<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13E-3
RULE 13E-3 TRANSACTION STATEMENT
(Pursuant to Section 13(e) of the
Securities Exchange Act of 1934)
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Name of the Issuer)
AQUARIUS ACQUISITION, L.P.
(Name of Person(s) Filing Statement)
UNITS OF LIMITED PARTNERSHIP INTEREST
(Title of Class of Securities)
NONE
(CUSIP Number of Class of Securities)
AQUARIUS ACQUISITION, L.P.
C/O NOMURA ASSET CAPITAL CORPORATION
TWO WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10005
(212) 667-2250
(Name, Address, and Telephone Numbers of Person Authorized to Receive
Notices and Communications on Behalf of Person(s) Filing Statement)
COPY TO:
RICHARD J. SABELLA, ESQ.
CAHILL GORDON & REINDEL
80 PINE STREET
NEW YORK, NEW YORK 10005
(212) 701-3000
This statement is filed in connection with (check the appropriate box):
a. [ ] The filing of solicitation materials or an information statement
subject to Regulation 14A, Regulation 14C or Rule 13e-3(c) under the
Securities Exchange Act of 1934.
b. [ ] The filing of a registration statement under the Securities Act of
1933.
c. [X] A tender offer.
d. [ ] None of the above.
Check the following box if the soliciting materials or information
statement referred to in checking box (a) are preliminary copies: [ ]
CALCULATION OF FILING FEE
- -------------------------------------------------------------------------------
TRANSACTION AMOUNT OF
VALUATION* FILING FEE
- -------------------------------------------------------------------------------
$23,364,000 $4,673
- -------------------------------------------------------------------------------
* The maximum number of limited partnership Units which may be purchased
pursuant to the Offer is 328. Any remaining tendered Units would remain
owned by the tendering limited partner but be pledged to secure a loan from
the Purchaser. The maximum aggregate consideration to be paid upon
consummation of the Offer would equal 328 (the maximum number of Units which
may be purchased upon consummation of the Offer) multiplied by the $36,000
purchase price per Unit. The remainder of the transaction value represents
the maximum amount to be paid out in the form of loans in respect of the
remaining 321 Units which may be transferred to the bidder one year and one
day from the date of consummation of the Offer and repayment of such loans.
[X] Check box if any part of the fee is offset as provided by Rule
0-11(a)(2) and identify the filing with which the offsetting fee was
previously paid. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
Amount Previously Paid: $4,673 Filing Party: AQUARIUS ACQUISITION, L.P.
Form or Registration No.: SCHEDULE 14D-1 Date Filed: FEBRUARY 1, 1995
<PAGE>
This Rule 13E-3 Transaction Statement (the "Statement") relates to a
tender offer by Aquarius Acquisition, L.P., a Delaware limited partnership
(the "Purchaser"), to purchase outstanding units of limited partnership
interests (the "Units") in Springhill Lake Investors Limited Partnership, a
Maryland limited partnership (the "Partnership"), upon the terms and subject
to the conditions set forth in the Offer to Purchase, dated February 1, 1995
(including the annexes thereto, the "Offer to Purchase"), and in the related
Letter of Transmittal (which together constitute the "Offer"), copies of
which are filed as Exhibits (d)(1) and (d)(2) hereto, respectively. This
Statement is being filed by the Purchaser. Capitalized terms used in this
Schedule 13E-3 and not defined herein shall have the meanings set forth in
the Offer to Purchase.
The following cross-reference sheet is being supplied pursuant to General
Instruction F to Schedule 13E-3 and shows the location in the Tender Offer
Statement on Schedule 14D-1 (the "Schedule 14D-1") filed by the Purchaser
with the Securities and Exchange Commission on the date hereof of the
information required to be included in response to the items of this
Statement. The information in the Schedule 14D-1 is hereby expressly
incorporated herein by reference and the responses to each item in this
Statement are qualified in their entirety by the provisions of the Schedule
14D-1.
<PAGE>
CROSS-REFERENCE SHEET
<TABLE>
<CAPTION>
ITEM IN WHERE LOCATED IN
SCHEDULE 13E-3 SCHEDULE 14D-1
- ------------------ --------------------
<S> <C>
Item 1(a) ......... Item 1(a)
Item 1(b) ......... Item 1(b)
Item 1(c) ......... Item 1(c)
Item 1(d) ......... *
Item 1(e) ......... *
Item 1(f) ......... *
Item 2(a) ......... Item 2(a)
Item 2(b) ......... Item 2(b)
Item 2(c) ......... Item 2(c)
Item 2(d) ......... Item 2(d)
Item 2(e) ......... Item 2(e)
Item 2(f) ......... Item 2(f)
Item 2(g) ......... Item 2(g)
Item 3(a)(1) ...... Item 3(a)
Item 3(a)(2) ...... Item 3(b)
Item 3(b) ......... *
Item 4 ............ *
Item 5 ............ Item 5
Item 6(a) ......... Item 4(a)
Item 6(b) ......... *
Item 6(c) ......... Item 4(b)
Item 6(d) ......... Item 4(c)
Item 7(a) ......... Item 5
Item 7(b) ......... *
Item 7(c) ......... *
Item 7(d) ......... *
Item 8 ............ *
Item 9 ............ *
Item 10(a) ........ Item 6(a)
Item 10(b) ........ Item 6(b)
Item 11 ........... Item 7
Item 12(a) ........ *
Item 12(b) ........ *
Item 13 ........... *
Item 14(a) ........ *
Item 14(b) ........ *
Item 15(a) ........ *
Item 15(b) ........ Item 8
Item 16 ........... Item 10(f)
Item 17 ........... Item 11
<FN>
* The item is located in the Schedule 13E-3 only.
</TABLE>
<PAGE>
ITEM 1. ISSUER AND CLASS OF SECURITY SUBJECT TO THE TRANSACTION.
(a) The name of the issuer of the Units is Springhill Lake Investors
Limited Partnership, a Maryland limited partnership (the "Partnership"),
which has its principal executive offices at c/o Three Winthrop Properties,
Inc., One International Place, Boston, Massachusetts, 02110.
(b) Based on information provided by the Partnership, as of January 31,
1995, there are 649 Units, and there were 679 holders of record of Units (the
"Unitholders").
(c) There is no established public or other trading market for the Units.
Trading in the Units is sporadic and occurs solely through private
transactions, and therefore, information on the range of high and low bid
quotations is not available. The most recent trade occurred on December 1,
1994 and involved the transfer of one half of a Unit at a price of $13,500
per Unit. This was the only trade to occur since December 31, 1992 other than
pursuant to a divorce or estate settlement or pursuant to a transfer to a
relative or affiliate.
(d) The information set forth in "THE OFFER--Certain Information
Concerning the Partnership" of the Offer to Purchase and in Item 5 of the
Partnership's Annual Report on Form 10-K for the fiscal year ended December
31, 1993, which is attached as Annex I to the Offer to Purchase, is
incorporated herein by reference.
(e) Not applicable.
(f) Not applicable.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d) and (g) The information set forth in "INTRODUCTION," "THE
OFFER--Certain Information Concerning the Purchaser" and in Schedule I of the
Offer to Purchase is incorporated herein by reference.
(e) and (f) During the last five years, neither the Purchaser, nor
Partnership Acquisition Trust I, its general partner, nor Nomura Asset
Capital Corporation, its controlling corporation, nor any of the individuals
listed on Schedule I to the Offer to Purchase (i) has been convicted in a
criminal proceeding or (ii) was a party to a civil proceeding of a judicial
or administrative body of competent jurisdiction and as a result of such
proceeding was or is subject to a judgment, decree or final order enjoining
future violations of, or prohibiting activities subject to, Federal or state
securities laws or finding any violation of such laws.
ITEM 3. PAST CONTRACTS, TRANSACTIONS OR NEGOTIATIONS.
(a) and (b) The information set forth in "SPECIAL FACTORS--Background of
the Offer" and "THE OFFER--Certain Information Concerning the Purchaser" and
"--Interests of Certain Persons and Certain Transactions" of the Offer to
Purchase is incorporated herein by reference.
ITEM 4. TERMS OF THE TRANSACTION.
(a) The information set forth in "INTRODUCTION" and "THE OFFER--Terms of
the Offer," "--Proration; Acceptance and Payment for Units" and "--Conditions
of the Offer" of the Offer to Purchase is incorporated herein by reference.
(b) None.
ITEM 5. PLANS OR PROPOSALS OF THE ISSUER OR AFFILIATE.
(a)-(g) The information set forth in "SPECIAL FACTORS--Purpose and Effects
of the Offer" and "--Future Plans" of the Offer to Purchase is incorporated
herein by reference.
ITEM 6. SOURCE AND AMOUNTS OF FUNDS OR OTHER CONSIDERATION.
(a) and (c) The information set forth in "THE OFFER--Source of Funds" of
the Offer to Purchase is incorporated herein by reference.
3
<PAGE>
(b) The information set forth in "THE OFFER--Fees and Expenses" of the
Offer to Purchase is incorporated herein by reference. The Purchaser
estimates the expenses it will incur in connection with the Offer as follows:
<TABLE>
<CAPTION>
<S> <C>
Filing Fee .. $ 4,673
Legal ........ 200,000
Printing ..... 30,000
Other ........ 35,327
---------
Total ........ $270,000
</TABLE>
(d) Not applicable.
ITEM 7. PURPOSE(S), ALTERNATIVES, REASONS AND EFFECTS.
(a)-(d) The information set forth in "INTRODUCTION," SPECIAL
FACTORS--Background of the Offer," "--Purpose and Effects of the Offer" and
"--Future Plans" and "THE OFFER--Interest of Certain Persons and Certain
Transactions" and "--Certain Federal and State Income Tax Consequences" of
the Offer to Purchase is incorporated herein by reference.
ITEM 8. FAIRNESS OF THE TRANSACTION.
(a)-(f) The information set forth in "INTRODUCTION," "SPECIAL
FACTORS--Background of the Offer," "--Determination of the Cash
Consideration" and "--Purpose and Effects of the Offer" and "THE
OFFER--Interests of Certain Persons and Certain Transactions" of the Offer to
Purchase is incorporated herein by reference.
ITEM 9. REPORTS, OPINIONS, APPRAISALS AND CERTAIN NEGOTIATIONS.
(a) The information set forth in "SPECIAL FACTORS--Determination of the
Consideration" of the Offer to Purchase is incorporated herein by reference.
(b) Not applicable.
(c) The information set forth in "SPECIAL FACTORS--Determination of the
Consideration" of the Offer to Purchase is incorporated herein by reference.
ITEM 10. INTEREST IN SECURITIES OF THE ISSUER.
(a) The information set forth in "THE OFFER--Certain Information
Concerning the Purchaser" of the Offer to Purchase is incorporated herein by
reference.
(b) None.
ITEM 11. CONTRACTS, ARRANGEMENTS OR UNDERSTANDINGS WITH RESPECT TO THE
ISSUER'S SECURITIES.
The information set forth in "THE OFFER--Certain Information Concerning
the Purchaser" and "--Interests of Certain Persons and Certain Transactions"
of the Offer to Purchase is incorporated herein by reference.
ITEM 12. PRESENT INTENTION AND RECOMMENDATION OF CERTAIN PERSONS WITH REGARD
TO THE TRANSACTION.
(a) To the knowledge of the Purchaser after reasonable inquiry, no general
partner of the Partnership or person controlling such general partner owns
any Units.
(b) To the knowledge of the Purchaser after reasonable inquiry, no general
partner of the Partnership or person controlling such general partner has
made a recommendation in support of or opposed to the Offer. Because of the
affiliation of the Purchaser and the Partnership, the Partnership has
indicated in its statement on Schedule 14D-9 that it makes no recommendations
and is remaining neutral as to whether a Limited Partner should accept the
Offer.
4
<PAGE>
ITEM 13. OTHER PROVISIONS OF THE TRANSACTION.
(a) The transaction does not give rise to appraisal rights and such rights
will not be voluntarily afforded to the Limited Partners.
(b) Not applicable.
(c) Not applicable.
ITEM 14. FINANCIAL INFORMATION.
(a)(1) and (2) The financial statements contained in the Partnership's
Annual Report on Form 10-K for the year ended December 31, 1993 and Quarterly
Report on Form 10-Q for the quarter ended September 30, 1994 attached as
Annexes I and II, respectively, to the Offer to Purchase are incorporated
herein by reference.
(a)(3) The ratio of earnings to fixed charges for the Partnership for the
fiscal years ended December 31, 1992 and 1993 and the nine months ended
September 30, 1994 was 1.75 to 1.0, 2.19 to 1.0 and 2.54 to 1.0,
respectively.
(a)(4) The net book value of the L.P. Interests at December 31, 1993 and
September 30, 1994 was approximately $10,193 and $9,738 per Unit,
respectively.
(b) Not applicable.
ITEM 15. PERSONS AND ASSETS EMPLOYED, RETAINED OR UTILIZED.
(a) None.
(b) The information set forth in "THE OFFER--Fees and Expenses" of the
Offer to Purchase is incorporated herein by reference.
ITEM 16. ADDITIONAL INFORMATION.
Additional information concerning the Offer is set forth in the Offer to
Purchase and the related Letter of Transmittal, copies of which are attached
hereto as Exhibits (d)(1) and (d)(2) respectively, and each of which is
incorporated herein by reference.
5
<PAGE>
ITEM 17. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
<S> <C>
(a)(1) Form of Acquisition Loan Agreement between Nomura Asset Capital Corporation and the Purchaser
Form of Pledge and Security Agreement between Nomura Asset Capital Corporation and the
(a)(2) Purchaser
(b)(1) Selected pages from Price Waterhouse LLP Appraisal
(b)(2) Selected pages from Lipman Frizzell & Mitchell LLC Appraisal
Greenbelt Residential Limited Partnership Consent Solicitation Statement dated January 19,
(c)(1) 1995 and related solicitation material
Complaint to Enforce Contract in the case styled, Three Winthrop Properties, Inc. v. Lerner
(c)(2) Corporation, Case No. 129192-V (Cir. Ct. Montgomery Cty., Md.), dated Nov. 17, 1994
Motion for Partial Summary Judgment in the case styled, Three Winthrop Properties, Inc. v.
(c)(3) Lerner Corporation, Case No. 129192-V (Cir. Ct. Montgomery Cty., Md.)
Complaint For Money Damages, An Accounting And Other Relief in the case styled, Theodore N.
(c)(4) Lerner v. Three Winthrop Properties, Inc. (D. Md. 1994), filed Dec. 27, 1994
(d)(1) Offer to Purchase dated February 1, 1995
(d)(2) Letter of Transmittal
(d)(3) Letter to Limited Partners dated February 1, 1995
(d)(4) Press Release dated February 1, 1995
(e) Not applicable
(f) Not applicable
</TABLE>
6
<PAGE>
SIGNATURE
After due inquiry and to the best of my knowledge and belief, I certify
that the information set forth in this statement is true, complete and
correct.
Dated: February 1, 1995
AQUARIUS ACQUISITION, L.P.
By: Partnership Acquisition Trust I, its
General Partner
By: WILMINGTON TRUST COMPANY,
as Trustee and not in its individual capacity
By: /s/ David A. Vanaskey, Jr.
-----------------------------------
Name: David A. Vanaskey, Jr.
Title: Senior Financial Services Officer
7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
PAGE
EXHIBIT DESCRIPTION NUMBER
- ----------- --------------------------------------------------------------------------------- ----------
<S> <C> <C>
(a)(1) Form of Acquisition Loan Agreememt between Nomura Asset Capital Corporation and the
Purchaser
(a)(2) Form of Pledge and Security Agreement between Nomura Asset Capital Corporation
and the Purchaser
(b)(1) Selected pages from Price Waterhouse LLP Appraisal
(b)(2) Selected pages from Lipman Frizzell & Mitchell LLC Appraisal
(c)(1) Greenbelt Residential Limited Partnership Consent Solicitation Statement dated
January 19, 1995
(c)(2) Complaint to Enforce Contract in the case styled, Three Winthrop Properties, Inc.
v. Lerner Corporation, Case No. 129192-V (Cir. Ct. Montgomery Cty., Md.), dated
Nov. 17, 1994
(c)(3) Motion for Partial Summary Judgment in the case styled, Three Winthrop
Properties, Inc. v. Lerner Corporation, Case No. 129192-V (Cir. Ct. Montgomery
Cty., Md.)
(c)(4) Complaint For Money Damages, An Accounting And Other Relief in the case styled,
Theodore N. Lerner v. Three Winthrop Properties, Inc. (D. Md. 1994), filed Dec.
27, 1994
(d)(1) Offer to Purchase dated February 1, 1995
(d)(2) Letter of Transmittal
(d)(3) Letter to Limited Partners dated February 1, 1995
(d)(4) Press Release dated February 1, 1995
</TABLE>
===============================================================================
ACQUISITION LOAN AGREEMENT
Dated as of January __, 1995
by and between
AQUARIUS ACQUISITION, L.P.,
Borrower,
and
NOMURA ASSET CAPITAL CORPORATION,
Lender
===============================================================================
ACQUISITION LOAN AGREEMENT ("Agreement"), dated as of January
__, 1995, by and between AQUARIUS ACQUISITION, L.P., a Delaware limited
partnership ("Borrower"), having an office at 2 World Financial Center, Building
B, New York, New York 10281 and NOMURA ASSET CAPITAL CORPORATION, a Delaware
corporation ("Lender"), having an office at 2 World Financial Center, Building
B, New York, New York 10281-1198.
R E C I T A L S :
A. Lender, through certain affiliates, owns an indirect
interest in Winthrop Financial Associates, a Limited Partnership ("WFA"), a
Maryland limited partnership. A partnership wholly-owned by WFA is the managing
general partner of Springhill Lake Investors Limited Partnership (the
"Partnership"), a Maryland limited partnership which owns partnership interests
in a series of operating partnerships that collectively own the apartment and
mixed use complex known as Springhill Lake Apartments, located in Greenbelt,
Maryland.
B. Pursuant to an Offer to Purchase dated January __, 1995
(the "Tender Offer"), Borrower has offered to purchase from limited partners of
the Partnership all the outstanding limited partnership interests therein (each,
a "Unit") and, in the event more than 50.5% of all Units outstanding shall be
tendered to Borrower in response to the Tender Offer, Borrower has agreed to
fund certain loans (each, a "Unit Loan") to the owners of Units to be secured by
a portion of such owner's Units.
C. Lender has agreed to finance, on the terms and subject
to the conditions herein set forth, the acquisition by Borrower of Units and the
making of Unit Loans by Borrower pursuant to the Tender Offer.
A G R E E M E N T :
The parties agree as follows:
ARTICLE 1
Definitions
The following terms shall have the respective meanings set forth
below:
2
"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with
that Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling", "controlled by" and "under
common control with"), as applied to any Person, means the possession, directly
or indirectly, of the power to direct or cause the direction of the management
and policies of that Person, whether through the ownership of voting securities
or otherwise. Neither Lender nor any parent or Subsidiary of Lender shall be
treated as an Affiliate of Borrower solely by virtue of its being Lender or a
parent or Subsidiary of Lender.
"Aggregate Acquisition Cost" means, with respect to the
acquisition of Units and the making of Unit Loans pursuant to the Tender Offer,
the sum of (i) the aggregate purchase price or other consideration payable by
Borrower to acquire Units pursuant to the Tender Offer, plus (ii) the total
principal amount of all Unit Loans funded or to be funded by Borrower at the
Closing of the Tender Offer, plus (iii) the aggregate amount of all reasonable
transaction costs paid or payable by Borrower in connection with such purchases
and such funding of Unit Loans and otherwise in respect of the Tender Offer.
"Applicable Rate" means a rate of interest per annum equal to
the sum of 3% plus 30-day LIBOR.
"Available Cash" means those amounts of cash of Borrower which
are determined, from time to time, by Borrower not to be necessary to satisfy
present or future claims or obligations of Borrower (excluding amounts owing in
respect of the Loan).
"Available Cash Attributable to Capital Transactions" means, in
respect of any Interest Period, the amount of Available Cash generated during
such Interest Period in excess of the amount of Available Cash From Operations
generated during such Interest Period.
"Available Cash From Operations" means, in respect of any
Interest Period, the amount of Available Cash generated during such Interest
Period from all sources other than Capital Transactions.
3
"Bankruptcy Code" means Title 11 of the United States Code
entitled "Bankruptcy", as now or hereafter in effect, or any successor statute.
"Borrower" has the meaning set forth in the introductory
paragraph to this Agreement.
"Business Day" means any day excluding Saturday, Sunday and any
day which is a legal holiday under the laws of the State of New York, the City
of Boston, Massachusetts or in the City of London, England or is a day on which
banking institutions located in such State or City are authorized or required
by law or other governmental action to close.
"Capital Transaction" means any sale, transfer or financing
transaction involving any asset of Borrower or any other Person in which
Borrower owns any interest directly or indirectly and which transaction results
in equity distributions or other payments to Borrower or any Affiliate of
Borrower.
"Closing Date" means the date on which Borrower shall acquire
Units and shall (in the event more than 50.5% of the Units are tendered
pursuant to the Tender Offer) fund Unit Loans pursuant to the Tender Offer.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor statute or statutes to the Internal Revenue Code
of 1986.
"Collateral" has the meaning set forth in the Pledge and
Security Agreement.
"Event of Default" has the meaning set forth in Article 7.
"Governmental Authority" means any federal, state, local or
foreign court or governmental agency, authority, instrumentality or regulatory
body.
"Interest Period" means the period commencing with the
acquisition of the Units and funding of the Loan and ending on the last day of
the calendar month in which such funding occurs and each subsequent calendar
month, or portion thereof, prior to repayment in full of all principal,
interest and other amounts owing in respect of the Loan.
4
"Lender" has the meaning set forth in the introductory
paragraph to this Agreement.
"Lien" means any lien, mortgage, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement or any lease in the nature thereof).
"Loan" has the meaning set forth in Section 2.01.
"Loan Documents" means (i) this Agreement, (ii) the Note
and(iii) the Pledge and Security Agreement.
"Maturity Date" has the meaning set forth in Section 2.03.
"Note" means a Note of Borrower in the form of Exhibit B
hereto.
"Obligations" means all amounts, direct or indirect, contingent
or absolute, of every type or description, and at any time existing, owing by
Borrower to Lender pursuant to the terms of this Agreement or any other Loan
Document.
"Partners" means the partners from time to time of Borrower.
"Partnership" has the meaning set forth in the Recitals.
"Person" means and includes natural persons, corporations,
limited partnerships, general partnerships, joint stock companies, joint
ventures, associations, companies, trusts, banks, trust companies, land trusts,
business trusts or other organizations, whether or not legal entities, and
governments and agencies and political subdivisions thereof.
"Pledge and Security Agreement" means the Pledge and Security
Agreement in the form of Exhibit C hereto.
"Subsidiary" with respect to any Person, means any corporation
or other entity of which a majority of (i) the voting power of the voting
equity securities or (ii) the outstanding equity interest is owned, directly or
indirectly, by such Person.
5
"Taxes" has the meaning set forth in Section 4.06.
"30-day LIBOR" means such rate of interest from time to time
appearing on Telerate page 3750 or, if such rate is unavailable, a substitute
indicator of such rate selected by Lender in its reasonable discretion.
ARTICLE 2
Acquisition Loan
Section 2.01. Commitment. Subject to the terms and conditions
of this Agreement, Lender hereby commits to advance to Borrower, in one or more
advances, on, prior to or after, the Closing Date an acquisition loan (the
"Loan") to finance the purchase of Units, to fund Unit Loans (if more than
50.5% of the Units are tendered pursuant to the Tender Offer) and to pay all
reasonable expenses related thereto and to the Tender Offer. The principal
amount of the Loan shall be equal to the lesser of $25,000,000 and the
Aggregate Acquisition Cost.
Section 2.02. Notice of Borrowing. Borrower shall deliver to
Lender a Notice of Borrowing substantially in the form of Exhibit A hereto not
later than 10:00 a.m. on the Business Day immediately preceding the Closing
Date and each other date on which Borrower wishes to requisition funds
hereunder, which Notice of Borrowing shall set forth the amount to be funded on
such date, together with funding instructions. Upon timely receipt of a Notice
of Borrowing from Borrower and satisfaction of all other conditions precedent
in this Agreement, Lender shall not later than 3:00 p.m. on the requested
funding date advance to Borrower the amount requested in such Notice of
Borrowing.
Section 2.03. Term. The entire principal amount of the Loan,
together with any accrued interest and other amounts payable under the Loan
Documents, shall be due on the date (the "Maturity Date") that is the tenth
anniversary of the Closing Date.
Section 2.04. Conditions. Lender's obligation to fund any
amount of the Loan shall be subject to the following conditions:
(a) each representation and warranty set forth in the Loan
Documents shall be true and correct in all material respects;
6
(b) there shall not have occurred and be continuing any
Event of Default or event which, with the passage of time, the giving of notice
or both, would constitute an Event of Default;
(c) Borrower shall have executed and delivered to Lender
the Note;
(d) Borrower shall have executed and delivered to Lender the
Pledge and Security Agreement, together with any supplements thereto requested
by Lender and shall have filed or cause to be filed all UCC-1 financing
statements therein contemplated to be filed in the Pledge and Security
Agreement; and
(e) there shall not have occurred any material adverse
change in the business, prospects, assets or financial condition of Borrower
since the date of this Agreement.
ARTICLE 3
Interest
Section 3.01. Interest Rate. The Loan shall bear interest
(computed on the basis of the actual number of days elapsed over a year of 360
days) during each Interest Period at a rate per annum equal to the Applicable
Rate as determined by Lender at approximately 10:00 a.m. on the first Business
Day of such Interest Period.
Section 3.02. Method of Payment. Interest for each Interest
Period shall be payable on the last day of each Interest Period; provided,
however, that so long as there shall not have occurred and be continuing any
Event of Default, until the Maturity Date, payment of interest on and principal
of the Loan need be paid in cash only to the extent of Available Cash. To the
extent interest for an Interest Period is not paid currently in cash, it shall
compound monthly and, to the maximum extent permitted by law, accrue interest
until paid in full.
7
ARTICLE 4
Prepayments and Payments
Section 4.01. Mandatory Prepayments of Loan.
(a) Upon the occurrence and during the continuance of an
Event of Default, Lender shall be entitled to demand immediate payment in full
of all principal and accrued interest in respect of the Loan and exercise all
available remedies to collect amounts outstanding in respect thereof.
(b) On the date of receipt by Borrower or any Person
controlled by Borrower of Available Cash Attributable to Capital Transactions,
Borrower shall prepay the Loan in the amount of such Available Cash
Attributable to Capital Transactions.
(c) If not sooner paid, Borrower shall pay to Lender on the
Maturity Date, without setoff, deduction or defense of any kind or character,
all principal, interest and other amounts of whatever kind or character
outstanding under the Loan Documents.
Section 4.02. Voluntary Prepayments. Borrower shall have the
right to prepay the Loan in whole or in part from time to time, without premium
or penalty, on the following terms and conditions: (i) Borrower shall give
Lender written notice of its intent to prepay the Loan and the amount of such
prepayment, which notice shall be given by Borrower at least one Business Day
prior to the date of such prepayment; and (ii) each partial prepayment of the
Loan shall be in an aggregate principal amount of at least $100,000 and
integral multiples of $100,000 in excess of that amount.
Section 4.03. Application of Proceeds. All prepayments
hereunder shall include payment of accrued interest on the principal amount so
prepaid and shall be applied to payment of interest before application to
principal.
Section 4.04. Manner and Time of Payment. All payments of
principal, interest and fees hereunder and under the Note shall be made without
defense, setoff or counterclaim and in same day funds and delivered to Lender
not later than 12:00 Noon (New York time) on the date due at its office located
at 2 World Financial Center, Building B, New York, New York for the account of
Lender; funds received by Lender after that time
8
shall be deemed to have been paid by Borrower on the next succeeding Business
Day.
Section 4.05. Payments on Non-Business Days. Whenever any
payment to be made hereunder or under the Note shall be stated to be due on a
day which is not a Business Day, such payment shall be made on the next
succeeding Business Day and such extension of time shall be included in the
computation of the payment of interest hereunder or under the Note or of fees
hereunder, as the case may be.
Section 4.06. Taxes.
(a) No Withholding. Any and all payments by Borrower
hereunder shall be made free and clear of and without deduction for any and all
current or future taxes, levies, imposts, deductions, charges or withholdings,
and all liabilities with respect thereto, excluding taxes imposed on the net
income of Lender and franchise taxes imposed on Lender by the United States or
any jurisdiction under the laws of which Lender is organized or has its
principal office or lending office or any political subdivision or taxing
authority thereof or therein (all such nonexcluded taxes, levies, imposts,
deductions, charges, withholdings and liabilities, "Taxes"). If any Taxes are
required to be deducted from or in respect of any sum payable hereunder to
Lender, the sum payable shall be increased by the amount necessary so that
after making all required deductions (including deductions applicable to
additional sums payable under this Section 4.06) Lender shall receive an amount
equal to the sum it would have received had no such deductions been made.
(b) Documentary and Similar Taxes. Borrower agrees to pay
any current or future stamp, intangible or documentary taxes or any other
excise or property taxes, charges or similar levies that arise from any payment
made hereunder or from the execution, delivery or registration of, or otherwise
with respect to, this Agreement or any other Loan Document (hereinafter
referred to as "Other Taxes").
(c) Survival. Without prejudice to the survival of any
other agreement contained herein, the agreements and obligations contained in
this Section 4.06 shall survive the payment in full of the principal of,
interest on, and all other amounts from time to time owing in respect of the
Loan.
9
Section 4.07. Increased Costs. If, by reason of (A) the
introduction of or any change in or in the interpretation of any law or
regulation, or (B) the compliance with any guideline or request from any
central bank or other governmental authority or quasi-governmental authority
exercising control over banks or financial institutions generally (whether or
not having the force of law), in each case after the date hereof:
(i) Lender shall be subject to any tax, duty or other charge
with respect to the Loan or its obligation to make a portion of the Loan, or
shall change the basis of taxation of payments to Lender of the principal of or
interest on the Loan or its obligation to make a portion of the Loan (except
for changes in the rate of tax on the overall net income of Lender imposed by
the jurisdiction in which Lender's principal executive office is located); or
(ii) any reserve (including, without limitation, any imposed
by the Board of Governors of the Federal Reserve System), special deposit or
similar requirement against assets of, deposits with or for the account of, or
credit extended by Lender shall be imposed or deemed applicable or any other
condition affecting the Loan or its obligation to make a portion of the Loan
shall be imposed on Lender;
and as a result thereof there shall be any increase in the cost to Lender of
agreeing to make or making, funding or maintaining the Loan, or there shall be
a reduction in the amount received or receivable by Lender, then Borrower shall
from time to time, upon written notice from and demand by Lender, pay to
Lender, within five Business Days after the date specified in such notice and
demand, additional amounts sufficient to indemnify Lender against such
increased cost or such reduction. A certificate as to the amount of such
increased cost, submitted to Borrower by Lender, shall, except for manifest
error, be final, conclusive and binding for all purposes. In determining such
amount, Lender shall use any method of averaging and attribution that it (in
its reasonable discretion) shall deem applicable.
10
ARTICLE 5
Representations and Warranties
In order to induce Lender to enter into this Agreement and to
make the Loan, Borrower represents and warrants to Lender that the following
statements are true, correct and complete:
Section 5.01. Organization and Powers. Borrower is a limited
partnership duly organized, validly existing and in good standing under the
laws of the State of Delaware. Borrower has all requisite partnership power
and authority to own and operate its properties, to carry on its business as
now conducted and proposed to be conducted, to enter into each Loan Document to
which it is a party and to carry out the transactions contemplated hereby and
thereby.
Section 5.02. Authorization of Borrowing. The execution,
delivery and performance of the Loan Documents and the issuance, delivery and
payment of the Note and the grant and continuation of the security interests in
the Collateral pursuant to the Pledge and Security Agreement have been duly
authorized by all necessary action by Borrower.
Section 5.03. Binding Obligation. This Agreement is, and the
Note and the other Loan Documents when executed and delivered will be, the
legally valid and binding obligations of Borrower, enforceable against Borrower
in accordance with their respective terms, except as enforcement may be limited
by bankruptcy, insolvency, reorganization, moratorium or similar laws relating
to or limiting creditors' rights generally or by equitable principles relating
to enforceability.
Section 5.04. Security Interests. On and as of the Closing
Date, the Pledge and Security Agreement creates, as security for the
obligations purported to be secured thereby, a valid and enforceable security
interest in and Lien on all of the Collateral, which Lien shall be a first
priority Lien. No filings or recordings are required in order to perfect the
Liens created under the Pledge and Security Agreement except for filings or
recordings which on or before the date of execution and delivery of the Pledge
and Security Agreement have been made.
Section 5.05. Partners Authorized. The Partners are (i)
Partnership Acquisition Trust I, a Delaware Business Trust,
11
that holds a 1% general partnership interest in Borrower, (ii) Property
Acquisition Trust I, a Delaware Business Trust that holds a 74% limited
partnership interest in Borrower and (iii) WFA as holder of a 25% limited
partnership interest in Borrower. Each of the Partners is duly organized and
validly existing under the laws of the state of its organization and has all
requisite power to enter into and perform its obligations contemplated in the
limited partnership agreement of the Partnership.
ARTICLE 6
Covenants
Borrower covenants and agrees that, until payment in full of
the Loan and all other amounts owing under the Loan Documents, Borrower shall
perform all covenants in this ARTICLE 6.
Section 6.01. Existence, etc. Borrower will at all times
preserve and keep in full force and effect its partnership existence and those
of each of its Subsidiaries and controlled Affiliates; provided, however, that
the existence of any such Subsidiary or controlled Affiliates may be terminated
if such termination is in the best interest of Borrower and is not otherwise
materially disadvantageous to Lender.
Section 6.02. Payment of Taxes and
Claims; Tax Consolidation.
(a) Borrower will, and will cause each of its Subsidiaries
and controlled Affiliates to, pay all taxes, assessments and other governmental
charges imposed upon it or any of its properties or assets or in respect of any
of its franchises, business, income or property before any material penalty
accrues thereon, and all claims (including, without limitation, claims for
labor, services, materials and supplies) for sums which have become due and
payable and which by law have or may become a material Lien upon any of its
material properties or assets, prior to the time when any material penalty or
fine shall be incurred with respect thereto; provided, however, that no such
charge or claim need be paid if being contested in good faith by appropriate
proceedings promptly instituted and diligently conducted and if such reserve or
other appropriate provision, if any, as shall be required in conformity with
generally accepted accounting principles shall have been made therefor.
12
(b) Borrower will not, and will not permit any of its
Subsidiaries or controlled Affiliates to, file or consent to the filing of any
consolidated income tax return with any Person (other than any of their
respective Subsidiaries or controlled Affiliates or such other Person as may be
reasonably acceptable to Lender).
Section 6.03. Insurance. Borrower will maintain such
insurance in respect of its operations and properties as is customarily
maintained by similar Persons owning similar properties and having a similar
business. Borrower will furnish to Lender, upon reasonable request,
information as to the insurance carried, and will not cancel any such insurance
without the consent of Lender.
Section 6.04. Compliance with Laws, etc. Borrower will, and
will cause its Subsidiaries and controlled Affiliates to, comply with the
requirements of all applicable laws, including environmental laws, rules,
regulations and orders of any Governmental Authority noncompliance with which
would materially adversely affect the business, properties, assets, operations
or condition (financial or otherwise) of Borrower.
Section 6.05. Security Interests.
(a) Borrower shall perform any and all acts and execute any
and all documents (including, without limitation, the execution, amendment or
supplementation of any financing statement and continuation statement or other
statement) for filing under the provisions of the Uniform Commercial Code as in
effect in any applicable jurisdiction and the rules and regulations thereunder,
or any other statute, rule or regulation of any applicable federal, state or
local jurisdiction, which are reasonably necessary or advisable, from time to
time, in order to grant, continue and maintain in favor of Lender a valid and
perfected first priority Lien on the Collateral.
(b) Borrower agrees to secure the Obligations with a pledge
and/or security interest in all of its assets as constituted from time to time.
In furtherance of such agreement, Borrower shall deliver or cause to be
delivered to Lender from time to time such security documents, pledge
agreements, assignments, consents, authorizations, approvals and orders in form
and substance satisfactory to Lender as Lender shall deem reasonably necessary
or advisable to grant Liens on any Collateral acquired by Borrower after the
Closing Date and/or to perfect or continue such Liens for the benefit of
Lender.
13
(c) Borrower shall pay all reasonable expenses incurred by
Borrower or Lender (including Lender's counsel fees and filing fees) in
connection with Borrower's agreements in this Section 6.05.
ARTICLE 7
Events of Default
Section 7.01 Events of Default. The occurrence of any of the
following conditions shall be an "Event of Default":
(a) Failure to Make Payment at Maturity. Failure to pay
all amounts owing in respect of the Obligations on the Maturity Date;
(b) Failure To Make Payments When Due. Failure to apply
Available Cash to pay any installment of principal or interest when due (other
than any such installment due on the Maturity Date), or to pay for 5 days after
the day when due any other amount due under this Agreement;
(c) Breach of Warranty. Any representation or warranty made
by Borrower hereunder or under any of the other Loan Documents shall be false
in any material respect on the date as of which made;
(d) Other Defaults Under Agreement or Loan Documents.
Borrower shall default in the performance of or compliance with any material
covenant contained in this Agreement or any other Loan Document other than
those referred to above in Sections 7.01(b) or (c) and such default shall not
have been remedied or waived within 30 days after receipt of notice from Lender
of such default;
(e) Failure of Security. The Pledge and Security Agreement
shall, at any time, cease to be in full force and effect or shall be declared
null and void, or the legality, validity or enforceability thereof shall be
contested by Borrower or Lender shall not have or cease to have a valid and
perfected Lien in the Collateral for any reason other than the failure of
Lender to take any action within its control, or shall fail to perform or
observe in any material respect any term of the Pledge and Security Agreement;
14
(f) Sale of Assets, Merger. Borrower shall sell all or
substantially all of its assets or merge with any other Person;
(g) Change of Control. Lender shall, for any reason, cease to
control Borrower; or
(h) Insolvency or Bankruptcy Proceedings. The commencement by
or on behalf of Borrower or against Borrower or the general partner of Borrower
of any insolvency of bankruptcy proceeding (which proceeding, in the case of an
involuntary proceeding, remains undismissed for a period exceeding 60 days)
relating to Borrower.
Section 7.02 Remedies. If an Event of Default shall have
occurred and be continuing, then (A) upon the occurrence of and during the
continuance of any Event of Default described in Section 7.02(h), the unpaid
principal amount of and accrued interest on the Loan shall, notwithstanding the
provisions of the proviso set forth in Section 3.02, automatically become
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by Borrower
and (B) upon the occurrence of and during the continuance of any other Event of
Default, Lender may, by written notice to Borrower, declare the Loan to be, and
the same shall forthwith become, due and payable, together with accrued
interest thereon. Whether or not the Loan or other obligations hereunder shall
have been accelerated or become due as set forth above, upon the occurrence and
during the continuance of any Event of Default, Lender may exercise any remedy
available under the Loan Documents or applicable law in respect thereof
(including, without limitation, foreclosure of the Liens in respect of the
Collateral).
ARTICLE 8
Miscellaneous
Section 8.01. Amendments and Waivers. Neither this Agreement
nor any other Loan Document nor any terms hereof or thereof may be changed,
waived, discharged or terminated unless such change, waiver, discharge or
termination is evidenced by a writing signed by Borrower and Lender. Any
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which it was given. No notice to or demand on Borrower in
any case shall entitle Borrower to any further notice or demand in similar or
other circumstances.
15
Section 8.02. Notices. Any notice or communication required
or permitted by this Agreement shall be deemed delivered for every purpose
hereunder if given in writing, addressed to the receiving party's address set
forth below, and either (i) delivered by hand, (ii) sent by tested telex or
telecopied with the transmission confirmed, (iii) sent by overnight courier, or
(iv) sent by certified mail or registered mail, return receipt requested,
postage prepaid, as follows:
To Borrower: Aquarius Acquisition, L.P.
2 World Financial Center
Building B
New York, New York 10281-1198
Attn: Daniel S. Abrams
To Lender: Nomura Asset Capital Corporation
2 World Financial Center
Building B
New York, New York 10281-1198
Attn: Brian Pilcher
Section 8.03. Survival of Warranties and Certain Agreements.
All agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making and repayment of the Loan
and other disbursements hereunder and the execution and delivery of the Note.
Section 8.04. Failure or Indulgence Not Waiver; Remedies
Cumulative. No failure or delay on the part of Lender in the exercise of any
power, right or privilege under any Loan Document shall impair such power,
right or privilege or be construed to be a waiver of any default or
acquiescence therein, nor shall any single or partial exercise of any such
power, right or privilege preclude other or further exercise thereof or of any
other right, power or privilege. All rights and remedies existing under any
Loan Document are cumulative to and not exclusive of, any rights or remedies
otherwise available.
Section 8.05. Severability. In case any provision in or
obligation under this Agreement or the other Loan Documents shall be invalid,
illegal or unenforceable in any jurisdiction, the validity, legality and
enforceability of the remaining provisions or obligations, or of such provision
or obligation in any other jurisdiction, shall not, to the extent permitted by
law, in any way be affected or impaired thereby.
16
Section 8.06. Headings. Section and subsection headings in
this Agreement are included herein for convenience of reference only and shall
not constitute a part of this Agreement for any other purpose or be given any
substantive effect.
Section 8.07. Applicable Law. THIS AGREEMENT AND THE NOTES
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO THE PRINCIPLES OF CONFLICTS
OF LAWS.
Section 8.08. Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST BORROWER WITH RESPECT TO THIS
AGREEMENT OR THE NOTE MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT
JURISDICTION IN THE STATE OF NEW YORK AND BY EXECUTION AND DELIVERY OF THIS
AGREEMENT, BORROWER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES,
GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID
COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY IN
CONNECTION WITH THIS AGREEMENT SUBJECT TO RIGHT OF APPEAL. NOTHING HEREIN
SHALL LIMIT THE RIGHT OF LENDER TO BRING PROCEEDINGS AGAINST BORROWER IN THE
COURTS OF ANY OTHER JURISDICTION.
Section 8.09. Counterparts; Effectiveness. This Agreement and
any amendments, waivers, consents or supplements may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed and delivered shall be deemed an original, and all of
which counterparts together shall constitute the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto.
Section 8.10. Exculpation. This Agreement has been executed
by Borrower, and not individually by any officer or employee of Borrower or of
Borrower's general partner, and none of the officers or shareholders of
Borrower or of Borrower's general partner, individually, shall be bound or have
any personal liability hereunder. Lender and its successors in interest shall
look solely to the assets and general credit of Borrower for satisfaction of
any liability of Borrower in respect of this Agreement and will not seek
recourse or commence any action against any officers or employees of Borrower
or of Borrower's general partner, or any of their personal assets for the
performance or payment of any obligation hereunder.
17
Section 8.11. Waiver of Jury Trial. Each of Borrower and
Lender hereby irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or related to any of the Loan Documents or the negotiation,
administration, performance or enforcement thereof.
18
IN WITNESS WHEREOF, this Agreement has been executed as of the
date first set forth above.
AQUARIUS ACQUISITION, L.P.
By: PARTNERSHIP ACQUISITION TRUST I
its General Partner
By:_________________________________
Name:
Title:
NOMURA ASSET CAPITAL CORPORATION
By:_________________________________
Name:
Title:
Exhibit A
FORM OF NOTICE OF BORROWING
Pursuant to that certain Acquisition Loan Agreement (the "Loan
Agreement"; capitalized terms used herein but not defined shall have the
meanings given such terms in the Loan Agreement), dated as of __, 1995,
by and between Aquarius Acquisition, L.P., a Delaware limited partnership
("Borrower"), and NOMURA ASSET CAPITAL CORPORATION, a Delaware corporation
("Lender"), this represents Borrower's notice that Lender shall advance to
Borrower $ on , 19 (the "Funding Date"). The
proceeds of this borrowing are to be deposited as follows:
The undersigned officer and Borrower certify that: (a) the
amount of the Loan to be funded on the Funding Date, together with all prior
fundings under the Loan Agreement, does not exceed the Aggregate Acquisition
Cost and (b) Borrower has performed in all material respects all agreements and
satisfied all conditions under the Loan Agreement required to be performed by
it on or before the date hereof.
Dated:
AQUARIUS ACQUISITION, L.P.
By: PARTNERSHIP ACQUISITION TRUST I
its General Partner
By:_________________________
Title:
Exhibit B
FORM OF RECOURSE TERM NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. THIS
NOTE MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN
EXEMPTION THEREFROM UNDER SAID ACT. THIS NOTE IS SUBJECT TO THE PROVISIONS OF
THE ACQUISITION LOAN AGREEMENT REFERRED TO HEREIN AND MAY NO T BE TRANSFERRED
BY THE HOLDER WITHOUT COMPLIANCE WITH THE APPLICABLE PROVISIONS THEREOF.
As of __, 1995 Principal Amount:
New York, New York $ ______________
Aquarius Acquisition, L.P., a limited partnership organized
under the laws of the State of Delaware ("Borrower"), for value received,
hereby promises to pay to NOMURA ASSET CAPITAL CORPORATION (together with any
permitted assignee or successor holder of this Note, "Lender"), in immediately
available funds by wire transfer to Lender's account at a bank in the United
States designated by Lender, on the date set forth in the Loan Agreement (as
hereinafter defined), in lawful money of the United States, the principal sum
of $25,000,000 or so much thereof as shall have been advanced hereunder.
Borrower also promises to pay interest on the unpaid principal
amount hereof in like money at said account from the date hereof until paid at
the rates and at the times provided in the Loan Agreement.
This Note is the Note referred to in the Acquisition Loan
Agreement, dated as of January __, 1995, by and between Borrower and Lender (as
amended or otherwise modified in accordance with its terms, the "Loan
Agreement") and is entitled to the benefits thereof and shall be subject to the
provisions thereof. This Note is also entitled to the benefits of the Pledge
and Security Agreement and any other Loan Documents (as such terms are defined
in the Loan Agreement). As provided in the Loan Agreement, this Note is
subject to mandatory and voluntary prepayment, in whole or in part.
In case an Event of Default (as defined in the Loan Agreement)
shall occur and be continuing, the principal of and
2
accrued interest on this Note may be declared to be due and payable in the
manner and with the effect provided in the Loan Agreement.
Borrower expressly waives any presentment, demand, protest or
other notice of any kind in connection with this Note.
In the event Lender institutes any action for the enforcement
or collection of this Note or the enforcement of any of Lender's rights under
the Loan Agreement, Borrower shall pay on demand all costs and expenses of such
action, including, without limitation, legal fees.
THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF
LAWS.
3
IN WITNESS WHEREOF, Borrower has caused this Note to be
executed in its partnership name by its general partner as of the date first
written above.
AQUARIUS ACQUISITION, L.P.
By: PARTNERSHIP ACQUISITION TRUST I
its General Partner
By:____________________________
Title:
4
Exhibit C
FORM OF PLEDGE AND SECURITY AGREEMENT
Exhibit C
to Loan Agreement
PLEDGE AND SECURITY AGREEMENT
between
AQUARIUS ACQUISITION, L.P.,
as Pledgor,
and
NOMURA ASSET CAPITAL CORPORATION,
as Pledgee
Dated as of January __, 1995
PLEDGE AND SECURITY AGREEMENT
PLEDGE AND SECURITY AGREEMENT, dated as of January __, 1995
(this "Agreement"), made by AQUARIUS ACQUISITION, L.P., a Delaware limited
partnership ("Pledgor"), having its principal place of business and chief
executive office at c/o Winthrop Financial Associates, One International Place,
Boston, Massachusetts 02110, for the benefit of NOMURA ASSET CAPITAL
CORPORATION, a Delaware corporation ("Pledgee"), having an office at 2 World
Financial Center, Building B, New York, New York 10281-1198.
R E C I T A L S:
A. Pledgor is the borrower, and Pledgee is the lender,
under a certain Acquisition Loan Agreement, of even date (the "Loan Agreement")
herewith.
B. Pursuant to the Loan Agreement, Pledgee proposes to make
a loan (the "Loan") to Pledgor to finance the acquisition by Pledgor of certain
partnership interests and to enable Pledgor to fund the Unit Loans (as defined
in the Loan Agreement).
C. Pledgor has agreed to pledge to Pledgee its interest in
the Collateral (as hereinafter defined) on the terms and conditions set forth
herein.
A G R E E M E N T:
NOW, THEREFORE, in consideration of the foregoing, and in order
to induce Pledgee to make the Loan and for other good and valuable
consideration, the receipt of which is hereby acknowledged, Pledgor does hereby
agree with Pledgee, as follows:
1. Definitions. Unless the context otherwise requires,
capitalized terms used herein without definition that are defined in the Loan
Agreement shall have the respective meanings provided therefor in the Loan
Agreement, and the following terms shall have the following meanings:
"Code" means the Uniform Commercial Code, as enacted in the
State of New York, as amended.
2
"Partnership Interests" means all equity or other interests in
any limited or general partnership from time to time acquired or held in any
manner by Pledgor.
2. Grant of Security Interest, Etc. As security for the
full and punctual payment and performance of the Obligations when due (whether
upon stated maturity, by acceleration or otherwise), Pledgor hereby grants and
pledges a continuing first priority lien on and security interest in, and, as a
part of such grant and pledge, hereby transfers and assigns to Pledgee as
security, all of the following (the "Collateral"), whether now owned or
hereafter acquired: (a) all Partnership Interests and all of Pledgor's right,
title and interest in any Partnerships as a partner and in the partnership
agreements relating thereto (the "Partnership Agreements"), including, without
limitation: (i) all of Pledgor's interest in the capital of the Partnerships
and Pledgor's interest in all profits and distributions to which Pledgor shall
at any time be entitled in respect of the Partnership Interests, (ii) all other
payments, if any, due or to become due to Pledgor in respect of the Partnership
Interests, under or arising out of the Partnership Agreements, whether as
contractual obligations, damages, insurance proceeds, condemnation awards or
otherwise, (iii) all of Pledgor's claims, rights, powers, privileges,
authority, options, security interests, liens and remedies, if any, under or
arising out of the Partnership Agreements or the ownership of the Partnership
Interests pursuant thereto, (iv) all present and future claims, if any, of
Pledgor against any Partnership under or arising out of the applicable
Partnership Agreement for monies loaned or advanced, for services rendered or
otherwise, and (v) to the extent permitted by applicable law, all of Pledgor's
rights, if any, under the Partnership Agreements or at law, to exercise and
enforce every right, power, remedy, authority, option and privilege of Pledgor
relating to the Partnership Interests, including any power to terminate, cancel
or modify any Partnership Agreement, to execute any instruments and to take any
and all other action on behalf of and in the name of Pledgor in respect of any
Partnership Interests, to make determinations, to exercise any election
(including, but not limited to, election of remedies) or option or to give or
receive any notice, consent, amendment, waiver or approval, together with full
power and authority to demand, receive, enforce or collect any of the foregoing
or any property of the Partnership, to enforce or execute any checks, or other
instruments or orders, to file any claims and to take any action in connection
with any of the foregoing; (b) all of Pledgor's personal property, tangible and
intangible, wherever the same may
3
be located, from time to time; (c) all of Pledgor's right, title and interest
under any agreement between Pledgor, as lender, and any partner of any
Partnership, as borrower, and under any note, security agreement or other
document executed by any such partner in favor of Pledgor, including, without
limitation, any partnership or other equity ownership interest in the
Partnership owned or held by such limited partner and pledged to Pledgor in
connection with such agreement; and (d) to the extent not otherwise included
above, all proceeds of any or all of the foregoing.
3. Powers of Pledgor Prior to an Event of Default. Prior
to the occurrence and continuance of an Event of Default, Pledgor shall be
entitled to receive and retain all distributions with respect to the
Partnership Interests; provided, however, that all Available Cash shall be
applied to the payment of the Obligations as set forth in the Loan Agreement.
Unless an Event of Default shall have occurred and then be continuing, Pledgor
shall be entitled to exercise the voting, consent and other rights and remedies
of Pledgor under the Partnership Agreements or otherwise with respect to the
Partnership Interests, including, without limitation, those referred to in
Section 2 hereof; provided, however, that Pledgor shall not intentionally take
or fail to take any action the taking or failure of which to take (i) would be
reasonably likely to materially adversely affect Pledgee's rights to the
Collateral or (ii) would violate any provision of this Agreement or any of the
other Loan Documents.
4. Representations, Warranties and Covenants. Pledgor
hereby covenants with, and represents and warrants to, Pledgee, as of the date
hereof:
(a) Pledgor will defend Pledgee's right, title and interest in and
to the Collateral against the claims and demands of all other Persons.
(b) Pledgor is the legal and beneficial owner of and has good title
to the Partnership Interests and in and to the Collateral in which it has
granted a security interest pursuant hereto, free and clear of all claims or
security interests of every nature whatsoever, except such claims or security
interests as are created pursuant to this Agreement, and is not prohibited
under any Partnership Agreement from pledging and granting a security interest
in the same as herein provided.
4
(c) All consents and approvals required for the execution and
delivery of this Agreement and the consummation of the transactions
contemplated by this Agreement have been obtained.
(d) Pledgor will not sell, assign, or otherwise dispose of, or
mortgage, pledge or grant a security interest in, any of the Collateral or any
interest therein, or suffer any of the same to exist and any sale, assignment,
mortgage, pledge or security interest whatsoever made in violation of this
covenant shall be a nullity and of no force and effect, and upon demand of
Pledgee, shall forthwith be cancelled or satisfied by an appropriate instrument
in writing. Without limiting the generality of the foregoing, Pledgor will,
within thirty (30) days after Pledgor has actual notice thereof, discharge or
cause to be discharged as a lien of record by payment or filing of the bond
required by law, or otherwise, any judgment, tax or other involuntary liens
filed or otherwise asserted against the Collateral, and any proceedings for the
enforcement thereof; provided, however, that Pledgor shall have the right to
contest in good faith and with reasonable diligence the validity of any such
judgment liens or tax or other such involuntary liens upon the filing of such
bond or, if no such bond is required by law to be filed, establishing reserves
in accordance with generally accepted accounting principles. If Pledgor fails
so to discharge or bond or contest liens in the manner provided above, then
Pledgee may, but shall not be required to, procure the release and discharge of
any such lien and any judgment or decree thereon, and in furtherance thereof
may effect any reasonable settlement or compromise or furnish any security or
indemnity as may be required.
(e) The chief executive office of Pledgor is Two World Financial
Center, Building B, New York, New York 10281-1198, and the principal place
where Pledgor's records concerning the Collateral are kept is Two World
Financial Center, Building B, New York, New York 10281-1198. Pledgor will not
change such chief executive office or remove such records unless Pledgor shall
provide Pledgee with written notice thereof within thirty (30) days after such
change (but, in any event, within the period required pursuant to the Code) and
there shall have been taken such action, reasonably satisfactory to Pledgee, as
may be necessary to maintain the security interest of Pledgee hereunder at all
times fully perfected
5
and in full force and effect. Pledgor shall not change its name unless Pledgor
shall have given Pledgee written notice thereof within thirty (30) days after
such change (but, in any event, within the period required pursuant to the
Code) and shall have taken such action, reasonably satisfactory to Pledgee, as
may be necessary to maintain the security interest of Pledgee in the Collateral
granted hereunder at all times fully perfected and in full force and effect.
(f) Pledgor shall deliver to Pledgee a copy of each notice of
default given or received by it under any Partnership Agreement, promptly, but
in any event within ten (10) Business Days, after Pledgor gives or receives
such notice.
(g) Without the prior written consent of Pledgee (which will not be
unreasonably withheld), Pledgor will not permit any Person controlled, directly
or indirectly, by Pledgor and which owns an interest, directly or indirectly,
in any other Person (the "Affected Person") to vote for, consent or acquiesce
in any proposal, amendment, resolution or other instrument to sell, lease or
grant a security interest in respect of all or substantially all the assets of
the Affected Person or to dissolve or liquidate the Affected Person. Without
the prior written consent of Pledgee (which will not be unreasonably withheld),
Pledgor will not terminate or agree to terminate and will not materially amend
or modify, or agree to materially amend or modify, any Partnership Agreement or
waive compliance with any material provision thereof.
(h) Pledgor shall, at its sole cost and expense, keep, observe,
perform and discharge, duly and punctually, all and singular, the material
obligations, terms, covenants, conditions, representations and warranties of
the Partnership Agreements on the part of Pledgor to be kept, observed,
performed and discharged if the failure to do so would have a material adverse
effect on the value of the Collateral.
(i) Pledgor shall enforce all loan or other obligations of third
parties which from time to time comprise a portion of the Collateral.
6
5. Application of Collateral. All proceeds of any
Collateral now or at any time hereafter received or retained by Pledgee
pursuant to the provisions of this Agreement (including, without limitation,
any proceeds from the sale of all or any portion of the Partnership Interests,
and all distributions, liquidating and otherwise, received by Pledgee in
respect of the Partnership Interests) shall, during the continuance of an Event
of Default, be applied by Pledgee to the Obligations pursuant to the terms of
the Loan Agreement.
6. Remedies. If an Event of Default shall occur and be
continuing:
(a) Pledgee, without obligation to resort to any other security,
right or remedy granted under any other agreement or instrument, shall have the
right to, in addition to all rights, powers and remedies of a secured party
pursuant to the Code, at any time and from time to time, (i) cause any or all
of the Partnership Interests to be registered in or transferred into the name
of Pledgee or into the name of a nominee or nominees, or designee or designees,
of Pledgee; and/or (ii) sell, resell, assign and deliver, in its sole
discretion, any or all of the Collateral or any other collateral security for
the Obligations (in one or more parcels and at the same or different times) and
all right, title and interest, claim and demand therein and right of redemption
thereof, at public or private sale, for cash, upon credit or for future
delivery as Pledgee may deem appropriate in a commercially reasonable manner,
and in connection therewith Pledgee may grant options and may impose reasonable
conditions such as requiring any purchaser to represent that any "securities"
constituting any part of the Collateral are being purchased for investment
only, Pledgor hereby waiving and releasing any and all equity or right of
redemption. If all or any of the Collateral is sold by Pledgee upon credit or
for future delivery, Pledgee shall not be liable for the failure of the
purchaser to purchase or pay for the same and, in the event of any such
failure, Pledgee may resell such Collateral. Pledgee may exercise its rights
with respect to less than all of the Collateral, leaving unexercised its rights
with respect to the remainder of the Collateral; provided, however, that such
partial exercise shall in no way restrict or jeopardize Pledgee's right to
exercise its rights with respect to all or any other portion of the Collateral
at a later time or times.
7
(b) Pledgee may exercise, either by itself or by its nominee or
designee, in the name of Pledgor, all of the rights, powers and remedies
granted to Pledgee in Section 2 hereof in respect of the Partnership
Agreements, the Partnership Interests, the Partnerships and the other
Collateral, and may exercise and enforce all of Pledgee's rights and remedies
hereunder and under law. Such rights and remedies shall include, without
limitation, the right to exercise all voting, consent and other rights relating
to the Partnership Interests, whether in Pledgor's name or otherwise.
(c) Pledgee may exercise all of the rights and remedies of a
secured party under the Code.
7. Attorney-in-Fact.
(a) Pledgor hereby irrevocably, in the name of Pledgor or
otherwise, authorizes and empowers Pledgee and assigns and transfers unto
Pledgee, and constitutes and appoints Pledgee its true and lawful attorney-in-
fact, and as its agent, irrevocably, with full power of substitution for it and
in its name, for the purpose of carrying out the provisions of this Agreement
and taking any action and executing any instrument which Pledgee may deem
necessary or advisable to accomplish the purposes hereof after the occurrence
and during the continuation of an Event of Default. Without limiting the
generality of the foregoing, upon the occurrence and during the continuance of
an Event of Default, Pledgee shall have the right to exercise and enforce every
right, power, remedy, authority, option and privilege of Pledgor under the
Partnership Agreements, including any power to subordinate, terminate, cancel
or modify the Partnership Agreements, or to give any notices, or to take any
action resulting in such subordination, termination, cancellation or
modification and to furnish any information, to make any demands, to execute
any instruments and to take any and all other action on behalf of and in the
name of Pledgor which in the opinion of Pledgee may be necessary or appropriate
to be given, furnished, made, exercised or taken under the Partnership
Agreements in order to comply therewith, to perform the conditions thereof or
to prevent or remedy any default by Pledgor thereunder or to enforce any of
Pledgor's rights thereunder. Pledgee may during such time, without notice to,
or assent by, Pledgor or any other Person (to the extent permitted by law and
the Partnership Agreements), but without affecting any of the Obligations, in
the name of Pledgor or in the name of Pledgee, notify any other
8
party to Partnership Agreement to make payment and performance directly to
Pledgee; extend the time of payment and performance of, compromise or settle
for cash, credit or otherwise, and upon any terms and conditions, any
obligations owing to Pledgor, or claims of Pledgor, under any Partnership
Agreement; file any claims or commence, maintain or discontinue any actions,
suits or other proceedings deemed by Pledgee necessary or advisable for the
purpose of collecting upon or enforcing the Partnership Agreements; execute and
file proof of claim for the full amount of any Collateral and vote such claims
for the full amount thereof (x) for or against proposal or resolution, (y) for
a trustee or trustees or for a receiver or receivers or for a committee of
creditors and/or (z) for the acceptance or rejection of any proposed
arrangement, plan or reorganization, composition or extension, and Pledgee or
its nominee may receive any payment or distribution and give acquittance
therefor and may exchange or release Collateral; and execute any instrument and
do all other things deemed necessary and proper by Pledgee to protect and
preserve and realize upon the Collateral and the other rights contemplated
hereby. This power of attorney is irrevocable and coupled with an interest,
and any similar or dissimilar powers heretofore given by Pledgor in respect of
the Partnership Interests to any other Person are hereby revoked.
(b) Further, without limiting the generality of the
foregoing, Pledgee, after the occurrence and during the continuance of an Event
of Default, shall have the right and power to receive, endorse and collect all
checks and other orders for the payment of money made payable to Pledgor
representing any interest, payment of principal or other distribution payable
in respect of the Collateral or any part thereof, and for and in the name,
place and stead of Pledgor, to execute endorsements, assignments or other
instruments of conveyance or transfer in respect of the Partnership Interests
or any other property which is or may become a part of the Collateral
hereunder.
8. Sales of Collateral. No demand, advertisement or
notice, all of which are hereby expressly waived by Pledgor, shall be required
in connection with any sale or other disposition of all or any part of the
Collateral, except that Pledgee shall give Pledgor (at the address set forth in
the partnership agreement of Pledgor or at such other address of which Pledgor
shall have been notified in writing) at least ten (10) days' prior written
notice of the time and place of any public sale or of the time when and place
where any private sale or other disposition is to be made, which notice Pledgor
hereby agrees
9
is reasonable, all other demands, advertisements and notices being hereby
waived. To the extent permitted by law, Pledgee shall not be obligated to make
any sale of the Collateral if it shall determine not to do so, regardless of
the fact that notice of sale may have been given, and Pledgee may without
notice or publication adjourn any public or private sale, and such sale may,
without further notice, be made at the time and place to which the same was so
adjourned. Upon each private sale of the Collateral of a type customarily sold
in a recognized market and upon each public sale, unless prohibited by any
applicable statute which cannot be waived, Pledgee (or its nominee or designee)
may purchase any or all of the Collateral being sold, free and discharged from
any trusts, claims, equity or right of redemption of Pledgor, all of which are
hereby waived and released to the extent permitted by law, and may make payment
therefor by credit against any of the Obligations. In the case of all sales of
the Collateral, public or private, the proceeds of sale of Collateral shall be
available to cover such costs and expenses and, after deducting costs and
expenses of every kind for sale or delivery (including reasonable brokers' and
attorneys' fees and disbursements and any stamp or transfer tax imposed
thereon) from the proceeds of sale, Pledgee shall apply any residue to the
payment of the Obligations in the order of priority as set forth in the Loan
Agreement.
9. Waivers; Modifications. No delay on the part of
Pledgee in exercising any of its options, powers or rights, or partial or
single exercise thereof, shall constitute a waiver thereof. None of the terms
and conditions of this Agreement may be discharged, changed, waived, modified
or varied in any manner unless in a writing duly signed by the parties hereto.
10. Remedies Cumulative. All rights and remedies afforded
to Pledgee by reason of this Agreement are separate and cumulative remedies,
and shall be in addition to all other rights and remedies in favor of Pledgee
existing at law or in equity or otherwise. No one of such remedies, whether or
not exercised by Pledgee, shall be deemed to exclude, limit or prejudice the
exercise of any other legal or equitable remedy or remedies available to
Pledgee.
11. Notices. Any notice or communication required or
permitted by this Agreement shall be deemed delivered for every purpose
hereunder if given in writing, addressed to the receiving party's address set
forth below, and either (i) delivered by hand, (ii) sent by tested telex or
telecopied with
10
the transmission confirmed, (iii) sent by overnight courier, or (iv) sent by
certified mail or registered mail, return receipt requested, postage prepaid:
If to Pledgor, as follows:
Aquarius Acquisition, L.P.
c/o Winthrop Financial Associates
One International Place
Boston, Massachusetts 02110
Attention: F. X. Jacoby
Telecopy: (617) 330-7969
and, if to Pledgee, as follows:
Nomura Asset Capital Corporation
2 World Financial Center
Building B
New York, New York 10281-1198
Attention: Brian Pilcher
Telecopy: (212) 667-1014
12. Jurisdiction, Etc. Any legal action or proceeding with
respect to this Agreement and any action for enforcement of any judgment in
respect thereof may be brought in the courts of the State of New York or of the
United States of America for the Southern District of New York and, by
execution and delivery of this Agreement, Pledgor hereby accepts for itself and
in respect of its property, generally and unconditionally, the non-exclusive
jurisdiction of the aforesaid courts and appellate courts from any thereof.
Pledgor hereby irrevocably waives any objection which it may now or hereafter
have to the laying of venue of any of the aforesaid actions or proceedings
arising out of or in connection with this Agreement brought in the courts
referred to above and hereby further irrevocably waives and agrees not to plead
or claim in any such court that any such action or proceeding brought in any
such court has been brought in an inconvenient forum. Nothing herein shall
affect the right of Pledgee to commence legal proceedings or otherwise proceed
against Pledgor in any other jurisdiction.
13. Successors and Assigns. This Agreement, and all
representations, warranties and covenants of Pledgor made herein, shall be
binding upon and inure to the benefit of Pledgor and its successors and
assigns, provided that nothing in this Section shall be deemed to constitute
the consent of
11
Pledgee to any transaction in this Agreement elsewhere not permitted. This
Agreement shall be binding upon and shall inure to the benefit of Pledgee and
its successors and assigns.
14. Pledgee Not Bound.
(a) Nothing herein shall be construed to make Pledgee
liable as a general partner of any of the Partnerships, and Pledgee, by virtue
of this Agreement or otherwise (except as referred to in the following
sentence), shall not have any of the duties, obligations or liabilities of a
general partner of any of the Partnerships. The parties hereto expressly agree
that this Agreement shall not be construed as creating a partnership or joint
venture between Pledgee and Pledgor.
(b) Pledgee shall not be obligated to perform or discharge
any obligation of Pledgor as a result of the security interest hereby effected.
(c) The acceptance by Pledgee of this Agreement, with all
the rights, powers, privileges and authority so created, shall not at any time
or in any event obligate Pledgee to appear in or defend any action or
proceeding relating to the Collateral to which it is not a party, or to take
any action hereunder or thereunder, or to expend any money or incur any
expenses or perform or discharge any obligation, duty or liability under the
Collateral.
15. Acts of Pledgee. All Collateral at any time delivered
to Pledgee pursuant hereto shall be held by Pledgee subject to the terms,
covenants and conditions herein set forth. Neither Pledgor nor Pledgee, nor
any of their respective partners, directors, officers, agents, employees or
counsel, shall be liable for any action taken or omitted to be taken by such
party or parties relative to any of the Collateral, except for such party's or
parties' own gross negligence or willful misconduct or breach of this
Agreement. Pledgee shall be entitled to rely in good faith upon any writing or
other document, telegram or telephone conversation reasonably believed by it to
be genuine and correct and to have been signed, sent or made by the proper
person or persons and, with respect to any legal matter, Pledgee may rely in
acting or in refraining from acting upon the advice of counsel selected by it
concerning all matters hereunder.
16. Custody of Collateral; Notice of Exercise of Remedies.
Pledgee shall not have any duty as to the collection
12
or protection of the Collateral or any income thereon or payments with respect
thereto, or as to the preservation of any rights pertaining thereto beyond
exercising reasonable care with respect to the custody of any thereof actually
in its possession. Pledgor hereby waives notice of acceptance hereof and,
except as otherwise specifically provided herein or required by provision of
law which may not be waived, hereby waives any and all notices or demands with
respect to any exercise by Pledgee of any rights or powers which it may have or
to which it may be entitled with respect to the Collateral.
17. Severability. In case any one or more of the
provisions contained in this Agreement shall be found to be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby, and this Agreement shall continue in full force and effect in
accordance with its remaining terms.
18. Further Assurances. Pledgor agrees to do such further
acts and things and to execute and deliver to Pledgee such additional
conveyances, assignments, agreements and instruments as Pledgee from time to
time may reasonably require or deem advisable to carry into effect this
Agreement or to further assure and confirm unto Pledgee its rights, powers and
remedies hereunder, provided none of the foregoing shall increase Pledgor's
obligations hereunder. Pledgor hereby agrees to sign and deliver to Pledgee
financing statements, in form acceptable to Pledgee, as Pledgee may from time
to time reasonably request or as are necessary in the opinion of Pledgee to
establish and maintain a valid and perfected security interest in the
Collateral. Pledgor also authorizes Pledgee, to the extent permitted by law,
to file such financing statements without the signature of Pledgor and further
authorizes Pledgee, to the extent permitted by law, to file a photographic or
other reproduction of this Agreement or of a financing statement in lieu of a
financing statement.
19. Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York
applicable to contracts entered into and to be performed entirely within such
State and without regard to the conflicts or choice of laws rules of such
State. This Agreement, together with the other Loan Documents, sets forth the
entire understanding of the parties hereto with respect to the subject matter
hereof, and supersedes all prior agreements and understandings, whether oral or
written, relating thereto.
13
20. Miscellaneous.
(a) In enforcing any rights hereunder or under any of the
other Loan Documents, Pledgee shall not be required to resort to any particular
security, right or remedy through foreclosure or otherwise or to proceed in any
particular order of priority, or otherwise act or refrain from acting and, to
the extent permitted by law, Pledgor hereby waives and releases any right to a
marshalling of assets or a sale in inverse order of alienation.
(b) Whenever any payment or performance of any obligation
hereunder shall be due on a day which is not a Business Day, such payment or
performance shall be made on the next succeeding Business Day and such
extension of time shall be included in the computation of the time period
within which such payment may be made or performance rendered without an Event
of Default occurring hereunder.
21. Exculpation. This Agreement has been executed by
Pledgor, and not individually by any officer, partner or employee of Pledgor or
of Pledgor's general partner, and none of the officers, partners or employees
of Pledgor or of Pledgor's general partner, individually, shall be bound or
have any personal liability hereunder. Pledgee and its successors in interest
shall look solely to Pledgor for satisfaction of any liability of Pledgor in
respect of this Agreement and will not seek recourse or commence any action
against any of the officers, partners or employees of Pledgor or of Pledgor's
general partner, or any of their personal assets for the performance or payment
of any obligation hereunder.
14
IN WITNESS WHEREOF, the parties have duly executed and
delivered this Agreement as of the day and year first above written.
AQUARIUS ACQUISITION, L.P.
By: PARTNERSHIP ACQUISITION TRUST I
its General Partner
By:_________________________________
Name:
Title:
NOMURA ASSET CAPITAL CORPORATION,
as Pledgee
By:_________________________________
Name:
Title:
Exhibit (b)(1)
[PRICE WATERHOUSE LETTERHEAD]
September 30, 1994
Lerner Corporation
11501 Huff Court
North Bethesda, Maryland 28095-1094
Gentlemen:
Re: Appraisal of the Springhill Lake Apartments located at
9164 Edmonston Road in Prince George's County, Maryland
In accordance with your engagement letter dated September 7, 1994, we have
appraised the property captioned above. We have estimated the market value of
the subject property assuming a market level management fee. In addition, we
have also estimated the market value of the property, subject to the existing
financing and in-place management agreement. The purpose of this report is to
present our findings and conclusions and we understand that it will be used as
part of a Consent Solicitation Statement to the unitholders of Springhill Lake
Investors Limited Partnership and will be filed with the Securities and Exchange
Commission as an exhibit to the Consent Solicitation Statement. The legal
interest appraised is the leased fee interest. The date of the value estimates
is September 12, 1994, under market conditions as observed during the period of
our research during September 1994. The property was inspected on September 12,
1994.
The subject property consists of a 2,899-unit garden apartment complex totalling
2,533,413 square feet of gross living area, plus a clubhouse, shopping center,
daycare center and related site improvements. These improvements are located on
a 154,049 acre site that fronts the west side of Edmonston Road just south of
Capital Beltway (Interstate 495) in Prince George's County, Maryland.
A complete description of the property, together with the sources of information
and the bases of our estimates, are stated in the accompanying sections of this
report. Your attention is called to the Certification, Standard Conditions, and
Special Conditions to follow.
Subject to all conditions and explanations contained in this report, and based
upon our analyses of the subject property and the market, together with our
experience and knowledge of the market gained in appraising similar properties,
our opinion of the market value of the subject property, assuming a market level
management fee, as of September 12, 1994 (As Is) is as follows:
EIGHTY EIGHT MILLION FIVE HUNDRED THOUSAND DOLLARS
$88,500,000
Subject to the Certification, Standard Conditions, and Special Conditions
Based on the analysis of the existing financing, the market value of the subject
property as of September 12, 1994 (As Is), subject to the existing financing and
in-place management agreement, is as follows:
EIGHTY FOUR MILLION SIX HUNDRED THOUSAND DOLLARS
$84,600,000
Subject to the Certification, Standard Conditions, and Special Conditions
There are currently some reported environmental problems at the subject
property. Your attention is called to both the Special Conditions section (page
vii) of the report as well as the Site Conditions (page 11) for more detail on
the environmental conditions of the subject property.
Neither the underground storage tank (UST) remediation nor the dry cleaners soil
and concrete remediation are considered in the value estimates presented in this
appraisal. These should be further researched by competent authorities to
assess their impact on the value of the property.
The accompanying prospective financial analyses are based on estimates and
assumptions developed in connection with the appraisal. However, some
assumptions inevitably will not materialize, and unanticipated events and
circumstances may occur; therefore, actual results achieved during the period
covered by our prospective financial analysis will vary from our estimates and
the variations may be material.
This report, the final estimates of value and the prospective financial analyses
are intended solely for your information and assistance for the purpose stated
above, and should not be relied upon for any other purpose. Other than as
indicated above, neither our report nor any of its contents nor any reference to
the appraisers or our firm, may be included or quoted in any document, offering
circular or registration statement, prospectus, sales brochure, other appraisal,
loan or other agreement without Price Waterhouse LLP's (Price Waterhouse) prior
written approval of the form and context in which it will appear.
Respectfully submitted,
/s/ PRICE WATERHOUSE LLP
PREFACE ix
EXECUTIVE SUMMARY
<TABLE>
<CAPTION>
<S> <C>
Property Identification Springhill Lake Apartments
Property Location 9164 Edmonston Road, Prince George's County,
Maryland
Legal Interest Appraised Leased fee estate
Date of Inspection September 12, 1994
Site Description 154,049 acres
Building Description 2,899-unit garden apartment complex totalling
2,533,413 square feet of gross living area;
clubhouse; shopping center; daycare center and
various site improvements including two swimming
pools and two sets of tennis courts.
Occupancy as of
August 31, 1994 91.28%
Indications of Value:
As of September 12, 1994 (As Is)
Income Capitalization Approach
Direct Capitalization Technique $90,300,000
Overall Rate Ro: 10.25%
Discounted Cash Flow Analysis: $88,000,000
Income Growth Rate: 0% first two years, 3.5% thereafter
Expense Growth Rate: 3.5%
Discount Rate (DRR): 13.0%
Terminal Rate (Rt) 11.5%
Analysis Period: 11 years, assuming a 10 year holdingperiod
Sales Comparison Approach $87,000,000
Final Estimate of Value as of
September 12, 1994 (As Is) $88,500,000*
Indicated Value per Unit $30,528
Indicated Value Per Leasable
Square Foot $34.93
Implied Going-In Capitalization
Rate (NOI) - Year 1 DCF 10.54%
Implied Effective Gross Revenue
Multiple (Year 1 DCF) 3.80
Final Estimate of Value Subject
to Existing Financing and In-place
Management Contract as of
September 12, 1994 (As Is) $84,600,000 ($29.182/unit)*
Implied Going-In Capitalization
Rate (NOI-Year 1 DCF) 10.47%
* Neither the underground storage tank remediation nor the dry cleaners soil and concrete remediation are considered in the
value estimates presented in this appraisal. These should be further researched by competent authorities to assess their impact on
the value of the property.
</TABLE>
EXHIBIT (b)(2)
[LIPMAN FRIZZELL & MITCHELL LETTERHEAD]
September 8, 1994
Lerner Corporation
11501 Huff Court
North Bethesda, Maryland 28095-1094
RE: Springhill Lake Apartments
Prince George's County, Maryland
Dear Sirs:
In accordance with your request for an appraisal of the above captioned
property for the purpose of estimating its market value "as is" in fee simple as
well as its value subject to existing financing and management contract we
herewith submit our report.
The subject property was personally inspected on July 18, 1994 and found
to consist of 154 acres of land in several parcels supporting a 2,899 unit
rental apartment project generally in the form of three-and four-story garden
apartments with some rental townhouses. The project also includes a number of
common facilities including swimming pools, small shopping center, day care
facility, community rooms, and common spaces. The property was erected in
stages between 1962 and 1969 and was found to be in good condition as of the
date of inspection. On the date of inspection the property was approximately
93% occupied and generally in line with overall market occupancy rates.
Our valuation has as its main emphasis the operating history of the
subject property supplemented by income and expense information from comparable
projects and rental information from area competing projects. In estimating
market value of the subject your appraisers fully developed the sales comparison
and income approaches to value, with greatest emphasis placed on the income
approach. The valuation included investigation of both local and national
markets for apartment purchase and financing in order to gather pertinent
information regarding rates of return and investor appetites.
As a result of our investigation and by virtue of experiences it is our
opinion that market value of the subject property "as is", after reflecting
deferred maintenance was EIGHTY FIVE MILLION FOUR HUNDRED THIRTY THOUSAND
($85,430,000) DOLLARS in fee simple.
We also estimated that the existing mortgage had a negative impact on
value of $3,790,000 and the existing management contract had diminished the
value by an additional $3,230,000 resulting in a net market value of the subject
property, subject to the existing mortgage and management contract of SEVENTY
EIGHT MILLION FOUR HUNDRED TEN THOUSAND ($78,410,000) DOLLARS. A summary of
these conclusions is as follows:
MARKET VALUE Before Deferred Maintenance........... $89,720,000
LESS: Deferred Maintenance........................ 4,288,750
-----------
FINAL ESTIMATE OF MARKET VALUE..................... $85,430,000
(rounded)
LESS: Value of Existing Mortgage $3,790,000
Value of Existing Management Contract 3,230,000 7,020,000
--------- ---------
MARKET VALUE SUBJECT TO EXISTING MORTGAGE &
MANAGEMENT CONTRACT....... $78,410,000
I trust the attached appraisal report will be informative and I am
available for any additional questions or comments regarding the subject
property.
Respectfully submitted,
LIPMAN FRIZZELL & MITCHELL LLC
/s/ David H. Brooks
David H. Brooks, MAI
Certified General Real Estate Appraiser
State of Maryland License No.: 04-136
/s/ Curtis W. Morris
Curtis W. Morris, Associate
SUMMARY OF SALIENT FACTS AND CONCLUSIONS
Property: Springhill Lake Apartments
Location: Breezewood Drive, Cherrywood Lane and Edmonston Road,
Greenbelt, Prince George's County, Maryland
Ownership: Springhill Lake Limited Partnership
Land Area: 154 +/- acres
Zoning: R-18 and CA
Highest and Best Use: As if Vacant: Residential Development
As Improved: As currently improved
Improvements: 2,899 unit garden apartment complex with ancillary
commercial space
Date of Appraisal: July 18, 1994
Value Indicators: Cost Approach................ Not Used
Sales Comparison Approach.... $88,420,000
Income Approach.............. $89,720,000
FINAL ESTIMATE OF MARKET VALUE(1) .................... $89,720,000
LESS: Deferred Maintenance .......................... 4,288,750
-----------
FINAL ESTIMATE OF MARKET VALUE ....................... $85,430,000
(rounded)
LESS: Value of Existing Mortgage $3,790,000
Value of Existing Management Contract 3,230,000 7,020,000
---------- ---------
MARKET VALUE SUBJECT TO EXISTING MORTGAGE &
MANAGEMENT CONTRACT............... $78,410,000
This valuation is predicated on the subject property being
environmentally free of any hazardous materials and that there are no negative
easements or encroachments of the subject property.
This valuation is predicated on the accuracy of financial statements
that were supplied to us.
_____________
(1) Before deferred maintenance deduction
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP
January 19, 1995
Dear Springhill Lake Investors Limited Partner:
We are enclosing disclosure materials and a Green Consent Card to
solicit your consent to dissolve the Springhill Lake Investors Limited
Partnership. Please fill out, sign and date the Green Consent Card and return
it in the envelope provided.
We urge you to review these materials carefully, and promptly mail your
response.
Sincerely,
/s/ Theodore N. Lerner
Theodore N. Lerner
11501 Huff Court, North Bethesda, Maryland 20895-1094 301/984-1500
Fax 301/770-0144
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP
January 19, 1995
Dear Springhill Lake Investors Limited Partner:
You and I share an interest in a real estate project known as the
Springhill Lake Apartments in Greenbelt, Maryland (the "Project"). Since your
investment 10 years ago, the Project has been under the control of Three
Winthrop Properties, Inc. ("Three Winthrop") as managing general partner of
Springhill Lake Investors Limited Partnership (the "Investor Partnership").
Through a family-owned limited partnership, Greenbelt Residential
Limited Partnership ("Greenbelt Residential"), I submitted, on December 2, 1994,
an offer to Three Winthrop to buy all of the interests of the Investor
Partnership in the partnerships that own and operate the Project. Acceptance of
this offer by Three Winthrop would provide a cash payment to you of
approximately $30,200 per unit of limited partnership interest (a "Unit").
Greenbelt Residential's offer contemplates its assumption of the
existing Project mortgages, and therefore, the Project's lender, AEW #207 Trust,
a Massachusetts Nominee Trust (the "Lender"), also must consent to this offer.
While the Lender has indicated that it would be happy to consider such an
assumption, the assumption request must be made by the Investor Partnership
(which would be the case if Greenbelt Residential's offer is accepted by Three
Winthrop).
As you may be aware, I am the single largest equity owner of the
Project, having a significant limited partnership interest in the partnerships
that own and operate the Project. I have been involved with the Project for
over 30 years, and, in my view, the performance of the Project over the last 10
years under the control of Three Winthrop has been disappointing. The Project
has not even come close to meeting the original forecasts made by Three Winthrop
and its affiliates. I have received no partnership distributions from my
substantial equity ownership. (Lerner Corporation, a management company of
which I am a majority shareholder, has, however, received management fees for
the past ten years pursuant to a property management contract.) You have
received only very small distributions over the past ten years and no
distributions at all since 1992.
I have decided that I can no longer sit by and allow this situation to
continue. Greenbelt Residential has submitted its offer to purchase the Project
for a cash payment of more than $20 million, plus the assumption of the existing
mortgages. I have taken this action, notwithstanding my view that I must invest
substantial cash in addition to the purchase price and that I must hold the
Property indefinitely in order to have at least the chance to get a return on my
investment. If Greenbelt Residential purchases the Project, you would receive
what I view
11501 Huff Court, North Bethesda, Maryland 20895-1094 301/984-1500
Fax 301-770-0144
-2-
as a significant cash distribution in relation to your original cash investment,
and you would then have the opportunity to put your money to work for a current
return.
While I believe this offer is attractive to you as an investor limited
partner, I am concerned that Three Winthrop -- which I believe has a conflict of
interest in considering this offer or any other offer -- will neither accept the
offer nor otherwise cooperate with me. I believe this to be the case because
Three Winthrop and its affiliates (hereinafter "Winthrop") would receive little
of the proceeds from a sale of the Project. Instead, Winthrop has received
economic benefits from the Project in the form of fees. Representatives of
Greenbelt Residential and Three Winthrop met regarding this offer. Three
Winthrop indicated that it would consider the offer.
Over the last ten years, Winthrop has received total fees in excess of
$15,700,000. Upon the initial syndication of the Investor Partnership, Winthrop
received direct fees in excess of $13,000 per Unit, for a total of over
$8,500,000. During the first three years after the syndication of Units,
Winthrop received an additional $2,783,485 as an interest guarantee fee plus
$1,344,036 in interest on fees payable to Winthrop. Winthrop's syndication-
related fees during the first three years after the syndication of Units totaled
over $12,600,000 -- or more than $19,400 per Unit. For each of the past ten
years, Winthrop also has collected substantial ongoing fees for management
oversight. Those oversight fees alone have been at least $300,000 in each of
the last three years and a total in excess of $3,000,000 over the last ten
years. Winthrop now proposes to add to its total collected fees of over
$15,700,000 by taking over the day-to-day management of the Project from Lerner
Corporation. Although Winthrop is restricted to receiving "reasonable
compensation for services reasonably and actually rendered," Winthrop has not
disclosed the amount of its additional day-to-day management fees and does not
appear to have sought competitive bids for its services. Consequently, to
Winthrop, a sale of the Project is invariably not in its financial interest.
I believe that now is the time for the Project or the Investor
Partnership's interests in the Project to be sold. If you agree with me and
want the Project to be sold now, I ask that you sign, date, and return the
enclosed Green consent card, approving a dissolution of the Investor
Partnership, thereby requiring its "winding up" and sale of the Project, subject
to resolving the matters discussed below with the Lender.
I am confident that Greenbelt Residential's offer is fair and believe
that no third party is likely to make an offer which would be as advantageous to
you as this offer. While I do not believe it is necessary, if you approve a
dissolution of the Investor Partnership, I would not object to Three Winthrop's
soliciting other bona fide proposals for the purchase of the Project. As part
of that process, Greenbelt Residential's offer would be considered promptly,
along with other bona fide offers, if any, received in the liquidation and
winding-up process. You should also know that I have a right of first refusal
with respect to a direct or indirect sale of the Project, and, in what I believe
to be the unlikely event that a bona fide offer, which is more advantageous to
you, is submitted by a third party, I would consider exercising that right of
first refusal. See "The Consent Solicitation -- Right of First Refusal" in the
Consent Solicitation Statement.
-3-
As described in detail below, I believe it is in the equity owners'
interests for the Project to be sold now. Because Winthrop does not have a
significant economic incentive to improve the operating performance of the
Project, it is my judgment that the Project's performance will not be reversed
under Winthrop's management. When Winthrop initially sold interests in the
Investor Partnership, it provided hypothetical sale scenarios for a sale of the
Project at the end of ten years derived, in part, from its forecasts of rental
income and operating expenses. While Winthrop did not promise to sell the
Project after ten years, I believe you should now be given the opportunity to
get back the value of your remaining investment in the Investor Partnership.
These matters are discussed more fully below, as are the terms of Greenbelt
Residential's offer. Further details concerning the solicitation to dissolve
the Investor Partnership are described in the attached materials.
Although the solicitation of your consent to a dissolution of the
Investor Partnership is intended to enhance the likelihood that Greenbelt
Residential's offer ultimately will be accepted by Three Winthrop, you are not
being asked to approve the offer at this time. Three Winthrop will control,
consistent with its fiduciary duties to you, any sale of the Investor
Partnership's assets or the project and the subsequent liquidation and
dissolution of the Investor Partnership.
PLEASE READ THE ATTACHED CONSENT SOLICITATION STATEMENT CAREFULLY WHEN
YOU FINISH READING THIS LETTER, AND RETURN THE ENCLOSED GREEN CARD IN THE
POSTAGE-PREPAID, RETURN ENVELOPE PROMPTLY.
-4-
IF THE OFFER IS ACCEPTED, EACH INVESTOR LIMITED PARTNER
WOULD RECEIVE AN IMMEDIATE AND SIGNIFICANT CASH PAYMENT
Greenbelt Residential's offer includes the following elements:
A purchase price for the Investor Partnership's entire interest in the
Project consisting of cash of approximately $20,417,000 and Greenbelt
Residential's assumption of all obligations of the Investor
Partnership under the existing mortgages, having an outstanding
principal balance of approximately $62,000,000 as of November 1, 1994.
Assumption of the mortgage obligations would require the consent of
the Lender. Assumption of the mortgage obligations also would require
payment of a fee to the Lender of approximately $620,000, which is
included in the purchase price. See Consent Solicitation Statement at
"The Offer -- Certain Terms of the Existing Mortgages."
Net cash proceeds from the offer (after payment of the assumption fee
to the Lender and a one percent distribution to Three Winthrop) in the
total amount of approximately $19,599,800 would therefore be available
for payment by the partnership to the investor limited partners --
approximately $30,200 per Unit. See Consent Solicitation Statement at
"The Offer -- Terms of the Offer."
Because of my familiarity with the Project, Greenbelt Residential is
not placing material conditions on closing, nor is its offer
conditioned upon obtaining financing. A closing would therefore be
possible almost immediately after both parties' signing of the
purchase agreement and the obtaining of the limited partners' and the
Lender's consent.
POSSIBLE ADVERSE CONSEQUENCES
OF WINTHROP'S FAILURE TO COOPERATE
In addition to the net proceeds available for distribution from
this offer, I assume that the Investor Partnership will also
distribute to you, either in due course or as part of a liquidating
distribution your share of any cash from 1994 operations, estimated by
Winthrop to be approximately $2,000 per Unit. If Three Winthrop does
not accept Greenbelt Residential's offer or otherwise cooperate, the
process of soliciting limited partner consents will delay the ultimate
sale and might reduce cash distributions from 1994 operations to the
limited partners. For example, if Winthrop spends all or part of the
cash from 1994 operations to oppose a vote to dissolve the partnership
(assuming it is permitted to do so), the amount available for payment
to limited partners would be correspondingly reduced. See "The
Consent Solicitation" in the Consent Solicitation Statement. Your
consent on the enclosed Green card in favor of a dissolution will tell
Winthrop that you want to sell now and that you want Winthrop to
cooperate.
-5-
WHY I BELIEVE THE OFFER IS FAIR -- COMPARISON TO THIRD PARTY OFFER
I ask you to compare Greenbelt Residential's offer with the
amount for which the Project would have to be sold to a third party in
order for you to receive the same net payment that would be available
to you if Greenbelt Residential's offer were accepted. The Investor
Partnership would have to sell the Project for approximately
$88,505,500 in order for you to receive, after payment of my share,
the same cash payment that you would receive if Greenbelt
Residential's offer is accepted. Here is how such a purchase price
would be allocated, if such an offer could be obtained:
Illustration of Third Party Offer
$88,505,500 Assumed purchase price
(62,000,000) Existing debt 1
(620,000) Loan Transfer Fee 2
(2,159,534) Assumed transfer and recordation taxes 3
(885,055) Assumed commission 4
(150,000) assumed additional costs to the Investor
Partnership 5
22,690,911 Proceeds available for distribution
(2,893,091) Share to Lerner as limited partner of operating
partnerships 6
19,797,820 Proceeds available to Investor Partnership
(197,978) One percent distribution to Three Winthrop 7
$19,599,841 Balance available for distribution to limited
partners
$30,200 Balance per Unit
1 Assuming that the Lender permits another buyer to assume the current
mortgage. If not, as of the date hereof, a prepayment penalty of
approximately $5,000,000 would be imposed, reducing the proceeds to
limited partners by that amount. The amount of the prepayment penalty
will fluctuate.
2 Fee payable to Lender if assumption is allowed.
3 Assumed to be 2.44% of gross purchase price. While this cost may be
avoided by a purchase of interests in operating partnerships, a third-
party purchaser, not already familiar with the Project, would be less
likely for legal reasons to take this approach.
4 Assumed to be one percent (1%) of the gross purchase price, a market
rate commission.
5 Assumed costs to Investor Partnership of buyer due diligence because
of unfamiliarity with Project.
6 Assuming a 12.75% share under the partnership agreements for each of
the operating partnerships. My interest is based on the relative
initial capital investments of the Investor Partnership and me
($48,652,285 and $7,108,500, respectively). Such initial investments,
along with a 6% return thereon, are paid to the Investor Partnership
and me prior to any distributions of net sales proceeds.
7 Distribution contemplated under partnership agreement for tax
compliance purposes.
-6-
In order to make a fair market value offer for the Investor
Partnership's interests, prior to submitting Greenbelt Residential's
offer, I sought the assistance of two independent appraisal firms --
Lipman, Frizzell & Mitchell ("LF&M") and Price Waterhouse LLP ("PW").
I asked LF&M and PW to estimate the market value of the Project as a
whole, including both my interest and the interest of the Investor
Partnership. Both firms deducted the deferred maintenance and
refurbishment that I believe needs to be undertaken. The two firms
first provided their estimates of value without taking into account
the effect of the current mortgages or the current management
agreements. On such a basis LF&M valued the Project at $85,430,000
and PW valued the Project at $88,500,000. The two firms then provided
their estimates of value taking into account the current mortgages and
management agreements. On such a basis LF&M valued the Project at
$78,410,000 and PW valued the Project at $84,600,000. 8 The market
value of the Project may increase or decrease from the dates of the
appraisals, as a result of, among other factors, changes in prevailing
interest rates, vacancy rates, and the Project's cash flow.
I BELIEVE IT IS IN THE INTEREST
OF ALL INVESTOR LIMITED PARTNERS
FOR THE PROJECT TO BE SOLD
As a result of the disappointing performance of the Project, you
and I have seen each of our investments in the Project significantly
decline in value. If this offer is accepted, however, the Investor
Partnership would be in a position to return to you now, in cash, what
I believe to be a significant portion of your original cash
investment.
I believe that the value of the Project can be enhanced only
with time, additional cash, and proper direction from a substantial
owner. If its offer is accepted, Greenbelt Residential is willing to
take these steps. As you may know, I have been involved in the
management and operation of the Project for over 30 years. While
Lerner Corporation also serves as the day-to-day manager of the
Project, Winthrop makes all of the significant decisions concerning
the management and operation of the Project. For the reasons
described below, I do not have confidence that Winthrop will bring
about improved results. Moreover, Three Winthrop has filed a lawsuit
seeking to terminate Lerner Corporation's management agreement at the
end of January 1995 and take over the day-to-day management
responsibilities for the Project for an undisclosed fee. Accordingly,
I am concerned that my ability to protect and potentially enhance my
investment in the Project will be reduced to an even greater extent
when Lerner Corporation's role is terminated.
From our mutual perspective, I believe that Greenbelt
Residental's offer makes a great deal of sense. For the following
reasons, however, I am concerned that Winthrop will not accept it.
8 These appraisals are subject to a number of conditions and
assumptions and do not represent (and are not based on) any actual
offer for the Project. See Consent Solicitation Statement at "The
Offer -- Description of Appraisals."
-7-
WINTHROP'S CONFLICT OF INTEREST
IN CONSIDERING ANY SALE
For the following reasons, I believe Winthrop faces an inherent conflict
of interest in considering any offer:
WINTHROP HAS NO SIGNIFICANT ECONOMIC INTEREST IN SEEKING A SALE. Winthrop
would receive no more than a one-time one percent distribution for tax
compliance purposes from the net proceeds of a sale of the Project. Based
on this offer, that Winthrop distribution would be less than $200,000. The
Project would have to be sold today at a total price in excess of
approximately $150,000,000 in order for Winthrop to have a significant
share in any net sales proceeds, far in excess of the appraisals described
above.
WINTHROP, IN MY VIEW, HAS NO DIRECT ECONOMIC INCENTIVE TO DEVOTE THE EFFORT
AND RESOURCES REQUIRED TO IMPROVE THE CURRENT PERFORMANCE OF THE PROJECT.
For Winthrop to receive any incentive management fees, Project net cash
flow would need to exceed by more than 20% the levels established in
Winthrop's initial forecasts. That result has never has been achieved.
For 1993, distributable cash flow would have had to exceed approximately
$8,000,000. Actual 1993 cash flow was approximately $460,000.
WINTHROP DOES, HOWEVER, HAVE A STRONG ECONOMIC INCENTIVE TO PRESERVE ITS
CONTINUING OVERSIGHT MANAGEMENT FEE AND OTHER FEES. Winthrop currently
receives each year $100,000 plus 1% of the gross rentals and other income
from the Project. Fees to Winthrop have totalled $330,463, $330,845 and
$323,382 in each of 1991, 1992 and 1993, respectively, and likely will
increase in the future if the Project is not sold.
WINTHROP IS NOW SEEKING TO ADD TO ITS ANNUAL FEES BY TAKING OVER THE DAY-
TO-DAY MANAGEMENT OF THE PROJECT FROM LERNER CORPORATION. Although
Winthrop can only take reasonable fees for its services, it has not told
you how much its additional fees will be nor apparently has it sought
competitive bids for those services.
WINTHROP CONTINUES TO RECEIVE FEES REGARDLESS OF WHETHER THERE IS ANY NET
INCOME FROM THE OPERATION OF THE PROJECT, and regardless of the amount of
your and my distributions or whether you and I, in fact, receive any
distributions.
WINTHROP'S FORECASTS VERSUS
SPRINGHILL LAKE'S PERFORMANCE
In early 1985, when Winthrop sold limited partnership interests in the
Investor Partnership, it provided hypothetical scenarios for a sale of the
Project at the end of ten years, namely year-end 1994. While Winthrop did not
promise to sell the Project at that time, Greenbelt Residential's proposal is
consistent with those sale scenarios and would not let Winthrop continue to hold
onto your money indefinitely. Winthrop might assert that now is not
-8-
the time to sell the Project but, in considering any assertions by Winthrop that
the Project will be more valuable in the future, please consider Winthrop's
original forecasts regarding the Project. Here is a comparison between
Winthrop's forecasts, as set forth in the original offering circular,9 and the
actual results of the Investor Partnership:10
FORECAST -- annual distributions to all limited partners increasing from
$16,225 in 1986 to $7,305,793 by 1994, a total of $50,394 per Unit over
this period.
RESULTS -- actual annual distributions to all limited partners amounting to
only $1,993,664 since 1986, a total of $3,072 per Unit over the entire 10-
year period.
FORECAST -- Net operating income before debt service of approximately
$16,500,000 by the end of 1993.
RESULTS -- Net operating income before debt service of only approximately
$8,700,000 in 1993.
Greenbelt Residential's offer, rather than trying to predict the future,
calls for an immediate and significant payment to you of cash now, not a promise
for a rosy future. Its offer would allow you to recoup what I believe to be a
significant portion of your original cash investment now.
WHY I AM SOLICITING YOUR SUPPORT
TO DISSOLVE THE INVESTOR PARTNERSHIP
Greenbelt Residential's offer is, I believe, fair and reasonable to the
Investor Partnership, and I sincerely hope that Three Winthrop accepts that
offer. However, to date Three Winthrop has not accepted this offer. I do not
believe that Winthrop will give serious consideration to Greenbelt Residential's
offer unless you tell Winthrop that the Project should be sold now.
Accordingly, I am seeking your approval of the dissolution of the Partnership.
To consent to a dissolution, you must sign and date the enclosed Green consent
card and return it in the enclosed envelope. The intent of such an action would
be to force a sale of the Project now by Three Winthrop.
_________________
9 See Financial Forecast included as Exhibit A to Confidential Offering
Memorandum dated January 16, 1985.
10 Based on Annual Reports on Form 10-K filed with the Securities and
Exchange Commission for Springhill Lake Investors Limited Partnership.
-9-
Because a "dissolution" of the Investor Partnership constitutes a
default under the current mortgages, Greenbelt Residential will not formally
deliver consents to Three Winthrop without written confirmation from the Lender
that delivery of such consents will not be treated as a default. The Lender has
indicated that it is not prepared to consider this issue at this time, and there
can be no assurance that the Lender will provide such written confirmation. The
consequences of such a dissolution are more fully described in the enclosed
Consent Solicitation Statement at "The Offer -- Certain Terms of the Existing
Mortgages."
IF YOU HAVE ANY QUESTIONS ABOUT THE MATTERS DESCRIBED IN ANY OF THESE
MATERIALS, PLEASE CALL ME OR ED COHEN OR BOB TANENBAUM AT (301) 984-1500 OR
TOLL-FREE AT 1-800-953-7637.
Very truly yours,
Theodore N. Lerner
[THIS PAGE INTENTIONALLY LEFT BLANK]
GREENBELT RESIDENTIAL LIMITED PARTNERSHIP
-------------------------------------------------------------------------
CONSENT SOLICITATION STATEMENT TO THE UNITHOLDERS OF
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
-------------------------------------------------------------------------
To the Holders of Units Representing Limited Partnership Interests
of Springhill Lake Investors Limited Partnership:
This Consent Solicitation Statement is being furnished to holders of
units of limited partnership interest ("Unitholders") of Springhill Lake
Investors Limited Partnership (the "Investor Partnership") in connection with
the solicitation (the "Consent Solicitation") by Greenbelt Residential Limited
Partnership ("Greenbelt Residential") of consents to a resolution approving the
liquidation and dissolution of the Investor Partnership (the "Resolution") and
calling for a prompt and orderly sale and disposition of its assets.
This Consent Solicitation Statement and the enclosed Green Consent Card
are being furnished to Unitholders on or about January 19, 1995. The Resolution
will become effective at the earliest time at which unrevoked consents of
Unitholders holding at least a majority of the interests in the Investor
Partnership are delivered by Greenbelt Residential to Three Winthrop Properties,
Inc. ("Three Winthrop"), the managing general partner of the Investor
Partnership. Greenbelt Residential will not formally deliver such consents,
thereby arguably triggering a "dissolution" of the Investor Partnership, without
written confirmation from the Project's lender. AEW #207 Trust, a Massachusetts
Nominee Trust (the "Lender"), that delivery of such consents will not be treated
as a default under the loan documents. The Lender has indicated as of December
12, 1994 that it is not prepared to consider whether such an action would be
deemed an event of default. This Consent Solicitation will expire, unless
extended by Greenbelt Residential in its sole discretion, on March 7, 1995.
Greenbelt Residential is a newly formed Maryland limited partnership
organized for the purposes of conducting the Consent Solicitation and making the
Offer (as defined below). The sole general partner of Greenbelt Residential is
Planden Corporation, a Maryland corporation. The sole limited partner of
Greenbelt Residential is Lerner Enterprises Limited Partnership, a Maryland
limited partnership comprised of Mr. Theodore N. Lerner and members of his
family ("Lerner Enterprises"). Members of Mr. Lerner's family are the sole
stockholders of Planden Corporation and partners of Lerner Enterprises. See
"Certain Information Concerning Greenbelt Residential."
Prior to the mailing of this Consent Solicitation Statement, Greenbelt
Residential submitted an offer (the "Offer") to Three Winthrop, to acquire the
entire interest of the Investor Partnership in each of the ten Operating
Partnerships (as defined herein) of which the Investor Partnership is the
general partner. The Operating Partnerships collectively own and operate the
2,899-unit apartment complex and related amenities known as Springhill Lake
Apartments (the "Project"). The remaining interest in each of the ten Operating
Partnerships is owned, as a limited partner, by Mr. Lerner. As described more
fully under the caption "The Project and the Partnerships," Mr. Lerner's
percentage interest in distributions from the Operating Partnerships ranges
between 10% and 15%, with distributions from a sale of the Project being made
12.75% to Mr. Lerner and 87.25% to the Investor Partnership.
The terms of the Offer, as described herein, contemplate a purchase
price for the Investor Partnership's entire interest in all of the Operating
Partnerships consisting of $20,417,778 in cash and Greenbelt Residential's
assumption of all obligations of the Investor Partnership under the existing
mortgages, having an outstanding principal balance of approximately $62,000,000
as of November 1, 1994. Any such assumption of the existing mortgages will
require the consent of the Lender. See "The Offer -- Certain Terms of Existing
Mortgages." While the Lender has indicated that it would be happy to consider
such an assumption, any such request must be made by the Investor Partnership
(which would be the case if the Offer is accepted). Greenbelt Residential
believes that the Offer is the economic equivalent of a sale of the entire
Project to a third party at a purchase price of $88,505,500 -- in excess of the
market value of the Project as estimated by two independent appraisal firms as
of July 18, 1994 and September 12, 1994, respectively. See "The Offer --
Description of Appraisals." Greenbelt Residential believes that the Offer
affords Unitholders an attractive opportunity to receive a cash payment which
represents, in Greenbelt Residential's view, a significant part of their
original cash investment in the Investor Partnership. The Offer, if accepted
and if the Lender's consent is obtained, would result in net cash proceeds in
the total amount of approximately $19,599,800 being available for payment to the
limited partners, representing cash in the amount of approximately $30,200 per
Unit. See "Terms of the Offer."
In addition, the Investor Partnership has announced that it expects to
make cash distributions from 1994 operations in 1995. Greenbelt Residential
assumes that the Investor Partnership will make such cash distributions in due
course -- estimated by Three Winthrop to be $2,000 per Unit for 1994. Such cash
may be reduced, however, if Three Winthrop expends this cash in an effort to
oppose this Consent Solicitation (assuming it is permitted to use those funds
for that purpose).
The Consent Solicitation is intended to enhance the likelihood that the
Project will be sold by demonstrating Unitholders' support for a sale of the
Project now. Greenbelt Residential believes that the Offer is fair and that no
third party is likely to make an offer which would be as advantageous to
Unitholders. Unitholders are being asked only to approve the Resolution (which
is intended to instruct Three Winthrop to consider offers and sell the Project
as part of the liquidation and dissolution process) and are not being asked to
approve the terms of the Offer. If the Resolution is approved, the Offer,
together with other bona fide offers, if any, received by the Investor
Partnership will be given consideration by Three Winthrop in the liquidation
process. Three Winthrop will control, consistent with its fiduciary duties to
Unitholders, any sale of the assets or the Project and the subsequent
liquidation and dissolution of the Investor Partnership. Mr. Lerner has,
however, a right of first refusal under the terms of the partnership agreements
for the Operating Partnerships to match, on identical terms, any such offer
received by Three Winthrop and subsequently approved by Unitholders. See "The
Offer -- Right of First Refusal."
If you have any questions or need assistance in voting your interests,
please call Georgeson & Company, Inc. ("Georgeson"), which is assisting in this
Consent Solicitation, toll free at 1-800-223-2064 or collect at the telephone
numbers listed on the back cover page of this Consent Solicitation Statement.
- 2 -
THE PROJECT AND THE PARTNERSHIPS
The Project consists of a 96-building, 2,899-unit garden apartment
complex located on 154.1 acres of land in Greenbelt, Maryland. In addition to
apartment buildings and land, the Project contains an eight-store shopping
center, a day care center, two olympic-sized swimming pools, six tennis courts
and a clubhouse. The Project is located just inside the Capital Beltway, the
major circumferential expressway serving the Washington, D.C. metropolitan area.
The Investor Partnership was organized as a Maryland limited partnership
under the Maryland Revised Uniform Limited Partnership Act on December 28, 1984
for the purpose of investing as a general partner in ten limited partnerships
(collectively, the "Operating Partnerships"), each of which is a Maryland
limited partnership owning a section of the Project. The Investor Partnership
is the sole general partner and Mr. Lerner is the sole limited partner of each
of the Operating Partnerships.
Based solely on the Investor Partnership's annual report on Form 10-K
for the year ended December 31, 1993, the general partners of the Investor
Partnership are Three Winthrop and Linnaeus-Lexington Associates Limited
Partnership ("Linnaeus-Lexington"). Three Winthrop is a Massachusetts
corporation which is a wholly-owned subsidiary of First Winthrop Corporation, a
Delaware corporation which is wholly-owned by Winthrop Financial Associates, a
Maryland public limited partnership ("WFA"). Linnaeus-Lexington is a
Massachusetts limited partnership whose general partners are Arthur J. Halleran,
Jr. and Jonathan W. Wexler. Mr. Halleran is the managing general partner of
Linnaeus-Lexington. The other partners of Linnaeus-Lexington are present and
former officers of WFA and First Winthrop Corporation. Messrs. Halleran and
Wexler are directors of First Winthrop Corporation and Three Winthrop, and Mr.
Halleran is the sole general partner of the general partner of WFA. Three
Winthrop is the managing general partner of the Investor Partnership.
(Collectively, Three Winthrop and its affiliates are referred to herein as
"Winthrop").
In a recent filing on Form 8-K dated December 16, 1994 relating to a
change in control of the Investor Partnership, the Investor Partnership
announced that Linnaeus Associates Limited Partnership, a Maryland limited
partnership ("Linnaeus"), Mr. Halleran, the sole general partner of Linnaeus,
and certain other individuals who comprise the senior management of WFA, entered
into an investment agreement with Nomura Asset Capital Corporation, a Delaware
corporation. Linnaeus is the sole general partner of WFA, which in turn is the
sole shareholder of Three Winthrop.
One of the original investors in the Project, Mr. Lerner, has been
actively involved in its management and operation for over 30 years. In 1983,
when the other original investors sold their interests in the Project, Mr.
Lerner retained his own interest and contracted with the other investors to
acquire the remaining interests in the Project for a purchase price of
approximately $73,316,500. Mr. Lerner then assigned this purchase contract to
Winthrop. Pursuant to the Offering Memorandum, as defined below, Winthrop
syndicated interests in the Investor Partnership, a portion of the proceeds of
which were used to acquire the interests in the Operating Partnerships. Mr.
Lerner retained, as sole limited partner, the balance of the interest in each of
the Operating Partnerships.
As set forth in its confidential offering memorandum dated January 16,
1985 (the "Offering Memorandum"), Winthrop capitalized the Investor Partnership
through the syndication of 649 Units (or fractions thereof) at a price of
$62,500 per Unit -- a total investment of $40,562,500. In connection with that
syndication and the acquisition of the Project, Winthrop received fees in excess
of $8,500,000 -- more than $13,000 per Unit -- consisting of $5,297,111 as fees
for various services in connection with the acquisition, monitoring, and
financing of the Investor Partnership's interest in the Operating Partnerships
and $3,212,500
- 3 -
as commissions for selling Units. Mr. Lerner received a $300,000 brokerage fee
in connection with his services in arranging the Investor Partnership's
acquisition of the interests in the Operating Partnership and a $500,000
consultation fee, paid $200,000 upon the admission of Unitholders, $200,000 in
1986, and $100,000 in 1987. A portion of Mr. Lerner's fees was used to defray
third party expenses. Winthrop applied only $15,316,500 of the total
contribution of Unitholders toward the purchase price of the Project
(approximately $23,600 per Unit), with the balance of the contribution used or
set aside for capital improvements, investor "reserves," real estate tax escrow,
interest expense and related fees, and various other fees and expenses.
During the first three years after the syndication of Units, Winthrop
received an additional $2,783,485 as an interest guarantee fee plus $1,344,036
in interest on fees payable to Winthrop. For each of the last 10 years,
Winthrop also has collected substantial ongoing fees for management oversight.
See "Certain Information Concerning the Investor Partnership."
The partnership agreements for each of the Operating Partnerships
provide that each year the Investor Partnership receives 90% and Mr. Lerner
receives 10% of all partnership cash flow distributions after each of the
Investor Partnership and Mr. Lerner have received an amount equal to 6% of the
average daily balance of their capital investment (or deemed capital investment
in the case of Mr. Lerner). The same agreements provide that proceeds of
capital transactions (such as a sale of the Project) are to be distributed pro
rata to the Investor Partnership and Mr. Lerner in accordance with their
respective capital investments until they have each received a full return of
their capital investment (in Mr. Lerner's case, his deemed investment) plus a 6%
annual return thereon. After the Investor Partnership and Mr. Lerner each has
received a full return of its or his capital investment (in Mr. Lerner's case,
his deemed investment), partnership cash flow and capital proceeds distributions
are divided 85% to the Investor Partnership and 15% to Mr. Lerner. Furthermore,
since the Investor Partnership was given capital account credit of $48,652,285
(based upon its cash contribution, including certain deferred interest) and Mr.
Lerner was given capital account credit of $7,108,500 (based on the agreed upon
value of his interest), payments of the 6% return on capital and returns of
capital are made in a ratio that represents an approximate allocation of 87.25%
to the Investor Partnership and 12.75% to Mr. Lerner.
Lerner Corporation, of which Mr. Lerner is president and majority
stockholder, acts as day-to-day manager of the Project pursuant to a management
agreement which, after January 1995, may, by its terms, be terminated by Three
Winthrop upon 90 days written notice. Winthrop is disputing the date on which
it can terminate the management agreement, arguing that notice of termination
may be given prior to and effective on January 31, 1995, and has filed a
complaint in a Maryland state court seeking a declaratory judgment on this
matter. See "Certain Information Concerning Greenbelt Residential." Winthrop
Management, an affiliate of Three Winthrop, has primary responsibility for
oversight management of the Project, including the duty and power to establish
leasing policies, set rents, and implement capital improvements. As between
Winthrop and Lerner Corporation, the Management agreement provides ultimate
decision-making responsibility to Winthrop. Indeed, in the event of disputes
between Lerner Corporation and Winthrop's representative, the decision of
Winthrop's representative is final and binding.
- 4 -
THE OFFER
General
Greenbelt Residential has presented the Offer to Three Winthrop and
intends to resubmit the Offer if the Resolution is approved. The terms of the
Offer, as summarized below, are set forth in a Partnership Interest Purchase
Agreement (the "Purchase Agreement") which has been delivered to Three Winthrop.
Unitholders are not being asked to approve the Offer at this time. If the Offer
is accepted by Three Winthrop, Three Winthrop will seek approval of the specific
terms of the Offer by Unitholders. If the Offer is not accepted by Three
Winthrop, but the Resolution is adopted, Three Winthrop will control, consistent
with its fiduciary duties to Unitholders, any sale of the assets of the Investor
Partnership or Project and subsequent liquidation and dissolution of the
Investor Partnership. Mr. Lerner has, however, a right of first refusal to
match, on identical terms, any such bona fide offer recommended by Three
Winthrop and approved by the Unitholders. See "The Consent Solicitation --
Right of First Refusal."
Terms of the Offer
The acquisition of the Investor Partnership's entire interest in the
Operating Partnerships is contemplated by the terms of the Purchase Agreement.
The Purchase Agreement contains two elements to the purchase price: a cash
portion equal to $20,417,778 and an assumption by Greenbelt Residential of all
obligations of the Investor Partnership under the existing first and second
mortgages, having an outstanding principal balance of approximately $63,000,000
as of November 1, 1994. An assumption of the first and second mortgages will
require the consent of the Lender. For the reasons set forth in the letter
accompanying this Consent Solicitation Statement and because Mr. Lerner will not
receive any of the sale proceeds from the Offer for his interest in the
Operating Partnerships (which would not be the case if the Project, rather than
Investor Partnership's interest in the Project, were being sold), Greenbelt
Residential believes that the Offer is the economic equivalent in terms of the
cash available for distribution to Unitholders of a sale of the entire Project
to a third party pursuant to a contract having a purchase price of $88,505,500
- -- in excess of the market value of the Project as determined by two independent
appraisal firms as of July 18, 1994 and September 12, 1994, respectively. See
"The Offer -- Description of Appraisals." Greenbelt Residential believes that
the Offer affords Unitholders an attractive opportunity to recoup a significant
part of their original investment in the Investor Partnership. The market value
of the Project may increase or decrease prior to the consummation of any sale as
a result of, among other factors, changes in prevailing interest rates, vacancy
rates, and the Project's cash flow.
If the Offer is accepted and the consent of the Lender is received (see
"The Offer -- Certain Terms of Existing Mortgages"), the Unitholders will be
allocated an aggregate cash amount equal to approximately $19,599,800. Based on
the 649 Units outstanding, Greenbelt Residential believes that aggregate net
cash available for payment to Unitholders would be approximately $30,200 per
Unit. Greenbelt Residential also assumes that the Investor Partnership likely
would distribute to Unitholders in due course cash from 1994 operations,
estimated by Three Winthrop to be approximately $2,000 per Unit. Such cash may
be reduced if Three Winthrop expends this cash in an effort to oppose this
Consent Solicitation (assuming it is permitted to use those funds for that
purpose).
The Purchase Agreement contemplates that, subject to receiving the
requisite consent of the Lender and Unitholders, and the Operating and Investor
Partnerships being in a position to deliver good title to the Project and the
interests in the Project, respectively, Greenbelt Residential will close
immediately on the
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proposed acquisition of the Partnership assets, without any contingency for
Greenbelt Residential to perform additional due diligence and testing of the
Project.
Greenbelt Residential has reserved the right to withdraw or modify the
Offer at any time prior to its acceptance by Three Winthrop.
Certain Terms of Existing Mortgages
The Offer contemplates that Greenbelt Residential will assume the
responsibilities under the existing mortgages. Thus, the Lender's consent to
keep its loans in place is required for any sale, conveyance or transfer of the
Project by the Operating Partnerships or if the Investor Partnership transfers
all of its interests in the Operating Partnerships. The Lender may not withhold
or unreasonably delay its consent, however, if all of the following conditions
are met: (i) the ratio of net cash flow to debt service is at least 1.325; (ii)
the outstanding principal balance of the loan shall be no more than 70% of the
fair market value of property; (iii) the proposed transferee is a single purpose
entity whose sole asset shall be its interest in the property; (iv) a substitute
indemnitor, who meets the Lender's requirements of minimum net worth, assumes
the indemnification obligations under the loan; (v) the Investor Partnership
pays a transfer fee equal to 1% of the outstanding principal balance of the loan
to the Lender; and (vi) no more than one such transfer occurs during the term of
the loan. If the Offer is accepted by Three Winthrop, Greenbelt Residential
believes that the Investor Partnership will cooperate in requesting the consent
of the Lender to the assumption.
If Three Winthrop accepts the Offer, but the Lender determines that any
of the above conditions are not met, Greenbelt Residential would seek to cause
the Investor Partnership, under the terms of the loan documents, to prepay
partially the principal amount of the loans. Any partial paydown of principal
could result in a prepayment penalty and a corresponding reduction in the net
proceeds available for distribution to the Unitholders unless Greenbelt
Residential elects to modify its offer at that time to fund any such potential
prepayment penalty. Three Winthrop would be required, however, to submit the
terms of any such revised offer to Unitholders for approval.
The loan agreements also provide that the "dissolution" of the Investor
Partnership would constitute a default thereunder and would provide the Lender
with numerous remedies, including the right to accelerate the loan. Greenbelt
Residential intends to seek the consent of the Lender prior to taking any action
which could arguably constitute such a "dissolution." Specifically, Greenbelt
Residential will not deliver consents obtained pursuant to this Consent
Solicitation to Three Winthrop, thereby arguably triggering a "dissolution" of
the Investor Partnership, without written confirmation from the Lender that
delivery of such consents will not be treated as a default.
Financing of the Offer
Greenbelt Residential will obtain all of the funds necessary to finance
the cash portion of the Offer from Lerner Enterprises and/or its affiliates.
Such funds will be provided from cash-on-hand and through borrowings under bank
and/or other credit facilities. The Offer is not subject to a financing
contingency.
Description of Appraisals
In connection with preparing the Offer, Price Waterhouse LLP ("PW") and
Lipman Frizzell & Mitchell LLC ("LF&M"), each independent appraisal firms, were
retained to appraise the value of the entire Project as of the dates set forth
in their respective appraisal reports. The following description of the
appraisal
-6-
reports does not purport to be complete but contains a summary of certain
statements in the full appraisal reports.
Price Waterhouse LLP Appraisal Report. The PW appraisal sought to
ascertain the market value as of September 12, 1994 of the Project, defined as
"the most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently and knowledgeably, and assuming the price is not affected by
undue stimulus." In valuing the Project, PW relied primarily on the income
capitalization and sales comparison approaches. Under the income capitalization
approach, PW considered the Project's capacity to generate income. Value then
was derived by converting future benefits (i.e., cash flow and future sales
proceeds) into value through the use of a capitalization rate or a discount
factor. Under the sales comparison approach, PW determined the value based upon
an analysis of sales of comparable properties and a comparison of such sales
data to the Project.
PW used two methods of analysis under the income capitalization approach
to value, direct capitalization and discounted cash flow. In the direct
capitalization approach, assumptions with respect to the market's view of growth
in income and property value are inherent in the capitalization rate selected
for the property. To arrive at an indication of value by direct capitalization,
PW calculated net operating income and divided such net operating income by an
overall capitalization rate of 10.25%. PW then deducted from that result
refurbishment expenses and near term capital expenditures, estimated by Lerner
Corporation to be approximately $4,236,500 as of the date of the PW appraisal.
In the discounted cash flow analysis, growth factors are addressed in the cash
flow assumptions. Capital expenditures, including $4,236,500 for short-term
capital expenditures, were deducted in the first year of this analysis. PW
estimated indications of market value by direct capitalization analysis and
discounted cash flow analysis as described above to be $90,300,000 and
$88,000,000, respectively.
Using the sales comparison approach, PW analyzed comparable apartment
complex sales in terms of price per unit, price per square foot, and on an
effective gross income multiplier ("EGIM") basis. The EGIM basis measures the
relationship between the effective gross income of the comparable property and
its total sales price. With this data, PW used a linear regression model,
comparing the net income per unit and per square foot to the price per unit and
per square foot of each comparable property, as well as the operating expense
ratio to the EGIM. Value indications for the Proejct then were derived by
inputing its stabilized net income per unit, net income per square foot, and
operating expense ratio into the regression model.
Under the sales comparison approach described above, PW estimated the
market value of the Project to be $91,000,000, prior to deducting the
refurbishment expenses and near term capital expenditures of approximately
$4,236,500. Taking such items into account, PW estimated the market value of
the Project under the sales comparison approach to be $87,000,000.
The three approaches to value considered by PW produced values ranging
from $90,300,000 to $87,000,000. Each approach took into account Lerner
Corporation's estimate of refurbishment expenses and near-term capital
expenditures which were deducted under each approach to derive an indication of
value. Based on its investigations and analysis, PW estimated the value of the
Project as of September 12, 1994 (as is) to be $88,500,000, prior to considering
the existing financing arrangements and in-place management agreement. For the
purposes of its analysis, PW assumed an in-place management agreement with fees
equal to 3% of collected revenues (4% of collected revenues through December
1995), with an asset management fee of 1% of collected revenues, plus $100,000.
PW found the financing arrangements and in-place management agreement to have a
negative impact on value of approximately $3,900,000, resulting in a market
value for the Project as of September 12, 1994 (as is) of $84,600,000, subject
to the existing financing arrangements and in-place management agreement.
-7-
Lipman Appraisal Report. LF&M estimated the current market value of the
Project, as is, as of July 18, 1994. The LF&M appraisal defines market value as
"the most probable price which a property should bring in a competitive and open
market under all conditions requisite to a fair sale, the buyer and seller each
acting prudently, and assuming the price is not affected by undue stimulus." In
estimating the market value of the Project, LF&M used the income and sales
comparison approaches to value, with the greatest emphasis placed on the income
approach. Under the income approach, LF&M estimated value through an analysis
of the income-producing capability of the Project and by applying a direct
capitalization rate to estimated net operating income to estimate market value.
Under the sales comparison approach, LF&M estimated market value based upon an
analysis of sales of comparable properties and a comparison of such sales data
to the Project.
Under the sales comparison approach, LF&M used data from sales of
comparable properties to ascertain per unit and per room sales prices. LF&M
then adjusted those sales prices in relation to the Project to reflect
conditions of sale, location, age and condition of improvements, utilities,
size, and other factors. As a result of those adjustments and its
investigations, LF&M derived a sales price per unit for the Project and
estimated the value of the Project to be $88,420,000, prior to any deduction for
deferred maintenance. Under the income approach, applying an overall
capitalization rate of 10% to stabilized net operating income, LF&M estimated
the market value of the Project to be $89,720,000, prior to deducting deferred
maintenance. Lerner Corporation estimated deferred maintenance at the time of
LF&M's appraisal to be approximately $4,288,750, which was considered by LF&M to
be within reason.
The sales comparison and income approaches produced values of
$89,420,000 and $89,720,000, respectively, prior to any deduction for deferred
maintenance. Because the Project would be purchased based on its income stream,
LF&M relied primarily on the income approach supported by the analysis developed
in the sales comparison approach to estimate the market value of the Project.
On the bases of its analyses, LF&M estimated the market value of the Project to
be $89,720,000, before any deduction for deferred maintenance of approximately
$4,288,750. Taking into account such deferred maintenance, LF&M estimated the
market value of the Project as of July 18, 1994 (as is) to be $85,430,000.
As part of its analysis, LF&M next considered the impact on value of the
Project's current financing and above-market management contract. LF&M
concluded that the existing loans bear an interest rate which was considered to
be slightly above market at the time of its appraisal. LF&M estimated the
negative impact of the above-market financing to be approximately $3,700,000
resulting in a market value for the Project of $81,640,000, subject to that
financing. Finally, LF&M estimated the negative impact of Winthrop's management
and oversight fees to be approximately $3,230,000, resulting in a market value
for the Project as of July 18, 1994 (as is) of $78,410,000, subject to the
existing financing arrangement and Winthrop management agreements.
LF&M's analysis assumes that the existing financing is assumable by a
third party buyer. The appraisal report points out, however, that if the Lender
prohibits an assumption of the loans, a pre-payment penalty of approximately
$7,993,000 as of the date of its report would be assessed and would result in a
further diminution of value of the Project of approximately $4,138,000. As of
the date hereof, Greenbelt Residential estimates that this prepayment penalty
would be approximately $5,000,000, and LF&M has not been asked to evaluate the
impact of such a prepayment penalty on the market value of the Project.
All financial statements, operating statements, legal descriptions,
lease documents, and other information provided to the independent appraisal
firms was assumed by such firms to be accurate and correct, and no audit or
verification was undertaken. Neither independent appraisal firm assumes
responsibility for
-8-
matters of title. Neither PW nor LF&M prepared the appraisal reports for use in
connection with the Consent Solicitation and, as such, did not consider any
unique conditions which may affect the value to any particular buyer.
Lerner Corporation furnished each appraiser with its estimate of
necessary refurbishment expenses and near term capital expenditures as of the
dates of the respective appraisals. Such expenses and expenditures were taken
from the nonrecurring capital expenditure budget for the Project. The
difference between the estimate furnished by Lerner Corporation to PW and LF&M
reflects actual expenditures in connection with apartment unit refurbishments
between the date of each of the appraisal reports.
Unitholders are urged to exercise care in evaluating the results of the
appraisal reports described above. An appraisal is only an estimate of value
and should not be relied upon as a measure of realizable value. As with any
appraisal, the methods and assumptions used by PW and LF&M in preparing the
appraisal reports were those, in their professional judgment, that they
concluded were appropriate. There can be no assurance, however, that such
assumptions will materialize or that other or different methods or assumptions
might not be appropriate. Moreover, the current appraised value of the Project
is not a prediction of the value that the Project may have at any time in the
future. Future values of the Project will depend on a variety of factors,
including the economic success of the Project, the impact of inflation on
property values, local competitive circumstances, and general economic
conditions.
Both PW and LF&M have consented to the use of their reports and being
named herein. Greenbelt Residential and the Lerner Corporation have agreed to
indemnify PW and LF&M for certain liabilities arising from the use of their
appraisal reports in connection with this Consent Solicitation.
-9-
THE CONSENT SOLICITATION
Greenbelt Residential is soliciting the consents of Unitholders to
approve the Resolution. The purpose of this Consent Solicitation is to direct
Three Winthrop to dissolve the Investor Partnership, assuming the consent of the
Lender is obtained, and to enhance the likelihood that the Offer will be
accepted.
While the Partnership Agreement does not expressly authorize action by
the written consent of the Unitholders in this context, the Partnership
Agreement does give Unitholders the right to dissolve the Investor Partnership
and does not require that such right be exercised in any particular way.
Accordingly, Greenbelt Residential is taking the position that the Resolution
can be approved by the written consent of Unitholders holding at least a
majority of the interests in the Investor Partnership as described below.
Greenbelt Residential's views are not, however, binding on Three Winthrop, and
Three Winthrop may seek to challenge the validity of the consents solicited
hereby.
As more fully described under "The Offer--Certain Terms of Existing
Mortgages," Greenbelt Residential will not formally deliver the consents
solicited hereby to Three Winthrop, thereby arguably triggering a default under
the loan documents, without written confirmation from the Lender that delivery
of consents will not be treated as such a default. There can be no assurance
that the Lender will furnish such written confirmation.
THE RESOLUTION
Greenbelt Residential is soliciting consents from Unitholders to
approve the Resolution which directs Three Winthrop to liquidate and dissolve
the Investor Partnership through a sale of its assets. The text of the
Resolution is set forth below:
WHEREAS, Greenbelt Residential Limited Partnership ("Greenbelt
Residential") has submitted an offer to Three Winthrop, Inc. ("Three
Winthrop") to acquire the assets of Springhill Lake Investors Limited
Partnership (the "Investor Partnership"), and a majority in interest of the
limited partners believes that such offer or a similar or better offer
should be promptly accepted;
RESOLVED, that upon consideration of the offer presented to the
Investor Partnership by Greenbelt Residential and the prospect that the
Investor Partnership may succeed in soliciting additional offers to
purchase the Investor Partnership's interest in the Project or the Project,
it is in the best interest of the Investor Partnership to take the
following action and the same hereby is adopted in all respects:
"Pursuant to Section 5.6(iii) of the Partnership Agreement, the
Investor Partnership is hereby dissolved, and, in accordance with Section
2.5 of the Partnership Agreement, the Investor Partnership shall be
liquidated by the sale of all of its assets as soon as practicable, the
affairs of the Investor Partnership being wound up as promptly as
practicable thereafter."
Under the terms of Section 5.6(iii) of the Partnership Agreement, a
majority in interest of Unitholders may agree to dissolve the Investor
Partnership. In accordance with the terms of the partnership agreement for the
Investor Partnership and Maryland law, upon a dissolution of the partnership,
the Investor Partnership's assets are to be liquidated under the control of
Three Winthrop, and the proceeds of the liquidation will first be applied to the
payment of all obligations of the Investor Partnership, costs of the
- 10 -
liquidation, and the establishing of any reserves deemed necessary. Proceeds
remaining thereafter will be distributed to the Unitholders. Such net proceeds
may be more or less than the net proceeds available for distribution if the
Offer is accepted depending on, among other factors, the purchase price for the
Project, the payment obligations of the Investor Partnership, the costs of
liquidation, and the reserves deemed necessary to Three Winthrop. Once the
Investor Partnership has completed the distribution of all of the proceeds of
the liquidation, the Investor Partnership shall file a certificate with the
State of Maryland terminating the existence of the Investor Partnership.
Thus, even if Unitholders consent to the dissolution of the Investor
Partnership, Three Winthrop should control the timing and process by which the
assets of Investor Partnership are liquidated. If the dissolution is approved,
however, Greenbelt Residential will resubmit the Offer to Three Winthrop for
consideration, along with any other offers received as part of the liquidation
process, if any, and keep such offer open for a period of at least 30 days
following delivery of the requisite consents of Unitholders approving the
Resolution. During the pendency of this Consent Solicitation and that 30-day
period, in Greenbelt Residential's view, Three Winthrop should solicit other
proposals and otherwise test the market value of the Project and the
competitiveness of the Offer. Greenbelt Residential believes that no bona fide
offer more advantageous to Unitholders will be forthcoming.
Under the terms of the Partnership Agreement, Three Winthrop will be
required to solicit the approval of Unitholders of the Offer or to any sale of
the Investor Partnership's interest in the Operating Partnerships a sale of the
Project. Because Three Winthrop will control the timing and process by which
the assets of the Investor Partnership are sold, Greenbelt Residential is unable
to predict when such approval will be solicited or when this process will be
completed. The market value of the Project may increase or decrease from the
time the Resolution is approved until the dissolution and liquidation process is
completed as a result of, among other factors, changes in prevailing interest
rates, vacancy rates, and the Project's cash flow.
RIGHT OF FIRST REFUSAL
Under the terms of the partnership agreement of each of the Operating
Partnerships, Mr. Lerner has a right of first refusal to match, on identical
terms, any offer for a sale of the assets of the Investor Partnership or the
Project recommended by Three Winthrop and approved by Unitholders. As described
in the Offering Memorandum:
In consideration for Lerner's agreement to permit sales and
refinancings . . ., Lerner has been given a right of first refusal in the
event of any sale of the assets of an Operating Partnership, or any sale by
the Investor Partnership of part or all of its interest in any Operating
Partnership.
thus, if Three Winthrop accepts another bona fide proposal, and the proposal is
recommended to and approved by Unitholders, Mr. Lerner may choose, in his sole
discretion and in light of the circumstances existing at that time, to exercise
his right of first refusal and match the terms of that proposal.
DISSENTERS' RIGHTS
Unitholders have no right under the terms of the Partnership Agreement
or Maryland law to dissent in the liquidation and dissolution of the Investor
Partnership or seek an independent appraisal of the Investor Partnership's
assets. Accordingly, if Unitholders owning a majority in interest approve the
dissolution, Unitholders who do not so consent will be bound by the consent of a
majority in interest of the Unitholders.
- 11 -
CONSENT REQUIRED
One Unit represents a 0.1464% interest in the Investor Partnership;
fractions of a Unit represent a corresponding interest in the Investor
Partnership (i.e., 1/2 Unit equals a 0.0732% interest in the Investor
Partnership). The adoption of the proposed resolutions requires the affirmative
consent of Unitholders owning of record at least a majority in interest of the
Investor Partnership. A signed, but unmarked, Green Consent Card will be deemed
to appoint the persons named therein as proxies for the purpose of consenting to
the Resolution. Greenbelt Residential is not aware of any applicable law or
provision of the Partnership Agreement that establishes a time period after
which the consents solicited hereby would no longer be effective or valid.
UNITHOLDERS OF RECORD
The terms of the Partnership Agreement do not require the setting of a
record date for Unitholders entitled to notice of and to consent to the
Resolution. However, only Unitholders who are admitted as limited partners to
the Investor Partnership may consent to the Resolution. If your Units are held
of record by another person or entity, only that person or entity can consent
with respect to your Units. Accordingly, if your Units are so held, please
contact such person or entity and give instructions for a consent to be signed
with respect to your Units. As of December 31, 1993, the most recent date for
which the Investor Partnership has reported such information, there were 674
holders of Units.
REVOCATION OF CONSENTS
For purposes of Greenbelt Residential delivering consents to Three
Winthrop, Unitholders may revoke executed consent at any time before the time
the action authorized by the executed consent becomes effective by dating,
signing, and delivering a written notice, which clearly expresses the revocation
of consent, to Greenbelt Residential at 11501 Huff Court, North Bethesda,
Maryland 20895-1094, or by delivering a properly executed, subsequently dated
consent card.
If Units are transferred after delivering an executed consent and before
the time the action authorized by such executed consent is effective, and the
holders of the transferred Units are admitted to the Investor Partnership as
limited partners, such substitution will terminate the right of the prior
Unitholder to consent to the Proposals, and any consents as to the transferred
Units must be executed by the new substitute limited partner.
SOLICITATION OF CONSENTS
Consents will be solicited by mail, advertisement, telephone, and in
person. Solicitations will be made by certain employees of entities affiliated
with Greenbelt Residential, none of whom will receive additional compensation
for such solicitations. Greenbelt Residential is requesting brokers,
custodians, nominees, and fiduciaries to forward all soliciting materials to the
beneficial owners of Units. Greenbelt Residential will, if appropriate,
reimburse such brokers, custodians, nominees, and fiduciaries for their
reasonable expenses for sending solicitation materials to the beneficial owners
of Units.
The Resolution will become effective at the earliest time at which
unrevoked consents of Unitholders holding at least a majority of the interests
in the Investor Partnership are formally delivered by Greenbelt Residential to
Three Winthrop. Greenbelt Residential will not formally deliver such consents,
thereby arguably triggering a "dissolution" of the Investor Partnership, without
written confirmation from the Lender
- 12 -
that delivery of such consents will not be treated as a default under the loan
documents. This Consent Solicitation will expire, unless extended by Greenbelt
Residential in its sole discretion, on March 7, 1995.
The expense of this Consent Solicitation is being borne by Greenbelt
Residential or its affiliates. Greenbelt Residential will not seek
reimbursement for such expenses from the Investor Partnership.
Greenbelt Residential also has retained Georgeson for solicitation and
advisory services in connection with the Consent Solicitation, for which
Georgeson will receive a fee of $15,000 together with reimbursement for
reasonable out-of-pocket expenses.
- 13 -
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS OF DISSOLUTION
INTRODUCTION
It is not feasible to comment on all aspects of federal, state and local
tax laws that may affect a Unitholder as a result of acceptance of the Offer by
Three Winthrop, the sale of the Investor Partnership's assets, and the resulting
liquidation of the Investor Partnership. The following discussion is a summary
of the material federal income tax consequences under present interpretations of
federal income tax laws to Unitholders which are United States individual
taxpayers or domestic corporate taxpayers. However, the actual tax consequences
to a particular Unitholder will depend, in part, on the Unitholder's own tax
circumstances. This summary does not address the state, local, or foreign tax
consequences of the transactions described herein, nor does it discuss all
aspects of federal income taxation that may be relevant to Unitholders in light
of their particular circumstances. Except where indicated, the discussion below
describes general federal income tax considerations applicable to individuals
who are citizens or residents of the United States, and therefore has limited
application to domestic corporations and persons subject to special federal
income tax treatment, such as foreign persons, tax-exempt entities, regulated
investment companies and insurance companies. Accordingly, Unitholders are
urged to consult with their own tax advisor with respect to the tax consequences
of the acceptance of the Offer, sale of the Investor Partnership's assets and
resulting liquidation as they affect such Unitholder individually.
SALE OF ASSETS
Upon the sale of the Investor Partnership's assets, the Investor
Partnership will realize gain equal to the excess of the amount realized on the
sale of the Investor Partnership assets over the adjusted tax basis of the
Investor Partnership in those assets. In determining his income tax liability,
each Unitholder is required to take into account separately his distributive
share of the Investor Partnership's gains and losses from the sale or exchange
of property described in Section 1231 of the Internal Revenue Code of 1986, as
amended (the "Code"), relating to certain property used in a trade or business.
Since interests in real property and depreciable property used in a trade or
business and held for more than six months result in classification of property
as Section 1231 property, except in the case of dealers of such property, it is
anticipated that any gain from the sale of the Partnership assets will be
treated as Section 1231 gain. The activities of the Investor Partnership are
such that they should not be considered dealers in real property. The aggregate
net gain or loss recognized on all transactions in any taxable year on the
disposition of property described in Section 1231 is taxed as long-term capital
gain or as ordinary loss, as the case may be, except that any net gain will be
treated as ordinary income to the extent of net losses from the sale or exchange
of Section 1231 assets in the previous five (5) years. Greenbelt Residential is
unable at this time to determine the exact amount and character of gain or loss
that will be allocated to and recognized by any Unitholder as a result of the
sale of the Investor Partnership's assets in accordance with the offer.
Income from Partnership Operations
Any item of income, gain, loss, deduction or credit incurred by the
Investor Partnership during the period of liquidation in addition to the income,
gain or loss resulting from the sale of Partnership assets in accordance with
the Offer will continue to be allocated among the Unitholders as provided in the
partnership agreements of the Investor Partnership. Each Unitholder will
continue to receive Investor Partnership income tax information to enable him to
report his distributive share of all such Investor Partnership items allocated
during the period of liquidation.
- 14 -
Receipt of Liquidating Distributions
The recognition of gain or loss by a Unitholder as a result of the
receipt of distributions in liquidation of his interest in the Investor
Partnership is governed by Section 731 of the Code. That Section provides for
nonrecognition of gain, except to the extent an amount of money is distributed
in excess of the Unitholder's basis in his Units, and the nonrecognition of
loss, unless a distribution in complete liquidation consists solely of money,
unrealized receivables (as defined in Section 751(c) of the Code) and inventory
(as defined in Section 751(d)(2) of the Code). If a loss is recognized, it is
equal to the amount by which the Unitholder's predistribution basis in his Units
exceeds the amount of money and the adjusted basis of the unrealized receivables
and inventory items distributed to him. A Unitholder's adjusted basis in his
Units will equal the price originally paid for such units (or the adjusted basis
of the property exchanged for such Units) increased by his distributive share of
Investor Partnership income and gain and decreased by his distributive share of
Investor Partnership losses and the amount of cash distributed to him. Any gain
or loss recognized by the Unitholder upon liquidation of the Investor
Partnership is treated as gain or loss from the sale or exchange of a capital
asset, except in the case of Units held for sale to customers in the ordinary
course of a trade or business. Greenbelt Residential is unable at this time to
determine the amount of gain or loss that will be recognized by any Unitholder
as a result of the receipt of distributions in liquidation of his interest in
the Investor Partnership.
Passive Activity Loss Provisions
The passive loss limitations generally provide that individuals,
estates, trusts and certain closely held corporations and personal service
corporations can only deduct losses from passive activities that are not in
excess of the taxpayer's income from such passive activities or investments.
Passive activities are, in general, activities in which a taxpayer does not
materially participate, such as those of the Investor Partnership. As a result
of these rules, net passive losses from the Investor Partnership cannot be used
to offset passive income from other sources and are separately carried forward.
However, all losses previously disallowed to a Unitholder under the passive
activity loss rules and not offset against income from the sale of Investor
Partnership assets in accordance with the Offer may be deducted by such
Unitholder in the year in which the liquidation is completed, or if earlier,
upon a taxable sale or other disposition of the Unitholder's entire interest in
the Investor Partnership to an unrelated party. In addition, deductions
previously disallowed to a Unitholder by the at risk limitations will be allowed
to the extent of income and gain recognized in the sale of Partnership assets in
accordance with the Offer and liquidation or recognized upon the disposition of
the Unitholder's interest in the Investor Partnership.
- 15 -
CERTAIN INFORMATION CONCERNING GREENBELT RESIDENTIAL
Greenbelt Residential is a newly formed Maryland limited partnership
organized for the purposes of conducting the Consent Solicitation and making the
Offer.
The general partner of Greenbelt Residential is Planden Corporation, a
Maryland corporation. Planden Corporation serves as general partner of several
Lerner-related limited partnerships. The sole stockholders of Planden
Corporation, each owning approximately 1/3 of the common stock, are Edward L.
Cohen, Judy L. Lerner, and Robert K. Tanenbaum, each a member of Mr. Lerner's
family. As general partner of Greenbelt Residential, Planden Corporation has a
1% interest in Greenbelt Residential.
Lerner Enterprises is the sole limited partner of Greenbelt Residential.
Lerner Enterprises is a Maryland limited partnership comprised of Mr. Lerner and
members of his family. The general partners of Lerner Enterprises are Mr.
Lerner, Annette M. Lerner, Mark D. Lerner, Debra Lerner Cohen, and Marla Lerner
Tanenbaum. The limited partners of Lerner Enterprises are two Lerner family
trusts. As the sole limited partner of Greenbelt Residential, Lerner
Enterprises has a 99% interest in Greenbelt Residential.
Lerner Corporation is a real estate management company of which Mr.
Lerner is president and majority stockholder. Lerner Corporation serves as the
day-to-day manager of the Project under a management agreement which, after
January 1995, may be terminated by Three Winthrop upon 90 days written notice.
Winthrop is disputing the date on which it can terminate the management
agreement and take over the management of the Project, arguing that notice of
termination may be given prior to and effective on January 31, 1995, and has
filed a complaint in a Maryland state court seeking a declaratory judgment on
this matter. Lerner Corporation believes Winthrop's complaint is without merit
and intends to contest the action.
Under the terms of a management agreement, Lerner Corporation receives a
fee equal to 4% of gross rents actually collected, payable monthly. The fee
charged to operations during 1993, 1992, and 1991 amounted to $893,529,
$923,381, and $921,853, respectively. In addition, leasing fees for the
commercial space at the Project during 1993, 1992, and 1991 amounted to $638,
$810, and $1,145, respectively.
Lerner Corporation presently leases and manages over 6,000 apartment
units and approximately 3.8 million square feet of office and retail space in
the Washington, D.C. area. Lerner Corporation employs approximately 470 people.
On December 27, 1994, Mr. Lerner filed a lawsuit against Three Winthrop
seeking an accounting, money damages, and other relief. The complaint alleges
that Three Winthrop, acting as general partner of the Investor Partnership,
breached its fiduciary duty to Mr. Lerner in various ways, including by failing
to make proper distributions of the proceeds of the Operating Partnerships and
by denying Mr. Lerner access to the books and records of the Operating
Partnerships. Three Winthrop has not yet filed an answer to this complaint.
The principal business address for each of Greenbelt Residential, Lerner
Enterprises, and Lerner Corporation is 11501 Huff Court, North Bethesda,
Maryland 20895-1094; telephone 301/984-1500; fax 301/770-0144.
Theodore N. Lerner, Mark D. Lerner, Robert K. Tanenbaum, and Edward L.
Cohen each may be deemed a participant in the Consent Solicitation. Unless
otherwise indicated, the current business address of each such person is as set
forth above.
-16-
Under the Partnership Agreement, Mr. Lerner, and any "Related Parties"
(as defined in the Partnership Agreement) are prohibited from acquiring or
owning Units. As of the date hereof, none of the persons identified above or
any of their associates beneficially owned any Units.
CERTAIN INFORMATION CONCERNING THE INVESTOR PARTNERSHIP
The Investor Partnership is subject to the informational requirements of
the Securities Exchange Act of 1934, as amended ("Exchange Act"), and as
required thereunder files reports and other information with the Securities and
Exchange Commission (the "Commission"). Such reports and other information can
be inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at its regional offices at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60621 and 7 World Trade Center, 13th Floor, New York, New York
10048. Copies of such materials also can be obtained from the Commission's
Public Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates.
The following information regarding the Investor Partnership is
qualified in its entirety by reference to, and is derived exclusively from,
publicly-available reports filed by the Investor Partnership under the Exchange
Act with the Commission. Greenbelt Residential assumes no responsibility for
the accuracy or the adequacy of the information included in such reports.
Copies of the Investor Partnership's Annual Report on Form 10-K for the year
ended December 31, 1993 and quarterly reports on Form 10-Q for the quarters
ended March 31, 1994, June 30, 1994, and September 30, 1994 will be furnished to
Unitholders upon request at the address set forth herein.
The only business of the Investor Partnership is investing as a general
partner in the Operating Partnerships, and as such, to cause the Operating
Partnerships to own and operate the Project, until such time as a sale, if any,
of all or a portion of the Project appears to be advantageous and is permitted
under the terms of the Operating Partnerships' partnership agreements. The
executive officers of the Investor Partnership are located at One International
Place, Boston, Massachusetts 02110, telephone (617) 330-8600.
The Investor Partnership does not have any employees. Services are
performed for the Investor Partnership by the general partners and agents
retained by them. The Operating Partnerships have retained Winthrop Management,
a Massachusetts general partnership whose general partners are affiliated with
WFA, to be primarily responsible for the management of the Project, including
the establishment of leasing policies, the setting of rental rates, the
implementation of capital improvements and the supervision of the Project's
property manager. Prior to January 1, 1990, another affiliate of WFA performed
these services. Winthrop Management is entitled to a fee equal to 1% of gross
rents actually collected, payable monthly, and it may also receive a contingent
incentive management fee. The management fee for its services amounted to
$223,382, $230,845, and $230,463 in 1993, 1992, and 1991, respectively.
Winthrop Financial also receives an annual asset management fee of $100,000, and
Winthrop Management is entitled to receive an annual administration fee of
$10,000.
There is no established public trading market for the Units. Trading in
the Units is sporadic and occurs solely through private transactions. In
addition, transfers of Units are subject to limitations set forth in the
Partnership Agreement which require the prior written consent of Three Winthrop
to any such transfer.
The Partnership Agreement requires that Cash Flow (as defined therein)
be distributed to the partners in specified proportions (discussed below) at
reasonable intervals during the fiscal year and, in any event, no later than 60
days after the close of each fiscal year. The Investor Partnership's ability to
make distributions
-17-
of Cash Flow is limited by the extent to which the Operating Partnerships earn
more than sufficient rental and investment income to (a) pay all expenses of the
Project, and (b) distribute sufficient Cash Flow to the Investor Partnership to
meet the debt service requirements of the mortgage loans and other expenses and
current obligations. Cash distributions of $237,502 and $237,502 were paid to
the Unitholders in 1992 and 1991, respectively, representing the Cash Flow
available for distribution from the preceding year's operations. None of the
cash that was distributed represented a return of Unitholders' capital. No
distribution was made in 1993 from 1992 operations because the property operated
at a deficit in 1992, which was funded from the Investor Partnership's reserves.
As of the date hereof, Three Winthrop has announced its intention to resume
making cash distributions to Unitholders in early 1995.
The Partnership Agreement for the Investor Partnership provides that
distributions of cash flow shall be made 95% to the Unitholders, .01% to Three
Winthrop and 4.99% to Linnaeus-Lexington. After satisfaction of creditors and
establishing reserves, distributions of net proceeds from a capital transaction
are distributed as follows: (i) first, to Unitholders an amount equal to a
cumulative annual 6% return on their unreturned capital investment, (ii) second,
to Unitholders to repay their unreturned capital investment; and (iii) third,
70.6% to the Unitholders, 1.0% to Three Winthrop and 28.4% to Linnaeus-
Lexington.
Three Winthrop and Linnaeus-Lexington own all the outstanding general
partnership interests in the Investor Partnership. No other person or group was
known by the Investor Partnership to be the beneficial owner of more than 5% of
the outstanding partnership interests as of March 31, 1994.
As of December 31, 1993, four limited partners of Linnaeus-Lexington,
who are no longer employed by WFA or its affiliates, beneficially owned Units in
the Investor Partnership. One person owns a one-half Unit and the other three
own one Unit each (less than .01%). No other officer or director or partner of
the general partners owns any Units.
PLEASE INDICATE YOUR SUPPORT OF A SALE OF THE PROJECT BY COMPLETING,
SIGNING, AND DATING THE ENCLOSED GREEN CONSENT CARD AND RETURNING IT PROMPTLY IN
THE ENCLOSED RETURN ENVELOPE. NO POSTAGE IS NECESSARY IF THE ENVELOPE IS MAILED
IN THE UNITED STATES.
Greenbelt Residential Limited Partnership
January 19, 1995
-18-
[THIS PAGE INTENTIONALLY LEFT BLANK]
Questions and requests for assistance may be directed to Georgeson &
Company Inc. at the address and telephone numbers listed below. Additional
copies of this Consent Solicitation Statement and the GREEN Consent Card may be
obtained as set forth below:
GEORGESON
& COMPANY INC.
Wall Street Plaza
New York, New York 10005
(212) 509-6240 (collect)
Call Toll Free 1-800-223-2064
IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND
________________________________________
)
THREE WINTHROP PROPERTIES, INC., )
as Managing General Partner of )
Springhill Lake Investors Limited )
Partnership, as General Partner )
of First, Second, Third, Fourth, )
Fifth, Sixth, Seventh, Eighth and )
Ninth Springhill Lake Limited )
Partnerships and Springhill )
Commercial Limited Partnership, ) Case No.
)
Plaintiff )
)
v. )
)
LERNER CORPORATION, )
11501 Huff Court )
North Bethesda, Maryland 20895 )
)
Defendant )
________________________________________)
COMPLAINT TO ENFORCE CONTRACT
INTRODUCTION
The plaintiff brings this action to enforce the express term of a
written contract which controls termination of that contract.
COUNT I
PARTIES
1. Plaintiff Three Winthrop Properties, Inc. ["Three Winthrop"] is a
corporation organized and existing under the laws of the Commonwealth of
Massachusetts, with its principal place of business at One International Place,
Boston, Massachusetts. Three Winthrop is a wholly owned subsidiary of First
Winthrop Corporation.
2. Three Winthrop is the Managing General Partner of Springhill Lake
Investors Limited Partnership ["the Investor Partnership"], a limited
partnership organized and existing under the laws of the state of Maryland, with
a usual place of business at One International Place, Boston, Massachusetts.
The Investor Partnership has as its limited partners several hundred investors,
most of whom are individuals, who invested funds in return for an ownership
interest in the Investor Partnership.
3. The Investor Partnership is the sole general partner of First,
Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth and Ninth Springhill Lake
Limited Partnerships and Springhill Commercial Limited Partnership [collectively
"the Operating Partnerships"], each of which is a Maryland limited partnership.
The Investor Partnership owns a 90% general partnership interest in the
Operating Partnerships.
4. The Operating Partnerships own and operate a 96 building garden
apartment complex located in Greenbelt, Maryland ["the Apartments"].
5. As the Managing General Partner of the sole general partner of the
Operating Partnerships, Three Winthrop exercises day-to-day control over the
Operating Partnerships.
6. Three Winthrop brings this action in its capacity as Managing
General Partner of the sole general partner of the Operating Partnerships, on
behalf of the Operating Partnerships.
-2-
7. Defendant Lerner Corporation ["Lerner"] is a Maryland corporation
whose principal place of business is located at 11501 Huff Court, North
Bethesda, Maryland.
JURISDICTION AND VENUE
8. This Court has jurisdiction over the subject matter of these claims
pursuant to Md. Cts. & Jud. Proc. Code Ann., Section 1-501.
9. This Court has the authority to enter the declaratory relief and
other relief sought in these claims pursuant to Md. Cts. & Jud. Proc. Code Ann.,
Section 3-403 et seq.
10. Venue is proper in this Court pursuant to Md. Cts. & Jud. Proc.
Code Ann., Section 6-201(a).
THE CONTRACT
11. On or about January 16, 1985, Three Winthrop, acting on behalf of
the Operating Partnership, entered into a Management and Leasing Agreement ["the
Agreement"] with Lerner pursuant to which Lerner would act as exclusive leasing
and management agent for the Apartments. A true and accurate copy of the
Agreement is attached hereto and marked "A".
12. Section 14(b) of the Agreement provides:
[Three Winthrop] shall have the right, without liability and
without cause to terminate [the Agreement] at any time from and
after the last day of the calendar month in which occurs the tenth
(10th) anniversary of the date of this Agreement by giving [Lerner]
written notice of its election to do so. Such notice shall specify
the effective date of such termination (which shall be a
"Termination Date"), which date shall be not earlier than 90 days
after such notice is given.
13. The tenth anniversary of the Agreement will occur during January,
1995. Pursuant to Section 14(b) of the Agreement quoted
-3-
above, Three Winthrop has the right to terminate the Agreement effective as of
the last date of that month (January 31, 1995), so long as it has given Lerner
90 days notice of its intent to so terminate.
14. On or about October 17, 1994, Three Winthrop sent to Lerner written
notice of its intent to terminate the Agreement as of January 31, 1995. A true
and accurate copy of that termination notice is attached hereto and marked "B".
15. By letter dated October 25, 1994, Lerner responded to Three
Winthrop's notice of termination and indicated that it would not honor that
notice. A true and accurate copy of Lerner's response is attached hereto and
marked "C".
16. Lerner takes the position that Three Winthrop may not terminate the
Agreement effective as of January 31, 1995, contrary to the express language of
Section 14(b). It is apparently Lerner's position that the Agreement gives
Three Winthrop only the right to give notice of its intent to terminate the
Agreement on January 31, 1995, which termination would then occur 90 days later.
Lerner's interpretation is contrary to the plain and unambiguous language of
Section 14(b) of the Agreement, which gives Three Winthrop the right to
"terminate" the Agreement effective January 31, 1995, not the right to give
notice on that date.
17. Since the Agreement provides substantial compensation to Lerner,
Lerner's attempt to delay the termination of the Agreement would result in
excessive compensation being paid to it
-4-
at the expense of Three Winthrop and the investors in the Investor Partnership.
18. An actual controversy exists with respect to the correct
interpretation of Section 14(b) of the Agreement, which controversy will be
resolved by the entry of a declaratory judgment by this Court.
WHEREFORE, plaintiff Three Winthrop Properties, Inc. requests that the
Court enter judgment in its favor and award the following declaratory relief:
A. Adjudicate and declare that Section 14(b) of the Management and
Leasing Agreement between the parties entitles the plaintiff to terminate the
Agreement effective as of January 31, 1995, so long as notice has been given 90
days prior to that date; and
B. Adjudicate and declare that the plaintiff gave proper and effective
notice on October 17, 1994 of its intent to terminate the Management and Leasing
Agreement effective as of January 31, 1995; and
C. Adjudicate and declare that the Management and Leasing Agreement
between the parties will terminate on January 31, 1995 and will thereafter be of
no force or effect.
COUNT II
19. The plaintiff repeats and incorporates herein by reference the
allegations contained in paragraphs 1 through 18 above.
20. Three Winthrop has been damaged by Lerner's failure and refusal to
honor the notice dated October 17, 1994 of Three
-5-
Winthrop's termination of the Agreement effective as of January 31, 1995.
21. The damage sustained by Three Winthrop includes but is not limited
to all management fees, leasing fees, commissions and other amounts collected by
Lerner from and after January 31, 1995, and the costs and attorneys' fees
incurred by Three Winthrop as a result of commencing this action.
WHEREFORE, plaintiff Three Winthrop Properties, Inc. requests that the
Court enter judgment in its favor and assess and award it damages, including
interest, costs and reasonable attorneys' fees.
Dated: Nov. 17, 1994 PLAINTIFF THREE WINTHROP
PROPERTIES, INC.
By its attorneys:
/s/ Seth D. Greenstein
________________________________
Seth D. Greenstein
MCDERMOTT, WILL & EMERY
1850 K Street, N.W.
Suite 500
Washington, D.C. 20006-2296
(202) 887-8000
Barbara L. Moore
COOLEY, MANION, MOORE
& JONES, P.C.
21 Custom House Street
Boston, MA 02193
(617) 737-3100
-6-
CERTIFICATE OF GOOD STANDING
I hereby certify that I am admitted to practice law in the State of
Maryland and am a member in good standing of the Bar of the State of Maryland.
/s/ Seth D. Greenstein
__________________________
Seth D. Greenstein
MCDERMOTT, WILL & EMERY
1850 K Street, N.W.
Suite 500
Washington, D.C. 20006-2296
(202) 887-8000
-7-
IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND
- ----------------------------------------
)
THREE WINTHROP PROPERTIES, INC., )
as Managing General Partner of )
Springhill Lake Investors Limited )
Partnership, as General Partner )
of First, Second, Third, Fourth, )
Fifth, Sixth, Seventh, Eighth and )
Ninth Springhill Lake Limited )
Partnerships and Springhill )
Commercial Limited Partnership, ) Case No. 129192-V
)
Plaintiff )
)
v. )
)
LERNER CORPORATION, )
)
Defendant )
)
________________________________________)
MOTION FOR PARTIAL SUMMARY JUDGMENT
Plaintiff Three Winthrop Properties, Inc. ["Three Winthrop"], pursuant
to Maryland Rule 2-501, hereby moves for the entry of summary judgment in its
favor on Count I of its Complaint to Enforce Contract ["Count I"]. There is no
genuine issue of material fact and Three Winthrop is entitled to judgment as a
matter of law on Count I.
WHEREFORE, and for such reasons as this Honorable Court may deem just
and proper, Three Winthrop respectfully requests the entry of summary judgment
in its favor on Count I. A Supporting Memorandum of Points and Authorities, as
well as the Affidavit of Barry Bass and a proposed form of Order, are submitted
herewith.
REQUEST FOR HEARING
Pursuant to Maryland Rule 2-311(f) and Section 3-409(e) of the Md. Cts.
& Jud. Proc. Code Ann., Three Winthrop requests a speedy hearing as to all
matters set forth herein.
Date: Respectfully submitted,
Three Winthrop Properties, Inc.
By its attorneys,
__________________________________
Seth D. Greenstein
McDermott, Will & Emery
1850 K Street, N.W.
Washington, D.C. 20006-2296
(202) 887-8000
Barbara L. Moore, BBO# 352780
John J. Tumilty, BBO# 560017
COOLEY, MANION, MOORE & JONES, P.C.
21 Custom House Street
Boston, MA 02110
(617) 737-3100
IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND
- ----------------------------------------
)
THREE WINTHROP PROPERTIES, INC., )
as Managing General Partner of )
Springhill Lake Investors Limited )
Partnership, as General Partner )
of First, Second, Third, Fourth, )
Fifth, Sixth, Seventh, Eighth and )
Ninth Springhill Lake Limited )
Partnerships and Springhill )
Commercial Limited Partnership, ) Case No. 129192-V
)
Plaintiff )
)
v. )
)
LERNER CORPORATION, )
)
Defendant )
)
________________________________________)
MEMORANDUM IN SUPPORT OF PLAINTIFF'S MOTION
FOR PARTIAL SUMMARY JUDGMENT
INTRODUCTION
Plaintiff Three Winthrop Properties, Inc. ["Three Winthrop"] submits
this memorandum in support of its Motion for Partial Summary Judgment, filed
herewith. Three Winthrop seeks summary judgment on Count I of its Complaint to
Enforce Contract, filed with this Court on or about November 18, 1994, in which
it seeks a judicial declaration as to the interpretation of a provision of a
written management and leasing contract between the parties. For the reasons
set forth herein and in the accompanying Affidavit of Barry H. Bass, there is no
genuine issue of material fact in dispute and Three Winthrop is entitled to
judgment as a matter
of law as to Count I of the Complaint.
FACTUAL BACKGROUND
Three Winthrop is the Managing General Partner of Springhill Lake
Investors Limited Partnership ["the Investor Partnership"], which was formed for
the purpose of allowing qualified investors to invest in the ownership and
operation of real estate. [Bass Affidavit, Paragraph 3]. The Investor
Partnership is the sole general partner of First, Second, Third, Fourth, Fifth,
Sixth, Seventh, Eighth and Ninth Springhill Lake Limited Partnerships and
Springhill Commercial Limited Partnership [collectively "the Operating
Partnerships"], which own and operate a 96-building garden apartment complex
located in Greenbelt, Maryland ["the Apartments"]. [Bass Affidavit, Paragraph
3].
On or about January 16, 1985, Three Winthrop, acting on behalf of the
Operating Partnerships, entered into a Management and Leasing Agreement ["the
Agreement"] with defendant Lerner Corporation ["Lerner"] pursuant to which
Lerner would act as the exclusive leasing and management agent for the
Apartments. [Bass Affidavit, Paragraph 6; a true and accurate copy of the
Agreement is attached to the Bass Affidavit and marked "A"].
Section 14(b) of the Agreement provides:
[Three Winthrop] shall have the right,
without liability and without cause to
2
terminate [the Agreement] at any time from
and after the last day of the calendar month
in which occurs the tenth (10th) anniversary
of the date of this Agreement by giving
[Lerner] written notice of its election to do
so. Such notice shall specify the effective
date of such termination (which shall be a
"Termination Date"), which date shall be not
earlier than 90 days after such notice is
given.
[Bass Aff. Exh. A, Section 14(b), pp. 30-31]. The tenth anniversary of the
date of the Agreement falls during January, 1995; therefore, January 31, 1995
is "the last day of the calendar month in which occurs the tenth (10th)
anniversary of the date of this Agreement," as set forth in Section 14(b).
[Bass Aff. Paragraph 8].
On or about October 17, 1994, Three Winthrop sent to Lerner written
notice of its intent to terminate the Agreement as of January 31, 1995. [Bass
Affidavit Paragraph 9; a true and accurate copy of the notice is attached to
the Bass Affidavit and marked "B"]. By letter dated October 25, 1994, Lerner
responded to Three Winthrop's notice of termination and indicated that it would
not honor that notice. [Bass Affidavit Paragraph 10; a true and accurate copy
of Lerner's response to the notice is attached to the Bass Affidavit and marked
"C"].
ARGUMENT
The parties disagree as to the interpretation of Section 14(b) of the
Agreement. It is Three Winthrop's position that Section 14(b) clearly and
unambiguously gives it the right "to terminate" the Agreement effective as
3
of January 31, 1995. It is apparently Lerner's position that Section 14(b)
only gives Three Winthrop the right to send a notice of its intent to terminate
on January 31, 1995, which termination would not then be effective until 90
days thereafter.
Count I presents a straightforward legal question of contract
interpretation. Three Winthrop submits that its interpretation of Section
14(b) of the Agreement is mandated by the clear and unambiguous language of the
Agreement.
Summary Judgment is Appropriate
To Interpret Unambiguous Contract Language
The function of summary judgment is "to determine whether there is an
issue of fact to be tried and, if there is none, to cause judgment to be
rendered accordingly." Consumer Life Ins. Co. v. Smith, 587 A.2d 1119, 1121
(Md. App. 1991). In Maryland, the construction of a written contract, like the
Agreement, is a matter of law to be resolved by the court. Metropolitan Life
Ins. Co. v. Promenade Towers Mutual Housing Corp., 84 Md. App. 702, 716, 581
A.2d 846, 853 (1990).
Where contract language like that contained in Section 14(b) of the
Agreement is clear and unambiguous, there is no room for construction because
the parties are presumed to have intended what they expressed. Schuster v.
White Coffee Pot Family Inns, Inc., 43 Md.
4
App. 550, 551, 406 A.2d 452, 452 (1979). The "unilateral 'understanding' of
one party to a contract is not a material fact" precluding summary judgment.
Mallinakrodt v. Bioproducts, 81 Md. App. 96, 566 A.2d 1113, 1116 (1989).
Moreover, merely because the parties disagree as to the meaning of the
provisions of Section 14(b) does not create an ambiguity precluding summary
judgment. See Faw, Casson & Co., v. K. Thomas Everngam, Jr., 94 Md. App. 129,
135, 616 A.2d 426, 429 (1992), cert. denied, 330 Md. 155, 622 A.2d 1195 (1993).
It is well settled that Maryland follows the objective theory of
contracts. Faw, Casson & Co., 94 Md. App. at 134, 616 A.2d at 429. In
construing Section 14(b) of the Agreement, the Court must first determine from
the language of the Agreement itself what a reasonable person in the position
of the parties would have meant, bearing in mind that when contract language is
plain and unambiguous there is no room for construction and the Court must
presume that the parties meant what they expressed. Id. at 135, 616 A.2d at
429. In such circumstances, the test of what is meant is not what the parties
intended, but what a reasonable person in the position of the parties would
have thought the contract language meant. Id.
5
The Agreement Gives Three Winthrop
The Right to Terminate the Agreement
Effective as of January 31, 1995
The language in question gives Three Winthrop "the right . . . to
terminate [the Agreement] at any time from and after" January 31, 1995. It
does not give it only the right to give notice of termination as of that date;
it gives the right "to terminate" as of that date. It is clear from the use of
the words "to terminate" that, if ninety (90) days notice is properly given,
the Agreement will "terminate" as of January 31, 1995. That is exactly what
Three Winthrop is seeking to do.
Three Winthrop followed precisely the requirements of Section 14(b) of
the Agreement. On October 17, 1994, which was one hundred (100) days prior to
January 31, 1995, Three Winthrop gave written notice of termination to Lerner.
[Bass Aff. Exh. B]. That notice specified that "the effective date of such
termination" would be January 31, 1995, the "Termination Date". The
"Termination Date" was "the last day of the calendar month in which occurs the
tenth (10th) anniversary of the date of [the] Agreement."
Three Winthrop followed Section 14(b) of the Agreement to the letter.
This Court should summarily rule that the Agreement has been terminated
effective as of January 31, 1995.
6
The interpretation of Section 14(b) advanced by Three Winthrop is,
moreover, the only interpretation that makes any sense in the context of the
parties at the time the contract was entered into. Faw, Casson & Co., 94 Md.
App. at 135, 616 A.2d at 429. The Agreement was, from its inception, a ten-
year contract. Section 14(a) of the Agreement provides that the Agreement
"shall be in effect from and after the date hereof until" January 31, 1995.
[Bass. Aff. Exh. A, Section 14(a), p. 30]. By its terms, the Agreement will
"be automatically renewed for successive one year terms" after its automatic
expiration on January 31, 1995, "subject to termination at any time pursuant
to, and on the conditions set forth in" Section 14 of the Agreement. [Bass.
Aff. Exh. A, Section 14(a), p. 30].
This automatic expiration and renewal structure makes it clear that the
Three Winthrop has the power to prevent the automatic renewal of the Agreement
on January 31, 1995 by terminating it as set forth in Section 14(b). If Three
Winthrop follows the "conditions set forth in" Section 14(a), it can
"terminate" the contract upon its expiration on January 31, 1995.
There is nothing in the language of the Agreement which supports
Lerner's interpretation of Section 14(b). Nowhere is there any suggestion that
Three Winthrop has only the power to give notice of termination on January
7
31, 1995, and lacks power to cause the Agreement to terminate effective as of
that date. Lerner is seeking, in the interpretation which it advances, to
rewrite the terms of the Agreement for its financial benefit.
CONCLUSION
For the reasons set forth above, plaintiff Three Winthrop Properties,
Inc., acting on behalf of the Operating Partnerships, requests that the Court
enter judgment in its favor on Count I of its Complaint to Enforce Contract,
and award the declaratory relief specified in that count.
Date: Respectfully submitted,
Three Winthrop Properties, Inc.
By their attorney,
___________________________________
Seth D. Greenstein
McDermott, Will & Emery
1850 K Street, N.W.
Washington, D.C. 20006-2296
(202) 887-8000
Barbara L. Moore, BBO# 352780
John J. Tumilty, BBO# 560017
COOLEY, MANION, MOORE & JONES, P.C.
21 Custom House Street
Boston, MA 02110
(617) 737-3100
8
IN THE CIRCUIT COURT FOR MONTGOMERY COUNTY, MARYLAND
________________________________________
)
THREE WINTHROP PROPERTIES, INC., )
as Managing General Partner of )
Springhill Lake Investors Limited )
Partnership, as General Partner )
of First, Second, Third, Fourth, )
Fifth, Sixth, Seventh, Eighth and )
Ninth Springhill Lake Limited )
Partnerships and Springhill )
Commercial Limited Partnership, ) Case No. 129192-V
)
Plaintiff )
)
)
v. )
)
LERNER CORPORATION, )
)
Defendant )
________________________________________)
AFFIDAVIT OF BARRY H. BASS IN SUPPORT OF MOTION
FOR PARTIAL SUMMARY JUDGMENT
I, Barry H. Bass, hereby under oath depose and state as follows:
1. I am more than eighteen (18) years of age, reside in the
Commonwealth of Massachusetts and am competent to testify as to the matters set
forth in this Affidavit on the basis of my personal knowledge.
2. I am Vice President of plaintiff Three Winthrop Properties, Inc.
["Three Winthrop"]. Three Winthrop is a wholly owned subsidiary of First
Winthrop Corporation.
3. Three Winthrop is the Managing General Partner of Springhill Lake
Investors Limited
Partnership [the "Investor Partnership"], a Maryland limited partnership formed
for the purpose of allowing qualified investors to invest in the ownership and
operation of real estate. The Investor Partnership is the sole general partner
of First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth and Ninth
Springhill Lake Limited Partnerships and Springhill Commercial Limited
Partnership [collectively the "Operating Partnerships"], each of which is a
Maryland limited partnership.
4. As Managing General Partner of the sole general partner of the
Operating Partnerships, Three Winthrop exercises day-to-day control over the
Operating Partnerships. Three Winthrop brings this action in its capacity as
Managing General Partner of the sole general partner of the Operating
Partnerships, on behalf of the Operating Partnerships.
5. The Operating Partnerships own and operate a 96-building garden
apartment complex located in Greenbelt, Maryland ["the Apartments"].
6. On or about January 16, 1985, Three Winthrop, acting on behalf of
the Operating Partnerships, entered into a Management and Leasing Agreement
["the Agreement"] with defendant Lerner Corporation ["Lerner"] pursuant to
which Lerner would act as exclusive leasing and management agent for the
-2-
Apartments. A true and accurate copy of the Agreement is attached hereto and
marked "A".
7. Section 14(b) of the Agreement provides:
[Three Winthrop] shall have the right, without liability and
without cause to terminate [the Agreement] at any time from and
after the last day of the calendar month in which occurs the tenth
(10th) anniversary of the date of this Agreement by giving
[Lerner] written notice of its election to do so. Such notice
shall specify the effective date of such termination (which shall
be a "Termination Date"), which date shall be not earlier than 90
days after such notice is given.
8. The tenth anniversary of the date of the Agreement will occur
during January, 1995; therefore, January 31, 1995 is "the last day of the
calendar month in which occurs the tenth (10th) anniversary of the date of this
Agreement," as set forth in Section 14(b) of the Agreement.
9. On or about October 17, 1994, Three Winthrop sent to Lerner
written notice of its intent to terminate the Agreement as of January 31, 1995.
A true and accurate copy of that termination notice is attached hereto and
marked "B".
10. By letter dated October 25, 1994, Lerner responded to Three
Winthrop's notice of termination and indicated that it would not honor that
notice. A true and accurate copy of Lerner's response is attached hereto and
marked "C".
-3-
I do solemnly declare and affirm under the penalties of perjury and
upon personal knowledge that the facts set forth in the foregoing affidavit are
true and correct.
Dated: ____________________________________
Barry H. Bass
SPRING/32000110
-4-
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF MARYLAND, SOUTHERN DIVISION
_______________________________________
)
THEODORE N. LERNER, )
11501 Huff Court )
North Bethesda, Maryland 20895 )
)
Plaintiff, ) No. __________
)
v. )
) ___FILED ___ENTERED
THREE WINTHROP PROPERTIES, INC. ) ___LODGED ___RECEIVED
One International Place ) Dec 27 1994
Boston, Massachusetts 02110 ) AT GENERAL
) CLERK U.S. DISTRICT COURT
Defendant. ) DISTRICT OF MARYLAND
________________________________________) BY DEPUTY
COMPLAINT FOR MONEY DAMAGES, AN
ACCOUNTING AND OTHER RELIEF
Plaintiff Theodore N. Lerner, by the undersigned attorneys, for his
Complaint against the above-named defendant states as follows.
A. THE PARTIES
1. Theodore N. Lerner currently resides in Montgomery County, Maryland
and is a citizen of the State of Maryland.
2. Defendant Three Winthrop Properties, Inc., ("Three Winthrop") is a
corporation organized under the laws of the State of Massachusetts with its
principal place of business at One International Place, Boston, Massachusetts.
B. JURISDICTION AND VENUE
3. This Court has subject matter jurisdiction over this cause pursuant
to 28 U.S.C. Section 1332 in that the action arises between citizens of
different states. The amount in controversy, exclusive of interest and costs,
exceeds $50,000.
4. Venue is proper in this Court pursuant to 28 U.S.C. Section 1391 in
that the events or omissions giving rise to the claim occurred in this district
and the property which is the subject of this action is located in this
district.
C. BACKGROUND INFORMATION
5. This case concerns the Springhill Lake Apartments in Greenbelt,
Maryland (the "Project"). The Project consists of a 96 building, 2,899 unit
garden apartment complex, approximately 154 acres of land, an eight-story
shopping center, a day care center, two swimming pools, six tennis courts and a
clubhouse.
6. The Project is owned by ten limited partnerships organized under
the laws of the State of Maryland: First Springhill Lake Limited Partnership,
Second Springhill Lake Limited Partnership, Third Springhill Lake Limited
Partnership, Fourth Springhill Lake Limited Partnership, Fifth Springhill Lake
Limited Partnership, Sixth Springhill Lake Limited Partnership, Seventh
Springhill Lake Limited Partnership, Eighth Springhill
- 2 -
Lake Limited Partnership, Ninth Springhill Lake Limited Partnership, and
Springhill Commercial Limited Partnership (collectively the "Operating
Partnerships").
7. The general partner of each of the Operating Partnerships is
Springhill Lake Investors Limited Partnership ("Springhill LP"). Springhill LP
owns a 90% interest in each of the Operating Partnerships. Subject to certain
special allocations contained in the partnership agreements of the Operating
Partnerships, the remaining interest in each of the Operating Partnerships is
owned by Theodore Lerner, as limited partner.
8. Three Winthrop is the managing general partner of Springhill LP and
is charged with the responsibility for carrying out the business of Springhill
LP.
9. Other than for certain ownership interests held by Three Winthrop
and by an affiliated company, Linnaeus-Lexington Associates Limited Partnership
("Linnaeus"), Springhill LP is owned by individuals or entities who own as
limited partners approximately 649 units of interest in Springhill LP (the
"Investor Limited Partners"). The Investor Limited Partners purchased their
interests in Springhill LP through a confidential offering memorandum dated
January 16, 1985 ("Offering Memorandum").
10. Three Winthrop, acting as general partner of Springhill LP (which
is in turn the general partner of
- 3 -
each of the Operating Partnerships), has certain contractual obligations and a
fiduciary duty to Theodore Lerner with regard to each of the Operating
Partnerships.
D. THREE WINTHROP'S MISCONDUCT
11. Under the terms of the partnership agreements for each of the
Operating Partnerships (the "Operating Partnership Agreements"), and under
various other agreements, Springhill LP is obligated to distribute to Theodore
Lerner a percentage of certain partnership revenues. Three Winthrop, as
managing general partner of Springhill LP, is responsible for making such
distributions to Theodore Lerner. Three Winthrop has failed to make any
distributions to Theodore Lerner, even though, on information and belief, such
distributions were due and owing.
12. Although no distributions have been made to Theodore Lerner, Three
Winthrop has caused certain distributions to be made to the Investor Limited
Partners, and, on information and belief, to Three Winthrop and Linnaeus. On
information and belief, Three Winthrop has caused such distributions to be made
by improperly manipulating various accounts for capital improvement reserves and
others in order to avoid having to make distributions to Theodore Lerner, in
breach of its fiduciary and other duties to Theodore Lerner.
- 4 -
13. Under section 12.1 of the Operating Partnership Agreements, Three
Winthrop (as managing general partner of Springhill LP) agreed to make the books
and records of each of the Operating Partnerships available to Theodore Lerner
"at any and all reasonable times." However, Three Winthrop has denied Theodore
Lerner access to the books and records of the Operating Partnerships.
FIRST CAUSE OF ACTION
ACCOUNTING
14. Plaintiff repeats and realleges the allegations of paragraphs 1 to
13.
15. Under Maryland law, Theodore Lerner is entitled to an accounting by
Three Winthrop of the affairs of each of the Operating Partnerships since their
inception.
SECOND CAUSE OF ACTION
BREACH OF FIDUCIARY DUTY
16. Plaintiff repeats and realleges the allegations of paragraphs 1 to
15.
17. Three Winthrop, acting as managing general partner of Springhill
LP, has breached its fiduciary duty to Theodore Lerner in various ways,
including by failing to make proper distributions of the proceeds of the
Operating Partnerships and by denying Theodore
- 5 -
Lerner access to the books and records of the Operating Partnerships.
18. Three Winthrop's breaches of its fiduciary duty have injured
Theodore Lerner in an amount believed to be well in excess of $50,000.
WHEREFORE, Theodore Lerner respectfully requests that this Court:
(1) order Three Winthrop to provide an accounting of the affairs of
each of the Operating Partnerships from the date of their inception;
(2) order Three Winthrop to pay damages to Theodore Lerner for its
breaches of fiduciary duty in an amount to be determined at trial; and
(3) award Theodore Lerner such other relief as the Court deems just and
proper.
Respectfully submitted
BRAULT, GRAHAM, SCOTT & BRAULT
/s/ Albert D. Brault
_______________________________
Albert D. Brault (#01041)
101 S. Washington St.
Rockville, MD 20850
(301) 424-1060
- 6 -
OF COUNSEL:
Stephen M. Sacks
George E. Covucci
Peter G. Neiman
ARNOLD & PORTER
1200 New Hampshire Ave., N.W.
Washington, D.C. 20036
(202) 872-6681
- 7 -
<PAGE>
OFFER TO PURCHASE
LIMITED PARTNERSHIP INTERESTS
IN
SPRINGHILL LAKE INVESTORS
LIMITED PARTNERSHIP
FOR CASH CONSIDERATION AGGREGATING
$36,000 PER UNIT
(INCLUDING, IN CERTAIN CIRCUMSTANCES, THE PROCEEDS OF A NON-RECOURSE
SECURED LOAN FROM THE PURCHASER)
BY
AQUARIUS ACQUISITION, L.P.
THIS OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK TIME, ON MARCH 2, 1995, UNLESS EXTENDED.
Aquarius Acquisition, L.P., a newly formed Delaware limited partnership
(the "Purchaser"), hereby offers to purchase outstanding limited partnership
interests in Springhill Lake Investors Limited Partnership, a Maryland
limited partnership (the "Partnership"), for consideration per Unit (as such
term is defined in the partnership agreement of the Partnership, as in effect
on the date hereof) of $36,000 (the "Cash Consideration") in cash (including,
in certain circumstances described below, the proceeds of a non-recourse
secured loan from the Purchaser), such Cash Consideration to be pro rated in
respect of fractional Units, upon the terms and subject to the conditions set
forth in this Offer to Purchase (including the annexes hereto, the "Offer to
Purchase") and in the related Letter of Transmittal, as each may be
supplemented or amended from time to time (which together constitute this
"Offer"). This Offer is made to limited partners of the Partnership (the
"Limited Partners") of record as of February 1, 1995 (the "Record Date").
This Offer is not conditioned upon any minimum number of Units being
tendered. A Limited Partner may tender all or any portion of the Units owned
by it. Each Limited Partner who has delivered its consent pursuant to consent
solicitation materials delivered by Greenbelt Residential Limited Partnership
("Greenbelt"), an affiliate of Theodore N. Lerner ("Lerner"), may
nevertheless still tender all or any portion of its Units in this Offer.
The Purchaser is an affiliate of the general partners of the Partnership.
See "THE OFFER--Interests of Certain Person and Certain Transactions."
Pursuant to Section 7.2(D) of the Amended and Restated Limited Partnership
Agreement of the Partnership (the "Partnership Agreement"), a transfer of
Units may not be made if, after giving effect to such transfer, a termination
of the Partnership would occur for tax purposes. Such a tax termination would
occur if 50% or more of the outstanding interests in the Partnership (limited
and general) were transferred in any 12-month period. In order to prevent a
violation of Section 7.2(D) of the Partnership Agreement while, at the same
time, providing to each tendering Limited Partner at the consummation of this
Offer an amount of Cash Consideration per Unit equal to $36,000, the
Purchaser has structured this Offer to include a non-recourse loan in the
event that more than 50.5% of the Units are tendered. In such event, each
tendering Limited Partner will be paid, at the consummation of this Offer,
Cash Consideration of $36,000 for each Unit (pro rated in respect of
fractional Units) validly tendered and not withdrawn. A portion of the Cash
Consideration will represent the purchase proceeds payable in respect of the
transfer by such Limited Partner to the Purchaser of a portion of such
Limited Partner's Units. The balance of the Cash Consideration will represent
the proceeds of a non-recourse loan to such Limited Partner (each, a "Loan")
secured only by the portion of such Limited Partner's tendered Units that is
not transferred at the consummation of this Offer (the "Retained Portion").
THE ACCEPTANCE OF A LOAN WILL NOT IMPOSE ANY PERSONAL LIABILITY ON A
TENDERING LIMITED PARTNER FOR THE PAYMENT OF ANY PRINCIPAL OR INTEREST IN
RESPECT OF ITS LOAN.
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR
MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE
INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS
UNLAWFUL.
The Purchaser expressly reserves the right, in its sole discretion, at any
time and from time to time: (i) to extend the period of time during which
this Offer is open and thereby delay acceptance for payment of, and the
payment for, any Units; (ii) to terminate this Offer and not accept for
payment any Units not theretofore accepted for payment or paid for; (iii)
upon the occurrence of any of the conditions specified in Section 11, to
delay the acceptance for payment of, or payment for, any Units not
theretofore accepted for payment or paid for; and (iv) to amend this Offer in
any respect (including, without limitation, by increasing or changing the
terms of the consideration offered, decreasing the percentage of Units being
sought, or both). Notice of any such extension, termination or amendment will
promptly be disseminated to Limited Partners in a manner reasonably designed
to inform Limited Partners of such change in compliance with Rule 14d-4(c)
under the Securities Exchange Act of 1934 (the "Exchange Act"). In the case
of an extension of this Offer, such extension will be followed by a press
release or public announcement which will be issued no later than 9:00 a.m.,
New York time, on the next business day after the scheduled Expiration Date,
in accordance with Rule 14e-1(d) under the Exchange Act.
EACH LIMITED PARTNER IS URGED TO READ CAREFULLY THE ENTIRE OFFER TO
PURCHASE, THE LETTER OF TRANSMITTAL AND RELATED DOCUMENTS.
February 1, 1995
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
INTRODUCTION ............................................................... 1
SPECIAL FACTORS ............................................................ 6
Background of this Offer ............................................... 6
Determination of the Cash Consideration ................................ 9
Purpose and Effects of this Offer ...................................... 14
Future Plans ........................................................... 15
THE OFFER .................................................................. 17
Section 1. Terms of this Offer ....................................... 17
Section 2. Proration; Acceptance of and Payment for Units ........... 18
Section 3. Procedures for Tendering Units ............................ 18
Section 4. Withdrawal Rights ......................................... 19
Section 5. Extension of Tender Period; Termination; Amendments ...... 20
Section 6. Certain Federal and State Income Tax Consequences ........ 21
Section 7. Certain Information Concerning the Partnership ........... 24
Section 8. Certain Information Concerning the Purchaser .............. 25
Section 9. Interests of Certain Persons and Certain Transactions .... 25
Section 10. Source of Funds ........................................... 27
Section 11. Conditions of this Offer .................................. 27
Section 12. Certain Legal Matters ..................................... 28
Section 13. Fees and Expenses ......................................... 29
Section 14. Other Matters ............................................. 29
</TABLE>
Schedule I -- Information Regarding Directors and Executive Officers of
Nomura Asset
Capital Corporation ....................................... S-1
Annex I Annual Report of the Partnership on Form 10-K for the fiscal year
ended December 31, 1993
Annex II Quarterly Report of the Partnership on Form 10-Q for the quarter
ended September 30, 1994
Annex III Form of Secured Non-recourse Note and Security Agreement
<PAGE>
TO THE LIMITED PARTNERS OF
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
INTRODUCTION
The Purchaser hereby offers to purchase outstanding Units for Cash
Consideration per Unit of $36,000 (pro rated in respect of fractional Units)
(including, in certain circumstances described below, the proceeds of a
non-recourse secured loan from the Purchaser), upon the terms and subject to
the conditions set forth in this Offer to Purchase and in the related Letter
of Transmittal, as each may be supplemented or amended from time to time.
Limited Partners who tender Units in this Offer will not be obligated to pay
any partnership transfer fees, which fees, if any, will be borne by the
Purchaser. The Purchaser will also pay all charges and expenses of D.F. King
(the "Information Agent") and IBJ Schroder (the "Depository") in connection
with this Offer.
Purpose of This Offer. This Offer has been made as an alternative to (a)
the proposal made by Lerner, in which Lerner has offered to purchase the
Partnership's 90% ownership interest in First, Second, Third, Fourth, Fifth,
Sixth, Seventh, Eighth and Ninth Springhill Lake Limited Partnerships and
Springhill Commercial Limited Partnership (collectively, the "Operating
Partnerships") that own Springhill Lake Apartments located in Greenbelt,
Maryland (the "Project"), and (b) the liquidation of the Partnership and a
sale of the Project to a third party. The terms of Lerner's proposal (the
"Lerner Proposal") are set forth in the Greenbelt Residential Limited
Partnership Consent Solicitation Statement, a copy of which is filed as an
exhibit to the Tender Offer Statement on Schedule 14D-1 filed with the SEC in
connection with this Offer, and you are directed to those materials for the
complete terms of the Lerner Proposal, which proposal is incorporated herein
by reference in its entirety. Lerner currently holds a 10% ownership interest
in the Project as limited partner of the Operating Partnerships and has
certain rights of first refusal to purchase the Project and the Partnership's
interest in the Operating Partnerships in the event that a bona fide
third-party offer is received by the general partners of the Partnership and
such proposal is submitted to the Limited Partners for their consideration.
Conditions. This Offer is not conditioned upon any minimum number of Units
being tendered. A Limited Partner may tender all or any portion of its Units.
If a Limited Partner has already delivered a consent to the Lerner Proposal,
such Limited Partner may nevertheless still tender all or any portion of its
Units.
Fractional Interests. A Limited Partner may tender all or any portion of
the Units owned by it. If a Limited Partner chooses to tender a portion of a
Unit and retain a portion of a Unit, the Purchaser will pay a Cash
Consideration for the portion of the Unit so tendered in this Offer. All
references herein to Units shall include fractions of Units, unless the
context otherwise requires.
Cash Consideration. If 50.5% or less of the outstanding Units are validly
tendered and not withdrawn, each tendering Limited Partner will receive, upon
consummation of this Offer, $36,000 in Cash Consideration for each Unit so
tendered in consideration for the purchase of such Unit. If more than 50.5%
of the outstanding Units are validly tendered and not withdrawn, each
tendering Limited Partner will receive the same amount of Cash Consideration
with respect to each Unit so tendered, but will receive part of such Cash
Consideration in purchase proceeds (such portion, the "Purchase Proceeds")
and the balance of such Cash Consideration as proceeds of a Loan (the "Loan
Proceeds").
Reasons for and Terms of the Loan. Pursuant to Section 7.2(D) of the
Partnership Agreement, a transfer of Units may not be made if, after giving
effect to such transfer, a termination of the Partnership would occur for tax
purposes. Such a tax termination would occur if 50% or more of the
outstanding interests (limited and general) in the Partnership were
transferred in any 12-month period. To prevent a violation of Section 7.2(D)
of the Partnership Agreement while, at the same time, providing to each
tendering Limited Partner at the consummation of this Offer Cash
Consideration per Unit equal to $36,000, the Purchaser has structured this
Offer to include a non-recourse loan feature in the event that more than
50.5% of the Units are tendered. The percentage of Units to be purchased was
established at 50.5% (or 48.275% of the total outstanding interests in the
Partnership) to take into account transfers of Units during the 12 months
prior to the closing of this Offer. If more than 50.5% of the outstanding
Units
1
<PAGE>
are validly tendered and not withdrawn, each tendering Limited Partner will
be paid, subject to the terms of this Offer, at the consummation of this
Offer, Cash Consideration per Unit of $36,000. A portion of the Cash
Consideration will represent the Purchase Proceeds for the transfer by such
Limited Partner to the Purchaser of the pro rata portion of such Limited
Partner's tendered Units such that the Purchaser purchases 50.5% of all of
the outstanding Units pursuant to this Offer. The balance of the Cash
Consideration will be paid in Loan Proceeds. The Loan will be a non-recourse
loan to such Limited Partner secured only by the Retained Portion of such
Limited Partner's tendered Units that is not transferred at the consummation
of this Offer. Each Loan may be satisfied, at its maturity, by surrendering
to the Purchaser the Retained Portion or, at the sole option of the tendering
Limited Partner, by a payment in cash equal to the then outstanding balance
of principal and accrued interest in respect of such Loan. THE ACCEPTANCE OF
A LOAN WILL NOT IMPOSE ANY PERSONAL LIABILITY ON A TENDERING LIMITED PARTNER
FOR THE PAYMENT OF ANY PRINCIPAL OR INTEREST IN RESPECT OF ITS LOAN.
The portion of the Cash Consideration payable at the consummation of this
Offer to each tendering Limited Partner which will constitute Purchase
Proceeds will be $36,000 per Unit multiplied by the quotient of (A) 50.5%
divided by (B) a fraction, the numerator of which is the number of Units
validly tendered and not withdrawn and the denominator of which is the number
of outstanding Units on the date of consummation of this Offer. The balance
of the Cash Consideration payable to each tendering Limited Partner at the
consummation of this Offer will constitute the Loan Proceeds payable to such
tendering Limited Partner. The following table sets forth the per Unit
consideration to be paid pursuant to this Offer based on the indicated
percentage of Units being validly tendered and not withdrawn:
<TABLE>
<CAPTION>
PERCENTAGE OF
UNITS VALIDLY CASH CONSIDERATION PURCHASE PROCEEDS LOAN PROCEEDS
TENDERED PER UNIT PER UNIT PER UNIT
- ---------------- ------------------ ----------------- ---------------
<S> <C> <C> <C>
50.5% or
less $36,000 $36,000 $ -0-
75% 36,000 24,240 11,760
100% 36,000 18,180 17,820
</TABLE>
As described in the table above, the amount of Cash Consideration per Unit
paid to each Limited Partner upon consummation of this Offer will be $36,000
irrespective of the number of Limited Partners who validly tender Units.
Each Loan will bear interest at the rate of 9% per annum. Interest and
principal will not be due and payable prior to the scheduled maturity date of
the Loan. Each Loan will mature by its terms on the date that is one year and
one day after the purchase of Units pursuant to this Offer, and will be
payable, at the election of the Limited Partner, either by surrender to the
Purchaser of the Retained Portion or, at the sole option of the Limited
Partner party thereto, by payment of cash in the principal amount of its Loan
plus accrued interest thereon. In the event the provisions of Section 7.2(D)
of the Partnership Agreement (which currently prohibits transfers of Units in
excess of the amount which would cause a tax termination of the Partnership)
are eliminated from the Partnership Agreement, then the Loan will become due
on demand of the Purchaser. Distributions on the Retained Portion will be
credited first against accrued interest and principal and any remaining
amount will be remitted to the Limited Partner.
If the Purchaser acquires, pursuant to the Offer, more than 50% of all
outstanding Units, it may seek to amend the Partnership Agreement to
eliminate Section 7.2 (D) thereof. The primary impact of a tax termination on
non-tendering Limited Partners and tendering Limited Partners who retain a
portion of their Units subject to a Loan would be a lengthening of the period
of time over which the Partnership recognizes depreciation deductions for tax
purposes. A tax termination in 1995 would cause a reduction in such
deductions by approximately $4,500 per Unit per year over the next eight
years and an increase in such deduction by approximately $1,800 per Unit per
year for the following nineteen years.
The Purchaser. The Purchaser is a newly formed entity controlled by Nomura
Asset Capital Corporation ("NACC"). On December 22, 1994, NACC acquired
indirect control of Three Winthrop Properties, Inc. ("Three Winthrop"), the
managing general partner of the Partnership, and on January 27, 1995,
acquired indirect control of (but no economic interests in)
Linnaeus-Lexington Associates Limited Partnership ("Linnaeus-Lexington"), the
other general partner of the Partnership. (See "THE OFFER--
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Certain Information Concerning the Purchaser.") Because of affiliations
between the Purchaser, Three Winthrop and Linnaeus-Lexington, the Partnership
has indicated in its statement on Schedule 14D-9 filed with the Securities
and Exchange Commission (the "SEC") that it makes no recommendation and is
remaining neutral as to whether a Limited Partner should tender its Units in
this Offer. (See "THE OFFER--Interests of Certain Persons and Certain
Transactions" and "SPECIAL FACTORS--Background of this Offer.") Due to the
foregoing relationship, this Offer is being made in compliance with the
provisions of Rule 13e-3 under the Exchange Act.
Some Factors to Be Considered by Limited Partners. The Purchaser believes
that Limited Partners may find this Offer an attractive way to liquidate
their investment in the Partnership and a more attractive alternative than
the Lerner Proposal, or a possible sale of the Project to a third party, for
the following reasons:
o THIS OFFER PROVIDES MORE CASH PER UNIT TO LIMITED PARTNERS THAN THE
CASH ESTIMATED BY LERNER TO BE AVAILABLE TO LIMITED PARTNERS PURSUANT TO THE
LERNER PROPOSAL. This Offer will provide those Limited Partners who choose to
tender their Units to the Purchaser with a cash payment at the consummation
of this Offer in the amount of $36,000 per Unit. The Lerner Proposal
estimates that it will provide all Limited Partners (including those who
prefer to retain their Units as opposed to selling them today) with an
eventual cash payment of $32,200 per Unit, consisting of $30,200 per Unit
from the sale to Lerner of the Partnership's interest in the Operating
Partnerships that own the Project and a distribution of $2,000 per Unit from
1994 Partnership operations. The Lerner Proposal estimates are subject to
certain contingencies and based on certain assumptions which are discussed in
more detail below. See "SPECIAL FACTORS--Determination of Cash Consideration"
and "--Offers from Non-Affiliates and Appraisals Rendered by Third Parties."
o IN THE PURCHASER'S OPINION, THIS OFFER IS MORE LIKELY TO CLOSE THAN
EITHER THE LERNER PROPOSAL OR A POSSIBLE SALE OF THE PROJECT TO A THIRD PARTY
PURSUANT TO A PLAN OF LIQUIDATION OF THE PARTNERSHIP. The Lerner Proposal is
and any possible sale to a third party would be subject to certain
contingencies, including, in the case of the Lerner Proposal and any other
proposal that requires the assumption of the existing mortgage loans on the
Project (the "New Mortgage Loans"), the approval of the Project's mortgage
lender (the "Lender") for the assumption of the New Mortgage Loans, and the
approval of a sale transaction by Limited Partners owning more than 50% of
the Units. The Purchaser has been informed by Three Winthrop that the Lender
has told Lerner that at this time it would only consider an assumption
request from the Partnership. Even if the Lender were to agree to consider
Lerner's request or a similar request from a prospective third party
purchaser, it is possible that the Lender would seek to impose certain
additional terms or conditions on the consummation of any transaction
involving Lerner or a third party. Any such terms or conditions could affect
the ability of a prospective purchaser to conclude a purchase of the Project.
In addition, there is presently no basis for determining whether Limited
Partners holding more than 50% of the Units are interested in liquidation of
the Partnership or a sale of the Project on the terms described in the Lerner
Proposal or any other terms.
By contrast, this Offer does not require any approval from the Lender
and does not require any minimum level of participation by Limited Partners.
o EVEN IF THE LERNER PROPOSAL OR A THIRD-PARTY OFFER FOR THE PROJECT WERE
TO BE ACCEPTED BY THE PARTNERSHIP AND THE LENDER, IT IS LIKELY THAT SUCH A
TRANSACTION WOULD REQUIRE SIGNIFICANTLY MORE TIME TO NEGOTIATE AND CLOSE THAN
THIS OFFER. The Purchaser estimates that it would take at least three months
to sell the Project to Lerner because any such sale will require the
completion of a consent solicitation process in respect of the Limited
Partners and a negotiation period with the Lender to obtain its consent to
the sale, which consent may be conditioned upon the receipt of a new
appraisal of the Project. A sale to a third party will take even longer
because the Partnership will be required to market the Project for a
reasonable time, to provide each prospective purchaser adequate opportunity
to conduct a "due diligence" review and investigation of the
3
<PAGE>
Project, to negotiate sale documentation for the Project with a person who is
initially unfamiliar with the Project and to provide Lerner with an
opportunity to match the terms of such a sale pursuant to his existing right
of first refusal arrangement. By contrast, this Offer will be consummated
immediately after its expiration date, which is presently set for March 2,
1995.
o THIS OFFER PROVIDES MORE FLEXIBILITY THAN THE LERNER PROPOSAL OR A
POSSIBLE SALE OF THE PROJECT TO A THIRD PARTY BECAUSE IT GIVES EACH
INDIVIDUAL LIMITED PARTNER THE OPTION TO: (A) RETAIN ITS UNITS; (B) RETAIN A
PORTION OF ITS UNITS WHILE ALSO TENDERING A PORTION OF ITS UNITS; OR (C) TO
TENDER ALL OF ITS UNITS. Thus, Limited Partners who believe that now is not
the right time to liquidate their investment in the Partnership may retain
all or any portion of their Units, while those who are seeking liquidity for
their investment may tender all or a portion of their Units and receive cash
equal to $36,000 per Unit. Neither the Lerner Proposal nor a possible sale of
the Project to a third party offers these options to Limited Partners. In
either such case, the determination by the holders of the requisite number of
Units would result in Limited Partners either retaining their entire interest
or liquidating their entire interest.
o THIS OFFER PROVIDES THAT EACH LIMITED PARTNER WILL RECEIVE $36,000 IN
CASH FOR EACH UNIT VALIDLY TENDERED AND NOT WITHDRAWN (PRO RATED IN RESPECT
OF FRACTIONAL UNITS). The $36,000 per Unit purchase price of this Offer is
not subject to reduction or contingencies if this Offer is consummated. By
contrast, because of certain contingencies inherent in the Lerner Proposal,
the actual per Unit distribution amount which would result from the sale of
the Project pursuant to the Lerner Proposal could be even less than the
$32,200 per Unit amount estimated by Lerner. If the Lender does not approve
assumption of the New Mortgage Loans by Greenbelt or any new purchaser and
insists on receiving the prepayment penalty set forth in the mortgage
documentation (estimated to be as much as $5,000,000), the Lerner Proposal
provides that the sale proceeds could be reduced by $5,890 per Unit,
resulting in a total per Unit distribution of only $26,310. In addition, the
proposed form of contract provided by Lerner in connection with the Lerner
Proposal (the "Lerner Purchase Agreement") would require the Partnership to
make certain representations and warranties to the buyer and to provide
certain indemnities to the buyer which could cause the Partnership to reserve
a portion of the sale proceeds and thereby delay, and possibly reduce, the
cash distribution to Limited Partners. Finally, any sale of the Project to a
third party would have to take into account Lerner's right of first refusal,
which could discourage buyers from aggressively pursuing a purchase of the
Project, knowing that Lerner has the option to purchase the Project simply by
matching the highest offer made by prospective buyers.
Acceptance by Limited Partners of this Offer will not in any event (i)
cause any prepayment penalty to become due on the New Mortgage Loans, (ii)
require the establishment of Partnership reserves of any kind, (iii) be
subject to the Purchaser's obtaining adequate funds, or (iv) be subject to
Lerner's right of first refusal. The $36,000 per Unit consideration specified
in this Offer will, upon consummation of this Offer, promptly be paid to
tendering Limited Partners, subject to the terms of this Offer, without any
offsets or deductions of any kind.
Tax Considerations. A Limited Partner who decides to tender its Units
pursuant to this Offer will receive cash of $36,000 per Unit and be allocated
certain tax items. The resulting federal tax liability or benefit that a
Limited Partner will experience will depend on its personal tax situation.
Assuming a Limited Partner is subject to a 28% tax rate on capital gains and
a 39.6% tax rate on ordinary income, the federal tax consequences generally
could range from a benefit of approximately $2,204 per Unit to a liability of
approximately $14,240 per Unit, depending on the amount of passive
carryforward losses that a Limited Partner currently holds from the
Partnership. EACH LIMITED PARTNER SHOULD CONSULT ITS OWN TAX ADVISOR AS TO
THE PARTICULAR TAX CONSEQUENCES TO SUCH LIMITED PARTNER OF SELLING UNITS AND
RECEIVING A LOAN PURSUANT TO THIS OFFER. See "THE OFFER--Certain Federal and
State Income Tax Consequences."
For those Limited Partners who tender their Units and possess the maximum
possible amount of carryforward passive losses available, the Partnership
will have provided cumulative after-tax benefits of
4
<PAGE>
approximately $61,161 for each Unit initially acquired for an investment of
$74,965 (which consisted of capital contributions of $62,500 plus interest on
deferred contributions of $12,465). The after-tax benefits are comprised of:
(i) the cash received from this Offer of $36,000 per Unit; (ii) prior cash
distributions from operations of $3,072 per Unit; and (iii) a net federal tax
benefit of $22,089 per Unit, taking into account the estimated tax benefit
resulting from this Offer. The cumulative federal tax benefit (on a nominal
basis) is approximately $3,540 per Unit lower for those Limited Partners who
have no carryforward passive losses available but were instead able to
utilize passive losses from the Partnership in previous years. This
investment analysis assumes a Limited Partner: (i) was admitted to the
Partnership on the initial closing date of the offer of Units in February
1985; and (ii) selected the installment method of payments to make capital
contributions to the Partnership.
Distributions. The Purchaser has been advised that the Partnership does
not intend to make its cash distribution for 1994 until after this Offer has
been consummated or terminated. Thus, the Purchaser will receive the full
1994 distribution for those whole Units, and a proportionate distribution for
those fractional Units, that it purchases in this Offer. Three Winthrop
presently estimates that the distribution for 1994 will be approximately
$2,000 per Unit. The 1994 distribution was considered by the Purchaser when
establishing the Cash Consideration. Limited Partners who do not tender any
Units in this Offer will receive the full 1994 distribution and Limited
Partners who retain Units and/or a Retained Portion after this Offer will
receive their proportionate share of the 1994 distribution. If more than
50.5% of the Units are validly tendered and not withdrawn, the distributions
made on a Limited Partner's Retained Portion will, pursuant to the written
direction of each tendering Limited Partner contained in the Letter of
Transmittal, be applied first to the payment of accrued interest on such
Limited Partner's Loan, then to the repayment of principal of such Limited
Partner's Loan and any remaining amounts will be remitted to such Limited
Partner.
Outstanding Units. According to information supplied by the Partnership,
there are 649 Units issued and outstanding held by 679 Limited Partners as of
the Record Date. The Purchaser does not directly or indirectly own Units or
fractions thereof.
Certain information contained in this Offer to Purchase which relates to
the Partnership, or consists of statements made by Three Winthrop, has been
derived from information which has been made publicly available by the
Partnership or has been provided to the Purchaser by Three Winthrop.
LIMITED PARTNERS WHO DESIRE LIQUIDITY MAY WISH TO CONSIDER THIS OFFER.
HOWEVER, EACH LIMITED PARTNER MUST MAKE ITS OWN DECISION WHETHER TO TENDER
ITS UNITS PURSUANT TO THIS OFFER BASED UPON ITS PARTICULAR CIRCUMSTANCES,
INCLUDING ITS OWN FINANCIAL NEEDS, OTHER INVESTMENT OPPORTUNITIES AND TAX
POSITION. EACH LIMITED PARTNER SHOULD CONSULT WITH ITS OWN ADVISORS, TAX,
FINANCIAL OR OTHERWISE, IN EVALUATING THIS OFFER.
LIMITED PARTNERS ARE URGED TO READ THIS OFFER TO PURCHASE AND THE
ACCOMPANYING LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO
TENDER THEIR UNITS.
5
<PAGE>
SPECIAL FACTORS
BACKGROUND OF THIS OFFER
The Partnership. The Partnership was organized as a Maryland limited
partnership under the Maryland Revised Uniform Limited Partnership Act on
December 28, 1984, for the purpose of investing as a general partner in the
ten Operating Partnerships, each of which is a Maryland limited partnership
owning a section of the Project. The Partnership is the sole general partner
of each Operating Partnership. The limited partner of each Operating
Partnership is Lerner, a former general partner of the Operating Partnerships
whose interest was converted to that of a limited partner on January 16,
1985.
The Partnership's interest in the Operating Partnerships entitles it to
90% of profits and losses for tax purposes, 90% of the Operating
Partnerships' cash flow (after certain priority distributions), and 85% of
the proceeds of a sale or disposition of the Project (after certain priority
distributions).
In April 1985, the Partnership completed an offering of 649 Units at
$62,500 per Unit pursuant to Regulation D under the Securities Act of 1933.
The Partnership raised $40,562,500 in capital contributions from investors
who were admitted to the Partnership as Limited Partners.
The Partnership purchased its interest in the Operating Partnerships on
January 16, 1985, for $73,514,921, of which $58,000,000 was financed by means
of a mortgage loan (the "Original Mortgage Loan"). The Original Mortgage Loan
had a term of ten years and bore interest at 13.625%. The balance of the
purchase price was funded initially by a loan from a financial institution,
which was subsequently repaid with capital contributions from the Limited
Partners.
In April 1993, the Original Mortgage Loan was refinanced with the New
Mortgage Loans in the amounts of $58,000,000 and $5,000,000. The New Mortgage
Loans each bear interest at 9.3% and have a term of ten years. Monthly
payments of principal and interest total $541,696 (based on a 25-year
amortization schedule) for the first two years of the New Mortgage Loans and
increase to $566,137 (based on a 20-year amortization schedule) for the third
through tenth years of the loans. A final payment of $49,016,500 is due on
May 1, 2003. In addition to monthly payments of principal and interest, the
New Mortgage Loans require the Partnership to make payments into various
escrow accounts, including escrows for real estate taxes and capital
improvements. As of December 31, 1994, the outstanding principal amount of
the New Mortgage Loans was $61,848,601.
The New Mortgage Loans impose a penalty on the consensual prepayment of
the outstanding principal balance and accrued and unpaid interest and other
charges thereunder in an amount equal to the greater of (i) the present value
of the loss in yield that the Lender would incur if it invested the prepaid
amount in a specified Treasury security or (ii) 1% of the outstanding
principal balance under the New Mortgage Loans immediately prior to the
prepayment, except that no penalty is due if the prepayment occurs at any
time within 6 months prior to maturity.
Lerner's Role as Project Management Agent. Since January 16, 1985, Lerner
Corporation, a Maryland corporation of which Lerner is president and majority
stockholder ("Lerner Corp."), has acted as the property manager and exclusive
leasing agent for the Project under a Management and Leasing Agreement,
entered into by Three Winthrop acting on behalf of the Operating Partnerships
(the "Lerner Agreement"). Pursuant to the Lerner Agreement, since January 16,
1985 Lerner Corp. has received 4% of the gross rents from the Project
actually collected, payable monthly (or an aggregate of approximately
$8,600,000 through December 31, 1994). Lerner was also paid $800,000 in other
fees in 1985. The Lerner Agreement may not be terminated in accordance with
its terms prior to January 31, 1995, except for cause or upon a sale of the
Project. On or about October 17, 1994, Three Winthrop sent to Lerner Corp.
written notice (the "Notice") of its intent to terminate the Lerner
Agreement, pursuant to its terms, as of January 31, 1995. By letter dated
October 25, 1994, Lerner Corp. disputed the termination date set forth in the
Notice stating that the termination date could not be earlier than 90 days
following January 31, 1995 and indicated that it was prepared to bid
competitively for the ongoing management agreement when the Lerner Agreement
is terminated in accordance with its terms, as those terms are viewed by
Lerner Corp. On November 18, 1994, Three Winthrop, as managing general
partner of the Partnership and as general partner of the Operating
Partnerships, filed an action in the Circuit Court for Montgomery County,
6
<PAGE>
Maryland (Case No. 129192-V) seeking declaratory judgment to enforce the
termination provision of the Lerner Agreement. That case is pending as of the
date hereof.
Lerner's Proposal to Purchase the Project. By letter dated December 2,
1994 (the "December 2 Letter"), Lerner invited representatives of Three
Winthrop and Winthrop Financial Associates ("WFA") to meet with Lerner and
representatives of Greenbelt, to discuss an offer to purchase all of the
Partnership's interest in the Operating Partnerships. The December 2 Letter
enclosed a copy of a letter on the letterhead of Greenbelt dated December 2,
1994 (the "Cohen Letter") to Three Winthrop and WFA from Edward L. Cohen, an
associate of Lerner ("Cohen"), enclosing a form of the Lerner Purchase
Agreement. Cohen also sent to Three Winthrop and WFA a letter dated December
16, 1994 requesting prompt consideration of Lerner's offer.
The December 2 Letter also enclosed preliminary copies of consent
solicitation materials dated December 2, 1994 from Lerner (the "December 2
Solicitation"), stated to have been sent to the Limited Partners and filed
with the SEC. The December 2 Solicitation contemplated seeking the approval
of Limited Partners holding more than 50% of the Units to a dissolution of
the Partnership.
The Lerner Purchase Agreement, subject to its terms and conditions,
essentially would provide for the sale of the Partnership's interest in the
Operating Partnerships for $19,797,778 plus the payment of an assumption fee
(the "Assumption Fee") equal to 1% of the outstanding principal amount of the
New Mortgage Loans outstanding on the date of assumption of the New Mortgage
Loans by Greenbelt, subject to certain adjustments. Closing under the Lerner
Purchase Agreement would be conditioned on (i) approval by Limited Partners
holding more than 50% of the Units and (ii) approval of the Lender of the
assumption of the New Mortgage Loans. The Lerner Purchase Agreement also
would require the Partnership to make certain representations and warranties
to Greenbelt and to indemnify Greenbelt and the Operating Partnerships
against certain liabilities for a period of one year after closing.
Pursuant to Section 5.6 of the Partnership Agreement, the approval of the
Limited Partners holding more than 50% of the Units is required for the
disposition of all or substantially all of the Partnership assets.
Under the terms of the New Mortgage Loans, transfer of the Partnership's
interest in the Operating Partnerships is subject to the consent of the
Lender. The Lender may not withhold or unreasonably delay its consent, if all
of the following conditions are met: (i) the ratio of net cash flow to debt
service is at least 1.325; (ii) the outstanding principal balance of the New
Mortgage Loans shall be no more than 70% of the fair market value of the
Project; (iii) the proposed transferee is a single purpose entity whose sole
asset shall be its interest in the Project; (iv) a substitute indemnitor, who
meets the Lender's requirements of minimum net worth, assumes the
indemnification obligations under the New Mortgage Loans; (v) the Partnership
pays a transfer fee equal to 1% of the outstanding principal balance of the
New Mortgage Loans to the Lender; and (vi) no more than one such transfer
occurs during the term of the New Mortgage Loans. The Lerner Proposal states
that if the Lender does not consent to Greenbelt's assumption of the New
Mortgage Loans, Greenbelt may withdraw its offer to purchase the Project,
seek a price reduction equal to the amount of any prepayment penalty charged
by the Lender for a full or partial prepayment of the New Mortgage Loans, or
agree to pay the prepayment penalty charged by the Lender. The prepayment
penalty could be as large as $5,000,000 upon a full prepayment of the New
Mortgage Loans, based on interest rates prevailing on or about January 26,
1995. The amount of the prepayment penalty will fluctuate based on the amount
of the New Mortgage Loans prepaid, the remaining term of the New Mortgage
Loans and changes in interest rates.
A dissolution of the Partnership, as contemplated in the Lerner Proposal,
would require a forced sale of the Project at an uncertain price. The Lerner
Proposal states that Greenbelt will leave open its offer to purchase the
Partnership's interest in the Operating Partnerships which own the Project
for only 30 days. Pursuant to Section 3.2 of the partnership agreements of
each of the Operating Partnerships, Lerner has certain rights of first
refusal, which may discourage other potential purchasers from making offers
to purchase the Project. Moreover, the Lender may treat a dissolution of the
Partnership as a default on the New Mortgage Loans, or may be unwilling to
approve an assumption of the New Mortgage Loans by a
7
<PAGE>
potential purchaser, either of which would result in acceleration of the New
Mortgage Loans (at the option of the Lender) and a prepayment penalty. Lerner
has indicated that he will not seek a dissolution of the Partnership unless
the Lender waives its right to accelerate the New Mortgage Loans.
By letter dated December 2, 1994, the Purchaser believes that Lerner
requested the Lender to approve an assumption of the New Mortgage Loans by
Greenbelt, and to agree not to accelerate the New Mortgage Loans if Lerner
obtained the approval of the Limited Partners to cause a dissolution of the
Partnership. The Lender's response, by letter dated December 12, 1994, was
that although it would be happy to consider Lerner's request for assumption
of the New Mortgage Loans, any such request must be made by Three Winthrop,
on behalf of the Partnership, in accordance with the loan documents (which
requires the Partnership, among other actions, to deposit $100,000 with the
Lender). In the same letter, the Lender also stated that it was not prepared
at this time to waive its rights to accelerate the New Mortgage Loans upon a
dissolution of the Partnership. Three Winthrop has informed the Purchaser
that it has decided not to seek the approval of the Lender for Greenbelt's
assumption of the New Mortgage Loans while this Offer is outstanding.
By a memorandum dated December 19, 1994 to the Limited Partners, Three
Winthrop stated that it was studying the Lerner Proposal and would respond
within the next several weeks.
By letter dated December 20, 1994, counsel for Lerner advised NACC of the
Lerner Proposal and Greenbelt's intention to seek consent of the Limited
Partners to liquidate and dissolve the Partnership if Three Winthrop does not
accept the Lerner Proposal or "negotiate in good faith." By letter dated
December 28, 1994, Three Winthrop responded to counsel for Lerner, stating
that Lerner should direct all inquiries and correspondence regarding the
Lerner Proposal to Three Winthrop as general partner of the Partnership.
On December 27, 1994, Lerner commenced an action against Three Winthrop in
the United States District Court for the District of Maryland, Southern
Division (DK(94-3601)). The complaint alleges that the Partnership is
obligated to distribute to Lerner a percentage of the revenues of the
Operating Partnerships and that Three Winthrop, in breach of its fiduciary
duty, has not made distributions that were due and owing to Lerner and
requests an accounting and award of damages Lerner believes to be "well in
excess of $50,000." Three Winthrop has advised the Purchaser that prior to
filing this lawsuit, Lerner had not challenged the Partnership distribution
policy, which has been consistently applied by the Partnership since 1987.
Three Winthrop has advised the Purchaser that it is preparing a response to
the complaint. If Lerner is successful in this claim, the Partnership will be
required to make a cash distribution to Lerner, which distribution will
reduce the amount available for distribution to Limited Partners.
On January 9, 1995, Three Winthrop met with representatives of Lerner at
his request. At that meeting Lerner's representatives reiterated Lerner's
interest in purchasing the Partnership's interest in the Operating
Partnerships and requested that Three Winthrop recommend such a sale to
Limited Partners. Three Winthrop responded by stating that it was studying
the Lerner Proposal, and thus was not ready to make a recommendation to
Limited Partners. Lerner's representatives then inquired as to how Three
Winthrop would go about evaluating the Lerner Proposal, how long it would
take Three Winthrop to complete its evaluation and whether Three Winthrop
believed it necessary to market the Project to third parties in order to
determine if the price offered by Lerner was fair. Three Winthrop's response
was that it was evaluating the Lerner Proposal based on its independent
analysis of the Project's current value, the prospects for its future
appreciation in value and the impact that a sale of the Project, both today
and in the future, may have on Limited Partners. Three Winthrop also
requested copies of two appraisals recently commissioned by Lerner to assist
in Three Winthrop's analysis, and stated that its analysis should be
completed in two weeks. As to the question concerning marketing the Project
to third parties, Three Winthrop expressed its belief that such a marketing
program would be difficult given Lerner's right of first refusal on a sale of
the Project, but could be appropriate under certain circumstances. Finally,
Lerner's representatives requested a copy of the appraisal commissioned by
Three Winthrop in 1992 while pursuing a refinancing of the Project's mortgage
loan, and an up-to-date list of the names and addresses of Limited Partners.
Three Winthrop agreed to consider providing this information to Lerner in
exchange for Lerner providing his two recent appraisals to Three Winthrop.
Such an exchange of information occurred on January 11, 1995.
8
<PAGE>
On January 19, 1995, Lerner mailed definitive consent solicitation
materials to Limited Partners seeking their approval for a dissolution of the
Partnership. On January 21, 1995 Lerner sent to the Limited Partners a
follow-up letter to such consent solicitation materials. On January 24, 1995,
Three Winthrop advised the Limited Partners by letter that it would shortly
advise the Limited Partners of its response to the consent solicitation.
Subsequently, Three Winthrop decided, and so advised the Purchaser, that it
is not currently taking a position with respect to the Lerner Proposal.
Similarly, Three Winthrop has advised the Purchaser that it is not expressing
an opinion or taking a position with respect to this Offer.
Certain Matters Relevant to the Consent Solicitation. As indicated in the
"INTRODUCTION," the purpose of this Offer is to provide the Limited Partners
with an alternative to the Lerner Proposal or liquidation of the Partnership
and a sale of the Project to a third party. The Purchaser believes that
Limited Partners may find this Offer an attractive way to liquidate their
investment in the Partnership and a more attractive alternative than the
Lerner Proposal or a possible liquidation of the Partnership and a sale of
the Project to a third party. As indicated in the "INTRODUCTION," the
Purchaser believes that this Offer compares favorably to the Lerner Proposal
because it provides higher Cash Consideration per Unit, more flexibility, and
greater price certainty to each individual Limited Partner and is more likely
to close on a timely basis.
DETERMINATION OF THE CASH CONSIDERATION
The Cash Consideration represents the total price at which the Purchaser
is willing to purchase Units and was established after considering the
factors described below. No independent person has been retained to evaluate
or render any opinion with respect to the fairness of the Cash Consideration
and Three Winthrop has advised the Purchaser that no special committee of the
Partnership or the General Partners has approved this Offer and no such
special committee or independent person has been retained to act on behalf of
the Partnership or the Limited Partners in connection with this Offer. The
Purchaser believes the Cash Consideration is fair to the Limited Partners for
the reasons set forth below. Other measures of value of Units may be relevant
to Limited Partners. Limited Partners are urged to consider carefully all of
the information contained in this Offer to Purchase and to consult with their
own advisors, including tax and financial advisors, in evaluating the terms
of this Offer before deciding whether to tender their Units.
Offers from Non-Affiliates.. The Purchaser is not aware of any offers
being made to purchase Units in the last eighteen months. The Purchaser is,
however, familiar with the Lerner Proposal in which Lerner made an offer to
purchase the Partnership's 90% general partnership interest in the Operating
Partnerships. The price offered in the Lerner Proposal is $19,797,778 plus 1%
of the outstanding balance of the New Mortgage Loans (approximately $618,486)
for the Assumption Fee payable to the Lender. The consummation of the Lerner
Proposal would result in the liquidation of the Partnership and a cash
distribution to Limited Partners, which Lerner estimates to be approximately
$30,200 per Unit. The Lerner Proposal also contemplates that Limited Partners
would receive the cash distribution from 1994 Partnership operations, which
Three Winthrop has estimated to be $2,000 per Unit. Thus, the Lerner Proposal
estimates the total value of such proposal per Unit to be approximately
$32,200, assuming the satisfaction of all contingencies to such proposal.
One contingency contained in the Lerner Proposal is for the Lender's
approval of the assumption of the New Mortgage Loans. If the Lender does not
grant such approval, the Lerner Proposal indicates that Lerner may seek a
price reduction in an amount equal by any prepayment penalty charged by the
Lender upon the prepayment of the New Mortgage Loans. If the Lender required
the prepayment of the entire New Mortgage Loans today, the prepayment penalty
would equal approximately $5,000,000 in the aggregate, which would reduce the
total value of the Lerner Proposal by approximately $5,890 per Unit. Given
the conditions specified in the loan documents governing the New Mortgage
Loans for evaluating an assumption request and the performance of the Project
in recent periods, the Purchaser believes that the Lender might be able to
argue that the Lender is not required to act reasonably in respect of any
assumption request relating to the Lerner Proposal. If the Lender does not
approve the Lerner Proposal or a third-party purchase transaction, any such
transaction would require that a new source of mortgage or other financing be
found and that the Lender receive a prepayment penalty of up to $5,000,000.
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Appraisals Rendered by Third Parties. The Purchaser has not engaged an
appraiser to estimate the current fair market value of the Units or the
Project in connection with this Offer. In addition, the Purchaser is not
aware of any third-party appraisals of the Units or the Project being
completed in the past twelve months at the request of the Partnership. The
Purchaser has, however, reviewed three independent appraisals of the Project,
two of which Lerner obtained in September 1994 in connection with the Lerner
Proposal and one of which was obtained by the Partnership in August 1992 in
connection with obtaining the New Mortgage Loans. One appraisal obtained by
Lerner was performed by Price Waterhouse LLP and estimated the Project's
value, as of September 12, 1994, at: (a) $88,500,000, assuming an all cash
transaction and a market level management fee; and (b) $84,600,000, assuming
the assumption of the New Mortgage Loans and the existing management fee
arrangements. The second appraisal obtained by Lerner was performed by Lipman
Frizzell & Mitchell LLC and estimates the Project's value, as of September 8,
1994, at: (a) $85,430,000, assuming an all cash transaction and a market
level management fee; and (b) $78,410,000, assuming the assumption of the New
Mortgage Loans and the existing management fee arrangements. Selected pages
of these two appraisals are attached to the Tender Offer Statement on
Schedule 14D-1 filed by the Purchaser with the SEC, and full copies of these
appraisals are available upon request made to the Information Agent.
The appraisal obtained by the Partnership was performed by Arthur Andersen
& Co. and estimated the Project's value, as of August 1992, at $97,000,000,
assuming an all cash transaction and a market level management fee. The
Purchaser believes that the $97,000,000 value estimated by Arthur Andersen &
Co. in such appraisal is not a reasonable estimate of the current fair market
value of the Project because such appraisal was performed in 1992 and,
consequently, the Purchaser believes that the assumptions made by Arthur
Andersen & Co. in determining the appraised value no longer reflect the
underwriting criteria which would be used by prospective buyers.
The Lerner Proposal claims that its projected cash distribution to Limited
Partners is approximately equal to the distribution that would result from a
sale of the Project to a third party for $88,505,500, and a subsequent
liquidation of the Partnership. The Lerner Proposal makes this assertion
based on an assumed sale price of the Project of $88,505,500, subtracting the
outstanding balance of the New Mortgage Loans of $62,000,000 and assumed
closing costs of $3,814,589, and distribution of the remaining balance of
$22,690,911 according to the sharing arrangements of the Operating
Partnerships ($2,893,091 to Lerner and $19,797,820 to the Partnership). The
amount distributed to the Partnership under these assumptions ($19,797,820)
equals the price offered in the Lerner Proposal. The assumed closing costs of
$3,814,589 consist of: (a) an Assumption Fee payable to the Lender of
$620,000 (1% of $62,000,000); (b) a sale commission of $885,055 (1% of
$88,505,500); (c) transfer and recording taxes of $2,159,534; and (d) legal
and other out-of-pocket costs to the Partnership of $150,000.
The Purchaser believes that the $88,500,000 value estimated by Price
Waterhouse LLP and the $85,430,000 value estimated by Lipman Frizzell &
Mitchell LLC are reasonable appraisals of the current fair market value of
the Project. The Purchaser believes that the discounted values estimated by
each of these appraisers relating to the existing financing and management
arrangements are not relevant to the price that a third party would pay for
the Project because a third-party buyer would not assume the existing fee
arrangements, and because the New Mortgage Loans bear interest at a rate that
is no longer higher than current market levels. The Purchaser also believes
that a sale of the Project to a third party for $88,505,500 may actually
produce a higher cash distribution (a total of $40,444 per Unit assuming
that, consistent with the Lerner Proposal, such a buyer could assume the New
Mortgage Loans upon payment of a 1% assumption fee) to Limited Partners than
the distribution estimated by the Lerner Proposal (a total of $32,200 per
Unit). The difference is due to two items. First, it is the Purchaser's
belief that, while Lerner has proposed otherwise, a third-party buyer would
be willing to: (a)(i) purchase interests in the Operating Partnerships
instead of fee simple title to the Project and thus avoid certain transfer
and recording taxes (estimated in the Lerner Proposal to be $2,159,534) and
(ii) pass on at least half of the savings ($1,079,767) to the Partnership;
and (b) agree to closing adjustments which are more favorable to the
Partnership than those specified in the Lerner Purchase Agreement (these
include (i) the difference between the December 31, 1994 balance of the New
Mortgage Loans ($61,848,601) and the amount used by Lerner ($62,000,000) and
(ii) $2,800,000 of escrows held by the Lender which Lerner proposes to
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assume but for which he would not make a payment to the Partnership). By
reason of these adjustments, the Purchaser believes that the cash
distribution to the Limited Partners following such a third-party sale could
be approximately $3,520,000 in total or approximately $5,417 per Unit more
than the cash distribution estimated by Lerner in connection with the Lerner
Proposal. Second, the Purchaser believes that unrestricted cash reserves of
the Operating Partnerships, escrows held by the Operating Partnerships and
other miscellaneous adjustments could result in a larger cash distribution to
the Limited Partners following such a third-party sale of approximately
$1,835,000 in total or approximately $2,827 per Unit.
The Purchaser's Pro Forma Liquidation Analysis. The Purchaser is offering
to purchase Units and is not offering to purchase the Project. Because the
Units are a relatively illiquid investment, the Purchaser does not believe
that the potential value produced by a sale of the Project and a subsequent
liquidation of the Partnership reflects the current fair market value of the
Units. Conversely, the projected value to be realized upon liquidation is
clearly a relevant factor in determining the price that a prudent purchaser
would offer for the Units. Set forth below is the Purchaser's pro forma
analysis of the value each Limited Partner might receive upon an orderly
liquidation.
For the pro forma liquidation analysis, the Purchaser first estimated the
current market value of the Project. The Purchaser did this by capitalizing,
at a 9.75% rate, the Project's estimated operating cash flow (prior to debt
service payments) for calendar year 1994 as adjusted for underwriting
standards generally used by buyers of apartment properties. This measure of
operating cash flow, estimated to be $8,670,000, was constructed by (i)
annualizing the actual net operating income of the Project for the eleven
months ended November 30, 1994 (approximately $9,170,000, which includes
approximately $429,000 for carpeting expenditures, but excludes approximately
$330,000 in fees payable to Three Winthrop for providing asset management
services and administering the affairs of the Operating Partnerships and the
Partnership), (ii) increasing such amount by (a) $140,000 per year to adjust
recurring carpeting expenditures to $100 per apartment unit, and (b) $230,000
per year to reflect projected cost savings which result from replacing the
Lerner Corporation as property management agent and (iii) reducing such
amount by estimated recurring non-revenue generating capital improvements of
$870,000 per year ($300 per apartment unit). The value obtained by
capitalizing operating cash flow was then reduced by $1,000,000, the
estimated cost to cure the Project's deferred maintenance, to obtain the
$87,890,000 estimate of current market value.
The Purchaser then estimated the cash distribution that Limited Partners
would receive if the Project were sold for such a market value and the
Partnership were subsequently liquidated. The Purchaser did this by taking
the $87,890,000 estimated market value, adjusting it for the impact of
standard closing adjustments between buyer and seller (estimated to produce a
$3,070,000 credit to the Partnership, consisting of $2,800,000 of escrows
held by the Lender and $270,000 of prepaid real estate taxes net of accrued
expenses), and subtracting from such amount the following items: (a) the
outstanding balance of the New Mortgage Loans as of December 31, 1994
($61,848,601); (b) the 1% Assumption Fee payable to the Lender ($618,486);
(c) a brokerage commission of 1% of the sale price ($878,900); (d) half the
transfer tax liability ($1,070,000, based on the assumption that the tax
savings enjoyed as a result of the transfer of partnership interests instead
of realty interests would be shared equally with the buyer); and (e) $150,000
for the estimated legal and other out-of-pocket costs associated with
negotiating a purchase and sale contract, completing consent solicitation
materials and winding up the affairs of the Operating Partnerships. The
remaining balance of $26,390,000 was combined with the $3,170,000 in
unrestricted cash reserves held by the Operating Partnerships (which reserves
included the cash available for distribution from 1994 Partnership
operations, which Three Winthrop estimates to be $2,000 per Unit) and was
allocated to Lerner ($3,770,000) and the Partnership ($25,790,000) in
accordance with the sharing arrangements specified in the partnership
agreements for each of the Operating Partnerships. The $25,790,000 of
proceeds allocated to the Partnership was assumed to be distributed to the
Limited Partners, Three Winthrop and Linnaeus-Lexington in accordance with
the Partnership Agreement. The resulting cash distribution to Limited
Partners was estimated to be $39,640 per Unit if the Project were sold and an
orderly liquidation conducted.
Limited Partners should note that these estimates do not take into account
a contingent asset and a contingent liability of the Partnership. The
contingent asset consists of a potential refund of $870,000 of
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transfer taxes paid under protest by the Partnership in connection with
obtaining the New Mortgage Loans. The Partnership has appealed this payment,
which, if refunded, would increase the proceeds available upon a liquidation
by approximately $1,170 per Unit. The contingent liability consists of over
$50,000 of cash distributions made by the Partnership, which Lerner has
alleged in a complaint filed against Three Winthrop should have been
distributed to him. If Lerner's claim is successful it would have the effect
of reducing the cash distribution to Limited Partners in the liquidation
analysis by over $70 per Unit. Finally, the above does not consider any
reserve that the Partnership would have to maintain for any representations,
warranties or indemnities that a buyer may require the Partnership to make.
The Purchaser's pro forma liquidation analysis is merely theoretical and
does not in itself reflect the value of Units because: (a) there is no
assurance any such liquidation in fact will occur in the foreseeable future;
and (b) any liquidation in which the estimated value described above might be
realized would take an extended period of time (at least three and up to
twelve months), during which time the Partnership and its partners would
continue to be exposed to the risk of fluctuation in the Project's value
because of changing market conditions and other factors. Any sale of the
Project to a third party would have to take into account: (a) the size of the
Project, which could make it a less marketable property, as there are a
limited number of buyers who have the financial means to purchase apartment
properties containing 2,899 units; and (b) the existence of Lerner's right of
first refusal which is an encumbrance that may have a negative effect on
marketability because buyers may be reluctant to pursue an acquisition of a
property for which another party has such an option.
Based on the foregoing, the Purchaser believes that the current market
value of Units is probably less than the hypothetical liquidating
distribution. Conversely, there is the possibility that the value realized in
an orderly liquidation may be higher than the amounts referred to above, and
possibly substantially higher. The value could increase if the operating cash
flow of the Project improves or if a buyer applies a lower capitalization
rate to reflect its willingness to accept a lower initial rate of return.
There are many factors which could cause either, or both, of these events to
occur. A 5% increase or decrease in the Project's value would produce a
corresponding $5,780 per Unit increase or decrease in the cash distribution
to Limited Partners. Furthermore, the liquidation analysis is based on a
series of assumptions, some of which may not be correct. Accordingly, this
analysis should be viewed as merely indicative of the Purchaser's approach to
valuing Units and not as in any way predictive of the likely result of any
future transactions.
Finally, on a limited and sporadic basis, Three Winthrop has provided
valuation estimates of Units for divorce settlements, and to estates and
tax-exempt investors that own Units. According to information obtained from
Three Winthrop, during 1993 and 1994 Three Winthrop provided a value of
$23,400 per Unit. This estimate is probably not a reliable measure of value
because Three Winthrop has indicated that, in estimating such a value, it
performs only a rough estimate of a liquidation analysis and applies a
discount factor for the lack of liquidity associated with Units.
The Purchaser's Going Concern Analysis. The Purchaser has performed a
going concern analysis of the Partnership for the purpose of estimating the
cash available for distribution and the total pre-tax return that may accrue
to the benefit of Limited Partners. These amounts are then compared with
dividend distributions and total pre-tax returns available from alternative
equity investments in real estate to arrive at an estimated value for the
Units. Cash available for distribution is defined by the Purchaser as the
Limited Partner's allocable share of the Operating Partnerships' actual
operating cash flow (after debt service payments). This measure of operating
cash flow of the Operating Partnerships equals the net operating income of
the Project minus asset management and partnership administration fees
payable to Three Winthrop and its affiliates, capital improvements, interest
and principal payments on the New Mortgage Loans and additions to
(withdrawals from) reserves. The total pre-tax return to Limited Partners is
their allocable share of cash available for distribution plus principal
payments on the New Mortgage Loans and additions to (withdrawals from)
reserves.
The table below shows the Purchaser's estimates for cash available for
distribution and total pre-tax returns for Limited Partners for the period
1994 through 1996. The estimates for 1995 and 1996 reflect the Purchaser's
prediction of future operating results which may or may not prove to be
accurate. The
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estimates are also not intended to predict the actual cash distributions
which the Partnership will make to Limited Partners in any particular year.
The Partnership may choose to suspend distributions in any one year, or
distribute more or less than the cash available for distribution from any one
year of Partnership operations. Three Winthrop has advised the Purchaser that
it anticipates making a distribution from 1994 operations to Limited Partners
of $2,000 per Unit, which will not be made until after the expiration of this
Offer. If actual distributions to Limited Partners are more or less than the
cash available for distribution from any one year, the amount of the reserves
held by the Partnership will change. The following table uses the Cash
Consideration being offered by the Purchaser to acquire Units, $36,000 per
Unit, when calculating percentage returns.
<TABLE>
<CAPTION>
ESTIMATED PROJECTED PROJECTED
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Net Operating Income ............................... $9,170,000 $9,712,000 $9,731,000
Minus:
Asset Management Fee .............................. 227,000 240,000 240,000
Administration Fee ................................ 100,000 100,000 100,000
Capital Improvements .............................. 767,000 1,500,000 1,000,000
Mortgage Interest ................................. 5,788,000 5,714,000 5,611,000
Mortgage Principal ................................ 712,000 982,000 1,182,000
Additions to (Withdrawals from) Reserves ......... (23,000) (145,000) 105,000
------------ ------------ ------------
Equals: Operating Cash Flow of Operating
Partnerships ...................................... $1,599,000 $1,321,000 $1,493,000
Cash Available for Distribution to Limited Partners
(per Unit) ........................................ $ 2,207 $ 1,627 $ 1,892
As a % of $36,000 .................................. 6.13% 4.52% 5.26%
Total Pre-Tax Return to Limited Partners (per Unit) $ 3,024 $ 2,797 $ 3,623
As a % of $36,000 .................................. 8.40% 7.77% 10.06%
</TABLE>
The Purchaser believes that dividend yields and total pre-tax returns
available for alternative equity investments in real estate are generally
higher than those which the Purchaser expects to realize in 1995 and 1996
from the Partnership. Based on available information, the Purchaser believes
that dividend yields for publicly traded equity real estate investment trusts
("Equity REITs") averaged approximately 8.0% per year as of December 30,
1994, and Wall Street analysts generally project Equity REITs to provide
total pre-tax returns (dividends plus appreciation in share price) of 12% to
15% per year. Less liquid real estate securities and direct equity
investments in real estate generally offer higher pre-tax total returns than
REITs. Projected returns for such investments range from 10% to in excess of
30% per year, depending on the level of risk associated with such investment.
Based on the high degree of risk and illiquidity of investments similar to
the purchase of Units, investors generally expect to receive returns at the
higher end of such range. The Purchaser is willing to accept a lower return
on its investment because, if the Lerner Proposal is not approved and/or if
the Project is not sold, Three Winthrop and its affiliates (which are
affiliates of the Purchaser) (i) would continue to receive their asset
management and partnership administration fees (approximately $340,000 in
1994) and (ii) plan to replace Lerner as the property manager for the Project
and receive a 3% property management fee (estimated at $680,000 per year
based on 1994 revenues).
Trading History of Units. Secondary sales activity for Units has been
limited and sporadic. According to information obtained from Three Winthrop,
there have been only two arm's-length sales of Units in the past three years.
One sale took place in 1992 at an undisclosed price. The other sale was of
one-half Unit on December 1, 1994 at a price of $13,500 per Unit. The 1994
sale is probably not a reliable measure of value because of the limited and
inefficient nature of the market for Units. At present, however, privately
negotiated sales are the only means available to Limited Partners to
liquidate their investment because the Units are not listed or traded on any
exchange or quoted on any NASDAQ list or system.
Net Book Value of Units. The net book value of the Units at September 30,
1994 was approximately $9,738 per Unit. The Purchaser did not consider net
book value a meaningful figure in determining the
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Cash Consideration because the depreciation expense recognized since the
original acquisition of the Project, in accordance with generally accepted
accounting principles, overstates the actual deterioration of its physical
condition.
The Purchaser did not assign any specific or relative weights to the
particular factors discussed above and each factor was considered as part of
the whole in reaching a conclusion as to the fairness of the Cash
Consideration. Based on the analyses described above and the Purchaser's
belief that this Offer compares favorably to the Lerner Proposal for the
reasons discussed in the "INTRODUCTION" to this Offer to Purchase, the
Purchaser believes the Cash Consideration is fair to the Limited Partners.
PURPOSE AND EFFECTS OF THIS OFFER
As indicated in the "INTRODUCTION," the purpose of this Offer is to
provide the Limited Partners with an alternative to the Lerner Proposal or a
liquidation of the Partnership and a sale of the Project to a third party.
The Purchaser believes that Limited Partners may find this Offer an
attractive way to liquidate their investment in the Partnership and a more
attractive alternative than the Lerner Proposal or a possible sale of the
Project to a third party. As indicated in the "INTRODUCTION," the Purchaser
believes that this Offer compares favorably to the Lerner Proposal because it
provides higher Cash Consideration per Unit, more flexibility, and greater
price certainty to each Limited Partner and is more likely to close on a
timely basis.
Limitations on Resales. Section 7.2(D) of the Partnership Agreement
prohibits transfers of Units where the transfer, when considered with all
other transfers during any twelve-month period, would cause a termination of
the Partnership for federal income tax purposes (such a termination would
occur when 50% or more of the outstanding interests in the Partnership
(limited and general) are transferred in a twelve-month period).
Consequently, sales of Units on the secondary market in private transactions
for the twelve-month period following completion of this Offer may be
limited. Unless and until Section 7.2(D) is eliminated, the Partnership will
not process any requests for recognition of substitution of Limited Partners
upon an attempted transfer of Units during such twelve-month period and such
attempted transfers will be deemed void if any such transfer would cause a
termination of the Partnership for federal income tax purposes. See "THE
OFFER -Section 6. Certain Federal and State Tax Consequences." In determining
the structure of this Offer, including the number of Units which may be
purchased upon consummation of this Offer and the terms of the Loan, the
Purchaser took the restriction into account so as to permit normal historical
levels of transfers to occur. Under certain conditions, the Purchaser may
seek to amend the Partnership Agreement to permit resales which would cause a
termination of the Partnership for federal income tax purposes. See "SPECIAL
FACTORS--Future Plans."
Based on information provided by Three Winthrop, since January 1, 1992,
there have only been two transfers of Units to non-affiliates in arm's-length
transactions. All other transfers have been made by reason of death, divorce
settlements or to relatives or affiliates of the Limited Partners. During
1992, there were 20 transfers involving a total of 20 Units. During 1993,
there were 22 transfers involving a total of 18.3 Units. Through December 31,
1994, there were 17 transfers, involving a total of 14 Units.
Certain Effects on Trading Market; Exchange Act Registration. There is no
established public or other trading market for the Units and, therefore, a
mere reduction in the number of Limited Partners should not materially
further restrict the Limited Partners' ability to find purchasers for their
Units. The Units are currently registered under the Exchange Act.
Registration of the Units under the Exchange Act may be terminated upon
application of the Partnership to the SEC if there are fewer than 300 holders
of Units of record. Termination of registration of the Units under the
Exchange Act would eliminate the requirement to make periodic filings with
the SEC and would make certain provisions of the Exchange Act, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy or information statement pursuant to Section 14(a) and the
requirements of Rule 13e-3 with respect to "going private" transactions, no
longer applicable to the Partnership. It is the present intention of the
Purchaser to seek to cause the Partnership to make such an application for
termination of registration of the Units as soon as possible if the
requirements for termination of registration are met. Based on information
furnished to the Purchaser by the Partnership, if between 47.15% and 50.5% of
the Units are
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validly tendered pursuant to this Offer, consummation of this Offer could
result in termination of the requirements for registration of the Partnership
and, if more than 50.5% of the Units are tendered pursuant to the Offer, the
requirements for registration of the Partnership could be met upon repayment
of Loans by the transfer of Retained Portions.
Influence on Limited Partner Voting Decisions by the Purchaser; Effect of
Affiliation with Three Winthrop. The Purchaser will have the right to vote
the Units purchased. As a result, the Purchaser could be in a position to
significantly influence all voting decisions with respect to the Partnership.
This could (i) prevent nontendering Limited Partners from taking action they
desire but that the Purchaser opposes and (ii) enable the Purchaser to take
action desired by the Purchaser but opposed by nontendering Limited Partners.
Pursuant to the Partnership Agreement, the consent of the holders of a
majority of the Units is required to, among other things, (a) approve the
removal of any general partner, or the admission of any person as an
additional or substitute general partner, (b) approve certain transactions,
including the sale, exchange, liquidation or other disposition of all or
substantially all of the assets of the Partnership, (c) dissolve the
Partnership and (d) subject to certain limitations, amend the Partnership
Agreement. When voting on such matters, the Purchaser will vote the Units
acquired pursuant to this Offer in its interest, which, because of its
affiliation with Three Winthrop, may also be in the interest of Three
Winthrop.
FUTURE PLANS
The Purchaser is acquiring Units pursuant to this Offer for investment
purposes. Subject to the limitation on resales discussed in the preceding
section, following the completion of this Offer, the Purchaser may acquire
additional Units. Any such acquisition may be made through private purchases,
upon repayment of a Loan by surrender of the Retained Portion, through one or
more future tender offers, or by any other means deemed advisable. Any such
acquisition may be at a price higher or lower than the price to be paid for
the Units purchased pursuant to this Offer. The Purchaser does not have any
present plans or intentions with respect to a liquidation or sale of assets
of the Partnership or refinancing of the Project.
If the Purchaser acquires, pursuant to the Offer, more than 50% of all
outstandingUnits, it may seek to amend the Partnership Agreement to permit
transfers of Units in excess of the amount which would cause a tax
termination of the Partnership. If any such amendment becomes effective, the
Loan will become due upon demand of the Purchaser. See "THE OFFER--Certain
Federal and State Income Tax Consequences."
Three Winthrop has advised the Purchaser that possible transactions Three
Winthrop may consider in the future on behalf of the Partnership include (i)
refinancing or reduction of existing indebtedness of the Partnership; (ii)
increasing the frequency of cash distributions to Limited Partners or
reducing the amount of unrestricted reserves held by the Partnership through
a cash distribution to Limited Partners; (iii) sales of assets, individually
or as part of a complete liquidation; and (iv) mergers or other consolidation
transactions involving the Partnership. If any such transaction is effected
by the Partnership and financial benefits accrue to the Limited Partners in
the Partnership, the Purchaser will participate in those benefits to the
extent of its ownership of Units.
Three Winthrop has advised the Purchaser that it anticipates that upon
termination of the Lerner Agreement, it will engage an affiliate of the
Purchaser, Winthrop Management ("Winthrop Management"), to act as exclusive
leasing agent and property manager of the Project as successor to Lerner
Corp. Three Winthrop has advised the Purchaser that it expects that the
management contract with such affiliate will provide for a fee of 3.0% of
gross collections (plus customary expense reimbursement). Three Winthrop
anticipates that the change in management agent will reduce the Project's
operating expenses. Further, Three Winthrop has advised the Partnership that
the Lender has already granted its approval for Three Winthrop or one of its
affiliates to assume the property management responsibilities.
The Purchaser believes that the management of the Project will become more
effective once Winthrop Management assumes the property management functions,
which have been performed by Lerner Corp. since the Partnership acquired its
90% interest in the Project in 1985. Lerner Corp. is
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<PAGE>
presently responsible for property management functions, which include
managing employees, attracting new tenants, completing repairs and
improvements to the Project, managing revenues and expenses and preparing
financial statements and reports. Winthrop Management is responsible for the
asset management function, which involves approving major decisions that
impact the Project's performance or its financial condition. The Purchaser
believes that combining these two functions will result in better
communication and decision-making, and improved performance. Winthrop
Management employees who will assume property management responsibilities are
currently located at the Project and are familiar with all aspects of its
operations.
Three Winthrop has advised the Purchaser that it intends to terminate the
Lerner Agreement as of the earliest date possible, which Three Winthrop
believes to be January 31, 1995. Lerner Corp. has contested Three Winthrop's
right to terminate the contract effective January 31, 1995, causing Three
Winthrop to seek a declaratory judgment in court affirming such termination
date. The court has yet to rule on the matter.
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THE OFFER
SECTION 1. TERMS OF THIS OFFER. Under the terms of this Offer, the
Purchaser will pay for Units validly tendered on or prior to the Expiration
Date and not withdrawn in accordance with Section 4 of this Offer to
Purchase. The term "Expiration Date" shall mean 5:00 p.m., New York time, on
March 2, 1995, unless the Purchaser shall have extended this Offer and, in
such event, the term "Expiration Date" shall mean the latest time and date on
which this Offer, as so extended, shall expire.
If, prior to the Expiration Date, the Purchaser shall increase the Cash
Consideration offered to Limited Partners pursuant to this Offer, such
increased Cash Consideration will be delivered in respect of all Units
accepted pursuant to this Offer, whether or not they were tendered prior to
such increase.
This Offer is conditioned on satisfaction of certain conditions. See
Section 11, which sets forth in full the conditions of this Offer. The
Purchaser reserves the right (but shall not be obligated), in its sole
discretion, to waive any or all of such conditions.
This Offer to Purchase and the related Letter of Transmittal are being
mailed by the Purchaser to Limited Partners or beneficial owners (in the case
of Individual Retirement Accounts and qualified plans) of Units of record as
of February 1, 1995.
If 50.5% or less of the outstanding Units are validly tendered and not
withdrawn, each tendering Limited Partner will receive, upon consummation of
this Offer, $36,000 per Unit in Cash Consideration for each Unit (or a pro
rata portion thereof for each fractional Unit) so tendered. If more than
50.5% of the outstanding Units are validly tendered and not withdrawn, each
tendering Limited Partner will receive the same amount of Cash Consideration
with respect to each Unit or fractional Unit so tendered, but will receive a
portion of the Cash Consideration in Purchase Proceeds and the balance of the
Cash Consideration as Loan Proceeds.
The portion of the Cash Consideration payable at the consummation of this
Offer to each tendering Limited Partner which will constitute Purchase
Proceeds will be $36,000 multiplied by the quotient of (A) 50.5% divided by
(B) a fraction, the numerator of which is the number of Units validly
tendered and not withdrawn and the denominator of which is the number of
outstanding Units on the date of consummation of this Offer. The balance of
the Cash Consideration payable to each tendering Limited Partner at the
consummation of this Offer will constitute the Loan Proceeds payable to such
tendering Limited Partner.
Each Loan will bear interest at the rate of 9% per annum. Interest and
principal will not be due and payable prior to the scheduled maturity date of
the Loan, except that the Loan shall become due upon certain bankruptcy
events of the Limited Partner and, in certain circumstances, on the demand of
the Purchaser and any distributions in respect of a Retained Portion are
required to be applied to pay outstanding amounts of interest and principal.
Each Loan will mature by its terms on the date that is one year and one day
after the purchase of Units pursuant to this Offer, and will be payable, at
the election of the Limited Partner, either by surrender to the Purchaser of
the Retained Portion or, at the sole option of the Limited Partner party
thereto, by payment of cash in the principal amount of its Loan plus accrued
interest thereon.
Each Loan may be prepaid in cash at any time by the Limited Partner party
thereto and prepayment will be mandatory upon the demand of the Purchaser if
and when the restrictions on transfer of Units set forth in Section 7.2(D)
have been eliminated by an amendment to the Partnership Agreement. Any
distribution payable to a Limited Partner in respect of its Retained Portion
will be applied at the time such distribution is made first to accrued
interest on its Loan and then to the principal amount of such Loan and any
amounts remaining after such application will be remitted to such Limited
Partner. Each Limited Partner will agree not to exercise its voting rights in
favor of a dissolution of the Partnership or for any purpose inconsistent
with the terms or purpose of the Loan or in a manner which may have an
adverse effect on the value of the Retained Portion or the Purchaser's rights
under the Loan. Each Limited Partner who tenders Units in accordance with
this Offer, and does not withdraw such tender in accordance with the terms of
this Offer, shall have irrevocably elected to receive the proceeds of the
Loan if more
17
<PAGE>
than 50.5% of the outstanding Units are validly tendered and not withdrawn
and to be bound by the terms of the Loan, including the repayment thereof,
the pledge of such Limited Partner's Retained Portion to secure such
repayment, the application of distributions made in respect of the Retained
Portion and the limitation on voting rights as described above.
The terms and conditions for each of the Loans are set forth in the form
of Note and Security Agreement attached hereto as Annex III, which Annex is
incorporated by reference herein in its entirety.
This Offer does not give rise to appraisal rights and such rights will not
be voluntarily afforded to the Limited Partners.
SECTION 2. PRORATION; ACCEPTANCE OF AND PAYMENT FOR UNITS. The Purchaser
will pay for Units validly tendered and not withdrawn in accordance with
Section 4, as promptly as practicable following the Expiration Date by
deposit of the aggregate Cash Consideration therefor (including the proceeds
of the Loans, if applicable) with the Depository. Under no circumstances will
interest be paid on the Cash Consideration by reason of any delay in making
such payment.
In all cases, payment for Units purchased pursuant to this Offer will be
made only after timely receipt by the Depository of a properly completed and
duly executed Letter of Transmittal (or facsimile thereof), and duly executed
signature pages for the Note and Security Agreement and any other documents
required by the Letter of Transmittal. (See Section 3, "Procedures for
Tendering Units.")
If any tendered Units are not purchased for any reason, such Units not
purchased will be retained by the Limited Partners, except that the Retained
Portion of each Limited Partner will be held subject to the terms of such
Limited Partner's Loan. If for any reason acceptance of, or payment for, any
Units tendered is delayed or if the Purchaser is unable to accept, purchase
or pay for Units tendered, then the Purchaser may retain tendered Units and
such Units may not be withdrawn except to the extent that the tendering
Limited Partners are entitled to withdrawal rights as described in Section 4;
provided, however, that the Purchaser is required, pursuant to Rule 14e-1(c)
under the Exchange Act, to pay Limited Partners the Cash Consideration in
respect of Units tendered or return such Units promptly after termination or
withdrawal of this Offer.
SECTION 3. PROCEDURES FOR TENDERING UNITS.
Valid Tender. In order for a tendering Limited Partner to participate in
this Offer, Units must be validly tendered and not withdrawn on or prior to
the Expiration Date. A valid tender requires that a properly completed and
duly executed Letter of Transmittal and duly executed signature pages for the
Note and Security Agreement and any other documents required by the Letter of
Transmittal be actually received by the Depository on or prior to the
Expiration Date.
A Limited Partner may tender all or any portion of its Units held as of
the Record Date. Pursuant to Article VII of the Partnership Agreement, the
Managing General Partner of the Partnership has agreed in writing to permit
the transfer of Units pursuant to this Offer and has approved the admittance
of the Purchaser as a substitute limited partner.
THE OFFER AND THE WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK
TIME, ON MARCH 2, 1995, UNLESS EXTENDED.
Signature Requirements. The Letter of Transmittal must be signed by the
registered holder of the Units, exactly as the name appears on the register
of the Partnership, and payment is to be made directly to that holder at the
address indicated on the register. The Note and Security Agreement must also
be signed by the registered holder exactly as the name appears on the
register of the Partnership.
THE METHOD OF DELIVERY OF THE LETTER OF TRANSMITTAL, THE SIGNATURE PAGE TO
THE NOTE AND SECURITY AGREEMENT AND ALL OTHER REQUIRED DOCUMENTS IS SOLELY AT
THE OPTION AND RISK OF THE TENDERING LIMITED PARTNER, AND DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITORY. THUS, OVERNIGHT
COURIER SERVICE IS RECOMMENDED.
Backup Federal Income Tax Withholding. To prevent the possible application
of backup federal income tax withholding with respect to payment of the Cash
Consideration, a tendering Limited Partner
18
<PAGE>
must provide its correct taxpayer identification number by completing the
Substitute Form W-9 included in the Letter of Transmittal. (See the
Instructions to the Letter of Transmittal and Section 6, "Certain Federal and
State Income Tax Consequences.")
FIRPTA Withholding. To prevent the withholding of federal income tax in an
amount equal to 10% of the amount of the Cash Consideration plus Partnership
liabilities allocable to the Units purchased, each Limited Partner must
complete the FIRPTA Affidavit included in the Letter of Transmittal
concerning its taxpayer identification number and address and stating that it
is not a foreign person. (See the Instructions to the Letter of Transmittal
and Section 6, "Certain Federal and State Income Tax Consequences.")
Other Requirements. By executing a Letter of Transmittal, a Limited
Partner irrevocably constitutes and appoints the Purchaser as the true and
lawful agent and attorney-in-fact of such Limited Partner with respect to
Units tendered by such Limited Partner, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to deliver such Units and transfer ownership thereof on the
Partnership books maintained by Three Winthrop, together with all
accompanying evidences of transfer and authenticity, to or upon the order of
the Purchaser and upon receipt by the Depository, as such Limited Partner's
agent, of the purchase price in respect of such Units, to receive all
benefits and otherwise exercise all rights of beneficial ownership of such
Units, all in accordance with the terms of this Offer. Upon the purchase of
such Units pursuant to this Offer, all prior proxies and consents given by
such Limited Partner with respect thereto will be revoked and no subsequent
proxies or consents may be given (and if given will not be deemed effective).
By executing a Letter of Transmittal, a Limited Partner irrevocably agrees
to accept the proceeds of a Loan in respect of its Retained Portion on the
terms and conditions set forth in the Note and Security Agreement. Such
Limited Partner also directs the Partnership to deliver any and all
distributions payable on the Retained Portion to the Purchaser for credit
against amounts outstanding in respect of the Loan, and the Purchaser may, in
the name and on behalf of such Limited Partner, execute and deliver to the
Partnership a written confirmation of such direction.
In addition, by executing a Letter of Transmittal, a Limited Partner
appoints the designees of the Purchaser as its attorneys-in-fact (such
appointment being coupled with an interest, and irrevocable) to execute and
cause to be filed and recorded any and all documents on behalf of the Limited
Partner and to take any and all other actions reasonably deemed necessary by
the Purchaser to perfect or continue the perfection of the security interest
in the Retained Portion that secures any Loan made to such Limited Partner.
Determination of Validity; Rejection of Units; Waiver of Defects; No
Obligation to Give Notice of Defects. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any
tender of Units pursuant to the procedures described above will be determined
by the Purchaser, in its sole discretion, which determination shall be final
and binding. The Purchaser reserves the absolute right to reject any or all
tenders if not in proper form (including, without limitation, the proper
execution of the Note and Security Agreement) or if the acceptance of, or
payment for, the Units tendered may, in the opinion of the Purchaser's
counsel, be unlawful. The Purchaser also reserves the right to waive any
defect or irregularity in any tender with respect to any particular Unit of
any particular Limited Partner, and the Purchaser's interpretation of the
terms and conditions of this Offer (including the Letter of Transmittal and
the Instructions thereto) will be final and binding. No tender will be deemed
validly made until all defects and irregularities have been cured or waived.
Neither the Purchaser, the Information Agent, the Depository nor any other
person will be under any duty to give notification of any defects or
irregularities in the tender of any Units or will incur any liability for
failure to give any such notification.
A tender of Units pursuant to any of the procedures described above and
the acceptance for payment of such Units will constitute a binding agreement
between the tendering Limited Partner and the Purchaser on the terms and
conditions of this Offer.
SECTION 4. WITHDRAWAL RIGHTS. Except as otherwise provided in this Section
4, all tenders of Units pursuant to this Offer are irrevocable, provided that
Units tendered pursuant to this Offer may be withdrawn at any time prior to
the Expiration Date and, unless already accepted for payment as provided in
this Offer to Purchase, may also be withdrawn at any time after April 2,
1995.
19
<PAGE>
For withdrawal to be effective, a written or facsimile transmission notice
of withdrawal must be timely received by the Depository at the address set
forth on the back cover of this Offer to Purchase. Any such notice of
withdrawal must specify the name of the person(s) who tendered the Units to
be withdrawn and must be signed by the person(s) who signed the Letter of
Transmittal in the same manner as the Letter of Transmittal was signed.
If purchase of, or payment for, Units is delayed for any reason or if the
Purchaser is unable to purchase or pay for Units for any reason, then,
without prejudice to the Purchaser's rights under this Offer, tendered Units
may be retained by the Purchaser and may not be withdrawn except to the
extent that tendering Limited Partners are entitled to withdrawal rights as
set forth in this Section 4; provided, however, that the Purchaser is
required, pursuant to Rule 14e-1(c) under the Exchange Act, to pay Limited
Partners the Cash Consideration in respect of Units tendered or return such
Units promptly after termination or withdrawal of this Offer.
Any Units properly withdrawn will be deemed not to be validly tendered for
purposes of this Offer. Withdrawn Units may be retendered, however, by
following any of the procedures described in Section 3 at any time prior to
the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by the Purchaser, in its sole
discretion, whose determination will be final and binding. Neither the
Purchaser, the Information Agent, the Depository nor any other person will be
under any duty to give notification of any defects or irregularities in any
notice of withdrawal or incur any liability for failure to give such
notification.
SECTION 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENTS. The
Purchaser expressly reserves the right, in its sole discretion, at any time
and from time to time, (i) to extend the period of time during which this
Offer is open and thereby delay acceptance for payment of, and the payment
for, any Units, (ii) to terminate this Offer and not accept for payment any
Units not already accepted for payment or paid for, (iii) upon the occurrence
of any of the conditions specified in Section 11, to delay the acceptance for
payment of, or payment for, any Units not already accepted for payment or
paid for, and (iv) to amend this Offer in any respect (including, without
limitation, by increasing the consideration offered, increasing or decreasing
the number of Units being sought, or both). Notice of any such extension,
termination or amendment will promptly be disseminated to the Limited
Partners in a manner reasonably designed to inform Limited Partners of such
change in compliance with Rules 14d-4(c) and 14d-6(d) under the Exchange Act.
In the case of an extension of this Offer, such extension will be followed by
a press release or public announcement which will be issued no later than
9:00 a.m., New York time, on the next business day after the scheduled
Expiration Date, in accordance with Rule 14e-1(d) under the Exchange Act.
If the Purchaser makes a material change in the terms of this Offer or the
information concerning this Offer or waives a material condition of this
Offer, the Purchaser will extend this Offer and disseminate additional tender
offer materials to the extent required by Rules 14d-4(c) and 14d-6(d) under
the Exchange Act. The minimum period during which an offer must remain open
following a material change in the terms of the offer or information
concerning the offer will depend upon the facts and circumstances, including
the relative materiality of the change in the terms or information. The SEC
has stated that in its view, an offer should remain open for a minimum of
five business days from the date the material change is first published, sent
or given to Limited Partners, and, if material changes are made with respect
to information that approaches the significance of price or the percentage of
securities sought, a minimum of ten business days may be required to allow
for adequate dissemination to Limited Partners and for Limited Partner
response. The requirement to extend the offer will not apply to the extent
that the number of business days remaining between the occurrence of the
change and the then-scheduled expiration date equals or exceeds the minimum
extension period that would be required because of such amendment. With
respect to a change in price or a change in percentage of securities sought,
a minimum ten-business-day period generally is required by regulation to
allow for adequate dissemination to Limited Partners and response. As used in
this Offer to Purchase, "business day" means any day other than a Saturday,
Sunday or a federal holiday, and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York time.
20
<PAGE>
SECTION 6. CERTAIN FEDERAL AND STATE INCOME TAX CONSEQUENCES. The
following summary is a general discussion of certain federal income tax
consequences of a sale of Units and receipt of a Loan pursuant to this Offer.
This summary is based on the Internal Revenue Code of 1986, as amended (the
"Code"), applicable Treasury regulations thereunder, administrative rulings,
practice and procedures and judicial authority as of the date of this Offer.
All of the foregoing are subject to change, and any such change could affect
the continuing accuracy of this summary. This summary does not discuss all
aspects of federal income taxation that may be relevant to a particular
Limited Partner in light of such Limited Partner's specific circumstances or
to certain types of Limited Partners subject to special treatment under the
federal income tax laws (for example, foreign persons, dealers in securities,
banks, and insurance companies), nor does it discuss any state, local,
foreign or other tax laws (except Maryland income tax on nonresidents). Sales
of Units and/or fractional Units pursuant to this Offer will be taxable
transactions for federal income tax purposes and may also be taxable
transactions under applicable state, local, foreign and other tax laws. EACH
LIMITED PARTNER SHOULD CONSULT ITS TAX ADVISOR AS TO THE PARTICULAR TAX
CONSEQUENCES TO SUCH LIMITED PARTNER OF SELLING UNITS AND/OR FRACTIONAL UNITS
AND RECEIVING A LOAN PURSUANT TO THIS OFFER.
In general, a taxable Limited Partner will recognize gain or loss on a
sale of Units and/or fractional Units pursuant to this Offer equal to the
difference between (i) the Limited Partner's "amount realized" on the sale
and (ii) the Limited Partner's adjusted tax basis in the Units sold. The
amount of a Limited Partner's adjusted tax basis will vary depending upon
such Limited Partner's particular circumstances. The "amount realized" with
respect to a Unit sold will be a sum equal to the amount of cash received by
the Limited Partner for such Unit pursuant to this Offer plus the amount of
Partnership liabilities allocable to such Unit (as determined under Code
Section 752).
In addition to the allocation of the Partnership's taxable income or loss
for 1994, a tendering Limited Partner will be allocated a pro rata share of
the Partnership's taxable income or loss for the year of sale with respect to
the Units sold in accordance with the provisions of the Partnership Agreement
concerning transfers of Units. Such allocation, the allocation for 1994 and
any cash distributed by the Partnership to or for the benefit of such Limited
Partner for such years will affect the Limited Partner's adjusted tax basis
in its Units and, therefore, the amount of such Limited Partner's taxable
gain or loss upon a sale of Units pursuant to this Offer. In the case of a
Limited Partner that sells less than 100% of its interest in the Partnership
pursuant to the Offer, it is unclear whether the allocation of Partnership
income or loss for 1995 will affect the basis of the portion sold or instead
only the basis in the Retained Portion. IF THE TENDERING LIMITED PARTNERS
RECEIVE LOANS, THEY WILL BE ALLOCATED PRO RATA SHARES OF THE PARTNERSHIP'S
TAXABLE INCOME OR LOSS AS OWNERS OF THE RETAINED PORTIONS ALTHOUGH THEY MAY
NEVER RECEIVE CASH PAYMENTS RELATED TO ANY SUCH TAXABLE INCOME. SUCH TAXABLE
INCOME MAY NOT BE OFFSET BY DECREASED GAIN ON SALE OF THE RETAINED PORTIONS
OR BY INTEREST DEDUCTIONS IF CASH DISTRIBUTIONS ARE MADE AND APPLIED TO PAY
INTEREST THAT MAY BE NONDEDUCTIBLE AS PERSONAL INTEREST.
The gain or loss recognized by a Limited Partner on a sale of a Unit sold
pursuant to this Offer generally will be treated as a capital gain or loss.
Such capital gain or loss will be treated as long-term capital gain or loss
if the tendering Limited Partner's holding period for such Unit exceeds one
year. Under current law, long-term capital gains of individuals and other
noncorporate taxpayers are taxed at a maximum marginal federal income tax
rate of 28%, whereas the maximum marginal federal income tax rate for other
income of such persons is 39.6%. Capital losses are deductible only to the
extent of capital gains, except that non-corporate taxpayers may deduct up to
$3,000 of capital losses in excess of the amount of their capital gains
against ordinary income. Excess capital losses generally can be carried
forward to succeeding years (a corporation's carryforward period is five
years and a noncorporate taxpayer can carry forward such losses
indefinitely); in addition, corporations are allowed to carry back excess
capital losses to the three preceding taxable years, provided such carryback
does not increase or produce a net operating loss for any such year.
21
<PAGE>
If any portion of the amount realized by a Limited Partner on a sale of
Units pursuant to this Offer is attributable to "unrealized receivables"
(which term includes depreciation recapture) or "substantially appreciated
inventory" as defined in Code Section 751, then a portion of the Limited
Partner's gain or loss may be ordinary rather than capital. Based on the
results of Partnership operations through December 31, 1994, it is estimated
that the portion of the amount realized attributable to such Section 751
items will be approximately $5,254 per Unit. The actual amount of such
Section 751 items will be identified in a statement provided by the
Partnership to the Limited Partner on or before January 31, 1996. It is
possible that the basis allocation rules of Code Section 751 may result in a
Limited Partner's recognizing ordinary income with respect to such items
while recognizing a larger capital loss with respect to the remainder of the
Units sold, even though such Limited Partner has an overall loss on the sale.
Under Code Section 469, a noncorporate taxpayer or personal service
corporation can deduct passive activity losses in any year only to the extent
of such person's passive activity income for such year, and closely held
corporations may not offset such losses against so-called "portfolio" income.
A loss recognized by a Limited Partner upon a sale of less than 100% of its
Units pursuant to this Offer can be currently deducted (subject to other
applicable limitations) to the extent of such Limited Partner's passive
income from the Partnership for that year or to the extent of any other
passive activity income from that year, and a gain recognized by a Limited
Partner upon such sale can be offset by such Limited Partner's current or
carryover passive activity losses (if any) from the Partnership or from other
sources. If a Limited Partner disposes of 100% of its Units pursuant to this
Offer, such Limited Partner generally will be able to deduct its remaining
passive activity losses (if any) from the Partnership that could not
previously be deducted by such Limited Partner due to the foregoing
limitation.
Based on the estimated results of Partnership operations through December
31, 1994, it is estimated that a Limited Partner who tenders Units that were
acquired by such Limited Partner on February 15, 1985, utilized the deferred
payment method for making capital contributions to the Partnership, and is
subject to federal income tax at the rate of 28% on long-term capital gains
and 39.6% on other income, will recognize income and gain per Unit sold, and
incur federal income tax per Unit sold, as indicated in the following chart.
Separate figures are provided assuming that the Limited Partner has no
"suspended" passive activity losses from the Partnership (i.e., post-1986 net
taxable losses in excess of statutorily provided "phase-in" amounts) and
assuming that the Limited Partner has the maximum amount of "suspended"
passive activity losses from the Partnership. The figures in the chart are
shown on a per Unit basis and are based on the assumption that the Limited
Partner sells 100% of its Units, so that its remaining "suspended" passive
activity losses should be deductible from other income subject to any other
applicable limitations. If more than 50.5% of the outstanding Units are
tendered, no tendering Limited Partner will be able to sell 100% of its Units
upon consummation of this Offer because of proration of the amount of Units
to be purchased by the Purchaser. Therefore, if more than 50.5% of the Units
are tendered, any Limited Partner with "suspended" passive activity losses
will not be able to deduct such amount until its Retained Portion is
transferred to the Purchaser upon the maturity of its Loan or otherwise sold.
<TABLE>
<CAPTION>
TAX
TAX LIABILITY
AMOUNT RATE (BENEFIT)
---------- ------- -----------
<S> <C> <C> <C>
Passive Ordinary Income .................. $ 5,254 39.6% $ 2,081
Net Passive Long Term Capital Gain ...... 43,421 28.0% 12,158
Taxes Due upon Sale Assuming No Passive
Losses .................................. $ 14,239
Deduction of Maximum Potential Passive
Activity Carryforward Losses from the
Partnership ............................. (41,522) 39.6% (16,443)
-----------
Net Taxes Due (Benefit) Assuming Maximum
Passive Activity Carryforward Losses ... $ (2,204)
</TABLE>
22
<PAGE>
A taxable Limited Partner (other than corporations and certain foreign
individuals) who tenders Units may be subject to 31% backup withholding
unless the Limited Partner provides a taxpayer identification number ("TIN")
and certifies that the TIN is correct or properly certifies that he is
awaiting a TIN. A Limited Partner may avoid backup withholding by properly
completing and signing the Substitute Form W-9 included as part of the Letter
of Transmittal. If a Limited Partner who is subject to backup withholding
does not properly complete and sign the Substitute Form W-9, the Purchaser
will withhold 31% from payments to such Limited Partner.
Gain realized by a foreign Limited Partner on a sale of Units pursuant to
this Offer will be subject to federal income tax. Under Section 1445 of the
Code, the transferee of a partnership interest held by a foreign person is
generally required to deduct and withhold a tax equal to 10% of the amount
realized on the disposition. The Purchaser will withhold 10% of the amount
realized by a tendering Limited Partner unless the Limited Partner properly
completes and signs the FIRPTA Affidavit included as part of the Letter of
Transmittal certifying the Limited Partner's TIN, that such Limited Partner
is not a foreign person, and the Limited Partner's address. Amounts withheld
would be creditable against a foreign Limited Partner's federal income tax
liability, and if in excess thereof, a refund could be obtained from the
Internal Revenue Service by filing a U.S. income tax return.
If the percentage of Units validly tendered and not withdrawn exceeds
50.5% of the outstanding Units, only a pro rata portion of each tendered Unit
will be treated by the Purchaser as purchased pursuant to this Offer. The
excess of the Purchaser's payments to each tendering Limited Partner over the
amounts attributable to the purchased portions of the Units shall be received
as the proceeds of nonrecourse Loans secured by a pledge of the Retained
Portion. The Purchaser intends to treat the Loans as debt instruments for
federal income tax purposes. Nevertheless, a taxing authority may assert that
100% of the tendered Units must be treated as sold pursuant to this Offer. If
such an assertion were to prevail, the foregoing discussion of the income tax
consequences of sales of Units would be applicable to all Units tendered in
their entirety. The remainder of this discussion of the income tax
consequences of the Loans assumes that they will be respected as loans.
The extent to which Limited Partners may be entitled to deductions for
interest payable on the Loans is unclear. Personal interest is generally
nondeductible, and there are limitations on the deductibility of investment
interest. Further, the Loans may be treated as contingent payment
instruments. There are no currently effective regulations governing
computation of interest or original issue discount on contingent payment debt
instruments, and the recently proposed regulations provide that they will
apply only to debt instruments issued at least 60 days after adoption of
final regulations. Limited Partners should consult their tax advisors with
respect to the potential deductibility of interest or original issue discount
on the Loans.
If a Loan is treated as indebtedness incurred by a tax-exempt Limited
Partner in acquisition or improvement of property, income from such property
may be taxed to the tax-exempt Limited Partner as unrelated debt-financed
income within the meaning of Code Section 514. Tax-exempt Limited Partners
should consult their tax advisors with respect to the tax consequences of
tendering Units pursuant to this Offer.
A taxable Limited Partner who repays Loans by surrender of its Retained
Portion will recognize gain or loss with respect to such Retained Portion
under the rules discussed above. The unpaid balance (including interest) of
the Loans so repaid would be treated as an amount realized for this purpose.
Certain State Income Tax Consequences. Under Maryland law, nonresident
individuals are taxable in Maryland on that portion of their federal adjusted
gross income that is derived from tangible property, real or personal,
permanently located in Maryland and on income from a business, trade,
profession or occupation carried on in Maryland. Nonresident partners of a
partnership with the above described income must report their distributive or
pro rata share of income from the partnership on a nonresident Maryland
return. The partnership is required to withhold Maryland tax based on 5% of
the total distributive or pro rata shares of its nonresident individual
partners attributable to income from Maryland sources. Any withholding by the
partnership is a credit against the balance due on the individual nonresident
return.
23
<PAGE>
The Lerner Proposal would require the Partnership to withhold tax in the
amount of approximately, $2,975 per Unit for the Limited Partners who are
non-residents of Maryland. Sales of Units pursuant to this Offer will not
give rise to a Maryland income tax withholding requirement by the
Partnership. However, gain from the disposition may be considered "derived
from" Maryland sources for purposes of determining nonresident taxable
income. The Purchaser advises Limited Partners to consult their tax advisors
concerning the tax effects of participation in this Offer.
Certain Tax Consequences of a Tax Termination. If Section 7.2(D) of the
Partnership Agreement were amended to eliminate the prohibition on a transfer
that would cause a tax termination, such a transfer and termination might
occur. It is also possible that a taxing authority might assert that the
Loans must be recharacterized as sales and that the Partnership therefore is
terminated for income tax purposes on the date of the Loans. While the
Purchaser intends to treat the Loans as loans, there can be no assurance that
a contrary assertion by a taxing authority would not be sustained. The effect
of a tax termination on non-tendering Limited Partners and tendering Limited
Partners who retain a portion of their Units subject to a Loan should be a
lengthening of the period of time over which the Partnership recognizes
depreciation deductions for tax purposes. A tax termination in 1995 would
cause a reduction in such deductions by approximately $4,500 per Unit per
year over the next eight years and an increase in such deductions by
approximately $1,800 per Unit per year for the following nineteen years. A
termination of the Partnership for income tax purposes could have the adverse
effect on Limited Partners who continue to own Units after such termination
and whose tax year differs from that of the Partnership of the inclusion of
more than one year of the Partnership's tax items in one tax return of the
Limited Partner.
SECTION 7. CERTAIN INFORMATION CONCERNING THE PARTNERSHIP. The Partnership
was formed in 1985 to own and manage the Project through the Operating
Partnerships.
Limited Partners are referred to "SPECIAL FACTORS--Background of this
Offer" and to the financial and other information included in the
Partnership's Annual Report on Form 10-K for the fiscal year ended December
31, 1993, and the Partnership's Quarterly Report on Form 10-Q for the nine
months ended September 30, 1994, which are attached as annexes to this Offer
to Purchase and are incorporated herein by reference in their entirety. Such
reports and other documents (including the Partnership's Current Report on
Form 8K with respect to an event occurring on December 3, 1994) may also be
examined, and copies may be obtained at prescribed rates from the main office
of the SEC at 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the SEC located at 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New
York 10048.
The following table reflects aggregate cash distributions from the
Partnership from its inception.
<TABLE>
<CAPTION>
AGGREGATE PER UNIT
YEAR DISTRIBUTION* DISTRIBUTION
- ------ --------------- --------------
<S> <C> <C>
1986 -0- -0-
1987 68,315 100
1988 300,589 440
1989 478,211 700
1990 751,474 1,100
1991 250,038 366
1992 250,038 366
1993 -0- -0-
1994 -0- -0-
1995 1,366,318** 2,000
<FN>
* Pursuant to the Partnership Agreement, Partnership cash distributions
are allocated 95% to Limited Partners and 5% to the General Partners.
** Estimated. The Purchaser has been advised that a distribution of
approximately $2,000 per Unit will be available from 1994 operations.
The Purchaser has been advised that Three Winthrop expects that this
amount will be distributed immediately following the consummation of
this Offer. Therefore, as noted in the "INTRODUCTION," Limited Partners
who tender in this Offer will not receive this anticipated distribution
in respect of the Units tendered in this Offer.
</TABLE>
24
<PAGE>
Limited Partners should consider the impact of the closing of the New
Mortgage Loans which occurred in 1993, which has lowered the Project's debt
service payments and enabled the Partnership to re-institute cash
distributions to Limited Partners. See "Special Factors--Background of this
Offer."
The Partnership has filed a petition of appeal in the Maryland Tax Court,
naming the Director of Finance for Prince George's County, Maryland, as
respondent, and seeking a refund of $870,000, which was paid as a transfer
tax in connection with the 1993 funding of the New Mortgage Loans. The
Purchaser cannot estimate what amount, if any, may be recovered by the
Partnership in connection with this action. Should the Partnership recover
any amount in connection with this action after the expiration of this Offer,
Limited Partners who sell Units pursuant to this Offer will not receive any
distribution from these proceeds in respect of such Units.
SECTION 8. CERTAIN INFORMATION CONCERNING THE PURCHASER. The Purchaser is
a Delaware limited partnership whose general partner is Partnership
Acquisition Trust I, a Delaware business trust ("GP"). GP is owned and
controlled by NACC. NACC is a wholly owned subsidiary of Nomura Holding
America, Inc., a Delaware corporation which is a wholly owned subsidiary of
Nomura Securities Company, Ltd., a Japanese corporation. The address of the
principal office of the Purchaser is c/o Nomura Asset Capital Corporation,
Two World Financial Center, New York, New York 10281.
Copies of a Current Report on Form 8-K filed by the Partnership with the
SEC on December 17, 1994 to report an agreement dated December 3, 1994, among
NACC, Linnaeus Associated Limited Partnership ("Linnaeus"), Arthur J.
Halleran, Jr. and certain individuals who comprise WFA's senior management
(the "Investment Agreement"), previously have been provided to the Limited
Partners by the Partnership. On December 22, 1994 the parties to the
Investment Agreement consummated certain of the transactions contemplated
therein, which resulted in NACC controlling WFA, Three Winthrop, Linnaeus,
Winthrop Management and the Partnership. On January 27, 1995 NACC acquired
indirect control of (but no economic interest in) Linnaeus-Lexington. The
Purchaser has no officers or directors. See Schedule I annexed hereto for
certain information concerning the executive officers and directors of NACC.
Except as otherwise set forth in this Offer to Purchase, (i) neither the
Purchaser, NACC, Three Winthrop or, to the best of the Purchaser's knowledge,
any of the persons listed on Schedule I nor any affiliate of the foregoing
beneficially owns or has a right to acquire any Units; (ii) neither the
Purchaser, NACC or, to the best of the Purchaser's knowledge, any of the
persons listed on Schedule I nor any affiliate thereof or director, executive
officer or subsidiary of NACC has effected any transaction in the Units;
(iii) neither the Purchaser, NACC or, to the best of the Purchaser's
knowledge, any of the persons listed on Schedule I nor any director or
executive officer of NACC has any contract, arrangement, understanding or
relationship with any other person with respect to any Units, including, but
not limited to, contracts, arrangements, understandings or relationships
concerning the transfer or voting thereof, joint venture, loan or option
arrangements, puts or calls, guarantees or loans, guarantees against loss or
the giving or withholding of proxies; (iv) there have been no transactions or
business relationships which would be required to be disclosed under the
rules and regulations of the SEC between any of the Purchaser or NACC or, to
the best of the Purchaser's knowledge, the persons listed on Schedule I, on
the one hand, and the Partnership or its affiliates, on the other hand; and
(v) there have been no contracts, negotiations or transactions between the
Purchaser, NACC or, to the best of the Purchaser's knowledge, the persons
listed on Schedule I, on the one hand, and the Partnership or its affiliates,
on the other hand, concerning a merger, consolidation or acquisition, tender
offer or other acquisition of securities, an election of directors or a sale
or other transfer of a material amount of assets.
SECTION 9. INTERESTS OF CERTAIN PERSONS AND CERTAIN TRANSACTIONS. On
December 22, 1994, NACC acquired indirect control of Three Winthrop and on
January 27, 1995 NACC acquired indirect control of (but no economic interest
in) Linnaeus-Lexington (together, the "General Partners"). The Purchaser is
also indirectly controlled by NACC. (See Section 8, "Certain Information
Concerning the Purchaser.") In addition, NACC will be providing to the
Purchaser the funds necessary to consummate this Offer and will obtain a
pledge of the Units acquired by the Purchaser in this Offer and a collateral
assignment of the pledge to the Partnership of any Retained Portions to
secure the repayment of such funds. See
25
<PAGE>
"-Financing Arrangements" below. Because of such affiliations between the
Purchaser, Three Winthrop and Linnaeus-Lexington, the Partnership has
indicated in its statement on Schedule 14D-9 filed with the Securities and
Exchange Commission (the "SEC") that it makes no recommendation and is
remaining neutral as to whether a Limited Partner should accept this Offer.
(See "SPECIAL FACTORS--Background of this Offer.") Three Winthrop may also
have a conflict of interest in evaluating certain alternatives available to
the Partnership, such as the sale or liquidation of the Partnership assets,
in that such transactions may result in a reduction or termination of fees
payable to Three Winthrop's affiliates pursuant to the Partnership Agreement
or otherwise.
Voting by the Purchaser. If, as a result of this Offer, the Purchaser
acquires a substantial number of Units, the Purchaser may be in a position to
significantly influence or control the result of any vote by Limited
Partners. (See "SPECIAL FACTORS--Purposes and Effects of this Offer.")
Financing Arrangements. The Purchaser expects to obtain all of the funds
necessary for this Offer (including for the purchase of tendered Units, the
funding of the Loans and the out of pocket costs of this Offer) through a
10-year credit facility for an amount up to $25,000,000 (the "Facility") to
be provided to the Purchaser by NACC, an affiliate of the Purchaser. The
terms of the Facility are set forth in the form of Acquisition Loan Agreement
between NACC, as lender, and the Purchaser, as borrower, which is attached as
an exhibit to the Schedule 14D-1 filed with the SEC in respect of this Offer,
which is incorporated herein by reference in its entirety. The Facility
provides that the Purchaser may draw funds thereunder from time to time prior
to, on and after the date of consummation of this Offer to pay the Cash
Consideration payable in respect of tendered Units and fees and expenses in
connection with this Offer.
Amounts outstanding under the Facility will bear interest at a variable
rate equal to 3.00% above the 30-day London interbank offered rate, reset
monthly (6.125% as of January 31, 1995). Interest will be payable monthly in
arrears. The Purchaser's only source of funds with which to meet its debt
service requirements and to make principal payment will be distributions from
the Partnership in respect of Units owned by the Purchaser and prepayments of
Loans (including prepayments funded with the distributions paid on Retained
Portions). To the extent that the Purchaser is unable to make any interest
payment in cash because of insufficient available cash flow, such interest
shall accrue and compound at the applicable floating rate. The Facility will
be secured by all of the assets of the Purchaser, which upon consummation of
this Offer will consist solely of Units purchased pursuant to this Offer, the
notes evidencing the Loans made in connection with this Offer and the
Purchaser's security interest in the Remaining Portion.
The Facility will be prepayable by the Purchaser at any time, without
premium or penalty. The Purchaser will be required to make mandatory
prepayments of amounts borrowed under the Facility from the proceeds of any
disposition of assets, including Units, or any capital distributions received
by the Purchaser. Events of default under the Facility will include
bankruptcy, insolvency or other similar events involving the Purchaser,
failure of the Purchaser to make any payment of principal when required and
failure (after customary cure periods) by the Purchaser to comply with any
other agreement of the Purchaser contained in the Facility. In the event of
an event of default under the Facility, NACC would be entitled, among other
things, to foreclose upon the collateral securing the Facility, including the
Units acquired by the Purchaser the pledge of the Retained Portion in favor
of the Purchaser and the notes evidencing the Loans made by the Purchaser.
There can be no assurance that the Purchaser will have sufficient funds to
repay the Facility at maturity or otherwise.
Transactions with Affiliates. Pursuant to the Partnership Agreement and
the Operating Partnership Agreements, Three Winthrop and its affiliates
receive various fees from the Partnership and the Operating Partnerships. The
Partnership is required to pay $10,000 annually to Winthrop Financial for the
administration of the Partnership (the "Partnership Administration Fee"). In
each of the last ten years, Winthrop Financial received the Partnership
Administration Fee. The Operating Partnerships are required to pay $100,000
annually to Winthrop Financial, an affiliate of the Purchaser, for services
rendered for the administration of the Operating Partnerships (the "Operating
Partnership Administration Fee"). In each of the last ten years, Winthrop
Financial received the Operating Partnership Administration Fee. In addition,
the Operating Partnerships are required to pay to Winthrop Financial an
26
<PAGE>
annual asset management fee (the "Asset Management Fees") equal to 1% of the
Project's gross revenues. During 1991, 1992, 1993 and 1994, Winthrop
Financial received $230,463, $230,845, $223,382 and approximately $227,000,
respectively, as Asset Management Fees.
In addition, WP Management Co., Inc. ("WP Management"), an affiliate of
Three Winthrop, will receive a contingent incentive management fee equal to
20% of any excess of actual net distributable cash flow in any year over
forecasted net distributable cash flow of the Partnership for that year. (The
forecasted amounts for any year are the amounts forecasted for such year
using the same assumptions and principles as were employed in preparing the
financial forecast.) This fee has never been paid.
Three Winthrop and Linnaeus-Lexington, as general partners, receive a
total of 5.0% of net profits, losses and cash flow of the Partnership, and
29.4% of residuals, after payment of priority items (the "Cash
Distributions"). During 1991 and 1992, Three Winthrop received $250 and $250,
respectively, in Cash Distributions and Linnaeus-Lexington received $12,250
and $12,250, respectively, in Cash Distributions. During 1993 and 1994, both
Three Winthrop and Linnaeus-Lexington did not receive any Cash Distributions.
During 1991, 1992 and 1993, Linnaeus-Lexington was allocated $165,313,
$199,918 and $245,277, respectively, of taxable losses by the Partnership in
accordance with its partnership interests in the Partnership. During 1991,
1992 and 1993, Three Winthrop was allocated $3,374, $4,083 and $5,004,
respectively, of taxable losses by the Partnership in accordance with its
partnership interests in the Partnership.
Item 11 of the Partnership's Annual Report on Form 10-K for 1993 and Note
9 of Notes to Financial Statements of the Partnership for the year ended
December 31, 1993, included in that Report, contain descriptions of the fees
and other compensation paid by the Partnership and the Operating Partnerships
to the General Partners and their affiliates. Except as so disclosed or
described above, there were no other material transactions between the
General Partners or their affiliates and the Partnership or the Operating
Partnerships during 1991, 1992, 1993 or 1994.
See "SPECIAL FACTORS--Future Plans," for information about Three
Winthrop's intention to engage an affiliate to provide exclusive leasing and
property management services to the Project.
As of December 31, 1994, five limited partners of Linnaeus-Lexington who
are no longer employed by WFA or its affiliates beneficially own Units. One
person owns a one-half Unit and the other four own one Unit each (less than
1% in the aggregate). No other officer or director or partner of the General
Partners owns any Units.
SECTION 10. SOURCE OF FUNDS. The Purchaser expects that approximately
$23,364,000 in Cash Consideration would be required in connection with this
Offer if all of the outstanding Units are tendered, $11,798,820 in Purchase
Proceeds and $11,565,180 in Loan Proceeds. The Purchaser will obtain such
funds from NACC and none of the required funds will be paid by the
Partnership. (See Section 9, "Interests of Certain Persons and Certain
Transactions.")
SECTION 11. CONDITIONS OF THIS OFFER. Notwithstanding any other term of
this Offer, the Purchaser shall not be required to accept for payment or to
pay for any Units tendered if all authorizations, consents, orders or
approvals of, or declarations or filings with, or expirations of waiting
periods imposed by, any court, administrative agency or commission or other
governmental authority or entity, domestic or foreign, necessary for the
consummation of the transactions contemplated by this Offer shall not have
been filed, occurred or been obtained. Furthermore, notwithstanding any other
term of this Offer, the Purchaser shall not be required to accept for payment
or pay for any Units not theretofore accepted for payment or paid for, and
may terminate or amend this Offer as to such Units if, at any time on or
after the date of this Offer and before the acceptance of such Units for
payment or the payment therefor, any of the following conditions exists:
(a) a preliminary or permanent injunction or other order of any
federal or state court, government or governmental authority or agency
shall have been issued and shall remain in effect which (i) makes illegal,
delays or otherwise directly or indirectly restrains or prohibits the
making of this Offer or the acceptance for payment of or payment for any
Units by the Purchaser, (ii) imposes or confirms limitations on the
ability of the Purchaser effectively to exercise full rights of ownership
27
<PAGE>
of any Units purchased; including, without limitation, the right to vote
any Units acquired by the Purchaser pursuant to this Offer or otherwise on
all matters properly presented to the Partnership's Limited Partners,
(iii) requires divestiture by the Purchaser of any Units, (iv) causes any
material diminution of the benefits to be derived by the Purchaser as a
result of the transactions contemplated by this Offer, or (v) might
materially adversely affect the business, properties, assets, liabilities,
financial condition, operations, results of operations or prospects of the
Purchaser or the Partnership;
(b) there shall be any action taken, or any statute or rule,
regulation or order proposed, enacted, enforced, promulgated, issued or
deemed applicable to this Offer by any federal or state court, government
or governmental authority or agency, which might, directly or indirectly,
result in any of the consequences referred to in clauses (i) through (v)
of paragraph (a) above;
(c) any change or development shall have occurred or been threatened
since the date hereof, in the business, properties, assets, liabilities,
financial condition, operations, results of operations or prospects of the
Partnership which, in the sole judgment of the Purchaser, is or may be
materially adverse to the Partnership, or the Purchaser shall have become
aware of any fact that, in the sole judgment of the Purchaser, does or may
have a material adverse effect on the value of the Units;
(d) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on any national securities
exchange or in the over-the-counter market in the United States, (ii) a
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) any limitation by any
governmental authority on, or other event which might affect, the
extension of credit by lending institutions or result in any imposition of
currency controls in the United States, (iv) a commencement of a war or
armed hostilities or other national or international calamity directly or
indirectly involving the United States, (v) a material change in United
States or other currency exchange rates or a suspension of a limitation on
the markets thereof, or (vi) in the case of any of the foregoing existing
at the time of the commencement of this Offer, a material acceleration or
worsening thereof; or
(e) it shall have been publicly disclosed or the Purchaser shall have
otherwise learned that (i) more than five percent of the outstanding Units
have been or are proposed to be acquired by another person (including a
"group" within the meaning of Section 13(d)(3) of the Exchange Act), or
(ii) any person or group that prior to such date had filed a Statement
with the SEC pursuant to Section 13(d) or (g) of the Exchange Act, has
increased or proposes to increase the number of Units beneficially owned
by such person or group as disclosed in such Statement by two percent or
more of the outstanding Units.
The foregoing conditions are for the sole benefit of the Purchaser and may
be asserted by the Purchaser regardless of the circumstances giving rise to
such conditions, or may be waived by the Purchaser in whole or in part at any
time and from time to time in its sole discretion. Any determination by the
Purchaser concerning the events described above will be final and binding
upon all parties.
SECTION 12. CERTAIN LEGAL MATTERS.
General. Except as set forth in this Section 12, the Purchaser is not
aware of any filings, approvals or other actions by any domestic or foreign
governmental or administrative agency that would be required prior to the
acquisition of Units by the Purchaser pursuant to this Offer. Should any such
approval or other action be required, it is the Purchaser's present intention
that such additional approval or action would be sought. While there is no
present intent to delay the purchase of Units tendered pursuant to this Offer
pending receipt of any such additional approval or the taking of any such
action, there can be no assurance that any such additional approval or
action, if needed, would be obtained without substantial conditions or that
adverse consequences might not result to the Partnership's business, any of
which could cause the Purchaser to elect to terminate this Offer without
purchasing Units thereunder. The Purchaser's obligation to purchase and pay
for Units is subject to certain conditions, including conditions related to
the legal matters discussed in this Section 12.
Antitrust. The Purchaser does not believe that the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, is applicable to the
acquisition of Units contemplated by this Offer.
28
<PAGE>
Margin Requirements. The Units are not "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System and,
accordingly, such regulations are not applicable to this Offer.
State Takeover Laws. A number of states have adopted anti-takeover laws
which purport, to varying degrees, to be applicable to attempts to acquire
securities of corporations which are incorporated in such states or which
have substantial assets, security holders, principal executive offices or
principal places of business therein. Although the Purchaser has not
attempted to comply with any state anti-takeover statutes in connection with
this Offer, the Purchaser reserves the right to challenge the validity or
applicability of any state law allegedly applicable to this Offer and nothing
in this Offer to Purchase nor any action taken in connection herewith is
intended as a waiver of such right. If any state anti-takeover statute is
applicable to this Offer, the Purchaser might be unable to accept for payment
or purchase Units tendered pursuant to this Offer or be delayed in continuing
or consummating this Offer. In such case, the Purchaser may not be obligated
to accept for purchase or pay for any Units tendered.
SECTION 13. FEES AND EXPENSES. The Purchaser has retained D.F. King & Co.
Inc. to act as Information Agent, and IBJ Schroder Bank & Trust Company to
act as Depository, in connection with this Offer. The Purchaser will pay the
Information Agent and Depository reasonable and customary compensation for
their respective services in connection with this Offer, plus reimbursement
for out-of-pocket expenses, and will indemnify the Information Agent and the
Depository against certain liabilities and expenses in connection therewith,
including liabilities under the federal securities laws. The Purchaser will
also pay all costs and expenses of printing and mailing this Offer and its
legal and accounting fees and expenses. The Partnership will not pay for any
of these costs. The Purchaser will not pay any fees or commissions to any
broker, dealer or other person for soliciting tenders of Units pursuant to
this Offer.
SECTION 14. OTHER MATTERS. The Purchaser is not aware of any jurisdiction
in which the making of this Offer is not in compliance with applicable law.
If the Purchaser becomes aware of any jurisdiction in which the making of
this Offer would not be in compliance with applicable law, the Purchaser will
make a good faith effort to comply with any such law. If, after such good
faith effort, the Purchaser cannot comply with any such law, this Offer will
not be made to (nor will tenders be accepted from or on behalf of) Limited
Partners residing in such jurisdiction. In those jurisdictions whose
securities or blue sky laws require this Offer to be made by a licensed
broker or dealer, this Offer is being made on behalf of the Purchaser by
Nomura Securities International, Inc., a registered broker dealer.
The Partnership has advised the Purchaser that it is not making any
recommendation to any Limited Partners as to whether to tender Units pursuant
to this Offer. No person has been authorized to make any recommendation or
representation on behalf of the Purchaser, the Partnership or any of their
affiliates or to provide any information other than as contained herein or in
the Letter of Transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
The Purchaser has filed with the SEC a Tender Offer Statement on Schedule
14D-1 (including exhibits thereto), pursuant to Rule 14d-3 under the Exchange
Act, and a Rule 13e-3 Transaction Statement on Schedule 13E-3 (including
exhibits thereto) furnishing certain additional information with respect to
this Offer, and may file amendments thereto. The Schedules 14D-1 and 13E-3
and any amendments thereto, including exhibits, may be inspected and copies
may be obtained from the main office of the SEC in the manner set forth in
Section 7 hereof.
Facsimile copies of the Letter of Transmittal, properly completed and duly
executed, will be accepted. The Letter of Transmittal, properly executed
signature pages to the Note and Security Agreement and any other required
documents should be sent or delivered to the Depository at its address set
forth below.
Any questions or requests for assistance or for additional copies of this
Offer to Purchase, the Letter of Transmittal and other tender offer materials
may be directed to the Information Agent at the telephone number and address
below. You may also contact the Information Agent or your broker for
assistance concerning this Offer. To confirm delivery of your Letter of
Transmittal, please contact the Depository.
29
<PAGE>
SCHEDULE I
INFORMATION REGARDING THE DIRECTORS AND EXECUTIVE OFFICERS OF NACC
DIRECTORS AND EXECUTIVE OFFICERS OF NACC. Set forth in the table below are
the name and the present principal occupation or employment and the name,
principal business and address of any corporation or other organization in
which such occupation or employment is conducted, and the five-year
employment history of each of the directors and executive officers of NACC.
NACC owns its interest in the Purchaser through the GP, which has no
significant operations of its own. Unless otherwise indicated, each person
identified below is employed by NACC. The principal business address of NACC
and, unless otherwise indicated, each person identified below is Two World
Financial Center, New York, New York 10005. Directors are identified by an
asterisk. Except for Messrs. Junichi Ujiie and Kazuo Wakairo, who are
citizens of Japan, all persons identified below are United States citizens.
<TABLE>
<CAPTION>
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------------------
<S> <C>
Michael A. Berman* Since October 1994, Mr. Berman has been Chief Operating Officer of Nomura Holding
America Inc., and its subsidiaries. From May 1992 through October 1994, Mr. Berman
was a Co-head of Nomura's Fixed Income unit. Mr. Berman originally joined Nomura
in January 1990 from Merrill Lynch, where he was Director of Financial Futures and
Options. Prior to that, he worked in financial futures at Kidder, Peabody & Co.,
Inc.
Max C. Chapman, Jr.* Since October 1989, Mr. Chapman has been a Co-chairman of Nomura Securities International,
Inc. and Nomura Holding America Inc. In July 1994, Mr. Chapman was additionally named
as a Director of Nomura International plc. Prior to joining Nomura, Mr. Chapman was
President and Chief Operating Officer of Kidder, Peabody Group Inc., the holding
company, and President and Chief Executive Officer of Kidder, Peabody and Co. Inc.,
its investment banking and broker-dealer subsidiary. He also served as a member of
the board of directors and vice chairman of the management committee of Kidder, Peabody
Group, Inc.
Ethan Penner* Since December 1994, Mr. Penner has been the Executive Managing Director responsible
for the Real Estate Division at Nomura Securities International, Inc. (NSI). From
April 1993 through December 1994, Mr. Penner was the Managing Director of the Real
Estate Division at NSI. Additionally, Mr. Penner is President of Nomura Asset Capital
Corporation as well as Nomura Asset Securities Corporation and Asset Securitization
Corporation. Prior to his tenure with Nomura, Mr. Penner was President of Magellan
Financial Services, which he found in 1992. Earlier, he was a Principal at Morgan
Stanley, heading the firm's mortgage activities in the western United States.
Junichi Ujiie* Since June 1992, Dr. Ujiie has been Co-chairman of Nomura Securities International,
Inc. (NSI) and Nomura Holding America, Inc. (NHA). In June 1994, Dr. Ujiie was additionally
named Co-Chief Executive Officer of both entities. Previously, Dr. Ujiie was President
and Chief Operating Officer of NSI. Since 1989, Dr. Ujiie has been a member of the
Board of Directors of Nomura Securities Co., Ltd., Japan. Prior to his assignments
at NSI and NHA, Dr. Ujiie, who joined Nomura Securities, Co. Ltd. in 1975, held the
following positions: General Manager of the Corporate Planning Department, President
of Nomura (Switzerland) Co., Ltd., Manager of the Bond Department and Analyst in
the Institutional Research and Advisory Department.
S-1
<PAGE>
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------------------
Kazuo Wakairo* Since 1989, Mr. Wakairo has been the Executive Managing Director of Nomura Holding
America, Inc. (NHA). From July 1987 until his 1989 promotion, Mr. Wakairo was an
Executive Vice President (EVP) of NHA. In July 1984, Mr. Wakairo became a Senior
Vice President, a position he held until he was named EVP in 1987. He has been with
Nomura since 1963.
William M. Daugherty* Since November 1994, Mr. Daugherty has been Managing Director of the Residential
Whole Loan Trading Group at Nomura Securities International, Inc. Prior to joining
Nomura, Mr. Daugherty worked for Goldman Sachs for seven years, heading Private Label
MBS trading, subordinated trading, and new product development. Mr. Daugherty has
also served as a Vice President at Paine Webber and Farmers Savings Bank.
Benjamin S. Butcher Since April 1994, Mr. Butcher has been a Vice President in the Real Estate Division
of Nomura Securities International, Inc. and a Vice President of Nomura Asset Capital
Corporation. Prior to that, from May 1991 to April 1994, Mr. Butcher was President
of Greencastle Development. In February 1986, Mr. Butcher became the President of
Derex Development, a position he held until his move to Greencastle.
Boyd W. Fellows Since March 1994, Mr. Fellows has been a Director of Fixed Income Whole Loan Trading
in the Real Estate Division of Nomura Securities International, Inc. as well as a
Vice President of Nomura Asset Capital Corporation. From May 1988 to March 1994,
Mr. Fellows held various positions at Morgan Stanley. At the time of his departure
from Morgan Stanley, Mr. Fellows held the position of Co-head of Non-Agency Mortgage
Trading. Mr. Fellows has also worked as a trader at Bank America.
Perry Gershon Since May 1994, Mr. Gershon has been a Vice President--Fixed Income Whole Loan Trading
in the Real Estate Division of Nomura Securities International, Inc. and a Vice President
of Nomura Asset Capital Corporation. Mr. Gershon joined Nomura upon his graduation
from the University of California--Berkely where he received an MBA in Finance. Prior
to attending Business School, Mr. Gershon was the Owner and Manager of The Polo Grounds,
an eating establishment in New York City.
Daniel S. Abrams Since August 1993, Mr. Abrams has been a Vice President in the Real Estate Division
of Nomura Securities International, Inc. and a Vice President of Nomura Asset Capital
Corporation. Prior to joining Nomura, Mr. Abrams was a Partner at the law firm Rosenman
& Colin. Mr. Abrams joined Rosenman & Colin in 1978.
Brian F. Pilcher Since May 1994, Mr. Pilcher has been a Director of Fixed Income Whole Loan Trading
in the Real Estate Division of Nomura Securities International, Inc. (NSI) and a
Director of Nomura Asset Capital Corporation. Since April 1993, Mr. Pilcher has been
a Commercial Mortgage Trader at NSI. From 1992 until joining Nomura, Mr. Pilcher
was employed at Magellan Financial Services. Previously, Mr. Pilcher worked as a
sole proprietor on the Pacific Stock Exchange.
S-2
<PAGE>
NAME PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------------------
Kathleen F. Corton Since June 1993, Ms. Corton has been a Vice President--Fixed Income Whole Loan Trading
in the Real Estate Division of Nomura Securities International, Inc. and a Vice President
of Nomura Asset Capital Corporation. Prior to this, from September 1985 through May
1993, Ms. Corton worked in investment banking at Mabon Securities Corporation.
</TABLE>
S-3
ANNEX I
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 1993 Commission File
----------------- Number 0-14569
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Maryland 04-2848939
(State of Organization) (I.R.S. Employer Identification No.)
One International Place, Boston, Massachusetts 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (617) 330-8600
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Units of Limited Partnership Interest
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X 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. [ X ]
No market exists for the limited partnership interests
of the registrant, and, therefore, no aggregate
market value can be computed.
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DOCUMENTS INCORPORATED BY REFERENCE
Part Document
Part I Pages 37-41 and 42-44 of the Confidential Memorandum
attached as Exhibit 28(a) to the Registrant's Registration
Statement on Form 10 filed on April 20, 1986, including all
Exhibits thereto (the "Confidential Memorandum")
Part III Pages 18-19 of the Confidential Memorandum
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PART I
Item 1. Business.
Organization
Springhill Lake Investors Limited Partnership (the "Registrant") was
organized as a Maryland limited partnership under the Maryland Revised Uniform
Limited Partnership Act on December 28, 1984, for the purpose of investing as a
general partner in First, Second, Third, Fourth, Fifth, Sixth, Seventh, Eighth
and Ninth Springhill Lake Limited Partnerships and Springhill Commercial Limited
Partnership (collectively, the "Operating Partnerships"), each of which is a
Maryland limited partnership owning a section of a garden apartment complex in
Greenbelt, Maryland (the "Project"). The Registrant is the sole general partner
of each Operating Partnership. The limited partner of each Operating Partnership
is Theodore N. Lerner ("Lerner"), a former general partner of the Operating
Partnerships whose interest was converted to that of a limited partner on
January 16, 1985.
The general partners of the Registrant are Three Winthrop Properties, Inc.
("Three Winthrop") and Linnaeus-Lexington Associates Limited Partnership
("Linnaeus") (collectively, the "General Partners"). Three Winthrop is a
Massachusetts corporation which is a wholly owned subsidiary of First Winthrop
Corporation, a Delaware corporation which is wholly owned by Winthrop Financial
Associates, A Limited Partnership ("WFA"). WFA is a Maryland public limited
partnership organized in 1984 to acquire all of the outstanding stock of First
Winthrop Corporation. Linnaeus is a Massachusetts limited partnership whose
general partners are Arthur J. Halleran, Jr. and Jonathan W. Wexler. Mr.
Halleran is the managing general partner of Linnaeus. The other partners of
Linnaeus are present and former officers of WFA and First Winthrop Corporation.
Messrs. Halleran and Wexler are directors of First Winthrop Corporation and
Three Winthrop, and Mr. Halleran is the sole general partner of the general
partner of WFA. Three Winthrop is the Registrant's Managing General Partner.
Development
The Registrant was initially capitalized with nominal capital
contributions from its General Partners. In April 1985, the Registrant completed
a non-public offering of 649 units of limited partnership interest (the "Units")
pursuant to Regulation D under the Securities Act of 1933 and to the terms of
the Confidential Memorandum dated January 16, 1985 (the "Confidential
Memorandum"), selected portions of which were filed as Exhibits 28(a) - (d) to
the Registration Statement on Form 10, filed on April 20, 1986. The Registrant
raised $40,562,500 in capital contributions from investors who were admitted to
the Registrant as limited partners ("Limited Partners"). The Limited Partners
financed a portion of their capital contributions by promissory notes ("Investor
Notes"). As of March 1988, the Investor Notes were paid in full.
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The Registrant purchased its interest in the Operating Partnerships on
January 16, 1985, for $73,514,921, of which $58,000,000 was financed by means of
a mortgage loan (the "Original Mortgage Loan"). The Original Mortgage Loan had a
term of ten years and bore interest at 13.625%. For a further description of the
Original Mortgage Loan, see pages 42 through 44 of the Confidential Memorandum,
which description is attached hereto as an exhibit and incorporated herein by
reference. The balance of the purchase price was funded initially by a loan from
a major financial institution which was repaid from the proceeds of lines of
credit provided by a commercial bank in the aggregate amount of $23,800,000 (the
"Commercial Loan"). As of March 1988, the Commercial Loan was repaid in full
from the capital contribution payments under the Investor Notes.
In April 1993, the Original Mortgage Loan was refinanced with two new
loans (the "New Mortgage Loans") in the amounts of $58,000,000 and $5,000,000.
In order to consummate the refinancing, a prepayment penalty of $2,833,074 was
paid on the Original Mortgage Loan. The New Mortgage Loans bear interest at 9.3%
and have a term of ten years. Monthly payments of principal and interest total
$541,696 (based on a 25-year amortization schedule) for the first two years of
the New Mortgage Loans and increase to $566,137 (based on a 20-year amortization
schedule) for the third through tenth years of the loans. A final payment of
$49,016,500 is due on May 1, 2003. In addition to monthly payments of principal
and interest, the New Mortgage Loans require the Registrant to make payments
into various escrow accounts, including escrows for real estate taxes and
capital improvements.
The Registrant's interest in the Operating Partnerships entitles it to
90% of profits and losses for tax purposes, 90% of the Operating Partnerships'
cash flow (after certain priority distributions), and 85% of the proceeds of a
sale or disposition of the Project (after certain priority distributions).
Description of Business
The only business of the Registrant is investing as a general partner
in the Operating Partnerships, and as such, to cause the Operating Partnerships
to own and operate the Project, until such time as a sale, if any, of all or a
portion of the Project appears to be advantageous to the Registrant and is
permitted under the terms of the Operating Partnerships' partnership agreements.
Please see pages 37-41 of the Confidential Memorandum for a description of the
Project and its rental market, which description is attached hereto as an
exhibit and incorporated herein by reference.
The Registrant's business plan for the Operating Partnerships has been
to increase rental rates to the extent the market permits while maintaining
occupancy. Average occupancy was 92.5% in 1989, 91% in 1990, 92% in 1991 and 91%
in 1992 and 1993. Average street rents increased by 3.8% in 1989, by 8.2% in
1990, by 4.5% in 1991 and by 2.2% in 1992. Street rents were not increased
during 1993. The rental market for the
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Project began to soften in 1988 as a result of weakening general economic
conditions. In 1990, the rental market became, and has remained, very
competitive. While the Operating Partnerships were able to implement rent
increases through 1992, it became necessary to offer rent concessions to attract
new tenants as leases expired. As a result, effective rents did not increase
during 1993.
Upon the acquisition of its interests in the Operating Partnerships,
the Registrant established a capital improvement program for the Project, which
was estimated to cost approximately $12,550,000. Among other improvements to the
grounds and buildings, the planned improvements included the renovation of each
of the 2,899 apartment units. As of December 31, 1993, approximately 2,721 units
had been renovated. Since 1987, unit renovations have been carried out as units
are vacated. Accordingly, it could be a few years before the remainder of the
units are renovated. In addition, due to the age of the Project and in order to
effectively compete in the rental market, the scope of the improvements has
expanded over the years. Through December 31, 1993, the Operating Partnerships
have expended $16,595,892 on capital improvements -- $12,550,000 was funded from
Limited Partners' capital contributions, and the balance was funded through
operations. The Registrant expects to spend approximately $1.6 million on
capital improvements in 1994.
Employees
The Registrant does not have any employees. Services are performed for
the Registrant by the General Partners and agents retained by them. The
Operating Partnerships have retained Winthrop Management, a Massachusetts
general partnership whose general partners are affiliated with WFA, to be
primarily responsible for the management of the Project, including the
establishment of leasing policies, the setting of rental rates, the
implementation of capital improvements and the supervision of the Project's
property manager. Prior to January 1, 1990, another affiliate of WFA performed
these services. Winthrop Management is entitled to a fee equal to 1% of gross
rents actually collected, payable monthly, and it may also receive a contingent
incentive management fee, contingent on the Registrant exceeding certain amounts
forecasted in the Confidential Memorandum. Lerner Corporation is the property
manager for the Project. Lerner Corporation, a Maryland corporation whose
principal stockholder is Lerner, performs the day-to-day management and
administrative functions for the Project. Under the terms of its management
agreement, Lerner Corporation is entitled to receive a fee equal to 4% of
monthly income. The Lerner Corporation's management agreement cannot be
terminated without cause by the Operating Partnerships for 10 years from the
effective date of the management agreement, which effective date was January 16,
1985. Thereafter, termination by the Operating Partnerships is permitted upon 90
days' notice.
Item 2. Properties.
The Registrant owns no property other than its interest in the
Operating Partnerships.
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For a description of the properties of the Operating Partnerships, see Item 1
hereof.
Item 3. Legal Proceedings.
To the best of the Registrant's knowledge, there are no material
pending legal proceedings to which it is a party or to which its properties are
subject.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters.
There is no established public trading market for the Units of limited
partnership interest in the Registrant. Trading in the Units is sporadic and
occurs solely through private transactions. In addition, transfers of Units are
subject to limitations set forth in the Registrant's partnership agreement which
require the prior written consent of the Managing General Partner to any such
transfer. The Registrant's partnership agreement was filed as Exhibit 3 to the
Registrant's Registration Statement on Form 10 dated April 30, 1986, as
thereafter amended (the "Partnership Agreement"). As of December 31, 1993, there
were 674 holders of Units.
The Partnership Agreement requires that Cash Flow (as defined therein) be
distributed to the partners in specified proportions at reasonable intervals
during the fiscal year and, in any event, no later than 60 days after the close
of each fiscal year. The Registrant's ability to make distributions of Cash Flow
is limited by the extent to which the Operating Partnerships earn more than
sufficient rental and investment income to (a) pay all expenses of the Project,
and (b) distribute sufficient Cash Flow to the Registrant to meet the debt
service requirements of the Mortgage Loan and other expenses and current
obligations. Cash distributions of $237,502 and $237,502 were paid to the
Limited Partners in 1992 and 1991, respectively, representing the Cash Flow
available for distribution from the preceding year's operations. None of the
cash that was distributed represented a return of Limited Partners' capital. No
distribution was made in 1993 from 1992 operations because the property operated
at a deficit in 1992, which was funded from the Partnership's reserves. As of
March 15, 1994, no distributions have been made to the Limited Partners in 1994.
Item 6. Selected Financial Data.
The following table summarizes certain selected consolidated financial
information concerning the Registrant and the Operating Partnerships and should
be read in conjunction with the financial statements and the related notes
attached hereto:
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<TABLE>
<CAPTION>
For the Period Ended as of December 31,
--------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Operating Statement Data:
Rental Income $22,272,861 $22,550,895 $23,035,380 $22,656,120 $22,193,339
----------- ----------- ----------- ----------- -----------
Total Income $23,308,176 $23,618,683 $24,267,594 $23,837,953 $23,493,106
----------- ----------- ----------- ----------- -----------
Total Expenses $27,973,576 $27,067,983 $27,021,409 $26,497,878 $25,243,681
----------- ----------- ----------- ----------- -----------
Net Loss Before
Minority Interest $ 4,665,400 $ 3,449,300 $ 2,753,815 $ 2,659,925 $ 1,750,575
Net Loss $ 4,543,225 $ 3,437,284 $ 2,821,786 $ 2,748,284 $ 1,900,218
=========== =========== =========== =========== ===========
Net Loss per Unit
Outstanding $ 6,650 $ 5,031 $ 4,131 $ 4,023 $ 2,782
=========== =========== =========== =========== ===========
<CAPTION>
As of December 31,
--------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- --------
<S> <C> <C> <C> <C> <C>
Balance Sheet Data:
Total Assets $ 69,211,320 $ 68,013,802 $ 71,997,261 $ 75,557,290 $ 79,212,035
========== ========== ========== ========== ==========
Mortgages Payable $ 62,560,654 $ 56,764,812 $ 57,144,888 $ 57,476,809 $ 57,766,673
---------- ---------- ---------- ---------- ----------
Total Liabilities $ 63,841,624 $ 57,978,706 $ 58,262,863 $ 58,819,075 $ 59,062,421
========== ========== ========== ========== ==========
Cash Distributions
per Unit
Outstanding $ -- $ 366 $ 366 $ 1,100 $ 700
</TABLE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operation.
Liquidity and Capital Resources.
The principal anticipated expenditures of the Registrant consist of (i)
interest payable on the New Mortgage Loans and (ii) fees payable to affiliates
of the General Partners. The General Partners believe that cash flow generated
by the Operating Partnerships will be sufficient to pay such expenditures.
In April 1993, the Registrant completed the refinancing of the $58 million
Original Mortgage Loan by obtaining two new loans in the amounts of $58,000,000
and $5,000,000. The proceeds of the New Mortgage Loans along with $500,000 of
the Registrant's reserves were used to (i) retire the Original Mortgage Loan;
(ii) pay the original mortgage lender a prepayment penalty of $2,833,074; (iii)
establish $1,770,000 in various escrows and
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reserves; and (iv) pay third-party closing costs of approximately $2.3 million.
The New Mortgage Loans bear interest at 9.3% and have a term of ten years.
Monthly payments of principal and interest on the New Mortgage Loans total
$541,696 (based on a 25-year amortization schedule) for the first two years of
the New Mortgage Loans and increase to $566,137 (based on a 20-year amortization
schedule) for the third through tenth years of the loans. A final payment of
$49,016,500 is due on May 1, 2003. These payments represent a significant
savings relative to the $678,576 monthly payment required by the Original
Mortgage Loan.
Initially, the savings will be used to fund various reserves required by
the New Mortgage Loans. These reserve requirements total approximately $1.5
million in the first year and approximately $1.5 million in each of the
remaining nine years of the loan term. The reserves are being used to complete
capital projects identified by the lender, including drainage improvements and
structural repairs, as well as ongoing capital improvements and major
replacements, like carpets and appliances. These reserves will be released to
the Registrant as capital improvements are completed and reserve requests are
made, which can be done on a quarterly basis. On March 11, 1994, the Registrant
requested that $841,000 of the reserves be released by the lender to the
Registrant for capital improvements and replacements completed from May through
December 1993. As of December 31, 1993, the Registrant had cash reserves of
$1,558,211 plus escrows and reserves of $2,770,371.
Results of Operations
Operating results of the properties owned by the Operating Partnerships
declined in 1992 but improved in 1993. The Registrant's net loss increased in
1992, from $2,821,786 to $3,437,284. The Registrant's net loss increased to
$4,543,225 in 1993, but the net loss in 1993 includes the $2,833,074 prepayment
penalty on the Original Mortgage Loan that was required to complete the April
1993 refinancing.
1992 Compared to 1991. Consolidated net operating income (revenue less
operating expenses, which excludes Depreciation and Amortization, Interest
Expense and Abandonment Loss) decreased by $730,291, or 8.2%, in 1992 to
$8,172,346 from $8,902,637 in 1991. While management was able to implement a
2.2% rental rate increase during 1992, demand in the Greenbelt, Maryland area
apartment market weakened considerably through 1992. As a result, the Project's
aggregate loss from vacancy and concession increased and total revenue decreased
by $648,911, or 2.7%, in 1992 to $23,618,683 from 1991 revenue of $24,267,594.
Occupancy for 1992 averaged 91%. While revenue was down, 1992 operating expenses
remained flat at $15,446,337, relative to 1991 expenses of $15,364,957.
Non-operating expenses (i.e., Depreciation and Amortization, Interest Expense
and Abandonment Loss) also remained flat.
1993 Compared to 1992. In 1993 consolidated net operating income improved
by 7.3%
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to $8,772,063, primarily as a result of lower operating expenses. Revenue
declined slightly (1.3%) to $23,308,176 because of management's inability to
increase rental rates. Average occupancy remained at 91% for 1993. Operating
expenses declined by 5.9% to $14,536,113 because management was able to
significantly reduce operating expenses at the properties by spending less on
repairs and maintenance and by reducing staff. Non-operating expenses increased,
primarily as a result of the $2,833,074 prepayment penalty associated with the
refinancing discussed above. This amount is included in interest expense in
1993. As a result of this prepayment penalty, the Registrant's net loss
increased to $4,543,225 in 1993.
Capital expenditures in 1993 were $379,199, compared to $424,998 in 1992
and $668,465 in 1991. Unit renovations, including appliance replacement and
painting of apartment units, comprised the bulk of the 1993 capital
expenditures.
Inflation and economic conditions could affect vacancy levels, rental
payment defaults and operating expenses, and thus, could affect the
Partnership's revenues and net income. The Greenbelt, Maryland apartment
market, where the Project is located, has become increasingly competitive. This
increased competition has been caused primarily by a lower demand for apartments
in the Greenbelt area. As additional on-campus student housing has become
available at the University of Maryland, occupancy levels have been affected. In
addition, affordable housing costs and low interest rates have converted many
apartment clients into homeowners.
Item 8. Financial Statements and Supplementary Data.
The Consolidated Financial Statements listed on the accompanying Index to
Consolidated Financial Statements are filed as a part of this Report and
incorporated herein by this reference.
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.
The Registrant does not have directors or officers. Three Winthrop and
Linnaeus are the General Partners of the Registrant. Three Winthrop is the
Managing General Partner.
(a) and (b) Identification of Directors and Executive Officers.
The following table sets forth the names and ages of the directors and
executive officers
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of the Managing General Partner and the position held by each of them.
<TABLE>
<CAPTION>
Name Managing General Partner Age
<S> <C> <C>
Arthur J. Halleran, Jr .................. Director and President 46
Jonathan W. Wexler ...................... Director, Vice President, Assistant 43
Clerk and Treasurer
Richard J. McCready ..................... Director, Vice President and Clerk 35
</TABLE>
Mr. Halleran has served in an executive capacity with the Managing
General Partner since its organization in 1978, Mr. Wexler was elected an
officer in 1983 and Mr. McCready in 1990. All of these individuals will continue
to serve in such capacities until their successors are duly elected and
qualified.
(c) Identification of Certain Significate Employees. None.
(d) Family Relationships. None.
(e) Business Experience.
The background and experience of the executive officers and directors of
the Managing General Partner, described in Items 10(a) and 10(b) above, are as
follows:
Arthur J. Halleran, Jr. is the Chairman of WFA. He is also Director and
President of the Managing General Partner and other subsidiaries of WFA. In
such capacities he is responsible for all aspects of the business of WFA and
its subsidiaries, with special emphasis on the evaluation, acquisition and
structuring of real estate investments. Mr. Halleran joined the Winthrop
organization in 1977. He is a graduate of Villanova University and holds an
M.B.A. degree from the Harvard Business School.
Jonathan W. Wexler is a Vice Chairman and Vice President of WFA and a
Director, Vice President, Assistant Clerk and Treasurer of the Managing General
Partner and other subsidiaries of WFA. His primary responsibility is the
evaluation, acquisition and structuring of real estate investments. Mr. Wexler
joined the Winthrop organization in 1977. He is a graduate of the Massachusetts
Institute of Technology and holds a Master of Science degree from the Sloan
School of Management of the Massachusetts Institute of Technology.
Richard J. McCready is a Vice President and Clerk of WFA and a Director,
Vice President and Clerk of the Managing General Partner and all other
subsidiaries of WFA. He also has responsibility for all the legal affairs of
WFA and its affiliates. Mr. McCready joined the Winthrop organization in 1990.
He is a graduate of the University of New Hampshire and holds a J.D. degree
from Boston College Law School.
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One or more of the above persons are also directors or officers of a
general partner (or general partner of a general partner) of the following
limited partnerships which either have a class of securities registered pursuant
to Section 12(g) of the Securities and Exchange Act of 1934, or are subject to
the reporting requirements of Section 15(d) of such Act: Winthrop Partners 79
Limited Partnership; Winthrop Partners 80 Limited Partnership; Winthrop Partners
81 Limited Partnership; Winthrop Residential Associates I, A Limited
Partnership; Winthrop Residential Associates II, A Limited Partnership; Winthrop
Residential Associates III, A Limited Partnership; 1626 New York Associates
Limited Partnership; 1999 Broadway Associates Limited Partnership; Indian River
Citrus Investors Limited Partnership; Nantucket Island Associates Limited
Partnership; One Financial Place Limited Partnership; Presidential Associates I
Limited Partnership; Sixty-Six Associates Limited Partnership; Riverside Park
Associates Limited Partnership; Twelve AMH Associates Limited Partnership;
Winthrop California Investors Limited Partnership; Winthrop Growth Investors I
Limited Partnership; Winthrop Interim Partners I, A Limited Partnership;
Winthrop Financial Associates, A Limited Partnership; Southeastern Income
Properties Limited Partnership; Southeastern Income Properties II Limited
Partnership; Winthrop Miami Associates Limited Partnership; Winthrop Apartment
Investors Limited Partnership; and Winthrop Partners 93 Limited Partnership.
(f) Involvement in Certain Legal Proceedings. None.
Item 11. Executive Compensation.
The General Partners and their affiliates are entitled to receive certain
cash distributions from and allocations of taxable profits and losses of the
Registrant. In addition, the General Partners and their affiliates receive
certain fees and compensation paid by the Registrant and the Operating
Partnerships for services rendered in connection with the operations of the
Registrant and the Operating Partnerships. A description of these compensation
arrangements is set forth on pages 18-19 of the Confidential Memorandum
attached as Exhibit 28(c) to the Registration Statement and which is attached
hereto as an exhibit and incorporated herein by reference.
The following table sets forth the amounts of the fees and cash
distributions which the Registrant and the Operating Partnerships paid to or
accrued for the account of the General Partners or their affiliates for the
years ended December 31, 1991, 1992 and 1993. Also, see Note 9 of Notes to
Consolidated Financial Statements of the Registrant for the year ended December
31, 1993.
<TABLE>
<CAPTION>
NAME FEE 1993 1992 1991
- ---- --- --------- --------- -------
<S> <C> <C> <C> <C>
Winthrop Management Asset Management Fee $100,000 $100,000 $100,000
Winthrop Management Investor Administration Fee 10,000 10,000 10,000
Winthrop Management Property Management Fee 223,382 230,845 230,463
Three Winthrop Cash Distributions -- 250 250
Linnaeus-Lexington Associates Cash Distributions -- 12,250 12,250
</TABLE>
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During 1991, 1992 and 1993, Linnaeus was allocated $165,313, $199,918 and
$245,277 respectively, of taxable losses by the Registrant in accordance with
its respective partnership interests in the Registrant. During 1991, 1992 and
1993, Three Winthrop was allocated $3,374, $4,083 and $5,004, respectively, of
taxable losses by the Registrant in accordance with its respective partnership
interests in the Registrant.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners.
The tabular data requested by Item 403 of Regulation S-K is
inapplicable.
Three Winthrop and Linnaeus own all the outstanding general
partnership interests in the Registrant. As General Partners, they are entitled
in the aggregate to 5% of the Registrant's net income or loss for tax purposes,
and, after certain priority distributions, 5% of cash flow and 29.4% of the
proceeds of a capital transaction in connection with the liquidation or
termination of the Registrant. No other person or group is known by the
Registrant to be the beneficial owner of more than 5% of the outstanding
partnership interests as of the date hereof.
(b) Security Ownership of Management.
As of December 31, 1993, four limited partners of Linnaeus, who are
no longer employed by WFA or its affiliates, beneficially own Units of limited
partnership interest in the Registrant. One person owns a one-half Unit and the
other three own one Unit each (less than .01%). No other officer or director or
partner of the General Partners own any Units.
(c) Changes in Control.
There exists no arrangement known to the Registrant the operation
of which may at a subsequent date result in a change in control of the
Registrant.
Item 13. Certain Relationships and Related Transactions.
(a) Transactions with Management and others.
Item 11 of this Report, which contains a description of the fees and
other compensation paid by the Registrant and the Operating Partnerships to the
General Partners and their affiliates, is incorporated herein by reference.
Also, see Note 9 of Notes to Financial Statements of the Registrant for the year
ended December 31, 1993. There were no other material transactions between the
General Partners or their affiliates and the Registrant or the Operating
Partnerships during 1991, 1992 and 1993.
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(b) Certain Business Relationships.
The Registrant's response to Item 13(a) hereof is incorporated herein by
reference. The Registrant has no business relationship with entities of which
the officers, directors or partners of the General Partners or their affiliates
are officers, directors or 10 percent shareholders other than as set forth in
the response to Item 13(a) and as discussed above in Item 11.
(c) Indebtedness of Management.
There is no indebtedness to the Registrant by Three Winthrop, Linnaeus or
any of their officers, directors or partners.
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K.
(a) The following documents are filed as part of this Report:
1. Financial Statements --- The Consolidated Financial Statements
listed on the accompanying Index to Consolidated Financial Statements are filed
as a part of this Report.
2. Financial Statement Schedules --- There are no Financial
Statement Schedules required to be filed.
3. Exhibits --- The exhibits listed in the accompanying Index
to Exhibits are filed as part of this Report.
(b) Reports on Form 8-K. The Registrant did not file any Current Reports
on Form 8-K during the fourth quarter of fiscal 1993.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this Report on Form 10-K to be
signed on its behalf by the undersigned, thereunto duly authorized.
SPRINGHILL LAKE INVESTORS LIMITED
PARTNERSHIP
By: THREE WINTHROP PROPERTIES, INC.
Managing General Partner
Date: March __, 1994 By: /s/ Arthur J. Halleran, Jr.
--------------------------------
Arthur J. Halleran, Jr.
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report on Form 10-K has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
/s/ Arthur J. Halleran, Jr. Director and President of the Managing General
Arthur J. Halleran, Jr. Partner (Principal Executive Officer)
Date: March __, 1994
/s/ Jonathan W. Wexler Director, Vice President, Treasurer and
Jonathan W. Wexler Assistant Clerk of Managing General Partner
Date: March __, 1994
/s/ Richard J. McCready Director, Vice President and Clerk of Managing
Richard J. McCready General Partner
Date: March __, 1994
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<TABLE>
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
Index to Consolidated Financial Statements
For the Years Ended December 31, 1993 and 1992
<CAPTION>
Page
<S> <C>
Independent Auditors' Report................................................................... 16
Consolidated Balance Sheets as of December 31, 1993 and 1992................................... 17
Consolidated Statements of Operations for the Years Ended
December 31, 1993, 1992 and 1991............................................................. 18
Consolidated Statements of Changes in Partners' Equity (Deficit) for
the Years Ended December 31, 1993, 1992 and 1991............................................. 19
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1993, 1992 and 1991............................................................. 20
Notes to Consolidated Financial Statements..................................................... 21
</TABLE>
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<TABLE>
<S><C>
[REZNICK FEDDER & SILVERMAN LETTERHEAD]
INDEPENDENT AUDITORS' REPORT
To the Partners of
Springhill Lake Investors Limited Partnership
We have audited the accompanying consolidated balance sheets of Springhill Lake Investors
Limited Partnership as of December 31, 1993 and 1992 and the related consolidated
statements of operations, changes in partners' equity (deficit) and cash flows for the
years then ended. 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 consolidated financial statements referred to above, present fairly,
in all material respects, the consolidated financial position of Springhill Lake Investors
Limited Partnership as of December 31, 1993 and 1992, and the consolidated results of
their operations and their consolidated cash flows for the years then ended, in conformity
with generally accepted accounting principles.
/s/ REZNICK FEDDER & SILVERMAN
Bethesda, Maryland
March 16, 1994
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1993 and 1992
ASSETS
1993 1992
INVESTMENT IN REAL ESTATE
(Notes 2, 4 and 6):
Land. . . . . . . . . . . . . . . . . . . . . . . . $ 5,833,466 $ 5,833,466
Buildings, improvements and personal property . . . 85,866,567 85,565,963
91,700,033 91,399,429
Less accumulated depreciation . . . . . . . . . . . 30,490,781 26,859,141
61,209,252 64,540,288
OTHER ASSETS:
Cash and cash equivalents (Note 2). . . . . . . . . 1,558,211 841,988
Tenant accounts receivable (Note 2) . . . . . . . . 322,263 261,400
Due from affiliates (Note 9). . . . . . . . . . . . - 96,755
Tenant security deposits-funded . . . . . . . . . . 300,000 500,000
Escrows and Reserves. . . . . . . . . . . . . . . . 2,770,371 -
Prepaid expenses and other assets . . . . . . . . . 864,913 932,958
Deferred costs, less accumulated amortization of
$241,705 and $818,923 (Notes 2 and 3) . . . . . . 2,186,310 840,413
TOTAL ASSETS. . . . . . . . . . . . . . . . . . . . $ 69,211,320 $ 68,013,802
LIABILITIES AND PARTNERS' EQUITY
MORTGAGES PAYABLE (NOTE 6) . . . . . . . . . . . . . . $ 62,560,654 $ 56,764,812
OTHER LIABILITIES:
Bank overdraft. . . . . . . . . . . . . . . . . . . - 357,820
Accounts payable and accrued expenses . . . . . . . 977,545 588,418
Due to affiliates (Note 9). . . . . . . . . . . . . 23,547 -
Tenant security deposits payable. . . . . . . . . . 279,878 267,656
63,841,624 57,978,706
MINORITY INTEREST (NOTES 1 AND 2). . . . . . . . . . . 1,415,942 1,538,117
PARTNERS' EQUITY:
Investor Limited Partners, Units of Investor
Limited Partnership Interest, 649 units
authorized and outstanding (Note 1) . . . . . . . 6,615,479 10,931,543
General Partners (Note 1) . . . . . . . . . . . . . (2,661,725) (2,434,564)
3,953,754 8,496,979
TOTAL LIABILITIES AND PARTNERS' EQUITY . . . . . . . . $ 69,211,320 $ 68,013,802
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1993, 1992, and 1991
1993 1992 1991
REVENUES
Rental income . . . . . . . . . . . . $ 22,272,861 $ 22,550,895 $ 23,035,380
Laundry income. . . . . . . . . . . . 313,958 316,626 346,913
Interest income . . . . . . . . . . . 65,001 104,113 199,137
Other income. . . . . . . . . . . . . 656,356 647,049 686,164
23,308,176 23,618,683 24,267,594
EXPENSES
Utilities . . . . . . . . . . . . . . 3,891,412 3,582,967 3,392,813
Repairs and maintenance . . . . . . . 2,012,100 2,644,551 3,269,949
Taxes . . . . . . . . . . . . . . . . 1,876,190 1,974,726 1,741,513
Salaries. . . . . . . . . . . . . . . 2,204,983 2,787,390 2,719,783
Operating expenses. . . . . . . . . . 961,117 700,790 830,653
Abandonment loss. . . . . . . . . . . 15,719 39,297 90,570
Administrative expenses . . . . . . . 435,990 403,034 326,986
Bad debt expense. . . . . . . . . . . 716,214 811,353 447,467
Advertising and rental expenses . . . 777,161 800,368 830,187
Insurance . . . . . . . . . . . . . . 434,035 476,932 543,290
Asset and property management
fees (Note 9) . . . . . . . . . . . 1,226,911 1,264,226 1,262,316
Interest expense (Note 6) . . . . . . 9,324,446 7,762,837 7,810,994
Depreciation and amortization (Note 2) 4,097,298 3,819,512 3,754,888
27,973,576 27,067,983 27,021,409
Net Loss before minority interest . . (4,665,400) (3,449,300) (2,753,815)
Minority Interest in (Net Earnings)
Loss of Operating Partnerships
(Note 2). . . . . . . . . . . . . . 122,175 12,016 (67,971)
NET LOSS (Note 1). . . . . . . . . . . . $ (4,543,225) $ (3,437,284) $ (2,821,786)
Net Loss allocated to general partners
(Note 1). . . . . . . . . . . . . . . $ (227,161) $ (171,864) $ (141,089)
Net Loss allocated to investor limited
partners (Note 1). . . . . . . . . . $ (4,316,064) $ (3,265,420) $ (2,680,697)
Net loss per unit of investor limited
partnership interest outstanding. . . $ (6,650) (5,031) (4,131)
Weighted average units of investor
limited partnership interest
outstanding . . . . . . . . . . . . . $ 649 649 649
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
Investor
Limited General
Partners Partners Total
Balance, December 31, 1990. . . . . 17,352,664 (2,096,611) 15,256,053
Distributions to partners . . . . . (237,502) (12,500) (250,002)
Net loss. . . . . . . . . . . . . . (2,680,697) (141,089) (2,821,786)
Balance, December 31, 1991. . . . . $ 14,434,465 $ (2,250,200) $ 12,184,265
Distributions to partners . . . . . (237,502) (12,500) (250,002)
Net loss. . . . . . . . . . . . . . (3,265,420) (171,864) (3,437,284)
Balance, December 31, 1992. . . . . $ 10,931,543 $ (2,434,564) $ 8,496,979
Net loss. . . . . . . . . . . . . . (4,316,064) (227,161) (4,543,225)
Balance, December 31, 1993. . . . . $ 6,615,479 $ (2,661,725) $ 3,953,754
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1993, 1992 AND 1991
1993 1992 1991
Cash flows from operating activities:
Net loss. . . . . . . . . . . . . . . . . . . $(4,543,225) $(3,437,284) $(2,821,786)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Minority Interest in Net (Loss) Earnings of
Operating Partnerships . . . . . . . . . . (122,175) (12,016) 67,971
Depreciation. . . . . . . . . . . . . . . . 3,694,516 3,680,919 3,657,698
Amortization. . . . . . . . . . . . . . . . 402,782 138,593 97,190
Abandonment loss. . . . . . . . . . . . . . 15,719 39,297 90,570
Changes in assets and liabilities:
Decrease (increase) in tenant accounts
receivable. . . . . . . . . . . . . . . (60,863) 96,794 (145,117)
Decrease (increase) in due from affiliates 96,755 96,983 (91,864)
Increase in escrows and reserves. . . . . (2,770,371) - -
Decrease (increase) in prepaid expenses
and other assets. . . . . . . . . . . . 68,045 276,444 (294,482)
Increase in deferred costs. . . . . . . . - (679,336) -
Increase (decrease) in related parties
notes and fees. . . . . . . . . . . . . - - (317,455)
Increase (decrease) in accounts payable
and accrued expenses. . . . . . . . . . 389,127 129,873 (166,559)
Increase in due to affiliates . . . . . . 23,547 - -
Net security deposits (paid) received . . 212,222 166,262 (123,261)
Net cash provided by (used in) operating
activities. . . . . . . . . . . . . . . . . . (2,593,921) 496,529 (47,095)
Cash flows from investing activities:
Purchase of fixed assets. . . . . . . . . . . (379,199) (424,998) (668,465)
Net cash used in investing activities . . . . . (379,199) (424,998) (668,465)
Cash flows from financing activities:
Principal payments on mortgages . . . . . . . (57,204,158) (380,076) (331,921)
Proceeds from mortgage. . . . . . . . . . . . 63,000,000 - -
Refinancing deposit received. . . . . . . . . 545,000 - -
Deferred financing and legal costs. . . . . . (2,293,679) - -
Distributions to Partners . . . . . . . . . . - (250,002) (250,002)
Bank overdraft. . . . . . . . . . . . . . . . - 357,820 356,096
Repayment of bank overdraft . . . . . . . . . (357,820) (356,096) -
Net cash provided by (used in) financing
activities. . . . . . . . . . . . . . . . . . 3,689,343 (628,354) (225,827)
Net increase (decrease) in cash and
cash equivalents . . . . . . . . . . . . . . . 716,223 (556,823) (941,387)
Cash and cash equivalents, beginning of year. . 841,988 1,398,811 2,340,198
Cash and cash equivalents, end of year. . . . . $ 1,558,211 $ 841,988 $ 1,398,811
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1993 AND 1992
1. ORGANIZATION
Springhill Lake Investors Limited Partnership (the "Partnership"), a Maryland limited
partnership, was formed on December 28, 1984 to acquire and own a 90% general partnership
interest in Springhill Lake Limited Partnerships I through IX and Springhill Commercial
Limited Partnership (the "Operating Partnerships"). The Operating Partnerships own and
operate the Springhill Lake Apartments complex in Greenbelt, Maryland. The complex
consists of 2,899 apartment and townhouse units and an eight-store shopping center. The
Partnership and Operating Partnerships will terminate on December 31, 2035, or earlier
upon the occurrence of certain events specified in the Partnership Agreement.
The general partners of the Partnership are Three Winthrop Properties, Inc. ("Three
Winthrop") and Linnaeus-Lexington Associates ("Linnaeus"). Theodore N. Lerner is the
limited partner of the Operating Partnerships.
In accordance with the limited partnership agreement, profits, losses and cash flow
distributions are allocated 95% to the investor limited partners, 4.9% to Linnaeus and .1%
to Three Winthrop.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the partnerships' significant accounting policies consistently applied in the
preparation of the accompanying consolidated financial statements follows.
Basis or Presentation
The accompanying consolidated financial statements include the accounts of the
Partnership and the Operating Partnerships prepared on the accrual basis of accounting.
Theodore N. Lerner's ownership in the Operating Partnerships has been reflected as a
minority interest in the accompanying consolidated balance sheets and statements of
operations. All significant intercompany accounts and transactions have been eliminated
in consolidation.
Cash and Cash Equivalents
Cash and cash equivalents consist of certificates of deposit commercial paper and
U.S. Government investments, valued at cost which approximates market value. Investments
with an original maturity of three months or less are considered to be cash equivalents.
Accounts Receivable
Management considers accounts receivable to be fully collectible; accordingly, no
allowance for doubtful accounts is required. If amounts become uncollectible, they will
be charged to operations when that determination is made.
Investment in Real Estate
Investment in real estate is carried at cost. The projects are depreciated on a
straight-line basis using estimated useful lives of 25 years for real property and 10
years for personal property. For income tax reporting, accelerated methods and lives are
used.
Deferred Costs
Amortization of deferred costs is computed using the straight-line method over the
amortization period of the assets as discussed in Note 3.
Income Taxes
No provision for income taxes is reflected in the accompanying consolidated financial
statements. Each partner is required to report on his individual tax return his allocable
share of income, gains, losses, deductions and credits.
Rental Income
Rental income is recognized as rentals become due. Rental payments received in
advance are deferred until earned. Leases between the partnerships and tenants of the
property are operating leases.
Net Loss Per Unit of Investor Limited Partnership Interest Outstanding
Net loss per unit of investor limited partnership interest outstanding is calculated
based upon the weighted average number of units outstanding.
3. DEFERRED COSTS
The following is a summary of deferred costs and the unamortized balances at December
31, 1993 and 1992:
Amortization Unamortized Unamortized
Period Cost Balance 1993 Balance 1992
Original Mortgage Costs *. . 1/85 - 4/93 $ 980,000 $ 0 $ 202,480
Attorney Fees. . . . . . . . 1/92 - 12/94 124,210 41,405 82,808
Refinancing Costs. . . . . . 5/93 - 5/03 1,244,386 1,161,426 555,125
Attorney Fees. . . . . . . . 5/93 - 4/95 114,419 76,279 -
Other Deferred Costs . . . . 5/93 - 12/09 945,000 907,200 -
$3,408,015 $ 2,186,310 $ 840,413
*These deferred costs were written off upon refinancing on April 30, 1993.
4. INVESTMENT IN REAL ESTATE
Buildings, improvements and personal property are stated at cost and consist of the
following:
December 31,
Category Useful Life 1993 1992
Buildings 25 $ 68,640,167 $ 68,640,167
Building improvements 25 12,754,031 12,404,867
Building equipment 10 4,374,776 4,423,336
Furniture and fixtures 10 97,593 97,593
85,866,567 85,565,963
Less accumulated depreciation (30,490,781) (26,859,141)
$ 55,375,786 $ 58,706,822
5. INVESTMENT IN OPERATING PARTNERSHIPS
The condensed, summarized financial statements of the Operating Partnerships as of
December 31, 1993 and 1992 and for the years then ended are as follows:
SUMMARIZED BALANCE SHEET
ASSETS
1993 1992
Buildings, improvements and personal property
net of accumulated depreciation of $30,490,781
and $26,859,141 . . . . . . . . . . . . . . . . $ 55,375,786 $ 58,706,822
Land. . . . . . . . . . . . . . . . . . . . . . . 5,833,466 5,833,466
Other assets. . . . . . . . . . . . . . . . . . . 2,116,596 2,114,253
TOTAL ASSETS . . . . . . . . . . . . . . . . $ 63,325,848 $ 66,654,541
LIABILITIES AND PARTNERS' EQUITY
1993 1992
Liabilities:
Accounts payable and accrued expenses . . . . . . $ 976,676 $ 588,418
Other liabilities . . . . . . . . . . . . . . . . 303,425 625,476
1,280,101 1,213,894
Partners' Equity:
Springhill Lake Investors Limited
Partnership. . . . . . . . . . . . . . . . . . . $ 60,629,805 $ 63,902,530
Other partners. . . . . . . . . . . . . . . . . . 1,415,942 1,538,117
62,045,747 65,440,647
TOTAL LIABILITIES AND PARTNERS' EQUITY. . . . . . $ 63,325,848 $ 66,654,541
SUMMARIZED STATEMENTS OF OPERATIONS
1993 1992 1991
Revenues:
Rental income . . . . . . . . . . . . . $ 22,272,861 $ 22,550,895 $ 23,035,380
Interest and other income . . . . . . . 999,558 1,007,742 1,123,289
23,272,419 23,558,637 24,158,669
Expenses:
Depreciation . . . . . . . . . . . . . 3,694,516 3,680,919 3,657,698
Operating expenses. . . . . . . . . . . 12,201,756 13,006,145 13,154,139
Taxes and insurance . . . . . . . . . . 2,310,225 2,497,883 2,284,803
18,206,497 19,184,947 19,096,640
Net Earnings . . . . . . . . . . . . . . . . $ 5,065,922 $ 4,373,690 $ 5,062,029
6. MORTGAGES PAYABLE
The partnership had a mortgage loan in the amount of $58,000,000, which had a ten-
year term and bore interest at the rate of 13.625% per annum. Monthly payments of
interest only of $658,542 were to be made for the first four years and principal and
interest payments of $678,576 during years five through ten. A final payment was due on
January 31, 1995 in the amount of $55,786,561.
On April 30, 1993, the mortgages was refinanced with two new mortgage loans having
original principal balances of $58,000,000 and $5,000,000. The notes bear interest at a
rate of 9.3% and a final payment of $49,016,500 is due on May 1, 2003. The partnership
paid prepayment penalties on the original mortgage of $2,833,074 during 1993 which is
included in interest expense on the consolidated statements of operations. The monthly
principal and interest installments are as follows:
*Mortgage
Period Term Monthly Installment
Years 1-2 25 yrs. $ 541,696
Years 3-10 20 yrs. $ 566,137
* Mortgage term represents the period over which monthly principal and interest
payments are based upon.
The Partnership expensed interest on the mortgage loans totalling $6,491,372,
$7,762,837 and $7,810,994 in 1993, 1992 and 1991, respectively.
Aggregate principal payments required under the mortgage notes at December 31, 1993
are as follows:
1994 $ 712,053
1995 982,085
1996 1,182,622
1997 1,297,418
1998 1,423,356
Thereafter 56,963,120
$62,560,654
The mortgage loans are secured by a pledge of the Investor Partnership's interest in
the Operating Partnerships, and joint and several guarantees by the Operating Partnerships
which, in turn, are secured by an indemnity first mortgage on the Operating Partnerships
and a pledge of the stock of Springfield Facilities, Inc., an affiliate.
7. TAXABLE LOSS
The Partnership's taxable losses for 1993, 1992 and 1991 differ from the net losses
for financial reporting purposes primarily due to the difference in the recognition of
depreciation. The taxable losses for 1993, 1992 and 1991 are as follows:
1993 1992 1991
Net loss for financial reporting purposes $(4,543,225) $(3,437,284) $(2,821,786)
Plus: Excess of accelerated
depreciation on real and
personal property over
book depreciation (533,128) (554,732) (552,052)
Other 70,693 (87,942) -
Taxable loss $(5,005,660) $(4,079,958) $(3,373,838)
8. STATEMENTS OF CASH FLOWS
The following details supplemental cash flow information:
1993 1992 1991
Cash paid for interest $ 9,324,446 $ 7,762,837 $ 7,810,994
The Operating Partnerships abandoned personal property with an undepreciated cost of
$62,876, $39,297 and $90,570 in 1993, 1992 and 1991, respectively.
9. RELATED PARTY TRANSACTIONS
The property is managed by Lerner Corporation, whose principal stockholder is a
limited partner of the partnerships. The management agreement provides for a
management fee equal to 4% of monthly income. The amount charged to operations
during 1993, 1992 and 1991 amounted to $893,529, $923,381 and $921,853 respectively,
of which $107,011 remains payable at December 31, 1993, and is included in accounts
payable and accrued expenses. In addition, Lerner Corporation pays expenses of the
partnerships from a central operating account. At December 31, 1993 and 1992, Lerner
Corporation advanced the partnerships $16,067 and $88,653, respectively, in excess of
recorded expenditures.
Winthrop Management, an affiliate of the general partner, supervises the management
agent in the performance of its duties. In addition, Winthrop Management supervises
the capital improvement program. The management fee for these services is equal to
1% of monthly income which amounted to $223,382, $230,845 and $230,463 in 1993, 1992
and 1991, respectively.
The partnerships paid Springfield Facilities, Inc., an affiliate, a rental fee for
the use of the recreational facilities. This fee is based on the affiliate's cost of
operating these facilities. Rent expense charged to operations for the years ended
December 31, 1993, 1992 and 1991 was $292,026, $367,752 and $370,755 respectively.
In addition, at December 31, 1993 and 1992, the partnerships owe Springfield
Facilities, Inc. $7,480 and $8,102, respectively, for unreimbursed expenses.
Winthrop Financial, an affiliate of the general partner, receives an annual asset
management fee of $100,000, which was charged to operations for each of the three
years ended December 31, 1993.
Expenses for 1993, 1992 and 1991 include a fee of $10,000 paid annually by the
investor partnership to Winthrop Financial Co., Inc., an affiliate of the general
partner, for the administration of the investor partnership.
10. OPERATING LEASES
The Operating Partnerships lease retail space to tenants in the shopping center under
the terms of operating leases expiring in various years through July 31, 1997. Minimum
future rental payments to be received subsequent to December 31, 1993 are as follows:
Year ending December 31, 1994 $105,921
1995 83,041
1996 72,988
1997 31,758
$293,708
</TABLE>
<PAGE>
ANNEX II
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 1994 Commission File Number 0-14569
------------------ -------
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP
Maryland 04-2848939
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
One International Place, Boston, MA 02110
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (617) 330-8600
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 X NO_________
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. - FINANCIAL STATEMENTS
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------
1994 1993 1994 1993
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income....................................... $ 5,219,353 $ 5,298,938 $16,547,277 $16,506,907
Laundry income...................................... 79,088 79,174 236,067 235,754
Interest income..................................... 54,183 16,911 138,808 50,901
Other income........................................ 514,651 512,589 637,223 627,420
----------- ----------- ----------- -----------
5,867,275 5,907,612 17,559,375 17,420,982
----------- ----------- ----------- -----------
EXPENSES:
Utilities........................................... 1,177,249 1,167,155 3,150,964 3,045,603
Repairs and maintenance............................. 481,543 369,671 1,193,546 1,221,612
Taxes ......................................... 372,824 429,514 1,245,214 1,296,321
Salaries............................................ 616,393 529,695 1,761,876 1,731,944
Advertising and rental expense...................... 83,648 79,711 217,465 299,839
Administrative expenses............................. 135,324 85,442 402,966 380,119
Bad debt expense.................................... 80,340 263,917 440,820 609,438
Operating expense................................... 267,050 258,217 739,672 655,914
Insurance........................................... 192,603 105,555 407,566 324,068
Asset and property management fees................. 310,865 308,755 933,798 919,569
Interest expense.................................... 1,445,062 1,487,802 4,347,455 7,867,300
Depreciation and amortization....................... 988,800 929,469 2,966,400 3,090,612
----------- ----------- ----------- -----------
6,151,701 6,014,903 17,807,742 21,442,339
----------- ----------- ----------- -----------
Net loss before minority interest...................... (284,426) (107,291) (248,367) (4,021,357)
----------- ----------- ----------- -----------
Minority Interest in Net Earnings of
Operating Partnerships.............................. (17,941) (21,803) (63,045) (62,425)
----------- ----------- ----------- -----------
NET LOSS (Note 2)...................................... (302,367) (129,094) (311,412) (4,083,782)
=========== =========== =========== ===========
Net Loss allocated to general
partners............................................. (15,118) (6,455) (15,571) (204,189)
=========== =========== =========== ===========
Net Loss allocated to investor
limited partners.................................... (287,249) (122,639) (295,841) (3,879,593)
=========== =========== =========== ===========
Net Loss per unit of limited
partnership interest................................ (443) (189) (456) (5,978)
=========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
BALANCE SHEETS
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
September 30, December 31,
1994 1993
(Unaudited) (Audited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS:
Investment in Real Estate - At Cost
Land................................................................... $ 5,833,466 $ 5,833,466
Buildings, improvements and personal property.......................... 86,121,083 85,866,567
------------ ------------
91,954,549 91,700,033
Less: accumulated depreciation........................................ 33,261,668 30,490,781
------------ ------------
58,692,881 61,209,252
Other Assets:
Cash and cash equivalents.............................................. 2,733,116 1,558,211
Tenant accounts receivable............................................. 6,687 322,263
Tenant security deposits - funded...................................... 300,000 300,000
Escrows and reserves................................................... 2,706,160 2,770,371
Prepaid expenses and other assets...................................... 2,037,997 864,913
Due from affiliates.................................................... 17,887 -
Deferred costs, less accumulated amortization
of $437,218 and $241,705 as of September
30, 1994 and December 31, 1993 respectively.......................... 1,990,797 2,186,310
------------ ------------
TOTAL ASSETS........................................................... $ 68,485,525 $ 69,211,320
============ ============
LIABILITIES:
Mortgage payable....................................................... $ 62,032,845 $ 62,560,654
Other Liabilities:
Due to affiliate.................................................. - 23,547
Accounts payable and accrued expenses............................. 1,049,885 977,545
Tenant security deposits payable.................................. 281,466 279,878
------------ ------------
$ 63,364,196 $ 63,841,624
------------ ------------
MINORITY INTEREST (Note 1)................................................ $ 1,478,987 $ 1,415,942
------------ ------------
PARTNERS' EQUITY:
Investor Limited Partners, Units of Investor
Limited Partnership Interest, 649 units
authorized and outstanding ....................................... 6,319,638 6,615,479
General Partners....................................................... (2,677,296) (2,661,725)
------------ ------------
3,642,342 3,953,754
------------ ------------
TOTAL LIABILITIES AND PARTNERS' EQUITY.................................... $ 68,485,525 $ 69,211,320
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
Nine Months Ended Nine Months Ended
September 30, 1994 September 30, 1993
(Unaudited) (Unaudited)
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash flow from operating activities:
Net loss.................................................................. $ (311,412) $ (4,083,782)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Minority Interest in Net Earnings of
Operating Partnerships............................................. 63,045 62,425
Depreciation........................................................ 2,770,887 2,760,689
Amortization........................................................ 195,513 329,923
Changes in assets and liabilities:
Decrease in accounts receivable-tenants.............................. 315,576 170,724
Net Decrease (Increase) in escrows and
reserves......................................................... 64,211 (2,461,323)
Increase in prepaid expenses and other
assets........................................................... (1,173,084) (478,243)
Net decrease (increase) in due to/from
affiliates....................................................... (41,434) 96,755
Increase in related parties notes
and fees......................................................... - 253,278
Increase (decrease) in accounts payable
and accrued expenses ............................................ 72,340 (16,191)
Net security deposits received.................................... 1,588 212,302
------------- -----------
Net cash provided by (used in) operating
activities............................................................ 1,957,230 (3,153,443)
------------- -----------
Cash flow from investing activities:
Purchase of fixed assets................................................... (254,516) -
------------- ----------
Cash flows from financing activities:
Principal payments on mortgage............................................. (527,809) (57,036,215)
Proceeds from mortgage note................................................ - 63,000,000
Refinancing deposit received............................................... - 545,000
Deferred financing and legal costs......................................... - (2,223,581)
Bank overdraft............................................................. - (357,820)
------------- -----------
Net cash provided by (used in) financing
activities................................................................. (527,809) 3,927,384
------------- -----------
Net increase in cash and cash equivalents................................... 1,174,905 773,941
Cash and cash equivalents, beginning of period................................ 1,558,211 841,988
------------- -----------
Cash and cash equivalents, end of period...................................... 2,733,116 1,615,929
------------- -----------
Cash paid for interest........................................................ $ 4,347,455 $ 7,867,300
============= ===========
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
STATEMENTS OF CHANGES IN PARTNERS' CAPITAL
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Units of
For the Nine Months Ended Limited General Limited
September 30, 1994 and 1993 Partnership Partners' Partners' Total
(Unaudited) (Note 1) Interest Capital Capital Capital
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1993.................. 649 $(2,661,725) $ 6,615,479 $ 3,953,754
Net loss.................................... - (15,571) (295,841) (311,412)
----------- ----------- ----------- -----------
Balance, September 30, 1994................. 649 $(2,677,296) $ 6,319,638 $ 3,642,342
----------- ----------- ----------- -----------
Balance, December 31, 1992.................. 649 $(2,434,564) $ 10,931,543 $ 8,496,979
Net loss.................................... (204,189) (3,879,593) (4,083,782)
----------- ----------- ------------ -----------
Balance, September 30, 1993................. 649 $(2,638,753) $ 7,051,950 $ 4,413,197
----------- ----------- ------------ -----------
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1994
(Unaudited)
1. ACCOUNTING AND FINANCIAL REPORTING POLICIES
The consolidated financial statements included herein have been
prepared by the Registrant, without audit, pursuant to the rules and regulations
of the Securities and Exchange Commission. The Registrant's accounting and
financing reporting policies are in conformity with generally accepted
accounting principles and include all adjustments in interim periods considered
necessary for a fair presentation of the results of operations. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. It is suggested
that these consolidated financial statements be read in conjunction with the
financial statements and the notes thereto included in the Registrant's latest
annual report on Form 10-K.
The accompanying consolidated financial statements include the accounts
of the Partnership and the Operating Partnerships prepared on the accrual basis
of accounting. Theodore N. Lerner's ownership in the Operating Partnerships has
been reflected as a minority interest in the accompanying consolidated balance
sheets and statements of operations. All significant intercompany accounts and
transactions have been eliminated in consolidation.
The accompanying consolidated financial statements reflect the
Partnership's results of operations for an interim period and are not
necessarily indicative of the results of operations for the year ending December
31, 1994.
2. TAXABLE LOSS
The Partnership's taxable loss for 1994 is expected to differ from that
for financial reporting purposes primarily due to accounting differences in the
recognition of depreciation incurred by the Operating Partnerships.
3. INVESTMENT IN OPERATING PARTNERSHIP
The following summarizes the results of operations for the Operating
Partnerships:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
1994 1993 1994 1993
<S> <C> <C> <C> <C>
Income:
Rental income................................. $ 5,219,353 $ 5,298,938 $16,547,277 $16,506,907
Interest and other income..................... 614,898 600,216 906,392 883,994
----------- ----------- ----------- -----------
$ 5,834,251 $ 5,899,154 $17,453,669 $17,390,901
----------- ----------- ----------- -----------
Expenses:
Depreciation and amortization................. $ 923,629 $ 850,933 $ 2,770,887 $ 2,760,689
Operating expenses............................ 3,149,116 3,059,607 8,826,976 8,848,205
Taxes and insurance........................... 565,427 535,069 1,652,780 1,620,389
----------- ----------- ----------- -----------
$ 4,638,172 $ 4,445,609 $13,250,643 $13,229,283
----------- ----------- ----------- -----------
Net income....................................... $ 1,196,079 $ 1,453,545 $ 4,203,026 $ 4,161,618
=========== =========== =========== ===========
</TABLE>
<PAGE>
ITEM 2. - MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Partnership's net loss for the quarter ended September 30, 1994, increased
to $302,367 from $129,094 for the same period in 1993. Total revenue for the
quarter was essentially flat, and expenses increased by 2.3%. Through the first
nine months of 1994, the Partnership's net loss was $311,412 compared to a net
loss through the first nine months of 1993 of $4,083,782.
The Partnership continues to be unable to increase revenue as a result of the
continued competitiveness of the local apartment market. The Property's
occupancy has remained in the low-90% range, which is consistent with
market-wide occupancy.
The Partnership's expenses increased during the quarter, primarily in the areas
of repairs and maintenance, salaries, administrative expenses and insurance.
These increases offset decreases in taxes and bad debt expense. The
Partnership's expenses have declined significantly through the first nine months
of the year as a result of lower interest expense. As previously reported, the
Partnership completed the refinancing of the debt encumbering the property on
April 30, 1993. As a result of the refinancing, the Partnership's debt service
requirements, and therefore its interest expense, were dramatically reduced. In
addition, the interest expense for the nine months ended September 30, 1993,
includes certain costs associated with completing the refinancing.
The Partnership continues to generate sufficient net operating income to fund
its debt service requirements and capital expenditures. As of September 30,
1994, the Partnership had approximately $2.7 million in unrestricted reserves
and approximately $1.0 million that is being held by the lender to complete
capital improvements. In addition to monthly debt service payments, the terms of
the Partnership's loan require the Partnership to deposit additional amounts
into various escrow and reserve accounts on a monthly basis. The Partnership can
make quarterly withdrawals from these restricted reserves to the extent it
provides documentation to the lender that evidence that capital improvements
have been completed.
The Partnership completed $254,516 of capital improvements during the first nine
months of 1994, consisting of replacing appliances and ceramic tiling in
apartment units, replacing some hot water heaters and air conditioning units,
repairing exterior woodwork and landscaping.
The results of operations in future quarters may differ from those of the
quarter ended September 30, 1994, due to inflation and changing economic
conditions which could affect occupancy levels, rental rates and operating
expenses.
<PAGE>
PART II - OTHER INFORMATION
All items are inapplicable
SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
SPRINGHILL LAKE INVESTORS
LIMITED PARTNERSHIP
By: Three Winthrop Properties, Inc.
Managing General Partner
Date: November 15, 1994 By: _________________________________
Jonathan W. Wexler
Chief Financial Officer
Date: November 15, 1994 By: _________________________________
Richard J. McCready
Vice President
<PAGE>
ANNEX III
SECURED NON-RECOURSE NOTE AND SECURITY AGREEMENT
, 1995
Loan # [ ]
The undersigned borrower (the "Borrower"), for value received, promises to
pay to Aquarius Acquisition, L.P., a Delaware limited partnership (the
"Lender"), the Principal Amount of this Note as determined pursuant to
Section 1 below, on the terms and conditions herein set forth.
This Note evidences a non-recourse loan (the "Loan") made by the Lender to
the Borrower in connection with the offer to purchase (the "Offer") units or
fractional units ("Units") of limited partnership interests ("L.P.
Interests") of Springhill Lake Investors Limited Partnership, a Maryland
limited partnership (the "Partnership") made by the Lender pursuant to that
certain Offer to Purchase dated , 1995 and the accompanying Letter of
Transmittal. The Borrower tendered Units and/or fractional Units in the
Offer, a portion of which were accepted for payment in cash (the "Purchased
Portion") and the remaining portion (the "Retained Portion") of which are
pledged hereby as collateral for this Note.
1. PRINCIPAL AMOUNT. The principal amount (the "Principal Amount") of this
Note shall be that amount equal to (i) the number of Units validly tendered
by the Borrower in the Offer (and not withdrawn prior to the expiration of
the Offer) multiplied by (ii) $36,000 less the amount received by the
Borrower per Unit in respect of the Purchased Portion of such Unit. The
Principal Amount of this Note shall be paid on the date which is one year and
one day from the date on which the Offer is consummated (the "Maturity
Date"), unless required to be prepaid prior to the Maturity Date in
accordance with the terms of this Note.
2. INTEREST. This Note shall bear interest at a rate per annum of 9%.
Interest on this Note shall accrue from the date of this Note and shall be
payable in arrears on the Maturity Date, unless required to be prepaid prior
to the Maturity Date in accordance with the terms of this Note. Interest on
overdue principal and, to the extent permitted by law, on overdue interest,
shall be paid at the rate specified above. Interest will be computed on the
basis of a 365-day year and the actual number of days elapsed.
3. PAYMENT OF PRINCIPAL AND INTEREST. The Principal Amount of this Note,
and accrued interest hereon, may be paid, at the election of the Borrower,
either (i) by delivery of an amount in cash equal to the Principal Amount
then due and accrued interest thereon less the Distribution Amount (as
defined below) applied on or prior to such date in the manner set forth in
Section 6, or (ii) by transfer to the Lender of the Retained Portion and by
applying on or prior to such date the Distribution Amount in the manner
described in Section 6. In order to elect to make payment pursuant to the
preceding clause (i), the Lender must receive from the Borrower written
notice of such election (a "Cash Election Notice"), at least five business
days prior to the Maturity Date. If no Cash Election Notice is so received by
the Lender, the Borrower shall be deemed to have elected the payment option
set forth in clause (ii) above.
4. NON-RECOURSE. Anything contained herein to the contrary
notwithstanding, no recourse shall be had for the payment of the non-recourse
loan evidenced by this Note or for any claim based thereon or otherwise in
respect thereof or for the payment or performance of any other obligation
based on or in respect of the Loan, and no personal liability shall be
asserted or enforceable, against (i) the Borrower or (ii) any officer,
director, partner, shareholder or affiliate of the Borrower, and the
enforcement of any judgment for breach by the Borrower of its obligations
hereunder shall be made only against the Collateral. The foregoing provisions
of this Section shall not prevent recourse to the Collateral or constitute a
waiver, release or discharge of the loan evidenced by this Note or impair in
any manner any right, remedy or recourse Lender may have against Borrower for
actual fraud.
<PAGE>
5. SECURITY INTEREST. In order to secure the due and punctual payment of
all amounts due hereunder and performance of all other obligations of the
Borrower under this Note, the Borrower hereby grants to the Lender a first
priority security interest in all of such Borrower's right, title and
interest in and to the Retained Portion and all proceeds thereof (together,
the "Collateral"). The Borrower represents and warrants that it owns and has
full power and authority to pledge the Collateral and that, other than this
pledge, the Collateral is free and clear of all liens, restrictions, charges,
encumbrances, conditional sales agreements or other obligations relating to
the sale or transfer thereof and is not subject to any adverse claims. The
Lender will have all the rights of a secured party under the Uniform
Commercial Code (as in effect in all applicable jurisdictions) with respect
to the Collateral. The Borrower irrevocably appoints the designees of the
Lender as the Borrower's attorney-in-fact to execute and cause to be filed or
recorded any and all documents on behalf of the Borrower as may be necessary
to perfect or continue the perfection of the security interest herein
granted, including, without limitation, filing Uniform Commercial Code
financing statements with respect to the Collateral on behalf of the
Borrower, or without the signature of the Borrower, to the extent permitted
by law.
6. DELIVERY AND TRANSFER OF COLLATERAL. Letters of Transmittal regarding
the tendered Units and/or fractional Units have heretofore been delivered to
the depository for the Offer (the "Depository") and the Depository has been
instructed to deliver such Letters of Transmittal to the Lender. The Lender
shall have the right at any time upon the occurrence of a failure by Borrower
to make any payments hereunder when due (a "Default") to endorse, assign or
otherwise transfer to or register in the name of the Lender any or all of the
Collateral. If the Lender has not received a Cash Election Notice from the
Borrower as provided in Section 3 then, on the Maturity Date, the Lender may
endorse, assign or otherwise transfer to or register in the name of the
Lender all of the Retained Portion and the full Distribution Amount, if any,
paid or payable on such date. The Borrower hereby agrees with the Lender that
the Partnership shall make an appropriate notation on the register evidencing
the delivery and, when applicable, the transfer, of the Collateral. If
requested by the Lender, the Borrower will execute and deliver any assignment
or other instrument reasonably requested by the Lender to confirm the
validity of any action taken by the Lender pursuant to the provision of this
Section 5. The Borrower hereby agrees promptly to notify the Lender in
writing prior to changing its address, principal place of business or chief
executive office or name.
7. DISTRIBUTIONS. The Borrower agrees that all dividends, distributions,
income, profits or proceeds paid or payable to the Borrower in respect of the
Collateral (the "Distribution Amount") shall be delivered to the Lender first
to reduce the amounts owing hereunder in respect of accrued interest hereon
and second, if any Distribution Amount remains unapplied, to reduce the
Principal Amount hereof. The Lender shall remit any amounts remaining after
such applications to the Borrower.
8. VOTING RIGHTS. So long as no Default has occurred hereunder, the
Borrower shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Collateral for any purpose not
inconsistent with the terms or purpose of this Note and the Borrower shall
not in any event exercise such rights in any manner will cause or would cause
a dissolution of the Partnership or which otherwise may have an adverse
effect on the value of the Collateral or on the Lender's rights hereunder.
9. DEFAULT; ACCELERATION. Upon the occurrence of a Default, all rights of
the Borrower to exercise voting and other consensual rights shall cease
without any action or the giving of any notice and such rights shall be
vested in the Lender. Upon the commencement of any bankruptcy or similar
proceeding (whether voluntary or involuntary) with respect to the Borrower,
the insolvency of the Borrower or any assignment by the Borrower for the
benefit of its creditors, the Principal Amount and all accrued interest
thereon shall automatically and immediately become due and payable by the
Borrower.
10. PREPAYMENT. (a) This Note may not be prepaid prior to maturity without
the prior written consent of the Lender in its sole discretion, provided that
the Note may be prepaid in full at any time at the option of the Borrower
upon delivery of cash in accordance with clause (i) of Section 3.
(b) In the event that the provisions of Section 7.2(D) of the Partnership
Agreement shall no longer be in full force and effect, the Loan shall be
prepaid in full (in either the manner specified in clause (i) or clause (ii)
of Section 3 above), on the demand of the Lender. The Lender may make such a
demand upon 15 days written notice delivered to the Borrower.
<PAGE>
11. JOINT AND SEVERAL LIABILITY. If this Note is signed by more than one
Borrower, the obligations of each such Borrower hereunder shall be joint and
several obligations of each such Borrower.
12. NOTICES. Except as otherwise expressly provided herein, all notices
and other communications provided for hereunder shall be in writing and shall
be delivered personally, by telecopier or by express courier service or sent
by registered or certified mail, return receipt requested, postage prepaid,
as follows:
(a) If to the Lender:
Aquarius Acquisition, L.P.
c/o Nomura Asset Capital Corporation
Two World Financial Center
New York, New York 10005
(b) If to the Borrower, to the same address to which copies of the Offer were
sent, unless another address is specified in a notice delivered to the Lender
pursuant to Section 5.
All such notices and communications shall, when mailed or personally
delivered, be effective upon receipt, or when telegraphed, telexed, or
cabled, be effective upon confirmation of receipt by addressee or when sent
by overnight courier, be effective one day after delivery to such courier,
except that notices and communications to the Lender shall not be effective
until received by the Lender.
13. MISCELLANEOUS.
(a) The Borrower hereby waives diligence, presentment, demand, protest,
notice of the acceptance of this Note and all other notices of any kind
relating to the enforcement of this Note. No delay or omission on the part of
the Lender in exercising any right hereunder shall operate as a waiver of any
such right or of any other right hereunder and a waiver of any such right on
any one occasion shall not be construed as a bar to or waiver of any such
right on any future occasion.
(b) The Borrower agrees to pay on demand all costs and expenses (including
legal costs and attorneys' fees) incurred or paid by the Lender in enforcing
this Note.
(c) This Note shall be governed by and construed in accordance with the
laws of the State of New York, without giving effect to the conflict of laws
provisions thereof.
(d) If any one or more of the provisions contained in this Note shall be
invalid, illegal or unenforceable in any respect under any applicable law,
the validity, legality and enforceability of the remaining provisions
contained herein shall not in any way be affected or impaired.
(e) The provisions of this Note may, from time to time, be amended, or
compliance with any agreement or condition contained herein waived, with the
written consent of the Lender and the Borrower.
(f) This Note shall inure to the benefit of any successor or assign of the
Lender and any other holder of this Note.
(g) The Borrower will execute and deliver all such documents and do all
such other things as the Lender may request to carry out the intent of this
Note.
(h) This Note may be executed in counterparts. All of such counterparts
together shall constitute a single instrument.
(i) Nothing set forth in this Note shall be construed as a commitment by
the Lender to make any advance to or for the benefit of any Borrower.
<PAGE>
NOTE AND SECURITY AGREEMENT SIGNATURE PAGE
WITNESSETH, the undersigned hereby executes this Note as of the date first
above written.
BORROWER(1)
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
- -----------------------------------------------------------------------------
(1) Each Borrower must sign exactly as such Borrower's name appears on the
face of the Letter of Transmittal.
The Information Agent for this Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550
(Call Collect)
or Call Toll-Free (800) 659-5550
The Depository is:
IBJ SCHRODER BANK & TRUST COMPANY
1 State Street
New York, New York 10004
(212) 858-2103
February 1, 1995
<PAGE>
LETTER OF TRANSMITTAL
FOR LIMITED PARTNERSHIP INTERESTS
IN
SPRINGHILL LAKE INVESTORS
LIMITED PARTNERSHIP
TENDERED PURSUANT TO OFFER TO PURCHASE DATED FEBRUARY 1, 1995
- -------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE
AT 5:00 P.M., NEW YORK TIME
THURSDAY, MARCH 2, 1995, UNLESS EXTENDED.
- -------------------------------------------------------------------------------
The Depository for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
Facsimile:
(212) 858-2611
Confirm by telephone:
(212) 858-2103
<TABLE>
<CAPTION>
<S> <C>
By Mail: By Hand or Overnight Delivery:
P.O. Box 84 1 State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing
Attn: Reorganization Operations Window SC-1
Department
</TABLE>
----------------
DELIVERY OF THIS LETTER OF TRANSMITTAL, NOTE AND SECURITY AGREEMENT
SIGNATURE PAGES OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS OTHER THAN THE
ONE SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE OTHER THAN
AS SET FORTH ABOVE DOES NOT CONSTITUTE VALID DELIVERY.
This Letter of Transmittal is to be completed by Limited Partners of
Springhill Lake Investors Limited Partnership, a Maryland limited partnership
(the "Partnership"), pursuant to the procedures set forth in the Offer to
Purchase (as defined below).
PLEASE CAREFULLY READ THE ACCOMPANYING INSTRUCTIONS.
<PAGE>
- -------------------------------------------------------------------------------
DESCRIPTION OF UNITS TENDERED
The number of Units owned by the undersigned is set forth on the label
above. Please indicate below the percentage of such Units you wish to tender
in the Offer.
25%_____ 50%_____ 75%_____ 100%_____ Other_____
If no other indication is made above, all of the Units owned by the
undersigned will be deemed to be tendered.
- -------------------------------------------------------------------------------
Ladies and Gentlemen:
The undersigned hereby tenders to Aquarius Acquisition, L.P., a Delaware
limited partnership (the "Purchaser"), the percentage of the Units (as
defined below) set forth above in return for cash consideration per Unit of
$36,000 in cash (including, in certain circumstances as described below, the
proceeds of a non-recourse secured loan (each, a "Loan") by the Purchaser),
upon the terms and subject to the conditions set forth in the Offer to
Purchase dated February 1, 1995 (including the annexes thereto, the "Offer to
Purchase"), receipt of which is hereby acknowledged, and this Letter of
Transmittal (which together constitute the "Offer"). As used in this Letter
of Transmittal, "Unit" and "Units" have the same meaning as is ascribed to
such terms in the Partnership Agreement of Springhill Lake Investors Limited
Partnership (the "Partnership") as in effect on the date hereof and includes
any fractional Units.
The undersigned agrees that (a) if 50.5% or less of the outstanding Units
are validly tendered and not withdrawn, the undersigned will receive, upon
consummation of the Offer, purchase proceeds computed at the rate of $36,000
for each Unit so tendered and not withdrawn by the undersigned, (to be pro
rated in respect of tenders of fractional Units) and (b) if more than 50.5%
of the outstanding Units are validly tendered and not withdrawn, the
undersigned will receive the same amount of cash with respect to the amount
of Units so tendered and not withdrawn, but will receive part of such cash in
purchase proceeds and the rest as proceeds of a Loan, all as described in the
Offer to Purchase.
Subject to and effective upon acceptance for payment of any Units tendered
hereby in accordance with the terms of the Offer, the undersigned hereby
sells, assigns and transfers to, or upon the order of, the Purchaser all
right, title and interest in and to such Units purchased and requests,
authorizes and directs Three Winthrop to substitute the Purchaser as a
limited partner of the Partnership in place of the undersigned with respect
to such Units. The undersigned hereby irrevocably constitutes and appoints
the Purchaser as the true and lawful agent and attorney-in-fact of the
undersigned with respect to such Units, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest) to deliver such Units and transfer ownership thereof on the
Partnership books maintained by Three Winthrop, together with all
accompanying evidences of transfer and authenticity, to or upon the order of
the Purchaser and upon receipt by the Depository, as the undersigned's agent,
of the purchase price in respect of such Units, to receive all benefits and
otherwise exercise all rights of beneficial ownership of such Units, all in
accordance with the terms of the Offer. Upon the purchase of such Units
pursuant to the Offer, all prior proxies and consents given by the
undersigned with respect thereto will be revoked and no subsequent proxies or
consents may be given (and if given will not be deemed effective).
By validly tendering Units hereby (including the execution of the
signature page to the Note and Security Agreement; the yellow page included
herewith), the undersigned agrees to receive the proceeds of the Loan
described in the Offer to Purchase if more than 50.5% of the outstanding
Units are validly tendered prior to the Expiration Date and not properly
withdrawn and the Offer is consummated. The undersigned agrees to be bound by
the terms of any such Loan, including the terms of repayment and the pledge
of the Units tendered hereby and not purchased (the "Retained Portion") to
secure repayment of the Loan. The complete terms of the Note and Security
Agreement are set forth as Annex III to the Offer to Purchase. The
undersigned directs the Partnership to deliver any and all distributions
payable on the Retained Portion to the Purchaser for credit against amounts
outstanding in respect of the Loan and the Purchaser may, in the name and on
behalf of the undersigned, execute and deliver to the Partnership a written
confirmation of such direction.
<PAGE>
In addition, by executing a Letter of Transmittal, the undersigned
appoints the designees of the Purchaser as its attorneys-in-fact (such
appointment being coupled with an interest and irrevocable) to execute and
cause to be filed or recorded any and all documents on behalf of the
undersigned, and to take any and all other actions reasonably deemed
necessary by the Purchaser to perfect or continue the perfection of the
security interest in the Retained Portion that secures any Loan of the
undersigned.
The undersigned hereby represents and warrants that the undersigned owns,
and has full power and authority to validly tender, sell, assign and
transfer, the Units tendered hereby, and that when any such Units or any
portion thereof are accepted for payment of purchase proceeds by the
Purchaser, the Purchaser will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges, encumbrances,
conditional sales agreements or other obligations relating to the sale or
transfer thereof, and such Units or any portion thereof will not be subject
to any adverse claim. The undersigned represents and warrants that any Units
not purchased but pledged to secure the Loan in accordance with the terms of
the Offer will, when so pledged, be free and clear of all liens,
restrictions, charges, encumbrances, conditional sales agreements or other
obligations relating to the sale or transfer thereof, and such Retained
Portion will not be subject to any adverse claim, other than the pledge to
secure the Loan.
The undersigned further represents and warrants that, unless the
Substitute Form W-8 (Box C) is completed, the undersigned is a "United States
Person," as defined in Section 7701(a)(30) of the Internal Revenue Code of
1986, as amended. Upon request, the undersigned will execute and deliver any
additional documents deemed by the Depository or the Purchaser to be
necessary or desirable to complete the assignment, transfer, purchase or
pledge of the Units tendered hereby.
The undersigned understands that a valid tender of Units to the Purchaser
pursuant to the procedures described in the Offer to Purchase and in the
Instructions hereto and the acceptance of all or any portion thereof will
constitute a binding agreement between the undersigned and the Purchaser upon
the terms and subject to the conditions of the Offer.
The undersigned recognizes that under certain circumstances set forth in
the Offer to Purchase, the Purchaser may not accept for payment any Units
tendered hereby. In such event, the undersigned understands that this Letter
of Transmittal will be of no force or effect.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and any obligations of the undersigned
shall be binding upon the heirs, personal representatives, administrators,
executors, successors, assigns and trustees in bankruptcy and other legal
representatives of the undersigned. Except as stated in the Offer to
Purchase, this tender is irrevocable.
<PAGE>
- -------------------------------------------------------------------------------
SIGN HERE TO TENDER
Certification --Under penalties of perjury, the undersigned hereby certifies
the following:
(1) The TIN shown in Part 1 of the Substitute Form W-9 above is the correct
TIN of the person who is submitting this Letter of Transmittal (and who is
required by law to provide such TIN), or such person is waiting for a TIN to
be issued and such person either (a) has mailed or delivered an application
to receive a TIN to the appropriate IRS Center or Social Security
Administration Office or (b) intends to mail or deliver an application in the
near future (it being understood that if such person does not provide a TIN
within sixty (60) days, 31% of all reportable payments made to such person
thereafter will be withheld until such person provides a number), and
(2) The person who is submitting this Letter of Transmittal and who is
required by law to provide such TIN is not subject to backup withholding
either because such person has not been notified by the IRS that such person
is subject to backup withholding as a result of a failure to report all
interest or dividends or because the IRS has notified such person that he or
she is no longer subject to backup withholding.
If the undersigned is unable to certify that such person is not subject to
backup withholding, such person should so indicate by striking through
certification (2) above.
(3) If the FIRPTA Affidavit or the Substitute Form W-8 have been completed,
the information provided by the undersigned therein is true and accurate.
SIGNATURE(S) OF LIMITED PARTNER(S).
All registered Limited Partners must sign exactly as name(s) appear(s) on the
register of the Partnership (see label above).
(Signature).................................................................
(Signature).................. .............. Date .................. , 1995
If signing as a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please provide the following
information and see Instructions 1 and 3.
Name(s) and Capacity:......................................................
(Please Print)
Address:...................................................................
City, State: ............................ Zip Code:.......................
Area Code and Telephone No.: ..............................................
SIGNATURE GUARANTEE
(see Instruction 1)
...........................................................................
Name of Eligible Institution
...........................................................................
Address and Telephone No. of Eligible Institution
Signature...................Name.....................Title.................
IF YOU DO NOT WISH TO TENDER, BUT WISH TO PROVIDE THE PURCHASER WITH YOUR
NAME AND ADDRESS FOR PURPOSES OF FUTURE COMMUNICATIONS, PLEASE COMPLETE THE
FOLLOWING INFORMATION AND RETURN IT TO THE DEPOSITORY.
Name(s) and Capacity:......................................................
(Please Print)
Address:...................................................................
City, State: ............................ Zip Code: ......................
Area Code and Telephone No.: ..............................................
- ------------------------------------------------------------------------------
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
1. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if this Letter of Transmittal is signed by the
registered Limited Partner(s). In all other cases, all signatures on this
Letter of Transmittal and any other documents required hereby must be
guaranteed by a member of a registered national securities exchange or of the
National Association of Securities Dealers, Inc. or by a commercial bank or
trust company having an office or correspondent in the United States
(collectively, called the "Eligible Institutions"). See Instruction 3.
2. DELIVERY OF LETTER OF TRANSMITTAL AND OTHER DOCUMENTS. For Units to be
validly tendered pursuant to the Offer, a properly completed and duly
executed Letter of Transmittal (or facsimile thereof), and any required
signature guarantees, the signature page to the Note and Security Agreement
(the yellow page included herewith) and any other documents required by this
Letter of Transmittal, must be received by the Depository prior to the
Expiration Date (as defined in the Offer to Purchase) at its address set
forth herein. A return self-addressed postage prepaid envelope is enclosed
for your convenience.
The method of delivery of all documents is at the election and risk of the
tendering Limited Partner. It is suggested that an overnight courier service
be used. However, a Limited Partner may use the postage-paid envelope
provided.
No alternative, conditional or contingent tenders will be accepted. All
tendering Limited Partners, by execution of this Letter of Transmittal (or
facsimile thereof), waive any right to receive any notice of the acceptance
of their tender.
3. SIGNATURES ON LETTER OF TRANSMITTAL AND SIGNATURE PAGE TO NOTE AND
SECURITY AGREEMENT. This Letter of Transmittal and the signature page to the
Note and Security Agreement (the yellow page included herewith) must be
signed by the Limited Partner(s) and the signature(s) must correspond exactly
with the name(s) as they appear on the register of the Partnership (which
name(s) corresponds to the label on the front of this Letter of Transmittal)
without alteration, enlargement or any change whatsoever. If any tendered
Units are registered in the names of two or more joint administrators,
guardians, attorneys-in-fact, officers of corporations, or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing and must submit, along with this Letter of Transmittal, proper
evidence satisfactory to the Depository of their authority to so act.
4. TRANSFER TAXES. The Purchaser will pay or cause to be paid all transfer
taxes, if any, payable on the transfer to it of Units accepted for payment
pursuant to the Offer.
5. PARTIAL TENDERS. A Limited Partner may tender all Units owned by it, or
any percentage thereof. If fewer than all of the Units owned by a Limited
Partner are to be tendered, the Limited Partner must indicate the percentage
of Units owned by such Limited Partner which such Limited Partner is
tendering by completing the chart on the front of this Letter of Transmittal
entitled "Description of Units Tendered." The remainder of the Units not
tendered will continue to be owned by the person(s) signing this Letter of
Transmittal. All Units owned by the Limited Partner signing this Letter of
Transmittal will be deemed to have been tendered unless otherwise indicated.
6. SUBSTITUTE FORM W-9. In order to avoid 31% federal income tax backup
withholding on the payment of the purchase price pursuant to the Offer, each
tendering Limited Partner should verify to the Depository its correct TIN or
Social Security number (Box A). Failure to provide the information on the
form may subject the Limited Partner to 31% federal income tax withholding on
the payments made to the Limited Partner or other payee with respect to Units
tendered.
7. To avoid special withholding requirements applicable to certain foreign
persons, the FIRPTA Affidavit (Box B) must be completed.
8. Exempt foreign persons not subject to tax backup withholding should
complete the Substitute W-8 (Box C).
<PAGE>
9. DELIVERY OF PAYMENTS. All payments to be made in respect of tendered
Units will be made to the registered holder at the address specified on the
label on the front of this Letter of Transmittal.
Failure to provide the information on these forms may subject the Limited
Partner to federal income tax withholding on payments made to the Limited
Partners or other payee with respect to Units tendered.
IMPORTANT: IN ORDER VALIDLY TO TENDER UNITS IN THE OFFER, THIS LETTER OF
TRANSMITTAL (OR FACSIMILE THEREOF) AND A DULY EXECUTED SIGNATURE PAGE TO THE
NOTE AND SECURITY AGREEMENT MUST BE RECEIVED BY IBJ SCHRODER BANK & TRUST
COMPANY, THE DEPOSITORY, PRIOR TO 5:00 P.M., NEW YORK TIME ON MARCH 2, 1995,
UNLESS THE OFFER IS EXTENDED. IF YOU HAVE ANY QUESTIONS OR NEED ASSISTANCE
COMPLETING THIS LETTER OF TRANSMITTAL, PLEASE CALL D.F. KING & CO., INC., THE
INFORMATION AGENT, AT (212) 269-5550 OR AT (800) 659-5550.
<PAGE>
IMPORTANT TAX INFORMATION
Under federal income tax law, a Limited Partner whose tendered Units or
any portion thereof is accepted for payment is required to verify to the
Depository such Limited Partner's correct Taxpayer Identification Number
("TIN") (Box A). If the tendering Limited Partner has not been issued a TIN
and has applied for a number or intends to apply for a number in the near
future the tendering Limited Partner should so certify. If the Depository is
not provided with the correct TIN, the tendering Limited Partner may be
subject to a $50 penalty imposed by the Internal Revenue Service ("IRS"). In
addition, payments that are made to such Limited Partner with respect to
Units purchased pursuant to the Offer may be subject to backup withholding.
See Instruction 6 and the enclosed Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9. Certain foreign Limited
Partners may be subject to special withholding requirements. A Limited
Partner must complete the FIRPTA Affidavit (Box B) to avoid such
withholdings. See Instruction 7. Certain Limited Partners (including, among
others, all corporations and certain foreign individuals) are not subject to
these backup withholding and reporting requirements. To advise the Purchaser
of such status a Limited Partner who is an "exempt foreign person" must
complete the Substitute Form W-8 (Box C). See Instruction 8.
If backup withholding applies, the Depository is required to withhold 31%
of any payment made to the tendering Limited Partner. Backup withholding is
not an additional tax. If withholding results in an overpayment of taxes, a
refund may be obtained.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup federal income tax withholding with respect to payment
of the purchase price for Units purchased pursuant to the Offer, a tendering
Limited Partner must verify to the Depository its correct TIN. If the Units
are held in more than one name or are not held in the name of the actual
owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on
which number to report. Failure to provide the information on the form may
subject the Limited Partner to 31% federal income tax withholding on the
payments made to the Limited Partner or other payee with respect to Units
tendered in the Offer.
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
BOX A
- -------------------------------------------------------------------------------------------------------------
<S> <C>
SUBSTITUTE Please provide the TIN of the person submitting this Letter of Transmittal on the line
FORM W-9 below or, if such person is awaiting TIN, check the box. Social Security Number or
TAXPAYER Employer Identification Number
IDENTIFICATION ------------------------------------------------------------------------------------------
NUMBER Awaiting TIN [ ]
-----------------------------------------------------------------------------------------
</TABLE>
- -------------------------------------------------------------------------------
BOX B
- -----------------------------------------------------------------------------
(ATTACH ADDITIONAL COPIES FOR JOINT LIMITED PARTNERS)
FIRPTA AFFIDAVIT
(SEE INSTRUCTION 7)
Under Section 1445(e)(5) of the Internal Revenue Code and Treas. Reg.
1.1445-11T(d), a transferee must withhold tax equal to 10% of the amount
realized with respect to certain transfers of an interest in a partnership in
which 50 percent or more of the value of the gross assets consists of U.S.
real property interest and 90 percent or more of the value of the gross
assets consist of U.S. real property interests plus cash or cash equivalents,
if the holder of the partnership interest is a foreign person. To inform the
Purchaser that no withholding is required with respect to the Units tendered
in the Offer, the Limited Partner hereby certifies the following under
penalties of perjury:
(1) The Limited Partner, if an individual, is not a nonresident alien for
purposes of U.S. income taxation, and if not an individual, is not a foreign
corporation, foreign partnership, foreign trust or foreign estate (as those
terms are defined in the Internal Revenue Code and Income Tax Regulations);
(2) The Limited Partner's U.S. social security number (for individuals) or
employer identification number (for non-individuals) is____________________ ;
(3) The Limited Partner's home address (for individuals), or office address
and (if applicable) place of incorporation (for non-individuals) is _________
_____________________________________________________________________________ .
The Limited Partner understands that this certification may be disclosed to
the IRS by the Purchaser and that any false statements contained herein could
be punished by fine, imprisonment, or both.
- -------------------------------------------------------------------------------
BOX C
- -----------------------------------------------------------------------------
(ATTACH ADDITIONAL COPIES FOR JOINT LIMITED PARTNERS)
SUBSTITUTE FORM W-8
(SEE INSTRUCTION 8)
By checking this box [ ], the Limited Partner certifies that it is an
"exempt foreign person" for purposes of the backup withholding rules under
the U.S. federal income tax laws, because the Limited Partner:
(1) is a nonresident alien individual or a foreign corporation,
partnership, estate or trust;
(2) if an individual, has not been and plans not to be present in the U.S.
for a total of 183 days or more during the calendar year; and
(3) neither engages, nor plans to engage, in a U.S. trade or business that
has effectively connected gains from transactions with a broker or barter
exchange.
- -------------------------------------------------------------------------------
<PAGE>
The Depository for the Offer is:
IBJ SCHRODER BANK & TRUST COMPANY
Facsimile:
(212) 858-2611
Confirm by telephone:
(212) 858-2103
By Mail: By Hand or Overnight Delivery:
P.O. Box 84 1 State Street
Bowling Green Station New York, New York 10004
New York, New York 10274-0084 Attn: Securities Processing
Attn: Reorganization Operations Window SC-1
Department
The Information Agent for this Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(212) 269-5550
(Call Collect)
or Call Toll-Free (800) 659-5550
<PAGE>
IMPORTANT:
IN ORDER TO VALIDLY TENDER UNITS THIS SIGNATURE PAGE MUST BE EXECUTED AND
RETURNED WITH THE LETTER OF TRANSMITTAL
NOTE AND SECURITY AGREEMENT SIGNATURE PAGE
WITNESSETH, the undersigned hereby executes this Note as of the date first
above written.
LIMITED PARTNER, as Borrower1
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
----------------------------------
- ---------------
(1) Each Borrower must sign exactly as such Borrower's name appears on the face
of the Letter of Transmittal.
<PAGE>
AQUARIUS ACQUISITION, L.P.
C/O NOMURA ASSET CAPITAL CORPORATION
TWO WORLD FINANCIAL CENTER
NEW YORK, NEW YORK 10281
February 1, 1995
To: Limited Partners of
Springhill Lake Investors
Limited Partnership
Re: Offer to Purchase Units of
Springhill Lake Investors
Limited Partnership
Dear Limited Partner:
Enclosed with this letter is an Offer to Purchase (including the annexes
thereto, the "Offer to Purchase") pursuant to which the undersigned Aquarius
Acquisition, L.P., a newly formed Delaware limited partnership (the
"Purchaser"), is offering to purchase outstanding limited partnership
interests in Springhill Lake Investors Limited Partnership, a Maryland
limited partnership (the "Partnership") for cash consideration per Unit (as
such term is defined in the partnership agreement of the Partnership) of
$36,000 (pro rated in respect of fractional Units), which may include the
proceeds of a non-recourse loan (as more fully described below), upon the
terms and subject to the conditions set forth in the Offer to Purchase and in
the related Letter of Transmittal, as each may be supplemented or amended
from time to time (which together constitute this "Offer").
Limited Partners who tender Units will not be obligated to pay any
commissions, transfer fees, or transaction costs, all of which will be borne
by the Purchaser. This Offer is not conditioned on any minimum number of
Units being tendered. A Limited Partner may tender all or any portion of the
Units owned by it. A Limited Partner will retain ownership of any portion of
the Units it chooses not to tender.
This Offer has been made as an alternative to (a) the proposal ("Lerner
Proposal") made by Greenbelt Residential Limited Partnership, an affiliate of
Theodore N. Lerner ("Lerner"), to purchase the Partnership's 90% ownership
interest in operating partnerships that own Springhill Lake Apartments (the
"Project") or (b) a possible sale of the Project to a third party. ANY
LIMITED PARTNER WHO HAS DELIVERED ITS CONSENT TO THE LERNER PROPOSAL MAY
NEVERTHELESS STILL TENDER ALL OR ANY PORTION OF ITS UNITS PURSUANT TO THIS
OFFER.
This Offer will expire at 5:00 P.M. New York time on March 2, 1995 unless
extended.
EACH LIMITED PARTNER IS URGED TO READ CAREFULLY THE ENCLOSED OFFER TO
PURCHASE AND LETTER OF TRANSMITTAL IN THEIR ENTIRETY.
The Purchaser believes that Limited Partners may find this Offer an
attractive way to liquidate their investment in the Partnership, and a more
attractive alternative than the Lerner Proposal, or a possible sale of the
Project to a third party, for the following reasons:
o THIS OFFER PROVIDES MORE CASH PER UNIT ($36,000) TO LIMITED PARTNERS
THAN THE LERNER PROPOSAL (WHICH ESTIMATES AN EVENTUAL CASH PAYMENT OF $32,200
PER UNIT, CONSISTING OF $30,200 IN SALE PROCEEDS AND $2,000 FROM 1994
PARTNERSHIP OPERATIONS).
o THIS OFFER IS MORE LIKELY TO CLOSE THAN EITHER THE LERNER PROPOSAL OR A
POSSIBLE SALE OF THE PROJECT TO A THIRD PARTY. The Lerner Proposal is and any
possible sale to a third party would be subject to certain contingencies,
including the approval (i) by the Project's mortgage lender (the "Lender") of
the assumption of the mortgage loans affecting the Project and (ii) by
Limited Partners owning more than 50% of the Units. By contrast, this Offer
does not require the approval of the Lender or any other third party and does
not require any minimum level of participation by Limited Partners.
<PAGE>
o THE LERNER PROPOSAL OR A SALE OF THE PROJECT TO A THIRD PARTY WILL
REQUIRE SIGNIFICANTLY MORE TIME TO NEGOTIATE AND CLOSE THAN THIS OFFER.
Because the Lerner Proposal or a third party sale would require the
completion of a consent solicitation process in respect of Limited Partners
and a negotiation period with the Lender to obtain its consent to the sale,
the Purchaser estimates that such a transaction would take at least three
months to conclude. A sale to a third party would take even longer because
the Partnership would also be required to market the Project for a reasonable
time, to provide each prospective purchaser adequate opportunity to conduct a
"due diligence" review of the Project, to negotiate sale documentation for
the Project with a prospective buyer and to provide Lerner with an
opportunity to match the terms of such a sale pursuant to his existing right
of first refusal arrangement. By contrast, consummation of this Offer is not
subject to any of the foregoing considerations.
o THIS OFFER PROVIDES MORE FLEXIBILITY THAN THE LERNER PROPOSAL OR A
POSSIBLE SALE TO A THIRD PARTY BECAUSE THIS OFFER GIVES EACH LIMITED PARTNER
THE OPTION TO: (A) RETAIN ITS UNITS; (B) RETAIN A PORTION OF ITS UNITS WHILE
ALSO TENDERING A PORTION OF ITS UNITS; OR (C) TENDER ALL ITS UNITS. Thus,
each Limited Partner who believes that now is not the right time to liquidate
its investment in the Partnership may retain it or a portion of its Units,
while each Limited Partner seeking liquidity for its investment may tender
all or a portion of its Units and receive cash consideration of $36,000 per
Unit. Neither the Lerner Proposal nor a possible sale of the Project to a
third party offers these options to Limited Partners.
o THIS OFFER PROVIDES THAT EACH LIMITED PARTNER WILL PROMPTLY RECEIVE
$36,000 IN CASH FOR EACH UNIT TENDERED AND IS NOT SUBJECT TO REDUCTION OR
CONTINGENCIES IF THIS OFFER IS CONSUMMATED. By contrast, because of certain
contingencies inherent in the Lerner Proposal, the actual per Unit
distribution amount which would result from a sale of the Project pursuant to
the Lerner Proposal could be even less than the $32,200 per Unit amount
estimated by Lerner. If the Lender does not approve assumption of the
mortgage loans affecting the Project by a new purchaser and insists on
receiving the prepayment penalty provided under the terms of the mortgage
(estimated to be as much as $5,000,000), the Lerner Proposal provides that
the per Unit proceeds could be reduced by $5,890, resulting in an estimated
per Unit distribution of only $26,310. In addition, the proposed form of
contract attached to the Lerner Proposal would require the Partnership to
make certain representations and warranties and to provide certain
indemnities which could cause the Partnership to reserve a portion of the
sale proceeds and thereby delay, and possibly reduce, the cash distribution
to Limited Partners.
The Purchaser is an affiliate of Nomura Asset Capital Corporation ("NACC")
and was formed on January 31, 1995. As of December 22, 1994, NACC acquired
indirect control of the managing general partner of the Partnership, Three
Winthrop Properties, Inc. ("Three Winthrop"), and on January 27, 1995
acquired indirect control (without equity ownership) of the Partnership's
other general partner, Linnaeus-Lexington Associates Limited Partnership
("Linnaeus-Lexington"). Because of the affiliation between the Purchaser,
Three Winthrop and Linnaeus-Lexington, the Partnership is making no
recommendation as to whether Limited Partners should tender their Units in
this Offer. In addition, this Offer is being made in compliance with the
provisions of Rule 13e-3 under the Securities and Exchange Act of 1934.
Pursuant to the Amended and Restated Limited Partnership Agreement of the
Partnership (the "Partnership Agreement"), a transfer of Units may not be
made if, after giving effect to such transfer, a termination of the
Partnership would occur for tax purposes. Such a tax termination would occur
if 50% or more of the outstanding interests in the Partnership (limited and
general) were transferred in any 12-month period. In order to prevent a
violation of the Partnership Agreement while, at the same time, providing
each tendering Limited Partner with a total of $36,000 per Unit in Cash
Consideration, the Purchaser has structured this Offer to include a
non-recourse loan in the event that more than 50.5% of the Units are
tendered. In such event, each tendering Limited Partner will be paid cash
consideration of $36,000 per Unit, a portion of which will represent the
purchase proceeds and the balance will represent the proceeds of a
non-recourse loan made by the Purchaser to such Limited Partner (each, a
"Loan"). Each Loan may be satisfied in full by a tendering Limited Partner,
one year and one day from
<PAGE>
consummation of this Offer, by either (a) surrendering to the Purchaser the
portion of its Units which secure the Loan or, (b) a payment in cash equal to
the then outstanding balance of principal and accrued interest in respect of
such Loan. If the Purchaser acquires more than 50% of the Units, it may seek
to amend the Partnership Agreement to permit transfers of Units in excess of
the amount which would cause a tax termination of the Partnership. If any
such amendment becomes effective, the Loan will become due, upon demand of
the Purchaser. THE ACCEPTANCE OF A LOAN WILL NOT IMPOSE ANY PERSONAL
LIABILITY ON A TENDERING LIMITED PARTNER FOR THE PAYMENT OF ANY PRINCIPAL OR
INTEREST IN RESPECT OF ITS LOAN.
This letter provides only a brief summary of the terms and effects of the
Offer and is not meant to provide a full description thereof. Limited
Partners are urged to read the accompanying Offer to Purchase and Letter of
Transmittal carefully, and to consult their own advisors, tax, financial or
otherwise, before deciding whether to tender their Units.
In order to tender any Units in this Offer, the following documents must
be received by IBJ Schroder Bank & Trust Company, the Depository, prior to
5:00 P.M., New York time, on March 2, 1995:
(i) duly executed Letter of Transmittal (or facsimile thereof) which
requires Limited Partners to indicate, on the front page of the Letter
of Transmittal, the percentage of their Units being tendered and to
sign in the section titled "Sign Here to Tender.";
(ii) duly completed Substitute Form W-9 (included in the Letter of
Transmittal) which requires Limited Partners to indicate in Box A, its
Taxpayer Identification Number;
(iii) duly completed FIRPTA Affidavit (included in the Letter of
Transmittal) which requires Limited Partners to complete lines 2 and
3 in Box B;
(iv) duly executed signature page to the Note and Security Agreement (the
enclosed yellow page);
(v) If a Limited Partner is an "Exempt Foreign Person," a duly, completed
Substitute Form W-8 (included in the Letter of Transmittal) which
requires such Limited Partners to check the box in Box C; and
(vi) if a Limited Partner is a trustee, executor, administrator, guardian,
attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, duly executed signature
guarantees and evidences of authority, in accordance with Instructions
1 and 3 in the Letter of Transmittal.
A prepaid self-addressed envelope is enclosed for your convenience. If you
have any questions or need assistance completing the Letter of Transmittal,
please call D.F. King & Co., Inc., the Information Agent, at (212) 269-5550
or at (800) 659-5550.
Very truly yours,
AQUARIUS ACQUISITION, L.P.
Exhibit (a)(4)
CONTACTS:
Kevin Schwicardi
D.F. King & Co., Inc.
(212) 269-5550
FOR IMMEDIATE RELEASE
AQUARIUS ACQUISITION, L.P. COMMENCES OFFER TO PURCHASE
SPRINGHILL LAKE INVESTORS LIMITED PARTNERSHIP INTERESTS
NEW YORK, NEW YORK, February 1, 1995 -- Aquarius Acquisition, L.P., a
newly formed Delaware limited partnership, announced today that it has commenced
an offer to purchase outstanding limited partnership interests in Springhill
Lake Investors Limited Partnership, a Maryland limited partnership, for a cash
payment of $36,000 per partnership unit, subject to the terms and conditions set
forth in the offer document and its related transmittal letter.
Up to approximately $18,000 of the consideration paid for each tendered
unit may be in the form of proceeds of a non-recourse secured loan from the
purchaser to a tendering unit holder, depending upon the number of units
tendered.
The offer by Aquarius is made to Springhill Lake limited partners of
record as of February 1, 1995. The offer will expire at 5:00 P.M., New York
Time, on March 2, 1995, unless extended.
The Offer is being made only by an Offer to Purchase dated February 1,
1995, and the related Letter of Transmittal, copies of which can be obtained
from the Information Agent, D.F. King & Co., Inc., by calling 1-800-659-5550.
