<PAGE>
SCHEDULE 14A (Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Eastpoint Mall Limited Partnership
(Name of Registrant as Specified in Its Charter)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/x/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
Depository Units of Limited Partnership Interests
(2) Aggregate number of securities to which transaction applies:
4,575 Units of Limited Partnership Interest
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11
(Set forth the amount on which the filing fee
is calculated and state how it was determined):
Based upon the aggregate cash to be paid for the sole asset of the
Registrant ($25,526,465.00) which is the subject of this Schedule
14A, the Registrant is paying a filing fee of $5,105.29
(one-fiftieth of one percent of the cash to be received by the
Registrant in the subject transaction.)
(4) Proposed maximum aggregate value of transaction:
$25,526,465.00
(5) Total fee paid: $5,105.29
/x/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid: $5,105.29
(2) Form, Schedule or Registration Statement No:
Schedule 14A
(3) Filing Party:
Eastpoint Mall Limited Partnership
(4) Date Filed:
August 22, 1997
<PAGE>
EASTPOINT MALL LIMITED PARTNERSHIP
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285-2900
October 29, 1997
To the Limited Partners of
Eastpoint Mall Limited Partnership:
We are pleased to inform you that after considerable negotiation, we have
been successful in reaching an agreement to sell the interest of Eastpoint Mall
Limited Partnership (the 'Partnership') in Eastpoint Mall, located in Baltimore
County, Maryland (the 'Mall'). Based on an agreed upon value for the Mall of
$81,000,000, Shopco Advisory Corp. (the 'Purchaser') or its assignee(s) will pay
the Partnership $25,489,064 in cash for the Partnership's interest in Eastpoint
Partners, L.P., a New York limited partnership (the 'Owner Partnership'), which
holds title to the Mall, and will pay such amounts as are necessary to satisfy
the $51,000,000 principal amount of the Owner Partnership's mortgage
indebtedness on the Mall. We estimate that, together with the Partnership's
available cash after paying or providing for payment of transaction costs and
all other outstanding and anticipated Partnership liabilities, the Limited
Partners will receive distributions of approximately $6,800 per unit of limited
partnership interest of the Partnership (each, a 'Unit' and collectively, the
'Units') as a result of this sale and the Partnership's ultimate dissolution.
The sale will be accomplished through a sale by the Partnership and Eastern
Avenue Inc., the other general partner of the Owner Partnership (the 'General
Partner'), of their combined 91% general partnership interests in the Owner
Partnership (the 'Sale' or the 'Transaction'). The agreed upon value of the Mall
was based, in part, on the fair market value of the Mall as determined by an
independent appraiser, and an arm's length negotiation between the Purchaser and
the General Partner on behalf of the Partnership. The Partnership has also
received an opinion from such independent appraiser that the price per Unit to
be received by the Limited Partners in this Transaction is fair, from a
financial point of view, to the Limited Partners.
You are cordially invited to attend the Special Meeting of the Limited
Partners to be held at the Partnership's offices on Friday, November 28, 1997,
at 9:00 a.m., New York time, at which time you will be asked to approve the
Transaction. Limited Partners holding a majority of the Units must approve the
Transaction by voting 'FOR' on the enclosed proxy card in order for the
Partnership to proceed with the Transaction.
THE GENERAL PARTNER RECOMMENDS THAT THE LIMITED PARTNERS VOTE 'FOR' THE
TRANSACTION.
If the Sale is approved by the Limited Partners and certain other
conditions to the Sale are met or waived, the Sale will be consummated, and
thereafter the Partnership will be liquidated and dissolved at such time as the
General Partner determines that all remaining Partnership assets are available
for distribution and all Partnership obligations and liabilities have been paid
or provision has been made for their payment.
The cash proceeds from the sale of the Partnership's general partnership
interest in the Owner Partnership (the 'Interest'), together with all other cash
of the Partnership (anticipated to be approximately $7,330,000 as of December
15, 1997), after paying or providing for payment of transaction costs and all
other outstanding and anticipated Partnership liabilities, will be distributed
to you. The estimated distributions of $6,800 per Unit represent (i) net
proceeds from the Sale (after paying or providing for payment of transaction
costs) of approximately $5,200 per Unit and (ii) additional Partnership cash
reserves (after paying or providing for payment of outstanding and anticipated
Partnership liabilities), which the Partnership estimates will be approximately
$1,600 per Unit. The availability of funds for distribution of additional
Partnership cash reserves will be determined, in part, based on the collection
after the Closing of certain rental and other payments due from tenants at the
Mall adjusted as of the Closing Date. In order to collect such funds sooner than
they would otherwise be paid, the Partnership may accept discounted payments
with respect to amounts due, which would result in Limited Partners receiving
their liquidating distribution sooner than would otherwise be the case but could
reduce the amount of such liquidating distribution. An initial distribution is
contemplated to occur within 60 days of the consummation of the Transaction, and
a final liquidating distribution of cash reserves not utilized to meet
Partnership obligations or liabilities will be made at such time as determined
by the General Partner.
Please read the enclosed proxy statement and return the proxy card
indicating your vote on the Sale by mail in the enclosed, prepaid envelope to
MacKenzie Partners, Inc., 156 Fifth Avenue, 13th Floor, New York, New York 10010
or by facsimile to (212) 929-0308, Attention: Robert Marese. Your vote is
important and must be
<PAGE>
received no later than November 26, 1997, in order to obtain the necessary
approval of the Limited Partners to consummate the Sale. The enclosed proxy
statement contains detailed instructions on completing and returning your proxy.
The General Partner's recommendation is based on a number of factors more
fully described in the enclosed proxy statement. Certain conflicts of interest
exist in connection with the General Partner's recommendation. Such conflicts of
interest are described in the enclosed proxy statement.
Whether or not you plan to attend the Special Meeting in person and
regardless of the number of Units you own, you should complete, sign, date and
return the enclosed proxy card promptly. You may, of course, attend the Special
Meeting and vote in person, even if you have previously returned your proxy
card. A failure to vote will have the same effect as a vote against the
Transaction. YOU ARE URGED, THEREFORE, TO SIGN, DATE AND RETURN THE ENCLOSED
PROXY CARD PROMPTLY. Should you have any questions, please contact MacKenzie
Partners, Inc., the Partnership's information agent, by calling toll-free (800)
322-2885 or (212) 929-5500 (collect).
Your participation in this vote is important and greatly appreciated.
Sincerely,
Robert J. Hellman
President
Eastern Avenue Inc.
<PAGE>
NOTICE OF SPECIAL MEETING
OF
THE LIMITED PARTNERS
OF
EASTPOINT MALL LIMITED PARTNERSHIP
TO BE HELD ON NOVEMBER 28, 1997
To the Limited Partners of
Eastpoint Mall Limited Partnership:
NOTICE IS HEREBY GIVEN that a special meeting (the 'Special Meeting') of
the Limited Partners of Eastpoint Mall Limited Partnership, a Delaware limited
partnership (the 'Partnership'), will be held at the offices of the Partnership,
3 World Financial Center, 26th Floor, New York, New York 10285-2900 on Friday,
November 28, 1997, at 9:00 a.m., New York time, for the following purposes:
1. To approve the sale of the Partnership's 90.9% general partnership
interest (the 'Interest') in Eastpoint Partners, L.P., constituting all
of the Partnership's ownership interest in Eastpoint Mall, to Shopco
Advisory Corp., a New York corporation, or its assignee(s), and the
subsequent liquidation and dissolution of the Partnership. The General
Partner anticipates that the Limited Partners will receive distributions
of approximately $6,800 per unit of limited partnership interest in the
Partnership in cash, representing (i) approximately $5,200 per unit of
net proceeds from the sale of the Interest (after paying or providing
for payment of transaction costs) and (ii) additional Partnership cash
reserves (after payment or provision for payment of outstanding and
anticipated Partnership liabilities), which the Partnership estimates
will be approximately $1,600 per unit.
2. To transact such other business as may properly come before the Special
Meeting or any adjournment(s) or postponement(s) thereof.
Information regarding the matters to be acted upon at the Special Meeting
is set forth in the accompanying Proxy Statement.
EASTERN AVENUE INC., THE GENERAL PARTNER OF THE PARTNERSHIP (THE 'GENERAL
PARTNER'), RECOMMENDS THAT THE LIMITED PARTNERS VOTE 'FOR' THE TRANSACTION.
You are invited to attend the Special Meeting. Even if you intend to attend
the Special Meeting, you are requested to sign and date the accompanying proxy
card and return it promptly either in the enclosed, postage-prepaid envelope or
by facsimile to (212) 929-0308, Attention: Robert Marese. If you attend the
Special Meeting, you may, if you wish, vote in person regardless of whether you
have given your proxy. In any event, a proxy may be revoked at any time before
it is exercised.
The close of business on October 28, 1997, has been established as the
record date for determining the Limited Partners entitled to notice of, and to
direct the vote of Units at, the Special Meeting. There are no quorum
requirements with respect to the Special Meeting; however, if Limited Partners
holding a majority of the Units do not submit a proxy or vote in person at the
Special Meeting, the sale, liquidation and dissolution cannot be approved.
Attendance at the Special Meeting will be limited to registered holders of Units
and invited guests of the Partnership.
EASTERN AVENUE INC.
General Partner
Robert J. Hellman
President
New York, New York
October 29, 1997
YOUR VOTE IS VERY IMPORTANT. IN ORDER TO ENSURE THAT YOUR INTERESTS WILL BE
REPRESENTED, WHETHER YOU INTEND TO BE PRESENT AT THE SPECIAL MEETING OR NOT,
PLEASE SIGN THE ENCLOSED PROXY CARD AND RETURN IT PROMPTLY EITHER IN THE
ENCLOSED, POSTAGE-PREPAID ENVELOPE OR BY FACSIMILE TO (212) 929-0308, ATTENTION:
ROBERT MARESE. FAILURE TO RETURN A PROXY CARD OR ABSTENTION FROM VOTING WILL
HAVE THE SAME EFFECT AS A VOTE 'AGAINST' THE TRANSACTION. ANY PROPERLY EXECUTED
PROXY CARD ON WHICH A CHOICE IS NOT INDICATED WILL BE VOTED 'FOR' THE
TRANSACTION.
<PAGE>
EASTPOINT MALL LIMITED PARTNERSHIP
3 WORLD FINANCIAL CENTER, 29TH FLOOR
NEW YORK, NEW YORK 10285-2900
PROXY STATEMENT
FOR THE SPECIAL MEETING OF THE LIMITED PARTNERS
TO BE HELD ON NOVEMBER 28, 1997
This proxy statement (the 'Proxy Statement') and the enclosed proxy card
are being first mailed to the limited partners (the 'Limited Partners') of
Eastpoint Mall Limited Partnership, a Delaware limited partnership (the
'Partnership'), on or about October 29, 1997, by the General Partner, as
hereinafter defined, on behalf of the Partnership to solicit proxies for use at
a special meeting of the Limited Partners (the 'Special Meeting') to be held at
the offices of the Partnership, 3 World Financial Center, 26th Floor, New York,
New York 10285-2900, on Friday, November 28, 1997, at 9:00 a.m., New York time,
or at such other place and time to which the Special Meeting may be adjourned.
The purpose of the Special Meeting is to consider the approval of a sale
(the 'Sale' or the 'Transaction') of the Partnership's 90.9% general partnership
interest (the 'Interest') in Eastpoint Partners, L.P., a New York limited
partnership (the 'Owner Partnership'). The primary asset of the Owner
Partnership is Eastpoint Mall located in Baltimore County, Maryland (the
'Mall'). Following the Sale, the Partnership and the Limited Partners will have
no further ownership interest in the Mall.
The purchase price for the Interest was based, in part, on the fair market
value of the Mall, which was $81,000,000 as determined by an independent
appraiser, and an arm's length negotiation between the Purchaser, as hereinafter
defined, and the General Partner on behalf of the Partnership. The Purchaser
will pay an amount necessary to satisfy the $51,000,000 principal amount of the
Owner Partnership's mortgage indebtedness on the Mall, and pay the Partnership
$25,489,064 in cash (the 'Purchase Price') for the Interest, which is
approximately $5,200 per Unit (as hereinafter defined) after accounting for
Transaction Costs (as hereinafter defined). The purchaser of the Interest will
be Shopco Advisory Corp., a New York corporation (the 'Purchaser'), or one or
more assignees of the Purchaser which are affiliates of the Purchaser.
The Partnership is the managing general partner of the Owner Partnership.
The Owner Partnership consists of the Partnership, which holds a 90.9% general
partnership interest in the Owner Partnership; Eastern Avenue Inc. (the 'General
Partner,' formerly Shearson Lehman Eastern Avenue Inc.), a Delaware corporation
and affiliate of Lehman Brothers Inc. ('Lehman'), which holds a 0.1% general
partnership interest; and SFN Limited Partnership ('SFN'), a Maryland limited
partnership, which holds a 9% limited partnership interest. Shopco Management
Corp., a New York corporation (the 'Property Manager'), has been retained by the
Owner Partnership as managing and leasing agent for the Mall. SFN and the
Property Manager are affiliates of the Purchaser.
The terms of the Sale are set forth in an Agreement of Purchase and Sale,
dated as of July 31, 1997, as amended, among the Purchaser, the Partnership and
the General Partner (the 'Purchase Agreement'). Subject to the terms of the
Purchase Agreement, the General Partner has also agreed to sell its general
partnership interest in the Owner Partnership to the Purchaser for a purchase
price of $1,362,761. If the Transaction is approved by the Limited Partners and
certain other conditions to the Sale are met or waived, the Sale will be
consummated and the Partnership will have sold its Interest in the Owner
Partnership (and, indirectly, the Mall) to the Purchaser. Pursuant to the terms
of the Purchase Agreement, the General Partner has agreed that the Partnership
will not be dissolved for at least 60 days after the closing date of the
Transaction. Thereafter, the Partnership will be liquidated and dissolved at
such time as the General Partner determines that all remaining Partnership
assets are available for distribution and all Partnership obligations and
liabilities have been paid or provision has been made for their payment (the
'Liquidation').
The General Partner estimates that the Limited Partners will receive
distributions of approximately $6,800 per Unit in cash as a result of the Sale
and the Partnership's ultimate liquidation, representing (i) net proceeds from
the Sale (after paying or providing for payment of Transaction Costs (as
hereinafter defined)) of approximately $5,200 per Unit and (ii) additional
Partnership cash reserves (after payment or provision for payment of outstanding
and anticipated Partnership liabilities), which the Partnership estimates will
be
<PAGE>
approximately $1,600 per Unit. The availability of funds for distribution of
additional Partnership cash reserves will be determined, in part, based on the
collection after the Closing of certain rental and other payments due from
tenants at the Mall adjusted as of the Closing Date. In order to collect such
funds sooner than they would otherwise be paid, the Partnership may accept
discounted payments with respect to amounts due, which would result in Limited
Partners receiving their liquidating distribution sooner than would otherwise be
the case but could reduce the amount of such liquidating distribution. The
actual distribution will be based upon the net cash proceeds of the Sale,
together with all remaining cash of the Partnership after paying or providing
for payment of the Partnership's actual costs in connection with: (i) the proxy
solicitation; (ii) the Sale (as detailed in the Purchase Agreement); and (iii)
the winding up of the Partnership, including preparation of the final audit, tax
return and K-1s (collectively, the 'Transaction Costs'), and all other
outstanding and anticipated Partnership liabilities (including establishing
reasonable reserves for any contingent or unforeseen liabilities or
obligations). The General Partner or an affiliate will receive a brokerage fee
from the Partnership in connection with the Transaction in the amount of
$737,000, and the General Partner will receive a liquidating distribution of
approximately $200,000 in the aggregate in accordance with the Partnership
Agreement (as hereinafter defined). Any increase or decrease in total
Partnership distributions based on funds collected after the Closing and the
amount required to pay or provide for payment of the Partnership's obligations
or liabilities will increase or decrease the General Partner's liquidating
distribution pro rata with the Limited Partners in accordance with the
Partnership Agreement.
The affirmative vote of the Limited Partners holding a majority (in excess
of 50%) (a 'Majority-in-Interest') of the issued and outstanding units of
limited partnership interest of the Partnership (each, a 'Unit' and
collectively, the 'Units') is necessary to approve the Transaction. There are no
quorum requirements with respect to the Special Meeting; however, if Limited
Partners holding a Majority-in-Interest of the Units do not submit a proxy or
vote in person at the Special Meeting, the Transaction cannot be approved.
Neither Delaware law nor the Partnership's Restated Agreement and Certificate of
Limited Partnership Agreement, dated as of June 25, 1985, as amended (the
'Partnership Agreement'), provide the Limited Partners not voting in favor of
the Transaction with dissenters' appraisal rights.
The close of business on October 28, 1997, has been established as the
record date (the 'Record Date') for determining the Limited Partners entitled to
notice of, and to direct the vote of the Units at, the Special Meeting. As of
the Record Date, the Partnership had outstanding and entitled to vote 4,575
Units, held of record by 1,648 Limited Partners. Each Unit entitles the holder
to one vote on each matter submitted to a vote of the Limited Partners.
THE GENERAL PARTNER RECOMMENDS THAT THE LIMITED PARTNERS VOTE 'FOR' THE
TRANSACTION.
The General Partner's recommendation is based on a number of factors more
fully described in this Proxy Statement. Certain conflicts of interest exist in
connection with the General Partner's recommendation. Such conflicts of interest
are described in this Proxy Statement.
All duly executed proxy cards received from the Limited Partners prior to
the Special Meeting will be voted in accordance with the instructions specified
thereon. If a duly executed proxy card does not specify a choice, the Units
represented thereby will be voted 'FOR' the Transaction. A Limited Partner who
gives a proxy may revoke it at any time before it is voted at the Special
Meeting, as described in this Proxy Statement.
The accompanying proxy is solicited by the General Partner on behalf of the
Partnership, to be voted at the Special Meeting and any adjournment(s) or
postponement(s) thereof. The Partnership's principal executive offices are
located at 3 World Financial Center, 29th Floor, New York, New York 10285-2900,
and its telephone number is (212) 526-3237. The Partnership has engaged
MacKenzie Partners, Inc. to act as Information Agent in connection with the
proxy solicitation process. All communications should be directed to MacKenzie
Partners, Inc. by calling toll-free (800) 322-2885 or (212) 929-5500 (collect).
In addition to the original solicitation by mail, proxies may be solicited by
telephone, facsimile transmission or in person. All expenses of this
solicitation, including the cost of preparing and mailing this Proxy Statement,
will be borne by the Partnership.
The Partnership's Securities and Exchange Commission file number is 1-6024.
------------------------
The date of this Proxy Statement is October 29, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................................................... 1
Background............................................................................................... 1
The Transaction.......................................................................................... 1
The Special Meeting; Vote Required....................................................................... 2
Purpose of and Reasons for the Transaction............................................................... 2
Effects of the Transaction............................................................................... 3
Valuation of the Mall; Fairness Opinion.................................................................. 3
Recommendation of the General Partner.................................................................... 4
Conflicts of Interest.................................................................................... 5
SPECIAL FACTORS............................................................................................ 5
Purpose of and Reasons for the Transaction............................................................... 5
Effects of the Transaction............................................................................... 8
Valuation of the Mall; Fairness Opinion.................................................................. 9
Recommendation of the General Partner.................................................................... 12
Appraisal Rights......................................................................................... 14
Costs Associated with the Transaction.................................................................... 15
SPECIAL MEETING OF THE LIMITED PARTNERS.................................................................... 15
Special Meeting; Record Date............................................................................. 15
Procedures for Completing Proxies........................................................................ 15
Vote Required............................................................................................ 16
Solicitation Procedures.................................................................................. 17
Revocation of Proxies.................................................................................... 17
TERMS OF THE TRANSACTION................................................................................... 17
The Purchase Agreement................................................................................... 17
Representations and Warranties of the Parties............................................................ 18
Additional Agreements.................................................................................... 19
Conditions to Closing the Transaction.................................................................... 22
Termination of the Purchase Agreement.................................................................... 23
Amendment of the Purchase Agreement...................................................................... 24
Dissolution and Liquidation of the Partnership........................................................... 24
Determination of Cash Available for Distribution......................................................... 25
Regulatory Approvals..................................................................................... 26
ACCOUNTING ISSUES AND INCOME TAX CONSEQUENCES OF THE TRANSACTION........................................... 26
Accounting Issues........................................................................................ 26
Federal Income Tax Consequences of the Transaction....................................................... 26
CONFLICTS OF INTEREST...................................................................................... 30
Sale of General Partner's General Partnership Interest in the Owner Partnership.......................... 30
Brokerage Fee Received by the General Partner............................................................ 30
Liquidating Distribution Received by the General Partner under the Partnership Agreement................. 30
Indemnification under the Partnership Agreement.......................................................... 30
Purchaser Financing...................................................................................... 31
CERTAIN INFORMATION ABOUT THE PARTNERSHIP.................................................................. 31
The Partnership.......................................................................................... 31
The General Partner...................................................................................... 32
The Property Manager..................................................................................... 32
Description of the Mall.................................................................................. 32
Distributions............................................................................................ 35
Ownership of Units....................................................................................... 36
</TABLE>
i
<PAGE>
<TABLE>
<S> <C>
Market for the Units..................................................................................... 36
Independent Certified Public Accountants................................................................. 36
Available Information.................................................................................... 36
CERTAIN INFORMATION CONCERNING THE PURCHASER............................................................... 37
SELECTED FINANCIAL DATA.................................................................................... 37
INCORPORATION BY REFERENCE................................................................................. 37
ANNEX I FAIRNESS OPINION................................................................................. I-1
ANNEX II
* SELECTED FINANCIAL DATA............................................................................... II-1
* MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS SET FORTH IN
THE PARTNERSHIP'S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1996..................... II-2
* MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS AS SET FORTH IN
THE PARTNERSHIP'S QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 1997................... II-6
</TABLE>
ii
<PAGE>
SUMMARY
Set forth below is a summary of certain information contained elsewhere in
this Proxy Statement. It is not intended to be a complete description of those
matters which it covers, and much of the information contained in this Proxy
Statement is not covered by this Summary. The information contained in this
Summary is qualified by the more complete information contained elsewhere in
this Proxy Statement or incorporated by reference into this Proxy Statement. All
Limited Partners are urged to read this Proxy Statement in its entirety.
BACKGROUND
The Partnership is a Delaware limited partnership formed on June 26, 1985.
The affairs of the Partnership are conducted by the General Partner. The
Partnership was formed to acquire a general partnership interest in Bellwether
Properties, L.P., a New York limited partnership, the primary asset of which was
the Mall. Concurrent with such acquisition, Bellwether Properties, L.P. was
reconstituted under the name of the Owner Partnership, Eastpoint Partners, L.P.,
and the Partnership became the managing general partner of the Owner
Partnership. The Owner Partnership consists of the Partnership, which holds a
90.9% general partnership interest in the Owner Partnership; the General
Partner, which holds a 0.1% general partnership interest; and SFN, which holds a
9% limited partnership interest. The Mall is the major asset of the Owner
Partnership. The Property Manager is the managing and leasing agent for the
Mall. See 'CERTAIN INFORMATION ABOUT THE PARTNERSHIP--The Partnership' and
'--The Property Manager.'
All of the Partnership's revenues, operating profit or losses and assets
relate solely to its interest as the managing general partner of the Owner
Partnership. All of the Owner Partnership's revenues, operating profit or losses
and assets relate solely to its ownership interest in and operation of the Mall.
The Partnership's sole business is owning a general partnership interest in, and
acting as the managing general partner of, the Owner Partnership. The Owner
Partnership's sole business is the ownership and operation of the Mall. The Mall
is managed on a day-to-day basis by the Property Manager. The Property Manager
is responsible for rent collection, leasing and day-to-day on-site management of
the Mall. See 'CERTAIN INFORMATION ABOUT THE PARTNERSHIP--The Partnership' and
'--The Property Manager.'
The Mall is an enclosed regional shopping center located on approximately
67.1 acres in Baltimore County, Maryland, approximately one mile east of the
city limits of Baltimore. The Mall consists of a central enclosed mall anchored
by four major department stores--J.C. Penney, Inc. ('J.C. Penney'),
Schottenstein Stores Corporation, doing business as Value City ('Value City'),
Sears, Roebuck and Co. ('Sears') and Ames Department Stores, Inc. ('Ames'). The
Mall currently has gross leasable space totaling 864,993 square feet. For a
description of the Mall and its operations, see the section entitled 'CERTAIN
INFORMATION ABOUT THE PARTNERSHIP--Description of the Mall.'
THE TRANSACTION
The Sale
Pursuant to the terms of the Purchase Agreement, the Partnership proposes
to sell the Interest to the Purchaser for a Purchase Price of $25,489,064 in
cash, which is approximately $5,200 per Unit of net proceeds from the Sale after
paying or providing for payment of Transaction Costs (and which is in addition
to Partnership cash after payment or provision for payment of outstanding and
anticipated Partnership liabilities, which the Partnership estimates will be
approximately $7,330,000 or $1,600 per Unit). For a summary of the terms of the
Purchase Agreement, see the section entitled 'TERMS OF THE TRANSACTION.' The
agreed upon value of the Mall of $81,000,000 was based, in part, on the fair
market value of the Mall as determined by an independent appraiser and an arm's
length negotiation between the Purchaser and the General Partner on behalf of
the Partnership. The Partnership has also received an opinion from such
independent appraiser that the price per Unit to be received by the Limited
Partners in this Transaction is fair, from a financial point of view, to the
Limited Partners. See 'SPECIAL FACTORS--Valuation of the Mall; Fairness
Opinion.'
Dissolution and Liquidation
If the Transaction is approved by the Limited Partners and certain other
conditions to the Sale are met or waived, the Sale will be consummated and the
Partnership will have sold its Interest in the Owner Partnership (and,
indirectly, the Mall) to the Purchaser. Pursuant to the terms of the Purchase
Agreement, the General Partner has agreed that the Partnership will not be
dissolved for at least 60 days after the closing date of the Transaction (the
'Closing Date') and will maintain minimum cash reserves of $500,000 during such
60-day period.
<PAGE>
Thereafter, the Partnership will be liquidated and dissolved at such time as the
General Partner determines that all remaining Partnership assets are available
for distribution and all Partnership obligations and liabilities have been paid
or provided for. The General Partner estimates that the Limited Partners will
receive distributions of approximately $6,800 per Unit in cash as a result of
the Sale and the Partnership's ultimate dissolution, representing (i)
approximately $5,200 per Unit of net proceeds from the Sale (after paying or
providing for payment of Transaction Costs) and (ii) Partnership cash reserves
(after payment or providing for payment of outstanding and anticipated
Partnership liabilities), which the Partnership estimates will be approximately
$1,600 per Unit. The actual distributions will be based upon the cash proceeds
of the Sale, together with all remaining cash of the Partnership after paying or
providing for payment of the Transaction Costs and all other outstanding and
anticipated Partnership liabilities (including establishing reserves for any
contingent or unforeseen liabilities or obligations). The availability of funds
for distribution of additional Partnership cash reserves will be determined, in
part, based on the collection after the Closing of certain rental and other
payments due from tenants at the Mall adjusted as of the Closing Date. In order
to collect such funds sooner than they would otherwise be paid, the Partnership
may accept discounted payments with respect to amounts due, which would result
in Limited Partners receiving their liquidating distribution sooner than would
otherwise be the case but could reduce the amount of such liquidating
distribution. See 'TERMS OF THE TRANSACTION--Dissolution and Liquidation of the
Partnership' and '--Determination of Cash Available for Distribution.' The
General Partner or an affiliate will receive a brokerage fee of $737,000 from
the Partnership in connection with the Transaction, and the General Partner will
receive a liquidating distribution of approximately $200,000 in the aggregate,
in accordance with the terms of the Partnership Agreement. Any increase or
decrease in total Partnership distributions based on funds collected after the
Closing and the amount required to pay or provide for payment of the
Partnership's obligations or liabilities will increase or decrease the General
Partner's liquidating distribution pro rata with the Limited Partners in
accordance with the Partnership Agreement. See 'CONFLICTS OF INTEREST.'
THE SPECIAL MEETING; VOTE REQUIRED
A Special Meeting of the Limited Partners will be held on November 28,
1997, to consider and vote upon the Transaction. The close of business on
October 28, 1997, has been established as the Record Date. As of the Record
Date, the Partnership had outstanding and entitled to vote 4,575 Units, held of
record by 1,648 Limited Partners. Each Unit entitles the holder to one vote on
each matter submitted to a vote of the Limited Partners. It is a condition to
the closing of the Sale that Limited Partners holding a Majority-in-Interest of
the Units approve the Transaction. The General Partner on behalf of the
Partnership is soliciting proxies from the Limited Partners to be voted at the
Special Meeting and any adjournment(s) or postponement(s) thereof. See 'SPECIAL
MEETING OF THE LIMITED PARTNERS.'
PURPOSE OF AND REASONS FOR THE TRANSACTION
As part of the General Partner's continuing effort to fulfill its fiduciary
responsibility to the Limited Partners by enhancing the value of the Limited
Partners' investment in the Units, the General Partner continually considers
various strategies and alternatives available to the Partnership. One such
strategy is the sale or disposition of the Partnership's Interest in the Owner
Partnership. For a discussion of these various strategies and alternatives, see
'SPECIAL FACTORS--Purpose of and Reasons for the Transaction.'
Consummation of the Transaction will result in the transfer of the fair
market value of the Partnership's Interest in the Owner Partnership (and,
indirectly, the Mall) to the Limited Partners on an all cash basis (after taking
into account the mortgage debt secured by the Mall) through a structure which
limits the Partnership's post-closing liabilities and the risks associated with
ownership of the Interest and investment in the Units. This structure allows the
Limited Partners to liquidate, on an all cash basis, their illiquid investment
in their Units, which cash can then be invested in alternative investments.
The considerations which resulted in the determination to present the
Transaction to the Limited Partners and to recommend the Transaction are
described in the section entitled 'SPECIAL FACTORS--Purpose of and Reasons for
the Transaction.' Although the Transaction is not without risks, as described in
the section entitled 'SPECIAL FACTORS--Purpose of and Reasons for the
Transaction,' the General Partner believes that, given the favorable terms of
the Transaction, it is its fiduciary responsibility to present the Transaction
to the Limited Partners for their approval and to recommend the Transaction.
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EFFECTS OF THE TRANSACTION
If the Transaction is approved by the Limited Partners and certain other
conditions to the Sale are met or waived, the Sale will be consummated and the
Partnership will have sold its Interest in the Owner Partnership (and,
indirectly, the Mall) to the Purchaser. Pursuant to the terms of the Purchase
Agreement, the General Partner has agreed that the Partnership will not be
dissolved for at least 60 days after the Closing Date and that the Partnership
will maintain minimum cash reserves of $500,000 during this 60-day period.
Thereafter, the Partnership will be liquidated and dissolved at such time as the
General Partner determines that all remaining Partnership assets are available
for distribution and all Partnership obligations and liabilities have been paid
or provided for.
The General Partner estimates that the Limited Partners will receive
distributions of approximately $6,800 per Unit in cash as a result of the Sale
and the Partnership's ultimate dissolution, representing (i) approximately
$5,200 per Unit of net proceeds from the Sale (after paying or providing for
payment of Transaction Costs) and (ii) the distribution of additional
Partnership cash reserves (after paying or providing for payment of outstanding
and anticipated Partnership liabilities), which the Partnership estimates will
be approximately $7,330,000 or $1,600 per Unit. The availability of funds for
distribution of additional Partnership cash reserves will be determined, in
part, based on the collection after the Closing of certain rental and other
payments due from tenants at the Mall adjusted as of the Closing Date. In order
to collect such funds sooner than they would otherwise be paid, the Partnership
may accept discounted payments with respect to amounts due, which would result
in Limited Partners receiving their liquidating distribution sooner than would
otherwise be the case but could reduce the amount of such liquidating
distribution. The actual distributions will be based upon the net cash proceeds
of the Sale, together with all remaining cash of the Partnership after paying or
providing for payment of the Transaction Costs and all other outstanding and
anticipated Partnership liabilities (including establishing reserves for any
contingent or unforeseen liabilities or obligations). See 'TERMS OF THE
TRANSACTION-- Dissolution and Liquidation of the Partnership' and
'--Determination of Cash Available for Distribution.' Any reserves not utilized
to meet Partnership liabilities or obligations will be distributed to the
Limited Partners at such time as determined by the General Partner. Upon
liquidation and dissolution of the Partnership, Limited Partners will cease to
have an ownership interest in the Partnership and will no longer bear the risks
or benefits associated with such ownership. See 'SPECIAL FACTORS--Effects of the
Transaction.' For a description of certain tax consequences of the Transaction,
see 'ACCOUNTING ISSUES AND INCOME TAX CONSEQUENCES OF THE TRANSACTION.'
The General Partner or an affiliate will receive a brokerage fee of
$737,000 from the Partnership in connection with the Transaction, and the
General Partner will receive a liquidating distribution of approximately
$200,000 in the aggregate, in accordance with the terms of the Partnership
Agreement. Any increase or decrease in total Partnership distributions based on
funds collected after the Closing and the amount required to pay or provide for
payment of the Partnership's obligations or liabilities will increase or
decrease the General Partner's liquidating distribution pro rata with the
Limited Partners in accordance with the Partnership Agreement. See 'CONFLICTS OF
INTEREST.'
If the Transaction is not consummated, there can be no assurance as to
whether any future disposition of the Interest or the Mall will occur or on what
terms such a transaction might occur. However, if the Transaction is not
approved, the General Partner will continue to operate the Partnership in
accordance with the terms of the Partnership Agreement and in fulfillment of its
fiduciary duties, including the review of any third-party offers to purchase the
Interest or the Mall, in an effort to enhance the Partnership's value on behalf
of the Limited Partners. In addition, the General Partner will continue to
evaluate the various alternatives to the Transaction, as described in the
section entitled 'SPECIAL FACTORS--Purpose of and Reasons for the Transaction.'
Such alternatives include: (i) continuing to hold the Interest and the Mall;
(ii) an auction of the Interest or the Mall; and (iii) solicitation of
third-party bids for the Interest or the Mall. The General Partner has concluded
that such options are not in the best interest of the Limited Partners at this
time, particularly in light of the Purchaser's offer. See 'SPECIAL
FACTORS--Effects of the Transaction--Effects of Failure to Approve the
Transaction.'
VALUATION OF THE MALL; FAIRNESS OPINION
The Amended and Restated Agreement of Limited Partnership of Eastpoint
Partners, L.P., dated as of November 29, 1985 (the 'Owner Partnership
Agreement'), requires the Owner Partnership to cause an appraisal of the Mall to
be conducted annually. Pursuant to the Owner Partnership Agreement, Cushman &
Wakefield, Inc.
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('Cushman & Wakefield'), an independent third-party appraisal firm, was engaged
by the Partnership to prepare an appraisal of the Mall as of January 1, 1997.
Cushman & Wakefield is part of a national network of affiliated full service
real estate companies providing brokerage, management, consulting and valuation
services in the United States. Pursuant to its engagement, Cushman & Wakefield
reported to the Partnership that the valuation of the Mall was $81,000,000 as of
January 1, 1997 (the 'Valuation'). Cushman & Wakefield had reported the same
valuation of the Mall to the Partnership in its appraisal of the Mall as of
January 1, 1996. The agreed upon value of the Mall was based, in part, on the
fair market value of the Mall as determined by Cushman & Wakefield and an arm's
length negotiation between the Purchaser and the General Partner on behalf of
the Partnership. See 'SPECIAL FACTORS--Valuation of the Mall; Fairness Opinion.'
Cushman & Wakefield was subsequently engaged to provide an opinion as to
the fairness of the Transaction, from a financial point of view, to the Limited
Partners (the 'Fairness Opinion'). In its Fairness Opinion, Cushman & Wakefield
advised the Partnership that in its opinion, the price per Unit to be received
by the Limited Partners in this Transaction is fair, from a financial point of
view, to the Limited Partners. The discussion herein of the Fairness Opinion is
qualified in its entirety by reference to the section entitled 'SPECIAL
FACTORS--Valuation of the Mall; Fairness Opinion' and to the text of such
Fairness Opinion, a copy of which is attached to this Proxy Statement as Annex
I. The General Partner does not anticipate that the Fairness Opinion will be
updated by Cushman & Wakefield following the date of this Proxy Statement.
RECOMMENDATION OF THE GENERAL PARTNER
THE GENERAL PARTNER RECOMMENDS THAT THE LIMITED PARTNERS VOTE 'FOR' THE
TRANSACTION. The General Partner's recommendation and its determination that the
terms of the Transaction are fair to the Limited Partners was based on the
following factors. See 'SPECIAL FACTORS--Recommendation of the General Partner'
for a more detailed discussion of the following factors.
Factors in Favor of the Transaction
In determining the fairness of the Transaction, the General Partner
considered the following factors which weighed in favor of the Transaction: (i)
the use of an independent appraiser's valuation of the Mall and an arm's length
negotiation between the Purchaser and the General Partner on behalf of the
Partnership as the basis for determining the agreed upon value of the Mall; (ii)
the structure of the Sale as an all cash transaction; (iii) the Fairness Opinion
rendered in connection with the Transaction; (iv) reduced transaction costs in
this Transaction; (v) avoidance of certain real estate transfer taxes as a
result of the structuring of the Transaction as a sale of the partnership
interests, rather than a transfer of title to the Mall; (vi) the Purchaser is an
affiliate of the Property Manager and, accordingly, is familiar with the Mall,
thereby limiting the representations and warranties in the Purchase Agreement
and the need to escrow or reserve substantial funds after the Closing Date to
satisfy any post-Closing liabilities (other than the Partnership's agreement to
maintain minimum cash reserves of $500,000 for at least 60 days after the
Closing Date); (vii) the flexibility granted to the General Partner in the
Purchase Agreement to consider subsequent offers that can produce a better
return to the Limited Partners; (viii) the fact that a Majority-in-Interest of
the Limited Partners is required to approve the Transaction; (ix) the fact that
the longer the Interest is held, the greater the risk of lease renegotiation at
lower than market or current rental rates and non-renewal and early termination
of leases at the Mall; (x) the fact that the Mall is likely to require a
renovation and/or expansion within the next few years in order to maintain its
competitive position, for which the Partnership may not have sufficient
available funds and which might necessitate continued ownership of the Mall for
several years to realize a return on such investment, but which would thereby
expose the Limited Partners to the additional market risk of continued ownership
of their Units; (xi) the high cost of operating a publicly-held entity; (xii)
the lack of an established trading market for the Units; and (xiii) the General
Partner's industry knowledge regarding the marketability of the Mall and
properties similar to the Mall.
Factors Against the Transaction
In determining the fairness of the Transaction, the General Partner also
considered the following factors which weighed against the Transaction: (i) no
unaffiliated representative was retained to act solely on behalf of the Limited
Partners for the purpose of negotiating the Transaction; (ii) the Limited
Partners may be unable to invest the cash received by them in connection with
the Transaction in alternative investments that will generate a return equal to
or greater than that generated by the investment in the Partnership; (iii) after
the consummation of
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the Sale, the Limited Partners will no longer share in any potential increases
in the value of the Interest in the Mall; (iv) there can be no assurances that a
better offer for the acquisition of the Interest in the Mall may not be
available; and (v) the Limited Partners may incur certain tax liabilities as a
result of the Transaction.
The General Partner concluded that the factors weighing in favor of the
Transaction outweighed the factors weighing against the Transaction and that, as
with any investment decision, the potential disadvantages and risks of the
Transaction are speculative, cannot be quantified and do not outweigh the
benefits of the Transaction.
CONFLICTS OF INTEREST
The Transaction is subject to certain conflicts of interest as more fully
described in the section entitled 'CONFLICTS OF INTEREST.' Such conflicts
include: (i) simultaneously with the sale of the Interest, the General Partner
will sell its general partnership interest in the Owner Partnership to the
Purchaser for a purchase price of $1,362,761; (ii) the General Partner or an
affiliate will receive a brokerage fee of $737,000 in connection with the
Transaction, and the General Partner will receive a liquidating distribution of
approximately $200,000 in the aggregate in connection with the liquidation and
dissolution of the Partnership in accordance with the Partnership Agreement;
(iii) pursuant to the Partnership Agreement, the General Partner is entitled to
certain indemnification rights by the Partnership; and (iv) first mortgage and
secondary financing for the Purchaser's acquisition of the Interest and the
General Partner's general partnership interest in the Owner Partnership is being
provided by two affiliates of Lehman, which is the sole stockholder of the
General Partner, on terms deemed commercially reasonable by the Purchaser.
SPECIAL FACTORS
PURPOSE OF AND REASONS FOR THE TRANSACTION
As part of the General Partner's continuing effort to fulfill its fiduciary
responsibility to the Limited Partners by enhancing the value of the Limited
Partners' investment in the Units, the General Partner continually considers
various strategies and alternatives available to the Partnership. One such
strategy is the sale or disposition of the Partnership's Interest in the Owner
Partnership.
Consummation of the Transaction will result in the transfer of the fair
market value of the Partnership's Interest in the Owner Partnership (and,
indirectly, the Mall) to the Limited Partners on an all cash basis (after taking
into account the mortgage debt secured by the Mall) through a structure which
limits the Partnership's post-closing liabilities and the risks associated with
ownership of the Interest and investment in the Units. This structure allows the
Limited Partners to liquidate, on an all cash basis, their illiquid investment
in their Units, which cash can then be invested in alternative investments.
The terms of the Transaction are viewed by the General Partner to be
favorable to the Partnership and the Limited Partners in part because: (i) the
Sale will be consummated on an all cash basis at an agreed upon value of the
Mall based, in part, on the $81,000,000 fair market value of the Mall as
determined by an independent appraiser and an arm's length negotiation between
the Purchaser and the General Partner on behalf of the Partnership; (ii) the
Limited Partners will no longer be subject to the risks inherent in the
ownership of retail malls; and (iii) the Transaction is structured such that
costs are estimated to equal approximately $1,302,020, which is approximately
1.6% of the total value of the Transaction, which the General Partner believes
to be below industry standards for a transaction of this size. See
'--Recommendation of the General Partner--Factors in Favor of the Transaction.'
Although the Transaction is not without risks, as described in the subsection
entitled '--Risks of the Transaction,' the General Partner believes that, given
the favorable terms of the Transaction, it has a fiduciary responsibility to
present the Transaction to the Limited Partners for their approval and to
recommend the Transaction.
The considerations which resulted in the determination to present the
Transaction to the Limited Partners and to recommend the Transaction are
described in more detail below.
Background of the Transaction
The General Partner considered several alternatives to selling the Interest
to the Purchaser as contemplated by the Purchase Agreement, including: (i)
continuing to hold the Interest and the Mall; (ii) an auction of the Interest or
the Mall; and (iii) solicitation of third-party bids for the Interest or the
Mall.
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Continuing to hold the Interest and the Mall, considered the least
desirable alternative, was rejected. The value of the Mall--and the
Interest--becomes less certain the longer the property is held, increasing the
risk in such ownership. Certain of these risks were recently evidenced at the
Mall by the bankruptcy-related lease terminations, defaults or non-renewals by
Marianne, Marianne Plus, Jeans West, County Seat and Rave and the
bankruptcy-related lease rejections during the past two years by Jean Nicole, No
Name, Merry-Go-Round, The Diet Workshop, Glamour Shots and Kids Mart. Such risks
are not exclusively limited to specialty stores; they can also affect anchor
tenants, as evidenced by the 1990 bankruptcy of Ames at the Mall and other
recent bankruptcies of national chains, such as Montgomery Ward and Caldor. A
sale of the Interest at this time will avoid such increasing risks.
Preliminary discussions with potential purchasers confirmed the General
Partner's belief that it was highly unlikely that an offer could be obtained
which reflected a valuation of the Mall higher than that reflected in the
Purchaser's offer. In addition, pursuing an offer from a third party posed a
risk that the Purchaser's offer would be withdrawn or reduced. Also, a sale to a
party which did not have the Purchaser's familiarity and involvement with the
Mall would be likely, in the opinion of the General Partner, to have required a
longer time to consummate the sale, thereby increasing the risk that the
transaction might not close, and would also be likely to require more extensive
representations and warranties from the Partnership and the escrow of funds to
cover post-closing liabilities, thereby increasing the risk that a smaller
amount of net proceeds would be available for distribution to the Limited
Partners.
An auction of the Interest or the Mall was rejected by the General Partner.
In addition to the factors noted in the preceding paragraph, it is the belief of
the General Partner that real estate auctions (as opposed to a solicitation of
third-party bids through the use of investment bankers or real estate brokers)
are frequently viewed as a sale method of last resort, making it even less
likely that a price greater than the price reflected in the proposed Sale could
be achieved, as the typical buyer at such an auction is seeking below-market
purchase prices.
In its Annual Report on Form 10-K for the year ended December 31, 1996, the
Partnership reported that it intended to begin marketing the Mall for sale in
1997. In the first quarter of 1997, the General Partner prepared informational
materials with respect to the Mall and Mall operations and engaged in
preliminary discussions with certain potential purchasers of the Mall.
In March 1997, representatives of the Purchaser, which is an affiliate of
the Property Manager and SFN, the sole limited partner of the Owner Partnership,
advised the General Partner that the Purchaser was interested in pursuing a
transaction to acquire the Mall or the Partnership's Interest and the General
Partner's general partnership interest in the Owner Partnership. On May 30,
1997, representatives of the Purchaser and the Partnership and the General
Partner and their respective counsel met to discuss the terms of a potential
transaction. Representatives of the Purchaser and of the Partnership and the
General Partner negotiated the terms of the Purchase Agreement during June
through August 1997. The agreed upon value of the Mall was determined based, in
part, on the fair market value of the Mall as determined by an independent
appraiser and an arm's length negotiation between the Purchaser and the General
Partner on behalf of the Partnership. From August through mid-October 1997, the
Purchaser engaged in discussions with the master servicing agent for the pool of
mortgages in which the Owner Partnership's mortgage indebtedness on the Mall has
been placed, to agree on the procedure by which the Purchaser would satisfy the
Owner Partnership's $51,000,000 principal amount of outstanding mortgage
indebtedness. On October 20, 1997, the Master Servicing Agent and the Owner
Partnership entered into an agreement with respect to these arrangements (the
'Master Servicing Agent Agreement'). On October 28, 1997, the Purchaser and the
Sellers entered into an amendment to the Purchase Agreement relating to the
arrangements to satisfy such mortgage indebtedness and related matters (the
'Amendment').
If the Transaction is not approved, there can be no assurance as to whether
any future sale of the Interest or the Mall, or any future liquidation or
dissolution of the Partnership, will occur or on what terms such a sale, or
liquidation or dissolution, might occur. Despite the Partnership obtaining both
the Valuation and the Fairness Opinion from Cushman & Wakefield, there can be no
assurances that a better offer for the acquisition of the Interest or the Mall
may not be available now or in the future.
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Risks and Related Costs Associated with Continued Ownership of the Mall
The ownership of retail properties is subject to risks relating to
conditions in the retailing industry, which has seen a number of bankruptcies of
national chains (commonly known as 'national credit tenants') as well as smaller
local retailers. The longer the Partnership holds its Interest in the Owner
Partnership and the Mall, the greater the risk to the Partnership of lease
renegotiation at rental rates lower than market or current rates, and
non-renewal and early termination of leases at the Mall. At the Mall, this risk
is evidenced by the recent lease defaults by Marianne, Marianne Plus, Jeans
West, County Seat and Rave and the lease rejections during the past two years by
Jean Nicole, No Name, Merry-Go-Round, The Diet Workshop, Glamour Shots and Kids
Mart in connection with their respective bankruptcy filings. Such risks are not
exclusively limited to specialty stores; they can also affect national credit
tenants as evidenced by the 1990 bankruptcy of Ames at the Mall and the recent
bankruptcies of Montgomery Ward and Caldor. Such lease defaults or non-renewal
could result in the need for substantial capital improvements or remodeling to
attract new tenants. The Owner Partnership and the Partnership have previously
reserved against such risks, and the maintenance of such reserves, together with
lease defaults, non-renewals and early terminations, has resulted and could be
expected to result in the future in lower distributions to the Limited Partners.
The Mall is likely to require a renovation and/or expansion within the next
few years in order to maintain its competitive position. The Partnership may not
have sufficient available funds for such renovation or expansion. Any financing
required in connection with such renovation or expansion would increase the
liabilities of the Owner Partnership or the Partnership and may result in lower
distributions to the Limited Partners. In addition, a renovation or expansion of
the Mall might necessitate continued ownership of the Mall for several years in
order to enable the Partnership to realize a return on such investment, which
would expose the Limited Partners to the additional market risks associated with
continued ownership of the Mall and the lack of an established trading market
for the Units.
The Partnership incurs general and administrative costs related to its
status as a public reporting entity under the Federal securities laws. The costs
of preparing reports such as Annual Reports on Form 10-K and Quarterly Reports
on Form 10-Q, as well as the expenses of printing and mailing these materials,
are significant. In addition, the Partnership incurs significant legal and
accounting fees in complying with the Federal securities laws. Over the past two
years, the Partnership has spent approximately $210,300 and $186,500,
respectively, on partnership administration expense, and legal, accounting and
tax advisory fees necessitated, in part, by on-going Federal securities law
compliance.
There is no established trading market for the Units. As a result, the
Limited Partners and the Partnership incur all of the costs associated with
public-entity status, but have little of the benefits. Since the Units are not
readily transferable, the Limited Partners are essentially locked into their
investment in the Units.
Benefits of the Transaction
As a result of the Transaction, the Limited Partners will receive their
proportionate share, on an all cash basis, of the fair market value of the
Partnership's Interest in the Owner Partnership (and, indirectly, the Mall), as
supported by the Valuation of the Mall by Cushman & Wakefield, after the
Partnership pays or provides for payment of all outstanding and anticipated
Partnership liabilities (including establishing reserves for any contingent or
unforeseen liabilities or obligations). Such proceeds can then be reinvested by
the Limited Partners in other investments that could possibly yield a higher
return than the investment in the Partnership. The terms of the Transaction are
viewed by the General Partner to be favorable to the Partnership and the Limited
Partners in part because the cost of the Transaction to the Partnership, which
is estimated at $1,302,020, or approximately 1.6% of the total value of the
Transaction, is believed to be below industry standards for a transaction of
this size. It is not unusual in similar types of transactions for investment
banking fees or real estate brokers commissions to exceed 3% of the value of the
underlying property. In addition, the structure of the Transaction on an 'as is'
basis limits the need for the Partnership to reserve substantial funds after the
Closing Date to satisfy any post-closing liabilities (other than the
Partnership's agreement to maintain cash reserves of $500,000 for at least 60
days after the Closing Date). Finally, consummation of the Transaction and
liquidation and dissolution of the Partnership will permit the Limited Partners
to make alternative investments which may generate favorable returns and greater
liquidity.
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Risks of the Transaction
The Transaction is not without certain potential disadvantages and risks to
the Limited Partners. Such disadvantages and risks include the fact that: (i)
there can be no assurance that the cash Purchase Price received by the Limited
Partners in connection with the Transaction can be invested in alternative
investments that will generate a return equal to or greater than that generated
by the investment in the Partnership; (ii) the Limited Partners will no longer
have an ownership interest in the Interest or the Mall and thus will not share
in any potential increases in their value; (iii) despite the Partnership
obtaining both the Valuation and the Fairness Opinion from Cushman & Wakefield,
there can be no assurances that a better offer for the acquisition of the
Interest or the Mall may not be available now or in the future; and (iv) the
Limited Partners may incur certain tax liabilities as a result of the
Transaction. Notwithstanding the foregoing, the General Partner concluded that,
as with any investment, such potential disadvantages and risks are speculative,
cannot be quantified and do not outweigh the benefits of the Transaction.
EFFECTS OF THE TRANSACTION
General
If the Transaction is approved by the Limited Partners and the remaining
conditions to the Sale are met or waived, the Sale will be consummated, and the
Partnership will have sold its Interest in the Owner Partnership (and,
indirectly, the Mall) to the Purchaser. The Partnership will then pay the
Transaction Costs and pay or make provision (including establishing reserves)
for the payment of all other outstanding and anticipated Partnership
liabilities. Pursuant to the Purchase Agreement, the Partnership has agreed not
to dissolve for a period of 60 days after the closing of the Transaction and has
further agreed to maintain minimum cash reserves of $500,000 during such 60-day
period. See 'TERMS OF THE TRANSACTION--The Purchase Agreement.' The Partnership
will be liquidated and dissolved at such time as the General Partner determines
that all remaining Partnership assets are available for distribution and all
Partnership obligations and liabilities have been paid or provided for.
Thereafter, the registration of the Units under Section 12(g)(4) of the
Securities Exchange Act of 1934, as amended (the 'Exchange Act'), will be
terminated. Further, upon dissolution, the Partnership will no longer be subject
to the periodic reporting requirements of the Exchange Act and will cease filing
information with the Securities and Exchange Commission (the 'Commission'). The
General Partner intends to conclude the liquidation of the Partnership as soon
as possible after the expiration of the 60-day period after the Closing Date.
Effects on the Limited Partners
Upon liquidation and dissolution of the Partnership, in accordance with the
Partnership Agreement, the resulting proceeds of the Sale, together with all
cash on hand and reserves, will be used to make distributions to the Limited
Partners after payment of or making provision for the payment of: (i) all
Transaction Costs; and (ii) all other outstanding and anticipated Partnership
liabilities (including establishing reserves for any contingent or unforeseen
liabilities or obligations). The General Partner currently anticipates that the
Limited Partners will receive distributions of approximately $6,800 per Unit as
a result of the Sale and the Partnership's ultimate dissolution, representing
(i) approximately $5,200 per Unit of net proceeds from the Sale after paying or
providing for payment of Transaction Costs, and (ii) the distribution of
additional Partnership cash reserves (after paying or providing for payment of
outstanding and anticipated Partnership liabilities), which the Partnership
estimates will be approximately $1,600 per Unit. The availability of funds for
distribution of additional Partnership cash reserves will be determined, in
part, based on the collection after the Closing of certain rental and other
payments due from tenants at the Mall adjusted as of the Closing Date. In order
to collect such funds sooner than they would otherwise be paid, the Partnership
may accept discounted payments with respect to amounts due, which would result
in Limited Partners receiving their liquidating distribution sooner than would
otherwise be the case but could reduce the amount of such liquidating
distribution. See 'TERMS OF THE TRANSACTION--Dissolution and Liquidation of the
Partnership' and '--Determination of Cash Available for Distribution.' Based on
the estimated distributions to be made to the Limited Partners as a result of
this Transaction, Limited Partners will receive an amount in excess of their
Preferred Return as defined under the Partnership Agreement.
Following consummation of the Sale, the Limited Partners will cease being
owners of the Owner Partnership and will no longer bear the risks or share in
any potential benefits associated with such ownership. A
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description of such risks is set forth in the section entitled '--Purpose of and
Reasons for the Transaction-- Risks and Related Costs Associated with Continued
Ownership of the Mall.'
Effects on the General Partner
The purchase price to be paid by the Purchaser for the General Partner's
general partnership interest in the Owner Partnership is $1,362,761. This amount
is based upon the General Partner's liquidating interest in the Owner
Partnership and was determined based on the provisions in the Owner Partnership
Agreement governing a sale of the Mall, upon terms otherwise similar to the
Transaction. The General Partner or an affiliate will receive a brokerage fee of
$737,000 from the Partnership in connection with the Transaction, and the
General Partner will receive a liquidating distribution of approximately
$200,000 in the aggregate, in accordance with the terms of the Partnership
Agreement. Any increase or decrease in total Partnership distributions based on
funds collected after the Closing and the amount required to pay or provide for
payment of the Partnership's obligations or liabilities will increase or
decrease the General Partner's liquidating distribution pro rata with the
Limited Partners in accordance with the term of the Partnership Agreement. See
'TERMS OF THE TRANSACTION--Determination of Cash Available for Distribution' and
'CONFLICTS OF INTEREST.'
Effects on the Purchaser
If the Transaction is approved by the Limited Partners and the remaining
conditions to the Sale are met or waived, based on an agreed upon value for the
Mall of $81,000,000, the Purchaser or its assignee(s) will purchase the Interest
for $25,489,064 in cash, will pay an amount necessary to satisfy the $51,000,000
principal amount of the Owner Partnership's mortgage indebtedness on the Mall,
and will acquire the assets and assume the liabilities associated with the
Interest (other than the cash reserves of the Owner Partnership, which will be
distributed to the partners of the Owner Partnership prior to the Closing Date).
Simultaneously with the sale of the Interest, the General Partner will sell its
general partnership interest in the Owner Partnership to the Purchaser or its
assignee(s) for a purchase price of $1,362,761. Thereafter, the benefits and
risks associated with ownership of the Interest and the General Partner's
general partnership interest in the Owner Partnership will rest solely with the
Purchaser or its assignee(s).
Effects of Failure to Approve the Transaction
If the Transaction is not consummated, there can be no assurance as to
whether any future liquidation or disposition of the Interest or the Mall,
either in whole or in part, will occur or on what terms they might occur.
However, if not approved, the General Partner will continue to operate the
Partnership in accordance with the terms of the Partnership Agreement and in
fulfillment of its fiduciary duties, including the review of any third-party
offers to purchase the Interest or the Mall, in an effort to enhance the
Partnership's value on behalf of the Limited Partners. In addition, the General
Partner will continue to evaluate the various alternatives to the Transaction,
as described in the section entitled 'Purpose of and Reasons for the
Transaction.' Such alternatives include: (i) continuing to hold the Interest and
the Mall; (ii) an auction of the Interest or the Mall; and (iii) solicitation of
third-party bids for the Interest or the Mall. The General Partner has concluded
that such options are not in the best interest of the Limited Partners at this
time, particularly in light of the Purchaser's offer.
VALUATION OF THE MALL; FAIRNESS OPINION
The Owner Partnership Agreement requires the Owner Partnership to cause an
appraisal of the Mall to be conducted annually. Pursuant to the Owner
Partnership Agreement, Cushman & Wakefield, an independent third-party appraisal
firm, was engaged by the Partnership to prepare an appraisal of the Mall as of
January 1, 1997. The Partnership subsequently engaged Cushman & Wakefield to
provide the Fairness Opinion. Cushman & Wakefield has provided, and in the
future may provide, appraisal and other services to other partnerships and
entities affiliated with Lehman. Other than the engagements described herein,
there has been no material relationship between Cushman & Wakefield or its
affiliates and the Partnership or its affiliates, nor is any such relationship
contemplated.
A copy of the Fairness Opinion is attached hereto as Annex I.
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Experience of Cushman & Wakefield
Cushman & Wakefield is part of a national network of affiliated full
service real estate companies providing brokerage, management, consulting and
valuation services in the United States (the 'C&W Affiliated Companies'). The
clients of the C&W Affiliated Companies include major commercial and investment
banks, Fortune 500 corporations, pension funds, advisory firms and government
agencies. The Valuation Advisory Services Group of the C&W Affiliated Companies
has 20 branch offices located in various geographic regions of the United
States. This large network of professionals provides local expertise in key
markets and sub-regions. Furthermore, the C&W Affiliated Companies valuation
network provides a large national database of market information and ensures a
consistent methodology for each property valuation. The General Partner chose
Cushman & Wakefield to render the Fairness Opinion based upon their expertise
and industry leadership and their knowledge of the Mall based on the prior
valuations as of January 1, 1996, and January 1, 1997.
Valuation
Pursuant to its engagement, Cushman & Wakefield reported to the Partnership
that the valuation of the Mall was $81,000,000 as of January 1, 1997 (the
'Valuation'). Cushman & Wakefield had reported the same valuation of the Mall to
the Partnership as of January 1, 1996. Certain of the assumptions,
qualifications and limitations to the Valuation are described below. The summary
set forth below does not purport to be a complete description of the analysis
employed by Cushman & Wakefield in preparing the Valuation and is qualified in
its entirety by reference to the complete Valuation, which is available for
inspection and copying by any interested Limited Partner or its representative
who has been so designated by the Limited Partner, at the Partnership's
principal executive offices at 3 World Financial Center, 29th Floor, New York,
New York 10285-2900, during regular business hours. A copy of the Valuation
shall also be sent to any Limited Partner or duly designated representative
thereof, at such Limited Partner's expense, upon request of such Limited Partner
sent to MacKenzie Partners, Inc., 156 Fifth Avenue, 13th Floor, New York, New
York 10010, Attention: Robert Marese. The Partnership imposed no conditions or
limitations on the scope of Cushman & Wakefield's investigation or the methods
and procedures to be followed in preparing the Valuation. No other appraisals of
the Mall were obtained by the Partnership due to the significant cost involved
and the General Partner's opinion that the Valuation was prepared according to
industry standards by a reliable and independent appraisal firm.
Factors Considered
In preparing the Valuation, Cushman & Wakefield: (i) conducted a physical
inspection of the Mall; (ii) considered the location and market area of the
Mall, with particular attention given to the submarket definition, demand
generators, competitive properties, trade area demographics and outlook; (iii)
reviewed property sales history where provided; (iv) analyzed site and
improvements with regard to quality, functionality and condition of improvements
toward existing use; and (v) considered the highest and best use of the Mall. In
addition, Cushman & Wakefield conducted a review and analysis of certain lease
abstracts and lease modifications entered into during the prior fiscal year
affecting the Mall. In conducting their analysis, Cushman & Wakefield was
provided with, among other things: (i) certain information relating to the
business, earnings, operating cash flow and assets of the Mall, including sales
performance of the Mall for fiscal years 1993 through 1996, and estimates of
1997 tenant sales; (ii) surveys, legal descriptions and current property tax
statements; and (iii) such other information as Cushman & Wakefield deemed
necessary or appropriate. In addition, Cushman & Wakefield personnel questioned
the Property Manager about the market in which the Mall operates and the
operating history of the Mall.
Summary of Cushman & Wakefield's Methodology and Approaches to Value
Cushman & Wakefield's valuation of the Mall was based primarily on a
discounted cash flow analysis. Cushman & Wakefield believes that the valuation
resulting from the discounted cash flow analysis is the best indication of
value, as an investor in the type of property owned by the Partnership considers
its income producing capabilities as most important. In conducting its cash flow
analysis, Cushman & Wakefield performed a property analysis to establish an
anticipated cash flow to be received over a specified holding period, typically
of a ten-year duration. The analysis as to cash flows took into account the
contractual rent and the terms and conditions of each lease, plus the
reversionary interest in the Mall, as well as the credit associated therewith.
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Cushman & Wakefield also conducted an analysis of the reversionary
component of the cash flow analysis for the Mall, which valued the Mall at the
end of a specified holding period, based on the estimated highest and best use
of the Mall, at reversion. The highest and best use of the Mall was formulated
based on a decision matrix which took into account specific property and
location characteristics, demographic profile and outlook, sales history and
market position of the property relative to its competition. Where the highest
and best use of a property at reversion is estimated to be a continuation of the
existing use, the reversionary value of the property is based on capitalizing
the property's eleventh year's net operating income into value by means of
direct capitalization. Use of a ten-year investment holding period within a
discounted cash flow analysis represents typical investor criteria within the
market. The discounted cash flow method is an accepted means within the market
of analyzing and valuing properties similar to the Mall, and is in conformance
with the established and accepted valuation procedures of the Appraisal
Institute regarding properties of this type. Cushman & Wakefield determined the
current use of the Mall to be its highest and best use and conducted a
discounted cash flow analysis in accordance with the foregoing description.
Pursuant to the discounted cash flow analysis, Cushman & Wakefield's valuation
of the Mall totaled $80,300,000.
Cushman & Wakefield conducted a sales comparison approach based on
comparable sales. This approach was determined to be less reliable because of
the lack of comparable properties and recent sales data for the Mall. The sales
comparison approach resulted in a valuation of $80,000,000 to $83,000,000.
Finally, Cushman & Wakefield conducted a direct capitalization approach
based on the premise that the relationship between income and sales price may be
expressed as a rate or its reciprocal, a multiplier. This process selects rates
derived from the marketplace and applies such rates to a projected net operating
income to derive a sales price. This approach was determined to be less reliable
because it is simplistic in its view of expectations and sensitive to small
variations in the selected rate. The direct capitalization approach resulted in
a valuation of $83,000,000.
Cushman & Wakefield considered the discounted cash flow analysis, the sales
comparison approach and the direct capitalization approach, and based the final
Valuation of the Mall on a reconciliation of each of these approaches. The
General Partner has reviewed and accepted the final Valuation and believes that
it was prepared in accordance with appropriate professional standards.
Assumptions, Limitations and Qualifications of Cushman & Wakefield's Valuation
Aside from the Assumptions and Limiting Conditions contained in Cushman &
Wakefield's evaluation and valuation reports, in preparing the Valuation,
Cushman & Wakefield relied, without independent verification, on the accuracy
and completeness of all information supplied or otherwise made available to it
by or on behalf of the Partnership. In arriving at the Valuation, Cushman &
Wakefield assumed: (i) good and marketable title to the fee interest in the
Mall; (ii) responsible ownership and competent management of the Mall; (iii) no
hidden or unapparent conditions; (iv) full compliance with zoning laws; (v)
possession of all necessary licenses, certificates of occupancy and other
governmental consents; (vi) that no potentially hazardous or toxic materials
were located at or about the Mall; and (vii) compliance with the Americans with
Disabilities Act of 1990. Cushman & Wakefield did not conduct a legal survey of
the Mall. An appraisal is only an estimate of value, as of the specific date
stated in the appraisal, and is subject to the assumptions and limiting
conditions stated in the report. Reference should be made to the entire
Valuation for a complete description of the analysis employed by Cushman &
Wakefield in preparing the Valuation.
Fairness Opinion
Subsequent to its engagement in connection with the Valuation, Cushman &
Wakefield was engaged to provide the Fairness Opinion. The Partnership imposed
no conditions or limitations on the scope of Cushman & Wakefield's investigation
or the methods and procedures to be followed in rendering its Fairness Opinion.
Cushman & Wakefield was neither asked to make, nor did it make, any
recommendation as to the purchase price of the Mall, although it did provide the
Valuation on which the Purchase Price was based in part. Cushman & Wakefield was
not asked to solicit offers from other interested parties nor was it asked to
opine on any aspects of the Transaction other than the fairness, from a
financial point of view, to the Limited Partners of the price per Unit reflected
in the Transaction. The Fairness Opinion is as of October 29, 1997, and is
subject to the assumptions and limiting conditions set forth therein, which are
described below. The discussion herein of the
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Fairness Opinion is qualified in its entirety by reference to the text of such
Fairness Opinion, a copy of which is attached hereto as Annex I.
In connection with rendering its opinion, Cushman & Wakefield reviewed and
relied on its analysis undertaken in connection with the Valuation and its
appraisal work as a basis for establishing the fairness of the proposed
Transaction. The analysis which Cushman & Wakefield conducted in preparing the
Valuation is described in sections entitled 'SPECIAL FACTORS--Valuation of the
Mall; Fairness Opinion--Factors Considered,' '--Valuation of the Mall; Fairness
Opinion--Summary of Cushman & Wakefield's Methodology and Approaches to Value'
and '--Valuation of the Mall; Fairness Opinion--Assumptions, Limitations and
Qualifications of Cushman & Wakefield's Valuation,' which analysis is
incorporated by reference herein.
In its Fairness Opinion, dated October 29, 1997, Cushman & Wakefield
advised the Partnership that in its opinion, the price per Unit reflected in the
Transaction is fair, from a financial point of view, to the Limited Partners.
As stated above, Cushman & Wakefield reviewed and relied on its analysis
undertaken in connection with the Valuation and its appraisal work as a basis
for establishing the fairness of the Transaction. Other methods could have been
employed to test the fairness of the Transaction and yielded different results.
In rendering its opinion, Cushman & Wakefield noted that it had not considered,
and had not addressed, market conditions and other factors that, in an
open-market transaction, could influence the selling price of the Mall and
result in proceeds to the Limited Partners greater or less than the proposed
price per Unit. Cushman & Wakefield also noted that it had not considered the
price and trading history of other publicly-traded securities that might be
deemed relevant due to the relative small size of the Transaction and the fact
that there is no established trading market for the Units. Furthermore, Cushman
& Wakefield noted that it had not compared the financial terms of the
Transaction to the financial terms of other transactions that might be deemed
relevant, given that the Transaction involves all cash to the Limited Partners.
The General Partner does not expect that the Fairness Opinion will be
updated by Cushman & Wakefield following the date of this Proxy Statement.
Compensation
Cushman & Wakefield was paid a fee of $13,500 by the Partnership, plus
out-of-pocket expenses, for the Valuation, and $40,000 by the Partnership,
inclusive of out-of-pocket expenses, for the Fairness Opinion. Cushman &
Wakefield is also entitled to reimbursements for certain costs which may be
incurred in connection with providing their services to the Partnership. The
fees paid to Cushman & Wakefield in connection with the Valuation and the
Fairness Opinion were negotiated by the General Partner. The Partnership has
agreed to indemnify Cushman & Wakefield against certain liabilities arising out
of its engagement to prepare and deliver the Valuation and the Fairness Opinion.
RECOMMENDATION OF THE GENERAL PARTNER
Factors Considered
THE GENERAL PARTNER BELIEVES THAT THE TERMS OF THE TRANSACTION ARE FAIR TO
THE PARTNERSHIP AND THE LIMITED PARTNERS. THE GENERAL PARTNER RECOMMENDS THAT
THE LIMITED PARTNERS VOTE 'FOR' THE TRANSACTION. In determining the fairness of
the Transaction and its decision to recommend the Transaction, the General
Partner considered each of the factors discussed below. Although the General
Partner was unable to weigh each factor precisely, the factors are set forth
below in their approximate order of importance:
Factors in Favor of the Transaction:
o The agreed upon value of the Mall was based, in part, on the fair market
value of the Mall as determined by Cushman & Wakefield, an expert,
independent appraiser, and an arm's length negotiation between the
Purchaser and the General Partner on behalf of the Partnership. See the
section entitled '--Valuation of the Mall; Fairness Opinion' for a
detailed description of the Valuation, which considered the appraised
fair market value of the Mall as of January 1, 1997. In considering the
importance of this factor, the General Partner considered that Cushman &
Wakefield was retained to conduct the Valuation on behalf of the
Partnership, not the Purchaser, in connection with an annual valuation
of the Mall pursuant to the Owner Partnership Agreement. Since the
Purchaser was willing to
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pay a Purchase Price based on the appraised fair market value of the
Mall as determined by an independent appraiser on an all cash basis, the
General Partner concluded that such factor weighed heavily in favor of
the fairness of the Transaction.
o The fact that the Purchaser is willing to consummate the Sale on an all
cash basis. This all cash transaction will allow substantially all of
the Purchase Price, after payment or provision for payment of the
Transaction Costs and all other outstanding and anticipated Partnership
liabilities (including establishing reserves for any contingent or
unforeseen liabilities or obligations), to be paid to the Limited
Partners, which can thereafter be reinvested by the Limited Partners in
other investments. An all cash transaction also significantly simplifies
the Transaction and lowers Transaction Costs.
o The fact that an opinion was received from Cushman & Wakefield stating
that the price per Unit to be received by the Limited Partners in this
Transaction is fair, from a financial point of view, to the Limited
Partners. See the section entitled '--Valuation of the Mall; Fairness
Opinion' for a discussion of the Fairness Opinion.
o Reduced transaction costs, such as investment banking fees and third
party real estate brokerage commissions, which could have approximated
$1,500,000 to $2,500,000 in the aggregate, compared to the $737,000 in
brokerage fees being paid to the General Partner or an affiliate. Such
third party costs are not atypical in transactions similar to the
Transaction.
o The Transaction has been structured as a sale of the Interest and the
General Partner's interest in the Owner Partnership (which in turn is
the record owner of the Mall), rather than a sale of the underlying real
estate. This structure was selected because under Maryland law, a
transfer of real estate would have required the payment of approximately
$2,000,000 in conveyance taxes, which are not applicable in the case of
the transfer of the Interest. The net savings associated with this
structure, which are being shared by the Purchaser and the Owner
Partnership (with the Partnership and the General Partner receiving
approximately $490,000, or 91% of the Owner Partnership's share, of the
benefit), reduces the costs associated with the Transaction. See the
section entitled 'TERMS OF THE TRANSACTION--The Purchase Agreement.'
o The Purchaser is an affiliate of the Property Manager and, accordingly,
is familiar with the Mall. This has permitted the Sale to be made on an
'as is' basis with respect to the Mall. As an 'as is' sale, the
Partnership will not need to escrow or reserve substantial funds as is
typically necessary with the sale of similar assets (other than the
Partnership's agreement to maintain cash reserves of $500,000 for at
least 60 days after the Closing Date). This will allow substantially all
of the Purchase Price, after payment or provision for payment of the
Transaction Costs and all other outstanding and anticipated Partnership
liabilities (including establishing reserves), to be paid to the Limited
Partners to be invested by the Limited Partners in other investments.
o The fact that the Purchase Agreement permits the General Partner to
terminate the Sale if it receives an alternative proposal to acquire the
Mall or all or any portion of the Interest and determines that the
failure to terminate the Sale might reasonably be expected to violate
the General Partner's fiduciary duties to the Limited Partners, or if it
determines that convening the Special Meeting, recommending that the
Limited Partners approve the Transaction or using its reasonable efforts
to obtain such approval might reasonably be expected to violate the
General Partner's fiduciary duties to the Limited Partners. Such
termination rights of the General Partner and certain termination
payments payable in connection therewith are discussed in the section
entitled 'TERMS OF THE TRANSACTION--Additional Agreements.'
o The fact that the vote of a Majority-in-Interest of the Limited Partners
is required to approve the Transaction.
o The fact that the longer the Interest is held the greater the risk to
the Partnership of renegotiation of leases at rental rates lower than
market or current rates, as well as non-renewal and early termination of
leases at the Mall. These risks are discussed in the section entitled
'--Purpose of and Reasons for the Transaction.'
o The longer the Interest is held, the more likely that a significant
investment will be required for the renovation and/or expansion of the
Mall. The Mall is likely to require a renovation and/or expansion
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within the next few years in order to maintain its competitive position,
for which the Partnership may not have sufficient available funds and
which might necessitate continued ownership of the Mall for several
years to enable the Partnership to realize a return on such investment,
which would expose the Limited Partners to additional market risk. These
costs and risks are discussed in the section entitled 'SPECIAL
FACTORS--Purpose of and Reasons for the Transaction.'
o The high cost of operating the Partnership as a publicly-held entity.
Over the past two years, the Partnership has spent approximately
$210,300 and $186,500, respectively, on partnership administration
expense and legal, accounting and tax advisory fees necessitated, in
part, by on-going Federal securities law compliance.
o The lack of an established exchange or market for the Units which makes
it extremely difficult for the Limited Partners to liquidate their
investment.
o The General Partner's industry knowledge regarding the marketability of
the Mall and properties similar to the Mall.
Factors Against the Transaction:
o No unaffiliated representative was retained to act solely on behalf of
the Limited Partners for the purpose of negotiating the Transaction.
However, the Agreement was negotiated on an arm's length basis and
separate counsel was retained on behalf of the Partnership and the
General Partner, on the one hand, and the Purchaser, on the other hand.
The Purchase Price was based, in part, on an independent appraisal and
such independent appraiser rendered an opinion that the price per Unit
to be received by the Limited Partners in this Transaction is fair, from
a financial point of view, to the Limited Partners.
o The Limited Partners may be unable to invest the cash received by them
in connection with the Transaction in alternative investments that will
generate a return equal to or greater than that generated by the
investment in the Partnership.
o After the consummation of the Sale, the Limited Partners will no longer
have an ownership interest in the Interest or the Mall and thus will not
share in any potential increases in their value.
o There can be no assurances that a better offer for the acquisition of
the Interest or the Mall may not be available now or in the future.
o The Limited Partners may incur certain tax liabilities as a result of
the Transaction. See 'ACCOUNTING ISSUES AND INCOME TAX CONSEQUENCES OF
THE TRANSACTION.'
The current value of the Mall as compared to its book value was not a
significant factor in the General Partner's determination of the fairness of the
terms of the Transaction because, in real estate transactions, book value is not
considered an accurate representation of underlying market value.
Conclusion
After evaluation of each of the foregoing factors, the General Partner
concluded that the factors weighing in favor of the Transaction outweighed the
factors weighing against the Transaction. In particular, the General Partner
concluded that, as with any investment decision, the potential disadvantages and
risks of the Transaction are speculative, cannot be quantified and do not
outweigh the benefits of the Transaction. THEREFORE, THE GENERAL PARTNER
RECOMMENDS THAT THE LIMITED PARTNERS VOTE 'FOR' THE TRANSACTION.
APPRAISAL RIGHTS
Neither Delaware law nor the Partnership Agreement provide rights of
appraisal or similar rights to the Limited Partners who dissent from the vote of
the majority in approving the Transaction. As a result, if Limited Partners
holding a Majority-in-Interest of the Units approve the Transaction and the
Transaction is consummated, the Partnership will be liquidated and all Limited
Partners, including those who do not approve the Transaction, will receive
initial and liquidating distributions pursuant to the terms of the Partnership
Agreement.
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COSTS ASSOCIATED WITH THE TRANSACTION
The following is an itemized statement of the approximate amount of
expenses incurred or estimated to be incurred by the Partnership in connection
with the Transaction:
<TABLE>
<S> <C>
Legal fees.................................................. $ 210,000
Fairness opinion and related expenses....................... 40,000
Printing and mailing costs.................................. 8,500
Accounting fees............................................. 20,000
Proxy solicitation fees..................................... 1,300
Brokerage fee............................................... 737,000
Other, including filing fees(1)............................. 285,220
----------
Total....................................................... $1,302,020
</TABLE>
(1) Includes the Partnership's portion of certain expenses shared by the
Partnership and the Purchaser in connection with the satisfaction of the
$51,000,000 principal amount of the Owner Partnership's mortgage
indebtedness on the Mall.
All of the foregoing fees and expenses will be paid by the Partnership from
cash from operations. Of such fees and expenses, $246,616 has been paid through
October 23, 1997. No part of such funds is expected to be borrowed. In addition,
the Partnership previously paid fees and related expenses of approximately
$14,250 in connection with the Valuation. The cost of the Valuation was a
necessary Partnership expense in accordance with the requirements of the Owner
Partnership Agreement and, therefore, is not considered an expense of the
Transaction.
SPECIAL MEETING OF THE LIMITED PARTNERS
SPECIAL MEETING; RECORD DATE
Pursuant to the terms of the Partnership Agreement, the approval of the
Limited Partners holding a Majority-in-Interest of the Units is required to
approve the Transaction. A Special Meeting of the Limited Partners will be held
on November 28, 1997, at the offices of the Partnership, 3 World Financial
Center, 26th Floor, New York, New York 10285-2900, at 9:00 a.m., New York time,
to consider and vote upon the Transaction. The Partnership Agreement provides
that the General Partner may call a special meeting of the Limited Partners at
any time, provided that the General Partner gives written notice of such meeting
to all Limited Partners, and such meeting must be held no more than 60 days
after the General Partner sends such notice to the Limited Partners. The close
of business on October 28, 1997, has been established as the Record Date. A
Limited Partner holding Units of record as of the Record Date will retain the
right to vote on the proposals set forth herein even if such Limited Partner
sells or transfers such Units after such date. As of the Record Date, the
Partnership had outstanding and entitled to vote 4,575 Units, held of record by
1,648 Limited Partners. A list of the Limited Partners entitled to vote at the
Special Meeting will be available for inspection at the executive offices of the
Partnership at 3 World Financial Center, 29th Floor, New York, New York
10285-2900 following the Record Date. There are no quorum requirements with
respect to the Special Meeting; however, if Limited Partners holding a
Majority-in-Interest of the Units do not submit a proxy or vote in person at the
Special Meeting in favor of the Transaction, the Transaction cannot be approved.
All Limited Partners are invited to attend the Special Meeting. However,
even those Limited Partners intending to attend the Special Meeting are
requested to complete and return the enclosed proxy card promptly.
PROCEDURES FOR COMPLETING PROXIES
Accompanying this Proxy Statement is a proxy card solicited by the General
Partner on behalf of the Partnership for use at the Special Meeting and any
adjournment(s) or postponements(s) thereof. When a proxy card is returned,
properly executed, and is received prior to or at the Special Meeting and before
the occurrence of the vote, and not revoked, the Units represented thereby will
be voted at the Special Meeting by the proxy or proxies named therein in the
manner specified on the proxy card. IT IS IMPORTANT THAT YOU MARK, SIGN AND DATE
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YOUR PROXY CARD AND RETURN IT EITHER IN THE ENCLOSED, POSTAGE-PREPAID ENVELOPE
OR BY FACSIMILE TO (212) 929-0308, ATTENTION: ROBERT MARESE, AS SOON AS
POSSIBLE. Return of your proxy card prior to the Special Meeting does not
prohibit you from attending the Special Meeting. To be properly executed, the
proxy card must be signed by and bear the date of signature of the Limited
Partner voting the Units represented thereby. All questions as to the validity
of proxies will be determined by the General Partner, which determinations shall
be final and binding. The General Partner reserves the right to waive any
defects or irregularities in any proxy.
Each Unit entitles the holder thereof to one vote with respect to the
proxies solicited hereby. Only holders of record of Units on the Record Date may
grant a proxy with respect to those Units. IF UNITS ARE HELD OF RECORD IN THE
NAMES OF TWO OR MORE PERSONS, ALL SUCH PERSONS MUST SIGN THE PROXY CARD. WHEN
SIGNING AS AN ATTORNEY, EXECUTOR, ADMINISTRATOR, TRUSTEE OR GUARDIAN, YOUR FULL
TITLE AS SUCH SHOULD BE PROVIDED. IF A CORPORATION IS THE HOLDER OF RECORD, THE
PROXY SHOULD BE SIGNED BY THE PRESIDENT OR OTHER AUTHORIZED OFFICER. IF A
PARTNERSHIP IS THE HOLDER OF RECORD, THE PROXY SHOULD BE SIGNED BY AN AUTHORIZED
PERSON (A GENERAL OR MANAGING PARTNER OF THE PARTNERSHIP).
A Limited Partner in favor of the Transaction should mark the 'FOR' box on
the enclosed proxy card, date and sign the proxy and return it either in the
enclosed, postage-prepaid envelope or by facsimile to (212) 929-0308, Attention:
Robert Marese, as soon as possible. If a proxy card is executed but no
indication is made as to what action is to be taken, it will be deemed a vote
'FOR' the Transaction. By voting 'FOR' the Transaction by proxy, the holder of
record of Units returning the proxy authorizes Joan B. Berkowitz and Robert J.
Hellman, or either of them, to vote such holder's Units for the Transaction at
the Special Meeting and any adjournment(s) or postponement(s) thereof.
AS THE AFFIRMATIVE VOTE OF THE LIMITED PARTNERS HOLDING A MAJORITY-IN-
INTEREST OF THE ISSUED AND OUTSTANDING UNITS IS NECESSARY TO APPROVE THE
PROPOSED TRANSACTION, FAILURE TO RETURN A PROXY IN A TIMELY MANNER OR TO VOTE AT
THE SPECIAL MEETING, OR ABSTENTION FROM VOTING, WILL HAVE THE SAME EFFECT AS A
VOTE 'AGAINST' THE TRANSACTION.
Questions and requests for assistance or for additional copies of this
Proxy Statement and proxy card may be directed to the Partnership's Information
Agent, MacKenzie Partners, Inc., 156 Fifth Avenue, 13th Floor, New York, New
York 10010, toll-free (800) 322-2885 or (212) 929-5500 (collect). In addition to
soliciting proxies by mail, proxies may be solicited in person and by telephone
or facsimile transmission.
VOTE REQUIRED
Pursuant to the terms of the Partnership Agreement, the vote of the Limited
Partners owning a Majority-in-Interest of the Units is necessary to approve the
Transaction. Each Unit entitles the holder to one vote on each matter submitted
to a vote of the Limited Partners. If a Majority-in-Interest of the Limited
Partners approve the Transaction and certain other conditions are met or waived,
the Sale will be consummated and the Partnership will have sold its Interest in
the Owner Partnership (and, indirectly, the Mall) to the Purchaser.
In connection with certain tender offers which have previously been made
for Units, the Partnership has entered into agreements with the offerors. Among
other provisions, these agreements have provided that for a specified period of
time, in the event of a vote of Limited Partners, the Units acquired pursuant to
a tender offer will be voted for or against any proposal in the same percentages
as the votes of the other Units. As of the date of this Proxy Statement, 227
Units are subject to such agreements.
Pursuant to the terms of the Purchase Agreement, the General Partner has
agreed that the Partnership will not be dissolved for at least 60 days after the
Closing Date. Thereafter, the Partnership will be liquidated and dissolved at
such time as the General Partner determines that all remaining Partnership
assets are available for distribution and all Partnership obligations and
liabilities have been paid or provided for. A vote in favor of the Transaction,
therefore, includes a consent to both the Sale and the Liquidation.
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SOLICITATION PROCEDURES
The Partnership has retained MacKenzie Partners, Inc. to act as Information
Agent (the 'Information Agent') and for advisory services in connection with
this proxy solicitation. In connection therewith, the Information Agent will be
paid reasonable and customary compensation and will be reimbursed for its
reasonable out-of-pocket expenses. The cost of solicitation will be borne by the
Partnership. See 'SPECIAL FACTORS--Costs Associated with the Transaction.'
The Partnership will not pay any fees or commissions to any broker or
dealer or other person (other than to the Information Agent) for soliciting
proxies pursuant to this solicitation. Custodians, nominees and fiduciaries will
be requested to forward the solicitation material to the customers for whom they
hold Units, and the Partnership will reimburse them for reasonable mailing and
handling expenses incurred by them in forwarding proxy materials to their
customers.
REVOCATION OF PROXIES
A proxy executed and delivered by a Limited Partner may subsequently be
revoked by submitting written notice of revocation to the Partnership. A
revocation may be in any written form validly signed by a Limited Partner as
long as it clearly states that such Limited Partner's proxy previously given is
no longer effective. To prevent confusion, the notice of revocation must be
dated. Notices of revocation should be delivered to the Information Agent. A
Limited Partner may also revoke its proxy by attending the Special Meeting and
voting in person. If a Limited Partner signs, dates and delivers a proxy to the
Partnership and, thereafter, on one or more occasions dates, signs and delivers
a later-dated proxy, the latest-dated proxy card is controlling as to the
instructions indicated therein and supersedes such Limited Partner's prior proxy
as embodied in any previously submitted proxy card.
TERMS OF THE TRANSACTION
THE PURCHASE AGREEMENT
The Partnership and the General Partner (collectively, the 'Sellers' and
each a 'Seller') and the Purchaser entered into the Purchase Agreement dated as
of July 31, 1997, as amended, pursuant to which the Partnership has agreed to
sell and the Purchaser has agreed to purchase the Interest from the Partnership
and the General Partner's interest in the Owner Partnership from the General
Partner on the terms and subject to the conditions set forth therein. The
summary of the Purchase Agreement which is set forth below is qualified in its
entirety by reference to the complete form of Purchase Agreement, which is
available for inspection and copying by any interested Limited Partner or its
representative who has been so designated by the Limited Partner, at the
Partnership's principal executive offices at 3 World Financial Center, 29th
Floor, New York, New York 10285-2900, during regular business hours. A copy of
the Purchase Agreement shall also be sent to any Limited Partner or duly
designated representative thereof, at such Limited Partner's expense, upon
request of such Limited Partner sent to MacKenzie Partners, Inc., 156 Fifth
Avenue, 13th Floor, New York, New York 10010.
The purpose of the Transaction is to transfer to the Purchaser the
Partnership's and the General Partner's beneficial ownership interest in the
Mall. The Transaction has been structured as a sale of the Interest and the
General Partner's general partnership interest in the Owner Partnership,
representing ownership interests in the Owner Partnership (which in turn is the
record owner of the Mall), rather than a sale of the underlying real estate.
This structure was selected because under Maryland law, a transfer of the
underlying real estate would have required the payment of approximately
$2,000,000 in conveyance taxes, which are not applicable in the case of the
transfer of the Interest. The net savings associated with this structure are
being shared by the Owner Partnership and the Purchaser, with the Purchaser
receiving approximately $1,500,000 of the benefit. The disproportionate
allocation of the savings to the Purchaser reflects the fact that in purchasing
an interest in the existing Owner Partnership, the Purchaser is exposed to
potential liabilities relating to prior operations of the Mall and the Owner
Partnership to which it would not be exposed had it simply purchased the Mall
directly.
Pursuant to the terms of the Purchase Agreement, and based upon an agreed
value for the Mall of $81,000,000, the Purchaser proposes to purchase the
Interest and the General Partner's general partnership
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interest in the Owner Partnership for $26,851,825 in cash and will pay an amount
necessary to satisfy the $51,000,000 principal amount of the Owner Partnership's
mortgage indebtedness on the Mall. The Partnership will receive $25,489,064 for
its Interest and the General Partner will receive $1,362,761 for its general
partnership interest in the Owner Partnership. The Purchase Price was allocated
to provide each Seller with approximately the same proceeds such Seller would
receive had the Transaction been structured as a sale of the Mall upon terms
otherwise similar to the Transaction, and the resulting liquidation and
dissolution of the Owner Partnership. See 'SPECIAL FACTORS--Effects of the
Transaction--Effects on the General Partner.'
The Purchase Price represents 91% of the $81,000,000 agreed value of the
Mall after accounting for (i) the Purchaser's satisfaction of the $51,000,000
outstanding principal amount of the Owner Partnership's mortgage indebtedness on
the Mall, and (ii) approximately $490,000 of the tax savings allocated to the
Sellers based on the structure of the Transaction, less payment of the
$1,362,761 purchase price for the General Partner's general partnership interest
in the Owner Partnership. The agreed upon value of the Mall was based, in part,
on the fair market value of the Mall as determined by Cushman & Wakefield and an
arm's length negotiation between the Purchaser and the General Partner on behalf
of the Partnership. See 'SPECIAL FACTORS--Valuation of the Mall; Fairness
Opinion.' If the Closing Conditions, as hereinafter defined, are met or waived,
the Sale is scheduled to close on the second business day following the date on
which the Closing Conditions are first satisfied.
REPRESENTATIONS AND WARRANTIES OF THE PARTIES
Pursuant to the Purchase Agreement, the Purchaser has represented and
warranted to the Sellers that: (i) it is a corporation duly incorporated,
validly existing and in good standing under the laws of the State of New York;
(ii) the Purchase Agreement has been and all other agreements and instruments to
be entered into in connection therewith by the Purchaser have been or will be as
of the date the Transaction closes (the 'Closing Date') duly entered into, and
the Purchase Agreement and such other agreements and instruments are or will be
the valid and binding agreements of the Purchaser, enforceable against it in
accordance with their respective terms; (iii) it has the requisite power and
authority to enter into the Purchase Agreement and perform its obligations
thereunder; (iv) entering into the Purchase Agreement and the consummation of
the transactions contemplated thereby will not require any action by or in
respect of, or filing with, any governmental authority or any consent by any
person under any contract, agreement or other document to which the Purchaser is
a party; (v) entering into the Purchase Agreement will not conflict with any of
the Purchaser's organizational documents, or contravene, conflict with or
constitute a violation of any provision of any existing law, or material
regulation, judgment, injunction, order or decree applicable to the Purchaser,
or constitute a breach or default under, or give rise to any right of
termination, cancellation or acceleration of any material right or obligation of
the Purchaser under any material agreement, contract or other instrument binding
upon the Purchaser or under any material license, permit or other authorization
held by the Purchaser or result in the creation of any lien on any material
asset of the Purchaser; (vi) there is no action, investigation or proceeding
pending or threatened against or affecting the Purchaser or the Purchaser's
property which, if adversely determined, would materially affect the ability of
the Purchaser to perform its obligations under the Purchase Agreement or to
consummate the transactions contemplated thereby; (vii) no bankruptcy,
insolvency, reorganization or similar action involving the Purchaser is pending
or threatened; (viii) the Purchaser is purchasing the Interests for investment
and not with a view to, or for sale in connection with, any distribution
thereof; and (ix) the information provided by the Purchaser for inclusion in
this Proxy Statement and each amendment and supplement hereof will not include
any untrue or misleading statement of material fact.
Pursuant to the Purchase Agreement, each Seller has represented and
warranted to the Purchaser that: (i) the Partnership is a limited partnership
duly formed, validly existing and in good standing under the laws of the State
of Delaware, and the General Partner is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Delaware; (ii) the
Purchase Agreement is and all other agreements and instruments to be entered
into in connection therewith by such Seller have been or will be as of the
Closing Date duly entered into by such Seller, and the Purchase Agreement and
such other agreements and instruments are or will be the valid and binding
agreements of such Seller, enforceable against such Seller in accordance with
their respective terms; (iii) such Seller has the requisite power and authority
to enter into the Purchase Agreement, subject, in the case of the Partnership,
to the approval of a Majority-in-Interest of the Limited Partners; (iv) entering
into the Purchase Agreement and the consummation of the transactions
contemplated thereby will not require any action
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by or in respect of, or filing with, any governmental authority or any consent
by any person under any contract, agreement or other document to which such
Seller is a party, except in the case of the Partnership, the approval of a
Majority-in-Interest of the Limited Partners, and except to the extent the
consent of the Owner Partnership's existing lender is required; (v) entering
into the Purchase Agreement will not conflict with any of such Seller's
organizational documents, or contravene, conflict with or constitute a violation
of any provision of any existing law, or material regulation, judgment,
injunction, order or decree applicable to such Seller, or constitute a breach or
default under, or give rise to any right of termination, cancellation or
acceleration of any material right or obligation of such Seller or the Owner
Partnership under any material agreement, contract, other instrument binding
upon such Seller or the Owner Partnership (subject to the consent of the Owner
Partnership's existing lender to the extent it is required) or under any
material license, permit or other authorization held by such Seller or result in
the creation of any lien on any material asset of such Seller or on the Mall;
(vi) except as otherwise described in the Purchase Agreement, there is no
action, proceeding or investigation pending, or to the best of such Seller's
knowledge, threatened against or involving, such Seller, such Seller's property,
the Owner Partnership or the Mall which, if adversely determined would
materially affect the ability of such Seller to perform its obligations under
the Purchase Agreement or consummate the transactions consummated thereby; (vii)
no bankruptcy, insolvency, reorganization or similar action involving such
Seller or the Owner Partnership is pending or threatened; (viii) such Seller has
full right, title and interest in such Seller's general partnership interest in
the Owner Partnership, free and clear of any liens; (ix) the Owner Partnership
is a limited partnership duly formed and validly existing under the laws of the
State of New York; (x) there have been no material adverse changes in the Owner
Partnership's financial condition since the date of the most recent financial
statements of the Partnership provided pursuant to the Purchase Agreement; (xi)
except as otherwise described in the Purchase Agreement, the Owner Partnership
has no material liabilities other than those disclosed on the financial
statements of the Partnership provided pursuant to the Purchase Agreement and
other than liabilities incurred in the ordinary course of the Owner
Partnership's business; (xii) except for the Mall and assets incidental to the
operation of the Mall as reflected in the financial statements of the
Partnership provided pursuant to the Purchase Agreement, and except for revenues
held pending distribution to its partners, the Owner Partnership has no assets,
(xiii) the Owner Partnership's existing lender has not declared a default under
the Owner Partnership's existing deed of trust or existing loan, and, to the
knowledge of Sellers, no condition exists that would constitute a default by the
Owner Partnership under the Owner Partnership's existing deed of trust or the
existing loan; (xiv) to the knowledge of such Seller, all of the material
contracts and agreements by which the Owner Partnership is bound are in full
force and effect; (xv) the Partnership has 4,575 outstanding Units; (xvi) other
than the Purchase Agreement, neither the Owner Partnership nor such Seller has
entered into any agreement whereby any person has any rights to acquire any
property of the Owner Partnership, including the Mall; (xvii) except as
otherwise described in the Purchase Agreement, no taxes that have been assessed
or claimed against the Owner Partnership and which are due and payable are
unpaid and the Owner Partnership has filed all required tax returns and reports
and has paid all taxes required to be paid, except for such taxes as are being
contested in good faith; (xviii) to such Seller's knowledge, the Owner
Partnership has received no notice of any pending condemnation or public
improvements to the Mall or notice that the Mall is in violation of any present
zoning laws or regulations; (xix) such Seller is not insolvent and will not be
rendered insolvent by the transactions contemplated by the Purchase Agreement;
and (xx) this Proxy Statement and each amendment and supplement hereof will not
include any untrue or misleading statement of a material fact. The Purchase
Agreement provides that, except as expressly set forth therein, the condition
and operations of the Mall shall be 'AS IS, WHERE IS' on the Closing Date. The
Purchaser represents and warrants that it is purchasing the Interest and the
general partnership interest of the General Partner based on its own independent
investigation except for the Sellers' representations and warranties in the
Purchase Agreement. Pursuant to the Purchase Agreement, the Sellers shall not be
liable to the Purchaser for representations or warranties regarding any matters
pertaining to the Mall of which the Property Manager was aware or reasonably
should have been aware on the date of the Purchase Agreement.
ADDITIONAL AGREEMENTS
The Sellers have agreed that prior to the Closing Date, neither the Owner
Partnership nor the Sellers will solicit, initiate or knowingly encourage the
submission of any proposal to acquire the capital stock of the General Partner
or the Units or all or any portion of the general partnership interest in the
Partnership or all or any portion
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of the fee interest in the Mall or a leasehold interest in all or substantially
all of the Mall or all or any portion of the Interests (an 'Alternative
Proposal'); however, the Sellers may participate in discussions or negotiations
with, and may furnish information to, any third party which seeks, without a
violation of the foregoing agreement, to engage in such discussions or
negotiations or requests such information, if the General Partner determines
that failing to engage in such discussions or negotiations or to provide such
information might reasonably be expected to violate its fiduciary duties to the
Limited Partners; and the General Partner may take and disclose to the Limited
Partners a position as contemplated by Rules 14d-9 and 14e-2 under the Exchange
Act with respect to any tender offer and make such disclosure to the Limited
Partners as may be required under applicable law. If an Alternative Proposal is
commenced, publicly proposed, publicly disclosed or otherwise communicated to
the General Partner, and the General Partner determines that the failure to take
such action might reasonably be expected to violate its fiduciary duties to the
Limited Partners, the General Partner may withdraw or modify its approval or
recommendation of the Purchase Agreement or the transactions contemplated
thereby, approve or recommend or enter into an agreement with respect to an
Alternative Proposal, terminate the Purchase Agreement and/or make disclosures
under Federal and other applicable securities laws and take such other actions
as the General Partner deems necessary or appropriate. The General Partner has
agreed to advise the Purchaser of any inquiries or proposals it receives
relating to an Alternative Proposal, unless the General Partner determines that
doing so might reasonably be expected to violate its fiduciary duties to the
Limited Partners.
The General Partner has agreed, in accordance with applicable law and the
Partnership Agreement, to convene the Special Meeting, recommend that the
Limited Partners approve the Purchase Agreement and use its reasonable efforts
to obtain such approval; however, the General Partner may withdraw or modify its
approval or recommendation of the Purchase Agreement or the transactions
contemplated thereby or terminate the Purchase Agreement if the General Partner
determines that convening the Special Meeting, making such recommendation or
using its reasonable efforts to obtain the approval of the Limited Partners
might reasonably be expected to violate its fiduciary duties to the Limited
Partners.
The Sellers have agreed to reimburse to the Purchaser certain costs
actually incurred by the Purchaser in connection with the Purchase Agreement,
including the expenses of the Purchaser's prospective lenders which the
Purchaser has actually paid in connection with the Purchase Agreement either
prior to or within 60 days after the date the Purchase Agreement is terminated
and any non-refundable fees the Purchaser has paid for loan commitments obtained
in connection with the Purchase Agreement, if the Purchase Agreement is
terminated for any of the following reasons: (i) either Seller has furnished
information, or entered into discussions or negotiations, with respect to an
Alternative Proposal and the General Partner does not reaffirm its favorable
recommendation of the Transaction to the Limited Partners; (ii) an Alternative
Proposal is commenced and the General Partner terminates the Purchase Agreement
based on its determination that the failure to terminate the Purchase Agreement
might reasonably be deemed to violate its fiduciary duties to the Limited
Partners; (iii) the Purchase Agreement is terminated by the Sellers or the
Purchaser and at such time the Purchaser is ready, willing and able to close and
either Seller is not ready, willing and able to close; or (iv) the Purchase
Agreement is terminated by the Purchaser because a governmental authority has
taken action to restrain, enjoin or otherwise prohibit the consummation of the
Purchase Agreement where the governmental action arises as a result of a default
by either Seller under, or a breach by either Seller of a representation,
warranty or covenant of, the Purchase Agreement (which default or breach is not
caused by any act or omission (where such party has a duty to act) of the
Property Manager or the Purchaser or as a result of any information provided to
the Sellers by the Property Manager or the Purchaser).
If, as of the Closing Date, the Owner Partnership does not own the fee
interest in the Mall free and clear of all Liens except the Permitted
Encumbrances, as defined below, the Purchaser has the option of either
terminating the Purchase Agreement, in which event the Purchaser's deposits
shall be returned to the Purchaser and the Sellers shall reimburse the Purchaser
for the Purchaser's net cost of title examination, or accepting such title
without any reduction of, or credit or allowance against, the Purchase Price.
Except as otherwise provided in the Purchase Agreement, the Purchaser will not
have the option to terminate the Purchase Agreement with respect to any
encumbrance which is shown on the title insurance commitment and attached to the
Purchase Agreement on a schedule of permitted encumbrances (the 'Permitted
Encumbrances'). In the event any such defect exists, the Sellers will have the
option, but will not be obligated, to extend the Closing Date to the earlier
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of (x) 45 days after the Closing Date or (y) the date as of which the
Purchaser's loan commitment from its mortgage lender expires, to provide the
Sellers with the opportunity to cure any such title defect.
Between the date of the Purchase Agreement and the Closing Date, unless the
Purchase Agreement is terminated, the Partnership has agreed not to issue any
Units or other equity interests in the Partnership.
Pursuant to the Purchase Agreement, the Partnership has agreed not to
dissolve for at least 60 days after the Closing Date and to retain $500,000 of
undistributed cash for at least such 60-day period. Provided that the
Partnership retains at least $500,000 for such 60-day period, the Purchaser has
agreed that it will not seek to recover any amounts distributed by the
Partnership to its partners.
As of and after the Closing Date, the parties have agreed to prorate, as of
the Closing Date, and in accordance with the procedures set forth in the
Purchase Agreement, (i) all base or fixed rents ('Basic Rents'), (ii) any
escalations or pass-throughs of operating expenses, taxes and other similar
expenses ('Additional Rents'), (iii) any prepaid Basic Rents or Additional Rents
received from all tenants and occupants of the Mall, (iv) any taxes, utilities,
assessments and operating expenses of the Owner Partnership relating to the Mall
and (v) the fees payable by the Owner Partnership to the Property Manager under
the Management Agreement. Amounts payable by tenants and occupants of the Mall
relating to sales made or gross receipts realized during the reporting year in
which the Closing Date occurs ('Percentage Rents') shall be adjusted within 30
days of receipt of such amounts from the applicable tenants of the Mall in
accordance with the procedures set forth in the Purchase Agreement. For a period
of nine months from the Closing Date, the Owner Partnership will use reasonable
efforts (excluding retention of attorneys) to collect, but shall not be liable
for the failure to so collect, (i) all past due rent, and (ii) all Additional
Rents on and after the Closing Date which are not due and payable on the Closing
Date in the usual course of operation of the Mall, and 91% (reflecting the
Sellers' 91% interest in the Owner Partnership) of any such amounts shall be
paid to the General Partner for the benefit of the Sellers after deducting the
reasonable expenses incurred in connection with the collection thereof and the
payment of applicable management fees to the Property Manager. The Owner
Partnership has assigned to the Sellers all rights relating to all Basic Rents,
Additional Rents and Percentage Rents which are owed by non-occupants of the
Mall on the Closing Date for any period prior to the Closing Date, including the
right to collect such rents and charges, with respect to which amounts no
management fees are payable to the Property Manager, and there will be no
proration between the parties, except that upon receipt of any such amounts the
Sellers will remit 9% thereof to SFN (reflecting SFN's 9% interest in the Owner
Partnership), after deducting the reasonable expenses incurred in connection
with the collection of such amounts. Unless otherwise agreed between the
Purchaser and the Sellers, the foregoing adjustments will continue through
December 31, 1998, as such date may be extended by the Sellers from time to
time. Pursuant to the Amendment, in satisfaction of the Sellers' rights in the
Purchase Agreement to receive Percentage Rents, the Purchaser and the Sellers
have agreed that the Sellers will receive 91% of the Percentage Rents payable by
Sears and Value City, two anchor tenants at the Mall, relating to the 1997
reporting year as and when such amounts are received by the Owner Partnership;
and the Purchaser has agreed to cause the Owner Partnership to pay to the
Sellers 91% of any other Percentage Rents allocable to the period through and
including the Closing Date, as and when received by the Owner Partnership during
the earlier of the six-month period after the Closing or the date that Eastern
and Eastpoint shall have dissolved, up to a maximum of $100,000 in the
aggregate.
Except as expressly set forth in the Purchase Agreement, all costs and
expenses incurred in connection with the Purchase Agreement will be paid by the
party incurring such cost or expense.
Under the terms of the Owner Partnership's loan agreement with its mortgage
lender, the Owner Partnership's mortgage indebtedness on the Mall may not be
prepaid until November 30, 1998. Prior to that time, the Owner Partnership is
permitted to obtain a release and reconveyance of the mortgage on the Mall and
the assignment of rents and leases affecting the Mall (but no other collateral
securing the indebtedness) by providing the existing lender with substitute cash
collateral (the 'Cash Collateral') in the amount of (i) the $51,000,000
principal amount of indebtedness and (ii) prepaid interest on such indebtedness
through November 30, 1998. The Purchaser has agreed to pay an amount necessary
to obtain a release and reconveyance of the mortgage, and in connection
therewith the Master Servicing Agent Agreement provides that an entity organized
by the Purchaser (the 'New Borrower') will assume the obligations of the Owner
Partnership under the indebtedness, which will be secured by the Cash Collateral
provided by the Purchaser. In connection with this assumption, the New
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Borrower will become entitled to direct the payment of a loan reserve (currently
in an amount of approximately $1,400,000) established as additional collateral
for the mortgage indebtedness. The funds in the loan reserve will be released on
or about November 30, 1998, the first permitted prepayment date of the mortgage
indebtedness. In consideration of the transfer of the rights with respect to the
loan reserve from the Owner Partnership to the New Borrower, and to enable the
Sellers to receive a payment earlier than November 30, 1998, in respect of the
loan reserve, the Purchaser has agreed to pay to the Sellers approximately
$1,000,000 on the Closing Date. The actual amount paid will be 71.65 percent of
the amount in the loan reserve on the Closing Date but will not exceed
$1,015,000.
CONDITIONS TO CLOSING THE TRANSACTION
The obligations of the Purchaser and the Sellers to effect the Transaction
are subject to the fulfillment on or before the Closing Date of a number of
conditions (the 'Closing Conditions'), which may be waived by the appropriate
party or parties, as described in this subsection.
The respective obligations of each party to effect the Transaction are
subject to the fulfillment on or before the Closing Date of each of the
following conditions, which may be waived by each party: (i) all the terms,
agreements and conditions of the Purchase Agreement to be complied with,
performed or fulfilled by the other party at or prior to the Closing shall have
been complied with, performed and fulfilled in all material respects; (ii) the
representations and warranties of the other party in the Purchase Agreement
shall be true and correct in all material respects at the date of the Purchase
Agreement and true and correct in all material respects at and as of the Closing
Date as if made as of the Closing Date, except to the extent any of such
representations and warranties specifically relate to an earlier date; (iii)
each party shall have furnished a certificate of an authorized signatory to
evidence compliance with the conditions set forth in clauses (i) and (ii) and
certifying the names and true signatures of the officers or authorized
signatories of such party authorized to sign the documents to which such party
is a party; (iv) such party shall have received all documents such party may
reasonably request relating to the existence and good standing of the other
party and the authority of the other party for the Purchase Agreement; and (v)
such party shall receive a legal opinion of the other party's counsel dated as
of the Closing Date.
In addition, the Purchaser's obligation to effect the Transaction is
subject to the fulfillment of each of the following conditions, which may be
waived by the Purchaser: (i) the Sellers and the Owner Partnership shall have
delivered all of the certificates, documents and instruments required by the
Purchase Agreement; (ii) the Property Manager shall have furnished estoppel
certificates from all tenants of the Mall leasing premises over 10,000 square
feet, and tenants of the Mall leasing at least 75% of the remaining leaseable
area of the Mall (unless the Purchaser and the Sellers agree on indemnities or
other forms of assurance to provide the Purchaser the substantial equivalent of
the missing estoppel certificate(s)); (iii) after the date of the Purchase
Agreement and prior to the Closing Date, no petition seeking an order for relief
shall have been filed by or against any anchor tenant of the Mall under the
Federal Bankruptcy Code; (iv) after the date of the Purchase Agreement and prior
to the Closing Date, no casualty damage which would cost in excess of $500,000
to repair shall have occurred with respect to the Mall; (v) as of the Closing
Date, no provision of any applicable law or regulation shall prohibit the
consummation of the Closing or the transactions contemplated by the Purchase
Agreement, and no action, suit, investigation or proceeding brought by any
person or governmental authority shall be pending or, to the knowledge of the
parties to the Purchase Agreement, threatened, before any governmental authority
to restrain, prohibit, restrict or delay, or to obtain damages or a discovery
order in respect of the Purchase Agreement or the consummation of the
transactions contemplated thereby, and no order, decree or judgment of any
governmental authority shall have been issued restraining, prohibiting,
restricting or delaying the consummation of the transactions contemplated by the
Purchase Agreement, and no insolvency proceeding of any character affecting the
Sellers shall be pending, and the Sellers shall not have taken any action in
contemplation of, or which would constitute the basis for, the institution of
any such proceedings; (vi) except in specified circumstances, on the Closing
Date, the outstanding principal balance of the Owner Partnership's existing loan
shall be $51,000,000; (vii) at Closing the Purchaser and the Sellers shall have
received a statement from the Owner Partnership's mortgage lender confirming the
outstanding principal balance of the Owner Partnership's mortgage indebtedness
and the amount in the loan reserve on the Closing Date; (viii) on the Closing
Date, the Owner Partnership shall be the owner of the Mall free and clear of all
Liens except the Permitted
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Encumbrances; (ix) on the Closing Date, no environmental problem as defined in
the Purchase Agreement shall exist; (x) on or prior to the Closing Date, the
Sellers shall have resolved certain litigation filed on January 23, 1996, by
Harbor City Contractors, Inc. against the Owner Partnership, in a manner that is
reasonably acceptable to the Purchaser; and (xi) as of the Closing Date, all of
the transactions described in the Master Servicing Agent Agreement shall have
occurred.
In addition, the obligation of each Seller to effect the Transaction is
subject to the fulfillment on or before the Closing Date of each of the
following conditions, which may be waived by each Seller: (i) the Purchaser, SFN
and the Property Manager shall have delivered all of the certificates, documents
and instruments required by this Agreement; (ii) a favorable opinion of Cushman
& Wakefield as to the fairness to the Limited Partners, from a financial point
of view, of the Transaction, dated the date of this Proxy Statement, shall have
been delivered to the Partnership; (iii) a Majority-in-Interest of the Limited
Partners shall have duly approved the Purchase Agreement and the transactions
contemplated thereby in accordance with the Partnership Agreement; (iv) as of
the Closing Date, no provision of any applicable law or regulation shall
prohibit the consummation of the Closing and the transactions contemplated by
the Purchase Agreement, and no action, suit, investigation or proceeding brought
by any person or governmental authority shall be pending or, to the knowledge of
the parties to this Agreement, threatened, before any governmental authority to
restrain, prohibit, restrict or delay, or to obtain damages or a discovery order
in respect of the Purchase Agreement or the consummation of the transactions
contemplated thereby, and no order, decree or judgment of any governmental
authority shall have been issued restraining, prohibiting, restricting or
delaying, the consummation of the transactions contemplated by this Purchase
Agreement; (v) no insolvency proceeding of any character affecting the Purchaser
shall be pending, and the Purchaser shall not have taken any action in
contemplation of, or which would constitute the basis for, the institution of
any such proceedings; (vi) to the extent necessary, the Owner Partnership's
existing lender shall have consented to the transfer of the Interest (which
consent may be conditioned on the prepayment of the Owner Partnership's existing
loan); and (vii) as of the Closing Date, all of the transactions described in
the Master Servicing Agent Agreement shall have occurred.
TERMINATION OF THE PURCHASE AGREEMENT
The Purchase Agreement may be terminated and the Transaction contemplated
thereby may be abandoned upon two business days' written notice: (i) by the
Purchaser or either Seller at any time after December 31, 1997; provided that,
at either Seller's request, if the Purchaser is able to obtain an extension of
the commitment of the Purchaser's mortgage lender to January 15, 1998, such date
shall be extended to January 15, 1998; (ii) by mutual agreement of all parties
at any time; (iii) by either Seller in the event an Alternative Proposal is
commenced, publicly proposed or communicated to the General Partner, and the
General Partner determines that the failure to terminate the Purchase Agreement
might reasonably be deemed to violate its fiduciary duties to the Limited
Partners or the General Partner otherwise determines that convening the Special
Meeting, recommending that the Limited Partners approve the Purchase Agreement
or using its reasonable efforts to obtain such approval might reasonably be
deemed to violate its fiduciary duties to the Limited Partners; (iv) by the
Purchaser or either Seller if any governmental authority shall have issued an
order, decree, judgment or other action restraining, enjoining or otherwise
prohibiting the consummation of the transactions contemplated by the Purchase
Agreement and such order, decree or other action shall have become final and
non-appealable; (v) by the Purchaser if an insolvency proceeding of any
character affecting the General Partner or the Partnership shall be pending, or
if the General Partner or the Partnership shall have taken any action in
contemplation of, or which would constitute the basis for, the institution of
any such proceedings; (vi) by either Seller if an insolvency proceeding of any
character affecting the Purchaser shall be pending, or if the Purchaser shall
have taken any action in contemplation of, or which would constitute the basis
for, the institution of any such proceedings; (vii) by either Seller or the
Purchaser if a Majority-in-Interest of the Limited Partners do not approve the
Transaction; or (viii) by either Seller in the event Sellers do not receive a
fairness opinion from Cushman & Wakefield dated the date this Proxy Statement is
distributed to the Limited Partners.
In the event the Purchase Agreement is terminated, the Purchaser will be
entitled to a return of the Purchaser's deposits, together with interest earned
thereon, except in the case of a termination pursuant to clause (i) of the
preceding paragraph by either Seller if the Sellers are ready, willing and able
to close or by the Purchaser if the Purchaser is not ready, willing and able to
close, and except in the case of a termination because
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all of the transactions described in the Master Servicing Agent Agreement have
not occurred solely as a result of a default by the Purchaser under, or a breach
by the Purchaser of, a representation, warranty or covenant of the Purchase
Agreement. If such condition is not satisfied for any other reason, the
Purchaser shall be entitled to receive one-half of the Initial Deposit and
one-half of the Closing Deposit, together with one-half of the interest earned
thereon, if any, and the Sellers shall be entitled to receive the remainder of
the Initial Deposit and the Closing Deposit and the remainder of any interest
thereon.
AMENDMENT OF THE PURCHASE AGREEMENT
Any provision of the Purchase Agreement may be amended or waived if such
amendment or waiver is in writing and signed, in the case of an amendment, by
the Purchaser and each Seller, or in case of a waiver, by the party against
which such waiver is sought to be enforced.
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
If the Transaction is approved by the Limited Partners and certain other
conditions to the Sale are met or waived, the Sale will be consummated and the
Partnership will have sold its Interest in the Owner Partnership (and,
indirectly, in the Mall) to the Purchaser. Pursuant to the terms of the Purchase
Agreement, the General Partner has agreed that the Partnership will not be
dissolved for at least 60 days after the Closing Date and to retain $500,000 of
undistributed cash for at least such 60-day period. Thereafter, the Partnership
will be liquidated and dissolved at such time as the General Partner determines
that all remaining Partnership assets are available for distribution and all
Partnership obligations and liabilities have been paid or provided for. The
General Partner estimates that Limited Partners will receive distributions of
approximately $6,800 per Unit as a result of the Sale and the Partnership's
ultimate dissolution, representing (i) net proceeds of the Sale (after paying or
providing for payment of Transaction Costs) of approximately $5,200 per Unit and
(ii) additional Partnership cash (after paying or providing for payment of
outstanding and anticipated Partnership liabilities), which the Partnership
estimates will be approxiamtely $1,600 per Unit. The availability of funds for
distribution of additional Partnership cash reserves will be determined, in
part, based on the collection after the Closing of certain rental and other
payments due from tenants at the Mall adjusted as of the Closing Date. In order
to collect such funds sooner than they would otherwise be paid, the Partnership
may accept discounted payments with respect to amounts due, which would result
in Limited Partners receiving their liquidating distribution sooner than would
otherwise be the case but could reduce the amount of such liquidating
distribution. The actual amount of the distributions to be paid to the Limited
Partners will be calculated after paying or providing for payment of all
Transaction Costs and all other outstanding and anticipated Partnership
liabilities (including establishment of reserves for any contingent or
unforeseen liabilities or obligations). See the section entitled
'--Determination of Cash Available for Distribution.' Based on the estimated
distributions to be made to the Limited Partners as a result of this
Transaction, Limited Partners will receive an amount in excess of their
Preferred Return as defined under the Partnership Agreement.
The General Partner or an affiliate will receive a brokerage fee of
$737,000 in connection with the Transaction, and the General Partner will
receive a liquidating distribution of approximately $200,000 in the aggregate,
in accordance with the terms of the Partnership Agreement. Any increase or
decrease in total Partnership distributions based on funds collected after the
Closing and the amount required to pay or provide for payment of the
Partnership's obligations or liabilities will increase or decrease the General
Partner's liquidating distribution pro rata with the Limited Partners in
accordance with the Partnership Agreement. See 'CONFLICTS OF INTEREST.'
It is estimated that, for income tax purposes, each Limited Partner will be
allocated approximately $7,300 of gain per Unit in 1997. Each Limited Partner
may recognize capital gain upon the sale of the Interest. See 'ACCOUNTING ISSUES
AND INCOME TAX CONSEQUENCES OF THE TRANSACTION.'
The initial distributions of cash to the Limited Partners are contemplated
to occur within 60 days of the consummation of the Transaction, and a final
liquidating distribution of reserves not utilized to meet Partnership
obligations or liabilities will be made at such time as determined by the
General Partner. There can be no assurance regarding the timing of such
distributions as circumstances beyond the control of the Partnership could
affect the determination of contingent liabilities of the Partnership and/or the
timing of the Partnership's
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dissolution and liquidation and therefore the timing, as well as the amount, of
distributions to the Limited Partners. The General Partner intends to conclude
the liquidation and winding up of the Partnership as soon as possible after the
expiration of the 60-day period after the Closing Date.
DETERMINATION OF CASH AVAILABLE FOR DISTRIBUTION
The agreed upon value of the Mall of $81,000,000 was based, in part, on the
fair market value of the Mall as determined by Cushman & Wakefield, an
independent appraiser, and an arm's length negotiation between the Purchaser and
the General Partner on behalf of the Partnership. The Purchaser proposes to
purchase the Interest and the General Partner's general partnership interest in
the Owner Partnership for $26,851,825 in cash and will pay an amount necessary
to satisfy the $51,000,000 principal amount of the Owner Partnership's mortgage
indebtedness on the Mall. The Partnership will receive $25,489,064 for its
Interest and the General Partner will receive $1,362,761 for its general
partnership interest in the Owner Partnership. The Purchase Price was allocated
between the Partnership and the General Partner to provide each Seller with
approximately the same proceeds such Seller would receive had the Transaction
been structured as a sale of the Mall upon terms otherwise similar to the
Transaction, and the resulting liquidation and dissolution of the Owner
Partnership. The Purchase Price represents 91% of the $81,000,000 agreed value
of the Mall after accounting for (i) the Purchaser's satisfaction of the
$51,000,000 outstanding principal amount of the Owner Partnership's mortgage
indebtedness on the Mall, and (ii) approximately $490,000 of the tax savings
allocated to the Sellers based on the structure of the Transaction, less payment
of the $1,362,761 purchase price for the General Partner's general partnership
interest in the Owner Partnership. See 'SPECIAL FACTORS--Effects of the
Transaction--Effects on the General Partner.' Cash and cash equivalents held by
the Partnership are anticipated to be approximately $7,330,000. The availability
of funds for distribution of additional Partnership cash reserves will be
determined, in part, based on the collection after the Closing of certain rental
and other payments due from tenants at the Mall adjusted as of the Closing Date.
In order to collect such funds sooner than they would otherwise be paid, the
Partnership may accept discounted payments with respect to amounts due, which
will result in Limited Partners receiving their liquidating distribution sooner
than would otherwise be the case but could reduce the amount of such liquidating
distribution. The General Partner has estimated that Transaction Costs (as
detailed in the section entitled 'SPECIAL FACTORS--Costs Associated with the
Transaction') and estimated wind-up costs and other outstanding and anticipated
liabilities of the Partnership net of remaining earnings of the Partnership will
be $1,302,020. The General Partner estimates the ultimate cash available for
distribution to be as follows:
<TABLE>
<S> <C>
Total Purchase Price....................................... $26,851,825
Purchase Price of Interest............................ $25,489,064
Purchase Price of General Partner's general
partnership interest................................ $ 1,362,761
Projected cash and cash equivalents as of December 15, 1997
(estimated).............................................. $ 7,330,000
-----------
Total................................................. $34,181,825
Transaction costs, estimated wind-up costs and other
liabilities net of remaining earnings.................... ($1,302,020)
-----------
Estimated cash available for distribution.................. $32,879,805
To the Limited Partners............................... $31,321,163
To the General Partner................................ $ 1,558,642
</TABLE>
Based on the number of issued Units, the estimated cash available for
distribution is approximately $6,800 per Unit. However, pursuant to Section V of
the Partnership Agreement, cash will be distributed to the Limited Partners in
accordance with their positive capital accounts, after allocation of gains and
losses from the operations of the Partnership and the sale of the Interest.
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The cash available for distribution will be adjusted for changes occurring
prior to the Closing Date in the items set forth above and will be based, in
part, on the collection of certain amounts after the Closing, as described
above.
The General Partner or an affiliate will receive a brokerage fee of
$737,000 from the Partnership in connection with the Transaction, and the
General Partner will receive a liquidating distribution of approximately
$200,000 in the aggregate, in accordance with the terms of the Partnership
Agreement. Any increase or decrease in total Partnership distributions based on
funds collected after the Closing and the amount required to pay or provide
payment of the Partnership's obligations or liabilities will increase or
decrease the General Partner's liquidating distribution pro rata with the
Limited Partners in accordance with the Partnership Agreement. See 'CONFLICTS OF
INTEREST.'
REGULATORY APPROVALS
The Partnership is not aware of any approval or other action by any
Federal, state or local governmental authority that would be required for
consummation of the Transaction. Should any such approval or other action be
required, it is presently contemplated that such approval or action would be
sought.
ACCOUNTING ISSUES AND
INCOME TAX CONSEQUENCES OF THE TRANSACTION
ACCOUNTING ISSUES
If the Transaction is approved and the remaining conditions to the Sale are
met or waived, the Partnership will: (i) receive from the Purchaser the purchase
price of $25,489,064 in exchange for the Interest; (ii) pay all of the
Transaction Costs; (iii) pay or make provisions for the payment of all other
Partnership liabilities (including the establishment of reserves for contingent
or unforeseen liabilities or obligations); and (iv) distribute to the Limited
Partners remaining cash from the sale of the Interest plus cash on hand by way
of an initial and a liquidating distribution. An initial distribution is
contemplated to occur within 60 days of the consummation of the Transaction, and
a final liquidating distribution of reserves not utilized to meet Partnership
obligations or liabilities will be made at such time as determined by the
General Partner.
The Partnership will prepare financial statements in accordance with
generally accepted accounting principles as of and through the date of the
dissolution of the Partnership and will engage its independent auditors to audit
the financial statements. It is anticipated that the Transaction, as proposed,
will result in a gain for financial reporting purposes.
FEDERAL INCOME TAX CONSEQUENCES OF THE TRANSACTION
The following is a summary of the material Federal income tax consequences
which may affect a Limited Partner resulting from the Transaction and subsequent
liquidation of the Partnership. It would be impractical to discuss all aspects
of Federal, state and local income tax laws which may affect the Federal income
tax consequences described herein and no attempt has been made to do so. This
summary is not intended as a substitute for careful tax planning, particularly
because the Federal income tax consequences of an investment in partnerships
such as the Partnership are often dependent on a variety of factors, and the
impact of such factors may vary from Limited Partner to Limited Partner
according to its own particular tax situation. THEREFORE, EACH LIMITED PARTNER
SHOULD SATISFY ITSELF AS TO THE FEDERAL INCOME TAX CONSEQUENCES OF THE
TRANSACTION DESCRIBED HEREIN BY OBTAINING GUIDANCE FROM HIS OR HER OWN TAX
ADVISOR.
The following summary is based on the Internal Revenue Code of 1986, as
amended to date (the 'Code'), the legislative history of the Code, existing and
proposed regulations thereunder, judicial decisions and current administrative
rulings and practices. No assurance can be given that legislative, judicial or
administrative changes may not be forthcoming which would affect the accuracy of
this summary. Any such changes may or may not be retroactive with respect to
transactions entered into or contemplated prior to the effective date of such
changes. Capitalized terms not defined herein have the same meanings as in the
Partnership Agreement.
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<PAGE>
The following discussion is primarily applicable to Limited Partners other
than tax-exempt organizations (such as Limited Partners who are holding their
Units in employee trusts, institutional retirement accounts and Keogh plans).
These Limited Partners should pay particular attention to the discussion under
the heading '--Exempt Employee Trusts and Individual Retirement Accounts;
Unrelated Business Taxable Income.'
Limited Partners should be aware that the Internal Revenue Service (the
'Service') may not agree with certain of the conclusions reached herein and
that, if challenged by the Service, such conclusions might not be sustained by
the courts. If the tax treatment accorded to one or more items is disallowed,
Limited Partners may be assessed for additional taxes along with interest and
penalties in future years.
In addition, it should be noted that the Limited Partners may be subject to
taxes other than Federal income taxes, such as state and local income or
franchise taxes and estate or inheritance taxes which may be imposed by various
jurisdictions.
Taxation of Limited Partners in General
The Partnership is a partnership for Federal income tax purposes and
therefore is not subject to Federal income tax; rather, each Limited Partner is
required to take into account its distributive share of the Partnership's
income, gains, losses, deductions, credits and tax preference items in computing
such Limited Partner's Federal income tax liability for any taxable year of the
Partnership ending within or with the taxable year of such Limited Partner,
without regard to whether the Limited Partner has received or will receive any
distribution from the Partnership. Such distributive share is required to be
reported by the Partnership to each Limited Partner on the Schedule K-1; each
Limited Partner is required to report consistently with such Schedule K-1 unless
it discloses any inconsistent position to the Service when it files its Federal
income tax return. A Limited Partner's distributive share of the Partnership's
income or loss is determined in accordance with the allocations set forth in the
Partnership Agreement. See '--Allocation of Partnership Income and Losses.'
Limited Partner's Gain Upon the Sale of the Interest
Each Limited Partner will be required to include in its income for Federal
income tax purposes its allocable share of the gain realized by the Partnership
upon the disposition by the Partnership of the Interest pursuant to the
Transaction. Such gain will be reportable by a Limited Partner whether or not
the Partnership distributes the net proceeds from the sale of the Interest. The
character of the gain realized upon the sale of the Interest will be considered
as gain from the sale of a capital asset, except that certain portions of such
gain may be 'recaptured' as ordinary income. Each Limited Partner will net its
capital gains from all sources, including its allocable share of such gains
realized by the Partnership. If such net capital losses exceed the net capital
gains, the Limited Partner's use of the net capital losses may be limited. If
such net capital gains exceed the net capital losses, the overall gain is
included in income but subject to a tax rate which may differ from that on
ordinary income.
The Taxpayer Relief Act of 1997 (the 'Act') signed into law on August 5,
1997, lowered the maximum tax rates on capital gain for sales or exchanges after
May 6, 1997, and which have been held for greater than 18 months. For
depreciable real property, a portion of the capital gain representing prior
depreciation is 'recaptured' and is taxed at a maximum rate of 25%. Any gain in
excess of prior depreciation is taxed at a maximum rate of 20%. The Act allows
the Treasury Department to issue regulations coordinating the capital gain
provisions with other rules involving the treatment of sales and exchanges by
pass-through entities and of interests in those entities. Code section 751
currently provides for recharacterization of gain on a sale of a partnership
interest where part of the proceeds is attributable to the partner's share of
unrealized receivables or inventory items of the partnership, including
depreciation recapture. Consistent with such current treatment involving sales
or exchanges of partnership interests, the Partnership anticipates that the
Treasury Department will issue regulations that would look to 'recapture'
depreciation on real property held by the Owner Partnership in determining which
portion of the gain on the sale of the Interest is subject to the 25% and 20%
rates and that such regulations will be retroactive to May 7, 1997. Assuming
that the Treasury Department issues such regulations, approximately 60% of the
capital gain allocated to the Limited Partners would be subject to 'recapture'
at the 25% rate and 40% would be subject to 'recapture' at the 20% rate.
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<PAGE>
Allocation of Partnership Income and Losses
The income and gain resulting from the Transaction will be allocated to
each Limited Partner according to the terms of the Partnership Agreement. In
general, the gains from the disposition of the Interest will be allocated: (i)
to any partner with a negative capital account; (ii) to the Limited Partners
until their capital accounts reach the amount of distribution to be made for
Unrecovered Capital; (iii) to the Limited Partners until their capital accounts
reach the amount of distribution to be made for Preferred Return Arrearage; and
(iv) the remainder allocated to the extent possible so that positive balances of
the aggregate capital accounts of the Limited Partners and the capital account
of the General Partner are in the proportions of 99% and 1%, respectively, after
debiting the capital accounts for available distributions of Unrecovered Capital
and Preferred Return Arrearage and the allocations under (i) through (iii)
above. The Partnership estimates that each Limited Partner, other than the
Limited Partners that are tax exempt entities, will receive an allocation of
gain upon the Sale of approximately $7,600 per Unit. Each Limited Partner that
is a tax exempt entity will be provided with its allocable share of the
partnership's Unrelated Business Taxable Income (Loss).
Cash Distributions and Adjusted Basis
Cash distributions from the Partnership are allocated to each Limited
Partner in accordance with the Partnership Agreement. Pursuant to the
Partnership Agreement, distributions of the proceeds from the sale of the
Interest will be allocated: (i) to the Limited Partners in an amount up to
Unrecovered Capital; (ii) to the Limited Partners in an amount up to the
Preferred Return Arrearage; (iii) to each Partner up to the aggregate positive
balance of the Partners' capital accounts (after taking into account
distributions under (i) and (ii) above and the allocations of gain) in the
proportion that each such positive capital account bears to the aggregate of
such positive balances; and (iv) the remaining proceeds distributed 99% to the
Limited Partners and 1% to the General Partner.
When the Partnership distributes the proceeds from the sale of the
Interest, a Limited Partner may incur Federal income tax in addition to the tax
imposed on such Limited Partner's allocable share of the income or loss upon the
sale of the Interest. Because the Transaction contemplated by this Proxy
Statement involves a sale of all the Partnership's remaining assets and the
liquidation of the Partnership, any distribution in connection with such
Transaction will be taxable as a liquidating distribution. In general, a Limited
Partner will recognize gain upon receipt of a liquidating cash distribution to
the extent that the amount of cash received exceeds such Limited Partner's
adjusted basis in the Partnership. Any gain which a Limited Partner recognizes
from a liquidating distribution is taxed as though such Limited Partner had sold
or exchanged its Units and, therefore, generally taxed as capital gain. A
Limited Partner may recognize loss on a liquidating distribution to the extent
that such distribution consists of money and the amount of such money is less
than the Limited Partner's pre-distribution adjusted basis in its Units.
A Limited Partner's adjusted basis in its Units will initially equal the
amount of cash contributed to the Partnership by such Limited Partner for its
Units or the amount paid by a Limited Partner upon a purchase of the Units.
Subsequently, a Limited Partner's adjusted basis is increased by its
distributive share of Partnership taxable income and gain (such as from the sale
of the Interest) and any increase in its share of liabilities, and decreased
(but not below zero) by distributions from the Partnership, its distributive
share of Partnership deductions and losses, if any, and any reduction in its
share of liabilities.
Exempt Employee Trusts and Individual Retirement Accounts
Tax-exempt organizations, including trusts which hold assets of employee
benefit plans ('Qualified Plans'), although not generally subject to Federal
income tax, are subject to tax on certain income derived from a trade or
business carried on by the organization which is unrelated to its exempt
activities to the extent such 'unrelated business taxable income' exceeds $1,000
during any year. A Qualified Plan will have unrelated business taxable income if
a partnership in which it has an interest owns 'debt-financed property,' that
is, property on which there is 'acquisition indebtedness.' Since the Owner
Partnership owns property on which there is acquisition indebtedness, a portion
of each Qualified Plan's distributive share of the Partnership's taxable income
(including capital gain) will constitute unrelated business taxable income. This
amount is the portion of the Qualified Plan's distributive share of the
Partnership income which is equivalent to the ratio of the Owner Partnership's
average acquisition indebtedness for the year to the basis of the Owner
Partnership's property for
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<PAGE>
the year. Therefore, a Qualified Plan that purchased a Unit would be required to
report such portion of its pro rata share of the Partnership's taxable income as
unrelated business taxable income if and to the extent that the Qualified Plan's
unrelated business taxable income from all sources exceeds $1,000 in any year.
The Partnership anticipates that 100% of the gain allocated to the Limited
Partners will be considered income from debt-financed property on which there is
acquisition indebtedness. The Qualified Plan could incur a tax liability with
respect to such excess at such tax rates as would be applicable if such
organization were not otherwise exempt from taxation.
If the Qualified Plan incurred net operating losses from unrelated business
taxable income in prior years, such net operating losses may be available as a
carryforward to offset unrelated business taxable income, including a Qualified
Plan's share of the gain from the sale of the Interest.
Foreign Investors
Foreign corporations, foreign partnerships, foreign trusts, foreign estates
and nonresident aliens (collectively, 'Foreign Persons') who engage in a trade
or business in the United States are taxable as domestic persons with respect to
income which is effectively connected with the conduct of such trade or
business. Limited Partners who are Foreign Persons are deemed to be engaged in a
trade or business in the United States as a result of the Owner Partnership's
purchase and leasing of the Mall. As a result, rental income from the Mall, the
gain or loss on the sale of the Interest, and any interest or dividend income on
funds temporarily invested in short-term obligations will be taxed according to
the general rules applicable to domestic entities to the extent that such income
and gains are effectively connected with the conduct of the Partnership's
business. In the absence of an applicable tax treaty between the United States
and a Foreign Person's resident country, the Partnership is required to withhold
Federal income tax on amounts actually distributed that are (or are treated as
being) effectively connected with the Partnership's trade or business allocable
to a Foreign Person, and the Partnership intends to withhold such Federal income
tax at the highest rate applicable to individuals or corporations, as the case
may be (currently 39.6% and 35%, respectively). The amount of any withholding
tax payments will be offset by the Partnership against distributions payable to
such Foreign Person. It should be noted that this section does not purport to
discuss all of the Federal, state or local tax consequences or considerations
that may be applicable to Foreign Persons owning Units. In particular, foreign
corporations owning Units may be subject to the branch profits tax. All Foreign
Persons owning Units are strongly encouraged to consult their own tax advisors
with respect to their own situations and the effects of the transactions
contemplated by this Proxy Statement.
State and Local Taxes
The Partnership operates in the State of Maryland which imposes a tax on
each Limited Partner's share of any income and requires that the Partnership
withhold a portion of earnings or distributions, or both, to non-resident
Limited Partners in respect of such taxes. A Limited Partner's distributive
share of the taxable income or loss of the Partnership may be required to be
included in determining its reportable income for state or local tax purposes in
the state in which the Limited Partner resides. In addition, the State of
Maryland may require non-resident Limited Partners to file state income tax
returns and may impose a tax determined with reference to a Limited Partner's
share of Partnership income derived from Maryland. On the other hand, tax
losses, if any, attributable to the Partnership's ownership of property in
Maryland may be available to offset income from other sources derived from
within Maryland. To the extent that a non-resident Limited Partner pays tax to
Maryland by virtue of the Partnership's operations in Maryland, it may be
entitled to a deduction or credit against tax owed to its state of residence
with respect to the same income. With respect to corporate Limited Partners,
potential taxation of the same income by more than one state may be mitigated by
allocation and apportionment rules. In addition, payment of state and local
income taxes will constitute a deduction for Federal income tax purposes,
assuming (in the case of an individual) that the Limited Partner itemizes
deductions.
THE FOREGOING ANALYSIS CANNOT BE, AND IS NOT INTENDED AS, A SUBSTITUTE FOR
CAREFUL TAX PLANNING. LIMITED PARTNERS ARE URGED TO CONSULT THEIR OWN TAX
ADVISORS WITH RESPECT TO THEIR OWN TAX SITUATION AND THE EFFECTS OF THIS
TRANSACTION AS TO FEDERAL, STATE AND LOCAL TAXES INCLUDING, BUT NOT LIMITED TO,
INCOME, ESTATE AND INHERITANCE TAXES.
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CONFLICTS OF INTEREST
SALE OF GENERAL PARTNER'S GENERAL PARTNERSHIP INTEREST IN THE OWNER PARTNERSHIP
Simultaneously with the sale of the Interest pursuant to the Purchase
Agreement, the General Partner will sell its general partnership interest in the
Owner Partnership to the Purchaser for a purchase price of $1,362,761. The
purchase price paid by the Purchaser for the Interest and the General Partner's
general partnership interest in the Owner Partnership was allocated between the
Partnership and the General Partner to provide each Seller with approximately
the same proceeds such Seller would receive had the Transaction been structured
as a sale of the Mall upon terms otherwise similar to the Transaction. The
Purchase Price of $25,489,064 represents 91% of the $81,000,000 agreed value of
the Mall after accounting for (i) the Purchaser's satisfaction of the
$51,000,000 outstanding principal amount of the Owner Partnership's mortgage
indebtedness on the Mall and (ii) approximately $490,000 of the tax savings
allocated to the Sellers based on the structure of the Transaction less payment
of the $1,362,761 purchase price for the General Partner's general partnership
interest in the Owner Partnership.
BROKERAGE FEE RECEIVED BY THE GENERAL PARTNER
The General Partner or an affiliate will receive a brokerage fee from the
Partnership in connection with the Transaction in the amount of $737,000. This
fee is approximately one percent of the Sellers' aggregate 91% interest in the
$81,000,000 agreed upon value of the Mall.
LIQUIDATING DISTRIBUTION RECEIVED BY THE GENERAL PARTNER UNDER THE PARTNERSHIP
AGREEMENT
The General Partner will receive a liquidating distribution of
approximately $200,000 in the aggregate in connection with the liquidation and
dissolution of the Partnership, as determined in accordance with the Partnership
Agreement. Any increase or decrease in total Partnership distributions based on
funds collected after the Closing and the amount required to pay or provide for
payment of the Partnership's obligations or liabilities will increase or
decrease the General Partner's liquidating distribution pro rata with the
Limited Partners in accordance with the Partnership Agreement.
INDEMNIFICATION UNDER THE PARTNERSHIP AGREEMENT
The Partnership Agreement provides that the General Partner and the
officers, directors, employees, agents, successors, Affiliates (as defined in
the Partnership Agreement and to the extent such Affiliates are acting for or on
behalf of the General Partner) and assigns of the General Partner shall not be
liable, responsible or accountable for any loss or damage incurred by the
Partnership, the Owner Partnership or any of the Limited Partners as a result of
any act or omission performed or omitted by the General Partner or such other
Person (as defined in the Partnership Agreement) in good faith on behalf of the
Partnership or the Owner Partnership and in a manner reasonably believed by the
General Partner or such other Person to be within the scope of the authority
granted by the Partnership Agreement and not contrary to the best interests of
the Partnership or the Owner Partnership, so long as such act or omission does
not constitute negligence, misconduct or fraud. Under the terms of the
Partnership Agreement, the General Partner and the officers, directors,
employees, agents, successors, Affiliates (to the extent such Affiliates are
acting for or on behalf of the General Partner) and assigns of the General
Partner are indemnified by the Partnership for any claim, loss, expense,
liability, action or damage, including reasonable attorneys' fees, resulting
from any such act or omission. No indemnification may be made in respect of any
claim or matters as to which the General Partner or such other Person shall have
been adjudged to be liable for negligence, misconduct or fraud in the
performance of its duty to the Partnership unless, and only to the extent that,
the court in which such action or suit was brought determines that the General
Partner or such other Person is fairly and reasonably entitled to be indemnified
for those expenses which the court deems proper. Any such indemnity shall be
paid from, and only to the extent of, Partnership assets, and no partner shall
have any personal liability on account thereof. Notwithstanding the foregoing,
neither the General Partner nor any officer, director, employee, agent,
Affiliate or assign of the General Partner or of the Partnership shall be
indemnified from any claim, loss, expense, liability, action or damage incurred
by them in connection with any claim or settlement involving allegations that
Federal and state securities laws were violated unless: (i) the General Partner
or such other Person seeking indemnification is successful in defending such
action and such
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<PAGE>
indemnification is specifically approved by a court of law which shall have been
advised as to the current position of the Commission regarding indemnification
for violations of securities laws, or (ii) in case of a settlement, both the
settlement and the indemnification are so approved.
If a claim is made against the General Partner or the officers, directors,
employees, agents, successors, Affiliates (as defined in the Partnership
Agreement and to the extent such Affiliates are acting for or on behalf of the
General Partner) and assigns in connection with their actions on behalf of the
Partnership with respect to the Transaction, the General Partner expects that it
and such other Person will seek to be indemnified by the Partnership with
respect to such claim. Any expenses (including legal fees) incurred by the
General Partner and such other Person in defending such claim shall be advanced
by the Partnership prior to the final disposition of such claim, subject to
receipt by the Partnership of an undertaking by the General Partner and such
other Person to repay any amounts advanced if it is determined that the
indemnified person's actions constituted negligence, misconduct or fraud in the
performance of its duty to the Partnership unless, and only to the extent that,
the court in which such action or suit is brought determines that the
indemnified person is fairly and reasonably entitled to be indemnified for those
expenses which the court deems proper. As a result of these indemnification
rights, a Limited Partner's remedy with respect to claims against the General
Partner and such other Person relating to the General Partner's or such other
Person's involvement in the Transaction could be more limited than the remedies
which would have been available absent the existence of these rights in the
Partnership Agreement. A successful claim for indemnification, including the
expenses of defending a claim made, would reduce the Partnership's assets by the
amount paid.
PURCHASER FINANCING
First mortgage and secondary financing for the Purchaser's acquisition of
the Interest and the General Partner's general partnership interest in the Owner
Partnership is being provided by two affiliates of Lehman which is the sole
stockholder of the General Partner. The General Partner is also selling its
general partnership interest in the Owner Partnership to the Purchaser. The
Purchaser believes the terms of such financing arrangements are commercially
reasonable.
CERTAIN INFORMATION ABOUT THE PARTNERSHIP
THE PARTNERSHIP
The Partnership, a Delaware limited partnership, was formed on June 26,
1985. The Partnership is governed by the Partnership Agreement, which vests
exclusive management control over the Partnership in the General Partner,
subject to the rights of the Limited Partners to vote on certain limited
matters. The address of the Partnership's principal executive office is 3 World
Financial Center, 29th Floor, New York, New York 10285-2900, and the telephone
number is (212) 526-3237. All communications in connection with the proxy
solicitation process should be directed to MacKenzie Partners, Inc., the
Partnership's Information Agent, by calling toll-free (800) 322-2885 or (212)
929-5500 (collect).
The Partnership was formed to acquire a general partnership interest in
Bellwether Properties, L.P., a New York limited partnership, the primary asset
of which was the Mall. Concurrently with such acquisition, Bellwether
Properties, L.P. was reconstituted under the name of the Owner Partnership,
Eastpoint Partners, L.P., and the Partnership became the managing general
partner of the Owner Partnership. The Owner Partnership consists of the
Partnership, which holds a 90.9% general partnership interest in the Owner
Partnership; the General Partner, which holds a 0.1% general partnership
interest; and SFN, which holds a 9% limited partnership interest. SFN and the
Property Manager are affiliates of the Purchaser.
All of the Partnership's revenues, operating profit or losses and assets
relate solely to its interest as the general partner of the Owner Partnership.
All of the Owner Partnership's revenues, operating profit or losses and assets
relate solely to its ownership interest in and operation of the Mall.
The Partnership's sole business is acting as the managing general partner
of the Owner Partnership. The Owner Partnership's sole business is the ownership
and operation of the Mall. For a description of the Mall and
31
<PAGE>
its operations, see the section entitled '--Description of the Mall.' The
Partnership's investment objectives are to:
(i) provide cash distributions from operations of the Mall;
(ii) achieve long-term appreciation in the value of the Mall; and
(iii) preserve and protect Partnership capital and the Owner Partnership
capital.
There is no guarantee that the Partnership's objectives will be achieved.
THE GENERAL PARTNER
The General Partner is Eastern Avenue Inc., a Delaware corporation, with
its principal business address at 3 World Financial Center, 29th Floor, New
York, New York 10285-2900. The principal business of the General Partner is to
act as the general partner of the Partnership.
THE PROPERTY MANAGER
The Mall is managed on a day-to-day basis by the Property Manager, Shopco
Management Corp. The Property Manager is responsible for rent collection,
leasing and day-to-day on-site management of the Mall. The Owner Partnership has
the right to terminate the Property Manager, without cause, at any time during
the term of the Property Management and Leasing Agreement. The Property Manager
receives 4.5% per annum of all fixed rents, minimum rents and percentage rents
(as such terms are defined in the respective leases) collected from operations
of the Mall for providing property management and leasing services. In the event
that the Property Manager ceases to act as management and leasing agent of the
Mall, SFN's limited partnership interest in the income, profits and cash
distributions of the Owner Partnership will be reduced to 7% from 9%. On
November 29, 1985, the Partnership entered into an agreement with the Property
Manager for the management of the Mall. The agreement, which expired on December
31, 1990, provided for an annual fee equal to 3.0% of the gross rents collected
from the Mall, payable monthly. The Partnership and the Property Manager agreed
to the terms of the new management agreement effective January 1, 1991, through
December 31, 1993, which included an increase in the annual fee to 4.5% of gross
rents collected from the Mall. The new management agreement, which expired on
December 31, 1993, is automatically renewed for successive periods of one year.
The management agreement has been renewed through December 31, 1997. For the
years ended December 31, 1996, 1995 and 1994, the Property Manager received a
management fee of $368,435, $349,166 and $389,631, respectively, pursuant to the
Property Management and Leasing Agreement.
DESCRIPTION OF THE MALL
The Mall is an enclosed regional shopping center located on approximately
67.1 acres in Baltimore County, Maryland, approximately one mile east of the
city limits of Baltimore. The Mall consists of a central enclosed mall anchored
by four major department stores--J.C. Penney, Inc. ('J.C. Penney'),
Schottenstein Stores Corporation, doing business as Value City ('Value City'),
Sears, Roebuck and Co. ('Sears') and Ames Department Stores, Inc. ('Ames'). The
retail space in the Mall is contained on one level; J.C. Penney and Value City
are multi-level and there are five freestanding buildings. Office and storage
areas are contained in the lower level of existing mall space, and in the lower
and upper floor levels of the expansion mall space. Parking is provided for over
4,500 cars.
The Mall currently has gross leasable space totaling 864,993 square feet.
Of this leasable space, 637,582 is owned by the Owner Partnership and 227,411
square feet of gross leasable space area is owned by the tenants who have leased
portions of land pursuant to ground leases with the Owner Partnership. Upon
expiration of such ground leases, ownership of the buildings thereon will revert
to the Owner Partnership.
On December 28, 1989, the Owner Partnership purchased 5.1 acres of land
adjacent to the Mall for a contract sales price of $640,125 on which a
one-story, 79,000 square foot Sears department store and an 8,734 square foot
automotive center were constructed. The Sears department store and automotive
center, located adjacent to the new food court, opened in October 1991. As
described below, the Owner Partnership owns the store and leases it to Sears,
which serves as a replacement anchor tenant for Hutzler's, which vacated the
Mall on
32
<PAGE>
January 22, 1990, after expiration of its lease on July 31, 1989. The space
previously occupied by Hutzler's was converted into new mall shops, a food court
and seating area, and office space. The construction of the new space was
completed in 1991, as was a renovation program at the Mall which replaced
skylights and floors and refurbished Mall common areas.
On November 8, 1996, the Owner Partnership purchased for $975,000 the
leasehold interest in a vacant, free-standing, 17,340 square foot building and
the underlying land located adjacent to the J.C. Penney anchor tenant at the
Mall from J.C. Penney Company, Inc. The acquisition of the leasehold interest in
this parcel allows for expansion of the center or the addition of parking by the
Owner Partnership or a subsequent owner.
The total building area of the Mall is allocated as shown in the table
below.
<TABLE>
<CAPTION>
ANCHORS: SQUARE FEET PERCENT OF TOTAL AREA
- ----------------------------------------------------------- ----------- ---------------------
<S> <C> <C>
J.C. Penney................................................ 151,629 17%
Value City................................................. 140,000 16
Sears...................................................... 87,734 10
Ames....................................................... 58,442 7
Specialty Retailers(1)..................................... 362,028 42
Atrium and Office Space.................................... 65,160 8
----------- ---
Total...................................................... 864,993 100%
----------- ---
</TABLE>
- ------------------
(1) Includes outparcel stores and outdoor tenants.
Anchor Tenants
J.C. Penney leases a parcel of land pursuant to a ground lease on which it
has constructed the largest of the Mall's four anchor stores containing an
aggregate of approximately 151,629 square feet of building area, or 17% of the
gross leasable building area of the Mall. On November 8, 1996, the Owner
Partnership purchased the leasehold interest in a vacant, free-standing, 17,340
square foot building and the underlying land located adjacent to the J.C. Penney
anchor tenant from J.C. Penney Company, Inc. Ownership of the anchor store,
currently owned and occupied by J.C. Penney, will revert to the Owner
Partnership upon the expiration of the ground lease. The initial term of the
J.C. Penney ground lease expires on August 31, 2001. Two 5-year renewal options,
two 10-year renewal options, and two 5-year renewal options are available on the
same terms and conditions. The minimum rent payable thereunder is $1,219
annually plus a percentage rent of .5% of gross sales.
The ground lease with J.C. Penney provides that J.C. Penney does not have
to operate if (i) at least 250,000 square feet of the total retail space of the
Mall, including the space occupied by Value City, the space previously occupied
by Hutzler's and certain other space, is not being used for retail use, or (ii)
neither Schottenstein Stores Corporation (or any successor) nor Hutzler's (or
any successor) are operating retail department stores in their premises. If at
any time, J.C. Penney discontinues the use of its anchor store as a retail
department store and assigns its lease or sublets the premises within a certain
period of time, the Owner Partnership, as landlord, has the right to purchase
the lease at fair market value.
Value City, the second largest anchor store, leases approximately 140,000
square feet, or 16% of the gross leasable building area of the Mall, and is
located at the western end of the Mall. The initial term of the Value City lease
was scheduled to expire on November 30, 1999. On September 14, 1995, the
expiration date of the lease was extended until November 30, 2009. A 10-year
renewal option is available on the same terms and conditions. Per the terms of
the September 14, 1995 amendment to the lease, the minimum rent payable
thereunder was increased from $220,000 to $585,000 per annum, with increases
based on the following increments in annual sales: 3 1/2% of the first
$4,200,000 in sales; 3 1/4% of sales in excess of $4,200,000 but not in excess
of $7,000,000; 3% of sales in excess of $7,000,000 but not exceeding $8,400,000
and 2 1/2% of sales in excess of $8,400,000.
Ames (previously G.C. Murphy) leases a parcel of land pursuant to a ground
lease on which it has constructed a building containing approximately 58,442
square feet of building area, or 7% of the gross leasable
33
<PAGE>
building area of the Mall. The initial term of the Ames ground lease expires on
May 30, 2004. One 10-year renewal option is available on the same terms and
conditions. Ownership of the building now owned and occupied by Ames will revert
to the Owner Partnership upon the expiration of the ground lease. The minimum
rent payable under the Ames ground lease is $204,000 annually with a percentage
rent of .5% of gross sales above the breakpoint of $4,800,000 until January 31,
1999. Commencing on February 1, 1999, minimum rent payable will increase to
$257,000 per annum. In the event that Ames exercises its renewal option, the
minimum rent payable is $257,000 per year with a percentage of .5% of gross
sales above the breakpoint of $6,000,000. Ames is not required to operate if (i)
less than 150,000 square feet in the Mall is used for retail use, or (ii) any
two of Value City, Hutzler's or J.C. Penney (or any successor) cease operations
as an anchor store in the Mall.
On April 26, 1990, Ames filed for bankruptcy protection under Chapter 11 of
the Federal Bankruptcy Code. By filing its bankruptcy petition, Ames was in
default under the deed of trust held by Consolidated Fidelity Life Insurance
Company ('Consolidated') and secured by the Ames parcel. In July 1994, the Owner
Partnership entered into a settlement agreement with Consolidated regarding the
Ames parcel. At December 31, 1996, total payments received from Ames were
$1,009,458 of which approximately $222,000 is payable to Consolidated. Please
refer to Item 3, Item 7 and Note 3 to the Notes to the Consolidated Financial
Statements to the 1996 Form 10-K which are incorporated elsewhere in this Proxy
Statement by reference for a description of the Ames bankruptcy and the Release
Agreement negotiated by the Owner Partnership and Consolidated.
Sears leases approximately 79,000 square feet of gross leasable area in a
new anchor store opened in October 1991, together with a freestanding store,
containing an aggregate of approximately 87,734 square feet of building area or
10% of the gross leasable building area of the Mall. The initial term of the
lease expires on October 16, 2006. The tenant has the right to extend the lease
term for seven additional periods of five years each under the same terms, by
providing the landlord written notice no less than twelve months prior to the
end of the lease term. Rent is based on a percentage of net sales, with the
tenant paying a sum equal to 1.75% of net sales in excess of $1 but less than
$16,000,000 and a sum equal to 1.5% of net sales that exceed $16,000,000.
The lease with Sears provides that Sears does not have to operate if (i)
less than 60% of the gross leasable area of the Mall (excluding anchor stores)
is not operating and (ii) at least two of the anchor stores are not operating.
If such events occurred, the landlord has twelve months in which to remedy any
condition which would enable Sears to terminate the lease agreement.
Mall, Outparcel Tenants and Atrium Space
During 1996, 14 leases totaling 20,245 square feet of space were executed
with new and existing tenants. Due to the sluggish commercial real estate market
in eastern Baltimore County, the leasing of additional Atrium office space is
anticipated to be a lengthy and capital intensive process. Costs associated with
maintaining the space consist primarily of utility expenses which are included
in property operating expenses. These costs, as well as costs associated with
marketing the space for lease, are funded from the Partnership's cash flow and
cash reserves.
Staples leases an outparcel store with 36,000 square feet of building area
or 4.2% of the gross leasable building area of the Mall. The primary lease term
runs through the year 2004, plus two lease renewal options for five years each.
The fixed minimum rent during the primary term begins at $7.50 per square foot
and escalates throughout the term of the lease reaching $8.25 per square foot
for years eleven through fifteen, subject to certain cost-of-living adjustments.
During 1996, the retail industry, particularly apparel merchants and other
mall-based retail chains, continued to suffer from changes in shoppers' buying
patterns which have primarily benefited discount retailers and superstores. The
continuing difficulties in the retail industry are evidenced by the increasing
number of bankruptcy filings by many companies. As of the date of this Proxy
Statement, the following five tenants, or their parent corporations, at the Mall
have filed for protection under the U.S. Federal Bankruptcy Code: Marianne,
Marianne Plus, Jeans West, County Seat and Rave. These tenants currently occupy
approximately 5% of the Mall's leasable area (exclusive of anchor tenants and
office space), and at this point their plans to remain at the Mall remain
uncertain.
34
<PAGE>
Competition
Eastpoint Mall is the only regional shopping center located within a 3 mile
radius (the primary geographical area from which the Mall derives its repeat
sales and regular customers). However, two shopping centers are directly
competitive with the Mall. Golden Ring Mall, located slightly over three miles
northeast of Eastpoint Mall, represents its principal competition. Golden Ring
Mall is a two-story center containing approximately 737,000 square feet of gross
leasable area. Golden Ring has three anchor tenants, Hecht's, Caldor and
Montgomery Ward, as well as approximately 80 smaller mall stores. Golden Ring
completed a cosmetic renovation of both the interior and exterior of the center
during 1992.
White Marsh Mall is located approximately six miles north of the Mall and
contains approximately 1,105,000 square feet of gross leasable space on two
levels. Anchor stores include Macy's, J.C. Penney and Sears. There is an empty
anchor space in the former site of Woodward & Lothrup. Ikea, a furniture store,
is located on an outparcel site at the Mall. White Marsh contains approximately
180 stores.
Temporary Tenants
A formal temporary tenant program was instituted in November 1992 in which
kiosks and vacant spaces are used as temporary retail locations. The program
generated revenues of $397,921 in 1996. The temporary tenant program is managed
by the Property Manager.
DISTRIBUTIONS
Since inception, Limited Partners have received cumulative distributions of
$6,279.52 per Unit, including a $2,500 return of capital in 1990.
For the first and second quarters of calendar year 1997, the years ended
December 31, 1996, and 1995, and the second, third and fourth quarters of
calendar year 1994, the Partnership paid quarterly cash distributions of $62.50
per Unit per quarter. In addition, the Partnership paid special cash
distributions of $218.50 per Unit on June 7, 1995, and $546.25 per Unit on April
4, 1996. Both of these special cash distributions were paid from excess cash
reserves.
Below is a table summarizing the historical data for the Partnership's
distributions per Unit per annum:
<TABLE>
<CAPTION>
QUARTER 1997(a) 1996(a) 1995(a) 1994(a) 1993(b) 1992(b)
- ------------------------------------------------ ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
First Quarter................................... $ 62.50 $ 62.50 $ 62.50 $ -- $ -- $ --
Second Quarter.................................. 62.50 608.75(c) 281.00(d) 62.50 -- --
Third Quarter................................... 62.50 62.50 62.50 -- --
Fourth Quarter.................................. 62.50 62.50 62.50 -- --
------- ------- ------- ------- ------- -------
Total........................................... $125.00 $796.25 $468.50 $187.50 $ -- $ --
------- ------- ------- ------- ------- -------
</TABLE>
- ------------------
(a) Distribution amounts are reflected in the period for which they are
declared. The record date is the last day of each month of the respective
quarter and the actual cash distributions are paid approximately 45 days
after the record date.
(b) Cash distributions to Limited Partners were suspended from the second
quarter of 1991 until the second quarter of 1994 due to: (i) an increasingly
competitive retail environment, which required substantial capital resources
devoted to attracting and leasing space to quality, creditworthy tenants,
(ii) the costs of the 1991 renovation program, (iii) the Sears construction,
(iv) the costs of the Ames bankruptcy, and (v) costs associated with
refinancing the Mall's first mortgage note.
(c) Includes the $546.25 per Unit special cash distribution paid on April 4,
1996.
(d) Includes the $218.50 per Unit special cash distribution paid on June 7,
1995.
35
<PAGE>
OWNERSHIP OF UNITS
On the Record Date, there were issued and outstanding and entitled to vote
4,575 Units, held by 1,648 Limited Partners. As of the Record Date, no person
(including any 'group' as that term is used in Section 13(d)(3) of the Exchange
Act) is known to the Partnership to be the beneficial owner of more than 5% of
the outstanding Units.
As of the Record Date, neither the General Partner nor any director or
executive officer of the General Partner beneficially owned any Units.
MARKET FOR THE UNITS
The Units are not traded on any established trading market, nor has there
been such a market. Thus, no information is available as to high and low bid
quotations or sales prices. It is not anticipated that there will be a public
market for the Units in the future.
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
KPMG Peat Marwick LLP, was the independent auditor of the Partnership's
financial statements as of December 31, 1996, and 1995 and for each of the years
in the three-year period ended December 31, 1996. No representative of KPMG Peat
Marwick LLP is expected to be present at the Special Meeting.
AVAILABLE INFORMATION
The Units are registered pursuant to Section 12(g) of the Exchange Act. As
such, the Partnership is subject to the informational filing requirements of the
Exchange Act, and in accordance therewith, is obligated to file reports and
other information with the Commission relating to its business, financial
condition and other matters. Comprehensive financial information is included in
the Partnership's Annual Report on Form 10-K and Quarterly Reports on Form 10-Q,
and other documents filed by the Partnership with the Commission, including the
1996 Annual Report on Form 10-K, excerpts from which are included in Annex II
hereto, and the Quarterly Report on Form 10-Q for the period ended June 30,
1997, excerpts from which are included in Annex II hereto. Such reports and
other information are available for inspection and copying at the public
reference facilities of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, New York, New York 10048. Copies are available by mail upon
payment of the Commission's customary charges by writing to the Commission's
principal offices at 450 Fifth Street, N.W., Washington, D.C. 20549. In
addition, the Commission maintains an Internet Web site that contains reports,
proxy and information statements and other information regarding registrants
that file electronically with the Commission. The Partnership's electronic
filings are publicly available on this Web site at http://www.sec.gov.
The General Partner is a privately held company and is not subject to the
reporting requirements of the Exchange Act.
36
<PAGE>
CERTAIN INFORMATION CONCERNING THE PURCHASER
The Purchaser's principal executive office and place of business is 1250
Broadway, New York, New York 10001. As provided in the Purchase Agreement, the
Purchaser intends to assign its rights and obligations under the Purchase
Agreement to one or more affiliates which have not yet been formed. All
information contained in this section of this Proxy Statement concerning the
Purchaser is based upon statements and representations made by the Purchaser or
its representatives to the Partnership or its representatives. The Purchaser did
not review or provide any information regarding the Property Management and
Leasing Agreement as set forth in 'CERTAIN INFORMATION ABOUT THE
PARTNERSHIP--The Property Manager.'
SFN and the Property Manager are affiliates of the Purchaser. SFN holds a
9% limited partnership interest in the Owner Partnership. For a description of
the Property Management and Leasing Agreement, see 'CERTAIN INFORMATION ABOUT
THE PARTNERSHIP--The Property Manager.'
The Purchaser and its affiliates have a number of relationships with Lehman
and its affiliates. The Purchaser is acting as a consultant to Lehman or its
affiliates on several real estate projects. Lehman or its affiliates is a lender
or potential lender to affiliates of the Purchaser on several real estate
transactions. An affiliate of the Purchaser is currently a limited partner in a
partnership with a structure similar to the Owner Partnership and the
Partnership: the general partner of the partnership is a syndicated limited
partnership; the general partner of the syndicated partnership is a Lehman
affiliate. Based on information obtained from the General Partner, another such
partnership was dissolved as of June 30, 1997. Finally, an affiliate of the
Purchaser and a Lehman affiliate were investors in a shopping center which was
sold in 1995.
SELECTED FINANCIAL DATA
The 'Selected Financial Data' table attached hereto in Annex II provides a
summary of certain financial data for the Partnership. Such selected financial
data should be read in conjunction with the detailed information and financial
statements included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 1996, and the Partnership's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1997, and June 30, 1997, which are incorporated
herein by reference. For information with respect to obtaining copies of
information incorporated by reference, see the section entitled 'INCORPORATION
BY REFERENCE.'
The foregoing information contained in the 'Selected Financial Data' table
is derived from the audited financial statements of the Partnership for 1996 and
1995 and the unaudited financial statements of the Partnership for the second
quarter of 1997.
INCORPORATION BY REFERENCE
The following documents filed by the Partnership with the Commission are
incorporated in this Proxy Statement by reference and made a part hereof:
1. The Partnership's Annual Report on Form 10-K for the year ended
December 31, 1996;
2. The Partnership's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997 and June 30, 1997;
3. All reports filed by the Partnership with the Commission pursuant
to Section 13 or 15(d) of the Exchange Act since August 14, 1997, to the
date of the Special Meeting.
All documents and reports filed by the Partnership pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement and prior to the date of the Special Meeting shall be deemed
incorporated by reference in this Proxy Statement and to be a part hereof from
the date of filing of such documents or reports. Any statement contained in a
document or report incorporated or deemed to be incorporated by reference herein
shall be deemed to be modified or superseded for all purposes of this Proxy
Statement to the extent that a statement contained in this Proxy Statement, or
in any subsequently filed document or report which is or is deemed to be
incorporated by reference herein, modifies or supersedes such previous
37
<PAGE>
statement or report. Any such statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this Proxy
Statement.
The Partnership will provide without charge to each person to whom a copy
of this Proxy Statement is delivered, upon the written or oral request of any
such person, a copy of any or all of the documents incorporated herein by
reference (other than exhibits to such documents unless such exhibits are
specifically incorporated by reference into the information this Proxy Statement
incorporates). Written and telephone requests for such copies should be
addressed to MacKenzie Partners, Inc., 156 Fifth Avenue, 13th Floor, New York,
New York 10010, toll-free (800) 322-2885 or (212) 929-5500 (collect). All such
documents will be sent by first class mail or other equally prompt means within
one business day of receipt of such request.
38
<PAGE>
ANNEX I
CUSHMAN & WAKEFIELD
51 WEST 52ND STREET
NEW YORK, NEW YORK 10019-6178
(212) 841-7500
October 29, 1997
Eastpoint Mall Limited Partnership
Eastern Avenue Inc.
c/o Lehman Brothers, Inc.
3 World Financial Center--29th Floor
New York, New York 10285-2900
Re: Eastpoint Mall Limited Partnership Fairness Opinion (Herein
'Assignment')
Gentlemen:
As per our engagement letter, Cushman & Wakefield, Inc. ('Cushman &
Wakefield') is pleased to submit its opinion regarding the reasonableness and
fairness of the financial terms and conditions relating to the consideration to
be received by the limited partners (the 'Limited Partners') of Eastpoint Mall
Limited Partnership ('Eastpoint') pursuant to the proposed transaction between
Eastpoint and Eastern Avenue Inc. ('Eastern') as sellers and Shopco Advisory
Corp. as buyer.
Cushman & Wakefield has reviewed and relied upon the analysis undertaken in
its valuation and appraisal work relating to Eastpoint Mall (the 'Mall') as a
basis for establishing the fairness of the proposed Transaction. Other methods
could have been employed to test the fairness of the proposed Transaction and
yielded different results. In rendering this opinion, Cushman & Wakefield notes
that it has not considered and has not addressed market conditions and other
factors that, in an open-market transaction, could influence the selling price
of the Mall and result in proceeds to Unitholders greater or less than the
proposed price per Unit in the Transaction. Cushman & Wakefield also notes that
it has not considered the price and trading history of other publicly traded
securities that might be deemed relevant due to the relative small size of the
proposed Transaction and the fact that there is no established trading market
for the Units. Furthermore, Cushman & Wakefield notes that it has not compared
the financial terms of the proposed Transaction to the financial terms of other
transactions that might be deemed relevant, given that the proposed Transaction
involves all cash to the Limited Partners.
It is understood that this Fairness Opinion is not to be quoted, referred
to, excerpted or summarized in whole or in part, or used for any purpose,
without our written consent. The Fairness Opinion may be distributed to the
Unitholders in connection with the distribution by the General Partner of a
Proxy Statement describing the proposed Transaction. We have been engaged by
Eastpoint for the purpose of rendering this Fairness Opinion, in connection with
which we will receive a fee payable in installments (i) upon engagement and (ii)
upon the rendering of the Fairness Opinion.
I-1
<PAGE>
Eastpoint Mall Limited Partnership
Eastern Avenue Inc. October 29, 1997
Based upon its review and analysis of the proposed Transaction, Cushman &
Wakefield advises Eastpoint that, in its opinion, the price per Unit reflected
in the proposed Transaction is fair, from a financial point of view, to the
Limited Partners.
Sincerely,
CUSHMAN & WAKEFIELD, INC.
/s/ BRIAN R. CORCORAN
- -------------------------------
Brian R. Corcoran, MAI, CRE
Managing Director
Valuation Advisory Services
/s/ RICHARD W. LATELLA
- -------------------------------
Richard W. Latella, MAI
Senior Director
Retail Valuation Group
I-2
<PAGE>
ANNEX II
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30, AS OF AND FOR THE YEARS ENDED DECEMBER 31,
------------------ ----------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- -------- -------
(IN THOUSANDS EXCEPT PER UNIT DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Total Rental and Percentage Rent
Income............................ $ 4,169 $ 4,097 $ 8,327 $ 8,104 $ 7,907 $ 7,404 $ 6,424
Escalation Income................... 1,787 1,879 3,706 3,585 3,143 3,049 2,898
Interest Income..................... 182 170 341 406 265 80 25
Miscellaneous Income................ 380 88 170 113 150 210 73
Total Income........................ 6,519 6,234 12,543 12,209 11,465 10,743 9,420
Net Income (Loss)................... 1,204 798 1,944 1,934 915 (658) (372)
Net Income (Loss) per Unit (a)...... 260.49 172.61 420.62 418.44 198.00 (142.30) (80.40)
Cash Distributions per Units (a)
(b)............................... 125.00 671.25(c) 796.25(c) 468.50(d) 187.50 -- --
Total Assets........................ 54,277 52,811 53,306 55,367 55,625 56,458 49,689
Long-Term Obligations............... 51,000 51,000 51,000 51,000 51,000 51,000 44,650
Book Value per Unit................. 521.78 263.28 386.29 761.92 811.98 801.48 943.78
</TABLE>
- ------------------------
(a) There are 4,575 Units outstanding.
(b) Distribution amounts are reflected in the period for which they are
declared. Actual cash distributions are paid subsequent to such periods.
(c) Includes a $546.25 per Unit special distribution paid on April 4, 1996.
(d) Includes a $218.50 per Unit special distribution paid on June 7, 1995.
II-1
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FROM THE ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1996, the Partnership had cash and cash equivalents of
$6,362,256, relatively unchanged in comparison to $6,254,501 at December 31,
1995. Restricted cash, which represents a loan reserve established under the
terms of the Partnership's first mortgage loan, decreased from $2,100,000 at
December 31, 1995 to $1,000,000 at December 31, 1996 due to the release to the
Partnership of $1.1 million of the proceeds of its first mortgage loan which was
withheld pending resolution of the Consolidated dispute (see 'Ames Parcel and
Consolidated Release Agreement' below). The remaining balance constitutes
additional collateral which can be used for capital improvements and leasing
commissions. Cash held in escrow totaled $535,313 at December 31, 1996 compared
to $443,811 at December 31, 1995. The increase is primarily attributable to
fundings made to the real estate tax and insurance escrows as specified under
the terms of the Partnership's first mortgage loan exceeding payments made for
real estate taxes and insurance premiums.
Accounts receivable increased from $638,436 at December 31, 1995 to
$836,705 at December 31, 1996 primarily due to an increase in recoverable common
area maintenance expenses and rent from temporary tenants.
Accrued interest receivable increased from $224,567 at December 31, 1995 to
$346,901 at December 31, 1996 reflecting interest earned in 1996 on the loan
reserve which is reflected as restricted cash on the Partnership's consolidated
balance sheets at December 31, 1996 and 1995.
Note receivable decreased from $738,000 at December 31, 1995 to $0 at
December 31, 1996 reflecting receipt from the Ames trustee of payments on the
Ames Bankruptcy Claim. Please refer to 'Ames Parcel and Consolidated Release
Agreement' below.
The increase in accounts payable and accrued expenses is attributable to
the receipt from the Ames trustee of payment of that part of the Ames Bankruptcy
Claim which is payable to Consolidated. Please refer to 'Ames Parcel and
Consolidated Release Agreement' below.
Accrued interest payable decreased from $340,425 at December 31, 1995 to $0
at December 31, 1996 due to the payment of debt service due in December 1996
prior to December 31, 1996. The debt service payment due on December 31, 1995
was paid on January 1, 1996.
As of the filing date of this report, the following current tenants at the
Mall, or their parent corporations, have filed for protection under the U.S.
Bankruptcy Code:
<TABLE>
<CAPTION>
SQUARE FOOTAGE
TENANT LEASED
- -------------------------------------------------------------------- --------------
<S> <C>
Marianne............................................................ 3,750
Marianne Plus....................................................... 3,000
Jeans West.......................................................... 2,400
Rave................................................................ 2,000
</TABLE>
As of December 31, 1996, these tenants occupied 11,150 square feet, or
approximately 3% of the Mall's leasable area (exclusive of anchor tenants and
office space). Pursuant to the provisions of the U.S. Federal Bankruptcy Code,
these tenants may, with court approval, choose to reject or accept the terms of
their leases. Should any of these tenants exercise the right to reject their
leases, this could have an adverse impact on cash flow generated by the Mall and
revenues received by the Partnership depending on the Partnership's ability to
replace them with new tenants at comparable rents.
The Partnership intends to begin marketing the Mall for sale in 1997;
however, it is not certain whether appropriate offers will be received. At such
time as the Mall is sold and all obligations are fulfilled, the Partnership will
wind up its affairs and be dissolved. The exact timing of these events is
dependent on the success of the sale effort.
II-2
<PAGE>
Ames Parcel and Consolidated Release Agreement
On April 26, 1990, Ames filed for bankruptcy protection under Chapter 11 of
the Federal Bankruptcy Code. On December 18, 1992, the Bankruptcy Court
confirmed the Plan pursuant to which Ames assumed its lease at the Mall. Land
leased to Ames by the Owner Partnership, together with the building constructed
thereon by Ames, secured a deed of trust held by Consolidated, as successor to
Southwestern Life Insurance Company. By filing its bankruptcy petition, Ames was
in default under the Consolidated deed of trust.
On July 14, 1994, the Partnership executed a Release Agreement with
Consolidated (the 'Release Agreement'). Pursuant to the terms of the Release
Agreement, the Partnership paid Consolidated $2 million in return for the
assignment of the deed of trust and related Ames promissory note, as well as
Consolidated's claim in the Ames bankruptcy case relating to such promissory
note. Consolidated's total claims, in the face amount of approximately $2.3
million, consist of the balances due on the Ames promissory note, totaling $1.7
million, and another promissory note. Pursuant to the Release Agreement, the
Partnership is entitled to any recovery based on the Ames promissory note;
Consolidated will receive any recovery on the other note. Various trusts were
established through Ames' Plan of Reorganization by which different classes of
claims were to be paid from different pools of monies. The Subsidiaries Trustee
had filed an objection to the allowance of Consolidated's claim, including that
portion attributable to the Ames promissory note. The Partnership pursued legal
action in opposition to the objection. In mid-March 1996, the Trustee and the
Partnership settled the Trustee's objection by reducing and allowing
Consolidated's claim in the approximate amount of $2,050,000, of which
approximately $1,530,142 is for amounts due under the Ames promissory note, and
requiring Ames to make a payment of $10,000 to the Owner Partnership. An Agreed
Order approving the settlement was entered by the Bankruptcy Court on May 1,
1996. Ames' $10,000 payment to the Owner Partnership was received on June 4,
1996. On August 7, 1996 and September 23, 1996, additional payments were
received from Ames in the amounts of $887,520 and $111,938, respectively. At
December 31, 1996, the total payments received from Ames were $1,009,458, of
which $222,081 is payable to Consolidated and is reflected in accounts payable
and accrued expenses on the Partnership's balance sheet. It is uncertain at this
time if there will be any additional payments to the Owner Partnership.
The Partnership's mortgage lender withheld certain of the proceeds of the
first mortgage loan until the Partnership resolved the Consolidated dispute.
These funds, which totaled $1.1 million, were released to the Partnership in
December 1996 following the extinguishment of the first mortgage secured by the
Ames parcel.
Leasehold Purchase
On November 8, 1996, the Owner Partnership purchased for $975,000 the
leasehold interest in a vacant, free-standing building and the underlying land
located adjacent to the J.C. Penney anchor tenant at the Mall from J.C. Penney
Company, Inc. The acquisition of the leasehold interest in this parcel allows
for expansion of the center or the addition of parking.
Cash Distributions
A regular cash distribution for the fourth quarter of 1996, in the amount
of $62.50 per Unit, was paid on February 10, 1997. The level, timing, and amount
of future distributions will be reviewed on a quarterly basis after an
evaluation of the Mall's performance and the Partnership's current and future
cash needs.
On February 16, 1996, based upon other things, the advice of legal counsel,
the General Partner adopted a resolution that states, among other things, if a
Change of Control (as defined below) occurs, the General Partner may distribute
the Partnership's cash balances not required for its ordinary course day-to-day
operations. 'Change of Control' means any purchase or offer to purchase more
than 10% of the Units that is not approved in advance by the General Partner. In
determining the amount of the distribution, the General Partner may take into
account all material factors. In addition, the Partnership will not be obligated
to make any distribution to any partner and no partner will be entitled to
receive any distribution until the General Partner has declared the distribution
and established a record date and distribution date for the distribution.
II-3
<PAGE>
RESULTS OF OPERATIONS
1996 versus 1995
Net cash flow from operating activities totaled $3,596,613 in 1996,
relatively unchanged in comparison to $3,732,467 in 1995. For the year ended
December 31, 1996, the Partnership recognized net income of $1,943,774, also
relatively unchanged in comparison to $1,933,722 for the year ended December 31,
1995.
Rental income increased from $6,894,097 for the year ended December 31,
1995 to $7,306,819 for the year ended December 31, 1996 primarily due to higher
base rent billings resulting from a lease amendment with anchor tenant Value
City, whereby Value City's base rent payments are increased and percentage rent
payments are decreased, and the addition of new tenants during 1996.
Percentage rental income decreased from $1,209,752 for the year ended
December 31, 1995 to $1,019,783 for the year ended December 31, 1996 primarily
due to the lease amendment with anchor tenant Value City mentioned above.
Interest income decreased from $406,292 for the year ended December 31,
1995 to $340,504 for the year ended December 31, 1996 primarily due to a
decrease in cash balances maintained by the Partnership as well as lower
interest rates.
Property operating expenses increased from $3,160,271 at December 31, 1995
to $3,502,731 at December 31, 1996 primarily due to higher costs for snow
removal and roof repairs and to increased bad debt expense related to the
tenants that have filed for bankruptcy protection.
Total Mall tenant sales (exclusive of anchor tenants) were $74,747,000 for
the year ended December 31, 1996, improved from $70,794,000 for the year ended
December 31, 1995. Sales for tenants (exclusive of anchor tenants) which
operated at the Mall for each of the last two years were $66,048,000 and
$66,171,000 for the years ended December 31, 1996 and 1995, respectively. As of
December 31, 1996, the Mall was 92.6% occupied, excluding anchor tenants and
office space, compared to 94.1% at December 31, 1995.
1995 versus 1994
Net cash flow from operating activities totaled $3,732,467 in 1995 compared
to $2,092,835 in 1994. The increase is primarily due to higher net income and
increases in accounts payable and amounts due to affiliates partially offset by
a decrease in accrued interest payable. Cash outflows from investing activities
totaled $757,229 in 1995 and $1,990,343 in 1994. The decrease in cash outflows
from investing activities for 1995 was due to the payment made pursuant to the
Release Agreement in 1994.
For the year ended December 31, 1995, the Partnership recognized net income
of $1,933,722 compared to $915,010 during 1994. The increase in net income was
primarily attributable to increase in rental, escalation and interest income.
The Partnership generated total income for the year ended December 31, 1995
of $12,208,708 compared to $11,464,835 during 1994. Rental income increased for
the year ended December 31, 1995 compared to 1994 reflecting lease renewals at
higher rates and leases with new tenants. Escalation income represents the
income received from Mall tenants for their proportionate share of common area
maintenance and real estate tax expenses. Escalation income increased for the
year ended December 31, 1995 compared to 1994 mainly due to credits issued to
tenants during 1994 for 1993 reimbursable expenses.
Interest income increased for the year ended December 31, 1995 compared to
1994 primarily due to an increase in cash reserves and in interest rates earned
on the Partnership's invested cash.
Total Mall tenant sales (exclusive of anchor tenants) were $70,794,000 for
the year ended December 31, 1995, improved from $63,766,000 for the year ended
December 31, 1994. Sales for tenants (exclusive of anchor tenants) which
operated at the Mall for each of the last two years were $66,171,000 and
$59,691,000, respectively. As of December 31, 1995, the Mall was 94.1% occupied,
excluding anchor tenants and office space, compared to 94.2% at December 31,
1994.
II-4
<PAGE>
Property Appraisal
The appraised fair market value of the Mall at January 1, 1996 and 1997, as
determined by Cushman & Wakefield, Inc., an independent third party appraisal
firm, was $81,000,000. Limited Partners should note that appraisals are only
estimates of current value and actual values realizable upon sale may be
significantly different. A significant factor in establishing an appraised value
is the actual selling price for properties which the appraiser believes are
comparable. Because of the nature of the Partnership's property and the limited
market for such property, there can be no assurance that the other properties
reviewed by the appraiser are comparable. Additionally, the low level of
liquidity as a result of the current restrictive capital environment has had the
effect of limiting the number of transactions in real estate markets and the
availability of financing to potential purchasers, which may have a negative
impact on the value of an asset. Further, the appraised value does not reflect
the actual costs which could be incurred in selling the property. As a result of
these factors and the illiquid nature of an investment in Units of the
Partnership, the variation between the appraised value of the Partnership's
property and the price at which the Units of the Partnership could be sold is
likely to be significant. Fiduciaries of Limited Partners which are subject to
ERISA or other provisions of law requiring valuation of Units should consider
all relevant factors, including, but not limited to the net asset value per
Unit, in determining the fair market value of the investment in the Partnership
for such purposes.
II-5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
FROM THE QUARTERLY REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED
JUNE 30, 1997
LIQUIDITY AND CAPITAL RESOURCES
On April 9, 1997, Eastpoint Partners, L.P. (the 'Owner Partnership')
received $476,010 from Ames Department Stores, Inc. in connection with the
Compromise and Mutual Release Agreement executed with Consolidated Fidelity Life
Insurance Company ('Consolidated') in July 1994. As of April 10, 1997, the total
payments received from Ames were $1,485,468, of which $324,602 was paid to
Consolidated. It is uncertain, but unlikely, at this time if there will be any
additional payments to the Owner Partnership.
Subsequent Event
An Agreement of Purchase and Sale (the 'Agreement') dated as of July 31,
1997, was entered into among Shopco Advisory Corp., a New York corporation (the
'Buyer'), and the Partnership and the General Partner; the Partnership and the
General Partner collectively referred to as the 'Sellers'. The Buyer is an
affiliate of Shopco Management Corp., which is the managing and leasing agent
for the Mall (as defined below), and SFN Limited Partnership, the limited
partner of the Owner Partnership.
The Partnership is the managing general partner of the Owner Partnership,
which owns the entire fee interest in the real property known as Eastpoint Mall
located in Baltimore County, Maryland (the 'Mall'). The Sellers are the owners
of an aggregate of 91 percent of the partnership interests in the Owner
Partnership.
Based upon an agreed upon value of the Mall of $81,000,000, the Buyer, or
its assignee(s), will prepay, purchase or defease the $51,000,000 principal
amount of outstanding indebtedness secured by a first mortgage and will purchase
the Seller's interest in the Owner Partnership for an aggregate purchase price
of $26,851,000. Consummation of the proposed transaction is subject to the
satisfaction of various conditions including completion of certain aspects of
the Buyer's due diligence review and the approval of the transaction by a
majority-in-interest of the Partnership's limited partners. There can be no
assurances that the transaction can be closed as anticipated. Solicitation of
the limited partners is expected to occur during the third quarter of 1997. At
such time as the transaction is consummated and all obligations are fulfilled,
the Partnership will wind up its affairs and be dissolved.
At June 30, 1997, the Partnership had a cash balance of $7,603,326,
compared to $6,362,256 at December 31, 1996. The increase is primarily due to
cash provided by operating activities exceeding cash distributions paid during
the first half of 1997 and additions to real estate. The Partnership maintains a
restricted cash account representing a loan reserve of $1,000,000, plus interest
earned, as established under the terms of its first mortgage loan. This
constitutes additional collateral which can be used for capital improvements and
leasing commissions. Cash held in escrow totaled $755,456 at June 30, 1997
compared with $535,313 at December 31, 1996. The increase is primarily
attibutable to additional fundings made to the real estate tax and insurance
escrows as specified under the terms of the Partnership's first mortgage loan.
In connection with efforts taken to market the Mall for sale, the
Partnership's real estate assets, deferred rent receivable and prepaid leasing
commissions were reclasssified on the consolidated balance sheets at March 31,
1997 to 'Property held for disposition.'
Deferred charges decreased from $1,353,384 at December 31, 1996 to
$1,120,602 at June 30, 1997 primarily resulting from the reclassification of
$214,547 in prepaid leasing commissions, which are included in deferred charges,
at March 31, 1997 to 'Property held for disposition.'
Prepaid expenses decreased from $389,559 at December 31, 1996 to $268,272
at June 30, 1997 primarily as a result of the recognition of real estate tax
expense for the first half of 1997, partially offset by payment of the insurance
premium.
Accounts payable and accrued expenses decreased from $417,511 at December
31, 1996 to $185,407 at June 30, 1997, primarily due to the payment by the Owner
Partnership of amounts due to Consolidated pursuant to the Release Agreement as
explained and defined below.
II-6
<PAGE>
Due to affiliates increased from $0 at December 31, 1996 to $18,500 at June
30, 1997 due to a change in the billing method for reimbursable expenses
incurred by an affiliate of the General Partner. Please refer to the Notes to
the Consolidated Financial Statements included in the Partnership's Quarterly
Report on Form 10-Q for the quarter ended June 30, 1997, which are incorporated
by reference in the Proxy Statement.
As of the filing date of this report, the following current tenants at the
Mall, or their parent corporations, have filed for protection under the U.S.
Bankruptcy Code:
<TABLE>
<CAPTION>
SQUARE FOOTAGE
TENANT LEASED
- ------------------------------------------------------------------------------ --------------
<S> <C>
Marianne...................................................................... 3,750
Marianne Plus................................................................. 3,000
Jeans West.................................................................... 2,400
Rave.......................................................................... 2,000
County Seat................................................................... 3,500
</TABLE>
As of June 30, 1997, these tenants occupied 14,650 square feet, or
approximately 5% of the Mall's leasable area (exclusive of anchor tenants and
office space). Pursuant to the provisions of the U.S. Federal Bankruptcy Code,
these tenants, with the exception of Jeans West, which signed a new lease
subsequent to its bankruptcy filing, may, with court approval, choose to reject
or accept the terms of their leases. Should any of these tenants exercise the
right to reject their leases, this could have an adverse impact on cash flow
generated by the Mall and revenues received by the Partnership depending on the
Partnership's ability to replace them with new tenants at comparable rents.
Ames Parcel and Consolidated Release Agreement
On April 26, 1990, Ames Department Stores, Inc. ('Ames') filed for
bankruptcy protection under Chapter 11 of the Federal Bankruptcy Code. On
December 18, 1992, the Bankruptcy Court confirmed the Plan pursuant to which
Ames assumed its lease at the Mall. Land leased to Ames by the Owner
Partnership, together with the building constructed thereon by Ames, secured a
deed of trust held by Consolidated, as successor to Southwestern Life Insurance
Company. By filing its bankruptcy petition, Ames was in default under the
Consolidated deed of trust.
On July 14, 1994, the Partnership executed a Release Agreement with
Consolidated (the 'Release Agreement'). Pursuant to the terms of the Release
Agreement, the Partnership paid Consolidated $2 million in return for the
assignment of the deed of trust and related Ames promissory note, as well as
Consolidated's claim in the Ames bankruptcy case relating to such promissory
note. Consolidated's total claims, in the face amount of approximately $2.3
million, consist of the balances due on the Ames promissory note, totaling $1.7
million, and another promissory note. Pursuant to the Release Agreement, the
Partnership is entitled to any recovery based on the Ames promissory note;
Consolidated will receive any recovery on the other note. Various trusts were
established through Ames' Plan of Reorganization by which different classes of
claims were to be paid from different pools of monies. The Subsidiaries Trustee
had filed an objection to the allowance of Consolidated's claim, including that
portion attributable to the Ames promissory note. The Partnership pursued legal
action in opposition to the objection. In mid-March 1996, the Trustee and the
Partnership settled the Trustee's objection by reducing and allowing
Consolidated's claim in the approximate amount of $2,050,000, of which
approximately $1,530,142 is for amounts due under the Ames promissory note, and
requiring Ames to make a payment of $10,000 to the Owner Partnership. An Agreed
Order approving the settlement was entered by the Bankruptcy Court on May 1,
1996. Ames' $10,000 payment to the Owner Partnership was received on June 4,
1996. On August 7, 1996 and September 23, 1996, additional payments were
received from Ames in the amounts of $887,520 and $111,938, respectively. On
April 9, 1997, the Owner Partnership received an additional $476,010 from Ames
in connection with the Release Agreement. As of April 10, 1997, the total
payments received from Ames were $1,485,468, of which $324,602 was paid to
Consolidated. It is uncertain, but unlikely, at this time if there will be any
additional payments to the Owner Partnership.
II-7
<PAGE>
Cash Distributions
A distribution for the second quarter of 1997, in the amount of $62.50 per
Unit, will be paid on August 15, 1997. The level, timing, and amount of future
distributions will be reviewed on a quarterly basis after an evaluation of the
Mall's performance and the Partnership's current and future cash needs.
RESULTS OF OPERATIONS
For the six months ended June 30, 1997 and 1996 net cash flow from
operating activities totaled $1,932,969 and $1,452,709, respectively. The
increase primarily reflects an increase in net income.
For the three and six months ended June 30, 1997, the Partnership
recognized net income of $740,351 and $1,203,768, respectively, compared to
$471,829 and $797,672 for the same periods in 1996. The increase in net income
is primarily due to an increase in miscellaneous income and a decrease in
depreciation and amortization due to the reclassification to Property held for
disposition, offset by an increase in property operating expenses.
For the three and six months ended June 30, 1997, percentage rent totaled
$279,195 and $555,743, respectively, compared with $148,085 and $457,656 during
the corresponding periods in 1996. The increase is attributable to an increase
in amounts billed to tenants for percentage rent.
Miscellaneous income increased to $344,312 and $380,403 for the three and
six months ended June 30, 1997 from $45,990 and $88,281 during the same periods
in 1996. The increase reflects additional amounts received by the Partnership
pursuant to the Release Agreement explained above.
Property operating expenses increased to $1,313,418 and $2,130,876 for the
three and six months ended June 30, 1997 compared to $886,973 and $1,927,834 for
the corresponding periods in 1996. The increases for both periods are the result
of the accrual of personal property taxes, offset by lower common area
maintenance expenses, which are charged back to tenants, and a reduction in bad
debt expense related to the tenants that have filed for bankruptcy protection.
In accordance with the Partnership's efforts to market and sell the Mall
explained under 'Liquidity and Capital Resources,' the Partnership suspended
depreciation and amortization in accordance with the Statement of Financial
Accounting Standards No. 121, 'Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of.' As a result, depreciation
and amortization decreased for the three and six months ended June 30, 1997 in
comparison with the same periods in 1996.
General and administrative expenses for the three and six months ended June
30, 1997 were $78,031 and $146,024, respectively, compared to $69,558 and
$114,114 for the same periods in 1996. During the 1997 periods, certain expenses
incurred by the General Partner, its affiliates, and an unaffiliated third party
service provider in servicing the Partnership, which were voluntarily absorbed
by affiliates of the General Partner in prior periods, were reimbursed to the
General Partner and its affiliates.
Total Mall tenant sales (exclusive of anchor tenants) were $24,550,000 for
the five months ended May 31, 1997, compared to $24,546,000 for the same period
in 1996. Sales for tenants (exclusive of anchor tenants) which operated at the
Mall for each of the last two years were $23,207,000 and $23,185,000,
respectively. As of June 30, 1997, the Mall was 89% occupied, excluding anchor
tenants and office space, compared to 93% at June 30, 1996.
II-8
<PAGE>
PROXY EASTPOINT MALL LIMITED PARTNERSHIP PROXY
SPECIAL MEETING OF LIMITED PARTNERS
TO BE HELD ON NOVEMBER 28, 1997
THIS PROXY IS SOLICITED BY EASTERN AVENUE INC.,
THE GENERAL PARTNER OF EASTPOINT MALL LIMITED PARTNERSHIP,
ON BEHALF OF EASTPOINT MALL LIMITED PARTNERSHIP
The undersigned hereby appoints Joan B. Berkowitz and Robert J. Hellman, or
either of them, as Proxies, each with full power of substitution, and hereby
authorizes either of them to represent and to vote, as designated below, all
units of limited partnership interest ('Units') of Eastpoint Mall Limited
Partnership, a Delaware limited partnership (the 'Partnership'), that the
undersigned is entitled to vote if personally present at the Special Meeting of
Limited Partners of the Partnership to be held on November 28, 1997, at 9:00
a.m. (New York time), at the offices of the Partnership, 3 World Financial
Center, 26th Floor, New York, New York 10285-2900, and at any adjournment(s) or
postponement(s) thereof.
THE GENERAL PARTNER RECOMMENDS THAT THE LIMITED PARTNERS VOTE 'FOR' THE
PROPOSAL.
The Proposal to authorize is:
Approval of the sale of the Partnership's general partnership interest in
Eastpoint Partners, L.P., a New York limited partnership, to Shopco Advisory
Corp., a New York corporation, or its assignees.
/ / FOR / / AGAINST / / ABSTAIN
Either proxy is authorized to vote upon such other business as may properly
come before the Special Meeting or any adjournment(s) or postponement(s) thereof
in accordance with the judgment of the proxy so voting.
(Continued, and to be signed on other side)
<PAGE>
(Continued from other side)
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED HEREIN
BY THE UNDERSIGNED LIMITED PARTNER. IF NO DIRECTION IS MADE ON THIS CARD, THIS
PROXY WILL BE VOTED 'FOR' THE PROPOSAL.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY USING THE ENCLOSED
PRE-PAID ENVELOPE OR DELIVER TO: MacKenzie Partners, Inc., 156 Fifth Avenue,
13th Floor, New York, New York 10010. If you have any questions, please call
toll-free (800) 322-2885 or (212) 929-5000 (collect). Facsimile copies of this
Proxy, properly completed and duly executed, will be accepted at (212) 929-0308,
Attention: Robert Marese.
Please sign exactly as name
appears hereon. When
interests are held by joint
owners, both should sign.
When signing as an attorney,
executor, administrator,
trustee or guardian, please
give full title as such. If a
corporation, please sign in
the corporate name by the
president or other authorized
officer. If a partnership,
please sign in partnership
name by an authorized person.
DATED: ,1997
----------------
-----------------------------
SIGNATURE
-----------------------------
SIGNATURE IF HELD JOINTLY
-----------------------------
TITLE
