, $6,500,000, if the purchase
occurred after December 22, 1995 but on or before December 22, 1996,
and $4,000,000, if the purchase occurred after December 22, 1996 but
on or before December 22, 1999 (there was no minimum purchase price
thereafter). As further discussed in Note 1, pursuant to the
Purchase Agreement, Londonderry II purchased NACC's and Realtyco's
interest in W.L. Realty. In addition, the Management Investors sold
to the Company their respective equity interests in W.L. Realty, and
certain Management Investors resigned. The acquisition of the
Management Investors' equity interests was recorded as a reduction
in equity, classified as Investment in W.L.
Realty Limited Partnership.
In connection with the December 22, 1994 transaction, the Management
Investors entered into employment contracts with WFA, guaranteeing
employment for terms ranging from three to five years, commencing on
January 1, 1995. Two of the executives had five-year contracts
guaranteeing base salaries of $250,000, with guaranteed annual
bonuses of $150,000 and $450,000 for each year. In conjunction with
the July 18, 1995 transaction described in Note 1 (the transfer of
the G.P. interest from NACC to Londonderry II), the Chairman and the
Vice Chairman resigned and $2,318,537 was paid to these executives
in settlement of their employment contracts. Each of the other four
executives executed a three-year contract, with guaranteed annual
salaries of $250,000, $250,000, $190,000 and $180,000, respectively.
One of these four executives has a guaranteed annual bonus of
$250,000 for each year. During 1995, two of the remaining four
executives resigned, and therefore, the Company is no longer
obligated under the respective employment contracts.
In addition, also in conjunction with the July 18, 1995 transaction
described in Note 1, payments were made to obtain releases from
certain liabilities from the Chairman and Vice Chairman and bonuses
were paid to the remaining Management Investors to induce them to
continue their employment with the Company. Such payments amounted
to $3,371,360. The payments related to settlement of certain
employment agreements, the release of certain liabilities, and
bonuses to certain members of management to continue their
employment with the Company have been recorded as Nonrecurring
Organizational Costs in the accompanying Statement of Operations in
the amount of $5,689,897, for the year ended December 31, 1995.
As a result of its general partnership interest and its ownership of
12,571,429 units, the General Partner is entitled to allocations of
WFA's profits, losses and cash distributions as specified in WFA's
Partnership Agreement.
The previous General Partner and certain of the previous partners of
W.L. Realty were officers, directors or employees of WFA or First
Winthrop and received compensation in connection with such
employment.
Partnerships composed of various combinations of current and former
officers of WFA have retained an equity interest in some of the
investment programs organized by the Company prior to the formation
of WFA. Certain current and former employees own equity interests in
some of the investment programs organized by the Company.
In December 1994 and in January 1995, WFA purchased from various
current and former officers of the Company an 89.47% interest in
Clarendon Land Company, Inc., an 82.61% interest in Marlboro Land
Company, Inc., and a 63.63% interest in Linnaeus San Francisco
Associates, Limited Partnership. Marlboro Land Company, Inc. and
Clarendon Land Company, Inc. own residual interests in the land
underlying properties owned by certain of the Company's previous
syndications. Linnaeus-San Francisco owns a small, freestanding
retail store. The Company paid an aggregate of $935,926 to acquire
these interests. The Company believed it to be the fair market value
of such interests.
During 1995, the Company made advances of $234,000 to certain
affiliates of Apollo. Such amounts bear interest at prime plus 1%
and are due on demand..
In April 1995, the Company purchased, from an unaffiliated party, an
apartment complex for approximately $11.3 million (the Hills
Apartments) in Austin, Texas. In conjunction therewith, the Company
obtained $1,000,000 in seller financing and obtained a mortgage loan
from a related party of $8,470,000.
During 1995, the Company obtained debt from Londonderry II and
purchased $8,000,000 of units in a limited partnership which had
been previously syndicated by the Company. These units and the
related debt were subsequently transferred from the Company to
Londonderry II and, therefore, are not included in the financial
statements of the Company at December 31, 1995.
See Notes 2 and 4 for additional discussion of related party
transactions.
(7) ACCOUNTING FOR EQUITY INTERESTS IN INVESTMENT PROGRAMS
AND UNCONSOLIDATED SUBSIDIARY
The Company accounts for its interests in investment programs in
which it exercises significant influence using the equity method.
Upon completion of the offering of limited partnership interests,
the Company's remaining interest in the investment programs is
generally less than 5%. The following is an unaudited, combined
summary of financial data for these investment programs (including
Winthrop California Investors, L.P., as discussed below):
<TABLE>
<CAPTION>
December 31,
1995 1994
(Amounts in thousands)
(Unaudited)
<S> <C> <C>
Real estate, net of accumulated depreciation $ 869,916 $ 1,032,269
Investments in partnerships (a) (17,826) 5,771
Cash and short-term investments 107,130 99,220
Other assets 144,995 145,470
--------------- ---------------
1,104,215 1,282,730
Mortgage notes payable 1,268,198 1,302,741
Other liabilities 228,703 235,051
--------------- ---------------
1,496,901 1,537,792
Net liabilities $ (392,686) $ (255,062)
=============== ===============
</TABLE>
(7) ACCOUNTING FOR EQUITY INTERESTS IN INVESTMENT PROGRAMS
AND UNCONSOLIDATED SUBSIDIARY (Continued)
<TABLE>
<CAPTION>
For the Year Ended December 31,
1995 1994 1993
(Amounts in thousands)
(Unaudited)
<S> <C> <C> <C>
Rental income $ 274,988 $ 274,562 $ 295,308
Gain on property transfer 11 650 41,495
Interest income 20,713 17,918 16,374
------------- ------------- --------------
295,712 293,130 353,177
------------- ------------- --------------
Equity in loss of partnership investment (a) 3,596 (421) 124
Depreciation and amortization 75,852 77,065 81,569
Other expenses 346,690 276,163 298,683
------------- ------------- --------------
426,138 352,807 380,376
------------- ------------- --------------
Net loss $ (130,426) $ (59,677) $ (27,199)
============= ============= ============
</TABLE>
(a) Thirteen investment programs own interests in 58 partnerships or
joint ventures that own and operate commercial properties or
residential housing developments.
The Company typically held a substantial equity interest in the
investment programs it organized during the investment programs'
syndication period. The Company accounted for its interest in these
investment programs, during the syndication period, on the same
basis as the basis used on final admission of investor limited
partners.
In May 1986, the Company acquired, through a wholly owned
partnership (consolidated with the Company through 1990), 1,000
units (Units) of limited partnership interest in Winthrop California
Investors, L.P. (WCI), an investment program organized by the
Company, for an aggregate cost of $54,000,000 funded with
$29,500,000 of working capital provided by the Company and a
$24,500,000 loan. The loan is nonrecourse except to such Units (and
cash held in escrow as described below) and bears interest until
December 31, 1998 at 10.75% per annum. During this period, interest
only is payable on the loan in annual amounts equal to the cash flow
received in respect to the Units, subject to specified minimum and
maximum interest payments. Interest not paid currently will be added
to principal and accrue interest at 10.75% per annum.
The outstanding balance of this loan at December 31, 1995 is
$52,282,000, including unpaid interest that has been added to
principal. The lender has the option to acquire, on December 31,
1998, a 45% interest in the WCI Units at a price equal to the lesser
of (a) all accrued and unpaid interest on the loan or (b) 45% of the
fair market value of the Units subject to the loan (excluding
accrued and unpaid interests). The Company has received a capital
distribution of $3,373,000 in connection with its investment in the
Units. In accordance with the original terms of the loan, these
funds will remain in escrow until the lender's option to acquire an
interest in the Units is exercised or expires.
As of April 1991, the Company had stopped making the annual interest
payments and has since determined that it does not intend to invest
or commit significant further resources to maintain ownership of the
WCI Units. As a result, the Company, for financial reporting
purposes, has deconsolidated this wholly owned partnership and
reflected the net carrying value at December 31, 1995 and 1994
(which is accounted for on the cost method beginning October 1,
1991) as an offset against equity interests in and advances to
investment programs, net, in the accompanying consolidated balance
sheets.
The following are the condensed balance sheets and statements of
operations and cash flows of this wholly owned partnership (amounts
in thousands):
<TABLE>
<CAPTION>
BALANCE SHEET
December 31,
1995 1994
Assets:
<S> <C> <C>
Restricted cash and cash equivalents $ 13 $ 4,002
Investments in WCI - 16,385
--------------- ---------------
$ 13 $ 20,387
=============== ===========
Liabilities:
Mortgage notes payable $ 47,422 $ 43,002
Accrued interest 4,860 4,420
--------------- ---------------
52,282 47,422
--------------- ---------------
Partners' Capital (52,269) (27,035)
--------------- ---------------
$ 13 $ 20,387
=============== ===========
</TABLE>
<TABLE>
<CAPTION>
STATEMENTS OF OPERATIONS
For the Year
Ended
December 31,
1995 1994 1993
<S> <C> <C> <C>
Interest income $ 171 $ 153 $ 117
Interest expense (4,860) (4,420) (3,779)
Equity in loss of investment program (16,385) (4,790) (4,412)
------------- ------------- -------------
Net loss $ (21,074) $ (9,057) $ (8,074)
============= =========== ===========
</TABLE>
The wholly owned partnership accounts for its investment in the WCI
units on the equity method. Therefore, the significant loss recorded
in 1995 is directly attributable to the significant loss recorded by
WCI, primarily as a result of a provision to write down its real
estate to net realizable value. Since the wholly owned partnership
owns limited partner Units, it has not written its investment below
zero.
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
For the Year
Ended
December 31,
1995 1994 1993
<S> <C> <C> <C>
Net loss $ (21,074) $ (9,057) $ (8,074)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Equity in loss of investment program 16,385 4,790 4,412
Changes in assets and liabilities-
Increase in accrued interest 4,860 4,420 3,779
Return of restricted cash to lender (4,160) - -
------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (3,989) 153 117
Cash and cash equivalents, beginning of year 4,002 3,849 3,732
------------- ------------- -------------
Cash and cash equivalents, end of year $ 13 $ 4,002 $ 3,849
============= =========== ===========
</TABLE>
(8) DISCONTINUED OPERATIONS
In the fourth quarter of 1993, the Company decided to discontinue
its investment-sales related operations and to terminate the
business operations of Winthrop Securities, the Company's securities
brokerage subsidiary. This decision completed the Company's decision
to terminate all fee-based activity related to raising investment
capital.
Accordingly, this business segment was presented as a discontinued
operation in 1993. The estimated loss on the disposal was $1,403,000
net of tax benefit of $424,000, consisting of a provision for
severance, losses through disposal, etc.
Summary operating results of the discontinued operation for the year
ended December 31, 1993 are as follows:
Revenues $ 1,868
Expenses 4,816
-------------
Loss before tax (2,948)
Tax benefit 742
Loss from discontinued operations (2,206)
Loss on disposition (1,403)
-------------
Net loss from discontinued operations $ (3,609)
==========
(9) NOTES PAYABLE
The Company's notes payable for 1995 and 1994 are summarized as
follows:
<TABLE>
<CAPTION>
<S> <C> <C>
1995 1994
Mutual of Omaha notes payable, interest at 7.67% payable semiannually.
Represents two separate notes. Interest payable only in the first five
years, maturing in 2000 and 2005, respectively. Collateralized by
certain receivables of the Company as well as by certain restricted cash
reserves $ 9,250 $ 9,250
Note payable to a bank. Interest payable monthly at rates from 7% to
8.5%. The note is secured by and has recourse solely against certain
assets of the Company and matures in 2001 1,161 1,161
Revolving credit facility with a bank, with a $20,000,000 line of credit
bearing interest at the lenders' base rate plus 1%, expired May 1994.
The balance as of December 31, 1994 was the remaining outstanding
balance, with interest payable at 9.5%, repaid in full in 1995 - 6,382
Loan payable to a bank, secured by certain assets of the Company. Bore
a variable interest rate (8.125% at December 31, 1994) and was
scheduled to mature in November 1996, repaid in full in 1995 - 14,985
Mortgage notes payable to unrelated third parties, bearing interest from
8.75% to 9.625%, principal and interest paid monthly out of
property cash flow, maturing in 2002 and 2003 867 930
Mortgage notes payable to an insurance company, bearing interest at
9.875%, maturing in November 2000 1,655 1,670
Senior and Junior mortgage notes payable to a trust, bearing interest
at 9%, maturing in 2000 and 2018, respectively 106,326 106,326
Notes payable to a related party, bearing interest at 1% above the prime
rate of Bank of Boston, 9.5% at December 31, 1995, due in 1998 7,375 6,810
Note payable to a bank, bearing interest of 9%, scheduled to mature
in 2002, paid in full in 1995 - 2,123
Mortgage notes payable to an insurance company, bearing interest at
9.75% matured in 1995 - 9,999
Mortgage notes payable to General Electric Capital Corp., bearing
interest at LIBOR plus 3%, 8.72% at December 31, 1995, due on June 30,
1998 41,177 -
Mortgage note payable to Nomura Asset Capital Corporation, bearing
interest at 10.04%, due on May 1, 2002 8,424 -
Installment note payable to a limited partnership, bearing interest at
9.5%. Any remaining amounts owing under this note will be due on
January 31, 2000 1,000 -
Note payable to a bank, interest and principal payable monthly, bearing
interest at the prime rate plus 1.5%, scheduled to mature in 1996,
paid in full in 1995 - 3,557
Other notes payable, varying interest rates and maturities 345 130
------------- -------------
177,580 163,323
Less--Current portion 2,059 32,708
------------- -------------
$ 175,521 $ 130,615
============= =============
</TABLE>
Principal payments are due as follows:
1996 $ 2,059
1997 724
1998 49,559
1999 2,060
2000 96,332
Thereafter 26,846
------------
$ 177,580
The Company is currently in default on a mortgage payable of
$1,161,000, secured solely by specific assets of the Company. The
Company is currently negotiating with the lender of the note. The
Company does not expect a material adverse or significant impact on
the Company's results of operations or financial position, as a
result of the current default.
As of December 31, 1995, substantially all of the Company's real
estate assets had been pledged as collateral for various notes
payable.
Winthrop Florida Apartments, L.P. (Winthrop Florida), a wholly owned
entity of the Company, entered into an interest rate protection
agreement with Morgan Guaranty Trust Company of New York (MGT) in
July 1995. The agreement expires on July 1, 1998. Under the
agreement, Winthrop Florida paid MGT a transaction fee of $302,400
in exchange for an interest rate cap of 10.19%, with a floating rate
option on the notional principal amount of $33,600,000. The original
note rate was LIBOR plus three percent. In the event of
nonperformance by the counterparty, Winthrop Florida would be
exposed to interest rate risk if LIBOR plus three percent rate were
to exceed the cap rate. As of December 31, 1995, LIBOR plus three
percent did not exceed the cap rate. Winthrop Florida recorded
$50,400 of amortization expense during 1995 related to the interest
rate protection agreement.
(10) INCOME TAXES
Effective the beginning of fiscal 1993, the Company adopted SFAS No.
109, Accounting for Income Taxes. Taxes in respect of the portion of
the net income or loss of the Company attributable to its corporate
subsidiaries is reflected in the statements of the Company. The
balance of the net income or loss is reflected on the tax returns of
the partners of WFA. SFAS No. 109 requires recognition of deferred
tax liabilities and assets for the expected future tax consequences
of events that have been included in the financial statements and
tax returns. Under this method, deferred tax liabilities and assets
are determined based on the difference between the financial
statement and tax basis of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected
to reverse.
The components of the net deferred tax liability as of December 31,
1995 and 1994 are as follows:
<TABLE>
1995 1994
<S> <C> <C>
Total deferred tax liabilities $ 44,306,000 $ 44,113,000
Total deferred tax assets 30,394,000 32,187,000
--------------- ---------------
$ 13,372,000 $ 11,926,000
=============== ===============
</TABLE>
The Company's deferred tax assets are expected to be realized
through the reversal of the deferred tax liabilities.
Significant items making up the deferred tax liabilities and
deferred tax assets as of December 31, 1995 and 1994 are as follows:
<TABLE>
1995 1994
Assets:
<S> <C> <C>
Reserves not currently deductible for tax purposes $ 13,085,000 $ 20,757,000
Revenues recognized for tax purposes in advance of
financial statements 5,534,000 5,534,000
-----
Net operating loss carryforward 12,315,000 5,896,000
--------------- ---------------
$ 30,934,000 $ 32,187,000
=============== ===============
Liabilities:
Equity in investment programs' tax basis loss $ 32,849,000 $ 33,012,000
Revenues recognized for financial statements in advance
of tax purposes 11,457,000 11,101,000
--------------- ---------------
$ 44,306,000 $ 44,113,000
=============== ===============
</TABLE>
As of January 1, 1996, the Company has net operating loss
carryforwards which are available to offset future taxable income.
These carryforwards, which are expected to be fully utilized, expire
in the year 2010.
WFA's taxable income (loss) differs from its net loss for financial
statement purposes due primarily to differences in the recognition
of WFA's share of First Winthrop's and certain investment programs'
results of operations for financial statement and tax reporting
purposes.
WFA's taxable income is estimated as follows:
<TABLE>
<CAPTION>
For the Year
Ended
December 31
1995 1994 1993
(Amounts in Thousands)
<S> <C> <C> <C>
Net loss for financial statement purposes $ (8,352) $ (13,265) $ (990)
Equity in investment programs' tax basis loss in
excess of financial statement loss (4,969) (10,195) 6,935
Income not included for financial statement
purposes - - 5,280
Investment programs' distributions not included in
taxable income (338) (537) (66)
Expenses previously included for financial
statement purposes - - (9,263)
First Winthrop's net (income) loss for financial
statement purposes (2,226) 14,041 (2,262)
Charges related to real estate - -
Net expenses not deductible for tax reporting
purposes - 189 1,546
------------- ------------- -------------
WFA estimated taxable income (loss) $ (15,885) $ (9,767) $ 1,180
============== =========== ===========
</TABLE>
First Winthrop's total provision (credit) for income taxes differs
from that which would have been calculated using the statutory
federal income tax rate, due primarily to the net effect of the
provision (credit) for state income taxes. Deferred income taxes
result from temporary differences in the recognition of revenues and
expenses for tax and financial reporting purposes, primarily related
to the excess, in respect of various investment programs, of tax
losses over losses reported for financial statement purposes.
Significant components of the provision (credit) for income taxes
from continuing operations are as follows:
<TABLE>
<CAPTION>
For the Years Ended December 31,
1995 1994 1993
(Amounts in Thousands)
<S> <C> <C> <C>
Deferred tax (credit) liability $ 1,530 $ (8,315) $ (2,609)
-------- ----------- -----------
$ 1,530 $ (8,315) $ (2,609)
============= =========== ===========
</TABLE>
(11) PENSION AND PROFIT-SHARING PLANS
The Company has two contributory 401(k) plans (the Plans) covering
most of its employees meeting certain age and service criteria. The
first plan is for office employees and the second is for field
employees. Under both Plans, participants may make pretax
contributions of up to 15% of their salary. Under the office
employees' plan, the Company will match employee contributions up to
3.5% of the employees' salary. The Company's contribution may be
reduced as a result of forfeiture of unvested account balances by
terminated employees. The employee contributions will be 100%
vested, and the Company's matching contributions to the Plan, as
well as all prior account balances, will vest 50% upon completion of
three years of services and 100% upon completion of four years of
service.
The Company recognized expenses relating to the Plans of $98,000,
$599,000 and $290,000 for the years ended December 31, 1995, 1994
and 1993, respectively. The Company currently funds amount accrued
under the Plans.
The Company does not provide any other postretirement benefits in
addition to the benefits discussed above.
(12) COMMITMENTS AND CONTINGENCIES
(a) Guarantees of Syndicated Investment Programs' Obligations
As of December 31, 1995, the Company has agreed to fund up to
$3,179,000 of potential operating deficits that may be
incurred by three investment programs. In general, the
Company will not be liable under these commitments until the
investment programs' reserves to fund operating deficits are
exhausted.
As of December 31, 1995, the Company has guaranteed
$45,700,000 of seven investment programs' mortgage financing.
The Company's liability is for only the most senior portion
of the mortgages, and in none of the cases is this guaranteed
portion more than 50% of the mortgage financing. The Company
will only be liable under these guarantees to the extent that
the potential sale or refinancing of properties held by the
investment programs do not provide sufficient funds to
satisfy the guaranteed portions of the investment programs'
obligations. In addition, the Company has guaranteed
$10,000,000 of one investment program's mortgage financing in
the event of environmental liability or fraud.
The Company has guaranteed a minimum return to the limited
partners of one investment program organized by the Company.
In another investment program organized by the Company, a
partnership is required to purchase those units tendered by
the investor limited partners, including a cumulative 10%
annually compounded return on the basic capital contribution,
less any cash flow previously distributed (the net amount so
calculated being referred to as the Put Payment). If the
partnership does not have sufficient funds to make all
required Put Payments, then the general partner, a subsidiary
of First Winthrop, shall contribute to the partnership, as an
additional capital contribution, such funds as are required
to allow the partnership to complete the Put Payments.
Liabilities related to the above commmmitments as of December
31, 1995 and December 31, 1994 are reflected in accrued
expenses ($823,000 and $600,000, respectively) and other
long-term liabilities ($1,274,000 and $3,070,000,
respectively). Management believes that these amounts are
adequate to cover the Company's exposure on these guarantees.
(b) Leases
Subsidiaries of the Company are leasing real properties on a
completely net basis under lease agreements (the Master
Leases) from two investment programs organized by the
Company. The subsidiaries are, in turn, leasing the real
properties on a completely net basis under separate lease
agreements (the Subleases) to unaffiliated corporate tenants.
The Master Leases have primary terms of 30 years while the
Subleases have primary terms of 25 years, both having several
five-year renewal options. The Company expects that the
corporate tenants will exercise their first five-year renewal
options under the Subleases. Lease payments due to the
subsidiaries during the primary and renewal periods of the
Subleases are adequate to meet their obligations under
corresponding periods of the Master Leases.
The following is a summary of the average payments due during
the primary terms of the Master and Subleases, which are
accounted for as operating leases:
Master
Years Leases Subleases
(Amounts in Thousands)
1996-2008 $ 10,587 $ 10,656
2009-2013 3,895 -
The Company's liability under the Master Leases is limited to
$2,000,000 with respect to any one investment program,
subject to an overall $5,000,000 limitation.
The Company leases office space and office equipment. The
Company incurred rental expense of approximately $1,993,000,
$1,933,000 and $2,658,000 for the years ended December 31,
1995, 1994 and 1993, respectively.
The following is a summary of the Company's approximate
minimum rental commitments under the noncancelable portion of
long-term operating leases (in thousands):
Year Ended December 31,
1996 $ 1,830
1997 1,487
1998 308
1999 140
2000 140
Thereafter 350
(c) Litigation
As a result of actions brought by investors, the Company is a
party to litigation involving certain investment programs it
has organized. Each of these programs has experienced
financial difficulties due to market conditions. In general,
the actions brought against the Company allege that the
Company, as general partner or sponsor, acted improperly in
the organization, syndication or operation of the investment
programs. In each pending case, the Company believes that the
allegations are without merit and intends to vigorously
defend itself. The Company does not expect that the outcome
of any of these suits or any other suits will have a material
adverse effect on its financial condition or results of
operations.
During 1995, the Company settled lawsuits initiated by the
limited partners of Sixty-Six Associates Limited Partnership,
Park Towne Place Associates Limited Partnership, and
Parsippany Commerce Associates Limited Partnership for an
aggregate amount of $1,216,000. These amounts had been
previously reserved for by the Company, and thus, the
settlements had no impact on the Company's 1995 results of
operations.
As discussed in Note 2, as a result of a legal case
settlement, First Winthrop paid One Houston the sum of $17
million.
In addition, as discussed in Note 4, as a result of a legal
case settlement, the Company forgave $10 million plus accrued
interest owed by an investment program.
(d) Letters of Credit
In conjunction with WFA's acquisition of the Hills
Apartments, WFA executed two letters of credit, $100,000 and
$900,000, respectively, to collateralize notes retained by
the seller, Carwin, Ltd. These letters of credit have initial
terms ending January 3, 1997, and August 1, 1996,
respectively.
(e) Employment Arrangements
On January 15, 1996, the Company entered into an employment
agreement with its newly hired Chief Executive Officer. Under
the terms of this three-year agreement, the Chief Executive
Officer will receive an annual salary of $360,000 per year,
subject to increase based upon the U.S. Consumer Price Index,
and a bonus, based upon the improved financial performance or
(e) Employment Arrangements (Continued)
condition of the Company or its direct or indirect
subsidiaries. In addition, the Chief Executive Officer is
entitled to a monthly car allowance, as well as participation
in all employee health and benefit plans. This employment
agreement will terminate immediately upon the employee's
death, disability, or for cause. Upon the termination of the
Chief Executive Officer's employment agreement for any reason
other than cause, the Company will continue to be obligated
to make payments in accordance with the agreement for the
remainder of the term, unless termination is a result of the
officer's death or disability, in which case the amount to be
paid will the lesser of one year's salary, or the salary due
over the remaining term of the agreement.
See Note 6 for discussion of additional employment contracts.
(13) SUBSEQUENT EVENTS
On December 22, 1994, a class action suit was brought against
WFA, Linnaeus Associates Limited Partnership (Linnaeus), a
Maryland limited partnership and sole general partner of WFA,
former and current members of WFA's senior management
(collectively, the WFA Defendants) and Nomura Asset Capital
Corporation, by those individuals who owned units of limited
partnership interest in WFA known as preferred units
(Preferred Unitholders and Class Members). The suit alleges
in the first amended complaint, filed February 28, 1995,
that, among other things, the WFA Defendants breached their
fiduciary duties by improperly selling their interest in
Linnaeus to NACC, while failing to obtain a similar buyout
opportunity for the Preferred Unitholders.
On March 8, 1996, a second amended complaint was filed which
contained the class claims asserted in the previous complaint
and, in addition, that the defendants breached the twelfth
amendment to the Partnership Agreement by failing to make a
capital distribution as a result of the Investment Agreement
and by failing to effect a redemption of the Preferred Units.
A Stipulation for Settlement, dated as of March 20, 1996 (the
Stipulation), provides that Londonderry Acquisition Corp.,
Inc. or its affiliate (Londonderry), an affiliate of Apollo,
will undertake to liquidate the investment of Class Members
by effecting a merger (the Merger Transaction) pursuant to
Maryland law which will provide Class Members (regardless
whether such Class Members opt out of the Class) with the
right to receive cash consideration per Preferred Unit in an
amount to be opined by a nationally recognized, independent
investment banking firm as fair from a financial point of
view, but in no event less than ten dollars and fifty cents
($10.50) per Preferred Unit (the Offered Price). Class
Members will retain their rights under Maryland law to pursue
an appraisal of the value of their units and receive an
amount determined pursuant to their appraisal rights under
Maryland law (the Appraised Price).
Londonderry has indicated that it is willing to purchase the
Preferred Units at the offered price only if the proposed
settlement, pursuant to the Stipulation, is approved and the
class action is dismissed with prejudice. If the proposed
settlement is not approved, Londonderry may not make an offer
to liquidate the Class Members' investment in WFA. The final
approval hearing will be held May 23, 1996 in Chicago,
Illinois. If a significant number of Class Members opt out of
the proposed settlement, Londonderry and Linnaeus have the
right to declare the Stipulation null and void.
<TABLE>
<CAPTION>
Consolidated Statements of Operations
- --------------------------------------------------------------------------------------------------------------------------------
For the Three Months For the Six Months
Ended June 30, Ended June 30,
(Amounts in thousands except unit data)(Unaudited) 1996 1995 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rent.............................................................. $ 12,088 $ 11,548 $ 24,566 $ 22,748
Management fees................................................... 3,985 3,677 7,589 6,978
Leasing commissions............................................... 23 404 155 685
Tenant service revenue............................................ - 917 - 1,956
Investment services............................................... - 553 - 553
Interest.......................................................... 1,297 1,061 2,405 1,711
Other............................................................. 1,727 539 2,861 701
------------ ----------- ----------- ----------
Total Revenues.............................................. 19,120 18,699 37,576 35,332
------------ ----------- ----------- ------------
Expenses:
Management, general and administrative............................ 4,847 4,526 9,108 8,733
Depreciation and amortization..................................... 2,229 1,988 4,273 3,864
Tenant service expense............................................ - 943 - 2,121
Interest. . . . .................................................. 3,938 4,115 7,884 7,756
Rental properties expense......................................... 5,865 5,907 11,492 11,077
------------ ----------- ----------- -----------
Total Expenses.............................................. 16,879 17,479 32,757 33,551
------------ ----------- ----------- ------------
Operating Income ........................................... 2,241 1,220 4,819 1,781
Equity in income (loss) of investment programs 75 71 114 (4)
Legal settlement expense.......................................... (1,850) - (1,850) -
----------- ------------ ----------- ------------
Operating income before minority interest and
provision for income taxes................................. 466 1,291 3,083 1,777
Minority Interest................................................. 504 - 1,005 -
------------ ----------- ------------ -----------
Income before provision for income taxes (38) 1,291 2,078 1,777
------------ ----------- ------------------------
Provision for income taxes........................................ - 509 1,026 949
------------ ----------- ----------- -----------
Net income ................................................. (38) 782 1,052 828
============ =========== =========== ===========
Net Income allocated to:
General Partner............................................. - - - -
============ =========== =========== ===========
Unitholders:
General Partner ........................................... $ - $ - $ - $ -
============ =========== =========== ===========
Public Unitholders.......................................... $ (38) $ 782 $ 1,052 $ 828
============ =========== =========== ===========
Public Unitholders Net Income Per Unit/based upon the weighted
average number of Units outstanding - 2,712,814 for the three
and six months ended June 30, 1995 and 1995 ................ $ (.01) $ .29 $ .39 $ .31
============ ============ =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
<CAPTION>
Consolidated Balance Sheets
- -------------------------------------------------------------------------------------------------------------------
June 30, 1996 Dec. 31, 1995
(Amounts in thousands) (Unaudited)
- -------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents (of which $14,000 and $3,834 is unrestricted at June
30, 1996 and December 31, 1995,
respectively).......................................................... $ 23,558 $ 12,362
Current portion of receivables:
Fees, commissions and reimbursements, including accrued interest 4,940 5,488
Related party receivables............................................... 149 234
Other current assets...................................................... 551 1,244
------------ -----------
Total current assets................................................ 29,198 19,328
------------ -----------
Long-term Receivables:
Fees, net of reserves of $8,778 and $16,879 at June 30, 1996
and December 31, 1995.................................................. 10,707 9,678
Loans, net of reserves of $6,532 and $16,888 at June 30, 1996 and
December 31, 1995....................................................... 3,132 3,200
------------ -----------
Total long-term receivables......................................... 13,839 12,878
------------ -----------
Real Estate Assets:
Land..................................................................... 30,727 30,727
Buildings................................................................ 164,338 160,918
Furniture, fixtures, equipment........................................... 7,629 7,255
Accumulated depreciation................................................. (20,027) (16,676)
------------- ------------
Total real estate assets............................................ 182,667 182,224
------------ -----------
Other Assets:
Equity interests in and advances to investment programs 4,973
Deferred costs (net of accumulated amortization of $4,759 and
$3,837 at June 30, 1996 and December 31, 1995, respectively) 10,423 11,317
Other assets............................................................. 95 181
------------ -----------
Total other assets.................................................. 10,518 16,471
------------ -----------
$ 236,222 $ 230,901
============= ===========
LIABILITIES AND PARTNERS' CAPITAL
Current Liabilities:
Notes payable............................................................ $ 2,047 $ 2,059
Accounts payable......................................................... 2,722 2,819
Accrued expenses and other............................................... 12,783 10,759
------------ -----------
Total current liabilities........................................... 17,552 15,637
------------ -----------
Long-term Liabilities:
Notes payable............................................................ 175,237 175,521
Deferred taxes........................................................... 14,398 13,372
Equity interests in and advances to investment programs 1,781 -
Other long-term liabilities.............................................. 5,007 4,859
------------ -----------
Total long-term liabilities......................................... 196,423 193,752
------------ -----------
Commitments and Contingencies
Minority Interest......................................................... 16,534 16,851
Partners' Capital:
Limited Partners, $25 stated value per Unit; authorized - 21,249,942 Units;
issued and outstanding - 15,284,243 Units:
Public Unitholders, 2,712,814 Units with preferential rights 41,958 40,906
General Partner, 12,571,429 Units without preferential rights (26,636) (26,636)
General Partner........................................................ (5,365) (5,365)
Investment in W.L. Realty Limited Partnership (4,244) (4,244)
------------ ---------------
Total partners' capital............................................. 5,713 4,661
------------ -----------
$ 236,222 $ 230,901
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<TABLE>
Consolidated Statements of Cash Flows
- ------------------------------------------------------------------------------------------------------------------------------------
For the Six Months
Ended June 30
(Amounts in thousands)(Unaudited) 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net Income ............................................................... $ 1,052 $ 828
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Minority Interest expense............................................. 1,005 -
Depreciation and amortization......................................... 4,273 3,864
Equity in income (loss) of investment programs (114) 4
Increases (decreases) in cash as a result of changes in
operating assets and liabilities:
Fees receivable..................................................... 548 236
Other current assets................................................ 693 758
Long-term receivable ............................................... (1,029) -
Other non-current assets............................................ 86 -
Accounts payable.................................................... (97) (899)
Accrued expenses.................................................... 2,024 (16,753)
Accrued deferred taxes.............................................. 1,026 865
Other liabilities................................................... 148 (794)
----------- ----------
Net cash provided by (used in) operating activities 9,615 (11,891)
------- -----------------
Cash flows from investing activities:
Capital expenditures.................................................... (3,794) (2,550)
Contributions to investment programs.................................... (100) (14)
Distributions from investment programs.................................. 968 350
Proceeds from sale of promissory note................................... 6,000 -
Decrease in earnest money deposit...................................... - 2,200
Repayment of related party receivables.................................. 85 -
Decrease (increase) in loans receivable................................. 68 (340)
----------- ----------
Net cash provided by (used in) investing activities 3,227 (354)
------- -------------
Cash flows from financing activities:
Increase in deferred costs.............................................. (28) (379)
Borrowings of notes payable............................................. - 17,621
Distributions to minority interest...................................... (1,322) -
Repayments of notes payable............................................. (296) (7,724)
----------- ----------
Net cash provided by (used in) financing activities (1,646) 9,518
--------- --------------
Net Increase (decrease) in cash and cash equivalents 11,196 (2,727)
-------- ---------------
Cash and cash equivalents at beginning of period 12,362 18,898
----------- --------------
Cash and cash equivalents at end of period $ 23,558 $ 16,171
========== ==============
</TABLE>
Supplemental disclosure of Non Cash Investing and Financing
Activities: In April 1995, the Company purchased, from an
unaffiliated party, an apartment complex in Austin, Texas. In
conjunction therewith, the Company obtained $1,000,000 in seller
financing and assumed a mortgage from a related party of $9,945,974.
The accompanying notes are an integral part of these consolidated
financial statements.
Notes to Consolidated Financial Statements June 30, 1996
- --------------------------------------------------------------------------------
1. BASIS OF PRESENTATION
1. The accompanying condensed consolidated financial statements
reflect the accounts of Winthrop Financial Associates ("WFA") and
its subsidiaries including First Winthrop (collectively referred to
as the "Company"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The consolidated financial statements were prepared on the accrual
basis of accounting and reflect the Company's results of operations
for an interim period which may not necessarily be indicative of the
results of operations for the year ending December 31, 1996. In the
opinion of management, all adjustments considered necessary for a
fair presentation of the results of operations for an interim period
have been made in the accompanying consolidated financial
statements. These condensed consolidated financial statements should
be read in conjunction with the financial statements and notes
thereto included in the Partnership's latest annual report on Form
10-K.
Public Unitholders are entitled to a 6% per annum cumulative
priority distribution from all operating cash flow. At June 30,
1996, this unpaid accumulated preference amounted to $22,380,000 or
$8.25 per unit.
The net income of the Company is first allocated to Public
Unitholders up to the amount of the 6% per annum cumulative priority
distribution and then any remaining income is allocated to all
partners in accordance with their percentage interests. Net loss for
financial statement purposes is allocated to all partners in
accordance with their percentage interests as outlined in the
partnership agreement. The Company made interest and income tax
payments during the three months ended March 31, 1996 and 1996 as
follows:
2. STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
<S> <C> <C>
(Amounts in thousands) 1996 1995
-----------------------------------------------------------
Interest...................... $ 7,507 $ 6,941
Income Taxes.................. - 84
</TABLE>
3. RELATED PARTY TRANSACTIONS
During the six months ended June 30, 1996 the Company was repaid
advances of $85,000 from certain affiliates of Apollo. Such advances
bear interest at prime plus 1% and are due on demand. The balance
due from related parties at June 30, 1996, waas $149,000.
WINTHROP FINANCIAL ASSOCIATES
(A Limited Partnership)
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
DECEMBER 31, 1995
<TABLE>
<CAPTION>
- ------------------------------- --------------- -------------------------------- ------------------ ---------------
Column A Column B Column C Column D Column E
- -------------------------------------- --------------- -------------------------------- ------------------ ---------------
Balance, Charged to Balance,
Beginning Costs and Charged to (Additions) End
Description of Period Expenses Other Accounts Deductions of Period
- -------------------------------------- --------------- ------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C> <C>
PERIOD ENDED, DECEMBER 31, 1995:
Deducted from asset accounts-
Allowance for doubtful accounts $ 16,639,000 $ 240,000 $ - $ - $ 16,879,000
Loan reserves 16,908,000 (20,000) - - 16,888,000
-------------- ------------ ------------ ------------ -------------
Total $ 33,547,000 $ 220,000 $ - $ - $ 33,767,000
============== ============ ============ ============ =============
General partner liability $ 4,777,000 $ - $ 1,121,000 $ (2,611,000) $ 3,287,000
============== ============ ============ ============ =============
YEAR ENDED DECEMBER 31, 1994
Deducted from asset accounts-
Allowance for doubtful accounts $ 26,614,000 $ 25,000 $ - $ 10,000,000 $ 16,639,000
(1)
Loan reserves 17,538,000 75,000 - 705,000 16,908,000
-------------- ------------ ------------ ------------ -------------
(1)
Total $ 44,152,000 $ 100,000 $ - $ 10,705,000 $ 33,547,000
============== ============ ============ ============ =============
General partner liability $ 8,304,000 $ - $ (171,000) $ 3,356,000 $ 4,777,000
============== ============ ============ ============ =============
(2)
YEAR ENDED DECEMBER 31, 1993
Deducted from asset accounts-
Allowance for doubtful accounts $ 27,870,000 $ 130,000 $ 1,386,000 $ 26,614,000
(1)
Loan reserves 25,107,000 137,000 7,706,000 17,538,000
-------------- ------------ ------------ -------------
(1)
Total $ 52,977,000 $ 267,000 $ 9,092,000 $ 44,152,000
============== ============ ============ =============
General partner liability $ 9,844,000 $ 1,540,000 $ 8,304,000
============== ============ =============
(2)
YEAR ENDED DECEMBER 31, 1992
Deducted from asset accounts-
Allowance for doubtful accounts $ 222,652,000 $ 901,000 $ 4,845,000 (3) $ 528,000 $ 27,870,000
(1)
Loan reserves 24,739,000 619,000 4,221,000 (3) 4,472,000 25,107,000
-------------- ------------ ------------ ------------ -------------
(1)
Total $ 47,391,000 $ 1,520,000 $ 9,066,000 $ 5,000,000 $ 52,977,000
============== ============ ============ ============ =============
General partner liability $ 9,850,000 $ 900,000 $ 906,000 $ 9,844,000
============== ============ ============ =============
(2)
</TABLE>
(1) Uncollectible accounts written off.
(2) Payments.
(3) These amounts represented deferred revenue.
WINTHROP FINANCIAL ASSOCIATES
SCHEDULE III
SCHEDULE 3-A
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Cost Capitalized Subsequent
(A) Acquisition Costs to Acquisition
Description Mortgage Buildings and Buildings and
Real Property Notes Land Improvements Land Improvements
<S> <C> <C> <C> <C> <C>
Beacon Hill Apts., Chambles, GA $ 3,701,986 $ 655,108 $ 3,520,283 $ - $ 214,888
Blossomtree Apts., Scottsdale, AZ 2,251,638 362,134 1,964,236 - 232,527
Ferntree III Apts., Phoenix, AZ 2,587,193 445,946 2,397,000 - 214,729
Foothils Apts., Tucson, AZ 6,043,093 804,081 6,296,430 - 62,375
Fox Bay Apts., Tucson, AZ 3,925,497 724,139 3,638,748 - 152,250
Foxtree Apts., Tempe, AZ 5,575,592 950,671 5,113,536 - 788,892
Grovetree Apts., Tempe, AZ 3,620,626 621,544 3,324,781 - 125,285
Hazeltree Apts., Phoenix, AZ 1,236,970 181,804 1,002,426 - 361,241
Hiddentree Apts., E. Lansing, MI 5,306,793 567,852 4,998,541 - 979,445
Islandtree Apts., Savannah, GA 6,047,438 1,097,172 5,852,607 - 110,844
Orchidtree Apts., Scottsdale, AZ 8,239,302 1,441,057 7,709,577 - 467,745
Pine Creek Apts., Pine Creek, MI 2,136,961 329,332 1,823,779 - 466,855
Polo Park Apts., Midland, TX 3,074,131 447,980 2,979,650 - 106,427
Quailtree Apts., Phoenix, AZ 2,629,152 441,855 2,373,552 - 215,026
Rivercrest Apts., Tucson, AZ 2,678,712 576,873 2,267,180 - 73,871
Sand Pebble Apts., El Paso, TX 5,007,302 754,565 5,015,097 - 123,993
Shadetree Apts., Tempe, AZ 1,724,979 287,774 1,549,185 - 153,922
Silktree Apts., Phoenix, AZ 1,292,390 205,395 1,104,863 - 71,132
Timbertree Apts., Phoenix, AZ 7,033,923 1,263,962 6,752,145 - 491,336
Twinbridge Apts., Tucson, AZ 763,274 124,654 625,458 - 36,133
Village Park Apts., North Miami, FL 14,755,882 2,325,130 14,371,343 - 961,808
Wickertree Apts., Phoenix, AZ 3,183,166 590,218 2,959,563 - 173,049
Wildflower Apts., Midland, TX 2,641,832 363,341 2,642,526 - 223,840
Wydewood Apts., Midland, TX 2,218,304 323,230 2,149,165 - 79,680
Yorktree Apts., Carol Stream, IL 8,649,878 605,045 7,820,340 (200,153) 2,110,395
Brant Rock Apts., Houston, TX 1,533,139 169,000 1,606,000 - 253,820
Freedom Place Apts., Jacksonville, FL 10,904,723 1,443,278 11,181,721 - 83,385
Olmos Club Apts., San Antonio, TX 2,137,758 304,425 2,170,575 - 38,107
Sandcastles Apts., League City, TX 4,491,450 624,000 4,576,000 - 75,305
Shadow Lake Apts., Greensboro, NC 4,301,427 850,000 4,130,000 - 118,607
Surrey Oaks Apts., Bedford, TX 3,454,962 574,000 3,426,000 - 110,226
Tall Timbers Apts., Houston, TX 5,268,817 1,299,300 4,800,700 23,434 844,641
Windsor Landing Apts., Morrow, GA 6,867,600 1,660,000 6,291,000 - 59,808
Woodhollow Apts., Austin, TX 2,915,124 972,000 2,403,000 (3,744) 190,153
Benjamin Franklin Land, Philedelphia, PA 1,655,088 1,712,365 - - -
Marlboro Unimp. Land, Various Loc. - 89,743 - - -
Northwood Land, Various Loc. 866,704 1,457,504 - - -
Linnaeus Unimp. Land, Manchester, CT - 160,000 - - -
Linnaeus Building, Manchester, CT - - 642,329 - -
Clarendon Land, Irving, CA - 302,411 - - -
The Hills Apts., Austin, TX 9,424,488 2,798,623 8,307,025 - 113,243
--------------- ------------- --------------- ------------ -------------
$ 160,147,294 $ 30,907,511 $ 149,786,361 $ (180,463) $ 10,884,983
=============== ============= =============== ============ =============
</TABLE>
WINTHROP FINANCIAL ASSOCIATES
10-K SCHEDULE III
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Gross Balance,
December 31, 1995 (C)
Description Buildings and (B) Accumulated
Real Property Land Improvements Total Depreciation
<S> <C> <C> <C> <C>
Beacon Hill Apts., Chambles, GA $ 655,108 $ 3,735,171 $ 4,390,279 $ 317,019
Blossomtree Apts., Scottsdale, AZ 362,134 2,196,763 2,558,897 192,498
Ferntree III Apts., Phoenix, AZ 445,946 2,611,729 3,057,675 221,632
Foothils Apts., Tucson, AZ 804,081 6,358,805 7,162,886 496,052
Fox Bay Apts., Tucson, AZ 724,139 3,790,998 4,515,137 493,986
Foxtree Apts., Tempe, AZ 950,671 5,902,428 6,853,099 331,974
Grovetree Apts., Tempe, AZ 621,544 3,450,066 4,071,610 279,098
Hazeltree Apts., Phoenix, AZ 181,804 1,363,667 1,545,471 135,509
Hiddentree Apts., E. Lansing, MI 567,852 5,977,986 6,545,838 554,382
Islandtree Apts., Savannah, GA 1,097,172 5,963,451 7,060,623 468,724
Orchidtree Apts., Scottsdale, AZ 1,441,057 8,177,322 9,618,379 655,368
Pine Creek Apts., Pine Creek, MI 329,332 2,290,634 2,619,966 221,041
Polo Park Apts., Midland, TX 447,980 3,086,077 3,534,057 249,021
Quailtree Apts., Phoenix, AZ 441,855 2,588,578 3,030,433 213,327
Rivercrest Apts., Tucson, AZ 576,873 2,341,051 2,917,924 191,966
Sand Pebble Apts., El Paso, TX 754,565 5,139,090 5,893,655 407,374
Shadetree Apts., Tempe, AZ 287,774 1,703,107 1,990,881 144,656
Silktree Apts., Phoenix, AZ 205,395 1,175,995 1,381,390 98,791
Timbertree Apts., Phoenix, AZ 1,263,962 7,243,481 8,507,443 577,426
Twinbridge Apts., Tucson, AZ 124,654 661,591 786,245 55,997
Village Park Apts., North Miami, FL 2,325,130 15,333,151 17,658,281 1,296,400
Wickertree Apts., Phoenix, AZ 590,218 3,132,612 3,722,830 254,985
Wildflower Apts., Midland, TX 363,341 2,866,366 3,229,707 240,175
Wydewood Apts., Midland, TX 323,230 2,228,845 2,552,075 178,651
Yorktree Apts., Carol Stream, IL 404,892 9,930,735 10,335,627 808,188
Brant Rock Apts., Houston, TX 169,000 1,859,820 2,028,820 208,998
Freedom Place Apts., Jacksonville, FL 1,443,278 11,265,106 12,708,384 490,785
Olmos Club Apts., San Antonio, TX 304,425 2,208,682 2,513,107 91,315
Sandcastles Apts., League City, TX 624,000 4,651,305 5,275,305 193,174
Shadow Lake Apts., Greensboro, NC 850,000 4,248,607 5,098,607 385,723
Surrey Oaks Apts., Bedford, TX 574,000 3,536,226 4,110,226 330,050
Tall Timbers Apts., Houston, TX 1,322,734 5,645,341 6,968,075 508,004
Windsor Landing Apts., Morrow, GA 1,660,000 6,350,808 8,010,808 543,018
Woodhollow Apts., Austin, TX 968,256 2,593,153 3,561,409 260,286
Benjamin Franklin Land, Philedelphia, PA 1,712,365 - 1,712,365 -
Marlboro Unimp. Land, Various Loc. 89,743 - 89,743 -
Northwood Land, Various Loc. 1,457,504 - 1,457,504 -
Linnaeus Unimp. Land, Manchester, CT 160,000 - 160,000 -
Linnaeus Building, Manchester, CT - 642,329 642,329 208,017
Clarendon Land, Irving, CA 302,411 - 302,411 -
The Hills Apts., Austin, TX 2,798,623 8,420,268 11,218,891 307,792
--------------- ----------------- ----------------- ---------------
$ 30,727,048 $ 160,671,344 $ 191,398,392 $ 12,611,402
=============== ================= ================= ===============
</TABLE>
WINTHROP FINANCIAL ASSOCIATES
10-K SCHEDULE III
DECEMBER 31, 1995
<TABLE>
<CAPTION>
Life on which
Depreciation
Description Date of Date Expense is
Real Property Construction Acquired Computed
<S> <C> <C> <C>
Beacon Hill Apts., Chambles, GA 1978 1993 5-27.5 years
Blossomtree Apts., Scottsdale, AZ 1970 1993 5-27.5 years
Ferntree III Apts., Phoenix, AZ 1973 1993 5-27.5 years
Foothils Apts., Tucson, AZ 1982 1993 5-27.5 years
Fox Bay Apts., Tucson, AZ 1983 1993 5-27.5 years
Foxtree Apts., Tempe, AZ 1972 1993 5-27.5 years
Grovetree Apts., Tempe, AZ 1959 1993 5-27.5 years
Hazeltree Apts., Phoenix, AZ 1959 1993 5-27.5 years
Hiddentree Apts., E. Lansing, MI 1969 1993 5-27.5 years
Islandtree Apts., Savannah, GA 1985 1993 5-27.5 years
Orchidtree Apts., Scottsdale, AZ 1972 1993 5-27.5 years
Pine Creek Apts., Pine Creek, MI 1976 1993 5-27.5 years
Polo Park Apts., Midland, TX 1982 1993 5-27.5 years
Quailtree Apts., Phoenix, AZ 1976 1993 5-27.5 years
Rivercrest Apts., Tucson, AZ 1984 1993 5-27.5 years
Sand Pebble Apts., El Paso, TX 1983 1993 5-27.5 years
Shadetree Apts., Tempe, AZ 1965 1993 5-27.5 years
Silktree Apts., Phoenix, AZ 1980 1993 5-27.5 years
Timbertree Apts., Phoenix, AZ 1980 1993 5-27.5 years
Twinbridge Apts., Tucson, AZ 1982 1993 5-27.5 years
Village Park Apts., North Miami, FL 1974-1981 1993 5-27.5 years
Wickertree Apts., Phoenix, AZ 1983 1993 5-27.5 years
Wildflower Apts., Midland, TX 1982 1993 5-27.5 years
Wydewood Apts., Midland, TX 1981 1993 5-27.5 years
Yorktree Apts., Carol Stream, IL 1970 1993 5-27.5 years
Brant Rock Apts., Houston, TX 1983 1993 5-27.5 years
Freedom Place Apts., Jacksonville, FL 1989 1994 5-27.5 years
Olmos Club Apts., San Antonio, TX 1983 1994 5-27.5 years
Sandcastles Apts., League City, TX 1987 1994 5-27.5 years
Shadow Lake Apts., Greensboro, NC 1986 1993 5-27.5 years
Surrey Oaks Apts., Bedford, TX 1984 1993 5-27.5 years
Tall Timbers Apts., Houston, TX 1983 1993 5-27.5 years
Windsor Landing Apts., Morrow, GA 1990 1993 5-27.5 years
Woodhollow Apts., Austin, TX 1974 1993 5-27.5 years
Benjamin Franklin Land, Philadelphia, PA N/A 1985 N/A
Marlboro Unimp. Land, Various Loc. N/A 1994 N/A
Northwood Land, Various Loc. N/A 1977 N/A
Linnaeus Unimp. Land, Manchester, CT N/A 1994 N/A
Linnaeus Building, Manchester, CT 1976 1994 5-27.5 years
Clarendon Land, Irving, CA N/A 1994 N/A
The Hills Apts., Austin, TX 1980-1982 1995 5-27.5 years
</TABLE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
by and between
WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP,
AND
LONDONDERRY ACQUISITION LIMITED PARTNERSHIP
Dated June 17, 1996
TABLE OF CONTENTS
Page
BACKGROUND . . . . . . . . . . . . . . . . . . . . A-2
ARTICLE I THE MERGER
SECTION 1.1 The Merger . . . . . . . . . . . A-2
SECTION 1.2 Effective Time . . . . . . . . . . A-3
SECTION 1.3 Agreement and Certificate of Lim-
ited Partnership . . . . . . . . . . . . A-3
SECTION 1.4 General Partner . . . . . . . . . A-3
SECTION 1.5 Conversion of Units . . . . . . . A-4
ARTICLE II EXCHANGE OF UNITS
SECTION 2.1 No Further Transfers . . . . . . A-5
SECTION 2.2 Payment . . . . . . . . . . . . . A-5
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE
PARTNERSHIP
SECTION 3.1 Organization of the Partnership . A-6
SECTION 3.2 Authority of the Partnership . . A-6
SECTION 3.3 No Defaults . . . . . . . . . . . A-7
SECTION 3.4 Financial Statements . . . . . . A-7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF
LONDONDERRY
SECTION 4.1 Organization of Londonderry . . . A-8
SECTION 4.2 Authority of Londonderry . . . . A-8
ARTICLE V COVENANTS OF THE PARTNERSHIP
SECTION 5.1 Regulatory and Other Approvals . A-8
SECTION 5.2 Investigation by Londonderry . . A-9
ARTICLE VI COVENANTS OF LONDONDERRY
SECTION 6.1 Regulatory and Other Approvals . A-9
ARTICLE VII LONDONDERRY'S CONDITIONS TO
CONSUMMATION OF THE MERGER
SECTION 7.1 No Injunction . . . . . . . . . . A-10
SECTION 7.2 No Proceeding . . . . . . . . . . A-10
SECTION 7.3 No Appeal . . . . . . . . . . . . A-10
SECTION 7.4 Consent, Authorization, etc. . . A-10
ARTICLE VIII THE PARTNERSHIP'S CONDITIONS TO
CONSUMMATION OF THE MERGER
SECTION 8.1 No Injunction . . . . . . . . . . A-11
SECTION 8.2 No Proceeding . . . . . . . . . . A-11
SECTION 8.3 No Appeal . . . . . . . . . . . . A-11
SECTION 8.4 Consent, Authorization, etc. . . A-11
ARTICLE IX SURVIVAL OF REPRESENTATIONS; INDEMNIFI-
CATION
SECTION 9.1 Survival of Representations . . . A-11
SECTION 9.2 General Indemnity . . . . . . . . A-12
SECTION 9.3 Defense of Claims . . . . . . . . A-12
ARTICLE X TERMINATION
SECTION 10.1 Termination . . . . . . . . . . A-14
SECTION 10.2 Effect of Termination . . . . . A-14
ARTICLE XI MISCELLANEOUS
SECTION 11.1 Amendment . . . . . . . . . . . A-15
SECTION 11.2 Entire Agreement; Assignment . . A-15
SECTION 11.3 Notices . . . . . . . . . . . . A-15
SECTION 11.4 Assignment . . . . . . . . . . . A-16
SECTION 11.5 Press Releases . . . . . . . . . A-16
SECTION 11.6 Validity . . . . . . . . . . . . A-17
SECTION 11.7 Governing Law . . . . . . . . . A-17
SECTION 11.8 Descriptive Headings . . . . . . A-17
SECTION 11.9 Parties in Interest . . . . . . A-17
SECTION 11.10 Counterparts . . . . . . . . . A-17
ARTICLE XII CERTAIN DEFINITIONS . . . . . . . . . A-17
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER dated as of June 17,
1996 (the "Merger Agreement"), by and between WINTHROP
FINANCIAL ASSOCIATES, A LIMITED PARTNERSHIP, a Maryland
limited partnership (the "Partnership") and LONDONDERRY
ACQUISITION LIMITED PARTNERSHIP, a Delaware limited
partnership ("Londonderry").
BACKGROUND
WHEREAS, the general partners of the Partnership and
Londonderry have approved, upon the terms and subject to
the conditions set forth in this Merger Agreement, the
merger of Londonderry with and into the Partnership (the
"Merger");
WHEREAS, as a result of the Merger (i) each issued
and outstanding assignee unit of limited partnership
interest of the Partnership ("Assignee Unit") not owned
by Londonderry or Linnaeus Associates Limited Partner-
ship, a Maryland limited partnership and the general
partner of the Partnership ("Linnaeus") will be converted
into the right to receive the Merger Consideration (as
hereinafter defined) and all of the Surviving
Partnership's (as hereinafter defined) outstanding As-
signee Units will thereafter be owned by Linnaeus and the
holder of the limited partnership interest in
Londonderry.
Now, therefore, the Partnership and Londonderry
hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject
to the conditions hereof, and in accordance with the
relevant provisions of the Maryland General Corporation
Law (the "MGCL"), the Maryland Revised Uniform Limited
Partnership Act (the "MRULPA") and the Delaware Revised
Uniform Limited Partnership Act, Londonderry shall be
merged with and into the Partnership as soon as practica-
ble following the satisfaction or waiver, if permissible,
of the conditions set forth in Articles VII and VIII
hereof. Following the Merger, the Partnership shall
continue as the surviving partnership (the "Surviving
Partnership") and shall continue its existence under the
laws of the State of Maryland, and the separate existence
of Londonderry shall cease.
SECTION 1.2 Effective Time. As soon as practicable
following the satisfaction or waiver of the conditions
set forth in Articles VII and VIII, (i) articles of
merger (the "Articles of Merger") shall be recorded with
the State Department of Assessments and Taxation of the
State of Maryland in accordance with the MGCL and the
MRULPA and (ii) a certificate of Merger shall be filed in
the Office of the Secretary of State of the State of
Delaware (the "Certificate of Merger"). The Merger shall
become effective at such time as the Articles of Merger
are duly recorded and the Certificate of Merger is duly
filed, or at such other time as the Partnership and
Londonderry shall specify in the Articles of Merger and
the Certificate of Merger (the time the Merger and the
Certificate of Merger becomes effective being the "Effec-
tive Time").
SECTION 1.3 Agreement and Certificate of Limited
Partnership. The Partnership's Agreement and Certificate
of Limited Partnership, dated as of December 4, 1984, as
amended and restated through February 15, 1985, and as
amended pursuant to Amendments No. 1 through 15 thereto,
and as in effect immediately prior to the Effective Time,
shall be the agreement and certificate of limited part-
nership of the Surviving Partnership until thereafter
altered, amended or repealed as provided therein or by
applicable law.
SECTION 1.4 General Partner. Linnaeus shall be the
general partner of the Surviving Partnership until the
earlier of its resignation or removal or until its suc-
cessor is duly qualified.
SECTION 1.5 Conversion of Units. At the Effective
Time, by virtue of the Merger and without any action on
the part of the Partnership, Londonderry or the holders
of any Assignee Units (the "Unitholders"):
(a) each issued and outstanding Assign-
ee Unit, other than Assignee Units held by
Londonderry, Linnaeus or Dissenting Assignee
Units (as defined below), shall be converted
into the right to receive from the Surviving
Partnership an amount in cash, without inter-
est, equal to $10.50 per Assignee Unit (the
"Merger Consideration") and all such Assign-
ee Units shall cease to be outstanding and
shall automatically be cancelled and retired
and shall cease to exist, and each holder of a
certificate representing any such Assignee Unit
shall cease to have any rights with respect
thereto, except the right to receive the Merger
Consideration, without interest;
(b) each issued and outstanding Assignee
Unit held by Londonderry shall cease to be
outstanding and shall automatically be cancel-
led and retired and shall cease to exist, and
Londonderry shall cease to have any rights with
respect thereto;
(c) the holder of the limited partnership
interests of Londonderry will be issued 1,000
Assignee Units of the Surviving Partnership in
exchange for the cancellation of all the issued
and outstanding partnership units of
Londonderry; and
(d) all outstanding Assignee Units held
by Unitholders who shall have properly exer-
cised appraisal rights, if any, with respect
thereto under Sections 10-208(f) of the MRULPA
and 3-203 of the MGCL ("Dissenting Assignee
Units") shall not be converted into the right
to receive the Merger Consideration, but shall
be entitled to receive payment of the appraised
value of such Assignee Units in accordance with
the provisions of Section 3-202 of the MGCL,
except that any Dissenting Assignee Units held
by a Unitholder who shall thereafter withdraw
his or her demand for appraisal of such Assign-
ee Units as provided in Section 3-205 of the
MGCL or lose his or her right to such payment
as provided in Sections 3-203 and 3-205 of the
MGCL shall be deemed converted, as of the Ef-
fective Time, into the amount of cash such
Unitholder would otherwise have been entitled
to receive as a result of the Merger.
ARTICLE II
EXCHANGE OF UNITS
SECTION 2.1 No Further Transfers. From and after
the Effective Time, (i) further transfers of issued and
outstanding Assignee Units, other than Assignee Units
issued to the holder of the limited partnership interest
of Londonderry or held by Linnaeus, shall not be recorded
by the Partnership and (ii) each issued and outstanding
Assignee Unit held other than by Londonderry or Linnaeus
shall thereafter represent only the right to receive the
Merger Consideration in cash or the right to receive
payment of the appraised value of such Assignee Unit in
accordance with the provisions of Section 3-202 of the
MGCL.
SECTION 2.2 Payment. (a) Prior to the Effective
Time, the Partnership will appoint a bank or trust compa-
ny to act as disbursing agent (the "Disbursing Agent")
for the payment of the Merger Consideration upon the
delivery of a letter of transmittal describing the As-
signee Units (the "Letter of Transmittal"). Promptly
after the Effective Time, the Surviving Partnership will
cause the Disbursing Agent to mail to each Person who was
a record holder, as of the Effective Time, of an out-
standing Assignee Unit, a form of the Letter of Transmit-
tal (which shall specify that delivery shall be effected,
and risk of loss and title to the Assignee Unit shall
pass, only upon proper delivery of the Letter of Trans-
mittal to the Disbursing Agent) and instructions for use
in effecting the surrender of the Assignee Unit in ex-
change for payment of the Merger Consideration. Upon
surrender to the Disbursing Agent of a Letter of Trans-
mittal duly executed and such other documents as may be
reasonably required by the Disbursing Agent, the holder
of such Assignee Unit will be paid in exchange therefor
cash in an amount equal to the product of the number of
Assignee Units held multiplied by the Merger Consider-
ation, and such Assignee Units shall forthwith be cancel-
led. No interest will be paid or accrued on the cash
payable upon the delivery of the Letter of Transmittal.
(b) At any time more than one year after the
Effective Time, the Surviving Partnership will be enti-
tled to require the Disbursing Agent to deliver to it any
funds made available to the Disbursing Agent and not
disbursed in exchange for Assignee Units. Thereafter,
Unitholders will be entitled to look only to the Surviv-
ing Partnership (subject to abandoned property, escheat
and other similar laws) as general creditors thereof with
respect to any Merger Consideration that may be payable
upon delivery of a Letter of Transmittal. Neither the
Surviving Partnership nor the Disbursing Agent will be
liable to any holder of an Assignee Unit for any Merger
Consideration delivered to a public official pursuant to
any abandoned property, escheat or other similar law.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE PARTNERSHIP
The Partnership hereby represents and warrants to
Londonderry as follows:
SECTION 3.1 Organization of the Partnership. The
Partnership is a limited partnership duly organized,
validly existing, and in good standing under the laws of
Maryland and the Partnership has the requisite partner-
ship power and authority to enter into this Merger Agree-
ment and to perform its obligations under this Merger
Agreement (other than, with respect to the Merger, the
approval and adoption of this Merger Agreement by a
majority of the outstanding Assignee Units entitled to
vote thereon and filing and recordation of the appropri-
ate documents under the MGCL and the MRULPA).
SECTION 3.2 Authority of the Partnership. The
general partner of the Partnership has duly and validly
approved this Merger Agreement and the transactions
contemplated hereby. The execution and delivery of this
Merger Agreement by the Partnership and the performance
by the Partnership of its obligations under this Merger
Agreement have been duly and validly advised, authorized
and approved by all necessary partnership action on the
part of the Partnership (other than, with respect to the
Merger, the approval and adoption of this Merger Agree-
ment by a majority of the Assignee Units entitled to vote
thereon and filing and recordation of the appropriate
documents under the MGCL and the MRULPA). This Merger
Agreement constitutes a valid and binding obligation of
the Partnership and is enforceable against the Partner-
ship in accordance with its terms, except to the extent
that (a) enforcement may be limited by or subject to any
bankruptcy, insolvency, reorganization, moratorium, or
similar laws now or hereafter in effect relating to or
limiting creditors' rights generally and (b) the remedy
of specific performance and injunctive and other forms of
equitable relief are subject to certain equitable defens-
es and to the discretion of the court or other similar
entity before which any proceeding therefor may be
brought.
SECTION 3.3 No Defaults. As of the date hereof,
neither the Partnership nor any of its Affiliates or
subsidiaries was in material violation (i) of any materi-
al agreement governing or relating to any indebtedness of
the Partnership or any of its Affiliates or subsidiaries
or (ii) any management, partnership, mortgage or other
agreement to which the Partnership or any of its Affili-
ates or subsidiaries is a party or by which any of their
respective properties is bound, except for violations,
breaches of, or defaults under, such other agreements
which, individually or in the aggregate, would not have a
Material Adverse Effect.
SECTION 3.4 Financial Statements. The Partnership
has delivered to Londonderry true and complete copies of
the Partnership's Annual Report on Form 10-K for the
years ended December 31, 1993, 1994 and 1995 and the
Partnership's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996 (together, the "Financial
Statements"). Except as otherwise noted in such Finan-
cial Statements, the Financial Statements were prepared
in accordance with generally accepted accounting princi-
ples as in effect from time to time applied on a consis-
tent basis throughout the periods indicated ("GAAP"),
present fairly, in all material respects, the financial
condition of the Partnership and do not contain any
misstatement of any material fact or omit to state any
fact which is necessary to make the statements therein
not misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF LONDONDERRY
Londonderry hereby represents and warrants to the
Partnership as follows:
SECTION 4.1 Organization of Londonderry.
Londonderry is duly organized, validly existing, and in
good standing under the laws of the State of Delaware and
has the requisite partnership power and authority to
enter into this Merger Agreement and to perform its
obligations under this Merger Agreement.
SECTION 4.2 Authority of Londonderry. The general
partner of Londonderry has duly and validly approved this
Merger Agreement and the transactions contemplated here-
by. The execution and delivery of this Merger Agreement
and the performance by Londonderry of its obligations
under this Merger Agreement has been duly and validly
advised, authorized and approved by all necessary part-
nership action on the part of Londonderry. This Merger
Agreement constitutes a valid, and binding obligation of
Londonderry and is enforceable against Londonderry in
accordance with its terms, except to the extent that (a)
enforcement may be limited by or subject to any bankrupt-
cy, insolvency, reorganization, moratorium, or similar
laws now or hereafter in effect relating to or limiting
creditors' rights generally and (b) the remedy of specif-
ic performance and injunctive and other forms of equita-
ble relief are subject to certain equitable defenses and
to the discretion of the court or other similar entity
before which any proceeding therefor may be brought.
ARTICLE V
COVENANTS OF THE PARTNERSHIP
The Partnership covenants and agrees with
Londonderry that the Partnership will comply with all
covenants and provisions of this Article V, except to the
extent Londonderry may otherwise consent in writing.
SECTION 5.1 Regulatory and Other Approvals. Sub-
ject to the terms and conditions herein provided, the
Partnership will, (a) take all reasonable steps necessary
or desirable, and proceed diligently and in good faith
and use all reasonable efforts to obtain all approvals
required by any applicable contract of the Partnership to
consummate the transactions contemplated hereby, (b) take
all reasonable efforts to obtain all approvals, authori-
zations, and clearances of governmental and regulatory
authorities required of the Partnership to permit the
Partnership to consummate the transactions contemplated
hereby, (c) provide such other information and communica-
tions to such governmental and regulatory authorities as
Londonderry or such authorities may reasonably request,
and (d) cooperate with Londonderry in obtaining all
approvals, authorizations, and clearances of governmental
or regulatory authorities and others required of
Londonderry to consummate the transactions contemplated
hereby.
SECTION 5.2 Investigation by Londonderry. Subject
to any currently existing contractual and legal restric-
tions applicable to the Partnership, the Partnership will
provide Londonderry, its lenders, and its counsel, ac-
countants, actuaries, and other representatives (collec-
tively, "Representatives") with reasonable access, upon
reasonable notice and during normal business hours, to
all facilities, officers, employees, accountants, actuar-
ies, assets and properties, and books and records of the
Partnership and will furnish Londonderry and such Repre-
sentatives during such period with all such information
and data (including without limitation copies of con-
tracts, benefits plans, and other books and records)
concerning the business, operations, and affairs of the
Partnership as Londonderry or any such Representatives
may reasonably request.
ARTICLE VI
COVENANTS OF LONDONDERRY
Londonderry covenants and agrees with the Partner-
ship that Londonderry will comply with all covenants and
provisions of this Article VI, except to the extent the
Partnership may otherwise consent in writing.
SECTION 6.1 Regulatory and Other Approvals. Sub-
ject to the terms and conditions herein provided,
Londonderry will (a) take all reasonable steps necessary
or desirable, and proceed diligently and in good faith
and use all reasonable efforts to obtain, all approvals,
authorizations, and clearances of governmental and regu-
latory authorities required of Londonderry to consummate
the transactions contemplated hereby, (b) provide such
other information and communications to such governmental
and regulatory authorities as the Partnership or such
authorities may reasonably request, and (c) cooperate
with the Partnership in obtaining all approvals, authori-
zations, and clearances of governmental or regulatory
authorities required of the Partnership to consummate the
transactions contemplated hereby.
ARTICLE VII
LONDONDERRY'S CONDITIONS TO CONSUMMATION OF THE MERGER
The respective obligations of Londonderry to effect
the Merger are subject to the satisfaction or waiver,
where permissible, prior to the Effective Time, of the
following conditions:
SECTION 7.1 No Injunction. No statute, rule,
regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent),
shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which is in effect
and has the effect of prohibiting the consummation of the
Merger;
SECTION 7.2 No Proceeding. No filing of a proceed-
ing seeking to enjoin or restrict the Merger shall have
been made.
SECTION 7.3 No Appeal. No appeal of Albert Fried-
man, individually and as representative of a class of
similarly situated persons, v. Linnaeus Associates Limit-
ed Partnership, et al., No. 94 CH 11524, Cir. Ct. of Cook
County, Ill. shall have been made.
SECTION 7.4 Consent, Authorization, etc. This
Merger Agreement shall have been approved and adopted by
the affirmative vote of a majority in interest of the
Assignee Units entitled to vote thereon in accordance
with the MRULPA and the Partnership's Agreement and
Amended Certificate of Limited Partnership, as amended.
ARTICLE VIII
THE PARTNERSHIP'S CONDITIONS TO CONSUMMATION
OF THE MERGER
The obligations of the Partnership to effect the
Merger are subject to the satisfaction or waiver, where
permissible, prior to the Effective Time, of the follow-
ing conditions:
SECTION 8.1 No Injunction. No statute, rule,
regulation, executive order, decree, injunction or other
order (whether temporary, preliminary or permanent),
shall have been enacted, entered, promulgated or enforced
by any court or governmental authority which is in effect
and has the effect of prohibiting the consummation of the
Merger;
SECTION 8.2 No Proceeding. No filing of a proceed-
ing seeking to enjoin or restrict the Merger shall have
been made.
SECTION 8.3 No Appeal. No appeal of Albert Fried-
man, individually and as representative of a class of
similarly situated persons, v. Linnaeus Associates Limit-
ed Partnership, et al., No. 94 CH 11524, Cir. Ct. of Cook
County, Ill. shall have been made.
SECTION 8.4 Consent, Authorization, etc. This
Merger Agreement shall have been approved and adopted by
the affirmative vote of a majority of the Assignee Units
entitled to vote thereon in accordance with the MRULPA
and the Partnership's Agreement and Amended Certificate
of Limited Partnership, as amended.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS; INDEMNIFICATION
SECTION 9.1 Survival of Representations. All
representations, warranties and agreements made by any
Party pursuant hereto shall survive the Effective Time
and any investigation at any time made by or on behalf of
any Party for a period of two years after the date of the
Effective Time.
SECTION 9.2 General Indemnity. (a) Subject to the
terms and conditions of Section 9.1 hereof, the Partner-
ship agrees to, indemnify, defend and hold harmless
Londonderry and all its Affiliates (the "Londonderry
Group") from and after the Effective Time, from and
against any and all claims, demands, actions or causes of
action, and all claims, demands, liabilities, costs and
expenses, including, without limitation, interest, penal-
ties and reasonable attorneys' fees and expenses (indi-
vidually and collectively "Indemnifiable Losses"), as-
serted against, resulting to, imposed upon or incurred by
any member of the Londonderry Group, directly or indi-
rectly, by reason of or resulting from a breach of any
representation or warranty of the Partnership contained
in or made pursuant to this Merger Agreement, or any
facts or circumstances constituting such a breach of
which the Londonderry Group did not have actual knowledge
prior to the Effective Time; and
(b) Subject to the terms and conditions of
Section 9.1 hereof, Londonderry hereby agrees to indemni-
fy, defend and hold harmless the Partnership, from and
after the Effective Time, from and against any and all
Indemnifiable Losses asserted against, resulting to,
imposed upon or incurred by the Partnership, directly or
indirectly, by reason of or resulting from any breach of
any representation or warranty of Londonderry contained
herein, of which the Partnership did not have actual
knowledge prior to the Effective Time.
SECTION 9.3 Defense of Claims.
(a) If an Indemnitee receives notice of the
assertion of any claim or of the commencement of any
action or proceeding by any Person or group who is not a
Party or who is not an Indemnitee hereunder (a "Third
Party Claim") against such Indemnitee, with respect to
which any Indemnifying Party is obligated to provide
indemnification under Section 9.2 hereof, the Indemnitee
will give each such Indemnifying Party prompt written
notice thereof. Such notice will describe the Third
Party Claim in reasonable detail, and will indicate the
estimated amount, if practicable, of the Indemnifiable
Loss that has been or may be sustained by the Indemnitee.
Each Indemnifying Party will have the right to partici-
pate in or, by giving written notice to the Indemnitee,
to elect to assume the defense of any Third Party Claim
at such Indemnifying Party's own expense and by such
Indemnifying Party's own counsel, which counsel will be
reasonably satisfactory to the Indemnitee, and the Indem-
nitee will, to the extent requested, cooperate in good
faith in such defense; provided, however, that the Indem-
nitee may at its own expense retain separate counsel to
participate in such defense.
(b) If within 10 calendar days after an Indem-
nitee receives written notice from an Indemnifying Party
that such Indemnifying Party has elected to assume the
defense of any Third Party Claim, the Indemnifying Party
will not be liable for any legal expenses subsequently
incurred by the Indemnitee in connection with the defense
thereof; provided, however, that if the Indemnifying
Party fails to take reasonable steps necessary to defend
such Third Party Claim within 30 calendar days after
receiving notice from the Indemnitee that the Indemnitee
believes the Indemnifying Party has failed to take such
steps, the Indemnitee may assume its own defense, and the
Indemnifying Party will be liable for any reasonable
expenses therefor. Notwithstanding anything contained
herein to the contrary, the Indemnitee will have the
right to employ separate counsel at the Indemnifying
Party's expense and to control its own defense of such
action or proceeding if (i) there are or may be legal
defenses available to the Indemnitee that are different
from or additional to those available to the Indemnifying
Party, or (ii) in the reasonable opinion of counsel to
the Indemnitee, a conflict or potential conflict exists
between the Indemnifying Party and the Indemnitee that
would make such separate representation advisable.
Without obtaining a complete and unconditional release of
the Indemnitee from any further liability in respect of
such claim, the Indemnifying Party will not enter into
any settlement of any Third Party Claim without the
consent of the Indemnitee, which will not be unreasonably
withheld. In the event that any Indemnifying Party does
not elect to assume the defense of any Third Party Claim
in accordance with this Section 9.3, such Indemnifying
Party will be obligated for all costs of defense of the
Indemnitee.
(c) Any claim by an Indemnitee on account of
an Indemnifiable Loss which does not result from a Third
Party Claim (a "Direct Claim") will be asserted by giving
each Indemnifying Party prompt written notice thereof,
and each Indemnifying Party will have a period of 30
calendar days within which to respond to such Direct
Claim. If any Indemnifying Party does not so respond
within such 30 calendar day period, such Indemnifying
Party will be deemed to have rejected such claim, in
which event the Indemnitee will be free to pursue such
remedies as may be available to the Indemnitee under any
applicable laws, subject to the terms of this Merger
Agreement, including, without limitation, the enforcement
of the Indemnitee's rights under this Merger Agreement.
(d) A failure to give timely notice as provid-
ed in this Section 9.3 will not affect the rights or
obligations of any Party except and only to the extent
that, as a result of such failure, any Party which was
entitled to receive such notice was deprived of its right
to recover any payment under its applicable insurance
coverage or incurred a significant obligation or liabili-
ty which otherwise would have been avoided.
(e) Upon making any Indemnity Payment, the
Indemnifying Party will, to the extent of such Indemnity
Payment, be subrogated to all rights of the Indemnitee
against any third party in respect of the Indemnifiable
Loss to which the Indemnity Payment relates; provided,
however, that (i) the Indemnifying Party will then be in
compliance with its obligations under this Merger Agree-
ment in respect of such Indemnifiable Loss, and (ii)
until the Indemnitee recovers full payment of its
Indemnifiable Loss, any and all claims of the Indemnify-
ing Party against any such third party on account of said
Indemnity Payment is hereby made expressly subordinated
and subjected in right of payment to the Indemnitee's
rights against such third party. Without limiting the
generality of any other provision hereof, each such
Indemnitee and Indemnifying Party will duly execute upon
request all instruments reasonably necessary to evidence
and perfect the above-described subrogation and subordi-
nation rights.
ARTICLE X
TERMINATION
SECTION 10.1 Termination. This Merger Agreement
may be terminated, and the transactions contemplated
hereby may be abandoned, upon notice by the terminating
Party to the other Parties at any time before the Effec-
tive Time, by mutual written agreement of the Partnership
and Londonderry.
SECTION 10.2 Effect of Termination. If this Merger
Agreement is validly terminated pursuant to Section 10.1
hereof, this Merger Agreement will thereupon become null
and void, and there will be no liability on the part of
the Partnership or Londonderry (or any of their respec-
tive officers, directors, employees, agents, consultants,
or other representatives), except that any such termina-
tion shall be without prejudice to any claim which each
Party may have against the others for willful breach of
this Merger Agreement (or any representation, warranty,
covenant, or agreement included herein).
ARTICLE XI
MISCELLANEOUS
SECTION 11.1 Amendment. This Merger Agreement may
not be amended except by an instrument in writing signed
on behalf of all the Parties.
SECTION 11.2 Entire Agreement; Assignment. This
Merger Agreement constitutes the entire agreement and
supersedes all prior agreements and understandings, both
written and oral, among the Parties with respect to the
subject matter hereof. Neither this Merger Agreement nor
any right, interest or obligation under this Merger
Agreement shall be assigned, in whole or in part, by
operation of law or otherwise without the prior written
consent of the Parties.
SECTION 11.3 Notices. All notices, requests,
demands and other communications made under or by reason
of the provisions of this Merger Agreement will be in
writing and will be given by hand-delivery, certified or
registered mail, return receipt requested, telex,
telecopier (with a copy also sent by hand delivery or air
courier, which shall not alter the time at which the
telecopier notice is deemed received), or air courier to
the Parties at the addresses set forth below. Such
notices shall be deemed given: (i) at the time personally
delivered, if delivered by hand with receipt acknowl-
edged; (ii) at the time received if sent certified or
registered mail; (iii) when answered back, if telexed;
(iv) upon transmission thereof by the sender and issuance
by the transmitting machine of a confirmation slip that
the number of pages constituting the notice have been
transmitted without error, if telecopied; or (v) the
first Business Day after timely delivery to the courier,
if sent by air courier.
If to the Partnership:
Winthrop Financial Associates,
A Limited Partnership
One International Place
Boston, Massachusetts 02110
If to Londonderry:
Londonderry Acquisition Limited Partnership
1301 Avenue of the Americas
38th Floor
New York, New York 10019
With a copy (which shall not constitute notice)
given in the manner prescribed above, to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attention: Patrick J. Foye
Telephone: (212) 735-3000
Fax: (212) 735-2000
SECTION 11.4 Assignment. Notwithstanding anything
to the contrary herein, Londonderry shall have the right
at any time or from time to time to assign its rights and
delegate its obligations, under this Merger Agreement to
one or more of its Affiliates.
SECTION 11.5 Press Releases. All press releases or
other public communications of any sort relating to the
subject matter of this Merger Agreement and the method of
the release for publication thereof will be subject to
the approval of each Party, which approval shall not be
unreasonably withheld. Notwithstanding the foregoing,
any Party may make any public disclosure that their
counsel shall advise is required by law; provided, howev-
er, that a copy of any such disclosure shall be sent to
each other Party hereto at a reasonable time prior to
dissemination thereof and the disclosing Party shall
consider in good faith any comments of the other Parties
with respect thereto.
SECTION 11.6 Validity. In the event any one or
more of the provisions contained in this Merger Agreement
should be invalid, illegal or unenforceable in any re-
spect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall
not in any way be affected or impaired thereby.
SECTION 11.7 Governing Law. This Merger Agreement
shall be governed by and construed in accordance with the
substantive laws of the State of Maryland regardless of
the laws that might otherwise govern under principles of
conflicts of laws applicable thereto.
SECTION 11.8 Descriptive Headings. The descriptive
headings herein are inserted for convenience of reference
only and are not intended to be part of, or to affect the
meaning or interpretation of, this Merger Agreement.
SECTION 11.9 Parties in Interest. Nothing in this
Merger Agreement, express or implied, is intended to
confer upon any Person not a Party to this Merger Agree-
ment any rights or remedies of any nature whatsoever
under or by reason of this Merger Agreement.
SECTION 11.10 Counterparts. This Merger Agreement
may be executed in one or more counterparts, each of
which shall be deemed to be an original, but all of which
shall constitute one and the same agreement, and shall
become effective when one or more counterparts have been
signed by each of the Parties and delivered to the other
Parties.
ARTICLE XII
CERTAIN DEFINITIONS
"Affiliate" has the meaning defined in the
rules and regulations of the Securities and Exchange
Commission under the Securities Act of 1933, as amended,
to the extent that such meaning does not include
Londonderry.
"Business Day" means any day (other than a
Saturday or Sunday) on which banks are permitted to be
open and transact business in the City of New York.
"Indemnitee" means any Person or group entitled
to indemnification under this Merger Agreement.
"Indemnifying Party" means any Person or group
required to provide indemnification under this Merger
Agreement.
"Material Adverse Effect" means a material
adverse effect on or change in, directly or indirectly,
(i) the business, property, condition, financial posi-
tion, prospects or operations of the Partnership or its
subsidiaries or Affiliates or (ii) on the ability of any
of the Partnership or its subsidiaries or Affiliates to
perform their obligations under this Merger Agreement or
to consummate the transactions contemplated by this
Merger Agreement.
"Person" means any corporation, individual,
joint stock company, joint venture, partnership, unincor-
porated association, governmental regulatory entity,
country, state or political subdivision thereof, trust or
other entity.
IN WITNESS WHEREOF, each of the Parties has caused
this Merger Agreement to be executed on its behalf by its
respective officers thereunto duly authorized, all as of
the day and year first above written.
WINTHROP FINANCIAL ASSOCIATES,
A LIMITED PARTNERSHIP
By: LINNAEUS ASSOCIATES
LIMITED PARTNERSHIP,
general partner
By: W.L. REALTY, L.P.,
general partner
By: LONDONDERRY ACQUISITION II
LIMITED PARTNERSHIP,
general partner
By: LDY-GP PARTNERS II, L.P.,
general partner
By: LONDONDERRY ACQUISITION
CORPORATION II, INC.,
general partner
By /s/ Edward Scheetz
Name: Edward Scheetz
Title: Vice President
LONDONDERRY ACQUISITION LIMITED PARTNERSHIP
By: LDY-GP PARTNERS, L.P.,
general partner
By: LONDONDERRY ACQUISITION
CORPORATION, INC.,
general partner
By: /s/ Edward Scheetz
Name: Edward Scheetz
Title: Vice President
ANNEX B
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
ALBERT FRIEDMAN, Individually and )
as representative of a class of )
similarly situated persons, ) No. 94 CH 11524
Plaintiff )
)
v. )
)
LINNAEUS ASSOCIATES LIMITED )
PARTNERSHIP, et al., )
Defendants )
___________________________________)
STIPULATION OF SETTLEMENT
The parties to the above-captioned action, by their
undersigned attorneys, hereby enter into this Stipulation of
Settlement ["Stipulation"] made as of March 20, 1996, providing for
a full and final settlement of the above-captioned action ["the
Action"] on the following terms and subject to the terms and
conditions set forth below and the final approval of the Court
["the Settlement"].
BACKGROUND AND NATURE OF THE ACTION
Plaintiff Albert Friedman ["Friedman"] is an investor and
holder of Preferred Units (defined below) in nominal defendant
Winthrop Financial Associates, A Limited Partnership ["WFA"].
Friedman seeks to represent a Class (defined below) of all other
holders of Preferred Units, and to assert claims on behalf of the
Class.
On December 22, 1994, Friedman commenced this Action
challenging the actions taken by the Defendants in connection with
an investment agreement dated December 3, 1994 among the Defendants
["the Investment Agreement"] for the sale of certain partnership
interests in WFA. On February 28, 1995, Friedman filed the first
amended complaint against the Defendants herein alleging various
state law claims including breach of fiduciary duty, participation
in a breach of fiduciary duty, improper taking of a partnership
opportunity and inequity.
On March 8, 1996, Friedman filed the Second Amended Class
Action Complaint ["the Complaint"], which asserts claims against
Linnaeus Associates Limited Partnership ["Linnaeus"], a Maryland
limited partnership that is the sole general partner of WFA, Arthur
J. Halleran, Jr., Jonathan W. Wexler, F.X. Jacoby, Richard J.
McCready, Jeffrey Furber and Stephen G. Kasnet, all of whom are
former or current members of the senior management of WFA ["the WFA
Defendants"] and Nomura Asset Capital Corporation ["Nomura"], a
subsidiary of the American division of the Nomura Securities
Company, a global investment banking, securities and commodity
operation based in Japan. The Complaint asserts, in substance, the
claims asserted in the first amended complaint along with a breach
of contract claim.
In or about July, 1995, an affiliate of Londonderry
Acquisition Corp., Inc. ["Londonderry"] purchased all of the
general partnership interest in Linnaeus, along with all assignee
units held by Linnaeus, and has agreed to indemnify the Defendants
and settle the claims against the Defendants asserted in this
action on behalf of the Class. Friedman, on behalf of the Class,
the Defendants, and Londonderry wish to settle and finally dispose
of claims in this Action.
PROCEDURAL HISTORY, DISCOVERY AND
ARM'S LENGTH NEGOTIATIONS
The parties have engaged in substantial discovery includ-
ing the production by the WFA Defendants of hundreds of pages of
documents, expert analysis, and the oral examinations of defendant
Richard J. McCready, the chief operating officer of WFA, and
Michael L. Ashner, WFA's chief executive officer. Class counsel
and counsel for the Defendants have also engaged in arm's length
negotiations with respect to the terms of the Settlement. Class
counsel recognize and acknowledge the expense and length of contin-
ued proceedings necessary to prosecute the Action against the
Defendants through trial and through appeals. Class counsel also
have taken into account the applicable law, the uncertain outcome
and the risk of any litigation, especially in complex actions such
as this Action, as well as the difficulties and delays inherent in
such litigation. Class counsel have further taken into account the
strengths and uncertainties of the claims asserted in this Action,
the possible defenses to the claims asserted and the substantial
benefits of the settlement for the Class as set forth in this
Stipulation. Based upon the results of discovery, their analysis
of the relevant law, and significant negotiations, Class counsel
have therefore determined that the Settlement is fair, reasonable,
adequate and in the best interests of the Class.
The Defendants deny any fault, wrongdoing, or liability
arising out of or relating in any way to matters, acts and/or
omissions of the Defendants: 1) in connection with the management
and/or operation of WFA; and 2) in connection with the events or
transactions which underlie, are set forth in, described in,
included within, encompassed within, or otherwise referred to,
directly or indirectly, in the class action complaint (filed on or
about December 22, 1994) or in the first amended class action
complaint (filed on or about February 28, 1995) or the second
amended complaint (filed on March 8, 1996); and 3) the acquisition
by Londonderry's affiliate of defendant Nomura's interest in WFA or
its affiliates. In the absence of this Stipulation, Defendants
would vigorously assert and pursue several defenses as a complete
bar to recovery in this Action and would oppose the maintenance of
this Action as a class action. Neither this Stipulation nor any
document referred to herein nor any action taken to carry out this
Stipulation, is, may be construed as, or may be used as an admis-
sion by or against the Defendants, or any of them, of any fault,
wrongdoing or liability whatsoever. Entering into or carrying out
this Stipulation (or the Exhibits hereto) and any negotiations or
proceedings related thereto shall not in any event be construed as,
or be deemed to be evidence of, an admission or concession with
regard to the denials or defenses of any of the Defendants and
shall not be offered or received in evidence in any action or
proceeding in any court, administrative agency or other tribunal
for any purpose whatsoever other than to enforce the provisions of
this Stipulation (and the Exhibits hereto), or the provisions of
any related agreement or release; except that this Stipulation and
the Exhibits hereto may be filed in this Action or related litiga-
tion as evidence of this Settlement, or in any subsequent action
against or by any or all of the Defendants to support a defense of
res judicata, collateral estoppel, release, or other theory of
claim or issue preclusion or similar defense.
THE TERMS OF THE SETTLEMENT
NOW, THEREFORE, IT IS HEREBY STIPULATED AND AGREED by and
among the plaintiff Albert Friedman, on behalf of himself and the
Class, and the Defendants, by and through their respective attor-
neys or counsel of record, that, subject to all of the terms and
conditions set forth herein and to the approval of the Court, this
Action and all claims that have been asserted in the Second Amended
Class Action Complaint, or could have been asserted therein shall
be finally and fully compromised and settled as to all Defendants,
and the Action shall be dismissed on the merits and with prejudice
as to all Defendants, upon and subject to the terms and conditions
of the Stipulation and for the consideration described as follows:
12.1 DEFINITIONS
As used in this Stipulation, the following terms shall
have the defined meanings set forth below:
Action. "Action" shall mean the case entitled
Albert Friedman, individually and as representative of a class of
similarly situated persons v. Linnaeus Associates Limited Partner-
ship, et al., No. 94 CH 11524, filed in the Circuit Court of Cook
County, Illinois, in December 1994.
Claimant. "Claimant" shall include all Class
Members, defined below, who do not timely and validly exercise
their right to exclude themselves from the Class as described in
this Stipulation.
Claims. "Claims" means all demands, actions, causes
of action, suits, controversies, rights of whatever nature, charac-
ter or description, and any and all other claims of every kind,
nature and description whatsoever, both in law and equity, whether
individual, class, derivative or representative in nature, whether
known or unknown, foreseen or unforeseen, accrued or unaccrued,
which have been, could have been or might in the future be asserted
by the Plaintiff and/or Class Members, and/or their respective
agents, heirs, executors, administrators, successors or assigns or
any of them, against any and/or all Defendants, as defined in
Paragraph III(A)(7), in connection with, arising out of or relating
in any way to any acts, failures to act, breaches of duty, fees,
payments, omissions, misrepresentations, statements, misstatements,
predictions, estimates, projections, forecasts, facts, events,
transactions or occurrences: (i) in connection with the management
and/or operation of Linnaeus and/or WFA; (ii) in connection with
any of the events or transactions which underlie, are set forth in,
described in, included within, encompassed within or otherwise
referred to, directly or indirectly, in the Second Amended Class
Action Complaint, or any prior complaint filed in this action; and
(iii) the acquisition by Londonderry's affiliate of Nomura's
interest in WFA. This release shall not encompass or preclude any
rights of appraisal under the appropriate appraisal statute.
Class and Class Members. "Class" and "Class Mem-
bers" shall mean all holders of Preferred Units (as defined below)
of record as of December 22, 1994, or their successors in interest,
except for persons and entities who are affiliated with Londonderry
or Apollo Real Estate Advisors Limited Partnership or any of the
Defendants (as defined in paragraph III(A)(7) below).
Class Counsel. "Class Counsel" shall mean the law
firms of Block & Landsman and Goodkind Labaton Rudoff & Sucharow,
LLP, counsel for the Plaintiff and the Class in the Action.
Court. The "Court" shall mean the Circuit Court of
Cook County, Illinois, before which this Action is pending.
Defendants. "Defendants" shall mean LINNAEUS
ASSOCIATES LIMITED PARTNERSHIP; ARTHUR J. HALLERAN, JR.; JONATHAN
W. WEXLER; FRANCIS X. JACOBY; RICHARD J. McCREADY; JEFFREY D.
FURBER; STEPHEN G. KASNET; and NOMURA ASSET CAPITAL CORPORATION; in
each and every capacity in which each such entity and/or person has
acted, may have acted, or might be alleged to have acted in this
Action, together with any and all of their present or former
partners or affiliates, specifically including Winthrop Financial
Associates, A Limited Partnership, and any and all predecessor or
successor corporations, trusts, or partnerships, any and all
wholly- or partly-owned subsidiary corporations, trusts, or part-
nerships, and any and all present and former directors, trustees,
officers, shareholders, employees, insurers, personal representa-
tives, heirs, executors, administrators, spouses, agents or attor-
neys and their predecessors, successors or assigns.
Effective Date. "Effective Date" shall mean the
date on which each and all of the following conditions has been
satisfied, unless one or more of such conditions is expressly
waived in writing by Defendants and Plaintiff:
Granting of Preliminary Certification of the Class,
Approval of the form of Notice and the Settlement by
the Court and the entry of an order substantially in
the form attached hereto as Exhibit A;
The requisite number of opt outs under the Blow-Up
Provision (as defined below) has not occurred, or,
if it has occurred, the Settlement Parties (as de-
fined below) have agreed to continue with this Stip-
ulation and the Settlement proposed herein and as
provided for in Paragraph III, F;
Entry of a Final order and Judgment substantially in
the form attached hereto as Exhibit B in which the
Court grants final approval of the Settlement con-
templated by this Stipulation as fair, reasonable,
adequate, and in the best interests of the Class,
under the requirements of all applicable rules, and
dismissing the Action on the merits, with prejudice;
and
The expiration of the time in which to seek review
of or appeal from the Final Order and Judgment,
without any review or appeal having been taken, or
such review or appeal shall have been finally deter-
mined (subject to no right of further review or
appeal) by the highest court before which such re-
view or appeal is sought and allowed, and such re-
view or appeal shall have been resolved in such a
manner as to permit the consummation of the settle-
ment contemplated by this Stipulation in accordance
with all of its terms and conditions.
Final order and Judgment. "Final Order and Judg-
ment" refers to the Court's order and Judgment finally approving
the Settlement contemplated by this Stipulation. The Final Order
and Judgment shall be substantially in the form attached hereto as
Exhibit B.
Hearing. "Hearing" shall mean the proceedings
before the Court to determine whether the Court should finally
approve the Settlement as fair, reasonable, adequate, and in the
best interests of the Class; whether the Class should be finally
certified and the Plaintiff approved as representative of the
Class; whether the attorneys' application for fees and expenses to
be awarded to Class Counsel and the Incentive Fee Award should be
approved; and whether final judgment should be entered thereon.
The Merger Transaction. "The Merger Transaction"
refers to the acquisition by Londonderry Acquisition Corp., Inc. or
its affiliate of the Preferred Units in WFA held by Class Members,
which will provide the Class Members with cash consideration in an
amount to be opined upon by a nationally recognized, independent
investment banking firm as being fair to the Class Members, from a
financial point of view, but in no event less than ten dollars and
fifty cents ($10.50) per Preferred Unit, or for an appraised price,
at the option of each Class Member.
Notice. "Notice" shall refer to the Notice of
Pendency of Class Action, Proposed Settlement and Hearing Thereon,
substantially in the form of Exhibit 1 to Exhibit A, which explains
in greater detail the Merger Transaction.
Person. "Person" means any individual, corporation,
partnership, association, joint stock company, trust, unincorporat-
ed association, entity, government or any political subdivision
thereof, or any other type of legal entity.
Plaintiff. "Plaintiff" shall refer to the represen-
tative plaintiff, Albert Friedman.
Preferred Unitholders. "Preferred Unitholders" are
holders of limited partnership interests in WFA known as Assignee
Units including the associated residual certificates, which are
together known as Preferred Units, which holders have been granted
preferred distribution rights to distributions from WFA pursuant to
the Twelfth Amendment to the WFA Partnership Agreement.
Preliminary Approval. "Preliminary Approval" refers
to the Court's preliminary determination that the Settlement
contemplated by this Stipulation is reasonable and that therefore
notice, in the form approved by the Court, should be sent to the
Class and a hearing should be held with respect to final approval
of the Settlement pursuant to the applicable rules. The Prelimi-
nary Approval Order shall be substantially in the form attached
hereto as Exhibit A. The "Preliminary Approval Date" shall be the
date on which the order granting Preliminary Approval is entered.
Settlement. "Settlement" means the settlement of
the Action in accordance with the terms of this Stipulation of
Settlement.
Settlement Costs. "Settlement Costs" means the
costs necessarily incurred in administering the Settlement, includ-
ing the cost of Notice.
Settlement Party or Settlement Parties. "Settlement
Party" or "Settlement Parties" means Plaintiff, Claimants, and
Defendants.
Stipulation. "Stipulation" refers to this entire
Stipulation, including the Definitions and Recitals and all attach-
ments hereto.
Other terms may be defined in the body of this Stipula-
tion and not contained in this "Definition" section. Regardless of
where a term is defined in this Stipulation, its definition shall
apply to the entire Stipulation.
12.2. TERMS OF THE SETTLEMENT
In full and final disposition, settlement, discharge,
release, and satisfaction of any and all Claims, the Settling
Parties agree, subject to the terms and conditions of this Stipula-
tion:
(a) Upon the Effective Date, Londonderry or its affili-
ate will undertake to liquidate the investment of Class Members in
Preferred Units by effecting the Merger Transaction pursuant to the
WFA Partnership Agreement and Maryland law which will provide Class
Members with cash consideration;
(b) Pursuant to the Merger Transaction, all Class
Members will have the right to receive from Londonderry or its
affiliate cash consideration in an amount to be opined upon by a
nationally, recognized independent investment banking firm as being
fair to the Class from a financial point of view, but in no event
less than ten dollars and fifty cents ($10.50) per Preferred Unit
["the Offered Price"] (Class Counsel not having independently
valued the Preferred Units);
(c) At the option of each Class Member, he or she may
elect instead to seek appraisal of the fair value of his or her
Preferred Units pursuant to Maryland law, and the Merger Transac-
tion will acknowledge and preserve such appraisal rights;
(d) Linnaeus will provide notice to the Class Members at
its own expense.
12.3 THE PRELIMINARY APPROVAL ORDER
Promptly after execution of this Stipulation, Plaintiff,
through Class Counsel, shall apply to the Court for a Preliminary
Approval order substantially in the form of Exhibit "A" hereto,
preliminarily approving the Settlement, conditionally certifying
the Class, preliminarily approving the Plaintiff as representative
of the Class and providing for notice to the Class of the Hearing.
The Preliminary Approval Order shall specifically include provi-
sions which, among other things:
(a) Preliminarily approve the Settlement as fair,
reasonable and adequate;
(b) Conditionally certify the Class for Settlement
purposes and preliminarily approve the Plaintiff as representative
of the Class;
(c) Approve a form and method of mailing Notice to Class
Members to notify them of the Hearing as consistent with due
process requirements;
(d) Direct Defendants to mail or cause to be mailed the
Notice to Class Members who can be identified through reasonable
effort;
(e) Direct counsel for Defendants to serve on Class
Counsel and file with the Court proof, by affidavit or declaration,
of the mailing of the Notice;
(f) Find that the mailing pursuant to paragraph III.C.4.
constitutes the best and most practicable notice to Class Members
who can be identified through reasonable effort, and is due and
sufficient notice to all Class Members of the Hearing, proposed
Settlement, application for an award of attorneys' fees and expens-
es, and other matters set forth in the Notice and that the Notice
fully satisfies the requirements of due process, Illinois law and
any other applicable law;
(g) Schedule the Hearing at which the Court will consid-
er and determine: (1) whether the proposed Settlement should be
finally approved as fair, reasonable and adequate; (2) whether an
order approving the Settlement and Final Judgment should be entered
thereon dismissing this Action on the merits and with prejudice;
(3) whether the application of Class Counsel for an award of
attorneys' fees and expenses is reasonable and should be approved;
and (4) whether the payment of a $5,000 incentive award to Plain-
tiff Friedman should be approved;
(h) Provide that any objections to: (i) the proposed
Settlement and the entry of the Final Order and Judgment approving
the Settlement; (ii) the application of Class Counsel for an award
of attorneys' fees and expenses; or (iii) the Incentive Fee Award
shall be heard and any papers submitted in support of said objec-
tions shall be received and considered by the Court at the hearing
(unless, in its discretion, the Court shall direct otherwise) only
if, on or before the date specified in the Preliminary Approval
Order, persons making objections file notice of their intention to
appear, copies of any papers in support of their position with the
Clerk of the Court and an affidavit of service on the below coun-
sel, and prior to filing these papers with the Court, have served
such notice and papers on:
Lawrence A. Sucharow, Esq. Barbara L. Moore, Esq.
Lynda J. Grant, Esq. Cooley, Manion, Moore
Goodkind Labaton Rudoff & & Jones, P.C.
Sucharow LLP 21 Custom House Street
100 Park Avenue Boston, MA 02110
New York, NY 10017-5563
and
Class Counsel
Laurence A. Silverman, Esq.
Judith A. Archer, Esq.
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Counsel for Defendants
(i) Provide that, upon the Effective Date, all Claim-
ants, as such term is defined in paragraph III(A)(2), shall be
barred from asserting any Claims, as such term is defined in
Paragraph III(A)(3), against any Defendants, as such term is
defined in paragraph III(A)(7), and shall be conclusively deemed to
have released any and all such Claims;
(j) Provide that the Hearing may, from time to time, and
without further notice to the Class, be continued or adjourned by
Order of the Court;
(k) Provide that Class Members shall have the option to
be excluded from the Class (and thereby elect not to participate in
the Settlement and retain all rights and causes of action against
the Defendants) by mailing to Class Counsel a timely and valid
Request for Exclusion so that it is postmarked at least 10 days
before the Hearing to Class Counsel pursuant to the instructions
set forth in the Notice;
(l) Provide that Class Counsel shall notify counsel for
Defendants of each request for exclusion within three business days
of receipt; and
(m) Provide that if the Court does not approve the
Settlement, or if the Settlement does not become final for any
reason whatsoever (including but not limited to the event that
Class Members who own an amount equal to or greater than a thresh-
old amount set forth in a separate agreement [the "Blow-Up Provi-
sion"] of the Preferred Units elect to exclude themselves from the
Class), the Defendants shall have the right to move to strike the
Second Amended Complaint and this Action shall proceed without
prejudice to any party as to any matter of law or fact, including
the right of any person or entity entering a future appearance to
contest personal jurisdiction, as if the Stipulation had not been
made or submitted to the Court.
12.4 FINAL JUDGMENT TO BE ENTERED BY THE COURT
APPROVING THE SETTLEMENT
Upon approval by the Court of the Settlement, a Final
Judgment shall be entered, which shall:
(a) Finally approve the Settlement as fair, reasonable
and adequate to the Class;
(b) Find the Class properly constituted, find that due
and adequate Notice has been given to the Class Members, and
identify persons excluded from the Class;
(c) Dismiss the action in its entirety as against all
Defendants with prejudice and without costs to any party as against
any other party except the cost of Notice and Settlement Costs to
be borne by Linnaeus;
(d) Adjudge that the Claimants shall conclusively be
deemed to have released any and all Claims, as such term is defined
in paragraph III(A)(3), and bar and permanently enjoin Claimants
from prosecuting any and all Claims against any and all Defendants;
(e) Determine the application of Class Counsel for an
award of attorneys' fees and expenses as is reasonable;
(f) Determine the application for an incentive award of
$5,000 to be paid to Plaintiff Friedman;
(g) Reserve jurisdiction, without affecting the finality
of the Final Judgment entered, over:
Implementation of this Settlement;
Enforcing and administering this Stipulation and
Settlement including any Exhibits in connection therewith;
Other matters related or ancillary to the foregoing.
12.5 RELEASES AND BARS
The Settling Parties agree that upon the Effective Date
as defined in Paragraph III(A)(8), all Claimants, as such term is
defined in paragraph III(A)(2), shall be barred from asserting and
shall be deemed to have conclusively released any Claims, as such
term is defined in paragraph III(A)(3), against any Defendants, as
such term is defined in paragraph III(A)(7).
12.6 EFFECT OF DISAPPROVAL, CANCELLATION OR TERMINATION
(a) If the Effective Date does not occur because of the
invocation of the Blow-Up Provision or a material modification of
the terms of the Settlement by the Court, the Settlement Parties
shall have the option of continuing with this Stipulation and the
Settlement proposed herein (as modified) if counsel for each of the
Settlement Parties, within five (5) days from the receipt of notice
that the Blow-Up Provision is invoked or such ruling materially
modifying the Settlement, agrees in writing to proceed with this
Stipulation and Settlement with the Court's material modifications,
if any. For purposes of this paragraph, an intent to proceed shall
not be valid unless it is signed by: (a) Class Counsel; and (b)
counsel for the Defendants providing consideration for the Settle-
ment. Such notice shall be provided on behalf of the Settlement
Parties only by their counsel. Neither a modification nor reversal
on appeal of any amount of fees, costs and expenses and interest
awarded by the Court to Class Counsel or the Incentive Award shall
be deemed a material modification of or a part of the material
terms of the Final Order and Judgment or of this Stipulation.
(b) If the Effective Date does not occur, or if this
Stipulation is disapproved, terminated or canceled pursuant to its
terms, neither Plaintiff nor Class Counsel shall have any obliga-
tion to repay any amounts actually and properly disbursed for costs
of the Notice which are to be paid and be the obligation of
Linnaeus. In addition, any expenses already incurred and properly
chargeable to the costs of the Notice at the time of such termina-
tion or cancellation, but which have not been paid, shall be paid
by Linnaeus.
(c) At least seven (7) days before the date of the
Hearing, Class Counsel shall provide counsel for Defendants with
copies of all Requests for Exclusion. In the event it was timely
sent and fully completed, all valid requests for exclusion shall be
granted. In the event that the Blow-Up Provision is effective due
to the requisite number of opt-outs having been validly made and
timely filed, Defendants may exercise such right of termination or
cancellation of this Stipulation at any time no later than five (5)
days after notice by Class Counsel of the Blow-Up Provision having
been satisfied, unless the Settlement Parties shall otherwise agree
as described in paragraph III(F)(1) above.
(d) Any dispute as to whether a proper or timely elec-
tion to cancel or terminate this Stipulation has occurred shall be
submitted to the Court for resolution.
(e) The Settlement Parties agree that any activity
undertaken by any of the Defendants or their affiliates in the
Action in furtherance of efforts to settle the Action neither
constitutes nor shall be considered as evidence of Defendants,
submission to the jurisdiction of the Court.
12.7 ADMINISTRATION OF MERGER TRANSACTION
(a) After the Effective Date and the dissemination of
appropriate information describing the Merger Transaction, all
Class Members will be entitled to participate in the Merger Trans-
action or, alternatively, to seek their appraisal rights under
applicable Maryland law. A list of all Claimants shall be made
available to Class Counsel upon request within ten (10) days after
the Effective Date.
(b) As soon as practicable after the Effective Date,
Londonderry or its affiliate will use its best efforts to cause the
filing of the appropriate documents with the United States Securi-
ties and Exchange Commission ("SEC") with respect to the Merger
Transaction, and the appropriate disclosure documents in accordance
with SEC rules and regulations will be mailed to Class Members as
soon as practicable in order to effectuate the Merger Transaction.
12.8 REQUEST FOR AWARD OF ATTORNEYS' FEES AND
REIMBURSEMENT OF EXPENSES AND FOR INCENTIVE AWARD
(a) If this Settlement is approved, Class Counsel will
apply to the Court for an award of attorneys' fees of $275,000 plus
reimbursement of actual out-of-pocket expenses and for an Incentive
Award for the Plaintiff Friedman in an amount not to exceed $5,000.
(b) To the extent awarded by the Court, Class Counsel's
Attorneys' Fees and Expenses and the Incentive Award shall be paid
by Linnaeus within ten (10) business days after the Effective Date.
The Court's determination of the Attorney's Fee Application and
Incentive Fee Award are not contingent upon approval of one anoth-
er.
(c) Any order relating to the Attorneys' Fees and
Expenses or the Incentive Award, or a reversal or modification
thereof, shall not operate to affect or delay the Final Order and
Judgment entered by the Court.
12.9 MISCELLANEOUS PROVISIONS
(a) The Settlement Parties: (a) acknowledge that it is
their intent to consummate the Settlement contemplated by this
Stipulation; (b) agree to cooperate to the extent necessary to
effectuate and implement all terms and conditions of this Stipula-
tion and to exercise their best efforts to accomplish the foregoing
terms and conditions of the Stipulation.
(b) All of the exhibits attached hereto are hereby
incorporated by reference as though fully set forth herein.
(c) This Stipulation may be amended or modified only by
a written instrument signed by counsel for all Settlement Parties
or their successors in interest.
(d) This Stipulation, exhibits, and the Blow-Up Agree-
ment together constitute the entire agreement among the Settlement
Parties and no representation, warranties or inducements have been
made to any Settlement Party concerning this Stipulation or its
exhibits other than the representations, warranties and covenants
contained and memorialized in such documents. Except as otherwise
provided herein, each party shall bear its own costs.
(e) Subject to the Court's entry of the Preliminary
Approval Order, Class Counsel on behalf of the Class are expressly
authorized to take all appropriate actions required or permitted to
be taken by the Class pursuant to this Stipulation to effectuate
its terms and are also expressly authorized to enter into any
modifications or amendments to this Stipulation on behalf of the
Class.
(f) This Stipulation may be executed in one or more
original, photocopied or telecopied counterparts. All executed
counterparts and each of them shall be deemed to be one and the
same instrument. Counsel for the Settlement Parties shall exchange
among themselves original signed counterparts, and a conformed set
of original executed counterparts shall be filed with the Court.
(g) This Stipulation shall be binding upon, and inure to
the benefit of, the successors, assigns, and heirs of the Settle-
ment Parties hereto.
(h) All terms of this Stipulation and the exhibits
hereto shall be governed by and interpreted in accordance with the
laws of the State of Illinois and in accordance with the laws of
the United States.
IN WITNESS THEREOF, the Settlement Parties hereto have
caused this Stipulation to be executed, as of the date and year
first above written,
Plaintiff Albert Friedman
By his attorneys
*
Goodkind Labaton Rudoff &
Sucharow LLP
100 Park Avenue
New York, NY 10017-5563
Counsel for Plaintiff and the Class
*
Linnaeus Associates Limited
Partnership
By W.L. Realty, L.P.
Its General Partner
By Ronald J. Kravit
Its authorized agent
*
Londonderry Acquisition Corp., Inc.
By Ronald J. Kravit
Its authorized agent
*
Nomura Asset Capital Corporation
By Daniel S. Abrams
Its Director
* Signature on file
APPROVED AS TO FORM:
*
*
Laurence Landsman Barbara L. Moore
Block and Landsman Cooley, Manion, Moore & Jones, P.C.
180 North LaSalle 21 Custom House Street
Chicago, IL 60601 Boston, MA
Class Counsel Counsel for WFA Defendants
*
*
Lawrence A. Sucharow Alan S. Rutkoff
Lynda J. Grant McDermott, Will & Emery
Goodkind Labaton Rudoff & 227 W. Monroe Street
Sucharow LLP Chicago, IL 60606
100 Park Avenue Counsel for WFA Defendants
New York, NY 10017-5563
Class Counsel
*
Laurence A. Silverman
Judith A. Archer
Cahill Gordon & Reindel
80 Pine Street
New York, NY 10005
Counsel for Nomura
* Signature on file
ANNEX C
EXHIBIT B
IN THE CIRCUIT COURT OF COOK COUNTY, ILLINOIS
COUNTY DEPARTMENT, CHANCERY DIVISION
ALBERT FRIEDMAN, Individually and as )
representative of a class of similarly )
situated persons, )
Plaintiff ) No. 94 CH 11524
)
v. )
)
LINNAEUS ASSOCIATES LIMITED PARTNERSHIP, )
et al., )
Defendants )
)
FINAL ORDER AND JUDGMENT
This cause coming to be heard by application of the Settling
Parties (as defined in the Stipulation of Settlement) pursuant to
the Stipulation of Settlement (the "Stipulation"), after due
notice to the Class, and opportunity to be heard, and the Court
finding that the Settling Parties have appeared with respect to
the settlement of this action; the Court being fully advised of
the premises, and the Settling Parties requesting that a Final
Order and Judgment be rendered;
It is hereby ORDERED and ADJUDGED that the motion relating
to the Settlement of this action has been heard and:
The proposed settlement contained in the Stipulation is
hereby approved by this Court as fair, reasonable, and adequate
including those terms and conditions contained in the attached
affidavit of Michael Ashner;
The Settlement, which provides that Londonderry Acquisi-
tion Corp., Inc. or its affiliate will undertake to liquidate the
investment of Class Members by effecting a merger pursuant to the
Partnership agreement and Maryland law ["the Merger Transaction"]
providing Class Members with cash consideration in an amount to
be opined upon by an independent, nationally recognized invest-
ment banking firm as fair, from a financial point of view, to the
public Preferred Unitholders, plaintiff's counsel not having
independently valued the Preferred Units, or else the right to
exercise their appraisal rights under Maryland law;
The parties are hereby ordered and directed to consummate
the Settlement according to the terms and conditions of the
Stipulation.
The plaintiff is a proper party to assert any and all
claims in the Second Amended Class Action Complaint, and is an
adequate class representative.
The Plaintiff Class is defined as "All persons who owned
Preferred Units in Winthrop Financial Associates, A Limited
Partnership as of December 22, 1994, or their successors in
interest, except for Londonderry Acquisition Limited Partnership,
Apollo Real Estate Advisors, L.P., the Defendants herein, and any
of their affiliates, agents, assignees, heirs and family mem-
bers."
This Court finds that the form and method of notice which
was used in this Action was the best notice practicable, consti-
tuted due and sufficient notice of the Hearing to all persons
entitled to receive such notice; and fully satisfied the require-
ments of due process, Illinois law, and the United States Consti-
tution.
The Action is dismissed in its entirety, on the merits,
with prejudice and without costs to any party (except for the
cost of Notice and Settlement which will be borne by Linnaeus
Associates Limited Partnership ["Linnaeus"]) as against any other
party, as to Linnaeus, a Maryland limited partnership and the
sole general partner of the Partnership, Arthur J. Halleran, Jr.,
Jonathan W. Wexler, Francis X. Jacoby, Richard J. McCready,
Jeffrey D. Furber, Stephen G. Kasnet and Nomura Asset Capital
Corporation (collectively, "Defendants").
The Plaintiff and each member of the Plaintiff Class who
has not timely and validly requested exclusion from the Class are
conclusively deemed to have released any and all Claims, as such
term is defined in Paragraph III(A)(4) of the Stipulation and are
barred and permanently enjoined from prosecuting any and all
Claims against any and all of the Defendants in each and every
capacity in which they acted, may have been alleged to have
acted, or might be alleged to have acted in this Action, and any
and all of their present or former affiliates and any and all of
their predecessor or successor corporations, trusts or partner-
ships, any and all of their parent corporations, trusts, or
partnerships, any and all of their wholly-or partly-owned subsid-
iary corporations, trusts, or partnerships, any and all of their
present and former directors, trustees, officers, shareholders,
employees, insurers, personal representatives, heirs, executors,
administrators, spouses, agents or attorneys and their predeces-
sors, successors, or assigns.
There is no just reason for delaying either enforcement or
appeal or both. Without affecting the finality of the judgment
entered with respect to the foregoing matters, this Court re-
serves jurisdiction over: (a) implementation of this Settlement;
(b) enforcing and administering the Stipulation and this Settle-
ment including any Exhibits in connection therewith; and (c) all
other matters related or ancillary to the foregoing.
Dated: __________, 1996 ENTER: [Date Stamped May 23, 1996]
/s/ Stephen A. Schiller
Judge of the Circuit Court
ANNEX D
BEAR, STEARNS & CO. INC.
[Logo] BEAR STEARNS 245 PARK AVENUE
NEW YORK, NEW YORK 10167
(212) 272-2000
June 13, 1996
Linnaeus Associates Limited Partnership,
as General Partner of Winthrop
Financial Associates, a Limited Partnership
One International Place
Boston, MA 02110
Attention: Richard J. McCready, Chief Operating Officer
Dear Ladies and Gentlemen:
We understand that Linnaeus Associates Limited Partnership, a
Maryland limited partnership (the "General Partner") as general
partner of Winthrop Financial Associates, a Maryland limited
partnership (the "Partnership"), is contemplating a proposed
merger (the "Merger") of Londonderry Acquisition Limited Partner-
ship, a Delaware limited partnership ("Londonderry"), with and
into the Partnership, with the Partnership as the surviving
partnership. As of the effective time of the Merger, each
outstanding Public Unit, other than Public Units held by
Londonderry and other than Dissenting Units, will be converted
into the right to receive $10.50 in cash. You have provided us
with a draft Agreement and Plan of Merger, dated June 11, 1996
(the "Merger Agreement"), by and between the Partnership and
Londonderry and a draft Information Statement, dated June 12,
1996 (the "Information Statement"), in connection with the
Merger, each of which you have informed us is in substantially
final form. Capitalized terms used herein and not otherwise
defined have the meanings ascribed thereto in the Information
Statement.
You have asked us to render our opinion as to whether $10.50 in
cash per Public Unit is fair from a financial point of view as
consideration for Public Units held by holders other than
Londonderry.
In the course of our analyses for rendering this opinion, we
have:
(i) reviewed the Merger Agreement and the Information
Statement;
(j) reviewed the Partnership's Annual Report on Form
10-K for the fiscal year ended December 31, 1995
and its Quarterly Report on Form 10-Q for the
period ended March 31, 1996;
(k) reviewed the Agreement and Certificate of Limited
Partnership of the Partnership as amended by 15
amendments thereto through December 22, 1994;
(l) reviewed certain operating and financial informa-
tion provided to us by the Partnership relating to
the Partnership's business and prospects including
projections;
(m) met with certain members of the General Partner's
senior management to discuss the Partnership's
operations, historical financial statements and
future prospects;
(n) reviewed the historical prices at and amounts in
which Public Units have been traded, as reported
by the Chicago Partnership Board, and purchased by
Londonderry and its affiliates since December
1994;
(o) reviewed the form of opinion of Peabody & Brown to
the Partnership; and
(p) conducted such other studies, analyses, inquiries
and investigations as we deemed appropriate.
In the course of our review, we have relied upon and assumed,
without independent verification, the accuracy and completeness
of the financial and other information provided to us by the
Partnership. With respect to the Partnership's projected finan-
cial results, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available esti-
mates and judgments of the General Partner and its management as
to the expected future performance of the Partnership. We have
not assumed any responsibility for the information or projections
provided to us, and we have further relied upon the assurances of
the General Partner and its management that they are unaware of
any facts that would make the information or projections provided
to us incomplete or misleading. In arriving at our opinion, we
have not performed or obtained any independent appraisal of the
assets or liabilities (contingent or otherwise) of the Partner-
ship. We have assumed that all material liabilities (contingent
or otherwise) are as set forth on the consolidated financial
statements of the Partnership or as estimated by the Partnership
and disclosed in the Information Statement. We have not under-
taken any independent legal analysis of the Merger, any related
transactions, the Partnership Agreement or any legal or regulato-
ry proceedings pending or threatened relating to the Partnership.
Our opinion does not relate to, and we did not attempt to value,
the Residual Certificates.
We understand that, prior to the expiration of the term of the
Partnership Agreement, the assets of the Partnership cannot be
liquidated without action by the majority in interest of the
holders of Assignee Units. We also understand that the Partner-
ship has been informed that Londonderry and Londonderry II, which
collectively control 91.13% of the Assignee Units, and thus have
the ability to determine each matter submitted to a vote of
limited partners, have determined, for reasons set forth in the
Information Statement, to vote the Assignee Units controlled by
them against any proposal to liquidate the assets of the Partner-
ship made in the foreseeable future. Therefore, we assumed that
such a liquidation will not occur in the foreseeable future, and,
accordingly, did not give weight in formulating our opinion to
the value of the Public Units in the event of an immediate
liquidation and distribution of the assets of the Partnership.
Finally, our opinion is necessarily based on economic, market and
other conditions, and the information made available to us, as of
the date hereof. Our opinion is conditioned on our receipt of an
executed copy of the opinion of Peabody & Brown in the form
previously provided to us prior to the execution of the Merger
Agreement.
Based on the foregoing, it is our opinion that $10.50 in cash per
Public Unit is fair from a financial point of view as consider-
ation for Public Units held by holders other than Londonderry.
We have been engaged to render this opinion pursuant to an
engagement letter which provides that we are entitled to a fee,
the reimbursement of certain expenses and indemnification for
certain liabilities in connection with such engagement.
This letter is intended solely for the benefit and use of the
General Partner and is not to be used for any other purpose,
relied upon by any other person, or reproduced, disseminated,
quoted or referred to at any time, in whole or in part, in any
manner or for any purpose without our prior written consent.
Very truly yours,
BEAR, STEARNS & CO. INC.
By:/s/ Thomas Flexner
Thomas Flexner
Senior Managing Director
ANNEX E
[Logo]
VALUATION RESEARCH CORPORATION
411 East Wisconsin Avenue
Milwaukee, WI 53202-4495
Fax 414 271-2294
414 271-8662
June 17, 1996
Winthrop Financial Associates L.P.
One International Place
Boston, MA 02110
Ladies and Gentlemen:
This letter is provided by Valuation Research Corporation ("Valu-
ation") at the request of Winthrop Financial Associates, a
Limited Partnership (the "Partnership") in connection with the
merger of Londonderry Acquisition Limited Partnership
("Londonderry") with and into the Partnership. In the merger,
each outstanding Public Unit of the Partnership (other than
Public Units owned by Londonderry and those Public Unitholders
who perfect their statutory appraisal rights) will be converted
into the right to receive a cash settlement.
It is our understanding that the merger is being undertaken in
accordance with the terms of the settlement of a lawsuit initiat-
ed by a Public Unitholder as a class action suit against, among
others, Linnaeus Associates Limited Partnership, the general
partner of the Partnership (the "General Partner"), and certain
former and current members of the Partnership's management. At a
hearing held on May 23, 1996, the settlement received final
approval from the Circuit Court of Cook County, Illinois County
Department, Chancery Division.
Pursuant to our understanding of the transaction described above,
Valuation has been asked to provide its opinion as of June 17,
1996 of the fair market value of certain certificates associated
with the Public Units (the "Residual Certificates") which have
the potential to provide to the holders of these certificates,
under certain circumstances, a share of the Partnership's share
of the sales proceeds of certain properties it syndicated since
1984.
In connection with the Merger, Londonderry and the Partnership
wish to purchase these Residual Certificates at their current
fair market value.
According to the terms of the Residual Ownership Program, the
Partnership may,
"at the election of the General Partner exercisable in
the General Partner's sole and absolute discretion,
purchase from the Holder on a date set by the General
Partner (the "Purchase Date") all rights evidenced by
this Certificate (the "Residual Interest") at a price
equal to the fair market value of the Residual Interest
determined by an independent appraiser or investment
banking firm selected by the General Partner in its
sole discretion (the "Purchase Price").
For purposes of this opinion letter, Fair Market Value is defined
as follows:
The most probable amount that may be equitably realized
if the subject Residual Certificates were sold with
reasonable promptness, in an arms' length transaction
to an interested purchaser aware of relevant informa-
tion, by a seller equally informed and interested in
disposing of the subject Residual Certificates.
No representation is made herein as to the sufficiency of the
above definition for any purpose; such definition is used solely
for setting forth the scope of this opinion.
In expressing its opinion, Valuation has reviewed information and
analyses furnished by and has held discussions with the
Partnership's financial and other management personnel ("Manage-
ment"). Valuation does not assume any responsibility for the
accuracy of such information, analyses, or the matters which have
been the subject of such discussion. All such data have been
accepted as reasonably reflecting the actual financial conditions
of the various limited partnerships which impact the value of the
subject Residual Certificates. We have reviewed audited finan-
cial statements for the year ending December 31, 1995 and other
unaudited financial and operating information of a more current
nature of the 19 Limited Partnerships that are associated with
the subject Residual Certificates. In addition, recently com-
pleted appraisals of some of the underlying assets which make up
the portfolio of the subject Limited Partnerships were also
reviewed. Nothing came to our attention, for purposes of this
opinion, which causes us to question their accuracy or their
representation of the operations and underlying value of the
assets under review.
Valuation has performed certain analyses, studies, and investiga-
tions more fully described herein in support of its opinion.
Further, the opinion expressed herein is subject to the Limiting
Factors and Assumptions stated in Exhibit A attached hereto.
In the course of its review, Valuation has examined extensive
data provided by the Partnership and its Management. This
includes, but is not limited to, the following:
(q) Reviewed drafts of the Merger Agreement and the Infor-
mation Statement
(r) Reviewed audited financial statements for each of the
19 Limited Partnerships which are one of the bases for
the value of the subject Residual Certificates.
(s) Reviewed and analyzed recently completed appraisals of
certain underlying assets which are part of the portfo-
lio of the various subject Limited Partnerships.
(t) Met with certain members of the Partnership's senior
management to discuss the operations of the various
subject Limited Partnerships for which the Partnership
is the General Partner.
(u) Conducted market studies of the various locations where
the underlying assets composing the portfolios of the
subject Limited Partnerships are located.
(v) Reviewed and analyzed the terms of any cash distribu-
tions for each of the subject Limited Partnerships.
(w) Reviewed and analyzed the terms of cash distributions
to each of the Residual Certificate Holders.
Valuation does not assume any responsibility for the information
and accuracy of the financial and operating data presented to it
by Management.
Valuation has, to the extent necessary, discussed the financial
and operating matters of the various Limited Partnerships which
give rise to the Residual Certificates which are the subject of
this opinion of value. In addition, Valuation has conducted
limited market studies of the various markets in which the
underlying assets of the subject Limited Partnerships are located
to determine the current strength and future trends of the local
real estate markets. This information was then used as the basis
for estimating a current fair market value of the underlying
assets, which values serve as a basis for the valuation of the
Residual Certificates associated with each of the 19 Limited
Partnerships.
The basis of our opinion of value for the Residual Certificates
is the cash distribution which would flow to the certificate
holder upon a sale or refinancing of the real property owned or
invested in by the 19 Limited Partnerships.
To determine the underlying assets' value, an income capitaliza-
tion appraisal technique known as the income approach was used.
The basic premise of the income approach is that the earning
power of a real estate investment is the critical element affect-
ing its value. Value is often defined as the present worth of
anticipated future income. All income capitalization methods,
techniques, and procedures represent attempts to quantify expect-
ed future benefits.
One of the most widely accepted method of applying the income
approach to income producing property is defined below:
DIRECT CAPITALIZATION - A method used to convert an
estimate of a single year's income expectancy into an
indication of value by one direct step, either by
dividing the income estimate by an appropriate rate or
by multiplying the income estimate by an appropriate
factor.
Source: The Dictionary of Real Estate Appraisal, Third
Edition, Page 100, Published by the Appraisal Insti-
tute, 1993.
The principle of anticipation has a crucial role in this ap-
proach. This principle states that value is created by the
expectation of benefits to be derived in the future. The rele-
vance of anticipation to the approach cannot be overstated.
Value is created by the expectation of benefits to be derived in
the future, and value may be defined as the present worth of all
rights to future benefits.
The first step in the direct capitalization approach is the
determination of a proper rental or revenue value that one would
expect to be able to obtain for the subject property based on
actual historical operations and a study of comparable leased
properties with respect to rent levels, location, and amenities
offered. Adjustments based on differences between the comparable
rentals and the subject can be established. A similar analysis
of operating expenses further aids in constructing an operating
statement by providing an allowance for vacancy and collection
loss, and deductions for all operating expenses. The end result
is a net operating income (NOI) for the first year income that
can be converted into an indicated property value through the
overall capitalization process.
Our analysis began with an estimate of the subject's market rent
potential based on an analysis of comparable properties which
have recently been leased and an analysis of the actual leases in
place with the subject property.
Our survey encompassed properties which we selected as the most
similar, and therefore, most indicative of the subject. The
comparable leases researched reflect current actual lease rates
and terms. We inquired as to the type and the duration of the
lease and spoke to leasing agents to get a feel for the factors
affecting demand for space, lease rates and durations, vacancies,
absorption periods and rental concessions. Based on these
discussions and the actual experience of the subject properties,
a potential gross income estimate was made.
An allowance for vacancy and collection loss was made to reflect
all income losses which could be reasonably expected due to
vacancy, turnover, and non-payment of the rental obligation by
the tenant. Normally this is estimated as a percentage of the
potential gross income and then converted into a dollar amount.
The selection of the applicable vacancy and collection loss was
dependent on an estimate of the quality and durability of the
income stream forecasted for the subject property. This, in
turn, was based on a combination of the subject's history and
typical vacancy levels within its area as revealed by surveys of
similar properties.
The effective gross income is the cash flow available to pay for
operating expenses. This cash flow is the result of subtracting
the vacancy and collection loss estimate from the estimated gross
income.
Operating expenses are the periodic expenditures necessary to
maintain the real property operating and to continue the produc-
tion of the potential gross income. The items included in these
operating expense estimates are:
1. Fixed Expenses
2. Variable Expenses
3. Replacement Reserves
Typically this estimate is based on a combination of the history
of the subject and what is typical of the marketplace for similar
properties. Expense information for the subject properties was
provided for this analysis by Management. We have verified the
reasonableness of these expenses by researching the subject's
market to obtain typical similar expenses. Combining this
information allowed us to estimate an operating expense for each
subject property.
Finally, an estimate of a replacement reserve was made. This
reserve for replacement estimate was based on the cost to replace
major structural items such as the roof and HVAC units such as
compressors, etc. Based on the current replacement costs for
such items, estimated duration before replacement is required, an
estimated inflation rate, and the current cost of funds, a
sinking fund factor was determined and used in this exercise.
The net operating income (NOI) is that cash flow which accrues to
the owner of the property after deductions for the above expendi-
tures and allowances. It is this net operating income (NOI) that
was converted into an estimate of value in the income approach
appraisal technique used in this opinion.
Capitalization is the process of translating net operating income
into a market value indication. The overall capitalization rate
represents the rate of return that a "typical" investor would
expect in the marketplace on his/her investment at the time of
the valuation.
The relationship between net operating income and value can be
expressed in its overall rate of return (OAR), or capitalization
rate. Capitalization rates were abstracted from market surveys
conducted by reputable national firms and in surveys of local
appraisers, bankers, and real estate investors. An attempt was
made to use rates that would be appropriate for the local market
conditions and the subject property.
Using the data compiled above, the market value for each of the
subject properties was determined. This in turn served as the
basis for the valuation of the Residual Certificates associated
with these properties.
Finally, the potential cash distribution to the Residual Certifi-
cate Holders was determined based on the value of the properties,
the terms of the Limited Partnership Agreement and the Residual
Certificate.
On the basis of such review, procedures, and analyses and with
reference to Exhibit A, Limiting Factors and Assumptions, we
express the following opinion as of June 17, 1996, with respect
to the value of the Residual Certificates of the 19 subject
Limited Partnerships.
The Fair Market Value of the Residual Certificates,
individually and in the aggregate, as of June 17, 1996,
is equitably stated as:
NO VALUE
This letter is solely for the information of and assistance to
the parties to whom it is addressed in conducting their investi-
gation with regard to the upcoming merger of Londonderry Acquisi-
tion Limited Partnership with and into Winthrop Financial Associ-
ates, A Limited Partnership. The Partnership may include this
letter as a part of the information statement filed with the
Security and Exchange Commission. Any other uses are expressly
prohibited and neither this letter nor any of its parts may be
circulated, quoted, or otherwise referred to for any other
purpose without the written consent of Valuation, the exercise of
which will be at the sole discretion of Valuation, not unreason-
ably withheld. If given, such consent shall not be without
sufficient review by Valuation as to the precise language of such
disclosure and the time and place of its potential release.
The above limitations do not apply to interested parties as
defined herein. However, in such instances, this opinion must be
provided to such parties in its entirety. The term "interested
parties" shall include the Partnership's auditors and attorneys,
participants and assignees, regulators, or appropriate parties
involved in this transaction.
Valuation has no responsibility to update the opinion stated
herein for events and circumstances occurring after the date of
this letter.
Sincerely,
VALUATION RESEARCH CORPORATION
/s/ VALUATION RESEARCH CORPORATION
Attachment
Engagement Number: 04-2622-00
EXHIBIT A
LIMITING FACTORS AND ASSUMPTIONS
In accordance with recognized professional ethics, the profes-
sional fee for this service is not contingent upon our conclusion
of value, and neither Valuation Research Corporation nor any of
its employees have a present or intended material financial
interest in any of the entities or assets valued.
The opinion of value expressed herein is valid only for the
stated purpose as of the date of the valuation.
Financial statements and other related information provided by
the Partnership or its representatives in the course of this
investigation have been accepted, without further verification,
as fully and correctly reflecting the Partnership's business
conditions and operating results for the respective periods,
except as specifically noted herein.
Public information and industry and statistical information has
been obtained from sources we deem to be reliable; however, we
make no representation as to the accuracy or completeness of such
information, and have accepted the information without further
verification.
The conclusions of value are based upon the assumption that the
current level of management expertise and effectiveness would
continue to be maintained.
This report and the conclusions arrived at herein are for the
exclusive use of our client for the sole and specific purposes as
noted herein. Furthermore, the opinion and its conclusions are
not intended by the author, and should not be construed by the
reader, to be investment advice in any manner whatsoever. The
conclusions reached herein represent the considered opinion of
Valuation Research Corporation, based upon information furnished
to them by the Partnership, its Management, and other sources.
Neither all nor any part of the contents of this report (espe-
cially any conclusions as to value, the identity of any appraiser
or appraisers, or the firm with which such appraisers are con-
nected, or any reference to any of their professional designa-
tions) should be disseminated to the public through advertising
media, public relations, news media, sales media, mail, direct
transmittal, or any other public means of communication, without
the prior written consent and approval of Valuation Research
Corporation.
Valuation Research Corporation is not an environmental consultant
or auditor, and it takes no responsibility for any actual or
potential environmental liabilities. Any person entitled to rely
on this report wishing to know whether such liabilities exist, or
their scope, and the effect on the value of the property is
encouraged to obtain a professional environmental assessment.
Valuation Research Corporation does not conduct or provide
environmental assessments and has not performed one in connection
with this engagement.
Valuation Research Corporation has asked Winthrop Financial
Associates whether it is subject to any present or future liabil-
ity relating to environmental matters (including but not limited
to CERCLA/Superfund liability). Valuation Research Corporation
has not determined independently whether Winthrop Financial
Associates is subject to any such liabilities, nor the scope of
any such liabilities. Valuation Research Corporation's appraisal
takes no such liabilities into account except as they have been
reported expressly to Valuation Research Corporation by Winthrop
Financial Associates, or by an environmental consultant working
for Winthrop Financial Associates, and then only to the extent
that the liability was reported to us in an actual or estimated
dollar amount. To the extent such information has been reported
to us, Valuation Research Corporation has relied on it without
verification and offers no warranty or representation as to its
accuracy or completeness.
We have not made a specific compliance survey or analysis of the
underlying properties to determine whether they are subject to or
in compliance with the Americans with Disabilities Act of 1990
(ADA) and this opinion does not consider the impact, if any, of
noncompliance in estimating the value of the property.
ANNEX F
MARYLAND GENERAL CORPORATION LAW TITLE 3, SUBTITLE 2
3-201 DEFINITION. (a) In this subtitle, except as provided
in subsection (b) of this section, "successor" includes a corpo-
ration which amends its charter in a way which alters the con-
tract rights, as expressly set forth in the charter, of any
outstanding stock, unless the right to do so is reserved by the
charter of the corporation.
(b) stock of which was acquired in the share exchange.
3-202 RIGHT TO FAIR VALUE OF STOCK. (a) Except as provided
in subsection (c) of this section, a stockholder of a Maryland
corporation has the right to demand and receive payment of the
fair value of the stockholder's stock from the successor if:
(1) The corporation consolidates or merges with another
corporation;
(2) The stockholder's stock is to be acquired in a share
exchange;
(3) The corporation transfers its assets in a manner
requiring corporate action under SECTION 3-105 of this title;
(4) The corporation amends its charter in a way which
alters the contract rights, as expressly set forth in the char-
ter, of any outstanding stock and substantially adversely affects
the stockholder's rights, unless the right to do so is reserved
by the charter of the corporation; or
(5) The transaction is governed by SECTION 3-602 of this
title or exempted by SECTION 3-603(b) of this title.
(b)(1) Fair value is determined as of the close of busi-
ness:
(i) With respect to a merger under SECTION 3-106 of this title of
a 90 percent or more owned subsidiary into its parent, on the day
notice is given or waived under SECTION 3-106; or
(ii) with respect to any other transaction, on the day the
stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection,
fair value may not include any appreciation or depreciation which
directly or indirectly results from the transaction objected to
or from its proposal.
(3) In any transaction governed by SECTION 3-602 of this title or
exempted by SECTION 3-603(b) of this title, fair value shall be value
determined in accordance with the requirements of SECTION 3-603(b) of
this title.
(c) Unless the transaction is governed by SECTION 3-602 of this
title or is exempted by SECTION 3-603(b) of this title, a stockholder
may not demand the fair value of his stock and is bound by the
terms of the transaction if:
(1) The stock is listed on a national securities exchange
or is designated as a national market system security on an
interdealer quotation system by the National Association of
Securities Dealers, Inc.:
(i) With respect to a merger under SECTION 3-106 of this title of
a 90 percent or more owned subsidiary into its parent, on the
date notice is given or waived under SECTION 3-106; or
(ii) With respect to any other transaction, on the record
date for determining stockholders entitled to vote on the trans-
action object to;
(2) The stock is that of the successor in a merger; unless:
(i) The merger alters the contract rights of the stock as
expressly set forth in the charter, and the charter does not
reserve the right to do so; or
(ii) the stock is to be changed or converted in whole or in
part in the merger into something other than either stock in the
successor or cash, scrip, or other rights or interests arising
out of provisions for the treatment of fractional shares of stock
in the successor; or
(3) The stock is that of an open-end investment company
registered with the Securities and Exchange Commission under the
Investment Company Act of 1940 and the value placed on the stock
in the transaction is its net asset value.
3-203 PROCEDURE BY STOCKHOLDER. (a) A stockholder of a
corporation who desires to receive payment of the fair value of
his stock under this subtitle:
(1) Shall file with the corporation a written objection to
the proposed transaction:
(i) With respect to a merger under SECTION 3-106 of this title of
a 90 percent or more owned subsidiary into its parent, within 30
days after notice is given or waived under SECTION 3-106; or
(ii) With respect to any other transaction, at or before
the stockholders' meeting at which the transaction will be
considered;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the arti-
cles for record, shall make a written demand on the successor for
payment for his stock, stating the number and class of shares for
which he demands payment.
(b) A stockholder who fails to comply with this section is
bound by the terms of the consolidation, merger, share exchange,
transfer of assets, or charter amendment.
3-204 EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS. A
stockholder who demands payment for his stock under this subti-
tle;
(1) Has no right to receive any dividends or distributions
payable to holders of record of that stock on a record date after
the close of business on the day as at which fair value is to be
determined under SECTION 3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect
to that stock, except the right to receive payment of its fair
value.
3-205 WITHDRAWAL OF DEMAND. A demand for payment may be
withdrawn only with the consent of the successor.
3-206 RESTORATION OF DIVIDEND AND OTHER RIGHTS. (a) The
rights of a stockholder who demands payment are restored in full,
if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the
time required by this subtitle;
(3) A court determines that the stockholder is not entitled
to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) The restoration of a stockholder's rights entitles him
to receive the dividends, distributions, and other rights he
would have received if he had not demanded payment for his stock.
However, the restoration does not prejudice any corporate pro-
ceedings taken before the restoration.
3-207 PROCEDURE BY SUCCESSOR. (a)(1) The successor prompt-
ly shall notify each objecting stockholder in writing of the date
the articles are accepted for record by the Department.
(2) The successor also may send a written offer to pay the
objecting stockholder what it considers to be the fair value of
his stock. Each offer shall be accompanied by the following
information relating to the corporation which issued the stock:
(i) A balance sheet as of a date not more than six months
before the date of the offer;
(ii) A profit and loss statement for the 12 months ending
on the date of the balance sheet; and
(iii) Any other information the successor considers perti-
nent.
(b) The successor shall deliver the notice and offer to
each objecting stockholder personally or mail them to him by
registered mail at the address he gives the successor in writing,
or, if none, at his address as it appears on the records of the
corporation which issued the stock.
3-208 PETITION FOR APPRAISAL; CONSOLIDATION OF PROCEEDINGS;
JOINDER OF OBJECTORS. (a) Within 50 days after the Department
accepts the articles for record, the successor or an objecting
stockholder who has not received payment for his stock may
petition a court of equity in the county where the principal
office of the successor is located or, if it does not have a
principal office in this State, where the resident agent of the
successor is located, for an appraisal to determine the fair
value of the stock.
(b)(1) If more than one appraisal proceeding is instituted,
the court shall direct the consolidation of all the proceedings
on terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be
joined in an appraisal proceeding.
3-209 CERTIFICATE MAY BE NOTED. (a) At any time after a
petition for appraisal is filed, the court may require the
objecting stockholders parties to the proceeding to submit their
stock certificates to the clerk of the court for notation on them
that the appraisal proceeding is pending. If a stockholder fails
to comply with the order, the court may dismiss the proceeding as
to him or grant other appropriate relief.
(b) If any stock represented by a certificate which bears a
notation is subsequently transferred, the new certificate issued
for the stock shall bear a similar notation and the name of the
original objecting stockholder. The transferee of this stock
does not acquire rights of any character with respect to the
stock other than the rights of the original objecting stockhold-
er.
3-210 APPRAISAL OF FAIR VALUE. (a) If the court finds that
the objecting stockholder is entitled to an appraisal of his
stock, it shall appoint three disinterested appraisers to deter-
mine the fair value of the stock on terms and conditions the
court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
(b) Within 60 days after their appointment, unless the
court sets a longer time, the appraisers shall determine the fair
value of the stock as of the appropriate date and file a report
stating the conclusion of the majority as to the fair value of
the stock.
(c) The report shall state the reasons for the conclusion
and shall include a transcript of all testimony and exhibits
offered.
(d)(1) On the same day that the report is filed, the
appraisers shall mail a copy of it to each party to the proceed-
ings.
(2) Within 15 days after the report is filed, any party may
object to it and request a hearing.
3-211 CONSIDERATION BY COURT OF APPRAISERS' RE-
PORT. (a) The court shall consider the report and, on motion of
any party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the
stockholder.
(b)(1) If the appraisers' report is confirmed or modified
by the order, judgment shall be entered against the successor and
in favor of each objecting stockholder party to the proceeding
for the appraised fair value of his stock.
(2) If the appraisers' report is rejected, the court may:
(i) Determine the fair value of the stock and enter judg-
ment for the stockholder; or
(ii) Remit the proceedings to the same or other appraisers
on terms and conditions it considers proper.
(c)(1) Except as provided in paragraph (2) of this subsec-
tion, a judgment for the stockholder shall award the value of the
stock and interest from the date as to which fair value is to be
determined under SECTION 3-202 of this subtitle; and
(2) The court may not allow interest if it finds that the
failure of the stockholder to accept an offer for the stock made
under SECTION 3-207 of this subtitle was arbitrary and vexatious or not
in good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information fur-
nished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(d)(1) The costs of the proceedings, including reasonable
compensation and expenses of the appraisers, shall be set by the
court and assessed against the successor. However, the court may
direct the costs to be apportioned and assessed against any
objecting stockholder if the court finds that the failure of the
stockholder to accept an offer for the stock made under SECTION 3-207
of this subtitle was arbitrary and vexatious or not in good
faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) the financial statements and other information fur-
nished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The
reasonable fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under
SECTION 3-207 of this subtitle; or
(ii) The value of the stock determined in the proceeding
materially exceeds the amount offered by the successor.
(e) The judgment is final and conclusive on all parties and
has the same force and effect as other decrees in equity. The
judgment constitutes a lien on the assets of the successor with
priority over any mortgage or other lien attaching on the after
the effective date of the consolidation, merger, transfer, or
charter amendment.
3-212 SURRENDER OF STOCK. The successor is not required to
pay for the stock of an objecting stockholder or to pay a judg-
ment rendered against it in a proceeding for an appraisal unless,
simultaneously with payment:
(1) The certificates representing the stock are surrendered
to it, indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the
certificates and sufficient indemnity bond are furnished.
3-213 RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK. (a) A
successor which acquires the stock of an objecting stockholder is
entitled to any dividends or distributions payable to holders of
record of that stock on a record date after the close of business
on the day as at which fair value is to be determined under
SECTION 3-202 of this subtitle.
(b) After acquiring the stock of an objecting stockholder,
a successor in a transfer of assets may exercise all the rights
of an owner of the stock.
(c) Unless the articles provide otherwise stock in the
successor of a consolidation merger, or share exchange otherwise
deliverable in exchange for the stock of an objecting stockholder
has the status of authorized but unissued stock of the successor.
However, a proceeding for reduction of the capital of the succes-
sor is not necessary to retire the stock or to reduce the capital
of the successor represented by the stock.
