CONFIDENTIAL, FOR USE OF THE COMMISSION ONLY
PRELIMINARY COPY
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [X] Confidential, for
Use of the
Commission Only (as
permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Materials Pursuant to Rule 14a-11(c) or Rule 14a-12
Prudential-Bache/Watson & Taylor, Ltd.-3
(Name of Registrant as Specified in its Charter)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or
14a-6(i)(2) or Item 22(a)(2) of Schedule 14A.
[ ] $500 per each party to the controversy pursuant to Exchange
Act Rule 14a-6(i)(3).
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction
applies: Units representing ownership interests in
limited partnership interests
(2) Aggregate number of securities to which transaction
applies: 53,315.
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth
the amount on which the filing fee is calculated and
state how it was determined): The amount on which the
filing fee is calculated was determined pursuant to
Rule 0-11(c)(2) of the Exchange Act by multiplying
1/50th of 1% by $11,050,000, the aggregate amount of
cash to be received by the registrant.
(4) Proposed maximum aggregate value of transaction:
$11,050,000.
(5) Total fee paid: $2,210.
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
ONE SEAPORT PLAZA
NEW YORK, NY 10292-0116
July __, 1996
Dear Unitholders:
We are pleased to inform you that on June 13,
1996, Prudential-Bache/Watson & Taylor, Ltd.-3 (the
"Partnership") entered into a contract of sale to sell
(the "Sale") the properties owned by the Partnership (the
"Properties") other than certain undeveloped land to
Public Storage, Inc. (the "Buyer"). The purchase price
for these seven improved Properties is $11,050,000. The
Partnership is seeking to sell such undeveloped land.
The Partnership intends to make a cash
distribution to Unitholders representing the bulk of the
purchase price promptly after the closing of the Sale.
The Partnership would then anticipate being able to make
one or more subsequent distributions within approximately
one year after the closing of the Sale, and thereafter to
liquidate (the "Liquidation"). The Partnership estimates
that these liquidating distributions will aggregate
approximately $xx per unit.
THE SALE AND LIQUIDATION REQUIRES THE CONSENT OF
A MAJORITY OF THE UNITS. YOUR APPROVAL IS VERY
IMPORTANT.
PRUDENTIAL-BACHE PROPERTIES, INC., THE MANAGING
GENERAL PARTNER OF THE PARTNERSHIP, AND GEORGE S. WATSON
AND A. STARKE TAYLOR, III, THE INDIVIDUAL GENERAL
PARTNERS OF THE PARTNERSHIP, BELIEVE THAT THE SALE AND
LIQUIDATION ARE IN THE BEST INTERESTS OF THE PARTNERSHIP
AND RECOMMEND THAT YOU CONSENT TO THE SALE AND
LIQUIDATION. THE GENERAL PARTNERS BASE THEIR
RECOMMENDATION ON, AMONG OTHER THINGS, THE FOLLOWING
FACTORS:
(1) Their belief that current market
conditions are favorable for the sale of
the Partnership's Properties,
(2) The timing of the sale is consistent with
the anticipated holding period for Units
set forth in the initial offering,
(3) The Sale and Liquidation provides
liquidity to Unitholders,
(4) The price and terms negotiated with the
Buyer were the result of a competitive
bidding process and were the most
favorable of the offers received to
acquire the Properties in the bidding
process described under "THE TRANSACTION--
Background of the Sale of the Properties"
in the attached Consent Statement,
(5) The purchase price exceeds the aggregate
appraisal value of the Properties, as
determined by Cushman & Wakefield, an
independent, third-party appraisal firm.
(see "THE TRANSACTION--Fairness Opinion
and Appraisals" in the attached Consent
Statement), and
(6) An opinion from Robert A. Stanger & Co. to
the effect that the consideration to be
received in the Sale is fair from a
financial point of view to the Partnership
(see "THE TRANSACTION--Fairness Opinion
and Appraisals" in the attached Consent
Statement).
Unitholders should be aware that, if the Sale is
consummated, the Partnership would not receive the
benefits of any potential increases in cash flow or the
value of the Properties following the Sale.
The attached Consent Statement contains detailed
information concerning the proposed Sale and Liquidation.
We urge you to read the Consent Statement and enclosed
materials carefully before voting. If you have any
questions please feel free to call our consent
solicitors, Morrow & Co., Inc. at (800) xxx-xxxx.
Very truly yours,
Thomas F. Lynch, III
President
Prudential-Bache Properties, Inc.
Managing General Partner
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
ONE SEAPORT PLAZA
NEW YORK, NY 10292-0116
______________________
NOTICE OF PROPOSED ACTION BY WRITTEN CONSENT
JULY __, 1996
______________________
To the Unitholders of Prudential-Bache/Watson & Taylor,
Ltd.-3:
NOTICE IS HEREBY GIVEN to the holders (the
"Unitholders") of the limited partnership interests in the
Partnership (the "Units") of Prudential-Bache/Watson &
Taylor, Ltd.-3, a Texas limited partnership (the
"Partnership"), that Prudential-Bache Properties, Inc., the
Managing General Partner of the Partnership ("PB
Properties"), is soliciting written consents, in lieu of a
meeting of Unitholders, to approve a single proposal,
involving (a) the sale of substantially all of the assets of
the Partnership, other than certain undeveloped land, as
contemplated by the Contract of Sale, dated as of June 13,
1996 (the "Contract of Sale"), by and between the
Partnership and Public Storage, Inc. and the sale of such
undeveloped land on such terms and conditions as the
Managing General Partner may determine and (b) the complete
liquidation and dissolution of the Partnership
(collectively, the "Transaction"), all as more fully
described in the accompanying Consent Statement. The
Transaction must be approved by the holders of a majority of
the Units, which approval shall constitute the approval of
the Partnership.
Only Unitholders of record at the close of
business on July 1, 1996 are entitled to give their consent
to these actions.
The accompanying Consent Statement describes the
Transaction in detail.
YOUR CONSENT TO THIS PROPOSAL IS IMPORTANT
DEADLINE: 10:00 A.M., NEW YORK TIME, ON JULY __, 1996
TO ENSURE THAT YOUR INTEREST WILL BE REPRESENTED,
PLEASE SIGN, DATE AND COMPLETE THE ENCLOSED CONSENT CARD
AND PROMPTLY MAIL IT IN THE ENCLOSED SELF-ADDRESSED
POSTAGE-PREPAID ENVELOPE.
Your approval is important. Please read the
Consent Statement carefully and then complete, sign and date
the enclosed Consent Card and return it in the self-
addressed postage-prepaid envelope. Any Consent Card which
is signed and returned but does not specifically disapprove
the Transaction will be treated as approving the
Transaction.
To be counted, the Consent Card must be received
on or before 10:00 a.m. New York time on July __, 1996
(unless such time is extended). A consent may be revoked by
written notice received on or before the expiration of the
time for responding.
Your prompt response is appreciated.
PRUDENTIAL-BACHE PROPERTIES, INC.,
Managing General Partner
New York, New York
July __, 1996
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
CONSENT STATEMENT
ACTION BY WRITTEN CONSENT
JULY __, 1996
This Consent Statement is being furnished to the
holders ("Unitholders") of the limited partnership interests
(the "Units") in Prudential-Bache/Watson & Taylor, Ltd.-3.,
a Texas limited partnership (the "Partnership"), in
connection with the solicitation of consents by Prudential-
Bache Properties, Inc., the Managing General Partner of the
Partnership, on behalf of the Partnership. Unitholders are
being asked to consent to a proposal which, if approved and
consummated, would result in the sale (the "Sale") of
substantially all of the Partnership's assets other than
certain undeveloped land for cash, the sale of such
undeveloped land on such terms and conditions as the
Managing General Partner may determine and the complete
liquidation and dissolution of the Partnership
(collectively, the "Transaction"). The Partnership's assets
consist substantially of seven improved properties, three of
which are office/showroom/warehouse complexes, three of
which are mini-storage complexes, and one of which is an
office complex (the "Properties").
The Partnership has entered into a Contract of
Sale (the "Contract of Sale") with Public Storage, Inc. (the
"Buyer"), dated as of June 13, 1996, for the sale of the
Properties to the Buyer for $11,050,000 in cash. Pursuant
to the Amended and Restated Certificate and Agreement of
Limited Partnership of the Partnership (the "Partnership
Agreement"), the sale of all or substantially all of the
Partnership's assets, which will result in the dissolution
and ultimate liquidation of the Partnership, must be
approved by Unitholders who are the record holders of a
majority of the Units.
No person has been authorized to give any information
or to make any representation other than those contained in
this Consent Statement in connection with the solicitation
of consents made hereunder and, if given or made, such
information or representation must not be relied upon as
having been authorized by the Partnership or any other
person. The delivery of this Consent Statement shall not
under any circumstances create an implication that there has
been no change in the affairs of the Partnership since the
date hereof or that the information herein is correct as of
any time subsequent to its date.
______________________________
THE CONSENT STATEMENT AND FORM OF CONSENT ARE FIRST
BEING MAILED TO UNITHOLDERS ON OR ABOUT JULY __, 1996.
THE DATE OF THIS CONSENT STATEMENT
IS JULY __, 1996
TABLE OF CONTENTS
Page
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . .
Selected Historical Financial Data . . . . . . . . . .
ACTION BY CONSENT . . . . . . . . . . . . . . . . . . . . .
General . . . . . . . . . . . . . . . . . . . . . . .
Matters to be Considered . . . . . . . . . . . . . . .
Recommendations of the General Partners . . . . . . .
Action by Consent; Record Date . . . . . . . . . . . .
Consents . . . . . . . . . . . . . . . . . . . . . . .
THE TRANSACTION . . . . . . . . . . . . . . . . . . . . . .
Description of the Partnership . . . . . . . . . . . .
Partners in the Partnership . . . . . . . . . . . . .
Background of the Sale of the Properties . . . . . . .
Recommendation of the General Partners . . . . . . . .
Fairness Opinion and Appraisals . . . . . . . . . . .
Certain Income Tax Consequences and Considerations . .
Accounting Treatment . . . . . . . . . . . . . . . . .
Reason for Obtaining Unitholder Approval . . . . . . .
THE CONTRACT OF SALE . . . . . . . . . . . . . . . . . . .
Closing Conditions . . . . . . . . . . . . . . . . .
Inspections . . . . . . . . . . . . . . . . . . . . .
Closing Conditions . . . . . . . . . . . . . . . . . .
Remedies . . . . . . . . . . . . . . . . . . . . . . .
Covenants . . . . . . . . . . . . . . . . . . . . . .
Certain Expenses . . . . . . . . . . . . . . . . . . .
Casualty and Condemnation . . . . . . . . . . . . . .
Termination . . . . . . . . . . . . . . . . . . . . .
FINAL DISTRIBUTIONS AND LIQUIDATION . . . . . . . . . . .
NO APPRAISAL RIGHTS . . . . . . . . . . . . . . . . . . . .
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF . . . . . .
MARKET PRICES FOR THE PARTNERSHIP'S UNITS AND
DISTRIBUTIONS TO UNITHOLDERS AND THE GENERAL PARTNERS . .
Market Price . . . . . . . . . . . . . . . . . . . . .
Distributions . . . . . . . . . . . . . . . . . . . .
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . .
Contract of Sale . . . . . . . . . . . . . . . . . Annex A
Stanger Fairness Opinion . . . . . . . . . . . . . Annex B
Partnership Annual Report on Form 10-K for the year ended
December 31, 1995 . . . . . . . . . . . . . . . . . Annex C
Partnership Quarterly Report on Form 10-Q for the quarter
ended March 31, 1996 . . . . . . . . . . . . . . . Annex D
Ernst & Young letter . . . . . . . . . . . . . . . Annex E
[Begin Box]
SUMMARY
The following is a summary of certain information
contained elsewhere in this Consent Statement, including the
Annexes hereto, which are a part of this Consent Statement.
Reference is made to, and this summary is qualified in its
entirety by, the more detailed information contained in this
Consent Statement. Unless otherwise defined herein, capitalized
terms used in this summary have the respective meanings ascribed
to them elsewhere in this Consent Statement. Unitholders are
urged to read this Consent Statement in its entirety.
THE PARTNERSHIP
Prudential-Bache/
Watson & Taylor, Ltd.-3
The Partnership owns and operates seven
improved properties, three of which are
office/showroom/warehouse complexes, three
of which are mini-storage complexes, and
one of which is an office complex (the
"Properties"). The offices of the
Partnership are located at One Seaport
Plaza, New York, New York 10292-0116.
CONSENT DEADLINE
Deadline for Consents Consents must be received by ______,
July __, 1996, at 10:00 a.m., New York
time (unless such time is extended).
THE TRANSACTION
General . . . . . . . The Transaction to be approved by
Unitholders is a single proposal for the
Sale and Liquidation. The purchase
price for the Properties is $11,050,000.
Final Distributions and
Liquidation . . . As promptly as practicable following the
consummation of the Sale, the Managing
General Partner will determine the
amount of assets that it believes will
be sufficient to provide for the
Partnership's liabilities, including
contingent liabilities, if any. The
remainder of the Partnership's cash will
be distributed in accordance with the
Partnership Agreement, in an initial
liquidating distribution. Once all of
its obligations have been satisfied and
any undeveloped land is sold, the
Partnership will distribute its
remaining cash and dissolve. It is
expected that the bulk of the
distribution will be made promptly after
the Sale and the remainder within
approximately one year. The Partnership
estimates that these liquidating
distributions will aggregate
approximately $xx per Unit.
Background . . . . . See "THE TRANSACTION -- Background of
the Sale of the Properties."
Recommendation of the
General Partners . PB Properties, George S. Watson and A.
Starke Taylor, III, the general partners
of the Partnership (the "General
Partners"), have carefully considered
the Transaction and concluded that the
Transaction is in the best interests of
the Partnership and the Unitholders.
Accordingly, the General Partners have
approved the Transaction and recommend
that Unitholders vote in favor of the
Transaction. See "THE TRANSACTION --
Recommendation of the General Partners."
Opinion of Financial Advisor
Robert A. Stanger & Co. ("Stanger")
acted as financial advisor to the
Partnership in connection with the
Transaction. The Partnership has received
a fairness opinion from Stanger to the
effect that the consideration to be
received in the Sale is fair from a
financial point of view to the
Partnership. See "THE TRANSACTION --
Fairness Opinion and Appraisals."
Independent Appraisals
The Partnership received MAI-certified
appraisals of the Properties from an
independent, third-party appraisal firm,
Cushman & Wakefield, Inc. ("Cushman &
Wakefield"), dated September 1995. The
purchase price exceeds the aggregate
appraised value of the Properties. See
"THE TRANSACTION -- Fairness Opinion and
Appraisals."
The Buyer . . . . . . Public Storage, Inc., the Buyer, is an
equity real estate investment trust
("REIT") organized as a corporation
under the laws of the State of
California. The Buyer is a fully
integrated, self-administered and self-
managed REIT that acquires, develops,
owns and operates self-service mini-
warehouse facilities and also manages
similar properties for third parties.
The Buyer is the largest owner and
operator of mini-warehouses in the
United States. The Buyer has been the
manager of the day-to-day operations of
the Properties since 1988. The offices
of the Buyer are located at 600 North
Brand Blvd., Glendale, California. The
Buyer has entered into contracts with
certain other partnerships formed by the
General Partners under which such other
partnerships would sell properties to
the Buyer. See "THE TRANSACTION--
Background of the Sale of the
Properties."
Security Ownership and Voting of
the General Partners
As of July 1, 1996, none of the General
Partners or any director or officer of any
of the General Partners owned directly or
beneficially any of the Units. Prudential
Securities Incorporated, an affiliate of
PB Properties, beneficially owned 253
Units (.5% of the outstanding Units) as of
July 1, 1996. Prudential Securities
Incorporated intends to vote its Units to
approve the Transaction. George S. Watson
and A. Starke Taylor, III (collectively,
the "Individual General Partners") own 270
nonvoting "equivalent units." See "VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF,"
Effective Time of the
Transaction . . . . It is anticipated that the Transaction
will be consummated as promptly as
practical after the requisite Unitholder
approval has been obtained and all other
conditions to the Transaction have been
satisfied or waived.
Conditions to the Transaction;
Termination of the Transaction
The Transaction is conditioned upon, among
other things, the approval thereof by
Unitholders of record owning a majority of
the Units. The Transaction may be
terminated if it is not consummated by
March 13, 1997. The Partnership may
terminate the Transaction if the
Partnership receives a more favorable
offer for the purchase of the Properties.
In the latter case, a termination fee of
$209,950 (plus expenses up to $15,000)
shall be payable to the Buyer. A
termination fee would also be payable if
Unitholder approval is not obtained and a
contract or letter of intent to sell the
properties at a price exceeding the
Purchase Price is entered into within 180
days of the termination of the Contract of
Sale. See "THE CONTRACT OF SALE --
Conditions; Termination."
No Appraisal Rights Unitholders do not have appraisal rights
in connection with the Transaction. See
"NO APPRAISAL RIGHTS."
Certain Income Tax
Consequences and
Considerations . . For U.S. Federal income tax purposes,
the Partnership will be required to
report a loss of approximately $4.8
million in connection with the Sale of
the Properties. As a result, each
taxable Partner will recognize a loss of
approximately $85 per Unit and each tax-
exempt Partner, $95 per Unit, held by
such Partner. See "THE TRANSACTION --
Certain Income Tax Consequences and
Considerations."
Accounting Treatment For financial reporting purposes, the
Sale will be treated as a sale of
properties. See "THE TRANSACTION --
Accounting Treatment."
Regulatory Matters . No Federal or State regulatory
requirements must be complied with or
approvals obtained in connection with
the Transactions.
ACTION BY CONSENT
Record Date; Units
Entitled to Consent Unitholders of record at the close of
business on July 1, 1996, are entitled
to execute an action by written consent.
At such date there were outstanding
53,315 Units, each of which will entitle
the record owner thereof to one vote.
Purpose of the Action Written consents are being solicited to
approve (a) the sale of the Properties,
which comprise substantially all of the
assets of the Partnership (the "Sale")
and (b) the complete liquidation and
dissolution of the Partnership and the
distribution of the assets of the
Partnership in accordance with the
Partnership Agreement, other than such
assets as are set aside to provide for
the payment of all liabilities of the
Partnership (the "Liquidation," and
together with the Sale, the
"Transaction").
Votes Required . . . The approval of the Transaction will
require the written consent of
Unitholders of record holding a majority
of all outstanding Units of the
Partnership entitled to consent thereto.
Such approval will constitute the
approval of the Partnership.
PRUDENTIAL BACHE/WATSON & TAYLOR LTD.-3
SELECTED HISTORICAL FINANCIAL DATA
The following selected historical financial data for
each of the years in the five-year period ended September 30,
1995 and the six months ended March 31, 1995 and 1996, has been
derived from the Partnership's financial statements. The
selected financial data set forth below should be read in
conjunction with the financial statements and related notes
thereto included in the Partnership's Annual Report on Form 10-K
for the fiscal year ended September 30, 1995 and the unaudited
financial statements and related notes thereto included in the
Partnership's Quarterly Report on Form 10-Q for the quarter ended
March 31, 1996, copies of which are attached hereto.
<TABLE>
<CAPTION>
Six Months ended
Year ended September 30, March 31,
-------------------------------------------------------------------------- --------------------------
1995 1994 1993 1992 1991 1996 1995
<S> <C> <C> <C> <C> <C> <C> <C>
Rental income $ 1,953,727 $ 1,890,856 $ 1,834,820 $ 1,771,478 $ 1,634,725 $ 1,008,409 $ 959,804
Provision for loss
on impairment of
assets $ 2,000,000 -- -- $ 2,745,000 -- -- --
Net income (loss) $(1,733,919) $ 237,617 $ 246,181 $(2,539,656) $ 127,320 $ 137,293 $ 119,247
Net income (loss)
per Unit $ (33.07) $ 3.40 $ 3.55 $ (47.88) $ 1.47 $ 2.18 $ 1.71
Total assets $12,742,033 $14,903,764 $15,281,959 $15,769,943 $ 19,244,097 $ 12,743,014 $14,638,730
Total limited
partner
distributions $ 334,910 $ 601,756 $ 658,024 $ 867,615 $ 637,549 $ 133,959 $ 200,944
Limited partner
distributions per
Unit $ 6.25 $ 11.23 $ 12.28 $ 16.19 $ 11.84 $ 2.50 $ 3.75
</TABLE>
[End Box]
ACTION BY CONSENT
GENERAL
This Consent Statement is being furnished on behalf
of the Partnership to the holders of the ownership interest
in the limited partnership interests of the Partnership in
connection with the solicitation of consents by PB
Properties, as Managing General Partner of the Partnership.
This Consent Statement and accompanying form of
Consent Card is first being mailed to Unitholders on or
about July __, 1996.
MATTERS TO BE CONSIDERED
Consents are being solicited to approve a proposal
involving the sale of the Properties other than certain
undeveloped land, which comprise substantially all of the
assets of the Partnership, the complete liquidation and
dissolution of the Partnership the sale of such undeveloped
land on such terms as the Managing General Partner may
determine, and the distribution of the assets (which
following the Sale and the sale of the undeveloped land will
consist principally of cash and cash equivalents) of the
Partnership, other than such assets as are set aside to
provide for the payment of liabilities of the Partnership.
RECOMMENDATIONS OF THE GENERAL PARTNERS
The General Partners have approved the Sale of the
Properties and the complete liquidation and dissolution of
the Partnership and recommend that Unitholders consent to
the Transaction. See "THE TRANSACTION -- Background of the
Sale of the Properties; Recommendation of the General
Partners."
ACTION BY CONSENT; RECORD DATE
July 1, 1996, has been fixed as the record date (the
"Record Date") for the determination of Unitholders entitled
to consent with respect to the Transaction. As of the close
of business on the Record Date, there were 53,315 Units
outstanding and entitled to consent, which Units were held
by 3,269 Unitholders of record. Each Unitholder of record
at the close of business on the Record Date is entitled to
consent on the Transaction and cast one vote for each Unit
held by returning a properly executed Consent Card.
The consent of Unitholders who are the record holders
of a majority of all outstanding Units entitled to vote
thereon is required to approve the Transaction. Under
applicable law, in tabulating the vote for any matter,
abstentions and broker non-votes will have the same effect
as votes against the Transaction.
CONSENTS
This Consent Statement is being furnished to
Unitholders in connection with the solicitation of consents
by and on behalf of the Partnership.
Any consent given pursuant to this solicitation may
be revoked by the person giving it at any time before 10:00
a.m. New York time on July __, 1996 (unless the time for
responses is extended), by sending a written notice of such
revocation to the Partnership's consent solicitor, Morrow &
Co., Inc., so that such notice arrives before such time.
Any written notice of revocation or subsequent consent
should be sent to Morrow & Co., Inc., ____________,
Attention: ____.
Under applicable law and the Amended and Restated
Certificate and Agreement of Limited Partnership of the
Partnership (the "Partnership Agreement") any matter upon
which the Unitholders are entitled to act may be submitted
to the Unitholders for a vote by written consent without a
meeting.
The Partnership has retained Morrow & Co., Inc. to
aid in the solicitation of consents for a fee of
approximately $____, plus expenses. In addition to
solicitation by use of the mails, officers, directors and
employees of PB Properties or its affiliates may solicit
consents in person or by telephone, telegram or other means
of communication. Such officers, directors and employees
will not be additionally compensated, but may be reimbursed
for reasonable out-of-pocket expenses in connection with
such solicitation. All costs and expenses of this
solicitation, including the cost of preparing and mailing
this Consent Statement, will be borne by the Partnership.
UNITHOLDERS SHOULD NOT SEND ANY UNIT CERTIFICATES WITH THEIR
CONSENT CARDS.
THE TRANSACTION
DESCRIPTION OF THE PARTNERSHIP
The Partnership was formed to acquire, develop, own
and operate self-storage and business center facilities. In
December 1985, the Partnership completed an offering through
which it sold 53,315 Units, representing gross proceeds to
the Partnership of approximately $26.6 million. The
Partnership will terminate on December 31, 2050 unless
terminated sooner under the provisions of the Partnership
Agreement.
The Partnership invested in and operates the
Properties, which consist substantially of seven improved
properties, three of which are office/showroom/warehouse
complexes, three of which are mini-storage complexes, and
one of which is an office complex.
Excepted from the Properties is a parcel of
undeveloped land consisting of approximately 18.687 acres of
vacant land located at the southwest corner of IH-35E and
Wheatland Road in Dallas, Texas. The site has approximately
1,700 feet of frontage along the west side of the II-35E
service road and approximately 780 feet of frontage along
the south side of Wheatland Road. The property is zoned RR,
Regional Retail. The property was appraised at September
30, 1995 at $375,000. In seeking to sell such undeveloped
land, the Managing General Partner makes no assurances as to
its success in selling the land or as to the purchase price
thereof.
GENERAL PARTNERS OF THE PARTNERSHIP
The general partners of the Partnership are PB
Properties, the Managing General Partner, and George S.
Watson and A. Starke Taylor, III, the Individual General
Partners (collectively, the "General Partners").
BACKGROUND OF THE SALE OF THE PROPERTIES
In late 1995, the General Partners of the Partnership
considered seeking bids for the Properties, and, assuming
acceptable bids were received, entering into agreements to
sell the Properties subject to limited partner approval,
obtaining limited partner approval, and, after the sale,
liquidating the Partnership. Stanger was retained to
provide advice with respect thereto. Stanger advised the
General Partners that the market for the sale of self-
storage properties was favorable, based on, among other
things, (i) strong performance trends in the self-storage
industry, (ii) bullish expectations among self-storage
buyers and investors, (iii) increasing economic viability of
self-storage development activity in many areas, and the
consequent potential future negative impact on occupancies
and rental rates for existing facilities, (iv) a very high
level of availability of equity capital and currently deep
pool of buyers with budgeted acquisition capital targeting
self-storage properties, (v) re-emergence of lending
activity and debt capital to the self-storage market, (vi)
favorable trends in acquisition parameters of major buyers
and a resulting increase in property values and (vii)
increased ability to market properties on favorable terms.
Accordingly, based in part on such information, as
well as, (i) current market conditions appearing favorable
for a sale, (ii) the original business plan for the
Partnership envisioning a sale at approximately such time
and (iii) the General Partners ability to evaluate bids
before committing to a sale, the General Partners determined
to seek bids for the Properties.
On December 18, 1995, the Partnership, as well as
Prudential Bache/Watson & Taylor, Ltd.-I, Prudential
Bache/Watson & Taylor, Ltd.-2 and Prudential Bache/Watson &
Taylor, Ltd.-4 (three other partnerships formed by the
General Partners to invest primarily in similar properties)
(the "Other Partnerships") announced that they were
soliciting bids for their properties, invited interested
parties to bid on any or all of the properties held by such
partnerships and announced that, if acceptable bids were
received by a partnership, the partnership would enter into
agreements to sell the properties, subject to the approval
of its limited partners. If so approved, the partnership
would liquidate and distribute its net assets to its
partners.
The Partnership then retained Stanger as its
financial advisor. The Partnership and its advisors
contacted approximately 100 potential bidders concerning the
possible sale of the Properties, of whom approximately 35
returned executed confidentiality agreements, and were each
sent an offering package which contained business and
financial information pertinent to the Properties and the
properties of the Other Partnerships.
The Partnership received thirteen bids to purchase
some or all of the Properties. The terms and conditions of
each bid were reviewed based upon certain factors which the
Partnership had instructed bidders were especially
important. Such factors included, but were not limited to,
price, certainty of closing (including the definiteness of
financing and financial capability of the bidder), the
existence of potential downward adjustments to the purchase
price in the bid as a result of due diligence or claims by
the Buyer, including but not limited to reductions in
purchase price for any structural repairs, capital costs and
deferred maintenance items, and the absence of clsoing
contingencies of the sale relating to the purchase of assets
of any of the Other Partnerships.
As a result of this review and discussions with
bidders, the terms of certain bids were modified. Among the
bids reviewed was a bid from a private company for the
assets of the Partnership and all the assets of the Other
Partnerships in which the nominal amount of the offer
allocated to the Partnership's Properties exceeded the
Buyer's offer. However, the bidder had not visited the
properties, indicated the bid was subject to potential
reductions following a due diligence physical review of the
properties and a review by its accountants of financial
information related to the Properties, and subsequently
indicated that its bid was contingent on the acquisition of
all the assets of the Other Partnerships as well as the
Partnership. In addition, the bidder failed to provide
sufficient evidence of its ability to finance the
acquisition. When informed that its offer for the
properties of two of the Other Partnerships would not be
accepted, the bidder withdrew its bid for the Partnership's
Properties.
During the course of these reviews and discussions,
the Buyer, which had not previously submitted a bid for the
Properties, submitted a bid for the Properties, as well as
bids for substantially all of the properties held by the
Other Partnerships.
Each of these bids was conditioned on the acceptance
of the Buyer's other bids. The Partnership negotiated with
the Buyer regarding price separately from the Other
Partnerships. Each partnership insisted that the price
offered for its properties by the Buyer be higher than any
other bona fide bid received by such partnership. In
addition, each partnership insisted that the price to be
paid for its properties not be affected by the price to be
paid for the properties of any other partnership. Each
partnership also insisted that, once signed, the contract
with it not be conditioned on the contract entered into by
any other partnership, and that the termination of one
contract would not have any effect on any other contract.
The Contract of Sale is not conditioned on any contract with
any Other Partnership, consistent with the original
guidelines provided to bidders. The Buyer's proposal was the
most favorable received for the Properties.
The Buyer is an equity real estate investment trust
("REIT") organized as a corporation under the laws of the
State of California. The Buyer is a fully integrated, self-
administered and self-managed REIT that acquires, develops,
owns and operates self-service mini-warehouse facilities.
The Buyer is the largest owner and operator of mini-
warehouses in the United States. The offices of the Buyer
are located at 600 North Brand Blvd., Glendale, California
and its telephone number is (818) 244-8080.
The Buyer has been the manager of the day-to-day
operations of the Properties, as well as the properties held
by the Other Partnerships, since 1988.
The Buyer has entered into contracts with the Other
Partnerships under which each of the Other Partnerships
would sell its properties to the Buyer (other than, in
certain cases, undeveloped land owned by such partnerships).
RECOMMENDATIONS OF THE GENERAL PARTNERS
The General Partners of the Partnership, believe that
the Sale is fair and reasonable to the Unitholders, and
recommend that the Unitholders approve the Transaction. In
arriving at their determination, the General Partners
considered each of the factors discussed below:
(i) Their belief that current market conditions are
favorable for the sale of the Properties.
(ii) The timing of the Sale is consistent with the
anticipated holding period for Units set forth in
the initial offering.
(iii) The Sale provides liquidity to Unitholders.
(iv) The price and terms agreed to by the Buyer are the
result of a competitive bidding process and are
the most favorable available to the Partnership,
based upon the bidding process described above
under "Background of the Sale of the Properties."
(v) The purchase price exceeds the aggregate appraised
value of properties, as determined by Cushman &
Wakefield, an independent appraisal firm. (see "--
Fairness Opinion and Appraisals").
(vi) The fairness opinion of Stanger that the
consideration to be received in the Sale is fair
from a financial point of view to the Partnership,
described below under "Fairness Opinion and
Appraisals."
(vii) The terms and conditions of the Contract of
Sale, described under "THE CONTRACT OF SALE."
In particular, the fact that the Buyer's
obligations are not subject to obtaining
financing. If the Buyer were to terminate
its obligations, it would forfeit the
$828,750 Downpayment. Further, the Contract
of Sale limits claims that the Buyer can make
against the Partnership. Finally, the
Contract of Sale can be terminated by the
Partnership if the Partnership receives and
accepts an unsolicited better offer for the
Properties, although the Partnership would
then be obligated to return the Downpayment
and pay an additional $209,950 (plus expenses
up to $15,000) to the Buyer. A termination
fee would also be payable if Unitholder
approval is not obtained and a contract or
letter of intent to sell the properties at a
price exceeding the Purchase Price is entered
into within 180 days of the termination of
the Contract of Sale.
Unitholders should be aware that, if the Sale is
approved, the Partnership would not receive the benefits of
any potential increases in cash flow or the value of the
Properties following the Sale.
The General Partners found it impracticable to, and
therefore did not, quantify or otherwise assign specific or
relative weights to the above factors in its consideration
of the Contract of Sale, and instead, considered the various
above factors in their totality.
FAIRNESS OPINION AND APPRAISALS
Fairness Opinion from Stanger
Stanger was engaged by PB Properties on behalf of the
Partnership, in its capacity as Managing General Partner of
the Partnership, to provide financial advisory services and
to render an opinion as to the fairness to the Partnership
from a financial point of view of the consideration to be
received in the Sale. The full text of the Opinion, which
contains descriptions of the assumptions and qualifications
made, matters considered and limitations on the review and
opinion, is set forth in Annex B to this Proxy Statement and
should be read in its entirety. Certain of the material
assumptions, qualifications and limitations to the fairness
opinion are set forth below. The summary set forth below
does not purport to be a complete description of the
analysis used by Stanger in rendering the fairness opinion.
Arriving at a fairness opinion is a complex analytical
process not necessarily susceptible to partial analysis or
amenable to summary description.
In connection with its analysis, Stanger made certain
assumptions, described more fully below, which the
Partnership advised Stanger it would be reasonable to make.
The Partnership imposed no conditions or limitations on the
scope of Stanger's investigation or with respect to the
methods and procedures to be followed in rendering the
fairness opinion. The Partnership has agreed to indemnify
Stanger against certain liabilities arising out of its
engagement to render financial advisory services and to
prepare and deliver the fairness opinion.
EXPERIENCE OF STANGER - Stanger, founded in 1978, has
provided information, research, investment banking and
consulting services to clients throughout the United States,
including major New York Stock Exchange firms and insurance
companies and over 70 companies engaged in the management
and operation of partnerships and real estate investment
trusts. The investment banking activities of Stanger
include financial advisory services, asset and securities
valuations, asset sale transaction structuring and
negotiation, industry and company research and analysis,
litigation support and expert witness services, and due
diligence investigations in connection with both publicly
registered and privately placed securities transactions.
Stanger, as part of its investment banking business, is
regularly engaged in the valuation of businesses and their
securities in connection with mergers, acquisitions,
reorganizations and for estate, tax, corporate and other
purposes. In particular, Stanger's valuation practice
principally involves partnerships, partnership securities
and the assets typically owned through partnerships
including, but not limited to, real estate, oil and gas
reserves, cable television systems and equipment leasing
assets.
SUMMARY OF MATERIALS CONSIDERED - In the course of
Stanger's analysis to render its opinion regarding the Sale,
Stanger: (i) reviewed the Contract of Sale and this Consent
Statement, (ii) reviewed the Partnership's annual reports on
Form 10-K for the three years ending December 31, 1993, 1994
and 1995 and the Partnership's quarterly report on Form 10-Q
for the three months ending March 31, 1996, (iii) reviewed
the Appraisals of the Properties prepared by Cushman &
Wakefield ("Cushman & Wakefield"), an independent appraisal
firm, as of September 30, 1995, (iv) reviewed summary
historical operating statements for each of the Properties
for 1995 and the first quarter of 1996, and budgets for
1996, (v) performed site inspections of each of the
Properties owned by the Partnership, (vi) reviewed
information regarding purchases and sales of self-
storage/office-warehouse properties and other information
relating to acquisition criteria for self-storage/office-
warehouse properties, (vii) discussed with management of the
Partnership conditions in self-storage/office-warehouse
property markets, conditions in the market for
sales/acquisitions of properties similar to those owned by
the Partnership, current and projected operations and
performance, and the financial condition of the Partnership
and (viii) conducted such other studies, analyses, inquiries
and investigations as Stanger deemed appropriate.
SUMMARY OF ANALYSIS - The following is a summary of
certain reviews conducted by Stanger in connection with and
in support of its fairness opinion. The summary of the
Opinion and analysis of Stanger set forth in this Proxy is
qualified in its entirety by reference to the full text of
such Opinion.
Review of Method of Sale. Stanger observed that the
portfolio of Properties owned by the Partnership was offered
for sale pursuant to a competitive bidding process.
Potential purchasers were identified based on a review of
certain real estate industry publications, a review of
publicly traded real estate investment trusts, and industry
contacts. Prospective buyers were identified based on such
factors as type of properties owned or managed, geographical
location of current portfolio, and disclosed acquisition
objectives. Based on this process, approximately 100
prospective purchasers were identified and contacted
regarding their interest in the Properties.
A confidential memorandum describing each Property was
prepared, which included a physical description,
photographs, available site plans, location maps, market
area demographics, unit configuration, gross potential
income, historical physical occupancy, and a summary of
financial information. As a result of the process described
above, 35 confidential memorandums were distributed to
prospective buyers after receipt of confidentiality
agreements. Thirteen bidders submitted proposals to
purchase some or all of the Properties of the Partnership.
Bids were evaluated both on an individual property basis and
on a portfolio basis.
Review of Appraisals and Purchase Price - In preparing
its opinion, Stanger relied in part upon the Appraisals of
the Partnership's portfolio of properties which were
prepared as of September 30, 1995 by Cushman & Wakefield.
Stanger observed the Appraisals were certified by a Member
of the Appraisal Institute and were conducted utilizing the
income approach and the sales comparison approach to
establish value. In addition, Stanger observed that in the
course of conducting the Appraisals, Cushman & Wakefield
collected and analyzed local market data, including but not
limited to, rental rates at competing properties and
capitalization rates and/or prices per unit or square foot
paid in actual sales transaction involving similar type
properties in the general market area of each Property.
Stanger observed the aggregate appraised value of the
Properties owned by the Partnership and to be sold to the
Buyer was $10,425,000.
Stanger observed that the Purchase Price is $11,050,000
and that such amount is $625,000 greater than the appraised
value of $10,425,000 based on independent appraisals
prepared by Cushman & Wakefield as of September 30, 1995.
The Purchase Price, at $11,050,000, thus represents a 6%
premium to the sum of the appraised values.
CONCLUSIONS - Based on the foregoing, Stanger concluded
that, based upon its analysis and assumptions, and as of the
date of the fairness opinion, the consideration to be
received in the Sale is fair to the Partnership from a
financial point of view.
ASSUMPTIONS - In evaluating the Sale, Stanger relied
upon and assumed, without independent verification, the
accuracy and completeness of all financial and other
information contained in the Consent Statement or that was
furnished or otherwise communicated to Stanger. Stanger did
not perform an independent appraisal of the assets and
liabilities of the Partnership and relied upon and assumed
the accuracy of the Appraisals. Stanger also relied on the
assurances of the Managing General Partner that any
financial statements, projections, budgets, or value
estimates contained in the Consent Statement or otherwise
provided to Stanger were reasonably prepared on a basis
consistent with actual historical experience and reflecting
the best currently available estimates and good faith
judgments; that no material changes have occurred in the
appraised value of the portfolio or the information reviewed
between the date of the Appraisals or the date of other
information provided and the date of the opinion; and that
the Managing General Partner is not aware of any information
or facts that would cause the information supplied to
Stanger to be incomplete or misleading in any material
respect.
In connection with preparing the fairness opinion,
Stanger was not engaged to, and consequently did not,
prepare any written report or compendium of its analysis for
internal or external use beyond the analysis set forth in
Annex B. Stanger does not intend to deliver any additional
written summary of the analysis.
COMPENSATION; PRIOR RELATIONSHIPS - For rendering
financial advisory services with respect to the sale of the
Partnership's portfolio and preparing the fairness opinion
in connection with the Sale Stanger is being paid a fee of
$207,100 by the Partnership, a substantial portion of which
will be paid upon the closing of the Sale. Stanger will
also receive fees totalling $928,800 for financial advisory
services and preparing fairness opinions in connection with
the sale of assets owned by the Other Partnerships. In
addition, Stanger will be reimbursed for certain out-of-
pocket expenses, including legal fees, and will be
indemnified against certain liabilities including certain
liabilities under the Federal securities laws. The fee was
negotiated with Stanger. During the past two years, Stanger
has rendered certain consulting services to the Partnership
and its affiliates and the Other Partnerships, for which it
has received customary compensation aggregating
approximately $262,918. Stanger has also rendered financial
advisory services to REIT affiliates of the Buyer during the
past two years, for which it has received customary
compensation aggregating approximately $334,086.
LIMITATIONS AND QUALIFICATIONS - Stanger was not
requested to, and therefore did not: (i) select the method
of determining the consideration offered in the Sale, (ii)
make any recommendation to Limited Partners whether to
approve or reject the Sale or (iii) express any opinion as
to the business decision to effect the Sale, alternatives to
the Sale or tax factors resulting from the Sale. Stanger's
opinion is based on business, economic, real estate and
securities markets, and other conditions as of the date of
its analysis. Events occurring after that date may
materially affect the assumptions used in preparing the
Opinion. See "--Background of the Sale of the Properties."
Among the factors considered in its selection were
Stanger's experience in connection with self-storage assets
and mergers, acquisitions and reorganizations of real estate
partnerships and its expertise in real estate valuations and
transactions.
Cushman & Wakefield Appraisal Reports. Various subsidiaries
of Cushman & Wakefield, Inc. completed individual appraisal
reports on each Property as of September 30, 1995. Property
inspections were conducted and included discussions with on-
site managers. Appraisers also conducted market research
regarding local and regional economic conditions,
competitive self-storage/office warehouse/office showroom
properties (existing and potential) and recent comparable
sales transactions. The sum of the individual appraised
values of the Properties in the reports was $10,425,000.
In each appraisal, Cushman & Wakefield used the Sales
Comparison Approach and the Income Approach to develop a
market value estimate for each Property. The Cost Approach
was not used due to the difficulty in quantifying the
various forms of obsolescence, and, in addition, because it
is generally recognized that market participants do not rely
on the Cost Approach in making their investment decisions.
Sales Comparison Approach. Cushman & Wakefield utilized the
Sales Comparison Approach as one of two methods to estimate
the market value of each Property. The basic steps involved
in the Sale Comparison Approach are: (i) research recent,
relevant property sales and current offerings throughout the
competitive area; (ii) select and analyze those properties
considered most similar to the property appraised
considering changes in economic conditions that may have
occurred between the sale date and the date of value, and
other physical, functional or locational factors; (iii)
identify sales which include favorable financing and
calculate the cash equivalent price; (iv) reduce the sale
prices to common units of comparison such as the price per
square foot of building area, and the effective gross income
multiplier; (v) make appropriate comparative adjustments to
the prices of the comparable properties to relate them to
the property being appraised; and (vi) interpret the
adjusted sales data and draw a logical value conclusion.
Within each of the seven appraisals prepared by Cushman
& Wakefield, the sales prices inherent in the comparable
sales transactions were reduced to those common units of
comparison used by buyers and sellers to analyze improved
properties. The two primary units of comparison developed
by Cushman & Wakefield were the sales price per square foot
and the effective gross income multiplier (EGIM) methods of
analysis.
Income Approach. Cushman & Wakefield also employed the
Income Approach in developing a market value estimate for
each property. In utilizing the Income Approach, Cushman &
Wakefield developed an unleveraged discounted cash flow
analysis for each property based upon an eleven year cash
flow forecast inclusive of the estimated proceeds from a
hypothetical sale at the end of the tenth year. The
estimated proceeds from the hypothetical sale at the end of
the ten year holding period were based upon the eleventh
year's net operating income from the property.
The basis for the growth rates which were applied to
the revenues and expenses of the properties in the portfolio
included the following considerations: Cushman &
Wakefield's analysis of the historical operating performance
of the properties; Cushman & Wakefield's internal database
of revenues and operating expenses for other comparable
properties; and Cushman & Wakefield's analysis of the
probable market conditions which would affect the revenues
and operating expenses for each of the properties.
The basis for the discount rate utilized by Cushman &
Wakefield includes the following: Cushman & Wakefield's
internal database for comparable properties; Cushman &
Wakefield's regular, periodic survey of more than 20
institutional owners of properties; and publicly available,
published real estate industry statistics. On the basis of
this data and analysis, Cushman & Wakefield utilized a
specific and independently determined discount rate for each
property in the portfolio of 13.5%.
Cushman & Wakefield is a commercial real estate company
which provides a broad array of services to its domestic and
international clients. Cushman & Wakefield and affiliates
have offices nationwide covering most of the major real
estate markets, and its business activities include
commercial leasing, tenant representations, appraisals and
valuations, feasibility studies, sales and financings of
income-producing properties, real estate advisory and
consulting services, property management and market
research. Cushman & Wakefield has, from time to time,
provided services to PB Properties and its affiliates, and
may do so in the future. As compensation for its services
in connection with the appraisals, the Partnership paid the
various Cushman & Wakefield companies which prepared the
reports fees totalling ___________ and reimbursed them for
their out-of-pocket expenses.
An appraisal is only an estimate of value, as to the
specific date stated in the appraisal, and is subject to the
assumptions and limiting conditions stated in the report.
As an opinion, it is not a measure of realizable value and
may not reflect the amount which would be received if the
property was sold. Reference should be made to the entire
appraisal report.
CERTAIN INCOME TAX CONSEQUENCES AND CONSIDERATIONS
General
The following discussion summarizes generally the
material estimated Federal income tax consequences arising
from the consummation of the Sale and provides a general
overview of certain State income tax considerations. This
summary is not intended to and should not be considered an
opinion respecting the Federal or State income tax
consequences. Due to the complexity of the tax issues
involved, Unitholders are urged to consult with their
personal tax advisors regarding their individual
circumstances and the tax reporting consequences of the
transaction.
Based upon the description of the Sale and the
sale of certain undeveloped land contained in this Consent
Statement, the Partnership's independent accountants have
advised the Partnership that THE SALE WILL RESULT IN A TOTAL
LOSS ALLOCABLE TO THE UNITHOLDERS FOR FEDERAL INCOME TAX
PURPOSES IN 1996 OF APPROXIMATELY $4.8 MILLION OR AN AVERAGE
OF APPROXIMATELY $85 PER UNIT FOR A TAXABLE UNITHOLDER AND
AN AVERAGE OF APPROXIMATELY $95 PER UNIT FOR A TAX-EXEMPT
UNITHOLDER. Approximately $2.2 million of such loss (or an
average of approximately $39 per Unit for a taxable
Unitholder and an average of approximately $43 per Unit for
a tax-exempt Unitholder) will represent Section 1231 Loss
(defined below) and approximately $2.6 (or an average of
approximately $46 per Unit for a taxable Unitholder and an
average of approximately $52 per Unit for a tax-exempt
Unitholder) will represent capital loss. However, due to
varying admission dates and the operation of the Partnership
Agreement, the amount of recognized loss that is allocated
to a Unit depends upon a Unitholder's admission date.
The summary is based upon the Internal Revenue
Code of 1986, as amended (the "Code"); existing final,
temporary and proposed Treasury regulations thereunder (the
"Regulations" or "Treas. Reg. SECTION"); published rulings and
practices of the Internal Revenue Service (the "IRS"); and
court decisions, each as currently in effect. There can be
no assurance that the IRS will agree with the conclusions
herein or that future legislation or administrative changes
or court decisions will not significantly modify the Federal
income tax law regarding the matters described herein,
potentially with retroactive effect.
The maximum tax rate imposed on an individual's
net capital gains (the excess of net long-term capital gain
over short-term capital loss) is 28%, while the maximum
marginal tax rate imposed on the ordinary income of
individuals may be up to 39.6%, thereby resulting in a
substantial differential between the maximum capital gain
and the maximum ordinary income tax rates.
This summary does not discuss all the Federal
income tax aspects of the Transaction that may be relevant
to a particular Unitholder in light of his personal
circumstances, or to certain types of Unitholders subject to
special treatment. For example, insurance companies,
subchapter S corporations, partnerships, pension and profit-
sharing plans, tax-exempt organizations, non-U.S. taxpayers
and others may be subject to special rules not discussed
below.
Partnership Status
Under current law, a "partnership" is not a
taxable entity and incurs no Federal income tax liability.
Instead, each partner is required to take into account in
computing his income tax liability his allocable share of
the partnership's items of income, gain, loss, deduction and
credit (hereinafter referred to as "income or loss"). The
distribution of cash attributable to partnership income is
generally not a separate taxable event. This tax treatment,
however, depends entirely upon the Partnership's
classification as a "partnership" (rather than an
"association taxable as a corporation") for Federal income
tax purposes. This summary assumes, and PB Properties
believes, that the Partnership has been and will continue to
be properly classified as a "partnership" for Federal income
tax purposes, but no assurance can be given to Limited
Partners that this will continue to be true and no opinion
of counsel or of the Partnership's independent accountants
or ruling from the IRS is currently being sought with
respect to this partnership status issue.
Federal Income Tax Consequences
A sale of the Properties would have certain tax
implications to the Unitholders that should be considered.
Based on its terms, the Sale will result in the
realization of a loss for Federal income tax purposes,
which in turn will cause the Partnership's partners to
recognize a loss.
The potential tax consequences to the Unitholders,
assuming the Sale is consummated in 1996.
Generally, the sale or other disposition of a
property for an "amount realized" in excess of the "adjusted
basis" of such property will result in the recognition of
taxable income by the taxpayer. The amount realized is
ordinarily the selling price reduced by the expenses of
sale. The "adjusted basis" of property is its cost
(including nondeductible capital expenditures made by the
taxpayer at the time of purchase) or other basis in the
hands of the taxpayer with certain additions or subtractions
for expenditures, transaction costs or recoveries of capital
during the period of time from acquisition of the property
until the sale or other disposition. To determine the gain
or loss on the sale or other disposition of property the
initial cost basis must be (i) adjusted upward or increased
to include the cost of expenditures for capital expenditures
such as improvements, betterments, commissions and other
nondeductible charges; and (ii) adjusted downward or
decreased by (a) items that represent a return of capital
and (b) depreciation and amortization.
Under Section 1231 of the Code (which deals with
gains and losses from the sale or exchange of business
property), to the extent that a taxpayer's Section 1231
Gains for any taxable year from all sources exceed such
taxpayer's Section 1231 Losses (defined below) from all
sources for the year, subject to certain exceptions (such as
depreciation recapture discussed below), such net Section
1231 Gain (subject to the 5-year rule stated below) shall be
treated as a long-term capital gain. However, Section 1231
Gain shall be treated as ordinary income to the extent of
prior Section 1231 Losses from any source that were treated
as ordinary in any of the previous five years. Section 1231
Gains are those gains arising from the sale or exchange of
"Section 1231 Property" which means (i) depreciable assets
used in a trade or business, or (ii) real property used in a
trade or business, which are held for more than one year.
Conversely, Section 1231 Losses are those losses arising
from the sale or exchange of Section 1231 Property. If
Section 1231 Losses exceed Section 1231 Gains, such losses
would be treated as ordinary losses.
Under Sections 1245 and 1250 of the Code (which
deal with depreciation recapture), a portion of the amount
allowed as depreciation expense with respect to Section 1231
Property may be "recaptured" as ordinary income upon sale or
other disposition of personal or real property rather than
as long-term capital gains ("Section 1245 Gain" and "Section
1250 Gain" respectively). The Partnership will have
minimal, if any, Section 1245 Gain and Section 1250 Gain as
a result of the Sale. Section 1245 Gain is taxed at the
marginal ordinary income tax rate of the taxpayer as opposed
to the 28% individual capital gains rate.
Under Section 702(a)(3) of the Code (which
generally deals with the "pass through" tax items from a
partnership to its partners), a partnership is required to
separately state, and the partners are required to account
separately, for their distributive share of all gains and
losses. Accordingly, each Unitholder's allocable share of
the Section 1231 Gain and depreciation recapture realized by
the Partnership as a result of consummating the Sale in 1996
will be reportable by such Unitholder on his 1996 individual
tax return (subject to the various rules described herein
whereby, based on determinations made at the Unitholder
level as opposed to the Partnership level, such income can
be fully or partially offset by suspended passive losses
from any source, if any). Each Unitholder's allocable share
of Section 1245 Gain, Section 1231 Gain and Partnership net
taxable income or loss will be reflected on his Schedule K-1
for the partnership year ended September 30, 1996.
Net long-term capital gains of individuals, trusts
and estates will be taxed at a maximum rate of 28%, while
ordinary income (such as Section 1245 gain or Section 1250
gain) will be taxed at a maximum rate depending upon that
Unitholder's taxable income, of up to 39.6%. With respect
to net capital losses, the amount of net long-term capital
loss that can be utilized to offset ordinary income will be
limited to the sum of net capital gains from other sources
recognized by the Unitholder during the tax year, plus
$3,000 ($1,500 in the case of a married individual filing a
separate return). The excess amount of such net long-term
capital loss may be carried forward and utilized in
subsequent years subject to the same limitations. A
corporate Unitholder cannot deduct net capital losses (i.e.,
it can only deduct a capital loss to the extent of its
capital gains). A corporation can carry back a capital loss
to each of the three preceding tax years and can carry the
loss forward for five years subject to the same limitations.
While the issue is not free from doubt, the IRS,
pursuant to Section 291(a) of the Code (which generally
causes additional depreciation recapture for corporate
taxpayers), would likely require a corporate Unitholder to
treat 20% of the portion of the gain on the Sale allocated
to such corporate Unitholder that would otherwise be Section
1231 Gain as ordinary income to the extent of depreciation
claimed, and the following discussion and estimates assume
such treatment. The total potential amount of Section
291(a) ordinary income recharacterization for a corporate
Unitholder is minimal, if any.
A Unitholder's allocable share of any Partnership
loss realized on the Sale of its properties (other than
capital loss from the sale of investment properties) will be
characterized as passive activity loss that may offset
passive activity gains from other passive activity
investments. Moreover, assuming that all of the properties
are sold, because the sale of the properties will terminate
the Unitholder's interest in the passive activity, a
Unitholder's allocable share of any Partnership loss
realized on the sale of its investments, or loss realized by
the Unitholders upon liquidation of his or her Units, will
not be subject to the loss limitations. In addition, the
Sale should constitute a disposition of substantially all of
a passive activity, thereby entitling a Unitholder to deduct
all suspended passive losses attributable to the
Partnership.
The Partnership expects to distribute
approximately $___ per Unit from the Sale proceeds. This
distribution will first reduce a Unitholder's Federal
income tax basis in his Unit, and, to the extent the amount
of the distribution is in excess of that basis, such excess
will be taxed as a long-term or short-term capital gain,
depending on a Unitholder's holding period. If upon the
subsequent termination of the Partnership a Unitholder has a
basis remaining for his Unit, the amount of such remaining
basis will give rise, in the year of the termination, to a
long-term or short-term capital loss, depending on a
Unitholder's holding period. Such capital loss can be used
to offset (i) net Section 1231 Gains that have not been
otherwise recharacterized as ordinary income, and (ii) net
capital gains from all other sources that are recognized in
the year of Sale.
Actual gain amounts may vary from the estimates
set forth above.
Certain State Income Tax Considerations
Because each State's tax law varies, it is
impossible to predict the tax consequences to the
Unitholders in all the State tax jurisdictions in which they
may be subject to tax. Accordingly, the following is a
general summary of certain common (but not necessarily
uniform) principles of State income taxation. Unitholder's
should consult their own tax advisors regarding the State
income tax consequences of the Transaction.
State tax consequences to each Unitholder will
depend upon the provisions of the State tax laws to which
the Unitholder is subject. The Partnership will generally
be treated as engaged in business in each of the States in
which the Properties are located, and the Unitholders would
generally be treated as doing business in such States and
therefore subject to tax in such State. Most States modify
or adjust the taxpayer's Federal taxable income to arrive at
the amount of income potentially subject to State tax.
Resident individuals generally pay State tax on 100 percent
of such State-modified income, while corporations and other
taxpayers generally pay State tax only on that portion of
State-modified income assigned to the taxing State under the
State's own apportionment and allocation rules.
General
The discussions set forth above are only a summary
of the material Federal income tax consequences of the
Transaction to the Unitholders and of certain State income
tax considerations. They do not address all potential tax
consequences that may be applicable to a Unitholder, and may
not be applicable to certain categories of Unitholders, such
as non-United States persons, tax-exempt entities or
financial institutions. It also does not address the State,
local or foreign tax consequences of the Transaction.
ACCORDINGLY, UNITHOLDER'S SHOULD CONSULT THEIR OWN TAX
ADVISORS REGARDING THE SPECIFIC INCOME TAX CONSEQUENCES OF
THE TRANSACTION TO THEM, INCLUDING THE APPLICABILITY AND
EFFECT OF FEDERAL, STATE, LOCAL AND FOREIGN TAX LAWS.
ACCOUNTING TREATMENT
For financial reporting purposes, the transaction
will be treated as a sale of properties and the gain from
the sale will be recorded in the Partnership's Statement of
Operations, reduced by all expenses of sale, including
appraisals, fairness opinion and other professional fees and
transfer taxes. Under generally accepted accounting
principles, the Partnership would incur a loss of
approximately $800,000 on the Sale and the sale of the
undeveloped land.
REASON FOR OBTAINING UNITHOLDER APPROVAL
Pursuant to the Partnership Agreement, the sale of
all or substantially all of the Partnership's assets must be
approved by holders of a majority of the outstanding Units.
THE CONTRACT OF SALE
The following is a summary of the material terms
of the Contract of Sale. This summary does not purport to
be complete and reference is made to the Contract of Sale,
which is attached to this Consent Statement as Annex A and
is incorporated herein by reference. Defined terms used but
not defined herein have the same meaning as in the Contract
of Sale.
THE SALE
The Partnership has entered into the Contract of
Sale with the Buyer pursuant to which it has agreed to sell
the Properties to the Buyer for a purchase price of
$11,050,000. The Buyer has made a downpayment of $828,750
(the "Downpayment"), which is being held by the Escrow
Agent. The Contract of Sale provides that upon the terms
and subject to the conditions of the Contract of Sale, the
Closing shall take place three business days following
satisfaction of the conditions to closing.
TITLE AND ENVIRONMENTAL DEFECTS
The Contract of Sale provides that the Buyer may,
within 20 days of delivery of certain title reports and
related documents with respect to the Properties, deliver to
the Partnership written notice setting forth its objections
to any matters encumbering title to the Properties other
than the Permitted Exceptions (generally, immaterial title
defects) (collectively "Title Defects") and within the time
frames set forth below, any Environmental Defects
(generally, hazardous materials located in, on or under any
of the Properties in violation of environmental laws). The
Title Defects and the Environmental Defects are sometimes
referred to herein as, the "Defects". With respect to Title
Defects the Partnership shall have the option to (i) cure
any or all of the Title Defects prior to Closing, (ii)
remove such Property from the transaction and adjust the
Purchase Price by the allocated value of the affected
Property, (iii) grant the Buyer a credit against the
Purchase Price equal to the cost to cure such Title Defects
or (iv) terminate the Contract of Sale, in which latter
event, provided that the Buyer is not in default, the
Downpayment, together with any interest thereon, shall be
returned to the Buyer. With respect to any Environmental
Defect, the Partnership shall have the option to (i) cure
any or all of the Environmental Defects prior to Closing or
(ii) grant the Buyer a credit against the Purchase Price
equal to the cost to cure such Environmental Defects. If
the cost to correct any Environmental Defect exceeds 10% of
the allocated value of the affected Property, the
Partnership shall have the option to remove such affected
Property from the transaction and adjust the Purchase Price
by such allocated value.
The Contract of Sale provides that (i) the
Partnership shall have the right to adjourn the Closing Date
for such reasonable period, not to exceed sixty days, as
shall be necessary to cure any such Defect and (ii) the
Partnership shall have the right, subject to the terms and
conditions hereof, to cause the Closing to take place with
respect to the other Properties and then to cause the
Closing to take place with respect to the affected Property
within such reasonable period, not to exceed thirty days, as
shall be necessary to cure any such Defect.
In order to establish an Environmental Defect, the
Buyer shall be required to deliver to the Partnership on or
prior to 10 days after (i) the Buyer's receipt of the Phase
I environmental site assessment for each Property or (ii) if
applicable, the Buyer's receipt of a final Phase II
environmental assessment for any Property, a report
reasonably detailing any Environmental Defect. The Buyer
and the Partnership have agreed to make reasonable efforts
to agree as to the existence of and the cost to cure any
Environmental Defect. If the Buyer and the Partnership do
not agree on the foregoing within 15 days after the
Partnership's receipt of the Buyer's notice described above,
then the parties shall submit the matter to binding
arbitration.
Other than the aforementioned Title and
Environmental Defects, the Contract of Sale calls for the
sale of the Properties in an "As Is, Where Is" condition,
with no further adjustment to the purchase price for
structural and deferred maintenance items, if any, or other
factors relating to the physical condition of the
Properties, subject to the Casualty and Condemnation
provisions discussed below.
CLOSING CONDITIONS
The obligations of each party to close under the
Contract of Sale are subject to (i) the approval of the Sale
by the holders of a majority of the Units, (ii) there being
no law or court order preventing the Sale or any litigation
by a governmental entity seeking to prevent the Sale, (iii)
the representations and warranties of the other party being
true and correct in all material respects and (iv) the other
party having performed, in all material respects, its
covenants in the Contract of Sale.
REMEDIES
If the Buyer shall elect to proceed with the
performance of the Contract of Sale notwithstanding the
failure to be satisfied of any conditions to Closing, the
Buyer shall be deemed to have waived the requirement that
those conditions be satisfied. The Buyer's sole recourse
for the Partnership's failure to consummate the Closing in
accordance with the terms of the Contract of Sale shall be,
at the Buyer's option, (i) if appropriate, to sue for
specific performance, or (ii) to terminate the Contract of
Sale and receive a "Termination Fee" in an amount equal to
the Buyer's reasonable out of pocket attorneys' fees for
outside counsel incurred by the Buyer in connection with the
transactions contemplated by the Contract of Sale but in no
event to exceed $15,000, which Termination Fee shall be in
addition to the return of the Downpayment plus all accrued
interest thereon and, if the Partnership executes a contract
or letter of intent to sell the Properties within 180 days
from termination of the Contract of Sale, to receive an
amount equal to 1.9% of the purchase price as liquidated
damages. In the event that the Managing General Partner of
the Partnership does not recommend or withdraws its
recommendation to the limited partners of the Partnership to
vote to grant the Partnership Consent for any reason other
than as is required by its fiduciary obligations to the
Partnership due to a change in circumstances after the date
of the Contract of Sale, the Partnership shall pay to the
Buyer an amount equal to 1.9% of the Purchase Price (plus
the Buyer's expenses, not to exceed $15,000) as liquidated
damages, together with a refund of the Downpayment, and the
Partnership shall have no further obligation to the Buyer
whatsoever.
If the Buyer shall be unable or unwilling to
consummate the Closing in violation of the terms of the
Contract of Sale, the Partnership shall have the right (i)
to terminate the Contract of Sale and retain the Downpayment
and interest thereon as liquidated and agreed upon damages,
and neither the Partnership nor the Buyer shall have any
further rights or obligations hereunder.
The Contract of Sale further provides that except
as expressly set forth therein, none of the representations
and warranties contained in the Contract shall survive the
Closing.
COVENANTS
The Contract of Sale provides that the Partnership
will not initiate, solicit, negotiate with or provide
information to any person (other than the Buyer) concerning
any merger, sale of substantial assets out of the ordinary
course of business or similar transaction involving the
Properties to be sold to the Buyer, provided that the
Partnership may negotiate with or furnish information to a
third party if the Managing General Partner of the
Partnership determines, in its sole discretion, that its
fiduciary duties require it to take such actions.
The Contract of Sale also provides that the
Partnership shall operate the Properties in the ordinary and
usual course, consistent with past practice.
The Contract of Sale further provides that each
party thereto will use all reasonable efforts to perform all
acts required to consummate the transactions contemplated
thereby as promptly as practicable.
CERTAIN EXPENSES
The Contract of Sale provides that the
Partnership shall pay for (a) the cost of any Surveys, the
premium for any title insurance and any other costs of
closing and (b) transfer taxes, documentary stamp taxes,
recording charges and other taxes or charges imposed by any
governmental entity in connection with the transfer of the
Properties. The Contract of Sale also provides that the
Partnership shall deliver to the Buyer at the Partnership's
sole cost and expense any (i) Phase I environmental site
assessments, (ii) Phase II environmental assessments of the
Properties, (iii) pay for any other Phase II environmental
assessments which are reasonably required by the Phase I
environmental site assessments to be conducted at the
Properties. Each of the parties shall otherwise pay for any
and all costs which it may incur in connection with the
Contract of Sale.
CASUALTY AND CONDEMNATION
The Contract of Sale provides that if, prior to
the Closing Date, any of the Properties is damaged due to a
casualty (a "Casualty") and the cost of repairing such
damage, in accordance with the Partnership's insurance
claims, is less than $100,000, then the Partnership shall
repair such Casualty prior to the Closing Date or assign to
the Buyer the proceeds of the Partnership's policy of
casualty insurance and pay to the Buyer the amount of any
deductible. If the cost of repairing a Casualty to any
Property, in accordance with the Partnership's insurance
claims, equals or exceeds $100,000, then the Partnership
shall have the option to repair the Casualty to such
Property prior to Closing to the condition it was in prior
to Closing or if the Partnership does not repair the
Property, the Buyer shall have the option to remove such
Property from the transaction and adjust the Purchase Price
as hereinafter provided or have the Partnership assign to
the Buyer the insurance proceeds and pay to the Buyer the
amount of any deductible. Notwithstanding anything herein
to the contrary, (i) the Partnership shall have the right to
adjourn the Closing Date for such reasonable period as shall
be necessary to repair any such Casualty and (ii) the
Partnership shall have the right, subject to the terms and
conditions hereof, to cause the Closing to take place with
respect to the other Properties and then cause the Closing
to take place with respect to the affected Property within
such reasonable period as shall be necessary to repair any
such Casualty.
If, prior to the Closing Date, all or any portion
of any Property is condemned or taken by eminent domain,
then the Contract of Sale shall nevertheless remain in full
force and effect without any abatement of the Purchase
Price. In such event, the Partnership shall convey such
Property to the Buyer at the Closing in its then condition,
and the Buyer shall be entitled to receive all net or
condemnation awards otherwise payable to the Partnership as
a result of such loss or damage and, in full satisfaction of
any claims by the Buyer against the Partnership, the
Partnership shall assign to the Buyer, without recourse or
warranty of any nature whatsoever, all of the Partnership's
right, title and interest in and to any claims the
Partnership may have to any condemnation awards, as well as
all rights or pending claims of the Partnership with respect
to such condemnation or taking of such Property, and the
Partnership shall pay to the Buyer all payments theretofore
made by such condemning authorities as a result of such loss
after deducting therefrom the costs of collection thereof.
TERMINATION
The Contract of Sale may be terminated as follows:
(a) By the Partnership, if during the term of the
Contract of Sale the Partnership has received a bona fide
offer from an unrelated third party which the Managing
General Partner of the Partnership has determined is more
favorable to the Partnership and its partners than the terms
hereof (the "Topping Offer"), provided that the Partnership
has provided the Buyer with at least 5 days written notice
of the terms of such offer and the right to match such
offer, and further provided that the Partnership shall pay
to the Buyer, simultaneously with the acceptance of the
Topping Offer (regardless of whether the sale contemplated
by the Topping Offer is consummated), a "Topping Fee" an
amount equal to 1.9% of the Purchase Price plus an amount
equal to the Buyer's reasonable out of pocket attorney's
fees for outside counsel incurred by the Buyer in connection
with the transactions contemplated by the Contract of Sale
but in no event are the attorney's fees to exceed $15,000.
(b) By the Partnership or the Buyer, if a court
of competent jurisdiction issues a binding and final order
permanently preventing the sale of the Properties to the
Buyer.
(c) By the Partnership or the Buyer, if the
Closing does not occur on or before March 13, 1997, provided
that the party seeking to terminate is not in breach of the
Contract of Sale.
(d) By the Partnership or the Buyer, if the
Unitholders vote not to grant the Consent, provided that, if
(i) the Closing does not occur due to a failure to obtain
the Consent and (ii) the Partnership enters into a contract
or a letter of intent within 180 days after the termination
of the Contract of Sale, to sell the Properties at a price
which exceeds the Purchase Price, the Partnership shall pay
to the Buyer the Topping Fee.
FINAL DISTRIBUTIONS AND LIQUIDATION
As promptly as practicable following the
consummation of the Sale, the Managing General Partner will
determine the amount of assets that it believes will be
sufficient to provide for the Partnership's contingent
liabilities, if any. The remainder of the Partnership's
cash will be distributed to the Unitholders and the General
Partners, in accordance with the Partnership Agreement, in
an initial liquidating distribution. Once all contingent
obligations have been satisfied, the Partnership will
distribute its remaining net assets, if any, and dissolve.
The Partnership estimates that the total
distribution will be approximately $___ per Unit. This
estimate is based on the factors set forth below. THERE CAN
BE NO ASSURANCES AS TO THE ACTUAL AMOUNTS DISTRIBUTED, OR AS
TO THE AMOUNTS SET FORTH BELOW. ACTUAL AMOUNTS MAY VARY
MATERIALLY FROM THESE FIGURES.
Gross Purchase Price $11,050,000
Partnership Working Capital (32,000)
-----------
Subtotal $11,018,000
Expenses of Sale 1,373,000
Net Distributable Amount $9,645,000
GP Distributions $--
Net LP Distributable Amount
(including equivalent units) $9,645,000
Per Unit $____
The Net LP Distributable Amount includes $48,000
applicable to equivalent units held by the Individual
General Partners.
NO APPRAISAL RIGHTS
If Unitholders owning a majority of the Units on
the Record Date vote in favor of the Transaction, such
approval will bind all Unitholders. The Partnership
Agreement and the Texas Revised Limited Partnership Act,
under which the Partnership is governed, do not give rights
of appraisal or similar rights to Unitholders who dissent
from the vote of the majority in approving or disapproving
the Transaction. Accordingly, dissenting Unitholders do not
have the right to have their Units appraised and to have the
value of their Units returned to them because they
disapprove of the action of a majority of the Unitholders.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 53,315 Units issued
and outstanding and entitled to consent.
According to publicly available information, as of
July 1, 1996, no person or entity beneficially owns more
than 5% of the outstanding Units.
As of the Record Date, none of the General
Partners nor any officer or director thereof owned any
Units. Prudential Securities Incorporated, an affiliate of
PB Properties, owned 253 Units as of the Record Date.
Messrs. Watson and Taylor hold an aggregate of 270
"equivalent units," which entitle them to the economic
benefits of Units, but which do not carry the right to vote.
MARKET PRICES FOR THE PARTNERSHIP'S UNITS AND
DISTRIBUTIONS TO UNITHOLDERS AND THE GENERAL PARTNERS
MARKET PRICE
The Units are not listed on any national or
regional securities exchange or quoted on the NASDAQ system,
and there is no established public trading market for the
Units. A significant secondary market has not developed,
and it is not expected that one will develop in the future.
DISTRIBUTIONS
Since the inception of the Partnership through
July __, 1996, the Partnership has made distributions of
$6.8 million, or an average of $113 per Unit, to the
Unitholders, including holders of equivalent units, pursuant
to the terms of the Partnership Agreement. The following
table sets forth the amount of such per Unit cash
distributions paid to Unitholders on or about 45 days after
the end of the specified quarter.
1994
First quarter $2.50
Second quarter 2.50
Third quarter 2.50
Fourth quarter 1.25
1995
First quarter $1.25
Second quarter 1.25
Third quarter 1.25
Fourth quarter 1.25
1996
First quarter 1.25
AVAILABLE INFORMATION
This Consent Statement does not purport to be a
complete description of all agreements and matters relating
to the condition of the Partnership, its Properties and the
transactions described herein. Accompanying this Consent
Statement are the Form 10-K, for the year ended December 31,
1995, and Form 10-Q, for the quarter ended March 31, 1996,
which provide additional information regarding the
Partnership. With respect to statements contained in this
Consent Statement as to the content of any contract or other
document filed as an exhibit to the Form 10-K and Form 10-Q,
each such statement is qualified in all respects by
reference to such exhibit and the schedules thereto which
may be obtained without charge upon written request to the
Partnership. If making such a request, please send it to
the Prudential-Bache/Watson & Taylor, Ltd.-3, One Seaport
Plaza, New York, NY 10292-0116.
The information concerning the Buyer contained
herein was supplied by the Buyer. Although the Partnership
does not have any knowledge that any such information is
untrue, neither the Partnership nor any of its partners
takes any responsibility for the accuracy or completeness of
such information.
All documents filed after the date of this Consent
Statement but before action by consent is taken shall be
deemed to be incorporated by reference into this Consent
Statement. Copies of these documents will be available
without charge upon request to Prudential-Bache/Watson &
Taylor, Ltd.-3, One Seaport Plaza, New York, NY 10292-0116.
Any statement contained in a document incorporated or deemed
to be incorporated by reference in this Consent Statement
shall be deemed to be modified or superseded for purposes of
this Consent Statement to the extent that a statement
contained in this Consent Statement (or in any other
subsequently filed document that also is or is deemed to be
incorporated by reference in this Consent Statement)
modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Consent
Statement.
Annex A
Contract of Sale
DRAFT
FORM OF OPINION
Prudential-Bache Properties, Inc.
Managing General Partner
Prudential-Bache/Watson & Taylor, Ltd.-3
One Seaport Plaza, 16th Floor
New York, New York 10292
Gentlemen:
You have advised us that Prudential-Bache/Watson &
Taylor, Ltd.-3 (the "Partnership") is entering into a
transaction (the "Sale") in which the seven properties owned
by the Partnership (the "Properties") will be sold to Public
Storage, Inc. (the "Buyer"), for an all-cash purchase price
of $11,050,000, (the "Consideration"). The limited partners
of the Partnership will be asked to approve the Sale.
Prudential-Bache Properties, Inc., in its capacity as
the managing general partner of the Partnership, has
requested on behalf of the Partnership that Robert A.
Stanger & Co., Inc. ("Stanger") provided its opinion as to
the fairness to the Partnership, from a financial point of
view, of the Consideration to be received in the Sale.
In the course of our review to render this opinion, we
have, among other things:
* Reviewed the Consent Statement related to the Sale
and filed with the Securities and Exchange
Commission ("SEC") on July __, 1996;
* Reviewed the Contract of Sale between the
Partnership and the Buyer, dated June 13, 1996;
* Reviewed the Partnership's annual reports filed
with the SEC on Form 10-K for the three fiscal
years ending December 31, 1993, 1994 and 1995 and
the quarterly reports filed with the SEC on Form
10-Q for the three-month period ending March 31,
1996, which reports the Partnership's management
has indicated to be the most current financial
statements available;
* Reviewed the MAI-certified appraisals of the
Properties owned by the Partnership dated
September 30, 1995 performed by Cushman &
Wakefield, Inc. (the "Appraisals");
* Reviewed summary historical operating statements
for each of the Properties for 1995 and the first
quarter of 1996 and operating budgets for 1996;
* Performed site inspections of each of the
Properties owned by the Partnership;
* Reviewed information regarding purchases and sales
of self-storage/office-warehouse properties and
other information relating to acquisition criteria
for self-storage/office-warehouse properties;
* Discussed with management of the Partnership
conditions in self-storage/office-warehouse
property markets, conditions in the market for
sales/acquisitions of properties similar to those
owned by the Partnership, current and projected
operations and performance, and the financial
condition of the Partnership;
* Conducted other studies, analyses, inquiries and
investigations as Stanger deemed appropriate.
In rendering this fairness opinion, we have relied upon
and assumed, without independent verification, the accuracy
and completeness of all financial and other information
contained in the Proxy Statement or that was furnished or
otherwise communicated to us by the Partnership and the
property manager. We have not performed an independent
appraisal of the assets and liabilities of the Partnership
and have relied upon and assumed the accuracy of the
Appraisals. We have also relied on the assurances of the
Managing General Partner that any financial statements,
projections, budgets, or value estimates contained in the
Consent Statement or otherwise provided to us, were
reasonably prepared on bases consistent with actual
historical experience and reflecting the best currently
available estimates and good faith judgments; that no
material changes have occurred in the appraised value of the
properties or the information reviewed between the date of
the Appraisals or the date of the other information provided
and the date of this letter, and that the Managing General
Partner is not aware of any information or facts that would
cause the information supplied to us to be incomplete or
misleading in any material respect.
We have not been requested to, and therefore did not:
(i) select the method of determining the Consideration
offered in the Sale, (ii) make any recommendation to the
Unitholders of the Partnership with respect to whether to
approve or reject the Sale or (iii) express any opinion as
to the business decision to effect the Sale, alternatives to
the Sale, or tax factors resulting from the Sale. Our
opinion is based on business, economic, real estate and
securities markets, and other conditions as of the date of
our analysis and addresses the Sale in the context of
information available as of the date of our analysis.
Events occurring after that date may materially affect the
assumptions used in preparing the opinion.
Based upon and subject to the foregoing, and in
reliance thereon, it is our opinion that as of the date of
this letter the Consideration to be received in the Sale is
fair to the Partnership from a financial point of view.
The preparation of a fairness opinion is a complex
process and is not necessarily susceptible to partial
analysis or summary description. We have advised the
Partnership that our entire analysis must be considered as a
whole and that selecting portions of our analysis and the
factors considered by us, without considering all analyses
and facts, could create an incomplete view of the evaluation
process underlying this opinion.
Yours truly
Robert A. Stanger & Co., Inc.
Shrewsbury, NJ
Annex C
1995 10-K
Annex D
March 1996 10-Q
Annex D
E&Y Tax Letter
[FORM OF FRONT OF CARD]
PRUDENTIAL BACHE/WATSON & TAYLOR, LTD.-3
CONSENT CARD
CONSENT IS SOLICITED ON BEHALF OF PRUDENTIAL-BACHE
PROPERTIES, INC., THE MANAGING GENERAL PARTNER ("PB
PROPERTIES") OF PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(THE "PARTNERSHIP"). THE GENERAL PARTNERS RECOMMEND CONSENT
ON THE PROPOSAL.
Unitholders should not send any Certificates with this
Consent Card. Unitholders are urged to mark, sign, date and
mail promptly this Consent Card in the envelope provided.
Consent Card must be received by 10:00 a.m. New York time on
July __, 1996, unless the time is extended.
THIS CARD, IF SIGNED AND RETURNED, SHALL BE DEEMED TO
APPROVE THE PROPOSAL IF NOT INDICATED TO THE CONTRARY.
EACH CONSENT CARD MUST BE SIGNED AND DATED.
Sign exactly as addressed to you. Joint owners should each
sign. If signing as executor, administrator, attorney,
trustee, or guardian, give title as such. If a corporation,
sign in full corporate name by authorized officer. If a
partnership, sign in the name of authorized person.
[FORM OF BACK OF CARD]
SALE OF ASSETS AND LIQUIDATION
The undersigned hereby votes all Units beneficially
owned by the undersigned on the proposed Sale of Assets
and Liquidation as follows:
/ / Approve / / Disapprove / / Abstain
the sale of substantially all of the assets of the
Partnership as contemplated by the Contract of Sale by
and between the Partnership and Public Storage, Inc.
and the complete liquidation and dissolution of the
Partnership, all as more fully described in the Consent
Statement dated July __, 1996.
SIGNATURE
Date:
, 1996
PLEASE SIGN, DATE AND RETURN THIS CONSENT CARD USING
THE ENCLOSED ENVELOPE.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
For the fiscal year ended September 30, 1995
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 0-14397
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
- --------------------------------------------------------------------------------
(Exact name of Registrant as specified in its charter)
Texas 75-1991528
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
One Seaport Plaza, New York, N.Y. 10292-0116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on which Registered
None None
- --------------------------------------------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
- --------------------------------------------------------------------------------
(Title of class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes CK No _
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [CK ]
DOCUMENTS INCORPORATED BY REFERENCE
Registrant's Annual Report to Limited Partners for the fiscal year ended
September 30, 1995 is incorporated by reference into Parts I, II, and III of
this Annual Report on Form 10-K
Index to exhibits can be found on pages 9 and 10.
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item 1 Business........................................................................ 3
Item 2 Properties...................................................................... 4
Item 3 Legal Proceedings............................................................... 5
Item 4 Submission of Matters to a Vote of Limited Partners............................. 5
PART II
Item 5 Market for the Registrant's Units and Related Limited Partner Matters........... 5
Item 6 Selected Financial Data......................................................... 6
Item 7 Management's Discussion and Analysis of Financial Condition and Results of
Operations.................................................................... 6
Item 8 Financial Statements and Supplementary Data..................................... 6
Item 9 Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.................................................................... 6
PART III
Item 10 Directors and Executive Officers of the Registrant.............................. 6
Item 11 Executive Compensation.......................................................... 8
Item 12 Security Ownership of Certain Beneficial Owners and Management.................. 8
Item 13 Certain Relationships and Related Transactions.................................. 8
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K
Financial Statements and Financial Statement Schedules.......................... 9
Exhibits........................................................................ 9
Reports on Form 8-K............................................................. 10
Signatures.................................................................................. 15
</TABLE>
PART I
Item 1. Business
General
Prudential-Bache/Watson & Taylor, Ltd.-3 (the ``Registrant''), a Texas
limited partnership, was formed on November 13, 1984 and will terminate on
December 31, 2050 unless terminated sooner under the provisions of the Amended
and Restated Certificate and Agreement of Limited Partnership (the ``Partnership
Agreement''). The Registrant was formed for the purpose of acquiring, owning,
developing and operating self-storage and office/showroom warehouse complexes;
investing in unimproved commercial properties; and investing in first lien
mortgage loans on existing or to-be-constructed commercial income-producing
properties with proceeds raised through the initial sale of units of limited
partnership interest (``Units''). The Registrant's fiscal year for book and tax
purposes ends on September 30.
The Registrant operates seven improved properties consisting of three
office/showroom/warehouse complexes, three mini-storage complexes, and one
office complex, along with two unimproved properties. For more information
regarding the Registrant's properties, see Item 2 Properties. For more
information regarding the Registrant's operations, see Item 7 Management's
Discussion and Analysis of Financial Condition and Results of Operations
included in the Registrant's Annual Report to Limited Partners for the year
ended September 30, 1995 (``Registrant's Annual Report'') which is filed as an
exhibit hereto. The Registrant is engaged solely in the business of real estate
investment, therefore, presentation of industry segment information is not
applicable.
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all of the properties held by the Partnership. If acceptable
bids are received by the Partnership, the Partnership would enter into
agreements to sell the properties, subject to the approval of the limited
partners owning a majority of the Units, as required by the Partnership
Agreement. If such sales are approved and consummated, the Partnership would
liquidate and distribute its assets to its partners. There can, of course, be no
assurance that acceptable bids will be received or that any transactions will be
consummated.
For the years ended September 30, 1995, 1994 and 1993, respectively, the
following improved properties' rental revenues exceeded 15% of the Registrant's
total revenue:
<TABLE>
<CAPTION>
1995 1994 1993
----- ----- -----
<S> <C> <C> <C>
Barrow Road 18.4% 18.3% 18.1%
La Prada -- -- 15.2
</TABLE>
No tenant accounted for 10% or more of the total revenues for any of the
three years in the period ended September 30, 1995.
General partners
The general partners of the Registrant are Prudential-Bache Properties, Inc.
(``PBP''), George S. Watson and A. Starke Taylor, III (collectively, the
``General Partners''). PBP is the Managing General Partner and is responsible
for the day-to-day operations of the Registrant and its investments. See Note F
of the financial statements in the Registrant's Annual Report which is filed as
an exhibit hereto.
Competition
The General Partners and/or their affiliates have formed, and may continue to
form, various entities to engage in businesses which may be competitive with the
Registrant.
The Registrant competes with national and regional real estate owners and
operators, some of whom have significantly more experience and resources than
the Registrant. Such owners and operators may include insurance companies,
mortgage banks, pension funds, and other real estate investors, including
foreign investors, syndicated partnerships, and real estate investment trusts.
The primary factors affecting a particular property's ability to successfully
compete against other properties include the location of such property, the
suitability of its design to a prospective tenant's needs, the manner in which
it is managed and
marketed, and rental rates. The extent to which the Registrant is affected by
competition will depend in significant part on existing market conditions. The
property managers, Public Storage Management, Inc., and Public Storage
Commercial Properties Group, Inc. manage other properties which compete with the
Registrant's properties within the same geographical area.
Employees
The Registrant has no employees. Management and administrative services for
the Registrant are performed by the General Partners and their affiliates
pursuant to the Partnership Agreement. The General Partners and/or their
affiliates receive compensation and reimbursement of expenses in connection with
such activities as described in Section 11.7 of the Partnership Agreement. See
Note F of the financial statements in the Registrant's Annual Report which is
filed as an exhibit hereto.
Item 2. Properties
As of September 30, 1995 the Registrant owns the following properties:
<TABLE>
<CAPTION>
Average Occupancy
Rates for the
Year Ended Average Monthly
September 30, Land Rentable Rental Rates
Property Location 1995 (1) (in acres) Units Per Unit
- ----------------------------------- ------------------ ---------- -------- ---------------------
<S> <C> <C> <C> <C>
IMPROVED PROPERTIES
Barrow Road (Little Rock, AR) 91% 5.3617
Office/warehouse 31 $200 - $ 500
Office/showroom 14 $300 - $ 640
Mini-storage 102 $ 50 - $ 132
Retail 12 $400 - $ 500
--------
159
--------
La Prada (Mesquite, TX) 93 8.6330
Office/warehouse 52 $350 - $ 500
Office 10 $125 - $ 500
Office/showroom 8 $350 - $ 500
--------
70
--------
Tulsa Peoria (Tulsa, OK) 87 3.2330
Office/warehouse 55 $250 - $ 450
Mini-office/warehouse 10 $150 - $ 500
Mini-storage 77 $ 40 - $ 155
--------
142
--------
Westheimer (Houston, TX) 76 3.5757
Office/warehouse 20 $350 - $ 675
Mini-storage 327 $ 15 - $ 147
--------
347
--------
Eastgate (Garland, TX) 99 2.9000
Office 14 $900 - $2,900
--------
Quail Valley (Missouri City, TX) 100 4.3710
Office/showroom 3 $550 - $1,100
Office/warehouse 32 $475 - $1,100
--------
35
--------
</TABLE>
<TABLE>
<CAPTION>
Average Occupancy
Rates for the
Year Ended Average Monthly
September 30, Land Rentable Rental Rates
Property Location 1995 (1) (in acres) Units Per Unit
- ----------------------------------- ------------------ ---------- -------- ---------------------
<S> <C> <C> <C> <C>
Mt. Holly (Mt. Holly, NJ) 93% 4.008
Mini-storage 403 $ 40 - $ 160
--------
UNIMPROVED PROPERTIES
I-35/I-20 (Dallas, TX) N/A 18.6873 None
Southlake (Southlake, TX) N/A 14.9550 None
---------- --------
65.7247 1,170
---------- --------
---------- --------
- --------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Average occupancy rates are calculated by dividing occupied units by
available units as of each month-end.
The Registrant originally acquired seven properties for an aggregate purchase
price (including acquisition fees) of $15,880,415. Three unimproved properties
were subsequently acquired through foreclosure proceedings following the default
by the borrower under a mortgage loan in which the Registrant had a
participation interest. See Note D of the financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto. One of the
unimproved properties acquired by the Partnership has been sold.
For additional information describing the Registrant's properties, see
Supplementary Schedule III-Real Estate and Accumulated Depreciation on page 13
in Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.
Item 3. Legal Proceedings
This information is incorporated by reference to Note H of the financial
statements in the Registrant's Annual Report which is filed as an exhibit
hereto.
Item 4. Submission of Matters to a Vote of Limited Partners
None
PART II
Item 5. Market for the Registrant's Units and Related Limited Partner Matters
As of December 13, 1995, there were 3,347 holders of record owning 53,855
Units, inclusive of 270, 135, and 135 equivalent limited partnership units held
by PBP and Messrs. Watson and Taylor, respectively. A significant secondary
market for the Units has not developed, and it is not expected that one will
develop in the future. There are also certain restrictions set forth in Section
17.3 of the Partnership Agreement limiting the ability of a limited partner to
transfer Units. Consequently, holders of Units may not be able to liquidate
their investments in the event of an emergency or for any other reason.
The following per Unit cash distributions were paid to limited partners on or
about 45 days after the end of the specified fiscal quarter.
<TABLE>
<CAPTION>
Quarter Ended 1995 1994
- ---------------- ----- -----
<S> <C> <C>
December 31 $1.25 $2.70
March 31 1.25 2.50
June 30 1.25 2.50
September 30 1.25 2.50
</TABLE>
Distributions for the years ended September 30, 1995 and 1994 were made from
cash generated by the operations of the Registrant's properties.
There are no material restrictions upon the Registrant's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement. The Registrant currently expects that cash distributions
will continue to be paid in the forseeable future with cash generated by the
operations of the Registrant's properties. For discussion of other factors that
may affect future distributions, see Management's Discussion and Analysis of
Financial Condition and Results of Operations in the Registrant's Annual Report
which is filed as an exhibit hereto.
Item 6. Selected Financial Data
The following table presents selected financial data of the Registrant. This
data should be read in conjunction with the financial statements of the
Registrant and the notes thereto on pages 2 through 10 of the Registrant's
Annual Report which is filed as an exhibit hereto.
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- -----------
Total revenues $ 1,987,378 $ 1,919,960 $ 1,856,624 $ 1,819,136 $ 1,743,264
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Provision for loss on
impairment of
assets $ 2,000,000(1) $ -- $ -- $ 2,745,000 $ --
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) $(1,733,919) $ 237,617 $ 246,181 $(2,539,656) $ 127,320
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Net income (loss) per
limited partnership unit $ (33.07) $ 3.40 $ 3.55 $ (47.88) $ 1.47
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total assets $12,742,033 $14,903,764 $15,281,959 $15,769,943 $19,244,097
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Note payable $ 638,000 $ 638,000 $ 638,000 $ 638,000 $ 638,000
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Total distributions $ 364,033 $ 654,082 $ 715,309 $ 943,060 $ 692,989
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
Limited partner
distributions per Unit $ 6.25 $ 11.23 $ 12.28 $ 16.19 $ 11.84
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Based upon estimated amounts recoverable through future operations and
ultimate disposition of the properties and a reduced holding period until
the properties are disposed of, an additional allowance for loss on
impairment of assets of $2,000,000 was recorded as of September 30, 1995.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
This information is incorporated by reference to pages 11 and 12 of the
Registrant's Annual Report which is filed as an exhibit hereto.
Item 8. Financial Statements and Supplementary Data
The financial statements are incorporated by reference to pages 2 through 10
of the Registrant's Annual Report which is filed as an exhibit hereto.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
PART III
Item 10. Directors and Executive Officers of the Registrant
There are no directors or executive officers of the Registrant. The
Registrant is managed by the Managing General Partner.
Based on a review of Forms 3 and 4 and amendments thereto furnished to the
Registrant pursuant to Rule 16a-3(e) during its most recent fiscal year and Form
5 and amendments thereto furnished to the
Registrant with respect to its most recent fiscal year and written
representation pursuant to Item 405(b)(2)(i) of Regulation S-K, neither PBP nor
its directors, officers, or beneficial owners of more than 10% of the Units,
failed to file on a timely basis reports required by Section 16(a) of the
Securities Exchange Act of 1934 during the most recent fiscal or prior fiscal
years. However, based on the fact that the Registrant did not receive copies of
Forms 3, 4 or 5 or a written representation pursuant to Item 405(b)(2)(i) of
Regulation S-K from the individual General Partners, the Registrant is unaware
whether the individual General Partners filed on a timely basis reports required
under Section 16(a) of the Securities Exchange Act of 1934.
Prudential-Bache Properties, Inc., Managing General Partner
The directors and officers of PBP and their positions with regard to managing
the Registrant are as follows:
Name Position
Thomas F. Lynch President, Chief Executive Officer,
Chairman of the Board of
Directors and Director
Barbara J. Brooks Vice President--Finance and
Chief Financial Officer
Eugene D. Burak Vice President
Chester A. Piskorowski Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
THOMAS F. LYNCH, III, age 36, is the President, Chief Executive Officer,
Chairman of the Board of Directors and a Director of PBP. He is a Senior Vice
President of Prudential Securities Incorporated (``PSI''), an affiliate of PBP.
Mr. Lynch also serves in various capacities for other affiliated companies. Mr.
Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 47, is the Vice President--Finance and Chief Financial
Officer of PBP. She is a Senior Vice President of PSI. Ms. Brooks also serves in
various capacities for other affiliated companies. She has held several
positions within PSI since 1983. Ms. Brooks is a certified public accountant.
EUGENE D. BURAK, age 50, is a Vice President of PBP. He is a First Vice
President of PSI. Prior to joining PSI in September 1995, he was a management
consultant for three years and was with Equitable Capital Management Corporation
from March 1990 to May 1992. Mr. Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 52, is a Vice President of PBP. He is a Senior
Vice President of PSI. He is the Senior Manager of the Direct Investment Group
Asset Management area. Mr. Piskorowski has held several positions within PSI
since April 1972. Mr. Piskorowski is a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 53, is a Director of PBP. He is a Senior Vice
President of PSI and General Counsel of Prudential Mutual Fund Management, Inc.,
an affiliate of PSI. Mr. Giordano also serves in various capacities for other
affiliated companies. He has been with PSI since July 1967.
NATHALIE P. MAIO, age 45, is a Director of PBP. She is a Senior Vice
President and Deputy General Counsel of PSI and supervises virtually all of the
non-litigation legal work for PSI, including all of the PSI Law Department's
corporate and marketing-review activity. She joined PSI's Law Department in
1983; presently, she also serves in numerous capacities for other affiliated
companies.
There are no family relationships among any of the foregoing directors or
officers. All of the foregoing officers and/or directors have indefinite terms.
Individual General Partners
George S. Watson, age 55, is a financial specialist and a certified public
accountant. He is also a member of the board of directors of Lyco Energy
Corporation as well as the Advisory Council of the University of Texas Business
School and a member of its Chancellor's Council. Mr. Watson attended the
University of
Texas in Austin, graduating summa cum laude in 1963 with a B.B.A. in accounting
and finance. He received his M.B.A. in accounting and finance from the
University of Texas in 1965, graduating first in his class and summa cum laude.
He has received various awards and scholarships and is a member of many
fraternal organizations including Phi Kappa Phi, the honorary scholastic
fraternity.
A. Starke Taylor, III, age 52, holds a bachelor of business administration
degree from Southern Methodist University which was awarded in 1966. He is past
president of the North Dallas Chamber of Commerce. Active in the community, Mr.
Taylor is the chairman of the board of Priority One, an international missionary
organization, the founding chairman of the board of the Park Central Athletic
Association, a member of the Dallas regional board of the Salvation Army, and a
board member of the Dallas Theological Seminary. Mr. Taylor was recognized in
1983 by D Magazine as one of Dallas' 10 most outstanding young business leaders.
Item 11. Executive Compensation
The Registrant does not pay or accrue any fees, salaries or any other form of
compensation to directors and officers of the Managing General Partner or to the
individual General Partners for their services. Certain officers and directors
of the Managing General Partner receive compensation from affiliates of the
Managing General Partner, not from the Registrant, for services performed for
various affiliated entities, which may include services performed for the
Registrant; however, the Managing General Partner believes that any compensation
attributable to services performed for the Registrant is immaterial (see also
Item 13 Certain Relationships and Related Transactions for information regarding
reimbursement to the General Partners for services provided to the Partnership).
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of December 13, 1995, no individual General Partner or director or officer
of the Managing General Partner owns directly or beneficially any interest in
the voting securities of the Managing General Partner.
As of December 13, 1995, no individual General Partner or director or officer
of the Managing General Partner owns directly or beneficially any of the Units
issued by the Registrant. However, the General Partners have contributed to the
Registrant and, based on such contribution, they are allowed to participate in
the distributions to the limited partners and in the Registrant's profits and
losses in the same proportion that the General Partners' capital contribution
bears to the total capital contributions of the limited partners. The Managing
General Partner retained its right to receive funds from the Registrant, such as
General Partner distributions and reimbursement of expenses, but waived its
right to share in any limited partner cash distributions and allocation of
Registrant's profits and losses.
As of December 13, 1995, no beneficial owner who is neither an individual
General Partner nor a director or officer of the Managing General Partner
beneficially owns more than five percent (5%) of the Units issued by the
Registrant.
Item 13. Certain Relationships and Related Transactions
The Registrant has and will continue to have certain relationships with the
General Partners and their affiliates. However, there have been no direct
financial transactions between the Registrant and the individual General
Partners or the directors or officers of the Managing General Partner.
Reference is made to Notes A and F of the financial statements in the
Registrant's Annual Report which is filed as an exhibit hereto, which identify
the related parties and discuss the services provided by these parties and the
amounts paid or payable for their services.
PART IV
Page in
Annual Report
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) 1. Financial Statements and Independent Auditors' Report--Incorporated
by reference to Registrant's Annual Report which is filed as an
exhibit hereto
Independent Auditors' Report 2
Financial Statements:
Statements of Financial Condition--September 30, 1995 and 1994 3
Statements of Operations--Three years ended September 30, 1995 4
Statements of Changes in Partners' Capital--Three years ended
September 30, 1995 5
Statements of Cash Flows--Three years ended September 30, 1995 6
Notes to Financial Statements 7
2. Financial Statement Schedules and Independent Auditors' Report on
Schedules
Independent Auditors' Report on Schedules
Schedules:
II--Valuation and Qualifying Accounts and Reserves--Three years
ended September 30, 1995
III--Real Estate and Accumulated Depreciation at September 30, 1995
Notes to Schedule III--Real Estate and Accumulated Depreciation
All other schedules have been omitted because they are not
applicable or the required information is included in the financial
statements or the notes thereto.
3. Exhibits
Description:
3.01 Amended and Restated Certificate and Agreement of Limited
Partnership (1)
3.02 Amendment to the Amended and Restated Certificate and Agreement
of Limited Partnership (5)
4.01 Certificate of Limited Partnership Interest (1)
10.01 Management Agreement and Guaranty (1)
10.02 Construction Contract dated August 9, 1985, for the Barrow
Road Business Center (2)
10.03 Construction Contract dated October 31, 1985, for the LaPrada
Business Center (2)
10.04 Construction Contract dated October 16, 1984, for the Peoria
Office and Storage Park (2)
10.05 Construction Contract dated October 17, 1984, for the
Westheimer West Business Center (2)
10.11 Opinion of The Lomas & Nettleton Advisory Group, Inc. (3)
10.12 Property Management Agreement dated as of November 1, 1988 by
and between the Registrant and Public Storage Commercial
Properties Group, Inc. (4)
10.13 Property Management Agreement dated as of November 1, 1988 by
and between the Registrant and Public Storage Management,
Inc. (4)
10.15 Assignment of Deed of Trust, Mortgage, Promissary Note and
Other Documents dated December 5, 1988 by First Commonwealth
Mortgage Trust to the Registrant (4)
10.16 Promissory Note in the principal amount of $638,000 executed
by the Registrant in favor of First Commonwealth Mortgage
Trust (4)
10.17 Deed of Trust, Security Agreement and Assignment of Rents
dated December 7, 1988 by the Registrant to John M. Walker,
Jr., Trustee for the benefit of First Commonwealth Mortgage
Trust (4)
10.18 Deed of Trust, Security Agreement and Assignment of Rents
dated January 4, 1989 by the Registrant to John M. Walker,
Jr., Trustee for the benefit of First Commonwealth Mortgage
Trust (5)
10.19 Mortgage Security Agreement and Assignment of Rents dated July
11, 1989 by the Registrant to First Commonwealth Mortgage
Trust (5)
13.01 Annual Report for the year ended September 30, 1995 (filed
herewith). (With the exception of the information and data
incorporated by reference in Items 3, 7, and 8 of this Annual
Report on Form 10-K, no other information or data appearing in
the 1995 Annual Report to Limited Partners is to be deemed
filed as part of this report.)
27 Financial Data Schedule
(b) Reports on Form 8-K
Registrant's Current Report on Form 8-K dated December 6, 1995, as
filed with the Securities and Exchange Commission on December 6,
1995, relating to Item 5 regarding the communication of certain
information to the limited partners.
Registrant's Current Report on Form 8-K dated December 15, 1995, as
filed with the Securities and Exchange Commission on December 26,
1995, relating to Item 5 regarding the intention of the Partnership
to solicit bids for the Partnership's properties.
- ------------------
(1) Filed as an exhibit to Registration Statement on Form S-11 (No. 2-94976)
and incorporated herein by reference.
(2) Filed as an exhibit to Registrant's Form 10-K for the year ended September
30, 1985 and incorporated herein by reference.
(3) Filed as an exhibit to Registrant's Form 8-K filed with the Commission on
March 19, 1986 and incorporated herein by reference.
(4) Filed as an exhibit to Registrant's Form 10-K for the year ended September
30, 1988 and incorporated herein by reference.
(5) Filed as an exhibit to Registrant's Form 10-K for the year ended September
30, 1989 and incorporated herein by reference.
(LOGO) 1211 Avenue of the Americas Phone: 212 403-5200
New York, New York 10036 Fax: 212 404-5700
CONSENT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-3
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Prudential-Bache/Watson & Taylor, Ltd.-3 of our report
dated November 6, 1995, included in the 1995 Annual Report to Limited
Partners of Prudential-Bache/Watson & Taylor, Ltd.-3.
Our audits also included the financial statement schedules of
Prudential-Bache/Watson & Taylor Ltd.-3 listed in Item 14(a). These
schedules are the responsibility of the Partnership's management. Our
responsibility is to express an opinion based on our audits. In our
opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a
whole, present fairly in all material respects the information set
forth therein.
Ernst & Young LLP
December 27, 1995
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
- --------------------------------------------------------------------------
Allowance for Loss on Impairment of Assets
<TABLE>
<CAPTION>
Deductions-Amounts
Year Ended Balance at Additions-Amounts Written-off During Balance at
September 30 Beginning of Year Reserved During Year Year End of Year
- --------------- ----------------- -------------------- ------------------ ------------
<S> <C> <C> <C> <C>
1993 $ 2,745,000 -- -- $2,745,000
1994 $ 2,745,000 -- -- $2,745,000
1995 $ 2,745,000 $2,000,000 -- $4,745,000
</TABLE>
- --------------------------------------------------------------------------------
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
SCHEDULE III--REAL ESTATE AND ACCUMULATED DEPRECIATION
September 30, 1995
<TABLE>
<CAPTION>
Costs
capitalized
Initial cost to (sold) Gross amount at which carried at
Registrant subsequent to Permanent close of period
----------------------------- acquisition writedown -------------------------------------------
Buildings -------------- of impaired Buildings Total
Description (NOTE C) Land and Improvements Improvements assets Land and Improvements (NOTE A)
<S> <C> <C> <C> <C> <C> <C> <C>
- --------------------- ---------- ---------------- -------------- ----------- ---------- ---------------- ----------
IMPROVED PROPERTIES:
Barrow Road
Little Rock, Arkansas $ 855,013 $ -- $ 2,887,734 $ -- $ 861,681 $ 2,881,066 $ 3,742,747
La Prada
Mesquite, Texas 1,115,034 -- 2,327,661 -- 1,123,319 2,319,376 3,442,695
Tulsa Peoria
Tulsa, Oklahoma 271,869 558,438 1,401,346 -- 275,613 1,956,040 2,231,653
Westheimer
Houston, Texas 866,561 488,841 1,089,466 -- 872,985 1,571,883 2,444,868
Eastgate
Garland, Texas 730,000 1,070,000 101,975 -- 730,000 1,171,975 1,901,975
Quail Valley
Missouri City, Texas 375,000 1,125,000 87,647 -- 375,000 1,212,647 1,587,647
Mt. Holly
Mt. Holly, New Jersey 260,000 1,583,521 21,162 -- 260,000 1,604,683 1,864,683
UNIMPROVED
PROPERTIES:
I-820/377
Haltom City, Texas 1,100,465 -- (1,100,465) -- -- -- --
I-35/I-20
Dallas, Texas 2,583,194 -- 26,477 -- 2,609,671 -- 2,609,671
Southlake
Southlake, Texas 1,670,925 -- 12,578 (340,000) 1,343,503 -- 1,343,503
---------- ---------------- -------------- ----------- ---------- ---------------- -----------
TOTAL $9,828,061 $4,825,800 $ 6,855,581 $(340,000) $8,451,772 $ 12,717,670 $21,169,442
---------- ---------------- -------------- ----------- ---------- ---------------- -----------
---------- ---------------- -------------- ----------- ---------- ---------------- -----------
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Life on which
depreciation
in latest
Accumulated income
depreciation Date of Date statement
Description (NOTE C) (NOTE B) construction acquired is computed
<S> <C> <C> <C> <C>
- --------------------- ----------- ------------ -------- --------------
IMPROVED PROPERTIES:
Barrow Road 5 to
Little Rock, Arkansas $1,110,120 1985 1985 25 years
La Prada 5 to
Mesquite, Texas 934,545 1985 1985 25 years
Tulsa Peoria 5 to
Tulsa, Oklahoma 826,136 1985 1985 25 years
Westheimer 5 to
Houston, Texas 675,981 1985 1985 25 years
Eastgate 5 to
Garland, Texas 349,801 -- 1988 25 years
Quail Valley 5 to
Missouri City, Texas 380,691 -- 1988 25 years
Mt. Holly 5 to
Mt. Holly, New Jersey 426,374 -- 1989 25 years
UNIMPROVED
PROPERTIES:
I-820/377
Haltom City, Texas -- -- 1985 N/A
I-35/I-20
Dallas, Texas -- -- 1985 N/A
Southlake
Southlake, Texas -- -- 1985 N/A
-----------
TOTAL $4,703,648
-----------
-----------
- --------------------------------------------------------------------------------------------
</TABLE>
See notes on following page
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO SCHEDULE III
September 30, 1995
NOTE A--RECONCILIATION SUMMARY OF TRANSACTIONS--REAL ESTATE
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period.......................... $21,059,431 $20,971,114 $20,948,850
Net additions during the period......................... 110,011 88,317 22,264
----------- ----------- -----------
Balance at close of period.............................. $21,169,442 $21,059,431 $20,971,114
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
An additional allowance for loss on impairment of $2,000,000 was provided on
the above assets in 1995, bringing the total allowance for loss on impairment to
$4,745,000 as of September 30, 1995. See Note C of the financial statements in
the Registrant's Annual Report which is filed as an exhibit hereto.
The aggregate cost of land, buildings and improvements, and furniture and
fixtures for Federal income tax purposes for the tax year ended September 30,
1995 was $22,051,986.
NOTE B--RECONCILIATION SUMMARY OF TRANSACTIONS--ACCUMULATED DEPRECIATION
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period.......................... $ 4,174,673 $ 3,653,135 $ 3,131,669
Depreciation during the period charged to
expense............................................... 528,975 521,538 521,466
----------- ----------- -----------
Balance at close of period.............................. $ 4,703,648 $ 4,174,673 $ 3,653,135
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
NOTE C--The Eastgate, Quail Valley and Mt. Holly properties have been pledged
as collateral for the Registrant's $638,000 promissory note. See Note D
of the financial statements in the Registrant's Annual Report which is
filed as an exhibit hereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-3
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Eugene D. Burak Date: December 28, 1995
-----------------------------------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities (with respect to the General Partners) and on
the dates indicated.
By: Prudential-Bache Properties, Inc.,
A Delaware corporation,
Managing General Partner
By: /s/ Thomas F. Lynch Date: December 28, 1995
------------------------------------------------------------------
Thomas F. Lynch
President, Chief Executive Officer,
Chairman of the Board of Directors and Director
(Principal Executive Officer)
By: /s/ Barbara J. Brooks Date: December 28, 1995
------------------------------------------------------------------
Barbara J. Brooks
Vice President-Finance and
Chief Financial Officer
(Principal Financial Officer)
By: /s/ Eugene D. Burak Date: December 28, 1995
------------------------------------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the Registrant
By: /s/ Frank W. Giordano Date: December 28, 1995
------------------------------------------------------------------
Frank W. Giordano
Director
By: /s/ Nathalie P. Maio Date: December 28, 1995
------------------------------------------------------------------
Nathalie P. Maio
Director
1995
- ----------------------------------------------------------------
Prudential-Bache/ Annual
Watson & Taylor, Ltd.-3 Report
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
1995 Annual Report
(LOGO) 1211 Avenue of the Americas Phone: 212 403-5200
New York, New York 10036 Fax: 212 404-5700
REPORT OF INDEPENDENT AUDITORS
To the Partners
Prudential-Bache/Watson & Taylor, Ltd.-3
We have audited the accompanying statements of financial condition
of Prudential-Bache/Watson & Taylor, Ltd.-3 as of September 30, 1995
and 1994, and the related statements of operations, changes in partners'
capital, and cash flows for each of the three years in the period ended
September 30, 1995. These financial statements are the responsibility
of the Partnership's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial condition of Prudential-Bache/Watson
& Taylor, Ltd.-3 as of September 30, 1995 and 1994, and the results of
its operations and its cash flows for each of the three years in the period
ended September 30, 1995, in conformity with generally accepted accounting
principles.
Ernst & Young LLP
November 6, 1995
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
September 30,
---------------------------
1995 1994
<S> <C> <C>
- --------------------------------------------------------------------------------------------------
ASSETS
Investment in property:
Land $ 8,451,772 $ 8,451,772
Buildings and improvements 12,368,563 12,277,288
Furniture, fixtures and equipment 349,107 330,371
Less: Accumulated depreciation and amortization (4,703,648) (4,174,673)
Allowance for loss on impairment of assets (4,745,000) (2,745,000)
----------- -----------
Net investment in property 11,720,794 14,139,758
Cash and cash equivalents 1,008,091 708,909
Other assets 13,148 55,097
----------- -----------
Total assets $12,742,033 $14,903,764
----------- -----------
----------- -----------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Note payable $ 638,000 $ 638,000
Accounts payable and accrued expenses 157,860 279,503
Accrued real estate taxes 142,130 144,899
Deposits due to tenants 95,365 79,924
Due to affiliates 78,018 40,285
Unearned rental income 32,944 25,485
----------- -----------
Total liabilities 1,144,317 1,208,096
----------- -----------
Contingencies
Partners' capital
Limited partners (53,855 limited and equivalent units issued and
outstanding) 11,394,078 13,501,222
General partners 203,638 194,446
----------- -----------
Total partners' capital 11,597,716 13,695,668
----------- -----------
Total liabilities and partners' capital $12,742,033 $14,903,764
----------- -----------
----------- -----------
- --------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Rental income $ 1,953,727 $1,890,856 $1,834,820
Interest 18,910 11,738 12,663
Other 14,741 17,366 9,141
----------- ---------- ----------
1,987,378 1,919,960 1,856,624
----------- ---------- ----------
EXPENSES
Property operating 690,174 654,914 560,550
Depreciation and amortization 528,975 521,538 521,466
Real estate taxes 210,381 212,206 245,550
General and administrative 238,637 257,627 242,215
Interest 53,130 36,058 40,662
Provision for loss on impairment of assets 2,000,000 -- --
----------- ---------- ----------
3,721,297 1,682,343 1,610,443
----------- ---------- ----------
Net income (loss) $(1,733,919) $ 237,617 $ 246,181
----------- ---------- ----------
----------- ---------- ----------
ALLOCATION OF NET INCOME (LOSS)
Limited partners $(1,772,234) $ 182,100 $ 189,984
----------- ---------- ----------
----------- ---------- ----------
General partners $ 38,315 $ 55,517 $ 56,197
----------- ---------- ----------
----------- ---------- ----------
Net income (loss) per limited partnership unit $ (33.07) $ 3.40 $ 3.55
----------- ---------- ----------
----------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Partners' capital--September 30, 1992 $14,388,918 $192,343 $14,581,261
Net income 189,984 56,197 246,181
Distributions (658,024) (57,285) (715,309)
----------- -------- -----------
Partners' capital--September 30, 1993 13,920,878 191,255 14,112,133
Net income 182,100 55,517 237,617
Distributions (601,756) (52,326) (654,082)
----------- -------- -----------
Partners' capital--September 30, 1994 13,501,222 194,446 13,695,668
Net income (loss) (1,772,234) 38,315 (1,733,919)
Distributions (334,910) (29,123) (364,033)
----------- -------- -----------
Partners' capital--September 30, 1995 $11,394,078 $203,638 $11,597,716
----------- -------- -----------
----------- -------- -----------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended September 30,
-----------------------------------------
1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $ 2,018,576 $1,885,101 $1,804,988
Interest received 18,910 11,738 12,663
Other income received 14,741 17,366 9,141
Property operating expenses paid (818,900) (576,135) (498,474)
Real estate taxes paid (213,150) (222,935) (235,079)
General and administrative expenses paid (193,821) (259,751) (275,629)
Interest paid (53,130) (36,647) (29,479)
----------- ---------- ----------
Net cash provided by operating activities 773,226 818,737 788,131
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (110,011) (88,317) (22,264)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid (364,033) (687,731) (785,178)
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 299,182 42,689 (19,311)
Cash and cash equivalents at beginning of year 708,909 666,220 685,531
----------- ---------- ----------
Cash and cash equivalents at end of year $ 1,008,091 $ 708,909 $ 666,220
----------- ---------- ----------
----------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME (LOSS) TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income (loss) $(1,733,919) $ 237,617 $ 246,181
----------- ---------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 528,975 521,538 521,466
Provision for loss on impairment of assets 2,000,000 -- --
Changes in:
Other assets 41,949 (12,337) (30,529)
Accounts payable and accrued expenses (121,643) 77,452 82,810
Accrued real estate taxes (2,769) (10,729) 10,471
Due to affiliates 37,733 (1,386) (42,965)
Deposits due to tenants 15,441 22,086 (1,240)
Unearned rental income 7,459 (15,504) 1,937
----------- ---------- ----------
Total adjustments 2,507,145 581,120 541,950
----------- ---------- ----------
Net cash provided by operating activities $ 773,226 $ 818,737 $ 788,131
----------- ---------- ----------
----------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
SUPPLEMENTAL SCHEDULE OF NONCASH FINANCING ACTIVITIES
Distributions to partners $ (364,033) $ (654,082) $ (715,309)
Decrease in distribution payable -- (33,649) (69,869)
----------- ---------- ----------
Distributions paid to partners $ (364,033) $ (687,731) $ (785,178)
----------- ---------- ----------
----------- ---------- ----------
- ----------------------------------------------------------------------------------------------------
</TABLE>
The accompanying notes are an integral part of these statements
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
September 30, 1995
A. General
Prudential-Bache/ Watson & Taylor, Ltd.-3 (the ``Partnership'') is a Texas
limited partnership formed on November 13, 1984 which will terminate on December
31, 2050 unless terminated sooner under the provisions of the Amended and
Restated Certificate and Agreement of Limited Partnership (the ``Partnership
Agreement''). The Partnership was formed for the purpose of acquiring, owning,
developing and operating self-storage and office/showroom warehouse complexes;
investing in unimproved commercial properties; and investing in first lien
mortgage loans on existing or to-be-constructed commercial income-producing
properties. The general partners of the Partnership are Prudential-Bache
Properties, Inc. (``PBP''), a wholly-owned subsidiary of Prudential Securities
Group Inc., George S. Watson, and A. Starke Taylor, III (collectively, the
``General Partners''). PBP is the Managing General Partner and is responsible
for the day-to-day operations of the Partnership and its investments. At
September 30, 1995 the Partnership owned nine properties.
B. Summary of Significant Accounting Policies
Basis of accounting
The books and records of the Partnership are maintained on the accrual basis
of accounting in accordance with generally accepted accounting principles. The
Partnership's fiscal year for both book and tax purposes ends on September 30.
Certain balances from prior years have been reclassified to conform with the
current year's financial statement presentation.
Property and equipment
Property investments are carried at the lower of depreciated cost or
estimated amounts recoverable through future operations and ultimate disposition
of the property. Property investments are depreciated or amortized using the
straight-line method over their estimated economic lives which range from 5 to
25 years depending on property type. A valuation allowance is recorded when
estimated amounts recoverable through future operations and ultimate disposition
of the property are below depreciated cost.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards (``SFAS'') No. 121, ``Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of,'' which will be
adopted by the Partnership as of October 1, 1995 for its financial statements
for the year ended September 30, 1996. Under SFAS No. 121, impairment for
properties to be held and used is determined to exist when estimated amounts
recoverable through future operations on an undiscounted basis are below the
property's carrying value. If a property is determined to be impaired, it should
be recorded at the lower of its carrying value or its fair value. For properties
that are held for sale, SFAS No. 121 proscribes that they should be reported at
the lower of carrying amount or fair value less cost to sell. The Partnership
believes that the implementation of SFAS No. 121 will not have a material effect
on the Partnership's results of operations or financial position (see Note I).
Cash and cash equivalents
Cash and cash equivalents include money market funds whose cost approximates
market.
Income taxes
The Partnership is not required to provide for, or pay, any Federal or state
income taxes. Income tax attributes that arise from its operations are passed
directly to the individual partners. The Partnership may be subject to other
state and local taxes in jurisdictions in which it operates.
Profit and loss allocations and distributions
Net operating income before depreciation is allocated 92% to the limited
partners and 8% to the General Partners. Net operating loss, provision for loss
on impairment of assets, and depreciation are allocated 99% to the limited
partners and 1% to the General Partners.
Distributions of cash are made in accordance with the Partnership Agreement
and are allocated 92% to the limited partners and 8% to the General Partners.
Net income (loss) per limited partnership unit for the year ended September
30, 1995 is based on 53,585 limited and equivalent units outstanding, which
excludes 270 equivalent units held by PBP (see Note F) for which PBP has waived
all of its rights therein. Prior years' per unit amounts have been restated to
eliminate the equivalent units held by PBP.
C. Investment in Property
The Partnership's properties at September 30, 1995 and 1994 were:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Improved properties:
Barrow Road - Little Rock, Arkansas $ 2,632,627 $ 2,694,631
LaPrada - Mesquite, Texas 2,508,150 2,585,605
Tulsa Peoria - Tulsa, Oklahoma 1,405,517 1,474,119
Westheimer - Houston, Texas 1,768,887 1,823,370
Eastgate - Garland, Texas 1,552,174 1,595,311
Quail Valley - Missouri City, Texas 1,206,956 1,256,732
Mt. Holly - Mt. Holly, New Jersey 1,438,309 1,501,816
----------- -----------
12,512,620 12,931,584
----------- -----------
Unimproved properties:
I-35/I-20 - Dallas, Texas 2,609,671 2,609,671
Southlake - Southlake, Texas 1,343,503 1,343,503
----------- -----------
3,953,174 3,953,174
----------- -----------
Less: allowance for loss on impairment of
assets (4,745,000) (2,745,000)
----------- -----------
$11,720,794 $14,139,758
----------- -----------
----------- -----------
</TABLE>
Based upon estimated amounts recoverable through future operations and
ultimate disposition of the properties and a reduced holding period until the
properties are disposed of, an additional allowance for loss on impairment of
assets of $2,000,000 was recorded as of September 30, 1995.
D. Note Payable
On March 5, 1986, the Partnership purchased an 88.81% participating interest
in a $5,700,000 loan (the ``Loan'') from First Commonwealth Mortgage Trust (the
``Lender'') to TriProperties, Ltd. (the ``Borrower''), an affiliate of Messrs.
Watson and Taylor. The Loan was secured by the Mt. Holly, Eastgate and Quail
Valley properties (collectively, the ``Mortgaged Properties'').
On December 5, 1988, following the default by the Borrower under the Loan,
the Partnership and the Lender entered into an agreement whereby the Lender
assigned the note evidencing the Loan to the Partnership in exchange for the
Partnership's issuance to the Lender of a promissory note in the amount of
$638,000. The Partnership's promissory note bears interest, payable quarterly,
at a rate equal to 11.19% of net cash flow from the Mortgaged Properties and the
full amount thereof is due on January 30, 1999, the maturity date of the Loan.
Subsequently, the Partnership foreclosed and took title to each of the Mortgaged
Properties and granted a first lien on such properties to the Lender as
collateral for the Partnership's $638,000 promissory note.
Interest expense on the promissory note was $53,130, $36,058 and $40,662 for
the years ended September 30, 1995, 1994 and 1993, respectively.
E. Minimum Future Lease Revenues
The Partnership earns a portion of its rental income from month-to-month
leasing arrangements; however, the Partnership also has certain noncancellable
operating leases with tenants at the Partnership's properties. The minimum
future rental revenues receivable under these noncancellable operating leases at
the Partnership's improved properties are approximately $516,000 and $136,000
for the years ending September 30, 1996 and 1997, respectively.
F. Related Parties
PBP and its affiliates perform services for the Partnership which include,
but are not limited to: accounting and financial management, transfer and
assignment functions, asset management (including direct management of the
Partnership's unimproved properties), investor communications, printing and
other administrative services. PBP and its affiliates receive reimbursements for
costs incurred in connection with these services, the amount of which is limited
by the provisions of the Partnership Agreement. The costs and expenses incurred
on behalf of the Partnership which are reimbursable to PBP and its affiliates
for the years ended September 30, 1995, 1994 and 1993 were approximately
$97,000, $102,000, and $89,000, respectively.
Affiliates of Messrs. Watson and Taylor, the individual General Partners,
also perform certain administrative and monitoring functions on behalf of the
Partnership. The Partnership recorded $25,850 relating to the reimbursement for
these services for the period from November 1988 through December 1993 during
the three months ended March 31, 1994. Beginning January 1, 1994, the
Partnership has incurred $1,250 quarterly for the continuing reimbursement of
these services.
PBP and Messrs. Watson and Taylor, the individual General Partners of the
Partnership, own 270, 135 and 135 equivalent limited partnership units,
respectively. PBP receives funds from the Partnership, such as General Partner
distributions and reimbursement of expenses, but has waived all of its rights
resulting from its ownership of equivalent limited partnership units.
Accordingly, limited partner distributions per Unit and net income (loss) per
Unit are calculated net of 270 equivalent limited partnership Units.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 253
limited partnership units at September 30, 1995.
G. Income Taxes
The following is a reconciliation of net income (loss) for financial
reporting purposes to net income for tax reporting purposes for the years ended
September 30, 1995, 1994 and 1993, respectively:
<TABLE>
<CAPTION>
1995 1994 1993
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
Net income (loss) per financial statements $(1,733,919) $237,617 $246,181
Book depreciation and amortization in excess of tax 84,391 82,243 82,498
Carrying costs on land held for investment, capitalized for
tax purposes 53,926 54,303 54,812
Rent received in advance, reported as income for tax
purposes 32,944 25,485 40,989
Reversal of prior years' rents received in advance, reported
as taxable income in prior years (25,485) (40,989) (39,052)
Tax depreciation and amortization in excess of book (29,326) (31,529) (31,126)
Additional expenses included in taxable income (6,144) (6,022) (6,022)
Provision for loss on impairment of assets 2,000,000 -- --
----------- -------- --------
Tax basis net income $ 376,387 $321,108 $348,280
----------- -------- --------
----------- -------- --------
</TABLE>
The differences between the tax basis and book basis of partners' capital are
primarily attributable to the cumulative effect of book to tax income
adjustments.
H. Contingencies
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, a number of purported class actions then pending in various federal
district courts were transferred to a single judge of the United States
District Court for the Southern District of New York and consolidated for
pretrial proceedings under the caption In re Prudential Securities Incorporated
Limited Partnerships Litigation (MDL Docket No. 1005).
On June 8, 1994 plaintiffs in the transferred cases filed a complaint that
consolidated the previously filed complaints and named as defendants, among
others, PSI, certain of its present and former employees, and PBP. The
Partnership was not named a defendant in the consolidated complaint, but the
name of the Partnership was listed as being among the limited partnerships at
issue in the case. On August 9, 1995 PBP, PSI and other Prudential defendants
entered into a Stipulation and Agreement of Partial Compromise and Settlement
with legal counsel representing plaintiffs in the consolidated actions. The
court preliminarily approved the settlement agreement by order dated August 29,
1995 and, following a hearing held November 17, 1995, found that the agreement
was fair, reasonable, adequate and in the best interests of the plaintiff class.
The court gave final approval to the settlement, certified a class of purchasers
of specific limited partnerships, including the Partnership, released all
settled claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid by PSI.
I. Subsequent Event
In November 1995, distributions of approximately $67,000 and $6,000 were paid
to the Limited Partners and the General Partners, respectively, for the quarter
ended September 30, 1995.
J. Event Subsequent to Date of Auditors' Report
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all of the properties held by the Partnership. If acceptable
bids are received by the Partnership, the Partnership would enter into
agreements to sell the properties, subject to the approval of the limited
partners owning a majority of the Units, as required by the Partnership
Agreement. If such sales are approved and consummated, the Partnership would
liquidate and distribute its assets to its partners. There can, of course, be no
assurance that acceptable bids will be received or that any transactions will be
consummated.
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership owns and operates three office/showroom/warehouse facilities,
three mini-storage complexes, and one office facility, along with two parcels of
undeveloped land. On December 15, 1995, the Management Committee of the
Partnership determined to seek bids for all of the properties held by the
Partnership. If acceptable bids are received by the Partnership, the Partnership
would enter into agreements to sell the properties, subject to the approval of
the limited partners owning a majority of the Units, as required by the
Partnership Agreement. If such sales are approved and consummated, the
Partnership would liquidate and distribute its assets to its partners. There
can, of course, be no assurance that acceptable bids will be received or that
any transactions will be consummated.
During the year ended September 30, 1995 (``fiscal 1995''), the Partnership's
cash and cash equivalents increased by approximately $299,000 to $1,008,000 due
to cash flows from operations for the quarter ended September 30, 1995 in excess
of distributions and capital expenditures and cash retained for future property
improvements. Distributions paid during the year ended September 30,
1995 totaled approximately $364,000, of which $335,000 and $29,000 were
paid to the limited partners and General Partners, respectively. These
distributions were funded from cash generated by the operations of its
properties.
The Partnership believes that it will continue to be able to meet its cash
requirements in the foreseeable future with cash generated by the operations of
its properties. However, the Partnership's ability to make future distributions
to the partners and the amount of the distributions that may be made will be
affected by the amount of cash generated by the Partnership from operations of
the properties, the amount expended for capital improvements and the amount set
aside for budgeted capital improvements.
Capital improvements are currently budgeted at approximately $256,000 for
calendar year 1996. Included in the calendar year 1996 budget, is an estimate
for a roof replacement at the Eastgate property, the need for which has been
accelerated by storm damage.
Results of Operations
Average occupancies for the years ended September 30, 1995, 1994 and 1993
were as follows:
<TABLE>
<CAPTION>
Property 1995 1994 1993
<S> <C> <C> <C>
-------------------------------------------------------------------------
Barrow Road 91% 92% 89%
La Prada 93 95 94
Tulsa Peoria 87 90 94
Westheimer 76 81 83
Eastgate 99 96 90
Quail Valley 100 98 94
Mt. Holly 93 88 83
</TABLE>
(Occupancies are calculated by dividing occupied units by available units.)
1995 vs. 1994
Net income decreased by approximately $1,972,000 for fiscal 1995 as compared
to the year ended September 30, 1994 (``fiscal 1994'') primarily due to the
additional $2,000,000 allowance for loss on impairment of assets as further
discussed in Note C to the financial statements. Before the provision for loss
on impairment of assets, net income increased by approximately $28,000 for
fiscal 1995 as compared to fiscal 1994 for the reasons discussed below.
Rental income increased by approximately $63,000 for fiscal 1995 as compared
to fiscal 1994. Rental income increased at the Eastgate, Quail Valley, and Mt.
Holly properties primarily due to increased average occupancies. Rental income
was up at Tulsa Peoria and Barrow Road due to increased rental rates. Rental
income at La Prada and Westheimer remained stable as lower occupancies offset
higher rental rates.
Interest income increased approximately $7,000 during fiscal 1995 as compared
to fiscal 1994 because of increases in average cash balances available to be
invested in short-term investments.
Property operating expenses increased approximately $35,000 during fiscal
1995 as compared to fiscal 1994 primarily due to increases in property payroll
costs at Westheimer, Tulsa Peoria, La Prada, and Quail Valley partially offset
by decreases in repairs and maintenance and utilities expenses at the majority
of the properties.
General and administrative expenses decreased approximately $19,000 during
fiscal 1995 as compared to fiscal 1994 primarily due to the accrual of prior
periods' general, administrative and monitoring expense reimbursements in the
second quarter of fiscal 1994 as further discussed in Note F to the financial
statements offset by increased professional fees and by increased office
expenses at the property level.
Interest expense on the Partnership's note payable is calculated as a
percentage of net cash flow from the three properties (Eastgate, Quail Valley
and Mt. Holly) which collateralize the note. Interest expense increased by
approximately $17,000 in fiscal 1995 as compared to fiscal 1994 as a result of
increased cash flows from operations at the three properties.
1994 vs. 1993
Net income decreased by approximately $9,000 for fiscal 1994 as compared to
the year ended September 30, 1993 (``fiscal 1993'') for the reasons discussed
below.
Rental income increased approximately $56,000 for fiscal 1994 as compared to
fiscal 1993 primarily due to additional revenue derived from the Quail Valley,
Eastgate and Mt. Holly properties resulting from increased average occupancies.
Rental income at the Barrow Road, Westheimer and La Prada properties remained
stable from year to year. Rental income at the Tulsa Peoria property decreased
due to lower average occupancies.
Other income increased approximately $8,000 during fiscal 1994 as compared to
fiscal 1993 primarily due to billboard advertising revenue recognized during the
current period.
Property operating expenses increased by approximately $94,000 during fiscal
1994 as compared to fiscal 1993 due to increases in repairs and maintenance,
property-related payroll expenses and leasing commissions of approximately
$41,000, $26,000, and $9,000, respectively, as well as increases in insurance
and utilities of approximately $7,000 and $21,000, respectively, due to higher
rates.
Real estate taxes decreased approximately $33,000 due to reassessed property
values, and to a lesser extent, lower tax rates during fiscal 1994.
General and administrative expenses increased by approximately $15,000 in
fiscal 1994 as compared to fiscal 1993 primarily due to the accrual of current
and prior periods' general, administrative and monitoring expense reimbursements
in the second quarter of fiscal 1994 as further discussed in Note F to the
financial statements. This increase was partially offset by lower professional
fees.
OTHER INFORMATION
The Partnership's Annual Report on Form 10-K as filed with the Securities and
Exchange Commission is available to limited partners without charge upon written
request to:
Prudential-Bache/Watson & Taylor, Ltd.-3
P.O. Box 2016
Peck Slip Station
New York, NY 10272-2016
Prudential Securities Incorporated BULK RATE
Peck Slip Station U.S. POSTAGE
P.O. Box 2016 PAID
New York, NY 10272 Automatic Mail
PBW&T3/35643/171666
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for P-B/Watson & Taylor, Ltd.-3
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000759726
<NAME> P-B/Watson & Taylor, Ltd.-3
<MULTIPLIER> 1
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-START> OCT-1-1994
<PERIOD-END> SEP-30-1995
<PERIOD-TYPE> 12-Mos
<CASH> 1,008,091
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 13,148
<PP&E> 11,720,794
<DEPRECIATION> 528,975
<TOTAL-ASSETS> 12,742,033
<CURRENT-LIABILITIES> 506,317
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 11,597,716
<TOTAL-LIABILITY-AND-EQUITY> 12,742,033
<SALES> 0
<TOTAL-REVENUES> 1,987,378
<CGS> 0
<TOTAL-COSTS> 1,721,297
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 2,000,000
<INTEREST-EXPENSE> 53,130
<INCOME-PRETAX> (1,733,919)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,733,919)
<EPS-PRIMARY> (33.07)
<EPS-DILUTED> 0
</TABLE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number: 0-14397
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Texas 75-1991528
- --------------------------------------------------------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Seaport Plaza, New York, NY 10292-0116
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (212) 214-1016
N/A
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since last
report.
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes _CK_ No __
<PAGE>
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
<TABLE>
<CAPTION>
March 31, September 30,
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
ASSETS
Property held for sale $11,621,767 $11,720,794
Cash and cash equivalents 1,119,258 1,008,091
Other assets 1,989 13,148
----------- -------------
Total assets $12,743,014 $12,742,033
----------- -------------
----------- -------------
LIABILITIES AND PARTNERS' CAPITAL
Liabilities
Note payable $ 638,000 $ 638,000
Accounts payable and accrued expenses 198,072 157,860
Accrued real estate taxes 135,535 142,130
Deposits due to tenants 101,677 95,365
Due to affiliates, net 53,167 78,018
Unearned rental income 27,163 32,944
----------- -------------
Total liabilities 1,153,614 1,144,317
----------- -------------
Partners' capital
Limited partners (53,855 limited and equivalent units issued and
outstanding) 11,376,890 11,394,078
General partners 212,510 203,638
----------- -------------
Total partners' capital 11,589,400 11,597,716
----------- -------------
Total liabilities and partners' capital $12,743,014 $12,742,033
----------- -------------
----------- -------------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
2
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended Three Months Ended
March 31, March 31,
----------------------- ---------------------
1996 1995 1996 1995
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------
REVENUES
Rental income $1,008,409 $959,804 $513,050 $482,464
Interest 12,862 8,266 6,350 4,261
Other 7,546 7,129 3,512 4,188
---------- -------- -------- --------
1,028,817 975,199 522,912 490,913
---------- -------- -------- --------
EXPENSES
Property operating 369,190 350,850 177,353 175,596
General and administrative 229,365 116,394 150,437 58,075
Real estate taxes 133,197 102,693 60,316 55,143
Depreciation 136,271 261,476 -- 131,074
Interest 23,501 24,539 11,762 11,418
---------- -------- -------- --------
891,524 855,952 399,868 431,306
---------- -------- -------- --------
Net income $ 137,293 $119,247 $123,044 $ 59,607
---------- -------- -------- --------
---------- -------- -------- --------
ALLOCATION OF NET INCOME
Limited partners $ 116,771 $ 91,404 $113,200 $ 45,663
---------- -------- -------- --------
---------- -------- -------- --------
General partners $ 20,522 $ 27,843 $ 9,844 $ 13,944
---------- -------- -------- --------
---------- -------- -------- --------
Net income per limited partnership unit $ 2.18 $ 1.71 $ 2.11 $ .85
---------- -------- -------- --------
---------- -------- -------- --------
- ----------------------------------------------------------------------------------------------------
</TABLE>
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
(Unaudited)
<TABLE>
<CAPTION>
LIMITED GENERAL
PARTNERS PARTNERS TOTAL
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Partners' capital--September 30, 1995 $11,394,078 $203,638 $11,597,716
Net income 116,771 20,522 137,293
Distributions (133,959) (11,650) (145,609)
----------- -------- -----------
Partners' capital--March 31, 1996 $11,376,890 $212,510 $11,589,400
----------- -------- -----------
----------- -------- -----------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
3
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
March 31,
------------------------
1996 1995
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Rental income and deposits received $1,020,099 $ 958,276
Interest received 12,862 8,266
Other income received 7,546 7,129
Property operating expenses paid (365,651) (441,914)
Real estate taxes paid (139,792) (174,443)
General and administrative expenses paid (213,196) (113,146)
Interest paid (27,848) (24,539)
---------- ---------
Net cash provided by operating activities 294,020 219,629
CASH FLOWS FROM INVESTING ACTIVITIES
Property improvements (37,244) (43,229)
CASH FLOWS FROM FINANCING ACTIVITIES
Distributions paid to partners (145,609) (218,417)
---------- ---------
Net increase (decrease) in cash and cash equivalents 111,167 (42,017)
Cash and cash equivalents at beginning of period 1,008,091 708,909
---------- ---------
Cash and cash equivalents at end of period $1,119,258 $ 666,892
---------- ---------
---------- ---------
- ---------------------------------------------------------------------------------------------------
RECONCILIATION OF NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES
Net income $ 137,293 $ 119,247
---------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 136,271 261,476
Changes in:
Other assets 11,159 4,770
Accounts payable and accrued expenses 40,212 (106,716)
Accrued real estate taxes (6,595) (71,750)
Due to affiliates, net (24,851) 18,900
Deposits due to tenants 6,312 (10,279)
Unearned rental income (5,781) 3,981
---------- ---------
Total adjustments 156,727 100,382
---------- ---------
Net cash provided by operating activities $ 294,020 $ 219,629
---------- ---------
---------- ---------
- ---------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of these statements
</TABLE>
4
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
(Unaudited)
A. General
These financial statements have been prepared without audit. In the opinion
of Prudential-Bache Properties, Inc. (``Managing General Partner'') (``PBP''),
the financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position of
Prudential-Bache/Watson & Taylor, Ltd.-3 (the ``Partnership'') as of March 31,
1996 and the results of its operations for the six and three months ended March
31, 1996 and 1995, and its cash flows for the six months ended March 31, 1996
and 1995. However, the operating results for the interim periods may not be
indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted accounting
principles have been omitted. It is suggested that these financial statements be
read in conjunction with the financial statements and notes thereto included in
the Partnership's Annual Report on Form 10-K filed with the Securities and
Exchange Commission for the year ended September 30, 1995.
On December 15, 1995, the Management Committee of the Partnership determined
to seek bids for all of the properties held by the Partnership. The Partnership
is continuing the process of attempting to sell the properties held by the
Partnership. However, there can be no assurances that any transactions will be
consummated. The limited partners will be advised if the Partnership enters into
a definitive agreement to sell the properties. Accordingly, effective December
31, 1995, the Partnership has reclassified its properties to held for sale and
has ceased depreciating the properties for financial statement purposes only.
Properties held for sale are recorded at the lower of the carrying amount or the
estimated fair value less costs to sell.
B. Related Parties
PBP and its affiliates perform services for the Partnership which include,
but are not limited to: accounting and financial management, transfer and
assignment functions, asset management, investor communications, printing and
other administrative services. PBP and its affiliates receive reimbursements for
costs incurred in connection with these services, the amount of which is limited
by the provisions of the Partnership Agreement. The costs and expenses incurred
on behalf of the Partnership which are reimbursable to PBP and its affiliates
for the six and three months ended March 31, 1996 were approximately $60,000 and
$28,000, respectively. Similar costs for the six and three months ended March
31, 1995 were $54,000 and $34,000, respectively.
Affiliates of Messrs. Watson and Taylor, the individual General Partners,
also perform certain administrative and monitoring functions on behalf of the
Partnership. Relating to the reimbursement of these services, the Partnership
recorded $15,000 and $6,600 for the six and three months ended March 31, 1996,
respectively. Similar costs for the six and three months ended March 31, 1995
were $2,500 and $1,250, respectively.
PBP and the individual General Partners of the Partnership own 270, 135 and
135 equivalent limited partnership units, respectively. PBP receives funds from
the Partnership, such as General Partner distributions and reimbursement of
expenses, but has waived all of its rights resulting from its ownership of
equivalent limited partnership units. Accordingly, the 270 units owned by PBP
have been excluded from the calculation of net income per limited partner unit
and distributions per limited partnership unit.
Prudential Securities Incorporated (``PSI''), an affiliate of PBP, owns 253
limited partnership units at March 31, 1996.
C. Subsequent Event
The unimproved property in Southlake, Texas (``Southlake'') was sold on April
25, 1996 for a gross sales price of $1,013,000 less costs to sell.
5
<PAGE>
<PAGE>
In May 1996, distributions of approximately $67,000 and $6,000 were paid to
the limited partners and the General Partners, respectively, for the quarter
ended March 31, 1996. Also in May 1996, a special distribution of approximately
$1,000,000 was paid to the limited partners representing the net proceeds from
the sale of Southlake.
6
<PAGE>
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
(a limited partnership)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Liquidity and Capital Resources
The Partnership owns and operates three office/showroom/warehouse facilities,
three mini-storage complexes and one office facility, along with two parcels of
undeveloped land. On December 15, 1995, the Management Committee of the
Partnership determined to seek bids for all of the properties held by the
Partnership. The Partnership is continuing the process of attempting to sell the
properties held by the Partnership. However, there can be no assurances that any
transactions will be consummated. The limited partners will be advised if the
Partnership enters into a definitive agreement to sell the properties.
During the six months ended March 31, 1996, the Partnership's cash and cash
equivalents increased by approximately $111,000 due to cash flow from property
operations in excess of distributions and capital expenditures. Distributions
made during the three months ended March 31, 1996 totaled approximately $73,000
of which $67,000 and $6,000 were paid to the limited partners and General
Partners, respectively. These distributions were funded from current and prior
periods' property operations.
The Partnership's ability to make future distributions to the partners and
the amount that may be made will be affected not only by the amount of cash
generated by the Partnership from the operations of its properties including the
amount expended for property improvements, but also by the amount from and the
timing of any sale of the Partnership's properties.
Results of Operations
Average occupancy rates for the six months ended March 31, 1996 and 1995 were
as follows:
<TABLE>
<CAPTION>
March 31,
--------------------
Property 1996 1995
<S> <C> <C>
- ------------------------------------------------------------------------------------
Barrow Road 95.2% 90.3%
La Prada 94.5 93.2
Tulsa Peoria 95.2 91.1
Westheimer 82.9 77.7
Eastgate 95.8 98.0
Quail Valley 99.6 100.0
Mt. Holly 86.9 92.3
- ------------------------------------------------------------------------------------
(Average occupancy rates are calculated by averaging the monthly occupancies deter-
mined by dividing occupied square footage by available square footage as of each
month-end.)
</TABLE>
Net income increased by approximately $18,000 and $63,000 for the six and
three months ended March 31, 1996, respectively, as compared to the
corresponding periods in 1995 primarily for the reasons discussed below.
Rental income increased by approximately $49,000 and $31,000 for the six and
three months ended March 31, 1996, respectively, as compared to the same periods
in fiscal 1995 primarily due to increased revenue at the Barrow Road, La Prada
and Westheimer properties as a result of increased rental rates and average
occupancies. Rental income at the remaining properties remained relatively
stable for the six and three months ended March 31, 1996 as compared to the same
periods in 1995.
Property operating expenses increased by approximately $18,000 and $2,000 for
the six and three months ended March 31, 1996, respectively, as compared to the
same periods in 1995 due to increases in property payroll costs and insurance
expense partially offset by decreased repairs and maintenance expense at all
properties except Tulsa Peoria and Mt. Holly.
General and administrative expenses increased by approximately $113,000 and
$92,000 for the six and three months ended March 31, 1996, respectively, as
compared to the same periods in 1995. This variance
7
<PAGE>
was primarily due to increased professional fees and other costs relating to the
anticipated solicitation of the consent of the limited partners for the
potential sale of the properties.
Real estate taxes increased by approximately $31,000 and $5,000 for the six
and three months ended March 31, 1996, respectively, as compared to the same
periods in 1995. This was due to higher actual payments made during the first
quarter of 1996 for 1995 taxes which were higher than had been accrued for in
1995 as well as a proportionate increase in tax accruals for 1996.
Depreciation expense decreased by approximately $125,000 and $131,000,
for the six and three months ended March 31, 1996, respectively,
as compared to the corresponding periods in 1995 due to the reclassification of
the Partnership's properties from held for use to held for sale as of December
31, 1995. Under generally accepted accounting principles, such properties are no
longer depreciated and therefore no depreciation expense has been recorded for
the three months ended March 31, 1996.
8
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings--None
Item 2. Changes in Securities--None
Item 3. Defaults Upon Senior Securities--None
Item 4. Submission of Matters to a Vote of Security Holders--None
Item 5. Other Information--None
Item 6. (a) Exhibits
Description:
3.01 Amended and Restated Certificate and Agreement of Limited
Partnership (filed as an exhibit to Registration Statement on Form
S-11 (No. 2-94976) and incorporated herein by reference)
3.02 Amendment to the Amended and Restated Certificate and
Agreement of Limited Partnership (filed as an exhibit to
Registrant's Form 10-K for the year ended September 30, 1989
and incorporated herein by reference)
4.01 Certificate of Limited Partnership interest (filed as an
exhibit to Registration Statement on Form S-11 (No.
2-94976) and incorporated herein by reference)
27.1 Financial Data Schedule (filed herewith)
(b) Reports on Form 8-K--None
9
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Prudential-Bache/Watson & Taylor, Ltd.-3
By: Prudential-Bache Properties, Inc.
A Delaware corporation,
Managing General Partner
By: /s/ Eugene D. Burak Date: May 15, 1996
----------------------------------------
Eugene D. Burak
Vice President
Chief Accounting Officer for the
Registrant
10
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
The Schedule contains summary financial
information extracted from the financial
statements for P-B Watson & Taylor, Ltd. 3
and is qualified in its entirety by reference
to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000759726
<NAME> P-B Watson & Taylor, Ltd. 3
<MULTIPLIER> 1
<FISCAL-YEAR-END> Sep-30-1996
<PERIOD-START> Oct-01-1995
<PERIOD-END> Mar-31-1996
<PERIOD-TYPE> 6-Mos
<CASH> 1,119,258
<SECURITIES> 0
<RECEIVABLES> 1,989
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,121,247
<PP&E> 16,461,686
<DEPRECIATION> (4,839,919)
<TOTAL-ASSETS> 12,743,014
<CURRENT-LIABILITIES> 515,614
<BONDS> 638,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 1,153,614
<SALES> 0
<TOTAL-REVENUES> 1,028,817
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 868,023
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,501
<INCOME-PRETAX> 137,293
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 137,293
<EPS-PRIMARY> 2.18
<EPS-DILUTED> 0
</TABLE>
CONTRACT OF SALE
THIS CONTRACT, made as of June 10, 1996, by and
between Prudential-Bache/Watson & Taylor, Ltd.-3, a Texas
limited partnership ("SELLER"), and Public Storage Inc., a
California corporation ("BUYER").
W I T N E S S E T H:
WHEREAS, Seller desires to sell and Buyer desires
to purchase (i) all of Seller's right, title and interest in
the real properties and improvements and any fixtures and
personalty, if any, presently existing and located thereon,
more particularly described on EXHIBIT A attached hereto
together with all rights and appurtenances pertaining there-
to and (ii) all of Seller's right, title and interest in
and to all other items set forth on Exhibit A attached
hereto (each individually, a "PROPERTY", and, collectively,
the "Properties"), all upon the terms and subject to the
conditions hereinafter set forth; and
WHEREAS, following such sale, Seller intends to
liquidate and distribute its net assets (including the
proceeds of such sale) to its partners.
NOW, THEREFORE, in consideration of the foregoing,
the sum of $1.00 by each party in hand paid to the other,
and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties
hereto, intending to be legally bound, do hereby mutually
agree as follows:
1. Agreement to Purchase and Sell. Subject to
the terms and conditions hereinafter set forth, Seller
agrees to sell to Buyer and Buyer agrees to purchase from
Seller, free and clear of all liens, claims, encumbrances
and other charges, except the Permitted Exceptions (as
hereinafter defined), all of Seller's right, title and
interest in and to the Properties.
2. Purchase Price. The purchase price ("PUR-
CHASE PRICE") for the Properties, which Buyer agrees to pay,
is the sum of $11,050,000 payable as follows:
(a) $828,750 as the downpayment (the
"DOWNPAYMENT"), upon the execution of this Contract by wire
transfer of immediately available federal funds to the
account of Escrow Agent (as hereinafter defined), to be held
by the Escrow Agent in accordance with this Section 2.
(b) The remainder of the Purchase Price
at Closing (as hereinafter defined), by wire transfer of
immediately available federal funds to Escrow Agent's ac-
count pursuant to Seller's instructions.
Chicago Title Insurance Company shall act as
escrow agent (the "ESCROW AGENT") and shall hold the
Downpayment in accordance with the provisions of the agree-
ment annexed hereto as EXHIBIT B, which agreement is being
executed simultaneously with this Contract.
(c) Any other provision hereof to the con-
trary notwithstanding, it is expressly understood and agreed
that, in consideration of the execution of this Contract by
Seller and to support Seller's covenants and agreements in
this Agreement through the Inspection Period (as hereinafter
defined), in the event that Buyer exercises any right to
terminate this Contract as set forth herein, Escrow Agent
shall disburse the sum of One Hundred and No/100 Dollars
($100.00) ("INDEPENDENT CONSIDERATION") from the Downpayment
to Seller before disbursing the balance of the Downpayment
to Buyer. The Independent Consideration is in addition to
and independent of any other consideration or payment pro-
vided for in this Contract, is non-refundable and shall be
paid to Seller notwithstanding any other provision of this
Contract.
Any interest earned on the Downpayment shall be
paid to Buyer. At the Closing, such interest shall be a
credit against the Purchase Price.
3. Evidence of Title. (a) Seller shall convey
to Buyer at Closing (as hereinafter defined) good, valid,
marketable, indefeasible and insurable fee simple title to
the Properties, subject to any and all covenants, condi-
tions, rights of way, restrictions, easements and other
matters affecting title, which do not materially impair the
use or the value of the Property to which they relate (col-
lectively, the "PERMITTED EXCEPTIONS") provided however the
Permitted Exceptions shall expressly exclude any Unpermitted
Exceptions (as hereinafter defined).
(b) As used herein, the term "Unpermitted
Exception" shall mean with respect to any Property (provided
the same is not caused by the actions of Buyer):
(A) Any building encroachment or sign en-
croachment (i) on real estate not owned by Seller, (ii)
on a setback line, or (iii) in violation of a binding
easement burdening the Property, in each case which
materially impairs the use or value of the Property;
(B) Any defect in the Seller's chain of
title which would prevent Seller from being able to
convey title to the Property in fee simple at Closing
under the laws of the State in which the Property is
located, unless the Title Insurer is willing to issue a
policy of title insurance which contains affirmative
coverage for claims arising solely out of such defect;
(C) Any easement which burdens the Property
such that access or use is compromised, in each case
which materially impairs the use, access or value of
the Property;
(D) Any lack of access or easements neces-
sary to operate the Property in the manner which such
Property has been operated by Seller prior to Closing,
in each case which materially impairs the use, access
or value of the Property;
(E) Any liens for the payment of money other
than real estate taxes, association assessments, spe-
cial district taxes and related charges not yet due and
payable; and
(F) Any standard printed exceptions on the
title commitments which can be removed by an affidavit
or delivery to the Title Insurer of an appropriate
Survey (as hereinafter defined);
(G) (i) the failure to be in material confor-
mance with the then applicable local zoning codes or
deed restrictions, (ii) if a Property is not in confor-
mance with the then applicable local zoning codes, the
failure of such Property to have the status equivalent
to a "non-conforming use" and (iii) the existence of a
permanent and final order by the applicable local
jurisdiction which materially impairs the use or value
of the Property.
(c) Seller shall deliver to Buyer,
within twenty days after the date hereof, (i) commitments
for ALTA policies of owners title insurance (the "TITLE
COMMITMENTS") issued by Chicago Title Insurance Company
through Title Associates Inc. 430 Park Avenue New York, New
York 10022, as the Title Insurer's authorized Agent, showing
fee simple title to the Properties as vested in Seller and
to be vested in Buyer, subject to the Permitted Exceptions
and (ii) current surveys prepared by licensed public land
surveyors according to ALTA standards showing the boundaries
of the Properties, the location of any easements, rights-of-
ways, improvements, encroachments thereon, all matters on
the Title Commitments which can be shown and, certifying the
number of acres if possible (to the nearest one thousandth
acre) comprising the Properties (the "Surveys"). Within
twenty days after the delivery of the Title Commitments,
legible copies of all items referenced therein and the
Surveys, Buyer shall deliver to Seller written notice set-
ting forth its objections to any matters encumbering the
Properties including any Unpermitted Exceptions other than
the Permitted Exceptions collectively ("Title Defects") and
within the time frames set forth below any Environmental
Defects (as hereinafter defined). The Title Defects and the
Environmental Defects are sometimes referred to herein as,
the "DEFECTS." With respect to Title Defects Seller shall
have the option to (i) cure any or all of the Title Defects
prior to Closing, (ii) remove such Property from the trans-
action and adjust the Purchase Price as provided hereafter
on Exhibit C (iii) grant Buyer a credit against the Purchase
Price equal to the cost to cure such Title Defects or (iv)
terminate this Contract, in which latter event, provided
that Buyer is not in default hereunder, the Downpayment,
together with any interest thereon, shall be returned to
Buyer. With respect to any Environmental Defect, Seller
shall have the option to (i) cure any or all of the Environ-
mental Defects prior to Closing, or (ii) grant Buyer a
credit against the Purchase Price equal to the cost to cure
such Environmental Defects. If the cost to correct any
Environmental Defect exceeds 10% of the allocated value of
the affected Property as set forth in Exhibit C attached
hereto and made a part hereof, Seller shall have the option
to remove such affected Property from the transaction con-
templated hereby, and adjust the Purchase Price as provided
hereafter on Exhibit C. Notwithstanding anything herein to
the contrary, (i) Seller shall have the right to adjourn the
Closing Date for such reasonable period, not to exceed sixty
days, as shall be necessary to cure any such Defect and (ii)
Seller shall have the right, subject to the terms and condi-
tions hereof, to cause the Closing to take place with re-
spect to the other Properties and then to cause the Closing
to take place with respect to the affected Property within
such reasonable period, not to exceed thirty days, as shall
be necessary to cure any such Defect. The term "Environmen-
tal Defect" shall mean "Hazardous Materials" (hereinafter
defined) located in, on or under any one of the Real Proper-
ties in violation of any Environmental Laws (hereinafter
defined).
In order to establish an Environmental Defect,
Buyer shall be required to deliver to Seller on or prior to
10 days after (i) Buyer's receipt of the Phase I environmen-
tal site assessment for each Property or (ii) if applicable
Buyers receipt of a final Phase II environmental assessment
prepared by LAW (as hereinafter defined) for any Property,
reasonably detailing any Environmental Defect. Buyer and
Seller shall make reasonable efforts to agree as to the
existence of and the cost to cure any Environmental Defect.
If Buyer and Seller do not agree on the foregoing within 15
days after Seller's receipt of Buyer's notice described
above, then the parties shall submit the matter to binding
arbitration in accordance with the terms hereof. As used
herein, "Environmental Laws" means all federal, state and
local statutes, codes, regulations, rules, ordinances,
orders, standards, permits, licenses, policies and require-
ments (including consent decrees, judicial decisions and
administrative orders) relating to the protection, preserva-
tion, remediation or conservation of the environment or
worker health or safety, all as amended or reauthorized, or
as hereafter amended or reauthorized, including without
limitation, the Comprehensive Environmental Response, Com-
pensation and Liability Act ("CERCLA"), 42 U.S.C. Section
9601 et seq., the Resource Conservation and Recovery Act of
1976 ("RCRA"), 42 U.S.C. Section 6901 et seq., the Emergency
Planning and Community Right-to-Know Act ("Right-to-Know
Act"), 42 U.S.C. Section 11001 et seq., the Clean Air Act
("CAA), 42 U.S.C. Section 7401 et seq., the Federal Water
Pollution Control Act ("Clean Water Act"), 33 U.S.C. Section
1251 et seq., the Toxic Substances Control Act ("TSCA"), 15
U.S.C. Section 2601 et seq., the Safe Drinking Water Act
("Safe Drinking Water Act"), 42 U.S. C. Section 300f et
seq., the Atomic Energy Act ("AEA"), 42 U.S.C. Section 2011
et seq., the Occupational Safety and Health Act ("OSHA"), 29
U.S.C. Section 651 et seq., and the Hazardous Materials
Transportation Act (the "Transportation Act"), 49 U.S.C.
Section 1802 et seq. As used herein, "Hazardous Materials"
means: (1) "hazardous substances," as defined by CERCLA; (2)
"hazardous wastes," as defined by RCRA; (3) any radioactive
material including, without limitation, any source, special
nuclear or by-product material, as defined by AEA; (4)
friable asbestos; (5) polychlorinated biphenyls; and (6) any
other material, substance or waste regulated under any
Environmental Laws.
If any dispute between the parties is required by
the terms of this Contract to be submitted to arbitration.
Then such matter shall be submitted to binding arbitration
by the American Arbitration Association (the "Association")
(or any successor organization) (provided that, in the event
of a dispute as to an Environmental Defect, the arbitration
shall be performed by a reputable arbitrator with at least
10 years experience in environmental matters). All arbitra-
tion shall be finally determined in New York City and shall
be governed (except as provided above) in accordance with
the Rules for Commercial Arbitration of the Association (or
any successor thereto) and the judgment or the award ren-
dered may be entered in any court having jurisdiction. Each
party shall pay 50% of the fees and expenses of the Associa-
tion. The Closing Date shall be adjourned with respect to
the Property involved in any dispute (or, at Seller's or
Buyer's option, all of the Properties if the dispute in-
volves three or more Properties) pending resolution of the
matter in dispute. Upon resolution of such dispute Seller
shall take whatever action Seller is required to take pursu-
ant to this Contract or the final determination of an arbi-
trator.
4. Condition of the Properties. Subject only to
Seller's covenants, representations and warranties in this
Contract, Buyer shall purchase the Properties in their "AS
IS" condition at the Closing Date, subject to all latent and
patent defects (whether physical, financial or legal, in-
cluding title defects), based solely on Buyer's own inspec-
tion, analysis and evaluation of the Properties and not in
reliance on any records or other information obtained from
Seller or on Seller's behalf. Buyer acknowledges that it is
not relying on any statement or representation (other than
any representations, warranties, covenants and indemnifica-
tions contained in this Contract) that has been made or that
in the future may be made by Seller or any of Seller's
employees, agents, attorneys or representatives concerning
the condition of the Properties (whether relating to physi-
cal conditions, operating performance, title, or legal
matters). Without limiting the foregoing, any information
disclosed in writing to Buyer in connection with any inves-
tigations, inspections, tests or analyses performed prior to
Closing, shall be deemed acceptable to Buyer, and not viola-
tive of any warranty or representation of Seller, if Buyer
proceeds to Closing hereunder.
5. Closing. Upon the terms and subject to the
conditions of this Contract, the transfer of title and
possession of the Properties (the "CLOSING") shall be held
at the offices of Skadden, Arps, Slate, Meagher & Flom, 919
Third Avenue, New York, New York 10022, or as a closing by
mail at the offices of the Escrow Agent, 388 Market Street,
San Francisco, California, Attention: Michelle Viguie,
unless otherwise agreed in writing, at 10:00 a.m., local
time, on the date which is 3 business days after all of the
conditions to Closing as set forth in Sections 6, 7 and 8
hereof have been satisfied. The date on which the Closing
occurs is herein called the "Closing Date".
6. Conditions to Seller's and Buyer's Obligation
to Close. The obligations of Seller and Buyer to close
under this Contract are subject to the fulfillment, prior to
or at Closing, of each of the following:
(a) Seller shall have obtained consents
to the sale of the Properties (the "PARTNERSHIP CONSENT") as
provided by the terms of that certain Amended and Restated
Certificate and Agreement of Limited Partnership of Seller
dated as of March 18, 1985 including any amendments, the
"PARTNERSHIP AGREEMENT") and applicable law.
(b) There shall not be in effect any
statute, regulation, order, decree or judgment of any gov-
ernmental entity having jurisdiction which renders illegal
or enjoins or prevents in any material respect the sale of
the Properties to Buyer.
7. Conditions to Seller's Obligation to Close.
The obligations of Seller to close under this Contract are
subject to the fulfillment, prior to or at Closing, of each
of the following:
(a) The representations and warranties
of Buyer shall have been true and correct in all material
respects when made and shall be true and correct in all
material respects as of the Closing Date, as if made at and
as of such date except as otherwise expressly provided
herein.
(b) On and as of the Closing Date,
Buyer shall have performed and complied with, in all materi-
al respects, all agreements and covenants required by this
Contract to be performed or complied with prior to or on the
Closing Date.
8. Conditions to Buyer's Obligation to Close.
The obligations of Buyer to close under this Contract are
subject to the fulfillment, prior to or at Closing, of each
of the following:
(a) The representations and warranties of
Seller shall have been true and correct in all material
respects when made and shall be true and correct in all
material respects as of the Closing Date, as if made at and
as of such date except as otherwise expressly provided
herein.
(b) On and as of the Closing Date, Seller
shall have performed and complied with, in all material
respects, all agreements and covenants required by this
Contract to be performed or complied with prior to or on the
Closing Date.
9. Deliveries.
(a) Seller's Deliveries. Upon the terms and
subject to the conditions of this Contract, on the Closing
Date (or such other date may be expressly provided), Seller
shall convey each Property and its related interests to
Buyer by delivery of the following documents which documents
shall be in form and substance reasonably acceptable to both
Buyer and Seller:
(i) quit claim deed or deed without
covenants if a quit claim deed can not be utilized in a
jurisdiction where a Property is located; so long as the
Title Insurer is willing to issue a policy of title insur-
ance which is customary in the applicable jurisdiction
containing no exceptions from coverage solely out of the
delivery by Seller of a quit claim deed or deed without
covenants);
(ii) bill of sale for each Property
conveying the fixtures and personalty owned by Seller, in
the form of Exhibit D attached hereto;
(iii) non-recourse assignment of
Seller's interest, as lessor, in any leases of space at the
Property including any security deposits thereunder (the
"LEASES") in the form of Exhibit D attached hereto;
(iv) non-recourse assignment, to the
extent assignable, of Seller's rights under any service or
maintenance contracts (including, without limitation, yellow
pages, landscaping, security and refuse removal contracts)
relating to the Property (the "SERVICE CONTRACTS") in the
form of Exhibit D attached hereto;
(v) non-recourse assignment, to
the extent assignable, of any licenses, permits and unex-
pired warranties and guarantees, if any, pertaining to the
Property;
(vi) certificates and resolutions
as may be reasonably requested by the Buyer and Title Insur-
er demonstrating the authority of the persons executing
documents at Closing.
(vii) non-recourse assignment of all
of Sellers's interest in and to any Phase I and Phase II
environment site assessment which Seller makes available to
Buyer;
(viii) non-foreign affidavit;
(ix) all documents and instruments
reasonably required by the Title Insurer to issue the title
policies;
(x) possession of the Properties to
Buyer;
(xi) notice to the tenants of each
Property prepared by Buyer notifying such tenants of the
transfer of title and assumption by Buyer of the landlord's
obligations under the Leases and the obligation to refund
the security deposits;
(xii) copies of current real Proper-
ty tax bills and utility statements with respect to any
unimproved property; and
(xiii) a certificate of the managing
general partner of Seller to the effect that all of the
representations and warranties of Seller are true and cor-
rect in all material respects at Closing;
(xiv) an Owner's Policy of Title
Insurance for each Property in an amount equal to the value
set forth on Exhibit C for such Property insuring Buyer's
title subject only to the Permitted Exceptions and otherwise
in form acceptable to Buyer and containing such endorsements
as may be reasonably requested by Buyer.
(b) Buyer's Deliveries. Upon the terms and
subject to the conditions of this Contract, on the Closing
Date, Buyer shall deliver the following:
(i) assumption of the Leases and Ser-
vice Contracts, substantially in the form of the instrument
annexed hereto as EXHIBIT D annexed hereto and made a part
hereof.
(ii) certificates and resolutions as may
be requested by Seller and Title Insurer demonstrating the
authority of the persons executing documents at Closing.
(iii) balance of the Purchase Price
by wire transfer.
10. Proration Items. The following shall be
apportioned on a per diem basis as of midnight of the day
preceding the Closing Date ("ADJUSTMENT DATE") and adjusted
between the parties on the basis of a thirty day month:
(a) Real estate and other taxes, assessments
and charges, and other municipal and state charges, license
and permit fees, water and sewer rents and charges, if any,
on the basis of the fiscal period for which assessed or
charged;
(b) Water, electric, gas, steam and other
utility charges for service furnished to the Properties;
(c) Fuel, if any, and all taxes thereon, on
the basis of a reading taken as close as possible to the
Adjustment Date;
(d) Base rents and any other rental payments
(including, without limitation, any percentage rent, escala-
tion charges for real estate taxes and operating expenses,
cost-of-living adjustments, parking rent) (the "RENTS") paid
or payable under the terms of the Leases for the month of
Closing. Where the Leases contain tenant obligations for
taxes, common area expenses, operating expenses or addition-
al charges of any nature ("CAM Charges"), and where Seller
shall have collected any portion thereof in excess of
amounts incurred by Seller for such items for the period
prior to the Closing Date, then there shall be an adjustment
and credit given to Buyer on the Closing Date for such
excess amounts collected. Buyer shall apply all such excess
amounts to the charges owed by Buyer for such items for the
period after the Closing Date and, if required by the Leas-
es, shall rebate or credit tenants with any remainder. If
it is determined at any time after Closing that the amount
collected during Seller's ownership period exceeded expenses
incurred during the same period by more than the amount
previously credited to Buyer at Closing, then Seller shall
promptly pay to Buyer the deficiency. Also, if it is deter-
mined after Closing that the amount collected during
Seller's ownership period is less than the expenses incurred
during the same period, then Buyer shall promptly pay to
Seller the deficiency, but only to the extent such deficien-
cy is actually collected by Buyer from the tenants under the
Leases.
(e) Any amounts paid or payable under any
Service Contracts being assigned to Buyer; and
(f) All costs associated with telephone
directory listings and any other prepaid advertising;
(g) Any other customary adjustments made in
connection with the sale of similar type buildings.
Seller will not assign to Buyer any of the hazard
insurance policies affecting the Properties then in force.
There will therefore be no proration of insurance costs at
Closing. Except as may be otherwise provided herein, all
other expenses which are attributable to the period prior to
the Closing Date shall be the obligation of Seller and those
which are attributable to the period from and after the
Closing Date shall be the obligation of Buyer.
For purposes of the foregoing apportionments and
adjustments, the following procedures shall govern:
(i) If the Closing Date shall occur
before the real estate tax rate is fixed, the apportionment
of such taxes shall be made upon the real estate taxes for
the immediately preceding year.
(ii) If there are water meters on the
Properties, Seller shall furnish meter readings to a date
not more than thirty days prior to the Adjustment Date; and
the unfixed meter charges for the intervening time to the
Adjustment Date shall be apportioned on the basis of such
meter readings, and any such meter charges for the period
subsequent to the Adjustment Date shall be paid by Buyer.
(iii) The apportionment of utility
charges shall be made upon the basis of charges shown on the
latest available bills for such utilities. The charges
shown on such available bills for periods prior to the
Adjustment Date shall be paid by Seller, and for the period
from the date of each such last available utility bill to
the Adjustment Date an apportionment shall be made based on
the amount charged for the period covered by such last
available bill.
(iv) All taxes, water and sewer charges
and assessments for public improvements which are liens upon
the Properties as of the Closing Date, will be allowed to
Buyer as a credit against the Purchase Price, subject to
apportionment as herein provided, and the existence of any
such lien shall not constitute an objection to title.
(v) If any tenants are required to pay
Rents which are collected by Buyer after the Closing Date
and which are attributable in whole or in part to any period
before to the Closing Date, the Buyer shall promptly pay to
Seller, Seller's proportionate share thereof.
(vi) If any tenant is in arrears in the
payment of Rents on the Closing Date, Rents received from
such tenant after the Closing Date shall be applied in the
following order of priority: (a) first to any months preced-
ing the month in which the Closing occurred; (b) then to the
month in which the Closing occurred; and (c) then to any
months following the month in which the Closing occurred.
If Rents or any portion thereof received by Seller or Buyer
after the Closing Date are payable to the other party by
reason of this allocation, the appropriate sum shall be
promptly paid to the other party.
Buyer and Seller agree that the provisions to this
Section 10 shall survive the Closing for a period of ninety
(90) days after the Closing Date, during which period Buyer
and Seller shall agree on a reconciliation of the prorations
described herein. If the parties cannot agree on a recon-
ciliation within such ninety (90) day period then such
matter shall be submitted to arbitration.
11. Surveys, Transfer Taxes and Other Costs.
Seller shall pay for (a) the cost of any Surveys, the premi-
um for any title insurance and any other costs of closing
and (b) transfer taxes, documentary stamp taxes, recording
charges and other taxes or charges imposed by any governmen-
tal entity in connection with the transfer of the Proper-
ties. Seller shall deliver to Buyer at Seller's sole cost
and expense any (i) Phase I environmental site assessments,
(ii) Phase II environmental assessments of the Properties
conducted by Law Engineering and Environmental Services
("LAW"), (iii) pay for any other Phase II environmental
assessments which are reasonably required by the Phase I
environmental site assessments to be conducted at the Prop-
erties and shall use reasonable efforts to obtain a letter
from LAW in the form attached hereto as Exhibit D. Other
than as expressly provided herein, each of the parties shall
pay for any and all costs which it may incur in connection
with the transactions contemplated herein.
The provisions of this Section 11 shall survive
the Closing.
12. Representations and Warranties of Sell-
er. As an inducement for Buyer to purchase the Properties
from Seller, Seller represents and warrants to Buyer the
following:
(a) Title to Real Estate. Seller has
good, valid, marketable, indefeasible and insurable title to
the Properties including the improvements and the personal-
ty, situated thereon which are owned by Seller subject to
the Permitted Exceptions.
(b) Organization and Authority.
(i) Seller is duly organized and valid-
ly existing under the laws of the State of Texas, has full
partnership power and authority to carry on its business as
it is being conducted and shall have upon receipt of the
Partnership Consent full partnership power and authority to
consummate the transaction.
(ii) Seller and the managing general
partner of Seller have the requisite partnership and corpo-
rate power and authority to execute, deliver and perform
this Contract. The execution, delivery and performance of
this Contract and the consummation of the transactions
contemplated hereby have been duly authorized by all neces-
sary partnership and corporate action on the part of Seller
and the managing general partner (subject to obtaining the
Partnership Consent). This Contract is a valid and binding
obligation of Seller, enforceable against Seller in accor-
dance with its terms.
(iii) Neither the execution and
delivery of this Contract nor the consummation of the trans-
actions contemplated hereby in the manner herein provided
nor the fulfillment of or compliance with the terms and
conditions hereof shall:
A. contravene any material provi-
sion of the Partnership Agreement; or
B. violate, be in conflict with,
constitute a default under, cause the acceleration of any
payments pursuant to, or otherwise impair the good standing,
validity, or effectiveness of any agreement, contract,
indenture, lease, or mortgage, or subject any properties or
assets of Seller to any indenture, mortgage, contract,
commitment, or agreement other than this Contract to which
Seller is a party or by which Seller is bound, which in the
aggregate would have a material adverse effect on the Prop-
erties or Seller's ability to perform all of its obligations
hereunder
(c) Pending Actions. No litigation actions
are pending or, to Seller's knowledge, threatened against
any of the Properties or Seller which would materially
adversely affect either the Properties or the Seller or
which challenge the execution, delivery or performance of
this Contract.
13. Representations and Warranties of Buyer. As
an inducement for Seller to sell the Properties to Buyer,
Buyer represents to Seller the following:
(a) Organization and Authority.
(i) Buyer is a corporation duly orga-
nized and validly existing under the laws of the State of
California and has full corporate power and authority to
carry on its business as it is now being conducted.
(ii) Buyer has the requisite corporate
power and authority to execute, deliver and perform this
Contract. The execution, delivery and performance of this
Contract and the consummation of the transactions contem-
plated hereby have been duly authorized by all necessary
corporate action on the part of Buyer. This Contract is a
valid and binding obligation of Buyer, enforceable against
Buyer in accordance with its terms.
(iii) Neither the execution and
delivery of this Contract nor the consummation of the trans-
actions contemplated hereby in the manner herein provided
nor the fulfillment of or compliance with the terms and
conditions hereof shall:
A. contravene any material provi-
sion of the Articles of Incorporation or Bylaws of Buyer; or
B. violate, be in conflict with,
constitute a default under, cause the acceleration of any
payments pursuant to, or otherwise impair the good standing,
validity, or effectiveness of any agreement, contract,
indenture, lease, or mortgage, or subject any properties or
assets of Buyer to any indenture, mortgage, contract, com-
mitment, or agreement to which Buyer is a party or by which
Buyer is bound which, in the aggregate, would have a materi-
al adverse effect on Buyer's ability to perform all of its
obligations hereunder.
(b) Adequate Funds. Buyer has adequate
funds or available credit resources to pay the Purchase
Price at the Closing as provided hereunder.
14. Default and Damages.
(a) Buyer's Remedies. If Buyer shall
elect to proceed with the performance of this Contract
notwithstanding the failure to be satisfied of any condi-
tions to Closing, Buyer shall be deemed to have waived the
requirement that those conditions be satisfied. Buyer's
sole recourse for Seller's failure to consummate the Closing
if required by the terms of this Contract shall be, at
Buyer's option, (i) if appropriate, to sue for specific
performance hereunder, or (ii) to terminate this Contract
and receive a "Termination Fee" in an amount equal to
Buyer's reasonable out of pocket attorneys' fees for outside
counsel incurred by Buyer in connection with the transac-
tions contemplated by this Contract but in no event to
exceed $15,000, which Termination Fee shall be in addition
to the return of the Downpayment plus all accrued interest
thereon and if Seller executes a contract or a letter of
intent to sell the Properties within 180 days from the
termination of this Contract to receive an amount equal to
$209,950, as liquidated damages. Notwithstanding anything
to the contrary contained in this Section 14 (a), Buyer
shall be entitled to receive the Topping Fee (as hereinafter
defined) to the extent provided under Section 22 (a) and (e)
of this Contract. In the event that the managing general
partner of Seller does not recommend or withdraws its recom-
mendation to the limited partners of Seller to vote to grant
the Partnership Consent for any reason other than as is
required by its fiduciary obligations to Seller due to a
change in circumstances after the date hereof, Seller shall
pay to Buyer an amount equal to $209,950 plus an amount
equal to Buyer's out-of-pocket attorney's fees for outside
counsel incurred by Buyer in connection with the transac-
tions contemplated by this Contract but in no event to
exceed $15,000.00, as liquidated damages, together with a
refund of the Downpayment and Seller shall have no further
obligation to Buyer whatsoever.
(b) Seller's Remedies. If Buyer shall be
unable or unwilling to consummate the Closing hereunder in
violation of the terms hereof, Seller shall have the right
(i) to terminate this Contract and retain the Downpayment as
liquidated and agreed upon damages, whereupon this Contract
shall be and become null and void, and neither Seller nor
Buyer nor any of their respective Representatives shall have
any further rights or obligations hereunder.
15. Brokers. Seller and Buyer hereby agree
to defend and hold the other harmless from any claim by a
broker or finder for a fee or expense which is based in any
way on an agreement or understanding made or alleged to have
been made by such broker or finder relating to the transac-
tion contemplated by this Contract.
The provisions of this Section 15 shall survive
the Closing.
16. Indemnification of Seller. Buyer agrees
to indemnify and hold harmless Seller and its general part-
ners and limited partners, their affiliates, their and their
affiliates' representatives, attorneys, accountants, agents
and employees and their and their affiliates' heirs, succes-
sors and assigns, from and against any claims or demands
for any expense, obligation, loss, cost, damage or injury
arising out of (a) the Buyer's inspection of the Properties
prior to or on the Closing Date and (b) the Buyer's opera-
tion and maintenance of the Properties from and after the
Closing Date.
The provisions of this Section 16 shall survive
the Closing.
17. Survival of Representations, Warranties
and Indemnifications. Except as otherwise expressly set
forth herein, none of the representations, warranties and
indemnifications contained in this Contract shall survive
the Closing.
18. Third Party Offers; Fiduciary Duties of
Seller. Anything herein to the contrary notwithstanding,
Seller will not initiate, solicit, negotiate with or provide
information to any person (other than Buyer) concerning any
merger, sale of substantial assets out of the ordinary
course of business or similar transaction involving the
Properties to be sold to Buyer hereunder, provided that
Seller may negotiate with or furnish information to a third
party if the undersigned managing general partner of Seller
determines, in its sole discretion, that its fiduciary
duties require it to take such actions.
19. Reasonable Efforts; Public Announcements.
Each party hereto will use all reasonable efforts to perform
all acts required to consummate the transactions contemplat-
ed hereby as promptly as practicable. Such acts shall
include, without limitation, the provision of any informa-
tion to and submission of any filing with any governmental
entity having jurisdiction. The foregoing notwithstanding,
except as may be required to comply with the requirements of
any applicable laws and the rules and regulations of each
stock exchange upon which the securities of either of the
parties is listed, no press release or similar public an-
nouncement or communication shall, if prior to the Closing,
be made or caused to be made concerning this Contract or the
transactions contemplated hereby, unless the parties shall
have consulted in advance with respect thereto. Seller
shall provide Buyer with reasonable access to the Properties
and all information in its possession reasonably relating to
the Properties. Buyer shall keep such information confiden-
tial and shall not disclose such information to anyone other
than its agents, attorney, consultant or directors unless
such information: (i) is or becomes generally known on a
nonconfidential basis from a source other than as a result
of a disclosure by or through the representatives, employees
or agents of Buyer or (ii) becomes known by Buyer on a
nonconfidential basis from a source which is not prohibited
from disclosing such information by a legal, contractual,
fiduciary or other obligation, or (iii) Buyer is required to
disclose such information under applicable law or by a court
of competent jurisdiction.
20. Partnership Consent. Seller shall
within 20 days after the date hereof file preliminary proxy
materials relating to the transactions contemplated hereby
with the Securities and Exchange Commission (the "SEC") and
diligently pursue clearance by the SEC and upon clearance of
such proxy materials by the SEC shall promptly call a meet-
ing, or solicit consents, of its limited partners to consid-
er such matters. Seller shall, subject to the fiduciary
duties of its managing general partner, make reasonable
efforts to secure the Partnership Consent as promptly as
practicable. Buyer will supply Seller with such information
and reasonable assistance as Seller may request in connec-
tion therewith. Buyer shall promptly deliver to the Seller
or the SEC any information or materials requested by Seller
or the SEC in connection with the transactions contemplated
hereby.
21. Casualty/Condemnation to the Properties.
(a) If, prior to the Closing Date, any of the Properties is
damaged due to a casualty (a "CASUALTY") and the cost of
repairing such damage, in accordance with Seller's insurance
claims, is less than $100,000, then Seller shall repair such
Casualty prior to the Closing Date or assign to Buyer the
proceeds of Seller's policy of casualty insurance and pay
to Buyer the amount of any deductible. If the cost of
repairing a Casualty to any Property, in accordance with
Seller's insurance claims, equals or exceeds $100,000, then
Seller shall have the option to repair the Casualty to such
Property prior to Closing to the condition it was in prior
to Closing or if Seller does not repair the Property, Buyer
shall have the option to remove such Property from the
transaction and adjust the Purchase Price as hereinafter
provided or have Seller assign to Buyer the insurance pro-
ceeds and pay to Buyer the amount of any deductible. Not-
withstanding anything herein to the contrary, (i) Seller
shall have the right to adjourn the Closing Date for such
reasonable period as shall be necessary to repair any such
Casualty and (ii) Seller shall have the right, subject to
the terms and conditions hereof, to cause the Closing to
take place with respect to the other Properties and then
cause the Closing to take place with respect to the affected
Property within such reasonable period as shall be necessary
to repair any such Casualty.
(b) If, prior to the Closing Date, all
or any portion of any Property is condemned or taken by
eminent domain, then this Contract shall nevertheless remain
in full force and effect without any abatement of the Pur-
chase Price. In such event, Seller shall convey such Prop-
erty to Buyer at the Closing in its then condition, and
Buyer shall be entitled to receive all net or condemnation
awards otherwise payable to Seller as a result of such loss
or damage and, in full satisfaction of any claims by Buyer
against Seller, Seller shall assign to Buyer, without re-
course or warranty of any nature whatsoever, all of Seller's
right, title and interest in and to any claims Seller may
have to any condemnation awards, as well as all rights or
pending claims of Seller with respect to such condemnation
or taking of such Property, and Seller shall pay to Buyer
all payments theretofore made by such condemning authorities
as a result of such loss after deducting therefrom the costs
of collection thereof.
(c) Notwithstanding anything contained
herein to the contrary, if Seller delivers notice for con-
demnation or eminent domain proceedings which are initiated
or threatened between the date of this Contract and the
Closing Date, Buyer shall have the right to participate in
any and all settlement discussions and other conferences
relating thereto, and Seller shall not accept any settlement
without Buyer's consent which shall not be unreasonably
withheld or delayed.
22. Termination. Notwithstanding anything
contained herein, this Contract may be terminated as fol-
lows:
(a) By Seller, if during the term of this
Contract Seller has received a bona fide offer from an
unrelated third party which the undersigned managing general
partner of Seller has determined is more favorable to
Seller and its partners than the terms hereof (the "TOPPING
OFFER"), provided that Seller has provided Buyer with at
least 5 days written notice of the terms of such offer and
the right to match the terms of such offer, and further
provided that Seller shall pay to Buyer, simultaneously with
the acceptance of the Topping Offer (regardless of whether
the sale contemplated by the Topping Offer is consummated),
an amount equal to $209,950 plus an amount equal to Buyer's
reasonable out of pocket attorney's fees for outside counsel
incurred by Buyer in connection with the transactions con-
templated by this Contract but in no event to exceed $15,000
(the "Topping Fee").
(b) By Seller in accordance with Section 3
and 14(b) hereof or by Buyer in accordance with Sections
14(a) hereof.
(c) By Seller or Buyer, if a court of compe-
tent jurisdiction issues a binding and final order perma-
nently preventing the sale of the Properties to Buyer.
(d) By Seller or Buyer, if the Closing does
not occur on or before nine months from the execution here-
of, provided that the party seeking to terminate is not in
breach of this Contract.
(e) By Seller or Buyer, if the partners of
Seller vote not to grant the Partnership Consent, provided
that, if (i) the Closing hereunder does not occur due to a
failure to obtain the Partnership Consent and (ii) the
Seller enters into a contract or a letter of intent within
180 days after the termination of this Contract, to sell the
Properties at a price which exceeds the Purchase Price,
Seller shall pay to Buyer the Topping Fee, simultaneously
with the execution of such contract or letter of intent,
regardless of whether the sale contemplated by the Topping
Offer is consummated.
In the event this Contract is terminated pursuant
to any of the foregoing provisions, this Contract shall
thereupon become null and void and neither Seller nor Buyer
nor any of their respective representatives shall have any
further rights or obligations hereunder except as set forth
above.
23. Payment of Termination Fee, Topping Fee or
Liquidated Damages.
(a) In the event that Seller is obligated to
pay Buyer the Termination Fee, the Topping Fee or any other
amount as liquidated damages (the "Buyer Payment Amounts"),
pursuant to this Contract Seller shall deposit into escrow,
at Buyer's direction, an amount equal to the Buyer Payment
Amounts and, subject to the terms of the escrow agreement
set forth below, Buyer shall be paid out of the escrow an
amount equal to the lesser of (i) the Buyer Payment Amounts
or (ii) the sum of (1) the maximum amount that can be paid
to Buyer without causing Buyer to fail to meet the require-
ments of Sections 856(c)(2) and (3) of the Internal Revenue
Code of 1986, as amended (the "Code") determined as if the
payment of such amount did not constitute income described
in Sections 856(c)(2)(A)-(H) or 856(c)(3)(A)-(1) of the Code
("Qualifying Income"), as determined by Buyer's certified
public accountants, plus (2) in the event Buyer received
either (A) a letter from Buyer's counsel indicating that
Buyer has received a ruling from the Internal Revenue Ser-
vice (the "IRS") described in Section 23 (b)(ii) an amount
equal to the Buyer Payment Amounts less the amount payable
under clause (1) above.
(b) The escrow agreement shall provide that
the Buyer Payment Amounts in escrow or any portion thereof
shall not be released to Buyer unless the escrow agent
receives any one or combination of the following: (i) a
letter from Buyer's certified public accountants indicating
the maximum amount that can be paid by the escrow agent to
Buyer without causing Buyer to fail to meet the requirements
of Sections 856(c)(2) and (3) of the Code determined as if
the payment of such amount did not constitute Qualifying
Income or a subsequent letter from Buyer's accountants
revising that amount, in which case the escrow agent shall
release such amount to Buyer, or (ii) a letter from Buyer's
counsel indicating that Buyer received a ruling from the IRS
holding that the receipt by Buyer of the Buyer Payment
Amounts would either constitute Qualifying Income or would
be excluded from gross income within the meaning of Sections
856(c)(2) and (3) of the Code (or alternatively, Buyer's
legal counsel has rendered a legal opinion to the effect
that the receipt by Buyer of the Buyer Payment Amounts would
either constitute Qualifying Income or would be excluded
from gross income within the meaning of Sections 856(c)(2)
and (3) of the Code), in which case the escrow agent shall
release the remainder of the Buyer Payment Amounts to Buyer.
Seller agrees to amend this Section 23 at the request of
Buyer in order to (A) maximize the portion of the Buyer
Payment Amounts that may be distributed to Buyer hereunder
without causing Buyer to fail to meet the requirements of
Sections 856(c)(2) and (3) of the Code, (B) improve Buyer's
chances of securing a favorable ruling described in this
Section 23(b)or (C) assist Buyer in obtaining a favorable
legal opinion from its counsel as described in this Section
23(b); provided that Buyer's legal counsel has rendered a
legal opinion to Buyer to the effect that such amendment
would not cause Buyer to fail to meet the requirements of
Section 856(c)(2) or (3) of the Code. The escrow agreement
shall also provide that any portion of the Buyer Payment
Amounts held in escrow for five years shall be released by
the escrow agent to the Seller. The Seller shall not be a
party to such escrow agreement and shall not bear any cost
of or have any liability resulting from the escrow agreement
or the terms and provisions of this Section 23 so long as
Seller disburses any amount due under this Contract to Buyer
or to any escrow agent.
24. Notices. Any notice which may be required or
may be desired to be given pursuant to this Contract shall
be in writing and shall be deemed delivered and effective
upon actual receipt at the following addresses or such other
addresses as the parties may notify each other by similar
notice:
If to Seller, to:
Prudential-Bache/Watson & Taylor, Ltd.-3
c/o Prudential-Bache Properties, Inc.
One Seaport Plaza
199 Water Street - 16th Floor
New York, New York 10292 - 0116
Attn: Brian Martin
With a copy to:
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022
Attn: James Freund
If to Buyer, to:
Public Storage, Inc.
701 Western Avenue, Suite 200
Glendale, California 91201-2397
Attn: Harvey Lenkin
With a copy to:
Andrews & Kurth LLP
4200 Texas Commence Tower
Houston, TX 77002
Attn: David G. Runnels
25. General.
(a) Interpretation of Words. A mascu-
line pronoun wherever used herein shall be construed to
include the feminine or neuter where appropriate. The
singular form wherever used herein shall be construed to
include the plural where appropriate.
(b) Assignment; Successors and Assigns;
Third Party Beneficiaries.
(i) Neither of the parties hereto may
assign its respective rights under this Contract without the
consent of the other party. The foregoing notwithstanding,
Buyer shall be permitted, upon five days notice to Seller,
to assign its rights under this Contract to a subsidiary of
Buyer that is at least 90% owned by Buyer. Such assignment,
however, shall not relieve Buyer of, and Buyer shall remain
liable for, all of its obligations contained in this Con-
tract.
(ii) Except as otherwise provided here-
by, the provisions of this Contract shall be binding upon
and inure to the benefit of the parties hereto and their
respective legal representatives and successors in interest.
(iii) This Contract is not intended,
nor shall it be construed, to confer upon any party except
the parties hereto and their heirs, successors and permitted
assigns any rights or remedies under or by reason of this
Contract.
(c) Time of the Essence. Time shall be of
the essence with respect to the performance of all of the
obligations hereunder.
(d) Entire Contract. Subject to the terms
and conditions of the Confidentiality Agreement, this Con-
tract represents the entire understanding between the par-
ties with respect to the subject matter hereof, superseding
all prior or contemporaneous understandings or communica-
tions of any kind, whether written or oral. This Contract
may only be modified by a written agreement signed by both
parties hereto.
(e) Captions. The headings of the para-
graphs herein are for convenience only; they form no part of
this Contract and shall not affect its interpretation.
(f) Governing Law. The provisions of
this Contract shall be governed by and construed in accor-
dance with the laws of the State of New York applicable to
agreements entered into and to be performed wholly therein.
(g) Counterparts. This Contract may be
executed in several counterparts, each of which shall be
deemed an original. Such counterparts constitute but one
and the same instrument, which may be sufficiently evidenced
by one counterpart.
(h) Further Assurances. Each of the
parties hereto shall, at the request of the other party,
execute, acknowledge and deliver any further instruments,
and take such further actions, as the requesting party may
reasonably request, to carry out effectively the intent of
this Contract.
IN WITNESS WHEREOF, the parties hereto have executed
this Contract as of the day and year first above written.
Seller:
PRUDENTIAL-BACHE/WATSON & TAYLOR, LTD.-3
By: PRUDENTIAL-BACHE PROPERTIES,
INC.
Its Managing General Partner
By:
Name:
Title:
Buyer:
PUBLIC STORAGE, INC.
By:
Name:
Title:
EXHIBITS
Exhibit A - Property Description
Exhibit B - Escrow Agreement
Exhibit C - Property Value Allocations
Exhibit D - Instrument of Assumption
Exhibit E - Letter from LAW Engineering and Environmental
Services
- ---------------------------------------------------------------------------
EXHIBIT A
PROPERTIES
NAME LOCATION
John Barrow 1200 John Barrow Road
Little Rock, Arkansas
La Prada Business Park 15330 LBJ Freeway
Mesquite (Dallas), Texas
S. Peoria/Tulsa 6333 S. Peoria Drive
Tulsa, Oklahoma
Joel Wheaton 2603 Joel Wheaton Road
Houston, Texas
Eastgate 1780 Northwest Highway
Garland (Dallas), Texas
Quail Valley 1306 FM 1092,
Missouri City (Houston), Texas
Mt. Holly Rt 541 By-Pass,
Mount Holly Township, New Jersey
The Properties include:
(A) All buildings and improvements located on the
Properties;
(B) All rights-of-way, alleys, waters, privileg-
es, easements, covenants and appurtenances which are on
or benefit the Properties;
(C) All right, title and interest of Seller in
and to any land lying in the bed of any public or pri-
vate street, road, avenue, alley or highway, opened,
closed or proposed, in front of or adjoining the Prop-
erties to the center line thereof in each case which
are appurtenances to such properties;
(D) All right, title and interest of Seller to
any unpaid award to which Seller may be entitled (1)
due to the taking, by condemnation or eminent domain of
any right, title or interest of Seller in the Proper-
ties, and (2) for any damage to the Properties due to
the change of grade of any street or highway;
(E) All right, title and interest of Seller to
any assignable licenses, permits, contract, leases,
sales agreements, construction agreements, maintenance
agreements, service agreements, guaranties, warranties,
telephone exchanges, advertising materials and trade
names with respect to the Properties except for the
name "Prudential" "Bache" or "Watson & Taylor" or any
combination thereof and;
(F) All Leases and security deposits with respect
to any of the Properties in which Seller holds an in-
terest as a landlord for the use and occupancy of all
or any part of the Properties.
- ---------------------------------------------------------------------------
EXHIBIT B
ESCROW AGREEMENT
Agreement made this day of 1996 by and among
Public Storage, Inc. Storage Corporation, ("PURCHASER"),
Prudential-Bache/Watson & Taylor, Ltd.-3 ("SELLER"), and
Chicago Title Insurance Company, Inc., as escrow agent
("ESCROW AGENT").
(i) The Parties hereto agree that the sum of
$828,750 (the "ESCROW AMOUNT"), to be held pursuant to a
Contract of Sale between Seller and Purchaser of even date
herewith (the "CONTRACT"), shall be held in escrow by the
Escrow Agent upon the terms and conditions set forth herein.
(ii) (A) The Escrow Agent shall deliver the
Escrow Amount then in its possession in accordance with
Paragraph 3 hereof to Seller (i) upon the Closing, as that
term is used in and in accordance with the Contract or (ii)
in the event that Seller makes a written demand therefor
stating that Purchaser has failed to perform Purchaser's
obligations under the Contract.
(B) Escrow Agent shall return the Escrow
Amount then in its possession in accordance with Paragraph 3
hereof to Purchaser in the event that Purchaser makes a
written demand therefor stating (i) that Seller has failed
to perform Seller's obligations under the Contract or (ii)
that Purchaser is otherwise entitled to the return of the
Escrow Amount in accordance with the terms of the Contract.
(C) In the event that Escrow Agent intends
to release the Escrow Amount and any interest earned thereon
in accordance with Paragraph 3 hereof to either party pursu-
ant to Paragraph 2(a)(ii) or 2(b) hereof, then Escrow Agent
shall give to the other party not less than ten days prior
written notice of such fact and, if Escrow Agent actually
receives written notice during such ten day period that such
other party objects to the release, then Escrow Agent shall
not release the Escrow Amount and any such dispute shall be
resolved as provided herein.
(D) In the event that a dispute shall arise
as to the disposition of the Escrow Amount or any other
funds held hereunder in escrow, Escrow Agent shall have the
right, at its option, to either hold the same or deposit the
same with a court of competent jurisdiction pending decision
of such court, and Escrow Agent shall be entitled to rely
upon the decision of such court.
(E) Escrow Agent may commingle the Escrow
Amount with other funds held in its "trustees account".
(F) Escrow Agent shall hold the Escrow
Amount in a savings bank account or a liquid assets account
in the City of San Francisco bearing interest at such rate
as may from time to time be paid or invest the Escrow Amount
in U.S. Treasury Bills or other securities guaranteed by the
Government of the United States of America. The rate of
interest or yield need not be the maximum available and
deposits, withdrawals, purchases and sales shall be made in
the sole discretion of Escrow Agent, which shall have no
liability whatsoever therefor except for its gross negli-
gence or willful misconduct. Discounts earned shall be
deemed interest for the purposes hereof.
(G) Escrow Agent shall have no liability
whatsoever arising out of or in connection with its activity
as Escrow Agent except for its gross negligence or willful
misconduct. Seller and Purchaser jointly and severally
agree to indemnify and hold harmless Escrow Agent from and
against any and all loss, cost, claim, cause of action,
damage, liability and expense (including attorneys' fees and
court costs) which may be incurred by reason of its acting
as Escrow Agent.
(H) Escrow Agent shall be entitled to rely
upon any judgment, certification, demand or other writing
delivered to it hereunder without being required to deter-
mine the authenticity or the correctness of any fact stated
therein, the propriety or validity thereof, or the jurisdic-
tion of a court issuing any such judgment. Escrow Agent may
act in reliance upon (i) any instrument or signature be-
lieved to be genuine and duly authorized, and (ii) advice of
counsel in reference to any matter or matters connected
herewith.
(I) Any notice, demand or other communica-
tion to Escrow Agent hereunder shall be in writing and
delivered in person or sent by certified mail, return re-
ceipt requested, postage prepaid, addressed to Escrow Agent
as follows:
Chicago Title Insurance Company
388 Market Street
San Francisco, California
Attention: Michelle Viguie
The same shall be deemed given on the date delivered, if
delivered in person, or on the third business day following
the date of mailing the same, if mailed.
(iii) The interest, if any, earned on the Escrow
Amount shall be for the account of Buyer. At the Closing,
such interest shall be a credit against the Purchase Price.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
Purchaser:
Public Storage, Inc.
By:______________________________
Name:
Title:
Seller:
Prudential-Bache/Watson & Taylor, Ltd.-3
By: Prudential-Bache Properties, Inc.,
its managing general partner
By:______________________________
Name:
Title:
Chicago Title Insurance Company, Inc., as Escrow Agent
By:_____________________________
Name:
Title:
- ---------------------------------------------------------------------------
(W&T, Ltd-3)
EXHIBIT C
ALLOCATED VALUES
PROPERTY PURCHASE PRICE
John Barrow $2,600,000
La Prada Business $1,650,000
S. Peoria/Tulsa $1,250,000
Joel Wheaton $1,550,000
Eastgate $1,600,000
Quail Valley $1,200,000
Mt. Holly $1,200,000
- ---------------------------------------------------------------------------
EXHIBIT D
OMNIBUS INSTRUMENT OF ASSUMPTION
FOR GOOD AND VALUABLE CONSIDERATION, the receipt of
which is hereby acknowledged, and in consideration of the assign-
ment by Prudential-Bache/Watson & Taylor, Ltd.-3, a Texas limited
partnership ("Seller"), to Public Storage Inc. a California
corporation ("Buyer"), of all of Seller's right, title and inter-
est in and to each and every one of the following:
(i) all leases (the "Leases") of space located at the
real properties more particularly described on Schedule I hereto
(the "Premises") and any related security deposits Set forth on
Schedule I (the "Security Deposits") in the;
(ii) all fixtures, machinery, equipment and other
personal property (the "Personalty") attached or appurtenant to
the Premises;
(iii) all service and maintenance contracts, construc-
tion contracts relating to the Premises (the "Service Con-
tracts"); and
(iv) all licenses, permits, consents, waiver, varianc-
es and unexpired warranties and guarantees, if any, telephone
exchanges, advertisements, reports, surveys, architectural plans
relating to the Premises (collectively with the Leases, Security
Deposits, Personalty and Service Contracts, the "Property").
Buyer hereby agrees to accept the foregoing assignment
by Seller of the Property and assumes all liabilities and obliga-
tions whether of Seller or otherwise in connection therewith
arising on or after the date hereof.
Buyer and Seller shall, at the request of the other
party, execute, acknowledge and deliver any further instruments,
and take such further actions, as may reasonably be requested, to
carry out effectively the intent of this Instrument.
This Instrument shall be binding upon and shall inure
to the benefit of Seller and Buyer and their successors and
assigns.
IN WITNESS WHEREOF, the undersigned has executed this
Instrument as of the 10th day of June, 1996.
PRUDENTIAL-BACHE/WATSON & TAYLOR, Ltd.-3
By:______________________________
Name:
Title:
PUBLIC STORAGE, INC.
By:______________________________
Name:
Title:
(W&T, Ltd-3)
SCHEDULE I
PROPERTIES
NAME LOCATION
John Barrow 1200 John Barrow Road
Little Rock, Arkansas
La Prada Business Park 15330 LBJ Freeway
Mesquite (Dallas), Texas
S. Peoria/Tulsa 6333 S. Peoria Drive
Tulsa, Oklahoma
Joel Wheaton 2603 Joel Wheaton Road
Houston, Texas
Eastgate 1780 Northwest Highway
Garland (Dallas), Texas
Quail Valley 1306 FM 1092,
Missouri City (Houston), Texas
Mt. Holly Rt 541 By-Pass,
Mount Holly Township, New
Jersey
- ---------------------------------------------------------------------------
EXHIBIT E
LETTER OF ENVIRONMENTAL CONSULTANT
SECONDARY CLIENT AGREEMENT
This Agreement between _____________ and Law Environmental Con-
sultants, Inc. is being entered in consideration of $200.00, the
promise and obligations herein and other good and valuable con-
sideration, the adequacy of which is hereby acknowledged by the
parties. At the express request of __________ ("Client") and
with full disclosure to and approval from same, Law Environmental
Consultants, Inc. ("Law") through its subsidiaries, affiliates,
branches, or divisions, as an independent consultant, agrees to
provide _________________, its corporate successors and assigns
(collectively "Secondary Client") for its additional benefit and
use, copies of certain final reports (specify reports) prepared
for Client by Law. Secondary Client may rely on the contents of
those reports as if those reports were expressly prepared for
Secondary Client subject to any limitation placed on the scope,
nature and type of Law's services as stated in Law's proposal
[specify] and/or report and subject to these terms and conditions
contained herein. The services provided have been performed for
Client and our report may or may not be suitable for all purposes
of Secondary Client.
STANDARD OF CARE AND WARRANTY. Law warrants that it has per-
formed its services with that degree of skill and care ordinarily
exercised by reputable members of the environmental engineering
and scientific profession of Law or similar locality. NO OTHER
WARRANTY, EXPRESSED OR IMPLIED, IS MADE OR INTENDED, except as
set forth in the Reports.
DOCUMENTS. Secondary Client agrees that Law's report is intended
for Client and Secondary Client's exclusive reliance and internal
use, and is not for the general distribution or publication.
Without the prior consent of Law, any unauthorized use or further
distribution by Secondary Client shall be at Secondary Client's
and recipient's sole risk and without liability to Law.
CONFLICT OF INTEREST. By request and use of the referenced
report, Secondary Client expressly agrees to waive all claims of
existing or potential conflicts of interest
that may now exist or hereafter arise by Law's providing the
requested report should any dispute arise between Client and
Secondary Client.
LAW ENVIRONMENTAL CONSULTANTS, INC. ____________________
Signed: ___________________ Signed: ___________________
Title: ___________________ Title: ___________________
Date: ___________________ Date: ___________________
