SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------------
SCHEDULE 14D-1
Tender Offer Statement Pursuant to Section 14(d)(1)
of the Securities Exchange Act of 1934
-----------------------
Capital Source L.P.
(Name of Subject Company)
Madison Liquidity Investors 104, LLC
Madison/OHI Liquidity Investors, LLC
(Bidders)
Beneficial Assignment Certificates
(Title of Class of Securities)
140494105
(CUSIP Number of Class of Securities)
--------------------------
<TABLE>
<S> <C> <C>
Ronald M. Dickerman Copy to:
Madison Liquidity Investors 104, LLC Sheila Corvino
Madison/OHI Liquidity Investors, LLC 811 West Dorset Road
P.O. Box 7461 Dorset, Vermont 05251
Incline Village, Nevada 89452 (802) 867-0112
(212) 687-0251
</TABLE>
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications on Behalf of Bidders)
Calculation of Filing Fee
------------------------------------------------------------------
<TABLE>
<S> <C> <C>
Transaction Amount of
Valuation* Filing Fee
$1,653,370 $330.67
</TABLE>
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* For purposes of calculating the filing fee only. This amount
assumes the purchase of 165,337 units of Beneficial
Assignment Certificates ("Units") of the subject company at
$10.00 in cash per Unit.
[ ] Check box if any part of the fee is offset as provided by
Rule 0-11(a)(2) and identify the filing with which the
offsetting fee was previously paid. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
Amount Previously Paid: N/A Filing Party: N/A
Form or Registration Number: N/A Date Filed: N/A
1. Name of Reporting Person
S.S. or I.R.S. Identification Nos. of Above Person
Madison Liquidity Investors 104, LLC
134022656
2. Check the Appropriate Box if a Member of a Group (See
Instructions)
(a) [ ]
(b) [X]
3. SEC Use Only
4. Sources of Funds (See Instructions)
AF
5. Check if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(e) or 2(f)
[ ]
6. Citizenship or Place of Organization
Delaware
7. Aggregate Amount Beneficially Owned by Each Reporting Person
None
8. Check if the Aggregate in Row (7) Excludes Certain Shares
(See Instructions)
[ ]
9. Percent of Class Represented by Amount in Row (7)
None
10. Type of Reporting Person (See Instructions)
OO
1. Name of Reporting Person
S.S. or I.R.S. Identification Nos. of Above Person
Madison/OHI Liquidity Investors, LLC
137167955
2. Check the Appropriate Box if a Member of a Group (See
Instructions)
(a) [ ]
(b) [X]
3. SEC Use Only
4. Sources of Funds (See Instructions)
OO
5. Check if Disclosure of Legal Proceedings is Required Pursuant
to Items 2(e) or 2(f)
[ ]
6. Citizenship or Place of Organization
Delaware
7. Aggregate Amount Beneficially Owned by Each Reporting Person
None
8. Check if the Aggregate in Row (7) Excludes Certain Shares
(See Instructions)
[ ]
9. Percent of Class Represented by Amount in Row (7)
None
10. Type of Reporting Person (See Instructions)
OO
Item 1. Security and Subject Company.
(a) The name of the subject company is Capital Source L.P.,
a Delaware limited partnership (the "Partnership"). The address of
the Partnership's principal executive offices is Suite 400, 1004
Farnam Street, Omaha, Nebraska 68102.
(b) This Schedule 14D-1 relates to the offer by Madison
Liquidity Investors 104, LLC, a Delaware limited liability company
(the "Purchaser"), to purchase up to 165,337 units of Beneficial
Assignment Certificates ("Units") for cash at a price equal to
$10.00 per Unit in cash, reduced by (i) the $50.00 transfer fee (per
transfer, not per Unit) charged by the Partnership and (ii) any cash
distributions made or declared on or after May 13, 1999 (the "Offer
Date"), without interest (the "Offer Price"), upon the terms and
subject to the conditions set forth in the Offer to Purchase dated
May 13, 1999 (the "Offer to Purchase") and in the related Agreement
of Assignment and Transfer copies of which are attached hereto as
Exhibits (a)(1) and (a)(2), respectively, as each may be
supplemented or amended from time to time.
The Partnership had 3,374,222 Units outstanding as of December 31,
1998, according to its Form 10-K.
The Purchaser's sole member and funding source, Madison/OHI
Liquidity Investors, LLC, a Delaware limited liability company
("Madison/OHI"), may be deemed a co-bidder with respect to the offer
described herein. As such, references in this Schedule to the
"Purchaser" shall be deemed to include Madison/OHI. However, the
purchaser of the Units will be Madison Liquidity Investors 104, LLC.
(c) The information set forth under the captions
"Introduction ("Establishment of the Offer Price")" and Section 8
("Effects of the Offer") in the Offer to Purchase is incorporated
herein by reference.
Item 2. Identity and Background.
(a)-(d) The information set forth in "Introduction," Section
11 ("Certain Information Concerning the Purchaser") and in Schedule
I of the Offer to Purchase is incorporated herein by reference.
(e)-(g) The information set forth in Section 11 ("Certain
Information Concerning the Purchaser") and Schedule I in the Offer
to Purchase is incorporated herein by reference. During the last
five years, neither the Purchaser nor, to the best of the knowledge
of the Purchaser, any person named on Schedule I to the Offer to
Purchase nor any affiliate of the Purchaser (i) has been convicted
in a criminal proceeding (excluding traffic violations or similar
misdemeanors) or (ii) was a party to a civil proceeding of a
judicial or administrative body of competent jurisdiction and as a
result of such proceeding were or are subject to a judgment, decree
or final order enjoining future violations of, or prohibiting
activities subject to, Federal or State securities laws or finding
any violation of such laws.
Item 3. Past Contacts, Transactions or Negotiations with the
Subject Company.
(a) Not applicable.
(b) None.
Item 4. Source and Amount of Funds or Other Consideration.
(a) The information set forth under the caption Section 12
("Source of Funds") of the Offer to Purchase is incorporated herein
by reference.
(b)-(c) Not applicable.
Item 5. Purpose of the Tender Offer and Plans or Proposals of the
Bidder.
(a)-(f) The information set forth under the caption Section
9 ("Purpose of the Offer; Future Plans") in the Offer to Purchase is
incorporated herein by reference.
Item 6. Interest in Securities of the Subject Company.
(a)-(b) The information set forth in Section 11 ("Certain
Information Concerning the Purchaser") of the Offer to Purchase is
incorporated herein by reference.
Item 7. Contracts, Arrangements, Understandings or Relationships
with Respect to the Subject Company's Securities.
The information set forth in Section 11 ("Certain Information
Concerning the Purchaser") of the Offer to Purchase is incorporated
herein by reference.
Item 8. Persons Retained, Employed or To Be Compensated.
None.
Item 9. Financial Statements of Certain Bidders.
Not applicable.
Item 10. Additional Information.
(a) None.
(b)-(c) The information set forth in Section 14 ("Certain
Legal Matters") of the Offer to Purchase is incorporated herein by
reference.
(d) None.
(e) None.
(f) Reference is hereby made to the Offer to Purchase and
the related Agreement of Assignment and Transfer, copies of which
are attached hereto as Exhibits (a)(1) and (a)(2), respectively, and
which are incorporated herein in their entirety by reference.
Item 11. Material to be Filed as Exhibits.
(a)(1) Offer to Purchase dated May 13, 1999
(a)(2) Agreement of Assignment and Transfer
(a)(3) Form of Letter to Unitholders dated May 13, 1999
(a)(4) Summary Publication of Notice of Offer
(b)(1) Loan Agreement between Madison/OHI Liquidity
Investors, LLC and Omega Healthcare Investors, Inc.
dated as of October 2, 1998.
(c)-(f) None.
SIGNATURES
After due inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true,
complete and correct.
Dated: May 13, 1999
MADISON LIQUIDITY INVESTORS 104, LLC
By: /s/ Ronald M. Dickerman
Ronald M. Dickerman, Managing Director
MADISON/OHI LIQUIDITY INVESTORS, LLC
By: /s/ Ronald M. Dickerman
Ronald M. Dickerman, Managing Director
EXHIBIT INDEX
Exhibit Description Page
(a)(1) Offer to Purchase dated May 13, 1999
(a)(2) Agreement of Assignment and Transfer
(a)(3) Form of Letter to Unitholders dated May 13, 1999
(a)(4) Summary Publication of Notice of Offer
(b)(1) Loan Agreement between Madison/OHI Liquidity
Investors, LLC and Omega Healthcare
Investors, Inc. dated as of October 2, 1998.
EXHIBIT (a)(1)
OFFER TO PURCHASE FOR CASH
UNITS OF BENEFICIAL ASSIGNMENT CERTIFICATES
of
CAPITAL SOURCE L.P.
at
$10.00 PER UNIT
by
MADISON LIQUIDITY INVESTORS 104, LLC
(the "Purchaser")
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT
5:00 P.M., EASTERN STANDARD TIME, ON JUNE 17, 1999, UNLESS EXTENDED.
Madison Liquidity Investors 104, LLC (the "Purchaser")(1) hereby
seeks to acquire Beneficial Assignment Certificates (the "Units") in
Capital Source L.P., a Delaware limited partnership (the
"Partnership"). The Purchaser hereby offers to purchase up to
165,337 of the issued and outstanding Units at a purchase price of
$10.00 per Unit, in cash, reduced by (i) the $50.00 transfer fee
(per transfer, not per Unit) charged by the Partnership and (ii) any
cash distributions made or declared on or after May 13, 1999 (the
"Offer Date"), without interest (the "Offer Price"), upon the terms
and subject to the conditions set forth in this Offer to Purchase
(the "Offer to Purchase") and in the related Agreement of Assignment
and Transfer and accompanying documents, as each may be supplemented
or amended from time to time (which together constitute the
"Offer"). The Offer will expire at 5:00 p.m., Eastern Standard
Time, on June 17, 1999 or such other date to which this Offer may be
extended (the "Expiration Date"). The Units sought pursuant to the
Offer represent 4.90% of the Units issued and outstanding as of
December 31, 1998.
____________________
1 For purposes of the applicable securities law, the
Purchaser's sole member and funding source, Madison/OHI Liquidity
Investors, LLC ("Madison/OHI"), is a co-bidder to this Offer. As
such, references in this Offer to the "Purchaser" may be deemed to
include Madison/OHI. However, the purchaser of the Units will be
Madison Liquidity Investors 104, LLC.
NONE OF AMERICA FIRST CAPITAL SOURCE I, L.L.C., INSURED MORTGAGE
EQUITIES INC. (COLLECTIVELY THE "GENERAL PARTNER"), CAPITAL SOURCE
L.P. OR THEIR RESPECTIVE AFFILIATES OR SUBSIDIARIES ARE PARTIES TO
THIS OFFER.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF UNITS BEING
TENDERED. IF, AS OF THE EXPIRATION DATE, MORE THAN 165,337 UNITS
ARE VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN, THE PURCHASER WILL
ONLY ACCEPT FOR PURCHASE ON A PRO RATA BASIS 165,337 UNITS, SUBJECT
TO THE TERMS AND CONDITIONS HEREIN. SEE SECTION 13 ("CONDITIONS OF
THE OFFER"). A UNITHOLDER MAY TENDER ANY OR ALL UNITS OWNED BY SUCH
UNITHOLDER.
Before tendering, Unitholders are urged to consider the following
factors:
- - Unitholders who tender their Units will give up the opportunity
to participate in any future benefits from the ownership of
Units, including potential future distributions by the
Partnership. The Offer Price per Unit payable to a tendering
Unitholder by the Purchaser may be less than the total amount
which might otherwise be received by the Unitholder with
respect to the Units over the remaining term of the
Partnership.
- - Although the Purchaser cannot predict the future value of the
Partnership's assets on a per Unit basis, the Offer Price could
differ significantly from the net proceeds that would be
realized from a current sale of the properties owned by the
Partnership (the "Properties") or that may be realized upon a
future liquidation of the Partnership.
- - The Purchaser is making the Offer for investment purposes and
with the intention of making a profit from the ownership of the
Units. In establishing the Offer Price of $10.00 per Unit, the
Purchaser is motivated to establish the lowest price that might
be acceptable to Unitholders consistent with the Purchaser's
objectives. Such objectives and motivations may conflict with
the interests of the Unitholders in receiving the highest price
for their Units.
PLEASE SEE THE INTRODUCTION "ADDITIONAL FACTORS TO CONSIDER WHEN
TENDERING."
The Purchaser expressly reserves the right, in its sole discretion,
at any time and from time to time, (i) to extend the period of time
during which the Offer is open and thereby delay acceptance for
payment of, and the payment for, any Units, (ii) upon the occurrence
of any of the conditions specified in Section 13 of this Offer to
Purchase, to terminate the Offer and not accept for payment any
Units not theretofore accepted for payment or paid for, or to delay
the acceptance for payment of, or payment for, any Units not
theretofore accepted for payment or paid for, and (iii) to amend the
Offer in any respect. Notice of any such extension, termination or
amendment will promptly be disseminated to Unitholders in a manner
reasonably designed to inform Unitholders of such change in
compliance with Rules 14d-4(c) and 14d-6(d) under the Securities
Exchange Act of 1934 (the "Exchange Act"). In the case of an
extension of the Offer, such extension will be followed by a press
release or public announcement which will be issued no later than
9:00 a.m., Eastern Standard Time, on the next business day after the
scheduled Expiration Date, in accordance with Rule 14e-1(d) under
the Exchange Act.
MAY 13, 1999
IMPORTANT
Any (i) Unitholder, (ii) beneficial owner, in the case of Units
owned by Individual Retirement Accounts, Keogh Plans or qualified
plans (a "Beneficial owner"), or (iii) person who has purchased
Units but has not yet been reflected on the Partnership's books as a
Limited Partner (an "Assignee") desiring to tender any Units should
either (a) complete and sign the Agreement of Assignment and
Transfer (a copy of which is enclosed with this Offer to Purchase)
in accordance with the instructions to the Agreement of Assignment
and Transfer (see Instructions to Complete the Agreement of
Assignment and Transfer) and mail or deliver an executed Agreement
of Assignment and Transfer and any other required documents to
Madison Liquidity Investors 104, LLC at the addresses set forth
below or (b) request his or her broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for him or
her. Unless the context requires otherwise, references to
Unitholders in this Offer to Purchase shall be deemed to also refer
to Beneficial Owners and Assignees.
For deliveries by Federal Express or other private overnight couriers:
MADISON LIQUIDITY INVESTORS 104, LLC
4643 South Ulster Street
Suite 800
Denver, Colorado 80237
For deliveries by mail:
MADISON LIQUIDITY INVESTORS 104, LLC
P.O. Box 4757
Englewood, Colorado 80155
Telephone: (303) 858-0000
Facsimile: (303) 858-0001 (No Agreements of Assignment and
Transfer will be accepted by fax)
Questions or requests for assistance or additional copies of this
Offer to Purchase or the Agreement of Assignment and Transfer may be
directed to Madison Liquidity Investors 104, LLC at (303) 858-0000.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY RECOMMENDATION OR ANY
REPRESENTATION ON BEHALF OF THE PURCHASER OR TO PROVIDE ANY
INFORMATION OTHER THAN AS CONTAINED HEREIN OR IN THE AGREEMENT OF
ASSIGNMENT AND TRANSFER. NO SUCH RECOMMENDATION, INFORMATION OR
REPRESENTATION MAY BE RELIED UPON AS HAVING BEEN AUTHORIZED.
EACH UNITHOLDER IS URGED TO READ CAREFULLY THE ENTIRE OFFER TO
PURCHASE, THE AGREEMENT OF ASSIGNMENT AND TRANSFER AND RELATED
DOCUMENTS.
The Partnership is subject to the information and reporting
requirements of the Exchange Act and in accordance therewith is
required to file reports and other information with the Securities
and Exchange Commission (the "SEC" or "Commission") relating to its
business, financial condition and other matters. Such reports and
other information are available on the Commission's electronic data
gathering and retrieval (EDGAR) system, at its internet web site at
WWW.SEC.GOV, may be inspected at the public reference facilities
maintained by the Commission at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and are available for
inspection and copying at the regional offices of the Commission
located in Northwestern Atrium Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661 and at 7 World Trade Center,
13th Floor, New York, New York 10048. Copies of such material can
also be obtained from the Public Reference Room of the Commission in
Washington, D.C. at prescribed rates.
The Purchaser has or will be filing with the Commission a Tender
Offer Statement on Schedule 14D-1 (including exhibits) pursuant to
Rule 14d-3 of the General Rules and Regulations under the Exchange
Act, furnishing certain additional information with respect to the
Offer. Such statement and any amendments thereto, including
exhibits, may be inspected and copies may be obtained from the
offices of the Commission in the manner specified above.
TABLE OF CONTENTS
Page
INTRODUCTION
TENDER OFFER
Section 1. Terms of the Offer
Section 2. Procedures for Tendering Units
Section 3. Acceptance for Payment and Payment for Units
Section 4. Proration
Section 5. Withdrawal Rights
Section 6. Extension of Tender Period; Termination; Amendment
Section 7. Certain Federal Income Tax Consequences
Section 8. Effects of the Offer
Section 9. Purpose of the Offer; Future Plans
Section 10. The Business of the Partnership
Section 11. Certain Information Concerning the Purchaser
Section 12. Source of Funds
Section 13. Conditions of the Offer
Section 14. Certain Legal Matters
Section 15. Fees and Expenses
Section 16. Miscellaneous
Schedule I - The Principals of the Purchaser and Madison/OHI
To the Unitholders of Capital Source L.P.
INTRODUCTION
Madison Liquidity Investors 104, LLC (the "Purchaser")(2) hereby
seeks to acquire Beneficial Assignment Certificates (the "Units") in
Capital Source L.P. a Delaware limited partnership (the
"Partnership"). The Purchaser hereby offers to purchase up to
165,337 of the issued and outstanding Units at a purchase price of
$10.00 per Unit, in cash, reduced by (i) the $50.00 transfer fee
(per transfer, not per Unit) charged by the Partnership and (ii) any
cash distributions made or declared on or after May 13, 1999 (the
"Offer Date"), without interest (the "Offer Price"), upon the terms
and subject to the conditions set forth in this Offer to Purchase
(the "Offer to Purchase") and in the related Agreement of Assignment
and Transfer and accompanying documents, as each may be supplemented
or amended from time to time (which together constitute the
"Offer"). The Offer will expire at 5:00 p.m., Eastern Standard
Time, on June 17, 1999 or such other date to which this Offer may be
extended (the "Expiration Date"). The Units sought pursuant to the
Offer represent 4.90% of the Units issued and outstanding as of
December 31, 1998.
____________________
2 For purposes of the applicable securities law, the
Purchaser's sole member and funding source, Madison/OHI Liquidity
Investors, LLC ("Madison/OHI"), is a co-bidder to this Offer. As
such, references in this Offer to the "Purchaser" may be deemed to
include Madison/OHI. However, the purchaser of the Units will be
Madison Liquidity Investors 104, LLC.
For further information concerning the Purchaser, see Section 11
below and Schedule "I".
NONE OF AMERICA FIRST CAPITAL SOURCE I, L.L.C., INSURED MORTGAGE
EQUITIES INC. (COLLECTIVELY, THE "GENERAL PARTNER"), CAPITAL SOURCE
L.P. OR THEIR RESPECTIVE AFFILIATES OR SUBSIDIARIES ARE PARTIES TO
THIS OFFER.
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF UNITS BEING
TENDERED. IF, AS OF THE EXPIRATION DATE, MORE THAN 165,337 UNITS
ARE VALIDLY TENDERED AND NOT PROPERLY WITHDRAWN, THE PURCHASER WILL
ONLY ACCEPT FOR PURCHASE ON A PRO RATA BASIS 165,337 UNITS, SUBJECT
TO THE TERMS AND CONDITIONS HEREIN. SEE SECTION 13 ("CONDITIONS OF
THE OFFER.") A UNITHOLDER MAY TENDER ANY OR ALL UNITS OWNED BY SUCH
UNITHOLDER.
The Purchaser is making this Offer because it believes that the
Units represent an attractive investment at the price offered.
There can be no assurance, however, that the Purchaser's judgment is
correct, and, as a result, ownership of Units (either by the
Purchaser or Unitholders who retain their Units) will remain a
speculative investment. The Purchaser is acquiring the Units for
investment purposes and has no current plan to change current
management or the operations of the Partnership or effectuate any
extraordinary transaction involving the Partnership.
Establishment of the Offer Price
The Purchaser has set the Offer Price at $10.00 per Unit, in cash,
without interest, reduced by (i) the $50.00 transfer fee (per
transfer, not per Unit) charged by the Partnership and (ii) any cash
distributions made or declared on or after May 13, 1999.
The Purchaser established the Offer Price based on the Purchaser's
analysis that concluded the value of the Partnership Units to be
$13.60. The Purchaser conducted internal analysis on the
Partnership based the Annual Report filed on Form 10-K for the year
ended December 31, 1998. The Purchaser estimated the 1998 cash flow
of the Partnership's properties at $3,423,969 and applied a
capitalization rate of 9.00% which yielded a value of $38,044,100
for the Partnership's properties. The Purchaser then added the net
cash of the Partnership as of December 31, 1998, subtracted the
mortgage debt on the properties as of December 31, 1998, to arrive
at a total value of $45,905,561 or $13.60 per Partnership Unit. The
Purchaser believes that the capitalization rate utilized by it is
within a range of capitalization rates currently employed in the
marketplace for apartment buildings of this age and quality.
Therefore, based on the Purchaser's own internal analysis, the
Purchaser concluded the net asset value of the Partnership to be
$13.60 per Unit.
The Purchaser's Offer Price represents a discount of 26.4% to the
Purchaser's estimated net asset value of $13.60 per Unit. The
Purchaser chose the Offer Price based primarily on the motivation to
establish the lowest price that might be acceptable to Unitholders
consistent with the Purchaser's objectives. In addition, the
Purchaser took into account the lack of liquidity, lack of control
over the Partnership and certain tax considerations in establishing
the Offer Price.
The net asset value of the Units, as disseminated by the General
Partner, is $13.96 per Unit. The Purchaser's Offer Price represents
a discount of 28.3% to the General Partner's net asset value.
However, the Purchaser believes that the General Partner's net asset
value does not necessarily reflect the fair market value of a Unit,
which may be higher or lower than the net asset value depending on
several factors. The Purchaser does not propose or represent that
the Offer Price represents the fair market value of the Units.
The Partnership's Form 10-K for the year ended December 31, 1998
states that "BACs are not currently traded in any market.
Therefore, there is no market price or average bid and asked price
for BACs within the 60 days prior to the date of this filing." At
present, privately negotiated sales and sales through intermediaries
are the only means available to a Unitholder to liquidate an
investment in Units (other than the Offer) because the Units are not
listed or traded on any exchange or quoted on any NASDAQ list or
system. Set forth below is a schedule of the trading activity of
Units during the period August 1, 1998 through January 31, 1999, in
two-month intervals, as reported by The Partnership Spectrum, an
independent third-party industry publication:
<TABLE>
<CAPTION>
Period
_______________
Dec 1998 - Oct - Nov Aug - Sept
Jan 1999 1998 1998
_________________________________________________________________
<S> <C> <C> <C>
Weighted Price $12.33 $12.30 $12.26
High Price $12.99 $12.99 $12.60
Low Price $11.60 $11.40 $11.90
Units Traded 13,500 47,656 6,885
Number of Trades 11 9 6
Dollar Volume of $166,455 $586,168 $84,410
</TABLE>
Unitholders are advised, however, that such gross sales prices
reported by The Partnership Spectrum do not necessarily reflect the
net sales proceeds received by sellers of Units, which typically are
reduced by commissions and other secondary market transaction costs
to amounts less than the reported prices.
As the Purchaser has had no access to the books and records of the
Partnership, it has based its analysis upon publicly available
information and its own investigation and analysis. The Offer Price
is not the result of arm's length negotiations between the Purchaser
and the Partnership.
The Offer Price represents the price at which the Purchaser is
willing to purchase Units. No independent person has been retained
to evaluate or render any opinion with respect to the fairness of
the Offer Price and no representation is made by the Purchaser or
any affiliate of the Purchaser as to such fairness. Other measures
of the value of the Units may be relevant to Unitholders.
Unitholders are urged to consider carefully all of the information
contained herein and consult with their own advisors, tax, financial
or otherwise, in evaluating the terms of the Offer before deciding
whether to tender Units.
Additional Factors to Consider When Tendering.
The Purchaser believes that the following are aspects of the Offer
that should be considered when deciding whether or not to tender Units.
- - Upon the liquidation of the Partnership, the Purchaser will
benefit to the extent, if any, that the amount per Unit it
receives in the liquidation exceeds the Offer Price, if any.
Therefore, Unitholders might receive more value if they hold
their Units, rather than tender, and receive proceeds from the
liquidation of the Partnership. Alternatively, Unitholders may
prefer to receive the Offer Price now rather than wait for
uncertain future net liquidation proceeds. No independent
person has been retained to evaluate or render any opinion with
respect to the fairness of the Offer Price and no
representation is made by the Purchaser or any affiliate of the
Purchaser as to such fairness. When the assets of the
Partnership are ultimately sold, the return to Unitholders
could be higher or lower than the Offer Price. Unitholders are
urged to consider carefully all the information contained
herein before accepting the Offer.
- - The net asset value of the Units, as disseminated by the
General Partner, is $13.96 per Unit, which is more than the
Offer Price. However, the Purchaser believes that the net
asset value does not necessarily reflect the fair market value
of a Unit, which may be higher or lower than the net asset
value depending on several factors. The General Partner
estimates net asset value based upon a hypothetical sale of all
of the Partnership's assets, as of a hypothetical date, and the
distribution to the Limited Partners and the General Partner of
the gross proceeds of such sales, net of related indebtedness.
Additionally, the net asset value estimate prepared by the
General Partner does not take into account (i) future changes
in market conditions, (ii) timing considerations or (iii)
unforeseeable costs associated with winding up the Partnership.
- - Although not necessarily an indication of value, the $10.00
Offer Price per Unit is approximately 19% lower than the $12.33
weighted average selling price for the Units (before any
adjustment for typical commissions or transaction costs), as
reported by The Partnership Spectrum, an independent,
third-party source, for the period December 1, 1998 through
January 31, 1999. As further reported by The Partnership
Spectrum during the two month period ended January 31, 1999,
there were 11 trades conducted representing an aggregate of
13,500 Units sold or transferred. The gross sales prices
reported by The Partnership Spectrum do not necessarily reflect
the net sales proceeds received by sellers of Units, which
typically are reduced by commissions and other secondary market
transaction costs to amounts less than the reported prices.
The Purchaser cannot, and does not, know whether the
information compiled by The Partnership Spectrum is accurate or
complete.
- - After the consummation of the Offer, and unless otherwise
prohibited, the Purchaser will vote the Units acquired in the
Offer in its own interest, which may be different from or in
conflict with the interests of the remaining Unitholders.
- - In the event a total of more than 165,337 Units are tendered,
the Purchasers may accept only a portion of the Units tendered
by a Unitholder on a pro rata basis.
- - The eventual transfer of all tendered Units is subject to the
final approval of the Partnership or General Partner and is
subject to their discretion.
Unitholders may no longer wish to continue with their investment in
the Partnership for a number of reasons, including:
- - The Partnership's ability to generate cash adequate to meet its
needs is dependent primarily upon the operations of its real
estate investments and the future availability of bank
borrowings and the potential refinancing and sale of the
Partnership's remaining real estate investments. These sources
of liquidity will be used by the Partnership for payment of
expenses related to real estate operations, capital
expenditures, debt service and expenses. Cash flow, if any,
will then be available for distribution to the Partners.
- - For Unitholders who sell their Units in accordance with this
Offer, 1999 will be the final year for which you receive a K-1
Tax Form from the Partnership assuming that the transfer of
your Units is effectuated by the General Partner in 1999. Many
investors who have tax professionals prepare their taxes find
the cost of filing K-1s to be burdensome, particularly if more
than one limited partnership is owned.
- - The decision to accept the Offer eliminates the potential
uncertainty related to waiting for future distributions of
sales and final liquidation proceeds. Furthermore, by selling
the Units for cash now, the Unitholder would enjoy the ability
to redeploy investment assets into alternative and potentially
more liquid investments.
- - The Offer will provide Unitholders with an immediate
opportunity to liquidate their investment in the Partnership
without the usual transaction costs associated with market sales.
- - Although there are some limited resale mechanisms available to
the Unitholders wishing to sell their Units, there is no formal
trading market for the Units. Accordingly, Unitholders who
desire liquidity may wish to consider the Offer. The Offer
affords Unitholders an opportunity to dispose of their Units
for cash, which alternative otherwise might not be available to
them. However, the Offer Price is not intended to represent
either the fair market value of a Unit or the fair market value
of the Partnership's assets on a per Unit basis.
- - General disenchantment with real estate investments.
- - General disenchantment with long-term investments in limited
partnerships because of, among other things, their illiquidity
and the inability of Unitholders to effectuate management
control over the Partnership's affairs through the annual
election of the General Partners. Unitholders should note,
however, that they do have the right to remove the General
Partners by majority vote.
- - The Offer provides Unitholders with the opportunity to
liquidate their Units and to reinvest the proceeds in other
investments should they desire to do so. The Purchaser
believes that the Units represent an attractive investment for
the Purchaser at the Offer Price. There can be no assurance,
however, that this judgment is correct. Ownership of Units
will remain a speculative investment.
General Background Information
Certain information contained in this Offer to Purchase that relates
to, or represents, statements made by the Partnership or the General
Partner, has been derived from information provided in reports filed
by the Partnership with the Securities and Exchange Commission. The
Purchaser expressly disclaims any responsibility for the information
included in these filed reports and extracted in this discussion.
According to publicly available information, as of December 31,
1998, there was an average of 3,374,222 Units issued and
outstanding. As of the Partnership's most recent filing on Form
10-K for the year ended December 31, 1998 these outstanding Units
were held by approximately 5,571 Unitholders.
Tendering Unitholders will not be obligated to pay brokerage fees or
commissions on the sale of the Units to the Purchaser pursuant to
the Offer. The Purchaser will pay all charges and expenses incurred
in connection with the Offer with the exception of the transfer fees
that will be paid by the Unitholder via a reduction in the proceeds
from the sale of the Units. The Purchaser desires to purchase all
the Units tendered by each Unitholder, up to 4.90% of the total
outstanding Units and subject to Proration, when applicable, except
where otherwise prohibited. See Section 4 ("Proration") below.
IF, PRIOR TO THE EXPIRATION DATE, THE PURCHASER INCREASES THE
CONSIDERATION OFFERED TO UNITHOLDERS PURSUANT TO THE OFFER, SUCH
INCREASED CONSIDERATION WILL BE PAID WITH RESPECT TO ALL UNITS THAT
ARE PURCHASED PURSUANT TO THE OFFER, WHETHER OR NOT SUCH UNITS WERE
TENDERED PRIOR TO SUCH INCREASE IN CONSIDERATION.
UNITHOLDERS ARE URGED TO READ THIS OFFER TO PURCHASE AND THE
ACCOMPANYING AGREEMENT OF ASSIGNMENT AND TRANSFER CAREFULLY BEFORE
DECIDING WHETHER TO TENDER THEIR UNITS.
TENDER OFFER
SECTION 1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer (including
the terms and conditions of any extension or amendment of the
Offer), the Purchaser will accept for payment and pay for up to
165,337 Units validly tendered on or prior to the Expiration Date
and not withdrawn in accordance with Section 5 of this Offer to
Purchase. The term "Expiration Date" shall mean 5:00 p.m., Eastern
Standard Time, on June 17, 1999, unless and until the Purchaser, in
its sole discretion, shall have extended the period of time for
which the Offer is open, in which event the term "Expiration Date"
shall mean the latest time and date on which the Offer, as so
extended by the Purchaser, will expire.
The Offer is conditioned on satisfaction of certain conditions.
(See Section 13, which sets forth in full the conditions of the
Offer.) The Purchaser reserves the right (but shall not be
obligated), in its sole discretion and for any reason, to waive any
or all of such conditions. If, by the Expiration Date, any or all
of such conditions have not been satisfied or waived, the Purchaser
reserves the right (but shall not be obligated) (i) to decline to
purchase any of the Units tendered, terminate the Offer and return
all tendered Units to tendering Unitholders, (ii) to waive all the
unsatisfied conditions and, subject to complying with the applicable
rules and regulations of the Commission, purchase all Units validly
tendered, (iii) to extend the Offer and, subject to the right of
Unitholders to withdraw Units until the Expiration Date, retain the
Units that have been tendered during the period or periods for which
the Offer is extended or (iv) to amend the Offer. The rights
reserved by the Purchaser in this paragraph are in addition to the
Purchaser's right to terminate the Offer at any time prior to the
acceptance of tendered Units for payment.
SECTION 2. PROCEDURES FOR TENDERING UNITS.
VALID TENDER. For Units to be validly tendered pursuant to the
Offer, a properly completed and duly executed Agreement of
Assignment and Transfer (a copy of which is enclosed) with any other
documents required by the Agreement of Assignment and Transfer, or
instructions thereto, must be received on or prior to the Expiration
Date by the Purchaser at the following addresses: for deliveries by
Federal Express or other private overnight couriers, 4643 South
Ulster Street, Suite 800, Denver, Colorado 80237 or, for deliveries
by mail, P.O. Box 4757, Englewood, Colorado 80155. A Unitholder may
tender any or all Units owned by such Unitholder. Unitholders
should recognize that, if proration is required pursuant to the
terms of the Offer, the Purchaser will accept for payment from among
those Units validly tendered on or prior to the Expiration Date and
properly withdrawn, the maximum number of Units permitted pursuant
to the Offer on a pro rata basis, with adjustments to avoid
purchases of certain fractional Units and purchases which would
violate the terms of the Offer or the Partnership's Limited
Partnership Agreement, based upon the number of Units validly
tendered prior to the Expiration Date and not properly withdrawn.
In order for a tendering Unitholder to participate in the Offer, the
Unitholder must complete, in its entirety, the following documents
that accompany this Offer to Purchase:
(1) The Agreement of Assignment and Transfer; and
(2) Any other applicable documents included herewith or in the
Instructions to Complete the Agreement of Assignment and Transfer.
IN ORDER FOR A TENDERING UNITHOLDER TO PARTICIPATE IN THE OFFER,
UNITS MUST BE VALIDLY TENDERED AND NOT WITHDRAWN PRIOR TO THE
EXPIRATION DATE, WHICH IS 5:00 P.M., EASTERN STANDARD TIME, ON JUNE
17, 1999, OR SUCH DATE TO WHICH THE OFFER MAY BE EXTENDED.
THE METHOD OF DELIVERY OF THE AGREEMENT OF ASSIGNMENT AND TRANSFER
AND ALL OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE
TENDERING UNITHOLDER AND DELIVERY WILL BE DEEMED MADE ONLY WHEN
ACTUALLY RECEIVED BY THE PURCHASER. IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN
ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
SIGNATURE GUARANTEES. The signatures on the Agreement of Assignment
and Transfer must be medallion guaranteed by a commercial bank,
savings bank, credit union, savings and loan association or trust
company having any office, branch or agency in the United States, a
brokerage firm that is a member firm of a registered national
securities exchange or a member of the National Association of
Securities Dealers, Inc. (the "NASD").
BACKUP FEDERAL INCOME TAX WITHHOLDING. To prevent the possible
application of backup federal income tax withholding with respect
to payment of the Offer Price for Units purchased pursuant to the
Offer, a tendering Unitholder must provide the Purchaser with such
Unitholder's correct taxpayer identification number ("TIN") or
Social Security Number and make certain certifications that such
Unitholder is not subject to backup federal income tax withholding.
EACH TENDERING UNITHOLDER MUST INSERT IN THE AGREEMENT OF ASSIGNMENT
AND TRANSFER THE UNITHOLDER'S TAXPAYER IDENTIFICATION NUMBER OR
SOCIAL SECURITY NUMBER IN THE SPACE PROVIDED ON THE SIGNATURE PAGE
TO THE AGREEMENT OF ASSIGNMENT AND TRANSFER. THE AGREEMENT OF
ASSIGNMENT AND TRANSFER ALSO INCLUDES A SUBSTITUTE FORM W-9, WHICH
CONTAINS THE CERTIFICATIONS REFERRED TO ABOVE. (SEE THE
INSTRUCTIONS TO THE AGREEMENT OF ASSIGNMENT AND TRANSFER AND THE
ACCOMPANYING TAX CERTIFICATION PAGE).
FIRPTA WITHHOLDING. To prevent the withholding of federal income
tax in an amount equal to 10% of the sum of the Offer Price plus the
amount of Partnership liabilities allocable to each Unit tendered,
each Unitholder must complete the FIRPTA Affidavit included in the
Agreement of Assignment and Transfer certifying such Unitholder's
TIN or Social Security Number and address and that the Unitholder is
not a foreign person. (See the Instructions to the Agreement of
Assignment and Transfer and Section 7-"Certain Federal Income Tax
Consequences" of this Offer to Purchase).
APPOINTMENT AS ATTORNEY-IN-FACT AND PROXY. By executing an
Agreement of Assignment and Transfer as set forth above, and subject
to Section 5 ("Withdrawal Rights") of this Offer to Purchase, a
tendering Unitholder irrevocably constitutes and appoints the
Purchaser and its designees as such Unitholder's true and lawful
attorneys-in-fact and proxies, in the manner set forth in the
Agreement of Assignment and Transfer, with respect to the Units
tendered by such Unitholder and accepted for payment by the
Purchaser (and with respect to any and all other Units or other
securities issued or issuable in respect of such Unit on or after
the May 13, 1999) each with full power of substitution, to the full
extent of such Unitholder's rights (such power of attorney and proxy
being deemed to be an irrevocable power coupled with an interest)
(i) to seek to transfer ownership of such Units on the Partnership's
books (and to execute and to deliver any accompanying evidences of
transfer and authenticity which the Purchaser, the Partnership or
the General Partner may deem necessary or appropriate in connection
therewith, including, without limitation, any documents or
instruments required to be executed under a "Transferor's (Seller's)
Application for Transfer" created by the NASD, if required), (ii) to
become a Substitute Limited Partner, (iii) to receive any and all
distributions made or declared by the Partnership after May 13,
1999, (iv) to receive all benefits and otherwise exercise all
rights of beneficial ownership of such Units in accordance with the
terms of the Offer, (v) to execute and deliver to the Partnership
and/or the General Partner (as the case may be) a change of address
form instructing the Partnership to send any and all future
distributions to which the Purchaser is entitled pursuant to the
terms of the Offer in respect of tendered Units to the address
specified in such form, (vi) to endorse any check payable to or upon
the order of such Unitholder representing a distribution to which
the Purchaser is entitled pursuant to the terms of the Offer, in
each case on behalf of the tendering Unitholder, in favor of the
Purchaser or any other payee the Purchaser otherwise designates,
(vii) to exercise all such Unitholder's voting and other rights as
any such attorney-in-fact in their sole discretion may deem proper
at any meeting of Unitholders or any adjournment or postponement
thereof, by written consent in lieu of any such meeting or
otherwise, (viii) to act in manner as any such attorney-in-fact
shall, in its sole discretion, deem proper with respect to the
Units, (ix) to execute a Loss and Indemnity Agreement relating to
the Units on such Unitholder's behalf if such Unitholder fails to
include its original certificate(s) (if any) representing the Units
with the Agreement of Assignment and Transfer, or (x) to commence
any litigation that the Purchaser or its designees, in their sole
discretion, deem necessary to enforce any exercise of the
Purchaser's or such designees powers as such Unitholder's
attorneys-in-fact as set forth above.
Such appointment will be effective upon receipt by the Purchaser of
the Agreement of Assignment and Transfer. Upon such receipt, all
prior proxies given by such Unitholder with respect to such Units
will, without further action, be revoked, and no subsequent proxies
may be given (and if given will not be effective).
ASSIGNMENT OF ENTIRE INTEREST IN THE PARTNERSHIP. By executing and
delivering the Agreement of Assignment and Transfer, a tendering
Unitholder irrevocably sells, assigns, transfers, conveys and
delivers to the Purchaser, all of his right, title and interest in
and to the Units tendered thereby and accepted for payment pursuant
to the Offer and any and all non-cash distributions, other Units or
other securities issued or issuable in respect thereof on or after
May 13, 1999, including, without limitation, to the extent that they
exist, all rights in, and claims to, any Partnership profits and
losses, cash distributions, voting rights and other benefits of any
nature whatsoever and whenever distributable or allocable to the
Units under the Partnership's Limited Partnership Agreement (the
"Limited Partnership Agreement"), (i) unconditionally to the extent
that the rights appurtenant to the Units may be transferred and
conveyed without the consent of the general partners of the
Partnership (the "General Partner"), and (ii) in the event that the
Purchaser elects to become a substituted limited partner of the
Partnership, subject to the consent of the General Partner to the
extent such consent may be required in order for the Purchaser to
become a substituted limited partner of the Partnership. In
addition, by executing an Agreement of Assignment and Transfer, and
not otherwise timely withdrawing pursuant to the provisions of
Section 5 herein, a Unitholder also assigns to the Purchaser all of
the Unitholder's rights to receive distributions from the
Partnership with respect to the Units which are accepted for payment
and purchased pursuant to the Offer, including those cash
distributions made or declared on or after the Offer Date, May 13,
1999.
DETERMINATION OF VALIDITY; REJECTION OF UNITS; WAIVER OF DEFECTS; NO
OBLIGATION TO GIVE NOTICE OF DEFECTS. All questions as to the
validity, form, eligibility (including time of receipt) and
acceptance for payment of any tender of Units pursuant to the
procedures described above will be determined by the Purchaser, in
its sole discretion, which determination shall be final and binding.
THE PURCHASER RESERVES THE ABSOLUTE RIGHT TO REJECT ANY OR ALL
TENDERS IF NOT IN PROPER FORM OR IF THE ACCEPTANCE OF, OR PAYMENT
FOR, THE UNITS TENDERED MAY, IN THE OPINION OF THE PURCHASER'S
COUNSEL, BE UNLAWFUL. The Purchaser also reserves the right to
waive any defect or irregularity in any tender with respect to any
particular Units of any particular Unitholder, and the Purchaser's
interpretation of the terms and conditions of the Offer (including
the Agreement of Assignment and Transfer and the Instructions
thereto) will be final and binding. Neither the Purchaser nor any
other person will be under any duty to give notification of any
defects or irregularities in the tender of any Units or will incur
any liability for failure to give any such notification.
A tender of Units pursuant to any of the procedures described above
will constitute a binding agreement between the tendering Unitholder
and the Purchaser upon the terms and subject to the conditions of
the Offer, including the tendering Unitholder's representation and
warranty that (i) such Unitholder owns the Units being tendered
within the meaning of Rule 14e-4 under the Exchange Act and (ii) the
tender of such Units complies with Rule 14e-4. Rule 14e-4 requires,
in general, that a tendering security holder will actually be able
to deliver the security subject to the tender offer, and is of
concern particularly to any Unitholders who have granted options to
sell or purchase the Units, hold option rights to acquire such
securities, maintain "short" positions in the Units (i.e., have
borrowed the Units) or have loaned the Units to a short seller.
Because of the nature of Beneficial Assignment Certificates, the
Purchaser believes it is unlikely that any option trading or short
selling activity exists with respect to the Units. In any event, a
Unitholder will be deemed to tender Units in compliance with Rule
14e-4 and the Offer if the holder is the record owner of the Units
and the holder (i) delivers the Units pursuant to the terms of the
Offer, (ii) causes such delivery to be made, (iii) guarantees such
delivery, (iv) causes a guaranty of such delivery, or (v) uses any
other method permitted in the Offer (such as a facsimile delivery of
the Agreement of Assignment and Transfer).
SECTION 3. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS.
Upon the terms and subject to the conditions of the Offer
(including, if the Offer is extended or amended, the terms and
conditions of any extension or amendment), the Purchaser will accept
for payment, and will pay for, Units validly tendered and not
withdrawn in accordance with Section 5, as promptly as practicable
following the Expiration Date. In addition, subject to applicable
rules of the Commission, the Purchaser expressly reserves the right
to delay acceptance for payment of, or payment for, Units pending
receipt of any regulatory or governmental approvals specified in
Section 14 ("Certain Legal Matters") or pending receipt of any
additional documentation required by the Agreement of Assignment and
Transfer. The tendering Unitholders will be paid promptly following
(i) receipt of a valid, properly and fully executed Agreement of
Assignment and Transfer and (ii) receipt by the Purchaser of the
Partnership's confirmation that the transfer of Units have been
effectuated, subject to Section 4 ("Proration") of this Offer to
Purchase. The Purchaser will issue payment only to the Unitholder
of record and payment will be forwarded only to the address listed
on the Agreement of Assignment and Transfer.
For purposes of the Offer, the Purchaser shall be deemed to have
been accepted for payment (and thereby purchased tendered Units)
when the Purchaser is in receipt of the Partnership's confirmation
that the transfer of Units has been effectuated. Upon the terms and
subject to the conditions of the Offer, payment for the Units
purchased pursuant to the Offer will in all cases be made by the
Purchaser.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER PRICE FOR
UNITS.
If any tendered Units are not purchased for any reason, the
Agreement of Assignment and Transfer with respect to such Units not
purchased will be of no force or effect. If, for any reason
whatsoever, acceptance for payment of, or payment for, any Units
tendered pursuant to the Offer is delayed or the Purchaser is unable
to accept for payment, purchase or pay for the Units tendered
pursuant to the Offer, then without prejudice to the Purchaser's
rights under Section 13 (but subject to compliance with Rule
14e-1(c) under the Exchange Act), the Purchaser may, nevertheless,
on behalf of the Purchaser, retain tendered Units, subject to any
limitations of applicable law, and such Units may not be withdrawn
except to the extent that the tendering Unitholders are entitled to
withdrawal rights as described in Section 5.
If, prior to the Expiration Date, the Purchaser shall increase the
consideration offered to Unitholders pursuant to the Offer, such
increased consideration shall be paid for all Units accepted for
payment pursuant to the Offer, whether or not such Units were
tendered prior to such increase.
Unless otherwise prohibited, the Purchaser reserves the right to
transfer or assign, in whole or from time to time in part, the right
to purchase Units tendered pursuant to the Offer, but any such
transfer or assignment will not relieve the Purchaser of its
obligations under the Offer or prejudice the rights of tendering
Unitholders to receive payment for Units validly tendered and
accepted for payment pursuant to the Offer.
SECTION 4. PRORATION.
If not more than 165,337 Units are validly tendered and not properly
withdrawn prior to the Expiration Date, the Purchaser, upon the
terms and conditions of the Offer and subject to the approval of the
Partnership and/or the General Partner, will accept for payment all
such Units so tendered.
If more than 165,337 Units are validly tendered and not properly
withdrawn on or prior to the Expiration Date, the Purchaser, upon
the terms and conditions of the Offer and subject to the approval of
the Partnership and/or the General Partner, will accept for payment
and pay for an aggregate of 165,337 Units so tendered, pro rata
according to the number of Units validly tendered by each Unitholder
and not properly withdrawn on or prior to the Expiration Date, on a
pro rata basis, with appropriate adjustments to avoid tenders of
fractional Units and purchases that may otherwise violate the
Partnership's Limited Partnership Agreement, where applicable.
In the event that proration is required, the Purchaser will
determine the precise number of Units to be accepted and will
forward payment together with a notice explaining the final results
of the proration as soon as practicable. The Purchaser will not pay
for any Units tendered until after the final proration factor has
been determined.
In the event that proration of tendered Units is required, and
because of the difficulty of determining the proration results, the
Purchaser may not be able to announce the final results of such
proration until at least approximately seven business days after the
Expiration Date. Subject to the Purchaser's obligation under Rule
14e-1(c) under the Exchange Act to pay Unitholders the Offer Price
in respect of Units tendered or to return those Units promptly after
the termination or withdrawal of the Offer, the Purchaser does not
intend to pay for any Units accepted for payment pursuant to the
Offer until the final proration results are known.
SECTION 5. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 5, all tenders of Units
pursuant to the Offer are irrevocable, provided that Units tendered
pursuant to the Offer may be withdrawn at any time prior to the
Expiration Date.
For withdrawal to be effective, a written notice of withdrawal must
be timely received by the Purchaser (i.e. a valid notice of
withdrawal must be received after May 13, 1999 but on or before June
17, 1999, or such other date to which this Offer may be extended) at
the address set forth in the attached Agreement of Assignment and
Transfer. Any such notice of withdrawal must specify the name of
the person who tendered the Units to be withdrawn and must be signed
by the same person(s) who signed the Agreement of Assignment and
Transfer and must also contain a Medallion Signature Guarantee. If
the Units are held in the name of two or more persons, all such
persons must sign the notice of withdrawal.
If purchase of, or payment for, Units is delayed for any reason, or
if the Purchaser is unable to purchase or pay for Units for any
reason, then, without prejudice to the Purchaser's rights under the
Offer, tendered Units may be retained by the Purchaser and may not
be withdrawn except to the extent that tendering Unitholders are
entitled to withdrawal rights as set forth in this Section 5,
subject to Rule 14e-1(c) under the Exchange Act, which provides, in
part, that no person who makes a tender offer shall fail to pay the
consideration offered or return the securities (i.e. Units)
deposited by or on behalf of security holders promptly after the
termination or withdrawal of the tender offer.
All questions as to the form and validity (including time of
receipt) of notices of withdrawal will be determined by the
Purchaser, in its sole discretion, which determination shall be
final and binding. Neither the Purchaser nor any other person will
be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or will incur any
liability for failure to give any such notification.
Any Units properly withdrawn will be deemed not to be validly
tendered for purposes of the Offer. Withdrawn Units may be
re-tendered, however, by following the procedures described in
Section 2 at any time prior to the Expiration Date.
SECTION 6. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT.
The Purchaser expressly reserves the right, in its sole discretion
and regardless of whether any of the conditions set forth in Section
13 ("Conditions of the Offer") shall have been satisfied, at any
time and from time to time, (i) to extend the period of time during
which the Offer is open and thereby delay acceptance for payment of,
and the payment for, validly tendered Units, (ii) upon the
occurrence or failure to occur of any of the conditions specified in
Section 13, to delay the acceptance for payment of, or payment for,
any Units not heretofore accepted for payment or paid for, or to
terminate the Offer and not accept for payment any Units not
theretofore accepted for payment or paid for, by giving written
notice, of such termination to the Purchaser, and (iii) to amend the
Offer in any respect, including, without limitation, by increasing
or decreasing the consideration offered or the number of Units being
sought in the Offer or both or changing the type of consideration.
Any extension, termination or amendment will be followed as promptly
as practicable by public announcement, the announcement in the case
of an extension to be issued no later than 9:00 a.m., Eastern
Standard Time, on the next business day after the previously
scheduled Expiration Date, in accordance with the public
announcement requirement of Rule 14d-4(c) under the Exchange Act.
Without limiting the manner in which the Purchaser may choose to
make any public announcement, except as provided by applicable law
(including Rules 14d-4(c) and 14d-6(d) under the Exchange Act), the
Purchaser will have no obligation to publish, advertise or otherwise
communicate any such public announcement, other than by issuing a
release to the Dow Jones News Service. The Purchaser may also be
required by applicable law to disseminate to Unitholders certain
information concerning the extensions of the Offer or any other
material changes in the terms of the Offer.
If the Purchaser extends the Offer, or if the Purchaser (whether
before or after its acceptance for payment of Units) is delayed in
its payment for Units or is unable to pay for Units pursuant to the
Offer for any reason, then, without prejudice to the Purchaser's
rights under the Offer, the Purchaser may retain tendered Units on
behalf of the Purchaser, and such Units may not be withdrawn except
to the extent tendering Unitholders are entitled to withdrawal
rights as described in Section 5. However, the ability of the
Purchaser to delay payment for Units that the Purchaser has accepted
for payment is limited by Rule 14e-1 under the Exchange Act, which
requires that the Purchaser pay the consideration offered or return
the securities deposited by or on behalf of holders of securities
promptly after the termination or withdrawal of the Offer.
If the Purchaser makes a material change in the terms of the Offer
or the information concerning the Offer or waives a material
condition of the Offer, the Purchaser will extend the Offer to the
extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum period during which an offer must remain
open following a material change in the terms of the Offer or
information concerning the Offer, other than a change in price or a
change in percentage of securities sought, will depend upon the
facts and circumstances, including the relative materiality of the
change in the terms or information. With respect to a change in
price or a change in percentage of securities sought (other than an
increase of not more than 2% of the securities sought), however, a
minimum ten business day period is generally required to allow for
adequate dissemination to security holders and for investor
response. As used in this Offer to Purchase, "business day" means
any day other than a Saturday, Sunday or a federal holiday, and
consists of the time period from 12:01 a.m. through 12:00 midnight,
Eastern Standard Time.
SECTION 7. CERTAIN FEDERAL INCOME TAX CONSEQUENCES.
The following summary is a general discussion of certain federal
income tax consequences of a sale of Units pursuant to the Offer
assuming that the Partnership is a partnership for federal income
tax purposes and that it is not a "publicly traded partnership" as
defined in Section 7704 of the Internal Revenue Code of 1986, as
amended (the "Code"). This summary is based on the Code, applicable
Treasury Regulations thereunder, administrative rulings, practice
and procedures and judicial authority as of the date of the Offer.
All of the foregoing are subject to change, and any such change
could affect the continuing accuracy of this summary. This summary
does not discuss all aspects of federal income taxation that may be
relevant to a particular Unitholder in light of such Unitholder's
specific circumstances or to certain types of Unitholders subject to
special treatment under the federal income tax laws (for example,
foreign persons, dealers in securities, banks, insurance companies
and tax-exempt organizations), nor does it discuss any aspect of
state, local, foreign or other tax laws. Sales of Units pursuant to
the Offer will be taxable transactions for federal income tax
purposes, and may also be taxable transactions under applicable
state, local, foreign and other tax laws.
EACH UNITHOLDER SHOULD CONSULT HIS OR ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH UNITHOLDER OF SELLING UNITS
PURSUANT TO THE OFFER.
CONSEQUENCES TO TENDERING UNITHOLDER. A Unitholder will recognize
gain or loss on a sale of Units pursuant to the Offer equal to the
difference between (i) the Unitholder's "amount realized" on the
sale and (ii) the Unitholder's adjusted tax basis in the Units sold.
The "amount realized" with respect to a Unit sold pursuant to the
Offer will be a sum equal to the amount of cash received by the
Unitholder for the Unit plus the amount of Partnership liabilities
allocable to the Unit (as determined under Code Section 752). The
amount of a Unitholder's adjusted tax basis in Units sold pursuant
to the Offer will vary depending upon the Unitholder's particular
circumstances, and will be affected by both allocations of
Partnership income, gain or loss, and any cash distributions made by
the Partnership to a Unitholder with respect to such Units. In this
regard, tendering Unitholders will be allocated a pro rata share of
the Partnership's taxable income or loss with respect to Units sold
pursuant to the Offer through the effective date of the sale.
A Unitholder who acquired Units pursuant to the original offering of
Units by the Partnership is expected to recognize a loss on a sale
of Units pursuant to the Offer.
In general, the character (as capital or ordinary) of Unitholder's
gain or loss on a sale of a Unit pursuant to the Offer will be
determined by allocating the Unitholder's amount realized on the
sale and his adjusted tax basis in the Units sold between "Section
751 items," which are "inventory items" and "unrealized receivables"
(including depreciation recapture) as defined in Code Section 751,
and non-Section 751 items. The difference between the portion of
the Unitholder's amount realized that is allocable to Section 751
items and the portion of the Unitholder's adjusted tax basis in the
Units sold that is so allocable will be treated as ordinary income
or loss, and the difference between the Unitholder's remaining
amount realized and adjusted tax basis will be treated as capital
gain or loss assuming the Units were held by the Unitholder as a
capital asset. The Purchaser believes that substantially all of any
tax gain realized on a sale of Units pursuant to the Offer will be
treated as a capital gain under these rules.
A Unitholder's capital gain (if any) or loss on a sale of Units
pursuant to the Offer will be treated as long-term capital gain or
loss if the Unitholder's holding period for the Units exceeds one
year. Under current law (which is subject to change), long-term
capital gains of individuals and other non-corporate taxpayers are
generally taxed at a maximum marginal federal income tax rate of 20%
(or 25% on recapture of the amount of accelerated depreciation on
real property), whereas the maximum marginal federal income tax rate
for other income of such persons is 39.6%. Capital losses are
deductible only to the extent of capital gains, except that
non-corporate taxpayers may deduct up to $3,000 of capital losses in
excess of the amount of their capital gains against ordinary income.
Excess capital losses generally can be carried forward to
succeeding years (a corporation's carryforward period is five years
and a non-corporate taxpayer can carry forward such losses
indefinitely); in addition, corporations, but not non-corporate
taxpayers, are allowed to carry back excess capital losses to the
three preceding taxable years.
Under Code Section 469, a non-corporate taxpayer or personal service
corporation can deduct passive activity losses in any year only to
the extent of such person's passive activity income for such year,
and closely held corporations may not offset such losses against
so-called "portfolio" income. A Unitholder with "suspended" passive
activity losses (i.e., net tax losses in excess of statutorily
provided "phase-in" amounts) from the Partnership generally will be
entitled to offset such losses against any income or gain recognized
by the Unitholder on a sale of his Units pursuant to the Offer. If
a Unitholder is unable to sell all his Units, the deductibility of
any unused losses would continue to be subject to the passive
activity loss limitation until the Unitholder sells his remaining
Units. See Section 8 ("Effects of the Offer"). A Unitholder (other
than corporations and certain foreign individuals) who tenders Units
may be subject to 31% backup withholding unless the Unitholder
provides a taxpayer identification number ("TIN") and certifies that
the TIN is correct or properly certifies that he is awaiting a TIN.
A Unitholder may avoid backup withholding by properly completing and
signing the Substitute Form W-9 included as part of the Agreement of
Assignment and Transfer.
IF A UNITHOLDER WHO IS SUBJECT TO BACKUP WITHHOLDING DOES NOT
PROPERLY COMPLETE AND SIGN THE SUBSTITUTE FORM W- 9, THE PURCHASER
WILL WITHHOLD 31% FROM PAYMENTS TO SUCH UNITHOLDER. SEE INSTRUCTION
3 TO THE AGREEMENT OF ASSIGNMENT AND TRANSFER.
Gain realized by a foreign Unitholder on a sale of a Unit pursuant
to the Offer will be subject to federal income tax. Under Section
1445 of the Code, the transferee of a partnership interest held by a
foreign person is generally required to deduct and withhold a tax
equal to 10% of the amount realized on the disposition. The
Purchaser will withhold 10% of the amount realized by a tendering
Unitholder from the Offer Price payable to such Unitholder unless
the Unitholder properly completes and signs the FIRPTA Affidavit
included as part of the Agreement of Assignment and Transfer
certifying the Unitholder's TIN, that such Unitholder is not a
foreign person and the Unitholder's address. Amounts withheld would
be creditable against a foreign Unitholder's federal income tax
liability and, if in excess thereof, a refund could be obtained from
the Internal Revenue Service by filing a U.S. income tax return.
CONSEQUENCES TO A NON-TENDERING UNITHOLDER. The Purchaser does not
anticipate that a Unitholder who does not tender his or its Units
will realize any material tax consequences as a result of the
election not to tender. However, if as a result of the Offer there
is a sale or exchange of 50% or more of the total Units in
Partnership capital and profits within a 12-month period, a
termination of the Partnership for federal income tax purposes would
occur, and the taxable year of the Partnership would close. In the
case of such a sale or exchange, the Properties (subject to related
debt) of the Partnership would be treated as contributed to a new
partnership (or an association taxable as a corporation). The
Partnership will then be deemed to distribute to its Unitholders
interests in the new partnership in a deemed liquidation of the
Partnership. The Purchaser has not, however, had access to complete
information concerning assignments of Units and cannot, therefore,
be certain that the Partnership will not terminate for tax purposes
as a result of sales pursuant to the Offer. The consequences of a
termination of the Partnership could include changes in the methods
of depreciation available to the Partnership for tax purposes and
possibly other consequences the extent of which cannot be determined
by the Purchaser without access to the books and records of the
Partnership. In addition, a termination of the Partnership could
cause the Partnership or its assets to become subject to unfavorable
statutory or regulatory changes enacted or issued prior to the
termination but previously not applicable to the Partnership or its
assets because of protective "transitional" rules. The Purchaser
has reserved the right not to purchase Units to the extent such
purchase would cause a termination of the Partnership for federal
income tax purposes.
CONSEQUENCES TO A TAX-EXEMPT UNITHOLDER. Although certain entities
are generally exempt from federal income taxation, such tax-exempt
entities (including Individual Retirement Accounts (each an "IRA"))
are subject to federal income tax on any "unrelated business taxable
income" ("UBTI"). UBTI generally includes, among other things,
income (other than, in the case of property which is not
"debt-financed property", interest, dividends, real property rents
not dependent upon income or profits, and gain from disposition of
non-inventory property) derived by certain trusts (including IRAs)
from a trade or business or by certain other tax-exempt
organizations from a trade or business, the conduct of which is not
substantially related to the exercise of such organization's
charitable, educational or other exempt purpose and income to the
extent derived from debt-financed property. Subject to certain
exceptions, "debt-financed property" is generally any property which
is held to produce income and with respect to which there is an
"acquisition indebtedness" at any time during the taxable year.
Acquisition indebtedness is generally indebtedness incurred by a
tax-exempt entity directly or through a partnership:(i) in acquiring
or improving a property; (ii) before acquiring or improving a
property if the indebtedness would not have been incurred but for
such acquisition or improvement; or (iii) after acquiring or
improving a property if the indebtedness would not have been
incurred but for such acquisition or improvement and the incurrence
of such indebtedness was reasonably foreseeable at the time of the
acquisition or improvement.
To the extent the Partnership holds debt financed property or
inventory or other assets as a dealer, a tax-exempt Unitholder
(including an IRA) could realize UBTI on the sale of a Unit. In
addition, a tax-exempt Unitholder will realize UBTI upon the sale of
a Unit, if such Unitholder held its Units as inventory or otherwise
as dealer property, or acquired its Units with acquisition
indebtedness. However, any UBTI recognized by a tax-exempt
Unitholder as a result of a sale of a Unit, in general, may be
offset by such Unitholder's net operating loss carryover (determined
without taking into account any amount of income or deduction which
is excluded in computing UBTI), subject to applicable limitations.
EACH TAX-EXEMPT UNITHOLDER SHOULD CONSULT ITS TAX ADVISOR AS TO THE
PARTICULAR TAX CONSEQUENCES TO SUCH UNITHOLDER OF SELLING OR NOT
SELLING UNITS PURSUANT TO THE OFFER.
SECTION 8. EFFECTS OF THE OFFER.
CERTAIN RESTRICTIONS ON TRANSFER OF INTERESTS. The Limited
Partnership Agreement restricts transfers of Units if, among other
things, in the opinion of counsel to the Partnership a transfer
would cause a termination of the Partnership for federal income tax
purposes (which termination will occur when Units representing 50%
or more of the total Partnership capital and profits are transferred
within a twelve-month period). Consequently, sales of Units in the
secondary market and in private transactions during the twelve-month
period following completion of the Offer may be restricted, and the
Partnership may not process any requests for recognition of
transfers or Units during such twelve- month period which the
General Partner believes may cause a tax termination. The Purchaser
does not intend to purchase Units to the extent such purchase would
cause a termination of the Partnership. See Section 13 ("Conditions
of the Offer").
EFFECT ON TRADING MARKET. There is no established public trading
market for the Units and, therefore, a reduction in the number of
Unitholders should not materially further restrict the Unitholders'
ability to find purchasers for their Units on any secondary market.
VOTING POWER OF PURCHASER. Depending on the number of Units
acquired by the Purchaser pursuant to the Offer, the Purchaser may
have the ability to exert certain influence on matters subject to
the vote of Unitholders, unless otherwise prohibited.
The Units are registered under the Exchange Act, which requires,
among other things that the Partnership furnish certain information
to its Unitholders and to the Commission and comply with the
Commission's proxy rules in connection with meetings of, and
solicitation of consents from, Unitholders. The Purchaser does not
expect or intend that consummation of the Offer will cause the Units
to cease to be registered under Section 12(g) of the Exchange Act.
If the Units were to be held by fewer than 300 persons, the
Partnership could apply to de-register the Units under the Exchange
Act. Because the Units are widely held, however, the Purchaser
expects that even if it purchases the maximum number of Units in the
Offer, the units will continue to be held of record by more than 300
persons.
SECTION 9. PURPOSE OF THE OFFER; FUTURE PLANS.
PURPOSE OF THE OFFER. The purpose of the Offer is to enable the
Purchaser to acquire an interest in the Partnership for investment
purposes based on its expectation that there may be underlying value
in the Properties. The Purchaser does not currently intend to
change current management or the operation of the Partnership and
does not have current plans for any extraordinary transaction
involving the Partnership. However, these plans could change at any
time in the future. The purchase of the Units will allow the
Purchaser to benefit from any of the following: (a) any cash
distributions from Partnership operations in the ordinary course of
business; (b) any distributions of net proceeds from the sale of any
Properties; and (c) any distributions of net proceeds from the
liquidation of the Partnership.
FUTURE PLANS. Following the completion of the Offer, the Purchaser,
or its affiliates, may acquire additional Units. Any such
acquisitions may be made through private purchases, one or more
future tender offers or by any other means deemed advisable or
appropriate. Any such acquisitions may be at a consideration higher
or lower than the consideration to be paid for the Units purchased
pursuant to the Offer.
The Purchaser is acquiring the Units pursuant to the Offer solely
for investment purposes. Although the Purchaser has no present
intention to seek control of the Partnership or to change the
management or operations of the Partnership, the Purchaser reserves
the right, at an appropriate time, to exercise its rights as a
limited partner, unless otherwise prohibited, to vote on matters
subject to a limited partner vote, including a vote to cause the
sale of the Partnership's remaining property and the liquidation and
dissolution of the Partnership.
SECTION 10. THE BUSINESS OF THE PARTNERSHIP.
Information included herein concerning the Partnership is derived
from the Partnership's publicly-filed reports. Additional financial
and other information concerning the Partnership is contained in the
Partnership's Annual Reports on Form 10-K, Quarterly Reports on Form
10-Q and other filings with the Commission. Such reports and other
documents may be examined and copies may be obtained from the
offices of the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commission's Web site at http://www.sec.gov.
Copies should be available by mail upon payment of the Commission's
customary charges by writing to the Commission's principal offices
at 450 Fifth Street, N.W., Washington, D.C. 20549. The Purchaser
disclaims any responsibility for the information included in such
reports and extracted in this Offer to Purchase.
General Background on the Partnership
The Partnership was formed in August 1985 under the Delaware Revised
Uniform Limited Partnership Act to invest principally in
federally-insured mortgages on multifamily housing properties and to
acquire, hold, sell, dispose of and otherwise deal with limited
partnership interests ("Partnership Equity Investments") in the
limited partnerships (the "Operating Partnerships") which construct
and operate these properties. The Partnership's investment
objectives are to: (i) achieve long-term capital appreciation
through increases in the value of the Partnership Equity
Investments; (ii) provide quarterly cash distributions to investors;
(iii) provide investors with federal income tax deductions that may
offset, in part, taxable cash distributions subsequent to the
initial closing on Beneficial Assignment Certificates ("Units")
representing a beneficial assignment of limited partnership
interests in the Partnership; (iv) provide the potential for
increases in cash distributions from income from Operating
Partnerships and sale of the multifamily housing properties; and (v)
preserve and protect the Partnership's capital. The Partnership
originally intended to qualify the Units for quotation on NASDAQ
within 24 to 36 months after it commenced operations in order to
make the Units freely transferable. However, at a Special Meeting
of Unit Holders on May 17, 1990, an amendment to the Partnership
Agreement was approved to only allow limited transferability of
Units to preserve the tax status of the Partnership and avoid being
designated as a "publicly traded partnership".
A total of 3,374,222 Units were sold at $20 per Unit for total
capital contributions of $67,484,440 prior to the payment of certain
organization and offering costs.
On May 7, 1998, a registration statement on Form S-4 was filed with
the Securities and Exchange Commission by America First Real Estate
Investment Company, Inc. ("AFRIC") relating to a proposed merger of
the Partnership and Capital Source, L.P. II-A into AFRIC which was
formed for the purpose of making opportunistic, growth-oriented real
estate investments. Due to significant changes in the United States
equity and real estate markets in the Fall of 1998, the general
partners of the Partnership have reevaluated the terms of the
proposed merger and have decided to restructure it so that the
resulting entity is a publicly-traded limited partnership that will
primarily invest in residential apartment complexes and other
commercial real estate. Therefore, the investment objectives of the
new limited partnership will be substantially similar to those of
the Partnership. The proposed merger will be subject to the consent
of the Unit holders of the Partnership and Capital Source, L.P. II-A.
The Partnership originally acquired (i) five mortgage-backed
securities (the "GNMA Certificates") guaranteed as to principal and
interest by the Government National Mortgage Association ("GNMA")
collateralized by first mortgage loans on multifamily housing
properties located in five states, (ii) three first mortgage loans
insured by the Federal Housing Administration (the "FHA Loans") on
multifamily housing properties located in two states and (iii)
Partnership Equity Investments in eight limited partnerships which
own the multifamily housing properties financed by the GNMA
Certificates and the FHA Loans. The Partnership has been repaid by
the FHA on one of its first mortgage loans. The Partnership has
also been repaid by GNMA on one of its GNMA Certificates. The
Partnership no longer holds a Partnership Equity Investment in the
Operating Partnership which owned the property collateralizing the
repaid GNMA Certificate. Collectively, the remaining GNMA
Certificates, the FHA Loans and the Partnership Equity Investments
are referred to as the "Permanent Investments." A description of
the properties financed by the Partnership at December 31, 1998,
appears in Item 7 hereof. The Partnership has also invested amounts
held in its reserve account in certain GNMA securities backed by
pools of single-family mortgages ("Reserve Investments").
While principal of and interest on the GNMA Certificates and the FHA
Loan are ultimately guaranteed by the United States government, the
amount of cash distributions received by the Partnership from the
Partnership Equity Investments is a function of the net rental
revenues generated by the properties owned by the Operating
Partnerships. Net rental revenues from a multifamily apartment
complex depend on the rental and occupancy rates of the property and
on the level of operating expenses. Occupancy rate and rents are
directly affected by the supply of, and demand for, apartments in
the market area in which a property is located. This, in turn, is
affected by several factors such as local or national economic
conditions, the amount of new apartment construction and interest
rates on single-family mortgage loans. In addition, factors such as
government regulation (such as zoning laws), inflation, real estate
and other taxes, labor problems and natural disasters can affect the
economic operations of a property.
In each city in which the Partnership's properties are located, such
properties compete with a substantial number of other apartment
complexes. Apartment complexes also compete with single-family
housing that is either owned or leased by potential tenants. The
principal method of competition is to offer competitive rental
rates. The Partnership's properties also compete by emphasizing
property location, condition and property amenities.
The Partnership believes that each of its properties is in
compliance in all material respects with federal, state and local
regulations regarding hazardous waste and other environmental
matters and the Partnership is not aware of any environmental
contamination at any of such properties that would require any
material capital expenditure by the Partnership for the remediation
thereof. The Partnership is engaged solely in the business of owning
mortgages and holding equity interests in real estate limited
partnerships.
At December 31, 1998, the Partnership had one employee. In
addition, certain services are provided to the Partnership by
employees of America First Companies L.L.C. which is an affiliate of
the general partners of the Partnership, and the Partnership
reimburses America First Companies L.L.C. for such services at cost.
The Partnership is not charged and does not reimburse for the
services performed by managers and officers of America First
Companies L.L.C..
The principal executive offices of the Partnership, and the General
Partner are located at Suite 400, 1004 Farnam Street, Omaha,
Nebraska 68102, and their telephone number is (402) 444 1630.
The Partnership's Assets
The FHA Loans and GNMA Certificates owned by the Partnership are
guaranteed as to principal and interest by FHA and GNMA,
respectively. The obligations of FHA and GNMA are backed by the
full faith and credit of the United States government. The
Partnership Equity Investments, however, are not insured or
guaranteed. The value of these investments is a function of the
value of the real estate owned by the Operating Partnerships.
The Partnership does not directly own or lease any physical
properties. However, by virtue of its interest in the Partnership
Equity Investments in the Operating Partnerships, the Partnership
indirectly owns up to a 99% interest in six multifamily apartment
projects. In addition, the Partnership owns a 30.29% interest in
another multifamily apartment project known as The Ponds at
Georgetown. The multifamily apartment projects are described in the
following table:
<TABLE>
<S> <C> <C> <C>
Average
Property Name Location Number of Sq. feet
Units Per Unit
Bluff Ridge Apartments Jacksonville, NC 108 873
Fox Hollow Apartments High Point, NC 184 877
Highland Park Columbus, OH 252 891
Misty Springs Daytona Beach, FL 128 786
The Ponds at
Georgetown Ann Arbor, MI 134 1002
Waterman's Apartments Newport News, VA 260 944
Water's Edge Apartments Lake Villa, IL 108 814
</TABLE>
Occupancy rates and expressed as a percentage and average effective
annual rental rate per unit for each of the last five years are set
forth below:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
______________________________________________
<S> <C> <C> <C> <C> <C>
BLUFF RIDGE APARTMENTS
AVERAGE OCCUPANCY RATE 99% 96% 94% 94% 92%
AVERAGE EFFECTIVE
ANNUAL RENTAL/UNIT $6,644 $6,258 $5,792 $5,755 $5,622
FOX HOLLOW APARTMENTS
AVERAGE OCCUPANCY RATE 95% 96% 95% 97% 97%
AVERAGE EFFECTIVE
ANNUAL RENTAL/UNIT $6,480 $6,482 $6,360 $6,176 $6,102
HIGHLAND PARK APARTMENTS
AVERAGE OCCUPANCY RATE 95% 93% 95% 97% 97%
AVERAGE EFFECTIVE
ANNUAL RENTAL/UNIT $6,392 $6,333 $6,171 $6,071 $5,974
MISTY SPRINGS APARTMENTS
AVERAGE OCCUPANCY RATE 100% 98% 94% 97% 97%
AVERAGE EFFECTIVE
ANNUAL RENTAL/UNIT $6,509 $6,101 $5,574 $5,809 $5,589
THE PONDS AT GEORGETOWN
AVERAGE OCCUPANCY RATE 99% 97% 95% 95% 95%
AVERAGE EFFECTIVE
ANNUAL RENTAL/UNIT $10,362 $9,883 $9,515 $9,174 $8,955
WATERMAN'S CROSSING
AVERAGE OCCUPANCY RATE 100% 98% 96% 95% 96%
AVERAGE EFFECTIVE
ANNUAL RENTAL/UNIT $7,535 $7,207 $6,841 $6,737 $6,580
WATER'S EDGE APARTMENTS
AVERAGE OCCUPANCY RATE 96% 96% 91% 97% 98%
AVERAGE EFFECTIVE
ANNUAL RENTAL/UNIT $9,274 $8,723 $8,169 $8,559 $8,123
</TABLE>
THE FOLLOWING SETS FORTH CERTAIN INFORMATION REGARDING THE
PROPERTIES FINANCED BY THE PARTNERSHIP:
BLUFF RIDGE APARTMENTS
BLUFF RIDGE APARTMENTS IS A 108-UNIT COMPLEX LOCATED IN
JACKSONVILLE, NORTH CAROLINA. AVERAGE OCCUPANCY WAS 99% IN 1998,
COMPARED TO 96% IN 1997. OPERATIONS AT BLUFF RIDGE ARE HEAVILY
DEPENDENT ON DEMAND FROM THE LOCAL MILITARY PERSONNEL. THE
JACKSONVILLE RENTAL MARKET HAS REMAINED RELATIVELY STABLE THROUGHOUT
1998. OPERATING REVENUE INCREASED AS A RESULT OF RENTAL RATE
INCREASES AND AN INCREASE IN AVERAGE OCCUPANCY. IN ADDITION, REAL
ESTATE OPERATING COSTS DECREASED PRIMARILY DUE TO A DECREASE IN
REPAIRS AND MAINTENANCE EXPENSES AND PROPERTY IMPROVEMENTS. AS A
RESULT, NET OPERATING INCOME, EXCLUDING INTEREST, DEPRECIATION AND
AMORTIZATION, INCREASED APPROXIMATELY 3% FROM 1997 TO 1998. THE
PROPERTY WAS CURRENT ON ITS DEBT SERVICE PAYMENTS DURING 1998.
FOX HOLLOW APARTMENTS
FOX HOLLOW APARTMENTS IS A 184-UNIT APARTMENT COMMUNITY LOCATED IN
HIGH POINT, NORTH CAROLINA. AVERAGE OCCUPANCY WAS 95% IN 1998,
COMPARED TO 96% IN 1997. EXCLUDING INTEREST, DEPRECIATION AND
AMORTIZATION, NET OPERATING INCOME INCREASED APPROXIMATELY 19% FROM
1997 TO 1998. THIS INCREASE WAS PRIMARILY DUE TO A DECREASE IN
REPAIRS AND MAINTENANCE EXPENSES AND A SLIGHT INCREASE IN RENTAL
REVENUES DUE TO RENTAL RATE INCREASES. THE PROPERTY REMAINED IN
COMPLIANCE WITH THE TERMS OF THE LOAN MODIFICATION AGREEMENT (LMA)
ENTERED INTO WITH THE MORTGAGE HOLDER IN 1996. WHILE THERE CAN BE
NO ASSURANCE THAT THE MODIFIED TERMS OF THE FOX HOLLOW MORTGAGE WILL
ENABLE THE PROPERTY TO REMAIN CURRENT ON ITS MORTGAGE OBLIGATIONS,
THE RESTRUCTURING ALLOWS THE PARTNERSHIP TO RETAIN ITS PARTNERSHIP
EQUITY INVESTMENT IN THE FOX HOLLOW APARTMENTS AND IMPROVES THE
PROPERTY'S ABILITY TO MAKE ITS REQUIRED MORTGAGE PAYMENTS.
HIGHLAND PARK APARTMENTS
HIGHLAND PARK APARTMENTS CONTAINS 252 LUXURY GARDEN APARTMENTS AND
IS LOCATED IN COLUMBUS, OHIO. AVERAGE OCCUPANCY WAS 95% IN 1998,
COMPARED TO 93% IN 1997. EXCLUDING INTEREST, DEPRECIATION AND
AMORTIZATION, NET OPERATING INCOME DECREASED APPROXIMATELY 5% FROM
1997 TO 1998. THIS DECREASE IS PRIMARILY DUE TO AN INCREASE IN REAL
ESTATE OPERATING EXPENSES OF APPROXIMATELY 9% WHICH WAS PARTIALLY
OFFSET BY A 1% INCREASE IN RENTAL REVENUE RESULTING PRIMARILY FROM
THE INCREASE IN AVERAGE OCCUPANCY. THE INCREASES IN REAL ESTATE
OPERATING EXPENSES RESULTED FROM HIGHER REPAIRS AND MAINTENANCE
EXPENSES AND ADVERTISING COSTS WHICH WERE PARTIALLY OFFSET BY A
DECREASE IN OTHER ADMINISTRATIVE EXPENSES. THE PROPERTY REMAINED
CURRENT ON ITS MORTGAGE OBLIGATIONS THROUGHOUT 1998.
MISTY SPRINGS APARTMENTS
MISTY SPRINGS APARTMENTS IS A 128-UNIT APARTMENT COMMUNITY LOCATED
IN DAYTONA BEACH, FLORIDA. AVERAGE OCCUPANCY WAS 100% IN 1998,
COMPARED TO 98% IN 1997. NET OPERATING INCOME, EXCLUDING INTEREST,
DEPRECIATION AND AMORTIZATION, WAS APPROXIMATELY 5% LOWER IN 1998,
COMPARED TO 1997. THIS DECREASE RESULTED FROM A 14% INCREASE IN
REAL ESTATE OPERATING EXPENSES WHICH WAS PARTIALLY OFFSET BY AN
INCREASE OF APPROXIMATELY 5% IN OPERATING REVENUE. REAL ESTATE
OPERATING EXPENSES WERE HIGHER PRIMARILY DUE TO INCREASES IN
SALARIES AND RELATED EXPENSES AND REPAIRS AND MAINTENANCE EXPENSES
WHICH WERE PARTIALLY OFFSET BY A 9% DECREASE IN ADMINISTRATIVE
EXPENSES. THE INCREASE IN OPERATING REVENUE WAS DUE PRIMARILY TO
THE INCREASE IN AVERAGE OCCUPANCY. SHORTFALLS OF $10,000 WERE
FUNDED BY THE PARTNERSHIP RESERVES IN 1998.
AT DECEMBER 31, 1998, THE OPERATING PARTNERSHIP WAS IN COMPLIANCE
WITH THE TERMS OF A REINSTATEMENT AGREEMENT ENTERED INTO IN 1993.
THE OPERATING PARTNERSHIP WAS CURRENT ON ITS DEBT SERVICE PAYMENTS
ON ITS MORTGAGE LOAN DURING 1998.
THE PONDS AT GEORGETOWN
THE PONDS AT GEORGETOWN CONSISTS OF 134 APARTMENTS LOCATED IN ANN
ARBOR, MICHIGAN. AVERAGE OCCUPANCY WAS 99% IN 1998, COMPARED TO 97%
IN 1997. RENTAL REVENUE INCREASED APPROXIMATELY 3.5% IN 1998,
COMPARED TO 1997, PRIMARILY DUE TO THE INCREASE IN AVERAGE OCCUPANCY
WHILE REAL ESTATE OPERATING EXPENSES INCREASED APPROXIMATELY 8%.
THE INCREASE IN REAL ESTATE OPERATING EXPENSES WAS PRIMARILY DUE TO
AN 8% INCREASE IN REPAIRS AND MAINTENANCE EXPENSES WHICH WAS
PARTIALLY OFFSET BY A 17% DECREASE IN REAL ESTATE TAXES. AS
PREVIOUSLY DISCLOSED, THE MORTGAGE LOAN FOR THE PONDS AT GEORGETOWN
WAS RESTRUCTURED IN SEPTEMBER 1998 WHICH LOWERED THE INTEREST RATE
FROM 9.25% TO 7.85%. IN CONNECTION WITH THE RESTRUCTURING,
SHORTFALLS OF $176,942 WERE FUNDED BY THE PARTNERSHIP'S RESERVES.
AS A RESULT OF RESTRUCTURING THE MORTGAGE LOAN, CASH FLOW FROM THE
PROPERTY IS NOW ANTICIPATED TO BE SUFFICIENT TO COVER ALL THE
OPERATING PARTNERSHIP'S CASH NEEDS, INCLUDING MORTGAGE PAYMENTS AND
TAXES. THE PROPERTY WAS CURRENT ON ITS MORTGAGE OBLIGATIONS AS OF
DECEMBER 31, 1998.
WATERMAN'S CROSSING
WATERMAN'S CROSSING IS A 260-UNIT APARTMENT COMMUNITY LOCATED IN
NEWPORT NEWS, VIRGINIA. AVERAGE OCCUPANCY WAS 100% IN 1998,
COMPARED TO 98% IN 1997. THE OPERATING PARTNERSHIP WAS CURRENT ON
ITS MORTGAGE OBLIGATIONS IN 1998. EXCLUDING INTEREST, DEPRECIATION
AND AMORTIZATION, OPERATING INCOME INCREASED 6% FROM 1997 TO 1998.
THIS INCREASE WAS PRIMARILY DUE TO REDUCTIONS OF APPROXIMATELY 5% IN
REPAIRS AND MAINTENANCE EXPENSES AND 11% IN ADVERTISING EXPENSES.
THESE DECREASES WERE PARTIALLY OFFSET BY AN INCREASE IN
ADMINISTRATIVE EXPENSES OF APPROXIMATELY 6% AND AN INCREASE IN
OPERATING REVENUE OF APPROXIMATELY 4%. THE INCREASE IN OPERATING
REVENUE RESULTED PRIMARILY FROM THE INCREASE IN AVERAGE OCCUPANCY.
WATER'S EDGE APARTMENTS
WATER'S EDGE APARTMENTS IS A 108-UNIT APARTMENT COMPLEX LOCATED IN
LAKE VILLA, ILLINOIS. AVERAGE OCCUPANCY WAS 96% IN 1998 AND 1997.
NET OPERATING INCOME, EXCLUDING INTEREST, DEPRECIATION AND
AMORTIZATION, INCREASED APPROXIMATELY 2% IN 1998 COMPARED TO 1997.
THIS INCREASE IS PRIMARILY ATTRIBUTABLE TO HIGHER OPERATING REVENUE
DUE PRIMARILY TO THE INCREASE IN AVERAGE OCCUPANCY. THE OPERATING
PARTNERSHIP REMAINED CURRENT ON ITS MORTGAGE OBLIGATIONS IN 1998.
IN THE OPINION OF THE PARTNERSHIP'S MANAGEMENT, EACH OF THE
PROPERTIES IS ADEQUATELY COVERED BY INSURANCE.
IN EACH CITY IN WHICH THE PARTNERSHIP'S PROPERTIES ARE LOCATED, SUCH
PROPERTIES COMPETE WITH A SUBSTANTIAL NUMBER OF OTHER APARTMENT
COMPLEXES. APARTMENT COMPLEXES ALSO COMPETE WITH SINGLE-FAMILY
HOUSING THAT IS EITHER OWNED OR LEASED BY POTENTIAL TENANTS. THE
PRINCIPAL METHOD OF COMPETITION IS TO OFFER COMPETITIVE RENTAL
RATES. THE PARTNERSHIP'S PROPERTIES ALSO COMPETE BY EMPHASIZING
PROPERTY LOCATION, CONDITION AND PROPERTY AMENITIES.
SELECTED FINANCIAL DATA.
SET FORTH BELOW IS A SUMMARY OF CERTAIN FINANCIAL DATA FOR THE
PARTNERSHIP THAT HAS BEEN EXCERPTED FROM THE PARTNERSHIP'S ANNUAL
REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 1998. THE
FINANCIAL INFORMATION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH REPORTS AND DOCUMENTS FILED WITH THE COMMISSION
AND THE FINANCIAL STATEMENTS AND RELATED NOTES CONTAINED THEREIN.
THE PURCHASER EXPRESSLY DISCLAIMS ANY RESPONSIBILITY FOR THE
INFORMATION CONTAINED IN THESE FILED REPORTS AND EXTRACTED IN THIS
DISCUSSION.
THE FOLLOWING TABLE SETS FORTH IN COMPARATIVE TABULAR FORM A SUMMARY
OF SELECTED FINANCIAL DATA FOR EACH OF THE PARTNERSHIP'S LAST FIVE
FULL YEARS:
FOR THE YEARS ENDED DECEMBER 31
(IN DOLLARS)
<TABLE>
<S> <C> <C> <C> <C> <C>
1998 1997 1996 1995 1994
______________________________________________________
MORTGAGE-BACKED
SECURITIES INCOME 3,262,922 3,302,727 3,340,747 3,895,475 3,942,176
NET INCOME (LOSS) 1,902,503 3,051,221 3,187,307 3,472,057 3,464,875
NET INCOME (LOSS)
ALLOCATED TO:
INVESTOR LIMITED
PARTNERS 1,883,478 3,020,709 3,155,434 3,437,336 3,430,226
PER UNIT 0.56 0.90 0.94 1.02 1.02
GENERAL PARTNERS 19,025 30,512 31,873 34,721 34,649
TOTAL ASSETS AT 12/31 45,707,177 46,965,808 47,248,776 47,541,721 47,448,997
LONG-TERM LIABILITIES
AT 12/31 0 0 0 0 0
DISTRIBUTIONS:
INVESTOR LIMITED
PARTNERS 3,407,963 3,407,963 3,407,965 3,407,965 3,407,965
PER UNIT 1.01 1.01 1.01 1.01 1.01
GENERAL PARTNERS 34,425 34,425 34,424 34,424 34,424
</TABLE>
FOR ADDITIONAL INFORMATION, PLEASE SEE THE DISCUSSION ABOVE UNDER
INTRODUCTION - "ESTABLISHMENT OF THE OFFER PRICE".
SECTION 11. CERTAIN INFORMATION CONCERNING THE PURCHASER.
The Purchaser is Madison Liquidity Investors 104, LLC, a limited
liability company organized under the laws of the State of Delaware.
For information concerning the Purchaser and its principals, please
refer to Schedule "I" attached hereto. The principal business of
the Purchaser is investment in securities, particularly limited
partnership securities. The principal business address of the
Purchaser is P.O. Box 7461, Incline Village, Nevada 89452.
The Purchaser has made binding commitments to contribute and has
available sufficient amounts of liquid capital necessary to fund the
acquisition of all Units subject to the Offer, the expenses to be
incurred in connection with the Offer, and all other anticipated
costs of the Purchaser. The Purchaser is not a public company and
has not prepared audited financial statements. The Purchaser, its
principals, owners and members have an aggregate net worth in excess
of $5,000,000, including net liquid assets of more than $1,000,000.
Except as otherwise set forth herein, (i) neither the Purchaser nor,
to the best knowledge of the Purchaser, the persons listed on
Schedule "I" nor any affiliate of the Purchaser, beneficially owns
or has a right to acquire any Units, (ii) neither the Purchaser nor,
to the best knowledge of the Purchaser, the persons listed on
Schedule "I" nor any affiliate of the Purchaser, or any director,
executive officer or subsidiary of any of the foregoing has effected
any transaction in the Units within the past 60 days, (iii)
neither the Purchaser nor, to the best knowledge of the Purchaser,
the persons listed on Schedule "I" nor any affiliate of the
Purchaser have any contract, arrangement, understanding or
relationship with any other person with respect to any securities of
the Partnership, including but not limited to, contracts,
arrangements, understandings or relationships concerning the
transfer or voting thereof, joint ventures, loan or option
arrangements, puts or calls, guarantees of loans, guarantees against
loss or the giving or withholding of proxies, consents or
authorizations, (iv) there have been no transactions or business
relationships which would be required to be disclosed under the
rules and regulations of the Commission between the Purchaser or, to
the best knowledge of the Purchaser, the persons listed on Schedule
"I", or any affiliate of the Purchaser on the one hand, and the
Partnership or its affiliates, on the other hand, and (v) there have
been no contracts, negotiations or transactions between the
Purchaser, or to the best knowledge of the Purchaser any affiliate
of the Purchaser, on the one hand, the persons listed on Schedule
"I", and the Partnership or its affiliates, on the other hand,
concerning a merger, consolidation or acquisition, tender offer or
other acquisition of securities, an election of directors or a sale
or other transfer of a material amount of assets.
Set forth below is certain unaudited financial information with
respect to the Purchaser's sole member and funding source,
Madison/OHI Liquidity Investors, LLC ("Madison/OHI").
<TABLE>
CONSOLIDATED BALANCE SHEET
NOVEMBER 30, 1998
<S> <C>
ASSETS
Cash $ 459,290
Investment in limited partnerships 2,092,152
Other Assets 29,004
---------
TOTAL ASSETS $2,580,446
LIABILITIES AND MEMBERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 227,859
Notes payable 1,048,825
Advances from affiliates 1,149,201
---------
Total Liabilities $2,425,885
MEMBERS' EQUITY 154,561
---------
TOTAL LIABILITIES AND MEMBERS' EQUITY $2,580,446
</TABLE>
Please see Section 12 ("Source of Funds") for a description of
certain financing arrangements of Madison/OHI.
SECTION 12. SOURCE OF FUNDS.
The Purchaser expects that approximately $1,653,370 would be
required to purchase up to the 165,337 Unit maximum of the
outstanding Units, if tendered, and approximately an additional
$100,000.00 may be required to pay related fees and expenses. The
Purchaser anticipates funding all of the Offer Price and related
expenses through existing equity sources and/or borrowing
facilities. It is expected that the Purchaser will obtain its
funding from its Member, Madison/OHI Liquidity Investors, LLC
("Madison/OHI"), which in turn has represented that it intends to
utilize its existing capital sources and borrowings from its credit
facility. The Offer is not contingent on obtaining financing.
The following is a summary description of the existing credit
facility (the "Facility") provided for the benefit of the
Madison/OHI and the Purchaser, pursuant to the Loan Agreement, dated
as of October 2, 1998 (the "Loan Agreement"), between Madison/OHI,
as borrower, Omega Healthcare Investors, Inc., as the lender (the
"Lender"). This summary description does not purport to be complete
and is qualified in its entirety by reference to the Loan Agreement,
a copy of which has been filed as an exhibit to the Purchaser's
Tender Offer Statement on Schedule 14D-1 filed with the Commission.
Pursuant to the Loan Agreement, the Lender has made available to
Madison/OHI a revolving credit facility of up to $30 million at any
one time outstanding, which amount is reduced to $25 million after
the fifth (5th) anniversary of the first funding date, October 20,
2003. Loans under the Facility (the "Loans") may be utilized to
finance certain permitted investments. The Facility matures on the
earlier of the seventh (7th) anniversary of the first funding date,
October 20, 2005, or the date upon which the Lender duly accelerates
the due date of all unpaid principal and interest owed by the
Madison/OHI to the Lender.
Loans bear interest, at rates ranging from 9% per annum to 16% per
annum, based on various classifications made under the Loan
Agreement. As of the date hereof, Madison/OHI currently has made
draw downs aggregating $5.7 million under the Facility. Madison/OHI
has no plans or arrangements to refinance or repay such borrowings.
Madison/OHI is obligated to pay a fee on the unused portion of the
Facility. Such unused fee is payable quarterly in arrears and
calculated based on the actual number of days elapsed over a 365 day
period. The quarterly unused fee is required to be paid in an
amount equal to twenty-five percent (25%) of the product obtained by
multiplying (a) one-eighth (1/8) of one (1) percent (i.e. 12-1/2
basis points) by (b) the amount by which $30 million exceeds the
average outstanding principal balance of the Loan during the three
(3) month period beginning December 1, 1998 and ending February 28,
1999, and each successive quarter thereafter until the Lender is no
longer obligated to make advances on the Loan pursuant to the Loan
Agreement.
The Loans are subject to mandatory prepayment only to the extent
that the aggregate outstanding principal amount of the Loans on any
day exceeds the amount of the Facility then in effect. Voluntary
prepayments of the Loans and voluntary reductions of the Facility
are permitted, in whole or in part, at the option of Madison/OHI in
minimum principal amounts, without premium or penalty, subject to
reimbursement of certain of the Lender's costs under certain
conditions.
Madison/OHI's obligations under the Facility have been guaranteed by
limited personal guarantees of the managing directors of
Madison/OHI, Bryan E. Gordon and Ronald M. Dickerman.
The Facility contains representations and warranties, conditions
precedent, covenants, events of default and other provisions
customarily found in similar transactions.
SECTION 13. CONDITIONS OF THE OFFER.
Notwithstanding any other terms of the Offer and in addition to (and
not in limitation of) the Purchaser's rights to extend and amend the
Offer at any time in its sole discretion, the Purchaser shall not be
required to accept for payment or to pay for any Units tendered if
(i) the Purchaser shall not have confirmed to its reasonable
satisfaction that, upon purchase of the Units pursuant to the Offer,
the Purchaser will have full rights to ownership as to all such
Units and the Purchaser will be admitted as a Substitute Limited
Partner under Section 10.3 of the Partnership Agreement, or (ii) all
authorizations, consents, orders or approvals of, or declarations or
filings with, or expirations of waiting periods imposed by, any
court, administrative agency or commission or other governmental
authority or instrumentality, domestic or foreign, necessary for the
consummation of the transactions contemplated by the Offer shall not
have been filed, occurred or been obtained on or before the
Expiration Date.
The Purchaser shall not be required to accept for payment or pay for
any Units not theretofore accepted for payment or paid for and may
terminate or amend the Offer as to such Units if, at any time on or
after the date of the Offer and before the Expiration Date, the
Purchaser determines, in its sole discretion, that any of the
following conditions exist:
(a) a preliminary or permanent injunction or other order of
any federal or state court, government or governmental authority or
agency shall have been issued and shall remain in effect which , in
the view of the Purchaser, (i) makes illegal, delays or otherwise
directly or indirectly restrains or prohibits the making of the
Offer or the acceptance for payment of or payment for any Units by
the Purchaser, (ii) imposes, confirms or seeks to impose or confirm
limitations on the ability of the Purchaser effectively to exercise
full rights of ownership of any Units, including, without
limitation, the right to vote any Units acquired by the Purchaser
pursuant to the Offer or otherwise on all matters properly presented
to the Partnership's Unitholders, (iii) requires divestiture by the
Purchaser of any Units, (iv) might cause any material diminution of
the benefits expected to be derived by the Purchaser or any of its
affiliates as a result of the transactions contemplated by the
Offer, (v) might materially adversely affect the business,
properties, assets, liabilities, financial condition,
capitalization, partners' equity, licenses, franchises, tax status,
operations, results of operations or prospects of the Purchaser or
the Partnership, (vi) challenges the acquisition by the Purchaser of
the Units or seeks to obtain any material damages as a result
thereof, or (vii) challenges or adversely affects the Offer;
(b) there shall be any action taken, or any statute, rule,
regulation or order proposed, enacted, enforced, promulgated, issued
or deemed applicable to the Offer by any federal or state court,
government or governmental authority or agency, other than the
application of the waiting period provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended,
which might, directly or indirectly, result in any of the
consequences referred to in clauses (i) through (vii) of paragraph
(a) above;
(c) there shall have been threatened, instituted or pending
any action, proceeding, application, audit, claim or counterclaim by
any government or governmental authority or agency, domestic or
foreign, or by or before any court or governmental, regulatory or
administrative agency, authority or tribunal, domestic, foreign or
supranational, which might, directly or indirectly, result in any
of the consequences referred to in clauses (i) through (vii) of
paragraph (a) above;
(d) any change or development shall have occurred or been
threatened (or any condition, event or development involving a
prospective change) since the date hereof, in the business,
properties, assets, liabilities, financial condition,
capitalization, partners' equity, licenses, franchises, tax status,
operations, results of operations or prospects of the Partnership,
which, in the reasonable judgment of the Purchaser, is or may be
adverse to the Partnership, or the Purchaser shall have become aware
of any fact that, in the reasonable judgment of the Purchaser, does
or may have an adverse effect on the value of the Units;
(e) there shall have occurred (i) any general suspension of
trading in, or limitation on prices for, securities on any national
securities exchange or in the over-the-counter market in the United
States, (ii) a declaration of a banking moratorium or any suspension
of payments in respect of banks in the United States (whether or not
mandatory), (iii) any limitation (whether or not mandatory) by any
governmental authority on, or other event which might an adverse
affect, the extension of credit by banks or lending institutions or
result in any imposition of currency controls in the United States,
(iv) a commencement of a war or armed hostilities or other national
or international calamity directly or indirectly involving the
United States, (v) a material change in United States or other
currency exchange rates or a suspension of a limitation on the
markets thereof, or (vi) in the case of any of the foregoing
existing at the time of the commencement of the Offer a material
acceleration or worsening thereof;
(f) it shall have been publicly disclosed or the Purchaser
shall have otherwise learned that (i) more than fifty percent of the
outstanding Units have been or are proposed to be acquired by
another person (including a "group" within the meaning of Section
13(d)(3) of the Exchange Act), or (ii) any person or group that
prior to such date had filed a Statement with the Commission
pursuant to Section 13(d) or (g) of the Exchange Act has increased
or proposes to increase the number of Units beneficially owned by
such person or group as disclosed in such Statement by two percent
or more of the outstanding Units;
(g) any developments that would substantially impair or
encumber those benefits that the Purchaser is attempting to achieve
in this Tender Offer;
(h) the Partnership or any of its subsidiaries shall have
authorized, recommended, proposed or announced an agreement or
intention to enter into an agreement, with respect to any merger,
consolidation, liquidation or business combination, any acquisition
or disposition of a material amount of assets or securities, or any
comparable event, not in the ordinary course of business consistent
with past practices;
(i) the failure to occur of any necessary approval or
authorization by any federal or state authorities necessary to the
consummation of the purchase of all or any part of the Units to be
acquired hereby, which in the reasonable judgment of the Purchaser
in any such case, and regardless of the circumstances (including any
action of the Purchaser) giving rise thereto, makes it inadvisable
to proceed with such purchase or payment;
(j) the Purchaser shall become aware that any material right
of the Partnership or any of its subsidiaries under any governmental
license, permit or authorization relating to any environmental law
or regulation is reasonably likely to be impaired or otherwise
adversely affected as a result of, or in connection with, the Offer; or
(k) the Partnership or its General Partner shall have amended,
or proposed or authorized any amendment to, the Limited Partnership
Agreement or the Purchaser shall have become aware that the
Partnership or its General Partner have proposed any such amendment.
The foregoing conditions are for the sole benefit of the Purchaser
and its affiliates and may be asserted by the Purchaser regardless
of the circumstances giving rise to such conditions (including,
without limitation, any action or inaction by the Purchaser or any
of its affiliates) or may be waived by the Purchaser in whole or in
part at any time and from time to time in its sole discretion. The
failure by the Purchaser at any time to exercise the foregoing
rights will not be deemed a waiver of such rights, which will be
deemed to be ongoing and may be asserted at any time and from time
to time. Any termination by the Purchaser concerning the events
described above will be final and binding upon all parties.
SECTION 14. CERTAIN LEGAL MATTERS.
GENERAL. Except as set forth in this Section, based on its review
of publicly available filings by the Partnership with the Commission
and other publicly available information regarding the Partnership,
the Purchaser is not aware of (i) any filings, approvals or other
actions by any domestic or foreign governmental or administrative or
regulatory agency that would be required prior to the acquisition of
Units by the Purchaser pursuant to the Offer other than the filing
of a Tender Offer Statement on Schedule 14D-1 (which has been filed)
and any required amendments thereto, or (ii) any licenses or
regulatory permits that would be material to the business of the
Partnership, taken as a whole, and that might be adversely affected
by the Purchaser's acquisition of Units as contemplated herein.
Should any such approval or other action be required, it is the
Purchaser's present intention that such additional approval or
action would be sought. While there is no present intent to delay
the purchase of Units tendered pursuant to the Offer pending receipt
of any such additional approval or the taking of any such action,
there can be no assurance that any such additional approval or
action, if needed, would be obtained without substantial conditions
or that adverse consequences might not result to the Partnership's
business, or that certain parts of the Partnership's business might
not have to be disposed of or held separate or other substantial
conditions complied with in order to obtain such approval or action,
any of which could cause the Purchaser to elect to terminate the
Offer without purchasing Units thereunder. The Purchaser's
obligation to purchase and pay for Units is subject to certain
conditions, including conditions related to the legal matters
discussed in this Section 14.
LITIGATION AFFECTING THE PARTNERSHIP. The Partnership has been
named as a defendant in a purported class action lawsuit filed in
the Delaware Court of Chancery on February 3, 1999 by two
Unitholders, Alvin M. Panzer and Sandra G. Panzer, against the
Partnership, its general partners, and various of their affiliates
(including Capital Source, L.P. II-A, a similar partnership whose
general partners that are the General Partner) and Lehman Brothers,
Inc. The plaintiffs seek to have the lawsuit certified as a class
action on behalf of all Unitholders of the Partnership and Capital
Source, L.P. II-A. The lawsuit alleges, among other things, that a
proposed merger transaction involving the Partnership and Capital
Source, L.P. II-A is deficient and coercive, that the defendants
have breached the terms of the Partnership agreement and that the
defendants have acted in manners which violate their fiduciary
duties to the Unitholders. The plaintiffs seek to enjoin the
proposed merger transaction and to appoint an independent Unitholder
representative to investigate alternative transactions. The lawsuit
also requests a judicial dissolution of the Partnership, an
accounting, and unspecified damages and costs. At this time, the
General Partners is unable to estimate the effect of the litigation
on the financial statements of the Partnership.
APPRAISAL RIGHTS. Unitholders will not have appraisal rights as
result of the Offer.
ANTITRUST. Under the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended (the "HSR Act"), and the rules and regulations
that have been promulgated thereunder by the Federal Trade
Commission (the "FTC"), certain acquisition transactions may not be
consummated until certain information and documentary material has
been furnished for review by the Antitrust Division of the
Department of Justice and the FTC and certain waiting period
requirements have been satisfied. The Purchaser does not believe
that the HSR Act is applicable to the acquisition of Units pursuant
to the Offer.
ERISA. By executing and returning the Agreement of Assignment and
Transfer, a Unitholder will be representing that either (a) the
Unitholder is not a plan subject to Title I of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Code, or an entity deemed to hold "plan assets"
within the meaning of 29.C.F.R. Section 2510.3-101 of any such plan;
or (b) the tender and acceptance of Units pursuant to the Offer will
not result in a nonexempt prohibited transaction under Section 406
of ERISA or Section 4975 of the Code.
MARGIN REQUIREMENTS. The units are not "margin securities" under
the regulations of the Board of Governors of the Federal Reserve
System and, accordingly, such regulations are not applicable to the
Offer.
STATE TAKEOVER LAWS. A number of states have adopted anti-takeover
laws which purport, to varying degrees, to be applicable to attempts
to acquire securities of corporations or other entities which are
incorporated or organized in such states or which have substantial
assets, security holders, principal executive officers or principal
places of business therein. Although the Purchaser has not
attempted to comply with any state anti-takeover statutes in
connection with the Offer, the Purchaser reserves the right to
challenge the validity or applicability or any state law allegedly
applicable to the Offer and nothing in this Offer to Purchase nor
any action taken in connection therewith is intended as a waiver of
such right. If any state anti-takeover statute is applicable to the
Offer, the Purchaser might be unable to accept for payment or
purchase Units tendered pursuant to the Offer or be delayed in
continuing or consummating the Offer. In such case, the Purchaser
may not be obliged to accept for purchase or pay for any Units
tendered.
SECTION 15. FEES AND EXPENSES.
Except as otherwise set forth herein, the Purchaser will pay all
costs and expenses of printing, publishing and mailing the Offer and
its legal fees and expenses. Except as set forth in this Section,
the Purchaser will not pay any fees or commissions to any broker,
dealer or other person for soliciting tenders of Units pursuant to
the Offer.
SECTION 16. MISCELLANEOUS.
THE OFFER IS BEING MADE TO ALL UNITHOLDERS, BENEFICIAL OWNERS AND
ASSIGNEES, ALL TO THE EXTENT KNOWN BY THE PURCHASER. THE OFFER IS
NOT BEING MADE TO (NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF
OF) UNITHOLDERS IN ANY JURISDICTION IN WHICH THE MAKING OF THE OFFER
OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE LAWS
OF SUCH JURISDICTION. THE PURCHASER IS NOT AWARE OF ANY
JURISDICTION WITHIN THE UNITED STATES IN WHICH THE MAKING OF THE
OFFER OR THE ACCEPTANCE THEREOF WOULD BE ILLEGAL.
No person has been authorized to give any information or to make any
representation on behalf of the Purchaser not contained herein or in
the Agreement of Assignment and Transfer and, if given or made, such
information or representation must not be relied upon as having been
authorized.
Pursuant to Rule 14d-3 of the General Rules and Regulations under
the Exchange Act, the Purchaser has filed with the Commission a
Tender Offer Statement on Schedule 14D-1, together with exhibits,
furnishing certain additional information with respect to the Offer.
Such statement and any amendments thereto, including exhibits, may
be inspected and copies may be obtained at the same places and in
the same manner as set forth with respect to information concerning
the Partnership in Section 11 "Certain Information Concerning the
Purchaser."
May 13, 1999
MADISON LIQUIDITY INVESTORS 104, LLC
MADISON/OHI LIQUIDITY INVESTORS, LLC
SCHEDULE I
THE PRINCIPALS OF THE PURCHASER AND MADISON/OHI
The names of the managing directors of the Purchaser and Madison/OHI
and their principal occupations and five-year employment histories
are set forth below. Each individual is a citizen of the United
States. The business address of each of the Purchaser and
Madison/OHI is P.O. Box 7461, Incline Village, Nevada 89452.
MADISON LIQUIDITY INVESTORS 104, LLC is a Delaware limited liability
company (the "Purchaser") founded by Bryan E. Gordon and Ronald M.
Dickerman that was organized for the purpose of acquiring Units in
the Partnership as well as Units in certain other partnerships, some
of which are also sponsored by the Partnership's General Partner.
The Purchaser's sole member is Madison/OHI Liquidity Investors, LLC
("Madison/OHI").
MADISON/OHI LIQUIDITY INVESTORS, LLC is a Delaware limited liability
company founded by Bryan E. Gordon and Ronald M. Dickerman, both of
whom are managing directors of the limited liability company.
Madison/OHI is the sole member of the Purchaser and, as further
described in Section 12 to this Offer to Purchase, is the primary
funding source for the Offer. The business address of Madison is
P.O. Box 7461, Incline Village, Nevada 89452.
BRYAN E. GORDON is a Managing Director of the Purchaser as well as
being a Managing Director of Madison/OHI. Prior to co-founding
predecessor entities to the Purchaser and Madison/OHI in January
1995, Mr. Gordon had 13 years of experience in the investment
banking and management consulting fields, with an emphasis on real
estate and corporate finance. Mr. Gordon has extensive experience
with equity and debt financings, mergers and acquisitions, roll-up
and formation transactions, and restructurings of limited
partnerships, REITs, corporations and joint ventures. Mr. Gordon's
experience includes: seven years in the Real Estate and Partnership
Finance Groups at Smith Barney, Inc.; two years in the Investment
Banking Division of Bear, Stearns & Co. Inc.; one year in the Real
Estate and Partnership Finance Group at EF Hutton & Company; and
three years in management consulting with Tillinghast/Towers,
Perrin, Foster & Crosby. Mr. Gordon earned an MBA from Columbia
University's Graduate School of Business and a BSE from the Wharton
School of the University of Pennsylvania.
RONALD M. DICKERMAN is a Managing Director of the Purchaser as well
as being a Managing Director of Madison/OHI. Prior to co-founding
predecessor entities to the Purchaser and Madison/OHI in January
1995, Mr. Dickerman had 14 years of experience in the analysis,
acquisition, financing, management, and disposition of
income-producing real estate. In 1991, Mr. Dickerman founded First
Equity Realty Corp., a real estate investment firm specializing in
the acquisition of multi-family properties from financial
institutions, utilizing a value-added approach. From 1987-1991, Mr.
Dickerman was an investment banker in the Partnership Finance Group
of Smith Barney, Harris, Upham & Co., Inc. His responsibilities
included the origination, analysis, structuring, acquisition, asset
management, disposition and marketing of real estate and other
limited partnerships. Mr. Dickerman earned an MBA from Columbia
University's Graduate School of Business and a BA from Tufts University.
EXHIBIT (a)(2)
AGREEMENT OF ASSIGNMENT AND TRANSFER
FOR UNITS OF BENEFICIAL ASSIGNMENT CERTIFICATES
OF
CAPITAL SOURCE L.P.
Please make any corrections to name/mailing address in space above.
I hereby tender to Madison Liquidity Investors 104, LLC, a Delaware
limited liability company (the "Purchaser"), the number of Units of
Beneficial Assignment Certificates set forth above (including any
and all other Units or other securities issued or issuable in
respect of such Unit on or after the date hereof) (collectively, the
"Units") in Capital Source L.P., a Delaware limited partnership (the
"Partnership"), for $10.00 per Unit in cash, without any interest
thereon, (reduced by the amount of (i) any transfer fee payable to
the Partnership in respect of the Units tendered hereby and (ii) any
cash distributions made to me by the Partnership on or after May 13,
1999) in accordance with the terms and subject to the conditions of
Purchaser's Offer to Purchase attached as Exhibit (a)(1) to Schedule
14D-1 dated May 13, 1999 (the "Offer to Purchase") and this
Agreement of Assignment and Transfer (which, together with the Offer
to Purchase and any supplements or amendments, constitutes the
"Offer"). I acknowledge that I have received the Offer to Purchase.
The Offer, the proration period (described further in Section 4 of
the Offer to Purchase) and the withdrawal rights (described further
in Section 5 of the Offer to Purchase) will remain open until 5:00
p.m. Eastern Standard Time on June 17, 1999, subject to extension at
the discretion of the Purchaser (the "Termination Date"). It is
understood that payment for the Units tendered hereby will be made
by check mailed to me at the address above promptly after the date
of the Partnership's confirmation that the transfer of the Units to
the Purchaser is effective, subject to Section 4 ("Proration") and
Section 5 ("Withdrawal Rights") of the Offer to Purchase. The Offer
is subject to Section 13 ("Conditions of the Offer") of the Offer to
Purchase.
Subject to, and effective upon, acceptance of this Agreement of
Assignment and Transfer and payment for the Units tendered hereby in
accordance with the terms and subject to the conditions of the
Offer, I hereby sell, assign, transfer, convey and deliver (the
"Transfer") to the Purchaser, all of my right, title and interest in
and to the Units tendered hereby and accepted for payment pursuant
to the Offer and any and all non-cash distributions, other Units or
other securities issued or issuable in respect thereof on or after
May 13, 1999, including, without limitation, to the extent that they
exist, all rights in, and claims to, any Partnership profits and
losses, cash distributions, voting rights and other benefits of any
nature whatsoever and whenever distributable or allocable to the
Units under the Partnership's limited partnership agreement (the
"Limited Partnership Agreement"), (i) unconditionally to the extent
that the rights appurtenant to the Units may be transferred and
conveyed without the consent of the general partners of the
Partnership (collectively, the "General Partner"), and (ii) in the
event that the Purchaser elects to become a substituted limited
partner of the Partnership, subject to the consent of the General
Partner to the extent such consent may be required in order for the
Purchaser to become a substituted limited partner of the Partnership.
It is my intention that the Purchaser and its designees, if any of
them so elects, succeed to my interest as a Substitute Limited
Partner, as defined in the Limited Partnership Agreement, in my
place with respect to the transferred Units. In the event this
Transfer shall not result, for any reason, in the substitution of
the Purchaser or its designee as a Substitute Limited Partner, this
Agreement of Assignment and Transfer shall serve as notice to the
General Partner of the assignment set forth herein. It is my
understanding, and I hereby acknowledge and agree, that the
Purchaser and its designees shall be entitled to receive all
distributions of cash or other property from the Partnership
attributable to the transferred Units that are made on or after May
13, 1999, including, without limitation, all distributions of
distributable cash flow and net cash proceeds, without regard to
whether the cash or other property that is included in any such
distribution was received by the Partnership before or after the
Transfer and without regard to whether the applicable sale,
financing, refinancing or other disposition took place before or
after the Transfer. It is my further understanding, and I further
acknowledge and agree, that the taxable income and taxable loss
attributable to the transferred Units with respect to the taxable
period in which the Transfer occurs shall be divided among and
allocated between me and the Purchaser and its designees as provided
in the Limited Partnership Agreement, or in accordance with such
other lawful allocation methodology as may be agreed upon by the
Partnership and the Purchaser. I represent and warrant that I have
the full right, power and authority to transfer the subject Units
and to execute this Agreement of Assignment and Transfer and all
other documents executed in connection herewith without the joinder
of any other person or party, and if I am executing this Agreement
of Assignment and Transfer or any other document in connection
herewith on behalf of a business or other entity other than an
individual person, I have the right, power and authority to execute
such documents on behalf of such entity without the joinder of any
other person or party.
Subject to Section 5 ("Withdrawal Rights") of the Offer to Purchase,
I hereby irrevocably constitute and appoint the Purchaser and its
designees as my true and lawful attorneys-in-fact and proxies, in
the manner set forth in the Agreement of Assignment and Transfer,
with respect to the Units tendered by me and accepted for payment by
the Purchaser (and with respect to any and all other Units or other
securities issued or issuable in respect of such Unit on or after
the May 13, 1999) each with full power of substitution, to the full
extent of my rights (such power of attorney and proxy being deemed
to be an irrevocable power coupled with an interest) (i) to seek to
transfer ownership of such Units on the Partnership's books (and to
execute and to deliver any accompanying evidences of transfer and
authenticity which the Purchaser, the Partnership or the General
Partner may deem necessary or appropriate in connection therewith,
including, without limitation, any documents or instruments required
to be executed under a "Transferor's (Seller's) Application for
Transfer" created by the NASD, if required), (ii) to become a
Substitute Limited Partner, (iii) to receive any and all
distributions made or declared by the Partnership after May 13,
1999, (iv) to receive all benefits and otherwise exercise all
rights of beneficial ownership of such Units in accordance with the
terms of the Offer, (v) to execute and deliver to the Partnership
and/or the General Partner (as the case may be) a change of address
form instructing the Partnership to send any and all future
distributions to which the Purchaser is entitled pursuant to the
terms of the Offer in respect of tendered Units to the address
specified in such form, (vi) to endorse any check payable to or upon
the order of me representing a distribution to which the Purchaser
is entitled pursuant to the terms of the Offer, in each case on my
behalf, in favor of the Purchaser or any other payee the Purchaser
otherwise designates, (vii) to exercise all of my voting and other
rights as any such attorney-in-fact in their sole discretion may
deem proper at any meeting of Unitholders or any adjournment or
postponement thereof, by written consent in lieu of any such meeting
or otherwise, (viii) to act in manner as any such attorney-in-fact
shall, in its sole discretion, deem proper with respect to the
Units, (ix) to execute a Loss and Indemnity Agreement relating to
the Units on my behalf I fail to include my original certificate(s)
(if any) representing the Units with this Agreement of Assignment
and Transfer, or (x) to commence any litigation that the Purchaser
or its designees, in their sole discretion, deem necessary to
enforce any exercise of the Purchaser's or such designees powers as
my attorneys-in-fact as set forth herein.
The Purchaser or its designees shall not be required to post bond of
any nature in connection with this power of attorney. I hereby
direct the Partnership and the General Partner to remit to the
Purchaser and its designees any distributions made by the
Partnership with respect to the Units on or after May 13, 1999. To
the extent that any distributions are made by the Partnership with
respect to the Units on or after May 13, 1999, which are received by
me, I agree to promptly pay over such distributions to the
Purchaser. I further agree to pay any costs incurred by the
Purchaser and its designees in connection with the enforcement of
any of my obligations hereunder or my breach of any of the
agreements, representations and warranties made by me herein. All
prior powers of attorney and proxies granted by me with respect to
the Units (and such other Units or securities) are, without further
action, hereby revoked and no subsequent powers of attorney or
proxies may be given and no subsequent consent may be executed (and
if given or executed, will not be deemed effective.) The
appointment contained herein will be effective upon receipt by the
Purchaser of this Agreement of Assignment and Transfer.
I hereby direct the General Partner to immediately change my address
of record as the registered owner of the Units to be transferred
herein to that of the Purchaser or its designees, conditional solely
upon the Purchaser's execution of this Agreement.
IF LEGAL TITLE TO THE UNITS IS HELD THROUGH AN IRA OR KEOGH OR
SIMILAR ACCOUNT, I UNDERSTAND THAT THIS AGREEMENT MUST BE SIGNED BY
THE CUSTODIAN OF SUCH IRA OR KEOGH ACCOUNT. FURTHERMORE, I HEREBY
AUTHORIZE AND DIRECT THE CUSTODIAN OF SUCH IRA OR KEOGH TO CONFIRM
THIS AGREEMENT.
I hereby represent and warrant to the Purchaser that I (i) have
received and reviewed the Offer to Purchase, (ii) own the Units and
have full power and authority to validly sell, assign, transfer,
convey and deliver to the Purchaser and its designees the Units,
(iii) that effective when the Units are accepted for payment by the
Purchaser and its designees, I hereby convey to the Purchaser and
its designees, and the Purchaser and its designees will hereby
acquire good, marketable and unencumbered title thereto, free and
clear of all options, liens, restrictions, charges, encumbrances,
conditional sales agreements or other obligations relating to the
sale or transfer thereof, and the Units will not be subject to any
adverse claim, and (iv) this Transfer is made in accordance with all
applicable laws and regulations. I further represent and warrant
that I am a "United States person," as defined in Section
7701(a)(30) of the Internal Revenue Code of 1986, as amended.
By executing and returning the Agreement of Assignment and Transfer,
I hereby represent that either (a) the undesigned is not a plan
subject to Title I of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or Section 4975 of the Code, or an
entity deemed to hold "plan assets" within the meaning of 29.C.F.R.
Section 2510.3-101 of any such plan; or (b) the tender and
acceptance of Units pursuant to the Offer will not result in a
nonexempt prohibited transaction under Section 406 of ERISA or
Section 4975 of the Code.
I hereby release and discharge the General Partner and its officers,
shareholders, directors, employees and agents from all actions,
causes of action, claims or demands I have, or may have, against the
General Partner that result from the General Partner's reliance on
this Agreement of Assignment and Transfer or any of the terms and
conditions contained herein. I hereby indemnify and hold harmless
the Partnership from and against all claims, demands, damages,
losses, obligations and responsibilities arising, directly or
indirectly, out of a breach of any one or more representations and
warranties set forth herein.
All authority herein conferred or agreed to be conferred shall
survive my death or incapacity and all of my obligations shall be
binding upon the heirs, personal representatives, successors and
assigns of the undersigned. In addition, I hereby agree not to
offer, sell or accept any offer to purchase any or all of the Units
to or from any third party while the Offer remains open. Upon
request, I will execute and deliver any additional documents deemed
by the Purchaser and its designees to be necessary or desirable to
complete the assignment, transfer and purchase of the Units.
I recognize that, if proration is required pursuant to the terms of
the Offer, the Purchaser will accept for payment from among those
Units validly tendered on or prior to the Expiration Date and
properly withdrawn, the maximum number of Units permitted pursuant
to the Offer on a pro rata basis, with adjustments to avoid
purchases of certain fractional Units and purchases which would
violate the terms of the Offer or the Partnership's Limited
Partnership Agreement, based upon the number of Units validly
tendered prior to the Expiration Date and not properly withdrawn.
I HEREBY CERTIFY, UNDER PENALTIES OF PERJURY, THAT THE STATEMENTS IN
BOX A, BOX C, BOX D AND, IF APPLICABLE, BOX E BELOW ARE TRUE AND
CORRECT.
By its placing its signature below, the Purchaser agrees to accept
all the terms and provisions of the Limited Partnership Agreement in
connection with and subject to the Transfer set forth herein,
This Agreement shall be governed by and construed in accordance with
the laws of the State of Delaware. I waive any claim that any State
or Federal court located in the State of Delaware is an inconvenient
forum, and waive any right to trial by jury.
PLEASE COMPLETE ALL SHADED AREAS
SIGN HERE TO TENDER YOUR UNITS
BOX A
(See Instructions to Complete
Agreement of Assignment and Transfer - Box A)
All
Date:__________________, 1999 ____________________________________________
(If you desire to sell less than all of your
Units, strike "All" and indicate the number
of Units to be sold)
_______________________ ______________ _____________________________
Your Social Security or Your Telephone Signature of Co-Seller and
Taxpayer Identification Number Medallion Signature Guarantee
Number (if applicable)
________________________________________________
Your Signature and Medallion Signature Guarantee
_____________________________________________________
Custodian Signature and Medallion Signature Guarantee
(Required if units held in IRA/KEOGH)
Please note: A Medallion Signature Guarantee is similar to a
notary, but is provided by your bank or brokerage house where you
have an account.
BOX B
MEDALLION SIGNATURE GUARANTEE
(Required for all Sellers)
(See Instructions to Complete Agreement of
Assignment and Transfer - Box B)
Name and Address of Bank or Brokerage House:_________________________________
Authorized Signature of Bank or Brokerage House Representative:______________
Title:__________________
Name:____________________________________________
Date:________________ ,199
Please note: A Medallion Signature Guarantee is similar to a
notary, but is provided by your bank or brokerage house where you
have an account.
BOX C
SUBSTITUTE FORM W-9
(See Instructions to Complete Agreement
of Assignment and Transfer - Box C)
The person signing this Agreement of Assignment and Transfer hereby
certifies the following to the Purchaser under penalties of perjury:
(i) The TIN set forth in the signature box in Box A of this
Agreement of Assignment and Transfer is the correct TIN of the
Unitholder, or if this box [ ] is checked, the Unitholder has
applied for a TIN. If the Unitholder has applied for a TIN, a TIN
has not been issued to the Unitholder, and either: (a) the
Unitholder has mailed or delivered an application to receive a TIN
to the appropriate IRS Center or Social Security Administration
Office, or (b) the Unitholder intends to mail or deliver an
application in the near future (it being understood that if the
Unitholder does not provide a TIN to the Purchaser within sixty (60)
days, 31% of all reportable payments made to the Unitholder
thereafter will be withheld until a TIN is provided to the
Purchaser); and
(ii) Unless this box [ ] is checked, the Unitholder is not
subject to backup withholding either because the Unitholder: (a) is
exempt from backup withholding, (b) has not been notified by the IRS
that the Unitholder is subject to backup withholding as a result of
a failure to report all interest or dividends, or (c) has been
notified by the IRS that such Unitholder is no longer subject to
backup withholding.
Note: Place an "X" in the box in (ii) if you are unable to certify
that the Unitholder is not subject to backup withholding.
BOX D
FIRPTA AFFIDAVIT
(See Instructions to Complete Agreement
of Assignment and Transfer - Box D)
Under Section 1445(e)(5) of the Internal Revenue Code and Treas.
Reg. 1.1445-11T(d), a transferee must withhold tax equal to 10% of
the amount realized with respect to certain transfers of an interest
in a partnership if 50% or more of the value of its gross assets
consists of U.S. real property interests and 90% or more of the
value of its gross assets consists of U.S. real property interests
plus cash equivalents, and the holder of the partnership interest is
a foreign person. To inform the Purchaser that no withholding is
required with respect to the Unitholder's interest in the
Partnership, the person signing this Agreement of Assignment and
Transfer hereby certifies the following under penalties of perjury:
(i) Unless this box [ ] is checked, the Unitholder, if an
individual, is a U.S. citizen or a resident alien for purposes of
U.S. income taxation, and if other than an individual, is not a
foreign corporation, foreign partnership, foreign estate or foreign
trust (as those terms are defined in the Internal Revenue Code and
Income Tax Regulations); (ii) the Unitholder's U.S. social security
number (for individuals) or employer identification number (for
non-individuals) is correctly printed in the signature box in Box A
of this Agreement of Assignment and Transfer; and (iii) the
Unitholder's home address (for individuals) or office address (for
non-individuals), is correctly printed (or corrected) on the top of
this Agreement of Assignment and Transfer. If a corporation, the
jurisdiction of incorporation is ________________________.
The person signing this Agreement of Assignment and Transfer
understands that this certification may be disclosed to the IRS by
the Purchaser and that any false statements contained herein could
be punished by fine, imprisonment, or both.
BOX E
SUBSTITUTE FORM W-8
(See Instructions to Complete Agreement
of Assignment and Transfer - Box E)
By checking this box [ ], the person signing this Agreement of
Assignment and Transfer hereby certifies under penalties of perjury
that the Unitholder is an "exempt foreign person" for purposes of
the backup withholding rules under the U.S. federal income tax laws,
because the Unitholder:
(i) Is a nonresident alien individual or a foreign corporation,
partnership, estate or trust;
(ii) If an individual, has not been and plans not to be present in
the U.S. for a total of 183 days or more during the calendar year; and
(iii) Neither engages, nor plans to engage, in a U.S. trade or
business that has effectively connected gains from transactions with
a broker.
AGREED TO AND ACCEPTED:
Madison Liquidity Investors 104, LLC
By:_________________________________
EXHIBIT (a)(3)
May 13, 1999
TO UNITHOLDERS IN CAPITAL SOURCE L.P.
RE: Offer to Purchase Beneficial Assignment Certificates
Dear Fellow Investor:
Madison Liquidity Investors 104, LLC (the "Purchaser") is seeking to
buy your Beneficial Assignment Certificates (the "Units") in Capital
Source L.P. (the "Partnership") for $10.00 per Unit in cash (the
"Offer Price"). This amount will be reduced by the $50.00 transfer
fee (per transfer, not per Unit) charged by the Partnership and any
cash distributions made by the Partnership on or after May 13, 1999.
We are an investment firm which buys units in dozens of
underperforming limited partnerships and are not affiliated with the
Partnership or the General Partner. We are principals seeking to
acquire Units for our investment portfolio only (we are not a
matching service or professional broker who resells units). The
Purchaser and its affiliates have over $285 million in capital that
is committed to paying limited partners for their units. To date,
over 52,000 limited partners nationwide in over 250 limited
partnerships have chosen to sell their units to us. This has made
the Purchaser a leading and reliable choice for limited partnership
investors seeking a time and cost efficient liquidity option.
Please consider the following points in evaluating our offer:
- - FAST, COMMISSION-FREE SALE. Our offer provides you with
the opportunity to immediately sell your Units without the
commission costs (generally, up to 10% of the sales price,
subject to a $150-$200 minimum commission per trade) paid by
the seller in typical secondary market sales. Remember, with
secondary market matching services, the process to sell your
Units will not even begin until an interested buyer can be
found, which cannot be assured and can take days, weeks or
even months. In contrast, by agreeing to sell to the
Purchaser, you are assuring a sale of your Units, subject to
proration rights and other conditions having been met, all as
set forth in the Offer to Purchase.
- - HISTORICAL PARTNERSHIP PERFORMANCE. The Partnership was
closed 13 years ago. You invested $20.00 per Unit and to
date an original investor has received total cash
distributions of approximately $16.65 per Unit from the
Partnership. When combined with the net asset
value (as estimated by the General Partner) this would
represent a 4.08% return on your investment.
- - ILLIQUID UNITS. The relative illiquidity of the Units
resulting from the absence of a formal trading market means
the Units are difficult to sell. In fact, there were only
five sales per month, on average, during the period from
December 1996 to January 1999 (the most recent period for
which information is available) according to the
January/February 1997 through January/February 1999 issues of
The Partnership Spectrum.
- - ELIMINATE K-1 TAX FILING. If you sell your Units now, 1999
will be the final year for which you receive a K-1 tax form
from the Partnership, assuming the transfer of your Units is
completed by year end. Many investors who have tax
professionals prepare their taxes find the cost of filing
K-1s to be burdensome, particularly if more than one limited
partnership is owned.
- - ABILITY TO REDEPLOY SALE PROCEEDS INTO OTHER INVESTMENTS.
The decision to sell your Units for cash now would provide
you with the ability to redeploy your investment assets into
potentially stronger and liquid investments. This could,
depending on your individual investment decisions, provide
current income and capital appreciation potential, as well as
liquidity if needed.
- - ELIMINATION OF ADDITIONAL RETIREMENT ACCOUNT FEES. If you
sell your Units now, 1999 could be the final year in which
you incur additional fees, if any as a result of holding
Units in your IRA or retirement account. Due to the
lackluster performance and declining value of limited
partnership units generally, many custodians will not allow
the transfer of limited partnership units into new retirement
accounts. While many investors have consolidated their
retirement accounts and taken advantage of custodial services
offered through discount brokerage firms, they may have had
to maintain separate retirement accounts for limited
partnership units, because of custodian restrictions on the
transfer of such units. Once our cash payment is sent
directly to your retirement account, you are free to
consolidate your retirement accounts or transfer the funds to
a custodian that offers lower fees.
- - UNCERTAIN TIMING OF FINAL PARTNERSHIP LIQUIDATION. While the
Purchaser is not aware of any planned or pending sales of any
of the Partnership's properties, it should be noted that, if
a sale of all of the assets of the Partnership were
announced, such sale would be no guarantee that full
liquidation will occur immediately after such sale or shortly
thereafter. As stated in the July/August 1998 issue of The
Partnership Spectrum, "Long suffering partnership investors
rejoicing over the sale of their partnership's assets
typically don't realize that it could be months or even years
before their partnership is formally dissolved and the final
K-1 is mailed out. While warranties and representations made
to buyers in connection with asset sales often keep a
partnership from dissolving for six to twelve months after
the last property has been sold, a lawsuit can require a
partnership to stay open for years." Accordingly, to the
extent that the Partnership continues to exist after its
final asset sale, you will continue to receive a K-1 in each
year in which the Partnership continues to exist and there
can be no assurance that the Partnership will make cash
distributions in each of such years.
- - YOU WILL FOREGO FUTURE BENEFITS OF OWNING UNITS. Unitholders
who tender their Units will give up the opportunity to
participate in any future benefits from the ownership of
Units, including potential future distributions by the
Partnership, and the purchase price per Unit payable to a
tendering Unitholder by the Purchaser may be less than the
total amount which might otherwise be received by the
Unitholder with respect to the Units over the remaining term
of the Partnership.
- - THE PURCHASER IS SEEKING TO MAKE A PROFIT ON THE PURCHASE OF
UNITS. The Purchaser is making the Offer for investment
purposes and with the intention of making a profit from the
ownership of the Units. In establishing the purchase price of
$10.00 per Unit, the Purchaser is motivated to establish the
lowest price which might be acceptable to Unitholders
consistent with the Purchaser's objectives. Such objectives
and motivations conflict with the interests of the
Unitholders in receiving the highest price for their Units.
Upon the liquidation of the Partnership, the Purchaser will
benefit to the extent, if any, that the amount per Unit it
receives in the liquidation exceeds the Offer Price, if any.
Therefore, Unitholders might receive more value if they hold
their Units, rather than tender, and receive proceeds from
the liquidation of the Partnership. Alternatively,
Unitholders may prefer to receive the Offer Price now rather
than wait for uncertain future net liquidation proceeds. No
independent person has been retained to evaluate or render
any opinion with respect to the fairness of the Offer Price
and no representation is made by the Purchaser or any
affiliate of the Purchaser as to such fairness. When the
assets of the Partnership are ultimately sold, the return to
Unitholders could be higher or lower than the Offer Price. We
believe that the value of the Units will ultimately be more
than the price offered hereby. However, there are numerous
risks and uncertainties that may cause our belief to be
wrong. If you wish to have us bear those risks and
uncertainties, you should consider selling your Units to us.
Unitholders are urged to consider carefully all the
information contained herein before accepting the Offer.
- - CONDITIONS OF SALE. The Purchaser's obligation to purchase
Units is subject to its right to prorate among tendering
Unitholders the number of Units the Purchaser will purchase
from a Unitholder as well as other conditions set forth in
the Offer to Purchase. Furthermore, the eventual transfer of
all tendered Units is subject to the final approval of the
Partnership or General Partners and is subject to their
discretion.
- - UNITHOLDERS MAY ATTEMPT TO SELL UNITS IN THE SECONDARY
MARKET. The price offered hereby may be more or less than
prices recently quoted by secondary market matching market
services. For example, our Offer Price of $10.00 per Unit is
lower than recent weighted average sales prices in the
secondary market of $12.33. However, we believe that
transactions through these secondary market services are
costly and time consuming, and that the quoted prices often
differ from the price a seller actually receives. Therefore,
you may prefer to sell to us even at a lower price than
otherwise so quoted. Because the gross sales prices reported
by The Partnership Spectrum do not necessarily reflect the
net sales proceeds received by sellers of Units, which
typically are reduced by commissions and other secondary
market transaction costs to amounts less than the reported
prices, the Purchaser cannot, and does not, know whether the
information compiled by The Partnership Spectrum is accurate
or complete.
The Purchaser will purchase a maximum of 4.90% of the outstanding
Units pursuant to this Offer. If more Units are offered to us, we
will prorate our purchase ratably to all sellers. You will be paid
promptly following (i) receipt of a valid, properly executed
Agreement of Assignment and Transfer (see the enclosed document) and
(ii) receipt by the Purchaser of the Partnership's confirmation that
the transfer of Units has been effectuated, subject to Section 4
("Proration") of the Offer to Purchase. ALL SALES OF UNITS WILL BE
IRREVOCABLE BY YOU, SUBJECT TO SECTION 5 ("WITHDRAWAL RIGHTS") OF
THE OFFER TO PURCHASE.
A COMPREHENSIVE DISCUSSION OF THE TERMS OF THE OFFER CAN BE FOUND IN
THE OFFER TO PURCHASE, EXHIBIT (A)(1) TO THE SCHEDULE 14D-1.
If you wish to accept our offer, please complete and MEDALLION
SIGNATURE GUARANTEE (this must be done by your broker or a bank
where you have an account) the enclosed Agreement of Assignment and
Transfer and return it in the enclosed envelope, along with your
limited partnership certificate (if one was issued to you and is
available).
Our offer will expire at 5:00 p.m., Eastern Standard Time, on June
17, 1999 unless the offer is extended. We encourage you to act
promptly.
Please call us at (303) 858-0000, or send a fax to (303) 858-0001,
if you have any questions. Thank you for your consideration of our
offer.
Very truly yours,
Madison Liquidity Investors 104, LLC
COMMONLY ASKED QUESTIONS AND ANSWERS
WHY WOULD I WANT TO SELL MY UNITS TO THE PURCHASER?
Have your original objectives for this investment been met? Are you
pleased with the way this investment has performed to date? We have
found that most investors are disappointed with the performance of
their limited partnership investments. Many investors have been in
these investments far longer than originally anticipated and their
returns have been disappointing. In addition, the tax reporting
requirements for limited partnerships are burdensome and costly,
often requiring an accountant to prepare your taxes. Requirements by
certain states also increase this burden by requiring limited
partners to file state income tax returns, and potentially to pay
taxes, in states where a partnership owns properties, regardless of
the overall profitability of the partnership.
Many investors feel that selling their limited partnership units
will free up funds to pursue more attractive investment options.
And unlike limited partnerships, most other investments provide
immediate liquidity in the event an investor needs access to his/her
funds.
While emotionally difficult to accept, many investors are realizing
that not only will original projections never be met on many of
these limited partnerships, but, in some cases, original investment
capital will never be fully recovered. Thus, a readily available
purchase offer for an underperforming investment with an uncertain
termination date may be an opportunity worthy of your consideration.
WHY DOES THE PURCHASER WANT TO BUY MY UNITS?
The Purchaser purchases units in dozens of underperforming limited
partnerships for its own investment portfolio and not for the
purposes of reselling the Units or matching buyers and sellers, as
is the case with secondary market matching services. By agreeing to
sell to the Purchaser, you are assuring a sale of your Units,
subject to proration rights and other conditions having been met. A
secondary market firm cannot assure a sale unless it can locate a
buyer who is interested in purchasing your particular Units. Most
individual investors are not interested in purchasing limited
partnership units for their investment portfolios, so the Purchaser
is providing you with a liquidity option that is generally not
otherwise readily available.
Unlike other firms that purchase limited partnership units, the
Purchaser is typically not interested in acquiring controlling
interests in limited partnerships. Furthermore, buying units in a
broad portfolio of limited partnerships allows us to diversify our
investment portfolio, thus mitigating our risk of purchasing such
underperforming investments.
WHAT OTHER OPTIONS ARE AVAILABLE TO ME TO SELL MY UNITS?
NOT MANY! Unlike the Purchaser, secondary market firms will only
match buyers and sellers. They do not provide a firm bid. So the
only way you can sell your Units through this market is if they can
locate an interested buyer. FURTHERMORE, THE PURCHASER CHARGES NO
COMMISSIONS (SECONDARY MARKET FIRMS GENERALLY CHARGE UP TO 10%,
SUBJECT TO A $150 - $200 MINIMUM COMMISSION PER TRADE).
HOW DO I SUBSCRIBE TO THE PURCHASER'S OFFER AND WHEN WILL I BE PAID?
The purchase process involves several steps. By carefully following
the instructions on the enclosed checklist, you are ensuring the
fastest possible turnaround time for the sale of your Units.
Properly completed Agreements of Assignment and Transfer are
forwarded by the Purchaser to the General Partner on a weekly basis
following the completion of the offer. Most general partners will
take approximately four weeks thereafter to confirm the number of
Units you own and provide the Purchaser with the effective transfer
date. IRA investors should add approximately two weeks because of
the additional signatures required from your custodian. Thereafter,
you will be promptly paid by the Purchaser.
HOW DID THE PURCHASER GET MY NAME?
The rules of the Securities and Exchange Commission provide that
issuers such as the Partnership are required under certain
circumstances to either provide bidders such as the Purchaser with a
list of its securityholders, or to contact such securityholders on
our behalf.
WHAT HAPPENS IF I DON'T SELL MY UNITS?
Nothing. If you choose to retain your investment in the
Partnership, you will be a limited partner until all its assets and
the Partnership have been liquidated. Remember, however, that even
if the Partnership had an original anticipated holding period of
five, seven or ten years, there is usually nothing requiring
liquidation within this time frame. In fact, most limited
partnerships can legally continue for up to twenty or thirty years,
or longer, from inception.
IF YOU HAVE ANY ADDITIONAL QUESTIONS, PLEASE CALL:
THE PURCHASER, MADISON LIQUIDITY INVESTORS 104, LLC
(303) 858-0000
INSTRUCTIONS TO COMPLETE AGREEMENT OF ASSIGNMENT AND TRANSFER
FORMING PART OF THE TERMS AND CONDITIONS OF THE OFFER
By checking-off below ALL of the items that pertain to your form of
ownership, you are guaranteeing the fastest turnaround time for
payment for your Units. Refer to the "Other Common Oversights"
section below to make sure you are not forgetting anything that may
delay processing.
Upon our receipt of your Agreement of Assignment and Transfer, the
Purchaser will evaluate it to determine if it is complete by the
General Partner's standards. If your Agreement is incomplete, you
will receive a deficiency letter from us that will let you know the
additional information that we need to process your sale. Please
respond promptly to such request for additional information. YOUR
FAILURE TO PROVIDE THIS ADDITIONAL INFORMATION CAN ADD WEEKS TO THE
PROCESSING TIME.
1. BOX A
- - INDIVIDUAL OWNER/JOINT OWNERS OF RECORD
[ ] Sign Agreement (BOTH owners must sign if joint account).
[ ] Provide a MEDALLION SIGNATURE GUARANTEE.
[ ] Enclose your original limited partnership
certificate, if available.
[ ] Return Agreement to the Purchaser in
pre-paid/pre addressed envelope provided.
- - IRA INVESTORS
[ ] Beneficial owner should sign Agreement.
the Purchaser will work directly with your
Custodian to get the necessary custodial
signature/medallion guarantee and we will
then forward your check directly to your IRA
account.
- - TRUST, PROFIT SHARING AND PENSION PLANS
[ ] Authorized signatory should sign Agreement.
[ ] Enclose first, last and other applicable
pages of TRUST OR PLAN AGREEMENT showing that
signor(s) is authorized signatory.
- - CORPORATIONS
[ ] Authorized signatory should sign Agreement.
[ ] INCLUDE CORPORATE RESOLUTION showing that
signor(s) is authorized signatory.
- - OTHER COMMON OVERSIGHTS
[ ] Death Certificates: If the owner of the
Units has died, please enclose a copy of the
Death Certificate and evidence of your
signature authority.
[ ] Letters Testamentary: If you have inherited
the Units, include a copy of the original
owner's DEATH CERTIFICATE and a copy of the
LETTERS TESTAMENTARY OR WILL showing that you
are the legal owner of the Units.
2. BOX B - MEDALLION SIGNATURE GUARANTEE.
Required to be signed by your bank or brokerage house only.
3. BOX C - SUBSTITUTE FORM W-9.
Please check the shaded box in Box C(i) if you do not have a
Taxpayer Identification Number or Social Security Number
("TIN") but have already applied for a TIN. Please check the
shaded box in Box C(ii) if you are subject to the 31% federal
tax backup withholding.
4. BOX D - FIRPTA AFFIDAVIT.
Please check the shaded box in Box D(i) if you are not a U.S.
citizen or a resident alien for purposes of U.S. income
taxation, or are a foreign corporation, foreign partnership,
foreign estate or foreign trust. If the Unitholder is a
corporation, please indicate the state of incorporation in
the shaded area in Box D(iii).
5. BOX E - FOREIGN PERSONS.
Please check the shaded box in Box E if you are an "exempt
foreign person" for purposes of the backup withholding rules
under the federal income tax laws.
Please note: A Medallion Signature Guarantee is similar to a
notary, but is provided by your bank or brokerage house where you
have an account.
IF YOU HAVE ANY ADDITIONAL QUESTIONS, PLEASE CALL:
MADISON LIQUIDITY INVESTORS 104, LLC
(303) 858-0000
EXHIBIT (a)(4)
THIS ANNOUNCEMENT IS NEITHER AN OFFER TO PURCHASE NOR A SOLICITATION
OF AN OFFER TO SELL UNITS. THE OFFER IS BEING MADE SOLELY BY THE
OFFER TO PURCHASE OF MADISON LIQUIDITY INVESTORS 104, LLC, DATED MAY
13, 1999, AND THE RELATED AGREEMENT OF ASSIGNMENT AND TRANSFER AND
IS NOT BEING MADE TO, NOR WILL TENDERS BE ACCEPTED FROM OR ON BEHALF
OF, UNITHOLDERS RESIDING IN ANY JURISDICTION IN WHICH MAKING OR
ACCEPTING THE OFFER WOULD VIOLATE THAT JURISDICTION'S LAWS. IN THOSE
JURISDICTIONS WHERE THE SECURITIES, BLUE SKY OR OTHER LAWS REQUIRE
THE OFFER TO BE MADE BY A LICENSED BROKER OR DEALER, THE OFFER SHALL
BE MADE ON BEHALF OF MADISON LIQUIDITY INVESTORS 104, LLC, IF AT
ALL, ONLY BY ONE OR MORE REGISTERED BROKERS OR DEALERS LICENSED
UNDER THE LAWS OF SUCH JURISDICTION.
NOTICE OF OFFER TO PURCHASE FOR CASH
UNITS OF BENEFICIAL ASSIGNMENT CERTIFICATES
of
CAPITAL SOURCE L.P.
at
$10.00 PER UNIT
by
MADISON LIQUIDITY INVESTORS 104, LLC
THE OFFER, WITHDRAWAL RIGHTS AND PRORATION PERIOD WILL EXPIRE AT
5:00 P.M., EASTERN STANDARD TIME, June 17, 1999, UNLESS THE OFFER IS
EXTENDED.
Madison Liquidity Investors 104, LLC (the "Purchaser") hereby seeks
to acquire Units of Beneficial Assignment Certificates (the "Units")
in Capital Source L.P., a Delaware limited partnership (the
"Partnership"). The Purchaser hereby offers to purchase up to
165,337 Units at $10.00 per Unit (the "Purchase Price"), in cash,
reduced by (i) the $50.00 transfer fee (per transfer, not per Unit)
charged by the Partnership and (ii) any cash distributions made on
or after May 13, 1999 (the "Offer Date"), without interest, upon the
terms and subject to the conditions set forth in the Offer to
Purchase (the "Offer to Purchase") and in the related Agreement of
Assignment and Transfer, as each may be supplemented or amended from
time to time (which together constitute the "Offer"). The Offer
will expire at 5:00 p.m., Eastern Standard Time, on June 17, 1999 or
such other date to which the Offer may be extended (the "Expiration
Date"). This Offer is being made by the Purchaser solely for
investment purposes and not for purposes of acquiring or influencing
control of the business of the Partnership.
If tendering Unitholders tender more than the number of Units that
the Purchaser seeks to purchaser pursuant to the Offer, the
Purchaser will take into account the number of Units so tendered and
take up and pay for as nearly as may be pro rata, disregarding
fractions, and in accordance with Partnership's Agreement of Limited
Partnership, according to the number of Units tendered by each
tendering Unitholder during the period during which the Offer
remains open.
All validly tendered Units that are not properly withdrawn prior to
the Expiration Date, and not otherwise subject to proration, shall
be paid to the Unitholder by the Purchaser in accordance with the
terms and conditions of the Offer. The Purchaser has filed a
Schedule 14D-1 with the United States Securities and Exchange
Commission in connection with the Offer. The Purchaser's
information contained in its filing on Schedule 14D-1 and the
exhibits thereto are incorporated herein by reference.
THIS OFFER TO PURCHASE IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF
UNITS BEING TENDERED. A UNITHOLDER MAY TENDER ANY OR ALL UNITS
OWNED BY SUCH UNITHOLDER AS LONG AS SUCH TENDER DOES NOT OTHERWISE
VIOLATE THE TERMS OF THE LIMITED PARTNERSHIP AGREEMENT OF THE
PARTNERSHIP.
For purposes of the Offer, the Purchaser shall be deemed to have
been accepted for payment (and thereby purchased tendered Units)
when the Purchaser is in receipt of the Partnership's confirmation
that the transfer of Units has been effectuated.
If the Purchaser makes a material change in the terms of the Offer,
or if it waives a material condition to the Offer, the Purchaser
will extend the Offer and disseminate additional tender offer
materials to the extent required by Rules 14d-4(c) and 14d-6(d)
under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). The minimum period during which the Offer must remain open
following any material change in the terms of the Offer, other than
a change in price or a change in percentage of securities sought,
will depend upon the facts and circumstances, including the
materiality of the change. With respect to a change in price or,
subject to certain limitations, a change in the percentage of
securities sought, a minimum of ten business days from the date of
such change is generally required to allow for adequate
dissemination to Holders. Accordingly, if prior to the Expiration
Date, the Purchaser increases (other than increases of not more than
two percent of the outstanding Units) or decreases the number of
Units being sought, or increases or decreases the consideration
offered pursuant to the Offer, and if the Offer is scheduled to
expire at any time earlier than the tenth business day from the date
that notice of such increase or decrease is first published, sent or
given to Unitholders, the Offer will be extended at least until the
expiration of such ten business days. For purposes of the Offer, a
"business day" means any day other than a Saturday, Sunday or a
federal holiday and consists of the time period from 12:01 a.m.
through 12:00 midnight, New York City time. The period of time
during which the Offer is open may be extended by the Purchaser, at
any time and from time to time. If the Purchaser extends the Offer,
such extension will be followed by a press release or public
announcement thereof, which will be issued no later than 9:00 a.m.,
New York City time, on the next business day after the scheduled
Expiration Date.
For withdrawal to be effective, a written notice of withdrawal must
be timely received by the Purchaser (i.e. a valid notice of
withdrawal must be received after May 13, 1999 but on or before June
17, 1999, or such other date to which this Offer may be extended) at
the address set forth in the attached Agreement of Assignment and
Transfer. Any such notice of withdrawal must specify the name of
the person who tendered the Units to be withdrawn and must be signed
by the person(s) who signed the Agreement of Assignment and Transfer
and must also contain a Medallion Signature Guarantee.
In conjunction with this publication, a request of America First
Capital Source I, L.L.C. and Insured Mortgage Equities Inc., the
general partners of the Partnership, has been made for the use of
the list of Unitholders and security position listings for the
purpose of disseminating this Offer to Unitholders. Tender offer
materials will be mailed to Unitholders of record and will be
furnished to brokers, banks and similar persons whose name appears
or whose nominee appears on the list of Unitholders or, if
applicable, who are listed as participants in a clearing agency's
security position listing for subsequent transmittal to beneficial
owners of such securities.
The terms of the Offer are more fully set forth in the Offer to
Purchase with respect to the Offer and the related Agreement of
Assignment and Transfer (collectively, the "Tender Offer
Documents"). The Tender Offer Documents contain terms and
conditions, and the information required by Rule14d-6(e)(1)(vii)
under the Exchange Act, which are incorporated herein by reference.
Questions and requests for assistance or additional copies of the
offering material may be directed to Madison Liquidity Investors
104, LLC, P.O. Box 4757, Englewood, Colorado 80155, telephone (303)
858-0000.
May 13, 1999
EXHIBIT (b)(1)
LOAN AGREEMENT
$30 Million Credit Facility Between
Omega Healthcare Investors, Inc.
and
Madison/OHI Liquidity Investors, LLC
October 2, 1998
Table of Contents
Page
Section 1 - Definitions.......................................................I
Section 2 - Warranties and Representations....................................8
Section 3 - The Loan.........................................................11
Section 4 - Interest Rate; Advance Procedures................................16
Section 5 - Security and Release of Collateral...............................19
Section 6 - Affirmative Covenants............................................22
Section 7 - Negative Covenants...............................................27
Section 8 - Application of Proceeds..........................................28
Section 9 - Events of Default and Remedies...................................28
Section 10 - Conditions Precedent to Advances of the Loan....................30
Section 11 - Limitation on Loan Advances......................................31
Section 12 - Option to Restructure Investments...............................32
Section 13 - Acceptance of Proceeds..........................................32
Section 14 - Confidentiality.................................................32
Section 15 - Indemnification.................................................33
Section 16 - Miscellaneous...................................................34
LOAN AGREEMENT
This Loan Agreement is made as of October 2, 1998, between OMEGA HEALTHCARE
INVESTORS, INC., a Maryland corporation (the "Lender"), 900 Victors Way, Suite
350, Ann Arbor, Michigan 48108, and MADISON/OHI- LIQUIDITY INVESTORS, LLC, a
Delaware limited liability company (the "Borrower"), P. 0. Box 7461, Incline
Village, Nevada 89452.
RECITALS:
A. The Borrower has requested the Lender to extend the credit facility
described below, the proceeds of which will be used by the Borrower in its
business as set forth in this Agreement.
B. The Lender is willing to extend the credit facility on the terms and
subject to the conditions set forth in this Agreement.
The parties agree as follows:
Section 1 - Definitions
In addition to the terms defined elsewhere in this Agreement, the
following, definitions shall apply for purposes of this Agreement:
1.1 "Acquisition Cost" means the cash price paid by the Borrower for its
acquisition of an Investment Position, including reasonable incidental costs
paid to third-parties directly relating to such acquisitions. Acquisition Costs
shall also include payments or accruals to Affiliates of equitably allocated
general and administrative costs and reimbursements to Affiliates of expenses
initially defrayed by Affiliates in respect of the acquisition of Investment
Positions.
1.2 "Affiliate" means (a) First Equity Realty, (b) the Harmony Group, or
(c) MACG.
1.3 "Agreement" means this Loan Agreement, as this Agreement hereafter may
be amended.
1.4 "Borrower" means Madison/OHI Liquidity Investors, LLC, a Delaware
limited liability company.
1.5 "Borrower's Due Diligence Documents" has the meaning given such term in
Section 4.7 of this Agreement.
1.6 "Business Day" has the meaning given such term in the Note.
1.7 "Carrying Value of the Investment Position" means the amount, in cash,
that the Borrower reasonably expects to receive upon the Sale or Liquidation of
the Investment Position, as determined by the Borrower at the time of its
acquisition of the Investment Position.
1.8 "Cash Collateral Account" means a cash deposit account established and
maintained by the Borrower with the Collateral Agent for the benefit of the
Lender; the Cash Collateral Account shall be pledged to the Lender as security
for payment of the Borrower's indebtedness to the Lender.
1.9 "Collateral" means all of the real property and tangible and intangible
personal property now or hereafter serving as security for the obligations of
the Borrower to the Lender, including but not necessarily limited to that
described in Section 5 of this Agreement. Collateral shall not include any
Investment Position consisting of a limited partnership interest or a membership
interest in a limited liability company in which the constituent documents of
the issuer of such interest prohibit the granting of a security interest therein
(unless the requisite consents for the granting of such security interest to the
Lender have been obtained); provided, however, that if any such requisite
consents have not been obtained, the economic interest in the limited
partnership or limited liability company represented by such limited partnership
or membership interest shall constitute Collateral as if the holder thereof were
an assignee of such interest rather than a substitute limited partner or member,
as the case may be.
1.10 "Collateral Agent" means a "broker" as defined in ss. 8-303 of the UCC
in effect in the State of Michigan who constitutes a "financial intermediary" as
defined in ss. 8-313 of the UCC in effect in the State of Michigan which shall
be E-Trade or such other broker as is approved by the Lender (such approval not
to be unreasonably withheld).
1.11 "Combined Balance of the Loan" means, at any time, the sum of (a) the
Premium Rate Balance of the Loan then outstanding plus (b) the Standard Rate
Balance of the Loan then outstanding.
1.12 "Confidential Information" has the meaning given such term in Section
14.1 of this Agreement.
1.13 "Contamination" or "Contaminated" means, when used with reference to
any real or personal property, that a Hazardous Substance is present on or in
the property in any amount or level.
1.14 "Disability", when used in connection with Bryan E. Gordon, means any
physical or mental incapacity which prevents Bryan E. Gordon from working for
the Borrower and its Affiliates in his present capacity in the Ordinary Course
for a period of 120 consecutive days or more.
1.15 "Disclosing Party" has the meaning given such term in Section 14.1 of
this Agreement.
- 2 -
1.16 "Draw Fee Advance" has the meaning given such term in Section 4.2 of
this Agreement.
1.17 "Environmental Laws" means all applicable laws, ordinances, rules,
regulations, and orders that regulate or are intended to protect public health
or the environment, or that establish liability for the investigation, removal,
or clean up of, or damage caused by any Contamination including, without
limitation, any law, ordinance, rule, regulation, or order that regulates, or
prescribes requirements for, air quality, water quality, or the disposition,
transportation, or management of waste materials or toxic substances.
1.18 "ERISA" has the meaning given such term in Section 2.17 of this
Agreement.
1.19 "Event of Default" has the meaning given such term in Section 9.1 of
this Agreement.
1.20 "First Equity Realty" means First Equity Realty, LLC, a New York
limited liability company.
1.21 "Funding Date" means a Business Day on which an advance of Loan
proceeds is made.
1.22 "GAAP" means generally accepted accounting principles set forth from
time to time in the opinions and pronouncements of the Accounting Principles
Board and the American Institute of Certified Public Accountants and statements
and pronouncements of the Financial Accounting Standards Board (or agencies with
similar functions of comparable stature and authority within the U. S.
accounting profession), which are applicable to the circumstances as of the date
of determination.
1.23 "Guarantor" means Bryan E. Gordon or Ronald M. Dickerman; "Guarantors"
means Bryan E. Gordon and Ronald M. Dickerman.
1.24 "Guarantee" means each Limited Personal Guarantee dated the date of
this Agreement, executed and delivered by a Guarantor to the Lender, together
with any renewals, extensions, modifications or replacements of any such
Guarantee.
1.25 "Harmony Group" means The Harmony Group II, LLC, a Delaware limited
liability company.
1.26 "Hazardous Substance" means any substance or waste which is (a)
included in the definition of "hazardous substance" in the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, 42 USC Sec.
9601, et seq.; (b) included in the definition of "hazardous substance" in the
Michigan Environmental Response Act, MCLA Sec. 299.6901, et seq.; (c) included
in the definition of "hazardous waste" in the Resource
- 3 -
Conservation and Recovery Act, 42 USC Sec. 6901, et seq.; or (d) included in the
definition of the same or any similar term found within any applicable local,
state or federal law, statute, rule, or regulation, including, without
limitation, asbestos and polychlorinated biphenyls.
1.27 "Indebtedness" means indebtedness for borrowed money, indebtedness
representing the deferred purchase price of property or services (excluding
indebtedness under normal trade credit for property or services purchased in the
normal course of operations), obligations under notes payable or drafts accepted
representing extensions of credit, indebtedness (whether or not assumed) secured
by mortgages, security interests, or other liens on property owned by the
Borrower, and any obligation of the Borrower to pay future rentals under a lease
which, in accordance with GAAP, is required to be shown as a liability on the
balance sheet of the Borrower.
1.28 "Interest Calculation Date" means each March 1, June 1, September 1,
and December 1 during the period that (a) starts on the date of this Agreement
and (b) ends on the date upon which all of the Borrower's indebtedness to the
Lender (including but not necessarily limited to that arising under this
Agreement) has been paid in full.
1.29 "Interest Payment Advance" has the meaning given such term in Section
4.2 of this Agreement.
l.30 "IRC" means the Internal Revenue Code of 1986, as amended.
1.31 "IRS" means the Internal Revenue Service of the United States of
America.
1.32 "Investment Position" means any economic interest or right acquired
using the proceeds of the Loan to fund all or any portion of the Acquisition
Cost. Subject to the terms and conditions of this Agreement, the Borrower may
acquire an Investment Position: (a) in debt or equity securities issued by any
corporation, partnership, limited partnership, limited liability company, or
other legal entity; or (b) by direct acquisition of real property or tangible
personal property; or (c) by acquisition at a discount of a participation in a
future income stream.
1.33 "Lender" means Omega Healthcare Investors, Inc., a Maryland
corporation.
1.34 "Loan" means the revolving line of credit loan described in Section 3
of this Agreement.
l.35 "Loan Documents" means this Agreement, the Guarantee, the Note, the
Pledge Agreement, each and every Real Estate Mortgage or Security Agreement
pursuant to which the Lender holds a lien or security interest for the
Borrower's indebtedness to the Lender, all assignments of rents, leases and
profits securing the Borrower's indebtedness to the Lender, and each and every
other document evidencing, securing or otherwise relating to the Borrower's
indebtedness to the Lender (whether arising under this Agreement or otherwise),
and all
- 4 -
renewals, extensions, amendments, modifications or replacements of any of the
foregoing.
1.36 "Loan Documentation and Closing Costs" has the meaning given such term
in Section 16.1 of this Agreement.
1.37 "MACG" means The Madison Avenue Capital Group, LLC, a Delaware limited
liability company.
1.38 "Madison Liquidity Investors 104" means and refers to Madison
Liquidity Investors 104, LLC, a Delaware limited liability company.
1.39 "Material Adverse Effect" means any material adverse effect whatsoever
upon (a) the validity, performance, or enforceability of any Loan Document, (b)
the properties, contracts, business operations, profits, or condition (financial
or otherwise) of the Borrower, any Affiliate or a Guarantor, or (c) the ability
of the Borrower or a Guarantor to fulfill their respective obligations under the
Loan Documents.
1.40 "Non-Qualified REIT Investment" means any Investment Position which,
if owned by the Lender, would not qualify as "real estate asset" as defined
under Section 856(c)(6)(B) and Section 856(c)(6)(C) of the IRC.
1.41 "Note" means any form of promissory note executed and delivered by the
Borrower pursuant to this Agreement, together with all renewals, extensions,
amendments, modifications or replacements thereof, including without limitation
the form of Promissory Note attached hereto as Exhibit A.
1.42 "Notice of Requested Borrowing" has the meaning given such term in
Section 4.6 of this Agreement.
1.43 "Ordinary Course" means, when used with respect to the Borrower, any
activity performed in accordance with the historical or customary practices of
the Borrower.
1.44 "Payment Rate" means the rate defined as such in Section 4.1 of this
Agreement.
1.45 "Permitted Investments" means (i) cash; (ii) investments in U.S.
Government obligations maturing within 365 days of the date of acquisition
thereof; (iii) investments in demand deposits, certificates of deposit,
Eurodollar deposits, bank promissory notes and bankers' acceptances maturing
within 365 days of the date of acquisition thereof issued by a bank or trust
company which is organized under the laws of the United States or any state
thereof and which has a combined capital and surplus of at least US$500 million
and is rated at least A- by S&P and at least A3 by Moody's; (iv) investments in
repurchase agreements involving Permitted Investments maturing within 365 days
of the date of acquisition thereof, entered into with any bank, trust company or
investment bank rated at least A- and A- 1 by S&P
- 5 -
and at least A3 and PI by Moody's; (v) investments in money market funds or
accounts at least 75% of whose assets consist of Permitted Investments; (vi)
commercial paper of a United States issuer maturing no more than 270 days from
the creation thereof and currently having the highest rating available from S&P
or Moody's; and (vii) investments in interest rate and foreign currency hedging
transactions entered into with respect to the obligations of the Borrower.
1.46 "Permitted Liens" means (a) security interests, mortgages, and liens
in favor of the Lender; (b) liens for taxes not delinquent or, in a jurisdiction
where payment of taxes is deferred during the period of any contest, being
contested in good faith by appropriate proceedings as prescribed by law, with
adequate reserves therefor being set aside on the Borrower's books; (c) inchoate
materialmens', mechanics', workmens', repairmens', or other like liens arising
in the Ordinary Course and, in each case, not delinquent, (d) liens securing
brokerage commissions and incidental costs relating to the Borrower's
acquisition of Investment Positions, and (e) restrictions in contracts entered
into in the Ordinary Course placing limitations on free exercise of property
rights (e.g., stand still or voting arrangements in respect of limited
partnerships in which opportunities to acquire Investment Positions present
themselves).
1.47 "Permitted Use" has the meaning given such term in Section 14.3 of
this Agreement.
1.48 "Pledge Agreement" means the Pledge Agreement dated the date of this
Agreement by Harmony Group and First Equity Realty, as pledgers, to and in favor
of the Lender, as secured party, and all renewals, extensions, amendments,
modifications or replacements thereof.
1.49 "Pre-Funding Acquisition Advance" has the meaning given such term in
Section 4.2 of this Agreement.
1.50 "Pre-Funding Acquisition Costs" has the meaning given such term in
Section 11.3 of this Agreement.
1.51 "Premium Accrual Rate" means the rate defined as such in Section 4.1
of this Agreement.
1.52 "Premium Rate Advance" has the meaning given such term in Section 4.2
of this Agreement.
1.53 "Premium Rate Balance of the Loan" means that portion of the
outstanding principal balance of the Loan from time to time defined as Such in
Section 4.1 of this Agreement.
1.54 "Premium Rate Investment Position" has the meaning given such term in
Section 4.2 of this Agreement.
- 6 -
1.55 "Receiving Party" has the meaning given such term in Section 14.1 of
this Agreement.
1.56 "Required Release Price" means the amount that must be paid to the
Lender upon Sale or Liquidation of an Investment Position in order to obtain the
release and discharge the Lender's security interest therein, calculated in
accordance with the paragraphs captioned "Payments" and "Cash Collateral
Account" Section 3.1 of this Agreement, below.
1.57 "Request for Release of Collateral" means the written request that
must be made by the Borrower and delivered to the Collateral Agent, in the case
of Collateral constituting certificated securities, or to the Lender, in the
case of any Collateral other than certificated securities.
1.58 "Rents from Real Property" has the meaning given such term in Section
856(d) of the IRC.
1.59 "Sale or Liquidation" means, when used with respect to an Investment
Position, any: (a) sale, lease, transfer or other disposition (including but not
limited to sale-lease backs, transfers that are the equivalent of a mortgage or
pledge, and transfers by operation of law) by the Borrower of legal or
beneficial title to the Investment Position (except transfers from the Borrower
to an entity which controls, or is controlled by, or is under common control
with the Borrower), whether for cash or other consideration, and whether or not
in the Ordinary Course; and (b) any other event upon the occurrence of which the
Borrower receives consideration in exchange for an Investment Position,
including but not limited to the dissolution and liquidation of any entity in
which the Borrower holds an Investment Position.
1.60 "Securities Collateral Account" means a securities account established
and maintained by the Borrower with the Collateral Agent for the benefit of the
Lender, and which shall be pledged to the Lender as security for payment of the
Borrower's indebtedness to the Lender.
1.61 "Standard Accrual Rate" means the rate defined as Such in Section 4.1
of this Agreement.
1.62 "Standard Rate Advance" has the meaning given such term in Section 4.2
of this Agreement.
1.63 "Standard Rate Balance of the Loan" means that portion of the
outstanding principal balance of the Loan from time to time defined as such in
Section 4.1 of this Agreement.
1.64 "Stub Period" has the meaning given such term in the paragraph of
Section 3.1 of this Agreement captioned " Unused Fee", below.
- 7 -
1.65 "Supplemental Security Documents" has the meaning given such term in
Section 4.8 of this Agreement.
1.66 "To the Borrower's Knowledge" means the actual knowledge, after
reasonable inquiry, of Bryan E. Gordon or Ronald M. Dickerman, such inquiry to
be consistent with normal practice substantially as reflected in the description
of Borrower's Due Diligence Documents as defined in Section 4.7.
1.67 "Unused Fee Advance" has the meaning given such term in Section 4.2 of
this Agreement.
1.68 "UCC" means the Uniform Commercial Code.
1.69 "Value of the Borrower's Investment Portfolio" means the sum of the
Carrying Value of the Investment Position for all Investment Positions owned by
the Borrower.
1.70 "Value of the Lender's Total Assets" means the sum of: (a) the product
obtained by multiplying (i) the total number of shares of the Lender's common
stock outstanding by (ii) the price per share of such stock, as quoted on the
New York Stock Exchange; plus (b) the aggregate market value of all series of
the Lender's preferred stock outstanding, as quoted on the New York Stock
Exchange; plus (c) the Lender's total debt. For purposes of this Agreement, the
Value of the Lender's Total Assets shall be determined as of the last day of the
Lender's fiscal quarter in which the event with respect to which the
determination is to be made occurred.
Section 2 - Warranties and Representations
To induce the Lender to enter into this Agreement and to make the Loan, the
Borrower represents and warrants to the Lender that the following statements are
true, correct and accurate both before and after giving effect to the
transactions contemplated by the Loan Documents:
2.1 The Borrower is a limited liability company duty organized, validly
existing and in good standing under the laws of the State of Delaware. The
Borrower is duly qualified and authorized to do business, and is in good
standing as a foreign limited liability company, in all jurisdictions in which
(a) the Borrower owns interests in real estate, or (b) tangible personal
property in which the Borrower has an interest is located, or (c) the Borrower
maintains offices or employees.
2.2 Bryan E. Gordon is the general partner of a limited partnership which,
together with a family trust as limited partner, owns legal and beneficial title
to 100% of the outstanding equity interests in Harmony Group. Harmony Group owns
legal and beneficial title to 50% of MACG. Ronald M. Dickerman is the general
partner of a limited partnership which, together with a family trust as limited
partner, owns legal and beneficial title to 100% of the outstanding equity
interests in First Equity Realty. First Equity Realty owns legal and beneficial
title to 50%
- 8 -
of MACG.
2.3 Bryan E. Gordon is the general partner of a limited partnership which,
together with a family trust as limited partner, owns legal and beneficial title
to 100% of the outstanding equity interest in the Harmony Group; the Harmony
Group owns legal and beneficial title to 75% of the outstanding equity interests
in the Borrower.
2.4 Ronald M. Dickerman is the general partner of a limited partnership
which, together with a family trust as limited partner, owns legal and
beneficial title to 100% of the outstanding equity interests in First Equity
Realty; First Equity Realty owns legal and beneficial title to 25% of the
outstanding equity interests in the Borrower.
2.5 Madison Liquidity Investors 104 is a wholly-owned subsidiary of the
Borrower.
2.6 The Borrower and its Affiliates have all requisite legal power and
authority and all necessary licenses and permits, the absence of which would
have a Material Adverse Effect, to own and operate their respective properties
and to carry on their respective businesses as now conducted and as Bryan E.
Gordon and Ronald M. Dickerman contemplate that such businesses will be
conducted in the future. The Borrower and its Affiliates are in compliance with
all laws, rules, and regulations, the non-compliance with which would have a
Material Adverse Effect.
2.7 All financial statements of the Borrower, any of its Affiliates or the
Guarantors that have been delivered to the Lender and present fairly the
financial position of the subjects thereof as of the dates indicated, and the
results of operations of such persons or entities for the periods indicated. No
changes having a Material Adverse Effect have occurred since the date of the
most recent of such financial statements. Except as expressly set forth in such
financial statements, neither the Borrower nor any Affiliate nor any Guarantor
has any material contingent liability or liability for taxes.
2.8 Neither this Agreement nor the financial statements referred to in
Section 2.7 above, nor any other written statement furnished by or on behalf of
the Borrower or any Affiliate to the Lender in connection with the negotiation
of the Loan contains any untrue statement of a material fact or omits a material
fact necessary to make the statements contained therein or herein not
misleading. To the Borrower's Knowledge, there is no fact that the Borrower has
not disclosed to the Lender that has, or in the future is likely to have, a
Material Adverse Effect.
2.9 Except as set forth in Schedule 2.9, there are no proceedings pending,
or to the Borrower's Knowledge threatened, before any court, governmental
authority, or arbitration board or tribunal, against or affecting the Borrower,
any Affiliate or a Guarantor, which might have a Material Adverse Effect.
Neither the Borrower, any Affiliate nor any Guarantor is in default with respect
to any order, judgment, or decree of any court, governmental authority, or
arbitration board or tribunal.
- 9 -
2.10 All of the equity interests of the Borrower are validly issued, fully
paid and nonassessable.
2.11 The Borrower has good and marketable title to all of the assets that
it purports to own, including the assets described in the financial statements
referred to in Section 2.7 hereof, free and clear of all liens, encumbrances,
security interests, claims, charges, and restrictions whatever, except Permitted
Liens. The Borrower owns no interest (whether in fee, leasehold or other) in
real property other than any Investment Positions that may be acquired by the
Borrower after the date of this Agreement and which constitute Collateral.
2.12 The Borrower has full power and authority to execute, deliver, and
perform the Loan Documents; the execution, delivery, and performance of the Loan
Documents required to be given hereunder by the Borrower have been duly
authorized by appropriate action of the members and managers of the Borrower and
will not violate the provisions of the articles of organization or operating
agreement of the Borrower or of any law, rule, judgment, order, agreement, or
instrument to which the Borrower is a party or by which it is bound, or to which
any of its assets are subject, nor do the same require any approval or consent
of any public authority or other third party; and the Loan Documents have been
duly executed and delivered by, and are the valid and binding obligations of,
the parties thereto, enforceable in accordance with their terms.
2.13 All tax returns required to be filed by the Borrower and each
Affiliate in any jurisdiction have been filed, and all taxes, assessments, fees,
and other governmental charges upon the Borrower and each Affiliate, or upon
their respective assets, income, or franchises, have been paid before the time
that those taxes became delinquent. To the Borrower's Knowledge, there are no
proposed additional tax assessments against the Borrower or any Affiliate which
would have a Material Adverse Effect.
2.14 Neither the Borrower nor any Affiliate maintains, or has ever
maintained, any employee benefit pension plan with respect to which the Borrower
or an Affiliate is or was an "employer" or "party in interest", as those terms
are defined in the Employee Retirement Income Security Act of 1974, as amended
("ERISA").
2.15 To the Borrower's Knowledge, unless otherwise disclosed by written
notice from the Borrower to the Lender, all of the entities in which the
Borrower holds an Investment Position are in compliance with all Environmental
Laws; and to the Borrower's Knowledge there is no reasonable basis to believe
that the Carrying Value of any such Investment Positions will be materially
adversely affected because any such entities: (a) hold assets that are
Contaminated by, or that are the site of, the disposal or release of any
Hazardous Substance; (b) hold assets that are the source of any Contamination of
any adjacent property or of any groundwater or surface water; or (c) hold assets
that are the source of any air emissions in excess of any legal limit now or
hereafter in effect. To the Borrower's Knowledge, there is no civil, criminal or
administrative action, suit, demand, claim, hearing, notice of violation or
deficiency,
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investigation, proceeding, notice or demand letter pending or threatened against
any entity in which the Borrower holds an Investment Position under any
Environmental Law which could reasonably be expected to result in a material
fine, penalty or other cost or expense. To the Borrower's Knowledge, unless
otherwise disclosed by written notice from the Borrower to the Lender, all of
the Collateral constituting tangible real or personal property is in compliance
with all Environmental Laws; and to the Borrower's Knowledge there is no
reasonable basis to believe that the Carrying Value of any Investment Positions
in such tangible real or personal property will be materially adversely affected
because such property: (a) is Contaminated by, or is the site of, the disposal
or release of any Hazardous Substance; (b) is the source of any Contamination of
any adjacent property or of any groundwater or surface water; or (c) is the
Source of any air emissions in excess of any legal limit now or hereafter in
effect.
2.16 The execution, delivery and performance by the Borrower of each Loan
Document, the issuance, delivery and performance of the Note, and the
consummation of the transactions contemplated hereby or related hereto do not
and will not (a) conflict with, result in a breach of or constitute (with due
notice or lapse of time or both) a default under any contractual obligation of
the Borrower or an Affiliate, (b) result in or require the creation or
imposition of any lien (other than liens in favor of the Lender) upon any
properties or assets of the Borrower or an Affiliate, or (c) require any
approval or consent of governmental authority or other person or entity that, as
of the date of this Agreement, has not been obtained in writing and delivered to
the Lender.
2.17 Neither the Borrower nor any Affiliate is in default in the
performance, observance or fulfillment of any of the obligations, covenants or
conditions contained in any actual or purported contractual obligation of the
Borrower or Affiliate, and no condition exists that, with the giving of notice
or the lapse of time, or both, would constitute such a default.
Section 3 - The Loan
3.1 The Loan shall be advanced subject to and in conformity with the
following terms and conditions:
Loan Maximum The lesser of (a) $30 million ($25 million on and
after the fifth (5th) anniversary of the first
Funding Date); or (b) an amount equal to 4.5% of
the Value of the Lender's Total Assets as of the
date of the Notice of Requested Borrowing; or (c)
the amount set forth under the paragraph of this
Section 3.1 captioned "Availability", below.
Minimum Draw $100,000.
Maximum Draw Unless otherwise agreed in writing by the Lender,
the lesser per Investment of of: (a) $2.5 million;
or (b) 75% of the Carrying Value of the
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Position (See
Section 3.2 of
this Agreement) Investment Position (except that the maximum draw
for Investment Positions that constitute "margin
stock", as defined in Regulation G of the Board of
Governors of the Federal Reserve System, shall be
the maximum amount that the Lender is then
permitted under such Regulation to advance, but in
no event more than 75% of the Carrying Value Of
the Investment Position).
Availability At no time shall the outstanding balance of the
Loan exceed the lesser of: (a) the Loan Maximum;
or (b) 70% of the Value of the Borrower's
Investment Portfolio. The availability of Loan
advances is also subject to the limitations set
forth in Section 11 of this Agreement.
Payments Accrued interest on the Combined Balance of the
Loan shall be calculated by the Borrower at the
Payment Rate as of each March 1, June 1, September
1, and December 1 for the preceding quarter (each
such date is referred to as an "Interest
Calculation Date"). Within ten (10) Business Days
after each Interest Calculation Date, the Borrower
shall pay to the Lender the amount calculated in
good faith by the Borrower to be the accrued
interest at the Payment Rate on the Combined
Balance of the Loan as of the most recent Interest
Calculation Date, and with such payment the
Borrower shall deliver to the Lender the
Borrower's written calculation of the amount of
such payment and the amount of the Unused Fee due
in accordance with the paragraph of this Section
3.1 captioned "Unused Fee", below. If the Lender
disagrees with any of the Borrower's calculations,
the Borrower shall pay any additional interest or
fee that the Lender determines to be due within
ten (10) days after receipt of the Lender's
written determination of the additional amount
due.
In addition to such quarterly payments of interest
at the Payment Rate, the following payments shall
be made upon the Sale or Liquidation of an
Investment Position: (a) an amount equal to the
principal amount advanced by the Lender to fund
the Acquisition Cost of the Investment Position
that is the subject of the Sale or Liquidation,
which shall be applied, in the case of repayment
of a Premium Rate Advance, toward reduction of the
Premium Rate Balance of the Loan, and in the case
of repayment of a Standard Rate Advance, toward
reduction of the Standard Rate Balance of the
Loan; plus (b)
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in the case of repayment of a Premium Rate
Advance, an amount equal to the difference between
the Premium Accrual Rate and the Payment Rate,
computed on the amount of the principal repayment,
and in the case of repayment of a Standard Rate
Advance, an amount equal to the difference between
the Standard Accrual Rate and the Payment Rate,
computed on the amount of the principal repayment.
The sum of the payments required by this paragraph
and the payments, if any, required under the
paragraph of this Section 3.1 captioned "Cash
Collateral Account", below, is referred to in this
Agreement as the "Required Release Price".
The Combined Balance of the Loan shall be reduced
to not more than $25 million on the fifth (5th)
anniversary of the first Funding Date.
The principal amount of all Pre-Funding
Acquisition Advances shall be repaid within ten
(10) Business Days after the end of the quarter in
which the Borrower abandons its intention to make
the potential acquisition(s) with respect to which
such Pre-Funding Acquisition Advances were
incurred.
On the Maturity Date, the Premium Rate Balance of
the Loan then outstanding, together all accrued
and unpaid interest thereon, and the Standard Rate
Balance of the Loan then outstanding, together
with all accrued and unpaid interest thereon,
shall be due and payable in full.
Maturity Date The earlier of: (a) the seventh (7th) anniversary
of the first Funding Date; (b) September 30, 2005;
or (c) the date upon which the Lender duly
accelerates the due date of all unpaid principal
and interest owed by the Borrower to the Lender.
Cash Collateral
Account If the aggregate principal amount deposited by the
Borrower into the Cash Collateral Account is not
equal to at least ten percent (10%) of the
Combined Balance of the Loan outstanding after a
repayment of principal has been made, the Borrower
shall use the proceeds of Sale or Liquidation of
an Investment Position first to make the payments
required under the paragraph of this Section
captioned "Payments", above, in the order of
priority set forth therein, then to payment of the
federal, state and municipal income tax liability
of the ultimate beneficial owners for income tax
purposes (taking
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into account all tiering arrangements) arising in
connection with the Sale or Liquidation of, or
other distribution from, an Investment Position,
and then to bringing the principal balance of the
Cash Collateral Account to an amount equal to ten
percent (10%) of the Combined Balance of the Loan
outstanding, after such principal reduction.
Interest Rate As set forth in Section 4 of this Agreement.
Unused Fee The Borrower shall pay the Lender a quarterly fee
in an amount equal to twenty-five percent (25%) of
the product obtained by multiplying (a) one-eighth
(1/8) of one (1) percent (i.e., 12-1/2 basis
points) by (b) the amount by which $30 million
($25 million on and after the fifth (5th)
anniversary of the first Funding Date) exceeds the
average outstanding principal balance of the Loan
during the three (3) month period beginning
December 1, 1998, and ending February 28, 1999,
and each successive quarter thereafter until the
Lender is no longer obligated to make advances of
the Loan pursuant to this Agreement. For the
period beginning on the date of this Agreement and
ending November 30, 1998, and for any other period
of less than three (3) full calendar months (each
such period is referred to as a "Stub Period"),
the Borrower shall pay the Lender a fee in an
amount equal to (a) the product obtained by
multiplying one-eighth (1/8) of one (1) percentage
point (i.e., 12-1/2 basis points) by the amount by
which $30 million ($25 million on and after the
fifth (5th) anniversary of the first Funding Date)
exceeds the average outstanding principal balance
of the Loan during the relevant Stub Period
multiplied by (b) a fraction, the numerator of
which shall be equal to the number of days in the
relevant Stub Period and the denominator of which
shall be 365. The Borrower shall calculate and pay
the amount required by this paragraph
simultaneously with making the calculation and
payment of accrued interest at the Payment Rate
required under the paragraph of this Section 3.1
captioned "Payments", above.
Disagreements If the Lender and the Borrower cannot resolve any
disagreements that may arise between them
concerning the calculation of the amount of any
payment required to be made by the Borrower to the
Lender pursuant to this Agreement, they shall
submit the unresolved question(s) to their
respective
- 14 -
outside independent certified public accountants
for resolution. If such accountants fail to reach
agreement within 45 days after the question(s)
have been submitted to them for resolution, the
accountants shall select a third certified public
accounting firm, having no prior relationship to
the Lender or the Borrower, to resolve the
question(s). The determination of such third
accounting firm shall be final and binding upon
the Lender and the Borrower, and judgment may be
rendered on such determination by a court of
competent jurisdiction. If, within 15 days after
the independent accounting firms for the Lender
and the Borrower have reached impasse on the
unresolved question(s), they cannot agree on a
third accounting firm to which the unresolved
question(s) shall be submitted, the Lender and the
Borrower shall be free to take such action as may
be available at law or in equity, including but
not limited to seeking a declaratory judgment.
Draw Fee Concurrently with each advance of the Loan
proceeds, the Borrower shall pay the Lender a draw
fee in an amount equal to one percent (1%) of the
principal amount of the advance requested in the
Notice of Requested Borrowing. The Lender is
irrevocably authorized to add the draw fee to the
principal amount of the Borrower's indebtedness to
the Lender under this Agreement, and to retain the
draw fee for the Lender's account, at the time the
Lender makes any advance of the Loan proceeds to
the Borrower in accordance with this Agreement.
Purpose Subject to the provisions of this Agreement, to:
(a) fund up to ninety-eight percent (98%) of the
Acquisition Cost of each Investment Position
acquired by the Borrower; (b) pay accrued interest
at the Payment Rate on that portion of the
Combined Balance of the Loan that constitutes the
Premium Rate Balance of the Loan; (c) pay the
Unused Fee in accordance with the paragraph of
this Section 3.1 captioned "Unused Fee", above,
(d) pay the Draw Fee in accordance with the
provisions of this Section 3.1 captioned "Draw
Fee" above, and (e) pay Pre-Funding Acquisition
Costs in accordance with the provisions of Section
11.3 of this Agreement.
3.2 In determining the Maximum Draw per Investment Position, the following
Investments Positions shall be aggregated and treated as one: (a) all Investment
Positions in the
- 15 -
same legal entity; and (b) concurrent Investment Positions in the same parcel of
real estate or item of personal property, or in parcels of real estate that are
contiguous to a parcel of real estate in which the Borrower holds an Investment
Position.
3.3 Subject to the terms and conditions of this Agreement and the other
Loan Documents, the Lender shall be obligated from time to time to make advances
of the Loan to the Borrower subject to and in accordance with the terms and
conditions contained in this Agreement and all of the other Loan Documents.
3.4 The Borrower may terminate this credit facility upon six months' prior
written notice to the Lender. Upon the expiration of six months after delivery
of such notice to the Lender: (a) the Lender shall have no further obligation to
make any further advances of Loan proceeds, and (b) the Borrower shall have no
further obligation to pay any portion of the Unused Fee (referred to in Section
3.1 above) thereafter accruing. If the outstanding principal balance of the Loan
is zero for a period of six consecutive months, or more, the Lender may, at its
option (exercisable by written notice to the Borrower), terminate this credit
facility, with such termination to be effective 15 days after the date of
delivery of such notice to the Borrower. Upon termination of this credit
facility by the Lender: (a) the Lender shall have no further obligation to make
any further advances of Loan proceeds, and 9b) the Borrower shall have no
further obligation to pay any portion of the Unused Fee (referred to in Section
3.1 above) thereafter accruing. Except as expressly provided in this Section,
termination of the credit facility by the Borrower or the Lender pursuant to
this Section shall not modify or otherwise affect the rights or obligations of
the parties under any of the Loan Documents as then in effect.
Section 4 - Interest Rate; Advance Procedures
4.1 Interest shall accrue at the rate of sixteen percent (16%) per year, at
simple interest (the "Premium Accrual Rate"), on that portion of the outstanding
principal balance of the Loan from time to time that constitutes: (a) a Premium
Rate Advance; or (b) an Interest Payment Advance; or (c) an Unused Fee Advance;
or (d) a Draw Fee Advance; or (e) a Pre-Funding Acquisition Advance (that
portion of the Combined Balance of the Loan with respect to which the Premium
Accrual Rate applies is referred to in this Agreement as the "Premium Rate
Balance of the Loan"). Interest shall accrue at the rate of fifteen percent
(15%) per year, at simple interest (the "Standard Accrual Rate"), on the
remainder of the outstanding principal balance of the Loan from time to time
(the "Standard Rate Balance of the Loan"). Accrued interest on the Combined
Balance of the Loan shall be paid quarterly at the rate of nine percent (9%) per
year, at simple interest (the "Payment Rate"), in accordance with the provisions
of Section 3.1 captioned "Payments", above.
4.2 Within ten (10) Business Days after the end of each quarter, beginning
with the quarter ended November 30, 1998 (or at such earlier time as may be
required in order to make the interest payment required upon Sale or Liquidation
of an Investment Position), the Borrower shall give the Lender written notice of
all Investment Positions acquired during the preceding
- 16 -
quarter that the Borrower does not expect to generate annual income of nine
percent (9%) or more prior to Sale or Liquidation (any such Investment Position
is referred to in this Agreement as a "Premium Rate Investment Position"). An
advance of Loan proceeds for the purpose of acquiring a Premium Rate Investment
Position is referred to in this Agreement as a "Premium Rate Advance". The
Borrower may request an advance of Loan proceeds for the purpose of paying
interest at the Payment Rate on that portion of the Combined Balance of the Loan
that constitutes the Premium Rate Balance of the Loan. An advance of Loan
proceeds for the purpose of paying interest at the Payment Rate on that portion
of the Combined Balance of the Loan that constitutes the Premium Rate Balance of
the Loan is referred to in this Agreement as an "Interest Payment Advance". An
advance of Loan proceeds for the purpose of acquiring an Investment Position
that the Borrower does not designate as a Premium Rate Investment Position is
referred to in this Agreement as a "Standard Rate Advance". The Borrower shall
have no right to advances of Loan proceeds for the purpose of paying interest at
the Payment Rate on that portion of the Combined Balance of the Loan that
Constitutes the Standard Rate Balance of the Loan. An advance of Loan proceeds
for the purpose of paying Pre-Funding Acquisition Costs is referred to in this
Agreement as a "Pre-Funding Acquisition Advance".
An advance of Loan proceeds for the purpose of paying the Draw Fee in accordance
with that paragraph of Section 3.1 above that is captioned "Draw Fee" is
referred to in this Agreement as a "Draw Fee Advance". An advance of Loan
proceeds for the purpose of paying the Unused Fee in accordance with that
paragraph of Section 3.1 above that is captioned "Unused Fee" is referred to in
this Agreement as an "Unused Fee Advance".
4.3 Within ten (10) Business Days after each March 1, the Borrower shall
have the right to reclassify any Investment Position previously designated as a
Premium Rate Investment Position to an Investment Position that is not a Premium
Rate Investment Position, and to designate any Investment Position not
previously designated as a Premium Rate Investment Position to a Premium Rate
Investment Position. No such reclassification shall be effective unless written
notice thereof is delivered to the Lender within the period specified in the
immediately preceding sentence, and such reclassification shall be deemed
effective as of the March 1 immediately preceding the Lender's receipt of notice
of the reclassification. Any notice of reclassification of an Investment
Position to an Investment Position that is not a Premium Rate Investment
Position shall be accompanied by copies of the Borrower's analysis of the basis
for such reclassification and the supporting documentation for such analysis.
4.4 Notwithstanding anything to the contrary contained in the Loan
Documents, following the Maturity Date: (a) the outstanding Premium Rate Balance
of the Loan shall bear interest at the rate of interest that is 300 basis points
above the Premium Accrual Rate; and (b) the Outstanding Standard Rate Balance of
the Loan shall bear interest at the rate of interest that is 300 basis points
above the Standard Accrual Rate.
4.5 Interest on advances shall be computed on the basis of a 365-day year
and the actual number of days elapsed in the period during which it accrues. In
computing interest on
- 17 -
any advance, the date of the making of the advance shall be included and the
date payment is received shall be excluded; provided that if an advance is
repaid on the same day on which it is made, one day's interest shall be paid on
that advance.
4.6 The Borrower shall give the Lender notice of its request for each Loan
advance (each a "Notice of Requested Borrowing") not later than 12:00 noon, Ann
Arbor, Michigan time, at least two (2) Business Days before the date upon which
such advance is requested to be made; provided, however, that in no event shall
the Lender be obligated to advance any Loan proceeds until the fifth (5th)
Business Day after the Lender's receipt of the Borrower's Due Diligence
Documents referred to in Section 4.7 of this Agreement and the Supplemental
Security Documents referred to in Section 4.8 of this Agreement. Subject to the
terms and conditions of this Agreement, the proceeds of each such requested
advance shall be made available to the Borrower by wire transfer of funds to the
Borrower's account specified in the Notice of Requested Borrowing.
4.7 Prior to the Borrower's acquisition of any Investment Position, the
Borrower shall deliver to the Lender complete copies of the following documents
and items (collectively the"Borrower's Due Diligence Documents"): (a) all
initial forms of offering documents, if any, that the Borrower proposes to use
in connection with its acquisition of the Investment Position;
(b)profiles/research reports, if any, with respect to the issuer of the
Investment Position; (c) financial analyses, including a written description of
the valuation assumptions, methods and procedures employed by the Borrower in
determining the Carrying Value of the Investment Position; (d) property
reports/photos, if any; (e) report on legal due diligence, if any; (f)
litigation memorandum, if any; (g) tax analysis, if any, with respect to the
Investment Position; (h) reports on Form 10-K, 10-Q and 8-K with respect to the
issuer of the Investment Position, to the extent available; and (i) any
partnership agreement, partnership certificate, operating agreement, articles of
organization, or other constituent documents for the issuer of the Investment
Position, if available. If the amount requested in the Notice of Requested
Borrowing is more than $500,000, the Lender shall have the right, for any reason
or no reason, to refuse to advance any Loan proceeds (regardless of whether the
Borrower subsequently reduces the amount of the requested Loan advance to
$500,000 or less), by giving the Borrower notice of the Lender's decision not to
advance Loan proceeds at any time prior to the expiration of four (4) Business
Days after the Lender's receipt of the Borrower's Due Diligence Documents. The
Lender also shall have the right, without regard to the amount requested in the
Notice of Requested Borrowing, to refuse to advance Loan proceeds to be used in
whole or in part to finance the acquisition of limited partnership interests or
membership interests in limited liability companies if, in the opinion of the
Lender's counsel, the constituent documents of the issuer of such interest
prohibit the granting of a security interest therein and in the economic
interest represented thereby.
4.8 Prior to the Borrower's use of Loan proceeds to fund any part of the
Acquisition Cost of an Investment Position that, in the opinion of Lender's
legal counsel, the then-existing security documents do not cover or do not cover
with legally sufficient specificity, the Borrower
- 18 -
shall deliver to the Lender such documents as the Lender may reasonably require
to create or perfect a valid first priority security interest in the Investment
Position to be acquired, or to continue or supplement an existing security
document or perfected security interest (collectively the "Supplemental Security
Documents"). The Supplemental Security Documents shall include, but shall not
necessarily be limited to, such new mortgages, deeds of trust, assignments of
rents, leases and profits, security agreements, pledge agreements, financing
statements and other security documents as the Lender may require to create and
perfect a valid first priority security interest in the Investment Position.
4.9 The Borrower may prepay any part of the principal balance of the Loan
at any time, without prior notice to the Lender and without prepayment penalty
or premium.
4.10 Subject to the terms and conditions of this Agreement, amounts
borrowed under the Loan may be repaid and re-borrowed.
4.11 Unless the Lender agrees in writing, the Borrower shall not acquire
any Investment Position: (a) in any real estate that is to the Borrower's
Knowledge Contaminated by, or that is the, site of, the disposal or release of
any Hazardous Substance, or that to the Borrower's Knowledge is the source of
any Contamination of any adjacent property or of any groundwater or surface
water; or that to the Borrower's Knowledge is the source of any air emissions in
excess of any legal limit now or hereafter in effect; or (b) in any item of
personal property that is Contaminated; or (c) in any legal entity that, to the
Borrower's Knowledge, owns any real estate having any of the characteristics
described in clause (a) of this Section 4.11, or any item of personal property
having any of the characteristics described in clause (b) of this Section 4.11.
Section 5 - Security and Release of Collateral
5.1 Without limiting the terms and conditions of any of the Loan Documents,
to secure payment of all obligations and indebtedness of the Borrower to the
Lender under this Agreement and all other indebtedness and obligations now and
hereafter owing by the Borrower to the Lender, the Borrower shall execute and
deliver to the Lender (or, in the case of documents to be executed and delivered
by others, shall cause such documents to be executed and delivered to the
Lender):
(a) a promissory note, substantially in the form of Exhibit A;
(b) security agreement(s), substantially in the form of Exhibit B,
granting to the Lender valid first priority security interests in all
assets of the Borrower and of Madison Liquidity Investors 104, and all
additions thereto and substitutions, increments, proceeds and products
thereof;
(c) pledge agreement(s), substantially in the form of Exhibit C,
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granting to the Lender a valid first priority security interest in
100% of the Borrower's outstanding equity interests;
(d) a pledge agreement, substantially in the form of Exhibit D, granting
to the Lender a valid first priority security interest in all cash and
cash equivalents now or hereafter on deposit in the Cash Collateral
Account;
(e) a pledge agreement, substantially in the form of Exhibit E, granting
to the Lender a valid first priority security interest in all
certificated securities now or hereafter on deposit in the Securities
Collateral Account;
(f) within 45 days after the date of this Agreement, an account control
agreement(s), substantially in the form of Exhibit F, granting to the
Lender control over the Securities Collateral Account and the Cash
Collateral Account;
(g) a cross-default agreement, substantially in the form of Exhibit G;
(h) within 45 days after the date of this Agreement, an assignment of a
policy of life insurance on the life of Bryan E. Gordon in the amount
of $2.5 million (such life insurance policy shall be acceptable in
form and substance to the Lender and shall be issued by Sun Life of
Canada or another life insurance company approved by the Lender, which
approval shall not be unreasonably withheld);
(i) within 45 days after the date of this Agreement, an assignment of a
policy of life insurance on the life of Ronald M. Dickerman in the
amount of $2.5 million (such life insurance policy shall be acceptable
in form and substance to the Lender and shall be issued by John
Hancock Mutual Insurance Company or another life insurance company
approved by the Lender, which approval shall not be unreasonably
withheld);
(j) the Guarantee;
(k) all financing statements, assignments, document of title, and other
documents, agreements, and instruments as the Lender may reasonably
request in connection with the creation, perfection and priority of
any security described above; and
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(l) all of the Supplemental Security Documents.
5.2 All Investment Positions which, in the opinion of Counsel for the
Lender, constitute certificated securities (as defined by UCC Section 8 in
effect in the state of organization of the issuer) shall be deposited and
maintained in the Securities Collateral Account and shall be released therefrom
only upon arrangement for payment to the Collateral Agent, for the benefit of
the Lender, of the Required Release Price. The Required Release Price shall be
calculated by the Borrower, in accordance with the applicable provisions of this
Agreement, at the time the Borrower submits a Request for Release of Collateral
to the Collateral Agent. Upon receipt by the Collateral Agent of a Request for
Release of Collateral, the Collateral Agent shall forward a copy thereof, by
facsimile and U. S. mail, and by a nationally recognized overnight courier
service (such as Federal Express, UPS, Purolator, or the like) to the Lender for
delivery on the next Business Day. The Collateral Agent shall be authorized to
release the Collateral described in the Request for Release of Collateral upon
receipt of evidence of arrangement for payment of funds to the Collateral Agent,
for the account of the Lender, in the amount of the Required Release Price
specified in the Request for Release of Collateral. The Collateral Agent shall,
immediately upon receipt thereof, remit to the Lender all sums tendered to the
Collateral Agent by the Borrower by wire transfer of collected funds to the
account specified by written notice from Lender to Collateral Agent. The
Borrower shall not be entitled to the release of any Collateral from the
Securities Collateral Account any time after the Lender declares, by written
notice to the Collateral Agent and the Borrower, the existence of an Event of
Default.
5.3 All documents evidencing or otherwise relating to Investment Positions
other than certificated securities shall be held by the Borrower until the
Lender makes written demand therefor following the occurrence of an Event of
Default; subject, however, to a perfected first security interest therein in
favor of the Lender. Except as otherwise provided in this Agreement, the
Borrower shall be entitled to sell or otherwise dispose of any such Investment
Position only upon (a) delivery to the Lender of a Request for Release of
Collateral, which shall include the Borrower's calculation of the Required
Release Price therefor, determined by the Borrower in accordance with the
applicable provisions of this Agreement, and (b) arrangement for payment to the
Lender, by wire transfer of collected funds to an account specified by the
Lender, of the Required Release Price specified in the Request for Release of
Collateral or such other amount the Lender may determine to be required by this
Agreement. The Borrower shall not be entitled to release of any Collateral in
its possession at any time after the Lender declares, by written notice to the
Borrower, the existence of an Event of Default.
5.4 The Borrower shall request a release and discharge of the Lender's
security interest in Investment Positions which, in the opinion of counsel for
the Lender, constitute direct interests in real property or tangible personal
property by (a) delivering to the Lender a Request for Release of Collateral,
which shall include the Borrower's calculation of the Required Release Price
therefor, determined by the Borrower in accordance with the applicable
provisions of this Agreement, and (b) tendering payment to the Lender, by wire
transfer of collected funds to an
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account specified by the Lender, of the Required Release Price specified in the
Request for Release of Collateral or such other amount as the Lender may
determine to be required by this Agreement. The Lender shall be obligated to
release and discharge its security interest in any Collateral of the type
described in this Section 5.4 on the fifth (5th) Business Day after its receipt
of the Request for Release of Collateral (provided the Lender has then received
the Required Release Price and the Lender has not then declared, by written
notice to the Borrower, the existence of an Event of Default).
5.5 Upon Sale or Liquidation of each Investment Position, the Borrower
shall apply the proceeds of Sale or Liquidation first to making the payments
required under the paragraph of Section 3.1 captioned "Payments", above. The
Borrower thereafter shall be entitled to deduct from the remaining proceeds of
Sale or Liquidation the amount required to pay the Federal, State and Municipal
income tax liability of the ultimate beneficial owners for income tax purposes
(taking into account all tiering arrangements) of the Borrower arising in
connection with the Sale or Liquidation of or other distribution from an
Investment Position. The Borrower shall apply 100% of the balance of the
proceeds of Sale or Liquidation to funding the Cash Collateral Account until
such time as the principal amount on deposit therein is equal to ten percent
(10%) of the Combined Balance of the Loan. The amount on deposit in such Cash
Collateral Account shall be invested in such Permitted Investments as may be
designated by the Borrower. All amounts in excess of ten percent (10%) of the
Combined Balance of the Loan may be paid out by the Borrower at any time prior
to the Lender making a written demand on the Collateral Agent following the
occurrence of an Event of Default. The Borrower shall be entitled to all
interest earnings on such funds unless and until the Lender makes written demand
therefor on the Collateral Agent following the occurrence of an Event of
Default.
5.6 The proceeds of the policies of the life insurance policies referred to
in Sections 5.1(e) and 5.1(f) above shall, upon receipt by the Lender, be
applied toward reduction of the Combined Balance of the Loan, with application
first to the Premium Rate Balance and then to the Standard Rate Balance. Any
remaining proceeds after such application shall be promptly remitted to the
Borrower.
5.7 To further secure payment of the Loan and all of the Borrower's
liabilities and obligations to the Lender, the Borrower grants to the Lender a
continuing security interest in any and all securities and other property of the
Borrower in the custody, possession or control of the Lender. The Lender shall
have the right at any time after an Event of Default to apply its own debt or
liability to the Borrower in whole or partial payment of the Loan and any other
present or future indebtedness of the Borrower to the Lender, without any
requirement of mutual maturity.
5.8 Any of the Borrower's other property in which the Lender has a security
interest to secure payment of any other debt, whether absolute, contingent,
direct or indirect, including the Borrower's guaranties of the debts of others,
shall also secure payment of and be part of the collateral for the Loan and any
other present or future indebtedness of the Borrower to the
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Lender (whether or not arising under this Agreement).
Section 6 - Affirmative Covenants
Beginning on the date of this Agreement and continuing until the Lender has
no further obligation to make advances of the Loan to the Borrower pursuant to
this Agreement and the Loan and all other indebtedness of the Borrower to the
Lender has been repaid in full, the Borrower shall:
6.1 Furnish to the Lender:
(a) within 120 days after the end of each of the Borrower's fiscal years,
beginning with its fiscal year ending December 1, 1998, an audited
financial report prepared in accordance with GAAP by Sax, Macy, Fromm
& Co. or replacement independent certified public accountants
satisfactory to the Lender, containing the Borrower's balance sheet as
of the end of that year, its related profit and loss, and a statement
of shareholder's equity for that year, its statement of cash flows for
that year, together, with any management letter prepared by those
certified public accountants, and such comments and financial details
as are customarily included in reports of like character and the
unqualified opinion of the certified public accountants as to the
fairness of the statements therein and together with such written
assurances as the Lender may reasonably request from the Borrower's
independent certified public accountants to confirm the Lender's
entitlement to rely upon such audited financial report and
accompanying materials;
(b) within 45 days after the end of each calendar quarter, beginning with
the calendar quarter ended December 31, 1998, a written report
summarizing all acquisitions of Investment Positions by the Borrower
for the preceding quarter and the results of the Sale or Liquidation
of each Investment Position for the preceding quarter;
(c) within 5 days after the end of each week, a written report summarizing
all Investment Positions that the Borrower acquired or offered to
acquire during the preceding week, and the status of all then
outstanding offers by the Borrower to acquire Investment Positions,
whether such offers were made in the preceding week or earlier;
(d) such other information, books, and records the Lender may reasonably
request, in such form and at such time and place as the Lender may
reasonably request, concerning the Borrower's activities and plans
that are prepared by or for the Borrower in the Ordinary Course; and
- 23 -
(e) within 120 days after the end of each of the Borrower's fiscal years,
an update of the Borrower's estimated value of each Investment
Position then owned, taking into account all relevant realized events
that occurred during the preceding year.
6.2 Promptly in form the Lender of the occurrence of any Event of Default,
or of any occurrence that, with the giving of notice or the lapse of time, or
both, would be an Event of Default, and of any other occurrence which has a
Material Adverse Effect; grant to the Lender or its representatives the right to
examine the Borrower's books and records and the Collateral at any reasonable
time or times on reasonable notice; maintain complete and accurate books and
records of its transactions in accordance with good accounting practices; and
furnish to the Lender any information that it may reasonably request concerning
the Borrower's financial affairs that is prepared by or for the Borrower in the
Ordinary Course within 10 business days after receipt of a request for that
information.
6.3 Maintain insurance, including, but not limited to, fire and extended
coverage in insurance, workers' compensation insurance, and casualty and
liability insurance with responsible insurance companies on such of its
properties and against such risks and in such amounts as is customarily
maintained by similar businesses; furnish to the Lender upon its request the
details with respect to that insurance and satisfactory evidence of that
insurance coverage. Each insurance policy required under this Section 6.3 shall
be, to the extent practicable, written or endorsed so as to make losses, if any,
payable to the Borrower and the Lender as their respective interests may appear,
and shall include, where appropriate, a mortgage clause or endorsement in favor
of the Lender in form and substance satisfactory to the Lender.
6.4 Pay and discharge, as often as the same may become due and payable, all
taxes, assessments and other governmental monetary obligations, of whatever
nature, that may be levied or assessed against it or any of its properties,
unless and to the extent only that in a jurisdiction where payment of taxes and
assessments is abated during the period of any contest, those taxes or
assessments shall be contested in good faith by appropriate proceedings and that
the Borrower shall have set aside on its books adequate reserves with respect to
those taxes and assessments.
6.5 Pay and perform at the time such payment or performance is due, all
indebtedness and obligations owing by it, and pay all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable, except any indebtedness, obligation or claim being
contested in good faith by appropriate proceedings and for which the Borrower
shall have set aside on its books adequate reserves with respect to such
indebtedness, obligation or claim.
6.6 Maintain its existence as a limited liability company in good standing
in the State of Delaware and its qualification in good standing in every other
jurisdiction in which the failure to be so qualified or authorized to do
business would have a Material Adverse Effect; continue
- 24 -
to conduct and operate its business substantially as contemplated to be
conducted and operated and as MACG has conducted and operated its business in
the past; and comply with all governmental laws, rules, regulations, and orders
applicable to it, the failure to comply with which would or may have a Material
Adverse Effect.
6.7 Act prudently and in accordance with customary industry standards in
managing or operating its assets, properties, business, and investments; and
keep in good working order and condition, ordinary wear and tear excepted, all
of its assets and properties that are necessary to the conduct of its business.
6.8 Notify the Lender in writing within 30 days after receipt whenever the
Borrower receives written notice of (a) the commencement or threatened
commencement of formal proceedings or any investigation by a federal or state
environmental agency against the Borrower, or any property owned by the
Borrower, or by any entity in which the Borrower holds an Investment Position,
or regarding compliance by the Borrower with Environmental Laws, or (b) any
other judicial or administrative proceeding or litigation commenced against the
Borrower, except those occurring in the Ordinary Course that would not have a
Material Adverse Effect. The Borrower shall, promptly upon request, deliver to
the Lender copies of such pleadings, documents and other information concerning
such pending or threatened claim or proceeding as the Lender may reasonably
request.
6.9 Promptly provide to the Lender copies of any correspondence received by
the Borrower or an Affiliate from any governmental authority regarding any
alleged violation of law by the Borrower or any Affiliate that could have a
Material Adverse Effect.
6.10 Comply with all applicable laws, including but not limited to federal
and state securities laws, applicable to the Borrower's acquisition, or offer to
acquire, an Investment Position, and to furnish to the Lender, promptly upon
written request, the Borrower's due diligence legal review with respect to such
Investment Position.
6.11 At all times preserve, renew and keep in full force and effect the
rights, licenses, permits, franchises, agency agreements, trade names, patents,
trademarks, copyrights, licenses and service marks, the loss of which could have
a Material Adverse Effect.
6.12 Permit representatives of the Lender, on reasonable notice, during the
Borrower's normal business hours, to enter the Borrower's premises, review the
Borrower's business records, and interview the Borrower's employees as
reasonably required by the Lender to conduct periodic audits of the Borrower's
business and the Borrower's compliance with its obligations under this
Agreement.
6.13 Refer to the Lender any opportunities to purchase or otherwise acquire
nursing home facilities, assisted living facilities and the like of which the
Borrower or its Affiliates acquire knowledge; it being further agreed that the
Lender will, to the extent it is permitted to do
- 25 -
so by the terms of the Opportunity Agreement dated April 2, 1998 with Omega
Worldwide, Inc., refer to the Borrower all opportunities to acquire interests in
limited partnerships, limited liability companies and other limited liability
vehicles, or to acquire at discount future income streams, of which Lender
acquires knowledge. Neither party shall be required by this Section to divulge
information that it acquired in confidence, and any information that may be
furnished to a party pursuant to this Section shall be furnished without any
representation or warranty whatever. Neither party shall be liable to the other
for money damages for breach of this Section 6.14, or for any loss, cost or
damage incurred by a party as a result of its acts or omissions in response to
information furnished pursuant to this Section 6.14.
6.14 Cooperate with Lender by all reasonable means to do such things as the
Lender may reasonably request in writing to preserve the Lender's status as a
"real estate investment trust" under the IRC, including but not limited to
divesting one or more Investment Positions in which the Lender holds a security
interest if, in the written opinion of outside counsel to the Lender, it is more
probable than not that retention by the Lender of such security interest, or
ownership of such Investment Position(s) following foreclosure or other
realization upon such security interest, would jeopardize the Lender's status as
a "real estate investment trust" under the IRC if such issue were to be raised
in an administrative or judicial proceeding. Payment of the Required Release
Price shall be made after the Lender makes written demand upon the Borrower and
delivers to the Borrower, wine such written demand, a copy or written summary of
the opinion of the Lender's said outside counsel upon which the demand is based,
within thirty (30) days after the effective date of the divestiture.
6.15 In order to preserve and ensure the Borrower's separate and distinct
identity:
(a) establish and maintain a post office address that is separate and
apart from that of any Affiliate;
(b) maintain separate records and books of account from those of any
Affiliate;
(c) not commingle assets, funds or accounts with those of any Affiliate
(except that the Borrower may, without breaching this Section 6.15(c),
periodically deposit funds of the Borrower and its Affiliates with a
service agent to enable such agent to remit such funds, on behalf of
the Borrower and its Affiliates, to employees and independent
contractors of the Borrower and its Affiliates or to investors from
whom the Borrower or its Affiliates buy Investment Positions);
(d) conduct its own business in its own name (except that the Borrower
may, without breaching this Section 6.15(d), make offers to acquire
Investment Positions, and may consummate
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acquisitions of Investments Positions, for its own account through and
in the name of its wholly-owned subsidiary, Madison Liquidity
Investors 104 or, upon the expiration of not less than 10 Business
Days after delivering such supplemental security documents and
financing statements as the Lender may require, in the name of any
other majority owned subsidiary of the Borrower;
(e) maintain financial statements separate from any Affiliate;
(f) pay any liabilities out of its own funds, including salaries of any
employees (except as otherwise permitted in Section 6.16(c) above);
(g) Maintain relationships with its Affiliates that are not inequitable as
to the Lender or other third-parties who are justifiably relying upon
the separateness of the Borrower from its Affiliates;
(h) Not guarantee or become obligated for the debts of any other entity,
including any Affiliate, except for the endorsement of negotiable
instruments for deposit or collection in the Ordinary Course, or hold
out its credit as being available to satisfy the obligations of
others;
(i) Use stationery, invoices and checks separate from any Affiliate;
(j) Not pledge its assets for the benefit of any other entity, including
any Affiliate; and
(k) At all times have a class of managers whose unanimous vote will be
required to approve the filing of a petition in bankruptcy, an
assignment for the benefit of creditors or any similar federal or
state authorized procedure for debt or relief, of which at least one
manager may be designated by the Lender at anytime.
Section 7 - Negative Covenants
Beginning on the date of this Agreement and continuing until the Lender has
no further obligation to make advances of the Loan to the Borrower pursuant to
this Agreement and the Loan and all other indebtedness of the Borrower to the
Lender has been repaid in full, the Borrower shall not, without the prior
written consent of the Lender:
7.1 Create or permit to exist any lien, mortgage, pledge, attachment,
garnishment, execution, or other legal process, or encumbrance on any of the
Collateral, except Permitted
- 27 -
Liens.
7.2 Guarantee, endorse, assume, or otherwise incur or suffer to exist any
contingent liability in respect of, any obligation of any other person, firm, or
corporation, except by the endorsement of negotiable instruments for deposit or
collection in the Ordinary Course.
7.3 Purchase or otherwise acquire all, or substantially all, of the assets,
obligations, or capital stock or equity interests in any other person or legal
entity.
7.4 Purchase, retire, redeem, or otherwise acquire any of its outstanding
equity interests or declare or pay dividends or make any other distribution of
its assets, by reduction of capital or otherwise, other than (a) as permitted by
Section 5.5 and (b) in connection with the organization of subsidiaries or other
affiliates to facilitate the operation of its business.
7.5 Subordinate any indebtedness owing to the Borrower by any person, firm,
or corporation to indebtedness of that person, firm, or corporation owing to any
other person, firm, or corporation.
7.6 Engage, directly or indirectly, in any line of business other than the
acquisition of Investment Positions.
7.7 Issue, incur, assume, or permit to remain outstanding any Indebtedness,
other than Indebtedness owing to the Lender.
7.8 Change its fiscal year or method of accounting except as required by
GAAP.
7.9 Change its name or the name of Madison Liquidity Investors 104 without
prior written approval from the Lender; except that the Borrower may change its
name or the name of Madison Liquidity Investors 104 if the Borrower has given 60
days' prior written notice of the name change and has taken such action as the
Lender deems necessary to continue the perfection of the security interests and
liens granted to the Lender under the Loan Documents.
7.10 Establish, maintain or participate in an employee benefit pension plan
with respect to which the Borrower is an "employer" or "party in interest", as
those terms are defined in ERISA.
7.11 Name or otherwise identify the Lender in any documents used by the
Borrower in connection with its acquisition of any Investment Positions, or in
connection with any offer to acquire any Investment Positions.
7.12 Use Loan proceeds to acquire any "margin stock", within the meaning of
Regulation G of the Board of Governors of the Federal Reserve System, without
prior written notice to the Lender.
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Section 8 - Application of Proceeds
The proceeds of the Loan shall be used by the Borrower solely for the
purpose set forth in Section 3, and for no other purpose.
Section 9 - Events of Default and Remedies
9.1 The following events shall constitute an "Event of Default" under this
Agreement, the occurrence of which shall entitle the Lender to pursue any and
all rights and remedies, legal and equitable, available to it under any Loan
Document or otherwise. The Occurrence of an Event Default under this Agreement
shall constitute a default under each and every other Loan Document. The
Lender's rights and remedies are cumulative and may be exercised concurrently or
successively from time to time. Any action by the Lender against any property or
party shall not serve to release or discharge any other security, property or
party in connection with this transaction. The Events of Default are as follows:
(a) Failure to pay the principal or interest on the Borrower's present or
future indebtedness to the Lender, whether or not arising pursuant to
this Agreement, when and as the same shall be due and payable, whether
by acceleration or otherwise; provided that such default has not been
cured prior to the expiration of ten (10) days following the date upon
which the Lender gives the Borrower written Notice of Default. In this
Section 9, Notice of Default shall be deemed to have been given (i) on
the date of personal delivery of such written notice to a Guarantor,
or (ii) on the date on which a duly authorized representative of the
Borrower acknowledges receipt of such written notice, or (iii) on the
day after sending such written notice to the Borrower by a commonly
recognized overnight courier service, such as Federal Express,
Purolator, UPS or the like, or (iv) on the third day after sending
such written notice to the Borrower by facsimile (to both numbers set
forth in Section 16.7) or by depositing the same in the United States
mail, postage prepaid, for delivery to the Borrower.
(b) Failure to observe, perform and comply with any of the obligations
evidenced or secured by a Loan Document, other than as provided in
Sections 9.1(a) above; provided that such default has not been cured
prior to the expiration of thirty (30) days following the date upon
which the Lender gives the Borrower written Notice of Default.
(c) Failure to duly and punctually pay, observe and discharge all
Indebtedness and other obligations of the Borrower to any third party,
unless the same is being contested in good faith by appropriate
proceedings and the Borrower has set aside on its books adequate
- 29 -
reserves with respect to such Indebtedness or other obligations.
(d) The discovery by the Lender of any material inaccuracy in any
statement, assurance, representation, covenant, warranty, term or
condition by the Borrower contained in this Agreement or in any
document delivered or to be delivered by or on behalf of the Borrower
pursuant to this Agreement, which inaccuracy would result in a
Material Adverse Effect (except that inaccuracies in the Borrower's
Due Diligence Documents attributable to the fault or neglect of
third-parties shall not constitute a breach of this Section 9.1(d)),
or in any other Loan Document, or in any other agreement between the
Borrower and the Lender.
(e) The filing of a petition by or against the Borrower or any Affiliate
seeking relief under the Federal Bankruptcy Code, 11 U.S.C. ss. 101,
et seq., and any amendments thereto, or any similar law or regulation,
whether federal, state or local, not dismissed within 30 days.
(f) The commencement of a proceeding by or against the Borrower or any
Affiliate under any statute or other law providing for an assignment
for the benefit of creditors, the appointment of a receiver, or any
other similar law or regulation, whether federal, state or local, not
dismissed within 30 days.
(g) The garnishment, attachment, levy or other similar action taken by or
on behalf of any creditor of the Borrower, any Affiliate, or any of
their respective properties which could have a Material Adverse
Effect.
(h) Any change in control of the Borrower, Madison Liquidity Investors
104, MACG from that disclosed in Section 2 of this Agreement.
9.2 The Lender may, at its option, terminate its obligation to make
advances of the Loan, without notice to the Borrower: (a) upon the occurrence
and continuance of any Event of Default set forth in subsections 9.1(a) through
9.1(h) above; or (b) upon the occurrence and continuance of any event which,
with the giving of notice or the lapse of time, or both, would constitute an
Event of Default or (C) upon the death or disability of Bryan E. Gordon.
9.3 Upon the occurrence and continuance of any Event of Default set forth
in subsections 9.1(a) through 9.1(h) above, the Lender shall have the right (a)
to declare all outstanding principal and accrued interest on the Loan, and on
any other indebtedness of the Borrower to the Lender (whether or not arising
under this Agreement) to be immediately due and payable, without presentment,
demand, or notice of any kind, all of which are hereby expressly waived by the
Borrower, and (b) to exercise any and all remedies that it may have for default
under any Loan Document or at law or in equity, and such remedies may be
exercised
- 30 -
concurrently or separately until all of the Borrower's indebtedness to the
Lender (whether or not arising under this Agreement) and each and every one of
the Borrower's obligations to the Lender (whether or not arising under the Loan
Documents) have been fully satisfied. In connection with the enforcement of any
such remedies of the Lender, the Lender and its employees, attorneys, agents,
and other persons and entities designated by the Lender, shall have the right,
without notice, to enter the Borrower's places of business for such purposes as
may be reasonably required to permit the Lender to preserve, protect, take
possession of and/or sell or otherwise dispose of any Collateral, and to store
the Collateral at the Borrower's places of business, without charge, for such
periods as may be determined by the Lender.
9.4 Upon the expiration of 180 days after the death or Disability of Bryan
E. Gordon, the Lender shall have the right to declare all outstanding principal
and accrued interest on the Loan, and on any other indebtedness of the Borrower
to the Lender (whether or not arising under this Agreement) to be immediately
due and payable, without presentment, demand, or notice of any kind, all of
which are hereby expressly waived by the Borrower, and the Lender thereafter
shall have all of the rights, and the Borrower shall have all of the
obligations, provided for in Section 9.3 above.
Section 10 - Conditions Precedent to Advances of the Loan
In addition to the other conditions Precedent to advances described in this
Agreement, each Loan advance requested under this Agreement shall be subject to
prior satisfaction of the following conditions:
10.1 The representations and warranties contained herein and in the other
Loan Documents shall be true, correct and accurate in all material respects on
and as of the Funding Date of such requested advance, except for those relating
to specific dates or time periods and as changed as permitted by this Agreement.
10.2 The Borrower shall have performed in all material respects all
agreements and satisfied all conditions that this Agreement and each of the
other Loan Documents provides shall be performed by the Borrower on or before
such Funding Date.
10.3 No order, judgment or decree of any court, arbitrator, or governmental
authority, shall purport to enjoin or restrain the Lender from making such an
advance.
10.4 There shall not be pending or, to the Borrower's Knowledge threatened:
(a) any action, suit, proceeding, governmental investigation or arbitration
against or affecting the Borrower or an Affiliate, or any property of the
Borrower or an Affiliate, that, in the opinion of the Lender, could reasonably
be expected to have a Material Adverse Effect upon the Borrower or an Affiliate;
and (b) there shall have occurred no development in any action, suit,
proceeding, governmental investigation or arbitration previously disclosed to
the Lender pursuant to this Agreement, that, in the opinion of the Lender, could
reasonably be expected to have a Material
- 31 -
Adverse Effect upon the Borrower or an Affiliate. No injunction or other
restraining order shall have been issued and no hearing to cause an injunction
or other restraining order shall be pending or noticed with respect to any
action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, this
Agreement or the making of the Loan hereunder.
10.5 Since the date of the most recent Borrower and Affiliate financial
statements submitted to the Lender, pursuant to Section 2.7, nothing shall have
occurred or become known which the Lender shall have determined has a Material
Adverse Effect upon the Borrower or an Affiliate.
10.6 The Lender shall have received a Notice of Requested Borrowing at the
time and in form required by Section 4.6 above. The furnishing by the Borrower
of a Notice of Requested Borrowing shall be deemed to constitute a
representation and warranty of the Borrower to the effect that all the
conditions set forth in this Agreement for the requested advance are satisfied
as of the date of delivery and will be satisfied on the applicable Funding Date.
Section 11 - Limitation on Loan Advances
11.1 Notwithstanding anything to the contrary contained herein or in any of
the other Loan Documents, the principal amount of the Loan that may be used by
the Borrower to make Non-Qualified REIT Investments shall not exceed 4.5% of the
Value of the Lender's Total Assets.
11.2 The Lender shall not be required to make any advance of the Loan
proceeds unless, simultaneously with the Lender making an advance of the Loan
proceeds, the Borrower pays cash in an amount equal to at least two percent (2%)
of Acquisition Cost of such Investment Position. The Borrower shall, upon
request by the Lender, demonstrate to the Lender that the Borrower has the
requisite cash available for and irrevocably committed to such purpose, and that
such cash was in fact so applied by the Borrower.
11.3 The Borrower expects from time to time to incur due diligence expenses
and other expenses in connection with its evaluation of potential Investment
Positions that the Borrower ultimately decides not to acquire (such costs are
referred to in this Agreement as "Pre-Funding Acquisition Costs"). The Borrower
shall be entitled to request advances of Loan proceeds to pay such Pre-Funding
Acquisition Costs provided that they do not exceed, as to any Investment
Position, $50,000 or 75% of the anticipated Carrying Cost of the Investment
Position, whichever is less.
Section 12 - Option to Restructure Investments
The Lender may apply to the IRS for a ruling as to whether "look-through
treatment"
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will be accorded Investment Positions acquired by the Borrower using proceeds of
the Loan. For purposes of this Agreement, "look-through treatment" would be
deemed to be so accorded if the IRS were to rule that, for purposes of
determining whether, as to the Lender, such Investment Positions constitute
"real estate assets" within the meaning of IRC Section 856(c)(5)(B) and Treasury
Regulation 1.856-3(g), the Lender will be deemed to be the owner of such
Investment Positions. If, within six months after the date of this Agreement,
the IRS rules that "look-through treatment" will not be accorded such Investment
Positions, or the Lender withdraws, under any circumstances, its application
prior to the issuance by the IRS of its ruling, the Lender and the Borrower
agree that it will be in their mutual interest to restructure the
debtor-creditor relationship established pursuant to this Agreement with respect
to the real estate portion of the Borrower's Investment Position portfolio as
necessary to convert the revenue stream to be derived by the Lender on account
of such Investment Positions from "interest income" to "rents from real
property" as defined in IRC Section 856(d)(i) for federal income tax purposes.
The Borrower shall use good faith efforts to assist the Lender in accomplishing
such objective within three months after being requested to do so in writing by
the Lender. All reasonable expenses incurred in connection with restructuring
the debtor-creditor relationship in the manner specified in this Section shall
be borne 50% by the Lender and 50% by the Borrower.
Section 13 - Acceptance of Proceeds
The acceptance of the proceeds of the Loan shall constitute the
representation and warranty by the Borrower to the Lender that all of the
applicable conditions specified herein have been satisfied as of that time,
except for such conditions that have been expressly waived in writing hereunder
by the Lender.
Section 14 - Confidentiality
14.1 The Borrower and the Lender acknowledge that in the course of the
business relationship reflected in this Agreement, the Borrower and/or its
Affiliates will or may disclose to the Lender proprietary or confidential
information ("Confidential Information"), including, without limitation, client
lists, business plans and strategies and the forms of documents employed by
Borrower or its Affiliates. (A party who discloses such Confidential Information
is referred to hereafter as a "Disclosing Party" and the party who receives such
information is referred to hereafter as a "Receiving Party".) A Receiving Party
shall not at any time during the term of the Loan Agreement or thereafter
disclose or use in any manner other than for a Permitted Use (as defined below)
any Confidential Information received by it, except to the extent required by a
court order or other legal process, in which event the Receiving Party shall
provide the Disclosing Party with timely notice of such order or process and
cooperate with the Disclosing Party (at the expense of the Disclosing Party) in
any attempts to stay or limit required disclosure. Except as described in the
definition of "Permitted Use" below, Confidential Information shall not include
(a) information (other than the form of documents employed by the Borrower
and/or its Affiliates) which is now, or subsequently becomes, in the public
- 33 -
domain, other than through a violation of the Receiving Party's obligations
hereunder, (b) information that was available to the Receiving Party on a
nonconfidential basis from a source other than the Disclosing Party prior to its
disclosure by the Disclosing Party, (c) information that becomes available to
the Receiving Party on a nonconfidential basis from a Source other than the
Disclosing Party, which source is not otherwise bound by a confidentiality
agreement, or other obligations of secrecy to, the Disclosing Party or (d)
information that was independently developed or discovered by the Receiving
Party.
14.2 The Disclosing Party shall be entitled to injunction and other
equitable relief without the necessity of posting a bond in the event of any
failure by a Receiving Party to comply with the provisions of this Section 14,
and to recovery from the Receiving Party of the Disclosing Party's reasonable
attorneys' fees and expenses incurred in obtaining such relief. A Receiving
Party shall indemnify the Disclosing Party and hold it harmless from and against
any and all loss, damage, liability, cost or expense (including reasonable
attorneys' and experts' fees) incurred by the Disclosing Party as a result of
the breach by such Receiving Party of any obligation under this Section 14. The
provisions of this Section 14.2 in respect of equitable relief shall in no way
be deemed to limit the remedies of a Disclosing Party.
14.3 "Permitted Use" of Confidential Information by a Receiving Party shall
be limited to the use of such information for the sole purpose of carrying out
its obligations, availing itself of its remedies and administering the loans
made pursuant to this Loan Agreement. Confidential Information may be disclosed
on a need to know basis to advisors to the Lender (including, without
limitation, Counsel and tax advisors), it being understood, however, that such
advisors shall be informed by the Lender of the confidential nature of the
Confidential Information and shall agree to be bound by the provisions of this
Section 14. The parties understand and agree that the Lender may be required to
file reports or respond to inquiries by regulatory agencies, which reports and
responses shall be deemed a Permitted Use, it being agreed, however, that every
effort will be made by Lender to limit the amount of Confidential Information
included in any such report or response and that Lender will include in any such
report or response only so much of the Confidential Information as Lender is
advised by written opinion of its outside counsel is required.
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Section 15 - Indemnification
15.1 The Lender shall indemnify and hold harmless the Borrower, Madison
Liquidity Investors 104, and any of their respective officers and employees,
members, managers or directors (each an "Indemnified Party" and collectively
"Indemnified Parties") from and against any and all loss, liability, claim and
expense arising under the federal or state securities laws and resulting
directly and solely from the Lender's failure to fund a Loan advance pursuant to
this Agreement if: (a) such failure to fund constitutes a breach by the Lender
of its obligations under this Agreement and (b) such breach continues for a
period in excess of five (5) Business Days after the date specified by the
Borrower as the date upon which the advance was to be made.
15.2 The Borrower shall indemnify and hold harmless the Lender and any of
its officers, employees, managers or directors (each an "Indemnified Party" and
collectively "Indemnified Parties") from and against any and all loss,
liability, claim and expense, arising as a result of a violation of the federal
or state securities laws in connection with an offer to acquire, or the
acquisition of, an Investment Position.
15.3 This indemnification shall apply to any Indemnified Party who is a
party or subject of any pending or completed action, suit or proceeding, whether
civil or administrative in circumstances governed by Section 15.1 or 15.2.
15.4 All reasonable expenses and costs of the Indemnified Parties
(including, without limitation, attorneys and experts fees) in defending,
investigating or appealing any action, suit or proceeding shall be paid by the
Lender, with respect to its obligations under Section 15.1, or the Borrower,
with respect to its obligations under Section 15.2 (in each case, the
"Indemnifying Party"), within ten (10) Business Days of submission by an
Indemnified Party of a request for such reimbursement, together with reasonable
substantiation of the expenses and costs involved. The Indemnifying Party shall
have the right to approve the Indemnified Parties' counsel and such counsel may,
at the option of the Indemnifying Party, represent more than one of the
Indemnified Parties so long as no conflict of interest exists which would
preclude such counsel from representing one or more of the Indemnified Parties.
In the event there is a good faith dispute between the Indemnified Parties and
the Indemnifying Party as to whether this Section 15 applies to such action,
suit or proceeding, the Indemnifying Party shall not be obligated to make any
advance for expenses and costs under this Section 15.4 pending a determination
by a court of competent jurisdiction of the applicability of this Section 15.
Any offer of settlement or compromise of a claim shall be promptly communicated
to the Indemnifying Party and shall not be accepted unless agreed upon in
writing by the Indemnified Parties and the Indemnifying Party. If the
Indemnified Party declines to accept a bona fide offer of settlement which is
recommended by the Indemnifying Party, the maximum liability of the Indemnifying
Party shall not exceed that amount which it would have been liable for had such
settlement been accepted. If the Indemnifying Party declines to accept a bona
fide offer of settlement recommended by the Indemnified Parties, the
Indemnifying Party shall be liable for whatever outcome results from such
third-party claim.
- 35 -
15.5 The indemnification and reimbursement of expenses and costs pursuant
to this Section 15 shall be the Indemnified Parties' exclusive remedy (a) with
respect to the Lender for matters covered by Section 15.1 and (b) with respect
to the Borrower for matters covered by Section 15.2.
Section 16 - Miscellaneous
16.1 The Borrower and the Lender shall, within 45 days after the date of
this Agreement, exchange a written accounting of the reasonable and customary
out-of-pocket costs each incurred in connection with the negotiation of the Loan
Documents and the closing of the Loan (the "Loan Documentation and Closing
Costs"). The Loan Documentation and Closing Costs incurred by the Lender shall
be added to the Loan Documentation and Closing Costs incurred by the Borrower,
and each party shall pay 50% of the grand total of the Loan Documentation and
Closing Costs. Any payment that one party is required to pay to the other to
equalize the Loan Documentation and Closing Costs borne by each shall be paid,
in cash, within 60 days after the date of this Agreement. Only those reasonable
and customary out-of-pocket costs properly appearing on the written accounting
referred to in the first sentence of this Section shall be allocated between the
parties pursuant to this Section; none of the costs referred to in Section 16.2
of this Agreement shall be allocated between the parties pursuant to this
Section 16.1.
16.2 The Borrower shall reimburse the Lender for all reasonable costs
(including but not limited to reasonable fees and expenses for appraisers,
attorneys, architects, accountants, brokers, copy services, court reporters,
engineers, expert witnesses, overnight couriers, recording fees and taxes, title
and lien searches, and surveyors) incurred by the Lender in: (a) creating and
perfecting a first priority security interest in the Collateral; (b) preserving
and protecting the Collateral; (c) enforcing any provision of any of the Loan
Documents; (d) collecting the Loan or any other present or future Indebtedness
of the Borrower to the Lender, whether or not arising under this Agreement; and
(e) foreclosing any lien or security interest in any of the Collateral, or in
taking action in lieu of foreclosure.
16.3 The Borrower acknowledges that the Lender shall have the right, upon
an Event of Default, or any event which with the giving of notice or lapse of
time, or both, would constitute an Event of Default, to set off any indebtedness
from time to time owing to the Borrower by the Lender against any indebtedness
that shall at any time be due and payable by the Borrower to the Lender.
16.4 Each and every right granted to the Lender hereunder or under any
other Loan Document, or allowed it by law or equity, shall be cumulative and may
be exercised from time to time. No failure on the part of the Lender to
exercise, and no delay in exercising, any right shall operate as a waiver
thereof or as a waiver of any other right. No single or partial exercise by the
Lender of any right or remedy shall preclude any other future exercise of it or
the exercise of any other right or remedy. No waiver or indulgence by the Lender
of any default shall be
- 36 -
effective unless in writing and signed by the Lender, nor shall a waiver on one
occasion be construed as a bar to or waiver of that right on any future
occasion. This Agreement may not be amended except by a writing signed by all
the parties hereto.
16.5 The relationship between the Borrower and the Lender is solely that of
borrower and lender. The Lender has no fiduciary responsibilities to the
Borrower as a result of this Loan Agreement, the other Loan Documents or the
consummation of the transactions contemplated hereby or thereby. The Lender does
not undertake any responsibility to the Borrower to review or inform the
Borrower of any matter in connection with any phase of the Borrower's business
or operations. The Borrower shall rely entirely upon its own judgment with
respect to its business, and any review, inspection, supervision, or information
supplied to the Borrower by the Lender is for the protection of the Lender and
neither the Borrower nor any third party is entitled to rely thereon. Neither
the Borrower nor the Guarantors have any fiduciary responsibility toward the
Lender as the result of this Loan Agreement, the other Loan Documents and the
consummation of the transactions contemplated hereby or thereby. Without
limiting the generality of the foregoing, neither the Borrower nor the
Guarantors is acting as an investment advisor, investment manager, financial
planner, financial consultant or supplier of financial services to the Lender,
within the meaning of any federal or state regulatory pattern or otherwise.
16.6 This Agreement is made in the State of Michigan. The validity of this
Agreement, and the validity of any documents incorporated herein or executed in
connection herewith, and the construction, interpretation and enforcement
thereof, and the rights of the parties thereto, shall be determined under and
construed in accordance with the internal laws of the State of Michigan, without
regard to principles of conflicts of law.
16.7 Any and all notices or other communications required or permitted
under this Agreement shall be in writing, and shall be served either personally
or by certified United States mail with postage thereon full prepaid addressed
to the Borrower as:
Madison/OHI Liquidity Investors, LLC
For Federal Express: 592 Fallen Leaf Way
Incline Village, NV 89451
For Regular Mail: P.O. Box 7461
Incline Village, Nevada 89452
Attention: Bryan E. Gordon, Managing Director
Fax Numbers: (702) 832-9027 and (212) 687-2335
with copies to each Guarantor at his address set forth in the Guarantee, or such
other place or places as a Guarantor shall designate by written notice served
upon the Lender and the Borrower.
- 37 -
and to the Lender as:
Omega Healthcare Investors, Inc.
900 Victors Way, Suite 350
Ann Arbor, MI 48108
Attention: F. Scott Kellman, Chief Operating Officer
or such other place or places as any party shall designate by written notice
served upon other parties.
16.8 this Agreement shall be binding upon and shall inure to the benefit of
the Borrower may and the Lender and their respective successors and assigns;
provided, however, that the Borrower may, with the prior written consent of the
Lender (which shall not be unreasonably withheld), assign its rights and
obligations under this Agreement to an entity that is controlled the Guarantors.
The Lender may condition its consent to any such assignment upon, among other
things: (a) payment by the Borrower of all reasonable costs incurred by the
Lender in connection with evaluating the Borrower's request and preparing the
documents required in the opinion of the Lender's counsel to document the
requested assignment; (b) requiring the assignee to assume and agree to observe
and perform all of the Borrower's obligations under this Agreement and the other
Loan Documents; (c) obtaining consents to such assignment, satisfactory in form
and substance to the Lender, from the Guarantors; and (d) obtaining such
amendments to or replacements of the Loan Documents, and the filing of
supplemental financing statements, as the Lender may reasonably request. The
Borrower shall not otherwise have any right to assign, transfer, hypothecate or
otherwise transfer or dispose of any of its rights or obligations under this
Agreement or the other Loan Documents (voluntarily, by operation of law, as
security, by gift or otherwise) without the Lender's consent, which consent may
be withheld in the sole discretion of the Lender. The Lender may, with the
consent of the Borrower (which consent shall not unreasonably be withheld),
assign, negotiate, pledge or otherwise hypothecate all or any portion of this
Agreement, or grant participations herein and in the Loan Documents, or in any
of its rights or security hereunder or thereunder, including, without
limitation, the instruments securing the Borrower's obligations hereunder;
provided, however, that the Lender promptly will inform the Borrower of any such
assignment, negotiation, pledge or other hypothecation and of the parties
involved therewith and, provided further, that no such assignment, negotiation,
pledge or other hypothecation by the Lender will relieve the Lender of its
obligation under this Agreement. In connection with any assignment or
participation, the Lender may disclose to the proposed assignee or participant
any information that the Borrower is required to deliver to the Lender pursuant
to this Agreement (including but not limited to Confidential Information, as
defined in Section 14.1 above).
16.9 The Borrower waives and releases any and all right that it may have to
require that the Lender marshal any of the Collateral. The Borrower shall upon
the request of the Lender promptly execute and deliver to the Lender a written
statement, in form and substance reasonably satisfactory to the Lender,
identifying all of the Collateral in which the Lender holds
- 38 -
an interest as security for the Loan made pursuant to this Agreement. The Lender
may file or record such written statements in the appropriate public records as
determined by the Lender in its sole and absolute discretion.
16.10 Should any part, term or provision of this Agreement, or of any
documents incorporated herein or executed in connection herewith, be determined
by the courts to be illegal, unenforceable or in conflict with any law of the
State of Michigan, federal law or any other applicable law, the validity and
enforceability of the remaining portions or provisions of such document(s) shall
not be affected thereby.
16.11 The Borrower shall execute any and all additional or supplemental
documentation as the Lender may reasonably require to give full effect to the
terms and conditions of this Agreement. The Borrower grants the Lender power of
attorney to execute (on behalf of the Borrower and Madison Liquidity Investors
104) and file financing statements and continuation statements provided,
however, that the Lender shall take no action for or on behalf of the Borrower
pursuant to this Section 16.11 unless the Borrower has failed or neglected to
take specific action within 10 days after being requested in writing by the
Lender. The power of attorney hereby granted by the Borrower to the Lender is
coupled with an interest and may be revoked only after the Lender is no longer
obligated to make advances of the Loan to the Borrower pursuant to this
Agreement and the Loan and all of the Borrower's other present or future
indebtedness, if any, to the Lender, has been fully repaid.
16.12 Time is of the essence with respect to all provisions of this
Agreement.
16.13 The headings in this Agreement have been inserted for convenience
only and shall not affect the meaning or interpretation of this Agreement.
16.14 This Agreement may be executed in one or more counterparts, each of
which shall be considered an original and all of which shall constitute the same
instrument.
16.15 This Agreement contains the entire agreement of the parties hereto
with respect to the subject matter hereof. The parties hereto shall not be bound
by any other different, additional or further agreements or understandings
except as consented to in writing by them.
16.16 The Recitals are incorporated into and form a part of this Agreement.
16.17 The Lender and the Borrower, after consulting or having had the
opportunity to consult with counsel, knowingly, voluntarily and intentionally
waive any right either of them may have to a trial by jury in any litigation
based upon or arising out of this Agreement or any related instrument or
agreement or any of the transactions contemplated by this Agreement or any
course of conduct, dealing, statements (whether oral or written), or actions of
either of them. Neither the Lender nor the Borrower shall seek to consolidate,
by counterclaim or otherwise, any such action in which a jury trial has been
waived with any other action in which a jury trial
- 39 -
cannot be or has not been waived. These provisions shall not be deemed to have
been modified in any respect or relinquished by either the Lender or Borrower
except by a written instrument executed by both of them.
16.18 There are no third party beneficiaries of this Agreement.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
- 40 -
IN WITNESS WHEREOF, the parties have executed this Loan Agreement as of the
day and year first above written.
WITNESSES:
MADISON/OHI LIQUIDITY INVESTORS, LLC
By: ___________________________________________
Bryan E. Gordon, Managing Director
OMEGA HEALTHCARE INVESTORS, INC.
By: _____________________________________________
Essel W. Bailey, Jr., Chief Executive Officer
STATE OF MICHIGAN )
) ss.
COUNTY OF WASHTENAW )
The foregoing instrument was acknowledged before me this 2nd day of
October, 1998, by Bryan E. Gordon, who is a Managing Director of MADISON/OHI
LIQUIDITY INVESTORS, LLC, a Delaware limited liability company, on behalf of the
limited liability company.
_________________________________________________
Notary Public, ________________ County, Michigan
My commission expires: __________________________
- 41 -
STATE OF MICHIGAN )
) ss.
COUNTY OF WASHTENA )
The foregoing instrument was acknowledged before me this 2nd day of
October, 1998 by Essel W. Bailey, Jr., who is the Chief Executive Officer of
OMEGA HEALTHCARE INVESTORS, INC., a Maryland corporation, on behalf of the
corporation.
_________________________________________________
Notary Public, ________________ County, Michigan
My commission expires: __________________________
- 42 -
SCHEDULE 2.9
Nolan Brothers of Texas Inc. instituted an action against, amongst others, Bryan
E. Gordon and The Harmony Group, in the United States Court for the Northern
District of Texas, Dallas Division (Civil Action No. 3-97 CV 1498-R), arising
out of an attempt by Nolan Brothers of Texas, Inc., to buy McNeil Real Estate
Fund XXVII, L.P. Plaintiff failed in its attempt to buy the target in
circumstances in which an entity (other than the Borrower, 104 or the Harmony
Group) connected to Bryan E. Gordon, The Harmony Group and others sold 4.9% of
the target owned by it to the sponsors of the target, who opposed the takeover
by Nolan Brothers of Texas, Inc. The complaint alleges, among other things,
conspiracy to interfere with prospective contractual relationships. Wolf,
Haldenstein, Adler Freeman & Herz LLP, who are defending the action, have
advised that the defendants have a meritorious defense.
- 43 -
$30 Million Credit Facility between
Omega Healthcare Investors, Inc., a Maryland corporation and
Madison/OHI Liquidity Investors, LLC, a Delaware limited liability company
October 2, 1998
1. Loan Agreement (including Schedule 2.9)
2. $30,000,000.00 Promissory Note (copy - original delivered to Omega on
October 2, 1998)
3. Security Agreement
a. Madison/OHI Liquidity Investors, LLC
b. Madison Liquidity Investors 104, LLC
4. Pledge Agreement re Madison/OHI Liquidity Investors, LLC (including
executed Assignment in Blank)
a. First Equity Realty, LLC
b. The Harmony Group II, LLC
5. Limited Personal Guaranties
a. Ronald M. Dickerman
b. Bryan E. Gordon
6. Assignment of Life Insurance Policies
a. Ronald M. Dickerman
b. Bryan E. Gordon
7. Cross-Default Agreement
8. Due Authorization, Delivery and Perfection Opinion Letter
9. Non-consolidation Opinion Letter
a. Opinion Letter
b. Members' Certificate
10. Agreement
11. UCC Financing Statements - Central Filings
a. Madison/OHI Liquidity Investors, LLC (Delaware, New York, Nevada)
b. Madison Liquidity Investors 104, LLC (Delaware, New York, Nevada)
c. The Harmony Group II, LLC (Delaware, New York, Nevada)
d. First Equity Realty, LLC (Connecticut, New York)
- 44 -
12. Madison/OHI Liquidity Investors, LLC
a. Articles of Organization
b. Certificate of Good Standing
c. Operating Agreement
d. Incumbency Certificate
e. Authorizing Resolution
13. Madison Liquidity Investors 104, LLC
a. Articles of Organization
b. Certificate of Good Standing
c. Operating Agreement
d. Incumbency Certificate
e. Authorizing Resolution
14 First Equity Realty, LLC
a. Articles of Organization
b. Certificate of Good Standing
c. Operating Agreement
d. Incumbency Certificate
e. Authorizing Resolution
15. The Harmony Group II, LLC
a. Articles of Organization
b. Certificate of Good Standing
c. Operating Agreement
d. Incumbency Certificate
e. Authorizing Resolution
16. Certificate of Authority to Conduct Business
a. Madison/OHI Liquidity Investors, LLC (New York, Michigan, Nevada)
b. Madison Liquidity Investors 104, LLC (New York, Michigan, Nevada)
17. Pledge Agreement re Securities Accounts
a. Cash Deposit Account
b. Securities Account
18. Brokerage Account Control Agreement
a. Cash Deposit Account
b. Securities Account
19. Article 8 Opinion of Counsel
- 45 -
